We Study Billionaires - The Investor’s Podcast Network - TIP648: Essential Skills for Successful Investing w/ Ian Cassel

Starting point is 00:00:00 You're listening to TIP. Can investing be broken down into a handful of skills that if mastered would result in an investing career accompanied by excellent performance? My guest today, Ian Castle, has been thinking about this question for the better part of 2024. His fund, Intelligent Fanatics Capital Management, has beaten the S&P 500 since inception in 2018. But due to regulatory reasons, he can't share his track record publicly. But today, I get to chat with him on questions on two primary topics.

Starting point is 00:00:28 First, we'll go over his history as a private. investor. We'll cover things like what kind of temperament is required to be a full-time private investor. We'll have a look at how Ian Castle took the leap into that world and get into the details of capital needs before taking that leap. We'll also cover some of the difficulties you can expect if you ever decide to go that route. Much of his advice is also helpful to those who aren't full-time investors but wish to have a portfolio that is able to withstand large economic shocks. Secondly, we'll give you a peek at Ian's skills of investing that he's been working on through his insights gained from his journaling. We'll look at what those skills are and how to develop them

Starting point is 00:01:02 to help you get an edge in investing. The skills are wide ranging, from things like Ian's five favorite ways of finding ideas, to why holding stocks is so hard and how to develop the ability to maximize your upside on the stocks that you already own, to Ian's four reasons to sell stock, then why perseverance is so important in investing and why all the grades have it in droves. So whether you're a microcap investor like Ian or just looking to improve your investing skills to find the next big winner, you will walk away from today's episode with a boatload of important investing advice. Now, let's get right into this week's episode with Ian Castle. Celebrating 10 years and more than 150 million downloads. You are listening to the Investors

Starting point is 00:01:43 Podcast Network. Since 2014, we studied the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected. Now, for your host, Kyle Green. Welcome to the Investors podcast. I'm your host, Kyle Grieve, and today we bring Ian Castle onto the show. Ian, welcome to the podcast. Thanks for having me back, Kyle. It's an honor to be here. So I'd like to start this discussion by talking about a less discussed part about investing in most circles, which is the journey towards becoming a private investor. So I know many members of our audience probably already invests on their side, but maybe haven't quite take the leap into investing as a private investor. full-time and on their own. So, Ian, you've successfully made that leap. So I think you're going to be a wealth of practical information because you did it for quite a long time. So I just want

Starting point is 00:02:43 to start off with some of the basics. What are some of the mental, intellectual, and psychological aspects that are required to be a successful private investor? I was a full-time private investor from about early 2009, right, the depths of the GFC through about late 2018. that's kind of when I launched my fund and that's where I kind of put the cut off of being a full-time private investor. And I think it's often probably best to kind of define what that actually is. You know, what's the difference between being a private, full-time investor and retirement? You know, it's like, what is that? And so, you know, I think when we think about retirement, we think about a person that's

Starting point is 00:03:23 saved for 30, 40, 50 years, their dollar cost averaged into some passive ETFs, mutual funds, other investments. You know, the portfolio has reached a size by itself or including a pension or whatever, you know, Social Security here in the U.S., you know, real estate, they can retire. And a financial advisor agrees that, you know, that given a 7 to 8 percent long-term expected return, drawing down 3 to 4 percent per year that the person can retire, the capital base continue to grow and keep its purchasing power with inflation. You know, so that's how I would kind of define what retirement is.

Starting point is 00:04:01 Now, full-time private investing, I would kind of define as, you know, a full-time private investor actively matches their own portfolios. They are stock pickers. And they normally take the leap sooner rather than later and probably sooner than they should. And so they need to produce an above-average return to not only support themselves as a full-time private investor, but obviously continue to grow that snowball. And so their expectations for returns are higher than. than the average retiree.

Starting point is 00:04:33 And they don't need to eat everything they kill as a full-time investor, but they do need to eat, you know? And so that's kind of how I'd like to frame it too. And so I think most of the mental, intellectual, psychological aspects, which was what your question was getting to about being a full-time private investor are all around the stresses of needing to produce results. And, you know, that includes, you know, paying the bills and growing. the portfolio over time and working with the ups and downs of the market environment and your

Starting point is 00:05:05 own returns. And so to be a successful full-time investor, I found, you know, really your strategy, your spending, your emotions, your lifestyle, all need to be in harmony so you could make it work. So let's get into the kind of nitty gritty here of some of the numbers. What are some of the monetary targets that a private investor needs to kind of hit in terms of their capital base before they decide to make the leap and, you know, if let's say they have job and quit it before they become a private investor. So I've heard some figures here, such as 20 times expenses or 25 times expenses. So I'm just interested in learning a little bit more about

Starting point is 00:05:40 how did you think of this when you went private? And, you know, how would you change this number if you started again today, given the experiences that you've had? It's probably the one question I get asked the most about full-time private investing is how much does it take? And, you know, I wish there was a one-size-fits-all answer to this. I mean, it's a personal question that deserves a personal answer. And so maybe what would be helpful is to provide some context into my situation and how I made that leap. And then I think it will help answer that question for others. I think, first of all, your lifestyle matters. You know, when I became a full-time private investor back then in 2009, I actually moved back to Lancaster, Pennsylvania. And this is an area of the

Starting point is 00:06:19 country where the cost of living is lower than living in Manhattan, obviously. You know, I rented, I literally rented an old, renovated red barn that had been renovated into a two-bedroom apartment. My neighbors were Amish, literally. And back then, I was single. And so I calculated that I could live on about $2,000 a month all in, you know, my fixed costs. I lived a frugal life. And when you become a full-time investor, you know, there's kind of no such thing as savings. It's one thing I had to talk to my wife about when we got married because she's like,

Starting point is 00:06:52 what about saving for this or that? I'm just like, there's no such thing as savings. It's just different degrees of spending. You know, it's just flexing up and down the spending because it's all coming from the same, you know, capital base. And that's what I got good at doing is kind of the ability to flex up and down my spending in any type of market environment. You know, my worst nightmare was becoming, you know, having to work for somebody again,

Starting point is 00:07:17 you know, being employed by someone. And that type of fear kind of chased me to kind of live below my means. I was always very disciplined with my finances, even though I was a full-time private investor investing in microcaps, which is seen as a risky, volatile investment class, which it is. What allowed me to kind of invest in that area in what's perceived to be risky was my very conservative lifestyle and habits that I had. And kind of that barbell, you know, conservatism on one side allowed me to be aggressive on the other side.

Starting point is 00:07:52 And so I never had any debt. I never had any mortgage debt, car debt. Whenever I had to pay for something, I paid cash for it. And I think that personal financial kind of riskless view of how to view my personal finances really helped me a lot. And so if that lifestyle matters, I think your future expectations also matter. I'm reminded of this back in I think 2021, 2021, 2022, when we were the height of the growth bubble, at least recently.

Starting point is 00:08:22 You know, I would see some posts on X or even on microcap club about investors wanting to make the leap to be in a full-time kind of private investor. And they'd be, you know, talking about how they think they can produce 35 to 40 percent, you know, Kager net returns, you know, over a long period of time. And I kind of had to sit back and just like shake my head because most of these folks would have two, three, four hundred thousand dollars and they think they can make 100 grand a year, you know, consistently over time. And, you know, that's just not a good way to do that and to have that type of expectation in the future is just not reality.

Starting point is 00:08:57 You have to be somewhat cognizant and self-aware about the current environment we're going through right now. You know, we haven't had really a recession since the COVID trough. We really before that since the GFC in 2009 has been 15 years. And so people have already forgotten what it looks like and feels like to invest in a bear market. But I always felt like I was really lucky given my age in 2009 because I was old enough to have invested through the dot-com bubble crash and also the GFC. I was old enough to be able to invest through that, but still young enough to be able to apply to lessons learned.

