What viewers will learn in this interview: • 🧠 Insights into the mind of a small-cap value investor • 💼 The story behind Kingdom Capital's founding and growth • 💰 David's perspective on the true value of money • 📊 Kingdom Capital's unique investment strategy • 📈 Analysis of a real investment case (UNTC) • 🚫 How to avoid common investment pitfalls • 😌 Techniques for managing emotions in investing • 📝 The importance of tracking your investment thoughts • 💪 How to build a solid investment track record • 🔮 David's vision for the next 5 years in investing
Connect with David
Twitter - https://x.com/kingdomcapadv Kingdom Capital - https://www.kingdomcapitaladvisors.com/ Linkedin - https://www.linkedin.com/in/david-bastian-ria/ Connect with me :) Linkedin - https://www.linkedin.com/in/david-barbato/ Twitter - https://twitter.com/ghrxcutvjb Substack - https://valuehunt1.substack.com
Spotify -
00:00 Intro
01:32 Who is David?
03:19 Investing Life Harmony
05:40 The Building of Kingdom Capital
12:30 How to build a track record
15:50 The Value of Money
18:40 Investment Philosophy
21:44 Why David Sold UNTC
25:15 Taling with UNTC’s Management
29:35 The Future of UNTC
30:50 Most Valuable Investment Mistakes
42:00 Managing Emotions in Investing
46:10 Keeping Track of Your Thoughts
49:55 Position Sizing
54:40 Where do You See Yourself in 5 years
00:07.00
davidgalvis
Hey guys, welcome to the value hunt podcast. And today I'm so excited to be here with David from King and sorry, I messed up. This always happens. I have to say this two times for it to work. So no problem. Okay.
00:28.77
davidgalvis
Hey guys, welcome to the Value Hunt podcast. And today I'm so excited to be here with David from Kingdom Capital. And he's an expert in value investing. I got some ideas from him, so I must give him roses ah for that. and Maybe we'll dive into some of his ideas in this chat, interview, whatever you want to call it. But let's first hear what David has to say before we jump right into the questions.
00:57.28
David Bastian
Sure thing. Thanks for having me on, David. And yeah, I don't know about an expert per se, but I certainly have a lot of fun investing in stocks and digging into ideas. So excited to swap some today here.
01:12.36
davidgalvis
Perfect. Sounds good. I'm i'm excited to to start a conversation and really learn more about you and your investment style style and let the audience know ah what you're doing. So why don't we jump right into the first question, which I always ask to my guests. And the question is, who is David? ah This is such a simple but broad question. So let's see what you answer.
01:38.68
David Bastian
ah Thanks. um Yeah, so I've been been running this fund here for almost almost three years now, launched the beginning of 2022. I live in Northern Virginia. I've got a three young kids that keep me pretty busy. One of the reasons I felt strongly about kind of going out on my own was I wanted to be my own boss and have more flexibility to be with my family.
01:58.07
davidgalvis
Hehe.
02:06.52
David Bastian
So I get to i get to do that more now than my old desk job. So I appreciate that. I like being my own boss. I can't imagine going back to a day job at this point. um Yeah, that's a little bit more about, you know, I spend my time looking at stocks. I really enjoy actually reading financials and trying to figure these things out. So I'm doing what I love in terms of work. And I knew this is what I wanted to do three years in. I'm really enjoying it. So yeah, it's been been a lot of fun for me and hope to keep doing this for a long time.
02:46.77
davidgalvis
Yeah, I hope so too because I think you're providing a lot of value to the people that follow you and so on and obviously to your clients too. um Actually, I wanted to ask you maybe a more more of a personal question because you mentioned your kids and for someone that really wants to go serious about investing and um let's say, build a career in in that industry. how How possible is it to be, let's say, a present father like you are? Or I imagine you are, I don't really know, but ah I'm assuming. um But ah anyways, how how do you manage being a present father while still
03:35.39
davidgalvis
doing a lot of work and research and yeah running a fund full-time basically.
03:38.46
David Bastian
Yeah.
03:41.34
David Bastian
No, that's a great question. um Honestly, it's going to depend by the person. I know lots of people in this industry that have figured it out. I guess part of it is you know what we're doing, you can spend an infinite amount of time researching stocks. There's really no limit to how far into the weeds you can get on something. um So I guess part of it for me is just understanding that I've got to kind of set boundaries of, hey, there's a point during the day where I'm just going to close the computer and you know go go spend time with a family. It doesn't mean that you know stuff doesn't occasionally get in the way of my plans. But again, one of the reasons I wanted to go on my own was so that I would have more control over my schedule. And you know if you're going to research a stock, you can kind of decide when you want to do that. It doesn't have to happen at this fixed time every day. So yeah, I think that's one of the big things for me is just kind of trying to draw boundaries around what's family time and when I'm going to be present.
04:36.70
David Bastian
and just making sure that i you know I have the flexibility now that I can be there for my my family and my kids in a way that I guess when I had someone else tell me what I had to do and when I had to be places, I didn't have that flexibility. So I do that more now. I feel like it's allowed me to yeah be able to get time away more, be more focused. And I think up to this point, it's allowed me to to be much more present than I would have been able to otherwise. and I want to keep doing that.
05:09.26
davidgalvis
that's That's really interesting. And I believe that's a priority for a lot of people. So learning from your experience and other people experience is really valuable in this field. um I would like to ask you if you could guide us through the, let's say, the path until becoming independent and being your own boss and running the fund. I know you started the fund. let's say in a not so good time in the market, but you still manage to survive, which is actually the hardest thing for funds to to do because most of them fail, I don't know, five years or three, whatever.
05:38.49
David Bastian
All right.
05:48.13
davidgalvis
So um I would like to ask you if you could guide us through ah that path um that that you you followed to to get where you are now.
05:59.47
David Bastian
Sure. um Yeah, so with anything, it's some of it is some of it is luck, some of it's skill, and some of it you're never quite sure. um So I think one thing that we were particularly fortunate about when we launched, we had a very heavy allocation to the energy sector in January of 2022. And their our thesis wasn't, hey, Russia's going to invade Ukraine and energy prices are going to go through the roof. um But that's what happened the next month.
