07 March 2023

Rebecca Hotsko chats with Michelle Marki and Signe Lonholdt. In this episode, they discuss the most important lessons from studying Superinvestors like Warren Buffett and Charlie Munger, the key elements of Buffett’s investing strategy, what are the different types of moats companies can have, Michelle & Signe’s checklist of what a company with a sustainable moat should have, what qualities and quantitative factors would indicate that a company has good management, what is considered a sufficient margin of safety for an investment, the key steps of valuing a company the Warren Buffett way, why Warren prefers to look at owners earnings as a valuation metric, how companies get on their radar, and much, much more! 

Michelle Marki is a certified Project Management Professional (PMP) with a Master of Science in Biomedical Informatics, and believes that becoming an investor is her calling. In Michelle’s quest to achieve financial independence and the ability to retire early someday (aka FIRE), investing became an integral part of her lifestyle. 

Signe Lonholdt supports millennials to thrive making their own investing decisions through her passion project: the blog Investionista.com. She is educated within business, economic and financial journalism and she is an executive at LEGO Group where she leads a team of communication managers and specialists.



  • The most important lessons from studying Superinvestors like Warren Buffett and Charlie Munger. 
  • The four principles of Warren Buffett’s investing strategy. 
  • The different types of moats companies can have. 
  • How to assess whether a company has a sustainable moat. 
  • What qualities and quantitative factors would indicate that a company has good management? 
  • Why having a margin of safety is key to their investment process. 
  • The key steps of valuing a company the Warren Buffett way. 
  • Why Buffett prefers to look at owners earnings as a valuation metric. 
  • How companies get on their radar.


Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off-timestamps may be present due to platform differences.

[00:00:02] Signe Lonholdt: I do agree with what Warren Buffett has said for many years. You want to invest in a company that’s within your circle of competence. We want management with talent and integrity, a company with competitive advantage, and then we want to buy it at a margin of safety.

[00:00:21] Rebecca Hotsko: On today’s episode, I’m joined by Michelle Marki and Signe Lonholdt. Michelle is a certified project management professional and seen as an executive at Lego Group, and recently they started a podcast together called The Investing Mastermind Podcast to share their journey of how to invest like the best investors.

[00:00:40] Rebecca Hotsko: During this episode, they discussed the most important lessons they’ve learned from studying Superinvestors like Warren Buffett and Charlie Munger, and 

they break down the four main principles of Buffett’s investing strategy and how to apply these principles to your own strategy today. They also dive into the key steps of how to value businesses, the Warren Buffett way, and talk about what is considered a sufficient margin of safety for an investment.

[00:01:06] Rebecca Hotsko: Why Warren prefers to look at owner’s earnings when valuing businesses and so much more. It’s been a while since we’ve done an episode diving into Value Investing and back to the Warren Buffett way. And so this episode was a great reminder for everyone on the key principles of how to be a great investor and how Warren Buffett thinks about valuing companies.

[00:01:26] Rebecca Hotsko: And so with that all said, I really hope you enjoyed today’s episode with Michelle and Signe. 

[00:01:33] Intro: You are listening to Millennial Investing by The Investor’s Podcast Network, where your hosts Robert Leonard and Rebecca Hotsko, interview successful entrepreneurs, business leaders, and investors to help educate and inspire the millennial generation.

[00:01:55] Rebecca Hotsko: Welcome to the Millennial Investing Podcast. I’m your host, Rebecca Hotsko. And on today’s episode, I am joined by Michelle Marki and Signe Lonholdt. Welcome to the show. 

[00:02:06] Michelle Marki: Thank you for having us, Rebecca. 

[00:02:08] Signe Lonholdt: Thank you so much. 

[00:02:10] Rebecca Hotsko: Thank you so much for joining me. I think so the audience can get to know your voices a bit.

[00:02:17] Rebecca Hotsko: I’ll have you both introduce yourself and tell us a little bit about your investment strategy. You both just started a podcast called The Investing Mastermind podcast, and so it follows similar strategies that TIP was founded on, which is studying Superinvestors like Warren Buffett. So I’m really interested to know what drew you to this current investing strategy.

[00:02:41] Michelle Marki: Just with what I’ve learned, I was driving to work one day and feeling a little bit burned out of just wondering, is this what all of life is meant to be? That we’re just in a hamster wheel of nine to five and we save in what’s called a 401k. And we have our IRAs and other means of investing kind of a little bit of money as we go, but couldn’t there be a better way to invest so that perhaps we might be able to retire a little bit earlier than maybe our parents did in their 60s?

Read More

[00:03:14] Michelle Marki: And so I was going through some podcast titles, including the We Study Billionaires, which I’ve loved listening to since 2017. And I also came across the invested podcast with Phil Town and Danielle. And that inspired me to really for the first time understand a real method of investing. Because before I’d been in index funds and using a robo advisor, which were fine, but I didn’t think that I would be able to get above average returns at a consistent amount of time, like over decades.

[00:03:46] Michelle Marki: So I thought if I want to expedite my wealth generation, this method of investing like Warren Buffett opened a whole new world. I’m totally grateful to the towns, and we’ll get more into the Buffett style, but I want to give [00:04:00] s a chance to answer. 

[00:04:02] Signe Lonholdt: I definitely follow what you’re saying about is this all there is to life and why.

[00:04:07] Signe Lonholdt: I also started investing. I started doing what a lot of people do, not really knowing how the stock market works, so just trying to jump into a few stocks that really followed my values. But I was really looking for a strategy and I did some technical indicators and tried all sorts of things, but it wasn’t until I found value investing that I actually found what I feel is a good strategy.

[00:04:31] Signe Lonholdt: You use your common sense with this type of investing, and that’s what I really like about value investing is that you’re not hoping or guessing it is actually a set strategy where you go through a company’s financials and learn more about the. You’re not just leaving it up to hoping and guessing if the stock will go up.

[00:04:51] Signe Lonholdt: And that’s what I really like about this strategy is that it’s significantly different than any other strategy in that you’re not trying to predict anything. Instead, you’re looking into risks. And I think 

[00:05:02] Rebecca Hotsko: that a lot of new investors start out by studying Warren Buffett especially, and how he invested.

[00:05:10] Rebecca Hotsko: And so I guess I’m just wondering, what do you think are some of the most important lessons that you’ve taken away from studying him and any other Superinvestor that you really resonate with? 

