Episode 52 - Andrew StotzInvesting with your head not your heart - Making Conversations about Investing Count!
Andrew Stotz, Investment Researcher
Making Conversations about Investment Count!
In this episode investment expert Andrew Stotz – who’s just “the worst” (not really, you’ll have to listen to find out what we did there!) – has a conversation that counts with Wendy all about the financials in business.
We learn all about how investing with your head instead of your heart is beneficial.
Andrew explains how important it is to think carefully about employee incentive schemes, and KPIs – or key performance indicators.
And he also gets into his success formula – L-R / F-P. (Oh yes! Serious take away here for you)
Of course this episode covers the importance of investing in the future, investing in employees, investing in good financial reporting.
And how Andrew’s LR / FP investment strategy works for ASIR clients, when they have a company that has potential for growth and development – something we need to invest our time and attention into!
And he talks us through his process for going through all the numbers and figures to get a full picture on a company’s finances.
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Full Episode Transcript
Making Conversations Count – Episode Fifty-Two
October 14th 2021
Wendy Harris & Andrew Stotz
00:01:18: Background behind “The Worst”
00:03:38: Focussing on value and wealth
00:06:11: Breaking down barriers and building trust
00:08:10: Common mistakes – incentives
00:09:53: The importance of cooperation
00:12:39: Enjoy the work environment
00:15:05: Andrew’s pivotal conversation
00:23:08: Pain is a partner of growth
00:25:15: Money is the blood supply of business
00:26:42: Final thoughts
Wendy Harris: Hard cash, capital, investment, all words that kind of go over my head. But money in general, nobody likes to talk about it, except my next guest says that, “Money is the result of value”, and don’t we all love good value? Join me and Andrew Stotz as we’re making conversations about investment count.
What’s new, Wendy Woo? Well, you know I mentioned that Lloyds Business Bank Award? Well, the prize was a mentor session with Steven Bartlett. I’ll tell you more about that later. We’ve also had a review from Nicole Harbert who said, “Loved this podcast with you and Pete Cann. You’re a breath of fresh air. Everyone would benefit from yoga laughter and the Champagne cork memories are a great tradition”. Thanks, Nicole; that was my celebration for 50, reaching 50! There’s a big number I’d like to invest. Thanks for letting us know.
I’ve got one question for you before we start, Andrew, and that is, why the worst? Where did the worst come from in your name?
Andrew Stotz: It came from a guest that I had, Chris Reed, and he’s kind of a marketing specialist guy. And, he is the only CEO in the world with a pink mohawk.
Wendy Harris: Pink?
Andrew Stotz: Yes, pink. And it made me think, “What’s my pink mohawk?” I’ve had a lot of discussion with my team and thought about — my LinkedIn used to be pretty complicated, “I do this, I do that, I can do this, we do that” and we do a lot of things and we have a lot of different parts of our business, but I realised when you say all that, nothing comes across.
So, I decided my podcast is my most unique thing that people are, “Huh, what?” so I decided to double-down on The Worst. So, I’m the worst podcast host of my worst investment ever. And what I can say is I get the emails from people asking me this question. And if I told you I was the best, or I was just a podcast host, you wouldn’t have asked this question. So, from a marketing perspective, it’s awesome.
Wendy Harris: It also links quite nicely to your surname; it’s a bit of a tongue twister, isn’t it?
Andrew Stotz: Yeah. And the point is that you’ve got to make a difference out there, you’ve got to come across in a way that people remember; and people remember this. And I’m a pretty smart guy, so I know nobody’s going to think, “What an idiot” or, “Yeah, he is the worst”. So, I know anybody listening will know that it’s just kind of a play on words.
Wendy Harris: They get the irony.
Andrew Stotz: “Irony”, that’s a good word.
Wendy Harris: Yeah, I love that, because clearly you are a smart guy. You do run a podcast. I’ve been lucky enough to be a guest. But it’s just one of those questions where people always say to me, “What does WAG stand for? Are you a footballer’s wife?” I’m like, “No, it’s just my initials that I was given at birth”. So, sometimes it can be the simplest of things that can trigger a conversation, which is great, isn’t it?
Andrew Stotz: That’s what you’re the master at, so I appreciate that.
Wendy Harris: Your speciality in life is all around finance and investments and equity?
Andrew Stotz: That’s it; it’s all around value. So, basically I help people create, grow, measure and protect value, and all of that comes through a lens of finance. But I like to talk about value.
