VALUE PUNKS | Daye Deng & Balkar Sivia
Investment philosophy is always a work in progress. In this episode I was joined by substack authors Daye Deng and Balkar Sivia who have an article titled Memo: Value Investing Revisited - Rethinking volatility, conviction, and Mr. Market.
Value investing is a philosophy learned from well-known investors like Warren Buffett and Benjamin Graham. There is a standard set of principles in value investing. These principles, such as "volatility is not a risk" and "conviction is key," are useful when applied correctly. However, there are always nuances and compromises in these principles that arise in practice. In this context, Daye & Balkar examined the five most common value investing principles and offer a practical perspective based on their own experiences.
"A lot of beginners, or even people who've been in this field for many, many years, take these Warren Buffet quotes and treat them as hard truths without realizing that in practice, a lot of the time these concepts are very nuanced. And Warren Buffet himself knows all these nuances. He has thought through these nuances over his 60 or 70 year career. But the problem is that a lot of people haven't, they're not Warren Buffet. So we see people get burned using these concepts, even though they're supposed to help you. All while they think that they're following the right philosophies."
"Investors really love talking about their high conviction ideas, right? Conviction's always talked about as if it's a virtue and it's nothing else. You know, the more conviction I have, the better. But in fact, in reality, we kind of think of it as a double-edged sword. Far more important than talking about the ideas where you have high conviction, would be to talk about how do you protect yourself from your own conviction? The human brain is very good at creating narratives for itself. We find it's far more constructive instead of talking about, okay, you know, the time when my huge conviction made me so much money, it's a lot more constructive to talk about when a big conviction led you to believe in the wrong stock?"
TRANSCRIPT FOLLOWS AFTER THIS BRIEF MESSAGE
Get 4 months free on an annual premium plan when you use Sharesight, the award-winning portfolio tracker. Sign up for a free trial today.
Sharesight automatically tracks price, performance and dividends from 240,000+ global stocks, crypto, ETFs and funds. Add cash accounts and property to get the full picture of your portfolio – all in one place.
Portfolio tracker Sharesight tracks your trades, shows your true performance, and saves you time and money at tax time. Get 4 months free at this link.
Disclosure: The links provided are affiliate links. I will be paid a commission if you use this link to make a purchase. You will also usually receive a discount by using these links/coupon codes. I only recommend products and services that I use and trust myself or where I have interviewed and/or met the founders and have assured myself that they’re offering something of value.
Shares for Beginners
Investing is a baseball game where there are no strikes, right? It it, it can give you Amazon at X price. It can give you Microsoft at y price, and you can just stand there with your capital. You have to do nothing. And when Mr. Market is really depressed, that's when you swing.
Hi, and welcome back to Stocks for Beginners. I'm Phil Muscatello. What are the core tenets of value investing? What are the investment philosophies handed down on stone tablets by the likes of Buffet, Graham and Munger? Is there syllabus still relevant. Today I'm joined by the value punks to look at this and more. Hello day on Balkar.
Value Punks right about good and actionable stock ideas in a way that educates, informs, and importantly helps build conviction. And we will be covering conviction today. Value Punks was founded by Balkar Sivia and Daye Deng, two buy-side equity analysts who believe that independent institutional grade equity, I'll do that again. Equity analysts who believe that independent institutional grade equity research should be accessible to all investors. So tell us a bit about your background, where you guys came from, who wants to go first?
Daye (1m 14s):
Sure. I'm Daye, I've been investing professionally for the last 10 years or so, and most of these years were spent as a equity research analyst on, on the buy side. And right now I'm a portfolio manager and managing client capital. And mostly that, that those are high net worth individuals.
Phil (1m 34s):
Yeah. And Balkar.
Balkar (1m 36s):
Hi, my name is Balkar Sivia. I'm from Toronto, Canada. I have a background. I actually graduated as an engineer and I fell into love with stocks and stock investing. And I was young enough in my career to make the switch. So I am, in the beginning, I was mostly self-taught, but since 2010, I have been investing professionally in buy-side firms. In 2021, I took the leap and founded my own firm, White Falcon Capital, where it's a investment partnership kind of based on Buffett's principles. And, you know, there are some synergies and some commonalities in, in running and, and writing for value punks.
Balkar (2m 18s):
So the things that I own and hold in white Falcon are some of the things that we talk about in, in value punks and the ideas that we have there.
