YouSaid · the spoken record

Dev Kantesaria

lines on the record: 55
first: 2021-10-22
most recent: 2021-10-22
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“Understand investing in how it should be done right. There is no better place to go than Buffett Monger. And I hope that in some way that I can try to carry their mantle on it going forward basis. I think there's a small group of us in the current generation that tries to practice their philosophy well. And again, I don't think there's any value in being a purist. You know, for example, if you were a purist and you avoided technology stocks, you might have missed some of the great business models in Fangs, for example. Most of their core principles are timeless and really it really resonates with me today as much as it did when I was 10 years old.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“I still haven't found anyone better than Buffetmonger. There's a number of other investors out there that are famous, and you'll see them talking. And so I have not found a third or fourth or fifth investor on the list that I admire and that I follow. I think the best place to go is to look at their letters, to watch every interview. I often watch their interviews on YouTube while I'm brushing my teeth at night. It's a little bit like going to church. It just reminds you of some of the principles when there's chaos or a lot of silly things happening like they are today in the marketplace with SPACs and IPOs and cryptocurrencies and NFTs. And, you know, it's always good to remind yourself about the longer-term picture. So CNBC has put out a wonderful website that aggregates all of their interviews, all of their writings. And so it's the place where it would take you, I don't know, 100 hours, 200 hours. I don't know how long it would take you. It's a long time to go through it. And then you should probably go through it again. But for any person looking to”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“Set of numbers and spreadsheets, and anyone that tries to bring that level of preciseness to stock investing is fooling themselves. You know, Warren Buffett has talked often about how his calculations are really generally back of the envelope. And when you invest in a compounding machine that has a lot of different ways to win, pricing power, industry volumes, flexible cost structures so they can increase their margins or increase their margins steady during a recession. You know, there's a lot of different ways that these companies can get to their free cash flow targets. That gives us the margin of safety we need with some of these great businesses. So hopefully that gives you a flavor for how we try to think about valuation.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“Pay for business for 2021 2022 2023, and we rank order businesses by the free cash flow yield that we think those companies should be trading at for their future quality and growth. And then we compare that rank ordered set of companies against the risk-free rate, which is the 10-year treasury, which is our proxy for the risk-free rate. So we want to see a large gap with the risk-free rate, and we also want to find a companies that have the most promising gap between the free cash flow yield at which they're trading it today and what we free cash flow yield we think they should be trading at. So, for example, Moody's, there's been times when Moody's has traded at a 5% or 6% free cash flow yield. If you go back 10 or 12 years, they might have even traded at a 10% free cash flow yield. And we may have determined based on business quality that in fact they really should have been traded at a 3% free cash flow yield relative to the risk-free rate. And so it's not a”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“Ultimately, it's what we learn in business school, right? It's all about discounted cash flow. I think it's fairly easy to create a five or ten year free cash flow model, and that's generally not where you get your edge. Someone may factor in an additional 2% or 3% growth rate on top line revenue. I think the real edge comes from determining the discount rate. And you're factoring in a large set of future risk factors. We've associated in our business risk and volatility. We think that the volatility of the stock translates into risk and that is the best mathematical relationship we have around risk. But we don't think that's a great way to think about future discount rate. So we're trying to assimilate a large set of risk factors into the fair price we'd be willing to pay for a company. We are essentially running a discounted cash flow model. But in terms of day-to-day ease with our work, we really try to look at what is the free cash flow yielding.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“Again, it goes to what the embedded cost is, a cost of capital that's embedded in the price of the leaf. So the leap is making some assumption about the hidden sort of value, the cost of the money because you're not putting up as much capital as you would if you were buying a straight common stock. So when we run those calculations, there are times when we are being able to buy a leap that's severely in the money or very little additional embedded interest cost, if you will. So it occasionally makes sense to buy the leap. We will generally buy the leap and the common stock because day to day there'll be days when it's better for us to buy the common stock and other days when it may be better to buy the leaps depending on what pricing is being given to us.