Chit Chat Stocks - Investing Unscripted: Misfit Alpha

Episode Date: December 22, 2023

Investing Unscripted is a podcast that asks the questions that matter to investors. You can listen to it wherever you get your podcasts. Spotify: https://open.spotify.com/show/7mbqwY9bh2JeNAOi7rBDRo Apple: https://podcasts.apple.com/us/podcast/investing-unscripted/id1638200302 YouTube: https://www.youtube.com/@InvestingUnscripted/featured Below, you'll find the show notes from a recent episode. ************************************************************* Everyone wants to find those hidden stocks that have generated life-changing results. Find the next Amazon or Costco before it becomes, well, Amazon or Costco. But did you know there are a lot of stocks that have been huge winners, but never became household names even as they continue to run circles around more well-known companies? Tyler Crowe, who many of you may know from his regular appearances on our YouTube channel with Jason, has made it his mission to share those winners with the world.This week, Jeff and Jason chat with Tyler about the multi-year research project he's been on that led him to these obscure, overlooked winners that Tyler calls "misfits," and the creation of his newsletter, Misfit Alpha.  We talk through Tyler's process for finding them, what he's learned, and some examples of massive winners that have compounded for decades, yet remain relatively unknown.Looking for more of Tyler's work? Find him at:https://www.misfitalpha.com/Threads & Twitter: @misfitalphaInterested in joining Misfit Alpha? Tyler is offering Investing Unscripted listeners a 20% discount: https://www.misfitalpha.com/unscriptedCompanies mentioned: AJG, BCPC, COST, DHR, GOOG, GOOGL, ITIC, JMIA, TSLAWe would love feedback on the show. Share with us at:Email: [e-mail]: @InvestingPodCheck out our YouTube channel for more content:https://www.youtube.com/@InvestingUnscriptedFind the 2023 Smattering Portfolio here:https://tinyurl.com/Smatterfolio2023 Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome in everybody. This is the Chit Chat Money Feed. My name is Ryan Henderson and my co-host and I, Brett Schaefer, run this channel. However, today we are presenting a show from friends of ours called the Investing Unscripted Podcast. You've probably, if you're a regular listener, you've heard Jeff Santoro and Jason Hall on this show before, on Chit Chat Money before, but today we wanted to cross promote one of their episodes. They do a really good job. I listen to their show every week. It's a very candid discussion about questions that are really important to people who manage money for themselves, manage money for their families, and it's more than just investing

like maybe we focus on here. It's kind of happiness, health, wealth, all that stuff. So please enjoy this episode of Investing Unscripted. Hey, everybody. Welcome to the very first episode where I actually say, hey, everybody, welcome to Investing Unscripted. I'm Jason Hall, joined as usual by the voice of the people, Jeff Santoro. Jeff, are you still the voice of the people even though we're now Investing Unscripted? I am. I was cool with the name change for the podcast. I would not be cool

with a nickname change. I am still the voice of the people. Okay. All right. That's fine. We'll keep you that. We're joined by someone who is very familiar to people that watch our YouTube channel, Tyler Crowe. I do a lot of videos with Tyler. We're going to do a bit of a reveal with Tyler here. It's already been made public, but it's not something Tyler's really promoted. But before we get to that in this conversation with Tyler, we've got a little bit of housekeeping. Quick housekeeping today. So as Jason referenced, the podcast is now called Investing Unscripted. So we do have new ways to contact us. It's actually all the same accounts, but the names have changed. So on Twitter, we are now at InvestingPod.

How is that available to us? I'm dumbfounded that no one has ever taken the handle InvestingPod on Twitter, but it is ours now. So if you want to reach us there at InvestingPod, we have a new email address, which is very easy to understand. And remember, investingunscripted at gmail.com. We still have the YouTube channel, exact same location where it was, just a new name. So those are the places to find us most easily and as always we appreciate ratings and reviews and sharing the shows with your friends and family so that's it for the housekeeping all right jason let's introduce one more thing one more thing our other our other social media accounts too we've we're starting to

get those more regularly updated and using those as well twitter kind of sucks and some of these others seem like they're picking up so if you want to find us on tiktok or insta threads all of those other ones are at investing unscripted so all of the other ones that twitter's the only one that's different so you can find us on even linkedin we are everywhere we have a linkedin page we're official we're every everywhere okay tyler crow hey buddy what's going on you know it's nice i get to be the first guest on the new named podcast or at least when you're recording it it's it's like you know you bring in somebody for the seo juice and it's it's me so i'm glad to hear that And, you know, the idea of like, oh, well, he hasn't, you know, been very actively marketing.

It's just because I'm lousy at marketing and sales. Let's admit it. Like, it's not like I'm actively hiding it. I just kind of suck at that part of the job. Well, we're going to turn that around today, Tyler. This is the. No, we're not. We're going to turn it around for one hour.

