Q&A: Chinese Stock Risks, Superinvestor Returns & Remaining Patient

well another month has passed and that means it is q a time here again on the channel I put up a community post here on YouTube a couple of days ago to collect your questions for this video so thank you very much to everyone who did ask one uh if you're wondering how you can potentially get one of your questions answered in a Future q a video I always uh put up a community post a few days beforehand to collect questions for these videos so uh just turn notifications on for the channel that way you'll be notified every time I upload a video but also every time I put up a new community post and then hopefully you can get in there quick um ask a question and I may or may not answer it on a future video so uh thanks to everyone who did ask a question as usual I'm just going to roll the camera for a while here see how many we can get through and I hope you enjoy so with all that said let's get into some of your q a questions okay so first question here

is from Atmos invest uh what is the current margin of safety of your portfolio is it something you re-evaluate once a year uh yeah that's an interesting question so what I assume you mean by this is uh what is sort of the market value of my portfolio versus what I think the intrinsic value is so you know on average of the companies in the portfolio trading at 70 cents on the dollar or 50 a dollar on the dollar um that is something that I have looked at from time to time I haven't evaluated it recently so I don't know what it is exactly off the top of my head um but there's been probably two points throughout um my own investing where I've felt that more or less every company in my portfolio with the exception of maybe one which is generally Berkshire Hathaway um just for full disclosure where I felt that pretty much every stock in my portfolio could have close to doubled or in some cases more than doubled and still not being at intrinsic value and that has really only happened a couple of times once was in 2020 and once was actually late last year probably almost exactly 12 months ago and from those points forward over say the next year those have actually been some of the um better time periods for me in terms of returns so maybe it is something I should track a little more closely but I don't know exactly what that is off the top of my head I believe it was uh Nick's sleep I want to say tracked this fairly closely in some of his um early years running The Nomad partnership I might be wrong on exactly that person but I think it was next sleep maybe people can let me know down in the comments below so it is an interesting kind of idea to keep track of at the same time whether it would actually change my actions in terms of how I manage the portfolio I'm not sure um I mean I'm always on the lookout for undervalued Securities undervalued stocks um maybe it would make me more inclined to sell companies as they got closer to intrinsic value rather than just hanging on to them but I'm trying to get towards high quality businesses I can hold for a long time anyway so yeah there's a few thoughts for you on that question um but that's a very good one thanks for the

question next one here is from Al diede uh would you ever consider either starting your own business or Farm or buying one like Jack uh yeah I don't see myself ever being a farmer but um you never know I do work in the industry but I don't see myself going down that path uh starting my own business or buying one like uh Jack duffley has done uh yeah that sounds like I'm very open to I mean this YouTube channel is sort of like a little side business for me I still work full-time job but um you know it's a very helpful side income I must say at this point um so thank you to everyone who watches the videos that is very helpful for me personally um but would I ever consider you know starting some other type of business or wine one uh yeah I absolutely would um and probably the past six or eight months I've been keeping more of an eye on sort of local businesses for sale and that sort of thing in my area um yeah yet to look super closely at any of them it's sort of just to kind of see what's out there at this point but it's certainly something I'm very open to um I'm getting to a point now where I have uh sort of a reasonable Capital base you know I'm not just one or two years out of University and trying to pay off a student loan or anything like that um so we are in a position where we could you know maybe buy a little small business if we wanted to or I can keep allocating to stocks there's obviously pros and cons to both as a very general rule with private businesses you're going to be much more involved in obviously the day-to-day operations particularly if it's a very small private business where you don't have a lot of staff and you don't have Management in place and that kind of thing um but the trade-off is you should be able to buy them cheaper then you can buy you know the average public company but obviously the average the company you can get out of in a second if you change your mind or if it turns out you're wrong on the investment private businesses that's much more difficult to do so there's pros and cons to both um and to answer your question um I'm sort of uh steadily getting to grips with the idea and um starting to just look generally at what's out there next

