YouSaid · the spoken record

Soo Chuen Tan

lines on the record: 61
first: 2024-07-26
most recent: 2024-07-26
sittings or episodes: 1
sources: podcast

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“Thanks, Clay. But we have a website, it's distrain.com, and I can also be reached on LinkedIn. Thank you very much for these incredibly thoughtful questions. This was a lot of fun.”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“At me unblinkingly through his moonshaped glasses and said, who said this was going to be easy? Which of course was exactly right and served as a timely kick up my behind? So classic laconic comment. Over time I've become more convinced that Charlie's belief is true and that the best thing that each of us can do is to help others around us know more. It's a very humble thing to want to do, but it's a very important thing to do. There are fewer purer expressions of caring and fewer gifts that are more valuable. But to answer your question, because Charlie had the profile he had”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“So, I love that Charlie quote. But my favorite is actually a more modest one. He said the best thing a human being can do is help another human being no more. Charlie walked with the walk of his dictum by generously sharing his time and worldly wisdom with so many people, including me in his last years. He didn't need to do so. So many non-genarians spend their time very differently from Charlie, but I suspect that he thought that this was the best use of his time in the last season of his life. So I've learned so many things from both Charlie Manga and Warren Buffett, and I think that the most important thing I've learned is to think for myself and to reason from first principles and have the intellectual courage to act differently from the crowd, regardless of how lonely a path this may be. You mentioned that we met in 2018. I told Charlie that we were struggling to find good investments that met our investing bar. And I asked Charlie if he had any advice for what we should be doing differently. He looked”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“Never get access to the cash because the people who control the business don't want to distribute the cash or reallocate the capital in ways that aren't beneficial to minority shareholders. So there, once again, the more fundamental we are, the better it is because you're focused on who runs these businesses, what do they run these businesses for, how are they reinvesting the cash. It's not a sufficient condition that it trades at a big discount to what we think it's worth is also important who runs these businesses and how the cash is being reallocated, etc. The more businesslike the crafters, the more likely it is to be successful.”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, that's true. You said it really well. Something that trades at a low price of the book may not be cheap. What is intrinsic value, intrinsic value is a net present value of future cash flows and you want to buy at a big discount to that. I'll give an example. Let's say the book value of a company is a whole bunch of land that they overpaid for and the land doesn't have much use. It's a white elephant. Then what's the value of that land if it can't generate cash flows, we would argue that that land's not valuable. The fact that it traded a low price to book says nothing about whether the sock's cheap or not, just generalizing from that, value investing is not about buying low p stocks or low price to book stocks. It's buying businesses at big discounts to what they're worth. It's not a statistical exercise. It's a fundamental exercise. And it's no surprise then that the strategy of just buying low multiple stocks hasn't worked. It shouldn't work. We don't do that. There's a second reason why there are certain value traps. Businesses could trade at big discounts to what they're worth, but minority shareholders”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“Say it. Rule number one don't lose money. Rule number two don't forget rule number one, and the returns will take care of themselves. Our study of history and our own investing experience affirms that fundamental contrarian value investing is both empirically and logically sound over a multi-year investment period, over multiple possible states of the world. A priori, meaning before the fact, we believe that few other strategies can rival its anti-fragility and cumulative probably of compounded success over time. Of course, you're going to have the stock picker who picked Nvidia and made a lot of money on it and get into the Hall of Fame that exists. It will continue to exist. But over a multi-round game, having a high battery average, protecting your downside, demanding a margin of safety, doing this over and over again over an investing lifetime, we believe has the highest expected probability of success before the fact.”