Compounders, Value Today, and Value Tomorrow with Balkar Sivia, White Falcon Capital Management
Summary
Investment Philosophy: Balkar Sivia of White Falcon Capital Management discusses his unique investment approach, which is unconstrained and opportunistic, rejecting traditional style boxes like growth or value.
Portfolio Structure: White Falcon's portfolio is divided into three engines: compounders, value today, and value tomorrow, ensuring that part of the portfolio is always performing.
Company Analysis: Sivia emphasizes the importance of quality management and business fundamentals, using case studies to illustrate how narrative shifts and multiple expansions can drive returns.
Market Insights: The podcast explores the impact of AI on investment strategies, with Sivia expressing caution and the need for thorough understanding before investing in AI-related opportunities.
Value Traps: Sivia shares lessons learned from managing value traps, highlighting the importance of being willing to change one's mind and cut losses when necessary.
Investment Examples: The discussion includes specific investment cases such as Griffles and Rentokill, showcasing how Sivia identifies undervalued opportunities with potential for future growth.
Key Takeaway: The podcast underscores the importance of continuous learning, adaptability, and focusing on management incentives in successful investing.
Transcript
This podcast is forformational purposes only and is not an offer or solicitation of an offer to buy or sell securities. SNN network Network, SNN Inc. and the Plano Microcap podcast and the representatives are not licensed brokers, broker dealers, market makers, investment bankers, investment adviserss, analysts, or underwriters. We do not recommend any companies discussed. We may buy and sell securities in any company mentioned and make profit in the event those securities rise in value. We recommend you consult with a professional investment advisor, broker, or legal counsel before purchasing or selling any securities referenced in this podcast. Welcome to the Planet Microap podcast. I'm your host, Robert Craft. Thank you all so much for tuning in and for the continued support. If you like what you hear on the Planet Microap podcast, please take a moment to rate us five stars on Spotify or Apple Podcast. It really helps more folks discover the show and join the Micro Cap investing community. Registration is open for the Planet Micro Capab Showcase Toronto in partnership with Micro Cap Club happening October 21 through 23, 2025 at the Arcadian Loft in downtown Toronto. Whether you're a seasoned investor or just getting started, you'll want to be there. Visit planet microcapshowcase.com to register. See you in Toronto. Now, my guest on the show today is Balgar Civia. He's the founder of White Falcon Capital Management. In this episode, Balar shares his unique path from engineering to investing and why he built White Falcon around an unconstrained opportunistic philosophy, one that rejects traditional style boxes like growth or value. We dive into White Falcon's three engines: compounders, value today, and value tomorrow, and how for Balar, this structure should result in part of the portfolio always working. Balkar walks through case studies explaining how he looks for quality businesses facing temporary challenges and how narrative shifts in multiple expansion drive returns over a three-year horizon. We also discuss the lessons he learned in managing value traps, how he's thinking about AI as an investor and the importance of evolving your process over time. At the heart of all of it is a focus on quality management incentives and high conviction positions in a concentrated 20 stock North American portfolio. And for full disclosure, we mention a few names on the podcast today and I am not a shareholder in any of them. Thank you again for tuning in to the Planet Microcap podcast and please enjoy my conversation with Balar Civia. Balkar, thank you for joining me today. How you doing? >> I'm doing good. How are you doing? >> Oh, you know, can't complain. We're, you know, we're recording this on uh what's today? Tuesday, September 16. We got a our event coming up in 5 weeks. You know, we're just all, you know, peachy and rosy and here we go. Actually, we're going to be in your neck of the woods. You're based in Toronto, right? >> And I look forward to being there. Yes. >> Ah, very cool. Yeah, it'll be fun to meet you in person for sure. So, listen, you we we connected on Twitter. You said I got I got stuff to say. I said, great. I got a microphone where we can share what you want to say. So, you know, uh I went through your letters and I I you got a lot of great stuff there, you know, talking about, you know, your process research, whatnot. So, you know, for folks that don't follow you on social or know about White Falcon Capital Management, can you give us that quick background on where your passion for investing began and then what led to you uh founding White White White Falcon? >> Sure. Um, well, I u I'm a non-traditional uh candidate into finance. I started off uh with a degree in in engineering. I worked as an engineer for a few years and I was you just investing my paychecks on the side. Uh you know after some time I was having so much fun investing the paychecks uh and I was young enough I figured I'd kind of pursue this as a full-time job. Uh so I started writing a blog. I started uh peppering some portfolio managers with investment ideas and that led to my first job in the industry and you know this was in Vancouver with with somebody named Tim Mlane. uh he used to work under Peter Kundle uh so I you know he was a deep value investor so I had uh my kind of deep value roots uh there uh and then I moved to Toronto to work for Burgundy Asset Management uh this is a quality value firm uh you know it's actually a pretty big Bay Street firm that managed about $30 billion in assets uh research first client first firm so I so I was there for eight years and kind of learned um from some very high quality people and uh 20 2021 I'm at a point where I have about 15 years of experience uh and there's no PM seat uh at at Burgundy. So I um start white falcon. I um also I also was thinking about investments a bit differently uh compared to a lot of people in the industry uh and you know and we can talk a bit more about that as we go forward uh in this you know this call but I founded white falcon November 2021 which was the peak of the market at that point in time. talk about timing. Uh but it's been but it's been a good four years since uh you know we've you know we've grown we started off with friends and family but we have since added on family offices um and we have grown since then performance has been good. So uh so yeah so so that's where we are. >> Very good. No thank you for that over that's great. So, you know, it's funny. I was thinking, you know, came into finance from the non-traditional back. I feel like everybody who I've interviewed on here has come into finance from some kind of non-traditional background or so. So, the non-traditional background is now the traditional background. I'm just going to claim it right now. That's it. If you you know, the non-traditional background is like, well, you know, I went to uh, you know, I got my undergrad in business and then I went to get my MBA at Stanford. No, but anyway. So, uh, yeah, thank you for that full background there. So I you kind of led me you led the witness here with the the next question but uh you know what what would you say it was that big differentiator for you where you're like all right I want yeah I want that PMC but like I also have a different differentiated viewpoint of how I want to run my own book and that's why I want to start white falcon. So what was that big differentiator? Yeah, I mean you know when you when you look at the industry itself, the industry is kind of divided into boxes, right? I mean you look at you know you know there are people managing the large cap growth funds, there are people managing small cap value funds uh and that's how the allocators kind of divide the industry and that's how the industry is organized, right? But if you kind of go back to Buffett and Munger and kind of the original sources of inspiration that we all have, uh they don't never they've never been in a box. You know, they do whatever it takes to make money. you know, that's kind of the bottom line, uh, you know, in terms of what they do. So, you know, being being at a, um, you know, value firm, um, you know, there were a lot of companies that I saw and I recognized as good quality businesses, good managements, but they were just priced a bit too high. So, we never bought them, but we saw them do much much better over time because of the again the quality of the business, right? So you know again I started in the business in 2008 2009 just out of the GFC and they say when you start in the business really kind of affects how you invest. So until until you know um 2014 2015 I found nothing cheap. you know in hindsight everything was cheap in 2011 2012 2013 right so you know and you kind of think about uh at that time and all that was was a mental block right and you know and then I'm like what other mental blocks do I have right and so that kind of led me to this unconstrained opportunistic investing philosophy where you know you know where I say I'm not in a box I'm going to do what makes sense I'm going to look at the quality of the business I'm going to look at what I think it's worth in 3 years and I'm not going to kind of label myself uh on a quality or uh on a uh growth or a value scale. Uh this insight also came from Warren Buffett, right? I mean if you think about you know what what Buffett did um when he ran BPL his uh his hedge fund is he had three different return streams. He had workouts, uh he had controls, u and he had generals, right? So, one of them worked at a particular point in time. The other ones were not working. But the point was that he was getting some engine within his portfolio to run even if one engine was stalled and then you know the engine that was stalled would run and you know so he would just keep chugging along and all of this would help his performance and he could allocate capital from the engine that was running to engine that was not running. So similarly what I do is I divide the portfolio into compounders which are kind of my core holdings which I think can you know grow earnings over time and then flank that with kind of value today which is value companies or deep value companies and value tomorrow which are growth companies that have um you know something's going wrong with them and therefore the valuations have come in. >> Got it. Okay. Sorry I was just taking a couple notes there. So, it's interesting that the differentiator here. So, let