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Investment Thesis Tracking: Tips and Tricks for Success

HOSTS Alec Renehan & Bryce Leske|26 October, 2021

In this second installment of our three part series on building a thesis, Bryce and Alec talk about how to track your thesis, how often to revisit it, and how to understand when your thesis is broken. They look at how developing a good thesis can help you avoid mistakes and issues, and then talk through a few examples that we can all learn from.

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Bryce: [00:00:26] Welcome to get started investing in this podcast, we cover all the basics that you need to start your investing journey. Are you joining us for the very first time? Is this the very start of your investing journey? Well, before you dive into this episode with us, our feed is designed to go from the very beginning. So we strongly recommend that you scroll up and started episode one. However, if you're feeling brave and just want to dive in, don't let us stop you here at Jaci, we unpack all the jargon and confusing bits. We hear your investing stories with the goal of making investing less intimidating. And of course, we have a good time along the way. My name is Bryce and as always, I'm joined by my equity buddy Ren. How's it going? [00:01:08][41.8]

Alec: [00:01:08] I'm very good, Bryce. Great to be with you again. I always love your intro where you only introduce yourself about eight sentences in. It's very tight. [00:01:17][8.8]

Bryce: [00:01:19] Look, twenty twenty two I think might be the year of the new GSI intro. Wow. My goal is to be able to memorise it, which I've done obviously. At Equity Mates, this one still need a few notes in front of me to get it [00:01:31][11.7]

Alec: [00:01:32] Well, they say they say don't make New Year's resolutions because like, there's all this build up and then like, you have the day and then it's like, you generally failed. Just if you want to change something, just change it. [00:01:42][10.3]

Bryce: [00:01:42] I'm not saying it's a general two thousand. Just do it now. Yeah, OK, I'll work on it. I'll work on it. But look, we are here. And for the second instalment of our three part series on building a thesis, this is continuing on with our master classes of back to basics. Investing fundamentals and thesis is incredibly important. But before we crack in Ren, just a quick reminder to everyone, we do have our get started investing book available for anyone to buy leading into Christmas or if you know anyone in your family or group of friends who are looking to get started, make sure they go and check out our Get Started Investing feed book covers a lot of stuff that we do talk about on the show, plus [00:02:21][39.1]

Alec: [00:02:22] a lot, lot more. We actually specifically asked our designers to make it look great wrapped under a tree. So it is a great Christmas present, if only for the look in the feel in the lead up to Christmas. That's it. That's that's really what you want in a Christmas book. Yeah, yeah. Don't worry about what's inside. Feel you want people to really that anticipation leading up to the big day. But look, this is episode two of our building a thesis chapter. And in your extremely long intro, you say, you know, we want to make investing feel less intimidating. And I think this chapter of all the chapters is where that intimidation is really quite high. When we're talking about building a thesis and hopefully over this episode, the next one and the previous one, we can make it a little bit less intimidating. The real focus for us in this episode and this chapter is to just keep it simple, keep it simple. So if I go down a rabbit hole, pull me out. Yes, keep it simple. Drag me out by the scruff of my neck easy.

Bryce: [00:03:26] I'm more than happy to do that. So if you have joined us for the first time today, firstly, thank you very much and welcome to the Get Started Investing feed community. We're stoked that you are looking to start your journey in the first episode or the one previous to this. We discussed what to say. This is why you need one and had a couple of examples of what a thesis looks like and sounds like. And today we're going to talk about how to track your thesis, how often you should revisit it, very important, and then how to understand when your thesis is broken, as well as closing out with a bit of a game around around that topic. You know, we'll discuss and thesis statements and determine whether they're broken or not. Sure. 

Alec: [00:04:11] So a thesis, in a nutshell, is why you think this is a good investment? Yes. Why do you think you're going to take the money that you've worked so hard to earn and put it in a particular thing as opposed to all other things out there?

Bryce: [00:04:28] Yeah. Why is that the choice 

Alec: [00:04:30] where we want to start this episode is how you track it, because it's all good and, well, having a thesis. And I think, you know, we've all fallen into that trap of at the time being like, I have a very clear idea of why I want to buy this ETF or why I like this fund manager or why I want to buy this stock. And then two minutes later, you forget 

Bryce: [00:04:48] 10 minutes, 30 seconds. Why are you buying it? Like, why am I doing? 

