MI Rewind: The Science of Hitting w/ Alexander Morris

24:53There's definitely a component of that in it as well. Yeah, I can understand how an experienced investor like you can be more comfortable holding something like Berkshire rather than an S &P 500 index. And I also noticed that in your portfolio, you included the first time you purchased the positions in Berkshire and Microsoft were positions you first added in 2011. Are those positions that grew to be the largest positions in your portfolio? Or is it just a factor of these are your highest convictions and you've continued to add to them over time? I'm curious how those played out over time. Yeah.

25:32So it's a combination of the two. And as part of the service, I show returns going as far back as I have them for my broker, which is Fidelity, which for some reason, they have not been able to figure out how to give me my 10-year returns. They only have them back five years, which is weird because I've been with them for well over a decade. But in another way, I also think it's good that that's the case because it wouldn't give a false indication of what has happened historically. So it's a good chance for me to explain. When I started investing in 07, 08, 09, 2010, I had a very small amount of money.

26:01I was still in college. So when these were very large positions at that point in time, it's not really representative of what my portfolio looks like today. So that track record would be somewhat misleading. And I don't know if it'd be misleading to the good side or the bad side. I mean, I own Berkshire and Microsoft, and they've both done fairly well. So it'd probably be misleading to the good side, but it's not really representative of what a true investment portfolio looks like. You know what I mean? But yeah, so those positions were very large as a percentage of the portfolio early on. As I started working in the industry and started saving more money and adding to my portfolio, they naturally became smaller.

26:35But I've also added to them at points in times. For example, recently, when I rolled a 401k into my IRA, I walked through with subscribers exactly how I thought about allocating those funds to the portfolio. And kind of the deeper point of your question in terms of how the position size today reflects decisions made in the past, you see a lot, especially when you're working with individual clients in the RIA world, of people letting that tax consequence get in the way of the investment decisions that they'd want to make if they started with a fresh piece of paper. If they had 100 % cash today, what they would buy and what size the position would be versus what they bring in from a legacy holding.

27:12I work pretty hard to ensure that the impact of that on my portfolio is very small. I want to be able to look at my portfolio on any given day and say, this is a rough approximation of the weightings that I would have if I was starting with a brand new pile of cash. Obviously, the tax consequences are there. They're non-existent, but I try hard to make sure that does not overly influence the investment decisions that I make. Robert Leonard I saw this week that Berkshire purchased another insurer, Allegheny. I'm not sure if I'm pronouncing that correctly. They purchased them for$11.6 billion, which is Buffett's biggest purchase since 2016.

27:51I'm curious if you have any thoughts on Buffett's recent deal. Robert Leonard Well, the short answer is I have not had enough time to look closely at. But even that answer, I think, tells you something about the way that I invest and the way I think about these businesses. And I think the lesson probably is I'm purposely looking to partner with people and in businesses that I don't feel the need to watch their decision making like a hawk. I fully trust Warren Buffett or Satya Nadella, Todd Vastos at DG. I fully trust these people in terms of the operations of the enterprise, the capital allocation of the enterprise.

28:24And there's a certain component of trust, but verify that comes with all of this. But I'm not the kind of person who sits there and wants to nitpick each individual decision, especially when$11 billion is a lot on one scale. But relative to Berkshire size, I'm not going to sit there and say, well, they should have only paid eight, something like that. So I try to make sure that I don't nitpick the decision making too much. And I accept the fact that managers are going to make errors. But what I am tough on is ensuring that management is transparent and honest with shareholders and that our interests are aligned, things like that.

28:55Speaking of Buffett, it's an interesting example of some of the things he did early in his career when he bought Washington Post. And I believe he did the same at Cap Cities. When he bought Washington Post, I think he wrote a letter to Kay Graham where he effectively said, the voting shares that I have from this position, I'm basically giving you control of that. You voted as you see fit because I'm investing in this company because I trust you. And that was a very large position. And I think the commitment was for something like for the next five years or something along those lines. So I'm sure I got the specifics of how that worked screwed up.