06:28.44
davidgalvis
Right.
06:29.97
David Bastian
So it worked out really well for our fund.
06:32.28
davidgalvis
That's pretty awesome.
06:33.61
David Bastian
It wasn't wasn't what we expected and obviously wasn't um due to some amazing thing happening that you know we were excited about. um But we were watching things develop and like, wow, this is This is you know taking the the upside case on a lot of our commodity price um targets was going a lot higher. And yeah, we were in and the right place at that moment. So again, look back at that and think, you know hey, we could have we could have been excited about other stocks going in and we think our theses were solid and it you know was open to an upside surprise. Those do happen. um But yeah, you don't always know when things like that are gonna happen and they can be good and they can be bad.
07:16.91
David Bastian
i think ah there's a I think a negative example of this that I'm reminded of is the Q-Rate retail um distribution center fire that I think happened a month or two before we launched. and I wasn't involved with it then. It's mostly just a stock I've watched, but you know right before the holiday season, suddenly your your main distribution center burns down and you're not able to fill orders. and It's been a mess. they've They've had a lot of insurance claims. They've worked through things, but it permanently damage the business in a way that the day before nobody would have told you, yeah, one of my main concerns here is their distribution center burns down. But that's what happened.
07:55.07
David Bastian
So I am reminded that there is an element of of randomness and and good and bad luck here when you're trying to identify investments. And so we try to, as best we can, isolate those risks. We try to identify what can and go right and go wrong. But you just never quite know. There's things can happen geopolitically, economically. Individual people can have crazy you know outcomes one way or the other just with stuff that happens at a specific business. And you know you can you can look back on it and feel like you were a genius, but oftentimes you were just in the right place at the right time when when a good surprise happened. And if you were well prepared and bought stuff that had yeah was well set up for a good surprise, it's great. But yeah, it's a there's ah there's an element of randomness here and we're thankful for the parts that have gone our way and we're glad we've been able to minimize some of the things that haven't.
08:52.69
davidgalvis
that's That's pretty cool. And ah why don't you guide us ah to to the steps before actually launching? Because obviously you've you've told us the the the story of how it went so well and how you're thriving. But ah what what comes before that? What did you do before?
09:11.97
David Bastian
Yeah.
09:13.24
davidgalvis
What's your background? And yeah how do you how did you manage to get ah to the point where you can launch a fund?
09:19.74
David Bastian
Sure. Well, I was working in mergers and acquisitions consulting prior to this. And so I was looking at a lot of private equity deals. And so that was good learning ground for me and identifying, you know, Hey, you know, these are some of the best guys in the business. What are they looking at when they value a business? You know what are when they're doing quality of earnings adjustments and they're trying to determine um where opportunities are you know what gets them excited. That that really helped me. at least on the, uh, on the early side, learn about how to invest. And that made me realize that I should probably be doing this for myself. Um, so obviously it's a little tough trying to, to trade a personal account, uh, when you're working in that business, cause you've got a lot of restrictions on, you know, not being able to trade stuff related to clients and anything you've looked at. And so, um, I did have my hands somewhat tied. Um, but fortunately there's tens of thousands of stocks and, uh, I was not working on tens of thousands of deals. So.
10:14.68
David Bastian
Was able to find some good opportunities there, was able to learn more about kind of what worked and what didn't for me personally.
10:14.66
davidgalvis
Right.
10:21.90
David Bastian
And I started publishing ideas. I use Seeking Alpha was one of the platforms I was publishing on early. I think it gets sometimes gets knocked for, um you know, the quality ideas not always being the best, but it's a good learning platform and, you know, getting feedback from people on how I could improve was a good way for me to learn. And I appreciated. the good feedback I got and the investors I met on the platform who thought similar to me and ah we were able to share ideas and help me grow. And it gave me a public record of, Hey, you know, here's things I've liked. Here's how they've worked out. And here's what I learned from the experience. And I think the more honestly I could do that, the better it prepared me to to be ready to actually go and launch a fund. Um, cause I started having a record that I could point to and say, Hey, here's how, here's how some of my ideas have worked out and why, um,
11:12.12
David Bastian
So yeah, after that had been going well for a while and I was, you know, trading, trading my ideas and building a track record. I got to the point where I felt like I had the ability to go out and try and do this and I had friends and family and who believed in me enough to be willing to trust me to manage some capital if we went and launched a fund. So that was that was kind of the the early catalyst was just hitting that escape velocity of, you know, the results were good enough. The position was solid enough that I thought, hey, we could go do this. And I've got a little bit of runway to make this work. So then I started talking to other guys that had launched funds that, you know, I had met over the the years and hearing how they had done things and gave me some some good direction on what I did and didn't like from some of their different structures.
11:59.75
davidgalvis
Right, that's that's pretty cool. and yeah I really think there's a big power um given by the internet on building a track record and and' know exposing yourself to other people and feedback ah through ah Seeking Alpha, Substack, Twitter, whatever platform you really use. so what if i What advice would you give to people that are trying to build a name from them for themselves ah in this industry? And they don't necessarily have the track record to to back it up, but they are trying to to build it slowly as you did.
12:38.11
davidgalvis
ah What would be the the main advice for those people?
12:38.39
David Bastian
Yeah.
12:42.51
David Bastian
Yeah. ah One is definitely to actually do it. I've seen guys who trade paper accounts and I think, you know, obviously some people you might launch an account and it's, you know, you're not trading a very large amount of money or maybe you can do almost nothing.
12:50.04
davidgalvis
Yeah.
12:58.06
David Bastian
But I imagine if you have the time to be writing about investing, you you know, you probably have some level of disposable income. and yeah put that money in the market and start you know feeling it when your ideas work and when they don't. um I think losing money on stocks is a great learning experience. um It works a lot better than getting an idea wrong on paper that doesn't actually hurt you personally. so Some of my most painful lessons will be ideas I got wrong and lost money on, and I don't think you can replicate that in a better way as an investor.
13:31.38
David Bastian
So obviously you don't want to pay too much tuition at a school of bad ideas, but I think having having an account out there and starting to write up ideas and starting to try and um put it out there, you know, getting your thesis out is important because it allows you to go back and read it and understand if you actually got the idea right or if you just got lucky.
