Trevor Johnson -- Another Student Perspective
Plus a Cancer Update
Cancer Update #3
Let’s get this party started with…umm…okay, we’ll start with a cancer update. Do I know how to party or what? My brain cancer is currently taking the rounds with some chemotherapy and radiation treatment. I’ve currently had 5 sessions of radiation (going for 30) and then will continue with chemotherapy for another 6 months. Right now, I’d say that my head is a little bit fuzzy, but so far it isn’t too bad. I imagine it will get worse before things turn around for the better, but that is what the treatment is about…kicking your butt now in a manner to attack all the cancer cells it can. At that point, we should have thoroughly kicked back at the cancer. However, it will still be sticking around in the periphery and will need to be monitored. Hopefully, this will last 20+ years with follow-ups every 6 months or so (MRI) to see how things are progressing. If you’re curious about what an Oligodendroglioma is, you can find out a little more here.
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And Onto The Rest of The Story
About four or five months ago or so (wow, time flies), I did an interview with one of my former students — Khalen Dwyer. It was a pretty big success at the time. The previous issue had 86 views and the following issue had 96 views, while the one with Khalen had 261 views! We’ve grown a little since then, but are still in the upper-100’s to lower-200’s for a normal episode (good/bad…I have no idea). Anyway, it was popular enough that I wanted to reach out to another star student — Trevor Johnson — and see if he’d play along with an interview. Fortunately, the answer was yes. You may have seen Trevor before as he was one of the four main pieces (all of whom brought their special talents to the team — special shout-out to Rece, Jordan, and Alex — if any of you guys want an interview piece, just send an email!) that won the Kansas City Local Challenge in the CFA Institute Research Challenge. With that intro, let’s move onto the interview!
1) First, can you introduce yourself a bit. Who are you and what are you doing here (here as in "on my Substack")? Tell me a bit about your background and what first connected you to finance.
I am a curious investor (have been since the age of 17, now 25) who graduated from Pitt State in 2019 with a degree in Accounting & Finance (Side Note — It feels like Trevor and the rest of the Boston CFA Crew just graduated…they actually went to Boston in early 2018!). I currently work on a corporate acquisitions and development team. I also run valueroute.substack.com (shameless plug) so check it out if you need sleeping material (Seriously — follow along with Trevor’s valueroute.substack.com!).
What first connected me to finance was the idea of compounding my money. It was a Warren Buffett quote I saw when I was a Junior in high school. I don’t remember where I saw it, but it got me down a rabbit hole on Google and rest is history.
2) We met each other in your junior year at the start of the CFA Institute Research Challenge. Tell me a bit about your expectations for that project and how they played out. What was the biggest surprise about the experience (upside and downside)?
Honestly, my expectations were “Let’s win this dang thing”. Luckily, all my teammates felt the same. We knew going in that Pitt State had never won and we wanted to change that. We viewed it as a challenge. There was a learning curve. Maybe not so much on the material itself but on communication. That might have been the biggest learning point from the whole project. You had to learn how to communicate with several different people (team members, professors, judges, etc.). In different ways too; verbally through a presentation and through writing on our paper.
The biggest surprise to the upside were the guys I got to work with. They became three of my best friends and were all groomsmen in my wedding. We talk almost daily in a group chat still to this day. Also, with yourself. We still text almost daily about life, investing and occasionally my crappy fandom of the Jaguars. Also made more friends and connections along the way, like Dr. Johnson (Special Shoutout to Dr. Johnson who took time to work with each of these four as a group!). I’m not sure there was a downside. Looking back (I know, hindsight is 20/20), there are some things we could have done differently to maybe have won at the national level in Boston but other than that, I loved every second of the project (yes, even staying in Kelce all night to finish the paper).
3) Continuing with the CFA Institute Research Challenge, what were your two or three biggest takeaways? Specifically, what did you learn that you didn't really expect to or what did you learn that you were hoping to?
I touched on communication above so that is one. Another thing was time management. We were all college students trying to balance this project with classwork, jobs, outside events, etc. Time management skills became super important, and we had to learn to prioritize. From a finance perspective, REITs were fun to learn about. Even though I had been researching companies for a few years when I entered the competition, I had zero experience with REITs. It was fun to hear from management, learn key metrics and grow the circle of competence in a new industry.
4) Afterwards, you did another research project on Shake Shack after having gone through the CFA Institute Research Challenge. What things did you learn from this that you didn't learn from the CFA project? Do you think that this project added to your analysis skill set?
$EPR and $SHAK are in two completely different industries, so that was one major difference. I got to learn further about the restaurant industry, specifically the growth phase. $SHAK had been around, but they were really starting to ramp up growth when I had looked at the business. $EPR on the other hand was an established REIT. Not in that high growth phase of the company lifecycle. I got the idea to work on Shake Shack when we were in Boston for the national competition. We went to the Shake Shack located just down the street from Harvard.