Phil (2m 28s):
So where did the name come from? Are you Clint Eastwood fans or punk music fans?
Daye (2m 33s):
Yeah, it was, there's a, there's a not so serious version and a more serious version. You know, the not so serious version just being, you, you, I'm assuming everyone knows what a crypto crypto punks are, right? These are NFTs. And we just kind of thought it's hilarious the fact that we found a, you know, a Warren Buffet nft. Because if you kind of think about it, these are two very different, almost polar opposites, right? You got, got the most prudent investor on one side with an NFT is totally crazy subculture, right? Yeah. So, so that was kind of funny. But, but I guess a more serious answer would be that we, we, Balkar and I, both of us, we kind of started our careers.
Daye (3m 16s):
We used to be colleagues at the same company, and this was a, I'd say a pretty conservatively run b buy-side firm managing a lot of money for endowments, you know, just conservative clients, right? And there was a big focus on studying the work of Warren Buffett. So we, that, that was kind of our starting point. But over time, you know, one thing that Warren Buffet really emphasizes is this concept of circle of competence, right? He invests within that circle, the circle of what, you know, and Bakar and I we're, we're young and kind of foolish enough to try to push that circle, if you will.
Daye (3m 57s):
So, so that is where the, the, the punk side of us come, comes, comes in. And
Phil (4m 4s):
You, you were feeling lucky punks, were you?
Daye (4m 7s):
Phil (4m 9s):
And it's funny, just I've spoken, one of the things that comes up in this podcast is people say that engineers are not very good at becoming investors because of that concrete mindset that they have, which doesn't really take into account the emotions that are inherent in the stock market.
Balkar (4m 26s):
Nope, that's true. But engineers are confident a bunch, and they think, you know, they can do things better than, than somebody else. And, you know, in the beginning as a junior analyst, you know, this, this is more science than art, but over time this becomes more art than science. And I think I've had to learn and adapt all those different attributes.
Phil (4m 51s):
Okay, so let's talk about what value investing is. Where did it come from? What sits history and why does it mean so much to you?
Daye (4m 58s):
Yeah, so we would consider ourselves as value investors, right? And I think you'll probably hear many people say they're value investors, and maybe that means something different to, you know, different people, right? Maybe even between Balkar and I. We, we could kind of interpret that perhaps a little differently between us as well. I would say, just just from my perspective, what value investors are, I think there's one key defining trait of what makes a value investor, which is, I, I think value investors really start from what they don't know as opposed to what, what they know. And so that is really, you know, in particular, there's a, there there's a belief that the world is really complicated, complex things are inherently un forecastable.
Daye (5m 48s):
You cannot predict things. And so that is kind of the philosophical underpinning of this whole thing, the starting point for being a value investor. So most you would hear, describe value investing as something like you, you buy a dollar for 50 cents, and that's kind of the concept that was originally it came from Ben Graham, right? In my opinion, right? It's not about buying that dollar for 50 cents because you think that 50 cents would eventually become a dollar that, I mean, that is a part of, you know, the re return equation. But the more important part, I think is that you, by doing that, you create a buffer for your own ignorance.
Daye (6m 30s):
And sometimes people call that a margin of safety, but the idea is you wanna protect downside even in the case when you're wrong, so that you, you don't go through the kind of, you know, 80, 90% drawdowns and that that is, I think, the real reason why you wanna buy a dollar for 50 cents.
Phil (6m 48s):
Balkar, did you wanna add to that?
Balkar (6m 49s):
Yeah, you know, just to, just to add to it, you know, again, value investing has evolved over time, right? I mean, there, I mean, Graham as pay saying buying dollars for 50 cents, you know, that was value investing. And then Buffet buying, Coke became value investing. And today people are buying high tech growth stocks in calling it value investing, right? I think, again, different people can have different definitions of value investing, but I think the core is that you're buying something where the expectations are so low that you know anything incrementally positive is good for you, gives you a return, and something incrementally negative hopefully is all priced in and doesn't affect you on the downside.
Balkar (7m 29s):
Because again, if somebody is buying a stock that's, that's growing at 50% a year and at 10 times earnings or 20 times earnings, you know, that's value investing also, right? Different people interpret it different ways, but I'd say it's getting more than what you're paying. And hopefully the expectations in that stock are at a point where, you know, any incremental positive news can only help you.
