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Welcome to Thank You Mr Market, I’m glad you’re interested in learning more.
Your time and attention are your highest priority resources, so you should rigorously gatekeep who you listen to and who you ignore. With this lengthy post I intend to help you categorise this Substack accordingly.
I’ve gone complete open book on this so you can reach your conclusion in a perfect information environment. I don’t want to set false expectations for the sake of collecting subscribers.
Content:
My background & credentials
The value proposition to subscribers
My FULL investment process
Closing remarks
Let’s get into it, shall we?
1. MY BACKGROUND & CREDENTIALS
How I met Mr Market
My name is James Stawicki, and I’m an independent value-oriented investor managing my personal portfolio. I live in London with my wife Carla and our Chocolate Labrador Toto.
I hold a Masters Degree in Mechanical Engineering from Imperial College London and worked six years in M&A at a global investment bank where I transacted hundreds of millions of pounds worth of businesses. Here’s my LinkedIn.
I first became interested in investing when I was 15 years old and heard about Warren Buffett. Here was this successful figure whose character defied the stereotypical high-flying businessman: jovial, virtuous, and far removed (geographically and mentally) from where the action was supposedly happening. As someone who feels an innate urge to go against the grain, this struck me as the ultimate blueprint to follow.
In October 2020, almost two years into my M&A career, my savings had finally exceeded my rainy-day buffer, so I ploughed the excess into the stock market and started working on my investment approach.
This quickly sparked an unhealthy obsession. Late nights, weekends, holidays - any time I could spare was used to read investment books, 10-Ks and other people’s investment theses. I deliberately avoided the lucrative lifestyle creep that comes with a finance career so I could maximise my savings and fund my hobby.
A lot of painful lessons were learnt along the way:
I fell for the allure of meme stocks (Corsair)
I drank the Kool Aid of promised riches from unproven growth stories (Just Eat Takeaway, Asos)
I built significant positions in falling knives in one go due to a fear of missing the rebound (Discovery, Alibaba)
I believed I could time commodity cycles (Euronav)
Perhaps most importantly, I went overweight into the above based predominantly on other people’s pitches, underestimating the quality of my own deeply researched ideas due to a lack of confidence (Progressive, SAP, Airtel Africa, Micron, Games Workshop, GSK)
With time I thankfully spotted the pattern, and my confidence began to build. I started to trust my own research more, demoting the pitches of talking heads from gospel to top-of-funnel prospects that I needed to vet.
Despite the necessary setbacks, my annualised time weighted return since I first deposited my excess savings into my investment account has been 35%.
I ultimately left investment banking in late 2024. Managing my investments was increasingly at odds with the level of commitment which the job demanded. Nurturing relationships and pursuing my passion with the little spare time & mental capacity remaining after an 80+ hour work week became near-impossible, so I made the difficult choice of going independent.
In the year that followed, I continued to oversee my portfolio whilst also opportunistically exploring acquiring private businesses with an ex-colleague, seeking to combine my M&A know-how with my hobby. The capital I had committed to the private market venture was tied up in my stock portfolio, and as a result created a very high hurdle rate for the private opportunities to beat.
After reviewing well over 200 private businesses, meeting management teams, building financial models, and conducting due diligence on niche markets, I came to a profound realisation: nothing beats the opportunities in public markets, even after factoring in the creative structuring which private deals allow.
The reason? Our good friend Mr Market.
The risk/reward in listed equities is so favourable because of the irrationality of Mr Market. Forced selling due to mandate restrictions, leverage, speculation, career risk, myopia, and many other factors frequently put exceptional businesses on sale at bargain prices. You won’t find this in private markets because most business owners understand what they own.
Having heard about this elusive Mr Market for 15 years, I now felt I had finally met him. This was the straw that broke the camel’s back, and it became clear that I should commit myself to the stock market on full time basis whilst trying to disseminate my ideas amongst like-minded investors.
It was also obvious what I should name my publication.
2. THE VALUE PROPOSITION TO SUBSCRIBERS
I’m an investor, not a blogger
As a value investor, I’ve learnt to become very picky about what I allow in to my portfolio, and I spend 99% of my time saying no to ideas. I rarely make changes to my portfolio, which is psychologically unrewarding as our monkey brains tend to equate action with results. The systems we’ve created also reinforce this, from continuous streams of sensationalist headlines to social media algorithms that incentivise activity. Engagement is the bottom-line.
