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- [00:01]
A
Hello everyone and welcome to Investing by the Books, a podcast by Red Eye. I'm your host, Eddy Palmgen, and with me here in the studio is my friend and colleague Niklas Savos. And today we are really excited to speak to Chris Waller. Chris is the founder and portfolio manager of Plural Investing in New York City. He has previously worked in London at Goldman Sachs Asset Management and he has an MBA from the legendary program Value Investing Program at Columbia Business School. So, Niklas, which book will we speak about today?
- [00:31]
B
So Chris has selected the book We Are Bellingcat, which from the first level has nothing to do with investing. The book is about how the online based network of investigators called bellingcat has managed to uncover the truth in multiple scandals by using open source information. We really love the book. It says on the COVID that it reads like a thriller and we want to echo that. And now we're really curious to learn about how Chris has drawn lessons from the book in his work as an investor.
- [01:03]
A
We Are Bellingcat was published in 2021 by Bloomsbury Publishing and we are thrilled to speak about the book. Here comes our conversation with Chris Waller. Hi, Chris, and welcome to Investing by the Books podcast.
- [01:30]
C
Thanks, Nicholas. Thanks, Eddie. Thanks for having me.
- [01:33]
A
Thank you for taking the time. So last time we met, I was in Omaha last year. Where are we reaching you today?
- [01:40]
C
I'm based in New York, so originally from the uk, but based in New York now and have been here for a number of years now.
- [01:49]
A
And are you in your home office or where are we calling you?
- [01:53]
C
Yeah, I'm based in my home office. I think, like a lot of people during the pandemic discovered that if you have a home office that actually works quite well, so sort of kept that on and it's. And it's worked well for me.
- [02:06]
A
Perfect. And to begin, can you tell our listeners about your early background and what led you into the world of investing?
- [02:14]
C
Yeah, so I grew up in the UK, Bristol, which is in the Southwest, the UK, first got into investing at the age of 16. So I'm 31 today. That, that was September 2008. So an interesting time to get into investing. Essentially there was a sort of national mock portfolio competition in the uk and my economics teacher sort of entered me in and clearly an interesting time to start reading about these different events and companies and so on. Basically got hooked pretty much straight away. And I've been, you know, fairly obsessed about it ever since then. So that competition itself was about six months, but soon afterwards, sort of reading a lot of the different you know, value investing materials and, and books and so on. Ended up doing economics for my undergrad whilst focusing a lot of my time on investing sort of on the side. Worked in London for a few years at an international small cap fund and ultimately moved to New York to do my MBA at Columbia. So that's sort of been my journey. I now run a small small cap fund as I say, based out of New York but looking at companies global, globally.
- [03:41]
A
And was it clear for you like from an early stage that you would, you wanted to get into Columbia Business School or, or how did that come about, that decision?
- [03:50]
C
Yeah, it wasn't actually clear initially. I think you know, when I was working in London I worked for Goldman Sachs Asset Management and I didn't have any specific intentions to move to Columbia or anywhere else. I think what I sort of discovered over time was the value investing program at Columbia. Some of the instructors that they have that you get quite good access to being based in New York as well. I ultimately did want to move over to New York and so it just sort of worked out that way over a few years and it's turned out to be a good decision in the end.
- [04:37]
B
So today we will speak about the book we are bellingcat. Why have you chosen this book?
- [04:43]
C
Yeah, I think it's a interesting book because it has a lot of relevance to investing but a lot of relevance to research in general. The books based on an organization called bellingcats which was founded by someone called Elliot Higgins, someone without a traditional investigative or research background and it really shows how today with the growth of social media and other open sources prime primarily on the Internet, you can really dig into any topic whether that's investing or other subjects, primarily in the case of bellingcat and you can really learn about it and understand it even better than some experts in some cases. And I found that really interesting when I read the book. It wasn't specifically investment minded. I didn't read the book thinking this will be useful for investing and I was really surprised by some of the stories where this organization and this person was able to understand things that were happening whether it's in Ukraine or Syria or different regions around the world and often in these cases understand better than even the professional intelligence agencies. So that really surprised me and I think there are a lot of lessons that you can draw as an investor which is why it's had an impact on my approach.
- [06:10]
A
It's really a fascinating book and maybe we can speak a bit more about I mean the name for me I didn't really understand bellingcat. Why did Higgins choose the name? So maybe you can explain that for our listeners.
- [06:21]
C
Yeah, I think it's from a Greek fable, Belling the cat, which is a fable where essentially there is a mouse and. Or there are different mice and there's a cat that's a, you know, risk to the mice. And the mice figure out that, well, if one of us can attach a bell to this cat, we'll always know when it's, when it's coming. But that's a risky endeavor, as you can imagine, for a mice to try and do that. But it's really beneficial to everyone. And so it sort of symbolizes the type of work the organization bellingcat is trying to do, which is through ordinary people taking on this type of research, often into subjects like war and so on, which carry some risk, they're able to uncover the truth and what's really happening, happening and kind of raise the alarm for all of us and discover what's really happening. And so that's sort of the story behind the name.
- [07:24]
A
And for those not familiar with the organization, when was it started?
- [07:29]
C
Well, formally, I think 2014. But Elliot Higgins had been blogging under a different pseudonym, I think since 2012. So it really started with him again without a formal background in research or journalism, essentially blogging in his spare time and covering initially it was the Syrian Civil War and he gained a lot of attention for his analysis of the different weapons that were being used, how they were actually being transported into the conflict zone, things that had not really been documented elsewhere. He'd uncovered that through some of these open sources. So that started in 2012 and then 2014 as they started to investigate what was happening in Ukraine, the organization began to expand. And I think at that point they became bellingcat.
- [08:26]
B
And as, as you, as you alluded to, the essence of the book is to use open source information to uncover the truth. And would be great if you could give us another example on how bellingcat has managed to do this over time.
