Investing Unscripted Podcast 120: The Quest for Investing Mastery With Asit Sharma

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​Jason Hall: Hey everybody. Welcome back to Investing Unscripted where we ask and answer the hard questions about investing. I'm Jason Hall.

Jeff, should I go with big J? Should I just be big [00:01:00] J? Should I just own that? 

Jeff Santoro: No, that's a terrible, terrible nickname. 

Jason Hall: Okay. Yeah, it is. It is. That's true. It is. I think you're saying it because you want to be Big J because you are Jeff with a J Santoro. But you’re the voice of the people though.

Jeff Santoro: I know I already have a great nickname. I don't need another one. It's all good. Yeah. 

Jason Hall: The voice of the people you are. How are you, buddy?

Jeff Santoro: I'm good. How are you doing?

Jason Hall: I'm good. I'm great. And I'm happy because we have somebody else on here that I can talk to that's not you. And that's exciting. Right? 

Jeff Santoro: I feel the exact same way. My favorite part of having guests on is it raises the average intelligence level of the podcast significantly.

So I'm excited. 

Jason Hall: Here we go. Here we go. Ladies and gentlemen, we have Asit Sharma here with us. Asit is an analyst at the Motley Fool and a long time colleague of me, not as long as Jeff, but, uh, somebody that I also consider to be a good friend. Asit. Hey pal. 

Asit Sharma: Hey, it's good to be here, guys. I almost feel like, you know, when you go out to dinner with a couple [00:02:00] and, um, they're sort of squabbling when you come to the dinner table and you feel like It's a bit tense here.

That's why I'm extremely, extremely excited to be here in all seriousness. Great. Yeah. That's our, that's our vibe. 

Jeff Santoro: That's our vibe. Vicaring couple is our vibe. It is. 

Jason Hall: That's exactly right. I know. It is. We're two years into our run and it's a little baffling to me how it's gotten to this point that this is your first appearance on the show.

Asit Sharma: It's so good to have you on. Well, thank you, Jason. And I thought to myself, you know, one of these days, my good friend Jason and my friend Jeff I know Jeff as well. Jeff, I'm the good friend. You noticed that, right? I'm the good friend. 

Jeff Santoro: You can be the good friend. I just met us for the first time a few months ago.

We don't 

Asit Sharma: have the history that you and I do, Jason. That's fair. Jeff and I have never woken up in a jail cell together. So I was wondering when I might be asked, I thought there's going to come a day when that. Bottom of barrel is going to get scraped and lo and behold, a few weeks ago, I got a ping from you guys, but I am super excited [00:03:00] to be here. 

Jason Hall: You were at the top of the barrel. This was the, uh, the second barrel though. 

Asit Sharma: Oh, that's it.

Jason Hall: So, okay, enough banter. Enough banter. We're going to have plenty more banter as we go through this show. A lot of folks follow you on Twitter, members of the Motley Fool that found us through the Motley Fool know you through the same channels, but there's a lot of people out there. That don't, that don't know you. Yeah. That's it. That's it. That's all. I'm not giving you an easy transition. I'm giving you an easy transition. After that 

Asit Sharma: stunned silence. There are a couple people who don't know me. 

Jeff Santoro: Tell us about yourself. 

Asit Sharma: There, there must be some people who don't know me other than my four followers on Twitter.

Let me, yeah, start by saying that my history in investing is not that different from many people who listen to your podcast. I got interested in stocks one day, didn't know a thing about them. Now I'm going way back because when I was a young lad, there weren't [00:04:00] such things as ETFs. So I actually bought a mutual fund when I was a kid and I started learning about markets.

I bought some books from a bookstore. I checked out some books actually went to a 

Jason Hall: bookstore that like a store that you went into and the books were there. 

Asit Sharma: Jason, you remember this back in the day, I, now that we've, we've started dating ourselves it was in a mall that was the first book on investing that I bought was, I think it was B Dalton booksellers, which was a bookstore in the mall, but I came from a very small rural town in North Carolina.

So we would go to Raleigh and that's where I would find these great books. Great bookstores. I knew nothing else. There's so much information that's available today for people who are getting into stock investing anyway. I, you know, we can fast forward from there to my early twenties. I was a student in English literature and The computer thing had evolved a bit.

I was starting to dabble a bit. And then I went to grad [00:05:00] school in New York, also in English literature. And I never lost my love for stocks. Grad school came to an end. I had to get employed. And so I started work for a Wall Street firm, Payne Weber, which has been since swallowed up by UBS. I was editing mutual fund So I was in the marketing department and I would stroll by the men, women in these big glass offices.

They were the, the managers, they managed money and I would go and interview them once a month for the newsletters and got sort of fascinated. And from there I 

Jason Hall: came back. Back in those days, I want to clarify too, this is before index funds had really become a thing. So these were fund managers back in those days.

They had the fund managers and the analysts that were for them. They were out finding and picking 

Asit Sharma: stocks. They were, it was sort of the end of that era. I mean, not the mutual funds went away, but it was just before the big boom in ETFs, all of that. We can date this back to the mid nineties or so.

And the industry [00:06:00] was starting to swell in terms of assets under management and marketing departments were Cranking up to get wealthy customers and also play with this sort of retail business. There were more and more people coming online, trading online, trying to invest. And so I picked up some knowledge there and then came back to where I grew up, which is North Carolina.

