Stock Picks: The guest added Meta (META) and Interactive Brokers (IBKR), highlighting founder-led execution, durable moats, and long-term compounding potential.
Meta Thesis: Viewing increased AI capex as doubling down on core strengths, the guest sees durable EPS growth, early-stage WhatsApp monetization, and reasonable valuation relative to growth.
Interactive Brokers Edge: Founder-led discipline, global market access, industry-low costs, strong organic account growth, and limited marketing spend support a long runway despite premium optics.
Constellation & Topicus: Bullish on Constellation Software (CSU.TO) and Topicus (TOI.V), citing record capital deployment, attractive P/FCF, and overdone AI/leadership fears creating mispricing.
International Exposure: Positive on Poland for underfollowed valuations (e.g., Dino Polska, DNP.WA) and constructive on Japan given cheap stocks and governance reforms, while acknowledging currency risk.
AI & Vertical Software: AI is a key tailwind for Meta, while vertical market software should be resilient near term due to long customer relationships, though disruption risk is monitored.
Market Context: Notes S&P concentration in mega-cap AI names and stresses buying great businesses at fair prices, ignoring short-term narratives and volatility.
Transcript
(00:00) Regardless in the market environment, I just want to deploy capital into great companies, what I deem to be fair prices. So, it sounds boring, but that's the simple formula that Buffett shared with us and building long-term wealth. And, you know, I want a portfolio of companies that I believe have the ability to continue to compound free cash flow per share over the long run. (00:24) Before we dive into the video, if you've been enjoying the show, be sure to click the subscribe button below so you never miss an episode. It's a free and easy way to support us, and we'd really appreciate it. Thank you so much. Let's just jump right into it. Uh, we're going to talk about your portfolio and all that happened here in 2025. (00:48) Well, perhaps whenever someone someone is turning in, it might be 2026, but we want to look at your portfolio here in 2025 and see everything that's been going on. And I know that you added a few stocks to your portfolio. Now, was this a question of the stocks being on your watch list and then hit a price target or did you learn perhaps new mental models and then saw some stocks in a different light? Yeah. (01:13) So, going into the year, I did want to further expand my portfolio and add a few more quality companies, but in previous years, I had a fairly strong bias against large cap US companies. And this led me to invest outside the US and great businesses like Constellation Software, Topicus, Dopska. And I still believe these are all great businesses, but are a bit relatively less well-known and just not on everyone's radar. (01:52) And I've expanded my horizons a bit this year as I've really gained more of an appreciation for just how dominant many US franchises are. And part of this is speaking to several of the guests that I do here on the show. So this year I added shares of Meta, Interactive Brokers and Booking Holdings to my portfolio. So I covered booking on the show earlier this year in 2025 and added shares during the tariff tantrum during the spring and Meta and Interactive Brokers are more recent additions to my portfolio. (02:26) So, back on episode 734, I shared some thoughts around my investing philosophy and I shared the mental model of sidecar investing and which to put it simply, this is just to invest in companies that are led by generational CEOs and just stick with them for the long term. So, I think Meta and Interactive Brokers fit that framework quite well. You know, Meta, everyone of course is familiar with this company. (02:52) I've been watching this company for years and admired their growth from the sidelines. And in Q3 of this year, they reported numbers that I thought were pretty good, but the market just didn't like it. So, the stock quickly fell from 750 to below 600. And I've hopefully corrected the mistake of omission of not buying Meta years ago. So regardless of what people think of Zuckerberg, and I'm not saying by any means he's perfect, he's just shown a remarkable ability to navigate different market environments and capitalize on the opportunities that he sees in front of him. So for example, he's (03:25) successfully transitioned the Facebook Blue app from desktop to mobile in the early 2010s. And he also had the home run deals of buying WhatsApp and Instagram. And he's also continued to generate consistent user growth and updated his apps to counter the rise of competitors like Tik Tok, YouTube, Snapchat, and AI is all the rage today. (03:53) And Meta actually created their AI research arm back in 2013. What's interesting about Meta is everyone's, you know, trying to figure out how all these companies are going to capitalize on AI. And I would argue that Meta has been already doing this for more than a decade since their apps are run by machine learning and AI in the background. (04:16) So the stock has sold off recently with the capex bend increased guidance on capex and that's them preparing for this AI wave. And I really see this as them doubling down on what's already working. They need the compute for their apps. So at the end of the day, I want to own a business that I feel is confident will have much higher earnings per share five plus years into the future. (04:44) And I think that uh Meadow will continue to be a big beneficiary of this AI trend and deliver that growth to investors. And I think it's an added bonus that Zuckerberg's only 41 years old today. You know, he could be running Meta for many years into the future from here. So turning to Interactive Brokers as well. (05:06) I think this is one that just another one that I feel like I've been on the sidelines too long. I wasn't wise enough to get this one in a draw down either, but after I put it together that recent episode on IBKR a few weeks back, I decided to add it to the portfolio as well. And what really struck me in studying this business was the founder Thomas Ptery's story. (05:30) So, he's your pretty typical outsider CEO who thinks very long term. He isn't afraid to behave in a very contrarian matter and not appeal to Wall Street's interests. And that's allowed him to build just a very differentiated business. To provide some background on him, he was born in communist Hungary in the 1940s and his family lost everything after the Second World War when he was young. (05:56) And once he uh learned about what the United States was about and stood for, he knew that he wanted to immigrate here. So when he was 21, he got a one-way ticket to New York. He didn't speak any English. So to make a long story short, he came to the US with nothing, chased the American dream, and built a business today that's worth over hundred billion dollars, and he owns over 70% of that business. (06:15) So it's quite a remarkable rags to rich's story, and one that I just really enjoyed covering on the show. And I should also mention that what's unique about both Meta and IBKR is that I'm a user of both products. So on Meta, of course, we have the family of apps, Facebook, WhatsApp, Instagram, and I also have a Meta Ads account. (06:40) And in the case of IBKR a few years ago, I converted all of my stock investments to their platform to really take advantage of their global reach that they offer and their industry low costs. And I'm certainly a happy customer of IBKR, which led me to learn more about this business. And what's really important with this business is the growth in their number of accounts. (07:00) And I think the most telling thing to me about how good this business is is their level of organic growth. So over the past 5 years, they've seen account growth of over 30% per year. And they have some of the lowest marketing budgets out of all the online brokers. So customers are simply switching because of their superior offering. Now as a online brokerage, I should also mention that, you know, many people are going to view this as a commodity-like business. (07:24) But as a customer myself, I can attest to their industry low trading costs in global reach for stocks that I'm able to invest in. So many brokers utilize what's referred to as payment for order flow, which essentially means that market makers execute the trades on behalf of customers. (07:48) And this can lead to worse execution quality and wider effective spreads. So even if you're paying a so-called 0 trading commission, it doesn't necessarily mean that the trade is free. So, additionally, they offer investors access to most markets all around the globe, while other brokers tend to offer access just primarily to the US market. So, someone that signed up for Robin Hood, they likely don't have much access to Canada, Europe, Asia, etc. (08:13) So, for me personally, it was just a no-brainer to sign up for them. And despite being a hundred billion dollar company, they still have uh quite a runway to continue to grow. So today they have 4 million accounts. Uh and since they're a global company, this is a very small fraction of the overall total addressable market. (08:34) So I see a long runway for potential growth. And because of this, I was willing to pay certainly a premium for this business. But perhaps there wasn't a big margin of safety. But if a company has the potential to 10x or 20x uh their customer base over the long run, then I think some of the margin of safety is going to come from that long runway to grow. But perhaps I'm getting way too ahead of myself, you know. (08:58) Uh, Clay, I I really like that investment. I don't even know for how long Interactive Brokers have been on my watch list. And every time I've looked at it and I'm going to say like five years is I kind of feel like it's been there forever. I always been like that's just been too expensive. (09:16) And then stock price just exploded and I'm still like I can see that it's following the fundamentals. Yeah, it just still seems a little too expensive. And it's so ironic, you know, cuz I like you, I read all these books about how the the market don't really value long-term growth well enough. And I read it and I not and I underline in my book and then I don't do it at all myself. (09:39) And that's how I feel about Interactive Brokers. It's such a good stock. And you might be asking, so do we have a position? No, I don't because it's just a little too expensive. And of course valuation matters but whenever you do do the math you know to your point if it has a long runway to grow it's just then it can be a lot cheaper than it optically uh appears especially if you would look at as something like a PE multiple or whatnot it's actually it could be very very attractive which is interesting to to do the math yourself. So, I definitely encourage everyone to do (10:09) that. And um I just want to say that 2025 it's just been such an interesting year. And here we're sort of like uh we recording this at the very end of of the year and you go going into to 2025 it was already expensive you know and at the time of recording is up 16% and I wrote to our listeners that going into 2025 that 2023 and 2024 you saw the S&P 500 go up by more than 20%. The last time that happened for two consecutive years, that was in 1997 and 1998. (10:42) And you know what happened? You had the com afterwards. And so with that massive bust, I think I've been sitting there like everyone else and been like this has to blow up at some point in time. And what has happened this year is just keep on going up into the ride. (11:01) So anyways, I can't help but ask you Clay, how do you how do you deploy cash in such an environment and does that want to make you look outside of the US? Yeah. So seeing the S&P 500 continue to perform well has been quite interesting and I think very surprising to most investors. I personally don't own the index and really don't have a strong view on the valuation of it. (11:29) You know, look at companies like Nvidia and Broadcom, you know, these AI players that together make up over 10% of the index. Who am I to say what the appropriate value of these amazing companies are? So then you look at the top 10 companies, they account for 40% of the S&P 500's market value, which you know is increasingly making the index more of a bet on the MAG 7 continuing to work. (11:55) And I would say it's a much healthier market to have more broader participation in the growth of the economy when looking across American companies. And in a typical year, you tend to see around half of the stocks in the S&P outperforming the index itself. And in 23 and 24, we only saw around 30% of companies outperform. And the last time we saw a similar pattern was during that tech bubble. (12:22) And it's a classic example of, you know, markets being cyclical and the pendulum heading the other direction once the tide eventually turns. But I certainly wouldn't bet against the index as it holds many of the world's most dominant companies. But regardless of the market environment, I just want to deploy capital into great companies, what I deem to be fair prices. (12:47) So it sounds boring, but that's the simple formula that Buffett shared with us and building long-term wealth. And you know, I want a portfolio of companies that I believe have the ability to continue to compound free cash flow per share over the long run. So, in prior years, I did put a bit more focus on international markets, and this year, I've turned much of my attention back to my home market here in the US. (13:08) But with that said, I do have, you know, some exposure outside the US. It really depends on the company you're looking at. And even if it's doiciled outside the US, it might do business in all different parts of the world. So, it's a bit of a nuance discussion, but if I were to provide a couple of examples of some of my international holdings, I do think the valuations in general tend to be more attractive and I do think it can add, you know, some diversification should we see capital eventually start to flow out of the US into these other markets. So, of the dozen or so stocks I (13:44) hold, I own two stocks in Poland, for example, one in Japan. And uh talking a bit first about Poland. This country transitioned from a socialist country to capitalism around 1989. And ever since they've seen growth in GDP per capita, consistently outpacing developed countries like Canada, the UK, and their peers. (14:09) And to no surprise, it's a relatively underfollowed market for stocks. And I think when you look at some of these countries internationally based on the research I've seen, just the broader populations tend to be less interested in the stock market. And I think that's one reason why the valuations are more attractive. (14:28) But you shouldn't necessarily underwrite, you know, a significant multiple rerating uh necessarily for the country overall. So, as we know, the US has a lot of these passive flows flowing into the stock market and the S&P 500. And that that's one consideration I think about is, you know, how how that ends up shaking out over the long run. (14:47) But turning back to Poland, my first exposure to this country was buying Dino Pulska, which we covered on the show a couple years back. It's a classic boring compounder story run by, you know, outsider CEO that doesn't like doing public appearances. They operate uh supermarkets throughout Poland, generate high returns on capital, and reinvest everything into organic growth. (15:12) But better yet, the management team has just done a great job of executing their strategy. The founder owns 51% of the company. And if you're looking for the next AI play, it's probably not the stock for you. I don't think it'll it'll get swept up in that hype. And then my second exposure to Poland was simply because of Topicus, one of my holdings, purchasing the majority shares of a Polish-based company on the open market. (15:36) And it's a small company, so I won't disclose the name, but it shouldn't be hard to find for those interested in checking it out. This is one I really saw as an opportunity to further capitalize on the Constellation software acquisition playbook. And since Topicus got involved, this company has been continuing to execute quite well. (15:54) And if we turn to Japan, many listeners might be surprised to learn that I would be interested in Japan. It's almost a bit of an experiment for me as well. Just the valuations look so much cheaper than the rest of the world. And Japan, I think, is by far the cheapest when I look at a lot of the stocks I own. (16:12) And this can increase one's margin of safety when entering the position. All else equal. And it's obviously not for everyone, but should make for a good learning experience for me. But there's an interesting case for investors to consider Japan. So many have heard about, you know, some companies in Japan trading below net cash, but the value might never be recognized if the cash just sits on the balance sheet and they don't pay a dividend or they don't buy back shares. Though there have been some recent reforms in corporate governance that have encouraged more companies to (16:44) return capital to shareholders. And some really attractive valuations can be found in countries like Japan that are much more overlooked relative to the US. But perhaps that's for good reason. Japan has seen population declines the past several years. The Japanese population has much less of an interest in the stock market. (17:03) And when you're buying a Japanese company, you're also opening yourself up to currency risk. So if a stock goes up by 20%, that's Japanese-based, but the Japanese yen weakens by 10% against the US dollar, then your real return is closer to around 10%. So that's probably my biggest worry. So that needs to be factored into my analysis. (17:26) So if I underwrite earnings growth of say 12% for a company in the US, perhaps the hurdle needs to be closer to 16% annual growth for a company that's based in Japan in order to stay in the portfolio. But I do think getting exposure outside of the US can give you some broader diversification should market conditions or capital flows change here in the US. (17:47) Just moving the entire market and leaving US investors vulnerable. Yeah, Clay, I think you bring up a great point here about currency risk. Uh, you always have to be mindful whenever you see what have the returns been on this stock market. Very often it's been done in nominal currency. And so, for example, I have investments in Turkey and if you do look at the nominal returns, it look like genius. (18:11) Uh, but the world isn't that kind. So, whenever you convert it to USD, it looks a lot more modest. just want to say for the record. But of course, as we know as value investors, we have a a stock price that moves a lot more volatile than the intrinsic value. (18:30) But how do you look across your own portfolio? Which stocks have moved furthest away from intrinsic value? And and how do you think about that change in intrinsic value in your portfolio? Yeah, I think I've just really come to better appreciate in recent years just how much the narrative around a company and its stock price are two things that are very connected to each other. (18:55) So when a stock is swiftly rising, I would say that most people assume that the stock price is an accurate representation of reality and thus a rising stock equates to an amazing company and the other way around for a falling stock price. And while sometimes this might be true, other times it might not be so true. So the truth is that the intrinsic value of a great business, it'll tend to rise gradually over time, assuming that the fundamentals continue to improve and the stock price can oscillate both above and below that value. (19:26) But over the long term, it will still closely follow the intrinsic value rather closely. I think Alphabet's just a great example to look at. So over the past 5 years, Alphabet's gone through several occasions where the market either just loves it or it hates it. So either Chat GPT is taking Google search to zero or Alphabet's the best AI play in the market. (19:46) So of course some companies will become more detached from the intrinsic value from others. So Constellation Software, I think, is another great example. In just a few months, it went from this unstoppable compounding machine to an AI loser, you know, just in the span of a few months. (20:06) So even businesses that aren't too cyclical when you look at the business fundamentals, the stock price that underpins that company can have that cyclicality in investor sentiment. So the intrinsic value, it can just be an elusive concept, too. When you plug in your assumptions into a spreadsheet, just small changes in your inputs can move the intrinsic value by 50% or more. (20:25) So, I think that's also part of the reason why stock prices can move so much even with within just a year time frame. The market's just repricing, making these small