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“Thanks for paying attention, Clay. I don't know how many folks who read our investor letters pay that close attention to the numbers on it. Betting average is simply the percentage of our investments that are profitable, realized, and unrealized. So the numerator is all the positions that we've invested in they're profitable and the denominator is all the investments we've ever made. And the betting in which you're talking about is how long better. We're proud of betting average, over 14-year period. It means that we've been right more often than we've been wrong and that even when we're wrong, the margin safety of our investments have sometimes protected us from permanent capital impairment. Our returns have not been generated by one or two multi-bagger winners since our inception. We have not owned any of the Fang stocks, but we've had many winners nevertheless. And even when we're wrong, our mistakes haven't been that costly to our overall portfolio. And so the betting average and the downside protection has been at the foundation of our returns over the last 14 years. This is what value investing is supposed to be as buffets”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“We think that this story is not yet fully told as the late Charlie Monker quipped easy money corrupts and really easy money corrupts absolutely.”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“Latent and unfulfilled This is the result of free money changing the behavior of economic actors, startups with Hail Mary business models were given nude Scarmander suitcases for cash, and I'm using a geeky Harry Potter reference here to pursue them at obscene valuations. Private equity sponsors were given nude scumanders suitcases of cash to roll up perfectly mediocre businesses with mountains of debt and wisps of equity equipped with the license to self-determine and self-report the value of those businesses using prices they and others like them paid. A public company promoters were given nude scum under suitcases of cash to perpetrate Ponzi-like roll-ups and other compounder schemes and were rewarded by their shareholders for doing so. Credit market participants willingly lent nude scamander suitcases of cash to anyone and everyone and were able to offload the risks to others, for example through securitization.”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“Advance of meeting such a demand, for example, a concert or a sports event. If so, could the market not clear and better equilibrium than the one where after a sports event, a few riders get the cars that they want at very high prices because of search pricing, and then other writers out of luck and they don't get any drivers at all. With the help of big data, couldn't significantly latent the month be unlocked and the total addressable market for right hailing be expended. That's the question that we had. The issue we learned from our research is that if a right hailing company started offering drivers too much money to go to specific locations in anticipation of demand, then drivers would not be willing to go to those locations otherwise, even when there's a certion demand. Some drivers may also start cutting back on driving during normal times when they aren't paid driver incentives. That is the income satisfies, not maximized. So paying up for drivers to unlock otherwise”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“You're absolutely right. Reflexivity is one of the many reasons why the real world doesn't operate in accordance with idealized economic models. I've already given one example of reflexivity when we discuss why the proposition fast-growing businesses are better investments than slow-growing ones because investors tend to underappreciate growth, it is unlikely to always be true. That's because of reflexivity. Now let's use the right healing industry as a second example of that. We've always wondered why right healing companies, whether in the US or elsewhere, don't use AI tools more in pricing driver PR models. Could a right-handing company not use external data, for example, about weather forecasts or airline schedules or sports events or concerts or other calendars as inputs into prediction models for demand for right healing in a particular market at particular time? If a right healing company could predict such demand in advance, could it then not offer higher incentives to get drivers to a specific location”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“A hot summer's day. Today, traders relying on information edge are willing to pay gobs of money to alternative status sources for small handfuls of KPIs track right down to daily frequency. And single tweets can change valuations of companies by tens of billions of dollars. As money printing then accelerates, the expectations gain gradually reduces investors to hanging on to every one of a single human being. that is Jerome Powells, Freuden tells.”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“Sir Thomas Gresham, the 16th century English financier. Gresham's law is a monetary principle stating that bad money drives out good. The application of Gresham's law in financial markets has been exacerbated by whiplash monetary policy, in particular free money tends to attract speculators and crowds out rational intrinsic value-based investors, thereby shrinking investment horizons. In the short term, changes in marginal demand and supply of printed money dominate the actual operating cash flows of the businesses in driving valuations. Over time, this dries out investors playing the weighing game that is those trying to figure out the interesting values of businesses and attracts speculators playing the expectations game that is trying to focus on trying to predict marginal changes in expectations or sentiments about the future. Salter points out that in modern day financial markets, the overavailability of information has also reduced the half-life of marginal news flow to that of the type of ice cream on”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“Distribution, thus creating atomize