My guest today is Eugene Ng (@EugeneNg_VCap), founder and CIO of Vision Capital, and author of Vision Investing. In this conversation, we cover his investing framework, red flags as an investor, and lessons applicable to investing from elite sport. I hope you enjoy my conversation with Eugene Ng.
Show Notes:
[00:01:12] – [First question] – Background
[00:03:35] – Eugene’s accident
[00:06:44] – Early investing influences
[00:10:34] – Investing in Singapore vs Overseas
[00:19:13] – Red flags as an investor
[00:24:01] – Eugene’s competitive advantage
[00:26:04] – His portfolio construction
[00:33:09] – Sport and Investing similarities
[00:36:45] – His process for writing his book, Vision Investing
[00:39:45] – Most undervalued life experience?
[00:42:57] – What Eugene would do if he was 18 now
[00:45:10] – What is Eugene most curious about going forward?
Connect with Eugene:
- Follow Eugene Ng on Twitter
- Buy Eugene’s book, Vision Investing
- Vision Capital’s Website
- Vision Investing Viewpoints Newsletter
Listen to this episode on Apple Podcasts, Spotify, Stitcher, Castbox, Google Podcasts, or on your favourite podcast platform.
Transcript:
Kalani Scarrott (00:39): My guest today is Eugene Ng. He’s based in Singapore and is the founder and CIO of Vision Capital, which is a fundamentally driven bottom up and long earning equity fund, with a focus on investing in companies that reflect the best vision for our future. Eugene is also the author of Vision Investing and has represented Singapore nationally in water polo, having won a gold medal at the 2007 Southeast Asian Games. In our conversation, we cover his investing framework, red flags as an investor and lessons applicable to investing from elite sport. I hope you enjoy my conversation with Eugene Ng.
Welcome. Thanks for being here, Eugene. But I think just to give listeners a background sketch of yourself and your life, could you just give them a rundown of what got you up to your career and life to today?
Eugene Ng (01:25): For me, I’m actually from Singapore, born and bred in Singapore. Born to what was an average family of which my mom and both middle income parents. My parents were actually divorced when I was about in my teens. This was what happened, was my dad was actually habitual gambler. He actually started gambling a lot and got our family into a large debt. And what happened was that because of that, my parents were divorced, and my dad left us, and my mom had to bring us up single-handedly. Now, so with that, what happens? I went into university and that’s when I started my path. I started doing economics and finance. That’s because always, I like to think about how do we think about it and react? And that always gives me a very interesting perspective about things, because it’s not something that is fluid and it gives a lot of insights.
I started my career back in 2008. That was right at the smack in the financial crisis. And I was really, really insane. When I started that, I think it was very difficult to find a job. And thankfully I managed to start my career with Citi as an Asset Management Associate, being the last one into the batch. And that was a change I was there for them for three years. Did credit cards marketing, insurance marketing, as you can see, you can sell insurance, you can sell anything. And that’s what I did. FX advisory after the FX sales. So I covered corporates, any corporates that need foreign exchange on helping them. So the way to explain to my grandmother how I do it is that, “Think of me as being a money changer, exchanging money from one currency to another, but not really seeing the notes itself, it’s really seeing the numbers.”
And then what happens is that after that I moved to JP Morgan when I was there for eight years, also doing the same thing, doing FX sales. And that’s where I left JP Morgan sometime back at beginning of last year, around February.
So with that, I actually moved to a new job and I think that’s where I, in the midst of it all, really started writing my book, which was Vision Investing, right during this, smack of the period, and I think that was extremely crucial. But of course, in between I had an accident, which I can share a little bit more of how, but I think that accident itself was really fundamental to how I started investing.
Kalani Scarrott (03:35): Yeah. So I’d love to drill down if I can. Yeah. Your accident, what it taught you and yeah. Just talk me through it.
Eugene Ng (03:41): Yeah. So what happens was on a very fateful Christmas about seven years ago. I had a drink too much at a beach club. And what happens is that I decided to do the most crazy of things, to do a somersault into a very shallow swimming pool. And so what happens is that the top of my head actually hit the bottom of the swimming pool and I heard a loud pop sound. And before I knew it, I knew my neck was broken. Thankfully I could still move all of my limbs, but that was when the doctors, after they diagnosed it to there I got a Jefferson’s, C1 fracture. So if you think about it in our neck, the very first bone, which is a round bone, basically it got split into two. The back joints right now are recovered, but the front is still open. So actually right now I still have an open fracture.
Kalani Scarrott (04:27): Shit.
Eugene Ng (04:28): My neck is still broken. Says everything about me. Which is insane. And how serious was it, is that my doctors used to say, I’m a living miracle. 99% of the people who get it actually die. And 99% of the people who have it is paralyzed in some form or another. So for me to be still walking here and still being able to do what I can do, it’s truly a living miracle on every single day. And I think that’s where after the injury, my wife actually told me, “Why not do something with your life?” And I think that was really a crucial moment, right? What else could I be doing? Because my perspective of life started changing, became very different about things and I wanted to treasure it more, but what else could I do? And that’s when I started to say, “Okay, I’m good at math. I like investing. I’m good at numbers. How is that affinity for investing for equities…” and I needed it to be financial wealth, right?
