Survival First. Returns Second | Vitaliy Katsenelson on Investing Amid Extreme Uncertainty

Summary

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Excess Returns: "Survival First. Returns Second"

Guest: Vitaliy Katsenelson

Date: March 10, 2026

Episode Overview

In this insightful episode, Matt Zeigler and Bogomil Baranowski of Excess Returns are joined by Vitaliy Katsenelson, CEO of Investment Management Associates and author of "Soul in the Game." The conversation centers on how to approach investing during times of extreme uncertainty, integrating humility and adaptability into investment strategy, and why survival should precede return-seeking. Katsenelson discusses the evolution of his philosophy, the challenges posed by today’s expensive markets, the role of quality and management in stock selection, how to handle selling decisions, and the importance of passion and continual learning—not just for returns, but for the joy and craft of investing itself.

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Key Discussion Points & Insights

1. Surviving Uncertainty: Humility Over Heroics

• Wide Range of Outcomes:
  • "Today you need a lot of humility... the world that's changing so fast, the range of possible outcomes at anything you look at got wider."
    — Vitaliy, 00:30
• Adapting Portfolio Construction:
  • Because of increased uncertainty, Vitaliy now holds more positions (about 30 versus his previous 20) as diversification to manage his lower confidence in individual stock outcomes.
• Core Principle:
  • "Making money is great, but first, I want to survive."
    — Vitaliy, 00:30 / 17:35

2. Expensive Markets & The Math of Returns

• Drivers of Returns:
  • Over the very long term, almost all returns come from economic/earnings growth and dividends (currently a small source).
  • Over shorter periods, price/earnings (PE) expansion or contraction amplifies or dampens returns.
• Current Market Concern:
  • "If you look at the stock market overall, we are probably one of the highest valuation in the last 100 years... over the next many years, the price earnings will be not a tailwind, but a headwind.”
    — Vitaliy, 02:29
• Implication:
  • Stock returns may be muted or flat if valuations compress, even if earnings grow at modest rates.

3. The Changing Structure of Growth

• Big Tech's Extended Runways:
  • Large digital companies (the "Big Seven") continue to outgrow smaller ones by leveraging digital platforms and expanding into new industries—unlike legacy businesses with fixed market sizes.
  • Story: Peter Thiel’s Facebook investment and how it's now (for some digital companies) "easier to go from $100B to $1T than from $10B to $100B."
    — 06:45
• Limits to Gigantism:
  • At some point, even digital giants hit natural limits—math "starts working against them."
• AI Spending:
  • Current AI investments by the largest firms may constitute an enormous "burn" in pursuit of existential relevance:
    • “If [Zuckerberg] wastes $100 billion, so be it.” — paraphrased, 07:11

4. Navigating a Bifurcated Business World

• AI & Asset-Light Models:
  • Some businesses can scale beyond traditional constraints via AI and digital infrastructure while others remain bogged down by real-world frictions (regulations, labor, tariffs).
  • "It’s almost like we are trying to learn how to steer Starship while it’s being built."
    — Vitaliy, 12:33

5. Humility, Diversification, & What Won't Change

• Humility = Survival:
  • Lower confidence in any single investment → increased diversification.
• Seeking Stability:
  • Look for things "that won't change" (commodities, defense companies, etc.) but remain alert to underlying business model shifts (example: car insurers and the potential for self-driving cars to shrink their markets).
• Quote:
  • "My goal as an investor is to... survive."
    — 17:35

6. Defining and Prioritizing Quality in Businesses

• Evolution of Value Investing:
  • Early focus was on statistical cheapness (low P/Es), but now quality of business and management matter more.
  • "Cheap is expensive if the business keeps deteriorating."
    — Vitaliy, 21:09
• People Matter:
  • "When you start running a company, you develop a tactile knowledge... my realization was how important people are... if I ever question management character for a second, I'm gone."
    — Vitaliy, 21:09 – 25:55

7. The Art and Agony of Selling

• Selling on Thesis Break:
  • Today, Vitaliy sells quickly when his thesis is broken (loss of confidence overrides hope or rationalizations).
  • Example: CEO departure, earnings restatement, and business model change triggers an immediate exit.
• Avoiding Costly Selling Errors:
  • Biggest mistakes are not always buying and watching declines, but selling too early on the upside due to exhaustion or impatience.
  • "When the fundamentals start to work, a lot of times they work for much longer."
    — Vitaliy, 31:00 – 35:40
• Value Buyer, Growth Holder:
  • Bogomil: "I call it being a value buyer and a growth holder... if it's a 5x, it could be a 10x."
    — 36:47

8. Patience, Process, & Passion: Vitaliy’s Three Ps

• Passion:
  • Fuel that sustains investors through tough periods—“If you're doing [investing] just for financial reasons and you don’t have passion... your fuel tank is not going to burn as hot.”
    — 46:18
• Patience:
  • Endure pain and periods of underperformance.
• Process:
  • Follow a disciplined, repeatable approach regardless of daily market noise.

9. Cloning, Learning, and Finding Your Voice

• Cloning from the Best, Customizing for Yourself:
  • "Pick what works for you and discard what doesn’t." — inspired by Buddhist wisdom.
    — 44:00
  • Don’t blindly follow Buffett/Pabrai/etc.—adapt what fits your temperament, risk tolerance, and life goals.
• Surround Yourself with Quality:
  • “If you study great businesses run by great people, then... you will not be able to accept mediocrity.”
    — Vitaliy, 40:46

10. Legacy, Motivation, and Soul in the Game

• "It's Not Really About the Money":
  • For driven investors and founders, motivation comes from building, curiosity, and impact—not just personal enrichment.
  • "If a private equity firm offered me a billion dollars to stop, I probably would say no... And then what?"
    — 55:19
• Skin vs. Soul in the Game:
  • Having “skin in the game” (financial alignment) isn’t enough—true dedication arises when the work is intrinsic to your identity.
• On Helping Others:
  • "I get satisfaction making [clients] money... my decisions impact his ability to travel... it’s about solving puzzles, about doing something."
    — 60:28

11. Avoiding Charisma Traps: The Sophist’s Warning

• The "Dead Fish" Test:
  • Inspired by Marcus Aurelius, don’t let charismatic CEOs cloud your judgement; focus on business fundamentals beneath the ‘presentation.’
  • “So you're basically saying you got dead fish and some herbs. That's the key.”
    — Vitaliy, 71:37

12. Creativity, Music & Investing

• Art & Investing:
  • Investing at its best is a creative act, an "art."
  • Classical music inspires because its great masters (like Tchaikovsky, Rachmaninoff) achieved brilliance through pain and perseverance—lessons that apply to investing.
  • “You should be Tchaikovsky in your research and Marcus Aurelius in your holding.”
    — Vitaliy, 68:11

13. Practical Advice for Everyday Investors

• On Not Being Fooled by Charisma:
  • Pay attention to underlying reality, not the packaging, especially when dealing with managers and stock pitches.
• General Principle:
  • Survive first. Be humble. Focus on what won’t change. Seek quality—in business and people. Allow yourself to evolve; let winners run but sell when your thesis is truly broken.

