The Stoplight System with Tykr founder Sean Tepper

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2:46podcast, the show for the long-term investor. We cut through the noise to focus on what works, compounding, discipline, and the conviction to buy wonderful businesses and stick with them. Your path to financial freedom, start now. Welcome to the Investing for Beginners podcast. Today, we have a fun guest. He's got great lessons that align with exactly everything we talk about all the time and an interesting system that he wants to share as well. So we have Sean Tepper, the founder and CEO of Ticker, an investing education and stock analysis platform designed to help everyday investors make smarter, more confident decisions in the market.

3:32Thank you for joining us, Sean. It is great to talk to you. Andrew, good to be here. Can you talk about your journey first? Like what inspired you to start Ticker? Yeah. What's the timeline on that? How did you first get started? So the journey kind of started actually around 2006, just out of school, and I wanted to be an entrepreneur. So I started a service business building software and websites for small and mid-sized businesses. did that for four years. And that was a big lesson learned that that is not a scalable business model. Now, in 2010, went through a merger. There was no million dollar check written like, hey, we're going to buy your business.

4:19It was it was really just wiping out the debts and liabilities. So it was a fresh start. And at that point, I'm like, OK, I'm going to create a different business. I need a business that instead of me working for money, money is working for me. So with that model, I love SaaS. I have my background now, 20 years in tech. Always wanted to create a SaaS business. But around 2010, 11 is when I'm like, all right, getting the money to work for me, I have to get into the stock market. That's when I started investing. I joined a broker. And then, of course, what do you do next? That's where most people fall.

4:59You join a broker. And then the big question is, when do I buy? When do I sell? and so I was like you know following influencers online and reading forums and going on this site and that site and that site and I did that for about five years and I paused in 2015 and I'm like this is really stupid I could lose a lot of money because there's a lot of conflicting noise and I looked at Warren Buffett and Charlie Munger at that time and I'm like okay so these guys are able to consistently beat the market. And you and I and your community know that they're not gambling. They're not using feelings or emotions to pick stocks, which means they're starting their process with math.

5:40And I'm kind of a big math nerd. I'm like, all right, I can figure this out. I can I can reverse engineer what they're looking at. So I literally read as many books as I could on investing and went down the YouTube rabbit hole, a lot of noise out there. And then And I found a guy by the name of Bill Town, and he wrote two really good books. One is Rule One. The other one is Payback Time. I then took the math. He actually revealed the calculus in those books. And I put them into Excel, added my own flavor to it, and then I added gamification to it. And why that's important, I won't go into too much detail here, but I've got a lot of background working for GE and Kohler, which have a strong culture with process engineering.

6:25And what does that mean? Well, let's say you get 100 data points. You cannot present those data points to an executive or to a customer. You have to simplify it, either a traffic light or a yes or no. It's got to be super easy because you don't have processes in place. You can't get anywhere. Right. So put this system into place into Excel, gamified it with a rating system that has stocks rated as green, gray, or red. That's on sale, watch, or overpriced. And to get this, it would take me 10 minutes to analyze one stock in Excel because I'd have to literally copy all these data points from the income statement, capital statement, and balance sheet from Yahoo Finance, screen left, over to screen right.

7:11and then over the course of a half hour, I could analyze three stocks and that would let me know like, hey, this is either a strong stock or something I should avoid. Well, I did that or get this the next four to five years. I'm like, if I'm gonna create a SaaS product, I'd better not do it for like four to five weeks or four to five months. That's not long enough. So went years, averaging returns between 15 and 50%. In fact, our customers do fall in that range even today. But it was 2019 was like the inflection point. And I'm like, all right, I think I've got something here. So I share this Excel sheet with a few other people.

7:51And everybody's like, hey, you should turn this into a software so we can use it. And that was the green light. And it took a year to build the first version, went live in 20. And then, yeah, fast forward to today, we've got about 13 ,000 customers in about 50 countries. and everything we do is focused on value investing. We are not focused on trading. Yeah, that's amazing. So I'd love to just dive right into the stoplight.

