[00:01:51] Patrick Donley: I am really happy to have you on. I was sharing with you before we hit record that I was a big fan of yours on Twitter before you even joined TIP and got a lot of value outta your posts.

[00:02:00] Patrick Donley: Just seemed like we had a very similar mindset and philosophy about things. So it’s kinda ironic we both ended up at TIP. But I wanted to start off just talking a little bit about your journey into value investing and wanting to know, like when did money finance investing just come online for you as an interest?

[00:02:18] Clay Finck: So growing up, I’d say I had an amazing family, fantastic upbringing. I really wasn’t ever taught about money or investing growing up. I remember one of my teachers in school mentioned the penny doubling for 30 days example. And to help illustrate the power of compounding. But I don’t think that message really got across in that this is a way you can invest, or this is a way you can actually grow your money, grow your wealth.

[00:02:46] Clay Finck: So I do recall that, but I don’t really recall anything ever growing up having investors around me or people talk about it somehow. I happened to come across a Buffett biography when I was age 18, and that’s when it started to click for me, where this guy just sits in his office every day and is making a bunch of money doing it somehow.

[00:03:07] Clay Finck: So that’s when I got the interest in investing in college. I went down like the. Personal development sort of path, get Robert Kiyosaki’s book, get the Compound. I think it was The Compound Effect and like the Power of Habit, books like that, Atomic Habits and all those sorts of books.

[00:03:24] Clay Finck: And then one day I must have just Googled investing podcasts and then come across TIP’s content. And that was a tool I added to my toolkit of commutes just turn on the podcast, make my commutes more productive and just utilize my time better. I checked out obviously a bunch of investing podcasts, but I just really enjoyed learning from Preston and Stig because they just seemed to make investing much more approachable.

[00:03:47] Clay Finck: Seemed to make a ton of sense to me. And even if I didn’t end up buying a lot of the stocks they talked about, I enjoy just learning about their thought process of how they thought about things. What do they look for? What’s the red flags they look for? There’s so much nuance in investing.

[00:04:03] Clay Finck: You don’t know what you don’t know. And I think that’s just something people really enjoy with TIP’s content and what we do. And I’d say my learning journey really went to Hyperdrive when I joined TIP because I was just forced to learn if I was gonna be recording with these great guests, I better know what the heck I’m talking about.

[00:04:23] Clay Finck: And yeah, over time we’ve just found a strategy that I feel like has worked for me, makes a lot of sense to me. Prior to that I was mainly interested in just index funds and safer type investments that I knew I could sleep well at night owning. 

[00:04:37] Patrick Donley: That’s cool. So you’re 18, you’re in college at this point, and it’s a Warren Buffett book.

[00:04:42] Patrick Donley: Do you remember which one it was that you were reading at that time? 

[00:04:45] Patrick Donley: The Snowball. 

[00:04:46] Patrick Donley: Yeah. That’s a fantastic book. That’s one that’s, I remember reading it too. I forget when it, whenever it came out. Maybe 2014 or 15, I can’t remember. But it’s a page turner. It’s like something you can’t put down. 

[00:04:58] Clay Finck: And funny enough, I just now realize this, my first two episodes on We Study Billionaires.

[00:05:03] Clay Finck: I did a deep dive on the Snowball by Alex Schroeder. Came full circle when I joined. We study Billionaires. 

[00:05:12] Patrick Donley: So you’re 18, you’re starting this reading Buffet, you’re doing some self-development. What did you study and what, just how did your career progress from 18 onwards?

[00:05:23] Clay Finck: I had no idea what I wanted to do for a living, but I knew that I was pretty good at math or at least above average. And the University of Nebraska has a, it’s an actuarial science program or for shorthand just say actuary program. And essentially actuaries are like the math brains behind insurance companies.

[00:05:42] Clay Finck: And the interesting thing about insurance companies is they sell products to people that they have no idea how much it’s gonna cost them. When Coca-Cola sells you a can of Coke, they know how much it costs them to produce that can of Coke. But when you buy a auto insurance policy from Geico, Geico has no idea how much it’s gonna cost them to sell you that policy.

[00:06:02] Clay Finck: And January 1st you buy it over the year. You don’t know if you’re gonna get in a car accident if you’re gonna have these major expenses. So that’s one of the interesting things about the insurance field. Is how the math plays into this. And I thought that would suit me well. I also thought I’d be pretty interested in business just learning about businesses and there was plenty of finance classes within that curriculum.

[00:06:25] Clay Finck: So I went to University of Nebraska for four years, didn’t really know if I wanted to do that over the long run. And one of the things I liked about it is it’s a pretty dang good career with the level of education you need to get. So you get your undergrad and then you take these after. It’s not like you need to go and do four years of grad school, like many other great fields or go.

[00:06:47] Clay Finck: And I. 10 plus years of school to go and become a doctor. I feel like it’s so hard to pivot from something like that. And I feel like I didn’t really want to corner myself in a field and the sunk cost of, I think so many people find themselves then. So I’m really happy I went that direction where I gave myself the optionality, Hey, if this doesn’t work out.

[00:07:05] Clay Finck: If I wanna go become a podcast host, whatever, then we can make it work. So I was an actuary for four years. I worked at a smaller consulting company in Omaha for a few years, and then I switched jobs, moved back to Lincoln where I’m based now and worked for an insurance company. And I just decided that field and just the corporate life didn’t really suit my personality or what I wanted to do long term.

[00:07:30] Clay Finck: And then I developed this interest on the side of TIP stuff, learning all about investing. And I thought the investing field was something I would enjoy doing. It was just difficult to figure out what exactly that was. And one of the problems I think I found was just the incentive structure within so many jobs is just not well aligned.

[00:07:50] Clay Finck: For example a lot of these investment advisor positions incentivize you to sell products rather than doing what’s in the best interest of the clients. So that’s one part I found difficult to navigate. Then eventually transitioned to join TIP and just found the right opportunity that I felt might work and it was in the investment industry.

[00:08:10] Clay Finck: And then here we are. 

[00:08:12] Patrick Donley: So I want to take a step back. So you graduate, you’re in actuarial science, you’ve got a good starting salary, you’re starting to be able to invest. I imagine in college you didn’t have a whole lot to invest even though you might’ve been studying some of the principles at that point.

[00:08:27] Patrick Donley: When you started to have a little bit of income and money to save, what were some of your first steps? Were you an index fund investor? Were you picking your own stocks at that point? Talk to me a little bit about that. 

[00:08:40] Clay Finck: Yeah. Overall, generally, index funds one of the most useful books, I think people that are just getting into investing or wrapping their minds around why it’s important is a J.L Collins book, the Simple Path to Wealth.

[00:08:53] Clay Finck: It’s a fantastic book and it just explains why index funds work and why like most people should be buying index funds. I completely agree with that advice, but there’s so many people out there that need to scratch their investing itch and they just get into the value investing space and they get into what TIP talks about and you just really can’t get enough of it.

[00:09:14] Clay Finck: And that I felt like I was that kind of person where I just loved studying businesses. I loved taking in more active approach, knowing that. I might underperform if I don’t make the right investment decisions or, and I just accepted that. And yeah, as you mentioned, not a lot of money invested in college.

[00:09:32] Clay Finck: And then after college definitely started earning a pretty decent salary and then saving money. And then, yeah, a lot of that went to index funds and then just allocated a smaller portion of my portfolio to individual stocks. Scratch that investing itch. And I think the biggest thing was just using ’em as, as learning experiences.

[00:09:50] Clay Finck: Obviously make money, lose money on some, and one of my early lessons was I just happened to buy Apple when I was in college and that investment ended up. Working really well. But then there’s another investment that essentially went to zero, and then I realized from that sort of experience my winners far outweighed my losers, where like I allocated like a similar position size to both of them and then Apple goes up four or five X and then the other one goes to zero, so it doesn’t, didn’t really matter.