[00:05:21] Michelle Marki: I found that it’s important to relate investing to people’s everyday situation and like I’m pretty sure somewhere in my earlier twenties I might have picked up Ben Graham’s security analysis or intelligent investor, and I brought it back to the library pretty quickly because I just couldn’t relate to the material, even though I’d heard.

[00:05:42] Michelle Marki: Like Ben Graham and Warren Buffet, I didn’t have something that really made it easy for me to understand. It took some time for me to come back to Warren Buffett maybe because it just was hard for me to relate in the original teachings. But when, like I said, when I listened to that podcast and the [00:06:00] towns came out with their invested book in 2018, it made the Buffett style easy to understand, and they had specific formulas of valuing companies.

[00:06:10] Michelle Marki: Were easy to follow along with and do that like pretty much anybody could do. So I felt like for the first time, I consider Phil Town a Superinvestor, so I try to really understand where he’s coming from, and I just happen to think that a lot of it makes sense to me. It’s important that when we’re studying investors that what they’re conveying makes sense to you because if you’re like I don’t know.

[00:06:32] Michelle Marki: If it really makes sense or I don’t know how to put that into practice, it can make it a little bit difficult to continue to follow along with their style or strategies. I think with anyone, like there’s so many great investors, but there are so many methods to investing, so we just have to find the one that feels like it works for us.

[00:06:51] Signe Lonholdt: Something that I have taken away from value investing is that it’s about not losing money. So for me, I wo work 40 hours a week, if [00:07:00] not more, and I don’t want my hard-earned money to just be gone by gambling. What really is important for me with value investing and the value investors I follow is this focus on rule number one.

[00:07:12] Signe Lonholdt: Don’t lose money. And rule number two, don’t forget rule number. We really look for these asymmetrical risks and reward, which basically means that there’s a high probability of winning and a low probability of losing. So for example, what we will look into as value investors is that there’s a lot of cash flow in a company and that the company has had a lot of cash on hand for years.

[00:07:36] Signe Lonholdt: We’re also looking into industries where there’s not a whole lot of disruption and the company don’t plan any disruptive behav. They pretty much just want to produce what they have been producing, whether or not it’s a tech company or a manufacturing company. We’re not looking to companies that are doing a big pivot in the future, like uc, for example.

[00:07:55] Signe Lonholdt: Meta that’s been very focused on. Advertising and now they’re [00:08:00] going into the Metaverse where sure, they’re also going to look into how they can advertise in there, but it’s an unpredictable pivot where they’re going to do something completely different than they’ve been doing. So you’re basically gambling that they’re also going to be doing great in the future, and that Zuckerberg will do great with the Metaverse.

[00:08:19] Signe Lonholdt: Just basically looking into to asymmetrical risk and reward, and the likelihood of a company will be successful in the future. Also with the margin of safety price, we don’t want to take any risk and in case we make any errors in our looking through the company’s financials so we really want to buy it at a great price.

[00:08:39] Signe Lonholdt: So in case that the price goes down, we could scoop up some more stocks, of course, but if we were wrong, then there’s a low risk of us losing a whole lot of money. But if the stock goes up, then we will also get back with a 

[00:08:52] Rebecca Hotsko: great reward. So you mentioned a bunch of things there that I want to get into today because I really want to break [00:09:00] down Warren Buffett’s investment strategy and just make it easier to understand, because as you mentioned Michelle, when you read books like the Intelligent Investor Security Analysis, it can be.

[00:09:12] Rebecca Hotsko: So overwhelming at first. And so, but really his strategy is quite easy. And every investor, you can study Superinvestors, but everyone implements it in their own strategy differently, I guess. And so even Warren Buffet’s strategy has changed quite drastically over time. From first in the Benjamin Graham days investing in cigar, but companies and meeting Charlie Munger turned into buying wonderful companies at a fair.

[00:09:36] Rebecca Hotsko: I’m wondering what elements or key aspects of his principles or investing strategy do you implement in your own and maybe what is different? 

[00:09:46] Michelle Marki: Part of what I think is in the original Ben Graham strategy is looking at a companies on a net valuation basis, and that was a little closer to lower price to earnings.

[00:09:56] Michelle Marki: And can you get the one last puff out of the cigar [00:10:00] butt type of style? And I’m not trying to look into companies like that. So I would say I’m closer to the Charlie Munger philosophy of buying a wonderful company at a fair price. For example. This is reflecting I think a lot. More Berkshire’s recent purchases in the last decade where it’s not always the cheapest company, but they are amazing companies like Apple that Berkshire has bought and the price they paid was probably a pretty decent price, but it probably wasn’t as rock bottom price as what Buffett did in the earlier part of his career.

[00:10:33] Michelle Marki: So I think that Charlie Munger shaped him a lot like that. And so I try to follow along Charlie Munger most closely in terms of how I apply that strategy. And I use, like I said, the town’s valuation methods the most. But another valuation method I’ve come to adopt, especially when it comes to tech companies is Adam Seessel’s method.

[00:10:53] Michelle Marki: And he came out with this book where the money is. And I find that it’s helpful to try to put evaluation on tech companies [00:11:00] because they focus so much on adding research and. In and so it, it may not reflect ultimately in some of the final profits or free cash flows in bearing that in mind and trying to incorporate more of margin in a calculation that we think is the appropriate margin amount that some of these tech companies are making.

[00:11:18] Michelle Marki: We can also arrive at a price to possibly pay for some tech companies that before if you go with the more traditional metrics. May not seem like they’re ever on sale, and so it helps to kind of get over that hump to realize, no, actually some tech companies may very well be on sale and it could be a good time to buy them.

[00:11:38] Michelle Marki: Some of how I’ve evolved, a little bit of my framework. And 

[00:11:43] Signe Lonholdt: for me, I am also the Charlie Monger School of Value Investors. I do agree with what Warren Buffett has said for many years. You want to invest in a company that’s within your circle of competence. We want management with talent and integrity, a company with [00:12:00] competitive advantage, and then we want to buy it at a margin of safety.

[00:12:03] Signe Lonholdt: Another layer I add for myself is that I want it to be in sync with my values. So for example, for me, I wouldn. Go and invest in an oil business, for example. And I know that there’s no such thing as a perfect company or anything like that, but there are just certain parameters. I also like to see a very diverse board in the companies.

