“When you know you have an edge you should bet heavily. Of course you’ve got to bet heavily on your best bets.” Charlie Munger

“Diversification is a protection against ignorance. It makes very little sense for those who know what they’re doing.” Warren Buffett

“Diversification is always and everywhere a confession of ignorance.” Andy Redleaf

“A well-diversified portfolio needs just four stocks.” Charlie Munger

“So I would say for anyone working with normal capital who really knows the businesses they have gone into, six is plenty, and I probably have half of what I like best. I don‘t diversify personally.” Warren Buffett

Almost all the best performers made some kind of a statement like that, and it pressures any investors listening to them to be far more concentrated than is traditionally considered “safe”

I completely understand and sympathize with the reasons why some of the people push for such concentration.

-If an investment is really good, then you should have a “lot” in it

-By spreading your money out across more investments you decrease the amount of knowledge you can have on each

-If someone in a group discussion at a party said “I own the top two restaurants in the state, the best regional tire shop, and the most productive Ford dealership in the state” and someone else remarked “Oh my goodness your portfolio is grossly undiversified and subject to idiosyncratic risk, which by the way is an uncompensated risk unlike market risk which is compensated, so you need to get to at least 25 businesses to diversify away the idiosyncratic risk” everyone else in the conversation would think what a pencil-neck clock-head this guy is.

-If somebody at the party says to a financial guy I only own 4 stocks, they would feel completely justified in pointing out the risk, and the people around them would find that risk to be quite substantial and foolish. Yet, Stocks are just businesses. Even though the business owner has more control, who’s to say that control is better than the average management of an S&P 500 business. So the hypocrisy is real.

All that being said these legends pushing people to own only 5-10 stocks don’t understand two things.

A. Most serious investors still aren’t legendary level but maybe are competent enough and interested enough to be in individual stocks

B. The most important quote to ever remember as an investor made by the founding father himself who taught all the legends,

"The investor’s chief problem and even his worst enemy, is likely to be himself”

-Benjamin Graham

Legendary investors turn concentration into a weapon, good and mediocre investors turn concentration into their downfall because they overestimate how much they actually know and through concentration greatly amplify the universal emotional faults we all have

There are so many emotional biases that make thinking and acting clearly difficult in managing a portfolio at baseline. The biggest issue that is ignored stemming from concentrated portfolio’s is not single stock risk, but the emotional biases that negatively affect your decision making get amplified by about ten thousand. I’ll show these biases in the form of a cautionary tale and a better example.

Dinkledumb is very excited about his new good investment idea. Of course since he just discovered it and has been researching it a ton he’s at the absolute peak level of excitement he will ever be at in regards to this investment. This is a huge problem in itself which will make him invest more initially than he should. At this point in time he has worked up to convincing himself it’s worthy of his money and since he’s so excited as this idea is brand new, and of course it’s one of the best ideas he’s ever had because he’s learned so much at this point he really should go high conviction. And if he actually “believes” in his idea why would he not go high conviction. What is he some kind of low conviction investor going to do 3% position, no he’s no closet indexer so he’s going to go for a 10% position. Well, actually thinking about it again this opportunity is even better than 2 of his other holdings so, let’s sell those and make it a 25% position. Of course let’s do it all in a single day or two because there’s no way the price can get even lower from this already mouthwatering price on the moatiest business I’ve ever seen. What fools left this bargain lying around how is it even possible! Dinkledumb wonders whether or not he is the fool and does not see what they see. NO! The PE of 15 and the ROIC of 18% CANNOT LIE. Dinkledumb sits confident on his 25% position at cost ready to rake in the money.

7 Weeks later after the earnings report, the stock is down 20%

HOW could this be! It was an absolute bargain at a PE of 15 and now it is even cheaper. Dinkledumb sells even more of his existing positions, preferably his winners that have grown earnings over time of course because he avoids selling his losers which are on their way back 100%, so now his investment is 32% of his portfolio’s cost.

Over the next 3 months the stock falls an additional 20%. Our dinkledumb who once felt like this investment was so good it demanded high conviction is no longer feeling so good about it. At first because he had done so much research and the information was so available and present in his mind it made the investment seem that much more exceptional. Additionally the novelty of it being a new investment made it seem so much more important to invest in than all those old investments. Once it had fallen it seemed like an even more ridiculous bargain compared to the purchase price he mentally anchored to as being at least fair value. Not to mention, it’s always painful to think you were wrong about something you invested in, but it’s way more painful and sometimes impossible to face when it was the core of your portfolio. This confirmation bias made him invest more and ignore the bad news. Then at some point he just didn’t want to admit he was wrong as losses are psychologically twice as painful as gains. Because if he really just had to sell this stock at a major loss, then he just royally screwed up in a way that is hard to deal with. But at this point he cannot afford to lose anymore, so he sells out of the stock to fight another day.

Dinklesmart is very excited about his new good investment idea. That being said, he has learned from his mistakes and is a wisened investor. He knows at the time of initially establishing a position is when he is most overly optimistic about a position so he tempers his expectations and goes with a smaller entry investment. He also plans on investing across time as he likes this business for the long haul and knows it well. He really likes the current price, but understands that it can fall even further. He understands most importantly that a single big position (particularly one of cost made rapidly, not due to stock appreciation earned over time) will make it very hard to navigate it or his whole portfolio rationally, and that the long term upside in this stock is sufficient that even a small position say of 1-5% at cost could be enough to produce meaningful gains, but that a larger position can produce losses that he does not want to make possible.

Dinklesmart invests 2% of his portfolio into let’s just say Coupang. (Entirely Theoretical) In a similar fashion to dinkledumb Coupang’s stock falls substantially over a period of months, but because dinklesmart started with a small initial position he actually got to take advantage of these better prices with cash already in his portfolio and increased the position to 3% of portfolio cost. He did this in a completely rational state of mind and felt almost no fear, anger, or sadness, over his investment as his overall portfolio was moving approximately in line with the market over this short period. He didn’t mind sitting on the loss as it was not a big hole in the middle of his net worth. This turned out to be a smart move as over the coming years the stock appreciated 3 fold from his initial purchase price(entirely theoretical) making him a nice sum of money.

Not only is there natural biases which have always affected all market investors, but they are even stronger already than ever before because of the instant and constant flow of information and the instant accessibility everyone has to their portfolio’s with zero trading commissions with their phones or computers. Not to mention the recent runs of the market which leads to overconfidence as well. There’s no need to amplify all these factors into some volatile emotional portfolio toxic sludge cesspool with excessively large investments, particularly those made in a short time period.

The emotional risk is the part of big bets which is the most grossly ignored by the people who parrot the voices of legends, not understanding that we, me, and you the reader are not famous like the Klarman’s or Sleep’s for our investing acumen. That does not mean though that there is not a more forgiving structure of investing which involves meaningful diversification which the engaged investor can participate in. So do not think you have to go all in on either 20%, 30%, 40% cost positions, or go as diversified as holding a dozen structurally different index funds. There are many investors which thrived inside a system with many investments like Walter Schloss, Lynch, and Warren Buffet himself for the past 2 or 3 decades has had quite frankly a much more diversified portfolio than his quotes would suggest. Part of that is about Berkshire being so big, but he theoretically could be dramatically more concentrated than he has been.

What counts as concentrated is dependent on the individual’s circumstances in my opinion as well as the kind of security involved, which is why I didn’t get so specific with that. Nonetheless, you shouldn’t feel bad about ever buying a 1%, 2%, or 3% position. There can certainly be cases for highly studied individuals with mounds of experience who are specifically working to outperform buying large positions like 10, 15, 20, or if your Nick Sleep smart and temperamentally gifted, 40%. Or if your just a good, smart investor with solid experience buying something really in the dead center of your circle of competence with a 5-10% position. But we should not frame small positions or a more diversified portfolio as meaningless, totally ignorant, or never appropriate. You will also think more clearly if you take more time to build into your positions, and you let a really substantial position come from capital gains itself.

Simply

Legendary investors turn concentration into a weapon, good and mediocre investors turn concentration into their downfall because they overestimate how much they actually know and through concentration greatly amplify the universal emotional faults we all have

Margin of Wisdom

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Coupang

- Coupang while domiciled in the US is an online retailer primarily focused on South Korea with a small growing segment in Taiwan, and also has services like food delivery and streaming.

- In 2018 Coupang’s share of South Korea’s retail industry was 2.3% and as of 2024 it is 15.1% making it the largest overall and online. Over 60% of households in South Korea are WOW members which is basically Amazon Prime

- WOW members pay 6$ each month and receive unlimited free delivery on the retail products and food delivery, a free streaming service, 30 day free returns, and member only discounts

- Coupang has excellent prices and selection but is unmatched in service due to the massive logistics network they built out. As early as 2018 99.6% of deliveries were made within 24 hours. Coupang has 80 million square foot of fulfillment and logistics centers so that there is a fulfillment center in close proximity to as many customers as possible

- If you are a WOW member you get access to the Dawn, same-day, and easy returns features. If you order your products before midnight you will receive them by 7AM. If you order before 10AM, you will receive them by 6PM. You have free 30 day returns on most products which you simply have to place the return in your app and leave the product in it’s specified packaging outside your door.

- The developed country that works more hours than any other in the world annually is South Korea, and they also have one of the lowest rates of crime and theft in the world. This means Coupang can feasibly not have to worry about packages being stolen outside people’s doorsteps, and that people value the rapid grocery delivery so much given they have very limited time outside of work. In order for another company to build out an equally competitive logistics network and ecosystem at this point it would take an estimated 10-15 billion dollars of needed investment and cash for funding losses just like Coupang. Then your prize would be your competing with Coupang in an already thin margin industry.

- Bom Kim founded Coupang in 2010. He was born in Seoul but moved as a child to the United States where he would graduate from Harvard with a bachelors. He dropped out of Harvard Business School to pursue entrepreneurship. He’s not much of a public figure type, but has just been obsessed with making Coupang the best e-commerce company in Korea. While he’s not the “operating” CEO anymore, he has the majority of voting rights in the company due to a special share class, is the chairman of the board, and is the leader of the company’s direction. He is always focused on the customer to the extreme, returns on capital, and operational excellence.

- The stock is selling at all time lows relative to it’s revenue and despite the business being very successful since it’s IPO in 2021 the stock has only underperformed. The stock has suffered a strong drawdown over the past year mainly because of a data breach in late 2025. This data breach caused for the first time very small losses year over year in members and e-commerce revenue.

- Coupang fired their “operating” CEO and replaced him with an interim “operating” CEO. In the 6 months that have passed Coupang has regained over 80% of the lost members, and along with new members are returning to growth again. It seems to honestly be the case that it was much more of a blip in the trajectory of the business than anything major.

- The business continues to improve itself while acting with a very long term mentality towards capital allocation. It’s safe to say the stock is no wall street darling and as of writing it has a price to sales of 0.85. You should know Coupang has a heavy net cash position, a tangible asset heavy business, and strong network effects supporting it’s e-commerce business along with economies of scale. Some risks to keep in mind with Coupang are the currency risks present when investing in what is essentially a foreign business(writing this from US perspective, and it can also swing positively). While the Korean won is not as volatile as say the KZT or Kazak currency, it still is something to keep in mind, and also that the South Korean government can sometimes be unfriendly to large businesses like Coupang. That being said, it’s not so bad that Coupang can’t be successful or hasn’t grown like a weed.

- You should know Coupang similar to most retailers has very low margins in it’s core e-commerce business. Coupang in particular like Amazon did not mind being at essentially 0 profits for a long time while it was building out it’s market share, fulfillment network, and loyal customers. If you understand the scale economies shared idea from Nick Sleep that characterizes Amazon, Costco, and also Coupang you’ve seen the story before. A business will suppress profits in the short-medium term to serve customers so well that they get really high market share, high revenue growth, and can build up moats. Eventually these businesses settle into good profitability but will always prioritize the customer so that they keep their dominant position in the long run. Coupang’s core e-commerce business in Korea is now able to run at a low level of profitability and the management is working towards about a 11-15% EBITDA margin in the long run (best estimate as they stated they can get well past 10%) through expanding their advertising business and 3P business. E-commerce is either 3P or 1P and 3P is more profitable.

My Conclusion: Coupang is a growing business with a healthy balance sheet that has real competitive advantages and a very strong culture. It’s impossible to know how much margin they can exactly get to, how much growth is left in Korea, and if their Taiwan business will succeed. I see a great business overall that has performed well and I believe will at least be resilient in the future. Against that backdrop the stock IPO’d at around 50$ a share in 2021, and currently sits at 16.42 a share. This is near it’s all time low, and this recent dip is by far the lowest EV/sales it’s been at since going public. Amazon a very similar business which by the way has settled in around 10% EBITDA margins in their United States E-commerce business rarely ever sold below 1 times sales even in their earlier years when the higher margin AWS was not significant. This means Coupang both relative to it’s historical prices and an incredibly similar company is selling for bargain prices. People like to compare their topic stock to successes like Apple, Netflix, and Google, but Coupang and Amazon’s retail business are just factually very similar in their entire approach to building out the infrastructure and culture and there is actually some advantages to Coupang’s retail business Amazon did not have. A few of them being the low crime which allows for the convenient returns and delivery, the density of the country which makes drivers able to deliver more packages per hour(huge deal), and that physical retailers are far less developed in South Korea than in the US with the likes of Home Depot, Walmart, Costco, Lowe’s, Dollar stores. This makes Coupang’s infinite selection at highly scaled prices even more valuable, not to mention the time saved online shopping which South Koreans desperately need. So yeah Coupang, great business, founder CEO, and a conservative price tag.

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A classic example is Toyota. Toyota today sells more cars annually than any other auto business in the world but the first car they sold in the US was such a flop they had to discontinue it. However, they then came out with the Toyota Corolla which sold for a significantly lower price than the most common cars in America and it had dramatically better fuel economy. Despite it not being as flashy and having a far weaker engine there were many customers on the low end of the market that did not want the best car but just needed a car, and Toyota’s vehicles served those less profitable customers. The oil crisis of the 70’s made gasoline far more expensive than the past and that brought even more customers to Toyota. As Toyota gained more customers they had more resources to improve and expand their line of cars so they were now able to compete in all areas of the market.

Investors often count out the new emerging businesses against the blue chip stocks that have all the resources and competitive advantages to theoretically crush every emerging business. However, if you’ve been exposed to Clayton Christensen’s work you’ll know that there are often common disadvantages actually stemming from the success of large businesses. The blue chip companies have a deep incentive to ignore the underserved areas of the market because they are not very profitable. The managers and the CEO of the established company are naturally going to focus on serving the current customers, quarterly profit targets, and maximizing the use of the business’ existing infrastructure.

It’s going to be near impossible in most corporate cultures to pitch and build out products or services with dramatically lower profitability, that would require resources being diverted away from the premium customers wanting incremental/sustaining innovations, and resources being taken away from the established managers whose jobs and expertise are not built around this new venture. Disruptive innovators are often allowed to build and develop for a long time without serious competition from the more resourceful businesses occasionally due to lack of vision or arrogance like the blockbuster CEO who laughed Netflix’s founders out of the room after offering up their company for a miniscule fraction of what it’s worth today, but often times it is personal interests, short term incentives, and sunk costs in old infrastructure which cause giants to not invest in new technology until it is too late.

Disruptive innovators like almost every young company do not have wide moats. Many investors have been dogmatized into thinking that every investment into a company without a wide moat is foolish. This is not true. I wrote the guidance that follows to help you spot the traits of a disruptive innovator.

In my opinion the traits written below matter in their respective order for predicting a disruptive innovator

Value/Price Revolution > It can scale > Visionary > Moat

Ultimately when looking at a disruptive innovator you want to see the value of the product relative to the price to be dramatically higher than existing products given their price. This brings swaths of new customers into the market. In addition a business is not likely to be super great in the long run if it does not get better as it gets bigger. Many businesses are impossible to scale or do not really benefit much from economies of scale like a disruptive innovator. 3 star Michelin restaurants are not very investable businesses despite having lots of pricing power because you can’t scale that level of staff and lifelong dedication to ten’s of thousands of restaurants, nor is that food economically available to most people. Visionary founders are often times important but not as necessary as you might think. Moat comes last because if you are looking for businesses exclusively that have wide moats like an S&P Global you will skip by many of the best emerging businesses.

You know as a consumer that when companies offer products or services that are dramatically cheaper or provide far more utility for the same price as previous products you switch to those products and don’t go back. Obviously those businesses are going to get big if they are getting all the market share, so the ultimate factor in seeing an innovator early, is observation of a business offering a value/price revolution.

You probably will never see all of the following indicators at once, but when many are present, you should take a close look

10 Key Traits/Questions to know if it’s a superstock

Products are far cheaper than current industry options

Low MC, high scalability

Expanding product/service into adjacent categories with similar low MC

The business can visibly build a moat like network effects, scale or logistics dominance, or libraries of IP/Patents from specialized valuable research

Fanatic original founder

Rapid revenue growth

Violent market share takeover

Large total addressable market, that being said disruptive innovators will grow the TAM

Low CAC/free marketing due to virality

High retention in users, when you have repeat customers for years on end, you might be onto something

There are also some characteristics you might view as a concern, but you should be careful to not cross out a stock because of the following

5 Non concerns when you have previously stated positive traits

Lack of initial high ROIC under GAAP (think about Amazon)

Business has 1 or 2 quarters of 28% growth when it was projected to be 30% (often good buying opportunity)

A higher PE or FCF (looking at the price to sales in connection with the gross margin is often better a indicator as often times businesses can grow into their profitability, but gross margin is a more steady limit of how high it can get)

Product is not fully perfect yet

Worry that big players will move in (if they haven’t shown they will)

Ultimately when investing in any individual stock and in particular when investing in newly established businesses you must

Accept that it will almost never be fully obvious beforehand that it’s the next big winner, if it was “known” for a fact, it would be selling for 100X sales and all the future cash flows would be discounted so that you only got a market return despite the growth. Disruptive innovators will often come up short, that’s why you diversify. You don’t need to go all in, to have a chance at big profits with disruptive innovators, the asymmetry handles itself. You will often have to stomach near collapses even in the big winners. Position sizing is everything. The best investments are often uncomfortable in that they stand out from the crowd, yet are compelling in their factual asymmetry

Please consult with experts and educate yourself on the financial decisions you make, and understand it is very rare to ever find and hold onto a stock on a 100X+ run. Temper your expectations and internalize investing to be a way to make money on your money, do not misconstrue it as a high probability method to become rich with no effort or earned capital.

