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on 18 November 2014

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Transcript of 3

The A. Stotz story
Left corporate America and moved from California to
Bangkok, Thailand
In 1992 Andrew Stotz left his job in management at Pepsi and crossed the Pacific Ocean to move to Asia. Since he had a Bachelor’s degree in finance and an MBA from California State University he immediately joined the business faculty at a university in Thailand and started lecturing in finance. During that first year Andrew set up the university’s first English language Bachelors of Business program.
The Thai stock market boomed, Andrew found his dream job as a financial analyst, and
set his goal to be #1
In 1993 the Thai stock market was booming and Andrew took the chance to move to a broker in Thailand to be a financial analyst. On that first day at work, September 1993, he found the job that he loved, and that passion continues to this day. It was at that first job that Andrew told that first boss that it was his dream to be the number one financial analyst in Thailand! Despite leaving his full time job faculty job Andrew maintained his teaching of nearly all areas of finance.
Becomes a bank analyst and soon after a head of research at the
number one foreign broker
at the time
The Thai banks were major beneficiaries of a booming Thai economy and at that time Andrew’s focus turned to analyzing these banks, something he would do for the coming ten years. Meanwhile, as he grew in experience and confidence Andrew was eventually offered the job of head of research at the number one foreign broker at the time. A sign of the fast moving times to consider that Andrew went from new analyst to top analyst in just under 3 years.
CoffeeWORKS is born
In 1994, Andrew’s best friend from America, Dale Lee, visited Bangkok and spotted a business opportunity in coffee in Thailand. Dale had been working in the coffee industry in the US and in 1995 he brought that expertise to Thailand and set up CoffeeWORKS Company Limited. Dale moved to Thailand and set up Thailand’s first specialty coffee roasting factory with sales starting in 1996. This ignited Andrew’s interest in entrepreneurship. With this move, Andrew began to apply his finance skills to the real business world, which ultimately made him a more comprehensive financial analyst in the stock market.
Crash, boom, bam. 1997 Asian financial starts in Thailand. Currency crashes by 50%, economy collapses.
In June of 1997 the Thai government announced it had run out of currency reserves to defend the baht, by the end of the year the currency had devalued by 50% and economic activity in the country ground to a halt. By early 1998 the investment bank that Andrew worked for was bust and sales at CoffeeWORKS withered. To save the business Dale and Andrew moved to the factory to cut costs and focusing on keeping CoffeeWORKS alive!
Enter Sornsak, the beginning of a leading financial team in Thailand
CoffeeWORKS was in need of help and in walked Sornsak Kongcharoenpanich, a young graduate with a master’s degree in accounting and top grades. Unknowingly at the time, Andrew and Sornsak would become a team to take on the financial industry. Sornsak focused on getting CoffeeWORKS accounting system into good shape and in 1999, when Andrew went back to work as a bank analyst, he invited Sornsak to join him as an assistant analyst. This was the beginning of a financial team which has survived for 14 years and is the foundation of A. Stotz Investment Research
As head of research Andrew moves to be head of research, starts seeing things from a different angle
For the last half of his career in the industry, Andrew was a head of research. And he never lost sight of his goal to be number one, then in 2008, 15 years after making that pledge, it finally happened while working at CLSA, Andrew was voted No. 1 Analyst in Thailand in the Asiamoney Brokers Polls for 2008, repeating that in 2009. He was also voted No. 1 Analyst in Thailand in the 2009 Institutional Investor magazine All-Asia Research Team Report.
As head of research Andrew started developing his own style of investing
A successful head of research sells the best ideas of his great analysts, and over time Andrew tired of this and wanted to go back to his roots as an analyst. Those roots were picking stocks. The bosses at Kim Eng Securities gave him that chance to get back to stock picking. Andrew worked there as a Strategist and Managing Director for International Business, with Sornsak as a Senior Vice President. Here Andrew and Sornsak developed “Stotz Stocks” a portfolio of 10 stocks in Thailand. And they did something almost unheard of in the world of stock broking, they benchmarked and announced their performance in every issue they released.