me try and let me try and, you know, explain it for my own layman self. So, I mean, it sounds like you're wanting to not really label yourself as like, oh, I'm another devalue strategy or another growth or Garpy strategy. At the end of the day, it's all and also like not even just small cap or micro or large cap, you know, you're more like, all right, I'm presented with an idea. Does this make sense according to my criteria no matter where it lands in the the spectrum of what the company could be? Okay, so that's interesting. That's a great place to start off. So in my head, and this is just for me speaking personally, if that were my mandate, I would have been I would probably drive myself crazy and be like, where do I even start? Like what how do I how do I you know what what do I Okay, it just makes sense. Okay, there's tens of thousands of public companies I could choose from that, you know, could possibly make sense for my strategy. So how do you reconcile your process with just finding things that make sense to you? >> Yeah. So first of all I'm you know I'm limited to uh investing in North America but even in North America there are a lot of companies right. So so to your point I think the only way of limiting yourself is limiting you know uh your circle of competence limits you right. Right? I mean there you know there are only so many mental models that I have. Uh there are only so many ideas that kind of fit into uh the the criteria that I have for making investments. So um those would be my filters. You know again I'm looking for good quality. I'm looking for undervaluation. And if you really are focused on these two things and really try to kind of apply yourself and say I'm not going to compromise, there absolutely not that many ideas that meet that criteria at any particular point in time, right? U so that's kind of how that's kind of how it it it gets limited. I run a 20 stock portfolio, so I don't have kind of a lot of room uh in terms of having ideas that I'm not I don't have high conviction in. So um so for me to get conviction to get comfort uh to get the quality and to get the upside that I want I think um you know all of that is difficult to find 100%. So you know I could ask you about you know what what are your metrics that you screen for that meet your undervaluation stuff. You could go into them I'm sure but at the end of the day like you said good quality first for a reason right? So how do you evaluate what potentially could be good quality for you? >> Right? I mean lots of things. is I mean all the traditional stuff that kind of everybody talks about um you know you know essentially kind of the you know the mode that the business has the return metrics that it has produced in the past uh uh and and and now but I think one of the most important criterias that I've come to realize uh you know over time that kind of determines so the business quality is important but the management quality is equally or more important kind of the culture that the company has is equally or more important Because at the end of the day, you know, you know, you go through an earnings call or you go through, you know, um, a 10Q or 10K, you know, the question that you have to ask yourself is, do I believe that this management can execute on this opportunity and get the company to A to B where, you know, B is when I need my money, right? So I I I spend quite a bit of time just kind of learning about the people behind the business and making sure these are the people that I want to bet on to realize the opportunity that they have, right? Um and again just to just to kind of backtrack and kind of talk about quality, I think one of the things that you know I've seen you know you know this is again very kind of um uh different from analyst to analyst uh you know in terms of what they consider to be quality. I mean, I I know people that, you know, go back to um, you know, the 2007 uh crisis and the 20 2001 uh bare market and kind of look at how the company performed during those years to determine how it'll do, you know, in the next downturn, you know, as an example. >> Um, so there are different layers of how people think about quality. Um and and and for me it's it's the business it's um how defensible I think the mode is and the management. >> So when you're so when you're looking starting to evaluate the quality side of things basically you're qualitative you know at what point after you you know because assuming you're you know you talk to a friend or through the screens you know you can go through your process if you want for the discovery phase. At which point after you've kind of gone through some of the numbers and gone through everything like that, then you're like, "All right, it's time to talk to management, ask them some questions, you know, how's your process?" >> So, yeah. So, I mean, you know, I I tend to talk to a lot of managements. I think just talking I mean, part of my process is I schedule calls with with IR all the time and even if I'm curious about a company because it forces me to work on the business. Um, and it it it it usually gives me insights into kind of what is happening at a micro level in that company in the economy. So, I'm always doing calls, but uh from a from the perspective of a particular opportunity, you know, it's usually I've I've been following that company. I've been following earnings for a little bit. I I I may have talked to uh you know, the company in the past at at at some point in time. uh the stock has come in the stock has come in for you know you know whatever reason which I think is temporary you know you know that's when I would go into my uh I also have access to these expert networks I would schedule some uh expert calls uh talk to them uh again talk to them about the culture talk to them about the quality of the business uh and then uh you know once I have um uh uh most questions uh answered uh I talk to the company to just see how they uh you know think about um the opportunity and the risks uh from here on. >> Very cool. All right. So I mean love to hear a little bit more about your process you know going through the whole from discovery to you know starting to take a position and and if you would like to use an example to kind of demonstrate how you know this works in action you know love to hear the whole thing. >> Sure. Um okay uh let's uh so so you know one of the companies that I own that uh is still a good opportunity uh and I bought it about 6 months ago is a company called Griffles uh ticker GR FS uh Griffles is a plasma uh derivative manufacturer. So essentially they take plasma, people donate plasma or people give plasma uh and they take this plasma and they manufacture products from it and uh kind of sell it to people that need these products to manage uh autoimmune diseases. And the way that this business works, you know, I'll just quickly talk about the business. The way this business works is you have to have a lot of collection centers where you can collect where people can come in and donate plasma or where people can come in and sell plasma and then you take this plasma and you take it to a central manufacturing facility where um you know you store it, you test it and then eventually you separate it into different products that you can then sell. Right? So that's the business and so the reason that this is a good quality business is it's a three player market globally. It's a business that requires a lot of capital upfront to build these centers and to build these manufacturing facilities. It's a business which has root density benefits in the sense that if you are there first then you know somebody else who's coming in second will never get their capacity uh uh utilizations to a level where you know will make any money. So, so, so if you're there and if you're expanded, you essentially have a de facto oligopoly that in that in that region and then it's a trust business, right? I mean, you know, this is plasma kind of people's blood. Uh, you know, if if if there's something wrong, if you didn't test properly, if you didn't store it properly, if anything goes wrong and you get a bad reputation on your product, you know, you're done as a business. So this is a company that has been ex has been in existence for a long long time. Uh but then in 2020 202122 it went through a bit of a perfect storm. uh it it it um so people in the US uh actually uh get paid for plasma and because of stimulus checks after co people weren't coming in uh and they had to increase prices for what they had to pay for plasma hitting their margins right uh so the business was was on the downtrend a bit and then a short report hit uh with issues uh with the family that controls Griffiths uh and some of those iss issues were real issues. Uh over time uh the company solved a lot of these issues when it came to corporate governance. There were activists involved. Activists got on the board. Uh and uh at a certain point in time, Brookfield bid for the business, right? And that's what piqu my interest. And uh Brookfield is kind of a well-known Canadian asset manager. They're known to be kind of very smart capital allocators. So they're bidding for this business. Um, you know, things must be okay from a from a corporate governance perspective. Um, and and sorry, if Brookfield is is bidding for the business, they must like the business. And if the activist investors on the board rejected that offer, then there should then power family member board members to be to do the right thing from a cultural governance perspective. So that's that's when I got intrigued. Um you know I read everything I could on the business. I read the short report uh the you know the earnings um uh uh transcripts of course. Uh they had an investor day earlier this year. Um kind of went through that uh talked to management twice. Um and then and then I made my uh and then I made my buy. Right. This is a business that used to trade at 20 to 25 times earnings, 12 to 15 times epida that is now trading at about 10 times epida uh 12 times earnings because the market still is uh in disbelief of what the business went through both from a business perspective and corporate governance perspective the last three years. But what I what I'm seeing is everything has been cleaned up and the business is on an upswing right. So again, so so so I mean this I think gives a good example of the both the quality that I'm looking for uh you know with the mode that the business has and the valuation and the management. >> Well, it also is a decent example that I'd love for you to expound on a little further. this concept that we haven't really talked about on here is I mean we maybe we have in different ways in which people describe it but the idea of value today you know and you know as you as you express it on your website it's we can opport