An uphill battle for all good investors is getting to know yourself and recognizing that you always have room to learn, no matter how much knowledge you have!
On this week’s episode of Stocks4Docs, we sit down with a long-time value investor, Jeff Horner. Jeff is from Toronto, Canada, and is Tecumseh Capital’s president, a private investment firm in early-stage and active funding.
In Stocks4Docs fashion, we started by asking Jeff the big question,
Why Value Investing?
Jeff explained that investing is a part of someone’s life and is a fundamental part of life in many ways. You plan for retirement, your children’s schooling, food, rent, all of these things.
There’s a lot of speculation around the right way or one proper way to invest; when investing is a philosophical approach.
All investing is value investing.
It’s about trying to get an excellent deal on whatever asset it is you’re buying, whether that is a used car or a home, or interest in a company in the public vs early start-up age.
Growth is nothing but a component of investing. It’s part of the whole formula, so Jeff started to look at investing from a philosophical approach a long time ago.
When Jeff first started reading about investing, it was almost as if it became a peaceful and beautiful place to be, especially if you approach the world in a long-term methodical way.
One big idea about value investing is how you approach life in general, and when it comes to value investing, it has worked very well in every asset class that he has gotten involved in.
So, growth is an essential element, but it’s just one element of the whole piece.
All Investing Should Be Value Investing
Jeff gravitates towards value investing philosophy as much as a stoic philosophy; value investing brings you back to a sense of calm. It’s methodical because you begin looking at things from a different perspective, and it’s very behavioural.
And that’s one of the first big ideas that Jeff wanted to share with us: behavioural matters.
Behaviour matters so much that if you get it under control early, most things don’t matter after that.
This is because the framework of how you make decisions is not swayed by getting rich fast or seeing your friends get great returns from a particular stock, which is the fear of missing out.
It’s a horrible feeling when you feel like you’re missing out.
Jeff Strongly Believes in Life-Long Learning
He explains that he didn’t grow up to be an investor and that he wasn’t born just knowing how to navigate value investing. It’s something that he was passionate about and built it from the ground up.
Very early on, Jeff asked himself a straightforward question, “who are the best people on the planet that I could learn from?
Of course, he learned a lot about Warren Buffett and Charlie Munger. Munger’s mentor Benjamin Graham really changed the world in how he approached it.
The beautiful thing about people like Buffett and Munger is that they’ve all shared their learnings with the world.
If your mind is a sponge, soak up all of their teachings and frameworks!
When First Starting, Risk Aversion is Immensely Strong
Coming back to the idea that behaviour matters, Jeff pointed to Daniel Kahneman and all of the research that he’s done on prospect theory and risk.
People get terrified of losing money. Losing $1000-3000 hurts a lot more than the happiness when they gain it.
So, the stock market is this neat piece where people think quite pessimistically, and the risk aversion is very strong, and a lottery mentality comes into play.
Many people believe that if they invest in stock markets in a get rich quick way, they can do that too. A clear example is how people treat cryptocurrency today; which takes us to another behaviour: survivorship bias.
Some people survive to the end, but a lot do not. We call this the “power law”, another concept that rules where a minimal number of winners make it to the top at the end of the day.
There’s a Qualitative & Quantitative Aspect to Value Investing
If you approach investing while keeping your emotions in check and being aware of some things that come up, you can achieve a sense of calm and not feel rushed.
Warren Buffett talked about fear vs greed and when there’s fear: you should be buying.
Fear takes over, people sell, but if you hold your course and keep those emotions in check, you will not get caught up in those fleeting emotions.
The idea of long-term investing is at the core of value investing.
You must know yourself and your emotions to handle the ups and downs in the market.
What’s The Difference Between an Investor and a Speculator?
The difference between an investor and a speculator is documented well, and Jeff always uses the phrase, “the sleep at night test.”
When his friends or family ask him for advice, he always asks them, “well, do you sleep at night thinking that if your money was to drop by a third, how would that make you feel?”
He asks this to tell if they have done their work and are investing with their values. If you’ve done the work and invested in a company you believe in, it shouldn’t matter if the stock market closes for five years.
You should know yourself and not go beyond your circle of competence. A value investor should sleep easy at night knowing that you’ve done the work and that the company has a sustainable business model that can ride out these events.
Value investors should be very involved in their investments because they are passionate and believe in the business model.
Jeff Explained That The Stock Market is a Transactional Piece
You invest in things you use, such as big banks, Disney, McDonald’s, Clorox, etc.
If you have that lack of feeling that you need to rush and focus, a beautiful learning process begins.
Like Jeff says, there is a qualitative and quantitative component to investing.
If you know what you’re interested in and what you use, you should then look at the company’s mechanics and management and ask yourself, “Is this company going to be around for a long time?”
In Jeff’s case, he has invested in Clorox and is confident that the company will be around for a long time.
Compounding is Another Big Idea
A concept may seem so simple, but if you decide to invest over the long-term and be methodical about whether this company is a great one to invest in, then the time horizon should not matter.
Have a ten-year horizon, invest the 20 punches, and monitor it; this brings everything down to a peaceful approach, and if something does drop, it will allow you to sleep easy at night because you know that you’ve made the right decision.
When there is fear, it’s an excellent opportunity to take advantage.
A value investor will view the drop as a great sale!
