Latest / The Dutch Investors / #43 | The art of finding multibaggers | Interview w/ 100-bagger hunting | Part 1

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#43 | The art of finding multibaggers | Interview w/ 100-bagger hunting | Part 1 · The Dutch Investors

• 0:00
  SPEAKER_01: Welcome back to another episode by the Dutch Investors Podcast.
• 0:04
  SPEAKER_01: Today we've got a guest whose name many of you will probably recognize, Kevin Schoufaarts, the founder of 100 Beggar Hunting on Substack.
• 0:14
  SPEAKER_01: I believe he's an engineer-turned investor with a passion for digging up those rare market-beating compounders.
• 0:21
  SPEAKER_01: And today we are going to talk about how to find them, what to do when you find one, and his special sauce, which we'll get into later.
• 0:30
  SPEAKER_01: So let's start off by getting to know you a bit better, Kevin.
• 0:34
  SPEAKER_01: Perhaps you can briefly introduce yourself, what's your story, and how did 100 beggar hunting come to life?
• 0:42
  SPEAKER_00: Yes, thank you, and um thank you for for the invitation.
• 0:45
  SPEAKER_00: It's an honor to be here on the on the podcast.
• 0:49
  SPEAKER_00: So I've been uh investing for 14 to 15 years now.
• 0:54
  SPEAKER_00: Um very passionate about stock investing, and we can get into the weeds uh later on.
• 1:00
  SPEAKER_00: But um my passion, I wanted to start writing about it online.
• 1:05
  SPEAKER_00: So I started my my investing newsletter about 18 months ago.
• 1:09
  SPEAKER_00: Uh it has grown now, almost 6,000 readers.
• 1:14
  SPEAKER_00: And um it's like deep dives, earnings updates, educational content.
• 1:19
  SPEAKER_00: Uh, just to give you a glimpse, like one of my past uh uh deep dives was on Dino Polska.
• 1:26
  SPEAKER_00: I think it's a company you you already know.
• 1:29
  SPEAKER_00: Um, but Charlie Munger, in his wisdom, he said every year you need to try to kill your favorite idea.
• 1:39
  SPEAKER_00: So my goal this year is to kill Dino Polska, and I will be writing a short report or something like how do retailers die in the coming weeks.
• 1:51
  SPEAKER_00: So that's just one of the glimpses.
• 1:54
  SPEAKER_00: And uh next to that, yeah, uh we have uh started developing some a new website and some software tools to to um offer to our readers something more than just an article.
• 2:05
  SPEAKER_00: Uh that's called 100bagger.com.
• 2:08
  SPEAKER_00: And that's about uh in a in a nutshell what I do for the moment.
• 2:14
  SPEAKER_01: Interesting.
• 2:15
  SPEAKER_01: Yeah, especially that bit about trying to kill your best idea annually.
• 2:20
  SPEAKER_01: Uh in this case, Dino Polska.
• 2:22
  SPEAKER_01: I uh I'm definitely going to read that as a shareholder myself.
• 2:26
  SPEAKER_01: I kind of love that idea.
• 2:28
  SPEAKER_01: Most investors marry their stocks, right?
• 2:30
  SPEAKER_01: So it's basically inverting it all, and yeah, it's one of Munger's famous sayings.
• 2:35
  SPEAKER_01: So let's dig into your name for a second.
• 2:38
  SPEAKER_01: Was your name and strategy inspired by the book from Chris Mayer, 100 Baggers?
• 2:45
  SPEAKER_01: Uh why specifically that book and not any other investing book?
• 2:50
  SPEAKER_00: I think when you when you start learning about investing, uh, usually the first thing you do is you you start to read a lot of books and you talk to people.
• 2:59
  SPEAKER_00: And for me, um there are some books on the I think I read, I don't know, uh I read about hundreds of books on investing at the moment.
• 3:08
  SPEAKER_00: But there are there are a couple of books that create like a um a shift, it's like a step up.
• 3:16
  SPEAKER_00: And one of those for me was 100 baggers by Chris Mayer, who is based on uh um the original book by Thomas Phelps.
• 3:24
  SPEAKER_00: Um because for me it's a mindset shift, because when I started investing, when I bought a company, and for example, I don't know, it went up 40% in the year or something, then I sold the company and I was super happy, and I would go to my wife and I say, Hey, I made a profit and it was all great.
• 3:45
  SPEAKER_00: Um, but of course, if you want to have great returns, then the only way you could do that is repeat the process all the time, but it's very difficult.
• 3:54
  SPEAKER_00: And when I read the book about uh 100 baggers, it's more um a shift in uh thinking.
• 4:02
  SPEAKER_00: Uh, instead of thinking in days and weeks or months, you think in years, instead of thinking in percentages, you think in baggers, so doubles, triples, ten times, one hundred times.
• 4:14
  SPEAKER_00: And that for me was very important, and that's why I focused my newsletter on 100 baggers.
• 4:21
  SPEAKER_00: And maybe just to mention one other book uh that also created this kind of shift.
• 4:27
  SPEAKER_00: It's uh the book is called Expectations Investing from Michael Mobusin.
• 4:32
  SPEAKER_00: And for me, it's also a pivotal, pivotal book because just like Charlie Munger, he turns the valuation question upside down and he says, try to read the growth that is priced into the stock in the market instead of trying to value it directly.
• 4:52
  SPEAKER_00: And those two books are one of my favorite books, but uh I decided to focus on uh 100 baggers.
• 4:58
  SPEAKER_01: Is your strategy based uh entirely around those two books?
• 5:03
  SPEAKER_00: Um it's not entirely, it's influenced by other things because, for example, I when when I invest in different stocks, I also use inspiration from Peter Lynch because Peter Lynch he divided the entire world of stocks in like six or seven types of investments, and I think that's something uh that's very important.
• 5:25
  SPEAKER_00: Now, um yeah, uh my my investment strategy, I think I wrote about it in the past.
• 5:33
  SPEAKER_00: It's like I call it the yin-yang uh investment strategy, and the the idea behind it is that when you have a company of high quality that you think might go up multiple times in value, you want to stay away from it.
• 5:50
  SPEAKER_00: You want you just want to leave it alone.
• 5:52
  SPEAKER_00: So that's the the yang part, it's the white part.
• 5:56
  SPEAKER_00: You want you want just to let it ride because the compounding, the magic of the compounding, it happens at the end over many years.
• 6:05
  SPEAKER_00: But the problem is I know myself, and I I want to do something, I can't like read annual reports for an entire year and and then not act on some of them, and so I balance this out with the other part, uh, that's the yin part or the the black side, where I look for more shorter term opportunities, usually that's a couple of years uh in holding periods, uh, from one to five.
• 6:38
  SPEAKER_00: And this allows me to leave the compounders alone.
• 6:43
  SPEAKER_01: I see.
• 6:43
  SPEAKER_01: If I did my background check correctly, I think you are a nuclear engineer.
• 6:49
  SPEAKER_01: Yes.
• 6:50
  SPEAKER_01: Am I correct?
• 6:51
  SPEAKER_00: Yeah, yeah.
• 6:52
  SPEAKER_01: What led a nuclear engineer to become such a die-hard investor almost?
• 6:57
  SPEAKER_01: I think uh you spent maybe even more time into this than your main job.
• 7:02
  SPEAKER_01: So, how how did this all come together?
• 7:04
  SPEAKER_00: Yeah, it's 50-50.
• 7:06
  SPEAKER_00: I mean, uh my wife says I have two jobs.
• 7:08
  SPEAKER_00: So, well, I think um I don't know, of course, what what the general knowledge is of your knowledge is about the function of a nuclear power plant.
• 7:16
  SPEAKER_01: Uh it's it's not a lot.
• 7:18
  SPEAKER_01: I know it it's pretty clean energy and uh it it leaves a lot of waste, and that's basically it.
• 7:24
  SPEAKER_00: Yeah, but the basic idea is that uh a nuclear power plant, a nuclear engineering, it's not it's not necessarily difficult.