13:35.64
davidgalvis
Mm
13:52.33
David Bastian
Kind of like I was saying earlier, you know, I have some thoughts on energy and I feel like I was in the right place and I feel like my thesis was right but I still benefited from things that I wasn't expecting.
14:00.24
davidgalvis
-hmm
14:04.47
David Bastian
And so I think it's important to have those thoughts on paper and to put them out there so that you can go back and be honest with yourself about what you saw coming and what you didn't and understanding kind of the risks and the rewards that were there versus what you know what you said. Because it's not usually, you know, even when you made money, there's usually things that didn't go the way you expected, and it's good to understand those over time.
14:26.54
davidgalvis
Yeah.
14:28.53
David Bastian
So I think having a track record and and running those things up is is very important. And I tell people that the reason I like to share ideas publicly is I like finding out holes in my thesis before I lose money. And I think that's something I didn't grasp as much when I started. like I felt like I was trying to put pitches out there for you know um people to see how smart I am, or you I'll be able to use this to build a track record. um I really value now when I get feedback from people on issues that I have either missed or misunderstood.
15:02.89
David Bastian
It has saved me a lot of money being able to get negative feedback early as opposed to getting it after the idea doesn't pan out.
15:08.51
davidgalvis
Thank
15:10.52
David Bastian
So again, I think there's a lot of value in being able to be humble and accept pushback on your ideas. And you know sometimes pushback is meaningless and I've allowed people to talk me out of stuff and I look back and realize that I shouldn't have. um So it does go both ways. so But I do think that there can be a lot of value in getting feedback, especially early on as an investor.
15:28.33
davidgalvis
you.
15:32.98
David Bastian
And that if you are willing to receive that and test it, it can also help you from from making some really painful financial mistakes.
15:41.43
davidgalvis
Yeah, for sure. like Honest feedback is the one of the hardest things to get, especially from people that are close to you. So I guess in the internet, there is less of a barrier to that. ah For example, with my YouTube, I get a lot of valuable feedback on how to improve the quality of my interviews and and videos and so on. So it also works for investing and that's the beautiful thing about this network that has been built over the past 20 years or so.
16:15.83
davidgalvis
um Now switching a bit topics, I'm really curious ah to figure out for myself what's the utility of money and since money is the bread and butter of investing because obviously to invest you need capital
16:19.06
David Bastian
Yeah.
16:31.47
davidgalvis
I would like to know what's your take on what's the utility for money in your case and how do you think about it in general?
16:41.91
David Bastian
Wow, that was that's a good question, not one I was expecting today. ah Yeah. um Utility of money. Well, it's ah what? Means of exchange. It allows society to to function instead of us having to be forced to to barter goods and services for each other. So I think, yeah, at a basic level, just so it's a very useful um object. I think that it can be used for good and for bad. um I think
17:13.44
David Bastian
one of One of the hopes I had with founding Kingdom Capital was that I was primarily investing money for friends and family who I respect and feel like have ah you know generally a good grasp on how to allocate their money in such a way as to um bless other people and whether it's their kids or you know others around them. And so my goal is to help them better do that. And so that's kind of as I think about money, I see it, you know, using money as an opportunity um to for good and to.
17:48.66
David Bastian
positively impact the people that are in my life. so i think that my least Personally, my my Christian faith is the the foundation of that, and I seek to you know be generous with the money that I have, and I think that it allows much good to happen if used correctly. so As I'm thinking about acquiring capital and deploying it, That's kind of the the heart of what I'm going for is to is to do good with it and be a good steward of it. So I think it's useful and I hope that Kingdom Capital is able to put money in the hands of people who can use it well.
18:28.67
davidgalvis
Yeah. Deep question, but good answer. Congratulations. um
18:32.78
David Bastian
like
18:34.58
davidgalvis
Yeah. Now maybe an easier thing or something that you are more familiar to ah is actually your investment in philosophy. So you've talked a bit about kingdom Kingdom Capital and being invested in energy, but what's the go do go-to company that you look for when yeah when doing research?
18:57.37
David Bastian
Yeah, I mean, so I guess the one of the first investments we made was an energy company that I still think is kind of the gold standard of situations we want to get involved in. um And this isn't for everybody, but it was a unit corporation. um It had a lot of things we liked it had. had just come out of bankruptcy and was trading on the pink sheets. So you had a company that had just been through you know the bankruptcy process. It cleansed a lot of their balance sheet. They were better capitalized. Their industry, generally coming out of bankruptcy industry is kind of in a trial and looking up again, um very little analyst coverage, um generating a lot of cash, and most importantly, had a very clear um mandate to return capital.
19:42.36
davidgalvis
Mm hmm.
19:45.69
David Bastian
And so we like cheap, um obscure, and returning capital more than in pretty much any other setup that we've found. So those are situations we want to get involved in. We we really like buying something where we see the ability for you know free cash flow generation to be substantial and immediate. We feel like the further into the future we go trying to project things, the less accurate we are in a hurry. Some people are very good at thinking that way and thinking 10 years out and seeing where things are headed. I don't think that's my gift. I think I'm good at seeing things that are a lot closer. And so that's what I try to focus on. So I look at cash flow generation. I look at a lot of it. and I look for it in the immediate future.
20:31.30
David Bastian
And those are what really attract me. I like hard assets that have value that can be more easily compared. Again, this is, I feel like that's the easier stuff, but I like easy.
20:45.17
davidgalvis
you
20:45.53
David Bastian
I don't want to make this game any harder than it already is. So um the more I can get comfortable with something that has hard assets, that's generating a lot of cash and it's just taking that cash and returning it to shareholders, so that is, That is going to jump to the top of our list in terms of ideas.
21:03.29
davidgalvis
Right. Uh, yeah, I must thank you for, for that idea too, because I, I got invested maybe not at the same cost basis as you were, but, uh, it returned pretty nicely. And I actually did a video on it and posted a thesis on various, uh, platforms. So yeah, sorry.
21:24.62
David Bastian
Yeah, I think that was the first time we talked about it. I think that was the first time we talked about it was after your video was well done.