Alec: [00:04:52] Yeah, yeah, yeah. Two months later, you're like, I kind of remember that name that was. I kind of remember there was like a moment of inspiration, and I was like, I've got to buy this and I got to buy it now. Yeah, but for the life of me, I can't remember what that was. 

Bryce: [00:05:05] Yeah, you might hear an expert talk about a stock, so you write the stock name down and then three weeks later, when you're reviewing your notes and you're like, Oh yeah, I remember they said something good about that stock but couldn't tell you what it was going to buy it. 

Alec: [00:05:17] Well, the great thing is, these days, if you heard an expert speak about it three weeks ago, most content is on demand, so you 

Bryce: [00:05:23] live by listening to them live. Oh yeah, 

Alec: [00:05:25] yeah, yeah. A lot of a lot of fund manager live talks over the last 18 months. Yeah, I. 

Bryce: [00:05:31] The shopping centre walking past. 

Alec: [00:05:35] That's right. That's why Bryce got a job at Woollies so you could eavesdrop on shoppers compensation 

Bryce: [00:05:40] fund managers in 

Alec: [00:05:41] shopping. Yeah, yeah, yeah, that's why you got a job at Double Bay Woollies.

Bryce: [00:05:47] But anyway, Ren how to track it. Firstly, what is tracking it? Why do we need to track it? How do we track? 

Alec: [00:05:52] So I think the main thing is there's a record of it and how you do that is completely up to you. There's no right answer. Most people will go with write it down option. But if you want to create a private podcast feed, only you have access to if you want to do voice memos on your phone. If you want to start a YouTube channel and record your face like there is no 

Bryce: [00:06:12] that could be good content

Alec: [00:06:13] could be good content. Yeah, there's no right or wrong way to do it. The main thing is that it's written down. It's clear so you can refer back to it and consistently adding to it as you're investing. As we spoke

Bryce: [00:06:27] about, it doesn't have to be massive, doesn't have to be long, doesn't have to be confusing or overwhelming. The main thing is you just stick to a process and it will change over time. I'm sure like the way that I've approached it, the way that you've approached it, what we write down, what we include in it have all has changed over time. I mean, I'll be honest, I originally never wrote anything down. I would never do a thesis. And that's why we've done this podcast to learn what's good at etiquette when it comes to investing. 

Alec: [00:06:52] And yeah, well, I didn't used to do it because I was intimidated by the idea of it. Like, if you say, investment theses from expert investors or from fund managers or you say those broker reports that come out, it is dense and it is deep and it is complex and it's so off-putting to think like, is that the level of detail? I need to go into it to do it. You see funds or people with, you know, like a hundred page PDFs of their investment thesis, all like hundreds slide parks explaining their thesis. And you're like, Is this what I have to do every time I want to invest? Yeah. The good news is, you don't know. Good news is that a thesis is it's a piece of string like it's a however long you need it to pay is up to you. And for me, and this is just my view, and I'm sure there are professionals out there that disagree, but I think that experts hide behind like, 

Bryce: [00:07:47] Oh yeah, they will try and make it as long and as jargon filled as possible to try and potentially cloud a very ill formed 

Alec: [00:07:55] space to unfold themselves and other people that think that it's a good investment. If your investment thesis is bigger than the company's business plan, even if you're doing to what's true for me. And so I think the thing for me was realising that a thesis could just be a sentence could just be a paragraph. And then I had an A5 notebook. Five Nice. Yeah, yeah. Yeah, I didn't have enough content for A4 

Bryce: [00:08:25] i three oil paintings 

Alec: [00:08:28] A4, A5 Notebook and I had a page. And you know, every investment. I would flick a page and write a couple of paragraphs. And really, all you're trying to capture is why it's going to be a good investment. If it's if it's like an ASX 200 ETF and you're just buying the 200 biggest Australian stocks, it's really going to be a sentence. It's going to be, you know, the Australian economy will continue growing. These companies will grow with the economy, and I'm choosing this particular ETF that tracks it because it's got low phase or I like the ETF provider or whatever, like anything more than that is just noise. And for a company as well, it's like you can do 30 slides on industry overview and company managements work history and include LinkedIn links in their surveys and all that stuff. But like at its core, all you want to do is just nail the inside. Afterpay is taking customers away from credit cards. It's the best offering in the buy now, pay later space, and it will continue growing market share from other buy now, pay later competitors as the overall market grows like that in itself is enough. If you believe that's all true and obviously a lot of work goes into, you know, proving those things to yourself. But like, that's the thesis. 