This is the intervention. There you go. So, yeah. So Tyler, again, welcome on people that follow our YouTube channel. They're definitely familiar with you. You and I do a lot of videos. and one of the fun things about doing videos with you tyler is that you do bring like i'll bring a normal company people are familiar with and you'll bring some weird obscure minnesota utility like i

mean you'll just bring something nobody has ever heard of like and it's a minnesota utility that like corporate name is completely different from like the actual brand of the of the utility that the customers actually know it's like you intentionally find companies that people are like what is that and it's a gift really you have another part of that that is why you're here you know i keep i keep pausing giving you a chance to talk and then immediately interrupting you it's we're good at this what i want to talk about because and you've been on the youtube channel you've you were on the podcast about a year ago but you've started up something in the past year called misfit alpha that is really interesting because it's really the core of it is those

unknown, misunderstood, under the radar, sleepy companies that have absolutely been massive, massive winners. And I want to talk about your background, your history, and then the research project that you did that led you to create Misfit Alpha. Let's start with your background. Okay. Well, I kind of fell into the investing thing. I feel like a lot of us have. It becomes this one thing where all of a sudden money means something and investing seems to be the way to make it happen. And then it consumes our life and we don't have it. Become obsessed with it and start talking about Minnesota utilities. But my background, I guess, is I had an engineering background, wasn't really too jazzed about engineering, went to business

school. This was all during the great recession. So jobs weren't exactly readily available for recent college graduates at the time. And at the time, I got started on blogging networks. So The Motley Fool had a beginner's blogging network to allow people to get started. And I just got noticed there and it took off. I carved out a niche in, I guess you could say, oil and gas energy for a while with a background in oil and gas. I worked on oil spills for a little while, while I was in grad school. And so I felt like I knew the energy niche relatively well. And it was an undercovered, underappreciated part of, I would say, financial media. And so it was kind of a unique angle I could carve out for myself as an investor and as a writer.

And I think we're going to talk about this a little bit on this one is there's like us, the investors, and then there's us doing our jobs in financial media. And I think a lot of what I have done with this new project is kind of my rebellion against financial media a little bit and we can we can go into that if you want but it's you know so for the past 10 years i've been working with motley fool i've gone through a lot of different worn a lot of different hats in the business either through writing through kind of the the things the forward-facing things that we see here like videos like writing things like that but i've also done some you've been you've been a writer both both on the free side you've written behind the paywall you've edited you

continue to edit you worked on east seo for some of the real estate investing service that the motley fool was doing did some website startup did some shit website optimization stuff like that yeah yeah so yeah i learned said you've done a lot of a lot of different things and then that's that's professionally so let's talk about the path that the professional side and then your personal side, let's talk about the kind of inner relationship there and your evolution as an investor. Well, I think as all of us, we've made a ton of mistakes early on as an investor personally. But I think one of the big transformations that I had as an investor was the fact that my wife works for State Department. And so I ended up spending a lot of time living

overseas. And as a result, I saw a little bit of a different world. I lived six years in Sub-Saharan Africa. I'm currently living in one of the Soviet republics. And you get away a lot from the US tech central Silicon Valley style of investing because it's not really distant than other places. And because I was so far removed from it, I needed to look for other places. I needed to look for things that I could be more familiar with and could understand a lot better versus kind of that boots on the ground that you would have being just a citizen of the United States watching CNBC or kind of being an observer of media there. And so I don't want to call it like I went up to a monastery and was left by myself. But I think a lot of what I have done over the

past six seven years has been a a rather solitary sort of thing and so i needed to wait find ways to kind of carve out a way to for this to make sense for me and this is kind of where i ended up on that end was gravitating towards undercovered underappreciated businesses that have done spectacularly but don't get the attention that you see on cnbc that you get in you know when you go want to yahoo finance or things like that and especially on search engines and that's kind of a rant we can save for another time yeah i want to say i want to say thank you tyler because there was one thing that you did in your this was when you were in sub-saharan africa you you were very early in some some opportunities there that you introduced me to so i was i want to say thank

you i was far earlier than most people that lost money on jumia well yeah that one was years i lost a ton on that too. So don't feel bad. But I think it's interesting because I bring it up a little bit to tease you, but also because you talked about making mistakes along the way of this process. And I think the key is, the reason I want to mention that is because you don't always have to be early on really big ideas to do well. So let's talk about how that's something that as you made mistakes, but also as you learn and you found winners that led you to this. I think you spent about a year really doing a lot of deep research to really understand who you are as an investor, as well as try and find a common theme and common elements among really big winning

investments. Yeah. So I want to say mid-2022, right around when we started to see the big decline in tech, I guess, or it wasn't quite a bear market. I don't know what you want to call that period from late 2021 through 2022, where things started to go downhill, one thing I just sort of noticed was there was a lot of consolidation. It was the bear market. So the bear market. So it seemed to me like there was an awful lot of consolidation of ideas where the things that you're reading, the companies that you're hearing about all started to kind of narrow down to this really small subset of companies, whether that's because that's where the opportunity was, or that's where the people who were well-versed enough

to write about them and to speak about them just happened to gravitate towards those companies for one reason or another. It just seemed to me like there was this sort of a lacking of discovery of new ideas. And one thing that you've had Bill Mann on previously and a lot of other investors, Jim Gillies in particular, I know we're talking about little analysts here, but they're people who have really cut their teeth in small caps, micro caps, going in a lot of places people haven't gone. And it really made me think like, so where has alpha over the really long term? And when I say that, I mean, companies that have over the very long haul substantially