Wendy Harris: That’s got to be really important, Andrew, because being a Brit, we don’t like talking about money, right; we don’t like to admit that we’ve made mistakes, or that we don’t understand anything. We don’t want to let on that we don’t understand, even, and it’s just purely through the education things. But we all like value for money, don’t we?
Andrew Stotz: Yeah, and if you come in and say, “Profit, profit, profit”, that’s a turn off. What I know is, I know what value is, and I know how to calculate it, I know how to increase it, I know how to protect it.
Wendy Harris: So, who do you help most. Is there a typical kind of, I don’t like the word clientele, but is there a typical set of people that you like helping most?
Andrew Stotz: So let’s say, when it comes to creating wealth, I help companies make their companies financially world class. When it comes to growing wealth, I help individuals to invest in a safe, simple way. When it comes to measuring wealth, I help young people build careers in the area of valuation and understanding how to calculate value. And when it comes to protecting wealth, it’s the podcast and my community service to do the podcast to bring out how we can protect our wealth. So, I would explain it like that.
Wendy Harris: And sometimes, just being able to break it down into its simplest form means that we can immediately say, “That’s the bit I need help with”?
Andrew Stotz: Yeah. With companies, I find out that sometimes, they just have a total accounting mess, and we come in and fix it. Sometimes they’ve got their accounting good, but they just aren’t financially strong, and we help them with that. And we do that through my courses. We use the courses as a stepping stone, and then for those that want to go to the next level, then we do advising and we do something called “outsourced CFO”, also; so, companies that are growing and they need CFO services, we provide them.
Wendy Harris: For me, I think when it comes to handling other people’s money, and I’ve done that myself in the past for a retired millionaire a long, long time ago, and the biggest compliment he could pay me was that he started to get me to buy and research all of the resources that we needed for his company; because he said, “Wendy, I don’t know anyone who spends my money better, because you always find the best deal”. And that comes with trust, doesn’t it? And that can only come through conversation, in my mind, that you can be honest about something.
So, the conversations that you have with some of these big companies must get into some real nitty-gritty of cutting through some of the barriers that people put up; how do you handle that, Andrew?
Andrew Stotz: Let’s say, there’s a sense of urgency when I come into a company to help them, and the urgency is usually that they’re losing money, or they’re out of control in their accounting or finance, or that they really want to get somewhere and make the business seriously profitable.
So basically, I mean having been in the corporate environment for many years, I know how to exist in that, but I just don’t care anymore about that. When I come in, the reason why I come in is because something is dysfunctional, and basically I expose it. And I’m not mean about it or anything, but to be honest, if you want to solve a problem, you’re going to find the problem when you hire an outside person who’s going to dig into your company.
The truth comes out in the cash; the truth comes out in the financials. You can talk all day long about how great you are and you’re a great team and you’re this and that, but it has to be reflected in the financials ultimately, or else you’re not going to survive in the long run.
Wendy Harris: Are there some fairly consistently made mistakes that you see going from company to company?
Andrew Stotz: The first thing is that unfortunately, people just don’t get along, and they’re on management teams and the CEO either hires the wrong person or doesn’t fire the person that they should, or doesn’t build the environment of communication and cooperation between leaders. Then sometimes, a common theme is that companies go crazy about incentivising through KPIs and things like that. When you incentivise people, you have to understand that there’s a cost. And when you’re building a company that somehow must cooperate between all the different departments and divisions. If you do incentives like that, you immediately drive competition in your company, which I always tell them the competition is outside.
One of the big common themes is that they’re doing all this stuff to incentivise people through all their different bonuses; what they’re really doing is incentivising people to fight against each other to get the bigger piece of the pie. And, you never get there.
Wendy Harris: Well, it’s not just within the individual teams, is it? There becomes a kind of imbalance between departments as well because, “Why do they get that when we do this? Without us, they wouldn’t work”, and I’ve seen this within companies that inter departments don’t get along, because they don’t feel that they’re treated equally and fair.
Andrew Stotz: Yeah. I was advising two different companies and I met with their management teams for two days to do training and talk to them and do my course, Finance Made Ridiculously Simple, and also how to make their company financially world class, where I benchmark them and teach them. And, both CEOs were fun and they were nice and they were smart. Both management teams, the individuals on the teams were excellent. Each of them were experts in marketing in their area. But one of them was losing money and one was doing tremendously well.
