My Process for Finding Great Investments w/ Kyle Grieve (TIP755)

Summary

• Investment Approach: The guest emphasizes a business-owner mindset, focusing on long-term compounding via quality businesses and micro-cap inflection points.
• Key Pitched Names: Highlights Aritzia (ATZ) as a long-term winner held through volatility, TerraVest (TVK) as a consistently strong compounder despite optically high multiples, and John Deere (DE) as a legacy industrial leveraging automation and data.
• Main Themes: Strong advocacy for Micro Caps with inflection points, Quality Compounders, Serial Acquirers with acquisition-driven upside, and Automation as a competitive moat driver.
• Geographic Tilt: Favorable bias toward Canada due to informational edge and opportunity set, while avoiding regions with governance risks.
• Opportunities: Seeks micro caps with low PEG ratios and durable growth, and exploits serial acquirer arbitrage when EPS-accretive deals are underappreciated by the market.
• Risk Management: Avoids leverage and shorting, monitors owner’s earnings and EPS growth vs. 15%+ hurdles, and quickly exits when theses break.
• Portfolio Construction: Concentrated positions, willingness to average up on winners, and no trimming of outperformers to let compounding run.

Transcript

(00:00) My investing philosophy is that I  invest like a business owner, not a trader   or a speculator. Every stock that I own in my  mind represents a real ownership and a share of   a business. And I don't take that process lightly.  I try to imagine the people managing my money are   close associates who I know personally. (00:20) This can create biases, sure,   but my primary goal is to invest in  people I trust and give them a chance   to make improvements when things  inevitably go sideways. [Music]   Hey, real quick before we jump into today's  episode, if you've been enjoying the show,   please hit that subscribe button. (00:41) It's totally free, helps out   the channel a ton, and ensures that you won't  miss any future episodes. Thanks a bunch. I'm   going to share my investing philosophy with  you. I have had the opportunity to learn from   some of the industry's top investors. Whether  that's chatting with incredible outperformers   as guests on the show or sharing lessons  from outperformers from some of the best   investing books that have ever been written. (01:02) I've had the fortunate opportunity to   absorb just a ton of incredible information  from many of the best investors to ever do   it. To understand my investing philosophy  today, I don't need to go too far back in   time to explain some of the crucial mistakes  that I've made. And these mistakes have helped   shaped me into the investor that I am today. (01:20) My first risk asset was actually in   cryptocurrencies. And I won't get  into crypto too much as my co-host   Preston Pish knows more about crypto than  I ever will and it's not really an area of   investing that I put too much mental energy  into. However, investing in cryptocurrency   has had a very profound impact on me. (01:36) So without my foray into crypto,   I may have never leapt into stocks or I might have  repeated many of the mistakes that I made during   those crypto days. So, rewind back to 2017, and  Bitcoin had begun its run up from around 3,000 to   about 20,000 between July and December. During  that time, I was buying all sorts of altcoins,   and I quadrupled my capital pretty quickly. (01:59) But I attribute all that to luck. But   all that good luck was about to change for me.  While it felt like everything I bought would turn   to gold, I began researching technicals  more and more. I began getting attached   more and more to a technical indicator called  Ichimoku Clouds. So, they don't do very much,   but they helped justify some of my trades. (02:18) At that time, I was also making   leverage bets on one minute charts. Oh, and I was  also going short and long depending on what those   clouds were telling me. It's silly, I know,  and I'm almost embarrassed to discuss it now,   but I knew nothing about value investing or  speculation at that time. So, long story short,   I evviscerated about 97% of my crypto  assets over a very short period.  (02:39) So, a few lessons I learned from  this. One, be wary of anything regarding   technical indicators. Two, don't use leverage.  Three, buy assets that you understand. Four,   understand that any action that you  take has a potential downside. And five,   don't bother shorting. So, now let's fast forward  to March of 2020. I hadn't thought at all about   investing between that time of 2017 and 2020. (03:04) While I was in a hotel lobby for work,   I came across a newspaper article that  mentioned that the market had slid about   23% over a short period. A light bulb inside  of me went off and I thought, "This must mean   that there's probably some stocks that were  on sale." I can't tell you exactly why I felt   this way at that time, but I'm sure glad I did. (03:22) So, I opened up my first brokerage account   for stocks and just got to work. YouTube really  opened my eyes to the wonders of value investing.   And I'm very grateful for this because I could  have just as easily been a fool and done exactly   what I had done in crypto, just buying stocks  instead. However, I learned about the concepts   such as the distinction between price and value. (03:42) I learned about the benefits of a   competitive advantage. I learned about why  some stocks are considered expensive versus   some considered cheap. I learned a hell of  a lot. And this was during the lockdown,   so I had tons of time on my hands. And nearly  all of it was spent with my dog, my wife,   who is my girlfriend at the time and books  about investing and reading annual reports.  (04:00) So my philosophy from here  began to build. I could have just   handed all my money to the bank to manage.  And I had done that when I was a teenager,   not really having any idea what I was doing. I  actually remember when I first became interested   in investing. I'd look at the performance of my  bank funds and saw this low singledigit returns.  (04:18) And part of my learning was seeing how  much money the bank was making by underperforming   the index. So, I put two and two together  and decided that since nobody else would   care about my capital as much as I did,  I might as well try to build it myself.   Those early days were interesting because  they surprisingly had a lot of similarities   to the early days that I had in crypto. (04:37) So, since nearly everything had crashed,   the closer you bottom tick those COVID lows,  the more likely you were to just make money.   And since many great assets were trading with  very good margins of safety with a lot of upside,   it was pretty tough to lose money in those  markets. Luckily, the lesson from my days of   losing money were very, very fresh in my head. (04:56) And even though some of my positions   were going up, I had been sold on the powers  of long-term investing and compounding. So,   I remember one of my earliest lessons in  compounding actually came from my uncle. So,   he was a very successful real estate agent.  And I recall him discussing just how good of an   investment that many of the Canadian banks were. (05:13) So, if you bought them, you could set   up a dividend reinvestment program and  then just hold on to them for decades   and you'd probably do really, really well. I  remember him telling me to look at RBC. So,   one of my first investments was in a bank  in Canada and that was TD Bank. But after   I learned more about forecasting future  value, I realized that TD just was unlikely   to grow earnings by much more than 8%. (05:37) And besides, I discovered some   other businesses that I thought had much better  prospects. So in 2020 I purchased shares in the   following companies. Chorus Aviation, Air Canada,  Alibaba, Aritzia, Micron, Twitter, Bank Ozk,   Inmode, Bosch Health, Sangoma, and Seritage  Growth Properties. So looking back, it was quite   a hodgepodge of different investment types. (05:58) So you had Alibaba, which interested   me because it was in China and the narrative in  China was that that country was going to continue   to grow at a very very high pace and would lead  the world in GDP growth. Then you had Aritzia,   which I found very interesting because it had  grown well pre- pandemic. It was navigating   the pandemic really, really well due to its  pivot to e-commerce and it just had products   that were continuing to be in high demand  even though people weren't going to work.  (06:23) Then there was Bank Ozk. This was an  idea that I actually cloned from one of my   earlier influences who was Phil Town. So to me, it  looked like a very well-run bank. And even though   there was a short report out that discussed  some of the riskiness of its loans, it looked   to me like the business was actually pretty safe. (06:43) Then there was Seritage Growth Properties   and Micron which were two ideas that I cloned  from Monry. So after cloning him on these ideas,   I was very careful about cloning him again  as neither was really a home run. I mean   I didn't lose money on them but it wasn't a  home run and I thought they would be uh much   better performers than they ended up being. (06:59) Especially when I looked at Seritage   growth properties. This experience kind of showed  me that cloning can be very powerful, but even if   you find a great investor to clone, there's  only specific ideas that are worth cloning.   