Club Conversation with Joe Kaye, Small Niches, Big Returns

This is Club Conversations, powered by MicroCap Club. Our goal is to give our community access to the best minds in investing and business. I'm Ian Castle, founder of MicroCap Club. MicroCap Club is a private community of the world's best stockpickers. Since 2011, our members have profiled 1,500 companies and over 300 have turned into multi-baggers. That's at least one big winner every month for 14 years. If you enjoy finding great companies early, well before Wall Street pays attention, MicroCap Club is where you belong. I hope to see you in our community. And now a quick disclaimer. This presentation is for informational purposes only and should not be construed as a recommendation to purchase or sell any security referenced herein. Planet MicroCap Holdings, LLC and MicroCap Club LLC are not licensed brokers nor registered investment advisors. We, our partners, contractors, members, subscribers, guests or affiliates may or may not hold positions in one or more of the securities mentioned in this presentation and may trade in such securities at any time. I recommend you consult a licensed investment advisor, broker or legal counsel before purchasing or selling any securities referenced in this presentation. Welcome to the MicroCap Club podcast. It's a club conversation with Joe Kay, a former actuary who became a concentrated value investor. The CIO is compounded client money at close to 40% a year since 2023. We talk about why he moved away from special situations toward high quality low-dat businesses in niche industries, why he holds 10 stocks or fewer and two case studies, a semiconductor testing winner out of Israel and a leveraged Brazilian turnaround that fell apart. Let's get into it. Joe, why don't you say a couple of words before I hit you with the hard questions? Well, thank you very much David for having me on the podcast. I'm really excited to be here and hopefully I can provide your listeners with some value through our podcast, so I don't know if you want me to give you a little introduction. Sure, yeah, that's what's perfect. Okay, so Maths graduate, work 12 years as an actuary. So kind of got a very analytical and analytical driven view. Also have two amazing daughters, a wonderful wife and family and everything so I feel like good health, you know, that's basically all I could possibly want. And I guess in terms of like where does my drive for investing come from? Well, it's kind of like I grew up in a background with my family. We're always kind of a bit concerned about money and money was discussed a lot and I was always saying to my mom like, oh, you know, what job would make me a millionaire one day and that kind of thing? And I used to kind of go around and find money on the floor all the time, even in like telephone boxes found like money and change even once I found in a in a dark dungeon in France, I found a 50th Frank note and I was like, yeah, 50 or five, I can't, yeah, it was a big note. And yeah, anyway, I've always found money and been interested in wealth and that kind of thing that's kind of driven me to finance the financial world and investing in general. And yeah, maybe we can talk about the investment philosophy and the journey as you are. Yeah, sounds good, but actually, so you said you were in actuary sciences like being an actuary, how did you transition to investing? What was the catalyst or were you always like sort of interested in investing your own money? Yeah, good question. So I have always been interested in the financial markets and I've been following it and everything, but I'd never properly go into investing. And I was working as an actuary and it was during lockdown and you know, seeing the big financial crash and kind of looking at that and thinking, well, there's something going on here. Also, I had, it was a point in my life where I'd managed to save up a bit of money. So that was the first time so I could then actually start thinking, well, maybe I should invest and maybe I should take this quite seriously. Just the passion for it just developed over that COVID period. I just, like in the first, in the first year in 2020, I read about 50 books, I just audio books, after audio book and like loads of reading, I just became basically obsessed with investing and I used to kind of had my first baby then and so I used to go down like four or five in the morning, sleeping baby on my chest and then listening to all the kind of investing, audio books and everything. I just got the absolute bug for it and ever since I've just, you know, you can't make me stop basically. So yeah, that's a pretty efficient way of learning about investing. So yeah, tune one, putting the baby to sleep and listening to some investing books. Yeah. And also say that I also worked with another actually who is a colleague and close friend of mine and we started reading at the same time and getting him interested in investing and it was great to have that kind of dynamic of, I guess the Charlie Munger Warren Buffett type dynamic where we could really be kind of sparring partners. We had similar amount of knowledge and we egged each other on it, it was like competitive. I've read this much, I've read that much, yeah, super smart guy. So that really helped push my learning as well. So I think, yeah, it was a great, great experience. Yeah, it's always nice to sort of have someone to keep your countable and a little composition doesn't hurt. So yeah, that's, that's very interesting. And how did your strategy evolve over time, I'm guessing you started out with something and then you evolved to something else, at least that's what most people, I think it's very rare that someone just lands on the right perfect strategy right away. So yeah, tell us a bit about that. Yeah, 100%. Yeah, it's all about evolving and learning from your mistakes and learning from others. So when I started out, you know, all was just crazy and just coming from a logical point of view I was just thinking, how can the price of oil be below the price of production of oil? That doesn't make sense, that means there's something wrong here. So I actually made oil a very big position, that was my first big position, made decent money on that, which was great. So that was my first big kind of position. And then I was reading a lot and then what really kind of hooked me was Joel Greenblatt and all the books that he wrote and also those fantastic course notes from the, what's called that business school, the Columbia Business School, absolutely just incredible with the stories. And yeah, so just got that was like, okay, well, this is my style, like this is what I've got to do. And obviously read the early Warren Buffett partnership letters and that kind of thing. You know, they're quite closely aligned with the concentration and looking where others don't look. And I thought, you know, special situations is a really good way to get a really nice return with a kind of market agnostic low beta return. And