Episode 69: Lessons from a Career in Finance with Cliff & Davis
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Hello and welcome to the Thoughtful Realtor Podcast. This is a podcast where we sit down for insights, stories, and conversations about all things real estate, running our real estate team here in California, and how we find our way as leaders, and business partners. I'm Cliff Tsang, one of the founders and partners of Willowmar Real Estate. And as you may know, we are doing a podcast series on some of our clients, sharing their stories, their backgrounds, and peeling back the curtains, so, so to speak, as an opportunity for our audience to learn and grow their knowledge of different industries.
Today I have the honor of interviewing Davis Liu, one of the smartest people that I know who also, lucky for me, happens to be one of my best friends and lucky for Willowmar as he has been a great loyal client over the years. He is a partner at Sansome Partners, an investment firm based out of San Francisco.
Sansome has invested in private businesses and public company stocks, and has made billions of dollars of investments since they were founded.
Welcome to the Pod, Davis.
Glad to be here. It's my first pod experience, probably first and only in my life, so I will cherish this moment, Cliff.
Oh, what an honor for us to have you.
An honor to be here, I must say.
So to kick things off, I think our audience is probably mixed in terms of some people who understand the world of finance a little bit, and then some people, I think it's very fresh and new to, so yeah, maybe to kick things off, how would you explain investing or what your job is to a layman, to someone without a finance background?
Sure. We'll start with investing broadly. So very simple, investing is all about maximizing your return for any given dollar of capital contributed while minimizing the risk for achieving that return.
So a lot of people view investing as essentially trying to optimize every dollar of capital that is given to a venture capital firm, or a hedge fund, or a private equity firm. And I think the risk component of that is very important because you could earn a 4.5% return with no risk or very little risk.
You could buy treasury securities or you could try to swing for the fence and get a hundred percent annualized return by taking a lot of risk if that's buying a new meme, coin or what have you. So I think solving for that amount of risk is the most important factor when it comes to investing. And you'll hear a lot of people say, well, I bought this crypto and I tripled my money in a month and people are sitting there on their cash savings and thinking, well, gee, maybe there's sophisticated people out there that can do that. But in reality, I think they're just taking a lot of risk and they got lucky with that return. So I think it's all about maximizing return for a given unit of risk for that same dollar that is invested.
And in terms of what I do specifically, there's a lot of different flavors when it comes to investing, almost like cuisines in the world, right? Or even real estate investing, you could buy multifamily, you could buy single family, you could buy commercial, you could buy data centers, you can buy fulfillment centers. There's a lot of different flavors. And I would say the flavor for us at Sansome is we're very flexible. So we can do both public investing and private investing. Public just means buying public company securities like you or I could every day buying shares of Apple or Nvidia.
Or you could buy private companies. So we are very flexible across both those things. Although I do spend most of my time investing in public company stocks. So we have a roughly 10-12 stock portfolio where we try to own very high quality businesses and own them for a long time. Now we will trade obviously if the stock price gets out of whack, but our goal is to own over a 5-10 year horizon owning the highest quality businesses that we can across a variety of industries.
That's really interesting. And so maybe share a little bit about how you guys get organized then, because I think what you said is a lot of flexibility between public and private, and a lot of flexibility between different industries that you look at.
To me as a layman who doesn't know that world very well, that seemed like there's like a bajillion options. And I'm guessing that internally maybe you guys have someone that's in charge of certain sectors or you guys have some sort of organization, so it's not everyone chasing everything. Is that correct? Or how do you guys kind of divvy that up a little bit?
Davis: So when we started, and still today, we have a very small team relative to both the capital that we manage, and as far as investment organizations go broadly, I think our team is pretty small. So it's still fairly generalist. We're very flexible in terms of what we can look at, and there's not really set guidelines on, this person covers these industries. That person covers those industries.
At other firms, that's generally the case. At our firm, I think we're relatively unique and differentiated where that's not really the case. So for example, I'll cover a business in digital advertising in Meta and another colleague will cover Google. That's actually an example today.
