TIP755: My Process for Finding Great Investments w/ Kyle Grieve

24:17Whereas even if a manager has a pretty large ownership, if that just represents 1 % of their net worth, then that tells you a lot of information. Now, I like to build up my knowledge base by answering these questions, which really helps me determine if a management team is worth partnering with or not. Some checklist items definitely carry more weight than others. Management integrity is just number one. I would never budge an inch on that. If management has a history of showing any crack in integrity, I'm just going to take a pass, to make it easy on myself. I've unfortunately invested in the past where I've had some questions about management integrity, and I thought I kind of had a handle on it, then found out more information that put them into question.

24:56And I wondered, okay, well, maybe I could just hold the business and see what happens. But I realized I just don't trust this management team enough to ever really want to add more shares. So I just sold them all because if I don't want to add more shares in the future, there's just no point in holding the business. And lastly, there's the capital efficiency aspect. So this is a quantitative metric that really helps me understand whether a business is effective at converting capital into profits. So my best companies tend to have ROICs that just don't fluctuate very much. And ideally, they're actually gradually increasing.

25:29So an increase in ROIC is a strong signal that a company has a competitive moat. It means that the business can earn higher profits on an invested capital compared to its industry or to competitors. If a company has no moat, it's very often incredibly obvious just when you examine this metric. So not only do I want a high number here, but I also want a decent sample size. One year of achieving a significant number following multiple years of low single digits just isn't going to suffice in my quality bucket. So now we move to bucket number two, which is a micro cap inflection point businesses.

26:01So there aren't too many differences in what I look at. So I'm looking at three things again. First, two quarters of revenue and earnings growth above 25%. Then I'm looking exact same thing here, a talented management team that is align with shareholders and owns a substantial amount of shares. And then three, an ability to earn high returns on invested capital. So only the first and last point here are different. So the first point is how I determine if a business is truly inflecting. I'll sometimes allow for the use of free cashflow instead of earnings on these businesses. If the cashflow of a company makes sense, and it seems like they have some sort of scale advantage where margins are continuing to improve, I'm fine investing in a business that isn't IFRS positive net income yet.

26:40The beauty of this specific strategy is it can capture some outstanding businesses. All of my microcap winners have followed this inflection point framework to some degree. Some companies might be profitable for longer, or maybe it's just a quarter. But when you're looking at a small business, they can often get sticky revenue, which is likely to grow quickly, and I mean very quick. The second point on management is the exact same as the high quality bucket. In the inflection point businesses, one of the strongest areas is that the CEO is often the founder of the business. Since the company is small, it also means the founder usually has a significant stake in the business.

27:15It's not unusual to find management teams with stakes of 50 % or even higher in a business. And while many businesses I would actually fear if they had insider ownership above 50 % because you have that going private risk, it's just not as much of a concern in my opinion for microcaps because a lot of them are microcaps on an exchange specifically because they require funding, which prevents them in the future from going private. So management is crucial to the investing hypothesis in microcaps. Since microcaps are still in their early stages of growth, management will be the ultimate indicator of the business's success.

27:52So Buffett likes companies that, you know, even an idiot could run, but you just don't really find these in microcaps. The businesses are often much more fragile at this stage. And if you don't have a leader who can adapt fast and find ways to make profits quickly, the company can simply go bankrupt or get taken over. Even an excellent product or service can just be thrown into the waste bucket or swallowed up by a large competitor. A more mature business that already has a significant portion of its business model created and systematized won't encounter these painful problems that a microcap will.

28:25So while management can still carry a more mature business, I think they matter a lot less due to all the systems that are now in place. As for the final point on capital efficiency here, so I still calculate it on all my inflection points, but this is more of a situation where the numbers don't tell you as much because they're usually going from a state where they're going from negative to positive. So since a lot of these inflection point businesses are running at a loss, maybe a quarter or two before I buy them, ROIC is going to be a negative number, even when I'm making adjustments. But as they inflect, that number can rapidly improve.

28:59So the main question that I have to ask is, how much more can it improve and what are the odds that it reverts back? Those are the questions that I try to answer on my micro cap inflection point businesses. So I'd like to review my reasoning behind investing in these two very distinct and different buckets. So the quality businesses are the ones that I like, which I don't necessarily need to have high turnover in. These are businesses that tend to perform exceptionally well and very consistently. While they may have some hiccups along the way, I don't have to think about them very often. And the only thought of really ever selling them doesn't come out of fear.