And then we get to Bosch Health. So, this was an  idea I cloned from Francis Chow and Bill Miller.   It was kind of a sum of the parts play, but it  turned out to be a complete disaster for me.  (07:20) Luckily, as with many of my first  investments, I was working with a very small   amount of capital at the time. So, even though I  did actually end up having some losers in 2021,   which I don't really know how that's possible,  they didn't significantly impact my ability   to continue compounding. Since I wasn't  using any leverage, this also allowed me   some extra safety just in case I was wrong. (07:38) Now that we have a brief history of   my investing experience out of the way, I'd like  to share some of my financial goals, which will   also shed some light hopefully on my investing  philosophy and why it is the way it is. So my   goal in investing is to just double my capital  every 5 years. It's very optimistic, but it was   a goal that I always found very fascinating. (07:57) It seemed like a challenging goal and   one that was highly lucrative.  So that's what I went for when   I started and that's what I go with  now. This means that any investment   that I should make should be able to  double within 5 years at the very least.   This has been an interesting learning point for  me over the years as there are both positives   and negatives to having a goal like this. (08:20) So, the benefits of having a more   aggressive return benchmark are that if I'm  right on my picks and I achieve my goal,   then I'll just make money faster. It also means  that I'm going to select some significant winners   and multi-baggers. I like this strategy because  it means I don't have to be constantly searching   ideas that might go up 50% or double. (08:39) I can find businesses that can   potentially 10 times, 50 times or even 100 times  my initial investment. And it also means that I   can be very picky. Suppose a business is  a quality business and has all the usual   aspects of a quality business such as a high ROIC,  high ROE, insider ownership of 10% and some sort   of deeply entrenched competitive advantage. (08:59) In that case, I may still not find   an interesting investment. One such example is  OTC Markets Group. So, OTC Market Group operates   financial markets where US and international  securities trade over-the-counter providing   things like trading, disclosure, and data services  for public companies. I researched the stock and   concluded that it was an excellent business. (09:19) However, given the premium multiple   and my expectations for its growth at the time of  my research, I just didn't think that there was   a very good chance that it would meet my return  hurdles. However, there are also several drawbacks   to consider if you're seeking high returns  like I am, and they all have to do with risk.  (09:35) So, like nearly all investors, I find  it easier to default about thinking about how   much I can make from a business rather than  what I can lose. As I learn more and more   from legends in value investing, I'm trying  to reverse that thinking as much as I can.   The problem with many highquality businesses that  are growing at a decent rate is that the market   is usually intimately knowledgeable about them. (09:57) So getting them at a discount in terms of   multiples can be very soft. The major negative  of my strategy is buying companies that just   have these really really high expectations  only to have them fail these expectations.   That has been the source of nearly all of my  investing mistakes in some way or another. Since   I am generally looking for businesses that are  growing their intrinsic value by more than 15%.  (10:18) I also look for companies that have  something like earnings per share or operating   cash flow growth above 15%. Sometimes I invest  in businesses that massively exceed that 15%   hurdle rate. Let's say I have a company that  has historically grown EPS at 25%. Then they   have a quarter where they have some sort of maybe  one-off expense and EPS growth only goes to 10%.  (10:41) So even though the long-term growth  remains intact, the market's likely going to   punish that business's stock price. So in the  short term, this doesn't really matter to me.   But my mistakes occur when I completely  miss the mark on my EPS growth rates   and therefore the stock price rerates  significantly downwards and the chances   of it going back up become very very unknown. (11:03) So I'd like to shift gears and discuss my   thoughts on the distinction between absolute and  relative performance. Since my goal is to double   my portfolio every 5 years, I really don't care  much about the relative performance or indexes in   general. they're completely irrelevant to  what I'm trying to achieve. The only real   function an index serves me is to show the  opportunity cost of what I'm trying to do.  (11:27) So the problem for me when I was looking  at which index to compare myself was purely   psychological. Am I examining my return and the  return of an index without introducing some sort   of bias that causes me to make a mistake? It's  hard to say. One workaround I have is to check   my portfolio performance only once a quarter. (11:46) This way, I don't obsess about trying   to beat an index quarterly, which is what  nearly every hedge fund is trying to do. The   next problem that arose for me when considering  the index was just which one to use. Since I own   very few US stocks and I'm reasonably globally  diversified, I thought comparing them to maybe a   Canadian or global index made the most sense. (12:06) However, my perspective has shifted   after speaking with several notable investors. So  since the S&P 500 is the primary benchmark that   most good investors use for comparison, I think  it's the most suitable index which to compare my   own results as well. The next part of my investing  philosophy is that I invest like a business owner,   not a trader or a speculator. (12:27) Every stock that I own   in my mind represents a real ownership and  a share of a business. And I don't take that   process lightly. I try to imagine the people  managing my money are close associates who I   know personally. This can create biases,  sure, but my primary goal is to invest   in people I trust and give them a chance to make  improvements when things inevitably go sideways.  (12:49) I'll discuss the leash I give to certain  companies later in this episode as it varies in   length based on a few factors. The point of my  thinking this way is that it helps me just hold on   to compounders. After giving considerable thought  to the stocks that I keep and what I like to do   with them, this is really the ultimate goal. (13:06) Have stocks in my portfolio that can   continue to compound. the business owner's mindset  will help me stick with those businesses. So,   if I had a friend, for instance, or an  acquaintance with an excellent idea and   I decided to invest in them, I'm not going to  just jump ship at the slightest hint of any   type of headwind or problem that they encounter. (13:22) Headwinds are just part of business and   I'd rather focus on avoiding any overreactions  to headwinds than acting too quickly and then   moving on from a company that was just  going through something that was very,   very temporary in nature. So Seth  Clarman said, "Investing is the   intersection of economics and psychology. (13:40) Successful investors do very few things   but do them well." This is how I strive to emulate  my investing approach. While I may have periods of   higher activity, my default should be inactivity.  And the other way to think about this is what am   I doing now that is causing me to potentially sell  in the next year? I prefer to find businesses that   I can hold for a multi-year time period. (14:02) So, if I'm constantly wanting to   sell stocks, that means one of two things. So,  first, I'm just not doing a good enough job of   finding businesses that are resilient to the  economy or I'm just finding businesses that   aren't resilient to its competition. And  to me, I completely hold responsibility   for everything that's in my portfolio. (14:20) If I'm too lenient, then chances   are that I will want to sell stocks because they  aren't doing well enough in terms of improving   their intrinsic value. But that's all on  me and not on the market. What it comes   down to is trying to engineer my thinking to  avoid panic selling, which is a problem that   I think infects very very large swaths of the  market during big corrections and downswings.  (14:40) All businesses, even the best ones,  experience significant draw downs. Bergkshire,   Amazon, and Microsoft have all had significant  draw downs on their way to becoming life-changing   multibaggers. So, Bergkshire has  had three 40% draw downs since 1990.   Amazon has had six 50% draw down since 1997 and  Microsoft has had four 40% draw down since 1990.  (15:04) So it's incredibly rare to find  businesses like these. So if there is even   a chance that I hold one of these businesses  that can compound for the next three decades,   I will gladly do everything I can do to  keep that business in my portfolio. So   a major perspective shift that occurs when you  adopt a business owner's mentality is that the   share price becomes a lot less interesting. (15:24) This is one of the landmines that   investors must navigate. I have a business  in my portfolio now that upon examining the   company's fundamentals, I cannot fathom why the  market is treating it with such disdain. So,   I won't name the business, but here's what  happened since I boughten it. So, the trailing   12-month EPS has gone from $2 to $5.50. (15:44) The stock price has not budged   much in either direction, and the PE multiple has  dropped from 28 to 10. So, I have problems with   this business at times because it just appears to  me that the market has no interest in valuing the   business properly. I can't tell you how many times  I've needed capital and when I think of a business   that I need to cut, this business comes to mind. (16:05) But when I really think about the   appreciation in the earnings per share,  I just think about how I would perceive   this business if the stock price didn't  exist. And when I think of it that way,   there's just no chance I'd be trying to sell  that asset if it's growing well. And nothing is   telling me that it won't continue to grow well. (16:20) So, another thing that business owners   do is plan for volatility and not react to  it. So, I like to go into a business with   a clear thesis of what could happen over the  next 2 to 3 years. Then I just track what's   happening in the business. If I think EPS will  grow at 15% per year and the following year it   grows at 15%, then it's just job well done. (16:40) And just because the market is in a   panic and that stock price decreases, it  doesn't take away from the fact that my   business is doing exactly what it needs to do  in order to beat or exceed my benchmarks. Now,   the next part of my investing  philosophy is how I categorize my   investments. So, I use two specific categories. (16:59) The first one is a bucket that I called   quality businesses and the second one is a bucket  I called my micro cap inflection point businesses.   So quality businesses will always make up the  bulk of my portfolio simply because these are the   companies that I think have the best chances of  compounding my capital over a long period of time.  (17:15) As of August 18th, 2025, this section  comprises about 63% of my portfolio. So in this   part of my portfolio, I look for three keys.  The first one, the presence of a competitive   advantage remote which allows the business to  continue growing profitably over multiple years   and hopefully decades above my hurdle rates. (17:34) Number two, a talented management team   that is aligned with shareholders and owns a  substantial amount of shares. And number three,   returns on invested capital exceeding  15% for multi-year time periods. So,   let me go through each of these in a little more  detail because there's a lot of nuance here.  (17:49) So, to me, all businesses are on a  spectrum of quality. Some are of low quality while   others are of high quality. More importantly,  however, is just what direction a company is   moving on that spectrum. A business of medium or  even low quality can actually still be a great   investment if it's moving up the quality spectrum. (18:07) And a business that is of high quality can   still be a poor investment if it's moving down  the spectrum. So, similar to market cycles,   you should have a clear idea of the direction a  business is heading. Is it improving, stagnant,   or headed in the wrong direction? These types  of questions help me understand and determine   which businesses I can cut if I need capital,  want to free up cash, or just need to remove a   portfolio for quality of life reasons. (18:31) So, competitive advantage is   deeply ingrained in quality. Higher quality  companies will have wider moes and better   competitive advantages, but I don't think  my businesses have truly impenetrable moes.   Some of my businesses have stronger moes than  others as long as I know what these moes are   and whether they're expanding or contracting. (18:50) I don't sell the businesses in this   bucket very easily. So, management is a deeply  complex subject and I have an entire checklist   I look at when I'm evaluating a management  team. So, I'm looking at whether management   prioritizes short-term or long-term profits.  I'm looking at growth and if future growth is   going to require heavy dilution or debt. (19:12) I'm looking at how transparent   managers are. Are they transparent in only  good times and then climb up in bad times?   I'm looking at the integrity of management  and seeing if it's unquestionable or not.   I'm looking at their compensation.  Is it fair? Is it reasonable? I'm   looking at how well management's  aligned with shareholders, which   usually means I'm looking at insider ownership. (19:33) Are they only building up their stake via   options or are they buying on the open market?  I'm looking at how strong their historical track   record is. That's with the business that they're  currently in or if they just joined that business,   that's looking at the track record  that they've had from another business.   Then I'm looking at things like whether  they seek the limelight or avoid it.  (19:49) Do they love the press? Do they love  attention? Or do they just not want anything   to do with the press? Then I'm looking at  capital allocation. Are they disciplined   capital allocators? Are they spending  money just because they have cash or are   they patiently waiting for the right high return  opportunity to arrive to deploy capital? And then,   you know, I'm obviously looking at salary  and options over a period of time and   making sure that any increases are warranted. (20:13) And lastly, just insider ownership.   Once again, even an executive can have a  very small amount of insider ownership,   but if that's a large percentage of his net worth,  well, then that's pretty meaningful. Whereas,   even if a manager has a pretty large ownership,  if that just represents 1% of their net worth,   then that tells you a lot of information. (20:33) Now, I like to build up my knowledge   base by answering these questions, which really  helps me determine if a management team is worth   partnering with or not. Some checklist  items definitely carry more weight than   others. Management integrity is just number  one. I would never budge an inch on that. If   management has a history of showing any crack  in integrity, I'm just going to take a pass.  (20:53) Just make it easy on myself. I've  unfortunately invested in the past where I've   had some questions about management integrity. And  I thought I kind of had a handle on it, then found   out more information that put them into question.  And I wondered, okay, well, maybe I could just   hold the business and see what happens. But I  realized I just don't trust this management team   enough to ever really want to add more shares. (21:14) So I just sold them all because if I don't   want to add more shares in the future, there's  just no point in holding the business. And lastly,   there's the capital efficiency aspect. So  this is a quantitative metric that really   helps me understand whether a business is  effective at converting capital into profits.  (21:30) So my best companies tend to have re that  just don't fluctuate very much and ideally they're   actually gradually increasing. So an increase  in ROI is a strong signal that a company has   a competitive moat. It means that the business  can earn higher profits on an invested capital   compared to its industry or the competitors. (21:49) If a company has no moat, it's very often   incredibly obvious just when you examine this  metric. So not only do I want a high number here,   but I also want a decent sample size. One year of  achieving a significant number following multiple   years of low single digits just isn't  going to suffice in my quality bucket.  (22:06) So now we move to bucket number  two which is the micro cap inflection   point businesses. So there aren't too many  differences on what I look at. So I'm looking   at three things again. First two quarters  of revenue and earnings growth above 25%.   Then I'm looking exact same thing here a talented  management team that is aligned with shareholders   and owns a substantial amount of shares. (22:24) And then three an ability to earn   high returns on invested capital. So only the  first and last point here are different. So,   the first point is how I determine if a business  is truly inflecting. I'll sometimes allow for the   use of free cash flow instead of earnings  on these businesses. If the cash flow of a   company makes sense and it seems like they have  some sort of scale advantage where margins are   continuing to improve, I'm fine investing in a  business that isn't IFRS positive net income yet.  (22:50) The beauty of this specific strategy is it  can capture some outstanding businesses. All of my   micro cap winners have followed this inflection  point framework to some degree. Some companies   might be profitable for longer or maybe it's just  a quarter, but when you're looking at a small   business, they can often get sticky revenue, which  is likely to grow quickly, and I mean very quick.  (23:10) The second point on management is  the exact same as a high quality bucket. In   the inflection point businesses, one of the  strongest areas is that the CEO is often the   founder of the business. Since the company is  small, it also means the founder usually has   a significant stake in the business. It's  not unusual to find management teams with   stakes of 50% or even higher in a business. (23:32) And while many businesses I would   actually fear if they had insider ownership above  50% because you have that going private risk,   it's just not as much of a concern  in my opinion for micro caps because   a lot of them are micro caps on an exchange  specifically because they require funding which   prevents them in the future from going private. (23:52) So management is crucial to the investing   hypothesis of micro caps. Since micro caps are  still in their early stages of growth, management   will be the ultimate indicator of the business's  success. So Buffett likes companies that you   know even an idiot could run. But you just don't  really find these in micro caps. The businesses   are often much more fragile at this stage. (24:13) And if you don't have a leader who   can adapt fast and find ways to make profits  quickly, the company can simply go bankrupt   or get taken over. Even an excellent product or  service can just be thrown into the waste bucket   or swallowed up by a large competitor. A more  mature business that already has a significant   portion of its business model created  and systematized won't encounter these   painful problems that a micro cap will. (24:38) So while management can still   carry a more mature business, I think  they matter a lot less due to all the   systems that are now in place. As for the  final point on capital efficiency here,   so I still calculate it on all my inflection  points, but this is more of a situation where   the numbers don't tell you as much because  they're usually going from a state where   they're going from negative to positive. (25:00) So since a lot of these inflection   point businesses are running at a loss  maybe a quarter or two before I buy them,   Roy is going to be a negative number even when  I'm making adjustments. But as they inflect,   that number can rapidly improve. So the main  question that I have to ask is how much more can   it improve and what are the odds that it reverts  back? So those are questions that I try to answer   on my micro cap inflection point businesses. (25:24) Jim Ran once said that you're the   average of the five people you spend the most  time with and I really could not agree with him   more. And one of my favorite things about being  a host of this show is having the opportunity to   connect with highquality like-minded people  in the value investing community. Each year,   we host live in-person events in Omaha and New  York City for our tip mastermind community,   giving our members that exact opportunity. (25:52) Back in May during the Bergkshire weekend,   we gathered for a couple of dinners and social  hours and also hosted a bus tour to give our   members the full Omaha experience. And  in the second weekend of October 2025,   we'll be getting together in New York City for two  dinners and socials, as well as exploring the city   and gathering at the Vanderbilt 1 Observatory. (26:16) Our mastermind community has around 120   members. And we're capping the group at 150.  And many of these members are entrepreneurs,   private investors, or investment  professionals. And like myself,   they're eager to connect with kindered  spirits. It's an excellent opportunity   to connect with like-minded people on a deeper  level. So, if you'd like to check out what the   community has to offer and meet with around  30 or 40 of us in New York City in October,   be sure to head to theinvestorpodcast. (26:45) com/mastermind to apply to   join the community. That's the  investorspodcast.com/mastermind   or simply click the link in the description  below. If you enjoy excellent breakdowns on   individual stocks, then you need to check out  the intrinsic value podcast hosted by Shaun   Ali and Daniel Monka. Each week, Shawn and  Daniel do in-depth analysis on a company's   business model and competitive advantages. (27:12) And in real time, they build out the   intrinsic value portfolio for you to follow along  as they search for value in the market. So far,   they've done analysis on great businesses like  John Deere, Ulta Beauty, AutoZone, and Airbnb.   And I recommend starting with the episode on  Nintendo, the global powerhouse in gaming.  (27:32) It's rare to find a show that consistently  publishes highquality, comprehensive deep dives   that cover all of the aspects of a business  from an investment perspective. Go follow   the Intrinsic Value podcast on your favorite  podcasting app and discover the next stock to   add to your portfolio or watch list. So, I'd  like to review my reasoning behind investing   in these two very distinct and different buckets. (27:58) So, the quality businesses are the ones   that I like, which I don't necessarily need  to have high turnover in. These are businesses   that tend to perform exceptionally well and  very consistently. While they may have some   hiccups along the way, I don't have to think  about them very often. And the only thought of   really ever selling them doesn't come out of fear. (28:16) It's more of a valuation question because   these businesses tend to get expensive. I  don't want to get too much into my selling   criteria yet as I'll be covering that more  later in the episode. But the businesses   in this category are generally priced  between 1 billion and 10 billion. I don't   actually have a cap on what it needs to be. (28:32) I just prefer smaller companies as   I feel they have a longer runway. Now for  my micro cap inflection point businesses,   I like these because it's not unusual to find  companies that literally grow at 50 75 100% on the   bottom line. And I love seeing these businesses  very early before institutions start piling in.   So the businesses are often so under the radar  that they can grow quite rapidly and they still   trade at multiples that make you think they're  just a mature business growing at the same rate   as the economy. I'm talking about businesses (29:02) that are likely to grow 25% or more   and are trading at mids singledigit forward  multiples. So their mispricings are just too   juicy for me to ignore and that's why I invest  in these businesses. And just so you know,   the market cap average for these is below  100 million and often much below 100 million.  (29:21) So the turnover was going to be a lot  higher in my micro caps because many of these   businesses inside of them just don't deserve to  be held for very long. I want them to deserve   to be held. But I can't be stubborn on that side  of things. Stubbornness and a no sell mentality   towards micro caps is just a death sentence. (29:37) Basically, there's also going to be a   difference in my average holding periods between  my quality businesses and micro cap inflection   point businesses. So, out of my 10 biggest  winners, seven are quality businesses and   three are micro cap inflection point businesses.  However, of the inflection point businesses,   two have been held for less than a year and  the one that's been in my portfolio the longest   is coming up on two years as of October 2025. (29:59) From the quality business standpoint,   there's only one that I've held for 5 years. I've  held three for three years and two for two years   and three for one year. So this indicates that  the inflection point businesses they move very   quickly in price but you know they're not always  worth holding for extended periods of time.  (30:19) The quality businesses are those that may  have lower returns perom but I think can sustain   uh decent return for a longer period compared to  my micro cap inflection point businesses. So now   that I've shared more about my holding periods,  I'd like to discuss why I'd sell a position. Now   my sell criteria is pretty straightforward. (30:36) I sell for just one of three reasons.   So first is that I find a better opportunity  with a better riskreward profile. The second   is that the price runs 5 to 10 years ahead.  And third is that my thesis is broken. Now   the most common reason I sell that last point  is that I just lose interest in the business.  (30:55) Alternatively, it's just that  I'm completely wrong on the thesis and   it completely falls apart. But, you know, this  is always just a tough reason to sell because   one issue that I've had is just being too stubborn  as I mentioned here. So, being stubborn is just so   detrimental, especially on micro caps. (31:14) But based on my observations,   it's really damaging even if you do it on large  caps. My three most significant losses I've   taken in investing were businesses that I was  just completely wrong on the thesis. So these   three would be Canabis Capital, Bosch Health,  and Alibaba. Thesis killers are something that   I'm constantly searching for, just trying to  ensure that I can try to catch them early.  (31:34) Unfortunately, with Bosch and Alibaba,  I was slow to realize that my thesis was flawed.   With Canatamus, it just had an abysmal  quarter, and along with other investors,   I just had such a high degree of uncertainty  about whether they would ever return to their   previous profit levels. As a result, I  just unfortunately had to sell because I   wasn't willing to wait and see what happened. (31:54) Selling all three of these has turned   out to be the right decision as none of them in my  view has improved significantly. As for selling,   it's usually if the price gets pulled forward  multiple years. So, this is a variation of Monry's   mental model which suggests that selling a quality  business only when it's egregiously overvalued.   He's never shared exactly what that means and I  don't think there's really a singular definition.  (32:16) So, I actually ended up taking a  lesson from Ian Castle and created kind   of a hybrid framework to observe just how  far forward the stock price needs to be   pulled in order for me to want to sell. Now,  luckily for me, I haven't yet experienced a   stock that has entered this scenario. So,  I haven't had the opportunity to use it.  (32:31) But one stock I do own that I've owned  the longest and has been a major winner for me   is Aritzia. And it's a business where, you know,  over the last year or so, I've constantly wondered   if I need to sell just because the returns  are definitely pulled forward, but they just   doesn't quite get to that five plus year mark. (32:50) So, I end up holding it even though   I know that a really bad quarter could drop  the share price pretty considerably. But some   investors might use a shorter mark such as,  you know, 3 years. And I don't think there's   anything wrong with that or any method that you  want to use. So, my justification for using 5 to   10 years is just that it helps me hold on to  stocks that I think can continue compounding.  (33:09) I think it's really easy to just sell  a business that has doubled or tripled in price   with a thought process that you're  just going to go out and easily find   another business that can do the exact same  thing. However, the reality I found is that   it's just not that easy to find a replacement. (33:24) And if the business that you hold has an   excellent runway, there's pretty good chances  that it can double or triple in value again.   and I'm a lot more comfortable holding  businesses that I already understand very   well rather than replacing them with something  that I know less well. So, next is selling   because I find better opportunities elsewhere. (33:40) This is probably my most common reason for   selling. I rank my businesses from most attractive  to least attractive based on my assessment of   their future gains and intrinsic value. If I  have a business in my portfolio that is just   not performing well in terms of increasing its  profits, then it goes to the bottom of the pile.  (33:56) Charlie Munger said, "For an ordinary  individual, the best thing you already have   should be your measuring stick." So that means if  I can find investments that maybe meet or exceed   the best things I already have, then I'll add  them to the portfolio and remove the ones that   can't keep up. My entire selling process is  designed to counteract very powerful biases.  (34:17) Confirmation bias and the sunk cost  fallacy. So, my best tool for commenting   confirmation bias is just to continually seek  out where I might be wrong in my thesis. My   best tool for avoiding the sun cost fallacy  is to ignore what I paid for something and   focus solely on the fundamentals of the business. (34:34) I will definitely let go of my losers. I   have no problem doing that. And while it's  tough to see that you've lost a position,   I like to look at things in terms of opportunity  cost. So, if I have a loser, do I wait for that   loser to turn or do I just sell it and add to  a position that I think is already doing an   exceptional job? The answer is usually the latter. (34:55) Let's now move on to portfolio management.   So, this is an area of my investing that  has undergone considerable evolution over   the last 2 years. When I first started buying  stocks, I was finding that the markets would   move just so fast that if I wanted to add to  my position, I had to make my starter position   pretty significant just right from the get- go. (35:14) So, you have to remember this was in   2020 and 2021, which were years when the  S&P 500 was earning very high returns,   18% and 209% respectively, with dividends  reinvested. But you just had to move quickly   on these names or else the price would just very  quickly move away from you. Now, I don't think   this is an occurrence that will probably ever  stop, but I was managing my portfolio a lot.  (35:35) I think out of fear that I wouldn't be  able to add to a position rather than having   patience and just leaning into my circle of  competence. What I mean by that is that there   are probably just too many positions that I was  buying that I should have taken a much smaller   initial position in and taken some time to learn  about the business and then add to it over time.  (35:55) So, Aritzia was a business that I thought  I played very well, but it was probably a lot due   to luck and circumstance. So, my initial position  in Aritzia was still about 10% by cost basis,   but given the small amount of capital that I was  investing, that 10% became a lot smaller, closer   to I think 2% as my assets started scaling up. (36:13) So, for a long time, I thought I'd   just never get a chance to add to my Aritzia  position again. But fortunately the business   continued to improve and despite some  significant corrections in the share   price I was able to continue adding to it and  it's become a very very large position for me   both in terms of cost basis and absolute value. (36:31) So after speaking with Paul Andreola on   my very first interview with tip which I'll  link in the show notes he really just opened   my eyes to a different way of looking at  position sizing and this was to average up   on your winners instead of just averaging down  when prices pulled back. So Paul would add to   positions as I actually increased in price. (36:53) This is a very very considerable   variation from what most value investors do and  what I had been indoorated into beforehand. So   the traditional value investor tends to add  a position that are in the doldrums. While I   still like doing that, there is a lot to  be said about averaging up in a position   that is outperforming and continuing to do so. (37:11) So I'll separate my process here into   the two buckets. So let's start with the micro  cap inflection point because that's what I was   just talking about regarding Paul. So the primary  advantage of micro caps is that they often grow   rapidly and they're relatively inexpensive.  So I like using PEG ratios for my micro caps   as a strategy is fundamentally built on growth. (37:32) So for anyone who's unfamiliar with the   PEG ratio, it's the price to earnings to growth  ratio. So let's say a business has a PE ratio   of 20 and is growing at 20%. then its peg is  just one which is 20 divided by 20 which means   that it's a pretty solid PEG ratio not super  low though. So the lower the value the better   and the higher the worse tech you generally  look for below one as being attractive and   above one as being less attractive. (37:58) So let's go over an example   here. Let's say that you can pick up a  business that's going to grow its EPS   by 50% in the next year. Let's say it's a  micro cap. So it's got an EPS of just 10   cents and it currently trades at just four  times its trailing earnings for a price of   40. So looking a year ahead, EPS is  expected to be about 15. Generally,   like I said, a peg below one is very good. (38:20) Although with a lot of the micro caps,   I actually like looking for.5 specifically  because that number offers a significant   margin of safety as well. So in this instance,  the company has a forward peg of only 0.1.   So this is outrageously cheap and even if  we're incorrect about our growth estimates   by 50% the forward peg would still just be 0.2. (38:39) Now obviously this is significantly below   that.5 number that we're searching for.  Now let's say the business increases in   price from 40 cents to 50 cents after a very  strong earnings report and is just confirming   that our thesis is playing out. That's  obviously a pretty big move up in price,   but adding here is not necessarily a bad idea. (38:56) If our thesis is playing out, it means   the shares of the business could be priced  anywhere between $3.75 and $7.50. I like to   provide myself with a reality check on these  numbers. Can the business actually trade at   25 or 50 times earnings? You'll need to refer  to other companies in the industry to see if   trading for those numbers is realistic or not. (39:16) Sometimes it's not, meaning you might   have to assume it trades closer to a  PE that's more in line with its peers.   The point here is whether I buy the stock  at 40 cents, 50 cents, or even a dollar,   it just doesn't make that big of a  difference because I'm still going   to make an incredibly adequate  return. Now, the same principle   holds true for my quality business as well. (39:35) However, there's a difference between   the two. Micro caps obviously experience sometimes  these short flash of the pan improvements in   earnings, but you know, no business is  going to sustain 50% EPS growth forever.   What often happens in micro caps is that they  develop an innovative new product or service   that hits the market and just sells like wildfire. (39:56) However, these advantages may only last a   few quarters before competitive forces erode them.  In my quality businesses, they have been operating   for a significantly longer period of time and  possess a lot of strong advantages that indicate   to me that they're likely to continue doing  so for many years, hopefully into the future.  (40:13) So, a business like Terravest is a good  example. The business has been an exceptional   outperformer for me since I acquired it.  