29:27But that way of thinking is very similarly to how I approach it. I am fully entrusting these people across all facets of being a leadership team. Yeah, I really like that. It's the approach. You're obviously judging the business, but you're putting a huge emphasis on the management in that you're hiring them to take care of your money. For example, you're hiring Warren Buffett to manage a portion of your capital for you because he's the one doing the day-to-day operations and you don't want to have to not sleep well at night wondering, okay, is he going to make the right decision? You can just look at his track record and understand, does he have that high level of ethics and does he treat the shareholders' money like his own and such?

30:10Yeah, absolutely. Absolutely. And I think we spoke about Markel before. I think it's an interesting example where some of the decision-making throughout the pandemic, They sold a fairly significant amount of their equity portfolio. Part of the thinking was they need that capital to help fund growth insurance premiums. Now, it's a situation where I've trusted management for a long time, and I continue to trust management. But it's an example where I think they've done less than a complete job in terms of communicating how that has worked and whether or not the decision was right or wrong. And again, it's not even whether the decision was right or wrong really isn't my main focus.

30:43It's obviously important if you make a number of mistakes. But my concern is whether or not they're really being honest with me and whether I can continue to trust them and I continue to think that their thought process is sound. It's a small ding and they've built up a lot of reputational equity with me, I guess you could call it. So it's not something that is a make or break situation, at least at this point in time. But that's one example of how as I continue to follow the companies that I own or the companies that I watch, something I take notice of. Those are the things to me that really stand out.

31:12I often thought back to BNY Mellon, a company that in a shareholder letter, I think it was in 2011 or 2012, they had a massive loss in the business from something that, at least from my understanding, was kind of non-core and maybe shouldn't have happened. It seemed like a pretty clear mistake. And in the shareholder letter, the CEO didn't mention it as far as I remember. Instead, there was a paragraph about how employees had donated, I think it was$50 ,000 following a hurricane in, I believe it was Haiti. But it was just one of those things where it's an important example of that needs to be clearly addressed.

31:45And it's an opportunity to share with your shareholders to help them understand why the decision was even made. And again, does that really impact intrinsic value of the enterprise? The answer is probably no. But for me, it's knowing that you have one chance to communicate with me a year, and you didn't take the chance to talk about something that seems at least notable from the outside. I'm just constantly thinking about trust and ability to execute in terms of those kinds of developments. You mentioned that a recent new position of yours is Spotify. This one, I'm personally really curious about.

32:20Our podcast is on Spotify and I'm a daily user myself, and they seem to be pretty well positioned against their competitors. So I'm curious what your investment thesis is on this company, as it seems to a bit different than many of your other holdings in terms of where it's at in its lifecycle? That is a fair point. My thesis effectively rests on a few things. The most notable one is their market leadership position. They don't give this number consistently, but they gave a statistic a few years ago. You can see the user base, obviously, but they gave a stat on engagement that suggested their average user was much more engaged than that of their competitors.

32:56And to me, as I thought about that, it really reminded me of how I would think about... In hindsight, if someone had told me in 2013, 2014, 2015, what are the key metrics on Netflix that lead you to believe it's going to be a winner long term, I would think it's outsized user base and a more engaged user base would have been two very important metrics for me to get my arms around. That's one thing, the market leadership position. The other is a thoughtful long-term strategic plan. I think they've done a good job over the past five to 10 years of taking what was really a music business to now becoming more of an audio business and that can have meaningful impacts on the P &L long term.

33:30And then I think it's a really effective and focused management team, which is not the same as some of their competitors who are the big tech companies are running around and doing dozens of things at any given time. And I don't know how much time Andy Jassy at Amazon or Tim Cook at Apple really spends thinking about their music strategy and how it fits into their long term strategic goals. But I know Daniel Lackett, Spotify spends basically all his time thinking about that. For me, that's an important point of differentiation. And you can look at the results that Spotify has delivered over the past five to 10 years, where they started from a position that is much, much weaker than where they sit today.

