Transcript
Podcast Host (0:00)
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Kyle Grieve (0:03)
Since 2020, my portfolio has generated an annualized return of 18.7%, compared to 17.8% for the S&P 500 over the same time frame. But what matters even more than the performance is just that. I've developed a consistent, repeatable philosophy that I believe will allow me to compound capital at attractive rates for many, many years and decades to come. And that process continues to evolve and improve over time. In today's episode, I'm going to share exactly how I invest. I'm not just going to focus on the highlights, I'm also going to pull back the curtains on some of my biggest failures. I'll start with a painful lesson from my early days as a pure speculator and how those experiences ultimately pushed me to adopt a much more disciplined approach. From there, I'll explain the simple goals that guide my decisions, the pros and cons of aiming so high, and why I don't spend time worrying about benchmarks like the S&P 500. From there, we'll dive into the framework that I use today. I'll walk you through why I think like a business owner rather than a trader, the two distinct categories of investments that I focus on, and how I evaluate quality as a spectrum rather than as an absolute. You'll also hear why I place such importance on management integrity, the three main reasons that I sell a stock, and the methods that I use to help guard against dangerous biases. If you're an investor who wants to strengthen your mindset, sharpen your process for identifying winners, and build an environment that rewards patience rather than just, you know, constant activity, this episode will help give you the exact tools and perspectives to improve at that. Now let's get into this week's episode on my investing philosophy.
Podcast Host (1:36)
Since 2014 and through more than 180 million downloads, we've studied the financial markets and read the books that influence self made billionaires the most. We keep you informed and prepared for the unexpected. Now for your host, Kyle Grieve.
Kyle Grieve (1:52)
Foreign welcome to the Investors Podcast. I'm your host, Kyle Grieve, and today I'm going to share my investing philosophy with you. I have had the opportunity to learn from some of the industry's top investors. Whether that's chatting with incredible outperformers as guests on the show, or sharing lessons from outperformers from some of the best investing books that have ever been written, I've had the fortunate opportunity to absorb just a ton of incredible information from many of the best investors to ever do it to understand my investing philosophy today, I don't need to go too far back in time to explain some of the crucial mistakes that I've made. And these mistakes have helped shaped me into the investor that I am today. My first risk asset was actually in cryptocurrencies. And I won't get into crypto too much, as my co host, Preston Pysh knows more about crypto than I ever will. And it's not really an area of investing that I put too much mental energy into. However, investing in cryptocurrency has had a very profound impact on me. So without my foray into crypto, I may have never leapt into stocks, or I might have repeated many of the mistakes that I made during those crypto days. So rewind back to 2017, and Bitcoin had begun its run up from around 3,000 to about 20,000 between July and December. During that time, I was buying all sorts of altcoins and I quadrupled my capital pretty quickly. But I attribute all that to luck. But all that good luck was about to change for me. While it felt like everything I bought would turn to gold, I began researching technicals more and more. I began getting attached more and more to a technical indicator called Ichimoku Clouds. So they don't do very much, but they helped justify some of my trades. At that time, I was also making leverage bets on, you know, one minute charts, and I was also going short and long, depending on what those clouds were telling me. It's silly, I know, and I'm almost embarrassed to discuss it now, but I knew nothing about value investing or speculation at that time. Long story short, I eviscerated about 97% of my crypto assets over a very short period. So a few lessons I learned from this. One, be wary of anything regarding technical indicators. Two, don't use leverage. Three, buy assets that you understand. Four, understand that any action that you take has a potential downside. And five, don't bother shorting. So now let's fast forward to March of 2020. I hadn't thought at all about investing between that time of 2017 and 2020. While I was in a hotel lobby for work, I came across a newspaper article that mentioned that the market had slid about 23% over a short period. A light bulb inside of me went off and I thought, this must mean that there's probably some stocks that were on sale. I can't tell you exactly why I felt this way at that time, but I'm sure glad I did. So I opened up My first brokerage account for stocks and just got to work. YouTube really opened my eyes to the wonders of value investing. And I'm very grateful for this because I could have just as easily been a fool and done exactly what I had done in crypto, just buying stocks. Instead, however, I learned about the concepts such as, you know, the distinction between price and value. I learned about the benefits of a competitive advantage. I learned about why some stocks are considered expensive versus some considered cheap. I learned a hell of a lot. And