FADI DIAB | The Gladiator

In a market rife with complexity and unpredictability, how do you carve out a path to consistent profitability by managing risk and securing gains? Fadi Diab, is known as The Gladiator on X (FKA Twitter). He's a seasoned microcap investor who's mastered the art of risk management over profit-chasing. Fadi shares his journey from a beginner who blew up his account twice to a savvy investor who now focuses on the potential for significant wins while minimizing losses.

Fadi's philosophy pivots on four questions:

1. Why am I entering?
2. How much money will I make if things go according to plan?
3. How much will I lose if they don't?
4. What factors will determine when I should sell?

Fadi dissects the essence of each investment decision, from understanding why you're entering a trade to knowing when to cut your losses or ride the wave of success. He emphasises the importance of aligning your strategy with your personality, avoiding the pitfalls of herd mentality, and the power of fundamental analysis over technical charting.

His investment philosophy is based on identifying the common factors in his past successes and failures. He emphasises the importance of management ownership, low debt, and sufficient cash as some of the key indicators of a company's potential for success. His approach has distilled his investment outcomes into three categories: big win, small win, or small loss, thereby eliminating the catastrophic losses that plague many investors.

Fadi explains why he favours small resource companies over the biotech and tech sectors, pointing out the manageability of risk and the potential for significant returns. His insights on rare earth stocks and how geopolitical tensions influence markets is a fantastic object lesson in understanding the tidal forces of commodity volatility.

Fadi also unpacks his micro investing course, a live, interactive experience designed to equip you with the tools and mindset needed to navigate the microcap landscape effectively. Again the best place to find out more is The Gladiator on X (FKA Twitter).

TRANSCRIPT FOLLOWS AFTER THIS BRIEF MESSAGE

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EPISODE TRANSCRIPT

Chloe: Shares for beginners. Phil Muscatello and Finpods are authorised reps of Moneysherpa. The information in this podcast is general in nature and doesn't take into account your personal situation.

Fadi: All the stocks that I've made money on, let me write down a few things about them. What are some of the themes? Oh, okay. Most of the time, management held a lot of stock and had low salaries. Oh, my biggest losers. Management never owned anything. So every, every time I kind of identified a theme for either a big loss or a big win, I added it to my strategy. And I kept adding and adding to, eventually you make enough mistakes where you've kind of made them all right. Or you might find little tweaks that might make you a little bit better. But, uh, overall, the big mistakes are all out of the way. And as long as you don't repeat them that often, then that's where you stop losing a lot and you just keep a lot of the gains that you make, because that's the cycle I went through that most people went through since I've actually put the strategy together to say, okay, avoid companies with low cash, avoid companies with debt, avoid companies with management who don't own any stock. All these factors that I have in my strategy, then I really ended up with three outcomes for my stocks. Either big win, small win, small loss.

Phil Muscatello welcomes Fadi Diab to shares for beginners

Phil: G'day, and welcome back to shares for beginners. I'm Phil Muscatello. My guest today believes that you're doomed if you can't answer four questions for every stock you buy. G'day, Fadi.

Fadi: Good morning. Where I am in Dubai. And afternoon for yourself, Phil.

Phil: That's right. But to the listeners, they don't care where we are or when we are.

Fadi: That's true.

Phil: Fadi Diab is also known as the gladiator on X, FKA, Twitter, how long are we going to have to say that for FKA, Twitter?

Fadi: Even I'm saying Twitter every day. I never say X.

Phil: So far, he's been investing since 2009, purely in microcap stocks, focusing on risk management over profits. He grew up in Australia, but now lives in Dubai, where he launched his company, Phoenix Global in 2022.

Why micro cap stocks only? My parents were always property investors

So let's start by talking about micro cap stocks. Why? Why micro cap stocks only?

Fadi: My parents were always property investors. So, uh, growing up, I saw them investing in property. And when I was 19 years old, I started to kind of save for my own property, bought a property, but as you know, takes a while to save another deposit, to buy another house. So I thought, okay, what am I going to do in the meantime, while I'm saving? And I just googled, what else can I invest in?

Fadi: And obviously, the first thing that came up was the stock market.

Fadi: And at the time, hot copper, uh, and probably still is today, was by far the best social media site for stocks in Australia. So it just came up in the Google search. So I clicked on it, and just by luck, because hot copper is, 90% of the discussions are on micro caps, I kind of just fell into it. I didn't know what a micro cap was, didn't know what I was looking for, so it was a bit serendipitous, and I just kind of fell into it. And then after a few years, actually realized there are different classifications of stocks, and not all stocks are the same. And I love, uh, the challenge of finding unloved companies that aren't being analyzed by professionals. Have been doing this for a lot longer than I have, with bigger teams than I have, and I loved it ever since. So I've stuck to microcaps, and that's all I've done since day one.

Fadi: Yeah.

Phil: So we met at coffee microcaps conference, didn't we?

Fadi: Yeah, exactly. That's where we met. Yeah, at the pub.

Phil: Yeah, at the pub afterwards. But it's great, isn't it, to see so many people sort of sniffing around this sector of the market? It's great because, like I said, there's no one else looking at it. None of the big analysts are looking at most of these companies.

Fadi: No, exactly. And the thing about investing, especially in microcaps, is it's a pretty lonely career. It's kind of you and your laptop or your computer or your phone. So the conferences are great, where you get to meet like minded people. I've met a few people there that I'm still in touch with today, such as yourself. So it's really good to actually get out and meet people, generate new ideas, and just speak about the world of microcaps.

Many investors avoid small resource companies because there's so much unknowns

Phil: So many investors in this sector, especially avoid small resource companies. But you seem to like this sector. Why is that?

Fadi: They're my favorite. They're my favorite because you can manage risk a lot easier than you can with, say, a biotech or a tech company, where there's so many unknowns.

Phil: Right.

