MI327: Unpacking the Secrets of the World’s Greatest Investors w/ Clay Finck

23:47Some of the things I really liked about his book, Same As Ever is like, he talks about how the biggest risk is what nobody sees coming or risk is what you don't see. So, you know, it's an important reminder, I think, to account for things in life where things are going to happen that you just can't even imagine. Like COVID, 9-11, the 1987 flash crash, the recent wars. I mean, it's just a great reminder that we shouldn't be surprised when things completely unexpected happen. And he has a saying in his book, that it's pretty unsettling that the biggest news story of the next 10 years... So we're in 2024 right now.

24:26The biggest news story of the next 10 years is going to be something that nobody is talking about today. And the reason that is, is because that's the way it's always been. And another great example he shares in the book is that zero economists forecasted the Great Depression. And since nobody forecasted it, nobody expected it, no one was prepared for it. So that's one of the reasons it was so bad. After the great financial crisis and the Fed bailed out the banks, all these people called for hyperinflation and such. And rates are going to skyrocket. We're going to see hyperinflation. But we actually saw the exact opposite where rates practically went to 0 % and inflation in the real economy at least didn't really show up.

25:09So it was really humbling reading that book and reading about these forecasters. There's a couple other things I thought were worth mentioning here in regards to Morgan's book. He has this chapter on competitive advantages. The chapter is titled Keep Running. And he ties in all these interesting biological lessons where biology encourages all these species to grow and then biology punishes you for being big. So I thought that was quite interesting how he ties that into companies. There's a statistic he shared where 40 % of all public companies lost their value from 1980 to 2014. So through that period, 40 % of public companies ended up going to zero.

25:50Again, it's just very humbling in that most companies are doomed to die. I also wanted to mention that I interviewed Chris Mayer twice in 2023. He was probably one of my other favorite guests. I'm actually chatting with him again next week. And his book titled How Do You Know was probably one of the best books I read personally in 2023. And I know a lot of people probably haven't read that book. Yeah. I've not read it yet. I've not read either. I wanted it. Morgan Housel was called Same as Ever, correct? That's his second book. Psychology of Money was his first. And then Chris Mayer, his first book is 100 Baggers, right?

26:25Yeah. He has a handful of books, actually. So he wrote a couple others I personally didn't find quite as interesting, but 100 Baggers, I 100 % recommend. I've read that book a handful of times. And then, yeah, How Do You Know? It's a book about general semantics, which is like a philosophical sort of thing. But he takes all these philosophical ideas and applies it to investing. And we talked about that book on the show and it was one of my favorite interviews. Is it kind of a heady philosophical book? Because I think general semantics, I know a little bit about it, but not much. So is it more of a philosophical look at investing?

27:00Yeah, it's definitely more of a philosophical book to help paint a picture for what the book's about. The key quote I think of when I think of that book is the map is not the territory. So people like to use these words to explain something, but using these words, they aren't really explaining. They don't really mean anything with what they're saying. So it really made me wary of labels like gross stocks, value stocks, the economy, GDP, all these big, broad terms. People use these terms as if they mean something. But I think it just points to a lot of people oversimplify investing and oversimplify the world.

27:42I think there's one example I remember from the book that you'd probably appreciate is sometimes investors will value a company based on the real estate they own. So this company has, say, 10 ,000 acres in Florida and all these other states. And then they just pluck a value on each of these properties in all these states. So the properties in Florida, they might say it's worth however many dollars per square foot. And they just simplify it. This is how much the Florida real estate is. But in reality, some of it's very valuable. Some of it's not so valuable. So I think that was a great case in his book where investors can get themselves into trouble by taking these shortcuts and oversimplifying.

28:19Obviously, we have to take some sort of shortcuts That's because it's impossible to know everything is the trick. So he just really opened my eyes to how these terms can really dupe people. Well, even like in value investing, I was just thinking that when you can use the word value investing and people think we're all on the same page on that. But what Adam Cecil thinks about value investing and what Warren Buffett thinks about value investing are two different things. There might be some similar concepts, but they're not on the same page. You could have someone that's like a cigar butt investor where they only buy things below liquidation value.

28:55And then you have someone that pays for a company like Constellation Software 35 times their earnings and say they're a value investor. So grouping these two people under the same term really doesn't tell you anything. Yeah, exactly. Exactly. So the map is not the territory. I like that quote. Interesting. So I wanted to talk a little bit about, say you're on a flight from Nebraska to New York, and you've got the opportunity to sit with whatever, a handful of investors that have inspired you, who would those people be? Living or dead? I mean, maybe not Buffett and Munger, because obviously they've inspired us both, but some other ones.

