Investing Unscripted Podcast 125: Stock Research: How Much is Too Much?

A thought exercise in getting the most out of your research efforts.

Note: All transcripts are edited for clarity. We may earn commissions from some (not all) links. Thanks for the scratch.

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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. That is Jeff Santoro. That's my good friend, the voice of the people. Hey, Jeff. 

Jeff Santoro: Hey, hey. How you doing? 

Jason Hall: I'm good. I'm good. Once again, you are here with me, almost as always. 

Jeff Santoro: I am. I am here with you almost always.

Jason Hall: We could also say you're always almost here. 

Jeff Santoro: I've only missed like one, one or two episodes in two years. I don't know. 

Jason Hall: Yeah. No, you're, you're pretty good about being here. You have a pretty high, 

Jeff Santoro: almost have perfect attendance. 

Jason Hall: Yeah, there you go. So you had to bring the school reference in here. All right.

So this is going to be a fun episode. It's kind of building on last week's Where we dug in a little bit again, hat tip to our friend and [00:02:00] colleague, Tyler Crowe to the idea of deep research versus turning over lots of rocks. And of course, as often happens Tyler gives us a lot of ideas. How, what we actually do with that idea and what he would have done with it are very, very different things.

And that kind of turned out to be the case again last week. 

Jeff Santoro: Yeah. But his response to us actually gave us an idea for another show, which was to go a little bit deeper and in a slightly different direction that may be closer to where he was thinking about it. But even if not, who cares? We're going to talk about what we want to talk about.

Exactly right. 

Jason Hall: Even if it was somebody else's idea. We're not, we're not borrowing idea conviction. We're making this idea our own. 

Jeff Santoro: And so in the spirit of making this idea our own, that this is actually something I've thought about before too. And I don't think we've ever really devoted an episode to it, but I think it's worth thinking about.

So when I listened to a lot of podcasts about investing and all different types, some are just. basic news type things. [00:03:00] Some are deep dives about stocks and some are interviews with, you know, people who are professional investors with various types of funds. And the thing that always strikes me about the episodes of podcasts that are interviews with people who are professional investors with various types of funds is how much time they spend explaining how much time they spend investing, you know, and I'm going to meta.

I'm going to be hyperbolic here to kind of make a point, but it's, you know, well, we have a team of X amount of people who work 37 hours a day, 482 days a year. I read, I personally spend eight to 12 hours of my day reading. You know, we have weekly meetings that are on top of other meetings, you know, so that we can pick.

12 stocks, right? And it's, you know, I'm exaggerating, but that's kind of the gist of it. And it always makes me wonder, and I don't know, this is honestly an, an honest question. I'm not casting dispersions on that industry, but it does make me wonder how much of [00:04:00] that is time that is necessary. And maybe it is for like the specific type of fund that that is.

Maybe they have specific criteria that require a lot of research, but I can't help but wonder, are they just filling their day because they have a full time job and they want to be able to say to their investors, look at how much time I spent building this portfolio that has beat the market or maybe hasn't.

And that flies in the face of what we try to do. Do in our own personal lives. And I think where we philosophically align with the fact that our retail investor, like you and I can do well in the stock market or, or just investing in general, you know, picking index funds, for example rather than spending some percentage of our portfolios value.

In paying a portfolio manager to pick stocks so that it was spurned a spurred on by our follow up conversation with Tyler, but it's something I've thought about myself as well. So I'm happy to have this [00:05:00] conversation. 

Jason Hall: Yeah, me too. So the, the working title of our show is how much research is too much.

And, and I, I, I want to kind of, pull back a little bit on some of the things you were saying again, you were definitely using hyperbole to kind of make a broader point. Yeah. But I want to circle back around to that for just a second before we get going, because I think it is important to differentiate between what an individual retail investor, meaning somebody who invests and pick stocks to some degree or another.

Uh, but it's not their job what they do versus what industry professionals are doing. And we'll talk more about that. And definitely not trying to make this like a dunk fest on, on those sorts of things, because there's a lot of really smart people that work at these funds that work really hard that do better than we do.

Right. So I think. Yeah. And I want to say one other thing too. Yeah. 

Jeff Santoro: Yeah. I want to say one other thing too, just in defense of it. Right. I also don't think there's anything wrong. with making the decision to pay someone to manage your finances or [00:06:00] to pay someone to pick stocks for you. That's everyone's individual decision.

And if I were doing that, I actually would want that person to show me how much time they spent doing it. 

Jason Hall: So yeah, no, right. So I kind of get it, 

Jeff Santoro: but it just flies in the face of, I think what you and I try to do. And I think that's where the interesting conversation can be. 

Jason Hall: Yeah, so we're going to spend a lot less time talking about professionals and more about thinking through and doing some thought exercises and talking about how we do it and that evolution that we all go through like to get to the sweet spot of what works for us.

As investors. And I think that's the most, I think that's the most important part. 

Jeff Santoro: We said, we're not going to spend too much time talking about the professional industry, but when you, when you hear those kinds of interviews with people who are, and maybe it's not like a, a bragging thing, they're just simply explaining their day and what they do, does it make you feel like.

Oh, I should be doing more. Or does it make you feel like [00:07:00] that's interesting? It's just a different way of doing it. 

Jason Hall: So there's the way that I feel now and the way that I felt in the past. And I think differentiating those two are really important. Um, I don't, I don't think about it at all now because I've been doing this so long.

And also because I get the cheat code of the fact that I do do this some professionally that like just literally the work that I'm doing for others. Researching stocks, writing up. Reports by recommendations out, like all the things that I do that I get paid to do, they, they feed my brain with research, right?

