(upbeat music) - Hey everybody, this is Phil Town coming to you from Monument Valley. (laughs) - Makes no sense to anybody listening, Dad. And I'm Daniel Town. - Who are you? - And welcome to the Invested Podcast. - I'll be on busy being playful today. I'm traveling, so I don't want you to see this room that I'm in. So I cleverly-- - What he's describing for everybody who's just listening is that he put a Zoom background on, of what is your Zoom background. - Monument Valley, which is near and dear to my heart because I have been there a number of times and led a horse packing trip through Monument Valley many, many years ago. It was just epic. It was, I have to say epic. So I thought I'd throw up one of these things since it's a screen saver for Apple. (laughs) - Oh, is that where you got it? - This is where I got it, it's a great picture. - Nice. (laughs) - All of which has, I'm sure we could probably relate this to today's subject except-- - Yeah, go for it. - I have no idea how to do that whatsoever. So we sort of left off a week ago looking at the, looking at the different ways we could get expert help to figure out businesses, right? - Exactly. - And I went into Monument Valley with expert help that I've seen. - Ooh! - See that? - Ooh! - Ooh! (laughs) - Expert help. - Expert help is always a good idea. - Yep, and you want to make sure it's really expert. Ron Izzo, the Navajo friend of mine, who was an absolute expert on all the Navajo territory, lives there in the Monument Valley Navajo area and took us into Monument Valley with a friend of his and just had this epic trip. And we had an epic trip because we had experts with us. So we had a lot of confidence in where we were going and which is important when you get out there and you're sort of hanging it out, right? Which we do when we're investing money we want to retire on, we don't want to be taking a lot of risks. So you got to have a really high degree of confidence in what you're doing. And we shared that with Ron. That's how it all work. So there you go, see? - Oh okay, I thought there was going to be more than that. Yes, expert help is not only the best to like actually get the actual help, but I think also to give the confidence to know that you're probably going to be able to make it through the valley. How about that? - Through that valley. - So you wouldn't have ever started the trip without knowing that you had the expert help. - Right, very, very, very true. Well, I decided I would go to the SBA score program you'll recall. - Yes. - To get expert help. And I was, I've been looking at this little envelope business. Very small, I could literally buy the entire company, which would be of course really way out of my sort of general oeuvre of investing. I don't wanna own the whole company. - So I would be so happy if you owned an envelope company just for the fun of it. We could get free envelopes. Maybe they could be like different sizes. It would be fantastic. - Different weights, different qualities. - Oh, stop it. Stop it. - Seriously. - The choices. - I would own a packaging company that could provide those little thick envelopes for sending things via UPS and FedEx. - Now, that is something that intrigues me 'cause that is something that is used a lot more than envelopes are these days. - Yeah, for sure. Well, it's been really fun digging in on this company. I love learning, this is one of the greatest things about being an investor is you're always learning something new, digging into what other people are doing to make a living and it's really, really fascinating to me. I'd love it. It's one of the reasons I love this career so much. - I always think like anybody who is somebody who gets obsessions and wants to know all about something and learn it, being an investor, 'cause I'm that way and you're that way and being an investor is the greatest opportunity to be faced with new ideas for the new obsessions because sometimes you're kind of like, "Oh, I don't know what's the next thing." And with investing, there's a backlog of all the fascinating things. Now, envelopes have not been on my backlog, but tell me all about them. What did you learn? Okay, were you able to get any expert help? - Not yet, but it may be on the way. - Okay. - Score has 240 offices around the United States and quite a large range of expertise on industries people have worked in before they retire. And so what I did is say, here's what we're doing. We're really researching this envelope company and we really like to get with somebody who knows a lot about the envelope slash packaging industry and who can you get me with? So that's the general approach to score when you start and then they put you with a mentor. And what I found is it takes two or three days before your mentor will email you, at least in this case. - And then-- - Seems reasonable, yeah. - Yeah, not anything. - Again, this is a completely free volunteer service. - Totally. And my mentor emailed me and had read my little paragraph that I wrote about what I was looking for and said, "I really can't help you as an expert in the envelope industry, but I will do my best to find someone who is in the envelope industry." - Oh, that's so nice. - That was really nice. So we've been back and forth once on that to kind of clarify and that person is out there looking through the network of score experts and consultants to find somebody that is in the envelope industry. I haven't heard back yet. So that's my first week with score, is touching base, getting some clarity about what the process is and now we're in the process. And we'll see if they, you know, it's an obscure industry in a way, not a huge industry, by any means. And not a lot of companies in it. So we'll see, this is a good challenge, really, I think, for score, if they can come