Here are some characteristics of the stock we’re dealing with today:

• The market cap is entirely covered by cash and securities. You get the opco for free.

• This ain’t no cigar butt. I can’t say too much before the paywall, but it has a protected moat, evident in its consistently high operating margin with negligible capital investment.

• EBIT has compounded at double-digit rates for 7 years, and so has the cash pile. It has never lost money as far as we can see. It trades at a single-digit P/E.

• It pays dividends and has bought back >5% of the shares over the past 3 years (with most of the treasury shares cancelled by the board before the bill was enacted that required mandatory cancellation of treasury shares).

• It even has an unusual shareholder register for a Korean microcap, with ownership split between the founder and a handful of operating officers. The register is pretty open.

A net net like that doesn’t grow on trees. Let’s dig in.

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A quick teaser on the one behind the paywall: Trades at half of NCAV, half of tangible book, negative EV, 3x earnings, almost 7% dividend yield, double-digit ROE, and a safe and simple balance sheet. It’s also the largest and most liquid stock in this batch.

You can expect more stocks in each batch going forward as I get more up to speed on the intricacies of Korean filings.

With that said, some of you have asked how the hell it’s possible to go through ~180 net nets in 3-4 months. The answer is that I expect a yuge chunk of the list to be quick “no”s. The purpose of this exercise is to write them up anyway and explain my reasoning to you.

I’ll emphasize once again that we’re dealing with imperfect information. As outside shareholders, that is always the case anywhere in the world you invest, but it’s even more the case in a place like Korea. And when you do an exercise like this, you try to solve a lot of puzzles in a limited amount of time.

In this series, we’re gonna try to answer a lot of questions which, admittedly, might not move the investment case in either direction as a net net. But we’re gonna do investigative work anyway to be able to sleep better at night and to gauge the situation with equanimity if things go wrong. But speed requires me to not dive into every nook and cranny of what the insiders have done over the company’s life. And net nets shouldn’t require weeks of research and expert calls. We’re never gonna lose sight of the fact that the financials and technicals will carry a lot of the weight here.

I’ve heard contentions that this exercise is a bit of a fool’s errand since most Korean net nets will be littered with bad governance, melting ice cubes, and even fraud. But that’s how net net investing works. Buying this stuff in baskets is doing the work that diligence would otherwise do. When Buffett bought a 20-name Korean net net basket in ‘05, he reportedly did so after “spending five to six hours on a Saturday”, meaning he spent ~15 mins on each name.

I plan on going through 3-5 net nets a day (writing them up takes time too, and I got other stuff in the pipeline), so in a 12-hour workday (Monday through Sunday), that’d mean I could spend 3 hours on each. But that’s on average. A lot of these names will take 10 mins, some a few hours, and if it’s really interesting, I can probably spend a day on one company. So don’t expect deep dives (which I can’t gather enough information for anyway), and that’s why I’m diving into net nets in the first place.

This is my process for any net net (and if you haven’t yet, I suggest you read my guide to net nets here):

1. I start with the balance sheet, and I’ll show you my liquidation analysis to gauge the margin of safety or “escape value.”

2. Then I move straight to really understanding the business, and if I can’t, that’s a quick no. I’ll focus on the stability of, or lack of, profitability.

3. Then I move on to governance, and this is where I’ll try to spend the most time for many of these names. If I find something too fishy, it goes into the “no” pile as well. If I don’t, I focus on the main risks and what might be the kicker to a value crystallization.

It’s that simple.

A perfect net net for a basket looks something like this: cheap on liquid assets, cheap on earnings, earnings stable (or growing), returns of capital, and an open shareholder register.

I will not, however, need a 5-for-5 for it to be a potential candidate in the basket. Many of you will question why I try not to be too discriminating about the non-dividend payers, and that’s simply because some of these stocks are priced so low that any piece of news in that direction could act as a massive (but unpredictable) catalyst. Most of the stocks on my list have no Value-up plan announced, and none in today’s batch have announced a plan.

A quick note if you’re still thinking of subscribing to premium: I’m compiling a Google Sheet for each of these net nets and will rank them based on my assessment with a date and price at the time of writeup as we go along. I don’t push recommendations — nothing here is ever investment advice (see disclaimer) — and that list will simply act as a learning case of whether this exercise is worth the carry. The link to the Sheet will go out to all premium subscribers starting with the next batch, which will come out later in the week.

Without further ado, let’s get to it.

Moatech (033200.KQ)

Market cap KRW23bn (KRW2,535/share), 0.53x NCAV, 0.4x book, no Value-up plan.

In 2010, Moatech supplied its stepping motor to half the world’s computers. Those stepping motors steered the laser pickup in CD and DVD drives. At that time, Moatech had plants in Korea, China, and the Philippines with 5k employees, and revenue peaked at KRW170bn (~$120mn). Then, of course, the optical drive died. Today, Moatech employs 86 people, sells KRW46.5bn of motors and actuators a year, and the whole company is priced at KRW23bn on KOSDAQ.

Some numbers:

• KRW53.5bn of current assets against KRW10.3bn of total liabilities, so NCAV is KRW43.3bn, or 0.53x P/NCAV.

• ~KRW39bn of those current assets is cash and bank deposits. The company has no debt, so EV is negative.

• The company holds investment property too at KRW7.2bn on the books. Including that in NCAV brings the potential upside to NCAV to 119%.

• MinebeaMitsumi of Japan owns 79.17%, and it already tried to take the company private once.

• <2mn shares in free float. In a slow month, the stock trades ~KRW20mn/day (~$14k).

Now my rough liquidation analysis:

Moatech is the first name on my Korean net net list I’ve looked at in depth. I would usually write a business like this off immediately, since it has been a melting ice cube since its heyday, chronically losing a bit of money every year.

But there are two timely events worth mentioning.

First, in April this year, Korea’s new Commercial Act forced Moatech to retire 36% of its shares which were all in treasury that had sat inert since a failed take-private in 2018 (more on that in a minute). Meanwhile, you have KRX’s new market cap rule I talked about in the intro post. Both raise the odds, even if just a little bit, that something might happen.

Let’s roll back. Lim Jong-kwan started this company in 1985 as a five-man shop winding coils for Tokyo Electric of Japan. The coils went into stepping motors for floppy drives, which is the part that steps the read head across the disk, and Lim spent six years working his way up the chain, first assembling the whole motor for Tokyo Electric under its brand, then building it without their design. That left him with a product and nobody to sell it to. His customers arrived in the early 1990s, when Seoul picked 21 products that Korea was importing from Japan and paid to have them made at home. Samsung and Hyundai were assembling floppy drives and buying the motors from the Japanese, Moatech’s motor was on the list, and so Lim took the development funds and started supplying them directly.

When the floppy gave way to CD-ROM, the same motor did the same job against a laser pickup instead of a magnetic head. Samsung and LG then went to war over drive speeds, with every jump from 4x to 8x to 32x needing a faster motor, and Moatech shipped one for every generation while the Japanese incumbents moved slowly. And that’s basically how a coil shop ended up with more than half the world market, with 82%/revs riding on one product.

That concentration didn’t seem like a problem when drives got all the limelight and were in every computer. But then people stopped buying discs, and the market Moatech had built itself around disappeared. The technology still had uses, in cars and home appliances and telecom gear, and that’s the company you’re buying today.

In May 2012, Japanese Minebea (a components maker best known for miniature ball bearings) went to Korea and bought 50.8% of Moatech, near the top, paying KRW59.5bn. Minebea wanted the plants in Korea, China, and the Philippines, plus a route into stepping motors for EVs. But the new owner caught the decline, and sales fell 85% over the following nine years, to KRW24.6bn in the FY ending March 2021. Today, Moatech is priced at less than half what Minebea paid for half the shares.

What’s left of Moatech’s business splits in two. A little over half of revenue is resale. Since 2016, Minebea’s own Philippine plant makes Moatech’s office and appliance motors under a consignment contract, and Moatech buys the entire output and passes it on. The other half is the more interesting part, which is Moatech’s Incheon plant in Korea that makes actuators for cars. An actuator is that motor plus a gear train and control electronics, moving a particular part to a particular position and holding it there. Newer cars keep finding new use cases for them, like the flaps behind the grille that open and shut to cut drag, the mirror that tilts to throw a head-up display onto the windscreen, the drive that steers a LiDAR sensor, and the valves that route coolant around an EV battery. Moatech says it’s the third-largest domestic supplier of the grille-flap actuator, and its production was >1.6mn units last year vs <1mn units two years ago. It’s currently gearing up for a new production line for EV-thermal management in 2027.

Sales recovered quite a bit in FY26, up a whopping 35% due to that car business. The operations still lost money, though, a loss of KRW1.7bn, with interest income on the large cash pile clawing most of that back to a net loss of KRW600mn. Book value has gone from ~KRW76bn to ~KRW69bn in seven years, or down ~KRW1bn/year. In other words, with no earnings recovery, you’re buying the whole thing at roughly half of its liquidation value, and it shrinks a little >1%/year. It could be worse.

From December 2016, Minebea had Moatech buy a big chunk of its own shares, ~36%, so that Minebea could go for a delisting. A voluntary delisting in Korea requires 95% of the register. The company spent ~KRW25bn buying back 5.13mn shares on the open market at an average price of KRW4,900/share, and ran a tender alongside. That attempt stalled at close to 87% and got withdrawn in March 2018. Then KRX changed the rule so treasury shares no longer count toward the 95% threshold, and the treasury block sat on the balance sheet for eight years.

On April 9 this year, Korea’s new Commercial Act forced the board to retire the treasury stock. Minebea’s stake went from ~51% to ~79% in one swoop. The remaining float is 1.92mn shares. To reach 95%, Minebea needs 76% of that float.

There’s no other alignment. No director or executive owns a single share today. The CEO is a 28-year company man who came up through the sales office. Minebea’s seat on the board is a non-standing director from its motor division, and it seems he skipped every board meeting last FY until the two meetings that decided the treasury share cancellation. The parent also sits on both sides of half the business, since the resale motors are bought from Minebea’s plant at prices the group sets, which tells you a lot when Moatech earns a measly 10% gross margin.

There’s also a way for minorities to lose without Minebea lifting a finger. As I mentioned in the intro piece to this series, KRX is raising the minimum market cap for staying listed on KOSDAQ to KRW20bn from the second half of 2026, and Moatech’s cap is KRW23bn. This goes to KRW30bn on Jan 1 2027. The big risk is ending up with unlisted shell 79% owned by a parent that has already shown it wants the minorities out.

On the other hand, Moatech’s free float is small and illiquid enough that the stock moves on things that have little to do with the business. In October 2020 it tripled inside two weeks on no news, hit the daily limit four times, and got halted while the exchange launched an investigation. I think what set it off was a local shareholder called Kim Young-wook, who with four others had built 6.64% during that year as described here. Between them, Minebea and the treasury block, 93% of the register was spoken for. On the numbers at the time, if Kim’s group sided with Minebea, Minebea was ~500k shares away from the 95% a voluntary delisting needs. I believe that rumor and minuscule float created the squeeze.

While Moatech returns no capital to shareholders, this is sort of a special sit that, the way I see it, could go one of three ways: 1) Minebea tenders for the float (remember, the last time it paid up for shares, it paid almost double today’s price). 2) The listing dies, through the market-cap rule or a squeeze-out at an appraised price Korean courts don’t care about setting low. 3) Nothing happens, the pile melts ~1%/year, and you collect no dividend while you wait. Not good enough for me.

Ocean In W (052300.KQ)

Market cap KRW21bn (KRW1,335/share), 0.29x NCAV, 0.1x book, no Value-up plan.

This one is a quick pass, because other than this one being at risk of the market cap threshold, the balance sheet is impossible to see through, and given the company history, this stock is uninvestable. It’s trading at 8% of book and has no debt for christ’s sake. One look at the long-term fundamentals chart should be enough to say that we’re dealing with a maze:

If you asked this company what it does, it’d tell you it’s a wholesale architectural glass distributor with some investment real estate. But in reality it’s an investment company, a complicated one with a complicated backstory. The glass business is only ~10% of revenue.

Here’s the balance sheet...

...and here’s the story behind it:

Ocean In W was founded in 1992 as a logistics company and listed on KOSDAQ in 2001. It has changed name five times since then.

In 2016, the company got a new controlling shareholder. A private company subscribed to a new issue of shares and took ~18%, enough to make it the largest holder. That private company was run by a man called Won Young-sik, who owned 37% of it, and his son owned 45%. Ocean In W later took its name.

Ocean In W got into wholesale glass distribution in 2017, when it absorbed a subsidiary called SH Glass. But just a year after that, it subscribed to a new share issue in a listed company named Chorokbaem Media, which was a drama producer, and ended up as its largest shareholder at ~40%. It financed the purchase through convertible preferred stock and convertible bonds, both sold privately. Since then, btw, these instruments have converted at steadily lower prices, because Ocean In W stock of course slid, and the convertibles kept resetting downward. (The company did massive reverse splits, 5:1 in 2021 and 10:1 in 2025, to bring the share count down.)

Anyway, so Won now controlled both Ocean In W and Chorokbaem Media.

Then Won got into trouble. A 2022 court judgment in the Lime fraud case named him as a moneylender to corporate raiders, with KRW580mn of that money going into convertible bonds Ocean In W had issued, and in July 2023 he was indicted on capital markets violations, breach of trust, and tax evasion, then released on bail that December. I couldn’t find a verdict in the case. But one of those counts was against Chorokbaem Media, where he was chairman. The company’s convertible bonds carried a call option, the right to buy bonds back from the holder and convert them into stock. Won assigned that right, for no consideration, to a company his children owned. Prosecutors put the cost to Chorokbaem Media at KRW1.5bn. Chorokbaem Media, of course, had to disclose that, which prompted an automatic KRX review of whether the company deserved to stay listed. Its shares were suspended in June 2023 and the exchange voted to delist it soon after, unless it found a new largest shareholder within 12 months.

So in November 2024, Ocean In W sold the whole 39% stake to a PE fund for KRW180bn. That’s ~3x Ocean In W’s own market cap at the time, and kudos to the company for offloading it at all with the asset facing delisting.

Ocean In W is controlled by a company owned entirely by Won’s son, Won has been its CEO since July 2024, and both of Ocean In W’s joint CEOs came from Chorokbaem Media. None of the proceeds from Chorokbaem Media went to shareholders. KRW64bn went into VC partnerships. KRW41.7bn was lent to two vehicles buying control of another listed company called INITECH, secured on INITECH’s own shares. The rest went into more partnerships and a chain of holdings that ended up consolidating a company called DMOA, which is, btw, also a Korean net net. Ocean In W’s own shareholders sued to inspect the share register and the accounting books, and to force management to pay the cash out. I’m sure I’ve only seen the top of this.