Starting point is 00:09:36 And that's been a big, big benefit. So I still remember those times that I don't want to go back to it. But when I was a full-time investor, I really had no expectations. I didn't have a target return. I really focused on my breaking point, you know, more than anything. And, you know, how much money did I need to become a full-time private investor? I kind of inverted this and asked what is my breaking point? I wanted a portfolio that was big enough to sustain two 30% drawdowns, which taken

Starting point is 00:10:06 together is a 50% drawdown. You know, 30% drawdown back-to-back is down 50. I wanted to have enough to where I could support myself, even given a 50% percent. 50% draw down, not just financially, but emotionally, could withstand that type of pain. And I'm kind of remind a little bit of, and I'll get this wrong, but I think Morgan House will, of course, has all the best quotes in financial universe. But I think one of them was something like, you know, no one's success is proven until they survived a calamity.

Starting point is 00:10:34 And, you know, I think that's true, you know, with full-time private investing. So, you know, the breaking point matters, survival matters. I wanted to invest through that type of bad bear market environment before I made the leap. In rising markets, it's easy, like I said before, to get just nonchalant about the ability to produce returns over the long term. And so in 2007, I was already thinking about making the leap, but I was hesitant because I was never really tested in a bad environment. And so going through 2008 into 2009, having survived that environment, that gave me the confidence

Starting point is 00:11:10 to make the leap. And I think also, I think your strategy matters. You know, if you're more of a trader or somebody that holds a lot of positions and can trade and you view it as income, you know, I think that's a different mindset than what my strategy is, which is long only concentrated microcap investing, you know, and so I think that plays a role into the decision because my returns are not consistent. You know, my returns look like even back then, even today, you know, looks like me losing money for a couple of years and then making a million dollars in year three. And then losing, you know, 20 percent.

Starting point is 00:11:52 You know, it's like these big kind of plateaus and then you have a big win. And so you need to have an amount of capital that affords you the patience to wait for those good times and also not overspend when you do have the good times. So anyway, to answer your question, for me, it was $2 million. You know, I figured that was kind of the amount that I wanted to have that I felt like I was very comfortable in continuing my strategy and a good, bad, and different market environment. So now that we know a little bit more about how much capital you need, I'd like to kind of

Starting point is 00:12:25 go over what your withdrawal framework is, because like you said, obviously, you know, you can't be messing around with this money. You have to actually take it out and live on it. So I know you mentioned also that you didn't necessarily have return targets. on your capital back then. You were just kind of trying to focus on not losing that capital. So I'm just interested in learning a little bit more, you know, how did you deal? Let's say, obviously you said you invested through the dot-com bubble and a great financial crisis. So how did you deal with years where your capital base would go down drastically versus

Starting point is 00:12:53 years where it would go up drastically, you know, would you take out multiple years in advance in case of, you know, a potential drawdown in the future? I'm just interested in learning more about how you handled that. Yeah. And again, my sample size is one. But, But I know for other full-time private investors I've spoken to, everyone's answer on how do you handle cash and things like that is different. Many people will have, you know, what you kind of describe. You want to have 25 times the amount that you're going to spend per year as a starting point. They also might have one to two years worth of cash sitting there as well. So they don't feel like they have to sell stuff at the wrong time, at least for a year or two.

Starting point is 00:13:35 I was never that disciplined. I've always been very fully invested. And whenever I was staring in a cash pile, I always thought that I could do better just keeping in the market. And I was mainly, when it came to cash, I usually had about three months worth of cash at all the times, and that was about it. And obviously, sometimes I wish I had more. But I feel like for my temperament, it actually worked pretty well, you know, having less

Starting point is 00:14:01 cash. And so that's how, and obviously that changes too, you know, when I was saying, single, that might have been having $10,000 in cash in the bank. When I was married with kids, you know, that might look more like 30 to 40,000, you know, because kids and wives or spouses are expensive. So that changes too. But in good markets or when stocks are working, you know, everything is easy. You don't really think about selling stocks to pay bills. In fact, you might even flex up your spending. I know I did too. So, you know, I became a private full-time investor in early 2009. I had a really good 2009, a really good 2010. And what did I do? Well, in 2010,

Starting point is 00:14:42 I was still single. I was about to get married. And I went out and bought a brand new Porsche 9-11. And I bought a brand new gold Rolex, pure gold. And guess what? That was the top of my portfolio. I also ended up getting married later that year. And that was there was a two-year law where my portfolio just did not do well. And I sort of think that's fate, God, whatever you want to talk about, just saying, you know, you handled that. You handled what I gave you not in the right manner. And I'm going to take it back, you know?

Starting point is 00:15:12 And that was kind of that learning lesson. But even in that environment, I never really fell in love with any material things. That Porsche I bought, I sold the next year because I didn't want to have to sell stocks to pay bills. I just sold it the next year. You know, it was gone and I had no issues with it. no qualms about it. And also in the bad years, obviously, then all of a sudden you feel the pinch of what paying bills out of your portfolio feels like. And it's 10 times, the emotional load is 10 times the financial load. It's just knowing that because you don't know what the future is going

Starting point is 00:15:48 to look like. And when things are dropping, you always think they're going to drop more. And it's much tougher in drawdowns, market drawdowns, or your portfolio drawdowns to get through those times. The other thing I learned during that time is I went to buy a house in 2014. And what I learned is financial institutions do not like full-time private investors because we don't check a box, you know, and I remember going to meeting with them. And I ended up having to put down like 60% down just to buy the house that I was in, which was excruciating.

Starting point is 00:16:24 And I hate debt. So I think I paid it off within a year then right now. after that. But again, I just always thought about worst case scenarios as a full-time private investor. It wasn't the best times. I always thought about worst-case scenarios. And when I had a really good year, I would pay off any debt I had and I would buy some hard assets and I would keep someone the sidelines, you know, and I would stay living below my means and nobody knew, you know, nobody knew any better. And I feel like that's important too. Just to stay emotionally neutral in your mind, in your emotions, and just financially, where nobody can, nobody really knows

Starting point is 00:16:59 outside of you whether you're doing well or not good, you know, financially. You know, just staying even. And that's how I always just dealt with that environment, the ups and the downs, the best I could. So you mentioned in a previous question that you liked to try to be able to survive two consecutive 30% drawdowns, which as you pointed out, comes up to 50%. So I'm just interested in earlying a little bit more about how you arrived at that Was there something in your history or experiences that made you get to that number?

Starting point is 00:17:28 Yeah. I mean, so again, like 2.30% drawdowns is a 50% overall decline. And it's basically what I experienced during the GFC in a couple of my positions. You know, I wanted to be able to withstand the pain I felt during the 2008, 2009 market environment. And for me in 2008, 2009, I was investing in three companies. So because I've always been super concentrated. One of them or two of them went down 60 and 64% piqued at trough. And then one of them went up 280%.

