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Dec. 2, 2021

Sam Namiri - Understanding How to Value a Company

Sam Namiri - Understanding How to Value a Company

My guest today is Sam Namiri, Co-founder and Co-portfolio Manager of the Ridgewood Select Fund - a focused fund that concentrates on investing in publicly traded small and micro cap companies.  In our wide ranging conversation, Sam talks about his upbringing as a Persian American Growing Up in Los Angeles, his experiences starting and running a successful business and how his journey to becoming an investor in small and micro cap businesses shaped and continues to shape his approach to investing.

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Please enjoy my conversation with Sam Namiri.

For more episodes of Compound Ideas, visit Compoundideasshow.com

For more insights like these and to contribute to the conversation go to: https://www.ridgewoodinvestments.com/insights-from-our-founder  

Follow Ken Majmudar on: 

Linkedin @kenmajmudar

Twitter @kmajmudar 

Facebook kaushal.majmudar.3

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SHOW NOTES

[00:01:20] - The son of Persian immigrants, Sam’s Namiri reflects on growing up in the Los Angeles area

[00:05:40] - The Zoroastrian tenants and how they shaped the person he is today

[00:09:27] - Tips for beating the curve and how to separate yourself from the pack at Berkeley

[00:12:36] - What Fortune 500 executives major in

[00:14:37] - An undergrads journey to six figures 

[00:20:52] - Navigating academia at Columbia business school 

[00:24:59] - The art of conversation in business 

[00:30:44] - Proposition 13 and California’s property tax process

[00:35:45] - Insight into the world of large caps vs micro caps 

[00:40:28] - What makes Ridgewood Select Value Fund different

[00:43:59] - Tips for aspiring investors

[00:47:07] - Key players in the early years of LD Micro

[00:53:36] - Understanding the history of human behavior

Transcript

Narrator 00:00:04 
Welcome to compound ideas hosted by Ken Majmudar of Ridgewood Investments this podcast will feature exceptional individuals to uncover deep insights into business, entrepreneurship, personal growth, investing, and multi-disciplinary thinking. So you can learn how to improve your finances, find better investments, and pursue authentic lifelong growth, wisdom, and happiness. Learn more and stay up to date at Compoundideasshow.com

Ken 00:00:35 
In this episode I speak to Sam Namiri co-founder and co-portfolio manager of the Ridgewood Select Value Fund a focused fund that concentrates on investing in publicly traded small and micro-cap companies. In our wide-ranging conversation Sam and I talk about his upbringing as a Persian growing up in the Los Angeles area his experiences starting and running a successful business while still in college and his journey to becoming an investor focusing on small and micro-cap businesses and how these experiences shaped and continue to shape his approach to investing today. I hope you enjoy our conversation  

Ken 00:1:16 
thank you very much Sam for being here 

Sam 00:01:18 
hi Ken thanks for having me  

Ken 00:01:20 
so Sam let's just start out I'd love to hear a little bit about your background like how you grew up where you grew up just to set the stage

Sam 00:01:30 
sure let's go back all the way to early so I'm a son of immigrants my parents came to the U.S. from Iran in their early 20s they were both and went to USC my dad went to USC and my mom also joined him there from there right after my parents graduated they had me I was born in LA grew up in Santa Monica went to public school throughout and ended up going to UC Berkeley afterwards and so that's kind of my background in terms of where I'm from my dad is an architect slash developer so that's shaped me quite a bit as well like learning from him and he also manages and owns real estate in combination so he kind of is vertically integrated I like to say when it comes to real estate and my mom was an accountant slash bookkeeper part-time and raised both me and my sister growing up so that's kind of my background

Ken 00:02:22 
yeah great well our show is about ideas and about sort of multi-disciplinary thinking and I personally believe that everybody's exceptional in some way if you could just sort of get the stories of their life arc out of them and that's sort of what a lot of what we're going to try to do not only today but with all of our guests so I'd love to hear I mean just probably a little bit more what you said I mean obviously Los Angeles is one of the great cities in the world what was it like being an immigrant sort of growing up in Los Angeles and I don't know if you mentioned this but you're Persian right so I know that there was a whole lot of people that probably in around the same time frame left Iran I guess that was sort of late 70s early 80s what was it like both being in LA and Santa Monica in particular in growing up in that milieu but also being in the Persian community growing up in LA 

Sam 00:03:16 
so a lot of Iranians left after the revolution or during it in 1979 so there was a huge migration just anywhere outside of Iran especially if you were not Muslim then you for sure were trying to get out and so fortunately my parents left a little earlier because again my dad got accepted to USC and he left then and his brother had left earlier before that so that's kind of how they were able to get out I have stories from aunts and uncles though who had a much much tougher time getting out they had to cross borders by land and get flights from other cities that's a whole interesting conversation on its own in terms of LA, LA is kind of dubbed as Irangelous or Terrangelis as the capital of Iran so there definitely is a huge Persian community out here I believe some estimates I looked at recently was around a million Iranians or uh don't quote me on that but a good amount and so growing up I'd say probably until sixth or seventh grade it didn't really hit me as to like what I was in terms of cultural religion like I just considered myself American and I spoke another language at home but other than that like there wasn't really many Iranian families or other students in my elementary school if there was I just we all blended in together with the rest of them we didn't have funny accents we all grew up speaking english it was more just like the foods we ate at home were a little bit different and then I'd say once we I got into middle school I don't know if it was natural what it was but a lot of the Persians and Iranians I became very close friends with a group of other ones and a big group of my close friends were Persian and Iranian and so there was a big community outside of that that I had of family friends that were pretty much all Persian but I don't know how much it truly shaped me there was a few incidences I had as a child that were racial based like where people would call you funny names or you know I remember my dad would get into like arguments with people like at a tennis court one time where someone was rollerblading on a tennis court and you know he gave like a racial slur he called my dad like a camel jockey or something of that sort and so outside of that and then kids always play games with each other but I didn't really have too many issues 9 11 in terms of any racial bias like didn't did I didn't really feel like it affected me very much I think I was still too young I pretty much grew up I feel like an American I don't think it really shaped me too much in terms of how I think or how I was treated I think the biggest thing for me my religion I'd say probably shaped me to some degree I'm Zoroastrian which is an extremely rare religion It's the oldest monotheistic religion that exists that still exists and there's three tenants there good thoughts good words good deeds and that's pretty much like what you're supposed to live by and I think that's a great thing to live by and I think that shaped me a lot in terms of just having good morals I think that's very important I'd say that probably shaped me more than anything  