I do think the project added to the analysis skill set. I learned about the restaurant industry further. I didn’t have a ton of experience there (had done a little research on $SBUX before $SHAK but that was it) and it was good to learn key metrics, real estate logistics, more about economies of scale and some other things. It helped me recently as I took a lottery position in $BROS. Think $BROS is expensive, but I love the business and think I understand the model well. Part of the understanding comes from the research I did on $SHAK. (This is an important lesson. There is no “wasted” research in finance. Things that help build a framework for one skill set can seem like a waste of time, but be very helpful in later research.)
5) Value investing is looking for stocks that are cheap on a Discounted Cash Flow basis. Growth investing is looking for stocks that are cheap based on their growth potential. In reality, they are both essentially the same in that they are ultimately looking for stocks that are cheap on a DCF basis, but value is focused more on the short-run while growth is focused more on the long-run. Do you see yourself as more of a growth investor or a value investor and why?
Alright, everybody say it with me: “Value and growth are tied at the hip.” The saying has become a running joke in the fin twit community, but it does have merit. Ideally, I’d love both, a business with growth that adds value. Growth that’s adding value. Growth does not always equal good. Different topic for a different day. (Side note — He’s got a point. Growth that adds to Free Cash Flow is good. Growth that subtracts from FCF…not so much. These often get confused in the marketplace. One other side note here is that sometimes you see both…companies can create a dynamic that costs more FCF immediately and then pay it off with quite a bit more FCF down the road. Citing my Amazon.com mistake!) If I had to stick myself in one bucket, it would be value. Businesses that are cheap on a cash flow basis or companies, as Mario Gabelli describes it, are value with a catalyst. Something that I think the market is missing about the business that is going to help the stock over the next 3-5 years.
When you start talking about high growth names, I think you run into unreasonable assumptions compared to base rates. That’s okay if you understand the risks you’re taking. There are undoubtedly small, growth companies that will be as big as Apple and Amazon someday, I just don’t trust my ability to spot those. That’s not to say I ignore growth businesses as some are good businesses. Maybe just expensive or have competitive pressures in their future. If I like the business but it’s overvalued, I’ll take a lottery stake (.5 – 2% of the total portfolio). I’ve recently done this with $FIGS and $BROS.
6) Knowing you, I know you are a big fan of Charlie Munger, Warren Buffett and others. However, if you could pick two quotes from OTHER professional investors, what would they be and why are they important to you?
Must show Ben Graham a little love so I’ll go with one of my favorites: “The intelligent investor is a realist who sells to optimists and buys from pessimists.” A well-known quote but an important one. It speaks to the psychology dynamic of investing. Investing goes way beyond finance. Yes, you have to be able to reasonably value a business, but you also need to understand human behavior. Humans are great at overreacting, and this can be great for someone who stays levelheaded. When news breaks, a stock sells off drastically, instead of acting, think. Is this a permanent problem and I need to sell or is this an opportunity to add shares on a sell off?
In honor of Lou Simpson recently passing, here’s a quote I think is important that kind of ties into the above quote: “One lesson I have learned is to make fewer decisions. Sometimes the best thing to do is to do nothing. The hardest thing to do is to sit with cash. It is very boring.”. In a world of nonstop notifications from social media, email, apps, and other thing it can feel like you need to be doing something. Instead, go outside for a walk. Think about your investment ideas. Again, you don’t always need to be acting.
7) One of the guys that we both put a lot of weight on is Jake Taylor. What are some of the "veggie" factors that make Jake a worthwhile follow?
JT is the man. He’s a worthwhile follow because he tries to use all these different mental models and tie them into investing/personal finance. Munger talks heavily of mental models and the importance of them for being, not only a well-rounded investor but well-rounded person. On the podcast specifically, his veggie segment will probably be something you have never heard of, but he explains it in layman terms. You’ll walk away learning something new every episode.
8) Outside of investments, what are three of your favorite reads? Note that these can be either fiction or non-fiction.
I love this question…and it’s a hard one. I love reading about psychology, history, stoicism (What is it with investors and stoicism? It’s like we KNOW that this is going to suck out our souls for quite awhile so we might as well prepare for it!), and biographies.
First: Poor Charlie’s Almanack by Peter Kaufman. This is basically a compilation of all things Munger. Yes, investing is mentioned but a good chunk of the book isn’t investing related. A lot of it is those mental models I mentioned in question 7. This book should be read by everyone.
Second: Influence by Robert Cialdini. Dr. Cialdini does a wonderful job of explaining how the human brain works and how you can use certain tools to your advantage. I believe the book was originally meant for marketers and salespeople but there is something everyone can take away from it. (This is one that I read based on Trevor’s recommendation. A really good book even with the dated examples!)