First, you can obviously attribute that maybe to the industry that they’re in, or something. But if you take out that industry effect, the question I asked myself was, “What’s the difference?” To me, the difference comes down to nothing about — remember, finance is just a result; it is not a source of value; it is just a measurement of value. So then, you have to think about, what is it? What I would say is it’s really a couple of things. Number one, you’ve got to have the right CEO. If you have the wrong CEO, you’re never going to get there. And, you’ve got to have the right management team. However, the right management team isn’t as critical as the cooperation amongst the management team.
So, a good CEO can set a clear direction, but also demand cooperation between the different heads of the department, so that when that nonsense comes up, “Well, they get this and we don’t get that”, well great, bring it to that management meeting, go through it and work through it and come up with your conclusions, and then go back to your department and tell them, “Hey, don’t waste your time badmouthing this or that. This is the reason why we’ve got to move forward. We’re all one team”.
If a leader can’t do that, it just makes work miserable, unless you’ve got a huge brand. One of my guests on the podcast said, “Good companies die slowly”, and it just made me realise that, they’ve got cash; yeah, you can mess it up. You can have a lot of dysfunction and exist with that for three years, five years, ten years, but eventually it’s going to hurt you. Whereas, a small company, if you allow that kind of stuff to go on in a small company, you’ll go down really fast.
Wendy Harris: Yeah, you need to be a lot more agile, don’t you, as a small company? You’re kind of ducking and diving on a daily basis, aren’t you, to make sure that you avoid pitfalls, that you’re going in the right direction. I don’t think the journey of any company that’s small is in a straight line. There is no straight road to Rome anymore!
Andrew Stotz: Yeah, for all of us.
Wendy Harris: I think, what you’ve just pointed out there is that there’s lots of C-words, aren’t there, that come into it? So, communication, cooperation; but ultimately, it’s a culture, because when you go to work, you’re at work way longer than you are home with your family. So, if you don’t enjoy that work environment, what’s the point?
Andrew Stotz: That’s sad. And, surveys of people show that most people are not happy with their work. Luckily for me, I’ve never had that problem, and people always ask me, “How are you so happy and you’ve always been happy about your work?” The way I did it is I quit, I quit a lot. When I found that I was unhappy, I could see; it was clear. And then I walked away and said, “I’ve got to find something better, something that suits me better, something that challenges me more”. And at the age of 28, I found that job.
From that time, as a financial analyst, to today, I’ve just loved that job. And every day, I go in and yeah, there are some things I don’t like to do but generally, the job of a financial analyst is a job that teaches you how to think. There’s a lot of fear and panic in the world these days with COVID and all that, and somebody asked me about it and they said, “How do you feel?” I said, “I feel like I’ve trained for 30 years for this”. I have been applying logic and reason, so I like to think of a formula as LR divided by FP; logic and reason over fear and panic. My goal is to apply logic and reason over that.
Now, anybody can get caught up in panic, but not everybody can apply logic and reason. So, I enjoy that.
Wendy Harris: It’s a good point that you make, Andrew, because there are times where you hear or read, somebody’s got an opinion. And ultimately, we’ve got to stay focussed on what we can control; another C-word. I’m going to be counting up the C-words at the end of this conversation.
Andrew Stotz: Cooperation, control.
Wendy Harris: Yes, control. Now, you’ve said that you wanted to find something better and pushed for something better, and that’s something that I really enjoy coming through as a theme to this series of conversations that I have on the show, is that there’s always something you can do about something. But it usually happens that there’s a conversation that you need to have that helps you work through. So, I think it only right to invite you to share that conversation now, Andrew, that counted for you and what happened after?
Andrew Stotz: Well, first of all, I want to thank you for asking me to share this story. You’re going to be a little bit surprised about this story, and it may not fit the exact mould, but it is a conversation.
Wendy Harris: Oh, good.
Andrew Stotz: I live with my mother, she’s 83 years old, and I brought her to Thailand when my father passed away, and they were living in North Carolina. Last night, mum and I sat down and I talked to her about what would she consider the most critical conversations that happened in our lives and in our past and all that. And, our conversation was all about talking to you, and it ended in tears. We were just crying as mum said, “How did we make it here?” and she was in tears. And, I’m going to go back, because a lot of what I’ve done in business goes back to a pivotal moment and it was a moment in my youth and it was a conversation of my youth.