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Notable Quotes & Memorable Moments

• On survival and humility:

  "Making money is great, but first, I want to survive." — Vitaliy, 00:30 / 17:35

• On expensive markets:

  "Today, if you look at the stock market overall, we are probably one of the highest valuation in the last 100 years..." — Vitaliy, 02:29

• On excitement despite uncertainty:

  “I’ve been investing for 30 years. I don’t think I’ve been this excited about investing ever—despite the market being very expensive and all the things I’ll be complaining to you about.” — Vitaliy, 13:18

• On management quality:

  “If I ever question management character for a second, I’m gone.” — Vitaliy, 25:55

• On the pain of selling early:

  “…my most costly mistakes were in selling. I bought a company… sold too early out of exhaustion, and it quadrupled for exactly the right reasons I’d imagined.” — Vitaliy, 31:00

• On passion as a necessity:

  “If you are doing anything creative and you don’t have passion... your fuel tank is not going to burn as hot... while you’ll be competing against people who have much stronger engines.” — Vitaliy, 46:18

• On learning from others:

  “Pick what works for you and discard what doesn’t.” — Vitaliy, 44:19

• On true alignment (Soul in the Game):

  “Solar Game is when what you do is aligned with your identity, you can’t think about doing anything else.” — Vitaliy, 57:16

• On music and creativity:

  “You should be Tchaikovsky in your research and Marcus Aurelius in your holding.” — Vitaliy, 68:11

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Key Timestamps for Significant Segments

| Segment | Topic / Quote | Timestamp | |-------------------------------------|-------------------------------------------------------------------|-----------| | Humility & Survival | "Making money is great, but first, I want to survive." | 00:30 | | Math of Returns & Market Valuation | "Markets are at highest valuation in 100 years..." | 02:29 | | Big Tech Growth & AI | Peter Thiel/Zuckerberg story, AI as existential spending | 06:45 | | How Big Tech Crowds Out Small Firms | "These companies create new runways by entering new industries" | 07:11 | | The Benefit of Diversification | "Number of stocks I own went up..." | 15:16 | | Shift from Cheap to Quality | "Cheap is expensive if the business keeps deteriorating." | 21:09 | | Selling Philosophy | “When my thesis is broken, I sell—immediately.” | 26:30-27:39 | | Lessons from Past Selling Mistakes | “Most costly mistakes: selling too early on the upside.” | 31:00-35:40 | | Passion, Patience, Process (3 Ps) | On necessity of loving the work | 46:18 | | Cloning vs Originality | “Pick what works for you and discard what doesn’t.” | 44:00 | | Soul in the Game | "It's when what you do is aligned with your identity..." | 57:16 | | Avoiding Charismatic CEO Traps | “So, you’re basically saying, you got dead fish and some herbs.” | 71:37 | | Art & Investing Parallel | “You should be Tchaikovsky in your research, Marcus Aurelius in your holding.” | 68:11 |

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Takeaways for Listeners

• In uncertain, expensive markets, prioritize survival—protect yourself through humility, diversification, and willingness to adapt.
• Quality outweighs cheapness: obsess over business durability, management character, and what won’t change.
• Selling is nuanced—admit when your thesis is broken but give room for secular winning trends to run.
• Passion, curiosity, and the satisfaction of craft are essential; for the best investors, it's not just about the money.
• Stay vigilant against narratives and charisma—focus on substance, not just the story.
• Let your investing process be inspired both by creative exploration (research) and stoic patience (holding through volatility).
• Construct your unique operating system by learning from many, but customizing for your own temperament.

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For more from Vitaliy, visit Investor FM or check out his newsletter and "Intellectual Investor" podcast.

Transcript

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[Vitaly Katznelson]

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[Matt Zigler]

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[Vitaly Katznelson]

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[Vitaly Katznelson]

Making money is great, but first, I want to survive. Today you need a lot of humility. And you need a lot of humility because in the world that's changing so fast, the range of possible outcomes at anything you look at got wider. I have less confidence in my decisions today for many stocks than I ever had before. And when I have less confidence, the way I express it, number of stocks I own went up, you look at their investment in AI, a lot of it is probably going to be bad money. But stocks are expensive. The price turnings becomes a headwind because as price turnings declines, whatever gain you get from earnings growth gets subtracted by decline in price to earnings. Now today, if you look at the stock market overall, we are probably one of the highest valuation in the last 100 years.

[Matt Zigler]

You're watching Excess returns. I'm Matt Zigler. Bogomil Baranowski is here with me today. It's an extra special guest. He's the new Ben Graham, the guy who taught me and a lot of us why buy and hold is broken in sideways markets. CEO of Investment Management Associates in Denver, author of Soul in the Game and other books, and of course lover of art and music. So I'll try my best not to trap us there for the next hour. Let us raise our fever trees in his general direction. Vitaly Katznelson, welcome to Access Returns.

[Vitaly Katznelson]

Oh, it's my pleasure. Thank you guys. Thank you.

[Matt Zigler]

I'm excited for this one. I don't want to talk to you about sideways markets like everybody else, but it's been, it's been a. We're recording this on Friday 6th March, 2026. Markets have not been sideways this week or really in the last two years. They've done a lot of other dancing around. So why should I think about this? Why should I care? Why should I be prepping for what feels like at some point we're just not going to go anywhere for a while? That's my right.

[Vitaly Katznelson]

All right. No, so the. Think about, let's, let's think about the market directions long term from two perspective. I mean from. Basically it's a math. Actually, to be honest, it's a math problem. Stock market returns come from two sources, Stock appreciation and dividends. Okay. I don't know what the dividend yield for S&P 500, but it's probably closer to 2% or less. Okay, so you can take it out. Okay. So then if you look at the source of the return historically, over a long period of time, like I'm thinking about 100 years, all of the return came from grow like earnings growth, economic growth, believe it or not, that number was close to 6 or 7%. Okay. And that's just basically, in other words, historically, if the valuation didn't matter, if just if over 100 years, 100 years, basically return was about growth of the economy or about 5 or 6, you know, 5 or 6%. However, 100 years is a long time and I'm a long term investor, but I don't think that far ahead. So in the, in the, if you look at 5, 10, 15, 20 years out, if you look at the returns from, you know, then basically stock, stock appreciation or decline comes, you know, from two sources. Earnings growth, earnings growth and either price for next expansion or decline. Okay. When the stocks are cheap, which usually happens when they, like when you had a long term bear market or market declined or for a long period of time, then the economy, let's say economy, economy is growing 4 or 5 or 6% and then price turnings are going up that price, that price earnings expansion creates the stalewind for stocks and that creates kind of what we call a bull market, right? Because you have returns that are above average. Okay. Now when stocks are expensive, the price earnings becomes a headwind because as price turnings declines, whatever gain you get from earnings growth gets subtracted by decline in price to earnings. Now today, if you look at the stock market overall, we are probably one of the highest valuation in the last hundred years or close to it. So therefore it's very likely that over the next many years the price earnings will be not a tailwind, but a headwind. And if it's a headwind, it means it's going to be whatever. Now we can have a separate conversation about earnings growth because I would argue that the economic growth going forward is probably going to be less than it was in the past. But even that if, but even if that what economic growth we had over the last 20, 3050 years continues at the same rate because stocks are expensive as price, you know, and, and price trum when went from one extreme to another went from cheap to expensive. So if the price turning declines, then returns from stocks become basically it becomes like, I don't know, third grade math minus plus five plus minus five, you get zero. And that's basically what's going to happen stock to stock. That's how I'm thinking about is there

[Bogomil Baranowski]

something structurally different about the market today? And the reason I'm asking is Vitaly, historically would have a lot of growth in smaller companies. And now we have the highest growth among larger companies. And those larger companies are going through this second or third stage of growth. They're reinvesting a lot. We'll see the returns, I don't know yet. But they're acting in a different way. So you have kind of a flip flop situation where you have large companies growing really fast, reinvesting a lot, kind of leaving the rest of the economy behind. Am I missing something?

[Vitaly Katznelson]

You know, I was watching an interview with Piers Morgan, interviewed Peter Thiel. This was a, you know, the kind of, this interview maybe a couple years old. And Piers Morgan asked Peter Thiel something about like, he made a lot of money on Facebook, but he sold it. And I'm, I, I forget the numbers exactly, but he said, you sold it when it was $100 billion market cap. Today it's a trillion dollar market cap.

[Bogomil Baranowski]

Right.