Which brings us back to the balance sheet. For the group, there’s KRW257bn of current assets against KRW111bn of total liabilities and KRW71bn of NCIs. Against a KRW22bn market cap, that’s a 0.29x P/NCAV. But most of that NCAV isn’t in Ocean In W. Because Ocean In W owns ~52% of DMOA, it’s consolidated on the books, and DMOA has KRW110bn of current assets and KRW49bn of liabilities. Of the remaining NCAV, KRW31bn is the INITECH loan, already 41% written off, with its repayment date rolled three times in nine months. The shares pledged against that loan are worth ~KRW30bn today, on KRW51.9bn lent. And one of Ocean In W’s two CEOs sits on the board of INITECH. It’s too messy, so I pass.

Sejoong (039310.KQ)

Market cap KRW26bn (KRW1,416/share), 0.6x NCAV, 0.2x book, no Value-up plan.

I like Sejoong much better. This company has three unrelated segments:

1. A corporate travel agency (25% of revenue), running for 45 years. It books flights, hotels, and cars for ~500 corporate accounts, including overseas staff training trips, and takes a commission on bookings. Korean Air and Asiana are the two biggest sources of that commission.

2. A BPO business (48%) focusing on marketing and cost reduction, but it’s mainly a printing business. Large companies hand it the printing work they don’t want in-house. For retailers like Lotte Mart, Lotte Himart, E-Mart, GS Retail, and Hyundai Department Store that means in-store promotional displays and direct mail. For Korea Investment & Securities it means producing customer statements and reports.

3. A software distribution business (27%) for Siemens PLM that also offers consulting and technical support to larger corporations.

Although these businesses have very little of a moat, which you can see in operating income that has swung around zero for the past 8 years, they’re light on fixed assets (but working capital swings). So if we focus just on the balance sheet, this is a good, pretty liquid net net, especially since we can lump a big chunk of the long-term asset side into a liquidation analysis.

The balance sheet:

Fortunately, we don’t have to worry much about inventory. NCAV is KRW47bn vs a market cap of KRW28bn. That’s a 0.6x P/NCAV. But there are financial assets in non-current assets, specifically long-term investments (which are nothing more exotic than bank deposits), investments at FVTPL (equities of mostly Keumkang Industrial and Korea Zinc plus one convertible bond), and investment property (of which KRW15.4bn out of the KRW18.1bn is land booked at initial cost, which is very likely worth more today) which should be counted. Adding these items at face value gives you an additional KRW31.5bn of sort-of liquid assets. Therefore, all-in NCAV is closer to KRW79bn, and Sejoong is trading at 0.36x P/NCAV for a whopping 180% upside to NCAV.

By my rough estimates, a liquidation would fetch something close to our all-in NCAV too, almost 3x the share price:

However it’s hard to gauge anything beyond that. The company stopped paying a dividend around 2017 after some good years of profitability. It held treasury stock once, ~2% of issued shares, and in December 2021 it sold the lot to Keumkang Industrial. Sejoong in turn owns 1.3% of Keumkang Industrial. Besides that, there have been related party transactions but nothing major to flag. In February 2025, the board approved a KRW2.2bn loan to the founder, Cheon Shin-il, which was unsecured and ran for two years at a 4.6% rate. It was repaid in full this H1. Against that, as of the FY25 accounts, Cheon had personally guaranteed KRW6.2bn of the company’s BSP airline ticket settlement to Seoul Guarantee Insurance, so the favors go both ways.

So far this is actually encouraging (except for the lack of profitability and return of capital). Now I do wanna note what an interesting backstory this company has.

Sejoong started in the 1990s as a software company named Hancom Research. That was renamed to Namo Interactive in 1997 and floated on the KOSDAQ in 2000 during the dot-com boom. What Namo had was a website design program. Then in 2006, the company agreed to merge with Sejoong Travel, the Cheon family’s business (they’re sitting on 31% of the shares today, spread across family members of course), through a reverse merger. It later changed its name to Sejoong.

In 2007, it announced a shipbuilding-steel logistics business with Samsung Heavy Industries, and by the mid-2010s it had a steel materials division turning over KRW23bn. Those were also the years it paid its shareholders. In 2017, it sold it to KCTC, a Korean logistics group, for ~KRW16bn. That’s the first of the two disposals in this story.

Fast forward to 2020, and the KRX halted trading in Sejoong and opened a formal investigation into whether the company deserved to be listed. For five weeks the listing was in doubt, but then KRX decided not to take the potential delisting further. This is just a little flag that the company has been at risk of a delisting before.

Shortly after that, Sejoong sold the best part of its business. In its software distribution arm, it used to be a licensed reseller for Microsoft (at a thin markup), which produced essentially all of the group’s operating profit. Microsoft then changed its sales policy in Korea, the licensing arrangement couldn’t be kept, and in November 2023 the business went to a cloud company called Megazone for KRW17bn, which is a bit >2x earnings at the time. (This divestiture explains the first thing you notice on a long-term revenue chart, a 71% drop in FY21, when the business was first thrown into discontinued ops). The Siemens distribution business it retains today turns over just ~1/10 of what the Microsoft distribution business used to do, and the software distribution business is a shadow of its former self.

Cheon Shin-il was the founder (of the travel business that reverse merged into Hancom) and ran it until he died. He was also, for a long stretch, one of the better-connected men in Korea. He and Lee Myung-bak (Korea’s president from 2008-13) were classmates at Korea University and stayed friends, and through Lee’s presidency the press described Cheon as one of the powers behind the scenes.

In 2010 he was charged with taking KRW4.7bn in cash, gift certificates, and steel to lobby on behalf of a Daewoo Shipbuilding subcontractor, mostly for pressing a state bank to rescue it. He got two years on appeal, most of the cash was forfeited, and Lee Myung-bak pardoned him in 2013. The charge didn’t touch Sejoong.

Cheon Shin-il died back in March at the age of 83, and the stock immediately doubled. (It has since given the whole move back and then some.) I can’t explain why, other than a bit of the backstory above, but I could imagine it having something to do with the heirs needing to find cash for the inheritance tax, though at 4.7% his stake was never going to make much of a bill. It could (quite likely) be something else entirely.

In 2020, Cheon Shin-il had already handed down 1.6mn shares to his two sons who are running the business (Cheon Se-jeon, the elder, as CEO, and Cheon Ho-jeon as managing director), taking himself from 13.7% down to 4.7% ownership. The brothers own 23% of the shares between them, and other related parties bring the controlling stake up to 31%, meaning compared to other family-owned businesses, this one’s got a pretty open shareholder register. What’s happened to the father’s remaining stake is still an open question as I think the estate is yet to be settled, and what really matters in this case is how the new generation will go forward in terms of governance.

I don’t know if I spent too much time on this one as I’m a bit on the fence. The fact is that this company is absolutely dirt-cheap on an attractive balance sheet, but it’s hard to see that being returned to shareholders unless someone swings by to force it, and you also got the market cap below the KRX’s coming threshold lingering over this stock (which I think in this case acts more as a catalyst if insiders want to stay listed, so that might be what’ll prompt a Value-up announcement). What you’re buying here is a pile of cash and investments, three small businesses that break even on average, and a family that could start fighting each other over control. It’s hard to see where this goes, it’s hard to gauge any upside, but you still got a huge margin of safety. Please reach out if you got further information, if I’m missing something, or if I got something badly wrong.

Shinwon Construction (017000.KQ)

Market cap KRW26bn (KRW2,355/share), 0.4x NCAV, 0.2x book, no value-up plan.

Shinwon Construction is a contractor that has been building roads, subways, airports, and apartments since 1983. Current assets are KRW190bn, total liabilities KRW120bn, and the market cap is KRW27bn. I won’t touch it, and not just because it’s a cyclical contractor (revenue has oscillated between KRW124bn and KRW310bn over the last nine years), an industry where net nets can very quickly turn fleeting.

Let’s do this quickly. I didn’t bother reconstructing the balance sheet. You can find it here.

Of the current assets, just KRW16bn is cash, and against that cash is KRW29bn of bank debt that falls due within a year. KRW117bn of current assets is money somebody else owes Shinwon, and another KRW38bn is land and finished apartments it hasn’t sold.

I don’t think you have to guess whether the receivables are fully collectable, because the report already gives an indication. Shinwon charged KRW17.5bn of bad debt expense in FY24 and another KRW7.1bn in FY25. That’s KRW24.6bn in two years, which, again, is pretty close to the market cap. It also wrote KRW6.5bn of loans off the books. Meanwhile, there’s a line in the FY25 accounts called “sundry loss” that went from KRW190mn to KRW4.3bn in a year. It’s 88% of all other expenses, in a note that separately itemizes a KRW3mn loss on scrapping fixed assets, and it’s nearly as large as the year’s earnings.

In January 2024, two related subcontractors from the same site went to the Suwon Bankruptcy Court on the same day and asked it to declare Shinwon bankrupt over unpaid construction sums, one of them for ~KRW500mn. Shinwon called the filings malicious, and the court threw them out sixteen days later, holding that failing to pay your bills isn’t the same as being unable to. Shinwon won that one. But still, subcontractors who are getting paid don’t file bankruptcy petitions.

Chairman Woo Jin-ho owns 16.51% of the shares and gave up the CEO title in 2022 to Kim Sung-min, who owns no shares. The full-time statutory auditor is simultaneously CEO of a film company, and turned up to just 3 out of 15 of last year’s audit meetings. There’s also a full-time inside director listed as technical adviser who is a former Mayor of Seoul. He had the job for eleven days in 1994, appointed the evening the Seongsu Bridge collapsed and lost the title as soon as it came out that he’d run Seoul’s construction bureau when the bridge was built. (I don’t know if this information is even relevant.)

There’s no dividend. The stock the company bought back in 2019 to “enhance shareholder value” is still sitting in treasury. And at a KRW27bn market cap, it’s running against the coming KRW30bn market cap rule. This stock is “cheap” because most of the assets might be shaky claims, and I don’t want to spend time getting to the bottom of it.

Out of the above four stocks, I sort of like Sejoong. But let’s now get to the best net net from this batch.

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This wasn’t always the case. Korea is a developed economy with a well-functioning court system, a sophisticated regulatory regime, and a stock market that has operated since 1956. Yet, for decades it’s been a notoriously difficult market to break into for foreign investors, the main reason being that regulators traditionally required foreigners to register through a cumbersome local representative system.

“Difficult”, though never impossible for a hungry enough value investor. In 2004 somebody sent Warren Buffett a Citigroup guide to the Korean market, a book with a single page on each company. He spent a Saturday going through it and put $100mn of his own money into about 20 Korean names, personally rather than through Berkshire.

So nah, the real reason Korea has never been a value investor’s paradise (until today?), despite low prices on book and earnings, has less to do with access than with something more structural and cultural. There’s a term thrown around called “The Korean discount” (meaning you’d want to pay less for a Korean company than you’d pay for the same business anywhere else) for a reason, but it’s actually a hodgepodge of reasons.

The overarching one is that the country’s economy has been dominated for decades by “chaebols,” or large family-owned conglomerates that have never had much regard for shareholder returns. Chaebols themselves are old (Samsung dates to 1938 and both Hyundai and LG go back to 1947) but the system that made them what they are was built in the 1960s and 70s. Park Chung-hee took power in a coup in 1961, and after he gained power, he put the commercial banks under government control and decided to point cheap credit at a handful of families he’d picked to industrialize the country. If these families hit their export target, well then more loans would follow at rates that were negative in real terms. The money that built corporate Korea came from the state and then from the banks, never really from shareholders, so the shareholder was never the constituency that mattered. That conflict between controllers and minority holders has been running ever since, and it’s been incredibly difficult to resolve.

Each one of the companies under a chaebol, some listed and some not, is called an “affiliate.” Samsung, Hyundai, and LG each run dozens of affiliates, and the largest 81 chaebols in the country count >3k affiliates under their umbrella. Why this is an issue when it comes to governance is that the families keep a tight grip on their affiliates through a spaghetti-fashion of cross-holdings between them. It’s not abnormal for a family to own, say, just 3.7% of a company but control 62.4% of the votes through a block of affiliates, meaning you could buy as much of the company as you’d like and still be the minority next to a family that owns <4% of it. If you wonder why I picked such odd percentages for illustration, you’ve probably already guessed that those aren’t illustrative but are the real numbers. 3.7% ownership vs 62.4% control represents the average across the country’s chaebol affiliates. Korea’s competition regulator publishes these figures every year here.

And that 3.7% average ownership figure isn’t random either. Korea caps the controlling shareholder’s votes at 3% (the “3% rule”) when a company elects its auditor and audit committee members, whose entire job is to watch management. And while that rule exists precisely to give minorities a meaningful chance to install independent oversight, the second-order effect is that it pushes chaebols to hold as little as possible in their own names and as much as possible through separate entities, further worsening the cross-holding problem.

There’s a book by a local investor named Nam-gil Park titled “A Country Without Shareholder Rights,” which puts Korean governance where the US stood in the 1970s and compares the market to Taiwan. It’s a fair comparison since they both face permanent political risks from their neighbor. But as of today, Taiwanese stocks trade at a median 1.9x book with a median 61% payout ratio. Korea trades at 1x book and a measly 23% payout ratio. The second ratio goes a long way toward explaining the gap between the two countries in the first ratio, and underlying that issue is a bunch of things that have traditionally been wrong with the machinery and have caused the chaebols to not only treat minorities unfairly but also hoard cash and create a jumble of corporate pyramids. Even worse, this machinery incentivized the controllers to in fact keep their own share prices down, and there have been at least four moving parts to it:

1. Dividend taxation. In Korea, once an individual’s financial income passes KRW20mn/year, dividends get folded into progressive rates that approach 50%, so the rational move for controllers has been to hoard the cash and pile it into low-return assets and further cross-holdings.

2. Inheritance taxation. Korea taxes inheritance at up to 50%, with a surcharge on controlling stakes that takes the bill toward 60%. And because the taxable value of listed shares is the average market price over the four months around the transfer, a family planning succession has a large and entirely legal incentive to keep their share price down for years.

