We Study Billionaires – TIP758: Current Market Conditions & Investment Opportunities with Derek Pilecki

Release Date: October 3, 2025
Host: Clay Fink
Guest: Derek Pilecki, Portfolio Manager at Gator Capital Management

Episode Overview

In this episode, Clay Fink interviews Derek Pilecki of Gator Capital Management—a seasoned financial sector investor with an enviable track record. Their wide-ranging conversation delves into how Derek identifies high-return investments, navigates market cycles, thinks about the evolving nature of value investing, and finds current opportunities amid market dislocation. From discussing the impact of interest rates on banks and real estate, to analyzing the turnaround in Robinhood stock, this episode is a deep dive into strategy, psychology, and sector trends.

Key Discussion Points & Insights

1. Derek’s Recent Performance & Current Market Views

• Performance Commentary: Derek notes that his fund has generated strong returns, attributing recent success to savvy positioning during notable bank failures and opportunistic moves in regional bank stocks.
  • “I navigated Silicon Valley and First Republic’s failures pretty well...After they failed, I drastically increased my weightings in regional banks...and the valuations got extremely cheap. So that was one big driver of returns over the last three years.” — Derek (02:51)
• Market Outlook: While the overall market (especially large caps like JP Morgan, Visa, Progressive) appears expensive, value endures within small/mid-cap stocks, which remain in single-digit P/E territory.
  • “Large cap stocks look rich to me.” — Derek (03:38)

2. Investment Process: Seeking High IRR Opportunities

• Seeking Doublers: Derek aims for stocks with a clear path to double in three years (~26% IRR), remaining style-agnostic between value and growth, emphasizing adaptability over dogmatism.
  • Example: Bought Carlyle at $29 due to underperformance/catalyst (CEO change), doubled to $65 in under three years.
  • Counter-example: PayPal (bought 18 months ago on CEO change/cheapness) but hasn’t performed—emphasizing not every idea pans out.
  • “That rule prevents me from trying to be too cute and buy names that I think I'm going to make 20% on. It's just like you only have so much capital. I really want to focus on the ideas where you can make substantial money…” — Derek (07:10)

3. Evolving Approach to Value Investing

• Market Shifts: Growth’s outperformance is attributed to durability and cash-generative “MAG7” businesses. Derek emphasizes harnessing both value and momentum, being chart-aware, and disciplined—letting winners run, not doubling down on losers without new information.
  • “The ideal thing is value plus momentum drives returns...The most dangerous is a fundamental analyst who claims they don't look at charts.” — Derek (09:38)
  • “You have to let the winners run...and I do it from a risk management standpoint…if I buy a stock and it goes against me, I don't automatically buy it. I just think, okay, the market's telling me something…” — Derek (10:54)

4. Market Turbulence & Crisis Management (Tariff ‘Liberation Day’)

• Action During Tariff Tantrum: Derek acted quickly during the April 2025 selloff, covering regional bank shorts and reallocating to the most undervalued. He emphasizes managing emotion and focusing on doing “the smartest long-term thing” amid stress.
  • “Those are super stressful times. It's where you make the performance. You can make a lot of performance lose by being smart, but you can also mess things up.” — Derek (14:17)

5. Influence of Warren Buffett

• Buffett’s Impact: Inspired to become a fund manager by Buffett’s writings and annual meetings; key lessons include the merits of meaningful turnover and the case for greater optimism and risk-taking.
  • “If I had a million dollars, I guarantee I can make 50% a year.” — Buffett, as quoted by Derek (16:19)
  • “For him to say I should have taken even more risk, I don't hear people talk about that. But like that changed how I think about the economy…” — Derek (18:36)

6. Current Sector Opportunities

• Favorite Areas:
  1. Small/Mid-Cap Banks — Cheap on valuation, upside with a steeper curve and likely M&A.
  2. FinTech — Post-boom names like PayPal, WEX, Global Payments trading at low multiples, strong free cash flow.
  3. European Banks — After 15 years of pain, some French banks (e.g., BNP, SocGen) trading at deep discounts; CEO transition as a catalyst.
  • “FinTech names are…cheaper than the big banks…there’s a lot of single digit PEs in fintech…” — Derek (22:03)

7. Interest Rates, The Fed, & Inflation

• Rate Cut Advocacy: Derek views current rates as overly restrictive, sees the need for rate cuts to aid interest-rate-sensitive sectors (housing, autos, construction).
  • Frustration over misdirected inflation fight: “There are three big parts of the economy… housing, college education, and health care…none of them can get solved by higher rates.” — Derek (27:24)
  • Believes major deflationary forces (Internet, AI) persist; sees little risk in 50bps more in cuts.

