What It Means to Have Skin in the Game w/ Clay Finck & Kyle Grieve (MI384)

Summary

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• Investment Philosophy: The discussion emphasized the importance of learning from past mistakes and focusing on quality investments with high insider ownership and reasonable compensation to ensure alignment with shareholder interests.
• Active vs. Passive Investing: The podcast explored the debate between active and passive investing, highlighting the potential for active investors to find mispriced opportunities, despite the challenges of outperforming the market.
• Market Bubbles: The concept of an "everything bubble" was discussed, with insights into how investors can protect themselves by continuing to invest consistently, even during market downturns.
• Skin in the Game: Emphasizing the importance of having skin in the game, the hosts discussed the moral obligation of sharing one's investment track record and the benefits of being transparent about investment decisions.
• Investment Strategies: Different investment strategies were highlighted, including focusing on high-quality businesses with strong returns on invested capital and exploring inflection point businesses that are transitioning to profitability.
• Learning from Legends: The podcast underscored the value of learning from legendary investors, such as Warren Buffett and Charlie Munger, and applying their principles to both investing and personal development.
• Market Insights: The conversation touched on the influence of passive investing on market dynamics and the role of active managers in determining stock valuations within indices.
• Long-Term Perspective: The importance of maintaining a long-term perspective in investing was reiterated, with a focus on the potential for great businesses to outperform over extended periods.

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Transcript

(00:00) you know if you want to create  life-changing wealth or become financially   independent you have to actually make it  to the finish line so I personally try   to spend a lot of time trying to figure out  where maybe I've been wrong in the past and   where I could be wrong in the present or  in the future and this helps me identify   where maybe some of my investments or some of  the actions I'm taking are excessively risky   and then just circling back to Charlie  Munger one thing that I didn't mention   was um his study of failure and mistakes (00:25) I think that's just profound know   I think this was one of Charlie superpowers  he really was able to especially like reading   biographies he'd go back and find out some of  the biggest failures that ever happened even   from people that were really smart and and  tried to uh avoid these failures at all cost   hello before we dive into the video be sure to  click that subscribe button so you never miss an   episode show us some love by giving a thumbs  up and sharing your thoughts in the comments   your support really means everything to (00:59) us yeah thank again for being here   since you've been with the investors podcast  Network the longest I'd like to start with you   first clay you started hosting our Millennial  investing podcast in the fall of 2021 so I'd   like to ask what has changed the most about you  in that time I know when we first met in person   was actually in Miami at a Bitcoin conference  but we've also seen each other in Omaha for   Berkshire hathway shareholder meetings and  roed Wall Street together too and there's   a real contrast between the type of person who (01:27) obviously visits Omaha Wall Street and   Miami and I find that interesting interesting  you are sort of all of them in one and again   that's really fascinating to me so yeah tell me  how has the clay I'm talking to now evolved as   an investor from the version of you that first  hosted this podcast more than three years ago   yeah it's a it's a fun question because uh  it can be fun to look back that far three   years ago um it's been a lot of fun been quite  a journey as I'm sure it has with you Sean and   I think the better question might be just what (01:58) hasn't changed since the fall of 2021   because just so much has changed for  me since then and it's not just from an   investing standpoint either so in the value  investing community and just here at tip in   general what we really try and do is just  learn something every day and when you talk   and interact with so many smart people you  just really can't help but learn hopefully   something over time and then just make a ton of  mistakes and learn from those as well I'd say   from an investment standpoint one of the biggest (02:26) things that changed for me is really just   honing in uh my invest style so when I first  joined tip most of my portfolio was in uh index   funds and I really used the opportunity as a  host of millennial investing to interview all   sorts of different types of investors and then  I would look at their investing Styles read up   on books on Buffett and others and just see  for myself what really works in markets and   then over time I just sort of learned that  so many investors there's all different types   of investors out there a lot of them can (02:57) talk the talk but not too many can   actually walk the walk a lot of people can  restate a lot of what Buffett has said but   very few can actually Implement his teachings  into their own business and their own fund and   uh you just sort of realize that a lot of the  finance industry is really about accumulating   assets and not necessarily achieving the best  returns so part of our job I think here at tiip   is just to help kind of sift through that and  help people recognize and kind of shine the light   on those that that can walk the walk so the (03:26) first thing I would say about uh my   investment style where I've land today so as  of the time we're recording here I own eight   individual stocks and then I've owned Bitcoin  since 2019 and I largely don't discuss that on   the podcast so I'll focus more of this on  the individual stock side so my approach   to stock picking is highly influenced by three  people that I would say all have fairly similar   approaches to Stock Investing so that's Chris  Mayer Charlie Munger and Nick sleep um when   I think about some of the things I've learned (03:56) with regards to Stock Investing I think   initially I was really drawn to just focus on  the numbers so like a lot of my life I've just   like loved math I've always loved numbers and  that's part of what uh drew me into investing   because it seemed to me that it's just all  a numbers game which in some ways it is but   I just really gained an appreciation for how  much the numbers are ultimately an outcome of   all these qualitative things these things that  have nothing to do with numbers to some extent   so I was listening to a recent podcast with Chris (04:25) Mayer and he highlighted the importance   of skin in the game and I've just seen firsthand  in working with CIP the importance of incentives   the importance of skin in the game and just  being in an environment that incentivizes the   outcome that you desire so all my Holdings  have high Insider ownership and reasonable   levels of compensation to help ensure that  they're incentivized to deliver types of   returns I'm looking to get as a shareholder and  Kyle and I have said this a lot on the show but   the focus on quality is just essential for (04:56) my Approach when you look at the   numbers of some of these businesses they might  not necessarily look like value Investments but   hopefully down the line the market realizes  just how good these businesses are and the   quality itself hopefully provides a margin of  safety in the process and I mentioned uh that   episode with Chris Mayer and he talked about how  Valley investors can find comfort in numbers and   I I just love that comment he made you know  value investors they see a number they see   a low price to book a low PE multiple and (05:24) they just sort of get anchored in   that and find comfort in that  number and um I would arue   that approach can sacrifice quality and it can  filter out some of the best businesses to own   so when paying up for Quality you have to accept  that there's just this level of uncertainty that   maybe it's just this qualitative aspect that you  can't really just point to you can't point to a   number where the price book's less than one or  what not so uh I'd say uh the last point I would   highlight is that ideally I'll rarely sell any of (05:54) these businesses if I can help it which is   sort of based on this belief that one I don't  want to interrupt the compounding process and   underestimated a great business's ability to  outperform over long periods of time and in   the ideal scenario hopefully I'm right about  the business I'm investing in and I'm able to   own it for 10 plus years I'm reminded of  a recent interview I did with Professor   Hendrick bessen binder he really highlighted  the importance of long-term investing in these   rare businesses that can outperform for long (06:22) periods and not interrupt that process   so that mayor interview also talked a bit  about intrinsic value and part of many 's   biggest mistake is selling a great company  too early because they feel like they have   a sense of what they know the intrinsic value  is and then they come to realize this business   could run for a lot longer than I thought it  could so uh that's something I almost see it as   taking the possibility of making that mistake  out of my process because uh intrinsic value   it's a very tricky thing to estimate and I'm (06:52) certainly no expert relative to some   of the people I've talked to on the show with  with regards to that I feel like it can get   generally right but uh you don't want to be  prely wrong when it comes to that and uh I   also just try and remind myself how short-term  the market can be so it's natural for a lot of   investors to look at this year's earnings next  year's earnings and uh I don't think too many   people are willing to look out five 10 years  on where a business might be that far out into   the future so certainly no easy task to know what (07:19) businesses are going to do well over that   time period but it's something I'm uh striving for  yeah no I really L following your progression over   the last three years because just as I listen  to you speak in some ways you're so much more   confident about what you know matters and in other  ways you're more humble about what you don't know   and so to me that's the mark of a Savvy investor  and and somebody I think you'd probably say you a   lot to learn too still but um you've definitely  come a long way and I'm still on that Journey  (07:46) myself and I know you've spoken with so  many talented investors over the years but I want   to just go ahead and play clip from what I know  is one of your favorite interviews and that was   a conversation with Scott Nations and 2022 on the  history of stock market bubbles and crashes and   what to do as an anxious investor so  let's take a listen my final question   for you is you know we've studied all these  bubbles in your book you know the south sea   bubble the tech bubble and the great financial  crisis and it's been said for many