Latest / The Dutch Investors / #48 | Quality investing, optionality and conviction | Interview w/ Ryan Henderson

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#48 | Quality investing, optionality and conviction | Interview w/ Ryan Henderson · The Dutch Investors

• 0:00
  SPEAKER_01: Welcome everybody to the Dutch Investors Podcast.
• 0:03
  SPEAKER_01: Today we've got a fellow podcasting host, an investor and an entrepreneur on the show.
• 0:09
  SPEAKER_01: Many of you will probably know him as the host of one of the hosts of Chit Chat Stocks, or from his many other side quests.
• 0:17
  SPEAKER_01: It's uh Ryan Henderson.
• 0:18
  SPEAKER_01: It's nice to meet you and glad you took out the time to come on the show and talk investing.
• 0:23
  SPEAKER_00: Yeah, thank you for the invite.
• 0:25
  SPEAKER_00: I'm excited to be on and uh excited to uh talk stocks with you.
• 0:29
  SPEAKER_01: That's the goal.
• 0:31
  SPEAKER_01: So, what does a typical work week look like for you, Ryan?
• 0:35
  SPEAKER_01: Oh, that's a good question.
• 0:36
  SPEAKER_00: Uh well, the podcast we do twice a week.
• 0:40
  SPEAKER_00: A lot of that research is more reading, so it doesn't really feel like you know, kind of active work per se.
• 0:47
  SPEAKER_00: A lot of it's on the weekends, kind of just you know, general research.
• 0:51
  SPEAKER_00: And then once you have an idea in mind of what you want to talk about, the show notes don't take too too long.
• 0:56
  SPEAKER_00: So I uh honestly, it doesn't require a lot of work for that.
• 0:59
  SPEAKER_00: The majority of my time by far is spent working for FinChat, which uh maybe your listeners are familiar with, but I yeah, I'm the head of research there, and and it's really a lot of the work overlaps with what I would do for the podcast, where you're basically just going through the platform trying to find unique data points, things that the investment community would find valuable, and and and showcase that in a bunch of different ways.
• 1:28
  SPEAKER_00: So that's probably the two biggest uh time commitments for mechat and chit-chat stocks.
• 1:37
  SPEAKER_01: We actually had Braden Dennis on the show a couple of weeks ago.
• 1:40
  SPEAKER_01: How did you guys meet and how did you start working for FinChat?
• 1:44
  SPEAKER_00: Yeah, Braden is actually my boss at FinChat.
• 1:47
  SPEAKER_00: Um, and he uh I believe initially we met by I invited him onto our podcast.
• 1:56
  SPEAKER_00: Uh, I think this must have been three or four years ago now, and he hosts it sounds like we've all got podcasts.
• 2:04
  SPEAKER_00: He hosts the Canadian Investor Podcast.
• 2:06
  SPEAKER_00: Um, and so we invited him on, and I can't remember the company we discussed, but we just uh kind of hit it off, and we both had similar investment philosophies and styles.
• 2:17
  SPEAKER_00: And when he was building initially, the company was called Stratosphere.
• 2:22
  SPEAKER_00: Uh we thought the software was really valuable because they were tracking data points that most platforms weren't.
• 2:29
  SPEAKER_00: So uh we kind of latched onto it as users initially, and then eventually they were migrating into FidChat job posting opened up, and it was right around the time when I was kind of transitioning my career as well.
• 2:46
  SPEAKER_00: So I just shot him a text and said, you know, can I can I apply for this?
• 2:52
  SPEAKER_00: Would you be interested?
• 2:53
  SPEAKER_00: And uh and he said, Yeah, definitely.
• 2:55
  SPEAKER_00: And it's been kind of uh growth ever since.
• 3:00
  SPEAKER_00: So it's been really good.
• 3:01
  SPEAKER_00: It's a great team.
• 3:03
  SPEAKER_00: The team has gone from, I think I was the eighth employee there initially, and we're going on, I think like 40 now.
• 3:12
  SPEAKER_00: So it's been really quick, and it's been it's actually really helpful lesson in investing to watch a company go from so small to a decent size pretty quick, and you learn kind of some of the operational ins and outs of a business like that, and uh how important having someone who cares and and is actually an owner operator leading the company, how big of a deal that can be.
• 3:39
  SPEAKER_00: Um, so there's been actually a ton of lessons that I've drawn from that experience as well.
• 3:47
  SPEAKER_01: He's quite knowledgeable and he has uh he's very passionate about what he's doing.
• 3:52
  SPEAKER_01: And you can tell by the way he he talks to people and about his company.
• 3:56
  SPEAKER_01: So many of our listeners are probably already familiar with your work, but for those that might be newer, how did you first stumble upon the world of investing?
• 4:06
  SPEAKER_01: Uh, what intrigues you so much about it?
• 4:09
  SPEAKER_00: Yeah, initially, I I believe it was like 2018.
• 4:14
  SPEAKER_00: I was in college, and I think that was the time frame when Bitcoin initially kind of caught this surge and it kind of became this I don't want to say mainstream term, but everyone was talking about it.
• 4:27
  SPEAKER_00: So, and and I'm not I don't own any Bitcoin, and I'm not uh I guess you can call me a little skeptical, but i initially so many people got drawn into it because the price kind of just drives sentiment.
• 4:43
  SPEAKER_00: And I I was curious and kind of doing some digging, and I s was friends with Brett at the time, who's our co-host on Chit Chat Stocks, and I he was much more knowledgeable, knowledgeable about investing at the time.
• 4:59
  SPEAKER_00: He I mean, still kind of a beginner uh back then as well, but he certainly knew more than me, and he kind of just gave me some books and gave me some advice, and you know, uh kind of got me started in the general world of investing.
• 5:15
  SPEAKER_00: And then from there, I don't think I really had any sort of a unique experience.
• 5:19
  SPEAKER_00: It's just like you just pour through books over and over, you read the Buffett letters, you you know, try to consume as much information as you can.
• 5:30
  SPEAKER_00: Like in those early days, you really want to be a sponge uh and just kind of absorb all that knowledge from great investors before you, and that that was my goal.
• 5:40
  SPEAKER_00: Um after a while, a lot of the books are saying similar things.
• 5:45
  SPEAKER_00: So, you know, kind of the how-to invest type books, you can probably kind of wean off those and and focus more on.
• 5:52
  SPEAKER_00: I I found that there was more value to be had in just business case studies, like really get to know businesses over and over, and you can uh over time kind of draw lessons from those that'll help you hopefully uh invest down the road.
• 6:05
  SPEAKER_00: But yeah, I'd say that's kind of been the evolution is uh nothing nothing too crazy to to spark the interest, but uh found someone who is knowledgeable and was able to help me and I think guide me in the right direction early on.
• 6:19
  SPEAKER_00: And it's I mean, I'm sure your audience knows, but this is one of those things that you can just keep getting better at forever, and the world's always changing.
• 6:32
  SPEAKER_00: It's not like an athletic career, you don't peak at 30.
• 6:36
  SPEAKER_00: Uh, you can just kind of keep going in the knowledge compounds, and I found that really interesting.
• 6:41
  SPEAKER_00: And just the thought that you know you can make money with money is pretty attractive because hopefully you don't have to work forever.
• 6:49
  SPEAKER_00: Um, and so yeah, I I found all that pretty appealing and tried to consume and uh as much information as I could.
• 6:57
  SPEAKER_01: Yeah, don't worry, we agree with you on the crypto stuff.
• 7:00
  SPEAKER_01: We we either don't understand it well enough or don't see the potential, or it's complete bull crap.
• 7:06
  SPEAKER_01: Um, and yes, uh, as an educator myself, I think um I love the word that uh Neil deGrasse Tyson threw out there, uh lifelong learning, where you just never stop learning.
• 7:17
  SPEAKER_01: And I think investing as one of those topics just lends itself perfectly for that.
• 7:23
  SPEAKER_01: You said you're trying to consume as much information as possible, like a sponge, I think.
• 7:28
  SPEAKER_01: I think you just said that.
• 7:29
  SPEAKER_01: Is that what writing your stuff down and and talking on a podcast?
• 7:33
  SPEAKER_01: What does that do for you?
• 7:35
  SPEAKER_01: Do you think it helps you sharpen your ideas or something?
• 7:39
  SPEAKER_00: Definitely.
• 7:40
  SPEAKER_00: I mean, for one, it holds myself accountable where I can actually like go back to those podcast episodes or those show notes and you know see what I was thinking.
• 7:48
  SPEAKER_00: But also it's a it's a forcing function for kind of building more clarity of thought.
• 7:56
  SPEAKER_00: Like if you have some rough ideas, or maybe you think something could be a good investment, you haven't really dug that much into it.
