Idea Brunch with Andrew Pogue of Underlying Value
Welcome to Sunday’s Idea Brunch, your interview series with great off-the-beaten-path investors. We are very excited to interview Andrew Pogue!
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.
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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: