Expert: Joe Magyer – The importance of an investing checklist

Bryce: [00:00:14] Welcome to another episode of Equity Mates, a podcast that follows our journey of investing, whether you're an absolute beginner or approaching Warren Buffett status. Our aim is to help break down your barriers from beginning to dividend. My name is Bryce and as always, I'm joined by my equity buddy, Ren. How you going? Alec: [00:00:30] I'm very good, Bryce. I'm excited for this episode. We've got an expert on here who we have followed for a while. We've known for a while and we're really excited to delve into it on the show. Bryce: [00:00:41] That's it. It's our pleasure to welcome Joe Magyer to the studio. Joe, welcome. Joe Magyer: [00:00:46] Great to be here. Thanks for having me. Bryce: [00:00:48] Just a reminder that before we get cracking, we're not experts, we're not financial professionals, we're not licenced. We're just here learning like you. And nothing on this podcast should be taken as advice. But Joe is a private investor with over 17 years professional experience across funds, management, equity research and investing and investment banking. Joe co-founded Lakehouse Capital and until recently was Lake House's chief investment officer and has managed to consistently outperform, which we're going to delve into in a moment. But let's kick. Alec: [00:01:22] Off. Yeah, Joe, before we get to that, we love to start by hearing about an investor's first investment. The story or the lessons that came out of it are normally quite valuable. So to kick us off today, what was your first investment? Joe Magyer: [00:01:34] Sure, sure. I was around 20 years ago, so I was about 20, was sophomore at the University of Georgia Go Dogs. And I made my first investment, which was in Amazon. You know, this was would have been around 2000 to show a probably 90% off from their highs dot com bubble fully burst. I love the product or the business to me was amazing that I could have such a great selection. Good prices and stocks and Right to my door were all very novel at the time. Business negative working capital funding that Jeff Bezos who owned a lot of it a lot of skin in the game so there's a lot to really like. I paid about $1 and sport adjusted terms, so today it's north of 120. I'd look to tell you that I still own shares, but I don't. Here's the here's the software college story. So all that sounds great. You nailed it. Unfortunately, I sold it about a month later. I just completely panic sold because the stock had fallen by a third. And I was like, I'm afraid I might lose more money. I need to sell. And that was my first investment. No later I did end up coming back to Amazon, and I'm a long time holder. Bryce: [00:02:51] Damn. Alec: [00:02:52] That hurts. Yeah, yeah, yeah. You had to be a pretty confident university student to think this stock is down 90%. The tech bubble has burst, but this is going to be my first investment. Joe Magyer: [00:03:03] Well, I suppose so. I think there's some virtue in being a little naive to, you know, and, you know, I kid. But if you go back to the Kobe crash, you know, some of the investors who did best there were one to ironically didn't have tons of experience. You know, they weren't people who'd been in markets for 50 years. They were like stocks are down huge in a short amount of time. Fastest crash ever. Maybe I should buy something. And sometimes it can be as simple as that. Alec: [00:03:31] Now, Joe from the University of Georgia, you made your way to Australia. You were working at The Motley Fool and you co-founded Lakehouse Capital, which is Motley Fool's, I guess, asset management arm here in Australia. Can you tell us about that journey, how you made it, made it to Australia and what you learnt along the way? Sure. Joe Magyer: [00:03:50] So I've been the fool at HQ in Alexandria, Virginia outside DC for about six years and they were looking for an experienced investor to come down, join the team, which at the time was no handful guys around the kitchen table like Scott. Scott Phelps, the only full time investor at the time, and work with Scott and help build the team and, you know, be here for a couple of years. And I'd just gotten married and I saw we wanted to get some international experience as an investor. And so I just thought it was an awesome opportunity to live in a country I'd always wanted to visit, to work with Scott, to admit at the Berkshire meeting the year before and loved, really hit it off with him and just be in a really entrepreneurial environment. And it was like, wow, it sounds like a great opportunity. So we came down and. Dot, dot, dot stayed for nine years and two kids started in science business. So yeah, it's pretty full on the I guess the dot dot dot so initially focussed on small caps that Australia which was so much fun for me because I had no background with Aussie smarts. So to me it was just super invigorating and refreshing and to be like, okay, what are all these companies and just diving into this whole new universe? Long story short, over three or four years kind of developed a following doing that. And