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Margin of Wisdom

Of course the answer is almost never, but that message is not being reflected in the data. Over the past 2 decades annual US stock market turnover has averaged over 100%. You can see here on Substack the conflict playing out. Simultaneously investors will talk about the importance of long term investing to their strategy, react to every new news alert or market move, and post quarterly portfolio updates with multiple stock sales every quarter.

The next important questions to ask are why is this discrepancy happening and what are the consequences?

I believe there are a lot of pressures causing this investing dissonance, such as

• Constant news, curated to catch your attention by making you worried

• The market nature of price changing far more often than business value

• The multiple times increase of portfolio accessibility and tradability

• The broad elimination of commissions, trading costs, and sales loads

• The shortening of attention spans and patience caused by tech

So there are some factors that have always been around making markets more short term focused than the actual change of business, but there are some unique powerful factors currently attacking the investor’s patience

But the more important question is what are the consequences for investors from high trading?

The evidence is abundantly clear, that on average higher turnover = lower returns. In a 21 year study of 2856 mutual funds the top 20% most active funds had 2.4% lower risk-adjusted returns. It’s not just the professionals that get hurt by high turnover. Studies on individual investors demonstrate high turnover is even more damaging to their returns than the professionals.

The market punishes business, and it disproportionately rewards sitting on good decisions. It even often rewards sitting on poorly thought out decisions as there is in individual buys a significant element of luck.

There are two main reasons why lower turnover stock portfolio’s are associated with higher returns.

1. In broad funds/etfs every year after your purchase date you increase the chance that purchase was profitable. Stock funds in the short run are volatile, but in the long run are predictably profitable.

2. In individual stocks there is extreme skewness in returns. The data has proven over time that a very small number of all the businesses produce most of the market’s returns. Stock do not really go up 10X over night, and they do not go up 100x overnight. It takes a very long time. So, the only way you will get to benefit from one of the superstocks that define and dramatically lift up your portfolio’s returns is by owning one for a very long time. If you trade your stocks constantly, you will never have a life changing winner.

Many leaders in the field have long found success by emphasizing patience as one of, if not the key lever in their strategy. Some examples of famous successful managers are Terry Smith, Nick Sleep, and Buffet. The reason why these managers liked low turnover is because they found sticking to the best businesses and potential super stocks was their best path to returns. You don’t get the returns of those stocks unless you are willing to do nothing for a long time. Doing nothing is often harder than it looks, just try to meditate for a couple hours to see. So now that we have established the general relationship between turnover and returns, I will briefly show how to more invest like a turtle so you can hopefully achieve better returns.

• create decision friction

Imagine if before every stock purchase you had to wait a week or drive a half hour to place an order in person? I strongly believe the result would be less trading. Do not be in such a rush with your money. Your cash won’t be worthless tomorrow. You can create friction and decision barriers through many practical ways if you take a second to think of them.

• check your brokerage less

  If you check your account value multiple times a day, or every day you will be far more likely to overtrade than the less “aware” shareholder. On a factual basis, you are giving yourself many more opportunities to be worried, think about the state of your portfolio, and make a change. Also, I hypothesize that most active investors would improve their well being by checking their accounts somewhat less often.

• humble money’s value

  Keep in mind when you worry about your relative performance to the S&P over time, that you will die someday, and you will not take your money with you, and there will hopefully have been people or journey’s that mattered far more than your relative performance to the S&P. Would you rather have the ability to walk or a market beating portfolio? You are and will be okay if you don’t beat the market, keep what matters in perspective.

• buy stocks that get more valuable over time

  This one is a little different from the prior recommendations, but obviously if you are buying stocks with poor products/services, secular headwinds, or a fragile balance sheet, you will be more likely to trade too much than by owning stocks where you smile when the price goes down.

• structure your portfolio for resiliency

Speaking of smiling when the price goes down, even if you own a great stock, at what you thought was a great purchase price, if you buy too much, too quickly, or misalign your portfolio with the needs of your living, when there is a drop you are going to be incredibly prone to poor decisions. Structure your portfolio to your life in a way, so that when the newest market scare/company issue happens, you are mostly indifferent to the anxious forecasting or actual decline of your stock(s).

While circumstances can vary and you must evaluate and take responsibility for your unique financial situation, generally speaking it’s clear that one of the simplest ways to improve most people’s returns is to do more nothing, and less something with your portfolio

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I believe that money management is often viewed as being masculine. By many statistics it rightfully is. Practically all the legends of the sport are male, and the actual industry is male dominated. I do not think this is just a result of historical patriarchy, but more so a result that there are far more men interested in stock picking, trading, and money management than women. I believe this along with other factors has created a culture where men feel some responsibility to be financially savvy. Particularly when it comes to investing. There is nothing that seems quite as financially savvy as making a lot of money on that banging new stock. There is just one issue with men wanting to perform/act out like they are money smart.

They usually aren’t

The people who play the game of investing not only have all the access to the subscriptions, databases, and opinions of intelligent peers, but they also have tens of thousands of hours actually working in the field. In the stock market where even among the professional investors their win/loss rate is often 50/50 on any given stock being a profit or loss, it’s actually not that impressive to have a stock or two you buy go up. It feels like it though. And of course you the smart guy who knew all along what the next big industry will be, knows more than the people devoting thousands or tens of thousands of hours of study to the craft. So there is both a cultural and a inherit aspect of investing which makes highly inexperienced men prone to thinking they are the next Warren Buffet.

Men more often view investing as a way to prove their superior intelligence and masculinity/status whereas women more often view it as a both boring and scary tool so they can live the life they want. Men are more likely to take risks in their accounts, overestimate their financial knowledge/experience in surveys, and deviate from their long term financial plans. Women are more likely to diversify, not sell during crashes, and trade 45% less often. Single men trade the most often. Women’s accounts tend to take less risk and have lower volatility. It depends on the study you cite, but overall you could say after adjusting for risk women’s accounts do about 1% better on average a year. Over a lifetime of investing 1% annually is quite financially significant.

It’s pretty simple reasons why across most studies looking at both returns and volatility women’s accounts perform modestly better. It’s the time tested virtues of investing for the large majority of people. You should diversify, you should have low turnover, a financial advisor can be helpful, you should not take risks you cannot understand or afford, and you will be surprised that basically all of your returns comes from the times that you do nothing but wait. More patience = higher returns generally speaking.

Investing is successful for most when it’s approached from a place of humility and patience

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I am going to talk specifically on the pros and cons of REITS as an asset class and ultimately come up with the argument that for many investor portfolio’s they are underutilized, but first I’ll describe the basics. REIT stands for real estate investment trust and they are publicly traded companies that almost exclusively engage in activities like owning, acquiring, managing, developing, and selling real estate(mortgage REITS are different but not the focus here). They are just as liquid and seamless to integrate into a portfolio as bonds or stocks, and there are many that are very large with the largest being worth over 100 billion dollars. REITS were created in 1960 to improve access for smaller investors to real estate, specifically commercial real estate. The two types of REITS that exist are mortgage and equity REITS, but as the number and size of equity REITS are far greater, my familiarity with them is much higher, and the general long term risk/reward is dramatically more favorable, I will only be talking about them.

REITS have certain characteristics that are very unique like that they are required to pay out 90% of their net income in dividends, that the dividends are taxed at ordinary income rates(generally not favorable), and that they pay no corporate income tax. REITs are still able to reinvest and grow while paying those high dividends because their actual cash returns are higher than stated net income, so that most REITS actually payout between 55-80% of their FFO or AFFO which better represent their profits. In addition REITS often will issue shares or take on debt to fund growth, which can be good or destructive based on the management.

Now that the basics of REITS have been covered I will go over the big asset classes to set up what a consistent investment policy could be made up of. There is sufficient but still a limited number of distinct asset classes for investors to own. There is stocks, bonds, cash equivalents, real estate, precious metals, commodities, private equity or credit, hedge funds, and cryptocurrency. Now behind the thought process for this article, I am thinking of investors who are not interested in beating the market over time, but rather receiving fair returns, who have small or not very big portfolio’s(smaller than ten million in assets), and want an incredibly high chance of at least getting good results and no chance of blow ups. I think that this is the position and should be of many middle class people, uninterested investors aspiring for more wealth, and modest earners thinking about their retirement plans.

This means that hedge funds, private equity, and private credit are out the window generally due to accessibility. Commodities are likely to have zero or negative real returns over time so they are excluded. In addition, while many will disagree gold is not consistent enough in returns to warrant a significant and consistent investment policy for most “defensive” investors. Given that gold bought in 1980 lost value and did not go above it’s 1980 price until 2011 on paper, and that after adjusting for inflation, it is more than 40 years that had you invested in gold at 1980 you would have lost money, gold is not consistent enough for regular lifelong investment. In addition gold is not liked by Warren Buffet and the argument he has against it is strong. It is by definition speculative because there is no productive capacity like real estate, nor any cash flows to estimate like with stocks, nor any interest payments to calculate like with bonds, so it is based only on speculative supply and demand, AKA feelings. If you buy a bar of gold and put it in a safe, come back ten years later with lots of hope in your heart, you will return to see that you still have 1 bar of gold. It may be very pretty, and you may feel very good about it, but it will not have provided any housing, farmland, profits from production of goods or services, or interest from the value of savings. While I do believe gold when bought at reasonable prices relative to it’s history and to other commodities will do fine over time and does act as an inflation and recession hedge, it still does not generally warrant a significant, consistent, investment policy for the defensive investor.

Cryptocurrencies, Bitcoin in particular operate off of very similar logic to gold as an investment with an added touch of risk and reward, and therefore are not suitable for a consistent, significant, investment policy for the defensive investor. Art or other speculative vehicles are somewhat similar. Now we see what I mean by there is a limited but entirely sufficient menu for the defensive investor to allocate consistent(lifelong purchases) significant(greater than 5% of the portfolio) purchases. We now have left stocks, bonds, cash equivalents, and real estate. Among these major categories it’s worth laying out the long term total returns for these assets, as well as their volatility, and their interactions with one another. Historically you can expect 9% returns from diversified stocks, real estate about 8%, investment grade bonds about 5%, and cash savings/equivalents about 3%. Now of course there is periods where some will do dramatically better or worse, and the future is uncertain but over a lifetime of investing it is likely that stocks will do the best, real estate the second best, bonds the third and cash equivalents the worst. The volatility will generally follow an opposite pattern where stocks have a very few occasional years of 50% declines and more frequent but still occasional years of 20% declines, real estate values can change each year but with less volatility than stocks, an investment grade bond has a set distribution of cash flows but can default, and cash equivalents are safe in the short term but will wither away over time.

So obviously for any defensive investor looking to have high long term total returns stocks should be the staple of the portfolio given a sufficient time horizon. If you are more than 20 years out from retirement I do not necessarily think there is real financial risk to owning just stocks(and the larger amount you own relative to spending needs the less financial need to diversify). This being said investing is not about return above all else, it is about being able to stick to a reasonably sound plan above all else. Volatility can be incredibly distressing, and can cause dumb decisions, so it can be a wise move to diversify among asset classes beyond pure mathematical reasons. Therefore, there are good reasons even if you can mathematically own 100% stocks to often times not own 100% stocks.

The natural second staple in a portfolio is real estate as it can provide similar long term total returns to stocks. Despite the returns of real estate, people are frequently recommended to diversify their stocks with bonds rather than real estate. If the goal of the defensive uninterested investor is after a lifetime of consistent investment to have the highest amount with little effort, and little chance of poor returns then real estate should be put forth as the balancing asset class to stocks rather than bonds. Now people do often own their house, but I still do no think there is anything financially unsound about firmly rooting one’s wealth building strategy in real estate and stocks(businesses), as these are the two most reliable, high return assets.

REITs act as method for investors to seamlessly incorporate real estate along with their stocks, and in fact equity REITs actually have done better than stocks in the majority of time periods since their creation. REITs have averaged about 11% over most time periods providing a fantastic total return. There are plenty of positive characteristics about the asset class such as they are highly liquid. They can provide occasional bargains as they trade every day with uncertainty about future performance just like stocks. They take the usually high work load of real estate, and put that work into the hands of the experts operating the business. Additionally, REITs are a way to own highly diversified real estate both geographically and across sectors. Quality REITs exist across all types of commercial real estate such as self storage, apartment buildings, logistics facilities, data centers, wireless towers, and RV and mobile home site ownership. The benefits of REITs don’t just stop with providing high total returns, and acting as a diversifier to stocks in a portfolio. REITs can dramatically raise the dividend yield of a portfolio which can be a component of retirees income plan.

In addition, REITs act as a hedge for two macro factors. Firstly, real estate is one of the best things to own during periods of high inflation, in particular leveraged real estate like REITs. Secondly, REITs as I stated before do not pay corporate income tax, and this is something that is overlooked as an advantage for the asset class. We have historically speaking the consistently lowest corporate income tax rate since WW2. It currently sits at 21% but has been as high as 50% in the past. Given that there is a growing serious need to balance the budget, and reduced spending seems unlikely, there is a very high chance we have higher future corporate tax rates than lower. This would obviously hurt stocks significantly as each dollar of pre-tax net income would now be worth less to shareholders, but for REITs it would make them more attractive relative to stocks as they do not have to deal with that increased drag on earnings. What I will say, is that for high earners the cost of the heavy dividends by REITs being taxed at ordinary income rates, means that REITs should strongly be considered as a part of a Roth IRA rather than a regular brokerage account. REITs inside of a Roth IRA are the ultimate accessible tax loophole. There is no tax on the profits and cash flows of the real estate, the dividends will be tax free, and the capital gains are tax free.

I will also briefly mention that REITs are particularly currently attractive compared to stocks. The typical solid REIT is currently on average selling at 15 times P/FFO and provides a 4% dividend yield, and real estate as a sector(which is actually mainly comprised of REITS) makes up one of it’s all time lows proportions of the stock market, suggesting it is relatively undervalued. REITs in the past decade have had one of their absolute worst performances relative to stocks. If I was a betting man, given the current high optimism of the stock market, and the long run return of REITs, REITs are very likely to outperform stocks over the next ten years, and provide solid real returns. However this article is not about the next ten years, it is about informing you about the underappreciated characteristics of REITs as a consistent lifetime investment option.

I do not know you the reader’s exact circumstances, so this is actually not financial advice to go out and buy REITs, it could very well not be right for you, the article your reading is just meant to open your eyes to new ideas, or to see them more seriously. The last important caveat to REIT investment is a serious one. REITs just like stocks vary dramatically in quality and valuation. However, market cap weighted investing works quite well with stocks as stocks only get and stay very large if they have great economics and financial performance. Because REITs issue much more shares and use a bit more debt(often times) the biggest REITs are not always the ones earning the best returns on assets, but instead the one’s issuing the most shares. I have found in my personal investing, that the best REITs are often times not the biggest ones, and that market cap weighting may concentrate too much on REITs issuing lots of shares versus having good economics. A passive REIT ETF will very likely still provide better returns than bonds over time, but if one can develop the knowledge or have a trusted advisor maintain a diversified group of quality REITs and invest at fair or better prices they might be better off. In fact unlike stocks which have a clear record of passive outperformance versus active, REITs active funds have a similar long term record after fees compared to passive peers. There are still good quality passive REIT funds that make the process of REIT selection simple, in particular VNQ is a good place to start your research if you choose so.

Given all the facts I struggle to understand why the conversation in investing is always centered around stocks and bonds, and in more recent times is even more centered on stocks, gold, crypto, and bonds without much attention paid to REITs. REITs are the only other asset with consistent similar returns to stocks, so they should be a natural way to diversify across assets while maintaining similar levels of total return, but instead bonds are always Robin to the Batman of stocks. REITs even provide similar levels of income to bonds which makes it even more difficult to reconcile. REITs should far more often be considered as a part of people’s lifelong investment processes. They will be in mine.

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While this stock is built to last, that doesn’t mean it lacks performance as it has gone from 65 cents a share in 1991 to 115$ a share as of writing. Resiliency is an ever greater exception in business as even among the largest most successful companies, they now rise and fall out of their dominant positions much faster than they used to. If you go back about 80 years, the average time a business entered and stayed in the S&P 500 has gone from over 60 years, down to about 15. People love the idea of buying a great company, and letting that investment grow forever, but it is the very rare business that has the attractive microeconomics, competitive advantages, and the apathetic rate of change to qualify.

One such business is U.S Lime and Minerals (USLM)

Business Model:

U.S Lime and Minerals owns limestone mines/quarries in Texas, Arkansas, and Oklahoma. They extract the limestone from these quarries and can sell crushed limestone itself or process limestone in facilities within a couple miles of the mines into 4 distinct limestone products. These products are essential to the production and service of many other businesses like

soil stabilization on a highway, making steel, the production of chemicals, the production of roof shingles, asphalt paving, making paper, water treatment, poultry feed, production of glass, limiting the emission of sulfur dioxide, making Portland cement, pharmaceuticals, agriculture, aggregates, and general construction material

United states Lime & Minerals is in both an enduring and favorable industry as limestone is expected to be a growing industry in terms of actual metric tons sold for at least the next decade and because limestone is used in so many different products and processes it is highly unlikely to have long drastic downturns. USLM in 2024 sold its products to 675 different customers and no single customer accounted for 10% or more of sales making the business’s sales resilient.