29:32The first, I've already mentioned them and interviewed them twice, but Chris Mayer would probably be on one side of me. I'll pick a middle seat, so I have two people next to me. So Chris Mayer, I'd probably put next to me. One reason is I picked up a number of his holdings that he has in his portfolio. So I'd love to pick his brain on that. And I know he's looked at a ton of companies. So I know there's stuff that might be more interesting to me because it's a smaller name and it might not fit into his fund because he probably needs to not be a micro cap investor, essentially. So I know he's looked at a lot of interesting companies.

30:06Now, I know you just did a segment on Copart. Is Copart something that he follows? Yeah, he's owned it for a while. And what's also interesting about Chris is he wrote a newsletter and traveled all over the world. And he's been to all different... I don't know how many countries he's been to, but it's a lot. And I'm sure he'd have some amazing stories to share and just recommendations on places to go. And then on my left side, in the theoretical plane, I'd probably want Monish Pabrai there. He's another person where he's just full of ideas. I just admire his ability to look for things in places where no one's really looking.

30:43I think Turkey is a good example of that. And I just think he'd be a great person in terms of idea generation and finding things you couldn't even dream that existed. He's got a great book that I love, The Dando Investor. He's in the William Green's book, Richard Weiser Happier, he's the first investor focus. The first chapter is about Monish. And I remember listening to William's book on a plane once. And I love Richard Weiser Happier. I think that book is just like a wealth of wisdom in that one. But yeah, I just remember listening to so many of the stories about Monish and he's such a fascinating character, I think.

31:16Yeah. I really like his sort of approach where there's a lot of value investors where they buy a decent business they think is like 10 % or 20 % below intrinsic value. But Monish, he's talking about a company that's like 96 % discount to liquidation value. He just finds these things that no one's talking about or no one's even looking at. And like you said, just a very interesting guy. And there's one point that really stuck with me from him that I mentioned on my chat with Kyle yesterday, where ideally you want to find a situation where there's low risk, but high uncertainty. And some investors mix the two up.

31:52So low risk means your odds are you're not going to lose money on the bet. But the high uncertainty is what exactly plays out in the future. Wall Street hates uncertainty. They love constant, constant earnings. But if things are choppy or things are uncertain, or there's just maybe a sketchy part of the business where you don't really know what's going to happen, that creates the ideal scenario for an investor. Yeah. I think he calls that like in the Dondo investor, he talks about heads I win, tails I don't lose too much. That's how he tries to stack the odds in his favor. Yeah. Big fan of Monish.

32:26Yeah. He's a big clone or two of Warren and Charlie and their partnership. And I think the inspiring thing about Monish, one of the many things, but he really came to investing later in life, I think. I don't know what age, but he was reading one up on Wall Street, picked it up in an airport when he was late 20s, maybe, or something like that. So we got Chris Mayer, we got Monish on the plane next to you, who you mentioned somebody else? Those are the two are definitely top of mind. But when I described how I like to invest, usually I just point to Chris Mayer, Charlie Munger, and Nick Sleep are the people I try to invest like.

33:03Just a big focus on quality and a big focus on long-term compounding. Let's talk a little bit about Nick Sleep. That's a name that a lot of people may not know in our little community. We know who Nick Sleep is, but I forget. I think he's chapter four of William's book, Nick and Zach's Excellent Adventure. It's called. Great, interesting guy. Talk to us a little bit about Nick Sleep and what you've learned from him. Yeah. One of my early episodes on We Study Billionaires was actually talking all about Nick Sleep. And it was one of the more popular ones I've done. But William's chapter on Nick Sleep is probably the chapter I've revisited most in that book.

33:40And a lot of it's for reasons that aren't investment related, which is sort of counterintuitive. In the mastermind community that I run, occasionally we talk about books that we've read. And I was in Telluride, Colorado with a group and we were in a bookstore in Telluride. And I was walking and I see this book by Robert Persig, Zen and the Art of Motorcycle Maintenance. And that's probably at least the fifth time I've come across it. It's in that chapter on Nick's Sleep. It's in Nick Sleep's letters. And it kept coming up. So I'm like, okay, I see it. I finally see the book in person. I never go to a bookstore, these physical bookstores with Amazon nowadays.

34:18But I see this book and I'm like, okay, I have to buy it. And then I set up a chat with the community to see if there was interest. There was a bunch of people interested in reading it because they all know Nick's sleep. And really, it's this obsession with quality that I just find so interesting. There's this line from Zen and the Art of Motorcycle Maintenance that William also pulled in his book where it's essentially they say, whether you're mending a dress, whether you're sharpening a knife, whether you're creating a podcast, there's a high quality, beautiful way of doing it is the way he puts it.