beat the market. Yeah. I wanted to find that term alpha because people hear it. And a lot of times it's kind of become conflated with just making money and the stock going up. Alpha is specifically outperformance versus a benchmark. So the S&P 500 goes up 20. Alpha is a stock that went up 25%. 5% is the alpha, right? Let's be clear. We're talking about outperformance of your benchmark. Yep. And so what I did, and it sounds very crude, but I basically spent like four months and I went up and down looking at four to 5,000 companies and just looking at their long-term performance since they since inception i i tried to focus on things that had track records of like more than 15 years so i know i've just i missed some things along the way but the idea the idea being

like what are durable distances that have been around for a long time and have just created long-term wealth that has beat the market and it was i wanted to focus specifically on the things that either writers weren't talking about that wall street analysts weren't talking about and why because it's not like they were just all huddled around you know 75 million dollar nano caps that making a lot of money or that it was you know some popular they were all in tech it was interesting to me was like where it came from like there were segments of the market that worked really well there were some that didn't and why the companies in those markets ended up or industries, I guess is a better way of saying instead of market, why they ended up working.

And Misfit Alpha has been the project of taking that long list of companies that have outperformed and starting to dig into the ones that very, very few people talk about. So I think where I wanted to take the conversation next is to talk about the why of what you do. I think you touched on it a little bit. It makes sense intuitively from the perspective of trying to outperform the market to find stocks that do that. But I think there's probably some people listening who say to themselves, I really like investing in the companies I know and I've heard of, or maybe that I use in my own life.

And there's certainly plenty of famous investors who've done really well investing in mostly well-known companies. So I guess what is the why behind what you do? Why do you think it's so important that anyone listening take the time to consider some of these less covered, less well-known companies as they build out a portfolio? So I would say there's two things. I think from the understanding of businesses that work really well, because even if you don't necessarily understand a business, there are industries and businesses out there that have just produced spectacular returns. And you don't have to know

it intimately to really have a firm grasp. And I want to give an example. It was actually the first company I wrote about for this. The company is Arthur J. Gallagher, and they're just an insurance broker. You just hear that and you go, oh man, that's got to be one of the more boring things you've ever heard of, right? You just, you broker. I'll wake Jeff up after you finish talking. Yeah, I already fell asleep, but continue. That's what I assumed. I mean, brokering insurance contracts for businesses and writing unique contracts, like ho-hum, go to sleep. But so this is what was fascinating to me. And this is kind of the lesson that I think investors can take away from this is Arthur J. Gallagher and Costco more or less went public

within a month of each other. And Costco is a business we all know relatively well. You've got a Costco membership, you end up spending way too much money that you want there. And every single time you're like, man, why don't I own more shares? It's been a spectacular business and it's covered ad nauseum in the market. Jim Senegal is revered. There has been Harvard business review studies done on it. There's nameless, not nameless, but a large amount of people covering it on Wall Street. Since its IPO, Costco's generated about 20,000% returns on a total return basis. Absolutely fantastic. That same company I was just talking about, Arthur G. Gallagher, same time, it's more than doubled the return of Costco. It's more than

40,000% returns over that same period of time. And this is a company that most anyone kind of pays attention to on a regular basis. And certainly one that we in the financial media, when we're writing the five to seven fantastic stocks for 2023, it's rarely, rarely ever going to get covered, right? Because how do you get excited about insurance companies or insurance brokers even? They don't even underwrite. Well, and it's a little echo chambery too, right tyler it's the reality is that we we as writers in the financial media broadly it's a little bit of you have to be the loudest shouting voice and it helps if you're shouting into a room where there's already a lot of people listening so you write about alphabet or

or apple microsoft tesla whatever the hot investing topic du jour is evs have their moment solar's had its moment and that doesn't mean you're always writing about good investments you're writing about popular investments right yeah and by the time they're that and by the time they're that popular the price has gone up because everyone has found them and certainly true and you know this is i guess where i where i take my stabs at at internet search where internet search is not necessarily you know google isn't evaluating what is written on these best stock idea pieces for what are actually the best ideas. They just happen to, you know, they correlate that term with the companies that happen to get written about a lot because it's just a word association

if those are frequently showing up in best stocks. Exactly. This is where the cycle comes in. Lots of people are searching for those popular stocks already. They're typing the name of those stock in, you know, whatever stock. So if you write an article that five best stocks for 2024, and you mentioned three of those stocks that are popular, Google is going to come is, is, you know what it's going to do? It's going to serve your article in that person that's searching for that stock. But it is, it is pretty wild. It is pretty wild though. That, that was a great example, Tyler, that you gave of a company that doubled the return of Costco, but yet no one has ever heard of like that. That is, that just, I think is a really salient example of how disconnected

the let's just call it like the mainstream financial media is from some really great companies that just no one's ever heard of and that's it to me this is why my rebellion against that in the idea of like i want to give a voice to these companies and in in terms of not only do i want to like profile them and give people on people's radars but i also think because they're so undercovered and because so little attention is given to a lot of these companies, there's a higher probability of finding mispriced assets. Anybody who has any sort of bent of value investing, part of having a mispriced asset normally means that something is either wrong or people are grossly misunderstanding. And sometimes that misunderstanding is nobody's