3. Merger rules. A Korean merger ratio is typically set by averaging recent market prices rather than by any fair-value opinion. If the merger ratio is decided by the marginal buyer in the market rather than negotiated in the boardrooms, then that’s been good enough for the regulators. In 2015, the Samsung chairman was dying and his son, Lee Jae-yong, needed to end up controlling Samsung Electronics, which he barely owned any of, without triggering the inheritance bill. What he did own was a large slice of Cheil Industries, a small company in the group. Samsung C&T, a separate one, held a block of Samsung Electronics shares. So Samsung decided to merge C&T into Cheil right when C&T was trading at historic lows and Cheil at historic highs. The national pension fund, C&T’s biggest shareholder, swung the vote. People went to prison over that vote (including Lee Jae-yong, but he was later acquitted of all charges related to the merger), and the deal stood anyway.

4. Misuse of treasury shares. Because treasury shares haven’t traditionally been cancelled in Korea, in many cases they’ve been used to abuse shareholder value. There have been numerous cases of controllers swapping treasury shares with friendly parties, which is precisely what happened last year when Muhak, a local brewer, executed two treasury stock cross-swaps with its main glass bottle supplier and Samsung Gongjo, an auto parts company in the same region. This has meant that a Korean buyback is less a return of capital than a block of dormant votes bought with shareholders’ money and parked until the controller needs them.

You’re probably thinking why on earth I’d want to touch a market like this.

The reason is that from February 2024, the government has been trying to dismantle all of it, starting with the Value-up program that was modeled openly on reforms that partly ended Japan’s deep-value era. In the Value-up program, public companies disclose plans for their own valuation, stating where the company stands on things that matter to shareholders, ROE and P/B among them, what it intends to do about them, and how it plans to get there. The plans go up on the exchange’s disclosure system where you can read them, and as a carrot to do this (because it’s entirely voluntary), companies with published Value-up plans stand to receive a bunch of goodies such as exchange fee exemptions, government-endorsed recognition, and priority for tax credits.

Just like in Japan, the market gets a reboot from a very, very low point. However, the difference between these reforms and what happened in Japan in 2023 is that in Japan, the main voice for change was the exchange, but in Korea, this is a two-front effort by both the KRX and the government. The KRX has launched a Value-up index that includes the 100 best-scoring publishers. If you go to the KRX website right now, you’ll find the Value-up index before the KOSPI index listed on the front page. The Value-up index comprises 100 companies, 67 picked from KOSPI and 33 from KOSDAQ, and it’s up >2x over the past year.

Now you’re probably thinking, “What is a stack of PDFs on an exchange website gonna do about incentives that run this deep? Won’t these companies just file the paperwork, tick the box, and go on with their day?”

That’s a fair objection. But the government is taking much deeper stabs at it from multiple fronts:

1. In July 2025, amendments to the Commercial Act were approved to require directors to balance corporate and shareholder interests. This is similar to what Japan enacted in its Stewardship Code around 2014. Before this amendment, a director’s duty ran to the company, which in a family-controlled company meant the family. This amendment is likely to mean more fairness in mergers, spins, splits, delistings, and other corporate transactions going forward.

2. Then in December 2025, the National Assembly approved a massive reduction in the dividend tax rate to a range of 14-30% for “high-dividend payers.” A “high-dividend payer” is one that has a payout ratio of >40% or has a payout ratio of >25% and increases it by 10% from the prior year. Crucially, to qualify, the company must also have a Value-up plan disclosed on the KRX. This is the first reform that really rewires the incentives for return of capital.

3. Finally, in February this year, the National Assembly passed another amendment requiring mandatory cancellation of treasury shares. Companies must now cancel newly acquired treasury shares within one year, and existing treasury stock got an 18-month grace period. This is a big deal.

In addition to the natural pressure Korean companies will get from being excluded from the “Value-up club” and all that entails (such as institutional flow from indices and the National Pension Service, the largest pool of capital in the country, which has become more willing to vote against managements that ignore their own valuation), all of these recent reforms make it likely that more activist funds will put a spotlight on public companies to invoke change. My good friend Ryan of Terton Capital is currently and openly pounding the table over the tender offer at Golfzon Holdings where the controller is trying to take the company private at a ridiculous price.

It certainly helps that Korea is also dissolving the old registration regime for foreign investors. Since last year, foreign investors have been able to trade Korean stocks directly through overseas brokerages (myself included). Omnibus accounts have been introduced too, so a fund no longer opens a separate Korean account for every vehicle it runs. Reporting is opening up as well, with every KOSPI company above KRW2tn required to publish in English since May, and all of them from March 2027.

It’s important to mention that regulators have also decided that Korea has too many listed zombiecos, and so the exchange has started clearing out from the bottom. The minimum market cap for staying on KOSDAQ went to KRW20bn in July and will reach KRW30bn in January 2027. 30 trading days under the line brings a warning, then 90 more days to climb back above it, or the company gets delisted. The first company went out in June, another 36 were flagged just a week ago on August 12, and something like 1/10 of KOSDAQ could be gone by the end of the year. This process works against me as much as for me. A market with fewer zombies is a better one to fish in, and real companies that are up for a potential delisting have a corporate governance clock over their heads, but this essentially indiscriminately targets all stocks too small, cheap, and barely traded, and those are a fair description of most of what I’m looking for!

All in, I think all these factors mean the Korean stock market is due for quite a rerating. It’s already rerating now. But, as a stock picker, I won’t bet on the index. The total market is as concentrated as you’ve ever seen, with Samsung and SK Hynix taking up pretty much half of the KOSPI.

So buying the Korean stock market means betting hugely on memory and getting a couple of thousand other companies thrown in. Korea’s recent market rally has been narrow as well. The KOSPI was up 71% last year while just 140 of its 948 companies beat the index. For various economic (meaning inequality) and cultural reasons, Koreans tend to treat their stock market as a leveraged trading venue rather than a place to own businesses. When Situational Awareness collapsed in the midst of the brief AI trade dip recently, a whopping 1.2mn retail traders received forced margin calls on hugely levered positions. That is despite the fact that Korea has experienced some of the biggest financial shocks in modern history, including the 1997 Asian Financial Crisis. I don’t expect rapid boom-and-bust cycles to go away from Korean markets anytime soon and those cycles will be reflected in the index.

That said, both boom-and-bust cycles coupled with the structural reforms create what I think is the perfect cocktail and tide for value stock pickers. Which answers the question that out of all 2.7k publicly listed Korean stocks, we’ll focus on the absolute lowest-priced of the lot: net nets.

(If you’re new to this newsletter and don’t know what a net net is, I’ve written a guide here.)

I’ve gathered that there are ~180 of them in Korea right now, quite an oddball bunch all trading below NCAV.

Here’s a little overview of what they consist of:

• No single industry dominates the list. The net nets comprise 15 industries and no single one is >13% of the list. (The two most common on the list are electronics/components and auto parts). Just one name on the list is a diversified holding company. The rest do one thing, usually, for domestic customers.

• The median market cap translated to USD for reference is $32mn, and the average is $55mn, with 115 of them <$50mn. 2/3rds trade on KOSDAQ rather than the main board.

• The average P/NCAV is 0.68x. 30 names trade below half of NCAV. Obviously, every one of them trades well below tangible book value.

As of last month, a total of 747 public companies have disclosed Value-up plans out of a total of 2.7k companies listed on the Korean exchange. (You can find recently announced plans on this page.) Those 747 companies account for ~85% of the total domestic stock market capitalization, so there’s obviously a long, long tail of nano-, micro-, and small caps left to join the train. Out of our net net list, just ~1/3rd have filed a Value-up plan so far. I won’t pretend that you can trade around a Value-up announcement pop — maybe you can, I don’t know — and it won’t be my focus in this series. If a company already has a Value-up plan disclosed, that’s great for me as an analyst doing my best to gauge management incentives, but if not, well then you've got a potential catalyst in that every Korean public company will probably join the train at some point.

I think what’s happening in Korea is the perfect tide for value stock pickers, and in this series, I’ll write up every single one of Korea’s net nets.

And I’ll do so in batches. Each post in the series will have a batch of net nets, and how many in each post will depend on how much work each name requires. Some will be quick throwaways, some will require a little digging, and some will take up more space. Perhaps I’ll do deeper single deep dives too. But expect something like 10 stocks +/- 5 for each post, and for each post, I’ll paywall a couple of the ones I like the most while keeping the rest open for everyone.

I reckon this series will last 3-4 months, but don’t worry, this newsletter will not turn into a Korean net net herald (even though my name Sung might indicate so). I have other interesting stuff in the pipeline and will continue writing as usual, only I will be much busier writing more. I truly believe Korean net nets are an opportunity one shouldn’t pass up, so now is the time for sprinting!

Hopefully, which is the purpose of this exercise, what we’ll end up with is a basket of the best opportunities right now in Korea, and I emphasize basket for these reasons:

• Buying net nets in baskets is generally a good idea, for reasons I cover in my guide. What’s usual with net nets is that some will go nowhere for months or years on end and then rerate 2x in a single quarter, either due to something external or out of nowhere. You cannot predict which name will be which, and you don’t need to.

• Even as Korea is opening up, it’s still a foreign market with a different culture and different set of rules. I’m not gonna pretend that sitting in Scandi and looking to place bets in Korean names is not a risky pursuit in itself. Downside protection is absolutely imperative. That’s why we focus on net nets in the first place, due to their wide margin of safety.

• These stocks will be dry of two things which are very important to a lot of investors and a little less important to me: liquidity and information access. You cannot carry out an in-depth qualitative assessment of these companies as you’d do in other markets. You look for crumbs of information and try to assemble a picture which isn’t always possible or complete. It will require a lot of manual translation. This is again why we focus on net nets. They’re already by definition so cheap that the numbers carry a lot of the weight. We want to find stuff where we don’t have to predict much and the risk/reward still looks attractive.

• This last point is only somewhat related to why you should take a basket approach, but I just want to note that if you’re investing in Korea through Interactive Brokers, jumping into stocks about to delist (either through the market cap rule or a controller take-private) is a dangerous pursuit. You can risk IBKR liquidating your position. So unless you got a local broker, try to stay away from potential “forced” delistings.

I’ll emphasize once again that I don’t think this window of opportunity will stay open forever. The “Korean trade” as it sits today is quite similar to where Japan was in 2019. And as always, value investing is about fishing where the fish are. I’m pretty excited about the fishing conditions in Korea.

The first batch of the series will hit your inbox early next week (or perhaps by the weekend, if I can keep my momentum), so make sure you’re on the list.

If you’re not on the premium newsletter and want access to every name I write up (as well as the full archive), it works with a simple annual tier at $500 or a monthly tier at $100. You can subscribe through the button below.

Buckle up, and let’s hunt some Korean net nets!

Cordially,
Oliver Sung

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The title for that writeup was probably a touch clickbaity, though I actually was that excited about the setup. I called it one of the most asymmetrical setups I’d seen in a while. An update is now warranted, and therefore some thoughts behind the paywall follow:

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• ~1.8x EV/FCFF.

• 0.47x P/B, and half the book is cash.

• 0.57x P/NCAV.

• 7.8x price to 5-year avg earnings.

• 3.2% dividend yield.

• Has turned a profit for 15 years straight.

FY25 numbers came out in February, and they were good. Pre-tax profit grew ~14% last FY, the cash pile hit another record, and the gap between the market cap and NCAV is becoming increasingly bifurcated.

There’s no catalyst for this company, and I won’t invent one. The closest thing to a date on the calendar is that the controlling shareholder filed in August 2025 to list its own shares in Hong Kong, and at April’s AGM the chairman said that once that’s done, this company will revisit ways to improve the liquidity of its own shares. So far, there’s been some shenanigans on the governance which I spell out behind the paywall.

This is a tiny company of <$20mn market cap, completely under the radar. It trades <$3k a day. It’s insider-controlled, so the whole free float is worth <$10mn. If you run real money, you can stop reading here (and reach out to me instead). If you run a small account and have patience, read on.

The company’s name is…

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It put out its Q22026 earnings yesterday and the stock has fallen 11% between yesterday and today. Core operations looked fine and growing to me, so I spent some time in the transcript and the MD&A working out what the market sees. The way I read it, the market has taken a few ordinary things and added them up into one bad number, and I’m still taking the other side.

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Here's the story if you miraculously haven't seen the news. In June 2024, a 22-year-old former OpenAI researcher named Leopold Aschenbrenner published a 165-page essay called "Situational Awareness: The Decade Ahead." The argument was that almost nobody understood what was coming in AI, and that he did. A month later he was running a hedge fund named after the essay, seeded by the Collison brothers and Nat Friedman among others. It’s hard to think of any manifesto that has raised more capital per page. His resume up to that point was OpenAI, which had fired him, and FTX, which had imploded. But I'll be fair to him, since the thesis itself seemed about right. The fund started out nailing the AI infrastructure trade, and by the end of June 2026 it was up 439% after fees for the half year, with assets peaking at $45bn and leverage on the public book reported at up to 4x.

Then, last month, the AI trade rolled over, and the fund's four biggest public positions in Nebius, SanDisk, Micron, and CoreWeave each fell >35% for the month. The fund's three prime brokers started calling. And on July 30, the whole public book was sold to Citadel in one block, at a discount, the way you sell a couch that has to be out of the apartment by Friday. $35bn of positions in public AI stocks were offloaded at a total loss (i.e. handed to Citadel in full to settle the margin debt, so that part of the fund is a zero).

After losing its entire public book, the fund reportedly claims to be up 80% since inception. That works because a good chunk of the assets weren't public stocks at all, but a private stake in Anthropic, which was marked up +620% on paper (private marks are whatever the last funding round says). Blend that mark (~1/4 of assets) with a -100% on the public book (3/4) and you land at +80%. If you allocated on July 1, you caught a zero in a month's time.

Now, the other side of a forced sale is usually making a good deal. Ken Griffin, the "king of Wall Street", got to buy a fund's entire book at a discount, from a seller who had to sell that day. The stocks jumped as soon as the block cleared and the forced selling stopped, the Fed had held rates steady the day before when parts of the market feared a hike, and Big Tech's earnings landed a day later, with Amazon raising its AI capex yet again. What Citadel paid was never disclosed, but the next day's jump says enough. And it got the deal by having cash and patience at the moment someone else had neither, a classic Wall Street tale.

Without its excessive leverage, Leopold's book would've had a rough July and lived to see another day.

