Guest Interview: Brian Feroldi

(Edition Number: Five)

Good morning,

Today, we are bringing you the fifth edition of the Investment Talk Guest Interview series, whereby I bring you some discussion with a selection of my favourite investors on the Fintwit hemisphere.

Today’s guest interview features a prominent figure within the Fintwit community, in Mr Brian Feroldi. Many of you will know Brian from The Motley Fool, where he has been writing since 2015.

Brian consistently tweets extremely useful insights for new investors, along with a host of free content to improve their investing process.


Brian Feroldi

So, today we have Brian Feroldi with us, marking the fifth instalment of the guest series. As stated, many of you will know Brian through his vast contributions to the Motley Fool, as well as his quality timeline on Twitter, where you can find him @BrianFeroldi.

Brian is a content machine, and as such there exists a huge array of locations which you can source this content.

The first place I actually discovered Brian was on the Motley Fool’s ‘Industry Focus’ podcast, where Brian is a frequent guest on the show, often detailing insights into the firms that he is either holding or observing. I thoroughly enjoy all of the Motley podcasts, as there are host of different personalities and focal points within each show.

Industry focus is centred around a different industry each day of the week, with rotating hosts and guests. You can find the Spotify link here. There is also the ‘Rule Breaker’, ‘Market Foolery’, and ‘Motley Fool Money’ podcasts, which are great too.

You can also find the full archive of Brian’s Motley Fool Articles using the link provided.

I have found that Brian is an open book, and shares a lot of content that will undoubtedly improve any investor’s process. The famous Brian Feroldi Checklist is something that he shares openly for all that are interested. Within the document contains the parameters for Brian’s “Quality Score”, which ranks stocks based on a range of attributes ranging from financials, moat, potential, customers, and company-specific factors.

There are also a range of other tabs which features insights on when to sell, free resources, and so on. You can find that GoogleDoc using this link.

Lastly, Brian has also recently joined the Substack community with an interesting service (which is free) called Long-Term Mindset. You can access this here.

Essentially, each day, Brian sends a visual which prompts some for of thought or discussion. I have found that, on occasion, a simple visual from Brian can spark a creative part of my mind that leads to me producing some form of content as a result.

I really enjoy this service, and find its quite understated. It’s simple, concise, but has a big effect. Kind of like today’s interview with Brian.

Let’s conclude introductions for now, and dive into that segment now.


The Interview

Investment Talk:

Welcome Brian, I would like to start of by saying thank you for agreeing to partake in today’s interview, and allocating some time to do so, I am sure the readers are excited about this one. I typically start these things off by asking the guest to share with the readers a little bit of historic backdrop.

So, if you could introduce yourself, and take us through the sequence of events that led to you where you are today, and perhaps some flavour on the kind of work that you are up to.  

Brian:

I entered work force in 2004. I read “Rich Dad Poor Dad” which kicked off a fascination with all things money/personal finance/investing. Started buying and selling stock soon after. Discovered the Motley Fool in 2005. Became a paying subscriber in 2009. Joined the company as a writer in 2015. 

Investment Talk:

Someone recently asked me; “What portfolio should an investor have for 2021?”. I replied, “One that suits your investing style”.

Many are caught up in the idea that they should be doing X, Y, or Z. For me, I think the easiest way to generate passion and understanding for your own portfolio, is to invest according to your personality, and areas of competence.

So, how would you describe your own investing approach and why do you feel this pairs well with your personality?

Brian:

I’m hunting for compounding machines — high quality companies that can grow at an above average rate for a long, long time. I insist on quality. I want good economics, a widening moat, huge TAM, great leadership team, history of outperformance…etc. I rarely sacrifice quality for the sake of extra return. That leaves me out of most of the fastest growers, but I’m happy with the tradeoff. This style suits me best.

Investment Talk:

Thinking back to when you first started investing, has your approach changed over time? Perhaps you lay more/less importance on certain components of your approach than you once did. Can you take us through any changes in your approach that might have taken place over the years?

Brian:

Thread on when I first started investing:

I didn’t know anything in the beginning. I steadily learned how to get better over time. That taught me to prioritize business quality above all else.

Here’s what I mean by quality:

&

Investment Talk:

Mistakes are like cakes. I personally enjoy some small cakes now and then. But too many, and I will regret it.

I say I enjoy mistakes, because each mistake, I feel, gets me closer to becoming a more rounded investor. So long as mistakes are truly reflected upon, and not repeated consistently, I do not mind making small and non-destructive mistakes now and then.

What have been some of your largest mistakes, and how did you overcome them, or learn from them?

Brian:

1)    Over allocating to “sure thing” stocks

2)    Buying low-quality stocks because of a low valuation or high dividend yield

3)    Not buying great companies due to valuation

Investment Talk:

I ask everyone this question, as I feel a quality collection of books, behaves like an asset for your mindset.

If you had to choose three books, of any genre, that you found either; changed your outlook, or were just fun reads, which would you chose and why?

Brian:

Beyond Wealth by Alexander Green

The Millionaire Next Door by Thomas Stanley

Anti-fragile by Nassim Taleb

All excellent and can teach you a lot about money & life.

Investment Talk:

With regards to writing, this is something you have done for some time now. I personally advocate for writing frequently as I feel it sharpens the creative areas of one’s mind. The effects of compounding experience also come into play too.

