Jae Jun Interview, CEO of The Old School Value Site by Lukas Neely, Endlessrise Investor
Jae Jun On The Ability To Stay Flexible In The Markets
Jae Jun is open to all types of investments — deep value or moat situations. He seeks to acquire them at reasonable prices from their intrinsic values.
As a full-fledged entrepreneur now, with his full-time duties dedicated to www.OldSchoolValue.com (OSV), Jae’s chosen path as an investor has been a busy one. Not many people know that he was running OSV as a side gig for 7 years before finally making it his full time job.
His entrepreneurial spirit and value investing philosophies ring through to this day with his work ethic. Jae says, “I’d go to work and come home around 7pm. Then have dinner and rest an hour or two before “going to work” until around 2am (at OSV).” He is very grateful to be able to focus on OSV full-time now.
Today, he’s focused on quality businesses that are misunderstood by the market. He’s finding value in such areas as tech, moving storage and equipment rental, and grocery stores.
At the 2021 SALT New York conference, which was held earlier this week, one of the panels on the main stage discussed the best macro shifts coming out of the pandemic and investing in value amid distress. The panel featured: Todd Lemkin, the chief investment officer of Canyon Partners; Peter Wallach, the managing director and Read More
Old School Value’s Jae Jun explains his intense focus on the price you pay for businesses, how you must buy them at conservative discounts to intrinsic value, how to say “NO” quick-ly, and why he see upside in Apple, U-Haul and Whole Foods.
You’ve produced some incredible content at Old School Value (OSV). How did you get started in Old School Value?
Jae Jun: After having moved to the USA and then getting married. I foolishly agreed to a life insurance agent who convinced me that it was the best choice as it also acted as an investment vehicle. The problem was that after a few months, I started sniffing around and learned more about what I had gotten into. I was in it for 10 months paying $300/mo which is an absurd amount to be paying for insurance for a very healthy 24 year old at that time.
One day when I actually bothered to open up the statements, I was shocked to see that a large amount of the money went out in fees and commissions and my actual results were negative compared to the market being up like 10% or so during the same period. So I bit the bullet and canceled the policy. Effectively realizing a 100% loss from my very first investment. Then I realized that if I wanted to lose money investing, I might as well do it myself.
“Don’t try to produce out sized returns. You’ll likely achieve out sized losses. (Remember it’s about building wealth, not comparing yourself to others and feeling bad that someone made 20% more than you did)”
I know I’m not the smartest guy (and that I’ll never be the next Warren Buffett), so I had to write my thoughts down in order to help myself learn. Plus, I tend to forget things easily so I needed notes that I could reference. I am aware of what my weaknesses.
So I needed people to correct me when I was wrong. Openly accepting criticism really increased my speed of learning. Now Old School Value has turned into a site offering stock valuation tools but the blog is still very much focused on education and sharing resources.
How did your value investing philosophy start?
Jae Jun: I started with Graham Net-Net stocks mostly. They are easy to understand, and it’s just a matter of being able to decide what is noise and ignoring it. The reason why net-nets made so much sense is because volatility doesn’t bother me, and it’s an area that most people stay away from.
How has your view of investing evolved (if at all)?
Jae Jun: My core philosophy hasn’t changed much. When you read or hear about how a particular person’s investing philosophy has changed, it’s mostly centered around starting as a Ben Graham investor. And then it progresses to a Buffett and Munger investor. But the real underlying philosophy isn’t what camp you fall into. Ultimately, every investment you ever make in your life is deter-mined by what price you pay. It’s simple and broad, but it’s effective because I’m not worrying or overthinking about things that don’t matter.
My philosophy is very simple:
1. Make money from the market over the long run i.e. build wealth
2. Buy companies I like at a price which I deem below my calculation of intrinsic value
What does your typical day look like Old School Value (from beginning to end)?
Jae Jun: Most people recognize Old School Value as a value investing blog, but most of my time goes into managing and growing the business side of it. So a day is filled with finding ways to make the website look better, load faster, look for ways to attract visitors, engaging with readers and the public, addressing support tickets and so on.
What’s a little known secret about Old School Value (the no one knows)?
Jae Jun: That I was running Old School Value as a side gig for 7 years. I’d go to work and come home around 7pm. Then have dinner and rest an hour or two before “going to work” until around 2am. But I’m very fortunate and grateful that I am now able to focus on Old School Value full time.
“Focus on reading and learning from books. No blogs, newspapers or news.”
Who are the people that inspire (or inspired) you? And why?
Jae Jun: The people that inspire me are ordinary people that you don’t see. The ones that don’t put themselves out there. People like missionaries, soldiers, social workers and foster parents who find joy and completeness by sacrificing their time, bodies, and lives to help others.
I get most of my inspiration from the people who I want to be like and not from what they have done or achieved. And it all has to do with my faith in Jesus. You’ll see on my website what I stand for. Love God, Love People and Serve the World. And although it has nothing to do with investing, it is the foundation of how I do business and run Old School Value.
What did you learn from those people that you’d like to pass on to our readers?
Jae Jun: More joy comes from giving
And giving is a blessing in disguise. But something more related to investing is to really dig into how to value whatever you invest in.
Investing = Qualitative + Quantitative analysis.
Most people do about half the qualitative or quantitative part and not the full equation.
Everyone mentions Security Analysis, The Intelligent Investor and even Margin of Safety as must reads for any investor. What are the top 3 books people don’t talk about, but that you would recommend to an investor?