USLM gets their products to their customers through both truck and rail transportation all within at most 400 miles from each mine. That will become a very important point to go over in the competitive advantages of the business. USLM has established relationships with its customers but also seeks to increase their orders with them or establish new relationships through their incredibly expansive company sales team of eight people. These are some fantastic salespeople as the business produced 352 million in sales during the past year. Now that you have an idea of what the business fundamentally does, we can focus a little more on the uniquely favorable aspects of this company and industry.

The Moat and Microeconomics of USLM:

While USLM extracts and makes what are essentially commodities, their returns are not commodity like. You can’t understand their profitability/microeconomics without understanding their competitive advantages.

The first major one, is the laws of physics. It takes energy and it costs money to move heavy things like heavy limestone products. The cost of moving certain limestone products can be multiple times higher than the cost of the actual products. This means a mine is almost always the lowest cost producer for some good distance, giving them strong pricing power

The second moat source is that while limestone itself isn’t rare

large accessible limestone deposits are a little more rare

the deposits having good markets near is a little more rare

then being able to get the permit is a little more rare

and especially it being high “quality” limestone is incredibly more rare

If it’s not high quality then many of the use cases stated earlier don’t work.

It’s important to know there are very big differences in the costs of transporting crushed limestone versus the processed products, as well as very big differences in moving cost among the more processed products. For example, their crushed limestone can double in price for the customer if the construction site or delivery location is only 50 miles away. For their lime slurry (not to be confused with slushy) transporting it 200 miles would double the cost. However, for their hydrated lime product you could transport it 100 miles away and only increase the cost by 10% or less. I did some very back of the hand math using industry estimates for the prices of the various products USLM sells, industry estimates for the costs of transporting them, and industry estimates for the portion of sales that each product is responsible for, so it is way less than ideal, but I think you can get the idea of the significance of transportation cost in this business

The weighted average selling price per ton for limestone products is 97$, and the weighted average transport cost over 200 miles is 30$

This means that the price of the commodity on average increases 30+% if you want to transport it just a state away. So while of course there are still other factors that affect customers, in a commodity price is going to be the most important factor. I go through those details to make the point that unlike many businesses which compete with businesses of a larger region, the whole country, or the whole world, USLM has inherently limited competition.

They on paper sell commodities which should have cyclical prices, but the price of limestone has risen almost every single year for the past 40 years. Also, unlike most commodities the industry is consolidated as the top 5 producers make up the majority of the market, but not all limestone is equal and it’s worth going over.

USLM has very good quality assets which form the second aspect of their moat. USLM’s mines according to their annual reports have limestone of a very high quality (96%+ calcium carbonate). As stated before high-grade limestone that has a high percentage of calcite/calcium carbonate is not abundant. The grade of limestone makes it viable or not for many of the markets we talked about earlier. For example, you need high grade limestone for use in increasing crop yields, and for use in pharmaceuticals. It’s these high quality processed lime products which sell for much higher than cost. So USLM isn’t just a regionally low-cost producer, they have high quality assets which are not common at all and that helps to create enduring pricing power. These assets are not going away anytime soon, as they have the resources in the following mines at current production levels(3,851,000 metric tons) to produce for

Texas mine: 80 years

Oklahoma mine: 55 years

Arkansas mine: 25 years

Based on the limestone reserves and current production levels, USLM can supply itself for the next 60 years without any new mines. This is very antifragile and sets USLM up for lifelong profitability

Cyclicality

Many companies in the materials sector are brutally cyclical making them less resilient. However, USLM has had positive operating income every year going back to 1991, and their operating margin has not dipped below 10% since the year 2000. It is worth pointing out that USLM has 607 million in tangible assets compared to it’s total liabilities of 44 million. USLM’s cash and equivalents alone stand at 319 million. Meaning it could pay its entire book of liabilities 7 times over with just cash. This is not exaggerating like top 1 in 10,000 levels of balance sheet strength for a public business. Combined with their history of operating results, limestone’s demand which is growing from diversified sources and USLM’s moats I view USLM as having an incredible amount of durability against short and long term threats.

Microeconomics/Profitability

It’s worth noting that USLM’s economics are quite fantastic, I will paint a quick picture with the following numbers from the past 12 months of business (all metrics have been improving over the past decade, and moderately in the decades prior)

• Profit margin of 35%

• FCF margin of 30%

• ROA of 16%

• ROE of 25%

• Adjusted ROA of 35%

The adjusted ROA figure is assuming you did not include 250 million in cash and equivalents, which would leave USLM with enough cash to pay all of it’s liabilities, which is a balance sheet still healthier than 95+% of companies. This was made to help you understand just how profitable the core PPE is, and I also took off a couple % points to adjust for the small decrease in net income that comes from interest on the cash balance. That adjusted ROA figure would put this business which operates in a mine, commodity like, and typically asset heavy quarry business in the top stratosphere of profitability for publicly traded businesses.

Capital Allocation:

The best word to describe USLM’s capital allocation is

agnostic

Even a decade ago they had 200 million in assets compared to total liabilities of 30 million.

They repurchase a small number of shares each year to offset minor stock based compensation and have a dividend payout ratio of about 5%. I will say they have been modestly increasing the dividend recently. Overall, they return less than 10% of earnings to shareholders, but they also are only very occasionally acquisitive, and only use a 3rd or less of operating cash flow each year for total capex. So that has caused the already overcapitalized balance sheet a decade ago which had 6.5 times the amount of assets to liabilities to grow to the now 13.7 times the amount of assets for liabilities, and to the 21 current ratio on the balance sheet.

Often analysts complain if a business has an extra chunk of cash or has little debt, and the analyst is being a little short term focused. But this is probably the most extreme case of conservatism you will see in public business, and it does leave investors with some big unanswered questions as to how that cash will be used, and what the management’s intentions are and will be. I honestly have no idea where all this extra cash will go, ideally it could be put into more core PPE or a reasonably priced acquisition of a high quality limestone mine, but there is no way to know. History tells us operating cash flow will be put into very modest dividends and repurchases, and that some smallish but more significant portion will be used in maintenance capex with a little growth capex. While there is not at all good communication with the shareholders, it is worth mentioning that the current CEO has been there for 25 years, and over that time turned it into just about a 100 bagger.

Conclusion:

US Lime serves markets with enduring demand and which on the whole over time are likely to balance each other out for stability or small growth in their total demand for metric tons of limestone products. USLM due to the cost of transportation of these materials becomes competitively advantaged as the low cost producer in the local market around their mines. They are further entrenched from the not in my backyard effect, meaning local governments and municipalities are not going to be happy or content to approve 10 huge environmentally taxing quarries in a small area. This helps limit local competition as well as the need for the limestone deposits to fit the requirements of building out a full quarry. Even if transporting incredibly heavy things becomes incredibly cheap in the very distant future due to combining autonomous driving with solar powered durable trucks, USLM also just owns assets that are rare and limited in their quality which also gives rise to a moat. All of these factors combined with their extreme financial conservatism set them up to be incredibly resilient. Given they can produce for the next 50+ years based off their current mines, they are good for at least a little while.

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While it is a completely reasonable response to do some trimming of your stocks, build up cash, and have some patience until some good opportunities present themselves, I do believe there are always some bargains for the dedicated stock shopper, and that this is a special one. This is not financial advice as I do not know your situation, needs, or tolerances, this article is meant to provide you with a starting point for understanding this business, so that if it’s interesting you can do your own research.

*Full disclaimer I used ChatGPT to format this article, I did 100% of the original writing and hypothesis development, and use the tool only after writing the entire article to make my ideas more readable and concise

Kaspi (KSPI): The Most Asymmetrical Large Cap Opportunity I’ve Found

I’ve done more research on Kaspi than any other investment, and I believe it’s the most asymmetrical opportunity among large caps and bigger. It’s a one-of-a-kind situation that most won’t take seriously — and I believe that’s a mistake.

Kaspi is the first and only company from Kazakhstan to list its shares on U.S. exchanges. It’s essentially a conglomerate, but you can broadly sum up its businesses into banking, payment processing, and e-commerce.

1. From Kazakhstan, with this Financials?

Their valuation almost prices them as if they’re a fraud — that was one of my first concerns given the emerging market origin. But here’s why their numbers are legitimate:

• Audited by Deloitte, one of the Big Four.

• Founder/CEO Mikheil Lomtadze founded and successfully sold an auditing firm to Ernst & Young.

• Kaspi has been listed on the London Stock Exchange (2020–2024) and is now on the Nasdaq, both with high regulatory scrutiny.

• Mikheil and Chairman Vyacheslav Kim each own ~20% of the business — this is their life’s work and represents substantially all of their net worth.

• After listening to Mikheil in interviews and learning the company’s history, it’s clear Kaspi operates with more integrity and care for customers, suppliers, employees, and shareholders than almost any large American business.

2. The Backstory of Mikheil Lomtadze

Mikheil grew up in Georgia (the country), where he didn’t always have food, but he always had access to education. His parents made sure he was learning — above all else.

He was originally rejected from Harvard Business School, but he flew to Boston, got a 15-minute meeting with the head of admissions, and earned his place the following year. He became one of the first Georgians to graduate from HBS.

3. Kaspi’s Origins and Culture

Kaspi was originally a large Kazakhstani bank that got into trouble during the Great Recession. Mikheil, then working at a Russian investment firm with a major stake in Kaspi, stepped in as CEO with Vyacheslav as Chairman.

That temporary move became permanent.

Since then, Kaspi has expanded into their super app model and other business lines, with the mission of growing the value of the business while improving the lives of customers.

4. Growth, Profitability, and Capital Allocation

Kaspi has executed exceptionally:

• Revenue grew from $168M in 2015 to $5.4B today — with 30%+ annual growth nearly every year (except 2020: 17%).

• They operate with a capital-light, highly profitable model, maintaining profit margins between 37–48% since 2019.

• They’ve always had less debt than equity, unlike U.S. banks, and maintain CET1 ratios in the high 10’s of %.

• Returns on equity range from 54–96%, and ROA has been double-digit+ since 2018.

• They reinvest a minority of profits for growth and return the rest to shareholders via dividends. When they recently began expansion into Turkey, they paused the dividend temporarily to have more investment capital, aligning with a long-term focus on investing in itself.

5. Two Stories That Define Kaspi’s Culture

a. The Currency Crisis of 2014

When Kazakhstan’s currency was intentionally devalued in 2014, many banks shut down and made it hard to withdraw money. Kaspi did the opposite — they stayed open, served customers efficiently, offered snacks, pizza, and drinks to people waiting, and Mikheil himself visited branches.

This built enormous trust, reduced customer panic, and created lasting goodwill.

b. Shutting Down a Profitable Service

In 2017, Kaspi shut down one of its most profitable lending products because it had consistently negative NPS (Net Promoter Scores). Mikheil said:

“If we can’t deliver a great experience, we shouldn’t be in that business. It was profitable, but it wasn’t right for our customers.”

6. Radical Customer Obsession

Kaspi’s product teams aren’t evaluated by financial KPIs like revenue or ROI. Instead, they obsess over customer experience. They rely heavily on millions of continuous NPS surveys, and focus on two questions:

1. “How likely are you to recommend Kaspi to a friend or colleague?”

2. “Tell us what we could do better.”

If a product doesn’t reach top-tier scores compared to global peers, they improve it — or shut it down.

Mikheil put their company’s philosophy about customer obsession like this:

“In a country like Kazakhstan, if 1–2 million people don’t like your business, you die.”

This focus has helped them become the most dominant player in Kazakhstan. 95%+ of adults use Kaspi monthly, and 60% use it daily. Over time they have developed all of their business lines into this one “super app” which provides many functions in one place all at a high standard. Kapsi isn’t the only business that operates like this, think Mercado Libre, and WeChat in China. Competition is allowed — but Kaspi outperformed Visa, Mastercard, local banks, and e-commerce players — for one reason:

Because They Deserve It.

7. The Super App That Built Itself

Kaspi combines what Americans get from Amazon, Visa, Booking.com, Carvana, Bank of America, UberEats, Venmo, and Ticketmaster — and adds even more (like paying bills, filing taxes, peer-to-peer transfers, etc. all for free). Not only do you get an incredible management & culture aligned with shareholders at a great value with obscene profitability, but you are essentially getting ten different moaty businesses in one. Network effects stacked up on network effects, stacked up on scale advantages and extreme brand goodwill.

Mikheil puts it this way:

“We didn’t set out to build a super app, but our customers kept asking for more things inside the app. So we just kept adding them.”

8. Customers Get More Valuable Over Time

Kaspi’s investor presentations show clearly that over time:

• Over time each customer on average uses more&more of Kaspi’s services.

• Over time each customers transacts more frequently.

• Economic value per user increases multiple times from signup to year 5.

This is a huge long-term growth driver, in addition as newer business lines like e-grocery and food delivery are scaling up.

9. Expansion Into Turkey

Kaspi recently acquired 66% of a major e-commerce company in Turkey, at a fair price, with similar values. They’ve also acquired a banking license to expand further.

While Turkey is more populous than Kazakhstan and has a higher total GDP, it comes with serious challenges — including extreme currency volatility, civil unrest, and extreme economic instability.

10. Kazakhstan: A Hidden Strength

Kazakhstan, the 8th largest country by land mass, has:

• A relatively stable macro environment.

• A rising GDP per capita which is very close to China’s.

• Steady improvements toward a freer political and economic system.

• Increased foreign investment (e.g., Chevron).

• Major oil and uranium reserves, which pose both risks and opportunities.

11. The Thesis

Turkey is pure upside optionality. If it works, Kaspi could become exponentially more valuable.

But the investment doesn’t depend on it.

If you're a short-term investor focused on near-term profits, Turkey might seem like a distraction, but it’s just another potential growth avenue that could have a big payoff and, on the downside, would just get shut down and you still have the great business in Kazakhstan. If you’re looking for a long-term ownership-worthy business with fantastic economics, moats on moats, a special culture, and a great valuation, you should look further into Kapsi

They can grow earnings 2–4x from:

• Increasing value per user

• Continued scaling of newer rapidly growing business lines

All while trading at just 7.7x trailing earnings and 6.8x forward earnings.

I estimate a PEG ratio of 0.5. Kaspi doesn’t need Turkish success to be a fantastic investment. They’re priced for negative growth, but even stable earnings would justify today’s valuation.

With high integrity, unmatched customer focus, and dominant positioning, Kaspi is selling at an incredibly pessimistic price — and the disconnect is the opportunity.

If you’d like to learn a little more about Kaspi I’d recommend by first listening to Mikheil’s interview on the business breakdowns podcast to really learn about the culture, businesses, history, and goals of Kaspi

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Most people have come across the notion that “investors” are morally indifferent and often selfish in their decision making. Typically, in this notion there are 3 claims:

• A. Investors only care about their returns

• B. The returns are often from “immoral” companies

• C. An investment majorly supports these “immoral” companies to thrive

🌱 A More Nuanced Take

I believe this is partially true and partially not, and I want to bring a nuanced perspective to this issue.

A. I do think it’s true most investors don’t think much about ethics in their decisions.

B. I personally think the success in capital markets that goes on today is good, but it’s not nearly as boosting to life quality compared to 100 years ago. What’s the net good of Facebook, Instagram, or Netflix?

C. This is where the prevailing theory is quite wrong.

Less than 1% of stocks bought and sold last year in the U.S market were IPO’s or secondary share issuances.
Meaning your purchase dollars didn’t go to the company — they went to another seller of the stock.

If an upper middle-class American puts $5,000 into Netflix, you would own 0.00000099% of the company. AKA nothing.
And here’s why I point that out:

99+% of the time, the only positive effect of buying a stock is the upward effect on the share price.
This upward effect over time increases:

• Executives’ compensation

• The value of their stock ownership

• The company’s potential benefits of acquisitions, getting acquired, and future stock issuances

The issue is that for the average retail investor — whether it’s a large stock or small cap — your individual impact on the share price is almost absolutely zero.

📊 But What About Investment Outcomes?

If you made a great investment in Meta (Instagram, Facebook, Metaverse, WhatsApp) in 2022 near its low, a $10,000 investment would have had practically zero impact on the share price.

However, for the average American family, that investment would have turned into over $60,000 (as of writing).
That is impactful, and can help with:

• Retiring

• Taking care of family and friends

• Giving to meaningful causes

⚖️ The Ethical Investing Dilemma

There is a legitimate ethical argument for investing in an unethical business when one knows well that it’s a great opportunity.

That being said, I emphasize the word argument — because you can get very good results investing in only “ethical” businesses as well.

🎯 My Goal With This Article

I’m not telling you to “ethically” invest or not — what I am trying to do is open up the reader to intentionality about their investments.

To understand that:

• There’s a valid utilitarian argument for investing in unethical businesses

• And a valid virtue-based argument for investing in ethical businesses only

It’s up to you to reflect on this based upon your personal values and beliefs.

📌 Ethical Investing Strategy (With Examples)

✅ Step 1: Identify Ethical Operators

Look for a business that is:

• Serving their customers and employees well

• Not doing a disservice to other stakeholders

Example:
Costco has created a system that sells quality goods and services at incredibly low prices.
They pay above-average wages with very good benefits, and don’t do scandalous or immoral things to other stakeholders.

✅ Step 2: Ensure the Business Has a Strong Moat

A business passing Step 1 must have a fantastic moat and good microeconomics, making it a good option for very long-term investment.

Example:
American Express gives substantially above-average benefits and service to its cardholders.