Bryce: [00:09:41] Yeah, I think there's real power in writing it down or recording it just like there is in the writing, general life goals or whatever it may be. 

Alec: [00:09:48] Do you write your life goals too? 

Bryce: [00:09:49] I've written, yeah, life goals, not life goals. But like you write down, like business goals, you buy a house. Yeah, that's all in there somewhere I can't remember. But you know, I think there's like proven psychological impact in writing these things down because I it makes you commit to I mean, if you're talking goals or whatever, you're more likely to commit and follow it through. But if you're writing things down and you're writing something about a company, you know, like this is actually just jargon and rubbish that you're less likely to make that buying decision or someone's told you to stop pick and you go, Alright, well, I'm going to try and write something down here as to why I should be buying it. And you can't do it then. Point proven. So how do you do it? 

Alec: [00:10:28] So as I said, I had that I five journal. I moved to a Google doc just because I'm a foster Typekit that I am a writer. Yes, but when I had the journals, it was like, really, I was trying really neat handwriting and I was like calligraphy. Like, I like going back to this and looking at it. But now I'm doing speed over design. Yeah, yeah. 

Bryce: [00:10:49] Look, is it just in chronological order of buying? 

Alec: [00:10:52] Yeah, yeah. Well, reverse chronological. I just yeah. Yeah, as you a few times. Yeah, you start from the top of the page. So it's 

Bryce: [00:11:00] not sector based or anything like 

Alec: [00:11:03] that. Yeah. And for me, it will never be more than a page. It will really be a page for me. It's just like, what are the key reasons I'm buying it and that I can go back and review and be like, Oh, I was completely wrong about this. I should get out of it. The attitude I take is like, try not to think as an investor and get bogged down in like different financial ratios and metrics and stuff. And it's like, think like a business person like, you know, we're trying to grow Equity Mates. Before that, we both were two big corporates. And it's like, how how would I approach this business like if I was running the business and why do I think they're going to do better than just putting it in an ASX 200 ETF? Nice. What about you? 

Bryce: [00:11:44] I'm similar on digital. I just do it through Apple notes, though always got it opened or is accessed on my phone because what I often do as well is include a bunch of links or, you know, various bits and pieces after the statement that I've made. Often that will form part of my research or part of my reasoning as to why I want to buy it. And I like to just include those in the process as well so that I can refer back and go, Geez, that was a sensationalist headline at the time, wasn't it? I misread that one or like, Yeah, so just yeah, and keep a track of the resources that I'm using at the time as well, so that it is that saves to the cloud as well, which helps when you want it to happen. If I was to put it onto an A4 page, I'd say it's January. About half a page. 

Alec: [00:12:30] Nice? Yeah, nice half a page. Twenty four sites font one more fifty six. 

Bryce: [00:12:35] I like it full stop. 

Alec: [00:12:36] And I think, you know, we've spoken about how brief it can be and like what you're really trying to get to like, why is this going to be a good investment? I know in our Facebook group a number of people were asking about valuation. We've we've earmarked that for the next episode, so put a pin in that. But we will come to that because it's important to, you know, if you say that this stock is going to outperform, that everyone in the market agrees with you and that's the stock price that it is today reflects that you've got to be aware of that. So we'll get into that in the next one. But I think, yeah, in a general term, it's make sure you're tracking it in some way, make sure you're writing down, why you're buying it and giving yourself enough, giving your future self enough information to go back and review 

Bryce: [00:13:20] if you arrive or not. Yeah. All right. So we've written it down, it's locked away and we bought the stock. Yeah, building a portfolio. How often should I be revisiting or re-evaluating what I've written down? And how do I know when that is the time to do so? 