Substack is no different, which is why your inbox and feed are littered with a lot of noise from algorithm-optimising behaviours; periodic content at a predictable cadence for the sake of it. There’s nothing inherently wrong with this, much like there’s nothing wrong with a subscription to Barron’s - every now and then you’ll find some real gems.
The challenge, however, is that it puts the onus of filtering this new but noisy source on you, the reader. Which 3,000+ word AI-generated summary do you read today? What does the author actually think about the prospect, and what’s the opportunity cost? Should you really worry that government debt levels hit a new high, or that some stock closed below its 200 day moving average?
A subscription to Thank You Mr Market will not amplify your noise.
Don’t be mistaken, this isn’t for a purely altruistic reason, but rather because I’m an investor, not a blogger. For me it’s merely a question of resource allocation: I only have so many hours in a day, and I’d rather spend them digging into opportunities, reading up on new sectors, or refining a piece of research, than worrying about content for a periodic newsletter.
This choice should hopefully maximise my investment returns, but it also means I get to share the benefits of the reclaimed time and attention with my Subscribers in the form of high-conviction, independent, fundamental takes on actionable opportunities where I have, or intend to build, substantial skin in the game.
Win win?
So here’s what you can expect if you choose to subscribe now:
Independent, fundamental investment theses balancing the innate curiosity of a Mechanical Engineer with the institutional rigour of an Investment Banker and the discipline of a value investor
Research on positions I will action only, including my entry, sizing and exit approach. View me as your partner, not your broker
Updates on noteworthy developments of positions on a need-to-know basis
100% auditable: full repository of annotated source material (excuse my handwriting) and excel analyses
Google sheets live tracker of my positions, my watchlist and my passed list (Coming shortly!)
Your inbox will not become my brain fart diary :)
Last but not least: not a single AI-generated sentence
Teaser: my first article will be on how I’m going to play the SaaS-pocalypse
Because this post marks the start of this publication, any subscription is free for now until a reasonable repository has been built.
I can’t say if you’ll receive five or two investment ideas per year going forward; that’ll be entirely up to our friend Mr Market. But when you receive them, you can be sure that they’ll be actionable no-brainers that I’m betting big on.
Note: True to this publication’s spirit of resource allocation, I won’t be retrospectively writing up theses on all existing positions, as most of them have already taken off and no longer warrant an entry. Noteworthy developments in these positions will however be covered (including summary recaps of the initial investment decision) in case readers also have positions in these businesses. Should the price of any existing position drop to the point that it again warrants an entry, a report will follow.
3. MY FULL INVESTMENT PROCESS
Independent, unrestricted and fundamentals-oriented investing with a long-term view
What was intended to be a summary of my process quickly transcended into a thinking through writing exercise in deriving and justifying my approach via first principles.
I’ll be upfront that there is nothing remotely innovative about my approach; there’s no magic formula. It comprises common sense models and frameworks that have already been debated at great lengths. As I discuss further below, my edge is not in my analysis or information gathering, but in my structural set-up (or better lack thereof).
Note that this is my current approach. In investing years I’m still a child and undoubtedly still have a lot to learn, which I’m fully open to and welcome any and all challenges or opposing takes.
Staying in the game
Perhaps the best place to start explaining my approach is with my attitude towards risk, as it is the yin to investing’s yang. Let’s be clear: I don’t believe volatility equals risk; I subscribe to Morgan Housel’s maxim that volatility is the price of admission.
I take a very stoic approach to real risk by focusing on what I can control (idiosyncratic) and managing what I can’t (systematic). Let’s consider the latter:
I can’t control the macroenvironment
I can’t control geopolitical developments
I can’t control weather patterns or extraterrestrial events
I can’t control what I don’t know even exists
The list goes on…
If I can’t control something, I won’t lose sleep trying to handicap it. Instead, I’ll manage the risk through deliberate position sizing proportional to the expected risk / reward, and avoid leverage.
As for the idiosyncratic risks, it helps to think of them as the avoidable scenarios that I don’t want to find myself in one morning:
I don’t want my investment to be impaired because I didn’t understand the business, resulting in substitution, competition, or other destructive forces
I don’t want my investment to get diluted by a management team who prioritise their careers & bank accounts over their commitment to their shareholders
I don’t want my investment to vanish into bankruptcy
I don’t want my investment to be impaired because the business had no edge against competition
I don’t want my investment to be impaired because a Hail Mary pivot or venture didn’t work out
I don’t want my investment to be impaired when a perfect future doesn’t materialise
I don’t want to get stuck in a value trap
By and large, these situations are avoidable through thoughtful filtration. I accept that from time to time I will get blindsided and end up in them since they materialise from a range of qualitative misjudgements. In such cases, my position sizing and avoidance of leverage ought to ensure that I’m not permanently out of the game and I can simply treat the misjudgements as painful feedback for refining my process.