opportunistically buy businesses that are cyclical or businesses that are facing temporary problems with the condition that we are able to buy these business at a deep discount to their intrinsic value now everybody and their mother would be like all right how do you avoid the value traps so I'm gonna ask you straight How do you avoid the value traps? >> Yeah. No, it's it's very difficult to avoid the value traps and and >> so hard >> and I have been uh and I have been uh you know you know many times in my career you know at you know in a place where I have been confronted with value traps. I think I think it's difficult to confront them. I think it's difficult to before you know to avoid them. I mean, you know, there are ways and you know, people have talked about it on, you know, on your uh uh uh podcast, but I think the way to deal with them from my perspective is to change your mind even at a loss, right? That I think that's the best thing you can do. I mean, that's something that, you know, I'm trying to get better at as a value investor is to just let go. I mean, not to have my ego involved in kind of whatever company or opportunity I'm in. Yes. You know, you know, you always have the fear this is going to run as soon as I sell. Let it, right? But from your perspective, from from your from your, you know, one of the things that you realize over time is time is a very scarce resource that you have, right? And then mental um strength and then kind of mental bandwidth is even even scarce. So if you have an idea or two that are taking a disproportionate amount of your time and your research effort, I think you're better off pruning them from the portfolio than keeping them. Right? So I so I very actively try to have you know not a trader mindset but just say if something is not working instead of like I'm not just going to fight it. I'm going to get rid of it. I'm going to clear my mind and come back to it or something else later. So I'd love to hear an example of where you know you thought let's take your most egregious example that you might have where you looked at it you fit all the metrics talked man like this is a slam dunk home run shouldn't have to keep doing all the follow-ups everything like that but then you found yourself spending in order amount of time because the thesis just all right okay it didn't hit here but maybe the next quarter >> that's right >> didn't hit again you know and and and know and these are painful right uh these are painful to go through but I uh so I I I I own a company called Indava. Uh so Indava is a company that that does digital IT outsourcing. So so essentially you know any company that needs uh digital apps built they go to a company like Indava and they kind of ask them to help them you know you know either save money on their existing operations or make money by kind of becoming digital first. So again software is leading the world right but any company that is not a software first company doesn't have the IT resources to actually build these products and compete with the software first companies so they hire people like likeava like Accenture so this is this is a company that that kind of competes with Accenture but is a much smaller company uh than than Accenture right so this is a company that um you know did did really well kind of coming out of co uh because everybody wanted to work from home everybody wanted to spend on it to kind of get their systems up to date, you know, you know, and all of that. So, the stock gets $150 a share, right? And then it comes down uh to about $60 a share. I'm like, okay, this seems cheap because uh again, this is uh a business that can grow for a very very long time because everybody needs um you know, more IT, more software, you know, and and you know, and all of that. And the reason that these companies win is because once you get into a client's IT department, it's very hard to get rid of you because you know then you you know you just finish one project for the client and then you know you suggest the client needs another three projects because you know if they want to be competitive with their peers right it's it's it's a similar thing like you know when when Warren Buffett bought IBM you know and he kind of talked to all Berture companies and you know he realized that every company uh has an outsourcing arrangement with with IBM and nobody's firing IBM and in fact they're using more and more IBM every year you know he was he was wrong in that thesis but uh leaving leaving leaving that aside so what what happened here is that uh you know macro hit so so they they over earned they were in COVID so they were under earning so so so earnings started declining and I bought at a point where I thought that um earnings had declined enough but then AI came right and with AI um you know there's you know there's a narrative that um you know AI will make engineers more productive therefore you will need less software engineers therefore the businesses of the likes of Endava uh you know will not be as valuable anymore right so while that may be true my my thesis was that um you know AI will require even more software development because all the companies that are not AI ready would have to become AI ready and you know part of the reason they can do that uh is is because companies like Indava will help them. Uh but what happened in the interimm was that the management uh for the clients of Indava they just froze right because AI was coming in and AI was changing every 6 months. So they didn't know what their future technology road maps was going to was going to look like. So they just stopped doing projects. They just stopped doing any projects. Um and and and and and now's revenue started declining. And this is again a company where the management said hey you know this year we are you know backended guidance you know we're going to be much better fourth quarter than we are first quarter. Okay fourth quarter comes in okay you know we missed but next year we're going to be much better fourth quarter than we are first quarter. So you go through that a few times and then you're like no no um that's it. You know I'm I'm again this was something that was it can still work right? I mean, there's no reason it can't work from here, but it was just taking a disproportionate amount of time from my perspective. Uh, and and and so this is something that I just got rid of and now I'm saying, okay, I have cash in the portfolio, you know, can I find a better riskreward than I had with with with Enava? >> Absolutely. >> It's it's painful. It's a loss, but you know, it's it's part of the business. >> Absolutely. Here's another value today value trap, you know, experience I'd love to hear where, you know, you maybe you looked at a company and you, you know, started did did all the digging and everything. You're like, this has value trap vibes. I'm I'm feeling it. Like there's something about this that like I think I'm I like my the riskreward spectrum that's way riskier than, you know, maybe but you know what? I'm going to take a shot here and maybe, you know, and maybe it ultimately worked out. I don't know. Was there Have you ever had an experience like that? >> No, I'm I'm you know I' I've lost so much money on kind of terminal risk companies that um I try not to go into that. >> Yeah, that that makes sense. You got to be disciplined at the end of the day. If it if it's walks like a ducks, you know, talks like duck >> because because what I'm ideally trying to do get is I'm trying to get a multiple expansion in three years when I sell the stock, >> right? And the only way I get a multiple expansion is if people are very excited about that stock at that particular point in time. So I try to imagine scenarios where the business that I'm trying to look at, you know, what would make people really enamored with this in three years. >> Uh because I'm looking to get a multiple expansion and earning expansion to kind of make my eye on the on the idea. >> It's I mean it's that's also interesting as well is like trying to build out like what does the future narrative really look like, right? cuz it's t like that's actually a really interesting point because I don't think sometimes you know sometimes it's like all right all they got to do is execute it's like well there's also if you just think about it a little bit further it's like well if you it also helps for your thesis where it's not just saying all right I have a multiple here and that works for some I'm not saying it doesn't where you're very disciplined you're like okay I assign this metric or this valuation metric this is where it should be in 2 to 3 years but what's also very helpful especially if you're looking at maybe even some of these growthier names or you know they had a bad core but there's still a lot of value there. It's also building out that narrative of like okay well what like I think I see something that would get me excited about this you know now what about this name right now could get people excited about this in 2 to 3 years like what does that story look like? How what how can I imagine that that that press release or that earnings report? So yeah. >> Yeah. Yeah. And that's exactly it. I mean that's that's what I do. So like I'm trying to buy things that are okay now and that and that are going to become great tomorrow uh on you know and and and then buy trying to buy things that are really bad that are going to become okay in you know in 3 years right so I mean I'll I'll I'll kind of talk about that as an examp you know with an example um so I own this company called Rentokill right is a pest control company that competes with Roland in the US now Roland has a PE of like 50, right? Rental kill has a PE of what was the last PE? Um I think maybe 15 16 today. Um so that so so that's a huge difference in multiples for a company that is in the same industry as its closest peer. Right? So this is a company that acquired a company called Terminix in the US and it merged its own operations with Terminix and the integration has not gone well. So this is the case where it's a you know we know that pest management is a good quality business again it's a root density based mode where you know if I have a branch in a particular neighborhood uh then and if I can service a lot of households in that neighborhood then I would have the lowest cost compared to somebody that's you know serving a household here and then you know another in a different suburb and another in a different suburb right so if I can get as many clients as I can in a particular area I become the de facto the lowest cost provider for that area. Right? So again, a root density based uh based benefits u you know brand um you know and essential service a lot of businesses have to have pet services. So it's kind of a SAS type recurring revenue business