JOHN ADDIS | Author of How Not to Lose $1 million

In this episode I sat down with John Addis, founder of Intelligent Investor and author of How Not to Lose a Million Dollars Win At Investing By Losing Less. John’s made his fair share of mistakes—and that’s precisely why his insights are so valuable.

John’s journey into finance wasn’t exactly a straight line. Coming from a background in advertising, he eventually found himself running a value investing research house and learning firsthand the quirks of the market. His core philosophy is simple: “You should want to own profitable businesses that are sustainable in the future.” Don’t get caught up chasing the latest shiny thing or trying to time the market—it rarely works out well.

We talked about the common pitfalls of retail investors—like buying high and selling low. According to John, that’s largely down to psychology. Emotional decisions, confirmation bias, and media hype all play a role in clouding judgment. He suggests taking a closer, more thoughtful look at the people behind the businesses:

One standout idea John shared is the importance of simplicity. In his words, “The simplification is the skill.” Whether it’s in choosing investments or decoding financial jargon, cutting through complexity is a superpower.

He’s quick to point out how language is often used to deceive rather than communicate, especially in finance, making it even more critical for investors to ask the right questions and focus on what really matters.

The simple act of writing can bring clarity. It’s a habit worth adopting—not just for seasoned pros, but for anyone trying to better understand their investments and decision-making process.

John’s stories and advice shine a light on how to avoid common investing traps, focus on high-quality opportunities, and most importantly, learn from your mistakes. After all, every stumble is just another step on the road to success.

TRANSCRIPT FOLLOWS AFTER THIS BRIEF MESSAGE

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EPISODE TRANSCRIPT

John Addis: But yet everybody still wanted to own it just because it went up a hundred times. And that's a mistake. You should want to own profitable businesses that are sustainable in the future. When you say I want to own something and get a hundred back, or as it's called, yeah, then they're nice, that's great. But, uh, the act of seeking, picking something that goes up so much leads you into areas that are going to cause you problems. It inevitably takes you into something more speculative.

Phil: G'day and welcome back to Shares for Beginners. I'm Phil Muscatello. How do you know when it's time to sell a share? When is too soon or worse, too late? My guest today has learnt these and many other bitter lessons and has written a book to educate investors on how to win by losing less. G'day, John.

John Addis: Hi, Phil, Nice to meet you. Good to meet you.

Phil: Nice to meet you as well. And glad to see we're both wearing virginal white.

John Addis: That's right, yeah. Yeah. I think that's because I haven't actually worn this shirt before, even though I've had it about two years.

Phil: Oh yeah, no, I'm glad you've debuted on this episode. John Addis founded Intelligent Investor, a value investing based research house and funds, um, management Business, a newsletter in 1998. After selling the business in 2004, he returned as CEO, uh, in 2009 and is currently Editor in Chief John. John now gets to indulge his favorite interests, the shape and form of words, which we're going to talk about a bit later. Investing psychology, the odd, fascinating and frustrating world of macroeconomics and great stock opportunities. John's featured in the Age and Sydney Morning Herald, Money magazine, ABC and the Australian how not to lose $1 million is his first book and possibly his last. Why did it take so long to write this book, John?

John Addis: Well, I suppose in terms of picking stocks and how to go about investing, I don't feel as though the world needs any more investment books about how to do it. It's all there. We've produced three reading lists over the years and if you read those books, it'll tell you how to do it. It's not hard to understand the approach that we adopt, which is value investing. The application of it is the hard thing and that's when the mistakes crop up and there are Very few books written about mistakes because people don't like to acknowledge or talk about their, uh, mistakes. So that's why it took so long, because I didn't feel as I can contribute anything original until I focused on the mistakes that we've made rather than the successes.

Phil: That's great. I think we've converged on the same thing, because as you most probably know, Prashant and I at sharesight recently produced an event where we talked about investing failures, and we're calling it Success Through Failure, which I'm presuming is a bit like the theme of your book.

John Addis: Completely. Completely. Yeah. I think you can't become a success in anything in life without failing. If you have become a success without failing, you probably just got lucky. And failure is really the way that you become successful. So I think if you learn through your mistakes, that's how you become successful. So analyzing and looking at mistakes is one of the key things to do.

Phil: So tell us about your background that led to a career in finance. Were you a finance nerd right from the beginning?