Jeff wanted to make it clear to the audience of Stocks4Docs that if investing is intimidating, there are tools to learn.
You can figure out what the very best are talking about, and value investing is an excellent approach. We are all life-long learners, and you should always be looking for new ways to take in knowledge.
When you know yourself and have a grasp on the behavioural aspect, you’ll recognize your patterns and find a method that works for YOU.
Jeff Has Some Advice For Early Investors!
Jeff instructed the listeners of Stocks4Docs to take part in an exercise.
Go pull up any stock chart such as Yahoo Finance, go around 2010 and look at IVV, ETF, or QQQ.
Do a ten-year search, and look at the curve and then compare it to the individual companies and see how much of a difference there is.
Look at the stocks within your circle of competence, and you’ll notice that the curves are almost the same. You’ll be able to sleep easy at night investing in these companies and feel confident in your choice.
A little hidden secret of venture capitalists is that they invest in indexes because they don’t have to think about it! They take enough risks elsewhere that to them; it’s like putting their money in cash.
The key to all of this is that it is the same premise, methodology, and approach.
Begin the reading processes, and begin to understand, be that sponge when it comes to investing!
Suggested Reading: Top 9 Rules to Follow for Avoiding Expensive Errors With Investing
Warren Buffett Archive: https://buffett.cnbc.com
The Heilbrunn Center for Graham & Dodd Investing: https://www8.gsb.columbia.edu/valueinvesting/
Writings by Investor Morgan Housel: https://www.collaborativefund.com/blog/
Book recommendations: “The Intelligent Investor”, by Benjamin Graham (particularly Chapters 8 & 20) and “Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger”, by Peter D. Kaufman
It’s good practice to compare what Benjamin Graham says with Warren Buffett or any two pairs of great investors to notice the overlaps in teachings. If two investors keep talking about a particular aspect of investing, it’s good practice to note!
A Message to New Investors: Just Start
Even if you’re only able to contribute $100 a month to your portfolio, just start. The learning process you will endure during this period will be crucial for the time in the future when you can start investing more money into stocks that you believe in.
Next up we asked Jeff a series of pressing questions, including:
What Parts Have Challenged You in Value Investing?
Jeff’s answer, without a doubt, was behavioural.
He explains, “I’m human.”
There have been many moments where he chose to sell from emotion, such as the 2016 election. Despite all that he knew, he still decided to sell some things.
He is not proud of selling them, mainly because there has been a substantial increase since 2016. But he also recognizes that he is human, and these things happen; we are emotional creatures.
He says that the key is finding what works for you. It took him a long time to reach value investing, and that’s a learning process you must become comfortable with.
Jeff explains that in the past, he started going down the rabbit hole. For a time, he turned into a speculative investor because he was searching for that knowledge. But then he became very comfortable, sorted out his emotions, and grew into the methodical and intelligent investor he is today.
Coming back to a more quantitative approach, Jeff, and other investors, struggle with intrinsic value.
What intrinsic value means and how you get to that value, down to the penny.
Sometimes it’s hard to wait for it to come down to the 20% or 30% that you are comfortable with.
Value investing is about leaving a margin of safety and just knowing yourself.
When Would You Consider Selling?
That is the most challenging question you can ask an investor, Jeff explains.
Jeff can tell us when he will not sell; as said above, it will not be because of an election that has the risk of pulling the market back. He learned from that mistake and knows that this is not a good way to go.
Jeff spent an entire summer going through the teachings of Bruce Greenwald, who was the chair of Graham and Dodd investing at Columbia University. Of all the things he learned, that topic of “when do you sell?” is the hardest question of any investing approach.
If you’re a value investor and have done your time researching, you are part-owner of the company. So if you ever have distrust in management and think that it would not be a good partnership anymore, then that is an excellent time to sell.
When you lose confidence in management, you should trust yourself and your knowledge and know that it is a logical time to sell.
Although, if you only own indexes, you don’t have to worry about all of that stuff. It sorts itself out.
Key Takeaways from The Interview with Jeff Horner:
- Be aware of your behaviour
- Trust yourself
- Be a life-long learner
- Start where you are
Thank you so much for tuning in to this episode of Stocks4Docs, and we hope you enjoyed learning about value investor Jeff Horner.
Jeff is president of Tecumseh Capital Ltd., a private investment firm in Toronto that is active in early-stage funding, public and private equity, private debt, and real estate.
Jeff was co-founder, president & CEO of SurveySite Inc., an early entrant in the marketing research industry that focused on creating technology and methodologies to conduct primary research online for Fortune 500 clients worldwide. In 2005, SurveySite was acquired by Comscore, Inc., a leader in measuring digital and TV audiences and advertising at scale and is publicly traded on NASDAQ (SCOR). Jeff served on the executive team at Comscore and was President and President Emeritus at Comscore SurveySite until 2009.
For over 30 years, Jeff has been an investor and has held active operational and advisory roles in companies in the software, technology, service and real estate sectors. He continues to invest and work with early-stage companies and as an entrepreneur at heart, one of his key goals is to leverage his experience to help other entrepreneurs build and grow highly successful companies.
In his spare time, he plays guitar in a band and enjoys reading, running and biking.
Jeff holds a Bachelor of Arts in Economics and Administrative & Commercial Studies from Western University and a Masters in Business Administration from the Schulich School of Business at York University.