• 8:03
  SPEAKER_00: To know you have to go out there and publish an episode on it forces you to do more digging, to get a better sense um of what you actually think of the business.
• 8:15
  SPEAKER_00: And in sometimes it's disappointing, but you'll prove yourself wrong kind of the more reading you do.
• 8:22
  SPEAKER_00: Um, but that's that's part of the game, and it's definitely a way for me to kind of articulate my thoughts publicly so that I have to be kind of held accountable for them, but it also forces me to do more work because I, you know, sure some of the stuff I say is gonna be wrong, but I don't want to say too many things that are wrong, so it it forces me to do a little more research.
• 8:48
  SPEAKER_00: I think I would probably, if I didn't have the podcast, I'd maybe be a bit of a lazier investor, maybe not do all the reading that I should be doing.
• 8:56
  SPEAKER_00: Um and so it's yeah, it's definitely been good for me in that sense.
• 9:01
  SPEAKER_01: Yeah, and people will call you out on your uh on anything you're you didn't do your research well enough uh on.
• 9:08
  SPEAKER_01: So exactly it forces you, definitely.
• 9:10
  SPEAKER_01: I agree.
• 9:11
  SPEAKER_01: So, how would you describe your um investing philosophy nowadays?
• 9:16
  SPEAKER_01: What kind of companies do you like to look for?
• 9:19
  SPEAKER_00: Yeah, I'd say my philosophy and I guess just approach overall has changed a lot over the years.
• 9:26
  SPEAKER_00: Um so for a bit of background, Brett and I used to manage a small fund called Arch Capital, and it was we were managing outside money, so we had a number of limited partners.
• 9:39
  SPEAKER_00: And while we were running that fund, you just the the goal was to beat the market, but at the end of the day, you're reporting your returns on a regular cadence, whatever that is, whether it's on an annual basis.
• 9:53
  SPEAKER_00: For us, we were doing quarterly letters.
• 9:55
  SPEAKER_00: Um, and there's really no way around it.
• 9:58
  SPEAKER_00: You're going to have your time horizon shrink when you're reporting your returns to other people, because it just isn't, you know, if you're having bad returns quarter after quarter, if you're in a down market or something like that, you know, most people aren't immune to like just general market trends, even if it's a great company.
• 10:19
  SPEAKER_00: It it's not fun to regularly report that you're, you know, the value of their investment is is going down.
• 10:26
  SPEAKER_00: And so I think over those years, I started to focus a little more on the short term.
• 10:32
  SPEAKER_00: I'd love to say that I focused on the long term, uh, because that's kind of always been my approach.
• 10:37
  SPEAKER_00: But at the end of you really do kind of just naturally contract your time horizon.
• 10:42
  SPEAKER_00: It's not that you're uh uh looking for different characteristics in businesses, but you start to think, you know, is there uh a catalyst for growth?
• 10:54
  SPEAKER_00: Is there something in the short term that's gonna drive any anything, any returns clearly in the next couple of months?
• 11:03
  SPEAKER_00: You I started to kind of focus more on small caps as well, like diving into trying to look in pockets of the market where other investors weren't.
• 11:14
  SPEAKER_00: And part of that was sometimes the returns are uncorrelated to the market.
• 11:20
  SPEAKER_00: So it that that thought for me was kind of nice, like in a down market to have you know a bunch of illiquid, illiquid microcaps or something that reported plus eight percent, something like that.
• 11:31
  SPEAKER_00: It it it sounded nice, but in reality, a lot of those micro caps are micro caps for a reason.
• 11:37
  SPEAKER_00: Same with small caps and and uh all that event-driven stuff.
• 11:42
  SPEAKER_00: I have no it's a competitive field the shorter you contract your time horizon, and really there's no edge for me in that area.
• 11:52
  SPEAKER_00: And so we eventually returned it money to investors, and we've been managing.
• 11:58
  SPEAKER_00: Brett and I have been managing our own money ever since, and my really my approach has changed a lot over those years.
• 12:04
  SPEAKER_00: Nowadays, I'm much more focused.
• 12:07
  SPEAKER_00: Like, I don't really care about, I'm not looking at any event-driven stuff, no merger arb.
• 12:15
  SPEAKER_00: Maybe I'll find a small cap, but I'm not searching through small caps specifically to find them.
• 12:23
  SPEAKER_00: And I I really am able to look much further into the future.
• 12:28
  SPEAKER_00: It I was I think managing a fund, you're often very worried about multiple compression for the stocks you have.
• 12:35
  SPEAKER_00: Whereas today, if I'm not gonna pay any price for it, but if the multiple compresses, I'm not too worried.
• 12:44
  SPEAKER_00: Uh especially if if I think that the value is still there long term.
• 12:49
  SPEAKER_00: I can get, you know, it kind of gives you more of a buying opportunity.
• 12:53
  SPEAKER_00: And that's another part of one of the differences between being a fund manager and just having your own money, is you've got regular income, or in my case, I've got regular income coming in the door.
• 13:02
  SPEAKER_00: So that if something draws, but you know or I have a feeling that the business is going to be just fine, you can easily kind of gobble up more shares at more attractive prices.
• 13:13
  SPEAKER_00: Whereas you don't have that regular income as a fund, you got to go out and raise the money.
• 13:17
  SPEAKER_00: So it's a little uh, I guess, I don't know, uh counterproductive that way.
• 13:23
  SPEAKER_00: So I have drifted more and more towards founder-led businesses that I think five to ten years are going to be more relevant, wide remote.
• 13:35
  SPEAKER_00: I really have really look for high insider ownership.
• 13:39
  SPEAKER_00: I'm not gonna like exclude it, but when a when you find a CEO that's really on a mission, it's his life's work, it's uh he he or she is uh just committed to that.
• 13:52
  SPEAKER_00: The they kind of go down with the ship as well as have success with um all the sh all the other shareholders.
• 13:59
  SPEAKER_00: That kind of incentive I think is really powerful.
• 14:02
  SPEAKER_00: And it'll it like it ripples through the business.
• 14:05
  SPEAKER_00: If you have a founder-led company, they make decisions faster because they don't have at the end of the day, they're they're the ones holding themselves accountable.
• 14:15
  SPEAKER_00: There, you know, it's not like oh, I'm gonna lose my job.
• 14:18
  SPEAKER_00: Like they own the business, you know.
• 14:20
  SPEAKER_00: So all they care about is the success of the business.
• 14:23
  SPEAKER_00: That's the outcome that they care about the most.
• 14:25
  SPEAKER_00: Not can I hit this one bonus in my incentive structure?
• 14:31
  SPEAKER_00: Can I, you know, make sure that my board likes me?
• 14:34
  SPEAKER_00: Can I do these little short-term things to kind of make Wall Street like me?
• 14:39
  SPEAKER_00: I I love founder-led companies that are just really fixated on driving value for customers.
• 14:47
  SPEAKER_00: Um, the other thing I'd say in terms of like businesses I'm looking for, I'd much rather have above average growth for a long time than rapid growth today.
• 15:00
  SPEAKER_00: I personally find that there's that's probably where the most uh I guess mispricings are is businesses that you think can earn growth earnings 15% a year for whatever, 20 years versus you know, you think it can grow 41% instead of 38% over the next couple quarters.
• 15:21
  SPEAKER_00: That's not a game I can play anymore.
• 15:23
  SPEAKER_00: And I think I'm able to find more mispricings in those kind of longer-term projections.
• 15:28
  SPEAKER_00: And part of the reason for that is I just talked about it.
• 15:31
  SPEAKER_00: Most investors don't have the time horizon of the individual investor that has income coming in.
• 15:38
  SPEAKER_00: So it is seriously a huge advantage.
• 15:40
  SPEAKER_00: Like if you have to answer to investors every quarter, you run a fund, at the end of the day, your time horizon is not as long as mine, uh, just managing my own money.
• 15:50
  SPEAKER_00: So um that's a big advantage.
• 15:53
  SPEAKER_00: And then I guess in terms of other characteristics, I want businesses that provide a lot of value to customers, more value than they're uh extracting from those customers, because that usually means there's potential pricing power.
• 16:08
  SPEAKER_00: A business that's difficult to replicate, and long runway for reinvestment.
• 16:13
  SPEAKER_00: You look at some businesses are very, very difficult to replicate, but there's like no room for reinvestment.
• 16:21
  SPEAKER_00: For example, uh I'm trying to think of one here.
• 16:25
  SPEAKER_00: Maybe maybe Visa, for example.
• 16:28
  SPEAKER_00: How much if they threw billions of dollars into CapEx, like what's it gonna do?