Jae Jun: I personally don’t recommend any of those three as my top reads. The truth is that Security Analysis is a textbook which I bet 99.9% of the investors haven’t finished. The Intelligent Investor is extremely dry and it’s just one chapter that really opened my eyes (Mr Market chapter). And for Margin of Safety, you have to find a scanned PDF online. But because I get a lot of book recommendation questions, I’ve already created a resource page categorized by investment knowledge level. http://try.oldschoolvalue.com/best-investment-books/
How do you search for investment opportunities and what are your criteria for investment? Is screening a part of your idea-generation process?
Jae Jun: As long it falls my two main areas I stated earlier, I’m open to ideas. I have extra criteria like not investing in companies that go against my beliefs, like tobacco or casinos. But it all starts with the idea right? And I get it through a various list of sources that I monitor.
The next process is to then quickly go through the numbers to see whether it’s a fit.
For example, a quick manual method I use is to look at the historical FCF numbers and how shareholders equity has been growing. If it’s losing money or shareholders equity is wonky, just throw it away. Takes about 3-5 seconds. A majority of the companies that I go through in a year aren’t worth investing.
“Focus on the important things and maximizing your time. Create a DO NOT Do list. For me I don’t read news, limit how much time I spend on social media, don’t waste my time on things which I can outsource.”
The Pareto 80/20 rule applies everywhere. Toss aside 80% of the stocks as they are not invest-able. Most of the time, I’m not trying to look under rocks to find 100 ft buried gems. I just want to quickly overturn as many stones as possible and see if there’s something under it. I’m looking for easy wins. Low hanging fruits. Simple ideas that are boring for most people.
If a company passes the eye test, I can then easily run it through my stock analysis tool and I’ll have a good understanding of the fundamentals in a couple of minutes. Then it’s time to do the heavy qualitative work of going through footnotes, conference calls, making sure there are no red flags etc.
Do you have interest or expertise in a particular industry that you would call your “circle of competence”? Or are you more of a generalist in search of value or market inefficiencies?
Jae Jun: I do have areas that I am more confident in, but as a whole, I’m more of a generalist. Having run Old School Value for this long, I’m very aware of the software, search, online and tech industry. But I prefer looking at boring companies operating in small niches as there is a lot of opportunity in those.
Describe your value discipline once you have arrived at an understanding of the Intrinsic Value of the business?
Jae Jun: I’m a much better buyer than a seller. Most of my mistakes have come from the selling side. Most of the time, I’ll sell if it reaches my intrinsic value. However there have been times where a stock will shoot up 30-50% and it’s clear that it’s based on hype and traders getting in. But because it hasn’t reached my intrinsic value, I don’t sell and within a few weeks it’s back down to the original level again.
The question is whether I should have sold due to the short term hype and then tied to get back in. Trying to time the unknown like this is a tough one, and there are no set rules so it’s something I’m tweaking. However, my best selling decisions have always come after identifying and admitting a flaw in my analysis.
How do you think about managing risk? What is your typical portfolio position sizing?
Jae Jun: My margin of safety typically falls around the 25% range for larger companies. For small stocks, I demand a much bigger discount to offset risks. But one way I further mitigate risk is to make sure my sizing is done correctly. I’ve lost a lot of money by doubling down on a stock when I should have stayed put.
So portfolio sizing is a huge area that I’m constantly focused on when buying and selling. I don’t have a set position size as my best ideas get the bulk of the money. It’s just a matter of how protected the downside is. I lost more money by investing in stocks with huge “upsides” instead of buying companies with limited downside.
A stock with a high upside, but big downside — won’t be a big position. On the other hand, a company with a perceived low upside, but very well protected downside has done better on most occasions.
Does management play a big role in your investing?
Jae Jun: Management is important but I have no interest in meeting with management. It’s only when you have a large enough portfolio that it can have a positive effect. Most CEO’s are great salesmen, so it’s easy for somebody like me to believe their story.
I’d rather stay away and do my research on their character as it is much more indicative of how they will run the business. There are plenty of examples where management will say something, but the numbers tell a different story. It’s easier to listen in on conference calls and then check that it aligns with what the numbers say.
What are The 3 Things an investor should focus on to produce out-sized investment returns over the long-term?
1. Don’t try to produce out sized returns. You’ll likely achieve out sized losses. (Remember it’s about building wealth, not comparing yourself to others and feeling bad that someone made 20% more than you did.
2. Focus on reading and learning from books. No blogs, newspapers or news.
3. Focus on the important things and maximizing your time. Create a DO NOT Do list. For me I don’t read news, limit how much time I spend on social media, don’t waste my time on things which I can outsource for $5/hr etc.
Another big position in your portfolio seems to be Whole Foods (WFM). Are you worried at all with John Mackey’s increase in growth Capex with his aggressive build-out of stores over the next 10 years? What gives you conviction that he will be able to execute on it?
Jae Jun: My initial investment thesis was because there was too much negativity and noise in the stock. Not on the conviction of whether management can achieve 1,000 stores by end of year 10. If you focus on “1,000” it looks overly optimistic, but we forget that we don’t know what 1,000 involves. If you break it down, a large amount of those stores could be comprised of smaller discount format stores, instead of the huge floor plans that we are accustomed to.
Whole Food’s continues to get com-petition in the organic grocery category. Do you think they will be able to maintain their pricing power and profit margins midst this competition?
Jae Jun: Competition just means that the market is healthy. Whole Foods continues to be the market leader and profits could erode they’ve already addressed this. So it’s not a concern at the moment. The natural and organic business is also very fragmented which will make it difficult for smaller companies to scale.
What kind of Moat(s) do you see in a business like WFM?
Jae Jun: There is a huge amount of brand loyalty with Whole Foods. Although it’s just a retailer, they provide a wonderful shopping experience and philosophy that people want to sup-port, even if it means spending a little bit more.