34:06And I'd argue that they outperformed those big tech companies over that period by a pretty wide margin. And if they continue to execute on the vision that they've laid out, I would expect that to continue over the next five to 10 years. Robert Leonard Recently, they've had substantial subscriber growth after sort of a lackluster early 2021. Does the negative net income line concern you at all? And I'm curious what your thoughts are on their profitability going forward. Yeah. In the short term, it really doesn't bother me much. Again, I just spoke about Netflix a second ago. I think you need to really think about with these types of businesses, what happens as they get to higher positions in terms of scale and what that means for the steady state unit economics.

34:50Those two companies are certainly not perfect comps for a number of important reasons. But I think the journey that they're on is somewhat similar. So they each require really effective execution and a thoughtful vision about how to turn their leadership in terms of the subscriber base into a sustainable and highly profitable business. So that's going to take many, many years, but I'm confident that Netflix is already well on that journey. And I think people look closely, they can see what's happening. I mean, as simply as just look at the EBIT margin progression over the past five years, or look at the FCF margin progression, you're clearly seeing improvements in the margin profile.

35:27Spotify is still earlier on that journey, but I think it'll ultimately have a similar trajectory. Could you talk a little bit about your valuation process for Spotify? These companies that aren't yet churning out these free cash flows, I always have a hard time figuring out, okay, is today's price a fair price to pay or should I wait for it to come back a little bit? How do you think about the valuation of a company like Spotify? Yeah. So anytime I think about looking at the future, I always start with what's happened in the past and try to understand if I was starting five years ago, what led to the results over the past five years.

36:04So in Spotify, one really important development over that period has been the improvement in gross margins. Gross margins are up north of 1 ,000 basis points over the past five years. So it's understanding what got them there and then thinking about how that can continue for the years to come. An important addition to that point is it won't be a straight line. And honestly, as a long-term investor, there are scenarios where you shouldn't expect that it should be a straight line or shouldn't want it to be a straight line. You want management to aggressively invest when they see good opportunities to solidify and expand their market position.

36:37So I think that's part of what's going on right now. And the response by the market has been lackluster. And management probably should take some blame for that too, because it's really important to communicate that in a way that you're not disclosing competitive information, but in a way that helps your investors and your shareholders to clearly understand the decisions that you're making. Now, that's just an important starting point as I think about it. As I think about the valuation over the next 5 to 10 years, I'm just really focused on how those unit economics are going to evolve. So again, you've seen the gross margin improvement over a period.

37:11Like the last 5 years, There's management's laid out their own kind of estimates of what the long-term margin profile should look like. I think as you do the work to understand how they got there, I think it's logical, but it requires them to continue to execute in a meaningful way and to continue to grow the subscriber base. The subscriber base has doubled in the past three years or north of 400 million MAUs. They think there's a path to a billion over time. And I think the current trajectory suggests that that's not a crazy idea. So you can start playing around with some numbers to see how that works.

37:46I think about it as I wrote back in April 2021, I got to a number that's roughly at 4 to 5 billion in EBIT, call it a 2025 to 2030 timeframe. So then you need to look at the stock price and think about what's a reasonable multiple in regards to that level of steady state income or what I'd view a steady state income. And a crude valuation tool that I use as part of that, if I'm thinking out 5 to 10 years, is throwing something like a 10x multiple on the high end, just because I think that's a level where as you get to those out years, even assuming some reasonable equity rates of return, you have a multiple that's in the call it 20x range at that point in time.

38:30And if this business becomes what I think it can become, and the ensuing impact on the financials that will come with that, I think 20 times will probably look like a pretty reasonable multiple. So it's nothing too scientific, but it's just thinking about, hey, how do I find a reasonable starting point in something that has a long way to go on this journey to having attractive economics? In the short term, it can be really tough. I don't know if you remember, but I can certainly remember five, six, seven years ago, people going crazy. How the hell is Netflix worth... I can't remember the numbers now.