Alec: [00:13:36] Great question. Thank you. Um yeah, it look. I guess to start with, it depends on the thesis. So if the thesis is in the next week, Apple stock will shoot up because they're going to announce they've released an electric vehicle to take on Tesla. Like that is a very short term thesis. And so you need to check it within that way. And at the end of the week, because that's your thesis, says a week. If, on the other hand, you say over the next ten years, Microsoft will continue to be the dominant office based software provider and will use all the money they make from Microsoft Office to invest in a whole bunch of new and exciting ventures that will grow additional revenue streams. Then that's a longer term thesis and you can check it periodically. And you know, when you're checking in periodically, you're saying, is Microsoft Office still dominant or has Apple numbers disrupted Excel? It won't. But you know, like you can do that every month or every quarter, every half year, whatever you're comfortable with. So I think where we start is it depends on the thesis. But then I guess we can get a little bit more specific and talk about how we 

Bryce: [00:14:50] approach it from the experts. I've learnt a couple of things and we've got it down here. Price is important, so a lot of experts will put a price target on an investment. They go in, it's trading at three fifty. We expect it to hit 380. Once it gets to the 380 mark, that's a good. Usually when they'll then re-evaluate their thesis, they'll do that discount cash flow again or whatever it may be, and decide whether or not that thesis still holds. So price is a trigger.

Alec: [00:15:15] Do you put a price target on your thesis? 

Bryce: [00:15:17] Never say never. I don't see the point in doing it like I often say, and I guess this is just the difference between a half fund managers kind of have to run and private investors, but you'll often see analysts put price targets on. Companies and the company was smashed through that price target, so then they'll just re-evaluate the price target and make it even higher. And it's like, why didn't you just make it at the high point to begin with? 

Alec: [00:15:40] I guess they would respond. They have more information, 

Bryce: [00:15:43] but do they? I don't think so. Like, there's often it's just I think it's that they just don't want to put their neck really on the line and say, Afterpay is at three 50. We think it's going to be 150. 

Alec: [00:15:54] Except if you Cathie 

Bryce: [00:15:56] Wood, except if you Cathie Wood. 

Alec: [00:15:57] Yeah, yeah, I agree with you. I think as well that at its core, like what you're trying to do is find quality businesses that have like great products or services or great management or whatever it is. And that is something that you expect to continue to be quality over a long period of time and saying the the stock should be priced at three point eighty today and it's 350. So it's cheap. Like, sure, a lot of professional investors, a lot of analysts spend a lot of time doing that. But what I want to find is the business that is quality at 350 continues to be quality at 380, continues to be quality at five. And so for me, like the price target isn't the important thing. The underlying business is the important. 

Bryce: [00:16:42] Yeah, yeah. You know, we've both made it pretty clear that we check our portfolios in detail quarterly their balance. And we're not looking at portfolios daily. We're not looking weekly at it, sizzle. Do you align that with your thesis revision? 

Alec: [00:16:58] Yeah, sometimes I'll do that. I should probably be more disciplined about that. But yeah, for me, it's more like when I do that, I'll look at a particular company and be like, Why did I buy that again? And then I'll look over to the Google Doc and be like, Oh, that's right, okay, that makes sense. Or Geez, that was mistake. 

Bryce: [00:17:20] Have you ever revised a thesis and sold on the back of it? 

Alec: [00:17:24] Like, have I ever open the Google Docs song? Well, I was wrong about that. Yeah, yeah, yeah. Yeah, well, I mean, let me give you an example, and the company's name escapes me. But it was a company years ago that sold like flight training software to like air traffic control tower operators and the military. And they had big contracts with like the US Defence Department and stuff like that and everything. I was reading all the research I was doing, everything the company was saying. They were just talking about how often they were winning contracts and how they were taking these like flight training contracts of other players in the space. And so my thesis was all centred around. These guys have the best product, the winning more and more contracts they're taking market share. These contracts are long term, and once you're embedded, it's pretty hard to like change flight simulators and air traffic control simulators, all that stuff. So I was like, you know, if they've got the best product, if they can take market share and they can, these contracts can be pretty sticky, like that's the makings of a good business. Turns out, when I reviewed it, I probably like a year later, they lost a whole bunch of contracts and turns out they didn't actually have the best software. So like at its core, I was fundamentally wrong about in a piece of my analysis. And so I sold out. 

Bryce: [00:18:40] It's nice. Oh, but it's better to do that and recognise that than hold on forgetting why you bought it and continue to suffer loss as well. Cut it now and your thesis change move. I think the 

Alec: [00:18:54] key piece there is that, like the the insight into why you buy is going to be the same. If you do a 100 page slide deck or a half page, Google documents that they have better software that they can take market share and that that it's sticky. And if I had done 30 page preamble on like what is flight training software and who are the management of the company and where did they work before? And all of that stuff, like sure, it would have coloured the analysis. I would have given me more information. But at its core, like the insight, the reason that I was buying would have been the same and it was wrong. Yeah. Ninety nine slides giving colour to that wouldn't change. The fact that I was wrong about that assumption. Yeah, might have helped me realise I was wrong about that assumption, but I was still wrong. 