then we had people who said, Hey, would you like to just do this for us? And that was kind of the impetus for us and I don't even care. And I set that up within Australia probably five or six years ago now. And by the time I left we were running a little over 900 million, about 20 funds. It was a ride and an amazing experience and investing experience. Bryce: [00:05:39] So from the point of your sophomore investment in Amazon to that point of almost managing $1,000,000,000, how would you describe the investment philosophy that you developed and that you probably still have today? [00:05:52][13.3] Joe Magyer: [00:05:52] Well, fortunately, I kicked off the panic selling thing early and with my own account, the small amounts of it. Yeah, I suspect most pros have a similar story. They just don't want that. But you know, philosophically, I think really high level, I guess a couple of things to know. One, I'm entirely fundamentally driven as an investor is do a technical analysis with my process at all past that super qualitatively driven. So you know, yes, I do number crunching and I have a classic finance background. It's actually unusual for people of Motley Fool, you know, hardcore classic classical training. But that said, someone who spends a huge amount of time trying to stand the finer points of the business in a conceptual way. So understanding the economic model, the ecosystem reinvestment, potential managements, alignment of their incentives, their motivations, and the ability for a company to to reinvest in itself. And, you know, hopefully you're looking into business kind of businesses that interest me have, you know, might have a network effect, might have very loyal customers, unique IP. And if they have those and all those other ingredients in a market that is attractive, they might be able to take the profits they generate, reinvest a lot of it, get really good returns on that for many years to come. And that's kind of my sweet spot is finding those kinds of companies in practise. There are not many of them. So in addition to being very long term oriented, I tend to also be pretty high conviction. But this is a combination of these things where I don't have a lot of companies to meet my criteria. So when I do find them, tend to buy them, latch on and hang on for a very long time. And I'm also someone who this gets back to my kind of classical training that I read a lot of investing studies and white papers from a hardcore investing nerd. And, you know, I think what people talk about long term investing, they they oftentimes don't really understand some of the the support around it. But if you look at almost any study, you'll see consistently across markets and time investors who trade less and have longer average holding periods have better returns than ones who trade frequently. And yes, there are exceptions to the rule, but on average, you know, that's a very clear result. And all of a sudden you look at and, you know, another thing, you know, in terms of being empirically driven, it's always been intuitive to me to be a high conviction investor. It just suits my personality to put my capital behind a smaller number of my best ideas. But there are so many studies that show that, you know, a high conviction, investors tend to outperform those with lower conviction. And that comes in a lot of different ways. And I'll qualify this by saying I do think diversification is generally very important, so I hope nobody out there rest is off. Who puts all their money into perspective? Minor That's not what I'm saying. It's more like in a professional context. So professional context, high conviction would be like 20 holdings. You would say that's a high conviction fund. So just to give you some examples of what I'm talking about, there's one city I came across that showed the average or the largest holding in fundamentally driven funds on average was the biggest contributor to their performance. The second biggest holding was the second biggest and right on down. And what that showed was actually active managers are good at picking stocks on average. But why do they. I think a good question is why did they then underperform? You know, if they were, they're actually good at it. One is fees, but the other. There is, I think it's product design where they just own too many socks. So once you get past of stock number 30, the average pro starts to lose money from the new positions they add. And it makes sense, you know, because frankly, I personally only have so many good ideas. You can also stay on top of all only so many companies. So yeah. Anyway, those are things that are near and dear to me. This is how I think about investing. I kind of glossed over another thing, which is that I'm very much a growth investor. You know, I think of investing as a continuum and it's all about ranges of outcomes. But if you. Starbucks near Starbucks is growing pretty hard. Yeah. Probably the last last bit about me in philosophy. [00:10:19][267.1] Alec: [00:10:20] On that portfolio construction point. I feel like a lot of people get caught up in like the Peter Lynch. You know, I