so I was doing a lot of the special situations and actually I realized that that style didn't actually work for me very well. So I do still have some special situations, but the part that didn't work for me was turning over rocks all the time. So you get a special situation, it's got like something will happen at this day, either happens or it doesn't, but either way you're going to sell and then you're going to have to find the next one to recycle the cash into. And with other commitments, I just like that, that took up too much time. So I was like, okay, well, I've got to find a better strategy and I, but then I was kind of, okay, more, more value investing focused and then I was looking at kind of just anything that was great value, kind of looking at Joe Greenblatt's magic formula and coming up with a version that I liked, but the, I think then I had another development in terms of my investment philosophy, which was in, in the beginning of 22, I invested in a tento and that was by far my worst investment and I learned a huge amount of lessons from it that really pivoted my investment strategy away from just any business that's trading cheaply that might have a catalyst or something like that to know I actually want a really high quality business that's trading cheaply. And that protects the downsides so much better. So it was, I think before I wasn't, I knew obviously downside protection is the highest priority, but I didn't really implement it back then. And now I'm very, very focused on downside protection and that is an absolute must. So, you know, when, when you're making, I still really like a highly concentrated portfolio, when I'm making these big positions, I can't have high leverage or I can't have poor management. There are certain things that the quality of the business is super important for me now. So it was a big shift there going into like 2023. Yeah, that's, that's sort of a very logical progression. And I totally agree with the special situations are, I think that it's great that you have sort of a black or white, most of people that are into investing like maps and things that are certain. And I guess special situations give you some certainty or at least a, it's more objective. But yeah, also few hours from experience. that it's quite hard to build a full portfolio of special situations because otherwise you'll just be always chasing the next stuff, especially if you have other commitments and so I can relate to that. Yeah. So that's quite interesting how you started investing and the progression. But can you tell us a bit about your progression in terms of career as well because I know you're you now are a CIO. So I'm guessing somewhere you quit your previous job and you've went all in into investing. So yeah, that would be interesting. So it was a gradual transition, you know, I had a new family, you know, I had a very well-paid job in Actuarial. I was consulting at my limited company and it was very easy work for me. So it was, you know, it was a difficult one to leave but I really wasn't loving it and because I'd found the true passion of, you know, investing and I felt like I could do much more. Actually at the same time I started working with with another firm trying to do some kind of equity research on the side on top of my existing Actuarial job and then I also started doing the financial advice exams to qualify as an independent financial advisor for my family's wealth management business. So I was kind of doing three jobs at the same time and I'm keeping going the wealth management business as well. So that's, you know, kind of happening in parallel to the portfolio that I run. So it was a transition of, you know, I want to make sure I've got good earnings carrying on well before I quit my, my, like previous career. And I think that's important for people that are thinking about potentially quitting their career is that it does take a long time to get established then to start earning an income from doing what you love and I think you can always find time in an, in an career and life. You can make time for doing that on the side until it grows to a position where it's, it's meaningful enough to quit the other one. So yeah, it was a big transition and yeah, so then I was managing family, friends and family money for a few years, three years, and then I started to take on outside client money. So I've been in that for the last three years and the structure that I've been running that is a separately managed account service. So, yeah, I've just been running that and using this, particularly the new strategy since 2023. That's when I started, like properly managing other clients, you know, clients money. And that has, I mean, it's been a bull market ever since, but I've had some exceptional results from that. And it's kind of, it's got to the stage where I've really built confidence in the process and the investment philosophy that I have. And I'm now kind of ready to open up to more people. So in the last kind of month or so, I've been saying more prominently to people, I'm running this service. Once I've got to a certain size on this separately managed account service, then I'll have the asset center management to kind of roll into a standalone investment fund. So I'm looking at structures now because I've pretty much got to that size now. So this is a bit of a transition point for me, but basically I've got really comfortable with where I am and what I'm doing. And now I'm ready to kind of, I've got that three-year audited track record of managing clients money. That's enough to kind of really push forward and start a standalone fund as well. So that's where I am. Yeah, that's really interesting. And actually, I'm very interested in the structure of how it works in the UK and stuff, because Uniparticle is quite difficult to open up a fund. And I don't even think there's like the SMA's option. How hard or easy is it to start like managing separately managed accounts? How is the exam process like of becoming a financial advisor? And now what are you seeing terms of opening a standalone fund or like looking at the structures? So with the SMA structure, I think I haven't explored that fully in the UK. I think it is possible and there are like umbrellas that manage that. But I was very fortunate in the fact that my family's but wealth management firm deals with a company called Albert E. Sharp and they are a regional stockbroker. The very established and everything. We had an existing relationship with that firm. I got to know the founder of the firm and put a friendship and great work in relationship. He kind of became a bit of a mentor to me. So then he said, look, you can run your structure on our system. Then I don't have any of the, I have to think about compliance, admin, et cetera. And he'll take care of that. And he basically trained me up. And then now I'm, you know, qualified to run clients money. So so that is running on like a discretionary management basis. And then like in terms of looking at what I