this was during the lockdown, so I had tons of time on my hands and nearly all of it was spent with my dog, my wife, who is my girlfriend at the time, and books about investing and reading annual reports. So my philosophy from here began to build. I could have just handed all my money to the bank to manage. And I had done that when I was a teenager, not really having any idea what I was doing. I actually remember when I first became interested in investing, I'd look at the performance of my bank funds and saw this, you know, low single digit returns. And part of my learning was seeing how much money the bank was making by underperforming the index. So I put two and two together and decided that since nobody else would care about my capital as much as I did, I might as well try to build it myself. Those early days were interesting because they surprisingly had a lot of similarities to the early days that I had in crypto. So since nearly everything had crashed, the closer you bottom ticked those Covid lows, the more likely you were to just make money. And since many great assets were trading with very good margins of safety with a lot of upside, it was pretty tough to lose money in those markets. Luckily, the lesson from my days of losing money were very, very fresh in my head. And even though some of my positions were going up, I had been sold on the powers of long term investing and compounding. So I remember one of my earliest lessons in compounding actually came from my uncle. So he was a very successful real estate agent and I recall him discussing just how good of an investment that many of the Canadian banks were. So if you bought them, you could set up a dividend reinvestment program and then just hold onto them for decades, and you'd probably do really, really well. I remember him telling me to look at rbc. So one of my first investments was in a bank in Canada, and that was TD Bank. But after I learned more about, you know, forecasting future value, I realized that TD just was unlikely to grow earnings by much more than 8%. And besides, I discovered some other businesses that I thought had much better prospects. So in 2020, I purchased shares in the following Chorus, Aviation, Air Canada, Alibaba, Aritzia, Micron, Twitter, Bank Ozk, InMode, Bosch Health, Sangoma and Seritage Growth Properties. So looking back, it was quite a hodgepodge of different investment types. So you had Alibaba, which interested me because it was in China, and the narrative in China was that that country was going to continue to grow at a very, very high pace and would lead the world in GDP growth. Then you had Aritzia, which I found very interesting because it had grown well pre pandemic. It was navigating the pandemic really, really well due to its pivot to E commerce. And it just had products that were continuing to be in high demand even though people weren't going to work. Then there was bank ozk. This was an idea that I actually cloned from one of my earlier influences, who was Phil Town. So to me it looked like a very well run bank. And even though there was a short report out that discussed some of the riskiness of its loans, it looked to me like the business was actually pretty safe. Then there was Seritage Growth Properties and Micron, which were two ideas that I cloned from Mohnish Pabrai. So after cloning him on these ideas, I was very careful about cloning him again as neither was really a home run. I mean, I didn't lose money on them, but it wasn't a home run. And I thought they would be much better performers than they ended up being. Especially when I looked at Seritage Growth Properties. This experience kind of showed me that cloning can be very powerful. But even if you find a great investor to clone, there's only specific ideas that are worth cloning. And then we get to Bosch Health. So this was an idea I cloned from Francis Chow and Bill Miller. It was kind of a sum of the parts play, but it turned out to be a complete disaster for me. Luckily, as with many of my first investments, I was working with a very small amount of capital at the time. So even though I did actually end up having some losers in 2021, which I don't really know how that's possible, they didn't significantly impact my ability to continue compounding since I wasn't using any leverage. This also allowed me some extra safety, just in case I was wrong. Now that we have a brief history of my investing experience out of the way, I'd like to share some of my financial goals, which will also shed some light, hopefully on my investing philosophy and why it is the way it is. So my goal in investing is to just double my capital every five years. It's very optimistic, but it was a goal that I always found very fascinating. It seemed like a challenging goal and one that was, you know, highly lucrative. So that's what I went for when I started and that's what I go with now. This means that any investment that I should make should be able to double within five years at the very least. This has been an interesting learning point for me over the years as they're both positives and negatives to having a goal like this. So the benefits of having a more aggressive return benchmark are that if I'm right on my picks and I achieve my goal, then I'll just make money faster. It also means that I'm going to select some significant winners and multi baggers. I like this strategy because it means I don't have to be constantly searching ideas that might go up 50% or double. I can find businesses that can potentially 10 times, 