We Study Billionaires - The Investor’s Podcast Network - TIP755: My Process for Finding Great Investments w/ Kyle Grieve

Episode Date: September 21, 2025

On today’s episode, Kyle Grieve discusses the lessons that shaped his investing philosophy, from painful early mistakes in crypto to building a disciplined framework focused on quality businesses and high-potential, undervalued microcaps. He shares how goals, temperament, and a business-owner mindset guide his decisions, and why compounding, capital efficiency, and management integrity are the cornerstones of his strategy. IN THIS EPISODE YOU’LL LEARN: 00:00 - Intro 02:16 - Lessons learned from the early days as a pure speculator. 08:40 - Kyle’s simple investing goal and the pros and cons of pursuing it. 09:16 - Why benchmarks are irrelevant to his approach. 14:00 - How adopting a business-owner mindset helps compound capital. 17:29 - The two categories of investments that form the foundation of his investing strategy. 18:21 - Why quality lies on a spectrum and why the highest quality business isn’t always the best investment choice. 19:33 - The importance of skilled and aligned management. 32:21 - The three main reasons Kyle sells a stock. 36:10 - How to combat confirmation bias and the sunk cost fallacy. 38:24 - Why averaging up has been more effective than averaging down. Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences. BOOKS AND RESOURCES Join Clay and a select group of passionate value investors for a retreat in Big Sky, Montana. Learn more ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠here⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Join the exclusive ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠TIP Mastermind Community⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ to engage in meaningful stock investing discussions with Stig, Clay, Kyle, and the other community members. Follow Kyle on X and LinkedIn. Related ⁠books⁠ mentioned in the podcast. Ad-free episodes on our ⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠Premium Feed⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. NEW TO THE SHOW? Get smarter about valuing businesses in just a few minutes each week through our newsletter, ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Intrinsic Value Newsletter⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Check out our ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠We Study Billionaires Starter Packs⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Follow our official social media accounts: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠X (Twitter)⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ | ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠LinkedIn⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ | ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Instagram⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ | ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Facebook⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ | ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠TikTok⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Browse through all our episodes (complete with transcripts) ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠here⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Try our tool for picking stock winners and managing our portfolios: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠TIP Finance Tool⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Enjoy exclusive perks from our ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠favorite Apps and Services⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Learn how to better start, manage, and grow your business with the ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠best business podcasts⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. SPONSORS Support our free podcast by supporting our ⁠⁠sponsors⁠⁠: Simple Mining Unchained HardBlock Kubera Vanta Shopify reMarkable Onramp Public.com Abundant Mines Horizon Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Learn more about your ad choices. Visit megaphone.fm/adchoices Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

You're listening to TIP. Since 2020, my portfolio has generated an annualized return of 18.7% compared to 17.8% for the S&P 500 over the same time frame. But what matters even more than the performance is just that I've developed a consistent, repeatable philosophy that I believe will allow me to compound capital at attractive rates for many, many years and decades to come. And that process continues to evolve and improve over time. In today's episode, I'm going to share exactly how I invest. I'm not just going to focus on the highlights. I'm also going to pull back the curtains on some of my biggest failures. I'll start with a painful lesson from my early days as a pure speculator

and how those experiences ultimately pushed me to adopt a much more disciplined approach. From there, I'll explain the simple goals that guide my decisions, the pros and cons of aiming so high, and why I don't spend time worrying about benchmarks like the S&P 500. From there, we'll dive into the framework that I use today. I'll walk you through why I think like a business owner rather than a trader, the two distinct categories of investments that I focus on, and how I evaluate quality as a spectrum rather than as an absolute. You'll also hear why I place such importance on management integrity,

the three main reasons that I sell a stock, and the methods that I use to help guard against dangerous biases. If you're an investor who wants to strengthen your mindset, sharpen your process for identifying winners, and build an environment that rewards patients rather than just constant activity, this episode will help give you the exact tools and perspectives to improve at that. Now, let's get into this week's episode on My Investing Philosophy. Since 2014 and through more than 180 million downloads, we've 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 Greve. Welcome to the Investors' podcast. I'm your

host, Kyle Greve, and today I'm going to share my investing philosophy with you. I have had the opportunity to learn from some of the industry's top investors, whether that's chatting with incredible outperformers as guests on the show or sharing lessons from outperformers from some of the best investing books that have ever been written. I've had the fortunate opportunity to absorb just a ton of incredible information from many of the best investors to ever do it. To understand my investing philosophy today, I don't need to go too far back in time to explain some of the crucial mistakes that I've made. And these mistakes have helped shaped me into the investor that I am today. My first risk asset was actually in cryptocurrencies.

And I won't get into crypto too much as my co-host, Preston Pish, knows more about crypto than I ever will. And it's not really an area of investing that I put too much mental energy into. However, investing in cryptocurrency has had a very profound impact on me. So without my foray into crypto, I may have never leapt into stocks or I might have repeated many of the mistakes that I made during those crypto days. So rewind back to 2017 and Bitcoin had begun its run up from around 3,000. to about 20,000 between July and December. During that time, I was buying all sorts of alt coins, and I quadrupled my capital pretty

quickly, but I attribute all that to luck. But all that good luck was about to change for me. While it felt like everything I bought would turn to gold, I began researching technicals more and more. I began getting attached more and more to a technical indicator called Ichimoku clouds. So they don't do very much, but they helped justify some of my trades. At that time, I was also making leverage bets on, you know, one minute charts. And I was also going short and long depending on what those clouds were telling me.

It's silly, I know, and I'm almost embarrassed to discuss it now, but I knew nothing about value investing or speculation at that time. Long story short, I eviscerated about 97% of my crypto assets over a very short period. So a few lessons I learned from this. One, be wary of anything regarding technical indicators. Two, don't use leverage. Three, buy assets that you understand. 4. Understand that any action that you take has a potential downside. And five, don't bother shorting. So now let's fast forward to March of 2020. I hadn't thought at all about investing between that time of 2017 and 2020. While I was in a hotel lobby for work, I came across a newspaper article that mentioned that the market had slid about 23% over a short period.