8:21Maybe before like getting into the exact nitty gritty, what you mentioned kind of like value investing and things like that. What were some of the things that you were trying to follow when you created that system? So leading up to it, I mean, I learned the difference between fundamental analysis and technical analysis. And I never loved charts. And after I really learned what Phil Tan was teaching, he primarily focused on fundamentals. And that made the most sense. I did try technicals a little bit. And I found that you can end up selling really good businesses at the wrong time. So we, Even today, we do not do any technical analysis.

9:02It's noise. It's clutter. So that was a big aha moment. I got into options for a while, learning the ins and outs and everything options and really came to the conclusion that if I'm going to teach options to my customers, the only strategy I support are selling covered calls because it's the least amount of risk. As you know, if you've got an options background, you can lose a lot of money. You can do something stupid. But I'm like, nope, not going to get into that. So that was a lesson learned. Also learned, you know, the difference between stocks and ETFs, mutual funds, index funds, as well as, you know, comparing those to crypto, comparing those to Forex, no foreign exchange trading.

9:45We do have crypto and ticker. You can't analyze crypto because there's no income statement, cash flow statement or balance sheet. But people do like it in the platform because they can track it in the portfolio tracker. But anyway, everything, all arrows always kind of pointed back to value investing. When you look at the number of billionaires in the world, you know, it's a collection of not traders. There are zero billionaire traders, but it's a mix between value investors or long-term buy and hold investors, real estate investors, and entrepreneurs. I'm like, well, obviously value investing, that's what you want.

10:21Time in the market, not timing the market. Yeah, is it? Seth Klarman is on that list. Obviously Buffett too. It is inspiring to see that play out in the real world. Because, you know, you got the books and then it's cool to see that in action. While we're on that topic of like, you mentioned Phil Town. Are there any other resources that really inspired you or that you think people just in general should check out when it comes to learning some of the things that help form your system? you know what out of all the books i would say yeah rule one and payback time are really all you need i'm not kidding of course i've got the uh what is it the intelligent investor was okay um ray dalio's principles was okay um i've got a bookshelf back here dozens of books i'm like a lot of noise here a lot of fluff i respect a lot of these guys but i'm like gosh Phil Towns principles are just so simple and like they make the most sense.

11:26And this is another thing, too. I'll keep this real short is he looks at more data points than anybody else. Like, for example, with ticker, our calculations are open source. It has made us really unique against our competitors. A lot of our customers that are kind of math nerds like me, they love that. They can see the math that powers that we even tell our customers, you can go create your own version of ticker. We're not going to stop you. But to give you a little taste, like we're looking at the revenue growth rates quarter over quarter over 16 quarters, so four years. We do the same thing with net income, same thing with EPS, same thing with free cash, same thing with assets.

12:03When I was looking at this, Bill added more rigor than I've ever seen before. And this is another process engineering thing is the amount of rigor that goes into manufacturing is ridiculous. And I'm like, this makes a lot more sense than somebody else saying, you know what? I only look at market cap and PD and I make my decision. I'm like, I feel like I'm one of the old scouts from Moneyball, like picking baseball players based on their jawline or if they have a pretty girlfriend. You've seen Moneyball, I imagine. Brad Pitt. Yeah. Yeah. It's like that these old superficial decision making data points versus the math that, of course, Jonah Hill and Brad, his characters introduced.

12:47It's kind of the analogy I use of the years. And when I kind of use that, people like, OK, I kind of get what Ticker is doing now. You got to create more rigor. That's awesome. So can you give an example of like what would contribute to a green green light rating for a stock? Yeah. So there's two things that factor into it. And again, this is all open source. So the first thing is we look at eight lines on the income statement, cash flow statement and balance sheet. And six of those lines you want to see increasing quarter over quarter. And the more quarters of increase, the more points you get.

13:26Scoring system is between zero and 100. Keep it nice and clean. And with that, the six lines you want to see increasing, I mentioned a few before, you got revenue, net income, EPS, free cash, assets, and equity. There's two other lines on the balance sheet you want to see decreasing would be liabilities and debts. So if those percentages are moving in the right direction quarter over quarter, of course, over 16 quarters, there's more points added to that score and you need a 50 or higher 50 at 100 or higher and that's very hard to get to so that's criteria number one this is what took so much time to do this manually the second thing you want to look at is the margin of safety and we use a derivative you could say of phil towns calculation i added a little more flavor to it but we're looking at a margin of safety of 50 % or higher.

