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Investing in Depth

Investing in Depth

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Interviews with leading investors about the process and work behind their investing decisions.Copyright 2020 and all dates thereafter. All rights reserved. Economía Finanzas Personales
Episodios
  • 0004 Ben Mizes - Arch Buyers and Clever Real Estate (Real Estate Investor)

    0004 Ben Mizes - Arch Buyers and Clever Real Estate (Real Estate Investor)
    Oct 22 2020
    Today’s guest is Ben Mizes, a real estate investor based out of St. Louis, Missouri, who is co-founder and CEO of . The first two words that came to mind as we wrapped up our conversation were inspiring and impressive. Ben shared in detail how he started with a limited capital base to make his first investment in residential property as a so-called house hack. He used an FHA loan, which is a federal assistance program from the Federal Housing Authority to help typically lower income buyers purchase homes with as little as 3.5% down. He then parlayed that initial investment into a real estate portfolio with dozens of units within a few short years. At the same time, he shared his parallel journey as an entrepreneur to found Clever Real Estate, a fast-growing company that is changing the structure of the industry. This was such a fun conversation and it’s possible to take away insights on multiple levels — from the mechanics of real estate investing to a street-level view of how the macro policies of recent years are playing out in real estate as an asset class to some of the structural shifts occurring in the industry. If you would like notes from today’s episode, please subscribe to our . I hope you enjoy this conversation as much as I did. Feel free to email info@investingindepth.com with feedback.   2:05 An accidental path to real estate investing   3:45 House hacking defined: buy a multi-unit property with the goal of living in one unit for free while the rent from the other units covers all of your expenses.   5:01 Real estate investing 101: Ben’s first investment came after he developed a to estimate financial requirements and returns and scoured Zillow daily reviewing newly listed properties.. “I would model… pretty much any deal that was interesting that hit the market until it got to the point where it could hit the market and without using my tool I would think ‘is this going to be a good deal?’”   6:57 Getting lucky by making your own luck: “We ended up buying a building for $220,000 that was worth $285,000 the day we closed which was a great first investment, albeit a little bit lucky. But I attribute a lot of it to being aggressive in our search and being confident to take that first step because of what we built and the confidence from modeling all these deals.”   8:07 A practical, line-by-line how-to guide on how to develop financial assumptions when investing in real estate (e.g., down payment on purchase price; interest rate; gross monthly rent; electricity; water and sewer; garbage removal; insurance; taxes; vacancy rate; repairs and maintenance; capital expenditures; property management fees; leasing fees).   13:30 How Ben built knowledge about repair, maintenance, and capital expenditure costs despite not having any background or experience in real estate, construction, or property development: desk homework through books and podcasts (e.g., , ) combined with real world homework by casting a wide net for contractors on other properties he had considered. Used bids and meetings with 15+ contractors as a form of education.   16:40 Benefits of using FHA loan to finance purchase: low down payment of 3.5%, low credit score bar, and limited income history requirement.    17:38 Some best practices Ben adopted: personally knock on each tenant’s door to introduce himself and set mutual expectations on the service level he would provide, how to get in touch, and overall relationship; used , a free tool to automate rent collection online.   20:20 How the first real estate investment played out: after a $7,000 initial cash outlay for a down payment, Ben became the owner of a 4-unit home that generated $2100 in monthly rental income against $1418 in monthly mortgage payments.   21:10 Expanding the real estate portfolio: flipping first property to fund a deal to purchase an 18-unit portfolio in St. Louis.   23:38 Real estate 201: a riskier investment in a home needing significant renovation.   24:10 Creative ways to source real estate deals: driving around looking for properties in disrepair and then contacting owners directly; using rental listings on Craigslist as a signal that the owner might be older and could be ready to get out; driving around town looking for physical for rent signs on properties that are not listed online as as signal that owners might be older and ready to retire.   27:40 Growth mindset as a new real estate investor buying first renovation project: “Our goal was not to make money. Our goal was to not lose money and to walk away breaking even. And we kind of viewed it as our MBA or our School of Hard Knocks education where if we could come out of our biggest project not having lost money, that was enough to be a win for us because we really wanted the education. So, with that type of goal in mind, this deal made sense… it gave us a bit of a margin of safety and confidence to chase after the deal hoping that we’d get an ...
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    58 m
  • 0003 Soo Chuen Tan - Discerene Group (Value Investor)