Its good practices are protected by:

• Strong network effects

• A well-known, highly desirable brand

• Above-average cardholder benefits

✅ Step 3: Dollar Cost Average (DCA)

The stocks that meet criteria 1 and 2 are often expensive due to their expected long-term safety and outperformance.

That doesn’t have to disqualify them. If you identify a group of businesses meeting both Step 1 and 2, you could:

• Invest a fixed amount in the businesses each year

• Over time, your cost basis would be unlikely to be relatively expensive

When executed well, these rules could produce an ethical method for achieving good to very good investment results.

⚠️ Final Thoughts & Disclaimers

Please understand that I don’t know your personal financial tolerances, needs, or plans — so I cannot give you financial advice.

I used AI to clean up the format of my original writing so it’s more readable, but all of the ideas, arguments, and perspectives are 100% my own

You should do your planning (or work with an advisor) if you want to thoughtfully incorporate ethicality into your investing.

If you enjoyed this article, subscribe for more pieces contemplating investing philosophies.

I’d love to hear your thoughts and comments — especially on this one.

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The Tools Of A Prodigy

Charlie Munger repeated over and over again how he had developed a “lattice work” of “mental models” to make better decisions both related to investing and in lifesmenship. A mental model is a thinking tool one uses to process information and make information useful. When you have a “lattice work” of mental models like Charlie, it allows you to make decisions with a lot of different perspectives and general truths in mind. Charlie also ruthlessly sought out rationality, so therefore he used his favorite model of inversion to focus mainly on understanding irrationality. He used his knowledge of common psychological biases in both investing and life; Charlie would say someone who does not possess some understanding of these biases was like a “1 legged man in an ass kicking contest”. To avoid that fate, we are going to focus on learning 10 mental models and 10 psychological biases in this article. I will describe each one and how it relates to investing and often life, so you can upgrade your decisions.

Mental Models

1. The Redundancy Principle

   If you build into your system backups in the case that a decision or two was wrong, you make it more resistant to failing. In investing this is applied pretty widely through buying different asset classes, diversifying in an asset class, by holding some cash, and by buying businesses that sell lots of different products or are in multiple industries like an Amazon or Berkshire.

2. Regret Minimization Framework

   When deciding to make or not make a decision, a good simple question to ask is will you regret this decision in the future? Now, in investing many outcomes are especially uncertain so it applies a little differently. I think generally the best way to implement the regret minimization framework is to stick with your strategies, to bet a good amount on really good opportunities, and to hold onto winners.

3. Lindy Effect

   The Lindy effect is the tendency for something to have a higher likelihood on being around for a long time, the longer it has already been around. This fits really well into investing because you can observe that there are certain businesses or industries which have been around for a very long time like banking, and from that you can know there is some competitive advantage or inherit need that will likely keep them around for a long time to come as well. Keeping the Lindy Effect in mind should help investors recognize the generally higher risk of more recent developments since there is less history to aid in judging the future.

4. Time Horizon Independence model

   This mental model encourages actions that do not matter when you take them, but just that you make that specific decision. Howard Marks said that all things are bad at some price, and usually good at another. While great wisdom that does not have to be true. If you are buying a high-quality asset or a business consistently over long periods of time, you do not have to worry about the price or timing. If you plan on doing something forever like buying the S&P 500 consistently investors know they will not overpay and should get a reasonably good result.

5. The Map is Not The Territory

   I think my Phenomenology and Deconstruction philosophy teacher would be happy to see this mental model. The model reminds people that our understanding of the world is not the world itself. That there is some disconnect between the “truth” and what we think of it. Investors need to remember this idea or else they can get disillusioned about how much they understand.

6. The Pareto Principle

   This well-known model tells one that the majority of our end results come from a small number of the decisions. This is incredibly applicable to investing. Charlie often said that if you took out Warren’s best 15 or so decisions, he would have a quite lousy record. This is true for many many investors. The lesson is this, when you get a winner do not be so quick to sell it for two or 3 times your money if the fundamentals are good because you might be selling what would have been one of your 15 big breaks.

7. Regression to the mean

   In statistics typically after an extreme outcome you are more likely to see the next outcomes be moderate, as that is the norm. However, in investing we often will see an extreme outcome, like the huge 1-day crash in 1987, or 3 years in a row of a stock doubling, and get the feeling that the cycle will never stop. It is essential to always keep this general statistical principle in mind because we often forget it at the most important times.

8. Opportunity Cost

   Opportunity cost is that the real cost of a decision is not the time or money spent on it, but instead views cost based upon your next best decision. Using this model helps you to realize all the options available in your thinking and makes sure you’re not just making a good decision, but you are making the best one. When investing you need to not just make good decisions but understand that every dollar you use on something is not going to every single other opportunity out there. So, the opportunity you are looking at needs to be a great one.

   

   “The best way to maximize returns is to think about what else could you be doing with your time, money, and energy”-Charlie Munger

9. Activation Energy

   Activation energy is a term in chemistry describing the minimal amount of energy necessary to start a chemical reaction. In investing compound interest is an obvious activation energy example, and the model should help investors remember that you do need to put in a certain amount of capital if you want to get reactions that really matter, so before you focus greatly on stocks(chemicals) you’re choosing, focus on having enough capital(energy) for any reaction to even be possible.

10. The Paradox of Skill

This mental model tells us that in a field if the overall level of skill is rising then the role of luck in determining outcomes increases. This happens because after a massive increase in the total skill of a field the skill difference between each individual decreases. This is incredibly applicable in investing. Charlie Munger’s take on this principle was to fish where the fish are. Monish Pabrai one upped him and said investors need to fish where the fish are and where there are no other fishermen. If there is a collective investment IQ of 10 billion looking at the same stocks you are looking at, it is going to be more difficult to come up with correct contrarian judgements. However, if you are looking at stocks that only 100 people seriously scan over a day, then there is much larger room for mispricing.

“I’d be in small stocks in inefficient markets. I would look in places where others aren’t looking because it’s too small or obscure for large funds to bother with”-Warren Buffet

Psychological Biases

1. Anchoring Bias

   Definition: The tendency to view the first piece of information about something as overly important.

   Application to Investing: It is exceptionally difficult to get rid of this bias in investing. Anyone with experience in investing knows that once you buy a stock you become particularly determined to think the stock is incredibly cheap if it goes down 10% and if it goes up 10% it just no longer makes sense to buy. Stock pickers need to be very cautious to evaluate the facts of a business and its price and not be concerned with the price they first saw or bought the stock at.

   Example of Application: One of the strongest examples of this bias is with birds. I learned in my high school psychology class that some species of birds have such a strong tendency to “imprint”/anchor when they are born, to the tune that they will think a man is their bird mom if it is the first moving object they see, and they will then follow the human thinking it’s their mom. From my personal behavior, I think birds might be more rationale in their imprinting, than how people are with the initial price they buy a stock.

2. Bias Towards Action

   Definition: I have personally come to the belief that the single greatest skill an investor can have is extreme patience. This is unfortunate as we have a common bias towards change/action especially in times of panic.

   Application to Investing: Think about how much activity, worry, and thought happened in people’s portfolios some couple weeks ago during the tariff crash. It is very difficult to be apathetic seeing your net worth go “down” rapidly, but if you are like most people and are a traditional long buyer of stocks and some bonds, likely the only thing you intelligently could do is wait. If you had some extra cash to invest that was just a bonus. It is difficult to view inaction as the right “thing to do”, but it often is.

   Example of Application: I have pointed out before on this Substack that the free enterprise system is an incredibly effective system. A lot of people really feel upset with “capitalism” and there are certainly understandable concerns, but I think the bias towards action leaves the free enterprise system underappreciated and dangerously misunderstood. The 25th-50th percentile American today is living better less than one long lifetime later (he died in 1937) than John D Rockefeller the richest man in history did. Angus Maddison a famous economic historian estimated that the average global standard of living rose more in the past 200 years than in the prior 10,000 years. However, nobody ever looks like a hero, when they say things are going well.

3. Representativeness Heuristic

   Definition: Predicting an outcome of a situation based on how closely it resembles a prior one. It’s worth noting that we have evolved to have these 10 psychological tendencies because they were more useful than not.

   Application to Investing: It does not take long to think of how representativeness heuristic thinking causes us to invest poorly. How many articles have been made, or how many stock purchases done based on X business being the next Amazon, Netflix, or Apple. We are thankfully prone to compare current situations to the past, but assuming that every new exciting stock is going end up with an outcome on Amazon’s level is a bad way to do your investing.

   Example of Application: If you decided to invest in let’s say a Rivian or Lucid at their IPO and early prices because you assumed it was going to be the next Tesla (which itself is super overvalued), you would have achieved a permanent loss of that money.

4. Optimism Bias

   Definition: The tendency to overestimate the probability of very good outcomes for ourselves and the positive aspects of ourselves.

   Application to Investing: It is not a smart way to invest to bet using leverage that you are going to get multiple Amazon and Apple like returns based off your superior judgement of tech microcaps. Very few people experience incredibly exceptional outcomes, and it is better for your investing strategy to only require average outcomes to be successful than to require the top 1%

   Example of Application: Many studies show that 90% of drivers think they are above average, 90% of teachers think they are above average, and most startup entrepreneurs think they will succeed yet 90% fail. It’s amazing we can all be above average. We are not rational!

5. Contrast Effect

   Definition: How our judgement of a thing gets changed by our comparison to other stimuluses/things.

   Application to Investing: If you say to yourself that you are only a tech investor, and you are picking among the tech stocks in 1999, you might find that one of them is cheap because it was selling for 200 times earnings because the rest of them had no earnings. That would have been a bad decision. It is important to not just judge investments on a relative basis but also on absolute basis.

   Example of Application: This is a massive issue on the internet. People, particularly young people who often spend a lot of time online end up looking at the most extreme outcomes in finance, fitness, or lifestyle end up with a distorted image of reality.

6. Sunk Time/Cost Fallacy

   Definition: The tendency to continue down a path, after resources or time has been spent on it regardless of new information.

   Application to Investing: I can surely tell you that if you spend a lot of time working on an investment thesis, without checking yourself for the sunk time bias you are more likely to end up with a buy signal than not. We feel like if we spend the time to learn so much about a process or investment then it was a waste if don’t execute, so we will sometimes still follow through even though it’s not the best decision.

   Example of Application: Imagine that you decided to watch a 2 hour long movie and about an hour in you decide it’s not worth watching, many people will still continue to watch the next wasteful hour because they are already “invested”.

7. Availability bias

   Definition: The tendency to overweigh the most recent/vivid memories that come to mind when judging a situation

   Application to Investing: Availability bias can affect the investor both by overweighting the very fresh in mind recent events, and also by overweighting the most extreme but rarely applicable past. Think if you got badly burned during the financial crisis, every time there is a 10% dip in the market, you dramatically overweight the probability of that dip turning into a 50+% drop.

   Example of Application: Many many people have a very big fear of flying much more than driving for multiple reasons. One of them is because of the great attention to all airplane crashes on media and social media. The memories of these tragedies are often very strong and attention capturing, and they make many people feel less safe flying despite it being about a whole 100 times safer than driving. We are not rational creatures; think of how many people cannot get on a plane without it being crisis level 100 versus driving, despite it being 100 times safer to fly.

8. Deprival-Super reaction syndrome (Charlie made the name)

   Definition/Example of Application: This bias is so fascinating because it’s so easy to see how strong and prevalent it is. Imagine you go into a regular yearly meeting with your boss to discuss your salary. You normally receive a 2% increase to your salary and do not get too excited about the 2% as it will not make a huge difference. This year, your boss tells you your salary is going to be decreased by 2%. Most people would be absolutely livid, so even though there is still not going to be a huge difference in your income, the emotional effect is many times higher. We just do not tend to react as positively to minor positive movements as we react negatively to minor negative movements. It has been proven in peer reviewed studies, and it is a logical evolutionary tendency for us to be more concerned with risk than gain to survive.

   Application to Investing:

   Often times when a business minorly misses expectations it can result in huge losses for the stock, as an investor trying to be rationale you should remember this bias, so that you do not yourself react disproportionately to minor negative news. If you acted this way when Meta’s revenue dipped slightly a couple years ago and the stock fell to 100$ per share, you might have sold out before the following gains up to 740$ a share.

9. Doomsday bias

   Definition: The common bias towards overweighting the likelihood of the worst possible outcomes

   Application to Investing: This is where investing based off of recent bad news/performance often turns out to be profitable. Sometimes small developments can cause people to think the path forward will be all down, and discount good businesses too much.

   Example of Application:

   While this does integrate with availability bias, people often suffer from Doomsday bias in how much they will stress over being struck by lightning or eaten by a shark, or being murdered, yet not devote nearly a proportionate amount of time to the most common causes of serious harm like smoking, acting poorly in relationships and friendships, or addictions to alcohol/drugs.

10. Herding Effect

    Definition: The tendency for people to follow along with the group in judgement and action

    Application to Investing: I think it’s fairly easy to see how good businesses can get discounted, when the immediate popular response to the idea of investing in said business is complete boredom, disgust, or thinking it’s senseless.

    Example of Application: The classic really cool example of this is the Asch line experiment. In this study a group of people were placed into a room all pretending to be subjects, but only 1 was actually a subject. They were asked to judge the length of lines draw on paper and say out loud if line A B or C were different lengths and how they were different. Everyone except the subject went first and said that it was clear they were all the same length. However, these lines were drawn 110% clearly not the same length even to someone with mediocre vision, but the majority of the time, since multiple others had already stated it looked clear, the actual independent subject agreed with them. They acted like they saw something different than they did, and perhaps even convinced themself of that because the collective judgement of other had overwhelmed confidence in their own.

Margin Of Wisdom

Thank you so much for reading! Please leave a comment telling if you preferred the concepts to be broken down into parts like the cognitive bias section, or if you preferred the integrated concept like in the mental model section!

Please subscribe or restack the article if you learned something useful!

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How does the following investment sound to you?

A simple, American small cap run by a certified owner operator which has never lost money in a year, has slowly grown intrinsic value over time, is solidly competitively advantaged, and that is selling for a 1/4th the property, plant, and equipment

Considering most solid but not fantastic American businesses still sell for multiple times their tangible assets, and 20 times earnings it should sound pretty good

This business is a family run southern grocery chain that is by no means a growth stock or an ultra-high-quality business, but has some very interesting information that not many people know about. It has overall low debt, moderate returns on assets for a grocery business, and slowly grows intrinsic value over time mainly by adding real estate and secondly by increasing earnings power. It has gotten reasonably good results over time despite the rise of Amazon, Walmart, and Costco. The name of the business is Ingles Markets (IMKTA). Here’s how it’s secretly selling for way less than the value of its real estate

(2024 10K)

Let me explain

Most grocery stores lease most of their locations versus buying the land. Ingles owns more of its land and buildings than any other grocery chain. It’s also helpful to know, most grocery chain’s sell for many multiples of book value.

1. Target sells for 3 times more than it’s tangible book value

2. Costco sells for 16 times it’s tangible book value

3. Kroger sells for 10 times it’s tangible book value

Ingles is on paper selling for a 23% less than its tangible book value as of writing. However, all of its real estate as you saw earlier is valued at cost and from all reports available has not been revalued. Ingles has held its land for decades. Over the past 30 years suburban retail commercial real estate (Ingles real estate) has appreciated multiple times over. Reasonably knowledgeable investors know that there is a difference between accounting numbers and the actual value or economic reality. Most of the time companies try to overstate their assets or earnings. In this case, Ingles massive amounts of land and property has been appreciating for years, two decades, or 3, 4, 5 decades, depending on when it was bought and it is all being valued on the balance sheet at cost. This means that the actual value Ingles could sell their real estate for is multiple times higher than what the balance sheet shows or what the market thinks. It also means a business that has never lost money in a year that is slowly growing is being valued in the most modest assumption less than 50% of its tangible assets versus the S&P 500 being valued at least over 5 times it’s tangible book value. I am going to explain the real hidden real estate further, but first I need to explain the business and management.

The Business

Ingles has been able to do pretty well despite the rise of its competition by buying up all the land in smallish retail areas usually containing 5-20 stores that are the closest to the nearest big source of population. Often times in small towns or suburbs and not in big bustling cities. They make a bit of money by leasing all the other real estate in the center to other businesses and ensure there is no competition close. Also, this leasing business is high margin and a slowly growing stream of cash. Their strategic real estate leaves them as the closest grocer to major sources of customers who their brand aligns with and makes the travel to the competition at least a couple miles away.

Ingles also offers groceries at a low cost due to the strategic positioning of their large distribution center and warehouse, in addition to their milkco plant which vertically integrates Ingles and provides them with low-cost dairy, juice, and tea. This plant also sells the majority of its total production to other businesses but still is able to supply Ingles with the large majority of its dairy, and some juice, tea, and water products. In addition, a big expense for grocery stores is the monthly lease and rent payments, but with its ownership of land and low debt Ingles has lower overhead expenses. The typical consumer’s grocery cart of Ingles goods was shown to be as cheap as almost any other grocer.

It’s not just their low prices and strategic real estate that have adapted them to survive against the Costco’s, Walmart’s, and Amazon’s. They have been making their stores bigger over time with more options, they have been increasing the amount of organic food and have implemented online pickup orders. In addition, they have been adding fuel stations, pharmacies, and Starbucks or “meal replacement” options like pizza, sandwiches, and prepared salads into their stores. The majority of their operating cash flow goes to buying more real estate and doing the upgrades stated to their stores. They also have been paying down debt and pay a small consistent dividend.

Ingles has only had 3 CEOs since inception in 1963. The first being Robert Ingle who founded the company and was the CEO until he passed away. The second being his son Robert Ingle the 2nd who served from 2011 to 2016. The current and third CEO being James Lanning who first started working at Ingles in 1975 as a service clerk. Robert Ingle the second still serves as the chairman on the board of directors and is significantly involved. I view this as a huge plus as family owned and operated companies do better on average. This is because they own a significant amount of the shares and do not just view the board position as a job to keep but are actually interested in the long-term results.