Bryce: [00:19:40] I had. I've had an interesting one. I actually sold a stock that I'd made money on because I thought the thesis was just completely wrong. Really self worth. The broker curious? Yeah. So when they listed back in 2017, I jumped on board 2019. I think because at the time I was using them, we didn't have some of the big competitors in the space that we do now that are offering much cheaper brokerage. They were offering a pretty compelling brokerage relative to the CommSec's and Oliver. And, you know, they seemed to be the up and coming hip platform that you know, that next generation of retail investors were using. And so I thought, you know, these are the guys that are going to take market share, et cetera, et cetera, and have subsequently now recognised and realised that I well, I don't believe that. They're going to be and no offence to self-worth, but I don't think they're going to be the winners in this space. And so what's the point in being invested in a company that is not going to be the leader in my in my opinion, anyway, people might want to, you know, but may not be the leader in that space. So I did make a bit of money on it, but got out. 

Alec: [00:20:48] Thus, I think that is a great example of how it's not about whether the stock is going up or down. You can make money and be completely wrong, but that doesn't mean you should just keep holding on because obviously this is all future predicting and so forth might win this battle. But if you no longer believe that self-worth, we will win this battle for Australian retail investors. And you know, the online brokerage was then sure you might have made money, but like, are you going to keep making money? 

Bryce: [00:21:17] Yeah, well, no. This share price is now down 50 percent from their all, really. 

Alec: [00:21:21] Yeah, well, 

Bryce: [00:21:22] they're starting to really. Yeah. The basis for why I sold is, I think, starting to play out in the share price. 

Alec: [00:21:28] So you were right again? Oh no, you're wrong. I was wrong the first time. 

Bryce: [00:21:32] Yeah, yeah, that may be right in getting out. 

Alec: [00:21:34] Jase would be happy for you if they did win and you were wrong a second time. 

Bryce: [00:21:38] I got another quick story on what happened when I didn't write a thesis, though I bought Galaxy, the lithium producer ages ago, like way back in uni, and I just couldn't remember why I bought it. And like, I didn't, I didn't pay enough attention to it 

Alec: [00:21:53] because you saw all the hype around lithium. 

Bryce: [00:21:55] I think so, but I didn't write anything down and I then started to suffer. It started sliding a couple of years ago significantly, and I was like burning cash. And at the time, it was just at the start. I think I sold just at the start of the real lithium boom. And yeah, really the environment. But I didn't write anything down, so I just had in my mind and like, I actually can't remember why I bought this. Is this even the lithium later? I probably could have done more research. You probably could have. Yeah, I probably could have done more research, but so did you. So yeah, so 

Alec: [00:22:24] yeah, how much is it going out since? Well, I 

Bryce: [00:22:26] think it's merged like, I can't actually find a share price for it. I remember at the time and a soda and then two days later, it's like up 10 percent, 

Alec: [00:22:35] up three percent. But you can't you can't kick yourself for not like that 

Bryce: [00:22:38] by the going to. If I had written down its thesis around lithium, why it's a good producer and yeah, 

Alec: [00:22:47] yeah, yeah, we wouldn't 

Bryce: [00:22:47] sell. Yeah, but anyway, anyway, I digress.

Alec: [00:22:50] So I guess that's a real rabbit hole, which we said we weren't going to go down, but I think those stories are illuminating. But in terms of how often you should revisit it, you need to have a system that works for you. You should try and commit to a periodic review. I should really be doing it quarterly properly as part of when I actually check my portfolio and how it's all performing. But yeah, I think I think the main thing is if you're, you know, a weekly operator and you love checking your stocks all the time like you can check a weekly, I would say that's probably causes a bit of unnecessary stress like these. Most places will be long term, and so you should get into a routine of checking them not long, you know, checking them periodically, but enough to give yourself some time to breathe for the companies to develop. Because you've got to remember that share prices might change quickly, but companies change slowly. Yeah. Think about how long it takes your work to get projects up and get new initiatives underway and to hire new people that your investing thesis will take a while to play out inside the actual company. Hmm. 