50 times or even 100 times my initial investment. And it also means that I can be very picky. Suppose a business is a quality business and has all the usual aspects of a quality business, such as, you know, a high ROIC, high ROE, insider ownership of 10%, and, you know, some sort of deeply entrenched competitive advantage. In that case, I may still not find an interesting investment. One such example is OTC Markets Group. So OTC Market Group operates financial markets where US and international securities trade over the counter, providing things like trading, disclosure and data services for public companies. I researched the stock and concluded that it was an excellent business. However, given the premium multiple and my expectations for its growth at the time of my research, I just didn't think that there was a very good chance that it would beat my return hurdles. However, there are also several drawbacks to consider if you're seeking high returns like I am, and they all have to do with risk. So, like nearly all investors, I find it easier to default about thinking about how much I can make from a business rather than what I can lose. As I learn more and more from legends and value investing, I'm trying to reverse that thinking as much as I can. The problem with many high quality businesses that are growing at a decent rate is that the market is usually intimately knowledgeable about them. So getting them at a discount in terms of multiples can be very tough. The major negative of my strategy is Buying companies that just have these really really high expectations only to have them fail these expectations. That has been the source of nearly all of my investing mistakes in some way or another. Since I am generally looking for businesses that are growing their intrinsic value by more than 15%, I also look for companies that have something like earnings per share operating cash flow growth above 15%. Sometimes I invest in businesses that massively exceed that 15% hurdle rate. Let's say I have a company that has historically grown EPS at 25%. Then they have a quarter where they have some sort of maybe one off expense and EPS growth only goes to 10%. So even though the long term growth remains intact, the market's likely going to punish that business's stock price. So in the short term this doesn't really matter to me. But my mistakes occur when I completely miss the mark on my EPS growth rates and therefore the stock price re rates significantly downwards and and the chances of it going back up become very, very unknown. So I'd like to shift gears and discuss my thoughts on the distinction between absolute and relative performance. Since my goal is to double my portfolio every five years, I really don't care much about the relative performance or indexes in general. They're completely irrelevant to what I'm trying to achieve. The only real function an index serves me is to show the opportunity cost of what I'm trying to do. So the problem for me when I was looking at which index to compare myself was purely psychological. Am I examining my return and the return of an index without introducing some sort of bias that causes me to make a mistake? It's hard to say. One workaround I have is to check my portfolio performance only once a quarter. This way I don't obsess about trying to beat an index quarterly, which is what nearly every hedge fund is trying to do. The next problem that arose for me when considering the index was just which one to use. Since I own very few US stocks and am reasonably globally diversified, I thought comparing them to maybe a Canadian or global index made the most sense. However, my perspective has shifted after speaking with several notable investors. So since The S&P 500 is the primary benchmark that most good investors use for comparison, I think it's the most suitable index which to compare my own results as well. The next part of my investing philosophy is that I invest like a business owner, not a trader or a speculator. Every stock that I own in my mind represents a real ownership and a share of a business. And I don't take that process lightly. I try to imagine the people managing my money are close associates who I know personally. This can create biases, sure, but my primary goal is to invest in people I trust and give them a chance to make improvements when things inevitably go sideways. I'll discuss the leash I give to certain companies later in this episode, as it varies in length based on a few factors. The point of my thinking this way is that it helps me just hold onto compounders after giving considerable thought to the stocks that I keep and what I like to do with them. This is really the ultimate goal. Have stocks in my portfolio that can continue to compound. The business owner's mindset will help me stick with those businesses. So if I had a friend, for instance, or an acquaintance with an excellent idea and I decided to invest in them, I'm not going to just jump ship at the slightest hint of any type of headwind or problem that they encounter. Headwinds are just part of business, and I'd rather focus on avoiding any overreactions to headwinds than acting too quickly and then moving on from a company that was just going through something that was very, very temporary in nature. So Seth Klarman said investing is the intersection of economics and psychology. Successful investors do very few things, but do them well. This is how I strive to emulate my investing approach. While I may have periods of higher activity, my default should