[00:12:23] Signe Lonholdt: I actually like to see some different voices on that board, and I have a couple of different layers I add besides just being a great business, which will just make it even better. The company I want to invest. So I have 

[00:12:38] Rebecca Hotsko: that. Where’s the money book? I just started reading it last night actually, so I’m really excited for that one.

[00:12:43] Rebecca Hotsko: Cause I’ve heard nothing but amazing things from that one. We’ve had Adam on the show a couple times, and so I know it’s super valuable to a lot of investors. And so I guess I want to get into Warren Buffett’s way of investing or just this strategy more in general because I [00:13:00] know a lot of our listen. Are really interested in it, and we’ve talked about it a bunch on the show, but it’s worth breaking it down in its main components and you already started to talk a bit about it, Signe, and what you actually look for in this strategy.

[00:13:14] Rebecca Hotsko: And so I guess one of the biggest things that Buffet stresses is that companies he invests in need a moat and they need this sustainable competitive advantage. But there are a lot of different types of competitive advantages or moats that a company could have. I’m wondering if you could talk about the different types of moats companies can have, and I guess are some moats better than others 

[00:13:37] Michelle Marki: as far as which moats are better than others?

[00:13:39] Michelle Marki: It, I think it boils down to specific companies and what your circle of competence is, because it could. There may not necessarily be the one moat that is the best because much like human biology companies have their own lifetimes and like maybe what was once a competitive advantage may not always be that for a hundred years [00:14:00] or more.

[00:14:00] Michelle Marki: But some of the types of moats include brand moat like Coca-Cola. Secrets moat, like 3M and you know, scotch tape, they probably have a secret formula for some tape and then they’re switching moat like Apple and its ecosystem where if you have the iPhone and MacBook, what more do you need? And also we have the toll bridge moat.

[00:14:21] Michelle Marki: So these would be a lot of utility companies because it’s not like you can shop around for another electricity provider. You’re kind of just stuck with what’s in your area. So that’s a toll bridge because you can’t help but have to pay the. And there’s the network kind, maybe TikTok is showing its networking moat that’s it’s taking away market share from both Facebook and Google right now.

[00:14:43] Michelle Marki: And some newspapers are calling into question whether Google and Facebook will it be able to regain some of the ad market share that they may have lost on. And you know, it’s kinda like, no wonder some of their stock prices have been deflating as a result of perhaps there’s been a tax to their [00:15:00] network.

[00:15:01] Michelle Marki: Those are some of the kinds of things to kind of consider, and I hope I mentioned all the main kinds of moats. Signe, did I miss one? 

[00:15:09] Signe Lonholdt: Maybe price moat, man. Monopoly as well. Like some of the railroads that haul coal from the coal mines on and to the coal burning plants. It’s very, coal is very heavy, so going by road with that coal is, it’s much cheaper to 

[00:15:23] Michelle Marki: do it by.

[00:15:25] Michelle Marki: And I just want to piggyback on that and you can continue, but when you said price, I think it’s also cost moat of being the lowest cost provider of goods and services. And one of those kinds of companies is Costco and Walmart, like you said, it’s being able to provide the highest quality at the lowest possible cost, and that’s also a unique kind of moat.

[00:15:44] Michelle Marki: So yeah, continue. 

[00:15:46] Signe Lonholdt: I think my favorite mode is probably the monopoly because unless it’s very heavily unionized, but there are also tech companies out there that have monopolies. You could say, some of the semiconductors are close to monopolies because they’re just [00:16:00] so much further ahead in their development.

[00:16:02] Signe Lonholdt: Then other companies that just simply can’t follow along with the speed that they innovate. 

[00:16:07] Rebecca Hotsko: And I think your point on constantly, or maybe you didn’t say constantly, but it’s reassessing the mote because they can change over time. And I even think of tech companies like Google where once that was, or it still is considered the best search engine out there, but now we have AI search engines that give you an answer and you don’t have to search through thousands of results.

[00:16:31] Rebecca Hotsko: And so it just makes me wonder how long before that moat goes. And so it’s just really interesting to think about how something we considered such an amazing moat in 10 years that could no longer be the case. 

[00:16:44] Signe Lonholdt: Absolutely. And that’s also where for us as value investors, we really like to keep businesses for a very long time.

[00:16:52] Signe Lonholdt: We are long-term investors and we would prefer to have the stocks in our portfolio for a very long time without selling or something like that. [00:17:00] We would be in a situation where we would have to sell, and that’s one of the reasons for me to sell the stock, is that I don’t believe in the mode 

[00:17:07] Rebecca Hotsko: anymore.

[00:17:08] Rebecca Hotsko: Those were the different types of moats, but I guess what are the different types of things or quantitative metrics you would look for in a company to suggest that? Yes, this company has one of 

[00:17:20] Signe Lonholdt: those moats. For me to find the mode of a business, I really look a lot at the company as well as their competitors.

[00:17:29] Signe Lonholdt: It’s really about studying the business and then staying within your circle of competence. As Michelle also mentioned in choosing your. For example, when I mentioned a monopoly, for example, what you do is you know, you need to understand a little bit about the business. So for example, for semiconductors, you need to know a little bit about Moore’s Law and understand the innovation of that type of business, as well as the railroad, where you need to find out.

[00:17:54] Signe Lonholdt: Okay. This company actually have a competitive advantage in that. That’s the only railroad that goes [00:18:00] between this mine and this plant, and that’s how you find a monopoly in terms of price. It’s very much, again, looking in a sector and seeing these are some of the different companies in that sector and which is the low cost provider in that sector where you would have to look into to footfall in the shop.

[00:18:18] Signe Lonholdt: And see, okay, well this is actually the store where a lot of people are coming in and checking out. So it does take quite a lot of investigation into details of the company. But sometimes, like for example, with Apple, I’m an Apple user. I have my iPhone, I have my MacBook, et cetera, et cetera. For me to actually switch to another company, it would be a daunting task there.

[00:18:39] Signe Lonholdt: I can use my personal experience in saying, okay, for me to switch, it would be not only be costly in time, but also. And everything I’ve bought is from Apple. All the apps, everything. If I would have to do the exact same on the Android operating system, it would take me a lot of time and money. That’s some of the ways I would go about reviewing the mode, looking [00:19:00] into competitors, and really understanding my own circle of competence.