My parents called the police and charged me with incorrigibility when I was 14. I smashed out a window in the house, I was high on drugs at the time, I was growing up in Ohio, and my father tried to get me to calm down. I had scissors in my hand, and I stabbed my father in his hand and it was just at that point, he went and called the police. I was put into a foster home for a couple of months and then eventually came back, and they gave me a chance to go back home and try to get it right for my first year of High School, at that time.
Then, I did okay, but then I started using drugs a lot and all that, and then finally I tried suicide a couple of times. Luckily, I wasn’t successful at that and I was in a lot of trouble, and I was pretty addicted to drugs, alcohol, and just my life was collapsing around me. I managed to go to my parents and ask them if I could go to drug rehab. I was just 16 years old, just turning 17, and I went into drug rehab and tried to get straight.
When I came out of the drug rehab, within four days I was on my knees, begging a friend of mine to get high, and I got high, and I was 17 by this time and I just ran away from home. I decided I’m going to live on my own. Luckily, my parents called the police and tried to find me and all that; it took a while. Eventually, they arrested me and then they brought me into a halfway house in Akron, Ohio. Basically, I was preparing myself for the conversation with my mum and dad and basically what I said is, finally I got my mum and dad and we got on the phone and I just said, “I’m 17, I’m going to live my life on my own, I’m not going to High School and I’m just going to do whatever I want”.
My mother in particular, but also my father said, “You’ve got one last chance. We’ve booked a one-way ticket to Baton Rouge, Louisiana, and you’ve got a chance to go to this treatment centre. It’s one of the best in the country and it’s a one-way ticket. If you can’t make it through there, then you’re going to have to stay down there. We want you to come home and we’re going to send you to the bus station in a couple of days from now, and then that’s your chance”.
That was the conversation. And my mum and I talked about it last night and just how tough it was, knowing that it’s very possible that I’d never come back. The reason why that conversation is so critical in my life is, I went down to Louisiana and I went into the drug rehab and they basically said, “You’re going to be in evaluation for seven days and at the end of seven days, we’re going to decide if we’re going to accept you or not”. I figured I’d already been through treatment before, I knew all the lingo and all that. So I thought, this is going to be a cake walk.
But on day number six, they pulled me into a meeting and they said, “We have bad news for you. You’re not going to make it in your treatment”, and that basically meant I was out on the street tomorrow, the next day, in Baton Rouge, Louisiana, with nothing.
Wendy Harris: Your safety net had been pulled.
Andrew Stotz: All gone. And I went back to my room and I collapsed on the floor in my bathroom and just sobbed. And at that moment, it was 15 September 1982, and at that moment what I said was, “I can’t do it. I can’t figure this out”, and I had to just let go and say, “I don’t have the answers anymore. I have to just let go”. And that was the moment of freedom.
At the end of that day, I went to bed, I woke up the next morning and I talked to the counsellors more and eventually what they did is they said, “We’ve decided to let you in”. Now, I don’t know if they were playing a cruel joke on me or not, but it worked. And I went into drug rehab and I got sober there and then after that, I came back to my parents’ house and I went to a seven-month long-term treatment centre.
Basically that conversation, that my mum didn’t give up on me and she decided that, both my mum and dad, both basically said, “You’re going to get one more chance, but this is one way”, and it was a tough conversation for them, and I realise that that changed the complete trajectory of my life. I basically have now been sober for nearly 40 years and I’ve never drank anything or had any drugs since that moment in that bathroom on my knees, beaten down on my knees; basically beaten down by my own behaviour.
When I graduated from the treatment centre, at the age of 17 and soon to be 18, my parents said, “Congratulations, you’ve done a great job. You’re sober now, go out and live your life”, and they did tell me to go out and live on my own. And that was the beginning of really an amazing journey. I had a chance to reboot my life. And I went on a journey of discovery, and I ended up, bizarrely, in California and then I ended up in Thailand.
I’ve had a lot of business success and a lot of business failure and a lot of ups and downs, but if I hadn’t had that conversation with my mum and dad, if I’d run away from it, or if they said, as they had every right to do, they’d spent everything that they had saved and everything to try to save me, and they had a right to just walk away, but they didn’t. And it was that conversation that basically led me to be here today. And now, I’m with my mum for the last five years. I’ve been able to take care of my mum as she’s gotten older and needs support and needs help.
When my father passed away, I was able to tell him, “Don’t worry about mum. Just let go”. That conversation changed the whole trajectory of my life. Now, I have a lot of other events and a lot of other exciting things that happened in my life, but if it happened been for that conversation, I wouldn’t be here on this show.