heard about it or nobody's covering it on wall street for one reason or the other or another and the probability that you can find winning investments it's like you know making poker bets like when you have a pair you're obviously going to bet more than if you if you have absolutely nothing in your hand because you're there's just a higher probability of something being mispriced versus something that's in the s&p 500 that has loads and loads of money being tossed into it Peru 401ks through index funds, or the 10 largest companies, because any individual investor who wants the 10 best stocks at 2024 happens to pick out that in the list. And four of them happen to be Meta, Amazon, Google, Alphabet, what have you. And so I think those two things kind of combine

into what could make this work over the long term of just focusing on that. And I'd be willing to bet without even looking at it, Tyler, that over the history of time that you pointed out that Arthur J. Gallagher doubled the return of Costco, it probably traded for a much cheaper valuation. If not for all of that time, I would guess a large portion of it for the exact reasons you just stated. Yeah. I mean, Arthur J. Gallagher, maybe not necessarily, but a lot of the companies that I have profiled, it's certainly true where you'll look at it and you'll see below market valuations. But at the same time, the returns have been so good that, hey, stock goes up, baby. I will confirm on an earnings basis, Arthur J. Gallagher has consistently, since they IPO'd, has consistently traded for a lower price to earnings multiple than Costco has. You're right, Jeff. You should take over Misfit Alpha because you gave a better answer than Tyler did. Hey, even a broken clock is right twice a day. Yeah, but you're a digital clock, so you're just zeros, flashing zeros. Sorry, that's mean. You're flashing eights. Thanks, man.

There you go. No problem. All right, Tyler. So there's the why, which kind of to sum up that why, it's sure you can do the whole idea. Jeff and I, we've talked about this before. I think this is important. Talk about the toolbox here for a minute. is the idea it should be, unless you really just enjoy the pursuit and you want to manage your own portfolio, or you're specifically trying to accomplish certain things like build a portfolio based on generating dividend income. Generally, if you're DIYing a portfolio, your main reason should be because you can do better. You want to do better than whatever your indexes are, S&P 500, NASDAQ, whatever it is. So that's part of the why. I think that's a big part of it is you can find the Arthur J. Gallagher's that are twice as good as the Costco's, which a lot of people are going to say, well, that's one of the best investments ever. And yeah, here's one that

did twice as good. Let's talk a little bit about the how. Let's talk about, obviously a lot of the work you do. Again, we don't want everybody to fall asleep here. So let's get all the way into the weeds, but talk about your discovery process, just from the first steps, what you're looking for. Maybe anything that's different in the approach that you're taking versus what other people are doing. Well, I started backwards, which is never great when you're looking at past performance. But what the idea was, was for like six months, basically, it was like, okay, compare the returns of this company to the benchmark, or in this case, the S&P 500, and just compiled a list.

And right now, I think the list that I have is somewhere around 150, 450 companies, which in my view had delivered significant premiums or significant alpha to the market. It wasn't like, oh, maybe 25% better over 20 years because that's just like, that could change with evaluation or something like that. So it's not the most scientific thing.

I know that I missed some things here and there, and I'm sure there's a lot of young startup growth companies that I'm obviously going to miss because of this process. But after doing that- I want to circle back to that. Remind me to circle back to that because I have a question that is tied to that. Sure.

And so after compiling that list, that's when I started just looking and being like, well, where did high percentages of companies that did extremely well come from? And where were the ones that they didn't come from, right? I think this is something that you and I have have danced around a little bit on on youtube videos is like the automotive industry kind of sucked for like a really long time in terms of total returns for investors specifically automakers

right automakers right has not been good for investors yeah right but but it's a lot of media attention media companies outside of maybe one or two hasn't been a great comparatively there's a lot of other industries that like you said not a lot of people probably pay much attention to that do fantastically. If you just look at medical supply companies, not necessarily like biotechs or pharmaceuticals or anything like that, but just like the companies that make the syringes or the companies that make the vials that your vaccines have to come in because it has to be a specialty type of glass or something like that. Insurance brokers, industrial manufacturers, things like that. Regional banks as well. Although I've been so scared of actually

trying to learn regional banks every single time I open one, I'm like, i don't want to do this but it you could start i love it i know you do but it's i i just wanted to like dive in and see like okay well why did these industries do so well and why and why are they so undercovered and then i just started i just started kind of plucking through and starting like just digging into 10ks and proxy statements and everything on these companies as i go along and just kind of documenting what I see in them and try to find the interesting ones that maybe they're the ones that outperformed

and allows the industry, or maybe they just happen to be tied to a fantastic industry that has done well over a really long time that doesn't get the appropriate attention from the market. And there's no real scientific way that I've gone about this. It's more or less just been like,

hey, this looks like a fun one I want to talk about today, even though, I guess, by definition of fun, it's way different than a lot of people, because I think you've seen some of the things I've written about. But actually, it is the kind of fun that a lot of people listening to this podcast like to have. And so I'll just go dive in and see what has made this company tick. So I'm going to push back a little bit. I think your approach is maybe a little more scientific than you're giving credit. I think you're trying to downplay yourself a little bit. But I think the reality is that you're starting with a smart process.

