[00:03:00] John Huber: And then along with case studies, which is very important. So one thing I think I wouldn’t focus more on is and I did a lot of this, but I think, you know, I read a lot of investing books. And so, like, one piece of advice I’d have for new investors is. You don’t really need to read the next investing book. You should focus more on studying individual case studies, or even just reading 10 case.

[00:03:23] John Huber: You know, I think the sooner you get into studying company annual reports and learning about a business and looking at its past numbers. It’s like looking at baseball card statistics, you know, like the more numbers you soak in, the more you start to understand the margin profile of different businesses and the returns on capital and how much capital certain businesses require and all that sort of stuff.

[00:03:41] John Huber: So I would do a lot of case studies. I would study all the Buffett letters and I would listen to all his annual meetings, which are also great. Those have been posted in recent years on CNBC’s websites and go through all those. And then the final thing I would say is just read books on business. So not necessarily investing books but read bios of some of the business greats read books about certain specific companies. I think you can learn a lot about business just by soaking all that up.

[00:04:07] Clay Finck: Yeah. I’ve recently been diving into a lot of the stuff that Li Lu has put out. He said, one of the best things you can do to become a better investor is to think of yourself as inheriting a hundred percent of some sort of business.

[00:04:22] Clay Finck: So you think of yourself as an owner of it, and then you’ve really come to understand everything you can about that business because, you know, it kind of puts it that most people just see stocks as something that can be easily traded. So. You don’t really think of yourself as an owner, so you don’t want to understand that business fully.

[00:04:40] Clay Finck: So he seems to agree on that case on diving into case studies and looking at real businesses and since you mentioned Buffett there, we briefly crossed paths in Omaha, and I wanted to pull in something he said at the meeting. He had stated, if you’re lucky in life, make sure a bunch of other people are lucky too. I was curious to get your take on what this quote means to you and what you sort of take away from it.

[00:05:06] John Huber: Yeah, it’s a terrific quote. Yeah, I think to me, it’s if you’re blessed in life with certain resources and certain assets, and these aren’t necessarily financial assets, they could be, it could be financial assets, of course, but I think making sure others around you are lucky is the quote says.

[00:05:22] John Huber: To me, that’s, you know, sharing what you’ve been given with those around you and in an attempt to try to benefit their life. And so, you know, for me, it’s looking inward at my family and those people around me extended family members. Obviously, your immediate family members, your spouse, your kids one of the things we all have is.

[00:05:42] John Huber: Or sort of that we’re all governed by is the finite resource, the ultimate finite resource, which is your time. And so. Of course, you can give. Your financial resources, and if you’re in the investment business and you’re successful over time, you’ll probably have excess financial resources to give away.

[00:05:57] John Huber: But honestly, that to me is easier than giving away what is not access or not infinite, which is. Your time and so spending time with your kids and spending time with your family members and perhaps volunteering donating your time. What’s interesting is, you know, people in general want to be happy. I think you pursue your career.

[00:06:18] John Huber: You pursue your goals and an attempt to. At a very high level, you’re trying to achieve fulfillment. And one of the one of the ways you can get fulfillment is through serving others and giving your time. And so. I think that’s to me what the quote means. Just sharing what you’ve been given with others.

[00:06:33] Clay Finck: Yeah. And outside of being of service to your clients, I really appreciate you doing things like podcasts and doing things like blogging as well, because, you know, that’s just a tremendous service to others too, that you never know, just the outpouring that you receive from people in terms of like people shooting you messages or just thanking you or whatnot, it can be really fulfilling to do things like that too, just sharing your knowledge.

[00:06:56] John Huber: It absolutely is and it’s not you know, it’s not a completely unselfish endeavor. I mean, I get a lot of, like I mentioned, fulfillment when you serve or when you volunteer, for example, or you coach your kids baseball team, you know, you might have some work to do and you might not be looking forward to that practice on any given particular night or whatever it might be.

[00:07:14] John Huber: But I’ve often found that afterward you come home and you feel a sense of satisfaction on what you just did. So there is an element of, it’s a lot of fun to do. And, you know when I started investing, I like a lot of investors. I reached out to a lot of other investors and people that came before me. And, you know, those people were very generous with their time. And so, yeah doing these kinds of things that are a lot of fun. And to the small extent that I might be able to help someone, then that’s all the better.

[00:07:44] Clay Finck: Well, again, I really appreciate it. I’ll transition here to the investing side. You write this wonderful blog. It’s called base hit investing. I know you really like sports. So kind of have a sports analogy here and how about we just start here with what is base hit investing?

[00:08:03] John Huber: Yeah, I’m a baseball fan, sports fan. As you said, I love baseball. Baseball is my first love in terms of sports. So it’s a baseball metaphor, obviously, and from an investing standpoint, it’s about, you know, getting on base hitting line drives.

[00:08:15] John Huber: I’ve always been an investor who prioritizes low risk investments. I’m not necessarily trying to swing for the fences. So to speak, you know, I’m looking for. For as Buffett said, the one foot hurdles to use a different sports metaphor, but they said investing is about that. To me, it’s more broad than just the investing size.

[00:08:33] John Huber: Almost like a life philosophy where. I’m trying to make incremental progress every day. I’m trying to get better at what I’m doing. And the way you do that is to come in every day and follow a methodical process and put in the work and over the long haul, those basics can compile into a lot of production, so to speak and so that to me is what basic investing is.

[00:08:55] Clay Finck: So one of my favorite articles you wrote up was outlining the three sources of returns. And one of the reasons I really loved this article is because it really helps simplify the game of investing and just kind of points to how, you know, it’s pretty simple math at the end of the day on what drives the performance of a stock. So I was curious if you could outline. The three sources of returns that end up driving the overall performance of a stock.

[00:09:20] John Huber: Yeah, as you said, there’s lots of factors that go into this. But at the end of the day, there’s three things that matter. There’s three things that determine the stock price. It’s earnings growth.

[00:09:29] John Huber: It’s the change in the PE multiple. So up or down. And it’s the amount of cash that you receive from the company via buybacks or dividends of capital. So growth, the change in the multiple and the capital return are the 3 engines and the stock price is going to be governed by those 3 factors. The stock price appreciation.

[00:09:50] John Huber: And of course, you could use sales growth. It’s really growth. And the multiple is long. You can use sales growth and price to sales ratio, the change in that, or you can use free cash flow growth and price to free cash flow as long as the growth metric is the same as the denominator and the valuation multiple.

[00:10:06] John Huber: But those are the 3 things that determine your stock price. So I think it’s helpful to keep those in mind when you’re. When you’re thinking about stocks and you’re thinking about those three drivers, because that is what’s going to determine your returns over the long run.