21:31.83
davidgalvis
yeah Yeah, exactly. yes I think that's how we met actually. So yeah, a pretty interesting ah opportunity. I would be curious actually to know ah since we you touched on on that name and I believe you sold, um I would like to know what what was the rationale ah behind selling. And also maybe if you had any interaction with management or anything like that, or you are you just ah keep the research on the public, let's say, information that's that's out there.
22:07.46
David Bastian
Yeah.
22:10.36
David Bastian
No, great question. I think that i mean you're hitting a great question, which is yeah the when to sell on an idea.
22:17.51
davidgalvis
Yeah.
22:17.80
David Bastian
um I think on unit specifically, it was pretty straightforward. and It was the stock approached our estimate of fair value. um So it wasn't that we thought unit was overpriced or was no longer a good investment. It just was approaching for the first time since we had owned it close to what we thought it was worth. Um, and there's always some noise with that, but the closer you get to fair value, the less, um, you know, excited you are about owning that over something else. And so in unit's case, they came out in December and declared, uh, pretty massive special dividend and the market loved it.
22:46.42
davidgalvis
Mm hmm.
22:54.20
David Bastian
Um, you know, our understanding and our, from our conversations with management and reading what they had been putting out for two years was that they were going to return capital. They had been returning capital. We expected them to return capital. Uh, and they eventually did. But that apparently was not expected by the market given how ah how much the stock went up on that news. And I think the one specific thing that happened with that deal and that made us most concerned about staying involved at that point was that they had sold some land that was producing at the time with that special dividend
23:13.34
davidgalvis
Right.
23:30.05
David Bastian
And we're paying that out as a dividend. And so while a lot of the cash they had had just been earned from operations over the last few years, this was kind of the most material you know selling of production and immediately distributing that where you are immediately decreasing the value of the remaining business. There was some uncertainty around what exactly they had sold at that point. They didn't give a lot of detail when they first announced that. and so Our concern was, well, there is an opportunity now for this to be a more negative surprise. And we we could find out that they've sold more production than we thought. And that dividend is already out the door. So the value of the company has decreased from before that dividend announcement because they actually paid part of it out in cash.
24:12.39
davidgalvis
Right.
24:12.53
David Bastian
oh So that was, I would say that was the biggest concern at that point. I mean, what they sold, I think they got a good price for and they they're still earning good cash flow from what they have left. But their earnings have materially stepped down this year compared to what they were prior to that point. um And the mark they got on those assets also suggested they were pretty fairly valued with what they had left. So, especially in units case, it was seeing something where the market was finally giving it more credit and the situation was, in a sense, getting worse because they were selling off earning assets and so the remaining company would be less valuable. So when the price is going up and the value is going down, that's the moment where we're probably most likely to want to sell.
24:59.91
David Bastian
and
25:00.24
davidgalvis
Maybe ah now you'll understand why I said it was a mistake before we started recording. And I actually did the opposite from what you did. I saw, oh, after the dividend was distributed, the the stock declined like 50% or something.
25:18.98
David Bastian
Yeah.
25:19.16
davidgalvis
and i I said like oh it's it's getting cheaper so I just bought without really understanding what they had sold or anything like that so yeah I i couldn't see what you saw and that's why I called it a mistake even though I yeah basically um I didn't ah lose any upside because the price has stayed pretty much stable
25:43.44
David Bastian
Yeah, it's been solid.
25:43.63
davidgalvis
um And I even got more dividends after that because obviously I had more shares. But um yeah, it was a mistake because i I acted upon market movement and not really, let's say, a profound understanding of the event itself. um But anyways, it was it was a good learning opportunity and as you said before, without paying too big of a tuition, which is always ideal.
26:15.03
davidgalvis
um and And maybe ah um I asked two-part question, so my bad on that. But ah have you ah did you talk with management before?
26:24.50
David Bastian
No,
26:28.05
davidgalvis
And how did you get comfortable with their allocation strategy since from what I understand they don't have too much ah information in the public domain about the CEO or the the the fund manager that is running the company basically.
26:44.52
David Bastian
Sure. Yeah, I think that was um and that was one of the other items that, yeah, we were able to get comfortable from talking to them. And Phil, the CEO, um had been, his fund had been a large holder of the bonds going into the bankruptcy process and then got a large chunk of the equity as a result of that. um we We thought very highly of him. We thought um he was seeking to do right. um he's ah He was an Oklahoma City guy or Tulsa tulsa guy, sorry, um and really cared about that community. So his fund was based there. The company was based there. um he He knew all the people involved and he was trying to run it in such a way as to do right by his employees and by his investors and and by the you know the different stakeholders in the company.
27:31.07
David Bastian
um He's not an oil man. So I think that was certainly a concern some people had is that you know he's he's a fund manager. He's not he's not a wildcatter. um But I think he he understood pretty well. like Look, I own some assets that generate a lot of cash flow and I'm going to allocate that well. And I think everybody. will come out ahead and he's he's done that. So we felt like he had, I guess, the right alignment with the community and with the company to want to do the right thing. And we we feel a lot better about that than somebody who may feel like they can make a quick buck at the expense of ah the people around them or their shareholders. and
28:08.00
David Bastian
think that that in particular got us really comfortable. And yeah, just their very conservative outfit, which means you usually don't make as much money on the upside, but you really I've gotten more and more attracted to investing in companies where I feel like my my downside is rock solid. And I felt like this team was making sure that yeah they're coming out of here as bond holders where you don't want to but want to realize losses on the and credit investments. And so there's a lot of of mindset there about how to how can we make sure our downside is solid. And and that's what they were doing.
28:44.62
David Bastian
they were
28:44.57
davidgalvis
Right.
28:45.74
David Bastian
just throwing cash off left and right. And yeah, if they had you know not sold any assets and run this thing full bore and you know when gas got to $9, I'm sure your upside would have been even higher. But they were being thoughtful about it and managing it well. um They hedged a lot of energy prices near the top when when few other companies did. So I felt really good about a lot of the ways that they we're were good stewards of shareholders and looking out for them and trying to make sure that they ensured a good return and not just trying to maximize upside without any thought of what could go wrong.
29:18.81
David Bastian
So yeah, ah was that was our main takeaways.