But it has had one significant issue,   and that's that it's nearly always significantly  overpriced, at least optically. So that means   if I buy at my average cost basis, which  was $94, I'm going to be waiting a very,   very long time to ever add to my position. (40:34) And you know what? I may never get the   opportunity to fill that position at that price  again. So with these quality businesses, similar   to the micro cap ones, you have to consider  their growth potential. If a business is decent   and you're buying it at 25 times earnings, then  you can just wait and see if the business maybe   gets down to 20 times earnings in the future. (40:52) And in that case, I'm paying more on   an absolute basis, sure, but I'm paying less  on a PE multiple basis. So to me, that's just   how you add to positions. Since I own several  serial acquirers, I can be a bit more creative   with the strategy. Since most of my serial  acquirers don't have very high organic growth,   they tend to grow primarily through acquisitions. (41:14) As a result, there are specific points   in time when unique arbitrage opportunities  arise. So, the serial acquire arbitrage that   I like is when a serial acquirer makes an  acquisition that isn't adequately reflected   in the market. Let's say they make an  acquisition that will increase their   earnings per share by 20% over the next year. (41:32) What often happens is that after the   acquisition is announced, the shares  will rise, sometimes overshooting that   20% mark and sometimes undershooting it. The  market rarely gets it entirely right. Now,   there's always a risk and a hidden  upside in these deals. So, there's   obviously a lot of uncertainty that's involved. (41:48) However, sometimes the market is just   so uncertain about these types of deals that it  creates all sorts of interesting opportunities.   So, I mentioned earlier that perhaps the  25 times earnings is a decent price for   one of these serial acquirers. So, sometimes  what happens is the business will make an   acquisition and maybe the price goes up just 5%. (42:05) However, if I look forward to what I   think earnings will be, the share price should  have gone up much more than 5% and the multiple   actually ends up getting compressed downwards.  In that case, that can be a very very good   opportunity to add more shares. As a correlary  to portfolio management, I'd like to discuss   the amount of holdings that I prefer to hold. (42:23) So, throughout my investing career in   equities, I've held between 8 and 13 positions.  Monish PBI has said that he likes this 10 x10   approach which is 10 positions at about a 10%  cost basis per position and this is generally   what I built my philosophy on but I also  don't mind going higher than 10 if I think   there's some good opportunities out there. (42:43) So I also break down my position   sizes by cost basis specific to which bucket that  investment is in. So for my quality businesses,   I have no problem taking a position to 10% cost  basis if the business is really excellent and is   just continuing to exceed my expectations. As  I mentioned earlier, when entering positions,   since many of these businesses can compound for  multiple years, it's okay if a position starts   small and then grows as I become more and more  comfortable and knowledgeable about the company.  (43:10) I typically allocate an opening  position in the quality portfolio about 2 to 3%.   This gives me a decent starting point with  plenty of room to continuing to add if the   business warrants it. For my micro cap inflection  points, I take a much more conservative approach.   So since these businesses tend to be more volatile  in terms of operating results, they also tend to   be more volatile in terms of their share price. (43:31) So for that reason, I don't put as much   capital into these ideas. A full-size micro cap  position is usually around 5 to 6% by cost basis   at max. My opening position is usually just 1%.  Then I add as the business confirms my thesis.   When it comes down to what I'll allow a  position to reach on an absolute basis,   I have no issues with my positions exceeding 20%. (43:52) I think I've had one position reach 28%   which was the largest that I've ever seen. And I  don't trim winners. I know this topic of trimming   is kind of a hot topic, but the way I see it, if  you have Michael Jordan on your team, you don't   bench him when he's carrying your entire team. (44:08) If you invest long enough,   the businesses that are the largest in  your portfolio are also probably going   to be the businesses that have increased  the most in intrinsic value. And I want   those businesses in my portfolio for as long  as they can compound their intrinsic value.   When I review the top seven positions in  my portfolio today on an absolute basis,   only one has underperformed as expected. (44:27) So the total returns perom of   those five are 83% 217% 31% 5% 30% 51% and 20%.  While I don't expect the returns perom of some   of those larger numbers to continue for extended  periods, I think that those businesses are still   actually improving quite significantly.  Therefore, I believe their share prices   will be materially higher in the next few years. (44:52) One area of investing that I've come to   understand more and more as I gain experience  is the concept of a circle of competence. So,   it's a concept that when I first heard it was kind  of challenging for me to just wrap my head around.   However, as I've invested more and more as a  generalist, I think I've begun to internalize   what it means and its importance. (45:10) So, Monry has often asked,   "What is a circle of competence?" And his answer's  always been to ask the question is to answer it,   which I feel was an answer that made sense  to him, but never really made much sense   to a simpleton like me. So, where I began  understanding it was from two sources. So,   first and foremost was just my own reflections on  the mistakes that I've made and why I made them.  (45:30) Then when I read the first volume of the  great mental models, I felt they did a really good   job of breaking it down. So I discussed this book  in detail on tip 740, which I'll link in the show   notes. Now, let me outline the framework for the  circle of competence from that book. It's a simple   four-part framework that asks a couple questions. (45:47) So the first one is what is your circle   of competence? Next is how do you know when  you have one? Then it's how do you build and   maintain one? And lastly, how do you operate  outside of one? So these questions are just   great. And when you start looking at investments  and decisions that you've made over the years,   it becomes very evident what you know and what  you don't know using this exact framework.  (46:07) For instance, I mentioned earlier that  most of my considerable losses have occurred in   businesses where the thesis was broken. And in  every single one of them, it was partly because   of the final point there, which is how do you  operate outside of your circle of competence? I   often operate outside of my circle of competence. (46:24) So I must ensure that I'm capable and   willing to learn a great deal to invest into a  new business. When I'm learning about something   outside of my circle of competence, I have to  ensure that I understand the basics and find   other people or sources who are highly  competent in those areas so that I can   learn more from them and draw wisdom from them. (46:42) While I think it's excellent to operate   primarily within your circle of competence, it's  also essential to just push yourself to expand.   You just want to make sure that as you're  expanding your circle of competence, you aren't   taking undue risk. This is where the art part of  investing comes into play because there's just no   way of systematically understanding when something  is smack dab in the middle of your circle of   competence or operating somewhere outside of it. (47:04) Another area of the circle of competence   that I've spent time thinking about is  the inclination to learn about something.   There are some businesses I've looked into  where I feel like I'm capable of learning   about them to a level necessary to make an  informed investment, but I also know that it's   going to require a significant time commitment. (47:21) You have to decide if you're willing   to invest that time into learning something. You  may or may not have the time or desire to do it,   and that's okay. Just realize that you should  take that into account if you are investing in   something outside of your circle of competence.  If you were to buy a stock with incomplete   knowledge and didn't want to put in the effort  to learn more, you're putting yourself at risk.  (47:43) So, the next topic that I'd like to  discuss is the geographies of where I invest   in. So, I live in Canada, so of course I have a  home bias. But when I first started investing,   I wanted to invest globally. So, I held businesses  from all over the world outside of North America   in places such as Israel, Sweden, Poland,  Japan, and China. I've experienced a mix   of success and failure in specific geographies. (48:02) The only absolute that I can say is that   I'll never invest in China again. The rest  of those countries are fair game. I think   investors should at least look outside of their  own country to avoid home country bias. But,   you know, when you're in a country that has just  so many good opportunities, it becomes a lot   less important to look outside of your country. (48:19) So, the thing that I like about my home   country is that I just understand it best. And for  areas that I don't understand, I also have access   to others who can help me understand it. If I  wanted to invest in countries abroad, I'm just not   going to have that same access. And this is why  investing in your home country is a concept that   you know can kind of work for you or against you. (48:37) You don't want to ignore everything else   out there, but you also want to ensure that  you can invest in things that you understand.   