[00:10:17] Clay Finck: Still end up with a really fine result. That’s actually a point Gautam Bade made on our show where compounding is convex to the upside and concave to the downside, meaning that over time the gains can far outweigh the losses, assuming that you pick up some really great companies. Yeah. Obviously made a lot of mistakes along the way and it’s so funny that early on when you’re just starting out, you’re like, don’t really know what you’re doing.

[00:10:43] Clay Finck: Those experiences really teach you a lot and really carry with you for the rest of your life. 

[00:10:49] Patrick Donley: So you’re four or five years as a actuary. At what point did you start getting this itch of I want to explore something else. I don’t think this is the right career path for me. I want to hear about just the, that transition from working as an actuary to starting to have a thought process of exploring other options, and then just how TIP came about.

[00:11:12] Clay Finck: So I mentioned my first job was a consulting role, and that was with a smaller company. And what I liked about that was it being a smaller company so I could work on a wide variety of projects. I have some flexibility on what I’m gonna work on. In a smaller company, your ability to move up is really enhanced.

[00:11:28] Clay Finck: Whereas with a corporate job, you’re stuck in your role, you do what you’re told and you only move up after a certain number of years, or the right opportunity comes up. So after that first job, I transferred to an insurance role. It wasn’t a massive company, but it was still like your traditional corporate job.

[00:11:45] Clay Finck: And Yeah, ever since I transitioned there, that was fall of 2020, I realized yeah, I need to try and find something else. But it’s not like it was the end of the world. Like I was making a great salary. I had got my associate designation for that field, which gave me a pretty decent pay bump.

[00:12:02] Clay Finck: I was just enjoying listening to like TIP stuff. And I remember I was on vacation actually with my family. We were down at the lake, the Ozarks, and I got an email from Robert Leonard. Apparently I was on TIP’s email list and Robert said that he just sent a email out to the whole list saying, Hey, we’re hiring for our millennial investing show.

[00:12:23] Clay Finck: If you want to work from home, set your own schedule. Be a podcast host with TIP. You can apply here. And since I was on vacation, I didn’t really think too much about it. I was like, eh, I can never be a podcast host. If you know any actuaries, you know that they’re like the most introverted people you’ll ever meet.

[00:12:40] Clay Finck: Some of them can be pretty socially awkward. But one of my friends that also listened to TIP, he texted me, he is you should apply for that role. And I was like. You know what, maybe I should. So I threw my hat in the ring thinking there’s no way I’m gonna be getting this job. There’s surely they’re gonna find someone that’s plenty more qualified than me.

[00:12:59] Clay Finck: Just someone you know. No experience podcasting, no experience in the investment arena. It turns out over a hundred people applied and then I made it to like the final five. That’s when we had a call with Stig and apparently Robert and Stig both said I was the right fit for the job. So I think a lot of it was they saw how big of a fan of TIPI was.

[00:13:21] Clay Finck: And that’s the most important thing is like understanding what TIP is all about. And it’s not so much about knowing everything about value investing and what makes a great investment. Like a lot of that stuff is learnable, but like the soft skills and the culture fit is a thing that you really can’t fix.

[00:13:39] Clay Finck: You really need to get it right from the beginning. 

[00:13:43] Patrick Donley: That’s awesome. I love hearing that story. Similar experience for me, just hearing that they were advertising for a. Newsletter position. I thought the same thing. I’m like, ah, I doubt I’ll get this, but I’m gonna apply ’cause I love TIP and we’ll see how it goes.

[00:13:56] Patrick Donley: And it’s just, like you said, it’s a small company, so there’s lots of room for development and improvement and things like that. Different movements within the company. I wanted to hear how your, just, your learning and growth has been affected since joining TIP. What has changed for you as a person since joining and becoming a host of first millennial investing and now We Study Billionaires, 

[00:14:20] Clay Finck: joining TIP has really changed everything for me.

[00:14:23] Clay Finck: I’m just learning new things all the time definitely every week. One of your points to me earlier before we hit record is the shiny object syndrome. I’ve learned to say no to things rather quickly. My email inbox is just full of people wanting to be on the show or people sharing stock ideas and whatnot.

[00:14:44] Clay Finck: And finding an investment style that fits my skill set and my temperament has been really helpful. And it just helps me be more efficient and scanning through all these ideas. And I think one of the biggest things being at TIP is just help me be more humble. There’s a lot of smart people out there with a lot of different ideas and different thoughts on where the world is heading.

[00:15:04] Clay Finck: And that’s led me to this realization that things are changing all the time. We can’t know everything, so what’s going well now might go really poorly really quickly. And even if you think you know what will happen in the future, I think it’s important to be humble enough to know that surprises happen all the time.

[00:15:21] Clay Finck: And it’s another thing I’ve realized after reading Morgan Housel’s recent book, and when you think about it, the role you and I are in Patrick is we get paid to learn, just learn from people, learn from all these books and such. And it just gives me an immense amount of gratitude too, to just be in this type of position where I get to wake up and just.

[00:15:40] Clay Finck: Learn and get to meet amazing people in the community. I help run and just the learning never ends. And when we’re all following the footsteps of Buffett and Munger and their learning machines and as they say, the learning really never ends. 

[00:15:56] Patrick Donley: So it’s a huge gift. I totally agree.

[00:15:58] Patrick Donley: It’s sometimes I pinch myself that I get to do this and talk to the people that we get to talk to. I wanted to hear a little bit about like when you decided to leave your career, what was the feedback from some of your co workers when you told them what you were gonna be doing? 

[00:16:11] Clay Finck: Yeah, the feedback from just people in general was pretty mixed.

[00:16:15] Clay Finck: Some people were very skeptical. Thinking you could make any money at all hosting a podcast or thinking it would go well given you have zero podcast experience more generally. A lot of people just don’t listen to podcasts, which is funny enough, like you and I, the people that are in our circles listen to podcasts all the time.

[00:16:33] Clay Finck: So it’s these two different worlds where people are like, oh my gosh, this is like an amazing opportunity. Those who know what TIP is. And then other people are like, what the heck are you doing leaving this safe job, got all these benefits you’re on a great trajectory. Why would let that go.

[00:16:49] Clay Finck: It’s made me realize what’s most important to me? What do I value rather than what does like other people value? Or what do other people want to see in me or what do they want me to achieve? So it’s been this process of figuring out what it is that I want at the end of the day it’s deciding what’s most important to me.

[00:17:09] Clay Finck: So yeah, the feedback was definitely mixed. Looking back, I really appreciate those, the people that like really supported me because it. Really was a difficult decision just to make the jump on my own, but also overcome some of the feedback that I did receive from people. Yeah, I think a lot of people forget about that, where they might be listening to the show and be like, oh, Clay’s got the best job in the world.

[00:17:32] Clay Finck: Reading all these books, talking with all these people. But making that jump definitely was pretty difficult. 

[00:17:38] Patrick Donley: I mentioned that I knew about you before you started at TIP through Twitter. And you were posting a lot of great content. At what point did you realize that Twitter was this tool that is super powerful and an incredible learning place, like to be a learning machine?

[00:17:53] Patrick Donley: I wanted to just hear about that, like how your Twitter philosophy came to be. 

[00:17:59] Clay Finck: Yeah. I think I came to a similar realization to Kyle who I listened to your episode with him just recently here on Millennial investing, and Kyle had mentioned that the best way to learn something is to write about it and teach that subject to others.

[00:18:13] Clay Finck: So when Covid hit, I just realized that I had all this time on my hands and I was like, okay, what am I gonna do with all this time? It was like a couple weeks I started playing video games and it’s I can’t just keep doing this. So what I did was I purchased a course on, I don’t know if it was like a hundred dollars course on just like how to grow a Twitter following.