• 7:35
  SPEAKER_00: It's not necessarily hard, but what's very specific about it is it's super complex.
• 7:42
  SPEAKER_00: And complexity is something very special, you have to look at it like different parallel systems working together, and that that makes it yeah, the you could use the word hard, but I I like to use complex, and for me, the stock market is the same thing, and I'm I'm attracted to like solving complex puzzles, and that's what I find in the stock market because it's not only about the analytical, it's also about behavior, about psychology, and and it's like a never-ending game.
• 8:16
  SPEAKER_00: It's even a puzzle that you probably can never solve, but like each day I learn about it, it feels like I'm getting a little bit closer to the solution, but I I know all I know that I will never reach the final solution, and it's a bit the same thing in uh it's that complexity that attracts me.
• 8:37
  SPEAKER_00: You find it in a power plant and you find it on a stock market.
• 8:41
  SPEAKER_01: That's pretty deep.
• 8:42
  SPEAKER_01: Yeah, that's a good comparison, that makes sense, and uh it's something that is very specific to you and it works for you, but it might not work for uh for everybody else.
• 8:53
  SPEAKER_01: Does your having this background in uh as an engineer has it helped you, do you think, as an investor?
• 8:59
  SPEAKER_01: Has it influenced the way you think about it?
• 9:02
  SPEAKER_00: Well, there are advantages and disadvantages.
• 9:05
  SPEAKER_00: If you go into the stock market with an engineering background, all the analytical stuff, that's not a problem.
• 9:11
  SPEAKER_00: Um, because um in in hard sciences like physics and nuclear physics, uh the analytical uh analysis is much more difficult than what you have to do in a stock market.
• 9:23
  SPEAKER_00: But that's also a disadvantage in the sense that when I started investing, and when you come to the valuation problem of a stock, then I wanted to calculate it up until the decimal uh to be super precise, and that doesn't work.
• 9:41
  SPEAKER_00: I have to I had to learn that through mistakes, that valuation is by definition uncertain, um, it's imprecise, and what you're actually looking for is valuation or undervaluation that hits you in the face.
• 9:58
  SPEAKER_00: That's like, oh, this should be a double, or this should be a triple, not not like, oh, I think it's 20% undervalued or 20.5.
• 10:07
  SPEAKER_00: So it helped, it's it was a bit disadvantaged in the beginning, um, but I learned to be more order of magnitude, thinking in order of magnitude.
• 10:20
  SPEAKER_00: Um now, I think maybe the the the biggest advantage coming from a science background is you always try to I mean I try to look for the truth, the objective truth.
• 10:33
  SPEAKER_00: So, for example, I'm going to give you an example when I do an analysis on a company.
• 10:38
  SPEAKER_00: When I do an analysis, I will rarely I will always read what the other analysts have written last.
• 10:46
  SPEAKER_00: I don't want my mind to be influenced by what everybody else is thinking.
• 10:52
  SPEAKER_00: I want to make up my own mind and then compare it to everybody else.
• 10:58
  SPEAKER_00: And so when when I heard when I I I was in Omaha two weeks ago and there were I heard a lot of pitches.
• 11:05
  SPEAKER_00: Usually I write down I write down the pitch I heard in like one paragraph, but I won't look at what the person has written.
• 11:13
  SPEAKER_00: If if for example he has written uh an analysis online, I will only read it after I did my own analysis.
• 11:20
  SPEAKER_01: And and then what?
• 11:22
  SPEAKER_01: Say um you have a completely different thesis compared to someone you admire.
• 11:29
  SPEAKER_00: Does that change your stance or then then I will reach out to that person?
• 11:34
  SPEAKER_01: That makes sense.
• 11:35
  SPEAKER_00: I I I I have to try to understand the differences, and I I don't know if you have experienced the same thing, but when you do an analysis on a company, usually it's pretty hard to find pushback.
• 11:48
  SPEAKER_00: So I when I when I have written an analysis, I try to find people who can kill my idea, and it's hard because we live in a world where there is a lot of confirmation bias, and also I I met someone yesterday and uh he said, Yeah, I wrote I I read uh an analysis or a deep dive you wrote two years ago, but I didn't agree with it.
• 12:11
  SPEAKER_00: But I I I I didn't have the guts to tell you, and I said then you have to, because it's a gift for me if you can tell me what's wrong with it.
• 12:20
  SPEAKER_00: And I think in um especially in the stock markets with lots of uncertainty, you have to always look for the different point of view or the different angle, and I think uh I mean maybe we can reference Charlie Mungo a lot, but he he said the same thing.
• 12:37
  SPEAKER_00: You have to know the other side or the other point of view better than the guy himself, and then you have like um the most objective vision of reality.
• 12:50
  SPEAKER_01: You know, there's a lot of things to like when you analyze a company.
• 12:55
  SPEAKER_01: There's many green flags in every single company, but you just need one or two things you dislike or red flags uh so to say, that can kill your thesis.
• 13:07
  SPEAKER_01: So sometimes an analysis reads like a good news show, but if there's just one thing wrong, I mean just look at wire cards, there's there was just one single thing that went horribly wrong.
• 13:20
  SPEAKER_01: That if you could have spotted that little red flag back then, that would have uh avoided you uh many millions of uh of euros if you were invested.
• 13:30
  SPEAKER_01: I believe even Softbank was uh invested in that, and they have a real knack for finding good companies, so uh it was a very difficult one, and you need uh the pushback, I agree with you.
• 13:41
  SPEAKER_01: And especially with what you said earlier.
• 13:43
  SPEAKER_01: Um, once you read a few books or crack open a DCF model, and suddenly you're convinced that there is like the correct number for the intrinsic value.
• 13:52
  SPEAKER_01: You mentioned that uh a few minutes ago, down to the scent.
• 13:56
  SPEAKER_01: Like the stock market is some kind of physics problem waiting to be solved.
• 14:01
  SPEAKER_01: I have Neil deGrasse Tyson in the back, and uh it reminded me a bit of um when you said searching for the objective truth, it reminded me a bit of what he said on the Joe Rogan experience uh a few uh a few months ago.
• 14:15
  SPEAKER_01: He talked about different kinds of truth, and then you have objective truth, like you said, like gravity or space-time, and it is true whether you believe it or not, and that's what you want to find in a company as well.
• 14:29
  SPEAKER_01: And in your yeah, in your investment thesis, you need things that are objectively true, uh, because I mean the investing is messy, uh, everyone's truth is a little different, everyone has a uh is biased in some way, uh uh where they come from, they're biased by uh what where they live, uh whatever it may be.
• 14:49
  SPEAKER_01: So I really like that point you made.
• 14:52
  SPEAKER_01: Perhaps we can switch to uh the mindset and philosophy.
• 14:56
  SPEAKER_01: I I I want to dig a little bit deeper into that.
• 15:00
  SPEAKER_01: One of the biggest mistakes I see investors make, especially early on, but also later, is getting emotionally attached to a company and not seeing the company for what it truly is.
• 15:11
  SPEAKER_00: Yeah.
• 15:12
  SPEAKER_01: But also making emotional decisions in times you shouldn't act out of emotion.
• 15:17
  SPEAKER_01: I always talk about uh three kinds of edges we have as investors the informational edge, the analytical edge, and the psychological edge.
• 15:25
  SPEAKER_01: And I think the first two in today's world are almost non-existent anymore in today's internet and AI-driven world.
• 15:34
  SPEAKER_01: Uh perhaps when you're exceptionally smart or have unique insights in a or a very specialized job where you know things others perhaps don't.
• 15:43
  SPEAKER_01: But I think the main edge for most of us comes from the psychological edge.
• 15:47
  SPEAKER_01: Uh so I was curious how you handle that part.
• 15:50
  SPEAKER_01: How do you remove emotion, for example, when it comes to investing?
• 15:54
  SPEAKER_00: Yeah.
• 15:55
  SPEAKER_00: Yeah, it's a it's a great question.
• 15:57
  SPEAKER_00: Um, yeah, first of all, um removing emotion is difficult.