Phil (7m 59s):
Well. So you're, you're coming from a position of pessimism,
Balkar (8m 2s):
Then most value investors are not optimist, you know? Yeah. I think we have worked around, you know, enough value investors to kind of say that. I mean, for the longest time they didn't invest in technology stocks, right? Because to invest in technology stocks, you have to believe that things are getting better or will get better. That these companies that are not producing any earnings will produce earnings. You know, you know, value investors typically don't do any of that. They just say, this is an industrial company that was making X amount of earnings in the last upcycle. They have all these assets, I'm just paying for the assets, right? I don't know what the earnings are going to be next year because I can't really forecast, but when the next upcycle comes, earnings will be good and I'll be taken out of, I'll make money.
Balkar (8m 48s):
But for now, I'm buying all these assets that the company has for more or less what the assets are worth. That's typically the mindset of a, of a traditional value investor.
Phil (8m 60s):
We, we see in headlines, and this is something that you see in the financial media, is that there's been a rotation out of growth into value. Is that accurate or is it like, just kind of a headline that's made up by finance journalists?
Balkar (9m 14s):
This is a bit of a pet peeve of mine, so maybe I'll, I'll I'll take it first.
Phil (9m 18s):
Oh yes. If it's gr if it's grinding your gears, we want to hear about it.
Balkar (9m 21s):
And I, you know, and I think day, you know, day and I both, you know, you know, we, we don't believe in these growth value constructs, you know, personally, you know, we think that this is, you know, these are factors that are made by markets and consultants and pension funds to kind of put people in boxes, right? You know, in that, you know, somebody can have a large cap value fund or somebody can have a small cap growth fund, and then you're in that box and you have to buy value, even if value is not doing well, or if you're in the growth bucket and you have to buy, I think you can do both, right? You can, you can do value investing in the growth bucket, or you can do growth investing in the value bucket.
Balkar (10m 2s):
People are saying, when they say that, what the market commentator are saying is, you know, in, you know, in, in the present context that because rates are going up, right? Longer duration assets, which are more affected by rates going up are not doing so well. Longer duration, meaning growth companies that are not making a lot of money today, but are expected to make a lot of money in the future. So the cashflow that they're produced 10 years from now is worth a lot less because rates have gone up, right? Value companies are kind of, your steady Eddie produce earnings every year, produce cashflow every year, which, which even at higher rates can be discounted to much higher valuations.
Balkar (10m 49s):
I think that's what they mean when they say these rotations are happening, right? Again, you know, rates go decline. I mean, if, if inflation declines rates go decline tomorrow, and maybe the market starts valuing these growth companies higher, again, people shouldn't get swayed by these market narratives that get built up. I think, I think they're very dangerous because, you know, people justify whatever's happening in the market by these narratives. I think that's why having a process and having a philosophy is very, very important.
Phil (11m 26s):
You guys seem to have very subtle and nuanced views that you want to share with the value investing community. Can you expand on that please?
Daye (11m 34s):
Yeah. So we, on our Substack, we wrote a post called Value Investing Revisited there. I think most of your, our listeners today would've probably heard of value investing. They might have maybe read a few books on value investing, heard about, heard a lot of the famous Warren Buffet quotes on investing, right? And we all know kind of what they are, right? So most people know the basics such as the concept of Mr. Market. I'm sure you've heard of this one, the concept that volatility is a friend that should be embraced because you wanna buy stock low and you wanna sell high, right? So I think all of these concepts are great places to start, but what, what becomes then problematic, and this is kind of the issue we have with, with this field, is that people take these teachings and they become very dogmatic about them, right?
Daye (12m 31s):
So a lot of beginners, or even even people who's been in this, this field for many, many years, right? They take these Warren Buffet quotes and treat it as hard truths without realizing that in practice, a lot of the, a lot of the time they, these concepts are very nuanced. And, and the thing is, Warren Buffet himself knows all these nuances. He has thought through these nuances over his, you know, 60 or 70 year career. But the problem is that a lot of people haven't, they're not Warren Buffet. So we see people get burned using these concepts even though they're supposed to help you even, you know, all while they think that they're following the right philosophies.
Daye (13m 14s):
You know, if I was to give you like a, like an analogy here, it would be kind of like listening to a, like a professional stuntsman telling you how easy it is to jump out of cars. You know, mo jumping out of a moving car isn't that hard, but if you take it that literally and try it yourself, you're gonna be dead. So there's more to it than what they, what they say. So, so what we did is we, we kind of just gave, gave like, we call it like a practical footnote to some of these most referenced value investing concepts. And it's important that investors know for, for these, the fact that these principles can both benefit you as well as hurt you at the same time if you don't apply them properly.
