Speaker unverified: belief

Transcript context

…What does your flowchart look like in your brain when deciding if a business is truly special? What is the mental walk? Is it first slice by sector and then look at a few key metrics? Is it more people-oriented? How do you even begin? If I were to tell you, hey, Company A is really interesting, you should check it out. How do you validate if I'm right or not? It's a good question. Sometimes it's really based on how special a company is, but it's also based on how the market views the company. Because if I think that the market's misunderstanding the company, then there's an opportunity for alpha. Again, we talked about people, so that has to be a critical equation. You got to look at the financials. You got to look at the balance sheet. If it has too much debt, if some unforeseen event could put the company over the edge, I tend to be shy a bit, but I'm not totally afraid of debt because sometimes you have the best opportunities in public markets with companies that have a pretty good amount of debt. They could go through bankruptcy, but you have to use your judgment and say, okay, they have a good amount of debt. Everybody thinks it's going to go BK, but I think this company is not going to go bankrupt for the following reasons. If you have a thesis that everybody thinks it's going to go bankrupt and you don't think it will, then you have an opportunity to make an interesting bet that has asymmetric upside. The classic example of this I always think of now is Buffett's Coca-Cola investment where there's the new coke disaster. The market thought, oh, my gosh, get me out of Coca-Cola before they go bankrupt. They've killed the golden goose. I don't know if this is how Buffett looked at it but you could go back, look at that in time, and be like, okay, let's say Coca-Cola Classic is done. They still have Diet Coke, which is the biggest soda in the world, so there's a huge margin of safety there that people were not appreciating.…

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