• 16:03
  SPEAKER_00: Um, I think we need to try to control it because when the price goes up and the price goes down, it always has like an emotional or even as a consequence a physiological effect on the body.
• 16:19
  SPEAKER_00: Um there are some tricks what I do because I know if I I look at the price and and I do an analysis, um I can be influenced uh by that.
• 16:32
  SPEAKER_00: So for example, when I like a company and I did an analysis on the company, um, and imagine that at the end of the analysis, for me it's a buy, uh, I want to take a position, then I will file the analysis away in a drawer, and I will just leave it there for a couple of weeks.
• 16:55
  SPEAKER_00: Because um there is an an enormous amount of recency bias at that time.
• 17:03
  SPEAKER_00: And what happens is when you file it away for two weeks and you're doing other stuff and you're analyzing other companies, and then you go back to the company, um, sometimes you see it in a different way.
• 17:16
  SPEAKER_00: And also what happens is the excitement is a lot less.
• 17:20
  SPEAKER_00: And the goal when you put in a limit order in your broker, it should be a rational decision and not based on biases.
• 17:32
  SPEAKER_00: So that's for example one trick I do, and of course, um writing everything down helps a lot also because you it's like I don't know if you saw the the Harry Potter movies with the Dumbledore, but when he when he pulls the the ideas or the past thoughts out of the head with his one, it's a bit the same thing what writing does for me.
• 17:55
  SPEAKER_00: Um there's a lot of idea ideas and a lot of analysis going on, but when when I've written it down, it's out.
• 18:03
  SPEAKER_00: And it it also helps uh manage the emotions I have um during investing.
• 18:10
  SPEAKER_00: So, for example, when the tariffs, when there were all the tariffs uh going on, um the ups and downs.
• 18:17
  SPEAKER_00: Um I also had a lot of questions from my readers.
• 18:20
  SPEAKER_00: So, what do we do because our stocks are plummeting, and the goal was just do nothing, analyze, verify.
• 18:30
  SPEAKER_00: Is there any impact on tariffs on the stocks we have or we covered?
• 18:33
  SPEAKER_00: For us, 90% of our companies are service companies, so there was no problem.
• 18:39
  SPEAKER_00: Uh yeah.
• 18:41
  SPEAKER_00: The best way is always writing down um in a factual manner what's happening, and then usually the emotions will be controlled.
• 18:50
  SPEAKER_01: It's crazy, right?
• 18:52
  SPEAKER_01: How six weeks of pure insanity and volatility uh can feel so hard and emotionally tough, and and now we are even higher in the stock market.
• 19:05
  SPEAKER_01: So if you just went away for eight weeks, you would have just thought that the stock market went up for uh eight weeks straight.
• 19:12
  SPEAKER_00: So yeah, it's like nothing happened.
• 19:14
  SPEAKER_01: Yeah, it's it's such a weird, weird thing happening in the stock market sometimes.
• 19:20
  SPEAKER_01: And I do agree with writing stuff down.
• 19:23
  SPEAKER_01: I've been doing that for the past few years as well.
• 19:26
  SPEAKER_01: Um, and uh it does really it really helps with being able to check yourself as well, where you just come back a few months or years later and see what you wrote down initially and whether you still agree with what you wrote down uh or not.
• 19:42
  SPEAKER_01: That's one of the tips I would definitely uh recommend for our listeners as well and readers.
• 19:46
  SPEAKER_01: So, what are some of the biggest mistakes you see other investors make?
• 19:50
  SPEAKER_00: Well, I I'm I'm going to be very humble and I'm going to share all the mistakes I made myself.
• 19:56
  SPEAKER_01: Okay.
• 19:57
  SPEAKER_00: Um in the past.
• 20:00
  SPEAKER_00: When because I my website is called Hunting for Hunterbackers, so so I I specifically look for companies that can multiply in value.
• 20:11
  SPEAKER_00: And the difficulty for these companies you have to buy them, that's one thing, but the most difficult of all is holding them, because we just discussed the tariffs and the volatility.
• 20:24
  SPEAKER_00: Um if you look at the big winners of the past, like uh an Amazon or all the other companies, and you um visualize the drawdowns, there have been significant drawdowns, multiple ones, more than 50%, over that period.
• 20:44
  SPEAKER_00: And the question then becomes how are you are you going to be able to hold on to these kind of companies?
• 20:51
  SPEAKER_00: And if you read the book by Chris Mayer, then there are two possibilities.
• 20:56
  SPEAKER_00: The first one is you completely forgot that you had it in your portfolio, uh, that's the easiest one.
• 21:02
  SPEAKER_00: He calls it the coffee can portfolio.
• 21:05
  SPEAKER_00: So maybe you inherited a portfolio or whatever, um, and there was a big winner in there.
• 21:11
  SPEAKER_00: Great.
• 21:11
  SPEAKER_00: Of course, that's more luck than skill, um, but there's nothing wrong with that.
• 21:17
  SPEAKER_00: Um and then the second way, and it comes from Peter Lynch, because I think the number one advice from Peter Lynch is know what you own.
• 21:26
  SPEAKER_00: And um you need to build conviction through analysis in a company.
• 21:33
  SPEAKER_00: Um your conviction will be tested when the stock market goes down, or maybe when there is a temporary setback at a company, and then it's a measure of can you hold on by your conviction on the stock.
• 21:50
  SPEAKER_00: And I think one of one of the important things also um is it's closely related to when you sell and my My belief is that the higher the quality of the company, the less valuation should matter to sell.
• 22:06
  SPEAKER_00: Um I can give the example of Nick Sleep.
• 22:10
  SPEAKER_00: So Nick Sleep, when he bought Amazon in 2004 or 2003, he had no idea that Amazon would develop um AWS, its cloud service.
• 22:22
  SPEAKER_00: But he knew it had a magnificent, magnificent business model and an exceptional leader.
• 22:29
  SPEAKER_00: And he bet on that.
• 22:31
  SPEAKER_00: And the hidden optionality, by definition, it's hidden.
• 22:35
  SPEAKER_00: So the value is hidden inside the company, you don't see it yet.
• 22:40
  SPEAKER_00: That's the main reason to hold on to a high-quality company.
• 22:44
  SPEAKER_01: How do you value optionality?
• 22:48
  SPEAKER_00: Huh.
• 22:49
  SPEAKER_00: It's very difficult.
• 22:50
  SPEAKER_00: Because by definition, you could model something out like on a scenario basis, like this is the worst case scenario, this is the base scenario, and then you do like an optimist scenario, and in the optimist scenario, you can like include some value to certain optionality that the business could develop.
• 23:15
  SPEAKER_00: For example, when I when I wrote about Dino Polska um two years ago, I made a normal case where they should uh saturate the entire market in Poland, I think between five or six thousand stores or something.
• 23:32
  SPEAKER_00: Um but then I had a second case, a more optimist case, where in addition to that, they would go into foreign countries, so the neighbors like Czechia, etc.
• 23:45
  SPEAKER_00: And this adds additional value to the thesis, but then you have to decide what's the probability that it's going to happen.
• 23:54
  SPEAKER_00: And if you reflect on a margin of safety approach, usually I would not bet on the optionality.
• 24:03
  SPEAKER_00: The idea is that the price should be good to enter, but then when you're inside the company, once you hold it, try to hold it longer, even if it looks overvalued.
• 24:17
  SPEAKER_01: Yeah, optionality is uh incredibly hard to value.
• 24:20
  SPEAKER_01: I mean, 20 years ago, 25 years ago, if you bought Amazon, there's no way you could have predicted that.
• 24:27
  SPEAKER_01: And I I use a uh quality checklist for my companies, it's more of a gut-feeling checklist where I just give numbers from one to ten to each of the quality checklists, and optionality is one of them because I do feel like you can sort of have a feeling of for example, I think McDonald's or um tobacco companies or Boeing and Airbus, uh, even Dino Polska in your uh example have very low optionality in uh expanding somewhere else.
• 24:59
  SPEAKER_01: I think their business model is very straightforward and there's not a lot of wiggle room.