29:19.33
davidgalvis
Yeah.
29:21.02
David Bastian
We we really liked the managing team.
29:23.67
davidgalvis
For sure. that's That's really cool. And ah what do you what do you how do you feel like about the future prospects? Do you think the management will sell, liquidate, or what what will they do? Because at the end of the day, they basically completed their goal of returning most of the cash to shareholders. And what comes next?
29:44.90
David Bastian
Yeah, I mean, they've still got some valuable rigs. They're throwing off a lot of cash flow. They've still got a lot of gas and oil production that's it's out there. I mean, that their costs have come down. They've right sized the business. I think they're going to keep running it and generating cash. And if somebody comes along who's willing to pay them what they view as fair value for what they have, I think they'll probably hit the bid and move on. It's always felt like it wasn't really a natural shareholder base for this thing, given all the the credit investors, but they've done a good job running it carefully and generating a lot of cash, and they're still doing that. so thats I imagine that will continue.
30:23.94
davidgalvis
Yeah, that's awesome because I still own a bit. But this time before making a decision, I'll i'll try to truly look into what's happening and not just get excited. um But anyways, thank you for your your takeaways on that one. um I would actually try, since I already shared the mistake, I don't want to feel like I'm the only one here who makes mistakes and why don't you share ah some of your most valuable mistakes in the past that have significantly changed your approach to investing or that have improved your investment style.
30:41.96
David Bastian
Yeah. Yeah. um So it's funny, I think my and i talk about how energy really saved the day in early 2022 for us. um
31:13.20
David Bastian
I told people going into when we launched, I said, you know, I think our largest position is going to be dole foods and that, you know, that's probably going to be, you know, a large determining factor in how we do. And I'm very thankful that was not the case because we bought dole after launching and wrote it down about 50% in six months. So was a pretty large headline loss to take in a tough market.
31:34.99
davidgalvis
Wow.
31:38.86
David Bastian
You know, a lot of things went down 50% in six months in that window. But we were we were wrong about a couple of key items with that business that slowly became apparent. And while it's since recovered and done a lot better than but it did in that window, I think yeah one key thing I learned. um They had a large recall that happened right at the beginning of that year. The impact was somewhat uncertain and I think um my ability to forecast just how bad an event can be is
32:15.68
David Bastian
not very good. And so looking back, I knew it wasn't good. I was calculating potential downsides and generally my estimates were not as bad as what happened. um So I learned that uncertainty in the market gets punished and as that continued to to drag out and be an overhang on the stock that was one of the key reasons it was selling off. I also had overestimated the company's ability to generate cash and that was you know Yeah, there's a lot of even here but the actual conversion to free cash flow was a lot lower than I expected. And I've been through the financials I've been through the different puts and takes and I just overshot my number on what they could do in a normalized environment.
33:02.70
David Bastian
And that's where you know people will often say rule of thumb if you're looking at an even top bridge that's got a number and about 25 adjustments and then an adjusted number um that's you should probably steer clear. Not always the case, in this case, there the numbers were pretty similar, but there were just so many things happening in that business um ag is tough these guys are good operators, I think they're running it well. They were in a tough inflationary environment where there was just you know currencies and fuel prices and container board were flying all over the place and they managed through it well. But I underestimated how hard that was going to be and how hard it would be to generate cash in that environment. I was not invested in somebody with a tremendous amount of pricing power and control over their their circumstances and they managed through it well, but that didn't stop it from trading down quite a bit from my expectations.
33:53.95
David Bastian
So I got a lot of things wrong in that one. um And, you know, again, fortunately, the stock price has come back up. But I i got in too early and was too optimistic for for the price I paid. um So that's certainly my probably my my first and most costly mistake with the fund. um And similar but differently, um you may remember a few years ago there was a popular stock on Twitter that was Gettaker's. They merged with ah another appliance retailer called Appliances Connection.
34:27.31
David Bastian
um The thing was flying around for for a little while, had a lot of you know special situations and people getting involved. I did a good job fading that situation initially, and eventually it got low enough that I decided to bite after just about everyone else had burned out on it. And I felt like I had. navigated that well and I did that straight into them putting out a vague press release that there were some accounting irregularities they needed to look into and the stock got chopped in half the next day.
34:59.10
David Bastian
ah
34:59.12
davidgalvis
Wow.
35:00.34
David Bastian
And even after that event, um I had multiple opportunities to reduce my position and to get out. And the longer I waited and tried to figure out what was going on, the worst things got. And so there's an axiom about if you're going to panic, panic first. And I certainly, looking back, wish I had done that. um Because I work on some concerns with the company.
35:21.16
davidgalvis
Hm hm
35:22.95
David Bastian
And while I feel like I I was doing the best with the information I had. I just didn't have all the information. i Again, I didn't know what I didn't know and uncertainty gets punished by the market. and You are often just best taking a loss moving on rather than trying to will a loser back to your initial your initial investment price or whatever you think the new fair value is. So both of those were situations where I wish I had got out sooner and done a better job of understanding my downside. um But again, fortunately, we've we've been able to to manage through those and you know we're always going to have negative surprises in the portfolio.
36:04.99
David Bastian
but Those two both taught me the value of of understanding downside and and especially of good management. Dole's Management has done a great job. And so even though I got some stuff wrong, they have managed through it well and and been, you know, slowly delivering on the initial promise that investors expected there. The management situation at Applied Disconnection was not as good. And i I regret trusting them with any capital.
36:32.91
davidgalvis
that's that's really interesting and ah since we got back to the topic of management um I would be curious to know what are your let's say strategies for getting in touch with management because it's not always easy to get hold of them because they are busy and stuff like that so um how How often do you get in touch with management of the companies you invest in and what strategies do you use to reach out to them and actually ah get the opportunity to talk about the business itself?
37:05.00
David Bastian
Sure. So it's really, I would say it's company specific. There's some companies where I don't think that there's any value that would come from me speaking to the management team beyond what I can lean from about them publicly.
37:15.99
davidgalvis
you
37:18.53
David Bastian
um And that's both good and bad. Sometimes I'll look at a company and think there's no way I'm getting comfortable with this management team. So I shouldn't even bother giving them a call. And there's others where I'll look at it and think, you know, these guys, you know, So if you're trying to look up like, oh, you know, is Tim Cook somebody I should really invest money with at Apple? It's like, well.
