Nawar Alsaadi on how he lost and won millions on the stock market

Nawar Alsaadi is one of the most interesting human being I had the chance to interview in my life. He’s self-taught investor that did the worst mistakes you can do with a brokerage account, but also multimillionaire who owes his fortune to his prescient investments on the stock market. I feel blessed I had the chance to interview him a second time recently and I would suggest you to stick around for the whole duration of this 20 minutes YouTube Live interview. 

I know you since I read your first book which was The Bull of Heaven. I really loved it.  It goes from talking about Sadaam Hussein and the life in Iraq in the 80s to the stock market in Canada, so it’s quite an interesting book. And now you’ve just published a new book about social media Clock Zero that we are going to talk about later on. So my first question is like how did you discover the stock market?  Your parents were not working in finance, so how did you start it?

Basically, I’ve always had a certain interest in investing. I had an interest in business and my father had business interests, and I used to read the paper almost every day. My father would bring the paper and I would read it and I’d look at the stock charts and these different prices changing.  And then we had a satellite TV channel where we would get stock information, stock news, and I would just watch it out of curiosity, and I got pulled into this world because I figured this is where the money is, this is the way to go if I wanted to be wealthy and successful.  So I kind of jumped into it myself and learned about it.

You were reading following the stock prices when you were in Iraq? What markets were you interested in?

No that was in France, as you know I moved to France when I was 12 years old, and it was there where I encountered the stock market for the first time.  But I mean I was too young. My interest in the stock market, I think, started when I was maybe 16 or 17 years old, and that’s when I bought my first stock. I was 17 at that time.

What was the first stock you bought?

It was Euro-Disney, which operated the Dysney theme park that was opened in Paris in 1992, and their stock was going down for a long time.  And I guess I had it in me at that time to be a value investor of some sort. They did their IPO at 20 francs and I think I bought them at 10 francs, or something like that, and I put all my savings into it.  And it didn’t do very well, but ultimately after seven or eight months I was able to sell it at a profit. I was just kind of dipping my toes into the water, my real interest in active investing started when I was 19.

Okay.  And it’s interesting that you said that you had it in you to be a value investor because from reading the book, The Bull of Heaven, it seems that you were doing pretty dangerous stuff that got you super rich and then you got super poor. So, can you drive me through the path that you went as an investor?

You have to keep in mind that we’re talking about the late 90s, we’re talking about the Internet boom, we’re talking about Internet stocks doing very well, so I believe the Internet was a big thing, that it will be a big thing, that a lot of money will be made off of the Internet and I wanted to get involved, so I started buying technology stocks.  And I didn’t understand the concept of value investing very well, so I was kind of jumping from one company to another looking for momentum, looking for earnings, looking for a reason to buy stocks.  Since everything was going up, I did very well, I put half of my tuition money into the stock market and by the time I graduated from university, I multiplied the money I invested 20 or 30 times.

So how much money did you have at this time?

Well, I invested about $25,000 and by the time I graduated I had $640,000.

Wow!  But you need to tell me how did you lose it all…

Well the bubble burst and everything went down.  One of the things that made my descent much faster than my rise is that I started using margin in a lot of my trades… and so when I had half a million dollar in my account, I could trade up to  two millions dollars worth of stocks. You have to get this in perspective, you have a guy who’s like a kid who’s 20/21 years old and he’s day trading two million dollars in and out of stocks and thinking that the tree is going to grow to the sky, and of course it did not, and then ultimately when the market collapsed, I lost everything and I was down to $500 in my account.

So did you close your account at this point?

Well, I mean it didn’t really matter, it was a technicality, I didn’t have any more money whether I closed it or not.  I did keep the $500 there but, after that experience, I wanted to learn a little bit more about investing and I started reading a lot of books about investors like George Soros, Peter Lynch and people of that nature who have had a long track record, and I tried to learn from them.  I also read about entrepreneurs like Rockefeller and others who were well known in the 19th and 20th centuries, because I wanted to understand business better.  And then I kind of jumped again in the stock market about three or four years later. I was working at the time for my father and I was getting a salary in line with other employees and I had saved enough money to jump again in the stock market, and this time, I stayed away from margin, but I went into option trading.  I stayed within the technology realm and I went into option trading, which was a very similar replay of what happened the first time. I made a lot of money very quickly and then I lost it all very quickly as well.  And I discovered the other thing not to do with investing, which is playing around with options.

