(upbeat music) - Hey everybody, this is Phil Town. - And this is Daniel Town. - I'm here with Daniel Town. - Oh my. - Delightful daughter. - My delightful father. - Thank you very much. I love hearing that after being your dad all these years. - You are delightful. I do find you delightful. - So sweet. - Filled with humor and zest for life, absolutely. - Still, still my creeping old age, man. But yeah, and I have a zest for this podcast. I'll tell you that. I love doing this with you. - Me too. - Into the eighth year of this. And man, I've learned a lot from you about investing while I'm teaching you about investing. And I always look forward to a podcast to find out what in the world are you going to say this time about the whole thing. So we're talking about analyzing businesses and trying to understand them. And it's what we do. I have people have hired to do that with me because it just requires a lot of work. And the more you can cover the more chance you have a finding something really, really good. And we're just talking about Warren Buffett at his meeting, basically saying, look, if I had to start with a million dollars right now, I would, and I wanted to make 50% a year, I would go to the littlest companies, what we'd call micro caps. So stuff below 300 million that's under the radar of a professional analyst and professional hedge funds. And they're just too small, these companies to make a dent in their returns, even if they doubled in the day, it wouldn't matter to be a rounding error and some of these big funds. So that's a place where small investors can go and hopefully find something that's really on sale. But you got to know what you're looking at, right? - Yeah, we talked a bunch about that, right? - Yeah, so how would you figure it out? How would you go about doing the work of a professional analyst and figuring out this company without making some terrible mistake? - Well, it's an upper probe question to what we were speaking about last time, which was research, how to find out about stuff that you don't know that much about, how did you research into things that might be kind of obscure and to determine if sources are legitimate, are trustworthy or not. And I think with those kinds of companies, penny stocks that don't have a lot of coverage or maybe any coverage by the industry, and maybe are in industries where they're so tiny that they're just not in the news or not in typical journalism. It's really hard to get outside views. And right when we finished, I wanted to make a point, I wrote it down, so I wanna make sure I get to it. One thing that I know people, especially who are professionals, so this is probably priced out, priced over what an individual would spend maybe. I mean, everybody can design. But an option is these expert networks, which are literally a middleman network, which connects an expert in a field to somebody who wants to know more about that field. And typically, not that other people don't wanna know more, but typically the people who are willing to pay a lot of money for that info are investors, are funds who stand to make way, way, way more money than their investment in the research. So there are a couple, and have you used any of these? I know some investors do, and some really don't like them just 'cause they don't know who they're getting on the other end of the phone. - Yeah, that's my biggest concern. And I don't wanna knock the Small Business Association, or is that what it is? SBA here in the US. But my experience with them many, many years ago was this. They have an experts group that are happy to advise you. These are people who are retired from different fields, and you can call them up and ask their opinion about things. And they're basically retired people who are like docents, sort of at a museum, they're just doing it for fun. - Like for free? - Yeah. - Oh, well, that's a poor resource. - So the SBA has that very cool resource. - For free? - Yep. - Amazing tip. - Yeah, I didn't know that. - They'll totally talk to you, and then if you like what they're doing, and you wanna hire them for a period of time, or something, they'll sign on with you for some consulting fee. - Wow. - But they'll definitely demo for you, absolutely their skill and knowledge about the business, and you can have a good demonstration. The only problem I found is that I didn't feel like I was in touch with anybody that really knew a lot. - Yeah, I mean, for free, you're gonna get who you get. - You get who you get, and so we never really used it much, and this is going all the way back to the early days when I was really scratching around for how do I do this? - Absolutely. - Yeah. - I thought, oh, this would be a great resource, and it just, I just never, you know, it could be that I just didn't have good luck for the, like, literally the three times I tried it, and then just went, all right, I'm done, I'm done with that. And number one, number two, that was literally 40 years ago. So I have a suspicion things have improved substantially, maybe, because now you have all of a much easier way to communicate with people. - Yeah, that's true. - You might have people that are willing to put some time in, but are much better experts, and they wouldn't do it back in the day when you had to get on a telephone, which is what happened. - Maybe. - So now-- - A lot of this is still, you know, the telephone or whatever. I imagine you could do video if you want, but it's, yeah, I think it's exactly that, but paid, so they are able to get really high quality people. A major one, and also a major one just for research resources, is Teagas, or Teagas, T-E-G-U-S, and they are pretty well known. That's kind of a standard in the industry. And then another one is knowledge