So I'm going to crib David Gardner here a little bit. So one of the co-founders of Motley Fool, an investing legend. Didn't exactly build his legend based on picking weird, obscure insurance brokers like Arthur J. Gallagher or some of the other companies that you've written about. I feel bad. We're like dumping on Arthur J. Gallagher. I'm sorry, guys. If anybody's associated with that company, we're sorry. We're sorry. I'm not sorry. I think it's wonderful because it's proof that there's... I wanted to bring it up for two reasons. Because number one, it's evidence that it's a reminder. Again, back to the toolbox. You don't have to build the same toolbox as somebody else. There's so many different ways to achieve success investing and to generate better returns than the market that work for you. And Tyler, I think you're doing that. The reason I wanted to bring up David specifically is a really simple quote from David, winners keep winning. He's talked about that before. Peter Lynch has talked about that before. And of course, we're all tainted by the disclosure that regulators have put out there that we feel like we have to say, and that's past performance is no indicator of future results. It kind of can be. I mean, because the reason these companies that have generated vastly better returns for a sustained period of time is because they've built really powerful economic modes. And the good ones stay disciplined and they stay focused on their core business. And they're smart about the way they return capital to shareholders, right? buying back stock when it's cheap, paying a dividend with excess cash instead of going on an acquisition spree, or maybe being really good serial acquirers if that's a thing that they know how to do well, right? So it's the same thing, different. And the reason I want to bring that

up is I think your approach is a little bit scientific, or maybe there's a kind of a craft to it. Because what you've done is you've started by saying, okay, let's really filter this down to these enormous winners. And then let's look for the characteristics of each of these businesses that has generated that result. And then can they continue doing it? That's pretty powerful. I think you have some basic questions that you try to answer with every single write-up that you do in Misfit Alpha that all kind of talk about these common themes. So I want to give you more credit than you're giving yourself, Tyler. Well, thanks for that. I do recognize that there's sometimes I just go down wormholes and it doesn't necessarily, not every single

company is the same. I haven't found some common pattern between every single company that I've written about, but there are a couple of themes that you touched on a little bit, things that have worked well and what others. And serial acquirers is a great example because one thing that all too often, I think we as investors spend a lot of time being very optimistic about acquisitions when that hasn't actually historically proven out. If you look at companies that make acquisitions, like 70%, at least around 70% of acquisitions actually fail to create value for shareholders. And there's a lot of companies out there that we tout. It's like, oh, there's game changing investment. Well, that game changing investment probably is going to end up being a

write down seven years from now. But the companies that have over time run this playbook of small bolt-on acquisition consolidating these very fragmented industries has been one of the common themes that I've seen across companies that have done this incredibly well. R3J Gallagher being one of them because we keep talking about them. There's some I haven't talked about, but like Danaher is a great example of a more known company people talk about in terms of serial acquirers doing something incredibly well. They're another example of that. And there's a couple other companies. It's funny, right? We say Danaher more well-known and 95% of people still have no idea who Danaher is. 1% of know of them because they look for them as an investor and 5% because they

have heard the name because they saw it somewhere or they have a third cousin twice removed who works for Dana. Yeah. Sorry. I, I, I guess I should say more well-known on a sliding scale because if, if I've heard about it more than if, if more than four people mentioned it to me and be like, Oh, that's way too well-known. So let me, let me ask this question, Tyler, let's say someone's been listening to this and now they're super excited to try to find all these uncovered and under appreciated companies out there. Obviously the first thing they should do is subscribe to Misfit Alpha, which will be in the show notes. But if someone wants to just go down this road on their own, are there any pitfalls? Are there any things that you would advise

investors to keep an eye out when fishing in these kinds of ponds? Yeah. And we have a side from this podcast. The three of us have a little bit of a text thread going, and it's something that I constantly berate you about, Jeff, and that's to read proxy statements and to understand the motivations of a management company. I think it's pretty apt that we use Charlie Munger quote, which is, show me the incentives and I'll show you the outcome. Because the strange thing to me, and this is something, a weird tangent, I'm sorry to- I'm going to use this as an opportunity to promote episode 49 of Investing Unscripted back when we called ourselves The Smattering. Episode 49 from April of 2023, are your goals

the same as your incentives. We talked about this exact same thing. And because understanding incentives will help you understand why perfectly sane people do completely irrational things. Exactly. It's funny. I've been rereading The Intelligent Investor. It's a Benjamin Graham's book. I've also read a lot of the Peter Lynch books, some of the other, I guess you could say, famous investing books over time. And something that's very rarely talked about much is the proxy statement and the specifically management compensation. and what that can actually mean for your business or your investment more specifically,

because as much as we like to think that every single management team is like out there fighting the good fight for you as a shareholder, that's not necessarily the case. I mean, if the way that management is incented to do their job is not in alignment with the per share value of the business,

there's a more than decent chance that management could destroy shareholder value pursuing a bigger bonus check. Could you give some specific examples? Because I did take to heart your gentle ribbing about my ignoring proxy statements and started to look at a few. And I know that there's some egregious things that are obvious even to me, like if one that I've heard other people say that if executives are being incentivized by revenue growth, for example, that's an easy metric to manipulate if you want, you could just go buy another company, no matter what that does to your business. And all of a sudden your revenue goes up. So other than that, are there specific

ones that you think are red flags and maybe some that are yellow flags and then others that are green flags that are good things you like to see? What are some specific incentive examples that you look for? I think there's, I wish this was like the gold standard. I feel like I wish that every proxy statement, every management compensation had this built into it, but it doesn't. I think that over the long term, there should be some sort of component in every management compensation table that says your three-year rolling return on investing capital has to be higher than your weighted average cost of capital. It's almost like when you play poker, if you start your jacks to open, you have to have this minimum to actually receive anything or to be even able to play.