years that  (08:17) we're in an everything bubble you know  driven by in many ways the Federal Reserve and   the liquidity they've added into the system  and it's led to the rise of many asset classes   stocks real estate and even crypto do you  believe that this Narrative of the everything   bubble is true and if so is there anything we  can really do about it to help protect against   the next big crash that might be coming clay  listeners are gonna are gonna wish you we had   done this in January since the we're now in  a in a bare Market the S&P is down more than  (08:56) has been down more than 20% on a closing  basis um here here's what to do and this is gonna   people are going to uh find this um this is not  going to be the the advice that people expected   I think here's what to do invest continue to  invest don't stop investing uh investing is   the only thing I can think of the only human  realm where we're unhappy when we're getting a   discount well if you have a longterm a reasonbly  long time Horizon 10 years um then you you would   rather pay 20 20% less today than you know you did (09:40) at the start of the year uh so invest   continue to invest don't stop investing that's  that's what you can do um and and one other thing   you know uh one of the one of my favorite biases  that I talk about in the book is called hindsight   bias and it's this is this tendency for people  to look back and convince themselves that what   happened was so obvious in retrospect that  they saw it coming uh and U that Professor   Schiller at at Yale did some wonderful  research uh right after the crash of 1987   in an analog world he sent out postcards to a (10:26) bunch of investors and um and said did   you see the crash coming and about a third of them  almost 40% of them said yes and then he asked for   their trading records well it turns out that 3% of  them 3% which would be about the random number you   would expect for a group about 3% had actually  done something uh in advance of the crash so   the point is that a third of the people that  he talked to uh were fooling themselves okay   we fool ourselves clay what's that mean it means  that the next time we're overconfident about our  (11:05) ability to see a crash coming and to get  out and to front run it and you know to to save   ourselves well it it is purely overconfidence we  have fooled ourselves through hindsight bias so   uh again um The Secret of making money in the  stock market is to not get scared out of it so   invest continue to invest and kind of if you can  trick yourself into thinking wow I'm getting a 20%   discount right now to where it was at the start of  the year then Bravo you are on your way to being   a great investor I remember listening to that (11:45) interview at the time and two years   later I want to ask you firstly whether you still  think we are in a so-called everything bubble and   secondly because it relates to worrying about  big bubbles how do you handle your nerves as an   investor especially since you have a fairly  concentrated portfolio now yeah so first uh   thanks for playing that clip I know uh most  of us hosts don't really like listening to   ourselves but it's even more painful to  listen from like two or three years back   but uh yeah are we in in everything bubble uh (12:13) how do I think about that the truth is   I just don't know I've learned as a host that  uncertainty is always just a fundamental part   of investing and people always want to know  what's going to happen and it's why the big   media Outlets are going to always deliver a  message where the person on the show is just   absolutely certain we're going to have a  stock market melt up or absolutely certain   we're going to have the biggest crash since the  1930s and um they know they won't get viewers   if they bring someone like me on who just says (12:41) no one knows no one knows what's going   to happen but uh some people will claim they  knew after it does happen so the other thing   about bubbles is that certain stocks could  be in a massive bubble and then other stocks   could be trading at a massive discount so I  try and be careful about painting these just   broad Strokes around the market because the  underlying companies within each market can   just vary so drastically that it can almost seem  like nonsense to bucket them together and just put   them under this label essentially and uh with (13:09) regards to like dealing with nerves   and managing a concentrated portfolio it just  nearly certain to occasionally deliver just   painful draw Downs over an investing lifetime  I think even a diversified portfolio is going   to deliver just painful draw Downs so some  things that help for me personally is just   focus on the things that I can control I think  about having a good savings rate so you know if   I am consistently saving each month then  I can add to positions when the overall   Market is down substantially and um you (13:40) know better prices are available   I think about having a good emergency fund  should something totally unexpected happen   say lose my primary source of income or I have a  major expense I need to cover then I don't need   to sell Investments at the worst possible time  what's also important is just thinking about   the underlying businesses and trying you know  it's hard not to look at the share prices of   what you own but just try and focus on what  is going to drive the success or failure of   that investment so March 2020 spooked a lot (14:09) of people liquidity dried up in the   market causing share prices to drop like  a rock and uh the long-term fundamentals   of many businesses were largely on chains of  course the near-term was highly uncertain for   essentially every company but over the long term  it seemed that you know a lot of great businesses   were going to be just fine so if we look at just a  example everyone knows Amazon their stock dropped   by 25% in a very short time period around March  2020 and it's hard to imagine that the intrinsic   value of an amazing business like that (14:42) would change that much so a lot   of investors think you know they don't want to  buy the big market bubble they don't want to   be the one that buys the top essentially well if  you just look at that example with Amazon if you   bought in February 2019 or in March 2020 it might  have looked like you got a bargain in March 2020   but if you either of those investors that is  bought and held would have end up doing just   fine so I think another big thing that gets me  Comfort is um I don't know if too many investors   think about this but I I sort of like it (15:11) for my portfolio is some of the   companies I own are positioned to do well  regardless of the market environment so I   think consolation software is a good example  a lot of we study billionaires listeners are   probably tired of me mentioning this this stock  but uh during a normal period I know they're   deploying capital and achieving High rates of  return on that capital and even better when   liquidity dries up when we're in a crisis  odds are they're going to be getting even   more attractive returns because there's less (15:39) buyers and there's going to be more   desperate sellers so yeah that's some of  the things I think through when thinking   about what sort of Market environment we're  in how I manage a concentrated portfolio and   whatnot yeah I think you make a good case for um  I mean obviously active investing you know comes   with a lot of risks and you hear we're all pretty  familiar with the downsides of it but one of the   one of the upsides is you're more informed about  the companies you own and I think there's sort   of an emotional hedge there I guess it could (16:05) work against you too but you know in   a way there can be an emotional hedge of I  really understand the businesses that I own   I'm less likely to panic and obviously you  know there's that whole component of having   money set aside to so you have an emergency fund  so you're not inclined to Panic it's not the end   of the world if you're 401k or brokerage count  or whatever declined 20 or 30% in value but yeah   if you just have some passive Index Fund it's  a lot easier to not feel like what you own and   not know why things are happening and in that (16:32) sort of right conditions to panic but I   don't want to just keep the spotlight on Clay here  for too long we we have Kyle who is uh an immense   talent and one of those people that really exudes  passion which I think you only need to hear him   talk for a few minutes to know that um you really  get the impression that he lives and breathes his   Investments which I say is a compliment in in  the best way it's so easy to get distracted   today and be able to laser focus on companies  you track is very impressive to me and it's  (16:59) even more impressive because you're not  afraid to look for Value where no one else is   the types of companies that Kyle invests in are  what you might call somewhat obscure even polish   grocery stores to thermal energy companies and  as I try to construct my own portfolio stocks   I want to sort of selfishly ask you how you  build out yours over time you know two weeks   after deciding that you wanted to invest  in individual stocks what do you do when   you wake up on that day and in the days after  that what sort of things were you looking for  (17:27) yeah so thank you very much for that  compliment I appreciate that and so yeah I um   I definitely do love obscure businesses and I'd  also add the more boring the better you know like   of course is the polar Supermarket which I'm sure  similar to consolation software a lot of we study   billionaire listeners are probably sick of us  talking about Dino pulska but you know that's what   they do it's a it's a nice simple business and so  it's unlikely to be disrupted by technology and   then there's another one I have um called Atlas (17:56) engineered products and uh they make   trusses of wood so another very boring industry  but I I really like that and I I like the fact   that it's going to be tough for technology  to come in and kind of Ruin those business   models so um in terms of your question though  I think I'm going to break that down into two   separate sections so the first one is just  you know what do I do so I generally have   a lot of ideas floating around in my brain um  I get them from a numerous sources that might   be Twitter that might be substack the tip (18:27) Mastermind Community I get a lot   of ideas from there I might get direct messages  from people whether that's you know LinkedIn or   Twitter I get emails from random people sometimes  that just want to share an idea with me um and   then you know I've made quite a lot of friends  as well just in investing and uh the beautiful   part about that is that a lot of these people  know me pretty well know me um know what my   preferences are know the types of businesses  that I like and so sometimes they'll send me   ideas and they know that it's something that (18:54) oh okay maybe it's something that Kyle   understands or something that definitely  resonates with Kyle so I get ideas from   different places and I'm very lucky to have so  many sources so once I get an idea I generally   like to do a pretty quick quantitative