TIP732: The Mindset and Skills That Build Investing Legends w/ Ian Cassel
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You're listening to TIP. Today's guest is Ian Castle, whose fund has outperformed the S&P 500 after fees since its inception in 2019. Now, what sets Ian apart is his position in the investing community as someone who truly wants to elevate other investors.

One trait that I've always admired in Ian is just how broad of a thinker he is and how good he is at connecting disparate ideas. In today's episode, we're going to see how Ian links golf and jujitsu with one big idea, which is what separates good, great, and GOAT investors. Ian's been journaling and reflecting on a variety of topics based around this theme now for years. And in this conversation, he'll lay out his detailed thoughts.

We'll look at the two performance metrics that every investor is judged upon, which is time and return, and why they're the most potent performance indicators to assess skill. We'll look at what track record qualifies you as a good, great, or GOAT investor as well. The initial idea for this concept was bred out of Ian's thinking on the skills of investing. Ian has distilled stock investing into five key skills that must be sharpened in order to succeed. The big difference between being great and being world-class is just a few degrees of differences in these skills.

We'll go over some of the unique and underappreciated talents that Ian has observed from some of the goats that he's researched. And along the way, Ian's going to share some of the real-world traps that he's fallen through in his decades of experience in the markets. We'll also cover some of the unique shifts in investing strategy that he's personally used to maintain his ability to outperform the market.

Additionally, he'll outline his thoughts on how investors need to balance both being offensive and defensive. So whether you're a fund manager or a solo investor, whether you're a long-term investor or a trader, this episode will push you to think harder and harder about your strengths and weaknesses and what it really takes to compound for decades. Now let's get into this week's chat with Ian Castle.

Since 2014 and through more than 180 million downloads, we've studied the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected. Now for your host, Kyle Grieve. Welcome to the Investors Podcast. I'm your host, Kyle Grieve. And today we welcome Ian Castle, friend of TIF onto the show. Ian, welcome to the podcast. Hey, thanks for having me on. It's always a pleasure.

So you've been a friend here of the podcast and been on multiple times. And every time you're on here, I'm always amazed at how much I get to learn from you. So I'm very excited for this one. So before I started doing the outline for this conversation, we were discussing a couple just extra topics that maybe I thought you would be interested in talking about, as you're always, I know, a very thinking person. And so you had a really interesting topic for this one, which is based on some of the major differentiating factors between good

great, and goat investors. And for those confused about a goat investor, I'm not talking about the animal. I'm talking about the acronym, which is greatest of all time. So we're going to get into that in a lot more detail in a bit. But first, I'd love to know just how this subject caught your attention in the first place. Yeah, it's a good question. I mean, I think it might...

have stemmed back to when we were studying intelligent fanatics for the two books that Sean and I co-authored, studying great leaders and great business builders. And I've always found that interesting and comparing them to artists or performers.

sports figures and always thinking about the varying degrees of greatness, even amongst the top 10% of their craft. You can be in the top 9% and you feel like you're five miles away from being in the top 1%. And I started journaling a little bit more about this when I was reading a book called Golf is Not a Game of Perfect. And it's written by Dr. Bob Rotella. And

He tells a story. One of the stories he leads off with, I believe, is a story from the early 1990s with the golfer Tom Kite. And back in the early 90s, Tom Kite was the number one golfer in the world. And Kite relayed a story of when he played with two collegiate Division I golfers from the University of Texas. And he played around with these two golfers. And one of the golfers, after they played the round, I think they shot within...

a stroke of Tom Kite, you know, these two collegiate golfers. And one of the golfers approached Tom after the round and was just like, we basically hit it as good as you did today. You know, we shot within a stroke of you, our bunker shots, you know, we got them up and down for par, just like you did. Our tee shots went the same distance.

"How come you're the all-time leading money winner on the PGA Tour and we're the number three and four golfers at the University of Texas?" And his response, and I might be getting this slightly different or wrong, but he basically said that it basically comes down to concentration. And it all comes down to concentration. Over a four-day tournament, you lose your concentration once, that could cost you one or two strokes per round.

And that's the difference between making the cut in a PGA event and winning the event. And if you lose your concentration twice per round, that's the difference between being on the PGA tour and not even making your college golf team. And it really just comes back to limiting your mistakes, limiting your unforced errors. And that's a big way on how you achieve greatness in whatever you're doing. And I thought that was

That was such an interesting kind of way to put it and an interesting way to frame it. Then I read another article, I think it was from back in 2021, where a group of researchers analyzed the 2021 playing season on the PGA Tour. And they literally went and they looked at the season, there was 41 events, and they

And they said, "How would a player rank if they just shot even par for the entire PGA season? How would they rank?" And they did all of the analysis and I think you would have got like six top 30s and maybe a couple top 10s and you would have been, I think, ranked 90th in the world or something like that. And then he said, "All right, well, what if somebody would shoot one under par in every round during the PGA season? What would that look like?" And well,

You have like four top 10s and you would be maybe ranked 26th in the world. So that's the one stroke difference. Okay, well, what if you averaged two strokes or two under every single round on the PGA Tour? What would that look like? Well, you'd be ranked number one in the world. You'd have two wins, six top 10s. And again, the difference between two strokes per round just looks like slim margins can be the difference between good, great, and GOAT.

It's funny, just kind of preparing for this talk with you today. I was looking at the 2024 statistics on the PGA Tour, kind of keeping with the golf analogy here. But I think Scotty Scheffler's scoring average in 2024 was 68.01%.

which is incredible. I think it's actually the lowest scoring average ever in the modern era, what he did last year. And what's interesting about that is the third best scoring average on the PGA Tour last year was Colin Murakawa. And his was around 69. So it was one stroke worse and he was third in scoring average last year. And I think the average on the PGA Tour was 70. So again, it's that two strokes between the average tour player and

and probably a potential goat in Scotty Scheffler. And it's just the slimmest of margins. So that's kind of what really got me going down this arena of kind of good, great, and goat. And then obviously, I started thinking about it relating to stock picking as well. So before getting into exactly what makes up a great stock picker, let's set the stage a little bit here. So just in general, I think stock pickers tend to be judged by two major things, which are time and performance. Robert Leonard

Now, obviously, the longer the period of your track record, I guess the more trust there is in your track record. You can see someone that might have a really good track record, let's say for a year. I mean, you could probably go out on Twitter right now and find someone who over the last year has done 100%, but that doesn't really mean anything over one year. Do that over five years or 10 years or 15 years, and then people will be very, very impressed. So again, obviously, the longer your track record is, the higher quality you're going to be perceived as. And then, of course, productivity.

Probably even more important to that is its performance. So what gains or returns have you done over that time period? Generally speaking, the higher, the better. So you can look at both those things as kind of being the report card of any investor. And I think that's completely fair. So can you discuss the importance of these two concepts and how you judge performance?

I think maybe a place to start is I think a lot of... You hear a lot of investors and stock pickers, including myself, talk about stock picking being an art as much as a science. And I think there's truth to that. And stock picking is an art because we all invest differently. We all express ourselves differently. And where it really stops becoming an art is the end result. I mean, you can have 100 people look at a famous artist's painting and...

Maybe 5% think it's good because they might also have an eye for that type of art. I think if somebody like, I don't know if you know who Jackson Pollock is, but he's a famous artist from the 40s and 50s. And he had this drip technique where he basically would staple a canvas on the floor and he'd walk around it throwing paint at it.