adjustments to its belief of of the fundamentals and adjusting the stock price accordingly. So, when I look at my own portfolio, Topicus, which is a spin-off of Constellation, they had probably their best year ever in terms of execution of their strategy and growing their business. (20:54) And so early on in the year, they deployed record amounts of capital into acquisitions, and this is really a core driver of the investment thesis and their future growth. But the market just didn't seem to care about the developments that were taking place. So I did add to my position. (21:14) And then eventually the stock went from around 125 to 190 this year, but with the AI hype and constellations president Mark Leonard stepping down, the stock dropped back down to 120. So that's a 50% swing on the way up and 35% swing on the way down. But as the stock price is constantly moving, my view of the intrinsic value, you know, doesn't change all that much. (21:33) It's a similar story for the other spin-off lumine as well. If we look at the valuation multiple of topic and just use price to free cash flow as a general proxy, this metric tends to trade around 20 to 25 and today we're sitting at around 17, which is the lowest it's ever been. (21:53) And I think you'll see earnings continue to increase at a good clip next year given all the capital deployment uh they made this year. And just to put into perspective how much capital they deployed this year in 2024 they deployed around €150 million. And in 2025 they're set to deploy around €780 million. So that's more than a 5x increase from the previous year. (22:19) And and I'd be lying to you if I could pinpoint the exact intrinsic value today, but my money is on the market having overreacted in recent months with regards to Leonard's resignation in the AI fears. But time will tell whether I'm right or not. But Meta is another stock that's been closely on my radar in recent months. (22:40) There are several ways to go about the game of investing, but one that I found that's more approachable is simply following some of the best businesses that you're already very familiar with that are still growing and just wait until the market punishes the share price unfairly. So, it's not a foolproof way, but taking this approach with stocks like some of these Mac 7 companies has proven to be pretty effective. And that's exactly what I did in starting a position at Meta. (23:06) Ben Graham referred to this approach as investing in unpopular large caps. So Graham stated in the intelligent investor, if we assume that it is the habit of the market to overvalue stocks which have been showing excellent growth, it is logical to expect that it will undervalue relatively at least companies that are out of favor because of unsatisfactory developments of a temporary nature. (23:32) So this may be set down as a fundamental law of the stock market and it suggests an investment approach that should prove both conservative and promising. So I found that many stocks overseas can remain mispriced for some time. But US large caps they can tend to rebound rather quickly if the mispricing truly does exist. So typically when I invest I want to have an indefinite time horizon but I think there can be cases where you go into a position where you're comfortable holding for say 3 to 5 years but it approaches fair value in just say 6 months. So we saw that happen with Alphabet just this year for example. Now, turning back to Meta, the business (24:10) by all measures is firing on all cylinders, and we've seen the stock drop by more than 20% from its high, partially in response to Zuckerberg's plans to increase capex related to AI. Now, I'm not one to forecast how all of these AI investments will pan out, but Zuckerberg's track record of navigating these different periods of generating shareholder value is no doubt remarkable. (24:35) So, it's largely a bet on his ability to continue to execute and harvest profits from being the largest social media company in the world. Just briefly on the valuation, when you adjust for a one-time income tax provision, it's trading for an adjusted PE of around 22. And you know, the broader market when you exclude the MAG 7 is also around a similar level. (25:01) So, I sense that there's some pretty good downside protection for a company that's compounding earnings at 20% a year. And I don't think we need to speculate that AI is going to continue to improve their algorithms, leading to more engagement, better results for advertisers, and they're still in the very early innings of monetizing WhatsApp, which has over three billion monthly active users. (25:19) So, yeah, we'll see how these play out, but yeah, those are some picks that I'm pretty excited about. Exciting stuff, Clay. I I like that you double down on on quality with money coming in every month. How do you think about sizing in your portfolio, adding building new positions? And also, do you stay fully invested? And if not, how do you think about cash management and opportunity cost, especially in today's market? Yeah, portfolio management is probably one of the more difficult parts to me. (25:52) I I can't say I have it nailed down perfectly, but I always keep in mind to make your winners count, you need to bet big for them to actually make a difference. But if you bet big and you're wrong, you don't want to have it to potentially destroy you. So for my stock portfolio, a full position tends to be around 10%. (26:12) But building up to that 10% position can be a bit tricky since, you know, I rarely hold very large cash position. And I've started to get to the point where, you know, it's just hard to build a sizable position without selling something that's in the portfolio, which sometimes is the last thing I want to do. (26:33) And every year or two, we see these big dislocations in the market. You know, tariff tantrum was rather quick. March 2020 was also rather quick. And you know, you see essentially the whole market fall at the same time. So when that's happening, you find the biggest bargains, but also your other stocks are down. So you're not so keen to sell one stock that's down to fund another stock that's down. (26:52) So occasionally when I have a new position that I want to add, I may sell or trim one of my positions that is around fair value to add to a new position. But it's just important to keep in mind that it's just so easy to fall in love with the next shiny object. So that is something I also keep top of mind as well. (27:16) So, if I own a stock that's less than a full 10% position, it's either because I just don't have as much conviction in the name, the price isn't extremely attractive, or I'm just not able to get the capital to fund that position. So, Interactive Brokers is a good example. I I like the setup, but the valuation just is not a screaming buy. (27:34) And a handful of my holdings are already at a full position, and for the most part, I intend to just set it and forget it. I think Topicus and Lumine are good examples of this. I built up full positions at prices I thought were fair. And when you don't get too caught up in the share price fluctuations, these businesses are just pretty easy to hold. (27:58) For topic is for example, they continue to publish just consistent strong 20% growth quarter after quarter. But when the results are just so good and consistent, it's a fairly easy stock to hold. And this frees me up to focus on other things, whether it be TIP or some of the other holdings. And unfortunately, businesses like this are quite rare and hard to come by. You know, clear, one of the things that I found to be quite helpful, as much as I displayed my ignorance about interactive brokers just before, but one of the things I find to be quite helpful is to think about that the market tends (28:30) to overestimate, you know, the impact of technology uh short term, but then also underestimate it long term. and and thinking about that in terms of making my investments. You know, uh, one stock that we talked about here the other day, that would be something like Uber. (28:47) And of course, there's no doubt that mobility and delivery will eventually be disrupted by AVs. But I would also make the argument that it's not really looking like it's going to happen anytime soon. If you for example look at a company like Whimo and you see like it looks like a hogistic growth of what they're doing with trips, we're still talking less than 1% what Uber is doing right now. (29:11) And so you just have to like and again I'm not trying to make this episode about it seems like all episodes about Uber these days but like my point is yes something is coming and it's really really small and sometimes whenever something really really small grows fast it's still really really small. Anyways, my point of saying all of this is that going back to your point before, there is a market sentiment and that market sentiment can change and that moves the share price whenever that happens as much as fundamentals may or may not have changed (29:37) at all. Yeah. So, I see uh you know, as of the time of recording, Uber stocks been dropping with Whimo's release of their monthly numbers. But, you know, Uber's such an interesting one because I feel like in 10 years, people are either going to be like, "Of course Uber wasn't going to get disrupted. (29:56) of course it was going to be a huge winner or it's the opposite where of course it was going to get disrupted so I already see the the hindsight bias in play for one like this but you know today I personally just have no idea how how this is going to end up shaking out but I think you mentioned a good framework that people tend to overestimate the impact of technologies in the short run but underestimate them in the long run. (30:21) I just uh put together an episode on the dot bubble and it certainly appeared to be a good case study of just that. The market priced in that Amazon was going to disrupt Barnes & Noble overnight, which of course wasn't true. But Barnes & Noble's managers laughed at the idea of Amazon even being a competitor because they believed that no one would ever buy books online. (30:39) So, I'd like to keep this framework in mind when thinking about a company like Constellation Software, for example, in their two spin-offs as that's a really core holding of mine and ones that are definitely top of- mind for me. And recently, the market sold off the shares of these due to concerns around AI. (30:57) And I believe these are largely overblown until there's evidence that proves that otherwise. And I'm I'm certainly open to the possibility of vertical market software being disrupted by AI. Several high-profile Constellation shareholders believe that, you know, the possibility of disruption in the short to medium-term is quite low, and I think it's just near impossible to predict how things will shake out over the long run. (31:21) So even AI experts and industry insiders won't be able to predict what the future has in store with regards to AI. So it reminds me of Mark Leonard. He once described vertical market software as the distillation of a conversation between a software vendor and a customer that has gone on a couple of decades. (31:44) So given the close and long-held relationships that they have with their customers, I would expect them to be a beneficiary of AI. But I'm just I can't fool myself into thinking that I can predict when this business will be disrupted. But if there's evidence that suggests that, you know, it just isn't as sticky of a solution as I thought, then I would need to seriously consider moving on. (32:10) I think this uh framework could really apply to any business. You know, any business that could face disruption. I you enter the position with a thesis and if there's evidence that that thesis isn't playing out or it isn't playing out how you anticipated then you know you need to be open to changing your mind. (32:28) So one thing I would also like to add is how we as humans we have this natural tendency to want to cling to a story. So when something happens in the market we want to know the story behind why that happened. So, you know, with the case of consolation, you know, the stock sells off, so investors create a story around the sell-off. (32:48) You know, it's due to AI fears. It's due to Leonard's resignation. Perhaps that's true, or perhaps there's just one or two institutions who had a major position, they decided to liquidate for an unrelated reason. One other thing to keep in mind is that although people will always have a narrative to go with the share price movement, it doesn't necessarily mean that there's validity to that narrative. (33:14) So that's that's something I also think about is how stocks move daytoday and we create these stories around it, but you know, the market does what it does and it doesn't necessarily have to align with the prevailing narratives. You know, I I sometimes wish for the good old days uh to come back. And what do I mean by that? Well, I remember whenever I was I was starting out and I read about the PE ratio, it's just like, oh, is is investing that simple? You just buy low PE stocks, then that's it. (33:42) I know this probably comes across like I'm the most ignorant investor in the entire world. That was sort of like it felt like a revelation the first time I read it until you're like, ah, there's probably a bit more to the game of investing than that. (33:59) But I I had this crazy idea that low PE stocks that are the quotequote, you know, good stocks and then you had the high PE stocks, they were the bad stocks. And of course, you as an investor, you'll learn how to adjust earnings, but you also learn that it can't be an excuse for doing silly stuff, even though sometimes you torture your Excel sheet to do just that. (34:16) And then you also you might buy a high PE stock and get around to it. Then you realize, well, it's priced for perfection. So if something goes wrong, it just sells off and you just get crushed. And it's just it's such a fascinating game. It's such a difficult game to play. But I I want to ask you a question, Clay, and I don't know if it's going to come across like a trick question, but here we go. (34:40) Nonetheless, if you had to choose between a 3% shareholder yield and 12% growth, or a 12% shareholder yield and 3% growth, and growth here in the fundamentals, pick which one. But what would you choose and why? Yeah, I almost feel like this is a trick question since it of course doesn't mention valuation, but given the companies I've already mentioned here, I think it should be no surprise that I would certainly choose the 12% growth company over the company with lower growth and a higher shareholder yield. And I think probably the main reason for (35:11) that is simply just due to my age and my investment runaway. So, you know, if I were retired and valued preservation of my capital much more than capital growth, then I could definitely see leaning the opposite direction. So, Buffett wisely said that it's far better to buy a wonderful company at a fair price than a fair company at a wonderful price. (35:35) And I've interviewed just several great investors who have beaten the market over long periods of time and almost always they own companies that are in that camp. So I think Franchis Roshan is probably one of the best examples. Since 1993, he's compounded at over 15% a year, which certainly no easy task, but his approach centers around that very concept of buying and holding great companies for the long run. (36:04) Now, part of that might be due to the environment we've lived in the past 10 to 15 years. So perhaps I'm totally biased and I'm not fishing in the right ponds at the moment. But I think this strategy overall will stand the test of time. There's sort of been this divide in the value investing community of buying deep value or you know the low PE stocks or buying growth at a reasonable price. (36:27) And I think both can fall under the value investing camp and everyone should pick the style that best suits them. Are you looking to connect with highquality people in the value investing world? Beyond hosting this podcast, I also help run our tip mastermind community, a private group designed for serious investors. Inside, you'll meet vetted members who are entrepreneurs, private investors, and asset managers, people who understand your journey and can help you grow. (36:56) Each week, we host live calls where members share insights, strategies, and experiences. Our members are often surprised to learn that our community is not just about finding the next stockp, but also sharing lessons on how to live a good life. We certainly do not have all the answers, but many members have likely faced similar challenges to yours. And our community does not just live online. (37:17) Each year, we gather in Omaha and New York City, giving you the chance to build deeper, more meaningful relationships in person. One member told me that being a part of this group has helped him not just as an investor, but as a person looking for a thoughtful approach to balancing wealth and happiness. (37:37) We're capping the group at 150 members, and we're looking to fill just five spots this month. So, if this sounds interesting to you, you can learn more and sign up for the weight list at thevesspodcast.com/mastermind. That's thespodcast.com/mastermind. or feel free to email me directly at claytheinvespodcast.com. If you enjoy excellent breakdowns on individual stocks, then you need to check out the intrinsic value podcast hosted by Shaun Ali and Daniel Mona. (38:10) Each week, Shawn and Daniel do in-depth analysis on a company's business model and competitive advantages. 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. (38:29) And I recommend starting with the episode on Nintendo, the global powerhouse in gaming. It's rare to find a show that consistently publishes highquality, comprehensive deep dives that cover all 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. (38:54) A couple more points on why I would prefer growth at a reasonable price. I think first is that it can decrease the number of buy and sell decisions that you need to make. So if you enter a great company and it continues to execute over time, you don't necessarily need to make a sell decision for several years as long as they continue to compound earnings and uh continue to grow. (39:22) So in the case of a deep value play, if the stock appreciates by 50%, approaches fair value, you may decide to sell the stock, pay capital gains tax, and need to find a new opportunity to invest that capital. Whereas in the company that's growing, capital gains can continue to be deferred year after year and you don't have to hope that you can come across a new opportunity to invest that's in your circle of competence. (39:47) And the second point I would make is just the inherent asymmetry that the stock market offers. So let's say that an investor chooses to meaningfully invest in what they deem to be 10 great companies and plan to hold those businesses for a long period of time. And let's just say that just one of those companies really surprises you. (40:07) Instead of growing at say the 12% rate you expected, it grows at double that rate. So 24% over 10 years. That would equate to an 8x increase in the stock price. So perhaps I'm just not smart enough to venture into deep value territory to find these types of asymmetries that can, you know, say double within 6 months or a year. And I just personally don't see a lot of investors being successful with that type of strategy. Or perhaps I'm just not smart enough. I don't know. (40:32) I should also mention that most of the money that Buffett made came from these big decisions that delivered the long-term asymmetric upside, whether it was Seas Candy, Apple, Geico, etc. Yeah, it's it's one of those things where whenever you read about it and and you see these case studies about this is what happened to the stock price, you're like, "Oh, okay, that makes sense. I'll make sure to remember that. (40:57) " But actually doing it or again, it might just be me who's not smart enough. That is just incredible, incredible difficult. And so I think the method that both of us want to use is more just to let time work for us, find really high quality businesses and and wait, which I should also say for the record can be challenging uh enough. (41:18) But I I'm really curious to hear on that note, Clay, how do you think about the role of what I would just go ahead and call happiness and optimizing for your happiness and then also how that coincides with your portfolio? And I know it may come across as like an odd question because I again I don't know if you or anyone listening to this or are thinking along those lines, but if you allow me to be a bit self- serving here, you know, whenever I think about my own portfolio, thinking about okay, it has to be anti-fragile. I I want to be able (41:47) to support multiple families. You could say you could do that if you live within your means and then you would buy the S&P 500 and then