- [08:42]
C
Yeah, so open sources, a lot of it is really using social media, so it can be using YouTube, Twitter, cross referencing with Google Maps, online forums, and surprisingly, there's actually a lot of information you can discover using these sources. That's one of the things that really shocked me about the book. And probably the best way for me to illustrate it is to provide the example that really caught my imagination and that was around the Malaysian Airlines MH17, which was flying in July 2014 from Amsterdam to Kuala Lumpur. And it was shot down over Ukraine, as many of us may remember. And just to put into context, in February of that year, Russia invaded Crimea. And it wasn't clear at the time if the aircraft had had an accident, maybe an engine failure, had it been attacked by some pro Russian militants in eastern Ukraine, had it been attacked by Ukraine, had it been attacked from the air, and so on. It was really unclear. And bellingcat published a report that you can still read today. And I would encourage listeners, if you're interested and you want to really see this in practice, it's quite eye opening. It's called MH17, the open source evidence of Bellingcat investigation. And so you can, you can take a look there if you're, if you're interested to look at it more. But bellingcat was the organization that essentially proved that it was actually the pro Russian militants that used weapons supplied by Russia and a missile launcher from the ground and shot down this aircraft. And that was something even intelligence services around the world were struggling to figure out at that point. And bellingcat proved it essentially using these, these methods. And they were able to trace the route actually that this missile launcher took from Russia coming into Ukraine, when it fired the missile, where it fired the missile from, how it went back into Russia. And even the people involved in this operation, which I sound quite, you know, shocking. And to give you some examples, a lot of it is around pictures taken by local people that are published on, on Twitter, Some intentionally, you know, pointing out there's a missile launcher, some just accidentally with a missile launcher in the background, videos often posted to YouTube, Twitter as well. And Bellingcat was able to identify that this missile launcher had certain markings on the side of it and certain numbers on the side of it. And therefore it knew that in these different photos it was the same missile launcher. And using something called geolocation, which is essentially looking at an image and a video and matching it to Google Maps, you can figure out where this actual photo or video was taken and therefore draw a path of different photos and videos and a kind of trail. They also use something called shadow analysis, which basically means depending on the shadows in these photos and videos, they can tell what time of day it is. So you've got both a time and a location and the object. And by doing that, they drew this entire map from Russia into Ukraine and back. Now, in terms of how they know that this launcher actually fired a missile, again, there were photos of a smoke trail taken from different vantage points that they could then cross reference and figure out okay, it has to have been from this particular area or this particular field. And then through satellite imagery, they could see this exact field, and they could see that the day before this missile was launched, the field was. Was normal. And the day after there was a significant burn patch, effectively where this missile had been fired from. They were then able to cross reference that with local people talking in local chat rooms, you know, saying a missile had been launched, saying that they'd seen this launcher travel through, and it so essentially map all of this together. And they. They basically figured out. Figured it out. And, you know, another surprising thing is they actually found that a lot of these soldiers involved posted to social media, which was certainly a surprise to me. I didn't realize soldiers did that. But they figured out the exact brigade. I think it was the 53rd Brigade in this case. They found 200 soldiers in that brigade, their exact roles, the organizational structure, and therefore who likely actually carried out this attack. So by putting this all together, they essentially mapped the entire event in a way that no one had been able to. And I think one of the key points that is talked about in the book is that when people take photos and videos and other sort of content, what they mean to show us is not always everything they're revealing. And if you're willing to do the work, you can really put these pieces of the puzzle together. And that's how they. They figured it all out.
- [14:12]
B
It's. I mean, it's such a striking example, I think I also want to mention this piece where, I mean, they have a picture of the missile launcher outside Ukraine with all the missiles there, and then when it went back, it was one missing.
- [14:29]
C
Yes, no, that's a good point. Yeah, exactly. So they saw that this missile launcher had, I think it came with four missiles, and when it left it, three missiles. So, you know, there's different things that they were able to do, and I thought it was amazing that they located the exact location, time of day, people involved, etc. Etc. And it was essentially all through social media.
- [14:53]
B
Yeah, essentially all was free. I think maybe in that example they used. Maybe they buy some information from, I mean, the black market in terms of like mobile operators. Or was that in other examples? Do you remember that?
- [15:06]
C
Yeah, I think for the brigade itself, for some of the soldiers, they purchase some. Some data. Sometimes what they do is they purchase travel data. So they've. They've done this in other cases as well, where there are other examples where essentially assassinations are taking place and no one can really prove who did it. And by looking at the travel data, you can actually figure out who was traveling in. And when you combine with these other techniques, you can figure out exactly who the person was and they've been able to do that as well.
- [15:42]
B
And on to investing. So as investors, we often hear that it's impossible to gain an informational edge in the connected world we have today. And I'm curious to know what lessons that you drew from the book on this. I mean, started to reading, reading this and, and of course, I mean, we know about all the, all the social media, but really, I mean, practically, how can investors go about using the information?
- [16:07]
C
Yeah, so I think it's not always necessary to go as in depth as Bellingcat when you're researching a company, but I think that there are some general themes that are really relevant and sources that are very relevant. So if I give some examples of what I use, you know, starting with LinkedIn, for example, I think it's a really important source. So for each company that I'm researching, I will follow the company's LinkedIn, but also the LinkedIn of the different executives involved. And what you'll find is over time you'll see who they're applying to on a weekly basis, who replies to their posts and comments. It can be surprising sometimes they're talking to the regulator on LinkedIn for everyone to see. There are different trade shows and events that often show up. So for example, you know, a salesperson will post, you know, thank you to everyone at this trade show, you know, it was a great event, etc. And so you'll be able to see, maybe I should attend that trade show in future. There are also a lot of ordinary, when I say ordinary people who are below the senior executives who can be useful following. You know, there's one company, for example, I can remember they had a external photographer do a lot of their marketing and content. And if you just followed his LinkedIn, he was posting all sorts of upcoming product releases, you know, there for anyone to see on his LinkedIn. So you can follow different people and you'll, you'll learn the market over time. I think Twitter is also similarly useful. Different companies to follow, different people to follow and see what they're posting. YouTube can be good. There are, you know, again, companies with YouTube channels, commentators who may be very knowledgeable about the industry, magazines and so on. And there are also places where you can look at what the customers are talking about. So Facebook can be quite good for Facebook groups, customer groups, Reddit can even be useful. And if it's a. Depending on the sector, Discord can be useful as well. So for each of the companies that I'm invested in, there are sort of 10 to 20 links that I check on a weekly basis that over time just help you learn about the industry.