check just  to make sure that the business is profitable if a   business isn't profitable and and unfortunately  a lot of people will share ideas with me and   I can just look at their net income if it's  negative or if they have no cash flows it's   just I'm I'm not going to bother spending another (19:21) second really on the business of course   you can there are businesses like that that can  be wildly successful but I just don't bother so   um if the business is profitable a I'll look  at a couple of other things I'll look at you   know the historical growth look at you know  Revenue net income earnings per share free   cash flow stuff like that I'll look at the  capital efficiency of the business look at   things that you know like Returns on invested  Capital Returns on Equity I'll look at their   cash flow and then also look at their Financial (19:45) Health because that's pretty important to   me I like businesses that um I can't go to zero  and then luckily so far in my investing career I   haven't had that happen so if that all checks  out I'll start the due diligence process so   that has a lot of steps to it there's a whole  bunch of different things I do I'll read analysis   from other um investors that probably isn't not  nearly as important as all the other things I'm   going to do because you know investing when it  comes down to it it's my decision-making so I  (20:12) shouldn't necessarily be relying on  others but um there are people who at least   can kind of package these fees into a very easy  to read uh way and that can kind of just give me   a head start so after that I'll read things like  10ks uh 10 Q's I'll read letters to shareholders   if the CEO writes them I'll read and listen to  quarterly q&as uh take a ton of notes of course   and I'll read things like proxy statements  and stuff like that so um if I go through   that and the business still looks interesting  which um you know not a lot of things pass  (20:46) through my filters to this point then  um then I'll start really digging in uh seeing   if I know anybody who works in that industry or  maybe works for a competitor or just understands   the industry better than I I do and try to talk  to them ask them questions uh the tip Mastermind   Community has been really helpful for me for  that because we have such a wide array of people   to talk to so I can talk to people in specific  Industries and I found that incredibly incredibly   helpful um then after that I like to look at (21:14) competitors see what they're doing see   what their numbers are see why this business  might be better or worse or equal I also like   understanding if the manager of the business that  I'm looking at if I like to know more about their   compensation if they're making $10 million a  year and everyone else in the industry is making   million will that's a pretty big red flag and or  maybe there's some Superstar and maybe there's a   reason but I think it's pretty important  to understand um about the compensation   and what they're also incentivized to do (21:42) after that I I'll start looking at   my checklist so I have a checklist I think it's  somewhere around like 130 items at this point   and it just keeps growing but I I think that  doing more and more diligence on on my end is   is probably a better thing so I'll generally  try to fill out my checklist in about say 6   to 70% um before I end up buying I generally  will end up writing every single answer to all   my checklists um at some point but it might  not be during the process because sometimes   there'll be an opportunity that comes up that I (22:13) might need to kind of hustle because   there might be some sort of catalyst or like  I'll mention Al also here in the future that   is that I like small caps and they can move  really fast so anyway sometimes I'll skim   my checklist just to make sure that sure I I  understand approximately half of it or you know   75% of it and um so during this entire process  you know I haven't mentioned valuation yet so   during this entire process generally I get an  idea you know looking at competitors see what   they're trading for um seeing the quality of the (22:42) business is it really high quality does it   have really high recurring Revenue will grade  that that means it's probably expensive and   it's a high quality business and the market  knows about it which also means it's going   to be expensive and uh at that point I'll try  to figure out if the investment makes sense   you know can I actually earn a return of course  like clay said you know you can pay pretty high   prices for some of these Investments and uh you  know the traditional value investors probably   not even going to bother looking at them (23:07) because they're just looking for   pees that are less than 10 or or businesses  that are trading at less than Book value um   but you can find really really high quality  businesses and even though they're trading at   these optically high multiples they still end  up giving a really really good return So yeah   so that's just to say you know it depends some  businesses deserve to be cheap and some businesses   don't deserve to be cheap so once I go through  the valuation I'll see if the price is above my   hurdle rate and if it is then cool then I'll (23:37) start buying it so my buy process has   definitely evolved over the years when I kind  of first started and this was kind of it's hard   to adjust just from the times you know during  covid you had a lot of businesses that were   really interesting and then they would go up  in price really really fast so I kind of got   scared to take this kind of slower approach  because I'd buy something and then it would   like double in a couple months time and I like  okay well now I can't buy it and I have like a   a tiny position in it so I kind of got used to (24:03) being like okay well I'm going to do   the work and try to ratchet it up to I'm pretty  concentrated so I might ratch it up to eight or   10% Like right off the bat but there were some  problems in that because I felt like with the   more and more experience I got I understand  a business really really well once I own it   and so now I try to just take a one to 3%  stake and uh once I start understanding the   business more I'll add more will that mean I'm  averaging up probably in some cases but I think   that understanding the business a lot better (24:34) and averaging up is probably just a   better strategy at least for me and then yeah  so throughout the whole process I'm trying to   find you know some of the small nuances and  in the business use different mental models   to help solve a variety of different questions  or problems that I might have on a business   Buy Low sell High Buy Low sell high it's a simple  concept but not necessarily an easy concept right   Now High interest rates have crushed the real  estate market prices are falling and properties   are available at a 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(25:36) com Flagship this is a paid advertisement   and then as also part of the thinking process I'll  do destination analysis which was popularized by   someone obviously clay highly respects which is  Nick sleep and K sakario from Nomad Partnerships   so if for listeners I don't know destination  analysis is is pretty much where I'm just going to   imagine where the business is going to look like  in say 5 to 10 years and this definitely requires   some honesty because you know it's easy to really  just fool yourself into thinking that you know  (26:08) what things are going to look like in the  future but you know as as clay already alluded to   you know the future is unknown and people who say  they know what it's going to look like are usually   not being completely honest with themselves so  you know you have to just admit that maybe you   understand what it looks like maybe you don't know  what it looks like and so for me one thing that   I've really found powerful is is being okay well  maybe I don't know the business looks like in 10   years but maybe I do know what it looks like in (26:31) five years and so if I know that at least   I know okay well in five years time if this  business is still doing everything I I wanted   to do cool now I can look at it in another five  years but if I look out 10 years and I'm just   completely off the mark well that might just  give me signals to do things that aren't AR   don't don't make a lot of sense and then you  know um with another section of my portfolio   it is a little more short-term oriented so in  that case I might just be looking out like two   years and even I've noticed with a lot (26:59) of my businesses that I think I   can hold for a long period of time I still  probably have to bring it down to two or   three years because I feel like I'm a lot more  accurate than looking way further out and then   the other thing I also try to do during the uh  destination analysis process is just finding   out which kpis are going to be most important  that that business needs to hit in order for   me to meet that destination and then on the  other hand I also like to know what needs to   happen for them to not hit those kpis and then (27:25) I can actively look for that so when I   actually own the business I know what to look for  to make sure that okay are things going right or   are things going wrong and then that can also  help improve my decision- making so to answer   the other part of your questions of what I'm  looking for so I have two distinct buckets of   Investments my primary bucket is pretty much  probably exactly the same as as what clay   already mentioned it's high quality businesses  so I want businesses you know that can reinvest   in themselves at hopefully very high rates (27:51) of return and hopefully for multiple   years um into the future I like businesses  that have high Returns on invested Capital   preferably over 15% and also a durable High  Returns on investor capital I like them to   have a history of profitability I like you  know pretty high Insider ownership hopefully   even bought on the open market I'd like to have  a management team that has a history of value   creation whether that's preferably with the  business that I'm looking at but also could   be with another business that they've worked at (28:19) previously and I also prefer businesses   that have minimal leverage um I do like serial  acquirers and and some of these businesses are   managed by people that are so talented that it  actually does make sense to have a little bit of   Leverage because you can just earn more profits  so after reviewing some of my past mistakes I   think I personally have thought maybe a little  bit too highly of my ability to forecast what   exactly is a quality business especially  as in regards to into the future so I'm   still definitely making enough good decisions (28:48) that I still want to have uh quality   businesses in my portfolio but it also just  open my mind to another possibility and and   this was something that I learned from my  first actual podcast guest on millennial   investing which was Paul andreola and that was  undiscovered businesses so the second bucket   I have I like to call just inflection point  businesses so these businesses share a lot of   similar traits to the Quality businesses