hold it for decades. Sure, yes, I can see why that would work. But at the other hand, it's just so much fun to pick stocks. And I know like I know it probably comes across as irresponsible whenever I say that, but like I know to a lot of people investing is sort of like this boring thing. (42:18) And yes, we want to save up for retirement, but you know, that's just not for them. I love reading 10Ks and 10 Q's in my life. I would feel like my life would be missing an important ingredient of happiness if I didn't pick individual stocks. So even if you did show to me, Clay, that I could not beat the market, I wonder if I would still want to try just because it's so much fun. (42:42) And so how do you think about that for your own portfolio that you want to be responsible, you want to you have financial goals, you also want to have fun, and I don't know how that works for you and how you define it. Yeah, it's a good question. Without really thinking about it that way, I've sort of thought about managing my portfolio to optimize for happiness. (43:03) So, in my mid20s, I was much more interested in, you know, scaling up the size of my portfolio as quickly as I could, either through additional contributions or through the returns I was targeting. And now today, you know, I've seen this shift where I'm pretty happy with the foundation I laid in my 20s and just much more interested in not much more, just a bit more interested in capital preservation and building a portfolio that will still deliver good returns, but also be more anti-fragile, partially uh inspired by you. And I do like the approach you've taken, Stig, of owning several uncorrelated assets despite how (43:39) unpopular some of them might be, whether it's a couple of global ETFs or gold or Bitcoin. I also like that you have Bergkshire in your portfolio. So, you know, it's it's quite an eclectic mix, but given Bergkshire's size, I'm not sure that it would be the right pick for me, but I think there are other several other candidates that can play a similar role where, you know, it's just a durable company that might not grow the fastest, but it just serves as an anchor in the portfolio that can help you weather through draw downs and help you (44:14) invest countercy. I think that, you know, companies like Markell, Fairfax Financial, or even Brookfield Corporation could be other potential candidates that could serve a similar role as Bergkshire down the line, just smaller companies that can reinvest to a larger extent. (44:38) Part of me views the process of stock investing as buying good businesses, but also outsourcing the role of capital deployment to some of the best managers in the world. Whether it's buying a serial acquirer that's deploying capital into acquisitions or buying a business that grows organically, those are capital allocation decisions that hopefully create a lot of shareholder value. (45:03) And I think many people overlook that the stock market gives them exposure to invest alongside some of the world's greatest entrepreneurs that create just a tremendous amount of value for society. So some of them even get paid next to nothing for the companies they work for. So to use an extreme example, investing alongside Warren Buffett by owning shares of Berkshire is like investing in the world's greatest hedge fund, except you don't get charged 2 and 20 fees. So the world is also just a chaotic and unpredictable place. (45:36) And by partnering with these great managers, you're betting on just some of the smartest people in the world being able to navigate through such choppy waters. And as you've said countless times, capitalism is brutal and management must know how to navigate the storm. So I derive some level of happiness of getting to bet on jockeyies who have a track record of treating shareholders well and treating shareholders like partners. So like you, I also like businesses that are interesting for me to study. This is a continuous process (46:08) of finding what's most interesting to me and what I can and cannot wrap my head around. But a business like Constellation Software to me is just really interesting. They're able to buy these durable software companies for five times earnings, buy these companies all over the world and they just seem to be able to just keep on doing it effectively. (46:34) And to your point in the last episode we recorded together, they seem to just have an unfair advantage that practically no one else can replicate. And they also just keep pulling new rabbits out of the hat, you know, with the announcement of their spin-offs and these larger acquisitions they're implementing. And all along the way, they treat shareholders about as well as anyone. (46:51) And, you know, they aren't perfect with some of the things they do. You know, their recent AI call and perhaps the transition of the new president, but I think things will all shake out just fine for shareholders over time. And then you read up on a company like Interactive Brokers who was founded by this guy that came from nothing after living in a socialist country and builds this amazing company. (47:09) It just gives you a better appreciation for you know the companies we interact with dayto-day. you know, these were built by just some of these great entrepreneurs. And I do enjoy just hearing about, you know, some of these people's stories and, you know, how they built the great companies that we interact with day-to-day. (47:34) And there are several other lesserk known examples of managers who have built these businesses and have the majority of their wealth invested in these businesses. So, I still want to try and implement that anti-fragility that you mentioned, you know, as I transition to a new stage of life of buying a house, starting a family. (47:55) And it reminds me of uh one of our members of our mastermind community who mentioned to me that his mindset around investing changed once he started having kids because he just wasn't just investing for him and his wife anymore, but he was investing for the next generation. So in a way he tries to invest through the eyes of his kids looking back 40 years from now. So that's uh just another angle that has been ruminating in my mind this year. (48:16) One of the first things we learn as as value investors is that whenever you buy a stock is a piece of real business. And I know this is going to sound like I'm a very slow learner. That's probably because I am because I always read a ton of books and that line comes up in a lot of them as you can probably imagine. (48:39) The weirdest thing is that to your point here before it almost like you think about it differently. know it's it seems like such an obvious or weird thing perhaps to do but like oh I actually have Warren Buffett working for me or alongside me and it's a part of real business and you think about it and then you don't think about it and you sort of like it dawns on you how incredible it is that you have a financial system that allows you to team up with the best of the best. (49:06) I wish I could say something a bit more inspiring than that. And I know like everyone who are listening to this knows this and have read the same thing. It's just it amazes me every time I read it and when I really have time to think about it. Wow, isn't that just incredible to think about? Yeah. (49:25) And if you put it into a different perspective, let's say the most prominent business person in your town was launching a new company. They have all these amazing connections. they have access to all these resources that you don't have access to. They give you a call and they ask you if you wanted to invest. Like most people be like, "Oh, of course I want to invest alongside that person. (49:42) " But when it comes to stocks, people view this as, you know, this very abstract thing. It's just this ticker on a screen. It's very random. It's very, you know, people might associate the stock market with gambling and whatnot, but the stock market gives you access to even better entrepreneurs that are that person that called you offering you to invest. (50:03) So, and you know, it's open essentially all year round. We're all given opportunities to invest alongside them. Yeah, it's it's truly uh incredible. play often like could you give me your top five whatever and you know speaking with the best investors in the world and it's probably me who are thinking way much about semantics here but I don't really feel it's through the actual conversation that I learned the most I do think that the learning at least from the host position or again this is my own bias is that it really comes from (50:34) preparing for the episodes also because whenever you interview hundreds of people you kind of know where what to go and So, you're sort of like in this situation where you need to know what they want to respond or how they want to respond, but then you also kind of have to be open if they want to go another direction or if they're really excited about that. (50:54) So, it's sort of like a mix between all of them. But I I want to ask you, what have you learned in 2025 about life and investing from your interviews? Yeah, when I reflect on my interviews, some of my top guests are of course guests like Francois Versan, Morgan Howell, you know, I've just been deeply inspired by Francois Versan and his process of buying great companies at fair prices and just holding for the long run. (51:24) It sounds so simple, but so few will have that discipline to stick with such a strategy. So, too often people will ask me what the next hot AI stock will be or where the stock market's heading over the next year, and I'm just like, ah, it's just a bunch of noise. But since we love talking about Alphabet on the show, I went back to my conversation with him in my notes, and I asked for his take on their concerns related to Alphabet and Chad GPT earlier this year. (51:51) And at this point, the stock was trading down, of course. And in short, he essentially said that all great companies have risks and fears related to them. And many times in history, Alphabet was growing at a fast clip, trading at a great price. And the business just continued to prove that the near-term worries at the time just were not relevant. (52:11) And if we zoom back to 2011, this is when Roshan first purchased his shares in Alphabet. It was around 15 times earnings. And the concern that people had at that time was whether they would be able to transition from desktop to mobile. (52:30) And it just seems inevitable that most great companies will come across their fair share of worries or concerns from investors. And you know, this just serves as an opportunity for us to partner up and buy shares in these companies. And Morgan Hel is of course one of my favorite guests as well. In our most recent discussion, we discussed the art of spending money. And spending money is a topic that we aren't really taught how to do. (52:52) So it's no wonder that I think some people are crazy in my view of how they spend their money. I think that many people are wired to just spend most if not all of what comes in the door. But I found that the optionality of having money or having investments is just very empowering for me. (53:16) you know, living below my means, having no consumer debt, and having cash and investments stacked up allowed me to transition careers and work at TIP, and it gave me the optionality to do things like start a business with my brother. And it's a business that he was really passionate about. And this philosophy around money helped me drastically improve my lifestyle by opening myself up to opportunities that I just couldn't foresee beforehand. And saving money is also easier said than done. (53:45) There's pressure from society to live a certain way if you have money. And even if you don't have money, you're encouraged to take on debt to live that lifestyle. And having your spending under control just gives you a level of freedom that in my opinion is just invaluable. And the other thing from the interview with Morgan I sort of keep telling myself is a lot of the things that people spend money on might just have a marginal impact on your happiness. (54:15) So for example here in the states a lot of people in much of society is pretty big on buying cars. So the price of the average new car here in the US is around $45,000. But the $45,000 car essentially accomplishes the same thing of getting you from point A to point B as the $15,000 car. Now, what you get is, you know, the pride in owning an expensive vehicle, maybe more comfortable seats, more safety features, a bit smoother ride, etc. I'm not saying any of these things are bad necessarily. (54:48) So, I love cars as much as anyone, but it's one of the many ways to easily cut back on expenses where, you know, other people are happy to finance a new car and try and impress other people that don't necessarily care about them. And it reminds me our friend Robert who hired me here at TIP. He he actually loves cars and he's happy to spend on cars. So, if that's what makes him happy, then that's great. (55:12) And there's likely other ways in his life that he could figure out how to use money to make him happier rather than falling prey to these societal pressures. And it really just ties back to Buffett's internal scorecard. If you're buying things to play the status game, it's just a slippery slope that you'll never be able to win because the neighbor with the nice house that you look up to is looking over at his peers who have an even nicer house. (55:39) So I think the big takeaway is to find the few big things in your life that will carry the most weight in optimizing for happiness. And I think there are a lot of things that can make me happy that cost little to nothing. So maintaining a healthy lifestyle and a healthy body isn't crazy expensive to do. (56:04) Getting 8 hours of sleep, spending quality time with friends and family, doing meaningful work, etc. So money of course plays a role in happiness, but I think the big point that I picked up from Oregon was that most people overestimate the importance of money when it relates to happiness. I love the point you had there before whenever you talked about some people are are crazy your view of of how they spend their money. (56:26) And I think we we all look at other people from time to time. You're like why? That makes absolutely zero sense they do what they do. probably what happens is that they optimize for different things. You know, I was I was speaking with a friend the other day and he's very successful what he's doing. (56:45) uh makes half a million dollars a year and we talked about his business and I had all of these ideas of how he could raise his earnings to a million a year and adding employees and there were a few things he could do and he's also in financial space and so I was like so we did this and TP and then you could do that and he was like wait I don't want to have employees he said to me cuz like no no no that's not fun I basically or I as in this friend said he basically wanted to work the least amount of hours so he could play around with his son. to him that is freedom and (57:19) then I have another friend who was saying oh not having kids that's the ultimate ultimate freedom and I have a third friend and this is not Robert I should say for the record but for him it was like having a really really nice car like to him that was freedom so whenever he was off work and he was like h work is good enough but the good time starts whenever he clocks out and then he would just drive around in a really really nice car and to him that is freedom and so we might talk about the same things but we we call it different things. I I think that's probably one of the reasons (57:50) why it might sometimes become a bit confusing but on a somewhat related note uh you know many people are introduced to the value investing space because they want to learn how they invest their money and then they stay perhaps because of the wonderful relationships that they form in the value investing community. (58:10) So Klay could you talk a bit about the relationship that you have built here in the value investing community? Yeah, getting involved in the value investing space has just been such a blessing in terms of the relationships it's brought me. (58:30) There are just so many highquality people in this space and what has amazed me most is just how generous and collaborative the community can be. People are genuinely willing to share their rinses, their time, and their mistakes. And it's also a space where long-term thinking naturally attracts these long-term friendships. And this is something I've just really come to deeply appreciate. And it's also become an avenue for me to just surround myself with people who inspire me to be a better person and just continue learning. And indirectly, it's also taught me the power of reciprocity. (59:02) So many people listen to our show and have done so for many years. And hopefully our content has been helpful. in one way or another. And the more we give, the more it can come back to us in unexpected and meaningful ways. And this ties into the idea of compounding goodwill that Guy Spear talked about in his book. (59:24) I always think back to one of the first personal development books I've read. It was back in college. It was this really simple book. It was titled The Compound Effect by Darren Hardy. And in it, he talked about the growth versus the fixed mindset. And I found that people in the value investing community just tend to have this growth mindset and truly embrace lifelong learning. (59:49) And it's just no wonder that you'll run into so many successful entrepreneurs and many other successful people when venturing in this space. So it was the growth mindset that allowed me to eventually truly embrace value investing with open arms. And this led me to discovering tip and then launching our mastermind community which just introduced me to many wonderful individuals. (1:00:15) And Clay, speaking about the mastermind community, so you gave this wonderful presentation here the other day about how value investing changed your life and I was curious about if you could sort of like give us a give us a rundown about how has it changed your life? How does relationship play a role and paint some some more color around that? Yeah, looking back it's just pretty amazing to see how the chips have fallen and how things have really shaken out. (1:00:39) So, first off, I just feel so grateful to be a host here on We Study Billionaires, a show that I listen to several years back and the journey really started with having that growth mindset that led me to the value investing community. So like many people, I was introduced to it by, you know, wanting to make some money in the markets and ended up wanting to, you know, stick with it for the long run because of just the opportunities to continue learning and interacting with just some great people. (1:01:06) So when one gets into value investing, they inevitably read about Warren Buffett and Charlie Mer. And Buffett, you know, just made a tremendous impact on me. So, a few of the lessons that really stick out to me from Buffett are living by an inner scorecard, doing work you enjoy, and working with people you admire. (1:01:25) So, you might notice that these really have nothing to do with investing. So, living by an inner scorecard just really empowered me to look internally and recognize what I really wanted out of life. So, I previously worked in the insurance field as an actuary and it took a lot of work to get to the point I was at. (1:01:49) But when I looked at the people that were one or two steps ahead of me who were in the position I would be in down the line, I eventually realized that it just was not the life that I wanted for myself. So, I started exploring these other opportunities and this led me to apply to join tip. And had I not lived by an inner scorecard, I would have continued with that good corporate job that just didn't give me that level of fulfillment that I was looking for and that my heart desired. (1:02:16) And in making the switch, I needed to stick to my values and my beliefs because not everyone in my life thought it was a good decision to take this remote job that, you know, was an entirely different and unrelated field. I I think if you ask most people like actuaries aren't going to make good podcast hosts. (1:02:36) And what really gave me the the comfort to make the jump was Buffett's idea of the inner scorecard. Buffett has a quote, "Would you rather be the world's greatest lover, but have everyone think you're the world's worst lover, or would you rather be the world's worst lover, but have everyone think you're the world's greatest lover?" And I also think that Jeff Bezos's regret minimization framework could have also been used in this example. (1:03:01) I knew that I would have beaten myself up if I didn't at least give myself the chance to be a host at TIP. And because I knew that if things didn't go as planned, then one year later, I would just be back