34:50And there's a low quality, we'll just say not so good way of doing it. And quality, it's something where you can't really explain what it is, but you know it when you see it. And in that book, they talk about how this guy's in a classroom and he has a high quality paper and a low quality paper. And without saying which is good or which is bad, he just has everyone look at it. or read through it and just describe what sort of grade they give it. And everyone essentially agrees what the high quality paper is. So it's hard for people to explain what a high quality business is, what a high quality podcast is, but you know it when you see it.

35:24And I just find that so interesting. And one of the filters that I've found to be a mental model to use in life is to... In business, a lot of times people might think, what's going to maximize profits or what's going to maximize profits or revenue for 2024. But that can be a pretty difficult question. And it can actually lead you to making some poor decisions, like short term decisions. But I think if I were Nick Sleep, I would ask myself, what is the high quality decision? That can make making your decision making process a lot easier. And I found that really helpful in making decisions, whether it be through the podcast and whatnot.

36:02You and I, we can bring on the biggest perma bear and put like a clickbait title and get a lot of downloads. But is that the high quality decision that's going to work out for us in long-term and like make us a sustainable business? I would say no, personally. That's one of my big takeaways from Nick's sleep, but also just like the focus on quality when it comes to business selection for like my own portfolio, it can be tempting to buy something that's low quality. That's a cigar bed trading well below liquidation value. You may stay that way for a long time, right? Yeah, they could. They could stay that way for a long time.

36:37So yeah, I sleep better at night owning high quality businesses and Nick Sleep helped me lean that direction over time. That brings up this idea that he's got a really concentrated portfolio. Can you talk a little bit about that and just how you think about his strategy? Because it does go a little against the grain of what most people would think about and how to structure a portfolio and diversifying. Yeah. So Nick Sleep, for those who aren't familiar, he started out as a Ben Graham style investor and he owned some quality businesses. But over time, I can't remember the exact years he ran. It was around 2000 to 2014, 2001 to 2014.

37:14I think it was a 13 year tenure. So when he shut it down, everyone was upset because of all the great returns he had. But he just told them, just put all your money in Berkshire, Amazon, and Costco, and just don't even touch it, don't even look at it. And in hindsight, that was a really good decision. And Stig and I talked about this with our community, actually. And it's easy to say, like, oh, what a genius for picking these three companies and just leaving it alone and look how well it worked out. But I'm sure there's plenty of other very smart people, brilliant minds that could have done the same thing with three other companies, and it just turned out terrible.

37:48So there's certainly some selection and survivorship bias when you're looking at that. So I do like concentration when it comes to investing for me personally, but three holdings might be going overboard. But it's probably also worth mentioning that Berkshire Hathaway isn't really one company. Yes, it is one stock, but they own hundreds of companies. And then Amazon, they're pretty heavily relying on e-commerce, but they also have AWS. They have all these other bets that in 10 years, they might have all these businesses that don't even exist today. And they also have all these businesses under there.

38:19It's like a conglomerate to some degree. Yeah. And then Costco, obviously, it just has their one retail business model. I asked Chris Mayer about his thoughts on concentration. He owns what was 10 stocks. He got a spinoff from Constellation. So I think it's 11 now. I think his general idea is that great ideas are rare. And when he finds them, he really wants to make them count. So when he owns 10 names instead of 30 names, he knows the 10 names really, really well. He's pretty confident that permanent capital impairment in any of the names is pretty low, the chance of that. That's just because of little to no debt.

38:54They produce a lot of cash. Cash flows generally tend to increase year after year. There's diminishing returns on concentration at a certain point. I think at 10 or 11 stocks, you're getting 80 % of the benefits of diversification. So it seems pretty concentrated, but you're still getting a lot of the benefits of diversification. And then Chris, with his portfolio, he owns a lot of serial acquirers. And some of these Constellation Software, for example, owns well over 600 or 700 small businesses. So it's not like there's one or two businesses and the whole thing goes down. It's diversified and they're becoming more diversified every single year.

39:31So that's quite an interesting aspect where people might overlook how one holding might add a lot more diversification than another holding. Yeah, that's a good way to look at it. Another interesting stat that I heard researching for our interview is the stat that you and Stig talked about that there's only 4 % of equities, and I don't know what the timeframe was, outperform treasuries, which kind of blew my mind. You think equities outperform treasuries by and large. So that was pretty wild for me to hear that that stat of only 4 % of equities just outperform a simple treasury investment? Honestly, a pretty daunting statistic.

40:12I think what I would say to that, or why I would justify thinking I could do well picking individual stocks is one, that studies over an 80 or 90-year timeframe. I mentioned that stat from Morgan Housel, 40 % of companies over a 30, 34-year period lost all their value. So yeah, the 4 % stat, when you look out over 80 or 90 years, that doesn't really surprise me that much because industries and businesses change so much over that period. And hopefully with the businesses I own, I'm owning them at least 5-10 plus years. But I'm monitoring, are the businesses continuing to grow? Are the KPIs... If I own Costco, for example, are they continuing to open new stores over a year?