Starting point is 00:18:00 And that could be a podcast in itself, just the worrying lessons from the one that went out. But the two that went down, they ended up rebounding. It was kind of similar to COVID, where they ended up rebounding everything they lost by the third quarter of 2009 and ended up making all new highs the next quarter. So I knew you just needed time to kind of withstand that as long as you're in quality, profitable microcap companies, you just need time. But to get to your question, you know, the 50% was really what I experienced at least in two out of those three companies during the GFC. So, you know, becoming a private investor is very attractive for a lot of listeners

Starting point is 00:18:39 of the show because we all love investing so much here. But, you know, let's talk about some of the potential downsides of being a private investor. or, you know, obviously one town side is you can blow up a significant portion of your portfolio, which you just discussed, but obviously you had this, you know, long time frame in which you could hold on the stocks and allow them to kind of normalize. But I'm just interesting learning a little bit more about, you know, back then, did you have any type of contingency plan? You know, did you plan like, okay, if my, you know, portfolio goes below a certain amount, I'll have to quit and get a job? Or, you know, did you kind of just have yourself

Starting point is 00:19:15 all in and make it so that, you know, your mindset was, you know, I got to have to succeed in this because I think if you have that contingency plan, you know, other investors might be taking undue risk in order to just be like, okay, well, I'm going to shoot for the moon and hopefully it works. But if it does it, I can always go back to my job. Everybody thinks themselves as being unique. And so I've reframed this as for me, my number one goal since I was a sophomore in undergrad was to be a full-time private investor when I was 21. And I was able to then do it when I was 27. And so that six, seven years was 100% focused on that goal. And a big part of that was I had no plan B. Yeah, I went to undergrad. Yes, I got

Starting point is 00:20:02 my MBA. But I was pretty much unhirable. Like pretty much all my time was spent on honing the craft of microcap investing, visiting companies, all of that stuff. That was what I was 100% focused on. So for me, I had no plan B. I didn't want a plan B. I could never imagine a plan B. And I think that helped focus me more and also kind of think about the downside of a lot of things too, which is always the right way to look at investing anyway, to look down before

Starting point is 00:20:33 you look up. And I think one of the things that I will say is I don't think that most people, well, definitely not most, but even the people that are thinking about it, should be a full-time private investor. And, you know, kind of another two definitions or additional definition is I do think everyone should want to be financially independent, but that's not the same thing as being a private, full-time investor. You know, I think that there, a lot of people will do far better if they simply create enough

Starting point is 00:21:06 wealth where they don't need enough that they can do nothing. They just need enough so they have a choice and work a job that. they love to do that provides them the autonomy so they can invest. And that's a great plan B, you know, where you can actually find a job that gives you the autonomy, just like yours, Kyle, where you can also just invest full time. You know, that should be probably the goal ahead of just doing not nothing, but just becoming a full-time private investor because there's definitely some negative sides to it too, especially given your strategy. You know, when you're a concentrated a long-only investor as a full-time private investor. I mean, your biggest risk is just overthinking

Starting point is 00:21:47 everything because you have so much time to think about everything. And so just having a productive distraction can be, I think, a good thing not only for you emotionally, in addition to, yeah, having an income stream that also pays, at least here in the U.S., your health care bills or whatever it is. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo Freedom Forum is

Starting point is 00:22:29 entering its 18th year bringing together activists, technologists, journalists, investors, and builders from all over the world, many of them operating on the front lines of history. This is where you hear first-hand stories from people using Bitcoin to survive currency collapse, using AI to expose human rights abuses, and building technology under censorship and authoritarian pressures. These aren't abstract ideas. These are tools real people are using right now. You'll be in the room with about 2,000 extraordinary individuals, dissidents, founders, philanthropists, policymakers, the kind of people you don't just listen to but end up having dinner with. Over three days, you'll experience powerful mainstaged talks, hands-on workshops on freedom tech, and financial sovereignty, immersive art installations,

Starting point is 00:23:16 and conversations that continue long after the sessions end. And it's all happening in Oslo in June. If this sounds like your kind of room, well, you're in luck because you can attend in person. Standard and patron passes are available at Osloof Freedom Forum.com with patron passes offering deep access, private events, and small group time with the speakers. The Oslo Freedom Forum isn't just a conference, it's a place where ideas meet reality and where the future is being built by people living it. If you run a business, you've probably had the same thought lately. How do we make AI useful in the real world?

Starting point is 00:23:53 Because the upside is huge, but guessing your way into it is a risky move. With NetSuite by Oracle, you can put AI to work today. NetSuite is the number one AI Cloud ERP, trusted by over 43,000 businesses. It pulls your financials, inventory, commerce, and, HR and CRM into one unified system. And that connected data is what makes your AI smarter. It can automate routine work, surface actionable insights, and help you cut costs while making fast AI-powered decisions with confidence.

Starting point is 00:24:24 And now with the NetSuite AI connector, you can use the AI of your choice to connect directly to your real business data. This isn't some add-on, it's AI built into the system that runs your business. And whether your company does millions or even hundreds of millions, NetSuite's helps you stay ahead. If your revenues are at least in the seven figures, get their free business guide, demystifying AI at net suite.com slash study. The guide is free to you at net suite.com slash study. NetSuite.com slash study. When I started my own side business, it suddenly felt like I had to become 10 different people overnight wearing many different hats. Starting something

Starting point is 00:25:05 from scratch can feel exciting, but also incredibly overwhelming and lonely. That's why having the right tools matters. For millions of businesses, that tool is Shopify. Shopify is the commerce platform behind millions of businesses around the world and 10% of all e-commerce in the U.S. from brands just getting started to household names. It gives you everything you need in one place, from inventory to payments to analytics. So you're not juggling a bunch of different platforms. You can build a beautiful online store with hundreds of ready-to-use templates,

Starting point is 00:25:37 and Shopify is packed with help-eastern. AI tools that write product descriptions and even enhance your product photography. Plus, if you ever get stuck, they've got award-winning 24-7 customer support. Start your business today with the industry's best business partner, Shopify, and start hearing... Sign up for your $1 per month trial today at Shopify.com slash WSB. Go to Shopify.com slash WSB. That's Shopify.

Starting point is 00:26:09 All right, back to the show. So I'm just interested in learning a little bit more about this through the lens of your relationships that you've been able to build with the executives in some of the businesses that you're researching. I was trying to think of what are the differences between when I was a private, full-time investor and managing a fund. I don't know if it's really helped me get in front of any more or additional management teams when it comes to microcap. I mean, I think quite honestly, just being the founder of microcap club has helped me more than anything because I can just leverage that. And people have heard of what microcap club is or whatever. And so I can usually get an audience with a management team. I think we're managing a larger pool of capital has helped is quite honestly just having a larger pool of capital and being able to invest directly into companies as well.

Starting point is 00:27:03 We don't do it often, but I think we did it twice in 2023. just the ability when you find something new that's undiscovered, that's profitable, that you'd like, you know, if they do need additional growth capital and hopefully management is also putting skin in the game, that you could invest alongside them and fill out a $1 million or $2 million funding round and they don't need anybody else. They don't need to worry about bankers trying to exploit them with fees or whatever. You know, and so the ability of having a larger pool of capital, it's allowed me to kind extend my investing in a very positive way. And that's what I enjoy doing. My moat as an investor,

Starting point is 00:27:40 I feel like my edge as an investor in our fund is the relationships we have, the management teams we invest in, the ability to utilize those relationships to help them, but honestly not make bad capital markets decisions, which also then fly wheels back. We can help produce a positive outcome. So before we started this conversation, you brought up the fact that you've been working on a presentation that I'm pretty excited to learn more about, which is called the skills of stock picking. So can you just outline this presentation that you're working on and maybe tell me a little bit more about how this topic came about? This is going to be a journey, Kyle. You're going to wish you didn't ask that question. So this idea about the skills of stock picking got in my head

Starting point is 00:28:23 when I started studying John Donahir. And I don't know if many of your listeners will have known who John Donahir is, but John Donahir is considered the best Brazilian jiu-jitsu and mixed martial arts instructor in the world. I mean, he himself, I think, is a sixth-degree black belt in Brazilian jiu-jitsu. He's coached some of the best fighters in the sport, including St. Pierre, considered the greatest mixed martial artists of all time, and including Gordon Ryan, who I think is considered the greatest submission grappler of all time.