39:02Let's say$30 billion or$50 billion. How's that anywhere close to reasonable? And the answer ultimately was you had to have the ability to see how the business could scale over time, how they could change the business profile a bit in order to get some fixed costs in place. You also needed to see that some of their competitors would continue to delay on the transitions that they clearly needed to make. So that was also helpful. But I think it's really helpful to think about case studies like that. and to understand how these things can evolve in a certain way. And maybe another way to say that is too, there's a lot of people who run around saying like, well, this stock ABC is clearly overvalued.

39:40And in a lot of cases, they haven't really done deep work. I don't think they just kind of look at some of the headline metrics and valuation stuff that we talked about previously. And the short answer really is Mr. Market is rarely that stupid. There's a lot of people who can see things and say, hey, yeah, 30 billion is a lot today relative to Netflix's current economics. But I see a path for them to have 200, 300, 500 million subs. I see a path for continued improvement in ARPUs. I see a path for the cost structure become more fixed costs in nature. And the people who did that work and saw it early have been very handsomely rewarded.

40:14We'll see if Spotify can live up to that vision. It's certainly a component of it that's higher risk than something like a Dollar General, where the business model is very well established. The growth opportunities are also fairly well established. But the returns you're going to make on Dollar General are going to be capped at. If you're lucky, you'll get 15 % a year, maybe. If Spotify truly executes for a long period of time, you'll see something that's quite a bit higher than that, in my estimation. Yeah. I like how you're looking at what happened with Netflix and comparing them to Spotify.

40:44As it seems like Spotify is a similar business that's earlier in their business cycle, and they're both hyper-focused on their industries and also going against the big tech heavy hitters such as Amazon, Apple, and Google. Understanding Spotify's competitive position against these big tech companies, especially Apple Music, I think is going to be really important. And relating to the valuation on Netflix, I remember taking a look at them when I was just getting started. And of course, I was looking at the high level metrics like the price to earnings ratio and telling myself, heck, I'm never going to pay a PE of 300.

41:21That's just ridiculous. Who would want to do that? But now I know I shouldn't have put so much focus on the price to earnings when looking at a business like Netflix. Yeah. And I probably did the same exact thing. I don't remember. Well, I only shorted one stock in my career and it was Salesforce. And I got very lucky that the stock went down like 5 % or 10 % within a week and I covered. And it's probably up 5x since then. I remember writing an article on GruderFocus saying this valuation makes absolutely no sense. And the person who was wrong was me. As a younger investor, especially as you start building up some experience and you see examples like this, maybe you'll never be the person who invests in them because they're a little bit too far out on the risk spectrum for you.

42:02But it's still important to really understand how those stories played out. Netflix for me is really... I wrote about this a lot, or I thought about this a lot, because I recently wrote up Peloton, which is where Barry McCarthy, the former CFO at Netflix and at Spotify, coincidentally enough. I really thought about what he lived through when he was at Netflix in the 2000s. And Netflix, even during the period where they were in the DVD business, they faced very significant competition from a resurging blockbuster during a period of time. And they actually took the pricing on the DVD product from I think it was$19.99, and they cut the price to$13.99 or$14.99.

42:40So obviously, a massive change in the ARPU for a business with a lot of fixed costs in terms of the distribution of DVDs and the like. So they lived through that. Then they also lived through the transition to streaming. When they first did it, it was kind of laughed off as Jeff Bukas famously said, compare them to the Albanian army or Les Moonves used to be a CEO at CBS. I saw a quote yesterday, he basically said, we want Netflix to thrive. That's great for us. That was a quote from 2011. A decade later, I'm not sure ViacomCBS shareholders agree with that sentiment, But it's a great company to do a case study on, both just from a business perspective and a management perspective, but also from a stock perspective to understand how as they started to cement themselves, there's people who still would basically be bearish on it today after having been wrong for a decade.