in the position that I was at the time. So, funny enough, after I uh submitted my resignation letter to my employer, uh they told me to give them a call if I ever wanted to go back, which made the the jump a bit more relieving. (1:03:24) So had I continued to live just based on other people's expectations of me then you know I just wouldn't have made that jump. So in a way Buffett just from that one principle just made an enormous impact on my life. And I really value that experience because I know that there are going to be other points in in my life where I'm just going to have to make difficult decisions that other people just aren't going to agree with. (1:03:53) And you know it's just so important to live according to your values no matter how difficult it is to do. And another concept from value investing that played a significant role in my life was the margin of safety concept. So I applied this concept to my personal finances when making the switch to tip. So at my previous job I was making north of six figures which you know I felt was pretty good for being based in the Midwest. (1:04:17) I was in my mid20s. You know, I could have easily bought a nice house, a new car, and quickly experienced lifestyle creep after living on practically nothing while in college. And I certainly had the temptation to fall prey to lifestyle creep. (1:04:37) But something inside of me told me not to lock myself into these big monthly payments because that would require me to sustain that high income to continue with that lifestyle. So when it came time to make the jump to tip, as you know, I took nearly a 50% pay cut. And you know, looking back, maybe I should have asked you for more money from the beginning, Stig. And you know, I don't want to make it sound like, you know, tip doesn't treat uh their employees well. They certainly do. (1:05:00) It's just quite the opposite of that. But if I didn't apply that margin of safety to my finances, it would have been impossible for me either emotionally or financially to make that jump. You know, I didn't have a car payment. I lived in a reasonable one-bedroom apartment. I had no consumer debt. (1:05:18) And I should also mention that I've just been dealt very good cards and I've just been very lucky in life. I think as Buffett puts it, I feel like I won the Ovarian lottery. So, I've been lucky to live in a low cost of living state. (1:05:36) My parents were kind enough to cover my undergrad degree and send me to a wonderful school growing up. So, we all just need to make the most of the cards that were dealt. I want to mention is that, and I know it's going to sound like a cliche, but I believe that working together should be a win-win for everyone, which is also kind of why I don't really feel good about anyone taking a pay cut to join JP. (1:05:55) I know it's easy for me to say now, Clay, but what we want to do is to be on a journey with the best people. And you know, in life, in business, and investing, if you can be on a journey with really high quality people, it's just so much more fun. And the last thing I would want selflessly is to work with someone who needs to check off something on the resume for like two years. Now I've been with this company before I went to this company. and no that that's not what it's all about. (1:06:24) And but it has to be a a two-way street. So I remember whenever we we hired Kyle for example and there was a unique backstory that perhaps we will talk about another day whenever whenever we on boarded Kyle and you were very much included in that. I remember I was I was having a one-on-one conversation with him and I said to him, "You know, Kyle, I can't really afford like a $100,000 employee. (1:06:49) " And you can just tell like his heart was sinking, but I can afford $200,000. And I think at that point in time, he was like, "This dude is crazy. What is he talking about? Why does he want to pay double? Like, what? That doesn't make any sense." And so I probably partly have a bit of a bias where I like to shock new employees with a bit of unconventional business practices. (1:07:08) And so, you know, I I sort of like wanted to tell this story both for the listeners out there who are employees, but also to the many employers we have in our audience because what I've learned from an early stage was that and I I started my first company when I was 26 and I didn't think well about having employees issued at the time. (1:07:28) But a lot of employers are thinking, let me pay my employees as little as possible. That's how I can win. And it took me a long time to realize that you usually get what you pay for, which sounds intuitive, but at least whenever I was younger, sounded very counterintuitive. It bas basically seemed like money that was just thrown out the window. (1:07:48) And if you pay the right people well, you can really focus on growing the pie and then divide it. So, so everybody wins. And if you allow me to put some numbers on this, and these are, you know, you can take this as as metaphorically as as you want. (1:08:04) If you pay someone 100k, you might make 150 together and then you end up pinching pennies and it comes at the expense of the relationship. Or you can pay them 200 and then you can make a million together and then have a lot more fun in the process. And at the end of the day, I think it's about playing this game with people of the highest integrity and where you have this high level of trust. (1:08:24) And you know, so later this year as this episode is coming out, you know, we're celebrating 10 years with the first employee here on here on tip. And you know, I'm running around, you know, trying to figure out what's 10 gifts to give to this person to symbolize each of the 10 years he's been with us. (1:08:42) Someone out there is probably thinking Stake is a terrible capitalist and you're absolutely right. It's not good for business. If I had shareholders, they would tell me to focus on optimizing for shareholder return or, you know, something that's a bit more sensible. But I don't have any shareholders and finding the right gifts for our team is just incredibly meaningful to me. (1:09:01) And so I think at this stage of my life, I don't focus too much on the dollars or at least as much as as I used to and perhaps can afford to focus a bit more on purpose. And it's going to sound like a cliche, but you know, there's this tap dancing to work. And you do that whenever you can do it with wonderful people. (1:09:17) And then next year we're going to have another two people that's been with us for 10 years, which is quite remarkable when you think about how young of a company we we have. And and so being with TAP and sorry for all this coming across as so self- serving has just created some of the most meaningful relationships in my life. (1:09:36) And so I wanted to also talk about you Clay, which I didn't do a good job of uh so far. I can't believe how lucky we are on tip that we work with you. It's absolutely incredible. And I've I've sort of like typed up here in my notes. I wanted to tell you that tip wouldn't be tip without you. I don't know how otherwise I could say that. You know, you're doing so so many things behind the scenes that people are not seeing at all and you're making it work. (1:10:01) And so, I know that was not necessarily the intention of this episode. I just want everyone to know how incredible you are and and so thank you. Can I just say thank you for trusting TAP with your employment and taking such a leap of faith with such a cheapkate like me. So, just thank you, Clay. Well, thank you for saying so. (1:10:20) I I can 100% say it's certainly been a win-win for me to work with TIP, and I no longer make what I did back when I started, I should say. And, you know, in a sense, I've just gotten paid to learn. And I feel that there's just still so much more learning to do. And some people believe that to be successful in business or successful in your career, you need to take this manipulative or Machavelian approach where you're essentially trying to get the most out of a relationship and take advantage of the other person. (1:10:55) And then you go and learn about people like Warren Buffett or Nick Sleep and realize that there's just an entirely different way to go about it as long as you're teamed up with the right people. You know, Guy Spear referred to this concept as compounding a goodwill and how there's just this powerful effect of being a giver instead of being a taker. (1:11:21) And the paradox is that you end up receiving much more in life by giving than by taking. And just by helping others, you know, you end up helping yourself too. And I feel that that perfectly describes my experience with tip, even in a world that might seem like it's a doggy dog world, and it often is in many cases. (1:11:43) And there's still people out there who want to do business in this manner. And I think for those in the audience that feel like they're in a doggy dog situation that there are other opportunities out there that offer this this type of business relationship, which I've been lucky to come across it myself. (1:12:02) And this is also one reason why I teamed up with my brother to start a company on the side. I handle much of the back-end financial stuff that's honestly quite boring that he just doesn't want to do and he handles the operations. But a big reason why I got into that was to just go on this journey with him. And he's just a giver in so many ways and has many of the same values. (1:12:22) And it's just so fun to run a business with him. And it also reminds me of how Robert and I were talking when I visited him about a business opportunity he had where he had a chance to make a lot of money partnering with someone who certainly would not be a great business partner. (1:12:40) And I told him not to do it because, you know, it was just going to bring in so many headaches. But, you know, he was looking at the dollars that were there that he could potentially make. And Guy Beer talked about this concept extensively in his book. And I just wanted to share a brief quote from it. He goes, "When you're surrounded by people like this, all of them trying to help one another, it sometimes feels like heaven on earth. (1:13:05) They are the keepers, the people we want in our inner circle, the people we should fly across the world to see if they live abroad." and of course this is what I need to be for other people." End quote. And that's why I just applaud you for building up just such a wonderful culture here at TIP where traits like truthfulness and radical transparency and just people who do good work are just the default. (1:13:27) You know, I I really appreciate you saying that, Clay. I truly do. Yeah, I was having this conversation with my wife here just before and so we we recording here this year around Christmas and so we talked about how whenever we were kids we were told by our parents that giving gifts was so much more fun than receiving gifts and I remember as a kid I was like what do you mean mom that's like that no getting gifts that's the best like why why is it fun to and so it's just remarkable how some of the things we learn how that (1:14:01) it's the same but it's not it's the whole thing about you know the man can't cross the same river twice it's not the same man it's not the same river so it's a wonderful thing to be able to give that was my that was my point but you also need to be ready for it I wanted to address the thing you said here about the culture and and a few examples comes to mind I should also say for the record this is not not a job ad we probably should make that disclaimer I don't know how we it was probably my mistake how we all of a sudden came to talk uh being an employer and how it is to work here and (1:14:34) like it's not because we're looking for any new employees here for tap though it's probably going to sound like a long cell but we or perhaps I should not pull you down to my level here Clay kind of like felt it would be fun to talk a bit about know corporate culture and the joys of compounding uh really and you know of course the joys of compounding comes uh across both with the people you work with or investments or however you want to quantify A few example comes to mind. You know, we we're super super lucky to work with (1:15:05) William. I mean, talk about a high quality person and I think every accountant who's worth his soul, he would just be so confused about how it is to work with William, I'd like to think that TP or William are directional correct in the framework of how we do conduct business, but we are 100% wrong, you know, down to the last dollar. (1:15:32) And so we have a certain agreement, but then there are multiple expenses that would be advantageous for me to include in that calculation that I don't, which is to Williams advantage. And then vice versa, there are a ton of things he would be able to invoice and he he doesn't. And then once in a while, you know, a few times a year, I just send him a big check, which is roughly the amount of money he probably should be making with TIP. And that's it. (1:15:55) And and I know that's that's not how you run a business and it doesn't scale well and I'm probably a smuck for running a business the way it but whenever you team up with the right people it's actually a quite liberating way and I I can't help but mention it and I think the reason why I can't help mentioning is because earlier this week I uh I got a message from a fund we're doing a you know another episode and they have a compliance department. (1:16:19) They're managing trillions of dollars this company here and so it has to go through compliance and then can you say this and can you do that and it's just like um it's a different way of conducting business and this is not my way of saying that you know there's anything wrong with compliance or you should break rules or anything like that Clay the call I have with you here today is the only thing I have going on today and that's because I don't take calls from compliance departments who want to talk to me about what I ask what I don't and goes back to your point about being aligned with your inner scorecard. So, we do do episodes together, but we don't really (1:16:52) that often jump on calls together. I kind of feel like they come across as passive aggressive. That's not my intention at all. It's it's always a lot of fun to chat with you. So, don't get me wrong. The way I would I would phrase this is more if I needed to check up on you, you're too frequently, we would probably both be big trouble. (1:17:15) I know I'm the oddball here because the way that we do business here on tap, it's not how the corporate world works. And I also think that's why I enjoy so much. It takes so much joy in a mastermind community. You know, to me, it's this wonderful intersection between investing, business, and life. And you know, I was I was on a call here the other day with a wonderful uh member of our community and he asked me multiple times because he's awesome like how he could add value for me. And I remember I was a bit confused. Not in the sense there's anything wrong with that because (1:17:46) why wouldn't you ask how you can create value but I think I was I was quite mindful about I didn't want the relationship to be too transactional. And I don't really know how this comes across because I actually quite coincidental I actually started another company with a member of a mastermind community which you can probably say in its own way is quite transactional but I think there was something about the type of relationships you have what the intention is and how you start them and there was never the intention with the (1:18:15) gentleman that we start a business it was just like we have a lot of values in common and then we were like wouldn't it be fun to start a company let's start a company and so you know one of the wonderful things I've learned from William and there are so many things you know he's really a role model in in so many uh walks of life he he talked to us about this idea of not to do business with your friends until you're 40 and then after you're 40 only to do business with friends now I don't think you have (1:18:46) to be too particular with the exact age whenever you're tuning in but I do think it might be directional correct you need some experience in life and in business to know yourself well enough and perhaps also to know your friends well enough whether or not you should go into business with them and this might sound a bit odd because today I only want to do business with friends but that's not the same as me saying I want to do business with all of my friends that's that's two very different things uh you know some of the best friends I have I think we would probably stop being (1:19:18) friends if we went into business together there are other reasons why we're good friends but it doesn't mean that that we should start a business together. I'll be the first to say, you know, for example, with the mastermind community, someone's tuning in, it's like, yes, like this sounds, you know, awesome. Let me how do I sign up? I do want to say for the record that there is a cost to it. (1:19:36) And please don't quote me on this, Clay, because it doesn't it doesn't sound good if it's quoted for sure. But you know at this stage in my life the cost is to a last extent also a reflection of identifying future friends who are serious about forming relationships and also a bit of a signal that they've been fortunate and had some professional success and want to speak with others who also had a bit of success uh whether it's in business or investing and yes we do talk about stocks I should say but I would also say that personally nothing excites me more (1:20:07) than having this I don't know borderline philosophical discussions uh with thoughtful people about you know value investing and then this intersection of business investing in life and then just see where the conversation takes us. Yeah. (1:20:29) I mean I would just close out the discussion by just saying that getting the right people into your life is just so important. The wrong people just add this stress and anxiety that just always there. It's always lurking and it just doesn't make life fun. And just to use one example, I would attribute much of my success here at TIP thus far to how you stig have just continued to lift me up, encourage me, offer me guidance, and just be willing to have the hard conversations since day one. (1:20:58) And since people are generally wired to take the path of least resistance, it can just be hard to find people who are willing to have those hard conversations because people tend to not want to tarnish what they already have. And tip has just given me an avenue to hang out with many people better than myself. (1:21:17) And if you do that, you just can't help but improve over time. And I just really enjoy giving other wonderful people in our audience that same opportunity to just hang out with other great people. So here coming up in May, we'll be hosting a few social events and dinners in Omaha during the weekend of the Berkshire Hathaway annual meeting for our mastermind community. (1:21:39) And we're also opening up a few paid seats for those in the audience who aren't in the community but would still like to join us. So to learn how to join us, we've included a link in the show notes for you to add your name and your email to get in touch with us or you can just email me directly at clay@theinvestorpodcast.com. (1:21:58) Again, tip has just brought me so many wonderful friendships and it's given me an avenue to hang out with many people better than myself. And if you can do that, again, you just can't help but improve. And I I can assure you that we'll have many wonderful people joining us in Omaha for you to meet and just have the the chance to spend plenty of time with and really get to know them and make the most of your weekend in Omaha. Yeah, that's absolutely wonderful. (1:22:23) And in case that someone haven't tuned into it, I just want to tell everyone again, Clay's amazing. I know I said it once or twice, but I just want to make sure to to say this. It's incredible all the things that Clay is doing for tip and you know there's this wonderful quote and with all those quotes that's floating around always hard to tell who actually said it but there's this quote that's saying like quality is what's happening when no one is looking and that's that's so much you like all the small things that no one's paying attention to you make sure that that (1:22:53) happens so just want to for everyone to know that you're just you're just so fundamental to everything we do and I don't think you get enough credit so I just want to end by giving you credit for being so amazing to work with. So, so thank you, Clay. Thank you, Stig. (1:23:11) Uh, I appreciate the opportunity to work with you and the rest of the team here at TIP. Uber are seeing themselves as a platform for geek workers. So, whenever you're you're a driver and let's say you're not doing right hailing or delivery that second, you can do something else like AI labeling or whatever on your phone while you're waiting. So, you can always make money on the consumer side. (1:23:30) uh your Uber just has so much data in you that they can use to deliver targeted advertising and and right now it's a it's a billion dollar revenue business but it's growing fast and so it might seem like it's a small part of the overall business but again we're very much in the early innings and way earlier than for mobility and delivery in general which again I'm biased but I also think we're in the early innings of That