So that’s the way I started pivoting into investing. And now the quest really came about in treating this. I went globally and I started finding, “Okay, how do all the richest make their wealth?” And you boil down to three things. One, start your own business. As you can see, founders and business owners, all the wealthiest all been business owners. Second, investing. When you can invest your way to great success. And the third one was really property. Property was another asset class in which, wealth generation from properties could immensely change fortunes. Now I was at a stage in my career where I didn’t have too much money to make that much off properties. And also the regulations in Singapore, as you can see around the world have also been increasing, making it very difficult to make money from properties as perhaps maybe 10, 15 or 20 years ago.
So properties was kind of okay, it’s there, but it’s out, right? Starting a business, now I think back then I was working for a company and starting a business was relatively much more challenging. So that could also really go into investing. So I started a path of finding investing in how can I really get my success right. So to me, everything is about getting that success right. And making sure whatever I’m doing is consciously in that right direction. So always when I’m doing, thinking about investing is, “Okay, what do I do next to make sure I can be one of the best investors in the world?” That’s really how it is.
Kalani Scarrott (06:44): I’d love to… of your early influence. Because I’m pretty similar myself. I didn’t start investing until 18, and it was literally learned from then. What were your early influences, especially with growing up and then realizing investing is the way. Did you have any predetermined, like a bias towards value do you reckon, or you were very risk averse, this sort of naturally fits in your investing style? Or how did you find your own style?
Eugene Ng (07:04): Yeah. I think my first stock that I bought when I was actually in Citi, was Citi stock. So that was in 2008, you know when financial crisis happened?
Kalani Scarrott (07:13): Yeah.
Eugene Ng (07:14): The Citi stock price kept coming down all the way, right? It went from up to five, I think from the $5 and I bought it. I’m thinking, “No, the company will be fine.” And of course before long it went to $1. Even on a reverse split adjusted basis, it never recovered back to that. So I think that was a very pivotal moment because I bought it without looking at actual financials, understanding the durability of the moat, the business itself, thinking that it’s cheap. It could definitely go up from there. And obviously it couldn’t. I think that was an extremely pivotal moment. So in my case, investing, what happens is that I’m always a learner in a sense that I’m willing to pay to learn. And that’s extremely crucial to me.
So I actually did a value investing course in Singapore with a company called AI. Okay, I heard very good things, they’d been doing well. I need to find out how they do it, right? So basically I did a three day course trying to find out. And what happens was that at the end of the course, they gave a framework of how to look at companies. And you know, obviously revenues go up, profits go up, the stock price generally goes up. Now what happens is that I think when it comes to value investing it became a path where you are thinking about investing in companies who are really great companies doing very well generating revenues. What happens is that, let’s pick an example like this. There was this company called VICOM which is in Singapore. So in Singapore you have to have what we call a Certificate Of Entitlement, COE, in order to drive a car.
And what happens is that mandatory checks are there every year for you to have a regular annual health check of the car. And that’s mandatory. So there are only two companies broadly in Singapore that does it, so you think about it, it’s a duopoly, right?
Kalani Scarrott (08:48): Yeah.
Eugene Ng (08:48): The company is great, and their income margin’s 30, 40%, which is great. I mean, you don’t have that many companies in the world that have net income margins of 30% and above. And you realize, okay, if the car population is not going to grow the revenues aren’t going to grow. Either revenues aren’t going to grow, the profits can’t really grow because there is a limitation to how much they can grow. Now, if the profits can’t grow, the stock price can’t grow. The math kind of sticks out. Right. So I was like, “Okay, it’s a dividend paying stock is paying me 5%. I’m going to make 5% of returns, but there has to be something better than that.” Right?
So when I started changing my thought process about that, I literally swang, so I redid my whole search and whole investing in Asia and trying to find, is there a company that could be growing 25%? Their profit margins are just growing faster and maybe the profits are growing 40% a year, right? And even if I’m paying expensive or paying higher valuations, perhaps the stock price could actually go up far more, right?
And that’s where I could actually get market beating returns. So that shift of mindset totally actually shift me in an all way from value to growth right away. It was just by nature. I didn’t read any book. It was just looking at a company spending a lot of time and just really figuring around the dynamics. And so that actually expanded my search from Asia to the US. And when I did that search, I’m like, “Oh wow.” I couldn’t really find a lot of companies that have that kind of qualities, right. And that really blew my mind and that’s really swung the whole journey. And it started in a quest. Okay. Now this has sparked a whole new journey of… Now, US is obviously very different. What else can I do to that did not come up with a process because you read a lot of books on the top investors, they all have a process. What is my process? What is my philosophy that leads into it.
Kalani Scarrott (10:34): Yeah. Because yeah, I think I’m sort of in a similar spot. Australia’s market, I think only makes up 1% of the global when you account for US and European. So it’s, do you ever find that it’s hard? Because I believe certainly in a bit of home ground advantage. I know Australian business a little bit better. Do you ever feel like you should maybe invest more… Because as I understand you invest very globally, do you have a feel a tendency towards Singapore? Or are you very much globally now, and in that realm?
Eugene Ng (11:00): I think about it when it comes to investing. It’s really about the market cap versus the opportunity, right? If it’s a Singapore company, but it’s truly global, it has a very large market opportunity and is expanding tremendously, it’s the company I would definitely look at. And in Singapore, for example, there are two companies that I invested in. SEA Limited and Grab. And more for them to have fairly addressable global markets, and for Egret a more regional aspect for Southeast Asia, and that still works out for me. But if it’s a very local company that has a very local, very niche place, in a very small geographical region, which limits your total addressable market. You can grow into that total addressable market or eventually cap and limit your growth.