Ken 00:06:07 
that's really interesting yeah a lot of people don't know about Zoroastrianism I happened to when I was really young take sort of a survey of religion classes I think in high school and that was the first time I ever heard of it so that's really fascinating how did Los Angeles shape you growing up in Los Angeles specifically then and the other thing I'd love for you to just touch on that many of our listeners may not know so I think the Persians overall even though they're immigrants became quite successful so I'm curious if you have any observations on sort of how and why that happened 

Sam 00:06:40 
I think a lot of it is education is extremely important the Persians and I think they have the most like per capita I think highest PHD percentage in the U.S. is Iranian Americans and so I think that's one aspect of it like a lot of the founders of companies like ebay media east Persian there's a lot of technical education that's very focused in the Iranian community I think that's one of the the main things the other thing is I think entrepreneurial spirit i think that's big with a lot of Persians they don't want someone else kind of telling them what to do they're controlling them and so I think that's one aspect that I'm not sure if it holds as much in the current generation but in the older generation let's say my parents that was like a big thing is I think a lot of it was shaped due to the government that where they came from and the reason why they fled through the revolution was because the government was like going to tell them exactly how to run their lives so I think that's a big aspect of it in terms of Los Angeles shaping me I'd say I mean it's a big city so there's different parts of the city and I think for me the biggest thing was there's two aspects the first thing was the fact that I went to public school and at public school there's a huge wide range of people from different economic backgrounds ethnic backgrounds and such and so I think for me it allows me to pretty much be able to talk and get along with most people from most backgrounds whether someone who's low income I can talk to a lot of different people I played basketball a lot too and with playing basketball again like you kind of share that similar language where you can kind of again like and I was a big team leader like I was all about getting everyone together and making the most out of the team and I think that shaped me quite a bit as well too because again I can just especially when I get on the basketball court with other people it allows me to talk to them in a way where we can all feel comfortable and we can kind of build a trust and rapport like pretty easily and quickly I think that's probably the biggest thing that shaped me and then also living in a big city like LA you don't really do a lot of the things that kids do because they're bored a lot like by getting in trouble and doing you know things of that sort I think that somewhat shaped me as well too so when I went to college there were kids who came from small towns and they were just constantly doing things that were just like at the borderline of getting in trouble and I never really had that urge to really do that so I think I was just too busy there's too many things going on there's always something to do somewhere to go that I never really felt victim to that so 

Ken 09:06:09 
and then fast forward I guess to college what was the college experience like i think you mentioned you went to Berkeley which is obviously a great school and what were the highlights in terms of how that shaped your experience and your next stage of your life that we're going to get to 

Sam 00:09:23:29 
on the education side I'd say I never really needed to study much prior to college it was quite a shock when I went to my first class like multi-variable calculus class for instance at Berkeley more physics and everyone studied very very hard for every single test in high school that wasn't the case so it really forced me to like really truly hunker down and really need to study and truly master something because everyone's going to get over 90 on every single test on most the tests there but really it's everything was on a curve so the way to get an A was how do you get that one or two one of those one or two questions right that everyone else gets wrong and you really had to know everything down to a T and so that was the first time I really had to do that I didn't need to do that prior to that so that shaped me quite a bit and also I'd say the other thing that shaped me was really at Berkeley I think it's different at private schools is they really throw you out there and you're out there fending on your own a lot of people fail I think 10 of the freshman incoming class don't get past their first year and so a lot of private schools it kind of holds your hands as you're going through if you're struggling and at Berkeley they don't so that was also like very it helped shape me a lot in terms of having to figure things out on my own  and get through things on my own and also I say on my own but I figured out how to get support  as well too I started to go to tutoring I started going office hours and talked to professors these  are things I probably never thought I would do going in and so I think that shaped me quite a bit  in terms of education and then socially just going to a big school like that again I come from one  city one small section in the world and it just opened the door up to people from Chicago people  from northern California wow what a big difference between SoCal and NorCal when you just don't  realize it while you're living in this bubble so in in southern California and so that shaped me  quite a bit as well too like living in the dorms and also I was in a fraternity as well again all  walks of life different races backgrounds areas of the country where they're from  that was quite an experience 

Ken 11:34:15 
what's the difference between southern and northern California since you  mentioned it 

Sam 00:11:38 
I mean southern California is a lot more about looks a lot more aware in terms of that  I'd say like a little more Hollywood there's some language differences I remember a lot of northern California people say like hella or hecka a lot that was one big difference I found and how you're trying to go back 20 years those were probably the two bigger things I realized like style of music like even when it comes to like I'm a big rap and hip hop guy and the local music that comes out of each area is very different in style as well too 

Ken 00:12:08 
nice so you're graduating now what did you major in 

Sam 00:12:10 
I majored in industrial engineering and operations research so the story behind that was that I went in undecided and I was trying to figure out what to do and  I've always been fascinated by business and I took intro to business and it just to be honest it seemed too easy seemed like kind of like a waste like this is kind of common sense stuff and I had some friends who were engineers and they were studying one was studying bioengineering another one mechanical engineering they're like you should look at engineering it's a great major and they're actually both their families came from the Los Alamos National Lab so they were very into the hard sciences I was looking through the pamphlet they had on engineering and I was going through the different ones and industrial engineering and operations research was one of the majors and I said oh a lot of fortune 500 top executives study operations research or have a degree in operations research my dream as a kid after I realized I wasn't going to be the Lakers team doctor was to you know one day ideally be CEO of a big company and so when I read that in the pamphlet I was like oh this is perfect fit for me so I decided to do that and it was a great experience it really added a technical element to business and operations that I thought was missing from the traditional business major 