[Vitaly Katznelson]

He's like, what did you get wrong? He said, you know what? I used to think that get the first hundred billion dollars is difficult. No, it's easier than to get the. In other words, go from $10 billion to 100 is easier than go from $100 billion to a trillion. But he said that's flipped for companies like Facebook because now this is my thoughts now. And I think he may be right to some degree, though there are limitations as well because as you get larger, your mold gets so much bigger. And this is important. And the market size for these companies today is so much larger than it was before because they're digital companies. So think about Coca Cola. It basically hasn't grown much for the last 25 years. If it has incredible return capital, incredible business, but there is no growth Runway. These companies were able to, you know, basically to create, to lay a new growth Runway by going get into new industries time after time after time. And so that to some degree that has been happening at the expense of smaller companies which would not have, you know, they did not have this kind of mold. So now there is a. At some point the math gets so large that it's going to start working against them. And I don't know when it's going to happen. Maybe it's already happening, who knows? And I don't even know what to think. When you look today, their investment and now generalizing about Big seven, you know, Right. You look at their investment in AI, a lot of it is probably going to be bad money. Just because if you listen to, you know, CEOs, big companies, they're talking about how it's existential for them. In other words, their thinking is, well, I think Mark Zuckerberg said like, well, if he'll waste $100 billion, so be it. That's, I'm paraphrasing, that's what. Something along those lines. So we'll see when the dust will settle. If, if they just burned tens of hundreds of billions of dollars or not.

[Bogomil Baranowski]

On AI, Is there a way, is there a reason to believe that there will be a world of multiple growth rates, some companies will really take off, exist above the borders. It's kind of happening. Skip the tariffs, grow beyond whatever nonsense we're hearing in terms of tariffs coming, tariffs going and grow in this digital asset, light asset free world, while some of the businesses will be just bogged down by rules, regulations, labor restrictions, even inflation now tariffs, and will not be able to keep up with the other half of the economy.

[Vitaly Katznelson]

Well, I think this is like, I'm not sure I have an answer in the sense. I think it's like the company by company question.

[Bogomil Baranowski]

Yeah.

[Vitaly Katznelson]

I mean if you are building houses or trying to build the nuclear reactors, you know, you're gonna, you know you're gonna be stuck in the red tape.

[Bogomil Baranowski]

Yeah.

[Vitaly Katznelson]

If you're doing something else, I mean, it's just, it's, it's kind of, it's, it's a, it's a kind of one stuck at a time question. So I'm not sure I have a blanket answer for that.

[Bogomil Baranowski]

I, I don't have the answer, but I'm thinking a lot about it. Even last night I was interacting with a founder of an app for, for research. And I'm talking to him over email late at night and he's changing the app as we're talking. He says, try this, try this, try this. And I can't think of another industry where I can talk to the founder that's changing the product as I'm talking to him at 10 o' clock at night and I'm mind blown every single

[Vitaly Katznelson]

time you Know, I think this whole AI thing is like, I'm. I am encouraging everybody at my company to become extremely proficient at AI.

[Bogomil Baranowski]

Yeah.

[Vitaly Katznelson]

And let me tell you the length I'm going to. I basically tell them, take any personal subject you're interested in, come to the office and do it during your work time. I have a one colleague. This is a true story. If you. I hope he doesn't watch this. He's truly developing on his grok. I'm sorry, Grok cloud cowork. He's literally just built a website yesterday for his wife to make a case that if they move from this house to this house, the commute is gonna be better. And it's linked to Zillow and it's linked to all the preschools and stuff. He built it in, like, I don't know, a couple hours. And it's a beautiful website, fully interactive, that has all this market data, that has different commute times by different time of the day. And the reason. And the reason I'm encouraging people to do this. And this is what I learned as a writer. When I started writing consistently, I developed what I call writer's brain. I always start looking for. Because when you start writing every day, you kind of. You start looking for stories all the time.

[Bogomil Baranowski]

Yeah.

[Vitaly Katznelson]

Okay, now. And therefore, the more you write, the more you write. Well, if you are coding or by coding all the time, even, even this, you know, doing this web building a website, you know, to convince your wife and something, you start looking for what other things you can apply to. And hopefully it's gonna. Some of that is gonna spill into how to make IMA better, how to make my company better, et cetera. But to your point about AI today, when it comes to AI, it's almost like we are trying to learn how to steer Starship while it's been built.

[Bogomil Baranowski]

Yes.

[Vitaly Katznelson]

Literally, because I was talking to my colleague, I said, when you watch YouTube videos and how to code, don't watch videos that are more than two weeks old because. Because they're already too old. So it's this kind of thing. So it's, it's a, it's. I, I gotta tell you, this is so exciting. I'm. I'm actually, I. I've been investing for 30 years. I don't think I've been this excited about investing ever, despite the market being very expensive and all the, all the things I'll be complaining to you about. But it's just, it's a. The world is like. You feel like you're part of history like you're living the history right now. We literally have a guy sending starships like they call starships now. Like I used to watch Star Trek and I feel like we are kind of approaching the Star Trek a little bit.

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[Vitaly Katznelson]

Good.

[Bogomil Baranowski]

Prices and participation may vary.

[Matt Zigler]

We're definitely approaching the Star Trek. Like we are full on in Quark's Replicator is just waiting for you on the other side.

[Vitaly Katznelson]

I think that's, that's it. That's. That's all I'm waiting for. Yes, that's all you're waiting for.

[Matt Zigler]

Okay, I want to go back to like the. You told the Peter Thiel story and the Zuckerberg story. And we're talking about AI and we're talking about. Once you start to do this stuff, you start to see this stuff everywhere and you start to think of these applications and I don't think I'd be amiss to say. I'm sure the Peter Thiel's of the world and the Mark Zuckerbergs of the. They're all playing with this stuff too. You're an active investor. You're watching these people see these paradigm shifts in real time and try to imagine how they're trying to take their futures forward, their companies forward, these ideas forward. How do you, as a value investor, like, how do you combine those two things?

[Vitaly Katznelson]

So I just wrote this in the client letter, which is probably going to become an essay in a few weeks. And I have a few thoughts on this. Number one, and this is not necessarily gonna. I think this one is important, but it's not a breakthrough. I think today you need a lot of humility and you need a lot of humility because in the world that's changing so fast, the range of possible outcomes at anything you look at got wider. And like, I don't know, like the software stocks declined 50, 60% over the last, I don't know, four or five months. We own this little bank that's involved in a, that's involved in transportation. The Stock was down 20, 30% because some karaoke company which a penny stock said they wipe coded some kind of transportation algorithm. Now that's probably just the volatility. But my point is the world is risk. First of all there's AI, but there's also geopolitically. The world is changing very fast. So you need to have humility. But what does it really mean as an investor? Well, I have less confidence in my decisions today for many stocks than I ever had before. And when I have less confidence, the way I express it, number of stocks I own went up. I basically more or less went from 20 stock portfolio to 30 stock portfolio just because their unknowns are really unknown. The world changes so fast and I think having this humility today is very important because you have no idea what the workplace is going to look five, ten years from now. There's just stupid. The global economy is changing very fast. The US Dollar is a reserve currency, but is it going to be. It's probably going to be a reserve currency five years from now, but is it going to be as significant as it was today? May not.

[Bogomil Baranowski]

Be.

[Vitaly Katznelson]

So now, so now I have to think about okay, what's going to happen if there's a weaker dollar. So this is why you kind of, I think humility in my case express through diversification is important. Another thing I try to think about what is not going to change. And a lot of it is just like we still, we're still going to need commodities. So like you know, so you start thinking about commodity companies, think we're still going to need defense companies. They may be start making different stuff in et cetera. And I still have to be nuanced there. But so, and this is, so I try to have humility and start thinking about what's not going to change. But I'll give an example. I was looking at the insurance company at that you know, does car insurances and it was, and, and then the biggest risk for them is self driving. Why? Because you know, when, when you, let's say every car, you know this is going to take a while to get there. But let's say every car on the road is self driving. Number of accidents would decline probably 95%. And so now, so therefore the, the insurance market will shrink. So again I'm. This is gonna take, it's gonna take a long time for us. It's not gonna happen overnight, et cetera. But, but just you know, you have to start thinking about these things. So this is where humility becomes important because my goal as an investor is to Making money is great, but first I want to survive. And, and I think. And that's, and that's what, and that's what I'm, you know, and that's, that's what I'm focusing on. I don't know, Matt, was it, was it, you know, if, if I raise more questions that I give you answers for?