and fragile slivers of businesses that nevertheless often command illogically lofty valuations, for example, you see pharmaceuticals, software companies that do not attempt to maintain going concern investments and instead seek to continually acquire other companies in order to hollow out such companies, engineering RD and sales distribution teams. Therefore, eliminating all possible sources of competitive advantage for the business and these have been fitted as asset-like high RIC poster children in their respective industries. And that's crazy. You'll have pharma companies that don't do R&D. Software companies that don't do R&D, and yet these are the poster children in their industries. The corporations that have become the darlings of modern capital markets get curious and curious. Third, this traderly culture has been exacerbated by Gresham's law. This is named after”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“From five years to ten months. Senior executives in public corporations have responded to this shrinking holding period of investment managers by offering quarterly financial guidance to manage analysts' short-term stock price expectations. However, a McKinsey study found that providers of such guidance were not rewarded with higher valuation. The only significant effect of the practice was to increase trading volume of companies when they begin issuing such guidance. At this rin, we view the absence of short-term financial guidance from CEOs and CFOs, along with the lack of proforma adjustments in reported earnings as signals for a company's culture of long-termism. And there are relatively few companies that don't provide guidance. Another effect of short-termism has been to encourage firms to share or outsource functions formerly considered to be critical to a business, including R&D, manufacturing,”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“In 2020, the average turnover of CEOs was about seven years for companies in the SSM 500 index, about 6.9 years in the Russell 3000 index, and 4.9 years in the SSP 500 industrial index. So that's one. Just misaligned incentives. Second, we've experienced the ascendance of an atomized, disembodied, speculative and traderly financial culture. Salter identified the competition among investment managers for investment dollars as the desire by such managers to minimize business risk, especially in light of asset lighting mismatches industry that we've already discussed, as important drivers of modern day short-termism. This has caused ever increasing equities market turnover. According to the World Economic Forum and the IMF, the average holding period of public equities in the US has fallen from about five years in 1975 to about 10 months in 2020.”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“48 industries in a sample was just 1.22 years. Such performance compensation duration borders on the absurd for leaders of ostensibly multi-decade institutions, buffeted by so many factors beyond their short-term control in any given year. You might as well report people based on random number generator. In a survey of 401 US CFOs conducted by John Graham,”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“The shot answer is no, I don't think so. It's true of the majority of investors. Frankly, I don't think it's just investors that are short-term focused management teams are as well. There's a great paper about this. It's called short-termism at its worst by Harvard Business School professor, Malcolm Salter, and he identified several important factors behind the phenomenon of short-termism in corporate and investor behavior generally. First, there's the issue of misaligned incentives, and we talked about that already in incentives of money managers for corporations. It is hard for corporate executives to think long term if they are overwhelmingly rewarded for short-term results. There's another people in this. It's called Duration of Executive Compensation by Radha Krishnan Gopalan, Milburn, Feng Hua Song, and Arjun Thakur. They developed a metric for pay duration to quantify the average duration of the compensation plans for all the executives covered by the Aquila consultant survey of 2006-2009 proxy statements. The average pay duration for all executors across”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“Disruptor businesses have valuations that are even larger than the sizes that the incumbents are seeking to disrupt. Naturally, we ask, is there some bigger game being played here? Maybe the disruptors are attacking some larger market and the incumbents just collateral damage. The answer often is just no. It's simply replacing the incumbent business in the industry. So how can the market cap of that attacker be larger than the market cap of the incumbent today? But until very recently, we often found ourselves in metaphorical action labs full of people claiming that magic beans that hopefully will grow to three foot-tall beanstalks are worth more than fully grown 10-foot beanstalks already generating beautiful giant edible parts. Whatever pressure we may feel to conform our view to others, we believe that it's important to retain the courage to state simply that we believe they are not. In our industry, courage can sometimes be quite prosaic, but it is”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“These experiments are especially striking because participants were not told to try to achieve consensus. They were just simply trying to point out which line is the same line as the reference