Fadi: Like you said in your opening monologue there, that things really changed for me when I started focusing on risk rather than profits. So the more I can manage my risk, the more money I found I was making in the long term. And resource stocks, if you find a resource stock, and I'm not going to mention any codes today. It's not the point of the podcast, but I'll just give general examples. If you find a stock called ABC, it's got a five mil market cap, few mil in cash in the bank, it's got a valuation of a couple of million dollars. Just to list on the ASX will cost you one to 1.5 million. So it's trading at shell value. Very low risk, as long as management have quite a bit of skin in the game, and they're managing the cash flow. Even if the exploration doesn't go well, your downside is still pretty limited. There's obviously risk in everything, but it's pretty limited where in a biotech, and I do own some biotechs, but you complete your studies, and then the results dictate the outcome. And it's very rare to find, uh, a biotech that's got similar characteristics as the company I just described, because the valuations are generally higher, so the downside is a lot higher, I've found in tech stocks, biotechs, et cetera, than in the mining stocks. As long as you get set at the right price with the right valuation, and you obviously have a strategy that you run the stock through to make sure a lot of the factors are being met. If you can do that, which is what I focus on doing every day, then I find that it's much easier to manage risk, which means in the.

Fadi: Long term, I, uh, make more money.

Phil: It's very difficult for someone who doesn't have a lot of expertise in the resource sector to start analyzing drilling results, and metallurgical surveys and so forth. How much time did you have to spend working out how it all works before you felt comfortable investing in these companies?

Fadi: Funnily enough, I actually think knowing too much is a hindrance, because if you know too much, then you can go into this kind of analysis paralysis mode, and you know of every tiny little risk that could happen in any mine in the world, and it makes it so much harder to make a decision. For me, it was getting a basic understanding of the particular mineral or metal, what the drilling process looks like, or.

Fadi: The exploration process looks like, and basing.

Fadi: My understanding of valuations, not on the company itself, but on its peers. So, let me give you an example again. I'm making up figures. Let's say there's a gold stock that has a jork resource of 500,000oz at.

Fadi: 1.5 grams per ton.

Fadi: I don't understand how they get to 500,000oz. I don't understand how they analyze drill calls or how they got to 1.5 grams. All I know is the market is saying this stock that has 500,000oz of gold at 1.5 grams per ton has this valuation. Let's just say that valuation is $20 million. If I find a company that is aiming to put out a resource, a jork resource of 500,000oz at, uh. Roughly the same grades. But their market cap is 7 million.

Fadi: Right.

Fadi: I know that if they can prove up that resource. There's a two x potential in the stock price. So I don't really try and find out too much about how the metallurgy works. I'm not trying to be a geologist. I'm, um. Yet to find a successful investor who is a geologist. Because again, they just know all the risks that could happen. And that they can't kind of get their head out of the detail. Just to see the high level. So you don't need, nor should you want too much expertise. The most important thing is getting set at the right price. Then the drill results will be the drill results. If you're set at a very low valuation, then there won't be that much downside. Even if the results come back bad. And we've got to understand. Most companies are, uh. Unsuccessful in their mining exploration. I'm not trying to find the next PLS Which, by the way, I did find at two cent and I sold at years ago. So my strategy, and I don't think most people's strategy should be I'm trying to find the next BHP, FMG, et cetera. Because there is so much luck involved in what those companies have achieved. Because what's in the ground is in the ground. You can't change that. And most of the time what's in the ground is not economical. So it's more about managing risk, getting set at a low price. Then as the market gets excited with some potential good results. And the valuation goes up too much. That's when it's time to exit. Not now. Uh, it's at 100 mil valuation. If they can prove up what BHP has, it'll be worth a billion dollars. No, that's like dream world. And sometimes dreams come true by a bit of luck. But I'd much rather find companies in the sub $10 million market cap range. And sell them when they're between 100 and 200 million. Then I'll let someone else take the risk of can they get that to.

Fadi: A billion dollar valuation? Which they could.

Fadi: And I hope they do. Because it doesn't impact me if the stock keeps going. But my strategy isn't to take it from explorer to production because that to me is way too risky.

Phil: I think a lot of people, they sort of look at the prices of some of these stocks and they see something that's worth zero point, uh, share and um, their eyes glaze over because you can't really get your head around that. But it's still the numbers, really. It's just another number. You should forget about that, shouldn't you?

Fadi: To be honest, the stock price means very, very little. The main focus needs to be what's the market capitalization and what's your enterprise value. They're the only two actual numbers you need to worry about. The stock price, whether it's twenty cents or one cent, can have the exact same valuation.

Phil: Why the enterprise value is that? Because it shows how much debt it's carrying.

Fadi: Yeah, that's very important.

Any debt you're holding in a company is just a company killer

In the microcap sector, you go through periods like 2023 and uh, even 2022 where the markets are really bad. It's hard to raise capital. Interest rates have gone higher, so any debt you're holding is just a company killer. So there might be a really special company where I make an exception. But debt generally for me means avoid. Because if you have enough cash in the bank and you're managing your cash in a responsible way, then you could go through a two year bear market.

Fadi: And not have to raise capital.

Fadi: But if you owe $3 million with.

Fadi: A, uh, 12% interest repayment, that cash.

Fadi: Will very quickly disappear. So like I said, it's not like a showstopper where. Absolutely, no, I would never do that, but only for what I would call special companies. But for a beginner or someone who's just starting, if you see debt, it's probably not a company you'd want to invest in. With your level of experience in time you can, but in the beginning, I would say avoid debt if possible.

Phil: And is that why you use the metric enterprise value, because of what it shows about debt in a company?

Fadi: Well, it shows you debt and cash, because cash is very, very important. It's two sides, both of them the same coin, isn't it? Yeah, exactly. So if you think about the same company, right, with the same exploration asset in the same jurisdiction, or whatever it may be, one has no debt and say, $5 million in cash, one has $3 million in debt and a million in cash. It doesn't matter that they're exploring in.

Fadi: The same area for the same metal.

Fadi: Those two companies have very, very different risk profiles, and both of them will.

Fadi: Have a very, very different outcome, especially.

Fadi: In a bear market. And listen, in bull markets, you look at 2020, 2021, you could have closed your eyes and just typed three letters into your broker and you would have found a company and made money. But they're not, uh, the times where you evaluate your performance, right? You're not a genius. I'm not a genius. I made a lot of money in those two years. And every morning I wake up and said, you didn't make the money because you're a genius.