- [18:31]
B
And is it. Because what's clear with bellingcat is that they, they don't really interact with the people who has done, done this work, taken the pictures and so on. Instead they just use the, the actual, I mean, picture and the data that they, that they can see. I mean, how do you think about that? Do you often like, try to interact with, with people in the organization that you find through these sources?
- [18:55]
C
It can be a good source of, you know, generating ideas for who to talk to. Generally speaking, I don't speak to people working for the company I'm investigating, you know, unless they're, you know, C level executive and they're well aware that this conversation is taking place. But there are all sorts of people in these industries who are, who are knowledgeable and if you follow these sources, it will become apparent, you know, this person is really knowledgeable on this subject. It could even be a customer. You know, if you're researching a company and a customer is commenting on a number of these issues and assuming it's a kind of knowledgeable comment, that can be a good person to talk to as well. So it does vary and it can be an area of generating people to speak with.
- [19:45]
A
And in the book we learned that bellingcat is using really advanced software for their data collection and also their investigation. So I'm curious, like, how are you structuring the work practically? You gain all these insights from different sources, but how do you collect them and sort them?
- [20:04]
C
Yeah, so I think there's definitely an important need to focus on return on time. So there is a diminishing return where if there is a kind of limit to how usefully you can track the number of people in the industry, what I would recommend is that bellingcat's actually quite good at publishing different techniques it uses to use Twitter, for example. And I would encourage people who want to get more into this to look at quite a lot of articles that they've published and it can tell you how to efficiently sort through different lists or locations or people and so on and just manage that much more effectively because, you know, otherwise there is an almost unlimited number of people who you could be following and um, it's just not time efficient to do that. But there's, there's lots of different techniques now and I think it's worth investing the time to, to learn them.
- [21:01]
A
And coming back to the topic of paying for information. The the book is mostly about open source information, but have you been like buying some kind of data, satellite images or something?
- [21:13]
C
So I generally don't, I don't necessarily have a philosophical problem with paying for data. I just think that you can get most of this data for free like you see in the case of bellingcat. What I like to do as well is combine the kind of open source research with more traditional investigative sleuthing. And in that area as well, I find that although there are certain services you can pay for, generally speaking, the people who you really want to talk to are not that financially incentivized. And so again, paying for that usually isn't going to be a good way to speak to those people. So generally speaking, I'm not paying for any additional data, but if there is something that's useful, I don't have a problem with that. If, if I'm looking, for example, right now at the luxury watch industry, there are a few services out there which track prices of luxury watches on the secondary market and so on, and they charge a fee to use that service. And of course, if that's useful, you should go and go ahead and use that.
- [22:24]
A
And another part of bellingcat is that they are really strong in their network. I mean, Higgins, the author himself, he was the first one maybe to put all these people together, but then as he was putting out his content, he engaged a lot of people. They came and contributed with what their knowledge was. So, so how are you doing that? I mean, are you collaborating a lot with other investors on ideas, for example?
- [22:53]
C
Yeah, so I try and collaborate in a couple ways. I think on the investing side, I tend to publish quite a bit of my research. And the benefit of that is you get a lot of feedback and hopefully it's constructive criticism. And you know, that can be really good for stress testing your ideas. So there's different kind of professional forums you can go post that on. Value Investors Club is one I like, but I use others as well. When I speak to these different people in the course of researching a company, I try and stay in touch and I always send them a copy of my write up at the end because quite often the best feedback you get is from the people in the industry who are really knowledgeable. And if you speak to enough people and you send them your write up, you'll find that some people will actually read it and they will actually critique it and that feedback is really, really helpful. In terms of more broader open sourcing, I think it's really helpful to speak to customers, for example. So some of these groups, whether it's Reddit or Discord, I think it's really helpful to start topics and talk to people in these groups and essentially figure out together what's happening. I think when you're looking at a new industry, there are always people in that industry who will know it much, much better than you. Maybe they've spent a career in that industry, maybe they've been a customer for much of their life. And so there's a lot of valuable insight there. So, you know, going back to the luxury watch example, because I'm currently researching a company in that industry, I myself have not been a customer of Rolex, but there are people who are obsessed about Rolex and there are Rolex forums online and all this type of stuff. So if you want to learn about the customer base and you have questions, posting there and collaborating is a really good way to do that in my view.
- [24:57]
B
I think seeking the truth and not agreement is a quite strong statement from the author in the book. How do you avoid finding yourself in the confirmation bias trap?
- [25:11]
C
Yeah, it's a really good question because I think the danger of spending a lot of time on a company and trying to do a lot of work is you can convince yourself this is a good idea even when it isn't. I think there's a few things. I think as a general point, every sort of key thesis point really needs to be supported with data, documentation or proof. So this is where I think the open source research is really helpful in combination with the more discretionary investigative approach. So quite often if you speak to someone, you're doing that investigation, they will give you their perspective on something and their opinion. I think it's really important then to use the Bell and Cat approach and see, can I verify this with some data that I can find? I think equally the other way is helpful. You know, if I discover something through social media or other open sources, it's good to put that to a person you're speaking to and say, hey, what do you think about this? Because sometimes it may not be what it, what it looks like and I think it's helpful for these to work together. So even in the case of Bell and Cat, when they were investigating this MH17 incident, they found all this information through open sources, but in the end there were journalists who actually went to these locations. They went to the field, for example, and they verified, yes, it really is burnt. It look, it is what it looks like from the satellite images. You know, they talk to local people and verified that. Yes, that doesn't match what's being discussed on these forums and so on. So I think it's really important to do both and that helps you avoid getting into that trap where you are essentially just in a silo speaking to yourself and convincing yourself about how this, this must be true. And I would say the, the other thing is it's worth speaking to competitors to a company because they'll really tell you, you know, what, what they think and the opposite view on a company
- [27:22]
B
good takes. And also I think the, the author really explained how the team often seeks the other side which is then the counterfactual community. And I think it's quite, I like the, the description on the bellingcat method versus the counterfactual communities method. So where the bellingcat method is to identify, verify and amplify the counterfactual community method is believe, insist, ignore. And I mean that could, you could sometimes see that in like sort of a sect like behavior in certain stocks. And I'm curious to know in what ways you seek the other side of your take in an investment.