Ingles had a surge in profits during the inflationary period of 2022 largely due to the very profitable fuel sales they had. When a business like a grocery store even has a 3% change in net profit margin, it can create massive differences in earnings. Then as fuel prices moderated and labor costs increased Ingles’s return on equity and net profit returned to more usual levels. However, they suffered a lower-than-average ROE and net profit margin last year as they have significant operations in the Carolinas where Hurricane Helene (an exceptionally damaging hurricane to Asheville where Ingles headquarters is) caused multi week disruptions to operations and some minor impairments to property, plant, and equipment. Overall thought the effect on PPE was quite minor and the thesis is intact. I will caution management has guided that there will be impacts from the hurricane to their first quarter of 2025 as well, so one should be extra cautious of a 1-time big lump sum investment into Ingles before the full damage is known.

In addition to the land, Ingles from an earnings perspective is at an attractive forward price to earnings of 15. There are no earnings estimates or analysts following Ingles but given my best information and judgement 15 seems reasonable. Also, Ingles trailing P/E is 15. You might be asking how come someone else has not discovered the hidden value of Ingles? Well other people have, but not enough to bring it to the market’s attention and even if one discovers the hidden value of the real estate (and the stronger than first glance competitive position) it is very difficult to get an exact value of the real estate. It would take a team of real estate experts to actually value the real estate. However, the exact value is not necessary to the thesis, what is important is that the real estate is very likely worth multiple times more than the stated book value.

I would like to throw out for the bragging factor and cool rights that I originally discovered the hidden value on my own organically and I discovered it within a year of starting to learn about investing. I decided to research every U.S grocery store business around two years ago(I’ve done this with like 7 industries) and was looking into Ingles. While reading their 10K I realized that they A. Had a lot of land and B. Their accounting measured the value of the land at cost, and that they have rarely ever sold property. I did not have nearly a 1/4th the knowledge at that time that I know have and due to other factors, I did not pursue the idea strongly again until a couple months ago.

The PPE figures

Ingles leases a smallish number of stores that it operates, but the thesis is about the land they own, so that’s what these figures focus on. I got the following information from Ingles 10k’s and did my best with the information provided to build out the picture of their real estate

2003 10K: Ingles owns the 101,000 square foot milkco plant on 11.5 acres of land

Ingles owns 74 shopping centers with 58 of them containing an Ingles, 74 freestanding stores, and 4 undeveloped sites for a total of 152 sites

They have a 810,000 square foot warehouse, headquarters, and distribution center situated on 73 acres of land

2010 10K: Ingles owns their 118,000 square foot milkco plant on 20 acres

They own 70 shopping centers of which 58 include an Ingles, they own 93 additional free-standing Ingles, and 14 undeveloped sites for a total of 177 sites

They own an 810,000 square foot center that has their headquarters, warehouse, and distribution facility on 73 acres of land

They own a 139,000 Square foot warehouse on 21 acres of land

Ingles owns 46 acres of land adjacent to the warehouses for further expansion

2024 10K: Ingles owns their 140,000 square foot milkco plant on 20 acres

They own their 139,000 Square foot warehouse on 21 acres of land,

They own another distribution center/warehouse/headquarters of 1,649,000 square feet located on 119 acres.

Ingles owns 175 of its stores (breakdown between shopping centers versus freestanding not disclosed, but the amalgamation of a lot of research tells me it is highly likely more of them are a part of their shopping center strategy), and 29 undeveloped sites for a total of 204. The actual differences in land owned from 2010 is greater than the total 27 site gain because more of the total sites include whole shopping centers and the average store is larger.

(Notice the difference in average square feet per store over time)

The Conclusion

With the land and property figures laid out over 3 different intervals since 2003, we are able to get some working picture of the land’s average age. It seems that in the past 20ish years Ingles has doubled the headquarters and milkco land. In addition, it has probably increased the amount of land in shopping centers and Ingles stores by at least 50%. I got this number as the total site increase is already about 30% more, and Ingles has been increasing the average size of their stores for a while as well as buying up land in the small shopping centers over time. What we can see is that yes Ingles has added a significant amount of real estate in the past two decades, but Ingles already owned a substantial amount for at least two decades. A lot of the land that was owned in 2003 and still today owned was bought 3-6 decades ago. My best guess based on the data is that Ingles land is at the least on average 15 years old, and on the optimistic side 30 years old. I think the truth is somewhere in the middle here.

We will run 4 assumptions to attempt to gauge the hidden value of the land.

1. 15 years of appreciation at 3% annually: 1.00=1.56

2. 15 years of appreciation at 6% annually: 1.00=2.40

3. 30 years of appreciation at 3% annually: 1.00=2.43

4. 30 years of appreciation at 6% annually: 1.00=5.74

The range I really see for the tangible book value of Ingles is probably understated somewhere between 2 times and 5 times. My best guess is Ingles is currently selling for 1/4th of it’s tangible assets, and a forward PE of 13-16. This if true, given the general quality and stability of Ingles business would make Ingles a fantastic value investment.

That being said

Even though I have truly done my best to give a good estimate on the value of Ingles PPE, there is absolutely no guarantee on when if ever the value will be realized. Ingles will not get taken over ever (which would be awful if a business like Ingles where the management actually have built their lives on it got scraped for parts) as the Robert Ingle the second owns only 22% of the business, but 72% of the voting rights. He is going to take care of the business, so I do not ever see him selling land to do a special dividend and I think most would be buyers of Ingles would not care about it the way he would want. Unless there is an accounting change, or everyone absolutely blows this article up to the moon (which is a good idea if you ask me) the value of Ingles will not likely be recognized by the market for a long time. Management focuses on the business not the stock price. Ingles a long time ago stopped doing earnings calls, earnings estimates, or answering any questions from Wall Street.

They are truly a small southern country town business

That is secretly, incredibly cheap

Margin Of Wisdom

Please understand this is not personal financial advice as I do not know your needs, tolerances, or situation, but instead would encourage you to do your own due diligence on Ingles! If you thought the article was worth reading subscribe and please restack it.

If I had a dime for every time(bars) that I saw an article or video about the only stocks you ever need to own, or about stocks that you can buy and throw away the key, I would have at least a couple dollars. Most do not take seriously at all the claim they make and just choose a hodgepodge of commonly bought and well-regarded stocks. I will not be doing this. I will limit my selection down to the stocks you truly can buy and own for a very very long time if that’s your cup of tea. They have moats that are as wide as the Grand Canyon. I will create a list of 20 equally weighted stocks and track their results over time without changing the portfolio. I will tell you a little about what each business does and the moat they have. This is not financial advice as I do not know your situation, needs, and tolerances. My goal of this portfolio is for it to be sufficiently strong enough to where if I was given 3 million dollars, and that was the only money I could ever receive through any means for my whole entire life, and I was not allowed to invest in diversified funds but only through businesses, I would sleep well at night with this smaller but well-designed basket.

Financial Castles

1. Royal Bank of Canada

Royal bank of Canada has their hands in all the cookie jars, sugar cookie, choco chippy cookie, peanut butter crunch cookie, etc. They are the largest Canadian bank, and they are growing in America as well. Their business segments are laid out as follows from highest portion of revenue to smallest portion, personal and commercial banking, wealth management, capital markets, and some insurance and investor services. They are incredibly competitively advantaged because in Canada the 5 largest banks control 90% of the market as opposed to the thousands of banks in America. Regulation from the government keeps new competitors from entering, and the more regulated environment also means Canada’s banks have been way lose prone to crisis’s than America. They earn chronically high returns on equity that most large US banks could only dream of and continue to reinvest and grow. There will always be a need for banking, at least as much as any industry out there, and Canadian banks are very good businesses. They will be for a long time, and the cream of the crop is Royal Bank of Canada.

2. Berkshire Hathaway

   I usually try to keep Berkshire out of my posts not because they do not deserve a place, but because I feel it can be a little bit of a cheat code and not provide any new ideas to readers. But this fits too well. Berkshire has a large stock fund that will continue to grow over time, in addition to dozens and dozens of businesses Berkshire owns privately. The most important being Geico, BNSF railroad, and their utilities. They own dozens more like Dairy Queen, the company that makes squish mallows, and Fruit of The Loom. Berkshire’s advantages that will keep it a good investment regardless of Warren’s incredible management is a few simple things- They have a culture of rare actual rational investing that will never go away, they have far less bureaucracy, red tape, and engagement in corporate nonsense than you will find almost anywhere, and they always operate with integrity and conservatism that allows them to do things nobody else can. Honestly you could have multiple millions in Berkshire alone and I would not be scared for you.

3. Toronto Dominion Bank

   The thesis here is very similar to Royal Bank of Canada. Toronto Dominion Bank is the second largest Canadian Bank and enjoys all the benefits of the Canadian environment. They have put up a fantastic performance over the past 2, 3, 4 decades and have successfully grown with very high returns on equity and disciplined underwriting. However, TD has had a legitimate setback as of late due to a breach in their anti-money laundering policies. They failed to be strong enough there, and as a result they now will have to deal with a limit on their growing presence in the U.S, and a slight tarnish to their brand. Overall, if you’re thinking about 30,40,50,60 years, TD is still a business that has natural moats and will earn high returns on equity in an environment that will grow and be a need indefinitely.

4. JPMorgan Chase

I said earlier that the big Canadian banks earn returns on their equity that big U.S banks could only hope to achieve, but JPMorgan is an exception. JPMorgan has an incredibly strong brand, culture of excellence, and very conservative underwriting/balance sheet. I do not see JPMorgan losing deposit share over time, or having a banking catastrophe, and they should continue to enjoy high returns on equity for a long time.

5. American Express

American Express is at this point a payment processor first and a credit card company second. Payment Processing is a fantastic business, and the credit card business is pretty good by itself. Both are industries that will grow over time, and I do not see American Express losing market share as they have an incredibly strong brand that commands respect, and they provide far more services, deals, and high-quality service to their customers than their competitors. The unmatched treatment of their clients and prestige of their brand will keep them earning their high returns on equity for a long time.

Industrial Dawgs

1. Union Pacific Corp

Railroads are highly likely to be important for a long time. They transport goods at long distances for much lower cost and carbon footprint than both trucks and airplanes can. There will always be a need to transport goods and given that railroads transport goods long distance the cheapest with the exception of large boats which only work if there is a water way available railroads will continue to be a need for a very long time. There are only 7 railroads that control practically the whole market across Mexico, America, and Canada. Each business is well protected from competition as once a railroad has its thousands of miles of track established it basically locks all the profits that will flow from goods transported in those areas. A competing railroad will not set up a track in the exact same path because that would lead to overcapacity. Both railroads might not get to use their trains to their full capacity and will likely engage in a pricing war. In this situation both businesses suffer. The regulation and the massive amounts of capital needed to get to scale a functional railroad also help to keep the competition out. They earn good but not fantastic returns on capital and will continue to do so for a long time.

2. Canadian National Railway

   The thesis behind UNP and CNI are so similar I won’t waste your time too much. The big differences behind these two is that Canadian National Railway is the only railroad with tracks running through to the Pacific, Atlantic, and Gulf. CNI also has a lot more rail in Canada whereas UNP has a stronger footprint in the West to Midwest of America.

3. Waste Management

Waste Management is the largest provider of waste management services in America. They operate both the collection of trash and disposal into the landfills they own, and they are building out facilities to use the natural gas that can be extracted from waste. Waste will always be a need and is a growing need. The business is incredibly moaty because it is not just capital intensive but quite difficult to get approval for landfills. In addition, once a city has a contract established with Waste Management it is highly likely to be renewed as it is very costly to cities to switch and the large majority of times the risk of switching to another Waste Management company is not worth any potential savings in the cases they do exist. Waste management earns decent returns on capital and should continue to for a long time.

4. OMA airports

   I have written before about how good airports are so I will keep it short. OMA airports and ASR airports operate you can probably guess airports in Central America (mostly Mexico). The number of domestic and international travelers have been consistently growing over time in central America and will likely continue to do so. ASR and OMA are given exclusive rights to operate airports in certain areas, and there are no competitors at almost all of their airports for 50, 60, 70, 80 miles. They add more revenue over time through advertising space in the airports, the parking garage, the stores within the airports, the right for an airline to use the airport, and off ticket sales. ASR has very low debt and earns good returns on capital while OMA has low debt and earns very good returns on capital. It is a good business to be in.

5. ASR airports

Look to OMA for the analysis of ASR.

Data and Processing Dominators

1. S&P Global

S&P Global provides credit ratings for businesses, has the rights to benchmarks/indexes, and also provides market and commodity insights/data. Credit ratings are fantastic to be in because there are only really 3 companies who can give credit ratings and will continue to really only be 3 businesses who rate the safety of debt. So, when a business needs to issue debt, they need to inform investors on how likely it will be that it gets paid back for investors to be interested in buying the bonds. Since investors, want a source they deeply trust as to how safe their bonds are they always go with the established respected players. In addition, regulation helps to keep there only ever really being 3 used raters. This will be a stable/growing need forever.

Now to explain the indices side. Many people buy stock funds, when you buy an etf tracking the S&P 500 or any of the many mutual funds that compare themselves to the S&P 500, you are supporting S&P Global. S&P Global partially owns the company that decides what goes into the S&P 500 or not. Since investors use the S&P 500 and other indices as a baseline to judge the performance of almost all the investments they make, companies will compare themselves against the index. In order for a fund or ETF to say they are tracking the index, use the name of the index, or be given real time access to the index data they have to pay a fee to S&P Global. Many funds do not aim to track an index created by S&P Global, use the name, or need the data, but many do, and for those funds which over time have been growing in popularity they need to pay SPGI. If you are wondering what are the chances that the many passive funds (which will continue to grow) will want to track an SPGI index continues just look at this list of their top indices. The S&P 500, Dow Jones Industrial Average, S&P Midcap 400, S&P Small Cap 600, S&P dividend aristocrats, Dow Jones U.S Real estate index, and the Dow Jones U.S dividend 100 index (used for SCHD).

SPGI also provides market data and commodity insights that are absolutely essential to utilities, banks, insurance companies, and other groups. SPGI is one of the most trusted and respected for this need because of their prestige, long history of excellence, and established relationships that make them one of the few who can get the data needed for their clients.

Overall SPGI operates in an area that will always be a need and that is an oligopoly, another area that will always be a need due to passive investing and SPGI permanently owns some of the most valuable indices, and they have a strong data business in a growing need for organizations where SPGI is likely to do well over time. Their margins and returns on tangible capital are fantastic and they have low debt, so they are a good choice for this list.

2. Moody’s Corporation

I took a longer time explaining SPGI partially because I wanted to make Moody’s and MSCI easier to understand, so the next ones should not take as long. Moody’s operates the other largest credit rating business in the world. They earn very nice returns on capital from this oligopoly, and because businesses will always need access to debt, and investors demand the businesses have ratings, and because Moody’s is one of the only 3 that are accepted, Moody’s will always have a big place in this fantastic growing industry. It is not talked about as much as other big investments of Warren Buffet’s like Coke or American Express, but Warren has owned over 10% of the business for over 25 years and has said it has a terrific moat. Their growing analytics business is also high margin business that will be a growing demand for a long time, and Moody’s is well positioned due to the strong trust in their brand, the switching costs of their cloud-based products, and their proprietary large databases.

3. MSCI Inc

   MSCI’s most important business is their indices licensing business so I will focus mainly on that, but MSCI also operates an analytics business, provides ESG data and has a private assets segment. MSCI earns great returns on capital, has moderate amounts of debt, and has above 80% gross margins. MSCI has one of the most valuable group of indexes of any index provider. I absolutely do not see passive investing shrinking over time. It is also highly likely that more investment dollars in the future will be placed in indexes abroad as the U.S currently makes up a chunk of the global stock market more than twice the size of our GDP, and also is selling at a disproportionately high price to other markets, and in general as other emerging economies like India, China, and other countries have been developing their economies faster than America their stock markets will become more and more important to all investors wanting passive diversification. MSCI has a dominant portfolio of the most important and widely used passive indices abroad. As more and more dollars for these funds grow over time, the index funds grow with them, and a lot of those index funds will try to mimic the widely accepted MSCI indices and have to pay MSCI for the data and right to do so. In addition, ESG investing and disclosures are highly likely to continue growing over time, and MSCI’s proprietary ESG rating frameworks are the gold standard and are deeply embedded into ESG investing.

4. Visa

   It is well known Visa and Mastercard are excellent businesses to be in. They have little need for capital expenditures or research and development despite having super strong moats in incredibly high margin and return on capital industries. They are instead able to pay healthy growing dividends and repurchase shares consistently. The reason why they have been able to thrive and grow so rapidly without constant massive reinvestment is due to their incredibly strong network effects. They also have other competitive advantages like trusted well-known brands and regulatory barriers for setting up a global payment processing business. However, the main reason they are great long long run candidates is their network effects. As we have discussed before network effects are when a business becomes stronger as more and more people use it. If you are a customer looking to open up a debit or credit account in America, you are likely going to get a physical card(Apple Pay also works) with your bank. This bank can choose to use Discover, Visa, Mastercard, or if you opened up an account with American Express then American Express. They don’t offer you a card using the Peter The Goat bank. Why? Because no stores take Peter The Goat cards(this will change soon), but almost all merchants domestically and the overwhelming majority of stores abroad if they take cashless payments will take Visa or Mastercard(except in China). This means that the majority of new cards getting issued in addition to the massive number of cards already in existence will use one of the two big established players because the main utility of the card is determined by the number of merchants that accept it. The new businesses when they first accept cashless payments will also take Visa and Mastercard because they know their customers use it, and they want their customers to be able to conveniently shop at their stores. Cashless payments are going to keep growing globally and Visa and Mastercard are very competitively advantaged to stay on the top.