but they  tend to be really small generally less than $50   million in market caps um and they don't have a (29:16) long history of profitability which I   usually demand for in in my quality Compounders  so I'm looking for businesses that maybe have   only been profitable for like two quarters so  that's why I call them inflection points cuz   they're inflecting into profitability um but  with these businesses there obviously are a   lot of risks so with these businesses I basically  demand like no debt pretty much you got to have as   little debt as humanly possible because again  I want to make sure I'm not getting a zero so   and then the reason I think that this works (29:43) is that because these businesses are   undiscovered because there's pretty much  no analysts there's no institutions really   seriously looking at them so you get all these  crazy crazy mispricings and you know it's not   uncommon for me to find something trading at  like a single digit forward P multiple but also   growing top and bottom line at like 50% or more  so these are just opportunities you don't find   in businesses where like Amazon everyone knows  what Amazon is every single analyst in the world   knows Amazon so you're not going to see these (30:11) huge discrepancies in price and value   and so uh you know just a little food for thought  so in 2024 my inflection point business have 44%   Returns versus 15% for my quality businesses so  it's kind of a constant struggle in my mind if I   should be allocating more to inflection point  businesses or what but uh it's definitely been   a big realization uh this was especially in  2023 that a good investment can be made at   any level of quality I just want to highlight  kind of three different investors that I highly   respect and two of them I've interviewed (30:42) so Scott Barbie he's kind of your   traditional value guy he's this guy's beaten  the market for 25 years um and he just buy   businesses that are trading well below Book  value so you know kind of your classic Ben   Graham is type investor and he's done it  to amazing degrees of success then you have   someone like Paul andreola and this guy he has  probably as many multi Baggers as anybody I've   ever spoken to I he's probably forgotten more  multi Baggers that he's had than I know exists   and uh a lot of these businesses are ones that (31:14) despite being large multi Baggers no one   even knows they exist and so again this is kind  of where I've cloned a lot of my inflection point   businesses you know I would consider them to be  lower on the quality Spectrum but a lot of them   are businesses that are inflecting specifically  because I think the quality of the business is   improving and then lastly you have someone  like Chuck akri so you know Chuck akri invests   literally only in very very high quality  businesses and hopefully businesses that   he can hold for extended period of time (31:40) he's written extensively about   how selling your winners is probably the biggest  mistake that you're going to make as an investor   into high quality businesses so you know the  point being here is that all three of these   guys have been just so successful and they  have rapid very very different strategies and   they own very different businesses that are  different in quality and they're different   in market caps and so this is a really big  concept that I spent a lot of time thinking   and so I just want to mention here as well you (32:05) know monish P has mentioned that his   strategy has altered over time based on what the  market was offering him so you know I can't really   guarantee that the strategy I'm using now is  going to be the exact same in 10 years but I   can guarantee that I'll definitely consider  quality all the time in all the Investments   um and all my investing Frameworks yeah  imagine those inflection point I mean   obviously you have to pay close attention  to any business you own and are investing   in but those inflection point ones sound like (32:33) something that you're kind of probably   monitoring much more closely than your typical  like to be cliche quality compounder that you   know has so many recurring revenues and so many  Moes that you can kind of go to sleep at night   and you don't have to worry about whether  people are still going to be buying iPhones   um but you know and then I found that really  interesting too that destination principle   you talked about because it's sort of like uh  you know munger's inversion principle where   you're thinking about thinking with the (32:58) IND mind and imagining you know   if this stock is going to get me a 20% per  year return over five or 10 years you know   what has to happen five years from now to get  that 20% return is that all that coming from   20% growth in free cash flows is it coming from  dividends and BuyBacks is it coming you know an   expansion and the PE multiple it kind of grounds  you in reality because it's easy to think oh I'm   buying Apple this is great it's going to combat  at 20% a year for me like it has for you know for   whatever how many other years it has in (33:26) the past generated excellent   returns and then you're thinking you know are  they really going to sell 20% more iPhones you   know who are they going to sell them to who's  buying these iPhones and so it's an interesting   way to think about things but I want to  talk a little bit about having skin in the   game obviously we're all podcast hosts here and  that means we talk publicly about investing and   even on our specific portfolios as you just have  Kyle but there are some obvious and less obvious   conflicts of interest that can arise from that I (33:53) think for starters and I don't think   anyone could accuse you of this with your  portfolio Kyle but there is a temptation   to cover the most popular stocks and markets  just to get more eyeballs on our content even   though the Teslas and nvidias of the world are  probably not the best investments for long-term   investors when they're in the middle of some  hype cycle so I really enjoyed an interview   you did with Brian staul of the mle fool who  talks about what it means for him to work in   media but be transparent about his track (34:21) record while also having skin in   the game as an investor here's a clip from that  conversation sure so uh let me let me start with   why it's so important to be transparent with it  um I was a writer for the mle fool for a number   of years and anyone who follows me knows that  I'm heavily influenced by the work of someone   named Nasim Nicholas Talib uh who's written  a lot of books that are very influential   especially for myself one of those books is  called Skin In the game and in it he talks   about how especially if you're someone who is (34:52) giving advice about anything that you   need to be exposed to downside risks if you're  wrong if you're going to make a living off of   giving advice and I really took that to heart  and so I read that like I read that from him   before he came out with his book skin in the  game and I've actually interviewed him twice   so I've had a chance to interact with him and  when this happened it was probably around 2017   2018 that I I kind of It kind of hit me that I  was like huh you know I'm not doing that because   as a writer um I wanted to write about stocks (35:29) that were really really popular and   writing about a stock that is really popular  and having an opinion about a stock that is   really popular guess what that gets you a lot  of clicks and a lot of clicks means that you're   more likely to stick around as a writer and of  course the problem with that is is that if I'm   picking out a popular stock more often than  not that's a risky stock and if it's a risky   stock and I'm saying yeah you should own it but  I don't own it myself think about the Dynamics of   that where someone reads this and they say oh so (36:03) and so says this is a great buy I'm going   to go out and buy it and I get paid for that  article and I also get paid if it's a really   popular article but what happens if the stock goes  down and everyone who followed my advice they lose   money and I gain money and there is something that  that asymmetry there's something that's just not   okay with so what I did Kyle that was really  eye openening for me because at that point in   time I probably had about seven or eight years  worth of articles that I had written and so I  (36:37) went back and at the the mly fool does a  great job of this they at the at the end of every   article you have to say whether or not you have a  position in this company and so I went back and I   went over hundreds of Articles and you can tell  I had a lot of time on my hands at this point   in time my daughter had just been born and when  she was asleep I would just sit down and and go   through these numbers when I did it was so clear  when I made a recommendation about a stock for   the Molly Fool's free site to be clear this (37:06) was the free site it's not their paid   Services they did significantly better over  the next three years when I owned the stock   then they did if I said so and so is a good  buy and I didn't own the stock and that was   really eye openening for me so all of a sudden I  was like huh there is there is a problem problem   with suggesting stocks and you don't even own  them and it's funny because a lot of people's   you know there there's a lot of people and I get  the the argument that they'll say well you're just   writing about this company because you own it (37:41) and I understand that argument but I   would much rather take advice from someone  that eats their own cooking than someone   who's just going for clicks so that's why I  think that sharing your record is so important   first of all I think I think you have a moral  obligation to do so first of all if you're in   our line of work and secondly it makes me a  better investor if I know that my reputation   is on the line I'm going to take a lot more  time to think about what it is I'm suggesting   so as someone who has invested in the (38:18) public eye and earned double digit   returns for a few years now which at the time  of recording comes out to a bit over 13.5% per   year I think since April 2020 can you tell us  about the hardest parts of managing a portfolio   publicly Kyle investing is already hard enough  so having a spotlight on your every move I'm   sure can present some subtle challenges  yeah so I can definitely only speak from   my own experiences here but for me it actually  hasn't been that challenging for about managing   a portfolio in public I mean you made some (38:47) points there about covering stocks   specifically that people would find interesting  to hear about whereas I'm telling you here that   I like stocks that no one's heard of and  stocks that are really boring so you know   there's a conflict there where I personally find  those types of stocks the ones that I own the   most interesting whereas maybe the audience  doesn't so that's kind of hard and but you   know there are enough businesses out there  um I think clay and I luckily have covered   a lot of those on the podcast that we both find (39:17) interesting both from a quality standpoint   they aren't necessarily insanely expensive like  the ones that