Jae Jun Complete Growth CGI Interview

 
April 2010 CGI Value Voices:  
Interview with Jae Jun 
Dear Member:
Our fourth installment of the Value Voices  Thanks for being a Value Focus Member. 
Interview Series features Jae Jun. We hope you’ll 
enjoy his reflections.   Best wishes, 
Ragu and Jeff 
Background 
Jeff Annello: To start, tell me a little bit about  JJ: I started like mostly everyone else – on the 
your background. What were you doing before  wrong foot. My initial studies included trading, 
you got into investing?   technical analysis, and looking at which day of the 
Jae Jun: My background is in engineering, and my  week produced the best results. 
studies and current career is in the 
telecommunications industry. To be honest, until  My current wife ‐‐ fiancée at the time ‐‐ wanted 
2007, I had never read or taken any classes  to be a CFA and owned a copy of The Intelligent 
related to finance, accounting, or economics. I  Investor by Benjamin Graham. Out of curiosity, I 
always skipped the financial columns because I  started reading it. To be honest, I fell asleep the 
found them boring.  first 12 times I tried to read it. 
JA: How did you become interested in investing?   Eventually, though, I managed to read through it 
JJ: It was pure luck that I started because, at the  with drowsy eyes, and moved onto Warren 
beginning, I had very little interest. I had a  Buffett. That’s when things finally starting 
financial advisor first, and later found out that he  clicking. 
was part of a pyramid financial advisory firm. I 
had been signed up to the most expensive  Later, I came across Joe Ponzio’s blog, F Wall 
fund/plan and was constantly losing money.  Street, which is my number one recommended 
book for beginning investors. 
So I decided to forfeit my account. It was a big 
loss at the time compared to my net worth, but it  JA: To what do you attribute your change in 
helped me to realize that only I could take  attitude towards business and investments? It 
responsibility for my money.  went from being a total bore to being a big part 
of your life. Why is that? 
JA: How did you go about learning the craft of  JJ: It’s funny because I had never imagined myself 
investing? What books, resources, or people  as a business owner, and convinced myself that 
were your earliest influences?  business wasn’t my thing. It’s unbelievable how 
May 2010 CGI Value Voices: Interview with Jae Jun 
©2010 Complete Growth Investor LLC  Page 1 
 
wrong and narrow‐minded I had been. I never  JA: What allowed you to improve in your 
realized that business and investing actually go  financial statement analysis? Was it simply 
hand in hand. That’s what Buffett taught me, and  repetition? 
through this lens, I could visualize how a  JJ: I just hit a plateau. Not having any accounting 
company was operating. Rather than focusing  knowledge made it a very frustrating plateau, but 
and fretting over stock prices, I became  I knew there was an answer. I kept asking myself 
interested in how businesses were run and the  – if other people can do it, why can’t I? 
potential of each one that I came across. 
So I just kept reading books, knowing that I’d find 
It really was luck that I finally came around.  the answer. Finally, I did. 
JA: Tell me about an early investment you made.  The answer was in the book The Art of Short 
How did it go?  Selling by Kathryn Staley. It’s an awesome book 
JJ: My very first investment was a company called  that’s filled with case studies and examples of 
Genlyte. It was a recommended stock from The  analyzing the fundamentals of the financial 
Motley Fool Stock Advisor newsletter and, after a  statements and business. Within those pages, 
few months, Philips bought out the company.  there were bits and pieces of information that I 
had been looking for. 
That was my first taste of success and proof that 
small, well‐run companies have a high chance of  JA: How did you get into writing online? 
being bought out.  JJ: Originally, it started as a way to document my 
thinking, analysis, and process. Doing critiques is 
JA: How have you improved as an investor over  also a great way to learn, and if I was going to put 
time?  something on the web for thousands of people to 
JJ: I’m always hungry for knowledge and to learn  read, it had better make sense. This forced me to 
new concepts. Since I’ve never had a formal  think things through and make sure I knew what I 
financial education, I tend to think that I’ve got a  was writing about. 
lot to catch up on. As a result, I’ve been reading 
books and new ideas like mad.  It’s also a great way to read what you wrote years 
back and realize the mistakes that you made, or 
I focus on books that I can apply to my own  how your methodology has changed since then. 
investing, so if something details new valuation 
processes, models and ideas, I’m all over it.  JA: Do you like to read books? What are your 
favorites? 
My biggest hurdle was trying to interpret  JJ: For investment books, I always try to read the 
financial statements. I could go through each line  ones that are not widely known. These books are 
and understand what they were. But for several  far less popular because they place a heavy 
months, I couldn’t figure out how to interpret it  emphasis on process, method, and hard work, 
in relation to other parts of the financial  which too many people skip. 
statement and business. 
One of my favorites is Quality of Earnings by 
Thornton L. O’glove. It’s a brilliant book that was 
 