5. Mastercard

Look to Visa analysis due to similarity of business models I would rather save you the time than write about Mastercard

Steady eddy’s

1. Coca Cola

   I think there is a balance of perspectives that need to be walked on when thinking about the future of the Coca-Cola Company. When Warren Buffet still says the best brand in the world is Coca Cola, and he never ever points out any negatives of coke, I think it is a little bit of a blind spot for him. As a college student, I can tell you that if you walk into a classroom with a can of Coke, Sprite, or Fanta that it would feel weird. If you walked in with a 400-calorie coffee from Starbucks, which many people do, nobody would bat an eye and might think dang I wish I had a coffee. If you walk in with one of the sodas I talked about, people think soda is so unhealthy. Despite a rising number of obese and overweight young people, our generation has certain foods or drinks they consider negatively much stronger than older people similar to the way a lot of young people view cigarettes as just being like gross. Soda is perhaps the number one victim. That being said, there are still lots of young people drinking soda, will continue to do so, and would be fine to own for a decade as one of your only businesses. However, when you consider the broader picture of Coca-Cola’s business, I think it will have been a reasonably good pick to grow and preserve one’s wealth over a very long time. Coke’s diet products are viewed more favorably, they have many water brands and Vitamin Water which should do well over time, they have juice, Powerade, and tea brands which should do okay, they have an investment in Monster Energy which should do well over time, and they have been continually adapting by buying growing beverages like Body Armor, Fair life protein, and they fully own and operate the well liked growing Costa Coffee chain. The business earns good returns on capital, has almost zero credit risk, and has massive advertising and distribution power to stay the most recognized brand in the world. In the whole picture the Coca Cola business will be fine.

2. Next Era Energy

   Next Era Energy is the largest renewable energy utility in the world. Power/electricity is a need every day of the year and is growing and in particular the demand for renewable energy is likely to be growing indefinitely even faster. Utilities earn fair returns on their capital but not great. They work with regulators to guarantee a return on their investments but without charging extortion like rates. NextEra has a massive backlog of orders for new energy projects and is a respected business that will grow with the need for a long time. They generate massive amounts of energy from solar and wind power which they sell to other utilities, municipalities, and large businesses under long-term purchasing agreements. In addition, they operate Florida Power and Light serving 6 million people, and in the areas they serve they are the only option. It is an attractive market as Florida’s population is growing at a good pace. You won’t get fantastic results with Next Era energy, but you are highly likely to get good results.

3. Costco

   Groceries will always be a need. Costco differentiates itself by their unique warehouse model, Kirkland Signature brand, incredible volume, and store amenities. Yes E-grocery and online shopping are growing, but Costco’s cheap gas, iconic food deals and free samples, and services like the pharmacy keep people coming back. In addition, Costco has a significant amount of their goods in the store as one time only, unscheduled deals on big ticket items. This also helps to keep people coming to stores to see what limited time goods are in store at a discounted price. Costco is also growing its own e-commerce business. Costco offers necessities at the lowest prices that are of a high quality with many amenities that keep customers coming back and has a loyal customer base. They earn really good returns on capital and operate with low debt. They have a very long way to go in expanding and are a good choice for this list.

4. Chubb

   Chubb is an insurance company that operates all kinds of insurance, they insure special valuables, homes, cars, workers compensation, and also has some reinsurance and life insurance underwriting. Most insurance companies lose money on their underwriting and make their money on the float they invest typically into bonds. So people do not pay more to their insurer than they end up taking out in claims as a whole. Chubb is exceptional at underwriting; they consistently achieve significant underwriting profitability and also get the income from their bond portfolio. Chubb’s moat comes from its strong brand and execution insuring high net worth people’s assets. Chubb specializes in insuring things like art, expensive homes, expensive cars, and yachts. This specialization means less competition which means they consistently achieve underwriting profitability. Insurance will always be a need, and it is a growing one. Chubb is of the highest caliber and will likely continue to be.

5. Amazon

   I intentionally do not have a lot of technology stocks because those businesses tend to change faster, and the biggest most successful ones face some real regulatory risks. However, Amazon is too good for this list to be left off. I am not a technology expert, but I do understand that cloud services and storage are likely to be growing industries for a good while. I know that streaming is not going anywhere soon, and I know for sure that e-commerce is not going anywhere for a long time. Amazon is #1 in both Cloud and e-commerce at the moment and has respectable businesses from their Whole food’s stores, some products like Alexa or the Kindle, and more importantly from the advertising they can sell across their e-commerce site, streaming service, and Twitch. Amazon is basically another very strong conglomerate like Berkshire at this point. Yes, Chubb has different insurance businesses, but it’s all insurance, whereas Amazon is like a conglomerate because it is massively successful in two different fields and also has some success in other ventures. Amazon has pretty low debt and actually earns good returns on capital. Despite the poor margins of e-commerce, Amazon this past year earned 10% ROIC. Which is solid. However, this number is growing and if Amazon in a way more similar to other companies, was spending only what it needed or a bit more than that on its research and development instead of the massive amount they do their ROIC could be at the upper limits in the high teens, or at least the mid-teens. And that is quite good.

I have often seen the claim that you can buy X number of stocks, hold them forever, and never think about them again. Most of the times the picks are made quite half assed, and do not really take seriously thinking about those businesses which are structurally set up to last for decades and decades. This list is not perfect I could have made it better, but I hope I have provided an above average attempt at this and that an equal weighted portfolio of these stocks would hold up well over a very long time.

Margin of Wisdom

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Often times in today’s highly digital and tangible asset light world businesses have lots of goodwill and intangible assets. Whenever these are written down it can cause large accounting net losses but in reality, there is no cash flowing out of the business. The damage had already taken place usually slowly over time when there is a big write down of intangible assets, but now the business is fully recognizing it, and tanking the paper EPS. This the large majority of the time causes already reasonably priced stocks to become good deals. While the efficient market theory suggests that a write down will likely have already been efficiently priced into the stock both before and afterwards, I have a feeling that there will generally be over discounting after a write down. Even if as a shareholder you understand the business and thought a write down was potentially coming, and you know the write down is not affecting cash flow, I still think most people will experience at least some fear and pessimism now that their investment has a “loss” for the year and an asset has been “impaired”.

I honestly have not heard of a strategy that focuses just on buying profitable businesses with large paper net losses but I think it has potential, so I am going to create a paper portfolio, share the ideas with you, and periodically update the results to see if it has merit. I am looking for businesses that usually have positive profits but are on paper much lower or negative due to write offs. I am going to hold 10 of these businesses in roughly equal amounts, and sell them if the fundamentals completely deteriorate, or if the price gets way ahead of positive developments. I am not going to give my usual long dive into the businesses, but I will provide an altered version of a PE to show the deals to be had here. There are a few examples of depressed paper earnings that are not due to write-offs but temporary real expenses. I am also excluding companies that have had massive write offs almost every year. This “PE” will basically be what the earnings would have been without the impairment of goodwill or intangible assets, along with a 20% deduction for taxes, so that you can get a picture of the “real” earnings.

I also just generally applied conservative assumptions when looking at their financial statements and did not assume recurring problems would just go away. In addition, I am looking for businesses whose operating income is consistent or growing and that do not have insane amounts of debt. Please understand I do not know your situation and you should not take this as personal financial advice and instead should always do your own research which I hopefully can inspire a couple ideas for. I’m not going to lie this list was a lot harder to make than I was thinking it was going to be. I am actually interested to see how it performs.

P/OE stands for Price to “Operating” Earnings

1. Sirius XM

   P/OE: 5.6

2. Kraft Heinz Company

   P/OE: 9.3

3. The J.M. Smucker Company

   P/OE: 11.7

4. BorgWarner

   P/OE: 5.9

5. Constellation Brands

   P/OE: 13.7

6. Bristol-Myers Squibb Company

   P/OE: 12

   There was some write off this past year lowering paper earnings, but the majority of the paper losses come from an acquisition. Typically, acquisitions do not get expensed, but apparently large R&D pipelines get expensed causing Bristol’s earnings to look very red, when in fact the acquisition should help their earnings in the future.

7. Whirlpool

   P/OE: 10.7

8. Disney

   P/OE: 15.6

9. General Motors

   P/OE:4.5

   In this case it was not a write down but a major loss in an equity investment as opposed to the typical major gains from equity investments that GM makes which caused earnings that are temporarily depressed. Tariffs very well could muck this one up, but GM has shockingly consistent earnings for an automaker, so I think it was worth a spot.

10. Bumble(what have we come to as a society?)

    P/OE: 5

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Charlie Munger often times when lecturing about the good investment talked about the few following things

1. Return on Invested Capital

   He was often quoted saying that if you own a business for 40 years earning 18% on capital, even if you paid a mediocre price you will end up with a good result.

2. Concentrating into the best ideas

   Charlie Munger said that the whole entire secret of investing was to find places where it is safe and smart to not diversify. That is completely correct.

3. Less focus on valuation more focus on quality

   While Munger was a value investor, he thought that it would be better to pay 25 times earnings for Costco, than most other investments one could make. Quality to him really meant you do not need a great price.

4. Extreme patience

   Munger always believed that the gains to be made investing were not from the buying or the selling, but from the waiting.

5. Avoiding negatives

   Charlie would often ask himself not just what to look for in a company, but also would think a lot about what you don’t want to see

So now that you have some additional background information about Charlie’s approach, I am going to construct a portfolio that Charlie could have respected. I am going to also put this portfolio into a paper portfolio so that I can track the results. I also tried to be at least a little creative, instead of just putting down names like Amazon, Costco, or American Express I tried to apply Charlie’s ideas to slightly less obvious places. Ultimately, you are responsible for your decisions and results, I do not know your situation, needs, or tolerances so this is not financial advice.

Stock 1: Airbnb

When thinking in super long time spans, I ask myself a couple questions. Do I feel certain that people will still be using this product or service in 40 years, and do I feel good about the company’s ability to be doing well in 40 years from now? I answer yes to both of those questions for Airbnb. I do believe that Airbnb’s alternative vacationing and way to stay is here to stay. You can often get nice Airbnb’s for 3-5 times the space of the same price in a local nice hotel making it a really good option for large families and groups. They also offer far more interesting and dare I say fun places to stay than your average hotel, which some consumers like to experience when away from home. In addition, they offer people traveling with animals additional options when there are no hotels in their price point that work, and additional cheap stays for price conscious travelers. Not to mention, their website is incredibly simple and helpful to use when figuring out where to stay. I do not think in 40 years, that all travelers will be staying in “alternative” accommodations versus hotels, but I think the two will coexist with some gains over time in favor of alternative. Airbnb has some of the strongest network effects of any technology company. These network effects are what will keep them the top dawg for a long time. It is also helpful that they have a very well-known brand, and when people of think getting an Airbnb to stay, they actually think of Airbnb as a verb in a way similar to Google; Vrbo’s brand is not even close. When you the traveler are looking for a place to stay, you are going to often go towards the website that has the most options conveniently presented, why else would you go on any other site than the one with the most well presented options. When you the host are deciding to rent out your property, you are going to take the time to at least rent it out from the most popular website, so that your property is being rented out all year long. This continuous cycle means people keep using Airbnb more than anyone else. Even with the growth in AI search, (which Airbnb has integrated into it’s platform) if you are looking at places to stay using ChatGPT, in order for hosts to sell, they have to have a “place” on the internet to rent it out, it ultimately still goes back to Airbnb’s platform. Also, Airbnb’s whole website is specialized at finding places to stay and can utilize their large number of resources to always keep their search tools the highest quality. Now that we have an attempt at Charlie Munger level understanding of the business, and have established it’s a high-quality moat, let’s talk numbers. Airbnb has debt to FCF of only .5 and debt to equity of .27 as of writing. They have double digit ROIC, ROE of above 30%, and gross margins above 80%. Their FCF consistently outpaces earnings as they have super super super super low need for capex, and instead can spend much of sales on advertising, R and D, and share repurchases. They actually earned 800 million in investment income last year because they are sitting on plenty of cash. Of their roughly 21 billion in assets, 92% are in cash/short term investments, tax deferred assets, and receivables. They only need 8% of their assets to for their entirety of their PPE, goodwill, and other assets. They are selling for a forward EV/EBIT and EV/FCF of 24.6 and 13.9 currently. The current CEO, chairman, and chief strategy officer currently own 25% of the stock because they cofounded Airbnb together. They are really a group of owner operators with long term incentive. I think Charlie can respect this thesis, quality is emphasized over price, it should have high ROIC for a long time, and it is a business that is protected sufficiently so that one could feel comfortable concentrating and waiting a long time.

Stock 2: Royal Bank of Canada

We are covering all of North America in this one with a U.S, Canadian, and Mexican stock. Canadian banks are a very good business to be in. If you gave me ten million dollars, and said that I only get to keep it if my 3 stocks with dividends reinvested are more valuable in 40 years from now, Royal bank of Canada would be one of them. In Canada 6 banks control 90% of the industry as opposed to thousands in the U.S. It is highly regulated and there are strong barriers to entry protecting existing banks from excess competition. This private public cooperation has made Canada’s banks far more stable than the U.S. They often times do not experience the busts that happen in American banking. The limited competition and low defaults also leave RBC and the other Canadian banks with high return on equity. RBC has not had ROE less than 13% any year the past decade. As Canada’s money supply, and credit generally expand over time RBC with its strong well-known brand, expansive products and services, and regulatory protection should keep it a top dawg. It uses its earnings to reinvest both in its business in Canada, grow a dividend, and expand its businesses abroad.

Stock 3: OMA Airports

I have talked about OMA airports before but I felt it made too much sense to put into this list so I did. OMA operates airports in Mexico and being an airport operator is a good business to be in. Unlike in America, abroad airports can be operated by private entities through a private-public partnership. OMA pays Mexico in exchange for the exclusive rights to operate airports in certain areas. As a result, OMA gets a natural monopoly as there are no other major airports within 40, 50, 60, 70, or sometimes 80 miles of theirs. Over time both domestic and international travel has grown in Mexico and will probably do so in the future. OMA over time has successfully added additional lines of business by making money from the shops inside the airports, advertising space inside the airport, and the parking garages traveler’s use. They earn high teen returns on capital, operate with debt to equity, EBITDA, and FCF all below 2, and are selling for an EV/EBIT and EV/FCF of 11.3 and 15.1

These 3 companies have strong moats protecting their position in a profitable industry for a long time, earn good returns on capital with conservative balance sheets, and the portfolio focuses its returns on a few great companies versus ten less understood less predictable ones. I hope the late Charlie Munger would approve.

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Anne Scheiber was a Jewish IRS auditor who retired at 51 in 1944 with inflation adjusted investments of about 80,000 dollars. The highest salary she ever earned was an inflation adjusted 61,000 dollars. She passed away with a net worth of 22 million dollars which she donated 21,950,000 to higher education in particular to support Jewish woman studying at the schools. She lived incredibly frugally, and achieved a life long average annual return of 22%. That is lowkey insane. A 22% annual return over 50 years makes her one of the best investors of all time. At the end of her life she owned over 100 stocks. She paid little attention at all to price or valuation. She focused on high quality companies which she understood. She almost never ever sold stocks because she hated paying the commissions. A really interesting but unknown story.

2. Theodore Johnson

Theodore Johnson earned a middle-class salary his whole life and retired in his early 50’s yet ended up with a 70-million-dollar net worth with which he provided enough for his children and children’s children, and donated tens of millions of dollars to helping kids with education costs. He did this by saving 20% of his paycheck, every paycheck and investing it into UPS through his employee stock purchase plan. He never sold a dime during all the crashes, burps, and hiccups, and he reinvested his dividends. He knew the business well, concentrated his investing, and saved 20% every single time. I do have to say, after reading up on Theodore Johnson and on Anne Scheiber you do not want to live life like the latter. She’s a great model on how everyone in America has the chance to become financially well off, and a good example of how to invest well. However, she lived a miserable life, family and friends noted that she really only had 1 person who talked to her for multiple decades before her death, she never ever even had a love interest yet alone marriage, and was described as being incredibly bitter and angry. In the 1980’s it’s reported she spent only 3$ every week on food, and it was not because she was a Buddhist who eschewed attachment to worldly possessions, it was because all she cared about was frugality, and buying more stocks. I do not think many people will end up like her and are far more likely to end up not being frugal or focused on investing enough, but I still wanted to note that the Theodore Johnson level of frugality is a lot better.

3. My grandma

My grandma has probably had a bit more luck investing than most will get, but there is no denying that she has had exceptional performance. Her best investments are as follows: over 50 times her money on Amazon, over 20 times her money on Apple, over 20 times her money on Microsoft, over 10 times her money on Meta, and I believe she is up over a couple times on Netflix, and has a portfolio otherwise that has done reasonably okay. There are a couple key reasons why. She loves to buy the stocks of companies she sees growing in usage in everyday life. She almost never sells stocks. That’s the most important lesson from her. She utilizes the natural advantage of buying individual stocks very well. She lets her big winners run and selling for her is a tragedy so big that it gets remembered forever, and she wishes her advisor would stop suggesting bonds versus growth stocks. Her key investing edge is patience combined with the ability to be mostly unbothered with the news.

There are a couple classic lessons to draw from these 3 people for financial success.

1. Taking frugality so serious it’s a personality trait

2. Focusing on investing in quality businesses more than focusing on price

3. Having holding periods so long and a mentality of stoicism about market events to the point that it makes most people sick

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I am also going to throw in a quick explanation justifying the usefulness of the logic and how it is very applicable to managing a portfolio.