Starting point is 00:28:56 And John is considered the best coach possibly of all time. And he's also considered to be kind of the Einstein of kind of the fighting world because of how deeply he thinks about combat and innovating and just winning and how to help his students dominate opponents. And you can find several of his interviews online. Joe Rogan has interviewed him a couple of times. Lex Friedman has interviewed him a couple of times. and they're all like two to three hour long interviews.

Starting point is 00:29:26 And both Friedman and Rogan love them just because they both do Brazilian Jiu-Jitsu and also because he's such a good interview. I mean, quite honestly, when you listen to John Donner, her interview, it reminds you almost of listening to a Warren Buffett or a Charlie Munger talk about investing. You can just tell there's a lot of horsepower under that brain. And a lot of that just tends to come from the fact he was a philosophy major in undergrad. He was a philosophy major in graduate school. He came to the U.S. in like 1990 and was a PhD in philosophy at Columbia.

Starting point is 00:29:59 And so he just does a lot of thinking about thinking, you know, and you get that pretty quick. And just to give you an idea, this is a funny example, just thought about this. But you can find this a clip from a Lex Friedman podcast where Lex Freeman asks John in a fight who would win between a gorilla, a grizzly bear, and a lion. And it's just a ridiculous question, right? It's hard not to smile or laugh at the thought of just somebody asking that question. And what's fascinating is you can pull up this clip on YouTube. It has 1.5 million views. And the reason has 1.5 million views is there's a 36-minute long answer.

Starting point is 00:30:36 And you're like, what? And you kind of start the interview and listen to it. And you're kind of smiling and laughing the first minute in. And soon your smile starts to fade because he starts citing research and academic studies and aggression behavioral tendencies of each animal and the bite force of each animal, the stamina, the endurance, you know, and all these different, you know, they found gorilla feces and leopard poop, you know, or whatever, in Africa. And he's citing all these things.

Starting point is 00:31:03 And you realize like half a minute or a minute into it, your kind of smile starts to fade and you realize in this WTF moment, you're just like, this guy's already thought about this before, you know, and this wasn't a question that was posed to him ahead of the interview. You know, this is, you didn't know this question was coming. But it just shows you how like cerebral he is to have already thought about and have done research even on animals and their fighting techniques. So, again, it's a fun question to pull it up on YouTube. But what I found too is during these interviews, he's often asked questions that relate

Starting point is 00:31:35 not only to fighting but leadership and you can relay them to investing as well. And I think one of the questions in one of those interviews, he's asked about, how do you become the best in the world in your craft? And he says in the interview, in every sport or profession or craft, you have five or six core skills that are necessary to participate. And to be the best in the world, you need to be good at all five or six of those skills and also be the best in the world at least one or two of them. And so that got me down this path of thinking, you know, what are the five or six core skills in stock picking? And it's been something I've been thinking about for the last few months that I've been journaling a lot about

Starting point is 00:32:22 about it. And I'm going to be doing a presentation here in the shortly, probably in August, where I'm kind of turning into a presentation. But those six core skills that I've identified are identifying, valuation, buying, holding, selling, and personal. perseverance. And those are the six core skills that I think are necessary to participate as a stock picker, regardless of the flavor of stock picking you do, short term, long term, value, hypergrowth, macro, trading. I think all of those types of skills are the core skills given whatever flavor investing or stock picking you are. That was an excellent answer. So I probably don't have any idea about this, but I've actually

Starting point is 00:33:07 done jiu-jitsu for over a decade now. So I'm actually very well familiar with John Dan, because he's an incredible teacher. He has these instructional videos. I've watched tons of them. So even in his instructional videos, if you see him talk, he literally talks the exact same way about, you know,

Starting point is 00:33:21 doing an arm bar or doing a choke. He'll spend, you know, half an hour telling you about, you know, the mechanics of how to choke someone out. So he really goes very, very in depth with everything and especially with,

Starting point is 00:33:32 like you were talking about these skills. So, you know, listeners are lucky here because I'm going to talk a little bit about some of the skills here that you think that investors should learn. So the first one here, talked about was ideas. And obviously, you know, getting ideas is a very, very important topic

Starting point is 00:33:47 specifically because investors always want ideas. And, you know, maybe they shouldn't because like you said, and I'm pretty similar to you. I'm concentrated, long-only investor. You know, I kind of want to have my ideas and I just want to sit on them. If I get more ideas, then my brain starts going everywhere and I'm thinking about buying new things. But, you know, it's still important to find new ideas. You know, we're always looking for something interesting or maybe something that's better than what we already have. So I'm just interested in learning a little bit more about where you find your ideas. You know, is it screeners? I assume you're probably getting a lot from Microcap Club. What about your just network of friends and other people that you know in the industry, Twitter? Yeah,

Starting point is 00:34:23 just please will give us some insights on where you find your ideas. Yeah. I mean, and I think the skill of identifying is really what we're talking about is finding actionable ideas before others. And it's kind of a hard question to ask is like, how do you find ideas? Because you first need to know what you're looking for. You know, what type of investor are you? You know, because that will determine, you know, how you find something. But I think the way you highlighted it is correct. I mean, there are sort of the, I would say, five kind of basic ways to find ideas.

Starting point is 00:34:57 Three out of the five are you going out and finding things. The last two are ideas coming to you. And so kind of the way you go out and find them yourself is, of through brute force, you know, and that's, it's important with brute force because the only way you know you weren't missing at everything is to look at everything. And that's kind of my definition of brute force kind of identifying. And I know this is really big for the way I find ideas too, because quite honestly, oftentimes your advantage is just your willingness to sift through a mountain of sand to find that small diamond. And most people say they do that, but very

Starting point is 00:35:39 few people actually do. And it is what I've found. And, you know, as an example, you know, I think two years ago, we went A through Z through all the London Ame Exchange listed companies. You know, every year we go through A through Z, all the OTC markets companies, you know, and just really just going through them. And it sounds like a lot of work because it is a lot of work. But the more you do it, the quicker you get at it because the longer you do it, the more

Starting point is 00:36:02 you know exactly what you're looking for. And so it's like, you can take two seconds per company, you know. It doesn't take a lot of time. So I think brute force is a really, really important way to find it. I think another way that some people use it and it's part of brute force is literally looking at every press release, every filing, every insider filing as a way to spot potentially actionable things as well. And so I think that kind of falls under brute force.

Starting point is 00:36:29 And I know we as a fund, we do specific things such as look at every insider by over a certain amount in U.S. Canada, Europe, and Australia. And unfortunately, there's not one way to do it. There's like three or four, some of them free. But it's just work. It's like every day you have another hundred to look through, you know, and most days, none of them are actionable.

Starting point is 00:36:51 But two or three out of the year, it's something that sparks something where you look into it and it is actionable. And we had one of them or two last year. So that's kind of the brute force way. The second way would be kind of more fundamental screens, which a lot of people like to do. I kind of divide screens into, well, the way I would define screens is narrowing down the investment universe on what you value as an investor, depending on your flavor of investing. And so I find screen is a tradeoff between specific and being comprehensive. The way I invest,

Starting point is 00:37:25 I don't find specific screening to be helpful to me. What I mean by that is strictly screening on four, five, six, seven, eight fundamental characteristics that you're looking for. You're almost screening for the output of what you ultimately want to find. And so, you know, what you do, what happens there is, great, there's 23,000 stocks in the U.S. of Canada. I want to screen for everything under 100 million market cap that does more than 10 million in revenue that has greater than 20 percent insider ownership, that has a greater than 20 percent ROE that's growing 20 percent per year.

