Lee is a private investor who publishes The Value Road, a newsletter focused on finding deep value in microcap stocks. Lee focuses on “stocks so far off the beaten path that almost no one else is talking about them,” often trading for a discount to liquidation value. Lee also shares his ideas @leevalueroach on X and was previously featured on Sunday’s Idea Brunch in March 2025.

Lee, thanks for doing Sunday’s Idea Brunch again! You recently quit your job to pursue investing and writing full-time following the great success of your Substack. How have your writing and investing been going for you since you went full-time? Have your results improved?

Thanks for having me back. I’ve been able to write more and have begun doing a lot more research now that I can dedicate a full uninterrupted day to looking at stocks. When I was working at a factory full-time, I would do all of my research late at night, which I actually enjoyed much more than being on a first shift schedule. This is mostly because it’s very hard to make a hasty decision when the market is closed. Now that I’m on the same schedule as the rest of the world, I can process information in real time. I still try and never act on impulse by making myself wait at least a day before I make an investment decision, but it was honestly nice to not even have the option.

My results have improved. I’m up 56% YTD and 93% on a 1-year basis. I wouldn’t even say this improvement is due to me quitting my job as much as it has to do with me finding some good companies that I’ve sat on that finally took off.

You’ve published on over 100 companies and often find filings and disclosures that others miss. Can you share a little more about your research process and any technology or AI you use to help find hidden alpha?

So I rarely use AI to find companies, but I may use AI to scrape information I might have missed while reading through that company’s financials. I used to go through the OTC stock screener, pop a couple of filters in, and then look through about 36 pages of tickers. The biggest improvement that has changed my life is that now I know a lot of these companies and can put them into a site called CapEdge, which then lets me know when any financial info from these companies drops.

Now that I’ve slowly built up a base of like 80 or so names that I follow, when something interesting happens to one of them I know about it before others do. It’s very unlikely you’re going to find a company right at the cusp of some transformative event. In my experience, it’s a much higher probability that you’re going to find a bunch of cheap companies that you can then wait around on for an inflection point to show up. That’s when you really put your money into something.

In your research, how often do you go beyond reading SEC filings (e.g., talking to management and customers or testing out products yourself)? Or can you generate most of your outperformance solely from reading SEC filings?

Whenever possible, I talk to management. I went to the Planet Microcap conference not too long ago which was a great way to squeeze in a bunch of 101 meetings in one place face to face with management. Now that I am writing full time, I try to contact management as soon as I am done researching a business. After I read through some earnings calls I try and get a couple of questions that I haven’t heard other investors ask the management team. Management calls are great because you can really see how management reacts to tough questions that don’t often get asked at these small earnings calls somehow. That being said, 99% of my investment decisions can be made without talking to another person but talking to management can give you that extra confidence to throw down a decent chunk of change on an idea or in some cases, taper your execution expectations.

The economics of a paid newsletter reward regular output, while disciplined investing often requires doing nothing. How do you keep the publishing incentive from becoming an idea-generation quota lowering your investment bar? And as you’ve grown, has it become more difficult to write about illiquid companies?

This has been the hardest thing to balance as I’ve become a writer on Substack. Substack seems to want you to write two or three articles a week. I’ve got complaints from both ends of the spectrum concerning how much I write. Some people want me to write once a month and only on the biggest knockouts I can find while other people want me to effectively manage a portfolio for them with up to date buy and sell ratings and write ups on any new news from the stocks I research. Others want me to look into every company under the sun.

The way I thread this needle is that I try and write up the best couple of companies that I’ve looked into that week. These may not be buys, but they’re usually companies I’m very interested in and keeping on my radar should a buy in opportunity arise. I then recently offered a premium tier where my readers can have access to all of the research that I don’t publish on The Value Road. This tier can also talk about this research on a discord channel. Even still you can’t make everyone happy.

My goal on The Value Road is to turn over as many rocks that are worth looking at as I possibly can. As time goes by I can keep an eye on the best rocks of the bunch. Eventually when a catalyst comes along, you’ll know where to put your money while everyone else is trying to figure out what’s going on. I’m just writing about what I find along the way.

As far as having a harder time writing up illiquid stocks, I haven’t had any trouble. There’s a market for people who love investing in these tiny companies. A lot of investors with much larger portfolios will have an account where they just trade microcaps because they’ve learned to love this niche in the market even though their wealth has long since outgrown it. It becomes a fun game to them.

One of your best-performing ideas is Entravision Communications (NYSE: EVC), which is up ~5x since your first pitch and is part of your basket of legacy broadcasting stocks. What went right with Entravision? And do you still see value in legacy broadcasting companies?

The most important part of EVC’s story isn’t even what went right; it’s what went wrong. When META dropped EVC as their Spanish advertising partner the market priced EVC as if bankruptcy was inevitable. It wasn’t, in fact it was pretty obvious that SMADEX was growing fast enough to justify a valuation at least double what EVC’s share price was at the time. That’s how I invest. I get nervous when I look at a green stock chart and excited when I see a 1yr wall of red. EVC had a big problem drop in their lap and investors weren’t about to sit around with a pen, a pad of paper, and a calculator to figure out just how bad the problem was. That’s how investment opportunities are born.

I am still invested in a lot of the legacy broadcasting companies (SSP, SBGI, EVC, NXST, and GTN). I see a lot of value in the legacy broadcasting space. This is yet another heated political advertising cycle which should offer a large tailwind for many of these names. The biggest thing I’m still waiting on is a court decision on the 39% station broadcasting cap. If you’re a legacy broadcaster you can only broadcast to 39% of the United States population. The FCC has given exemptions to this rule for M&A activity in the past, but now this rule has caused a legal battle that may end up at the Supreme Court. If this 39% cap is lifted these companies will almost certainly rerate as the current M&A activity gets sorted out and as a new M&A environment opens up. It really been a game of patience. Luckily, it seems like the FCC is about to vote on lifting this station cap on August 6th. This should be a huge development.

All of these companies (SBGI, SSP, NXST, and GTN) have pretty cheap P/E’s, EV/Sales, and some massive hidden assets in the form of spectrum the next time a spectrum auction takes place. All of this combined with an election advertising cycle, The World Cup, and sports gambling driving an increase in sports viewership across legacy broadcasting, I think these companies are set up for a rerating long-term even if the 39% station were to remain in place.

What are some interesting ideas on your radar now?

I have a couple of positions in my portfolio that I still think have a lot of juice in them.

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Jamie is currently the chief investment officer of Senjin Capital, a Sydney-based fund manager focused on shareholder activism in the Japanese equity markets. Before co-founding Senjin in June 2024, Jamie managed $1 billion across two long/short funds - global brands and Japan at Platinum Asset Management, where he worked for 13 years. Jamie is active as @JamieHalse on X and on LinkedIn. Senjin Capital publishes a monthly newsletter and provides case study analyses and other insights at senjincap.com/news-insights/

Jamie, thanks for doing Sunday’s Idea Brunch! Can you please tell readers a little more about your background, your passion for Japanese stocks, and why you decided to launch Senjin Capital?

My journey really started when my father handed me Rich Dad, Poor Dad when I was 18 or so. I am from New Zealand, and the government provided an interest-free student loan to fund university fees, but also a weekly amount for living costs. I was living at home, so my costs were low. I saved my living cost amount rather than blowing it over the bar like many others did, and looked for investment opportunities where I could deploy this “free” money.

I had not executed anything, but had the fortune to sit down in a criminal law lecture one day next to Lyall Taylor (@lt3000Lyall on X). He now runs his own very successful global equities fund out of Singapore. We got talking and it turned out he had done the same thing with his student loan. He was investing in stocks, and suggested I read Peter Lynch’s One Up on Wall Street. From there I was hooked.

Over the next few years, while investing in NZ and Aussie small & micro-cap stocks, I devoured a library-full of books on investing, markets, financial history, and finance theory. Long daily discussions with Lyall, which we loved but which bored everyone else at law school to tears, rounded out my financial education. I studied law and politics, so the reading and discussions were crucial providing the foundation for me to later move into the investment industry.

I moved to Sydney in 2008 for a buyside job with CP2, which was predominantly an infrastructure manager across public and private assets. This gave me a great grounding in modelling, and in understanding both public and private asset markets, which has been a major advantage relative to the standard equities person. In 2011 landed a role with Platinum Asset Management, which at the time was probably Australia’s most successful fund manager, with ~$30bn AUM. The key founder, Kerr Neilson, was arguably Australia’s most famous investor, and I had avidly read his quarterly reports from about 2005 onwards.

Platinum was a global contrarian fund manager with a value bent, which meant they were nearly always very overweight Japan. They liked to set up targeted funds where they saw an opportunity – rather than where they saw investor demand (which tends to chase performance which is sub-optimal if you are looking for the best returns). This meant that in the late 90’s they set up a technology fund with the stated purpose of shorting the TMT bubble (and totally shot the lights out), but they also set up a Japan fund which I believe managed around $3bn at its peak.

A year or two after I joined, the Japan fund manager took me under his wing and encouraged me to spend more time on Japanese stocks. He (Jacob Mitchell) later founded his own global equities shop, Antipodes Partners, and now manages around $20bn.

He was always trying to get analysts to do work on Japan, but because of the added difficulty – poor IR, limited English disclosure, translated calls etc he struggled with that. I had some history with Japan, so was more willing than most to get on board.

At high school I took Japanese as a subject, and did a homestay in Takasaki – around an hour on the Shinkansen north of Tokyo, and attended the local high school for a couple of weeks. I also studied some Japanese history at both high school and university. So I had more understanding of the culture and historical context than most. I am still in touch with my host family, and took my family to meet them in January this year (after a week skiing amazing powder in Niseko first of course!).

There were incredible value opportunities in Japanese stocks almost everywhere back then, but if I pitched something trading on 10x P/E with half its market cap in cash, the feedback was always “You can’t value the cash, because you’ll never see it. You need something that’s going to grow earnings better than the market expects.”

This made little sense to me, as why would I value future earnings (ie: future cash) if I can’t value actual cash on the balance sheet!

The practical reason was that stock prices responded to earnings, and the market ignored the asset side. These stocks were nearly all classic value traps, because the management did not care at all about the share price, and hoarded cash while having a low payout ratio. Buybacks were unheard of.

Around 2015/16 I started seeing some headlines about shareholder activists doing things in Japan. I had for a long time been attracted to the idea of shareholder activism, because of how as an activist you can be directly involved in generating the return, creating your own catalyst to realise latent value. Whereas traditional active management is really quite passive outside of the buy/sell decisions. I had read about Icahn, Peltz, Dan Loeb, and the Michael Milken junk-bond fueled 1980s wave of corporate raiders/activists, and the approach just seemed like a better mousetrap to me, unlocking obvious value, rather than trying to guess where earnings will be in 3-5 years, while guessing where the market thinks they will be, and then what multiple the market will put on those earnings.

I did not think this activism was possible in Japan, as I had always been told that Japanese management teams do not have to listen to shareholders. Seeing the headlines around Oasis with Nintendo and Dan Loeb with Fanuc made me realise I was probably missing something. So, I did a deep dive into the history of shareholder activism in Japan, the legal basis for the corporate governance framework in Japan, and the corporate governance reform program that was part of Abenomics – starting with the Stewardship Code in 2014 and Corporate Governance code in 2015.

I pitched the idea of a dedicated Japan activist fund to my bosses at Platinum. Partly because I saw a great opportunity, and partly because I wanted a promotion to portfolio manager! To get promoted back then, a PM of a fund either needed to leave or you had to create a new product.

The idea did not get up. Platinum was not an activist, and I was just an analyst. Jacob leaving to found Antipodes (I almost joined him), kicked off an internal restructuring at Platinum, which eventually culminated in my being given a global fund to run in 2017. I focused on that rather than Japan until 2021, when the Japan fund was added to my remit – partly because of my pitch back in 2016.

I quickly saw that the opportunity in Japan for activism had become even better. Stocks were still very cheap, but the environment had evolved to become even more fertile for activism. You could do things as an activist in 2021/2022 that you could not do back in 2016.

I had a mandate to engage a lot more actively in Japan than was Platinum’s traditional style, but I quickly realised that we were not set up to do activism properly. We needed a dedicated fund with its own team, operating under a different philosophy. By 2023 I had recruited a co-PM for the Japan fund, and had approval and budget to establish a dedicated concentrated activist strategy. My plan was to give up the global fund as well as half of the Japan fund, and focus on this new product. The return opportunity was so obvious to me, that I had no doubt it would be highly successful.

A key aspect of setting up was paying a global search firm a ridiculous amount of money to find the perfect Japanese person to help me with the strategy. He (Tsubasa (Toby) Umezaki) is now my co-founder, and is a total unicorn. I had a page-long list of experiences/attributes that I was looking for that I gave the search firm, but had limited hope of ticking off even a third of them. Toby satisfied the vast majority, and is a great guy to boot – super smart, humble, and very high EQ, while still being very willing to disagree and put forward his own view.

Unfortunately, Platinum went through tough times, the CEO stepped down and cut all new projects in advance of a new CEO starting, so Toby was never able to join.

We both really believed in the activist strategy we had put together though, so we resolved to do it anyway!

I finished with Platinum in March 2024, and established Senjin Capital in June, with Toby joining shorly after.

The Nikkei 225 index in Japan is up ~70% over the last year and up ~140% over the last five years. Are Japanese stocks still undervalued? Now that many companies are already adopting shareholder-friendly stances, is your activism still needed?

Our fund has returned around 55% net of fees in yen terms over the period, which is great – and above the broader cap-weighted TOPIX index, but the Nikkei (which is price-weighted, like the Dow) has been absolutely crazy. We of course have very different exposures, focused on small/micro-cap stocks where much of the company’s value derives from its cash and real estate holdings, and relatively low correlation to the index (observed equity betas of 0.3x-0.5x).

I would not encourage investors to allocate to the general Japanese equity market at this point, and definitely not via an index fund. The large cap stocks have run hard, most recently on the AI boom, but before that on the normalization of interest rates resulting in massively expanded margins for the financials, and also the reforms to the defense industry. Return concentration has hit peak levels, and has potentially begun to unwind (NAND memory stock Kioxia is down almost 40% from its peak). Depending on your views on AI, there may be opportunities in the SAAS and IT services sectors

The story I was pitching to investors when running Platinum’s Japan fund (eg: https://www.livewiremarkets.com/wires/how-japan-regained-its-mojo ) has also played out well in the large cap space – the corporate governance reform has had a big impact. Companies have massively increased dividend and buybacks, adopted RoE targets, and are increasingly willing to follow Hitachi’s lead and undertake major restructuring. In many cases, investors have positioned ahead of planned restructuring actually delivering tangible results. This is a big shift from the 2010s - Hitachi was restructuring for the better part of a decade from 2009 before its stock really started to work.

Money has flowed into activist/engagement funds, with around US$100bn invested in the space now. However, this is concentrated in the biggest five or six activists, which together manage probably $60-$70bn or more.

In the small/micro-cap space it is a different story, with corporate governance reform still in the early innings. Small/micro caps are the lion’s share of Japan’s listed companies, with something like 2,000 companies having a market cap smaller than US$300m. The big guys can’t really play in that area anymore due to size constraints.

We still regularly find companies with solid businesses that have half the market cap or more in cash, plus often a tonne of real estate that doesn’t show in the accounts as it is held at historic cost.

You have said Senjin intends to raise equity-based compensation in its engagements after examining Kioxia’s option program. What would a well-designed Japanese equity-incentive plan look like? Who should participate, which performance metrics should be used, and how do you prevent short-term share-price engineering?

A good incentive plan gives managers in a position to affect outcomes real skin in the game. Most Japanese equity programs are token and do not really affect behaviour. Kioxia was different, because Bain Capital put the plan in place. That plan has now minted hundreds of new multi-millionaires.

Short term share price engineering is a problem in the US, where CEOs design the strategy based on their KPIs. If the KPI is EPS growth, expect a tonne of debt-funded acquisitions. If it is ROIC, expect a lot of cost cutting and stretched payables. Japan is so far away from this being a problem, that I would not worry about it.

You could say that undertaking a buyback of 20-30% of your stock is short-term engineering, but is it really? If you have ample cash to carry that out, your stock is cheap, and you don’t have other fantastic investment opportunities, that’s actually great capital allocation.

There is some handwringing in some quarters in Japan about the lack of focus on growth as companies allocate cash to dividends and buybacks, but this overlooks the fact that the company that currently has the cash does not need to be the one that invests in growth. In a well-functioning capital market, cash paid out to investors is ultimately reinvested where capital is demanded. That is how the US’ startup ecosystem works. It is not IBM and General Motors that have driven the last 20 years of economic growth in the US, it is Amazon, Google, Salesforce et al.

How does shareholder activism in Japan differ from activism in other markets? What have you found works well? What doesn’t?

There are a bunch of differences in Japan that can make activism more difficult in some ways, but also easier in others.

Directors in Japan owe no duty to shareholders, only to some imaginary idea of “the company” – which is supposedly a collection of stakeholders such as customers, employees, suppliers, and somewhere down the list, shareholders. Courts give a high degree of deference to directors’ business judgment, meaning legal challenges are near impossible.

Many shareholders do not exercise their AGM votes based on the prospects for their equity investment, but rather based on historical business relationships.

Countering these factors, such “cross” shareholdings are in decline, opening up more of the market to shareholder influence. An investor can buy up to 30% of a company on market without launching a tender offer to all shareholders. If a tender offer is launched, it can be for any amount of the company – there is no requirement to bid for 100%. Poison pill takeover defenses must be approved by a shareholder vote. Shareholders can submit binding proposals to the AGM on almost any topic – shareholders’ legal rights to govern public companies are probably stronger in Japan than anywhere, the issue is cross-shareholdings and traditional corporate culture.

We have studies hundreds of cases of activism in Japan, and synthesised what we believe is the optimal approach.

That is, we constructively and politely engage with management on all areas where we see the company can improve, ranging from the obvious capital allocation decisions through to the potential for operational and/or business portfolio restructuring, and growth options. This culminates with submitting a draft strategic plan to the company that we would like to see implemented.

If the company gets on board with serious reform, then the stock will do very well. The easiest win is increasing the dividend payout ratio. Typically you see payouts around 30%, and stocks trade on a ~4% yield. If the ratio goes to 60% or more, then the stock should generally double.

Operational restructuring requires a lot more heavy lifting, and difficult internal decisions that run completely counter to the corporate culture. If a company gets religion on this, then that is fantastic, but it is not a high probability outcome.

If we can generate most of the upside we see in the stock in a reasonable timeframe from changed capital policies, then we will generally be happy to exit.

If the company is unwilling to change, then we will use the rights attached to our shares to see the latent value unlocked. A fully friendly approach does not work, as it has no teeth. However, we will always be polite and constructive, even when escalating things. Being publicly aggressive and arrogant can cause a lot of issues in Japan that can hurt an engagement – including increasing the likelihood of being hit with a poison pill.

Which investors and management teams in Japan do you admire the most?

One has to admire the Murakami family’s ability to generate amazing returns. Yoshiaki Murakami was basically the OG activist fund manager in the early 2000s. He later relocated to Singapore, and they now run their money as a family office. They are amongst the most aggressive activists in Japan, and are the exception to my rule above. When you have scale and unconstrained capital, the rules that apply to you are different.

Other investors I admire are Seth Fischer at Oasis – he has had fantastic success, and now manages >US$15bn. I invested alongside him a lot with the Platinum Japan Fund in stocks like Sun Corporation – where he was able to engineer the Nasdaq IPO of its subsidiary Cellebrite, and Fujitec where he was able to replace the board of directors. Also Kanya Hasegawa of 3D Investment Partners – I was invested alongside them in Fuji Soft to the great benefit of Platinum’s investors, and they have also had great success with Sapporo. Like us, they like companies with heavy real estate exposures.

To some extent, I believe these managers will become a victim of their own success. The law of large numbers means their future returns are highly unlikely to match their past returns. Oasis’ investment in Kao (which I wrote about here: https://senjincap.com/larger-activists-larger-targets-new-tactics-similar-returns-oasis-v-kao/ ) may be an example of this dynamic. That said, I would still rather be investing with them than a US-focused activist. There is just much more low-hanging fruit in Japan.

Managers I admire include Issei Ainoura, who is CEO of GMO Payment Gateway. He has set up a highly structured sales-driven culture that is rare in Japan. Similarly, Masaru Tange of Shift Inc has set up a strong growth organization with a highly coherent strategy targeting an inefficient industry.

Most executives in Japan get to their positions by not making mistakes rather than through taking smart risks. They don’t really understand why the share price is important other than because the Tokyo Stock Exchange told them it is. They refuse to make hard decisions to improve the bottom line, because maintaining internal harmony is viewed as much more important than making money or contributing to the productivity of the economy. So when you do meet a manager who really gets it, it tends to stick with you.

Jamie, what are some of the first things you do when researching a potential investment? What does that first hour of research look like for you? Do you do anything that few others do?

We are very process driven, to the extent that we have a six-page word document outlining our process steps. Our shortlist of potential investments comes from our proprietary database, which we built out with a lot of grunt work to identify the cheapest stocks – including uncovering hidden real estate assets.

We do a review of the companies on the shortlist to ensure there are no buried landmines and to establish the quality of the underlying businesses, and then produce a shorter shortlist from there which we work through in sequence.

Identifying cheap companies is not rocket science as our approach is quite asset based. We simply value the balance sheet at market values, and run a model to determine what a PE fund might pay to buy the business. That is our upside case.

We are probably more willing to take on liquidity risk than most others, as we are confident in our ability to generate an exit or other strong outcome, due to having a flexible approach that is not constrained by our investor base.

What are some interesting ideas on your radar now?

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Brian is currently the chief investment officer of Findell Capital Management, a long/short Smid-cap focused equity fund he founded in July 2019.

Since July 2019, Findell Capital has annualized 22% net (1.5/20), compared to 9% for the Russell 2000 and has never had a down year while more than tripling the Russell’s cumulative returns (~300% vs. ~91%). Findell launched with $14mm and manages a little over $400mm today. Brian was previously featured on Sunday’s Idea Brunch in April 2023.

Brian, thanks for doing Sunday’s Idea Brunch! Maybe tell us how you got interested in investing?

Towards the end of my freshman year of college, I read A Random Walk Down Wall Street (1973), where Burton Malkiel famously argues that markets are efficient and impossible to beat, and you are better off in a passive index fund if you want to build wealth.