1. “You can observe a lot just by watching” Yogi Bera

   Occasionally asset managers will try to turn lead into gold for multiple reasons. Maybe the manager sees an asset that appear incredibly cheap, or maybe they see an asset that is popular and want to join in on the party. Regardless, it is key for the manager to always be basing decisions on the facts not their preferences or emotions whether that be greed or fear. Going back to the simple facts combined with the competitive position of the business/industry is more profitable than wanting something to be true.

2. “You don’t rise to the level of your goals, you fall to the level of your systems” James Clear

   I am sure that many investors have been realizing the truth of number 2 over the past week or two. Weak systems that were built on the “Greater Fool Theory” rather than private market value, system using margins, derivatives, and other instruments, and people who know almost nothing about the assets their money is in have felt the consequences of preparing to fail. Having a system and strategy that does not require being correct 90%+ of the time is better than needing nerves of steel constantly with perfect judgement.

3. “The only certainty, is that nothing is certain”-Pliny the Elder

   Howard Marks thinks a lot about this kind of thing. Jeff Bezos agrees that you never make bet the company type wagers unless you absolutely need to, because a repetitive pattern of this will one day result in there being no company. Managing a portfolio is no different.

4. “Comparison is the thief of joy” Seneca

   How often do investors think to themselves if only I had invested more then, if only I had bought that stock, if only I had that environment, if only I had a start like them? The answer is way too often. All we have is today, and our best judgement to walk into the future, we can’t go back in time and buy an Amazon, Costco, or Microsoft right when it first started, or right in their biggest crash. There will be mistakes, there will always be someone making more money than you(a good chance in a really stupid way), but also blessings that we received that others did not. Let’s not focus on the unchangeable or perfection but instead being good.

5. “Feelings are just visitors. Let them come and go” Mooji

   As I made this list, I have realized how heavily stoicism is incorporated into portfolio management done well. There will be many times when even the best portfolio managers are tempted to do quite irrational things, they never do those in a big way, that’s why they are the best managers. The asset managers that are the best, have just as much discipline as they do insight.

6. “Chance favors only the prepared mind” Louis Pasteur

   To a keen investor during the drops of any good business or an industry or the market as a whole, they will be able to turn that into a huge plus rather than a negative. They should be able to do it not just because of cash stored, but because they already have a large background of information to go and be decisive on whatever bargains pop up.

7. “Knowing yourself is the beginning of all wisdoms” Aristotle

   Like Benjamin Graham said the biggest enemy of the investor is himself. More than any negative turn on a company in your portfolio, or a drop in the market it is the investor who did not understand their circle of competence and is unable to have discipline in their strategy who suffers the biggest losses.

8. “Adversity removes the fragile, and spares the robust” Unknown

   An investing strategy that only works in good times is no real strategy at all; a strategy blindly based more on hype and perception than real value will eventually suffer the consequences when faced with hardship.

9. “Nobody goes there anymore it’s too crowded” Yogi Bera

   Charlie Munger once said it is important to fish where the fish are, the better version of that quote from Monish Pabrai is to fish where the fish are and the fishermen are not. Only so high of a percentage of American’s assets can be in stocks, a stock price can only go so high before it becomes a ticking time bomb, acting unpopular can be profitable when investing.

10. “Sometimes you win, Sometimes you learn” John C Maxwell

    Every investor has their mistakes, I certainly have already had mine. Maybe the main trait that distinguishes the mediocre investor from the great is that they actually learn from their mistakes, while costly lessons should not be sought out, they can ultimately be far more valuable than the money lost.

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“I can calculate the motions of heavenly bodies, but not the madness of people”

While not quite as intelligent as Issac Newton but still super super smart Benjmain Graham would have been able to calculate the “madness of people” more accurately the intrinsic value of the business. But Issac Newton didn’t comprehend value investing so that’s why he basically just pushed his mistake off on society being completely illogical (which it was) rather than a flaw in his own reasoning (which could have prevented the loss). In this respect we should strive to not be like Issac Newton. That is what today’s article is about.

I generally speaking do not think most people’s investment strategy should be affected drastically by the market circumstances. For example, if you want to ever have a 100+ bagger in the stock market, it will take anywhere(typically) from 15-30 years. There are of course going to be major crashes during the holding period, but it would have been a bad decision to sell any of those real compounders. However, for many people it is useful to make some adjustments. So, why not give it my best shot at determining some useful tests for a market “bubble” AKA a very high/expensive market.

While there are many measures trying to figure out how optimistic or pessimistic the market is, I would like to present 5 that I believe are very useful. When you are in the depths of a bear market, you know that the market is being more pessimistic. It is becoming a more well-known fact that the emotional response for loss and gain are not similar. Charlie Munger understood this when he somewhat pretentiously coined the phrase “super deprival reaction syndrome” Losing a dollar, feels on average twice as bad as it felt good to gain that dollar. So in a pessimistic market it is not as hard to tell what’s going on. While feelings can easily get in the way of good investing through emotions like fear, greed, or boredom(impatience), emotions can actually tell us things our brain cannot explain at times. In the book The Righteous Mind by Jonathan Haidt, he explains how when people have a traumatic brain injury and no longer feel emotion, their decision-making process can become quite nutty. We do not know how to think well without some emotion.

In the euphoria of a bull market, one can try to weasel themselves into thinking that valuations are not “insane”, these companies are can’t miss blue chips, or forget the danger of owning a bunch of mediocre, optimistically priced securities. Even very smart people like Issac Newton can fall victim to the herd mentality So, for the reasons laid out it would be somewhat useful to be able as Howard Marks says, take the temperature of the market. Not to think in absolutes, all in or all out, but to at least understand the “mood” of the broader investment base. I will also try to show more unique measures that are not as typically used but just as useful. Also, we will be focused on a bubble in the U.S stock market exclusively. This is in no particular order.

1. U.S households % of assets in stocks

Every U.S household has a couple options for growing wealth. Buying real estate, bonds, stocks, gold and a few other options. Stocks are always an important piece of this, but they will only ever be so much of the pie. There are always going to be retired people who need steady income from bonds, families who wish to own a home or invest in real estate, and weird people who like gold as a doomsday hedge like my friend Alan. Seeing how much of people’s assets are in stocks helps to tell us two things. It tell us how people feel about stocks; if people have a higher than average amount of their money in stocks, it is an indication that they feel comfortable and bullish on stocks. It also tell us that the stock market itself has gone up relative to other assets and increased itself as a percentage of people’s money. Be careful to see what is included as “assets” in the indicator you use. When this indicator is historically lower than average, it is highly correlated with good future returns, and in the opposite case… I think you can figure out the rest.

2. Difference between the PE of the U.S stock market and the average abroad.

As stated earlier, this post is specifically about testing the temperature of the American stock market. It is also not about forecasting, it’s not about the current market, and it is not about all in or all out. It is about providing the reader with solutions to the question to be more defensive or more aggressive. Whenever you see the U.S stock market with a Price to Earnings above pretty much every other country in the world, you at least know that it is going to take a lot more good things to happen to America’s economy relative to rest of the world, for that to have been logical. The principal assumption of good investment is conservative estimates, action, and valuation.

3. A more qualitative test: Is there new technology or a sector that has become the darling of the market that is supposed to be the future?

As Howard Marks astutely pointed out, it is difficult for there to be a market bubble if there is no new grand innovation. When dealing with an industry like chemicals, cereal, or textiles it is difficult for investors to have grand visions of future growth. They are more likely due to both the boring industry, and long history of returns in the industry, to be realistic about it’s prospects. The dot com bubbol had the internet, the GFC had MBS’ and CDO’s, and we had AI.

4. When you see people around you with zero knowledge of what they are investing in making lots of money.

When the most poorly thought-out ideas are putting up great returns fast, you know investors are acting only with greed in mind and not fundamentals. I have been seeing this plenty the past couple years. And I can tell you it is painful to see people who genuinely have no idea what they are doing, making lots of money, and expressing that they are exceptionally perceptive because *blank* is the future. I know people who have invested in stocks that they didn’t even know it was unprofitable, never knew that it became a meme stock, and then claim later they made a fantastic decision after it soared. Charles Kindleberger put it quite well “There is nothing so disturbing to one’s wellbeing and judgement than to see a friend get rich” I think the quote is especially true when the person you know is getting rich through unintelligent ways. When you’ve been feeling that a lot lately, it might be a good indication that you're in a bubble.

5. What the best investors are doing and saying

Just a month ago the signals of warning were there when Warren Buffet is hoarding cash, Howard Marks most recent memo expresses lots of caution, and Monish Pabrai has ruled out the chance of bargains in the American markets, it should be a hint that it is not a good environment for bargains. One of the most obvious but best ways to get an idea of the market’s price, is to look to the best.

P.S

The word bubble unlike in investing can be a positive word, for example my girlfriend Elena(who has provided valuable information in thinking about Ulta and Elf beauty) and I use the word to describe a place of peace

If you found this worth reading, you should subscribe for free because then you will get the future posts conveniently sent to you. If there is someone you know who invests, then please consider sending them the article or letting them know about the newsletter. I appreciate you reading from the bottom of my heart, and if you have any questions at all, please leave a comment, I would be happy to give my best answer.

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In my first article I showcased my investment philosophy and some stocks I found promising. It was aimed at what Benjamin Graham called the “Enterprising Investor”. An investor who by putting in through amounts of research chooses securities with the hopes of doing better than average. Whenever someone says average in investing, they likely mean the future performance of the S&P 500(which has historically returned 10% average a year). This article is different. I absolutely completely understand and agree with the position of Warren Buffet and Benjamin Graham that most people should be “Defensive Investors”. That being said I wish more people would at least learn what a PE ratio is because I think stocks are fun to learn about. The defensive investor is one who seeks to achieve average results. Most people would not find the best use of their career to be learning all they can about businesses. Instead, they are better off working in various important fields where they possess both passion and aptitude. If they “invest” in themselves and find ways to earn a high income through their own skills, then they can “outperform” most investors in terms of wealth creation without having to achieve double the average investment returns. In effect, a doctor who consistently defensively invests can build up a small fortune (which is by no means the real fortune to be found in life) by utilizing Adam Smith. Comparative advantage is the economics term at play here. Comparative advantage is the idea that everyone can use their best skills relative to the rest in the market, to get paid well by others who are not as good at it. When everyone does this, each person ends up at the position where they are at least the most productive(and hopefully fulfilled), so everyone ends up better off because we end up producing as a society the most total valuable goods/services. Which is like why tariffs cause inflation and are anti free market capitalism. The actual point I am making is this, even though I do love investing, and fantasizing about hopefully leaving a track record of above average annual returns(like one of my friends Mekhi fantasizes about eating a culver’s burger), I fully recognize more important than seeking exceptional returns to building a comprehensive meaning of wealth, is doing something that you love, that is well compensated(hey why not), and by saving a lot of money each and every paycheck. So hopefully my goal here is to help a beginner investor not have to think so much about investing but still aim for solid returns, whatever the future or news may hold. It could be described as the lazy man’s portfolio and when investing it can pay handsomely to be lazy. Many studies show that the more you change your investments, the lower your returns tend to be. One must remember that defensive investing is not about being perfectly prepared for everything, but about getting satisfactory results from a simple, diversified, and consistent lifetime of investing. As to next year, anything can happen, the beginner investor must understand that in the short run assets are volatile, but in the long run are highly likely to produce fair results when left alone. Keep in the mind, the goal here is not to get a great result, but to at least get a decent result. Also, understand that I am not responsible for anyone’s losses, and I cannot make any promises as to future returns. Also, this article does not require a lot of novel insight or skill, it is pretty basic, and that is perfectly fine. Also, also, I forgot to mention that I put my portfolio from my first article into a paper portfolio so I can track the results, and write about them in the future, and will do the same here.

I would also like to preface:

1. Any money put into stocks, real estate, and bond funds(generally) you should not need in the foreseeable future. You should not put your down payment for a house in 3 years in the stock market. The reason why is diversified stocks, or even real estate can be unprofitable in the short to medium term, but over decades when left untouched will likely produce a worthwhile result.

2. As I stated before, the key for the defensive investor to do well, is to focus solely on 3 things. First save a lot and save every paycheck before you do anything else. Second, there is something called a turnover ratio. It measures how much of your portfolio you sell each year. If you turnover more than 10% a year on average as a defensive investor, you are doing something wrong. Third, you should put all the investments intended for retirement at the typical retirement age (which is probably most of your investments) into an IRA or Roth IRA.

An ETF is a collection of different investments put into one. It is an exchanged traded fund, and an incredibly popular version of it is called an index fund. When you buy an ETF, it is like you are getting a part of each sandwich and side inside a Culver’s versus just one burger. In the short run anything can happen to your ETF, but most funds when held for longer than ten years will do just fine and get you satisfactory results. I have thought and researched a solid amount on what a “defensive” portfolio should be, if it were truly to be the only investments you could ever buy and in the far future sell your whole life. I considered changing growth rates across the world, different outlooks for interest rates and inflation, and in the solid case that things go “reasonably” well over the next 50 years how would you best prepare.

Before explaining the ETF picks I will talk a little about asset classes. Businesses as I wrote about in my first article have transformed the world in the past couple hundred years. Over the past hundreds and hundreds of years, stocks have provided better returns than any other asset. More than real estate, gold, or bonds. This will likely be the case comparing returns over the next investing lifetime. However, I think there is what Howard Marks calls a sea change that will take place in the markets. As of writing the U.S stock market makes up about 50% of the global stock market. This is likely to shrink as the U.S only makes up 25% of world GDP. In addition, it is well known that as most things like economies get bigger and bigger it gets more difficult to achieve marginal gains. It will be far more likely for Indonesia(or another emerging economy) to achieve a 10X improvement in living standards or real GDP per capita before the U.S does. However, America is fantastic at releasing innovation and excellence. The main point though is that stocks are likely to continue to be the best assets to own over an investing lifetime as the world gets better and better over long periods. Also, the other half of the main point is that it will be quite important for a defensive investor to own international stocks.

The next best asset class when examined over hundreds and hundreds of years is real estate. Real estate comes in as a close second to stocks, and is a very good hedge against inflation. It also helps to produce income. It will be useful to know for the beginning investor that there are two main types of diversification. The first is owning different investments within an asset class. So instead of owning one stock, you own ten. The second type is owning different asset classes. So, you don’t just own stocks, but you own a house as well. This is useful. The biggest enemy of the investor is impulsive decisions. Full stop. Also not saving, and complete ignorance. I won’t lie though, I have seen quite ignorant people do well investing, because they at least held onto things for a long time and saved a lot. Howard Marks wrote a great book called The Most Important Thing. In the book he says there are like 15 most important things in investing. That’s because there are, which also doesn’t make sense and is very funny to me. One thing that brings out impulses in our investing is fear and panic. When you own 100% stocks you might end up statistically with the highest returns over 50 years. But if you weren’t able to hold and instead sold in a big crash, you could have screwed up years of work. But if you held 60% stocks, 40% bonds (a combo as classic as a big mac 2 piece from Mcdonald) your portfolio might have dropped by 15% less, and you might have felt well if at least all my stocks go to zero, I still have my bonds(which you wouldn’t if the market went to zero your bonds would be wrecked too, but we’re emotional creatures). So, there is a type of invisible returns we get by diversifying across asset classes even if it lowers the actual result a bit. Real estate provides this, as well as a satisfactory return, and is an elite hedge against inflation as evidenced by historical examples. Gold is a good hedge against inflation and panic, but over the ultra-long run has pathetic returns. In the past 75 years, Gold has been fantastic for gold’s standard, it has provided mid-single digit returns. However, in the ultra-long run of thousands of years it has only provided low single digit returns. It’s a good inflation hedge, but unlike real estate does not do as well in more normal times. I won’t consider bitcoin for “asset” diversification because it is more speculative than real estate. I have just absolutely no idea if bitcoin will exist or where it will be in 50 years from now.

Bonds when examined over hundreds and hundreds of years are the 3rd best asset class better than gold. However, bonds overall are pretty sucky. If you buy a group of investment grade bonds at let’s say 4.5% rates and inflation goes up into 4% on average the next 50 years, you barely increased your purchasing power. One thing I will say about gold versus bonds as the third choice. I think there is real validity in examining the returns of asset classes over ultra long periods to get a guide for the future, but not without using some common sense as you saw with the sea change in stocks. Gold is a good hedge against hyperinflation, and there has not been money printing over the ultra-long run picture of gold’s returns as there is now. So, maybe gold will do better over one’s investing lifetime than bonds, but given that real estate acts as an inflation hedge, I think having some bonds which act as a deflation hedge is useful. However, a lifetime of bond investing should actually not be as sensitive to inflation as one might first think. If inflation rises dramatically for any reason(cough cough tariffs) interest rates will rise with it, if this happens next year, and stays this way for a while, the investor buying a group of bonds will receive interest rates that probably provide for the inflation as interest rates usually go up with inflation. Now if a major inflation uptick happens after investing in a group of bonds for 30 years and stays for some time, and you have 50,000 dollars of cost/dollars you put into it, that will be bad. Your etf will be selling at a loss relative to what you paid, and if it has an average bond duration of 10 years your etfs interest rate, will take time to adjust upwards, so your capital will be getting eroded. The point is, investment grade bonds if things go well will give you maybe low to mid-single digit returns after inflation. If things go poorly they will lose you money after decades of investing. As Peter Lynch pointed out over and over again in his book Beat the Street, buy stocks not bonds. The only scenario where bonds will be really helpful in terms of returns is this. If a major slowdown in the growth of the global economy happens for a long time and perhaps there is inflation of only 1.5%, then stocks will not do as well, in this case bonds receiving an incredibly hypothetical 4.0% interest rate will be doing quite well versus a mediocre performing stock market. In the large majority of outcomes, over one’s investing lifetime, it will have been wise to have weighted stocks the most heavily, real estate the second most, and then bonds or gold or whatever the third most. I think bonds in a portfolio help to provide a small amount of diversification because of the asset class should provide some ok returns over long periods, and most importantly will help the investor to feel more at peace regardless of what’s going on in the world.