40:56What do their sales per store look like over time? And once you see those start to decline or stagnate, then it might be time to move on and find something else that isn't in the stagnation or in the process of dying. And what I'd also say is that certain stocks are just going to produce better returns over time. So companies that are highly levered, eventually, they're probably going to get themselves into trouble. Or companies that are in cyclical industries, those tend to not have great returns over time. So I think once you filter out some of these characteristics of businesses or characteristics of industries or unprofitable companies.

41:31I just don't really bother with unprofitable companies. And those tend to not have great returns over time. So I think once you filter out some of those, this statistic might not be quite as daunting, but I haven't actually ran through the names. 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.

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45:10All right, back to the show. Now, it surprised me when I heard that. And like you said, it is a little daunting to think about. I wanted to jump back to Nick Sleep and touch on one idea. He had this idea of an X number, where it was like, once he hit a certain number, I don't know exactly what it was, in net worth, he was going to shut things down and retire and pursue what he called higher pursuits, which was philanthropy for him. And I'm sure he... I think he races cars and things like that. Is that something you think about in your own life? Do you have an X number that once you hit... In my mind, it's like investing is a game, right?

45:45And so he just stopped the game once he hit that number to some degree, right? I'm sure he obviously manages his own portfolio, But to just stop doing something that you love and are really great at... You talked about the Robert Peirce book. He's a high quality investor. Is that something in your own life you think about if you were to hit X number, you just stop and go pursue... I don't know. Go help whatever cause you're most interested in. Yeah. I've thought about what my goal is generally as an investor. And I think my answer to that question would be compound capital at a high rate without blowing up the whole thing.

46:25So without taking excess risk. So achieve as high returns I can without experiencing substantial downsides. So protecting for the downside as well. And I picked that up from Chris Mayer. And then another goal that ties into that is I want to become financially independent. And your point about hitting that number, I don't really have a number in terms of once I hit this point, I'm financially independent. It's like generally, life situations just changes so much. I'm still in my 20s right now. And who knows what my life or priorities are going to be when I'm 35 or 40. And I think it's similar to when I was an actuary where I wasn't really spending a ton of money or buying things I didn't really need.

47:08Those decisions really set me up to transition to TIP because it allowed me to take an initial pay cut and it allowed me to take the risk of trying a whole new field. Whereas if I was strapped to a giant mortgage and giant car payment, that would have been impossible to do. So that's the way I think about it is just like, try and put myself in a better financial position to where I have the optionality to pursue the sort of things I want. Nick Sleep discovered what he wanted to pursue after his investing journey was over. Yeah, I think that's amazing. Amazing for him to have the willingness to venture into something new once his identity was like this great investor.

47:48So I have no idea, honestly, what my life's going to look like 5 or 10 years from now. Hopefully, I'm in a position where just being a host of TIP has just opened me up to just all these different opportunities of meeting various people, of being introduced to all these different types of investors. So you really never know where the world is going to lead you. So I'm reminded of the Steve Jobs quote of, you can't connect the dots looking forward. You can only do it looking backwards. And I absolutely love that because even in joining TIP, I could have never imagined being in the position I'm in now.

48:21But looking back, it totally makes sense where now I do We Study Billionaires. Now I help run an investment community. And it's just opened up more and more opportunities for me. And it also reminds me of Morgan Housel, the quote I mentioned where the biggest event over the next 10 years is going to be something you can't even imagine. I'm sure there's going to be something that happens within the next few years where I just can't even imagine it. And then in hindsight, just going to look so obvious because of that hindsight bias. So you mentioned the mastermind community, and I wanted to touch on that a little bit.

48:51I know a little bit about it, but I wanted to learn more about what you and Kyle are up to. wanted to hear about the impetus for it and just how it's been going so far for you. So Stig and I, in 2023, we put together these free events in Omaha in 2023 during the Berkshire weekend. And we had room for something like 150 people each time. It depends what location we were at. We had a number of free events just for people in the TIP audience to come hang out with us and have some fun and just socialize with the whole TIP community. And as I was organizing this, getting emails, getting constant messages from people, I was just really pretty quickly...

49:31Stig and I talked about it in November. So six months before Omaha. And then I don't know if it was by December or January, I realized, hey, if we let any more people sign up for this, we're literally not going to have room for people to join us. And the last thing I want is just a total madhouse. So I just shut down the form. No one else can sign up because we already have 250 people who are interested. If 2 thirds of them show up, we're pretty much full. So I got to thinking, why are so many people wanting to attend this live event that we're hosting? There's so much interest. Usually you'd think like, oh, people hear about it in Omaha, and they just go and show up.