Now, why do I care and feel the need to write up yet another post on this situation? I'm old enough to have lived through the global financial crisis. And I know what you're thinking: "Hold on. Weren't you about 12 years old in 2007?" Yes, I was a kid. But that age was also when I first touched the stock market, with the worst timing imaginable, right before the whole thing came down. I was a squirrel back then, saving every penny from a little business I ran at the time. My parents even offered me a deal to skip my Confirmation party (the Danish coming-of-age ritual where a 13-year-old confirms his baptism, and, more important to the 13-year-old, gets a large party and collects cash gifts from the whole family) and keep the money. I took the offer and threw everything into the stock market. And, naive as I was, basing my investment decisions on tips from strangers online, I bought the worst of the worst, banks and biotechs. By the time the dust settled I'd lost probably 80% of everything I'd saved, which was quite a bit of money for any 12-13-year-old. Yet it still made me fall in love with the stock market and I've been hooked on this game ever since. And I feel blessed that I got those lessons so early, at a price a kid could afford.

Had I been born a few years later, the only "crash" of my formative years would've been a little taste of the European debt crisis and then the Covid dip, which barely counts. Gen Z has lived their whole investing lives inside one long bull market, with all the craze that's come with it, and that includes Leopold. The market has rewarded them for every escalation they've ever made. Many have been conditioned to YOLO into stocks balls to the wall and gamble their way to the promised nirvana, because every dip they've ever met was an opportunity. In many cases, as reported in the media, they've been right. For one of these gamblers, the bill for all this conditioning came due in four weeks.

There are two important lessons to this whole situation, and both of them are timeless.

1) Leverage

Everyone knows leverage was the bullet here, but not everyone understands leverage itself. Frequently, people synonymize the word "leverage" with the word "amplify", which makes it sound like it works the same way in both directions. That's very dangerous thinking. I've explained this before in my post on the Kelly criterion.

Returns compound, and compounding never forgets your worst month. Say you got $100 in one stock at 4x leverage for a $400 exposure. The stock doubles, and the $400 of gains are all yours, so your $100 is now $500. You keep the leverage on, which means $2,000 of exposure. Now the stock drops 25%, and that's $500 gone, all of it yours too. The stock ends up 50% higher than where you started, and you end up at zero.

In the illustration above, the investor without leverage ends the seven months up 20% and mildly annoyed. The one with leverage is gone. When a stock falls in price, an investor without debt has one question to answer: did the thesis break? And he got time to answer it. An investor on margin has a second question: am I allowed to keep holding, and will my broker answer that question for me? Aschenbrenner saw the opportunity, to his credit. His July 24 letter called the selloff one of the best buying opportunities since early 2025 and invited fresh capital for August 1, adding: "At times we call out opportunities that seem like a particularly good time to add funds, if you have been waiting for one." But six days later, Goldman, JPMorgan, and Bank of America forced the liquidation. He may even have been right about the buying opportunity, but it wasn't his call anymore.

There are only three ways a smart person can go broke: liquor, ladies, and leverage. — Charlie Munger

Regular readers know I make less than a handful of important investment decisions per year. I've written before about why, and I call it the sit-on-your-ass philosophy. Sitting on your ass only works if nobody can make you stand up. I've had many positions sitting in my portfolio through stretches where the market called me an idiot, no matter how ridiculously mispriced the stock was. I'm sitting on one right now. A margin loan takes that power away on day one. Borrowing money to buy liquid assets that have rapidly changing values is simply a recipe for disaster. And you can have "indirect" leverage in your individual positions as well without your investors knowing it (assuming you run OPM) if the companies you invest in have balance sheets that are levered to the hilt. That's why I usually prefer stocks with large cash piles and very little debt. Pretty much all my investing mistakes have involved too much debt at the company level.

Underneath all of this is a simple question. How much should you bet when you think the odds are on your side? That's what the Kelly criterion answers. But if you take away only one thing about Kelly, let it be this. It's far worse to overbet than to underbet. If you underbet, you make less money than you could have, but your risk is reduced by more than the optimal profit you give up. Overbetting is the other way around. If you overbet enough, you're guaranteed to make no money at all over time, on the very same winning bets. And that's what Leopold was running, a concentrated book of AI stocks that were tightly correlated, levered by a reported 4x. It may have been a bold bet with an edge, but at the same time, it was several times past the size where the edge stops mattering. At that size, ruin is just a matter of time.

My partnership's portfolio is concentrated, sometimes very concentrated. But there's no leverage and no shorts, and my estimates of edge are guesses like everyone else's. So when I'm unsure about size, I go smaller. I'd take making less in the good years and still be around for the bad ones any day.

2) Reflexivity

The second lesson is more interesting to me, because funds have blown up on leverage since the beginning of margin lending. Value and price are two different things. The value of a business comes from the cash it makes, how fast it grows, and how risky it is. The price of the stock is just what people will pay today, and that runs on mood and momentum. Nothing forces the two to agree. My investment partnership is built on that fact, as is any other value fund.

Most of the time, the gap between the two is harmless. The business grinds on, the price wanders, and sooner or later they find each other. But sometimes a price runs way ahead of the value and stays there. And then something funny happens, the high price starts fixing the company's problems. Lenders get friendlier, since the collateral behind their loans looks better. Employees stick around, since their options are worth something again. And best of all, the company can sell new shares at the crazy price and put the money in the bank. None of this creates anything new, the money just moves from the people buying the overpriced shares into the company. But it's real money, and if this goes on for a while, the fundamentals will slowly edge toward the price that created them in the first place. This is just how momentum works. A rising price pulls in buyers, the buying makes the story look better, and the better story pulls in more buyers.

AMC was days from bankruptcy in January 2021. Then the squeeze converted $600mn of its convertible debt into equity, and the company sold ~$1.25bn of new stock into the frenzy. GameStop sold ~$1.7bn of new shares by June. In effect, a crowd that gathered to bankrupt Wall Street ended up transferring its own savings onto the balance sheets of two of the most distressed companies in America (AMC is still alive today because of it). The prices were nonsense, but the cash they left behind was crystallized.

By May 2026, Situational Awareness had ~40% of its (again, levered) public book in one stock, Nebius (a stake so big it required a 13G filing). And since filings are public, every pod shop and retail trader could copy the position, and many did. So did Situational's buying inflate these stocks? Partly, probably. A 40% position on leverage is big enough to move a price, and the copycats added more. But how much of the run-up was the fund and how much was real demand, nobody can measure. The companies can't measure it either, but they act on the price anyway. Nebius raised $4bn in March, near the top because it needs to. A hyped share price is god's gift if you keep raising money. The AI startups and data center operators raised money at the same prices and spent it on the orders that every earnings call cites as proof of demand.

So when Leopold's July letter said the fundamentals were accelerating, he probably meant every word. The fundamentals were accelerating. From inside a loop, the loop looks like being right. But his buying and the hype around what he was doing were part of inflating the bubble.

Reflexivity works both ways. Falling prices forced margin calls (a Goldman note counted ~1.2mn of them in Korea alone in July due to the AI trade dipping), the margin calls forced more selling, and once the market smelled a leveraged seller like Leopold, traders did what they always do and shorted the very names he'd be forced to dump, so the rumor of the liquidation accelerated the liquidation.

Will the AI buildout's demand survive its own financing? The next few years will answer that, and I don't know. Hyperscalers' cash flows are real but free cash flows are decelerating at a rapid clip toward zero.

Anyways, neither lesson requires the answer. Here are some takeaways.

1. Never let anyone else hold a timer on your positions. A falling stock asks whether your thesis broke. Borrowed money adds a second question, whether you may keep holding, and someone else answers it. No expected return is worth handing over that answer.

2. When unsure about betting size, err small. Underbetting means making less money. Overbetting past a point means making none at all. Since your edge is always a guess, stay on the left side of the Kelly curve.

3. Reflexivity can keep a run going for far longer than the fundamentals justify, especially when those fundamentals hinge on cash flows far into the future. The loop can feed itself for years. Michael Saylor at Strategy knows this better than anyone. No reason to bet against it, but to lever into something where small variables can shift the momentum or intrinsic value is insane.

Oliver Sung is the founder of Sung Capital. Sung Capital picks underpriced stocks, usually in pockets of the market where large pools of capital (funds and institutions) can't or won't invest. Sung Capital picks stocks only, uses no leverage, and requires a significant margin of safety in every investment. Oliver can be reached at oliver@sungcap.com.

This corner of the stock market, the OTC market, has a reputation, most of it earned by the worst quartile of it. The OTC market has corners that most people would rather not be seen in, so lots of market participants stay away with a ten-foot pole. This is the kind of market where I like to fish the most.

Someone has to run the plumbing for the OTC universe, and not everyone knows that the one doing it is a public company listed on its own market. The venues where those quotes get published, where broker-dealers negotiate and match, and where the price data comes out and travels on to Bloomberg terminals and brokerage apps, belong to OTC Markets Group, ticker OTCM. Cromwell Coulson bought the business in 1997, when it was the old Pink Sheets and the quotes were still printed on pink paper, and he has run it every day since. The stock is quoted on OTCQX, which is one of OTC's markets.

Standing between every buyer and seller in a monopolistic or oligopolistic market is obviously a great business. Exchange operators (OTC Markets is not an exchange, which I'll return to, but it can still be counted here) have always been excellent long-term investments. Look up any exchange operator and take a long-term chart. It's hard to find total shareholder returns <13%/year over the long term.

For an exchange or stock market operator, tolls rise with activity, the assets are a pile of servers, and the customers have nowhere else to go. The market knows it too, which is why the chance to buy an operator cheap rarely comes around.

I’m zeroing in on OTC Markets today because 2025 was the best year in the company's history and the stock has stagnated for more than four years. The company now has a ~$625mn of market cap against almost >$40mn of FCF (ex stock comp), or ~15x (headline is 13x). Measured on my stricter owner earnings number, it's still under 16x. Whenever you get the chance to buy a market operator of the largest game in the world, the stock market, at <16x, that's probably a nice decision because the cash flows are durable as hell. And OTC Markets runs the market the exchanges aren't allowed to compete in.

That's because, legally, OTC Markets is no exchange operator, but a broker-dealer (a distinction the company is probably happy about). It runs four trading systems and the SEC regulates all of them.

Picture a market square in a town where the supermarkets aren't allowed to trade. OTC Markets owns the square and nothing else. It doesn't own the stalls, nor the goods. It never takes the other side of a trade. What it does is decide who may set up, check that the sellers are who they say they are, and take money from three different market participants.

Let's start with the stallholders. >3k companies pay for a pitch, somewhere between $6k and $25k a year depending which one they take, so ~$15k each. A company on the top tier pays less in a year than it would spend on one round of legal fees getting ready for a Nasdaq listing. These stallholders brought in $48.7mn of revenue last fiscal year for OTC Markets.

Then there's the dealers at the pitch. They pay for connection to the venue where all of their OTC business happens, and they brought in $26.3mn of revenue last fiscal year. Across 145 broker-dealers, that’s ~$181k each, which is less than one trader's pay.

And then there's the price list, meaning the record of what everything in the square sold for. For OTC Markets, selling the price list itself is the biggest earner of the three revenue streams, bringing in $50.4mn last fiscal year. ~28k professionals and 10k retail investors pay a monthly fee to access that list. A couple of dozen trading firms pay a bigger fee that covers their whole firm. And Bloomberg, Fidelity, and Yahoo Finance pay to show it to their own users.

Add the three tolls together and you've got a market square bringing in $125.3mn in a year, with 80% of it billed twelve months in advance. For an operation that stands between every buyer and seller in ~12k securities, that's quite a small operation.

Here's how a trade works:

Say I want to buy shares in some Ohio bank holding company with a few branches, founded in the 1800s, profitable every year I can find a record for, and never written up by anybody.

The first thing to understand is that nobody ever listed this bank. On an exchange, a company applies for a listing, signs an agreement, and pays for it. In the OTC market there is no application because the market runs on the dealers. A company that wants a US quote can engage a dealer to set one up, and plenty do. But a dealer can also do it entirely on its own, whether the company asked or not. That has happened before. When a rule change made it easier in 2008, US depositary banks created more than a thousand OTC-traded ADR programs in foreign companies within three months, many without the companies' consent, and some of those companies complained loudly.

Now why would a dealer choose a sleepy Ohio bank to trade OTC? Because market making is a business. A dealer earns the gap between the price it buys at and the price it sells at, and this bank has shareholders who die, divorce and retire, and heirs who want to sell. At some point a dealer decided there was enough of that trade to live off, and asked to post its prices OTC.

Asking is required, because posting prices in unknown companies is how stock scams start. The law says current information about a company must be publicly available before its stock may be quoted, and somebody has to check that it is. These days that checking is mostly done by OTC Markets' own compliance team. And that check never goes away. If the bank's information dries up, the quote dies for every dealer at once, and the stock gets banished to the Expert Market, a shadow corner where only professionals may see a price.

So what this means is that OTC Markets runs the square and it runs the gate into the square, and the gate is written into federal law rather than into a contract.

Now, the bank we’re trying to trade did make one choice of its own, which is what kind of pitch it wants to trade in. It could stand at the back for free. Plenty of companies do that, and they're quoted and tradeable like everyone else. But instead this bank has decided to pay ~$25k a year for OTCQX. Trading on OTCQX means an adviser has been through the filings, the share price clears a minimum, and somebody has confirmed the company is neither a shell nor bust.

Why pay at all when you can be listed for free? Because the paid tiers work like the hygiene rating in a restaurant window. You pay to be inspected and to display the result, and the rating decides who's willing to buy from you. Some buyers won't deal with a stall nobody has checked. Others can't, because their own rules forbid it.

And then there's the usual American issue that every state has its own regulation on top of the federal, so whether a broker may recommend a stock to a client depends on the state the client lives in. A stock listed on an exchange gets a federal pass across all fifty. An OTC stock doesn't, and nobody registers a small bank's shares state by state, so for years a broker in, say, Texas simply wouldn't be able to pitch our bank to anyone. These state laws are called Blue Sky laws, and OTC Markets has worked at dissolving the problem on its issuers' behalf. 40 states now waive the requirement for any stock on OTCQX or OTCQB, up from under 30 a few years ago. Every state added means more brokers who may actually sell stock of an issuer, which is a decent return on a $25k subscription.

At OTC Markets, there are four tiers of pitches, and each step down checks less. To trade on OTCQX, the highest tier, a company has to put up $25k a year. Then there's the "venture" tier, OTCQB, at ~$15k. Then OTCID at ~$6k since it launched in July 2025, and the infamous Pink Sheets at the back which is free.

The fee paid is flat whatever the size of the company. In contrast, an exchange charges by size. At OTC Markets, Siemens Energy, which joined OTCQX this July at a ~EUR70bn market cap, pays the same $25k for its US quote as our small bank, against the six-figure and scaling bill it would face on the NYSE. That's most of why ~70% of the top two tiers on OTC Markets consist of foreign companies. At the same time, this means OTC Markets earns nothing extra when one of its issuers grows tenfold.

