Justin Foeppel

Here’s a cross post from Guru Focus. I had the pleasure of receiving a request from PJ Pahygiannis to participate in his interview series this month. You can read the original here: Guru Focus 15 Questions with Justin Foeppel

PJ Pahygiannis: How did you get started investing? What is your background?

Justin Foeppel: Going way back, I signed up for an interest-bearing savings account in elementary school. The first “value” investment that comes to mind was a 2005 Suzuki DRZ400SM. The guy I bought it from earned a DUI and was hard up for cash. I was in the market for a motorcycle and had saved cash. I made several motorcycle purchases by then so had some experience in negotiating. It’s great to walk into a negotiation with cash dispassionately. If I didn’t get the deal, there would be another one. I walked away with the motorcycle at a 20% discount to the asking price and was later able to resell it for the same price the seller originally wanted after doubling the mileage.

PP: Describe your investing strategy

JF: It’s developing. Right now, I am mostly an indexer and “intelligent speculator.” I use The Manual of Ideas to source ideas and make very small allocations because I don’t know enough about the companies nor do I have the time or energy to research them to the degree I would like. I mentally categorize these allocations to the 10% intelligent speculation category Benjamin Graham recommended in The Intelligent Investor.

PP: What drew you to that specific strategy?

JF: Pragmatism. Phil Fisher helped me understand that investing is a full time activity through his book Common Stocks and Uncommon Profits. I have a job unrelated to the investment world as an accountant and financial analyst. I can’t possibly spend all my time engaged in intensely intellectual activities and I try to follow the advice of those I read. As a result, I speculate in ways where I attempt to apply value investing principles.

PP: What books or other investors influenced you?

JF: Investors: Warren Buffett, Guy Spier, Phil Fisher, Ben Graham, John Mihaljevic.

Books: To name one would be a disservice to the benefit of reading broadly. I read often for depth and breadth. As I do, more and more connections which are seemingly coincidental are made in my mind.

PP: How has your investing changed over the years?

JF: I’ve been at it since Fall of 2008 when I read The Snowball by Alice Schroder as a sophomore engineering student in college. My first allocations were made that fall in GE and P&G. I read Buffettology and thought I knew something. I gathered the data from 10 years of financial statements like the book said and projected the returns at various purchase prices and under various assumptions using a DCF model. I thought I was an “investor.” Since then, I would classify every allocation I have made as a speculation because I’m relying on the work of others. I haven’t studied a company in depth enough to satisfy myself that Graham or Buffett would be proud of my analysis.

PP: Name some of the things that you do that other investors do not

JF: I feel like I really follow the long-term orientation. For each allocation I have made since my first individual stock purchase in November 2008, I have not sold a single share. Now, that in and of itself is not a good thing. I’m proud of it because I’m following through with what I’ve been taught and sticking to the investment principles I have decide make sense for me.

PP: Where do you get your investing ideas from?

JF: The Manual of Ideas, Farnam Street’s members only Slack channel, Barron’s, following chatter in the value investing community.

PP: Do you use any stock screeners?

JF: No, The Manual of Ideas is my “screener.”

PP: Name some of the traits that a company must have for you to invest in

JF: This is one of those things where my investment strategy is developing. I have invested in companies that are too large for me to understand over the years and I didn’t focus enough on the people. New priorities: PEOPLE, PEOPLE, PEOPLE, and it’s got to be simple enough for me to understand. I imagine I can find these in the microcap area of the market. With time, maybe I can graduate to understand a large multi-national.

PP: What kind of checklist do you use when investing?

JF: None, under development.

PP: Before making an investment, what kind of research do you do?

JF: The work in making investments comes before I am presented with a decision. All the reading I do, from in-depth books to Forbes and Fortune features, is part of the research. This isn’t a game where I can do well by finding an opportunity then researching the heck out of it as fast as I can to come to a decision. It’s like the motorcycle purchase: I prepare myself by being informed and having cash. Then, when a deal comes along, I can either take it or walk away. I meet a lot of people who have a process that is the absolute inverse of this. They find something interesting, research it to come to a conclusion, then the price rockets or they decide it’s not for them and they move on to the next exciting thing. I am susceptible to this approach to the research and I don’t think it’s helpful to me. What I need to do is read about industries and companies because I’m interested in them. I need to research the things I am interested in whether or not there is an immediate opportunity to make money. That is the sort of approach that will allow me to sustain the effort required to have a rigorous understanding. I can’t remember where I heard this or read it, but there is a person who, when they meet someone, plays a game with themselves. The game is to find out what they find interesting about that person. I think this is useful when building relationships with people and it is also useful when learning about business. Sometimes research can be dull. It’s my job to ask questions that make it interesting to me so that I can sustain the effort required to be informed.

PP: What kind of bargains are you finding in this market?

JF: None at the moment. My investing is on autopilot and I’m focusing on building a more solid foundation from which to invest from. That looks like spiritual practices such as meditation, getting into regular habits of exercise, etc. I didn’t grow up with these habits so it takes a lot of mental effort to build them. For many years I’ve tried to deny that I need these things and read pretty narrowly about investing. My thoughts were consumed by investing. Today, I am learning what Munger spoke about in his talk on human misjudgment – I have to find models of reality and make sure that all my models aren’t in conflict with each other. One model I had was that of efficiency: I cut certain things out of my life because I thought it was more efficient to be able to focus on one activity. Well, that doesn’t work so well when I’m not a machine. I’m a human being that has a relatively short attention span and needs small doses of every part of life to stay engaged over the long haul.

PP: How do you feel about the market today? Do you see it as overvalued?

JF: I don’t know.

PP: What are some books that you are reading now?

JF: Lila by Robert Pirsig of Zen and the Art of Motorcycle Maintenance fame. Drive by Dan Pink. Orthodoxy by GK Chesterton (thanks to Ryan O’Connor for the recommendation). Daring Greatly by Brene Brown. The Manual of Ideas by John Mihaljevic.

PP: Any advice to a new investor?

JF: I’ve been thinking a lot lately about how Buffett says he tap dances to work and encourages others to do the same by finding their passion and making a living at it. This is a nice idea that agrees with Buffett’s experience.

What about the people that don’t know what their passion is? What happens when I work for what I think I am passionate about and find that doing it as a job isn’t what I thought it would be? Another role model’s advice helps me out here. His name is Mike Rowe and he encourages people to work hard where they see opportunity. I think the intersection of opportunity, passion, and skill is where massive success is born. Finding that intersection is difficult and sometimes it may be damn-near impossible. As I continue to search for it in my own life, I am working on myself spiritually so that I don’t have to have anything in particular to be content. I am doing this because I have learned through hard experience that there is no ideal situation. I’ve been paid more money and had more responsibility at work than I ever thought I would have at 23. And, you know what, I was ungrateful, arrogant, and greedy. Today, I try to appreciate the simple things. If I get to do what I’m passionate about full time, if I achieve financial independence, if I am completely self-directed, all the better. But that can’t be my everyday focus. I think I have to credit Munger with this – it’s hard to be disappointed when I set my expectations low.