For whatever reason, that inspired me to open an Ameritrade account and I started actively trading stocks – basically doing the opposite of what Malkiel suggested.

The first stock I bought was a company called HealthSouth. HealthSouth operated a chain of rehab centers and was run by a charismatic high school dropout named Richard Scrushy.

The stock had traded as high as $110 a share but nose-dived in late 2002 after Scrushy was accused of fraud. By the summer of 2003 when I stumbled upon it, the stock was trading for 40 -50 cents a share on the pink sheets.

I didn’t do any fundamental work (nor would I have known how to at the time). I just thought that the stock was cheap at 50 cents for the simple reason that not that long ago it was worth more than $100.

However, foolish that logic might have been, the stock did phenomenally well. Within several weeks, the company gave signs that the business could survive the fraud claims. Within a year, the stock was in the mid-teens – up over 35x. The company would eventually settle with the SEC and re-list and now trades as Encompass Health – EHC – for $100 a share.

That experience made me fall in love with markets and I started studying economics. More specifically, I wanted to understand how such an outsized opportunity like HealthSouth could exist if markets were efficient. I quickly discovered the field of behavioral finance.

In the early 2000s, behavioral finance was just becoming a thing. Within the economics department at Harvard, a young Russian economist named Andrei Shleifer published Inefficient Markets (2000), which essentially created it as an academic field.

The basic premise of Behavioral Finance is that the efficient market theory is wrong because its core assumption is wrong - humans are not rational decision makers.

We are quick decision makers whose internal algorithms are optimized for surviving the pre-historic savannah, not pricing securities on a computer screen.

Just consider how you would act if everyone on the street started to run in a certain direction. You too would run in that direction. That is called herding and makes sense evolutionarily – you are a descendant of the humans who ran, not the ones who sat there analyzing whether it made sense to run.

While adaptative in the state of nature, this bias can lead to irrational decision making in financial markets. Just as we overreact to harmless noises in the wild, markets can overreact to harmless noise and those over reactions can cascade and compound on each other until you get very dislocated prices.

Herding is one of dozens of heuristics that behavioral finance brought forth and explained.

I got so into it that my senior year, I co-authored a book on the subject matter with a Harvard post-doc student called The Story of Behavioral Finance (2006) where we tried to outline all these different heuristics.

The book didn’t become a best seller, but I at least was now armed with a framework that could explain HealthSouth – how did this stock get so dislocated that it subsequently 35x’ed in 6 months?

The behavioral finance explanation was that HealthSouth was a victim of recency bias, which causes humans to overestimate the probability that unusual things that have recently happened will happen again.

When HealthSouth blew up in 2002, the traumatic memory of Enron was still very fresh.

HealthSouth like Enron involved smooth talking southerners accused of accounting fraud and so the market was quick to assume that HealthSouth like Enron was a zero. No one did the work to discover that the business was fundamentally sound and the financial improprieties the C-suite was accused of, while real, did not mean the business was failing.

When I bought the stock, my reasoning was profoundly unsophisticated - but now armed with this behavioral finance framework, I could look at markets and begin to make sense of them.

Stock prices didn’t move like a drunk person randomly staggering home as Malkiel suggested, but moved to the beat of our evolutionary psychology and when crazy things happened that evolutionary psychology is where you had to look for answers.

Interesting, so how did behavioral finance inform your subsequent experiences?

After graduating in 2006, I had a random sequence of jobs. My first job was on a prop desk at Deutsche Bank in New York trading mortgage derivatives but then that blew up in the GFC. I then worked in Switzerland at Glencore trading commodities but then the commodities collapsed. I finally arrived back in New York City in the equity space at a hedge fund in 2012.

Being in these unrelated situations might have hurt my early career momentum, but in the long run it was good because I was able to build a mental model for how smart people made money. And that again took me back to behavioral finance.

The best investors and traders were the ones who had some sort of intuitive appreciation of how behavioral biases manifested in markets and how to take advantage of them.

I remember a great trader at Glencore telling me that he knew he had made a good trade because it always felt awful at the time he made it. And I think that is probably generally true – when buying something makes you want to puke that generally is a good sign.

The reason why those trades feel bad is because you are fighting against a behavioral bias – and your evolutionary psychology was designed to reward you when you give into a bias and punish you when you don’t.

So how did all of this lead you to create a fund?

I developed this approach focused on Smid cap names offering dislocated valuations apparently caused behavioral or technical factors and likely to be resolved through a foreseeable catalyst. Obviously, the approach in practice is not exactly that simple—and also involves substantial fundamental analysis-- but that is thematically what I try to do to gain an edge.

I began to build a track record using this approach in 2016 with a managed account and then in 2019 I turned that account into a limited partnership to start Findell.

Why is now the time to look at this sort of strategy?

I think there are a few reasons. The multi-strats have gotten way too big and increasingly boxed in by their own risk parameters. They are blowing in and out of stocks for short-term reasons, creating enormous dislocations that you can exploitif you are patient.

I also think that now is the time to get exposure to the small cap space. The Russell is just due for a long period of outperformance over the SPY and Nasdaq and we are starting to see that this year. You can still find lots of value in the smaller cap universe of names.

What is an example of a name that you like today?

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TripleS Special Situations is an anonymous and free publication about special situations, distressed securities, bankruptcy, litigation, and other quirky financial setups.

TripleS, thanks for doing Sunday’s Idea Brunch! Can you please tell readers about your background, your desire for anonymity, and why you decided to start Triple S Special Situations?

Thanks for having me.

The short version is that I’ve been trading for over twenty years, and I came up through the oil & gas exploration world, which is where I developed my extreme level of comfort with holding risk assets and placing large bets on them.

The longer version is that as a young and excitable person, I took everything I had plus a frankly irresponsible amount of credit card debt and bought Washington Mutual stock on the theory that TARP was coming and the banks would be saved. I landed from a flight to my brother’s wedding to find the bank had been seized and I had negative equity. So, I was broke and in debt on the same afternoon.

Out of pure spite, I taught myself bankruptcy law and helped put together the WAMU equity committee, which turned into the equity committee for the largest bank failure in US history. Some of the debt from that case eventually paid 100 to 1 and equity received hundreds of millions of dollars of value. If I’d had real money at the time, I’d be retired. Instead, I got an education and my start in the investing world.

From there I got pulled into every flavor of special situation, with legal ones being a favorite as I have some edge in those since I am willing to do the work others aren’t.

On my semi-anonymity, I run money and I write under a pseudonym so I can be blunt and not make the focus of the writing me personally, since I’m not interested in a cult of personality. I’d rather the ideas stand on their own than have anyone weigh them by who’s saying it.

Why start the publication?

Honestly, because I read constantly, subscribe to 380 Substacks, and I wanted to give something back to the community.

Writing also forces me to sharpen a thesis and build conviction on something I am holding. If I can’t explain it clearly and concisely, I probably don’t understand it well enough to size up in it.

There is also the additional benefit of getting new ideas and meeting new people, which improves my sourcing, which is a challenge for a one-lady operation.

Your Substack lives in the market’s odd corners: bankruptcies, litigation claims, distressed bonds, liquidations, arbitration, merger arb, critical minerals, and weird holdcos. How did you end up here instead of becoming a more conventional value investor?

Because I’m ultimately a small fish, and the ocean is full of sharks who are smarter, better connected, and resourced than I am. I have to focus on areas where I have some sort of edge and that larger players can’t or won’t wade into.

A lot of what I do is deliberately subscale. A $20-$50 million market cap with a billion-dollar arbitration claim is fantastic for a private individual or a small family office and completely useless to a fund that needs to put hundreds of millions or billions to work.

The other reason is my personality. I am a bit of an advantage player (Poker helped fund some of college).

I look for asymmetry, run the odds, and then make my bet, trusting in the process working out over time.

Conventional value investing felt like waiting for a multiple to re-rate.

The stuff I like has to have an identifiable catalyst, that based on my analysis will return at least 3 to 1, but more ideally 4 or 5 to 1.

The other type of investment I like is where I can hedge my downside through use of options strategies or sometimes even Polymarket.

You’ve said publicly that you come from the oil industry. How has that background shaped the way you analyze messy assets, commodity cycles, counterparties, and political risk?

Oil & gas teaches you a lot of things.

First, messy is expected. Energy assets always come with hair, whether it’s abandonment liabilities, take-or-pay contracts, terrible joint operating agreements, questionable title, or completely fabricated reserves. Your job is to figure out if there is a unicorn under all the shit or just more shit, which is basically Special Sits 101.

Commodity cycles tend to be pretty violent and come on quickly. Managing exposure and controlling things like cost are something that is within your control, but the reality is most oilmen will tell you it’s more luck than skill. You need to buy the right lotto ticket, but really it is more important to buy at the right time in the cycle. Price hides a lot of mistakes. This directly applies to investing also. The only thing you control when you buy a stock is your entry price and your exposure management strategy. Everything else is inshallah.

Counterparties and political risk are sort of an interesting discussion, since the oil industry is so full of large characters and scam artists. I grew up right at the start of the shale boom, so I got to meet all the people profiled in books like the Frackers, such as Aubrey McClendon. There are a lot of opinions on Aubrey (RIP), and I will leave it at that. One of the reasons why I enjoy bankruptcy so much is that I can just assume everyone involved in bringing the company under is a questionable person, until proven otherwise. I was planning to be a psychologist in College, so analyzing a person and their motivations is something I really enjoy.

Also, having done deals across the world makes you a lot more cognizant of understanding international cultural and legal differences. When I do arbitration analysis, this comes into play quite a lot. If you win an award, is there even a way to enforce it? How do various treaties and jurisdictional issues come into play?

What are the ingredients of success for distressed and special situations investing? What do you see amateurs often get wrong?

I could turn this into an essay as I have done an enormous number of stupid things in my life but let me break it down into a short list:

1. They focus too much on the upside, without taking a real look at the downside.

I purposefully do the opposite. I want to know what I lose first and if there is a way to minimize my loss through either use of puts, calls, covered calls, collars, or a short position on a related sector business.

2. They confuse or get married to a great story vs. understanding if something is a great trade.

A billion-dollar claim is worthless if the defendant or country can’t pay. Legal enforceability and timelines can wreck you. The merits are maybe half of an investment. You need to clearly identify what your goal is with an investment when you enter into it and stick with it and not have idea creep.

3. They get emotional and forget their thesis.

When a distressed name gaps down 50%, that’s exactly the moment when you find out if you have conviction. And you can’t buy conviction, which is why I think everyone should write up their largest positions, even if they don’t publish anything. Laying out why you are invested in something will allow you to stay calm and remember why you’re even in the trade.

4. They won’t take the loss and they don’t size appropriately.

Sometimes you have to amputate an arm to save the body. It hurts, but it’s not possible to come back from a 100% loss. I concentrate when conviction is genuinely high, but I’m not yolo’ing my family’s money. There’s a difference between a punt and a position, and you should always know which one you’re making.

In a recent post, you said a lot of sourcing has been coming from Special Sits Digest, which tracks activist campaigns, strategic reviews, spin-offs, restructurings, divestitures, liquidations, and other odd situations. How do you use tools like that without just ending up in the same crowded trades as everyone else?

Since you mentioned it, great tools like the Special Sits Digest, are excellent funnels of information, but having a list of hundreds of situations sent to you weekly doesn’t substitute for my personal analysis and judgment.

My biggest problem for most of my life was finding enough stocks worth reviewing to invest in. Now, thanks to AI, Substack, and various stock websites (like Swen Lorenz’s amazing Undervalued Shares), I don’t have to search for situations. I just need to choose which ones I want to be involved in and triage the large number of opportunities. I review something like a hundred to hundred fifty investments a week and usually only buy a few names from that work.

I also get a lot of quality ideas from various Discord groups I am in and friends I have made across the world as a result of writing this blog. There are no better sources than people who think similarly to you but live in a different time zone. A large portion of my investments are overseas. I have trades going on in 8 to 10 countries at a time. Most US traders won’t open a foreign brokerage to buy a £15 million AIM name.

Finally, I try to credit my sources religiously when they want me to, which sounds like basic manners but the more generously you share, the more good ideas land in your DMs.

Special situations investing seems increasingly crowded. Is it tougher to maintain an edge? Can you share some insights into where your edge comes from (e.g., better information acquisition, better analysis, longer time horizons…)?

It is getting more crowded, and a lot of people are selling services they probably shouldn’t and making claims that are frankly downright inaccurate. I think ultimately being a big fish in a small pond, an excessive tolerance for pain, a willingness to suffer through court documents/Edgar filings and being not overly emotional help.

Also, I don’t answer to any investment committee and keep a pretty cheap standard of living (my car is about to hit 200,000 miles and I live next to some trailers), which prevents me from being overly concerned about monthly paychecks coming in.

What are some interesting ideas on your radar now?

Happy to share. These are my two largest positions, although I generally keep ~50 names in my book at any time. Since I like international, let’s do one of those and a domestic one.

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Andrew is currently the CIO of Fairlight Capital, an alternative investment manager based in Greenwich, Connecticut. Before launching Fairlight in 2019, Andrew had 20 years of institutional investment management experience, including time at a hedge fund in London and the asset management arm of AIG. Fairlight’s investor letters are available on its website and they are active @Fairlight_Cap on Twitter, as well as regularly posting on Substack @fairlightcap. Andrew was previously featured on Idea Brunch in December 2022 and the fund has returned 950.7% net of fees since its 2019 inception.

Andrew, thanks for doing Sunday’s Idea Brunch! Can you please tell readers a little more about your background, why you decided to launch Fairlight Capital, and what has contributed to your strong returns?

I originally launched Fairlight Capital with the idea of pursuing old-style value investment, but trying to move it forwards into the current and future markets. Many value investors (including me) start off focusing purely on value, looking for cheap companies, with low PEs, high free cash flow yields, and/or cheapness to their assets. After various experiences and investments, I’ve moved more towards, Growth Equity, GARP, and Quality investing, whilst also bearing in mind momentum factors.

Our investment approach now works along these lines and is typically focused on micro-cap stocks. We don’t have a specific mandate to invest in smaller companies (we can essentially own any public company), but that’s predominantly where we’ve found the best returns. And the best protection against value traps for cheap companies that I’ve come across is to look for companies that are also growing revenues, have some kind of inflection, or a strategic change in their business. That guards against investing in a stagnating cheap company that stays cheap for years.

If the company can grow revenues well above 15%, then even if there isn’t a re-rating the company will appreciate over months and years. And if there is a re-rating then you get a double appreciation in the stock price. The quality aspect, which can include low debt, high cash flow production, good return on equity, high margins, being driven by something special about the business, then gives you a lot of protection and slows down mean reversion in revenue growth, and the income from the company.

These are the kinds of companies that have really contributed to our returns, which are often coupled with market dislike or neglect. Once growth and extreme cheapness become obvious, stock price static friction gives way to dynamic friction and the moves can be quite rapid.

There are a lot of emerging manager equity funds. What are some of the ways Fairlight differentiates itself from the crowd?

I think we try to keep things simple. We aren’t great at predicting complex industries with many competitors, and how difficult dynamics might play out. Or in cases where there are some complex economics, or accounting factors that are forward looking, e.g. trying to predict margin changes in future years, or revenue growth that has yet to kick in. Often the ideas we like best are the ones where the financial results are already obvious and are starting to play out.

A great thesis will be one where a company has pivoted between business segments, re-prioritized a business segment, or changed its strategy and that is just starting to play out. An example of this would be Cematrix, a seemingly boring cellular concrete manufacturer. They have pivoted from lower margin business, standard concrete construction, to highly specialized cellular concrete used in tunnels, highways, overpasses and bridge retaining walls.

Also, as well as trying various angles to scuttlebutt an investment idea, we do try to get a strong business understanding of a company using any alternative public data that is out there, which is perhaps typical, combined with real-world experience of the product or service. What I mean by that is that we will always try a product where it’s possible, or pay for the company’s service to see how it performs and how the company interacts with its customers.

If a company makes dried snacks, or food supplements, we will try them, which gives a lot of data points that you won’t find in an annual report. You get to see how they onboard customers, how long it takes for the product to arrive, the condition, packaging and the performance of the actual product itself. Also, you see first hand how the company deals with aftersales. Does it bombard you with e-mails, or is there no contact whatsoever. And you can then introspect as to whether would be a repeat customer, and how much of the company’s growth is due to real factors, the company’s operations and their sales and marketing process.

When we last spoke in 2022, you described Fairlight’s edge as a willingness to take on liquidity risk and “reputational risk” by owning things other managers avoid because they don’t want to be wrong alone. Is this still the case? Can you share an example?

Yes, we are a specialist investment manager, looking for specific ideas and investments that other managers would not want to look at in areas of the market that they wouldn’t touch. This can be for many reasons, including reputational risk, business risk, meaning they risk losing their job (in the case of an individual), or risk losing their clients (in the case of a firm or investment fund). A good example of this is a South Korean stock we like called Dong A Eltek (DAE) that makes OLED and OLEDoS screens (and is now also branching into Perovskite solar panels).

This is a company that at first might look like a chaebol, family-owned structure, with all the corporate governance issues that would entail. There are many of those in South Korea, but DAE is closer in nature to a western-style holding company, subsidiary structure. They have had good corporate governance, been buying back stock and managing the parent company DAE and their 51% owned subsidiary Sunic System in a responsible way. There should perhaps be some discount for DAE, but at present it trades at a very deep discount at a market cap of KRW 123 billion, with the market value of its Sunic System stake currently trading at KRW 350 billion.

So there is clearly some avoidance of the name from other investors and managers, in the west as well as in Korea. But this is an example of where the discrepancy is large and doesn’t make sense for a successful and growing business. A larger fund wouldn’t be able to justify owning this business, when the investment committee would likely be throwing recent stock price rises of Micron, Nvidia, or SK Hynix back at them asking them to justify not owning those names.

You have previously also said you were willing to go where investors were fleeing, such as Hong Kong, Southeast Asia, OTC names, and other unpopular corners. What is the most disliked or under-researched pond you are fishing in today?

You will likely be able to guess from the previous answer that we still look in East Asia and are currently investigating several names in South Korea. That is a very interesting market and even with recent index gains, it still contains some pockets of extreme value. It is also interesting in that it is following the Japanese model of encouraging better capital allocation with its “value up” program. This will name and shame, and encourage companies to increase their market valuations relative to their book value and discourage build up of passive assets, cash, and the wasting of reinvestment opportunities.

Beyond there, we are expanding our searches into many smaller countries across Europe, South America and Asia. There seem to be a lot of opportunities across a wide range of markets, but being mindful to keep an eye on local legal practices, corporate governance, and capital allocation. We will likely talk more about any themes we come across in the coming quarters in our future writings and letters.

You have previously pitched Monument Mining (TSXV: MMY), Beng Kuang Marine (SGX: BEZ), and Valeura Energy (TSX: VLE) as some of your top ideas. They have risen approximately 460%, 96%, and 64% respectively since your pitch. What went right with these businesses, and where do you stand on these names today?

Monument Mining benefited from a commodities tailwind as the gold price appreciated, but that was a factor over and above the original reason for investing. I originally thought that they were an inflection business which had switched gold oxide to sulfide production. Production has dipped prior to when we were looking this in mid-2024, but was ramping back up as they completed their new production facilities at the Selinsing mine. It looked likely that they could ramp up production over 10koz per quarter and had already reached 7.5 koz.

At the time gold had risen to $2,600/oz and to this implied a revenue base of over $100 million per year, and given their low cost structure (they have a low AISC which combines the key costs in the business), they looked set to earn over $50 million per year. In mid 2024 the company traded between $35 million and $40 million, which was an extraordinary level. So on top of an inflection set up, we also got the gold price appreciation. The business is still cheap, but investors might now feel a lot of the run up in price has captured some of the value, but on many measure it still looks pretty cheap.

Beng Kuang Marine and Valeura are names we still like and hold currently. They have appreciated, but still seem cheap as well. Beng Kuang Marine has re-rated the most, but its full acquisition of the ASOM subsidiary looks set to increase its earnings from 3.5 cents to over 5.5 cents per share annually. And the business is growing well and so this is still good value I think.

Valeura has had some volatility given oil price and geopolitical fluctuations. We talked about this idea and invested last year, so well before the Strait of Hormuz closed up. Our idea here, is that this is a low-cost oil producer and is growing production. It has recently secured deals meaning that it controls a large portion of the Gulf of Thailand oil fields. These are sea oil fields, but it is key to differentiate the nature of these versus deep water oil fields.

The depth of the gulf of Thailand is in the range of just 45-80 meters, versus deepwater areas like the North Sea or Gulf of Mexico that are hundreds or thousands of meters deep. This means that the company can stand oil rigs directly on the sea bed (jack-up rigs) and easily tie-back the pipes and infrastructure to central processing platforms or floating storage units. Overall, this drastically reduces the infrastructure costs for Valeura versus other deepwater producers. It’s not as cheap as Saudi Arabian onshore oil production, but is among the cheapest globally. It is a long distance from the Middle Eastern disruptions, and close to some of the largest energy customers in the world.

Earlier this year, their oil price was pegged to Dubai Crude, which surged at one point to a price of $160 per barrel. Now it tracks more closely to Brent, but still commands a premium as it produces light, sweet crude, which is very easy to refine and process. Production is expanding this year, and the company recently recorded April oil sales at an average realized price of over $110 per barrel. This is likely to mean revert at some point of course, but I think it likely that prices will remain elevated way above the pre-Hormuz crisis levels of close to $60. The equity market still doesn’t seem to be pricing this in, in our view, with the current valuation of $690 million, it could reasonably earn more than $350 million EBITDAX this year.

What are some interesting ideas on your radar now?

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Ralph Molina is an outsourced investment analyst for investment firms and publishes the free High Conviction Investing newsletter. In 2024, Ralph Molina became the youngest individual ever to be elected to the Board of Directors of a publicly traded company. He joined Parks! America (OTCQX: PRKA) as a board member and executive officer to support the company’s turnaround in conjunction with a shareholder activist campaign.

Ralph Molina was then called on by the Board of Directors of Armanino Foods (OTCQX: AMNF) to support their newly hired CEO in the areas of investor relations, strategy, and corporate governance. Ralph Molina famously invested 100% of his net worth into Armanino Foods of Distinction (OTCQX: AMNF) in 2021.