So the bank pays its $25k, making me more comfortable to trade the stock, and now my order goes in. But as we established, instead of the order routing to an exchange, it goes to OTC Link. Those 145 dealers post the prices they'll buy and sell at, under their own names. They pay a monthly fee to be connected and more per security to publish their quotes. That dealer takes the other side of my trade, we agree a price in a few seconds, and the trade is done.

But then it prints, and that record belongs to OTC Markets. It's now the only thing telling anybody what this bank is trading at and has traded at in the past. I'll check the position tonight on Yahoo Finance, a fund's compliance desk looks up whether it may own the thing, and somebody in Singapore pulls the quote on a Bloomberg terminal. All three are buying the same price list, and selling it is the largest revenue generator for OTC Markets. A retail Level 2 license (Level 2 shows every dealer's bids and asks with sizes, where Level 1 shows only the best of each) runs $20/month, a professional one $100/month, and a broker-dealer taking the same feed across its whole firm $30k/month. Most of the data revenue arrives through the redistributors, meaning Bloomberg, Fidelity, and the like, who pay OTC Markets for the feed and resell it inside their own products. The three largest of them alone account for 13% of group revenue. Coulson calls the data licensing part of the business a cornered resource. OTC Link is where the price gets set in these securities, so nobody else has the quote and trade history and nobody can buy twenty years of it.

But this business has a moat around it that counts more than data licensing. US law stops a national exchange from trading securities that aren't registered with the SEC, and plenty of OTC issuers aren't. Nasdaq and the NYSE fight over the companies that grow up and leave. Everything underneath is off limits to them. Meanwhile, anybody else can open a rival square, and it still wouldn't work due to entrenched network effects. Registering a trading system is cheap and no statute stands in the way. NYSE Group has run one called Global OTC for years with nothing to show for it. Instead, every dealer is on OTC Link because every other dealer is on OTC Link, and to move you'd need all of them to move on the same morning.

But isn't the moat just a statute then, you ask? I stopped worrying about that when I read the history. The lineage runs back to the National Quotation Bureau, which started printing dealer quotes on pink paper in 1913. Coulson bought control in 1997, when the business was a printing operation with a fax machine. Then Nasdaq's OTC Bulletin Board, the incumbent quotation system for these securities, went away. On the Q32025 call, an analyst put that to Coulson as luck and got corrected.

"We didn't just benefit from the OTC Bulletin Board. We competed it out of existence. We better serve the broker-dealer communities."

A competitor wouldn't need much capital to go after OTC Markets either, because this business requires none. Issuers and data subscribers both pay their annual fee up front, so OTC Markets was sitting on >$30mn of deferred revenue at the end of March. Strip out the cash and the goodwill and ~$34mn of operating assets stand against $50mn of liabilities. The business runs on roughly negative $16mn of capital.

OTC Markets' capex was $220k last year against $2.6mn of depreciation, and the entire physical plant behind the main US venue for >12k securities is $5.6mn of property and equipment, less than the company spends in a year on professional fees. That makes the return on capital infinite, or, in other words, growth free for shareholders. This is a wonderful business.

So why has it derated? Because for four years, operating income has gone nowhere, even on $22mn more revenue.

EPS has gone backwards, $2.52 in 2021, $2.53 in 2022, $2.28 in 2023, $2.26 in 2024. And that is for a company calling itself a growth business. What happened is that the money went into people, which is the only way this company can invest. Here's the income statement, 2021 vs 2025:

Compensation has gone from $34.0mn to $46.4mn, IT infrastructure has added $3.7mn, and professional fees $3.2mn. That's because, as Coulson puts it, "our IT spending, it's people." So the years it spends hardest are the years the margin looks worst.

Was the spending a build or a leak? The headcount gives half the answer. Employees went 107, 131, 134, 133, 130 across those years, meaning all of the hiring happened in 2022, 24 people in one year, seven of them arriving with two small acquisitions. Since then the company has hired nobody on net, so this was a one-time expansion rather than a cost base drifting away.

What did the expansion buy? Mostly it bought the compliance machine. Those hires are the team that now runs the 15c2-11 information reviews in-house, which is what lets OTC Markets man the gate itself instead of waiting for a dealer to sponsor each stock, and what made joining much simpler for foreign companies. The two small acquisitions became the Blue Sky and compliance data products it now sells. And the same stretch paid for the plumbing behind OTCID and overnight trading, the two newest revenue lines which I'll return to behind the paywall. In other words, the money bought capacity that's becoming visible in the topline. Also, the margin has slowly edged back up on cue, 29% in 2024, then 30.5% in 2025, and 25.5% in Q12026 (up 80bps yoy).

Which brings me to the man, because this is an owner-operator story and his temperament is important. Coulson has owned and run the place for nearly three decades now. He holds 27.1% of the shares outright, a family trust holds another 7.4%, and the stock is most of his personal wealth.

What I like most about Coulson is what he refuses to do, which is charge what he could. That's because this company earns 30% operating margins where CME earns ~65% and Nasdaq ~48%, and the gap is deliberate. A shareholder asked him on the Q22025 call whether the spending was now done and margins could head for exchange levels. His reply:

"Why not go for 90%? I actually, the exchanges have a model which I think is probably best exemplified by Larry Ellison at Oracle. And whenever Oracle buys a technology we use, we plan on how are we getting rid of it in the next three years. Then you've got other businesses like Costco, and they provide consistently competitive prices. We need a margin because we need to be open every day. I am not margin obsessed. I am margin of safety obsessed. So when things have generally gone up, our margin has gone up, it's because we've had a good run, and then we have to grind back in. Our goal is to be the kind of company that Charlie Munger would want to own."

He put a number on it a quarter later, and it's hard to miss:

"I get grumpy when it starts going below 30%. Otherwise we get spendy above 30%."

I like it. A man who owns a third of the company and caps its margin on purpose to keep his dealers loyal is behaving like an owner. He's leaving money on the table to widen the moat. You're buying his discipline and patience as much as the business.

Pull back further, though, and those four flat years look different again:

Revenue has compounded at ~10%/year for eleven years and net income at ~13%, with no capital consumed and nearly all of it paid out along the way. In other words, those were four bad years inside two good decades. So the central question was never whether this is a good business, but whether the growth is durable, because at this share price, you're still paying for some.

Let's now get to the bottom of how attractive OTC Markets is as a stock…

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The company is SUTL Enterprise (SGX: BHU), owner of ONE°15 Marina Sentosa Cove and the only listed marina operator in Singapore. On paper, it's one of the cheaper asset plays I've come across in a while:

• 1.1x book, and the book is mostly cash and property.

• SGD69mn of liquid assets against an SGD81mn market cap. No bank debt. ~2x EV/EBIT.

• 25% pre-tax margins, financed partly by long-standing customer prepayments.

• A 5% dividend.

• A pending SGD40mn acquisition that doubles the berth pipeline and lifts EPS 14%.

• A rebuild would cost several times the EV, if anyone were allowed to try.

It reads like the kind of setup that attracted me to Karelia: a cash pile nearly the size of the market cap, a controlling family, and no analyst coverage. But the two are not the same, and the difference is the point of this writeup. Karelia's pile is free cash. The tobacco business needs none of it, so you can count it as value on top, and then you got the exchange-driven catalyst as a cherry on top. SUTL's pile only looks like free cash. SGD40mn is earmarked for an acquisition (which isn't a bad thing), but I'll argue the rest is being saved for the biggest issue hanging over the company: the marina that generates effectively all the profit sits on a single leasehold expiring in 2034. In April, management confirmed it's in talks with its government landlord about renewing it, eight years early. It's for those two reasons I'm writing up SUTL now. What happens at lease expiration is what makes the investment case path dependent. And there's a third reason: SUTL has circulated in deep-value circles for a couple of years, and every writeup I've found on it is extremely bullish, mostly resting on the cash pile. I looked, and the pile isn't what they say it is. My bullishness is more tempered.

Add to that a 53% family owner under a takeover code that has let controlling shareholders take out minorities cheaply, a stock where on some days barely any shares trade, three years of flat revenue, and reported earnings that overstate the cash the business makes today, and you can see why the market wants a discount. This one is for small accounts.

The Tay story starts in 1968, when Tay Choon Hye set up SUTL as a ship-chandelling business supplying merchant vessels in Singapore's harbour. Two generations later it's a private consumer-goods and lifestyle group operating in 18 markets with a reported ~SGD800mn in annual turnover, and the family ranks #35 on Forbes' Singapore's 50 Richest with an estimated net worth of $1.6bn.

Arthur Tay, the founder's son, runs the group, and boats are his thing. He built ONE°15 at Sentosa Cove in the mid-2000s, opened it in 2007, and made it the first marina in Southeast Asia to earn the Platinum Gold Anchor award from the Marina Industries Association. He chairs the Singapore Boating Industry Association, sits on the board of the international marine-industry council, and reportedly keeps a yacht or two of his own.

The listing of SUTL came later, and in an unusual way. In August 2014 the family sold the marina club and a small yacht-chartering outfit into Achieva Limited, a computer-parts distributor that had lost SGD8mn the year prior, for SGD21mn paid entirely in new shares (a reverse merger). SUTL Global, the family's holding company, went from 25.3% of the shell to 54.8%, got a waiver so it didn't have to make a general offer, sold off the IT business, and renamed the company SUTL Enterprise. So the marina has effectively only been public since 2015, and the family took control of a listed company by selling its own assets to it. That sounds worse than it turned out. The deal went through a minority vote, and related-party dealings since have been minimal. Minorities have been treated fair so far.

ONE°15 has ~270 wet berths, 33 of them for superyachts up to 200 feet. Around the berths sit a members' club with restaurants and bars, a small hotel, a spa and gym, and a service operation that fuels and maintains the boats. A wholly owned subsidiary charters out a fleet of >50 luxury yachts it mostly doesn't own, so that part is asset-light. The company also manages other operators' marinas for a base fee plus an incentive fee, and consults on marina development. Revenue splits into 3/4 goods and services and 1/4 membership and management fees.

It's easy to see why demand is strong. Imagine you own a yacht that cost some million and burns a big chunk of that every year just sitting in the water. You need somewhere to keep it, and in Singapore there isn't much suitable waterfront, marina permits are hard to get, and ONE°15 is the best address in the country. The berth costs nothing next to the boat, the boat has to live somewhere, and while it lives there you buy fuel, servicing, dinners, parties, and the odd charter when guests are in town. And Asia keeps producing more of these customers: the region's large-yacht fleet is up ~1/3 in five years according to the industry estimates I've seen, and the marina hosted a record Singapore Yachting Festival in April of last year, with 70 yachts on display and 12k visitors.

So far, so good. Now let me show you why the earnings aren't exactly what they look like, what the cash pile is really for, and what I think the whole thing is worth.

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Open the “Owner’s Manual”, a title lifted from Warren Buffett, and you eventually land on a slide called Big Learnings, displaying “The Essays of Warren Buffett”, “The Outsiders”, and the logo of Constellation Software, which attempts to encapsulate what Kelly Partners is all about: a programmatic flywheel! KPG cites Mark Leonard on numerous occasions and uses Charlie Munger to explain its partnership structure. It runs its shareholder meetup in Omaha in May every year so shareholders in town for Buffett can walk over and hear from Brett Kelly too. By Brett’s own account he’s queued outside the Berkshire venue before dawn for five years running, thermos in hand, with an entourage now >80 people he calls “the Kelly gang.”

Brett posted a long piece on his own Substack a few days ago for the firm’s 20th anniversary, and it’s the best illustration of my point. It’s written in third person, under his own name, about himself. The subtitle reads “the softly-spoken accountant who wanted to be Warren Buffett.” Mark Leonard is quoted telling him, on stage in Toronto, that he’d never seen an entrepreneur stretch a dollar as well as Brett does. The post places Kelly Partners inside a formal academic category of “programmatic acquirers,” citing a REQ Capital study of 13 global serial acquirers (which doesn’t include KPG itself) compounding at 17.5%/year against Berkshire’s 5.9% over the same period, and name-drops Thorndike, Jim Collins, and Rackspace co-founder Graham Weston as shareholders. Brett’s own line is that “the compounder” is the thing, and everything else is marketing. Ironically, his post making that claim is itself exactly that: marketing, at a time when shareholders could use some.

Despite all the virtue signaling, the thing is that Brett Kelly has actually delivered.

Since its inception, KPG has compounded group revenue at ~30% annually, doubling the business six times over with no share issuance. Adjusted book value per share has compounded at 35% per year over that period. It’s close to two decades of a founder buying small accounting practices at sensible prices, funding the growth mostly with retained cash and operating-business-level debt rather than dilution, and doing it year after year. So when KPG went public on the Australian Securities Exchange in 2017, the groundwork was already laid for the hype, and the share price followed suit, with a total shareholder return that ran past 1,000% (or 38% CAGR) at the time when the share price topped in February of last year. The P/E hit 150x (which, due to amortization, is not an accurate measurement of KPG’s cash-generating ability).

This brings us to why I write up KPG now: the stock has fallen off a cliff. From an ATH of AUD13.60/share, it now sits at AUD3.80/share, down 72%, with the ugliest of it in a single week in February, when the price fell almost 30% in a matter of days and the ASX sent KPG a please-explain letter under Listing Rule 18.7. (Any question the exchange had about undisclosed information was met by a flat “no”, signed by Brett.) The reason for the crash is simply that the stock was priced for perfection, and AI fears hit the whole sector this year, compressing multiples across every accounting and services rollup at the time KPG’s own numbers started softening.

Let’s see what we have...

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The business we’ll discuss today is one of those businesses. It’s, to put it plainly, as unglamorous as it gets. There’s no AI angle, no network of software engineers, no moonshot. Just a physical product that people need occasionally, a platform that makes borrowing it frictionless, and a business model that somehow works beautifully for everyone involved. I know because I’ve used the product many times, with enthusiasm, without paying a dime.

The CEO stepped down in February, on the same day the company posted the best results in its 20-year history. The stock fell 24% before the market closed. Which, for a business this good, struck me as worth writing about.

Let’s dig in.

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Better yet, it’s tiny, with revenues of <$20mn. And it operates in a niche so specific and local that even investors who follow the Japanese market walk right past it.

The company’s name appears nowhere in the experience of its end users. And yet, it has ended up embedded in the daily lives of tens of millions of Japanese people through a distribution channel it didn’t build and doesn’t pay for. And it addresses a social problem the government has decided it needs to fix.

But the most interesting bit is the financials. Its cash generation runs at roughly double reported earnings, with the balance sheet loaded with cash at a third of the market cap. That mismatch between valuation multiples (earnings vs cash) might be the best explanation of what leads to this opportunity.