[00:19:04] Michelle Marki: And to add to the what Sena said, you know, it goes back to what the four principles of investing are, according to Charlie Munger and Buffet. And they include asking these questions of any company, of what is the meaning of the company to you. Do you care about it? Do you understand what’s going on to what Sena was mentioning?

[00:19:23] Michelle Marki: Do you understand what manage. Objectives are, and have you read management’s letters to understand what direction the company is going in that they envision for it. And do you believe the management? Do you feel like they have candor? And among a lot of criteria that you would ask of management and a more quantitative measure is the return on invested capital, which is how well of a return can you deliver when you add equity plus maybe some debt to be able to generate returns on that investment.

[00:19:52] Michelle Marki: So seeing if that’s trending. Or if it’s going down, could be a big sign of if the CEO is doing a good or bad job. [00:20:00] And then also with doing things like the looking at the moat in particular, you want to see, like to Signe’s point, who is attacking it like the competitors and also, Doing things like reading the 10 K and looking at the risk factors.

[00:20:14] Michelle Marki: There’s a huge section of risk factors in the annual reports usually, and you can use that and say, invert the argument, whatever argument you had for this company. You can do the opposite and see, okay, where is the worst nightmare of this company coming true? Like I’m sure the worst nightmare for Facebook and Instagram is.

[00:20:34] Michelle Marki: With that kind of bad case scenario of this is a reason why it’s not a good idea to invest in that company. You go through the risks and try to see where are other people chipping away at What was once Facebook’s strong advertising moat and. Apple chipped away at that moat by having their privacy settings where consumers ask not to be tracked, and that really dented Facebook’s business model, whereas [00:21:00] it may not have affected Google as much because we give our direct input into Google when we search.

[00:21:05] Michelle Marki: So it’s a little bit of a different scenario where Facebook is relying on consumers opting in for their data to be tracked across wherever they. That’s another way to look at if the moat is carrying on as it once was, or if there are cracks in it. And then finally looking at margin of safety, which I know Signe has talked about this to some extent, but it’s trying to buy something that’s worth a dollar for 50 cents.

[00:21:31] Michelle Marki: If we can see, based on our valuation criteria, maybe sometimes not a direct proxy, but something sort of close is, let’s say something was at its all time high of a thousand dollars and then now it’s trading at $500. Maybe that is one indication if you calculated that. When he was at the thousand dollars price point, that was the maximum of its intrinsic value and now you’re able to buy it for 50% off.

[00:21:56] Michelle Marki: Maybe that’s a great deal. And so you can’t just only [00:22:00] go on price on that. You have to see where this might fit in depending on which valuation method you use. Yeah, I want to dive a 

[00:22:07] Rebecca Hotsko: bit deeper into that because a price could drop for a justified reason or a non justified reason. I guess. What are you looking for when you see a company drop in price?

[00:22:19] Rebecca Hotsko: We’ll just use, say the tech companies, for example, where Google and, well, we’ll use Meta, even though you said you don’t really like Meta, it’s down 70%. Now, someone could look at that and think, wow, it’s so undervalued because it used to be trading at this. But the other aspect could be, well, it’s down because it’s growth prospects or it’s materially changed, and so we don’t expect it to perform as well in the future.

[00:22:46] Rebecca Hotsko: And so I guess, what things are you looking for to help you determine if you think that the business has materially changed or not? 

[00:22:54] Michelle Marki: A lot of that I think goes back to what you were saying about moats. Like we just talked about a lot [00:23:00] of the potential threats Meta is seeing and the fact that what Sena mentioned earlier, they’re focusing on a new method of potentially earning income in the future of the Metaverse.

[00:23:11] Michelle Marki: That’s a bet that’s unproven and investors don’t know if that’s going to work out. So that could be adding fear in the market. And we also have to remember, we just came through a big bubble period in the last couple of years that basically a lot of stocks reach their all-time high in terms of price toward the end of 2021.

[00:23:30] Michelle Marki: And a lot of that has deflated throughout 2022 and may continue this year if we might actually see a real recession on the horizons. With all that in mind, you have to kind of try to keep in mind, we went through a really unusual period of lots of stimulus and then inflation and there was nowhere else to get a return because you couldn’t get it in bonds or in your banks.

[00:23:51] Michelle Marki: But now the tables are starting to turn where soon, probably going to be able to get, if not already, four to 5% in bank. And [00:24:00] that’s actually fairly competitive with if the stock market’s average rate of return was seven to 10% per year. You think about that risk premium that you’re expecting out of the stock market, and now that things are coming down, it’s a real possibility that the stock market could be trading sideways for a long time.

[00:24:16] Michelle Marki: But back to say Meta specifically, you have to judge whether you think that they can recover based. A lot of people may have been bidding it up when all of us were stuck at home and we thought that its ad business would continue like there was no other entity doing as well in that area. Even though I’ve heard TikTok doesn’t have as much of the digital spend, but it’s growing way faster than some of the stalwarts before of like say Meta and.

[00:24:45] Michelle Marki: It’s a tough call and some people will say this is a great price to get in when it’s down. Like so for some people, Meta could be fabulously on sale. If you believe in their story that whatever amount of years from now they’ll be able to come back to their prior [00:25:00] glory and for other people the ship has sailed.

[00:25:02] Michelle Marki: You have to move on. Like there’s no amount of maybe Instagram reels that will be able to take on talk’s, gain of the market share and attention. It’s really a judgment call of what do you believe in, where do you have convictions? I’m totally neutral on Meta, by the way. I’m not either for or against it, so I just want to put that out there.

[00:25:23] Michelle Marki: Something 

[00:25:23] Signe Lonholdt: that’s really important about value investing is that we are looking for winners, so the field gets very narrow, and if we can’t identify who’s going to win, then we can decide if we want to invest in that stock or not. And if it feels like gambling, we can decide. I’m not going to invest in it.

[00:25:39] Signe Lonholdt: Though the past doesn’t necessarily mean that the future is going to be glorious for a company. We are looking for that track record from a business of showing great results in the past. We’re looking for a company that’s hungry to be the winner of a management team that sets a great strategy that is innovative within their field.