    0003 Soo Chuen Tan - Discerene Group (Value Investor)
    Sep 29 2020
    Today’s guest is Soo Chuen Tan, founder and President at Discerene Group, based in Stamford, Connecticut. Discerene is a private partnership, which invests globally on behalf of several long-term institutions and families. Soo Chuen is a long-term value investor and the depth of his commitment to his craft came through in our conversation. He’s able to seamlessly translate a high-level philosophy of investing into the practical hard work of executing fundamental securities research and the critical psychological aspect of being a contrarian who is at the same time constructive. We talked about Mega Study, a trailblazing South Korean online test prep company that saw its star fade when VC-fueled rivals emerged, but that Soo Chuen’s research revealed to have durable long-term value. If you would like notes from today’s episode, please subscribe to our . I hope you enjoy this conversation as much as I did. Feel free to email info@investingindepth.com with feedback. 1:40 Journey to becoming an investor 3:05 Mega Study is the leading online high school KSAT test preparation company in South Korea, supplying the country’s “educational arms race” with a must-have service that has strong demand 7:00 Top teachers in Korea are pop stars with celebrity status and compensation 8:40 How Mega Study hit Soo Chuen’s radar screen: Looking for companies protected by structural barriers to entry (i.e., “economic moats”) at times when they are out of favor 10:00 Focusing on economic moats in evaluating the business as an investment. Mega Study has attractive economic characteristics as the owner of a self-reinforcing, two-sided platform 14:47 An opportunity to invest with belts and suspenders that provide a margin of safety: Venture-backed competitors ate into Mega Study’s business and the stock price declined below tangible book value (i.e., cash and value of property, plant, and equipment on its balance sheet, consisting primarily of real estate) 17:05 How Mega Study widened it economic moat:  Adopting bundled pricing to transition from being a multi-homing network to a single-homing network 21:18 The psychology behind being a value investor taking a contrarian position. The hallmark of value investing is, in the words of Warren Buffett, “Being greedy when others are fearful and being fearful when others are greedy.” Four defining characteristics of value investors are: Independent mindedness. “The best value investors we know tend to be cats, not dogs.… They are comfortable marching to the beat of their own drums and making up their own minds about things with little regard for conventional wisdom or a desire to fit in or please others. They deliberately invert propositions and test counterfactuals.” Natural skepticism while at the same time being constructive  Using mean reverting mental models Deferred hedonism (i.e., patience) 29:25 The Discerene research process: Combining “The Harvard Business School Approach” and “The Chicago School Approach” 34:40 Soo Chuen’s secret sauce: Compounding and building out a network 39:50 Conducting due diligence on hard assets 43:30 Areas of uncertainty and risk 45:20 Sizing the investment 47:40 Monitoring the investment 48:55 Recommended reading On Korean education, On investing: ; ; all of ; ; various books by ; ; More broadly on economics, business, and finance: the work of John Keynes, Jean Tirole, John Sutton, Joseph Schumpeter, Hyman Minsky, Phil Rosenzweig, as well as current and former Harvard professors Michael Porter, David Yoffie, Clay Christensen, John Wells, Bob Merton, Andre Perold, Stuart Gilson, Peter Tufano, and so many others. David Hume on epistemology Among contemporary authors: ; ; . Note: This podcast is for educational purposes only and nothing here constitutes a recommendation or offer. Note: For full disclosure, I have in the past served as a senior advisor to Discerene Group. I now have no commercial relationship with, and receive no financial benefits or compensation from, the firm.
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    51 m
  • 0002 Richard Cook - Cook & Bynum (Value Investor)

    0002 Richard Cook - Cook & Bynum (Value Investor)
    Sep 24 2020
    Today’s guest is Richard Cook, co-founder and portfolio manager at Cook & Bynum based in Birmingham, Alabama. Richard is a pure value investor. Both the depth and breadth of his thinking shined through in our conversation. We talked about Arca, a Mexican Coca-Cola bottler that Richard evaluated for the multi-decade durability of its business. We had a great conversation in which Richard detailed a high-level structural analysis of Arca’s business while at the same time deploying a unique brand of shoe leather research bumping along the roads of Mexico to visit local shops in order to understand the company’s execution and positioning. If you would like notes from today’s episode, please subscribe to our . I hope you enjoy this conversation as much as I did. Feel free to email with feedback. You can follow Cook & Bynum on their . 1:35 Path to becoming an investor: receiving 5 shares of 5 stocks as a third grade Christmas gift. Reading was a turning point. 6:00 Arca Continental is a Coca-Cola bottler based in Northern Mexico. Coca-Cola sells them syrup and they have an exclusive regional franchise to bottle and sell Coke.  8:00 How Arca Continental hit Richard’s radar screen. 10:25 Framework for evaluating businesses: circle of competence, business, people, and price.  10:30 Using old-fashioned shoe leather research. Richard drove from his home base in Birmingham, Alabama, to Mexico to visit small stores along back country dirt roads to evaluate the quality of Arca’s execution at its points of sale. “You want to understand why does the consumer choose your product and not someone else’s... and what does the company say those reasons are and do those match up.” 14:55 Identifying structural barriers to competition: Fragmentation of distribution. 22:18 Evaluating people — a critical aspect of emerging markets investing. “You usually have two sets of people. There’s management… there’s also the key shareholders, which is frequently a family or two or three and you have to triangulate on whether or not you want to be in business with this family.” 26:20 Investing in a less liquid name. “Most of the volume was going through a single broker … and we figured out that we needed to have a relationship with that broker…. You have to go find where the liquidity is.” 27:50 Monitoring areas of ongoing risk and uncertainty after making an initial investment: focusing on mega trends. 33:10 How Arca maintains its strength: investing in and strengthening the mom-and-pop store channel that distributes its Coke products. 38:24 Sizing the investment: Expected return divided by risk, which Richard defines as the how wide the range of outcomes relative to expectations may be. His   captures Richard’s unique approach to thinking about risk. He also has a terrific , which was originally used in information theory and has served as a guide for Richard’s focus on maximizing geometric means rather than arithmetic means in investment decisions. The original Kelly paper is and is a history of John Kelly and Claude Shannon’s efforts at Bell Labs in the 1950s developing his formula. 45:44 Recommended reading for providing perspective on emerging markets across history. for providing perspective on the impact that a major reduction in the cost of communication can have on society. Anything by Peter Kaufman (there are a lot of YouTube videos). One of his insights is that if a business optimizes toward win-win solutions, that goes a long way toward decreasing risk and increasing durability: “All the people that interact with this business, are they winning? If they are, then that’s a lot more durable. You can say a lot more about what the profitability and durability of that business is 10, 15, 30 years from now.“ Richard was humble in not mentioning the . It contains a terrific Bookshelf section with recommended books as well as scores of fantastic “C&B Notes” covering a broad range of topics in investing and beyond. Note: This podcast is for educational purposes only and nothing here constitutes a recommendation or offer.
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    56 m
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