1. How and why did you get started investing? What is your background?
While majoring in electrical engineering degree in college, I minored in economics, Japanese studies and psychology. I always wanted to know more about investing. After college, I started to learn how to take care of my own finances in order to manage my own 401K and IRAs. Through the Nightly Business Report on PBS, I learned about capital allocation and investing. I bought my first stock soon after graduation.
2. Describe your investing strategy and portfolio organization. What valuation methods do you use? Where do you get your investing ideas from?
In three simple words to describe my investing strategy, I am a “focused value investor”. I like to look at net-net companies, out of favor industries and companies, or beaten up companies. I get my ideas from reading the WSJ 52-weeks low list, Value Line Bargain Basement Section, and from time to time, trolling ideas from Super Investors that I admire like Warren Buffett, Charlie Munger, Seth Klarman, etc.
3. What drew you to that specific strategy? If you only had three valuation metrics what would they be?
Simply put, value investing makes a lot of sense to me. My mother used to own a business; thus, I get a lot of my business acumens from her and realized early on that investing is like being a part owner in a business. The three most important metrics that I care about are: Free Cash Flow Analysis, Debt to Equity Ratio and Price to Book Ratio.
4. What books or other investors changed the way you think, inspired you or mentored you? What is the most important lesson learned from them? What investors do you follow today?
“The Intelligent Investor” had a very big impact on my investing career. “One Up On Wall “Street” and “Beat the Street” both set the framework for my investing career, but Warren Buffett (Trades, Portfolio) and Charlie Munger (Trades, Portfolio)’s annual letters to shareholders have completely transformed me as an investor. However, the person with the most significant impact in my thinking of building my investing framework was Mohnish Pabrai (Trades, Portfolio). He taught me to be more like the younger Warren Buffett (Trades, Portfolio) than the older Warren Buffett (Trades, Portfolio), and that made biggest impact in my investment career.
5. How long will you hold a stock and why? How long does it take to know if you are right or wrong on a stock?
It all depends on the stocks and the companies I invest in. I like to say that I like to hold an investment forever, but it all depends on the companies and the situation. This is really hard for me to quantify because on average, my stocks in my portfolio are held between three to five years. There are two stocks in my portfolio now where I have held it for well over 10 years and haven’t sold. Now, if I am wrong on the stock or an investment, I like to liquidate it right away without any hesitation. Capital preservation is very important to me. As Buffett has said, “Rule #1: Never lose money. Rule #2: Never forget rule #1.”
6. How has your investing approach changed over the years?
I have always been a buy low and sell high investor, but after discovering the value investing ways and the Buffett and Munger ways, I have extreme preference toward this approach to my investing style.
7. Name some of the things that you do or believe, that other investors do not.
Even though I am an engineer, I don’t pay up for technology stocks like most people do. I don’t chase high flyers, and I don’t look at my portfolio when the market is going up.
8. What are some of your favorite companies, brands or even CEOs? What do you think are some of the most well-run companies? How do you judge the quality of the management?
Warren Buffett (Trades, Portfolio) and Charlie Munger (Trades, Portfolio) are my favorite CEOs, and both run exceptional operations. They are both master capital allocators. Jeff Bezos has my vote as a talented CEO. Richard Branson is a very exceptional CEO at Virgin. Costco (NASDAQ:COST) is one of my favorite companies that I have ever owned. They treat their employees and their customers far better than their shareholders. It’s an exceptionally well-run business. I respect a CEO who puts the employees and the customers ahead of his own personal interest or the BOD’s financial interests. A CEO who says what he does and does what he says is one I respect a great deal.
9. Do you use any stock screeners? What are some efficient methods to find undervalued businesses apart from screeners?
I don’t use any stock screeners; I mostly scan the 52-weeks high weekly looking for ideas and Value Line on the weekends looking for ideas. That’s my basic screener.
10. Name some of the traits that a company must have for you to invest in, such as dividends. What does a high quality company look like to you and what does a bad investment look like? Talk about what the ideal company to invest in would look like, even if it does not exist.
A high quality company to me is one where the CEO does an exceptional job of allocating capital, takes good care of customers and its employees and be able to make strategic decision that can help the company survive for years. Companies like Berkshire Hathway (NYSE:BRK.A) (NYSE:BRK.B), Costco, Virgin (NASDAQ:VA), Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) fit into my traits of great companies.
11. What kind of checklist or homework do you utilize when investing? Do you have a specific approach, structure or process that you use? Or do you have any hard cut rules?
I have a simple checklist that I use to run a company through. My checklist is fairly simple.