And you can imagine what the end result looks like. It looks like somebody stapled it to the floor and threw paint at it, right? But one of his paintings, I think, sold for $140 million, which is mind-boggling. And I think 99.9% of people that would look at that picture, if I would screen share it right now, would say it's ugly and they wouldn't pay $5 for it. And so that's sort of like... It's proof that investing or stock picking stops becoming an art when you judge it by the result, because artwork is subjective, where...

the end result of stock picking is completely objective. I think 99.9% of people would agree that a 5% CAGR over 10 years is ugly, and that a 20% CAGR over 10 years is beautiful. And I think we would all agree with that. And so you already said, I mean, stock picking is really judged by performance and time. And I think we would all agree it's easier to show great performance over a shorter period of time. And

Time is kind of like gravity to a stock picker. If you go enough time, everything reverts to the mean. It kind of takes out any random great year you would have had. And so time is an important component to it. And I think also too, when it comes to successful active managers, you ultimately attract more assets if you put up good returns. And

Also, if you have done well over 20 years, you've probably attracted a lot more assets, which means that you were probably more prone or risk of style drift or reaching in different areas before you're ready to reach into them. And so I think it also proves that you adapted and evolved in a very effective manner if you put up a good track record for 10 or 20 or 30 or 70 years like Warren Buffett. So I think if...

Stock pickers can withstand those headwinds of time as a gravitational force. I mean, I think that they turn into kind of the great and even goat stock pickers that we have. I think another thing worth mentioning, and I might be jumping the gun with this too, is I think there are two different mindsets when it comes to performance. There's kind of this idea of kind of capital preservation versus kind of absolute returns. And

Capital preservation is like, all right, I don't want to lose money type of mindset. It's more of a defensive first mindset where absolute returns is more of an offensive mindset. And I think each stock picker has a little bit of both. If you have a Venn diagram, there's going to be some overlap there. But I compare it to an NFL football team where you can have

teams that win the Super Bowl, and they might be more known for their offense than defense or their defense than offense. And I kind of think about stock pickers the same way. And I think capital preservation dominant stock pickers, they're trying not to lose money for their clients, and they're willing to give up some of the absolute returns to get reduced volatility to get that. And I think of somebody like Tony Deaton, or Chris Blumstrand, or

or anyone that really is managing 100% of someone's net worth.

that type of mindset where you're really just about making sure you don't lose money for them and doing a great job. Through this conversation today, I don't want to say that anybody that invests that way is not doing it correctly. I'm strictly for the basis of this conversation talking about those that really kind of focus on absolute returns. Like for me and my fund, I tell the investors that I have out of the gate, like you should be putting no more than 5% of your net worth of your investable portfolio with me. And that's

I'm offense first. And they know that. They know volatility is part of the ride. And so for the rest of this conversation, I just want to just say this is for absolute return investors. That's how I developed this framework. Robert Leonard

Excellent. Thank you for breaking that down. We're going to be going over a lot of those concepts as well in a little more detail later on. But another question I had here, so I recently interviewed John Suchiwar, and it was a really good conversation. And one of the topics that we discussed was how he specifically competes with the S&P 500, despite the fact that his fund has never even owned one stock inside of that index. I know you are similar. I know that you compete with the S&P 500. I don't know if you ever owned a stock in there. I would highly doubt it, given your background on microcaps. But

I think that this leads really well into my next question, which is, obviously, we've talked about investors using time and performance, but a lot of times what they're doing with their performance is they're comparing themselves to a general index. So in your opinion, is there a perfect benchmark out there to evaluate performance? What is it and why?

Yeah. And I agree with John, who you interviewed, and also Bob Rabadi, who I know shares that same understanding about the S&P 500, which I think does go counter to what you'll hear from many. But I agree 110%. I think if you manage other people's money

They will be comparing you to something that is the S&P 500. It has to be the S&P 500. I mean, they're going to compare you to that. They're going to be comparing you to the Vanguard S&P 500 index and its three basis points of fees. Because that's whether you want to believe it or not, whether you want them to or not, that's what they're going to compare you to.

And so I think it's just honest to be or it's just good to be honest with yourself and your investors. You might as well just make it easy for them and just put it in your performance, comparing it to the S&P 500. And it's a tough adversary. I know for me, like I just want to be compared to the toughest adversary that I have, regardless of whether there's any micro caps in the S&P 500, which there aren't.

90% of active managers can't beat the S&P 500 over 10 years. And I like to be compared to my toughest competition. I think the S&P is an active managers. I think the S&P 500, like the 1992 Dream Team that had Jordan, Bird, Johnson, Carl Malone, those types of folks, and they beat their opponent by 44 points on average. And instead of the Dream Team,

The dream team is really the S&P. You have Nvidia, Tesla, Google, Meta, all these companies that have been compounder bro stocks, and rightly so for the last 20 years, just ripping it. And I love the fact that, especially in my world of microcap, I love to be able to show that my team of no-name players can beat those stocks. That's what I want to do. And I think...

If you want to be the best in the world at what you do, you compare yourself to the best benchmark. If you want to be Michael Jordan, you don't compare yourself to the best high school player. You compare yourself to Michael Jordan. And in my small fund, I do have the S&P 500 there, just because I think it's just an honest way to do it. I think it's just a mindset. You either want to be the best or you're afraid to look bad. And stock picking is a game of self-confidence too. I often think of that Roger Federer quote,

in his last year of when he played, it was something to the effect of, I wake up every day still knowing that I can crush anyone. And he didn't say, I believe. He said, I know I can crush anyone. And I think you have to have that similar mindset, similar chip on your shoulders, that similar self-confidence that also matches your skills to really outperform and do well over the long term as a stock picker.

So now, why don't we get into exactly what constitutes the different groups of investors we're going to be talking about today? So what performance and what timeframes are you using specifically to define good, great, and go stock pickers? And maybe even just the normal investor as well. I'd love to know more about that.

Yeah. I looked into this a little bit and I kind of drew on some studies that are ongoing studies that are done by the S&P Global, I think it's SPIVA, US scorecard. So it's a semi-annual report that evaluates the performance of, it's just US fund managers, I believe, against their benchmarks. So I looked at what they were doing and there was some work done by Alpha Architect that looked into active managers based on timeframe and

net and then after tax and everything like that. So I kind of used kind of the most recent data I could find to kind of develop this. And so for me, the difference between good, great and goat. So for good, I have it as, again, I'm still working on this too. So I don't want to offend anybody either. But good would be a 10-year track record annualized net return of beating the S&P 500. It's that simple. And we already talked about how many make the cut. It's 10%.

of active managers. So just to be good, 10-year track record net of beating the S&P 500. When you look at great...

Again, it's kind of similar to on the golf analogy side, like the 100th ranked PGA Tour player looking at somebody in the top 20. To you and I, it's just like, oh, they're not that far away. To that individual, it's like a standard deviation away. It's kind of a similar thing here. So from the great stock pickers, I think of that as somebody that has a 20-year track record of beating the S&P 500 net. How many make that cut? It's around 2.5%, 2.5%. Not very many.

And then my designation for GOAT, again, this is... And GOAT, greatest of all time, you can't have 5,000 people in there or else it wouldn't be GOAT. For that designation, I think of 20-year track record of 20% net annualized returns. And how many make that cut? I don't know. I kind of just threw it up. 0.01%. It has to be something like that. There might be 50 people, I don't know, out of all stock pickers.

So those are the designations. Good, 10-year track record being the S&P. Great, 20-year track record being the S&P. Goat, 20-year track record of 20% net annualized.