I moved to Raleigh and had to make a living. I'd always been interested in finance as well as literature. So I went back to school and took a lot of finance courses, got a CPA, worked for a public accounting firm, uh, where I did auditing and consulting tax, learned a lot about balance sheets and financial statements, and then jumped into industry in the finance department of a middle market manufacturer.

And then lastly hung out my own shingle as a CPA. That's been my career trajectory. And on the side wrote a lot of articles, For the Motley Fool where I encountered Jason Hall and then during the pandemic switched over. Yes, of course. [00:07:00] This isn't you ever made. Yeah, absolutely. So that, that's sort of a short version of my history, but I bring that or deliver it that way just to show that I really wasn't someone who came up through the investing world directly.

I never was on Wall Street. Learning about investing directly from money managers. My knowledge came from learning balance sheets really, and interacting with small businesses, a lot of them, and seeing sort of the real life side of investing, which is you put your money in a company, a publicly traded company, they're out to hustle and make a living.

So seeing that from the inside is sort of fun because it helps you when you then sit in a chair and try to analyze. From afar, what might be happening with the business that you've put some money into 

Jason Hall: on the degree of difficulty for, for a smaller, medium sized business, living off your balance sheet and your cash flows is an order of magnitude more complex and difficult [00:08:00] than publicly traded companies because they have access to capital markets that is just so much different than your average small business.

Asit Sharma: Yeah. I mean, sometimes as a small business, you can feel like you're, you're dangling over a precipice, a winch. Has you hooked into the back of your, your jeans by like one little buckle and you're, you're looking at making or breaking payroll. I don't know if you have any small business owners who are listening to this, but you know, Jason and I've been in this game before we've, we've hung out our own shingles.

I mean, for a while the Motley Fool is my primary source of income. I was doing a lot of consulting. I was writing on the side and then switched over and it's always, you know, a calculation. When you're in business, you have to market, you have to spend time and resources marketing. You have to then make a profit on what you're doing, the endeavor.

And so that I think is, it underlines all of business, but when you get over to the public markets, you're [00:09:00] right, Jason, you've got more access to capital. You can skate for longer. 

Jason Hall: Yeah. 

Asit Sharma: You can fudge for longer than you can if you're out on main street. 

Jeff Santoro: So it's interesting hearing, The trajectory that got you to where you are today.

And it makes me think about, I would imagine over the course of your time as an investor and you can use whatever timeframe you wanna, you know, use for that. Like you can start at that first mutual fund or when you started buying individual stocks. But I'm curious how you, what kind of investor you consider yourself to be now and if that has changed over over time.

Asit Sharma: Yeah, I mean, interestingly enough, I always tried to describe myself in a way that was easy to understand. So over the last few years, I have been telling people, I like three types of investing, like growth companies. I like me some value. I like dividends. And that's pretty simple conceptually. But I understand like now my career that, you know, [00:10:00] I'm, I'm probably more like Jason.

So both of us own too many stocks. We both have had to learn about lots of different industries in our careers. So to me, it's more like a seasoned investor or someone who inspires to someone who aspires to get good at this game has to be okay with like having. Themselves handed a mission book every couple of years, every three to four years.

So for I don't know, five years, I just focused on consumer goods stocks the last three to four years. I've been heavily into tech stocks, but I don't think that's necessarily my destiny as an investor. So I would describe myself as someone who's willing to commit to a certain like style or theme for a long time.

Until the next one comes around. And I think that's, if you do this for a living, that may be the price of, of getting some experiences, overcoming that desire to either be the specialist or the generalist, I'm a tech person, [00:11:00] or I'm a Jack of all trades, neither one of those is really a great answer because the game is always changing.

It changes every single day. You both know that very well. 

Jeff Santoro: Well, that's I, so I want to, I want to dive into that a little more because my observation, having listened to, and now talk to a whole bunch of people who. Analyzing pick stocks for a living over the course of our time doing this podcast is that most of the people we talk with are generalists, I think is how they would if they had to kind of put themselves in the box, it would be that.

But what I've noticed with you, just from listening to you on like the Motley Fool money podcast and and the premium podcast that the company does. You seem to, like you said try to make yourself as much of an expert in whatever domain you're, you're concentrating on at that point. As you can. And I've always been impressed by that.

I'm not trying to flatter you here. That's not my vibe. But especially with text. No, definitely not. Yeah. Shut up. Not you . Um, especially the tech stocks over the last couple years, like I've really gotten to, I, I remember I say to myself a lot like, wow, like Asa really learned a lot about. semiconductors or us.

It really learned a lot [00:12:00] about, you know, how these complex tech companies operate. So I'm just curious do you have a, when you're venturing into a new area, like maybe when it was, when you first started thinking more about tech stocks versus consumer goods, did you have any sort of way of getting yourself up to speed quickly?

Is it just a ton of reading? Is it listening to podcasts? Like, how do you become as much of an expert as you can in like a new industry? 

Asit Sharma: Yeah, that's a really insightful question, Jeff. This is just one approach and I don't think it's necessarily the right approach, but it's the approach that works for me is I want to, at the very beginning of the game to understand, all right, what's the most complex thing here that there is.

So if I'm trying to learn about the semiconductor industry, I want to spend some time understanding like, okay, where do most people reach their breaking point in terms of knowledge, that sort of line between a retail, Knowledge seeker and someone who does this every day. So if it's, let's say TSMC, which is a insanely [00:13:00] complex company, how much would a reasonably intelligent, intelligent person with a lot of time on his or her hands be able to learn before they reach the limits of their own knowledge, um, I'm not a physicist.

