I recently had an interview with the nice folks from Snowball Effect, which is being used as content to write three articles, the first of which came out today.
It’s a well written piece that touches on some of my comments on the difference between investing in listed stock vs private equity, psychology around investing and some other factors of investing.
Learnings For Businesses Doing PR
While the interview was very friendly and both the interviewers and I both had the same goal (to produce helpful information about investing), it was very interesting from my perspective because it was an insight into what it might be like to publicly represent an entity.
This got me thinking about some of the issues businesses might have with public communications. While I have a bit of experience with this subject, I have never been responsible for non written communication (except in a few trade shows and the like). So today I thought I’d write a little about my thoughts on the challenges of PR and being quoted.
Generally speaking the main forms of PR representation that give rise to quotes are written communications, interviews and public speaking (speeches, presentations, etc.). These are very different forms of communication because they each have different levels of interaction (which leads to distractions), control and skill required.
Written communication is by far the easiest of the three because you can fully prepare, take your time and there are no distractions. This means that you have absolute control over what you put out to the public, you can analyze what you wrote before publishing it, which means you can look for ways that people could misinterpret or corrupt the meaning in your words, and generally stop yourself from presenting poorly.
Public speaking is a little harder than written communication because you have social pressure; people might react to what you say (you might get clapping, booing or heckling). People’s reaction or the possibility of reaction might affect how well you communicate, though you can practice for this with groups like Toast Masters.
Nevertheless, with public speaking you are still in control and you can prepare in the same way as you can with written communication. There is just greater scope for errors. That said, it does have the benefit of being able to show some personality and charm, which is more difficult than with written communication. Also people can see your face, which means that peoples reaction will be different to written comms (think about how differently people treat others in a car vs as a pedestrian).This aspect may make it a more appropriate way to communicate certain types of information – such as apologies or things that require ‘spin’.
Interviews are easily the most difficult form of communication. You can walk in prepared, but get misdirected by the interviewer and end up talking about something completely different. You can have thoughts that distract and misdirect you even mid-sentence. Such thoughts could be about the subject matter or social matters (for example, you may be thinking “What does that look on the interviewers face mean?” or “Are they trapping me with this question?”).
There are also issues that as your speech is free, you may not communicate your point well. This gives rise to being quoted in a way that makes you look dumb or doesn’t present your whole opinion. For example, your rhetoric could reference something you previously said, which when quoted makes no sense without the former words.
My takeaway is that when talking in interviews, you should always ensure that you make your point clearly and ensure that whatever the distraction, always finish what you were going to say before discussing the next item.
My Snowball Interview
Fortunately for me the folks at Snowball Effect had no such mal-intentions, but given that I’m not a skilled interviewee, I wanted to take this opportunity to expand on some of the ideas touched on in the article.
“Prior to that, I’d been swimming around in the pool of sharks that is the NZX and ASX, which was great. But SuiteFiles was interesting. As a private equity investor, you’re not quite in the business, but you have to be business-minded. Whereas when you’re investing in listed stocks, you don’t have to be as much.”Lewis Hurst
This first comment about the pool of sharks was a little jest about trading public listed stocks. It’s actually not too bad, but there are some shady companies out there (I won’t talk about specifics) and it does feel like there’s a bit of stock market manipulation going on sometimes, though that doesn’t bother this investor. I find that NZX listed companies tend to be more honest than those listed on the ASX in terms of the reliability of forecasts, though this is entirely just my opinion and I don’t have anything to back this up. I also believe that there is some insider trading that happens with many of these companies.
I found investing in SuiteFiles interesting because it is a closer nit community of investors and directors, though I would say that this definitely isn’t as much the case with my smaller private equity investments.
My comment about being business-minded with private equity is such a small quote with a lot behind it. When you are involved in a company (especially a closely held company) as an private equity investor, you have to also think like a businessman. This means that you have to be watching out for tricks and be prepared.
A good example of this is when I was looking at investing in a tiny home complex a few year ago. The offer was presented as a business with the security of each investor owning their own part of the complex which was managed by the business. In fact the owners intention was to structure it in such a way that the business would allow her to unfairly allocate revenue through homes she owned before homes owned by other investors.
Interestingly in business actions can be seen as fair or unfair at the same time. It’s necessary to be business-minded to think about what is right and what action to take. An example of this is an entrepreneur that wants to take a large salary from a company you are invested in. This might be fair because a person doing that job might be worth that much, equally it might be unreasonable because the entrepreneur is already motivated by their large stake in the company, so it’s unfair to compare their package to someone who needs a larger salary to remunerate the position.
As a private equity shareholder, like a businessman you will have to consider legal implications of your position. This means that you will have to understand the intentions behind sections in shareholder agreements and company constitutions. Like a businessman you may on occasion have to strongarm people or even take people to court. Fortunately I’ve never had to do the latter.