ridge expert calls, and they run something like starting around maybe $500 an hour, and then they go up to like a few thousand dollars an hour, and a lot of funds will skip all that, and just do a annual fee, like you just buy in, you become a member, and then you can just talk to people whenever you want, not keep track, depending on if that's like something that they find useful. So it's quite interesting, and I would also add that for people listening, 'cause I know we have people in all different industries, being an expert can be a really nice little side gig, which takes not a lot of effort. You do it from home for an hour, you know, and make a decent hourly little chunk there, and maybe get to talk to somebody interesting. So that's another side of it. It's something I've thought about with legal stuff, but I have never quite gotten around to. - Interesting, okay, well, I wonder how, I wonder what the quality is that you end up with. - I mean, it depends entirely on the network, and obviously these highest level ones have very good, I mean, they have professors at Harvard on the list, and they have world-class scientists. - Well, wait a second, I'm pretty sure none of those people are gonna talk to your average ordinary. I'm investing $10,000, I wanna talk to Harvard. They'll talk to whoever gets on the network and pays the network middleman to get them on the phone. They don't care who they're talking to. - How much? - Well, this is just from the website. Go and talk to them yourself, from the websites. It said something like starting around $500 an hour, and up from there. So obviously if you're gonna try to talk to, I don't know, world-class biotech expert, so and so, that might cost you $5,000 an hour, I don't know, or maybe they're not accessible. They only, maybe they will only talk to the major headphones. I don't know the details, I've never used one of these things. But, 'cause for me, I just don't think it's worth the money, but for somebody who's investing more money than I am, I can see how it would be worth it. And I know personally, from talking to other investor friends, they use it, and they really like it. And what several of them have said to me is that, it's not even so much the exact information they get, because again, it's a stranger, and they have their own perspective, and their own experience, and somebody else might have a slightly different one. But, the way that, this is from friends, the way that they have used it successfully, is that in a field where they don't know that much, they'll call up one of these experts and just get a basic lay of the land. What's important? What kind of terminology do you guys use? What do you know about the general competition? Tell me about the basics of this scientific process. Do you know of any weird patents that are about to show up? Just kind of lay of the land, here's the area. And then from there, they've found that then they go do their own research and figure stuff out. But it sort of is a really great, easy, quick primer into a certain industry is how I've heard it being used. - Interesting, yeah, I just think anything that costs $500 an hour out the door is gonna be really hard for me to pay. And I've got the money. - No way, people, like people, funds pay, what is it, $40,000 a year for a Bloomberg terminal and they get multiple of them? I don't think 500 bucks an hour is breaking the bank. And by the way, Bloomberg has their own expert network that you can get as part of your subscription. - Yeah, we have Bloomberg subscription. We're tapped into that and it's good as far as it goes. I think we got to start with stuff that's free. So I'm gonna push back on this a little bit and say, okay, we got these experts out there, very important. But before I want to spend $500 an hour with somebody who's gonna tell me stuff that I don't even know if it's true, right? - Well, yeah, but I mean, the hard point is that you're getting somebody who's at least credible in their field, right? - Right, they're credible in their field. But in my world, I would say most of the professors that are in the Ivy League, particularly at Harvard, don't have a clue. - Okay, well then, don't talk to that person. - She's the one you want. - She's the one who's spending money on them. I don't want to spend money on them to find out. And I think that's a difficulty. I think that's gonna be the hurdle that most of our listeners would face is, all right, you're gonna get some professor. You know, you're gonna get, okay, you get the, how do you say this? Demadorin, Demordin, Demordin, at NYU. - You mean the guy who wrote the book. - Right, with the book on valuation, be expert. He's the guy, if you brought him into court, the court would believe him, right? And he might not be able to help me at all in the way I look at a company. - Yeah, then I would say, you know, let's jump off the phone after 15 minutes and cut your losses. - But you don't know that, you don't know, he's not telling, but I wouldn't use it. I wouldn't use them for investing advice. I think that would be silly. - Okay, let's take an example then, a real good example. Let's say I want to know more about an envelope company that is, you know, based out of Canada and they're buying small US companies. They won't do that. It's not like, here's, at least, I don't know, maybe they would, but it seems unlikely. Here's X company, tell me about it. - Well, no, what I know, I don't care about them, tell me about X company, I want to know about the industry. - Right, yeah, yeah, you could get somebody from the envelope industry, yeah. - Yeah, could I? - Not sure, yeah. - Okay, well, I might be trying to do that and see and report back. - I'm also, this is gonna be the next