So at this point, I don't think I can follow how to make these transistors fit together any more efficiently. And it wouldn't be worth my time. Thank you. And so to work backward from that is always fun because in that process, what you are doing is getting to a product level. And at the end of the day, look, that's, if, if some, someone's making widgets, they're selling widgets, if someone has a service, someone else is buying the service.

So why not try the best you can to understand how intricate it can be, because that will give you like a baseline of knowledge. Then you can sort of vet all the opinions against it. Your opinions, the opinions of management, the opinions of other people out there who are experts or presumed experts.

Now, not everyone is going to do this for a [00:14:00] living and not everyone has the time or the desire to do something like that. So it's just one approach for me, but I'm doing this full time. So. When I think about like the balance between the investment of resources and time and the output, then I can be a little bit more.

Okay. But I definitely encourage if there's some younger listeners to your podcast or older listeners who have, it's going to say, don't, don't pigeonhole, don't exclude us oldsters. Now I know, I know Jason, it's like every day. I look at my hair in the mirror and I'm like, I don't know which side of this, uh, ageism coin I, I'm on anymore.

I gotta start like, you know, just only speaking to older audience. And if there happen to be any younger people listening too, this is good for you. So I would say if there's anyone who has some spare time and they have the inclination to do this. Let's say you've got only two hours in a week. Like, why not clear out all the distractions and say, okay, today I'm going to see what the trade journal is in this industry.[00:15:00] 

I'm just going to try to read one issue like front to back, or I'm going to try to use Google or chat GPT to get deeper and deeper and deeper until I sort of understand what this semiconductor thing is. 

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Jason Hall: I like that. I want to, I want to kind of unpack that a little bit. Because there's a couple of things I think are cheat codes that I found over time that can be useful.

So once you kind of assimilate some knowledge of a certain industry or sector, and then you find, you know, Taiwan semi TSMC, that's a great example. Because it's a company that's come to dominate its market. And you talk about value, dividends, growth, get two of the three there now, right? With the small dividend and the growth.

And at times we've seen value opportunities and the value opportunity to bring it back to like the whole idea of finding cheat codes of ways to leverage. Existing knowledge in new explorations is you might hear TSMC and think, Oh, this is super high tech. It's on the bleeding [00:18:00] edge of technology. All of those things are true, but it's actually got things in common with General Motors.

And that's, it's in a highly cyclical meant capital, capital intensive manufacturing business. Now, obviously, it gets massively better margins, but those are the things you learn about it over time. But, like, if you've studied manufacturing or cyclical industries, you can start finding some things maybe you already understand that are going to be characteristics of this business, and then you start answering the questions of, well, Ford's been a terrible investment for forever.

How has this highly cyclical manufacturer been successful? What are the differentiators, right? And then that's where you start figuring out all the technical aspects of understanding an industry that help you kind of get to that, you know, that point of where the new knowledge actually comes in handy.

Asit Sharma: Yeah, I really gravitate towards that, Jason, the way you just described it. [00:19:00] Because in any given investment setup, product is very important or service is very important. As I said, what makes one investment valuable? better than the other. It's always different. Yeah. Conditions are always different within industries.

There's some differentiator. So being able to form these like networks in your mind, like this is what the operating cycle looks like. It's a year cycle company has working capital. It's going to exhaust it, that working capital and replenish it in one year. Okay. That's one little bit of knowledge. Being able to visualize an assembly line or understand that General Motors, you know, has robots that put together the vehicles and it has workers.

It's got these different expenses and store that in your mind somewhere is important because then you can translate it as you're saying so what Taiwan semiconductor at the end of the day, you know, they're etching things onto Silicon for, for customers. And they also have their assembly lines. You can fill in that knowledge there.

And I, this is a question I wanted to sort of throw back at [00:20:00] you. And I'd love to hear Jeff as a self proclaimed Maurice investor too, about like your knowledge structures. Cause you cover a wide range of industries, Jason, and you and I have done a lot of, live analysis of companies together.

We've, we've written for years as, as colleagues. So how do you maintain. All these different structures between industries, be it the energy industry tech, I'll throw in consumer goods. Do you have any methods you use to keep abreast? Cause it seems like you're always ready and willing whenever we get together.

It doesn't matter what I throw at you. And I hope that's vice versa too. It's let's go there. Let's talk about company X. I haven't looked at it for a while, but I remember a lot and I can refresh on it. What do you, what are your sort of tricks of the trade? For those who want to invest and cover a wide range of companies to keep that knowledge base going.

Jason Hall: Jeff, that took nine minutes longer than I thought it would. This is the amount of time it would take for Asit to , take over and start interviewing us. That was [00:21:00] 

Asit Sharma: sweet. So, so we had a small Slack conversation. I don't know if either of you noticed, but part of it was. I have some questions for you guys to immediately document it. Yeah. I gave it to 

Jason Hall: you on podcast dozens of time.

I've been on probably hundreds of live streams with you. It was just a matter of time and I think it's wonderful. Jeff you want to, do you want to take a, take a shot at that first? Like how do you, how do you think about it? 

Jeff Santoro: Well, I'm, I'm actually glad you, you asked this cause the whole time you were explaining what I'm going to encapsulate as like, you like to take a product level view of a company like that.