Starting point is 00:37:59 Guess what? You took 23,000 companies down to three, literally. And guess what? everybody else is doing that screen. And guess what? All those three companies that are left at the end of that screen are probably fairly valued because everybody's doing that screen. And so I don't find it that useful to do those types of screens.

Starting point is 00:38:18 I tend to do, and we tend to do at the fund, more comprehensive screens, which is just kind of actually, let's just screen everything under 100 million market cap and look at it. Or event-driven screens such as insider purchases or rights offerings, something that triggers you to an event that took place that might be a transformational event in a stock or a business. And that tends to be where we find a lot of ideas and is in those types of screens. The last, not last, but the third way to actually go out and find them yourself is researching. And so just researching different companies, a lot of times you'll stumble upon another company.

Starting point is 00:39:00 And searching for one thing, you found another. It's sort of like how the Titanic was discovered. This guy, Robert Ballard, discovered the Titanic in 1985 after, I don't know, what was it, 72 years of it being sunken in the bottom of the ocean. And even though there was dozens of other expeditions for the Titanic, he founded in 1985. And the irony was he found it only because another expedition to find two sunken submarines, he was funded to go find them and in the process found the Titanic.

Starting point is 00:39:31 And so, like, one thing led to another thing. You know, and it's kind of the same thing with researching kind of stock sometimes and finding things. It's like, you're searching for one thing, but you actually found the other thing. And then like the last two, like I said, the last two actually are how ideas find you is through networking. You know, and so networking is one way. And I would lump kind of microcap club. I would lump, you know, X or Twitter or your substack or you being proactively engaging with others, you know, and building out the last thing, which is relationships. And these are kind of longer-term relationships that you've solidified

Starting point is 00:40:07 over time and reciprocation and trust where they know what you're looking for. You know what other people are looking for. You know, ideas come through those relationships over time. And as you mature as a stock picker, most of your ideas a lot of times actually come from the relationship bucket. Just because you're really interested in that idea, the other people might not be because they don't invest like you. It's in a zero-sum game. So after you, I, I, identify a potential investment using one of the strategies that you just outlined. Let's examine the valuation process for actually deciding if it's worth buying or not. So part of the beauty of microcaps is the mispricings in microcap businesses just tend to occur much more frequently

Starting point is 00:40:50 than they do in, you know, mega caps or large caps or pretty much any other, I think, market cap, quartile or decile. With microcaps, a lot of these are early stage growth businesses. I know you, that you kind of look for businesses that are profitable, but a lot of them aren't profitable or, you know, maybe they're on that trajectory towards getting to profitability, but not quite there yet. So I'm just interested in learning a little bit more about your exact strategy. You know, how do you account for microcap businesses that are a lot earlier in the growth stages compared to larger cap companies in relation to the evaluation process? Each company is a little bit different. But in general, the overall framework is, well,

Starting point is 00:41:30 do I think I can double my money in three years. But even ahead of that is, I love this. I forget who said it, but looking down before you look up, looking at what the downside is with every situation before you look up. And that's predominantly what I'm doing with every new investment is what is the downside. And it can change from investment to investment. We have one investment that we made in the open market. It was maybe middle of last year and it was a company trading at five times earnings.

Starting point is 00:42:03 And obviously it was just cheap because it was growing. And so there's not much downside there. There's other ones that we've invested in the past that might not be quite at profitability. But we have comfort because the management team has built up companies in the same industry before. They backstop that company financially to provide them cash. They don't need to go into the market with investment banks and raise capital. They have a good growth runway ahead of them. They are growing.

Starting point is 00:42:33 And in that case, you can kind of look for a price to sales, which I hate type of multiple. But there, you're putting a bigger bet on the management team's ability to duplicate what their success they had before. And in every, the type of investment we do is, I mean, it really is mainly betting on the people. You know, every small company, the smaller they are, the more important management becomes. and the more the mode of that business is actually the management team or the leader or founder of that business. And so a lot of what attracts us to initially do a situation is the management team and the leadership. You know, we want to find those overqualified management teams that should be running much larger businesses. They just aren't yet, you know, and maybe this is their second or third or fourth go around.

Starting point is 00:43:16 And those are the types of things that we're attracted to. So each situation is different. and I wish I could give you a magic formula for it. My favorite situations are obviously finding things that single-digit P.E. that I think are just, you know, just cheap. But again, there's also screen easily, you know. And so you can find them or you can find them where sometimes the financials are a little bit muddied and the earnings power isn't quite seen yet, but it will be.

Starting point is 00:43:44 And so a lot of it is just trying to find the point, trying to buy them as close you can to where the earnings power becomes evident to everybody else. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up, and customers now expect proof of security just to do business. That's why VANTA is a game changer. Vanta automates your compliance process

Starting point is 00:44:10 and brings compliance, risk, and customer trust together on one AI-powered platform. So whether you're prepping for a SOC 2 or running an enterprise GRC program, VANTA keeps you secure and keeps your deals moving. Instead of chasing spreadsheets and screenshots, VANTA gives you continuous automation across more than 35 security and privacy frameworks. Companies like Ramp and Ryder spend 82% less time on audits with VANTA. That's not just faster compliance, it's more time for growth. If I were running a startup or scaling a team today, this is exactly the type of platform I'd want in place. Get started at Vanta.com slash billionaires.

Starting point is 00:44:52 That's Vanta.com slash billionaires. Ever wanted to explore the world of online trading but haven't dared try? The futures market is more active now than ever before, and plus 500 futures is the perfect place to start. Plus 500 gives you access to a wide range of instruments, the S&P 500, NASDAQ, Bitcoin, gas, and much more. Explore equity indices, energy, metals, 4X, crypto, and beyond. With a simple and intuitive platform, you can trade from anywhere, right from your phone.

Starting point is 00:45:26 Deposit with a minimum of $100 and experience the fast, accessible futures trading you've been waiting for. See a trading opportunity, you'll be able to trade it in just two clicks once your account is open. Not sure if you're ready, not a problem. Plus 500 gives you an unlimited, risk-free demo account with charts, and you can't even if you're and analytic tools for you to practice on. With over 20 years of experience, Plus 500 is your gateway to the markets. Visit Plus500.com to learn more. Trading in futures involves risk of loss

Starting point is 00:45:59 and is not suitable for everyone. Not all applicants will qualify. Plus 500, it's trading with a plus. Billion dollar investors don't typically park their cash in high yield savings accounts. Instead, they often use one of the premier passive income strategies for institutional investors, private credit. Now, the same passive income strategy is available to investors of all sizes thanks to the Fundrise Income Fund, which has more than $600 million invested in a 7.97% distribution rate. With traditional savings yields falling, it's no wonder private credit has grown to be a trillion-dollar asset class in the last few years. Visit fundrise.com slash WSB to invest in the Fundrise Income Fund in just minutes.

Starting point is 00:46:48 The fund's total return in 2025 was 8%, and the average annual total return since inception is 7.8%. Past performance does not guarantee future results, current distribution rate as of 1231, 2025. Carefully consider the investment material before investing, including objectives, risks, charges, and expenses. This and other information can be found in the income fund's perspective. at Fundrise.com slash income. This is a paid advertisement. All right, back to the show. So now that we know that you like obviously in really good managers, you want, let's say the business is at a valuation that you think is attractive. And now, you know, you're at the stage of actually buying the business. So obviously some investors really just kind of like piling into

Starting point is 00:47:34 a position, you know, almost immediately and just, you know, I like this position. The price is right. let's make it, you know, whatever, 5%, 10%, whatever. And then other investors, maybe they like taking small bites, you know, maybe a tracker position or maybe something a little bit larger, maybe a 1% position, and then holding it. And then as they gain more and more familiarity with the business and they start developing more and more conviction, they add over time, you know, who knows how long it'll take. Maybe it takes six months, a couple years, whatever. So I would love to know more about your specific buying strategy.