[Matt Zigler]

No, I think those are effective questions to raise both in what's going to change and what's not going to change? Because I think that's, that's uncertainty and humility as an active investor and expand on this more if you want that. Part of being an active investor is being proactive in the way that you're looking at the future in front of you that you ultimately can't know. More humility, less certainty, more positions, more focusing on just the general principles. Like that's where your brain is extra focused right now, right?

[Vitaly Katznelson]

Absolutely. Yeah.

[Bogomil Baranowski]

You know, I share sometimes that I want to be the least wrong. People going to investing, they want to be right. I just want to be the least wrong. And these days I feel the same way you do. I feel like there are many more ways and I can, I can be wrong and you can do this sooner.

[Vitaly Katznelson]

No, I think you're absolutely right. Like, you know, let's say this was a CNBC and you asked me this question and I said you need humility. Like, that's boring.

[Matt Zigler]

Like we would have asked you about Nvidia if this was cnbc.

[Vitaly Katznelson]

That's very true. That's very true. But you see what I mean, right? It's like, it's boring. But I think that in reality, think the understanding that you don't know what the world is going to look like. So in constant trying to figure out and change your mind when the facts change, I think that's what you need to be doing today. I mean, this is what's so quite exciting about the world today because there is so much to learn. And this is probably why I'm so excited about investing today, because despite my humility and everything, just because there's so much to learn

[Bogomil Baranowski]

and it's all changing so fast. Vitaly, I want to ask you a big question about quality. Both the quality that you're looking for, but you also shared quite a few times how there are certain low quality businesses that cause trouble and you're avoiding them. So on both ends, what are you looking for? What are you avoiding? Thinking about quality.

[Vitaly Katznelson]

So I feel like a lot of myself and a lot of my investor friends who are about my age we all went through this evolution. We started out as a kind of, as statistical value investors. And what I mean by this, we were looking to buy cheap stocks. And when I say cheap that you basically just have to. Let's say we're talking about price, earnings. You just needed two hands. The stock had to be worth 10, 10 or less. Okay, nine times earnings. That's cheap. I'm buying it. Over the years, I realized that a lot of times cheap is expensive because what happens, the stock that looks cheap in the rearview mirror may end up being expensive going forward. And one lesson I learned is this, and it took me a while to get there, is that what happens a lot of times psychologically we. I see a stock that looks statistically cheap and then I try to rationalize myself into convincing myself that it, that it's a, that it's a worth more. And I start creating narrative for myself that for this and this reason it's going to be fine, et cetera. So you, and you like. It took me a while to actually to get, you know, to, to understand this. So today. And by the way, I just. What about to say, I want to say like life is nuanced and so is investing. A lot of times you want to do an absolute. You want to say growth, value, quality, et cetera. But I think it's nuanced. It's everything. It's all of the above. So today, when I started doing research, I spend more time looking at the company's quality and the management and then I try to figure out what it's worth. And then we put it on models. And if it's cheap, well, I'm not going to use the word if it's undervalued. And there is a. That's the way cheap is. A lot of times we confuse cheap and undervalued, but they're two different. They could be two different things. But if the stock is undervalued, then it's going to show up on my portfolio. If it's fairly valued or overvalued, it's just going to be staying on my watch list. And by the way, and maybe six months later, it's going to be my portfolio. But the point I'm trying to stress, and this is what I really, really learned from Buffett, the When Buffett. Buffett said at some point that he being an investor made him a better businessman and being a businessman made him a better investor. I've been running this company for about, as a CEO for about maybe 12, 13 years. And when I started, became a CEO. I realized how important people are. How important. Like, that's a, like, that's a. Such a. Like, I knew this. Like, we all know this, but when, like, but you know, here's what happens. When you are investor and you don't. And you interact with the outside world through annual reports, you have a, what I call a spreadsheet knowledge. When you start running the company, you develop this what kind of tactile knowledge. You kind of, you understand, you know how complex business is. You understand. And, and my realization was how important people are. So today we are truly obsessed about people who run our businesses. I mean, it's a just, it's a. And my analyst is. And I'm lucky with that because he's. He, you know, he's a obsessed square about this. And so I also, I remember and I'm kind of embarrassed I'm about to say, but in the past, I was so attracted by cheapness. I remember to buy in a stock. And this is, this is what. It sounded crazy. And I knew the guy who was running the company was a crook, but he owns a lot of stocks, so he's a crook. So he's probably on my side. Okay. I lost money. Like, Bob has a saying. You can make a good deal with bad people with bad people. Well, so today, if I ever question management character for a second, I'm gone.

[Matt Zigler]

It's definitely a good principle. So beyond management character, there's every moment you check the portfolio, you look at the markets, and if you have something already, you're holding it. There's always the intrigue of the new thing that you don't own yet that you want to buy. But selling, selling is so hard. Selling is so confusing. Selling is so scary and threatening at some points. How do you think about the selling philosophy, especially now in what feel like very rich markets? How are you parsing this?

[Vitaly Katznelson]

Yeah, so it's kind of interesting in my. So I sat down to write my first book, Active value investing in 2005, 21 years ago. So it came out 19 years ago. But most of the book was written basically 20 years ago. And there was a chapter in the book about selling. And Vitaly of today would write a different chapter than Vitaly, the author, the one who did. And today the chapter would be probably five times longer and a lot more nuanced because I think selling is a. You have to be very nuanced with selling. Like, let me start with a couple things that changed for me today. I'm much quicker to sell the company. When my thesis is broken, I would just like that's become like I like in the past.

[Matt Zigler]

Can you give an example of that? Or just doesn't have to be a specific company, but just. Yeah, tell me how do you know a thesis is broken?

[Vitaly Katznelson]

All right, so I'm not going to be specific about the stock, but about a few weeks ago, I woke up to find that company I own. The CEO who owned 8% of the company was fired. He ran the company for 13 years. The earnings were for last year are going to be restated and the company is going to start looking to change the business model. Vitality of the past and the stock. Oh, and I woke up to the stock been down 30%. Vitality of the past would rationalize it and try to say, well, the stock is cheap and they got this, this and this and this. Vitaly today basically said I'm gone because I, I don't like when something like this happens. I haven't. I don't know what I don't know. And because. So this is just one example of this. But I remember like when I bought a stock and six months later I discovered that my assumptions were wrong, but the stock was already 20, 30% lower. And I remember how like admitting a mistake to myself. And I knew this intellectually, I knew this intellectually that it shouldn't matter. But by selling now, I have to admit, you know, and then start, you start thinking what clients are going to think all these different things. This, all this, all this garbage they selling. It was the right decision to do at the time. And I didn't because I rationalized it. And by the way, I ended up selling it like, but 50% lower. But by the way, just. I want to be very clear. It doesn't mean that every time there's a bad news, I sell. That's not what I mean. It's a. Maybe another way to put it is this. When I buy a company, a lot of times I feel like. Like I don't know. I buy. When I buy a company, I feel I have an insight. I feel I understand the business. If I don't, I just don't buy it. That things happen when you suddenly feel like you are the patsy and the poker table where like I feel like all my past knowledge is gone. And then whenever I have this feeling, I get out. Is that, that's so that's. That's one example of this. So this is kind of that

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[Vitaly Katznelson]

Selling on the Upside this is where if I look at most of my mistakes and I feel like this is some kind of confessional podcast now, I feel like

[Bogomil Baranowski]

it's just the two of us listening. It's just the two of us.

[Vitaly Katznelson]

Yeah, I know, I know exactly.

[Matt Zigler]

I feel like no one else listens to this.