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“My early investment career, I looked at things like selling covered calls, and it was a lot of work and risk for not much gain. And so if we want to get out of something, we will just sell it completely. And so buying and selling common stock positions has, in our view, been the most prudent way to get the exposure we need. Occasionally, leaps will trade at a very attractive valuation where the embedded cost of buying those leaps makes the leaps more attractive than buying the common stock. And these are leaps that are severely in the money. So we look at all of the equity instruments that are available to us. We will generally default to common stock positions, but we look at leaps. We look at selling covered calls. And very rarely, you'll find anomalies. So many years ago, we held leap positions in eBay and Nike that did amazingly well for us, but we've only found two of those situations in 14 years.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“Were to take on an excessive amount of debt, that could be another reason that we exit a position. I would say for us, the easiest decision is for exiting a company is when we find something that we like better. And so that is usually how most things leave the portfolio. As I mentioned, when we sell something, it often continues to do well even after we sell it. I thought of creating a second fund. It just takes all the things that we've sold and see how that goes, because I think that actually would do very well also, but we don't sell very often, but when we do, those are some of the reasons why we get out of a position.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“So every day we're taking in new risk factors. We may learn something. To our view of risk, our future risk to cash flows. And that'll be a determinant of intrinsic value. So we have a general view of what intrinsic value is every day for every company in our portfolio and the companies that are on our shortlist. But when something reaches 100% of our intrinsic value, we have to justify why they are still in the portfolio. We have to have them compete against the other short ideas that we like. But the things that could cause us to sell a position are, you know, as I mentioned, a change in business quality or risk. based on something new that we learned or a competitive dynamic that we see. It could be related to, as we've talked about, misuse of free cash flow by management or capital allocation decisions. It could also be that the company takes on excessive leverage. So we don't use leverage at the fund level, although we have the ability to do so. We don't like leverage at our underlying company level. So our companies all have some debt, but it's not excessive.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“Like the businesses that we want to invest in today. And so that's been fortunate for how we view the investment opportunity.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“No. And the reason for that is it is a happy circumstance that when we look for really high quality business models, companies that are very entrenched in their respective industries, they generally have larger market caps. So at least mid-cap, but usually large cap. And so we have a very liquid portfolio. We can be highly nimble. We can sell out of a position entirely in a couple of days or a few days and switch into another position. So that nimbleness that we have have had over the last 14 years, we still have today and we think we'll have for the foreseeable future. And so we've not experienced any style drift. What you often see with growth in AUM is that you might have started investing in small caps in Brazil. And you've had to morph into something else. We've had the, because of the types of companies we look at, we've had absolutely no issues. Our portfolio, the types of businesses that we invested in 14 years ago look exactly.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“Yes, or will if they're, let's suppose they're buying back a billion dollars of stock this year, we'll factor that into, you know, we'll subtract that from the free cash flow. There's on an after tax basis. So they'll get a tax deduction for some of that buyback or the restricted stock debt ratio. But so on an after-tax basis, we could also subtract that from the numerator. But in one way or another, we factor that cost as an actual cost. And so we look at free cash flow yields adjusted after the cost of compensation.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“To have more impact in that area, but there is a lot of bad behavior that happens with capital allocation. And I would put executive compensation in that category. When you're giving up a large amount of restricted stock and then claiming that you have a large buyback, you're essentially running in place. You know, if you give out one or two percent of your company stuck and then you buy back one or two percent of your stock and brag about having a great buyback program, you're just running in place. So capital allocation is something that we focus on intensely. We actually calculate our free cash flow yields for our company after the cost of buying back stock that is issued in terms of compensation. We think very few managers think about free cash flow that way. So it's something that when we see bad behavior, we want to have a voice there. But no, we prefer private conversations for now.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“Wanted to, we've never, and we don't believe in buying a low quality business and fixing it up. The businesses that we buy, you don't need Warren Buffett or Steve Jobs running them. The areas that have really angered us the most have been around capital allocation. It could be a wasteful R&D project or a pet project. It could be acquisitions that where companies are overpaying for companies, we don't see the strategic fit. Maybe the management is trying to smooth out earnings or appease Wall Street. And we certainly have private conversations with management, and we're very vocal about it. But as we've grown in size here, I think our voice is getting stronger and being heard, but there are certainly situations where we've wanted to be a lot more forceful, mainly around capital allocation. And hopefully as we get larger, that voice will grow stronger and we'll be able to.