Or I'll cover one of the players in the biotech or biologic space and another colleague will cover another player in that space. Historically, we've probably tended to, if I'm looking at Visa as a stock, I'll probably also look at MasterCard, but that's not a set rule. I think part of the reason this job is interesting is we're able to play across a lot of different industries, so you're always learning something new and finding relevant analogs or comparisons across industries that you wouldn't have realized were you just covering a single industry.
Ooh, interesting. Yeah, I could see that having some benefits too, like going with the Google and Meta example. So if you have like another colleague covering a similar-ish company, then it allows you to maybe have some good intellectual discussions with them about pros and cons, why this would be a good investment, maybe trying to poke holes in each other's investment theses.
Yeah, definitely, and our investment approach is a committee or a collaborative approach. So there are other investment firms, especially ones in the public markets that buy stocks, where there's gonna be one portfolio manager. The shorthand for that is just PM. So one PM portfolio manager, and there's a lot of analysts that sort of feed into that PM and they're pitching ideas. And the PM is the one that allocates the book.
At Sansome, everyone has a seat at the table. So I'm able to hear all of everyone else's ideas and everyone else hears my ideas. And then we have a collaborative discussion on the pros and cons of each. So even though I might not know a stock that I don't cover as well as the person covering it, I'll definitely know a lot more about that business than I would at a different firm where I'm kind of focused on the stuff I'm doing and feeding that up to the PM and not really getting a lot of insight on what other folks are working on.
Interesting. So maybe let's take a little bit of a time machine, so to speak– to go back a little bit. You and I have known each other for a very long time, but I feel like maybe we haven't really talked about this topic so much, but what first got you interested in finance and when did you know that this was the career path that you wanted to go down?
I first got interested in finance actually just taking finance classes at Haas at Berkeley, and I liked the analytical...
Which one was your favorite finance class?
Well, it was just like the intro to finance. Frankly, in Berkeley there weren't a ton of electives, so it was just like, oh, Intro to finance classes seemed interesting.
We had that South African finance professor who kept things very colorful, so to speak. I like the analytical rigor of solving those finance problems. I took some CS classes as well, computer science classes, and in a way, the problem solving there felt very similar to CS, but it was easier so I felt like I could master it better.
And that was really the sort of foundation where I thought that finance was a pretty rigorous field in terms of the quantitative aspect within business. Now, ironically, if you fast forward to today the analytical or the quantitative component is actually a very small percentage of the day-to-day job.
I think part of the reason why is once you're in the industry for a while, you develop heuristics or like shortcuts for how to think about the quantitative side without spending a lot of time there. So a lot of times the investment return math you can actually just do in your head, but initially I got into it because of the problem solving nature of it. It felt like a riddle or like an analytical problem solved.
But again, the irony is now as we look 15 years down the road, that part of it is actually pretty small. But I think it's not because we don't use it, it's because you develop a lot of the shorthand or shortcuts so that you can do that part very efficiently and focus on all the other elements of the job.
Oh, interesting. So it's kind of become more of like a gut or second nature, but you do have to have like the reps there and the practice and the technical skills. But you're not like running an actual calculation in your head, but there's something happening in you to analyze.
Exactly. Exactly. It's like Warren Buffett, he has a bit of a hokey demeanor and when he communicates, it's very clear to the layperson. And it all sounds like very much common sense. But that's built on 70+ years of securities analysis where he was very much grounded in the principles of finance and value investing.
And it's like one of–you know that saying–where once you've mastered something is when you can communicate those concepts to a middle schooler and they'll understand. I feel like the same is here. You cannot develop those heuristics without the years of reps to get you to that point.
And then maybe it'd be helpful, what does your typical day look like?
Because I think people might have an impression of you're investing, you see those, like the movie, like Wall Street or some of those things that like your day starts at a 5:00 AM alarm clock. You start to slick back your hair. You put on a suit. So what does your day look like in the investing world?
Well, often I am getting up with a five handle on the time, but that's not because of the job. That's because I have kids and it's like a whole other production to get them out the door for school and whatnot. But the day-to-day, it really depends. Now, I'm sure a lot of people say that.