• 25:05
  SPEAKER_01: Whereas uh an Amazon, perhaps even an Airbnb or uh a Google, maybe even like a smaller company like a Duolingo, have way more options to diversify their uh business model and uh revenue stream and expand into different bets, which Amazon calls other bets, and uh that's where AWS came from.
• 25:28
  SPEAKER_01: And it's it's very difficult to value, but I think it's good to think about how much optionality a company has.
• 25:35
  SPEAKER_00: Yeah, if if you have a checklist like that, you can just check what the management has done in the past, and are they have they been looking for uh for new business ventures?
• 25:47
  SPEAKER_00: Is there like a trial and error culture?
• 25:50
  SPEAKER_00: Like um failing forward or something like that?
• 25:55
  SPEAKER_00: And even if you can't value that, if they are actively looking, maybe someday they find something.
• 26:02
  SPEAKER_00: And and then maybe in your valuation model you'll say, well, because they are actively looking, but I can't price it exactly, I'm ready to pay a higher multiple because maybe it will resolve into something one day.
• 26:16
  SPEAKER_01: I think I know the answer, but do you think management is the most important factor for optionality?
• 26:23
  SPEAKER_00: I think it is a big factor.
• 26:25
  SPEAKER_00: Um, and I'm going to give you a very specific example.
• 26:30
  SPEAKER_00: Um, there's one company I bought last year, it's called Innovative Food Holdings.
• 26:36
  SPEAKER_00: And Innovative Food Holdings, um they had it's very simple, they have a dropshipping business for specialty food in the US.
• 26:44
  SPEAKER_00: Um, but previous management went into e-commerce because you had Amazon in the past, and etc.
• 26:52
  SPEAKER_00: And so they said we have to go into e-commerce because else uh we have to be part of this, and for five to six years, the e-commerce business was unprofitable, and they kept investing, investing, investing.
• 27:06
  SPEAKER_00: So at a certain point in time, because the business was not doing good, um, the board decided to replace management.
• 27:13
  SPEAKER_00: There's a new management that came in from a big grocery retailer, so like very overqualified uh management because we're talking about a$50 million market cap business.
• 27:27
  SPEAKER_00: Uh they divested all the bad business, they kept the profitable drop shipping business, and the the company started growing again.
• 27:36
  SPEAKER_00: Now, um I think the price followed it like I don't know, doubled or tripled or something uh in a very short period of time.
• 27:43
  SPEAKER_00: But then what happened is when you talk to management, these are guys that are constantly looking to create new business or to add new business to the core the core business model.
• 27:58
  SPEAKER_00: And then suddenly, out of thin air, six months ago, they um mentioned that they acquired uh um a specialty cheese business, and suddenly they're making, I think they made like five million in revenue the last quarter based on this cheese business.
• 28:16
  SPEAKER_00: That's that's optionality.
• 28:18
  SPEAKER_00: I would never have guessed.
• 28:20
  SPEAKER_00: You could not have anticipated this six months ago, but what I knew was that the management was actively looking and making him small bets.
• 28:30
  SPEAKER_00: So it's not only, of course, it's not only the management, it's the entire culture of the company, uh, but there has to be a drive, there has to be some ambition in there.
• 28:39
  SPEAKER_01: Yeah, and perhaps even a succeeding rate because I know Airbnb is really trying, has been trying for many years to add optionality to the business model, but they've basically been failing everywhere so far.
• 28:55
  SPEAKER_01: And I believe a few days ago they said they are now moving to a D all in the the all-in-one kind of app where you can basically do everything for travel.
• 29:05
  SPEAKER_01: And uh I don't know whether that's yeah, yeah, I don't know whether that is a good thing or a bad thing, but yeah, like an experience, and yeah.
• 29:14
  SPEAKER_01: It would kind of worry me as a shareholder where they basically say say, okay, well, we are going to do everything now, and so far we've been failing with everything as well.
• 29:24
  SPEAKER_00: But yeah, yeah, yeah, yeah.
• 29:27
  SPEAKER_00: That's true, that's true.
• 29:28
  SPEAKER_00: But I agree with uh the fact that the business model itself, I mean, if you look at the past 100 baggers, where do they come from?
• 29:38
  SPEAKER_00: They come from software, they come from tech, they come from healthcare, industrials, uh, they come a lot less from energy, they come a lot less from real estate, um, financial is still okay, but also smaller percentage.
• 29:54
  SPEAKER_00: So there are sectors or there are business models that allow for easier diversification that allow for scaling with lower investment.
• 30:09
  SPEAKER_00: So, yeah, it's like a combination of finding uh like you like you said before, Dino Polska, it will be very difficult.
• 30:16
  SPEAKER_00: I mean, they they bought an online retailer two years ago, they never talk about it.
• 30:23
  SPEAKER_00: Um, there was like a rumor or something that the owner was going to buy a vodka brand in Poland.
• 30:31
  SPEAKER_00: But I mean, what are they going to do with it?
• 30:33
  SPEAKER_00: And and it's lots more difficult for them to create additional business and profitable business around their core business than than other business models.
• 30:45
  SPEAKER_01: Something totally different then.
• 30:48
  SPEAKER_01: You once went on the largest and arguably best Dutch investing podcast, I believe a few months ago.
• 30:55
  SPEAKER_01: And I heard you talk about a year ago, yeah.
• 30:58
  SPEAKER_01: Yeah, I heard you talk about the spaghetti with spicy sauce strategy.
• 31:03
  SPEAKER_01: Yeah, yeah.
• 31:04
  SPEAKER_01: Uh what was that all about?
• 31:06
  SPEAKER_01: You you gotta walk us through this.
• 31:08
  SPEAKER_01: So, what on earth is the spaghetti with spidey spicy sauce strategy, and what does it have what does it have to do with investing?
• 31:16
  SPEAKER_00: Well, usually my readers they're looking for the spice.
• 31:19
  SPEAKER_00: They they come to me for the for the spicy stocks.
• 31:23
  SPEAKER_00: So maybe I could just give an example of something I heard very recently.
• 31:28
  SPEAKER_00: In there is uh a person, uh sadly, he passed away uh a couple of years ago.
• 31:33
  SPEAKER_00: His name was Rakesh Junjunwala.
• 31:36
  SPEAKER_00: He's from India, and he was called the the Indian Warren Buffett.
• 31:42
  SPEAKER_00: I mean, because he was so successful and he was also somebody who spread his wisdom, and I mean it's a it's a super guy.
• 31:49
  SPEAKER_01: Quite a compliment.
• 31:50
  SPEAKER_00: Yes.
• 31:52
  SPEAKER_00: And apparently, when you enter his office, you have like these three, four, or five big screens all connected to a Bloomberg terminal, uh, charts and graphs everywhere, technical situations, and the guy is like day trading like crazy, and he's profitable, so he makes money with the day trading.
• 32:16
  SPEAKER_00: But then apparently, what few people knew is that he also had a stock portfolio with like three or maybe four stocks in it, and one of them was a hundred bagger, and the hundred bagger, yeah.
• 32:32
  SPEAKER_00: I'm not going to go into detail, but it's called Titan Company, it was a jeweler uh conglomerate in India.
• 32:39
  SPEAKER_00: Um, and I really like that analogy.
• 32:43
  SPEAKER_00: I'm not a day trader, day trader, but the day trading for me is the spice and the the base, the the the the the thing he can eat every day, the spaghetti he just let run for 20 years.
• 32:57
  SPEAKER_00: That was that the three or four stock portfolio, and then yeah, I used the analogy spaghetti with spicy sauce, but since then I use the yin-yang analogy because it's the same thing.
• 33:10
  SPEAKER_01: Uh yeah, it's not uh because you uh dislike uh spaghetti now.
• 33:14
  SPEAKER_00: No, no, no, I love it, I love it.
• 33:17
  SPEAKER_01: But it does make sense where you need uh it helps in in life having your yin and yang with uh your partner, maybe, and uh in nature this uh this exists as well as a like a universal law almost.
• 33:30
  SPEAKER_01: Yeah.