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“Company was quite successful, and the impact on our portfolio was minimal. But there were some interesting learning lessons in there for us.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“Sequoia had made a pipe investment. There were a lot of positive characteristics that we liked about the business. Unfortunately, it was a loss for us. And if we had held on to it longer, it ended up ultimately being highly successful. So it's good to know that when even our losers, if we look out at some point, we end up being quite successful. It happens with many of our companies. When we sold out of Monster Beverage or Nike, some of our more recent sales, they've gone on to be quite successful even after we've sold them. So for us, it's confirmation that we're still fishing in the right pond. But it was a company that just didn't execute well. They had issues with their inventory. They used up a lot of cash on their balance sheet. And the learning lesson for us there was really that in the same way that there used to be 500 car companies in the US and we ended up with three. We got involved in that battle too early. And it's really tough to pick the winners when you're involved in an early battle like that. Ultimately, as I mentioned,”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“Same. But if there's infinite formula on the shelf and one costs $10 and the other one costs $5, the parents are going to buy the $10 one because they think there's something better about it. I sidetracked on just discussing why that whole industry dynamic is so attractive to us. But in China, which today is the largest infant formula market in the world, at the time back in 2010, it was the second largest in the world. It was early innings and we invested in a company that had dominant market share in second and third tier cities. The stock price had dropped significantly because there was a scandal that broke out where companies were using a chemical called melamine to thicken the powder. It was a cheap way for these companies to thicken the powder rather than using milk powder, which was more costly. And it was a big scandal. Executives were thrown in jail in China. But this company did not participate in that scandal, but it stuck price nevertheless fell significantly. We bought into the company at a single digit multiple. We felt like we were being compensated for a lot of different risks. A lot of the management team members were from the U.S.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“And this was a company that sold infant formula in China. It traded here in the US as an ADR. And if you're a parent, you know about infant formula and what a racket it is. It's an oligopoly. It's so expensive here in the US that sometimes supermarkets will actually lock up the infant formula behind a glass case. And so it's an industry that has really interesting characteristics. A few companies dominate shelf space because they participate in the WIC program, which allows them, they run, the WIC program is infin formula for babies that are born into poverty and their state contracts. And if you win the state contract, you get all the shelf space in that state. You're getting your profits from the other 50% of the babies and parents. But the interesting dynamic that plays out in infant formula is the higher your infant formula is priced, the greater the quality the parents believe they're getting. In fact, the ingredients in infant formula are regulated and they're essentially this.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“So, if you look at gainers or losers since inception 14 years, over $10,000 just to remove some of the noise, we've had 39 winners and six losers. But the six losers have been very modest in terms of their impact to the portfolio. So we're strong believers in margin of safety, where even if the thesis doesn't go exactly as you've planned, you can at least get your money back or walk away with a small profit. So if you look at our six losers, three of them have been very close to break even. essentially flat to our initial investment in those companies. The worst loser that we've ever had was back in 2010. It was only about a 4% drag to our gross performance of the fund. And I think that's a pretty remarkable statement.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“Of your thinking, being patient, disciplined across those periods. I think that's hugely important to being a successful investor.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I think temperament is hugely important in investing. We don't get happy when the stock price goes up. We don't get sad when it goes down. We are completely focused on bottom-up fundamentals. And so the fact that their share prices were flat for a year or two didn't bother us in the least. We're all about what these companies look like five years up from now, 10 years out from now. And you'll see that in our portfolio. You'll see periods where there's a year or two, where there's a pause, where returns don't look very exciting. And then we have massive spurts. And that's just the nature of investing. And we don't determine whether we've had a good year or bad year based on our portfolio's appreciation. We decide whether we've had a good year or bad year by the underlying earnings and whether the businesses have increased their business quality, their margins, how they've allocated capital. And so that ability to avoid being influenced by share prices in terms of”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“But if you look overall at their ratings, they're highly predictive. They're great business models. There's some very nice trends happening in the world. For example, China and India, there's a lot more debt reaching the market in those countries. There's disintermediation happening in Europe. Large banks are, you know, because they have to hold more capital on their balance sheets, are not able to give out as many loans, so companies are not going directly to the marketplace to raise debt. So these are fantastic businesses, and we continue to love them.