can do next, I'm looking at kind of Isle of Man structures, the Jersey, Luxembourg, even Cayman Islands for the US. So I'm not clear on where I'm going to go. But it is very difficult to set up your own fund. And I think you need at least 10 million of assets under management before even thinking about it. Because really, they want to get you to 20 million to make it feasible. So it's tough. It's not easy at all. Before we get back to the program, I have an invitation for you. I'm Bobby Kraft. And I want you to experience our in-person life events. We bring many of the companies and guests you hear on this program directly to you in Las Vegas and Toronto. It's where the microcap community connects and great ideas are found. Don't just listen to the conversation. Be a part of it. Secure your seat today. Head over to planetmicrocap.com right now to register. See you there. So before you mentioned that now you focus a bit more on the outside and high quality businesses. And you want to make those like your biggest positions, right? So why are you comfortable like having such a concentrated portfolio? And what does a concentrated mean for you? Because for some managers like concentrate is like 30 positions, 40 positions, something like that. But I guess you've raised a bit different. Yes. So concentrated for me means less than 10 positions, or 10 or less. And so that's kind of where I try and go. The reason why I like 10 or less is because it allows you to focus on your best ideas. You can put much more time into those 10 ideas and really get comfortable with them. And I think that helps with the conviction and holding them long term even when there's volatility. Also there's I remember reading a study that the as long as you're kind of diversified in terms of sector and geography and that kind of thing. Having seven stocks is like where you get the most benefit of diversification. And then the benefit, the marginal benefit of diversification dramatically falls after that. So in terms of a diversification benefit, I think going to 2014-50s is kind of like not adding much in terms of diversification. And I would prefer to allocate much more to my best ideas where I feel like the downside is lowest than kind of track 20 to 30 businesses. So I acknowledge that less than 10 is very concentrated. But if you look at how Warren Buffett started or Joel Greenblatt, they did exactly the same. So if you want to try and maximize your winners and basically swing hard on a fat pitch, then I think that's the way to make outsized returns. And I think the only caveat to saying I love concentration is that downside is super important. It's not just a bit important. It's like the people in Endel. So I do everything in my investment philosophy to strengthen the downside and have it kind of skewed to favor being on my side in terms of the outlook and holding the business. And we can go into that more detail if you want. Yeah, sure. Let's stay into it. So investment philosophy. I mean, I don't know. I know people don't like talking about performance. Generally, and I don't want to like just, I think it's worth saying that the performance has been very good because I think when you, you can learn a lot from a lot of people, anyone can have a really good idea and they can present it really well. But when you're talking about like portfolio construction or investment philosophy, I think for credibility, you want to know that someone's got decent returns and that they're actually beating the market. Otherwise, it's kind of why am I listening to this? So I just, I don't know if it's worth saying, but over the last six years, since I've started, I've had kind of just over a 40% kega and since I've been managing clients money in 2023, that's worked out with my longest standing client that's 39.5% kega. So it's a consistently working strategy for me and it's not the only strategy and there are tons and tons of ways it do really well and that's not really the point but just to highlight that this has worked actually very well for me. So the so I guess the investment philosophy is there's a few there's a few kind of key points to it. Just look at my notes here. There's like kind of low valuation. It's just the key. So you can't for me, I can't start a big position without it being cheaply priced. So I'm looking for like under 10 times free cash blow but like hopefully closer to six or less. So you know really really underpriced and then I'm looking for a situation where there is growth there and maybe it's like an emerging segment in the business that's growing that hasn't been priced in. So I don't I don't like paying for growth. I think growth is great and I think that's the way to make big long-term gains but I don't like paying for it because again that's a downside protection. If you're paying for growth and the growth never shows up you've got a big downside. So I don't like paying for growth balance very cheap. Let me just jump in for a second. So when you say I don't like paying for growth is it? So for example when you value something do you look at the forward like bottom like ebid or free cash flow or something to figure out like the multiple or do you just look at trailing 12 months what does it mean not paying for growth? Yeah so if it's trailing 12 months it's cheap on that basis then the growth isn't priced in right because you know like maybe we might talk about this later but you know when I found quality which was growing is growing quite fast and with high margins but it was priced trailing 12 months of six and a half times earnings. So you know growth was not priced in but you know that's an extreme case and there aren't many that are like that and they don't stay like that for long if they are ever like that but you know those are the kind of dream setups that I look for. And I do you know make exceptions I can't find these kind of setups all the time so then I have to just go okay well it's cheap but it's not super cheap. Make them paying a bit for growth you know on a on a on a forward basis it looks cheap blah blah but really it just you know I'm looking for my dream setups basically. Balance sheet so again because for downside protection I like very low leverage so ideally no leverage and even net cash is pretty good because then there's a potential catalyst for you know return of capital and improve capital allocation so you know if you're making a big position it's highly levied that's a very bad idea and I've learned that the hard way unfortunately so that's one of the key ones industry tailwind so like when I was looking before I was thinking you know I it's really cheap but you know there's all sorts of problems with the business but it doesn't matter now I'm like okay well I want to be in a tail I want to have an industry that's in a big strong tailwind I don't want an industry and decline because in a declining industry you more than likely to be surprised with an unexpected problem whereas with a with a tailwind industry the surprises are often