Fadi: You made the money because the markets are crazy.

Fadi: You evaluate your performance when that period ends. So how much money did you give back in 2022 and 2023 and coming in 2024? Because if you gave it all back and more, well, then guess what? You're not a genius. So I think a lot of people get too excited in the good times and they get too depressed in the.

Fadi: Bad times, rather than trying to have.

Fadi: A more even emotional state, where in the good times you remind yourself, this isn't going to last forever. Let's make the most of, uh, it. When it rains, it pause. So let's make as much as we can, but we're also going to leave some on the table by selling a bit, uh, or selling earlier than everyone else, just to ensure you're locking profit. But at the same time, you'll thank yourself in a year when everyone else has held a 50, 60, 70% decline in the share price and you've locked maybe some in or all in, who knows? Because you can't time everything. But you got to be comfortable with saying, I'm happy with this return. I don't have to make 100 bags every time or ten bags every time. And if you buy a stock that, uh, very short amount of time does.

Fadi: Incredibly well, well, then there's a lot.

Fadi: Of luck in that. And even if you had considered holding longer, you might want to take some off the table. So again, if you see in the way I'm speaking, everything is about risk. I'm, um, not trying to make a lot of money. I'm trying to not lose a lot. And by doing that, I'll automatically make.

Fadi: A lot over the long term hope that makes sense.

Phil: No, it does.

Let's talk about risk and risk management over profits

So let's have a chat with about risk and risk management over profits. And is it just a matter of just like, if the investment goes wrong, you just cut and run as quick as possible?

Fadi: Listen, that's a very easy thing to say. It's a very hard thing to do. In reality, it's so hard. It's so hard because what does bad mean? Because a, uh, share price going down doesn't mean the investment is bad. You look at some companies now, even that I own, that are down. They're down on small volume. The market is very bad. When the market improves, they'll move up very fast. So I don't use the share price as a guide of saying, was this successful or not? It's my strategy. My strategy dictates everything. So risk for me isn't the share price, it's the factors that I use in my own strategy, which is, for example, the market cap. What's the valuation? How much cash do you have? How much debt do you have? Who's on the register? How tight is the register? How are, uh, management incentivized? So if me as an investor is incentivized only by the share price going up. Again, you have two identical companies. One's got a director or a board of directors that has no stock ownership, but a very high salary. Right. How are they incentivized? To perform is to keep the salary.

Fadi: Obviously, they would care about the share price.

Fadi: I'm not saying they're bad people or they don't care about the company, but when they wake up every morning, the main priority for them is I need.

Fadi: To keep my salary.

Fadi: Compare that with a company that is in the exact same industry, same asset, blah, blah, blah, where management own 35%.

Fadi: Of the register and their salaries are below average.

Fadi: They couldn't care less about getting their few thousand dollars a week in pay. If they've got millions of dollars of stock, they're incentivized by getting the stock price up. So that means my incentivization is the same as management.

Fadi: That is a huge risk profile that.

Fadi: Has nothing to do with the company. And, uh, these are the things where in the beginning, I never focused on. And so I started doing some analysis. Okay, if I'm going to do this, let's do it properly. All the stocks that I've made money on, let me write down a few things about them. What are some of the themes? Oh, okay. Most of the time, management held a lot of stock and had low salaries.

Fadi: Oh, my biggest losers, management never owned any.

Fadi: So, uh, every time I kind of identified a theme for either a big loss or a big win, I added it to my strategy. And I kept adding and adding to, eventually, you make enough mistakes where you've kind of made them all right. Or you might find little tweaks that might make you a little bit better. But overall, the big mistakes are all out of the way. And as long as you don't repeat them that often, then that's where you stop losing a lot and you just keep a lot of the gains that you make, because that's the cycle I went through that most people went through from 2009 to 2015. I, uh, blew up my account twice, but I had big win, big loss, big win. It was just like running on a hamster wheel. So it was easy to make money.

Fadi: It was very hard to keep it.

Fadi: So then it wasn't until 2015 that I eventually actually made my money back.

Fadi: So, six years to break even on.

Fadi: The two accounts that I blew up, which I then topped up for a third time. Since then, since I've actually put the strategy together to say, okay, avoid companies with low cash, avoid companies with debt, avoid companies with management who don't own any stock. All these factors that I have in my strategy, then I really ended up with three outcomes for my stocks. Either big win, small win, small loss. So let's just say I own ten stocks in my portfolio. I like to own ten to twelve stocks. But for ease of calculation, let's say today I own ten stocks.

Fadi: I know that eight of them are going to be small win, small loss.

Fadi: And only a couple are going to be big winners. So a lot of people, when they buy a stock, they get so excited. I found this stock, I'm going to make so much money on it. I'm the opposite. I go in knowing this stock is very likely to be one of the.

Fadi: Eight, which is I'm either going to.

Fadi: Lose a little bit of money or.

Fadi: Only make a little bit of money.

Fadi: And if a lot of things go according to plan and I get a bit of luck behind me, a couple of, uh, those stocks are going to.

Fadi: Do very, very well.

Fadi: But so, uh, what happens is you don't try and make so much money so quickly that you have a big win, big loss, big win, big loss, because that's the only way to make money very quickly, is to take a lot of risk and hope that you get a lot of big winners and only a couple of big losses. That's not what I do anymore. And that strategy for six years, it.

Fadi: Didn'T work for me.

Phil: Are you commodity agnostic? Are you looking at any particular kind of commodity?

Fadi: The market dictates where I go. So if a new commodity comes up that, for example, in 2018, I'd never heard of rare earths before, okay.

Fadi: That as a commodity, I'd never heard.

Fadi: Of, and the vast majority of people have never heard of. Then we saw the arguments between the US and China, the trade wars where Trump was throwing things over the border, and then China was throwing tariffs back, all that kind of stuff. So I said, okay, well, that's like a high level theme that I'm seeing in the media of the two of the biggest economies in the world are not getting along at the moment. So I said, okay, well, what does China control that they could use against the US? Because us, they're consumers, they consume a lot. They don't produce a lot. So I said, okay, but China produces a lot. So what does China produce that if push comes to shove, they could hold against the US.

