Investor Interview with Brad Freeman
Interview #10: Finding quality companies with a long-term horizon
Welcome to investor interview #9. We are putting together this series to bring you diverse experiences and perspectives from other investors.
You can follow his thoughts or connect with him on Twitter.
Hi Brad, thank you for taking the time to do this interview. Excited to have you here and congratulations on hitting 100K followers on Twitter. Your account is one of the most informative ones out there — Can you please tell our readers a little more about your background and also about Stock Market Nerd?
Thanks for having me! I’m a 26-year-old who has just always had a fascination with studying different businesses. I graduated from Michigan in 2019 and got my Masters in Finance degree there last year. I worked at a small registered investment advisory firm (called Diversified Portfolios in Metro Detroit) for a while, before falling in love with turning my company research and analysis into writing. To my surprise, there was a ton of interest on Twitter and what started as having fun chatting through things with a few folks really exploded into something I’m surprised by and grateful for. I briefly wrote for Motley Fool but was determined to go out on my own to gain full control over content creation.
Since beginning to publicly track my performance in July 2022, I am up 17.11%. This is well in excess of the S&P 500’s returns over the same time frame but lags the Nasdaq by a small, shrinking margin as I’m less exposed to mega-cap tech than that benchmark is.
It’s interesting how you decided to go out on your own so early! How much of your portfolio is invested in the stocks you are bullish about? How much is allocated to broad-market index funds?
100% of my funds are available for single-stock investments. 5% is in cash with the other 95% in holdings. This is a byproduct of being 26, having no children, and enjoying disposable income. I’d expect my allocation to shift partially towards indexes over time as responsibilities grow and I age.
You made an incredible deep dive into Shopify – what made you focus on that particular company and how do you pick companies for your deep dive?
It goes back to that fascination with businesses. I love studying businesses and some are more interesting to learn and master than others. That’s what drew me to writing about Shopify as there’s so much going on under the hood of the company. What’s labeled as a web builder is so, so much more. This is generally how I pick companies to dive into. They’re usually holdings or companies I’m interested in holding at some point and that I’m excited to read about. When you’re digging through all available filings and document archives, it’s important to pick a firm you’re excited about so you can stay motivated. Fortunately, I find a wide range of sectors interesting.
What made you get into investing and what’s your investment strategy? Which industries do you focus on?
My dad got me passionate about stock picking from a very young age. He taught me to read financial statements before I knew how to drive a car. I focus on disruption and innovation in the broadest sense. Within that, healthcare, advertising, FinTech, security, and the app economy are key themes in my portfolio. My largest 5 holdings are Meta, Duolingo, SoFi, Progyny, and Lululemon.
What’s your best learning over your investment career? Can you tell us a bit about how your mindset toward money and investing changed over the years?
There’s no one size fits all. There will be bright people everywhere telling you how successful they’ve been within their own niche. What works for them is likely not what works for us. It’s important not to copy, but instead to explore and hone in on what works best for you. Structuring an approach that lets me sleep well at night while participating in the secular growth trends in our world is vital to me and guides my processes. “Responsible pursuit of disruptive growth” is a decent label.
What’s your research process like? What are some common red flags and positive signs when researching a company?
My research process involves reading recent annual and quarterly filings, earnings/investor day/conference transcripts. I consume all relevant public info available. It’s important, however, to also glean insight and data from sources besides a firm’s leadership team. These teams are inherently motivated to paint a rosy picture, and vetting that view with vendors like Gartner, SensorTower, etc. can really help to be confident that the picture is actually rosy.
Excess management turnover.
Accounting blunders and shady off-balance-sheet items.
Excess financial leverage.
Shrinking margins over a long period of time.
Plummeting growth (gradual slowing is inevitable).
Egregious dilution and executive compensation practices.
What’s the best investment decision you have made? And one investment decision you regret? What led to them and how did they affect your process going forward?
My best investment to date has been investing in the CrowdStrike IPO a few years ago. A decision I regret is investing in the cannabis space before regulation becomes more clear. I assumed politicians were more rational and predictable than they turned out to be and my equity has been obliterated as a result. Luckily it is a tiny piece, but still, a lesson learned. Investment cases shouldn’t need a piece of legislation to pass to work. Aside from that, trusting management teams a bit more than I should have is something I’ve had to learn to avoid. I trusted some leaders pounding their chests on “macro immunity” throughout 2021 while their models were intimately tied to those macro cycles. They were wrong. I was wrong to believe them and should have trusted my background, experience, and education more than I did.