14:22So in context there, we use the EPS growth rate for calculating the fair value. And of course, you got fair value, you get the share price and your share price discount off the fair value is your margin of safety. There are some people that'll use the Graham equation or some people use discounted cash flow. We find those to be quite outdated because they use they factor in bond rates and bonds. In my opinion, nobody cares about bonds anymore in 2026. So what large institutions do care about are profits. So EPS is that in line. So anyway, back to where the on sale that green needs to be calculated, you need a 50 or higher in the score, you need a 50 % or higher in the margin of safety and you've got on sale, it's watch meaning gray, then it's only one of those criteria are met.

15:14And then of course it's overpriced red. That's when you miss on both. It's below 50 in both. So it's actually pretty easy. And then in the tool, I'll keep this real quick. We have these little how it works buttons kind of peppered throughout. So you can quickly see what are the ratings, how are they achieved, so on. So you can quickly go from like a beginner to expert in, I mean, minutes, literally. Hmm. That sounds interesting. So what is like the coverage of stocks? How many are on there? Yeah, so we're global. We've got about 50 ,000 stocks. We've got customers from over 50 countries. I'll just name a few of the largest countries.

15:56So, of course, U.S. is about 50 percent of our audience, then kind of spread out over Europe, like Germany, Netherlands, France, Spain, Denmark, you name it. a lot of customers over there. Canada's big in ticker. India is growing exceedingly fast. And then we see a lot of customers come from Australia and even that South Asia, like the Philippines, Indonesia, Singapore. Singapore is big as well. So yeah, we got stocks from all over. It's really fascinating. And the world of investing does seem to be getting more and more global. I think we saw that with semiconductors. I know I have a couple of names like Taiwan and Netherlands and things like that.

16:37So are there any countries that you, either for you or for customers where people are getting more and more interested just in stocks and those areas? Good question around the globe. You know, Taiwan is one, of course, they work with a lot of other semiconductor companies. Europe, every once in a while, you'll see one pop up like Adyen. and of course, any stocks I mentioned, you mentioned that financial advice, but Adyen is a powerhouse payment processor out of the Netherlands. I'm trying to think of any others, but it's cool because people can find with the rating system because you can look up anything, but then there's a screener and you can put filters in place and you'll find some incredible stocks that you never heard of that are outside of the States.

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19:47Join at functionhealth.com slash beginners and use gift code beginners25. What's the best way to get started in the market? Download my ebook for free at stockmarketpdf.com. So how are people using this tool in general? Like what is the biggest use case? Yeah, zoom out for a second, give your audience. So it's probably about 90 % of the customers are intermediate and beginner and then about 10 % expert or your more advanced investors. We do like our competitors. I give a lot of credit and a tip of the hat to Motley Fool. They're very focused on value investing and seeking alpha. Simply Wall Street is good as well.

20:31Those are kind of like the top three. I will say this, we're a lot easier. So what happens is the use case is people will join a broker and then they really don't know what to do next. And we are talking to over 10 different brokers as potential partnerships. We're actually integrated because we get a broker connection featuring ticker. We're connected to about 30, 35 different brokers and banks like the usual suspects. You've got Schwab Fidelity, E-Trade, Robinhood, and a bunch all over the world. But yeah, typical use cases, people join a broker and then they're confused. This is very common.

21:07And that's why the average account size that most brokers, and we're talking in all the big ones, is get this around$5 ,000. And even get some of them, even less. And it's a big frustration, but brokers are not really solving that problem. And that's fine because their job is to keep people's money safe. Our job is to come in and give them the analytics and the education. So that's why it's kind of a perfect marriage. So So yeah, people usually come to us with frustration. They join a broker, connect their bank account, crickets. Now what? Oh, this guy on YouTube talked about SpaceX. I'm going to go buy SpaceX.