50:08But it was like 5 or 6 months beforehand, people are reaching out to me constantly like, hey, are you going to let us attend this event? And it really got me thinking, why is that happening? And I sort of came to the conclusion that people aren't just going to Omaha just to see Buffett and Munger and then call it a weekend. They're really wanting to get to know and network with people who are like-minded to them. And when I go back to when I was a listener of the show, I sort of had these internal conversations like listening to Preston and Stig and listening to their mastermind discussions, like pitching stocks.

50:41But I never got to... I would try to talk about that with my friends. But it just never clicked with them. They just weren't interested in it. They don't really understand it. And if you're not interested in it, you're not interested in it. That's just the way it is. So that's why people were so interested in getting together and having that opportunity to talk with like-minded people. And plus, so many of these people are from outside the US. I just had someone email me the other day that's coming from Australia to come to Omaha. And people I know come from Asia, Europe, everywhere in the world.

51:11So I'm like, okay, What if we created something where we create a place that people can connect with like-minded investors, but it's not just one week into the year. It's the entire year. So that was really the start of the TIP Mastermind community. And we ended up launching it the month of our events. So we could tell people to talk about it to people at the events. And then I ended up meeting some of the people that joined right away in Omaha, which was quite interesting where I already met like 10 or 15 people that were already joined our community just 2 weeks after launching it. So yeah, I mean, it's really a place to network with like-minded people online.

51:49A lot of people hop on calls one-on-one. We have around 100 members right now, and we plan on capping it at 150. And it's a place to share stock ideas, get new ideas from others. We have people apply to join. So really, there's a filter that goes through where we have to make sure you're a like-minded person. You think pretty similar in terms of investing, trying to buy something for less than it's worth, understanding moats, understanding intrinsic value, just basic things like that. And really, it's a wide range of people. Some people are earlier on in their journey. Some people work in the investment industry.

52:24And then people also seem to really like... We bring in special guests that have been on the podcast. So we've had Chris Mayer join us, Godim Bade, Ian Castle, Tobias Carlisle. Yeah. So we have various people come in and chat with us. And then we also do educational type stuff. Kyle does some write-ups. And then we're going to be hosting two live events a year specific for the community. So we'll be doing two social hours in Omaha in May. And then I plan on also hosting a live event in New York City in the fall. So that was the impetus and what we're up to. That's awesome. Have you gotten any feedback from members and some of the benefits, just what the feedback is and benefits that they talk about?

53:05Yeah. So since the community offers a lot of different value, values in the eye, I've learned over time that values in the eye of the beholder, what one person sees valuable, another person doesn't see any value in it at all. So the three main benefits I see is just having a network to run ideas by or a network to expose yourself to. Online, there's people constantly posting different things or just sharing books or reading articles they read. So just being a part of that network really is invaluable. It just exposes you to a lot of serendipity of you never know what sort of connection is going to pop up.

53:40Or maybe you're traveling to a city and you know a person in the community that lives there. So you get access to just this amazing network. A lot of them are entrepreneurs or they've sold businesses. So just amazing people in general, not just having that investment mindset, but they have a lot of life experiences that, in my opinion, is just invaluable. And then a lot of people join just to get new stock ideas or to share their ideas with others. This definitely is an investment service. So I don't encourage anyone to join just to like, hey, go and buy the stock. Really, it can be a place for idea generation.

54:14People also really seem to like the special guests that we bring in. So just being able to ask just these experts that you wouldn't otherwise have access to seems to be really valuable and people really like to. So tell me a little bit about what it costs how often you guys meet a little bit about how it's structured? Yeah, right now, the cost is$197 a month or multiply that 10 for the yearly. So$1970 for the year. Got to do a live math here. And then, yeah, so that's the cost. We try to do a live Zoom event every week. The time of day we do that just depends on... We're working with various people's schedules.

54:54We do social hours and work with people's schedules. So generally, every week, A lot of times we do more than one a week. And then all those get recorded because people, our members just live busy lives. So we record everything. Not everyone can sit in at a specific time with this Q &A. So it's also nice because we're building a huge backlog of content for the community. And if someone joins today, they have access to every single recording we've done since April 2023. So it's been close to a year. And then, yeah, so online, we're meeting once a week, essentially. And then live events, you get access to Omaha and New York City if you're interested in meeting up in person.

55:30And one of the other things I wanted to mention about Omaha in 2023 is it just felt like since there were so many people there, I really didn't know who was showing up generally. I found that the conversations were just really surface level for me personally. So it's like I really didn't get to really know people. And I'm just talking to so many people as well, like 50 plus people introducing themselves. So it's hard to get past that surface level. And when you have a small community where 30 of the 100 members are going to Omaha, you know who's going to be going. You can see... We have a registration list.