A light bulb inside of me went off. And I thought this must mean that there's probably some stocks that were on sale. I can't tell you exactly why I felt this way. at that time, but I'm sure glad I did. So I opened up my first brokerage account for stocks and just got to work. YouTube really opened my eyes to the wonders of value investing. And I'm very grateful for this because I could have just as easily been a fool and done exactly what I had done in crypto, just buying stocks instead. However, I learned about the concepts such as, you know, the distinction between price and

value. I learned about the benefits of a competitive advantage. I learned about why some stocks are considered expensive versus some considered cheap. I learned a hell of a lot. And this was during the lockdown, so I had tons of time on my hands. And nearly all of it was spent with my dog, my wife, who was my girlfriend at the time, and books about investing and reading annual reports. So my philosophy from here began to build.

I could have just handed all my money to the bank to manage. And I had done that when I was a teenager, not really having any idea of what I was doing. I actually remember when I first became interested in investing. I'd look at the performance of my bank funds and saw this low single-digit returns. and part of my learning was seeing how much money the bank was making by underperforming the index. So I put two and two together and decided that since nobody else would care about my capital as much as I did, I might as well try to build it myself. Those early days were interesting because they surprisingly had a lot of similarities

to the early days that I had in crypto. So since nearly everything had crashed, the closer you bottom ticked those COVID lows, the more likely you were to just make money. And since many great assets were trading with very good margins of safety with a lot of upside, it was pretty tough to lose money in those markets. Luckily, the lesson from my days of losing money were very, very fresh in my head. And even though some of my positions were going up, I had been sold on the powers of long-term investing and compounding.

So I remember one of my earliest lessons in compounding actually came from my uncle. So he was a very successful real estate agent. And I recall him discussing just how good of an investment that many of the Canadian banks were. So if you bought them, you could set up a dividend reinvestment program and then just hold on to them for decades and you'd probably do really, really well. I remember him telling me to look at RBC. So one of my first investments was in a bank, in Canada, and that was TD Bank.

But after I learned more about, you know, forecasting future value, I realized that TD just was unlikely to grow earnings by much more than 8%. And besides, I discovered some other businesses that I thought had much better prospects. So in 2020, I purchased shares in the following companies, Chorus Aviation, Air Canada, Alibaba, Aritza, Micron, Twitter, Banko ZK, Inmode, Bosch Health, Sangoma, and Seretage growth properties. So looking back, it was quite a hodgepodge of different investment types. So you had Alibaba, which interested me because it was in China. And the narrative in China was that that country was going to continue to grow at a very,

very high pace and would bleed the world in GDP growth. Then you had Eritzia, which I found very interesting because it had grown well pre-pandemic. It was navigating the pandemic. really, really well due to its pivot to e-commerce. And it just had products that were continuing to be in high demand, even though people weren't going to work. Then there was BankozyK. This was an idea that I actually cloned from one of my earlier influences who was Phil Town. So to me, it looked like a very well-run bank. And even though there was a short report out that discussed some of the riskiness of its loans, it looked to me like the business was actually pretty safe.

Then there was Seritage Growth Properties in Micron, which were two ideas that I cloned from Monich-Pabri. So after cloning him on these ideas, I was very careful about cloning him again as neither was really a home run. I mean, I didn't lose money on them, but it wasn't a home run. And I thought they would be much better performers than they ended up being, especially when I looked at seretage growth properties. This experience kind of showed me that cloning can be very powerful, but even if you find a great investor to clone, there's only specific ideas that are worth cloning.

And then we get to Bosch Health. So this was an idea I cloned from Francis Chow and Bill Miller. It was kind of a sum of the parts play, but it turned out to be. a complete disaster for me. Luckily, as with many of my first investments, I was working with a very small amount of capital at the time. So even though I did actually end up having some losers in 2021, which I don't really know how that's possible, they didn't significantly impact my ability to continue compounding. Since I wasn't using any leverage, this also allowed me some extra safety just in case I was wrong. Now that we have a brief history of my investing experience out of the way,

I'd like to share some of my financial goals, which will also shed some light hopefully on my investing philosophy and why it is the way it is. So my goal in investing is to just double my capital every five years. It's very optimistic, but it was a goal that I always found very fascinating. It seemed like a challenging goal and one that was highly lucrative. So that's what I went for when I started and that's what I go with now. This means that any investment that I should make should be able to double within five years at the very least. This has been an interesting learning point for me over the years, as they're both positives

and negatives to having a goal like this. So the benefits of having a more aggressive return benchmark are that if I'm right on my picks and I achieve my goal, then I'll just make money faster. It also means that I'm going to select some significant winners and multi-baggers. I like this strategy because it means I don't have to be constantly searching ideas that might go up 50% or double. I can find businesses that can potentially 10 times, 50 times, or even 100 times my initial investment. And it also means that I can be very picky. Suppose a business is a quality business

and has all the usual aspects of a quality business such as a high ROIC, high ROE, insider ownership of 10% and some sort of deeply entrenched competitive advantage. In that case, I may still not find an interesting investment. One such example is OTC Markets Group. So OTC Market Group operates It's financial markets where U.S. and international securities trade over-the-counter, providing things like trading, disclosure, and data services for public companies. I researched the stock and concluded that it was an excellent business. However, given the premium multiple and my expectations for its growth at the time of my research, I just didn't think that there was a very good chance that it would beat my return hurdles.

However, there are also several drawbacks to consider if you're seeking high returns like I am. And they all have to do with risk. So like nearly all investors, I find it easier to default about thinking about how much I can make from a business rather than what I can lose. As I learn more and more from legends in value investing, I'm trying to reverse that thinking as much as I can. The problem with many high quality businesses that are growing at a decent rate is that the market is usually intimately knowledgeable about them.

So getting them at a discount in terms of multiples can be very tough. The major negative of my strategy is buying companies that just have these really, really high expectations, only to have them fail these expectations. That has been the source of nearly all of my investing mistakes in some way or another. Since I am generally looking for businesses that are growing their intrinsic value by more than 15%, I also look for companies that have something like earnings per share operating cash flow growth above 15%. Sometimes I invest in businesses that massively exceed that 15% hurdle rate. Let's say I have a company that is historically grown EPS at 25%. then they have a quarter where they have some sort of maybe one-off expense and EPS growth only goes to 10%.