Thinking in Decades w/ Clay Finck (TIP781)
Summary
Transcript
(00:00) Regardless in the market environment, I just want to deploy capital into great companies, what I deem to be fair prices. So, it sounds boring, but that's the simple formula that Buffett shared with us and building long-term wealth. And, you know, I want a portfolio of companies that I believe have the ability to continue to compound free cash flow per share over the long run. (00:24) Before we dive into the video, if you've been enjoying the show, be sure to click the subscribe button below so you never miss an episode. It's a free and easy way to support us, and we'd really appreciate it. Thank you so much. Let's just jump right into it. Uh, we're going to talk about your portfolio and all that happened here in 2025. (00:48) Well, perhaps whenever someone someone is turning in, it might be 2026, but we want to look at your portfolio here in 2025 and see everything that's been going on. And I know that you added a few stocks to your portfolio. Now, was this a question of the stocks being on your watch list and then hit a price target or did you learn perhaps new mental models and then saw some stocks in a different light? Yeah. (01:13) So, going into the year, I did want to further expand my portfolio and add a few more quality companies, but in previous years, I had a fairly strong bias against large cap US companies. And this led me to invest outside the US and great businesses like Constellation Software, Topicus, Dopska. And I still believe these are all great businesses, but are a bit relatively less well-known and just not on everyone's radar. (01:52) And I've expanded my horizons a bit this year as I've really gained more of an appreciation for just how dominant many US franchises are. And part of this is speaking to several of the guests that I do here on the show. So this year I added shares of Meta, Interactive Brokers and Booking Holdings to my portfolio. So I covered booking on the show earlier this year in 2025 and added shares during the tariff tantrum during the spring and Meta and Interactive Brokers are more recent additions to my portfolio. (02:26) So, back on episode 734, I shared some thoughts around my investing philosophy and I shared the mental model of sidecar investing and which to put it simply, this is just to invest in companies that are led by generational CEOs and just stick with them for the long term. So, I think Meta and Interactive Brokers fit that framework quite well. You know, Meta, everyone of course is familiar with this company. (02:52) I've been watching this company for years and admired their growth from the sidelines. And in Q3 of this year, they reported numbers that I thought were pretty good, but the market just didn't like it. So, the stock quickly fell from 750 to below 600. And I've hopefully corrected the mistake of omission of not buying Meta years ago. So regardless of what people think of Zuckerberg, and I'm not saying by any means he's perfect, he's just shown a remarkable ability to navigate different market environments and capitalize on the opportunities that he sees in front of him. So for example, he's (03:25) successfully transitioned the Facebook Blue app from desktop to mobile in the early 2010s. And he also had the home run deals of buying WhatsApp and Instagram. And he's also continued to generate consistent user growth and updated his apps to counter the rise of competitors like Tik Tok, YouTube, Snapchat, and AI is all the rage today. (03:53) And Meta actually created their AI research arm back in 2013. What's interesting about Meta is everyone's, you know, trying to figure out how all these companies are going to capitalize on AI. And I would argue that Meta has been already doing this for more than a decade since their apps are run by machine learning and AI in the background. (04:16) So the stock has sold off recently with the capex bend increased guidance on capex and that's them preparing for this AI wave. And I really see this as them doubling down on what's already working. They need the compute for their apps. So at the end of the day, I want to own a business that I feel is confident will have much higher earnings per share five plus years into the future. (04:44) And I think that uh Meadow will continue to be a big beneficiary of this AI trend and deliver that growth to investors. And I think it's an added bonus that Zuckerberg's only 41 years old today. You know, he could be running Meta for many years into the future from here. So turning to Interactive Brokers as well. (05:06) I think this is one that just another one that I feel like I've been on the sidelines too long. I wasn't wise enough to get this one in a draw down either, but after I put it together that recent episode on IBKR a few weeks back, I decided to add it to the portfolio as well. And what really struck me in studying this business was the founder Thomas Ptery's story. (05:30) So, he's your pretty typical outsider CEO who thinks very long term. He isn't afraid to behave in a very contrarian matter and not appeal to Wall Street's interests. And that's allowed him to build just a very differentiated business. To provide some background on him, he was born in communist Hungary in the 1940s and his family lost everything after the Second World War when he was young. (05:56) And once he uh learned about what the United States was about and stood for, he knew that he wanted to immigrate here. So when he was 21, he got a one-way ticket to New York. He didn't speak any English. So to make a long story short, he came to the US with nothing, chased the American dream, and built a business today that's worth over hundred billion dollars, and he owns over 70% of that business. (06:15) So it's quite a remarkable rags to rich's story, and one that I just really enjoyed covering on the show. And I should also mention that what's unique about both Meta and IBKR is that I'm a user of both products. So on Meta, of course, we have the family of apps, Facebook, WhatsApp, Instagram, and I also have a Meta Ads account. (06:40) And in the case of IBKR a few years ago, I converted all of my stock investments to their platform to really take advantage of their global reach that they offer and their industry low costs. And I'm certainly a happy customer of IBKR, which led me to learn more about this business. And what's really important with this business is the growth in their number of accounts. (07:00) And I think the most telling thing to me about how good this business is is their level of organic growth. So over the past 5 years, they've seen account growth of over 30% per year. And they have some of the lowest marketing budgets out of all the online brokers. So customers are simply switching because of their superior offering. Now as a online brokerage, I should also mention that, you know, many people are going to view this as a commodity-like business. (07:24) But as a customer myself, I can attest to their industry low trading costs in global reach for stocks that I'm able to invest in. So many brokers utilize what's referred to as payment for order flow, which essentially means that market makers execute the trades on behalf of customers. (07:48) And this can lead to worse execution quality and wider effective spreads. So even if you're paying a so-called 0 trading commission, it doesn't necessarily mean that the trade is free. So, additionally, they offer investors access to most markets all around the globe, while other brokers tend to offer access just primarily to the US market. So, someone that signed up for Robin Hood, they likely don't have much access to Canada, Europe, Asia, etc. (08:13) So, for me personally, it was just a no-brainer to sign up for them. And despite being a hundred billion dollar company, they still have uh quite a runway to continue to grow. So today they have 4 million accounts. Uh and since they're a global company, this is a very small fraction of the overall total addressable market. (08:34) So I see a long runway for potential growth. And because of this, I was willing to pay certainly a premium for this business. But perhaps there wasn't a big margin of safety. But if a company has the potential to 10x or 20x uh their customer base over the long run, then I think some of the margin of safety is going to come from that long runway to grow. But perhaps I'm getting way too ahead of myself, you know. (08:58) Uh, Clay, I I really like that investment. I don't even know for how long Interactive Brokers have been on my watch list. And every time I've looked at it and I'm going to say like five years is I kind of feel like it's been there forever. I always been like that's just been too expensive. (09:16) And then stock price just exploded and I'm still like I can see that it's following the fundamentals. Yeah, it just still seems a little too expensive. And it's so ironic, you know, cuz I like you, I read all these books about how the the market don't really value long-term growth well enough. And I read it and I not and I underline in my book and then I don't do it at all myself. (09:39) And that's how I feel about Interactive Brokers. It's such a good stock. And you might be asking, so do we have a position? No, I don't because it's just a little too expensive. And of course valuation matters but whenever you do do the math you know to your point if it has a long runway to grow it's just then it can be a lot cheaper than it optically uh appears especially if you would look at as something like a PE multiple or whatnot it's actually it could be very very attractive which is interesting to to do the math yourself. So, I definitely encourage everyone to do (10:09) that. And um I just want to say that 2025 it's just been such an interesting year. And here we're sort of like uh we recording this at the very end of of the year and you go going into to 2025 it was already expensive you know and at the time of recording is up 16% and I wrote to our listeners that going into 2025 that 2023 and 2024 you saw the S&P 500 go up by more than 20%. The last time that happened for two consecutive years, that was in 1997 and 1998. (10:42) And you know what happened? You had the com afterwards. And so with that massive bust, I think I've been sitting there like everyone else and been like this has to blow up at some point in time. And what has happened this year is just keep on going up into the ride. (11:01) So anyways, I can't help but ask you Clay, how do you how do you deploy cash in such an environment and does that want to make you look outside of the US? Yeah. So seeing the S&P 500 continue to perform well has been quite interesting and I think very surprising to most investors. I personally don't own the index and really don't have a strong view on the valuation of it. (11:29) You know, look at companies like Nvidia and Broadcom, you know, these AI players that together make up over 10% of the index. Who am I to say what the appropriate value of these amazing companies are? So then you look at the top 10 companies, they account for 40% of the S&P 500's market value, which you know is increasingly making the index more of a bet on the MAG 7 continuing to work. (11:55) And I would say it's a much healthier market to have more broader participation in the growth of the economy when looking across American companies. And in a typical year, you tend to see around half of the stocks in the S&P outperforming the index itself. And in 23 and 24, we only saw around 30% of companies outperform. And the last time we saw a similar pattern was during that tech bubble. (12:22) And it's a classic example of, you know, markets being cyclical and the pendulum heading the other direction once the tide eventually turns. But I certainly wouldn't bet against the index as it holds many of the world's most dominant companies. But regardless of the market environment, I just want to deploy capital into great companies, what I deem to be fair prices. (12:47) So it sounds boring, but that's the simple formula that Buffett shared with us and building long-term wealth. And you know, I want a portfolio of companies that I believe have the ability to continue to compound free cash flow per share over the long run. So, in prior years, I did put a bit more focus on international markets, and this year, I've turned much of my attention back to my home market here in the US. (13:08) But with that said, I do have, you know, some exposure outside the US. It really depends on the company you're looking at. And even if it's doiciled outside the US, it might do business in all different parts of the world. So, it's a bit of a nuance discussion, but if I were to provide a couple of examples of some of my international holdings, I do think the valuations in general tend to be more attractive and I do think it can add, you know, some diversification should we see capital eventually start to flow out of the US into these other markets. So, of the dozen or so stocks I (13:44) hold, I own two stocks in Poland, for example, one in Japan. And uh talking a bit first about Poland. This country transitioned from a socialist country to capitalism around 1989. And ever since they've seen growth in GDP per capita, consistently outpacing developed countries like Canada, the UK, and their peers. (14:09) And to no surprise, it's a relatively underfollowed market for stocks. And I think when you look at some of these countries internationally based on the research I've seen, just the broader populations tend to be less interested in the stock market. And I think that's one reason why the valuations are more attractive. (14:28) But you shouldn't necessarily underwrite, you know, a significant multiple rerating uh necessarily for the country overall. So, as we know, the US has a lot of these passive flows flowing into the stock market and the S&P 500. And that that's one consideration I think about is, you know, how how that ends up shaking out over the long run. (14:47) But turning back to Poland, my first exposure to this country was buying Dino Pulska, which we covered on the show a couple years back. It's a classic boring compounder story run by, you know, outsider CEO that doesn't like doing public appearances. They operate uh supermarkets throughout Poland, generate high returns on capital, and reinvest everything into organic growth. (15:12) But better yet, the management team has just done a great job of executing their strategy. The founder owns 51% of the company. And if you're looking for the next AI play, it's probably not the stock for you. I don't think it'll it'll get swept up in that hype. And then my second exposure to Poland was simply because of Topicus, one of my holdings, purchasing the majority shares of a Polish-based company on the open market. (15:36) And it's a small company, so I won't disclose the name, but it shouldn't be hard to find for those interested in checking it out. This is one I really saw as an opportunity to further capitalize on the Constellation software acquisition playbook. And since Topicus got involved, this company has been continuing to execute quite well. (15:54) And if we turn to Japan, many listeners might be surprised to learn that I would be interested in Japan. It's almost a bit of an experiment for me as well. Just the valuations look so much cheaper than the rest of the world. And Japan, I think, is by far the cheapest when I look at a lot of the stocks I own. (16:12) And this can increase one's margin of safety when entering the position. All else equal. And it's obviously not for everyone, but should make for a good learning experience for me. But there's an interesting case for investors to consider Japan. So many have heard about, you know, some companies in Japan trading below net cash, but the value might never be recognized if the cash just sits on the balance sheet and they don't pay a dividend or they don't buy back shares. Though there have been some recent reforms in corporate governance that have encouraged more companies to (16:44) return capital to shareholders. And some really attractive valuations can be found in countries like Japan that are much more overlooked relative to the US. But perhaps that's for good reason. Japan has seen population declines the past several years. The Japanese population has much less of an interest in the stock market. (17:03) And when you're buying a Japanese company, you're also opening yourself up to currency risk. So if a stock goes up by 20%, that's Japanese-based, but the Japanese yen weakens by 10% against the US dollar, then your real return is closer to around 10%. So that's probably my biggest worry. So that needs to be factored into my analysis. (17:26) So if I underwrite earnings growth of say 12% for a company in the US, perhaps the hurdle needs to be closer to 16% annual growth for a company that's based in Japan in order to stay in the portfolio. But I do think getting exposure outside of the US can give you some broader diversification should market conditions or capital flows change here in the US. (17:47) Just moving the entire market and leaving US investors vulnerable. Yeah, Clay, I think you bring up a great point here about currency risk. Uh, you always have to be mindful whenever you see what have the returns been on this stock market. Very often it's been done in nominal currency. And so, for example, I have investments in Turkey and if you do look at the nominal returns, it look like genius. (18:11) Uh, but the world isn't that kind. So, whenever you convert it to USD, it looks a lot more modest. just want to say for the record. But of course, as we know as value investors, we have a a stock price that moves a lot more volatile than the intrinsic value. (18:30) But how do you look across your own portfolio? Which stocks have moved furthest away from intrinsic value? And and how do you think about that change in intrinsic value in your portfolio? Yeah, I think I've just really come to better appreciate in recent years just how much the narrative around a company and its stock price are two things that are very connected to each other. (18:55) So when a stock is swiftly rising, I would say that most people assume that the stock price is an accurate representation of reality and thus a rising stock equates to an amazing company and the other way around for a falling stock price. And while sometimes this might be true, other times it might not be so true. So the truth is that the intrinsic value of a great business, it'll tend to rise gradually over time, assuming that the fundamentals continue to improve and the stock price can oscillate both above and below that value. (19:26) But over the long term, it will still closely follow the intrinsic value rather closely. I think Alphabet's just a great example to look at. So over the past 5 years, Alphabet's gone through several occasions where the market either just loves it or it hates it. So either Chat GPT is taking Google search to zero or Alphabet's the best AI play in the market. (19:46) So of course some companies will become more detached from the intrinsic value from others. So Constellation Software, I think, is another great example. In just a few months, it went from this unstoppable compounding machine to an AI loser, you know, just in the span of a few months. (20:06) So even businesses that aren't too cyclical when you look at the business fundamentals, the stock price that underpins that company can have that cyclicality in investor sentiment. So the intrinsic value, it can just be an elusive concept, too. When you plug in your assumptions into a spreadsheet, just small changes in your inputs can move the intrinsic value by 50% or more. (20:25) So, I think that's also part of the reason why stock prices can move so much even with within just a year time frame. The market's just repricing, making these small adjustments to its belief of of the fundamentals and adjusting the stock price accordingly. So, when I look at my own portfolio, Topicus, which is a spin-off of Constellation, they had probably their best year ever in terms of execution of their strategy and growing their business. (20:54) And so early on in the year, they deployed record amounts of capital into acquisitions, and this is really a core driver of the investment thesis and their future growth. But the market just didn't seem to care about the developments that were taking place. So I did add to my position. (21:14) And then eventually the stock went