Peter Hodson: Five Unusual Tales from My Investment Career

As we wind down for the holiday season, it’s a good time to reflect on some of the lighter moments in the investment industry. Here are five unusual stories from my investment career that showcase the quirky side of portfolio management.

If They Smoke, Don’t Buy the Stock

During a road trip in the late 1990s, I visited a plastics company in eastern Ontario whose stock was performing well. I was assessing whether or not to invest. While meeting with 11 of their senior executives, I noticed something odd—10 out of 11 were smoking in the boardroom. It was before the smoking ban in offices, but I couldn't help but feel uncomfortable. Here we were discussing a company that worked with plastics, one of the most flammable materials available! Ultimately, this gave me a bad vibe, and I chose to pass on the investment. Interestingly enough, 18 months later, the company went bankrupt. Maybe those smoke breaks were a distraction from running the business.

No, I Don’t Speak Kazakh

At a hedge fund where I previously worked, we invested in Petro-Kazakhstan Inc., an energy firm. Although the stock was highly volatile, we liked its future potential. One day, the stock dropped unexpectedly without any news. My boss urged me to find out what was happening and suggested I “phone the Kazakh government.” Both amused and puzzled, I explained that I didn’t speak Kazakh, didn’t know anyone there, and they wouldn’t share any information even if I did! Much to my relief, several months later, the company was taken over by China's state-run oil company at a significant premium.

Dad, Your Job Sounds Kind of Boring

When my children were young, they asked me what I did for a living. I would usually say that I managed other people's money. One day, my daughter Justine told me that for the first 11 years of her life, she thought my job was incredibly dull. She imagined I just sat in a room watching cash all day!

The Big Break via a Fax Machine

My first opportunity as a portfolio manager came unexpectedly. After several people at my insurance company quit, I was left to manage a fund that needed a leader. Although I was young and inexperienced, I was told a more seasoned manager would soon take over. Just as he was set to start, he sent a fax (showing my age) on the Monday he was meant to begin, saying he had accepted another job elsewhere. Voila! I became the permanent portfolio manager, thanks to a fax and a fortunate turn of events!

The Drug Smuggling CEO’s Firm Went Bankrupt. Who Would Have Thunk It?

In the early days of the dot-com boom, I was tasked with analyzing an advertising company that was performing well despite its interesting leadership. After thorough research, I discovered that the CEO had a prior conviction for drug smuggling, having allowed drugs to be transported in his plane. We decided against investing in the company, even as its stock price continued to rise. In due time, the stock was halted, revealing that money was missing from the accounts, and the CEO resigned. The company ultimately went bankrupt. This experience served as a lesson on how some investors can overlook red flags when stocks are on the rise.

Peter Hodson, CFA, is the founder of 5i Research Inc. and serves as a portfolio manager for the i2i Long/Short U.S. Equity Fund.

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