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From initial accumulation to multi-generational wealth planning, OnRamp is where security meets simplicity. Learn more at onrampbitcoin.com. That's onrampbitcoin.com. All right, back to the show. Excellent. Great definitions there and obviously incredibly difficult to achieve. So in our last chat, we discussed some of the skills involved specifically with investing. You did a really good presentation. You really broke it down for us, which I really appreciated.

And I plan on weaving a lot of these skills into the chat today. So can you just refresh the audience's memory here a little bit on those skills before we get into, you know, which of these skills correlate to some of these buckets that you just talked about? Should I give a quick summary of Brazilian Jiu-Jitsu while I'm here?

So let's get back quickly, you know, and you can go back and listen to the conversation that Kyle and I had not that long ago on this. But really, the basis of this conversation on the skills of stock picking was when I was looking into a gentleman named John Donaher. And he's arguably...

best, if not one of the top three best Brazilian jiu-jitsu and mixed martial arts instructors in the world. He's coached some of the best athletes in the sport, really kind of across different areas of the sport too, like Saint Pierre, mixed martial artist. Coached also Gordon Ryan, considered the best submission grappler of all time. Just a really smart guy. And Donaher is known as the Einstein of Brazilian jiu-jitsu. And if you ever heard him give an interview in

It doesn't take you very long to realize this is somebody that is in the top 0.01% of what they do. This is somebody that is comparable probably to a...

Warren Buffett or Charlie Munger on the investing side. Somebody that's thought about every aspect of fighting from every angle, any multidisciplinary angle that you could ever think of. And I'd encourage anybody to go and listen to any of his interviews because they kind of pull you in, even if you're not into fighting or Brazilian jiu-jitsu. He was a philosophy major in college. He was a philosophy major...

in graduate school and he studied philosophy for his PhD at Columbia University in New York City. So again, this is not a dumb dude. Like I said, he's an incredibly cerebral human being and one of the

he was asked in one of the interviews was, how do you become the best in the world at what you do? And his answer was that in any sport or profession, there are five or six core skills that are necessary to participate in that sport or profession. And to be the best in the world, you need to be good at all the skills and the best in the world in one, if not two of those skills. And that's what kind of got me down this path of thinking, okay, in

in the world of stock picking, what are those five or six kind of core skills? And the previous conversation I had with Kyle not that long ago, I talked about six of those skills. And I've since narrowed it down to five, but basically from the basis of these universal skills of stock picking. And once again, when I came up with these skills, so many different flavors of stock picking. And I think these five skills I'll be talking about next are

are universal. It doesn't matter if you're value or growth, or if you're more of a trader than a long-term holder, I think they hold true across all flavors of stock picking. And the first one is identifying. And that really just means finding actionable ideas before others. And I think stock pickers mainly use the same tools and processes to find ideas.

It's just that different flavors of stock picking might weight one of the ways more or less than another flavor of stock picking. And so the five core areas of how you identify companies early would be brute force, going through A through Z, just making sure you don't miss anything. Number two is screens. Once again, some people use screens, some stock pickers don't, but I think most people do in some variation.

And researching is another way that you find ideas. And what I usually mean by that is when you're researching something, you bump into something else. That's how you find new things. And so, those three ways of finding ideas earlier, kind of how you go out and find them. And then the last two ways that I've kind of identified would be

how ideas find you. And that's through number one, networking. And that becomes really, really important as you mature as a stock picker. And then finally, relationships too, which kind of interconnects with networking as well. And kind of the ultimate end goal of this skill of identifying is when you just have more ideas coming to you than you

You even have to go out there and look for them. And it's really because of those relationships that you've built over 10 or 20 years with other stock pickers through reciprocation and trust, other management teams, other people you've done scuttlebutt with. They know what you are looking for.

And kind of the pinnacle is kind of active patience, which is kind of a term that I coined, which is you're kind of at the pinnacle of that skill set when you know exactly what you're looking for and you're willing to do nothing until you find it. You're kind of that, as Anthony Deaton would call it, you know, kind of paging through the art catalog and you're just willing to page and page and page and go month or quarter or year until you find exactly what you're looking for. And so that's the first skill.

The second skill I would term as analysis, and that's due diligence and scuttlebutt and kind of evaluating the quality of the business and also the leadership.

And then obviously, trying to form an accurate assessment of what the future looks like and valuing that business and leadership today and being accurate with that. And I think, again, that takes time and reps to get better at all that. And obviously, I would say one of the areas that me personally, where I think I'm strong is identifying higher quality leaders. And that would fit into this analysis skill set. It's something that I'm also kind of impassioned with.

And we all have strengths. I'm only at skill set two here. But once I get through five, I think you'll identify that one of these I like doing, I enjoy doing. And you'll find that you lean into that area harder than the other ones. And that's a good thing. And the third one would be buying. So I would call this sizing your conviction. And that can mean initial position sizing. That can be averaging up, averaging down. And I think position sizing is incredibly important since...

I think the greatest attribute of public markets investing when compared to private markets investing is variable pricing. Every day, the stock prices are whipsawing up and down much more than the intrinsic value of the underlying companies. Berkshire trades in a 40% trading band every year, which means that one thing I realized too, even after 20 years, it's amazing how whatever

Whatever I'm buying today, I'm like, "I'm never going to get another opportunity to buy this." And then yet, every year, the market gives you, especially in my haircut cap, gives you another opportunity to buy that same company at the same or maybe even better risk-adjusted price at some point during the year. And I think the buying and the sizing and conviction also is a skill that takes time to develop because I think I know from personal experience, in the first probably 5 or 10 years,

I think amateurs, what they do with position sizing and buying is they tend to drift towards oversizing their positions and their conviction. And I think that's probably 90% of people probably oversize their positions bigger than they should, especially in something like microcap and small cap where I think we can... If you're in the space that I operate in, we're not investing in microcaps because I can make a 12.2% return per year

We're invested because when you hit a winner, you know, you're hopefully you're making a lot of money. And so whether you position size that at five or eight or 10, I don't want to say it doesn't matter, but you're probably better off going a little bit smaller than what you want, because if it works, it's not going to matter. Make it a position that you can sleep at night with.

So that's buying. And then I think maybe the next one would be selling. I'll talk about that one before holding. And I like the buying and selling and holding kind of progression because you'll buy more stocks than you sell and you'll sell more stocks than you hold when you think about that progression. And so in the selling...

I would say the second best thing about public markets investing is you can sell. You don't have to hold on to things that you don't believe in anymore. You're not forced to own anything. And I think selling can be a stock picker's biggest advantage because it's your ability to limit your losses and also hold on for the optimum gain that you can. And obviously, if you're really, really good at the skill of selling...

that's a really good skill to be really good at. Because that means you're limiting your losses and you're capturing your gains better than other investors, even in those same securities. And I think too, when it comes to selling and it dovetails well into holding, and when I journal about it, it's kind of... I almost feel like selling and holding are one of the same sometimes, just because when you think about your winners that you've had over your career, and I think about the winners that I've had, I would say...