- [28:08]
C
Yeah, I think it's particularly when a stock is doing really well or really poorly, you'll find that everyone who is commenting on it really has the same opinion. And actually there may be people with a different opinion but they sort of feel pressured not to express that. And so I think one way is through some of these investment communities if you can find people who will give you their candid feedback and you develop that relationship over time, that can be very helpful. So I think publishing your work and making that open as well, that can be a really helpful thing. I also think it's important to have an explicit approach like bellingcat has, where you are actually basically trying to find what the opposite argument could be. So whether that's done on a weekly basis or a quarterly basis, it's really important to be constantly asking, you know, okay, how could we be wrong? What would that look like? What would be the early warning signals of something like that? And to keep speaking to your, your sources and keep looking at them at the different sources you're looking at because it's very rare if you research an industry for every piece of evidence to align with one particular thesis. And so, you know, don't sort of push away the online sources or the in person sources that are saying something different because that's really the most valuable Part, you know, constructive criticism.
- [29:43]
B
And how do you think about using short seller reports?
- [29:48]
C
You know, it's certainly helpful in terms of showing you what the other side is. So if I was investing in a company, I would definitely want to look at the short seller report and take it very seriously. So I think that's a good way to see the other side and you know, just take those arguments on their own merits and investigate them and do the research. But I think, I think the danger when someone releases a short seller report is just to dismiss it and to say, well they're making money because the stock's down and so on. And so I would really try and avoid that trap and, and just look at the arguments for their own merits
- [30:31]
B
and curious to know because I mean, as you said, it takes a lot of time to do all the work digging through the open source information out there and if you find a scoop that changes how you have viewed a company. So sort of maybe you find out that there isn't a big order on the table for a company, you follow you. It's easy of course to possibly put too much weight into that data point due to, I mean an adrenaline, adrenaline rush and strong emotions. So how do you make sure to weigh each point properly, so to speak.
- [31:09]
C
Yeah, so I think that's a really important point. So when you do this type of research, no single piece of evidence should be overwhelming, you know, so if we go back to the Bell and Cat example, if they had found just one photo of this missile launcher, you know, that really would not be sufficient. So it should be a group of data points and findings that make sense when they're put together. And similarly, I think if you're speaking to people, there shouldn't really be any one person you speak to who totally changes your mind if something, if there's a good business or good industry, that that's an opinion that a lot of people, people should be able to give you. So it's really important to kind of do all of this. I actually had a company that I had been researching in the past where I'd done quite a lot of this work. I thought it might be interesting to share for a few minutes if you have the time. I think it's a good story and it sort of shows how the online open source work and the sort of in person scuttlebutt can work together. So it's an Eastern European waste management company that I was researching several years ago. It's still public today. So I'll just call it Company X Because I'm not necessarily looking to do them any harm. It's just my. My opinion and research. And this company operated in a country that suffered from what the government called the trash mafia. And essentially that was hazardous waste that was being illegally imported from other nations who didn't want to have to deal with it. That waste was then set on fire because it was cheaper to set it on fire instead of actually having to treat it properly. You could reuse the same space and landfill and so on. And as you can imagine, this is highly toxic, particularly for the local people. It's very polluting. And this company had IPO'd at the time I was researching it, and it portrayed itself as part of the solution, that it was cleaning up this type of hazardous waste, and that this would be a very lucrative opportunity because there was a lot of waste to clean up and therefore there was a growth story. It was an ESG champion and so on. That was a story told to investors, which seemed attractive to me, which is why I started looking at it. My sort of alarm bells were risen by the fact that the management team were quite happy to sell part of their stake in the company. It seemed like they were fairly open to actually selling the whole company right before this growth opportunity they were about to embark on. And as you may know, the waste industry has a poor reputation as well. And so I decided to dig in a bit further. And this was, I would say, probably the first time I really use these open source methods. And what you could find is that this company, there was a lot of evidence that this company was not, in fact, part of the solution. It was actually one of the companies that was probably importing and setting fire to this waste in the first place, and that there wasn't really this lucrative growth opportunity to come. And quite surprisingly, I discovered that there were lots of reports of this in the local media. It just wasn't in English. And when you Googled it in English, none of this would really come up. But if you were able to search in the local language, there were many articles where local mayors would openly talk about the company making these imports and setting fire to them. They were awarded contracts at very high margins to clean up the waste that they had essentially generated. I discovered through YouTube videos, actually, that locals had gotten so annoyed, they had actually brought it upon themselves to go to these locations and film some of what was happening, including the actual containers that the hazardous waste was in. And you could see from that, those YouTube videos, the exact numbers on those containers and the locations they had come from. And you could see they had been imported from different countries in Europe. And then, you know, similar to, you know, Bellingcat in terms of using that Google Maps, you could see across Google Earth Pro, which is essentially Google Maps, but it shows you how the map has changed over time. You could see that in the different locations of this company that this type of hazardous waste had built up. And they had actually constructed a wall at one of these locations to hide, to hide this. And so you could no longer see it from the road because there was now a wall in place. But if you looked from above using Google Earth Pro, you could see that in fact this waste had all accumulated right behind the wall. And then shortly afterwards when this happened and you could track it over time, there would be news articles and local papers about very substantial fires that had taken place at these locations. And when I say substantial, I think one of them had 130 firefighters show up to try and combat this. You know, very, very substantial. But coincidentally, the company's facilities were unharmed. You know, the company actually said this themselves. So if you looked at that and again looked at forums online where the locals were talking about it and even employees were talking about it, there was a lot of evidence about this company being part of the group that was setting fire to this hazardous waste. And so all of this you could find online. And the only real difficulty was that it wasn't in English, which made the searching difficult and to just sort of finish the story off. Ultimately I did send a person to, to, to the area, speak to the locals where the company was quite well known locally for all the wrong reasons. And in fact even sort of go to one of these locations and film not one of the fires taking place, but you could actually see significant amounts of burnt plastic and paint containers and so on in the location. And it was pretty clear that this was recent because it was right on the surface and, and that actually flowed into the local river, which I don't think people realize. So all of this was something that could really be figured out primarily online and then a little bit of follow up afterwards. And you don't have to go to that length with every company, I hope. You certainly don't have to investigate a company like that, but it just shows you what is actually possible. And I guess the end of the story is that the growth opportunity has never materialized for this company. Several years later, the stock is down significantly in a period when markets have gone up a lot and the management have continued to sell down their stake. So I just thought it's an interesting story of what's actually possible in the investing world. Even though it's a lot of work,
- [38:44]
B
I mean, for long only investors, we often stop at like finding one or two red flags. So, I mean, curious to know, I mean, this information maybe is more lucrative for short sellers. And these type of reports often comes from there because they actually, I mean, are putting money where their mouth is. So, I mean, do you short stocks? Did you short this specific name or how do you.