[00:25:57] Signe Lonholdt: Absolutely. We want innovation and we [00:26:00] want a lot of innovation within their field, but we don’t want disrupt. Or at least when I say we, I mean I, because of course there’s a lot of different value investors out there, but I think what we all are trying to do is we’re trying to find the winners. And right now we can’t identify who is the winner in the Metaverse.

[00:26:17] Signe Lonholdt: Is it going to be Meta or is it going to be another company? And so it’s better to just wait it out and not gamble on it because we don’t want to lose our hard earned money. So we would rather want to pick something that wouldn’t be a gamble. And of course, Some people have gambling like a part of their portfolio where they like to gamble on something like Meta and if they believe in, for example, soccer Burke, who has proven to be a great business owner in the past.

[00:26:43] Signe Lonholdt: And if we believe that he can do it in the future, it could be put in our gambling portfolios, for example. 

[00:26:50] Rebecca Hotsko: And so you both mentioned margin of safety a few times now, and that’s core to, I guess, just buying something at a discount to its intrinsic [00:27:00] value. And so I’m wondering, I want to get into your intrinsic value assessment now and how you really go about valuing companies and applying these lessons into your valuation analysis.

[00:27:12] Rebecca Hotsko: So what would you say are the most important steps or processes about how you go about valuing 

[00:27:17] Michelle Marki: a business? So one way to answer your question about trying to figure out a margin of safety, which is ultimately getting at a price that’s at a discount to what you perceive a business’ intrinsic value is.

[00:27:31] Michelle Marki: So it’s another way of doing a discounted cash flow analysis. And I’m heavily indoctrinated in the Phil town way of valuations and his interpretation of Warren Buffett’s owner earnings is such that you take a company’s pretax. You add back in the depreciation and amortization and you either add or subtract the accounts receivables and accounts payables, depending on, you know, if it’s a negative or positive number, the income tax.

[00:27:59] Michelle Marki: And [00:28:00] you also subtract the capital expenditures and preferably only the maintenance CapEx. And ultimately, you arrive at this figure that’s called owner earnings of being then able to determine if you’re trying to get at least say, a 10% return per. You figure out the market cap of the company at the 10% valuation that that you would want to get out of that company if you invest it and you divide that out of outstanding shares and then you arrive at what he calls the owner earnings or also known as 10 cap.

[00:28:32] Michelle Marki: Because where that also basically comes from is, you can think of it sort of related to real estate of if you buy a property, you expect some amount of return out of it. Right? And if you rent it, Like if you’re not getting such a great deal, you could be paying, say, $500,000 for a property and only get 2% or a two cap out of it where you’re only getting $10,000 out of it per year, which is not so great.

[00:28:56] Michelle Marki: Like something like that would not be a good deal whether it comes to [00:29:00] real estate or investing. But if you can instead get 10% out of that deal, like get $50,000 out of that property per year, that might be acceptable to. That’s basically one of the methods. There’s a few more from the town approach, but I’m just going to talk about that one specifically of one way you can arrive at a margin of safety price to figure out when is a right price you want to buy.

[00:29:23] Michelle Marki: And that’s the beauty of it, is you don’t have to time the market. You just come up with a price that you’re willing to pay for a company and you stick to that until the company’s price comes into that window of what you’re willing to. Then I guess I’m 

[00:29:37] Rebecca Hotsko: wondering, because you mentioned you really liked Adam Seessel’s book and his framework.

[00:29:42] Rebecca Hotsko: Is there anything you add from there into your evaluation analysis that maybe you 

[00:29:47] Michelle Marki: didn’t before? Yeah. Now I try to incorporate what is a margin adjustment. You know, if the income statements and all the 10 K financial data may [00:30:00] provide a margin per se, that’s kind of maybe not the full picture of what the earning ability really is.

[00:30:06] Michelle Marki: I try to make that adjustments. It helps add a range. So in addition to the town valuation methods, I also now add Cecil’s method of adding his calculation and then I get a range. So it’s helpful to see what that possible range is. 

[00:30:24] Signe Lonholdt: I was thinking about how to get back from Adam but I can talk a little bit into the owner’s earnings.

[00:30:29] Signe Lonholdt: And Buffett mentioned owner’s earnings in his 1986 letter to shareholders. Every year he publishes a letter to all of his shareholders, and you can read it online, it’s full of great information about value investing. But at that time, in 1986 financial statements had the income statement and the balance sheet, but not the cash flow state.

[00:30:50] Signe Lonholdt: And what Warren described back then in 1986, what pretty much what we know as today as the cash flow statement or statement of cash flows, a simple [00:31:00] one that he mentioned there. So what happened after that letter was the introduction of the cash flow statement in the general accepted accounting principles, and that was around 1992 to 1994, that was actually introduc.

[00:31:14] Signe Lonholdt: But the essence in, in what we’re trying to figure out with the owner’s earnings is how much cash that we could actually put in our pocket, and it is the cash and not any imaginary cash, so to speak. So accountants, they can do a lot of acrobatics in order to actually make it look like there’s cash. I’m not saying that they’re cheating or anything, it’s just that they can do a lot to make it look like there’s more cash.

[00:31:38] Signe Lonholdt: What we are trying to do is actually to make that assessment of how much cash is actually there from their main way of, you know, for example the cash flow from operations, their motors append. Simply how much would we actually be able to put in our pockets when we peel all the layers away and there’s actual cash lift?

[00:31:58] Signe Lonholdt: And that’s something that. To [00:32:00] actually try to figure out as the best I can when valuing a business, is to peel off all of the layers to find the cash flow and then how much the per share price would be. So dividing it by outstanding shares. Michelle also mentioned the discounted cash flow analysis, and there’s also a calculation that’s used by venture capitalists, which is also very good because it is still conservative.

[00:32:24] Signe Lonholdt: It’s not like some venture capitalists that kind of say, okay, the current earnings will protect project that eight years into the future. It’s more conservative than that because we want that margin of safety. So again, looking at cash flow, projecting it into the future, and then taking it into today’s price, and then we want to buy it a little bit cheaper than today’s price.

[00:32:44] Signe Lonholdt: That’s some ways I try to calculate, and it’s also, as Michelle mentioned, inspired by Phil Sound, but also adding in some other parameters to be ultra-conservative or to use something. There’s also software as a service company that’s also very difficult to. [00:33:00] Using some of the old production company valuation methods, so trying to do something new to actually come up with a good intrinsic value of the company.