be inactivity. And the other way to think about this is what am I doing now that is causing me to potentially sell in the next year? I prefer to find businesses that I can hold for a multi year time period. So if I'm constantly wanting to sell stocks, that means one of two things. So first, I'm just not doing a good enough job of finding businesses that are resilient to the economy. Or I'm just finding businesses that aren't resilient to its competition. And to me, I completely hold responsibility for everything that's in my portfolio. If I'm too lenient, then chances are that I will want to sell stocks because they aren't doing well enough in terms of improving their intrinsic value. But that's all on me and not on the market. What it comes down to is trying to engineer my thinking to avoid panic selling, which is a problem that I think infects very, very large swaths of the market. During big corrections and downswings, all businesses, even the best ones, experience significant drawdowns. Berkshire, Amazon and Microsoft have all had significant drawdowns on their way to becoming life changing multibaggers. So Berkshire has had 3,40% drawdown since 1990. Amazon has had 6,50% drawdown since 1997. And Microsoft has had 4,40% drawdown since 1990. So it's incredibly rare to find businesses like these. So if there's even a chance that I hold one of these businesses that can compound for the next, you know, three decades, I will gladly do everything I can do to keep that business in my portfolio. So a major perspective shift that occurs when you adopt a business owner's mentality is that the share price becomes a lot less interesting. This is one of the landmines that investors must navigate. I have a business in my portfolio now that upon examining the company's fundamentals, I cannot fathom why the market is treating it with such disdain. So I won't name the business, but here's what happened since I've bought it. So the trailing twelve month EPS has gone from $2 to $5.50. The stock price has not budged much in either direction and the PE multiple has dropped from 28 to 10. So I have problems with this business at times because it just appears to me that the market has no interest in valuing the business properly. I can't tell you how many times I've needed capital. And when I think of a business that I need to cut, this business comes to mind. But when I really think about the appreciation in the earnings per share, I just think about how I would perceive this business, that the stock price didn't exist. And when I think of it that way, there's just no chance I'd be trying to sell that asset if it's growing well and nothing is telling me that it won't continue to grow well. So another thing that business owners do is plan for volatility and not react to it. So I like to go into a business with a clear thesis of what could happen over the next two to three years. Then I just track what's happening in the business. If I think EPS will grow at 15% per year and the following year it grows at 15%, then it's just job well done. And just because the market is in a panic and that stock price decreases, it doesn't take away from the fact that my business is doing exactly what it needs to do in order to meet or exceed my benchmarks. Now the next part of my investing philosophy is how I categorize my investments. So I use two specific categories. The first one is a bucket that I called quality businesses. And the second one is a bucket I called my Micro cap inflection point Businesses so quality businesses will always make up the bulk of my portfolio simply because these are the companies that I think have the best chances of compounding my capital over a long period of time. As of August 18, 2025, this section comprises about 63% of my portfolio. So in this part of my portfolio I look for three keys. The first one the presence of a competitive advantage remote which allows the business to continue growing profitably over multiple years and hopefully decades above my hurdle rates. Number two, a talented management team that is aligned with shareholders and owns a substantial amount of shares. And number three returns on invested capital exceeding 15% for multi year time periods. So let me go through each of these in a little more detail because there's a lot of nuance here. So to me, all businesses are on a spectrum of quality. Some are of low quality, while others are of high quality. More importantly however, is just what direction a company is moving on that spectrum. A business of medium or even low quality can actually still be a great investment if it's moving up the quality spectrum. And a business that is of high quality can still be a poor investment if it's moving down the spectrum. So similar to market cycles, you should have a clear idea of the direction a business is heading. Is it improving, stagnant or headed in the wrong direction? These types of questions help me understand and determine which businesses I can cut if I need capital, want to free up cash, or just need to remove a portfolio for quality of life reasons. So a competitive advantage is deeply ingrained in quality. Higher quality companies will have wider moats and better competitive advantages, but I don't think my businesses have truly impenetrable moats. Some of my businesses have stronger moats than others. As long as I know what these moats are and whether they're expanding or contracting, I don't sell the businesses in this bucket very easily. Let's take a quick break and hear from today's sponsors.