037 - @TSOH_Investing

Alex, also known as “The Science of Hitting Investing” on Gurufocus and @TSOH_Investing on Twitter, is an investor at an RIA and a prolific investing writer. I’ve really enjoyed his articles, so I was really excited to talk to him. And the conversation didn’t disappoint. During the interview, we talk about structuring a process to maximize your chance of finding good investment candidates, trying to reconstruct management dashboards as a way to understand investments, and the different parts of the value investing spectrum.

Time Stamps
0:01:00 – Introduction to Alex (@TSOH_Investing on Twitter https://twitter.com/TSOH_Investing; https://www.gurufocus.com/news.php?author=The+Science+of+Hitting&u=110170 on GuruFocus)

0:05:05 – The 3 Modalities of long-only value investing: (1) buy companies that are better than everyone thinks they are, (2) buy companies that are less bad than everyone thinks they are, and (3) greater fool theory.

0:06:45 – Alex on the path to value investing as a philosophy (passive-active split)

0:10:35 – Howard Marks on “Winning the Loser’s Game” (not making mistakes)

0:11:30 – Pros and cons of quality vs cheapness in investing (spillover research, ulcers, frictional costs, etc.)

0:15:30 – Alex’s thoughts on quality companies / compounders vs cheap names

0:17:00 – “When to Average Down” by John Hempton

0:21:20 – Risks of screening

0:23:00 – David Kilcullen “rich information” and sunk costs

0:25:30 – My experience with finding Tailored Brands through screening

0:27:00 – Thoughts on fixing my screening process (setting myself up for failure)

0:28:31 – How Alex runs his portfolio (low turnover, high quality, relatively concentrated)

0:37:54 – How to conduct a search to maximize the chances of finding a compounder

0:42:15 – Cumulative knowledge: an advantage of studying high-quality businesses

0:46:31 – Thinking about how to allocate research time with Costco as a case study

0:49:50 – Red flags (compensation, management ownership, shareholder letters, etc.)

1:00:00 – Trying to construct a management key performance indicator (KPI) dashboard

1:02:05 – An issue with financial modeling—everything is based on sales, and sales are hard to predict

1:03:45 – Pat Dorsey: don’t model using percentages (Visa example)

1:05:10 – TSOH investment style in a nutshell: “the return to a historic margin rate is in doubt, and I’m stepping in and saying it’s a short-term problem.”

1:07:00 – Disney analysis: CPI vs Magic Kingdom pricing vs airline pricing

1:09:17 – My observation on “the game:” cigar butts have secure sales but insecure cash flows; compounders have secure margins but insecure sales

1:11:00 – Bruce Greenwald said that long term, things become commodities (everything is a toaster in the long term), but some have disagreed ( https://sloanreview.mit.edu/article/the-myth-of-commoditization/ )

1:24:00 – Thoughts on software

1:28:24 – Thoughts on optimizing industry study time: listen to smart people, observe what you know

1:33:27 – Thoughts on micro-caps and special situations

1:35:20 – Observations on short-form podcasting

1:40:31 – The importance of exploring the investing the world alongside great people

1:41:55 – Closing thoughts

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Listen at https://www.strategychainpodcast.com/listen

Rate and review the podcast at https://podcasts.apple.com/us/podcast/strategy-chain/id1492935567

Find Amazon affiliate links at http://strategychainpodcast.com/support

Send me questions at http://strategychainpodcast.com/contact