29:33It's more of a valuation question because these businesses tend to get expensive. I don't want to get too much into my selling criteria yet, as I'll be covering that more later in the episode. But the businesses in this category are generally priced between 1 billion and 10 billion. I don't actually have a cap on what it needs to be. I just prefer smaller companies as I feel they have a longer runway. way. Now, for my micro-cap inflection point businesses, I like these because it's not unusual to find companies that literally grow at 50%, 75%, 100 % on the bottom line. And I love seeing these businesses very early before institutions start piling in.

30:07So the businesses are often so under the radar that they can grow quite rapidly. And they still trade at multiples that make you think they're just a mature business growing at the same rate as the economy. I'm talking about businesses that are likely to grow 25 % or more, and are trading at mid-single-digit forward multiples. So the mispricings are just too juicy for me to ignore, and that's why I invest in these businesses. And just so you know, the market cap average for these is below 100 million and often much below 100 million. So the turnover was going to be a lot higher in my microcaps because many of these businesses inside of them just don't deserve to be held for very long.

30:44I want them to deserve to be held, but I can't be stubborn on that side of things. Stubbornness and a no-sell mentality towards micro caps is just a death sentence. There's also going to be a difference in my average holding periods between my quality businesses and micro cap inflection point businesses. So out of my 10 biggest winners, seven are quality businesses and three are micro cap inflection point businesses. However, of the inflection point businesses, only two have been held for less than a year. And the one that's been in my portfolio the longest is coming up on two years as of October, 2025.

31:15From the quality business standpoint, there's only one that I've held for five years. I've held three for three years and two for two years and three for one year. So this indicates that the inflection point businesses, they move very quickly in price, but they're not always worth holding for extended periods of time. The quality businesses are those that may have lower returns per annum, but I think can sustain a decent return for a longer period compared to my microcap inflection point businesses. So now that I've shared more about my holding periods, I'd like to discuss why I'd sell a position.

31:48Now, my sell criteria is pretty straightforward. I sell for just one of three reasons. So first is that I find a better opportunity with a better risk reward profile. The second is that the price runs five to 10 years ahead. And third is that my thesis is broken. Now, the most common reason I sell that last point is that I just lose interest in the business. Alternatively, it's just that I'm wrong on the thesis and it completely falls apart. But this is always just a tough reason to sell because one issue that I've had is just being too stubborn, as I mentioned here. So being stubborn is just so detrimental, especially on microcaps.

32:24But based on my observations, it's really damaging even if you do it on large caps. My three most significant losses I've taken in investing were businesses that I was just completely wrong on the thesis. So these three would be Cannabis Capital, Bosch Health, and Alibaba. So, you know, thesis killers are something that I'm constantly searching for, just trying to ensure that I can try to catch them early. Unfortunately, with Bosch and Alibaba, I was slow to realize that my thesis was flawed. With Conatomous, it just had an abysmal quarter. And along with other investors, I just had such a high degree of uncertainty about whether they would ever return to their previous profit levels.

33:00As a result, I just unfortunately had to sell because I wasn't willing to wait and see what happened. Selling all three of these has turned out to be the right decision as none of them in my view has improved significantly. As for selling, it's usually if the price gets pulled forward multiple years. So this is a variation of Monish Pabrai's mental model, which suggests that selling a quality business only when it's egregiously overvalued. He's never shared exactly what that means. And I don't think there's really a singular definition. So I actually ended up taking a lesson from Ian Castle and created kind of a hybrid framework to observe just how far forward the stock price needs to be pulled in order for me to want to sell.

33:37Now, luckily for me, I haven't yet experienced a stock that has entered this scenario. So I haven't had the opportunity to use it. But one stock I do own that I've owned the longest and has been a major winner for me is Aritzia. And it's a business where over the last year or so, I've constantly wondered if I need to sell just because the returns are definitely pulled forward, but it just doesn't quite get to that five plus year mark. So I end up holding it, even though I know that a really bad quarter could drop the share price pretty considerably. But some investors might use a shorter mark such as three years.

34:11And I don't think there's anything wrong with that or any method that you want to use. So my justification for using five to 10 years is just that it helps me hold onto stocks that I think can continue compounding. I think it's really easy to just sell a business that has doubled or tripled in price with a thought process that you're just going to go out and easily find another business that can do the exact same thing. However, the reality I found is that it's just not that easy to find a replacement. And if the business that you hold has an excellent runway, there's pretty good chances that it can double or triple in value again.