you mentioned um and you know we   also find them interesting so that's kind of how  I think we get around that one but getting back to   that clip that you just shared of Brian there so I  really really resonate with his point there about   how sharing your track record is kind of like a  moral obligation so I've always thought the exact   same thing even from before I spoke with him and  so that's why I've shared my own returns over the  (39:45) last few years and I plan on continuing  to share that into the future so with social media   there's obviously you're just exposed to millions  of people out there that are especially in say for   Financial Twitter you got people that are sharing  their tickers they're sharing their portfolios but   you really have no idea if they actually know  what they're talking about or not for instance   a random person can go on Twitter and they can  signal to Their audience that they're a genius   because they have one winner in their portfolio (40:13) that you know maybe it's doubled in the   last year or couple months the same token  they can just fail to admit that they also   have nine other businesses that have dropped  50% or more in their portfolio so you know is   that the type of person who you want to follow  into other ideas well I don't I'll leave that   to our listeners here but um I just think that  sharing a track record really signals to anyone   who wants to listen to me that I'm transparent  about what I'm talking about um I'm not going   to sit here and say that I'm some sort of (40:42) massive success but at least you   just know that these are my results take  it or leave it so if you think that I'm   not doing good enough well then that you know  that you probably shouldn't listen to me or if   you think that I'm doing good enough then cool  maybe you'll find some insights from what I say   I personally wish more investors did this but I  think that there's a lot of investors that just   don't really track their returns closely  or unfortunately I think there's also some   that just don't want to admit that they're (41:05) underperforming the index and you   know maybe they're uh ashamed to some degree  of sharing those facts with other people so   for me personally I don't know maybe I have some  unique character traits because I do value certain   people's opinions um but there's actually not that  many people in especially in the investing World   whose opinions matter that much to me like  I might write about some stock that I like   and I might have some random person with some  profile picture of Warren Buffett who comes   and tells me that you know I'm I'm an idiot (41:35) or whatever and that doesn't really   bother me that much because it's some random  person on the internet telling me their opinion   and I don't know anything about them so oh  well you kind of have to live with that for   sure if you have an online presence so you know  but then maybe I'll have someone who I know and   I've invested alongside with on certain ideas or  I've talked to them about my ideas and they know   me well and maybe maybe they think my idea is  not good so for me I think it's probably good   for me because I can go and find out if their (41:59) logic for um their conclusion is better   than mine and so with that I think I borrow  a lot from Ray Doo where I'm just hopefully   trying to come to the truth and not necessarily  just pad my ego and tell people that I'm right   so I think that this is just a really really  important thing to do in investing and and   constantly doing it and it's hard don't get me  wrong so um the next area of sharing my portfolio   publicly in terms of problems is definitely  in in terms of biases that I think it creates   so there's kind of four ones that I can (42:27) think of here so the first one is   commitment bias so ideas that we end up sharing  with others publicly um tend to keep us more   committed to them and so I've probably had  this problem where maybe there are some ideas   that I had where maybe there's some factors  that told me I was wrong but because I felt   committed and I'd been talking about it maybe  whether that's on social media or even when I   had my own substack I felt like maybe I needed  to hold on to it longer than I should have um   then there's liking bias if I'm signaling to (42:57) everyone me that I like something   in the market and maybe I'm getting a lot of  Engagement or positive comments based on the   idea I may begin liking that idea too much which  can also cloud my uh judgment to any potential   risks or Adverse Events that can happen then  the next one social proof uh when you share   an idea on social media you often get a lot of  other people who are just looking at tickers   and they they come in they like oh you know Kyle  likes ticker XYZ and I like it and they'll come   in and support you and it's really nice to feel (43:24) supported but on the other hand I know   of other investors who on Twitter who they'll  say they sell a specific name and then they   get like hate from other people that own it  being like oh why would you sell it and blah   blah blah and so you know and I know that can  affect people in a really negative way and so   again you know that social proof might also keep  you into an idea that maybe you don't necessarily   want to be in anymore and so the last one  here I have is just excessive self-regard   tendency so I'm sure you guys are aware of that (43:50) study that where everyone thinks that   they're a better driver than they think they are  whereas in reality 50% are better 50% are worse   than the average but I think that exact same  concept can be applied to investing right   I mean um you know I think everyone who's  owns individual stocks is inherently saying   that they're decent at investing otherwise  they just buy the index so um I think again   this kind of just explains why I think it's  important to display your track record it's   signaling hopefully that I have some idea that I (44:20) know what I'm talking about um versus   someone who doesn't share it because of a variety  of reasons that I've already shared so you know I   think that if you publicly share your portfolio  you definitely need to just try to be aware of   the biases that may arise because they will  arise no one's perfect you know even Charlie   Munger Warren Buffett they've made mistakes  due to biases as well and so I definitely   don't make any recommendations I don't think we  ever do on the show you know we're just sharing   information with you and hoping that you (44:49) find it valuable um and then on top   of that you know if I share something with  someone whether they buy it or not doesn't   make a difference to me and I think that that  thought process definitely helps me fight off   a lot of the commitment bias that some people  have um you know when it comes down to it I'm   in investing to Achieve Financial Independence  at one point not to get likes on Twitter or get   more attention so um once I really drilled that  down um you know drilled down why I'm investing   I think that really helped me figure out (45:17) some unique ways to try and fight   these biases but I'm I'm sure I'm guilty  of some of them as well um it's a constant   struggle and I think that maybe Buffett and  Munger had the right idea of keeping their   ideas to themselves these last few decades I  I really appreciate the approach that you take   and the transparency involved on it and also the  perspective of of what actually matters and and   why we we do what we do but jumping back to you  clay as we talk about managing portfolios and   trying to outperform the market averages the elten (45:45) in the room here is passive investing I'm   sure there's a chunk of the audience that's listen  to this and thinking you know why even bother with   all the trouble of constantly searching for  new Investments or maintaining and tracking   portfolio of companies and given that we know most  professional investors don't even outperform the   S&P 500 at least after accounting for fees  I do think that is a pretty valid thought   and concern to have I want to go ahead  and play a clip from your conversation   with Eric balunis Eric wrote one of the most (46:15) thorough books out there on John Bogle   who was in many ways the founding father  of passive investing by launching Vanguard   a few decades back which is one of the world's  largest asset managers known for their very low   low cost index funds let's listen the rise in  the assets under management for Vanguard over   the years is just astonishing they started in  1975 they hit a trillion dollars in AUM in 2006   and today their assets sit at around 7. (46:46) 2 trillion and you know it makes   me wonder if you've studied the idea if there  is an index fund bubble you know we have these   trillions of dollars flowing into index funds  these people are buying every month regardless   of the prices of these stocks that are in the  funds so I'm curious what your general thoughts   are on that idea it's so try to break this down  in a chapter eight called some worry with quotes   because some are worrying and I think most of  it's It's meaningless look at the end of the   day all that's really happened over the past (47:12) 20 years is people went from buying   an active sort of let's say Fidelity Fund  that owns like the popular stocks but maybe   in Waiting that are slightly different than  the Benchmark you're still owning JP Morgan   and apple and Amazon and AT&T we call that  closet indexing where you're pretty close to   the indexing be shed 70 bips all this happened  is people went from closet indexing to actual   indexing so they're just owning all those stocks  for three basis points the metaphor I use is   uh the CD to the MP3 I think indexing and (47:40) ETS are similar to the MP3 they're   just way cheaper and more flexible to get the  same thing it's not like indexing his invented   Stock Investing just like the MP3 didn't invent  music you're just buy whatever music you like   in a better way cheaper way it's a format  change that said index funds do buy stocks   indiscriminately if the stock has a higher  market cap it's going to buy it more because   that's where it sits in the index the market cap  though is detered by active managers that's why   the S&P 500 can have like a stock like Macy's (48:09) fall out of it and Tesla comes into it   the reason Tesla got into it is because active  managers like Tesla and the reason Macy's fell   is because active managers hated Tesla active  controls what's in the indexes so in the indexes   you are somewhat riding the cailes of active  but they are definitely dictating pricing   that said let's say a stock like GE which went  to the gutter in early 2018 I believe it was   went down 50% in like half a year because of  the bad earnings report and then ETFs and index   funds that HG took in a ton of money during (48:40) that period but it still went down 50%   now would it have gone down 52% if it wasn't  for those bids coming in from the index fund   flows maybe so I think if anything index and  the rise of indexing might put a little bit   of a baseline on stock sell-offs because there's a  bid coming in but overall I think anybody over the   past couple years can see with mem stocks  