Taking that one step further and suggesting that investors should document their own investing journey is something I also think is a beneficial pursuit. I firmly believe that each investor should compose their own Investing Policy Statement, so that they have some skeleton of an investing framework to turn to if they become unsure.

What are your thoughts on documenting one’s investing journey, and do you see this is a beneficial exercise, regardless of the amount of capital you are investing with?

Brian:

Checklists, watch lists, and investing journals are three FREE tools that every investor should use. Forcing yourself to write slows you down, clarifies thinking, and, I’m convinced, will improve your results.

Investment Talk:

Somewhat related to the last question, and one that I hear a lot of people ask you about. The Brian Feroldi Checklist. I personally love that idea. What prompted you to create this checklist, and in what ways do you feel it contributes towards your investing process?

Brian:

I have more investing ideas than I have money to buy them with. I wanted to create a way that allows me to put my funds in my best ideas. I was trying to keep it all in my head, but then I realized that writing it all down made way more sense. I came up with version 1 of the checklist and then sought feedback. Through refinement, I produced the checklist that exists today. I think it helps me a lot to really battle test whether I should invest in a company or not.

Investment Talk:

Concentration in high conviction positions is one of the most efficient ways to earn outsides returns. However, it can also be an excellent way to blow up your account. What is your take on position sizing, or allocation in general?

Brian:

I like to own dozens of stocks. I’ve been investing long enough to know that it is really, really hard to pick which companies are going to multi-bag and which ones are going to flame out. If you own a lot of stocks and hold, the portfolio will eventually concentrate itself. That style works best for me.

Investment Talk:

Luck. Skill. Mindset. Three very influential components to investing.

My question to you, is how do you view the relationship between these variables in investing, and to what extent would you say each is important over the short and long term?

Brian:

Long-term mindset + slowly developing investment skills = higher chances of good luck, lower chances of bad luck.

Luck is still involved. There’s no getting around that.

Investment Talk:

We all search for different things when we are first analysing a company. Some focus on company culture first, some prefer capital allocation, some like to observe management’s track record, some are accounting buffs, and some like narrative.

If you had to chose three things that a company must have before you even consider investing, what are those three things, and why?

Brian:

Moat

Optionality

Great management

Investment Talk:

Luck. Skill. Mindset. Three very influential components to investing.

My question to you, is how do you view the relationship between these variables in investing, and to what extent would you say each is important over the short and long term?

Brian:

Skill and mindset don’t matter much in the short-term. Luck does.

Luck doesn’t matter as much in the long-term. Skill and mindset do.

Investment Talk:

Lastly, I like to round-off this segment with my favourite quote, that comes from Graham. The one concerning the short-term voting machine and the long-term weighing machine. I find it helps me reconcile the irrational price action in the near-term. I do not know who first coined it, but another of my favourite quotes is “If you don’t laugh, you’ll cry”. I find this quote helps me appreciate the randomness of life and the lack of control we have over external factors.

What is your favourite quote, and why?

Brian:

"If you want success, figure out the price, then pay it. It sounds trivial and obvious, but if you unpack the idea it has extraordinary power."-- @ScottAdamsSays

So simple. So obvious. Yet so powerful.


Questions from Twitter:

In this segment, we collected questions from the Twittersphere, and present them to Brian.

@olliejmorgan: “What investments if any does he hold or interest him outside of public equities. Any private equity holdings, property, land, pokemon cards etc..?”

Brian:

Bulk of my assets are held in public stocks. Rest is my home and cash. Nothing fancy.

@RealRaghu7: “Thoughts on leveraged ETFs like $FNGU $TQQQ”

Brian:

“If you’re smart, you don’t need leverage. If you’re not smart, you shouldn’t use leverage.” — Warren Buffett

@ShaulGoo: “Do you have target sum that you are aiming for. If so, what comes after? If not, what is driving you to accumulate more?

Brian:

Goal is 25x annual spending in investment assets. That buys me my freedom from the need to work. Accumulating more after that gives you the ability to support your favorite causes. If you view your nest egg as an opportunity to give back to the world, gathering more wealth is a good thing.

@Babben_Stonks: “What is the rationale and process behind your checklist, how does you decide each value? Which investor has been the most influential on you?

Brian:

Rationale behind checklist is forcing myself to rank my stocks. It brings clarity to which stocks I should buy and which I should ignore.

David Gardner / Jeff Fischer / Tom Engle

@Nasser31866880: “When do you consider moving out of a stock?”

Brian:

+Acquisition

+Losing faith in business

+Deteriorating financials

+Management change

+Industry disruption

+Rebalancing

+Better opportunities

+Extremely Overvalued

+Need money for personal life

+Thesis busted


Summary

That wraps up today’s guest newsletter, which marks the fifth edition of this series. I want to thank Brian for taking the time to answer these questions today. This edition was short and sweet, but to the point. Sometimes, a concise answer, is the best answer.

Stay tuned, as we have some excellent calibre guests lined up for you in the coming weeks.

You can find previous editions of the guest interview series below:

• Edition One: Bill Brewster

• Edition Two: Kris FromValue

• Edition Three: ValueStockGeek

• Edition Four: AdventuresInFI

• Edition Five: Brian Feroldi

• Edition Six: Brad Freeman

• Edition Seven: Mostly Borrowed Ideas

• Edition Eight: Richard Chu

• Edition Nine: Kermit Capitál

• Edition Ten: Liviam Capital