from around 125 to 190 this year, but with the AI hype and constellations president Mark Leonard stepping down, the stock dropped back down to 120. So that's a 50% swing on the way up and 35% swing on the way down. But as the stock price is constantly moving, my view of the intrinsic value, you know, doesn't change all that much. (21:33) It's a similar story for the other spin-off lumine as well. If we look at the valuation multiple of topic and just use price to free cash flow as a general proxy, this metric tends to trade around 20 to 25 and today we're sitting at around 17, which is the lowest it's ever been. (21:53) And I think you'll see earnings continue to increase at a good clip next year given all the capital deployment uh they made this year. And just to put into perspective how much capital they deployed this year in 2024 they deployed around €150 million. And in 2025 they're set to deploy around €780 million. So that's more than a 5x increase from the previous year. (22:19) And and I'd be lying to you if I could pinpoint the exact intrinsic value today, but my money is on the market having overreacted in recent months with regards to Leonard's resignation in the AI fears. But time will tell whether I'm right or not. But Meta is another stock that's been closely on my radar in recent months. (22:40) There are several ways to go about the game of investing, but one that I found that's more approachable is simply following some of the best businesses that you're already very familiar with that are still growing and just wait until the market punishes the share price unfairly. So, it's not a foolproof way, but taking this approach with stocks like some of these Mac 7 companies has proven to be pretty effective. And that's exactly what I did in starting a position at Meta. (23:06) Ben Graham referred to this approach as investing in unpopular large caps. So Graham stated in the intelligent investor, if we assume that it is the habit of the market to overvalue stocks which have been showing excellent growth, it is logical to expect that it will undervalue relatively at least companies that are out of favor because of unsatisfactory developments of a temporary nature. (23:32) So this may be set down as a fundamental law of the stock market and it suggests an investment approach that should prove both conservative and promising. So I found that many stocks overseas can remain mispriced for some time. But US large caps they can tend to rebound rather quickly if the mispricing truly does exist. So typically when I invest I want to have an indefinite time horizon but I think there can be cases where you go into a position where you're comfortable holding for say 3 to 5 years but it approaches fair value in just say 6 months. So we saw that happen with Alphabet just this year for example. Now, turning back to Meta, the business (24:10) by all measures is firing on all cylinders, and we've seen the stock drop by more than 20% from its high, partially in response to Zuckerberg's plans to increase capex related to AI. Now, I'm not one to forecast how all of these AI investments will pan out, but Zuckerberg's track record of navigating these different periods of generating shareholder value is no doubt remarkable. (24:35) So, it's largely a bet on his ability to continue to execute and harvest profits from being the largest social media company in the world. Just briefly on the valuation, when you adjust for a one-time income tax provision, it's trading for an adjusted PE of around 22. And you know, the broader market when you exclude the MAG 7 is also around a similar level. (25:01) So, I sense that there's some pretty good downside protection for a company that's compounding earnings at 20% a year. And I don't think we need to speculate that AI is going to continue to improve their algorithms, leading to more engagement, better results for advertisers, and they're still in the very early innings of monetizing WhatsApp, which has over three billion monthly active users. (25:19) So, yeah, we'll see how these play out, but yeah, those are some picks that I'm pretty excited about. Exciting stuff, Clay. I I like that you double down on on quality with money coming in every month. How do you think about sizing in your portfolio, adding building new positions? And also, do you stay fully invested? And if not, how do you think about cash management and opportunity cost, especially in today's market? Yeah, portfolio management is probably one of the more difficult parts to me. (25:52) I I can't say I have it nailed down perfectly, but I always keep in mind to make your winners count, you need to bet big for them to actually make a difference. But if you bet big and you're wrong, you don't want to have it to potentially destroy you. So for my stock portfolio, a full position tends to be around 10%. (26:12) But building up to that 10% position can be a bit tricky since, you know, I rarely hold very large cash position. And I've started to get to the point where, you know, it's just hard to build a sizable position without selling something that's in the portfolio, which sometimes is the last thing I want to do. (26:33) And every year or two, we see these big dislocations in the market. You know, tariff tantrum was rather quick. March 2020 was also rather quick. And you know, you see essentially the whole market fall at the same time. So when that's happening, you find the biggest bargains, but also your other stocks are down. So you're not so keen to sell one stock that's down to fund another stock that's down. (26:52) So occasionally when I have a new position that I want to add, I may sell or trim one of my positions that is around fair value to add to a new position. But it's just important to keep in mind that it's just so easy to fall in love with the next shiny object. So that is something I also keep top of mind as well. (27:16) So, if I own a stock that's less than a full 10% position, it's either because I just don't have as much conviction in the name, the price isn't extremely attractive, or I'm just not able to get the capital to fund that position. So, Interactive Brokers is a good example. I I like the setup, but the valuation just is not a screaming buy. (27:34) And a handful of my holdings are already at a full position, and for the most part, I intend to just set it and forget it. I think Topicus and Lumine are good examples of this. I built up full positions at prices I thought were fair. And when you don't get too caught up in the share price fluctuations, these businesses are just pretty easy to hold. (27:58) For topic is for example, they continue to publish just consistent strong 20% growth quarter after quarter. But when the results are just so good and consistent, it's a fairly easy stock to hold. And this frees me up to focus on other things, whether it be TIP or some of the other holdings. And unfortunately, businesses like this are quite rare and hard to come by. You know, clear, one of the things that I found to be quite helpful, as much as I displayed my ignorance about interactive brokers just before, but one of the things I find to be quite helpful is to think about that the market tends (28:30) to overestimate, you know, the impact of technology uh short term, but then also underestimate it long term. and and thinking about that in terms of making my investments. You know, uh, one stock that we talked about here the other day, that would be something like Uber. (28:47) And of course, there's no doubt that mobility and delivery will eventually be disrupted by AVs. But I would also make the argument that it's not really looking like it's going to happen anytime soon. If you for example look at a company like Whimo and you see like it looks like a hogistic growth of what they're doing with trips, we're still talking less than 1% what Uber is doing right now. (29:11) And so you just have to like and again I'm not trying to make this episode about it seems like all episodes about Uber these days but like my point is yes something is coming and it's really really small and sometimes whenever something really really small grows fast it's still really really small. Anyways, my point of saying all of this is that going back to your point before, there is a market sentiment and that market sentiment can change and that moves the share price whenever that happens as much as fundamentals may or may not have changed (29:37) at all. Yeah. So, I see uh you know, as of the time of recording, Uber stocks been dropping with Whimo's release of their monthly numbers. But, you know, Uber's such an interesting one because I feel like in 10 years, people are either going to be like, "Of course Uber wasn't going to get disrupted. (29:56) of course it was going to be a huge winner or it's the opposite where of course it was going to get disrupted so I already see the the hindsight bias in play for one like this but you know today I personally just have no idea how how this is going to end up shaking out but I think you mentioned a good framework that people tend to overestimate the impact of technologies in the short run but underestimate them in the long run. (30:21) I just uh put together an episode on the dot bubble and it certainly appeared to be a good case study of just that. The market priced in that Amazon was going to disrupt Barnes & Noble overnight, which of course wasn't true. But Barnes & Noble's managers laughed at the idea of Amazon even being a competitor because they believed that no one would ever buy books online. (30:39) So, I'd like to keep this framework in mind when thinking about a company like Constellation Software, for example, in their two spin-offs as that's a really core holding of mine and ones that are definitely top of- mind for me. And recently, the market sold off the shares of these due to concerns around AI. (30:57) And I believe these are largely overblown until there's evidence that proves that otherwise. And I'm I'm certainly open to the possibility of vertical market software being disrupted by AI. Several high-profile Constellation shareholders believe that, you know, the possibility of disruption in the short to medium-term is quite low, and I think it's just near impossible to predict how things will shake out over the long run. (31:21) So even AI experts and industry insiders won't be able to predict what the future has in store with regards to AI. So it reminds me of Mark Leonard. He once described vertical market software as the distillation of a conversation between a software vendor and a customer that has gone on a couple of decades. (31:44) So given the close and long-held relationships that they have with their customers, I would expect them to be a beneficiary of AI. But I'm just I can't fool myself into thinking that I can predict when this business will be disrupted. But if there's evidence that suggests that, you know, it just isn't as sticky of a solution as I thought, then I would need to seriously consider moving on. (32:10) I think this uh framework could really apply to any business. You know, any business that could face disruption. I you enter the position with a thesis and if there's evidence that that thesis isn't playing out or it isn't playing out how you anticipated then you know you need to be open to changing your mind. (32:28) So one thing I would also like to add is how we as humans we have this natural tendency to want to cling to a story. So when something happens in the market we want to know the story behind why that happened. So, you know, with the case of consolation, you know, the stock sells off, so investors create a story around the sell-off. (32:48) You know, it's due to AI fears. It's due to Leonard's resignation. Perhaps that's true, or perhaps there's just one or two institutions who had a major position, they decided to liquidate for an unrelated reason. One other thing to keep in mind is that although people will always have a narrative to go with the share price movement, it doesn't necessarily mean that there's validity to that narrative. (33:14) So that's that's something I also think about is how stocks move daytoday and we create these stories around it, but you know, the market does what it does and it doesn't necessarily have to align with the prevailing narratives. You know, I I sometimes wish for the good old days uh to come back. And what do I mean by that? Well, I remember whenever I was I was starting out and I read about the PE ratio, it's just like, oh, is is investing that simple? You just buy low PE stocks, then that's it. (33:42) I know this probably comes across like I'm the most ignorant investor in the entire world. That was sort of like it felt like a revelation the first time I read it until you're like, ah, there's probably a bit more to the game of investing than that. (33:59) But I I had this crazy idea that low PE stocks that are the quotequote, you know, good stocks and then you had the high PE stocks, they were the bad stocks. And of course, you as an investor, you'll learn how to adjust earnings, but you also learn that it can't be an excuse for doing silly stuff, even though sometimes you torture your Excel sheet to do just that. (34:16) And then you also you might buy a high PE stock and get around to it. Then you realize, well, it's priced for perfection. So if something goes wrong, it just sells off and you just get crushed. And it's just it's such a fascinating game. It's such a difficult game to play. But I I want to ask you a question, Clay, and I don't know if it's going to come across like a trick question, but here we go. (34:40) Nonetheless, if you had to choose between a 3% shareholder yield and 12% growth, or a 12% shareholder yield and 3% growth, and growth here in the fundamentals, pick which one. But what would you choose and why? Yeah, I almost feel like this is a trick question since it of course doesn't mention valuation, but given the companies I've already mentioned here, I think it should be no surprise that I would certainly choose the 12% growth company over the company with lower growth and a higher shareholder yield. And I think probably the main reason for (35:11) that is simply just due to my age and my investment runaway. So, you know, if I were retired and valued preservation of my capital much more than capital growth, then I could definitely see leaning the opposite direction. So, Buffett wisely said that it's far better to buy a wonderful company at a fair price than a fair company at a wonderful price. (35:35) And I've interviewed just several great investors who have beaten the market over long periods of time and almost always they own companies that are in that camp. So I think Franchis Roshan is probably one of the best examples. Since 1993, he's compounded at over 15% a year, which certainly no easy task, but his approach centers around that very concept of buying and holding great companies for the long run. (36:04) Now, part of that might be due to the environment we've lived in the past 10 to 15 years. So perhaps I'm totally biased and I'm not fishing in the right ponds at the moment. But I think this strategy overall will stand the test of time. There's sort of been this divide in the value investing community of buying deep value or you know the low PE stocks or buying growth at a reasonable price. (36:27) And I think both can fall under the value investing camp and everyone should pick the style that best suits them. Are you looking to connect with highquality people in the value investing world? Beyond hosting this podcast, I also help run our tip mastermind community, a private group designed for serious investors. Inside, you'll meet vetted members who are entrepreneurs, private investors, and asset managers, people who understand your journey and can help you grow. (36:56) Each week, we host live calls where members share insights, strategies, and experiences. Our members are often surprised to learn that our community is not just about finding the next stockp, but also sharing lessons on how to live a good life. We certainly do not have all the answers, but many members have likely faced similar challenges to yours. And our community does not just live online. (37:17) Each year, we gather in Omaha and New York City, giving you the chance to build deeper, more meaningful relationships in person. One member told me that being a part of this group has helped him not just as an investor, but as a person looking for a thoughtful approach to balancing wealth and happiness. (37:37) We're capping the group at 150 members, and we're looking to fill just five spots this month. So, if this sounds interesting to you, you can learn more and sign up for the weight list at thevesspodcast.com/mastermind. That's thespodcast.com/mastermind. or feel free to email me directly at claytheinvespodcast.com. If you enjoy excellent breakdowns on individual stocks, then you need to check out the intrinsic value podcast hosted by Shaun Ali and Daniel Mona. (38:10) Each week, Shawn and Daniel do in-depth analysis on a company's business model and competitive advantages. 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. (38:29) And I recommend starting with the episode on Nintendo, the global powerhouse in gaming. It's rare to find a show that consistently publishes highquality, comprehensive deep dives that cover all 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. (38:54) A couple more points on why I would prefer growth at a reasonable price. I think first is that it can decrease the number of buy and sell decisions that you need to make. So if you enter a great company and it continues to execute over time, you don't necessarily need to make a sell decision for several years as long as they continue to compound earnings and uh continue to grow. (39:22) So in the case of a deep value play, if the stock appreciates by 50%, approaches fair value, you may decide to sell the stock, pay capital gains tax, and need to find a new opportunity to invest that capital. Whereas in the company that's growing, capital gains can continue to be deferred year after year and you don't have to hope that you can come across a new opportunity to invest that's in your circle of competence. (39:47) And the second point I would make is just the inherent asymmetry that the stock market offers. So let's say that an investor chooses to meaningfully invest in what they deem to be 10 great companies and plan to hold those businesses for a long period of time. And let's just say that just one of those companies really surprises you. (40:07) Instead of growing at say the 12% rate you expected, it grows at double that rate. So 24% over 10 years. That would equate to an 8x increase in the stock price. So perhaps I'm just not smart enough to venture into deep value territory to find these types of asymmetries that can, you know, say double within 6 months or a year. And I just personally don't see a lot of investors being successful with that type of strategy. Or perhaps I'm just not smart enough. I don't know. (40:32) I should also mention that most of the money that Buffett made came from these big decisions that delivered the long-term asymmetric upside, whether it was Seas Candy, Apple, Geico, etc. Yeah, it's it's one of those things where whenever you read about it and and you see these case studies about this is what happened to the stock price, you're like, "Oh, okay, that makes sense. I'll make sure to remember that. (40:57) " But actually doing it or again, it might just be me who's not smart enough. That is just incredible, incredible difficult. And so I think the method that both of us want to use is more just to let time work for us, find really high quality businesses and and wait, which I should also say for the record can be challenging uh enough. (41:18) But I I'm really curious to hear on that note, Clay, how do you think about the role of what I would just go ahead and call happiness and optimizing for your happiness and then also how that coincides with your portfolio? And I know it may come across as like an odd question because I again I don't know if you or anyone listening to this or are thinking along those lines, but if you allow me to be a bit self- serving here, you know, whenever I think about my own portfolio, thinking about okay, it has to be anti-fragile. I I want to be able (41:47) to support multiple families. You could say you could do that if you live within your means and then you would buy the S&P 500 and then hold it for decades. Sure, yes, I can see why that would work. But at the other hand, it's just so much fun to pick stocks. And I know like I know it probably comes across as irresponsible whenever I say that, but like I know to a lot of people investing is sort of like this boring thing. (42:18) And yes, we want to save up for retirement, but you know, that's just not for them. I love reading 10Ks and 10 Q's in my life. I would feel like my life would be missing an important ingredient of happiness if I didn't pick individual stocks. So even if you did show to me, Clay, that I could not beat the market, I wonder if