In this case, a lot of my day-to-day is pretty self-directed because when we're buying stocks, the access that you have to any particular company is the exact same as mine. Like you just fire up your Robinhood account and you can buy shares of Nvidia, and frankly, that's kind of what we do too. Although with slightly more sophisticated trading, but it's pretty much the same.
So very self-directed as opposed to other types of investing where there's more of a deal-oriented approach where you need to invest in a private company. Maybe they're going to auction and there's a timeline to submit bids by. So there you're a little, that's a little bit more like a real estate transaction where there's a set timeline. You have to follow certain procedures. Here, very much self-directed because if I wanted to buy shares of Nvidia tomorrow or today I can, or if we wanted to wait a month, we could also do that as well.
It's really a self-motivated process in terms of what you're doing. And I would say 95% of my job is not on the screen or placing trades or building a model or looking at charts, which is the stereotype of what an investor is. I have one monitor in my office. I don't have four monitors. I'm never on the phone calling the broker.
What I do for 95% of my day is really trying to learn as much as I can about a company we already have invested in or a new business that we're evaluating. And what that learning process means is often we're talking to folks at the company, we're talking to customers of that company, or competitors, or suppliers. We're evaluating data that a lot of these data vendors provide us in terms of what consumers are spending by tracking their credit card spend, or email receipt panels, or other types of information, or out there running surveys, or going to conferences and meeting the companies and its competitors in person. So all that kind of work boils into an investment recommendation and decision.
But again, that's like 95% and only 5% of that is the actual I need to type in numbers in Excel to build the model, or we're placing the trade, or we're trying to find liquidity for how much stock is available for purchase, even though that's probably what most people at least the stereotype think of when they think about stock investors.
So it sounds like it's very research-heavy to kind of sum it down. It's very intellectually stimulating. You're spending a lot of time researching. I remember coming to your office and you had a collection of books and you had mentioned, oh, I read all these books in like the last couple months. It seems like a lot of solo time to do research and to think through the investment ideas.
In the solo time, a lot of that solo time is spent talking to people. So I guess theoretically it's not so solitary because I'm always chatting with people about stuff.
Here's a real life example. So there's a company called CoStar, which is primarily known for its commercial real estate data, but they also have a budding business they're trying to launch called homes.com. You may have seen some of their Superbowl commercials where they're essentially trying to compete against Zillow.
And I think there's all sorts of implications there in terms of, will agents actually advertise on the platform? How does the NAR, National Association Realtor, antitrust suit and settlement impact the landscape? So one of the things we may do is, I'll call up a bunch of realtors and I might talk to someone like you and just pick your brain on, how do you think about the value proposition of advertising on Zillow or advertising on homes.com? How has the NAR settlement impacted buyer commissions, etcetera?
So it's a lot of discussion around topics like that, and especially when you have a goal in mind of whether we can make CoStar an investment or not. When you have that goal in mind, having these discussions seems very interesting 'cause it's always fun to learn about the dynamics in a new industry and something like the NAR settlement or how agents think about advertising may seem mundane to many people, but at least for me, when there's sort of that gold mine of making an investment and hopefully enjoying a good return on that investment, these discussions are always very interesting. I think I would naturally be interested in those discussions anyway, but especially when you have that incentive layer on, it makes the job pretty fun.
Nice. That's kind of a good segue. You talk about the job being fun in that way. I was curious, what are some aspects of the job that you consider the most exciting or the most rewarding parts of it?
Yeah. Succinctly, I would say in this job you are almost explicitly getting paid to learn.
And again, like I mentioned, we cover a lot of different industries. So one day I'll be looking at CoStar, that company I mentioned. Another day I'll be looking at Meta. Another day I'll be looking at Visa and these are all companies we've looked at or we own. Another day we might be looking at railroads.
And every one of them has their own interesting dynamic behind it that you have to better understand and process. So with railroads, for example, in the US a lot of the trade that flows on railroads is North American trade that touches Canada, Mexico, and the US. So thinking through the impact of tariffs, how that could impact supply chains.