John Addis: It was by accident, really, Phil. I began. I had a degree in economics. I couldn't say that I've ever been entranced with the subject. I feel as though it's a subject area that gets a lot of things wrong and isn't a science in anywhere close to the traditional sense of it. So I got involved in advertising. Initially, I was a copywriter, uh, in advertising. I'd always read a lot. I was always fascinated by businesses. I used to read a lot of business biographies and business books, but I really didn't get into investing until I started up the Intelligent Investor. Well, I started up working with a friend of mine who was a stock market analyst, and he produced, he worked on a publication called you'd Money Weekly by Ian Huntley, which probably some people have heard of. Morningstar now runs that. And when I read it, I just could not understand it at all. You know, I thought this was something that I should be interested in, I was interested in, but I just couldn't penetrate the jargon, the acronyms, the sort of financial ratios, and that listed every kind of review. There was no story there. There was no narrative, there was no color. And I always found investing to be a very colorful activity. You know, there's incredible people in investing who are running companies that you. You come across good and bad. And these are really human stories. And often successful investments are the result of human endeavor, and there are some amazing stories

00:05:00

John Addis: behind it, but there was never any attempt to sort of reach those stories or present them. So when he approached me with the idea about doing something on our own, that was the thing that brought me towards intelligent investor. And presenting stock research in a way that ordinary people could understand, didn't make them feel stupid and um, could help them become better investors.

Phil: Did you find that being a copywriter gave you insights into business? I mean, I know what it's like when I'm working, I'm working in the advertising industry as well, many years. And that you actually get to. You really have to dive into the story of a company to understand how it operates. Was that the way it worked for you?

John Addis: Totally. I mean that's the part I really liked about it. Like, how do companies really sell? You know, there was a. This was in the 90s and I was doing a lot of work in finance so I did all the print advertising for home equity loans and to see how they were sold. You know, how you could bring a new concept like a home equity loan to people who didn't think that you could do loans in that kind of way. And to learn how to sell it through the advertising. It's just a great experience. And working on all the different clients from a mobile phone company to Qantas to. Yeah, it's just a great insight into how businesses work at the sharp end of capitalism, which is the sales and marketing.

Phil: And it's also a good skill to have in terms of explaining to others what the stories of the companies are because you can distill the information as a copywriter, uh, into 30 second grabs. Really.

John Addis: Yeah, you have to. And in finance, you know, the people who do write tend to want to show their intelligence and show how clever they are when. And that's kind of easy, right? It's easy to develop a big vocabulary and it's easy to make ideas sound complicated. The simplification is the skill. Got, uh, to communicate the same thing without losing any meaning and let that go through, get into people's brains in a way that they can understand. That's a real skill. It's why tabloid journalists are paid more than journalists at the Australian or the Financial Times. Well, they used to be. Yeah.

Phil: Yeah. They can make it more lurid.

John Addis: That's right.

Phil: A company story. Much more lurid. And it's been a lurid year this year as well, hasn't it? On the. So why do you believe that most people shouldn't be managing their own finances? I mean, it's a pretty obvious question because of all of the mistakes that people make and that's what we're talking about here in the mistakes. What are you seeing as some of these mistakes that give you this idea that they shouldn't be managing their own finances?

John Addis: Because it's hard. It's hard, it's time consuming and it's expensive to get good at it. And I think that most people are not financially predisposed to manage their own money. All the research says that ideally you want to buy low and sell high. All the research says it actually works the other way around. Most retail investors buy high and sell low. And that's down to psychology. They get panicked when share prices fall and when they're going up, they're reassured. And that makes them, generally makes people poor investors. So I think most people should be saving regularly, putting some money into a, uh, very low cost managed fund. And don't try and manage the performance. You manage the fees, pay as low a fee as possible. And when you most feel like selling, don't do it. That's when you recognize all of the losses and when you miss out on all of the future gains. It's that second part that, uh, is hard for people to do. But if you can master those two things and you start reasonably early, the power of compounding, which most people understand will make you very happy in the long run. M so the longer Runway you've got, the richer you'll be at the end of it. Most people should be doing that. The people I think who do want to manage their own money need should be doing it for enjoyment rather than for Money. So I kind of treat investing as a hobby almost. I love reading about stocks, I love reading about companies. There are other things that I do, but there's probably nothing that I would do beyond that. If ever I take a bath, I'll be reading about businesses in the bath. When I go to bed, I'll be. Sometimes I read novels, but I often will be reading the Economist or an Annual Report or something like that. This is a hobby for me. This is like gardening or golf or something like that. If you don't get that fun and enjoyment from it that I do, you probably shouldn't be doing it because it's very demanding on your time and it's very demanding on your emotions.