Ralph has four years of experience investing in small/micro-cap companies on behalf of Focused Compounding Capital Management and also lectures at San Diego State University on the topics of competitive strategy, shareholder activism, and corporate governance.

Ralph, thanks for doing Sunday’s Idea Brunch! Can you please tell readers a little more about your background and your passion for small-cap/micro-cap investing?

I worked for a highly concentrated hedge fund called Focused Compounding Capital Management for 4 years on a part-time basis while also doing investor relations at companies like The Cheesecake Factory (NASDAQ: CAKE) and Edison International (NYSE: EIX). Then in 2024, I was nominated to the Board of Parks! America (OTCQX: PRKA) during an activist campaign. After helping with the company’s turnaround effort as a Board Member and Executive Officer, I consulted for Armanino Foods of Distinction (OTCQX: AMNF) to help the Board and the new CEO in the areas of investor relations, strategy, and corporate governance.

My passion for microcap investing really relates to my journey as an investor. I always thought I was going to become a small business owner or entrepreneur because my mentor owned 3 small businesses. Then, my mentor quoted Ben Graham and Warren Buffett told me that a stock is simply partial ownership in a business. He told me that I could be a small business owner simply by buying shares in a small-cap/micro-cap business, instead of fully owning a small private business.

Over time, I also came to love the fact that the small-cap/micro-cap universe is one of the few places left in public markets where you can still find “Hidden Champions.” My investing style essentially comes down to taking a private business approach to public market investing and specifically looking for Hidden Champions.

You famously invested 100% of your net worth into Armanino Foods of Distinction (OTC: AMNF) in 2021. Can you tell us more about the experience and what drove your conviction?

Armanino Foods is a perfect example of my investing style and what I’m looking for: a hidden champion trading at a fair price.

The setup and way to frame the company and the stock in 2021 were surprisingly simple.

The stock was valued at a multiple that was similar to where it had traded in the past, even though Armanino Foods had compounded shareholder value at ~20% for the last decade. Therefore, the key question was: “Will the next 10 years look just as good, if not better, than the last 10 years?”

I spent nearly 100 hours of research on understanding all the nuances of this question. But there were essentially only 5 pieces of information I needed to answer that question with 80–90% conviction that it was a “Yes”:

1. Armanino effectively operated in a duopoly and controlled roughly 50% market share.

2. Its main competitor, Carla’s, entered bankruptcy during my due diligence process.

3. The company had doubled plant capacity in 2017, meaning future growth would require very little incremental capex.

4. The economic value proposition to foodservice operators was extremely compelling: operators could use roughly $0.25 worth of pesto to upgrade a menu item and increase the selling price by around $1.00.

5. The profit pool was too small for large competitors to care about, while the scale and distribution advantages were too difficult for smaller entrants to replicate.

Those 5 factors gave me confidence that revenue growth could continue at rates similar to (or better than) the past, while operating leverage would allow earnings to grow even faster than sales. I also believed Return on Incremental Invested Capital (ROIIC) would be well over 100% as growth occurred on top of an already-expanded asset base. If you look at the financials from 2021-2025, that’s exactly what happened.

When you moved from researching companies to being on the inside of a public company, what part of your investing beliefs held true, and what part turned out to be naïve?

One of the biggest things I learned from being inside companies is that capital allocation is far harder than most investors realize. I think many investors approach capital allocation too theoretically. A lot of people read books like The Outsiders and come away thinking capital allocation is mostly about comparing IRRs, NPVs, and choosing the mathematically highest-return opportunity.

In reality, capital allocation happens inside an uncertain and highly competitive world. Management teams are not allocating capital in a vacuum. Every decision interacts with competitive dynamics, customer behavior, operational realities, industry structure, and long-term positioning.

That’s why I think pairing a book like Profit from the Core with The Outsiders gives investors a much more realistic framework. It forces you to think about capital allocation through the lens of competitive strategy rather than pure finance.

I like to think about this as “strategic capital allocation” or “competitive capital allocation.” Ultimately, management is trying to balance two things simultaneously:

• Protecting and strengthening the company’s moat and long-term positioning

• Still generating acceptable returns on capital over time

And those two objectives are often in tension with each other.

Some companies maximize short-term returns while slowly weakening their competitive position. Others endlessly invest in strengthening the moat without ever generating sufficient returns for shareholders. The hard part is balancing both.

I also learned that investors often underestimate how interconnected everything inside a business really is. Most decisions create second- and third-order effects. One operational decision changes customer behavior, which changes competitive dynamics, which changes pricing power, which then affects future capital allocation decisions. Businesses are much more like interconnected systems than isolated spreadsheets.

When did you learn from being on the inside of a company that outside investors routinely miss? Given your experience in investor relations, what can investors do better to get the most out of management interactions?

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Myles, thanks for doing Sunday’s Idea Brunch! Can you please tell readers a little more about your background, your investment process, and why you decided to launch Value Zoomer?

I got into investing in late 2019 as I started building some savings from my first job bartending. I wasn’t doing valuation, I was reading Motley Fool articles and punting blindly on vibes, and I got lucky enough to get wrecked in my first year, which drove me to actually put the time into learning how to invest properly. I’m still early in my journey but after a rocky first few years my last 3 years have been consistently strong.

My investment process is pretty all over the place. I get ideas from Twitter, from screeners, from reading the ASX and SGX filings every day, and now often like to get Claude to give me random companies or themes to look into. I run long and short. My research process for shorts is honestly very quick. I look at a company for 5-10 minutes and can quickly assess whether I want to short it, but my position sizing for shorts is small (most below .1%). For longs the first thing I do is look at the financials, and if I find the financials interesting I dig deeper. I’m still not a “deep research” guy except with my largest holdings, and even then I suspect I’m going less deep than a lot of analysts. My aim is to figure out what matters in the thesis, and be right about that.

As far as launching the Substack my purpose at the time was simple. I wanted a public ideas track record that I could use to both self assess, and also to be more employable. Writing up an idea forces me to understand the ins and outs enough to present them to a reader. On top of all of this I just enjoy writing up ideas that I find interesting. The substack has been amazing both for building a community of readers who give me feedback on ideas, and also being able to self assess critically my previous ideas.

I’m obsessed with your research on leveraged ETFs, which you’ve called “the highest alpha I’ve ever put out.” Can you please share your main research points on leveraged ETFs and whether you’ve been able to put on real money trades to profit off your findings? Why do individuals keep investing in leveraged ETFs if they are destined to underperform?

The leveraged ETF stuff all started with me reading a paper by Hendrik Bessembinder breaking down the sources of underperformance for leveraged ETFs. One source of underperformance is volatility drag, which is the decay in a leveraged instrument due to volatility (eg 1*1.2/1.2 doesn’t equal 1). While I knew about volatility drag, I (and most people) wasn’t aware of the extent to which financing costs and other unspecified costs cause these single stock ETFs to underperform. Essentially, your traditional leveraged ETFs would leverage an index, and would have access to cheap (50bps above the base rate) financing to build these products. However, the riskier single stock ETFs get charged significantly higher rates, with areas like crypto and meme stocks being charged well upwards of 2000 basis points above the base rate. I haven’t really seen anything else online written about this.

When borrow fees are low enough (and I track the borrow vs underperformance for upward of 170 ETFs) you can short the 2x ETF and long the underlying, and with the right risk management and trading rules make a very decent, low risk, uncorrelated return. I have been running these strategies for around 6 months now and while I’ve had to tweak and adjust at times, they have provided a very reasonable (>10% annualised) uncorrelated, low risk return. As far as why people keep buying them it’s because your average retail investor has no idea how they work. Many of them don’t even know what volatility drag is, let alone embedded finance costs that aren’t disclosed anywhere (which to be honest I think is pretty gross from the ETF providers). Most people see 2x ETFs as too complicated and avoid looking at them altogether, however I suspect that somebody has started paying attention as I have noticed the spreads between underperformance and borrow cost have compressed recently.

Can you tell us a little more about your research, investment, and writing process?

My research process focuses around identifying the core driver of the stock, while assessing the downside. I think I’m very downside and risk focused, and will always prefer a decent return with limited downside to a high return with moderate downside. I will always read the filings, the quarterly and annual reports, transcripts, etc. I try to read about and understand the industry in decent depth as well, and this is a particular area where AI has been a major factor. I don’t like to get into the nitty gritty, I don’t have the time, money or energy to be out there talking to suppliers or employees, and generally avoid approaching management unless I have a specific question. I think most of the best investment theses are pretty simple, and I’m happy to occasionally miss some little detail as long as I’m getting the core drivers of the stock correct. To be frank, as an individual investor with a social life I have to be deliberate with how I allocate my time. For longs, I have 5 different sizes which are speculative .5%, starter 1%, base 2-3%, core 4-6% and conviction 9-10%. I have around 100 long positions, though I’m trying to cut that down a bit at the moment, and I’m open to all types of ideas at any size except conviction positions, which need to have limited downside.

As for the writing process I imagine it’s a bit different to people such as yourself who do it professionally. For me writing is a hobby, so I write when I feel like writing, and I write when I have an idea worth writing about. One common theme across my writeups is that most of them are interesting companies. If I don’t have any good ideas I don’t force anything, which is why I think many of my writeups have performed very well. When I do sit down and write I kind of just shoot from the hip. I write pretty colloquially, and try to keep my ideas succinct and to the point. Most people don’t care about the 50 year history of the company and what the CEO’s mother ate for breakfast last year. My focus is what they do, why they’re interesting, a breakdown of the financials, and a breakdown of the risks with my favourite question in investing “why is this stock cheap?”.

A big theme in your tweets is the impact of AI, especially among your short ideas. What sectors or companies do you see being most hurt by AI?

The AI revolution is probably the most significant technological development we’ve had since the development of the internet. I do find it hard to assess the long term impact. To be honest I don’t really understand how most people have any level of high conviction on how AI and the world will look in 5 years. With regard to AI my focus has been on separating out the obvious losers from obviously defensible companies that are down with the losers, from the stuff that I don’t have a strong opinion about. I try to short all the obvious losers in small size, even as they continue to get cheaper because most people historically underestimate the impact of a declining terminal value on a stock (look at newspapers in the 2000’s). On the other side I’ve been tactically long companies like $SPGI, $MCO, $V, $MA, $ADP, $RDDT which have been sold off on AI fears that I believe are unwarranted due as these businesses have genuine moats protecting them from disruption.

I think one underdiscussed area of AI impact is advertising. Advertising is a natural beneficiary of AI as margin improvements and efficiency gains in other areas will potentially lead to higher marketing budgets. While there will be a huge amount of low quality advertising space generated through low engagement, AI produced content slop, higher engagement targeted content like affiliate marketing ($ZD, $FUTR.L) will see significantly less clicks as people consume them through AI. As an example, when someone is looking for a credit card, instead of them reading a sponsored article comparing credit cards, the AI will read it with no chance of an ad click. Even something like Google search ads could see less engagement eventually as AI disrupts search. The clear beneficiaries here are any companies that hold high quality, targetable ad space like $META and $RDDT, both of which I own. On the other side, companies that use that kind of content to generate leads like LendingTree, EverQuote and MONY.L in the UK could see significant increases in customer acquisition costs.

Another specific area I want to call out here is Australian software. The Aussie share market has been overvalued for a while as superannuation flows prop up our best large cap stocks. Due to a lack of quality growth, any remotely high quality Australian stock has been bid up to the moon historically, to an even greater extent than in the US. While we’ve seen a derating, I believe that the opportunity set on the short side in software is more attractive than in the US due the lower quality of the companies at comparable prices. One specific example of this is Seek, Australia’s dominant job listings website. While Seek does have network effects, it’s not a monopoly with cashed up competitors LinkedIn at the white collar level and Indeed for blue collar jobs. Seek is already at an expensive 22x earnings with low growth for a business that I believe is going to deteriorate due to AI. Employers are already getting steadily inundated by low quality AI presented candidates hurting the value proposition for employers and candidates. Meanwhile, if candidates end up using AI agents to research and search for as we are expecting in many other industries then the value of listings, especially paid ones disappear. Classifieds businesses worldwide are being slaughtered, and Seek is lower quality, lower growth, more expensive, and more exposed to AI disruption than many of them. While Seek is my largest and highest conviction short within this bucket, there are many examples of these kind of lower quality at higher valuation software stocks in Australia that while down a lot, are still being overlooked.

You’ve said your favorite answer to “why is this stock so cheap?” is “nobody is looking.” What are the signs that tell you a stock is overlooked rather than ignored for good reason?

The core of my investment process is built around turning over rocks, with a focus on rocks that aren’t being turned over often. I’m not against investing in large caps, but I need to have a really clear, differentiated view on why the opportunity exists. “Nobody is looking” ideas are my favourite type of idea as they are the only times when you get presented with actual free money, where you get good opportunities without having to take a contrarian view to the market. These kind of ideas pop up most commonly in niche markets like Asian and European microcaps, and occasionally in Australian, Canadian and US microcaps (though less often as even these areas have so many eyes looking over them). I like to look for a lack of twitter comments and substack articles about an idea, but even more notable is watching how it reacts to news. I’ve seen takeover offers, profit guidances or other transformational announcements that have barely moved stocks, and that’s the sign that people aren’t paying attention. The best ideas I’ve had have been cheap, dead money value traps where a catalyst finally arrives after everyone has stopped caring

You have a diverse portfolio – ranging from a small French holding company to Japanese SaaS companies. How are you able to come up with off-the-beaten-path ideas in an industry with so much groupthink?

This is going to sound a lot like me blowing my own trumpet, but I do think I kind of just think differently about the world compared to most people. I’m a pole dancing, finance obsessed, nerd who likes roleplaying games, live music and rugby, and won one of the largest reality tv shows in Australia last year. It’s not just investing, everything I do in life is outside of the box and it’s never really been weird to me, I just do what I want to, how I want to. More specifically with regards to finance I’m self taught. I studied a physics degree and while I picked up a few finance classes, most of my investing ideas have come from a combination of listening to people smarter than me and personal experience. I’m still early in my investment journey, and I’m finding new lessons to learn every year, but I think I go into this whole process a lot more open minded than a lot of people who figure out a specific style or sector and decide that that’s their focus. My investing style is malleable, which makes me able to bounce around between different types of ideas easily.

To be honest, I don’t understand why so many investors gravitate to the same kind of ideas. I’ve always just turned over rocks and gone where I’ve found value, and it just happens that I find a lot more value off the beaten path. One of my largest positions currently is Reddit, so I’m not opposed to owning more popular stocks, but there are thousands of stocks on the market and I find the higher return on time when I’m looking at ideas that are undiscovered so that’s what I naturally gravitate towards. When you hold a large cap stock like Reddit you need to have some serious conviction around what the collective mind of the market is getting wrong because I do believe that while dislocations do happen regularly, as a whole the market is reasonably efficient.

What are some interesting ideas on your radar now?

In the US a stock I see as the anti-AI stock is Reddit (NYSE: RDDT — $30.0 billion). At 25 years old, I like operating in stocks like Reddit where I feel I have somewhat of an advantage in understanding the product and user base over the generally older finance community.

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David is a Croatia-based investor who writes The Mikro Kap, a research publication focused on global micro-caps and deeply underfollowed stocks. David began sharing ideas online in 2023 and launched his publication full-time in 2024 after leaving an equity research role. David is active @david_katunaric on X and his portfolio is up 176% from January 1, 2023, through the end of Q1 2026.

David, thanks for doing Sunday’s Idea Brunch! Can you please tell readers a little more about your background and why you decided to launch The Mikro Kap?

Let’s start way back. My first encounter with the word “stock” came when I was about 10 years old and went to a store to pick up Harry Potter and the Deathly Hallows. I overheard someone talking about stocks and asked my mother what a stock was. Although she is an architect, she was financially literate enough to explain that by buying a stock, you could own a piece of a business you liked. I told her I wanted to buy shares in Algoritam, one of the largest bookstore chains in Croatia and the place where I had bought my Harry Potter book. Algoritam was not publicly listed, but it did file for bankruptcy a few years later. Quite the talented young analyst I was, right?

The reason I share this story is that my actual background is quite boring and follows the kind of textbook path often seen in value investing. The first investing book I read was, of course, The Intelligent Investor. And no, I did not find it boring at all—it clicked immediately. I wanted to analyze businesses, not charts, and I wanted to pay much less than a business was worth.

While I do have some formal background in investing, including a Master’s degree in Corporate Finance and experience as an equity analyst at Croatia’s largest independent asset manager, I do not like to emphasize it online because I do not think it shaped my investing style or helped my track record. If anything, it shaped me by showing me what NOT to do. It gave me a firsthand look at many of the things you read about in books: how incentives in a typical institution are often structured in ways that encourage short-term thinking, subpar decision-making, a focus on the “wrong” parts of the market, and ultimately below-average performance.

Even before I quit my job, what worked for me was focusing on underfollowed corners of the market—areas where you cannot borrow conviction and have to do the work yourself to understand how good or bad the setup really is, and where you are not competing directly with firms that have far larger research budgets.

It was a lonely journey before I started my Twitter and Substack, because the investing community in Croatia is small, the value investing community is even smaller, and once you narrow it further to micro-caps, there was effectively no one to talk to about stocks.

Substack became a way for me to better organize my thoughts around ideas I believed were worth investing in, get pushback on things I had overlooked or misanalysed, and ultimately build a circle of like-minded investors who could bounce ideas off one another.

With some luck, that step has turned out well for me. These days, I probably get just as many ideas from texting with friends I admire, who have a strong eye for a micro-cap bargain, as I do from A-Z research. And there was a time when A-Z research was almost all I did.

I was also fortunate that, while I was still writing for free, a number of people chose to financially support the publication even though they were not getting any content that free subscribers did not already receive. Their support made me think that perhaps I could do this full time, and it ultimately gave me the push to turn The Mikro Kap into a full-time venture.

Can you tell us a little more about your research and investing process?

I’d start by saying that I don’t really believe in a fixed research “process” or investment “strategy.” In my view, limiting yourself to buying or researching only a certain type of opportunity won’t make you a great investor.

It may give you a framework, and those boundaries are sometimes useful, but they are also limiting. That helps explain why many of today’s famous growth investors struggled in the 2000s, and why many historically (seemingly) great value investors have lagged the S&P since the GFC: they did not adapt. There are no proven rules in this game. And if there were, Mr. GPT could simply run through a checklist, and I would have no edge—or a reason to write a Substack.

That said, there are a few principles I place a high value on, even if I remain open to breaking them:

• Illiquidity. I like under-followed companies and obscure setups where I’m not trying to outsmart or compete with “professional investors,” but instead be early to something they’re not yet paying attention to.

• Downside protection. I strongly believe that buying things well matters more than buying good things.

• A clear path to value realization—accelerating growth, improving capital allocation (used to be my main focus), or material corporate actions that eventually force the market to agree with my valuation work.

• Doing deep enough work to be confident in points 1–3, and to know that a lot has to go wrong for the investment not to work out.

At the risk of a shameless plug, and in the interest of not taking up too much of the reader’s time with philosophical reflections they may not care about, I’ve explored this in more depth in my “My Life in Value” article, which is available for free on my website.

To contradict myself a little, though, I would say there are two evergreen truths that can give almost anyone an edge when fishing in micro-cap waters. The first is curiosity—something Greenblatt captures particularly well in his special situations class, on page 245:

“Oh, really? Let me take a look.”

The second is attention span—the ability to research diligently.

So if I had to describe my investing process in a single sentence, it would be this: read, read, read, pass quickly on most ideas, and keep going until something good, cheap, or unusual makes me say “huh?” out loud, at which point I dig deeper to figure out what the “anomaly” is really about.

Opening my eyes to what might be an opportunity on my desk, then doing the detective work needed to figure out what actually matters and how that shapes the risk-reward of a given investment. Ultimately, building enough conviction to decide whether to pass, follow along, or make the bet at the appropriate size.

You have said you like markets where others cannot or will not fish. Which markets or exchanges today are most mispriced to you?

First, I would say that most of one’s edge should come from exploiting single-stock inefficiencies rather than broader market inefficiencies. And IMO the best way to do that is by constantly exchanging ideas with investors you admire and by keeping a close eye on as many stocks as possible that you have already done proper work on. Across any market.

That said, if I had to single out one area today, I would say that Japanese micro-caps are currently the most attractive pocket of the market for investors willing to roll up their sleeves and flip the rocks from A to Z.

Most investors don’t know that Japan, not the U.S., is the market with most publicly listed profitable micro-caps. If you do a simple screen, targeting companies with below 300M USD market cap and with LTM EBITDA of more than 0, your end result will be 762 companies in the U.S. that fit that criteria and 2130 companies in Japan. Almost 3x higher.

Thanks to lack of (proper) private equity competition, less regulatory and financial burden than the U.S. these companies are of higher quality than in U.S. and are not just there to overpromise to investors and dilute the heck out of them. Thanks to less sophisticated local capital markets and foreign competition that finds it hard to overcome language and cultural barriers , these companies tend to trade at a lower multiple.

And thanks to the Tokyo Stock Exchange, the biggest historical weakness of many Japanese companies—their capital allocation—is improving for the better. About three years ago, the TSE began publicly shaming companies that were hoarding too much cash on the balance sheet and failing to generate returns high enough to cover their cost of capital, whether in terms of ROE versus the cost of equity or ROIC versus WACC.

As a result, there is now a higher likelihood that many of these companies will be pushed to improve capital allocation and be re-rated accordingly, making Japan a progressively more shareholder-friendly market over time.

Not to shame them, but I found Japanese investors as probably most short-term oriented and mostly only valuing companies based on P/E, which means there are a lot of inefficiencies that one can take advantage of. It is a case by case basis but I am indeed finding a lot more value there than in other markets in the moment and have initiated two positions there since the beginning of the year.

So, in summary, this combination of a larger opportunity set, higher average quality, cheaper valuations, and less competition from “sophisticated” investors makes me feel good about allocating a significant amount of my time to Japan.

What are some interesting ideas on your radar now?

Let me share a compelling mid-sized U.S.-listed company I currently own that may be compelling to your readers.

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Andrew is an independent global value investor and author of the Underlying Value newsletter. Andrew’s research is focused on finding the “most undervalued public investments” globally. Before becoming a full-time investor, Andrew was a consultant at Accenture, a Vice President at the private equity firm Platinum Equity, a search fund leader and operator. Andrew is also active @UnderlyingValue on X.