Starting point is 00:48:03 Obviously, you're a concentrated investor. You have very few positions, so I assume you like scaling is up pretty high. But yeah, how do you like initiating positions and how do you like building the positions up? It really depends on the illiquity profile of the company. You know, I think in the past I would have said, oh, well, you know, if I can't put 5% of my money into something, I'm not going to bother. Well, you can't really say that because some of these companies, it just takes time to accumulate them. And I'm not going to pass on something just because I can't, I don't know if I can get a full 5% or 10% position in something. You just have to start just because honestly, even.

Starting point is 00:48:38 if you got two or three percent, even if the stock goes up, it could be a better buy at a higher price. So it just doesn't make sense to have this mental threshold of, you know, unless I can buy 5 percent, like in the next week, I'm not going to bother. No, I mean, because one of our positions we even have today, I mean, we started buying it in July of last year. And I think we've probably been 70 percent of the volume over almost a year, you know, and I think we own just under 5 percent of the company. And if I would have went, you know, I would have never been able to start, you know, and I

Starting point is 00:49:12 and quite honestly, the stock's going up 100% or so, but it's been a better buy at a higher price because they've continued to execute, hit their marks. And it's at an evaluation point that was similar to when we initiated the position. And so a lot of these companies, you just sort of have to evolve with them. You know, you dip your toe in the water and you're not afraid to average up over time. And averaging up doesn't mean you're overpaying. Yeah, that's one thing I've noticed, especially in the microcap world, is, you know, these businesses grow so fast that, you know, it's kind of harder to kind of envision

Starting point is 00:49:46 in a lot of these larger cap businesses, although some larger cap businesses who do grow very fast, but you can literally pay double your initial price and still be getting a better deal just because these businesses are growing so fast and because they're cheap. So I just wanted to put that out there. Exactly. Well, and the earnings power can really compound, you know, the thing you thought was cheap at, you know, 50 cents, you know, could be even cheaper at a dollar. And it's hard for people to mentally get their mind around that. But it happens all the time. That's right. So I think

Starting point is 00:50:16 most investors would probably agree that at least long-term investors, that the hardest part of investing is holding onto your stocks and doing as little as possible with them as they increase in intrinsic value like we literally just talked about. But one of the biggest takeaways I've had from following you very closely over the last couple of years is understanding that most businesses deserve to be rented and not owned. So I, you know, when I started investing, I was really interested in, you know, long-term investing, like Warren Buffett, try and find businesses that you can own for the rest of your life and, you know, own for decades. But the fact is, I think I, when I was a newer investor, I made a lot of mistakes in my investing

Starting point is 00:50:52 process and I owned businesses that didn't deserve to be owned for a long period of time. And the fact that I was so stubborn about, you know, trying to be a long-term investor actually cost me. So, you know, that's kind of a potential downside of, of, uh, being a long-term investor is the stubbornness, and obviously there's tons of different biases that we go over as well. But I'm just interested in learning a little bit more about your specific strategies for holding a stock. That's one of the skills that you outlined. So take us through holding a stock and what skills based around that people need to develop in order to be a good investor. Yeah, holding is obviously the most important, at least I believe, is probably the most

Starting point is 00:51:29 important skill. And I think one of the areas that people get in trouble with is they try to overlay what works in different market cap classes or different investments and say that's what should work in this small microcap bucket. And I've said this before and I love Chris Mayer too because we're good friends. But I was like, you know, the biggest way to go broke is like coffee canning a basket of microcaps. You know, it's just and it's just maddening. I mean, it's just true. The shelf lives of smaller microcap companies or smaller companies in general is just shorter, you know, and especially when they're public because there's different. There's a lot more ways they can hurt themselves as being a public company, quite honestly.

Starting point is 00:52:12 A lot of microcap successes, I would say 80% of them are simply a microcap that has a winning streak for one to two years. You know, they string together 48 quarters because the product takes off or they hit the right trend or a tailwind comes out of nowhere. they find themselves in the right place at the right time. And it's just for a season or two. And that's most microcap successes. And very few, I mean, just go try to find a microcap that has a really good five plus

Starting point is 00:52:42 year stock chart. I mean, it's difficult. You know, it's embarrassing me for me to say that because, you know, I love the space, but it's hard. And so you can try to live in a reality where you're, I'm only going to find things I can hold for 30 years. Or you can anchor yourself to the reality of. No, I mean, we're going to try to find winning stocks and it might be for one years or two years.

Starting point is 00:53:05 And yeah, we hope to be able to hold them for 30 years, but those are going to be the outliers. And I think that's the right way to view any small business anyway because I think it's wrong to look out, try to guesstimate or DCF out 10 years worth of anything, you know, because it's hard to predict the next one to two years. And so what I try to do is just kind of stick to a two to three year time frame and not go out any further and understand that this business will evolve. It might evolve in good ways. Chances are it's going to be a bad way and be okay selling, you know, as well. And that the selling part is going to be the reality of it. You know, we're going to have a lot of wins along the way just holding things for one to two years. You know, and I hope that after doing this for 10 or 15 years, after owning.

Starting point is 00:53:52 50, 60, 70 companies, you know, I think a proper end goal is that you did find two or three in the portfolio that were worthy of holding for 10 years. You know, and that the average market cap in that portfolio will look like a small cap because you found those three or four. And what's ironic about that is that's also what people in March cap have done too. I mean, portfolio turnover is just a part of every kind of winning strategy. and especially in microcap where it's obvious when things go south, it's kind of madding to think, well, we're just going to hold them because we're just

Starting point is 00:54:27 going to hold it. Like, no, you know. So I don't know if that, that's kind of a rambling answer to kind of my holding strategy. So I think the way I hold is to always have a kind of two, three year thesis on the business, always know as best as I can what's going on in that business, have a good relationship with the management team, do all the necessary. very kind of behind the scenes work, but also knowing that at any point in time, I need to stay rational and cut this thing if I have to. And I think that's what's kept me in the game as long

Starting point is 00:55:01 as I have. That's what kept me being a full-time private investor for almost 10 years. Yeah, I had lots of big winners, but it was mainly the losses I never took, you know, because I could spot the investment thesis cracking before the rest of the market and allowed me to sell before others, as much as it was just trying to find the one out of 100 that it could hold for 10 years. So obviously, you mentioned there the selling of potential businesses. So selling is another skill here that I'd love to learn more about. So I know you were a guest on the TIP mastermind community and you mentioned that generally speaking, if the stock price gets pulled forward five years, that's a somewhat good signal for you to sell. So can you go over that in a little

Starting point is 00:55:41 more detail? Yeah, I mean, I think there's maybe three or four main reasons why you would sell a stock. You know, the first, the first two are good reasons. The second two are the company did something wrong. So the first two are the stock goes up too far too fast. You know, I think we would love to have that problem all the time. You know, and that usually looks like, you know, some company that's traded at a 10 PE, all of a sudden trades at 100 PE, you know, after they string together three or four winning quarters and it gets price for perfection. and everyone's expectations get way too high, then they ultimately put out a quarter that doesn't meet those irrationally high expectations.

Starting point is 00:56:19 The stock gets cut in half because the multiple gets cut in half. And then it spends the next two or three years fundamentally backfilling into that valuation before it ever reaches that previous high ever again. And so what I've known is whenever you see that type of huge move and especially on the multiple side, 99% of the times they will not meet expectations and the stock will get cut in half and it will probably have to churn for a year or two before it ever gets back up to that previous high. And that's kind of the way you kind of pulling forward the returns is through that multiple. Again, getting back to when I was a full-time private investor, yeah, I would have,

Starting point is 00:56:58 I would sell, you know, because I need to, I eat what I kill. And I still kind of view it that way. Do I wish I could hold every single share that I owned? Yes, but when things get irrational, you have to be able to pull the trigger and sell. And so that's the best reason to sell is when things go way too well in the short term. Second reason is you find a better investment than what you own when you realize that, oh, I found something that's better than my eighth best idea and you replace it. You know, you kind of manage your portfolio like a professional baseball team or football or whatever you want to call it.