I would still want to try just because it's so much fun. (42:42) And so how do you think about that for your own portfolio that you want to be responsible, you want to you have financial goals, you also want to have fun, and I don't know how that works for you and how you define it. Yeah, it's a good question. Without really thinking about it that way, I've sort of thought about managing my portfolio to optimize for happiness. (43:03) So, in my mid20s, I was much more interested in, you know, scaling up the size of my portfolio as quickly as I could, either through additional contributions or through the returns I was targeting. And now today, you know, I've seen this shift where I'm pretty happy with the foundation I laid in my 20s and just much more interested in not much more, just a bit more interested in capital preservation and building a portfolio that will still deliver good returns, but also be more anti-fragile, partially uh inspired by you. And I do like the approach you've taken, Stig, of owning several uncorrelated assets despite how (43:39) unpopular some of them might be, whether it's a couple of global ETFs or gold or Bitcoin. I also like that you have Bergkshire in your portfolio. So, you know, it's it's quite an eclectic mix, but given Bergkshire's size, I'm not sure that it would be the right pick for me, but I think there are other several other candidates that can play a similar role where, you know, it's just a durable company that might not grow the fastest, but it just serves as an anchor in the portfolio that can help you weather through draw downs and help you (44:14) invest countercy. I think that, you know, companies like Markell, Fairfax Financial, or even Brookfield Corporation could be other potential candidates that could serve a similar role as Bergkshire down the line, just smaller companies that can reinvest to a larger extent. (44:38) Part of me views the process of stock investing as buying good businesses, but also outsourcing the role of capital deployment to some of the best managers in the world. Whether it's buying a serial acquirer that's deploying capital into acquisitions or buying a business that grows organically, those are capital allocation decisions that hopefully create a lot of shareholder value. (45:03) And I think many people overlook that the stock market gives them exposure to invest alongside some of the world's greatest entrepreneurs that create just a tremendous amount of value for society. So some of them even get paid next to nothing for the companies they work for. So to use an extreme example, investing alongside Warren Buffett by owning shares of Berkshire is like investing in the world's greatest hedge fund, except you don't get charged 2 and 20 fees. So the world is also just a chaotic and unpredictable place. (45:36) And by partnering with these great managers, you're betting on just some of the smartest people in the world being able to navigate through such choppy waters. And as you've said countless times, capitalism is brutal and management must know how to navigate the storm. So I derive some level of happiness of getting to bet on jockeyies who have a track record of treating shareholders well and treating shareholders like partners. So like you, I also like businesses that are interesting for me to study. This is a continuous process (46:08) of finding what's most interesting to me and what I can and cannot wrap my head around. But a business like Constellation Software to me is just really interesting. They're able to buy these durable software companies for five times earnings, buy these companies all over the world and they just seem to be able to just keep on doing it effectively. (46:34) And to your point in the last episode we recorded together, they seem to just have an unfair advantage that practically no one else can replicate. And they also just keep pulling new rabbits out of the hat, you know, with the announcement of their spin-offs and these larger acquisitions they're implementing. And all along the way, they treat shareholders about as well as anyone. (46:51) And, you know, they aren't perfect with some of the things they do. You know, their recent AI call and perhaps the transition of the new president, but I think things will all shake out just fine for shareholders over time. And then you read up on a company like Interactive Brokers who was founded by this guy that came from nothing after living in a socialist country and builds this amazing company. (47:09) It just gives you a better appreciation for you know the companies we interact with dayto-day. you know, these were built by just some of these great entrepreneurs. And I do enjoy just hearing about, you know, some of these people's stories and, you know, how they built the great companies that we interact with day-to-day. (47:34) And there are several other lesserk known examples of managers who have built these businesses and have the majority of their wealth invested in these businesses. So, I still want to try and implement that anti-fragility that you mentioned, you know, as I transition to a new stage of life of buying a house, starting a family. (47:55) And it reminds me of uh one of our members of our mastermind community who mentioned to me that his mindset around investing changed once he started having kids because he just wasn't just investing for him and his wife anymore, but he was investing for the next generation. So in a way he tries to invest through the eyes of his kids looking back 40 years from now. So that's uh just another angle that has been ruminating in my mind this year. (48:16) One of the first things we learn as as value investors is that whenever you buy a stock is a piece of real business. And I know this is going to sound like I'm a very slow learner. That's probably because I am because I always read a ton of books and that line comes up in a lot of them as you can probably imagine. (48:39) The weirdest thing is that to your point here before it almost like you think about it differently. know it's it seems like such an obvious or weird thing perhaps to do but like oh I actually have Warren Buffett working for me or alongside me and it's a part of real business and you think about it and then you don't think about it and you sort of like it dawns on you how incredible it is that you have a financial system that allows you to team up with the best of the best. (49:06) I wish I could say something a bit more inspiring than that. And I know like everyone who are listening to this knows this and have read the same thing. It's just it amazes me every time I read it and when I really have time to think about it. Wow, isn't that just incredible to think about? Yeah. (49:25) And if you put it into a different perspective, let's say the most prominent business person in your town was launching a new company. They have all these amazing connections. they have access to all these resources that you don't have access to. They give you a call and they ask you if you wanted to invest. Like most people be like, "Oh, of course I want to invest alongside that person. (49:42) " But when it comes to stocks, people view this as, you know, this very abstract thing. It's just this ticker on a screen. It's very random. It's very, you know, people might associate the stock market with gambling and whatnot, but the stock market gives you access to even better entrepreneurs that are that person that called you offering you to invest. (50:03) So, and you know, it's open essentially all year round. We're all given opportunities to invest alongside them. Yeah, it's it's truly uh incredible. play often like could you give me your top five whatever and you know speaking with the best investors in the world and it's probably me who are thinking way much about semantics here but I don't really feel it's through the actual conversation that I learned the most I do think that the learning at least from the host position or again this is my own bias is that it really comes from (50:34) preparing for the episodes also because whenever you interview hundreds of people you kind of know where what to go and So, you're sort of like in this situation where you need to know what they want to respond or how they want to respond, but then you also kind of have to be open if they want to go another direction or if they're really excited about that. (50:54) So, it's sort of like a mix between all of them. But I I want to ask you, what have you learned in 2025 about life and investing from your interviews? Yeah, when I reflect on my interviews, some of my top guests are of course guests like Francois Versan, Morgan Howell, you know, I've just been deeply inspired by Francois Versan and his process of buying great companies at fair prices and just holding for the long run. (51:24) It sounds so simple, but so few will have that discipline to stick with such a strategy. So, too often people will ask me what the next hot AI stock will be or where the stock market's heading over the next year, and I'm just like, ah, it's just a bunch of noise. But since we love talking about Alphabet on the show, I went back to my conversation with him in my notes, and I asked for his take on their concerns related to Alphabet and Chad GPT earlier this year. (51:51) And at this point, the stock was trading down, of course. And in short, he essentially said that all great companies have risks and fears related to them. And many times in history, Alphabet was growing at a fast clip, trading at a great price. And the business just continued to prove that the near-term worries at the time just were not relevant. (52:11) And if we zoom back to 2011, this is when Roshan first purchased his shares in Alphabet. It was around 15 times earnings. And the concern that people had at that time was whether they would be able to transition from desktop to mobile. (52:30) And it just seems inevitable that most great companies will come across their fair share of worries or concerns from investors. And you know, this just serves as an opportunity for us to partner up and buy shares in these companies. And Morgan Hel is of course one of my favorite guests as well. In our most recent discussion, we discussed the art of spending money. And spending money is a topic that we aren't really taught how to do. (52:52) So it's no wonder that I think some people are crazy in my view of how they spend their money. I think that many people are wired to just spend most if not all of what comes in the door. But I found that the optionality of having money or having investments is just very empowering for me. (53:16) you know, living below my means, having no consumer debt, and having cash and investments stacked up allowed me to transition careers and work at TIP, and it gave me the optionality to do things like start a business with my brother. And it's a business that he was really passionate about. And this philosophy around money helped me drastically improve my lifestyle by opening myself up to opportunities that I just couldn't foresee beforehand. And saving money is also easier said than done. (53:45) There's pressure from society to live a certain way if you have money. And even if you don't have money, you're encouraged to take on debt to live that lifestyle. And having your spending under control just gives you a level of freedom that in my opinion is just invaluable. And the other thing from the interview with Morgan I sort of keep telling myself is a lot of the things that people spend money on might just have a marginal impact on your happiness. (54:15) So for example here in the states a lot of people in much of society is pretty big on buying cars. So the price of the average new car here in the US is around $45,000. But the $45,000 car essentially accomplishes the same thing of getting you from point A to point B as the $15,000 car. Now, what you get is, you know, the pride in owning an expensive vehicle, maybe more comfortable seats, more safety features, a bit smoother ride, etc. I'm not saying any of these things are bad necessarily. (54:48) So, I love cars as much as anyone, but it's one of the many ways to easily cut back on expenses where, you know, other people are happy to finance a new car and try and impress other people that don't necessarily care about them. And it reminds me our friend Robert who hired me here at TIP. He he actually loves cars and he's happy to spend on cars. So, if that's what makes him happy, then that's great. (55:12) And there's likely other ways in his life that he could figure out how to use money to make him happier rather than falling prey to these societal pressures. And it really just ties back to Buffett's internal scorecard. If you're buying things to play the status game, it's just a slippery slope that you'll never be able to win because the neighbor with the nice house that you look up to is looking over at his peers who have an even nicer house. (55:39) So I think the big takeaway is to find the few big things in your life that will carry the most weight in optimizing for happiness. And I think there are a lot of things that can make me happy that cost little to nothing. So maintaining a healthy lifestyle and a healthy body isn't crazy expensive to do. (56:04) Getting 8 hours of sleep, spending quality time with friends and family, doing meaningful work, etc. So money of course plays a role in happiness, but I think the big point that I picked up from Oregon was that most people overestimate the importance of money when it relates to happiness. I love the point you had there before whenever you talked about some people are are crazy your view of of how they spend their money. (56:26) And I think we we all look at other people from time to time. You're like why? That makes absolutely zero sense they do what they do. probably what happens is that they optimize for different things. You know, I was I was speaking with a friend the other day and he's very successful what he's doing. (56:45) uh makes half a million dollars a year and we talked about his business and I had all of these ideas of how he could raise his earnings to a million a year and adding employees and there were a few things he could do and he's also in financial space and so I was like so we did this and TP and then you could do that and he was like wait I don't want to have employees he said to me cuz like no no no that's not fun I basically or I as in this friend said he basically wanted to work the least amount of hours so he could play around with his son. to him that is freedom and (57:19) then I have another friend who was saying oh not having kids that's the ultimate ultimate freedom and I have a third friend and this is not Robert I should say for the record but for him it was like having a really really nice car like to him that was freedom so whenever he was off work and he was like h work is good enough but the good time starts whenever he clocks out and then he would just drive around in a really really nice car and to him that is freedom and so we might talk about the same things but we we call it different things. I I think that's probably one of the reasons (57:50) why it might sometimes become a bit confusing but on a somewhat related note uh you know many people are introduced to the value investing space because they want to learn how they invest their money and then they stay perhaps because of the wonderful relationships that they form in the value investing community. (58:10) So Klay could you talk a bit about the relationship that you have built here in the value investing community? Yeah, getting involved in the value investing space has just been such a blessing in terms of the relationships it's brought me. (58:30) There are just so many highquality people in this space and what has amazed me most is just how generous and collaborative the community can be. People are genuinely willing to share their rinses, their time, and their mistakes. And it's also a space where long-term thinking naturally attracts these long-term friendships. And this is something I've just really come to deeply appreciate. And it's also become an avenue for me to just surround myself with people who inspire me to be a better person and just continue learning. And indirectly, it's also taught me the power of reciprocity. (59:02) So many people listen to our show and have done so for many years. And hopefully our content has been helpful. in one way or another. And the more we give, the more it can come back to us in unexpected and meaningful ways. And this ties into the idea of compounding goodwill that Guy Spear talked about in his book. (59:24) I always think back to one of the first personal development books I've read. It was back in college. It was this really simple book. It was titled The Compound Effect by Darren Hardy. And in it, he talked about the growth versus the fixed mindset. And I found that people in the value investing community just tend to have this growth mindset and truly embrace lifelong learning. (59:49) And it's just no wonder that you'll run into so many successful entrepreneurs and many other successful people when venturing in this space. So it was the growth mindset that allowed me to eventually truly embrace value investing with open arms. And this led me to discovering tip and then launching our mastermind community which just introduced me to many wonderful individuals. (1:00:15) And Clay, speaking about the mastermind community, so you gave this wonderful presentation here the other day about how value investing changed your life and I was curious about if you could sort of like give us a give us a rundown about how has it changed your life? How does relationship play a role and paint some some more color around that? Yeah, looking back it's just pretty amazing to see how the chips have fallen and how things have really shaken out. (1:00:39) So, first off, I just feel so grateful to be a host here on We Study Billionaires, a show that I listen to several years back and the journey really started with having that growth mindset that led me to the value investing community. So like many people, I was introduced to it by, you know, wanting to make some money in the markets and ended up wanting to, you know, stick with it for the long run because of just the opportunities to continue learning and interacting with just some great people. (1:01:06) So when one gets into value investing, they inevitably read about Warren Buffett and Charlie Mer. And Buffett, you know, just made a tremendous impact on me. So, a few of the lessons that really stick out to me from Buffett are living by an inner scorecard, doing work you enjoy, and working with people you admire. (1:01:25) So, you might notice that these really have nothing to do with investing. So, living by an inner scorecard just really empowered me to look internally and recognize what I really wanted out of life. So, I previously worked in the insurance field as an actuary and it took a lot of work to get to the point I was at. (1:01:49) But when I looked at the people that were one or two steps ahead of me who were in the position I would be in down the line, I eventually realized that it just was not the life that I wanted for myself. So, I started exploring these other opportunities and this led me to apply to join tip. And had I not lived by an inner scorecard, I would have continued with that good corporate job that just didn't give me that level of fulfillment that I was looking for and that my heart desired. (1:02:16) And in making the switch, I needed to stick to my values and my beliefs because not everyone in my life thought it was a good decision to take this remote job that, you know, was an entirely different and unrelated field. I I think if you ask most people like actuaries aren't going to make good podcast hosts. (1:02:36) And what really gave me the the comfort to make the jump was Buffett's idea of the inner scorecard. Buffett has a quote, "Would you rather be the world's greatest lover, but have everyone think you're the world's worst lover, or would you rather be the world's worst lover, but have everyone think you're the world's greatest lover?" And I also think that Jeff Bezos's regret minimization framework could have also been used in this example. (1:03:01) I knew that I would have beaten myself up if I didn't at least give myself the chance to be a host at TIP. And because I knew that if things didn't go as planned, then one year later, I would just be back in the position that I was at the time. So, funny enough, after I uh submitted my resignation letter to my employer, uh they told me to give them a call if I ever wanted to go back, which made the the jump a bit more relieving. (1:03:24) So had I continued to live just based on other people's expectations of me then you know I just wouldn't have made that jump. So in a way Buffett just from that one principle just made an enormous impact on my life. And I really value that experience because I know that there are going to be other points in in my life where I'm just going to have to make difficult decisions that