So even though the long-term growth remains intact, the market's likely going to punish that business's stock price. So in the short term, this doesn't really matter to me. But my mistakes occur when I completely miss the mark on my EPS growth rates. And therefore, the stock price re-rates significantly downwards and the chances of it going back up become very, very unknown. So I'd like to shift gears and discuss my thoughts on the distinction between absolute and relative performance. Since my goal is to double my portfolio every five years, I really don't care

much about the relative performance or indexes in general. They're completely irrelevant to what I'm trying to achieve. The only real function in index serves me is to show the opportunity cost of what I'm trying to do. So the problem for me when I was looking at which index to compare myself was purely psychological. And my examiner, my return and the return of an index without introducing some sort of bias that causes me to make a mistake, it's hard to say. One workaround I have is to check my portfolio performance only once a quarter. This way, I don't obsess about trying to beat an index quarterly, which is what nearly every hedge fund is trying to do. The next problem that arose for me when considering the index was just which one to use.

Since I own very few U.S. stocks and I'm reasonably globally diversified, I thought comparing them to maybe a Canadian or global index made the most sense. However, my perspective is shifted after speaking with several notable investors. So since the SMP 500 is the primary benchmark that most good investors use for comparison, I think it's the most suitable index which to compare my own results as well. The next part of my investing philosophy is that I invest like a business owner, not a trader or a speculator. Every stock that I own in my mind represents a real ownership and a share of a business. And I don't take that process lightly. I try to imagine the people managing my money are close associates who I know personally. This can create biases, sure, but my primary goal is to

invest in people I trust and give them a chance to make improvements when things inevitably go sideways. I'll discuss the leash I give to certain companies later in this episode as it varies in length based on a few factors. The point of my thinking this way is that it helps me just hold onto compounders. After giving considerable thought to the stocks that I keep and what I like to do with them, this is really the ultimate goal. Have stocks in my portfolio that can continue to compound. The business owner's mindset will help me stick with those businesses. So if I had a friend, for instance, or an acquaintance with an excellent idea and I decided to invest in them, I'm not going to just jump ship at the slightest hint of any type of headwind or problem that they encounter.

headwinds are just part of business, and I'd rather focus on avoiding any overreactions to headwinds than acting too quickly and then moving on from a company that was just going through something that was very, very temporary in nature. So Seth Clarmine said, investing is the intersection of economics and psychology. Successful investors do very few things, but do them well. This is how I strive to emulate my investing approach. While I may have periods of higher activity, my default should be inactivity. And the other way to think about this is what am I doing now that is causing me to potentially

sell in the next year? I prefer to find businesses that I can hold for a multi-year time period. So if I'm constantly wanting to sell stocks, that means one of two things. So first, I'm just not doing a good enough job of finding businesses that are resilient to the economy, or I'm just finding businesses that aren't resilient to its competition. And to me, I completely hold responsibility for everything that's in my portfolio. If I'm too lenient, then chances are that I will want to sell stocks because they aren't aren't doing well enough in terms of improving their intrinsic value.

But that's all on me and not on the market. What it comes down to is trying to engineer my thinking to avoid panic selling, which is a problem that I think infects very, very large swaths of the market during big corrections and downswings. All businesses, even the best ones, experienced significant drawdowns. Berkshire, Amazon, and Microsoft have all had significant drawdowns on their way to becoming life-changing multi-baggers. So Berkshire has had 340% drawdowns since 1990.

Amazon has had 6, 50% drawdown since 1997, and Microsoft has had 4 40% drawdown since 1990. So it's incredibly rare to find businesses like these. So if there's even a chance that I hold one of these businesses that can compound for the next, you know, three decades, I will gladly do everything I can do to keep that business in my portfolio. So a major perspective shift that occurs when you adopt a business owner's mentality is that the share price becomes a lot less interesting. This is one of the landmines that investors must navigate. I have a business in my portfolio now that upon examining the company's fundamentals, I cannot fathom why the market is treating it with such disdain.

So I won't name the business, but here's what happened since I bought in it. So the trailing 12-month EPS has gone from $2 to $5.50. The stock price has not budged much in either direction, and the P.E. multiple has dropped from 28 to 10. So I have problems with this business at times because it just appears to me that the market has no interest in value in the business properly. I can't tell you how many times I've needed capital and when I think of a business that I need to cut, this business comes to mind. But when I really think about the appreciation and the earnings per share, I just think about how I would

perceive this business that business that business that way, there's just no chance I'd be trying to sell that asset if it's growing well and nothing is telling me that it won't continue to grow well. So another thing that business owners do is plan for volatility and not react to it. So I like to go into a business with a clear thesis of what could happen over the next two to three years. Then I just track what's happening in the business. If I think EPS will grow at 15% per year and the following year it grows at 15%, then it's just job well done.

And just because the market is in a panic and that stock price decreases, it doesn't take away from the fact that my business is doing exactly what it needs to do in order to meet or exceed my benchmarks. Now, the next part of my investing philosophy is how I categorize my investments. So I use two specific categories. The first one is a bucket that I called quality businesses. And the second one is a bucket I called my microcap inflection point businesses. So quality businesses will always make up the bulk of my portfolio, simply because these

are the companies that I think have the best chances of compounding my capital over a long period of time. As of August 18th, 2025, this section comprises about 63% of my portfolio. So in this part of my portfolio, I look for three keys. The first one, the presence of the event. a competitive advantage remote, which allows the business to continue growing profitably over multiple years and hopefully decades above my hurdle rates. Number two, a talented management team that is aligned with shareholders and owns a substantial

amount of shares. And number three, returns on invested capital exceeding 15% for multi-year time periods. So let me go through each of these in a little more detail because there's a lot of nuance here. So to me, all businesses are on a spectrum of quality, somewhere of low quality, while others are of high quality. More importantly, however, is just what direction a company is moving on that spectrum. A business of medium or even low quality can actually still be a great investment if it's moving up the quality spectrum. And a business that is of high quality can still be a poor investment if it's moving down the spectrum.