favorable and kind of all boats are lifted with the tide so I much prefer tailwind industry there's another one which is stop me whenever you want to dig in if you if you want but um sure yeah the next one is like a small niche so I think a lot of people say oh you know I want a massive term and everything and I'm like no much prefer a small niche market leader in a small niche is got a way stronger competitive advantage and the reason why it's got a stronger competitive advantage in a smaller time is because you don't get big players going oh well I have a piece of that pie you know you don't get like outside caps are going I could do that and bring down you know the average earnings of the the whole and you know often with these small niches you get some really like people don't even know these types of business exists and they don't think about you know like testing semiconductors you know with small microwave ovens and stuff like who who thinks about that kind of thing but there are like maybe five or six core players and one of them got a decent market share if you wanted to enter that kind of market you'd have to spend serious money and it wouldn't be worth it because they're making you know kind of small revenues and small profits so again that's quite a nice natural competitive advantage that I think sometimes people overlook that and again that's protecting the downside the other thing is that goes with that kind of competitive advantage is high operating margins so I don't really like businesses that are capsule intensive because they typically come with like low operating margins and then you know if something goes wrong in the business make them quite easily turn to a you know a loss whereas you've got much much more margin for error if you've got a high operating margin and you can see it gradually decline maybe and then you can give you time to get out but you know also another thing is that the high operating margin gives you a real indication that there's there's real pricing power there there's real competitive advantage it's not a guarantee but it's a nice indication the other thing is you know you know it's all important to look competitive advantage for obvious reasons like pricing power expertise switching cost reputation scale now there's all sorts of things that go into competitive advantage but I don't think it can add much value there and then the recurring and consistent revenue I think that's super important so like although it's great to buy a cyclical a downturn and you can ride that and that's fine although you can also quite easily be caught out by cyclical and get caught up in the hype of oh it's completely different this time and the earnings are going to grow forever and everything is it's here to stay but what I really like is looking at a business that has a really long-term track record of just like steady earnings going up and up and up no fluctuations you know like it just shows that there's what what what consistent revenue really shows is that you've got a sticky customer base you've got really dependable underlying demand there that's continuing and that demand is increasing so I really like that's one of my big refinements that I've made to the Joe Greenblatt magic formula is that actually one of the things that I rank higher in that formula is consistency of earnings revenue growth and it's just it's just such a great indicator I think and I don't think maybe some people value that high enough and you're basically describing like the holy grail investment where do you usually find this type of opportunities both in terms of market cap range markets like countries geographies and industries like where have you found the most fish so to speak using the fisher fishermen yeah yeah no you're absolutely right it's it's the holy grail of investing you know you find something that's low downsides got growth is cheap like you know it takes all the oh one of the key things was also quality of management which which I've learned from in in the past is a bad experience but quality of management is super important and also having alignment with management with skin in the game so like I quite like found a led business but just any business that's run by management that have skin in the game is is great among us you know focus on Charlie Munger's focus on the power of incentives is absolutely right I I take that one very seriously but yet like obviously it is a dream to find these but they do exist and I know they exist because I found them but I haven't found them from like following other people or like reading online I found them from just using my screen and going through and sitting down you know Joe Green that's magic formula gives you a great starting point I think because it just focuses on earnings power and quality and that that filters out a lot of businesses but you still get a huge amount that just rubbish for one reason or another and I you know I think I'm a treasure hunter I love finding things and I will happily sit down for six hours solid and just go through a screen and just go through all the the companies and quickly kill the idea as quickly as possible and then move on to the next one and I can go through like hundreds in a session completely forget the world and come up with maybe like two or three ideas that I want to research more in detail later and I love that process and I think if you want to find those kind of things you've got to love sifting through loads and loads of just scrap companies to eventually find something like that and I think you know people say all that that doesn't exist or whatever it does exist and and it sometimes it exists for strange reasons but it doesn't exist for long as well so I think you know when you screen you get a snapshot and you may just get lucky and find one that's just suddenly trading it over ridiculous multiple whatever and yeah that's that's how I found my best ideas yeah yeah for sure and I think that also sort of filters out the lazy people because most people will be either following what other people do or like looking at 13 apps and at least That's what I did when I started out, and I thought it was so simple that let's just model what the smarter is people are doing or what? The smart, I wouldn't say smart as people, but the people that look smart, which is not necessarily accurate. But yeah, I think there's value into sourcing your own ideas. But in terms of like just managing your own time and stuff, have you been able to source 100% of a portfolio just from like turning rocks or you also look at other people for inspiration and so on? Yeah, so I have like a curated list of investors that I admire that are operating in a similar way to me. And I think I have had a bit of a bias for what's the word invented here by us? I don't know if you know that but it's like you have a strong preference for your own ideas, even if someone else is doing something really good. So I'm aware that that's the trait of mine, and I want to count that by