Let’s dig in...

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At its lows, Versant was probably good value. Versant traded at a $4bn market cap and just a few turns of EBITDA, printing over $1bn of FCF. Net leverage sat in the low-to-mid ballpark of most media peers. Management talked extensively about dividends and buybacks. At that price, Versant had the ingredients of the classic Greenblatt setup, leaning into a stock that the market had kicked to the curb for a quick puff.

But now that the puff is gone and stock is almost back to square at a $6bn market cap, in this writeup, I’m gonna argue why you should probably stay away. The more time I’ve spent reading through filings, the less Versant feels like a misunderstood spin and the more it feels like the straightforward melting ice cube many perceive it as. Businesses in secular decline almost always look cheapest right before investors fully appreciate how quickly earnings power can deteriorate. And in this case, the melting may accelerate over the next several years.

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The potential take-private situation at BARK, Inc., however, is too interesting not to write up. I think this one has a high likelihood of completion, with a 47% spread to the higher bid, a 20% spread to the insider-led proposal, and a timeline that could plausibly wrap up within a few months.

Yes, we’re talking about another special situation.

Until we get a larger market flush with more widespread dislocations, special sits are where most of the opportunity set resides. That said, I’ve got some interesting stuff from the generals bucket in my research pipeline, which you’ll read about over the coming months. No matter the market level, there are always ridiculously mispriced stocks out there in forgotten corners of the market. It’s just a matter of flipping every stone and keeping your eyes open.

For now, let’s get on with BARK…

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We’re dealing with a publicly traded closed-end investment company trading at a persistent discount to its NAV. That, in and of itself, is nothing unusual. Discounts exist for closed-end funds for all sorts of reasons: poor liquidity, uninspiring performance, high expenses, unfavorable tax treatment, or simple market indifference. In most cases, the discount is the story of the stock. Either it narrows over time or it doesn’t, and investors decide whether the carry is worth the wait.

But what makes this situation interesting is the structure around it and what appears likely to happen next. The company is very small, the stock is thinly traded, but the underlying holdings are all deeply liquid, diversified across >40 positions, and could be exited in short order.

Over the past three years, insiders have completed multiple tender offers below NAV that steadily increased their ownership, and they now control >90% of the shares. And in just the past month, they’ve taken two significant steps that clearly point toward a privatization, with the final push being a short-form merger.

That could happen this year, and perhaps before July, putting the potential IRR at ~85% using today’s marked-to-market portfolio (taking the market risk).

The company’s name is…

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1. There’s the traditional live auction, where lots are run consecutively from the first to the last lot, with no fixed closing time for specific items. The auction takes place at a physical location, and remote bidders join via an online stream. The action is still about the podium and an auctioneer who knows how to slow down on Lot 37 because two bidders have begun to take it personally. The stream is simply a supplement, there to bring in more eyeballs and incremental bidders.

2. Then there’s the live online-only auction. It’s the same sequential “calling lots” format, except the auctioneer is performing into a camera and the entire bidder pool is remote.

3. And then there’s the timed auction, the one that feels most like the Internet. Lots are available for bidding over a fixed window. Bidders don’t have to show up at a particular moment, they can bid at 9 am, 2 pm, or 2 am, and the only real drama happens at the end, when the timer starts extending because someone bid with thirty seconds to go. Unlike the other two formats, timed auctions are about throughput, not theatre.

Value capture differs across the former and latter two formats. In a traditional live auction, which is usually prevalent in high-ticket and rare auctions for the buzz, the online platform doesn’t “own” the sale, but gets a commission should the sale happen to go through a remote bidder.

But for years, the auction industry has been drifting away from the traditional live format and toward live online-only and timed auctions, partly because they’re more cost-efficient for auctioneers, and partly because of the network effects that a two-sided marketplace offers. Live online-only keeps the cadence of the traditional auction but strips out the physical overhead, while timed auctions go a step further by removing the human bottleneck entirely, letting auctions run at scale with far less labour. This shift is particularly relevant for small- and medium-sized auction houses in a highly fragmented landscape, where overhead matters and scale is hard to manufacture. Most of these action houses don’t have the budget, headcount, or competence to build a credible online bidder experience on their own, and even if they did, they still wouldn’t have the most important ingredient: a large enough pool of incremental bidders to consistently deliver strong hammer prices. Consignors, in turn, are ruthlessly indifferent to the auctioneer’s tech stack or brand identity. They care only about the outcome, and the only outcome that matters is price, so the ability to tap into a wide and right bidder pool is vital. Bidders, on the other hand, care mostly about security, credibility, and a clean transaction experience.

All of this points to scale being a real barrier to entry in the online auction business.

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When people talk about valuation, they often drift toward extremes.

I’ve seen investors treat valuation with meticulous attention to decimal places, with assumptions so elaborate that the model itself starts to eat up all rational arguments. I’ve seen others treat valuation as something to be honored in theory but completely ignored in practice. But probably most often, I’ve seen people treat valuation as a plug variable, something to be massaged until the output aligns with whatever enthusiasm they already had for the asset.

You’ll hear people say that it’s all right to pay a fair price for a great business. My advice is: don’t listen to them. A good investor never pays a fair price for anything. There are two sides to every trade, and there’s no prize for being fair. There’s only the willingness to act when others won’t. A fair price is what you pay when you can’t decide whether you’re the one exploiting an opportunity or the one being exploited. And a fair price for a great business means you give what you get, and that isn’t a particularly compelling way to compound wealth.

Investors aren’t in the same boat together. This is the whole point of Ben Graham’s metaphor about Mr. Market.

The practical problem about valuation isn’t deciding whether valuation matters in an investment, because in the end, it’s the only variable that counts. The problem is learning how to approach it in the real world, where numbers slip and shift every few months — sometimes every few weeks — and where compound interest and its runway can make a huge difference in the intrinsic value you estimate. In other words, a valuation can never be a destination for an asset’s true intrinsic worth, because all valuations are biased, and the future will never play out as imagined.

As new information surfaces, you’ll have to adjust and adapt your valuation estimate. This is called Bayesian updating. And as information changes, remember that it’s not just your value that’s changing, but so will the price, and price will change more violently than value. The question isn’t whether you’re wrong, but whether your wrongness is survivable and whether your rightness is rewarded enough to matter.

So here’s what valuation is: it’s a way to make your assumptions explicit, to see what must be true for your investment to work, and to understand how much room you have for error.

That’s where simplicity helps. A valuation with thirty inputs may feel more thoughtful, but your understanding of it tends to be inversely proportional to the number of inputs you allow yourself to juggle. Valuation is conceptually simple, but it’s human nature to insist on making it convoluted, either to intimidate outsiders or to confer an illusion of insight to yourself. A simple approach to valuation with transparent assumptions will always serve you best.

Here are three other important principles when it comes to valuation:

• Quality growth is always rarer to come across than you think. Quality growth requires that a firm find places to continuously reinvest capital at returns meaningfully above its cost of capital. A firm can grow while destroying value at the same time, and the larger it gets, the harder finding new avenues becomes. If you project growth rates higher than or in line with the recent past, you better have a damn good reason.

• Don’t mistake accounting for valuation. Accounting is a descriptive tool built on conventions, but the real economics of a business hide beneath those conventions. D&A schedules rarely map reality, revenue recognition can distort timing, and capitalization policies vary. In other words, GAAP profits can diverge sharply from owner earnings and FCF. Owner earnings and FCF are what matter in a valuation.

• Make your valuation explicit, but don’t rely on precision. You don’t need to be correct — because you won’t be — but you should be clear about your stance and your process to the degree that someone else could, in theory, replicate what builds up to your value estimate and identify where they disagree. (I’m not talking about publicizing your valuations, only that your own framework should be laid out clearly enough that you can return to it months later without rewriting history in your mind.)

• All you really need to know is whether the asset you’re buying is good enough and mispriced enough for you to make an informed investment decision. Ben Graham once said, “You don’t have to know a man’s exact weight to know that he’s fat.” Two informed analysts will always produce different valuations. If a company trades at less than 2/3rds of a conservative valuation, the valuation doesn’t need to be precise but reasonable enough to show an obvious bargain. What matters, and what I’ve emphasized in previous parts of this series, is that the real challenge in investing isn’t analytical difficulty, but overcoming psychological discomfort. Because the stock market is a pari-mutuel system, great investment opportunities should, by definition, look unappealing to someone else and will require patience and tolerance for neglect.

The best way to learn valuation is to practice it every day. Make it your intent to value assets, companies, and investments, not just talking about valuing them. Valuation is a universal discipline across all public stocks, private businesses, and speculative assets. Through practice and experience, you’ll learn that a dollar earned in one jurisdiction carries different risks than a dollar earned in another. You’ll learn that two businesses can produce the same accounting earnings yet have wildly different intrinsic values. You’ll learn to account for truncation risk, because some businesses won’t survive long enough to justify the projections embedded in a going concern valuation, and that this risk can’t be buried in a discount rate. (In a DCF, this going concern assumption mostly finds its place in the terminal value, and in relative valuation, it shows up implicitly when valuing a company based on how other companies — most of which are healthy — are priced by the market at a given time.)

Speaking of which, discount rates — or the cost of capital — are a touchy and potentially dangerous subject among investors in different camps. Some treat the discount rate as the precise output of a theoretical model like CAPM. Others grasp the concept but decide to abandon it altogether and use a uniform rate for everything. Charlie Munger once called the cost of capital a “perfectly amazing mental malfunction.”

I’ll tell you what the cost of capital isn’t. Contrary to popular opinion, it’s not just the opportunity cost of putting money into one asset instead of something else. Of course, all capital has an opportunity cost. But it depends on what that “something else” is, because two different assets can have very different levels and types of risk. And people encounter (or stumble into) different opportunity sets, so the cost of capital will always mean different things to different people.

So I’m not one of those value investors who debunk modern portfolio theory. “Risk-adjusted cost of capital” can become an abstract concept in theory, but it’s obviously a directionally right one. You don’t have to juggle with betas to believe in risk-adjusted returns. It’s just a matter of common sense. Of course a risk-free asset like a government bond has lower cost of capital than a corporate bond. Of course the lower you are in the capital stack, the higher a return you should demand. And of course a company operating in a currency issued by a country with meaningful default risk has a higher cost of capital than one operating in a stable currency with little national debt. (I can count on two hands the times I’ve seen someone pitch a stock while conveniently leaving out the fact, or not even realizing, that the company earns all of its cash flows in a country where the 10-year sovereign yield sits in the double digits, yet every peer they compare it to operates in an economy with a low-single-digit 10-year.)

When people have issues with the concept of the cost of capital, what they really mean is that they have issues with the cost of equity, not the cost of debt or other debt-like financing. They’re talking about how to estimate the required rate of return on the equity. The problem with the cost of equity is that, because it’s essentially guesswork, it can too easily become an escape hatch to justify almost any investment case. You see it with “quality compounders” being bid up to 50x earnings because investors treat them as perpetual bonds. But what investors are really doing is finding a stock everyone else likes, and then smuggling that popularity into the discount rate. They’ll say that a Costco paying out <1% of earnings while growing in the mid-single digits could be just as cheap as another company growing >10% per year while paying out 5% in dividends and buybacks. This might in theory be true, but it’s potentially very dangerous.

Charlie Munger also said this (which will ring clear if you’ve looked at enough acquisitive businesses): “A corporation’s cost of capital is 1/4 of 1% below the return on capital of any deal the CEO wants to do.”

The rule to follow is simple: if your investment case depends too much on your discount rate, you’re spending too much time on the wrong investment case. The solution is to move on and find something more obvious. There are >55k listed stocks out there. You’ll want a wide margin between your required rate of return and the prospective return before you even consider investing.

(Btw, there’ll be some who read this and point out that Buffett has said for years that the US Treasury rate is the rate he used to discount future cash flows. But what he has really been saying is that he used certainty-equivalent cash flows. Instead of adjusting the discount rate upward to account for risk, he adjusted the cash flows downward to the degree he could count on with his highest degree of confidence. Once you reduce the cash flows to a level of near-certainty, the treasury rate becomes a natural yardstick. And that’s what it is: a yardstick. Buffett didn’t sit around actually discounting cash flows. He evaluated opportunities in his head and compared them by the quality and durability of the cash they could deliver after he’d mentally stripped out anything uncertain. In other words, Buffett wasn’t pretending that every business is safe enough as an alternative to a government bond. He was choosing businesses where, after adjusting the cash flows for risk, the remaining stream behaved enough like a government bond that the comparison became meaningful. And from there, it’s a matter of judging which certainty-equivalent stream offers the better long-term return.)

This brings us to the margin of safety, a pillar of my investment method. “Margin of safety” is a phrase that has been repeated so often that it tends to get lost in the weeds, acknowledged with a nod, but then abandoned in exchange for the shiny new toy that everyone else cares about.

“Yes, I know about Ben Graham and the margin of safety. Have you seen this B2B SaaS business growing 25% a year with only 3x turns of debt, trading 20% below peers? That discount should be enough of a margin of safety when you’ve got a rocket ship like this.”

Where investors tend to miss the meaning behind the margin of safety is when they use it as a poetic way to tell themselves they bought something cheap. But the margin of safety isn’t an abstract comfort cushion. And it isn’t just synonymous with high expected returns. A margin of safety is about survivability. If I have to choose between the investment that protects me when I’m wrong and the one that rewards me when I’m right, I’ll choose the former every time. Paradoxically, it’s usually the former that ends up generating the most reward over time.

So investing with a margin of safety is about focusing intensely on the downside. You don’t want your investment mistakes to originate from paying too high a price relative to some measure of earnings. You don’t want to look back at any investment that went south and say, “If only I’d have bought this at x times earnings instead, then it would have worked out fine.”

Your errors — which are inevitable — should originate from something unusual happening. Something that blindsided you that you probably knew was a risk but a low-probability risk. Obviously, if you understood the future of a business perfectly, you’d need very little margin of safety. But perfect information doesn’t exist when it comes to the future. There are only confidence intervals.

The answer lies in having layers of redundancy in the price you pay for a stock. Redundancy is ambiguous because it seems like waste if nothing unusual happens. But in the stock market, something unusual happens all the time. And in the moment an investment stops cooperating with your thesis, redundancy becomes the only thing standing between a temporary setback and permanent impairment.

Here are some examples of the redundancies I’m talking about:

• Paying a price that assumes muted growth, conservative margins, and unexciting capital allocation, so the business doesn’t need to surprise you on the upside for the investment to work.