• 16:33
  SPEAKER_00: At the end of the day, that they're gonna grow pretty naturally, so they're able to just use that cash to uh whatever, buy back stock.
• 16:40
  SPEAKER_00: You you know, they can improve stuff, and maybe Visa isn't the perfect example, but Home Depot doesn't have the reinvestment runway that a smaller concept might have.
• 16:51
  SPEAKER_00: And we've seen that, like Home Depot really hasn't added that many stores over the last decade.
• 16:55
  SPEAKER_00: They've more so focused on improving the efficiency of their existing stores, and there that's another way to drive returns, but ultimately I want businesses that I think can uh can earn good returns on their investment, but also have ample room to invest.
• 17:14
  SPEAKER_01: Do ethics play a role here?
• 17:16
  SPEAKER_01: You you talk about um all these characteristics.
• 17:25
  SPEAKER_01: Does that play a role for you or health factors for society?
• 17:30
  SPEAKER_00: No, not necessarily.
• 17:34
  SPEAKER_00: Maybe there's somewhere where I would draw the line, but I put you on the spot, I'm sorry.
• 17:40
  SPEAKER_00: No, it's my largest holding is Philip Morris, which is one of the largest tobacco businesses, the largest tobacco business in the world by market cap.
• 17:48
  SPEAKER_01: Ah.
• 17:49
  SPEAKER_01: And is that is that the company that sells those pouches as well?
• 17:53
  SPEAKER_00: Yeah, that's been a big growth driver for them, has been uh nicotine pouches, which are reduced risk.
• 18:00
  SPEAKER_00: Better, better than cigarettes.
• 18:02
  SPEAKER_00: Yeah, yeah.
• 18:03
  SPEAKER_00: Yeah, I mean, if you're migrating over from traditional tobacco, this is it's a reduced risk product.
• 18:10
  SPEAKER_00: Um, and it's been categorized that as that by the FDA, so it it's not some controversial take by me.
• 18:16
  SPEAKER_00: Ultimately, whether or not I buy shares has no out, it does not have any bearings on the outcome for that business.
• 18:26
  SPEAKER_00: Because I bought shares doesn't mean they sold more cigarettes.
• 18:29
  SPEAKER_00: You know, they aren't raising money, they're not doing equity issuances, so it's not like I'm buying some new issuance and funding their operations.
• 18:39
  SPEAKER_00: Like there it's so whether or not I'm a shareholder is not going to impact the amount of smokers.
• 18:47
  SPEAKER_00: I I don't smoke myself.
• 18:49
  SPEAKER_00: I you know, my personal opinions on it are I've kind of kept aside from my I guess uh investment beliefs.
• 18:58
  SPEAKER_00: What I do with let's say I make money on Philip Morris, what I do with that money is more important to me, uh, than the actual returns generated.
• 19:11
  SPEAKER_00: So there is, I mean, I think there is somewhere where I would draw the line, um, but ultimately tobacco is probably not the place I'd do it.
• 19:20
  SPEAKER_00: And the specifically with Philip Morris, I really do think they are um, and it's not just I I think they are focused on bringing in a new age of products that actually does reduce risk.
• 19:34
  SPEAKER_00: And it's not just because the business opportunity is there, that's probably one of the big reasons is they they invest in it.
• 19:41
  SPEAKER_00: But if you listen to the conference calls, it's a CEO that genuinely wants to move to this new age of products, reduce risk, wants to get away from traditional combustibles, cigarettes mainly.
• 19:56
  SPEAKER_00: And uh frankly, I think that's uh I ethically, I'm I'm totally okay with that.
• 20:03
  SPEAKER_00: I I think they're hopefully helping a lot of people that would be uh going for worse products.
• 20:09
  SPEAKER_01: I'm just thinking because um I'm I'm no saint.
• 20:14
  SPEAKER_01: Uh I I own uh Evolution AB, I'll be totally honest about that.
• 20:19
  SPEAKER_01: But sometimes I when I analyze the company and I listen to the earnings calls or read the transcripts, sometimes I'm I I am thinking about if I really think about it long term, I think ethics do come into play into my conviction of the company, where I can feel pretty confident in say in ATEN or um certain companies that actually add value to society.
• 20:43
  SPEAKER_01: That well, I mean you can argue about any company if they add value, I suppose, but I think ADEN does something uh well for society and doesn't take away, and that does add to my conviction long term, and sometimes I do worry about an Evolution A B or uh a Philip Morris or um any other company that has anything to do with um what we just talked about.
• 21:08
  SPEAKER_01: Do you think um that does hurt your conviction in such a company where you may sell it too soon or maybe I I mean the ethics of like the product is I think that's really up to each individual investor.
• 21:26
  SPEAKER_00: Like if I had someone in my life that died from lung cancer or something, like maybe I'd be more staunchly against uh profit or making money from a company that sells cigarettes.
• 21:38
  SPEAKER_00: But yeah, yeah, for for me, uh the fact that I'm not financing the growth and the the idea that I'm not uh contributing to more smokers in the world is is, I guess, a comforting thought.
• 21:52
  SPEAKER_00: It could potentially affect me down the road when we think about ESG as a concept.
• 21:58
  SPEAKER_00: A lot of people focus on.
• 22:00
  SPEAKER_00: The environmental, the ethics side of things, and forget about the G, which is the governance.
• 22:07
  SPEAKER_00: I am way more frustrated by the ethics of management than I would be the ethics potentially of the product, because ultimately that's the consumer's choice.
• 22:18
  SPEAKER_00: Whereas sometimes we see management teams basically taking money from shareholders as opposed to benefiting with shareholders.
• 22:28
  SPEAKER_00: And so when I think about ESG, the biggest thing for me is the G, which is how is the company governed?
• 22:34
  SPEAKER_00: How are managers expected to make money?
• 22:38
  SPEAKER_00: Like, are they aligned with me as a shareholder?
• 22:41
  SPEAKER_00: That to me is more, I guess, uh frustrating if you feel like management is taking advantage of shareholders.
• 22:51
  SPEAKER_00: That is more of an ethics issue, potentially.
• 22:54
  SPEAKER_00: Um, like I don't know.
• 22:57
  SPEAKER_00: I guess it's a tough topic because at the end of the day, like every business could have something ethically wrong with it.
• 23:03
  SPEAKER_00: Like Adian may be facilitating transactions for you know illicit stuff, whatever, you know, some website in the world that's doing something that they shouldn't.
• 23:14
  SPEAKER_00: Addien could be potentially processing transactions.
• 23:17
  SPEAKER_00: Like the kind of the list goes on and on.
• 23:19
  SPEAKER_00: So people can kind of make it what they want.
• 23:23
  SPEAKER_00: The yeah, ultimately, I don't know where I draw the line, probably somewhere.
• 23:29
  SPEAKER_00: Maybe it is the gambling, maybe that's kept me away from evolution.
• 23:33
  SPEAKER_00: Um but I it's not the it's not really at the top of my list of checkboxes for investments.
• 23:45
  SPEAKER_01: I get what you're saying, yeah.
• 23:47
  SPEAKER_01: I think you just mentioned um about the fund with you and um Brad.
• 23:54
  SPEAKER_01: If you're being brutally honest to yourself, do you think you're uh a different or a better investor today than you were when you were managing the fund just because you were kind of, I wouldn't say limited, uh well, maybe limited in what you could do, or um, you were constrained by certain um rules, or what are your thoughts on that?
• 24:13
  SPEAKER_00: Yeah, I think my returns would say so for the most part.
• 24:17
  SPEAKER_00: I feel a lot more flexibility as an investor now.
• 24:20
  SPEAKER_00: Yeah, and my it's it has nothing to do with like the investors.
• 24:23
  SPEAKER_00: The like we had phenomenal investors, they some of them probably didn't even read the quarterly letters, like they didn't care, they were just kind of banking on us, betting on us, that kind of thing.
• 24:34
  SPEAKER_00: Um, and they they had longer time horizons than we did, probably.
• 24:38
  SPEAKER_00: But really, that that reporting process of having to kind of check your returns on a regular basis forces you to, or maybe not forces, but encourages you to find stuff that would be better in the short term, um, and just getting away from that, being able to honestly not check my portfolio that much and just focus on the progress of the business.
• 25:07
  SPEAKER_00: Like, don't I have tried more and more to care less about the stock over time.
• 25:13
  SPEAKER_00: Obviously, I try to keep like some perspective on the valuation, but I have a much looser leash on valuation today than I used to.
• 25:22
  SPEAKER_00: I think every business that I have sold, probably 90% of the stocks that I have sold ended up being a bad decision.
• 25:29
  SPEAKER_00: Like if you think you've got a good bet business over the long run and you're selling because of valuation, unless the valuation is really extreme, it's primarily going to be a time horizon thing or an opportunity cost.