Inverting the above yields the checklist of attributes that I require in any opportunity:
A business model that I understand
An excellent management team with skin in the game and a track record of respect for shareholders
Limited default risk
Identifiable pricing power (based on Helmer’s 7 Powers framework)
Upside potential that doesn’t hinge on an unproven proposition
Priced at a significant discount to value due to an overestimated headwind
Expected uptrend in fundamentals over the foreseeable future
Finding prospective investments
There are many excellent listed businesses out there which meet criteria 1 to 5; the trick is buying them at a point in time when criteria 6 and 7 are also met.
The most fertile ground for finding such opportunities is in the temporarily unloved & hated corners of the market. Perhaps it’s an industrial caught in a deep cycle trough which investors expect to last forever, a blip in a compounder’s trajectory which blew up its leveraged “it’s a sure thing" shareholders, a sector facing an unreasonable narrative change, a geography that investors fear, a spin-off that doesn’t adhere to ParentCo’s investors’ mandates, a superficial scandal in a business’ leadership, etc. I’m very indiscriminate as to how the price-value dislocation materialises, so long as my seven criteria are met.
It’s important to be opportunistic and not hold any preconceived notions that may arbitrarily preclude interesting ideas. Frequent examples I come across include:
“Large caps have significant coverage so there’s no edge”
“Small caps are too risky / never get a bid”
“XYZ country / region is uninvestable”
Granted, 99% of the time these notions are accurate. But we shouldn’t extrapolate the accuracy rate to falsely conclude that they are universal truths, as that is what prevents us from finding the one in a hundred cases where the blanket assumption doesn’t hold water and has resulted in a substantial misappraisal. It’s the proverbial babies thrown out with the bathwater that we’re after. And we find them by not restricting ourselves too much.
For the same reason, I don’t purely rely on screening for low multiples because they are subjective and often meaningless in situations of temporary dislocation.
Instead, my search process is more akin to storm chasing - I’m drawn to where there is maximum fear, panic and destruction, as that’s where Mr Market is his most manic self. And that’s the mental state he’s in when he’s offering you sound businesses priced at levels which assume little, if any, hope.
So I’m constantly on the look-out for businesses, sectors or geographies that are in the headlines for untoward reasons, stocks that are facing significant, 40%+ drawdowns, or stocks that have traded sideways for an unwarranted period.*
When something looks juicy, I’ll run a quick sense check informed by my criteria:
Do I, or can I, understand the business model?
Have there been any cases of excessive share dilution in recent years?
Is the debt manageable?
Does the business have a history of growth? What fuelled it?
Is the business in the midst of a pivot which throws into question the durability of its legacy value proposition?
Taking peak earnings (usually LFCF or approximate normalised net income), what yield am I getting at the current market cap?
If something fits the bill, I’ll dig in.
Vetting opportunities
My research process is fundamentals-driven. I prioritise primary source material (regulatory filings, transcripts, earnings presentations, etc.), but will also read news reports and existing opensource research to get up the curve quicker. With time I’ve learnt to be careful about being influenced by biases, instead focusing on drawing my own conclusions based on the facts, not fiction.
I’ll embed the institutional rigour I became accustomed to during my career in investment banking, crunching the numbers in an excel file and benchmarking the competitive landscape. I’ll look at all types of metrics you’ll find anywhere else: growth trends & drivers, margin trends & drivers, segment splits, efficiency ratios, reinvestment rates, pro-forma look-throughs, underlying strength, etc. I don’t use AI to short-cut my quantitative analyses because it’s an exercise for me to get a feel for the numbers.
On the qualitative side, I’ll spend a lot of time contemplating the business model, trying to understand its value proposition, pricing power, unit economics, competitive landscape, value chain positioning, demand drivers, etc. Here, I’m happy to deploy AI as my sparring partner to challenge my thinking and point me in the right direction. To date, a lack of time has prevented me from scuttlebutting; going forward this is something I want to add to my process.
Once I’ve taken comfort in the quality of the business, I’ll assess the leadership team. What are their incentives? What are their credentials and track record? What have they said in the past, and did they follow through?