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“Interest rate on the debt issue generally 30 to 50 basis points. And so if you're IBM and you have a $5 billion debt offering and you have to pay 30 basis points or 50 basis points more a year on $5 billion, there's no way for these smaller competitors to undercut Moody's and S&PN price. You could go to IBM and offer your services for free and you still want to use Moody's and S&P. And so it's a natural duopoly. They have inflation plus pricing. So regardless of what inflation is, they'll layer on several percent on top of inflation. They're exceedingly capital efficient. And they're good at their work. You know, people assume that they've made a lot of mistakes or that their ratings are not predictive, but I think that's absolutely not correct. Actually, their ratings have been highly predictive, and they're being asked to look at the future and what housing is going to be in the future, what a company is going to be like in the future or in the industry. That's a hard task.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“Lot more to go, but these are companies that today have learned from some of the past mistakes. So, for example, they've really separated themselves from the underwriting process. So they're not formally part of the debt perspectus. And so they're really well protected from being accused of being part of the underwriting process, which was one of the main thrusts of much of the litigation against them. The increased regulation, which has been added to the industry, has actually helped serve to solidify their duopoly because medic regulation is costly. You know, if you have lawyers around the world in every country filing paperwork and dealing with regulators, that's very expensive. But the types of businesses we like in terms of monopolies or duopolies are oligopolies are natural ones. And what I mean by natural is that you don't need to twist someone's arm in order to use their products or services. And the reason that people continue to use Moody's and S&P is that if you decide to use one of their competitors, Kroll or Morningstar or Egan Jones, you end up having a higher”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“Sure. So the companies that we have held the longest that we still love today in terms of business quality are the rating agencies. Moody's and S&P Global. We had them in our portfolio 10 years ago. We've held them every step along the way. I've tried to give away those companies at dinner parties for as long as I can remember. And they're just not exciting for people. They're not the hot technology company. They're not the hot spec or the hot IPO. They bore most people to tears. These companies are a natural duopoly. 90% of all the debt in the world has a Moody's and an S&P rating during 10, 12 years ago they ran into trouble. There were front page headlines regarding the ratings particularly around housing. They were sued by many market constituents. And so it gave us a great entry point for these businesses. Both companies have gone from are up about 20, 20 to 25x in the last 12 years from their low points. We think they have a”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“But with less hours worked, and so that is a trend that we think will continue to accelerate over the next 10, 20, 30 years.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“So, I think today, if you're a retail business and you are having trouble finding labor or your labor's expensive, you are already implementing efficiencies. That could be different types of automation, it could be QR codes. You may go out to a restaurant today and see that you can order using a QR code. You can pay using a QR code. That requires less staff. And you'll see that in factories. You'll see that across retail outlets. It could take the form of autonomous driving. There's just a lot of technologies that will play out over the next 10, 20 years that will replace human labor. And that human labor needs to become more skilled in order to be competitive in the future marketplace. And so there will be a continuum.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“And when they do normalize, we think there's going to be significant pressure on employment. And so in that setting, central banks will have to keep interest rates low to spur growth. When you have an environment like that, it's exceedingly hard to grow buying power. And we think the absolute best way to grow buying power for the next decade is going to be equities, in particular high quality equities. If you can find companies that have strong organic growth combined with predictability, those are going to be prized assets in a low growth, low interest rate environment. And we think that our portfolio is specifically focused on exactly that type of company. So we expect a really great decade for our companies.