It's research that I'm getting paid to do basically. So, it's a bit of a cheat code. And also it makes it a little bit maybe harder for me to fully think back to when I was just a guy with a regular job that had nothing to do with investing. Cause that's been 13, 12, 13 years ago at this point. So I think that's an important starting point, but here's how I think about it, right?

When I just step back away from it and I think about it and I think about it in terms of the value of the resources against [00:08:00] the value of the dollars that are being invested. Right. And I think as a retail investor, you're working with a limited amount of money, right? And generally it's pretty small amounts of money.

And depending on how much money you're able to actually actively choose where it goes in a way that's going to make a difference, right? Because if you have your 401k through your company and that's 95% of your invested money that you can work with, and you're working with three to 5% of your capital that 95% that's going into your.

Your 401k about the only thing you can do is pick between an international fund or domestic fund of weeks, bonds and money markets. Right? You have very limited things that you can do. Maybe you can put it in a range of target date funds, right? And it's just less work for you. And realistically.

That 5% that you're investing, trying to pick stocks, it's such a small amount of money that if you're just really trying to generate alpha from that, in other words, outperformance against the market, [00:09:00] you know what you probably be better doing with that two or three hours a day driving Uber, go make more money and just invested in index funds.

I mean, seriously, it's more powerful.

Jeff Santoro: Or, or, or acknowledge that it's a hobby that you just enjoy. I think that's right. 

Jason Hall: That's exactly it. If you, if you like it and you enjoy the pursuit, and also this is the big thing, Jeff, because I think this is what's so important is that time that you spend now you're building on your knowledge base.

Pays off in order of magnitudes three, five, 10 years from now because your experience builds, you know what to look for, you know what to avoid your time becomes much more useful when looking for investing ideas in the future. You're, you're, you know, you're going to, you know, You know, investing university right now, right?

And then you're going to do an internship managing that little bit of money. And eventually the money gets bigger. Maybe you change jobs and now you have a rollover. Now you can get serious and like actually go, go, go make some big [00:10:00] important decisions. So I think that's an important thing to think about too, is that's like the time value of your money.

If I'm a big shop hedge fund or an alternative asset manager, And, and our private equity and those, those are different because you have to do a ton of research because a lot of times you're buying businesses. You need to understand how to run those businesses too. Right? So you need a lot of people.

Or if you're an alternative manager, you might take a an interest in a privately held business. So you have a big say in the operating of it, right? So, so those people are doing a lot. Now, the other thing too is like hedge funds where you're just maybe part of your portfolio is stock investing.

If you have 5 billion in assets under management, you have 30 people. That's in terms of like the percentage of the cost of operating the fund versus the amount of cash that's flowing. It's a small number. Right. And it makes sense that you can dedicate them to turning over a lot of stones or to getting really deep on certain things and to do channel checks because you have the resources to do it.

You should do it. [00:11:00] 

Jeff Santoro: Yeah. I mean, I, I'm the same as you, where it, the feeling of inadequacy that I would have felt four years ago, hearing an interview with some, you know, fund manager who spends eight hours a day reading has gone away over time I just, I, I've really kind of landed on that's a different game and I was listening to an episode of odd lots recently and they were interviewing a fund manager, I forget his name and what company it was from.

He said something that I thought was really interesting. They asked the question of, you know, you, I guess he had said earlier in the interview that sometimes they are in and out of positions over short periods of time, a couple of weeks, couple of days, maybe a month, maybe a quarter. Right. And, but they were also talking about how they get to know these companies like.

Super, super well, like they meet with management, they drive to the headquarters, they tour facilities, all that kind of stuff. And the question was, why are you putting that much time or how are you putting that much time into something that you might only own for, for two weeks? And the response was, [00:12:00] we might only own it for two weeks right now, but then we might buy it again in three months and then we might sell it two months later.

And then we might buy it again in six months. That was basically what they were saying. And, and That made a lot of sense to me and made me feel a little bit better about how different that way of investing is from the way I invest, because they're playing a different game. They're believing in this company for the long term.

They think it's going to be a winner over decades, but they're also playing the short game. And because they know the company so well, if they, if they feel like there's going to be a two or three quarters of depressed earnings. They're just going to be out and they're going to wait for the bottom and then they're going to get back in.

But yeah, and that's where having a huge team and many hours a day working on it is probably advantageous. That's just not realistic for probably everybody listening to this podcast. No, 

Jason Hall: we just, we don't have, you don't have the individual resources to do it. Right. So you have to play a different game.

It's, it's the difference between, you know, [00:13:00] being one person that's a good athlete, but you have no teammates thinking you're going to beat anybody. At indoor volleyball, there's only one of you, right? 

Jeff Santoro: Yeah. 

Jason Hall: So go play golf, right? You know, play, play, play that sport, that pursuit that one person's skills 

Jeff Santoro: can leverage.

All right. So let me take it in a different direction. We can turn back to individual investor stuff now. Yeah. How do you think about when you come across? Stuff out on the internet, whether it's a newsletter, a sub stack, some subscription service, whatever. And you come across something that is a, I don't know, six, 700 word short ish.

Takes you five minutes to read summary of a business, high level stuff, a simple thesis, some, some numbers, some KPIs versus like the 6, 000 word missive deep dive research into a company. Do you, do you consume both of those types of things when you come across them? Are you predisposition to [00:14:00] one versus the other?

Because I have a very strong predisposition on this that I'll talk about later, but I want to know what you think. It's, it's 

Jason Hall: rare that I read anybody's long form stuff. And in a, in a lot of cases it's because, and, and I want to differentiate too, because there are some really good investors that do put out some, some longer, some longer work.