from that perspective all commercial buildings you know uh etc. Uh for many households it's a essential service or or an emergency service. So pricing can be can be very very good. Uh so anyway so so it's you know roll is you know trade that 15 times earnings so we know that this is a business that in with the right margins with the right P&L can have a very high multiple right so why does rental have a very low multiple it has a low multiple because uh it just did a merger that is not going well okay then okay what's happening then uh Nelson plat's uh fund just took a big position in the company and went on the uh the CEO that oversaw this merger is leaving. They have new management coming in that is very US centric. So they're trying to fix a lot of these issues that exist today with this integration and in 3 years can I see the P&L of Fenttokill be very similar to the P&L of Roland? I own the stock so I can right and then when that happens what multiple will it get I'm sure it'll be higher than the 1617 times multiple what because then the the narrative changes from this is a turnaround to this is a compounder right that's what I'm going for very cool all right well we've I mean we've covered a lot hey real quick just to cover from your letters I mean you know we we could talk terrorist all that you know I think most of that that stuff is kind of out there but you You mentioned also with the one where you just you ended up cutting your losses is that you know you saw the you know one of the forwardlooking themes obviously is expectations around AI technology you know how have you been wrapping your head around and thinking about put what what what kind of thesis have you been putting it together when you're like okay AI clearly here to stay a lot of momentum here a lot of frothiness as well so how are you been thinking about putting together a thesis when you're looking at potential AI companies and how to play Yeah. So I um so so you know so that's interesting. I mean this is it it's a big change right? It's a big change and it is affecting everything and everybody. Uh and this is something that I struggle to keep on top of because it's changing so quickly all the time. But I try my best to do that but it's very difficult to kind of be on top of it. Right. And it makes me extra e extra cautious of uh investing. Uh so for example there are many software companies today that are cheap or getting cheaper because of an AI risk right I mean there's a narrative today that hey you know these software companies that exist today they may not exist in the same form tomorrow because agents will do a lot of the work that the software companies do. Now I I haven't formed a conclusion on if this is true or not but you know two years ago I would have kind of gone into software companies and said hey you know which one do I want to buy because the narrative at some point is going to change from AI is going to affect software to AI you know the AI is going to help software but I'm I haven't done that because you know I want to learn more before I do that right but but what I've done from an AI perspective is again I I own AFD So this is again this is you know kind of a lot of people kind of um are a bit surprised at that but if you look at the AMD chart right I mean this is and you know and this is how these kind of paw shops and quant funds and passive investing and kind of narrative driven investing can help uh an opportunity investor such as myself is you as you look at the chart in you know in 2022 23 stocks at 60 65 Then it goes to 230. Then it comes down to 90 earlier this year. Then it goes to 180. Right? In all this time I like I've bought when the stock was at mid- teens earnings. Right? I mean I so I mean I mean I've stuck to my valuation discipline and said I'm going to buy it when it's cheap and that's what I've done and it benefits from AI. Great. You know, I I love the optionality, but um but but I think that's that's what I think again, this is a large cap company. It's not a small cap company, but look at the volatility, right? But if you understand the business, you again, Lisa Sue, I think, is one of the most formidable CEOs out there, right? Uh so so if so if you understand the company if you understand where AMD came from what she did for the company over over the last you know 10 years uh and you know if you believe that she will kind of shepherd this well going forward also in the AI era and you're getting it at 15 times earnings you know you know you buy it um and then when the market's very excited you you know you trim so so that's what I've done uh from an AI perspective right I I'm just trying to try to go into AI adjacent uh when it makes sense for my quality value criteria. >> Very good. >> So question on here that I love to ask everybody and you know you've given so many examples and that's been great you know but um what would you say has been an throughout your entire career even even prior to white falcon what would you say was a learning investing experience that you learned the most from and or guided your current outlook and thesis uh or philosophy when you're looking at potential investments? Right. You know, I think I think in the beginning, you know, it was, you know, you know, it was again, you know, Warren and Charlie, right, which is which, you know, which are formidable and which kind of uh are the base of your of your investment philosophy. But I think over time, I've learned from a lot of other people, investors, books. Uh I think um you know as you um as you kind of um spend some years in the industry and as you kind of go through some case studies live case studies uh you have you know your capital or reputation at risk with ideas. I think all of that teaches you right there's a lot of feedback loop in this industry uh uh and if you're not learning then you're not growing right. So again the first kind of transformational thing for me was to you know again kind of get out of my 2007208 mindset of I have to buy everything for 10 times earnings or less right my first it was to appreciate quality that if a company has good quality you know you should be paying more for it because it is a good quality you know you know waterfront property goes for more than a house, you know, you know, in the suburbs as an example. Um, because there's usually more optionality with a good good quality company because the people that work for these companies are going are incentivized to perform and do better than the average company. So, so that was number one. And then number two was, you know, again being a value investor, you look at all these technology companies and you say, you know, oh, these are profitless tech companies. Oh, I don't want to look, you know, look at this. you know this is a bubble or that is a bubble right the I think the lesson that value investors learned after the two 2001 bubble was a wrong lesson but in many I mean if if you go back to 2001 2002 a lot of internet stocks crashed and a lot of value stocks took off right so value investors had a really good 2002 to 2008 growth investors did not do that well and the lesson that the value investors took from that is you know growth doesn't work value is the only thing that works and then since the GFC value hasn't really worked growth has worked right uh I think what the lesson from the GFC lesson from the internet bubble should have been can I buy some of these really growing companies at really cheap prices right I should be looking at unit economics not the overall P&L of the company right so so in 2022 as an example we bought I bought a lot of these SAS companies that were not making money at that point in time and I got some push back and saying these are not value companies but then you know but but that is something that I had kind of evolved into and learned from. I mean you you know you saw Uber you saw all these companies kind of go from kind of really lossm to very very profitable uh you saw Adobe on the software side kind of do the same. So, so you had all these kind of examples uh you had all these mental models and if you were right on the if you did your analysis on the unit economics then you knew that this company will eventually show uh these unit economics in the P&L and then you would make money. So this is again just from an evolution perspective. Um you know kind of I've I've you know I've learned to evolve and kind of just see things for what they are not for what dogma tells you to uh uh to uh to to believe. >> Yeah. >> Great. All right. Well listen you've answered all my questions. We've really covered quite a bit here today. So, I mean, look, to close this out, final thoughts, some maybe some recommendations or, you know, maybe you have some advice for folks that are kind of just getting their their toe wet and getting started on their investing journeys. >> Yeah. Um, you know, I don't I don't I don't have a whole lot uh except I'll just say that I mean, you know, there are very few or no shortcuts in this business. You have to put in the work. uh you know and and and the more work you put in into this business, the more you get out of it because I mean this is a learning profession at the end of the day. So you just have to learn, right? And and and and there's no shortcuts to that. Um and and and the best way to learn is again go back to the source materials, not to a presentation, not to a salesside report. Go to the source materials and and and actually see what is happening with the business and see what is happening with the P&L. uh focus on incentives. I think incentives drive everything. So you know to the extent that you kind of focus on what how the management is compensated uh you know what you know what they believe in. Um you know that's very important. Um and just learn from your mistakes be nimble evolve and uh make money. >> Love it. Well Bart that that's a great place to end it. Where could our audience go and find more information about you White Falcon as well as following on social? >> Yeah. So I I I I uh my website has all my letters. Uh I I I write a letter every quarter. I usually have an investment idea uh in the appendex of this letter. So this is on my website uh whitefalconcap.com. Uh feel free to sign up to get the letters to get the blog posts. Uh I'm also on LinkedIn. I'm also on Twitter. Not very active, but I am on Twitter. White clock and cap. Uh but and and I'd love to kind of get in touch if somebody wants to talk about stocks or uh any of the stocks that I mentioned or if anybody has an idea that you think will fit my criteria. Would love to talk. >> Awesome. Well, Balkar, thank you so much for joining me today. Really do appreciate it. Good luck. Stay safe and I'll I'll see you in a few weeks here. >> Okay. See you then. >> Thank you. >> Take care. Byebye. [Music] Heat. [Music] Heat.