published 10 years ago, yet hardly anyone knows  great books include Applied Value Investing by 
about it. Everyone who has read it says the same  Joseph Calandro, Jr. and Value Investing by James 
thing.  Montier. 
Outside of investing, I mainly read books about  JA: What are your professional goals? Would 
Christianity.   you manage other people’s money 
professionally if you had the chance? 
JA: What are some other books you’ve enjoyed  JJ: At this point in time, professional money 
that you’d consider “not widely known?”  management isn’t at the top of my list. No one 
JJ: One that doesn’t receive the attention it  knows what will happen in the future, but I prefer 
deserves is The Five Rules for Successful Stock  to sleep knowing that my decisions aren’t 
Investing by Pat Dorsey of Morningstar. Other  affecting somebody else's hard‐earned money. 
Philosophy & Process 
JA: Let’s talk about your investment philosophy  while others may fall under special situations. 
as it stands today. What are your main tenets?  Others could be cheap based on FCF metrics, and 
What do you look for in any investment?   some recent ones that I've been studying and 
JJ: I've always looked for cheap companies. When  testing are negative enterprise value stocks and 
I say that, I mean cheap relative to free cash  increasing cash return on invested capital 
flows (FCF) and net current assets (NCA). I also  (CROIC). 
want the investment to be protected on the 
downside, either by assets or moat.  JA: Of the prominent investors we all follow, 
whose investment style is yours most closely 
If I know what the floor is, I know what I'm  aligned with? 
working with. By placing a quantitative figure on  JJ: Honestly, I don't follow any of them closely, so 
the downside, I can measure both the upside  it's hard for me to compare who I am most 
profit and the downside to determine the  similar to. 
attractiveness of the investment. 
If I had to choose, it would be Ben Graham. I love 
This helps with my portfolio allocation, as well,  cheap stuff. The cheaper the better. If Warren 
because I generally don't hold more than 15  Buffett likes 50 cent dollars, I like 25 cent dollars ‐
stocks at any one time. By weighing and  ‐ and even cheaper. Sometimes, a 50‐cent dollar 
comparing the downside and upside, you also get  is too expensive for me. 
a sense of how strong your portfolio is. 
JA: How do you think about portfolio 
I look for many things in an investment.  management? Do you consider yourself a 
Sometimes, too many things, which is why I  concentrated or more diversified investor? 
categorize or split up certain companies  JJ: I'm with Buffett on this one. I'm concentrated 
depending on how I find it. Many cheap stocks  because I want and need to know what’s going 
fall into the Graham Net Net pile, for example,  on in my companies. As a part owner, it’s my 
 
right to know how the company is performing  JA: How do you find investment ideas? 
and the direction it’s taking. Holding even 30  JJ: I find ideas everywhere. Magazines, books, 
stocks will make it impossible for me to know the  pre‐defined screens that I create, other blogs, 
details.  Google alerts for certain keywords, and asking 
people directly. 
JA: How successful would you say you’ve been in 
finding these extremely cheap companies? How  I’ve also written about how to find specific ideas 
well have they worked out in a concentrated  in real time on my blog using the advanced SEC 
portfolio?  search, Twitter, and a few other methods. 
JJ: The market in 2008 to 2009 was filled with 
cheap companies. So many companies were  There are so many ways to find ideas – the 
thrown out without good reason.  hardest part is performing the follow‐up 
research. 
You look back and scratch your head wondering 
how crazy Mr. Market really was. A perfectly  JA: Okay, so you’ve found an idea. Bring us 
healthy and fundamentally well‐run company  through your process of investigating the 
being priced as if it was bankrupt just didn’t make  opportunity and deciding “Yes, I’ll buy it,” or 
sense.  “No, this is not a good investment.” 
JJ: First, calculate the value of the balance sheet. 
My portfolio in 2009 consisted of nothing but  Second, look at the financial statements to see 
cheap stocks, and the performance was  what the FCF and CROIC numbers are. These two 
unbelievable. I was up 290% for the year, but I  steps alone can filter out a lot of bad 
certainly won’t be able to replicate those results  investments. 
for a very long time.   
When it comes to stocks that I’m interested in 
JA: Besides long equities, what else do you put  buying, I review all of the financial statements, 
in your portfolio? Do you ever short stocks or  and quarterly and annual reports. I try to 
buy bonds, mutual funds, or derivative  understand the business to determine what the 
instruments like options?  realistic growth rate and future of the business 
JJ: I've only gone long. No shorts, bonds, funds or  will be. 
other instruments. The reason is that each   
investment class requires a new discipline and  Once I get a good understanding of the business 
learning process, which all require time.  and how attractive it is, I run the companies 
through my valuation tools to work out, where 
I would like to learn options but ‐‐ is it just me, or  applicable, the discounted cash flow (DCF), Ben 
are they incredibly confusing?   Graham's formula, and earnings power value 
(EPV). 
I’m still learning a lot about options and 
 