Ken 00:13:18 
I went to engineering school too and IEOR was quite a popular major there as well so what did you decide what were you looking at doing after  graduating what did you think you wanted to do 

Sam 00:13:28 
I actually started a business in the summer after my junior year going to my senior year I wasn't really going through the traditional job route um looking at job hunting I did a little bit of that but not much my heart wasn't really in it and I was really focused on growing this business which yeah fortunately for me ended up really taking off as soon as I graduated I actually had another job at an engineering firm that i had started right after graduating and there i was they kind of created a new role for me it was kind of like a liaison between uh the engineer because it was mostly electrical and mechanical engineers and they created like it was more like a business development position where I would go and kind of bridge the gap between the client and the engineers on the team but my business that I had my jewelry company that i started took off like the first month I was working an engineering firm and I ended up making more money that month than I would have working the whole year as an engineer so I you know get my notice pretty quickly after I started that job 

Ken 00:14:20 
like any good Persian you were just jumped right into business huh 

Sam 00:14:27
yeah yeah

Ken 00:14:30 
so tell us about that business and how did you get the idea and how did you end up sort of starting that while you were still in the summer between your junior and senior year of college 

Sam 00:14:37 
yeah so I had a friend there who um we started the business together and he was  telling me that people would bring gemstones over from Pakistan and they would sell it in the U.S and it would pay for their whole vacation in the U.S I was like seems interesting started doing some research into it and learned about the gem business the jewelry business and I realized wow there's like huge margins and there's so many different middlemen from the mine all the way to the end retail and so I was like hey let's scale that business let's do what these guys were doing to pay for their vacations and growing it even bigger so started doing that made some mistakes went to some trade shows learned more about it and really just like kept trying a bunch of different things until something stuck and ironically the first thing that truly stuck was we would just buy some wholesale silver rings and sell them retail on ebay and started doing that in the first Christmas holiday season made a killing that year and so that's kind of how it really started 

Ken 00:15:37 
well what year would that have been then and get into specifics because I think it's really interesting 

Sam 00:15:38 
that was in 2005 yeah the winter of 2005. I graduated in May and I was doing the business and then it was around like September October and I was like okay you know what this isn't enough for a living at the time and I need to get a job so that's when I ended up work getting started working at that engineering firm and I'd say in October we started selling silver jewelry and started selling really really well so I want to say like in that month I think we had the month of November we had around like three 250 300,000 in sales it was crazy I still remember I was working out of my parents like an extra room my parents house and we had jewelry on every single cabinet on this bookshelf that they had and we were buying more bookshelves all the time we were selling so much we couldn't even get the supply for it i was running around downtown LA in the jewelry district just trying to find silver jewelry that looked similar to the stuff that we were selling on ebay that we were pre-selling in advance of actually holding inventory and so that really was really a true test of operations figuring out how to ship things efficiently in massive scale and I say it was like $300,000 worth our average price point was $10 to $15 and that includes shipping so we were really selling a lot of quantity and moving a lot of quantity out so 

Ken 00:17:02 
that's almost like lightning striking right like if you're a young entrepreneur you stumble onto something and suddenly you get just like a bunch of orders obviously it's hard to deal with but it's also kind of what you hope for so walk us through sort of what happened to that business where it evolved what you learned from that experience that might be helpful to others who may be in a business or thinking about it 

Sam 00:17:26 
sure so I mean that was the first year ran that business for around five years or so and it evolved into opening a factory overseas at one point we had a factory in Pakistan that had 250 or so employees at one point and then we ended up contract manufacturing out of China and then also we developed and built the television show as well too that was uh at one point on DirectTV but we also used something called leased access which is really interesting that got us really really cheap airtime a lot of different markets mostly in the middle of the night and then I'd say what happened was after the financial crisis there was a ton of people selling online at the end of the day ebay was always our bread and butter even though we had a tv show that was very hit or miss and you really need a lot of scale to actually be efficient and profitable with a tv show because the production costs end up being so high and the transmission costs end up being so high unless you have like a satellite transmission then it doesn't really make sense like we were sending tapes to like different markets but once the financial crisis hit there were a lot of fake jewelry sellers really that were selling silver jewelry online especially on ebay and you can't compete with fake and so that was really one of the problems of that business that made it tough and then also I got into business school and when I went to business school I realized I never really loved jewelry it wasn't a passion of mine I wasn't really out there like trying to figure out oh what do people want  like what's exciting for people that was more like data mining in figuring out like trying something out something sold great let's go sell more of it we can raise the price let's raise the price oh we can't sell this anymore let's let's stop selling it that was kind of what i mean I'm colorblind so when it comes to jewelry like I don't know what stones are what  color they are so again just not a passion of mine and then when I went to business school I realized Columbia had a value investing program and I learned more about value investing and I was like wow this just really if I could do this for a living I would love to do this for the rest of my life and so that's kind of what happened ended up going to business school and going that route

Ken 00:19:29 
so did you go to business school while the business  

Sam 00:19:37 
was still around or the business ended and then you decided let me apply and go to business school the business was still around and I applied and I got in and then after I got in I was like okay it's time to either wind down the business or sell it couldn't really sell it because it was way too driven by constantly like finding good deals that was really the biggest value added that we had and yeah I think that's kind of it and I'd say one thing I really learned from that business is that when you run a business in a way it's a the jeweler business is a very bad business to invest in for instance it's very fragmented it's very competitive no barriers to entry it's very very difficult like it's really a race to the bottom to some degree unless you have a brand and a brand is very very difficult and expensive to build we never had a brand so I think I really learned that it's really difficult to run a bad business no matter how good you are and there's things out of your control like everything there's things out of control but like now when I look at businesses when I see characteristics of other businesses that have that that same characteristics of the jewelry business that I had I was like I kind of tend to shy away from it I'd say the biggest thing I learned was that don't be involved in a bad business you don't need to be 