Finally, it’s time to form a view on the reason for the sell-off. Based on what I now understand about the quality of the business and the likely intentions of the management team, do I believe the impairment is fundamental or superficial, permanent or temporary? In any case, what’s the impact on the fundamentals, and what’s the current price factoring in?
If the business quality is high, the management team is well-intentioned, and the headwind is more than priced in, chances are the fundamentals and investor sentiment will revert to their mean trajectory.
Now the question becomes, are the returns lucrative? This is where most prospects fail.
Generating returns
As noted above, I will use excel analyses and benchmarks to get a feel for the numbers, but I avoid building Discounted Cash Flow models to justify my investment decisions.
I’m aware that the stated objective of a DCF is fundamental in determining the intrinsic value of an asset. But on the other hand, it’s a blunt deterministic tool applied to a highly stochastic reality. It’s easy to trick yourself into a false sense of certainty because you’ve built a 200-row DCF with abstract scenario analyses that spit out a weighted-average valuation discount of 20.7586%. You run a very high risk of missing the forest for the trees, spending copious hours contemplating what your WACC ought to be instead of forming your own opinion on the possible outcomes.
Plus the fact that a DCF is the investment banker’s favourite tool for injecting credibility into their predetermined narrative, as unassuming prospects won’t question whether their equity risk premium should be 9.1% or 8.3%. This trickery can also affect you: your perceived sunk cost of building a detailed model for your investment analyses may help you subconsciously rationalise reverse-engineering the output to suit your narrative.
So when it comes to contemplating potential returns, I’m guided by Keynes:
It’s better to be roughly right than precisely wrong.
I use a DCF as litmus test: if I need to build one, either the opportunity is not cheap enough, or the quality of the business is not clear enough. I’m looking for situations that are so mispriced that I’m running the napkin maths across multiple calculators, because the results are so absurd I fear my calculators are malfunctioning.
Some previous examples:
Cooper Standard: A high-quality industrial caught in a cycle trough trading at <1x peak cycle earnings
Airtel Africa: The number one telecom provider in a fast-growing frontier region, growing at 15% but trading at a 13% earnings yield
[My next blog post]: A mission-critical compounder that has grown at 20%+ CAGR for 20+ years, trading at a Free Cash Flow yield well above the historical average 10Yr yield
I hope you’d agree that such situations don’t warrant a DCF to determine your potential returns precisely because they have staying power, are growing / improving, and are cheap. Yes, each one had hair on them - but a DCF won’t magic that away. You’re better spending your time understanding the risks.
The other reason they illustrate fantastic opportunities is because they make use of two return mechanisms (tying back to my criteria 6 & 7):
Closing the current price-value gap
Participating in the incremental growth in the business’ fundamentals while I wait for the gap to close
By stacking both mechanisms in my favour, I not only minimise my downside risk by buying a high quality business at a discount, but also maximise my upside potential when both factors multiply. If it takes three years for a 25% discount to close and the fundamentals (e.g. LFCF) are growing at just 9% per year, we get a 20% CAGR. These are the asymmetric set-ups I look for.
I recently came across this screenshot of Bill Nygren’s investment philosophy, as shared by Matthew Harbaugh, which perfectly illustrates my own approach:
Bonus points are given for manageably-leveraged fundamentals, both from an operational or capital structure standpoint. In these circumstances, marginal top-line growth can trigger explosive earnings trajectories.
In summary, I combine these methods to search for no-brainer asymmetric opportunities where I can generate 20-30%+ p.a. over 3-5 years using prudent assumptions for underlying growth rates and fair multiples.
As for position sizing, I don’t have a magic formula but I suppose it inherently approximates the Kelly criteria. I’m not afraid to go big with time if the dislocation is significant and low risk; in the past I have scaled up to 60% into a single position because the fundamentals were improving quarter-over-quarter while the stock remained flat.
Edge
As alluded to further above, my edge doesn’t come from analytical prowess or the information gathering skills of an investigative journalist. It comes from my structural set-up, or lack thereof.
When investing in the market, you’re always taking the other side of someone else’s bet. And in the majority of cases, your counterparty is a large fund or institution that is managing its clients’ money due to some promise it has made, which combined with the competitive & commoditised nature of money management has inadvertently become its Achilles’ heel.
