the evolution of a value investor with Jae Jun founder of old school value and GorillaROI.com
“… Like many other value investors before me, that’s pretty much the start of the journey. And so, I really started a website, only to document everything that I was learning because I was going through all these books, and nothing was really in a logical order for me. So, I was just rewriting and trying to organize my thoughts on paper. And that’s how Old School Value came about…”
Ney Torres: [0:03] … I met Jae when I was reading a book about value investing. I was looking for this very specific terminology. I found one of your articles. It led me to Old School value. I wanted to ask you. Can you tell me your story of how you started a website business? What did you learn about it? How did you start in investing? And specifically, how do you start value investing?
Jae Jun: [0:49] Okay, sure. Yeah, that’s a lot of questions but I’ll try to go through it one by one. So, the real sequence of that is I first got into investing. I was working at a job. I got my first 401k in the US. So, that’s the retirement account. And then, the company was putting it automatically into a mutual fund. I just wanted to get a better idea of what the money was being invested into.[1:14] So, I was going through some articles and this and that, trying to read up. I got into, like say, trying to learn day trading. But that didn’t work out because I had no idea what I was doing. I ended up meeting up with supposedly a financial advisor. Ultimately, it was to purchase life insurance. And not knowing anything, I went ahead and pretty much dumped all of my life savings of $3,000 into it. And then, I realized that it wasn’t an investment vehicle. So, I took the loss and then really started learning and came up with Warren Buffett. [1:51] Like many other value investors before me, that’s pretty much the start of the journey. And so, I really started a website, only to document everything that I was learning because I was going through all these books, and nothing was really in a logical order for me. So, I was just rewriting and trying to organize my thoughts on paper. And that’s how Old School Value came about. [2:16] So, it was a natural progression from going from a blog, and then creating formulas realizing that I was spending way too much time entering, and copying, and pasting data from annual reports and stuff into spreadsheets. So, I just started making templates and tools to help myself. And that’s how Old School Value came about, which is now an investment software. [2:41] So, I’m not involved with Old School Value anymore. That part of the business was sold. But that led me to really diving into online businesses. And it’s what Warren Buffett says when he says, “I’m a better investor because I’m a better businessman. And vice versa.” And by actually being in the trenches of running a business, it makes it so much easier to understand value investing and investing as a whole. Because I get to see like the ebbs and flows of business cycles, the decisions made and how things can lead to certain financial either gains or losses. And so, over the decade, that’s been a natural progression of just going from investing, to blogging, to trying to build these online businesses, and then trying to just scale and make these businesses grow. That’s where I’m at today.
Ney Torres: [3:41] Okay, so can we first start talking about building an online web page, of course, a web page business, and then we can talk about value investing. Is that okay?
Jae Jun: [3:54] Yeah, sure. Let’s do it.
Ney Torres: [3:56] Cool. What would you tell yourself when you started the webpage, Old School Value?
Jae Jun: [4:03] Do you mean what did I tell myself?
Ney Torres: [4:05] What will you tell yourself if you have a chance to go back and talk to yourself?
Jae Jun: [4:11] Well, from what I know now, value investing is never a popular investing model. So, unless you have the guts, determination, and the temperament to ignore the news, ignore emotions, value investing is not going to work. I’ve lost a lot of money by either being too impatient or thinking that I was selling something at a proper time, when in fact, I could have just let it ride and let the business take care of itself.[4:45] So, rather than trying to really understand the business, I spent a lot of time focusing too much on just being numbers driven. That’s sort of the counter to what is going on now nowadays with all these data driven approaches and passive investing strategies. They work until it doesn’t. [5:08] It’s the same with value investing. So, it’s just being able to identify your weaknesses and strengths, and then to apply it. And so, if I had to start Old School Value again and value investing again, it’s just understanding the different things that come up with it, and being able to work through it and not being so impatient.
Ney Torres: [5:31] Like what? Like, I want to start a business like yours. What would you tell me?