So given the data on stocks, real estate, and bonds that is what is forming the 1st portfolio, and the desire to do well with lower amounts of volatility rather than fantastic, whatever the future may hold. You say, why did I say the 1st portfolio? BECAUSE I AM GOING TO GIVE A SECOND ONE. 2 FOR 1 DEAL! If I was you reading this, I would subscribe for free (triple deal) just because of that, but that’s just my unbiased opinion. I am now writing this in addition about a week after originally creating it because I do think that a 100% stock portfolio is likely to do better over an investing lifetime. I also think it is a little simpler. It will come with more intense drawdowns, but I would hope the defensive investor would be mentally prepared to understand it as an opportunity to buy stocks cheaper, and that riding out the storm is the way to go. I am providing 2, one for the beginner investor who might have a little less tolerance for temporary losses, and one for the beginner investor who is confident in their tolerance and is somewhat understanding of market history and the likelihood that the market will recover. I would also like to mention that in the unlikely situation someone with a significant amount of money reads this, identifies as a beginner, and decides to implement one of these portfolio’s, it would be a good idea to space out the purchases over a two year’s span. If an investor had less than 3 to 5 thousand dollars, I think getting started is more important. Investors attempting a “passive” portfolio should learn the basic meaning of rebalancing, and dollar cost averaging.

Portfolio 1:

1. VT 25% Portfolio Weighting

VT is a basket holding stocks across the whole world, it is highly diversified and holds about 10,000 stocks. Currently about 60% of the weighting are U.S stocks, and 40% international. It has provided about 9% annual returns over the past decade and has a good chance of doing similar over a long period of time.

2. VNQ 25% Portfolio Weighting

VNQ is a basket holding U.S REITS, which are Real Estate Investment Trusts. They own and lease or rent out real estate of various kinds, shapes, and sizes. Overall, a big basket of REITS has historically performed a bit better than real estate on average. It should hopefully produce 7% or a bit more annual returns over the long run.

3. VXUS 20% Portfolio Weighting

VXUS is a fund holding stocks, but specifically only non-US stocks. It is very diversified and has provided about 5% annual returns since inception, but it will likely provide more like 7% in the future because that is closer to more long run international returns, and the returns for the international market have been low since the Great Financial Crisis.

4. VIOO 20% Portfolio Weighting

VIOO is a basket of 600 of America’s profitable “small” stocks. One lack of both VXUS and VT is that they are very top heavy, meaning they tend to allocate a lot more of the fund to the very largest companies, and not invest as much in the smaller stocks. By adding VIOO you both get an added diversification benefit, and you invest in small cap stocks, which have over long periods done quite well, and if history is a guide should provide 10%ish annual returns in the long run.

5. BND 10% Portfolio Weighting

BND is a fund holding a massive number of different bonds across every subsection of the bond market. Overall, the composition is investment grade bonds with a medium duration. If history is any guide, it should provide around 3.5-5% returns over the long term from its interest payments.

Overall an educated guess would be this portfolio nominally returns around 6-8% in the very long run, but as I have stated before I am not responsible for your financial results, and cannot Promise any outcome.

Portfolio 2

1. VTHR 30%

VTHR is a market cap weighted fund holding the 3,000 largest publicly traded U.S stocks. I like it because you get almost the whole U.S market, although it is heavily weighted towards the top, your returns will be very close to the U.S market as a whole.

2. VIOO 20%

VIOO owns 600 profitable U.S small caps which helps to ensure your U.S returns match the broader market, and small caps over long periods usually do better than large caps.

3. VXUS 30%

I like VXUS because you do not have to worry about country or strategy specific results, your returns should be pretty close to the international market as a whole.

4. VSS 20%

VSS owns 5000 international stocks that are small and mid caps. VXUS does not cover small caps very well, so by adding a piece of VSS in you help to ensure your portfolio’s returns capture the international market well.

Overall an educated guess would be this portfolio nominally returns around 7-9% in the very long run, but as I have stated before I am not responsible for your financial results, and cannot Promise any outcome.

Margin of Wisdom

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1. “Investing isn’t about beating others at their game. It’s about controlling yourself at your own game”-Bengamin Graham

2. “Far more money has been lost by investors trying to anticipate corrections, than in the corrections themselves”-Peter Lynch

3. “You don’t have to be smarter than the rest, You have to be more disciplined than the rest”-Warren Buffet

4. “The market is there to serve you, not to instruct you”-Benjamin Graham

5. “The biggest investing mistakes come not from what you don’t know, but from what you think you know, that isn’t so”-Mark Twain

6. “You can observe a lot by watching”-Yogi Bera

7. “Over time I’ve learned that knowing what the numbers don’t show is worth more than any statistic”-Christopher Mayer

8. “If there are 2 or 3 players in a market and you say this business can at least get 5% of the market and be a great investment, but could never be the one, two, or three, you’re wrong”-Monish Pabrai

9. “Risk means more things can happen, than will happen”-Howard Marks

10. “Over the long term, it’s hard for a stock to earn a much better return than the business which underlies it earns”-Charlie Munger

Please let me know with a comment, which one you found the most useful! Please share if you thought it was worth a quick read. Thank you.

Margin of Wisdom

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So, I have a lot more ideas of what to do with money than I actually have money, and I would like to share some of these ideas. Now everybody’s financial situation, tolerances, and needs are different so therefore this portfolio should not be taken seriously without deep considerations of each.

Nonetheless, I would like to have somewhere I can create a paper portfolio and see the results or lack of in my ideas. I expect 261% annual returns indefinitely. To whoever does read this, hopefully I could provide some benefit in showcasing a couple ideas that they would then further research, or some investing perspectives that are new to them. The objective of this portfolio is the highest long-term returns, with no care for income, volatility, or asset allocation. However, there will be care for what I and more importantly Howard Marks, Benjamin Graham, Monish Pabrai, Buffet, and others defines as risk. Risk is the chance of loss. More importantly than just a swing in the stock price, a permanent loss in the value of the business. I will be focusing on individual stocks for a couple reasons,

A. I really enjoy learning about them

B. This is where my expertise is

C. I think 100% stocks(without debt, or derivatives, or something else) when chosen well, have the highest risk adjusted long term returns potential in most future scenarios than a combination of other assets such as Real estate, debt, Gold, or crypto(ew).

In creating this portfolio, I am choosing businesses for what I believe is their long term compounding potential. I believe in an intrinsic value investing strategy, that as it has been stated many times before, seeks to own the assets that have the highest amounts of discounted cash flows which one can reasonably predict AKA the assets that are within your “circle of competence” So while I do believe and practice an intrinsic value investing strategy, I am not interested in incredibly low EV/EBIT, P/TBV, FCF yield, or PE stocks. I am interested in the businesses that can be compounders. The kinds of businesses that one good decision, to buy, can produce 10+baggers. WHEN HELD ONTO FOR EXTENDED PERIODS OF TIME AND NOT SOLD OR TRIMMED REGUARDLESS OF THE MARKET. That is in bold letters, because I believe so, so, so, so, so (you get the point) strongly in

A. Letting your “winners” run

B. Having very low turnover rates if you own the good businesses

As Peter Lynch the legendary fund manager has stated (probably the second greatest investor with the first name Peter) the greatest advantage in stocks is the incredible upside for being correct. If you are wrong about a stock, you put a thousand dollars in, all you can lose (assuming no margin or other instruments which I will just always imply) is 1,000 dollars, but if you are right and you are truly patient the right small cap can become 100,000 dollars or more. The incredible upside that a lifetime of patient investing offers, even just a couple ten baggers, is more than enough to offset all the mediocre decisions. However, you only will ever experience those big winners if you let the story unfold.

I have a personal list that shows a good amount of what I look for in a potential compounding machine which I seek to purchase at a good price, and it should also be said that in any investment I seriously consider I have to be able to understand the business. I cannot understand Nvidia, but I feel I can understand Union Pacific Railroad.

10 Compounding Traits

1. High ROE/ROIC/ROA

2. High degree of earnings reinvestment

3. CEO who was the founder, part of the family, has a lot of equity, or a long tenure

4. A management team that has an insatiable appetite for growth

5. High gross margins

6. Low need for debt to grow

7. Products and services that solve problems, improve lives, or make things cheaper and faster

8. The highest competitive position in its market with the best products and services

9. Reasonable or low multiples

10. Market Cap below 20 billion

Ultimately, just like every other investor I want a business to have a moat, high returns on capital, an ability to reinvest the returns into new high return assets, a capital light business, an insatiable owner operator, conservative balance sheets, and something I weigh very very heavily and am proud to, is what quality the business actually is. I feel overall more satisfied and like in the way Phillip Fisher meant in “Conservative Investors Sleep Well” not in the sense of owning utilities, Coke, Mcdonalds, Proctor and Gamble, or a railroad or waste management company, enjoy owning the businesses where the products and services are not just moaty, but are actually improving society, and helping people to live better. I understand an investment in a company’s public stock does not fund them unless it is the IPO, and the amount likely to be invested will not sufficiently raise the price so that it would increase the compensation of the executives at lets say a cigarette company, I still feel the way I feel about investing in the best products and services. I am overall a HUGE proponent of the virtues of capitalism, a free market system, and that business and profit are not curse words. Not that I do not think there should not be social safety nets or adjustments to tax brackets(perhaps the highest two income brackets, or long term capital gains, especially for certain amounts of sales, or a change in the inheritance tax). There are awful examples of business, take the industry of diamonds, there is probably not an industry with a more disgusting, unproductive history than that of diamonds and the DeBeers company. What I do think though, it is incredibly dangerous of our society to forget that for thousands and thousands of years the standard of living moved in millimeters over time, and somehow once we adapted a global system full of more personal and economic freedom in the past couple hundreds of years in MDC’s like America the standard of living has exploded up 15-30 times. Adam Smith understood the power of incentives, that people take care of their own property and capital better than anyone else, and that a more free market system with capital for entrepreneurs allows innovation to well innovate. But this post is about a stock portfolio not those beliefs of mine.

So just like Warren Buffet, Charlie Munger, and Monish Pabrai I am not a massive fan of diversification for what Benjamin Graham called the “enterprising investor” so you won’t see 2% positions in this portfolio. The “defensive investor” AKA 95+% of investors should practice wide diversification. As Warren has said many times, it is so silly the idea of putting more money into your 30th best idea as opposed to your best or second-best idea if you want to beat the average performance, after all how many people got rich off their 30th best idea.

So now that I have established a lot more background than necessary, here is my paper portfolio that aims to beat the market while controlling “risk” and a blurb for each stock. I think you will find I generally adhere to the principles I have laid out, some being: Small caps and mid-caps are attractive due to larger potential runways, high ROIC, high gross margins, excellent products, moats, reinvestment opportunities, and always a fair or good price.

Name/Ticker/Weighting Percentage

Stock 1: Kapsi (KSPI) 15%

Kapsi is run by a fanatic CEO who is basically the founder, owns a lot of shares, and is a chronic overachiever. The business is a superapp used by 80% of Kazakstan at least monthly and they are expanding into Turkey as well. They do E-commerce, payments, and fintech. They have fantastic economics, are growth obsessed, and are selling for a very good price. They strive to have very high-quality products and net promoter scores. Their products help bring Kazakhstan faster, more plentiful, and accessible options in their lives. They use very little debt but instead use deposits to fund loans. They have multiple moats in one, network effects for payments, e-commerce, a strong and well-known brand, and a real data edge that supports well done lending.

Stock 2: Bank OZK (OZK) 15%

Bank Ozk is a regional bank in states like Arkansas, Florida, and more. They do a lot of CRE lending and are funded without almost any debt but instead their deposits. The bank is run by quietly one of the greatest CEO’s of all time. He is one of the most exceptional overachievers you will ever learn about, George Gleason. Since the IPO in 1997, the bank has a CAGR of 17.8%, but the price to book is at a historic low, and the PE, so in more normal valuations the CAGR would be even higher. He has grown their assets since he took over as CEO over 40 years ago from 20 million to 40 billion. They have a quite adequate for a regional bank CET1 of 11.2%, and have had lower non-performing loans than the average U.S bank in every single year since inception, usually around 1/3rd the average, and absolutely thrived during the GFC turning it into an opportunity. They have crazy good efficiency rations, NIM, ROA, ROE, margins, you get the point. They double to quadruple loans and deposits every single decade.

Stock 3: Novo Nordisk (NVO) 13%

Novo Nordisk is pioneering alongside Eli Lilly incredibly helpful drugs that have massive demand. They have 99 percentile ROA, ROIC, and gross margins. They are selling for a reasonable price of 17 times forward earnings. They have pretty low debt. They have massive reinvestment opportunities, great economics, a reasonable price, and a strong portfolio of patented drugs.

Stock 4: Pinduoduo (PDD) 12%

Pinduoduo runs both Pinduoduo and Temu ecommerce. They have become an equal in China to JD.com and Alibaba by cleverly targeting more rural cities those two ignored, by having a unique gamified, communal shopping experience, and by offering a much better selection of fresh goods from rural Chinese farmers. They have the lowest cost experience as well due to their strong subsidies, group discounts, and exclusive operations of 3P ecommerce. Their Temu ecommerce that has been doing very well in the US also sells about the lowest cost goods by using an exclusive 3P system and by having subsidies for purchases as well. Overall they offer excellent products and services, have amazing margins and ROA and ROIC, have practically no debt, they have an insatiable appetite to grow, and are selling for an EV/EBIT and EV/FCF of less than 10.

Stock 5: Elf Beauty (ELF) 10%

Unlike the prior 4 Elf upon first glance looks expensive. However, when using P/S not PE it is selling for a fair price. Elf has very good makeup products that are cheaper than most of their competitors and a strong trendy brand. They have very high gross margins, and a reasonably low amount of debt. They are very capex light but seem to have mediocre economics because they are advertising like crazy. They are taking large amounts of market share away from the other cosmetic brands through their trendy products and brand, that are just as good as many competitors’ products but are cheaper, and by advertising aggressively. If they wanted to, in a similar way to Amazon, they could drop advertising and promotional spend, and dramatically increase net profits, but instead they are investing in growing. Good products, lowish debt, fair price, high gross margins, lots of reinvestment.

Stock 6: Yeti (YETI) 7%

Yeti has a very strong brand among consumers known for it’s very high durability and product quality. One of the key tests for the future of a stock, is how well the brand works abroad, as many successful U.S companies don’t translate across borders. Yeti has been doing very well on this front. It is selling for an attractive EV/EBIT and EV/FCF of 10.5 and 11.7. It has good gross margins and very little debt. They have good ROIC and are consistently expanding assets and sales.

Stock 7: Afya (AFYA) 7%

Afya offers medical education in Brazil to undergraduates (majority of business), test prep for medical exams, and tools for doctors and physicians once practicing. This is a very moaty business. Just like in the U.S there is many more students wanting to go into medical school, than there are seats. Additionally, in Brazil demand for doctors and physicians are rising faster than in the U.S. Afya as the largest private medical educator in Brazil helps to fill this need. They expand their own number of seats every year, they also acquire small schools and continue to improve test prep and their products for medical practitioners. Afya has a very favorable business model as every year they are the ones who “customers” want, not the other way around, this gives Afya very good pricing power, consistent business, and lots of room to expand. They have moderate amounts of debt, high gross margins, are selling for around 10 times EV/EBIT and FCF, and decent returns on assets.

Stock 8: Ulta Beauty (ULTA) 7%

Ulta Beauty operates a well-known beauty retail store and a small ecommerce site. Ulta earns very high ROIC and ROA despite being a retailer. They have zero dollars in long term debt. Ulta has a very large number of reward members which is reflective of their very strong brand among women and younger women. They consistently across all their stores provide the largest selection of makeup, haircare, skincare, and perfume versus competitors. With their 10,000 square foot stores they provide more of the brands that people want in these categories versus anyone else. In addition, they have excellent customer service, a well decorated inside, and additional beauty services inside stores which has allowed them to rapidly grow despite the rise in online shopping. You just can’t get the same experience online as in an Ulta, and have almost all your favorite options laid out in one place. All this being said, they do not have as much space to expand in the US as they once did and have been reluctant to expand abroad. Unless this changes most of their cash flow will continue to go back into share repurchases with some minor store expansion. Given the PE of 15 this is still a good price and will turn out to be very good if their expansion outlook improves.

Stock 9: OMA airports (OMAB) 7%

Both of the ideas behind these last two stocks are very similar so I’m actually only going to write one explanation for both. Both companies operate airports in Latin/Central America, primarily Mexico. Airlines are one of the worst businesses ever. Airports are just the opposite. In the U.S airports are not private businesses unlike in many countries abroad. Airports are a great business when the long-term demand for travel in that country is growing. If you are one of the few able to give concessions from the government to operate an airport, there is no competition around for 50, 60, 70+ miles. You are given a natural monopoly. You are able to grow revenues from the growth in the stores inside the airport, the sales from advertising space in the airport, the actual flight sales themselves, the right to have runway space, and the parking garages. In Mexico both due to a growing middle class, and tourism the number of travelers has consistently increased over time. The natural monopolies get the benefits of this as well as the mentioned increased ways to monetize over time. Both companies operate with low debts, have high ROIC and margins and are selling for a 13 and 16 PE. While there will be ups and downs due to macro factors, overall these two operators have very favorable economics.

Stock 10: ASR airports (ASR) 7%

I would love to hear any thoughts or questions that you can’t easily Google, and please keep in mind in your judgements of my portfolio or ideas, that I’m only 20 and still in college so just like everyone else I do not have everything hammered out. Please share with at least 1 or 2 friends because if you thought it was worth reading, and still do now, then why not share information that has some value.

Margin Of Wisdom