[00:18:33] Clay Finck: So I purchased that and just, I just started creating content on Twitter and just figure out ways to learn things and start sharing ’em with others. And really it was just my sort of way to spend all this time during Covid. And looking back I wish I would’ve spent more time doing things like reading all these books that I’ve now discovered since joining TIP instead of communicating with all these different accounts on Twitter.

[00:18:55] Clay Finck: But life’s a learning journey and you live and you learn, so when you first started off with Millennial investing, you’ve had a ton of great guests that I’ve listened to and you’ve done a lot of different kinds of podcasts. You’ve done series and things like that. I wanted to hear a little about some of the guests that you’ve had on Millennial investing or we study Billionaires that have really been impactful for you and just some of the takeaways that you’ve garnered from them.

[00:19:22] Clay Finck: Yeah. The, we study Billionaires guests are definitely more top of mind, but Millennial investing, one of the guests I really enjoyed bringing on was Adam Ziesel. His book, where the Money is I thought was great. It was like a modern day version of some of these value investing books that are classics like the Intelligent Investor.

[00:19:40] Clay Finck: It’s modern day version of appreciating things like business quality and such, and his template to valuing technology companies in today’s era uses the prime example is Amazon and. Everyone just said they were too expensive, yet the stock goes up a hundred x or whatever. From where they said it was way too expensive.

[00:20:00] Clay Finck: But Adam Cecil is one of my favorite guests on Millennial Investing. 

[00:20:03] Patrick Donley: I remember that one. I actually did a write-up in the newsletter after you had interviewed him, highlighting some of the ideas that, that he had touched on. 

[00:20:10] Clay Finck: That was a good one. Yeah, and actually it’s still email him from time to time.

[00:20:13] Clay Finck: Sometimes I’ll come across businesses and he’s looked at a lot of different companies and thought about moats and yeah, he’s someone I have kept in touch with over the past couple of years. Just a fantastic guy. And then we studied billionaires. I just interviewed Morgan Housel and he’s definitely probably my favorite guest I’ve ever had on the show.

[00:20:32] Clay Finck: I’m a big fan of his and really enjoyed having the opportunity to chat with him and. This was the first interview in a while where I felt pretty nervous or pretty anxious since I knew we only had 60 minutes to record and we really had to do it in one go. Some of the things I really liked about his book Same As Ever, is like he talks about how the biggest risk is what nobody sees coming.

[00:20:54] Clay Finck: Your risk is what you don’t see. It’s an important reminder, I think, to account for things in life where things are gonna happen that you just can’t even imagine. Like Covid nine 11, the 1987 flash crash, the recent wars it’s just a great reminder that we shouldn’t be surprised when things completely unexpected happen.

[00:21:16] Clay Finck: And he has this saying in his book that it’s pretty unsettling that the biggest news story of the next 10 years. So we’re in 2024 right now. The biggest news story of the next 10 years is gonna be something that nobody’s talking about today. And the reason that is. Is because that’s the way it’s always been.

[00:21:34] Clay Finck: And another great example he shares in the book is that zero economists forecasted the Great Depression. And since nobody forecasted it, nobody expected it, no one was prepared for it. So that’s one of the reasons, like it was so bad after the great financial crisis and the Fed sort of bailed out the banks.

[00:21:52] Clay Finck: All these people called for hyperinflation and such. And rates are gonna skyrocket. We’re gonna see hyperinflation, but we actually saw the exact opposite where rates practically went to 0%. And inflation in the real economy at least didn’t really show up. So it was really humbling reading that book and reading about these forecasters.

[00:22:12] Clay Finck: There’s a couple other things I thought were worth mentioning here in regards to Morgan’s book. He has this chapter on competitive advantages. The chapter is titled Keep Running. And he ties in all these interesting biological sort of lessons where biology encourages like all these species to grow.

[00:22:29] Clay Finck: And then. Biology punishes you for being big. So I thought that was quite interesting how he ties that into companies. There’s a statistic he shared where 40% of all public companies lost their value from 1980 to 2014. So through that period, 40% of public companies ended up going to zero. Again, it’s just very humbling in that most companies are doomed to die.

[00:22:54] Clay Finck: I also wanted to mention that I interviewed Chris Mayer twice in 2023. He was probably one of my other favorite guests, and I’m actually chatting with him again next week. And his book titled, how Do You Know, was probably one of the best books I read personally in 2023. And I know a lot of people probably haven’t read that book.

[00:23:11] Patrick Donley: Yeah, I’ve not read it yet. I’ve not read either. I wanted to, Morgan Household was called Same As Ever. Correct. That’s his second book. Psychology of Money was his first. And then Chris Mayer, his first book is a hundred Baggers, right? 

[00:23:23] Clay Finck: Yeah. He has a handful of books actually. So he wrote a couple others I personally didn’t find quite as interesting, but a hundred Baggers, I a hundred percent recommend.

[00:23:32] Clay Finck: I’ve read that book a handful of times. And then, yeah. How do you know it’s a book about general semantics, which is like a philosophical, sort of thing, but he takes all these philosophical ideas and applies it to investing. And we talked about that book on the show and it was one of my favorite interviews.

[00:23:49] Patrick Donley: Is it a heady, philosophical book? Because I think general semantics, I know a little bit about it, but not much. So is it more of a philosophical 

[00:23:57] Patrick Donley: look at investing? 

[00:23:58] Clay Finck: Yeah, it’s definitely more of a philosophical book to help paint a picture for what the book’s about. The key kinda quote I think of when I think of that book is the map is not the territory.

[00:24:11] Clay Finck: So people like to use these words to explain something, but using these words, they aren’t really explaining, they don’t really mean anything with what they’re saying. So it really made me wary of labels, like gross stocks, value stocks, the economy, GDP, all these big broad terms. People use these terms as if they mean something, but I think it’s just, it just points to a lot of people.

[00:24:36] Clay Finck: Oversimplify investing and oversimplify the world. I think there’s one example I remember from the book that you’d probably appreciate is sometimes investors will value a company based on like the real estate they own. So this company has say, 10,000 acres in Florida and all these other states, and then they just pluck a value on each of these properties in all these states.

[00:24:59] Clay Finck: So like the properties in Florida, they might say it’s worth however many dollars per square foot and they just simplify. This is how much the Florida real estate is. But in reality, like some of it’s like very valuable. Some of it’s not so valuable. So I think that was a great case in his book where investors can get themselves into trouble by taking these shortcuts and oversimplifying, obviously we have to take some sort of shortcuts because it’s impossible to know everything is the trick.

[00:25:23] Clay Finck: So he just really opened my eyes to how these terms can really. Do people, 

[00:25:29] Clay Finck: Even like in value investing, I was just thinking that when you can use the word value investing and people think we’re all on the same page on that, but what Adam Cecil thinks about value investing and what Warren Buffett thinks about value investing are two different things.

[00:25:43] Clay Finck: I. There might be some similar concepts, but like they’re not on the same page. 

[00:25:47] Clay Finck: You could have someone that’s like a cigar butt investor where they only buy things below liquidation value, and then you have someone that pays for a company like Constellation Software thirty-five times their earnings and say they’re value investor.

[00:26:00] Clay Finck: So grouping these two people under the same term really doesn’t tell you anything. 

[00:26:05] Patrick Donley: Yeah, exactly. Exactly. So the map is not the territory. That’s a, I like that quote. Interesting. So I wanted to talk a little bit about, say you’re on a flight from Nebraska to New York and you’ve got the opportunity to sit with whatever, a handful of investors that have inspired you.

[00:26:21] Patrick Donley: Who would those people be? Living nor dead. Maybe not Buffett and Munger, ’cause obviously they’ve inspired us both. But some other ones 

[00:26:30] Clay Finck: the first, I’ve already mentioned them and interviewed him twice, but Chris Mayer would probably be on one side of me. I’ll pick like a middle seat. So I have two people next to me.