lines. They were not asked to agree with each other. The urge of a participant to conform stems from an automatic, heightened arousal from knowing that he or she is standing out. Of course, in investing, sometimes the truth is more ambiguous than which line is the same line as the reference line. But in today's investing environment, that's not always true. Our observation is that epistemic ambiguity isn't always at issue. Sometimes it's just clear. For example, we own some incumbent businesses that purportedly are being disrupted by new entrants, often highly unprofitable. With businesses that are tiny fractions of the size of the incumbents, as hip as the incumbents are stodgy, such disruptors nonetheless sometimes have expected unit economics that are far inferior to those of the incumbents. Even so, until recently, some of these”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“At it, and you go line A is clearly shorter than a reference line. Line B is clearly longer than a reference line. And line C is exactly the same length as a reference line. The experiment starts and the experimenter asks participant one, which line is same length as a reference line. To your surprise, participant one calls out line A. Then participant two calls out line A. Then participant three says line A and you”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“That's a great question. So, I've already discussed our epistemological stance, that is, intrinsic value lies in a world, not in our heads, not in the heads of other people. So that epistemology actually creates a basis for the idea that we're not trying to look to the minds of others or the perceptions of others when we try to figure out what intrinsic value is. Now I'll discuss the psychological element of this, which is ultimately rooted in the willingness of successful value investors to truly be contrarian and independent-minded. Here, the seminal 1951 experiments conducted by psychologist Solomon Ash is instructive. Let's imagine that you're a participant in one of Ash's experiments. You are the sixth person in a row of seven participants. The experimenter asks each participant which of three different lines. Line A, line B, line C is the same line as a reference line. So there are three lines, A, B, C and then there's a reference line. And they ask which line is the same length as the reference line. Now you look”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“Long held ones, retooling our research methods and techniques, including how we ask questions, how we interview people, how we process information, et cetera, and then re-examining our psychological biases and decision-making habits. We've been unafraid to continue to put in the work on all these fronts. We believe that this continuous improvement increases the likelihood of achieving satisfactory long-term investment outcomes.”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“Constitute mastery of the craft. Nevertheless, in the current age of instant gratification, many whippersnapper stock pickers have sought to skip past all of this. They sprint, not walk through their evolution to become too high conviction investors swinging too hard at quote-unquote multi-baggers, predictably without classical training and proper form such while swinging seldom ends well, especially given the non-agodicity of the investing endeavor. At Disreen, we're careful to build our investing skills on classical foundations. We prefer to be hardworking, patient marathon runners rather than sprinters. Each year, we continue to develop empirical data sets, knowledge-based of businesses, sharpen our toolsets, expand our mental models, reinforce our psychological conditioning, and hone our judgment. Some of the improvements we want to make may require reconstructing our mental models, sometimes including”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“And attitude. These changes sometimes require deconstructing existing swimming techniques and unlearning previous habits of training and competing and then layering on new skills, for example anticipating the starting gun. At the end of the day, Chamblers found that excellence is often surprisingly mundane. Elite swimmers did many little things better than those at lower levels, but they did not often possess anything extraordinary, for example, extra lung capacity that can be characterized as innate talent. Luckily for us, we believe that this is also true in investing. Successful investors do not need superhuman IQ or EQ, though both will help. We believe that becoming a world-class investor ultimately involves getting good at all the many little things and fashioning a world-class investing enterprise, accumulating all the little advantages to gather”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“Catch. There's no chicken and egg quest in here. Fundamentals come first. Good things come to he who waits if he works like hell while waiting. In his book, A Lifetime of Observations and Reflections on and Off the Court, John Wooden agreed, and I quote him here, many athletes have tremendous God-given gifts, but they don't focus on the development of those gifts. Who are those individuals? You've never heard of them, and you never will. It's true in sport and it's also true everywhere in life. Hard work is a difference. Very hard work. Now quote a third person in his paper, The Mundanity of Excellence, sociologist David Chamblers found that excellence at different levels of competitive swimming required qualitatively