think he at the end, he had hundreds, if not thousands of stocks in his portfolio when you were not for professional investors, because I don't think there's a too many of them listening to us. But for retail investors, you know, when you're at The Motley Fool. [00:10:41][21.0] Joe Magyer: [00:10:42] To be honest. [00:10:43][1.0] Alec: [00:10:45] Well, for retail investors who, you know, are thinking about how they should construct their portfolio, do you have any rules of thumb for the right number of positions or, you know, the structure of a retail investors personal portfolio? [00:10:59][13.3] Joe Magyer: [00:10:59] Well, to go back to research, there are different studies on this one. One that's pretty popular is once you get to a portfolio of about 15 different positions that are randomly distributed in English, a diverse set of 15 different companies. So not just 15 different SASS companies, 15 gold miners, but a range of companies across market cap sectors. Once you get to that level, you've eliminated about 90% of volatility that's attributable to individual stocks. So really, you can buy more, but you're really you're not going to do much to reduce your volatility from that point forward. So on the one hand, I'd say you kind of get to that level. It's good you're going to want diversification, but if you doubled the number from 15 to 30, you're not even going to cut the incremental difference in volatility by half. I think a lot of investors, ironically, over diversify. Part of that's just people covering their butts in the industry because you see, you know, you want clients as many holdings as possible, but as an advisor or fund manager. But in practise, you know, 15 diversified holdings of the portfolio level reduces super majority of your volatility. [00:12:14][74.6] Alec: [00:12:15] Yeah. Now, Joe, we want to turn to Lake House and I think I just want to contextualise your time at Lake House with a couple of numbers because Bryce mentioned that you outperformed your benchmark, but we have the numbers here and they're pretty impressive. So Lake House was and correct me if those numbers are wrong, please, but Lake House was started in 2016 and in the small companies fund, the benchmark returned 11.9% a year. Your fund returned 24% a year net of fees. And then in the Global Growth Fund, the benchmark returned 12.7% a year and your fund returned 24.9% net of face. So now you didn't just beat the benchmark, you smoked the benchmark, and we'd love to unpack that. I guess your investing process and how you did it and really learn from your experience. So if we start at the beginning of your process, how do you even approach the discovery process? There's 2000 listed stocks in Australia. There's 40,000 or something around the world. Where do you start? [00:13:18][62.9] Joe Magyer: [00:13:19] So your process needs to be a continuation of your philosophy and your goals. So for me, the goal was always long term outperformance. And so working backwards from that, how do we build a portfolio that's going to outperform over the long term? And I think we do it by owning a high conviction basket of companies that have strong competitive advantages, good balance sheets, really good management teams with a lot of alignment. And those businesses can reinvest in themselves and grow at high rates for a long time without having to put too much capital back in the business to drive that growth and value. So how do you find those? And I would say sometimes companies like that can be straightforward and easy to find. So I've owned Visa for more than a decade and the whole time I've owned it, the businesses looked more or less the same. That hasn't really changed and it's screened incredibly well. You know, if you look on things like consistent revenue growth, you know, balance sheet being in good shape, you know, wicked margins, all those things, and yet it's done really well over that time with more or less the same thesis. But most great investment opportunities aren't so readily available off the shelf, in my opinion. And typically that means you have to do a little more work so you can do simple screens which are good jumping off points. But the thing with traditional screening is if you're just looking for, Oh, I want a company growing at this rate with these margins in this balance sheet, I hate to tell you, everybody's running the same screens. So you're going to end up looking at the same stocks. And, you know, for that, I'd say as far as looking for ideas, I would be curious and I would read widely and I would try to look at ideas that fit what you're knowledgeable about. You know, you mentioned Peter Lynch earlier. I think his advice sometimes get stretched a little far. But, you know, the spirit of his advice around not buying what you know, but what you know, inform your buying and research it. I would very much run with that. You know, most people have professional experience that they can relate to or they can just do a lot of research on their own and use that to help you get across ideas, but turn over a lot of rocks and try and turn over rocks that are in