[00:26:38] Clay Finck: So Chris Mayer I’d probably put next to me. One reason is I picked up a number of his holdings that he has in his portfolio. So I’d love to pick his brain on that. And I know he is looked at a ton of companies, so I know there’s stuff that might be more interesting to me because it’s a smaller name and it might not fit into his fund because he probably needs to not be a micro cap investor essentially.

[00:27:01] Clay Finck: So I know he is looked at a lot of interesting companies. 

[00:27:05] Patrick Donley: Now, I know you just did a segment on Copart. Is Copart something that he follows? 

[00:27:10] Clay Finck: Yeah, he’s owned it for a while. And what’s also interesting about Chris is he wrote a newsletter and traveled all over the world and he is been to all different, I.

[00:27:19] Clay Finck: I don’t know how many countries he is been to, but it’s a lot. And I’m sure he’d have some amazing stories to share and just recommendations on places to go. And then on my left side in the theoretical plane, I’d probably want Mohnish Pabrai there. He’s another person where he’s just full of ideas. I just admire his ability to look for things and places where no one’s really looking.

[00:27:41] Clay Finck: I think Turkey is a good example of that, and I just think he’d be a great person in terms of idea generation and finding things you couldn’t even dream that existed. 

[00:27:52] Patrick Donley: He’s got a great book that I love. The Dando Investor, he’s in the William Green’s book. Richard Weiser Happier. He’s the first investor focus.

[00:28:00] Patrick Donley: The first chapter is about Mohnish and I remember listening to William’s book on a plane once, and I love Richard Weiser Happier. I think that book is just like a wealth of wisdom in that one. But yeah, I just remember listening to so many of the stories about Mohnish and he is such a fascinating character, I think.

[00:28:15] Clay Finck: Yeah I really like his sort of approach where. There’s a lot of value. Investors where they buy a decent business, they think is like 10 or 20% below intrinsic value, but Mohnish he’s talking about a company that’s ninety-six percent discount to liquidation value. Like he just finds these things that like no one’s talking about or no one’s even looking at.

[00:28:34] Clay Finck: And like you said, just a very interesting guy. And there’s one point that really stuck with me from him that I mentioned on my chat with Kyle yesterday, where ideally you wanna find a situation where there’s low risk but high uncertainty and some investors mix the two up. So low risk means you’re, odds are you’re not gonna lose money on the bet.

[00:28:55] Clay Finck: But the high uncertainty is like what exactly plays out in the future. Wall Street hates uncertainty. They love constant earnings. But if things are choppy or things are uncertain or there’s just maybe a sketchy part of the business where you don’t really know what’s gonna happen, that’s like creates sort of the ideal scenario for an investor.

[00:29:14] Patrick Donley: Yeah, I think he calls out, like in the Dondo investor he talks about heads, I win tails, I don’t lose too much. That’s how he tries to stack the odds in his favor. 

[00:29:23] Clay Finck: Yeah. Big fan of Mohnish. 

[00:29:24] Patrick Donley: Yeah, he’s a big cloner too of Warren and Charlie and their partnership. And I think the inspiring thing about Mohnish, one of the many things, but like he really came to investing later in life.

[00:29:35] Patrick Donley: I think I I don’t know what age, but he was reading a one up on Wall Street, picked it up in an airport when he was late twenties maybe, or something like that. So we got Chris Mayer, we got Mohnish on the plane next to you who you mentioned somebody else. 

[00:29:49] Clay Finck: Those are, the two are definitely top of mind.

[00:29:52] Clay Finck: But when I described how I like to invest, usually I just point to Chris Mayer, Charlie Munger, and Nick sleep. Or the people I try to invest like just a big focus on quality and a big focus on long-term compounding. 

[00:30:07] Patrick Donley: Let’s talk a little bit about Nick Sleep. That’s a name that a lot of people may not know in our little community.

[00:30:13] Patrick Donley: Like we, we know who Nick Sleep is, but I forget. I think he’s chapter four of William’s book. Nick and Zach’s. Excellent. Adventure, it’s called. Great, interesting guy. Talk to us a little bit about Nick Sleep and what you’ve learned from him. 

[00:30:25] Clay Finck: Yeah. One of my early episodes when we studied Billionaires was actually talking all about Nick’s sleep, and it was one of the more popular ones I’ve done.

[00:30:32] Clay Finck: But William’s chapter on Nick’s sleep is probably the chapter I’ve revisited most in that book, and a lot of it’s for reasons that aren’t. Investment related, which is counterintuitive in the mastermind community that I run occasionally. We talk about books that we’ve read, and I was in Telluride, Colorado with a group and we were in a bookstore in Telluride, and I was walking, and I see this book by Robert Persig, Zen in the Art of Motorcycle Maintenance.

[00:31:01] Clay Finck: And that’s like probably the, at least the fifth time I’ve come across it, like it’s in that chapter on Nick’s sleep. It’s in Nick Sleep’s letters and it kept coming up. So I’m like, okay, I see it. I finally see the book in person. Like I never go to a bookstore these physical bookstores with Amazon nowadays, but I see this book and I’m like, okay, I have to buy it.

[00:31:19] Clay Finck: And then I set up a chat with the community to see if there was interest. There was a bunch of people interested in reading it ’cause they all know Nick Sleep. And really it’s this obsession with quality that I just find so interesting. There’s this line from Zen in the Art Motorcycle maintenance.

[00:31:35] Clay Finck: It’s that William also pulled in his book where it’s essentially they say whether you’re mending a dress, whether you’re sharpening a knife, whether you’re creating a podcast, there’s a high quality, beautiful way of doing it is the way he puts it. And there’s a. Low quality, let’s just say not so good way of doing it.

[00:31:52] Clay Finck: And quality, it’s something where you can’t really explain what it is, but you know it when you see it. And in that book, they talk about how this guy’s in a classroom and he has like a high quality paper and a low quality paper. And without saying like which is good or which is bad, he just has everyone look at it or read through it and just describe whether what sort of grade they give it.

[00:32:13] Clay Finck: And everyone essentially agrees what the high quality paper is. So it’s hard for people to explain what a high-quality business is, what a high-quality podcast is, but you know it when you see it. And I just find that so interesting. And one of the sort of filters that I’ve found to be like a mental model to use in life is to in business, a lot of times people might think what’s gonna maximize like profits or what’s gonna maximize profits or revenue for 2024?

[00:32:39] Clay Finck: But that can be a pretty difficult question and it can actually lead you to making some poor decisions like short-term decisions. But I think if I were make sleep, I would ask myself, what is the high-quality decision that can make making your decision making process a lot easier? And I found that really helpful in making decisions, whether it be through the podcast and whatnot.

[00:33:00] Clay Finck: You and I, we can bring on the biggest Perma bear and put like a clickbait title and get a lot of downloads. But is that the high-quality decision that’s gonna work out for us in long term and make us a sustainable business? I would say no, personally, that’s one of my big takeaways from Nick Sleep.

[00:33:17] Clay Finck: But also just like the focus on quality when it comes to business selection. For like my own portfolio, it can be tempting to buy something that’s low quality, that’s a cigar butt. Trading well below liquidation value may 

[00:33:31] Patrick Donley: stay that way for a long time, right? 

[00:33:32] Clay Finck: Yeah. Yeah, they could. They could stay that way for a long time.

[00:33:35] Clay Finck: So yeah, I sleep better at night owning high quality businesses, and Nick Sleep helped me lean that direction over time. 

[00:33:43] Patrick Donley: That brings up this idea that he’s got a really concentrated portfolio. Can you talk a little bit about that and just how you think about his strategy, because it does go a little against the grain of what most people would think about and how to structure a portfolio and diversifying.