[Vitaly Katznelson]

I know, I know. So but in the past, if I look at my biggest mistakes, they were not actually, they were not actually me buying the stock and declining. The costliest mistakes were actually in selling. And what I mean by this, I bought a company. This is like a, this is like my very frustrating example. This is like I don't know, 2011, 2012, we bought electronic cards. I forget the numbers now, but let's say we bought it at $13 of okay, Decl. You know, over next year, every single news that comes out is bad news and stock gets to, I don't know, to $10. I buy more then it gets to $8 or something. I don't buy anymore at that point. And my thesis at the time was they're going to be transitioned from, from package games to digital games. And you know, so and when you transition for package games and that would save you going to Best Buy to buy video game. Now we're just going to download it. When that happens, the, the margins for them, you know, for video game makers are going to be greater. They're going to upsell with digital content, all these things. It's irrelevant. So anyway, my thing, you know, so anyway, like a lot of year of pain and then like a year and a half later the stock doubles and actually gets like some more than doubles gets like 28, $29. I almost like I'm so happy. And I'm doing this dance. I'm like, all right, I made this money and I sell this stock, and then it quadruples. And here's the thing. It's quadruples for the right reasons. In other words, it didn't just go up because price earnings went up a lot. It went up because the earnings went up a lot, as I expected it to do. But I was so exhausted for the first part of my journey that I just wanted to have the win. So the lesson is from this, today I learned to zoom out. And today I learned to look at my portfolio as a portfolio of stocks. And now I tell myself, do I really expect that I'm going to own like 20, 30 stocks and every single one of them is going to be working out at this point in time? Because the fundamentals, actually, when I was selling fundamentals just started to improve. And also another thing I learned, when fundamentals start to work, a lot of times, they work for much longer. I basically got on this. In this case, there was a secular change. I want to be nuanced here. That was a secular change. And when the secular change happens, it's not going to last six months or a year. It's going to be lasting for a long time. And it has. Now, what's interesting about this, I also found that value investors, including this one, make this mistake. When you analyze a company, the first thing you want to do, you want to try to kill the business. How do you try to kill the business? You put very conservative assumptions. Okay, that makes sense. Now a lot of times, because you're trying not to lose money, which is great. I think that's what you should be doing. However, what usually happens a lot of times when the business is when the momentum returns in the fundamental momentum turns in the company. Your model still reflects your conservative assumptions, but at this point, that conservative is not necessarily needed. May or may not be needed. And so a lot of times what happens is you were assuming the growth rate is going to be 4%, but you actually, you have evidence that maybe 6 or 8, right? And when you were buying it, you were thinking, well, okay, if my conservative case, it's going to be traded 12 times earnings, but now the company is much better. All these things are working. And so you sell at 12 times earnings to the growth investors who are buying from you. And they're like, look at this gift. It's only 12 times earnings. And they take it to 20. And so, like, one of my, like, I'll give you an example so I've been kept talking about the stock that didn't work out. Like the stock I've been vocal about for last 10 years was McKesson. And it's the thing, it's kind of funny.

[Bogomil Baranowski]

The.

[Vitaly Katznelson]

I think we owned. I forget the numbers now, but it's like we owned it for five years and we made no money. And then over the last five years, it went up 7x. So like, but the one thing. So we still own it. We had to sell it down. It went up just because the position would have been too large. But I learned that when the fundamentals have changed and the kind of cycle has turned, I've been a lot more patient. Now it doesn't mean that I like every single time we would update our models, every three to six months, we update our models and update our fair values and stuff. But today McKesson is much better company. It was a great company to begin this, but it's a better company than it was before. And the capital allocation was terrific. So all these things. So I'm not like I think they. I guess the point is, you know, you want to keep updating your models and you want to realize that the conservatism you had when you're buying the stock, you want to make sure you double check that before you start selling.

[Bogomil Baranowski]

Pali I call it being a value buyer and a growth holder. That's been a tweak to my philosophy because I always liked cheap stocks when I started. And I got in a lot of trouble buying cheap stocks that got worse and worse. And I did run into some questionable managements, which is my no go right now. If I can't trust, even if they're not criminals, but I just can't trust them, I walk away. But being a growth holder allows you to capture the entire upside. You already did the work. And letting your winners run, it's a tough place to be and I've seen people struggle with it. But if it's a 5x, it could be a 10x. And Chris Mayer tells us it could be a hundred X. I think for all the value investors, it's good to expand your imagination that the stock that you like so much could be a bit, a lot bigger than you thought.

[Vitaly Katznelson]

You know, it's, I mean, the most difficult part of this job. Said you feel like you have to come to the office every day. Yeah.

[Bogomil Baranowski]

And do something.

[Vitaly Katznelson]

And you come to the, you come to the office, you have to do something. So. Yeah, exactly. And, and this is why, like, you know, getting the hobby or like just reading, just, you know, that's like, like I learned so many things from Guy Spear, but one of the most important things I learned from him as an investor, like, not to look at my portfolio daily. I used to, I used to be glued to the screen. Today, I think I look at maybe once a day and just, and just. And I just glance at it just to see if there's something I want to. Like, you know, if there was something I was thinking about selling, I want to sell or something I want to buy, I want to buy. But I like, I. It's a. I finally got to the mental space where I can. Sometimes I forget to look at the portfolio and like now. So this. Here's the interesting part. Like, let's say my clients watch this right now and they're like, oh my God, he's not paying attention to my portfolio. Like, I want a guy who's going to be glued to. Like they would make. Here's the interesting part. Like, like, I. We had a client who fired us and then he came back many years later to us and he did not sell a single stock we owned. And that portfolio sells out before me. And I'm like. And I realized, oh my God. Just actually by coming to the office, actually was abstracting from the portfolio. So. So it's a. Sitting in your hands is a lot more difficult now. It's a. Like I say this and let's say McKesson became 40% of my portfolio. Like there is a psychological factors now playing that I would not be able to sleep at night. Just. I know just the way I'm wired. I just would be. And I know my clients would lose sleep over it. And I would argue it's not worth it. So it would not. So the, you know, so it's not necessarily. You would argue that in hindsight it would not be a good decision to reduce your position size. But I would argue for the real world, I think it's more important to sleep than to have a little bit more return.

[Matt Zigler]

Sleeping, generally speaking, probably helps performance.

[Vitaly Katznelson]

By the way, I'm a big fan. I have this Oura ring that track my sleep. Oh, hey, yeah, yeah, yeah.

[Matt Zigler]

It matters more and more. I, I can attest, I can attest to this. So I, I want to stick on the, the buffet and the Spear and these people that you've drawn influence from because you're drawing influence from both of them with different prior experiences, different experiences with the past. And you're trying to apply that in the future, in the now. And we've seen this both in the evolution of Buffett. I think that's been widely discussed and explored. But how do you think about drawing on what's timeless and evergreen from these great minds and why that's going to help you going forward?

[Vitaly Katznelson]

So I've been very lucky. Well, so I heard this saying that you are the average of your five, five friends. And I love it. And because you can. So the better your friends are, the better person you are as well. So they elevate you. If you have a lot of toxic people in your life, if a lot of people who have questionable values, it's gonna drive you down. And I think the same applies to investing. I was lucky that I'm surrounded by a lot of terrific value investors and friends. And Guy is obviously a friend of mine and I learned a lot from him. But I also have a lot of other friends. And you had some of them in your podcast, probably. And I learned a lot from them. From some of them, I learned the how to be more patient with stocks for others. I learned that the value of deep research for mothers. I learned how to take something complex and break it down to basics. So just because a lot of times just. Just a few things that matter. So I. So I have surrounded myself with a lot of terrific investors, not just Bob, this thing. I think there is so much more you can learn from other people who are around you. But also this applies to invested. Here's why, directly to stock investing. If you study great businesses run by great people, then it's going to be. You can't help it, but you will not be able to accept mediocrity. I like this last summer, I think I'd be like over two, one or two months period. I met with six or seven management teams and I met with this terrific management and mediocre management. And that mediocrity stood out so much more because I met with great ones. I came back and sold the mediocre one right away and it was just easier to see. So. So when you surround you, when you like this is, you know, now. Okay, I just gotta be very nuanced here. It doesn't mean that you just want to own great management great companies and ignore the valuation. That's not what I'm saying. But there's like 10,000 companies out there and only need 20 or 30. So there is a lot of things to choose from. So the. When I spend more and more time study analyzing great businesses that it just elevates the quality of my portfolio overall. And that was very, very important for

[Bogomil Baranowski]

me, Vitaly, what I'm hearing. And you and I spend quite a bit of time together in Omaha and in clusters with Guy, and we got to listen to Manish Pabrai, who tells us to clone everybody. What I'm hearing from you is take away cherry pick what you like from all your know, dearest value friends and then find your own voice at the end of the day. Is that what I'm hearing?

