Podcast Summary: EEC 363 – The Six Biggest Mistakes in Investment, with Andrew Stotz

Podcast: Excellent Executive Coaching: Growing Your Business and Enhancing Your Craft
Host: Dr. Katrina Burrus, PhD, MCC
Guest: Andrew Stotz
Release Date: January 7, 2025
Episode: 363

Episode Overview

This episode delves into the "Six Biggest Mistakes in Investment," drawing from Andrew Stotz’s unique experience interviewing 800 individuals about their worst investments ever. The discussion blends pragmatic guidance, memorable anecdotes, and deep insight into the behavioral aspects of investing, all tailored for executives, entrepreneurs, and business coaches keen to avoid costly errors in business and personal finance.

Key Discussion Points & Insights

1. Failing to Do Proper Research

• Summary: The most common error investors make is failing to thoroughly research before making an investment decision.
• Advice: “Write down your research about your investment idea. In particular, focus on the gain. Do the calculation. And it doesn't have to be super complex.” (Andrew, 02:21)
• Action Step: Document detailed expectations for gains, run the numbers, and avoid rushing into opportunities.

2. Not Properly Assessing and Managing Risk

• Split into ‘Assess’ and ‘Manage’ Risks:
  • Assess: Clarify what could go wrong—before investing, not just after.
  • Manage: Make plans for downside scenarios (e.g., set stop-loss triggers for stocks).
• Memorable Story: Andrew shares a business case about considering expansion into Vietnam, underscoring the value of separating meetings about returns from meetings about risk. The team’s risk-focused meeting helped them decide against expanding, saving potential future losses. (04:06–06:40)
• Advice: “Separate the research that you do on return from the research that you do on risk. If you do that right, you’ll probably reduce your chances of having a terrible, worst investment ever...” (Andrew, 06:34)

3. Driven by Emotion or Flawed Thinking

• Behavioral Biases: Emotional decision-making, overexcitement, and lack of objective planning are significant pitfalls.
• Solution: Seek out and actively listen to objective, external perspectives—ideally from someone knowledgeable, but not personally invested in your idea.
• Quote: “Find and explore and list out opposing views... Find that knowledgeable and objective person that's separate from it, and listen to what they say.” (Andrew, 07:48–08:22)
• Example: A friend insisted on building an app despite Andrew’s warnings based on multiple podcast guests who lost money in app ventures.
• Host Insight: Entrepreneurs tend to be optimistic, while others (like attorneys) scrutinize risks—balancing both mindsets is crucial for sound decisions. (08:22)

4. Misplaced Trust

• Theme: Even well-informed professionals can fall prey to scammers or unreliable partners.
• Case Example: Ashraf, a cautious finance professional, lost $10,000 in a London real estate scam because he didn’t properly vet the offer. (11:00–11:42)
• Further Example: Crypto and FX “investments” where participants trusted fake trading platforms (13:02).
• Guidance: “Trust is only earned through difficult situations where you can then observe a person's behavior. Trust takes a long time and there's no shortcut for it.” (Andrew, 13:15)
• Host Reflection: “He didn't even look the background of this person.” (Katrina, 11:45)

5. Failing to Monitor Your Investment

• Observation: Many investors neglect ongoing oversight, leading to ignored losses or missed opportunities.
• Advice: Before investing, agree on a regular, structured check-in (such as monthly financial reviews with startup founders).
• Quote: “Before you give them $10,000, you say, I only have one request... I want to have a monthly one hour meeting with you by the 15th of the month and review the financial performance.” (Andrew, 16:01)
• Rationale: Holding regular reviews maintains accountability and ensures investors remain focused on returns, not just the excitement of the venture.

6. Investing in Startups (Without Realistic Expectations)

• Warning: “So many people lost their money this way,” Andrew notes, making this a universal catch-all mistake.
• Personal Story: Andrew describes his own worst investment, backing a friend’s promising startup—eventually halted when it became clear that raising millions for growth was unrealistic.
• Perspective: “Going bankrupt or failing in business is not illegal... what is illegal is fraud... your challenge is to communicate clearly what's happening.” (Andrew, 18:26)
• Philosophy: Failure is a natural, expected part of capitalism, and most ventures do not succeed—but that persistence and honest communication are key.

Broader Reflections: Capitalism, Culture & Motivation

Capitalism and Entrepreneurial Failure

• Andrew’s View: The real story of capitalism is not just the billionaires, but the millions who risk, fail, and try again to develop products society needs. (19:50–20:49)
• Host Note: Media portrayals often disparage wealthy businesspeople, which might dampen entrepreneurial drive. (20:49)

Cultural Attitudes Towards Money & Work

• Comparison: Thai professionals are less motivated by financial incentives than American counterparts, favoring workplace harmony over bonuses.
• Quote: “Money is not the main motivator at work for Thai people... What [matters] is harmony and a place where they have friends and they enjoy what they're doing.” (Andrew, 21:28)

Critique of Modern Capitalism and Regulation

• US vs. China: Regulatory burdens in the US are heavy compared to countries like Indonesia and China. Andrew draws provocative parallels between the Communist Party’s involvement in Chinese businesses, and the roles of ESG/DEI officials in the US. (22:50–25:07)
• Function of Business: “Business's function is to increase the value of their business... within a framework of laws set by the political system.” (Andrew, 26:30)

Notable Quotes & Moments with Timestamps

• “The number one thing is that people don't do research before they invest... they just kind of rush into something.” – Andrew, 01:24
• “You could go run a country, you could become a president, and having failed many times in real estate.” – Andrew, 18:26 (on the normalization of failure in US capitalism)
• “Trust takes a long time and there's no shortcut for it.” – Andrew, 13:15
• “Every place is different, but I think... there's been a rising capitalist power outside of America.” – Andrew, 22:10
• Host Reflection: “So I'm going to ask you a question. Because entrepreneurs tend to see the good things in a business, and attorneys... see the things that don’t work.” – Katrina, 08:22

Timestamps for Key Segments

• [01:03] – Lessons from 800 worst investment interviews begin
• [02:21] – Importance of written research
• [03:06–06:40] – Defining and separating risk assessment/management; Vietnam expansion anecdote
• [07:48–09:23] – The emotional/behavioral trap, seeking outside perspectives
• [11:00–13:15] – Misplaced trust, scams and trust-building
• [14:12–17:23] – Importance of monitoring investments, practical check-in strategies
• [17:27–20:49] – Startups, failure, and capitalist resilience
• [21:21–22:49] – Cultural differences in motivation and capitalism’s global evolution
• [22:50–27:35] – Systemic critiques of regulation, ESG/DEI, and business-government interplay

Episode Takeaways

• Carefully research and document investment plans.
• Explicitly assess and proactively manage risk.
• Recognize and counteract personal biases; seek detached, informed advice.
• Build genuine, proven trust before investing with or in someone.
• Monitor all investments with regular, structured reviews.
• Understand the specific (high) risks of startup investments and communicate openly.
• Embrace the lessons from entrepreneurial failure as core to capitalist progress.
• Consider cultural and systemic factors influencing investment and business success.

For more from Andrew Stotz, visit myworstinvestmentever.com