question is from a b c d e f g to write down your investment thesis before buying uh yes I definitely do I have become pretty regimented in how I do this these days I have a pretty structured investment checklist the pre-investment checklist I've actually got a video here on the channel uh going through an example company with that checklist will evolve over time it's personal to me my checklist shouldn't be the same as your checklist because you will miss things that I won't and I you won't we're all kind of um you know we all tend to make different types of mistakes and that type of thing as investors but yeah as I work through that checklist I'm putting notes kind of against each point you know there's checklist items in there like can I lay out the key kind of metrics or kpis that I need to keep track of oven monitor for this business to make sure it remains on track with my investment thesis over time and I'll write down quite specific information there so um I yeah I guess as a result of going through that checklist I'm definitely writing down the investment thesis and it's been really useful to look back at those checklists that I'm just kind of saving in Excel spreadsheets um it's been really good to look back at those over time and you know if I've still owned that stock after a couple of years has my um kind of investment thesis drifted a bit from where my thinking was first at or are we still mainly on track it's a good way to kind of keep myself in check on that front as well so yes I definitely write down the investment thesis in that way before I buy a stock um yeah highly recommended to anyone else who wants to get better as an investor over time okay next question

is from B Wheezy hey Tom I have a lot but always forget to ask them here have you read Nick sleeps Nomad partnership letters I really and following monaster's recommendation and I couldn't put them down once I started also if you have read them could you share something you walked away with after finishing them one thing I found incredibly interesting was how they thought of successful companies moving forward along their decision trees into time uh thanks Tom and keep up the great work thank you very much and good question uh I have not read all the Nomad partnership letters I've read I think the first two years is probably about it at this point um I've watched lots of people make videos on their learnings from The Nomad partnership letters and I've also heard Monash talk about it so um I guess I've got a bit of exposure you know to next leap and Zach as his partner through that I've also read Rich was a happier and there's a full chapter on uh Nick and Zach in that book as well so I guess main learnings I've had from them they very clearly evolved in terms of their investing approach over time they started out investing in very cheap um kind of lower Quality Companies like a lot of value investors do I think they were buying like cement companies in Zimbabwe and things like that and they obviously evolved over time to basically own in Amazon Berkshire and uh Costco you know all in size I think some of the main learnings for me um the scale economy shared kind of business model is a really interesting approach that I hadn't really um thought about too much before Nick and Zach um so that's been a helpful kind of mental framework to add to my it's my mental talk about I suppose uh the other thing is destination analysis um is an idea that I've heard guy spear talk about and I think he actually got that from next sleep so I'm thinking about where a business can potentially be in five or ten years and you know if their business can get from point A today to that point B in five or ten years what's that look like in terms of you know cash flows for the company and returns for me as an investor so that also has been a really good friend framework not only for looking at higher quality companies but potentially for steering away from lower Quality Companies are doing that destination analysis type thinking has been really helpful um and the other thing that really stands out for uh Nook and Zack and The Nomad partnership is that they were very concentrated and were able to you know with having that destination analysis framework in mind just hold on to the same companies for a long period of time and lets those businesses do their thing you know year after year would go by and there would be very few transactions in their fund uh and for them that was significant value add to their investors just kind of laying back and doing nothing so not the typical you know like high frequency Trader image you have when the average person thinks of a hedge fund so very cool approach to see there next question from at

valuehunter investing recommendations for sites with nzx data quick fs and tickers into lack data or have and correct data yeah some New Zealand and some Australian companies that are quite small can have pretty limited data on a lot of websites um frankly I think it's probably best just to go direct to their investor relations page I haven't really found anything um that has filled that Gap I suppose like if um if data is kind of limited on ticker it's usually limited on a lot of other platforms as well um so yeah I don't have great answers for you on that one unfortunately it's a challenge I run into as well looking at our little New Zealand companies so um good question though and if anyone has recommendations for where you can get good data on smaller companies without kind of just going straight to the filings that would be useful but you know one of the reasons there's often a lot of opportunity in smaller companies is because people don't take the time to look because they you know don't screen well or whatever so um it's potentially you know both ablation from an investment perspective okay next