Jae Jun: [5:39] Work backwards. That’s the number one advice that I give to pretty much anybody that asked me. It’s the same with investing in a business. The problem is too many people… When I started Old School Value, I lucked out because I wasn’t… It wasn’t because I worked backwards, but I just lucked out in terms of like the timing and the product. But nowadays, you see too many people fall in love with their ideas. They create a website, then they go out and try to sell it. Whereas, if you work backwards, you first identify whether people are actually interested in your idea. And if there’s a market need, then you go out and build a very simple basic prototype. See if you can sell it. And then, if there’s interest, that’s when you really dive into the business side.
Ney Torres: [6:28] How many times a week did you write an article?
Jae Jun: [6:33] Oh, in the beginning, it was at least four to five articles a day, minimum 700 to 1200 words. And since these are investment articles, it’s not just something where I can just sit and start typing. It was research. I was reading annual reports. Pretty much I would spend about 2-3 hours a day just researching. And then, another two hours a day writing. And another one for editing. So, it was a full-time thing. So that was pretty much my hobby at the time. I still really like writing. I still do. But it was just dedication. Only because I actually wanted to do it for myself that I was able to do it for so long.
Ney Torres: [7:19] And how many articles? Do you know how many did you end up writing?
Jae Jun: [7:26] Take out the sort of like the smaller, non-essential articles, that would have probably been about 700 to 800.
Ney Torres: [7:35] Wow, congratulations, my friend. But it’s such a robust corpus of knowledge. I’m really impressed. I’ve always been. It’s very well done. If somebody wants to learn about stocks, you have to go to Old School Value. Your articles are amazing, congratulations. So, let’s talk a little bit about investing. You find this Warren Buffett guy, what comes next?
Jae Jun: [8:05] So, it’s just looking through his books. But then there’s so much knowledge and so much information, right? So, the problem with value investing or any sort of investing is that there’s so much information. You really have to come down to nail it down to your core tenants. And that could be like five main criteria that you’re looking for. And it’s just sticking to that. I mean, Warren Buffett, I didn’t know his exact criteria because he has so much and he’s become much more advanced over the years. But I mean, if I just take the cliché, he looks for good, high quality companies with great earnings potential, right.[8:42] And so, you really have to boil it down to what type of company you are looking for because there’s so many. There are thousands of stocks, right. You don’t have to be invested in all of them. You just have to find the few that fit your criteria, and then invest in those. And that’s the way I approach value investing or any type of thing. I don’t say traders are wrong. I don’t say options investors are wrong. They found what works for them. They found what works for their temperament. Same with value investors. You have to find what works for you within value investing, before you can actually really see the monetary gains. Otherwise, you’re just going to be swimming around in still a large ocean of value investing tenants and people quoting this and that. You’re just going to be confused unless you really understand what it is that you want. [9:26] And that’s why even with value investing, that’s why I say you work backwards. Figure out what you want, create a checklist to something, and then find the stocks that match those criteria. And that’s just an easier way to get started as opposed to starting off with like a huge pool of 10,000 stocks, going through each and every one and then trying to figure out which one to invest in.
Ney Torres: [9:49] So, what is value investing? How would you define it?
Jae Jun: [9:54] Yeah, that’s a tough one because value investing to me is pretty much if I see something where something can appreciate with minimal downside risk, that’s value to me. Right now, with the current economy, we’re seeing stocks tank. The media and people are saying this is a great buying opportunity. I just called BS on that because Tesla went up to $900, let’s say. What is it now? $500 or $400 something? But the mainstream media is saying this is the new crazy buy at the moment. It could be. But the media know a lot of people were thinking it was a great buy at $900. But just because the stock hits the 52-week high every single day, it doesn’t mean that that’s the fair value. Something from $100, going down to $50 is not great value if the actual intrinsic worth or the fair value is something like $20. So, just knowing what you’re paying, and believing expecting that you can get a bigger return on that, that’s value investing and just holding on to your guns.
Ney Torres: [11:00] One special thing that Old School Value has is you keep track of portfolios or different systems for investing. You did that for many years. What did you learn about those systems? Do you remember any of those? Can you describe them a little bit?