• 25:48
  SPEAKER_00: Like if you it's different if you find better investments elsewhere, but ultimately I got I think scared off by valuations a couple of times and how multiple compression could potentially affect me in the short term, and I just don't have to deal with that as much anymore.
• 26:04
  SPEAKER_00: So it's a lot easier to kind of ride out multi-baggers and and uh really experience the upside of investing in stocks, which is you not everything's gonna work out, but you have a couple stocks that generate you 10x returns, they can account for a lot of your overall returns.
• 26:21
  SPEAKER_00: Um, and and when you're really kind of in the nitty-gritty and focused on it every you know price move and and how it impacts your model, that I honestly think it's a pretty unhealthy uh process for investors, especially individual investors.
• 26:40
  SPEAKER_01: We actually had Kevin from uh 100 bagger hunting uh on the show a couple of weeks ago.
• 26:45
  SPEAKER_01: What was your uh do you have a uh a 10 bagger or a hundred bagger in your portfolio?
• 26:51
  SPEAKER_00: I do not know.
• 26:52
  SPEAKER_00: We did own uh in the fund, we bought Sprouts Farmers Market, I believe, at around$20.
• 26:59
  SPEAKER_00: Honestly, don't know what it's at today.
• 27:01
  SPEAKER_01: Let me I think our analyst uh Bauke, I think he still owns it or just sold it.
• 27:07
  SPEAKER_01: So I'm familiar with the company, yeah.
• 27:09
  SPEAKER_00: Yeah, it's uh really sort of a health-focused grocery chain here in the here in the States.
• 27:14
  SPEAKER_00: And the uh it's looks like it's about like an eight-bagger.
• 27:18
  SPEAKER_00: So not a ten-bagger, but the uh I think we actually ended up selling this one because we were worried about valuation.
• 27:25
  SPEAKER_00: I think we when we bought it, it was kind of right around COVID, and there were some concerns around whether or not they had kind of over-earned because everyone stopped going to restaurants, they were buying more food in in uh grocery stores and stuff like that.
• 27:41
  SPEAKER_00: And so it was trading, I think, at like eight times trailing earnings, and the multiple has just ballooned.
• 27:48
  SPEAKER_00: It's like 30 says 37 times earnings here.
• 27:53
  SPEAKER_00: Uh could be wrong, but either way, it's a heck of a lot higher than when we bought it.
• 27:59
  SPEAKER_00: And it's kind of an uncomfortable feeling, especially in the fund, which is you're you're constantly worried about like what's next, especially in the short run.
• 28:09
  SPEAKER_00: That if the multiple just keeps ballooning, it's hard not to imagine the multiple compression.
• 28:14
  SPEAKER_00: If I owned that just in my own personal account, especially in my in like a taxable account where I just don't want to have to deal with the taxes, I'd probably just bias towards leaving it.
• 28:26
  SPEAKER_00: Maybe it I think it's gotten a little extreme today, but uh that would probably be the best investment we had uh would have had, I guess, over the last call it five years.
• 28:41
  SPEAKER_00: Because we started the fund in 2021, so it was uh there hasn't been too much room for uh certainly not hundred baggers uh yet.
• 28:54
  SPEAKER_00: I don't know of a whole lot of hundred baggers that happen in four years, but you know, hopefully one day we'll uh some of my holdings will be.
• 29:02
  SPEAKER_01: For any of our listeners, we're looking for a hundred bagger within four years.
• 29:06
  SPEAKER_01: I don't know if I don't know, maybe like uh I think Palantir has done very well, but I don't even know.
• 29:13
  SPEAKER_01: I don't really follow it anyway.
• 29:15
  SPEAKER_01: Valuation is such a weird concept, right?
• 29:17
  SPEAKER_01: Where everybody is valuing companies and buying and selling based on valuation, and then looking back 10, 20, 50 years uh back in time, say we're 70 now and looking back and we just shouldn't have sold a company and it became like a hundred or a hundred and fifty bagger if you just didn't sell because of valuation, it's such a weird concept valuation.
• 29:43
  SPEAKER_00: Yeah, seriously, it is.
• 29:44
  SPEAKER_00: It's very like anyone that ran some tent-year DCF on Amazon in 2001.
• 29:52
  SPEAKER_00: Like, were you forecasting all the innovations?
• 29:57
  SPEAKER_00: Like all the stuff that exactly they hadn't even thought of yet?
• 30:00
  SPEAKER_00: Like, that's why I tend to bias towards innovative owner operators that just pro are intense about providing value to customers because they will surprise to the upside, and or they can surprise to the upside more so than sort of the mercenary CEOs or kind of the businesses that have been around for the long time and and kind of you know are just running on what they've currently got.
• 30:26
  SPEAKER_00: The it is so hard to forecast for those businesses, and yeah, like you said, it is kind of a funny concept because if you're too stringent on your valuation, if you get really detailed about your DCF, it probably hurts you more than helps you.
• 30:45
  SPEAKER_00: You I have found a lot more value in being intense about the research on the business and intense about the research on where where you think that business can go.
• 30:57
  SPEAKER_00: So, you know, kind of trying to get a real sense of who you think the the manager is and and whether they're honest and competent.
• 31:07
  SPEAKER_00: That to me has provided a lot more value than like getting really in the weeds on the numbers.
• 31:14
  SPEAKER_00: Obviously, you don't want to pay anything, but if you really, really love the business, you've done the work, you feel like you have a great grasp on uh where that business can go, and you put a just a reasonable forecast out there for 10 years and it's and it feels cheap on the current numbers.
• 31:35
  SPEAKER_00: I I think there's no point in haggling over pennies on your DCF.
• 31:40
  SPEAKER_01: Yeah, I I like to call it um optionality.
• 31:44
  SPEAKER_01: I like to put a number on when I look at my quality checklist for a company, which is about I don't even know, 30 checks or something, and I like to put a number on each and every check.
• 31:56
  SPEAKER_01: Uh optionality is one of them.
• 31:58
  SPEAKER_01: For example, you couldn't have expected Amazon expanding into AWS, it didn't exist, but I do think the company was kind of positioned in a way where they were experimenting and investing into different things through other bets.
• 32:15
  SPEAKER_01: And for example, I think the optionality for say an Hermes, the luxury company in Europe, is a lot less, for example.
• 32:24
  SPEAKER_01: So it's something perhaps to take into consideration when you're valuing a company, where optionality can kind of deserve a premium in some cases, I guess.
• 32:37
  SPEAKER_00: Yeah, and I think optionality can be sometimes a dangerous term where a lot of businesses have optionality, but they don't have a history of launching new products and being successful with it.
• 32:54
  SPEAKER_00: And the the I I think it's kind of important to distinguish between companies that can do other stuff and companies that have proven they can do other stuff.
• 33:03
  SPEAKER_00: And are you referring to Airbnb?
• 33:06
  SPEAKER_00: We'll see.
• 33:06
  SPEAKER_00: I guess we'll see, right?
• 33:08
  SPEAKER_00: You know, they're straying away from their core product a bit, uh, or at least investing in other efforts.
• 33:13
  SPEAKER_00: That's an example of like they could have success in those categories.
• 33:18
  SPEAKER_00: Amazon, you have seen now 20, I guess 30 years.
• 33:22
  SPEAKER_00: I think they were founded in like '94, so 30 years of successful transitions into new categories.
• 33:29
  SPEAKER_00: Typically, AWS is a little different, but typically they're kind of ancillary to their existing business.
• 33:35
  SPEAKER_00: And when you have a major distribution advantage like Amazon or Google, it becomes much easier to uh move into new markets.
• 33:45
  SPEAKER_01: So let's take a moment to talk about uh the process, the investing process.
• 33:50
  SPEAKER_01: I'm curious how you go from spotting an idea to actually analyzing a company and eventually deciding whether to buy it or hold it or sell it.
• 34:01
  SPEAKER_01: So walk me through your steps.
• 34:03
  SPEAKER_01: Uh, what does that look like for you?
• 34:05
  SPEAKER_01: What is your process when you're looking for ideas and then analyzing a company?
• 34:10
  SPEAKER_01: What do you what steps do you take?
• 34:12
  SPEAKER_00: Yeah, in terms of finding new stocks, it's kind of all over the place.
• 34:16
  SPEAKER_00: I am in a fortunate position where thanks to the podcast, a lot of people actually bring the ideas to us.
• 34:24
  SPEAKER_00: You know, we invite on friends, uh investors that we've followed for years and you know, cultivated relationships with over time.
• 34:34
  SPEAKER_00: And when they have a good idea that they'll message us and they'll say, you know, hey, can I uh talk about this stock on the podcast?