question here is from amanpreet hi Tom uh what would you recommend to do when I can't find a bargain in my circle of competence um yeah good question and we've got a reply here from uh from a subscriber to that question same way to look internationally um yeah I guess uh just backing up a step at a very high level what I'm personally trying to do with my investing not to say this is exactly what you should do with your investing but what I'm trying to do is build up um a portfolio of um either okay quality businesses that are very cheap or good quality businesses um you know in high quality businesses that are reasonable price I'm trying to build up a portfolio of those over time and I'm not on a major rush to go out and buy like a basket of 10 or 15 stocks that fit those couple of criteria you know tomorrow or anything I do very much subscribe to Warren Buffett's sort of punch card approach where you know if you only have 20 potential Investments you can make in your lifetime you would think very hard before you make each individual new investment so you know if you're going to be investing for the next 30 or 40 years for example you don't need to find 10 stocks tomorrow if you find one stock a year and um you know each year you're making a single very high quality decision that can work out pretty well over time in those early years you're going to be pretty concentrated in this morning in a small number of companies you will make mistakes along the way and some of those companies will leave the portfolio for whatever reason but over time if you're able to repeat that process you should build up a reasonable portfolio so um yeah the way I do it if I can't find a bargain in my circle of competence um I keep saving cash and keep looking pretty much is the answer um I don't have a major Silver Bullet uh for you there if you do want to take the you know value investing type approach um obviously there's other options if you don't want to be a value investor you know there's index funds um are a very popular option for a lot of people and so on um you know I can't make specific recommendations or anything like that but that's the approach I generally take as I just be patient and keep looking I build up a watch list of companies that I do like um even if they don't quite meet the price criteria and you know hopefully one day I do get a chance to buy a few of those watchless type companies as

well okay next question is from yeoni uh hi Tom thank you for consistently creating high quality videos thanks very much I have a question around the vae structure that facilitates foreign ownership of Chinese businesses we all know that the value of any business is the present value of all the future cash flows discounted at an appropriate rate however if the CCP just decides that they don't want such a structure in place anymore and ban the structure yet experience a complete loss of capital as foreign investor I know that this is a low probability event but still it would completely wreck someone's portfolio how do you think about this type of situation I don't think I'd be comfortable projecting cash flows which I may or may not have access to in future regards a very good question uh there were very real political risks around some of these Chinese businesses Alibaba Pandora Duo jd. com tencent etc etc um yeah if the Vie structure were to be banned or something there's a very real chance that some of these companies can go to zero and if you have it as a large position in your portfolio it could see it could certainly rig someone's portfolio like you say so position sizing is going to be very important you know you want to live another day in terms of your investing should things go wrong in terms of the probability of that happening it's I don't know honestly I don't think anybody knows um you've said here it's likely a low probability events there's people out there that'll argue there's no chance of that happening and there's other people that'll argue that it's actually a high probability event it just kind of depends where you land on that Spectrum so um yeah in terms of predicting Out Future cash flows for the business I still think that's a very good way to go about value in any business and I don't think the Chinese companies are any exception um but I think you have to size it in your portfolio in a way that you think is appropriate for you given some of the political risks um you know if you think these companies are really undervalued and you buy them and things work out well over time you want to be in a position to hopefully benefit from that because your analysis is right and you know you put some Capital At Risk to try and capture that opportunity but you don't want to put so much Capital at risk that um you know if they are a zero and you get wiped out um well you just don't want that happen you don't want to get wiped out in terms of your portfolio so um yeah it's going to be a very individual decision a lot of people will just choose to pass on those companies altogether given the potential Wipeout risks some people will land on the idea that the risk reward makes sense that's really up to you to do to do the work and come to a conclusion for yourself on it for example on some of the recent Alibaba earnings videos that I've made um there's been some really good comments about you know uh assured these businesses might look under valued about the political risks are very high you know there were a lot of people that thought Russian businesses were extremely undervalued two or three years ago and they might have potentially been right you know those companies were thrown off a lot of cash flow or had a lot of assets relative to their price but um you know if you can't own the stock and you get completely wiped out it really doesn't matter what the results of the businesses are so um yeah there's certainly risks to consider and um you know you gotta allocate to your portfolio in a way that you think is appropriate for you okay