Ken 00:20:42 
so then fast forward now you're at Columbia business school what was that experience like what were your big takeaways there 

Sam 00:20:52 
I'd say Columbia was definitely very different academically than Berkeley a lot more handholding if someone was struggling that helped you out quite a bit the admittance staff to teachers for me it was pretty easy relatively to Berkeley again academically what ended up being more challenging for me is I didn't come from a finance background and Columbia is a very finance heavy school and so I learned like how to build financial models while most other kids at school knew already how to do that coming from private equity or investment banking or consulting to some degree so for me it was that aspect of it was really good I got to learn from some of the best professors when it comes to value investing like people who are actually like running funds running big amounts of money things of that sort and then I had like a great group of classmates  as well too like my network from Columbia is amazing some of the things that people have done or where they came from was just like spectacular I'd probably say that's the biggest value I got from business school was a combination of network and for me also figuring out a structured way to understand value I'd say those were the two big takeaways that I had there  

Ken 00:21:54 
okay so now you're obviously graduating with your MBA and you have a probably many different ways  you can go how did you think about what to do next

Sam 00:22:04 
in all honesty like for me I always had this like  stigma attached or whenever I applied to a job at a large company they were generally like well you had your own business like why would you want to go work for somebody else and so that usually kind of again most people I talked to would always kind of give me that kind of excuse and I also was in the J Term so I didn't go through the traditional route of a business school where you have a summer internship and so for me at school in the summer and so again I couldn't go through a traditional internship program so I ended up looking for internships while I was in school and I had a few options this was the next January afterwards or sorry the fall after my first summer and I ended up talking to some people and every person I talked to was like hey do you know anyone in New York who's looking for an intern New York area looking for an intern I want to work just for the smartest person that I could find and so I ended up having a few options and I was looking at a few different hedge funds actually and one of them was a retail focus hedge fund unfortunately the guy just got back to me two weeks late but I ended up working at a fund across the river in New Jersey small cap value-based fund and I ended up interning there and then I ended up going full time after school so that's kind of how it started for me in the investment management world 

Ken 00:23:24 
so tell us what your role was there what that experience was like what you learned from it  

Sam 00:23:30 
it was really great because I would learn stuff in class but you don't truly learn things  until you actually do it and you do it multiple times so for instance if I'm writing up a report  on an investment for a class I'm maybe doing like two or three a semester or depending on the class just not that many but now at the fund I'm doing a lot more and I'm building out models and I  just have a lot more time just to focus on just researching and just doing that type of work it really made me a lot better at being able to do it more quickly because of the practice and the iteration so in combination like at business school a lot of the times a lot of these other students knew how to do all these things and I didn't so I was learning how to do it while they  were just like whipping out all these projects and papers and it really comes down to like an investment banking training program like they went through that the first like year or two years in investment banking these guys were learning how to use excel without a mouse and a keyboard just just using the keyboard and all the shortcuts and so you just see them was going super fast at it and I kind of started to get that a little bit while I was in business school I would say I kind of lost it to some degree like I don't necessarily do it as quickly or need to do it as quickly as I used to with experience you start learning you don't need to like make sure your model fully links everything together you can start putting estimates in certain parts of it but yeah I mean I'd say that first year working at the hedge fund I learned so much and then once I got past that learning curve you don't learn as much after that going forward but yeah I really like learned from just being in the office chatting with there was two other members of the team chatting with them all the time we'd be on a lot of conference calls together so just like learning from questions that were asked what are good questions what questions do I not like I'd say the one thing I really learned was how to get people to feel comfortable on a phone call you know before even seeing them in person because really that opens people up a lot more so when you ask questions they end up being more truthful and more honest so that was one thing that I thought was on the soft skills was very very valuable for me to learn that 

Ken 00:25:28 
so just for the benefit of our listeners tell us what that technique is 

Sam 00:25:33
so really just trying to find some sort of common ground whether it's someone you know an industry you know company you know kids whatever it is like  just have someone talk about themselves and when they talk about themselves most people like to talk about themselves and so just start off there that really helps a lot if you don't do that you start just like grilling management as soon as you pick up the phone and talk to them that doesn't really create that sense of openness you want to make them want to help you in a way and so that's something that I don't always do but I try to be you know conscious of and to do if possible 

Ken 00:26:04 
so and by the way you've always focused or I mean you did there and then you still do today focus on sort of smaller companies so talk about why that happened was it just an accident because you ended up at a fund that focused there or is there more to it than that 

Sam 00:26:23 
I really started investing getting the stocks during the dot-com bubble this was like during dial-up internet days and there me and my friend Chris Lahiji would always just like be interested in these stocks we'd always go to yahoo finance during school lunch breaks you know recess and we'd always be interested in like learning about the next new story what's the next new technology out there that we can invest in that's really where it started for me the passion I've always kind of been doing it on the side for myself and my dad also kind of pushed me towards it to some degree as well too like he never really wanted me to get into real estate he didn't like certain aspects of it like the lack of liquidity and he didn't really ever see too much value in it to be honest he always thought that the cash flow the risk reward like wasn't usually that great on pricing when it came to certain deals that he was being offered and so he always ended up saying hey I have to build something to get that reward and so yeah he kind of was like hey you know let's see if you're interested in this and let's see if it's something you want to do but I don't think he ever realized that there's actually funds out there that like do this for a living he was more doing it as like a side hobby for me and so he gave me some money to invest when I was young when I was in high school everybody gave me  a thousand dollars or so and I invested it for them and I did pretty well with it and one of the things that really struck me into why I wanted to go into value investing at business school was I would invest in for instance GM and GM would come out with earnings and they'd beat earnings and the stock would go down and I'd be like why does it make any sense like why is the stock going down and I really wanted to learn why and I couldn't figure it out why and so I was like okay maybe I can go to business school and understand truly how to value a company and maybe that'll help me understand why GM went down in that instance and so I remember that was very that really stuck with me quite a bit when I when I invested in GM and they beat and the stock goes down to that day the next day so 