Or with Visa, there's a lot of interesting dynamics going on with payments. Is crypto gonna be a disruptor in payments, or could it actually further these payment networks? So with all these different industries, there's a lot of cross currents and dynamics to think about, and it's always fun to learn about something new.
Nice. The one thing that I've always been curious, so with Sansome, I don't know how much you're able to to share, but like typically I know investment firms, I think they raise money and then those folks that they raise money from their LP or like limited partners, those are effectively their clients and they're trying to effectively get the highest return for those LPs.
I think Sansome's setup might be different. I don't know if you guys have raised outside capital, but are you able to share a little bit about that kind of part of the process of like, who is your end client, so to speak? Is it the owners of Sansome?
Definitely. So Sansome, we're relatively unique in that we're a single family office, meaning we invest for just one family.
And other firms that you mentioned, like your traditional hedge fund or your traditional private equity firm, will have multiple what they call LPs, limited partners. Essentially a fancy term for investors. And the beauty of our model is having a single family behind you, you can really gear the strategy towards their sort of perspectives and their advantages, if you will.
So the advantage of investing for a single family is that the nature of the capital is particularly enduring. And what I mean by that is they have a very long time horizon. They can think out over a multi-generational period. Whereas if you're investing for a lot of different LPs, you kind of have to maybe go down to the lowest common denominator.
And frankly, a lot of those limited partners too may have different time horizons. So if you're investing for an endowment, they may say, well, for this hedge fund, we're actively putting our sleeve of money that we could wanna call back at any moment in time. That's kind of what we're leaving with you.
And as a result, that investment firm needs to essentially abide by the strategy and the time horizon that their LPs dictate, whereas we feel like we have that long-term time horizon. So I think the biggest differentiator for us, especially in a market like you see today where there's a lot of volatility, is that we can be very patient and look out 5-10 years when frankly, a lot of the activity that drives some of these short-term stock price movements that you see are driven by very short-term hedge funds.
And we can get into this whole market structure if you think that'd be interesting, but a lot of the activity is driven by short-term hedge funds that are not just even calling the quarter in terms of when a company reports earnings, but often even shorter than that. And they're often looking at other KPIs that come out, whether it's alternative data vendors that publish credit card receipt panels and what have you.
So a lot of the movement in the market's being driven by capital that has like a month to a quarter of duration. And we're unique in that we're looking 5-10 years out. So a pretty big mismatch in terms of the active market participant and then where we play.
Yeah. Well that's kind of interesting.
I didn't know what you just shared about the hedge fund kind of influencing activity in that short term duration. What drives that short term duration? They need that quicker return, like for quarter end, or you're saying you're trying to make a quick buck and like pull out or...
Yeah, let me explain the US stock market landscape a little bit. So a big chunk of the US sort of equity assets are.
Assets under management. So you're kind of referring to total–in aggregate how much the stock market is worth.
Yeah. If you look at the total stock of the stock market a big chunk of that is...
What's that by the way? That's it in the trillions probably.
Let's see. US equity assets. This is what chatGPT is for. Perfect. It's definitely in the trillions. If I had to guess, I would say it's probably, okay, it says it's 60 trillion. So a huge chunk of that is passive, meaning money that's in a passive ETF or mutual fund where it's not actively managed, so they're just benchmarking to the S&P 500, or the NASDAQ or some other index. So that money necessarily moves with flow.
So for example, retail investors tend to unfortunately buy high and sell low, so that exacerbates some of the market movement, right? If you know money's hot, it's like 2021, a lot of people are chasing sort of stock market returns. They'll put in money into these passive funds in 2021.
They're forced buyers because they have to buy according to the benchmarks or the weightings in the index. So they're buying in August ‘21 when the market's really hot and conversely, and the market sort of crashes in like we saw in 2022, and folks are pulling their money out 'cause they fe el like it's unsafe.
Those same passive funds are for sellers, they need to sell in proportion to the index. So you have a huge chunk of the money that's just like following these flows, right. And then within the active managed portion, the other half or so there's been a notion that a lot of that active money needs to follow an absolute return strategy.
And what I mean by absolute return is they're generally hedged and...