Editor’s Note: We are excited to help launch StockPromotionTracker.com, the world’s largest real-time database of paid stock promotion campaigns. If you invest in or short small-cap stocks, visit StockPromotionTracker.com to quickly learn about risks you may be missing.

Andrew, thanks for doing Sunday’s Idea Brunch! Can you please tell readers a little more about your background and why you decided to launch Underlying Value?

For a long time, I’ve been an investor in public markets. That involvement ebbed and flowed based on the time I had separate from my professional endeavors. More recently, I got active again, fitting writing on X and Substack as part of my process.

More specifically, writing is an important part of the back-half where I go through discovery (via following fellow investors, use of tools, watchlists) to validation (diligence, management interviews) to investing. In line with the investing decision, Underlying Value works as a way to outline my thesis. Furthermore, it gets this thesis in front of intelligent people I hope will be vocal when they have an alternative perspective.

Why is this a good time to get back in? For me it came down to investing fueling my passion and energy levels, paired with the leverage you’re able to generate with AI. Previously I felt overwhelmed and outgunned by investors who had deeper resources – teams, tools (e.g. Bloomberg) and connections. Now, I feel like I’m able to use AI as a leverage multiplier to screen, diligence, and monitor companies.

You’ve been involved as an operator of companies both in private equity and in your search fund. How did being an operator change or improve your approach to public markets investing?

Being an operator gives you a sense of how the sausage is made. Speaking specifically to the small cap arena, where I think the most value is present for a small investor, I understand how messy it is to run a small organization. The bigger you get; the more politics is important internally and externally. I hate politics (aka fake posturing and veneer shaping) and overpaying for ownership in a company, so I mostly stay on the small side.

I’d say where I was naïve as a young investor was in my belief that others around me perceived the world as I did. That couldn’t be further from the truth.

I think great investors or new operators/consultants do not come in with deeply held beliefs about an organization or the right way to operate it… they approach the situation from a point of discovery. Almost with a childlike curiosity to understand what the business is and how management thinks and subsequently acts without rigid preconceived notions.

From an ops and investing standpoint, I like to start with very broad, open-ended questions – tell me about the business? Who are your customers? Who are your competitors? How are you different?

Where I think value can be added is by understanding what is critical to a successful investment and drilling deep into those areas of the business to see if you agree with management on strategy and execution. For example, if it’s a company compounding through acquisition, that’s something I’ve been a part of. Being part of a platform, adding smaller companies at a lower multiple, doing the integration across people, process and tech. It’s hard work that involves the whole organization. The first 90-120 days are especially critical as they set the basis for how the organization operates moving forward. It’s a bit like concrete in the sense that once it sets, change is going to be much more difficult. However, most people are expecting (and in my experience, more open) to change if it happens close to the transaction. It gets much harder when you’re two years in and trying to turn the ship.

Pricing is so damn important. I think it’s the most underrated and least talked about aspects of a business and you can learn a lot from how management approaches it. Oh, you have a competitive advantage? What would your customers do if you rose price by 15%? Find me a company that doesn’t lose volume in this case and you probably have a pretty damn good investment as long as the valuation is decent.

In your Skull Sessions interview with Maj Soueidan, you talked about how you use AI in your research process and called AI a “great servant, but terrible master.” Which AI models are you using? What are some of your most used prompts? How should investors be using AI to find and research ideas?

Deep work is through Claude. Quick hits are mostly through Gemini. Notebook LLM when I’m going deep on one company or industry and want to drill into the last five-ten years’ worth of transcripts and financial statements.

About 60 days ago, I made the jump from ChatGPT to Claude. Thus far, I’m glad I did. I’ve noticed an ability to automate much more of my process. Specifically, I’ve set up a couple skills that use my watchlist to generate updates on companies that have a big change in price or material filings.

From a prompt standpoint, it depends on the company and industry.

Where I think the most value will be uncovered is to find those companies with large moats. In these cases, I am trying to find the 1 of 1s that have a long growth runway, sustainable competitive advantage and IP moat that will allow them to compound this over time.

Diligence a moat

To give a tangible example, NKT is a pan-European transmission cable manufacturer. In my use of AI to perform due diligence, I was looking to understand: SWOT analysis. What is their ROA and ROIC versus competition? Where did they face primary competitors (e.g. Prysmian) in public tenders and who won? Was there any summary of the decision on those they lost to understand why? How does their direct current product compare to other options available? What tenders are actively being considered and when will that decision be made? What is their core IP, is it protected across geos, has it been challenged?

Diligence a price taker

If this is a price taker or commodity company, I am understanding how inexpensive they are relative to their peer set. The majority of the time, you will find the most inexpensive option is dealing with the hairiest jurisdiction. Therefore, it’s probably wise to filter any geographies you deem un-investable on the front end to not drag them in (I could do a better job of this… too often I start trying to convince myself why PNG is a safe place to allocate funds!). How I’ve been setting this up with oil and gold producers: cost of production and relative placement on a cost curve, amount of reserves, trailing production versus future guidance (looking for increases and past track record of hitting guidance), PEA or NPV discounted 10-15%, how many sites, management/acquisition/capital allocation history and past financial results.

Part of your process that can’t be automated with AI is meeting with management. Why is meeting with management important and what are you looking for in these meetings? Can you please share an anecdote when meeting management provided an important insight that led to an investment decision?

It is the most important thing you can do. If you ask me the biggest change in my process since getting back active after about a five-year break, it’s 1) AI and 2) the need to have management discussions. In the past, I’d have gotten lazy or bypassed this process. Now, only two of my top twelve holdings are cases where I haven’t talked to management. Unsurprisingly, both of these instances have market caps over $1B.

Yesterday I got off the phone with a small cap CEO I’d recently uncovered and walked away with the perspective there are three aspects of their business worth their enterprise value (+ some real estate). This wasn’t rocket science, it was just walking through the aspects of the business and talking through what they could be worth.

I have little doubt I’m the only investor thinking about 2-3 companies when I wake up in the morning. I try to focus my attention there, even though it takes time to build a position because they’re so tiny.

What are some interesting ideas on your radar now?

First off, I think it makes a lot of sense to invest outside of the United States. When you look at the rich valuations, long-term account deficit, unsustainable fiscal deficit and pivot to an isolationist stance – I’m very cautious of what lies ahead. A very likely result is that we’ll try to print our way out, which is bullish for assets, but that will come with a hornet’s nest of consequences. I realize that will draw a lot of eye rolls, but it’s my perspective. Note: To be fair, I’ve thought this way for a long time and been wrong.

With that said, a couple investments I like:

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Yuval is currently the portfolio manager of Fieldsong Investments, a boutique data-driven long/short equities fund he founded in May 2024. Before launching Fieldsong, Yuval worked for 30 years as a book editor and author of non-fiction books and later helped manage Portfolio123, a small financial technology firm. Fieldsong focuses on “safe, boring, under‑the‑radar” small/microcap companies, plans to cap fund inflow at $80 million, and was up ~57% in 2025.

Yuval, thanks for doing Sunday’s Idea Brunch! Can you please tell readers a little more about your background and why you decided to launch Fieldsong Investments?

I was a math geek as a kid, but put my bent on hold when I went to college; after that I focused mainly on editing and writing. Editors don’t make much money, and professors (my wife was one) don’t either, so for about 25 years we barely got by on cost-of-living increases and a little help from my folks. But the whole time we contributed as much as we could to retirement accounts. In 2013 we went to Bolivia for a year, and the cost of living there was about 20% of what it was in Chicago. I was working remotely and my wife was working part time. And we found we had a bit of extra money. I wasn’t sure what the best thing to do with it was, so I asked my sister-in-law, who was a private banker, and she advised me to invest in ETFs. And then I went down a rabbit hole. I spent all my free time thinking about investing. It was like a new game to me: can you beat the stock market? My previous extracurricular interests—poker, music, film—all took a back seat to my new obsession. Of course, I lost a lot of money over the next couple of years. But in late 2015 it came to me: the best way to invest is to look at every investment from every angle conceivable. And the best way to do that is to use ranking systems, so you can rank every stock on as many factors as possible. After that, I was off to the races. I made so much money that my wife and I were able to retire early. But I couldn’t stay retired for too long. What’s the next thing you do after you prove that you can invest your own money wisely and effectively? You invest other people’s money wisely and effectively! But I had another impetus: I wanted to become a major donor to charity. I established a private foundation with the help of my wife and kids, and I wanted it to eventually give away millions. So that’s why I decided to launch Fieldsong Investments.

Can you please tell us about your research process and how you construct your portfolio?

I use ranking systems on Portfolio123 to choose which stocks to buy and sell. Developing these ranking systems is time-consuming work. I am constantly reading and thinking about investment factors (by which I mean simply a reason to buy or avoid a company’s stock), and most of those factors are dependent on financial statements. So I’ve done a lot of research into what makes sense from an accounting standpoint, and what works in the markets: I do a lot of backtesting. I’ve also had to research various hedges: a short-based hedge to protect the portfolio during market downturns; a currency hedge to protect it from currency risk; and an odd little derivatives-based fillip that makes money during what I call Red Bull markets: periods when investors favor the riskiest stocks, like the ones I short, and shun the kinds of safe stocks I’m long on. Almost all of my research is done using backtesting, but I also have read a lot of investing-related books. The ones which informed my thinking the most are Frederik Vanhaverbeke’s Excess Returns, James O’Shaughnessy’s What Works on Wall Street, Peter Lynch’s One Up on Wall Street, Mihir Desai’s How Finance Works, Charles Lee and Eric So’s Alphanomics, and the works of Michael Mauboussin. I’ve also read a great number of white papers, both academic and investor authored. Lastly, because I’m a writer, I’ve written over a hundred articles on investing, and those are almost all the product of intense research.

As for portfolio construction, I base it on a very simple procedure: buy the five top-ranked stocks and hold them; if you need cash to buy more top-ranked stocks, sell the lowest-ranked stocks you hold. And then I add lots of bells and whistles. I segment my portfolio into ten little subportfolios (by region and by data provider) and use nine different ranking systems to populate them. I weight my positions based on expected return, which in turn is based on rank minus transaction cost. I set optimal weights for my various hedges and leverage use using worst-case scenario backtests and I vary those weights a little depending on market volatility and momentum.

How did 30 years in publishing/editing change how you research companies or your investment process? Did any editorial habits translate directly to detecting “financial storytelling”?

Editing and writing go hand-in-hand. So I had a built-in proclivity to writing about investing, which forced me to do research that I might not have otherwise done. The writing also hurt me, though, because I spilled my secret sauce too frequently. But I don’t think my editorial process intersected with “financial storytelling” per se.

In your recent interview with Maj Soueidan, you disclosed that your quantitative process “uses 200+ factors.” What are some of the most important factors for investment success? How did you come up with these factors and have any changed over time?

Well, at the risk of spilling my secret sauce again, my biggest factors are size-related (market cap and volume), stability-related (especially price volatility), industry-related (I rank industry groups on how well they respond to my factors), growth-related (especially how the latest quarterly report compares to the same report last year), momentum-related (using a number of different measures), and sentiment-related (especially EPS revisions over the last quarter). Of course, I also use value factors like free cash flow yield, forward earnings yield, and my own intrinsic value calculation. And I use a ton of quality factors, most prominently free cash flow return on assets, regular return on assets, free cash flow return on invested capital, gross margin minus industry average, and cash-flow-based accruals. Of all these factors, some are common, some I came up with from things I read or just thinking things through, and all are backtested in combination with other factors. And yes, many have changed over time as I learn more about the data.

Fieldsong takes “no management fee.” What is your current compensation structure and why did you opt for a no management fee approach?

My partner, Scott Beavers (COO), and I were greatly influenced by an article on compensation structures and their history. (It’s here: https://www.guyspier.com/zero-management-fees-a-survey/). Some of the earliest hedge funds used exactly the same compensation structure we use: zero management fee and a 25% performance fee over a hurdle of 6% per year, with a high-water mark so that we don’t make money on returns that make up for previous losses. This was Warren Buffett’s original compensation arrangement when he started his partnership in the 1950s. We believe we should be paid for performance. Why should an investor have to pay someone to manage his money if the manager’s performance is crappy?

What are some interesting ideas on your radar now?

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Desmond is the founder of Overseas Asset Management (Cayman) Ltd (OAM), a Cayman-based boutique investment manager. Since inception in 1998, Desmond has managed OAM Asian Recovery Fund, which invests in open-ended funds managed by boutique investment managers in Asia, closed-end funds trading at a discount to NAV that invest in the region, and listed equities trading a significant discount to intrinsic value. In late 2002, OAM also launched OAM European Value Fund which invests in listed European companies, closed-end funds and family-controlled investment holding companies which he managed until 2023, but with which he remains deeply involved. Both OAM Asian Recovery Fund and OAM European Value Fund have compounded at around 11% per annum in US dollars over just over 27 years and 23 years, respectively, with their NAV/share increasing roughly 18x and 11x since inception. Notably, in light of empirical studies showing that roughly 90% of fund managers fail to beat their comparable passive ETF or benchmark over a decade, both funds are ahead of the returns of their comparable ETFs, net of withholding tax on dividends, in each of the first two decades this century and on track to do so again this decade.

Desmond, thanks for doing Sunday’s Idea Brunch! Can you please tell readers a little more about your background and why you decided to launch Overseas Asset Management?

My finance professor at university, Paul Fenton, sparked my interest in investment analysis. He was unusual in that he founded and ran an investment business in Boston which he sold in the 1970s before switching to academia. Apart from being a finance professor, he had several investment consultancy contracts with UK and European institutions, principally with respect to their US and Canadian equity investments. In my final semester, he was asked by one of his UK institutional clients if he could recommend a student for them to interview for an analytical role in their investment department. That led to me working in London for 2 ½ years, learning investment analysis of UK equities from a very talented team at Clerical Medical.

In the summer of 1986, I visited Cayman and whilst there, a member of senior management at probably the leading trust company in Cayman at the time said that they were looking for someone like me in their investment department. This led to a short interview and a job offer which I initially declined. I am originally from Barbados and although I was educated from the age of 11 in England and Canada, the cold grey winters in London were not exactly nirvana so I subsequently accepted the job offer in Cayman at the end of 1986 and left London. The job turned out to be intellectually unfulfilling and I only spent a year there. Paul Fenton came to the rescue again and I was employed as a roving analyst by one of the earliest hedge funds for which Paul was a consultant. I was allowed to remain based in Cayman but travelled extensively. That role taught me a lot, particularly in analyzing smaller companies in developed markets and larger companies in emerging markets, neither of which had much, if any, analytical coverage at the time. However, I realized that “living out of a suitcase” was not sustainable.

In 1989, I took the bold move of setting up OAM and received a licence to do so days before my 27^th birthday. I looked about 19 at the time so as you can imagine, it was hard raising money. After 3 years, OAM had US$5 million under management. My naïve self-confidence that I could do a much better job of managing equity investment portfolios than the incumbent offerings at that time in Cayman by bank and trust companies was what got me started and kept me going.

Can you please tell us about your research process and how you construct your portfolios?

We do not have a formal or structured investment process and no checklist of questions to ask. Our process is driven more by intellectual curiosity and pulling on strings and seeing where that leads. Having said that, once we discover an area of market inefficiency, we tend to look for further opportunities in that area.

Closed-end funds are one example. In the early 1990s through the early 2000s, there were incredible opportunities in closed-end funds, many of which were not listed but which traded through market makers who posted bid/offer spreads which as we liked to say, you could “drive a truck through”. The market makers were based in London and the funds were generally incorporated in Cayman, Jersey or Guernsey. Our first investment in this sector was in Five Arrows Chile Fund, which was managed by a Rothschild affiliate in Chile, BICE. The Chilean market was trading at about 5x earnings at the time and we bought shares in this fund at a 45% discount to NAV. It was one of our first big winners. Others followed. There was Oryx Fund managed by Blakeney Investors in London which invested in Oman. The Oman market was trading at 10x earnings and a 6% dividend yield but we bought a huge chunk of Oryx Fund at a 40% discount to NAV.

Many of these funds had open-ending or wind-up provisions which created a built-in catalyst for the discount to NAV to narrow or disappear without us having to agitate. In about 2000, I found a closed-end fund listed in Osaka called Asia High Yield Bond Fund which was managed by HSBC and sold to Japanese retail investors. It invested in USD investment grade bonds but the shares traded in JPY. When I found it, this fund was trading at a 55% discount to NAV, and it had an open-ending or wind-up vote in a couple of years. We bought shares daily through a trusted broker in London (with whom we still do business) and were able to invest about $10 million for clients before the discount narrowed significantly. I asked the broker to promise me that he would not share this idea with any of his clients if we gave him exclusivity on the brokerage to buy these shares. Then, we found another similar fund, also listed on Osaka, called Asia Bond & Currency Fund, this time at a 45% discount. It was managed by Jardine Fleming and it too had an open-ending or wind-up vote in a couple of years. I remember going to see HSBC and Jardines in Hong Kong to verify my interpretation of the prospectus and Memorandum & Articles of Association as it seemed too good to be true. We made about $20 million or 100% return for our clients within about 2 years in these two low risk investments during what was a pretty bad bear market. Neither closed-end fund was held by OAM Asian Recovery Fund as it invested in equities, not bonds, but our clients benefited through their segregated accounts.

At the time, and for the first 10+ years, we managed segregated accounts for clients and the Asian and European funds were only launched at the end of 1998 and 2002 respectively because prospective clients wanted to see an audited track record. The funds also simplified our admin processes as OAM grew.

The two funds have a more structured approach than our earlier days. The Asian fund invests in three segments, the largest being funds managed by boutique fund managers who we consider exceptional in their specific area of expertise. We focus on managers who have deep knowledge and understanding of companies serving the Asian consumer as we think this is where the most durable moats can be found, and it seems highly likely that consumer spending as a share of GDP in the region is likely to grow over time. With a double layer of fees, it is difficult for what is in large part a fund of funds to outperform its benchmark so we mitigate this by backing boutique managers early and generally get favorable terms as founding investors. The other two segments in which our Asian fund invests are closed-end funds trading at a discount to NAV or listed companies that we think are decent businesses and well-run which are trading at or below our estimate of liquidation value. In terms of structure and risk control, OAM Asian Recovery Fund has a limit of investing no more than 40% in each of 3 geographic regions: Greater China, consisting of China, Hong Kong and Taiwan; the Indian sub-continent which is almost entirely composed of India in our case; and ASEAN and other, namely Korea. This discipline, though sometimes restrictive, keeps the fund well diversified as geopolitical risks are undoubtedly higher now than even 5 years ago and we have no way of handicapping this risk.

The European fund, since Day 1, has segmented its portfolio into market leaders and consolidators; deep value; family-controlled investment holding companies; and closed-end funds and investment trusts. There are factors we look at such as insider buying, alignment of interest, corporate governance, withholding tax rates on dividends or other tax considerations, barriers to entry, pricing power, quality of management, and many other factors than any good analyst will consider. We look in places where market inefficiency is most likely to arise such as spin-offs, companies with no or little analytical coverage, businesses which are listed in one market but do most or all their business in another market, companies with dual classes of shares, and so on. A few examples of this are Standard Chartered and Wilh Wilhelmsen.

Standard Chartered is listed primarily in London but does most of its business in Asia. It is led by Bill Winters who first came to our attention in Gillian Tett’s book in 2009, “Fool’s Gold”. We think he is a first-class banker and leader. We were able to buy Standard Chartered at about half book value and wait while Bill Winters turned around what is an excellent banking franchise. The reports that I had from clients and people I met in Asia was that he was doing an excellent job. This is now our European fund’s second largest holding, even after trimming the holding.

Wilh Wilhelmsen is our largest holding. The Wilhelmsen family is a multi-generational Norwegian shipping family with an impressive track record. Yet we were able to invest in their listed family investment holding company at a nearly 60% discount to NAV, and even today, the discount remains at around 40%. Our longstanding investment in Wilh Wilhelmsen led us to invest in three Norwegian companies operating in the car carrier business, starting with Wallenius Wilhelmsen during the depths of COVID. It was trading at 0.15x book value and we determined they were very unlikely to go bust and that there was likely to be a shortage of car carriers in a few years, which turned out to be the case. We sold the last of these investments late last year and generated an IRR on the three investments as a package of over 100% per annum. Whilst we have trimmed our shareholding in Wilh Wilhelmsen, we still think it is undervalued and owns an attractive collection of assets.

In your January 2026 Chairman’s statements for both OAM funds, you mentioned that nearly 30% of each fund’s shares are owned by OAM’s directors, employees and their spouses. Has this large insider alignment in your funds always existed? What are some other ways you differ from traditional asset managers?

Whatever money I had when I started OAM, I used to buy a condo and fund OAM’s start-up. When OAM Asian Recovery Fund was launched in 1998, I put all my accumulated savings into the fund and added to my investment in this fund and OAM European Value Fund over the past 27 years. Our non-executive directors and most of OAM’s employees have also invested a significant portion of their net worth in our funds. One of the first things we look at when considering an investment is incentives and alignment of interests. We think it is telling that directors and employees have chosen to invest their own savings in our funds.

I think OAM is probably unusual in that we have low client turnover, low employee turnover and low portfolio turnover. Our average client relationship is probably 15-20 years. We only have 5 employees and 3 of us have been here for 16,21 and 36 years. The average holding period for our investments in both funds is probably approaching 10 years. It is unusual for anything close to 20% of our portfolio to turnover during any year. These factors allow us to take a long-term perspective when making investment decisions. Studies suggest that this is a key factor in determining which of the few investment managers add value after fees and expenses over a decade or more. Apart from the likes Berkshire Hathaway and endowments which have the luxury of a pool of captive assets, we think owner-led boutique investment managers are the most likely to add value within an open-ended investment structure.

International markets have historically underperformed the U.S. stock market. Do you think this will continue? Why is now a good time to invest in Europe or Asia?

For about 15 years until the end of 2024, US equities were the only game in town. US equities peaked then at around 70% of the MSCI World index, a proportion we do not expect to see for a long time, if ever again. The gap between equity valuations in the US and Asia, Europe and emerging markets was close to the most extreme that we have seen in my more than 40-year career. Moreover, value stocks and smaller companies in these markets were at an even greater discount. Finally, the US dollar was very expensive against virtually every other currency in the world. We travel a lot and could see this on the ground in terms of purchasing power parity. US dollar strength was driven by massive capital flows to the US. From 2007, the net international investment position of the US widened from -10% to around -90% of GDP today. We expect this to reverse as capital flows the other way. If we are right, this should cause the US dollar to continue to weaken and non-US equities to outperform US equities for many years, though obviously not in a straight line.