a space that's relevant to your areas of interest past that you know, and to try to like I won't get into like before like professional grade version. But what I will say is that I think something pros and beginning investors alike can do well with this checklist. And so any time we look at a new position, we do a checklist. I still do this. I run the same process personally, just with my own capital. I'm big believer in this, but if anyone's ever read a checklist manifesto, know what I'm talking about. If you haven't, I recommend it. But the spirit of it is using checklists is a great way to be consistent, methodical and rigorous with your process. And so you think about what are the qualities you look for in a business? Like what do you want to avoid? And each time you look at a new opportunity, just run through that checklist. It doesn't have to be 200 points. It could be a couple dozen, could be five, which is something to slow your roll a little bit just to be like, all right, does this fit some of the things that I'm looking for? And from there, if it passes that that's where we would go and do much deeper work and really dive into what's the core of this business model, what's the landscape like, who are the competitors? What kind of returns do we think this business can generate going for reinvesting in itself? What markets could it go into? Are its competitive engines getting stronger or weaker, or are they only chasing products and services they could do? And you get much more in the qualitative side and then into the financials too, and all the nerdy stuff and digging into valuations and risk whatnot. You know, I think if I was an individual investor I'd say or what I hope people would come away from, it is just trying to implement a little bit of a check in their process where they can be systematic. There is isn't overkill, but something to help them bring some. [00:17:30][250.8] Bryce: [00:17:30] Order on a big checklist kind of guy. So I'm going to give that book a ride for sure. So, Joe, once you, you know, you've you've decided that it's a great investment opportunity. You've done, you've identified it, you've done your research. And, you know, yeah, I've got high conviction around this. How do you then go about managing a portfolio of such a concentrated number of stocks? Do you let companies just run as far as they do? Do you trim positions? Do you sell the worst if another one is to come in, can you talk us through how you would manage that? [00:18:02][31.7] Joe Magyer: [00:18:02] I really dislike selling great companies again. I don't find that many that I really love and I generally find that when I sell on valuation, I tend to regret it later. You know? That said, there are points where my arm gets twisted every once in a while when a company's valuation just gets to levels I can't really tolerate anymore. Whatever, sell it. So, you know, go back to 2021. There were some positions that we exited that we were just like, we can't we can't justify continuing to hold this. We think it's an awesome business and Twilio would be the prime example of that. So I don't really enjoy doing it. But I will say to kind of look at my personal holdings won't be Amazon for a decade. Never sold a share for ten years, never sold share. Same with Alphabet. So, you know, hopefully that gives you a sense that there are times where I sell if my thesis is busted or I'm flatly wrong. Something else I'll say with selling is when I've looked at data on how good I am at selling. It's pretty mixed if I'm being really honest with you, and that's generally true with active managers. The research tends to show active managers are good at buying and not so good at selling. And when I did deep work on that at Lake House, what I found was I'd give myself like a B minus on selling, because the positive part would be that on positions where we saw the fund itself outperformed that position or at a benchmark, say, from that point forward. So we re reallocated well. It's the spirit of what I'm saying. The problem is what we sold outperformed the benchmark. Sell, sell. The stuff we sold did really well. So it's funny because I find selling is, is much more difficult than, than the buying part. Which in a way, this kind of also gets back to the you know what, I'm good at the buying and I'm good at this. So I think I'm going to try to focus on those as much as I can. [00:20:06][124.2] Alec: [00:20:07] My conclusion from that study is that you're really good at identifying stocks because the stocks that you sell keep going well and the stocks that you then buy do well. So it just sounds like the stocks that you identified do well. [00:20:19][12.2] Joe Magyer: [00:20:19] Well, I'll take that glass up. [00:20:21][1.6] Bryce: [00:20:22] Just a quick one on that, Joe. So let's take Visa, for example, or Amazon, which you mentioned you've held both of over a decade or so. And so the assumption there is that your thesis hasn't changed. You still think they're great businesses. How do you then go about buying into those companies over a decade? Are you just taking every opportunity where