Yeah. So basically you were not buying on margin, but you were buying leveraged position where if it goes up you make much more money, but if it goes down you lose much more.

In hindsight, it’s clear that it’s even more dangerous than margin in the sense that there was an expiration date. I mean an option becomes worthless at a certain date, so you don’t just have to predict the direction of the market or the stock, you also have to time it right, and of course that may work for a period of time, but ultimately things backfire, and it did backfire and I lost again.  And that was a very harsh loss, actually harsher than the first one because in the first one I could always say “Well there was a big collapse.  I was a beginner, I didn’t know anything.”  The second time around, it was more complicated, because I blamed myself squarely for the loss and it took me a while to recover, but what does not kill you make you stronger, and ultimately I gave it a third try later.

Yeah, so that’s what is so interesting about your story that despite all those mistakes and you reached your mastery or found your own voice as an investor and you became an activist investor. The interesting this is that when we hear activist investor, most people think about billionaires like Carl Icahn… that can basically buy gigantic companies… but you were a relatively small investor and you were able to basically fight with a Canadian company called Equal Energy…  That’s so interesting, because as a small investor, you get those notices, but you don’t think it can have any impact because board members always get elected no matter what. Can you tell me like how did you turn yourself into an activist investor.

When I started investing a third time, I had a larger amount of capital, like I had real estate that I sold, and I put it in the market. It was an inheritance, but I was armed with the experience I’ve had before.

Let me ask how much money you had at this time to invest in the stock market?

The third time around I started with about $500 000 or $600,000, so it was a large amount, and then I added to it a little bit more later.  But my approach was fundamentally different, it was really not about the amount, it was really about the approach in the sense that I was looking for traditional industries, deeply valued stocks, non-leveraged positions, and I invested in those.  And then shortly after that involvement, the financial crisis started, so some of my capital went down. Thankfully, I was not fully invested and I was able to capitalize on that thinking that they were great bargains. 

Having learnt from the previous 10 years before that, knowing the market is cyclical and that things go up and down, and I made many investments that ultimately appreciated by 400/500/600 percent, and then I walked away with a fortune, just under 10 million dollars. And that gave me the opportunity to be an activist investor. I mean, that was the next step for me. It was not about making money just for the sake of making money. I wanted to do something a little bit more meaningful and I thought I would push under-performing management teams to improve, and there was a company called Equal Energy that had a lot of valuable assets, but its management team and the board were running it to the ground and I took a stance. I basically put all my capital, every penny I had, I put it in this.  I actually borrowed on top of it from my credit line just to buy five percent of the company.

But having said that, my activism process started before I bought that large position.  My activism process was very unique, was not done before or I think anywhere else. I was using Youtube, I was using message boards, I was using Seeking Alpha, I was writing articles, I was approaching smaller investors and I was pushing the management through a digital campaign to change.  And that process took about a year of pressure, I think I wrote at least 12 or 13 articles, I’ve contacted hundreds of investors, I called institutional investors, I talked to private investors, and I did some viral videos, kind of mocking management, pushing the management to do things, some of them were funny, some of them were serious.  It was an interesting process, and then I backed it up by buying five percent…

You were able to talk to the CEO and have a real impact on the management.  So do you think like anyone can basically call the investor relations phone number and say “I want to talk to the CEO.  I want this changed.”  You think that someone that is not rich or does not hold a sizeable portion of the company can actually be heard?

There are two ways you can influence a management team. The first one requires a lot of money, and consist of buying a large position, and once you buy that position and exceed the legal threshold to file, then you file with the Security and Exchange Commission or you file with the Canadian Securities Service and then you assure them that you’re an owner.  Once you do this, they have to take your call.