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“I would say that most likely scenario is that by the end of next year, GDP growth here in the US looks very similar to where we were pre-COVID, 1%, 2% GDP growth. I see a future that very much similar to what's happened in Japan and Europe, stale growth, low interest rates. We're not prognosticators on those macroeconomic factors. No one can predict exactly where they're going to be. But the most likely scenario would be low GDP growth in that interest rates stay in a low range. Generally, let's say one to three percent on the 10-year treasury. And we have some secular factors playing out. We have automation, artificial intelligence, cloud services, which will significantly pressure employment. And it's hard to think about that today. And companies are raising wages and desperately trying to find workers. But after this period here, this reopening and this large increase in demand that we're seeing currently, things will normally.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“That gives us the general opportunity could be something specific to the company, you know, a particular earnings release that gives us the opportunity. But we have the opportunity to buy into these companies at many different intervals because of the nature of the compounding intrinsic value pattern that they have.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“A fine place to put your money for the next 10 years to grow your buying power. We, in our portfolio, obviously believe that we can significantly outperform the S&P 500. And so our collection of companies should grow at a significantly higher rate than the S&P 500. We expect the S&P 500 to grow organically in the low single digits top line. For our companies, we think about it more as free cash flow per share growth. And we're looking at companies that in an overall portfolio that can grow in the high teens in some of our companies may even be able to grow in the low 20s. And what's interesting about our companies is that we'll buy them up front at a significant discount, generally $30 to 60% below what we think they're worth. But we continue to buy into our companies over time. And so we have some companies in our portfolio today that we own 10 years ago, but we might have bought into them 10 different times over the last decade. And so we find it could be a specific market downdraft like Brexit.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“So I think one of the mistakes that many investors make is that they look at historical PE multiples to justify what is appropriate today. So they'll look at the historical S&P 500 multiple 16, and they'll see the S&P trading at 20 today, and they'll say that the S&P is overvalued and stay away from equities. I don't think that is the right way to think about equity multiples. Equity multiples are dynamic. They're related to where interest rates are or where they're going to be over the next five to ten years. And today we're in a very low interest rate environment. There aren't many curves that I follow in finance, but the one curve that I think people should follow is the S&P 500 earnings yield relative to the 10-year treasury, which is the best proxy we have for the risk-free rate. Today, the 10-year treasury is 1.4 to 1.5%. You have the S&P trading at roughly a 5% earnings yield for next year. That is a significant gap. In our view, the S&P 500 is”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“Get a fang stocks today. I think on a risk reward basis, they will outperform. We think there's slightly better places to put money, but we are of the camp that the Fang stocks are appropriately valued today for the opportunity that they represent on a risk-wide basis and their fantastic business models.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“That their organic growth has more than covered for these sins. And so it's been a mistake not to own these companies. We do own Amazon and the portfolio. We think that some of the services businesses that Amazon has are going to be fantastic over the next few years and really be competitive threats. You know, the advertising business, for example, for Facebook and Google. But it's been, I think, an error for us to be such purists about some of these other characteristics of these companies when the business models have been so good. And although it's easy to say that the fangs are too big or they can't last forever, as I see them today, they're highly dominant. They have great organic growth profiles. And as you look at the general S&P 500 company, they're far superior businesses. And I couldn't argue with anyone that wanted to own a basketball.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“Well, it's unfortunate that the Fang stocks have developed at a time when I was at the scene of the crime. You know, there's many things at play. I wasn't around when Coca-Cola had its glory days, but I was certainly here when the Fang Stocks were going public and developing their great business models. We have generally shied away from Fang stocks because of a lot of poor behavior. That includes poor capital allocation decision. That includes excessive compensation, things that we're purists. And so we want to see once the free cash flow is made, we want to see that it's invested properly. We don't like a lot CEOs to have many pet projects. We don't like dual class structures where the CEO is anointed for life. And so that was one of the reasons that has kept us from these companies. More recently, the capital intensity of these companies have gone up as they're fighting these wars with each other. But the business models are so good.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“That have a long history of pricing power, that have a dominant market position that we think is not subject to significant disruption. We'd like to see company operate in an industry whose volumes are going up significantly over time. The companies that we invest in often have many different levers to win. And when their business quality does decline for whatever reason, we don't have tragic accidents. We don't have companies that go down 90% in price because of some event, industry event or new regulation or illegal issue or some competitive threat. Our companies often take many years to get off the rails and it allows us to stay ahead of our other investors and to switch out lower quality businesses for higher quality businesses.