Phil (13m 57s):
Yep. Should we go through those now?
Daye (13m 58s):
Phil (13m 59s):
Sure. Okay. Well, the first is volatility is not a risk.
Daye (14m 3s):
Yeah. You know, the, the, the common saying goes that don't be afraid of volatility because volatility is what gives you the, the chance to buy stocks at a low price, if not for volatility. How are you gonna buy for low price, right? It sounds really good on paper, but in reality, what, what do we observe, right? We observe that a lot of people get burned by volatility, forget about, you know, trying to take advantage of it. Just don't get burned by it. And one, one of the reasons is because price drives narrative a lot of the time, right? So I think beginner investors, you know, might have heard of this, but it's only when you go through the actual experience do you realize how hard it is to actually fight against volatility, right?
Daye (14m 49s):
You know, you, you buy a stock at $50 and then you think it's gonna go to a hundred, but once it goes down to 20 or 25 and stay there for a long time, it's very, very hard to go in and try to buy it, even if you think it, it could be worse a lot more in a few years. I, I think a lot of people are just not really taught properly to think of volatility as a risk. The problem with this is that they don't demand to be compensated for taking on that extra volatility, which is a problem. So we're, we're not saying volatility is bad, we're saying that if, you know, a stock is gonna be very, very volatile, you better demand to be compensated for taking on that.
Balkar (15m 31s):
Yeah, no, on volatility specifically, again, it's the, it's, you know, it's the markets or the stock, you know, going up and down, even though the business value may be quite stable, right? I mean, we have seen 10, 20% move in stocks, and of course the business value is not going up and down that much. Right? Again, if you, if you believe in the stock, you know, you can buy more when it comes down. But I think what, what we are trying to say here is that, you know, you can buy more when it comes down and then it comes down again and you buy more and it comes down again and you buy more. Where do you draw that line? Right? Where do you, where do you say, I'm gonna, I'm gonna stop buying, maybe I'm wrong.
Balkar (16m 11s):
Hmm. Right? And, and when they say you have to be compensated, I mean, you have to recognize that if you're buying something that has, is volatile, you know, is volatile because maybe it has leverage or, or, or some other reason, then you know, you have to both be compensated as in the returns you expect from that investment should be very high. And you have to risk manage, which means that position cannot be a very big position. It has to be a small part of your portfolio. Because if it's already a large part of your portfolio and it's volatile, I think, you know, it, it, it's very difficult psychologically to, can I take that draw down and be, you know, buy more.
Phil (16m 54s):
I think that was a very nice thing that you said, and I just wanted to explore it for a moment, is that price drives the narrative. Can you expand on that?
Balkar (17m 3s):
You know, you see the market go up and everybody on C N B C says, oh, the market's going up because you know, X, Y, Z and then, and then the market go down and then everybody says, oh, the market's going down because of these reasons. But at the end of the day, there, you know, there are buyers and sellers on both sides of every transaction, right? You know, and, and this is an important point in the sense that when the stock prices are making all time highs, most stories about that stock are very, very positive. Everybody just looks at what can go right? No, nobody wants to looks at what can go wrong. I mean, you can name Shopify, you can name any one of these highlighters, right? And when the stock's down in the dumps, everybody only looks at what's wrong.
Phil (17m 44s):
Okay? So you referred then in the answer to volatility about diversification. And this is another one because many value investors believe that diversification is not your friend.
Daye (17m 58s):
One thing that I think investors have heard a lot, and Charlie Munger, you know, Warren Buffett's partner says this a lot, which is diversification is for the no nothing investor. It's not for the professional. So Charlie Munger is probably the, been the most vocal critic of diversification, concept of diversification came out of the academia. This was decades ago. And at that time it was a novel discovery, right? That diversification can help improve risk adjusted returns of a portfolio. But over time, I think this whole concept's kind of been relegated to, to the academia, right? It, it, it's not, it's not applicable to the, to the real investors in the world who really study businesses and who have conviction and who, who have really done their homework.
Daye (18m 47s):
So that's kind of the position of where diversification as a concept is today. And, and we think that this needs to be revisited in a sense that we agree with Charlie Munger, that mindless diversification, just diversification for the sake of doing that alone don't make sense. But this, this anti diversification view, this, this has gone been kind of pushed to an unhealthy extreme.