If I was going to summarize what you said in like just one simple sentence, which doesn't give it justice, but I think helps, you know, frame it. I kept thinking about, so I often feel like I'm caught between two worlds in the sense that I don't do this full time, but I also write about it as a part time job and have a podcast about investing.

So I'm probably a little bit more in between just the [00:22:00] Retail investor who's interested and just listens to podcasts and buy stocks and you guys, right? I feel like I'm somewhere in that spectrum between, but I go back and forth in my own head and it's probably related to the amount of time I currently have at that moment in my life because there's part of me that wants to have the time and find a system to get down to that level of knowledge that you just talked about.

I'll sit like really understand like, no, no. What is the actual product that this company is selling? What does it look like? What does it do? What do people use it for? And then the other side of it, which is sometimes I do think if I have a, just a really basic level understanding of what the business does, and then like a general knowledge of the industry, and then on a decent understanding of how to look at like the financial statements, I feel like you can be successful staying at that high level on the knowledge side and just being really judicious about like looking for trends in the income statement and the casual statement in the balance sheet.

But I don't feel [00:23:00] strongly one way or the other because I find myself kind of going back and forth. And, and again, I think to answer your actual question, I don't consider myself someone who like covers a ton of stocks, but I have to stay high level just from like a time standpoint, right? I don't have all day to think about it.

So I've, I've had to kind of get by with surface level understanding and then just kind of tracking the results. And, but I, I envy you guys to have the time to kind of, Dive in. So, but I'm curious how, what about you, Jason? 

Jason Hall: So for me, it just started with you know, trying to eat the elephant of the investing world because I was, the whole thing was very appetizing.

And made a lot of mistakes along the way, but I guess kind of to distill everything down to like what I try to do that allows me to kind of go all over the place is I try to remember the things that are unerringly unchanged.

Try to learn the things [00:24:00] that are new that kind of tie back to those unerring things that change so technology changes constantly. People don't. We can use Peloton as an example right a lot of us had excitement about Peloton. I never really fully bought in Because I've, I've, and I was consistent about saying, I think that they could kind of dominate the space.

The question's going to be, is the space ever going to be anything meaningful, right? And we've learned, no, not really. At the same time, I forgot some of those same things with Lemonade. Because I focused too much on the features part of the business. And not the unerringly unchangeable thing about a business is, are, is it an economic mode?

Do those things, maybe they make for a better user experience. Maybe they make for customers that stick, but do they give it an edge that's going to create more profit, right? Or better cashflow and trying to be like really, really focused on looking for like, [00:25:00] whatever the exciting thing about the business is, does it tie back around to creating better cashflow per share?

In some way. Is the thesis built around things that in a reasonable world, we can expect to happen, or are we counting on some big technological change that's also going to require a big change about how people buy something in a way that's less convenient, right? Why has the internet been awesome and e commerce huge?

Because we don't have to go anywhere, right? We're lazy. The first article I ever wrote for the Motley Fool, like the first five words, I think were, were some, something along the lines of the most important thing to remember is that humans are lazy and it was about Netflix and why Netflix was successful because you don't have to go to blockbuster anymore.

They're going to send it to you. And then it got even better for lazy people where you don't even have to send the disc back. Right. It just, you click a button and you watch it. So like finding those businesses where those, you know, just those unchangeable realities about the world and humanity. Are there it's just part of the use case and then [00:26:00] figure out all of the other stuff where the cash flows are going to come in.

And a thing that I always try to look for that kind of feeds into a lot of my favorite ideas is tailwinds, big secular changes, big changes. In technology that are driving secular trends. And I've made some mistakes there, but I think the, the successes in wildly different industries have more than made up for, for the mistakes.

Jeff Santoro: I also think, and I've seen this with you, Jason, and Asad, I'm assuming this is a With you as well. I, there's a lot of pattern recognition. I feel like in investing and I've noticed that just in the few years I've been paying close attention and not even doing it all day. So I'd imagine for both of you, there's a large amount of like.

If you think about one thing all day for enough years, you start to recognize a lot of patterns and that just kind of helps a lot of things keep at the forefront of your mind. Yeah. Whereas like I find myself, I struggle cause I'm code switching a [00:27:00] lot, right? I'm thinking about my day job and then I come home and I'm thinking about this and I feel like my, my mental capacity is split pretty, pretty severely.

Jason Hall: I'm glad you said that because I want to, Jeff, I want to give you kudos. And extend that to the vast majority of our listeners too, who have to do that same thing. And it is very hard. It's very, very hard. 

Asit Sharma: Yeah, totally. I mean, if your passion is split between two things, it makes it even harder. Some people have such a passion for investing.

They have a day job that, you know, they, they love and it's hard to, to code switch as Jeff said. And You know, at some point in my life, I stopped code switching, um, in that, so, okay, I have this great love of literature. I like to write in my spare time. Both my degrees are in English literature. They're not in finance.

I do the best. Are you going 

Jason Hall: to talk about Balzac now? No, 

Asit Sharma: I won't. I won't talk about Balzac. But, um, we, we, we, we, we've covered [00:28:00] that ground area now, but you know, at some point I just, I gave up and I was like, okay, I'm. These two things in my life are going to come together and they, they might be binary in terms of, I have to be at X job, you know, I have to be crunching numbers at the accounting firm.

And then at night I'm reading or I'm writing, but at some point in time like all this will come together. And that was a great release for me because it allowed me to see things in investing and, and, you know, as Jason said, cause he's heard me wax poetic about different Things from literature and apply that to investing and I would say vice versa.