• 34:41
  SPEAKER_00: And you know, we're always we love hearing new ideas, so we're always open to it.
• 34:46
  SPEAKER_00: Uh so that makes my life a little easier because it's kind of like outsourcing an analyst team in a way.
• 34:52
  SPEAKER_00: The other way is uh sometimes Brett brings ideas, sometimes uh listeners pitch ideas, and all of this ends up serving as a pretty useful funnel.
• 35:03
  SPEAKER_00: Sometimes it's just reading blogs, you know.
• 35:06
  SPEAKER_00: I've got a list of well, not it's not really like a structured process, but I subscribe to a number of newsletters, and I when they come through my email, I I try to read them if I find them interesting, and uh usually it has to be something that's in my circle of competence for me to really get interested.
• 35:27
  SPEAKER_00: Um, and that's one way that I end up finding ideas.
• 35:32
  SPEAKER_00: As for the process beyond that, the research process is probably not that unique.
• 35:38
  SPEAKER_00: I go through, I usually do just kind of a quick check on FinChat, just financials to get a sense of like what the business has done over time.
• 35:48
  SPEAKER_00: It's sometimes that might hurt me more than it helps me because maybe the future doesn't look like the past, maybe they've had stable revenue or it's gone nowhere for 10 years, and then not some new product emerges and they grow revenue in the next 10.
• 36:03
  SPEAKER_00: But the uh I'd be lying if I said I didn't look at the financials first.
• 36:08
  SPEAKER_00: That from there, if I can find a high quality write-up through the list of newsletters I follow, or Value Investors Club, or Morning Star Reports, shout out to FinChat, you can get the Morning Star Reports on there.
• 36:21
  SPEAKER_00: Um that usually helps me get up to speed on the idea.
• 36:26
  SPEAKER_00: And each each kind of layer of this is just like a filtering process.
• 36:31
  SPEAKER_00: Like if I get through the report and I'm still more interested, you know, I just you just keep going.
• 36:36
  SPEAKER_00: Like then you start to rip through some of the conference call transcripts, then you kind of go through the 10k, see if you're missing anything, and from there, uh, this is where Brett and I differ the most, is I am not afraid to just buy a couple shares, you know, build a starter position because I I know that if I don't have a starter position and I just throw it on the watch list, it's there's a good chance it gets lost.
• 37:05
  SPEAKER_00: I like I don't read the calls, I I forget how much I liked it, I forget you know what my thoughts were on it.
• 37:11
  SPEAKER_00: Even if I wrote them down, I'm not always going back to it.
• 37:13
  SPEAKER_00: So it's just buying a couple shares forces me to care more.
• 37:17
  SPEAKER_00: And so if I get to that point where I've built a starter position, then the process becomes like I I have found that I usually don't find that I have a really, really great business until sometimes I'm two or three years into owning it.
• 37:34
  SPEAKER_00: Like you know, Visa or Google or ASML or whatever.
• 37:40
  SPEAKER_00: They like you kind of already know going into your research process that these are good businesses.
• 37:45
  SPEAKER_00: Like they they have a moat, they are hard to disrupt.
• 37:49
  SPEAKER_00: Maybe Google's being called into question right now, but it's generally you have a good sense of it.
• 37:55
  SPEAKER_00: But for some of the smaller businesses where you think, I like this concept, I like this business, and I think they have some competitive advantages.
• 38:03
  SPEAKER_00: Sometimes you don't know until you've owned it for two or three years and you've read the calls a little more closely, and you've seen product launches and you've seen customer reactions to products, that you really get the sense of, okay, they're providing some value that to their customers that no one else is.
• 38:20
  SPEAKER_00: Then that's usually when I'm willing to size up the position, or if something drastic happens to the stock price, sometimes it'll force me to research a little more, like if stock gets cut in half or whatever, all of a sudden I, you know, if it's trading at valuation that's cheaper than it ever has, you start to do a little more research.
• 38:42
  SPEAKER_00: There's usually some spark or catalyst that encourages me to keep researching.
• 38:46
  SPEAKER_00: But really, I'm for the most part, I'm buying starter positions and tracking, just reading about the companies every quarter and as much as I can that are in my portfolio.
• 38:58
  SPEAKER_00: And then a lot of the best ideas are typically uh the best ideas that I can capitalize on are typically companies that I already own.
• 39:07
  SPEAKER_01: So, as I mentioned before, I live in Europe in the Netherlands, and from this side of the world, things often feel a bit different when it comes to the bigger picture.
• 39:17
  SPEAKER_01: Uh, you have the US-China tensions, you have Trump going on a rampage, you have tariffs going on, politics, the European the role of the European Union, uh, all of that stuff.
• 39:30
  SPEAKER_01: There is always something going on, and the headlines can get pretty loud.
• 39:35
  SPEAKER_01: So, how do you personally stay level-headed through all of it?
• 39:40
  SPEAKER_01: Do you follow the news at all, or do you mostly tune it out when you make uh investment decisions?
• 39:46
  SPEAKER_00: Yeah, it's tough.
• 39:47
  SPEAKER_00: I mean, you're gonna end up seeing the news one way or another most of the time.
• 39:52
  SPEAKER_00: Like, obviously, all the tariff stuff gets talked about non-stop.
• 39:57
  SPEAKER_00: I try to look at it from a bottoms-up approach of like how does this impact my businesses?
• 40:04
  SPEAKER_00: And usually that'll be talked about by management in conference calls.
• 40:09
  SPEAKER_00: And you can get, I think, a little bit of a more less sensationalized view when you're hearing it from the company itself, as opposed to just reading the headlines, it's so easy to react.
• 40:24
  SPEAKER_00: I I, you know, for filtering out news, I'd probably say it'd be good to stay off social media as much as you can, but I I'm probably on Twitter more than I should be, so I'm not really following my own recommendation there.
• 40:39
  SPEAKER_00: I I think the best thing you can do is just focus on the businesses you own.
• 40:44
  SPEAKER_00: Try to, you know, anytime something new pops up about the business or any sort of call that you can find or research you can find, like just focus on the the businesses themselves.
• 40:58
  SPEAKER_00: And if some if the news is impacting them, you'll see it.
• 41:02
  SPEAKER_00: Like you'll see it in the results, you'll see it in management commentary.
• 41:06
  SPEAKER_00: Sometimes management won't be exactly forthright about it, but after you've read enough conference calls, you can kind of tell when they're hiding stuff a bit.
• 41:13
  SPEAKER_00: Uh in general, I think I'm a little slower twitch, like slower to move to news, which maybe sometimes hurts me, but it's like when I have reacted to news quickly, it typically ends up being the wrong choice.
• 41:29
  SPEAKER_00: So I I found that it's better to let the news simmer for a little bit, especially in the world of Trump as the president, because things tend to move around really quickly and he changes his mind a lot and it impacts stock prices.
• 41:46
  SPEAKER_00: So taking time to really digest the news, I I have found to be pretty helpful for me.
• 41:53
  SPEAKER_01: Yeah, absolutely.
• 41:55
  SPEAKER_01: I I I for example, I have no news apps on my phone.
• 41:58
  SPEAKER_01: I don't really like to watch the news on the TV anyway, and I think most news is short term.
• 42:07
  SPEAKER_01: I mean, even if you look, I mean, Corona had a really big impact.
• 42:11
  SPEAKER_01: But besides that, I mean, if you just went on vacation for the past eight weeks, it's like nothing happened.
• 42:18
  SPEAKER_01: Yeah, basically.
• 42:20
  SPEAKER_00: Yeah, a hundred percent.
• 42:21
  SPEAKER_00: Like there is uh Todd Alston, who's uh the chief investment officer Parnassus, he talks about short shelf life information versus long shelf life information and trying to get a sense of does this impact my business long term as opposed to short term?
• 42:43
  SPEAKER_00: Ultimately, you want to be trying to process and identify as much long shelf life information as you can.
• 42:50
  SPEAKER_00: It's sometimes hard to distinguish between the two, but just think about think about that as much as you can.
• 43:00
  SPEAKER_00: Like anytime you see a news headline, think it does this affect my business in 10 years?
• 43:06
  SPEAKER_00: If it does, maybe just hold on for a second, wait, digest it a little longer, um, and then act.
• 43:14
  SPEAKER_00: The other thing I have done, which I found helpful, is I don't have my brokerage app on my phone.
• 43:21
  SPEAKER_00: It kind of forces me to just think a little more before I act.
• 43:26
  SPEAKER_00: So I can, you know, I have to go onto my desktop, I have to sign in, I have to do the email verification.
• 43:33
  SPEAKER_00: It just gives me a little longer to really think about what I'm doing.
• 43:37
  SPEAKER_01: Yeah, it's such a simple tip.