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so if you look at the types of businesses that we like, we avoid things that have high RD risk. So that's biotech, pharma, medical devices, but that's also hardware technology. It could be minerals. Someone may open up a $10 billion potash mine without knowing what the price of potash is going to be when a project is done five years from now. So we avoid things that require large upfront investment without knowing what the return is going to be. We avoid things companies whose prospects are tied to commodity prices, for example. We avoid companies whose fortunes are tied to where interest rates will be. We avoid things that are highly capital intensive. So, you know, our fishing pond is get smaller when we avoid businesses that have those types of unpredictable factors. But we are fairly open-minded about market capitalization, geography, sector, industry. And we are looking for companies that provide essential products and services.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“People assume that Valley Forge is full of healthcare names. It turns out that Valley Forge has no healthcare. There's no pharmaceuticals. There's no biotech. There's no medical devices. There's no hospitals. There's no healthcare IT. And the reason for that is those businesses are just not predictable enough for us. We want to see businesses that over a five to ten year period have a very predictable path to organic growth and higher free cash flow. And you just don't have that in the healthcare sector. Although we know a lot about it and we could be somebody's consultant on those companies, we don't think they're a very reliable way to make money. And that's one of the reasons I transitioned from venture capital to public equities. That's how we've ended up in public equities, but I don't use a lot of my medical knowledge day to day just because our fishing pond doesn't include a lot of those healthcare businesses.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“Performance for 2020. But anytime that we have a large informational advantage versus the general marketplace, we're going to take advantage of it. And I think it shows a flexibility of our thinking. There's many die-hard value investors who just continue to do things a certain way. You have to learn to be flexible depending on the circumstances that are thrown at you. If you have a situation playing out that's once in 70 years, you know, or something that hasn't happened since 1919, since the last flu epidemic. And you have an informational advantage versus the rest of the marketplace, which we thought we had. We did something different that was out of the ordinary. We're willing to deviate from our playbook if circumstances weren't it. And we're going to do it very carefully and we're going to do it with a large amount, a large margin of state. So that was an interesting thing for us. It's probably never going to happen again in my career, hopefully. But it just, it was something that we took advantage of. And that was a direct use of my medical knowledge.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“We definitely had heard new sources about the timing of results. I would say that there was an upside surprise as to how well the vaccines worked and how quickly they were approved. And you saw that reflect in the market rally that occurred once those vaccines were introduced to the marketplace. Where we did have an informational advantage around COVID. So in early 2020, my doctor friends were feeding me information about how things were playing out with COVID. And so we saw a major informational advantage there. We don't short very often in our fund. We've shorted, I think, five times in 14 years, and we need to have huge margin of safety. So the risk reward has to be tremendously in our favor. Shorting is almost always a bad idea. But in this case, we actually layered on a large short position onto the fund in March of last year, which was highly profitable for the fund. It turns out that that represented only 6% of the”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“To us was the staying power of our businesses, the pricing power they had. A number of our companies actually reported record margins during the worst GDP downdraft since the Great Depression. So the business quality of many of our companies actually increased during COVID, which was an amazing thing to see. And so we were very happy with our portfolio. We were obviously opportunistic. bought more of our companies at really fantastic prices for the long term. But we tested our companies during that period and they passed with flying colors.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“There were absolutely no new names in the portfolio in 2020 across that very volatile period. We didn't sell anything. We didn't buy a new name. And I think that is actually a testament to the decisions we made three or four years before that. Because if you made great decisions with your portfolio five years ago, four years ago, three years ago, and you're still holding those names today and you're still happy with those names, that means that you have good decision making at your firm. If there's a lot of turnover in your portfolio, either you're speculating or maybe your decision making isn't of the highest quality. Because if there's something that you loved 18 months ago and you don't love it today and that happens often enough, then there might be a problem. So there were no changes in our portfolio. And it was a great test for our companies prior to the volatility last year. We had certain downdraft, Brexit, the taper tantrum, small downdrafts. But it was the first real test for our companies. And what it showed.