Davis, can you repeat that? You said absolute return strategy, which means they're hedged and then you cut off...
Which means you're heading, and I'll get into what that means later. But if you look at a university endowment for example, which is probably the most extreme representation of this asset allocation thinking. They'll say, okay, half our money we're gonna put to alternatives, meaning private equity, venture capital, things like that. And then the other half, which is public fixed income and publicly traded equity, we'll get our exposure to the market by putting it in passive strategies like in ETF that matches the S&P index.
And then the remaining portion will be an absolute return strategy where through thick or thin, they're gonna return 4-10% with very little variance, very little volatility. And therefore, a lot of the money in the industry because of this we'll call it asset allocation, echo chamber or best practices or whatever you want to call everyone aligning on that same strategy, is they will put money to these absolute return hedge funds whose job is to not have a lot of volatility. And in order to do that, you can't really take a lot of long duration risks because as you know, companies valuation and their business prospects ebb and flow even though maybe over time it's still up and to the right.
So what they need to do is manage risk very carefully by hedging their portfolio. A very simple way to hedge the portfolio, for example, just give a simple example would be if you think that you like the payments industry. And you know there's two main players that do payment networks, Visa and MasterCard.
You might say, okay, I know that this industry is good, but I think over the next three months, Visa will do better than MasterCard because it's cheaper and they're about to have an investor day and there's gonna be a catalyst and you know, blah, blah, blah. You would buy shares of Visa and you will also at the same time, short shares of MasterCard.
Shorting just means betting against the stock, and usually how you do that is you sell the stock immediately by borrowing that share promising to return it later when you close your short, okay? So you'll have that trade on where variance in the industry broadly, or the stock market broadly, you're hedging out because your buy position in Visa will be netted out against your short position in MasterCard, but you will be able to capture the return of Visa outperforming MasterCard.
It could go down by less than MasterCard or it could go up by more than MasterCard. But at any rate, you're capturing sort of that dynamic and because of the nature...
But is that expected to be higher than just like putting it in like treasuries at like 4.5 percent? Like why would you do that strategy versus just getting the fixed?
Because I understand the hedging part, but it seems like it caps the upside a bit.
Yeah, it caps the upside for sure. It caps the upside. So as an individual investor, you're better off buying the S&P 500 ETF and holding onto that for 20 years no doubt or I mean, empirically that's the case. There might be some exceptions.
Some managers that do exceptionally well, but on average, especially not a fees, that's the case, I think these guys are targeting 4-10% returns. So when the treasury's four, you think that these guys can replicate the risk. I mean, obviously that's not gonna be the case, but you can replicate some of the low volatility, low variance with getting a higher return, which is why these folks think it's attractive, because it's liquid.
You can get that money back theoretically at any time, but you're getting a higher return than just investing in cash.
Hmm. Interesting. Yeah, thanks for sharing that. Switching gears a little bit, I think we talked about how you shared a lot of great things about the job and it seems like you're getting a lot of enjoyment out of it.
It seems like you're, as you mentioned, getting paid to learn, which is kind of a cool way to phrase it. I'm curious, for folks who are interested in the industry, what would you describe as kind of the most difficult, or the worst parts of it? Are there aspects of it that you don't like as much?
Yeah. So as opposed to other types of investing, private equity investing, for example, it's very easy to get all the data you want on a company that you're looking to invest in because all you have to do is ask the company or ask management, Hey, here's a list of 30 things that we're looking to get, can you please provide it?
So this is called a due diligence list checklist. And then the company uploads all these documents into a data room, a virtual data room, and then you download the files and like you have all the data. In this job, you have what's publicly reported, which is decent, but it's maybe 1/10 of the granularity that you would get in that private equity process.
So then our job as investors is to recreate that private equity data room to the extent possible using public information. So that often becomes a little bit of a fact finding mission. It really feels like you're doing a lot of detective work, right? Like if you watch these like detective shows, it's all about finding clues and talking to people and trying to piece together.