Jae Jun: [11:19] Yeah, for sure. So, all of those different screeners and systems, as you say, targeted different types of companies. So, one was looking up Graham cheap stocks. Another one was looking up Munger type curve stocks. Another one was looking for low PE. Another one was looking for very strong cash flow or free cash flow. What I found is that you have to have many tools in your belt. Like for example, a carpenter isn’t going to make a house with a single hammer, but that’s pretty much what most investors do. They fall in love. They learn something. They fall in love with it and then they try to apply that one single skill set to every single stock, and then it blows up in their face.[12:04] So, the point of those different systems was to have different tool sets for different situations that market was going in. So right now, over the past 10 years, low PE or deep value stuff, it didn’t work, and everybody knows it. The people who are still waiting, they’ve lost either a lot of money or still on the sidelines. But at the same time, there’s no reason why you cannot switch up your strategy and apply a different tool set say like going for high quality companies like a Buffet and Munger type strategy right now instead of trying to continually look for deep net nets. [12:42] And that’s one of the problems that I see with too many fundamental value investors where they just define value investing so narrowly that they say its heresy if you go outside of this specific skill set. And to me, that’s not value investing. That’s just burying your head in the sand. I’ve come to this conclusion because I used to be like that. But after running a business, I know that if I was to do the same thing over and over again in good or bad times, I’ll be bankrupt by now, when the economy’s bad, like right now with the corona virus, I’m adapting and playing different strategies to stay ahead. If I was still doing the same thing as if the economy is still great, hey, I’m out of business. That’s the same with value investing in the different screeners and systems that I had set up.
Ney Torres: [13:35] So, would you say you have different system in your head depending on the market? If the market goes up, you have a certain system. If the market goes down, maybe you have another one. Different strategies.
Jae Jun: [13:55] Right. Hey, Ney, you broke up a little bit so I didn’t get the full question.
Ney Torres: [14:00] Oh, sorry. Let me repeat it. So, will you say you have different strategies in your head depending on the market type.
Jae Jun: [14:08] Yep.
Ney Torres: [14:10] Yeah. Which one of these systems is one the one that you like the most? Again, you just said, not, there’s not a golden system but which one do you think is the one you will start if you’re starting from zero?
Jae Jun: [14:29] Again, I mean, I’m sounding like a broken record, but it would be again, working backwards. So, understanding what situation you’re currently in. Like right now. For example, if we were at this middle of the bull market, let’s go back to say like 2014 or something, I’m not going to all of a sudden go into Graham net nets. I may have come across, say, intelligent investor, and then I started reading all these books about net nets. But when I realized that the market isn’t cooperating because the market is going to outlast anybody’s pocketbook. The market couldn’t can be wrong much longer than I can be liquid.[15:03] And so, rather than just trying to bang my head against the wall, and just refusing to adapt, I’m going to look at the market. If I was in 2014, we’re still in a huge bull run. So, I would go towards something with higher quality, higher growth. And taking that approach right now with the way the market is so volatile. That’s a good thing because it’s going to scale a lot of people. [15:30] I would say we’re sort of in a difficult transitionary period where there’s just so much uncertainty right now in terms of you can buy good value stocks, but I’ll focus on high quality stocks at the moment with plenty of cash and good cash flow with high customer demand that would be able to ride out the current situation, and then see how things play out before redeploying more capital. I mean if I had $100,000 I wouldn’t be investing $100,000, bam, straight thing tomorrow, I’ll be trading into the market, just getting my toes wet, finding out what works and then continue to monitor the situation and buying the companies that would best suit the situation.
Ney Torres: [16:18] What, what do you remember are one of your best calls, I remember you didn’t like, for example, Weight Watchers when it was going down. There were some people saying, “Oh, it’s going to go up because of this.” Eventually you were right. I also remember you describe Apple as a great business when everybody thought it has ready run its course. How do you do this?