Compounders, Value Today, and Value Tomorrow with Balkar Sivia, White Falcon Capital Management
Summary
Transcript
This podcast is forformational purposes only and is not an offer or solicitation of an offer to buy or sell securities. SNN network Network, SNN Inc. and the Plano Microcap podcast and the representatives are not licensed brokers, broker dealers, market makers, investment bankers, investment adviserss, analysts, or underwriters. We do not recommend any companies discussed. We may buy and sell securities in any company mentioned and make profit in the event those securities rise in value. We recommend you consult with a professional investment advisor, broker, or legal counsel before purchasing or selling any securities referenced in this podcast. Welcome to the Planet Microap podcast. I'm your host, Robert Craft. Thank you all so much for tuning in and for the continued support. If you like what you hear on the Planet Microap podcast, please take a moment to rate us five stars on Spotify or Apple Podcast. It really helps more folks discover the show and join the Micro Cap investing community. Registration is open for the Planet Micro Capab Showcase Toronto in partnership with Micro Cap Club happening October 21 through 23, 2025 at the Arcadian Loft in downtown Toronto. Whether you're a seasoned investor or just getting started, you'll want to be there. Visit planet microcapshowcase.com to register. See you in Toronto. Now, my guest on the show today is Balgar Civia. He's the founder of White Falcon Capital Management. In this episode, Balar shares his unique path from engineering to investing and why he built White Falcon around an unconstrained opportunistic philosophy, one that rejects traditional style boxes like growth or value. We dive into White Falcon's three engines: compounders, value today, and value tomorrow, and how for Balar, this structure should result in part of the portfolio always working. Balkar walks through case studies explaining how he looks for quality businesses facing temporary challenges and how narrative shifts in multiple expansion drive returns over a three-year horizon. We also discuss the lessons he learned in managing value traps, how he's thinking about AI as an investor and the importance of evolving your process over time. At the heart of all of it is a focus on quality management incentives and high conviction positions in a concentrated 20 stock North American portfolio. And for full disclosure, we mention a few names on the podcast today and I am not a shareholder in any of them. Thank you again for tuning in to the Planet Microcap podcast and please enjoy my conversation with Balar Civia. Balkar, thank you for joining me today. How you doing? >> I'm doing good. How are you doing? >> Oh, you know, can't complain. We're, you know, we're recording this on uh what's today? Tuesday, September 16. We got a our event coming up in 5 weeks. You know, we're just all, you know, peachy and rosy and here we go. Actually, we're going to be in your neck of the woods. You're based in Toronto, right? >> And I look forward to being there. Yes. >> Ah, very cool. Yeah, it'll be fun to meet you in person for sure. So, listen, you we we connected on Twitter. You said I got I got stuff to say. I said, great. I got a microphone where we can share what you want to say. So, you know, uh I went through your letters and I I you got a lot of great stuff there, you know, talking about, you know, your process research, whatnot. So, you know, for folks that don't follow you on social or know about White Falcon Capital Management, can you give us that quick background on where your passion for investing began and then what led to you uh founding White White White Falcon? >> Sure. Um, well, I u I'm a non-traditional uh candidate into finance. I started off uh with a degree in in engineering. I worked as an engineer for a few years and I was you just investing my paychecks on the side. Uh you know after some time I was having so much fun investing the paychecks uh and I was young enough I figured I'd kind of pursue this as a full-time job. Uh so I started writing a blog. I started uh peppering some portfolio managers with investment ideas and that led to my first job in the industry and you know this was in Vancouver with with somebody named Tim Mlane. uh he used to work under Peter Kundle uh so I you know he was a deep value investor so I had uh my kind of deep value roots uh there uh and then I moved to Toronto to work for Burgundy Asset Management uh this is a quality value firm uh you know it's actually a pretty big Bay Street firm that managed about $30 billion in assets uh research first client first firm so I so I was there for eight years and kind of learned um from some very high quality people and uh 20 2021 I'm at a point where I have about 15 years of experience uh and there's no PM seat uh at at Burgundy. So I um start white falcon. I um also I also was thinking about investments a bit differently uh compared to a lot of people in the industry uh and you know and we can talk a bit more about that as we go forward uh in this you know this call but I founded white falcon November 2021 which was the peak of the market at that point in time. talk about timing. Uh but it's been but it's been a good four years since uh you know we've you know we've grown we started off with friends and family but we have since added on family offices um and we have grown since then performance has been good. So uh so yeah so so that's where we are. >> Very good. No thank you for that over that's great. So, you know, it's funny. I was thinking, you know, came into finance from the non-traditional back. I feel like everybody who I've interviewed on here has come into finance from some kind of non-traditional background or so. So, the non-traditional background is now the traditional background. I'm just going to claim it right now. That's it. If you you know, the non-traditional background is like, well, you know, I went to uh, you know, I got my undergrad in business and then I went to get my MBA at Stanford. No, but anyway. So, uh, yeah, thank you for that full background there. So I you kind of led me you led the witness here with the the next question but uh you know what what would you say it was that big differentiator for you where you're like all right I want yeah I want that PMC but like I also have a different differentiated viewpoint of how I want to run my own book and that's why I want to start white falcon. So what was that big differentiator? Yeah, I mean you know when you when you look at the industry itself, the industry is kind of divided into boxes, right? I mean you look at you know you know there are people managing the large cap growth funds, there are people managing small cap value funds uh and that's how the allocators kind of divide the industry and that's how the industry is organized, right? But if you kind of go back to Buffett and Munger and kind of the original sources of inspiration that we all have, uh they don't never they've never been in a box. You know, they do whatever it takes to make money. you know, that's kind of the bottom line, uh, you know, in terms of what they do. So, you know, being being at a, um, you know, value firm, um, you know, there were a lot of companies that I saw and I recognized as good quality businesses, good managements, but they were just priced a bit too high. So, we never bought them, but we saw them do much much better over time because of the again the quality of the business, right? So you know again I started in the business in 2008 2009 just out of the GFC and they say when you start in the business really kind of affects how you invest. So until until you know um 2014 2015 I found nothing cheap. you know in hindsight everything was cheap in 2011 2012 2013 right so you know and you kind of think about uh at that time and all that was was a mental block right and you know and then I'm like what other mental blocks do I have right and so that kind of led me to this unconstrained opportunistic investing philosophy where you know you know where I say I'm not in a box I'm going to do what makes sense I'm going to look at the quality of the business I'm going to look at what I think it's worth in 3 years and I'm not going to kind of label myself uh on a quality or uh on a uh growth or a value scale. Uh this insight also came from Warren Buffett, right? I mean if you think about you know what what Buffett did um when he ran BPL his uh his hedge fund is he had three different return streams. He had workouts, uh he had controls, u and he had generals, right? So, one of them worked at a particular point in time. The other ones were not working. But the point was that he was getting some engine within his portfolio to run even if one engine was stalled and then you know the engine that was stalled would run and you know so he would just keep chugging along and all of this would help his performance and he could allocate capital from the engine that was running to engine that was not running. So similarly what I do is I divide the portfolio into compounders which are kind of my core holdings which I think can you know grow earnings over time and then flank that with kind of value today which is value companies or deep value companies and value tomorrow which are growth companies that have um you know something's going wrong with them and therefore the valuations have come in. >> Got it. Okay. Sorry I was just taking a couple notes there. So, it's interesting that the differentiator here. So, let me try and let me try and, you know, explain it for my own layman self. So, I mean, it sounds like you're wanting to not really label yourself as like, oh, I'm another devalue strategy or another growth or Garpy strategy. At the end of the day, it's all and also like not even just small cap or micro or large cap, you know, you're more like, all right, I'm presented with an idea. Does this make sense according to my criteria no matter where it lands in the the spectrum of what the company could be? Okay, so that's interesting. That's a great place to start off. So in my head, and this is just for me speaking personally, if that were my mandate, I would have been I would probably drive myself crazy and be like, where do I even start? Like what how do I how do I you know what what do I Okay, it just makes sense. Okay, there's tens of thousands of public companies I could choose from that, you know, could possibly make sense for my strategy. So how do you reconcile