Starting point is 00:57:29 We're always scouting for talent and you're willing to replace the players in the field when you see better ones. And that's another good reason to sell. The third reason is obviously a bad reason. That's when the company underperforms. The investment thesis starts to crack and you sell. The fourth reason is when you feel like you can't trust management anymore. They've done something unethical, unreputable, whatever the case may be.

Starting point is 00:57:53 Since I'm a relationship-driven type of investor, you know, as soon as I feel like I'm not being listened to or that I can't trust the management team, I'm gone. It doesn't matter what the business is doing. And so it's really those four types of reasons that I would ultimately end up selling. And I think most successful investors are very ruthless to their adherence when they're selling principles. You know, when their principles are broken, they're gone. And they're very good at the skill of letting go. So the final skill that you outlined here was Perseference, which probably is the most underrated on this entire list.

Starting point is 00:58:31 But, you know, when you consider some of the investing grades, you know, they have these very long track records. I mean, you know, Warren Buffett obviously has the longest, but even if you look at some of the other guys like Peter Lynch who is shorter, it's, you know, a little over a decade, but it's still a decade and that's investing. And investing, that's a long, very long time period. So I think that these track records, you know, over a long period of time signify things like perseverance and adaptability and survivability.

Starting point is 00:58:56 So I'm just interested in learning a little bit more about how you view perseverance in the investing landscape and also how do you think investors can develop it themselves? Yeah, I think the perseverance skill is something that not only applies to stock picking, but life and business as well, but I'll stick to the stock picking part of it. You know, I think it was, I think it's Howard Marks that said that there are old investors, there are bold investors, but no old bold investors. That was the quote. And, you know, I think as stock pickers age, and it's the one thing I've had to guard,

Starting point is 00:59:30 against. You know, the boldness gets scared out of you as you age. And it's kind of all the random gut shots you take, you know, that you don't see coming, whether that's Black Swan events, whether that's losses in the portfolio. They just take their toll on you emotionally and psychologically. Remember that quote? It's when you dance with the devil, the devil doesn't change. The devil changes you, you know, kind of replace devil with the market, you know, and that's kind of what what happens to stock pickers. And I see it all the time. And it's why most stock pickers, after 20, 30, 40 years, their portfolios kind of all look like the same type of boring. You know, they're over-diversified in value traps. And over time, the market sort of scares all the risk

Starting point is 01:00:14 out of them, scares all the boldness out of them. You know, the last multi-bagger they had was 15 years ago. You know, they stopped being courageous. They stopped devolving. They stopped growing as investors. And, you know, it's why that last skill of perseverance is so important. You know, you can't let father time and the market kind of scare all of that courage out of you to where you can no longer pull the trigger and act on things that you know have the principles and values that you know need to act on. You can't hesitate. And it's something I think a lot about because I've been investing for 23 years.

Starting point is 01:00:47 And, you know, there's, it's an incredible mind game in the market. You know, there's certain investments that I made 10, 20x my money. on when I was in my 20s that I would never invest in again. And that in itself is quite a mind game when you think about it. And part of that is just the fact that I've evolved since what I was then. I'm a better investor than I was then. And five years from now, I hope to be a better investor than what I am today. And hopefully my strategy looks a little bit different too.

Starting point is 01:01:16 I'm continuing to evolve. And so I think the evolving of every stock picker is incredibly important and just continuously having that curiosity and drive to where not only does it keep you producing outsized returns, but it's necessary for survival. So you quoted a great analytical concept in your microcat blog from Nikolai Tangent called inertia analysis, which I find fascinating. So in this exercise, essentially you run your performance with zero changes from January 1st throughout the entire year and see if what you did to your portfolio actually added value

Starting point is 01:01:52 or if it detracted value. So you mentioned integrating this framework into your own investing. And I'm just curious on learning any insights that you've taken from this concept and running yourself. Yeah. I love the concept. It's very simple. It's brutally simple, which makes it so cool.

Starting point is 01:02:09 I only started doing this like a few years ago. And so I don't want to seem like I've been doing this forever because I haven't. But I think it does add value to your decisions. I think the key, though, is you have to start journaling your, investment decisions. I think that's key. You need to build up enough evidence in every type of decision so you can narrow down on the types of decisions that you realize that you are poor at or you're really good at. You know, you might find that after doing this exercise in journaling every decision and then doing this exercise that Nikolite Tangent talks about, the inertia

Starting point is 01:02:47 analysis, I think a combination of that, you get to kind of zero in on the the areas, hey, I might be really bad at averaging down or averaging up or selling too soon or holding too long or whatever the case may be, but allows you to kind of put in enough reps to where then you can start making decisions on how to get better at the ones that you're deficient in and how to do so. So I think that's where it's helped benefit me is a combination of that inertia analysis alongside just journaling every decision, not because if you don't, your mind just place tricks on you that you do everything great. But, you know, being able to sticking with reality on where you're good and where you're bad. So you just mentioned journaling there,

Starting point is 01:03:29 which I wanted to get into a little bit more with you. So you've highlighted on that TIP mastermind community Q&A, a couple of areas that you like journaling about, which was, you know, your own thoughts, your emotions, your decisions and even predictions. And then in a chat with Clay that you had on TIP, you also mentioned that you like spending time on the downside of your investments. And like you said, once you make these thoughts or have them in your mind, it's easy to warp them into thinking that, you know, that's the thought that you always had. But if you go back in time and look at your journal, you can have very, very tangible proof that, no, I did not think that way. And I was completely wrong. Or maybe I got lucky in either direction.

Starting point is 01:04:09 So I'm just curious here to learn more about, you know, what types of questions or prompts are you asking yourself when you journal to really give you that high value information that you can go back and look at, you know, maybe in years past to help you improve today? Well, the tool that I have used the last few years is journalytic and Big Taylor. He's done a great job kind of spinning up that product and making it such a powerful resource for any stock picker to use. And I think he may be targeting more of an institutional investor with that product offering. But journalytic is an amazing one that allows you to track your predictions, track your trades,

Starting point is 01:04:52 associate an emotion even with every trade. And it kind of gives you a full framework then of your decisions in your decision tree. And that's a product that is a brilliant one for invest and for stock pickers. You know, outside of that or actually inside that, I also just kind of journal to journal. And so, in fact, most of the articles I write on MicroCap Club are a result of that journaling. You know, it's a combination of just writing about the positions and writing about my emotions. You know, that turns into a blog poster article with the Micter Cap Club blog. And I think one of the things Anthony Deidon does, which I find fantastic, but he spends an entire

Starting point is 01:05:36 summer, every summer, on his sailing yacht in the Mediterranean. And I just was talking to Anthony via FaceTime earlier this morning. And I forget where he was. I think he was like 75 miles south of Sardinia or something like that. It was funny. So anyway, we're a FaceTime. But one of the things he does is he spends one week on his boat just thinking about one position and journaling about it.