34:40And I'm a lot more comfortable holding businesses that I already understand very well rather than replacing them with something that I know less well. So next is selling because I find better opportunities elsewhere. This is probably my most common reason for selling. I rank my businesses from most attractive to least attractive based on my assessment of their future gains and intrinsic value. If I have a business in my portfolio that is just not performing well in terms of increasing its profits, then it goes to the bottom of the pile. Charlie Munger said, for an ordinary individual, the best thing you already have should be your measuring stick.

35:13So that means if I can find investments that maybe meet or exceed the best things I already have, then I'll add them to the portfolio and remove the ones that can't keep up. My entire selling process is designed to counteract very powerful biases, confirmation bias and the sunk cost fallacy. So my best tool for commenting confirmation bias is just to continually seek out where I might be wrong in my thesis. My best tool for avoiding the sunk cost fallacy is to ignore what I paid for something and focus solely on the fundamentals of the business. I will definitely let go of my losers. I have no problem doing that.

35:47And while it's tough to see that you've lost a position, I like to look at things in terms of opportunity cost. So if I have a loser, do I wait for that loser to turn or do I just sell it and add to a position that I think is already doing an exceptional job? The answer is usually the latter. Let's now move on to portfolio management. So this is an area of my investing that has undergone considerable evolution over the last two years. When I first started buying stocks, I was finding that the markets would move just so fast that if I wanted to add to my position, I had to make my starter position pretty significant just right from the get-go.

36:22So you have to remember this was in 2020 and 2021, which were years when the S &P 500 was earning very high returns, 18 % and 20, 29 % respectively with dividends reinvested. So you just had to move quickly on these names or else the price would just very quickly move away from you. Now, I don't think this is an occurrence that will probably ever stop, but I was managing my portfolio a lot, I think, out of fear that I wouldn't be able to add to a position rather than having patience and just leaning into my circle of competence. What I mean by that is that there are probably just too many positions that I was buying that I should have taken a much smaller initial position in and taken some time to learn about the business and then add to it over time.

37:00So Aritzia was a business that I thought I played very well, but it was probably a lot due to luck and circumstance. So my initial position in Aritzia was still about 10 % by cost basis. But given the small amount of capital that I was investing, that 10 % became a lot smaller, closer to, I think, 2 % as my assets started scaling up. So for a long time, I thought I'd just never get a chance to add to my Aritzia position again. But fortunately, the business continued to improve. And despite some significant corrections in the share price, I was able to continue adding to it. And it's become a very, very large position for me, both in terms of cost basis and absolute value.

37:36So after speaking with Paul Andriola on my very first interview with TIP, which I'll link in the show notes, he really just opened my eyes to a different way of looking at position sizing. And this was to average up on your winners instead of just averaging down when prices pulled back. So Paul would add to positions as they actually increased in price. This is a very, very considerable variation from what most value investors do and what I had been indoctrinated into beforehand. So the traditional value investor tends to add a position that are in the doldrums. While I still like doing that, there is a lot to be said about averaging up in a position that is outperforming and continuing to do so.

38:15So I'll separate my process here into the two buckets. Let's start with the microcap inflection point because that's what I was just talking about regarding Paul. So the primary advantage of microcaps is that they often grow rapidly and they're relatively inexpensive. So I like using peg ratios for my microcaps as a strategy is fundamentally built on growth. So for anyone who's unfamiliar with the peg ratio, it's the price to earnings to growth ratio. So let's say a business has a PE ratio of 20 and is growing at 20%, then its peg is just one, which is 20 divided by 20, which means that it's a pretty solid peg ratio, not super low though.

38:50So the lower the value, the better and the higher, the worse. You generally look for below one as being attractive and above one as being less attractive. So let's go over an example here. Let's say that you can pick up a business that's going to grow its EPS by 50 % in the next year. Let's say it's a micro cap. So it's got an EPS of just 10 cents, and it currently trades at just four times its trailing earnings for a price of 40 cents. So looking a year ahead, EPS is expected to be about 15 cents. Generally, like I said, a peg below one is very good. Although with a lot of the micro caps, I actually like looking for 0.5, specifically because that number offers a significant margin of safety as well.

39:26So in this instance, the company has a forward peg of only 0.1. So this is outrageously cheap. And even if we're incorrect about our growth estimates by 50%, the forward peg would still just be 0.2. Now, obviously, this is significantly below that 0.5 number that we're searching for. Now, let's say the business increases in price from 40 cents to 50 cents after a very strong earnings report and just confirming that our thesis is playing out. That's obviously a pretty big move up in price. But adding here is not necessarily a bad idea. If our thesis is playing out, it means the shares of the business could be priced anywhere between$3.75 and$7.50.