[00:10:20] Clay Finck: We’ll be getting to how you invest in some of the opportunities you’re sort of seeing in the markets.

[00:10:26] Clay Finck: But I think it really just points to Returns from a stock can come from a variety of different ways. So I had read in one of your articles, how you just sort of outlined this basics example where you can have one company that has 20 percent return on capital, they reinvest everything and if your multiple stays constant, you’re getting 20 percent returns over time.

[00:10:47] Clay Finck: And then you sort of flip that and say, you have another company that has 0 percent reinvestment. But they’re trading at a multiple of five and they’re buying back or paying out dividends with all of their earnings. And that also leads to a 20 percent return. So it’s not all about just earnings growth or it’s not all about just sharing purchases and dividends.

[00:11:06] Clay Finck: And I think it just points to, you know, when you enter any position sort of setting the expectations on where your returns are going to come from.

[00:11:15] John Huber: Yeah, absolutely and, you know, I think in recent years, part of the reason I wrote that article, the three engines is because. It’s such an obvious thing, I think, when you think about it, but a lot of people naturally gravitate towards the growth engine.

[00:11:28] John Huber: And so the, you know, the term compounder has been in my view. I’ve been using that term for 10 years and I kind of feel like it’s been hijacked. And, you know, there’s so many businesses now that are referred to as compounders, but. What you really want to do is you want to compound your capital, right?

[00:11:44] John Huber: It’s not about finding the best. It’s like Charlie Munger says, it’s not about finding the best business, right? It’s about finding the best investment, the highest quality investment, and a great business oftentimes can be a great investment, but it occasionally can be a very poor investment or even a risky investment at a certain price.

[00:12:00] John Huber: And the simple math on that is like, if you use an example of a stock that grows at, let’s say 7 percent per year. You know that stock is going to double that that earnings of that company is going to double over the next decade. So 7 percent per year over a decade is roughly a 2x. If you paid 10 times earnings for that stock and it goes to 20 times earnings, that is another 7 percent growth on the PE multiple expansion.

[00:12:28] John Huber: And so it’s very important to not pay too much because it’s nice to have that tailwind. If you have the opposite, right, if you pay 25 times earnings and you end up, you know, at 12. Or something like that’s a, you know, your multiple gets cut in half and so you can achieve great returns in stocks by buying something that’s undervalued and seeing a tailwind to all 3 of those engines, 7 percent earnings growth, 7 percent on the multiple.

[00:12:54] John Huber: That gets you to, let’s say, roughly 14. And then, you know, perhaps if some of that is returned to you as a, in the form of a dividend or a buyback, you can achieve a further return from that 3rd engine. And so you want to look at the interplay of all 3 of those, not just growth, because a business that’s growing at 20 percent a year is phenomenal.

[00:13:13] John Huber: There’s 2 things to worry about there, though, is one is it’s very difficult to grow at that rate for a long period of time. But even if you could sustain that rate of growth, and that would be, let’s say, roughly a 6 or 7 X over a decade or something, you know, if you pay too much for that stock and the multiple shrinks by half or even more, that eats into a lot of that return.

[00:13:34] John Huber: And I think that’s the risk of some of these growth engines. And so. You just want to be very careful with paying too much. And that’s, you know, or I mentioned in a post recently about how Buffett rarely pays over 15 times earnings for a stock. And that’s, I think that’s a big reason why is he understands that you don’t want to have that headwind on that second engine, right?

[00:13:53] John Huber: You want to pay a price that’s fair or reasonable. Preferably below fair, right? So you get a tailwind on the PE going up. You don’t necessarily have to rely on the PE multiple going up, but I think people underappreciate how significant that can be even over a period as long as a decade, right? If you buy a stock at 10 PE and it goes to 15, that’s a 4 percent per year tailwind over a decade, right?

[00:14:13] John Huber: And if it happens in five years, that’s like an eight or 9 percent per year tailwind. So that’s really important to consider. And you can earn great returns. You can have high rates of compounding. On a fairly modest rate of growth, if you don’t pay too much, and that’s basically the lesson there.

[00:14:30] Clay Finck: I think this ties in well with one of the poster childs of compounders, which is Costco. You had said that Costco today may see some resemblance to Coca Cola back in 1998. I was curious if you could explain why, you see a resemblance there.

[00:14:48] John Huber: I do see a resemblance there and I just want to say, like, I am not, you know, I don’t want to receive hate mail and I’m not anti-Costco.

[00:14:55] John Huber: I’m not rooting against the stock. I’m not rooting against the company. I’m rooting for the company. I love Costco as a customer. I don’t own the stock, but I love the company and I admire the company but it’s valuation, it’s, you know, Costco trades at 50 times earnings. And so my, and I’ve had this discussion with some friends of mine and it I’m perplexed at how, you know, how you get to even a decent return at the current price for Costco.

[00:15:20] John Huber: And it’s simply because. You know, when you have a 250 billion dollar business and you’re three times larger in terms of earning power than you were a decade ago, it’s naturally going to be harder for you to grow at the same rate over the next decade. Most retailers at any point in their life cycle will grow slower next decade than they did the previous decade.

[00:15:39] John Huber: And that’s simply because if they’re a successful retailer, they’re bigger now than they were a decade ago. And it’s going to be harder to sustain that rate of growth. But let’s say that Costco can do that. They can defy the odds. And despite being three times larger, let’s say they can grow at the same rate.

[00:15:55] John Huber: And they’ve grown earnings at operating earnings around 12 percent or so. Their sales growth was around eight and a half over the last decade. If you assume that all the great things about Costco will remain, and they’ll be able to actually continue to grow at that rate. 12 percent over a decade is about a 3X.

[00:16:11] John Huber: So earnings will be 3x greater, 3 times larger a decade from now. That would be a 12 percent return, but you have to make an assessment on what investors are willing to pay for Costco a decade from now. And my hunch is it won’t be 50 times earnings. If it’s 25 times earnings, which would not be.

[00:16:28] John Huber: Necessarily a cheap price, but probably a more reasonable price for a great company like Costco, you know, that multiple gets cut in half. So you have a 3X on the earnings growth and a 0.5X on the multiple. And now you’re down to 1.5X and that is about a 4 percent compounded rate of return. And so that’s the risk is you, even if the business does achieve what most people think Costco will do.

[00:16:52] John Huber: I don’t have any reason to believe they won’t do it. I’m just saying, even if you assume they’re as good next decade as they were the last decade. I think shareholders are looking at, like, a load of mid-single digit return. You might get an extra percent or so from the dividend, but that’s about the returns you can get if they achieve.

[00:17:08] John Huber: What I think would be an incredible fundamental result, which is continuing to do what they’ve done if growth rate slows just a bit, if it’s like 9,8 or 9%, you know, now you’re talking about the sort of the last decade and, you know, or even though the fundamental results great, the stock might not go anywhere.