- [39:06]
C
I didn't short it because I didn't see a catalyst. I do very little shorting, so it's rare for me to take a short position. I mean, it's a good question as to why continue to do the work because it became fairly obvious pretty quickly that this wasn't going to be a company that was worth investing in. I think part of it was just curiosity, but part of it was actually because it wasn't in English. There was actually a limit to what I could do. So I worked with someone who was a local, who was a good researcher and essentially directed the project, being able to say, okay, you know, these are the different locations you need to look at these, the types of events that may have occurred. From what I've seen, I was able to be quite specific in terms of what we need to be verifying here. And the amount of evidence was really overwhelming. So it actually did not take as much work as it may seem to kind of gather all of this. And in fact, I believe the company has five or six locations. We only looked at two of them because there was just so much to see at the two locations. And in the end, you know, I sort of sent him to go visit in person and to meet some of the people in person, but obviously I didn't have to do that myself, so. And we got it quite a bit on video and in pictures and so on. So because I was able to outsource a decent amount of the work, it was okay to spend just a little bit of extra time on it.
- [40:45]
B
It's good that you bring that up because it feels like it's so much work that you need to do. But also from the lessons from bellingcat is that the network started with people who didn't work with like journalism. They had like regular jobs, many of them, and they did this in their spare time. So it's.
- [41:03]
C
Yeah, I think it was really interesting. I mean, Elliot Higgins, the founder himself, was essentially in different administrative roles and did this in his free time. And basically all the initial people for Bell and Cat were in the same position where they just sort of found this type of research interesting, and they would collaborate. And it shows what is actually possible for a group of people around the world who don't really know each other to do so. That's something that I think is possible these days. That would have been really difficult, you know, 20 years ago. And now, of course, they have a professional organization and they do this full time, but it just sort of shows you what's achievable.
- [41:45]
A
And I think many of our listeners are fans of the multidisciplinary approach. And I think this book really exemplifies this with the some people in the Bellingcat organization being experts on chemical weapons, some people being experts on images, some people being experts on guns, for example. So it's really using many different disciplines to triangulate the truths.
- [42:10]
C
And I think it's interesting as well that something Elliot Higgins talks about is after a period of time, he started getting involved, invited to some of these conferences and to give his opinion on these different weapons and things that are happening. And he talks about his apprehension, given that he doesn't have a formal background in any of these areas. And what he discovered was that actually, because he had done this work, he was able to add a significant amount of value and talk to things that were happening that actually even the experts weren't aware of. So, again, that just sort of shows you, if you're willing to do the work and use these methods, you can actually get to a level of expertise that is really significant.
- [42:54]
A
He was really widening his circle of competence in a very rapid pace. And something else I think is interesting that when we speak about this book, many of our listeners have heard our conversations with Abner Mandelman that we talked about the Sleuth investor in episode 22. We talked about the advanced sleuth investor in episode 42. And he is talking a lot about investors. Like, you shouldn't just sit behind your computer and sip coffee. You have to get out in the real world. You have to talk to people and gain insights that way and do the legwork. But I think this book and our conversation today really shows that you can find so much information online. But of course, also working with someone local, as you did in this example example, is very useful. So how, I mean, I know you're familiar with Abner's work. What is your take on that and what are your lessons?
- [43:46]
C
Yeah, I totally agree with that. And I would recommend his book as well, the Sleuth Investor. It was very Impactful for me. And you know, it essentially shows you that, you know, the scuttlebutt approach, you could call it that has been used for some time. Essentially being an investigative journalist, you know, if I was an investigative journalist trying to understand an industry, I would go talk to the people in the industry. And I think it's really important to do that. Although there is a lot you can find online, clearly, you know, as, as we've been talking about, there's still a lot of value to gaining perspective from people who've worked in an industry for their whole careers. They can take some of that open source information that you have and really give you the perspective on, you know, what am I really seeing here? Is this as significant as I think it is? And they can also be helpful in a lot of different ways. So I like to go to trade shows, for example. I find that's a really helpful method to meet a lot of companies in an industry. Talk to a lot of people, you know, just introduce yourself. And what you'll find is that there are a surprising number of people who want to talk to you. Usually investors don't show up at these trade shows. And if you're just sort of honest, you'll find that there are people willing to talk to you and you can have follow up meetings, you can get their opinions on all sorts of different topics. So I think that's quite a good way to do it. And something that I try and do of each company is speak to, you know, roughly speaking, 20 people in the industry doesn't have to specifically be that number, but just as a rough guide and if you start off with a list of, okay, who would I like to speak with in an ideal world and just sort of work off that, it's surprising how many people will actually talk to you. And it does take quite a bit of work. You have to be persistent. Sometimes you have to show up in person, which, you know, people working out of New York or maybe reluctant to do. But if you're willing to show up and do the work, you, you can often get really good insights and something that I say as well. Whether it's going to a trade show or some other event or an agm, you have to show up to get lucky. So some of the best insights I've had is by showing up and meeting a person I never expected to meet or them giving me a lot more time than I anticipated and so getting lucky that way. But if you don't show up, you never have the chance to get lucky. So I think that it's really helpful in my opinion and essential to understanding an industry.