Ken 00:28:16 
I think it's actually interesting because I didn't realize that because I think a lot of people like especially in Los Angeles they've made a lot of money in real estate just over time Los Angeles real estate has done really really well people were pretty much moving to Los Angeles for decades and decades I don't know if maybe recently that might have started to reverse or at least flatten out but also I thought a lot of people in the Persian community including people like your dad I thought they really believe in sort of hard assets and not things like stocks and company investing so I didn't really realize that your dad had been the one that sort of was a catalyst for that 

Sam 00:28:50  
I think it was it's changed for him also to some degree I think he still doesn't understand stocks very well and so he kind of still sees it to some degree as funny money but at that time I remember him telling me he's like I could have invested in Qualcomm and it went up 100x and I didn't or he sold it early I can't remember what it was exactly and I think like the emotions from that is kind of what pushed him to like say hey let's try this out see if there's something you want to learn or I mean he didn't especially even say that he was just like hey here's some money go play with some stocks like that's really what it was from him and for him I guess it was just funny money and so like he didn't know what he was doing so he was like okay might as well give it to you let you see if you can figure out what you're doing and so again it was just interesting to me and I've always loved the study of business in college that's what I wanted to do is I wanted to learn about business and how to run a business and be in the trenches of a business I'd say after running a business the other thing that how it shaped me is managing people is tough very very tough and you know dealing with scheduling with people being sick their personal lives things of that sort was something that it was really really difficult dealing with when I was running the business the jewelry company and I occasionally get the itch to like maybe I should start this business doing this or that and I go back to thinking about you know the day and day on struggle of just doing these simple tasks of managing people and I'm like you know the grass isn't always greener on the other side and so that's why investment management in my opinion is such an amazing business because it can scale quite easily and you know it's a lot of fun because you're always learning about new things  

Ken 00:30:23
now did your dad ever change his view on sort of real estate versus stocks or  

Sam 00:30:27
I think it goes back and forth I think the main thing that hasn't changed is my dad's a big cash flow guy and so he never kind of gives credit to like rising rents and he  doesn't really give credit he doesn't really like expect someone else to come in and buy something  at a higher price because my dad's a buy and hold kind of guy he never wants to sell and  California also has some characteristics in terms of property taxes that kind of incentivize that as well too but yeah I think that's the biggest thing for him he's always like okay well if I  want to buy something well how much can I rent it out for what are the rents that are coming in and I don't want to pay too high of a so I always mix up EBITDA multiples and cap rates I don't want to pay too low of a cap rate and that I think shaped me quite a bit too when it comes to like investing in equities because I'm similar in that way 

Ken 00:31:11
yeah just for those that may not know so the reference to with the California tax thing so I believe and you could correct me if this is accurate or not is  that California has sort of a unusual system in that they don't actually change your assessment essentially until you sell it and you move so that way then that marks it to market so obviously if you just stay and you never leave at least on the residential side your assessment can stay as low as it was when you first bought the house

Sam 00:31:39 
yeah it's for everything not just residential commercial it can rise I believe by two percent annually a year the basis that your property tax is based off of like for instance my parents bought their house in 1987 and they bought it for $300,000 and so I think the property tax value from then is like maybe they're paying like as if it's worth like $500,000 and now the value of their house is worth like over 5 million or so at least 

Ken 00:32:07 
that's very unusual because in a lot of states it's just every 10 years or whatever number of years they reassess everything 

Sam 00:32:07 
yeah so I don't know what it's like but do people move because of that I assume so because the reassessment brings up the property tax and maybe they don't can't afford it or don't want to pay it I'd say in California you'll see a lot of businesses for instance that own their buildings and the buildings are completely run down and you also question like would the business even survive if they didn't own the real estate they might as well just rent it out to somebody else they probably get better value out of it than running their business anyway yeah it's an odd thing they've actually been trying to change it a few times have been some props that have been passed or have been up to being passed and have been shot down more on the commercial side that's a little easier i think for voters to stomach but yeah I mean it's hard like it's definitely a different world when it comes to buy and hold in California because of that 

Ken 00:32:58
completely different system and actually I mean I guess you know it has pros and cons depending on where on the spectrum you are who you are great for the owners that have owned stuff for a long time but on the flip side I do believe that in some aspects it makes it hard to finance education in California at least in some districts and things because of the tax revenue that comes in but switching gears now you're at this hedge fund obviously you're working with a smaller team and you were there from what year to what year and then sort of let's bring it to the next thing after that 

Sam 00:33:28 
sure I was there from 2012 to 2017 I believe so the fund I was at I think it was 2014 we were up around like 60 or so percent and I was like great this is amazing i think we were managing around 30 million or so at the time and for me as the number three person there it didn't really make sense to stay there unless we were able to grow let's say to at least 60 to 70 million at least 50 we had to cross a 50 million dollar mark and so for me after that year I thought we were gonna be able to raise a lot of money and we weren't like we didn't really raise much we probably raised two or three million at that point and so there I kind of saw the writing on the wall that at some point I need to start figuring out something else to do because long term this isn't the right situation for me so I think that's when this is probably 2016 I started to think about what I wanted to do next and I was interviewing at a few different funds didn't really ever it was never a good investment fit and that was more because I never truly felt like I was actually able to get an edge or to provide like real value I kind of felt that with a lot of different strategies that they were doing you might as well just invest in an ETF or some index fund or some mutual fund and kind of get value you get most the value that way and it was just really hard to beat the market but I could see that it was much much easier and smaller micro cap land and so that's why my passion is there because I was like hey this is where I can really add a lot of value and so I ended up partnering with you I was going to go on my own route and launch a fund myself and then we met and I think we both kind of connected that we both see a ton of value in the space and by investing in the space and that we've both been good at it doing it ourselves and for me at the fun that was at and so made sense to kind of partner with you and do it together  