37:35.34
davidgalvis
All
37:35.95
David Bastian
I don't really need a phone call with him to figure that out. I can see his his tracker in the public markets and figure it out for myself. So in small caps, it's usually not that simple, but there're just there there are some guys who've been around for a while and they've kind of told you who they are from running other companies and and putting a track record out there.
37:42.29
davidgalvis
right.
37:52.96
David Bastian
So much like other fund managers, sometimes it's best just to trust that and not not get on the phone with them and allow them to taint your perspective. Beyond that, it's caused me to miss ideas, both good and bad. um But yeah, I think it really depends. There's some companies where I look at it and think I have very specific things that I would be greatly aided understanding if they could walk me through this, you know why they did something that I don't understand, what they're hoping to accomplish. you know If a company says, hey, you know we're looking to you know sell a bunch of assets,
38:26.92
David Bastian
you know Hearing directly from them what they want to do with the capital would be a lot better than implicitly trusting that they're going to do the right thing. I've i've had some companies where hearing them talk about capital allocation was enough to keep me far, far away from ever giving them any money, and I might have been tempted to otherwise. And there's other guys where we get off on the phone from talking to them and it's like, wow, those guys ah inspire confidence and sound like people that we would want to give money to. And you know usually there's a track record to go along with that that says they're pretty good at it.
39:01.25
David Bastian
Um, so I think those are the things where, you know, if you have specific actionable ideas, getting them on the phone is helpful. Um, I think for me personally, I've had a lot more success getting guys on the phone, uh, now that I have a fund and yeah David from kingdom capital advisors, instead of David from Gmail, uh, gets a lot roles.
39:16.47
davidgalvis
Yeah, obviously.
39:21.71
David Bastian
it oh So I think I almost feel got to the point with ah before I launched where if someone responded to me, it was probably a red flag that they were too available to speak to anybody that reached out. So take that. what its word
39:37.30
davidgalvis
Yeah, yeah I guess.
39:38.27
David Bastian
ah So sometimes you know it's like, oh, you've published an article on the company. We've seen you around here. you know Small companies, there's not a whole lot of media. So you if you're running a battle on Seeking Alpha, they often have seen in your work or your sub-stack or whatever. And that's its own issue. But there are some ways where that can still work out. But yeah, by and large, it's easier to you know go to a conference now and like, hey, I run a fund. And you know they usually don't ask you up front, well, what's your AUM? How long have you been running it?
40:09.50
David Bastian
so so It makes it easier.
40:09.48
davidgalvis
Yeah. Actually, i I have a funny story on that one. I'm sorry if this is off topic, but I have to tell it, ah which is actually, I went to Germany and met this German investor ah who invests in junior mining companies.
40:18.74
David Bastian
Yeah, go for it.
40:28.18
davidgalvis
So basically speculation is not really investing. And he got so popular on Twitter that the CEOs of these supposedly mining companies, actually fight in the in the tweets and say, oh, this company is bullshit, blah, blah, blah. And they try to promote their company. ah So, yeah, it's it's basically just funny story. And to your point that if management is to
40:54.02
David Bastian
you
40:57.44
davidgalvis
Too available for yeah chatting with I don't know random people On Twitter or anything like that. It's probably a red flag and not a good idea to to put money at work in in their business or Trust trust them with your money. So yeah, it's it's just really really funny how how different the spectrum is. There is like, for example, this company Dino Polska where the management has never ah given any interview, has not even gone to the listing at the stock exchange. So ah you have that and then you have ah CEOs discussing on Twitter and trying to promote their business. So yeah, it's it's just funny for me.
41:45.99
David Bastian
Yeah.
41:46.06
davidgalvis
But anyways, this is what we have. ah So yeah.
41:50.98
David Bastian
It's always fun.
41:52.71
davidgalvis
um Yeah, actually, it is pretty funny. um But switching a bit topics and getting into more serious stuff again, um investing is all about ah let's say managing your own emotions and not ah panicking when when things go wrong and actually staying rational. So what are your main ah strategies for, ah let's say, preventing yourself from acting irrationally and really being in a stable ah emotional state where you can actually take clear decisions?
42:35.57
David Bastian
Yeah it's a great question. um I like to quote Annie Duke on this one. She has a book where she talks about kill criteria and um about how in poker when she gets delta hand she will you know look at it and and essentially just to put probabilities around different outcomes and just
42:48.22
davidgalvis
Yeah.
42:58.88
David Bastian
pre-commit to folding or betting more depending on where things are going and just have a mental idea of, hey, you know if this car gets flipped, here's what I'm going to do. If that one gets flipped, here's what I'm going to do. um And how you know she's she's always reading the room and and assessing probabilities and doing that in advance so that once something happens, all she has to do is execute a plan as opposed to reacting in the moment. and
43:24.57
davidgalvis
right
43:25.19
David Bastian
And I think that concept in the market really does translate well in that you know you don't always know what the range of possible outcomes are. um So like I was kind of saying earlier, like there's some stuff that might come up on unexpectedly where um you know depending on what the issue is, maybe you want to stick around and and wait it out.
43:42.17
davidgalvis
All
43:43.70
David Bastian
maybe But I think often you know unexpected things happen. And that often the best answer is just get out and wait to see um
43:52.63
davidgalvis
right.
43:53.17
David Bastian
the the scope of what you're dealing with. And so having that criteria of, hey, something unexpected is happening. And rather than trying to react to it emotionally, but know our thesis is now in doubt because we had an expectation and that's no longer what's happening. And so we're going to step back and we're going to let and see what happens. And know people approach this differently. I don't think there's a right answer. And you know sometimes bad things are happening and you look at it and you go, yes, but like we've thought about this. Sometimes they're happening and you have it. So I think it's best to just have a good framework for if management does this, we sell. If management does that, we buy more. Or if yeah if the earnings do what we expected, we stay in. If they unexpectedly disappoint for the fourth time in a row,
44:40.98
David Bastian
we are out. um And so, you know, ideally, you you put those those markers out there and you're ready for them so that in the moment you don't have to react to stuff that's happening when your emotions are higher. um So ah that's been, I think the most helpful thing for me is just to have a model of, I know what would need to happen for me to buy or sell this company. And I just need to wait for that to happen rather than react to something in the moment and things happen in the moment. I've got.