different levels of performance. Olympic swimmers don't just train harder or work out more than collegiate level swimmers. They swim differently. Moving up from one level of competitive swimming to the next often required fundamental changes in technique and”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“I think that there are certain traits of good investors that are inherent. Jason Zweig has a great summary of this in his blog, The Seven Virtues of Great Investors, and I highly recommend that people read it. However, these trades, I think, are simply the starting point. I do believe that good investors become good investors over time, largely through deliberate practice and continually working on their craft. I'll use some spots analogies. Bobby Knight wrote in his book that power of negative thinking that I quote, try putting together a game-winning touchdown drive if your linesman can't go with a snap count and jump offside. If your backs haven't mastered putting the ball away to avoid fumbling when hit, if your passer doesn't check where the defense is, as well as where his receivers are going, if the receiver doesn't look at the ball into his hands rather than glance upfield to see where he can go before he has made the”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“Moment to moment, based on how others perceive the asset at any given time. Instead, the intrinsic value of an asset is simply the net present value of all the cash flows the asset will generate over the course of his economic life. Our job as value investors is to try to figure out this value the best we can, and we can't travel in the future, so we don't know what the future cash flows will be. So we try to estimate it with imperfect information, imperfect tools and imperfect skills. We are all in Plato's cave, as it were. The fact that we measure intrinsic value imperfectly and we can change our minds about it does not mean that an objective intrinsic value does not exist. With the passage of time, we'll find out exactly how much cash flow a particular asset will generate over its economic life. There is objective truth, even if no one investor has a monopoly of it. Consequently, figuring out intrinsic value becomes a weighing exercise. We're trying to weigh”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“Same thing. So if people price a particular company based on multiples of earnings, then the company must be worth that multiple of earnings. If people price a different company based on a multiple of sales, then that company must be worth that multiple of sales. If people price yet another company based on multiples of eyeballs or subscribers, then the company is indeed worth that multiple of eyeballs and subscribers. Berkeley and investing is thus an exercise in persuasion. You make money when you can persuade other people to agree with you on your perception of value. Because people tend to be swayed by narrators, and it's a very human thing, the most successful investors using this approach are also the most persuasive storytellers. Now, value investors have a fundamentally different approach. We believe that an asset has intrinsic worth regardless of the price that others are willing to pay for it. That worth does not fluctuate.”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“Exist without being perceived. For example, if a tree in a forest falls to the ground and no one heard it, did it really make a sound? Indeed, if no one is around to see or touch the tree, how can the tree be said to exist at all? Applying this to investing, a Berkeleyan conception of value of any asset called asset X is necessarily linked to the price that someone else is willing to pay for that asset. The belief goes if no one is willing to pay a price for asset X, then there really is no basis for saying that asset X is worth anything at all. On the flip side, if folks are willing to pay a certain price for a particular asset, for example, Bitcoin or Picasso painting, then that asset must be worth that price. Reality is thus processed through perception. Based on this approach to investing, price and value are”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“Has good corporate culture. But how? Why do we believe what we believe? At this serene, we believe that knowledge is actually slippery and humbling. The more we learn about a business, the less we realize we know about it. Epistemology is especially important for value investors because the concept of intrinsic value is so foundational to the craft. As value investors, we have to hold fast to the belief that each business we study has an intrinsic value or intrinsic worth that we must do our best to estimate without falling into a reductionist Berkeleyan conception of intrinsic value being what are the market participants would pay for it. Josh Berkeley was an 18th century Irish philosopher who advanced the theory of quote unquote subjective idealism which argues that things in the world are ideas perceived through the mind and as a result cannot”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“Fast growing businesses are better investments than slower growing businesses because investors tend to underappreciate growth. This is an empirical statement that can be examined and thus subject to falsification. But paradoxically, the statement is actually self-negating over time. If it is examined and discovered to be empirically true for a certain period of time, then investors will begin to bid up the price of fast-growing companies such