Q&A with The Gladiator

What did the first few years of your investment journey look like?

So growing up my parents invested quite a bit in real estate so in my late teenage years I saved to buy an investment property of my own. Coming towards the end of the GFC in 09 the property market wasn’t great in Australia so I was able to purchase a great property for 10% below its market value. As you would probably know its take some time to save a deposit to purchase a house so I thought while I’m saving to buy my second property I should see what other ways I could learn to invest and naturally I came across the share market. I still remember the first time I tried to purchase a stock, it’s actually really embarrassing. Let me set the context first, I wasn’t trying to make money, I simply wanted to learn and see if it was something that I found interesting.

Interestingly all my education in the early years were from a stock trading chatroom called hot copper. It occupies something crazy like 90% of the share market for trading chat rooms in Australia so it was pretty much the place to be.

Now at the time I had no idea was a micro-cap or mid cap or large cap was. I just thought stocks were stocks. On Hot Copper though the vast majority of the conversations that take place are on micro-cap stocks. So I kind of just fell into it because all the conversations I was reading were for small micro-cap stocks.

My early years included very little analysis and a lot of following online tips. I didn’t have a strategy and I pretty much invested in any company that had any bullish comments about it on social media.

I wasn’t consistently losing money, rather I would (by luck alone) make a lot of money in one stock and then lose a lot in the next. Eventually I would blow up my account a couple times before I made a pact with myself that I was going to take this seriously and start learning how to manage on my own and remove all reliance on social media.

What’s been your biggest winner and how confident were you when buying into that stock?

My biggest winner in both dollar and percentage terms also turned out to be my biggest loser as well. I noticed a stock which I was keeping an eye on went into a trading halt for a capital raise. The reason I say it was on my radar was it had a great structure, tight top 20 and people on the register who had a lot of success in the past. The issue was they were very low on cash and I knew they would had to do a raise soon. So once they went into a trading halt I gave the company a call and took some shares in the raise at a mighty price of 0.001! It was only a small percentage of my portfolio so I was comfortable with the risk. I didn’t get my full allocation so I bought some more on market shortly after.

Fast forward a few months and a number of announcements came through that really excited the market and again I topped up on market. The catalyst came when a very popular advisory company came on board and took a substantial amount of shares in the next subsequent raise. Fast forward again a few months and the company was trading 2800% higher and I had made over a million dollars profit.

Unfortunately greed got the better of me and I never locked in any profits. The company was subsequently suspended by the ASX and wasn’t able to meet the requirements set upon them which meant they eventually ran out of cash and my profits disappeared.

To answer the second part of your question, my confidence (eventually over confidence) increased over time rather than being super confident from the outset. This has been the trend for all my big winners. If we look at IXR for a moment, I purchased a substantial amount of shares at 0.0025 and I am more confident now then I ever have and the share price is sitting nearly 5 bags higher.

I am never completely confident when I purchase a stock. To me its all about risk/reward. I focus on finding scenarios where the upside potential is a minimum of 500% and the downside potential is 30%. Now that doesn’t obviously means that I make 500% in every stock, rather the potential has to be there with minimum downside. My confidence only really builds when management start to deliver on their promises. The more management deliver the more confident I become. The moment they stop delivering is the moment I need to sell. No matter how attached I am to a stock, if management stop delivering then I must exit.

You’ve previously said that you blew up your account a number of times. What was your biggest loss and how did you feel at the time? How did you recover? And what was the biggest learning you took out of it?

Yes I blew up my account twice in my early years then again after the million dollar loss in the example I shared above. The first two times I knew it happened because I wasn’t really doing any proper research and I was just buying based on online tips with people using rocket emojis and saying the stock was going to the moon. I never got disheartened though because I knew I was just taking shortcuts. What else would I expect to happen?

The third time though, to put it simply, was absolutely gut wrenching. It took 8 years of hard work to create a portfolio of that size and the majority of it vanished overnight. My confidence was also shot and I questioned everything I thought I knew. It hurt me mentally and physically and will probably be etched into my memory forever.

Fate had it that I stumbled upon a book called “what I learned losing a million dollars”. The author shared a very similar experience to mine and out of the whole book, one sentence really hit home. He said it was “the loss he had to have”. The absolutely horrendous, gut wrenching loss that would be engrained in his memory forever. The rock bottom moment that would ensure he never ended up in that position again.

That book really changed my mindset as I started to understand that my strategy to find great stocks that could make me lots of money in the long run was a sound one. What I lacked though was a proper risk management strategy with regards to portfolio management.

It seems so simple in hindsight, but how could I have 80% of my portfolio in one stock and not at least trim the position? The risk was enormous and it eventuated. Ultimately even if that stock continued on and I locked in millions of dollars, I would eventually lose it all because sooner or later risk always catches up with you.

So now I have a few portfolio rules that I adhere to:

  1. I will hold 10-12 stocks in my portfolio at any one time
  2. I cannot invest more than 20% of my portfolio into one stock
  3. The maximum % a stock can hold in my portfolio is 40%. Regardless of my confidence or the projected future share price, if it hits 40% of my total portfolio I have to trim it to take it back under 40%

I now realise what a blessing that huge loss was. It taught my so much and will forever ensure that I never put myself under that much risk again. In the last few years I’ve made back that loss and the person managing this portfolio is a different person to the one I was a few years ago. I am more confident now then every before in myself and what I can achieve in the future.

What do you think are the barriers that most people encounter on their way to becoming proficient at making money in micros?

This is a really simple one and the answer is fear. Fear of failure and fear of judgement from other people.

I personally have no special skills, never studied finance, never had money growing up, started with a small portfolio and have no connections in the finance industry. I’m really not special in any way except that I have absolutely no fear of failure and I don’t care what other people think.

The recipe for success is so simple. All you have to do is survive for 10 years. If you can do that you have an extremely high chance of succeeding. Most people give it a shot and then when they lose a bit of money they get disheartened and give up.

Failure should be something that’s embraced in the investing world. The more failure you experience early in your career the better. This sounds counter-intuitive and doesn’t really apply in other aspects of our lives.

No university lecturer will tell you to fail a subject

No business owner intentionally goes bankrupt

But in investing its absolutely crucial to make as many mistakes as possible early in your career.

If everyone came into the investing world with the mindset of all I should be focussing on is learning lessons rather than making money there would be a lot more successful investors in the world.

Finally, what’s the one piece of advice you can give to new investors in the market?

I’ve covered this already but it deserves to be mentioned again. If there was just one piece of advice I would give to new investors it would be to forget about making money.

The most important thing is to create a strategy that is proven to succeed as well as have the patience and conviction to hold through the wild ride all Multibaggers experience. If you can do this the money will take care of itself.

You’ve got to think of the markets like a start up rather than a 9 – 5 job. In a 9 – 5 you get paid a constant salary for every hour you work. In a start-up you don’t get paid at all and if you eventually succeed you’ll make 10 years’ worth of pay in one year.

That’s how the markets work. Your first three years you’ll lose money. That’s followed by another two years making back the money you lost and finally breakeven. So that’s 5 years and thousands of hours of effort for absolutely no financial reward at all.

Years 5 to 7 you start to make a bit of money and give back much less than you used to. Then somewhere between year 8 and 10, if the stars align you can potentially make some life changing money.

The key is to not give up in the first 7 years. If you can do that you’ll really set yourself up with the biggest chance of succeeding.