45:12.06
David Bastian
a couple hundred companies that like I look at fairly regularly and I'm waiting for some things to happen on some of them for me to buy. and i'm yeah i mean I don't expect those things to occur and I might not end up being able to get involved when they do if the stock price goes up too much, but I've got an idea of what they're worth and I've got an idea of what they're going to do. and And I just wait. And I think the more you can do that and not have to react in the moment, the less likely you are to make risk decisions that you regret down the road. Because you'll still make wrong decisions, but you can look back and say, I followed my process. And you know I got something wrong, but at least I did the best with what I had.
45:51.17
davidgalvis
Right, that's that's actually a great strategy and I had heard about the kill criterion from Jake Taylor. Maybe he got him he got it from from that book that you mentioned. um And maybe I have a more technical question because Obviously, once you establish a process, an investment research process and checklist and so on, ah you end up starting to to get a lot of little steps and complexity in your own investment ah process.
46:26.70
davidgalvis
And so how do you keep track of all of it? Do you write down memos for yourself on ah know on Google sheets or whatever? Or um you write it on paper? How do you prefer to to keep track of all your ideas and your thoughts on a given business? How do you keep folders on that on those businesses as well?
46:49.26
David Bastian
Yeah, no, i've got ah I've got a folder out there that's got a bunch of different you know ticker names and gut has research and and thoughts on them. and yeah know Some of those are things we've owned and sold, some we never bought, some we still own. just try to When there's something worth cataloging, try to try to put it down on paper and remember it. um I think one process that we kind of enjoy doing at Union Capital is that, I don't know kind of how this looks for other people, but essentially it's just going through our book and thinking about what our upside and downside cases are and kind of just like trying to force rank our ideas, um stuff that we own, stuff that we don't, and just trying to think through like, hey, have we let something drift to the point where
47:37.61
David Bastian
um we probably are are incorrectly weighted for where we where where we see the situation going. Like our upside's gotten better and we haven't taken the position up or our upside's gotten worse and we haven't reduced it. Just trying to use that as a sanity check. It's not a very technical you know way of doing things, but I think Mike and I really have appreciated just being able to to think about like, hey, is there anything that just feels out of whack in the portfolio right now and why? And running that running through that occasionally together to just kind of sense check things because we've got all this research we've got all that you know all these thoughts we have our emotions and sometimes it's good to just kind of look at the numbers think about where they are think about what we're expecting and just make sure you know
48:24.32
David Bastian
I think i guess sometimes I'll ask him, i okay, if we had to get rid of one stock right now, what would it be? or you know He'll say something. It's a good way to think through like yeah what are but your emotion is saying versus what has been happening in the market um and why. you know Why is it you want to get rid of that? Because it can help you pinpoint feelings before things get worse. Like, hey, well, you know they told us this. It hasn't really panned out that way. you know So it's starting to make me think we shouldn't trust the team or you know they were they told the market they were going to do this in the second quarter. And that's not where things landed. So do we still really think that the earnings are going the way we thought? Whatever. um Yeah, I think in addition to having you know all these tales and thoughts down there, it can be good to just try and pinpoint where your emotions are and before you've done things emotionally with a stock.
49:21.28
davidgalvis
interesting that's that's pretty awesome because sometimes we we talk too much about the big questions but then we actually don't talk about the small details that really make a difference and if you're not really organizing your investment process than writing down your thoughts or whatever. It's not really helpful because you never end up revisiting that or whatever. So ah yeah, it's ah it's pretty helpful. um You also touched on the point of position weight in your portfolio and stuff. So
49:56.45
davidgalvis
ah Why don't you guide us through how you think about position sizing and actually weighing your positions so that it makes sense for your strategy.
50:08.28
David Bastian
I think this is probably the most important and least covered thing from my limited experience as an investor. um People have very different ways of approaching this, and a lot of it is driven by kind of what what you're trying to accomplish. um you There's guys out there that will say, hey, I don't go above 2% in any stock, and you know so I'm running a portfolio with 50 to 100 names. um you know And their goal is to you know beat an index, but it's probably not by much. And it's probably you know a fairly diversified lower risk. yeah You're doing a lot of work, but you can't go as deep on 100 different stocks. So you're you're going to get index-like performance.
50:51.22
David Bastian
um
50:51.72
davidgalvis
Right.
50:52.62
David Bastian
So you you have processes like that. You have guys that are out there, you know, just showing, you know, large chunks of their portfolio into one stock at a time. You know, a lot of those PA guys on, you'll see on Twitter that, like, oh yeah, you know, I'm up to 60% in this thing. And, you know, it's like, all right, well that, you know, Druckenmuller does, you know, he's 200% long, the Euro versus, you know, there's all these stories out there of survivors doing stuff like that. um But you have to think like, all right, practically, if I'm managing other people's money, like I've got to have risk management in place. And you know going 200% long something is is not something we are ever going to do. um Maybe that works for you. And maybe if you're early in your career, you just want to try it. um You can find out you know a good or bad lesson, depending on how that goes.
51:39.68
davidgalvis
yeah exactly
51:41.06
David Bastian
um But yeah, i I think for us personally, we feel like there's a sweet spot that's kind of in the around 20 positions in the portfolio at the time with around five of those making up give or take half of the portfolio. um I think yeah the sizing in there, like I was saying earlier, we really favor stocks that are
52:02.61
davidgalvis
Yeah exactly.
52:05.81
David Bastian
a larger position is going to usually correspond to what we think is a much more protected downside. um So you know our our highest upside stock is usually not our highest weighted position. Usually our best upside stocks are are um you know have a lot of risk associated with them. So it's like, hey, we think this could go up five X or zero. That's not going to be our biggest position because we don't want to torch a lot of capital on that in the downside scenario, likely or unlikely as that may be. So we are thinking about preservation of capital. We're thinking about liquidity. I mean, we don't want to go 25% in something that is going to take us three months to get out of.