your process with just finding things that make sense to you? >> Yeah. So first of all I'm you know I'm limited to uh investing in North America but even in North America there are a lot of companies right. So so to your point I think the only way of limiting yourself is limiting you know uh your circle of competence limits you right. Right? I mean there you know there are only so many mental models that I have. Uh there are only so many ideas that kind of fit into uh the the criteria that I have for making investments. So um those would be my filters. You know again I'm looking for good quality. I'm looking for undervaluation. And if you really are focused on these two things and really try to kind of apply yourself and say I'm not going to compromise, there absolutely not that many ideas that meet that criteria at any particular point in time, right? U so that's kind of how that's kind of how it it it gets limited. I run a 20 stock portfolio, so I don't have kind of a lot of room uh in terms of having ideas that I'm not I don't have high conviction in. So um so for me to get conviction to get comfort uh to get the quality and to get the upside that I want I think um you know all of that is difficult to find 100%. So you know I could ask you about you know what what are your metrics that you screen for that meet your undervaluation stuff. You could go into them I'm sure but at the end of the day like you said good quality first for a reason right? So how do you evaluate what potentially could be good quality for you? >> Right? I mean lots of things. is I mean all the traditional stuff that kind of everybody talks about um you know you know essentially kind of the you know the mode that the business has the return metrics that it has produced in the past uh uh and and and now but I think one of the most important criterias that I've come to realize uh you know over time that kind of determines so the business quality is important but the management quality is equally or more important kind of the culture that the company has is equally or more important Because at the end of the day, you know, you know, you go through an earnings call or you go through, you know, um, a 10Q or 10K, you know, the question that you have to ask yourself is, do I believe that this management can execute on this opportunity and get the company to A to B where, you know, B is when I need my money, right? So I I I spend quite a bit of time just kind of learning about the people behind the business and making sure these are the people that I want to bet on to realize the opportunity that they have, right? Um and again just to just to kind of backtrack and kind of talk about quality, I think one of the things that you know I've seen you know you know this is again very kind of um uh different from analyst to analyst uh you know in terms of what they consider to be quality. I mean, I I know people that, you know, go back to um, you know, the 2007 uh crisis and the 20 2001 uh bare market and kind of look at how the company performed during those years to determine how it'll do, you know, in the next downturn, you know, as an example. >> Um, so there are different layers of how people think about quality. Um and and and for me it's it's the business it's um how defensible I think the mode is and the management. >> So when you're so when you're looking starting to evaluate the quality side of things basically you're qualitative you know at what point after you you know because assuming you're you know you talk to a friend or through the screens you know you can go through your process if you want for the discovery phase. At which point after you've kind of gone through some of the numbers and gone through everything like that, then you're like, "All right, it's time to talk to management, ask them some questions, you know, how's your process?" >> So, yeah. So, I mean, you know, I I tend to talk to a lot of managements. I think just talking I mean, part of my process is I schedule calls with with IR all the time and even if I'm curious about a company because it forces me to work on the business. Um, and it it it it usually gives me insights into kind of what is happening at a micro level in that company in the economy. So, I'm always doing calls, but uh from a from the perspective of a particular opportunity, you know, it's usually I've I've been following that company. I've been following earnings for a little bit. I I I may have talked to uh you know, the company in the past at at at some point in time. uh the stock has come in the stock has come in for you know you know whatever reason which I think is temporary you know you know that's when I would go into my uh I also have access to these expert networks I would schedule some uh expert calls uh talk to them uh again talk to them about the culture talk to them about the quality of the business uh and then uh you know once I have um uh uh most questions uh answered uh I talk to the company to just see how they uh you know think about um the opportunity and the risks uh from here on. >> Very cool. All right. So I mean love to hear a little bit more about your process you know going through the whole from discovery to you know starting to take a position and and if you would like to use an example to kind of demonstrate how you know this works in action you know love to hear the whole thing. >> Sure. Um okay uh let's uh so so you know one of the companies that I own that uh is still a good opportunity uh and I bought it about 6 months ago is a company called Griffles uh ticker GR FS uh Griffles is a plasma uh derivative manufacturer. So essentially they take plasma, people donate plasma or people give plasma uh and they take this plasma and they manufacture products from it and uh kind of sell it to people that need these products to manage uh autoimmune diseases. And the way that this business works, you know, I'll just quickly talk about the business. The way this business works is you have to have a lot of collection centers where you can collect where people can come in and donate plasma or where people can come in and sell plasma and then you take this plasma and you take it to a central manufacturing facility where um you know you store it, you test it and then eventually you separate it into different products that you can then sell. Right? So that's the business and so the reason that this is a good quality business is it's a three player market globally. It's a business that requires a lot of capital upfront to build these centers and to build these manufacturing facilities. It's a business which has root density benefits in the sense that if you are there first then you know somebody else who's coming in second will never get their capacity uh uh utilizations to a level where you know will make any money. So, so, so if you're there and if you're expanded, you essentially have a de facto oligopoly that in that in that region and then it's a trust business, right? I mean, you know, this is plasma kind of people's blood. Uh, you know, if if if there's something wrong, if you didn't test properly, if you didn't store it properly, if anything goes wrong and you get a bad reputation on your product, you know, you're done as a business. So this is a company that has been ex has been in existence for a long long time. Uh but then in 2020 202122 it went through a bit of a perfect storm. uh it it it um so people in the US uh actually uh get paid for plasma and because of stimulus checks after co people weren't coming in uh and they had to increase prices for what they had to pay for plasma hitting their margins right uh so the business was was on the downtrend a bit and then a short report hit uh with issues uh with the family that controls Griffiths uh and some of those iss issues were real issues. Uh over time uh the company solved a lot of these issues when it came to corporate governance. There were activists involved. Activists got on the board. Uh and uh at a certain point in time, Brookfield bid for the business, right? And that's what piqu my interest. And uh Brookfield is kind of a well-known Canadian asset manager. They're known to be kind of very smart capital allocators. So they're bidding for this business. Um, you know, things must be okay from a from a corporate governance perspective. Um, and and sorry, if Brookfield is is bidding for the business, they must like the business. And if the activist investors on the board rejected that offer, then there should then power family member board members to be to do the right thing from a cultural governance perspective. So that's that's when I got intrigued. Um you know I read everything I could on the business. I read the short report uh the you know the earnings um uh uh transcripts of course. Uh they had an investor day earlier this year. Um kind of went through that uh talked to management twice. Um and then and then I made my uh and then I made my buy. Right. This is a business that used to trade at 20 to 25 times earnings, 12 to 15 times epida that is now trading at about 10 times epida uh 12 times earnings because the market still is uh in disbelief of what the business went through both from a business perspective and corporate governance perspective the last three years. But what I what I'm seeing is everything has been cleaned up and the business is on an upswing right. So again, so so so I mean this I think gives a good example of the both the quality that I'm looking for uh you know with the mode that the business has and the valuation and the management. >> Well, it also is a decent example that I'd love for you to expound on a little further. this concept that we haven't really talked about on here is I mean we maybe we have in different ways in which people describe it but the idea of value today you know and you know as you as you express it on your website it's we can opport opportunistically buy businesses that are cyclical or businesses that are facing temporary problems with the condition that we are able to buy these business at a deep discount to their intrinsic value now everybody and their mother would be like all right how do you avoid the value traps so I'm gonna ask you straight How do you avoid the value traps? >> Yeah. No, it's it's very difficult to avoid the value traps and and >> so hard >> and I have been uh and I have been uh you know you know many times in my career you know at you know in a place where I have been confronted with value traps. I think I think it's difficult to confront them. I