[00:17:25] John Huber: And so that’s the risk. And that I just want to point that out like that. It’s not me being anti Costco. It’s not me thinking the stocks a disaster or anything like that. There is a great company. It’s one of the best companies in the world, but. Coke was one of the best companies in the world in 1998, and it continued to produce great fundamental results for a decade.

[00:17:42] John Huber: And I think the stock returned, I think it went nowhere for a decade. And it over the next 20 years, it may be returned like mid-single digits. Microsoft is another example, you know, the famous example in the late nineties, where the business continued to do quite well. Earnings continue to grow.

[00:17:57] John Huber: Fundamental result was. Superb, but the stock went nowhere for a decade. And so that, you know, at a certain price, even for the best companies in the world, you can wind up with a mediocre or even a poor investment result over a long period of time if you pay too much. And that’s the risk that potentially could exist with Costco, I think.

[00:18:14] Clay Finck: Yeah, very well said and I think another way of sort of framing it is, Within the PE ratio, there are expectations built into the market. If the PE is at 50, you know, the market is setting very high expectations. So if you’re buying that stock, expecting to, you know, achieve a high level of investment performance, and you’re expecting implicitly that they’re going to be able to far exceed those very high expectations that the market’s setting.

[00:18:43] John Huber: Yeah, another way you can look at it is what do you need Costco to do fundamentally to achieve a 10 percent return, you know, and for me, I’m looking for a significantly better return than that when I buy a stock, but even to get 10 percent returns it’s challenging. You would need, like I said, the same fundamental growth as you got last decade.

[00:19:03] John Huber: And you would need the multiple to be closer to 40 in a decade, and it’s possible that you could do that, but that’s to get a 10 percent return. So think about those 3 engines. How much are you going to get from the dividend and buyback at a 50? You’re not getting much. You’re getting a 2 percent earnings yield.

[00:19:19] John Huber: You’re getting around a 1.5 percent free cash flow yield. And then, you know, you think about the nature of retail is not it’s not easy. So it’s not a cinch to me that Costco 10, 20, 30 years from now will necessarily be as dominant as it is now. I, again I’m not predicting anything bad happening to Costco, but I’m just saying that there’s not a lot of upside if everything goes right.

[00:19:41] John Huber: And if they do stumble, there is a huge amount of downside because, you know, if the business grows at 7 percent and the PE is at 20. You can do the math on that and you’re at negative returns in that standpoint. When you buy a stock, you’re looking for low risk and potentially skewed upside potential.

[00:19:57] John Huber: And you don’t, what you don’t want is limited potential and skewed downside in a situation that you might not expect. Even if it’s low probability. And so that’s just something to be mindful for. But again, I want to be clear. I’m not predicting anything bad happening to Costco. Fundamentally. It’s purely the reason I think it’s Coke in 1998 is continuing to do great as a business. It’s just shareholders didn’t do well because the valuation and that’s the main thing to be concerned with there, I think.

[00:20:25] Clay Finck: One of the things I really liked in reviewing your previous appearances and reading some of your blog articles is how you don’t box yourself into just one type of investment approach or one type of company.

[00:20:37] Clay Finck: You outlined three types of companies. Would you mind sharing those? And I think it fits in well with this you know, this framework of where returns come from. It also just points to how the market sort of changes and you need to change with it and be able to find those opportunities.

[00:20:53] John Huber: I mean, I modeled my fund after the Buffett partnerships of the fifties in terms of the fee structure.

[00:21:00] John Huber: You know, and I also in some ways kind of modeled the portfolio approach, obviously adapted it to my own circle of competence and my own skill sets and that sort of thing. But I liked how we had different categories of investments and he was very flexible. I mean, he owned American Express and he owned Disney and he also owned like workout situations and cigar butts and things like that.

[00:21:20] John Huber: For me, I think it’s important to think in first principles again, just to reiterate the goal as an investor is to not. You’re not trying to pigeonhole yourself into investing in a certain type of company. Your goal is to compound your capital, right? It’s to grow your capital. It’s not to invest in gross stocks, it’s to grow your capital.

[00:21:37] John Huber: You could do that by investing in growth stocks at a certain price. You could also do that in value stocks, right? But I don’t think people should think of themselves as I’m a value investor or I’m a growth investor. You should look for opportunities that make sense to you that fit within your own circle of competence and that you can understand and you think have a high probability for success.

[00:21:56] John Huber: And so for me, companies and stocks come in different categories. This oversimplifies it, but I have three categories that me. I tend to my investments tend to fall in one of these 3 categories and it’s compounders again, a term that I think has been overused as of late. And I can tell you my definition of that.

[00:22:14] John Huber: But compounders would be high quality companies that are very well managed with capital allocation that I understand. And so that does not necessarily mean fast growth. It’s high quality good returns on capital. It could be fast growth, or it could be moderate growth. It could even be low growth. But the goal is compounding your capital that you invest in it.

[00:22:35] John Huber: So it could be a stock at 5 times free cash flow. That’s very durable. That perhaps is underappreciated. That’s giving you a 20 percent return via the capital return, the buyback or the dividend. That is going to compound capital. And so it’s really businesses that are very high quality and durable that I think I can own for a decade.

[00:22:53] John Huber: The second category would be. What Ben Graham called unpopular large caps, and I’ve written a lot about this where it’s interesting, but even the largest stocks in the market can be very mispriced at times, and it usually doesn’t happen. It often happens when the market is down, or there’s some sort of market wide fear.

[00:23:13] John Huber: But I’ve noticed that the degree with which even the most well followed companies in the market can get undervalued or mispriced in one direction or another is pretty significant. And you can look at, I’ve done some posts on where I show this chart of the top 10 largest stocks in the market and the gap between the 52 week high and the 52 week low is almost always on average 50 percent or more.

[00:23:35] John Huber: And my point is basically the intrinsic value of those businesses. These are the biggest companies in the world. The intrinsic value isn’t fluctuating that much, but the stock price does. And so at times there’s an opportunity there and you can look at extreme examples like, you know, Facebook going from 100 to 500 dollars a share in the course of 18 months, like things like that.

[00:23:54] John Huber: That’s an extreme example. But. There are a lot of examples where stocks fluctuate a lot more than business values do. And so I keep an eye out for large caps because those are in, if you can find the really high quality ones, I think those are really low risk investments. And then the 3rd category would be what I call bargains for lack of a better word.

[00:24:12] John Huber: I refer to them as bargains and they could be stocks trading below liquidation value. They could be some special situations. I have a group of stocks that I refer to as, like, my Ben Graham basket, but these are very safe. I don’t even think of them as cigar butts. They’re not melting ice cubes.