Let's say I'm looking at a SAS business that's in  Canada and a SAS business of the exact same type   that's in Japan. There's a very good chance I'm  probably going to understand the Canadian one a   lot better than I'll understand the Japanese one. (48:54) If I had spent half my life maybe living   in Japan, then those odds would change. So, it's  a very individual thing and it depends on how much   you're willing to learn about foreign countries,  their culture, their government, their businesses,   etc. Another important aspect of my investing  philosophy is how I measure performance.  (49:11) So, in one of my favorite books  on Buffett, the Warren Buffett portfolio,   Robert Hagstrom does a superb job of explaining  why using returns isn't necessarily the best way   to measure performance. Hexager makes the point  that several great investors with excellent   long-term track records have underperformed  the index for short periods of time.  (49:29) So if we measure them on  performance metrics like price,   it can yield an inaccurate output. So what  exactly does Buffett use? Warren Buffett   once said, "Charlie and I let our marketable  equities tell us by their operating results,   not their daily or even yearly price quotations,  whether our investments are successful."   The market may ignore business success for  a while, but it will eventually confirm it.  (49:53) So, the key words that Buffett used  there are operating results. This usually   means profits or something like owner's  earnings. If profits are 10 million today   and they're expected to be 20 million in 3  years, there's a very good chance that the   stock price will be significantly higher than  it is today. So, how do I do this? In reality,   I like to use something called owner's earnings,  which is Buffett's metric for showing the   steadystate cash flow generation of a business. (50:18) You can find it most easily by using   cash from operations and subtracting maintenance  capex. For those of you who are trying to search   for maintenance capex and having some trouble,  that's not unusual. So, in that case, you might   just use the depreciation expense as a proxy. Or,  as I learned from Phil Town, you could just use   50% of just normal capex for maintenance capex. (50:40) So, what I like to do is calculate owner's   earnings for all the businesses that I have.  I'll examine how that number has grown in the   last year, and I'll provide an approximation  for where I think it's going to be in the next   year. If owner's earnings is continuing  to rise above that for 15% hurdle rate,   then that means the business is performing well  and there's just not that much to worry about.  (50:59) Focusing on the operating performance  of my companies has helped me keep my focus on   the right things. In the age of information  that we live in, it's so easy to get caught   up in noise. Another way I try to avoid noise is  through engineering an environment that fosters   inaction. Many investors, both professional  and retail, have environments that are set   up to encourage them towards action. (51:21) They might have things like   large amounts of visual stimuli. They might  have multiple monitors showing them charts.   And more charts and more screens just means more  noise. And more noise is a great way to motivate   yourself to more action, not less. Then you have  noise and alerts. These might show up as things   such as constant financial news on TV, which  provides a continuous stimuli, making you wonder   about new opportunities that are out there and  question the decisions that you've already made.  (51:48) With the numerous apps available,  individual investors receive constant alerts   and notifications that inform them of stock  performance in real time. Then there's social   and psychological pressures. Things like  Twitter, Discord, and Reddit and message   boards are places where people love sharing  information, but there isn't much of a filter   on the quality of that information. (52:06) So, if you're in communities   that constantly bombard you with things like  leaderboards, it prompts you to take actions   that you might not have taken otherwise. And  lastly is ease of use problems. Some brokerages   have kind of gified the trading process, which  further boosts the need for action. Since we   can now buy and sell at the click of just a  few buttons, it removes a lot of these key   trading barriers that investors once had from  having to call a broker to execute a trade.  (52:31) So, knowing that I have my weaknesses  to certain stimuli, I've tried to create my   environment to counteract the four triggers above.  The one I probably handle the best is visual   stimuli. I simply just don't watch financial  TV, like ever. The only time I see it is if   someone shares a clip with me on social media, but  other than that, I just don't tune in because it   doesn't provide anything of value to me. (52:51) Now, when it comes to alerts,   I personally don't find this to be a big issue for  myself. I get alerts all the time, especially on   my businesses, which tell me whether prices have  decreased by a considerable amount. This allows me   to put my cash to work really quickly. So, without  these alerts, I may not be able to place an order   fast enough once the price normalizes. (53:14) So from my observations,   this just doesn't affect me very much. But I  think that it has much more harmful impacts   on other investors than it does on me. Now when  you look at the social and psychological realm,   it's a very very hard battle to fight. So I  receive a significant amount of great ideas and   information from places like Twitter and Discord. (53:33) I'm not participating in any of these buy   signaling services or any of the stuff like that  which I think is very harmful for investors. But   with Twitter and Discord, there's also a  lot of noise on there. But there are also   ways to combat it. First, on both Twitter and  Discord, if something says something ridiculous,   you can just mute or block them. (53:49) And that way, you won't be   affected by their takes that just aren't helpful.  There's also a psychological shift that I think is   really important. You have to make your own  decisions. You can't rely on others to make   decisions for you. It's up to you to filter  that information that comes in and decide   whether you need to take any action with it. (54:07) And I think 99% of information that you   get doesn't require any action. The next  philosophical principle I follow regards   temperament and IQ. I would be the first to  admit that I probably don't have an above   average IQ. So any advantage that I have has  had to come from gaining a behavioral edge.  (54:26) I think I've discussed a lot of what  I do to attempt to get that behavioral edge   with you today. And lucky for me, I agree  with Warren Buffett's statement. Success in   investing doesn't correlate with IQ.  Once you have ordinary intelligence,   what you need is temperament to control the urges  that get other people into trouble in investing.  (54:45) So, I try to gain a behavioral edge by  just staying as rational as I possibly can. To   achieve this, you have to conduct regular  audits on your thinking. It's just so easy   with the power of confirmation bias to just  come to a decision, then never revisit whether   that decision or idea was the right one to make. (55:02) or maybe it was the right one to make at   one period of time but not the right one to make  at another period of time. Whenever we buy a new   stock, we're basically telling ourselves that the  thesis makes sense and that the risk we're taking   in purchasing the stock is worth the potential  reward. However, you must constantly update your   thinking using techniques such as basian updating. (55:22) So, every quarter that one of my   businesses releases earnings, I'm updating  my three-year probability weighted return on   those businesses. So, let's say we're looking at  a business and they put in multiple great quarters   in a row. Then I might take points away from the  bear or base case and reallocate them to the bull   case. Or if a business is maybe going through some  issues that are making the future more uncertain,   I'll take some points away from the bull or base  thesis and reallocate them to the bare thesis.  (55:46) Is this an imperfect method? Yes. But  it's still one of the best tools that we have.   