ποΈ Interview Oguz O. | π Capitalist
Hello friend! π
My name is Yorrin, also known as ββFluentinvalueββ.
I am pleased to have you here for another interview! Today we are interviewing Oguz O. aka π Capitalist.
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Oguz O. | π Capitalist
Iβve been an avid follower of Oguz due to his unique insights into stocks. He communicates why he would or wouldn't consider a company as an investment, has quality discussions, and solid foundations as arguments.
In this interview, we will:
Get to know Oguz
Hear about his journey
His contrarian look into stocks
What he prioritizes in his investable universe
How he overcomes challenges
And much more!
If youβre not yet following Oguz, check out his X & newsletter:
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Tell me a little bit about yourself. Who are you, where are you from, how old are you, and what are your hobbies besides investing?
I am a lawyer by education, 27 years old, originally from Turkey, and living in California. I have always loved reading, and I am a European cinema enthusiast. I am a big fan of Godard, Claude Berri, Nuri Bilge Ceylan, Asghar Farhadi, Michael Haneke etc.. Most of my free time is spent reading, watching movies, and going to the gym.
Can you share your journey into the world of investing, highlighting the pivotal moments that shaped your approach?
I went to UCLA School of Law. If you donβt know, most people come to law school because they are academically talented, they canβt find what to do with their lives and they want to get rich. Law School looks like a perfect path for this. You get into a T14 law school, then start working in a Vault 100 law firm, grind for 8 years, and voila! You will be wealthy.
At UCLA, we had a great tax & business law professor and he also knew why most people go to law school. He once told us that we should have gone to business school if we wanted to get βreallyβ wealthy and said, βFounders make way more money than lawyers, but investors make even more.β That struck me.
If you take Business Associations and Securities Regulation in law school, you already have a good understanding of how businesses work. Upon that, I started to read every book about business and investing I could find.
I remember it took 1 month for me to read The Intelligent Investor. I was highlighting everything I found important and I was spending hours understanding the material. Then it took 3-4 months to read the Security Analysis. But then, I was enlightened. Investing suddenly looked very easy, it was no different than sudoku.
For a while, I was a pure, Grahamian value investor. However, as I read others like Peter Lynch, the pure quantitative value approach suddenly started to look dull and as I read others I started to create my philosophy.
I currently describe myself as a mixed breed. I use a barbell portfolio. I have some foundational stocks like American Express and UnitedHealthcare bought at attractive prices. They ensure stability and consistent growth of the portfolio. Then I have some growth stocks with competitive advantages again bought at attractive prices. Their growth over time gives the portfolio an edge over the index.
What principles and experiences have most influenced your investment philosophy over the years?
Donβt invest in stocks, invest in business. This is the first one to start with and perhaps the most influential one.
Buying exceptional business at fair prices is also an obvious one. I also think ignoring the noise is a big one. If you want to make money in investing you have to be willing to bet on what other people donβt. I experienced this myself with Matson. Shipping company which was very undervalued in 2022. It had an obvious competitive advantage because it was the biggest carrier between the US and Hawaii which has a really small volume. I bought the stock, it went to $80. Everybody was selling it was now fairly valued and I sold even though I thought the opposite. Itβs $120 now.
There are so many examples like this one.
As a selective contrarian investor, what core beliefs set your approach apart from conventional investing strategies?
Firstly, I have 0 belief in the efficient markets theory. If the market was efficient, Warren Buffett would be working in a grocery store.
Second, I think all investment decisions are value decisions in the end. Your thesis may be based on pure undervaluation or growth but you have to assess whether the price is attractive. This is where most people stumble. They see good companies, and they invest but they get disappointed because the price isnβt right. Itβs not about the business, itβs about the price.
Apart from the well-known selective contrarian investing principles, I donβt have my magical formula. I just can say most people lose money because they act like VCs in the market. No. Venture Capital and common stock investing are completely different. VC is story-oriented, and stock market investing is price-oriented.
Can you walk us through your process for identifying and evaluating undervalued stocks with a wide moat, using specific examples?
I always start looking at the S&P 500. You must have a very good grip on these large companies. If I see an obvious undervaluation in an established large business, I donβt venture into unknown realms.
Then comes the smaller companies you have long been observing. When these companies hit an inflection point you just understand it. For me, itβs generally profitability. If the company becomes profitable I take it into my shortlist, I observe the earnings growth for a couple of quarters.
After I spot potential investments I just do a quick fundamental analysis. The first step is always understanding whether the company has a moat. If it doesnβt, I always skip. Then I look for consistent revenue growth and a solid balance sheet.
Lastly, I do very basic valuation. That should be enough. Charlie Munger says he never saw Buffett doing the DCF model. If you canβt rely on simple valuation, you will speculate. If the company doesnβt have a moat, you canβt rely on simple valuation.
