TIP774: Being Greedy While Others are Fearful w/ Shawn O'Malley
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
In this episode of The Investor's Podcast, host Clay Finck sits down with Sean O'Malley, host of the Intrinsic Value Podcast, to discuss their approach to long-term stock investing and the performance of their real-time portfolio. (01:42) Sean shares how he's evolved as an investor over the past year, moving from passive learning to active stock picking and developing conviction in concentrated positions. The conversation covers their portfolio's impressive 10% return despite holding significant cash positions, and dives deep into several key holdings including tech companies like Uber, Alphabet, and Reddit. (18:23) They explore why big tech companies offer compelling opportunities beyond just the Magnificent Seven, focusing on "second-tier" tech businesses that combine technology with strong consumer brands. (28:41)
- Main theme: Long-term value investing in quality businesses with strong competitive advantages, particularly focusing on technology companies with consumer-facing brands that offer high switching costs and network effects
Speakers
Clay Finck
Clay Finck is a host of The Investor's Podcast and We Study Billionaires. He joined TIP in late 2021 and has developed significantly as an investor through reading value investing classics and applying those principles to real investment decisions. Clay focuses on finding quality companies with long-term growth potential.
Sean O'Malley
Sean O'Malley is the host of the Intrinsic Value Podcast alongside co-host Daniel Monca, where they conduct deep-dive research on stocks each week. He joined The Investor's Podcast Network in late 2021 and has been building the Intrinsic Value Portfolio in real-time over the past year. Sean previously worked at S&P Global before transitioning to TIP and recently spoke at an investment conference in Portugal.
Key Takeaways
Focus on Quality Over Quantity
Sean emphasizes the importance of making fewer, higher-conviction bets rather than constantly trading. (06:15) He references how Warren Buffett made approximately five great investment decisions per decade that explained the bulk of his returns. Instead of trying to make dozens of good bets quarterly, investors should focus on finding exceptional businesses that can compound at 20% annually by reinvesting in their own operations. This approach requires less work and provides more room for error while potentially delivering superior long-term returns.
Embrace Cash as an Opportunity Fund
The Intrinsic Value Portfolio started 2025 with 100% cash and methodically allocated capital throughout the year. (13:48) Rather than feeling pressured to immediately deploy all available cash, Sean advocates for maintaining liquidity to capitalize on market dislocations. When tariff fears caused a market selloff in April, they used cash strategically to build positions in quality companies like Adobe, Airbnb, and Alphabet that were fundamentally unaffected by trade policies but saw their valuations temporarily compressed.
Use Consumer Insights to Drive Investment Decisions
Sean advocates for investing in businesses you understand as a consumer, which provides valuable early indicators about company performance. (27:17) As podcasting company employees, they have unique insights into Adobe's products and can observe whether their own usage patterns change over time. This consumer perspective helped them identify Reddit's enduring popularity and Uber's expanding ecosystem. The key is not investing in every company you use, but using consumer insights as a starting point for deeper fundamental analysis.
Look Beyond the Magnificent Seven for Tech Opportunities
While mega-cap tech stocks get most attention, Sean identifies compelling opportunities in "second-tier" tech companies with market caps between $50-300 billion. (23:51) Companies like Uber, Reddit, and Adobe combine technology platforms with strong consumer brands and network effects. These businesses often have more attractive valuations than the Magnificent Seven while still offering high switching costs, capital-light models, and significant competitive advantages. They're consumer companies as much as tech companies, making them easier to understand and evaluate.
Valuation Provides Essential Protection
Sean learned the importance of buying quality businesses at reasonable prices after observing Adobe's journey from a 50x PE ratio to 20x despite growing earnings 18% annually. (58:48) Even excellent companies can see their multiples compress significantly when market narratives change. By purchasing quality businesses when they're temporarily out of favor - like Adobe amid AI fears or Nike during its turnaround - investors can benefit from both fundamental improvement and multiple expansion while having downside protection if thesis proves incorrect.
Statistics & Facts
- The Intrinsic Value Portfolio generated over 10% returns year-to-date despite holding significant cash positions for much of the year, with individual positions like Reddit achieving 300% gains and Uber up over 50%. (14:14)
- Alphabet's stock fluctuated from $146 per share at the low to as much as $290 per share within the past year - essentially doubling - demonstrating that even mega-cap stocks can present significant mispricings. (16:58)
- Adobe has compounded earnings per share at 18% annually since December 2019 while its PE ratio has fallen by 14% per year, creating a massive disconnect between fundamentals and valuation. (58:45)