[00:24:28] John Huber: They’re very safe companies with good balance sheets. Productive businesses and they’re just undervalued. And so at various times, any one of those three categories might, you might find more opportunities in one or the other, but I like to have those three as sort of arrows in the quiver.

[00:24:47] Clay Finck: Yeah. I think of the Ben Graham, cigar butts you mentioned, that’s, I feel like that part of the market is almost reserved for people who do this full time. They have all this time to, you know, really get to know businesses. But what I liked about Ben Graham, he also shared a, I believe he shared a write up on what he called unpopular large caps, which really points to the second category.

[00:25:10] Clay Finck: You mentioned there. I was curious if you had some of the numbers on Apple because you added Apple to your fund in 2016. And, you know, that’s just like a prime example of an unpopular large cap. It was trading at a very attractive valuation, and then it had all three of these engines working for it from 2016, definitely up to now. Yeah. Do you have some of the numbers on Apple?

[00:25:33] John Huber: I mean, very simply like Apple in 2016, it was viewed as a consumer hardware business or a hardware manufacturer, electronics company that, you know, almost like Dell or, you know, like a computer manufacturer that didn’t have a moat, believe it or not. I mean, it’s hard to imagine, but eight years ago that there were numerous worries on Apple.

[00:25:53] John Huber: I think people viewed it as certainly better than Dell, but it was trading at 10 times earnings. And so it was trading and people said it deserved that because again, it’s a hardware manufacturer and hardware is more or less commodity is how that company was viewed. And there was really no value ascribed to the ecosystem that it had built.

[00:26:10] John Huber: And even more than the ecosystem, to me, I would look at the long lines and I would say, well, the hardware is to me, recurring revenue. It’s not like Dell or these other, you know, it’s not like these other phone companies, even like Samsung. It’s people will line up to get another iPhone and I view that as recurring revenue that should have a higher stream of income.

[00:26:30] John Huber: It’s like Starbucks or Nike, like people that like Nike will go buy another pair of shoes. It’s not technically recurring revenue, but it has a brand. It should be valued more like a brand, like a consumer brand, and not like a hardware electronics business. And so. You know, from time to time you find opportunities like that where you have maybe a different view than the market does.

[00:26:49] John Huber: And Apple also was at the time there were worries about competition from Samsung and there was also worries about competition from 2 specific Chinese manufacturers that were growing very fast in 2015 and 2016 and China is obviously a very big part of Apple’s revenue. So all of those things sort of had a confluence came together and had this impact on the valuation, which traded at 10 times earnings.

[00:27:11] John Huber: And so. The simple math is you had a business trading at 10 times earnings, and those are free cashflow earnings. So you had a 10 percent free cashflow yield. And my thinking at the time was you’re getting a 10 percent free cashflow yield that I think is durable. So you get the 10 percent return right there, plus whatever growth you get.

[00:27:27] John Huber: And I knew growth was going to be modest at that point. Just like now Apple’s more or less a mature business, and it wasn’t growing fast. But if you could grow at 5%, that’s a 15 percent return. The free cashflow of 10%. Free cash flow yield plus the 5 percent growth. And then on top of that, you might get a change in the multiple.

[00:27:45] John Huber: And I didn’t know, I had no idea by the way that the mall, the stock would do what it did or the multiple go to 30 or anything like that. But I just thought, you know, maybe it’ll go to 15 and then you get a really nice return. You get all three of those engines. And so you could paint a scenario where you could earn 20 percent returns.

[00:27:59] John Huber: But what ended up happening vastly exceeded what I would have expected. But. Sometimes it happens in stocks, which is nice, but you know, the multiple went from 10 to 30 and that’s a three X and you got more or less modest growth. I don’t think the growth exceeded what I would have expected by much, maybe a little bit, but not much.

[00:28:17] John Huber: But you got some growth and you got a three X on the multiple and then you got. A significant amount of buybacks because they reduce the share count by almost a third over the period of years that I owned it. And so you had all 3 engines working in your favor. And that’s kind of the point.

[00:28:31] John Huber: I’ve used that as an example of a stock that can work out really well is when you get all 3 of those working in your favor. And that was what happened with Apple. And now you have a different situation with some of these stocks where I think you’re going to have perhaps not a headwind 25 or 30 PE might be fair, but you’re not going to have the same tailwind.

[00:28:48] John Huber: And so when you’re looking in the rear view mirror at the stock price result over the last 10 years, you got to be mindful that you had those tailwinds that are no longer tailwinds, right? You’re getting a lower capital return because the buyback yield is lower because the stock’s more expensive.

[00:29:01] John Huber: You’re not going to see the PE go from 30 To get the same 3x return there and you know, your growth is a bigger company. And so your growth is going to be more challenged as well. So those are all things you want to think about when you’re looking at stocks. But yeah, the unpopular large caps, they do present themselves every couple of years.

[00:29:17] John Huber: You’ll have opportunities to swing at some stock that, you know, if you keep a watch list of even the largest companies. And that was, that’s something I’ve always kept in mind is people think these stocks are fairly valued because there’s 200 analysts following them. But. Most analysts are focused on the next quarter, the next year at the most.

[00:29:34] John Huber: And if you have the mindset and the discipline to look out, say, 3 to 5 years and understand what that business looks like down the road and look past sort of the next year, the next iPhone cycle or the next quarter, whatever it might be, you give yourself an advantage as an individual investor when you can do that.

[00:29:51] Clay Finck: Yeah, for the listeners, if you haven’t done it, I’d encourage you to do what he said there, where you look at the 52 week high and the 52 week low, even of some of the biggest companies in the market and you see a 40 or 50 percent gap. The business itself, the intrinsic value is not changing that much. So that sort of points to the opportunity.

[00:30:10] Clay Finck: That the market presents itself in companies that, you know, everybody knows about. There’s plenty of analysts covering apple or meta or whatnot. I think when you do that, you sort of realize that, you know, there are opportunities in the market. You just have to have that patience and then be ready to pounce when the opportunity arises.

[00:30:27] John Huber: Right and it’s always going to, look, I mean, not always, but most times it will look bleak. You know, there, there will be something that people are worried about. And so, but you don’t need to. You know, like it says, there’s no call strike, so you don’t need to swing at everything, but you will find if you pay attention enough opportunities.

[00:30:45] John Huber: In that 2nd category, the unpopular large caps, there will be something that happens where you can look at it and say, I disagree with this, or, you know, I think this is a short term thing and maybe the iPhone cycle won’t be good. This. Time, but it’ll be good next time. Or, you know, maybe the movie business looks bad right now, but it’ll be fine next year because there’ll be more movies coming out.