up with somebody. - It's a really good challenge. And can you just tell me again, 'cause I forgot already, did you say that you wrote that you're an investor and you wanted to maybe invest in a company? Okay, because on the website, it said something like for people starting their own business, it's like a mentorship program. So I was curious if they would just say like, no, no, no, we don't do that, but-- - I was curious too, but they're coming through so far. - I think that's a really cool, because if you limit it to people only starting businesses, you lose out on helping people who might take this information and yes, maybe they only buy a public company or something, but maybe they go buy a private company, maybe they then run that company. I just think there's so many ways that investing or entrepreneurship converge that I think I'm happy to hear that they were cool at that. - Well, I may have said I'm interested in buying an envelope company. I do say that a lot when I'm looking at it, if I'm talking to somebody about what I'm looking at, I say I'm interested in buying this company. And I don't think that's unfair, I think, you know, I always think that way when I'm looking at buying into a business that, all right, would I be good with buying this entire company? - Yeah. - If I had the resources, could I buy this entire company? So it's a good way to think about it, and I just kind of pass that through to those guys. So maybe that's why they were comfortable with it. - I always say that too, 'cause I think it's important as a mental exercise for myself to remember that that is what I'm doing. And so I say that now like in regular conversation with people and it, when I get the weird look, it reminds me like, oh, that's not how other people think about stocks and it makes me extra glad that I use that language because I need to think differently than the typical view of like, I'm buying a stock, whatever, like I'm not doing that, I'm buying the company and I need to be as serious as buying the company. So that's been, I've never, we've never talked about that, but I've noticed it quite a few times with friends, with colleagues to like always get the weird look, 'cause they know that I'm not buying Apple. - Oh, you're buying Apple. - You're buying Apple. - Yeah, it's confusing, which fair enough, but I'm always, I'm just always glad that I describe it that way because that is how it is for me and I think that that matters when you actually go and put your money into it. - And you don't ever know, you guys are all young and you're starting your careers or many of you are and you don't know where you're gonna end up. You may end up doing what I do and what Danielle does. You may be end up really investing money and that's what you do and you'll have times when you may be thinking about buying the whole company. - Yeah. - I've definitely been one of the key owners of the entire company, you know, on the board of a company and just having to run it and ultimately became CEO for a little while of a company. So, you know, it's a journey, you might as well start thinking about it appropriately right off the bat and that is while we wanna own businesses that are being run by other people, we really have to understand them well enough that we should feel competent as an owner. You know, this is the business I own and this is what my family's living on. We need to understand that business. - I always remember also when I wanna say Bruce Berkowitz, it was like a big, very famous value investor shut down his fund a number of years ago and I remember reading the article and as I was reading the article, I was thinking what happens to like, how do you wind up a fund? I had never done it before, so I didn't know. And like, how do you, do they just sell everything? But then what if it's not a good time to sell and then you're not completing your fiduciary duty to your investors? So I get to the bottom of the article and it says, "All of the investors in the fund will receive "the shares they own." So essentially, he closed the fund, handed what each investor owns back to them, handed management, essentially back to them. They always owned it and said, you know, good luck. And I think people who invest like through other avenues with a different fund manager or ETFs and stuff so much these days, we don't think about it like we actually own it because there's this veneer between us and the actual companies behind it. So I don't know why, but that stuck with me so much of like, no matter what you do, even if somebody else is managing it, I'm the one at the end of the day that owns that stock and that gains or loses. - Yeah, I mean, it's really important to think that way. And I would add, I think it helps me to think in terms of buying just one business. Like if I'm gonna own the whole business and it's the only business I own. So I call it the just one, you know, just one. If you were gonna own just one company, what would it look like? It's a challenge that hedge fund managers sometimes will discuss at conferences. Like if you were gonna own just one company, what would it be, kind of a thing. And I think it's a real important way to be thinking about that business that you're gonna own because in effect, you know, you're not gonna own that many companies in your lifetime if you do what we do, relatively small number. And it doesn't hurt to be thinking about, yeah, if I were to own just one company, would it be this envelope company? Would it be this cosmetics company or this burrito company or, you know, what would be, because you guys, the most money that's made by, let's say the Fortune 400 richest people in the world is from people who own businesses. They are the largest group of multimillionaires and billionaires. And the next largest group, I think it's almost on order of magnitude. I think that in terms of percentages, I think it's something like 75% of the richest people own their own business. And then like 12% are investors, you know, Buffett type thing or like what do I do? And then there's a few, there's some athletes and then that's it. There's athletes and there's some artists that comprise maybe six or seven percent of the richest people. But basically you own your own business or you own an investor and people's other businesses and that's where you get rich. - So how does it help you to remember or to think this might be the only business I own? Or this is the only business I own? How does that help? 