99% of the winners that I've had needed to be sold. Those are the winners. When you look at the winners that you've had, probably you too, Kyle, it's like, probably 90% of your winners are going to be stocks that went up, call it 10% to 100%. Another 9% are going to be stocks that go up 100% to 1000%. And then you're going to have this 1% band that were the never sells that you probably did sell it, but you probably shouldn't have. Kyle

And we were always judging ourselves by that 1%. We even define our strategies as that 1%. When in reality is, you're going to be selling most of what you buy, and it's good that you will, especially in micro-cap and small-cap because most of these stocks, I would say 90% of the winners will come back down or their future returns will revert to the mean.

and you won't want to hold them and you shouldn't hold them. And so that's where selling and holding are kind of two brothers. They go hand in hand with some of this stuff. And so every position you hold has a different shelf life. And you never know how long you're going to hold a position at the beginning. It's just like a relationship. You just don't know. Each one is a different relationship. Some might last six months, other ones might be six years. But

I would say the smaller the company, the smaller the market cap, the shorter the shelf life on average. And so holding is the last skill. And that kind of, like I said, dovetails into selling. And holding is a unique skill. And it's really the skill of maintenance due diligence and knowing your positions better than a majority of the investors that are in that same stock. And it's that maintenance due diligence that will

tip you off to sell before others and hopefully save you from losses and also go against the grain while people are selling it. Maybe you're buying it or maybe you're just holding it because you have the ability to disconnect the stock price from the business. And you have such a great pulse on that business that you're able to hold through the volatility that is inherent in any multi-banker that we have. So anyway, sorry about that monologue, but those are the five skill sets of

stock picking. I'm happy to dive into more detail if you have any questions. Yeah, I know we will be getting into more. It's funny when you just brought that up, there was so many analogs just thinking about myself and some of the mistakes I've made, especially what you're talking about with concentration there. It's funny, I think when you're new, you think that you find investing and you just find these ideas and you're like, oh, I know this so well. I'm going to put 10, 15% of my portfolio into this one idea. And then over time, you probably realize, oops, I've

Once you get a couple of mistakes and, you know, like I've never had a zero by any means, but I've had some mistakes and it hurts when they're large percentages. So I think I've kind of come on that similar trajectory where while I'm 100% still a concentrated investor, I'm just maybe a little bit less concentrated. And to your point there, you know, about 5%, 8%, 10%, I'm realizing more and more. It's like, yeah, you know, you can have a position of 5%.

and it can grow to the biggest position in your portfolio. And that's great. I love that. And it also, like you brought up the point there about sleeping well at night. It kind of helps you sleep well at night. So yeah, I really appreciate you talking about that skill. So just to dovetail that, not to go too many rabbit trails, but especially in small micro caps too, it's like, and you have enough reps and you're, you too, Kyle. It's like, I mean, how many stocks do you genuinely like more

Or have you liked more the longer you own them that are micro and small caps? I mean, that when you bought it, you actually liked it more six months later. It wasn't a high percentage. You usually like it less. And that just goes to show how hard it is. And yet, I'm still affected by it too. Every new idea that I'm looking at, especially if I'm buying it, I always think this is the best thing I've ever found. You still think like, oh, this is going to be the next hunter bagger right here. It obviously has to be. So we're still whipsawed by our own emotions and being human too.

Yeah, no, those are great points. So now that we're more clear on the timeframes, the performance of each group, the skills, let's kind of go into how those skills relate to these different buckets that you've already talked about. So let's just start with good stock pickers and then move up from there. So what are some of the skills here that good stock pickers have and maybe some of the things that are differentiating them from just the average investor?

Once again, I mean, we're talking about good. We're talking about stock pickers that have beaten the S&P 500 net over 10 years. And this is 10% of professional stock pickers fit the good category. And to accomplish this, kind of getting back to the Donner-Her term, I mean, you need to be good at all those skills of stock picking and good at applying them over a long period of time. And I think...

We all have skills where we're naturally gifted, which is our strengths. And we all have skills where we're deficient, which is our weaknesses. And the good, great and goat stock pickers, they don't waste time avoiding their weaknesses. They know exactly what they are and they fill them with tools, with people, with technology, whatever the case may be, to get that skill up to where it's not a deficiency against their return.

And so I think first and foremost, to be in that good category, you do need to be good at all those skills. Now, I think some people might be thinking, "Well, I know a lot of people that are really good, but they can't beat the S&P 500 over 10 years." And my reaction... I got to watch how I react to this. But my reaction would be, "No, they aren't. They are likely deficient in one or more of the skills and they're masking it in some way." I mean, how many

stock pickers with kind of public track records do you know that are better at presenting and doing interviews than they are by actually putting up long-term performance? I think maybe some people even think I fit into that category. I would tell you I'm wrong. That's wrong. But the performance is always in great performance. To be good, you got to put up the performance.

And I think the good stock pickers also lean into their strengths really well. And I think that's also what separates them and allows them to get additional alpha compared to the index and other stock pickers is really just focusing in on those strengths. And I think if you're in the top 1% and a skill of stock picking, that in itself is enough to produce an ongoing advantage that can separate you from the pack.

and also the S&P. I think the other thing that good stock pickers do really well is their consistency. And I don't mean consistency of returns, I mean, they don't have down years. I just mean that their consistency of process and applying those five skills.

And I think that there's a lot of big advantages born out of boring methodical consistency, you know, and, and, you know, to Kyle's like, everyone says they turn over the rocks. Everyone says they go through A through Z. Everyone says they read the filings. Everyone says they do the financial models.

Everyone says they go out and talk to suppliers and customers and blah, blah, blah, and do the required maintenance due diligence. But most don't do it. Most stock pickers, they can do it for a few months or a few quarters, maybe a few years. Very few of them do it for a decade. And I think one of the benefits, at least that I see, and I only speak for myself, in an area or a niche like microcap investing is

is all the little niches of industries you must explore and educate yourself on when you're a microcap investor. And it's how that knowledge dovetails into something else years later in ways that you never imagined.

And that consistency gets amplified and returns when all those seeds you plant in researching companies and industries starts bearing that fruit. And this is kind of the flywheel that propels, I think, good stock pickers through the five-year mark, you know, past the 10-year mark is just that consistency. It's all those reps.

that you put in, the notes, the analysis, the financial models, the relationships, the management interviews that you've accumulated across 50 or 100 even watch list companies, that becomes that sustainable advantage that gets you past that 10-year mark. I mean, just think about if you track 100 companies like I do on a watch list, how many companies go in and out of favor all the time? And a stock picker might own the same stock 10 times. Robert Leonard

in their career. And it's just because things are always evolving, they're always changing. And inside that watch list of 100 companies, there's always something new happening. A new management team takes over a company, a new acquisition, a new division gets launched, an old division gets sold. An unactionable idea can be actionable in an instant. It's kind of those old investment ideas that can become new ideas because...

The valuation or corporate actions kind of brings that opportunity back on the radar. And it's because of the work that you did five or 10 years ago that allows you to see around corners today.

and see them before other investors. And that's really how you just get really good at that skill of identifying and that skill of valuation because it's the work you did five years ago. It's the fact you've talked to the management team 10 years ago or whatever it is that makes that skill more of a strength over time. And I think that's what the good stock pickers can do.

Right. So now moving up from good, great stock pickers are kind of that 2% to 3% range. So what are maybe some of the differentiating factors just between those two groups in relation to the skills? I mean, to beat the S&P over 20 years, it's a long period of time. What kind of we talked about? That's the gravitational force kind of pulls you back to the mean very quickly. Right.

I kind of compare like the great stock pickers like what King Lionitis and the movie 300, you know, 300 Spartans that fall off the Persians in 500 BC or whatever. That's what I kind of figure the great stock pickers are. And I think if you've been beating the market or the S&P for 20 plus years, you've likely had to evolve as an investor in small and big ways.