Phil: I don't think people actually understand and realize how much time is involved in trying to choose the right stocks to buy. And um, there is that mentality that they just want a stock pick and this stock pick is going to be a life changing event for them, which.

John Addis: It might be, but not in the way that they expect.

Phil: Yes, that's right.

00:10:00

Phil: So, but then listeners, and presumably listeners listening to this podcast, do want to move ahead into picking their own stocks, their own companies. What are some of the traps that they can look out to avoid?

John Addis: Okay, well, there are so many. Don't know where to start.

Phil: Where do we start?

John Addis: I would say that if you're young, you're probably overconfident. If you're young and male, you're probably more overconfident than if you're young and female. And that means that you are more prone to making mistakes than somebody who's much older than you and more experienced. I suppose the best thing that I would suggest is that you, you will make errors. You need to accept that you're going to make errors. I wouldn't put too much money like invest money that you can afford to lose, because when you're young, when you're beginning, you've got plenty of time to recover. What you don't want to do is use the money that you've got and blow yourself up. So that means you just follow the normal rules of investing, which is diversify your portfolio. Uh, be sensible and don't panic. Sell when there's a big crash, hang on and keep going. But you will make mistakes along the way, and you'll probably castigate yourself for it. So I think I would suggest that the first thing you need to do is not be scared of making mistakes. And when you do make them, analyze them. It's very easy for us to blame other people for our mistakes. That's a human tendency that I think we all have. When we lose money, we need to take responsibility for it. And we need to look at ourselves as to why we made that mistake. And that process is what reveals the value in the exercise of examining your errors. If you're not prepared to do that, you will have to learn that lesson many, many, many times in order for you to get to a point where say, I made this mistake because of X or Y. So being open about your mistakes, being introspective about it, and also giving yourself some time to learn from the loss, you can't sell, recognize a loss, and then immediately know what the problem was. So in the book, when I went back to look at some of the mistakes we've made over the last 20 years, what was most surprising about it was, is that, uh, some that might have been 10 or 15 years ago because of that passage of time, I saw them differently. I saw them in a different kind of way than What I did at the time, and I'll give you an example, so Timber Core, where we lost almost all our money on that stock. It was a managed investment scheme. And the business disappeared by the tax office. The tax office just said, no, we don't want these managed investment schemes anymore. And with the stroke of a pen, that business was really gone. It paid financial planners 10% commissions so that you could buy into these managed investment schemes, which grew trees or almonds or some kind of agricultural products, timber. And we thought at the time that we were buying a product that sold, you know, these investment schemes, but what they were really selling was tax losses. And what we didn't realize was that this business could just disappear if the political environment changed. We shouldn't have bought that business at all. And had you asked me what our, um, mistake was 10 years ago, I would have said we misunderstood the business. Business model. If you ask me now, I think it's just one of those things we shouldn't have bought at all, because the business can disappear overnight if a politician or a bureaucrat wants it to. So that passage of time, even if it's just a few months, will change how you see your error. And I think it's a good habit to. When you make a mistake, jot down what you think the reasons are, uh, why you made the mistake, take the responsibility on yourself, and then revisit it every three months or so just to see if you feel the same way about it and to refresh yourself about the lessons that you took from it.

Phil: It's interesting, isn't it, that you don't want to lose Money. That's the thing that you've got to guard against. And in this case, you've got to identify what that risk is and where the risk may lie. How did that light bulb go on in this specific example? And was this an Australian company you're talking about?

John Addis: Yeah, yeah, they're all Australian. Oh. Actually, there's a couple of, uh, U.S. stocks in there, but it's mainly Australian companies. Yeah.

Phil: Yeah. So what was it about this company that you didn't recognize that particular risk in until it was too late?

John Addis: It was the fragility of the business model. There are two or three.

Phil: Could you have seen?

John Addis: We didn't see it. We didn't see it because we.

Phil: If it looked hard enough. If you'd looked hard enough, could you.