52:48.52
David Bastian
If it's so very thinly traded or doesn't trade on given days, that's not the kind of liquidity our our clients are looking for.
52:48.92
davidgalvis
yeah exactly
52:57.69
David Bastian
you know If it's just your personal account and you don't care and you want to get huge and something like that, you know get trapped, yeah that's your right. But when you have clients and when money is coming in and out, you've got to think about how liquid do we need stuff to be and how big can we go and something that we can't trade as freely as we would like.
53:12.14
davidgalvis
Yeah, exactly.
53:19.24
David Bastian
So those are certainly considerations. I mean, there's stuff that I have where if I could, I would probably buy more of it, but I can't give him liquidity without feeling like I'm too concentrated. Um, so those are certainly things that I'm, I'm looking at. Um, but I, uh, you know, it's, it's a, it's a tough game. I think sizing is one thing I want to continue learning on as, as much as possible.
53:41.51
davidgalvis
Right. Yeah, for sure. That's that's really interesting for me. And I've been researching about this topic for a while now.
53:49.80
David Bastian
you
53:50.48
davidgalvis
And yeah, you can't really find too much on it. And ah there's a couple of videos for Monis for Brian and stuff like that. But ah you don't see too much covered in investment books or the classics, so to speak. I think it it it boils down to really personal preference and your your own, let's say, investment style. ah But obviously, I would say there is a rational range where it doesn't really make any sense to to hold more stocks than that because otherwise just buy the S&P 500 or something like that and you'll get maybe better returns without any effort.
54:34.62
davidgalvis
So yeah, ah thank you for commenting on that. And maybe I'll ask you just the last question to to wrap up our conversation. And that is, ah where where do you see yourself in say, five, 10 years from now, ah in terms of your fund and also from a personal perspective?
54:57.72
David Bastian
Yeah, um i I kind of hope that not too different from where I am today. I really want to keep managing a fund. I want to keep investing individuals capital. I hope that it's going well enough that five years from now, I still have capital. So yeah,
55:14.79
davidgalvis
yeah otherwise it's just kingdom no capital
55:18.63
David Bastian
so yeah I think ah that's, That's my main focus. Like kind of you were saying earlier, you know my my goal is to keep you know being present with my family and doing this and and striking that balance. and yeah i don't I don't think there there is a whole lot. I hope to see change there. Hopefully, we can grow the fund. I think, aspirationally, um I've thought about wanting to be more involved in some of the companies that we're invested in, whether it's in more of an active capacity or sitting on a board at some point. I also think that's something I want to take a really slow approach to.
55:54.94
David Bastian
and don't want to
55:57.86
David Bastian
i'll romanticize too much to getting into the weeds with guys that have been running a company for decades. And then you know me, the micro cap fund manager shows up and has lots of great ideas on how to run their business.
56:07.76
davidgalvis
Hehehe.
56:10.05
David Bastian
So I try to be thoughtful about if I'm going to suggest something to a company that I've thought through it and feel good about it as a as a proposal. And up to this point, I mostly just engaged more in the softer activism of just know taking ideas to management teams and encouraging them you know from a you know high, I own 1% of your company perspective, um stuff like that. But yeah, I think longer term, I'd like to get more involved, but that's something that I want to be really thoughtful about. Jeff Graham has a really good book, Dear Mr. Chairman, where he talks about a lot of different examples of activism over the years and ways it's done well and ways it's done poorly. So I think reading that,
56:53.43
David Bastian
Part of it makes you want to go like fire off a bunch of letters to to boards, and part of it makes you go, wow, that can really go badly. So you cover the whole gamut of good and bad outcomes, and I think that's a good one for anyone who's thinking about how to engage with activism is some some of good examples in there, from Buffett to ICON to a lot of those big names, and some ones that you're probably less familiar with.
57:01.28
davidgalvis
Yeah.
57:18.45
David Bastian
so Yeah, it was some pretty good good reads, and I think that's something I'd like to pursue in the next five years, but do it thoughtfully.
57:29.17
davidgalvis
Interesting. Excited to to keep track of your of your moves and whether you you end up becoming the next big activist investor. has so
57:40.50
David Bastian
Probably won't be me.
57:43.33
davidgalvis
Yeah, you don't want to become Bill Ackman.
57:47.70
David Bastian
I don't think so.
57:50.56
davidgalvis
Okay, but yeah, probably just better being David Bastian.
57:57.21
David Bastian
Yeah, i I think it becomes a level of notoriety that I would rather not deal with everything that comes with it. And fortunately, or unfortunately, I don't think I'm in danger of that anytime too soon.
58:04.16
davidgalvis
Right.
58:10.21
davidgalvis
Yeah, I guess also same for me. like i really Even though I do stuff and the in the public sphere, um yeah I really don't want to be famous. So um yeah, I feel you on that one. So yeah, it was really an interesting conversation. I hope the the viewers and listeners also enjoyed it as much as I did. And I don't know, we could wrap it up here, but if you have any ah final words to to add or just telling the the people that are watching this where you where they can find you and they can find your work and stuff, that would be pretty awesome.
58:51.63
David Bastian
Yeah, yeah i mean I'm active on Twitter, Kingdom Capital, or I think our handle is at KingdomCapADV. KingdomCapitalAdvisors.com. We have all of our fun letters are posted there. I've got articles on Seeking Alpha going back. back a few years of different stuff I've covered. I spent some time in the Microcap Club community. So I'm around. I've but got a few things on some zero. So if you want to reach out, feel free. I'm always happy to talk ideas and swap swap thoughts with like-minded investors. And yeah, always looking for the the next big winner here. so Or if you have a great bear case on one of my stocks, definitely let me know before I lose money on it. So that would be cool.
59:40.04
davidgalvis
Yeah, that's that's awesome. So yeah, thank you so much for accepting this invitation i and I really truly enjoyed this conversation.
59:48.25
David Bastian
Thanks.
59:48.67
davidgalvis
So thank you so much.
59:49.27
David Bastian
Appreciate it David. Thanks for having me on.
David Bastian: Kingdom Capital, UNTC, Managing Emotions | ValueHunt #19