An important point to consider is that equity returns are driven by EPS growth, the dividend yield net of withholding tax, and P/E re/de-rating. For non-US equity returns measured in US dollars, there is a fourth factor, currency re/de-valuation. For Asian and European equities, certainly as far as our funds are concerned, both currency devaluation and P/E derating were headwinds to our funds’ returns from 2014-24. This changed last year and we expect tailwinds from both factors over the next 5-10 years. P/Es and currencies move in long cycles and we think we are much nearer the beginning than the end of the upcycle for these two factors vis a vis our funds.

Another factor to consider is that US equities are very expensive on every measure we look at by historical standards whilst most equity markets outside the US are still reasonably priced, even after last year’s strong returns. Value still looks cheap relative to growth on a historic basis while small looks cheap versus large in terms of factors on a historic basis. This, and the record high concentration of the US equity market have no doubt been driven by the increasing share of passive investing versus active. We avoid crowded trades and seek overlooked investments. US equities now comprise a record 45% of US household assets. In contrast, domestic equities comprise around 5-10% of household assets in the UK & Europe and Asia. This share is starting to increase from a low base. Foreign investors also have low exposure to UK & European and Asian equities. Until about 18 months ago, China was deemed uninvestible, and even after the strong run in Hong Kong & Chinese equities, foreign money is only now starting to trickle in to their stock markets.

The fundraising environment for Asia ex Japan equity managers and European value managers is very difficult, and as a result, we are seeing exceptional terms being offered to founding investors like us in new Asian fund launches by seasoned investment managers. An interesting anecdote worth relaying is that my colleague, Camilla, and I were invited to and attended a value investing symposium in Europe this past summer which served as a forum for investment managers to exchange and pitch investment ideas. Almost every idea was a US company and a couple of the ideas pitched were Costco on 50x earnings and Tesla on 200x earnings (maybe more). This, and other similar examples, suggest to us that everyone is on one side of the boat, and we do not want to be on that side.

In the OAM Asian Recovery Fund, part of what you do is select funds run by boutique investment managers in the region. What qualities do you look for when allocating to managers in Asia? What does your diligence process look like?

We need to understand the investment process and be able to identify the edge a manager possesses. Alignment of interest is also paramount. The manager(s) needs to have a high proportion of his or her net worth invested in the fund. We insist on a strong bottom-up process where the manager can demonstrate that they know the business in which they have invested better than virtually anyone else. We also look for managers who engage constructively with senior management to improve capital allocation when necessary, while focusing in the first instance on strong operational management. We avoid managers who have a significant exposure to commodity-type businesses. Some kind of moat that gives the businesses pricing power is important. Most of these businesses are consumer facing and as mentioned, we think consumer businesses in Asia have a tailwind that from rising consumption as a proportion of GDP in what are amongst the fastest growing, most dynamic economies in the world. Finally, we pay close attention to management fees and fund expenses and have passed at many seemingly attractive funds where we think the fee structure is too high.

You say that OAM Asian Recovery Fund also invests in listed equities in Asia. Can you give us an example of such an investment and explain your investment thesis?

A good example is COSCO Shipping International (Hong Kong: 0517 — HKD 10.5 billion). We started buying shares in 2014 at below HK$3.00. The company had net cash of HK$4.00/share. It made money every year in the previous ten years. The company paid a dividend, not as high as we wanted, and it is a capital-light services business so there was no need in our view for them to hold that much cash. It is majority owned by COSCO, the large Chinese state-owned shipping company so we knew that they would do exactly what they wanted. In 2019, the share price dropped to around HK$2.00 and we bought a lot more shares on the way down, accumulating a stake equivalent to more than 2% of the free float. That year, I started to engage with the company when I visited Hong Kong and tried to persuade them to do three things: repurchase and cancel shares, move to a 100% dividend payout ratio, and put in place a share option scheme to incentivize senior management. We also wrote to the Board of Directors of COSCO. It took a while, but all three things have since happened. In the interim, we collected handsome dividends, all of which flowed to us because there is no withholding tax on Hong Kong dividends, and the company’s share price is now around HK$7.00. This shows the importance of both patience and constructive engagement.

In 2025, we think the company will generate close to HK$0.50 in operating after-tax earnings (ex interest income) per share and they still have around HK$4.00/share in net cash. We think the company’s intrinsic value is roughly HK$10.00 so it remains undervalued but without any remaining visible catalysts for this to be realized. We sold a big chunk of our holding, but still own shares. The reason for the sales were because our Greater China exposure hit our 40% limit and because we found two other opportunities that we felt had greater upside. One was Mandarin Oriental where we made over 100% return in less than a year which was taken private by Jardine Matheson before we had a chance to build a proper holding. Rather than give up on the investment in what we felt was a decent and massively undervalued business, we bought more shares and have so far generated a high teens IRR on our investment.

After more than 40 years of investing internationally and allocating capital, who are some other investors or operators you admire most?

My three heroes in the investment business are Warren Buffett, Sir John Templeton and Jeremy Grantham. There are numerous reasons for this admiration, but one worth citing is that they were naturally frugal and lived relatively modest lives, living well below their means and remaining grounded. Whilst they were frugal in this sense, they treated others generously, gave away a lot of money, and shared their knowledge with others.

Amongst Asian managers, I have known Cheah Cheng Hye, Richard Lawrence and Claire Barnes for at least 25 years. They are all brilliant investors and wonderful individuals who I look forward to seeing whenever I am in Asia. There are other managers who I have known for 10-25 years, such as James Hay who you recently interviewed, that I think can emulate the track records of these brilliant investors and we hope to continue joining them for the ride.

What are some interesting investments in the OAM funds now?

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Ameya, it is great to have you back. 2025 was a strong year for Multiples Capital with a 35.6% absolute return. Can you share more about your “Opportunistic Multi-Asset Strategy” and how it performed so well?

It’s great to be back. 2025 was certainly a defining year, but for me, the most rewarding part wasn’t just the 35.6% absolute return, it was how it was achieved. The hallmark of the performance was generating high-quality, risk-adjusted alpha without leaning on the crowded ‘Magnificent 7’ trade. In fact, while the headlines stayed focused on those tech titans, the reality was that five of them actually trailed the S&P 500 last year.

The multi-asset approach allowed me to look where most weren’t. I found significant alpha in the precious metals complex, driven by global de-dollarization trend, and in industrial metals, which acted as a derivative play on the massive electricity demands from the AI data centers ongoing boom. I also moved into global defense plays as US is looking to pull out from its role as the global police, as well overlooked sectors like shipping, which thrived on geopolitical volatility.

By diversifying into these macro themes and attractive ex-US market valuations, I was able to offer my investor partners a much ‘smoother ride.’ We ended the year with a monthly standard deviation of just 2.49%, about half the turbulence of the S&P 500, resulting in a Sharpe Ratio of 3.15.

In our November 2024 interview, you pitched Garrett Motion as a top idea. Since then, the stock is up ~170%! What went right with Garrett Motion, and where do you think the stock goes from here?

I appreciate you bringing up Garrett Motion (NASDAQ: GTX — $3.87 billion). While the ~170% gain is a highlight, I think it’s only fair to mention that my other pick, MGM Resorts (NYSE: MGM — $9.43 billion), has remained relatively range-bound. However, the success of Garrett has more than compensated for that.

What went right was a ‘perfect storm’ of three catalysts that was anticipated: index inclusion, fundamental resilience, and aggressive capital allocation. The narrative shifted in Q2 when GTX joined the Russell 2000, which provided the institutional liquidity a business of this quality deserved. Operationally, the ‘EV-only’ fear proved premature. We’re seeing a ‘long tail’ for internal combustion, specifically through turbocharged hybrids and Range Extended Electric Vehicles (REEVs) in the US and China.

Management also put on a masterclass in shareholder yield, reducing the share count by 43% over three years. However, investors should note the profile has changed. A year ago, this was a deep-value play at a 20% free cash flow yield; today, after this meteoric run, that yield has normalized to around 9%. While I expect the company to continue performing well operationally, it no longer offers the same combination of a ‘coiled spring’ valuation + near term catalyst that made it a top idea last year.

In your Q3 2025 investor letter you called out several SAAS companies as “AI Losers” well before the recent stock collapses in software companies. Do you still hold this view? What is the market not pricing in regarding AI, and do you see any opportunity?

I believe the market began sniffing out the existential threat AI poses to traditional SaaS models back in 2025, and that trend has only accelerated. I think it is a loser’s game to try and pick winners in a space where competitive moats are being fundamentally rewritten.

However, the market is likely misapplying those same AI fears to non-software businesses, such as in logistics, insurance, and travel. I see AI as a net tailwind and a productivity tool in these other sectors.

Expedia (NASDAQ: EXPE — $26.4 billion) is a prime example of this mispricing. It is currently down 33% YTD and trading at a remarkably attractive 12%+ free cash flow yield. Meanwhile the company is growing top-line revenue at high single digits, earnings at a double digits rate and continues to use over 60% of that free cash flow to aggressively buy back its own stock.

The view that Expedia is a simple ‘online aggregator’ vulnerable to AI search is a fundamental misunderstanding of its model. Expedia is more of a platform. It not only provides a significant distribution channel for hotels but also acts as the ‘merchant of record’ by managing the entire transaction lifecycle from payments to customer service. This is a complex operation that is not as easily replicable as writing new code. There is a reason why Expedia and Booking holdings effectively operate as a duopoly.

Expedia’s real crown jewel, however, is its Business to Business (B2B) segment, which effectively serves as the ‘back-end’ for the global travel ecosystem. The company provides the inventory and technology for thousands of partners, including airlines, financial institutions, and offline travel agents. This segment now accounts for 37% of total revenue and grew 24% in Q4 2025, marking 18 consecutive quarters of double-digit growth. Today Expedia’s white-label services power Marriott’s vacation packages portal and AmEx’s Corporate and Leisure bookings platform to name a few.

Expedia has also proven to be remarkably recession-resistant. During the Great Financial Crisis, while hotel revenues plummeted, Expedia’s revenue actually grew by 14% over 2009-10 period. Hotels become more reliant on Online Travel Agencies (OTAs) in an economic downturn and increase their marketing spend on these platforms to fight for a larger share of a shrinking pie.

Following a multi-year tech stack unification, I see Expedia leveraging AI to drive internal efficiencies. The company is using the technology to improve developer productivity and customer service resolution.

The market is giving us a high-quality, cash-generative business at a deep discount due to generalized AI anxiety. In my view, AI is more likely to replace Google search’s current function in helping travelers reach hotels listed on Expedia rather than replace Expedia’s position as the essential plumbing of the travel industry.

That definitely puts a different light on Expedia’s business than what is conventionally known. Do you have another interesting idea for our readers?

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James is currently the chief investment officer and director of the Pangolin Asia Fund, a long-only Southeast Asia equity fund he founded in August 2004. James lives in Kuala Lumpur and founded it after successfully investing his own capital in the region. Since inception, the Pangolin Asia Fund has delivered an annualized return of 8.6%, net of fees.

Editor’s Note: We very much enjoyed publishing this interview with James Hay. If you know of any great investors with a track record of outperformance, please nominate them for Idea Brunch by emailing edwin@585research.com

James, thanks for doing Sunday’s Idea Brunch! Can you please tell readers a little more about your background and why you decided to launch the Pangolin Asia Fund?

I’m British and first started working on Asian markets in London forty years ago in 1986 for a unit of Barclays Bank (BZW). It wasn’t a choice – they just told me where to sit and that was on the Asian desk.

I realised very quickly that I enjoyed analysing companies and even more so, visiting them on my trips to Asia. I always learnt so much during my visits and felt it was such a privilege to be able to sit down with a company’s senior management. I mean, surely they had more to do?

I moved to Malaysia in 1993 thinking I’d only be here for two years! Thirty-three years later, I’m still loving living in Kuala Lumpur. I became a research-focused equity salesman, visiting companies in the mornings and calling my clients in the UK in the afternoons. Malaysia was in a huge bull market in the 1990s and, incredibly, was 24% of the MSCI Asia ex-Japan Index at one point. I think it’s maybe a little over 1% now; so small that most don’t even bother with it.

Then the Asian Financial Crisis hit us in 1998 and I was made redundant. I didn’t own shares at this point but I could see that this was a huge opportunity. I invested every penny I had, pretty much at the low, in around five companies and went backpacking for a year. Twelve months later they had doubled and by 2004 I’d made 11x my money. In 2002 I started to buy some Indonesian shares, some of which are now in the Pangolin Asia Fund. The valuations were incredible then – PEs of 2x etc. They hadn’t seen an analyst for four or five years.

My friends started to tell me I should start a fund. Many suggested a 130/30 hedge fund but I didn’t want to hedge. I wanted to continue to invest in the undervalued. I was in a fortunate position to be able to launch a fund with almost no outside money, having made enough in the previous six years to be able to finance the business.

We’ve never taken commission cuts, offered side letters or managed accounts in order to attract funds. All our investors pay the same fees, however large they are. To be able to be fair to all is a luxury, but I think it feels a lot better as a manager. Many of our Day 1 investors remain with us and I consider them to be my friends.

You’ve been in Asian markets since the mid-80s and living in Malaysia since 1993. What did living through the Asian Financial Crisis teach you that still shapes your investing today? How has the region evolved over time?

The Asian Financial Crisis (AFC) taught me that there is always a recovery, despite the prognosis at the time. And by focusing purely on a company’s fundamentals I could distance myself from the noise. For well-managed, cash-rich companies, crises throw up many opportunities. There will always be crises so one needs to be positioned to get through them and emerge stronger. The best managements will do that for you.

In 1998 I moved from owning no shares to being fully invested. But the Road to Damascus moment for me was during the NASDAQ crash in 2000. NASDAQ fell 85% or so and all markets fell by a lot. My portfolio lost 30% but I just thought “this is great, my dividends will buy more shares for less.” That’s when I realised what kind of investor I am.

Your research process seems intensely field-based, with repeat company visits and attending annual meetings (AGMs) in person. What do you learn from visits that you can’t learn from filings? Can you share any stories of red flags or positive signs you discovered on these in-person visits?

One learns how management is thinking by talking to them. A company can look great on paper or a screen, but if the management is planning to reinvest their cash in something totally unrelated, or is planning to go on the acquisition trail etc. then that is very different. I think it’s important to know how the decision makers are thinking. We’ve normally determined that a company is a good one before we even see them. The question is if the company will remain one.

There have been so many red flags over the years. I remember we were close to investing in a company that manufactures vacuum cleaners for Dyson. At our meeting we learnt that they were planning to invest their surplus cash into an Indonesian plantation. Which they did and it was a disaster. Fortunately, we hadn’t invested.

If you own shares in a company I believe you must attend AGMs. It is your chance to meet management, grill them, praise them and criticise them. This is when you can learn so much about how they are thinking. It is your chance to bypass the Investor Relations people and talk directly to those in charge. You can and must also grill the independent directors. Are they really independent and likely to put up a fight against the major shareholders in order to protect the interests of the minorities? Or are they retirees happy to keep their heads down and supplement their pensions with their directors’ fees, thus effectively being more “dependent” than “independent.”

Brokers’ research analysts don’t attend AGMs. By going, you’re putting yourself ahead of them.

After over two decades of meeting management teams in the region, I’m sure you have met some incredible operators. Who are some of the other operators or investors you’ve met that impressed you the most?

I’m slightly removed from the investment management industry by living in Kuala Lumpur, which is rather a backwater. Claire Barnes of the Apollo Asia Fund was my inspiration and benchmark. I also think what Desmond Kinch has achieved at Overseas Asset Management is more than noteworthy.

In your December 2025 letter, you said you believe your holdings trade at a very large discount to what an independent buyer would pay. How do you estimate a “private-market bid” value for your holdings? Do you ever push management teams to make changes to realize that value?

We constantly assess all our companies. If there’s something in the portfolio that I don’t believe an independent buyer would pay substantially more for, then we shouldn’t own it.

In Malaysia, the Swiss parent of DKSH Malaysia is attempting to take it private at a 25% premium to the pre-bid price. We think the company is worth more than double its pre-bid price. We have enough shares to block the bid, which we will do. Actually we have no desire to sell DKSH Malaysia. It is growing at a decent rate and picking up new clients regularly. Having bought into a company, if we’ve got our analysis right, there’s little incentive to sell unless any offer is at a substantial overevaluation.

To the second part of the question, we often encourage management teams to increase the shareholder returns via dividend payouts. We own net cash companies which generate more cash every year. The problem we have is with companies sitting on this cash. Academically, it has been shown that cash paid out is valued at 4x cash retained. But in ASEAN we find that cash sitting on a balance sheet is valued at ZERO or sometimes less than zero. The cash is often in the control of a single major shareholder and the risk is that they buy something which destroys our value.

What are some interesting ideas on your radar now?

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Since inception, Summers Value Fund has generated a total return of 136% net (12.0% annualized net) with an uncorrelated profile relative to its small-cap benchmark. The firm uses a fundamental research process to identify special situations within the healthcare sector to build a concentrated portfolio of stocks with the potential to outperform the market over a three-to-five-year period. Andrew serves on the boards of both public and private companies and has led multiple activist campaigns over his career.

Can you tell readers a little more about your background and why you decided to launch Summers Value Fund?

I grew up in a small town in Wisconsin in a traditional middle-class family, where sports played a central role in my life. I was the quarterback on my high school football team and captain of the basketball team, experiences that instilled the importance of preparation, effort, communication, and teamwork—principles that continue to play a role in my approach to investing.

My interest in investing began early. In sixth grade, my grandfather purchased my siblings and me our first stock—a regional utility company that was unglamorous but paid a reliable dividend. That simple investment sparked a lasting fascination with how businesses operate and how their fundamentals translate into stock prices. I opened my first brokerage account in college using savings from part-time work, sourcing stock quotes from the Wall Street Journal and Value Line in the school library.

While in college, I served as president of the Finance Association, the largest student-run organization on campus. I was responsible for recruiting guest speakers from across the finance industry, which gave me valuable exposure to a wide range of career paths. Through these conversations, it became clear which roles were not a good fit for me. One speaker, however—an equity analyst at Strong Funds (now Wells Fargo Asset Management) in Milwaukee—made a lasting impression. After dinner with him, I knew equity research was the right path, and I began immersing myself in the discipline.

That decision led me to business school at the University of Wisconsin–Madison, where I participated in the Applied Security Analysis Program, a rigorous, fundamentals-driven investment curriculum. I began my professional career in 1998 as an equity analyst on the healthcare team at INVESCO Funds Group in Denver. Over the years, including time at large asset managers such as Janus Henderson, investing has remained both my profession and my passion.

I founded Summers Value Fund to capitalize on persistent mispricings in small-cap healthcare stocks. Having worked at large institutions, I saw firsthand that companies with market capitalizations below $2 billion were often overlooked—not due to lack of opportunity, but because they were too small to meaningfully impact large pools of capital. My thesis was straightforward: a disciplined, institutional-quality research process could generate attractive long-term returns in this underfollowed segment of the market.

At the same time, I observed increasing short-termism across the investment industry, where investment horizons were compressed, leading to poor outcomes. To counteract this, we structured Summers Value Fund with three- and five-year capital commitments to better align incentives and encourage patient, thoughtful decision-making. Today, nearly 90% of our capital is committed for five years.

Our investor base consists primarily of high-net-worth individuals, followed by family offices and registered investment advisors. We have seen growing interest from RIAs seeking differentiated strategies for client portfolios, particularly as a complement to allocations heavily concentrated in large-cap technology.

Alignment is a central tenet of our philosophy. My family is the largest investor in the partnership, and that alignment has been a meaningful driver of our success.

Outside of investing, I enjoy exercising, fly fishing, and collecting vintage basketball cards. I live in Colorado with my wife and three sons, where we embrace an active, outdoor lifestyle.

Can you tell us more about your investment process? Does the lack of Wall Street coverage make sourcing ideas more difficult?

We are fundamental, long-term investors with a value mindset. We look for companies undergoing positive change that is not yet reflected in the stock price. We favor businesses with a history of free cash flow generation, strong balance sheets, and management teams whose incentives are aligned with shareholders. What we are really looking for are companies with underappreciated or mis-understood earnings potential. In the long run, stock prices follow earnings. As investor perception towards a company oscillates from negative to positive, we expect to benefit from a multiple re-rating that can amplify a stock’s return potential.

The types of change we focus on include new management teams, spin-offs, carve-outs, operational turnarounds, and business model pivots. Market structure has changed meaningfully over the course of my career becoming more quantitative and algorithmic. We study qualitative factors to anticipate a company’s future earnings and cash flow generation capabilities before it shows up in a company’s reported results. We hold a portfolio of eight to twelve special situations within the healthcare sector at any given time.

The lack of Wall Street coverage does not make sourcing ideas more difficult—in fact, it often creates the opportunity for a mispricing. I have been investing in this sector for almost thirty years, and we are very comfortable doing our own work rather than relying on sell-side analysts to tell us what a business is worth. As asset managers continue to consolidate and grow larger, fewer investors are willing or able to spend time on sub-$2 billion market cap companies. That structural void is exactly where we operate.

Can you tell us about your experience with activist investing and serving on company boards? Has it changed your approach?

We have run two activist campaigns since inception. The first was unsuccessful, and we took a loss, but the learnings were invaluable. The second campaign has been extremely successful. There is a lot more we could do on this front, but the gating item has been attracting the capital required to run a successful campaign and drive positive change at a larger company. In the past, private equity investments traded at a discount to public company valuations, but today that situation is reversed. We see high quality public companies trading at a discount to private market valuations – in some cases, a significant discount. Using activism to drive change can unlock shareholder value.

I currently serve on two corporate boards: one public and one private. Being in the boardroom provides a very different perspective on how decisions are made behind closed doors—how trade-offs are evaluated, how messaging is shaped, and how incentives truly work. That insider’s perspective has materially improved my ability to interpret press releases, strategic announcements, and governance dynamics as an investor.

You mentioned attending the HIMSS conference and doing field work. How important is that to your diligence process?

It is extremely important. Healthcare businesses are complex, and financial statements rarely tell the full story. Getting out into the field—attending trade shows, speaking with customers, sales reps, competitors, and former employees—gives us a real-world view of what is happening on the ground. We also interview doctors and other medical professionals to understand the market potential of drugs and medical devices.