just going, okay, well every time there's an investor that I really like and gels with my philosophy, I'm going to read the thing and give it a proper read through. And I think one of the reasons why I've tended to prefer my own ideas is because a lot of other people have different strategies. They're optimizing for different things in like, for example, some people turn around and leverage is fine, but that doesn't work in my strategy. So even if they're great investors, it doesn't actually work for me to use their ideas or to even research their ideas. And so I kind of felt like I should just not look at other people's ideas. I should just focus on what I do. But actually there are some investors that are very aligned to what I'm doing and looking in the same similar places. And I think it's going to be, as you say, more efficient to research other people's ideas and there's some very, very smart people out there. And I know that you guys do microcapped club as well. Yeah, yeah, basically that's the idea we all share the ideas with each other and yeah, can you name a few of the investors you really admire? Yeah. So Daniel Smokes, Smoked Capital, the dirt cheap stocks. Excellent. How is actually a bit of a different style invested in the maybe we both invested in quality and that's kind of how I'm and there's a few others I need to get a list. Yeah, I think freeze already food for thought or at least some, yeah, some ideas for the people to look for. And I do know that psychology is very important for you. Tell us what role it plays on in your strategy and yeah, just personally worry so focus on psychology. Yeah, okay, that's a great question. So yeah, I'm super focused on psychology and human biases and I think everyone knows and investing that human biases play a huge role. And being aware of them is the first step to actually doing something about them. Also, the whole investing journey is like all about learning and about growing and about understanding the real world, having a clear picture of reality, the more clear picture you have of reality, the better your seed things. And so, so there's a whole journey, basically, so is it for me, it's a personal journey investing, it's discovering what is about myself and how I'm made as a human being and what drives me. And understanding that helps me counter the biases. You know, there were some core biases that I uncovered in one of the big mistakes, which was my, my tento experience, which was my worst experience. And that had a whole array of human biases that, you know, I realized in myself and on kind of analyzing afterwards. And that is just a huge area for me to learn, learn from, you know, I mean, guess one of the main ones was confirmation bias, but there's also like FOMO as well as one of the kind of things I struggle with sometimes. But it's like looking at what you struggle with and kind of figuring out first realizing what is that's causing these ways of behaving and then it's doing something about them. So coming up with strategies to be aware of them and step back and then do something logical rather than just, I think the temptation with emotions and with human psychology is that if you're not aware of it, you react. So if something makes you angry and you just can't take a step back and rationalize, you just act angry back, you know, like you just react to something. I think, you know, with investing, you know, the market is driven hugely by human reactions by the way people group thing and the way, yeah, it's all these human biases combined that really move the market. And if you can be aware of that and aware of your own kind of thought process and stuff, then you, I think you have a big edge over the majority investors if you can really analyze your own biases and kind of counteract them. Okay, so I'll hit you with a hard question, how do you solve for what I'm called for formal. So FOMO is like a really big one and this one has been bothering me for a while and it's actually a FOMO is actually like a lot of loser effect, you know, Charlie Munger kind of coined, which is, it's a whole fusion of different emotions that when they combine, they're like a concoction. Of a potent cocktail of kind of drugs that knock you out and make you react. So it's not just like one emotion that's driving that it's multiple. And I think once you realize that there's, there's multiple there, you can kind of look up how to counter each one. So one of the things that I was saying was, so I would say it's regret avoidance is one of them. So you don't want to look back and think, I saw that and I did nothing, you know, like, so stupid, I should have done something. There's scarcity bias. Well, it feels like this opportunity will never come again. Like, you know, this is, this is my chance. And also the feeling of others benefiting and I'm not comfortable kind of bias there's basically you just see, you know, everyone else is going to do really well. And I'm just going to sit here and do nothing. Yeah, whiskey envy envy. Yeah, exactly. And then all those combined together and it kind of causes you to rush to make a decision because it's like, well, you know, there's, there's all these competing thoughts. They're all driving me into a direction of got to do something about it. And so the real issue with photo is the drive to do something. And so if you can counter that drive to do something and go, look, what I'm going to do, this is, this is how I try and counter it. And I'm not saying I'm perfect, but this is, this has helped me for sure is actually just spending time writing it out. Write out in detail what my thoughts are on this investment. It highlights it. Organizing writing is incredible anyway. It organizes your thoughts. So if you can organize your thoughts, you can clearly see what you do know, what you don't know and what you're not sure of. And you can then start working through that. Just in writing, it's again with any human bias. It's a pause taking a pause, you know, like if you're stressed or whatever. Just take a breath, you know, and that that pause gives you time to come back logically rather than react. And so writing is a really long pause because you've got really long time to think about it. And if you don't act before you write, if you make sure that writing is first, that's a really nice pause. And then I think that's the main thing, but then also kind of looking at technical analysis as well. And I know people think what, like you're a fundamental guy, why would you look at technical analysis, but again, technical analysis is primarily driven by human emotions. And in particularly microcaps stocks, you have the marginal buyer, you know, like I just give you an example, a small cap Japanese company is got low or no institutional ownership, it's owned by retail and largely owned by Japanese retail and Japanese retail typically like technical analysis and momentum trading. So the marginal buyer there is actually using technical analysis and that has a self fulfilling prophecy