And you can delimit your growth if actively the company can’t grow at any much bigger. And if the company can’t grow any much bigger, which means effectively the stock price can’t go. If the stock price can’t go… We’re really looking for long-term compounders and market diverse share. We’re not looking for something that can grow into its limits and then eventually not grow. So I always think about it from that perspective on any business that I’m investing from the aspect.
Kalani Scarrott (12:04): Yeah. Just to invert a little bit. Is there any common characteristics or certain criteria, specific situations that you really try and avoid as an investor? Are there any big red flags that you’re always on the lookout for now? And talk me through any experiences where you learned what not to do.
Eugene Ng (12:20): I think the way to think about it is, let’s try to find what are we looking out for? And then when you know what you’re looking out for, then naturally those that you are not looking at for tends to be excluded, right? So in the world of investing, actually did a study from between 1926 to about 2016, he studied the entire investing universe. And of the investing universe about roughly 1% of the companies of the 25,000 companies, about 1,000 companies accounted for majority of the stock market returns. Now what I’m trying to say is that here, in the entire investing universe, only a very small percentage of companies account for the majority of the returns. Most of the companies actually gave returns zero to even negative. Now of that 1%, half of that, or even very much smaller percentage of about a hundred companies accounted for about 50% of all of that returns.
And also when you really think about investing in the investing universe, right, there’s a big universe. And you’re really trying to shift into that very small point where some of these top greatest companies are already there. So I wanted to shift my process into there, right? And when you went back to it, so the things that I really am always be looking out for is, in the very long run, what I want to achieve. I know one of the main drivers of rising stock prices. Rising revenues that eventually lead to rising profits, rising profits lead to also rising cash flows and that results in a rising stock price. I always say this, if I meet a 10 year chart of a company in which you have rising revenues, rising profits and rising cash flows and not have a rising stock price, it is almost not there. Right?
So I’m looking out for something like that. Now it goes back to that, okay, I have fast, rapid revenue growth. It’s about the durability and the sustainability of it. Now assuming I go into revenues, I’m looking at the business. What business is it? What is it doing? Is it something that is sustainable? Is this something that is recurring? Is this something that people can keep doing? So I’m looking at it from a durability of the revenue. And that goes into competitive advantages. Is the competitive advantage strong enough for it, right? I like network effects. I like economies of scale. I like operating leverage. I think those are really technological advantages that companies have that drive the growth of revenues, because revenues can instantly start growing exponentially.
Now, when it comes back in to then profit margins. I like rising profit margins. It need not necessarily be profitable, it can also be non-profitable. But most importantly, it has to be a path to profitability. And when you think about it, it comes into the unit economics of the business. Are you right now making money on every customer? It’s just that maybe right now, you’re actually reinvesting that profits. So you’re not seeing it as a loss. And that’s perfectly fine. If you can do that, that’s not an issue. So I’m really looking at a durability of the business, rising profit margins. And I love it, especially when profit margins rise. You know why? Because that means profits are growing faster than revenues. If profits are growing faster than revenues, it has a very high likelihood that the share price will rise even faster.
Even you can have very high valuation multiples. Those can get compressed quite a fair bit. And we’ve always seen long after long that has always been a massive drivers. Always go back down to that, right. Always looking back at that. Now, when I think about it just even a little bit, when I think about revenues it’s really think about it from a total addressable market. I want something that’s a first mover, a disruptor, right? And it’s something that’s really changing the market. Now, do I like a market that is perfectly competitive? Has 1,000 people, and I can’t differentiate you from another one. You might be great, but you can be very, very niche. Now, the way to think about it is, in investing, everything’s a game.
I like it when I see monopolies, I like it when I see the duopolies or even oligopolies, because what it means is that they have pricing power. They have large share of the market and they have market dominance. So a lot of the companies that I invest in tend to be almost monopolies or duopolies, or even oligopolies in their very own niche. It’s because you want pricing power. You don’t want a company to be in a perfectly competitive space and they be fighting every day nonstop to get your customer, to sustain your profits and to keep growing. So if you think about it, to me investing is always a game about really getting all the odds in your success, right? We want to play unfair games. We want to bring the odds of success on our side and finding that. So that’s always a very, very big key of how I think about it.
Now, when I go back into the margins, ultimately businesses are run by people. I love founder led businesses, I love founder who are, founder owned as well. Have high insider ownerships. But you know, sometimes a lot of these companies, when they become very big, the founders might step down and eventually they get run by professional managers. And that’s perfectly fine too. So I have a Substack, right? And when I looked at it, founder led companies actually tend to outperform non-founder led companies because there’s skin in the game. They’re inside it, right? They tend to invest more in R&D. They tend to do a lot more things that are more long-term for the business rather than more short term focus. So you see, I’m finding founder led because I know founder led companies tend to outperform.
I find top managers. For example, managers, I look at Glassdoor ratings. Tell me, for example, are the managers doing a good job? Are the people, the employees loving the CEOs? How they’re running the company? That gives me… So the way I’m thinking about is, I want good managers and good managers can always be very long-term focused and running the businesses. So I always think about it really from that aspect. Now, if I think… That’s for me to reverse, right? What do I not look for reflex? Perfectly competitive businesses. I don’t like that. Companies that revenues are just not increasing. They’re declining. The margins are deteriorating. Profits are just deteriorating even faster than revenues. Somehow the company when it grows, the margins just don’t grow.