- [46:35]
A
Really good advice. But besides speaking about all the positive things with sleuthing, there are also risks, of course. And I know in the first paragraphs I think of avnish book, it's like you get a good lawyer that's kind of his first, first advice for investors reading the book. And same with Bellingcat. I mean they are really at risk personally and like investigating and accusing like Russian brigades and Russian officials is of course a really high risk endeavor and they have their code of ethics and setting the standards of how they gather evidence and what they can use and so on. And of course ethics is at the heart of finance as well. And we have been having some conversations around that, not least with JC the Swan recently. But where do you draw the line of the ethics in your work?
- [47:24]
C
Yeah, I think it's an important point. In terms of the open source methods, I would say that if you're monitoring all these different sources over time you're going to learn things that maybe know personal. Maybe you don't need to name a specific person, maybe you don't need to show who that specific person is. So for example, Bell and Cat talks about in their, in their book, you know, even with the Russian soldiers who they believe were part of the brigade that shot down this aircraft, they didn't generally name them unless they were really senior people where it was actually important to name them. Um, because you know, a lot of these people, although they've maybe committed an act, they're essentially following orders. Um, and so just being cognizant as well of, you know, who, who is the real target here, who should be named, who really doesn't need to be named, who's someone who's just caught up what is really just sort of personal information. If you do background checks on management, you know, do you really need to reveal every detail you know about their background? Being sensitive to that sometimes as well you can discover a company has a certain competitive advantage or competitive weakness. You know, do you need to tell everyone about that? You know, could that hurt their business because their competitors are now gaining that type of insight. So I think it's important to do your research and sort of be clear. You're trying to understand a company, an industry and the senior management. It's not necessarily beneficial to anyone to reveal information that's inappropriate. That doesn't really benefit your project at all. And I would say it's important to treat every source as confidential and to give them that confidentiality, unless they explicitly give you their permission to name them or to quote them. I would say as well, in terms of the scuttlebutt, it's important obviously you don't want inappropriate information. So as a general rule I don't tend to speak to current employees unless it's CEO, CFO and so on. I think as well, of course you have to be careful about the types of questions you're asking. So you're not getting inappropriate information. If you're a long term investor, generally speaking, you should be looking for perspective rather than any kind of secret information. If I'm trying to understand how this company will look in five or 10 years, there's not really any secret information that's going to help me with that. It's more just perspective. So I think focus on the long term, focus on people's perspective, that's a good way to ensure that, that you, you're not getting inappropriate information. And also just being clear with sources because when you're reaching out to people who've never met you before, maybe they haven't talked to an investor before, they may assume that you're actually trying to get information that hasn't been disclosed. And actually that's not really, or not at all what I'm trying to achieve. And so even just being explicit about that so that they understand and that they're comfortable as well, I think those are all different ways that you can guard against, you know, doing something that's unethical.
- [50:59]
A
And another risk that comes to mind for me is that you get false information, you see a photo and you believe in something, but then that's not a real photo. And of course with the technology advancing really fast and not least with AI now, how can you trust the information, I guess is a common question that bellingcat is struggling with. And maybe from a sleuthing perspective as well, from an investor.
- [51:24]
C
Yeah, it's a good question. And as you say, there are photos these days which look perfectly real and it turns out they're not. So I think it's really important to verify everything with multiple sources. And so, you know, no single piece of information or piece of evidence alone should be taken as fact. Everything has to be verified. This is where I think the verification with combining the open source and the scuttlebutt is really helpful because the people who are knowledgeable about the industry, they should be able to, to point that out. And of course always speaking to multiple sources like an investigative journalist would. So to cross check all of these different things. So I think, you know, those are really the, the main tools. Being cognizant, of course, I think, you know, going back to one of your early questions, how do you ensure you don't find one piece of information and go, wow, I've, I've just uncovered this thing. You know, it's important that everything is sort of verified in multiple different ways. And I think if you do that, you should still be okay against, you know, potentially fake sources.
- [52:40]
B
So switching gears a bit, I mean, you're the founder and portfolio manager of Plural Investing. Can you please tell us and our listeners a bit about your fund?
- [52:51]
C
Yeah, so as you say, I'm the founder and portfolio manager of Plural Investing. We are small team and a small company and we focus on looking for what I call hidden gems. And that's essentially small caps, companies with limited coverage that people aren't so aware of, but are actually good businesses at trading at reasonable prices. And we typically look in U.S. canada and Europe and even within those markets there are specific areas that we, we tend to look in, like the consumer and industrial sectors in Europe, because I only speak English, unfortunately it needs to be a market where there are people there speaking English, which is many of those markets, but not necessarily all. And I'm looking for companies that, as I say, are hidden. But if you're willing to do the work, you can really become much more knowledgeable because these businesses often have no sell side coverage, maybe they have no earnings calls. And so there's really limited information about that. And if you are willing to do this type of work, where you're looking at these sources online, you're talking to the people in the industry, you'll find that quite quickly you could become one of the more knowledgeable people in the investment space looking at that industry. So that's what I'm trying to uncover, generally looking quite long term. So a minimum of three to five years, there's no particular reason I would have to sell out at that point. But that's an initial time frame that I would think about and highly concentrated. So what I found is that seven or eight stocks makes up the vast majority of the portfolio. And you get most of the benefits of diversification, assuming they're in different industries, without as much of the downsides of diversification, which would be allocating capital to some ideas that aren't as attractive.
