In one sentence: Fund manager Jeremy Deal (JDP Capital) tells Danielle how selling stocks at a made-up "intrinsic value" cost him several 10-baggers, and the four criteria he built afterwards for businesses that survive and thrive.
Key ideas
- Buy the whole business. Deal got into value investing through Buffett's idea that a stock is a piece of a business. He even spent a year looking at private companies for sale as an exercise before turning to stocks. [07:00–11:00]
- How his fund began. He first hunted for distressed divisions of public companies after 2008, kept losing bids to private equity money, and concluded he should just buy the public stocks. He started in October 2011 with about $450,000 (one investor and himself). [12:00–17:00]
- His biggest mistake: selling the best ideas. Around 2015 he found he was underperforming his own best ideas. Each thesis had an exit price, so he sold when the stock neared a value he had made up, using private-equity deal multiples. Low-quality names were right to sell; great ones kept compounding. [18:00–21:30]
- Mistakes of omission, not a market gone mad. The businesses he sold kept improving their offer to customers, which widened their moat and raised earning power. Several went up more than ten times, one a hundred times. Buying back at double the price is very hard. [21:30–23:30]
- Don't extrapolate the past. Investing is about the future, so a snapshot of value today says little about a business that keeps compounding. [22:30–23:30]
- Think independently. A peer group that applauded "discipline" in selling reinforced the error. Not coming from Wall Street left him few friends in finance, which he now sees as an advantage. [23:00–25:30]
- The peak-to-peak study. He and his analyst bought every large listed non-biotech company at a market peak and held to the next (for example Oct 2007 to Oct 2019). Winners (Netflix, Domino's) were never cheap and returned many times the S&P 500. Cheap laggards stayed laggards. The longer you hold, the less price matters, though under two or three years it does. These are his findings, not an audited study. [28:00–34:00]
- The four "survivor and thrive" criteria. (1) A business model adaptable and relevant to tomorrow's economy (Domino's online ordering and app early on). (2) Durable pricing power protected by a growing competitive advantage, visible in stable gross margin. (3) Capital allocation and balance sheet that support the moat, such as reinvesting at high rates rather than only paying dividends or buybacks. (4) Alignment of interest between management and owners. [34:00–41:00]
- A costly lesson on alignment. He got the first three right on a large position, but a financial-buyer controlling shareholder used a legal quirk of the company's domicile to buy out minorities cheaply. They sued and recovered some money. His rule now: no alignment, no investment, however cheap. [41:00–46:30]
- Founder-led, already rich, not selling. His best owners are founders who say they will never sell (he cites Spotify's Daniel Ek and Roku's Anthony Wood as of 2020; these are his views, not predictions). Bezos-style leaders can make five-to-ten-year bets that hurt the stock short term. [46:00–49:00]
- Fall in love, with a framework. You need passion to hold through "what about inflation, rates, a crash". He re-tests every holding daily against the four criteria regardless of price, and uses expert calls and surveys for ground-level research. Loving a business doesn't mean never selling. [49:00–52:30]
How it maps to RuleOne
- The four criteria map onto the Rule #1 steps for Moat and Management. Gross-margin stability and reinvestment rates can be checked on /stock/TICKER/ pages.
- The selling mistake is a reminder that the screen's margin-of-safety price is for buying; the sell decision should rest on the business, not a fixed target. See 296 on judging a company by output.
- A thesis log in /holdings/ fits his daily re-test: write the criteria and tick them each quarter.
Buffett, Munger and Graham links
- Buffett's repeated point that the most important lesson from Graham is to treat a stock as a part-ownership of a business (The Intelligent Investor, ch. 8 and ch. 20; Buffett's 1987 and later letters).
- Munger's "wonderful company at a fair price" over Graham-style cigar butts echoes the cost of selling great compounders early. See 001.
- The Making of American Capitalists (referred to by Deal, the Buffett profile) is a biography, not Buffett's own text.
Words to know
- Mistake of omission: a gain missed by not buying or by selling early, as opposed to a loss from acting.
- Alignment of interest: management and minority owners benefit together over the holding period.
- Peak-to-peak: comparing returns between two market highs, so no one gets a good entry price.
Try this
Pick a holding or watched stock on /stocks/. Score it 0–2 on each of Deal's four criteria using the last 10-K. For the fourth, look in the proxy statement for who controls the vote, and note one reason to sell that has nothing to do with price.
Check yourself
- What was Deal's biggest mistake?
Answer
Selling good businesses when the stock reached a self-made intrinsic value, then watching them keep compounding. - Name his four criteria.
Answer
Adaptable business model, durable pricing power with growing advantage, capital allocation supporting the moat, alignment of management and owners. - Why did a position that passed three of the four criteria still hurt him?
Answer
The controlling shareholder was a financial buyer who used a legal loophole to buy out minorities cheaply. - When does price matter least, in his view?
Answer
When you hold an excellent business for a long period; under two or three years, price and sentiment dominate.
Short quotes
"The longer you own them, the less relevant valuation and price becomes." (Deal, ~33:00, auto-transcribed)