of, you know, driving up the price when it's going up and selling off dramatically when it's going down. If you just look at reality, that is the reality, not saying that I agree with that, I don't think that's the right approach to investing, but that's definitely what's being happening in those markets. So if you can go, OK, well, I'm going to wait for my entry point because if they think technical analysis is right and self fulfilling prophecy, I can take advantage of that too. So definitely not buying falling knives is is another thing. But yet also not not buying the top as well, because, you know, once it reaches the top, then there's probably likely another little volatility dip to take advantage of so. That's probably the yeah, that's in summary, how I deal with FOMO, OK, perfect, so we'll get back to this, but before that. I want to ask you for 2k studies, which I think is the best way to sort of wrap up your investment philosophy and really understand it in a practical sense. And so, tell us about the success you have you've had and also maybe a failure that you learned from. Yeah, so start with, I mean, I'll start with the success because it's just easier. Okay. So, the success that I'd like to talk about is quality. It's a small micro cap. When I found it, it was trading at 85 million something in dollars on the Israeli Stock Exchange, the TSE and it tests semiconductors. So, it creates little ovens that test the quality and efficiency of semiconductors. And that's very important for, you know, the manufacturing process of semiconductors. And they they had listed in Israel, the management as in Israel, but the main operations are in the US and Asia. So, they are, I mean, I think they make most of their stuff in, in the US. So, looking at that is again, it's in a niche. Not many people make these kind of things that highly specialized. They've been running for many, many years. And, yeah, they're very high margin. There's also, they're not only do they sell these individual units, but they also sell the service to operate those units and have people come out and test the use the units to test their semiconductors on site. So, I thought it was a fantastic business. And it kind of checked all the boxes that I'm looking for now in my investment process. You know, I probably don't need to list them all again, but it had it all and it was trading at six and a half times cash-adjusted earnings. So, it had actually had like 30% of its market-capping cash, just because it had grown recently and just made a lot of money. And I think one of the reasons why, I was looking in, I was thinking, why isn't so cheap? Because it like, let me just get the figures up. So, in 21, it had grown, revenue 29%, and then in 22, it had grown revenue 43%, and operating margins had gone from 20% to 35%. So, it was like growing high margin business. Why is it possibly trading at such a cheap valuation? And that just like kind of completely shocked me, like I was just like, I must be missing something. And you know, one of the things is pretty obvious is that it doesn't have any IR presence, doesn't have any analysts. All of its reporting is in Hebrew. So, I had to translate, I don't speak Hebrew, I'd translate all the reports and everything. That's a bit of a barrier. Again, like Israel isn't a market that's particularly analyzed that much. And then also, it had been trading for a long time. It had been trading with not that much growth, for those only the last five years that it started growing because of some kind of reduction in demand for semiconductor and stuff. And I think people would also see, it's a semiconductor related business, it's cyclical, maybe they're earning well now, but it might not in the future. But I thought that this was actually the beginning of a quite a big bull run of semiconductors because of internet of things, these data centers, blah, blah, blah. So I thought, you know, the growth is likely to set to continue. But I just couldn't really figure out why it was so cheap, but basically no one was looking. I was working to Israelis and they're like, I had no idea this thing existed. Yeah. You know, it was, it was a perfect setup for me. And you know, all the backlog of like, one of the really good things was it had a really clear order backlog. So every time one of you contracted would report that, I had order backlog of like 28 million and then it went up to, I think 54 million by end of 23. So it starts to really end of 24 maybe. It starts, yeah, end of 24. It starts to really, you know, grow even while I was holding it. But when I found it, with with such, for me, low downside because of the cash and the growth and the industry and the whole, the margins, everything that kind of ticked all my boxes, it was my ultimate fat pitch. And so actually, you know, we talk about concentration people will find this probably mind blown, but or stupid. But I put 30% of my portfolio into at the start at cost. And my reasoning is, look, if I find these kind of opportunities, putting more in is kind of not comfortable for me and probably not good risk management. But 30%, you know, if it gets cut in half, I'm all right with a 15% drop in portfolio value. But and I can exit. If I put in 30% and I later on a few months keep on researching, decide, don't like it, I can sell it. You know, it's not, it's, you know, I may walk away with the, you know, 10% loss or something, but that's a 5% loss. That's all right. But, you know, when, when I see something that's really, truly amazing, I want to make it count. And one of the things that I've experienced with that was it's so large that, you know, it started to do really well. And then it became from 30% it went up to like 66% of my portfolio. And then I was like, this is too much. I couldn't handle them and meant, I couldn't handle it mentally, but also it's just not good risk management. So what I'd realized and this helped me define my process was you can make really big concentrated bets at cost. But you need to start trimming as the thing grows. As it kind of gets noticed and as the multiples start to expand and grows starts to get priced in, your risk reward is getting worse. So I really like having the most, the most concentrated when the risk reward is best. And then even if it's doing well, thesis isn't breaking, just trim, just trim regularly. And you get to keep your winner because it's still, you know, you still get a meaningful position in there. But just taking some off putting into other positions is for me good risk management. And then it got to a stage where it was up five times since I bought it. And then it started to really price in growth. And I wasn't comfortable with that. And I'm looking back on hindsight. It was up five times, five hundred percent up. And I found another much better opportunity. It was the sand tech holdings. And that was almost identical, very, very similar setup. One of those kind of miracle stocks. And I just decided to completely sell it at five times and