Podcast Summary: Excess Returns

Episode: The Expensive Truth About Cheap Investing

Guest: Bogumil Baranowski (Investment Advisor, Blue Infinitas)
Date: October 5, 2025
Host: Matt Zeigler

Overview

This episode explores the paradox at the heart of value investing: why do investors relentlessly seek out cheap stocks when, in everyday life, we rarely pick the cheapest dentist, restaurant, or service? Guest Bogumil Baranowski draws on investing history, personal experience, and behavioral psychology to challenge the conventional wisdom around bargain hunting in stocks. The discussion delves into how great investors have evolved to sometimes paying up for exceptional businesses, long-termism in portfolio construction, and the emotional resilience needed to hold onto winners through drawdowns and “dead money” periods.

Key Discussion Points & Insights

1. The Dentist Analogy and Investor Psychology

• Paradox Introduced: Unlike other purchases in life, investors hunt for the "cheapest" stocks, even when cheap doesn’t equal value.
  • "Do you honestly look for the cheapest dentist in town? [...] We know that this intuitive value and price dynamic, right, like this price is what you pay, value is what you get." (A, 00:00)
• Behavioral Explanation: Investors often carry frugal habits from life into investing; many start with little capital and the instinct to find bargains.
  • "We have that little capital and we have to do something with it. So we start investing it and the capital starts compounding and growing..." (A, 27:42)

2. The Three-Phase Evolution of the Value Investor

• Phases Defined (07:00–09:00)
  • Cheap: Buying “50-cent dollar bills” – deep value, liquidation-style bargains (Ben Graham).
  • Good Value: Solid businesses temporarily out of favor; decent value, steady returns (e.g., Coca-Cola at the right times, 08:37).
  • Exceptional (The "Pay Up" Phase): Willing to pay fair-to-high prices for truly outstanding businesses with multi-bagger potential (Facebook/Meta case study, 12:17).
• Quote: "You’re not buying for the static way of value investing 50% off. You're buying for the dynamic approach where a dollar could be a hundred." (A, 15:31)

3. Paying Up for Exceptional Businesses: Lessons from Facebook & Buffett

• Case Study – Facebook’s Busted IPO:
  • Despite brutal early performance, Facebook’s business model offered unique scalability and value creation.
  • Internal resistance from value investing peers illustrates the challenge of “paying up.”
  • "It was a battlefield to even talk about this... it violated all the value investing principles. The multiples were high. It was a hard stock to hold..." (A, 13:03)
• Buffett’s Transformation:
  • Starting as a Graham disciple hunting liquidation values.
  • Evolved to buy and hold world-class businesses (Coca-Cola, See’s Candies) – not just what’s cheap, but what’s exceptional and enduring.
  • "Most institutional investors would not be in a position to let their stock positions run up to 40% of the portfolio. Name one." (A, 32:52)

4. Managing Through Volatility & “Dead Money”

• Drawdowns vs. Dead Money:
  • Drawdowns: Sharp, short declines; easier to hold through when you believe in the business.
  • Dead Money: Long periods where nothing happens; much harder to retain conviction (16:07–19:27).
  • "Drawdowns are usually short lived... But the dead money periods are even harder if you’re managing other people’s money..." (A, 16:33)
• Process Advice:
  • Tune out the noise, focus on underlying business results (not just price).
  • Use a mental model: Imagine not knowing the price, only business metrics (A, 19:27).

5. Portfolio Construction & Attention Management

• Attention as a Red Flag:
  • If a small position takes up a disproportionate share of mental energy, it's a red flag (A, 40:56).
  • "You could have a 2% position in the portfolio that takes up 40% of your attention. I have an easy fix here. Sell it." (A, 40:54)
• Green Flags:
  • Positive business surprises accumulate over time.
  • Real win comes from holding: “I know so many people that bought the right stocks at the right time and even at the right price, but I know very few that held them long enough.” (A, 41:17)

6. Legacy, Multigenerational Wealth, and Considering Time Horizons

• Stewardship, Not Accumulation:
  • The role of the long-term investor, especially with family fortunes, is to act as a steward with a multi-decade or even multi-century perspective (45:21–49:00).
  • "They think in terms of being a steward of something that serves a greater purpose. Not just for their family. It could be for their community. [...] You have to own [great businesses] in a certain context, that makes sense and that serves this investment well..." (A, 49:22)
• The Transition from Frugality:
  • Frugal habits are foundational, but must be evolved to embrace opportunity and compound capital at scale (33:48).

7. The Value Investor’s Ongoing Dilemma: Quantitative Value in a New Era

• On “Is Value Dead?”:
  • Quant screens and cheap stocks aren't "dead," but their performance depends on context and goals.
  • Benchmarks (like the S&P) are human inventions; performance should be judged relative to one’s actual needs and objectives.
  • "The bottom line is what kind of game are you playing? What's your goal? And when people say that something is not working, you're asking about those super cheap stocks, are they working? I don't really know the answer because the question would be have they made money for people? Forget the benchmark." (A, 54:49)

Notable Quotes & Memorable Moments

On Patience and Simplicity:

• "If you found a stock that makes sense, you don't have to check on it every five minutes. If it's supposed to do well, it will do well. If it does terribly, sell it, buy something else, but you don't have to check on it." (A, 00:29 / 61:23)

On Information Overload:

• "Try an information diet. It's been really wonderful the last two weeks. Highly recommend it." (A, 62:11)

On Simplicity of Approach:

• "I still believe that a lot of my peers would disagree with me with the idea of how little work you would actually have to do to be a successful investor." (A, 62:28)
• "If the business makes sense, you can explain it in a simple sentence. If you cannot, I choose not to own it." (A, 63:23)

On Time Horizon:

• "You really have to filter out so much noise to cherry pick a handful of things that matter at the end of the day." (A, 61:06)

Timestamps for Key Segments

• 00:00–04:10 — Dentist analogy; introduction to value vs. price
• 07:00–09:00 — The three phases of value investing: Cheap → Good → Exceptional
• 12:17–16:00 — Facebook/Meta as a case study in exceptional opportunities
• 16:07–19:27 — On dead money, conviction, and holding through pain
• 27:42–33:48 — Stories of grandma, frugality, and lessons for investors
• 40:56–41:17 — Attention as a red flag in portfolio management
• 45:21–49:22 — Multigenerational perspective and stewardship
• 54:49–56:41 — Revisiting the value investing dilemma and rethinking benchmarks
• 61:06–63:23 — Final lessons: information diet and the need for simplicity

Additional Highlights

• Storytelling: Bogumil brings lessons from family (grandmother’s farmer’s market logic), investment greats (Buffett, Graham, Schloss), and personal anecdotes (walking through Manhattan dictating the viral WSJ essay).
• Practical Takeaways:
  • Focus on buying quality, not just cheapness.
  • Track attention, not just performance.
  • Own businesses you can explain simply.
  • Filter information ruthlessly for deeper analysis of fewer things.
  • Remember: price and value are not the same—across all asset classes.
• Enduring Lessons:
  • The future of investing is not about more data or speed, but the maturity to filter, focus, and wait.

Where to Find Bogumil Baranowski

• Substack (articles, essays, podcast show notes)
• YouTube & Podcast: Talking Billions
• Personal Engagement: Writes personal emails to subscribers

This episode is a must-listen for investors grappling with “value vs. price,” the evolution of value investing, and the mindset required to achieve not just excess returns—but lasting, multigenerational wealth stewardship.