43:27I'm confident enough to say that they've been wrong. I hope they would admit as much. So as an investor, you should look at those situations because someday it may be you and try to understand what were the things that happened that could have been a signal that you're on the wrong side of this bet. Some clear ones would be, for example, as I mentioned earlier, the massive user base and the significant growth that was experiencing. A clearly better product than what was offered for entertainment programming through linear TV. A much more attractive price point than linear TV. Third-party data that suggests the engagement through Nielsen and others, suggests the engagement among those users is very high.

44:03A proven ability to take price over many years in markets like you can. All these little things that should give you pause. And so anyways, yeah, it's a great case study. Let's take a quick break and hear from today's sponsors. Hey, it's Sean O'Malley, just popping in with a quick message. If you like this podcast, well, I've got great news for you. We've got a handful of other shows for you to explore, from learning about Bitcoin to embracing a richer, wiser, happier lifestyle. Just go into your podcast app and type in We Study Billionaires to find our collection of shows. We Study Billionaires is our flagship podcast, and we've made a name for ourselves over the years by interviewing the best investors in the world, including Ray Dalio, Howard Marks, Joel Greenblatt, and many, many more.

44:48My colleagues Stig Brodersen, Clay Fink, Kyle Greve, Preston Pysh, and William Green each hosts their own We Study Billionaires episodes and bring their own unique perspectives. A whole new world of insights awaits you. Just go ahead and type in We Study Billionaires into your podcast app and see what you've been missing out on. Seriously, go ahead. I promise you'll like what you find. Bonus points if you show your support for our work by clicking follow. If something piques your interest, just start listening. No hard feelings. I'll be waiting for you back here. Just like everybody else, there was a time when I was a beginner investor.

45:21And I have to say, investing is particularly filled with jargon that can just make it so difficult for new investors to understand what is going on. But it's never too late to get smarter about stock investing from the ground up. At The Investor's Podcast Network, we've made a habit of studying the world's best investors. And now I'm distilling those learnings into a simple course for you or for anyone in your life who you might want to share the gift of knowledge with. With my How to Get Started with Stocks course, you can master the principles of excellent lifelong investing with valuable insights for both beginners and pros.

45:51The course covers 10 different sections, beginning with the basics of what a stock actually is and how the stock markets work, to strategies to optimize your retirement savings, how to pick great companies for the long term, what to look for in ETFs, and how to monitor your investments, plus so much more. To begin getting smarter about investing, just visit theinvestorspodcast.com slash get started with stocks. That's theinvestorspodcast.com slash get started with stocks. And for a limited time, you can use code stocks15 for a 15 % discount at checkout. Not to be cliche, but building a market-beating portfolio really doesn't have to be a mystery, at least with the right tools.

46:32If you've listened to our podcast for a while, then you know we spend a lot of time learning from savvy investors. So why not use the same tools we do? With TIP Finance, you can. Screening for great companies, calculating intrinsic value, keeping up with legendary investors' portfolios, and more are all not just possible, but easy to do. TIP Finance was created by investors for investors. It's quite literally the tools we wanted to use ourselves when researching investments in a simple-to-use interface. You can get started by creating an account for free. Who knows? Maybe TIP Finance will help you find your next 100 to 1 investment.

47:11Between the screener and Legend Investment Portfolios to reference, I've gotten a ton of ideas from TIP Finance. What are you waiting for? Take the next step in your investment journey today with the right tools at your fingertips. Grab your device and type into your browser theinvestorspodcast.com slash TIP-finance to get started. That's theinvestorspodcast.com slash T-I-P dash finance. All right, back to the show. You also wrote an article outlining a few investments that ended up being mistakes. And I respect you for being open about some of these mistakes and sharing with others what you learned.