Jae Jun: [16:47] Pretty much just trying to figure out what something is worth right. So, for example, if I’m going to buy a car, I’m not going to just go pay something like $200,000 for a used Toyota simply because everybody’s trying to buy it. So just understanding and trying to calculate what the value is worth. And that’s where accounting comes in. Accounting is the language of business and investing but too many people don’t even bother trying to learn that language.[17:16] You and I are speaking English to communicate. We learned it because we know that we have to know it to communicate, but people don’t take the same approach with accounting and investing. So that’s why if you can figure out how much a company is worth, you’re already way ahead of the pack. Now I am going to go back and say I was right with Weight Watchers and also wrong, because I thought that Weight Watchers would have had a much longer decline. But then when Oprah jumped in, that change the trajectory so change. So, it goes to show how something can just turn on a dime where I called Weight Watchers too expensive and that the business model wasn’t going to work out too great. But then Oprah comes in, her marketing power just boosted the stock up like 100% – 200%. And it’s just done fantastic after it bottomed out to some degree. [18:10] And same with Apple a long time back when it was just peaking too high. I was just waiting for it to come down and then I didn’t make a purchase when it did come down. And since then Apple has, again done a fantastic job. So, it’s just figuring out what price you want to get it for. Just figuring out what you want to pay. And that’s the thing where you have to know how to value stocks.
Ney Torres: [18:33] Awesome. What are your favorite stocks? If you’ve got to pick three or four, especially now? Especially now.
Jae Jun: [18:43] Now… I strongly believe in digitalization. People are finally getting to understand that companies and services is the new economy as opposed to just manufacturing. This is being plugged a lot in CNBC. So, one example is DocuSign. Not that I like it or anything but that type of direction where it’s making companies much more efficient. It’s making it convenient for people and that direction.[19:20] Two companies that I hold strongly in my portfolio is Visa and MasterCard. If people stay at home, they’re still going to be purchasing something off the internet. How are they going to pay for it? Either with MasterCard or Visa or credit card or even PayPal, stuff like that. [19:37] I really like those stocks. Another one that I do like is definitely Amazon. Being in the Amazon ecosystem. I have much more knowledge of Amazon and how everything works better than most investors. Just looking at all the things that are going on internally, I hate to say it but I did buy it much too late. I’ve always said Amazon was overvalued. But once I started getting into the business, and really understanding how they’re driving so much cash and so much business and future potential, Amazon is on my list.
Ney Torres: [20:15] I know you are an advocate of valuing companies based on their cash flow, right? Discounted cash flow. Would you say that that’s the measurement you use for Visa, MasterCard, Amazon?
Jae Jun: [20:31] Yes. Yes and no. So, previously, when I was valuing customers, I only focused on max year to date or next 12 months future cash flow, or free cash flow. But now, I’ve taken a step further where I actually try and project the free cash flow to a much better degree. So, a lot of my history with value investing and the limiting factor and what new investors shouldn’t always rely on is a backwards looking valuation. It works for really steady stable companies. So, if like I was valuing utilities, then it’s so much easy to value utilities using historical free cash flow. But for companies where they’re coming up with new revenue streams, new business models… For example, like look at Amazon, right? Before AWS, like the Amazon Web Services really took hold, we were just measuring the free cash flow based off their market web services, the marketplace side of Amazon. And since they were just continually reinvesting every single dollar back into it, it looked extremely expensive because they weren’t really generating that much free cash flow. But then I looked at my analysis back then today, and I realize how short sighted I was by just being so set on trying to calculate based on tangible assets, intangible numbers. So right now, I tried to look at the whole business, the business as a whole, by not overly focusing just on the current free cash flow, but also trying to project future free cash flow by looking at the different departments, different revenue streams, different business endeavors that they are launching, compared to what others are doing and stuff like that.
Ney Torres: [22:26] You’re in a different level, like a growth investor, right? That’s where you feel more comfortable.