[Vitaly Katznelson]

B I, I just, I wrote a book, it's not out yet. And you talked about a little bit about. It's called what a Life. Yeah. And the very, and the, in the very first chapter starts the whole point of the book. And we don't have to go in it yet, but the whole point of the book is creating operating system for life.

[Bogomil Baranowski]

Yeah.

[Vitaly Katznelson]

And I start with Buddhism. Line from. I read a few books on Buddhism and I remember the very first book I read, there was a one line that basically had such a great impact on me. And the line said something along the lines, pick what works for you and discard what doesn't. And this is what I'm trying to do in this book. They're basically saying like a lot of religions, for instance, they tell you basically it's all or nothing. And I'm saying just pick, you know, be all different, pick what works for you and make sure those things are compatible with each other, not conflict with each other, and discard what doesn't. And I think this applies to investing as well. We all different. Mohnish is a terrific investor, but Mohnish tolerance for swings in stock prices is much of portfolio, actually, it's a portfolio is much greater than mine. So Mohnish could have a 10 stock portfolio and he can be, you know, he'll still do great in long term, but they, he could be down 50% in the last one year and up 300% next year. Like, I'm already, you know, getting thin on the, in the hair department. I would have been less hair if I had his portfolio. But it doesn't mean that he's wrong. It's just it works for him, not for me. But there are so many other things, you know, but so, but a lot of times you can learn. I can look at his portfolio and say, I can see that works for him. It doesn't work for me. It doesn't mean he's wrong. And by the way, same thing about Buffett. You can look at Buffett and he can be your hero and not the hero at the same time. And there's nothing wrong with that, too.

[Matt Zigler]

What about. You've got these three Ps, not from the new book. It's from some of the old stuff you've written about passion, patience and process. Take us through those and maybe apply it. Because I feel like this isn't a direct extension of what you were just talking about there.

[Vitaly Katznelson]

Yeah, well, I think passion. So I had a friend that got into investing because for the money reasons and how I know this, he got into investing for the minor reasons because he had a job that was very good job. And then he got. And you know, he was doing research, et cetera, and then he got a job. They paid him $10,000 more. So I forget how much it was. 10 or 20% more, it doesn't matter. It was in a kind of investing, but not really. And he took the job. And I was shocked because at that job, he would not be doing. He was doing. Yeah, he would not be doing investing. And like, I remember I was shocked and I realized he really didn't have passion. He was just really doing for money. By the way, there was no judgment in it. There was no judgment on it. But what I realized that if you are doing actually anything, it doesn't have to be investing, but if you're doing anything creative and you're doing it just for financial reasons and you don't have passion for this, your fuel tank is going to be, it's not going to burn. Your engine is not, you know, your fuel is not going to burn as hot or it's not going to be as powerful, as potent. And while you'll be competing against people who have a much bigger and much stronger and much more powerful engine and fuel thing. And I think in investing, um, it's incredibly important. So that's, that's about passion, patience. I mean, you're gonna go in investing, you're gonna go through times when you're gonna look like complete moron. And, and like when I say you, I'm talking about me. Happened plainly to me.

[Matt Zigler]

You can say it about me.

[Vitaly Katznelson]

I can handle it. You know, can I. Can I just interrupt for a second? I gotta tell you, there's something. There's a. This is, this is like, this is a side note, but I thought that was fascinating to me about the word. So in Russian, when they say, like, in the Russian language, when I say you, when I'm talking to you and I say you, a lot of times it doesn't mean you. Like, I would say, like you say, I'm talking About the garbage man. And I say, you know, if, when you, if you're a garbage man, you come to my house, you pick up the trash at this time, right. So you know that I'm not talking about you, I'm talking about the garbage man. But, but I. It took me 25 years to realize a lot of time I would have offend people because I brought this rushing you into conversation and people thought I was talking about them. So now I am so careful about qualify this because I realized like half of people in my work were upset at me like for 10 years because thought I was insulted them. So I stopped doing that. So today when I say you, I always try to, you know, I'm glad you said that.

[Matt Zigler]

All these value investing garbage investors. Go ahead. What were you going to say about the next part? Take it away.

[Vitaly Katznelson]

The. I forgot what I was talking about. You were about patience. No. Oh, oh, okay. So in investing it's impossible not to. Not to be an investor and not to go through a difficult period in time. And this is where passion becomes important. Right. Because if you're doing it for the money and for the wrong reason, you're going to give up very quickly. But I think patience is also important because it's all connected together. Because investing is really just also about process. Right. And the process is basically you analyzed, you figure out what the company's worth. You know, you found what something, you know, you think it's significant, undervalued, you've done the research and then you wait and you have no idea when the market is going to agree with you. And that requires a lot of patience. But you also have to be process driven in a sense that you know, it's a. Because the market will be giving you a lot of signals every single day. You're going to come to the office and market it. You're right your own, you're right. Your own. And this is where your process becomes important because you need to know, like you need to get, you need to be consistent, you need to be curious. And, and this is why you kind of. This kind of this three P's become kind of. They're all interrelated. In fact, me trying to explain it to you like I couldn't explain one without that to others. And that's, that's, that's exactly. That explains how important they all three are. And they're all interconnected.

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[Bogomil Baranowski]

listening to you, I'm thinking of myself last night, 10 o' clock, and I'm trying to figure out this new software that can help me with an aspect of my research. And I'm thinking none of the clients know that it's 10 o' clock and I'm working. Nobody will ever know. Maybe you guys will know that I was there working. And I'm doing this because I love the process. I figured out something that will improve my my work and I'm having fun with it. Will I ever get paid for it? I doubt it. But I'm loving the process and I think you can't beat that in this profession.

[Vitaly Katznelson]

You know what I think doing like behind me there are a lot of paintings by my father. And so when I say what I'm, I'm can it. I have a lot of trepidation we're about to say, but I think a lot of part of the big part of investing is art. Or at least it's a very creative endeavor. And a lot of times you do art for the sake of art. You're like, I do this because I love doing this. And that's what you buy. That's why Boogamil you at 10 o' clock at night because at some point in your life you made a choice. You made a choice that you're going to be an investor. And for you now it's a kind of it's a life choice. And it's not about money anymore. It's not about what clients will think about it. It's really you answer to higher authority, which is kind of the future you. The future you. Where Basically, you ask yourself, is the future Bogomil going to be proud of. Proud of yourself or not? And I think that's. And that's. To me, that's what high authority is. Kind of. When I look at myself, you know, like when we talked about Vitaly, the author who wrote about selling, I'm so proud of this that today I look at this and I say, whatever the guy wrote, he was wrong. Or at least I think different. No, you know why? Because that means I have learned. And I think that's the key. You should be. Always be embarrassed for your past self. Not for the values. Not for the values, but for your thinking. Because you evolved, you're better. Like, hopefully my. I won't be embarrassed for my values, because that's important to me. Okay? But for. If I am embarrassed that my. You know, that for my past selves, because, you know, Isaac used to think that you're moron. Now it means I have. I'm smarter today than I was before.