Bryce: [00:23:56] Alright. So we're revisiting it and we're reading through it. And what we're really trying to understand is whether or not the thesis is broken, because if it's broken, then there's a few steps that you should certainly consider. So I guess the question is, how do I know if my thesis is broken? Great question. Thank you again. 

Alec: [00:24:13] Again, you keep asking these questions and then getting me to do it. So why don't you answer this one? Okay. How do I know if my thesis is broken? 

Bryce: [00:24:22] Well, in this situation and an example that I just gave Ren around self wealth? You know, it's broken if you're wrong. I mean, you made a statement, you put it down on paper. And if that statement is no longer holds true or is wrong, you don't believe it anymore. You say it's broken. 

Alec: [00:24:36] Yeah, now that could be. You were wrong about what the company was going to do, how well, whatever the company is doing was going to go. You could have been wrong about key management adding value to the business or being good or whatever. Like, there's so many things you can be wrong about. That's why it's really important that you write down all of your assumptions, all of your views in the original thesis, so you can really go back and be like, Does that still hold to that? There's one thing that I would say it doesn't matter if you are wrong about, and that's the price 

Bryce: [00:25:10] at the time. Just in general, 

Alec: [00:25:13] like even today. So let's say, you know, you bought Afterpay at 10 bucks and you're like, you know, it's going to take market share, it's going to go to the states and be super successful, blah blah blah. All of that stuff you're looking at. Like, well, this still holds, they are still taking market share from credit card companies around the world. They're still bigger than all their competitors. They're still growing faster than their competitors. They've gone to the sides. Wow, I'm a genius. I said all of that and I was right. Give myself a pat on the back. But I look at the share price and I bought it at 10 and now it's at five. 

Bryce: [00:25:49] That doesn't mean your thesis is broken. 

Alec: [00:25:51] Yeah, yeah. So your thesis isn't broken if the share price has fallen and your thesis hasn't been proven correct if the share price is up. And the reason for that is that markets are irrational. Like, you know, it's all about psychology and news and short term. And there's so there's so many reasons why share prices move. It's like that's not going to be a true indication of whether you are right or not in the short term. And if you think about why you're buying any share, any individual share, you're saying, I think the market is wrong about this stock. I think the prospects for this stock are better than what the market is saying. So at that time, the assumption is that the market doesn't have the price, right? You're buying it because you think the price will go up. It doesn't make sense to think that when you bought it, the stock was mispriced. But when you reviewing it, the stock is correctly priced like the market is constantly going to be moving prices up and down, getting prices wrong, not understanding companies properly, not saying what you're saying, saying more than you are saying. Like, you can't just look at the price and say I was right or I was wrong. Scratch the price. Look at the company. 

Bryce: [00:27:08] So a thesis may become invalid as well. Ren for a number of other reasons which you did touch on there. But you know, if there's been a change in management, if the prices of some of the key inputs that go into the business are changing and therefore, you know, it's going to change how much profit they make or the cost of doing business, you know, market demand is no longer there. Some of their products have turned out to be failures or those sorts of things you need to take into consideration and can impact your thesis to make it invalid. But I think the key is you're not going to know any of that if you don't have a thesis. 

Alec: [00:27:40] Yeah, and if not, and if you're not reviewing 

Bryce: [00:27:42] it and if you're 

Alec: [00:27:42] not review, but I think, you know, this can all be a bit tense. Let's play a game to sort of illustrate this point. We'll throw out a few faces, give a scenario and we'll talk about whether the thesis is broken or not. Before we do, the investment thesis for Equity Mates relies on sponsorship revenue. So let's take a quick break to hear from our sponsors. 

Bryce: [00:28:04] Our Iran, it's time to play, is my thesis broken? We've got a few examples here of faces that we've made up for some of the well-known companies here in Australia and around the world, and we're going to discuss whether or not the thesis has been broken. So let's kick off 

Alec: [00:28:21] just in case people invest in these stocks, some of these facts have been completely made up. Yeah, this is so we're not we're not saying that this is nothing. This has happened yet. 

Bryce: [00:28:31] It's an example. Yeah, game. It's a 

Alec: [00:28:33] game. It's not real. 