56:04So you can see who's going to be going. And you're like, okay, I want to talk to these 3 people. I want to get insights from this person on this company. So it really is an amazing way to get past the surface level and really build those deeper relationships. Which is, for me personally, just like the relationships part of being a part of this has just been amazing. just meeting so many amazing people. And yeah, now I know, for example, whenever I go to New York City, I have plenty of friends to go and see and people to go hang out with. And for me, that just is a huge, huge benefit. It sounds like a really great thing.

56:37Like Kyle had mentioned, in our day-to-day lives, there's not that many people that really want to talk about what we're into, whatever it is, podcasting or investing. It's a niche topic. And so it's really hard to find a community. So it sounds like an awesome thing to be a part of. I want to switch gears. You had mentioned Godem Bade and that he was part of the Mastermind community. I did a Twitter thread, I think actually went by your suggestion, that did really well. It was one of my best performing threads. And I know that you did a series on his book, Joys of Compounding, that was one of your best performing series.

57:10So I just wanted to talk a little bit about the Joys of Compounding. I know it's an important book for you. What do you think it is that just strikes a chord about that book with listeners and readers? There's a funny story behind that book. I talk with various people on Twitter. I was DMing Compounding Quality. And I don't know if I asked him for book recommendations or what, but he must have just messaged me and said, Hey, by the way, if you haven't read The Joys of Compounding, I highly recommend it. He said it was as good as William's book. And when I heard that, I was just like, there's no way.

57:42I was pretty skeptical. I bought the book. And honestly, right when I started reading it, I was just blown away. Shortly after I had a meeting with Stig and I was talking to Stig, I was like, I've been doing these book reviews and each book has been one episode, one one-hour episode. And I'm going through this book. I'm like, I can't do all this in one episode. I'm like, I'm telling Stig, I could probably do five or six episodes on this one book. And Stig was like, wow. He had never read the book. And he was like, If that's true, then go ahead, do that. So I'm pretty sure I did a five-part series.

58:18That was in the first half of 2023, sort of April, May timeframe. Yeah. So I reviewed the book. And the reason I think it sort of struck a chord is that I think it really encapsulates everything the value investing community stands for and everything that TIP stands for and what we're all about. He just pulled all these key lessons for just lifelong learning. What's most important when it comes to value investing? A lot of these ideas weren't something he came up with. He had read just countless books. Countless books. He's read everything Buffett talks about. He read Buffett shareholder letters.

58:52He went through everything. And he just put it all together in one book. And half of it, I would say, is just general things with regards to life. How to approach life in a way that's honorable and ethical. And I just thought that was so interesting and just lifelong learning. A lot of it also is about investing too. And each chapter is sort of standalone to some degree, because it's all just about one sort of topic. There's a chapter on incentives that I've looked back on so many times. And he pulls in all these amazing quotes in regards to what he's talking about. And I've just never found one resource that's quite like it and never really came across anything that really hits on all the value investing topics.

59:33It's what we've talked about for years. and he just put it all into one resource. And I love the book personally. Yeah, I do too. You had a chance to interview him. What was that like? Tell me a little bit about that. Yeah, I had him on the show twice, actually. He released his second book, The Making of a Value Investor, late 2023. So I brought him on for that too. But really, from chatting with him and reading his book, some of the big takeaways for me was just, again, the appreciation for high quality businesses and why they work. One of the most difficult parts of investing is the qualitative aspects.

1:00:07As a numbers guy, I got attracted to investing because of the numbers. But really, what makes it interesting is these qualitative aspects. Things like people, culture, industry dynamics, competitive dynamics, just how businesses fit into the bigger picture of the world. And he really opened my eyes up to why and how people tend to underestimate the value of high quality businesses. And people can get fixated on the numbers, they get fixated on a PE ratio or whatnot, without understanding the big picture of where a company is heading over the long run. And he talks about... Terry Smith is a very popular quality investor.

1:00:48And he talks about how people get fixated on these PE ratios. And I think it's another way some people can get duped into buying lower quality businesses and earning lower returns as a result of it. And when you zoom out over a 10 plus year time horizon and you have a great business, it doesn't really matter if you bought it at a multiple of 20 or 40. All that matters really is that you bought it. And I also liked how Gottem talked about how... He talked about this concept of quality increasing your margin of safety because great businesses increase their intrinsic value over time. So with each passing day, the intrinsic value is going up over time, essentially because the earnings continue to march upward.

