00:03:08 · Deiya Pernas
[00:03:08] S1: Yeah. So my background, I got into finance investing really from my... I had a passion. I played a ton of poker in college, before college, after college. Even when I started, working for Morgan Stanley, was playing a lot of poker. And my love for poker, I mean, you know, I think when you're trying to figure out as a kid kinda what career path you're gonna go on, you you try to look back on stuff that you actually like, and maybe, hopefully, you try to find parallels with, you know, adult stuff out there in the real world and stuff you used to like as a kid. And with poker, you know, there's a lot of lot of the dovetails from poker into capital markets. There's a behavioral finance stuff. There's a probability stuff. There's bankroll management, which is essentially portfolio management for poker. A lot of that stuff led me into deciding that both finance and capital markets was going to be an area that potentially that I could enjoy and and, you know... And if you enjoy it, you know, it's not like you're... The the work doesn't feel that hard. So for me, it was... After after college, it was like joint mortgage lending on the private wealth side. There's a team there. There's a huge trend in wealth management where, you know, teams are are going from wirehouses, which is Morgan Stanley's, UBS, the wealth partner in the world. They're starting their own independent kind of wealth management RA practice. And I was kind of part of that trying our team lifted out of my understanding. We started our own, essentially our own business. We grew from there. And one of the things that I noticed was how terrible a lot of the research that we were getting on our side was. And we wanted to start kind of, my brother and I, who've been investing together for close to fifteen years now, we said that, look, there's a better model for stock research, for public equity research, and it's more of a buy side oriented model if you do it correctly. And so we decided to kinda launch our own firm three years ago. And right now, we're launching fun, but that's that's kinda been the evolution. So
00:05:14 · Dean Pernas, Mikk
[00:05:14] S2: Okay. Awesome. Yeah. I came from the chemical engineering world. That's what I majored in college, and I worked in that industry for about five years. And during college, I was investing alongside my brother, and I just love that a lot more than chemical engineering. Chemical engineering, it's a very static field. You want... If you're in a chemical plant, for instance, you're working at some type of oil well, you want the same things every single day. So you want the same recovery, the same production, the same quality. Like, you you want a static environment. Any type of deviation from that is not a good thing. And you're you're kind of a glorified babysitter. And investing, it's pretty much exact ops. Everything's always dynamic. The industries are always changing. Actors are always changing. And I I just... That fit my personality set a lot more. And so come COVID, given just the market sell off, that was... It was an opportune time to get out of the chemical engineering sector and then do investing full time and then subsequently launching the firm with my brother. [00:06:08] S0: Okay. So a lot of the listeners, they own, operate, buy lower middle market businesses, one to 15 EBITDA. So what can those private market investors, again, operators learn from two guys, two brothers whose job is to charge businesses and the management teams from from outside and then maybe watch the scoreboard update every day?
00:06:35 · Deiya Pernas
[00:06:35] S1: Yeah. I think that if you have a long term view, which obviously, the audience... The attributes of the audience mentioned clearly have, they're operators. They're trying to build a business long term, and maybe they're they're trying to, you know, exit later or, you know, own the business for a very, very long time. You end up kinda looking at the same things that that a serious public equity investor might do. We're trying to analyze the, you know, the essence of the company. You know, what... Why is the company... You... Why is it working here? Why is it not working? How are relate... Its relationship with customers, its product strategy? You know, what are the capital allocation decisions being made? You know, what are what are the leadership, who are the managers? What are their style of leadership? And what is their quality like and how this business is gonna evolve going forward? So in my opinion, you end up looking a lot of things. And it's one of the reasons why you know, a lot of hedge fund managers will like to hire private equity analysts. Hedge fund managers that that that play only in public markets will like to hire private equity analysts because they know that, hey, a good private equity analyst is gonna learn a lot of same things that a good public equity investor does. And oftentimes even better because they're more long term focused. So clearly, there's an element of private markets that doesn't exist for us as minority shareholders. There's a control element. You sit on board, you pick managers. There's all that type of thing. But generally speaking, we really mean the same things. As far as what can private market investors look for public market investors, I think that the access can be a double edged sword. I mean, we're all sometimes envious of private market investors given the access they have to different management teams. And, you know, it's funny. We often criticize public market investors for a casually throwing word around trust. Oh, like, I trust the CEO. Like, I read some interviews transcripts. I watched some YouTube videos, I I trust the guy. And to us, it's like we never trust any CEO. I mean, like, I mean, by and large. I mean, a lot of these CEOs, they're they're great talkers, but they're not really there to provide you kinda unvarnished objective... An objective view of their company.
00:08:56 · Deiya Pernas, Dean Pernas
Like, everything that they say. I'm not saying they're all lying, but some of them definitely do lie. Some way... Some of them definitely do omit key information. But your job as a public advocate investor is to is to always verify what they're saying. Like... So there's a healthy skepticism paranoia about, you know, leaders of management teams of of companies that I think private market investors, because of the access they have, can start to dissolve with familiarity even though it should because there's some key areas where the incentives may not exactly be aligned. And I think you just need a... You need to maintain a sort of reservoir of... I don't know. Pernas is the right word, maybe some sort of skepticism. Skepticism. So that... That's what I would say. [00:09:41] S2: Yeah. I would just... Yeah. Like like Deiya mentioned, all CEOs, there's some element of salesmanship there. They're not there to tell you the complete, honest, objective truth. And so you just have investors... Helping investors have to take a healthy dose of skepticism there. And, yeah, if you're a long term investor, you are going to... All you're trying to do is exactly the same thing as the private markets. Is this company returning more value to customers and relation to competitors, and is that getting strong over time? And if you can answer that question, then then it's investment in both public and private markets.
00:09:41 · Dean Pernas, Mikk
[00:09:41] S2: Yeah. I would just... Yeah. Like like Deiya mentioned, all CEOs, there's some element of salesmanship there. They're not there to tell you the complete, honest, objective truth. And so you just have investors... Helping investors have to take a healthy dose of skepticism there. And, yeah, if you're a long term investor, you are going to... All you're trying to do is exactly the same thing as the private markets. Is this company returning more value to customers and relation to competitors, and is that getting strong over time? And if you can answer that question, then then it's investment in both public and private markets. [00:10:13] S0: I was I was doing the research. I forgot. Was it some... Either of you or someone else saying that the CEO of of asking those questions from a CEO of a public company is expecting the same thing that the parent will say bad things or negative things about their kids and it just will never happen.
00:10:13 · Mikk, Deiya Pernas
[00:10:13] S0: I was I was doing the research. I forgot. Was it some... Either of you or someone else saying that the CEO of of asking those questions from a CEO of a public company is expecting the same thing that the parent will say bad things or negative things about their kids and it just will never happen. [00:10:32] S1: Yeah. I mean, CEOs their are very good at... You know, like, you know, they're very good at salesmanship. They're very good at... You know, the whole house could be burning down, but it... You know, they'll be like, well, you know, things are... But, you know, there's reason for optimism, and we're doing this, and we're doing that. And one of the things about being investors is understanding human nature. And at the end of the day, CEOs, they don't come from a different portal or a different planet. There are people like you and me that are trying to do the best they can, and a lot of them are scared to lose their job. And they they have the normal fear... They have normal fears that other people do. So if you think about the the average tenure for a CEO of public markets is about five or six years. I mean, lot of those people work their entire life to get in that position. They wanna stay there. They don't wanna get ousted, you know, prematurely. You know, they they wanna collect, so to speak, while while they're at the top. And, yeah, just understanding nature. They're all kind of being sentenced if they would be like that, I guess, you know, it's not it's not a surprise.