And that becomes a real red flag, right? I mean, how long can you keep sustainability burning cash to do it? Eventually the game has to stop. People won’t be able to finance. They won’t see the story. It can go. That’s all you can go for a while, depending on the market opportunity. But that doesn’t last very long. And that’s extremely, extremely important. The way to think about it. Management, if a manager is inconsistent, always thinking very short-term, paying themselves much more than you do others, accounting irregularities, inconsistency in how they communicate. And it could be saying one thing, but actually doing something that tends to be very red flags of how I thinking about it.
So the way to answer your question, everything that filtered in out of what I said at the beginning, I probably reflex that, and I always find it that way. Right? You look at an investment thesis of a company and the lessor the red flags is, the easier for any investor to see the story of it? If I have too many red flags because of something… It’s about the story, right? And if I can’t understand the story, the next person is probably not going to understand it. If they’re not going to understand it, they’re not going to buy. Right? I have time to realize the best investments that always have, the stories are just natural. I don’t have to explain so much or to justify so much why I have to invest in this company. It just comes so natural. And that’s when I realized the rest of it, I realized it. So, yeah.
Kalani Scarrott (19:13): Yeah, nah. That’s a good way to go about it. If you can’t explain it an investment in 15 seconds, then it’s probably not worth investing in. But yeah, you spoke about durability of revenues. So as you’re a long-term based investor, investing for the long-term. How do you view volatility and short-term news? How do you ride it out or act on it, if you do?
Eugene Ng (19:29): I think in investing, when we go back into it very long term, it’s why we do investing is if you graph a chart of the stock market, for example, you look at the US S&P, right? The US stock market is always from the bottom left to the top, right. And that is over easily a hundred year horizon, right? That’s really, truly the long-term. But what happens is that on any given year, the stock market can go up or go down. If I was to give you the statistic, right? On any given day, you actually have a 51% chance of making money because the stock industry goes up almost like a coin toss. Now, if I go to up to one year, the number increases slightly maybe to around 55%-ish or so. Now, when I go to up to 20 years, that number goes up to 80%.
So if I have a holding period of 10 years on any day or throughout the entire back testing period, I have 80% chance of making money. 20% chance of not losing money, right? Now if I increase that to 25 years, I have a 100% chance of not losing money. I have dramatically actually increased the odds of my success. I am playing a game right now where it’s not 50 50, that I’ll win or lose. It’s actually a hundred percent that I will win. So by just investing, long-term, thinking very long term, being a very long-term focused investor, I’ve literally swollen my odds of success to 100%. And not having to lose. So my downside actually becomes zero. Right now, the way I think about it probabilistically, right?
Now, when I go back to volatility, which is your question, right? On average, the markets fall and on any given year, anywhere between I would say 10 to 20%. Right? But what happens is that… The way to think about is how frequent those falls? I would say on every six months, the markets falls between five to 10%. Now we’ll say in every three to five years, the market falls between 10 to 15% and all, if you think about it from any in between 10 to 20 years, the markets falls anywhere between 20 to 30, even 40%. If you think about it, that draw downs and volatilities are happening. You need sell offs in order to go up to a market, a market conversely cannot be always rising. It kind of goes in ebbs and flows. And that’s how we just need to go with it. To me, I’m always been very focused about two things.
In volatility. I think about it in two things. One, you have price volatility. The next thing you have is business volatility. Price volatility is really just a stock price volatility. You’re reacting to a stock pricing in the market where there’s a willing buyer and a willing seller for a company and a stock. But over a long time, we were really looking at business volatility, right? Like the question I have: if Amazon is growing revenues at 40% top line, right. And Amazon stock price drops 15%, has anything really fundamentally changed in the business? No. Then again, the question you should also be posts opposite in that direction. If Amazon stock price rise by 20%, shouldn’t it be also be the case, right?
I mean, that is what I’m trying to bring across. Volatility can be two ways, but more importantly, you should always be… I’d rather not look at it from a stock price volatility, because I know Mr. Market is really a voting machine in the very short run. There is a lot of noise, and it is what it is, because we are all human individual agents that all trying to make a price on the market. But when you go really long term, you’re really focused on the business volatility. So if you look at a long-term chart, which I have in my book as well, the stock market goes up because earnings goes up over a very long run. Period. And obviously earnings are being driven by revenues. If you find a business that is going up long-term, as I mentioned, just now previously, it’s almost very difficult to find a company whose stock price doesn’t go up.
And so I’m really just fishing it and really thinking and really focus up on it. Now, when it comes to business volatility, there can be intra periods of quarter to quarter. So it’s important to understand the seasonality of the business. Correct? If a company is naturally is growing very fast in the beginning stage, seasonality might not occur. But if a company starting to mature, seasonality can occur. I’ll give you an example, right?