So similar to market cycles, you should have a clear idea of the direction a business is heading. Is it improving, stagnant, or headed in the wrong direction? These types of questions help me understand and determine which businesses I can cut if I need capital. want to free up cash or just need to remove a portfolio for quality of life reasons. So competitive advantage is deeply ingrained in quality. Higher quality companies will have wider moats and better competitive advantages. But I don't think my businesses have truly impenetrable moats. Some of my businesses have stronger moats than others, as long as I know what these moats are

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That's Shopify. dot com slash WSB. All right. Back to the show. So management is a deeply complex subject, and I have an entire checklist I look at when I'm evaluating a management team. So I'm looking at whether management prioritizes

short-term or long-term profits. I'm looking at growth, and if future growth is going to require heavy dilution or debt, I'm looking at, at how transparent managers are. Are they transparent in only good times and then, you know, climb up in bad times? I'm looking at the integrity of management and seeing if it's unquestionable or not. I'm looking at their compensation. Is it fair? Is it reasonable? I'm looking

at how well management's aligned with shareholders, which usually means I'm looking at insider ownership. You know, are they only building up their stake via options or are they buying on the open market? I'm looking at how strong their historical track record is. That's with the business that they're currently in, or if they just join that business, that's looking at the track record that they've had from another business. Then I'm looking at things like whether they seek the limelight or avoid it. Do they love the press? Do they love attention? Or do they just not want anything to do with the press? Then I'm looking at capital allocation, you know, are they disciplined capital allocators? Are they spending money just because they have cash or are they patiently waiting for

the right high return opportunity to arrive to deploy capital? And then, you know, I'm obviously looking at salary and options over a period of time and making sure that any increases, are warranted. And lastly, just insider ownership, once again, even an executive can have a very small amount of insider ownership. But if that's a large percentage of his net worth, well, then that's pretty meaningful. Whereas even if a manager has a pretty large ownership, if that just represents, you know, 1% of their net worth, then that tells you a lot of information. Now, I like to build up my knowledge base by answering these questions, which really helps me determine if a management team is worth partnering with or not. Some checklist items definitely carry more.

weight than others. Management integrity is just number one. I would never budge an inch on that. If management has a history of showing any crack in integrity, I'm just going to take a pass just make it easy on myself. I've unfortunately invested in the past where I've had some questions about management integrity and I thought I kind of had a handle on it than found out more information that put them into question. And I wondered, okay, well, maybe I could just hold the business and see what happens. But I realized, you know, I just don't trust this management team enough to ever really want to add more shares. So I just sold them all because if I don't want to add more shares in the future, there's just no point in holding the business. And lastly, there's the capital efficiency aspect.

So this is a quantitative metric that really helps me understand whether a business is effective at converting capital into profits. So my best companies tend to have roiks that just don't fluctuate very much and ideally they're actually gradually increasing. So an increase in Roik is a strong signal that a company has a competitive moat. It means that the business can earn higher profits on an invested capital compared to its industry or to competitors. If a company has no moat, it's very often incredibly obvious just when you examine this metric. So not only do I want a high number here, but I also want a decent sample size. One year of achieving a significant number following multiple years of low single digits just isn't going to suffice in my quality bucket.

So now we move to bucket number two, which is a microcap inflection point businesses. So there aren't too many differences in what I look at. So I'm looking at three things again. First, two quarters of revenue and earnings growth above 25%. Then I'm looking exact same thing here, a talented management team that is aligned with shareholders and owns a substantial amount of shares. And then three, an ability to earn high returns on invested capital. So only the first and last point here are different. So the first point is how I determine if a business is truly inflecting. I'll sometimes allow for the use of free cash flow instead of earnings on these businesses. If the cash flow of a company makes sense, and it seems like they have some sort of scale advantage

where margins are continuing to improve, I'm fine investing in a business that isn't IFRS positive net income yet. The beauty of this specific strategy is it can capture some outstanding businesses. All of my microcap winners have followed this inflection point framework to some degree. Some companies might be profitable for longer, or maybe it's just a quarter. But when you're looking at a small business, they can often get, you know, sticky revenue, which is likely to grow quickly, and I mean very quick. The second point of management is the exact same as the high quality bucket.

In the inflection point businesses, one of the strongest areas is that the CEO is often the founder of the business. Since the company is small, it also means the founder usually has a significant stake in the business. It's not unusual to find management teams with stakes of 50% or even higher in a business. And while many businesses I would actually fear if they had insider ownership above 50% because you have that going private risk, it's just not as much of a concern, in my opinion, for microcaps because a lot of them are microcaps on an exchange, specifically because they

require funding, which prevents them in the future from going private. So management is crucial to the investing hypothesis in microcaps. Since microcaps are still in their early stages of growth, management will be the ultimate indicator of the business's success. So Buffett likes companies that, you know, even an idiot could run, but you just don't really find these in microcats. The businesses are often much more fragile at this stage. And if you don't have a leader who can adapt fast and find ways to make profits quickly, the company can simply go bankrupt or get taken over. Even an excellent product or service can just be thrown into the waste bucket or swallowed up by a large competitor. A more mature business that already

has a significant portion of its business model created and systematized won't encounter these painful problems that a microcap will. So while management can still carry a more mature business, I think they matter a lot less due to all the systems that are now in place. As for the final point on capital efficiency here, so I still calculate it on all my inflection points, but this is more of a situation where the numbers don't tell you as much because they're usually going from a state where they're going from negative to positive. So So since a lot of these inflection point businesses are running at a loss, maybe a quarter

or two before I buy them, Roik is going to be a negative number even when I'm making adjustments. But as they inflect, that number can rapidly improve. So the main question that I have to ask is, you know, how much more can it improve and what are the odds that it reverts back? Those are the questions that I try to answer on my microcap inflection point businesses. So I'd like to review my reasoning behind investing in these two very distinct and different buckets. So the quality businesses are the ones that I like, which I don't necessarily need to have high turnover in. These are businesses that tend to perform exceptionally well and vary consistently.

While they may have some hiccups along the way, I don't have to think about them very often, and the only thought of really ever selling them doesn't come out of fear. It's more of a valuation question because these businesses tend to get expensive. I don't want to get too much into my selling criteria yet, as I'll be covering that more later in the episode. But, you know, So the businesses in this category are generally priced between $1 billion and $10 billion. I don't actually have a cap on what it needs to be. I just prefer smaller companies as I feel they have a longer runway. Now, for my microcap inflection point businesses, I like these because it's not unusual

to find companies that literally grow at 50, 75, 100% on the bottom line. And I love seeing these businesses very early before institutions start piling in. So the businesses are often so under the radar that they can grow quite rapidly. And they still trade at multiples that make you think they're just a mature business growing at, you know, the same rate as the economy. I'm talking about businesses that are likely to grow 25% or more and are trading at mid-single digit forward multiples. So the mispricing are just too juicy for me to ignore.