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“Next 50 years, you would have been pretty happy. So, you know, we are very prudent on entry. Our margin of safety, we have a very low loss ratio across our 14 years, our winners to losers ratio is, we think, one of the best in the industry. So we do believe in a strong margin of safety. We are being careful at the price we get in, but I think the general learning lesson is that when you buy a high quality company with a strong organic growth rate, there really is almost no bad time to be in.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“Historically, our cash levels have been higher. We've been as high as 20%. In more recent years, it's been in the low single digits. And one of the learning lessons I've had in running valley forge is that there really is no bad time to buy a compounding machine. And we know that market timing doesn't work. If you're trying to enter the market based on where you think interest rates will be or where an election result is going to be or Fed policy decisions or a variety of macroeconomic or geopolitical factors, we know that that's not a way to win the game. The way to win the game is to by compounding machines and hold them for many years. And so the learning lesson has been that there has been almost no bad time to buy compounding machine. Even if you were to buy, you may know the famous story of the Coca-Cola IPO. If you had bought the Coca-Cola IPO, it initially went down 40% and you might have been lamenting your life or your situation if you had gotten into the Coca-Cola IPO but beheld it for the”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“100 capital accounts across roughly 90 investors and we had only one phone call. Now when the market drops 30 or 40 percent and it feels like the end of the world is coming, that's pretty amazing to get only one call out of 90. And so I think that goes to the trust that we place in each other. We trust that they're going to be there for us and they trust that we're making the right decisions when it feels like the world is ending.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“Take his Sure. Well, I wish I had insurance float to invest. That is a very strong position to be in when you know you have capital to put to work, when there's a downdraft. And unfortunately, investors add to their accounts on the upswing, not the downtwing. But, you know, today we manage approximately $2.7 billion in our 14-year history. We have been very fortunate to have virtually no redemptions relative to that number. And so we've had very stable capital. We want to be aligned with our investors. We want them to understand what the partnership is about. And so by making sure that they understand what we're doing, how we're doing it, it leads to very longstanding relationships and stable relationships. So we have been fortunate in that regard, unlike many of our peers that may have huge redemptions. We have not experienced that even across severe volatility. So going back to March of last year, during the COVID scare, we have 100 investors.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“We essentially had completed our work and we renew that work. So coming like Monster, we would look at every quarterly earnings. We would update our intrinsic values. And to be clear, intrinsic values are not precise numbers. They have some variance to them, plus or minus $5 in share price, something of that sort. But no, we know at any given moment what price we want to buy our favorite companies at. When that opportunity shows up, and it could be a downdraft in the general market, it could be specific company news. We need to be ready to jump on it because those opportunities are very short-lived, as I mentioned. Great businesses don't go on sale very often.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“Something shows itself in the marketplace. Tomorrow morning, a stock that we have been following for seven or ten years could suddenly drop 40% in price. And we need to act quickly because a lot of those”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“Us, we have found that stock screens just don't work. I wish they did. It would make our jobs a lot easier. But there are certain commonalities within our portfolio. We have high return on tangible assets, which is a good measure of efficiency for a company. We have companies that are very low in capital expenditures. Our companies have demonstrated pricing power over long periods of time. But a standard stock screen does not find the companies that we want to invest in. The advantages that some of our companies have are subtle. can't necessarily be gleaned directly from a stock screen. But if you screen for companies that have high operating margins, high return on tangible assets, that will reduce the universe that you need to study, but it's not a great way for us to find company. So unfortunately, what we're doing is reading a lot. We trade very rarely 95% of the time we are reading 10Ks, 10 Qs, anything we can get our hands on. Being mentally prepared to take action.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT
“Have no earnings. And so as you look at energy, financials, heavy industrials, chemicals, materials, those companies are for the most part value traps and the great contribution monger to that relationship with Buffett was that buying one of these compounding machines, even if you have to pay a higher multiple for it, even if you're paying a fair price in the long run, it turns out to be a much better way of making it.”
2021-10-22 · We Study Billionaires · TIP389: Buffett's Core Principles w/ Dev Kantesaria · IDENTIFIED FROM THE TRANSCRIPT