In retail sales, in retail, you look at most eCom businesses. Typically you end where you have Christmas. It’s by Q4 typically, it has to be the highest seasonal sales, right? And Q1 tends to have a lot. And that seasonal aspects, you must understand. It doesn’t necessarily mean that you have a blow up Q4 revenue growth, means it’s dramatically good. It has to be looked at in perspective of where the longer-term context is on that timeframe and also on a shorter time period timeframe. So I really always think about it. I always say, “Be a business focused investor rather than be a price focused investor.” And I think that’s always very important. And that’s how I think about volatility.
Kalani Scarrott (24:01): Yeah. It’s probably much less stressful that way, if you’re just focusing on the business rather than… But yeah, because you mentioned Mr. Market and stuff. So how do you see your competitive advantage? Because obviously it’s a big investment world we’re competing in. It’s a lot of other people. What do you think your biggest competitive advantages are? Is it a long-term, psychological, analytical? How do you view it?
Eugene Ng (24:20): I think the biggest competitive advantage we have as individual investors is really temperament. The way we have it is that because our capital is so long-term, we don’t have as institutional investors, when the markets are high, people are rushing to give you capital, asking you to buy stocks. And the markets are down, they’re busy taking money off. That math, for example, works massively against them. And that’s why if you poll most as, even my SPIVA, the score cards anywhere from, I say, 70 to 90% of institutional fund managers underperform the market in the benchmarks. Right? That is because mathematically they don’t have permanent capital. And because capital is short-term debt naturally just causes them to buy high and sell low, which mathematically just causes them to underperform. Because your fees and everything else. Right?
I think what we really have as individual investors is that we have permanent capital, and you need to make your capital permanent in the way of how you react to it. Stock markets will go up and down, right? Always be very focused on the stock market is a weighing machine, not a voting machine. You’re holding businesses. If the businesses are doing fine, I have no homes. Like if any of my, some of my top convictions, for example, they fall 40%, I will be rushing in to buy a lot of it. And that’s really how I’m thinking about it. The stock price is just a price for me to own the business. And if I think about it as… I love sell-offs, because sell-offs are opportunities.
And not be fearful of them and to really be thinking about it, I think that’s temperament is really important. We’ve got to be really holding it for the very long run because everyone just keeps buying and selling and just being, having that temperament is reasonable and having that long-term perspective.
Kalani Scarrott (26:04): No, it’s totally true, because a lot of my friends have gotten investing over the past year and same thing. I will tell them. They sort of come from a gambling background. I was like, “Man, you just got to chill. Long-term. It’s not horse racing. We’re not… Yeah.” But I’ve heard you speak about before how your portfolio construction is 20% of the businesses return 80% of all the returns. Could you just dive a bit deeper in how you go about constructing your portfolio and your views on it?
Eugene Ng (26:26): Yeah. So the way we do it in Vision Capital, which is the portfolio that I run, right? It really stems back with my life mission. So my life mission is to excite, to inspire and to empower people to pursue their dreams and grow their businesses, to create long-term, sustainable, positive value by making the world a kinder, better future. I’m going to set up Vision Capital in the first place in my investing philosophy and the mission was really stemming from what I learned from David Gardner. It was very, very influential in how I did it. Also really invest in companies that reflect our best vision for our future, changing and shaping the world for the better. But when it goes back to that, it really is about shaping it. So with the companies that are investing, you really have to follow what I’ve shared, in terms of what I’m looking out for.
But ultimately they have to be changing and shaping the world for the better. And that’s why the way the approach that we have is what we call “Vision Investing”. This is very different. It’s not just grow for the sake of growth, but growth in all aspects, or growth is any company, but it’s really, you have to be really very intentional about the companies that you invest. Give you an example, right? I don’t like gambling stocks because obviously what has happened. And if any company has any sense about relation to gambling, I just don’t touch it. It is what it is. Right? I don’t look at oil companies because I think oil companies are actually polluting the environment. We do need it. We do need it to get about our daily lives. But would I want to own something that is massively destroying the environment? No.
There is some of the large consumer goods companies. They’re just basically generating a lot of plastics. When you go to the beaches, you see a lot of plastics, and it’s just crazily destroying our environment. That’s something that I really don’t want to. So it’s very, very intentional in terms of the type of companies that I’m doing. If a company is doing something that I think is just not creating enough value, it could be profitable, it’s fine for me to say, “Give it a pass.” Right? So I give an example, right? There’s something, I didn’t invest in. Sometimes you would say you have two opposing thoughts, and this is one of those opposing things on that. There’s something just been thinking about.
For example, just thinking, “Buy now, pay later.” But, if someone has to borrow $20 to buy something, something has to be wrong. Because financially the kind of advice that I’ll give to anyone is, don’t borrow to buy something.” And there are only very few asset classes in the world, that you actually really can borrow and invest safely. One of which, to be honest, very rarely, is just only property.
Right? Other than that, I don’t even give that advice. Right. Having a hundred percent buy now pay later company clashes a lot with my philosophy. Now, do I think buy now, pay later can works? Yes. I think it’s great, it can be amazing, but it clashes tremendously with my philosophy. And hence I do say no. Right? Because it’s really very, very intentional. Do I have some companies that also offer some buy now, pay later? Yes. But it’s a very small percentage. It’s more really to help some of the buyers, but it’s not a massive main driver. Right. So I think it’s really very intentional. Now I think about it, going back to the question about 80, 20, right?