[Bogomil Baranowski]

You know, there's this idea of asking people, what would you do if you were not paid to do it? And somebody reframed it for me, and it really spoke to me. He says, no, you should ask how much would it take for somebody to pay you for you to stop doing it? And, you know, you have founders that started a business. I was listening to a Whole Foods interview founder, and he sold the business. And he kind of has a slight regret if you actually pay attention to what he says. And he sold the business because he doesn't really get to do it. So I was thinking, you know, what would it take? How much would you be paid to walk away from what you do? And it's hard to come up with the number because to me, investing is everything that I do. You know, reading, Curiosity. You would basically ask me to stop living.

[Vitaly Katznelson]

I like, it's a. Like if a private equity firm and gave me some insane number and say, a billion dollars to say hypothetically.

[Bogomil Baranowski]

Yeah, I.

[Vitaly Katznelson]

Honest to God, I'm not sure. Like, I probably would say no just because. And then what? Like, I have a. Like, I. And. And then what? Like, and then I. I was listening to the founders podcast and David was talking about, I think, a founder of Trader Joe's, I think, or something. I think Whole Foods.

[Bogomil Baranowski]

Was it Whole Foods?

[Vitaly Katznelson]

No, I think no. Whole Foods guy. He's still there or he just left? No, I think Trader Joe guy. I think he sold. He sold his company and. And the 50. And he was like, he was writing his memoir and he was Basically was miserable, I think last 15 years of his life because he lost. Then what? He got the money, then he had nothing to do. So today I look at my life and I, I was lucky that I was able to kind of. To carefully craft this life where I just do what I love and, and I, the, the. There's very little out today I would do for money, you know. So. Yeah. So anyway, well, this is where we

[Matt Zigler]

get to the surprise end of the show where we introduce the billion dollar allocation that you now have to manage.

[Vitaly Katznelson]

Oh, this is great. Because I love it.

[Matt Zigler]

I can't help but think of Soul in the game when you have that explanation too. And I feel like it's almost, there's literally, there's almost an asset there when you have soul in the game that pushes other things out of the way. How do you think about that in that process? Including like that you would say no to something that would take this away from you a la the Trader Joe story or Allah. Something that would crowd out your enjoyment from this process.

[Vitaly Katznelson]

So Solar Game is basically kind of a next level of skin in the game. Skin. The game is basically when you have. I mean it's just financial alignment, but the key is not just to the upside, to the downside as well. So in other words, because when you usually talk about skin in the game, a lot of times people think by, well, if things go well, I'll make money. Okay, that's great. But it's. But the truth in the game is when actually you lose money as well when things don't go well. However, the Solar Game is that when that alignment, when what you do is aligned with your identity, okay, what you're doing is basically you can't think about doing anything else. And I think that's what really is like if you are so lucky, if you do what you love, if you are, money is completely. What we just talked about. Money is completely secondary if you're doing it for the sake of art, for the sake of kind of answering to the high authority of you in the future. And they like in the books on the game, I was talking about Jira Ona from the George James of Sushi documentary. And this is a person who just obsessed about making the best sushi possible. In Japan you have all these artisans like that who are just shokunin, they call shokunin, who are just focused on producing the best possible thing. They're making either sushi or swords or knives or whatever. And I think I like what's great about this job by the way I get to surround myself to people like me who are obsessed about it. I can literally talk to them at 11 o' clock at night about the stock and you stumbled on and they would be as exciting as I am. Yeah.

[Bogomil Baranowski]

Vitaly, when I'm listening to you, I'm thinking of something that I've been trying to frame and it will become an essay, maybe something longer. But it's the idea that it's not about the money. And I bring it up on my podcast now and then I kind of laugh because the show is about money, wealth investing, but I say it's not about the money. When the founder shows up early in the morning to build the business to the next billion dollar in sales, it's really not about the money for them when you're investing money. For me, it's really. Money is just an expression of something that I'm doing. It's the curiosity, it's building something. It has a meaning, it has a purpose. And I manage money for multi generational family fortunes and they're building a legacy that will last them. Money is just a component of what they're passing on anyways. What do you think about that statement? It's not about the money. If you look closer and it's an audacious thing to say on a money and investing.

[Vitaly Katznelson]

I agree with you in this way. I like we. You're right. It's kind of weird profession. Right. Because the ultimate outcome is for us to make more money for other people.

[Bogomil Baranowski]

Mm.

[Vitaly Katznelson]

And yeah, there is a scorecard that's always presented against what you do. But it doesn't mean. But for me it doesn't. Okay. I'm not driven for. By making myself wealthier. Like I like I don't wake up in the morning and thinking about McNeil. Like I'm not driven by that. I want to make other people wealthier because. So it's complicated. Right. Because there are many answers here. I love solving puzzles and it happens to be. If you solve this puzzle right, there is a prize and I'm not necessarily interested that oh, I'm going to get this prize and I'm going to go to McDonald's or I'm going to go to a steakhouse and spend it. But it's the solving the puzzle comes with a prize and that's. That's, that's. That's part of it. I also have like, I like I always talk about this because this is like one of my first clients was still is a client been us for a long time. Now is a doctor who basically came to us and, you know, he had been doctor at the time for 30 something years. He said, here's my life savings. Okay? I, you know, that's all I got. And to me, that's such a responsibility and privilege that I, like, I know that my decisions will impact his ability to, you know, kind of, to travel, etc. To, you know, spend time with grandkids. So I get satisfaction of making him money because like, you know, the impact it's going to have on him. But it's not. But it's real. But it's. So it's a. It's not about me enriching myself. Here's the thing. This is kind of the products. It's not about me enriching myself as much because it doesn't motivate me anymore. It's about solving these puzzles. It's about doing something. And this is. Kitty, as you get older, actually, I get so much satisfaction of doing good things for others, which is kind of interesting. You, you, when you. The word giving is not really giving because you're taking. So this is, this is the, the paradox of this, right? By, by doing something for others, by giving, actually, I'm receiving as well. So therefore, I think you're right. It is not about the money. At least it's not what motivates me. It's not. And I think that's. I'm giving you very kind of a lot of different answers here, but it's just because I think it's a great question. I think it's a lot of nuances here too.

[Bogomil Baranowski]

And I think we get it so wrong so many times. People spend so much time looking at the CEO compensation scheme incentives, and I feel like if the CEO needs to show up every day just to meet the 12 targets that are in the proxy, that's the wrong way to go about it. They have to show up because they love what they do. And I know it's a huge ask and it's an aspiration and maybe just the founders can really express that kind of love for the business. Very few CEOs that follow, but if you think that it's just the 12 targets that they have to hit, that's the reason why they will do a good job. I feel like we're missing something.

[Vitaly Katznelson]

I think that's. That, that's. That is incredible insight. I think that you're absolutely right. So in other words, skating the game is not enough. You need to have someone again. Exactly. No, I think absolutely.

[Matt Zigler]

Or you're not gonna tell the associate. Go spend time. Vibe, clothing, the website to convince your wife to move.

[Vitaly Katznelson]

Exactly.

[Matt Zigler]

There's upside to all these things. All right, I will. I will personally hate myself if I don't talk to you for at least a second. As a former music major working somewhere in this great investment space of ours. You write about music a lot. I wish I could say I was listening to, like, Bach or something or Rachmaninoff this morning. I was not listening to anything that complicated or. Or interesting. But what. What's the connection? Like, why should somebody who studies annual reports and 10Ks and reads all the nonfiction, why do they still need Bach and Rachmaninov and are in their life?

[Vitaly Katznelson]

I'm gonna give you two answers, and one of them was gonna be wrong because it's gonna make you a better investor. That's the wrong answer. You do it because you love it. Because there's so much. Like, Freddie Mercury has this line. There must be more to life than this.

[Matt Zigler]

Right up there with fat bottom girls.

[Vitaly Katznelson]

Right.

[Matt Zigler]

Right up there.