[00:33:58] Clay Finck: Yeah, so Nick Sleep, for those who aren’t familiar. He started out as a Ben Graham style investor, and he owned some quality businesses, but over time, I can’t remember the exact years he ran. It was around 2000 to 2014, 2001 to 2014. I think it was a 13 year tenure. So when he shut it down, everyone was upset because of all the great returns.

[00:34:19] Clay Finck: He had, but he just told them, just put all your money in Berkshire, Amazon, and Costco and just don’t even touch it. Don’t even look at it. And in hindsight, that was a really good decision. And Stig and I talked about this with our community actually. And it’s easy to say oh, what a genius for picking these three companies and just leaving it alone and look how well it worked out.

[00:34:38] Clay Finck: But I’m sure there’s other, plenty of other very smart people, brilliant minds that could have done the same thing with three other companies and it just turned out terrible. So there’s certainly some selection and survivorship bias when you’re looking at that. So I do like concentration when it comes to investing for me personally.

[00:34:54] Clay Finck: But three holdings might be going overboard, but it’s probably also worth mentioning that Berkshire Hathaway isn’t really one company. Yes, it is one stock, but it, they own hundreds of companies. And then Amazon, they’re pretty heavily reliant on e-commerce, but they also have AWS. They have all these other bets that in 10 years they might have all these businesses that don’t even exist today.

[00:35:14] Clay Finck: And they also have all these businesses under there. It’s like a conglomerate to some degree. Yeah, and then Costco obviously it just has their one retail business model. I asked Chris Mayer about his thoughts on concentration. He owns what was 10 stocks? He got a spinoff from Constellation, so I think it’s 11 now.

[00:35:31] Clay Finck: I think his general ideas that great ideas are rare and when he finds them, he really wants to make ’em count. So when he owns 10 names instead of 30 names, he knows the 10 names really well. He’s pretty confident that permanent capital impairment in any of the names is pretty, pretty low. The chance of that’s just because of little to no debt.

[00:35:52] Clay Finck: They. Produce a lot of cash. Cash flows generally tend to increase year after year. There’s diminishing returns on concentration At a certain point, I think at 10 or 11 stocks you’re getting like 80% of the benefits of diversification. So it seems pretty concentrated, but you’re still getting a lot of the benefits of diversification.

[00:36:10] Clay Finck: And then Chris with his portfolio, he owns a lot of serial acquirers and some of these like Constellation software for example, owns well over six or 700. Small businesses, so it’s not like there’s one or two businesses and the whole thing goes down. It’s diversified and they’re becoming more diversified every single year.

[00:36:30] Clay Finck: So that’s quite an interesting aspect where people might overlook how one holding might add a lot more diversification than another holding. 

[00:36:39] Patrick Donley: Yeah, that’s a good way to look at it. Another interesting stat that I heard listening researching for our interview is the stat that you and Stig talked about, that there’s only 4% of equities and I don’t know what the timeframe was, outperform treasuries.

[00:36:54] Patrick Donley: Which kind of blew my mind, you think like equities outperform treasuries by and large so that was pretty wild for me to hear that stat of only 4% of equities just outperform a simple treasury investment. 

[00:37:07] Clay Finck: Honestly, a pretty daunting statistic. I think what I would say to that, or why I would justify thinking I could do picking individual stocks is one that study is over like a 80 or 90 year timeframe.

[00:37:21] Clay Finck: I mentioned that stat from Morgan Housel. 40% of companies over a 30, 34 year period lost all their value. So yeah, the 4% stat, when you look out over 80 or 90 years, that doesn’t really surprise me that much because industries and businesses change so much over that period. And hopefully with the businesses I own I’m owning ’em.

[00:37:43] Clay Finck: At least five, 10 plus years. I’m monitoring, are the businesses continuing to grow? Are the KPIs, like if I Costco for example, are they continuing to open new stores over a year? What do their sales per store look like over time? And once you see those start to decline or stagnate, then it might be time to move on and find something else that isn’t in the stagnation or in the process of dying.

[00:38:07] Clay Finck: And what I’d also say is that certain stocks are just gonna produce better returns over time. So companies that are highly levered, like eventually they’re probably gonna get themselves into trouble. Or companies that are in cyclical and industries, those tend to not have great returns over time. So I think once you filter out some of these characteristics of businesses or characteristics of industries or unprofitable companies, like I’m not gonna.

[00:38:31] Clay Finck: I just don’t really bother with unprofitable companies and those tend to not have great returns over time. So I think once you filter out some of those, the statistic might not be quite as daunting. But I haven’t actually ran through the names. 

[00:38:44] Patrick Donley: No, that surprised me when I heard that. And like you said, it is a little daunting to think about.

[00:38:47] Patrick Donley: I wanted to jump back to Nick’s sleep and touch on one idea. He had this idea of an X number where it was like, once he hit a certain number, I don’t know exactly what it was in net worth, he was going to shut things down and retire and pursue what he called higher pursuits, which was philanthropy for him.

[00:39:05] Patrick Donley: And I’m sure he, I think he races cars and things like that. Is that something you think about in your own life? Do you have an X number that once you hit? In my mind it’s like investing is a game, right? And so he just stopped the game once he hit that number to some degree. I’m sure he obviously manages his own portfolio, but to just stop doing something that you love. Are really great at you talked about the Robert Pearson book he’s a high quality investor. Is that something in your own life? Like you think about if you were to hit X number, you just stop and go pursue, I don’t know, go help whatever cause you’re most interested in.

[00:39:44] Clay Finck: Yeah. I’ve thought about what my goal is generally as an investor, and I think my answer to that question would be compound capital at a high rate without blowing up the whole thing. So like without taking excess risks. So achieve as high as returns I can without. Experiencing substantial downsides, so protecting for the downside as well.

[00:40:06] Clay Finck: And I picked that up from Chris Mayer. And then another sort of goal that ties into that is I wanna become financially independent. And your point about hitting that number I don’t really have a number in terms of once I hit this point I’m financially independent.

[00:40:21] Clay Finck: It’s like generally life situations just changes so much. I’m still in my twenties right now and who knows what my life or priorities are gonna be when I’m thirty-five or 40. And I think it’s similar to when I was a actuary where I wasn’t really spending a ton of money or buying things.

[00:40:39] Clay Finck: I didn’t really need, those decisions really set me up to transition to TIP because it allowed me to take an initial pay cut and it allowed me to take the risk of trying a whole new field. Whereas if I was strapped to like a giant mortgage and giant car payment, like that would’ve been impossible to do.

[00:40:56] Clay Finck: So that’s the way I think about it is just try and put myself in a better financial position to where I have the optionality to pursue the sort of things I want. Nick Sleep discovered what he wanted to pursue. After his investing journey was over. Yeah, I think that’s amazing for him to have the the willingness to venture into something new once his identity was like this great investor.

[00:41:20] Clay Finck: So I have no idea, honestly, what my life’s gonna look like five or 10 years from now. Hopefully I’m in a position where just being a host of TIP has just opened me up to just all these different opportunities of meeting various people. Of being introduced to all these different types of investors.

[00:41:36] Clay Finck: So you, you really never know where the world’s gonna lead you. So I’m reminded of the Steve Jobs quote of, you can’t connect the dots looking forward. You can only do it looking backwards. And I absolutely love that because even in joining TIPI could’ve never imagined being in the position I’m in now.

[00:41:53] Clay Finck: But looking back, it totally makes sense where now I do, we study billionaires now I. Help run an investment community and it’s just opened up more and more opportunities for me. And it’s also reminds me of Morgan House, all the quote I mentioned where the biggest event over the next 10 years is gonna be something you can’t even imagine.

[00:42:09] Clay Finck: I’m sure there’s gonna be something that happens within the next few years where I just can’t even imagine it. And then in, in hindsight, just gonna look so obvious because of that hindsight bias. 