I mean, 80, 20 Pareto rule really exists in all nature. So the way to think about it is, I don’t do a concentrated portfolio. I do a very diversified portfolio because I want to sleep at night. Right? So the way I always say is, “When I started off was intentionally to say, I want to get my portfolio to at least a minimum of 25 stocks, of which I want to get up to that” And right now, actually almost more than 80 companies that I own, which is extremely, if you can, some say very, very diversified, right?
Kalani Scarrott (30:02): Yeah.
Eugene Ng (30:03): But the way to think about it is, no. If I pose a different scenario, right? In 2020, for example, I had almost more than 80 companies and more than 80% of them actually operate from the market, which is 60 of the companies. Right?
So each one can ask, right. I can become 80. I’m actually looking like, almost like an index, but I’m not actually an index, because you can actually beat the market over the long run. And it’s about really intentionally finding the winners. So to me, if I’m finding a winners, I can still be very diverse. In fact, by diversifying and owning the businesses that I want and intentionally in the right framework. Now, what happens is that I think if I look at it, my numbers about 20 to 30% of my winners have actually accounted for 80% of the returns. Now this is a very interesting mathematical aspect, which is something that is very important, as we are investing in stocks. And I want to run through this. When you buy a stock, the maximum a stock price can go down is 100%. You lose 100%.
Now when you find great companies and you’re investing for the very long run, you get multibaggers, which means the downside is limited, limited in the sense of minus a hundred percent. Right? But upside is unlimited. When you’re looking for multibaggers, you have 3, 5, 10, 50, 100 baggers. You have 100 is the one, if you’ve got a hundred baggers the risk to reward is really 100 to one. Right? And if you’re finding and owning, multibaggers you start realizing that your portfolio returns actually will start beating the market. And so really we are skewed in that construct, right? So in my portfolio, it’s filled with multibaggers. It’s multibaggers all around, literally. Because that is how it has been constructed. And I’ve just held it because I know that the minimum it can go down is a hundred percent.
Now that boils down to the question, right? Which is things that I don’t do to stop across myself. I don’t do short selling because when you’re doing short selling, the downside is unlimited right now.
Which totally works against my favor. Right? I don’t want to do anything now, do I? And then next, do I sell naked options? Do I sell calls? Do I sell puts? No, because again, the downsides are unlimited. I’m only earning the premium and my downside is unlimited. And I don’t like that. Do I think leverage? No. I don’t think leverage. I don’t think margin because yes, I might have amplified returns, but if it goes wrong, I’m going to be wiped out.
If you think about it, the very simple math of the greatest investors in the world, they’ve been the greatest investors in the world is because they have been investing long-term. They have records of 15, 20, 25 years, 30 years. Right? The whole thing about investing is not just being the winner in a one year race. It’s about really being the winner in a very long race. So all I’m trying to do is, remove all of these things and to just reduce odds of failure and to string my also success in my favor. And it’s always very, very intentionally done. Done in that way. And we will look at it from a mindset, from a construct standpoint literally, it’s almost mathematically geared towards a higher probability of success than a probability of failure.
Kalani Scarrott (33:09): Can’t play the game if you’re knocked out. So might as well just stick at it for the long run. Just go back a bit. So you’ve played some high-level sport. You’ve represented Singapore at the Southeast Asian Games, won a gold medal if I’m right. Is there any lessons you still pull from your sporting days? Do you think anything that you learnt during playing water polo can be applied to investing? Or how do you view your previous sporting life?
Eugene Ng (33:30): So I picked up water polo since I was about 13 years old. So I think I’ve played the game for almost 15 years. Of course, I played professionally at a very high level when I started finishing playing, I think in water polo, in team sports it’s very important because in team sports, you need everyone. It’s not a one man game. That is extremely crucial, but more importantly, I think sports with anything in life. It goes back into life and investing. Right? When I was playing water polo, we were training almost 11 times a week, twice during the week days, once on Saturdays. And that’s how crazy it was, right? In the mornings. We would start our mornings and we have 7:00 AM sessions, train for an hour and a half. In the evening, we have in the evening sessions that range from 6:30 all the way to 9:30.
This was day in, day out, when I was playing with the Singapore national team back then. It was a true test because you needed to have a particular sense of grit and determination to get really, really get true, to be sticking in day in and day out. Because a lot of times in sports, you can be working on something, but you don’t see that minute improvement.
It’s really about constantly working on something that really costs you to have that very big improvement. To give you an example, right? I was a very hardworking sportsman. I used to be, I was always there, putting in hours. I worked hard. You know, I swim harder, I shot faster. I trained harder. I put it in there. But sometimes in sports, it’s not just working on it. You got to be working smart. And so what happens was that I was actually one of the oldest during my best to actually play for Singapore international team to represent and to play the SEA Games. In my very last year, I had to make a call. I was actually the last to make the team. I did make a call.
I wanted to play. It was my last year, but I was not there. So in my last six months to one year, I was very intentional. I was like, “Okay, I need to be very intentionally saying, ‘What wasn’t I doing right, or I could have been doing better?’ And always be focusing on that.” So what I intentionally actually did that in my very last year, I had a massive improvement in terms of how I was playing the game. And that, to be honest, I didn’t why it took me 10 years to realize that. I mean, when you could be playing the game and you could be doing very small improvements. A coach tells you to do something, that is fine. But when you’re doing really very, very intentional of what you are as an individual, that truly dawned upon me, the importance of self-reflection and very intentional and very deliberate learning. And that truly was when I would say the mastery of the game, for me to a different level.