that the observation will no longer hold going forward. This feedback loop likely becomes faster when machine learning tools become more powerful. So, such an empirical statement is only ever contingently true. It cannot be true for all periods and all states of the world. Epistemology is similarly important. As investors, we must ask us, what is it to know something? And this is almost a meta question. For example, we say we know that Costco”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“I think they're crucial. I was fortunate that my time studying law gave me the opportunity to learn more about both formal logic and about epistemology, which is the theory of knowledge. Ultimately, fundamental investors must come up with theories about how a business behaves. That's at the core of these mental model building, which requires both inductive and deductive reasoning skills. Such theories must then be able to be tested and falsified. That's the theory of theory making, so to speak. If a theory isn't subject to falsification, then it's not theory at all, but simply dogma, or sometimes just a circular assertion. For example, this statement good management teams generate better returns for investors. It's circular and it's not falsifiable if one cannot define the term good management team, independent of such management team's track record of shareholder returns. If you define it based on the track record, then you just have a circular definition. In contrast, the statement”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“Next, when you obtain unsisted questions about business, ask, but why? And if you get the answer to that question, ask again, but why keep following the whys until you get to foundational topics of conceptual importance? And even when you get there, us, could it be otherwise? For example, if the provisional answer to why, so why, why is X. The question is, cannot X also cause Y and can X also cost not Y? If so, under what circumstances, as the late Charlie Munger used to say, invert, always invert. Lastly, unless you're already at Diserene, find a good person to go work for. Really do the legwork up front to find out who they are. Not all good investors are also good coaches, mentors, and people developers. They're not the same thing. Go find them. When you do invest in building that relationship, if they don't have”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“Online. I know this is unusual advice. Just do it. Next, sign up for good applied game theory class online, preferably one that involves lots of math that you then have to work through. Next, pick a company that has been around for a long time, for example Costco, and read through 20 years of annual reports. And don't start with the commentary.”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“Then proceed to greater. That's all this is. Here are a few practical suggestions for young folks who at the beginning of that journey, and they might not be so exciting to a lot of people listening, but here they are. First, I would say sign up for good accounting classes online. Get good at double entry general ledges, debits and credits by doing lots and lots of them. They're not fun, but they will teach you a lot. Next, sign up for good microeconomics theory of the firm industrial economics classes online. Invest in really understanding the classical models of perfect competition and monopolies and dualies and oligopolies don't take shortcuts. Next, sign up for good statistics classes online. Invest in truly understanding probabilities and distributions of outcomes and base rates in Bayesian reasoning. Then if you can, sign up for good logic and epistemology classes in a philosophy department.”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“The box thinking larger than life owner operators that are outliers that seek to disrupt existing industry structures. But the question that Annel should ask is, well, how many failed companies are also led by such personalities? And which outcome is more likely when base rates are properly established, one typically finds that apparent outliers in short-term performance are more often the result of excessive risk-taking, luck, or other confounding variables, for example, monetary policy, that are not actually endogenous to the company at all. Genuine outliers are much rarer. Many investors we respect from Warren Buffett to Nick's Leap have traveled on this evolutionary journey with skills that are built on Grand Mike Foundations. Of course, what we're saying is not new, we're simply restating less elegantly Epictetus' exhortation to practice yourself for heaven's sake in little things.”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“And as fluid intelligence becomes crystallized intelligence, they begin to appreciate the incorporeal elements that make a big difference, including incentives and leadership and culture and values. There is no shortcut for this process. A gramite foundation is a feature not a bug in the education and makeup of a value investor. One cannot reasonably expect to be able to spot exceptional companies if one has not yet sufficiently studied the economics and counting of the average business, so Esther established the base rate by which to recognize exceptionalism without being fluent in the language of accounting and microeconomics, analysts are unable to process narratives as descriptors of real world phenomena that can be independently tested. For example, it may be the case that many outstanding companies are