derivatives myself. It‘s certainly a minefield but, 
When all three are very close to each other 
as with any other class of investments, there are 
without having to make any major adjustments 
bound to be opportunities.  
or fiddle with numbers, experience has taught me 
that I’ve found a pretty good idea. 
 
JA: How far back do you usually go in reading a  I often follow the 80/20 rule, where I've done 
company’s financial statements?  80% of the work in the first 20% of the time. If 
JJ: I’ve created my own spreadsheets, which  what I have in front of me is good at the time, I 
show the past 10 years of financial statements. I  may buy a small position. Once I have a holding, 
always try, at minimum, to look at the past two  I’m inclined to do further research to reach that 
to three years of data to check for accuracy. Once  100% of work. 
I get beyond two to three years of statements, I 
believe the historical numbers won’t have much  Scuttlebutt can't be done overnight. Sometimes it 
effect on the overall valuation, as regression and  takes days, weeks, or months. If you wait until 
smoothing of numbers takes place.  you've solved the puzzle before buying, there are 
high chances of missing out on your best ideas. 
In my new spreadsheets, I’m now able to view 
the past 66 years of data – if the numbers are  As Buffett said, you don't need to know the 
available, of course.   weight of a fat man to know he is fat. 
JA: What sources do you spend the most time  JA: Do you think that buying before you’ve 
reading? Where do you focus your time?  completed your work exposes you to mistakes? 
JJ: I refer to the SEC website for any information  JJ: Since I’m looking for cheap stocks to begin 
that I require. I have a direct shortcut on my  with, if I realize I’ve made a mistake and sell out, 
toolbar to quickly search a company's filing,  the price hasn’t moved much. Although it can 
which makes it much easier. I don't spend much  lead to mistakes, it also allows you to not miss 
time reading newspaper articles or other bits and  out on big opportunities. By focusing on easy‐to‐
pieces of news, as I’ve found that to be an  understand businesses, it mitigates the risk of 
ineffective and time‐consuming process. What  making mistakes. 
better way is there than getting the info directly 
from the horse’s mouth?  JA: Where do you need to improve as an 
investor? 
JA: What role does “scuttlebutt” play in your  JJ: Nobody is perfect, and I'm no different. In 
investment process?   2007, when I first started, I learned the hard way 
JJ: Scuttlebutt is very important. But what’s also  about proper asset allocation. I would get 
important, is knowing the difference between  excited, and just buy a big chunk of stock without 
relevant and important news as opposed to info  comparing the risk to reward and how it stacked 
you spent hours digging up. You can convince  up against my other holdings. 
yourself that it’s important due to the amount of 
time you spent.  I'm also improving my emotions. Although I don't 
write down how I feel after or before buying each 
Having information is good, but too much  stock, I try to make a mental note, and reflect 
information can cause confusion and second‐ later on how my emotions affected the way I 
guessing. It’s so easy to miss out on huge  invested in the company.  
opportunities due to something you found which, 
in hindsight, wasn't that important at all.  Being a value guy, I've missed out on many huge 
opportunities. Sometimes I knew that something 
 