China controls 80% of rare earth, uh, supply globally

And I came across rare earths. So, again, had never heard of it before and had no idea how it's earth. Uh, so rare earth now becomes a sector. So let me find out a bit about rare earths. What are rare earths used for? How critical are they? What are the different kinds? Not very detailed, but just again, high level information. And I found that China controlled, at the time, about 80% of rare earth, uh, supply globally. And without rare earths, we have no phones, we have no technical equipment, we have aeroplanes in the army, ships in the navy. All of those things don't exist without rare earths. So it is very, very critical, and countries cannot live without it. And then kept digging and found that in 2010, China was having a big problem with Japan. And they said, you know what, Japan? You're not getting any rare earths from us anymore.

Fadi: That has made that decision overnight.

Fadi: And that caused what was at the time called the rare earth boom of 2010, where rare earths, uh, ten x in price, all rare earth, uh, stocks. Ten x.

Fadi: The sector did incredibly well.

Fadi: Then the world kind of got involved. Hey, China, let's take it easy. Give them their rare, uh, earths and we'll sort it out in a different way. That caused the whole bubble to burst. And all the rare earth stocks went down 90, 95%, not overnight, obviously, over time. So I said, okay, well, China's done it before, and it was only against Japan, a very small economy. Imagine what would happen if they said to America, guess what? You're not getting rare earths anymore. And even if they didn't, the market's perception of imagine they did would cause the sector to do very well. So I started researching rare earth stocks, and, uh, again, I'm not going to mention any codes today. And I found that even within rare earths, there's a couple of different kinds. There's hard rock, which is very expensive, and it costs a lot of money to build, like a billion dollars to build a mine. And then on the other side of the coin, there's ionic clay, which is very cheap to mine, very cheap capex. And the majority of China's deposits are ionic clay. So, all right, how many ionic clay deposits on the ASX? I only found one. So I bought that stock, and it took 18 months, really, for the market to catch up to what was happening. So for 18 months, it was kind of going up and down, not really doing much. Then after 18 months, we thought, oh, jeez, China owns rare earths. We need to own rare earth stocks. So then all rare earth stocks started doing very, very well. It wasn't really until 2021 where the market realized, oh, crap, hard rock. Rare earths are very expensive. No one's ever going to be able.

Fadi: To get a hard rock mine up.

Fadi: Let's buy some clay ionic rare earths. So it was like, okay. Then the ionic stocks started doing very, very well. And today, you won't find a hard rock explorer doing well in the rare earth space. But the ionics are still like, it's probably the best sector of the market now by uranium. Um, so as you can see, it's a process of research. It's a process of being guided by the market. Because if you get too hung up on, let's say, listen, I love gold, but if you find a die hard gold bull who says, I love gold and I'll only invest in gold, well, then they haven't made money for a very, very long time. So I like to be kind of sector agnostic, mineral agnostic, and I let the market drive where I'm going. And because I don't need to be.

Fadi: An expert in any particular thing, I.

Fadi: Can very quickly get to a point where I have a good understanding of.

Fadi: A new sector I've never heard of.

Fadi: And very quickly, I mean, I'm researching ten to 12 hours a day, so.

Fadi: It'S very hard to do, but it's not complicated. You don't need a university degree to do it.

Fadi: And then if that sector, uh, makes sense, that sector makes sense. And if tomorrow America and China become best friends again, they hug it out. They will never take rare earths away from you. Then the first thing I'm going to do is sell all my rare earth stocks, even though I love them right now, because it still makes sense to hold and it's still a very good sector. If the fundamentals of the sector change tomorrow, then I need to change, I need to sell all my stocks because is, there's no point holding out and waiting for them to explore because it.

Fadi: Doesn'T matter what they find, no one's going to care.

Before I became a full time investor, I spent hours researching stocks

Phil: I was just going to ask. I know we're not talking about codes or any names, but is the one that starts with l and ends in s hard rock or clay ion?

Fadi: No, I, uh, think that's hard rock.

Phil: Hard rock. Oh, okay.

Fadi: There's very few ionic clay deposits in the world. Yeah. So outside of China, there's been a resurgence now in Brazil because the geology in Brazil is very good for ionic rare earths, but it's very hard to actually find a ionic clay deposit now.

Phil: It's just interesting because, and I know I go on about this on the podcast quite a bit, but it's so many times you go to the know, they know that you're interested in the market or you got the podcast and they say, oh, have you heard about this stock? And I go, is it a lithium stock?

Fadi: Yeah.

Phil: No, lithium is so 2020. Have you heard about vanadium? And vanadium is the thing, but.

Fadi: Just joking. Well, if you hear about any stock in the pub, it's too late.

Phil: Yeah, that's right. But it's just incredible the way people don't. They think that they just hear something and that they've got some sort of inside running on, making some money. It's crazy. And you're absolutely showing how much work your ten to 12 hours a day that needs to be done and across a whole range of sectors and a whole range of commodities about what you need to do to make money.

Fadi: Before I became a full time investor a few years ago now I was working in a corporate role for a very large financial institution in Australia. So I would wake up, my commute was about an hour to work. So I'd spend the whole hour on the way to work, researching. I'd uh, then work 12 hours, then on the way home, spend another hour researching, spend a few hours with my family before they sleep. They would go to sleep, then I'd recess till midnight, go to sleep and.

Fadi: Repeat for a decade and including weekends.

Fadi: So that's what it took for me, because listen, if I was 21 years old, I had no family, single, no one dependent on me to eat. Then you can make a decision to say, I'm going to try this full time thing. Early in life. I got married early, had kids early, which was an awesome decision, but it meant that I had to be in.

Fadi: A position where I wasn't risking my.

Fadi: Family'S livelihood on a change of career. So the only way to do it was to spend a number of hours every day, on top of working 12.

Fadi: Hours a day in a corporate role.

Fadi: On top of weekends, to really get to the position where I had made.