47:51In the article, you mentioned JCPenney, IBM, and Kraft Heinz, two of which have been holdings of Mr. Buffett at Berkshire. Buffett no longer holds IBM, but is still holding Kraft Heinz. What were some of your biggest takeaways from these investment mistakes? Yeah. I mean, it's probably important to start with the framing. I put this out as one of the first... I think it was... I put three articles out when I launched a service, essentially. This was one of the three. The other two was about me and who I am as an investor. And then another one was a complete portfolio review. And I thought it was really important to have this as part of one of the first handful of articles because it really frames kind of, well, one, that it gets across the point that transparency is a massively important part of me as I think about this service and what subscribers should expect from me.

48:38But it also speaks to the evolution I've made as an investor and the learnings I've had from my most notable investing failure. So as I kind of say in that article, I think one really big takeaway on each of those companies is that even at the time of my investment, it had already become somewhat apparent that they were losing standing with their customers relative to emerging competitors. In the case of JCPenney, you could even say things like e-commerce, but you don't even have to be that recent to find a problem. They had issues in terms of even companies just like Walmart and Target going back 10 plus years that they were losing mind share and market share amongst the consumer base.

49:15IBM is a bit of a different one because I think even to this day, like a decade later, I still don't entirely understand what they did. But you can tell from the financials that they were definitely losing standing relative to... We didn't know what AWS numbers looked like at that time, but you could have looked at Microsoft or other players to see that IBM was in somewhat of a difficult position. So I think that losing standing with customers was a big red flag that I basically completely overlooked, partly because I let valuation drive the decision-making process. Another major component of it, as you mentioned, was in the case of IBM and Kraft Heinz, Berkshire's involvement definitely played a role.

49:50In the case of IBM, it was interesting. I can remember him being on CNBC and basically talking about how it impacts the decision-making at somewhere like BNSF. So it was less just tailing him into the investment and more of, hey, he really understands how big enterprises think about managing their IT. I think it's reasonable to tail him in that regard of the thesis. But subsequently, I guess that was not correct. So that was part of the problem. On Kraft Heinz, I had followed Heinz closely prior to Kraft Heinz merger. And something I recognized fairly early on that I was just way too late to act on was the merger took what was a pretty attractive condiments business from Heinz that had dominant market share and in my mind, probably pretty good pricing power.

50:39And it merged it with a company that sold lunch meats and cheeses and things like that, where it was clear they were getting picked off on both ends from private label and then the kind of products you see at Costco that have a higher end feel to them or products like you see at Whole Foods on that end and then Trader Joe's and Aldi and the like on the private label side. It was clear there that their competitive position was weakened and that the pricing power would basically be non-existent or it would be very tough to improve their competitive standing. And when you looked at the mix between those two, the condiments business was such a small part of the overall enterprise.

51:17And I can almost remember seeing that the first time they had investor presentation on the business and I let that just slip past me. And that was a massive mistake in terms of the subsequent investment. Now, on JCPenney, it's similar to the first one. I think I let Bill Ackman put out one of his famous 300 slide decks and I let myself fall in love too much with his thesis. And I relied a little bit too much on the recent financial results that JCPenney had reported in the run-up to the financial crisis, which probably had a pretty nice macro, a tailwind in those numbers. And I let myself believe that that would be where they would return to when, again, even at that time, it was probably pretty clear that that was more of an aberration than a place I'd ever get back to given how the customer preferences were evolving.

52:05In all three of those cases, there's a combination of just some lazy thinking and relying too much on the input of others. And there was also a little bit too much of something that I think I had more as a young investor that I hopefully don't have as much today, which is a little bit too much overconfidence and a willingness to say, when a stock goes down, I don't care. I'm right. The market's inefficient. that value investor belief, which is very important to have and understand. But as Seth Klarman puts it so well, it's this idea of balance and conviction and humility. There were markers along the way that suggest that I was probably wrong, that I was just too slow or too stubborn to accept.