“With private equity investments, you have to do a bit more research as there’s less published information available. Snowball Effect is great at putting together offers and making that information available. With the NZX there’s a lot more information out there, newspapers digging out information on an investment opportunity and industry commentary – which you don’t necessarily get with private equity investments.”Lewis Hurst
I think most of the above quote is pretty self explanatory, though it’s worth noting that although Snowball Effect does a good job of putting together offerings, you still need to do your own research because even for retail offers there’s a lot missing.
“Not just for a diversity spread, but also as part of a risk and reward spread. Don’t be put off with private equity, but if you’re nervous, start small.”Lewis Hurst
Again, I think that’s pretty self explanatory. I’ve talked before about building a strategy, and I believe that private equity can fit into this for many people, especially younger people or people who have already reached their financial goals and are both capable of enjoying the benefits more risk.
“Use your gut to protect you against the negatives, rather than persuade you of the positives. You can convince yourself that something is a good investment and then not put in the leg work that you need to with private equity investments.”Lewis Hurst
It’s really important to keep your emotions out of investing when decision making. Your gut can tell you something is good, but you need to put the legwork in to prove that it’s a good investment and find all the potential traps and things to be careful of. However if your gut tells you it’s bad, just don’t bother investing. You can do more research, but you might end up convincing yourself to believe the BS your gut is warning you about. It’s possible to be too open minded, sometimes.
“Investing can be complicated. There are so many things to learn, so many mistakes to make and so many ways of viewing things as well. What worries me about new investors is a lot of them haven’t thought about it much. Everyone’s been there. You start off in the stock market and the amount of research you do is looking at the line on the graph and considering whether you like the products being sold by the company or not. You feel pretty confident with yourself and throw some coins at it.”Lewis Hurst
I suspect that this quote might seem derogatory to some, but it’s really important to realize that there is a lot of work in investing. If you’re doing less than half a day’s work of research, you’ve probably not done enough research.
I see a lot of big ego’s with new investors who think they’re an expert because they bought some stocks that went up, but when they talk about investing it’s clear that they know next to nothing.
I think we can all suffer from egos (especially us men), and ego is the enemy of intelligence. Consider how little scientists of the past knew, but were so certain that they knew everything (leaches could be used to remove demons from the sick, the Earth was flat, etc.). It was only when we accepted that we didn’t know things that we were forced to research and ended up learning things. It’s very easy to stop learning at that point because your ego tells you how great you are, but recognizing that we can never know everything is the only way to keep learning and improving.
Personally, I need to improve my knowledge and experience in matters legal, accounting and business, and everyone can always benefit from working on our people skills.
“Don’t follow some formula that you’ve read about in an investing book. You need to relate the opportunity back to how you’re going to get money out of it and how much return you need that investment to make to fit with your financial goals.”Lewis Hurst
Reading this again, it comes across as though I meant to say that you shouldn’t invest based on whether the investment opportunity fits the values in a textbook, but instead whether it fits in with your strategy. That’s good advice, but not what I meant.
Additionally, I probably should have said “Don’t just follow some formula”, because books are great.
This quote was actually a reference to performing a valuation that matches your goals rather than how an accountant might perform a valuation. For example, you can apply a risk premium that’s relevant to the risk levels acceptable with your strategy, rather than what’s relevant to the business. This is a complicated subject, so I might circle back to this in a future article.
Lewis believes that Snowball Effect has simplified the process for investors and importantly, saved them time. “When Snowball Effect presents retail offers, they’re presented in a very easy to understand way.”Snowball Effect & Lewis Hurst
There’s actually a lot in this sentence that was discussed in the interview, but didn’t make it to the page.
It’s a massive amount of work between getting an offer from a company to making that offer investable, and Snowball Effect tidy up the offer so you don’t have to deal with any of the mess.
Based on past experiences investing without Snowball Effect, I have found that accounts aren’t correctly presented, forecasts don’t match reality (this includes incorrect numbers and unrealistic expectations), there are legal documents to create and agree which take a long time and costs thousands, etc. There’s months of time goes by to prepare all that and I notice that I don’t have any such issues when investing in offers presented by Snowball Effect. This also increases the quality of the offerings because I don’t have to deal with time wasters with madcap ideas about valuations, etc.
The downside to this however, is that I don’t get to see the abilities of the entrepreneur. For example, I don’t get to find out if they’re bad with their finances, projections or strategy, because it’s all presented nicely to me. I don’t get to find out if they have good negotiation skills or if they are a difficult person to deal with, either.
Finally it’s worth saying that because Snowball Effect handle all this stuff, they’ve enabled an entire market of investors and businesses that wouldn’t otherwise be able to invest or get funding through smaller investors. This is because for all the work it takes to get an offer ready and do the research, and the cost of the legals (thousands of dollars) it wouldn’t be worthwhile for each investor who is spending less than six figures on the investment. Snowball Effect has effectively made it possible to invest four figure sums in private companies, which otherwise wouldn’t be feasible. That’s pretty cool!