- [54:59]
B
So I mean, talking about portfolio concentration, you choose, I mean seven or eight stocks, but how many stocks do you have like in your research coverage where you have like where you feel that you have the knowledge level needed and where you have an edge against other investors.
- [55:15]
C
Yeah, so I would say there's probably anywhere between 25 to 30 companies which I'm following very closely, you know, almost as if I owned them, where I feel like I'm knowledgeable on those companies and I'm pre prepared so that one day when they present themselves as a good opportunity, you know, I'm there to take it straight away. And what I find, you know, when I first got started in investing, I think like a lot of investors, I wanted a really long watch list of companies. You know, I have 500 or 1000 companies, I've got price targets on all of them and I'm tracking them all. But the difficulty is it's not actually practical to watch that number of companies. And what I think is much more valuable is to try and get to this level of knowledge where you feel like you really understand this industry and that you could invest in that in it at the time when the price is appropriate. And that's going to be a small list of companies. And so actually I have 100, just over 100 companies on my watch list. But there's really another tier of sort of 25 to 30, which I'm tracking very, very closely. And over time I would like to think that most of my ideas will come from that group rather than totally new ideas. So today I would say about half my ideas are totally new companies. I'm looking at them for the first time, half of them are companies coming off the watch list. And over time that number should increase as you build up your knowledge.
- [56:54]
A
And can you mention a few more of the filters that you use to decide which stock stocks you want to follow?
- [57:00]
C
Yeah, so just, you know, the first filter is just in terms of the knowledge level. I want this to be a company where realistically, not only can I, you know, understand it, it's in my circle of competence, but I can really understand this better than, than many other investors. So that's, that's really the first filter, second filter, in terms of the economics of the business, of course I want the economics to be attractive today in terms of returns on tangible capital. Like a lot of investors, I think just as importantly, I want them to be persistent. So is the incremental return going to be just as attractive as the current return? Because if you're investing on a five year basis, the capital of the company in five years has largely yet to be deployed if it's a high return on capital business. So a lot of the questions are not just about what's the return on capital today, but the next five years of investments, how are they going to do? Because that's really, I think going to be the key to determine how the value of the business changes. And so a lot of that will be based around competitive advantages. So Bruce Greenwald wrote a book called Competition Demystified. I would say that that approach is really important to determining how persistent the those economics are. So I would say that's another filter. The management I think are really, really important in any business, but particularly in small caps because there is a wide variety in quality. And what I've discovered is that the great management teams can surprise you and unfortunately the bad management teams can also surprise you. So it's really important to research that. And I think the top three areas I always look for, and this is from making mistakes and hopefully learning from them, number one is integrity. I think that if you don't have a good partner who you can really trust, there's really no price at which it's worth making that investment. I think that would be obvious if we were talking about a real world investment. If someone, you know, started a business and wanted you to partner with them, I think that would be obvious. But when it comes to public equities, for some reason that's not always as obvious. So that's number one. The other is customer focus. I think it's, you know, everyone sort of talks about it that we're always focused on delighting our customers. I find that not that many companies really do it, particularly when it may not be in their short term interests. And of course management sort of good, good capital allocators. And the last thing I would add is it's important for them to be aligned. So of course that means they need to own shares. But I think just as importantly it's about did they buy those shares with their own capital or were they gifted them? Are they on, are the board members on many other boards or are they really just focused on this company? You know, how much cash have they actually put into the company, you know, versus what they've taken out in terms of share sales and compensation and so on. So I think an aligned management team is really important. And, and of course I'm a value investor. The value has to always be very reasonable. I'm someone who has the cheap gene, so I don't like to pay up for anything. So I think it's really important as well to get a price that is very, very reasonable.
- [60:24]
B
I really like that. I think Mohnish Pabrai has said many times that he, I mean, he wants everything. And I like that quote. I mean, low valuation, a great business and so on. And I think actually, I mean, we talked to Toby Carlile about this before and I think, I mean, the lesson to draw from Buffett is that he thinks the same. He's actually not eager to pay up. I mean, even if it's a great business, he doesn't pay up.
- [60:52]
C
Yeah, and I think there aren't that many businesses which fulfill all these criteria, which is again why I think 7 to 8 is the number I focus on. And if you follow a group of companies closely enough, it, if you follow them closely and you get the comfort that, you know, you're really pre prepared here, it also reduces the urge that I need to invest today because, you know, you have a group of businesses that you follow because you followed them. You know that from time to time they become cheap. I tend to find that every two years or so of most stocks, the market presents an opportunity, I would say, particularly in the small cap market, which is less liquid, people tend to overreact more, I think, to the downside. So if you have that group of companies that you follow closely, there's less temptation to invest in it immediately and it allows you to be more selective and not compromise on some of these filters that you're looking for.
- [62:00]
A
And if we look ahead, say 10 years, what are your ambitions with the plural Investing as a fund?
- [62:07]
C
Yeah, so for me, my goal when I launched it was I just wanted to have the best track record. So that for me has always been what success is. I promise that to all the partners and I tell them that, you know, my time is allocated accordingly, the approach is allocated accordingly. So for me, I would just like to be here in 10 years and be able to look back on a great track record. The size of the firm and that sort of thing is not as important to me. You know, of course it's nicer to have a larger amount of capital, but that's not really the, the primary goal. So I would like to be able to look back at, you know, a good set of performances and really feel at that point that I've got a group of businesses I followed for, you know, certainly over a decade by that point and that I really understand them and I'm comfortable that as the market presents those opportunities, I'm there to, to scoop them up.
- [63:11]
A
And how come you chose the name Plural Investing?