'Cause that is not part of, I know you've said that a lot and I think it hasn't made it into my skull. So how does that help you? - It's a little bit of a more rigorous way of thinking the way Warren Buffett urges everybody to think that you have a punch card. We've talked about that punch card with 20 punches and you only get 20-year-old. - Which is very different than one. - It's true, but it starts with one. And if you're gonna think rigorously that I'm only gonna get 20 my whole life and let's say you're 25 years old, then that first one is hugely important what you pick, right? 'Cause you have 19 left. Or if you'll think maybe it's even better to look at it the other way, you're 55 years old and you got one punch left. You know, what's it gonna be? So I just like the rigor of it. It's like, okay, would this take care of my family, my grandchildren, will this business provide cash flow? Is it, what comfort level do I have that it's gonna be continuing to operate 10 years from now and be successful? - So it makes you feel more serious about it. - Yeah, it makes me feel more serious about it. It's very easy to shift into, yeah, this is a pretty good one. This is a pretty good one. - That's true, that's true. Yeah. - This looks pretty good. We can do this and I can do other ones in the, but this is pretty good. Occupies are pretty good space. - Yeah, that's true. I think where I struggle with the one is it feels like it's too much pressure. It has to be unbelievable perfection. And that doesn't exist. So I would, I think it's just like, it's like you start where you are and where I start is different than where you start. And I need to be a little more like, it needs to be a little more available to me and to you it needs to be a little less available maybe. - You know, maybe so. And to me that the hang up on it has always been, I'm not particularly passionate about this. - Right. - Burritos. - Do I want to own an awful company for the rest of my life and that's my only business? Yes. - Yeah, I'm not really passionate about burritos or cosmetics, right? It's much easier to be excited about it if it's not the only thing you're going to own, right? But it's the only thing, it's hard a little bit on the level of passion. That's my hurdle that I have to kind of get by a little bit is to just think of it in terms of how happy I'm going to be that it makes money for my family. I was just reflecting on this when I was watching somebody on Instagram, I don't know who this was, but they were talking, does this ring about, they were talking about how it's important, like when you talk to billionaires, this was, I don't remember who this was, it was great. When you have billionaires giving you advice, right? It's like you advice from billionaires, very common. You go to a conference, there's a billionaire giving you life advice. And the life advice they always give you is follow your passions, follow your heart, right? That's advice from a billionaire. But in this guy's argument was it's not good advice, it's very, very bad advice. Because the billionaire who's given you that advice got rich, smelting or. - Oh, wait, it's not the kind of billionaire who followed their passion. - Right, it would be the vast majority of billionaires got there by doing something hard that clearly no one would have as their passion. They just did it because they wanted to make money and they were talented at it. They're really talented at banking or really talented at smelting or or having tankers in the ocean or, right? I mean, how many of those billionaires, I mean, the point the guys make it is how many of those billionaires were just like, I can't wait to get up in the morning and figure out what freighter I'm gonna get. - Yeah, exactly, exactly. It doesn't have to be the perfect, I love this in my spare time thing. And I actually think for me, the things that I love in my spare time, if I did them for a job, it would kind of ruin it. Because I would have to do it on a schedule and regularly and often the point of fun stuff is that it's like whenever you feel like it and you don't have to do it and nobody cares. So I think when it comes to like looking at companies and the services or goods that they offer, I really struggle with that question because yeah, you gotta read a lot about it, you gotta know a lot about it, you gotta follow it. And do I wanna do that with a company? Like let's say, what did you just say, smelting or? - Smelting or, I don't know. I mean, look at the big retailers, you know, like they say, the Walmart, really was it, was it the passion of the founder to like go out and find cheap merchandise and make it available for him? - I think it might have been with him. I think actually that might have been his passion, yes. - It could be. Well, maybe this is bad advice. I mean, shoot. Now what I think about, you know, obviously Steve Jobs was massively passionate about-- - Well, that's what I was surprised because most of those billionaires that are giving the advice are like techy billionaires who quit college 'cause they were doing whatever they're passionate about. - Okay, well