At HIMSS, for example, conversations with hospital IT buyers and salespeople helped us understand which vendors were gaining traction and which were losing relevance. In other cases, customer conversations have helped us gain conviction during periods of short-term volatility—or avoid investments entirely when reality did not match management’s narrative. Field work is often the difference between surface-level understanding and true insight.

You’ve had three consecutive profitable years shorting healthcare companies. What’s been the key to success?

Selectivity. Our short book is smaller, and more catalyst-driven than our long book. I have been shorting stocks for over a decade, and I have a healthy respect for how difficult it is to do well consistently.

We have found success shorting pharmaceutical and biotech companies with new product launches where sales expectations are unrealistic. We have also done well shorting companies with weak balance sheets and deteriorating business fundamentals. We have learned that valuation is rarely a sufficient reason to be short. We look for an event that can serve as a catalyst to draw the market’s attention to a company’s shortcomings.

Why did you choose a 1% management fee and 20% incentive fee after a 6% hurdle? How do you differ from traditional funds?

We endeavor to treat our investors fairly in every aspect of our business. I have been on the other side of the table where fees were excessive and communication was poor, and that does not build trust.

Our fee structure encourages a performance-based culture while allowing us to run a high-quality operation. Importantly, we pay all operating expenses—including fund administration, audit, tax, and legal—out of the management fee. We have never charged our investors anything beyond the stated fees. We communicate openly and transparently, and we take client service very seriously.

Our portfolio—long and short—looks nothing like an index or an actively managed mutual fund. Being different is necessary, but this is not sufficient in isolation. We also need to be better. Since inception, our net performance has materially exceeded small-cap benchmarks.

What are some interesting ideas on your radar now?

Several years of small-cap underperformance, combined with the recent sell-off in the healthcare sector have created an especially attractive opportunity set. We are currently generating more compelling ideas than we have capital to deploy. Given our concentrated approach, maintaining discipline is critical, particularly when opportunity is abundant.

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Ian is currently a private investor living in Colombia, focused on Latin American equities. Ian previously worked as an analyst at Kerrisdale Capital and now writes Ian’s Insider Corner, a newsletter focused on Latin American stocks. Ian is active @irbezek on X and was previously featured on Idea Brunch in November 2023.

Editor’s Note: We very much enjoyed publishing this interview with Ian Bezek. If you know of any great investors who live in dynamic emerging markets, please nominate them for Idea Brunch by emailing edwin@585research.com

Ian, thanks for doing Sunday’s Idea Brunch again! Can you share with readers a little more about your background and why you decided to relocate to Colombia?

I got an economics degree and then worked at a NYC-based hedge fund out of college. While in New York, I realized I didn’t want to be in the hedge fund analyst lifestyle for many years before being able to afford a house, have time for a family, and pursue other life goals. In 2014, I took a year to go traveling in South America and learn Spanish. While in Colombia, I met my future wife. We lived in Argentina, Guatemala, and Mexico for a few years but ultimately decided to relocate back to where her family lives after we got married. I’ve been in Colombia full-time now since 2018 and have been publishing Ian’s Insider Corner since 2016 along with managing my family’s money.

What was the reaction in Colombia to Maduro’s recent removal? Do you think we could see further leadership changes in Cuba, Colombia, or Nicaragua in the near future?

Overwhelmingly positive. Polling firm Altica found that 77% of Colombians approved of the action, with only 10% against. Similarly favorable readings were found in other countries around the region including Panama, Chile, and Peru. Also, of note, an Economist poll out this past week also found that a majority of Venezuelans approved of Maduro’s removal, with only 13% being opposed to it.

An estimated 20-25% of Venezuela’s population are currently living as refugees in foreign countries; Colombia has absorbed the greatest quantity of these economic refugees, but there are considerable numbers in many places across the region. This has led to rising unemployment for working-class laborers, along with a flood of folks engaged in begging, doing things such as cleaning windshields at traffic lights to earn a meager living, or turning to illicit activities to survive. In theory, as Venezuela’s economy recovers, these refugees can return home and establish normal lives again, rather than living in tent camps or shanties in Colombia and other LatAm nations. This, in turn, will relieve strain on social safety nets in countries like Colombia while reestablishing Venezuela, traditionally a meaningful trade partner for various Latam countries, as a significant contributor to our regional economy.

Venezuela’s dictatorship was running so poorly that even left-wing presidents around the region, including Chile’s Gabriel Boric and Mexico’s Claudia Sheinbaum refused to acknowledge Maduro as the legitimate leader of Venezuela after the rigged 2024 Venezuelan presidential election. Boric, in particular, condemned Maduro for sponsoring terrorism and political violence across Latin America. When even the region’s other socialist presidents were sick of Maduro, it’s not surprising that the general LatAm public is very happy with the end of Maduro’s reign.

I don’t believe, however, that this would apply if the U.S. meddles in democratically elected left-wing governments such as Mexico, Colombia, or Brazil. There’s a huge perception difference between taking out a dictator and removing the president of a functioning democracy. My take is that the Venezuela action was strongly bullish for Latin America, but if the intervention streak continues into democratic countries, it would likely generate significant backlash in the region and become bearish for local currencies, bonds, and equities.

As for Cuba, that is the one other country where there’s a decent chance of intervention occurring and the region being okay with it. Cuba is extremely isolated as so many left-wing governments around LatAm have fallen and now they’ve lost their closest Western Hemisphere ally in Venezuela. I don’t think Nicaragua has as much strategic importance to the U.S., so I’d be somewhat surprised if something happened there, but it’s not out of the realm of possibility.

You wrote an excellent article, “Maduro Toppled; An Investor’s Guide To Venezuela & LatAm”. Can you summarize your thoughts from the article and where investors should be looking for upside given the limited ways to buy Cuban or Venezuelan equities directly?

My broad takeaways were that this action would be well-received within Latin America (and that’s since been confirmed by polling). In turn, this would be mostly bullish for other Latin American stocks, with the possible exception of the oil sector, where Venezuelan crude is a potential significant competitor to output from firms such as Colombia’s Ecopetrol (NYSE: EC — $25.5 billion). But in general, getting a market of more than 30 million people back to normal economic functioning should have positive knock-on effects in terms of greater regional trade and opportunities, along with a reduction in the negative economic and social externalities from the Venezuelan refugee crisis.

There’s not much available in terms of U.S.-listed tickers that directly have exposure to Venezuela (or Cuba). Generally, the most direct plays are things such as natural resource companies that have legal claims against the prior Venezuelan government which expropriated their assets. Special situations aren’t my expertise, though, so I’ll leave those sorts of legal arbitration-based plays for other folks.

Within the S&P 500, Colgate (NYSE: CL — $68.1 billion) was the hardest-hit U.S. firm when the Venezuelan economy disintegrated in the mid-2010s; that wiped out about 7% of the company’s revenues. Presumably it should enjoy solid sales growth there as that market reopens as Colgate has near monopoly market share for toothpaste in many South American countries. Coca-Cola FEMSA (NYSE: KOF — $20.8 billion), the world’s largest independent Coca-Cola (NYSE: KO) bottler, is another beneficiary. It serves about 276 million customers today; the return of the Venezuelan market, with more than 30 million people, potentially represents a double-digit growth opportunity as compared to the existing customer base. And I’m bullish on KOF in general, even leaving Venezuela aside, as it benefits from improving economic conditions in other countries it serves such as Colombia and Mexico.

I also see tourism and travel benefitting significantly. Caracas used to be one of the ten busiest airports in Latin America; it has now fallen outside of the top 30 in recent years. I believe there’s a bunch of pent-up demand when Venezuelans living abroad can finally visit friends and family once again. And tourism has been pretty much shut down; I’d expect a flood of Americans to visit Venezuela once it’s safe. The airport operators stand to benefit from this as a sizable travel market comes back online. Additionally, Copa Airlines (NYSE: CPA — $5.42 billion) probably has the most upside out of the airline sector, as its Panama hub is ideally situated for pushing a ton more capacity at the Venezuelan routes.

In the event that Cuba has a governmental change, that’d likely be an even bigger boost for tourism. It’s much closer to the U.S. and Canada than Venezuela, meaning easier access. And I’d expect a massive cruise ship market for Cuban voyages to develop in the years after sanctions are lifted and that economy reopens.

You have been particularly bullish on Colombian equities in anticipation of the May 2026 Presidential elections. What is the case for investing in Colombia, and how important are the upcoming elections? Do you have any worries President Trump could disrupt the country?

I think direct intervention in the country would be highly risky. It might be popular within Colombia (current socialist president Petro has an approval rating around 30%) so I could see a case where the majority of Colombians are happy if he’s removed from the picture. But, Petro was chosen in a fair election with a competitive result (50% to 47% in 2022). And since then, the Colombian Congress, Supreme Court, and Central Bank have all remained independent and quite opposed to Petro’s agenda. The country’s institutions have held and prevented any sort of democratic backsliding or any real collectivist economic push. Now, the next Colombian election is just months away and there’s every reason to think the election will be free and fair, and that the right-wing will win.

Furthermore, Colombia has been the United States’ closest and most dependable ally in the region since Colombia put its modern constitution into place in 1991. I believe the U.S. will wait for the elections to play out, as scheduled, and assuming the right-wing wins as expected, the U.S. will resume a deep economic partnership with Colombia. As we’ve seen in Argentina over the past few months, the U.S. is now willing to provide direct support to its economic allies in the Western Hemisphere.

A new right-wing government with close economic partnership with the U.S. should excite a lot of investors who’ve just witnessed big runs in Argentina and Chile over the past few years as those countries swung back to the right-wing. Colombian stocks (the banks are easiest to buy) remain cheap compared to historical valuations. I see banking conglomerate Grupo Aval (NYSE: AVAL — $5.01 billion), for example being able to grow its ROE from 11% now to 17% in an economic expansion. Combined with faster loan growth, and there’s a path to at least 75 cents of annual EPS over the next few years on a stock currently trading in the low $4s.

In your November 2023 Idea Brunch interview, you were particularly bullish on the Latin American airport industry (NYSE: PAC — $11.4 billion), (NASDAQ: OMAB — $4.64 billion), (NYSE: ASR — $8.95 billion), and (NYSE: CAAP — $4.24 billion). These stocks have since risen between 50% and 150%. What went right with these companies and is there still upside here?

Corporacion America Airports (NYSE: CAAP — $4.24 bilion) is the Argentine-based operator and the simple answer there is that Milei won in Argentina. He deregulated the local airline industry leading to a significant rise in competitiveness and flight availability for that market. Throw in a tourism boom and renewed interest in foreign direct investment in Argentina and it’s a good time to be collecting tolls on that country’s airports. Some of CAAP’s other capital investments, such as modernizing its airports in Italy and expanding commercial operations at Brazil’s capital city airport also appear likely to deliver high IRRs. The stock was dirt cheap and still is quite cheap (sub-8x EBITDA today). With it printing high single digits traffic growth and double-digit EBITDA growth, not hard for the share price to keep steadily climbing.

As for the three Mexican airport operators, there was a scare in late 2023 when the government talked of renegotiating concession terms. This ended up being largely a walk-back of extra profit margin the airports had been earning since the pandemic and didn’t ultimately change the investment case. Traffic has continued to grow nicely for the airport operators, particularly those with a focus on industrial and logistics-related traffic such as PAC’s Tijuana and Guadalajara airports and OMAB’s Monterrey.

Risks would be that tourism growth has significantly slowed down, I think Cancun in particular is a mature market that is unlikely to grow all that much more. And weaker consumer spending is a risk more broadly. There’s also a proposed merger between two of Mexico’s three major airlines which could curtail domestic traffic growth over the next few years.

Longer-term, however, I remain quite bullish on these three operators. Mexico and the U.S. economy continue to integrate ever more closely (Mexico is now the #1 trade partner with the US for both imports and exports, having fully dislodged China from those spots over the past few years). And with an estimated 40 million Mexican-Americans in the U.S., there’s a large and growing amount of spending power held by people that want to fly back and forth to Mexico frequently, to say nothing of the booming population of U.S. and Canadian retirees that own vacation homes in Mexico.

I also want to highlight ASR in particular for its shrewd dealmaking; it continues buying airport concessions outside of Mexico. Its most recent deal, where it picked up 20 airports from a Brazilian operator at just 10.5x EBITDA, was a master stroke. That gets them San Jose (Costa Rica), Belo Horizonte (5^th-busiest airport in Brazil), Quito (Ecuador), and Curacao, among others. I’m quite upbeat on Costa Rica’s long-term tourism potential, and the Curacao airport is also interesting in light of Venezuela reopening for business, as Curacao is a less than one-hour flight to Venezuela.

Can you please share some of the most actionable specific longs/shorts you see in Latin American markets today? Is there any specific trade that makes sense to bet on growing democracy in the region?

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Jon and Jim are currently the managing partners of Hartman Burke Capital Management, a New Jersey-based long-only global equity fund they co-founded in August 2024. Before launching Hartman Burke Capital, Jon and Jim worked as associate portfolio manager and senior analyst, respectively, on the Invesco-OppenheimerFunds’ Global Equity Team (Invesco acquired Oppenheimer Funds). In 2025, the Fund returned 27.13% compared to 17.72% for the S&P500 and 20.48% for their composite benchmark. Since inception, the Fund is up 34.72% net of fees compared to 26.06% for the S&P 500 and 26.7% for the composite benchmark.

Jon & Jim, thanks for doing Sunday’s Idea Brunch! Can you please tell readers a little more about your background and why you decided to launch Hartman Burke Capital Management?

Our friendship and passion for markets began twenty years ago at Seton Hall Prep in New Jersey. We partnered and won our high school’s stock-picking competition, which promptly spurred an interest in stock investing. During college, we launched an early version of Hartman Burke Capital Management, raising $75,000 of external capital. We closed the partnership to take roles at Morgan Stanley and Oppenheimer Funds, but restarting HBCM on a permanent basis has been our long-term goal ever since.

Jim started his career in high-yield credit research at Morgan Stanley in 2013 before joining J.H. Lane, a distressed hedge fund, in 2016 as the Fund’s first analyst prior to its launch. Jon started at Oppenheimer Funds as an intern on the Global Focus Fund in 2012 and joined as an analyst immediately following graduation. The Global Focus Fund grew from $80mn to $4bn over his tenure, with $3bn of institutional AUM. We just completed our 26^th year of combined experience, and 2026 will mark our 21^st year of combined Global Equity experience.

Jim joined Jon at Oppenheimer Funds in 2019, where we were two of the three investment professionals managing the Global Focus Fund. Those five years of close collaboration were invaluable: we defined areas of specialization, learned each other’s strengths and weaknesses, and matured as investors. We also benefited from working alongside award-winning fund managers across diverse strategies on one of the industry’s largest global equity teams. We are deeply grateful to our mentors who so graciously spent countless hours teaching and guiding us, while also giving us the latitude to ‘find the portfolio managers within ourselves.’

The Oppenheimer Global Team had a rigorous industry rotation training process for analysts. We specialized in one sector for 6–12 months to deeply understand its economics before pitching ideas. Throughout our combined tenure, we conducted thousands of management meetings and on-site visits worldwide. Engaging with CEOs and CFOs, across all industries, on their strategy, capital allocation priorities, and most pressing business challenges has profoundly shaped our process. This approach built our broad and durable knowledge base across all GICS sectors—essential for idea generation and pattern recognition.

From this foundation, we’ve crafted HBCM’s philosophy and process that draws from our own learnings, incorporates the principles of great investors, and is informed by thousands of company management meetings. With our mentors’ retirement, launching HBCM became the optimal way to preserve and evolve our strategy.

You’ve had a strong first year, outperforming the market, but as we know, investing is a long game. What do you see as HBCM’s sustainable edge or competitive advantage that will enable you to continue generating alpha over time?

The structural underperformance of most active managers is no secret, so we understood from the outset that HBCM had to be fundamentally different to win. It all starts with incentives, and we have been fully aligned with investors since Day One: HBCM is 100% founder-owned, and we have the majority of our personal capital invested alongside our investors. This ownership model ensures full discretion and autonomy, free from the constraints that often limit others in the industry. We spent over two years rigorously refining HBCM’s philosophy and process, and we designed our strategy around four durable advantages.

1. Truly Active and Concentrated

We manage a concentrated portfolio comprising only our highest-conviction ideas, constructed without regard to benchmark weights. Our top ten holdings represent 51.5% of AUM and share just 4% overlap with the S&P 500. We built HBCM to be a truly active strategy, which we define as having minimal overlap with the benchmark. Given historically high levels of market concentration, we believe it is harder than ever to run a truly active strategy, and therefore the opportunity for outperformance is the most favorable in our careers.

2. No Constraints

We are deliberately unconstrained by market cap, valuation, geography, growth, value, or any other style labels—because style boxes narrow the investable universe, limiting the potential for superior returns. This adaptability allows us to move early and decisively on high conviction opportunities, rather than being constrained on a compelling investment because it doesn’t fit within a formulaic style. In a globally competitive world where the sources of excess returns inevitably shift, rigid and static approaches are unlikely to outperform over the long term.

For example, civil aerospace is currently the Fund’s largest sub-sector overweight. Yet in 2019 at Oppenheimer Funds, we owned zero aerospace. Structural, multi-year tailwinds to the industry only emerged following COVID-induced distortions: the pandemic’s 66% plunge in air traffic triggered deep manufacturing cuts, resulting in five straight years of production below fleet replacement rates. This created a structural supply-demand mismatch, transforming the historically cyclical aerospace manufacturing industry into one with secular growth characteristics. We built a significant overweight amid substantial industry disruption, making Airbus (a French company) our largest holding at launch.

By minimizing constraints, we strive to capture evolving opportunities, such as international civil aerospace, that narrow strategies inevitably miss. This flexibility provides a structural edge we believe is essential to HBCM’s long-term outperformance.

3. Focus on Future Quality

Over long investment horizons, only forward-looking growth in free cash flow (FCF) per share and improvements in returns on invested capital (ROIC) reliably drive shareholder returns. Everything else is noise.

Yet the industry remains fixated on backward-looking quality metrics—such as trailing growth, margins, and ROIC - that systematically overrate companies currently overearning and trading at premium valuations, while underrating companies facing transitory, solvable issues. The industry does a poor job of forecasting future business quality.

To avoid this trap, we developed the Quality of Business Framework (QoBF). The QoBF helps guide our analytical process, which allows us to contextualize and compare businesses across industries, and is calibrated to the market’s long history of rewarding sustainable performance, regardless of short-term momentum. The QoBF decomposes the four critical variables that drive future FCF and ROIC:

(1) the durability of organic revenue growth,

(2) the trajectory of unit economics and capital efficiency,

(3) the nature of competitive advantages, and

(4) management’s alignment and capital allocation track record.

What makes the QoBF unique is its ability to identify underearning companies in which management teams have credible plans to unlock full earnings power through internal improvements, similar to a private equity approach. This provides the conviction to own differentiated, high-conviction positions – like Boeing, Disney, Illumina, and UPS, each of which fail traditional backward-looking quality screens. They do, however, score very well on our assessment of future quality.

We think Disney is a useful example. In 2018, Disney enjoyed industry-leading ~17% cash margins. As high-margin cable revenue declined, Disney aggressively ramped investments in its streaming service Disney+, resulting in ~$6bn of annualized peak segment losses. By 2022, the cocktail of declining revenues and unsustainable investment levels resulted in a ~1% cash margin, a cut of its longstanding dividend, and the ousting of its then CEO, Bob Chapek. The share price followed the business, declining 60% peak-to-trough. Many investors have sworn-off Disney as a low-quality company as a result.

The QoBF revealed that Disney’s earnings impairment stemmed from a “growth-at-all-costs” strategy under prior management, not structural impairment. Following management changes in late 2022, the company pivoted to financial discipline, generating $10bn in FCF in 2025 – a nearly 10x increase in three years. The quality of organic growth is also improving, as its cable networks continue to shrink as a portion of the overall business. Last, Disney has continued to invest in its fleet of cruise ships and theme parks, where it enjoys high returns on incremental capital – a hallmark of a high-quality business. These decisive actions solidified our confidence, allowing us to buy Disney at ~10x HBCM’s estimate of normalized earnings.

By focusing on underlying fundamentals, internal improvement opportunities, and management execution, the QoBF enables us to cast a wider net, avoid consensus ‘high quality’ companies priced to perfection, and build an unconventional yet disciplined portfolio of best ideas.

4. Nimble, Fully Internalized Process and Knowledge Base

HBCM is a nimble Fund by design. We built everything in-house – models, risk tools, portfolio management systems – allowing us to move from idea generation to rigorous due diligence to execution far faster than larger, siloed, or outsourced competitors. We believe our broad industry knowledge base, covering thousands of companies over nearly three decades, compounds this speed and conviction advantage. Larger funds often have investment committees that prioritize consensus, risk aversion, and institutional optics over decisive action, resulting in delayed decision-making that hinders the timely capture of market opportunities.

Boeing is a great example of HBCM’s agility. When we launched the Fund, Boeing was our smallest position given its fragile balance sheet and production quality issues. Shortly thereafter, its new CEO, Kelly Ortberg, made the difficult decision to raise $23bn of equity capital, giving the company ample runway to focus on fixing the quality of its manufacturing process. Despite the market’s initial negative response to material dilution, we viewed this capital raise as both a derisking event and tangible proof that new management would take a completely different approach to solving Boeing’s crisis. Immediately following the capital raise and the announcement of Boeing’s deliberate production ramp, we substantially increased our position, and it is a ~5% position today.

HBCM’s literature describes your style as “growth investors with a disciplined value orientation.” How do you balance high-growth opportunities with maintaining valuation discipline in your stock selection? Perhaps you could give an example of a company that you felt had strong growth prospects but that you only invested in once it reached an attractive price.

The Covid era (2020–2022) was a formative experience that directly shaped the way we manage money today. As senior analysts on a large global growth equity team, we were fortunate to cover, pitch, and own many of the era’s biggest winners - years before Covid. Many of these traditional growth stocks – like software, cloud, and ecommerce businesses - legitimately accelerated as shelter-in-place drove broad digital adoption. In 2021 share prices began to imply that these trends were permanent, and valuations detached from any reasonable fundamental outlook; yet most ‘quality growth’ funds failed to reduce exposure. The correlated reversal proved brutal: abrupt 50-90% declines in many market darlings erased careers of outperformance in 2022.