Fadi: Enough money to go full time.

Fadi: And a lot of people think, oh, if I just find one stock, I'll get it. One stock is not enough. It doesn't matter if you make a lot of money. I've lost over a million dollars in one stock. Let's say I wasn't working when that was happening and I went full time too early. Well, then I likely would have exited the market forever, gone and got a job, and probably wouldn't be speaking to you today. So one stock is not enough. There's a lot of luck involved. Five stocks is not enough. It takes a decade to really be able to one, make all the mistakes you need to make, and eventually they run out. There's not an unlimited amount of mistakes. There's like 15 of them. And once you make them, just try your best not to make them again. And to go through enough cycles where you can manage your emotions, because a lot of people, it's all emotions based. I'm not a genius. I have no university degree in investing, or mining or biotechs. Everything is googling self taught. So I know that if I can stick around long enough and experience enough cycles, then I'll be able to manage my emotions through the good times. Like I said, reminding myself daily, you're not a genius. And through the bad times, reminding myself, hey, you're not that bad. It's a bad market. All stocks are going down. Sure, you might have lost some profits, but how are you going compared to your entry?

Fadi: Oh, pretty good.

Fadi: Only down 1020 percent. That's completely fine. If you're in the microcap sector and you're not comfortable with being down 1020.

Fadi: Percent, you need to go buy an.

Fadi: Index fund, which isn't a bad thing. But for some people, that might be the best approach. But if you can't handle volatility, this isn't the market for you. And which is volatility equals emotions. Every day you could be making a lot. And then I, uh, lost a lot. And you repeat that process for years, it can get exhausting. So you need to have a really good grasp on your emotions and managing them. And m this isn't a therapy session, but the way you manage your emotion is the most critical part of your strategy. Because if you can't do that. It doesn't matter what your strategy is. You'll eventually just get too tired. You won't be able to handle the volatility. You'll be down for a few days, and then you won't be able to sleep. And then you take it out in your family and you got to deal with that. And then eventually it's just too hard. You throw your hands up in the.

Fadi: Air and say, I'm done.

Fadi: And that takes time. You can't learn that in a textbook. You can't google how to manage emotions. You just need to experience it. So I always tell people who ask me for advice on when should I go full time. It's like, if you need to ask.

Fadi: It'S too early for me.

Fadi: It took me a decade. So if you think I'm smart, it took me a decade. It's going to take you longer. If you think you're smarter than me, maybe it takes you seven years, I.

Fadi: Don'T know, but it's not something you should rush into.

Chloe: Are you confused about how to invest? Lifesherpa can ease the burden of having to decide for yourself. Head to lifesherpa.com. au to find out more. Lifesherpa, uh, Australia's most affordable online financial advice.

There are four questions you need to ask to avoid stock market doom

Phil: Okay, so we better start talking about this post of yours on x Twitter. I'll put a link in the episode notes to the Twitter post and in the blog post. And you believe that there are four questions that you need to ask to avoid stock market doom. So let's go through them now, and I'll just say them. The first one is, why am I entering? The second one is, how much money will I make if things go according to plan. The third is, how much will I lose if they don't? And four, what factors will determine when I should sell. Okay, so number one, why am I entering?

Fadi: Yeah.

Fadi: And just to confirm m, it's not like there's only four points and there couldn't be six or there couldn't be two. This is just my high level thinking about it. So it's no right or wrong, but why am I entering? The reason I put this first is.

Fadi: Most people have no idea why they're on Twitter.

Fadi: They're on hot copper. They're at the pub, like you said. Someone said, I like this stock. Have you heard of this? They're going to deliver this. Then you go and you buy. And this isn't coming from a place of judgment. I've done this a hundred times early in my career. This is one of the mistakes you've got to make, where you're buying because.

Fadi: You'Re excited, you don't know much about the company.

Fadi: Someone's told you about it. You've seen on social media, someone has said, this company is going to go from enough for most people to buy. And that is the reason most people buy, because they don't put in the work. Most people don't put in the work. The only reason you buy a stock if you don't know how to analyze it is because someone else likes it. So if you don't actually know why you're entering for yourself, like, your own personal reasons, then you shouldn't be in the stock. If you're hearing about it on Twitter and everyone's excited about it on Twitter, it's too late. There's a saying, 95% of people will never be financially independent or successful. So if the vast, vast majority of people will never be financially successful, why are you buying the same stocks as.

Fadi: Them or at the same time as them? Like, I'm happy to buy a stock.

Fadi: Early on when no one's talking about it. Then everyone gets excited later on, and I'm happy to hold through that. But I would never be buying when everyone's buying because most people would never make money. So I'm pretty much guaranteeing that I'm not going to make money, which is very difficult for our minds. Our minds, based on evolution, we are.

Fadi: Uh, a communal people.

Fadi: When everyone's doing something, we find comfort. Because even if it doesn't work, guess what? It doesn't work for everybody. But if you're going to be. This term is used too much these days, but a contrarian where everyone's going right and you say, you know what?

Fadi: I'm going left, where if you're wrong.

Fadi: Your mind's saying, oh, everyone's going to say, we all came here. Why do you think you're better than us? Why did you think you're smarter than us?

Fadi: You should have came along with us. But even if you're right, you never.

Fadi: Get the accolades from other people because others say, uh, you're just lucky. So our minds always want us to go with the crowd because it's safe. But to be honest, that, uh, is the worst thing you could do in the stock market or investing in general, because like I said, most people will never be successful. So why are you following everybody else? So if you can't find decisions for yourself as to why you actually want to buy a particular stock, then either stop and say, okay, just reflect and know that that's the case, then go and do some research, or just say, I'm not going to pull the trigger here. I don't know what I'm doing. Before I start buying stocks, I need to go and educate myself on how.

Fadi: To do that again.

Fadi: Most people won't listen. Most people who listen to this podcast will leave, say, oh, that all sounds great. Then tomorrow, find a stock that someone's talking about on x, maybe even a stock that I'm talking about. Please never buy a stock that I'm talking about. I've been doing this for 14 years now, 15 years. I've been through so much. My strategy is different to yours. My holding period is different to yours. Everything is different to you. So even if you buy the same stock as me at the same time, you will not be able to hold through the volatility. Because I know why, uh, I bought the stock.