Wendy Harris: There’s suicidal tendencies in my family, so I know a little about it. And when you feel that there’s nothing more left, at a tender and naïve age of 17, it’s a really sad show, isn’t it? What happened on day six to you there, Andrew, was almost like a realisation that it wouldn’t be suicide as such; you were literally giving up on life.
Andrew Stotz: It would just be miserable.
Wendy Harris: The trick that they played on you was to make you realise that life was worth living.
Andrew Stotz: Yeah. And I think in those days, they had a saying which was, “To raise the bottom; to let the person suffer the consequences of their actions; and the sooner they suffer that, the more chance that they feel the pain in that, and then they are willing to do something”, and I’ve learned in my life that yeah, pretty much I’m sure that a lot of people that you work with talk about getting on the phone and having conversations and all that, sometimes it’s having a baby, sometimes it’s running out of money, but it’s never, “Hey, I just feel great and I think I’m going to do something really difficult today”.
Wendy Harris: Yeah, said nobody ever!
Andrew Stotz: So, pain is a partner of growth.
Wendy Harris: Yeah, I do believe that you can’t have growth without pain. That’s got to be part of the lesson. Well, I’m humbled that you would share such an intimate story, but one that’s really important, Andrew, for anybody listening to say, “Do you know what, it doesn’t matter how bad you feel, there are people you can talk to. And if you think it’s bad, make sure it’s really, really bad and then life will be great”!
Andrew Stotz: Yeah. And I think the thing too is that, if you’re a parent or significant other, and somebody around you is struggling, like I was, never give up. I mean, it doesn’t mean that you’ve got to enable them or protect them from suffering the pain of their decisions, but the point is, never give up. Because, they could have given up. There’s just a moment where, as a parent you’re like, “I’ve had enough”. And what I’m just saying is that my parents, they didn’t cross that line at that moment. And for some bizarre reason, it worked.
Wendy Harris: Say hello to your mum for me.
Andrew Stotz: I will. Well, I was going to surprise you by bringing my mother on this call to also talk about her, but I think it would just be too much for her, because we’ve already been through it and I was just talking to her a couple of minutes ago about coming on the show. But, yeah.
Wendy Harris: No, thank her for being such a wonderful mum, because she deserves to hear the impact that you make on people, and by sharing that story. And I will invite everybody to pass their comments on, and I will make sure that you get those as well, Andrew, because life isn’t a bed of roses or a box of chocolates, is it? Yeah, we all have things that we have to deal with and I’m just glad that your mum and dad didn’t give up on you, so that you can be doing the important work that you’re doing now, to help people. Money makes the world go round.
Andrew Stotz: You don’t make money, you can’t stay alive, and that’s part of my work with companies. It’s like, I understand everybody’s got their idea, but if it’s not funded by money that you’re generating in your business, there’s not a long-term possibility. And so, it’s critical, it is the blood supply of business.
Also, just to highlight, for anybody that is experiencing problems with alcohol and drugs, there’s 12-step programmes in every city in every country around the whole world. Reach out and ask someone and if you can’t find someone to reach out and ask, just reach out and ask me and I’ll help.
Wendy Harris: Likewise. We’re always at the end of the phone, or the end of a message, an email, however you’re comfortable reaching out; don’t be on your own. Important message.
Well, Andrew, thank you so much for sharing that story. If people do want to carry on that conversation, where’s the best place for them to do that?
Wendy Harris: I can’t believe that many!
Andrew Stotz: Yeah, and there’s a contact thing on my website that, send a message there, it comes directly to me.
Wendy Harris: All that’s left to say is, thank you, Andrew.
Andrew Stotz: Thank you for having me.
Wendy Harris: My love to your mum and we’ll speak again soon.
Andrew Stotz: Right on!
Wendy Harris: Andrew and I hope that you enjoyed listening to our conversation today. Do let us know if you’re going to apply his special formula. We’d love to carry on the conversations here at Making Conversations Count, so don’t forget to check out makingconversationscount.com, for all the letters to listeners, free tips, advice and offers there for you. Next time, I’m joined by GoldMine founder, the very nimble Jon Ferrara.
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I always enjoy listening to Wendy’s Making Conversations Count podcast and admire her talent for drawing out people’s stories and getting to the heart of things for finding out what makes them tick.
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