52:44I'm happy that each of those three are somewhat in the distant past and not too recent. We'll see in the current portfolio whether I'm finding any new failures to add to the list. Yeah, it's good to make those mistakes early and learn from them and put your money in a better place that starts compounding capital. And just from my perspective, I think looking at the revenue line just as a high level indicator, what does the revenue line look like? Is the brand and customer base growing over time or is it declining? Whether it's a business I'm looking to potentially purchase or just a business I'm analyzing, or maybe it's a business that's already in my portfolio.

53:21Has the revenue line started to flatline or start to decline? I think that's something important to look at. And another thing for me, I think, is just looking at where the future is heading. And not to pick on you, but JCPenney as an example is obviously being disrupted in my eyes by companies like Amazon. And regardless of how cheap it might look, thinking where's the future going is something I like to think about in my investment process too. No, definitely. And that's two points on that. On the first one, Mark Mahaney, a very famous tech analyst who's made a number of great calls over the past 20 years, wrote a book recently called Nothing But Net.

54:01You pretty well summarized the entire book and what you just said. I mean, the book is revenue growth. That is what he's focused on. Revenue growth, as you noted in the second point, usually points to something in terms of changes in the industry, changes in customer preferences, etc. And his belief is, at least as I interpret it, is something along the lines of what Netflix has shown, which is with scale brings opportunities to do things that can take what might look like a tough business on one hand, it can evolve over time to become a much more effective business. So he's effectively followed that approach.

54:38And I think there's a lot of merit to thinking that way. Maybe one other point on that, just because it gets to what you said. What you said about JCPenney is so spot on. I think sometimes we have a tendency as investors to say, okay, well, yeah, I grasp that. Where's the price where it still makes sense to buy? You can look at Bruce Berkowitz and not to pick on him, but he had an investment thesis on Sears from a large number down to something closer to zero that there was support for the thesis because of the value of the real estate. And it was a good example of what a value trap can look like.

55:08And it's a good example of the risk that you pose to yourself when you start playing this game of business quality is part of the equation, but I'm willing to let price play as much of a driver in the investment decision-making process. And there's people who that works very well for. And I just think that's a different style of investing. And I think that works less well if you're going to be someone who's very concentrated and very focused on the long term. The business quality has to be the driver. You can't let the tail like the dog. Yeah, that is definitely one thing I respect about your investment process.

55:40I saw in one of your recent writings, you mentioned one of your friends, Bill Brewster, was bugging you about special situation type investment. And while you might recognize that it's a really good deal, or it might be a really good value, you stick to your guns on what your investment process is. And you know, there might be a hundred different ways to make money through investing. And you stick with your expertise and what your approach is, and you're playing your game and you'll let others play whatever game that they want to play. Yeah. I mean, again, and as I said in there, that's even just in the world of publicly traded stocks, that there's a million people finding ways to play the game that's effective.

56:14That is not how I play. There's also the rest of the world where people are doing tons of things with private businesses and real estate, etc. I just think for me, if I really drill down on my core opportunity set, I think I can be successful long term. And as I also try to dilute to in the post, there's a real value that comes from cumulative learning and following even if it's 50 or 100 companies very closely for a long period of time. When you go through those rough patches where someone who looks at the name for an hour a year, their reaction to those difficult periods might be different than yours because you go, hey, wait a second.

56:47I saw some version of this five years ago. And I remember how that played out and how the concerns proved to be short-sighted. So I think there's a lot of value that comes from cumulative knowledge, both with businesses and with the people running them. Again, since I'm just such a big fan of your work and your investment approach, I got to ask, is there any investment-related required reading that you have that helps you develop as an investor? And it can be something that you reread maybe every year or just some sort of publication or book that helps you develop. Okay. Well, let's start with the easy ones first.