[00:31:08] John Huber: Or, you know, there’s certain consumer behaviors that you might be able to predict longer term, even if you don’t really know exactly what it will look like next quarter or next year. And those are sort of the that’s like the time arbitrage. You want to be able to look past where most people are focused.

[00:31:21] John Huber: You know, it’s hard to do that as a professional because you have clients and you have, you know, I’ve tried to structure my firm where I don’t worry about that. I have my own money invested. And so I don’t worry about that. And I’ve tried to purposely structure it because that is a real risk is people have to make money this year.

[00:31:36] John Huber: And so, you’re as an individual investor. You don’t have that same requirement or that’s constraint and that institutional imperative So you can look past that and give yourself a real advantage and that’s really the time arbitrage Which I think is the biggest edge in markets today. It’s not information. It’s not analytical It’s more this behavioral mindset that anyone with the proper behavior and proper mindset can achieve.

[00:31:58] Clay Finck: Ever since you started your fund It’s been quite a challenging time I think for money managers and if they’re working to try and beat the market, because you’ve had this big tailwind of say, big tech, they’ve had substantial earnings growth, they’ve made up a substantial portion of the index, and then they’ve seen that tailwind of multiple expansion as well, which has led to quite an interesting dynamic in the markets today with, you know, big tech now becoming an overwhelmingly annoyingly.

[00:32:24] Clay Finck: Big portion of the index and then you have hot industries like AI and then you have a big chunk of the markets that haven’t performed as well or haven’t really moved over the past year or two. I’m curious to get your take on how you’re looking at the overall market today.

[00:32:38] John Huber: Yeah, I think we can look at the three engines of the stock market in the same way that we would look at a stock.

[00:32:43] John Huber: So the S and P 500, when I started my fund was trading around 12 times earnings. You know, 11 years ago or so, and, you know, not at the bottom of the financial crisis, but sort of coming out of the financial crisis, 2011, 2012, 2013, you were paying a 12 times multiple in the last decade.

[00:32:59] John Huber: Earnings have grown, let’s say, around 7 percent per year. And the multiple is gone from 12 to 25 roughly. And so the combination of those 2 factors is around a 15 percent return or so growth might have been a little bit less. It depends on how you define the multiple, but roughly that’s, you know, that’s approximately what happened.

[00:33:19] John Huber: And so the point is, you had a nice fundamental result from earnings growth. And you had a really nice tailwind the tailwind now, it has turned into, in my view, probably a modest headwind that 25 is probably on the high side. It’s not anything to be worried about if you’re an index investor or anything like that.

[00:33:35] John Huber: If you’re a long term investor, you know, you just want to hold stocks for the long run for the 1st time in my career. I am not overly enthused about the S& P 500 as an index. I’ve always recommended it to friends and family. You have a small amount of money and you’re trying to start your savings.

[00:33:49] John Huber: Transcribed and you’re starting your career and you’re putting some money aside, index is always a good place to be. And it probably is, I still think it is over the very long term, but I do think the reality is over the next decade it’s probably going to be a much lower return than we’ve had over the previous decade.

[00:34:05] John Huber: It’s probabilities. We don’t know, you know, you have to assess probabilities here, but. You know, if the multiple goes from 25 to 20, or to even 16, where it historically has been, that would be, say, a 20 percent to a 35 percent decline in the multiple and your growth engine will overcome that to a certain extent.

[00:34:24] John Huber: But if you get 7 percent growth. And you get a 20 percent decline in the multiple. You’re looking at like 5 percent annual returns, something like that. And so I think that’s where I see the market right now is it’s not overly attractive at the highest end. But what’s interesting to me is when I first started my fund, I had some small caps, but I also noticed like really high quality, large cap companies like Apple at 10 times earnings.

[00:34:48] John Huber: Microsoft, believe it or not traded at 10 times earnings. It’s just hard to believe because those days just seem gone. But. You know, really high quality companies that would be defined as growth companies, but it’s just very high quality businesses with high returns on capital trading at 10 times earnings.

[00:35:03] John Huber: Those are now for largely those are trading at 30 times earnings and where I’m seeing opportunity now is sort of in the smaller end of the market, not necessarily small caps per se, but small caps, mid-caps and just companies that are. Sort of outside the S& P 500, there are a lot of stocks and people describe reasons for why this has happened, but there is a dichotomy in my view between the largest stocks in the market and just even medium size to small caps, like below the medians, let’s say, and, you know, with 10, 000 stocks, there’s a lot of opportunities.

[00:35:35] John Huber: So I do think there’s some real bargains. And it could be just the fact that I think what a lot of people think is all this money that’s gone into passive investing have sort of pushed up prices for the largest stocks in the market. And the stocks that are not in that index have not benefited from those flows, but that’s to your advantage as an investor.

[00:35:54] John Huber: And David talks about, like, I think he said, like, the market is broken and to me, the market is not broken. It’s not a. Not a negative thing. It’s just the reality is if you buy a stock at 5 times earnings, and it’s cash earnings, and you’re getting a 20 percent return, you don’t need to worry about what the multiple does.

[00:36:11] John Huber: So there are opportunities like that out there. And, you know, not a lot of them at 20 percent yields, but there are some, believe it or not. And you can find many with double digit free cash flow yields that I think are very durable businesses, very high quality, good returns on capital. And probably have some modest growth potential and some potential for multiple appreciation and so those are where I think if you’re looking for like mid teen returns or even double digit returns, that’s where I am looking.

[00:36:40] Clay Finck: I’ve read through Josh Tarasoff’s recent piece where he discussed conviction and quality. And his writing felt very similar to Nick Sleep’s work, who happened to both be highly influenced by Robert Pirsig’s books.

[00:36:54] Clay Finck: And in looking for quality characteristics within a business, I wanted to share the items that Tarasoff shared in his letter here. So he wrote, while customer experiences, mission to solve an important problem, domain mastery or being the best at what they do. First principles based thinking and invention, unlimited ambition combined with no nonsense realism overcapitalized balance sheet and a founder’s mentality.

[00:37:19] Clay Finck: In other words, it’s their life’s work. I’m curious, has it been somewhat difficult for you to find these sorts of characteristics of quality when searching in these small and midcap areas in the market?

[00:37:32] John Huber: I would say that the opportunities are, I think, just as prevalent. It’s just that you’re going to not on a percentage basis.

[00:37:40] John Huber: So you’re going to find opportunities. It’s just you have to sit through a lot more opportunities just by the very nature. There’s. You know, you could look at the Russell 2000 and there’s roughly 2000 companies there and. The vast majority of those are not attractive to me as a business. I don’t want to own those stocks.