Bryce: [00:28:34] Yeah. All right. So let's kick off. Fortescue is the lowest cost iron ore producer in the world, meaning it will be the best able to withstand price cuts in the falling market. That's it. That's the thesis. The upon revision, we find out that BHP overtakes Fortescue as the lowest cost iron ore producer in the world. Is my thesis broken? 

Alec: [00:28:58] Yes, it's broken. Yeah. Yes. If you're investing because of a fact, and that fact is no longer 

Bryce: [00:29:05] true at all. What are we? What's next?

Alec: [00:29:07] All right. So my thesis? Apple is leveraging its dominance in consumer electronics, phones, computers. You get it to grow a meaningful, recurring revenue stream from services. That's the thesis. And then upon review, I'm reading the news and I find out Alphabet Inc. Google has announced a similar services business for their Android network. Is my thesis broken? No. Why, but Google are doing it as well. 

Bryce: [00:29:40] Google are doing it, they're doing it for the Android network. Apple doing it for the iOS network. So Apple can continue to leverage its products and dominance in its space to build its recurring revenue stream. Yes, there's going to be competition from Apple, from Alphabet. 

Alec: [00:30:00] Well, I think the key thing with this thesis is you're looking at the world of Apple users and you're saying Apple is going to extract a whole bunch more money from this world of users by making them all sign up to monthly Apple TV and Apple Gaming, Apple Arcade and all that subscriptions. Google doing that over there doesn't really affect this world. My thesis is based on which is existing Apple users. 

Bryce: [00:30:24] Next one Afterpay is the fastest growing buy now. Pay later in America, where credit card penetration remains high and will capture most market share as customers transition from credit cards to buy now, pay later. 

Alec: [00:30:38] Okay, that was your thesis.

Bryce: [00:30:39] That was my thesis back in the day. Yeah, way back in the day. Yes. Anyway, we're not going to say so. Then Square acquires Afterpay. Is my thesis broken? 

Alec: [00:30:50] Great. This is a this is a tough one because it's the thesis around Afterpay isn't broken. Yes, it's still going to be. Everything you said about Afterpay can still be true, but you don't have the option to invest just in Afterpay anymore. So in a way, yes, because you can't just invest in that business. If you want to invest, you now have to invest in the much bigger square business. So you've got to sort of start from square one. Pun intended and be like, All right, the thing Afterpay is, might be, you know, a third of Square's total business. But let's just now understand the other two thirds and look at the white card rate is that you say at local cafes and their business banking and the Cash App over in the US and like all this other stuff. So your thesis didn't break. You could have been completely right, but you kind of got to start again. Yeah, let's stay in the states. Tesla has announced it's going to move into electric delivery vans, and I have a view that electric delivery vans could be a trillion dollar business. Nice. A lot of deliveries. Yeah. So that's the thesis. However, it's been four years since I first announced electric delivery vans, and they've made no progress. But they keep talking about it. Toth is my face is broken. 

Bryce: [00:32:13] No, I mean, there's no reason that your view has changed from it being a trillion dollar business. And if they keep saying that they're going to be moving into that space, then you say this hasn't been broken, even though they're not delivering on anything, they keep talking about it. It might eventually come true.

Alec: [00:32:29] Yeah, yeah. 

Bryce: [00:32:30] So you've just got to be patient. Yeah. And make a call at some point. If it's 20 years down the track, you're like, All right, Ellen. 

Alec: [00:32:37] Well, there is there is a there's like there's a time value of money, you know, like if you're investing in something and waiting and waiting and waiting, that money could have been invested in other things that you don't have to wait for that. So that's an important consideration for me. I would say the key thing here is if a company has told you they're going to do something big and they keep delaying it or for whatever reason, you don't see it happening. The really important thing is to look at what else is going on because you have competitors got a head start on them in that time or has the market changed? And you know, this electric delivery van no longer makes sense because hydrogen trucks are going to, you know, take over instead, like even if nothing actually changes with the company or with the investment you've made. Time can change things because things are constantly changing around the company. So I think this is a push like it might be broken or it might not be. The other thing is like, do you trust management if they just keep promising something and they never deliver the next one?

Bryce: [00:33:40] Equity Mates has a billion dollars of cash and investments on its balance sheet, yet it has a market cap of just $700 million. Then the share price doubles to give it a market cap of $1.4 billion. 