It just it's easier if you stop fighting it and I want to go back a step two and just say I really like both of your approaches I wanted to second what jeff said that this stuff isn't rocket science at the end of the day that's not exactly what you said, but the inference was Um, look if you have limited time and you don't try to overthink this if you look for Lots of investments [00:29:00] that make sense.

And I think I read into that, that you, you hold, you're going to hold more than a handful of positions, right? Cause you don't have all the time as maybe like a Warren Buffett does, or neither do we have the capital to do this, to be concentrated that you can have a reasonable shot at success. And then you know, there are going to be some things where you do want to maybe get to that real detailed level of knowledge.

That's up to you and your interests accompany. fascinates you all of a sudden and you, you want to spend a few hours maybe digging in deeper. And, you know, Jason's approaches has always made sense to me. It's, you know, sort of like the narrative side, the ability to recognize what's true, what's worked before.

So we bring in pattern recognition, the ability to spot the camouflage or the stinkers. And then adherence to something that never changes, which is companies are valued on their ability to generate future cash flows. If you [00:30:00] don't lose sight of that, there are a lot of ways you can skin the cat.

Jeff Santoro: I have a question that I wasn't planning on asking, but you just had something that made me think of it. Do you feel like you over-index to the financial side of things because of the accounting background. Yeah. Sometimes I 

Asit Sharma: do. In fact, it's weird. Cause we were throwing around just some names, uh, when we were preparing to, to tape and I threw out some names that I really don't know that well.

One of those is Joby. This is an electric vehicle takeoff landing type of company. They're trying to both create the vehicles and also The flying cars that we were promised in our childhood. Yeah, they right, the Jetsons, the whole that whole thing of you can have uh, an electric taxi. Take you, you know, from, let's say your house to the airport, short haul there.

They're also trying to just create the industry. They're doing a lot to simulate what it will be like, help people understand what needs to happen in the industry so that they have a market and they've got some contracts with the [00:31:00] government, et cetera. So this is outside of where I normally like over index, because if you look at analyst projections.

Going for the next four to five years, they're going to lose hundreds of millions of dollars. And I love me nothing more than a positive free cashflow generator on a positive equity base. I like companies negative free cashflow, going to positive free cashflow on a positive equity base. I love to study the trend of the working capital because.

It's like this, if you, if you look at someone's vehicle at work, you might get an insight into what their house looks like. I had a very trashy vehicle at work and one day my boss said, I said, what does your house look like? And you know, we had three young kids and we were out hustling and struggling, my wife and I.

So I was like, yeah, it's not that clean. You just 

Jason Hall: pointed at your car. 

Asit Sharma: It looks, yeah, it looks better today. 

Jason Hall: But so also, let me I'm going to back up a little bit for investor toolbox for some of our listeners. Talk about some of the terms [00:32:00] we talked about there. So working capital is defined is that this is basically the stuff that a company has that's either cash or can be quickly turned into cash versus the obligations that it has to give somebody money in the next year.

That's working capital, right? Absolutely correct. And then you were talking about that kind of that transitional period for companies where you've seen them go from burning cash operating losses. That's narrowing. And like you can, there's a clear trajectory to that flipping to positive. In the, in the near term.

So 

Asit Sharma: that's right. And I threw in some, some lingo in there. Let's just quickly go back to, to working capital. Absolutely right. Jason. So it's cash and the assets you can convert to cash. So you've got receivables that is money. People owe you. You've got inventory. So the stuff you're going to sell, those are sort of the three big categories on the asset side.

And then of course the liability side, it's payable stuff you owe to vendors. It's [00:33:00] stuff that you're going to pay within the next year. So maybe you've got some short term debt obligations that's in there too. Rent property, that sort of thing. Yeah, exactly. So when you take, The difference between those assets and the liabilities, that net result is the working capital that you have.

If you have five bucks to make it through the year and you owe four, you got a dollar of working capital. Now, the lingo I threw in there when I was talking about companies that have negative free cashflow going to positive, I said, I like it when they do that on a positive equity base. So what I mean by that is that.

A company that has a positive equity base either has raised capital in the markets. So it has shareholder equity. People have invested in it. Or over time they've built a lot of profits into the business by something called retained earnings. So every year they're making money. Some of that money is staying on the balance sheet.

So they're sort of like they have a solid base. So if a company has a negative equity base, it means they've had losses for a long time, [00:34:00] probably, or they haven't replenished the balance sheet through the capital markets. I'm not as interested in those companies, but I like, you can see this is almost like a turnaround type of setup here.

So, I'm very interested in that, but, but I wanted to just finish this point really quickly on working capital. I'm fascinated by it because again, like if you look at the way companies manage that near term, the assets coming in, the stuff going out that they have to pay, you often see that people that are good at that businesses that are good at that are also pretty good at the rest of their capital allocation.

The decisions they have to make, like let's invest in a new factory. Let's return some money to shareholders. Let's pay out a dividend. So. You can see how tidy their house is by looking at their, their vehicle. And I spend a lot of time just trying to understand like, okay, how, how fast is the inventory turn here?

What is how, how much has company stretched the people? Those are, are they paying them like way late? Those poor vendors, are they going ahead? And I'm not trying to squeeze [00:35:00] them, but, but having that cyclically makes sense. Things like that are sort of fun to me.