Fadi: You don't.

Fadi: So that's the first point.

Fadi: Any questions that before we move on? No, that's good.

Phil: I'm just presuming that you have the answer to why am I entering? And you've described that process previously in this episode.

Fadi: Exactly. I've got my factors.

Phil: You've got your process. You've got to have reasons. You got to have your conviction. You got to know exactly why you're doing it.

Risk reward ratio is what determines how much money you'll make

So let's move on to number two. How much money will I make if things go according to plan? That sounds like the dream part of it.

Fadi: You've got to know two things, and this feeds on to the next point. If I'm right, how much money will I make? If I'm wrong, how much money will I lose? That's called, in official financial terms, the risk reward ratio. How much I'm willing.

Phil: Often I've seen that done out as a mathematical formula. You can actually set your own risk reward ratio up that you want to make two x, and you'll sell if it drops down, I don't know, by 20%. Very simple kind of formula like that.

Fadi: That's not the way you look at it. A lot of traders use that mentality where based on the formation or the pattern, there's a good chance it's going to make 50%. And if it doesn't, I'll put my stop loss at 20%. So I'm willing to lose 20 to make 50 as an example. That is very easy in the TA world. It's much harder in the fundamental world because it's not like you're basing it off specific numbers. That are on a screen. A lot of it is based on the market, on the sector, on management, being able to deliver. So it's not as easy as that. But it is that concept where you say I'm willing to risk x amount.

Fadi: Of money to make y amount of money.

Fadi: So for me, my personal strategy is I'm willing to risk 30% of my capital in that particular stock to make a minimum of 500%. Now remember, go back to what I said earlier. Only one or two stocks out of ten will do that. I'm not saying that I'm going to make 500% plus on each stock. That's not the case at all. But I'm willing to lose 30 if.

Fadi: I have the potential to make 500.

Fadi: Now I might sell at a 50% gain, at a 30% loss, at a 2000% gain. Because it doesn't mean if I hit 500, that's a time to sell. I've got to analyze, go through my strategy again. Is this a good time to sell? How much am I willing to risk now to gain more? So I'm constantly asking myself this question. But if you don't know how much you can make, if you're right, let's say you buy, uh, and people do this all the time. Uh, you buy a copper explorer who's had one good drill result, okay, the market cap has gone from 10 million to 100 and I won't give the.

Fadi: Code, but this is a real scenario.

Fadi: The market cap is now $100 million. So if you're buying at that valuation and the drill results, let's say they.

Fadi: Continue to do well, you're still only.

Fadi: Going to make another, say 50% to.

Fadi: 100% because 200 million dollar valuation on.

Fadi: A copper stock, you're getting nearly into producer category here. So in that scenario you say, okay, let's say the drill is also still very good. After best case scenario, I'm going to double my money, okay? And that, as we spoke about earlier.

Fadi: Is very rare to find a company.

Fadi: That goes on to do all of those things. So let's get to the realistic scenario.

Fadi: Which is they don't continue to do well. The downside is you go from 100.

Fadi: Million market cap all the way back.

Fadi: Down to ten, which 90% of companies.

Fadi: Do by the way, after a big run, they go back to exactly where they started and then you go again.

Fadi: So in that scenario, you've got to.

Fadi: Ask yourself, am I comfortable with saying I'm willing to lose 90% of my.

Fadi: Capital to double my money?

Fadi: That to me is ludicrous because in the long run, even if you do double your money, you're going to lose a lot more than you make, and.

Fadi: You will still lose money.

Fadi: So for me, and again, this is not gospel. Uh, it doesn't mean it's right and you're wrong, but I feel comfortable risking.

Fadi: Up to 30% of my capital to.

Fadi: Make potentially 500 or more. That's where I found is my sweet spot for saying, in the long run, if I can stick my losses to less than 30% and that small loss or a small gain or a couple of big gains, 500% plus, then eventually I'll make a lot of money. In the long run, I'll keep compounding.

Fadi: My portfolio over the long term.

Fadi: So let's say I've got $100,000. I put 10,000 into ten stocks. Eight of them cancel each other out. Small loss, small gain. Okay, two go up by five. X now m my and just to make ease of calculation, now my portfolio is worth 200,000. So I've doubled my portfolio by having only two winners. Then I rinse and repeat. Ten more stocks. 200 becomes 400, 400 becomes 800. So I've gone from 100,000 to 800,000 by only finding eight out of 50 stocks that did well. But the reason I did well, isn't it because of the eight, it's because.

Fadi: I had no big losses.

Fadi: If you have the big losses that offset the big gains, then you just keep going in this circle, round around so those points two and three definitely overlap, and you have to know what you're willing to risk to gain a potential amount. If you don't know those numbers well, then you're definitely going to lose money.

Fadi: Over the long run.

Phil: We'll get back to the show right after this brief message.

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Your own personality is very important when it comes to your style of investing

Uh, so you mentioned TA in that, which is technical analysis. So you wouldn't use technical analysis or any kind of charts at all to determine what position you're going to take and when you're going to sell or anything like that.

Fadi: The more disgusting the chart, the better. Like I said, I'm trying to find five to ten meal valuation companies. There are no companies in that basket.

Fadi: That have a good chart because the.

Fadi: Good charts are now trading. They were 5 million, now they're at 50. So the more terrible the chart looks for me, the better. I didn't care about the chart. I care about my strategy, what's the valuation, what's the cash, what's the debt, blah, blah blah, blah. From a selling perspective, I also don't use ta. Like, I understand ta. I actually started, the first thing I did was I bought a TA book because I thought that's what investing meant. And by the end of the book, tempting, isn't it?

Phil: It's very tempting, isn't it? Because it seems to make sense. It's like they say, you don't need to worry about fundamental analysis. Everything is factored into the price. You don't believe that then?

Fadi: I do believe if you look historically, with hindsight, you can pull up any chart and say, look, look at all these lines. It's so easy. But go find me someone who can.