Alec: [00:33:53] So your investment thesis here was it was a value investment thesis. It was a classic Warren Buffett. Buffett, Benjamin Graham style. The company is undervalued because it has a billion dollars of cash, but it's trading for less and not. Then the share price went up, and it's trading for more than that. So, yeah, your investment that you're right, you're a hundred percent right. But the investment thesis played out. It's no longer undervalued based on the amount of cash it's got. Hmm. So you were right, but it's not broken, but it's done. Yeah. Also, it would be nice if we had a very nice next one. I believe that Canva could take twenty five percent of the professional design market from Adobe's Photoshop. That's the investment thesis. Canva isn't quite public yet, but it'll be nice when it is. Then I review and I say that it's actually already captured a third of the professional designer market. 

Bryce: [00:34:43] Nice for Canva. For me, this would be a revision of how much more can it take if it's taken? If you thought it would take twenty five percent and it's taken thirty three. Great. Well, your investment, your thesis was proven correct, but I now take it as an opportunity to say we're going to take 50 percent. Yeah, and if you don't believe that, then you probably review whether or not you sell. But if you do, then go for it. 

Alec: [00:35:08] I mean, you were wrong, but you were wrong in a really pleasing way. Yeah, you underestimated the company and it overshot the expec. Your expectations. So now the question is, will it keep overshooting or is, is that a system? Hmm. Yeah. 

Bryce: [00:35:20] I bought Commonwealth Bank because it was paying a six per cent dividend. They then announced they were cutting their dividend. 

Alec: [00:35:28] Yeah, heavy for you. Thesis is done. Yeah. This lawsuit included is Coinbase. 

Bryce: [00:35:37] Coinbase is showing a Doji candlestick pattern, then it shows a Harami cross, Candace tik-tok a lot of jargon there, and 

Alec: [00:35:46] that's that for people that look at charts and draw patterns on charts and trade based on that that those terms make sense, they honestly don't make sense to me, but I just thought it was funny. Yeah. 

Bryce: [00:35:59] Good ones. So I think this leads to one final question, Ren. I've written my thesis, I've reviewed it. I may have been proven wrong and the thesis is broken. That then begs the question what to do now? So nice. 

Alec: [00:36:15] I mean, it's really is as simple as that. Like, people will find so many reasons to justify holding something because they feel they've fallen in love with it all because I don't want to sell it or because they've lost money on it and they don't want to realise that loss. They would rather get it back to even and then sell it. Suckle that from your mind. If you were wrong about something, cut your losses. Start again. Yeah. So easy. 

Bryce: [00:36:39] Yeah, nice. Well, that brings us to the end of episode today. A reminder, firstly, that if you enjoyed this content, there's plenty more of it in the Get Started Investing feed book, so head to a book retailer to grab that. And we are closing it out next week. Ren with the third instalment of building a thesis where we're going to be pulling it all together and looking at a bit more detail around some of the things that go into building a thesis. We'll talk about valuation and 

Alec: [00:37:07] and importantly, where you can find all this information 

Bryce: [00:37:10] and where you can find all of this info. So it's been an absolute pleasure, a really fun episode. If you're enjoying our content, we would love a five star review wherever you get your podcasts. Every podcast host says that we always say it, but it really does make a difference when it comes to putting the podcast in front of new listeners. We pump out this content for free, and we would really appreciate a five star and a review where you can. So thank you for joining us.

Alec: [00:37:36] Well, just tell him made about us 

Bryce: [00:37:37] or tell him right about here. Yeah, and get them to review it as well. Yeah. So look, it's an absolute pleasure chatting stocks with you. As always, Ren. And looking forward to closing this one out next week. 

Alec: [00:37:46] Sounds good.

More About

Meet your hosts

  • Alec Renehan

    Alec Renehan

    Alec developed an interest in investing after realising he was spending all that he was earning. Investing became his form of 'forced saving'. While his first investment, Slater and Gordon (SGH), was a resounding failure, he learnt a lot from that experience. He hopes to share those lessons amongst others through the podcast and help people realise that if he can make money investing, anyone can.
  • Bryce Leske

    Bryce Leske

    Bryce has had an interest in the stock market since his parents encouraged him to save 50c a fortnight from the age of 5. Once he had saved $500 he bought his first stock - BKI - a Listed Investment Company (LIC), and since then hasn't stopped. He hopes that Equity Mates can help make investing understandable and accessible. He loves the Essendon Football Club, and lives in Sydney.

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