And that's why I invest in these businesses. And just so you know, the market cap average for these is below 100 million and often much below 100 million. So the turnover was going to be a lot higher in my microcaps because many of these businesses inside of them just don't deserve to be held for very long. I want them to deserve to be held, but I can't be stubborn on that side of things. Stubbornness and a no-cell mentality towards microcaps is just a death sentence. There's also going to be a difference in my average holding periods between my quality businesses and microcap inflection point businesses. So out of my 10

biggest winners, seven are quality businesses and three are microcap inflection point businesses. However, of the inflection point businesses, only two have been held for less than a year and the one that's been in my portfolio the longest is coming up on two years as of October 2025. From the quality business standpoint, there's only one that I've held for five years. I've held three for three years and two for two years and three for one year. So this indicates that the inflection point businesses, you know, they move very quickly in price, but they're not always worth holding for extended periods of time. The quality businesses are those that may have lower returns per annum, but I think can

sustain a decent return for a longer period compared to my microcap inflection point businesses. So now that I've shared more about my holding periods, I'd like to discuss why I'd sell a position. Now, my sell criteria is pretty straightforward. I sell for just one of three reasons. So first is that I find a better opportunity with a better risk reward profile. The second is that the price runs five to ten years ahead. And third is that my thesis is broken. Now, the most common reason I sell that last point is that I just lose interest in the business. Alternatively, it's just that I'm wrong on the thesis and it completely falls apart. But, you know, this is always just a tough reason to sell because one issue that I've had

is just being too stubborn, as I mentioned here. So being stubborn is just so detrimental, especially on microcaps, but based on my observations, it's really damaging even if you do it on large caps. My three most significant losses I've taken in investing were businesses that I was just completely wrong on the thesis. So these three would be Canadibis Capital, Bosch Health, Alibaba. So, you know, thesis killers are something that I'm constantly searching for, just trying to ensure that I can try to catch them early. Unfortunately, with Bosch and Alibaba, I was slow to realize that my thesis was flawed. With Canatimus, it just had an abysmal quarter. And along with other investors, I just had such a high degree of uncertainty about whether they

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

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

So my justification for using five to 10 years is just that it helps me hold on to stocks that I think can continue compounding. I think it's really easy to just sell a business that is doubled or triple in price with a thought process that you're just going to go out and easily find another business that can do the exact same thing. However, the reality I found is that it's just not that easy to find a replacement. And if the business that you hold has an excellent runway, there's pretty good chances that it can double or triple in value again. And I'm a lot more comfortable holding businesses that I already understand very well rather than replacing them with something that I know less well. So next is selling because I find better opportunities elsewhere.

This is probably my most common reason for selling. I rank my businesses from most attractive to least attractive based on my assessment of their future gains in intrinsic value. If I have a business in my portfolio that is just not performing well in terms of increasing its profits, then it goes to the bottom of the pile. Charlie Munger said, for an ordinary individual, the best thing you already have should be your measuring stick. So that means if I can find investments that maybe meet or exceed the best things I already have, then I'll add them to the portfolio and remove the ones that can't keep up. My entire selling process is designed to counteract very powerful biases. Confirmation bias.

and the sunk cost fallacy. So my best tool for commenting confirmation bias is just to continually seek out where I might be wrong in my thesis. My best tool for avoiding the sunk cost fallacy is to ignore what I paid for something and focus solely on the fundamentals of the business. I will definitely let go of my losers.

I have no problem doing that. And while it's tough to see that you've lost a position, I like to look at things in terms of opportunity cost. So if I have a loser, do I, you know, wait for that loser to turn or do I just sell it? and add to a position that I think is already doing an exceptional job. The answer is usually the latter. Let's now move on to portfolio management. So this is an area of my investing that has undergone considerable evolution over the last two years. When I first started buying stocks, I was finding

that the markets would move just so fast that if I wanted to add to my position, I had to make my starter position pretty significant just right from the get-go. So you have to remember this was in 2020 and 2021, which were years when the S&P 500 was earning very high returns, 18. and 2029% respectively with dividends reinvested. So, you know, you just had to move quickly on these names or else the price would just very quickly move away from you. Now, I don't think this is an occurrence that will probably ever stop. But I was managing my portfolio a lot, I think, out of fear that I wouldn't be able to add to a position rather than having patience and just leaning into my circle of competence. What I mean by that is that there were probably just too many

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

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

So I'll separate my process here into the two buckets. Let's start with the microcap inflection point because that's what I was just talking about regarding Paul. So the primary advantage of microcaps is that they often grow rapidly and they're relatively inexpensive. So I like using peg ratios for my microcaps as a strategy is fundamentally built on growth. So for anyone who's unfamiliar with the peg ratio, it's the price to earnings to growth ratio. So let's say a business has a PE ratio of 20 and is growing at 20 percent, then its peg is

just one, which is 20 divided by 20, which means that it's a pretty solid peg ratio, not super low though. So the lower the value, the better and the higher. the worst. You generally look for below one as being attractive and above one as being less attractive. So let's go over an example here. Let's say that you can pick up a business that's going to grow its EPS by 50% in the next year. Let's say it's a microcap, so it's got an EPS of just 10 cents, and it currently trades at just four times its trailing earnings for a price of 40 cents. So looking at year ahead, EPS is expected to be about 15 cents. Generally, like I said, a peg below

one is very good, although with a lot of the microcaps, I actually like looking for 0.5. specifically because that number offers a significant margin of safety as well. So in this instance, the company has a forward peg of only 0.1. So this is outrageously cheap. And even if we're incorrect about our growth estimates by 50%, the forward peg would still just be 0.2. Now obviously this is significantly below that 0.5 number that we're searching for. Now let's say the business increases in price from 40 cents to 50 cents after a very strong

earnings report and just confirming that our thesis is playing out. That's obviously a pretty big move up in price. But adding here is not necessarily a bad idea. If our thesis is playing out, it means the shares of the business could be priced anywhere between $3.75 and $7.50. I like to provide myself with a reality check on these numbers. Can the business actually trade at 25 or 50 times earnings? You'll need to refer to other companies in the industry to see if trading for those

numbers is realistic or not. Sometimes it's not, meaning you might have to assume it trades closer to a PE that's more in line with its peers. The point here is, you know, whether I buy the stock at 40 cents, 50 cents or even a dollar, it just doesn't make that big of a difference because I'm still going to make an incredibly adequate return. Now, the same principle holds true for my quality businesses as well. However, there's kind of a difference between the two.