What qualitative and quantitative factors do you prioritize when determining the strength and sustainability of a company's moat?
There is no one-fits approach. You should understand the market characteristics. If itβs a winner takes to market and your company is not a winner, this is a problem. But if the market can have many great companies at the same time then we should look at the factors like network effects, entry barriers, exit barriers, capital-intensive nature, etcβ¦
After you have some qualitative assumptions, you may justify them by looking at ROE and gross margins.
Wide moat companies generally have above industry average ROE and they charge higher premiums than the competitors.
Could you delve into a recent investment decision, explaining your reasoning and the outcomes you anticipate?
The last stock I bought was $ALAR.
Its primary business NetNut is a fast-growing provider in the fast-growing web data collection market.
The company became profitable a few quarters ago. Its end-to-end service offering creates a moat around the business thus it has a staggering 1.66 retention rate.
The market is not winner-takes-all which is an advantage for a small business.
The market is expected to grow 29% annually and hit $17 billion in 2030. The market research was before the AI race, now there is so much more demand for publicly available data.
If it can capture just 10% of this market and you attach a very conservative P/S ratio of 2, you get a $3.4 billion company in a few years. Itβs worth $250 million now.
I expect it to make 10x in the next few years.
In your experience, what are the most prevalent pitfalls that investors encounter when searching for undervalued stocks, and how can they be avoided?
Value traps. People look just for undervalued companies based on the current cash flows. No. You have to look for divergences.
Something like increasing earnings but declining stock prices. Even after you find that you have to make a price-dependent decision. What is the appropriate multiple to pay for that company? Maybe it isnβt undervalued now, maybe it was overvalued before.
You have to look for divergences and then make a price-dependent decision.
What methods and resources do you rely on to stay ahead of market trends and uncover hidden investment opportunities?
I donβt try that hard. Good opportunities should be obvious. Buffett calls these βfat pitches.β
Once you start looking for the hidden opportunities that no one but you knows, you essentially start speculating.
Ask yourself: Doesnβt it sound so arrogant to believe that nobody but you can see this opportunity?
Well, I am not saying it canβt be. But is closer to venture capital, not stock market investing.
I just observe the market, look at my X feed, and research companies I heard about here and there and thatβll be enough. If you push hard to find 100x stock, you will 99% lose money, and you will lose it very fast.
Can you provide a detailed analysis of sectors or industries you currently view as undervalued, and explain the underlying factors driving your perspective?
Utilities, energy, discretionaries, and healthcare are the most obvious ones.
Healthcare has been forgotten for a while now, not because itβs not doing good but because itβs not sexy. People are so focused on tech.
Discretionary companies are undervalued because of the consumer pullback due to high inflation, they will recover.
Energy & utilities are interconnected. Data centers, Bitcoin mining, etc require immense electricity. On the other hand, people care less about sustainable energy resources and more about cheap energy in this environment so energy companies are making record profits but stock prices stay relatively low.
How do you balance the potential rewards of undervalued investments with the inherent risks, and what criteria guide your risk assessment?
One principle: Avoid permanent loss of capital at all costs. This is my guiding principle. If the earnings growth is consistent, the stock price will always follow.
This is why I never invest in companies with no earnings.
My undervalued picks also have a track record of consistent earnings and earnings growth for years.
What specific strategies do you implement to protect your portfolio from significant losses, especially in volatile markets?
As I have said, I am a big fan of the barbell portfolio. 50% of my portfolio is always allocated to foundation stocks that I pick from defensive industries like healthcare.
Can you recount a particularly challenging investment decision you've faced, detailing the obstacles and the lessons learned from that experience?
This should be obvious by now but I donβt do challenging investments. I think this is my edge. When I feel challenged, I just skip. I always remind myself there are unlimited opportunities and I donβt have to make money on that particular stock.
As a result of this approach, none of the stocks in my portfolio is currently at a loss. There are some underperforming and some overperforming, but all are above my cost basis because I avoid permanent loss of capital.
What actionable advice would you offer to new investors who are interested in adopting a contrarian approach, particularly in today's market environment?
Donβt follow the herd. This should be obvious. Herd can be right. But if you follow the herd you will end up where the herd ends up and the herd never ends up very rich. This is contrary to the nature of capitalism.
As Buffett says, act like you just have 20 decisions. Pick your stocks carefully and if you donβt understand the business, definitely skip. Then hold. Just hold.
How do you foresee the investment landscape evolving over the next decade, and what adaptations do you believe will be necessary for investors to succeed?
As Buffett said, itβll become even more like a casino. In this environment, staying sane will be your competitive edge while everybody else goes insane.
Donβt overpay and make it a habit. Use a barbell portfolio. Donβt diversify too much.
Most importantly, study business. Ask questions like whether the market leader can be disrupted if you are willing to invest letβs say $20 billion.