The stuff on, uh, the science of hitting investment research is really good and tends to be longer because they're deeper dives. And our friend Tyler his write ups tend to be, they're not even, even those aren't long form, right? There, but, but there's a lot of factual information and data and.

Industry information and the founding of businesses and what they really do that can be really, really, really useful to me. I think those things are really great. Either when, you know, it's somebody that is a pretty good investor. And that's 2 people that I think are pretty good [00:15:00] investors in terms of like their process.

So you can get like their analyte analytical take that can be useful. And also they're not trying to pitch you on the stock, right? They're not maybe they own it, maybe they don't, but they're, they're not trying to pitch you on the stock. Right. And give you like, Oh, the stock's going to five X in 10 years or, you know, anything like that.

I think it can be a useful, like, Generally, it's, it's rare, unless it's somebody that I just follow, I rarely read those sorts of things at all. Unless it's a company that I've already got some interest in, I'm not going to dedicate the time unless there's credibility from the author or I'm interested in the company.

I tend to find those shorter pieces more useful because they're quick to consume. But in both cases, they're, they're, to me, they're just kind of top of the funnel things. Of like building like a watch list of stocks to 

Jeff Santoro: pursue further. Yeah, I, I feel the same way about [00:16:00] it. And I also want to be clear that I don't think the way that I, or you think about this is correct necessarily.

Cause I do think it depends on the type of person. Person you are to like I think the people who write really long form deep dive stuff Enjoy it and if they're good and the information is good all the power to them And I think there's people out there who like to read that kind of stuff too just because that's the way their brain works Right.

They they're a deep dive I'll spend 45 minutes reading this thing on this company. I'm interested in, I find myself just really, even if it's something I, I own or I'm interested in struggling to get through, you know, when, when like the fifth bullet point is like, you know, let's talk about the ins and outs of the manufacturing process for, you know, it's just like, I get to a point where I'm like, okay, cool background, but I don't know that this is going to help me make a decision.

What I find myself doing with those. is more skimming to the parts that I think are key to my very simple brain's thesis for that company. And sort of getting, finding the piece I [00:17:00] want to know and that whole thing. But yeah, I'm the, kind of the same way I, there's people who I trust and I, and I will read their stuff.

Cause I think, They're good and they're not trying to sell me something and they're doing good research. I guess the thing I want to kind of talk through and just put out there is I don't think you have to either think about an investment or read about an investment in long form, super detail to be a good investor, or at least that's the question I want to pose here.

When I ask how much research is done. Too much research. Because yeah, I think one of the fun things to explore will be, could be like, does, does knowing too much about the business actually impair you at some point? Do you get blinded by the minutia and miss the forest for the trees? 

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Jason Hall: well, I think what actually happens is not so much getting blinded by the minutia, and we'll talk more about this too.

But, but I think, All I'll say about it right now is I think it becomes a sunk cost. Where it's like the Concord, right? The, the thing they, they should have stopped building it, you know, a third of the way through the, through the process and just walked away and let that loss be the loss, but instead they kept losing more [00:20:00] money because they'd already lost some money.

And I think when it comes to stock picking, sometimes we do the same thing is you, we, we, you, we invest all this time in research. If you're, if you're really doing it. Right. I'm going to, I'm going to just throw that out there. Right. I mean, you can be a member of somebody's stock picking newsletter and just buy off the newsletter.

And maybe that works if it's, if you, if you're lucky enough to hook up with somebody that's good and reputable and you just do everything they tell you to do. Right. And, and not, and not just cherry pick without actually doing any research. You know, I think I want to put that caveat out there, but in general if, if you're really doing this the most effective way.

You're going to be reading company filings, right? And you're going to be taking the time to do that. And you're going to be putting the research in with the end goal of making the right decision. The problem is we start with a stock that we're interested in. We do all of this research. And at the end of the research, the conclusion should be, no, or not right now, right?

Or some variation of that, or [00:21:00] this needs to happen before. But then what happens is well, yeah, I've got a thousand dollars that I'm really ready to invest now. You know what, it's not perfect, but I'm going to go ahead and do it. And the only reason you did that's because you spent two hours over the past week reading their proxy statement and their 10 K and a couple of things you saw online and you bought the damn stock and your research should have led you to know, right?

So I think that is probably the bigger damage, behind doing too much research. 

Jeff Santoro: Yeah. 

Jason Hall: There's a difference between too much research and too much knowledge. Knowledge is something that you build up over time, right? That knowledge over time pays off because you've been following a company for multiple years.

I think you're going to make better decisions. If you do too much research all at 

Jeff Santoro: one time, I think you make worse decisions. Yeah, I, I agree with the sunk cost fallacy aspect of, Or had that being something you have to guard against the other piece of it. And maybe it's the same thing, but I think it's a little bit different.

I don't know what you would call it, but just like the, it's like a familiarity [00:22:00] thing. Yeah, I think this, I think this is the same. It's a comfort zone. Yeah. I think this is the same reason people will buy stocks from companies that they just know about, whether it's a good investment or not.

I mean, I've done this, right? Like we did a whole episode about, you know, being a lazy investor, right? Yeah. You know, when I think back to like earlier investor, me, Peloton's the perfect example. Right. Everyone I know is using Peloton during the pandemic. And I truly believed that that would last and I'm not the only one.

Right. So I don't feel too bad about that. And the other thing too, is I understood the business. Fairly well, but it's not hard to understand, right? They sell exercise equipment and subscriptions. You know, it's you're looking at churn, you're looking at, you know, operating costs and margins and things like that.

Like it's not super complicated. So for me, like that kind of investment is less sunk cost. It's and more like, Oh, I know this business really well. So I had this like inside edge. You know, right. Meanwhile, like everybody understands Peloton, I'm not a genius, 

Jason Hall: right? Exactly. I mean, that's [00:23:00] exactly. And I think that's important to Peter Lynch.