there's a dip to jump in or have you not bought is consistently over ten years. It just happens that you got in a great point in the year letting them run. [00:20:51][28.8] Joe Magyer: [00:20:52] Yeah, good question. I've averaged up into each of those over that time, ten years, a long time. You know, at Amazon on average, the last time I did this study was a couple of years ago, went from the IPO up to then it sold at an average price of like 27%. It's an all time below its all time high. So, you know, even though over that time it's gone, if you just skipped all the drawdowns, it's gone up in the red. But of course, there are drawdowns. They happen all the time. So there are windows where, you know, even great companies with a long history of value creation get kicked to the kerb for all kinds of reasons. And, you know, with Amazon, it's usually the winner or a new investment cycle and everyone's like, no sell off and everyone gets really concerned about margins. And then, you know, three years later they come out and they're like, Oh, this business can still generate a cash. So I tend to average up on those, but at the same time with some of those positions have gotten kind of large for me. So just in terms of my portfolio mix, and it's been a while since I've bought more Amazon, it's just to do chunky for me. Yeah. [00:21:57][65.6] Bryce: [00:21:57] Fair echo. [00:21:58][0.2] Alec: [00:21:58] Yeah. Well, Joe, we're going to take a quick break. And when we come back, we want to talk about what you're doing back in America now and also some conversations around private markets. But before then, we'll take a quick break to hear from our sponsors. So, Joe, before the break, we spoke about your time at Lakehouse Capital, how you smoked the benchmark and some of your investing process to identify stocks. You started in America, you came to Australia and you've recently moved back to America. So, you know, we really want to understand, I guess, the similarities and the differences between the two markets and then get some advice for, you know, Bryce and I, Australians who often look to American stocks for investment opportunities. But let's start with the two markets. How are they similar? How are they different? [00:22:48][50.2] Bryce: [00:22:49] Which one's better? [00:22:49][0.3] Joe Magyer: [00:22:51] They have a lot in common. You know, I think it helps Australia in America or cousins or at least half sibling and right out the same mother. So it's a lot of heritage. I'd say the regulatory frameworks are pretty similar or frameworks similar. I'd say each has their strengths. I'd say the U.S. market is it's larger, it's more liquid, it's more developed, and it's home to maybe not most, but many of the world's great growth companies. That list are listed in the U.S. Atlassian. When they listed, they chose to list in the US, but I'm sure was until they took immense flak for it. But they did that because that's the market that has the deepest appreciation for high growth technology companies. So if that's your bag, then it's a really attractive market to be looking. That said, there are plenty of great growth stories on the ASX and something that is attractive about the ASX versus the US market is it's frankly much less picked over. So you have a lot of really high quality companies where, you know, we would meet with management teams sometimes that is on the small end of town, but they would have occasionally almost no or sometimes zero analyst coverage from people working at brokerage houses, you know, and so you could find some really, really undiscovered opportunities quicker in the smaller town here in Australia, you know, I mean, I say this, sit here, I'm still going. I think the market is very top heavy, but I would say I view that a good way as someone who is trying to find mispriced growth companies, because most of the people in the market, the pros, have training around mining, retail and banking. As it happens, I don't really focus on any of those places because they're capital hungry and or cyclical. So they're kind of left, you know, the couple of thousand other companies to choose from. And there are a lot of really attractive, smaller growth companies in Australia and they, you know, new ones come to the market consistently. And if you look at returns for Australian small cap managers collectively they're actually pretty good compared to most active managers globally. And I suspect that's why, you know, it's, it's far away like timezone wise. I mean it's, it's your 10 a.m. it's by 7 p.m., right. You know, it's it's hard for people in the U.S. or Europe to kind of swoop in and meet with Australian companies. So people in Australia kind of, you know, first pick first sins and usually are well ahead of picking the local winners. So know I think each market has its strengths and I just try to deploy to them and see what, what, you know, what aspect of market it suits you and what you want to do. [00:25:41][169.8] Bryce: [00:25:41] If it wasn't retail banking or mining, what were the sectors or what are the sectors that still excite you or where are you