40:01I like to provide myself with a reality check on these numbers. Can the business actually trade at 25 or 50 times earnings, you'll need to refer to other companies in the industry to see if trading for those numbers is realistic or not. Sometimes it's not, meaning you might have to assume it trades closer to a PE that's more in line with its peers. The point here is whether I buy the stock at 40 cents, 50 cents, or even a dollar, it just doesn't make that big of a difference because I'm still going to make an incredibly adequate return. Now, the same principle holds true for my quality businesses as well.

40:31However, there's kind of a difference between the two. So microcaps obviously experience these short flash in the pan improvements in earnings, but no business is going to sustain 50 % EPS growth forever. What often happens in microcaps is that they develop an innovative new product or service that hits the market and just sells like wildfire. However, these advantages may only last a few quarters before competitive forces erode them. In my quality businesses, they have been operating for a significantly longer period of time and possess a lot of strong advantages that indicate to me that they're likely to continue doing so for many years, hopefully into the future.

41:06So a business like TerraVest is a good example. The business has been an exceptional outperformer for me since I acquired it, but it has had one significant issue. And that's that it's nearly always significantly overpriced, at least optically. So that means if I buy at my average cost basis, which was$94, I'm going to be waiting a very, very long time to ever add to my position. And you know what? I may never get the opportunity to fill that position at that price again. So with these quality businesses, similar to the microcap ones, you have to consider their growth potential. If a business is decent and you're buying it at 25 times earnings, then you can just wait and see if the business maybe gets down to 20 times earnings in the future.

41:45And in that case, I'm paying more on an absolute basis, sure, but I'm paying less on a PE multiple basis. So to me, that's just how you add to positions. Since I own several serial acquirers, I can be a bit more creative with this strategy. Since most of my serial acquirers don't have very high organic growth, they tend to grow primarily through acquisitions. As a result, there are specific points in time when unique arbitrage opportunities arise. Curious about online trading, but haven't taken the first step yet? You're not alone. And plus 500 futures is a great place to start. The futures markets are moving fast.

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45:09Get started today at vanta.com slash T-I-P. That's V-A-N-T-A dot com slash T-I-P. All right, back to the show. So the serial acquirer arbitrage that I like is when a serial acquirer makes an acquisition that isn't adequately reflected in the market. Let's say they make an acquisition that will increase their earnings per share by 20 % over the next year. What often happens is that after the acquisition is announced, the shares will rise, sometimes overshooting that 20 % mark and sometimes undershooting it. The market rarely gets it entirely right. Now, there's always a risk and a hidden upside in these deals.

45:48So there's obviously a lot of uncertainty that's involved. However, sometimes the market is just so uncertain about these types of deals that it creates all sorts of interesting opportunities. So I mentioned earlier that perhaps the 25 times earnings is a decent price for one of these serial acquirers. So sometimes what happens is the business will make an acquisition and maybe the price goes up just 5%. However, if I look forward to what I think earnings will be, the share price should have gone up much more than 5 % and the multiple actually ends up getting compressed downwards. In that case, that can be a very, very good opportunity to add more shares.

46:20As a corollary to portfolio management, I'd like to discuss the amount of holdings that I prefer to hold. So throughout my investing career in equities, I've held between eight and 13 positions. Monish Pabrai has said that he likes this 10 by 10 approach, which is 10 positions at about a 10 % cost basis per position. And this is generally what I've built my philosophy on, but I also don't mind going higher than 10 if I think there's some good opportunities out there. So I also break down my position sizes by cost basis specific to which bucket that investment is in. So for my quality businesses, I have no problem taking a position to 10 % cost basis if the business is really excellent and is just continuing to exceed my expectations.

47:01As I mentioned earlier, when entering positions, since many of these businesses can compound for multiple years, it's okay if a position starts small and then grows as I become more and more comfortable and knowledgeable about the company. I typically allocate an opening position in the quality portfolio of about 2 % to 3%. This gives me a decent starting point with plenty of room to continuing to add if the business warrants it. For my microcap inflection points, I take a much more conservative approach. So since these businesses tend to be more volatile in terms of operating results, they also tend to be more volatile in terms of their share price.