• Buying companies with balance sheets that can absorb a few bad years without forcing dilutive equity issuance or distressed refinancing.

• Insisting on economics resilient enough to handle periods of industry stagnation or macro shocks, not just one good year extrapolated forward.

• Owning businesses with management teams who’ve historically behaved rationally with excess cash rather than rolling it into acquisitions that destroy value.

• Choosing industries where demand may wobble but rarely collapses, allowing you to survive the full cycle rather than hope you happened to buy at the right point in it.

• Preferably paying a price that’s supported, or is at least partially protected, by the company’s liquidation value or tangible asset base, so the downside is anchored in something other than a forward earnings projection.

With this concept firmly in mind, you understand that share price volatility isn’t what you should be afraid of or even care about. Share price volatility, and the volatility in relation to the market, is a detached phenomenon that can occur for a variety of reasons outside a company’s fundamentals, such as liquidity droughts, index rebalancing, margin calls, risk-parity unwinds, ETF flows, or just someone on the other side needing cash more urgently than you do. This makes volatility as much an opportunity as a threat, because volatility measures upward variation just as much as downward variation. Stable results should mean little to you if you can optimize the endpoint. So rather than fixate on share price volatility, your time and effort are better spent understanding how the company’s behavior can make the future more predictable and reduce the true risks of your investment. Real risk is the risk that the balance sheet buckles under stress, the risk that management does something irreversible with your money, or the risk that you misanalyze the business. Some of the safest investments I’ve ever made — and you’ll ever make — have been when my purchase was done at the peak of downside volatility.

Now onto how to actually value a business.

There are two avenues to go down here, and both are — or should be — interrelated: valuation and appraisal. They sound similar, and people use them interchangeably (mostly by calling it “valuation” when what they’re really doing is an appraisal), and while the two approaches should, in theory, converge on the same value, they’re not the same thing.

A valuation — which, yes, is usually done by discounting all future cash flows back to present value — tells you whether the business, on its own terms, makes sense to own. Appraisals, on the other hand, are what investors typically rely on to justify an investment (and convince others of the same) because investors are social beings. We like to anchor our reasoning in things that are both based on other people’s opinions and immediately visible. We like to point to how other companies are priced, what multiples the industry trades at, and what the last five deals in the space looked like. We like to show that the market has already blessed our idea by giving similar businesses similar, or higher, “valuations.”

Most valuations you read out there are appraisals masquerading as discounted cash flow analyses, where the analyst uses the DCF to back into a number that was already implied by the peer multiple they had in mind.

And it makes sense why that happens. A DCF leaves the hardest part of the job to you. It asks you to project future cash flows into perpetuity. And anyone who’s done a DCF on a growing company will have noticed that most of the value produced sits far out in the terminal years, often well beyond the boundary where anyone can forecast with any degree of confidence. A one-point change in the terminal growth rate or the cost of capital can swing your valuation by 20-30% without you changing anything about the underlying business.

To understand why that is, you can convert the terminal value in a DCF into a cash flow multiple, and that multiple is simply one over the difference between the cost of capital and the terminal growth rate. If the terminal growth rate is 4% and the cost of capital 8%, the terminal multiple will be 25x the out-year cash flow (1 / [8% - 4%]). Just turning the cost of capital up to 9% and the growth rate down to 3% yields a 16x multiple instead. And as we talked about previously, the further you reduce the cost of capital, the more exponential the “justified” multiple becomes. A 6% cost of capital with a 4% growth rate would yield a 50x multiple on the cash flows. You’ll only experience a few opportunities in your lifetime where you can forecast cash flows with that overwhelming degree of confidence, and even then, you’ll struggle to justify the math.

And then you’ve got the other problem we already talked about, which is truncation risk, or the risk that the business won’t live long enough for most of these projected cash flows to materialize. That risk can’t be folded into a discount rate, because the discount rate is, according to Damodaran, a “blunt instrument that was never intended to include failure risk.” A DCF assumes a going concern into perpetuity, which many businesses will never achieve. This is why, when you’re dealing with a business in distress — or one with a meaningful probability of entering distress — the DCF becomes almost useless in its standard form. You can raise the discount rate, change the margins, and tweak the runway, but none of it will capture the binary nature of failure. Instead, you have to incorporate a probability of survival for each year of projected cash flows, haircut those cash flows accordingly, and then estimate whatever value might still be scraped from the ashes.

These are the reasons why the appraisal approach appeals to most investors. They want to play the pricing game without having to walk through the discipline of stating what the future cash flows actually are. When the future is murky, people fall back on what feels observable: “This trades at half of where peers trade,” or “This is below book value,” or “This is priced like it’s going bankrupt even though management says liquidity is fine.” It’s valuation by proximity. If a group of companies trades at 15x EBITDA, 10x feels cheaper. If the same group trades at 30x, then 22x feels “conservative.” Appraisal is a shortcut, a way of saying you think the business is worth more, without having to specify why or under what assumptions, providing the comfort of valuation without the commitment of valuation. But skipping the hard part of the job doesn’t remove the hard part. It merely hides it.

Appraisals are how people perform “relative valuations.” Instead of grappling with the economics of the business, investors look for reassurance in what others have paid either for the asset itself in the past or for its peers in the present. But what that type of appraisal is doing is borrowing conviction from the crowd, and that’s why it’s bound to be dangerous on its own. When you rely too heavily on appraisal, you implicitly assume that the market itself is roughly correct, just not for your precious snowflake. And even if that assumption held, peer comparisons are never as clean as they appear. Two companies might share an industry label and nothing else. Their capital allocation policies can diverge in ways that meaningfully change intrinsic value. One firm might have a hidden non-operating asset that could be spun off to reduce leverage or release cash without disturbing the core business, while another might be encumbered by contracts or minority interests that trap capital rather than free it. The keyword here is resource conversion option, and such differences never show up in the tidy rows of a comp table unless you deliberately adjust for them. Rarely do investors do that. They line the companies up, look at the mean or median, and call the comparison complete.

All of what we’ve discussed so far should make it clear why valuation is an art, not a science. The art lies in knowing which tool and which lens to apply at which moment. A DCF or contingent-claim valuation forces you to articulate the economics and think like an owner, while an appraisal forces you to acknowledge the environment surrounding the stock. A pure valuator who refuses to consider appraisal will typically underestimate how long mispricing can persist, while an appraiser who refuses to make their assumptions explicit through a valuation will typically underestimate how violently mispricing eventually unwinds.

What I do is treat appraisal as a pricing lens that I only use for 1) reconciling against a valuation with explicitly stated assumptions, 2) producing a rough shortcut during the filtering stage, and 3) referencing transaction multiples only when dealing with a special situation where control value is directly at stake.

As for (1), this is straightforward. If you have your valuation and forecast on hand, all you have to do is divide your estimated value of the operating assets (or the equity value, depending on what you’re analyzing) into whatever measure of earnings or sales you want for the trailing twelve months, and that gives you your justified multiple. Do the same using next year’s forecast, and you have your justified forward multiple. So if your valuation, built on conservative assumptions, suggests the company is worth 12-14x EBIT, you shouldn’t be surprised if the market prices the closest comps at 10-15x. But if the market is pricing them at 20-25x, you now have a clear point of disagreement. This approach is an important nuance, because a pure appraisal typically starts with the market multiple and lets that anchor the entire story.

As for (2), using appraisal as a shortcut in the filtering stage is simply a practical concession to the fact that you can’t model every company on earth. You want a quick appraisal to narrow your universe but not dictate your conclusion. So you need some sort of heuristic and experience to approach the task as a handicapper, not just someone doing relative valuation.

Here’s what I focus on:

• The balance sheet. I look at its fungibility and safety, and I calculate NCAV and tangible book value to compare against the price.

• EV/sales and normalized margins. Like in screens, I move up the income statement to get the cleanest measure. I then attempt to gauge the normalized operating margin, and if it’s not a deteriorating business, I roughly assume the enterprise value will eventually converge to 10x normalized EBIT. In practice, this means the EV/sales multiple becomes the normalized margin with the dot moved one decimal point, so a 15% normalized margin becomes a justified 1.5x sales multiple at some point. So if you’ve got a 15% margin business trading at 6x sales, you know the market already prices in a lot of growth or margin expansion at the current price. This little exercise will make you realize how it’s usually a good idea to throw anything trading at >10x sales into the too-hard pile.

• Free cash flow, but calculated the right way. I don’t rely on data providers to do this job for me because FCF is not a standardized figure, but a constructed number, and its meaning depends on what you subtract, what you count (think lease payments and share-based comp), and whose cash you’re trying to measure. So I make a quick calculation for the current FCF and what I believe a normalized level would be if you strip off volatile items like changes in working capital. The FCF yield then sets my starting yield, which I adjust up by whatever sustainable level of growth I think the business can deliver to get to a prospective very-long term return. If that prospective return isn’t comfortably above the cost of capital, I might move on, though not always. Some stocks will have no free cash flow in any given year, which is fine, as long as I have a high degree of confidence in gauging the cash flows in the future.

When I get to the later stage of diving deeper into a stock, I calculate what I consider the three valuation layers. And as I wrote in part 3, for each of these layers, I keep my focus on enterprise value. I look at the whole business holistically and let the cap stack determine the level of risk I see in the equity slice.

The layers are:

1. Liquidation value. This is the most conservative layer, asking what would be recovered by the owner if operations were shut down. I’ve written a longer post on how I do this here. In almost all cases, liquidation value isn’t the highest use for a business, because even bad businesses are usually worth more than they can be immediately liquidated for. But liquidation value can act as a redundancy and put a firm floor on the downside.

2. Reproduction value. This layer is about understanding whether the market has underpriced something that would be expensive, time-consuming, or structurally impractical to rebuild from scratch. I’m asking, “How much would a competitor or new entrant have to invest to get to the level of this business?” This means I go over each balance sheet item and attempt to restate each to its probable true value while ignoring the goodwill. When reproduction value exceeds market value, you have an additional layer of redundancy. Not only are the assets underpriced, but any rational competitor would be discouraged from entering the space at current prices (and for an entrant to acquire an existing company would mean paying a control premium that would either partly of fully erase the discount to reproduction value). This one is a nice example. In many cases, I’ll just use tangible book value for a quick proxy, and dependent on the business, I might capitalize R&D spend and brand advertising for the number of years that asset would likely need to be amortized (that is, my guess at the asset’s useful life). For some businesses, intangible investments matter hugely and can give you a sense of the moat. I wrote about it in this post using Coca-Cola as an example.

3. Earnings power value. Earnings power value is what really matters for the vast majority of businesses, so this is, of course, the part of the valuation that relies most on your understanding of the economics, reinvestment opportunity, durability of the margin, competitive positioning, and long-term demand. As previous writeups have shown, I don’t shy away from DCFs (at all), but I stay aware of their mathematical fragility. Any model that concentrates so much weight in the distant future should be handled with suspicion. You’ll only find a couple of handful opportunities in your lifetime where you’ll be able to project economics far into the future.

Because I write up a lot of special situations in the newsletter, some people tend to think I always look for catalysts. That’s not true. I don’t actively look for catalysts. I look for mispricings and some form of business momentum. Catalysts simply make the possibility of mispricings resolving faster. The paradox is that the absence of a catalyst sometimes makes a stock even more mispriced. And if it’s mispriced enough, you’ll often find that a catalyst will show up around the corner to force the crystallization anyway when you least expect it. The market is partly efficient after all, and certain market participants like strategic buyers do recognize value if it’s unmistakable. “Cheap” ends up the catalyst by itself, because the control market — as opposed to the OPMI, or the market for outside passive minority investors — eventually arbitrages those gaps away.

Of course, there are companies out there that’ll probably never be for sale. In those cases, the control market won’t bail you out, and the value you ultimately realize will be amplified, for better or worse, by the capital-allocation skill of the people running the business. But that doesn’t change the underlying principle: if you find yourself always needing a catalyst for an idea to work, it’s usually a signal that the underlying business isn’t good enough, the valuation isn’t attractive enough, or your conviction isn’t strong enough to let time do the compounding for you. A great investment doesn’t require a scheduled event to unlock value when the economics should do that for you. Catalysts are coveted because investors dislike not having an “exit strategy.” But a true long-term investor should be someone who doesn’t need an exit strategy, and a true value investor should be willing to accept a very low price in place of a catalyst.

This is important to note because, as you know if you’re not new here, my investments tend to fall into two distinct buckets:

1. Special situations (those with a catalyst)

2. Generals (those without a catalyst)

The point is that the presence of an event never substitutes for the presence of a mispricing. I won’t buy a special sit unless it’s mispriced enough to stand on its own without the event, so that if the catalyst fails to materialize, the investment still has a shot (even if a small one) at working on its own merit. Event-driven investments, by themselves, usually don’t offer enough profit potential to justify taking any significant form of risk.

An event could be any sort of resource conversion activity: a spin-off, a divestiture, a recap, a refinancing, a liquidation, a settlement, a merger, a go-private, a tender offer, a court filing, a regulatory approval, a forced asset sale, a covenant breach — anything that changes who controls the assets and what they can do with them. The key thing all special sits share is that value is being unlocked by action, not by operating results alone. The reason they’re a lucrative pursuit is that they’re usually easy to frame in a risk/reward proposition. Special sits tend to have boundaries. You get a good feel for the predictability of the investment case, and what is usually a wide probability distribution of outcomes becomes a decision tree with narrower, discrete branches.

The generals I invest in, on the other hand, are usually more mispriced than the special sits, not because they have an event attached to them, but because they don’t. Generals don’t need anything to “happen.” They’re the kinds of stocks where people say, “This stock will never move,” until one day it does. They work because the underlying economics are strong enough, the valuation conservative enough, and the margin of safety wide enough that time alone will do the heavy lifting. So it goes without saying that in generals I stick strictly to businesses with satisfactory returns on unlevered tangible capital. Because the timeframe/holding period could stretch, I need the comfort of knowing that every year the business continues to add to intrinsic value. Over the very long term, it’s hard for a stock to earn a much better return than the business underlying it earns.

In a neutral market — that is, a market where prices are neither euphoric nor depressed — my portfolio might end up in a 40–60 split between special sits and generals, respectively. But the proportions swing dramatically depending on the opportunity set. When the market is handing out high-quality businesses at silly prices, I naturally gravitate toward generals. In frothy markets, I tend to find more to do in special sits, which offer attractive absolute returns without moving to the beat of the market.

And the opportunity set very much determines my position sizing too. In special sits, you need a more constant flow of ideas, where when one closes, the proceeds must be reinvested. The position sizing here tends to be smaller because even if the downside is protected, the path is less smooth. You can underwrite the value, but you can’t to the same degree underwrite the mechanics with the same degree of confidence you can underwrite a long-term, solid business.