57:23Obviously, the Berkshire Hathaway shareholder letters are a must. I really think... And again, it's more for a novice investor. It's obviously for more of a retail audience. But I've always found great value in the Peter Lynch books. I think it's a very business first approach, a way of thinking about investing. And again, just that simple idea of, hey, you work at the mall or you work in retail and you're out here trying to buy pharmaceutical stocks. You should stick to the areas that you really have knowledge in. And not even so much for differentiated insight necessarily, just for the ability to actually have conviction in something and the ability to stick with it for the long term.

58:00Because if you own any stock for the long term, you're going to live through periods where it's down 20%, 30%, 50%. So if you don't stick through those periods, it's all a moot point. So I think the Peter Lynch books are well worth reading. John Hempton of Bronte Capital has done a handful of posts that are fantastic. When to Average Down is a must read. It's either When to Average Down, Losers to Average Losers, or both. Those are fantastic posts. The Art of Not Selling a Blog Post by Aukri Capital is Another fantastic read, for a certain type of value investor, it might make their head explode.

58:32When they say something like, valuation does not play any role in our sell decision-making process, some people's heads will explode when they read that. And my pushback to them would be go look at Acri's portfolio and look at their track record and think about what they're doing. It's a slightly different variation of the game from what most people are trying to do. But I think they've got the decades-long track record to show that there's a lot of merit in the approach that they've chosen. So I'd go read those things. I like a lot of business books. I think the Spotify play, even if you're not interested in investing in the company, is a very interesting story of how this company, this small company from Sweden, was able to negotiate with the record labels, these massive record labels, was able to navigate artist boycotts at times, how they've managed to compete with the Apples and the Amazons of the world.

59:18I think that's a really interesting story. Yeah, I guess that's a good starting point. Yeah, I'll be sure to link those in the show notes. I'm probably going to order the Spotify play right after this meeting. Before we close out the episode, Alex, where can the audience go to connect with you and learn more about your work? Yeah. So if you go to the scienceofhitting.com is just where my sub stack's at. And just for anybody who doesn't know, I worked in... I'm sure you're going to mention this probably in the introduction, but I worked in the IRA industry for about a decade. I left in April 2021 to launch the TSOH Investment Research Service, which is essentially all the work that I did as an equity analyst now made available to subscribers.

59:56So it's deep dives on companies, it's updates on things that I currently own or watch, it's investment philosophy discussions, stuff like the tactical versus structural asset allocation. And then anytime I make changes in my portfolio, I get disclosure the day before I do so with a clear explanation for why I'm doing it and the change in the portfolio weightings, basically. So I publish that every Monday and every other Thursday. So you can find that at thescienceofhitting.com. And then on Twitter at tsoh underscore investing. As Clay knows, I just throw up a bunch of random charts and random quotes from things.

1:00:31And people ask, why are you tweeting this article from 1997? What does this have to do with anything? And it's just a place where I like to show just throw up interesting charts or old articles and things that I find interesting. Awesome. Well, thanks, Alex. If anyone's interested in learning more about his work, on Substack, they let you read a lot of his articles for free. So you don't even have to subscribe to check out some of the things he's working on. So if anyone wants to learn more, I highly recommend checking that out. So Alex, thank you so much for joining me today. Thanks, Clay. I had a great time.

1:01:04All right. I hope you enjoyed today's episode. Please go ahead and follow us on your favorite podcast app so you can get these episodes delivered automatically. If you've been enjoying the podcast, we would really appreciate it if you left us a rating or review on the podcast app you're on. This will really help us in the search algorithm so others can discover the show as well. And if you haven't already done so, be sure to check out our website, theinvestorspodcast.com. There you will find all of our episodes, some educational resources, as well as our TIP finance tool that Robert and I use to manage our own stock portfolios.

1:01:37And with that, we'll see you again next time. Thank you for listening to TIP. Make sure to subscribe to We Study Billionaires by the Investors Podcast Network. Every Wednesday, we teach you about Bitcoin. And every Saturday, we study billionaires and the financial markets. To access our show notes, transcripts or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by the Investors Podcast Network. Written permission must be granted before syndication or rebroadcasting.