what about Ray Crock? It was like, was it really his passion to flip burgers? He didn't even care about hamburgers. - Right. Okay, but so this is actually really important because it's something I think about. When, and if I think about it, therefore, it's important. I get it, yes, I just said that. When I look at the biggest companies, they are the ones that are cool. Like exactly what I just said. It's the ones that people want to go on the ride with. You want to own Tesla, you want to own Apple, you want to own like the fun new BYD coming up. And that, for like a person sitting alone in their house doing investing, that adds to the joy of it. And there's a strong argument that some of that has helped those particular companies grow more than they should have. And we've talked about that with Tesla a lot. And there's a really decent like contrarian investing argument that if you go for the boring companies, they can be cheaper simply because me sitting on my couch, I'm not looking at the smelting company 'cause I don't even know what exists or I'm not looking at the envelope company because I passed over it, not even giving it a second thought. And that's a really decent thing to think about going forward, especially as more and more people are investing themselves. We tend to gravitate towards the stuff, I mean, as we say all the time, the stuff we know and the stuff we know is the consumer facing stuff. - Right, well, I mean, to the point, the guys in this envelope company are getting rich in this envelope company. - That's awesome. - They're running. They're making millions of dollars, their payroll is like 21 million a year or something. Those guys on top five or six guys, I mean, they're making money, they're making bank. They're in a cash flow business that's dwindling and they're looking for how to move that cash that's coming in by the truckload into a business that is really sustainable and it's gonna be the future. And maybe they'll do it right and maybe they won't. I mean, it's like, they're having fun doing it, I think. I think they're pretty talented at what they're doing so far from what I've learned and they might even be passionate about it, about making this transition happen. I would hope so. - Yeah, it's a really fundamental question, I think, for those of us doing it on our own and I haven't got a great answer, whether or not you go with the stuff you really think is cool or you try to branch out from that. I just don't have a good answer. I had somebody-- - I think it's so restrictive to go with what you really love as a primary focus. Like we try to get people to think about where they're spinning their money-- - You started this by saying one company. So the next sentence being it's too restrictive is a little bit. - Well, it might be right. I mean, maybe I don't take it that seriously. You know, if it's just one, it probably has to be something I really love and you know, gonna be with forever. Which would be very restrictive, I think. That would be too restrictive. 'Cause I don't feel like I have to love these businesses. I think I have to love what they do to the world. I think I have to have them match my values. I don't want something that sucks in the world. And obviously I love it that they make money and they're making money for my family and for my investors. I think those are great. And I think I need to understand the business and in order to understand it, it's gotta be something I can read through the 10 Ks without unduly, you know, being stunned into silence and by how complicated it all is. I think I've gotta understand what they do. And so those things go together. So maybe I'll have to say that while I'm thinking about it as I'm just one, it's not that rigorous, really. - Yeah, no, but I think you use it as a mental model and then I think probably the real criteria is the 20. - I think that makes a lot more sense. - That's legit, it's definitely legit. So, I mean, we kind of wandered away from our imagine hat and we wandered away from our study of how to get expert help. Have you done anything on that regard in this week? - I have not, I forgot about it completely, yes. - Mm-hmm, you did not, you did. - I did not, I did not. - Where are you right now? - 100% slipped my mind. - Are you in Portugal? Are you in Portugal? - I'm in Portugal, yeah, I was able to-- - Oh, well, that's why you, you're at the beach. Aha, that explains it. All right, well, I've been working on my one company a little bit. - It's the best though, my best friend who I haven't seen since before, the pandemic is here and it's just like the best. We both couldn't travel for so many years and it's just, you know, sister time, basically. It's awesome. - Oh, that's awesome, we'll give you a pass on that one. - Oh, okay. - I wanna tell you, I wanna tell you what, I've done so far with this because I think it's-- - Oh, there's more, I thought you had said everything. Okay, go ahead. - No, it might be a little bit interesting to follow along starting from scratch on an industry I don't know with a company I might actually wanna buy and kind of how I'm proceeding down the road. So first off, I'm trying to get some expert help and looking at places I've never looked before. But then I'm going to the immediate expert help which are the documents filed by the company every year called the 10K. And I am immediately onto the 10K and I'm reading the first ones in pretty good detail like I'm getting into it deeply. And what I did is I just to get a kind of a view of management, if you will, and what the flow of the industry has been is I started with their 2014 10K and I brought up the 2023 10K at the same time and I'm kind of going back and forth from one to the other as I go through this section to the 10K. - Oh, that's a cool