You don't just have the whole storyboard laid out in front of you like you do in private equity investing. And again, it's still uncertain what's gonna happen to the company over the long term, but at least they all have all the data right now. Whereas we also may not know what's gonna happen to the company in the long term. And we have limited pieces of the data now. So really it's putting together sort of the puzzle pieces to come up with a semi coherent picture of the business that you don't have to deal with in private equity. So, like I said, 95% of my job is learning and like researching, but a lot of that is because you need to, again, put all the puzzle pieces together or frankly find those puzzle pieces first.
So I can't say, I don't necessarily like it, but of course, it'd be more efficient if you kind of just had all that information in front of you. But that's also maybe, you could argue, a source of advantage where if you do more work or do more research than other folks, you might have a better understanding of a company such that when you do hit short-term volatility, that you're able to capitalize on that by investing when other people may not have the full picture.
Interesting. So it sounds like it's not a defined box and with that can come some stress of you don't know when to end the research, or it's kinda like a potential endless maze. But you also, it's interesting how you reframe that because that I think also gives you and maybe your firm an edge because you guys dig very deeply and don't have that specific timeline of needing to make an investment quickly, as you mentioned. And that might also give you some advantage 'cause you can just, not endlessly, but you can just keep going deeper and deeper and do more research. Yeah, that's right. Until you feel comfortable.
Yeah.
And going back to that day-to-day comment, you're right. Like it is hard to know when exactly to stop, so you feel like you could always like, keep going down that rabbit hole. So I think time management in this job is also very important, where because you don't have a set deadline and because you could theoretically do an unlimited amount of work, being productive and efficient is a skillset that you need to develop over time as you learn to self-manage the process.
So, and yeah. And it's interesting with a job like that I'm sure mentors have helped you along the way and other colleagues, but I'm curious for something like that, the time management piece, is that more self-learn or is that someone maybe knocking on your door and saying like, Hey, Davis, like you've been researching this enough, like just present to us and let's talk about it. How did you know when to stop? Or like how did you get at that?
Yeah, so I did two years of investment banking before this, so I think that was great training, not for investing actually necessarily, and perhaps ironically given the title of that job, but rather the time management aspect of it I thought was helpful.
And I also, during my business school years I did a summer internship at another investment firm where you only have 10 weeks in the internship and you're given like a very hairy company to run end to end in terms of coming up with an investment recommendation. It was only a 10 week internship, which meant I had to be done within eight weeks because then we had to present it and wrap up the internship.
So I think that those were good forcing mechanisms for me to understand how much one can do in a constrained period of time. And therefore you can use that as like the paragon for how efficient you should be on different projects. And I think as time goes on to the point I mentioned earlier, some of the analytical work, you kind of already know the answer to that going in. So it's not like a mystery of, oh well I have to build the model to see what the return on this investment's gonna be. You already have an idea, so you can shortcut a lot of the filtering process to finding an investment because of these shortcuts and heuristics you've developed over time.
Alright, we will do one more question and then I have a few kind of rapid fire, quick ones for you.
I think AI, artificial intelligence, has been all over the news lately. So I was curious to kind of get your thoughts on it in terms of investment and how you and your firm might be thinking about AI and how that might kind of change the landscape, and whether it could be a good investment, and how you guys are wrapping that into your investment decisions.
Sure. Yeah. A couple observations would be number one every tech company or frankly every company has AI at the forefront, so it's definitely top of mind and many are making huge investments in AI. And a lot of that has flowed to Nvidia in terms of their GPUs. And I'm not gonna opine on the sustainability of that, but that's just an observation that hundreds of billions of dollars are being spent on AI hardware in advance or in anticipation of sort of this wave of demand that's gonna come.
However, what we've seen so far is that there hasn't been actually a lot of real world use cases so far. There have certainly been in terms of a couple more narrow verticals like AI for coding assistance. That's been a big use case. AI agents, especially in that customer service realm for now. But if you look across the landscape to companies that are just sort of like your day-to-day companies and not exclusively focused on selling AI software, hardware, not many have yet realized a lot of the productivity gains that come from AI.