[00:42:19] Patrick Donley: So you mentioned the Mastermind community and I wanted to touch on that a little bit. I know a little bit about it, but I wanted to learn more about what you and Kyle are up to.

[00:42:27] Patrick Donley: Wanted to hear about the impetus for it and just how it’s been going so far for you. 

[00:42:32] Clay Finck: Stig and I, in 2023, we put together these free events in Omaha in 2023 during the Berkshire weekend. And we had room for, I dunno, something like 150 people each time. It depends what location we were at. We had a number of free events just for people in the TIP audience to come hang out with us and have some fun and just.

[00:42:53] Clay Finck: Socialize with the whole TIP community. And as I was organizing this, getting emails, getting constant messages from people, I was just really pretty quickly, like Stig and I talked about it like in November, so six months before Omaha. And then I dunno if it was by like December or January, I realized like, Hey, if we let any more people sign up for this, we’re literally not gonna have room for people to join us.

[00:43:16] Clay Finck: And I don’t, the last thing I want is like just a total madhouse. So I just shut down the forum, like no one else can sign up because we already have 250 people who are interested. If two thirds of ’em show up, we’re pretty much full. So I got to thinking, why are so many people wanting to attend this live event that we’re hosting?

[00:43:34] Clay Finck: There’s so much interest. Like usually you think oh, people hear about it in Omaha and they just go and show up. But it was like five or six months beforehand, like people are reaching out to me constantly Hey, are you gonna let us attend this event? And it really got me thinking, why is that happening?

[00:43:49] Clay Finck: And I came to the conclusion that like people aren’t just going to Omaha just to see Buffett and Munger and then call it a weekend. They’re really wanting to get to know and network with people who are like-minded to them. And when I go back to when I was a listener of the show I had these internal conversations like listening to Preston and Stig and listening to their mastermind discussions, like pitching stocks.

[00:44:12] Clay Finck: But I never got to I would try to talk about that with my friends it, it just never clicked with them. They just weren’t interested in it. They don’t really understand it. And it’s just, if you’re not interested in it, you’re not interested in it. It’s, that’s just the way it is. So that’s why people were so interested in getting together and having that opportunity to talk with.

[00:44:30] Clay Finck: Like-minded people. And plus so many of these people are from outside the us. Like I just had someone email me the other day that’s coming from Australia to come to Omaha and people I know come from Asia Europe, like everywhere in the world. So I’m like, okay, what if we created something where we create a place that people can connect with, like-minded investors, but it’s not just one week into the year, it’s the entire year.

[00:44:53] Clay Finck: So that was really the start of the TIP Mastermind community and we ended up launching it the month of our events so we could tell people to talk about it to people at the events. And then I ended up meeting some of the people that joined right away in Omaha, which was quite interesting, where I already met like.

[00:45:11] Clay Finck: 10 or 15 people that were already joined our community just two weeks after launching it. Yeah it’s really a place to network with like-minded people online. A lot of people hop on calls one-on-one. We have around a hundred members right now when we plan on capping it at one-fifty. And it’s a place to share stock ideas, get new ideas from others.

[00:45:32] Clay Finck: We have people apply to join. So really there’s a filter that goes through where you, we have to make sure you’re a like-minded person. You think pretty similar in terms of investing trying to buy something for less than it’s worth. Understanding moats, understanding intrinsic value.

[00:45:48] Clay Finck: Just basic things like that. And really it’s a wide range of people. Like some people are earlier on in their journey. Some people are work in the investment industry. And then people also seem to really like we bring in special guests that have been on the podcast. So we’ve had Chris Mayer join us.

[00:46:03] Clay Finck: Dottam Bade. Ian Castle. Tobias Carlisle. Yeah. So we have various people come in and chat with us. And then we also do educational type stuff. Kyle does some write-ups. And then we’re gonna be hosting two live events a year specific for the community. So we’ll be doing two social hours in Omaha in May.

[00:46:20] Clay Finck: And then I plan on also hosting, a live event in New York City in the fall. So that was the impetus and what we’re up to. 

[00:46:28] Patrick Donley: That’s awesome. Have you gotten any feedback from members and some of the benefit, like just what the feedback is and benefits like that they talk about? 

[00:46:36] Clay Finck: Yeah, so since the community offers a lot of different value values in the eye, I’ve kinda learned over time that values in the eye of the beholder what one person sees valuable, another person doesn’t see any value in at all.

[00:46:50] Clay Finck: So the three main benefits I see is just having a network to run ideas by, or a network to expose yourself to online. There’s people constantly posting different things or just sharing books or reading articles they read. So just being a part of that network really is invaluable. It just exposes you to a lot of serendipity of, you never know what sort of connection’s gonna pop up, or maybe you’re traveling to a city and a person in the community that lives there, so you’re, you get access to just this amazing network.

[00:47:19] Clay Finck: A lot of ’em are entrepreneurs or they’ve sold businesses, so just amazing people in general. Not just like having that investment mindset, but they have a lot of life experiences that, in my opinion, is just invaluable. And then a lot of people join just to get new stock ideas or to share their ideas with others.

[00:47:36] Clay Finck: It’s, it, this definitely is an investment service, so I don’t encourage anyone just to join just to Hey. Go and buy the stock. Really, it’s an, it can be a place for idea generation. People also really seem to like the special guests that we bring in. So just being able to ask just these experts that you wouldn’t otherwise have access to seems to be really valuable and people really like to.

[00:47:58] Patrick Donley: So tell me a little bit about what it costs, how often you guys meet a little bit about how it’s structured. 

[00:48:06] Clay Finck: Yeah. Right now the cost is 1 97 a month, or multiply that 10 for the yearly. So 1970 for the year. Gotta do a live math here. And then yeah, so that’s the cost. We try to do a Live Zoom event every week.

[00:48:20] Clay Finck: The time of day we do that. Just depends on we’re working with various people’s schedules. We do social hours and work with people’s schedules. So generally every week a lot of times we do more than one a week, and then all those get recorded because people, our members just live busy lives.

[00:48:36] Clay Finck: So we record everything. Not everyone can sit in at a specific time with this Q&A. So it’s also nice because we’re building a huge backlog of content for the community. And someone joins today, they have access to every single recording we’ve done since April, 2023. So it’s been close to a year.

[00:48:53] Clay Finck: And then yeah, so online we’re meeting once a week essentially. And then live events, you get access to Omaha and New York City for interested in meeting up in person. And one of the other things I wanted to mention about Omaha in 2023 is it just felt since there was so many people there, I really didn’t know who was showing up.

[00:49:10] Clay Finck: Generally, I found that the conversations were just really surface level for me personally. So it’s like I really didn’t get to really know people and I’m just talking to so many people as well, 50 plus people introducing themselves. So it’s hard to get past that sort of surface level. And when you have a small community where 30 of the a hundred members are going to Omaha, like you know who’s gonna be going, you can I.

[00:49:33] Clay Finck: C, we have a registration list so you can see who’s gonna be going and you’re like, okay, I wanna talk to these three people. I wanna get insights from this person on this company. So it really is a, an amazing way to get past the surface level and really build those deeper relationships. Which is for me personally, just like the relationships part of being a part of this has just been amazing.

[00:49:55] Clay Finck: Just meeting so many amazing people and yeah, like now I know for example, like whenever I go to New York City, I have plenty of friends to go and see and people to go hang out with. And for me I, that just is a huge benefit. 

[00:50:07] Patrick Donley: It sounds like a really great thing. Like Kyle had mentioned like in our day-to-Day lives, there’s not that many people that really want to talk about what we’re into what, whatever it is.

[00:50:15] Patrick Donley: Podcasting or investing it’s a niche topic and so it’s really hard to find a community, so Sounds like an awesome thing to be a part of. You had, I wanna switch gears. You had mentioned. Got him bait and that he was part of the Mastermind community. I did a Twitter thread, I think actually went by your suggestion.