Donβt try to understand stocks. This is the key. Understand businesses.
What emerging trends or technological advancements do you predict will have the most profound impact on the investment world, and how are you positioning yourself in response?
An aging population, weight loss, healthier nutrition, and sustainability are all megatrends. Tech is always unpredictable and itβll stay this way.
I am trying to spot those winners in megatrends early without compromising my principles.
For instance, I believe $SG will be a huge winner. It benefits from two of the megatrends: Weight loss and healthier nutrition. However, I havenβt invested in the stock yet. Itβs not profitable. I will do it when it becomes profitable.
If the business you just picked will be a huge winner, it shouldnβt be a problem to miss a few percent or even some baggers before itβs profitable.
In what ways has your presence on social media platforms like X (formerly Twitter) shaped your investment decisions and overall strategy?
I mostly observe attitudes.
I donβt look at what Fintwit says. If somebody in fintwit stones $SBUX after earnings I simply donβt care.
But if somebody posts a very negative comment about the experience outside earnings season and many people share the same view on comments, it gets me alarmed.
Social media is really useful as an early alarm mechanism for deteriorating fundamentals.
How do you view the role of social media in democratizing investment knowledge and influencing market behaviors?
Itβs both good and bad. If you know how to use them, X and YouTube are free universities. But if you donβt they may be toxic.
Social media is also good for arousing interest and it hugely benefits you if you build on that interest yourself. However, if you stay limited to social media knowledge, you will just end up losing and losing and losing.
Could you recommend a selection of books or resources that have significantly contributed to your understanding and practice of contrarian investing?
The Intelligent Investor is the foundation. Your horizon will widen significantly if you can also read Security Analysis but itβs not a must. Itβs a few levels harder than The Intelligent Investor.
Then Philip Fisher, Common Stocks, and Uncommon Profits. If you can harmonize this one with The Intelligent Investor, you will do very well.
Then go with Peter Lynch. One up on Wall Street and all the others.Β
Poor Charlieβs Almanack is a MUST. You can skip Buffettβs essays as they are harmonization of Fisher and Graham but you should read the Almanack.Β
If you read these you know all the things you need to succeed in investing. But itβs not enough.
You should read business books. For instance, I recently finished Hooked by Nir Eyal and it built my understanding of social media businesses all over again.
Is there a final message or insight you'd like to share with our audience about your investment philosophy, future projects, or the broader financial landscape?
As Buffett says, rule 1: donβt lose money; rule 2: never forget the rule 1. Religiously stick with this.
Finally, what message or advice would you like to share with your audience, especially those who are just starting their investing journeys?
A boring win is better than a sexy loss.Β
Donβt start investing thinking that itβll replace your regular income. This will lead you to trading and it rarely ends well.
β‘Lightning round
If you could go back in time and give your younger self one piece of investing advice, what would it be and how do you think it would have changed your investment journey?
Start early. Save every penny and get your hands on that first $100k.
That would have taken so much financial pressure away from me.
If you were to mentor a novice investor for a year, what core principles and strategies would you focus on to ensure their long-term success?
Understanding the key metrics for different businesses
Being patient
Trusting your judgment
Read religiously
Donβt rush, observe first. If itβs that great a few percent you leave on the table is not important.
Imagine you can invest in only one industry for the next decade. Which industry would you choose, and what are the key factors driving your decision?
Probably payment processors like $V, $MA, and $AXP. They thrive in every macroeconomic condition. They especially benefit from inflationary environments but even in times of crisis, people buy staples still using their cards.
They are safe bets anytime.
If you could eliminate one common misconception or myth about investing that you believe misguides many investors, what would it be and what is the truth behind it?
As I have said, most novice investors think they need to find winners very early in the process. This is nonsense.
Walmart went public in 1972. If you bought $1,000 worth of Walmart stock in 1980, 8 years after going public, your investment would have grown to $2.5 million.
Finding exceptional companies is way more important than betting early.
If you could have dinner with any three famous investors, living or dead, who would they be and what would be the main topic of discussion?
Charlie Munger
Warren Buffett
Peter Lynch
I would probably be more interested in getting life advice than investing advice.
β
Doβs and β Donβts
Do
Never buy stocks before the morning coffee.
Read religiously.
Wait patiently.
Discuss with others.
Bet heavily on your best ideas.
Donβts
Donβt panic sell.
Donβt day trade.
Donβt sell the winners just because they get expensive.
Donβt buy just because the stock looks cheap.
Donβt seek stock tips.
That is it for today!
Thank you for reading the second episode!
want to personally thank Oguz for taking the time and effort to answer all questions with his expertise and honesty
Iβve been a follower of Oguz's work for a while now and will continue to support and admire the work Will provides to us.
I recommend following Oguz over on X and start profiting from the knowledge and quality that Will provides.
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