Frankly, Meta might be the best example of someone that has, where they've adopted AI to make the content and the advertisements that they're serving to you on Instagram or on Facebook more relevant. And that's actually led to a bit of revenue acceleration.
But other than that, there hasn't been a ton of companies that aren't exclusively just selling AI hardware, AI software, seeing those productivity gains. But certainly it is happening and we have a big position in AI at our firm through folks that sell the proverbial picks and shovels to companies that are seeking to leverage AI for their business or frankly to sell to other businesses, AI solutions.
So in our portfolio, and again, we don't have that many stocks in our portfolio, we're pretty concentrated. We're targeting 10 to 12 in our portfolio. We own the three hyperscaler cloud businesses in AWS, Microsoft's Azure, and Alphabet's GCP. And then we also own a couple names that make equipment that go into large semiconductor fabs. TSMC, for example, is a large manufacturer of GPUs, CPUs, and all sorts of other chips.
So we invested in a couple companies that sell to folks like TSMC, critical hardware that's required in order to make these semiconductors. I think our bet is unclear who the eventual AI winners or losers are, right? But we will invest in the hyperscalers and the manufacturers in a more pick and shovel manner, where if there's gonna be this growth in demand, then they will necessarily reap the benefits from that.
Interesting. That's fascinating. And just for folks like the pick and shovel metaphor that is kind of talking about like gold miners back in the day, like the companies that actually sold the picks and shovels actually made more money than the people who were trying to harvest the gold.Is that what it's referring to?
Yes, definitely. Thank you for providing that context. Yes.
Okay. That is so fascinating. Yeah. I think–I'm guessing for the average person who doesn't work in tech–they know that AI is coming, but it also feels like every few years there's some new tech wave that people say is like the new thing.
But for whatever reason, people seem to think that AI is the next wave. And that is fascinating to hear you talk about how you think through investing in it and effectively trying to reap the rewards of a potentially explosive industry.
Yeah. Well, the nice thing too about investing in some of those players is their stock price where their valuations haven't actually gone up very much despite this AI boom. And we can debate the reasons as to why, but essentially you're getting them at valuations that are fairly attractive with this upside potential. If this AI demand is indeed real, and they do get some revenue growth acceleration, then you can be the beneficiary of that without having pay a very high price or high valuation for it.
Cool. Okay, we have a few I don't wanna say rapid fire, but just kind of quick, quick questions to wrap up. So the first one is, what's a lesson you've learned in finance or investing that applies to everyday life?
I think having both emotional serenity as well as having a balanced or nuanced take on things.
So on the first one, you see the stock prices whip up and down 5, 10% in a day. Right. And I think a lot of folks may not be able to handle that type of volatility. But I've sort of been numb to that over the years. And I think that's actually helpful for your everyday life where the highs are not gonna be as high as you think they are and the lows are not gonna be as low.
So I think that's actually very helpful in terms of temperament. And the other thing I mentioned is being balanced. With stock investing, or with all investing in general, you're not gonna know everything and you're certainly not gonna be able to predict the future. We're trying in our job, and maybe we're more right on average than wrong hopefully, but you're still gonna have a batting average that's well below a thousand.
So I think having that balanced take where you say, well, on the one hand there's this, and on the other hand there's that, and we talked to a bunch of customers or talk to a bunch of suppliers, and some customers might hate the products and some customers might love the product. So it's never universal in investing.
And I think that's the same in life as well, whether it comes to relationships where this person's not gonna be the worst person ever, and that same person's also not gonna be the best person ever. When it comes to thinking about politics, when it comes to thinking about any other sort of aspect of your life where you're making a decision.
I think having a balanced take has also been helpful for me, where I'm able to sort of see more of the nuance and it's not either black or white.
Hmm. I've never heard you explain it that way, but I feel that way as your friend, that you have a very balanced viewpoint in life. And then the phrase emotional serenity, that is a intriguing one.
Yeah. I think as I get older, I try to have more of that in my life. Just trying to detach from what you said. But the highs are not gonna be as high as you think and the lows aren't as bad, and just kind of being more neutral and more steady. It's interesting to hear you describe it because I think most people that know you, Davis, would describe you as a very steady, steady person and that makes sense.