• 43:39
  SPEAKER_01: I actually said this uh a few weeks ago on uh on Substack as well.
• 43:43
  SPEAKER_01: Such a it really forces you to just take some time to think about it.
• 43:47
  SPEAKER_01: You have to open your laptop and just uh the things you just uh mentioned.
• 43:52
  SPEAKER_01: I recently made a podcast episode uh called Universal Laws Apply to Investing, where I talked about something called.
• 44:00
  SPEAKER_01: Goodhardt's Law.
• 44:01
  SPEAKER_01: I'm not sure if you're familiar with it.
• 44:04
  SPEAKER_01: It basically says that when a measure becomes a target, it stops being a good measure.
• 44:11
  SPEAKER_01: And the idea is that once people start optimizing too hard for a specific metric, for example, uh ROC or price to book or price to earnings or anything else, the usefulness of that metric starts to break down.
• 44:28
  SPEAKER_01: It kind of feels like that's starting to happen in investing too, for example, with ETFs, but also in quality investing.
• 44:38
  SPEAKER_01: Everybody is looking at the same quality screeners, the same financial ratios, kind of chasing the same names where you just keep buying each other up.
• 44:48
  SPEAKER_01: There's also this paradox called the paradox of skill, where as more people get better and better, and the more information gets out there, and the edge gets smaller, and the outcomes start to rely more on luck.
• 45:01
  SPEAKER_01: Do you think this is also happening to in quality investing and investing in general?
• 45:07
  SPEAKER_01: Has the edge been competed away, or is there still room to find meaningful advantages?
• 45:15
  SPEAKER_00: I don't I I don't think the edge has been competed away, and people have made that argument probably for 20 years, maybe even longer.
• 45:24
  SPEAKER_00: If you listen to some of the Berkshire Hathaway uh annual meetings, I think they've been asked about this a couple times, and yeah, maybe the edge has been competed away in the short term, but no, uh I think if anything, the competitiveness of the markets and the all the people involved actually ends up exacerbating the swings in prices.
• 45:50
  SPEAKER_00: Like news travels faster, prices move more.
• 45:54
  SPEAKER_00: I I read this quote one time from Tobias Carlisle.
• 45:59
  SPEAKER_00: Well, he wasn't the one that said it, but he presented it at a Google talk, and Tobias Carlisle and it the quote said prices move more than the value of business, therefore, there's opportunity.
• 46:15
  SPEAKER_00: Like from day to day, let's say a stock jumps five percent a day.
• 46:21
  SPEAKER_00: Did the business, the whole business, get five percent more valuable overnight?
• 46:26
  SPEAKER_00: Probably not, therefore, there's opportunity.
• 46:29
  SPEAKER_00: So I I think the the it has exacerbated the swings, and maybe in kind of the most competitive names, it'll be harder to have a unique take.
• 46:43
  SPEAKER_00: But the like the future's uncertain, and anyone that just because you have 50 people modeling it out instead of 20 doesn't mean they have a better idea on what you know Andy Jassy might help create tomorrow, or what some of the team at Google might be able to do with Waymo.
• 47:03
  SPEAKER_00: Like there's stuff that's just unpredictable, so that's where I think betting on people in in some ways is a big deal.
• 47:12
  SPEAKER_00: The other part is if I'm wrong, I don't care because I find it fun.
• 47:17
  SPEAKER_00: So I'm just gonna keep uh I I find the intellectual pursuit of trying to own great businesses and and be a partner in them or be a shareholder in them just a whole lot of fun.
• 47:30
  SPEAKER_00: So maybe I'm wrong, but I just it's it life's too short to index, is what I've heard, and I I like that.
• 47:40
  SPEAKER_01: Well, on that note, I actually think that small caps and mid-caps will become more interesting because all of the funds and ETFs are mostly buying like these large conglomerates and uh large caps.
• 47:52
  SPEAKER_01: So who knows uh what the future will look like.
• 47:56
  SPEAKER_01: I think you're right.
• 47:58
  SPEAKER_00: Yeah, and there, like you said, there are like there's been this huge move towards passive investing, like index investing, ETFs, stuff like that, where you're not really managing the money yourself.
• 48:10
  SPEAKER_00: And there's been a lot of like those flows have created price swings.
• 48:16
  SPEAKER_00: A lot of those ETFs funds have restrictions, uh they you know can't go below a certain size, or it doesn't make sense for them to go below a certain size company.
• 48:27
  SPEAKER_00: They I mean there are there are businesses dedicated to like huge businesses dedicated to just finding a to building a list of companies that don't meet certain ESG requirements that a whole bunch of funds subscribe to that you know they have to get access to that list.
• 48:45
  SPEAKER_00: If it doesn't meet the ESG requirement, they can't buy it, that kind of thing.
• 48:48
  SPEAKER_00: So there's we talked about Philip Morris earlier in the episode.
• 48:54
  SPEAKER_00: Oh, there's a lot of a lot of funds that just outright can't buy it.
• 48:59
  SPEAKER_00: Now, that's kind of larger cap, but you think about some of the smaller cap companies.
• 49:04
  SPEAKER_00: Yeah, I think you're right.
• 49:05
  SPEAKER_00: In the small to mid-cap space, there are a lot of opportunities where big big investors and the people that you think of having some sort of analytical and advantage just aren't they're not fishing in that pond.
• 49:21
  SPEAKER_01: So you seem pretty knowledgeable and passionate about investing, but investing can also feel very hard and uncomfortable.
• 49:29
  SPEAKER_01: Was there ever a moment in your investing life or career you felt scared or uncomfortable?
• 49:37
  SPEAKER_01: And how did you respond to that feeling?
• 49:40
  SPEAKER_00: Yeah, I honestly I'd say when I was running the fund, A, I was young, uh, and you're benchmarking against the index, and you know, when you start to manage a fund, a lot of other it can feel uh combative, I guess.
• 49:59
  SPEAKER_00: The the professional investing world can feel combative, and I definitely felt like I had kind of imposter syndrome at times.
• 50:06
  SPEAKER_00: Like, should I do I deserve to be managing other people's money?
• 50:10
  SPEAKER_00: Yeah, pressure, outside pressure.
• 50:12
  SPEAKER_00: And yeah, you can really start to second guess a lot of the conclusions you come to about businesses and and their management teams.
• 50:22
  SPEAKER_00: I I think I'd say over the last couple of years, and especially now managing just my own money, I don't care if someone disagrees with me.
• 50:31
  SPEAKER_00: It's like, okay, that's the you know, that's fine.
• 50:33
  SPEAKER_00: Like maybe they're right.
• 50:34
  SPEAKER_00: You know, you read a short report, it can feel so easy to get like shaken out of a position, but I I just take my time and digest it on my own and try not to react too quickly.
• 50:48
  SPEAKER_00: And it's actually helped me to I I gave myself a rule, which is any stock I buy, I have to own it for three years.
• 50:58
  SPEAKER_00: And I don't have to own it in size, I can own two shares, whatever, but I can't sell it.
• 51:03
  SPEAKER_00: And it forces me to focus on the business results and not what other people think of the business results.
• 51:12
  SPEAKER_00: And when you start to, if you're reading a conference call, try to think of the CEO as like a personal friend running this company.
• 51:24
  SPEAKER_00: What is he saying?
• 51:25
  SPEAKER_00: Are you optimistic about it?
• 51:27
  SPEAKER_00: Try try to really kind of relate to him as it because at the end of the day, it's a bunch of people running the company, right?
• 51:32
  SPEAKER_00: It's not like these this fictional thing, it's it's a real business that you're uh dealing with on a daily basis, uh, or reading about, and maybe you know, like some of the simplest takeaways can sometimes be the most powerful in investing.
• 51:52
  SPEAKER_00: Like people are using their iPhones a lot, and 2016 would have earned you a lot of money.
• 51:58
  SPEAKER_00: Uh analysts probably would have had a million things to say about how you know you're not forecasting iPhone growth right over the next couple of years, whatever.
• 52:07
  SPEAKER_00: It ultimately some of those really simple takeaways can be the most valuable, and when you're not playing the short-term game, those matter the most.
• 52:18
  SPEAKER_00: So, yeah, I I think someone once told me the world investing is just about understanding the world around you, and uh, I think people should care more about their uh experience with the business, their actual genuine experience with the business and their feelings for it than other people's feelings for it.
• 52:40
  SPEAKER_01: Yeah, that's that's useful advice.
• 52:43
  SPEAKER_01: So let's shift gears a bit.
• 52:45
  SPEAKER_01: Um, you've probably read a ton of investor letters and followed different strategies and seen and talked to all kinds of different personalities and people from uh around the world.