• 33:31
  SPEAKER_01: So what exactly qualifies as a um well spicy sauce pick you said first, but your yin and yang?
• 33:38
  SPEAKER_01: Yeah, uh, what are you looking for in microcaps?
• 33:41
  SPEAKER_00: So maybe I'll start with like the the compounders we we talked about in the beginning.
• 33:46
  SPEAKER_00: So these are like high-quality companies that I would like to buy, but usually they're priced pretty hefty.
• 33:54
  SPEAKER_00: And the the the easiest example that everybody knows, I think, is uh a company like Adian.
• 34:00
  SPEAKER_00: It was on my list for a long time, but it looked very expensive, and then suddenly in 2023 it dropped uh based on information like 40-50%.
• 34:10
  SPEAKER_00: And that was a time to get in.
• 34:12
  SPEAKER_00: Uh so I bought it at 650.
• 34:15
  SPEAKER_00: Now, did I know that it would trade?
• 34:18
  SPEAKER_00: Because I think now it trades at like I don't know, 1500 or 600 or something.
• 34:24
  SPEAKER_00: I couldn't have anticipated that, but I knew it was a tremendous company led by tremendous management for a good price, and I would love to buy those all the time, but the problem is these opportunities they don't come by very often.
• 34:41
  SPEAKER_00: You had the the drawdown of the tech sector in 2022, there there were some opportunities.
• 34:47
  SPEAKER_00: You had this example of ADM, but these are things like I went to when I went to Omaha two weeks ago, Buffett again he stated over the 60 years that Berkshire Hathaway existed, he feels that they made 12 big decisions.
• 35:05
  SPEAKER_00: That means one big opportunity every five years.
• 35:10
  SPEAKER_00: And the problem is, yeah, I don't I I want to do something in the stock market, I don't always want to like do the analysis and then wait until something happens, and that's why I have the other side of the story, and that's the smaller companies.
• 35:29
  SPEAKER_00: Um, there are some microcaps in there, but usually I go I try to stay below 2 billion dollar in market cap.
• 35:38
  SPEAKER_00: And um, in these small companies, um there are more opportunity.
• 35:44
  SPEAKER_00: You have to look for it, it's like yeah, you're you're digging for a piece of gold in a large mountain, um, but you can find more undervaluation, and the reason is very simple is because a professional investor or a fund cannot come there because the companies are just too small.
• 36:05
  SPEAKER_00: Um, sometimes they are very illiquid, so there's not a lot of liquidity, and these this is the realm of the the private investor, of the private stock picker.
• 36:17
  SPEAKER_00: Um, so yeah, that's that's the the um the spice for me is those fast-growing small companies.
• 36:25
  SPEAKER_00: Um, and again, when you look at the book uh hundred baggers, the most multi-baggers come from below 1 billion.
• 36:35
  SPEAKER_00: Uh, I think on average the market cap, the starting market cap was 512 or something.
• 36:41
  SPEAKER_00: 512 million.
• 36:44
  SPEAKER_00: So expecting that a$100 billion company will become one day uh 10 trillion, um yeah, I think it's wishful thinking.
• 36:53
  SPEAKER_01: I think the other two great examples that come to mind of cheap at the time and high-quality companies were Meta and Netflix.
• 37:02
  SPEAKER_00: And Spotify.
• 37:11
  SPEAKER_01: I really thought that the gross margin would be kept somewhere around 30% due to all the license agreements with um like Universal Music Group and stuff, and I I didn't expect the amount of pricing power they had, and uh that's what they're where they really surprised me.
• 37:29
  SPEAKER_01: So it was kind of thesis-breaking almost for me.
• 37:33
  SPEAKER_01: So that that did really surprise me, but in the in the example of Netflix, it was just uh one quarter of a drop because they dropped out of Russia, and um in the case of Meta, I mean the business is exceptionally profitable and well run.
• 37:52
  SPEAKER_01: And I mean eighty dollars, I believe it it was uh it was down to, and almost looking back, it I I feel almost dumb not buying it, you know.
• 38:03
  SPEAKER_01: But uh you live and you learn.
• 38:05
  SPEAKER_00: Yeah, yeah, sure.
• 38:07
  SPEAKER_00: And there will be other opportunities like that in the future, but they won't come around often.
• 38:13
  SPEAKER_00: You need to be prepared, and then when they when they are there, you I need to act fast.
• 38:18
  SPEAKER_01: Yeah.
• 38:19
  SPEAKER_00: That's the that's the basic idea.
• 38:21
  SPEAKER_00: Um, but in the meantime, I'm looking for other stuff, and uh it's easier to find yeah, good good opportunity bets in the smaller realm.
• 38:30
  SPEAKER_01: Yeah, it's easy to talk uh about it in hindsight, but um yeah, sure, of course.
• 38:35
  SPEAKER_00: Of course.
• 38:36
  SPEAKER_01: I I think this would be a good time to talk about how you find these multi-baggers.
• 38:41
  SPEAKER_01: We've talked about mindset, about process, about emotions.
• 38:46
  SPEAKER_01: So let's talk about the actual hunting, to to talk in your uh terms.
• 38:51
  SPEAKER_01: It's easy to say look for quality companies.
• 38:54
  SPEAKER_01: I mean, everybody is screaming that nowadays, but how do you actually do that?
• 38:59
  SPEAKER_01: What are you watching for before you click on the buy button?
• 39:03
  SPEAKER_00: Well, you know, the um I think Professor De Moderan popularized it.
• 39:08
  SPEAKER_00: You have like the the different life cycle stages from startup, scale-up, high growth, mature growth, stable growth, and then decline.
• 39:17
  SPEAKER_00: And um and Peter Lynch also wrote about it.
• 39:21
  SPEAKER_00: Uh, the multi buggers are made in the first three.
• 39:26
  SPEAKER_00: Now, this for the record, I do own some startups, but it's not something my uh it's not something you can you can easily invest in.
• 39:34
  SPEAKER_00: So we can't really talk about the first two stages, and so that's why I focus on stage number three, it's high growth.
• 39:43
  SPEAKER_00: Um that doesn't mean that you you can't find a multi-bagger in mature growth, but the um the probability of finding one is higher when there is a lot of growth uh in the company.
• 39:57
  SPEAKER_01: And by growth, do you mean revenue growth?
• 39:59
  SPEAKER_01: Do you do you mean um uh growth as in profits, as in uh scaling, as in employees?
• 40:06
  SPEAKER_00: What do you mean by um I prioritize revenue growth, and I I like that there is also some profitable growth in there.
• 40:16
  SPEAKER_00: Um because there have been studies when you look at the long-term outperformance of companies, when you go out in time, um that there are studies that is the sales growth that dominates.
• 40:29
  SPEAKER_00: As long as there is sales coming in, it's like the bloodline or the lifeline of the company.
• 40:34
  SPEAKER_00: Um, the company has a probability of doing something good with it.
• 40:38
  SPEAKER_00: Um if you if you if you go back to the example of Spotify, there was no problem with the revenue.
• 40:45
  SPEAKER_00: It's just like everything underneath looked weird, and everybody was saying, How will this become profitable?
• 40:52
  SPEAKER_00: Will they be able to generate free cash flow?
• 40:55
  SPEAKER_00: Um, and at that moment, you need more a venture capital mindset to say, Okay, I'm gonna buy this, I'm gonna keep it, because it'll probably turn out fine.
• 41:06
  SPEAKER_00: Their users keep on increasing.
• 41:08
  SPEAKER_00: Um, and that's that's for for example, a very important um because you talked about what kind of growth, so you have top line growth, but what's very important is like um business-specific KPIs, like uh the number of accounts increasing, the average spend per account, uh, stuff like that.
• 41:28
  SPEAKER_00: Is if you if you take away like the financial statements based on what they really need to grow, is this doing fine or not?
• 41:37
  SPEAKER_00: And if you have great management and the business model is solid, then you could imagine, just like they did with Amazon, um, one day we will start to produce free cash flow, but not today.