47:33So for that reason, I don't put as much capital into these ideas. A full-size micro cap position is usually around 5 % to 6 % by cost basis at max. My opening position is usually just 1%. Then I add as the business confirms my thesis. When it comes down to what I'll allow a position to reach on an absolute basis, I have no issues with my positions exceeding 20%. I think I've had one position reach 28%, which was the largest that I've ever seen. And I don't trim winners. I know this topic of trimming is kind of a hot topic, but the way I see it, if you have Michael Jordan on your team, you don't bench him when he's carrying your entire team.

48:09If you invest long enough, the businesses that are the largest in your portfolio are also probably going to be the businesses that have increased the most in intrinsic value. And I want those businesses in my portfolio for as long as they can compound their intrinsic value. When I review the top seven positions in my portfolio today, on an absolute basis, only one has underperformed as expected. So the total returns per annum of those five are 83%, 217%, 31%, 5%, 30%, 51%, and 20%. While I don't expect the returns per annum of some of those larger numbers to continue for extended periods, I think that those businesses are still actually improving quite significantly.

48:47Therefore, I believe their share prices will be materially higher in the next few years. One area of investing that I've come to understand more and more as I gain experience is the concept of a circle of competence. So it's a concept that when I first heard it was kind of challenging for me to just wrap my head around. However, as I've invested more and more as a generalist, I think I've begun to internalize what it means and its importance. So Monish Pabrai is often asked, you know, what is a circle of competence? And his answer has always been to ask the question is to answer it, which I feel was an answer that made sense to him, but never really made much sense to a simpleton like me.

49:22So where I began understanding it was from two sources. So first and foremost was just my own reflections on the mistakes that I've made and why I made them. Then when I read the first volume of The Great Men and Models, I felt they did a really good job of breaking it down. So I discussed this book in detail on TIP 740, which I'll link in the show notes. Now, let me outline the framework for the circle of competence from that book. It's a simple four-part framework that asks a couple of questions. So the first one is what is your circle of competence? Next is how do you know when you have one?

49:53Then it's how do you build and maintain one? And lastly, how do you operate outside of one? So these questions are just great. And when you start looking at investments and decisions that you've made over the years, it becomes very evident what you know and what you don't know using this exact framework. For instance, I mentioned earlier that most of my considerable losses have occurred in businesses where the thesis was broken. And in every single one of them, it was partly because of the final point there, which is how do you operate outside of your circle of competence? I often operate outside of my circle of competence.

50:22So I must ensure that I'm capable and willing to learn a great deal to invest into a new business. When I'm learning about something outside of my circle of competence, I have to ensure that I understand the basics and find other people or sources who are highly competent in those areas so that I can learn more from them and draw wisdom from them. While I think it's excellent to operate primarily within your circle of competence, it's also essential to just push yourself to expand. You just want to make sure that as you're expanding your circle of competence, you aren't taking undue risk. This is where the art part of investing comes into play, because there's just no way of systematically understanding when something is smack dab in the middle of your circle of competence or operating somewhere outside of it.

51:03Another area of the circle of competence that I've spent time thinking about is the inclination to learn about something. There are some businesses I've looked into where I feel like I'm capable of learning about them to a level necessary to make an informed investment. But I also know that it's going to require a significant time commitment. You have to decide if you're willing to invest that time into learning something. You may or may not have the time or desire to do it, and that's okay. Just realize that you should take that into account if you are investing in something outside of your circle of competence.

51:33If you were to buy a stock with incomplete knowledge and didn't want to put in the effort to learn more, you're putting yourself at risk. So the next topic that I'd like to discuss is the geographies of where I invest in. So I live in Canada. So of course I have a home bias. But when I first started investing, I wanted to invest globally. So I held businesses from all over the world outside of North America and places such as Israel, Sweden, Poland, Japan, and China. I've experienced a mix of success and failure in specific geographies. The only absolute that I can say is that I'll never invest in China again.

52:03The rest of those countries are fair game. I think investors should at least look outside of their own country to avoid home country bias. But when you're in a country that has just so many good opportunities, it becomes a lot less important to look outside of your country. So the thing that I like about my home country is that I just understand it best. And for areas that I don't understand, I also have access to others who can help me understand it. If I wanted to invest in countries abroad, I'm just not going to have that same access. And this is why investing in your home country is a concept that can kind of work for you or against you.

52:34You don't want to ignore everything else out there, but you also want to ensure that you can invest in things that you understand. Let's say I'm looking at a SaaS business that's in Canada and a SaaS business of the exact same type that's in Japan. There's a very good chance I'm probably going to understand the Canadian one a lot better than I'll understand the Japanese one. If I had spent half my life maybe living in Japan, then those odds would change. So it's a very individual thing and it depends on how much you're willing to learn about foreign countries, their culture, their government, their businesses, etc.