[00:33:09] Rebecca Hotsko: So one thing that comes to mind, because we were talking about tech companies, is that sometimes net income can be a lot different than their cash flow, and then also a lot different from their owner’s earnings. If that happens, is that a warning sign for you? Because we know that if a company’s doing a lot of r and d spending, that will reduce their net income or their earnings per share.

[00:33:31] Rebecca Hotsko: It’s not necessarily a bad. But to you at following this approach, when would you see that as a warning sign? When earnings per share is drastically deviating from their cash flow. 

[00:33:43] Michelle Marki: In general, you don’t want to see negative trending numbers, right? So you would still to some extent use earnings per share, say the trailing 12 months in some calculations.

[00:33:53] Michelle Marki: And as part of a measure of also analyzing the free cash flow, it’s still an important metric. And just in general, it [00:34:00] would probably not be a good sign overall of seeing that for too long, unless the company’s going through an event for a short-ish to medium term amount of. And then you see a clear path for them getting back to a point of being able to generate positive numbers.

[00:34:15] Michelle Marki: Then maybe during that moment in time when they were putting up the negative trend, that could be a good buying opportunity because you know that they’ll figure out the problem, they’ll solve it, and they’ll get back to their prior glory of being able to put a more positive. It’s not like the only criteria to consider.

[00:34:33] Michelle Marki: Like there’s obviously a whole range of numbers and qualities of a company to consider, but generally probably you want to stay away from the negative trending ones, especially if they’re permanently negative trending. Yeah, 

[00:34:46] Signe Lonholdt: absolutely. I a hundred percent agree what you’re saying, Michelle. And what I also do as a value investor is to track back and see the trends over time.

[00:34:53] Signe Lonholdt: So it’s not just how are they doing this quarter or this year, but actually looking into how have they [00:35:00] performed in the past and with a negative earnings per share if it’s negative for. Going back a long time, then it’s not a company I would want to invest in because I simply don’t understand it. I don’t understand why they would have a negative number there, which is just my way of saying, I don’t believe this is a healthy business.

[00:35:19] Signe Lonholdt: I can’t, I believe this is sickly business. It’s not within my circle of competence to actually understand this business. 

[00:35:26] Rebecca Hotsko: I think one of the hardest parts of investing is that a good business doesn’t always mean it’ll be a good investment, and a great business could be far overpriced today, and it doesn’t meet its growth expectations.

[00:35:39] Rebecca Hotsko: And so I know that Buffet focuses on finding wonderful companies at a fair price. And doesn’t really focus on price or price multiples as one of the first things. He just focuses on finding good businesses. But I guess I’m just wondering how do you reconcile these two things in your own process? 

[00:35:57] Signe Lonholdt: For me, I do it like Warren Buffett.

[00:35:59] Signe Lonholdt: [00:36:00] I try to find a company that’s within my circle of competence, and when I do my research, I can see that it’s a healthy company, it’s got a great return on invested capital, it’s above 10%. Over the years, it’s doing better and better. The profit margin compared to their competitors is great. They don’t have any debt and they definitely have a profit.

[00:36:22] Signe Lonholdt: The sales growth is increas. That’s some of the parameters I look into before I actually invest in a business and want to ensure that it’s the winner also on all of those numbers. So once I found out if it’s a wonderful company tracking all those numbers, then I look at the price and oftentimes, at least in the past, the price have been way overpriced.

[00:36:45] Signe Lonholdt: But now we’re actually starting to see some companies that are coming down at a price where I’m definitely interested in investing and trying to sell some put options, waiting for the price to go even further down to actually be able to own that company in my [00:37:00] portfolio. 

[00:37:01] Michelle Marki: From my point of view, it’s part of what Buffet has said in his 1998 letter.

[00:37:06] Michelle Marki: They aim to get an average rate of return of 15%. I think that Buffet has taken many years to study companies, and so he already has a rough order of magnitude idea of what a lot of companies on his radar could be worth, and so he may not necessarily pay too close attention to the stock price on a given day per se.

[00:37:27] Michelle Marki: That’s not as important to him. It’s a lot of the qualities and criteria that Signe just mentioned, like do they have debt that’s manageable and that they’re able to pay it off within a reasonable amount of time from their earning. And also that what Charlie Munger has said, that no matter how wonderful a business is, it’s not worth an infinite price.

[00:37:48] Michelle Marki: We have to find a price that makes sense for a business and gives a margin of safety considering the normal vicissitudes of life. And he’s talking about given the volatility you might see in the markets in the [00:38:00] past, I know that Buffet had basically aimed for more of a private business valuation at which to buy a company.

[00:38:07] Michelle Marki: If you have comparable public and private companies, say the public company is trading at a multiple of 16 PE on the markets, but a similar private business might be only valued at eight PE. That was once upon a time, maybe the rough ballpark of how Buffet thought about buying businesses, like more in the Ben Graham way of thinking.

[00:38:28] Michelle Marki: But maybe some of that’s evolved, like even just based on how Buffet has bought back Berkshire stock. I don’t know if he’s. So bent on that, everything has to be, say at a super low price to earnings, multiple per se. There’s probably a range of, maybe he’s okay with buying back his own stock at 20 to 30% discount to intrinsic value.

[00:38:49] Michelle Marki: If that’s the case. Let’s pretend that Berkshire Hathaway’s full intrinsic value was 750 billion, and he was okay at buying it almost close to that level. So [00:39:00] maybe if it was close to that level, maybe the intrinsic value that he has in mind is actually slightly higher than it’s all time market high.

[00:39:07] Michelle Marki: You know, it’s sort of hard to know exactly what the final prices that he’s willing to pay. You can get sort of close with estimating in your own way. Like the great thing about investing is that it’s better to be approximately right than precisely wrong, as Buffet has been quoted in saying in the past.

[00:39:24] Michelle Marki: So I think we have a lot of room for error and that’s why we keep going back to giving ourselves that margin for error in having a margin of safety. 

[00:39:34] Rebecca Hotsko: And so I do want to get into how stocks get onto your radar in the first place, because I know Buffet sometimes would look for companies that had have been beaten down a lot.

[00:39:45] Rebecca Hotsko: Be fearful when others are greedy and be greedy when others are fearful. And so that approach you take, and if you have any companies that are on your radar right now, if you’d like to share. 