• 41:50
  SPEAKER_00: But that's very difficult because when you analyze a company, and as uh most analysts also they're looking for EPS growth, they're looking for profitability, but some companies have delayed profitability, they just they push it back in time, and that makes it difficult to uh to assess it.
• 42:10
  SPEAKER_01: Yeah, I think uh Adam Cezel from the book Um Value Investing in the Digital Age called it earnings power, where they just it's hidden until they really want to abuse it almost.
• 42:22
  SPEAKER_00: Yeah, and so because I look for um in the fast growth space, how can companies appear in that stage?
• 42:31
  SPEAKER_00: They can do it through an IPO, but the problem is the IPO market um is a bit slower than in the past.
• 42:37
  SPEAKER_00: Not a lot of companies are doing an IPO.
• 42:39
  SPEAKER_00: I think the last one was Coreweave in the US, pretty big company in the AI space.
• 42:46
  SPEAKER_00: Um the second part is that you have an existing company and suddenly it launches a new product or service and it takes off.
• 42:55
  SPEAKER_00: And then if you look at the lifecycle stage of a company, it starts to move.
• 43:00
  SPEAKER_00: For example, it was in the mature growth phase and it goes back into the high growth.
• 43:04
  SPEAKER_00: So that's one option.
• 43:06
  SPEAKER_00: And then the last one, and that's my favorite, that's the example I gave before uh for innovative food holdings, it's uh a structural turnaround.
• 43:15
  SPEAKER_00: So this means that you have a company that's in decline, it's a complete mess, but there is something profitable within the company that is underdeveloped or underused, and usually what happens is that management comes in, they divest all the bad stuff, they keep the good stuff, and they start to reinvest in the good part of the business.
• 43:39
  SPEAKER_00: And then what you have on the life cycle stage, you go from decline back to fast growth, and then their life cycle starts anew.
• 43:49
  SPEAKER_00: And those kind of companies you can find them.
• 43:52
  SPEAKER_00: Um I found two or three of them like that.
• 43:55
  SPEAKER_00: So that's one one example of a fertile hunting ground.
• 44:00
  SPEAKER_00: For multi baggers.
• 44:03
  SPEAKER_01: So say you found or you think you found one.
• 44:07
  SPEAKER_01: What does a um high growth company need to do?
• 44:11
  SPEAKER_01: Do they uh pay out everything to shareholders?
• 44:15
  SPEAKER_01: Do they need to reinvest everything?
• 44:17
  SPEAKER_01: What do they need to do as a fast growing company?
• 44:20
  SPEAKER_00: Um, I I discovered this.
• 44:22
  SPEAKER_00: There was um in April, so it's very recent, it's like a month ago.
• 44:27
  SPEAKER_00: There was um an academical study of multi-backers and their outperformance and why they did they outperform.
• 44:34
  SPEAKER_00: And you have like the the usual factors like small size, um, undervaluation.
• 44:40
  SPEAKER_00: I mean, that this these are things that everybody knows, but there was something new in there that I hadn't seen before.
• 44:46
  SPEAKER_00: It said aggressive investment, and so what they said was um most of the multi-baggers, and let's say it's 80%, they reinvested a lot into their business for future growth.
• 45:02
  SPEAKER_00: There is just one um caveat or one um thing to take in mind.
• 45:09
  SPEAKER_00: Usually they made sure that they reinvested um within their earnings power.
• 45:15
  SPEAKER_00: Because if you start to reinvest a lot more, then you need outs outside uh outside financing.
• 45:20
  SPEAKER_00: Maybe you're gonna raise capital, maybe maybe you're gonna take on more debt.
• 45:25
  SPEAKER_00: And so the key criteria was to keep on investing aggressively, but not too aggressively.
• 45:32
  SPEAKER_00: But one thing is for sure a company that was very defensive, didn't want to invest, started to pay out dividends, that was a bad factor for multi-backgrounting.
• 45:44
  SPEAKER_01: You you talk about the reinvestment rate basically.
• 45:47
  SPEAKER_01: Um, when I when you talk about the reinvestment rate, I I think about the duration of that reinvestment.
• 45:53
  SPEAKER_01: I think that would be pretty important as well, right?
• 45:56
  SPEAKER_01: Where I mean if you can reinvest for five years, that's that's cool, but if you can do that for 20 years, that'll be a real compounder.
• 46:04
  SPEAKER_00: Yeah, and that's that's the most difficult thing to do for a business, to keep reinvesting.
• 46:09
  SPEAKER_00: That's why um I I had a conversation with Chris because I was looking into writing some articles to expand on his book, and he said uh that's one of the reasons why he was so interested.
• 46:20
  SPEAKER_00: What why is there no chapter on serial acquirers in the book?
• 46:24
  SPEAKER_00: Because he thought about it afterwards, and a serial acquirer solves the problem of not being able to reinvest.
• 46:32
  SPEAKER_00: Because they buy a company, the company creates excess cash, they have no cash, they buy a new company, it creates excess cash, etc.
• 46:41
  SPEAKER_00: etc.
• 46:42
  SPEAKER_00: And that's why he's so interested in them.
• 46:45
  SPEAKER_00: And so if he he told me if he would rewrite the book, he would add a chapter on serial acquirers in the book.
• 46:50
  SPEAKER_01: So yeah, it's uh you it's uh it's a way of using capital, so I mean it it it it's sort of a reinvestment, and I mean just look at constellation software or uh topicas that came out of it, and they've been incredibly successful, and it works if you if you if you focus on it.
• 47:08
  SPEAKER_00: Yeah, what's crazy with Constellation?
• 47:10
  SPEAKER_00: I just I recently this Friday I looked at it, it has been accelerated accelerating sales growth, and it's a hundred billion dollar company.
• 47:18
  SPEAKER_00: I mean, it's just crazy.
• 47:20
  SPEAKER_01: Yeah, it is like a snowball getting bigger and bigger, and the more cash flow you generate and the more companies you can buy, but it's about finding those new companies to buy.
• 47:29
  SPEAKER_01: I think they have like thousands of small software companies uh under their umbrella, and I mean eventually they're not gonna be able to find it anymore.
• 47:39
  SPEAKER_01: But uh I mean perhaps they can do it for another 50 years and then it'll be a trillion dollar company, right?
• 47:45
  SPEAKER_01: So it's still 10 baggers, so who knows?
• 47:47
  SPEAKER_00: I don't know.
• 47:48
  SPEAKER_00: I think it rates at uh 100 uh PE for the moment.
• 47:51
  SPEAKER_00: Um so over the last uh 10 years, I think they quadrupled EPS and they doubled PE from 50 to 100.
• 48:00
  SPEAKER_00: I think there was a lot of excitement now in Constellation.
• 48:04
  SPEAKER_01: You think it's just yeah, there sure is.
• 48:09
  SPEAKER_01: Yeah, and the more it's getting talked about, the more people buy it.
• 48:12
  SPEAKER_01: And uh unfortunately it doesn't it's going to bite you in the ass eventually.
• 48:17
  SPEAKER_01: I mean it might go up for a few years, but eventually things will settle uh where they belong.
• 48:24
  SPEAKER_01: Uh everybody's hunting for growth, right?
• 48:27
  SPEAKER_01: Uh, but very few are asking whether it can last 10 or 15 years, which we just talked about, the duration.
• 48:34
  SPEAKER_01: And um, it's not just about product market fit or leadership, it's also about the wave the riding.
• 48:40
  SPEAKER_01: You can be the best server in the world, but if there's no waves, you're just paddling in circles.
• 48:46
  SPEAKER_01: I would love to pick your brain a bit on how you find these ideas, how these new companies uh do you screen for companies, do you filter?
• 48:57
  SPEAKER_01: Do you how do you get your ideas?
• 48:59
  SPEAKER_00: Yeah, so screening is a bit complicated.
• 49:03
  SPEAKER_00: The problem with screening is you can um enter in your screen like quality criteria.
• 49:08
  SPEAKER_00: You can say, I want revenue growth 20%, I want earnings growth 15%, uh ROIC 15%, and then it will give you a list of companies, and normally they are all high priced because these are the companies that everybody sees.