John Addis: Have said we were too close to it? I think that was the problem. You know, we went through the accounts with a fine

00:15:00

John Addis: tooth comb. We looked at the sales Growth. We examined management who were, uh, as convinced of the business models, foundations as we were. And we missed the overriding point, which was that, uh, this is something that could disappear overnight if the tax office wanted it to. We didn't see it. And we also didn't question the 10% commission that was paid to financial planners to sell that product. Like, if you're selling something for 10%, you need to sell something paying a 10% commission. I think you have to question the value of the product. And we kind of miss that too. So there were multiple errors there. And this is what I think investing errors are. They're kind of like air crashes. You know, one thing goes wrong, which leads to another thing going wrong, which leads to another thing going wrong. So there's a kind of compounding errors that creates a disaster. And you've got to unpick it and find every element of those things. Because there isn't just one lesson in a mistake. There's probably five or six. But it takes time to tease them out, and it takes courage too. The other thing I'd say is, when it comes to errors is it's good to, uh, it's good to have a way of classifying them. And one of the struggles for me writing the book or thinking about how I might structure it was to how to classify the errors, how to taxonomy to understand the source of the error. And you could say there are business model errors, there are psychological errors. You know, we might sell too soon or sell too late. There might be technical errors in our analysis of the numbers, but overall that didn't kind of work because of the multiple sources of error in any stock going bad. So where I ended up was say, well, you've. There are really four kinds of errors. There are stocks you sell too soon, which is probably the biggest kind of error. I think the stocks you sell too late, which is where all the heartache is because you feel a loss immediately. And then there's the stocks you should have bought but didn't, and the stocks that you didn't buy but did. And that's how the book is classified. And I think the first step when you look at an error, uh, is to try and put that example into one of those classifications. And that helps to get you to think about it in the right kind of way, you know. What was the basis for this error? Well, I sold it too late. Why did I sell it too late? Well, because management was buying and I was confident, and if they're buying, why shouldn't I buy? You Know, follow the smart M Money. That's the start of the era.

Phil: So um, yeah, let's get onto that about when to sell a stock because that's one of the main questions I hear from listeners. How to know when to sell. Because you know, it can be the situation where it keeps on going up and should I be taking the profits or it's going down, when should I cut the losses? What are some of the considerations when making that decision? And sometimes perhaps you shouldn't sell a stock at all. I mean ideally Macquarie, let's look at Macquarie as an example. You know, it's one of those stocks that you look at and you go, well maybe you should never sell that one.

John Addis: Yeah, yeah, well it's a finance stock with a lot of leverage. So I wouldn't have a stock like that as a never sell stock. Okay, that's a big question Phil.

Phil: I will start with we like the big questions.

John Addis: I'll start with where I think the big issue is first, which is the kind of stocks that you buy. So most of the mistakes that I've made over the last 25 years have ah, been buying low quality businesses. And it's possible to buy low quality businesses at very cheap prices. But because they're low quality businesses things tend to go wrong. And in value investing you have this phrase like catch a falling knife, which is it looks as though there's value here. You know that we estimate the shares are worth a dollar, it's trading at uh, 50 cents. That's a 50% margin of safety. That seems like a good bet. But if that's a poor business, that value is maybe declining at 10 or 15% a year, maybe even faster. That's a poor business. The first thing I think a new investor should do is aim to buy high quality businesses. And it's better to pay a reasonable price for a high quality business than it is a cheap price for a low quality business. So when we talk about high quality businesses, like the healthcare stocks are a good example. Cochlear, CSL, ResMed. Even in retail you've got the Woolies Coles monopoly which is kind of impregnable. Often high quality businesses will have those competitive moats. They're very hard to take on. Um, if people do want to take them on, they'll need a lot of money. So I would aim first, uh, high quality businesses, often purchased maybe when they're going through a bit of a rough patch, which is when you tend to get them a little bit more cheaply than you ordinarily would normally

00:20:00

John Addis: have to pay up for quality. Generally it's worthwhile. So once you've decided on what kind of businesses you own, I would say that the idea is to try and hold them for as long as you can. And my biggest mistakes have been selling high quality businesses too early. I did that with Cochlear, did it with ResMed, I did it with CSL, I did it with Apple. Those are the biggest mistakes. Because even in a terrifying loss where you might lose all of your money, if you sell Cochlear for 40, uh, bucks, which is what I did, and it's now 280, that rise will cover a lot of massive 100% blowouts. So hanging on to high quality businesses I think should be the aim. Now there's a few caveats to that. The first is that you don't want to have 60% of your portfolio in one or two stocks. So as the stock rises, it's going to become a bigger part of your portfolio. Every recommendation we make has a recommended portfolio weighting. Generally if you're starting out, we recommend investors stick to that. So you might be selling down as the stock rises, but uh, you don't really want to sell out completely just because you've made five times your money. Okay, that's enough. I'll go somewhere else. If it's a high quality business, you want to be able to own it forever. So I don't know whether that answers, that probably answers a part of your question. I don't know whether it answers all of it though.