I think it should be that. The only way you could be eligible to actually receive your bonuses is You have to have a rolling three-year average of your return on invested capital better than your way to... Nobody does this, by the way. This was kind of my pipe dream. I wish that everyone did. But I think what you end up seeing all too often, which again, goes back to that idea of things not necessarily aligning right. You see a lot of growth, operational income growth or total growth, EBITDA growth, revenue growth, things like that, absent any sort of per share guardrail that basically says, you know, you need to grow operational income per share or free cash flow per share or something that's going to preserve, give some sort of meaning to your equity to management, right? They can't just dilute you into the sun to build up the size of this business and be empire builders. So aside from my pie in the sky, I think if you can find companies that have per share metrics in their executive compensation tables, that's going to be one of the things that is going to be more indicative of something that's going to do well for you. And then, like you said, red flags, revenue, incentives for acquisitions. One of the companies I've actually highlighted in Miss Adelphi is a chemical manufacturer called Ballchem. They focus almost entirely on food products. They invented a thing called microencapsule. If you've had time-release gel capsules for your medication, they invented that. And it was an incredible business that returns on capital were fantastic for years. And then right around the mid-2010s, all of a sudden, things really started going sideways and they started going on this huge acquisition spree. And you can go into 10 years of their proxy statements and see the year that they changed it and said, we want you to acquire and grow operational income, regardless of on a per share value. And you can watch from the moment that thing was signed to watching the returns on capital decline, the stock performance goes sideways. And it's just an example of how something that even has been good historically can go sideways if it's not taken care of in the right way by management.

You know, as individual investors, we don't have the advantage of like hedge funds or investment firms who've got these armies of analysts who can, you know, go interview management and actually like, you know, to kind of use that old way, shake their hand, look them in the eye and judge a character of them. We don't have that as investors. We've got the internet. We've got proxy statements and SEC filing. And if there's one thing that is going to give us insight into how management thinks, it's in the proxy statement, probably more so than anything else that is publicly disclosed. I worked in outside sales for a long time before moving into investing. And I can tell you every year, every company that I worked for in outside sales, whatever the corporate focus was, our comp plan was very specifically tailored based on the products and services that the company wanted us to sell. You got paid more money on the things that the company wanted you to do. And the challenge, I think one of the challenges with management, when you have your sales force, that's good because management can use that, can create that incentive, typically for good corporate behaviors because it can generate more returns. Sometimes you get law of unintended consequences and you get Wells Fargo, right? Where you end up with massive fraud because you've incentivized your entire customer facing force, create fake accounts. But the challenge, Tyler, with management compensation is a lot of times, guess who's on the board? Guess who a lot of times is the chairperson of the board? The CEO, right?

And a lot of times you'll have other executives that are also board members as well. So you have this conflict of interest baked in where the board, right, these are the fiduciaries, right? These are the people that have a legal obligation and legal responsibility to have the best interest of the owners. Allegedly. Allegedly, right? So, but they do, that's, I mean, it's, that's, you say allegedly, but it's true. That is, you know, whether they're held to that standard is legally is another issue, but you get a conflict of interest where you have the people who are being managed by the board, the executives of the company who are also making the decisions about how their compensation is structured, right?

And sure, they try to put up firewalls, right? Where you have a compensation committee where those people are not a part of it, but they talk to one another. They, they're, they're colleagues, right? And it does family members. Sometimes they're family members. That's a, that's a nice one. Yeah.

But the key, I think the key, like you said, it's like, you know what, let's don't, we can't be old man shouting at cloud about this. You have to understand it as the reality and understand the compensation and factor it into your, your thesis for the company. So Tyler, I want to circle back. We, I mentioned earlier, you were talking about your process and how talked about how Sure, you miss one because you're starting and you're looking at companies over a 15 plus year period looking backwards.

So you're not necessarily going to see newer companies that have done really, really well and can become the new misfits, I guess you could sort of say. But there is something you're doing in Misfit Alpha that I think is interesting. And that is you've started to try to kind of fill in that hole a little bit in your own process and that you are starting to look at IPOs, write a little bit about IPOs. I want to talk for a minute about that. Yeah, it goes back to the same idea of just going places where people aren't because IPO investing outside of the most popular IPOs. What have been the big ones this year? Birkenstock, Aiden was one of the big ones, right? I think, I can't remember. Again, I don't really pay attention to the big stuff. The past few years, yeah.