[00:37:56] John Huber: The list of attributes you just rattled off. They don’t have any of those or very few of them, but there are some and there are enough, which is interesting to me. And the more you look, the more you find. There are numerous family owned operations. I own stock in one of them right now that I can think of that is a 3rd generation, you know, family run business for the last 80 years.

[00:38:16] John Huber: And it’s extremely high quality by almost any measure that I prioritize and care about. It’s a very high quality company. And it’s very cheap in my view, of course, but, you know, so you do find opportunities. They’re not widely acknowledged. Usually you have to kind of dig into it a little bit and learn a little bit, perhaps even meet the management team or talk to people that know the management team.

[00:38:39] John Huber: If you’re not able to meet the management, but I try to do some on the ground research there to try to get to know to the extent that I can with some of these smaller companies, you can do this where you can get to know the leaders at the business and how they think about capital allocation is a big thing for me.

[00:38:51] John Huber: But yeah, there, there are a lot of overcapitalized balance sheets. There are founder led businesses. There are businesses that treat their shareholders well, that care about their minority shareholders that are very good stewards of capital. And that to me is at the end of the day, as a shareholder, that’s what I want.

[00:39:06] John Huber: You want to have all of the constituents in that you want to have your customers happy. You know, you try to have all of those in place. I’ve learned that there are trade-offs. There’s no perfect company, no perfect investment. No, perfect valuation. I don’t think it’s realistic to try to have everything lined up perfectly because there’s always trade-offs.

[00:39:25] John Huber: You know, if you think about employees, there’s different constituents, every company has, there’s employees, there’s customers, there’s shareholders, there’s management. There’s vendors, right? Costco prioritizes its customers. I think it does a great job with its vendors, but there’s always a little bit of give and take there.

[00:39:42] John Huber: You know, Google might historically at least was very good to their employees. Perhaps at the expense of shareholders in some way, although it’s hard to argue with Google’s results there as well. But, you know, every company kind of has different cultures and different sort of personalities really. And so there’s give and take between those different constituents, but nothing’s perfect.

[00:40:01] John Huber: But, yeah, there, there are opportunities in the small cap space and the mid cap space that I think are perhaps not conventionally viewed as high quality or not well understood, but very high quality.

[00:40:10] Clay Finck: Another theme since the launch of your fund, I’m sort of putting you on the spot here. It seems to me that you primarily focus on the U.S., but you are willing to venture outside the U.S. markets. And we’ve seen the U.S., you know, become more and more expensive, generally. So, how do you think about that?

[00:40:28] John Huber: Yeah, I have looked outside the US. I’ve made a couple investments outside of the US at times. Really, I have one investment in Canada, which I would consider, you know, very similar.

[00:40:38] John Huber: North American markets are similar. So that technically outside the US, but I view that as the same, more or less Western Europe. I don’t have any investments in Western Europe, but I would consider that similar in terms of the culture and the jurisdictions and the rule of law and things like that.

[00:40:52] John Huber: But there are a lot of markets around the world that I think are probably cheaper than the us. So, yeah, I, I have a copy of the Japan Company Handbook and I’ve been leafing through that. And for me it’s all about circle of competence. It takes a lot for me to, especially with smaller companies, I want to get to know the business very well.

[00:41:08] John Huber: I want to get to. Hopefully talk to the management team, unless you’re making like a numbers or a basket bet where you are diverse, you know, you can buy a basket of net nets in Japan. And I think that’s going to work out really well and you don’t need to talk to the management teams and you don’t need to do all that.

[00:41:22] John Huber: Like Walter Schloss made a career. He’s one of my favorite investors of all time. And he did 20 percent a year for 5 decades. Just a phenomenal track record. And in terms of its returns and its longevity, and he very rarely from what I understand, talk to management teams, he would make bets, make investments based on the numbers solely.

[00:41:42] John Huber: And sort of a classic Ben Graham numbers based approach, you know, he achieved his expected return. He achieved the values that he was expecting to the expected values. The returns he generated were done through like the law of large numbers. He had a group of stocks that collectively would result in that 20%.

[00:41:59] John Huber: And so that’s how he diversified in a way that risk of not knowing. For me I try to absent like a basket bet or something, which I’ve considered, but I’m always more comfortable. Like if I can understand what the business does, understand the dynamics, the returns on capital, how the management thinks about allocating that capital, those are the things I want to answer and it’s harder for me to do that in overseas companies. So I tend to stick with the U.S for the most part.

[00:42:22] Clay Finck: I noticed in your year-end letter for 2023, your top five positions accounted for around half of your portfolio, which I always like to see a concentrated approach that puts their, a lot of their money in their best ideas.

[00:42:35] Clay Finck: And your top position was actually a pretty sizable portion of that. And I don’t want to get into exact percentages here, but how did that top holding get to become pretty highly concentrated and how do you think about managing that level of concentration?

[00:42:49] John Huber: Yeah, I mean, the biggest investments for me are the ones where I feel extremely confident in the downside or lack thereof.

[00:42:57] John Huber: Like, I’m looking for companies where my biggest investments are the ones where I think I have the lowest likelihood of losing money permanently. And obviously that’s not meaning the stock price, any stock price can go down, but in terms of losing money permanently. And so, you know, I’m thinking about things like, what is the balance sheet look like?

[00:43:14] John Huber: How much cash do they have? What’s the liquidity? What’s the margin profile? This particular company, they own mineral rights and they are, it’s a bit of a special situation, but they’re very soon to be debt free and they will have no liabilities whatsoever. And they have an essentially, they’re because they’re mineral rights, they take a royalty and they have virtually no operating expenses.

[00:43:34] John Huber: So it’s like literally it’s a 90 percent profit margin business. And so there’s very little business risk. They have reserves in the ground, which you can measure and have an idea of how long these reserves last. It’s many decades. And so there’s a lot of things that give me comfort that this business has a margin of safety and has very low likelihood of permanent capital loss.

[00:43:54] John Huber: And then when you couple that with the valuation, in this case, the valuation is really compelling. Very high dividend yield. I think there’s very low likelihood of losing money on it in a nutshell. And so those are my biggest positions. And so it’s a comfort level. Those don’t come around very often. But from time to time, you know, I find a business where in a stock where I think everything lines up and I like the management team.

[00:44:16] John Huber: I like the business. I like the durability, the competitive advantage it has. And the prospect for, you know, attractive future returns and so those tend to be my biggest positions. But yeah, I think, like, it makes sense to have some diversification. I don’t think you want to have all your eggs in one basket, but I think, like, having, you know, having 8 to 10 stocks represent 70 or 80 percent of your portfolio is adequate diversification while also giving you the chance to outperform.