53:03Another important aspect of my investing philosophy is how I measure performance. So in one of my favorite books on Buffett, The Warren Buffett Portfolio, Robert Hagstrom does a superb job of explaining why using returns isn't necessarily the best way to measure performance. Hagstrom makes the point that several great investors with excellent long-term track records have underperformed the index for short periods of time. So if we measure them on performance metrics like price, it can yield an inaccurate output. So what exactly does Buffett use? Warren Buffett once said, Charlie and I let our marketable equities tell us by their operating results, not their daily or even yearly price quotations, whether our investments are successful.

53:41The market may ignore business success for a while, but it will eventually confirm it. So the key words that Buffett used there are operating results. This usually means profits, or something like owner's earnings. If profits are 10 million today, and they're expected to be 20 million in three years, there's a very good chance that the stock price will be significantly higher than it is today. So how do I do this in reality? I like to use something called owner's earnings, which is Buffett's metric for showing the steady state cash flow generation of a business. You can find it most easily by using cash from operations and subtracting maintenance capex.

54:15For those of you who are trying to search for maintenance capex and having some trouble, that's not unusual. So in that case, you might just use the depreciation expense as a proxy. Or as I learned from Phil Town, you could just use 50 % of just normal CapEx for maintenance CapEx. So what I like to do is calculate owner's earnings for all the businesses that I have. I'll examine how that number has grown in the last year, and I'll provide an approximation for where I think it's going to be in the next year. If owner's earnings is continuing to rise above that for 15 % hurdle rate, then that means the business is performing well and there's just not that much to worry about.

54:51Focusing on the operating performance of my companies has helped me keep my focus on the right things. In the age of information that we live in, it's so easy to get caught up in noise. Another way I try to avoid noise is through engineering an environment that fosters inaction. Many investors, both professional and retail, have environments that are set up to encourage them towards action. They might have things like large amounts of visual stimuli. They might have multiple monitors showing them charts. And more charts and more screens just means more noise. And more noise is a great way to motivate yourself to more action, not less.

55:24Then you have noise and alerts. These might show up as things such as constant financial news on TV, which provides a continuous stimuli, making you wonder about new opportunities that are out there and questioning the decisions that you've already made. With the numerous apps available, individual investors receive constant alerts and notifications that inform them of stock performance in real time. Then there's social and psychological pressures. Things like Twitter, Discord, and Reddit, and message boards are places where people love sharing information. But there isn't much of a filter on the quality of that information.

55:56So if you're in communities that constantly bombard you with things like leaderboards, it prompts you to take actions that you might not have taken otherwise. And lastly is ease of use problems. Some brokerages have kind of gamified the trading process, which further boosts the need for action. Since we can now buy and sell at the click of just a few buttons, it removes a lot of these key trading barriers that investors once had from having to call a broker to execute a trade. So knowing that I have my weaknesses to certain stimuli, I've tried to create my environment to counteract the four triggers above.

56:28The one I probably handled the best is visual stimuli. I simply just don't watch financial TV like ever. The only time I see it is if someone shares a clip with me on social media. But other than that, I just don't tune in because it doesn't provide anything of value to me. Now, when it comes to alerts, I personally don't find this to be a big issue for myself. I get alerts all the time, especially on my businesses, which tell me whether prices have decreased by a considerable amount. This allows me to put my cash to work really quickly. So without these alerts, I may not be able to place an order fast enough once the price normalizes.

57:02So from my observations, it just doesn't affect me very much, but I think that it has much more harmful impacts on other investors than it does on me. Now, when you look at the social and psychological realm, it's a very, very hard battle to fight. So I receive a significant amount of great ideas and information from places like Twitter and Discord. I'm not participating in any of these buy signaling services or any of the stuff like that, which I think is very harmful for investors. But with Twitter and Discord, there's also a lot of noise on there. But there are also ways to combat it. First, you know, on both Twitter and Discord, if someone says something ridiculous, you can just mute or block them.

57:39And that way, you won't be affected by their takes that just aren't helpful. There's also a psychological shift that I think is really important. You have to make your own decisions. You can't rely on others to make decisions for you. It's up to you to filter that information that comes in and decide whether you need to take any action with it. And I think 99 % of information that you get doesn't require any action. The next philosophical principle I follow regards temperament and IQ. I would be the first to admit that I don't have an above average IQ. So any advantage that I have has had to come from gaining a behavioral edge.