move it after trimming quite a lot up to five percent out of five hundred percent. And I sold it. And then I recycled profits into sand tech. And I think learning from it, it went up, it doubled from there. So it would have been a 10X if I'd have held onto it. And I think learning from that, I probably could have kept some of it and just taken bits from other positions to fund the sand tech investment. So maybe that's a bit of a learning there that is just not completely selling all of it, even if the multiples do expand quite a lot. But actually in reflection, the prices come back down a bit since a year later since I sold it. And the reason for that is that actually the growth stops coming as much. It didn't meet expectations. Management didn't report that very well. And so actually, you know, in hindsight, it was a good thing, but you know, there's small adjustments like, but yeah, it was just a wonderful pitch and yeah, it worked out. Perfect. No, that's a really interesting case. So let's get you into the failure. Yeah, so the failure. It's difficult to talk about failures, I think, because it feels embarrassing. It feels like you made a fool out of yourself to doing it. But I think it's very important to talk about failures and also to learn as much as you possibly can from failures. So you know, this is really your failures are your price of admission for your tuition of the market. And when when I had this big failure, people, you know, some momentals were saying just get as much out of it as you possibly can spend really good time writing it down, learning as much as you can. And actually, that really did shape my new philosophy or evolved my philosophy of investing in a really, really positive way. It basically, it's a tento is a CRM and, you know, BPO, kind of business process, BPO was the acronym example, but basically like a big call center and that kind of thing in Brazil listed in the US. And it was a turnaround. It was highly levered and the turnaround was working. They had new management in place. There was also, it was kind of a special situation where there was three big private equity firms. They ended up owning the majority of it together combined. And with the PE funds, it looked like they were, you know, getting ready to sell it because they'd held it for too long. They take the, well, try and turn around the business and then sell it is kind of the thesis that I had in mind. And it wasn't about thesis, but it required on, the thesis required management to keep on executing on the turnaround. And kind of the economy to stay stable. And it was just, there wasn't much margin of safety really with the leverage and turn around is actually just very difficult and the other thing is that it wasn't a great quality business. The margins weren't that high, I think they were like 14%, or like there may be 10%, going up 14%. It just wasn't a great business to make a big position and I didn't actually make that big as it began with, but then I just made a series of errors. So the first thing was it had a cyber attack and on a cyber attack I think the price dropped like 20% immediately and I just thought the cyber attack might cause 10, 15 million damage but it dropped maybe 80 million market capital something and I thought well that's the market's oversold that, but I did also note that it had broken my thesis. So my thesis had broken because with a cyber attack firstly you don't know how much it's going to cost but secondly it's going to delay any sale of the business because no one is going to want to buy a business that's just had a cyber attack. So that's really pushed out my kind of catalyst. I should have just sold it then and just been like take the hit, the market may have overacted but it's broken my thesis and as soon as I think that's the first lesson is if your thesis gets broken sell it you can always come back to it but if your yeah if your thesis gets broken sell it I think it's that simple. And then so then I carried on cyber attack was actually much more potent than I the first thought they did have insurance but the insurance didn't cover that much and then it's got like further business impacts on the business with a cyber attack or some other big event which again is another lesson. You have a big event and you don't immediately feel the impact of it or the business doesn't feel the impact of it immediately there's a lag so you don't really know how big this thing is going to be and the lag turned out to be quite long and how further impacts then it came out that they had done a really bad so that they put in this hedge management of putting this hedge to it was it was interest rate so it was it was a currency it was trying to protect the currency so they borrowed in US dollars and but their income was in real and in Brazilian real so they were trying to protect that so but they couldn't find a currency hedge so they used an interest rate hedge instead interest hedge swap and like they're just you know some I can't I can't believe that that was signed off but I actually didn't notice it in my initial due diligence of the business that was there and it went seriously wrong hundreds of millions wrong because what happened was the hedge was struck at when interest rates were low in kind of the covid area era and then Brazil had huge inflation and and hyped up their interest rates from like I think it was like three five percent or whatever to like ten twelve and it just added dramatic impact on this swap and any capital and they kept on getting worse and you just get thought think oh they're going to reduce it now they're going to reduce the interest that they didn't so when you've got and when you've got a lever business you're actually completely gets wiped out by such knocks you know you've had the cybertap then you've had the the hedge that's went wrong yeah it's in hindsight it's obvious but you know in the thick of it I was just seeing like oh well you know the market selling off to heavily it's too punished it says that there's that kind of thing is trying to think why is it down so much or maybe it's because illiquid maybe people are windowed dressed then getting rid of it you know people suffer all sorts of reasons etc just it was massive like confirmation bias looking for reasons for why actually it was still a good investment and one of the things that I you know admitted in my writing was that the the downside had got bigger and more likely but the upside was much higher and so the risk reward was still decent and that's just such a like delusion that you know you can't make a big position out of something in the way the downside is is increasing in likelihood and increasing in size so but anyway I doubled down and doubling down was just an awfulness day just compounded the issue and it also made me so heavily invested in the business mentally and psychologically and then I then I made other bad decisions you know like set up meetings with management CFO CFO such a nice guy he was like you know there