Those two years taught us, in the most visceral way possible, three enduring lessons. First, ignoring valuation in even the highest-quality, fastest-growing businesses can be fatal. Second, momentum and market correlations can turn a diversified basket of ‘unique’ single stocks into a highly correlated bet on market momentum. Third, bottom-up stock picking and top-down risk awareness are not mutually exclusive; they are essential complements. Although the 2021–2022 drawdown was painful, it crystallized our commitment to a process built around true all-weather portfolio construction and uncompromising single-stock price discipline.

HBCM intends to be an ‘all-weather’ Fund, rather than a boom-bust portfolio that only performs well in favorable market environments. The key lies in focusing on the portfolio’s behavior as a whole through disciplined, thoughtful portfolio construction. Our core growth holdings create business and market risk exposures, which we look to mitigate with select holdings that have defensive attributes. This portfolio insurance creates balance in the portfolio and gives us conviction to hold higher-growth, higher-valuation companies, because the aggregate portfolio has substantially less valuation risk than our highest-growth holdings.

We have developed an agnostic valuation methodology to enforce absolute price discipline on every holding: no company, no matter how exceptional, is immune from being trimmed or sold when its price outruns fundamental performance. Every position must justify its place with a compelling 3-5 year risk-adjusted expected return driven by value creation (FCF), not multiple expansion. Otherwise, we will wait on the sidelines until the valuation meets that condition.

Our company models translate directly into forward-return projections, and our proprietary portfolio return visualizer separates fundamental performance from valuation change. This framework keeps emotion out of the decision and is most valuable when markets are volatile.

Reddit is a textbook example. At the Fund’s launch in August 2024, we bought Reddit shares in the high $50s. By January 2025, the stock had quadrupled. Despite Reddit’s strong results, it became difficult to foresee a path to strong 3-year stock returns from $220 given its valuation expansion, so we dispassionately reduced our position. In early April amid the market sell-off, we were able to re-double our Reddit position in the low-$90s.

Even though Hartman Burke Capital is a relatively small fund, it seems that most of your investments are in large-cap stocks like Thermo Fisher, Airbus, and Netflix. Given the conventional wisdom that small-caps are the most mispriced, why have you decided to focus your investment research on larger rather than smaller companies?

Company size has no bearing on our research process, and the wide distribution of market capitalizations in the portfolio reflects that. Our largest and fourth largest positions have market caps below $20bn. Of our 35 holdings, eleven are sub-$50bn companies. Researching smaller, disruptive companies is extremely useful for large-cap research as market share gains tend to come at the expense of incumbents. Nothing gets us more excited than finding a ‘junior growth company.’

We believe in the conventional wisdom that small-caps are most mispriced; however, this holds true for individual companies, not a broad portfolio of small-caps. Over the past 3-, 5-, 10-, and 20-year vintages, large-caps portfolios have produced better portfolio returns, but the best single-stock returns tend to occur with small companies. Thus, rather than making a top-down bet, we are betting on the fundamentals of a select group of small companies.

Guardant Health is a great example: We bought a starter position in December 2024 at a ~$4bn market cap, having known the company since its IPO. We added selectively throughout 2025 as the company executed on the fastest-ever diagnostic launch to reach $100mn, raised its multi-year revenue outlook, and pulled forward its profitability targets. It is now a $13bn market cap company, a top 10 position for the Fund, and HBCM’s biggest $ contributor in 2025.

Larger companies often have defensible advantages that narrow the range of business outcomes relative to smaller companies. In general, smaller companies beget smaller position sizes in our portfolio, reflecting a wider range of outcomes. That said, we have no aversion to small cap companies growing into large positions when fundamentals fully warrant the ascent.

In your Q2 2025 letter, you noted that during the April market pullback (when trade war fears rattled stocks), you increased your stake in several high-conviction positions – effectively doubling down when many others were fearful. Can you walk us through your mindset in times of market volatility?

When market volatility rises, fear is the enemy. We view market downturns as the greatest opportunity to sow the seeds of future outperformance, but taking advantage requires decisive action. Confidence in swift action during these periods is derived from a deep understanding of the business, its economics, industry position, and the drivers of revenue growth. Conviction is built over years of due diligence. In April, we took advantage of the downturn by concentrating into our best ideas – our top 10 weighting increased from 41% to 51.5%. Most of these positions were in a 20-40% drawdown and had minimal direct tariff impact. Those actions we took in April have produced strong returns.

What are some interesting ideas on your radar now?

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Diego is currently the chief investment officer of Quercus Fund, a global equity deep value fund he founded in December 2020. Before launching Quercus, Diego worked as a prop trader at Itaú and an equity analyst at GWI Asset Management and Gradus Management. The fund has returned 111% net of fees since inception, compared to 78% for the S&P 500.

Diego, thanks for doing Sunday’s Idea Brunch! Can you please tell readers a little more about your background and why you decided to launch the Quercus Fund?

Hi Edwin, thank you for having me. After more than a decade working in the corporate financial industry in Sao Paulo, I decided to live in the countryside of Portugal, have a more quiet life and be a full time investor, focusing on deep value global opportunities. A few years later, some of my friends and brothers asked me to invest part of their net worth, exactly the way I was investing mine. So I decided to launch a proper fund, independently audited and administered.

Your fee structure, 25% of the profits after a 6% hurdle rate, is similar to what Warren Buffett used in his original investment partnership rather than the standard hedge fund 2% management fee and 20% profit fee. Why do you opt for your fee structure rather than the conventional route? How else do you differ from traditional funds?

Since the fundholders are essentially my friends and family, I believe it is fair to only charge them anything if I am adding value. It didn’t seem right to charge management fees from them.

I think Quercus Fund is significantly different from most funds. The portfolio tends to be highly concentrated - 5 to 12 positions -, and holds no similarity to any index. Volatility is summarily ignored, and benchmarks are not really taken into consideration. Unless the investor is fully aware and comfortable with this philosophy, it can be a recipe for mutual disappointment.

Within this framework, risk is the probability of permanent loss of capital. This is paramount (and I did experience investments going to zero), because 1: essentially all my money is invested in the Fund, and 2: I would never put in jeopardy my personal relations (or their savings), which are much more important than money.

In your investor letters, you’ve mentioned using ChatGPT as a research aide. How are you using AI tools for investment research? Can you share any useful findings discovered through AI?

I would not say I have discovered any investment opportunity through AI. However, it can speed the research process, and lead to some interesting insights. The example I gave in my latest investor letter was related to the dominance of the leading noodles player in any single country. The market leader usually has more than 40% market share, with robust margins. That is true for Indonesia, South Korea, Japan, Vietnam, India, Egypt, Brazil... How come there is no competition from imports? After all, its value per ton is certainly high enough to allow seaborne trade. After a few iterations with ChatGPT, I came to the conclusion that its value per cubic meter is too low, rendering large scale, containerized international trade uneconomical.

AI allows a much faster understanding of most industries. On a day-to-day basis, it is much easier to find (ballpark) information than using Google. About anything (beware of hallucinations). However, for details, or when you don’t even know what you are looking for, raw data continues to be the way.

You have a pretty diverse and concentrated portfolio including, a Kazakhstan bank, a Chinese chemical company, and a French media company. How are you able to come up with off-the-beaten-path ideas in an industry with so much groupthink?

In almost all cases my interest is in extremely undervalued securities. I can only find them in unconventional places (e.g. overlooked geographies, complex structures, distressed industries), and/or through unconventional behavior (e.g. equanimity with drawdowns, longer holding periods).

The informational and analytical edges were mostly eaten up by regulation and technology. Numbers and reports are available across the globe, at the same time, for everyone. AI is one more example of a tool that levels the informational and analytical fields.

We have to fish where the fish are. Securities that institutions would not touch and retail cannot access, a country where most people know little about, a hated industry in a so-called uninvestable country, a company which most analysts would have a hard time to find out even how many shares are outstanding…

What are some interesting ideas on your radar now?

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Jim Zimmerman founded Lowell Capital in 2003, a Los Angeles-based investment firm focused on long-term, value-oriented investing. He works alongside his daughter, Abby Zimmerman, who joined the firm in 2019. Together, they focus on underfollowed small-cap companies with strong free cash flow and conservative balance sheets.

Jim and Abby are currently the Chief Investment Officer and Research Analyst, respectively, at Lowell Capital. Before launching Lowell Capital, Mr. Zimmerman was a Managing Director at two boutique investment banks as well as a First Vice President in Corporate Finance at Paine Webber. Abby previously worked as a consultant at Michael Page before joining the firm.

Lowell Capital emphasizes patience, rigorous fundamental analysis, and a long-term perspective, with a focus on downside protection and disciplined capital allocation.

Jim and Abby, thanks for doing Sunday’s Idea Brunch! Can you please tell readers a little more about your background and why you decided to launch Lowell Capital? Could you also share a little about your dynamic working together?

Thank you for the opportunity, Edwin. We are big fans of Sunday’s Idea Brunch and truly appreciate the invitation.

Lowell Capital was founded in 2003 after many years in investment banking, where I saw firsthand that the best businesses were often the ones that generated strong cash flow and didn’t rely heavily on outside financing. Over time, and heavily influenced by Warren Buffett and Berkshire Hathaway, I wanted to build an investment approach centered on long-term ownership, disciplined capital allocation, and a focus on simple, high-quality companies with strong free cash flow and conservative “Ft. Knox” balance sheets.

We’ve invested our own capital alongside that of high-net-worth individuals and family office partners, with an emphasis on steady compounding and capital preservation rather than maximizing short-term returns. We also hold meaningful cash, which has always been a natural part of our philosophy.

My daughter, Abby, joined the firm in 2019, and working together as a father-daughter investment partnership has been very rewarding. She brings thoughtful research, structure, and a fresh perspective to the process and plays a central role in our idea generation and diligence work, while I contribute experience and pattern recognition developed over decades. There’s a lot of debate, collaboration, and shared commitment to doing things the right way - even when that means passing on what feels popular.

We focus on underfollowed, misunderstood small-cap companies with “Ft. Knox” balance sheets and strong free cash flow yields, aiming to own durable businesses that can steadily compound value over the long term.

Can you tell us more about your investment process and why you typically hold meaningful cash?

Our primary focus is on the steady growth and compounding of capital with heavy emphasis on companies with strong free cash flow characteristics and “Ft. Knox” type balance sheets. We like simple, resilient, and sustainable business models that we can hold for many years.

We primarily focus on small-cap value. Small caps are a less closely followed area of the stock market and there is often less research coverage and investment banking focus on these smaller companies. We believe this creates opportunities. We want to focus on less crowded and less efficient areas of the public equity markets. There is a better chance of finding a mispriced security which is what we’re looking for.

We believe there are over 5,000 publicly traded companies in North America alone and a large majority have little research coverage. This creates opportunities to find undervalued small and micro-cap stocks with strong free cash flow and “Ft. Knox” balance sheets and management teams focused on driving shareholder value. We look at thousands of companies to find just a handful that fit our investing approach of strong free cash flow and “Ft. Knox” balance sheets.

We believe we are invested in high-quality businesses that can compound capital over several years. As a result of their high ROIC, our investments generate large and sustainable amounts of free cash flow as they are not capital-intensive. This creates a strong foundation for disciplined long-term compounding.

We do not try to time the market. We stay focused on what we can control, which is our deep research-intensive process of business analysis and our due diligence process. This includes making sure we know the company’s fundamentals, the “competitive moat” of the company, its growth path, its balance sheet, and detailed conversations with the management team. We’re looking for just a handful that have a clear growth path. Our objective is to buy growth companies at value prices.

We often maintain a cash position in the 20-30% range, and have gone higher at times. This may look unusual in an industry that tends to remain fully invested. For us, we see cash as our margin of safety. It enables us to manage through challenging periods, protect capital, and act decisively when attractive opportunities arise. We are comfortable holding significant cash when we don’t see enough opportunities that fully meet our criteria. Cash is not a drag to us. It is valuable optionality. It allows us to act decisively when mispricings occur and prevents us from forcing capital into mediocre ideas just to stay fully invested.

Our primary goal is to avoid permanent loss of capital. As Buffett says, “Rule number one: don’t lose money. Rule number two: don’t forget rule number one.” We define risk as permanent impairment, and our cash discipline is a direct expression of that philosophy.

Part of your research process involves speaking with management teams. What red flags or positive signs are you looking for in these meetings? What advice would you give your younger self or new fund managers to get the most out of management meetings?

We view the management teams of our investments as our partners. We want to work with people we like and trust. We look for authenticity, honesty, and alignment with shareholders.

Positive signs include:

• A clear understanding of their business drivers

• Willingness to discuss mistakes and challenges

• Evidence of long-term thinking

• A solid track record of results

• An “under promise, overdeliver” philosophy

• Capital allocation discipline

Red flags include:

• Overly promotional tone

• Avoidance of difficult questions

• Inconsistent messages

For younger investors, our advice would be to prepare deeply, listen more than you speak, and focus on asking questions that reveal incentives. We’ve found many of the most meaningful insights come from listening to how management talks about the business. Does management under promise and overdeliver? Do they take responsibility for their mistakes? Are their incentives tied to long-term value creation or short-term share price movements? Asking questions about how they think about capital allocation, what could go wrong or what keeps them up at night, and how they would fare in a recession, can provide tremendous insight into how management thinks about the business. Oftentimes, we find it to be more valuable to hear how management thinks about the business long-term, as opposed to focusing too much on highly detailed financial questions.

In a fast-changing world, how do you ensure the durable competitive advantages of your portfolio companies are actually durable? Have you ever seen technology or other forces disrupt what seemed like a strong moat?

We try to assess durability through several lenses. We want to understand why customers choose this company today and why they are likely to keep choosing it tomorrow. This leads us to look for customer stickiness, repeat purchasing patterns, pricing power, and long-standing relationships that are difficult to replicate.

We are also laser-focused on free cash flows and returns on capital. We monitor how free cash flow and returns on capital behave through different environments. Durable businesses tend to show consistency through downturns, not just strength in good times. We also spend a significant amount of time reading conference call transcripts and 10-Ks, and regularly speaking with management to understand how they think about competition, their advantages, and reinvestment.

We have seen moats erode. Retail has been one area where we’ve learned this firsthand. In cases where a business model looked stable on the surface but was structurally vulnerable to changes in consumer behavior or digital competition, cash flows deteriorated quickly. These experiences reinforce the importance of continuing to revisit our thesis. We constantly re-underwrite the durability of the business so that we can continue to strengthen our conviction in the business. If we recognize the competitive position is not as strong as we thought or free cash flow begins to structurally decline, we act quickly and we are able to get most of the capital back. Our emphasis on strong balance sheets also provides an added layer of protection, allowing businesses time to adapt and evolve if needed.

In a world that is constantly changing, we believe the most durable advantages often come from simplicity, not complexity. The fewer things that have to go right, the better. We remain skeptical, curious, and ensure we are constantly testing our assumptions.

What are some interesting ideas on your radar now?

Three names that we like today are:

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Marc is the founder and managing partner of Hinde Group, a San Francisco-based investment firm that manages a concentrated portfolio of publicly traded equities. Most of Hinde Group’s investments are in the equities of great businesses that are out of favor, misunderstood, or underappreciated. Hinde Group also selectively invests in special situations. Since the firm’s inception in 2015 through September 30, Hinde Group’s portfolio has achieved a 609% return net of fees — 21.3% annualized — compared to a ~281% return for the S&P 500. Marc was previously featured on Idea Brunch in November 2024.

Editor’s note: Sunday’s Idea Brunch is looking for more great investors to interview. Please send nominations for talented, off-the-beaten-path, high-integrity investors to edwin@585research.com. Small and new funds welcome!

Marc, thanks for doing Sunday’s Idea Brunch again! Can you please tell readers a little more about your background and why you decided to launch Hinde Group? Any big updates since we talked last year?

Thanks for having me back, Edwin.

I’ll try to be a little bit more succinct this time around. Anyone interested in the blow-by-blow account can check out our first interview from last November.

Long story short, I’ve been fascinated by financial markets and investing since I was 11 years old. I heard about how George Soros “broke the British pound,” making over $1 billion in the process, and was instantly hooked. I have had it in my mind that I would one day run my own investment firm since then.

That aspiration led me to do my undergraduate studies at Stern. After graduating from Stern in 2002, I started my career in investment banking at Houlihan Lokey Howard & Zukin focusing on creditor-side financial restructurings and sell-side distressed M&A. I left Houlihan Lokey to join Vardon Capital, a consumer-focused long/short equity hedge fund. Vardon had about $250 million under management when I joined and peaked at around $750 million.

After leaving Vardon, I started an investment firm with a friend of mine. We ran that firm from 2010 until the end of 2014. While we generated good returns overall, we ended up having differences of opinion on individual investments and overall portfolio management that held the firm back from fully realizing its potential. My former partner and I agreed to split up amicably, and each started our own investment firms.

Hinde Group is the firm I founded in 2015. The firm’s strategy reflects the evolution of my investment approach over my career. Most of the firm’s investments are in the publicly-traded equities of great businesses that are out-of-favor, misunderstood or underappreciated. The firm also selectively invests in securities involved in event-driven special situations, such as spin-offs, restructurings, litigation, and mergers & acquisitions.

Hinde Group has continued to deliver on its mission — helping people prosper — since we last spoke. The firm has a long runway of growth ahead of it from just continuing to execute its strategy a little bit better each day.

Last year you pitched your largest position, Interactive Brokers (NASDAQ: IBKR), as a top idea. Since then, it is up ~60%. What went right with Interactive Brokers and does it have more upside from here?

For those who are not familiar with the company, Interactive Brokers (NASDAQ: IBKR — $104 billion) is a highly automated global securities firm that specializes in routing orders and processing trades in securities, futures, foreign exchange instruments, bonds and mutual funds on more than 160 electronic exchanges and market centers in 36 countries around the world. Interactive Brokers custodies and services accounts for individual investors, introducing brokers, registered investment advisors, fund managers and proprietary trading groups. More than two-thirds of IB’s 4.2 million customers are based in Europe and Asia and an even greater share of its new customers come from those regions.

When I pitched IBKR last year, the Fed had just taken its first step toward normalizing monetary policy after its historic tightening campaign to reign in the post-pandemic bulge of inflation. On September 18, 2024, the Fed cut its targeted range for the federal funds rate by 50 basis points, from 5.25% - 5.50% to 4.75% - 5.00%. IB’s net interest income benefits from higher rates. Many market participants were uncertain about — or misunderstood — how lower rates would impact IB’s net interest income and earnings. Other market participants may have simply shunned IBKR based on the belief that the stock wouldn’t “work” during a rate-cutting cycle. For all those reasons, the looming normalization of monetary policy excessively weighed on the market price of IBKR at the time.

Over the past year, the Fed has progressed toward more neutral monetary policy. The targeted range for the federal funds rate is now 150 basis points below its recent peak. Financial markets expect the federal funds rate to be about 75 basis points lower by the end of 2026. In other words, the market believes we are about two-thirds of the way through the current rate-cutting cycle.

The impact of rate cuts on IB’s net interest income and earnings is no longer a point of fear, uncertainty, and misunderstanding, but rather something everyone can observe. Over the past four quarters, IB’s net interest income has grown year-over-year at rates ranging from 3.1% to 20.6%. Excluding income from securities lending, which adds some noise to the numbers related to fluctuations in demand for hard-to-borrow securities, IB’s net interest income grew 6.9% year-over-year in 3Q25, down from 19.5% year-over-year in 3Q24. Lower rates have been a modest and temporary headwind to growth in IB’s net interest income, nothing more.

Much of IBKR’s strong performance over the past year reflects the stock climbing the so-called “wall of worry” created by fear, uncertainty and misunderstandings about the impact the looming normalization of monetary policy would have on its business. IBKR has also benefited from continued strong operating results more generally.

Hinde Group has held its position in IBKR since inception with some trimming and adding along the way. I haven’t sold a share since 2018. It continues to be Hinde Group’s largest position. I expect IBKR to deliver at least mid-teens earnings growth over the next seven years. The dividend yield and modest scope for multiple expansion push the prospective annualized return on the stock somewhat higher than the earnings growth rate. The prospective return IBKR offers at the moment isn’t as high as it was a year ago, but it is still quite attractive for such a great business. IBKR would need to trade over $100 to get down to a market-level prospective return, in my view.

Even though Hinde Group is a relatively small fund, it seems that most of your investments are in large-cap stocks like Interactive Brokers, Uber, Alphabet, and Netflix. Given the conventional wisdom that small-caps are the most mispriced, why have you decided to focus your investment research on larger rather than smaller companies?

In theory, the likelihood and magnitude of mispricing should be inversely correlated to market cap to some extent. That relationship is real, but it explains only a tiny part of why material mispricing occurs. In my more than 20 years as a professional investor, I’ve never come across a stock I felt was materially mispriced because no one is paying attention. Never. That is not to say it doesn’t happen, it is just not the type of situation I look for and have had success with.

Stocks mainly become materially mispriced when they are out-of-favor, misunderstood or underappreciated in some way. That is usually precipitated an event or development affecting the company, its industry or the economy, not by anything related to the number of investors and analysts paying attention to the company. In fact, having more investors and analysts pay attention to a company can in theory exacerbate a mispricing by adding force to an information cascade. You can far more confidently refute a misguided narrative about a company if there is only one analyst promoting it than if there are twenty, in other words.

In practice, I have consistently found incredible investment opportunities in some of the largest and most high-profile stocks in the market. Whatever relationship there may be between market cap and mispricing, it is just not strong enough to even factor into my sourcing process, much less justify excluding large cap stocks from my consideration set.

The market cap profile of Hinde Group’s portfolio is largely a passive output. It is primarily a function of the opportunity set of mispriced securities in the market and which of those securities make their way through Hinde Group’s sourcing process.

Northeast Bank (NASDAQ: NBN — $725 million) is the company with the smallest market cap — a little over $700 million — in the portfolio at the moment. Its market cap was under $200 million when I initially made the investment in 2017. There is nothing that would prevent all the positions in the portfolio from looking like Northeast Bank in terms of market cap at a given point in time.