Yeah. And so obviously people are paying attention to those, but there's companies coming public every week. And some of them, a lot of them are garbage. I'm not going to lie. It is really like sifting through a dumpster when you're looking at IPOs. It's a lot of Chinese companies that, I don't know. I swear, there's some cottage industry. The track record is atrocious for IPOs. Most IPOs destroy value, and a very, very select group actually deliver per share value over the long term. Yeah, and I wanted to focus on this specifically, especially undercovered ones, because they're the ones that aren't getting 15 rounds of seed investing from Silicon Valley before they go public, right? And we saw a lot of this in the 2020, 2021, where there was a lot of these companies that are seven, eight, nine seed rounds into their existence, now all of a sudden going public, where a lot of the value of the startup has kind of already been taken by venture capital. And so you as the investor aren't going to see as much of that upside. It's a stark contrast to say like Amazon, which went public, I think at maybe 400 million. I know it was a long time ago, but the idea being like, if you are going to find these big winners, some of them are going to start really small. And there are going to somewhere in this morass of IPOs, there are going to be some winners. And so I've just started taking a look at the ones that look interesting and might actually be something in the long term. I know that's not the most ringing endorsement of them. And like, as I mentioned, they're intriguing. I in no way when I ever want to buy any of these, they're more just like I want to follow them and I want to see where they go. And it's an undercovered, underappreciated part of what we do in financial media, in my opinion. And I think it's one of the ways that I feel like I can add value to the financial media world is showing some attention to these companies. Yeah, I'm glad Jason asked about that because I've enjoyed reading those posts that you've done about the recent IPOs. And I think, theoretically, IPOs should be a very exciting and interesting place for investors to look from the standpoint of what you just said. If you want to catch the next great whatever as early as possible.

Keyword being look. correct yes but what i was going to say is the problem is all the all the ipos you've heard of and get the press attention going back to what we'll be talking about this entire show are the ones that are going to pop 20 as soon as they come on the market and be really expensive probably for a while so to find maybe some of the less less covered ones that aren't getting all that fanfare and then i agree with you tyler like keep an eye on them it's probably a good place to to start All right. So as we wrap here a little bit, I wanted to see if there were any other specific examples, Tyler, that you wanted to talk about, whether ones that you've found in your coverage that were really interesting or maybe one that you found that was not. And you've already mentioned a couple. So if you don't want to give away too much of the goods, I understand. But are there any other examples of misfit alpha companies that you want to mention here? So Tyler, there's one that this insurer that...

I'm talking to the public about the same firm that Osco did. Really? Yeah. They're really interesting. But funny thing, I'm actually going to mention another insurance company. I know. Give me another chance and all I'm going to do is talk about insurance. That's right.

I'll stay awake this time. I'll stay awake this time. So one of the things that I feel like we've over time been conditioned to think as individual investors is that very, very small companies means penny stocks, right? If you have a market cap of 200, 175, 220, you're probably a garbage business. You're a penny stock and there might be some corporate fraud. I know it's a very strong filter, but if that hasn't necessarily been the case, sometimes there's some really cool and interesting businesses that just remains full because they just want to be what they are and they don't want to do anything else and they can

still return value to you as the investor. And a company that I wrote about- I want to pause you right there, Tyler, because I want to spend a second on this because it ties into last week's episode when we had Joe Maguiron, who's at Seaplane Ventures, venture capital investor, spent a lot of years in public equities. And the reason I wanted to mention that is because the why companies that small are probably not companies and there is a much higher probability that there's fraud, fake businesses. And that's everything that we talked about with Joe Maguire about how institutionalized VC has become. Really good companies don't have to fight over capital and be tiny little $200 million companies. They can get money if it's

a really good business, right? They're not hiding anything. They're not the struggling startup. There is somebody with a ton of money, billions of dollars that would happily write them a $100 million shack if it was a good business. If it seems too good to be true, people, it is. It's that simple. I'm trying really hard not to cuss because I've had a couple of people ask me not to cuss so their wives would listen too. I'm not cussing. Okay. Put that in your toolbox, people. Tyler, back to you. Yeah. So to kind of push back on this idea that small company means garbage, one that I highlighted recently was investor title, investor's title company. They underwrite title insurance for your house, which again, whole hum, I think Jeff's already starting to snooze

because he muted and turned off his video because he was like, oh God, this again. But the idea is title insurance is not a huge business, right? It's a very unique sort of insurance contract where it's like, we've done due diligence to say that you are the rightful owner of this property. And if somebody tries to take a swipe at you legally, we'll cover the costs. That's more or less what this insurance contract does. And so it's never going to be a huge business. Investor's title has never even tried to do anything oddly outside of this. They're not doing automotive. They're not doing life or any of the other types. They're like, nope, we're a title insurance company. It's what we do. We have a float just like anyone else.