One of the things that he. Um, his long encouraged, uh, individual investors to try to leverage is specialized knowledge. And sometimes I think we mistake, like I own a Peloton for, you know, having a PhD in physics, right? Somebody with a PhD in physics can understand things that most people just can't understand because we don't have the knowledge that specialized knowledge that can pay off in the investing world when you run, where you can run across things that are esoteric or tell the difference between An IPO, that's a piece of crap that they're really good at marketing it.

Because well, the science is not going to work and a company that's under the radar, that's really good, but well, they're a bunch of sciencey engineering kind of people. And they're, they don't, they don't really have good marketing people or whatever, right. Or a good IR team to, to pitch it to retail investors.

So, I, I think that's important understanding what specialized knowledge really means, right. And what really gives you an edge and what doesn't. 

Jeff Santoro: [00:24:00] Yeah, for sure. So here's another thing I want to explore and as it pertains to like the whole is too much. What is too much research? So one of the things that I've started to do is I've talked about having.

A spreadsheet for every company I own. And I updated every quarter and that gives me the quarterly results. And some of the math that the spreadsheet does is like year over year stuff, because if it's a business that's cyclical in any way, or seasonal, I should say not really cyclical the year over year numbers can be very helpful, right?

Cause Q2 just might be a quarter where that business does better than Q3. So looking sequentially doesn't always help. Right. But what I've started to do. And this is how like every quarter some aspect of my spreadsheet changes. Like I add something or I take something off or I look at a different metric and it's been like this fun multi year evolution of what I think is the most relevant thing right now.

The thing I most recently. added. Well, I'll be adding to it as we hit Q4 coming up is the same exact metrics, but just year, [00:25:00] you know, full year fiscal year results. And that is illuminating because when you six, seven, eight quarters is an eternity, if you're thinking about it quarter to quarter. But if you look at two years in the middle of a span of nine, it can be a completely different picture. Yeah. And when you look at companies that have been around, been around a really long time, decades, and you look at yearly results, you'll see sometimes one year, but sometimes multiple years where things stop going up and start going down a little bit, but then continue back up like the stock market generally.

Right. And I feel like that's an example of where. A little less research and a little more 30, 000 foot forest for the trees perspective can prevent maybe like a cell that is too earlier for a dumb reason. Yeah, no, I think that, go ahead. No, I was gonna say like that, that's, that's another kind of corner of this world I, I've been thinking about in terms of, you know, cause I think if you get really, really deep [00:26:00] into like, The inventory turnover, like that's, that's one that like I've heard talked about a lot and I know it's important.

I also feel like it's one of those things that like, maybe it's bad for a couple quarters or a year because of a reason. But then again, if you're going to hold the stock for a decade, does it shake out? Yeah, you know, I think you want to keep an eye on it cause maybe it doesn't, but I don't know, it's just a quick example that popped into my head.

Jason Hall: No, I think that's really good because it's easy to fall into the trap of chasing metrics and numbers. And like you said, you know, you, you, you miss the forest for the trees cause you get so caught up into it. Congratulations. If you followed a company for six consecutive quarters and you've updated your spreadsheets relentlessly and you've honed into the KPIs that you're focusing on, You follow the company for a year and a half, that's nothing, right?

That's nothing, you know, I mean, you, you can learn a lot. Don't get me wrong. And you can certainly see opportunities to buy, but like in the arc of a company's [00:27:00] evolution and, and growth to creating value, it's, it's not much, right? You're following often a lot of things that might not really create.

An edge for you to act over time, it compounds though. I think that I want to stress that, you know, you follow that same company for five years, even if you're not looking at it every quarter, right? Even if you take the 10 K every year and you read the business section and you look at the risks. And you go through the financials, right?

And you, you, you just look at the cash flow statement and the balance sheet, right? You just look at those 4 things, cash flow statement, balance sheet business section and, and the risk section. And then you look at the proxy, right? Because you want to see what's going on with management compensation.

Like you look at those 5 things once a year for a company for, for 4 or 5 years. You're probably going to know that company really, really, really 

Jeff Santoro: well. It's interesting. One of the things that I've found myself in the habit of doing is making sure I, I read the 10 K or 10 Q and [00:28:00] listen to, or read the transcript from the earnings call for every company that I own every quarter.

And when I say read, I don't mean from the, from page one to page 289 of the 10 K. I mean, like I read the couple of sections of those documents that I think are important, but what I, one of the weird things I do is I force myself to reread you know, in the 10 Q the quarterly one, you'll, you'll usually get like a truncated what the business does section, it's not the full thing you'll get in the 10 K you'll get like a shortened version.

I make myself read that or at least skim through it for every company. Um, maybe not every company I'm lying. Like if it's Amazon, I don't like, you know, Apple, like something where I get it, it's, you know, 

Jason Hall: but I'm guessing particularly for companies that are still growing and transitioning into whatever they're going to be.

Jeff Santoro: Yeah. And it, it just helps like to your point about like knowledge accumulating, like just reading over that every three months, it's just a helpful reminder of Oh, I forgot that they also have this growing [00:29:00] advertising business. You know, like you just, you forget little things. So, but what, what you got, what you were just talking about, got me thinking about a different way of having the conversation, which is, so let's say you are interested in like doing a lot of research because you just love this stuff and you, but you have more companies than you have the time to keep up with.

Right. So you kind of already mentioned this a little bit, like maybe a way to prioritize, but how do you think about with limited time, Knowing you can't get to everything you might want to do if you had eight hours a day to read and research, how, how, and maybe you have to put your like pre contractor for the Motley Fool hat back on to think through like how you did that when you had a full time job outside of the industry, but what do you think about prioritizing the limited time you might have?