And I do believe it's kind of that mentality that inside every stock picker is a better stock picker. And you need to believe that every day. And it's that kind of curiosity and ambition to push your circle of competence and evolve that keeps you on top of your game. I think what gets you in the top 10%, what gets you good...

is probably not what will get you in the top 3%. It's going to be adding something or getting into another area or evolving, adapting effectively. And there's plenty of examples of

stock pickers and investors who put up blistering track records for one, two, five years even, who didn't evolve effectively and were slow to adapt. I can't help but think of someone like Michael Burry or others that get locked into a mindset. And quite honestly, it's normally a bearish mindset. People get locked into and they can't break free from it. And so they're right once in 20 years and they spend the rest of their life in that same narrative.

They weren't able to adapt. There's also a graveyard of stock pickers who tried to adapt and they failed. But the great ones successfully adapt. They're like shapeshifters or chameleons. They can adapt to their environment. And they don't invest in a world that they want. They invest in a world that they have. And I think great stock pickers, they just don't become complacent. They don't slow down.

they are never satisfied. They are constantly challenging their convictions, their beliefs, and they aren't doing so recklessly. When they are pushing their circle of competence, they are shooting bullets first. They think of it like a scientist, "Let's prove this first before we devote more time or capital to it. Let's get some small wins before we get more aggressive." I think that's what allows great stock pickers to not be talking about the multi-baggers they had 15 years ago because they're still having them today.

Now let's go to the goats. Obviously, just judging from what you've said, it's like, man, even getting to that great status is very hard. That's why it's only 2% to 3%. But as you noted, goats are probably 0.001%. So I mean, what else are goats now doing in terms of those skills over the great investors? Because that's a tough hurdle to get over.

I know. Yeah. So on the GOAT side, I'll go back to something else that Don or her talked about in one of his interviews. The same question that was asked him about how to become best in the world. He said each sport or profession has five skills and you'd be good at all of them, hopefully be great at one or two of them, in addition to being good at all of them.

He kind of dove another level deeper into the next question that was asked from him in that interview. And he said, what makes people stand out is having the ability to identify the one or two skills that are currently being underutilized in their sport or profession.

And then that person focuses massive effort on that underutilized or underappreciated skill set, and they reinvent it. And then they reintroduce it back into their sport or profession in such a way that it shocks everyone there. And they're so kind of far out in front, you know, that it just surprises people. And they have a multi-year advantage to when anybody else even catches up to what they're doing.

And I thought that was such a beautiful way to express a lot of things, but it was perfect. And so, I think relating that to stock picking, I think being a GOAT does mean that you've innovated and redefined a skill to get consistent alpha over others. And-

And I also believe great investors do this to some extent too, but I think Goats kind of, they do it in such a way that it produces, again, the difference between being the S&P and getting a 20% net CAGR, at least initially, gives them a big alpha differentiation in the beginning. There's a great quote by Joel Tillinghast, who I think he worked at the Fidelity Low Priced Fund at the same time as Lynch or right after Peter Lynch.

But he had a great quote. It's something to the effect of, the secret of success in business and investing is to do something useful that no one else is doing. And I think that sums it up pretty well too. And I think there's some really good examples of this. And some of these folks you probably have spoken to or have done interviews with or have met with, Kyle. But when you think of somebody like Sleep and Sicario, how they reinvented thinking about valuation and business models to bring out their scale economics shared. And

and being kind of first to that. And that allowed them to value certain business types that others didn't. And obviously, eventually, the world caught up because there's businesses that didn't look great back then now all of a sudden look great today. They fully benefited from that kind of multiple expansion as the world fell in love with those same businesses that they knew. But they fell in love with it because of their valuation and their business model metric they came up with, scale, economic shared.

I think another way to think about that at least is also somebody like Reece Duca from IGSB, just their focus on vertical SaaS companies. And they really dove into those, that vertical kind of software companies the same exact time as Mark Leonard from Constellation Software. And obviously, it's created billions of dollars of value since then. They were kind of first to kind of have that mindset of valuation and a business model.

I think of somebody, I think it was Andrew Brenton from Turtle Creek.

you know, kind of creating a quantifiable systematic approach to kind of buying and selling. And I would say that they're really good, not because they buy and sell, it's because they're really good at assessing intrinsic value, coming down to that kind of valuation skill. They're really good at that. And that's created kind of a very interesting differentiation from most other value investors that are strictly kind of in the buy and hold forever camp. Robert Leonard

You could probably throw in somebody like Ed Thorpe, who was the first to apply probability statistics. And I allowed him to, again, 20% net, 20 years. Even somebody like on the short side, there was a handful of short investors back in the early to mid-90s, kind of like Mark Cohodes.

that kind of looked at shorting differently. They weren't just going to short overvalued stocks, they were going to short bad actors. But they weren't going to short it just because they were bad actors, they were going to wait till the fundamentals cracked.

and just having the discipline, even though you hate these people that are running the management team and you think they're awful, the patience and the discipline to wait until the fundamentals start cracking until you dig in on a short. And that was kind of like an early advantage and a new mindset shift in kind of shorting. And where somebody like, I'm going through examples here, but somebody like Michael Melby at Gate City Capital, he's a deep value investor that really puts a lot of emphasis on management quality. Again,

Deep value management quality usually is not on the top of the priority list. And yet he's taking an underutilized skill, redefining it. And he's been doing 22% net for 14 years. And so what are these people doing differently as providing that? And so I think this reinvention of a skill and being the first to do so, that advantage that could last three years or 30 years, you just don't know.

And many of the GOATs, they started in one area where they had an advantage, and then they had the tenacity and self-confidence to find new areas of investing and win. And so many of the GOATs, what I've found too, is they don't invest one way. They're multifaceted players. They are BoJackson and Deion Sanders that can play two sports at the highest level. And that's what the GOATs do really well. Think of George Soros.

20% net over 40 years. Michael Steinhardt, 23.5% over 28 years. Druckenmiller, 30% over 30 years.

David Tepper, 25% net over 25 years. When you think about those types of investors and those types of returns, they're not just buying and holding common equities. They're doing other things really, really, really well. In fact, it's hard to think of somebody actually that has done 20% net for 20 plus years.

that isn't multifaceted. I mean, even Buffett, obviously, he's done 70 years of 20% net, but he has a $250 billion public stock portfolio, $347 billion of cash. Yes, but Berkshire is basically a publicly accessible private equity vehicle for the public that doesn't pay fees or doesn't charge fees. He invests in a multitude of different ways. I mean, he started buying private companies back in the 60s. He wasn't just buying and holding or trading.

So even him, he's very multifaceted. So I think the... Long story longer, I think the GOAT investors, they innovate, they redefine a skill that probably provides them a big advantage in the beginning. And they use that advantage they have to then enter other areas of investing

And they just have to have that tenacity to just push and push and push. And there's plenty of examples, even present day ones, I think of people that kind of represent kind of that goat mentality, whether it's a Connor Haley of Alta Fox, who started one way and now he's doing about everything. And I think it's just a commonality you see in a lot of the goats that are going to put up these great returns. I'm self-reflective of with myself too. I think

I think I'm good and hopefully great. But to get to that goat status, am I evolving quick enough in these other areas as your capital grows to even hopefully get there to the goat stage?

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All right, back to the show. So you mentioned with some of these investors just over whatever time period, call it 10, 15 years, often things can change and often for the negative. And that can be kind of to what you just said. If you're not consistently trying to improve yourself and get better, well, you can just get stuck in these similar holding patterns or you get stuck just gathering assets rather than actually improving your return. So with that said, what are maybe some of the traps that

that investors can kind of self-reflect on to maybe try and tell if they themselves are starting to drift down, or maybe they're doing things that aren't adding value to them as an investor, or maybe making them worse or staying too stagnant.