method, I like that. - Yeah, it's been pretty helpful to just see what's going on with the business over this 10-year gap. - Yeah. - Where they were back then, where they are right now. What are they saying? - That's super interesting. I've done it where it's the previous year next to the, whatever the next year, you know, like two years in a row, I've done that. I have not put 10 years apart together on a split screen. That's interesting. - Well, the first thing I saw was fascinating and that these guys had this shift to packaging and the gradual decline in the industry of envelopes, very clear in their minds 10 years ago. They have been on a long road to acquiring, kind of rolling up companies in the envelope space as a method of growing that side of the business while trying to understand the packaging business and slowly getting into it. And so, what I can see from management at this point is they're very deliberate. They're really taking their time. They're moving about as fast as the industry itself. Not real high tech, not like boom, boom, boom, boom. They're looking at a very long-term trend here. - What I also hear is management that's telling its shareholders where they're going. - Yeah. - That's kind of unusual, unfortunately. - Yeah. - I'm like so far, I'm fairly impressed with these guys. They're very clear in their financial notes about where money's going. I'm fascinated by the size of the write-offs that they're taking under depreciation and amortization on the intangible and goodwill side of the business because they're acquiring businesses. So, clear back in 2014, they didn't have a lot of that. 2022, really major chunks of goodwill and intangibles being written off every year, which raises a flag, right? It raises a question, why are there accountants thinking that the business that they're buying not worth as much as they paid for them as we're going in the future? Is this something that they have to do? And I'm going to find out, right? Why are they writing these things down? Why aren't they holding their value? Or are they holding their value just fine? And this is an accounting requirement that they depreciate these things for some reason. - Are you going to say the name of this company or we're keeping that quiet? Okay. So, everybody listening? - The reason is real simple. This is a pretty small company. And if I decide I want to get into it, it's actually going to be hard for me to buy enough of it to make it make sense. Like I said, I could buy the entire company. So, if I'm going to buy enough where it's not going to be a rounding error if the thing doubles, it's going to be hard. I'm going to own a big chunk of this thing. - Well, and I think from the stuff you've said, people may be able to find it. So, I just want to emphasize on you as well. I'm speaking for both of us. This is for education and entertainment only and you probably found a different company than the one Phil is talking about. - Yep, probably did. - So, don't trust it, do your own work. - Don't count on this, right? So, yeah, I'm thinking that the way I'm going about this right now, you guys, is it's going to be 10Ks comparing over the years to the current one and trying to see if management has changed their tune. Already, I think they have not changed their tune. They've been at this for a while and then it makes me wonder, is this really hard, right? 10-year transitions quite long and they've moved from almost zero percentage of their revenue to a pretty substantial chunk of their revenue and packaging now. And maybe it's harder than they thought to penetrate that market. Because that is a growth market and it is obviously a growth market. It has more and more thinking stuff, yeah. - Yeah, absolutely. - Everything's getting shipped and packaging and everybody's shipping way more than they ever have. And there was probably a moment there during COVID where those companies went right out of their minds with business. So, they may have gotten really, really pricey or nobody's selling at all and it's hard for them to penetrate. - Yeah, so maybe it's not an envelope business. Maybe it's a failing packaging business. - Say what? Maybe it's a, maybe it's not an envelope business. - Like if they're trying to get into packaging and are having trouble and they're saying envelopes are going downhill and has been for 10 years, then I don't hear a lot of success in the packaging realm. - Oh, good point. So maybe the real risk in this business so far and this analysis of it is that they are not going to be able to make this transition. - Yeah, interesting. I have some more questions about this but we gotta stop on time. So, yeah, I'm curious how you research a somewhat obscure area. - Let's keep going. See if you could do a little something in terms of experts. - Oh, let's see, okay, okay. - And then we'll chat some more. - Okay. - And we'll, I'll keep you posted on how we're going forward on this thing. - Okay, sounds good. Thanks everybody. Bye. - Time to go play. See ya. (upbeat music) - Hi guys, thanks for listening to "Invested." If you enjoyed this episode and you want more information or to listen to additional episodes, visit our website at www.investedpodcast.com and sign up for my virtual workshop right there. Spots are definitely limited for this event. I'm not kidding, they really are. They sell out very quickly. So everything discussed on this podcast by the way is either my opinion or it's Danielle's opinion and I'm really important. It's not to be taken as investing advice because I am not your financial advisor, nor have I considered you a personal situation as your fiduciary. So remember that, you're on your own here. This podcast is for your entertainment and education only and I really hope you enjoyed it. (upbeat music) [BLANK_AUDIO]