And I think that goes back into investing and into life. Right? A lot of the times when we, think what we do is an exponential curve, but sometimes it’s not as clear. Sometimes it takes, it goes up, but goes down into this valley of, in between and unknowing. And before you see the exponential and really, I think a lot of it’s sometimes just in life. And I think most importantly, it’s really in the ups and downs when you’re really trying to see. And I think that’s also the same thing, right? It’s not like it goes up and down. Right? It doesn’t mean that you’re a bad investor. It doesn’t mean that you’re a good investor. It just means people are just reacting to it. Right? I think it helps to have that mindset and that temperament that I have in investing, which I think is so important.
Kalani Scarrott (36:45):Yeah. That’s a good, great answer. I love it. So I’d love to hear. Just talk me through, so you’ve got your book, Vision Investing. Just talk me through your thoughts. Why do a book, your process of doing it, and… yeah.
Eugene Ng (36:55): So I think when I quit my job with JP Morgan, that was when I had a month break. And I decided, “It’s time to do it. Now or never. So I’ve always been writing all my, the content for the book. So I had the content probably say maybe about 50, 60% of the content being done, but as it was being written when I had time. So I decided, “Why not write a book? Why not comport all and I have in my content in it, and really being able to share with the world?” Right? Because for me, I think I’ve discovered the path to what I think could potentially work. And I wanted to show in a very logical approach. Because for me, when I was trying to learn investing I was trying to read a lot investing books. And there’s no one investing book that was trying to teach me investing in a particular way.
So I was learning very small blocks, but not in a very entire block that I felt could be important to me as an individual, mathematically explaining to me why I need to invest, why I need to invest long-term, why should I be investing in this particular way. And very also scientifically proven, with numbers and to show that, right? So to me, it’s always a game, right? Find out and then have that as a template and share that with the world. Because to me, ultimately I think when writing the book it’s really about the collective. There’s only so much I can do as an individual. If the world invests better, invests in greater companies… I always think about it from a flywheel. We get more people to invest better. If people invest in greater companies, the companies could do well, right? And a lot of other companies will also tend to come in there.
And he goes back into that flywheel of which to work goes into a better outcome and a better state. I think fundamentally that is not really like ESG, but it’s really a more philosophical, highest, higher end state of ESG. Not ESG just for itself ESG, right?
Kalani Scarrott (38:44):Yeah.
Eugene Ng (38:45): But it’s really a very philosophical way of how we’re thinking about this. About really making your portfolio reflect your best vision of our future. And that’s very deserving of really writing a book, really just to share that, right? Of the whole entire process and be very transparent, and I think just to do it. I think that’s really just… Because writing it during COVID was the most challenging. I wrote it actually in about three weeks. Every day in, day out as you can imagine. I actually think I was almost writing for about 14 hour days, every day, consecutively for three weeks.
I think it goes back to the high loose spots, right? If you can do that, it almost always the same. So I was really just grinding it and just writing it. And then of course, the whole process after that took me in another six months before I got it off to print. The whole process of proofing and stuff, but I think really is just sharing the world.
I believe if I could help positively impact a few other people who could invest better, that’s good enough for me. If I can help more, and that changes the world, I think that truly is a way of doing it. Plus, I think you can only do so much on your own as an individual. The collective is just much better.
Kalani Scarrott (39:58): Yeah. Ah, that’s great. Yeah. Totally remind me of sportsmen. It’s all or nothing, isn’t it? You’ve got to go. But yeah. I thought I’d go into my final three closing questions. For a younger generation today, what do you think are some of the most undervalued life experiences that students don’t give weight to? What is an underrated skill or experience that you think university age students should have?
Eugene Ng (40:19): I think in any university education is really always about asking why and digging in. Not just taking something that is being taught to you as face value. Ask, “Why is this being taught? Why is this the case? Why should I believe you?” Right. I think it’s very important to ask for anyone, university students for example, just to really try to understand it. I think in most importantly, managing our own financial money, it’s not being taught. I would highly recommend that you should always manage our financial life. It’s the book that from the minute I read, it really fundamentally changed my life, which is by T. Harv Eker, The Secrets of a Millionaire Mind.
I think that really fundamentally changed the way I look at money. Managing money is one of our most important things in life and is not being taught in school. If we know and have a correct mindset of money, that can fundamentally change. So I’ll give you an example, right? When I was very young money to me was seen as evil. Maybe it’s because I had heard the rich people were doing not so good things, but fundamentally after reading the book and especially the last 10 years or so, the way I think about money has fundamentally changed. Now, what if I told you money represents the value of a particular goods and service that someone is providing to you, and how much effort you have provided to you and then you’re paying for it.
And if I think about it fundamentally, that becomes very different. Because money is actually a representation of one’s value, of one’s value that one is providing. And when you think about it from that way, if companies are making profits because they’re fundamentally doing good. If a company is making a lot of profit, just for a very short term, they’re not going to last very long, because eventually you’re going to take it away. So it always goes back into life. I think about, and us. It’s about managing money, managing our own, and really asking why. When you’re doing your own research, do your own research. Don’t take what the financial media tells you. Do your own research. Ask why. Always be the person asking why.