1:01:28And I also loved that he mentioned the example of Ben Graham. He was a cigar butt investor. That's what he's known for. But he made the majority of his money owning Geico stock. It's just so ironic how this one business, he happened to buy it. And I can't remember exactly why he ended up holding onto it for like 30, 40 years. But that made him more money by far than anything else. That's where he made the majority of his money. And Ben Graham, he talks a lot about this idea of mean reversion. Great companies eventually become average and poor companies eventually become average. So things sort of mean revert over time.

1:02:03And Godham shared this study in his book that's really stuck with me where it was from Credit Suisse. And essentially, it showed that over successive 5-year periods, it ends up that great businesses tend to remain great and poor businesses tend to remain poor. And it gave me the peace of mind of, okay, maybe when you reference that 4 % study over a 90-year period, maybe a great business turns into a zero. But over these shorter timeframes that we can really deal with and grapple with, I don't know what a business is going to look like 50 plus years in the future, but I can operate in a 3-5-year time horizon and then continually reassess is sort of the way I view it.

1:02:42Gautam also helped me appreciate quality in a business and the power that holds for investors. Yeah, it's a great book. Joys of Compounding and Richer, Wise, or Happier are two of my favorites that I think everybody should own and everybody could reread every year and get some value out of it. Something new. Yeah, it's just... There's two great books. I wanted to wrap up here and ask you. We talked about Morgan Housel's book, The Psychology of Money, and then his second book, Same as Ever. My favorite chapter of Psychology of Money is called Confessions, where we get a peek into how Morgan runs his own financial life and look under the hood of his portfolio.

1:03:20There's a quote, I think, that's attributed to Monish Pabrai that goes along the lines of, I don't want to hear what you think. I want to know what's in your portfolio. Show me your portfolio. So I wanted to talk a little bit about that and hear about your own portfolio and how you've got it structured? Yeah. So one of my bigger holdings is actually Bitcoin, which I never talk about on the show. And you and I were talking, I kind of went down the Bitcoin rabbit hole in 2020, read the Bitcoin standard, saw the transition Preston was making with NTIP. And yes, ever since 2020, I've just bought it and held it and added to it over time.

1:03:57It's a long-term bet for me and I don't really care too much what it does in the short term or whether an ETF is going to dramatically increase the price or right now it's falling in light of the ETF. But yeah, I mean, for me, it's just a long-term holding and it's gone up and become a bigger part of my portfolio. Personally, what I find a lot more interesting right now is just talking about and researching all these individual companies and talking about stock investing on the podcast. So right now I only own 6 individual stocks. The most recent one I actually covered on the show with Kyle was Dino Polska, the grocer out of Poland.

1:04:30So we have an episode on that if anyone wants to learn more about it. And then we actually just recorded about Evolution AB. That's one of my other bigger stock holdings. That company is out of Sweden, really growing quite fast. And it's quite an interesting name. And I think it has a lot of room to run. And what do they do? Tell me a little bit more about Evolution AB. Yeah. Usually I just refer to them as Evolution. But if you look it up, Evolution AB is what they go under. And there's the main ticker is EVO. That's the one I own on Interactive Brokers. But then there's also ADR. So I think you can get access to it on a regular investment account.

1:05:07It's EVVTY, I think is the ticker on that. But Evolution essentially is... They develop online games. So live games. So they're capitalizing on this trend from land-based casinos to online. So right now, land-based casinos are in a decline. And globally, the online casino market is in a structural growth trend. I think from 2018 to 2022, that market's grown by 21 % per year. And Evolution, in some of those years, has grown by over 50 % their revenue. And what they specialize in is live casinos. So you can think about Blackjack or Roulette, where you actually have a live dealer, and people get online and they see the live dealer.

1:05:49And it's really a difficult business model for a lot of these casinos or other operators to get in because scale is so, so important. It's so costly to set up these tables and reach the scale. And that evolution is what they've specialized in. And there's really no other strong competitors that there are a lot of competitors, but there's no one that operates at the scale they do or has just the vast amount of games that they do. Just in 2023 alone, they've developed over 100 games. So they create these new games. And another tailwind they have behind their back is the regulation of iGaming globally.

1:06:23So as more and more of these countries develop regulations, the market continues to mature and continue to grow. Europe is their mature market. I believe they're still growing in the teens in Europe. But when you look at Asia and Latin America, the growth is really strong for evolution. So one of the things I like about it is that it's global. and they have a strong market position in what they do and it's global and they're growing in all these different markets. I don't know which markets they're going to do the best in over the next 5-10 years, but I can see overall big picture, they're capturing a lot of this massive market.

1:06:56Yeah, Kyle and I will have an episode going out actually in early February on this company. If anyone's interested in learning more, we did an hour plus long deep dive on it. And then back to my portfolio, I also own some index funds and cash because I'd like to bring my individual holdings close to 10, hopefully within the next year or two, just kind of gradually making my way towards that number. Kind of floating Chris Mayer a little bit. Yeah. A number I can sort of grapple with in terms of actually knowing the companies and tracking them, but not too much where it becomes overwhelming and I'm kind of losing the benefits of adding more.