and Tesla and pelaton that indexing is not   controlling prices here otherwise we wouldn't see  some of these stocks go up and down so until we   stop seeing that I'm fine with this I mean (49:10) indexing is a great way for people   to get the value also keep in mind indexing is  not uniform the S&P 500 actually has criteria   to get in there's a human committee that has  absolute discretion over it that's why Tesla   was late to get in and then the Russell 1000  has their rules then there's like oh I'm going   to own maybe the total Market that's different and  then there's different indices within midcap and   small cap and then you get to International  some hold uh now some hold China some don't   indexing isn't really All Uniform either (49:38) just like active isn't that active   either so in the book I sort of try to  explain to people that the real Trend here   isn't active to passive because some actives  very passive and some passive funds are pretty   activ is it's not broker to Raa which is also  another big Trend and it's not mutual fund to   ETF which is a trend it's high cost to low  cost with in every one of those categories   you just see people M I call it the great cost  migration so I try to explain that that's really   what's happening here so that was a bit of a (50:06) longer clip but I really like how   Eric balunis breaks things down there's been  this huge pull to passive index funds in the   past few years and yet active investors are  still fundamentally the ones who are driving   the market they're the ones on the margin  deciding whether stocks are fairly valued or   not but there's something to be said too for how  trillions of dollars worth of indiscriminate B   can distort the structure of markets by  for example normalizing higher and higher   average price earning valuations on the s&p500 (50:35) so it's something I go back and forth   on a lot and that is on the one hand I know that  the odds are stacked against you to outperform the   market with a more active approach you I don't  want to be just blindly contributing to buying   index funds that are sort of forming a passive  investing bubble after having spoken with Eric   and now having chosen to not use index funds  I'm curious to hear how you think about it clay   I'm sort of joking here but is there  some part of you that chooses to invest   actively so that you're contributing to fairly (51:03) valuing companies rather than being a   passive investor or do you do it because you  believe you can truly beat the market or is it   just sort of a passion for you and life is short  and you want to enjoy the craft of investing yeah   it's a really interesting question I think it ties  into a comment that uh Kyle just made actually so   I don't really think about investing in terms of  should I go passive or should I go active I mean   one way of thinking about it but what I really  think about is what vehicles are going to help me  (51:31) hit my financial goals and my Main  Financial goal is achieving Financial Independence   and uh I'm reminded of uh yet another lesson I  kind of picked up from Chris Mayer I had mentioned   to him in an interview that the goal of probably  most active managers is likely to beat the market   because um that's what their investors are likely  benchmarking them against and he mentioned to me   that it really isn't his goal his his goal is  to essentially just compound Capital as fast as   he can without taking unnecessary risks so he (52:02) also made the analogy of trying to you   know invest and beat the market is like trying  to be happy it's like focusing on the outcome   instead of focusing on the process itself so  none of us can really control what the index   is going to do but with an active strategy we  can control the companies we buy the managers   we choose to partner with the business models we  expose ourselves to and the valuation we pay and   I'm also reminded uh I was just chatting  with Stig yesterday about how the index   fund especially the S&P 500 has performed (52:30) over time so when you look at the   1990s there was nine straight years where it  was up and the average return in the 90s was   18% so I'm sure people in 9899 were like all  about index funds like this is the way to go   and then from in the 2000s it had actually a  negative return with dividends reinvested so I   sort of feel like we're we might be at some sort  of similar period I'm not making any projection   on what I think the S&P 500 is going to do over  the next decade but like it's been really good   since 2010 it's been north of say 14% something (53:03) like that so uh I personally think that   the passive investing crowd can sometimes take  it a bit far when stating that just pointing   to that statistic that says that most active  managers underperform you know while it might   be true it overlooks some of the shortcomings and  limitations of a lot of active managers so for   example I'm not going to own more than 50 stocks  in my portfolio like many active managers do and   some managers only buy large caps or  they only buy US stocks and they have   all these limitations they maybe can't (53:33) size up their best ideas as much   as some of us can do or an individual investor  can do and um they might have pressure to put   up short-term performance and they feel like  they need to beat the market this quarter or   this year and so in some ways I think individual  investors can actually have a pretty big advantage   over institutions and that's not to say that  it's necessarily easy to do of course and uh   I also can't help but just think about how  the S&P 500 and a lot of these indexes are   just becoming more and more concentrated into the (54:02) Magnificent 7 let's call it and um yeah   it kind of makes it hard when uh you know people  kind of ask you what they should invest in what   would I tell a close family member where they  should put their money like historically the   S&P 500 I felt pretty comfortable with that  but it's getting harder and harder just with   call it 31% of the index being in the top seven  names and then I also have to recognize that   like most people just don't want to analyze  businesses they don't want to read all these   books on Buffett and uh yeah it's easier for (54:30) me to do since I enjoy it I enjoy the   process and honestly part of my job to some degree  so with time I've just found some businesses that   I would personally much rather own than an  index and even if there's the possibility   that they might underperform for the first one  two three years hopefully they will over the   longer run and I know that you uh mentioned uh  you know trying to find these mispricings and   kind of contribute to to the side of things  and um I think a lot of people mention like   taking emotions out of investing but I can't (55:01) help but feel some sorts of sense of   connection to some of the businesses that I own  which you know can introduce a lot of biases but   uh it honestly makes investing a little bit  more fun for me so you know hopefully I'll   stay invested for a long periods of time whereas  for the S&P 500 it's more like systematic you're   just mindlessly buying a basket of stocks and  I'm honestly not sure if it's a rational way   to to look at it but it certainly does make  investing more fun for me and I think about   how many Valley investors own Burkshire in their (55:30) portfolio they've owned it for decades   and they know Berkshire isn't likely to vastly  outperform the market but they feel some sort   of connection to Buffett and the way they sort  of operate so I feel a similar connection to   some managers out there that I feel are just  exceptional of what they do and uh another   interesting stat I I recently read I'll  be chatting with Rob or not on the podcast   here soon and he put out some research that  indicated that the typical p500 company gets a   markup of around 40 to 50% on their multiple for (56:02) those that are included in the index so   with that in mind I think there can be some sort  of an advantage to hunt Elsewhere for a similar   quality business that doesn't have that markup it  might be uh just due to their size or due to where   they're based or whatnot and you know of course I  don't necessarily recommend that for everyone it's   just uh an observation I've had personally  and um recently a member of our Mastermind   Community mentioned to the group that uh  the group generally likes to talk about   individual stocks and it sort of made me (56:33) realize that different people are   coming out investing from a different  perspective or different angles we all   have different experiences and whatnot so for  somebody who's financially independent many   times over oftentimes their number one concern  is going to be wealth preservation and I think   that makes index funds a great vehicle because  you know the bad companies automatically get   filtered out of it the upand comers get  put in and it's never going to be a zero   essentially so I'm still on my road to financial (57:01) Independence and I think there's something   about you know hunting for the next five or  10 bagger or whatnot and just one or two of   those could make a significant difference  for me but for other people it might not   make any difference at all if they put a  few percent in a stock and it goes up 20x   you know they're still financially independent  either way so uh yeah sort of depends on your   life situation your financial goals and whatnot  and uh I just have found some Ms that I think   will give me a good shot at achieving my (57:29) financial goals and then uh find   some assets that I'm comfortable with and for  some people a passive approach is probably the   route to go so found an approach that suits  my skill set and my temperament yeah no to to   your point on you know people asking for you know  hey what should I invest in you it's a question I   get a lot too it's like on the one hand like  you said I want to tell them the S&P 500 and   then you know there's all that concentration  in the S&P 500 as you pointed out and then   you know my next bet is okay you know buy (57:55) like a Vanguard total World fund   and just invest in the entire world and then  you realize 63% of the market value of all   of the world's stocks traded everywhere is  US companies uh so you know if you want to   call it a bubble in US Stocks or just the kind  of rich valuations in US markets has bled over   and really consumed a disproportionate share  of global financial markets so even if you   think you're buying a total World Index Fund  you're still having massive exposure to the   US you know basically three times what the US's (58:31) share of global GDP is um and then within   that you're you know heavily concentrated within  the S&P 500 so I'm not sure that there's an easy   answer to it but as you said it depends a lot on  your perspective and and where you are in life   and what you're trying to do and the rest you're  willing to take and um that brings me to you know   I know we all admire our colleague William green  who's the author of richer wise are happier and uh   host a podcast of the same name and I think we all  agree that that book is is an instant classic it's  (59:02) a book I always come back to especially  when