Balkar (19m 13s):
Maybe I'll just add to, you know, the point today is making in the sense that, you know, buffet, you know, or Munger say, you know, five or eight stocks is more than diversified enough, right? And then people follow them on that, right? But again, you know, buffet and Munger are very, very, very smart and they make it sound very, very, very easy. A lot of people think that it's easy and, you know, they buy random eight stocks, you know, you know, they may not be diversified in those eight stocks and think that they are diversified, right? And then maybe, you know, maybe these eight stocks are in technology, so they have the same kind of factor. So if technology is not in vogue, you know, in, you know, in certain quarters or years, then you can see the whole portfolio go down.
Balkar (20m 1s):
And the correlation on that portfolio is one, right? Because they have no real diversification. And what you need is some uncorrelated stocks in there. So that, for example, if technology is going down, you, you know, you have some, you know, I don't know, precious metals or industrials or some other sector that's not going down as much that you can then sell to buy more of what you what's down more. But if everything's down, then what are you gonna buy? This lack of diversification that, and this overconfidence, you know, you know, we think can be injurious to portfolios. And I think that's the point that kind they made in that article that he wrote this blind overconfident belief that, you know, you can, can duplicate what Buffet has done.
Phil (20m 49s):
And we've gotta realize too that Warren Buffett is one of those strange individuals that will read company reports for pleasure. And that's, you know, ordinary investors are not going to be doing that, are they?
Balkar (21m 2s):
And even if they are, you know, there are, you know, the CFOs of many of these companies and the, the accountants are now smart enough to hide things and, and not make it very easy for the general investor to really understand these, these, these statements.
Phil (21m 21s):
And when you're talking about diversification and having a, a very correlated portfolio, just because you've chosen eight stocks at random that doesn't really speak to conviction and wanting to have conviction as well, and that conviction comes from really do understanding those financial reports much more than, you know, your ordinary retail investor would. Sir, where does conviction sit in the spectrum of the commandments of value investing?
Daye (21m 51s):
We think conviction tends to be a word that's probably overused in the investing community. Investors really love talking about their high conviction ideas, right? Convictions always talked about as if it's, it's a virtue and it's nothing else. You know, the more conviction I have, the better. But in fact, in reality, we, we kind of think of it as a double-edged sword. Far more important than talking about the ideas where you have high conviction and would be to talk about how, how do you protect yourself from your own conviction, right? That the human brain is, is very, very good at creating narratives to four yourself. We just find kart and I, we just find it's far more constructive instead of talking about, okay, you know, the time when my huge conviction made me so much money, you know, it's, it's a lot more constructive to talk about when did a big conviction lead you to believe in the wrong stock?
Daye (22m 44s):
And you know, importantly, sometimes conviction makes you double down on the wrong stuff. You think the price falls by 50%, okay, great, you know, chance to buy more of this stock that I really like, but then it keeps going down, down, down until you, you sell at the lowest.
Phil (22m 60s):
Yeah. I like, I I like the meme that you had in that article in it, what was it? So you're telling me that my conviction will make the stock go up? Yeah. Yeah. So the other thing is Mr. Market is irrational. So maybe just give us a bit more of a, a background on who m mr Market is and where the this concept came from and how investors need to be careful about thinking of an irrational MR market. So
Balkar (23m 26s):
Mr Market is essentially a term that was coined by Benjamin Graham to kind of personify the market, right? He's essentially saying that that's the person sitting on the other side of the table and it's offering you, you know, stocks at a certain price and then, you know, tomorrow it's a different price the day after it's a different price. And he called Mr Market manic depressive. I mean, it creates this, these bouts of volatility where, you know, the same asset can be offered at different prices day one, day two, day three. You know, the interestingly thing about the markets is, and then, you know, Buffett kind of takes it to the next logical level and he says, Mr.
Balkar (24m 8s):
Market can give you whatever offers it wants, you don't have to swing, right? Investing is a baseball game where there are no strikes, right? It, it can give you Amazon at X price, it can give you Microsoft at y price and you can just stand there with your capital. You have to do nothing. And when Mr. Market is really depressed, that's when you swing. You know? So that's the idea.
Phil (24m 32s):
So what, what is the nuance then? Because you do talk about Mr. Market being irrational as something that investors look at, but then it's not quite as simple as it might appear on the surface.