[00:50:33] Patrick Donley: That did really well. It was one of my best performing threads. And I know that you did a series on his book, Joys of Compounding, that was one of your best performing series. So I just wanted to talk a little bit about the joys of compounding. I know it’s an important book for you. What do you think it is?

[00:50:47] Patrick Donley: It just strikes a chord about that book with listeners and readers. 

[00:50:51] Clay Finck: There’s a funny story kind of behind that book. I talk with various people on Twitter. I was DMing compounding quality, and I dunno if I asked him for book recommendations or what, but he must have just messaged me and said, Hey, by the way, if you haven’t read The Joys of Compounding, I highly recommend it.

[00:51:08] Clay Finck: He said it was as good as William’s book. When I heard that, I was just like, there’s no way. Like I was pretty skeptical. I bought the book and honestly this, right when I started reading it, I was just like blown away. Shortly after I had a meeting with Stig and I was talking to Stig, I was like, I’ve been doing these book reviews, and each book has been like one episode, like one one hour episode.

[00:51:31] Clay Finck: I’m going through his book. I’m like, I can’t do all this in one episode. I’m like, I’m telling Stig I could probably do five or six episodes on this one book. And Stig was like, wow. Like he had never read the book. And he was like, if that’s true, then go ahead do that. So I’m pretty sure I did a five part series that was in the first half of 2023, sort of April May timeframe.

[00:51:53] Clay Finck: Yeah. So I reviewed the book and the reason I think it struck a chord is that I think it really encapsulates everything the value investing community stands for and everything that TIP stands for and what we’re all about. We just pulled all these key lessons for just like lifelong learning, like what’s most important when it comes to value investing.

[00:52:13] Clay Finck: A lot of these ideas weren’t like something he came up with. He had read just countless books, like countless books. He is read everything Buffett talks about. He read Buffett shareholder letters. He went through everything and he just put together, all together in one book. Half of it I would say is just like general things with regards to life.

[00:52:33] Clay Finck: Like how to approach life in a way that’s like honorable and ethical. And I just thought that was so interesting and just lifelong learning. A lot of it also is about investing too, and each chapter’s sort of standalone to some degree. ’cause it’s all just about one sort of topic. There’s a chapter on incentives that I’ve looked back on so many times and he pulls in all these amazing quotes in regards to what he’s talking about.

[00:52:56] Clay Finck: And I’ve just never found one resource that’s quite like it and never really came across anything that really hits on all the value investing topics. It’s what we’ve talked about for years. And you just put it all into one resource and. I love the book personally. 

[00:53:11] Patrick Donley: Yeah, I do too. You had a chance to interview him.

[00:53:14] Patrick Donley: What was that like? Tell me a little bit about that. 

[00:53:17] Clay Finck: Yeah, I had him on the show twice actually. He released his second book, the Making of a Value Investor, late 2023, so I brought him on for that too. Really, from chatting with him and reading his book, some of the big takeaways for me was just again, the appreciation for high quality businesses and why they work.

[00:53:33] Clay Finck: One of the most difficult parts of investing is the qualitative aspects. As a numbers guy, I got attracted to investing because of the numbers. But really what makes this sort of interesting is these qualitative aspects. Things like people, culture, industry dynamics, like competitive dynamics, just how businesses fit into the bigger picture of the world.

[00:53:54] Clay Finck: And he really opened my eyes up to why and how people. Tend to underestimate the value of high quality businesses and people can get fixated on the numbers. They get fixated on a PE ratio or whatnot without understanding the big picture of where a company is heading over the long run. And he talks about a, Terry Smith is like a very popular quality investor and he talks about how people get fixated on these PE ratios.

[00:54:23] Clay Finck: But, and I think it’s another way some people can get duped into buying lower quality businesses and earning lower returns as a result of it. And when you look zoom out over like a 10 plus year time horizon and you have a great business, it doesn’t really matter if you bought it at a multiple of 20 or 40.

[00:54:40] Clay Finck: All that matters really is that you bought it. And I also liked how Gautam talked about how he talked about this concept of quality, increasing your margin of safety, because great businesses increase their intrinsic value over time. So you know, with each passing day, the intrinsic value going up over time, essentially because the earnings.

[00:54:58] Clay Finck: Our continued to march upward. And I also loved that he mentioned the example of Ben Graham. He was a cigar butt investor. He’s, that’s what he’s known for. But he made the majority of his money owning Geico stock, which is just so ironic how this one business, he happened to buy it. And I can’t remember exactly why he ended up holding onto it for 30, 40 years.

[00:55:19] Clay Finck: But that made him more money than. By far than anything else. That’s where he made the majority of his money. And Ben Graham, he talks a lot about this idea of mean reversion. Great companies eventually become average and poor companies eventually become average. So thanks mean revert over time and got him shared this study in his book that’s really stuck with me, where it was from Credit Suisse and.

[00:55:41] Clay Finck: Essentially it showed that over successive five-year periods, it ends up that great businesses tend to remain great and poor businesses tend to remain poor. And it gave me the peace of mind of, okay, maybe when you reference that 4% study over a 90 year period, maybe a great business turns into a zero.

[00:55:58] Clay Finck: But over, over these sort of shorter timeframes that we can really deal with and grapple with. I don’t know what a business is gonna look like 50 plus years in the future, but I can operate in a three to five year time horizon. And then reassess is the sort, the way I view it.

[00:56:13] Clay Finck: Gautam also helped me appreciate quality in a business and the power that holds for investors. 

[00:56:21] Patrick Donley: Yeah, it’s a great book. Joys of Compounding and Richer, Wiser. Happier are two of my favorites that I think everybody should own and everybody could reread every year and get some value out of it. Something new, you know that.

[00:56:32] Patrick Donley: Yeah, it’s just, there’s two great books I wanted to wrap up here and ask you. We talked about Morgan Households book, the Psychology of Money. And then his second book, same as Ever. My favorite chapter of Psychology of Money is called Confessions, where we get a peek into how like Morgan runs his own financial life and look under the hood of like his portfolio.

[00:56:52] Patrick Donley: There’s a quote I think that’s attributed to Mohnish Prabrai that goes along the lines of, I don’t want to hear what you think. I want to know what’s in your portfolio. Show me your portfolio. So I wanted to talk a little bit about that and hear about your own portfolio and how you’ve got it structured.

[00:57:08] Clay Finck: Yeah, so one of my bigger holdings is actually Bitcoin, which I never talk about on the show. And you and I were talking I kinda went down the Bitcoin rabbit hole in 2020, read the Bitcoin Standard, saw the transition Preston was making with NTIP. And yes, ever since 2020 I’ve just bought it and held it and added to it over time.

[00:57:28] Clay Finck: It’s a long term bet for me and I don’t really care too much what it does in the short term or whether an ETF is gonna dramatically increase the price or right now it’s falling in light of the ETF. But yeah, I mean for me it’s just a long term holding and it’s gone up and become a bigger part of my portfolio.

[00:57:43] Clay Finck: Personally. What I find a lot more interesting right now is just talking about and researching all these individual companies and talking about stock investing on the podcast. Right now I only own six individual stocks. The most recent one I actually covered on the show with Kyle was Dino Polska The Grocer out of Poland.

[00:58:02] Clay Finck: So we have an episode on that if anyone wants to learn more about it. And then we are actually just recorded about Evolution AB, that’s one of my other bigger stock holdings that company’s out of Sweden really growing quite fast and it’s quite a interesting name and I think has a lot of room to run. 

[00:58:18] Patrick Donley: And what do they do? Tell me a little bit more about Evolution AB. 

[00:58:22] Clay Finck: Yeah, usually I just refer to them as Evolution, but if you look it up, evolution AB is what they go under and there’s the main ticker is EVO. That’s the one I own on Interactive Brokers. But then there’s also ADR, so you can, I think you can get access to it on a regular investment account.