think it's difficult to before you know to avoid them. I mean, you know, there are ways and you know, people have talked about it on, you know, on your uh uh uh podcast, but I think the way to deal with them from my perspective is to change your mind even at a loss, right? That I think that's the best thing you can do. I mean, that's something that, you know, I'm trying to get better at as a value investor is to just let go. I mean, not to have my ego involved in kind of whatever company or opportunity I'm in. Yes. You know, you know, you always have the fear this is going to run as soon as I sell. Let it, right? But from your perspective, from from your from your, you know, one of the things that you realize over time is time is a very scarce resource that you have, right? And then mental um strength and then kind of mental bandwidth is even even scarce. So if you have an idea or two that are taking a disproportionate amount of your time and your research effort, I think you're better off pruning them from the portfolio than keeping them. Right? So I so I very actively try to have you know not a trader mindset but just say if something is not working instead of like I'm not just going to fight it. I'm going to get rid of it. I'm going to clear my mind and come back to it or something else later. So I'd love to hear an example of where you know you thought let's take your most egregious example that you might have where you looked at it you fit all the metrics talked man like this is a slam dunk home run shouldn't have to keep doing all the follow-ups everything like that but then you found yourself spending in order amount of time because the thesis just all right okay it didn't hit here but maybe the next quarter >> that's right >> didn't hit again you know and and and know and these are painful right uh these are painful to go through but I uh so I I I I own a company called Indava. Uh so Indava is a company that that does digital IT outsourcing. So so essentially you know any company that needs uh digital apps built they go to a company like Indava and they kind of ask them to help them you know you know either save money on their existing operations or make money by kind of becoming digital first. So again software is leading the world right but any company that is not a software first company doesn't have the IT resources to actually build these products and compete with the software first companies so they hire people like likeava like Accenture so this is this is a company that that kind of competes with Accenture but is a much smaller company uh than than Accenture right so this is a company that um you know did did really well kind of coming out of co uh because everybody wanted to work from home everybody wanted to spend on it to kind of get their systems up to date, you know, you know, and all of that. So, the stock gets $150 a share, right? And then it comes down uh to about $60 a share. I'm like, okay, this seems cheap because uh again, this is uh a business that can grow for a very very long time because everybody needs um you know, more IT, more software, you know, and and you know, and all of that. And the reason that these companies win is because once you get into a client's IT department, it's very hard to get rid of you because you know then you you know you just finish one project for the client and then you know you suggest the client needs another three projects because you know if they want to be competitive with their peers right it's it's it's a similar thing like you know when when Warren Buffett bought IBM you know and he kind of talked to all Berture companies and you know he realized that every company uh has an outsourcing arrangement with with IBM and nobody's firing IBM and in fact they're using more and more IBM every year you know he was he was wrong in that thesis but uh leaving leaving leaving that aside so what what happened here is that uh you know macro hit so so they they over earned they were in COVID so they were under earning so so so earnings started declining and I bought at a point where I thought that um earnings had declined enough but then AI came right and with AI um you know there's you know there's a narrative that um you know AI will make engineers more productive therefore you will need less software engineers therefore the businesses of the likes of Endava uh you know will not be as valuable anymore right so while that may be true my my thesis was that um you know AI will require even more software development because all the companies that are not AI ready would have to become AI ready and you know part of the reason they can do that uh is is because companies like Indava will help them. Uh but what happened in the interimm was that the management uh for the clients of Indava they just froze right because AI was coming in and AI was changing every 6 months. So they didn't know what their future technology road maps was going to was going to look like. So they just stopped doing projects. They just stopped doing any projects. Um and and and and and now's revenue started declining. And this is again a company where the management said hey you know this year we are you know backended guidance you know we're going to be much better fourth quarter than we are first quarter. Okay fourth quarter comes in okay you know we missed but next year we're going to be much better fourth quarter than we are first quarter. So you go through that a few times and then you're like no no um that's it. You know I'm I'm again this was something that was it can still work right? I mean, there's no reason it can't work from here, but it was just taking a disproportionate amount of time from my perspective. Uh, and and and so this is something that I just got rid of and now I'm saying, okay, I have cash in the portfolio, you know, can I find a better riskreward than I had with with with Enava? >> Absolutely. >> It's it's painful. It's a loss, but you know, it's it's part of the business. >> Absolutely. Here's another value today value trap, you know, experience I'd love to hear where, you know, you maybe you looked at a company and you, you know, started did did all the digging and everything. You're like, this has value trap vibes. I'm I'm feeling it. Like there's something about this that like I think I'm I like my the riskreward spectrum that's way riskier than, you know, maybe but you know what? I'm going to take a shot here and maybe, you know, and maybe it ultimately worked out. I don't know. Was there Have you ever had an experience like that? >> No, I'm I'm you know I' I've lost so much money on kind of terminal risk companies that um I try not to go into that. >> Yeah, that that makes sense. You got to be disciplined at the end of the day. If it if it's walks like a ducks, you know, talks like duck >> because because what I'm ideally trying to do get is I'm trying to get a multiple expansion in three years when I sell the stock, >> right? And the only way I get a multiple expansion is if people are very excited about that stock at that particular point in time. So I try to imagine scenarios where the business that I'm trying to look at, you know, what would make people really enamored with this in three years. >> Uh because I'm looking to get a multiple expansion and earning expansion to kind of make my eye on the on the idea. >> It's I mean it's that's also interesting as well is like trying to build out like what does the future narrative really look like, right? cuz it's t like that's actually a really interesting point because I don't think sometimes you know sometimes it's like all right all they got to do is execute it's like well there's also if you just think about it a little bit further it's like well if you it also helps for your thesis where it's not just saying all right I have a multiple here and that works for some I'm not saying it doesn't where you're very disciplined you're like okay I assign this metric or this valuation metric this is where it should be in 2 to 3 years but what's also very helpful especially if you're looking at maybe even some of these growthier names or you know they had a bad core but there's still a lot of value there. It's also building out that narrative of like okay well what like I think I see something that would get me excited about this you know now what about this name right now could get people excited about this in 2 to 3 years like what does that story look like? How what how can I imagine that that that press release or that earnings report? So yeah. >> Yeah. Yeah. And that's exactly it. I mean that's that's what I do. So like I'm trying to buy things that are okay now and that and that are going to become great tomorrow uh on you know and and and then buy trying to buy things that are really bad that are going to become okay in you know in 3 years right so I mean I'll I'll I'll kind of talk about that as an examp you know with an example um so I own this company called Rentokill right is a pest control company that competes with Roland in the US now Roland has a PE of like 50, right? Rental kill has a PE of what was the last PE? Um I think maybe 15 16 today. Um so that so so that's a huge difference in multiples for a company that is in the same industry as its closest peer. Right? So this is a company that acquired a company called Terminix in the US and it merged its own operations with Terminix and the integration has not gone well. So this is the case where it's a you know we know that pest management is a good quality business again it's a root density based mode where you know if I have a branch in a particular neighborhood uh then and if I can service a lot of households in that neighborhood then I would have the lowest cost compared to somebody that's you know serving a household here and then you know another in a different suburb and another in a different suburb right so if I can get as many clients as I can in a particular area I become the de facto the lowest cost provider for that area. Right? So again, a root density based uh based benefits u you know brand um you know and essential service a lot of businesses have to have pet services. So it's kind of a SAS type recurring revenue business from that perspective all commercial buildings you know uh etc. Uh for many households it's a essential service or or an emergency service. So pricing can be can be very very good. Uh so anyway so so it's you know roll is you know trade that 15 times earnings so we know that this is a business that in with the right margins