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We have something for every type of investor. All of the chitchat stocks podcast on YouTube, Spotify, or Apple podcasts, and start discovering new investments today. [00:36:00] 

Jeff Santoro: . This kind of goes back to the question I asked about like over indexing.

Do you ever find that that level of attention to that specific aspect of the financial statements has saved you from a bad investment or caused you to miss a good one? 

Asit Sharma: Yeah, I think it's done both. I think it saved me from a number of bad investments, but that doesn't mean that I haven't made terrible decisions.

One of those decisions is not to take a swing. I booked some time with David Gardner recently. By the time I came to the Motley Fool, he was already. Sort of had moved on from picking stocks to running a foundation. So I'm not one of these people who had the, the like good fortune to train with him, but he's still around.

So I asked him for an hour. And, and one of the things we talked about was like, David, I, I think I've had on occasion trouble taking a swing. Now, I, I take a lot of swings and some of them do pretty well and some of them I just strike out, but [00:37:00] he, he emphasized the lesson that if you listen to any of his podcasts, he's always emphasizing, which is, you know, you have to swing to win.

You got to be ready to strike out. I mean, that's the nature of this game. And I think in some of those cases it was. The over analytical part of me that has experienced in, in, in the real world, I will say, and not to make this sound like it's a chip on my shoulder. It's not for those of you who are listening, who have been in companies that have done really well or struggled, maybe you've been in a finance department.

You know exactly what I'm talking about. You get some real world world experience in you that that's like, it translates to pattern recognition. So. Over indexing on that part of me, I think it's cost me some great investments. I have been able to exercise what I call override. So override is where you understand, you know, what you're bad at.

What you're pulling out Jeff, and this is painful to me, but what you're pulling out is like, okay, like here's a weakness or what sounds like it could be a weakness in your [00:38:00] investing toolkit. How do you deal with that? Well, the way I deal with it is to, is to call it out to myself and be like, Austin, all right, this ain't that complicated here.

Stop worrying about this company having a little bit. You know, less in resources than you would like. Nothing's perfect. Look at the product. As I say, look at the demand in the marketplace. Look at the intellectual capital. There's so many other things that I like. And so balancing them is an art, but it is different with every single investment, even if you look at two companies that are close together in industry, like direct competitors, what makes one a good investment is a function of, of all those little networks.

Jason was describing that that sort of come together in a story versus the other. 

Jason Hall: I think it's something you're talking about there, I think, is really interesting and not to overly caricaturize, uh, individual investors, but I think generally individual investors throughout their researching and picking stocks are generally kind of one or two flavors.

[00:39:00] And one is you tend to lean in more towards like the YOLO. You're going to risk on, you're going to maybe pick a stock. That's a, you look back a year later and I go, that was stupid. But it could also turn out to be a massive winner, right? Because you look past the losses or whatever, and you saw the growth opportunity there and we know like revenue growth.

If we were to pick one measure and look at revenue growth is like the metric you're basing buying stocks on. That's the one that tends to correlate without performance, right? We know that despite the reality that, well, you need profits and revenue. You know, there are lots of companies out there that have sold a dollar for 75 cents to try to get to the point where they weren't paying a dollar to buy that dollar.

And they were paying 50 cents for it and they were still selling it for 75. So, but the other style, Auset tends to be like what you were talking about, which is that more disciplined taking Warren Buffett's rule number one, not lose money, like to heart with every stock pick. And I think Buffett's for [00:40:00] most people, like it should really be more of an in the aggregate kind of thing, right?

Because Buffett's talked a lot about the individual mistakes he's made that have lost money for himself and for Berkshire shareholders. So, but I think finding the balance in there is really the hard part. So you ignore those. You don't make those unforced errors where you're buying something stupid because you saw about it, read about it on a message board online.

But you're also not taking a swing because that fat pitch, maybe it's a little low and a little outside. But if you hit it right, it's a triple, right? So I, I think that's just an interesting little insight I have. 

Jeff Santoro: Yeah. And I, I didn't ask the question to put you on the couch for a therapy session.

I'll sit all of that. I like it. I get it. It's a fun secondary benefit. Well, I 

Jason Hall: appreciate it because it was a therapy session with somebody that wasn't Jeff. So that was, yeah, normally I was like, 

Jeff Santoro: yeah, no, but here's why I asked.

Asit Sharma: Just don't bill me. 

Jeff Santoro: I asked the question because I'm fascinated by all the different [00:41:00] skill sets that people who come to investing from not.

Strict. Like I went to school for, to analyze stocks, like people who don't have that background, like come to it from different places. Like you have a literature background. I have an education background. Jason has a, I don't know. Drug use background. I don't know. I'm just, um, 

Jason Hall: Well, it's not the "use" so much. But..

Jeff Santoro: No, but so I think a lot about the fact that on the surface, I don't, I have no background that would really qualify me to know anything about any specific types of stocks.

Like I didn't even work in an industry where there are a lot of publicly traded companies, right? You don't, there's not that many like education related stocks out there. So I think a lot of the ones that are pretty bad. Yeah. So I think about this all the time. If I miss something. That was obvious to you.

Let's just say on the financial statements that I make a bad investing decision. That's because I'm not an expert in that area. But I also probably take more swings. Because I know I don't have a background in there, so I just do the best I can. And I sort of have to make the best decision I can in the moment.

[00:42:00] But I'm fascinated by someone with a C, you know, an accounting background or someone who comes from the pharmaceutical or biotech industry and then wants to buy stocks in that industry or someone who worked in software and then is buying SAS stocks, right? I'm sure it plays both ways. Like people over index to their backgrounds and then under index.