[00:58:38] Clay Finck: It’s EVVTY, I think is the ticker on that. But Evolution essentially is a, they develop online games, so like live games. They’re capitalizing on this trend from land-based casinos to online. So right now, land-based casinos are in a decline and globally, the online casino market is just, it’s in a structural growth trend.

[00:59:01] Clay Finck: I think from 2018 to 2022, that market’s grown by 21% per year. And evolution in some of those years has grown by over 50%. Their revenue and what they specialize in is live casinos. So you can think about Blackjack or Roulette where you actually have a live dealer and people get online and they see the live dealer.

[00:59:21] Clay Finck: And it’s really a difficult business model for a lot of these casinos or other operators to get in because scale is so important. It’s so costly to set up these tables and reach the scale and that evolution is what they’ve specialized in. And there’s really no other strong competitors that there are a lot of competitors, but there’s no one that operates at the scale.

[00:59:39] Clay Finck: They do or has just the vast amount of games that they do. Just in 2023 alone, they’ve developed over a hundred games. So they create these new games and another tailwind they have behind their back is the regulation of iGaming globally. So as more and more of these countries. Develop regulations, the market continues to mature and continue to grow.

[01:00:01] Clay Finck: Europe is their mature market. I believe they’re still growing in the teens in Europe, but when you look at Asia and Latin America, the growth is like really strong for evolution. So one of the things I like about it is that it’s global and they have a strong market position in what they do and it’s global and they’re growing in all these different markets.

[01:00:18] Clay Finck: Like I don’t know which markets they’re gonna do the best in over the next five, 10 years, but I can see like overall big picture, like they’re capturing a lot of this massive market. Yeah, Kyle and I’ll have an episode going out actually in early February on this company if anyone’s interested in learning more.

[01:00:34] Clay Finck: We did a hour plus long deep dive on it. And then back to my portfolio. I also own some index funds and cash ’cause I’d like to bring my individual holdings close to 10, hopefully in within the next year or two. Just gradually making my way towards that number. Flown in Chris Mayer a little bit.

[01:00:52] Clay Finck: Yeah a number I can grapple with in terms of actually knowing the companies and tracking them but not too much where it’s becomes overwhelming and I’m losing the benefits of adding more. So yeah, that’s where I’m at right now. 

[01:01:05] Patrick Donley: So percentage-wise, how would you break it down?

[01:01:07] Patrick Donley: I’m sure if you got into Bitcoin whenever, that’s become a bigger part of your portfolio, but how do you think about breaking it down in term percentage-wise, individual stocks, Bitcoin index funds? 

[01:01:18] Clay Finck: Yeah, honestly, I’d rather not share percentages like the Bitcoin’s grown to be a sizable part, but I think of it more in terms of my cost basis and I’m a big fan of just letting winners run.

[01:01:31] Clay Finck: Bitcoin might stagnate for quite some time or might come down. And then as I continue to save more and more money depending on where things move and how things change, then I can allocate where I’m allocating new cash accordingly to. 

[01:01:45] Patrick Donley: I wanted to touch a little bit on volatility, not Bitcoin only.

[01:01:48] Patrick Donley: Bitcoin’s obviously volatile, but also individual stocks. Like how do you deal with that from like a psychological standpoint? It’s pretty tough. Weathering some of those ups and downs, is it a matter of conviction for you or how do you deal with the volatility? 

[01:02:01] Clay Finck: Yeah, I think Bitcoin’s actually a great example for thinking about volatility, just ’cause it’s the most volatile thing people know about unless they’ve got into very speculative things that a lot of gross stocks, a lot of altcoins type stuff.

[01:02:16] Clay Finck: But one of the realizations I’ve come to in recent years is that the market price is not driven by the average person participating in that market. For example, in Bitcoin, over 70 or 75% of the coins haven’t moved. In the past year, which tells me the majority of people that own Bitcoin think it’s gonna be a higher price, 1, 2, 3, 4 years into the future.

[01:02:37] Clay Finck: But if you have an FTX type player coming in, it makes you realize that just a few players in a market can really move the price like significantly. Like you could say FTX alone brought it from 30 or 40 to below 20, just like that. And then there’s contagion as well where other players get liquidated.

[01:02:54] Clay Finck: There’s all these average traders. And I think it, it also ties into the point that a market has like an infinite number of different types of investors that are buying and selling for totally different reasons. So I think it’s really important for me personally, to know why I am buying it, like what my time horizon is and what my thesis is in owning that.

[01:03:14] Clay Finck: And, you can think about an example like Berkshire. Hathaway, where the average person owning Berkshire might say it’s undervalued, but people don’t buy and sell just based on whether it’s undervalued or overvalued. Like some people might be selling it to go and buy a home where they aren’t even looking at the intrinsic value or the market value of it.

[01:03:34] Clay Finck: They need cash, they need to sell and to do that, some investors might sell it because. They found a better opportunity. They know Berkshire is undervalued, but maybe they go and find another company that’s more undervalued. So just that realization that there’s so many different players in the market.

[01:03:50] Clay Finck: There’s so many short-term people that think short-term or just think irrationally. It points to like the market’s of voting machine in the short-term and the weighing machine in the long term. So you know, really what to me, like I care about the fundamentals and the price is really noise for the most part in the short-term, unless your thesis is of course busted in whatever it is you own.

[01:04:09] Clay Finck: So I think the best way to manage volatility is definitely understanding what you own, why you own it, and then adjust your position size accordingly. 

[01:04:18] Patrick Donley: If you can’t sleep at night, then that might be an indication you might need to scale back on a holding. 

[01:04:22] Clay Finck: Yeah, exactly. There’s something wrong in terms of your understanding of it, why it is you own it, and maybe your position size isn’t in line with your understanding of it.

[01:04:34] Patrick Donley: So once something goes into your portfolio, whether it’s Bitcoin or these individual stocks, equities that you own, is it pretty much your mindset? It’s a long-term hold. 

[01:04:43] Clay Finck: Yeah. I used to like, I remember buying some of the big tech names during the drawdown in twenty-two, but once those reverted back, I ended up allocating ’em to.

[01:04:52] Clay Finck: Things I thought were better opportunities. But yeah, ideally when I own something, I’m hopefully gonna own it for at least three or five years plus and then reevaluate over time. Give it a lease to all companies go through some growing pains and give them a chance to come back.

[01:05:08] Clay Finck: But yeah, definitely want those longer term plays. ’cause I think that’s where a lot of the gains are gonna be for my portfolio. 

[01:05:15] Patrick Donley: Thanks for sharing that. I think it’s interesting to our listeners. To just hear individually like how you personally invest and appreciate you sharing that. So this is a good place to put a pin in things.

[01:05:26] Patrick Donley: I really appreciate your time. Was there anything that we didn’t get a chance to talk about that you maybe wanted to mention? 

[01:05:31] Clay Finck: I don’t think so. We hit on a lot. 

[01:05:34] Patrick Donley: Before we sign off, how can our listeners find out more about you, get in touch with you, maybe learn about the mastermind community, things like that?

[01:05:42] Clay Finck: Yeah, I’m on Twitter at Clay underscore is my username. F-I-N-C-K. The podcast is We Study Billionaires. Many listeners probably know what that is, and then the Mastermind community, you can just search TIP mastermind community on Google or go to theinvestorspodcast.com/mastermind. 

[01:06:00] Patrick Donley: Awesome Clay, thanks so much for your time today. Really appreciate it and had a fun time. 

[01:06:04] Clay Finck: Thanks Patrick. Really enjoyed it.

[01:06:07] Patrick Donley: Okay, folks, that’s all I had for today’s episode, I hope you enjoyed the show and I’ll see you back here real soon.

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