finding more of? There's opportunities. [00:25:51][10.1] Joe Magyer: [00:25:52] So with the caveat that I'm set, I'm sector agnostic and I don't really care what industry a business is in or a sector it's more do I think this business has a business model and competitive advantage? Is that going to allow it to generate great returns over time? So if I thought miners could do that, I would invest. [00:26:11][18.9] Bryce: [00:26:12] Yeah, yeah. [00:26:12][0.4] Joe Magyer: [00:26:13] That'd be fine. And I know there are some investors who focus just on mining and some of them do very well. There's some who just do back and they do well. That's cool. I respect that. But if you're a super long term oriented investor, you want to focus on industries where there's secular growth, that the business models tend to be capital way, that when a business catches fire, it really gains. You know, it doesn't just spark, but it really burns. And you know, where you find those kinds of business tends to be in i.t. They're not all native, but they a lot of them times are and not always. But you get that way across. Probably two thirds of the holdings we add 70% over time. We're in it. Let's say a lot of the positions we had that weren't technically in 90 or 80. So, you know, you could have like pro medicus, which was under health care, but it's a software company. Yeah. But, you know, we're we spend too much time thinking about second wave. I give an example, we bought Coast our group, which is kind of like the Bloomberg for commercial real estate in the US and that was a position in the Global Fund. And after we bought it, Nick Thompson is now the manager of that funds. Yeah. So by the way, that's an industrials. So we finally own an industrial and I think we do that because we got so many hours of work and deep research on it, you know, paid no attention to the label. [00:27:46][93.4] Alec: [00:27:48] Well, Joe, you as we mentioned, you moved back to America. And I believe you're in Austin, Texas, and you're now looking at private markets and in particular venture capital a little bit more after a, you know, a decade or more of success in public markets. Why the shift and what are you looking at in they. [00:28:08][20.0] Joe Magyer: [00:28:09] I that's a great question. I think when when I sit back from lake house I love the team. They're basically just kind of a fresh start for me with moving back to New Country again and how do I want to spend the next 20, 30 years investing? And when I thought about what interested me most and frankly, where I thought I could do really well, was taking my skills and moving earlier in the company's journey. So the over the wall arc of my career, I've gotten more growth focussed and more focus on smaller companies. And you know, I tend to think my strengths as an investor are wrapping my head around the conceptual level of the business, but also breaking down the, you know, the unit economics of the business itself and thinking about the opportunity. And if I feel like those are my strengths, then why not take that to the logical extreme and go, you know, as almost as early in the company's lifecycle as possible? So that's where I've been focussing. I still do public markets about public markets, but where I'm allocating new money is towards Angel Stage Pre-Seed stage investments, where these are companies that have just started getting traction. And so they've got a product, you're starting to get revenue, but they might be less than a year old. My latest investment, I'm the first investor through the door with them. So these are small, young companies. They're intrinsic rewards for that. But I'd say on the more to the financial side, you know, the returns can be pretty compelling. When you're right and you're wrong, you know, you get a donor. But that isn't really all that different for public markets in that sense. And I think most investors would be surprised at how they're there. I think a lot more similarities between the markets. Some people would appreciate I'm. [00:29:53][103.5] Bryce: [00:29:53] Able to shed light on any of the investments that you've made or they're exciting you at the moment or trends that you're trying to keep in touch with. [00:30:00][6.7] Joe Magyer: [00:30:01] Yeah, I think high level when I'm well, I probably keep a high level. When they go down to a high level. What I'm trying to do in private is very similar to the public and I know there are people would say they're very different things and to some extent that's true. But at the same time, I think if you can understand product and markets, well then, you know, you're off to a great start. And so that's where I tend to focus as an angel. And I guess to get more and more context around angel verse into. And part of the appeal for me is that, you know, again, to get back to competition, this is an interesting narrative. You're always, always I am always trying to think about edge and where can I go to to maximise my return, especially relative to my risk. And if you look at different studies on angel investing over time, you know, the average return across