• 49:25
  SPEAKER_00: Everybody can do a screen, there's nothing special about uh you talked about edges like informational edge, process edge, psychological psychological edge.
• 49:35
  SPEAKER_00: Doing a screen like that is not an edge, so I don't screen a lot.
• 49:40
  SPEAKER_00: What I do is I have over the years developed a pretty big network of professional and full-time investors, they do a lot of work and analysis because they do this from um all day long, and there are I look for specific people who do just like Buffett who do A to Z screening.
• 50:05
  SPEAKER_00: What this means is they look at the stock exchange.
• 50:08
  SPEAKER_00: So, for example, they take the UK stock exchange, they don't look at um, they don't use the financial metrics, they just go from A to Z to all the companies.
• 50:20
  SPEAKER_00: And Buffett, he did the same thing when he went to the Moody's manual, he did the same thing when he went to the Japanese manual, and these guys they find stuff like that hidden stuff that is not apparent.
• 50:35
  SPEAKER_00: And I sometimes do the same thing.
• 50:37
  SPEAKER_00: I did an A to Z for the Polish market uh a year ago, and this is the way that you can find these like hidden opportunities, and usually what you find is optically it looks bad, but when you dig in deep into the analysis, there's some good bones in there.
• 50:55
  SPEAKER_00: You can you you you you find something that is underappreciated by the market, so that's one thing, and what I also do is like maybe an inverse screen, so like looking for bad stuff, um, but with for example, um something with uh no revenue growth or um uh problem with earnings, but they do have a strong balance sheet, so I try to like put some bad things in the screen because I know if I only put good stuff in, I don't I will I won't find any opportunities.
• 51:30
  SPEAKER_01: That that's pretty interesting.
• 51:31
  SPEAKER_01: You're basically flipping it and hunting in the trash bin, looking for signs of gold in the rubbish.
• 51:37
  SPEAKER_00: Yes, yes, that's the idea.
• 51:40
  SPEAKER_00: And what I also do is um when you go hunting, there's two ways you can hunt.
• 51:47
  SPEAKER_00: You can chase your prey, you can run after it, or you let it come to you, and you set traps.
• 51:55
  SPEAKER_00: And that's also a very important mindset shift.
• 51:58
  SPEAKER_00: So I have a watch list of a number of companies, it's pretty long, and I set alerts, like Google alerts or price alerts, or kind of alerts that inform me about changes in those companies.
• 52:14
  SPEAKER_00: At the moment, these companies are interesting but not investable.
• 52:19
  SPEAKER_00: But maybe there will be a management change, maybe there will be something else, maybe they will, for example, I had a company and suddenly they announced a new contract, but a big contract that would like triple the revenue in the coming two years.
• 52:34
  SPEAKER_00: Um when that happens in these small companies, um, there is time to react.
• 52:42
  SPEAKER_00: If if something like that would happen in Apple, the price would immediately move, like within two seconds, within a second when the market opens.
• 52:52
  SPEAKER_00: But when you track these kind of companies that are so small, nobody's looking, nobody's paying attention, and then I had situations where I had like 24 hours to react, and that's a lot.
• 53:04
  SPEAKER_00: You get an email in the morning, you buy in the afternoon, but because now your thesis is confirmed, and the thing takes off.
• 53:12
  SPEAKER_00: So it's another way of hunting in the market.
• 53:15
  SPEAKER_01: Um that's pretty interesting.
• 53:18
  SPEAKER_01: You're basically flipping it and hunting in the trash bin, looking for signs of gold in the rubbish.
• 53:24
  SPEAKER_00: Yeah, like AI tools, they have their use.
• 53:27
  SPEAKER_00: I use them too, but uh in the research process, not in the conviction building process.
• 53:32
  SPEAKER_00: Because in the end, what you want as an investor, you want to build conviction, and the only way to do that is by reading and reading and reading.
• 53:39
  SPEAKER_00: You cannot ask uh perplexity or Google LM, give me a summary, give me a thesis, and then based on that, invest.
• 53:51
  SPEAKER_00: Maybe it will work out.
• 53:52
  SPEAKER_00: But the moment the stock drops 50%, you're going to sell.
• 53:56
  SPEAKER_00: So you need to do the work, there is no other way around it.
• 54:00
  SPEAKER_00: But there are ways to use these AI tools in the preliminary process once when you're going through different names, then there are some ways by using smart prompts to to accelerate.
• 54:13
  SPEAKER_00: But once you decide now, I'm going to do a deep dive, there is no way around it.
• 54:17
  SPEAKER_00: You need to go to the to the 10k.
• 54:20
  SPEAKER_01: Um yeah, I I once asked a uh CEO of a very small uh Dutch company if they could see how many people downloaded their financial report.
• 54:32
  SPEAKER_01: And sometimes it's uh under 50, yeah.
• 54:36
  SPEAKER_01: And uh it it was a small company.
• 54:39
  SPEAKER_01: Just but nobody's reading the the 10Ks nowadays, and I think it is one of the edges you can get as an investor nowadays to actually dive into a report.
• 54:49
  SPEAKER_01: I mean, there is this new thing, and everybody's raving about it, Google Notebook LM, and I see so many people throwing the 10Ks in there, but to be honest, it's pretty bad.
• 55:02
  SPEAKER_01: It it stays very general.
• 55:04
  SPEAKER_01: It's it's the notebook is not trained to catch out the it's it's like a good news podcast on what they achieved and the revenue growth, and there was one sentence in this in this 10k that basically killed my entire thesis later on in a footnote.
• 55:20
  SPEAKER_01: And if you threw that in the in the notebook, for example, they he would have skipped it probably.
• 55:26
  SPEAKER_01: So I do think uh actually getting your hands dirty and reading the the actual 10ks really can give you an edge still in today's uh in today's world.
• 55:35
  SPEAKER_01: It is getting smaller, of course, but um yeah, just 50 people reading a 10K is crazy for a publicly listed company.
• 55:42
  SPEAKER_01: So when when you find a company, how do you evaluate whether the company really has a strong competitive advantage that can last?
• 55:51
  SPEAKER_00: So um what what what I do when I do a deep dive is um I call it Is This Company Special?
• 55:59
  SPEAKER_00: And in fact, there's an acronym.
• 56:01
  SPEAKER_00: So special stands for the S is sales strength, the P is profitability, the E is endurance, uh, the C is competitiveness, the I is industry, the A is asset agility, and the L is leadership.
• 56:16
  SPEAKER_00: And with special, you've covered it all.
• 56:18
  SPEAKER_00: If you if you read the 10K, so a balance sheet, income statement, cash flow statement, the proxy statement, it's everything is integrated in that one special analysis.
• 56:28
  SPEAKER_00: And when you talk about uh modes, uh it's it's um included in the C of competitiveness, but it's also included in the eye of industry.
• 56:40
  SPEAKER_00: And I think the big lesson what I learned about competitiveness is when you're looking for modes, you're mainly looking for the difference between what your company is doing compared to the others.
• 56:53
  SPEAKER_00: So a moat is always relative, it's not an absolute number.
• 56:57
  SPEAKER_00: Um if if your company has high gross margins, a lot higher than all the other competitors, then there's probably a good thing going on.
• 57:07
  SPEAKER_00: It's not it's not a certainty, but it's all already a good symptom.
• 57:12
  SPEAKER_00: The same thing for our RIC.
• 57:14
  SPEAKER_00: If the RIC is a lot higher than the competitors, it means the company is probably doing something different.
• 57:22
  SPEAKER_00: And then the big question becomes why?
• 57:25
  SPEAKER_00: Why is it like that?
• 57:27
  SPEAKER_00: Uh does it have um switching are there switching costs?
• 57:31
  SPEAKER_00: Uh are there network effects?
• 57:32
  SPEAKER_00: What's what's the reason why there seems to be uh a difference between your company and the others?
• 57:40
  SPEAKER_00: And like you said before, very important is the industry.