Does it add value?
Now coming under the pressure of performance, and having been given the freedom in his job, Andrew and Sornsak were forced to start to ask the question, “Does it add value?”. The only way to truly add value in the financial world is to measure your long term risk adjusted performance. From that point forward the mantra that they have applied to every single thing that they spent their time on was “does it add value” to our long term performance. What they found shocked them that much of what we traditionally do in the financial world (building financial model, meetings management of companies, etc.) may actually add much less value to a portfolio than many imagine. This led them to start seriously testing and questioning traditional financial believes and “truths”.
Academic-style research becomes necessary to answer the question
Imagine the analysis and methodology used to select stocks as a toolbox. The toolbox is today full of old tools that more or less everyone uses, but does all these tools improve analysts’ stock selection skills? To improve their own stock selection ability and performance Andrew and Sornsak did test after test, research upon research with one question in mind: “Does it add value?”. But to seek these truths they had to start applying more rigor to the analysis and add more depth to their studies. This pointed them on the road towards academia. Combining professional experience with academic research made it possible to draw conclusions about what tools worked and what didn’t – what theory and models work in practice and what is just a theory that cannot add any value to your stock selection.
A. Stotz Investment Research begins
Academic research helps us to focus on selecting stocks using tools that work, and throwing out tools that don’t work
Our frame work is not a not a black box, it comes down to Four Elements:
Our toolbox is no black box, it’s our framework which we have developed and refined over 20 years, which comes down to four letters, FVMR: Fundamentals, Valuation, Momentum and Risk. FVMR is our framework for selecting stocks in Asia. The only static thing with FVMR are the four letters or the four elements, the methodology is consistently refined by new research and more testing using one simple question, a question that drives all our work, “Does it add value?”
These were some of the tools we have thrown out of our toolbox, but then the question is what do we have in our toolbox to select stocks and generate above market returns?
SPOST is one of the companies that has generated a solid return for us, but let’s look into a few of our other sock picks. We want to warn you that there will be winners shown, but also assure you to show you a looser. A. Stotz Investment Research is honest about when we turn out to be wrong, we are accountable. We also make sure to take action, not based upon our emotions, but by using our FVMR framework.
Common tools that we have thrown out our toolbox
By consistently using one simple question as a leading star: “Does it add value?” During the years we have found that a lot of common activities that most financial professionals engage in and spend a lot of time to do, doesn’t add value. At least not to us… Let’s look at some examples.
Using our FVMR framework help us to find the most attractive stocks from a huge universe consisting of thousands of stocks. It also helps us to analyze the companies that we select and put into our portfolios. When analyzing companies we have a strict quality control of financial statements and other data as a first step before we do an in-depth analysis of a company. How does this in-depth analysis work? Let’s look at Singapore Post as an example, a somewhat boring company in an industry that seems to have very limited growth opportunities.
One of the biggest challenges is to know when to cut your losses another is to know when to let your winners run or take profit. With the help of FVMR and our pre-determined “give up points” we always do our best to preserve our capital when we have selected the wrong stock, as well as making sure to get out as much return as possible from our winners. We know that we cannot only pick winners, but our FVMR framework has shown to work very well to generate superior portfolio returns.
At A. Stotz Investment Research we bring our professional experience and academic research together, it is the intersection of two worlds that don’t often come together. The business is continuously testing and questioning conventional wisdom to select stocks not only Thailand, but in all of Asia. Through our continual research and testing we find many conventional tools don’t work, which usually means we are halfway there to discovering new tools that work enhance stock selection and portfolio performance.
The A. Stotz Investment Research story began in 2013 when Andrew decided to break out of the corporate life and start his own business in the financial services’ space together with his business partner Sornsak. At the start they recruited Alexander Wetterling, a Swedish national who first met Andrew in 2011 while doing an exchange semester at Thammasat University and in 2013, he undertook an internship at Maybank Kim Eng with Andrew and Sornsak.
Fundamentals, Valuation, Momentum and Risk (FVMR)
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