Starting point is 01:06:00 And then the next week, just spending one week on a specific company and journaling about it. And I think everybody journals differently, right? I don't think I could do that or want to do that. But I know for me, what I usually do is, you know, it's a hodgepodge of things. I don't really focus my thinking. I'm thinking about in the moment and I just kind of pour out what's in my brain on a page and that might be on a specific company and it might then turn into an emotion or it

Starting point is 01:06:28 might turn into a writing topic or the course of time it might be. But for me, I'm more sporadic in how I journal on specific companies. it tends to, it does tend to gravitate more towards specific companies around earning season or when I have a conversation with a CEO, which I input into a journalytic, my notes about the conversation, notes about what they said, how they said it, you know, if it was through Zoom, anything I thought I could pick up on body language-wise, you know, during having that conversation because that in itself, the type of investing I do. I mean, it's crazy just how much body language tells you when you're talking to somebody

Starting point is 01:07:06 in person or even over a Zoom where you're just like, huh, they kind of reacted differently to that same question I asked them three months ago as I did just now. That might mean something. So that's how I journal. It's a little bit more sporadic, but I do find journaling is necessary to becoming a better investor than where you were a year or two or three ago. Can you share any insights from this year that you've taken from going back and looking at your journal in the past that you've spent some time thinking about? I think my biggest takeaways going back. I think my biggest takeaway in 2023 was to get back to my roots investing in very small microcaps.

Starting point is 01:07:46 I kind of was going upstream a little bit too far. And my sweet spot has always been kind of identifying, buying, forming relationships with management teams, kind of in that sub 50 million market cap arena. and I was getting a little bit to up the threshold a little bit. So, you know, only me and you Kyle would laugh at that because everybody's like 100 million's puny. But, you know, kind of sticking to the lowest decile microcap. And once we started refocusing in that area and reposition some things in the portfolio, it's almost like things started clicking again.

Starting point is 01:08:20 Like, okay, that's where we need to be. Let's stay here. So that was probably a big takeaway from late 22 into 23. My biggest takeaway in 2024 kind of through journaling and also just, well, journaling and writing was the takeaway that I got while listening to Justin Ishbia of Shore Capital. You know, that was really eye-opening to me when you hear somebody that has a private equity firm focused on, he even says it on their website, microcap companies, but they're private. that you have somebody that's done 600, 700, 800 acquisitions across a 10-year period

Starting point is 01:08:58 that has put up a 50% net return for their investors during that time period, that their number one focus when they're making an acquisition, when they're building their platforms that they build up when they acquire these smaller companies, is focusing on the right board. That's their number one priority. And that was just eye-opening to me because it's something I always knew, but it never like hit me in the head and listening to that. that it really was like, okay, I really need to focus on this. You have like literally the best

Starting point is 01:09:27 probably private equity investor that buys small businesses in the United States saying their number one priority is the board. Maybe that's something I should be focused on as a microcap investor. And so kind of what that looks like put into action is having conversations with some of the CEOs we're investing in talking to them about upgrading their board, kind of utilizing my network to be able to make introductions to perhaps put people on the boards that, can be additive to their business instead of just a yes man or woman that needs to sit there and just say yes to everything the CEO says. So in a previous interview, you noted that microcap investors tend to formulate a lot of

Starting point is 01:10:06 their decisions based on very short, call it three-month timeframes. So I'm just interested in getting your observations about this. Is this a feature specific to microcaps? Or do you think that investors look at this no matter the market cap segment? I do think shorter timeframes are more prevalent in microcaps. And to be honest, it's well deserved for all the same reasons we discussed about shorter shelf lives and businesses. And so I think some of that is earned. Like I said before, I think the average duration of a microcab winner is one to two years.

Starting point is 01:10:38 They get lucky with a product or service for a season or two, you know, and then it just kind of goes back into mediocrity. That's kind of the norm. I posted about this the other day, but you make the most money by having sort of a one to three year variant view on a company or a business and buying it nine to 12 months in advance of the business actually turning up. Because then you're getting sort of a value multiple for something that will hopefully get a growth multiple, you know, one to two years out. And that's really the double lever of what you need to have multi-bagger type returns is that combination of growth and earnings power. are in multiple expansion. And so what you see a lot of times is, and you see it, I'm sure all the time on X too, you'll find a company trading at four times earnings.

Starting point is 01:11:28 And everybody looks at it like, well, if something's wrong with it, it's a bad business, management sucks, you know, whatever, they're idiots. At 10 times earnings after they have a good quarter, you know, well, they got lucky. It's at 10 times earnings. At 20 times earnings after the second good quarter, you know, okay, this could be something. And then after the third or fourth earnings they put out that they crush it, now it's at 40 times earnings and all of a sudden it's an outsider CEO and it's a great business. You know, you kind of see that maturation happen all the time, even in microcap. And whether it's in microcaps or large caps, investors love chasing momentum.

Starting point is 01:12:02 Investors love to buy good situations that can become great or get greater. And investors don't have a lot of patience to buy troubled turnaround situations or more troubled situations that, can become great. And that's where I think having a longer time frame can be your advantage is if you can just look out 12 months and not pay attention to the short-term noise and do the work to form a thesis that you think that this thing that is undervalued today can get overvalued two or three years out. And you have that longevity, the patience, and the vision to see that and buy it six, 12 months ahead of that business actually turning, having the willingness to look for a period of time, which most people can't, I think that is significant edge in

Starting point is 01:12:54 microcap investing, but as well probably as anywhere else in the market too, but I think it is more prevalent in microcap. So you just brought up a good point there where, you know, sometimes you might make these moves a little early and according to everyone else on X or your network, you might look a little bit dumb. So I'm just interested in learning more about how you, how do you deal with that? I mean, I think some people deal with it by not having a public presence, which obviously you don't do because you have a very big public presence. But I'm just interested in how do you, you know, how do you deal with biases, for instance, from sharing ideas that you might be

Starting point is 01:13:29 investing in with other people and how do you make sure that those biases hopefully don't come back and have a negative impact on you? Yeah, I'm pretty good about it. I'm pretty good about it. I think I'm pretty good about having not trying to stay away as many biases. If anything, I probably have a positivity bias. Like you said, part of your question, I think most long only stock pickers are obviously tilted bullish. And when they buy something, they obviously think that this is going to get better. And our baseline is that we are usually too early into a situation because we, as part

Starting point is 01:14:05 of our core as human beings, root for an underdog. and we want that thing to work out and we wanted to work out better. And usually we are six months, 12 months earlier than what we even think is what I found, at least for me. And just being aware of that bias itself, you know, I think is crucial. But I think for me, you know, the way I post on microcap club, you know, I post some thoughts on a lot of different companies that I own and don't own. And I think I don't post publicly.

Starting point is 01:14:40 I don't talk publicly about many positions I have on one or two occasions. And it's mainly because I do want the fundamentals of the business to drive that business higher, not me finding an incremental buyer to take the offer in it that doesn't understand what they own. And I kind of scratch that itch of just networking and giving my thoughts on a private community, which is one of the reasons why I created it with MicroCap Club. Ian, I just want to say thank you so much for coming on the show today. This was an awesome episode.

Starting point is 01:15:14 Where can the audience learn more about you and also MicroCap Club? Yeah, you can find me on X. My handle is my name, Ian Castle. You can find me on Microcapclub.com. I'm on there readily as well as 282 of some of the smartest investors in the planet that invest in this niche. We're doing some really cool things over there. So you'll find me talking about stocks and emotions and psychology and subscribe to our blog if you want to.

Starting point is 01:15:40 You know, I'd write something usually once every one to two weeks. And that's kind of my creative outlet to get some of the stuff I'm journaling about out there in the public domain. And people seem to connect with it. So love to have you on there. 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.

Starting point is 01:16:13 This show is copyrighted by the Investors Podcast Network. Written permission must be granted before syndication or rebroadcasting.

We Study Billionaires - The Investor’s Podcast Network - TIP648: Essential Skills for Successful Investing w/ Ian Cassel

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.