So microcaps obviously experience these short flash in the pan improvements in earnings. But, you know, no business is going to sustain 50% EPS growth forever. What often happens in microcaps is that they develop an innovative new product or service that hits the market and just sells like wildfire. However, these advantages may only last a few quarters before competitive forces erode them. In my quality businesses, they have been operating for a significantly longer period of time and possess a lot of strong advantages that indicate to me that they're likely to continue doing so for many years, hopefully into the future. So a business like TerraVS is a good example. The business has been an exceptional outperformer for me since I acquired

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

just how you add to positions. Since I own several serial acquirers, I can be a bit more creative with this strategy. Since most of my serial acquirers don't have very high organic growth, they tend to grow primarily through acquisitions. As a result, there are specific points in time when unique arbitrage opportunities arise. 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 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

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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 the serial acquire arbitrage that I like is when a serial acquire makes an acquisition that isn't adequately reflected in the market. Let's say they make an acquisition that will increase their earnings per share by 20% over the next year. What often happens is that after the acquisition is announced, the shares will rise,

sometimes overshooting that 20% mark and sometimes undershooting it. The market rarely gets it entirely right. Now, there's always a risk and a hidden upside in these deals, so there's obviously a lot of uncertainty that's involved. However, sometimes the market is just so uncertain about these types of deals that it creates all sorts of interesting opportunities. So I mentioned earlier that perhaps the 25 times earnings is a decent price for one of these serial acquirers.

So sometimes what happens is the business will make an acquisition and maybe the price goes up just 5%. However, if I look forward to what I think earnings will be, the share price should have gone up much more than 5%. And the multiple actually ends up getting compressed downwards. In that case, that can be a very, very good opportunity to add more shares. As a corollary to portfolio management, I'd like to discuss the amount of holdings that I prefer to hold.

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

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

tend to be more volatile in terms of their share price. So for that reason, I don't put as much capital into these ideas. A full-sized microcap position is usually around 5% to 6% by cost basis at max. My opening position is usually just 1%. Then I add as the business confirms my thesis. When it comes down to what I'll allow a position to reach on an absolute basis, I have no issues with my positions exceeding 20%. I think I've had one position reached 28%,

which is the largest that I've ever seen. And I don't trim winners. I know this topic of trimming is kind of a hot topic, but the way I see it, if you have Michael Jordan on your team, you don't bench him when he's carrying your entire team. If you invest long enough for the businesses that are the largest in your portfolio are also probably going to be the businesses that have increased the most in intrinsic value. And I want those businesses in my portfolio for as long as they can compound

their intrinsic value. When I review the top seven positions in my portfolio today on an absolute basis, only one has underperformed as expected. So the total returns per annum of those five are 83%, 21%, 5%, 30%, 51%, and 20%. While I don't expect the returns per annum of some of those larger numbers to continue for extended periods, I think that those businesses are still actually improving quite significantly. Therefore, I believe their share prices will be materially higher in the next few years. One area of investing that I've come to understand more and more as I gain experience is the concept of a circle of competence. So it's a concept that when I first heard it, was kind of challenging for me to just wrap my head around. However, as I've invested more and more

as a generalist, I think I've begun to internalize what it means and its importance. So Monich-Pabroch is often asked, you know, what is a circle of competence? And his answer has always been to ask the question is to answer it, which I feel was an answer that made sense to him, but never really made much sense to a simpleton like me. So where I began understanding it was from two sources. So first and foremost was just my own reflections on the mistakes that I've made and why I made them. Then, when I read the first volume of the great metal models, I felt they did a really good job of breaking it down. So I discussed this book in detail on TIP 740, which I'll link in the show Now, let me outline the framework for the circle of competence from that book.

It's a simple four-part framework that asks a couple questions. So the first one is, what is your circle of competence? Next is how do you know when you have one? Then it's how do you build and maintain one? And lastly, how do you operate outside of one? So these questions are just great. And when you start looking at investments and decisions that you've made over the years, it becomes very evident what you know and what you don't know using this exact framework.

For instance, I mentioned earlier that most of my considerable losses have occurred in businesses where the thesis was broken. And in every single one of them, it was partly because of the final point there, which is how do you operate outside of your circle of competence? I often operate outside of my circle of competence. So I must ensure that I'm capable and willing to learn a great deal to invest into a new business. When I'm learning about something outside of my circle of competence, I have to ensure that I

understand the basics and find other people or sources who are highly competent in the those areas so that I can learn more from them and draw wisdom from them. While I think it's excellent to operate primarily within your circle of competence, it's also essential to just push yourself to expand. You just want to make sure that as you're expanding your circle of competence, you aren't taking undue risk. This is where the art part of investing comes into play, because there's just no way of systematically understanding when something is smack dab in the middle of your circle of competence or operating somewhere outside of it. Another area of the circle of competence that I've spent time thinking about is the inclination to learn about something. There are some businesses I've

looked into where I feel like I'm capable of learning about them to a level necessary to make an informed investment. But I also know that it's going to require a significant time commitment. You have to decide if you're willing to invest that time into learning something. You may or may not have the time or desire to do it, and that's okay. Just realize that you should take that into account if you are investing in something outside of your circle of competence. If you were to buy a stock with incomplete knowledge and didn't want to put in the effort to learn more, you're putting yourself at risk. So the next topic that I'd like to discuss is the geographies of where I invest in.

So I live in Canada. So of course, I have a home bias. But when I first started investing, I wanted to invest globally. So I held businesses from all over the world outside of North America in places such as Israel, Sweden, Poland, Japan, and China. I've experienced a mix of success and failure in specific geographies. The only absolute that I can say is that I'll never invest in China again. The rest of those countries are fair game.