Phil: No, because there's so many different ways of looking at it, isn't it? And so many different examples. And I mean I always come back to when I joined the Australian Shareholders association and met one of those investors. It's been investing for many years, picking individual stocks. And the idea that you treat your portfolio like a garden and you let your flowers bloom and you cut your weeds and it's also done, um, on a very, very relaxed basis. It's not something that you're doing every day. It's just looking at it maybe every quarter or every six months and saying, well, this one's not working, this one's working. Let's just, you know, move things around a little bit. What's growing best in, uh, the environment that we're in.

John Addis: If you own high quality businesses where good things tend to happen, then you don't need to do much work in the garden, you know, tending to those flowers. It's when you start out, you're often attracted to the big winners. Do you know what I mean? Something that's growing at 10 or 12% a year, that's pretty boring when you're 25. I want something to go up 100% in the next 24 hours.

Phil: Which is why they start to pay.

John Addis: That's right, yeah. Which is why so many people are investing in crypto, because that kind of thing happens and I don't think that's a good. If you're going to do that kind of thing, then I think you should be doing it with money that you can afford to lose, not money that's going to sustain you through your life. That's kind of that. I would consider that to be gambling. And you only want to gamble with money you can afford to lose. With the high quality stocks that you're talking about, your aim should be to hold them for as long as possible. Super is one of the most important investments you'll ever make.

Phil: But how do you know if you're.

John Addis: In the best fund for your situation? Head to lifesherpa.com to find out more.

Phil: Lifesherpa, uh, Australia's most affordable online financial advice. So there's a big emotional bias to getting rid of a company, even if it's underperforming and even if it's not working because, you know, you feel like you should be right, you don't want to be wrong. But really, if you're being honest with yourself, you've got to watch out for red flags. What are some of the red flags that you might be able to tell listeners about?

John Addis: Okay, well, there are probably, you could probably separate red flags into red flags that are, uh, company based and red flags that uh, are investor based. And I think the ones that we inhabit, the red flags that we have ourselves, the psychological red flags are probably the most dangerous. There's lots of them. But I'd say the three main ones are firstly anchoring. So if you've bought a stock at $3 and it goes down to $2 and it goes down to $2 for good reason, you will anchor on that $3 price. And you hear a lot of new investors say, I'll sell when it gets back up to dol, and it never does. That's the anchoring effect. We anchor on the price that we've paid and that stops us from acting. So I would say that anchoring is a large component to selling stocks too late because we're anchored on the price that we paid. That will be the first one as investor red flags, not managerial red flags or company Red flags. The second one probably would be confirmation bias, which is kind of. I wouldn't say the opposite. It's kind of like anchoring in a way, but in a positive way. So when you buy a stock, you buy it with a sense of optimism. You think the price is going to go up. And when

00:25:00

John Addis: the price does go up, it kind of confirms your thesis as to why you bought it, confirms your idea, the reasons why you bought it. And the problem with that is that confirmation bias causes us to look at information that confirms that we were right and causes us to disregard information that tells us we could be wrong. That's the second problem. So as soon as you bought a stock because you think it's going to go up, and why would you buy it if you didn't think it was going to go up? Uh, it leads us to ignore information that suggests contrary to what we thought. I found the best way to deal with that is when you buy a stock is to write down your reasons why you're buying it. Put some approximate figures there in terms of what you think margins are going to be, what you think sales growth is going to be, and if, if the company doesn't meet those kind of expectations, that should cause you to reevaluate it. And having that stuff written down means that you're less liable to fall victim to confirmation bias. Um, the third psychological aspect, I think, is that humans are primed to act. Just sitting, doing nothing is not what humans do. We didn't get to dominate the planet by sitting around. You know, you came to dominate the planet by doing stuff. We're primed to act. And that makes holding a stock for 20 years and not doing anything really, really difficult. We feel like we need to act in order to be an investor. When often the most profitable part of investing is doing nothing. That's the hard part. So I would say that that predilection for action is something that we all need to address. And we learn the art of sitting still and doing nothing is very, very hard to do.

Phil: Be Zen about it.

John Addis: Be Zen about it.

Phil: Yeah, yeah.

John Addis: So when, when a good company, you know, it might rise to a ridiculous PR and you go, uh, that's it. I'm going to sell it. Think really hard about that. And similarly, if a good company, it falls 40% and, you know, it's still a good company, think hard about whether you want to act in that situation. Too often doing nothing is the best course of action.