led by driven out”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“In the development, they begin to appreciate that not all valuable assets sit on balance sheets. For example, the brand recognition, habitual consumption, global distribution reach of Coca-Cola are worth a lot more than its PP&E. Analysts begin to understand that accounting earnings do not always reflect the true economics of a business model. For example, the Berkshire Hathaway Research Group produces more cash flow than it produces in earnings because of the flow it generates. Then, over time, young analysts begin to appreciate the power of intangible barriers to entry or modes. In addition, analysts begin to recognize the true outliers, that is, the exceptional businesses that bug the trend of particular industries. For example, the rare retailer that sustainably makes supernormal profits, the atypical industrial supplier that sustainably commands high margins, or the uncommon software company that benefits from low industry clock speeds. As analysts continue to mature,”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“And carefully reading the footnotes. We believe that good value investors must pass through Ben Graham in their journey as investors. In one's 20s and 30s, one is often reaching the height of one's raw and ethical horsepower. One can recall tremendous amounts of data about businesses. Fluid intelligence is at its peak. I'm way past my peak. But at this stage, we believe that young analysts must develop a fluency in accounting, which is the language of investing, by working to understand the financial mechanics of businesses, including working capital turns and cash conversion and operating a financial leverage, and price and volume and cost drivers in the process, young analysts will begin to develop patent recognition skills for good businesses with resilient balance sheets, high capital efficiency, high cash conversion, flexible cost structures, etc. And then also recognize bad businesses with vulnerable balance sheets and fragile business models. As analysts continue to program”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“If one of those mentis. came up to you you how they can become a better investor. How might you respond to them? This is not a hypothetical question. I get this question a lot, not just from members of this serene team, but other young analysts in the industry. Frankly, I enjoy talking to young analysts because we're all on this journey of becoming better investors and it's fun to see young people at the beginning of the journey. My observation is this. In recent years, it's been amusing to read and learn about how people talk about, oh, intangibles are the modern day asset and it makes accounting irrelevant and to learn how young analysts are now outsourcing things like model building to sell side analysts or to service providers in order to deploy capital based on, and I quote one such analyst that we talked to, creatively imagining the future of businesses that are unprovable. I'm not making this up. I think that it's been fashionable to pour scorn on band gram style value investing that emphasizes scrubbing balance sheets, reconciling income statements to cash flow statements.”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“Well, ideally, I want to empower our listeners to hopefully become better. And getting to know you, I had found out that your mentor to”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“Short timelines. We sometimes forget that these same time horizons like to sit on something for five years and it hasn't worked. Seems like an eternity for shorter term investors. So this time horizon arbitrage allows us to sow the seas of our returns several years in advance. We sow for future returns today something that we will reap many years from now. Often we studied the companies we're buying today many years ago and have been patiently waiting for the day when their stock prices get cheap enough for us to become shareholders. Our capital commitment structure then allows us to have the dry powder to wait and wait and wait and when the opportunity arise to actually pounce to actually be greedy when others are fearful. They all work together and these frankly are just rare privileges.”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“The disrene word used to thinking about businesses for more than one economic cycle is almost second nature to us because of a long holding period. We are happy if we can find just a handful, like four new investments a year, which is roughly given our size of our team, one investment every two, maybe three years per analyst. That's very few. When we make such investments, we fully expect to miss the bottom and to find ourselves adding more to our portfolio company investments as their stock prices decline. This has resulted in a phenomenon that we call the Valiant Vs J curve. When we buy something, it gets cheaper, we buy more, it gets cheaper, we buy more. And that could be over a number of years and then over the fullness of time, the thesis works out. That time horizon is just very different from most investors. As a result of that, one, two, three, five years seem to us like pre-”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“Investments, and we've kept that discipline for 14 years. And our structure, again, helps us to do that because we can return capital if we don't find anything that we invest in a way that maybe some other value investors can't. Psychologically, the empirical evidence also suggests that we're temperamentally wired to be long-term value investors, and that is that each member of the team is patient and skeptical and contrarian and independent-minded. And we think instinctively in terms of probabilistic distributions of outcomes. Those psychological traits are important. Finally, and we've talked about this already, was supported by a truly high quality supportive investor base with whom we've built muscular and constructive working relationships. The depth and the breadth of our investor network gives us a reach that is truly a valuable asset. Of these, I think that we're most divergent from most of the industry in our time horizon.”