Third: Meditations by Marcus Aurelius. A former Roman emperor and Stoic philosopher, he writes about his observations from daily life. The book gives good advice for your mind. “If you are distressed by anything external, the pain is not due to the thing itself, but to your estimate of it; and this you have the power to revoke at any moment.”
Fourth: The Great Depression – A Diary by Benjamin Roth. Since I cheated a little because the first recommendation talks about investing, I figured I’d add a fourth book. Mr. Roth was a lawyer in Ohio during the time of the depression. He kept a diary of events happening around him in Ohio, the states, and the world. When reading his journal entries, you get a real life feel of the events that transpired. A great history book about the depression.
9) One of the things we've talked about before is that you are an "old soul" with respect to investments. Tell me a little bit about this and what you think the advantages and disadvantages are to this.
I think the advantages stem from some of the traits I mentioned already: Patience (not feeling the need to always be doing something), knowing what you don’t know, and having humility. All things you hear Warren and Charlie speak about. The disadvantage is sometimes I throw things in the too hard pile too quickly instead of curiously learning a new subject. For example, the semiconductor industry. I don’t know a dang thing about the industry and by the time I learn everything about it, the technology would have advanced further and there would be more to learn. Admittedly, I have “shut off” my brain to anything semiconductor related by throwing it in the too hard pile. Is that the right thing to do? Probably from an investment standpoint, but not from a general learning point of view. There are still things I can read about to further my knowledge on the industry, even if I’m not an expert on it. I’m trying to actively improve on this by not throwing everything in the too hard pile too quickly.
10) Tell me something about yourself that I'm not aware of. This can be investment or non-investment related.
You know a lot about me so I’m not sure what to add here. You know I’m an avid follower of sports, I spend my free time killing my brain cells by watching football, baseball and hockey (Hockey? Seriously?) or playing video games. Whatever I’m reading at the time, I hope regenerates the brain cells I lose from the former (is that how science works?).
Joking aside, I am passionate about my family & friends, investing and sports…but I am also passionate about health. Maybe something you didn’t know. I used to be around 235 pounds my freshman year of high school and one day I decided to turn my life around. At first, it was for football. I needed to get leaner to play at the highest level I could. I went from 235 pounds to 190 pounds by sophomore year. During that time, I developed a passion for being active (primarily through weightlifting) and eating healthy. Over the years, I have tried to learn as much as I can around the subject. A person I listen to is Peter Attia (mentioned by Jake Taylor in a former veggie segment). I know he has some mixed reviews, but I like him and tend to think he does a good job by having a wide range of guests on his podcast.
A bit of maybe…a controversial take. Many in this country complain about the healthcare system, complain about insurance, big pharma, etcetera... I’m of the belief that a lot of the problems are brought on by us. If you look at the number one killer in this country, heart disease, a lot of that is brought on by overeating, eating the wrong things and or lack of exercise. That’s not to say some of those deaths aren’t genetics or abnormalities, but a good chunk are probably caused by bad habits. Roughly 10.5% of the United States has diabetes which (not in all instances but a large majority) is preventable (type 2 that is)! Diabetes can lead to many other issues in the body. We are quick to point the finger but not act for ourselves. Is that to say there aren’t bad actors? Of course not. There are people, companies, etc. that are rightfully shamed for price gauging and wrongfully treating those who can’t help their illnesses. These corporations should be held accountable.
I don’t have a great answer to solve the problem. Unfortunately, on a large scale, I think the problem might be unsolvable. Compounding works both ways, for good and bad. In this instance, for the bad. We have fast food restaurants at every corner, 80% of the stuff in grocery aisles are terrible for us and we want instant gratification in this country. Most food with instant gratification is not good for us. I think the best thing that can be done is to change at the micro level. Help those around you (friend and family) pick up new healthy habits. Break the cycle of unhealthy eating in your family. I want my kids to grow up in a household where 85% of the meals are healthier. Another problem is “What the hell is considered healthy?”. There are so many snake oil salesmen pumping their diets and workouts. If someone came to me and asked, what should they do, I’d give good, general advice: avoid foods with sugar, avoid processed foods and as a good rule of thumb, if it can’t be grown in your garden or hunted in the wild, don’t eat it.
That’s not to say I don’t eat bad sometimes. During the holidays, I eat awful. During the week, I usually give myself one or two “cheat meals” on the weekend. Like anything in life, it’s a balancing act. I don’t want it to sound like I’m pointing the finger at everyone who eats bad. It is HARD to stop eating what you’re used to. And let’s be honest, those Chick-fil-A nuggets are the best thing on the planet. (But are they as good as the Shake Shack chicken nuggets? Sorry, an inside joke.) Just wish more people would take control over their health. Take care of yourself! It’s not just about longevity, but the quality of the years you are alive.
Thanks to Trevor for taking the time to have this interview! As always, these are greatly appreciated.