[Vitaly Katznelson]

Yeah. It's a problem. Yeah. Though I probably argue he said it before they did. The. I happen to love classical music, and it gives me incredible joy. And the reason I started writing about this, because I really wanted to learn more about it. Really, it was a kind of. Again, it's a kind of. I started to give because I wanted to take. Because it was a selfish endeavor, because I wanted to learn more about it. And the more I learned about classical music and about the composers, the more I realized, like, how. How similar it is actually it is to invest in, in a sense that, like, you look at these composers, you look at Tchaikovsky, Rahmani, nafpa, and you think of them like, well, like, how. How great they were, and you, you know, but you don't realize how much they suffered to create this. You know, to create this. Like, Rachmaninoff wrote his first symphony, and it was, you know, and it bombed. Completely bombed. And he was in a. And he was in depression for two or three years after that. And then when he came out of the depression, he wrote his second piano concerto. So it's a. Which is one of the most beautiful piano concertos ever written. Tchaikovsky, when you read his. Tchaikovsky, wrote letters. And at the time, they did write a lot of letters. And in his letters, he talks about his insecurities about writing this piece, and it's incredible. So it's a. It's actually gave me some. Again, I'm. None of us on this podcast are creating, you know, something as Beautiful as they did. But we are still involved in a kind of. In a creative endeavor and creativity. And this is where passion is important, comes with pain and you're. And if you have the passion, you get through the pain. But it's also realizing that it's okay. It's a normal part of the creative process to have pain. And by the way, the pain is what gives that growth. I mean, it's just. I would argue if Tchaikovsky was kind of was a Marcus Aurelius stoic, his music would be horrible. Marcus Aurelius is not known for his music, but I think it's that kind of. It's going through the creative ups and downs is what made Chaykovsky is such an incredible composer, you know, So I, you know, I just happened, man, I happen to love classical music and that's why I listen to it, you know. But if you love jazz, there's nothing wrong with jazz either. So what. Whatever else you listen to, I, I

[Bogomil Baranowski]

almost hear that you want to say that we should be creative about buying and looking for ideas and then we should be stoics while we're holding this business because things will happen that will push us out of the idea.

[Vitaly Katznelson]

I could not say it better. You could be Tchaikovsky, you should be Chaikovsky in your research and you should mark the release in your. After you bought it. Yes, absolutely. I love it. I love it.

[Bogomil Baranowski]

Vitaly, just to wrap up, there might be other people listening. Some of them are average investors managing their own money, asking questions, maybe having some doubts. What's the one lesson that you teach an average investor? Listening to you, I know that you love teaching and I'm curious, what would it be about. About average investor wants to become a better investor. Listening to us today, what would. What would you share with them other

[Vitaly Katznelson]

than listening to a podcast release?

[Matt Zigler]

I mean, that's a given.

[Vitaly Katznelson]

That's a given. That's okay.

[Bogomil Baranowski]

Vitaly's wisdom. Vitali's wisdom.

[Matt Zigler]

Forget the five people thing. You are a product of the three people you listen to on a podcast.

[Vitaly Katznelson]

Exactly. Let me see before we go there can. Actually, I was going to talk about something. I want to talk about stoics a little bit. Just. Just really one thing about stoics, one interesting insight I got from Marcus Aurelius that applies directly to investing. And so at the time of Microsoft Aurelius, which is, I don't know, like 2,000 years ago in Rome, there was a lot of schools of philosophy, there was cynics, there were pecurians, skeptics, you know, Obviously, there were Stoics, but there was also another, another school called Sophists. And Sophists, basically the parents would take their kids there so they would become better speakers. And. And basically the sovist idea was, is that they're going to teach you how to become a better speaker so you can convince other people to your point of view. Now, I would argue that it's a great skill to have, but Marcus Aurelius warned us that you have to be careful. You have to be careful with. Sophists. And the reason for that, because they appeal to your emotions. And when somebody appeals to your emotions, that overruns your logical senses. Now it becomes very important business. A lot of times when you deal with CEOs, and maybe that's the lesson that I would like your listeners to learn. When you deal with CEOs, those people became CEOs not because they were shy librarians, those people were charismatic. They climbed the corporate ladders. They were inspirational. And which is fine, there's nothing wrong with that. But when you talk to somebody and they are in, they're basically Sophist. By the way, they were sophisticated. The root is same word as sophisticated. When these people are charismatic, a lot of times they appeal to your emotions and that's dangerous for you as an investor. And Marcus Aurelius had a very good way to solve for this. He said, when you're at the restaurant, and actually, I'm not sure he said it that way, but I'm gonna give you. You go to this very fancy steakhouse,

[Matt Zigler]

like you're at a Ruby Tuesdays. Marcus Aurelius, right?

[Vitaly Katznelson]

Yeah. Like fancy version of Ruby Tuesdays. Yeah. They tell you this, this Chilean sea bath that was caught. That was caught by the fisherman at 2 o' clock in the morning. And this was prepared for 24 hours. And he gives you the speech how the orange fell on this and the basil touched it and all these different things when you give it. You know what they tell you? Specials and fancy restaurants. You're like, can I just have some chips and guac or something? But anyway, the point I want to make is this microsorealist would listen to this presentation and say, so you're basically saying you got dead fish and some herbs. That's the key. So when you listen to this presentation, when you listen to people who are incredible speakers, you shouldn't hold it against them. They're great speakers, but you should know that it's very possible. The message that the impact have on you is disproportional to what May actually fool in you. Okay. And therefore, you want to kind of get it down to the kind of dead fission herbs, kind of get it down to the basics. And I try to do this all the time. So when I'm a lot of charismatic people, like charismatic executives, I always try to kind of get. So what exactly. He just told me, like, that's, you know, anyway. So that's, that's. That would be my lesson to. To listen to us. How's that?

[Matt Zigler]

I think that's fantastic. I constantly try to remind people the word market. It's in marketing and it's in markets.

[Vitaly Katznelson]

Oh, I love.

[Matt Zigler]

Can't talk about one or the other.

[Vitaly Katznelson]

You can't. I love it. Exactly. That's. I love it. Yeah, absolutely.

[Matt Zigler]

Vitaly, this is an absolute joy. If people want to find you on the Internet, if they want to bug you, read your stuff, where should we send them?

[Vitaly Katznelson]

So I listen two things. I, first of all, I have a newsletter. This free newsletter. You can read my articles. All you have to do, go to Investor FM, like FMRadio Investor FM. You subscribe, you get my articles. No, no marketing. And you can listen to my podcast, which is Intellectual Investor, whatever you guys, you know, YouTube or whatever podcast you listen to. And that's about it. And my podcast is just basically my articles read to you. And can I just say one more thing? If you're in Omaha when Bogomil is there on Sunday, right after the Berkshire Hathaway meeting, we're going to have a free event where I'm just going to. I'm going to answer questions from readers. So if you go to Investor fm, you can sign up. It's absolutely free. You get to meet me and say hello and, you know, and ask. And ask a question or two.

[Bogomil Baranowski]

So amazing.

[Vitaly Katznelson]

That's it.

[Matt Zigler]

Ask him the story about the Chilean sea bass. Exact marching orders.

[Vitaly Katznelson]

Exactly. Exactly.

[Matt Zigler]

You're watching Excess Returns. Bogumil Baranowski. Make sure you check out Talking Billions. Vitaly Katznelson. Look for all the links down below. Like, subscribe, comment. You know what to do. This is Excess Returns. Thank you so much, both of you, for joining us today.

[Vitaly Katznelson]

Thank you so much. Thank you. Thank you, guys. Thank you for tuning in to this episode. If you found this discussion interesting and

[Matt Zigler]

valuable, please subscribe on your favorite audio

[Vitaly Katznelson]

platform or on YouTube. You can also follow all the podcasts in the Excess returns [e-mail]. if you have any feedback or questions, you can contact [e-mail] no information on

[Matt Zigler]

this podcast should be construed as investment advice. Securities discussed in the podcast may be holdings of the firms of the hosts or their clients.