Yeah. I mean, I think that could be a podcast in itself, but I can only give some personal examples. I know some areas where I got trapped and I felt it and I had to make some changes is when I view all of us, especially every investor is like you're an artist. You might learn investing one way and then you evolve and learn different areas of investing. For me, it was starting out as story stock and then getting into precious metals investing and then

into life sciences. And I didn't really care about fundamentals until I was about 10 years in. And I think what is natural is when you're diving into these certain areas, these subsets, is you really dive in, you get to know them. And that's reflected in your portfolio. It's like when I was doing precious metals, it was like 90% of my money is going to be in precious metal stocks, obviously. And that's just what it was. And so you tend to overemphasize that area that you're learning, and you're expressing that in your portfolio. Robert Leonard

And after I became a full-time private investor, it would have been like 2011, 2012. And I was actually starting to look into value and GARP at that stage. I looked at my portfolio and I was kind of underperforming for a year or two. And it just looked like all the same color of boring. It was just all that. There was no colors in there from any of my past experiences in story stock or precious metals or life science. There was nothing. It was just a stale...

painting. And I woke up one day, I was like, this needs to change. I ended up kind of selling a few of the most staleless positions I had, repainted it,

And then I'll all of a sudden start performing well again and create an opinion that was unique to me. And I've had to do that a couple of times over the years. I don't know if that's a good example, but that's kind of an area that I'm always cognizant with myself. And also making sure that the whole position sizing area has gotten very important for me. And it's where I've evolved over the last 20 years where in my early days, I was building my capital before I was a full-time investor. I was in like three companies.

So it's about as concentrated as it gets. And then it went up to five or six or seven. I even have some blog posts on Microcap Club where you can find it from 10 years ago. And some of my read them, I'm just like, I cringed myself because it's just like, if you're not taking a 15% at-cost position, this isn't even worthwhile. That type of mentality. But now I'm just like, ugh. Where now, some of my best positions are companies that I take, I would say, smaller positions in that

that they earn their right to a larger position size. I don't hold those positions because I invested too much into them at cost. I don't hold them like with a death grip because I'm so cognizant of how much money I put into this thing. I give them enough wiggle room. I give them enough patience. I hold them like a tube of toothpaste where I give them a little bit of room to disappoint me and hopefully a lot of room to exceed my expectations.

And over time, just letting a 5% position grow into a 25% position. That's the way a position should get big. What do you think about it? And the great thing about my area of investing is just like, that's, first of all, we think every investment should do that, that we invest in, but those are the types of investments that you can have. Well,

And so you can just naturally let those smaller positions get large and maybe average up into them as you gain conviction and management proves themselves and you build that relationship with them. So those are just a few areas that I've

kind of helped me from being stuck because I think a lot of people can get stuck and especially if you're a concentrated investor, it's easy to get stuck and just continue to just get more and concentrated into losing positions where you're trying to prove to the market that you're right when the market keeps saying you're wrong.

Absolutely. That's the hard part. So you mentioned a little earlier there about how I think probably any good investor and hire have a really good understanding of reality and not just their own reality, because that can obviously change a lot. And obviously a lot of mistakes are done when you try to fit actual reality into your own reality and they don't mix. So I think with a lot of these good investors, they're trying to uncover the truth and

in some degree, you know? And I know that you've spoken about the importance that investors should place on kind of just knowing what they are and whether that relates to knowing what your strengths and weaknesses are or, you know, where you can try to accentuate your strengths and try to hide your weaknesses, whatever. I'd like to, I'd love to just know though, you know, what are some methods that you've seen that investors kind of can use to try to uncover their own authentic style and to really just understand, better understand their own weaknesses and strengths?

I think it's an interesting question because I think we all know that

what our strengths are and I think what our weaknesses are. It's just that you just don't want to keep lying to yourself and trying to act like they aren't. And I think 80% of investors, they do just keep lying to themselves. They act like that deficiency doesn't exist. They can make up for it with the strength, but it just doesn't work that way. It's sort of like putting up good returns. It's just like, it's hard to put up good returns when you have a 70% drawdown. It's like the lowest low matters.

And so you got to increase that lowest low and that deficient skill. And so I know for me, and it gets back to another topic too that's helped, is just journaling. And it's helped with pattern recognition too, and how to mature as a stock picker and get where you want to go quicker. Because the hard part with stock picking is there's just these long amounts of time before you know if it worked or not. And so you're going to have...

You can go five years and you have like another 12 experiences that might be completely at random. So it's like, there's nothing really to learn there. You know, it's like, how do you speed up? And so for understanding your strengths and weaknesses and also developing pattern recognition too, I think journaling has helped me over the last 10 years, really just journaling every decision, why I'm making it.

One thing that is bad about me being so concentrated is I probably don't have enough natural reps in my past history to

even going back 20 years. And so one thing that's helped me started 15 years ago is almost viewing my watch list of call it 50 companies like I own them, like doing the work on all of these companies and then tracking them as if you did own them and then just magnifying the amount of reps you put in. So you can just build that pattern recognition and

And also understand your deficiencies at the same time, whether it's your buy points, sell points, how long you're holding it.

You just need more reps. And so that's one thing that's helped me going back about 15 years when I started doing that is not just journaling about the 10 stocks I own today, but the 50 that I could own, that I maybe want to own. And I think also when you include that into the journaling process, it shows you where you could evolve to, too, because you might be picking up on some areas where you start seeing patterns and the additional reps that you put in through that. Robert Leonard

So one of the aspects, obviously, that we've already discussed here is how important it is to continue adjusting your game as the investing environment changes, which obviously it does all the time. And so there was an example that came to mind when I first was researching the subject, which was T. Rowe Price. T. Rowe Price is kind of known as kind of like the grandfather of growth investing. So he was

going in, finding these businesses that were growing fast, buying them at reasonable prices, and then just enjoying the ride up. It sounds pretty good and easy, but obviously he ran into some pretty big hurdles, which was that his method was gaining more and more in popularity. And that meant that there are other investors who are intelligent and they're like, oh, that works really well. Let's do that as well. And because of that, obviously his strategy stopped working so well because many of the businesses that he was looking at got way too expensive. And then

Luckily for T. Rowe Price, he had the ability to adapt. So he was like, okay, you know what? This strategy is not working anymore. I'm going to go out and I'm going to buy boring, real asset-based businesses and things like real estate, natural resources, silver, gold, whatever.

And doing this actually ended up saving him because his successors of the company that he made didn't think that way. They were like, "No, we know this has worked really, really well and we're just going to keep it." And unfortunately they got crushed because they owned a lot of very, very expensive businesses. And once the market changed its mood, those re-rated downwards and they lost a lot of money. So when I looked at it, it also got me thinking that it's kind of a double-edged sword because

There are some investors I've observed who maybe over a shorter time period have done really well. And then they have like a year or so, or maybe even six months where it's just things aren't going well. Maybe they've had a couple of big drawdowns. And then because of that, they just completely shift their strategy, almost kind of like they're abandoning their original principles.

I think that sometimes when they do this, number one, they're probably in line for a lot of regression to the mean if they just had continued with the same strategy to some degree. But also a lot of times they change to a strategy they just don't understand that well. And I think a lot of times they end up getting kind of crushed. So how do investors kind of wrap their heads around making these positive shifts without it necessarily be considered style hopping or just moving with the herd? It's a good question.