• 52:56
  SPEAKER_01: What who do you think currently is like a very underrated and interesting investor?
• 53:02
  SPEAKER_01: Someone you think more people should be paying attention to?
• 53:06
  SPEAKER_00: Hmm.
• 53:07
  SPEAKER_00: I I I've always liked David Gardner.
• 53:10
  SPEAKER_00: Uh Wall Street, like I've heard of him, never never checked him out, but he's the founder of or one of the co-founders of The Motley Fool.
• 53:21
  SPEAKER_00: And sometimes the Motley Fool gets kind of a bad rap because they have like overly promotional headlines.
• 53:29
  SPEAKER_00: Um but David Gardner's track record is really good, and a lot of it's come from just those simple takeaways that we talked about, where he kind of he does a useful exercise, or I think it's a useful exercise, where it's just called the snap test.
• 53:46
  SPEAKER_00: If this business disappeared tomorrow, like you snapped your finger, the business is gone tomorrow.
• 53:51
  SPEAKER_00: How would that impact the world?
• 53:52
  SPEAKER_00: And if there would be a huge impact, you know, it's a useful business.
• 53:57
  SPEAKER_00: So I I kind of like that, and he's also proven that you don't need a team of analysts and a detailed 30-year DCF to produce great investment outcomes.
• 54:10
  SPEAKER_00: That quote I said earlier, investing is just about understanding the world around you.
• 54:14
  SPEAKER_00: He really embodies that.
• 54:16
  SPEAKER_00: Some of his takeaways were simple.
• 54:18
  SPEAKER_00: Like he so far, from what I've seen, he had one of the best investments of all time in Netflix and Amazon in kind of the early 2000s, where the takeaways were probably pretty similar for both.
• 54:32
  SPEAKER_00: Great management teams, owner operators, intense about customers, and the economics maybe don't look that good at the moment, but they continue to grow and reinvest, which is maybe masquerading what they could earn if they weren't reinvesting.
• 54:52
  SPEAKER_00: And you think about both those cases.
• 54:54
  SPEAKER_00: I mean, Amazon, Netflix, how long were they unprofitable for?
• 54:58
  SPEAKER_00: It was quite a long time.
• 54:59
  SPEAKER_00: But you had a management team who, if things went wrong, they were losing too.
• 55:05
  SPEAKER_00: Uh, and they intent they cared intensely about shareholders because they were the biggest ones.
• 55:10
  SPEAKER_00: So uh yeah, I really like him.
• 55:14
  SPEAKER_00: He does a phenomenal job of of simplifying things, and he's a great investor for individuals to follow.
• 55:20
  SPEAKER_00: The other investor that I personally really like is Bill Nigren.
• 55:25
  SPEAKER_00: He is the I believe the CIO at Harris Oakmark.
• 55:29
  SPEAKER_00: I might be getting the title wrong, um, but he manages a couple portfolios for Harris Oakmark, and that's more like institutional, large cap, but he's just built a really good team and process where they of all the like fun structures I've seen, they do a really good job of trying to eliminate ego.
• 55:52
  SPEAKER_00: Because especially in a fun structure, when you have a lot of analysts and they pitch ideas, it's it can be so easy to let your ego get in the way where it's like, oh, I pitched this idea, I need to like staunchly defend it, even though maybe the information and and new information has gone against what you thought initially.
• 56:09
  SPEAKER_00: You know, maybe you shouldn't be digging in, maybe it's time to sell.
• 56:12
  SPEAKER_00: Um, it's like that kind of politics, I guess you will, in a fund structure can be really difficult to combat.
• 56:22
  SPEAKER_00: And so they've just done a very good job of eliminating ego as much as they can.
• 56:26
  SPEAKER_00: And he's beat the market, I think, over the last 25 years.
• 56:29
  SPEAKER_00: Uh I think he's annualized about 12%.
• 56:33
  SPEAKER_00: So uh, and it's it's mostly in large cap, like large cap value.
• 56:38
  SPEAKER_00: Not he's not reinventing the wheel, he's not finding stocks no one's heard of.
• 56:42
  SPEAKER_00: He's just uh coming to different conclusions on the same companies everyone else is analyzing.
• 56:48
  SPEAKER_01: Okay, I'll I I wrote them down.
• 56:50
  SPEAKER_01: I'll I'll have to check them out.
• 56:51
  SPEAKER_01: And uh what was the bill something?
• 56:55
  SPEAKER_00: Nigren, N-Y-G-R-E-N.
• 56:59
  SPEAKER_01: I'd like to try something different.
• 57:00
  SPEAKER_01: I've never done this before, but let's call it one takes.
• 57:03
  SPEAKER_01: Uh, you can only have one answer.
• 57:05
  SPEAKER_01: Uh, I'm going to put you a little bit on the spot and just ask you a couple of questions, and uh we'll wrap up this uh this episode.
• 57:12
  SPEAKER_01: Alright, let's do it.
• 57:14
  SPEAKER_01: Valuation aside, you can only buy one company for the rest of your life.
• 57:20
  SPEAKER_01: Which company are you buying?
• 57:22
  SPEAKER_01: Oh gosh.
• 57:25
  SPEAKER_00: Uh right now, coupon.
• 57:29
  SPEAKER_01: Really?
• 57:29
  SPEAKER_01: Okay.
• 57:30
  SPEAKER_01: I've actually done a deep dive on coupon, so I know it pretty well.
• 57:33
  SPEAKER_01: So, okay, interesting one.
• 57:36
  SPEAKER_01: If you had to be CEO of a company for a year, uh skills aside, what would you what would be a fun company to do that for?
• 57:45
  SPEAKER_00: Uh gosh.
• 57:47
  SPEAKER_00: Coupons?
• 57:51
  SPEAKER_00: Well, I'd be one of the only English speakers, I think.
• 57:54
  SPEAKER_00: The uh or native English speakers, so maybe not coupon, but uh maybe like one of the companies that just spends absurd amounts on like employee happiness, Salesforce.
• 58:05
  SPEAKER_00: Uh they I think they pay$10 million for Matthew McConaughey to be some advisor, so maybe go be friends with them.
• 58:15
  SPEAKER_01: If you could ask one question to Buffett during dinner before he left this beautiful planet, what would you ask him?
• 58:22
  SPEAKER_00: Ah, geez, that's a good one.
• 58:25
  SPEAKER_00: It's a good one because uh you if you listen to all the uh annual meetings over the years, it's it's a question that comes up in your own head a lot.
• 58:36
  SPEAKER_00: It's like, what would I ask him?
• 58:38
  SPEAKER_00: If you want some time, uh I'll ask you this before we end.
• 58:41
  SPEAKER_00: Uh sure, yeah.
• 58:42
  SPEAKER_00: Uh let's let's move on.
• 58:43
  SPEAKER_00: Maybe I'll think of a new one.
• 58:45
  SPEAKER_01: Yeah.
• 58:46
  SPEAKER_01: What's your favorite brand in the world?
• 58:49
  SPEAKER_00: Uh here's the value investor in me.
• 58:52
  SPEAKER_00: I'll go with Kirkland's signature.
• 58:54
  SPEAKER_00: It's the uh the Costco brand.
• 58:57
  SPEAKER_01: We don't even have Costco's here, so I didn't even know it.
• 59:01
  SPEAKER_00: Uh it's it's probably not my actual favorite brand, but no, you know what?
• 59:07
  SPEAKER_00: I even though it gets a lot of flack, I've always liked the Nike brand.
• 59:10
  SPEAKER_01: Yeah, yeah, even though the stock price would argue uh against that.
• 59:15
  SPEAKER_01: I do like Nike as well.
• 59:16
  SPEAKER_01: Nike, whatever.
• 59:18
  SPEAKER_01: Who's your favorite CEO?
• 59:20
  SPEAKER_00: Favorite CEO.
• 59:22
  SPEAKER_00: Uh I've really liked, I don't own shares, but I've really liked Mark Zuckerberg over the like the over the last couple of years specifically.
• 59:32
  SPEAKER_00: I think he's done a good job.
• 59:33
  SPEAKER_00: All time, I've done this before, like a Mount Rushmore of CEOs.
• 59:37
  SPEAKER_00: I think Bezos is like head and shoulders above anybody.
• 59:42
  SPEAKER_00: Like, if I could take any company and put any CEO at the helm throughout history, it would be Bezos without a shadow of a doubt.
• 59:55
  SPEAKER_01: I can see why.
• 59:56
  SPEAKER_01: Quite a compliment, but I can see why.
• 59:58
  SPEAKER_01: Last one, favorite European company, if you know any.
• 1:00:04
  SPEAKER_00: I do know some.
• 1:00:06
  SPEAKER_00: Uh I like the culture at Addien.
