I’m currently in Cebu, Philippines (safe from the typhoon, btw). Any locals up for a coffee and chat, hit me up.
Since I’ve been getting a bunch of new subscribers this past month, I figured I’d write up something about my investment method so everyone is on board about what we do around here. This turned into a five-part series. Think of this series as a “Start here” guide to the newsletter.
A few days ago, a friend asked me what it is I do all day. Not the “So, how’s the market?”, but more the “If I walked into your office on any random day, what would I actually see you doing?”
I told him the truth — that he’d mostly catch me reading boring documents, like interim reports, annual reports, proxy statements, regulatory filings, and old press releases. I’d probably have a colorless spreadsheet open too. No Bloomberg terminal, no Refinitiv, and no FactSet. Just me and my one monitor with tabs of filings open and my old-fashioned calculator on the side.
That answer usually disappoints people. It turns their idea of finance on its head. They expect something more glamorous, like a secret algorithm that tells you when a recession is going to hit or a magical screen that spits out “top ten stocks to buy now.” They expect some inside scoop from management dinners or conference circuits.
But the reality is that stock picking, the way I try to practice it, isn’t exciting. It’s a grind — an almost obsessive willingness to continuously turn over rocks day after day that almost always have nothing interesting underneath. You read through 100 companies, and 99 of them are obvious passes. It’s excruciatingly repetitive work that you have to genuinely enjoy, otherwise you won’t last in the game. There are far more fun ways to make a living than reading footnotes on page 147 of a dry filing.
But I enjoy it because I like competitive games, and I find the stock market to be the absolutely most interesting, never-ending game there is. The truth is that a lot of professionals in the investment industry quietly hate the part of the job I just described. They know that the messy, unedited reality of the investment business is table stakes, but they simply don’t enjoy sifting through raw material, so they instead drift toward the pretentious parts of the job that look impressive and make for good marketing — things like pontificating about portfolio management, macro commentary, crystal balling, and abstract theories that sound clever but rarely matter.
Investment management is a strange profession. On a net basis, the industry adds no value to the collective. As a group, the sum of everyone’s outperformance nets to less than zero after costs. That’s not true in medicine, plumbing, or engineering, where skill adds tangible value to society. In investment management, you’re mostly playing against yourself and your peers, rearranging ownership claims on productive assets. To make peace with that, most professionals construct a psychological buffer. They convince themselves they’re creating value where none exists, and that their commentary, frameworks, or models somehow make the system fairer or more intelligent, even if failing to beat the market. It’s a subtle form of denial, and maybe a necessary one.
To me, good stock picking isn’t sophisticated or particularly elegant. It’s prosaic, closer to something like factory work than genius, and comes down to these few things:
- Being willing to look at far more companies than the next person.
- Deliberately practicing pattern recognition so you can quickly filter out 95% of them.
- Being good at valuing businesses with a healthy dose of scepticism.
- Betting meaningfully when the odds are overwhelmingly in your favor.
Stock picking is essentially a wide funnel at the top, a very narrow exit at the bottom, and a lot of mileage in between.
Processes always look neat on paper, but reality is chaotic. So this series is my attempt to make my process explicit because I want new (and old) readers to understand how I pick stocks in the real world, with all the messiness and uncertainty that entails. I won’t give you a neat formula that always tells you when a stock is cheap, nor will I pretend to be able to forecast earnings with any sort of precision years into the future. Instead, I’ll walk through how I operate day to day: how I filter ideas, where I hunt for these ideas, how I decide what’s worth a deep dive, how I think about valuation when the future is inherently unknowable, how I size positions, and how I try to manage my psychology so I don’t ruin a good analysis with bad heuristics.
It’s important to know that my method is built on a few core beliefs. These are:
- The stock market is generally efficient, so the vast majority of stocks are correctly priced most of the time. The market is a pari-mutuel system where the odds change based on what’s bet by other market participants. Therefore, the best company is usually far from being the best investment. The obvious, glamorous stuff is usually priced to perfection, while the best opportunities live where the least eyeballs are: micro/nanocaps, messy situations, and names where the narrative is broken or nonexistent.
- A pari-mutuel system is hard to beat by design. To outperform, you must not only be right but right by a margin wide enough to overcome the frictional costs of the system. In horse racing, the track takes 17% off the top. In the stock market, the house cut is lower — usually <1% in commissions and spreads — but the structure is the same. As a group, investors are the market, and, net of costs, they can’t outperform themselves. 50% will end up in the bottom half.
- Forecasting is something to be careful about. I care more about what a business is today — its assets, economics, incentives, and fragility — than some heroic story of what it could become in the most bullish scenario. The future almost never unfolds the way you want it. Capitalism is a brutal place. Trends die and industries inflect. I want mispriced bets rather than just cheap stocks. (There is a difference.)
- Concentration beats diversification when you assess the odds correctly. I’d rather own a small number of situations where I feel I have multiple layers of margin of safety than a beautifully diversified collection of “not terrible” ideas that I barely understand.
- Discipline is more important than intelligence. Most blowups don’t come from people being unable to do discounted cash flows. They come from people unable to sit on their ass or admit they’re wrong.
If you’ve been reading my stuff for a while, you’ve seen these beliefs show up in my obsession with balance sheets and downside protection, my focus on special sits and off-the-map names, my attraction to net nets and “elastic band” setups, my writing about the Kelly criterion, and the “sit-on-your-ass” philosophy. This series ties those threads together into a cohesive framework.
Don’t take this series as a recipe. Think of it as a field manual. The series is structured as follows:
- Part 2 will cover how I filter the firehose of information and ideas. It’ll be about how I run “stock sprints”, quickly discard 95% of what I see, and what exactly I’m looking for.
- Part 3 will be about how I deep dive a stock and structure the overload of detail in my head and in my notebook.
- Part 4 will focus on my two main investment buckets and how I think about position sizing and selling.
- Part 5 will cover how I try to train my brain every day so the whole process slowly compounds over time, and so information doesn’t go in one ear and out of the other.
I don’t think everyone should copy my style, nor do I think it’s necessarily the best way to approach stock picking. But I do think it’s honest. It’s the method that fits my personality, arrived at by trial and error, and shaped by my temperament, constraints, and mistakes.
So if you’re someone who likes the idea of quietly grinding away in overlooked corners of the market, who prefers reading footnotes to reading shiny macro forecasts, and who is willing to look wrong in the short term to be roughly right in the long term, then parts of this series might resonate. (Feel free to share it with someone you think would too.) And if you’re just here to understand what the hell I’m doing when I’m writing about some obscure microcap nobody’s heard of, this should make things clearer.
With that, in part 2, let’s start at the top of the funnel with filtering: how I go from a world of thousands of listed companies to the handful that might eventually earn a place in the portfolio. I’ll send it to you tomorrow, so keep an eye on your inbox. I’m also writing up my thoughts on F.I.L.A, an increasingly followed value stock in the small-cap sphere with an investment case that is fairly similar to this one. I don’t find it equally attractive, but wait for the writeup for my verdict.
I’m grateful to have you along for the journey!
Cordially,
Oliver Sung