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“Becomes okay, so why have we survived besides luck, which is obviously always a big factor in our industry, there are few modes in what we do, but we believe that we do have several sources of competitive advantage. Structurally, we're set up to invest over longer-term time horizons than many investors. And this allows us to take full advantage of multi-year time arbitrage in a way that maybe many other value investors can't. For idea sourcing, we wander off the beaten path to look for investment opportunities and have the broad mandate to do so. So we don't have to pile into crowded trades and we don't. Andaltically, our mental models and pattern recognition toolkits are oriented towards long-term underwriting of businesses. We talk about businesses, not stocks. And in particular, the structural modes, barriers to entry around businesses, rather than predicting near-term earnings per share. Valuation-wise, we maintain a strict price discipline.”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“You're absolutely right. The last decade and a half. Have been extraordinarily difficult for value investors. We look around and we do not see many value investors left standing. Too many value investors have been casualties of the growth at all costs unit economics be damned mania of the recent capital markets. Some chose to retire, others are forced to shut down because of redemptions, yet others simply chose to reinvent themselves in order to survive. Value investing has become something of a lost art. We see this in how faithlessly portfolio compositions have evolved among some investors who were once supposed to be fundamentally inclined and valuation aware. We see this in numerous investment discussions wherein breathless narratives dominate at the expense of empirical economic thinking. Common sense has ceased to be common. At one level, this attenuation of the value investing community, which is yet another casualty of the Venetian bubble, is heart-wrenching. We have deep respect for our craft. But to be honest, and frankly, somewhat selfish, it's also clear the feel for those value investors who remain. The question”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“Each other. We're proud that we've built this culture of partnership with long-termism. There are few enduring sources of competitive advantage investing and long-termism is one of those few.”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“I predict X, I predict Y. I see this, I see that. Honest truth, we don't see anything, we don't have a crystal ball, we can tell the future. So we thought there was a much more honest and much more vulnerable to share all that we're working on and then asking for help. A couple of years after we launched the CIO of one of our Union, the Endowments traveled with us to Greece to help us do due diligence on companies. And they were basically part of the team. We are very lucky that we have the investors that we do, and that's made all the difference. I just talked about the DNA of our limited partners. Now, that's one leg of a three-legged stool. The second leg is our team. We've succeeded in building a long-term team where bright, talented, ambitious folks can come in, put down roots, and flourish in their careers. The third leg is our portfolio companies. We succeeded in building many long-term relationships with our CEOs and CFOs and management teams of the companies we're invested with, who are 14 years old, and there are certain companies in our portfolio that we've on for 14 years. The three legs of the three-legged stool reinforce”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT
“Networks and relationships and resources and experience of these very sophisticated, very experienced partners to allow us to punch above our weight. And so we did. Of course, we cannot just demand that a certain endowment or a family say, now you're our partner and now come help me do my job. You have to earn the right to actually have that partnership. And my theory was, well, if you wanted to do that, then you have to be really transparent with your partners. And by transparency, I don't mean just sharing portfolio reports. These days, funds say were transparent because here we share all positions with you. It's not that. It's more sharing what it is that we're working on. Almost opening up the kimono and almost being vulnerable in saying, hey, we're struggling for this. We don't know how to think about the Eurozone crisis. Can you help us and have them walk with us in the process? And this is almost the opposite of the typical approach of a money manager that behaves like a wizard of all sides and steps up on the podium and says,”
2024-07-26 · We Study Billionaires · TIP647: Value Investing Masterclass w/ Soo Chuen Tan · IDENTIFIED FROM THE TRANSCRIPT