And we're not going to be Warren Buffett and Berkshire Hathaway and make 20% annualized returns. We're going to invest in treasuries. We're going to have a very conservative balance sheet. And we're going to pay special dividends. About 60% of the stock is owned by the founders. And they just pay themselves through special dividends. They don't get a lot of compensation for what they do. And it's been a spectacular business over the long haul. Now, for all the talk of like, I don't know, maybe blockchain replaces in title insurance one day. I doubt it, but I know there's talk, but it's just one of those businesses that has stuck around for a really long time, despite being a small one. And even though it is, you know, a little over $200 million in market cap, it's been a spectacular investment over the long term. And it really changes your idea of what a great investment can be for you. If you're like, well, when's it going to be a billion dollar company? Probably never going to be, but that doesn't mean it can't be a good investment. I'm pulling up investors title, total returns. I'm just curious. I think this is an interesting one because it's kind of the exception that proves the rule. Back in your toolbox, here's how you can tell when a very micro, micro cap company is not a financial fraud when it's been in business since the 1980s and it's generated over 3000% in total returns and it generates positive cash flow. Right. There's how you know it's actually a real business versus the fraudy stuff that you find in that same bucket, Tyler. Yeah. And there's loads of companies down at these low levels that are cashflow positive, generating returns and have done spectacularly for investors. And all you have to do is look. They've been there. They've just been sitting outside your window, just

waiting for you. I don't know, maybe holding up the boombox like Lloyd Dobler, just waiting for you to pay attention to them because they're there. They're ready for you. Go get them. Say anything, Tyler. Say anything. Okay, Tyler, we're just about to the end here. This has been a great conversation. One of the things that you've talked about before is starting to release some of your older content as free to give people more examples of the work that's in there. I think everything right now is still pretty much behind the paywall. Let's take a few minutes here. This is your chance.

This is your chance here. SEO, marketing, pitch Misfit Alpha to us. So if you want to find investments that nobody else is talking about that have absolutely smashed the market over the long term, if you're sick of reading the 500th take on why Tesla is going to do spectacularly. If you are looking at the market these days and saying, wow, this looks really expensive. I don't know where I'm going to be able to find mispriced assets in a market like today. Misfit Alpha, I think, is a place that you want to go. It's going to be a place that's not going to be covering Tesla. It's not going to be doing

Alphabet. It's going to go places that you have never gone before and look for things that you haven't been looking for and didn't even realize were where you could find great investments. And if that sounds intriguing to you, if you think you want to be a little bit different, this is the place to go. So I'm going to add a couple of things onto that too. It's not, I think it's worth knowing too. This is, this is not a stock picking service. This is not, it's more of an investment research. I think is the key thing. You're not giving people two new stocks a month or anything like that. This is basically you recording some deep research that you've done into these really interesting companies, sharing a story about each of

these companies and then building on it over time. Again, the IPOs that you talk about too, that you do, what's your typical cadence of material that you're releasing? So I have IPOs. I do them when they're available and there is actually something worth discussing. It comes and goes based on what is going public. I try to do a profile of a company once a week with some exceptions where if I see something really interesting, like a question that I've had about the market, I think I did one a while ago on dividend aristocrats and just started digging into the 25-year history of dividend aristocrat companies and which ones have actually been good investments. I will occasionally do that instead of doing a profile of an individual

company. And once a quarter, I release my personal portfolio. Again, not recommendations, but just a little bit of a running journal of what I as the investor are investing in and how that may shape or change the way that you think about your investments. All right, Tyler, any last words before we wrap this up? And if nothing else comes from this, I hope that it just makes Jeff read proxy statements. I already started, my friend. I already started. If that's all I get from this, I feel like I won.

Well, let's endeavor. Let's take it up a notch. Let's endeavor to get more listeners to look at proxy statements as well. We can broaden the goal here just a little bit. I mean, sure, if you want to shoot for the moon. Tyler, one last question here. Where do people find you? So, misfitalpha.com.

I actually have the website, so you can go to misfitalpha.com. I have kind of drifted away from Twitter. You'll find me on Shreds now instead as Misfit Alpha. And that's where you can find this work that I'm doing, obviously. You can also find me featured on videos with Jason, where we yuck it up about some industrial companies. And I'll mention something really obscure like a Minnesota utility. And Jason will make some vague references to something being a misfit. I'm a little subversive with that. I do work that in every once in a while. We'll have this all in the show notes. We'll also have all of this in the transcript too. So you don't have to pull over your card, write all this down. We keep it. It's the internet,

people. We keep things on the internet for you when you're in safer places to get them. Tyler, you've done something special too for investing unscripted listeners that are interested in Misfit Alpha, right? Yep. So there's going to be a link in the show description to Misfit Alpha, but it's also going to be a discount code for anybody who signs up via investing unscripted will get 20% off the annual subscription for one year. So anybody that joins through you guys get a nice little cut off the top. I want to say this too, just full disclosure, we're not being compensated. Misfit Alpha is not compensating investing unscripted. You get a discount, Tyler gets a customer. We get to feel good because we help

you become better investors. So Tyler, appreciate that. It's not just good. We'll have it in the show notes in the description. We'll also have it in the transcript, whatever's easiest for you to get. So be sure to look out for that. Tyler, really appreciate you coming on and I'll see you on video sometime soon. Thanks, buddy. We'll see you soon. Okay, everybody. I think we're done. Jeff, we're done, right? This is it. That's it. We are all done. As always, we love to give our answers to these hard investing questions. Have misfits like Tyler come on to share their answers, but it is up to you to find your answers to these hard questions about investing and money. You can do it. I believe in you. All right, Jeff, we'll see

you next time. See you next time.