The only slight bias toward bigger companies that might exist has to do with Hinde Group’s first criteria for What Makes a Business Great. Hinde Group’s investments fall into one of two buckets: Compounders or Special Situations. Compounders are great businesses that are out of favor, misunderstood or underappreciated. Hinde Group has six specific criteria for What Makes a Business Great. The first criteria is Meaningful & Durable Market Power. At a high level, there are only two ways a company can have market power, favorable differentiation or cost advantages. It is a lot easier to analyze and gain confidence in the meaningfulness and durability of cost advantages than favorable differentiation. Within the cost advantage category, supply-side economies of scale in particular have a special place in my heart. A caveman could tell you which company will thrive in an industry with significant supply-side economies of scale. Point at the big one and grunt, “Big.” While that may analytically push me toward bigger companies for Hinde Group’s compounder investments, mid and small cap companies can still enjoy decisive economies of scale in niche, developing and international markets and supply-side economies of scale are just a preferred source of meaningful & durable market power, not the only one I am willing to consider.

What are some of the things Hinde Group does differently or better than other funds? Do you have any unique approaches to idea generation?

Last time we spoke, you asked me a somewhat similar question: what differentiates Hinde Group? The short version of my answer was that it is the combination of i) advantages from an unusually long-term orientation and ii) advantages from the firm’s unique ways of gathering, processing and analyzing information. To answer your question, I’ll elaborate on the second point a little bit more. I’ll give you two examples.

I believe Hinde Group uses alternative data differently and possibly more extensively than most firms that invest with a long-term orientation. To be clear, I am not talking about using alternative data to “nowcast” financial metrics and key performance indicators with the goal of making short-term trades into events like earnings releases. That is a hugely competitive game in which Hinde Group has nowhere near the scale to compete. Instead, I am mainly talking about using alternative data to answer research questions relevant to a long-term investment thesis. It is hard to say how broadly and well that is done by other firms, but it has been a consistent source of insights for Hinde Group.

An analysis I did recently on Portillo’s Inc. (NASDAQ: PTLO — $384 million) provides a good example. I was evaluating Portillo’s Inc. class A common stock as a potential investment for Hinde Group in late 2024. Portillo’s is a restaurant chain serving Chicago-style street food. It has a cult-like following in the greater Chicago area. Its stores there generate incredible sales volumes and returns on capital. A key question for the stock was what sales volumes and returns on capital would be on new units as the company expanded into new markets in the sunbelt states. In investor presentations, management periodically provided cohort-level performance data suggesting new stores were meeting their pro-forma targets. I wanted to independently confirm and monitor the performance of the company’s new stores. I used store-level location intelligence data from Placer.ai to model and monitor monthly foot traffic by store for all stores opened since 2021. Using that data and some information about individual store volumes disclosed by the company, I was able to estimate individual monthly unit sales volumes. That analysis made it clear that the cohort-level averages that management was touting were made up of one or two highly successful units and many others that were trending well below pro-forma targets. Moreover, the units seemed to be losing ground relative to their pro forma models as the months went by. The insights I took away from that analysis led me to pass on the investment. PTLO is down more than 50% since then. While I am sure there are some other firms that were doing similar analyses, the work I did there with alternative data to answer a research question gave me a meaningful advantage over most other market participants.

I also believe Hinde Group uses regression analysis an order of magnitude or two more extensively than other firms with similar, long-term oriented strategies. That is related to Hinde Group’s greater use of alternative data, but it also extends beyond alternative data. There may be other firms that do the same things I do on that front, but I have never heard about it. The regression analyses I do are a consistent source of insights, which makes me think I am doing something different or better there.

Many of your investments are consumer-facing. How much time do you spend interacting with and evaluating the consumer product (e.g., looking at Netflix’s content selection) and how important is this in your research process?

If you are going to invest in a business, you absolutely need to understand its products or services from a user’s perspective. It is usually easier to do that for consumer products than for business products. Most consumer products and services are at least somewhat relevant to each of us in our personal lives. You usually start with at least some inherent understanding of a consumer product, if not direct experience with it as a user.

If I’m interested in a company as an investment, I’ll spend however much time is necessary interacting with and evaluating its products to thoroughly understand them from a user’s perspective. The amount of time depends on how well I inherently understand the latest version of the product and how complicated it is. Even for products I understand well, using them periodically is definitely helpful.

What I try to avoid doing is making value judgments about a product or service based on my personal perspective as a user. Trust me, I am no tastemaker. My opinion about whether a product is good or bad or better or worse than another product is no more important than any other user’s. Most consumer products are targeted at particular consumer segments. Highly successful products can be downright unappealing to consumers outside their targeted segments. For value judgments, I rely primarily on user reviews; generative AI models do an excellent job of quickly summarizing and analyzing user reviews.

With respect to Netflix in particular, I have been a subscriber for more than a decade. I probably watch an hour or less of television each month, though. My two kids are the main Netflix users in my household, followed by my wife. I don’t always watch Netflix’s most high profile pieces of content. I haven’t watched KPop Demon Hunters, for example. I understand what it is, and I don’t think my opinion of it would be that informative beyond what I know from reviews, engagement statistics and news articles. Moreover, no one piece of content is all that important to Netflix. I did download and play several of Netflix’s mobile games a while back when Netflix began ramping up its investments in that genre. Going through that process – combined with my existing knowledge about how the mobile gaming business works – gave me some insights into the barriers Netflix faced in driving engagement with its mobile games among members. I also watched the Jake Paul vs. Mike Tyson fight in part to better understand Netflix’s live events strategy. Basically, I think it is important to check out any significant new features or genres in order to fully understand them, but I don’t feel I need to watch every big piece of content Netflix puts out.

Portillo’s provides another good example of how I engage with a consumer product for research purposes. The Dallas market is one of the most prominent new markets in which Portillo’s is expanding. My wife’s family lives in Dallas. While we were down there visiting her family, I ducked out a few times to check out a few of the Portillo’s locations and try some of the food. I had never been in a Portillo’s before. I had only seen pictures of the locations and food and diagrams of the restaurant formats. There are tons of details I picked up from those visits that helped me better understand the business and that I couldn’t have gotten any other way. For the record, I’m a fan of the food, but again, I don’t give that much weight in my analysis.

What are some interesting ideas on your radar now?

A new large-cap position for Hinde Group added last quarter is:

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Andrei is currently a partner at Farley Capital and co-manages Gymkhana Partners, an India-dedicated long-only equity fund invested primarily in the shares of India-based mid- & small-cap companies. Over the past decade and a half, Andrei has traveled to India 17 times to meet with hundreds of listed Indian companies, and has been cited as an expert on India’s equity market in media including Barron’s, Bloomberg News, and the Financial Times. From mid-2013 through September 30, 2025, Farley Capital’s India strategy has generated an annualized USD return net of all fees, profit allocations, and Indian taxes of 13.2%.

Andrei, thanks for doing Sunday’s Idea Brunch! Can you please tell readers a little more about your background?

I was born in Kyiv, Ukraine in the twilight years of the Soviet Union. My parents began planning to emigrate right after I was born in 1989 – three years after they watched with disgust as the Soviet authorities attempted to cover up the catastrophe unfolding 70 miles north at Chornobyl. By 1992, they had made it to Florida, and by the late 1990s, they had managed to get me enrolled on scholarship at the otherwise completely unaffordable local private school (Shorecrest Prep). Being all the rich kids’ poorest friend definitely lit a fire under me – it was around that time that I began poring over the financial section of any newspaper I could get my hands on.

Around the same time, my parents (like so many other retail investors) bought into the dot-com mania, only to lose a lot when companies like Palm came crashing back down to Earth. Experiencing that from the sidelines impressed upon me the wisdom of the kind of long-term, value-conscious investing exemplified by a funny old guy named Buffett who kept popping up in the newspapers. While speculators were chasing profitless dot-coms, he was busy snapping up boring but solid businesses like Benjamin Moore and Fruit of the Loom.

That lesson stayed with me when I headed up to Princeton, where I gravitated toward classes on sovereign debt restructurings, Soviet central planning, and EU trade policy, and spent my senior year writing a thesis examining Russian natural gas monopoly Gazprom’s efforts to build undersea pipelines bypassing Ukraine and Poland. I joined Farley Capital in June 2010 (just three days after graduation – I had student loans to pay). There, I became a kind of apprentice to Steve Farley until 2015, when I became his partner.

Why did you decide to launch Gymkhana Partners?

My first few years working with Steve included trips to visit companies in Brazil, China, India, and Mexico. We found that relative to other large emerging markets, India offered an unmatched opportunity set, with thousands of listed companies but sparse professional analyst coverage and low levels of institutional ownership. Moreover, we realized that the earnings growth of India’s listed companies was being driven by a combination of simultaneous and complementary macro tailwinds – including exceptionally favorable demographics, rapid urbanization, and market-friendly governance – that was, and remains, unique among the world’s major economies. We began buying Indian stocks for our two global investment partnerships, Labrador and Newfoundland, in 2013, and by 2015, had invested roughly one-tenth of those funds’ combined capital in over a dozen Indian businesses.

As our familiarity with India deepened and the share of our capital allocated there grew, we saw that the time had come to split off our India capital into a new, dedicated vehicle that would enable current and future partners to invest directly in our India strategy, while allowing Labrador and Newfoundland to remain allocated to India in a simplified, more efficient way with lower transaction costs (by investing 15% of their capital in Gymkhana, rather than owning Indian stocks through their own separate accounts).

A key part of Gymkhana’s research process is “intensive & recurring on-the-ground research in India.” Can you tell us why this is so important and some stories of how on-the-ground research has helped in making investment decisions?

Since we first touched down in India back in 2012, Steve and I have visited the country twice annually (with a brief interruption during Covid) to meet in person with company managements. A typical trip is a jam-packed two-week-long tour of a few dozen businesses across a handful of cities – meaning each of us spends roughly a month out of every year on the ground in India.

While Steve and I sometimes “divide and conquer” by splitting up to cover more ground, we try to spend at least part of each trip working directly alongside our full-time India-based analyst Nireeksha Makam. This allows the three of us to exchange ideas and discuss which follow-up research to prioritize during the days between my and Steve’s return to the U.S. and the next time we all touch base via videoconference. Finally, part of each trip is dedicated to catching up with and expanding our network of businesspeople, investors, financial journalists, and various other Indian friends. This local Rolodex has proven invaluable over the years – in particular, by helping us to screen companies and controlling shareholders for corporate governance, managerial competence, and basic ethics.

Of the 600 or so meetings Steve and I have held with Indian management teams, most did not conclude with us buying the stock. But nearly every single meeting contributed at least some meaningful tidbit of information to a database that constitutes probably the single most valuable piece of proprietary work product from my decade-and-half-long career in securities analysis.

Our database compiles objective financial metrics on nearly 2,000 companies (including those we have met as well as those we hope to meet on future trips). Additionally and more importantly, it contains notes recording scuttlebutt, rumors, news mentions, overheard comments, and other subjective intel accumulated in the course of countless conversations with managers, journalists, fellow investors, and other local contacts regarding the competitive advantages, reputations, and prospects not only of prospective investees, but also of their suppliers, customers, and competitors.

Finally, continual on-the-ground research is the only way to keep up with India’s constant influx of newly-listed companies (2025 is on track to be a record year for Indian IPOs). In the U.S., many IPOs result not from a dynamic company needing capital to grow, but rather from a private equity firm needing an exit option at the end of a fund lifecycle. In India, by contrast, private equity is still nascent and the banking system (despite the very significant liberalization that has taken place since 1991) still channels most lending to large, mature companies. As a result, India’s IPO pipeline still includes large numbers of high-quality, promising businesses for which an equity offering is simply their most viable capital-raising option.

As part of your research process, you have held over 600 meetings with 417 Indian management teams. What are you looking for in these management team meetings?

We are looking for growing businesses with durable competitive advantages, smart, honest managements, controlling shareholders who treat minority shareholders fairly, and a valuation that does not yet price in those attractive qualities. Our best meetings are with resourceful, creative, and scrappy managers who know their businesses inside out, are able to re-invest their growing earnings at highly attractive rates of return, and have a long-term vision for how that re-investment will further strengthen their competitive advantages.

While India’s biggest companies (and the indices that track them) often trade at high P/Es, below the top 50-100 or so entries on India’s market cap table there is an abundance of businesses trading at much lower multiples of earnings despite their being high-quality and well-managed direct beneficiaries of the multi-layered macro drivers underpinning India’s growth. These include: companies catering to rapidly-expanding domestic demand for everything from financial services to pipes/fittings to agrochemicals; exporters who have been able to grab growing shares of global markets due to cost advantages sufficiently wide that a tariff hike here or there won’t make much of a big-picture difference; and businesses facilitating India’s nationwide infrastructure upgradation.

Many of the managements with whom we meet are not used to meeting institutional investors – much less foreign ones. Oftentimes, they are not especially savvy with respect to their fluency in Wall Street jargon – and this is not necessarily bad. For example, we’ve met with founder-CEOs who lived and breathed their businesses, whether it be ball bearings or polymer masterbatches, and simply had not yet learned to translate into the metrics we find most crucial (e.g., return on equity) the math that they had up until that point been doing without much in the way of external feedback. Conversely, in our experience it often is a red flag when managements are overly slick, as those executives tend to be more skilled at building up investor enthusiasm than they are at delivering on those lofty expectations.

Who are some of the most talented management teams in India today?

Examples of Indian management teams I believe to be highly talented include:

· Cholamandalam Investment and Finance (NSE: CHOLAFIN)

o “Chola” (pronounced “TCH-ola”) is part of the highly-respected Chennai-based Murugappa Group. I have been continually impressed by the clear-eyed, data-dependent capital allocation exhibited by Chola, which refuses to grow just for the sake of market share, readily divests non-core operations when someone offers to overpay for them, and observes the wisdom that, when it comes to the lending business, competition isn’t about how effectively you can issue loans to more customers, but rather about how effectively you can collect from them.

· Gala Precision Engineering (NSE: GALAPREC)

o Since its founding in 1989, Gala has achieved technical expertise in the design and manufacturing of high-performance fasteners and other precision engineering components. Today, the company serves nearly 200 customers across 25 countries – including the European home markets of the sleepy, higher-cost-structure German, Austrian, and Swiss rivals from which it has been steadily winning market share.

· Sansera Engineering (NSE: SANSERA)

o A manufacturer of “tough-to-get-into” engineered products for the automotive and aerospace industries, Sansera has steadily grown both its business and its addressable market by patiently convincing customers such as Daimler, Fiat, and Yamaha that they can count on Sansera to supply critical components they had previously produced in-house. With a competitive edge that includes extensive arrays of custom-built, proprietary machine tools and a decades-long runway for continued growth, I can see Sansera remaining a core position for many years to come.

· Jamna Auto (NSE: JAMNAAUTO)

o Jamna has steadily built up a dominant position in India’s market for commercial vehicle suspension springs – an unsexy but critical product for trucks operating on India’s often-bumpy roads. Management has achieved +20% compound annual EPS growth over the past decade in part by maintaining a stellar balance sheet, which has allowed Jamna to take advantage of the industry’s periodic cyclical downturns by gobbling up the market shares of smaller, less financially disciplined rivals.

Governance is important for any company, especially in developing countries. How does the governance culture in India differ from that in the U.S.? What should investors in India look at to avoid companies with bad governance?

Yes, ascertaining the quality of corporate governance is the most critical step of our research process. It doesn’t matter how optically fast-growing or cheap a stock might look if management are dishonest and/or unethical.

When Steve and I first started traveling to India, we wrongly assumed that some of the best-governed listed companies were the many listed Indian subsidiaries of blue-chip multinationals (MNCs). These listed MNC subs, such as ABB India (NSE: ABB), Colgate-Palmolive India (NSE: COLPAL), Maruti Suzuki India (NSE: MARUTI), and Nestlé India (NSE: NESTLEIND), are a legacy of onerous 1970s-era restrictions on foreign equity ownership. While those constraints were largely abolished during India’s post-1991 economic liberalization, the process by which MNCs can try to buy out their Indian units’ public shareholders has remained sufficiently onerous that many delisting attempts have failed (though market regulator SEBI recently introduced reforms that may help address this issue). In reaction, many of these MNCs now treat their Indian subsidiaries not as investments to be maximized, but rather as profit pools to be extracted via royalty payments that allow their respective overseas parent companies to divert ever-increasing shares of earnings toward themselves – thereby reducing the share of those earnings available for re-investment in the business and/or distribution on an equitable basis to all shareholders.

Meanwhile, some of the highest-quality corporate governance we’ve encountered in India has been at family businesses run by first- or second-generation founder-owners. In my experience, these family-controlled companies often allocate capital much more prudently (and thereby drive better returns to minority shareholders such as Gymkhana) than do many so-called “professional” boards of directors overseeing firms where ownership is so diffuse that critical decisions are made not through the diligent lens of owner-operators but rather with the carelessness of spending “someone’s else’s money.”

Whereas a decade ago I recall uncovering corporate governance red flags in annual reports (e.g., an unlisted affiliate collecting lucrative related-party payments for nebulous services), nowadays even less-than-scrupulous founders seem to have realized that they are perhaps better off boosting their market caps than crudely siphoning funds. Not to say that corporate governance red flags have become rarer – now it just often takes more work to unearth them. The process we use combines our own due diligence with references obtained from our expanding network of Indian managers, journalists, local investors, and other experts. Growing and sustaining this network has required years of work and no small measure of luck – particularly at the start, when my partner Steve realized that an Indian-American fellow parent at his kids’ Manhattan school could put us in touch with his friends in Mumbai and Delhi, who in turn introduced us to their friends, and so on.

Finally, a simple but effective rule that has served us well in India is simply avoiding altogether any industries where competitive advantages have more to do with political affiliations than managerial skill. This rules out anything having to do with mining, telecoms, and utilities, as well as – in what may come as a surprise to some – dairy companies, which after years of research we ultimately concluded are in too many cases simply too intertwined with India’s rough-and-tumble politics.

Over the years, you’ve analyzed a wide range of industries in India, from payments and banking to airlines. How do you approach studying a sector that’s new or very different from its U.S. counterpart, and is there an Indian industry that’s especially promising to you?

Even when it comes to sectors where the Indian market is structurally dissimilar to its U.S. or European counterparts, I find it useful to use that contrast as a tool for understanding why an Indian business may be more or less lucrative than its analogue abroad. For example, I spent much of the Covid lockdown diving deep into Universal Music Group (AMS: UMG), Sony Music Group (a subsidiary of Japan’s Sony Group – NYSE: SONY), and Warner Music Group (NASDAQ: WMG). These so-called “Big Three” global music companies build and retain ownership over vast catalogs of recordings and compositions that give them enormous leverage over streaming platforms and other music licensors.

Market dynamics could not be more different in India, where film soundtracks account for the lion’s share of music industry revenue. Indian record labels such as Tips Music (NSE: TIPSMUSIC) and Saregama (NSE: SAREGAMA) must constantly bid in auction-like processes for the rights to distribute the soundtracks accompanying movies coming out of Bollywood (the Hindi-language film industry), Kollywood (Tamil-language), Tollywood (Telugu-language), and other regional Indian film industries. To make matters worse, bids must be submitted before movies are released – meaning they are at best informed guesses with respect to the anticipated commercial value of acquired rights. While Indian revenue from local non-soundtrack releases and global hits is increasing, most of that growth is being captured by the Big Three, whose well-funded Indian offices quickly scoop up local acts that manage to break through internationally. For example, Indian rapper Hanumankind signed with UMG-owned Capitol Records within days of scoring a globally viral hit with his 2024 single Big Dawgs.

In other cases, familiarity with the way in which an industry has developed in the U.S. can shed light on the possible future direction of its Indian analogue. For example, in retrospect we can clearly see that early-1980s tweaks to America’s tax code jump-started a decades-long boom in households’ allocations to financial assets in general and equities in particular. I believe that India, where two-thirds of household wealth is still parked in real estate and gold, is in the early stages of a comparably profound long-term shift. Thanks to its world-class digital payments infrastructure, years of mutual-fund industry advertising, and government promotion of payroll deduction-funded, 401(k)-style automatic investment plans called SIPs, the percentage of Indians’ wealth invested in shares of listed Indian companies more than doubled over the past decade, from 2%-3% in 2014 to 6%-7% as of last year.

However, it’s still very much early days, and I believe that there remains enormous potential for further convergence between the savings allocation patterns of India’s burgeoning class of savers and those in developed economies. Companies benefiting directly from this long-term trend include Bajaj Finserv (NSE: BAJAJFINSV) and Cholamandalam Investment and Finance (NSE: CHOLAFIN).

Other examples of “cross-pollination” from researching both Indian companies and their non-Indian counterparts include our investments in listed Indian holding companies trading at very significant discounts to sum-of-the-parts values consisting largely of substantial stakes in publicly-traded operating affiliates.

Notable examples include Gymkhana portfolio companies Maharashtra Scooters (NSE: MAHSCOOTER) and Cholamandalam Financial Holdings (NSE: CHOLAHLDNG), which trade at ~40%-70% discounts to their sum-of-the-parts values and consequently allow us to indirectly gain exposure to underlying businesses including Bajaj Finserv and Cholamandalam Investment and Finance (the beneficiaries of financialization mentioned above) at effective P/Es drastically lower than what we would have paid buying those underlying stocks directly.

When we bring up these undervalued holdcos with our India-based investor friends, we invariably hear that they’ve always traded at wide discounts, that those discounts will likely never close, and that we’re better off simply owning shares in the underlying operating affiliates. Well, within my lifetime, sprawling conglomerates selling at discounts to their sum-of-the-parts values were similarly widespread in the U.S., and attracted similar skepticism from investors. Ultimately, though, a combination of investor pressure and managerial incentives led to the breakup and favorable revaluation of firms including Gulf and Western, Allegheny Teledyne, ITT, United Technologies, General Electric, and (most recently) Honeywell.

Of course, just because an Indian holdco sells at a discount to its sum-of-the-parts value is not enough to make it a good investment. We own the ones we do because they allow us to gain exposure to high-quality, earnings-compounding operating businesses at reasonable valuations – and if their discounts eventually narrow, that would be icing on the cake. And while such a narrowing is not integral to our investment thesis, we wouldn’t be surprised if it happened sooner than some of our aforementioned friends expect. In a meaningful but largely under-the-radar development, SEBI (India’s securities regulator) recently unveiled multiple reforms aimed specifically at narrowing the very wide gaps between listed holdcos’ market and book values. These included newly-introduced annual special call auctions intended to improve “price discovery” of otherwise illiquid holdco stocks, as well as streamlined procedures by which a holdco can distribute to its stockholders the holdco’s stakes in other listed companies.

What are some interesting ideas on your radar now?

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