• 57:44
  SPEAKER_00: You can have a great company, um, but imagine after COVID, there were a lot of companies that were riding a big wave, and if you looked at the numbers at that point, it seemed like they had a competitive advantage, but in reality, there was no competitive advantage, they were just riding a big wave, and when the wave was gone, the numbers came down, the multiples came down, and yeah, if you if you hadn't gone out before, then you could have lost a lot of money.
• 58:16
  SPEAKER_00: So it's um it's it's it's one of the most important analyses you need to do.
• 58:22
  SPEAKER_00: It's like the moat analysis, um, but it's not an easy thing to do.
• 58:27
  SPEAKER_01: Um let's try to work towards the ending um and think about what the investors really need to know.
• 58:38
  SPEAKER_01: Say somebody's listening and wants to know how to find one, what to do when he finds one, and what would what advice would you give to the investor trying to find and hold on to their first 10 bagger or 100 bagger, so to say?
• 58:58
  SPEAKER_00: I think it's important when when you look at um at the world and especially the investing world, the the investing world is dominated by power loss.
• 59:08
  SPEAKER_00: So you can forget about normal distributions, um, everything is dominated by outliers, and you probably know this yourself when you have your portfolio, your performance is probably dominated by one or two big winners.
• 59:24
  SPEAKER_00: It's the same thing in an index.
• 59:26
  SPEAKER_00: Um, if you look at the US stock market and you look at uh the past performance, 4% of the stocks create all the wealth, so it's a power law.
• 59:36
  SPEAKER_00: Um and who are the guys in the investing who are always aggressively looking for power laws?
• 59:43
  SPEAKER_00: It's venture capital or venture capitalists.
• 59:47
  SPEAKER_00: And so my advice would be that a traditional analyst will look at they they they hunt mostly in the mature growth companies because they want our RIC, uh, they want, of course, revenue growth.
• 1:00:03
  SPEAKER_00: But my advice would be is to go hunt in the higher growth.
• 1:00:07
  SPEAKER_00: But when you go in the higher growth, you need to have that imagination to have like a destination analysis.
• 1:00:15
  SPEAKER_00: Where could this company end up?
• 1:00:19
  SPEAKER_00: What are more company-specific metrics?
• 1:00:23
  SPEAKER_00: Because without taking into account those kind of things, you're probably always going to think it's overvalued, and you'll never buy these kind of stocks.
• 1:00:36
  SPEAKER_00: Um, you need to be ambitious.
• 1:00:39
  SPEAKER_00: Like, if I look at um a company in the high growth segment, I want the leadership to be ambitious.
• 1:00:48
  SPEAKER_00: Um, and I I really like um a slogan from or uh a phrase from uh Jeff Bezos when he says um thinking small is a self-fulfilling prophecy, so you need to think big.
• 1:01:02
  SPEAKER_00: If you if the guy in charge already thinks small, no way it's gonna be a multibagger, it's just it's not going to happen.
• 1:01:11
  SPEAKER_00: He needs to think big.
• 1:01:13
  SPEAKER_00: And usually the companies I I'm looking for are like, for example, a company that does maybe 20 million in revenue, but the management says we see a possibility to do 10x, and that's what you want.
• 1:01:28
  SPEAKER_00: Because if it's always the same, you have to begin with the end in mind, and then the people will start working towards that end, so that's very important, and it's something that you don't hear a lot when you do like traditional company analysis because it goes beyond the financial statements.
• 1:01:47
  SPEAKER_00: Now, that's one thing, and it's very specific for multi-backgers.
• 1:01:52
  SPEAKER_00: I would also say um try to become a better investor every day.
• 1:01:57
  SPEAKER_00: This means uh learn something new every day, uh, become smarter every day.
• 1:02:02
  SPEAKER_00: I think that's I'm doing I've been doing this for 15 years, and every day I I learn something new, and without it, I wouldn't have I wouldn't be where I am right now.
• 1:02:12
  SPEAKER_00: So um you you don't know what the result will be, but you just need to keep learning.
• 1:02:19
  SPEAKER_00: And then there is uh one last thing I can give as advice, but uh it's it's a story, uh, and it's a very important one.
• 1:02:27
  SPEAKER_00: Um I don't know if you know the this guy, he's named Thomas Pesquet.
• 1:02:33
  SPEAKER_00: I don't know, he's French.
• 1:02:35
  SPEAKER_01: Never heard of him.
• 1:02:36
  SPEAKER_01: No.
• 1:02:37
  SPEAKER_00: No?
• 1:02:38
  SPEAKER_00: In two I think it was in 2009, uh, it was in France, and they wanted to select someone to go to the International Space Station as an astronaut.
• 1:02:49
  SPEAKER_00: Now you can imagine they want like a highly skilled person for this.
• 1:02:53
  SPEAKER_00: And there were like between I think 1500 applications from all over France who um who filled in the application and wanted to go to the to the ISS.
• 1:03:05
  SPEAKER_00: These persons had to do intelligence uh tests, physical testing, uh psychological testing, everything you can imagine.
• 1:03:13
  SPEAKER_00: And at the end of the entire process, there were 10 people remaining.
• 1:03:19
  SPEAKER_00: Now, based on basic uh based on intelligence, um, psychologically, psych psych psychic and uh physical, you couldn't really distinguish these ten people.
• 1:03:34
  SPEAKER_00: It was in in French they say la creme de la creme, the the best of the best.
• 1:03:38
  SPEAKER_00: So, my question to you is what is the criteria they used to select Thomas Pesquet?
• 1:03:46
  SPEAKER_00: Why did he became the astronaut and and could go to the International Space Station?
• 1:03:53
  SPEAKER_01: Um perhaps uh most influence.
• 1:03:58
  SPEAKER_01: No, I don't know, yeah.
• 1:04:00
  SPEAKER_00: So he was the most humble from all the ten people.
• 1:04:05
  SPEAKER_00: He said, Yes, maybe um with the 10 best, but I still have a lot to learn.
• 1:04:11
  SPEAKER_00: And when I go into the space station, there are probably things will probably happen that I didn't anticipate.
• 1:04:18
  SPEAKER_00: So I need to prepare myself and I need to keep learning and I need to be humble.
• 1:04:22
  SPEAKER_00: And for me, in investing, my biggest losses was because of Udis.
• 1:04:28
  SPEAKER_00: Because I had four or five winners, and then I thought I solved the puzzle, the puzzle I talked about in the beginning.
• 1:04:36
  SPEAKER_00: Uh, but that's when the biggest losses came.
• 1:04:39
  SPEAKER_00: So you always need to be humble.
• 1:04:41
  SPEAKER_01: I mean, that's uh that's a beautiful way of ending this uh this episode.
• 1:04:46
  SPEAKER_01: Staying humble, staying close to yourself, and um Neil deGrasse Tyson always calls this lifelong learning, and it's basically uh what you you just said as well, and uh couldn't agree more with you as an educator, too.
• 1:05:01
  SPEAKER_01: So uh Kevin, thank you so much for coming on the show.
• 1:05:04
  SPEAKER_01: Uh we are not done yet.
• 1:05:06
  SPEAKER_01: We will definitely do do this again and dive even deeper into compounders, 100 baggers, and anything else we can uh we can talk about in the beautiful world of investing.
• 1:05:19
  SPEAKER_01: But before we go, where can people find you?
• 1:05:22
  SPEAKER_01: Where can people learn more on 100 baggers?
• 1:05:25
  SPEAKER_00: Thank you so much, Seam.
• 1:05:26
  SPEAKER_00: Um, so people can find my articles on 100baggerhunting.com.
• 1:05:32
  SPEAKER_00: And I'm also very active on X, on Twitter, uh, and my handle is 100 BaggerHunt.
• 1:05:40
  SPEAKER_00: So thanks.
• 1:05:41
  SPEAKER_01: I'll make sure to put the links in the description and in the show notes.
• 1:05:46
  SPEAKER_01: And uh next time we'll we'll go deeper into how to build a system around your investing style, the tools and process you need, and and uh and much more.
• 1:05:57
  SPEAKER_01: Thank you so much, Kevin, once again, and uh talk to you later.