So, Silicon Valley futurist and forecaster  Paul Safo made one of the best forward   quotes that I've ever seen, which is strong  opinions weakly held. I think this is a great   mantra to remind myself of continuously. (56:05) I would never put money behind a   weak opinion. I need to have strong  opinions to justify an investment,   otherwise it's just not simply worth making. But  at the same time, I must be willing to let go of   views once the facts change. There's nothing wrong  with being wrong. Investors who have just too much   of an ego to admit and act when they are wrong  won't last very long in the investing world which   leads nicely into the following principle which  is that of stupidity reduction which I cloned   from Charlie Mer. So when we look at avoiding (56:33) standard stupidities there are multiple   ways to go about it. First we can use Charlie's  psychological misjudgments and internalize them   to a high degree. Second we can observe the  failures of others why they did it and then   avoid copying them. And then third, we can  observe our own shortcomings, why we did it,   and then avoid trying to make them again. (56:54) Now, I don't think you should focus   on just one of these. You should probably  focus on all three simultaneously. If you   can focus on points one and two, you  won't risk losing money. But, you know,   if you have to learn big lessons from making  your own mistakes like I do, the tuition is   very steep. The lessons will be painful and  vivid, but there will also be the lessons that   probably have the most significant impact on you. (57:14) One of the most significant use cases for   avoiding standard stupidity is understanding  that I don't need to be brilliant to achieve   my financial goals. My businesses range from  mundane industries such as trust manufacturers,   discount grocery stores, women's  retailers, water treatment specialists,   and a quickserve restaurant franchiser. (57:33) However, I also have businesses that some   people might find exciting, such as my vertical  market software businesses like Topicus and   Lumine, or another VMS business that specializes  in software used for exterior home renovations.   While it may not be exciting to others,  they're thrilling in one way or another to me.  (57:52) Where other investors might get excited  about investing in things, you know, like new   technology that is constantly being innovated  on in Silicon Valley, that just doesn't excite   me. While I think changing the world is great,  investing in pure story stocks is just something   that I don't have any desire to do. I do,  however, like investing in businesses that utilize   technology to enhance an already good business. (58:12) Many of my companies are utilizing   technology such as automation to increase  efficiency and reduce costs rapidly. That   excites me. Many legacy businesses today are just  using outdated technology in their workflows.   They're the ones that are going to be left behind  once their competitors can crush them on the   margins by leveraging things such as automation. (58:31) John Deere is an excellent example of a   business doing things correctly. So John Deere  was founded way back in 1837 and they're one   of the oldest equipment manufacturers in  America. However, they've done a remarkable   job of innovating over multiple centuries. First  with the mechanical innovations such as a steel   plow and then with large scale farming equipment. (58:50) But now they're moving from pure hardware   business and actually utilizing new technology to  improve the value proposition of their product.   They already have the attention of the farming  industry which has used their equipment for nearly   200 years. For instance, in 2022 they unveiled  a fully autonomous tractor. Now they can go out   and you know just tell a farmer that they don't  even need to drive their vehicle which obviously   frees up a lot of time to do other things. (59:12) I like this model. Many businesses have   been gathering tons of data which they can then  repurpose and monetize to their loyal customers.   Alternatively, they can utilize automation to  enhance the efficiency of their manufacturing   capabilities. What I like so much about this  is that in some businesses, it's just unlikely   that competitors will have the means to afford  automation to compete with these other companies.  (59:34) So, if you're a larger player who  can afford it, your margins are going to   be significantly better than those of your  competitors, which are going to make it really   hard for them to compete with you. These are the  type of situations that really excite me. So,   while I'm not trying to reinvent the wheel  with my investments, I like finding rational   businesses that are already turning a profit that  can utilize technology such as automation to just   really enhance their operations and provide  them with a wider moat. To me, this isn't about  (59:59) trying to outsmart people. It's just  understanding how businesses in today's age   can gain an edge. So the final thing I'd like  to discuss with you today is something that   I've always found interesting when speaking with  other investors and that's mistakes of omission.   So I view mistakes of omission in two ways. (1:00:15) So first is what have I sold that   I probably shouldn't have sold and second is  asking what was I capable of understanding   and buying and ultimately took a pass on. So one  business that I should have probably given more   thought to before selling out of my position was  a micro cap called gatekeeper systems. So, this   business provides video and data solutions to the  public transportation industry, mainly in the US.  (1:00:36) It was a business that I sold to buy  something else, but the thesis hadn't really   changed. It was a somewhat seasonal business,  but it just wasn't wowing me like I thought   it should have. I still sold this one for a  52% gain, but I would have done much better   if I just held on. So, I bought the stock  for 33 cents in September of 2023, and as   of August 21st, 2025, the stock price is $1.27. (1:00:58) Had I held, I would have had a compound   annual growth rate of about 96%. So part of the  reason for selling this one was the seasonality   of the business. I was hoping that they would get  some more momentum in their contract wins. While   the company was getting better, it wasn't clear  that it would exceed that 25% hurdle rate that I   have on my micro cap inflection point businesses. (1:01:18) So, even though it sucks to go back   and look at what I could have made  on that investment had I held on,   when I think about it, if I went back in time  and had the information that I had at that time,   I think I probably still would have made the same  decision. So, a few businesses that I researched   and passed on include Kraken Robotics. (1:01:37) So, this is a company that   sells a variety of underwater imaging  equipment to several Western Navies. So,   I learned about this business at about  65 in late 2023. Today, it trades for   $3.50. 57. Next is hims and hers. So, I started  discussing this with the tip mastermind community   after I'd heard about it from some people on  Twitter and a few members on the community really   ran with the idea, but I ended up skipping it. (1:02:01) For me, it was just a matter of time   commitment. I thought I could probably understand  it, but I'd have to spend 30, 40, 50 hours on the   idea. I remember looking at it somewhere in  the mid- teens, only about a year or so ago,   and it's $43 as of August 21st, 2025. Next is  Beware Holdings. though they sell internet of   things devices that can be attached to  vehicles such as bikes and forklifts and   what they do is essentially just track their  whereabouts for the owners of those assets.  (1:02:27) So I started looking at this  business around 20 cents in 2023 and today   it's approximately 80 cents. Last one here I have  for you is kids eyeare. So this is a business that   is a vertically integrated eye care specialist  that specializes in e-commerce. I got the   opportunity to speak with the CEO at a conference. (1:02:44) I was very impressed with management,   the company, and its growth story. And this was  back in September of 2023. However, the company   wasn't yet profitable, so I passed. The share  price back then was $5, and today it's $16.50. So,   you know, there's tons of oops daisies that I  missed and that I should have bought, and I will   continue making these errors in the future. (1:03:02) So, the ones I mentioned,   I could probably add another half a dozen.  There's just so many ideas out there,   and if you look at enough of them, you're  going to miss out on a bunch of winners.   The key is to figure out what you can understand  well enough within a decent period of time. All of   these businesses were ones that I think I could  have understood if id been willing to put more   time and effort into understanding them. (1:03:23) Or I could have, you know,   just started with the knowledge that I did know,  taken a 1% position, then added to it as I learned   more about the business and observed whether  they were outperforming expectations or not.   At the end of the day, there's not much of a  point in beating yourself up over these things.  (1:03:37) I'd rather spend more time analyzing  my losses and trying to make sure I don't   replicate those errors that I've made. If I  can continually improve my investing abilities   by eliminating self-sabotaging tendencies, I'm  very confident that I will ultimately become an   above average investor. And that's really the  overarching theme of my investing philosophy.  (1:03:55) So, that's all I have for you today  on my investing philosophy. Want to keep the   conversation going? Follow me on Twitter at  irrational mrkts or connect with me on LinkedIn.   Just search for Kyle Grief. I'm always open to  feedback. So feel free to share how I can make the   podcast listening experience even better for you. (1:04:12) Thanks for listening and see you next   time. Much of the success in everything, not  just investing, is just about avoiding failure.   And inversion is one of the best ways I've  come across to think specifically about how   to avoid it. If you can live a life with minimal  failures, you'll end up with a very fulfilling   and successful life. and investing. (1:04:28) If you can do the same,   you'll have a lot more money in the  future if you can avoid failures along the