I think, at least for me, when it comes to microcap investing and adapting, and I can only use some personal examples, but now that I manage a fund, a little bit more capital, it's allowed me to drill down within my circle of competence in new, unique ways where I wasn't before.

And I'm still investing in the same company. As an example, we've started to do private placements into some companies from time to time. And some of them might even be initiated by me because I managed enough capital now where I just need to get my toe in the water with a position. And you get to know management. And hopefully, they participate with you, that type of thing. I don't really have a great answer for you other than I know where my circle of competence is. But

but I think there's always ways to expand and show value and be a value-added investor in my area. And for me, it's been as we grow our capital being more direct, more directly investing into them

which aligns again with my temperament and really liking to being aligned with the management teams as much as I can. And I know the older I get, the more I like knowing that I'm helping the companies and I'm not just a transactional buy low, sell investor or sell high investor. I'm actually providing them some value, some good advice along the way.

And after doing this for 20 years, we had two or three positions where it was obvious that management went out of their way to get us an initial position because they see the value of what we bring to their cap table being longer-term investors into the business. And that's gratifying for me. And it's just leaning into our strength even more of how we've evolved then with that.

I can't give you advice on whether I start slinging into commodities or something like that. I've never had to experience that. But that's just a small kind of shift or adaptation that we've done at the fund level.

One of the aspects here we've talked about with goats is that they make these subtle and not so subtle adjustments, kind of like what you were just discussing here. And I would love to know even more about some of these adjustments that maybe you've made over the years. So obviously we talked a lot about position sizing already and how you've kind of managed to, I think you're similar to me where you've diversified a little bit more, but you're still concentrated.

So outside of that kind of general realm, you know, what are maybe some of the other skills or abilities that you've been kind of forced to evolve in order to continue outperforming the market? I know probably the one for me, what I would say is one of our better skills is identifying companies. And it's really kind of because of obviously I'm kind of in the catbird seat of microcap club.

And kind of fully utilizing that to its fullest, which I still am not doing, which bothers me, but I'm doing a lot better than what I once did. It's because you have this 250 of the best stock pickers in this niche on this forum. And how do you get all the signal that you can out of that? Because there's a lot of activity on there. And I know an area for me that I've leaned into heavily is just

getting to know some of the younger, smarter investors on the forum, really lean into them almost, kind of mentoring a little bit more, creating win-wins with that. And that has probably supercharged the identifying skill to another level just over the last two or three years, having just a conscious effort to just dig in harder into that because it's just an obvious strength that I haven't been exploiting enough.

And so I think that's been a shift, another level, you know, call it going from fourth gear into fifth gear in the last three years with that. I think one of the things that's becoming more apparent over the last five years is just the need to look outside your domestic

kind of country. So I've been looking... Obviously, the US and Canada has always been my sandbox, but not being afraid to at least look at Australia or Europe. Granted, I feel like my hurdle is a little bit higher for investing in a company over there. I still see enough ideas and actionable ones here in the US and Canada that I don't feel the need to reach unless there's a real

high IRR situation that I'm willing to do that. So it's interesting. There's still a big home field advantage I find, even for us being in the US. There's just a big home field advantage. And you don't realize how big that is until you start investing elsewhere as well, whether it's in the London AIM, which we've dabbled in, or...

up in the Swedish exchanges, that type of thing. It's just like, you can get in okay, but you might not be able to get out. You're going to be the last one to know when bad news hits, let's put it that way. And so there's always a home field advantage. It's not an excuse for you not to expand your circle of competence into these other areas because I say that and yet there's plenty of funds and I'm sure some of them you've interviewed, even your most recent one, specifically where they invest is not in the US. It's just that for me and my temperament,

And my experience is like, I feel very good about staying close to home. And it's why 95% of our fund is still in the US and Canada.

I want to touch a little bit more on this concept that you mentioned earlier, which is offense and defense. So your kind of sport metaphor there was, I think, perfectly apt for this because obviously in most sports, there's always a defensive and an offensive aspect to it. Obviously, football is big, but I mean, you could name your sport probably has something. And so you also discussed John Danaher. And since I'm a jujitsu junkie myself, I immediately thought of how I could connect that concept of offense and defense to jujitsu.

And so in jujitsu, for the normal person, if you watch the match, a lot of times there's some guy on the bottom and then a lot of times there's some guy on the top. And so for the naked eye, you might think, okay, well, that guy on the top probably has a big advantage.

And that's actually not the case. So in jujitsu, there's something called guard, which is when you're on the bottom. There's people who are very, very good. Like I'm talking like Gordon Ryan, for instance, he's a really, really good guard player. He can literally, the match can start. He can sit on his butt and kind of, they call it butt scooting. They scoot towards their competitor. And if he gets you wrapped up, I mean, almost an instantly, he might be able to reverse roles and get, get on top or just submit you. So when you are talking about offense and defense, it's,

it can kind of be hard to see as well from the outside. Sometimes there's a lot of subtle nuances going on where if you're not very, very deep in understanding of the system, you just can't understand it at the same level as a person who's actually doing it. And this is in terms of jujitsu, but I think also in terms of investing as well. So I'd love to know just a little bit more from your point there. You said some people sometimes are just a little bit too defensive, but they're doing it for specific reasons. But also you sometimes see investors where they think that

Based on the cycle, they should go more on offense and more on defense. Howard Marks talks a lot about that in his book. So kind of how do you view these offensive and defensive areas of investing? Should people be kind of going in between both of them or how are GOAT investors and all the different buckets kind of moving through the offensive and defensive cycles?

The way I think about that is when I think about defense, I just think about valuation. You can't lose track of valuation. You have it as much as you want to, especially in markets that go up into the right every day. You're trying to find reasons and excuses for everything to keep going up into the right, extending that valuation even harder, further. This thing can go from 30% growth to 35% or 40%. You're trying to find excuses why you should hold or pay up. And so I think it's

Always important that your downside is really the valuation and having a firm understanding of where your companies and where your positions are being valued today and where you think that they will be in, call it a medium term time period, which for me is three years. And so I don't really...

I'd judge everything against where I think the business is going to be three years from now. And if the company pulled forward all of those returns today, then I will probably sell some. If I still think that there's 25% CAGR, the stock can double in three years, then I'm going to hold it or maybe even buy some. But usually, it's usually a hold. If I think it's more than that, then I'll probably buy some. So I think it's just being...

Again, it gets back to maintenance due diligence, knowing your positions, knowing the intrinsic value of them, and then knowing or at least having a firm understanding of where you believe that business will be in three years and changing the weights accordingly in the portfolio. That's all I know how to do. I'm not a macro trader. I don't short stocks. That's just how I deal with the macro is dealing with my micro.

That makes sense. So you spoke a little bit about journaling here and how that's helped you just better understand your thinking processes and the reasons why you're investing in specific companies. But I think a big booster of where journals really help is when you actually go back and look, right? Because obviously you can write about things, but if you never go back and refer to it, well, it's not quite as valuable. So I would just love to know, is there a specific example that you can think of where

Maybe you went back and looked at your journal, looked back at five to 10 years ago and maybe learned something, whether that's something that you've continued doing or something that you've adjusted on that really helped make you become a better investor.