are risks but it's all going to be sorted but I just kind of kind of heard what I want to hear and I spoke to board members I spoke to other investors I was super impressed by other investors and I think that is something that you particularly when you start investing is you see some investors that have got a great track record and that helps you give you confidence you know like well they're doing it so it must be good and but that's just just shouldn't hold any real strength at all but you know I kind of became a bit enamored with the stock and with the people that were in it and and that just gave me a false sense of security and then you know just not looking at the market you know it was continuing to sell off the bonds were starting to trade a big discount it's the bond so and and again like I read like loads of books on distress they're investing and everything these guys who are doing you know the bond valuing in the credit market they're super sophisticated they have you know particularly the guys that have got big stakes in the business they have inside information they know like they know way more than I do as an outsider and if they're they're putting a big discount on the on the bonds then that's serious and I just thought oh well you know this is an opportunity for management to raise the money and buy back the bonds and at discount and create massive equity value and it just it was just such what it was potentially true and like you know in a different universe it could have worked out maybe I'm painting this in too harsh picture but the real real lessons are you you can't make a business that's got leverage and and real chance of bankruptcy a big position you know fine as a speculation and that if that's what you want to do but I just couldn't see it I think my judgment had become so clouded by all the kind of things that we've gone through so far like I couldn't see it and I think that was one of the reasons why I really decided that human biases are very very important part of your investing process and being aware of them and then having the ability to step back and take stock and do something logical is super key so that that is basically my journey with a tenter yeah I think that's a good collection of mistakes and lessons which is probably more formative than the successes because sometimes you can extrapolate like the wrong lessons from the successes and the same thing from mistakes but I think it's much easier to convince yourself that your successes will were fully I don't know your smarts and intelligence and you assessed the probabilities in the right way but maybe the probabilities were actually not in your favor but you got just like you're something but with the mistakes I think it's after in hindsight it's easier to draw the right lessons so yeah and also with mistakes you think well like I knew all these things already like I had read about them I you know all great investors talk about these kind of things I knew them but there's some lessons that you wish you could learn just through reading in books but you actually some of them you have to learn by experience and the ones that you've done by experience are the ones that really stick with your thing 100% and just throughout itself I really want to know a bit more about your spirituality if you can call it that way because you've mentioned before to me that you really are into yoga sutras and probably for the people that don't know this you could explain what what that is and how it has influenced your investing as well yeah yeah I mean the thing is that we're all so analytical here with investing and very numerical I'm probably don't like to think about things that you know are so kind of every fairy almost but they have real impact so I use investing as actually a personal growth tool as well so I want to learn more about myself and the more you can learn about yourself and the world around you the clearer you can kind of see the world and make better decisions and I think the spiritual journey is ready about learning about yourself and then learning about the world and being kind of connected to this is a difficult question to kind of put on the spot but being connected to something that's you know higher it's not higher power it's just more like I think we need to cut this because I'm kind of lost for words sure resume wherever you want okay so so alongside investing I really find that health is important and health for me is physical health and also mental health and I being being at a desk I found I'm getting stiffer and stiffer and less flexible so I've taken up yoga which I really really enjoy and that just is very very relaxing helps me like kind of turn off my mind and focus on my breath the focus on my body. I feel like that's the perfect antidote for me for investing, but yoga is also much, much more than just the physical movement that we're used to in the Western world, and it comes from the yoga sutras which are ancient texts in India that were kind of based on a spiritual foundation, but it's all about kind of learning about who you are, what you're made of, and kind of a whole philosophy on life, and that philosophy on life really kind of resonates with me, and I have learned a lot about, it's helped me take a step back and look at what is important in my life, what gives me meaning, what gives me drive and reassess things as well. I think it goes back to kind of the psychology conversation, what's driving you, and I think when you're, sometimes you develop kind of winning strategies for a particular circumstance that you're in, and those winning strategies help you in that circumstance, but once that's ended, then they no longer work for you, and so I've actually done some therapy as well to just kind of work out what are the things that are holding me back, what are the things that I'm kind of caught up on, and in yoga, they talk about holding on to the things that you don't like, so the things that bother you, you kind of hold on to them instead of letting them go. Being able to, yoga's all about kind of releasing and letting go of those things, and instead of kind of spending time worrying and thinking about those things even subconsciously, you have more energy for things that are good and that you enjoy. They're kind of blockages of energy, so things that might have happened in your childhood, for example, I was bullied at school, and it kind of, for me, it developed a whole personality around wanting to have status and wanting to show that I'm not stupid and all that kind of thing. It drove me in a certain direction, it gave me motivation, and that's fine, but I don't need to hang on to that anymore. I don't need to drive for status or for, you know, showing people I'm smart with. I'm happy with where I am in life, and that's kind of the key takeaways, if I kept driving for certain things that I don't actually need anymore, then it's kind of going to prevent the enjoyment of the rest of my life. So, yeah, it's a really good reflection.