I think investors should at least look outside of their own country to avoid home country bias. But, you know, when you're in a country that has just so many good opportunities, it becomes a lot less important to look outside of your country. So the thing that I like about my home country is that I just understand it best. And for areas that I don't understand, I also have access to others who can help me understand it. If I wanted to invest in countries abroad, I'm just not going to have that same access. And this is why investing in your home country is the concept that, you know, can kind of work for you. or against you. You don't want to ignore everything else out there, but you also want to ensure that you can invest in things that you understand. Let's say I'm looking at a SaaS business

that's in Canada and a SaaS business of the exact same type that's in Japan. There's a very good chance that I'm probably going to understand the Canadian one a lot better than I'll understand the Japanese one. If I had spent half my life maybe living in Japan, then those odds would change. So it's a very individual thing. And it depends on how much you're willing to learn about foreign countries, their culture, their government, their businesses, etc. Another important aspect of my investing philosophy is how I measure performance. So in one of my favorite books on Buffett, the Warren Buffett portfolio, Robert Heggstrom does a superb job of explaining why using returns isn't necessary the best way to measure performance.

Hegster makes the point that several great investors with excellent long-term track records have underperformed the index for short periods of time. So if we measure them on performance metrics like price, it can yield an inaccurate output. So what exactly does Buffett use? Warren Buffett once said, Charlie and I let our marketable equities tell us by their operating results, not their daily or even yearly price quotations, whether our investments are successful. The market may ignore business success for a while,

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

trying to search for maintenance cap X and having some trouble, that's not unusual. So in that case, you might just use the depreciation expense as a proxy, or as I learned from Philtown, you could use 50% of just normal CAP-X for maintenance CAP-X. So what I like to do is calculate owners' earnings for all the businesses that I have. I'll examine how that number has grown in the last year, and I'll provide an approximation for where I think it's going to be in the next year.

If owner's earnings is continuing to rise above that for 15% hurdle rate, then that means the business is performing well, and there's just not that much to worry about. Focusing on the operating performance of my companies has helped me keep my focus on the right things. In the age of information that we live in, it's so easy to get caught up in noise. Another way I try to avoid noise is through engineering and an environment that fosters inaction.

Many investors, both professional and retail, have environments that are set up to encourage them towards action. They might have things like large amounts of visual stimuli. They might have multiple monitors showing them charts. And more charts and more screens just means more noise. And more noise is a great way to motivate yourself to more action, not less. Then you have noise and alerts. These might show up as things such as constant financial news on TV, which provides a continuous

stimuli, making you wonder about new opportunities that are out there and questioning the decisions that you've already made. With the numerous apps available, individual investors receive constant alerts and notifications that inform them of stock performance in real time. Then there's social and psychological pressures. Things like Twitter, Discord, and Reddit and message boards are places where people love sharing information. But there isn't much of a filter on the quality of that information.

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

So knowing that I have my weaknesses to certain stimuli, I've tried to create my environment to counteract the four triggers above. The one I probably handle the best is visual stimuli. I simply just don't watch financial TV, like ever. The only time I see it is if someone shares a clip with me on social media, but other than that, I just don't tune in because it doesn't provide anything of value to me. Now, when it comes to alerts, I personally don't find this to be a big issue for myself. I get alerts all the time, especially on my businesses,

which tell me, you know, whether prices have decreased by a considerable amount. This allows me to put my cash to work really quickly. So without these alerts, I may not be able to place an order fast enough once the price normalizes. So from my observations just doesn't affect me very much, but I think that it has much more harmful impacts on other investors than it does on me. Now, when you look at the social and psychological realm, it's a very, very hard battle to fight.

So I receive a significant amount of great ideas and information from places like Twitter and Discord. I'm not participating in any of these, you know, buy signaling services or any of the stuff like that, which I think is very harmful for investors. But with Twitter and Discord, there's also a lot of noise on there. But there are also ways to combat it. First, you know, on both Twitter and Discord, if someone says something ridiculous, you can just mute or block them.

And that way, you won't be affected by their takes that just aren't helpful. There's also a psychological shift that I think is really important. You have to make your own decisions. You can't rely on others to make decisions for you. It's up to you to filter that information that comes in and decide whether you need to take any action with it. And I think 99% of information that you get doesn't require any action. The next philosophical principle I follow regards temperament and IQ.

I would be the first to admit that I don't have an above average IQ. So any advantage that I have has had to come from gaining a behavioral edge. I think I've discussed a lot of what I do to attempt to get that behavioral edge with you today. And lucky for me, I agree with Warren Buffett's statement. success in investing doesn't correlate with IQ. Once you have ordinary intelligence, what you need is temperament to control the urges that get other people into trouble in investing. So I try to gain a behavioral edge by, you know, just staying as rational as I possibly can.

To achieve this, you have to conduct regular audits on your thinking. It's just so easy with the power of confirmation bias to just come to a decision, then never revisit whether that decision or idea was the right one to make. Or maybe it was the right one to make at one period of time. but not the right one to make at another period of time. Whenever we buy a new stock, we're basically telling ourselves that the thesis makes sense and that the risk we're taking and purchasing the stock is worth the potential reward. However, you must constantly update your thinking using techniques such as Bayesian updating.

So every quarter that one of my businesses releases earnings, I'm updating my three-year probability way to return on those businesses. So let's say we're looking at a business and they put in multiple great quarters in a row. then I might take points away from the bear or base case and reallocate them to the bull case. Or if a business is maybe going through some issues that are making the future more uncertain, I'll take some points away from the bull or base thesis and reallocate them to the bear thesis. Is this an imperfect method? Yes, but it's still one of the best tools that we have.

So Silicon Valley futurist and forecaster Paul Sappho once said, Strong opinions, weekly held. I think this is a great mantra to remind myself of continuously. I would never put money behind a weak opinion. I need to have strong opinions to justify an investment. Otherwise, it's just not simply worth making. But at the same time, I must be willing to let go of views once the facts change. There's nothing wrong with being wrong.

Investors who have just too much of an ego to admit and act when they are wrong won't last very long in the investing world. Which leads nicely into the following principle, which is that of stupidity reduction, which I cloned from Charlie Munger. So when we look at avoiding standard stupidities, there are multiple ways to go about it. First, we can use Charlie's psychological misjudgments and internalize them to a high degree. Second, we can observe the failures of others, why they did it, and then avoid copying them. And then third, we can observe our own shortcomings, why we did it and then avoid trying to make them again.