Jason Hall: So this is one where actually I can relate a little bit more because the interesting thing that has happened is. Um, as I've gotten older and, you know, we've done some episodes talking about, you know, like reaching those financial [00:30:00] goals and like seeing. Like some of the bigger picture goals getting closer and closer.

And as I've evolved as an investor a lot of the companies that I'm interested in, in adding to my portfolio or that I own that I want to, you know, maybe add more of, or just spend more time researching aren't the kind of companies that I'm doing professional coverage for. So like a lot of the reads the real estate stuff the dividend payers, I don't spend as much time getting paid to do writeups and research and study those companies.

So you are prioritizing your time, so I'm having to right? I've been forced to and I think the way I think about it. So again, separating like Nine to five time. Okay, ten to two time. With with a long lunch break and a nap. Yeah with a four hour lunch break. Not a good napper. I've never I've never been a good napper.

Jeff Santoro: No, I can't nap and when I do It's like the worst because then I can't fall asleep at night 

Jason Hall: Yeah, I can. I'm 

Jeff Santoro: angry. All right. Anyway, I'm going to change it. Meanwhile, 

Jason Hall: back of the [00:31:00] podcast. So I guess the way I think about it is going to think about that top of the the filter sort of thing. Top of the funnel for finding new ideas.

So think about. Being online social media screeners people that I know that I text with and engage with that's useful. I think most people probably spend like half their time there. I think I spend maybe 25, 20, 25% of my personal time, like fishing for investing ideas there. The rest of my time is the research.

So like, I don't even think of this, that part is like research. That's that's fishing. That's like trying to find things to research. You know, wandering the woods, looking for, for things. And then the, that other 75, 80% of my time, it's reading filings. I, at the end of the day you know, somebody else's two or 3, 000 words can be useful.

And where I do find those as like a good way to kind of jumpstart the research process is if it's somebody that knows an industry really well, and they do a write up about a company. They're probably going to have some good stuff about the [00:32:00] industry in there, right? And that can kind of help you get started.

And when you, when I'm doing my own research, I will know a little better what to look for. 

Jeff Santoro: Yeah. 

Jason Hall: Another thing 

Jeff Santoro: that I use that, like another thing I do that's similar to that is for, for companies that are hard to understand or industries that are hard to understand, sometimes someone else's writeup will present what the business does in a, in a little bit more of an easy to understand way.

Um, or even give an example or give a use case for the product and you're like, Oh, okay, now I, now I kind of get it because especially some of these like software companies, you know, they, you know, data integration and, and monetization in the, in the cloud, you know, there's like observability, like all these words that you don't understand, unless you like work in that industry, but then someone writes up a 3000 word thing on it and they're like, Oh, this helps the people in the it department see what's happening in the, Legal department or whatever the example is.

You're like, oh, okay, exactly. 

Jason Hall: Right. So that's where leveraging people that have specialized knowledge can be really useful. Right, right. And you don't [00:33:00] have to relearn something or learn something the hard way that somebody else that's really smart or knows it can just tell you. Right. So I think that's really important.

But really I do, I just spent a lot of time Reading 10 K's proxy statements and looking at company presentations with a grain of salt because it is a presentation. It is a marketing device. They're going to file it with the sec under it as an AK, but it's a spin. It's been, it's been, they're presenting things in the best light, which is what you want them to do, right?

As, as you want them to do that, they should always be marketing their business and putting it in the best light they possibly can. It's their competitor's job to, to beat the business up and, and then in their annual report. When they're required to disclose material risks, right? That's when they, they do that.

And those things can be, can be useful. And that's where you can find them and really kind of internalize that sort of thing. But I guess the way I think about it is I'm constantly, and this is maybe the most important part is that, yeah, I'm looking for lots of maybes. When I'm out there fishing [00:34:00] or hunting or scavenging.

And then when I actually start the research, I'm looking for nose, I'm constantly looking for reasons to say no. 

Jeff Santoro: Yeah, that that's a different conversation, but I've found myself one of the most noticeable things. I guess I should have mentioned this on the evolving as an investor podcast from last week.

I've found myself shifting from fine. Look, searching for reasons to say yes to searching for reasons to say no. Like that, that's one of the big shifts that's happened for me. 

Jason Hall: Yeah. 

Jeff Santoro: Hey everybody. We'll be right back. But first a word from our sponsors. Heads up folks, interest rates are falling, but you can still lock in a 6% or higher yield with a diversified portfolio of high yield and investment grade corporate bonds on public.com. You might want to act fast because your yield isn't locked in until the time of purchase.

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Jeff Santoro: So, so. So what do you think about this? Cause I've heard multiple places the advice that if you, if you have limited time to research the stocks in your portfolio, you should spend, you should prioritize it by size of [00:36:00] position.

So for example, if you have a company that is whatever, five, six, 7% of your wealth, absolutely spend time on that one. But if you have a. A stock that's 0.03% of your net worth of your worth, maybe, maybe prioritize that one last. And I've never super liked, I mean, I get it. If you have to prioritize, that's one way to do it.

I think the reason I don't like that is you. If you ignore that 0.03 one for a couple of years, like you could miss an opportunity to add to it and then maybe that's your next 10 bagger, you know? So like, there's a little bit of that. I don't like, but and then another way that I've heard of it, or maybe this is something I kind of do myself is just, you start to understand the ones that you can glance at and the ones you want to read into, right?

So like, I keep using these big tech companies as the example, like I no longer own. Microsoft in my individual stock portfolio. But when I did, for whatever reason, I just could never bring myself to read anything about [00:37:00] Microsoft. That's just, it didn't interest me. And I think it's cause it's I know what it is.