58:13I think I've discussed a lot of what I do to attempt to get that behavioral edge with you today. And lucky for me, I agree with Warren Buffett's statement. Success in investing doesn't correlate with IQ. Once you have ordinary intelligence, what you need is temperament to control the urges that get other people into trouble in investing. So I try to gain a behavioral edge by just staying as rational as I possibly can. To achieve this, you have to conduct regular audits on your thinking. It's just so easy with the power of confirmation bias to just come to a decision, then never revisit whether that decision or idea was the right one to make.

58:47Or maybe it was the right one to make at one period of time, but not the right one to make at another period of time. Whenever we buy a new stock, we're basically telling ourselves that the thesis makes sense and that the risk we're taking in purchasing the stock is worth the potential reward. However, you must constantly update your thinking using techniques such as Bayesian updating. So every quarter that one of my businesses releases earnings, I'm updating my three-year probability weighted return on those businesses. So let's say we're looking at a business and they put in multiple great quarters in a row.

59:17Then I might take points away from the bear or base case and reallocate them to the bull case. Or if a business is maybe going through some issues that are making the future more uncertain, I'll take some points away from the bull or base thesis and reallocate them to the bear thesis. Is this an imperfect method? Yes, but it's still one of the best tools that we have. So Silicon Valley futurist and forecaster Paul Sappho once said, strong opinions, weakly held. I think this is a great mantra to remind myself of continuously. I would never put money behind a weak opinion. I need to have strong opinions to justify an investment.

59:51Otherwise, it's just not simply worth making. But at the same time, I must be willing to let go of views once the facts change. There's nothing wrong with being wrong. Investors who have just too much of an ego to admit and act when they are wrong won't last very long in the investing world. Which leads nicely into the following principle, which is that of stupidity reduction, which I cloned from Charlie Munger. So when we look at avoiding standard stupidities, there are multiple ways to go about it. First, we can use Charlie's psychological misjudgments and internalize them to a high degree. Second, we can observe the failures of others, why they did it, and then avoid copying them.

1:00:25And then third, we can observe our own shortcomings, why we did it, and then avoid trying to make them again. Now, I don't think you should focus on just one of these. You should probably focus on all three simultaneously. If you can focus on points one and two, you won't risk losing money. But if you have to learn big lessons from making your own mistakes, like I do, the tuition is very steep, the lessons will be painful and vivid, but there will also be the lessons that probably have the most significant impact on you. One of the most significant use cases for avoiding standard stupidity is understanding that I don't need to be brilliant to achieve my financial goals.

1:01:00My businesses range from mundane industries such as trust manufacturers, discount grocery stores, women's retailers, water treatment specialists, and a quick serve restaurant franchisor. However, I also have businesses that some people might find exciting, such as my vertical market software businesses like Topicus and Lumine, or another VMS business that specializes in software use for exterior home renovations. While it may not be exciting to others, they're thrilling in one way or another to me. Where other investors might get excited about investing in things like new technology that is constantly being innovated on in Silicon Valley, that just doesn't excite me.

1:01:37While I think changing the world is great, investing in pure story stocks is just something that I don't have any desire to do. I do, however, like investing in businesses that utilize technology to enhance an already good business. Many of my companies are utilizing technology such as automation to increase efficiency and reduce costs rapidly. That excites me. Many legacy businesses today are just using outdated technology in their workflows. They're the ones that are going to be left behind once their competitors can crush them on the margins by leveraging things such as automation. John Deere is an excellent example of a business doing things correctly.

1:02:10So John Deere was founded way back in 1837, and they're one of the oldest equipment manufacturers in America. However, they've done a remarkable job of innovating over multiple centuries, first with the mechanical innovations such as a steel plow, and then with large-scale farming equipment. But now they're moving from pure hardware business and actually utilizing new technology to improve the value proposition of their product. They already have the attention of the farming industry, which has used their equipment for nearly 200 years. For instance, in 2022, they unveiled a fully autonomous tractor.

1:02:40Now they can go out and just tell a farmer that they don't even need to drive their vehicle, which obviously frees up a lot of time to do other things. I like this model. Many businesses have been gathering tons of data, which they can then repurpose and monetize to their loyal customers. Alternatively, they can utilize automation to enhance the efficiency of their manufacturing capabilities. What I like so much about this is that in some businesses, it's just unlikely that competitors will have the means to afford automation to compete with these other companies. So if you're a larger player who can afford it, your margins are going to be significantly better than those of your competitors, which are going to make it really hard for them to compete with you.