I'm sure there's a lot of pharmaceutical employees that are bad biotech investors, and some that are great because they have that insight. So that's why I asked. I just think it's interesting how people use or ignore the strengths they kind of bring to the investing 

Asit Sharma: table. Your, your background only gets you to so far.

And in some cases it can be a crutch after a while. And I think, you know, when Jason refers to balance, what was going through my head That imagination is also part of that balance. And it's going back to the fact, I think we all hold a lot of stocks. I'm I've lost count now of how many I have, but some of minor imagination stocks, you know, I mentioned Joby.

I've got some small quantum companies, things that I know may [00:43:00] not evidence much of a return for a while, but this is where folks like you excel, Jeff. I mean, you are in education with music. So there's so much in like, there's so much signal and cue that you get from dealing with young, bright people.

It's, it's sort of easily translatable to investing, which is you understand like what it takes for people to work together. Any music teacher has so many strategies for the ones who aren't paying attention, like are distracting from the group. The person is perennially out of tune, this kind of thing, or the strategies involved in teaching.

Someone, what these symbols mean, you know, this is the octave symbol. This is what arrest looks like when they're first, when they don't have any understanding of the, the nomenclature at all. And I think working with youngsters in general, young people is re it's a, it's a superpower when you evaluate management teams, because most management people seem to [00:44:00] revert to a sophisticated version of their younger selves.

You have the CEO who's Charismatic swagger. I guarantee you he or she was like that on the playground. I think your, your ability to, to Jason, I have talked about this before to, to spot the BS in a management team is stronger if you have been a teacher. So there are certain skills that every industry is going to give you.

Maybe you won't be able to see a lot of pure plays, like. I don't know. Does the Selmer music company is that publicly traded? 

Jeff Santoro: No. 

Asit Sharma: They make these beautiful saxophones. You probably just don't have that. But there are other things I think in your career that translates so well to evaluating humans teams.

And that, you know, at the end, that that's a big part of it too. We should never stray too far from that. 

Jeff Santoro: Yeah, I would agree. I mean, I think It's the soft skills, so to speak, that probably have been helpful for me. I meant it more from the framework of like industry, industry knowledge or, or even financial knowledge, but Yeah, anyway 

Jason Hall: Asit was trying to compliment you, Jeff.

Jeff Santoro: I [00:45:00] don't like, I don't like compliments. It's 

Asit Sharma: not, it's a skill for people for humble people to be able to take a compliment. That's a learned skill. Jason, I have no trouble. 

Jeff Santoro: I am not humble. Thank you. Like, I don't hear more 

Asit Sharma: complimented. 

Jason Hall: Well, let's, let's take a couple minutes here. And earlier Asit, you mentioned one of the things that you like to do when trying to assimilate knowledge quickly in a, in a new area is things like finding the most reputable trade journal in an industry.

I'm curious what, what other things are there, maybe one or two other sources of information that generally are kind of your go to if you're, if you're trying to get that. Up to speed on a new company or a new industry or sector. 

Asit Sharma: Yeah. I mean, we'll probably come out of this conversation. The only thing we'll remember is I talked a lot about product and that actually doesn't define my process a lot, but it's, it's so relevant to what we, we were talking about today.

I'm going to stick with it and say that [00:46:00] a great thing you can do if you're a, just a retail investor and you want to start getting knowledge. So yes, a trade journal, but reading reviews. There are review sites that aggregate what people think of the products. And those are really fun to read because if you just read enough of them, you know, it takes me 15 or 20 minutes, you'll get the core sense of what people like.

And you'll understand, wow, okay, I know this company Paycom, but I never realized that it's customer service sucks. I like Paycom's products as you know, an accountant, uh, as a CPA and someone who's used So many different payroll products, but one of the things that companies underinvested in is simply keeping up with the Joneses, which is there's so much customer service available via chat bot if you go to paychecks or ADP or these other competitors.

So there's things that you pick up about companies that I think will be really helpful to and it doesn't take. You know that much so so there's one is on that reviews. I want to 

Jason Hall: add one thing there I think is really important because [00:47:00] um, I think it it can be dangerous there, too if you just say take one company like Paycom and you just Look at reviews for Paycom and you don't benchmark it against its peers.

Sometimes industries are just really bad at it, right? Yeah. And, and maybe it's not that they're, maybe they're just the least worse, but in the case of Paycom, you're right. They're not good. And if you look at its competitors, it's a different story in terms of the quality of reviews you get, but sometimes you just stumble into, well, this is just a really Shitty industry, right?

That's true. And they have 

Asit Sharma: a great product. I mean, this is known by many investors who follow Paycom. One of the reasons that they're sort of slowing in their growth is that their product is so good. It's, it's almost like, 

Jason Hall: yeah, 

Asit Sharma: it's solving all their customers problems and they don't have a way to, to capture that monetization, but let's leave that aside for a minute.

I think that's a really astute point, Jason. I hope I'm getting this right. I think it's comparably is a review site that pits companies against one another. So you see at least two or three industry [00:48:00] companies, and you can get a Flavor of how they stack up in their product. And then, you know, something else, which is really fun.

It's just to go to the pages of the companies themselves. So few investors do that. Go and drill down. If you're investing in Nvidia, go to Nvidia's product pages and drill down the customer facing, not the investor relations website. I had to 

Jeff Santoro: learn. I was so used to going to the investor relations page and I was like, Oh, wait a minute.