Ken 00:35:21 
for those who aren't spending all their time like you are in this smaller micro cap you mentioned it sort of hey you know you had potential to talk to an interview with big firms and they're probably focusing on larger companies and you didn't feel that you or they might really have had an edge but you do feel that there is sort of it's better or easier in smaller micro so talk about that why is that and where does that opportunity come from 

Sam 00:35:45 
I think really the opportunity comes from it's not as followed not as well followed in the space like you'll see things where like a news will come out about another company for instance it's a huge customer of a micro cap company and you would expect that that would move the stock quite a bit for instance but it doesn't and you have to wait until the quarter comes out to reflect the results to show that the company you know is doing really well because their customer made a big order from them so like that's an example another one is most people who invest in micro caps most investors they're more like gambling with their money I'd say and so i think emotions and a lot of the behavioral biases that happen in large caps they happen to a lot more extremes in smaller microcaps so if a microcap company has a bad quarter it usually drops a lot more than a large cap company if they have a bad quarter and it just goes to a more extreme which again I think allows creates a lot more opportunity where if you actually see the value in the company and you're more longer term focused you can kind of get past that so there's a lot of like a lot of other things like a lot of these large cap companies there's like 15 or 20 firms that do like intense research on them small micro caps you'll be lucky to find like two or three depending on how big it is or how much M&A the company does so that's another example and yeah I mean I think just even the firms that do the research  they don't have the resources they don't spend the resources to go visit companies in person to see their actual facilities or to meet people below upper management i have friends who are analysts at these small cap banks and they just don't do it they're like we don't have the research budget I'd love to but we're not a revenue driver of our firm and so yeah I mean that's really what it comes down to is that there's not much money to be made in terms of total dollars in smaller microcap whether you're a service provider even as a fund if you want to be the best business you can be it doesn't make sense to run a smaller microcap fund you want to be able to manage 10 20 30 billion dollars and make fees off of that and so as a small micro-cap fund only managing maximum a few hundred million dollars let's say you've kind of put a cap on your limit and so I think that's another reason why there's advantages and another thing that's great is we can talk to management teams we can call the CEO of a company and they'll pick up I just recently spoke to a company that a lot of people have tried to speak with and they haven't spoken with anyone for like I'd say two years or so and I was able to talk to them why because I'm part of Ridgewood Investments and we manage a few hundred million dollars and so that allows me to talk to these companies that most other people aren't able to talk to and again when it comes to the bigger companies you usually don't have access to these management teams and so for me that's that's fun for me I love talking to them I love learning from them I learned things that you don't you can't read about in the news or an article again that's just very very fun for me and relating back to the jewelry time when I started that business I used to go to a lot of trade shows and I learned so much from every trade show I went to I mean I learned about the business by going to a trade show for the first time and I love doing that with investments as well too it's the same same thing I do I love going to trade shows because you can talk to company management teams all the time but until you talk to competitors suppliers customers you really don't get the true picture of the value of a company 

Ken 00:39:05 
just to set a baseline for people because we talked about small and micro cap what does that mean as far as the size of companies and maybe the number of companies if you know 

Sam 00:39:06 
I mean I don't think there's a set number but I like to say micro-cap is below say 500 million or so and small cap is below 3 billion in market cap with some inflation maybe I've got a little bit higher but those are the numbers that I would pick and then there's like a nano cap world which is maybe under two to three hundred million which I think is smaller you go usually you get much better risk reward opportunities 

Ken 00:39:38 
and how many companies are there to pick from in contrast to say large companies or mid-cap companies 

Sam 00:39:45 
it's probably increased quite a bit because in 2020 I think more  companies went public like in one year versus the last like 10 years combined or something of that sort but I think the last thing I saw was North America at least there's around 12,000 publicly listed companies so I'd say that's probably gone up to like maybe hitting 14 15,000 or so that number was from like 2017 and I gave you the 12,000. 

Ken 00:40:05 
yeah that might not be that high but I think what you're referring to is also there's a lot of S.P.A.C.S. that are coming out and then they're trying to find private companies and sort of take them public and directly that way 

Sam 00:40:13 
yeah I mean there's S.P.A.C.S a lot of companies are IPO Inc depends on the sector but there's just so much some froth in certain sectors so that companies really want to get that valuation if you're a private company if you're a venture-backed company you're going public right now if you can 

Ken 00:40:28 
so you referred to it you know we met and obviously you wanted to start a micro cap fund so why was that and tell us about the fund and tell us about what your approach to that is now that you're running your own fund 

Sam 00:40:46 
yeah so I wanted to start it because for me personally I would do the same thing if I didn't need to work so it's just a passion of mine like I just see the value there I know it works I'm very confident that it works and it's just a lot of fun for me to do that and combination of just kind of not seeing anything else out there that seemed like a good fit so there's not a good fit for something you might as well just start something yourself  

Ken 00:41:10 
well what makes you know there are funds out there so what makes your fund Ridgewood Select Value Fund what makes it different than all the other funds and what type of investors would find that that fund is the right type of fund for them 