- [63:17]
C
Yeah, so the idea behind plural was that there are multiple ways to invest And I'm always and have always been a value investor. But sort of similar to this conversation, actually the way you can be a value investor is changing over time. The traditional methods that we've talked about are still really important, but there is a lot you can do these days with data. And that can be in terms of these open source methods we've talked about. It can be in terms of gathering data, analyzing it a little bit more systematically. So the idea behind plural was that there's these multiple ways now to do research, but ultimately it's all leading to, you know, is this a good business? What is it really worth
- [64:05]
B
being adaptive to change? Is something that we learn from the best companies that they have been very good at. And that's of course the same for any business. Also a fun business. And as this is a book podcast, we like to wrap up with questions about reading and writing. And besides, we are bellingcat. Do you have one or two other books that you think investors should read?
- [64:30]
C
Yeah, I actually was thinking about this over the last few days and there are a few actually that stand out for me. So one of them we've already talked about quite a bit, which is the Sleuth Investor by Avner Mandelman. So I would highly recommend that, I would say in terms of the same idea of doing that investigative work, I would recommend Bob Woodward, who's an investigative journalist who's been, you know, extremely successful. He's written different books, but he actually has a master class where he talks about these methods, which I. Which I think is. Which really helpful in terms of the traditional investing books, I would say, you know, again, Bruce Greenwald's Competition Demystified. And also Joel Greenblatts, you can be a stock market genius. I think both of those are excellent. And actually what I'm focusing more on these days are sort of business stories. So Walter Isaacson's recent book on Elon Musk is. It's a really interesting book. Whether you like him or you don't like him. He's certainly an interesting character, Elon Musk, and he has some great strengths and also some weaknesses. And I think that's a really good case study of different businesses that were built similarly. There's a book called Amazon Unbound, I think by Brad Stone. So that's a similar kind of case study of Amazon. So those two are really interesting and books on those case studies. And the last one is actually one you may have covered, I think in the podcast in the past, and that's Chris Voss's Never Split the Difference. It's an interesting book because it was written by a former FBI hostage negotiator, and it's about his stories of how do you get hostages released. And a lot of it, surprisingly, is about social skills and emotional skills, which you wouldn't necessarily think are important, you know, in negotiating a hostage situation. But he talks about that quite a lot. And I, I think those skills are applicable in terms of whether it's conducting interviews with sources, whether it's just speaking to people, understanding people, understanding incentives, all that sort of stuff, which actually matters for investing. So, surprisingly, I think he's got a lot of good advice and good stories as well. So you don't have to be an investment person to read that book.
- [66:57]
A
We haven't covered Never Split the Difference, but we have read it and we have heard the great conversation that Shane Parrish had with the author on the Knowledge Project. So kudos to him. To him for that interview. But, yeah, definitely many good book advices there. But besides book, I mean, obviously we think that books are a great way to learn. Do you have any other living role models that have been influential in your life and still are? Like a mentor or something like that?
- [67:29]
C
In terms of mentors, I would say I was very fortunate when I attended Columbia Business School that Joel Greenblatt was still teaching. And he was very generous with his time, both in terms of office hours and, and also visiting his office from time to time. I really learned a lot from him because he's someone who has been there and done it, and he's not guessing when he answers the questions, he's telling you, you know, this is what is successful. And part of the reason, actually I sort of modeled my fund looking at the small caps, concentrated and so on, was partly to sort of replicate some of the approaches that, that he used. So I say he's been excellent. There are a couple professors and so on who've been good mentors of mine and practitioners as well. So they've been great mentors, but they're not sort of well known publicly.
- [68:30]
A
Wonderful. Chris Waller, thank you so much for coming on Investing by the Books podcast, talking about we are bellingcat and gaining many insights from you as an investor. Do you have something more here that you want to add before we finish up?
- [68:43]
C
I think just a quick point on. I like the, the, the podcast being focused on books because, you know, we're in a world these days where people aren't reading books as much, and sometimes I find myself getting into that trap. But what I'VE discovered is as much as, of course, looking online is really helpful and there are a lot of articles and things you can access easily. There's still no real replacement for books where you have real experts that can go into a lot of depth on specific topics. So yeah, I like the idea of the podcast and we just, you know, encourage people, you know, don't forget about reading books.
- [69:25]
A
Fully agree and thank you for that.
- [69:27]
B
Couldn't have said it better ourselves.
- [69:29]
C
Exactly.
- [69:30]
A
And lastly, I mean, I wasn't paid to say that. That's good. And lastly, for our audience, if they want to follow you and your work and possibly even invest in the fund, how do they do that?
- [69:43]
C
Yeah, so I have a website, it's ww.pluralinvesting.com and on the website we have a mailing list you can sign up to and you'll receive quarterly letters. We also host a call every quarter shortly after the letters released where anyone can attend. And you're welcome to ask questions as well. So if you want to sort of follow some of the work, I would do that. Occasionally we release write ups and reports, so you'll get that through the mailing list as well. There's a few examples that are listed on the website, so if you're interested to take a further look, that's another good place to find it.
- [70:19]
A
And if someone wants to sleuth you on social media, maybe that's also possible, but they can figure that out for themselves.
- [70:26]
C
Yes, so I, I use LinkedIn quite a bit, so that would be a good place to look for me. I do use Twitter, but it's not under my name, so you would definitely have to do some good sleuthing. And if you can figure it out, then I'm more than happy to connect.
- [70:42]
A
Maybe someone will take that challenge. Chris, thank you so much. Great.
- [70:47]
C
Thank you for having me.
- [70:48]
B
Thank you, Chris.
- [70:51]
A
Thank you for listening to Investing by the Books, a podcast by Red Eye. Follow us on Twitter ibredi and email us at ib Podcastede SC to improve. We'd love to hear your feedback, so please rate and review us. Notice that the content in this podcast is not and shall not be construed as investment advice. This information is meant to be informative and for general purposes only. For full disclaimer, visit Redeye Se. I'm your host, Eddie Panmian, and until next time, I sincerely wish you the best of luck on your journey through life and investing.