was extremely cheap; yet, despite my research, I  always trying to buy things cheaper, so my order 
didn't have the conviction to buy, and often  limits are always a few cents lower. If something 
missed out on huge 100+% gains. The latest  is cheap with a 50% margin of safety, and I am 
opportunity I missed is now up 1,000%.  certain of the prospect, I still find it difficult to 
overcome my mental bias of buying at a higher 
This leads to an area where I need big  price than my original target.
improvement – not fretting over a few cents. I'm 
Investments and Businesses
JA: What would you consider to be your most  I just started buying and, before I knew it, I held 
successful investment to date, and why?  four radio companies, all returning well over 
JJ: If you’re basing success on the highest  100%. 
percentage gained, then General Growth 
Properties, Inc. (GGP) would top the list with a  JA: What would you consider your least 
current profit of 3,000%.  successful investment? Why? 
JJ: My least successful investment was a tiny 
Even with that great return, I’d have to say that  company called Emageon (EMAG). It was a 
my best idea was Radio One, Inc. (ROIAK), which  merger arbitrage play where the spread to the 
has delivered a return of more than 1,000%. I  buyout price was about 50%. The merger was not 
knew about the radio industry for quite some  well handled, and the market assumed that the 
time, as I first started studying Cumulus Media  deal would not go through. But I had performed 
(CMLS) in 2007 to learn about special situations.  my due diligence and was fully confident that it 
One year later, that study paid off as I revisited  would. 
the company. 
From the point I started buying until the merger 
The nature of the radio business is highly  deadline approached, I was up 50%. With one day 
leveraged and dependent on the economy. It  remaining, the spread was 10%. Then, on the day 
turns out that most of the companies had loans  of the merger, news broke that the financier, 
that were due in 2008 or 2009 and, due to the  Stanfordbank, was a giant Ponzi scheme.  
credit crisis, they were having a hard time 
extending or receiving new loans.  I heard rumors of this but ignored them, as I 
convinced myself that since I had the 50% gain, I 
The radio business is extremely easy to  was right. I also didn't calculate the potential loss 
understand and they are cash flow machines.  to return. With one day remaining, the odds were 
Despite the high leverage, most of the radio  profiting an extra 10% or losing 50 to 60%. I 
stations were still able to throw off large amounts  completely ignored this fact, and ended up with a 
of cash, plenty to cover interest. They just didn't  30% loss, all the way down from a 50% gain.  
have enough to pay off the debt in one payment. 
 
JA: Assuming you were offered a fair price, if  Ragu, Jeff, and Jae may own the companies mentioned 
you had to choose one stock to buy for the next  here. CGI and its managers make buys and sells only 
30 years, which business would it be, and why?   after notifying members of the intended trade. Use 
JJ: This is a very tough question. I don't look for  investing information to help you make your own 
decisions. Investing entails risk of loss of principal. We 
any company to hold for the next 30 years 
mean it. 
because my investment style revolves around 
buying something cheap, regardless of the type  © 2010 Complete Growth Investor LLC. All Rights 
of company, and then selling at fair value.  Reserved. 
Buying and holding something for 30 years would  CGI Value Focus is owned by Complete Growth 
break that investment rule. Maybe I would buy  Investor LLC. You agree not to reproduce, retransmit, 
disseminate, sell, distribute, publish, broadcast, 
something along the lines of a water company. 
circulate or commercially exploit the information in 
any manner without the express written consent of 
JA: All of my interviewees have been saying the 
the Complete Growth Investor LLC. ALL RIGHTS 
same thing, so let me rephrase the question. If  RESERVED. 
you were forced to choose only one business to 
hold over the next 30 years, which business  All information contained herein is solely the opinion 
would you feel had the best prospects of  of Complete Growth Investor LLC and is obtained from 
growing your wealth at a satisfactory rate?  sources believed to be accurate and reliable. However, 
JJ: If I had to choose, I would say Dolby  such information is presented “as is,” without 
warranty of any kind, express and implied. All content 
Laboratories (DLB). The company licenses their 
and opinions herein are subject to change at any time 
intellectual property of digital sound to movie 
without notice. Nothing herein should be relied upon 
theatres, computer, DVD, and multimedia  or construed to be a recommendation for the 
hardware manufacturers.  purchase, retention, sale or short‐sale of the securities 
of the company or companies mentioned. 
It’s an awesome business model. Consistent 
revenues through licensing, very low overhead,  Complete Growth Investor LLC does not provide tax, 
huge margins and, as the digital world  legal or investment advice for any fact‐specific 
continuously evolves, it will always be there  situation or individualized situation. The information 
providing sound.  contained in this report is intended for general 
interest only. Nothing constitutes a solicitation or 
*  *  *  recommendation of the purchase or sale of any 
securities or other investments. Complete Growth 
If you have any questions, join us on the Member  Investor LLC is not a broker/dealer or an investment 
Forum and thank you so much for being a Value  advisor and is not registered with the Securities and 
Focus member.  Exchange Commission, the NASD or any stock 
exchange or regulator of investments. 
Best wishes,  Complete Growth Investor LLC does not provide 
Jeff and Ragu  investment advice, or advocate the purchase or sale of 
  any security or investment. Complete Growth Investor 
*  *  *  LLC does not guarantee the accuracy, completeness, 
  or timeliness of, or otherwise endorse the facts, views, 
opinions or recommendation in this report. CGI Value 
 
Focus is intellectual property of Complete Growth 
Investor LLC and is protected by applicable copyright 
and other intellectual property laws. 

Jae Jun Complete Growth CGI Interview

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