And really try to understand and get down to the bottom-line. There’s always, everything is buttoned down to fundamental truths, right? The path to financial freedom is really to make more money, to spend less, to save more, to invest more, to invest well. And to repeat. Those are the fundamental truths to achieving financial freedom. There’s really nothing more fundamental than that. Right? So it’s about really going into that. And I really hope… I think we’re moving in the right direction.
Definitely. We are moving in the right direction. I love where the world is moving and I think we’re moving in the right direction.
Kalani Scarrott (42:57): That’s the thing sometimes. Yeah. Like all things in life, I guess. It takes time. It takes time for returns, takes time to build up your personal wealth. But yeah, we’re getting there. In terms of opportunities, where do you think some of the biggest opportunities lie today for youth? If you were 18 today, what would you do or where would you be going to spend your time?
Eugene Ng (43:14): I think the world is such a beautiful place right now versus where we were 10, 15, 20 years ago. We never had an internet. We never had a mobile phone. The world is literally at our fingertips. I think you’re able to widen access to more people, or reach out to more people to really impact their lives. So for example, I’m on Twitter. You can reach out to some of the greatest investors in the world who are really doing well, and can reach them, right? Because I’ll say access actually has been democratized, in a way you can actually reach out far better than, than anyone before. Right? And also I would encourage anyone to go there and see the world. Try, because when you try, you understand. Try and not go through just the being there, but try always be constantly asking, “Why this?” or “Why that?” Right? And saying, there has to be a purpose. Purpose of why you’re doing something.
And when you’re doing that, just go ahead and try that. And really look at, experience different cultures, experiencing different things, learn different things. Read as much as you can. I hope for all of us to be reading as much as we can because there’s so much knowledge in books. There’s so much knowledge in what people are sharing. And the good thing is, again, because of the access, we actually democratizing the access to knowledge, right? Previously, 30 years ago, you have an expert who has something as opinion. You probably have to go to a conference, right? To find something. And right now, like Kalani what you’re doing with your podcast now. It’s great because you’re actually democratizing the access.
You’re getting the public, the people to access to anyone, to some of the guys who you think have valuable opinions to share. And that’s part of how we learn. Right. And I would say the flywheel is, there’s a cycle. And I think sometimes you habe karma or serendipity, things come out. It comes back in tremendous ways that you cannot fathom.
The world just comes back in crazy ways. So the more you do, the more you learn, the more you give back, the more you share, and then the more you engage, I think are really good for it.
Kalani Scarrott (45:10): Yeah. Sure. And that’s when the best things happen, isn’t it? You put things out or you learn things with no expectations and things just knock at your door, don’t they? In terms of, for yourself, what plans or vision, pun intended I guess, do you see for the next five or 10 years? What areas are you most curious about going forward?
Eugene Ng (45:27): So for me, I’m in actually currently, so Vision Capital is where I have all my publicly listed companies, in that portfolio. So what happens, I just started Vision Capital Ventures. It’s actually a privately owned companies, so startups. I started doing angel investing and early stage investing just slightly under a year ago. I’ve invested in over thirty startups. That’s a very interesting space, because right now, when I think about my investing in public companies, I’m really investing in also the very forward looking companies. They’re really at the edge of it, right? So in the next five, 10 years, right. But, but you’re looking at startups and some of these very technology driven startups, you’re looking at something that’s in the next 10, 15, 20 years. And it’s going to be the next Facebook, the next Amazon, the next Google, right? And it’s really about where the world is going. And it’s really exciting because that helps to form and shape my perspective of things about how the world is going.
And it’s eventually very important. So the way to tie it all back, the way how I think about it is, I have Vision Capital which runs all my public listed investments. I ultimately have Vision Capital Ventures eventually when we get publicly listed, and gets back to the main fund. For me, it’s also about educating, about trying to reach out and to teach more people. So it’s about being an educator at some point in time. Not in the immediate future, but I think that’s something that I’ve always wanted to do. And I think most importantly is philanthropy. Really giving back. And to me, the best way is not doing charity and just giving money. I think the best way is about usually the way which entrepreneurs are lead into education.
So I’ll do it two ways. One way is providing an education to universities or giving them scholarships. That’s one way. The other way is the basically through helping entrepreneurs, doing some sort of accelerators or incubators in a way to fund them. Because it’s really about, ties back to my life mission, right? Helping people to have to create businesses that create a long, consistent and a positive impact. To shape and change the world. That’s really very important, because this whole way I’m thinking about it just really ties back onto it. And this is very exciting because I think the world is moving in a very, very interesting, very, very positive direction. I hope we, as investors, can vote with our money and show the world that we can change the world. And I think that’s how it is.
Kalani Scarrott (47:51): Yeah, nah some great points there. Yeah, I loved hearing your thoughts. Eugene, thank you so much. It’s been a pleasure.
Eugene Ng (47:56): It’s been a pleasure, Kalani.
Kalani Scarrott (48:01): If you enjoyed this podcast episode, be sure to check the website, compoundingpodcast.com. On the website you’ll find every episode complete with transcripts, show notes and other related resources. Also be sure to sign up to my weekly newsletter, Curated by Kalani, where I share what I’ve been reading, learning, and watching for that week. Same as the podcast, it’s compressed to impress and I aim for maximum return in the time invested. So sign up at kalanis.substack.com. You can also connect with me on Twitter @ScarrottKalani. Once again, links to all content mentioned will be in the description. But until next time, have a good one.