[00:39:57] Signe Lonholdt: When I do my research, it could be [00:40:00] the way I find a business is a product I like to use or brainstorming on something like that, or actually using a screener and then plugging in a lot of the parameters that I want to see.

[00:40:11] Signe Lonholdt: So for example, as I mentioned, r o IIC and low debt. I type all those into the input fields and then only a few businesses actually come up, which is. It’s great that there’s such a narrow field and then there are certain sectors I already know that I know a lot about. So, of course I try to stick to those sectors and some sectors I know nothing about.

[00:40:34] Signe Lonholdt: So I don’t even look into those stocks. And then I spend a lot of time just basically looking into those companies and ensuring that management is great, doing a lot of research, and there’s a lot of great methods out there. I like for example, Cheryl Einhorn’s book about The area method where she walks through her own checklist, but.

[00:40:54] Signe Lonholdt: Really make sure that we walk through some of our own biases because once you’ve spent a lot of time looking [00:41:00] into a business, you might start to like it a lot and can’t even see that there’s something wrong with it. For me, there are a couple of businesses on my radar right now and some of them are reaching a margin of safety price where I would be able to actually scoop up some stock and some have already been at a margin of safety price.

[00:41:20] Signe Lonholdt: There’s a lot of good companies out there right now. 

[00:41:24] Michelle Marki: And to also add to that, I like to keep tabs on what a lot of Superinvestors and companies 13 F filings contain when they come out up to 45 days after the end of a quarter, right around when that time point is. I check up on my favorite investors, which include obviously Warren Buffett, Charlie Munger, and also Phil Town has also some public kinds of funds that people can check out what the holdings are in there.

[00:41:50] Michelle Marki: Also Guy Spier and Mohnish Pabrai and Li Lu, and there’s so many great investors to check up. I like to use like Data ar Roma to [00:42:00] look at a lot of Superinvestors, 13 F filings and some of those companies when there are some new purchases or new sell. I try to wonder why did they buy those? Like with Berkshire Hathaway, having recently bought Taiwan Semiconductor manufacturing company, that’s something that made me want to learn more about it.

[00:42:17] Michelle Marki: And as I talked about in a recent YouTube video of mine and also during our podcast when I came across. The We study billionaires newsletter. We study markets. I was so intrigued by learning about this chip war between the US and China and how Taiwan’s in the middle of this tug of chip war, and that made me want to learn even more about semiconductors to see can I expand my circle of competence?

[00:42:41] Michelle Marki: Because in the past, semiconductors had not been on my radar, but now my investing horizon has been opened up by new resources that help me become more educated. A field that, you know, makes me wonder why is potentially, if it’s not Buffet, but maybe his investing lieutenants, Todd and [00:43:00] Ted, maybe they’re invested in T S M C and it makes me wonder why would they put more than 4 billion into that company?

[00:43:07] Michelle Marki: I try to use that as a little bit of a shortcut to see what are some of the best investors that have already vetted these companies, and to use a way of mind from Monish Bry. Sometimes you might want to shamelessly clone what the investment was, but you don’t want to just blindly invest in some company just because Buffett invested perhaps in Exxon Mobil or in Chevron in the past.

[00:43:32] Michelle Marki: Also now in Occidental. I don’t know if he actually ever invested in Exxon, but I know that Berkshire has been invested in a lot of oil and gas companies, and I know that Buffet likes to tell the media. Don’t just assume that I’m the one buying it because it might not have been him, even though sometimes he admits it.

[00:43:48] Michelle Marki: Like he totally admitted that he’s the one who bought Activision Blizzard. But even with that company, you have to ask yourself, I don’t necessarily just want to buy this video game company just because my [00:44:00] favorite investor buffet bought it. I have to ask myself, do I understand the video game industry, how people are treated in there, the workers, and do I believe in the ethics of the video game industry before one were to invest in some of those companies?

[00:44:13] Michelle Marki: And there’s also another method that’s kind of fun that Danielle Town and Phil Town have talked about is the three circles method of kind of looking at companies of things that you use, things you’re passionate about, and things that maybe you’re just familiar with because you work in that industry or you’re just happen to be super knowledgeable about in your daily life.

[00:44:32] Michelle Marki: Those are some ways that companies might come onto my radar. And I know 

[00:44:37] Rebecca Hotsko: this is the last thing I’ll ask you today. I know you’ve talked about Alibaba on some of your recent YouTube videos, and this one really goes back to that contrarian mindset because it’s been beaten down. It’s very unfavor, and I know that’s something that.

[00:44:53] Rebecca Hotsko: Buffet used to do, at least is go for the stocks that have just become so unfavor that no one wants to touch [00:45:00] them anymore, which can seem very scary because it’s very scary when the narrative behind the company is so bad and things have perhaps changed because no one wants to own it anymore. And so I’m interested to know if that’s a stock that you are watching closely or if you’ve taken positions in at all.

[00:45:19] Michelle Marki: Well, I like to stay neutral, so I try not to get into whether I’ve bought any stocks, but I really enjoy studying Alibaba for sure, because it makes me wonder when Charlie Munger was first buying it, that seemed to cause somewhat of a motivating factor among a lot of Superinvestors like Monish for Brian and Guy Spier and even Phil Town that they bought Alibaba once upon a.

[00:45:43] Michelle Marki: And then slowly, most of them sold it except Guy Spier and Charlie Munger, but even another Superinvestor, Greg Alexander, on which there’s almost nothing on the internet about that investor, but he works for Sequoia slash Conifer management. He used to own some of the [00:46:00] most amount of Alibaba as well as Ray Dalio, and yet those guys both sold out of it.

[00:46:06] Michelle Marki: It makes me wonder how come Charlie Munger on behalf of Daily Journal Corporation is still staying in this really unloved company in spite of it once was generating amazing cash flows and a lot of earnings throughout their e-commerce and cloud divisions. And there could be a few factors of why a lot of people don’t like Alibaba and some of which is of.

[00:46:28] Michelle Marki: We don’t maybe fully understand or like what might be happening at the governmental level. There’s been so much regulatory crackdowns, and some people, it looked like Baba and other Chinese company stocks were being sold off in October because President Xi Jinping got another term. And then some people are afraid he’ll be in office for life, but so it’s like, so what if that’s what happens?