[00:44:41] John Huber: You know, if you’re right on balance. And so that’s, that generally tends to be how I think about my portfolio. We do have a, that third category I mentioned of bargains, those tend to be smaller positions and they tend to be more numbers based. So that you could almost think of those as a basket and they sometimes work out in a fashion that’s uncorrelated to the general market, which is nice. We do have a few more investments recently in that category, but for the most part, yeah, we own a concentrated group of companies.

[00:45:09] Clay Finck: Yeah, when I think back to 2022, for example, I think you saw a lot of multiple contractions. So you saw a lot of just like sentiment change where people were anticipating a recession.

[00:45:20] Clay Finck: Well, if something’s trading at a free cashflow yield of 20 to 25%, it’s hard to get too much contraction if any. So that’s why you can see some, a bit of uncorrelation, I think with the markets.

[00:45:31] John Huber: Yeah, I think so. I mean, you know, interest rates are rising or they’re higher than they were. And so there’s, you know, if you think about, like, if you own a stock at 30 times earnings, the simplest way, like, for most of your listeners, or, you know, for people thinking about this, just at a very high level oversimplified, if you have one percent interest rates, and you have a 3 percent earnings yield, and rates go to 2, That ate up half of your, you know, you can think of it like a margin of safety, you know, the gap between your 3 percent earnings yield and let’s say a 1 percent risk free rate.

[00:46:00] John Huber: But if you have a 12 percent free cash flow yielding, you can think of it like a bond, like an equity bond, like a, you know, these are stocks we’re talking about, but if you have a 12 percent yield and rates go from 1 to 2, the impact on valuation is much less to the 12 percent than it would be to the 3 percent bond.

[00:46:15] John Huber: And so obviously that’s simple math there and it’s, that’s way oversimplifies it. In a nutshell, that’s what we’re trying to do as investors is protect ourselves against these various risk. Interest rate risk is one of the things you want to think about. And in general, low valuations, I think are an antidote to that and to some extent.

[00:46:32] Clay Finck: Over the years, you’ve talked a lot about how the game of investing has a very long feedback loop, and you’re obviously very reflective in your investment approach, doing journaling, thinking, writing, all these sorts of things, and thinking about your investments and whatnot. Based on your experience, how long does it take for you to decide that you’ve made a mistake in an investment given the long feedback loop?

[00:46:57] John Huber: Yeah, that’s a great question, Clay. I think it’s hard to, it’s hard to know. It’s hard to give a precise answer because I feel like every case is so different. I think one of the things you want to be as an investor is you want to be humble. You want to be willing to change your mind and be willing to admit when you’re wrong, right?

[00:47:13] John Huber: This game is not about being right and wrong. It’s about trying to compound your capital. I think Peter Lynch said, like, if you bet 600, you’ll be in the investing hall of fame. That means getting 4 wrong. So you’re going to be wrong a lot. To me, I’ve always tried to very quickly. Change my mind when I determine I’m wrong.

[00:47:29] John Huber: And so it could mean, I mean, you could buy a stock and a year later, you can determine that the business is not what you thought it was, or you made a mistake in analysis, or perhaps the business has changed. You want to be very quick to change your mind when you realize you’re wrong. It could be a year.

[00:47:43] John Huber: It could be 3 or 4 or 5 years. You know, businesses are not static. They’re dynamic living organisms that change and evolve over time. And so I don’t think there is such a thing as like a set it and forget it investment. I, Buffett invested in Fannie Mae and I mentioned Peter Lynch. He did, you know, Fannie Mae was a great investment for both those guys, Peter Lynch and Warren Buffett.

[00:48:03] John Huber: And throughout the 1990s, it was a compounder. It was a stock that went up many fold over that decade. And it had a lock on that portion of the market, the securitization market, it generally had like, it’s a duopoly basically, but it had a strong position and you could see why those guys liked it.

[00:48:22] John Huber: But Buffett sold it in 2001, because he noticed that I think it was actually Freddie Mac in particular in that case, they were doing certain things with their capital that were outside of their core competence. Without getting too much into the weeds, they were starting to make bets on the direction of some of the securities that they were underwriting and putting together in these packages.

[00:48:41] John Huber: And so, and part of that was the sort of the precursor to what ended up bringing down the financial system in 2008, 2009. But, you know, he noticed that change in 2001 and he sold the stock. And so I thought, wow, that’s really interesting because, you know, that, that’s a stock that went up like 10 fold for him and he owned it for all those years and he decided to sell it.

[00:48:59] John Huber: Now, in that case, it wasn’t a mistake. It was just he noticed that the business changed. So I think you have to be always looking at your companies and being willing to change your mind when something changes. He did the same thing with Wells Fargo, right? The management change, the culture change, the business change, he changed his mind.

[00:49:14] John Huber: And so. It could happen very quickly. It could happen after many years. It’s I think it just depends on each case. But the key thing is, I think you want to be very willing to recognize facts and not try to fit things into what you want it to be. You got to look at reality for what it is and not what you want it to be. Basically, be willing to change your mind.

[00:49:34] Clay Finck: I also wanted to touch on the big tech companies. You did a write up on them and how their capital expenditures have changed over the years. So the numbers I have here is Facebook, Alphabet, and Microsoft. They spent 28 billion on CapEx in 2017. In 2024, their estimated CapEx is expected to be 152 billion.

[00:49:57] Clay Finck: So that’s over a 5X increase in their capital expenditures. And these businesses are. Pretty well known for being capital light to a large extent. So you see some things changing within these companies. I was curious if you could touch on this as well.

[00:50:11] John Huber: Yeah. I mean, these businesses are getting more capital intensive and so I wrote a post about this where, you know, their different businesses than they were. And this is kind of, it sort of dovetails into what we were just talking about with and this isn’t necessarily something to worry about if you’re a shareholder of these companies. I’ve owned a couple of these companies for many years.

[00:50:29] John Huber: I think they’re great companies. I do think they’re changing though. The makeup of the business and potentially the returns on capital are changing because of the fact they’re getting so much more capital intensive. So Microsoft, I think is a decade ago. It had around 5 billion of CapEx. And they’re guiding towards somewhere north of 55 billion this year.

[00:50:48] John Huber: So like an 11 X increase in a decade and a large portion of that increase has come just in the last few years, really in the last 4 or 5 years. And so, you know, things like data centers and the last day has been all about the cloud, right? Moving computing power from on premise to the cloud and. The cloud is basically, it’s moving from Microsoft’s customers on premise to Microsoft’s premise, right?

[00:51:10] John Huber: Data centers that Microsoft has invested in. And these are like billion dollar data centers, very high capital requirements to build these things. But it’s been a great business. So that, I mean, that’s worthwhile return on capital they’ve earned from that. What’s interesting now is now we’re getting into AI and AI is very capital intensive because it takes a huge amount of computing power to run these.