thing we do here on the podcast, this is gonna be fun, I think. - Oh yeah, what are we gonna do? - We are going to explore the experts industry and far as utilization for a small investor for something totally affordable and totally useful, right? So we want to see utility here. So we're gonna explore this, you and me. - What does totally affordable mean? - It might mean free. So here's what I'm gonna do, here's what I challenge. I am going to explore the part of the Small Business Administration, which is dedicated to helping people with their small business. And that organization is called SCORE, S-C-O-R-E. - Oh, cool. - You wanna go look it up, you guys. - Okay. And they have like 250 SCORE offices around the United States. And they are free and they have all these experts who are self-proclaimed experts. I don't know that the SBA does any vetting at all. I don't know why they would or how they would. - SCORE business mentoring on their website. - Yep. - Very cool. - SCORE business mentoring and it's no cost. Doesn't matter how many times you visit the SCORE mentor or how many SCORE mentors you work with, no charge. So, you know, and I think the way they vet people is that if you don't really have a good experience with whoever your mentor is, then you tell the SBA and that person gets dinged enough, they won't use them as a mentor anymore, at least I hope they wouldn't, but I don't know that for sure. I do know they have sort of like, if you don't like what this guy's doing, let us know. You know? - Sure. - So maybe they vet them like that over time. - I would imagine that if it's volunteer, there's minimal vetting because you don't wanna send away people who are trying to help, you know? - Right, and you can always in this program, you can ask your mentor to point you to other SCORE mentors that might help you more. So the program has improved itself since we tapped into it 40 years ago. And I think this is a great place to start. And I'm gonna start. - Very cool. - I am gonna go find a mentor who will mentor me about the envelope business, or I might find a couple others, you know, that I might be interested in. - Mm-hmm. - That would be fun to hear from here. I think it might be good for you guys to hear how hard it is or how easy it is to actually get access to somebody who actually understands this business I'm trying to figure out. - Okay. - That'd be great. So I will take you to school. - I can fuse about what this like, so okay, yeah. Somebody who's free might be, it might take a while to find great information. - Right. And I'm gonna look at the other resources they've got. They have live webinars, they have recorded webinars, they have interactive courses. I suppose if you wanna learn how to be better marketer or something, they've got local workshops, again, probably oriented toward hands on running a business. And they've got a library of online resources, which might be really useful. - What are you saying? I had never seen this, this is incredible. This is such a good resource. - Absolutely. - Yeah. - So I would go to score as a start and just find that library thing. What's it called? - It's really cool. - Library, let's see what it's called. Resources for your business success. And it's got all kinds of filters for what kind of thing you're looking for, including a podcast, which could be really good. - We should sign up. (laughing) - I know, we should sign up to run a podcast right on. - We will mentor you. (laughing) - Here we go, business. - On how to do your podcast from your house. Okay, this could be really actually pretty damn useful now. Way better than a long time ago. Well, I'm just looking down the list of possible things I could download to listen to. Here's somebody that's the founder of a real successful South Carolina dim sum restaurant who's gonna share her journey of building a successful restaurant. - Cool. - So if I'm looking at, I wanna buy a restaurant, man, that would have to be a really useful. - Absolutely, really useful thing to listen to. - Very cool that you knew about this. - Yeah, I totally forgotten about it until we started into this area and then I realized, oh man, I used this so long ago. - Pretty internet, like when you're just desperate, right? - Yeah, absolutely. Gosh, in fact, they even have, okay, this would be really useful for all of y'all, I hope. I'm gonna take a look at this. It's called understanding financial statements, the balance sheet income statement and cash flow statements, discover the essential financial statements for small business success and learn what entrepreneurs have to know, basically. So what's a financial statement? And I mean, if you're doing what we do, you gotta know these things. This is just hands on the language of business. So there's a great way to kind of dive into it. And by the way, on that, I don't even know how I wandered onto this, but I'm gonna wander onto this. I'm finding this book very, very interesting. Can you see this? - Yes, financial intelligence. - Yes. - Who's it by? - It is by Karen Berman and Joe Knight. And it's a manager's guide to knowing what the numbers really mean and it's written for entrepreneurs. So it's kind of like, it's a Harvard Business Review Press, so they've got some credibility with me. It's been around long enough to get revised a couple of times. And the first edition got this kind of blur, but it's like the elements of style, like for writing, for finance. One of the clearest guides I know of. It's safe to say, most people don't know what they're talking about on any given subject. That goes double for finance. Give them a copy of this. - So we, probably six months ago or something, talked about me reading a book that I can't even remember the name