21:47Or this person on Reddit talked about Wendy's. I'm naming main stocks right now, but that's a typical behavior. And then they come to us and like, ah, okay, so we need the two working together. Analytics plus your broker. are there any mistakes that you've seen just in the time that you've done this people can make as they analyze stocks and look at the numbers and things like that yeah yeah emotions people the hardest thing for people is controlling their emotions one thing that we teach at ticker this is in my opinion the most important thing in investing is a technique called stockpiling Phil Town, he coined the phrase, but you want, you actually want in value investing all your stocks to fall.

22:35Like if the market's going down, like it did with the COVID dip, I call it in 2020 between February and April. And then of course the recession of 22 and even what I call Trump tariff for two with tariff negotiations, drive everything down. Cause if you have great businesses with great financials, you want those stocks to fall as much as possible. You buy more when it's down. And that's when part of the reason why our community makes really solid returns is they, it's a counterintuitive psychology because most people want the market to go up, which of course it mostly does, but you want those great buying opportunities.

23:14So you should be excited when it drops down. But I tell you what, I still see customers that will email me. They've been with Ticker for years and they're like, Sean, you know, our president said something and I think the sky is falling? Should I sell all my stocks at the bottom? Oh my gosh. No. How do you think this is going to play out? It's probably going to rocket right back up in the next two to four weeks. And sure enough, that's exactly how it plays out. But long story short is controlling your emotions is the hardest part. Yeah. So how do we do that? Well, you got to trust the system. And I've taught people over and over, and this is why we got a lot of case studies.

23:52We're big on Trustpilot. our returns. We actually show in ticker the average returns of the community, which are averaging S &P 500. I mentioned this to you offline, S &P 500 per year averages about 11, 12%, which is pretty good. Ticker community over the last five years per year is closer to 18%. And of course, I have to say this, per the rules of SEC, returns are not guaranteed, but we also show and take our analytics on how much money people are making based on average sizes of accounts so that you know little things like that give people confidence that oh this system works and then we layer on the the whole transparency with our open source calculations and then we do pepper and education that's the thing too is we are constantly there's education and then there's like repetitive education.

24:48We do a lot of that. We send emails a lot. And one thing we really hammer on is the fact that over the last seven, get this, over the last hundred years, there have only been 17 bear markets or recessions with an average duration of 10 months that reminds everybody that, okay, like if it's gonna go down like severely, it's probably gonna last about 10 months. And that is pretty common. Just so, yeah, studying history, getting educated, a lot of that makes sense. The part I didn't follow, if someone's not big on coding, like what does the open source math mean and what are the benefits to that?

25:29Oh, yeah. So when you join Ticker, we do send an email. That first email just is a welcome. And then there's a bunch of links and one of them shows the math. And it's not open source code. It's open source math. You're not going to get access to like our tech stacks, math or our code, but it does show the calculus. And there's even some Excel sheets that can save you time. But yeah, you can actually see all the calculus and how we make our calculations, how you put it all together. It is, I will say this, it's a lot, it's a lot of math, but it's once you kind of get into a groove, it's not overly complicated.

26:08Obviously, AI is seemingly everywhere. everybody's talking about it. Technology is moving so, so fast. And I'm sure you've seen things change even in your industry because of technology in just a few years. So how do you see that and how it's affecting investors and how does your platform help people adjust to that? Yeah, so kind of lay out what we've done in the tool with AI and then you give context to, I was at a big event in New York within the last year that shed some light on, hey, where is this going? How will it impact investors? But first on our end, what we've done is the first feature we created with AI is called the 4M Confidence Booster.

26:50This is another Phil 10 phrasing, the 4Ms. Keep it real quick. You get the math part, which ticker takes care of that summary we call it. That's the traffic light, the score and the margin of safety. Then you get the meaning. That's the business model. How many revenue streams does a business have and how scalable are those revenue streams. And you get the moat. That's how business compares to the competition. And then the last M is the management. That's the track record of the CEO. Well, of course, that first M, that's mathematics. You can do that. That's quantified. Whereas the meaning, moat, and management, that's qualified.