Phil: Such a fascinating area, isn't it? I mean, we cover psycho psychology. So much on the podcast, but there's never too much learning of that particular aspect because knowing yourself and knowing what you're trying to do is.

John Addis: That's right.

Phil: It's hard in this space, isn't it? And it's very hard. It's very hard to recognize.

John Addis: It's difficult. It's really, really difficult because it involves a certain amount of openness and capacity for self analysis that most people lack. You know, it's kind of a learned skill. So when you talk about M. Red.

Phil: Flags, taking a good long talking a good long, hard look at yourself.

John Addis: That's right, that's right. So when you were talking about red flags there, Phil, my mind immediately went to. All right, a red flag is when a CFO resigns and another one comes in and eight months later they resign. When, uh, the MD or the CEO stands up at the AGM and says everything's going sweet, and then six weeks later he sells a truckload of stock. When there's a product recall, you know, when there's dodgy accounting practices and they're loading up all of their labor costs, you know, as R and D, capitalizing expenses, there's all of these kind of red flags. You can find them all over the place. And in fact, most of the stocks that work out well probably have a few red flags. It's the volume of them that you should look at. But we tend to forget about our own red flags. And the only things that. It's mainly our, uh, psychology that causes us our biggest problems.

Phil: Well, you just mentioned capitalizing R and D. What does that actually mean?

John Addis: Well, if a drug company develops a new drug, there's probably a load of scientists involved and their salaries can be included as assets rather than expenses. And as soon as you classify, say, a salary as an asset rather than expense, it automatically lifts up your profit. So one of the ways of making your profit look higher than what it really is is by capitalizing your research and development costs. Now, R and D is a very flexible term. You know, with a pharmaceutical company developing a new drug, that's very understandable. But there's a, uh, there are companies in Australia. There's one that's called Siteminder, uh, that capitalizes a lot of its labor costs, you know, largely it developers, as assets. And that boosts their profitability, their profit line by much more than it ordinarily would. It's perfectly legal. There's nothing insidious about it. But it is kind of a red flag, you know, and you need to go through and look at those numbers and work out whether they're real. You know, is that real R and D expense or is it not? Because a lot of companies can use it as a way of overstating their profits.

Phil: So the charismatic CEO trap. And we've just done a recent episode where we've been talking about mineral

00:30:00

Phil: resources. Um, Wise Tech.

John Addis: Yeah, yeah, yeah.

Phil: Qantas.

John Addis: Yeah.

Phil: So we have covered the charismatic CEO trap, but often these are rock stars, and people are attracted to rock stars, and they're rock stars often because they perform really well for the business.

John Addis: Yeah.

Phil: How can it be such a trap?

John Addis: Well, I mean, this is narrative bias. I feel that's another psychological bias that we have. Human beings respond to story far more than they do to numbers. And if you have a very charismatic individual, we're much more susceptible to believe that they will create a great business. And the irony of that is, is that sometimes the most charismatic CEOs do create great businesses, but there are ones that aren't necessarily as charismatic, but they go on to build incredible businesses, too. Dom Mesh at Domino's, for example, I wouldn't call him charismatic. He's done an amazing job. But the charisma loaded CEO is the one that gets all the attention. Right? The media is all over Chris Ellison at Mineral Resources and Richard White at Wise Tech, because they do have that charismatic narrative. So we have a bias towards charismatic CEOs anyway. And then as for CEOs themselves, there was a great quote that a, uh, friend told me a couple of days ago. I forget exactly the wording, but it was basically about unreasonable people being the kind of people that do incredible things. And that kind of captured, for me, that just kind of found a problem, which is, if you wanted to upend the car industry in the US and you managed to do it, an ordinary person is not going to be able to do it. Uh, an ordinary person is not even going to take that problem on. You've got to be an absolute nutcase weirdo to even try. And so, uh, it's not so surprising that Elon Musk comes out with all of this kind of revolting and annoying stuff, but at the same time builds an incredible rocket company, does upend the car industry, and is now kind of de facto president of the US So the hero narrative tends to make us feel as though these characters that build these amazing businesses that are impregnable, but it's their success that also reveals their vulnerabilities. So we need to look at these people with a little bit more depth than the way that the media presents them is very rarely do you find a, uh, truly pure CEO who does not start to believe their own bullshit. And Alan Joyce is a perfect example of that. I've just finished Joe Astin's book and I call for Alan Joyce's sacking in I think 2014 in the Sydney Morning Herald. And about two years later I published something to apolog to it because I thought he was doing a really good job. But over that time you can see where his control over the company just deepened and completely captured the board. And everything that happened at Qantas was in his own image. But he started off as a brilliant CEO and he did a pretty good job. But then he got carried away with it. It's kind of a rockstar story, and we shouldn't be surprised when that happens. You have to be a very, very grounded person in order for success not to, uh, carry you away in some way.