• 1:00:08
  SPEAKER_00: I like the management culture and the build internally style.
• 1:00:16
  SPEAKER_00: Because like acquisitions, unless you're a serial acquirer who has like a playbook for acquisitions, most acquisitions are bad because they're so hard to integrate.
• 1:00:26
  SPEAKER_00: Like, you know, maybe you're the products were built on different systems, different tech stacks, like different personalities.
• 1:00:33
  SPEAKER_00: There's you know, especially working at a startup, you really start to figure out that there's a lot of messiness in businesses that one person may have built something, he doesn't work at the company anymore, all of a sudden no one really knows why something's like exists the way it does.
• 1:00:50
  SPEAKER_00: When you acquire that, it can be even tougher.
• 1:00:53
  SPEAKER_00: So I I think the especially in today's world, where it's so tech heavy, the fact that Adiane is going at it from no acquisitions, I think they've still done no acquisitions, and build everything from the ground up internally, is it just really helps companies scale.
• 1:01:11
  SPEAKER_01: Yeah, I agree.
• 1:01:12
  SPEAKER_01: It's uh one of the reasons uh many of our colleagues own the company as well.
• 1:01:17
  SPEAKER_01: And uh it's it's located in Amsterdam, so it's close to home.
• 1:01:20
  SPEAKER_01: And oh, I you know what, the other one?
• 1:01:22
  SPEAKER_01: Philip Morris.
• 1:01:24
  SPEAKER_00: Yeah, I I believe they're technically a European business.
• 1:01:28
  SPEAKER_00: Philip Morris?
• 1:01:29
  SPEAKER_00: They're listed in the US, but uh yeah, I don't know uh about that.
• 1:01:34
  SPEAKER_01: Maybe I think ASML is listed in the United States as well, but let me I think their headquarters is in uh I thought it was in the UK, but I could be wrong.
• 1:01:46
  SPEAKER_01: Ryan Henderson is now looking it up on FinChat.
• 1:01:50
  SPEAKER_00: I mean, sorry, excuse the typing if you can hear this, listeners, but nope, you know what?
• 1:01:55
  SPEAKER_00: I think I was wrong.
• 1:01:56
  SPEAKER_00: Wait, Philip Morris's operational headquarters are in Switzerland.
• 1:02:00
  SPEAKER_00: Oh, okay.
• 1:02:01
  SPEAKER_01: I mean that counts as Europe.
• 1:02:03
  SPEAKER_00: It's an international company, I guess, but yeah.
• 1:02:06
  SPEAKER_01: Yeah, uh something completely different.
• 1:02:08
  SPEAKER_01: I believe we're pretty close age-wise.
• 1:02:11
  SPEAKER_01: So what do you see yourself doing 10-15 years from now?
• 1:02:15
  SPEAKER_01: What do you hope to be doing?
• 1:02:16
  SPEAKER_00: Oh, geez.
• 1:02:18
  SPEAKER_00: Uh well, FinChat is doing really well.
• 1:02:22
  SPEAKER_00: I really like working there.
• 1:02:25
  SPEAKER_00: Uh I'd love for that to just be a bigger business, serving more customers, um, and continue working there.
• 1:02:33
  SPEAKER_00: Like, doesn't really feel like work for the most part, and the team's awesome.
• 1:02:37
  SPEAKER_00: So I really like that.
• 1:02:39
  SPEAKER_00: Uh, and hopefully doing the same thing, like continuing to do Chit Chat Stocks podcasts, maybe reaching more listeners, uh, interviewing people, finding ideas, talking through ideas with guests.
• 1:02:52
  SPEAKER_00: That that to me is like that has never felt like work at all.
• 1:02:56
  SPEAKER_00: That's fun.
• 1:02:57
  SPEAKER_00: And it it also, like we talked about earlier, forces me to kind of solidify my ideas on investments.
• 1:03:03
  SPEAKER_00: So uh hopefully doing the same thing because I I I like what I'm doing now.
• 1:03:08
  SPEAKER_01: I think you also run the AUM uh podcast for FinChat, right?
• 1:03:13
  SPEAKER_00: I do.
• 1:03:13
  SPEAKER_00: We just wrapped up season one.
• 1:03:15
  SPEAKER_00: Actually, Bill Nigren was one of the guests.
• 1:03:18
  SPEAKER_00: I I mentioned him at uh in the investors uh when you asked about investors I like.
• 1:03:24
  SPEAKER_00: That was, you know, if you're if you're interested, there's a lot of really great asset managers that we interviewed.
• 1:03:29
  SPEAKER_00: Um and yeah, that wrapped up season one.
• 1:03:32
  SPEAKER_00: Not sure when season two will start, but I think there's 10 episodes out on all the podcast players.
• 1:03:38
  SPEAKER_01: Yeah, it's it's not a sponsor, but it's one of the best podcasts out there, besides Jit Jet Socks, of course.
• 1:03:45
  SPEAKER_01: But uh appreciate it.
• 1:03:46
  SPEAKER_01: It I really like the guests that it came on the show.
• 1:03:49
  SPEAKER_01: It's it's really good and uh definitely recommend it.
• 1:03:51
  SPEAKER_01: I'll make sure to put it in the in the description as well for you.
• 1:03:54
  SPEAKER_01: My final question for you uh I mean, we've covered a lot of ground today, frameworks, mindsets, mistakes, maybe modes, long-term thinking.
• 1:04:03
  SPEAKER_01: Uh, but I know a lot of our listeners are trying to improve a little bit every day.
• 1:04:08
  SPEAKER_01: So, my final question for you is what will be your single best piece of advice to investors?
• 1:04:16
  SPEAKER_00: Yeah, someone uh to investor specifically, I mean read, just read, read, read, and really get into like very specific businesses.
• 1:04:28
  SPEAKER_00: Uh I think after a while, I mentioned it earlier, but reading the same old uh what to look for in investments type books isn't as useful as real life experience of investing in companies.
• 1:04:39
  SPEAKER_00: Um, so really read up on individual businesses, try to get the best understanding you can of them, and and eventually you look at enough businesses, it's kind of you start to get a sense of how the world works uh through through the kind of that lens.
• 1:04:56
  SPEAKER_00: Uh I'd probably leave it at that.
• 1:04:58
  SPEAKER_00: Yeah, just read, uh read as much as you can.
• 1:05:00
  SPEAKER_01: Yeah, I think the term is called chain linking, where the more you learn, the more connections you can make with other things around you, and all stuff starts to make sense.
• 1:05:08
  SPEAKER_01: Yeah.
• 1:05:09
  SPEAKER_01: That's a great note to end on.
• 1:05:12
  SPEAKER_00: Thank you for uh having me on.
• 1:05:13
  SPEAKER_00: I never never answered the question for what question I would ask Buffett.
• 1:05:17
  SPEAKER_00: It probably would be maybe biggest investment mistake, but he's been such an open book that I think most of the questions I would have for him have been answered over the years.
• 1:05:27
  SPEAKER_01: It's probably uh on opportunity cost, something he didn't even do.
• 1:05:31
  SPEAKER_00: Yeah, I think he said that I think he's maybe answered that question before that he would have invested in Walmart or something like that.
• 1:05:39
  SPEAKER_00: But that yeah.
• 1:05:41
  SPEAKER_01: If you ever come back on the show, Ryan, I will ask you this again.
• 1:05:44
  SPEAKER_01: So you have a couple of months, a couple of years to think about it, and uh I'll yeah, I'll keep it in mind.
• 1:05:50
  SPEAKER_01: Thank you so much for doing this.
• 1:05:52
  SPEAKER_01: I really appreciate the time and and honesty.
• 1:05:55
  SPEAKER_01: And before we end, where can people find you besides FinChat and the AUM podcast?
• 1:06:00
  SPEAKER_00: Chit Chat Stocks.
• 1:06:02
  SPEAKER_00: We talk every week there, two episodes a week.
• 1:06:05
  SPEAKER_00: One's usually a little more informal, just kind of riffing on ideas.
• 1:06:09
  SPEAKER_00: We do that live on YouTube, and then the other one is usually either a research episode on an individual stock, or uh we'll interview guests, we'll uh read up or research like super investors.
• 1:06:23
  SPEAKER_00: So we've studied a lot of investors and kind of what's made them successful, that kind of stuff.
• 1:06:29
  SPEAKER_00: So uh lots of basically my my entire investing career is is documented there on Chit Chat Stocked if you want to listen.
• 1:06:36
  SPEAKER_00: Awesome.
• 1:06:37
  SPEAKER_01: Thank you so much for being here, Ryan, and uh I hope to see you in the next one.
• 1:06:41
  SPEAKER_01: Thank you for having me.