Fadi: Do it consistently over the long term.

Fadi: And trying to predict what's going to happen. Because chart patterns don't tell you what's going to happen. They're just likelihoods. So with this kind of setup, it's.

Fadi: Likely this thing will happen, but a.

Fadi: Lot of the times it doesn't. And then try getting someone to put a stop loss and maybe lose 1015 trades in a row, which happens a lot with TA. Without thinking this isn't working, I've got to change something. So I do believe you can make money in TA. I believe you can make a lot more money in FA or fundamental analysis. But to me, it's so hard being good at one thing, let alone trying to be good at multiple things where just find something that you like, that you enjoy and stick to your lane. Don't try and do everything because you'd never spend enough time on one particular strategy to become a real expert at it. And so, like I said, the first thing I did was I bought a book on TA, I went through the book, and by the end, I wasn't excited. Didn't really. I thought, no, it's not really for me. So then I built a strategy that did suit me in my personality. I'm a very calm person. I don't need a lot of action in my life. Day trading or trading off a chart. Having all that momentum and having all that emotions up and down all day, every day, that's not my thing. I like to sit with my laptop, research. There's no time constraint. There's not like, I've got to wait for a particular thing to happen in a chart to buy or sell.

Fadi: That's my personality.

Fadi: Go find someone who is an adrenaline junkie and try get them to enforce my strategy.

Fadi: Impossible.

Fadi: So your own personality is very important when it comes to your style of investing. If you say to someone who needs action every day, oh, go buy a stock like fatty and hold for three.

Fadi: Years, you know, that kill themselves on.

Fadi: Um, the other side of the coin, tell me to wake up every day, and I've got to make 20 different decisions on buys and sells based on eight different pieces of data that's coming through. I wouldn't last. So it's just really important to understand yourself and what kind of things make you comfortable, because you're not comfortable, then you'll never last.

What factors will determine when I should sell stocks? Yeah, and we'll go back to

Phil: So let's get on to question number four. What factors will determine when I should sell?

Fadi: Yeah, and we'll go back to the rare earth example. If you don't know that China and America, if they become best friends, completely ruins the entire sector, then guess what? You will be one of those people who bought in 2010. Didn't realize that China has now said to Japan, yep, we're all good. Now, here's your rare earths, and you would have held for a 90 95% decline in share price.

Fadi: So when I buy a stock, I.

Fadi: Know that there are a lot of factors that can be controlled by the company and by the management and board of directors, and a lot of factors that aren't. It may happen the day after. I don't care. Just because I have a two to three year time horizon, that doesn't mean I'm holding for two to three years. If I buy a stock today, a rare earth stock today, and tomorrow, China and America hug it out, guess what I'm selling tomorrow. You can't give yourself these hard rules and be very inflexible. So, back in, .1 why did I enter? I entered because there's a big argument between the two biggest economies in the world. And as a result, which China has done to a certain extent, they're going to limit rare earth, uh, exports to the US, which will drive the price of rare earths higher, which means that rare earth mines make more money, which means the explorers go up a lot faster. Right. Why I bought the stock. Now, if something in that sequence changes, then I need to be flexible and say, okay, it doesn't make sense to hold anymore. It doesn't matter if they still have cash. It doesn't matter if they don't have any debt, or if management owned 30% of the register. Those things aren't important anymore, because the fundamental reason why I bought the stock no longer exists. Again, if you don't know one, you don't know four, and if you don't know two, you don't know three. They're all kind of brought together in an overall strategy. So it's not like you just go through one at a time and you'll be fine. This is how you form what's called your investment strategy, where you know why.

Fadi: You enter, you know when you're going to exit.

Fadi: How much will I make? How much will I lose?

Fadi: And all you're doing after you buy.

Fadi: Is managing your position. Every day I wake up, here's my stocks. What stocks? In these four sectors. Look at the news. Anything happening in these sectors today? Not all.

Fadi: Good. Move on.

Fadi: And I manage, and I manage, and I manage until the answer changes either.

Fadi: Look how much the stock has gone up.

Fadi: Now. I'm risking too much to not make.

Fadi: That much start selling, or something has.

Fadi: Changed fundamentally in the sector, and I.

Fadi: Want to exit before everybody else, because.

Fadi: Most people will find out three months later, and they're like, why is my stock down 50%? Nothing has changed. Yeah, maybe nothing has changed in the stock, but maybe the whole sector. Like, look at lithium. How many lithium stocks where they've continued to kick goals right in the last six months, are down 50%? It's not only about the stock. The sector is also important. And sometimes you can see it coming, sometimes you can't.

Fadi: That's why it's important to have.

Fadi: If I own ten stocks, I generally are going to have only two stocks in each sector. That way, if lithium is not doing good, my uranium stocks will do well. Or if uranium is not doing well, my rare earth stocks will do well. There's always kind of something happening. So for those who are 100% gold.

Fadi: Or 100% lithium or 100% anything, it's.

Fadi: Very difficult to make money that way. But anyway, like, going back to what.

Fadi: I was saying, if you don't know.

Fadi: Why you hold and when you're going to sell, then it's just completely in the realms of luck.

Fadi: And luck never wins in the long term.

Phil: Do you journal? I mean, how do you record all of this information? I mean, you're sitting there with a handwritten diary every day, or are you typing it in on the laptop?

Fadi: How does it work for you in the early years? I love excel. I'm a numbers person. So I'll put everything in Excel, and I'll have a notes column, and I'll put everything, why did I lose money here? Why did I make money here? But, uh, over the years and now that I do this 1214 hours a day, every day, it's like I've got to force myself to stop up. Everything now is in my head because I put a lot of the work in the early years, as in journaling everything, because you can't keep everything in your head. But I've been doing it for so long now that I don't really need to do that anymore. But if I do, for some reason, say, man, this stock, and again, I won't mention a code, but, okay, this stock I held through the last two years, and it's down a lot, not from my entry, but from the highest level. And I won't mention the code again, but I would sit and think, okay, where did I go wrong here? I obviously shouldn't have held. Okay, why did I hold? And what did I miss? But a lot of that is me just kind of reflecting now, because if you look at the excel spreadsheets from the early years, uh, it was like no one could make sense of it other than me. But, uh, that is a very good way of managing it. You could also use just a word, doc, or you can write things down again, depends on your personality. But yeah, writing things down early on so you can actually try and make sense of the mess. Sometimes if you believe something, right, and then say, hey, explain that. A lot of people find it difficult to explain. They believe it in their head, but to verbalize it is difficult. And then once you go through the process of say, okay, I'm going to make sure I verbalize this, I'm going to write it down.

