Sung Capital

Back at it.

Friends,

Junto Investments is now Sung Capital, and a new chapter awaits. First, a heartfelt thank you to all of you for subscribing and following my work over the years. Though I've published far less content than I would've liked since I began writing on the Internet, many of you have reached out to express appreciation for the work and to ping-pong ideas. I'm eternally grateful for your support and the connections I've made through writing. It still amazes me how much leverage this activity provides. Just two years ago, writing Junto led me to a role at a well-known UK investment management firm with a multi-billion AUM.

Spoiler alert: I recently left that job.

Working for an institutional investor taught me a great deal about myself, others, and the industry. When I joined, I was immediately punched in the stomach by imposter syndrome. Everyone around me was incredibly smart, hardworking, and passionate about investing. It was a remarkable place with fantastic people. HQ felt like a library, with all the time in the world to read, think, and chat with smart people as well as the highest levels of management teams flying in to meet with us. All the right conditions were in place to outperform the market. Yet, like at every other institution, just keeping up with the index was a constant slog.

Instead of thinking of my imposter syndrome as a bias—a judgment or perception error—I embraced it as a lesson. "This is what Mr. Market looks like", I thought to myself as I peered across the floor.

When you trade in the stock market, you may not compete against an all-knowing machine, self-correcting at lightning speed, leaving no room for a fight (the efficient market hypothesis), but you are competing against millions of real people on the other side of every transaction. These people may be better educated than you, have more money than you, have more power than you, and have more experience than you. And there's truth to the wisdom of crowds: collectively, large groups of people are smarter than individual experts. To make active research worthwhile, you must make better decisions than this collective. You have to be right, and they have to be wrong.

When these individuals are then clustered into groups of decision makers, followed by consensus and groupthink, the outcome of their efforts cannot stray far from the mean. With large investment councils of intellectually curious people comes the flawed belief that if you study a million things, you can have a million ideas spread into widely diversified portfolios of stocks.

But that isn't how the stock market, or capitalism, or Keynesian beauty contests, work. Passion, energy, intelligence, and curiosity are all table stakes for entering the investment game, but they far from guarantee superior results. These attributes are a double-edged sword because they attract you to complex problems—ones that feel satisfying to solve and impress others when you do—even if complex problems aren't where the money is. A second-order effect emerges: the more complex the topic—think semis or biotech—the more you tend to rely on someone else's opinion—think broker reports or expert interviews—again converging your beliefs to the mean. An inescapable attribute is that we're social beings too, so we wanna look at what others are looking at and think that if we just do a bit more work than the other guy, we'll get a different result. But in investing, more work and time spent on something don’t correlate with better results.

The lessons are:

1) The market may not be efficient, but it's likely far more efficient than you think, so you can't make too many decisions, and

2) you gotta look at what's overlooked to achieve superior results.

As a value investor, my investment process is entirely driven by valuation. It's a simple process: I flip stones to find stocks with a large discrepancy (margin of safety) between price and value. If there's a catalyst on the horizon, great. But I don't need it. I sell when the value is crystallized or when I find better ideas. If that process takes a couple of years, the price needs to appreciate some more to keep up with the growth in intrinsic value.

Valuations follow probability distributions. They can look like the bell curve, but rarely do. Anyway, large, well-covered stocks, like the ones you see in the news or hear about at parties, are, given the number of eyeballs, likely to be near the middle of the curve. This is where your neighbor, investment advisor, but most importantly, all institutions play since they have very specified size constraints and are subject to the dynamics I listed earlier. This arena feels safe. After all, you've got company, especially if things turn south. But the reality is that the right time to buy well-covered stocks is usually during periods of high uncertainty, catching falling knives when you haven't got company and have to go against the grain while everyone says you're crazy.

According to Koyfin, there are >55k primary listed stocks globally. Think about that. Say you gotta spend 2-4 weeks on a stock to get to conviction. That's 12-24 stocks you can deep dive into in a year. Over a 50-year career, this means you can only deep dive into less than 2% of all stocks because the total number keeps going up. If you spend all of your career in the 2% that everyone else does and neglect the mountain underneath, you give yourself a massive headwind.

So the other way to get superior results is picking the mispriced off-the-map stocks that sometimes trade at absurd prices (while keeping a healthy dose of patience for this value to be crystallized by the market or through management capital allocation). In a Berkshire AGM, Buffett once said that if he were starting over with $1mn, he could guarantee a 50% annual return. He said he'd do it in thinly-traded, obscure securities—just like he did during his 1950s and '60s partnership years. This is how Greenblatt and Lynch started out, too—until they made too much money. There are real, cash flow-generating businesses out there trading at absurd prices. But not everyone can play in this field. Believe it or not, the vast majority of participants in this industry have too much money to play here. And "too much money" doesn't mean a couple, or even tens of millions, of bucks.

So I quit my job to return to being a full-time treasure hunter in the parts of the market that others overlook. Occasionally, I'll veer upstream for a massively mispriced bet (like Fairfax), but most of my time will be spent digging through the forgotten corners of the market.

I'm in the process of launching an alternative private investment fund under Danish corporate law, registered with the Danish FSA (Finanstilsynet). There'll be one decision maker, who's also the sole analyst. I may share more about this journey through the newsletter. We have a few commitments, but intend to keep the fund size limited to maximize attractive investment opportunities. Terms are TBD, but shares will be restricted to accredited investors, with a minimum investment of EUR100k. I'll have 100% of my liquid wealth in the fund.

I wish for partners to fully subscribe to the investment philosophy—if you're a subscriber, I assume you do—so we prioritize potential investors already on this newsletter list. If you’re interested in the partnership, feel free to reach out or reply to this email to be added to the distribution list as things progress.

I'm also paywalling future research and the archive for two reasons:

1) I invest a significant amount of time, often evenings, into writing up ideas, and

2) I want to keep the fund's admin fee as low as possible, and the paid newsletter is one way to help finance that.

This way, all fund partners benefit from the work, and the economics stay aligned.

When I ran my paid newsletter under Junto a few years ago, I mainly wrote for the sake of writing and dove deep into different businesses for the sake of learning. My writings had an investing lens, yes, but I wasn't zeroing in on the best ideas I could find at any given time. I didn’t pay enough attention to opportunity cost.

That changes now. Some writeups will be short, others long, meaning I can probably write up 2-6 stocks per month. The focus will be actionable ideas from my notebook (not all of which I'll own, of course), and some will be case studies. The writing style won't change, but the stocks will.

The newsletter will be priced at $350/year or $45/month. I aim to make this the best deal in the subscription space through the quality of ideas and an avid writing schedule. You can sign up on the website or through Substack.

Tomorrow, I'll send you an email about a special situation on a Danish microcap bank (we're starting in my home country). The bank recently had a collapsed merger deal with its regional peer, which could pave the way for a higher price and a possibly juicy short-term IRR with little downside in the case of a merger closure (a pre-announcement risk arb trade, if you will). This writeup will be free for everyone, but the archive and backlog are now behind a paywall.

Look out for my email tomorrow—and for extra cookie points, add this email address to your contacts. If you use Gmail, move it to the "Primary" tab. It'll bump up the delivery rate for everyone in the future.

Thanks for letting me introduce you to Sung Capital. I’m excited about the future and grateful to have you along for the journey!

Cordially,
Oliver Sung