of, and it was just way too dense and way too hard. I couldn't, I couldn't do it, so we never did it. But is this one, like, how is it written? Is it really dense? Could somebody with brain challenges absorb it? - Yeah, I mean, it goes into a lot in the initial part of the book about why you should do this, you know? And then it starts into, the next section is the peculiarities of the income statement. And I mean, here's the first chapter of that, it's profits and estimate, right? Most people think it's a real number. So then it goes to the balance sheet, you know? What is goodwill? I mean, you know, it pretty much like blocks you through. Okay. - Yeah, yeah. And then you look at what companies can, what accountants choose, how they choose to allocate capital onto these three financial statements. Or, you know, when a company buys a truck, do they put it on as an expense? Do they put it on as a capital expenditure? And what does that do ultimately to the cash flow statement and to the income statement? What does that tell you about how much money they're actually making when they say they have income of so-and-so or earnings of such and such per share? What has the accountant done to tweak that number? Because they can definitely tweak it. So I would say this is down in the weeds pretty good. If you want to get down on the weeds, this would be a good book to get down on the weeds with. - It sounds really useful for somebody like me who didn't go through business school or through a finance degree and who like, I mean, like I know the stuff, you know, 'cause we've taught it to me and we've learned it to like with our listeners, I've learned it. But to have another deeper perspective on how those numbers get created does sound really useful. - Yeah, and how they can be manipulated. That's how they can be manipulated. - And how they can be manipulated. - Exactly. - How they can be manipulated. - Does it talk about capital allocation and like choices and strategy at all? Or is it pure, you know, statements? Here's how accounting works. - That's a really good question. Let's take a look here. - Hmm, so you haven't finished it yet? - No, capital expenditures, source and uses, capital budgeting. Let's see if they talk about allocation. Oh yeah, here we go. Allocations of capital. - Oh, okay. - Got in there. - That's cool, okay. I'm gonna buy it, and I will attempt to read it. - Yeah, I think it's gonna take a minute. - Listeners, yeah, I think it's unlikely. But listeners, if you like the sound of this book, go get it, maybe we'll talk about it a bit more on the podcast. - Yeah, maybe we'll find out it's not really useful when we get deep into it. I've only read about a quarter of it, but I'm happy with it so far. I think it's legit, what I'm reading so far. And I, you know, one of the things that we've harped at here is how important it is to look at cash flow. You know, because earnings can be manipulated so easily by these kinds of things. And it's nice to see, it's nice to know that they're doing it. I think that would be the- - That they're doing what? - Manipulating their earnings. - Oh, yes, oh, yes. (laughs) - Wouldn't that be good? - Yes, yes, please. I would like to know that. - It's like for years Netflix was producing a fabulous income without having any cash, right? - Right. - But it's because of the way that they were allocating capital and choosing to write it off or not, right, or amortize it. So yeah, it's nice if you can get into the basics of this stuff. I think it's worth playing around with. All right, so I didn't mean to take us a field from launching into what we're gonna do next week. In the next week, I am going to look seriously at score. I'm gonna call them here in Atlanta. I'm gonna try to go up and meet with some score people. I'm gonna see if I can find if there's anybody around anywhere in the country who will advise me on an envelope business. And I'll report back on that. - Okay, but wait, I think we and I wanna test out one of these expert networks 'cause now I'm intrigued. Having never really given them much thought, now I'm intrigued. But we need to choose a topic or industry that's actually useful, like a real investing thing because I don't know if there's any public envelope companies that we could go buy. I think it's probably more like a people company or a business place. - No, there's a public entrepreneur company we could buy. A public envelope. An envelope, all they make is envelopes. - Yeah, pretty much. - They disdain the paper. It is gummed items or nothing. (laughing) And they want to be-- - If it's not folded, it's not us. - That's pretty true. They've spent some, they've done some capital allocation to improve their packaging business. Which is also folded, if you will. So I'm not entirely sure what's involved with packaging. (laughing) But I think this could be quite fun. They are public and I'm gonna keep them very quiet who they are. - I was just gonna say, are you gonna tell us or like-- - I don't know if you're gonna tell you what country they're in. I'll give you a clue. They are caught in the United States. - Okay, if it truly exists, then I'm in. - If I might exist. - I might be making this up. - It has to exist or else this is just a waste of time. But what I'm saying is we can choose a different kind of subject. You chose envelopes out of the clear air. Let's pick a subject that actually you would go to an expert on, which is probably not envelopes. It's probably something techy or sciency. - It's not, you're not. - People, people. - No, they're not. This is why I'm picking envelopes companies. Because if it's techy and sciency, and you don't know enough, and you need to go talk to an expert, you probably shouldn't be anywhere near