studies in the US is something like 22%. In the UK. I've seen studies like 24. So the returns on that converted is, you know, 10% long term public equities are pretty attractive. Now granted we did, you know, in the twenties, you know, like us nets so you could say why not just stick with public. But you know, maybe it's like a competitive part of me and the optimist that's like, well, you know, if the average person doing this can pull down, you know, mid-twenties returns, well, see what I can do. Yeah. Now, you know, that's the upside to it. What I'd say is different. You know, there's the risk side, I guess, in terms of competitiveness, you know, why is it I think it's could explain why a public market or private market returns the early stage better than public. So what is risk? Something like 50% of angel investments are losses and those losses are usually zeros. So while, yes, the winds are bigger, you know, you have more losses. I will caveat, though, by saying that, you know, there's a study of JPMorgan updates every well every well where they look at concentration. And one thing they'll talk about is in public markets in the US, something like 40% of investments end up falling by more than 70% from their all time high. And they don't come back so. Well, you know, early stage is. Investing in venture is riskier. It's not. I don't think the difference in risk is quite as large as a lot of people think, both in terms of odds and magnitude, but the magnitude of being right is much larger. And so that kind of speaks to me. But in terms of competitiveness to something else, you know, you're investing in these companies. You're giving them money. You're giving money to the company at their earliest stages. This is not your buy in share second hand stock exchange. So liquidity is out the window. So you're invested with this company for you know, it could be three, seven, ten, 15 years in extreme situations. So you're making a super long term bet, which is my interest in personality, a style that doesn't suit everyone, does it suit everyone's liquidity profiles. And, you know, the last aspect kind of get back to why it's interesting, but also why the returns are so good. It's not anyone can do it. So there are rules in Australia and the US around who can invest in Start-Ups and you have to be an accredited investor in the US. I'm blanking on what it's called in Australia a sophisticated. [00:33:20][199.8] Bryce: [00:33:21] Aristocrat. [00:33:21][0.0] Joe Magyer: [00:33:22] Which basically their income thresholds and actual asset thresholds where they're trying to protect people from making very speculative investments. So to give you a sense of how narrow that universe is in the US, there's something like 3000 people have made an angel investor in the past couple of years, 145 million Americans without a common stock. So it's great. There are a lot of people engaged in the share market and they absolutely should be. But, you know, overall, it's a great way to build wealth over time. But for people who have the resources, risk, tolerance and willingness to spend the time on the private side, it can be pretty compelling. [00:34:00][38.6] Alec: [00:34:01] The investment analysis process is quite similar. Whether a company is publicly listed or privately listed. You know, you're looking at the unit economics of the business. Can they generate free cash flow? Can they reinvest that free cash flow into growing that business? When when we think about the difference, I guess the way I think about it is like access by analysis. In public markets, you have access to everything and edge comes from your analysis of those opportunities. Whereas in private markets, your edge often comes from access, getting access to the best deals, having the best deal flow, having the best relationships. For someone who has been in Australia for a while, going back to America and I guess having to build those relationships and find your way into these Start-Up Circles to get good deal flow. How have you found that? And for any budding age angel investors out there, any advice for them? [00:34:54][52.9] Joe Magyer: [00:34:54] I think you need to just put yourself out there. And yeah, I mean, I definitely ironically have a bigger investor network in Australia, but I think if you just put yourself out and let people know what it is you're interested in and you're proactive on finding opportunities, that's that's the start. There are accelerators. If someone wanted to learn more about Angel investing through Techstars, which which I was mentoring with, I believe they did at Techstars Melbourne focussed around sports quite a bit last year. I don't want to say there another in Sydney that might be coming up. There's stuff out there to help support that and facilitate angel investing. One thing I will say about angel investing is you do need to turn over a lot of rocks. And this is part of the reason that frankly, not a lot of people get into it because the average angel looks at something like 40 deals for every one they invest in. And if you think of it as work, you want to spread your bets pretty