Generals are different. When the mispricing is severe, the margin of safety solid, and both the economics and people running the business trustworthy, you’ve got time on your side rather than against you, and it makes sense to bet more concentrically, sometimes extremely concentrated. A nice example is Fairfax Financial, which in 2024 had grown to >70% of my personal portfolio. It was a no-lose investment at a very opportune time (August 2020) when the downside was anchored, the people were exceptional, and the gap to value was enormous.

At a certain point, position sizing becomes a question of how much you should bet when the odds are skewed so far in your favor. This is where the Kelly criterion becomes a useful mental model, not as something to follow mechanically (which would be reckless in the stock market when truly great decisions are spaced far in time), but as a way to think proportionally. Kelly’s basic insight is simple: when the expected value is high and the probability of permanent loss is low — which determine your odds and edge — your position size should rise. And the right position size for a genuinely superior proposition will almost always surprise you to the upside. So I don’t “run” Kelly as a formula, but use it as a directional compass.

If a full-Kelly bet tells me to bet 40% of my capital, I know that 1) the expected value is unusually favorable, and 2) I should probably size well below that in practice, because the real world contains correlation, liquidity risk, estimation error, and my own psychological limits.

This also clarifies why special sits rarely justify huge position sizes. Even with a well-defined event path, the payoff is capped, the timeline constrained, and the branches of the decision tree contain more embedded process risk. The “edge” is real, but it doesn’t scale. Generals, when they’re truly mispriced, do scale, because the upside isn’t bounded by an event but by the economics of the business and the patience of the owner.

It’s for this reason that readers know — as I’ve said before — that I buy just a fraction of the stocks I write up on this newsletter (and some that aren’t written up), because I’m a concentrated investor. My portfolio rarely holds >10 stocks and usually <7 (which, of course, is dependent on the opportunity set as there are periods with an abundance of special sits, and there are situations where it might make sense to buy a basket, like foreign net nets). Any serious investor should allocate more to their best idea than their tenth, a recognition that the distribution of opportunities in markets is wildly uneven and that great ideas are few and far between.

If you’re a concentrated investor behaving like an owner rather than a trader, portfolio activity will automatically become de minimis. You can do the math: If your typical holding period is, say, three years, and you on average hold eight stocks, you’re turning over two or three stocks per year. And contrary to the hyperactive mythology surrounding markets, two or three good ideas per year is plenty of work to find.

And once you’ve built a position in a concentrated portfolio with long holding periods, doing nothing is often the correct action. If you find yourself trading constantly, it’s almost always a sign that you’re either failing to size your best ideas properly (if liquidity allows it, I usually buy my intended full position in one lump sum and never think more about it) or failing to buy businesses you’re willing to sit with for years. A portfolio built on mispricings that take time to converge is a portfolio that compounds not through frantic movement, but through stillness and equanimity.

Which brings me to when to sell and let go of a position. My discipline here is simple but, like almost everything else, not mechanical:

• I never sell because a stock has gone up. Price isn’t evidence of correctness, but evidence of changing market opinion. What matters is whether the gap between price and value has closed (or has closed enough).

• I sell when the thesis is broken, not when the share price is down. A stock that drops 30% right after I buy it doesn’t bother me. Cracks in the investment case that form after I’ve entered, even if they force me to recalibrate on the go and ultimately lose money, don’t bother me either. But misanalyzing the situation from the beginning bothers me a lot.

• I also sell when the opportunity cost becomes undeniable. A new idea must not be marginally superior but clearly superior to displace an existing holding, even if the existing holding is fine. It has never made sense to me to swap an idea I know intimately for something I don’t, just because it looks slightly better.

• In special sits, I sell either when the event has crystallized or the potential IRR is no longer attractive. If you’ve got a good special sit, the market tends to front-load your thesis into the share price, and your IRR often ends up higher even as the event has yet to materialize.

Here are two important points to end this part of the series:

1. You will always be wrong, which is okay, because valuing stocks is an art. I rarely know why a stock is cheap when I’m buying it, and I don’t waste much time trying to guess why others avoid it. My focus is simple: do I like the business, and what is it worth? Labels like “contrarian” don’t matter. The tricky part in investing is that you almost never approach an idea neutrally. Before diving in, you already know the multiples the stock trades at, and that primes you to see problems that “explain” the price. Once you’ve seen a cheap-looking price, you can’t undo that kind of bias, and your mind absorbs the market’s view before you’ve formed your own. The nature of valuation is that you’re basing a view of an uncertain future on incomplete information, so it’s natural to look for guidance in the wisdom of the crowds. But, as counterintuitive as it is, that instinct is the wrong process to apply to stock picking.

2. Focus on the process, not the outcome. Investing is a probabilistic game, and probabilistic games punish anyone who judges decisions by short-term results or low sample sizes. One of the most common errors in the stock market is confusing a good outcome with a good decision. A stock going up doesn’t validate your thesis any more than a stock going down invalidates it. The entire point is that you don’t need to be right often, you just need to be right well. It’s entirely possible to be very profitable over time even if the majority of your investments are losers. It’s the belief that you must always be right that leads you to lose discipline, rationalize sloppiness, and let emotion dictate your decisions so that you end up riding a bad idea for longer than you should.

Thanks for reading, and stay tuned for part 5 — the final of the series — which will cover how I train my brain every day so the whole process we’ve talked about in this series slowly compounds over time, and so information doesn’t go in one ear and out of the other. I hope you’ve enjoyed the series thus far.

Cordially,
Oliver Sung

1. What’s the controller trying to do? A good setup is one where the controller either wants the asset badly enough to pay up or is open to selling if someone else pays more.

2. How credible are the actors who’ll shape the process? That includes the board, the independent directors, and the advisors around them. A strong group will insist on a real process, push for majority-of-the-minority protections, and, when appropriate, run a go-shop to bring in competing interest.

3. Is there credible third-party interest? A good take-private setup includes the possibility, even if small, that someone else might step into the ring. An actively consolidating industry helps.

4. Are there activists involved? Activists can dramatically change the payoff of a take-private by publicly pressuring insiders, threatening litigation, and coordinating minority opposition. If the cap table is all passive, the odds of a controller steamrolling the process go up.

5. Is there a margin of safety? This is the most important. If the stock is trading meaningfully below a reasonable estimate of intrinsic value (and ideally below the take-private bid as well), your downside is cushioned even if the deal fails, and the upside is amplified if the bid is raised or a competing bidder appears.

I believe our stock today checks the right boxes across most of these questions.

Controller-led take-privates, or MBOs, are attractive because in the event that the initial bid is lowballed enough, there’s immediate upside in a potential revised bid or a third party stepping into the ring. And even if the proposal fails, you still own a stock at a price below what a sophisticated buyer with complete inside knowledge was just willing the buy the whole shop for, with a rerating catalyzed by the offer being put on the table in the first place. In other words, if you get into a take-private situation cheap enough, the margin of safety and risk/reward proposition can be highly favorable.

This situation hit my inbox via Google Alerts last week, and I immediately wrote the name down to get to work. My inbox has been busy this year, because this company isn’t the only publicly listed US company facing a take-private attempt. Other examples include, but certainly aren’t limited to, KNOT, Forian, and Golden Entertainment. There’s been a clear pickup in these situations lately, and several forces seem to be driving it. Deep pools of private equity dry powder are still sitting on the sidelines. The stock market has become increasingly bifurcated, with anything outside AI, quantum, or a megacap narrative getting left behind. And the growing burden and volatility of being public has made the private route more appealing for a number of companies.

So every so often, a take-private attempt worth a closer look shows up, and I’ve zeroed in on the one we’ll talk about today for good reason.

The spread implied by the take-private at today’s share price is ~6%. But that, of course, isn’t why this stock is interesting. This was the piece of news that grabbed my attention:

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Following its completion of the 19-property portfolio sale to Cortland Partners, Elme Communities at the end of last week announced a $14.67 per share special liquidation dividend to be paid on January 7, 2026. This lands at the midpoint of what management outlined in its August liquidation announcement — back when I wrote up the stock as a liquidation play for a 20% expected IRR.

With 99% of attending shareholders voting both the deal and liquidation proposal through on October 30, and with the share price still trading like a layup even after the vote, last week’s dividend announcement simply formalized what was already a high-conviction outcome.

As a result, last week, the market quickly corrected course. The IRR has now been front-loaded into the share price, and the investment case has played out. Since my original writeup, the IRR sits at 22.2% and well over 100% since the vote. Gotta love those boring special sits.

If you’re not premium, I’ve removed the paywall so you can read the original thesis here:

Sung Capital

Liquidation play for a 20% IRR

As I've written before, this newsletter is like a public notebook for me: a place where I jot down my ideas (and non-ideas) to organize my thoughts, expose blind spots, and sharpen weak or incomplete arguments. I write up far more stocks than I own, since I'm a concentrated investor. These writeups stem from my daily hunt for ridiculously cheap, off-the…

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a year ago · 4 likes · 5 comments · Oliver Sung

Update #2

I’m also pleased to share that Sung Capital has now been registered with the Danish Financial Supervisory Authority as investment manager for an alternative investment fund (and that the fund itself has likewise been registered with the FSA). This is quite a milestone for me. I’ve dreamt about setting up an investment partnership since forever, and here we are.

Many of you have been following my writing from its earliest Junto days, when my newsletter was simply a place for me to publish research, test ideas, and document my thinking. A heartfelt thank you to everyone who’s still here and to those who wrote me kind notes when I revitalized the newsletter under Sung Capital. Your encouragement and support have meant more than you think.

(I’m mentioning this update strictly for informational purposes. It should not be interpreted as investment advice, a marketing communication, a solicitation, or an invitation to invest in any alternative investment fund.)

Bonus update

I have an exciting writeup coming on yet another special situation within the next couple of days. We’re dealing with a proposed take-private offer by the controlling CEO and chairman. The cash offer sits at a modest premium to the current market price, but things get interesting when you dig deeper. This came on my radar when I was alerted that a minority holder had sent a letter to the board arguing that the offer dramatically undervalues the business, claiming it’s worth a whopping >3x more than the bid. Even four sell-side analysts — who will rarely put out price targets far above or below the share price unless they have a very strong case — collectively sit at twice the current share price. I agree: the offer grossly undervalues the business.

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Setups like these are attractive because there’s huge upside in a potential revised bid or a third party stepping into the ring to snatch up this scalable business with high recurring revenue, strong unit economics, and clear strategic value to both financial sponsors and industry buyers who continue to consolidate. And even if the proposal fails, you’ll still own a stock at a price below what a sophisticated buyer with complete inside knowledge was just willing to buy the whole shop for, with a rerating catalyzed by the offer being put on the table in the first place. In other words, the margin of safety and risk/reward proposition here is solid.

You don’t want to miss this one, so keep an eye on your inbox this week.

Cordially,
Oliver Sung

PS: Part 4 of my investment method series is coming this week too. It took a back seat to a few practical priorities recently, but it’ll be well worth the wait.

Oliver Sung is the founder of Sung Capital. Sung Capital manages an investment partnership and picks underpriced stocks, usually in pockets of the market where large pools of capital (funds and institutions) can’t or won’t invest. Sung Capital picks stocks only, uses no leverage, and requires a significant margin of safety in every investment. Oliver can be reached at oliver@sungcap.com.

FILA, an Italian branded stationery (for kids, office workers, and artists) manufacturer, owns 26% of its Indian lower-end equivalent, DOMS Industries. This stake has a EUR-equivalent at-market value of EUR386mn. FILA itself trades at a EUR470mn market cap and has EUR255mn of net debt plus EUR4mn of NCIs, for an enterprise value of EUR729mn. So if you remove FILA’s DOMS stake (booked via the equity method at EUR143mn) as a non-operating asset, the market currently prices FILA’s operating assets at EUR343mn. For reasons I’ll explain later, since cash flows are highly seasonal in this business, FILA will likely generate some EUR70mn of free cash in Q42025 alone, putting pro-forma EV at EUR659mn and thus the implied value of the operating assets at EUR273mn. This is for a business that in the TTM earned EUR73mn of EBIT, putting the multiple on FILA’s core business at 3.4x. This is cheap for a century-old, vertically integrated, fairly predictable business with defensible global market share (20–60% for its main brands in their key local markets), having earned >10% EBIT margins for more than a decade. The only real catch is that DOMS trades at nosebleed levels in the Indian market, but FILA isn’t constrained by any lockup and could sell anytime it wants.

As there are several writeups on FILA out there on the internet — the stock has gone from overlooked to picked over by small-cap value investors — you might wonder what it is I think I add to the literature. The answer is that while I recognize that FILA is cheap, I’m not so sure it’s as mispriced as other writeups make it out to be, and I’ll explain why behind the paywall.

My view is backed by two other reasons:

• The writeups I’ve read on FILA all seem to (conveniently) leave out the fact that the company has a non-negligible amount of debt for a slow-growth (currently no-to-negative growth in real terms) business with cash flows that are heavily impacted by large swings in working capital running at >40% of sales. This debt levers the upside for the equity in the case of a rerating but also increases the risk of an off analysis. One writeup I’ve seen uses P/EBITDA as a nonsensical valuation metric, and another uses management’s guided FCFE to show that the equity stub trades at 1x FCFE, concluding that it must be extremely cheap. But P/FCFE (and please never use P/EBITDA unless the firm’s net debt position is exactly zero) is an optimistic shortcut for a levered business. If you subtract the DOMS stake from FILA’s pro-forma EV, then add back full-year financial expenses (net of the tax shield) to FILA’s EUR40mn guided FCFE for FY25 to get to FCFF, you arrive at something closer to 5x FCF for the enterprise. Cheap, but much more sensible to me, considering the swing factor of the DOMS stake, compared to what other writeups make this out to be.

• Most of these writeups focus on FILA while superficially analyzing DOMS. But SOTP (or NAV) analysis is bonkers if the underlying assets are massively overpriced. FILA’s DOMS stake makes up ~60% of FILA’s pro-forma EV, so it’s obviously important to focus attention on the DOMS business. DOMS’ future looks bright, while FILA’s core business is in a no-growth industry with challenging demographics, certainly in Europe. (The smaller “fine arts” segment might benefit from an ageing Western population, so it is slightly better positioned.)

These points take little away from the fact that FILA does look cheap here, but the investment case is almost entirely dependent on how management intends to allocate capital over the next few years. It’s important to get the analysis straight. I already gave the core of it in the introduction, so the following are my expanded thoughts, starting with DOMS:

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