12. Before making an investment, what kind of research do you do and where do you go for the information? Do you talk to management?
I read the company’s 10K, 10Q, Value Line Reports, Morningstar Reports and do my own drill down on the company before making a decision on buying or selling.
13. How do you go about valuing a stock and how do you decide how you are going to value a specific stock? When is cheap not cheap?
I started with the three metrics I described above, and if a company doesn’t get past those three metrics first and foremost, chances are very likely that I wouldn’t buy the stock.
14. What kind of bargains are you finding in this market? Do you have any favorite sector or avoid certain areas, and why?
There haven’t been too many bargains in this market the last few years. I normally avoid industries and companies that are outside my circle of competence.
15. How do you feel about the market today? Do you see it as overvalued? What concerns you the most?
I think we are due for a correction. The Trump bump has pushed the market into unfamiliar territory and our national GDP/Market Cap Ratio is getting a little rich for my blood. I am quite worried about Black Swan events that can drive down the market precipitously.
16. What are some books that you are reading now? What is the most important lesson learned from your favorite one?
I am currently reading “Charlie Munger (Trades, Portfolio) – The Complete Investor”. It’s a lot of the value investing lessons that I am learning and re-learning every day. It is a very good reinforcement book.
17. Any advice to a new value investor? What should they know and what habits should they develop before they start?
My best advice for any new value investor is to go to Omaha as often as possible and learn from Charlie Munger (Trades, Portfolio) and Warren Buffett (Trades, Portfolio). That was one big mistake I made when I started out my investor career. I didn’t know who I ought to clone myself after until Buffett and Munger's companies were becoming famous. A young value investor should learn from them before they are long gone.
18. What are your some of your favorite value investing resources or tools? Are there any investors that you piggyback or coattail?
I started out my career by spending my weekends flipping the pages of Value Line to find ideas. That was my routine and still is my routine. I study up on what Buffett, Munger, Klarman and Pabrai are owning or buying, and from time to time, I would borrow ideas from them if I am smart enough to understand why they would invest in them.
19. Describe some of the biggest mistakes you have made value investing. What are your three worst investments that burned you? What did you learn and how do you avoid those mistakes today?
My worst investment mistake was trading Berkshire Hathaway stocks for an auto parts manufacturer called Collins & Aikman. I bought into their senior notes with proceeds from my Berkshire Hathaway gains and ended up losing that investment. Second, I bought into natural gas producer called Sandridge which ended up in bankruptcy, and third, I bought into a biotech CVR which didn’t work out as expected. All three of these investments cost me a lot of capital. Lesson 1: Patience is a virtue. Trading Berkshire Hathaway for junk got me what I looked for: JUNK! Lesson 2: Circle of competence is very important. Sandridge was way out of my circle of competence. Lesson 3: CVR is definitely not as easy money as I thought.
20. How do you manage the mental aspect of investing when it comes to the ups, downs, crashes, corrections and fluctuations?
I think it was Charlie Munger (Trades, Portfolio) who said, “The big money is not in buying and selling… but in the waiting.” Two, I think it was Carl Icahn (Trades, Portfolio) who said, “Some people get rich studying artificial intelligence. Me, I make money studying natural stupidity.” I internalize those two statements every day.
21. How does one avoid blowups in value investing?
I think one can avoid blowups by buying at the right price and be patient. I believe it was Bill Miller who said, “Low Price Wins.” Second, one can avoid a lot of mistakes by sticking to his/her circle of competence. Three, one should learn from the best investors to help him/her form an investment philosophy.
22. If you are willing to share, what companies do you currently own and why? How have the last five to 10 years been for you investing wise compared to the indexes?
My favorite company in my portfolio is LVLT because it taught me a lot about value investing, patience, circle of competence, management quality, technology investing and financial engineering. LVLT was the best investment lesson of my career. Over the last five and 10 years, I have beaten the indices with my portfolio.
With the market at this level, I don’t think there is a must-buy idea out there if Buffett or Graham were me.
- Warren Buffett Undervalued Stocks
- Warren Buffett Top Growth Companies
- Warren Buffett High Yield stocks, and
- Stocks that Warren Buffett keeps buying
- Charlie Munger Undervalued Stocks
- Charlie Munger Top Growth Companies
- Charlie Munger High Yield stocks, and
- Stocks that Charlie Munger keeps buying
- Seth Klarman Undervalued Stocks
- Seth Klarman Top Growth Companies
- Seth Klarman High Yield stocks, and
- Stocks that Seth Klarman keeps buying