Daye (24m 44s):
Yeah, so we think that, you know, there's nothing wrong with this concept itself is sound, but then again, to the point that investors take this literally without thinking about the nuances. So one way is that this could really turn into a slippery slope for investors when they really start to default to the assumption that Mr. Market can only be rational when it agrees with me. You know, how, how many people just think about like how many people around you, right? You know, and they can be amateur or professional investors who, who think that the market is dumb or irrational and that, you know, they're smarter, but then they, they happen to be the ones that who have lost a substantial amount of money, and I think in this case, right?
Daye (25m 28s):
They, they would've probably been better off had they defaulted to the thinking that the market is smart and that, you know, they are not the smart money, they are the dumb money had, if you had they come from this starting point, they might have prevented themselves from doing stupid things in the market.
Phil (25m 46s):
Yeah, that's interesting that people should think of themselves as stupid and that the market is smart rather than the very opposite.
Balkar (25m 53s):
That's right. Yeah. Yeah, that's right. I i i, i, I think that's a very important point because, you know, and, and it's a very nuanced point, because to make money in the market, you have to have a differentiated view compared to the market, right? You have to say, right now something is priced too high, or right now something is priced too wrong, right? But sometimes, you know, you think something's priced too high and it keeps going up or vice versa. And many investors kind of stubbornly stick to their views and say, you know what? I'm right market's wrong. Eventually the market will come to my view. Hmm. And I think what, what we are trying to say is, you know, maybe the market is right and maybe you are wrong. And I think at that point when something is moving against you instead of kind of doubling down on your position, I think for a rational investor it makes sense to kind of go back to the drawing board and say, okay, where can I be wrong?
Balkar (26m 44s):
What is the market thinking here? What am I not thinking about? Right? I think not that many investors cannot do this, and more investors should. I think that's the point that, you know, they made in that article.
Phil (26m 58s):
Okay. So the last thing is wide moats. We always hear about businesses with wide moats, and that's obviously something that's protecting them from some sort of competition. And again, it sounds, it sounds like a very rational idea, but you don't think it's quite that simple.
Balkar (27m 13s):
You know, the point that we are trying to make here is everybody wants to invest in a stock that has a moat, meaning it has a competitive advantage because you know, that is the only way you protect your economics. You protect your returns on equity that you make because you know, you can invest in a company today if it doesn't have a moat, a competitor comes in, takes away the economics, the stock, and the earnings that you thought you had. You don't have that anymore, right? But you know, increasingly we find that these moats, you know, companies with strong moats, these stock prices reflect that attribute, right? It's already priced in.
Balkar (27m 53s):
So, you know, you can write a long report on why, you know, this company has a big moat and you know, therefore you should invest in the company. But I think you also have to think about to what extent is it already priced in, right? The other thing you have to think about here is if that moat is getting wider or narrower over time, I think that's the more important question, rather than just finding a moat, because everybody these days is trying to find the moat. So if the moat is getting wider, I think that's where you need to be versus if the moat is stagnant or getting, getting narrower. And I think that's where a lot of value investors in the last kind of 15 years have, in my opinion, made some mistakes where they've invested in old economy companies, assuming that the moats will at a minimum stay stable, right?
Balkar (28m 47s):
But what has happened with this rapid technology technological progress is those moats have narrowed very, very quickly. And when those moats narrow the earnings power that you think the company has five years from today, they don't have that. I think that analysis and the rate of change of mode, if you will, is more important than just determining if a company has a moat or not. I think that's the point that, that we try to make in that, in that section.
Phil (29m 14s):
Yeah, and that's quite interesting though, because I think that's quite well reflected. If you look at the composition of the top, you know, 30, 40, 50 stocks on the US market, how much they've changed since the 1980s and how few companies are still there. That's right. Then you would've assumed that they would've had very, very wide moats.
Balkar (29m 32s):
That's correct. And you know, this is one of kind of Buffett's exercises that he does, right? He looks at kind of beginning of every, every decade and the, at the end of every decade, he looks at what the top companies are, right? And to your point, it's interesting that many of those companies change every decade, you know? Therefore, I think the point is that it, it's a very difficult job to predict if a company will remain relevant and large and moated 10 years from today. And evidence is that it's very difficult and most companies don't.
Phil (30m 7s):
What do you think are some key takeaways that retail investors, small investors just starting in the markets should be taking away from this chat that we've just had?