Sam 00:41:25 
so I think what makes us different is the fact that we know we're investing in businesses and we're investing in shares of businesses and a real business we're not just investing in some you know stock ticker and price on a screen in some chart and so I think what makes us different is level of due diligence that we do we want to make sure that every company exists there's a lot of actually fraudulent companies in the micro cap space especially and then we want to make sure that we're right in terms of our future outlook and outcome and so we do this by just doing a lot of legwork and groundwork and getting out there like during normal times we're both traveling a decent amount you in particular and you learn a lot by that you can learn only so much by sitting behind a screen and learning and reading things you learn a lot by talking to people by talking to different people in different industries and understanding what's truly going on in the real world so one of the books i read during business school that was really influential on me is uh Howard Mark's the most important thing and he has a section in there that i found very fascinating and he was talks about how like news articles when you read them you really start thinking especially if you've ever been involved in something that's been covered by the news you kind of end up going that's kind of true but they're like missing a lot of aspects to it that are quite important or like quite like slant the story in one way versus another and so for me when it comes to investing world like you can read filings you can watch presentations you can go even talk to management but you really get the true story when you're out and talking to customers and all the other parties involved and so I think that's really like the value that we provide to our funds investors is that we do this work for them that helps skew the risk on investments and to understand truly hey like is the outcome we project is it more likely to happen or is it less likely to happen or how can we get it to become more likely to happen or how can we realize that it's more likely to happen we can't really be active and sell stuff for companies but yeah I think that's part of the value that we provide I think the other thing that we initially talked about when we first joined together was how do we charge fees right I think one of the big differences is most hedge funds charge a two percent management fee and we don't do that we think that just because someone has charged two percent for a long time doesn't make it right necessarily right so we don't charge two percent we charge one percent and we have a founders class that we don't charge anything to that's going to be closed up soon I think that helps make us difference as well too and then also you know we're both big investors in the fund both of our families have investments in the fund so we're aligned really really strongly with our investors 

Ken 00:43:59 
we obviously want to also share information that's sort of generally applicable so say there was an aspiring investor or micro cap investor out there what kind of tips or resources would you point them to that could help them be more successful even if they wanted to do it themselves 

Sam 00:44:13 
it's a little tough because a lot of the resources I got were from going to business school and then also after I joined the fund you kind of start paying for things that become just a lot more convenient there's just so much to investing in it's tough like so there's certain books that i can recommend to read when it comes to data like just go to SEC SEC website you can get filings from there that's a great thing to read there's a lot of youtube videos so there's a few things that I think are important for investing especially in the micro cap world it's important to understand accounting when you read the filings and you read the financial statements there's so many things in there that could cause a great business to still not have good value there's a few like community I can't remember what it was but I learned so much about accounting from a community college professor that posted youtube videos and that was really really helpful in understanding things like if a company like an engineering firm for instance they have huge projects that are a few years old they do something called project accounting there's a lot of estimates in project accounting one of the things that I ask management teams when I dig deep into a company is how do you make these estimates how do you adjust the estimates how often you do so like walk me through for an example on one of your projects how you would make an estimate as to when you how you recognize revenue because in those instances they don't necessarily recognize revenue when the cash comes in or like it's kind of random how they recognize revenue it's like a percent of  completion method and so they decide okay well how much more complete this project become during this quarter or during this year and it's all based off of those estimates it's not based at all as how much they bill or based off how much cash they receive so there's certain things like that that are I think quite important to understand and especially in the micro-cap space because that's where you can uncover a lot of aggressive management teams or frauds but even more simple than that i would read transcripts from companies I think that's a great source you can go to LDMicro.com it's a great resource to be able to get a lot of this information like the sec filings and other basic stats on a lot of companies a lot of microcap companies out there but what's interesting about micro-cap is that there's so many different ways to invest in it like you can be a story person where it's about the story of the stock you can be a valuation person where you're just trying to find cheap valuations of companies and I think ideally you end up being a mixture of both or both matter and so yeah I think that's those resources are good ways to start and to start looking at things i mean I could recommend some books maybe that are helpful that would be good to kind of help shape invest in frameworks really it just comes down to those like basic things and then there's also conferences that we intend to that i think is great that are opening up more and more to individuals to be able to like find and like see company presentations and even have meetings with companies as well too  

Ken 00:47:07 
yeah in fact since you mentioned the conferences obviously we both know Chris Lahiji you mentioned him earlier in the podcast you have a unique relationship with Chris so talk about LD Micro your what your involvement with that was talk a little bit about your relationship with Chris and obviously we met at Ld Micro the first time ever as well 

Sam 00:47:26 
so Chris is he says I'm his best friend  but he's one of my few good friends I'd say we've known each other from high school the way we met was actually we were on the tennis team together and we both came in as freshmen and we were both kind of like the one-two new freshman kids that were like battling to see who's going to be the best freshman incoming student and i remember playing against them and thankfully he actually woke me up that day and so he he is the better tennis player of us but yeah so that's how we met and we kind of stayed in touch he's one of my very good close friends from high school now and he went into finance and got just kind of stuck with it just his whole life we ended up starting LD micro I don't know maybe 10 years ago or so I can't remember actually how long it's been and so he started having these conferences I think the conference was 10 years old and I helped him with the first one a little bit um not too much and you know a few of the years especially just prior to business school I think the first like two years or so I helped them quite a bit in terms of getting it started and kind of getting it from one level to the next again I didn't spend too much time maybe like a week of my life like each year helping them out with organizing and getting the conference more on the operations side set up well and then he has kind of grown from there like he helped me get my internship with the phone that was at he had the relationship there yeah I mean I think that's really the big thing and so now I sit on the table at a lot of investor meetings at his conferences and I give him like feedback you know as a true loyal person who has his best intentions at heart and I try to be as straight as possible with him and tell him what I like and what I dislike about the conference and he recently just sold his conference business as well too and so now he's a board member at a public company but yeah I mean that my relationship is like very close with him I probably see him like once a month or once every two months in person we have dinner or spend a day together one thing we do usually every year more recently is we go to CES in Las Vegas that trade show together we'll fly in hang out that day and go around and go through the whole convention walk a lot see a lot of people have a lot of meetings and then come back that evening I don't have that relationship with many people and so he's one of them he's at the end of the day he's one of the nicest like most generous people I've ever met in my life and those are the type of people I love to have as good friends and so he's definitely one of them 

Ken 00:49:42 
that's great and for your fund what type of investors are you looking for as far as whatever the criteria would be a good fit for the fund 