Now, I don't think you should focus on just one of these. You should probably focus on all three simultaneously. If you can focus on points one and two, you won't risk losing money. But, you know, if you have to learn big lessons from making your own mistakes, like I do, the tuition is very steep, the lessons will be painful and vivid, but there will also be the lessons that probably have the most significant impact on you. One of the most significant use cases for avoiding standard stupidity is understanding that I don't need to be brilliant to achieve my financial goals. My businesses range from mundane industries such as trust manufacturers, discount grocery stores, women's retailers, water treatment specialists, and a quick serve restaurant franchisor.

However, I also have businesses that some people might find exciting, such as my version vertical market software businesses like Topicus and Lumine, or another VMS business that specializes in software use for exterior home renovations. While it may not be exciting to others, they're thrilling in one way or another to me, where other investors might get excited about investing in things, you know, like new technology that is constantly being innovated on in Silicon Valley. That just doesn't excite me. While I think changing the world is great, investing in pure story Stocks is just something that I don't have any desire to do. I do, however, like investing in businesses that utilize technology to enhance an already good business. Many of my companies

are utilizing technology such as automation to increase efficiency and reduce costs rapidly. That excites me. Many legacy businesses today are just using outdated technology in their workflows. They're the ones that are going to be left behind once their competitors can crush them on the margins by leveraging things such as automation. John Deere is an excellent example of a business doing things correctly. So John Deere was founded way back in 1837 and they're one of the oldest equipment manufacturers in America. However, they've done a remarkable job of innovating over multiple centuries, first with the mechanical innovations such as a steel plow and then with large scale farming equipment. But now they're moving from pure hardware business and actually

utilizing new technology to improve the value proposition of their product. They already have the attention of the farming industry, which has used their equipment for nearly 200 years. For instance, in 2022, too, they unveiled a fully autonomous tractor. Now they can go out and, you know, just tell a farmer that they don't even need to drive their vehicle, which obviously frees up a lot of time to do other things. I like this model. Many businesses have been gathering tons of data, which they can then repurpose and monetize to their loyal customers.

Alternatively, they can utilize automation to enhance the efficiency of their manufacturing capabilities. What I like so much about this is that in some businesses, it's just unlikely that competitors will have the means to afford automation to compete with these. other companies. So if you're a larger player who can afford it, your margins are going to be significantly better than those of your competitors, which are going to make it really hard for them to compete with you. These are the type of situations that really excite me. So while I'm not trying to reinvent the wheel with my investments, I like finding rational businesses that are already

turning a profit that can utilize technology, such as automation, to just really enhance their operations and provide them with a wider mode. To me, this isn't about trying to outsmart people. it's just understanding how businesses in today's age can gain an edge. So the final thing I'd like to discuss with you today is something that I've always found interesting when speaking with other investors. And that's mistakes of omission. So I view mistakes of omission in two ways. So first is what have I sold that I probably shouldn't have sold? And second is asking, what was I capable of understanding and buying and ultimately took a pass on? So one business that I should have probably given more thought to before selling out of my position was a microcap called gatekeeper systems.

So this business provides video and data solutions to the public transportation industry, mainly in the U.S. It was a business that I sold to buy something else, but the thesis hadn't really changed. It was a somewhat seasonal business, but it just wasn't wowing me like I thought it should have. I still sold this one for a 52% gain, but I would have done much better if I just held on. So I bought the stock for 33 cents in September of 2023, and as of August 21st, 2025, the stock price is $1.27. Had I held, I would have had a compound annual growth rate of a budget.

about 96%. So part of the reason for selling this one was the seasonality of the business. I was hoping that they would get some more momentum in their contract wins. While the company was getting better, it wasn't clear that it would exceed that 25% hurdle rate that I have on my microcap inflection point businesses. So even though it sucks to, you know, go back and look at what I could have made on that investment had I held on, when I think about it, if I went back in time and had the information that I had at that time, I think I probably still would have made the same decision. So a few businesses that I researched and pass on include crack and robotics.

So this is a company that sells a variety of underwater imaging equipment to several Western navies. So I learned about this business at about 65 cents in late 2023. Today it trades for $3.57. Next is Hems and hers. So I started discussing this with the TIP Mastermind community after I'd heard about it from some people on Twitter. And a few members on the community really ran with the idea, but I ended up skipping it.

For me, it was just a matter of time commitment. I thought I could probably understand it, but I'd have to spend, you know, 30, 40, 50 hours on the idea. I remember looking at it somewhere in the mid-teens only about a year or so ago, and it's $43 as of August 21st, 2025. Next is B-Ware Holdings. So they sell Internet of Things devices that can be attached to vehicles such as bikes and forklifts. And what they do is essentially just track their whereabouts for the owners of those assets. So I started looking at this business around 20 cents in 2023, and today it's approximately 80 cents. The last one here I have for you is Kitts EyeCare.

So this is a business that is a vertically integrated eye care specialist that specializes in e-commerce. I got the opportunity to speak with the CEO at a conference. I was very impressed with management, the company, and its growth story. And this was back in September of 2023. However, the company wasn't yet profitable, so I passed. The share price back then was $5, and today it's $16.50. So, you know, there's tons of oopsie daisies that I've missed and that I should have bought

and I will continue making these errors in the future. So the ones I mentioned, I could probably add another half a dozen. There's just, you know, so many ideas out there. And if you look at enough of them, you're going to miss out on a bunch of winners. The key is to figure out what you can understand well enough within a decent period of time. All of these businesses were ones that I think I could have understood if I'd been willing to put more time and effort into understanding them. Or I could have, you know, just started with the knowledge that I did know, taking a 1%

position, then added to it as I learned more about the business and observed whether they were outperforming expectations or not. But, you know, at the end of the day, there's not much of a point in beating yourself up over these things. I'd rather spend more time analyzing my losses and trying to make sure I don't replicate those errors that I've made. If I can continually improve my investing abilities by eliminating self-sabotaging tendencies, I'm very confident that I'll ultimately become an above-average investor. And that's really the overarching theme of my investing philosophy.

So that's all I have for you today on my investing philosophy. Want to keep the conversation going? follow me on Twitter at Irrational MRKTS or connect with me on LinkedIn. Just search for Kyle Grief. I'm always open to feedback. So feel free to share how I can make the podcast listening experience even better for you. Thanks for listening and see you next time. Thank you for listening to TIP.

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