1:07:30So yeah, that's where I'm at right now. So percentage-wise, how would you break it down? I'm sure if you got into Bitcoin, whenever that's become a bigger part of your portfolio. But how do you think about breaking it down percentage-wise, individual stocks, Bitcoin, index funds? Yeah. Honestly, I'd rather not share percentages. The Bitcoin's grown to be a sizable part, but I think of it more in terms of my cost basis. And I'm a big fan of just letting winners run. So Bitcoin might stagnate for quite some time or it might come down. And then as I continue to save more and more money, depending on where things move and how things change, then I can allocate where I'm allocating new cash accordingly too.

1:08:13I wanted to touch a little bit on volatility, not Bitcoin only. Bitcoin's obviously volatile, but also individual stocks. How do you deal with that from a psychological standpoint? It's pretty tough weathering some of those ups and downs. Is it a matter of conviction for you or how do you deal with the volatility? Yeah, I think Bitcoin is actually a great example for thinking about volatility just because it's the most volatile thing people know about unless they've got into very speculative things like a lot of gross stocks, a lot of altcoins type stuff. But one of the realizations I've come to in recent years is that the market price is not driven by the average person participating in that market.

1:08:52For example, in Bitcoin, over 70 % or 75 % of the coins haven't moved in the past year, which tells me the majority of people that own Bitcoin think it's going to be a higher price one, two, three, four years into the future. But if you have an FTX type player coming in, it makes you realize that just a few players in a market can really move the price significantly. You could say FTX alone brought it from 30 or 40 to below 20, just like that. And then there's contagion as well, where other players get liquidated. There's all these leverage traders. And I think it also ties into the point that a market has an infinite number of different types of investors that are buying and selling for totally different reasons.

1:09:34So I think it's really important for me personally to know why I'm buying it, what my time horizon is, and what my thesis is in owning that. And you can think about an example like Berkshire Hathaway, where the average person owning Berkshire might say it's undervalued. But people don't buy and sell just based on whether it's undervalued or overvalued. Some people might be selling it to go and buy a home where they aren't even looking at the intrinsic value or the market value of it. They need cash. They need to sell and to do that. Some investors might sell it because they found a better opportunity.

1:10:09They know Berkshire is undervalued, but maybe they go and find another company that's more undervalued. So just that realization that there's so many different players in the market. There's so many short-term people that think short-term or just think irrationally. It points to the markets of voting machine in the short-term and the weighing machine in the long-term. So really, to me, I care about the fundamentals and the price is really noise for the most part in the short-term, unless your thesis is, of course, busted and whatever it is you own. So I think the best way to manage volatility is definitely understanding what you own, why you own it, and then adjust your position size accordingly.

1:10:46If you can't sleep at night, then that might be an indication you might need to scale back on a holding, right? Yeah, exactly. There's something wrong in terms of your understanding of it, why it is you own it, and maybe your position size isn't in line with your understanding of it. So once something goes into your portfolio, whether it's Bitcoin or these individual stocks, equities that you own? Is it pretty much your mindset? It's a long-term hold? Yeah. I mean, I used to... I remember buying some of the big tech names during the drawdown in 22. But once those reverted back, I ended up allocating them to things I thought were better opportunities.

1:11:22But yeah, ideally, when I own something, I'm hopefully going to own it for at least three or five years plus, and then re-evaluate over time. Give it a leash to... All companies go through some growing pains and give them a chance to come back. But yeah, definitely want those longer term plays because I think that's where a lot of the gains are going to be for my portfolio. Well, thanks for sharing that. I think it's interesting to our listeners to just hear individually how you personally invest and appreciate you sharing that. So this is a good place to put a pin in things. I really appreciate your time.

1:11:55Was there anything that we didn't get a chance to talk about that you maybe wanted to mention? I don't think so. We hit on a lot. Before we sign off, how can our listeners find out more about you, get in touch with you, maybe learn about the mastermind community, things like that. Yeah. I'm on Twitter at Clay underscore Fink is my username F-I-N-C-K. The podcast is We Study Billionaires. Many listeners probably know what that is. And then the mastermind community, you can just search TIP mastermind community on Google or go to theinvestorspodcast.com slash mastermind. Awesome. Clay, thanks so much for your time today.

1:12:31Really appreciate it and had a fun time. Thanks, Patrick. Really enjoyed it. Okay, folks, that's all I had for today's episode. I hope you enjoyed the show and I'll see you back here real soon. Thank you for listening to TIP. Make sure to follow Millennial Investing on your favorite podcast app and never miss out on our episodes. 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.