other people just aren't going to agree with. (1:03:53) And you know it's just so important to live according to your values no matter how difficult it is to do. And another concept from value investing that played a significant role in my life was the margin of safety concept. So I applied this concept to my personal finances when making the switch to tip. So at my previous job I was making north of six figures which you know I felt was pretty good for being based in the Midwest. (1:04:17) I was in my mid20s. You know, I could have easily bought a nice house, a new car, and quickly experienced lifestyle creep after living on practically nothing while in college. And I certainly had the temptation to fall prey to lifestyle creep. (1:04:37) But something inside of me told me not to lock myself into these big monthly payments because that would require me to sustain that high income to continue with that lifestyle. So when it came time to make the jump to tip, as you know, I took nearly a 50% pay cut. And you know, looking back, maybe I should have asked you for more money from the beginning, Stig. And you know, I don't want to make it sound like, you know, tip doesn't treat uh their employees well. They certainly do. (1:05:00) It's just quite the opposite of that. But if I didn't apply that margin of safety to my finances, it would have been impossible for me either emotionally or financially to make that jump. You know, I didn't have a car payment. I lived in a reasonable one-bedroom apartment. I had no consumer debt. (1:05:18) And I should also mention that I've just been dealt very good cards and I've just been very lucky in life. I think as Buffett puts it, I feel like I won the Ovarian lottery. So, I've been lucky to live in a low cost of living state. (1:05:36) My parents were kind enough to cover my undergrad degree and send me to a wonderful school growing up. So, we all just need to make the most of the cards that were dealt. I want to mention is that, and I know it's going to sound like a cliche, but I believe that working together should be a win-win for everyone, which is also kind of why I don't really feel good about anyone taking a pay cut to join JP. (1:05:55) I know it's easy for me to say now, Clay, but what we want to do is to be on a journey with the best people. And you know, in life, in business, and investing, if you can be on a journey with really high quality people, it's just so much more fun. And the last thing I would want selflessly is to work with someone who needs to check off something on the resume for like two years. Now I've been with this company before I went to this company. and no that that's not what it's all about. (1:06:24) And but it has to be a a two-way street. So I remember whenever we we hired Kyle for example and there was a unique backstory that perhaps we will talk about another day whenever whenever we on boarded Kyle and you were very much included in that. I remember I was I was having a one-on-one conversation with him and I said to him, "You know, Kyle, I can't really afford like a $100,000 employee. (1:06:49) " And you can just tell like his heart was sinking, but I can afford $200,000. And I think at that point in time, he was like, "This dude is crazy. What is he talking about? Why does he want to pay double? Like, what? That doesn't make any sense." And so I probably partly have a bit of a bias where I like to shock new employees with a bit of unconventional business practices. (1:07:08) And so, you know, I I sort of like wanted to tell this story both for the listeners out there who are employees, but also to the many employers we have in our audience because what I've learned from an early stage was that and I I started my first company when I was 26 and I didn't think well about having employees issued at the time. (1:07:28) But a lot of employers are thinking, let me pay my employees as little as possible. That's how I can win. And it took me a long time to realize that you usually get what you pay for, which sounds intuitive, but at least whenever I was younger, sounded very counterintuitive. It bas basically seemed like money that was just thrown out the window. (1:07:48) And if you pay the right people well, you can really focus on growing the pie and then divide it. So, so everybody wins. And if you allow me to put some numbers on this, and these are, you know, you can take this as as metaphorically as as you want. (1:08:04) If you pay someone 100k, you might make 150 together and then you end up pinching pennies and it comes at the expense of the relationship. Or you can pay them 200 and then you can make a million together and then have a lot more fun in the process. And at the end of the day, I think it's about playing this game with people of the highest integrity and where you have this high level of trust. (1:08:24) And you know, so later this year as this episode is coming out, you know, we're celebrating 10 years with the first employee here on here on tip. And you know, I'm running around, you know, trying to figure out what's 10 gifts to give to this person to symbolize each of the 10 years he's been with us. (1:08:42) Someone out there is probably thinking Stake is a terrible capitalist and you're absolutely right. It's not good for business. If I had shareholders, they would tell me to focus on optimizing for shareholder return or, you know, something that's a bit more sensible. But I don't have any shareholders and finding the right gifts for our team is just incredibly meaningful to me. (1:09:01) And so I think at this stage of my life, I don't focus too much on the dollars or at least as much as as I used to and perhaps can afford to focus a bit more on purpose. And it's going to sound like a cliche, but you know, there's this tap dancing to work. And you do that whenever you can do it with wonderful people. (1:09:17) And then next year we're going to have another two people that's been with us for 10 years, which is quite remarkable when you think about how young of a company we we have. And and so being with TAP and sorry for all this coming across as so self- serving has just created some of the most meaningful relationships in my life. (1:09:36) And so I wanted to also talk about you Clay, which I didn't do a good job of uh so far. I can't believe how lucky we are on tip that we work with you. It's absolutely incredible. And I've I've sort of like typed up here in my notes. I wanted to tell you that tip wouldn't be tip without you. I don't know how otherwise I could say that. You know, you're doing so so many things behind the scenes that people are not seeing at all and you're making it work. (1:10:01) And so, I know that was not necessarily the intention of this episode. I just want everyone to know how incredible you are and and so thank you. Can I just say thank you for trusting TAP with your employment and taking such a leap of faith with such a cheapkate like me. So, just thank you, Clay. Well, thank you for saying so. (1:10:20) I I can 100% say it's certainly been a win-win for me to work with TIP, and I no longer make what I did back when I started, I should say. And, you know, in a sense, I've just gotten paid to learn. And I feel that there's just still so much more learning to do. And some people believe that to be successful in business or successful in your career, you need to take this manipulative or Machavelian approach where you're essentially trying to get the most out of a relationship and take advantage of the other person. (1:10:55) And then you go and learn about people like Warren Buffett or Nick Sleep and realize that there's just an entirely different way to go about it as long as you're teamed up with the right people. You know, Guy Spear referred to this concept as compounding a goodwill and how there's just this powerful effect of being a giver instead of being a taker. (1:11:21) And the paradox is that you end up receiving much more in life by giving than by taking. And just by helping others, you know, you end up helping yourself too. And I feel that that perfectly describes my experience with tip, even in a world that might seem like it's a doggy dog world, and it often is in many cases. (1:11:43) And there's still people out there who want to do business in this manner. And I think for those in the audience that feel like they're in a doggy dog situation that there are other opportunities out there that offer this this type of business relationship, which I've been lucky to come across it myself. (1:12:02) And this is also one reason why I teamed up with my brother to start a company on the side. I handle much of the back-end financial stuff that's honestly quite boring that he just doesn't want to do and he handles the operations. But a big reason why I got into that was to just go on this journey with him. And he's just a giver in so many ways and has many of the same values. (1:12:22) And it's just so fun to run a business with him. And it also reminds me of how Robert and I were talking when I visited him about a business opportunity he had where he had a chance to make a lot of money partnering with someone who certainly would not be a great business partner. (1:12:40) And I told him not to do it because, you know, it was just going to bring in so many headaches. But, you know, he was looking at the dollars that were there that he could potentially make. And Guy Beer talked about this concept extensively in his book. And I just wanted to share a brief quote from it. He goes, "When you're surrounded by people like this, all of them trying to help one another, it sometimes feels like heaven on earth. (1:13:05) They are the keepers, the people we want in our inner circle, the people we should fly across the world to see if they live abroad." and of course this is what I need to be for other people." End quote. And that's why I just applaud you for building up just such a wonderful culture here at TIP where traits like truthfulness and radical transparency and just people who do good work are just the default. (1:13:27) You know, I I really appreciate you saying that, Clay. I truly do. Yeah, I was having this conversation with my wife here just before and so we we recording here this year around Christmas and so we talked about how whenever we were kids we were told by our parents that giving gifts was so much more fun than receiving gifts and I remember as a kid I was like what do you mean mom that's like that no getting gifts that's the best like why why is it fun to and so it's just remarkable how some of the things we learn how that (1:14:01) it's the same but it's not it's the whole thing about you know the man can't cross the same river twice it's not the same man it's not the same river so it's a wonderful thing to be able to give that was my that was my point but you also need to be ready for it I wanted to address the thing you said here about the culture and and a few examples comes to mind I should also say for the record this is not not a job ad we probably should make that disclaimer I don't know how we it was probably my mistake how we all of a sudden came to talk uh being an employer and how it is to work here and (1:14:34) like it's not because we're looking for any new employees here for tap though it's probably going to sound like a long cell but we or perhaps I should not pull you down to my level here Clay kind of like felt it would be fun to talk a bit about know corporate culture and the joys of compounding uh really and you know of course the joys of compounding comes uh across both with the people you work with or investments or however you want to quantify A few example comes to mind. You know, we we're super super lucky to work with (1:15:05) William. I mean, talk about a high quality person and I think every accountant who's worth his soul, he would just be so confused about how it is to work with William, I'd like to think that TP or William are directional correct in the framework of how we do conduct business, but we are 100% wrong, you know, down to the last dollar. (1:15:32) And so we have a certain agreement, but then there are multiple expenses that would be advantageous for me to include in that calculation that I don't, which is to Williams advantage. And then vice versa, there are a ton of things he would be able to invoice and he he doesn't. And then once in a while, you know, a few times a year, I just send him a big check, which is roughly the amount of money he probably should be making with TIP. And that's it. (1:15:55) And and I know that's that's not how you run a business and it doesn't scale well and I'm probably a smuck for running a business the way it but whenever you team up with the right people it's actually a quite liberating way and I I can't help but mention it and I think the reason why I can't help mentioning is because earlier this week I uh I got a message from a fund we're doing a you know another episode and they have a compliance department. (1:16:19) They're managing trillions of dollars this company here and so it has to go through compliance and then can you say this and can you do that and it's just like um it's a different way of conducting business and this is not my way of saying that you know there's anything wrong with compliance or you should break rules or anything like that Clay the call I have with you here today is the only thing I have going on today and that's because I don't take calls from compliance departments who want to talk to me about what I ask what I don't and goes back to your point about being aligned with your inner scorecard. So, we do do episodes together, but we don't really (1:16:52) that often jump on calls together. I kind of feel like they come across as passive aggressive. That's not my intention at all. It's it's always a lot of fun to chat with you. So, don't get me wrong. The way I would I would phrase this is more if I needed to check up on you, you're too frequently, we would probably both be big trouble. (1:17:15) I know I'm the oddball here because the way that we do business here on tap, it's not how the corporate world works. And I also think that's why I enjoy so much. It takes so much joy in a mastermind community. You know, to me, it's this wonderful intersection between investing, business, and life. And you know, I was I was on a call here the other day with a wonderful uh member of our community and he asked me multiple times because he's awesome like how he could add value for me. And I remember I was a bit confused. Not in the sense there's anything wrong with that because (1:17:46) why wouldn't you ask how you can create value but I think I was I was quite mindful about I didn't want the relationship to be too transactional. And I don't really know how this comes across because I actually quite coincidental I actually started another company with a member of a mastermind community which you can probably say in its own way is quite transactional but I think there was something about the type of relationships you have what the intention is and how you start them and there was never the intention with the (1:18:15) gentleman that we start a business it was just like we have a lot of values in common and then we were like wouldn't it be fun to start a company let's start a company and so you know one of the wonderful things I've learned from William and there are so many things you know he's really a role model in in so many uh walks of life he he talked to us about this idea of not to do business with your friends until you're 40 and then after you're 40 only to do business with friends now I don't think you have (1:18:46) to be too particular with the exact age whenever you're tuning in but I do think it might be directional correct you need some experience in life and in business to know yourself well enough and perhaps also to know your friends well enough whether or not you should go into business with them and this might sound a bit odd because today I only want to do business with friends but that's not the same as me saying I want to do business with all of my friends that's that's two very different things uh you know some of the best friends I have I think we would probably stop being (1:19:18) friends if we went into business together there are other reasons why we're good friends but it doesn't mean that that we should start a business together. I'll be the first to say, you know, for example, with the mastermind community, someone's tuning in, it's like, yes, like this sounds, you know, awesome. Let me how do I sign up? I do want to say for the record that there is a cost to it. (1:19:36) And please don't quote me on this, Clay, because it doesn't it doesn't sound good if it's quoted for sure. But you know at this stage in my life the cost is to a last extent also a reflection of identifying future friends who are serious about forming relationships and also a bit of a signal that they've been fortunate and had some professional success and want to speak with others who also had a bit of success uh whether it's in business or investing and yes we do talk about stocks I should say but I would also say that personally nothing excites me more (1:20:07) than having this I don't know borderline philosophical discussions uh with thoughtful people about you know value investing and then this intersection of business investing in life and then just see where the conversation takes us. Yeah. (1:20:29) I mean I would just close out the discussion by just saying that getting the right people into your life is just so important. The wrong people just add this stress and anxiety that just always there. It's always lurking and it just doesn't make life fun. And just to use one example, I would attribute much of my success here at TIP thus far to how you stig have just continued to lift me up, encourage me, offer me guidance, and just be willing to have the hard conversations since day one. (1:20:58) And since people are generally wired to take the path of least resistance, it can just be hard to find people who are willing to have those hard conversations because people tend to not want to tarnish what they already have. And tip has just given me an avenue to hang out with many people better than myself. (1:21:17) And if you do that, you just can't help but improve over time. And I just really enjoy giving other wonderful people in our audience that same opportunity to just hang out with other great people. So here coming up in May, we'll be hosting a few social events and dinners in Omaha during the weekend of the Berkshire Hathaway annual meeting for our mastermind community. (1:21:39) And we're also opening up a few paid seats for those in the audience who aren't in the community but would still like to join us. So to learn how to join us, we've included a link in the show notes for you to add your name and your email to get in touch with us or you can just email me directly at clay@theinvestorpodcast.com. (1:21:58) Again, tip has just brought me so many wonderful friendships and it's given me an avenue to hang out with many people better than myself. And if you can do that, again, you just can't help but improve. And I I can assure you that we'll have many wonderful people joining us in Omaha for you to meet and just have the the chance to spend plenty of time with and really get to know them and make the most of your weekend in Omaha. Yeah, that's absolutely wonderful. (1:22:23) And in case that someone haven't tuned into it, I just want to tell everyone again, Clay's amazing. I know I said it once or twice, but I just want to make sure to to say this. It's incredible all the things that Clay is doing for tip and you know there's this wonderful quote and with all those quotes that's floating around always hard to tell who actually said it but there's this quote that's saying like quality is what's happening when no one is looking and that's that's so much you like all the small things that no one's paying attention to you make sure that that (1:22:53) happens so just want to for everyone to know that you're just you're just so fundamental to everything we do and I don't think you get enough credit so I just want to end by giving you credit for being so amazing to work with. So, so thank you, Clay. Thank you, Stig. (1:23:11) Uh, I appreciate the opportunity to work with you and the rest of the team here at TIP. Uber are seeing themselves as a platform for geek workers. So, whenever you're you're a driver and let's say you're not doing right hailing or delivery that second, you can do something else like AI labeling or whatever on your phone while you're waiting. So, you can always make money on the consumer side. (1:23:30) uh your Uber just has so much data in you that they can use to deliver targeted advertising and and right now it's a it's a billion dollar revenue business but it's growing fast and so it might seem like it's a small part of the overall business but again we're very much in the early innings and way earlier than for mobility and delivery in general which again I'm biased but I also think we're in the early innings of That