Sam 00:49:42 
the best fit historically for me in terms of this investment style has been people who have their own businesses or at one point about their own businesses and they understand that there's real value in owning a business being the owner of a business and they also understand that you can't judge the value of a business over a quarter or even a year it's over longer periods of times that you can really extract value out of businesses and you can really grow a lot of value and wealth out of it as well too so it's a passive way to grow your wealth and so I usually find people who understand that and understand valuation are the ones who are the best fit who understand it's for the long term at times where things are bad in the micro cap space the whole sector is probably usually worse I'd say in uh during the Covid times the performance of the fund didn't do as well and was a lot more volatile and down a lot more than the rest of the markets but that's because the baby gets thrown out with the bathwater and so our investors the best investors understand that and they're not panicking during those times and understand that you know most of our investments aren't solid businesses that'll make it through to the other side and it'll end up being better on the other side I think it's more the best investors are the people who have money saved up and they're able to withstand that type of short-term volatility in their temporary net worth 

Ken 00:51:11 
and if somebody is a long-term oriented investor and they do have enough money what percentage would you say would be appropriate to put into something like a micro-cap type of a fund  

Sam 00:51:21 
I think you're asking the wrong person I think uh for me personally because this is something I'm very confident in I would probably say higher percentage than what what they act in reality should have personally for me I'm very very overweight and small and microcap fun in the small microcap fund in terms of my own personal investments but I don't know you probably have a better sense maybe I think it depends on the level of wealth i think matters because then there's two things I think I don't like to look at it as a percentage I'd say I'd look at it more as like someone's behavior or mentality or a risk aversion or I wouldn't say risk aversion but more volatility aversion not many people could stomach the volatility that bitcoin has been doing recently and there's other people which I assume like yourself who doesn't really even look at it every day who owns a bitcoin and so I think someone who can stomach the volatility I think is someone who can put a higher percentage of their net worth let's say in microcap but I don't know maybe like 15 20 or so 

Ken 00:52:22 
with the idea that obviously the reason to stomach the volatility if you can is that presumably over time you get rewarded for it  

Sam 00:52:30 
yeah but I mean there definitely isn't some stuff that has volatility that over time ends up worth nothing the interesting thing like a lot of like theoretical finance sees volatility as risk I kind of look at it a little differently I look at price as risk if something has gone up in value and the fundamentals haven't changed to me that becomes more risky and so if something's gone down in value and there's like certain assets behind it to me that's not that risky so even if it just goes down really quickly or if it goes down over a slow period of time that doesn't matter to me like the assets are the assets 

Ken 00:53:04
yeah I think what you meant is if the price goes down then the value is not going to go down as much so therefore it got less risky 

Sam 00:53:04 
yeah yeah 

Ken 00:53:05 
and yeah I think a lot like that as well so that's great thank you for the information on that and obviously if somebody wants to get in touch with you or want some of your recommendations on books or things how would they contact you what's the best way 

Sam 00:53:23 
yeah they can email me at sam@ridgewoodinvestments.com you can follow me on twitter @snamiri is my handle and yeah I think that's probably the two best ways to get a hold of me 

Ken 00:53:36 
just to kind of close out the interview I'd like to ask everybody um to share sort of what person or experience it could be one or could be more than one it could be a book or something that had the greatest role in shaping the person you've become 

Sam 00:53:51 
my wife would probably be upset and she is upset that I read this book but there's a book called The Game and it's about pickup artists and how to pick up on girls and that book I read it when I had the jewelry company and that really influenced me and not at all because you know I was actually in a serious relationship with my now wife at the time but it was more that it really taught me that humans are wired a certain way and that you can take advantage if you need to be or you can play a certain game which is why it's called the game where you can put the odds in your favor when I read that book really changed my mind in terms of understanding that humans are wired in a way and it's really never going to change so I think that that's shaped me quite a bit in the combination of the jewelry company also like myself like understanding hey I have these certain biases myself and sometimes you catch them and sometimes you don't and then figuring out processes that make you be able to function better to avoid those biases but again just that book itself and then I had friends we would just kind of play games and see like hey like this certain things do certain things work do stupid things not work same thing that happened with the jewelry company I was like you put out a marketing you start marketing a certain way does it work does it not work and you realize that certain things consistently work even if people know that they're being played that's the thing like even when people know they're being played you can almost turn it in a certain way where it still works so like there's certain things there again that book had its own strategies  and some of them are like borderline sketchier not morally as correct but again that book just like changed the way I thought about like human psychology and how propaganda can be done I think I read somewhere that propaganda historically was actually a positive term back when that term was made and it was made by I think ford came up with that term when they were mass marketing initially it really is about like how do you grab people's innate instincts and kind of have them do what they actually want to do from internally instead of trying to convince somebody to do something it's a very different way of I guess like marketing or negotiating with someone so that book was really a big one for me I'd say another one was Sapiens which is kind of a similar realm in terms of understanding human behavior and psychology 

Ken 00:56:09 
well Sam thanks for a fascinating discussion we really appreciated having you here and hopefully we'll get a chance to talk again  

Sam 00:56:16 
yeah hopefully we'll be able to fly and see each other soon 

Ken 00:56:20 
yeah 

Sam 00:56:21 
take care bye-bye 

Ken 00:56:24 
thank you for listening to this episode I hope you enjoyed my conversation with Sam Namiri some of my biggest takeaways from our conversation included the Zoroastrian principle of good thoughts good words and good deeds the importance of getting people to feel more comfortable before having a conversation about business the challenges that he experienced managing people as an entrepreneur and the contrast between being an entrepreneur in an operating business versus being a fund manager in an investment oriented business I was also struck by Sam's insights on why micro-cap investing is such an attractive place to look for opportunities and generate higher returns 

Narrator 00:57:07 
thank you for listening to this episode of Compound Ideas hosted by Ken Majmudar of Ridgewood Investments connect with Ken learn more about the show and never miss an episode at Compoundideas.com Ken Majmudar is the founder of Ridgewood Investments and several other affiliated companies all opinions expressed by Ken and podcast guests are solely their own opinions and do not reflect the opinion of Ridgewood Investments or any of its affiliates this podcast is for informational purposes only and should not be relied upon as basis for investment decisions clients of Ridgewood Investments and its affiliates may maintain positions in the securities discussed in this podcast