Phil: And interestingly, the Australian Shareholders Association's position on these kind of rockstar CEOs, ah, is that boards need to have a succession plan in place. So, um, it's often worthwhile looking in to see if they do have a succession plan. Because you don't want a company to be dependent on one individual, do you?

John Addis: No, you don't. But in a business that has been built from the ground up, which are often the best investments, where you've got a founder who's got a big chunk of stock, it's inevitable that they will come to dominate. And that's why they're successful, because they have dominated. So there's that kind of transition period where you go from a growth business to something that is a bit more mature. Uh, you need better corporate governance and you need a board that is going to be resistant to your charms. You need maybe a CEO who moves aside, a founder who moves aside and takes a sort of more senior role in an advisory capacity, something like that. So that change in a business when it goes from high growth to plateauing and maturing, is when you should really see the structures inside the business change. Often it doesn't happen because the founders are so tied up in their identity with the business that they just can't let go of it. I'm kind of like that.

Phil: Yeah, that's right. When you found and lead a business like that. Okay, so let's just go through. And sometimes this is a useless exercise. But why do you think it's worthwhile understanding the coulda, woulda, shoulda's, the stocks that you should have bought?

John Addis: Well, I Do think you have to learn to let them go.

Phil: Right.

John Addis: Uh, you shouldn't aim to buy everything that goes up.

Phil: I mean, it's always that there's regrets, isn't it? It's about the regret that you didn't buy that stock.

John Addis: Yeah, yeah. But that's just greed talking. I think everybody goes, I, uh, wish I bought Afterpay. There's a chapter on Afterpay in the book. Yeah. And who wouldn't want to own a stock that's gone up 115 times, I.

Phil: Think, in a short period of time? There's other stocks that have done it, but they've done that over a number of years.

John Addis: Yeah, that was the incredible thing. We could be investing for the next 30 years and there probably won't be another Afterpay. It was just a highly, highly unusual situation, not least because of the pandemic and everybody sort of shopping online and using Afterpay to do it and also being given free money. So Afterpay has never made any money. It's owned by Block now. And I looked at the accounts a few months ago. You still can't. They don't break it out. So you can't tell whether Afterpay makes money now. I suspect it doesn't. But, yeah, everybody still wanted to own it just because it went up 100 times. And that's a mistake. You should want to own profitable businesses that are sustainable in the future. When you say, I want to own something, get 100 bag, or as it's called. Yeah. Then they're nice. That's great. But the act of seeking something that goes up so much leads you into areas that are going to cause you problems. It inevitably takes you into something more speculative. Trying to find the next afterpay, which is a favor media headline, is probably going to bring you undone. It's got much more chance of losing you a load of money than making you a load of money. So I think you've got to let those companies go. But there are companies that I should have bought but didn't. A, uh, Meta is one example. It would have been Christmas two years ago. I think I spent my Christmas break going through Facebook or Meta annual reports, increasing my disgust towards Mark Zuckerberg, but just being, uh, amazed at the strength of that business. I mean, he was sitting before Senate inquiries. He was getting lambasted in the media. The politicians were ripping him apart. And meanwhile, in the background, Facebook's advertising business just kept on churning and churning and churning. WhatsApp usage was continuing to grow and still doesn't feature any ads. Instagram was going well, TikTok was up and coming. But they're really good at stealing other people's ideas and making sure they don't grow as quickly as they probably should, which they, they did with TikTok and they've done with other products as well. And it was trading on a single digit pr. I think it's on a PR and I, and I didn't buy it. It's probably one of the cheapest high quality stocks I'd seen and I didn't buy it. And there was two lessons from that. You know when you're thinking about stocks that you didn't buy but should, uh, there's a kind of pile on effect in the media. You can see it with Chris Ellison at uh, Mineral Resources to a lesser ext extent with Richard White. But there was much bigger pile on effect with Mark Zuckerberg. When a story is constantly in the media and it's often a person focus rather than the company focus, that often creates opportunities. You know, if you see somebody who's being taken apart in the media day in, day out and every week or every month, there's a new aspect to the disaster that is often an opportunity. If it's a high quality business with reliable earnings, reasonable growth, it's normally a good situation. So that would be the first lesson to look at your failures. In that respect you can learn something from them. The second aspect is that it helps you recognize what quality businesses look like and what they don't look like. So looking at stuff that goes up that is low quality is useful and high quality is useful too. It helps you recognize those features of a business that can make you money over the longer term, help you recognize the next one. So I think that exercise is quite valuable. Like why did I miss out on that? What was it I missed about Facebook that stopped me from buying it? That's a useful exercise.