You're just kind of checking that all the big stuff is, is okay. And it's so followed and it's so covered that if there was anything material, a thousand other people are going to find it before I am. You know, I'm not going to miss something with Microsoft. That's the kind of way I've always thought about it.

So I would sort of skip that one in my, I would deprioritize that in my research. Cause I just felt like I didn't need to spend the time there. The really tiny, you know, the micro cap biotech, you know, where everything is riding on the drug they have in their phase three trial. That's the one I need to read about.

So I don't know. What do you think about those two things? Like prioritizing by size and your position and then prioritizing by I don't know, maybe speculate how speculative the stock is. 

Jason Hall: think the idea like in a vacuum, I get the idea of prioritizing. Research by the size of the position because to a certain extent at that point, you're managing risk too, right?

You're, you're thinking [00:38:00] about avoiding, you know, GE, you know, in 2000, right? Being your largest stock seemed like a company that could do no wrong and was just going to keep winning for decades. And. I mean, billions and billions of dollars has been lost largely by individual investors. Right. And funds as a result of that.

Right. So, and I mean, you could look at a Microsoft in 2000, the same thing, or Cisco systems or, you know, any of those other companies and say, You know, I, I think it's a fallacy. I really is. Because I think number one, I think you have to have like a baseline of knowledge and understanding of every company that you own.

Because if you don't, that's when you get sideswiped to the downside. Right. I think that's really important. I would also be able to be willing to say that you could go back to Microsoft seven or eight years ago. Maybe around the time Satya Nadella was named CEO, I guess that's a decade now at this point.

I mean, it's been a while, but yeah. And unless you deeply understood and knew that company probably weren't somebody that could [00:39:00] say software as a service and the transition to cloud based architecture and artificial intelligence is going to make the stock a massive winner. But if you were doing deep research into technology and Microsoft and the transition from the data center to the cloud and everything that was happening in the enterprise.

Then you saw that opportunity of a big company, Microsoft, one of the 10 largest companies in the world and saying, you know what, I think this company can probably double or triple in size over the next decade. Most people wouldn't, wouldn't have been able to say that because they weren't doing the, the, the research into Microsoft.

So I think it's really dangerous when you start just. Like making a rule that's like, well, put as much time in as the percentage of her portfolio. Because you can miss opportunities with big companies. And opportunities with small companies too. I think you have to start with a baseline of understanding of everything you own.

If you don't have a baseline, Of understanding why do you own [00:40:00] it? Are you owning it because of somebody else? It does have a baseline understanding. Make sure you're reading what they say. If you bought it because of them, if you're borrowing their conviction, you have to continue to borrow it, right? You have to stay up with their reasoning and not forget about it and then find out 6 months later that they're like, yeah, there's problems here and it's time to move on.

And while you just haven't paid attention, right? And then you get caught out of nowhere because you don't know what you own and you're not following the person that knows it. So I think that's really important. But for me, yeah. It's more about investing my research time going forward into where I think there's the most opportunity for me to reach financial goals.

It's that simple. It's really, really that simple. I love Mercado Libre. It's my largest stock. It's five and a half percent of my portfolio, roughly at, at recent. I will continue to own it. I think. It could easily double in size over the next five to seven years. I think it's going to continue to beat the market, all of those things.

I will probably spend a lot more time [00:41:00] researching renewable energy yield codes, looking for opportunities in that industry because of the tailwinds for growth. Because I don't feel like I need to build a tremendous amount more knowledge that's going to create additional value for me or more edge there.

Um, even though Ricardo Libre is a larger investment than any company that I own, that's in the renewable energy space. 

Jeff Santoro: That makes me think of two things. So like another way to possibly think about it is prioritizing the companies. You've owned for the least amount of time, right? Or, or it's like, that's really good.

That's really, you know, what do you know less? And then the other thing too, I want to know what you think about this. Cause I think about this aspect of it a lot and I don't know if I'm right. I feel like I actually think this is true with a lot of companies, but I think it's especially true for the more established blue chip, whatever.

You know, just been around for a long time, have a track record type companies, and that is if you are tracking numbers in any capacity, whether it's just. You know, logging onto FinChat.io using our code, of course to get 15% off any paid [00:42:00] plan, but whether you're just visiting that every quarter and looking at the, 

Jason Hall: that would be FinChat dot i o forward slash unscripted .

Yes. whether you're doing it that way or you keep spreadsheets like I do. I feel like let's use Mercado Libre as an example, a company with that kind of track record is largely going to show itself through the numbers versus, let's say let's think of a good example that in my portfolio. I'll use PayPal as an example.

We've talked about that a lot recently. I think that'll show itself through the numbers too, but I want to hear a little bit more about and read a little bit more about management's thinking, because that's sort of in a turnaround space right now. Like they're trying to with new management, you know, turn the direction of the business, whereas MercadoLibre is.

Just kind of keep, keep it on, keep on, I don't want to say up into the 

right, but directionally, uh, mostly up into the right. And the other thing too is like with Mercado Libre, [00:43:00] I understand because I've followed the business so long. If there is one, everybody says macro and the, the, the concerns about different economies in Latin America and the risk there and some geopolitical instability, like all of those things.

Yeah, sure. Those are potential. Challenges for Mercado Libre, but because I followed the business for so long and I also followed the banking industry for so long, I also know that Mercado Libre's biggest risk is probably their financing business, their lending business, right? Where there, uh, there's, there's risk there.

There's tremendous risk there. So, you know, it's, you learn where the risk lives a little better. When you really build your knowledge of these businesses over time, and not just your knowledge of what the stock is done and how big of a, if your percentage of your portfolio, it is, but actually understanding the business, 

Jeff Santoro: I agree with that.