8. Real Estate & Mortgage Markets

• Rates vs. Home Prices: Despite high mortgage rates, home prices have not corrected substantially due to low supply, regulatory barriers, and differential regional dynamics.
  • “I think we have a lot of regional differences...inventories are increasing [in boom markets like Austin, LA], think prices at the margin are down a tick.” — Derek (31:23)

9. Shorting Financials & Managing Leverage

• Short Book Success: Improved by waiting for bad businesses and speculation (SPACs, overvalued fintechs) to emerge. Acknowledges the difficulty of shorting in a bull market.
  • “Shorting’s hard...trying to respect momentum...but those can also be stocks that have momentum.” — Derek (32:52)
• Leverage: Willing to buy leveraged companies but aware of risks—“Leverage…can quickly unravel…but it also keeps management focused.” — Derek (34:19)

10. Big Banks vs. Regional Banks

• Big Bank Advantage: Benefited from “flight to quality” post-regional bank failures, regulatory relief, and greater deposit inflows.
• Regional Banks as Attractive: Inverted usual valuation hierarchy—small/regional banks are now cheapest. Expects M&A and a steeper yield curve to normalize returns, but cautions that banking as an industry faces declining long-term profitability due to both competition and technology.
  • “Right now, the big banks are the most expensive, mid caps are in the middle, and the small banks are the cheapest.” — Derek (38:28)
  • “I'm just aware of that. Like I'm not a permeable on banks. There's times to own them...but it's not always the case.” — Derek (43:19)

11. Portfolio Construction: High-Quality vs. Deep Value

• About 30-40% in “enduring” high-quality businesses to hold long-term, 60-70% in names sold once they reach fair value.
  • “If you ever own a stock in a great company, never sell it. And so, very much a Charlie Munger investment style.” — Derek (44:44)

Notable Deep Dives

Robinhood — From Short to 14x Multi-Bagger

• Shorted in 2021 at $25 due to overvaluation/speculation, covered at $10 due to cash per share.
• Turned Long in late 2023 as company cut costs, introduced new products, and was trading near cash value; benefited from the crypto ETF approval and exploding customer growth.
  • “Just being flexible and understanding the business…technically it had built a big base...I got fortunate that it took off soon after I bought it.” — Derek (46:31)
  • Operating leverage: “Operating leverage is a lot of times underlooked as a potential upside.” — Derek (55:22)

WEX Inc. — Undervalued, Underfollowed, with Catalysts

• Business: Fuel cards for fleets, health savings, corporate payments.
• Valuation/Catalysts: Trading at 8x EBITDA post-tender offer, CEO insider buying, activist involvement, high free cash flow, and focus on deleveraging.
  • “The stock has not done anything for eight years. And so the valuations come way in. It's trading for 8 times EBITDA...I just think the valuation's too low.” — Derek (57:47)
  • On tender offers: “Companies don't tend to buy back that much stock unless they think the stock's undervalued...it's a good source of ideas…” — Derek (61:51)

Memorable Quotes (with Timestamps)

• “If I own cheap stocks, good things happen.” — Derek Pilecki (03:22)
• “Value plus momentum drives returns...Peter Lynch—don’t cut your flowers and water your weeds.” — Derek Pilecki (09:39)
• “It's better to be a perma bull than a perma bear. Right. Optimism makes you more money.” — Derek Pilecki (18:34)
• “I run a financials fund but I would never just say hey let's go invest in the KRE together for the next 20 years. Like that's not a great strategy...it's an average to below-average industry that where returns are going down.” — Derek Pilecki (42:53)
• “Just being flexible and understanding the business…technically it had built a big base...I got fortunate that it took off soon after I bought it.” — Derek Pilecki (46:31)
• “Operating leverage is a lot of times underlooked as a potential upside.” — Derek Pilecki (55:22)

Timestamps for Key Segments

• Fund Performance & Market Outlook: 02:51–04:36
• Investment Process (26% IRR): 05:22–07:46
• Value Investing Philosophy: 08:30–10:59
• Handling the Tariff Selloff: 13:05–15:18
• Buffett’s Influence: 15:49–19:55
• Where Derek Sees Opportunity: 20:38–23:06
• Fed, Rates, & Inflation: 26:35–30:06
• Real Estate & Mortgage Dynamics: 30:06–32:22
• Shorting & Leverage: 32:50–35:19
• Big Banks vs. Regionals: 36:04–40:41
• Online Banking Trends: 41:23–43:27
• Portfolio Blend: 44:23–45:02
• Robinhood Case Study: 45:02–54:23
• WEX Inc. Thesis: 57:31–63:51

Conclusion & Takeaways

Derek Pilecki’s approach embodies adaptive value investing—flexible, catalyst-driven, yet grounded in discipline and risk management. He makes a compelling case for looking beyond headline indices to under-followed stocks and sectors, embracing both old-school and technical insights, all the while being unafraid of turnover and opportunistic trading if the reward warrants it.

“If I own cheap stocks, good things happen.” — Derek Pilecki (03:22)

Contact Derek: gatorcapital.com or email derek@gatorcapital.com for quarterly letters and insights.

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