with the right P&L can have a very high multiple right so why does rental have a very low multiple it has a low multiple because uh it just did a merger that is not going well okay then okay what's happening then uh Nelson plat's uh fund just took a big position in the company and went on the uh the CEO that oversaw this merger is leaving. They have new management coming in that is very US centric. So they're trying to fix a lot of these issues that exist today with this integration and in 3 years can I see the P&L of Fenttokill be very similar to the P&L of Roland? I own the stock so I can right and then when that happens what multiple will it get I'm sure it'll be higher than the 1617 times multiple what because then the the narrative changes from this is a turnaround to this is a compounder right that's what I'm going for very cool all right well we've I mean we've covered a lot hey real quick just to cover from your letters I mean you know we we could talk terrorist all that you know I think most of that that stuff is kind of out there but you You mentioned also with the one where you just you ended up cutting your losses is that you know you saw the you know one of the forwardlooking themes obviously is expectations around AI technology you know how have you been wrapping your head around and thinking about put what what what kind of thesis have you been putting it together when you're like okay AI clearly here to stay a lot of momentum here a lot of frothiness as well so how are you been thinking about putting together a thesis when you're looking at potential AI companies and how to play Yeah. So I um so so you know so that's interesting. I mean this is it it's a big change right? It's a big change and it is affecting everything and everybody. Uh and this is something that I struggle to keep on top of because it's changing so quickly all the time. But I try my best to do that but it's very difficult to kind of be on top of it. Right. And it makes me extra e extra cautious of uh investing. Uh so for example there are many software companies today that are cheap or getting cheaper because of an AI risk right I mean there's a narrative today that hey you know these software companies that exist today they may not exist in the same form tomorrow because agents will do a lot of the work that the software companies do. Now I I haven't formed a conclusion on if this is true or not but you know two years ago I would have kind of gone into software companies and said hey you know which one do I want to buy because the narrative at some point is going to change from AI is going to affect software to AI you know the AI is going to help software but I'm I haven't done that because you know I want to learn more before I do that right but but what I've done from an AI perspective is again I I own AFD So this is again this is you know kind of a lot of people kind of um are a bit surprised at that but if you look at the AMD chart right I mean this is and you know and this is how these kind of paw shops and quant funds and passive investing and kind of narrative driven investing can help uh an opportunity investor such as myself is you as you look at the chart in you know in 2022 23 stocks at 60 65 Then it goes to 230. Then it comes down to 90 earlier this year. Then it goes to 180. Right? In all this time I like I've bought when the stock was at mid- teens earnings. Right? I mean I so I mean I mean I've stuck to my valuation discipline and said I'm going to buy it when it's cheap and that's what I've done and it benefits from AI. Great. You know, I I love the optionality, but um but but I think that's that's what I think again, this is a large cap company. It's not a small cap company, but look at the volatility, right? But if you understand the business, you again, Lisa Sue, I think, is one of the most formidable CEOs out there, right? Uh so so if so if you understand the company if you understand where AMD came from what she did for the company over over the last you know 10 years uh and you know if you believe that she will kind of shepherd this well going forward also in the AI era and you're getting it at 15 times earnings you know you know you buy it um and then when the market's very excited you you know you trim so so that's what I've done uh from an AI perspective right I I'm just trying to try to go into AI adjacent uh when it makes sense for my quality value criteria. >> Very good. >> So question on here that I love to ask everybody and you know you've given so many examples and that's been great you know but um what would you say has been an throughout your entire career even even prior to white falcon what would you say was a learning investing experience that you learned the most from and or guided your current outlook and thesis uh or philosophy when you're looking at potential investments? Right. You know, I think I think in the beginning, you know, it was, you know, you know, it was again, you know, Warren and Charlie, right, which is which, you know, which are formidable and which kind of uh are the base of your of your investment philosophy. But I think over time, I've learned from a lot of other people, investors, books. Uh I think um you know as you um as you kind of um spend some years in the industry and as you kind of go through some case studies live case studies uh you have you know your capital or reputation at risk with ideas. I think all of that teaches you right there's a lot of feedback loop in this industry uh uh and if you're not learning then you're not growing right. So again the first kind of transformational thing for me was to you know again kind of get out of my 2007208 mindset of I have to buy everything for 10 times earnings or less right my first it was to appreciate quality that if a company has good quality you know you should be paying more for it because it is a good quality you know you know waterfront property goes for more than a house, you know, you know, in the suburbs as an example. Um, because there's usually more optionality with a good good quality company because the people that work for these companies are going are incentivized to perform and do better than the average company. So, so that was number one. And then number two was, you know, again being a value investor, you look at all these technology companies and you say, you know, oh, these are profitless tech companies. Oh, I don't want to look, you know, look at this. you know this is a bubble or that is a bubble right the I think the lesson that value investors learned after the two 2001 bubble was a wrong lesson but in many I mean if if you go back to 2001 2002 a lot of internet stocks crashed and a lot of value stocks took off right so value investors had a really good 2002 to 2008 growth investors did not do that well and the lesson that the value investors took from that is you know growth doesn't work value is the only thing that works and then since the GFC value hasn't really worked growth has worked right uh I think what the lesson from the GFC lesson from the internet bubble should have been can I buy some of these really growing companies at really cheap prices right I should be looking at unit economics not the overall P&L of the company right so so in 2022 as an example we bought I bought a lot of these SAS companies that were not making money at that point in time and I got some push back and saying these are not value companies but then you know but but that is something that I had kind of evolved into and learned from. I mean you you know you saw Uber you saw all these companies kind of go from kind of really lossm to very very profitable uh you saw Adobe on the software side kind of do the same. So, so you had all these kind of examples uh you had all these mental models and if you were right on the if you did your analysis on the unit economics then you knew that this company will eventually show uh these unit economics in the P&L and then you would make money. So this is again just from an evolution perspective. Um you know kind of I've I've you know I've learned to evolve and kind of just see things for what they are not for what dogma tells you to uh uh to uh to to believe. >> Yeah. >> Great. All right. Well listen you've answered all my questions. We've really covered quite a bit here today. So, I mean, look, to close this out, final thoughts, some maybe some recommendations or, you know, maybe you have some advice for folks that are kind of just getting their their toe wet and getting started on their investing journeys. >> Yeah. Um, you know, I don't I don't I don't have a whole lot uh except I'll just say that I mean, you know, there are very few or no shortcuts in this business. You have to put in the work. uh you know and and and the more work you put in into this business, the more you get out of it because I mean this is a learning profession at the end of the day. So you just have to learn, right? And and and and there's no shortcuts to that. Um and and and the best way to learn is again go back to the source materials, not to a presentation, not to a salesside report. Go to the source materials and and and actually see what is happening with the business and see what is happening with the P&L. uh focus on incentives. I think incentives drive everything. So you know to the extent that you kind of focus on what how the management is compensated uh you know what you know what they believe in. Um you know that's very important. Um and just learn from your mistakes be nimble evolve and uh make money. >> Love it. Well Bart that that's a great place to end it. Where could our audience go and find more information about you White Falcon as well as following on social? >> Yeah. So I I I I uh my website has all my letters. Uh I I I write a letter every quarter. I usually have an investment idea uh in the appendex of this letter. So this is on my website uh whitefalconcap.com. Uh feel free to sign up to get the letters to get the blog posts. Uh I'm also on LinkedIn. I'm also on Twitter. Not very active, but I am on Twitter. White clock and cap. Uh but and and I'd love to kind of get in touch if somebody wants to talk about stocks or uh any of the stocks that I mentioned or if anybody has an idea that you think will fit my criteria. Would love to talk. >> Awesome. Well, Balkar, thank you so much for joining me today. Really do appreciate it. Good luck. Stay safe and I'll I'll see you in a few weeks here. >> Okay. See you then. >> Thank you. >> Take care. Byebye. [Music] Heat. [Music] Heat.