Fadi: Okay, uh, now I've said it all in your head, you become so much clearer.

Fadi: You also now, uh, believe it even more. And you know why you're believing it? It's the same thing with stocks. If you're writing a lot of things.

If you're just starting out, you should write down what went wrong

Fadi: Down, the craziness tends to disappear and.

Fadi: You really start to see why things are happening. So definitely early on, I did a lot of journaling, but not so much these days. But if you're just starting out, you should definitely be writing down what went wrong, what went right, trying to find themes. It doesn't mean that I've covered every possible theme in my strategy. It's what I found today. I um, might add a few things later. So again, it's very personal. You can copy somebody to a certain extent, but then you've got to tailor.

Fadi: It to yourself because no two strategies.

Fadi: Can be identical, because no two people are identical.

So tell us about your course, your micro investing course

Phil: So tell us about your course, your micro investing course.

Fadi: Yeah, to be honest, I launched it. I'm pretty sure 2020 maybe. A lot of people were asking me, uh, how do I learn? What can I do? And I thought to myself, you know.

Fadi: What, back when I started, there was.

Fadi: Nothing like if there was one place I could go to where there were say, 80% of the things that I needed to know that would have fast tracked my ability to learn. That process would have been much faster, much quicker. So I thought, okay, well I'm just going to sit here and brain dump.

Fadi: Everything I know into a word document.

Fadi: And it came out to like 15,000 words.

Fadi: I thought, okay, I've got this document.

Fadi: No one's going to read a 15,000 word document to learn about stocks. So I said, okay, what? And I just break it into different sections and maybe I'll do it into like an ebook or something like that. But again, I thought, who's actually going to see here and read it? People want to speak that, they want to be personal, they want to actually hear from the person who's teaching them. Said, okay, I've got no experience in recording videos, I've got no experience in creating courses, but why don't I just record a course that goes through my end to end strategy? And uh, this is where I think my course tips to a lot of other people. I don't talk about what is the stock market? How do you buy, how do you sell, like things that you could just YouTube and find in 30 seconds? My course is actually my strategy. What do I do every single day, which includes all of the factors that I use from a risk perspective to manage my stocks and to manage my risk. And majority of the course is how do I manage risk? And so yeah, I launched that. Uh, to be honest, I've had about 1000 people through, which has been crazy. I thought maybe 50 or 100, that'd be good. Like I said, it was never for money because I was already working. I'd already made quite good money in the stock market. It wasn't about, oh, I need to make a living. So I really didn't try and sell it in any way or even in the stock, try and make it so sound so amazing that people would have no choice to buy. I'll just say, hey, guys, this is my strategy. If you want to learn a strategy, come along. Say, like I said, about 1000 people have been through. I run the course now. Maybe originally it was a pre recorded a course. So there's a program called teachable. You go into the program, it's my voice. I'm talking through the slides and through the course and presentation. But a lot of people are saying, oh, it would be awesome if you.

Fadi: Could just do it live so that.

Fadi: Okay, well, I'll just offer a live.

Fadi: Version of the course where it's, uh.

Fadi: A six hour Zoom call split across two three hour sessions where between five and ten people come along. I like to keep it small because it needs to be personal. And there's me and them having a conversation, running through the course, asking questions. And when I did that, I thought, man, I wish I never did a pre recorded version because the live versions were so much fun and I've met so many good friends through that live course. I wish I had met all thousand people who did it, but now I'm only kind of offering it from a live perspective. Maybe like once every couple of months, once a quarter. And yeah, if it continues to do it, I'll keep writing them. And if not, like I said, it's not how I make a living. I'll just hang up the boost there. But for now, it's going really well.

Phil: And what is the best place to find you on X or Twitter for this?

Fadi: Yeah, I pretty much run everything through.

Fadi: X, so I do use hot copper.

Fadi: Every now and again. But I found that the audience on X was much more suited to the kind of investing I do where hot copper is more. A lot of day trading, a lot of in and out, a lot of garbage being spoken, to be honest. And you can't really block too many people. It's not as easy as X. So I found that X is really good for me and that's why I run all my stuff through there. Not just my course, but all the stuff I'm involved in.

Phil: Yeah, so it's the gladiator on X.

Fadi: What's gladiator at the gladiator HC, because the gladiator was taken. So I thought, of course, uh, I'm on hot copper, I'll just put HC. And that went through. I wish I could take the HC off now, but I can't.

Phil: That's right. Now you say you're a non emotional investor, but as an eel supporter, how did you feel during last year's grand final?

Fadi: I was at the grand final. I was with my son. He was in tears. I'm actually a St. George supporter who's had no luck for a decade. So my wife is an ill supporter. Uh, my son loves the eels. She converted him when I was at work. So I was like, okay, why don't, you know, take one for the family and support the ills? And it's horrendous. I wish I still went for the Dragons because at least we know that the dragons are going to lose. There's no hope. The ills give you just that little bit of hope and then they don't deliver. So who knows? Now I'm in Dubai, it's a bit easier to want us to watch the NRL because we're six to 7 hours behind. So on a Friday afternoon, I could be at the pub having a beer and the Friday night games will be on. So let's see how they go this year. But I don't know who's going to stop the Panthers again. But let's see.

Phil: Fadi Dieb, thank you very much for joining me today.

Fadi: Thank you so much. Sure. Appreciate it.

Chloe: Thanks for listening to shares for beginners. You can find more@sharesforbegners.com if you enjoy listening, please take a moment to rate or review in your podcast player or tell a friend who might want to learn more about investing for their future.

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