I probably see it the most in the actual companies themselves. We see about a year ago, a position that we did work on five years ago, actually, they presented at our summit back in 2017. The company just dropped like a stone one day. And within a couple hours, I was on the phone with the CEO, a couple more hours, we ended up buying 4% of the company in like four hours, just because there was just a four seller. And that was

strictly because of the reps that I put in over the previous five, six years, even visiting the company seven years ago, that allowed me to act quickly. Of course, the stock three months later is 60% higher when the seller's done. There's another position that we own today that it was a company I owned 10 years ago that journaled about it. I even was a filer on the company personally and exited it with the old management team

but have been following it. New management team takes it over. I gain confidence with them, reenter it about a year and a half ago. Now we file on it again as our fund. Again, it's all just because of those reps and be able to go back, look at why you did something, what the problems were. And it's just those reps, you know where the skeletons are buried, allows you to act quicker than other people. And I think that's where I see it the most with journaling.

I have it set up in my journal where the watchlist companies... I even buy a little bit of each one just because that's just the way I am. It's hard for me to do the work unless I own a little bit of it. And so I just track that and it allows me to see up on a screen when I look at the year-end review, how they performed. And it's just an easier way for me to dial in and at least try to do 50% of the work into those that I do into my current positions. And then just learning from that and

And that's allowed us to evolve in a couple ways when you start to see patterns of things that you don't own but could have done well in. And there might have been three or four that kind of had similarities that you're like, okay, now I know. Now I know I should probably take that pattern more seriously in the future. Or that belief that I had was a strict no. Well, maybe that should be a maybe because you can point to three out of six were winners and not six out of six losers.

Another thing I wanted to go over, and I think you'll agree with me on this, is that I think a lot of value investors really over-romanticize certain quotes. And one of the quotes by Buffett, which I think is over-romanticized, is one where he says, our favorite holding period is forever.

Now, I've heavily, heavily researched Buffett's early days because I think that's the time of his investing that I resonate the most with when he could buy anything. And I like that. But I know, of course, you've looked at his early days as well. And coincidentally, his early days are when he also had the highest returns of his entire career. So the other thing is that when you look at his early days, this quote was not in alignment with how he invested. He was just buying things, waiting for the price to converge with value, and then he was selling them. And his turnover was high.

he was buying and selling pretty quickly. So it's hard. And I know, especially with Buffett now going over his evolution and being around for so long, you have to put some context behind some of his quotes. Otherwise, you can really take them out of context. So I'd love to just know more of your personal opinion on holding periods. And if you think that following this mantra too closely can actually be a detriment to investors. Robert Leonard

Yes. The short answer is yes. I think what Buffett meant in that quote was his intention is to hold every investment forever. But the reality is that few earn that right to be held forever. And I think there's no further proof than his own public stock portfolio at Berkshire, where he owned 240 stocks over the last few decades. He's owned nine for over 10 years. And so that's basically less than 5% of what he's owned. He's owned for 10 years. And you could say, well,

Well, if he really loves something, he would just bought the whole thing. And so they should be considered into that bucket. Maybe, maybe not. But I think that there is an over-glorification of the coffee canned approach. And I think it can be very detrimental, especially if you're a micro cap or small cap investor, where most of these companies, 99% of them, even 99% of your winners, if you give them enough time, they will disappoint you.

And that might be six months, that might be three years, that might be 10 years. When I look back at my own kind of turnover, I only own one company today for over 10 years. I own maybe two for three years and the rest are less than three. Probably the average holding period is probably 18 months.

And it's not because I'm not doing the work up front to try to find quality businesses. It's just that these businesses evolve in good ways and bad ways. And oftentimes, it's in bad ways. So I think it's important for every, especially micro and small cap investors to live in the reality of where you are. And that's that these companies, they go through seasons where they do very well. And most winners in micro and small cap have winning streaks. They don't win the marathon.

So it looks more like four to eight quarters of outperformance until management stubs their toe or they weren't able to diversify quick enough into other areas or whatever fatter trend that they found themselves in or government funding source dries up and then the music stops. And so it's really important. The number one skill I think for microcap investing is that maintenance due diligence that you just...

focus on knowing that business better than most others. And you do what you can to set up systems where you can at least have a little bit of a heads up. Whatever it is, your spidey sense goes off that something's changed that you can sell before others. And that saved me. I think I've said it before, but when I was a full-time investor, it was really my ability to sell before others that kept me in the game as long as I was. Yeah, I had big winners, but

It was the losses I never had to take. And that's where the maintenance due diligence is so important. All right. Well, let's pose a thought experiment here for the final question. So let's imagine that we're a great investor over maybe a shorter period of time from what you've talked about. But imagine, let's say that we've been beating the index for the last 10 years, and we've developed those five skills that you discussed to a very good level.

But now let's say, you know, okay, we've been kind of matching or beating the index by a little bit, but we really want to keep that going. And we want to maybe try to achieve GOAT status over the following 10 years. And, you know, even if we fall short, oh, well, I'm still going to be really successful. That's perfectly fine. But, you know, I think it's good just to, you know, set lofty goals. And if you have goals, as long as you don't get depressed by not reaching them entirely, I think it's really good because you're going to be better off for at least trying them.

So if an investor was in this situation where maybe they have this track record over 10 years and they want to continue with that momentum over the next 10 years, what are maybe some of the underappreciated skills that an investor might already possess to some degree that they should then try to accentuate to keep things going? Obviously, I guess it's going to change based on the investor. It's not like there's one for everyone, but maybe you could just go over how an investor could maybe use

use a framework for thinking about this to help them improve going forward? I was actually thinking about that. And it's hard because I think it just happens naturally. The greats turn into goats because I think they're pulled, their success in some area pulls them into the next thing. And it's hard to be, other than their tenacity and just aggressiveness and focus and having them in divorce three times really just pushes them into that next area that they find an advantage in.

I think it's hard to answer that question to say. And what's also interesting, a topic is like there's plenty of great investors or great, by my definition, maybe it's good, but there's plenty of investors that have shorter blistering track records. When you think of Joel Greenblatt, was it nine years at 48% gross, 35% net, even Peter Lynch, 13 years of 29.2%.

a pushback of my definitions would be, what are you saying? That they're not goats? You know, how can you say that Peter Lynch isn't a goat?

And I would say, well, Peter Lynch probably is a goat because he probably could have tripped across the goal line the last seven years and still was 20% net, you know, at the 20-year mark. And even asleep in Sicario, I think their track record is 12 or 13 years. And I think they were about 21% net over those 13 years. Well, I think, and you would know better than me, I think they were basically in three companies, Costco, Berkshire, and Amazon.

And so if you just pull up what Costco, Berkshire and Amazon have done since 2013, if you equal weighted those, it's 21% net. And so I'll put them in the goat category too, because they probably are holding that same basket. They probably would be that. And I don't mean to ramble on about that topic. But I think there's... My definitions aren't perfect. But I think that time is a critical element because I think that some people do burn out

And that's part of evolving and adapting too, as a stock picker, is making sure that you can see it to the end. And a lot of folks just couldn't. They were just so focused. It was just so much turnover. It was Peter Lynch owning 1,200 stocks with 100% turnover. How is that even possible? That just burns you out. You just can't do it anymore. And I think the goats, they evolve in a positive way, but they also evolve probably because they have to or they... Yeah, they're just smart about everything.

Well, Ian, thank you so much for coming on the show and sharing all of your valuable lessons here. Where can the audience learn more about you and the Microcap Club?

Yeah. I mean, you can find me on X. My handle is my name. You can find me on microcapclub.com. If you're interested in microcap investing, feel free to join. Thank you for listening to TIP. Make sure to follow We Study Billionaires on your favorite podcast app and never miss out on episodes. To access our show notes, transcripts, or courses, go to theinvestorspodcast.com.

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