Phil: So what's your interest in the shape and form of words and does it have any bearing on investing?

John Addis: Well, I think it should have a bigger, uh, bearing on investing. I really don't like that phrase. I don't know who came with that with. It's probably me who wrote that. But.

Phil: Well, as a former copywriter, obviously you are interested in the shape and form of words.

John Addis: I am.

Phil: How much meaning that they actually have when we just, I find that we use words so glibly.

John Addis: Well, that's right, that's right.

Phil: But they actually do. They're very much more solid than we.

John Addis: Often consider Yeah, I think that language is often used to deceive rather than communicate, especially in finance. And I don't think that deception is necessarily deliberate, but there is a kind of deliberate obfuscation in the jargon that finance uses. So language that is accessible,

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John Addis: that has a humanity to it, that uses short words rather than long words, that is not showing off, but communicates in a straightforward, economical way, I think has real value. George Orwell wrote a lot about this in the Politics of the English Language. So that will be the first thing, you know, clear language, jargon, free shows to me, show somebody who is willing to communicate their view without any of the fluff that normally goes with stuff in finance. It's not about talking to your peers. It's not about trying to seem smarter than you really are. Uh, it's not about showing that you're a member of the profession, which a lot of people in finance do.

Phil: A member of the priesthood.

John Addis: Yeah, that's right. That's exactly what it is. I mean, George, Was it George Bernard Shaw who said every profession is conspiracy against a laity like finance is incredibly guilty over that. And the reason why they do that is to make you feel stupid so they can charge you a higher fee than what they should. The industry is like 100 times bigger than what it should be, really, because people, when they read, uh, the stuff that we produce, not we personally, I mean we as an industry produce, people tend to go, God, that sounds really complicated. I better pay somebody to do it, because I'm never going to understand this. And that's the point. That's the point. It's to obscure the fees that are being charged, I think. Uh, anyway, so that's the first thing. The second thing about the value of the written word, and I've seen this in a lot of analysts that I've employed over the years, is that if they can't write just 300 words on how a company makes money in a way that makes sense to me or makes sense to my kids, you know, or friends who know nothing about finance, I've often found they don't really understand the company themselves. And I find that when I write about a company, it's. That's how I arrive at the view. The act of writing something down brings me to a conclusion about the thing I'm writing about. Was it an ace near said? I, uh, write to find out what I think. I think there's an element of that in the art of writing about investment. If you can articulate a view or articulate some Thoughts, then you kind of arrive at your view as a result of that articulation that I find is the value of writing in finance. And, uh, not enough people do it. And when you ask people to write, you see how confused they are about the situation they're talking about.

Phil: Yeah, it's the value of the liberal arts education, isn't it? That's right. There's often seen to be a path to fluff. Yeah. A path to poverty. Well, that might actually help you to riches as well.

John Addis: That's true. That's true.

Phil: So, John, remind listeners of the title of the book and of course, where they can find it, which I'm assuming is in all good bookstores.

John Addis: Yeah, uh, hopefully. It's called how not to Lose a Million Dollars Winner Investing by Losing less. It's got 11 case studies in it. There's also four or five short essays at the back on some of the things that I feel strongly about in investing. And hopefully it's written in a way that new investors can understand. There's some nice stories in there. I hope you can take glee from all the money I've lost on the stocks that I write about, and hopefully people can learn something from it, too. And I think for investors who, uh, are hesitant about investing their own money, it's a good thing to read because you can find out how hard it is, you can see what's involved, and then you be in a better position to see whether you do want to do it yourself or whether you want to pay somebody else to do it for you.

Phil: John Addis. Let's hope it's not the last book. Thank you very much for joining me today.

John Addis: Thank you, Phil. It's been a pleasure.

Phil: Thanks for listening to Shares for Beginners. You can find more@sharesforbeginners.com if you enjoy listening. Please take 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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