[00:51:31] John Huber: You know, these things that are required to be on my pay grade to try to explain it, but it’s a lot of capital and it’s a lot of energy and it’s you know, these companies have a lot of advantages, but they’re spending a lot of capital to build out these businesses, these AI revenue streams. And so, you know, what worries me is, as a, if I own stock in these companies, I would be concerned about what are the returns on capital for these huge investments that they’re making.

[00:51:56] John Huber: And what’s interesting is that, you know, the nature of accounting is. The investments they’re making now in, let’s say, a data center or a server flows through the cash flow statement today, but it takes 5 years to flow through the income statement because it’s depreciated over 5 or I think these servers are now 6 years, let’s say, but the expense is amortized over that period.

[00:52:16] John Huber: And so only a 5th of that expense it, you can look at the cash flow statement and see it while they’re going to spend 50 billion this year, they spent 40 billion last year. You can look and see what it was. Only a portion of that flows through the income statement. And so there’s a risk that the earnings are actually elevated right now versus what their true earning power is, because the depreciation is lagging the cap X.

[00:52:39] John Huber: And that’s natural for any business that’s growing and investing in their business. So that’s not anything to be concerned about. That’s normal. But in this case, it’s so significant and so extreme that you have to have a view on what those returns will be on those investments to properly determine, you know, what your returns as a shareholder will be.

[00:52:57] John Huber: And, you know, if the stock’s at 10 times earnings, you don’t need to be overly worried about what those returns are going to be. But if the stock’s at 30 P, then. You need to have a little bit more precision and so you’re, you know, it’s another way of saying your margin of safety is lower and so, yeah, like, Microsoft’s going to spend 50 or 55 billion on CapEx and their depreciation is 15 billion, 1.5. So, even if the CapEx plateaus eventually. The depreciation is going to catch up that capital expenditure amount. And, you know, perhaps the sales growth and the earnings, you know, potential, the business will grow and absorb that. And that’s really the question that you have to answer.

[00:53:34] Clay Finck: You had mentioned earlier that writing and doing things sort of in public isn’t something that’s very selfless.

[00:53:41] Clay Finck: You know, you get a lot of benefit yourself from doing it, especially just like in the writing process. There’s a fund manager I follow who releases these very thorough investment memorandums where he outlines essentially his investment thesis in a company. I was curious for your investments, if you do something for yourself, right?

[00:54:00] Clay Finck: Some sort of investment memorandum that outlines your thesis for the investment and not so much to It requires a lot of work to do something like that, right? A 10, 20, 30 page memo on your thesis for a company. Is that something you do with each investment?

[00:54:15] John Huber: I don’t write a 10 or 20 page writeup. No, but I do write you know, mine tend to be quite simple.

[00:54:20] John Huber: So I do a large amount of research and there might be 10 or 20 pages of what I would call like scratch notes, you know, digital scratch notes where I’m collecting all sorts of data from the 10 K’s and I’m clipping different sections and linking to different things and sort of building almost like a journalist trying to build a story, right?

[00:54:37] John Huber: You’re collecting information from all over notes on phone calls. You’ve made all that stuff does add up to a lot. But in terms of the final write up, I do a write up. Yes. I try to make it very simple, like, you know, 1 page, 2 pages, sometimes they’re longer. I’ve tried to actually get better at writing more succinctly, and I joked in one of my last letters, like, I only have time to write a long letter, like the Mark Twain quote, like, I didn’t have time for a short letter, so I wrote a long one instead.

[00:55:02] John Huber: It’s always a challenge to do that, but I think if you can boil down your investment thesis into 1 page or 1, 000 words or less, it’s a lot easier. You really don’t need a lot of the minutia. That’s more for you than it is for whoever’s reading it. You want to capture the essence of the investment and the key drivers, the key variables that will impact that investment.

[00:55:22] John Huber: And to me that doesn’t need 10 or 20 pages, although I don’t begrudge anyone for doing that. Different schools of thought on that, and I’m not saying you shouldn’t write 20 pages, but to me, that’s, you know, I don’t do that. That would be overkill for me, but I keep a journal. I write daily. I write a lot.

[00:55:40] John Huber: I use a piece of software called base rate. It’s more than a piece of software. It’s and it’s more than a journaling tool. It’s an incredible thing. In fact, my friend, Jake Taylor, who I think, you know, Jake started this. Company called base rate used to be called journalistic and they changed the name to base rate, but it’s more of a decision.

[00:55:56] John Huber: Engine where you can, as an investor, it’s great because you can log your journal entries and your thesis, and you can look back on all of your past entries and see what you were thinking in real time. And then it will also serve up all sorts of different. Data analytics and all kinds of things.

[00:56:11] John Huber: That’s really kind of cool. But I use that as a tool to track my investment write ups. And so you can tag, like, each specific company. And so I have, like, all the companies I follow on my watch list have different, like, folders, but different tags of articles underneath it. And. You know, like I say, I have a, I have a write up for each one that I buy.

[00:56:31] John Huber: And then I also have a string of ongoing notes and thoughts as the businesses develop and change over time. So. That is my system, and I do think it’s very valuable to write. You don’t have to be good at it. It’s a forcing mechanism. It clarifies your thinking. It sort of forces you to look at things that are not well understood yet in your own mind.

[00:56:50] John Huber: And then it gives you the ability to go and address those things that you’re not sure about yet, or not, you don’t fully understand. And so it really is a helpful tools and investor. It’s sort of. Improve your understanding of whatever you’re working on.

[00:57:03] Clay Finck: Yeah. Well for those in the audience who haven’t checked out John’s blog I highly recommend it.

[00:57:07] Clay Finck: It’s really helped me clarify some of my thinking and fill some of the gaps that You know, just needed a little bit of improvement or a little bit more clarity. Well, John, I really appreciate you joining me. It’s such a pleasure. And I always appreciate you coming onto the show. It’s a definitely a fan favorite here at tip before I let you go. How can the audience learn more about your work, your blog, and anything else you’d like to share?

[00:57:31] John Huber: Yeah, well, thanks for having me on clay. It’s always fun to chat with you. You mentioned my blog is called base hit investing That’s sort of my thoughts on investing and my firm is called Saber capital and you can find it We have a website obviously and you know, I’m on Twitter.

[00:57:45] John Huber: You can find me on Twitter as well but yeah, that’s I would say the blog is the best base place to kind of check out You know my thinking on investing but yeah, it was a fun discussion. Thanks for having me on

[00:57:54] Clay Finck: You bet. I’ll have all that linked in the show notes for those in the audience that would like to check it out.

[00:57:59] Outro: Thank you for listening to TIP. Make sure to follow We Study Billionaires on your favorite podcast app and never miss out on episodes. To access our show notes, transcripts, or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only, before making any decision, consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.