next question is from Matthias hi from the UK excellent videos thank you uh thank you for making them I appreciate it as someone who's really high energy I have to do other things to forget about my investments uh while what I will get to impatient how do you enforce passivity on yourself uh yeah that's a tough question um I think to be honest I have a personality to where I'm a very patient person most of the time and that probably flows over to my investments so I don't feel a particular need to take action if prices are jumping all over the place or if business results I will consider that much more seriously than just price movements and um but I'm not someone that feels compelled to have to act all the time um I think something like an investment checklist even for me um as a someone who's already pretty patient having the investment checklist has slowed me down a lot so that's definitely something you could put in place if you haven't already um but you know I think you just kind of have to invest in a way that matches your personality you know maybe you do have a big chunk of your portfolio that you want to have set in place and you just want to own these businesses for a long time and maybe you have to take a smaller chunk of your portfolio like five or ten percent and maybe you just say to yourself I'm gonna allow myself to be a bit more active in this small chunk of the portfolio um you know I know some people that do that I think Jason Rothman from the after dinner investor is someone who kind of keeps himself entertained in a way in his portfolio with these merger workout type situations but then he still has you know the big core positions that remain relatively unchanged um you know over time so um you've got to find a strategy that works for you for me it's been investment checklist for others it might be having a small sort of more Risky Business type chunk of the portfolio as Phil town would call it um who's another investor that you know has a small chunk of his portfolio that he allows himself to be a bit more risk seeking with so um there's a couple of thoughts for you

okay let's take one last question this is from Jared Collins uh I know we track super investor portfolios through 13f filings but have you found any place that tracks and Aggregates their actual annual returns and investment performance uh yeah very good question I think whale wisdom attempts to do some of that uh but again it's going to be just worth uh 13f data and it's just going to be you know the dates where 13fps are reported so 13 ifs are great in a sense they give us U. S stocks that these investors own uh they tell us the quarter in which they own them they you know tell us how many shares and the market value at the time given the number of shares they disclose in the 13fs but they don't tell us uh you know whether they're shorting stocks whether they've got cash whether they've got International Investments they don't even tell us you know the exact price that these investors bought or sold those particular stocks at it just tells us what do they own at the end of each quarter and you know for that reason it's really tough for us to calculate the actual returns that these people experience um so the best place I've found to go if they're at all accessible is to those particular investors you know annual reports and their funds so uh guy spear for example now makes his letters available I don't think minus propriet does but they occasionally do float around online and I've seen a few of the a few of them over the years but I'm not getting regular quarterly updates or anything like that um Warren Buffett and Brooks Hathaway is pretty easy because they've got a very clean record you just have to look at pictures and you report each year and it'll tell you know how they've performed against the S P 500 but unfortunately we're just not going to be able to get all of that data for every investor leeloo for example is someone that I've really struggled to get you know actual investment return kind of data on in recent years I know there were stats floating around from 10 or 15 years ago for example but that's obviously not giving us the full picture of his sort of career to date so like I say I think wow wisdom tries to do a bit of that but uh it's definitely not perfect and if you can Source the actual investors um you know real report out of their fund that is going to be you know the gold standard so those are all the questions we have time for today I really appreciate you taking the time to watch this video and for anyone that did ask a question I really appreciate the great questions that came through apologies if I didn't get to your question if you get in there Quirk for next month's q a I will do my best to get to it uh like I said at the start of the video just turn notifications on for the channel That way you should be notified when I put up my next Community post to collect questions for next month's monthly q a um but that's it for this one and I'll see you on the next video cheers