it. That is not, techy and sciency stuff is not simple. - Yeah, absolutely. Yeah, I agree with that. - The longest running company that I invested in, the longest hold that I've had of a stock, was a bioscience company that made variations of organic materials for farmers. I mean, let me tell you, it is complex. You gotta really understand the farming industry, right? You gotta understand where this techy stuff is going, who's buying it, why it can't be just eclipsed by somebody else's techy stuff. - Right. - Right? All of that. - And you fail out money and it talks to some experts, right? - No, this is why I do envelopes. - But I'm just describing that is why these industry of experts exist. - Oh, it is why they exist, sure. Yeah, you're right. You're right about that. - That doesn't make it a good use, but that is why they exist. - Right on. So I'm gonna be browsing mentor profiles at score, and I'm gonna encourage you guys to do the same thing. - Is there an envelope company? - Yes. - Scout's honor. - Scout's honor. How do you do Scout's honor? - I don't know. Were you ever a Scout? - I don't, I forgot. Only briefly, I have to confess that I set a fire in the school gym. (laughing) - Of course you did. (laughing) - It just seemed like a good idea at the time. They had us building these fires that you can't light and everybody was in the gym, in the gym, yes. Like you can't light it, obviously it's in the gym. But what is the point of that to an eight-year-old? - What was the exercise? Was it making a little twig tent with a teepee? - Yeah, like a little teepee, yeah, and then stick. - That sounds so dumb. - I wanna see if my fire would work. - Why would you ever do that? - Yeah, because if you can't light it, then you don't know if you did a good job. - Absolutely my thought at eight years old. - I mean, you are correct. I would have started a fire with you. - Thank you. They didn't appreciate it at all. And oh no, that was when I was a little older. I was trying to get into boy scouts and that was the end of that. And I got a cup of scouts. - You have to do a fire twink. - No, it was just one of those, you step into the boy scouts and they're doing whatever they're doing. - Okay, okay, okay. - No, I got booted out of cup scouts as well because I think I refused. I did something wrong when it came to creating a shoe polish shoebox. - Oh, I mean, you said this to me before. I remember this, the weird, 'cause what a weird thing to say, shoe polish shoebox. - Yeah, it's a shoe, like you make a box and then it's got shoe polish. - And you put shoe polish in it. - Yeah, I think we were doing that as cup scouts and I don't know what I did, but I had the impression that I was not being appreciated. I was eight years old. So when they weren't looking, the cup scout lady, I snuck out and started heading home. And I knew enough that any car coming down the road at night would be somebody looking for me, chances are. So I would dive into the woods every time a car would come by. I wanna tell you, nothing will freak out a cup scout woman like missing a child. - Yes. - They went bananas. - Oh my gosh, a worst nightmare situation. - Oh yeah, yeah, my parents were furious and not so much at me, although they should have been. They're furious at her that I escaped. But I really, I really was, that was really mean of me. I mean, I absolutely knew that she was gonna be in trouble. - Oh man, kids are wicked, man. They could do wicked stuff. You think they can't and they're only eight years old and they can, they can be very clever. It really being nasty. - Of course, I don't know. I never thought kids couldn't. I was just telling my friend how I used to play dead so that my sister would think that I was dead and she believed me every single time and would start to cry to the, 'cause she thought I was dead. And then I would just get up and she'd be like, okay, what a relief. I did that multiple times. Like she fell for it multiple times and you don't know that that happened, which means that we did it like when parents weren't around and she never told you. - Oh my gosh. - Yep. - That's just for fun. Like there was no reason for it except it was fun for me. - Oh, damn. Oh man. - Maybe I'm a psychopath, I don't know. - Yeah, you little kids, they're wicked, man. Totally wicked. - All right, envelope research. - That's what we're gonna do the next week. - Why we're doing this is, I want something more interesting, but I'll go with it. Envelopes, okay. - Well, okay, pick another one. - No, I mean, I'll go my way. - I don't have a particular company to lean towards. So I think the fact that you have a particular company that you're interested in and therefore this is actual useful knowledge, I think that's more important than something. - Okay, well I'll tell you what, apart from the public facing part of our conversation here, I may tell you the name of the company if you'd like to know. - Yeah, so I wanna know the name of the company. - And then you could start digging in with something tangible. - Yes, please. - Okay, okay, later. - Cool, all right. And I feel like we, okay, I'm trying to remember if I had any other notes about what to talk about, but I think we went through it. The expert thing was what I wanted to mention. And we can talk a little more at some point about like opinions of friends 'cause I think that's another layer of knowledge gathering. - I agree. - That may or may not be useful and may even be counterproductive, possibly, or incredible. - Totally, I agree with everything you're saying. (laughing) - Yeah. - Yep. - Okay, cool. - Okay, cool. - On Volopes. - Great. Time to go play. See y'all. - Thanks, everybody. Bye. - Bye. (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]