Asit Sharma: What if you're actually out to buy some, some GPUs or a solution or an acceleration library from NVIDIA and you just went to their website? What does that look like? How do they explain it? Does it make you want to learn more or reach out to sales? I think those are a few things that are sort of helpful in that.

Jeff Santoro: All right. So as we wrap up here, one thing we like to do with guests is hit them with some lightning round questions. So we'll ask. You answer. You have not seen these ahead of time. What's the best stock you, what's the best stock idea you ever had that you did buy and the best stock idea you [00:49:00] ever had that you didn't buy.

Asit Sharma: I just mentioned it, but the best stock idea that I had was Nvidia and a recent purchase. because I was reading up a lot about this thing called generative AI in late 2022, and I, I bought some shares. They've done pretty well. And what was the second question? Was one that I didn't buy? 

Jason Hall: Yeah, 

Asit Sharma: same idea.

So best idea, I didn't actually buy it. 

Jason Hall: You didn't swing, you didn't swing. 

Asit Sharma: So, uh, amazon.com. There's a hilarious article I wrote for the full dot com where I am based at this company and it's like super high PE ratio and yeah, how they had to grow up one day. I, I should have shut up, not read that article and just bought shares.

Jason Hall: Narrator. They grew up. That's exactly right. Okay. So I have one more question and then we'll finish with the last question. So here's a question. What is your worst stock memory? Thinking back, investing, worst stock you bought, worst whatever, whatever it is, what is that? What's the emotion? What does that bring back?[00:50:00] 

Asit Sharma: So I left out the way I became an investor. But when, just before I went to grad school, my dad gave me a chunk of money. He said, you seem to be so interested in stocks. He's a physician. He had some extra cash laying around, go and invest this for me. So I invested it on margin. I lost thousands of dollars.

Jeff Santoro: That's a good first step, Asit. Straight to margin. 

Asit Sharma: I, yeah, straight to margin. And I thought to myself, there's gotta be a better way than trying to trade money, like borrowing a dollar for every dollar that I'm. Trading and that's how I became an investor. That's that's a memory that hurts so much as the years have gone by You know the distance between tragedy and comedy is time.

I think Shakespeare said that yeah, I can laugh at it But since you asked yeah that that exposes a very raw nerve still 

Jason Hall: so you don't you know I don't even answer right now But I want you to go back and look and I want you to do the math and I want you to email or text me and tell me. What is the CAGR loss of that dollar? The dollars that you lost then, what are they, what would they be [00:51:00] worth today? 

Asit Sharma: Okay, I will, I'll actually do that if you promise not to disclose that. I'll do it.

Jason Hall: Yeah, I won't. I won't tweet it to everybody that I know.

Jeff, last question before we wrap it up. 

Jeff Santoro: All right. Last one here for you Asit. Which Mag7 stock will be the best and which will be the worst performer over the next five years? 

Asit Sharma: Amazon, Amazon is a dark horse for best performer over the next five years. I've said that in all seriousness. Worst.

I'm going to have to say Tesla, but worse means that the opposite could also be true. The company that's Most binary. Yeah. Yeah. It's, it's a, it's a very binary proposition. I agree. It's in pole position for worst, but it could go the opposite way. 

Jason Hall: I agree. If it's just an automaker, it's not going to be good.

If even one of the other things hits, it could be the biggest. I love it. We 

Jeff Santoro: don't have the time for it, but I think you could make, I think you could make the case. Not so much for each one of them to be the best performer, but I think it's pretty easy to make the case for each one being the worst because there's enough just history.

[00:52:00] Look at the turnover of the five or ten. Just I think there's enough potential headwinds for each one like you know, whatever whether it's antitrust regulation or whether it's you know, All that kind of stuff. So and you 

Asit Sharma: said five 

Jeff Santoro: years, 

Asit Sharma: right? Yeah. Cause like 10 years I could probably go Nvidia again, but as Jason was pointing out earlier, things are cyclical.

That's a cyclical company. Okay. 

Jason Hall: Asit, I want to say thank you so much for coming on. 

Asit Sharma: Thanks my man. 

Jason Hall: Doing your, your day job for the Fool, what, what are you working on for the Fool? Where can folks find you if they're a member of the Motley Fool? 

Asit Sharma: Sure. So, I work on Stock Advisor. You can find me there also our new Trends service. I also work on a service called Virtual Revolution, which Jeff has helped me with in the past in his capacity at the Motley Fool.

Um, and you can also find me at Twitter. I'm AsitMap. If I get some followers from this podcast, I promise to start tweeting a little bit more every day.

Do you, do they call it Xing now? 

Jeff Santoro: I will never. 

Jason Hall: No, it's [00:53:00] Twitter. That is it.

Asit, again, thank you so much for coming on. 

Asit Sharma: Thanks so much guys. This was a lot of fun. 

Jason Hall: As always friends, just a reminder. We love to give our answers to these hard questions about investing. And when we're really lucky, we get super smart people like Asit on and they give their answers too. 

You can borrow our answers, you can even try on Asit's, but at some point you gotta own them. You gotta make the answers yours. You have to come up with your own answers. But you know what? I still believe in you. You guys can do it. I believe in you. I said that already. Okay, Jeff. We'll see you next time, pal. 

Jeff Santoro: See you next time. 

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