I want to learn more about specific investors   since William green does such a great job  profiling so many of the investment Legends   I know we all look up to after having spent time  with a number of them personally including folks   like Charlie Munger and Manish babai I want to  go ahead and play a clip from William when he was   last on millennial investing I'm very curious what  led you to study the best investors not just to   discover those investing lessons but also to (59:29) learn how to live a better life as   well part of it was I I started off originally  I just wanted to make money I I didn't like the   idea of working for a really annoying boss who I  had to take orders from I I was always a little   bit subversive and independent-minded even even  as a kid and and so I think when I discovered   investing in my twins I I kind of thought this  is this miraculous thing where if you think well   you can achieve a degree of financial  Independence and security that that   um is difficult to achieve any other way (1:00:05) and so so I had this tremendous   Advantage because I was working as a journalist  so when I started to um want to invest and make   money off the stock market I could actually go  and interview all of these great investors for   magazines like Forbes and Fortune and money  and time all these magazines that I I ended   up writing for and so I would do things like  I would go off to the Bahamas and spend a day   with Sir John Templeton who was probably the  the greatest Global stock picker of the 20th   century and so I initially I was looking (1:00:36) at these guys thinking this is   so cool it can kind of teach me to become  rich and then gradually what happened much   to my surprise is I figured out God these guys  are really interesting these really strange   characters who are very incredibly thoughtful and  I think I think what I gradually figured out is is   that they were almost like practical philos  opers that they were they they weren't just   thinking about these really abstruse esoteric  questions like does this chair exist and do I   exist they were thinking about these really (1:01:08) practical philosophical problems   like wait a second so the future is unknowable  so how the hell do I make a good decision about   the future about anything and and so what  occurred to me when I look back now on 25   years of writing about these famous investors  is that the reason they have to to think that   way they have to be very pragmatic very  very philosophical in terms of thinking   about the future and how to make good decisions  is because they have skin in the game if if they   screw up they actually get really punished for it (1:01:38) you can lose tens of millions hundreds   of millions billions of dollars in the case of  some of these investors so I think that makes them   very good thinkers and and so my interest kind of  deepened over the years it starts off really just   being about money and then I start to think about  all of these issues that they're grappling with   like to give you an example someone like Howard  Marx like who I write about in one of the chapters   of of this book here's a guy multi-billionaire  managing something like $60 billion doar at a  (1:02:07) firm called oak tree and and he's  literally grappling with this problem of the   fact that the future is unknowable and and as  he puts it everything changes and so when he   was when he was a Youngster he went to Wharton  and and he was a very good artist and he wanted   to study art but but they were like no you're  you're a finance student there's no way you're   allowed to study fine not so they kick him out  of the class and so he has to find another class   to study and so he goes to this Japanese  studies class and discovers this this Zen  (1:02:35) Buddhist concept of impermanence the  the word for it in Japanese is muo and this has   become this kind of defining idea of his life is  okay so if everything is impermanent if everything   is changing what the hell do I do how do I deal  with the future and so one of the things that   he does is he says well you have to accommodate  yourself to reality as it is you have to you have   to say well I'm I'm I'm I'm not this master  of the universe I don't know what the future   holds I don't know what can happen all I know is (1:03:03) that everything is changing everything   is in constant and so I have to adapt myself to  circumstances and so this sounds like kind of   an esoteric air fairy idea but it's actually  really practical because you think about how   it how it applies both to financial markets  and to life William green is such a wealth of   wisdom and I want to give you both a chance  to share your favorite lesson from studying   Legend investors either from directly talking  with them or from reading about them in a book   like William greens KY I'll let you take (1:03:34) a swing first if you want but   let me just say this could be really for  anything it doesn't have to only be about   investing life friendships whatever it is  wherever you want to take it yeah sure so   one thing that William told me was that the book  is meant almost as a tool to really decide who   and what you want to clone and so I think this is  just a really compelling message for the entirety   of the entire book because he obviously  has all sorts of different kind of wide   ranging Concepts from each chapter and you know (1:04:01) you can just go through the book and   pick and choose whatever you think is going to  be most effective for you at this time and point   in your life so um you know every chapter in  the book was so good right but I think there's   a couple big ones for me that really stand out  I mean the chapter one on cloning was huge you   know I I find myself really focusing on cloning  people that I highly respect like all the time   you know like it might be Buffett it might  be Munger might be p himself they all have   just these incredible traits that I think I (1:04:31) that I really admire and I want to   try to emulate them in my life one interesting  part about cloning that I've been focusing on   is you know just focusing on cloning very  specific attributes from people you don't   if there's someone that you respect maybe  there's you don't like everything about   them in their entire life and that's okay you  know you can pick and choose what you want to   clone from you don't have to clone you know  the entire person so that's been a pretty key   lesson for me so a few um character traits that (1:04:56) I've emulated from some of the people   that I highly respect would be you know Buffett  his inner scorecard his uh concept of just doing   business with people that you like and saying  no to nearly everything those have been things   that I've found a lot of value in Charlie  Munger I mean there's so many um inversion   which we've spoken about already a little bit  today thinking in a multi-disciplinarian manner   thinking rationally uh just trying to be  be a learning machine and going to sleep   um a little smarter each and every day um (1:05:25) copying other ideas from other   people uh reading biographies I found that to  be really beneficial and and then just making   friends with the eminent dead and I think really  focusing on understanding them at a really deep   level I'll say my mom I've cloned a ton from  her um especially with just how she treats   other people in such a warm way and um that's  been really helpful for me Charles Darwin um I   think he really taught me a lot about being  open-minded staying true to the truth even   if it actually contradicts what you've maybe (1:05:55) believed in your your entire life   I think that's a very powerful concept um  Howard markx another person that's widely   um regarded and written about in the book uh  a couple things I've cloned from him is just   constantly thinking about the downside I think  that's really important I think it's important   not to get uh swept up I think in the Euphoria  um especially because as he's pointed out most   important thing it's during these most euphoric  times that you're probably at the greatest levels   of risk then couple of other things that he's (1:06:23) taught me is to focus on the process   so over the outcome and then on luck just  embrace it you know and uh embrace the fact   that you're going to be lucky and also more  maybe more importantly is don't mistake luck   for skill and then kind of another maybe  just broad group of people that I found   really interesting to clone is the stoics you  know there's couple different sto principles   that I try to live by um that I think have made  my ability to just deal with the unknown better   one of my favorite tools is just the the dichotomy (1:06:52) of control which simply is that you know   there are things in life that we can control and  there are things in that we can't control and so   um I've tried cloning their ability to really  put my focus on what I can control and accept   the fact that there's going to be tons and tons of  events that are completely outside of my control   and I think that really helps me try to deal with  problems in a better way um and then you know this   obviously directly is expressed in the markets  you know there's so many things in the market  (1:07:21) like clay was just talking about what's  the market going to do no one knows like no one   and so you know if we know that um well then  we can hopefully spend less time thinking about   that and spend more time on you know and clay and  my's case just finding really good businesses that   we want to put in our portfolio and make sure  that those businesses are doing really really   well the rest of the stuff that you know that's  happening in the world it is what it is and and   there's nothing we can do to control it so focus (1:07:46) on what we can control um William second   chapter on investing being a very lonely Pursuit  was really really insightful as well I think um   this speaks to some of the points that I had  about fighting biases you know us humans we're   really social creatures We crave things like  community and social relationships so you know   being a contrarian means you're going out  and doing things that nobody else is doing   and that's a pretty tall order I think for for  most people and you know I think most investors   would prefer to fit in do what others are (1:08:14) doing because it's safe and you   feel like you have support both when things are  going really well but also when things are not   going well but you know John Templeton he was  your classic contrarian he didn't invest this   way he actively looked for businesses that  nobody wanted or he just wanted ones that   everyone hated because he knew that everyone's  out of these and these are where you're going to   get incredible Bargains and uh when you think  about that it's a very lonely proposition you   know um if you're right well you're (1:08:41) right and no one else is is   sharing in the fact that you're right and if  you're wrong everyone's pointing at you like   going haha you're wrong you didn't jump on Nvidia  or whatever is uh you know the the hot stock of   the day so um I really thought that was a huge  Insight in that in the same chapter uh William   wrote These six guiding principles