Jae Jun: [22:33] Not so much growth. For example, I don’t trust old growth. I believe that most growth is overrated. And for long, sustainable growth, there has to be a really strong underlying engine. For example, like Uber, ShotUp like say 20% or 30%, just the other day because the CEO came out and said, “Oh, we’re going to have enough cash flow to ride out this virus.” That’s not the type of thing investing I do. And for example, like people have made me really high on Riba, but just the sustainability and the competitive advantage, I’m not sure is there. So, I don’t just look at growth. I like to consider myself more on the Buffett and Munger where I really have to strongly believe in the underlying business, fundamental growth. Not just the pie in the sky story type growth.
Ney Torres: [23:25] So, you will say is more like a gut the feeling. You’ll know it when you see it.
Jae Jun: [23:32] It sounds like a cop out but yes. It’s hard to see and it’s hard to understand. For anybody that’s listening, you’ll realize 10 years later, you’ll look back and you’ll think about the same thing. It’s hard to do but it just comes with experience.
Ney Torres: [23:52] Yeah. The reason I’m asking this question is because I see a pattern here. I think investors, we all have this same trajectory, right? When you’re starting out you focus on the numbers because that makes sense, right? Then you go to whatever the business probably is worth right now without any projections of growth or any crazy. And when you go to a third level because your knowledge is so deep that you can actually kind of project with certainty what’s going to happen in the future in a in a probabilistic future. I see you’re going there. I see you are now in that space where you’re like, “Oh, yeah, I don’t really think about it. I just feel it because you already went through all this process of checking the numbers, reading all the paperwork, and now you can take decisions in five minutes probably.”
Jae Jun: [24:49] Definitely. So yeah, it’s now much easier on a subconscious level where I don’t have to plug in so many numbers to come up with the same conclusions. I already have enough. Like Buffett, he doesn’t need a spreadsheet to understand how much a company is worth. He can just do a quick calculation, right? Because he’s done it. He’s done literally 10s of thousands. And it’s just so ingrained.[25:12] That definitely is the direction that most investors take. It just takes time. It just takes experience. It’s like when we launched new products in our online store and our business, right, when I see somebody asked… Or like on Facebook groups or something, people will be like, “Hey, is this product a good idea?” And I look at it and I can immediately tell whether it’s a dud or a hero, right? So, whether it’s zero or a hero. It’s much easier than say, five years ago when I was trying to make the decision. Because I know the industry, I know what type of sentiment there is. I know what type of market demand there is. And that all just comes with experience.
Ney Torres: [25:50] I think that this is a great interview for people that are in investing or starting out to figure out, “Oh, this is a pattern that you will eventually go through.” From checking the hard numbers to eventually just having gut feeling decisions, which are not really illogical by any means, but it’s just ingrained in you. Right?
Jae Jun: [26:11] Right. Right. Exactly. It just comes with experience. It just comes with time. That’s why it’s hard to get down to the specifics because when you’re a beginner, you just want a list. You just want somebody to give you a list of 100 things to do from beginning to end. And then, you just want to copy it, and that’s the biggest mistake, but that’s the initial sentiment and what most people want. That’s why when you read business books or hear podcasts, everything sounds a bit too generalized, but that’s because there’s no single method to do it. You follow the process like what you’ve just outlined so many times that you finally understand, but then if you try to confine it so narrowly on a piece of paper, like what most people want, you’re going to lead to just as many failures than successes because you’ve just defined it too narrowly. And so, nothing is going to fit inside that box all the time.
Ney Torres: [27:19] Perfect. With that note, I want to thank you for your time Jae. I think it’s an amazing interview to describe the path of an investor, the career of an investor too, and I congratulate you. Everybody, please go to Old School Value. Where can people find you?
Jae Jun: [27:38] I am writing more on GorillaROI.com now. So, Gorilla ROI for return investment. It’s a software company for Amazon sellers. That’s where I do my blogging and writing.
Ney Torres: [27:54] Perfect. I’ll make sure to follow it right now. By the way, thank you for your time. It’s been a pleasure.
Jae Jun: [27:59] Okay. Thanks, Ney. See you.
Ney Torres: [28:01] See you. Bye!