Oh yeah. I mean I think that temperament is hugely helpful 'cause we talked about meta earlier. I mean that stock went from 380 in 2021 down to 90 in 2022, and then it got back up to as much as 730. Just really
And you saying from when it went to 380 to 90, you weren't that, so you weren't sweating palms or anything? You were like pretty okay?
Well, we didn't own it the whole time, but I mean, imagine if you owned it through that whole thing, like you need to have some mental fortitude, right? Especially if it's a concentrated position in your fund. So yeah. Like maybe at 380 it wasn't as good as people were saying and at 90 it wasn't as bad as people were saying, and so on and so forth.
So that, that just gives you a sense of like how volatile some stocks can be. And I think that's a nice analogy for life as well, where yeah the highs are not gonna be as good as you think it is and the lows are not as bad as you think it is at that moment.
Yeah. Two more. Two more quick ones.
One, what's one financial habit or principle you think everyone should follow?
Yeah, that's a great question. I think simplicity is the best ingredient. I think a lot of people think that " sophisticated" investors need to find these hidden gem type of investment hacks or really do something complicated in order to structure their investments.
And really all you need is hold some cash, hold the S&P 500 ETF, and you're golden. Don't overcomplicate things. Just keep saving a little every month or every year and put it to those two things and. I think you're in a good spot. So all these, having an investment advisor or they're gonna put you in like, some private equity thing, or, oh, I need to do angel investing, or I need to do this or that.
Like, you don't really need to do that. I mean, you could do it if you find it fun, right? But if your goal is to not think about things too much, then set it and forget it in the S&P 500 ETF and having some cash that earns 4% or whatever is probably the best approach you can take.
And last one, and I think it might be kind of related to what you just answered, but what is your one tip for wealth building for the average kind of layman person who doesn't work in finance or investing?
What is the one tip for wealth building?
I would say, so I'll expand on this a little bit more 'cause I could just say what I just said and I think that would be a fine answer. But compound interest or compound return is truly remarkable, like remarkable if you think about it, in terms of how much you can make over time if you just keep at it.
So imagine you have a hundred thousand dollars right now in savings and imagine you're like in your late thirties or 40 or whatever and okay, well it might be another 20 years, another 25, maybe 30 years till I retire or I feel like I need that money. And if you can get 15% a year, which is a lot, but I'm just using this because it makes the math easy.
Think about how much money you could make if you just kept at that 100k and you didn't put another diamond and you just compounded that at 15%, 'cause at 15% you double your money every five years. So in five years, that 100k will go to 210k, it'll go to 400k, in 15 it will be 800k. In 20 years, it'll be 1.6 million. In 25 years, it'll be 3.2 million. In 30 years when you're retiring, it'll be 6.4 million.
So just that 100k today that you may have saved up in 30 years if you just kept at it. And 15's frankly, yeah, it was a little high, but it just made the math easy for a doubling every five. If it's a 10%, you double every seven, so you just do that.
But you know, over seven years, you can earn multiples of your money and it really goes kind of parabolic in terms of the longer you keep at it. Starting early. There's no better time to start than the present. So even if you were talking about starting today, right?
You didn't do anything up until this moment and you're kind of in your late thirties or 40 or whatever. Like even if you start today with that 100k and you don't put another dollar in and you just keep going at it, you're gonna have multiple millions by the time you're 70.
Hmm. So good. Yeah, I think the idea of compound, it's like mind boggling hard for people to find. Yep. It reminds me of when they say a penny doubled every day for a month. At the end of the month is 5 million. And I feel like people don't believe that and you could fact check it and all of that, but it's just incredible to Davis's point of just the compound interest really, really adds up.
And I think it's kinda like in the later innings that you actually see that really come to fruition. So it requires kind of that patient and long-term view that Davis has been talking about.
Well, that concludes another episode of the Thoughtful Realtor. You can find us at willowmar.com or on Instagram at @thoughtfulrealtor and let us know what things you had questions about on this podcast and if there's anything investing related that you wanted to chat through.
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