widely because, you know, there's a very wide range of outcomes within the space. If you want to invest in ten companies, multiply that by 40 and you think about, wow, how much free time do I have? Yeah, I'm doing this full time. So, you know, I dedicated myself to it and I have the luxury of being able to do so. But, you know, it's a good reminder of that. So it's part of the reason that the excess returns are there is because of the kind of barriers to entry and deal flow. Again, I think a lot of it it's just put yourself out there and just be proactive on trying to meet founders and let them know what it is that you're interested in, how you want to support them. One thing I'd say on comparing public and private, I think a lot of the work and the research is similar. You know, the big differences would be on the private side. You're thinking a lot more about runway. You know, when you're investing in public companies, it's pretty rare that we would ever have a conversation about the risk of them running out of cash in private markets. That's a pretty early pretty early question is, you know, what's your runway? What's your burn rate? You know, understanding who the other investors might be. So if there does need to be more capital coming in, where does that funding come from? [00:36:59][125.0] Alec: [00:37:00] Well, we are we are almost running out of time. And we do like to end with the same final three questions. So we'll quickly move to them. The first one is, do you have any books that you can? Sit up. Must read. [00:37:13][12.9] Joe Magyer: [00:37:14] Yeah. I'm a big fan of I'll tell you about a book that I haven't heard many people talk about School of Art and Profitability. It's by Adrian Slywotzky. What you find on Amazon and I think it's a great book and what he does in the book is he breaks down 23 different business models, not profit models or economic models, however you want to put it, the 23 different frameworks that companies use to generate money, and it's someone who really is just a student of the business and really just enjoys reading about this kind of thing. I think it's a great way for someone who is trying to build fundamental chops as an investor to read about a lot of different ways that business models of ways companies can make money. So I think that one that's pretty, pretty underrated. [00:37:58][44.1] Alec: [00:37:59] Yeah, that's great. I've never actually heard of that book, so I'll be jumping on Amazon after this and picking that one up. [00:38:04][5.3] Joe Magyer: [00:38:05] Too. [00:38:05][0.0] Alec: [00:38:06] So the second question, forget valuation, forget investing in it just purely on, you know, the fundamentals of the company, what it does, who runs it was the best company you've ever come across. [00:38:16][10.8] Joe Magyer: [00:38:17] Well, I'd probably go back to Amazon. So as a business, a touch and go with for 20 years now. But over that time it's consistently been super long term oriented, super customer focussed, very focussed on delivering value for its customers. You know, it's something I've learnt as an investor. It's something I always focus on, even in particularly the initial stages. I always value delivering for your customers. Is that a focus? And if you're more focussed on delivering value for them with still having, you know, attractive economics on your own. You know, I think over the long term they can treat you really well. You know, it's a business that's just executed at a very high level for a long time. I managed to build a lot of loyalty and extend that. So, yeah, probably. [00:39:00][42.8] Alec: [00:39:01] And then final question, Joe. If you think back to younger self buying Amazon and then selling it a month later, what advice would you give to your younger self? [00:39:09][8.3] Joe Magyer: [00:39:11] Calm down. Yeah, you know, you know, again, kind of getting back a checklist thing. I think if I just had something right written down, why did I buy this and just take even just a few minutes to write that down? It probably would have been helpful when the stock fell over the next month. I kind of look back to that. I bought this for good reasons. Maybe I don't need to be so emotional, and that's part of the reason I'm big on checklists and just writing down an investment thesis. [00:39:40][29.2] Bryce: [00:39:41] And so yeah, I think it's something that I learnt and will have still trying to develop as well, but just writing down if it's 50 words or 500 or whatever it is. I think just having that there for moments like we're experiencing now where portfolios are down, remind yourself why you bought into them. Great piece of advice to finish on Joe. So thank you very much for your time. We certainly appreciate it. I know that the audience would have taken a fair bit of action out of that. So we appreciate it. And all the best for the for the private market stuff. Looking forward to seeing your name in lights if you become the next Andresen or whoever it may be. Thank you very much. Joe Magyer: [00:40:18] Thanks, guys. Really appreciate coming on. It's really fun talking to you. Thanks, Joe.