VALUE: After Hours (S07 E39): Forgotten Money and Forgotten Stocks: The Peaceful Portfolio Concept

During their recent episode, Taylor, Carlisle, and Bogumil Baranowski discussed Forgotten Money and Forgotten Stocks: The Peaceful Portfolio Concept. Here’s an excerpt from the episode:

Bogumil: Yeah. I think what I’m looking for, it’s a certain gap between reality and perception. I think you can find that gap between across a very wide spectrum. I think you can find it in the very cheap bucket and you can find it at the very, well, expensive end of the spectrum. I think we all have to find a place where we’re comfortable. I’ve talked to enough people to know that there’s probably a thousand ways to make money owning stocks, I have no doubt.

At the end of the day, the best portfolio is the one that you can hold or your clients can actually hold. If they feel comfortable holding certain things that move up and down a lot, or that are cheaper or more expensive, or have better margins or lower margins, whatever it is, you found a sweet spot that resonates with your audience. So, I evolved in the sense that I would rather hold slightly better-quality businesses or better-quality businesses that I could almost forget about. I take this idea to its limits. Somebody asked me, I think it was James O’Shaughnessy. He asked me, “What kind of money you want to manage?” I told him, “Forgotten money.” And he laughed.

[laughter]

Bogumil: And I said, “No, I really mean it. I want to manage forgotten money.” And he said, “What do you mean?” The clients that I work with, it’s the money that they don’t immediately need, but it’s the money they can’t afford to lose. I think it’s a beautiful framework and setup for it for what I’m trying to do. If you have money on the side that you need for the house, the car, the college, for the kids, it’s not the money that you can really invest. I think we’re not as open and honest about it, that’s not really investable capital in the sense that I see investable capital. The capital that I manage, it gives people huge peace of mind that it’s there, but it’s not part of the daily equation that that’s the money they have to dip into to make this payment or that payment.

But within that forgotten money framework, I’d like to have forgotten stocks. I’d like to have stocks that I could just forget about. If I forget about them and not check on them for six months or a year or maybe five, will they be more or less okay? That’s how I look at it. It’s a huge test. I’ve owned stocks that I had to watch. Like, really, really watch quarter to quarter. How much worse is this getting? [laughs] I’m not going to get that [laughs] time, effort, attention back. I don’t think I was compensated proportionately in terms of the investment return for what I was trying to do.

Tobias: Yeah, that’s certainly been true for cyclicals for a very extended period of time that sort of buy and sell. Necessary for cyclicals, it’s definitely a buy and hold, never sell type market for the things that have won, which is the Mag 7 and so on. You talk about compounding wisdom as much as compounding capital. What do you mean by that, and how do you go about doing it?

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