Max Koh Profile picture
10 Sep, 15 tweets, 4 min read
Everytime I see an interview with Fred Liu of @HaydenCapital, I grab my notepad.

The interview that Tilman from @goodinvestingc did with Fred last month had so many investing nuggets.

I took time to transcribe it personally so I wouldn't miss anything. Here's a few lessons:
1/ The importance of being a student of business models to develop pattern recognition:

"All investing is pattern recognition - you need to look at enough data points and patterns to formulate your own idea of what works and what doesn't, and how businesses/ ecosystems develop"
- Constantly deep dive on new businesses I may not have any intention of owning

- The more mental models I can accumulate, the easier it is for me to spot patterns in future

- Opportunities appear as a result of connecting the dots based on what I researched previously
2/ Importance of tailwinds and surfing the wave

"We want a large tailwind propelling this company based on some sort of consumer behaviour trend, some new habit formed, or because of the internet or technology. Kind of like finding a big wave"
- Find new industries that are created, but are serving an existing need/ demand in a different way

- Find companies that are able to surf the wave and lead the pack, because of their innovation and execution track record
3/ Past Present Future

"When we look at a stock we think past, present, and future. Each stock is a story right. Why the heck was this business founded in the first place, what problem were they trying to solve?"
This was my biggest takeaway.

I previously heard Fred mention about this "past present future" framework on his interview with @investing_city in late 2019, but he didn't go into detail.

I was bummed. Finally glad he pulled back the curtain on his thought process here:
- what value were they trying to create right from the time that they were founded to today?

- what are the key questions/ friction points that they really had to solve and that they got right to propel them to where they are today?
- What decisions did they make, and looking on hindsight with the data that you have now, did they make the correct decisions?

- Even if they made a mistake, given the data that they had at that point in time, do you think they made the correct decisions with that set of data?
- we really want to understand the history, the present, how the business is advantaged today and why we think it's going to continue to be advantaged in the future?

- what are the 1 or 2 or 3 key things that they have to get right for the stock to work?
4/ Position sizing like Poker flop turn river

"Our initial positions are also sized smaller at 5% or so when we initially invest, because those questions are really execution based. So you just have to wait and see if your thesis around that is correct."
- as we start to see these data points that prove out our thesis, we’ll definitely increase our position over time.

- that process can take a couple months to years. As these KPIs are hit, the business model is now less risky, because some of that uncertainty has dissipated.
5/ Stop trying to find the "best" names. Instead, focus on upgrading quality of your portfolio

"When we come across a new idea and we think there's something special about this company, we compare it versus the worst name in our current portfolio, right, is it better than this?"
- I think if you spent all your time searching for the absolute best 10 companies in this world, that'd be a really tough process

- our competition is the worst position in our portfolio. That's an easier way to think about upgrading.
There were so many gems 💎 in this video here:

Props to Tilman for being such a great interviewer, and asking the tough questions.

I re-watch all your interviews with Fred every few months!

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