1:03:16These are the type of situations that really excite me. So while I'm not trying to reinvent the wheel with my investments, I like finding rational businesses that are already turning a profit that can utilize technology such as automation to just really enhance their operations and provide them with a wider moat. To me, this isn't about trying to outsmart people. it's just understanding how businesses in today's age can gain an edge. So the final thing I'd like to discuss with you today is something that I've always found interesting when speaking with other investors, and that's mistakes of omission.

1:03:44So I view mistakes of omission in two ways. So first is, what have I sold that I probably shouldn't have sold? And second is asking, what was I capable of understanding and buying and ultimately took a pass on? So one business that I should have probably given more thought to before selling out of my position was a microcap called Gatekeeper Systems. So this business provides video and data solutions to the public transportation industry, mainly in the US. It was a business that I sold to buy something else, but the thesis hadn't really changed. It was a somewhat seasonal business, but it just wasn't wowing me like I thought it should have.

1:04:15I still sold this one for a 52 % gain, but I would have done much better if I just held on. So I bought the stock for 33 cents in September of 2023. And as of August 21st, 2025, the stock price is$1.27. Had I held, I would have had a compound annual growth rate of about 96%. So part of the reason for selling this one was the seasonality of the business. I was hoping that they would get some more momentum in their contract wins. While the company was getting better, it wasn't clear that it would exceed that 25 % hurdle rate that I have on my micro cap inflection point businesses. So even though it sucks to go back and look at what I could have made on that investment had I held on, when I think about it, if I went back in time and had the information that I had at that time, I think I probably still would have made the same decision.

1:05:00So a few businesses that I researched and passed on include Kraken Robotics. So this is a company that sells a variety of underwater imaging equipment to several Western navies. So I learned about this business at about 65 cents in late 2023. Today it trades for$3.57. Next is hims and hers. So I started discussing this with the TIP mastermind community after I'd heard about it from some people on Twitter. And a few members on the community really ran with the idea, but I ended up skipping it. For me, it was just a matter of time commitment. I thought I could probably understand it, but I'd have to spend 30, 40, 50 hours on the idea.

1:05:34I remember looking at it somewhere in the mid-teens, only about a year or so ago, and it's$43 as of August 21st, 2025. Next is Beware Holdings. So they sell internet of things devices that can be attached to vehicles such as bikes and forklifts. And what they do is essentially just track their whereabouts for the owners of those assets. So I started looking at this business around 20 cents in 2023, and today it's approximately 80 cents. Last one here I have for you is Kits Eye Care. So this is a business that is a vertically integrated eye care specialist that specializes in e-commerce. I got the opportunity to speak with the CEO at a conference.

1:06:07I was very impressed with management, the company, and its growth story. And this was back in September of 2023. However, the company wasn't yet profitable, so I passed. The share price back then was$5, and today it's$16.50. So there's tons of oopsie daisies that I've missed and that I should have bought, and I will continue making these errors in the future. So the ones I mentioned, I could probably add another half a dozen. There's just so many ideas out there. And if you look at enough of them, you're going to miss out on a bunch of winners. The key is to figure out what you can understand well enough within a decent period of time.

1:06:38All of these businesses were ones that I think I could have understood if I'd been willing to put more time and effort into understanding them. Or I could have just started with the knowledge that I did know, taken a 1 % position, then added to it as I learned more about the business and observed whether they were outperforming expectations or not. But you know, at the end of the day, there's not much of a point in beating yourself up over these things. I'd rather spend more time analyzing my losses and trying to make sure I don't replicate those errors that I've made. If I can continually improve my investing abilities by eliminating self-sabotaging tendencies, I'm very confident that I'll ultimately become an above average investor.

1:07:12And that's really the overarching theme of my investing philosophy. So that's all I have for you today on my investing philosophy. Want to keep the conversation going, follow me on Twitter at IrrationalMRKTS or connect with me on LinkedIn. Just search for Kyle Grieve. I'm always open to feedback, so feel free to share how I can make the podcast listening experience even better for you. Thanks for listening and see you next time.

1:07:35Kyle Grieve:Thank you for listening to TIP. Make sure to follow We Study Billionaires on your favorite podcast app and never miss out on 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 Investor's Podcast Network. Written permission must be granted before syndication or rebroadcasting.