Daye (30m 17s):
So, so I think just, just observing ne newer investors, I think one of the difference I find between difference between a professional and amateur investors is that oftentimes a professional investor has a better sense of the return expectation that he or s can expect to get in the equity market. And what I mean is that if one has a 20% return in a year, usually the pros know that that is a pretty good return and that kind of return, you, you cannot repeat that year after year. But oftentimes I think, you know, newer investors don't have that context and they think that kind of returns can keep happening.
Daye (30m 58s):
But if you look historically right, equity, public equity market returns have been eight to 10% historically. So I think it, it's important for maybe newer investors to kind of have that set that return expectation, right? You don't, you know, expect to make life changing kind of money in, in, in this, right? That will really alter your lifestyle because that's kind of the formula for blowing up just chasing those kind of returns.
Phil (31m 25s):
Yeah. You've gotta have realistic expectations and I think the people who are approaching the markets for the first time suddenly think, ah, I'm gonna make tons of money. It looks so easy, but yeah, yeah. Like, like you said, that can blow in, blow up in your face. Yeah.
Daye (31m 39s):
Yeah. I think you, you'd be probab invest, you know, you'd probably be disappointed with just knowing how low the sustainable returns are, right? That kind of returns in the public market and think about 10% a year for many years, if you're lucky, and probably more like five per probably more in the single digits compounded over however many years that's gonna be your, your runway and
Phil (32m 1s):
That, and that's why many people now vote now invest just in simple index hugging ETFs because to get those kind of returns, and even Warren Buffett is recommending his own family when he passes just to invest in ETFs.
Daye (32m 17s):
Yeah, exactly. Exactly. And, and whether, whether, whether you pick stocks or I think whether you choose indexing, I think the important thing would be to just pick a program, an investing program that you can stick with, right? If you know that you're picking stocks is not your passion or that you know, you're not gonna be able to dedicate a lot of time doing this, maybe the better way to go would be, would be indexing
Phil (32m 40s):
Balkar. Did you wanna way to add to that?
Balkar (32m 42s):
Yeah, no, I think that that latter point is very important in that personally, I don't think that the retail investor or any investor with a computer today is at any disadvantage compared to a buy side investor or somebody who works within a hedge fund or whatever have you. The only disadvantage is time, right? I mean, can you dedicate, I mean, a bi analyst works 10 hours a day, you know, and, and all he or she's doing is looking at balance sheets, looking at income statements, talking to management. If you can do that, then that's perfect, but if you can't then, you know, either you index or you find managers that you think have skin in the game and, and, and are competent and can produce decent returns for you over time, you know, you know, that would be, but you know, if you are passionate about it and if you can dedicate some time to it, you know, then kind, my advice would be not kind of, not to chase narratives, you know, pick a few companies, kind of the Peter Lynch approach that you understand that you can touch and feel and then just, you know, stick to them, understand them, you know, have a small circle of competence and just, just, just invest there.
Phil (33m 52s):
And presumably use that as a way of learning, but in such a way. Exactly. You're not gonna blow up your whole account.
Balkar (33m 58s):
Phil (33m 59s):
Yeah. You can't teach passion. So tell listeners where people can find you on substack and Twitter, I believe is one of your main social media spots as well.
Daye (34m 9s):
Yeah, check us at valuepunks.subtack.com or we also have a Twitter account @valuepunks. And both Bakar and I, we have Twitter, individual Twitter accounts as well. Mine is @dengusa and and Balkar, yours is,
Balkar (34m 30s):
And mine is @whitefalconcap.
Phil (34m 33s):
Diane Belker, thank you so much for joining me today on the podcast. It's been a real pleasure chatting with you.
Balkar (34m 38s):
The pleasures are Phil, thanks for, thanks for
Daye (34m 40s):
Taking time. Thanks for having us, Phil.
Thanks for listening to Shares for Beginners. You can find more sharesforbeginners.com. If you enjoy listening, please take a moment to rate or review in your podcast player or tell a friend who might want to learn more about investing for their future.
Any advice in this blog post is general financial advice only and does not take into account your objectives, financial situation or needs. Because of that, you should consider if the advice is appropriate to you and your needs before acting on the information. If you do choose to buy a financial product read the PDS and TMD and obtain appropriate financial advice tailored to your needs. Finpods Pty Ltd & Philip Muscatello are authorised representatives of MoneySherpa Pty Ltd which holds financial services licence 451289. Here's a link to our Financial Services Guide.