The promise might be in the form of arbitrary mandate restrictions: no-go sectors or geographies, liquidity thresholds, minimum / maximum market caps, ESG ratings, growth vs value, you name it. Whatever is currently in vogue yields heavily crowded trades which they are mandated to participate in, creating a void in the other corners the market. This is amplified by career risk: do you want to be that one fund manager who underperformed because you didn’t buy Palantir at 50x revenue?
The promise may also be mathematical, such as volatility bands, market neutrality or maximum position sizing. This might require them to sell-off their best performers because they’ve outgrown the size threshold, or short a counterpart in a pair trade, pushing the price even lower.
The biggest challenge with the fund industry however is that its stated objective is continuously quantifiable (% gain, standard deviation, etc), and humans have a tendency to linearly extrapolate. As a result, there is a significant incentive to outperform on the relatively minute timescales of months or quarters. We can explore this with an example.
Imagine a coin flip has 99% odds of landing heads and 1% tails, with a bet of £1. Heads you get back £2, tails you lose your bet.
The expected value would imply that it’s a heavily asymmetric bet:
(99% x £2) + (1% x £0) = £1.98 expected return, or a 98% gain
But this isn’t the only solution; its attractiveness depends on your time frame. If you’re thinking about the short-term, e.g. a handful of coin flips, it’s an obvious decision to make.
On the other hand, if you’re thinking about it from a long-term compounding perspective, you’d stay away from it because at some point you will get tails, and your money will be gone**. It’s intuitively obvious, but it can also be shown with the geometric mean:
Sqrt( (99% x £2) x (1% x £0) ) = £0
Why am I telling you this? Because it illustrates the problem of focusing on the short-term: it encourages you to underestimate long-term risks. Chances are you will be fine cycling to work without a helmet today, but do it every day and you will get hurt.
The same is true for funds with pressure to meet quarterly or monthly targets. That 1% might represent the idiosyncratic chance of one of your short positions rallying 1,000%+ (does Gamestop ring a bell?), or a systematic shock causing a market-wide drawdown that tanks your “uncorrelated” leveraged positions (à la LTCM). In the short term it’s highly unlikely and worth the gamble, but in the long-term it will happen. Myopic investors get blindsided by the long-term.
So my edge is plainly that none of the above apply to me:
I can invest wherever I want
I’m not forced into crowded trades
I can let my winners run
I don’t have sizing restrictions
I’m not forced to chase a bubble for fear of career risk
I can focus on the long-term and avoid the allure of leverage
I know volatility won’t be misinterpreted as underperformance by my investors, so I can just wait it out
I can spend a lot of time understanding a business or waiting for a no-brainer opportunity to emerge, knowing that trading activity does not equal results
Or, in other words: Independent, unrestricted and fundamentals-oriented investing with a long-term view.
4. CLOSING REMARKS
Thank you
There you have it, my complete background and investment approach in 4,501 words. If you’ve made it this far: thank you, really. I hope you could glean some interesting takes or insights from this, as that’s ultimately what I’m after - putting more value out into the world than I get back.
I’ve been open that this post marks the beginning of my journey, so if you’ve subscribed despite not seeing evidence of my research, I truly value your trust and strive to not disappoint.
Here’s the recap of this publication’s value proposition to subscribers:
Independent, fundamental investment theses balancing the innate curiosity of a Mechanical Engineer with the institutional rigour of an Investment Banker and the discipline of a value investor
Research on positions I will action only, including my entry, sizing and exit approach. View me as your partner, not your broker
Updates on noteworthy developments of positions on a need-to-know basis
100% auditable: full repository of annotated source material (excuse my handwriting) and excel analyses
Google sheets live tracker of my positions, my watchlist and my passed list (Coming shortly!)
Your inbox will not become my brain fart diary :)
Last but not least: not a single AI-generated sentence
Teaser: my first article will be on how I’m going to play the SaaS-pocalypse
Until next time,
James
Footnotes:
* You might argue that I’m contradicting myself as I’m restricting my hunting ground to stocks in a drawdown or which have gone nowhere for a given period. This is true, and there certainly are cases where businesses are undervalued despite breaking new highs. My rationale for avoiding these is technical: they imply that there are more buyers than sellers, and I don’t want to be caught naked when that dynamic inevitably reverses. There is some truth to the core principles of technical analysis which I factor in to my investment decisions. But don’t worry, that doesn’t include Fibonacci retracements.
** You can of course apply the Kelly criterion to parlay this bet to infinity. But for illustrative purposes we’ll leave that aside.
Treating content like capital allocation and focusing only on high-conviction ideas is exactly what most investor newsletters are missing