[00:46:52] Michelle Marki: You have to try to figure out what is the future of this company and once upon a time, Jack Ma wanted Baba to live for at least 102 [00:47:00] years. And who knows if the management now still carries that vision in how they manage Alibaba. But you have to ask, in spite of whatever headwinds they could be facing, could they find a way to still continue to grow their e-commerce?

[00:47:15] Michelle Marki: Are also their cloud division because in many ways it’s been said to be kind of like the Amazon of China, and so can they find a way that their cloud division can grow even stronger? Like it had been doing great and it slowed down pretty fast to my surprise. So it makes me wonder they’re currently, if we’re kind of comparing Amazon and Alibaba’s Cloud divisions, Amazon Web Services is still putting up tremendous numbers, whereas Baba Cloud has been kind of not so.

[00:47:42] Michelle Marki: Can they get that back on track? Because to me that’s a big indicator of the future because e-commerce margins aren’t necessarily the best and they’re seeing way more competition there. Can Alibaba figure out a way that even though they have to invest in the common prosperity fund, and we already know they’ve kind of allocated toward that.

[00:48:01] Michelle Marki: But in spite of kind of giving back to society and trying to make the society more equal, which is a good objective, like the, something I learned was the CCP is founded on egalitarian values. So if they’re trying to really ultimately make it so that there’s more equality in the society, that there’s not as much income inequality like we might see in the.

[00:48:22] Michelle Marki: That could be a good thing. So even though it looks painful now, and we, from our Western perspective, we think that the government might just be shooting its company’s growth abilities in the foot. Maybe it seems that way to us from our point of view, but maybe we just have to try to remain open-minded and try to better understand what could be the best thing for their billions of people.

[00:48:45] Michelle Marki: And maybe they’re doing the right thing as Charlie Munger has. He seems to defend the way they do things, whereas other people were a little bit afraid of Phil Town talked about on his podcast of how he didn’t anticipate how [00:49:00] much of a threat his own government, the United States would be in terms of if our public accounting oversight board were to put a lot of Chinese company stocks on a potential de-listing.

[00:49:12] Michelle Marki: And so with that, maybe the threat is not so much of what’s going on in China, even though they’ve had their own amount of issues and challenges. But what if it’s coming from here of a lot of Chinese stocks getting delisted from American exchanges, you know, across all these risks you have to measure what are you willing to live with and where do you ultimately have conviction?

[00:49:33] Michelle Marki: Like so far it seems to be a pretty black and white issues. Either people can see the growth story for Alibaba, that there’s still way more runway for them to grow, or they just give up on it and say, it’s too hard. I don’t want to touch this with a 10 foot pole. I’m just going to focus on American stocks, and either way is fine.

[00:49:51] Michelle Marki: There’s no right or wrong answer. It just boils down to what you’re comfortable. I think 

[00:49:56] Rebecca Hotsko: that summed it up. Great. That was super helpful. And [00:50:00] that is all that I have for you both today. I want to thank you so much for coming on this show. Before I let you go though, where can the audience go to connect with you and learn more about everything that you both do?

[00:50:12] Signe Lonholdt: So for me, you can follow me on my blog ina.com. I have an Instagram as well where I post blog articles every week. I have a newsletter you can subscribe. 

[00:50:25] Michelle Marki: In addition to this podcast that Signe and I are doing The Investing Mastermind Podcast, which you can find on most of the popular platforms like Apple Podcasts and Spotify, and it’s also hosted through Anchor, so it’s there as well.

[00:50:38] Michelle Marki: I also have a YouTube channel where it’s just called My name Michelle Marki Investing, and my website is sort of the blog post stub version of the YouTube channel, but that’s where I’m mainly active on. Trying to have some videos about my learning journey, and I’m just so excited that Signe and I, through our mutual passion of investing like Warren Buffett, we really hope that by sharing our journeys, that it can be inspirational and educational to other people and make them want to invest on their own, because that’s where you can have.

[00:51:07] Michelle Marki: True generational wealth is if you own your investments and you believe in them and you have conviction in them, and then the sky’s the limit in terms of the amount of wealth you could create for your families or people you care about. If you want to donate some of that to causes you believe in, like it’s just a positive flywheel.

[00:51:24] Michelle Marki: So we’re just so happy to be part of this community. And I want to say thank you so much, Rebecca, for having us. 

[00:51:30] Rebecca Hotsko: Thank you so much for coming on. 

[00:51:32] Rebecca Hotsko: All right. I hope you enjoyed today’s episode. Make sure to follow the show on your favorite podcast app so that you never miss a new episode. And if you’ve been enjoying the podcast, I would really appreciate it if you left a rating or review.

[00:51:47] Rebecca Hotsko: This really helps support us and is the best way to help new people discover the show. And if you haven’t already, make sure to sign up for our free newsletter, We Study Markets which goes out daily and will help you understand what’s going on in the markets in just a few minutes. So with that all said, I will see you again next time.

[00:52:08] Outro: Thank you for listening to TIP. Make sure to subscribe to We Study Billionaires by The Investor’s Podcast Network. Every Wednesday, we teach you about Bitcoin, and every Saturday, we study billionaires and the financial markets. To access our show notes, transcripts, or courses, go to the investors podcast.com.

[00:52:29] Outro: This show is for entertainment purposes. Before making any decision, consult a professional, this show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.


Help us reach new listeners by leaving us a rating and review on Apple Podcasts! It takes less than 30 seconds and really helps our show grow, which allows us to bring on even better guests for you all! Thank you – we really appreciate it!



P.S The Investor’s Podcast Network is excited to launch a subreddit devoted to our fans in discussing financial markets, stock picks, questions for our hosts, and much more! Join our subreddit r/TheInvestorsPodcast today!


  • Get a FREE audiobook from Audible.
  • Talk to your clients about Desjardins Responsible Investment today and support what’s right for society and what’s good for business.
  • Let an expert do your taxes from start to finish so you can relax with TurboTax.
  • Get the professional support you need to prepare for your future career with UBC Sauder School of Business.
  • Universal life insurance can offer protection and long-term tax-advantaged savings for your future goals & milestones. Get a universal life policy today through a simple, easy, and 100% digital purchase journey with Everly.
  • Set, track, and manage your financial goals as your life evolves with Scotia Smart Investor.
  • Support our free podcast by supporting our sponsors.





Check out our latest offer for all The Investor’s Podcast Network listeners!

MI Promotions

We Study Markets