for the  non-tribal investor and I really like how he   worded that tribal part in there and so there are  some really good nuggets in there the the sixth   one I thought was really good which was super (1:09:07) simple do not Chase fads and I think   if you can follow this piece of advice for your  entire investing career you're probably going   to perform a lot better and most importantly  you're going to actually make it to the Finish   Line you know if you want to create lifechanging  wealth or become financially independent you have   to actually make it to the finish line so I  personally try to spend a lot of time trying   to figure out where maybe I've been wrong in the  past and where I could be wrong in the present   or in the future and this helps me identify (1:09:34) where maybe some of my investments or   some of the actions I'm taking are excessively  risky and then just circling back to Charlie   Munger one thing that I didn't mention was  um his study of failure and mistakes I think   that's just profound you know I think this  was one of Charlie's superpowers he really   was able to especially like reading biographies  he'd go back and find out some of the biggest   failures that ever happened even from people  that were really hard and and try to uh avoid   these failures at all costs and I think (1:10:00) that the reason that a lot of   people don't do this is just that you know when  you think about popular media the media doesn't   necessarily talk a whole lot about failures but  they do talk a lot about successes especially   in financial terms um if you're looking to  them for advice yeah you're going to get   inundated with all these stories about people  being wildly successful a lot of times maybe   even being successful while taking huge amounts  of risk and so people want want to emulate that   and that's probably not what they should be (1:10:28) emulating because um you know what   that fails to show you is that there was you  know tens of thousands of millions of people   who are maybe trying to do the same thing  as the success story but failed miserably   so I think that trying to figure out um failure  and mistakes that you should avoid is very very   powerful and and people should probably spend a  lot of time there on that I know I do and as an   added bonus this obviously applies to everywhere  in life not just in investing CL let me throw that   same question at you what surprising things (1:10:58) from studying Legend investors has   most resonated with you yeah uh that last comment  you made Kyle was interesting where uh you know   even with us on the podcast interviewing  investors who beat the market uh there's   going to be some survivorship bias there and  one thing I appreciate uh just about our show   and Williams as well is being super selective  and who we allow to shine a spotlight on and I   think uh one of the common traits I see is  just hum in that like luck played a factor   and you know they don't know everything they (1:11:31) admit they don't know everything and   luck is part of it but also a lot of hard  work grit and skill and whatnot so there's   a lot to sort of think about there and I think  we could probably do an entire episode on what   we've learned from all these great minds  I'm reminded of uh Dan rasmusen last year   uh I interviewed him and he mentioned to me that  investing is like the intellectual Olympics and   that was a comment that just really stuck with  me and it it's just one that that recurringly   just comes back to mind and since investing (1:11:59) is the intellectual Olympics it   invariably attracts just some of the brightest  thinkers in the world as William highlighted   in his book and as a result there's just so  much to learn not just in investing you know   um like if you talk to William he'll tell  you he's invested in a few index funds and   he's invested with a few of his friends and he  might own a couple individual stocks but it's   like a meaningless amount of his net worth so he's  studying these other aspects of these people and   highlighted chapter one I love the the (1:12:28) title The Man Who cloned Warren   Buffett of course covers monish pabai and the  Practical lesson is that you know you can look   at all these people and you might not like  a lot of what they do or how they live their   life or whatnot but there's probably one or  two things you could probably pick up and um   you can choose whatever suits you the best and  feel like I have to mention chapter six on Nick   sleep and case Saria so it's recognizing that um  the emphasis on quality isn't just about buying   good stocks it's also thinking about things (1:12:56) like how can I be a quality partner   in business or in all my relationships what's  a quality day look like what's a high quality   decision in this moment and you recognize that  all of these things matter and they all permeate   into our entire life and um I was reading up on  the history of Costco this week and the man who   essentially invented the Costco model is his  name Soul price and you study a business like   that and you realize that all these quality  decisions can really add up into just this   one just magnificent thing that we all call (1:13:31) Costco today which is why both the   business in the stock almost have this cult-like  following that can't be replicated to any degree   so Nick and Zach they looked at this example of  Costco and uh just notice how this business was   like so strict on always having ultra slim margins  and they decided to uh clone that and decided to   charge an abnormally slim management fee to their  investors and when they shut down their fund they   simply told investors to go buy Berkshire Costco  and Amazon and there wasn't much else they  (1:14:01) needed to do they could have milked  that fund for the rest of their life and uh   made money off their investors but they just said  it's not the high quality of decision essentially   and then of course uh I have to mention Buffett  and Munger as well who uh Kyle and I discuss   in- depth on we study billionair so Buffett uh  when I was you know just graduating college I   always thought about how he always encouraged  people to pursue uh line of work that they   really enjoyed doing and that really inspired  me to join tip and that was uh very impactful  (1:14:32) for me and just totally changed  by life um just very grateful for Buffett   uh just continuing to harp on that advice and then  another big lesson from Buffett is that the best   investment that you can make is in yourself like  it's so simple but it's like also so simple that   it's easy to overlook so many people I think will  talk to maybe someone like us or someone that's   into Stock Investing and just want to get the  next hot stock tip but they should probably turn   and just look at themselves and invest in their (1:14:58) own education you know how can they uh   find that themselves or how can they develop  the skill sets to lead to a good investment   so most of the greatest investors are learning  machines for a good reason because there's just   always more to learn and that's the investment  that pays the best and the biggest dividends   over lifetime so um I guess another comment  is that uh Buffett and Munger they just put   a huge emphasis on the people you choose  to surround yourself with and that is also   something that just hugely important and hugely (1:15:28) powerful and something that I think   we can always work on to some extent and it's a  challenge I'm also just always working through   you guys are both packed with wisdom so it's been  a ton of fun to chat with you both today and it's   sort of a trip down memory lane to listen to  all these clips from past episodes and and   interviews that you both have done so I'll just  tell the audience go and follow these guys on   Twitter for for more on them and of course make  sure to tune in to we studyy billionair ship to   hear more of their episodes all three of (1:15:59) us will be in Omaha this year   for birkshire 2025 and you can just email me  at Sean thein podcast.com that's s ha wnth   investors podcast.com for more information on how  to attend our meetups but any last thoughts guys   nope nothing for me yeah with that uh keep  an eye out for the first episode of our new   intrinsic value podcast next week where I'll break  down Madison Square Garden Sports the publicly   traded parent company for the New York Knicks and  Rangers it's not every day you have the chance to   study a stock tied to major professional sports (1:16:35) teams especially one that is seemingly   trading at a significant discount to its  intrinsic value but that's for next time   I'll send you off today as always with a quote  this one is from William green he says you get a   lot of A's and B's in school in the stock market  you get a lot of fs and if you're right six or   seven times out of 10 you're very good see you  all again next week for the debut episode of   the intrinsic value podcast hey guys this is  your Millennial investing host Shan Ali when   I first started learning as a value investor I (1:17:07) had no idea what direction to go in   there's just so much to try and wrap your head  around but it's never too late to get smarter   about Stock Investing from the ground up after  spending years interviewing and studying the best   stock investors as a company at the investors  podcast Network I've worked to distill those   learnings into a simple course for you why  did I do that so I can help you master the   principles of excellent lifelong investing I was  a fan of the investors podcast for years before   I joined the team and I always wanted a (1:17:37) course that broke down the most   important insights from a decade of interviews  with leading investors the course is great for   both beginners and pros from studying what  the Legends actually do to small practical   ways to build your wealth over time I'll take you  through 10 different sections covering the basics   of what a stock actually is and how stock  markets work to strategies to optimize your   retirement savings picking great companies what  to look for in ETFs how much you should invest   and how to monitor your Investments plus so much (1:18:07) more by the time you're done you'll be   ready to invest in the stock market learning  plenty of tricks from the pros along the way   to access the course and begin learning  how to invest like the Legends just visit   the investors podcast.com slet started  with stocks that's the investors podcast.  (1:18:26) com SL get started with stocks and for  a limited time you can use code mi15 for a 15%   discount at checkout that's mi15 when checking  out in a nutshell the the biggest stories in   financial markets every day that's how I think  Sean came up with with that tagline and that   just speaks to what we're what we're after we're  not necessarily chasing every um you know stock   that's moving around or or what some pundit  said on on TV but really just what are the   big Market movers or or in some ways what is a  story that's being overlooked but we think is is  (1:18:59) substantial uh long generally long  term even though it's a daily newsletter   we're trying to think about things that are  going to have bigger effects down the line so