Now, if you don’t have that option, an option that is available to everybody is to make yourself an influencer about the company. To be an influencer about a certain company, you have to be proactively talking about it, a bit like a journalist.  You have to argue your case, you have to convince the shareholder base and make the company understand that you are talking, in a way, indirectly on behalf of the shareholders, and then they will listen.

They will call you an agitator maybe, but you have to show them there is a way for you to push back. You may not own the shares, but in a way you control the public opinion about the company and that requires an engagement and a program and a campaign, but it’s doable and does not require a lot of money. I mean all my activism, all the work I did as an activist, most of it was done from my home office. I mean, I didn’t need to hire PR professionals or lawyers, a lot of it was just hard work, and anybody can do it.

Now you mentioned talking and calling the company, I think anybody, I mean anybody, can call a company. And one thing investors need to know is that the company doesn’t know how many shares you own. They are as blind as anybody else, because most shares that are traded are traded under the name of the brokers, so they don’t know who owns what, so you can call and say “Okay I have a sizeable investment… I have a large investment,” and you keep it at that.  Some executive will not take your call if you tell them “I have only a hundred shares,” but you don’t have to disclose it’s a hundred shares, you just say “I have a large investment” Maybe it’s large to you, but you can say it’s a large investment and, as long as you handle yourself well, they will listen. 

You can’t just call and whine about something. You have to show a certain understanding of what’s wrong and how you want it to be corrected.  So I think it’s doable, but like anything in life, it requires some commitment, some hard work, some persistence, and you’ll be heard. I assure you you’ll be heard, and there are a lot of shareholders who will support you once they know you’re doing something.

And since we last talked about the previous book, what have you done?  I know you wrote a book, so are you a full-time investor?  Are you a writer? 

Well, I’ve done some activism beyond Equal Energy, mostly with energy-related names. Some of that activism is done behind the scene. There was an oil company, whose name I won’t disclose, that I bought a large position in.  I did not know, but the CEO bought my first book, The Bull of Heaven. He reads it and he emailed me. He said “I’m very glad you are supporting us.”  So he knew that I had certain background and I could in a way agitate against the company if they didn’t do the right thing.

I call this “soft activism”, when you get involved and tell them “I’m here…I’m watching… I have a large investment, keep doing the right thing.”  And there a lot of good execs… not every executive needs to be punished. I mean, there are good hard-working people and you can work with them without having a public spectacle about it. 

So I do that once in a while, but on a personal level, I am transitioning more and more toward writing. I’ve published five books and I’ve recently published Clock Zero and I intend to publish more books down the line.

You’ve published five books?

In total, yes, including The Bull of Heaven.

Oh, so I need to download the other ones I missed.  So last question, why did you write a book about social media… It seems like Clock Zero, I’m Not My Social Feed is against social media, and you used so much social media to be heard as an activist investor, so why don’t you like them?

I think everything could be bad for you if it’s used excessively, so I think social media can be nefarious to people’s daily life and life overall if they use it too much. So I wrote the novel that talks about a millennial in his late 20s who’s trying to find some meaning and value in his life and he’s wasting his time chasing likes on Instagram and Facebook and things like that, and he gets talked into leading a rebellion against social media, and so he had this kind of crazy plan to eradicate social media from the planet. 

It’s a bit like a thriller, but a satire comedy as well showing everybody how our life has been manipulated in a way by social media companies and how a lot of people have been turned into drug addicts using this thing every day and not doing other more productive things.  I mean you can do productive things like activism with social media, but you can also waste your time scrolling and liking. And, at the end of the day, you’ve not learned anything.  But I can assure you somebody has benefitted from your behavior and it’s the social media companies. They sold you a lot of ads because you’re using their platform, because these are businesses. They’re not here to help you, so you have to be smart about using them.  But the book is not preachy. It’s just a nice fun book to read.

I guess you’re not investing in Facebook or Twitter?

No no, I think Twitter as an investment have been a bad one and Facebook has been a good investment for people, but no, I mean out of principle… I don’t think it’s ethical for me to bash these companies in my books and then make money out of them, like I’ve not done this before as an investor and I will not do this now as a writer.