So here's a fun exercise that I want you to, to do live on the air here. What is your research to performance ratio. I just made up a new metric. [00:44:00] So when you look at the stocks at the top of your portfolio, if you sort by total gains, just eyeballing it what would you say, how many of like your top 10 are companies that you would say are your, your top 10 in terms of understanding and, and, you know, research done on that business over years.

And then same question for the bottom. I'm just curious if you see a correlation between the companies, you know, the best and their performance. Or if it's not necessarily correlated. 

Jason Hall: So it's really, it's really interesting. My top 10 again, this is in the aggregate. So, for example, this has NVIDIA at 382% and I've NVIDIA buys that are, you know, 20 bag 25-bag returns. 

Jeff Santoro: Yeah, I'm just talking like total position. 

Jason Hall: Yes, total returns having made multiple buys at different prices over time. Intuitive surgical total return of about 866%, right? So it's an almost a 10 bagger, 900% is a 10 bagger. Incredible, incredible performer. [00:45:00] Very small position. And because I bought it very small, I've never really added to it.

Bought it a few times over like a two year period, years and years ago. It's a relatively small investment still. It's, you know, Less than 1% of my portfolio, and it's up that much but it continues to be a winner. And I've done very little research in the company. I know what they do pretty well.

Right. I know how big of a leader they are in robotic surgery. I know some advances that they made, but like, again, rating this against all of the other companies that are in my top group, my best performer on a percentage basis is the one that I've. Done the least amount of research into, I guess is the best way to put it.

Then behind that you have Ryman Hospitality Properties, which I know exceedingly, exceedingly well. We've talked about, about that on other episodes of the podcast, Steel Dynamics 400% gainer. I know it exceedingly well. And, and, You're not going to find much research on the internet about this company.

It's, they're one of the youngest steel companies founded in the U S their [00:46:00] model business model is based on, um, electric arc furnaces instead of the big foundries. They make some specialized steel. That's. We'll added value and if it's wonderfully, wonderfully well run company. So there you go.

Then you have Nvidia. We've talked about it. My lack of research is one of the reasons that it hasn't been a bigger winner for me because at times I've, I've sold it. Honestly, beyond that it's all the, my top 10 is all, these are all companies. I don't know really well, tangerine factory outlets, Maritosh homes, green brick partners.

Those are two home builders. 

Jeff Santoro: So this is interesting because it's a lot 

Jason Hall: less, it's a lot less companies that I haven't done research and then you might think, 

Jeff Santoro: and I have a follow up question that I just thought of that. I want to ask you in a second. I'll go through mine real quick. So like my number one, I sorted my spreadsheet by return versus the market.

Right. How much alpha have I generated? Versus not just, instead of just doing total return. So my number one is NVIDIA and I've talked about that a lot. It's just, I [00:47:00] bought it because it was a recommendation in a Motley Fool service four years ago. And I just add, I added to it over time, sort of blindly.

And I, I would say. I have a good understanding of the business, but an average understanding of the semiconductor industry, which I think is a big part of owning something like NVIDIA. Yeah, right, 

Jason Hall: right. 

Jeff Santoro: But like my next two, and I've talked about these a lot, because they're sort of just ones I randomly own that I've caught AI tailwinds, and that's Arista Networks and Broadcom.

I still couldn't tell you exactly what Broadcom does. And I read the freaking 10Q every quarter and I think I understand it, but then like it goes out my memory hole and I, I know they do a bunch of different things. CrowdStrike, I feel like I understand pretty well, except again, I'm not an expert in cybersecurity.

Right. So there's that whole like understanding what the business does versus understanding what the business does, if that makes sense. But some of the ones I think I know pretty well are actually near the bottom by virtue of the fact that I moderate the discussion board for this company on the Motley Fool [00:48:00] discussion boards.

I know, I understand Moderna, I think pretty well, especially for a biotech, cause that's not my background. That's my number two loser in my portfolio, probably because when I bought it, it was 2021. But here's the question I want to ask you, how much do you think you knowing the companies near the top of your portfolio is driven by returns versus returns driven by you knowing them?

And what I mean by that is like for the, or I guess, let me say a different one. I think I know what you're 

Jason Hall: saying for the 

Jeff Santoro: ones that are near the top that you don't know as well. Do you think it's because like when it's going up, you just don't, like, I feel like I find myself reading about the ones near the bottom of my portfolio more because I'm trying to understand.

If I missed something and I was wrong and if I should sell them, whereas I try to research Arista networks and Broadcom because I want to understand them better because I want to know if I should add to them, but they're massive winners for me. But then I'm like, ah, they're massive winners. So it's I'll spend my time on the losers.

I don't know just something that popped into my head. I wonder how much of that, [00:49:00] how much the, the tail wags the dog when it comes to like I terms versus recent. So I of 

Jason Hall: Intuitive, I've owned for over 11 years, right? So over 11 years of owning something, you're just gonna get to know it. Yeah.

Right? Yeah, yeah, yeah. So I think that's, that's important. But broadly, and these others, and again, remember, I'm, I'm in this. Midst of like highest contribution rates, so regularly putting in new money, so making new investments on a regular basis. But these, these stocks that are in my top ten, again, this is leaving intuitive out of it.

I've owned, so my average years of ownership of each position is, is over five years. So I think there's a little bit of kind of just selection bias, I guess, if that's a thing because they have been big winners, they've been big winners because I've owned them for a long time generally. And generally if I've owned it for a long time, it's probably because it's been a big winner.

Right. And added to these because they continue [00:50:00] to, to do really, really well. And because of the kind of investor I am, I continue to research and understand these businesses and make sure I know what I own.

 These 10 largest positions are, they're almost 20% of my portfolio. Right. I should probably know these businesses relatively, relatively well, not just to make sure you know, for, for upside for potential future growth, but to make sure I'm not, again, there's so much of investing that's about stock picking.

It's about looking for nose. And I think you have to be mindful about the companies that you own is look for signs that something's broken. The things are. 

Jeff Santoro: And I think that's where, I think the reason, and this is maybe a good place to sort of wrap it up. I think the reason I'm, I lean towards the less research is [00:51:00] better, kind of, uh, Side of this discussion is probably because the way I invest in the way I think I need to invest for me is to buy over many, many years as my conviction grows.

And I think if I were the kind of person that couldn't pull the trigger on a stock until I felt like I knew it, like the back of my hand, and I spent six months doing research and then bought a 3% position. And then that was it. I was done. Then maybe I would think about it differently. But to your point about those top positions and how they're on average in your portfolio for five years or more kind of speaks to what we talk about a lot, which is, and we, we, you, I know you've said this a lot with MercadoLibre, right?

You've bought it, you bought it in, I don't know what, what the first year was, 2000? 10, and then you bought it in 2018 and then you bought it in 2022. And then you bought it this year. Like, you know, you've bought it all throughout time as it's done better and better. And so it's almost like the way that I [00:52:00] think about researching stocks is tied to the way I invest in them, which is to buy a little bit, And then when I feel like I know it more and feel good about it, buy more.

And then when I feel like it's doing well again, buy more and just until I stop, you know, 

Jason Hall: you can't, uh, mention this earlier and I, and I kind of want to make sure and say this again, as we're getting close to wrapping up, but you can't cram. And I'm going to sound like such an old saying this, but to a large degree, you are buying a lot of bond now.

So you are an old, that's fair enough. I just don't want to sound like an old, but what I want to say is like experience is important and you building your, you build your knowledge over time and you're building experience at the same time and understanding of a business, you know, two weeks of, of deep research is not going to replace that.

And, and the problem is I think that we can easily. Substitute time researching an idea for conviction. When the point of the research is to make the right decision again, things I've already said, but I think [00:53:00] they're so important and I want this to be like things that you're putting in your tool bag when you're building out your process research is to find the best investments not to.

Spend more time investing your favorite ideas and buy them even though the research is telling you not to right So I think that's where it's important where there's like this. It's the donut hole, right? Where there's like this spot right in the middle. It's not the don't and when I say the donut hole I don't mean the hole in the donut.

I mean, it's the little round really sweet yummy thing. So 

Jeff Santoro: like the Dunkin Donuts munchkin 

Jason Hall: Yeah. Yeah. Okay. But a donut hole, which is the same thing, but it's not a corporate brand that we don't own. Um, so. But you're that guy who doesn't say Band Aid, you say adhesive strip. There you go. Exactly. Right.

Right. Sterile adhesive strip. But the point, the point I'm trying to make is that it's just right. You know, it's, it's the right amount. And I think when it comes to stock research, this, [00:54:00] your, your mileage may vary. Let's go back to that. I think that's really important. But you have to start with not making all your decisions based on third parties.

If you're relying heavily on third parties, make sure they're reputable. Um, Right. And they have a track record and they're good, you know, that I think those things are really important, but you have to own these things. And that involves actually doing some amount of research yourself and figuring out what the right amount for you is.

And if you just love doing this and you have the spare time and you want to read their 10 K's going back 10 years. Because that's your process and you have a big rollover and you have a half a million dollars that you want to deploy and you want to make some good decisions, then that's where you're making the right decisions.

With, and, and don't go cheap either, Jeff. I think this is important too. We're talking about too much research, more mistakes get made from doing not enough research. Like you've talked about this with your kind of [00:55:00] initial foray into stock investing, which we've all kind of gone through that to some degree too.

And you, you, it's easy to justify. I was like, it's just 25 bucks. I'll just buy it. It's just 25 bucks. 

Jeff Santoro: I think, I think the way I think about it to, to close up is you know, if you're buying individual stocks, you should endeavor to do some research. But the value of that 

Jason Hall: research is going to compound over time.

Jeff Santoro: Yeah. Agreed. And I was just gonna say like, it doesn't need to be a ton because I think I, I think you and I are on the same page with a small to medium amount of research frequently is better than a ton of research infrequently. And yeah, but I also don't think when you, when you come across the 6, 000 page write up or the interview with the, You know, manager at a investing fund, you don't need to feel like I have to do that level of research in order to succeed.

Right. So I think, you know, it's, it's, it's somewhere between too little and too much. And I know that's not super helpful, but I would be interested to know [00:56:00] what part of this conversation resonated with the people listening. So if anyone wants to reach out to us on Spotify, you can leave comments at the end of the episode, or just email us or respond to a newsletter post.

Hit us on social media. I'd like to know what, what other people think when it comes to how much research is too much research. But other than that, Jason, I have nothing to add. 

Jason Hall: Thanks, Charlie. That's appreciated. Yeah. Tell us how much, how much research do you do? How much is not just how much is too much, but how much do you do?

What does your process look like? Maybe what resonated with this? What do you think we're boneheads about and completely missing the point? We love to hear that kind of thing to tell us why we're wrong. All right, friends, as always, Jeff and I love to give our answers to these hard investing questions, but of course, they're our answers. Our answers are good answers. They're the best answers. For us. Until we change them, but that's okay.

That's, that's what we did last week. That's evolving as an investor. You got to do the same thing. Yes. You have to evolve, but you got to [00:57:00] find your own answers. You can do it. I believe in you. All right, Jeff, we'll see you next time. 

Jeff Santoro: See you next time. 

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