43 | Value Punks, Global Value Investing

My guests today are Daye Deng and Balkar Sivia from Value Punks. 

Balkar has spent a decade investing globally, in the US, Indian, and other Emerging Markets. He is a CFA charterholder and has a degree in electrical engineering from University of British Columbia. 

Daye has focused on Asian equities in his career, having worked in Hong Kong, Seoul, and Tokyo. He is fluent in Japanese and Mandarin, is a CFA charterholder and has a degree in mathematics from the University of Toronto.

Together, they write and run Value Punks. Which is a publication focused on global stock research. Value Punks’ aim is to provide independent, institutional-grade research on good and actionable ideas in a way that educates, informs, and importantly, helps build conviction.

In today’s conversation, we cover the story and origin behind Value Punks, Value investing and what it means, and touch on a few of their interesting ideas.

I hope you enjoy my conversation with Value Punks.

Show Notes:

[00:00:31] – [First question] – Balkar’s Background
[00:05:07] – Daye’s Background
[00:07:04] – Explaining the Punk
[00:08:59] – Value Punks’ strengths compared to others
[00:11:51] – Differences being an independent writer vs at a large asset manager
[00:15:32] – How do you divide the work as a duo?
[00:19:09] – The case for investing in international stocks
[00:22:46] – Daye’s thoughts on Value Investing
[00:26:05] – Balkar on Emerging Market Banks
[00:31:28] – Daye on Hong Kong Exchange
[00:35:48] – Dealing with curveballs
[00:39:48] – Underrated skills
[00:42:29] – Influential books

Connect with Value Punks:

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Kalani Scarrott (00:31): Okay, how are we? Another multi-person podcast today? So today I’m lucky enough to have Daye Deng and Balkar Sivia. Together they write and run Value Punks, which is a publication focused on global stock research. Value Punks’ aim is to provide independent institutional grade research on good and actionable ideas in a way that educates, informs, and more importantly, helps build conviction. So Balkar has spent over a decade investing globally in the US, Indian and other emerging markets, and is a CFA charter holder with a degree in electrical engineering from the University of British Columbia.


And Daye has focused on Asian equities in his career, having worked in Hong Kong, Seoul, and Tokyo. He is fluent in both Japanese and Mandarin and is a CFA charter holder with a degree in mathematics from the University of Toronto. So in today’s conversation, we cover the story and origin behind Value Punks, value investing and what it means, and we touch on a few of their interesting ideas they’ve written about. So I hope you’ll enjoy my conversation with Daye and Balkar from Value Punks. Cheers for coming on today, guys. I really appreciate it. And yeah, another three-person podcast. But for maybe just start off with, and maybe starting with Balkar, could you guys just both introduce yourselves, give a bit of background of your life and careers maybe prior to Value Punks, which we’ll get into soon?

Balkar Sivia (01:51): So I have a degree in engineering from UBC. After graduation, I started working as an engineer and, you know, for the first time, making money again as an engineer, you know, you think you can kind of do things a bit better. So I started investing on the side and, you know, as I was learning, I kind of, you know, read Buffet and read Munger and kind of really got hooked and figured that I was young enough to make investing a full-time career versus my job at that time, which was in software, software development. But then with a non-traditional background, you know, it, it would’ve been difficult for me to kind of get into the business. So I kind of, again, followed Buffet and, you know, and, and monger and just started researching companies and writing reports. then I would send these reports to managers that I respected and wanted to work with.


One of the managers in Vancouver Tim McElvaine took some interest. Tim himself had got him a job with Peter Cundhill by faxing him reports. You know, so he had, he, you know, he started working with Peter, got promoted to the CIO of Cundhill funds and then branched off and kinda started his own investment partnership. And I was a part of that for two years. So he kind of gave me my break in the industry. In 2012 I kind of got an opportunity to work with Burgundy you know, for kind of Burgundy is kind of a big name in, in Canada. It’s, you know, they manage about 30 billion across kind of different mandates but mostly with a quality value philosophy. So, you know, I worked with Tim and Tim was more of a deep value guy, and then Burgundy was more quality value.


 so here I was in the emerging markets team, you know, which kind of encompasses many countries. but I really learned how to kind of apply kind of many of, you know, Buffett’s lessons and analyzing companies and kind of go deeper and deeper and kind of peel the different layers as you, as you, as you look at a company. In 2021, I founded White Falcon Capital which is, which is the current firm that I, you know, spend majority of my time at. so this is you know, essentially an unconstrained long biased mandate with a focus in on producing absolute returns. so I’m essentially an emerging manager with a no management fee you know, a 0-0-15 fee structure. and I was talking to Daye, and, you know, Daye has a similar structure, even more generous you know, and, and we, you know, given no management fee and being emerging managers, we figured we, we collaborate on something that, you know, you know, where we can both kind of put our names out there and maybe, you know, earn some side income.


So we, so we co-founded value Punks you know, which, which again, we’ll talk more about during this conversation.

Kalani Scarrott (05:07): Yeah. so many things to follow up on, but Daye. Do you wanna explain you first and then I’ll ask a few follow ups?

Daye Deng (05:12): Sure. So my whole career is I, I’ve been focused on public equities research. so I’ve been doing that since 2012. And so it’s been 10 years, and the first five years I worked out of Toronto and at the same company Burgundy Asset Management as Balkar just described. So that’s where I met Balkar. And we were colleagues for five years there. And then the last five years I, I’ve been based in Asia, in Hong Kong and Seoul. So most recently I was with a firm called McKenzie Investments. it’s a Canadian asset manager and I was based in their Hong Kong office, and I was part of a large cap global large cap team with Asian markets. That’s my primary research focus.

Kalani Scarrott (06:03): Yeah. So with what you guys do now, it’s pretty unique. So was there anyone you looked towards for examples or even chatted with that had done something similar in the past? Or are you guys starting from scratch and figuring it all out yourselves as you go?

Balkar Sivia (06:17): I think from my perspective, I’ll just say that, you know, kind of having joined Twitter, you know, there were a few other people that were, that were doing this on Substack, but kind of being a bit of a student of, you know, investment management businesses, you know, that, you know, there’s, there’s always a large component of marketing and you know, and a large component of kind of just putting yourself out there built in, into these businesses. I mean, Ben Graham used to be a professor. Buffett has taught. So it’s so, so, you know, this was, you know, we knew we had, you know, given that you had just started, or, you know, our shops knew we had to kind of put our name out there and, you know, we figured this was kind of one of the, one of the ways to do it.

Kalani Scarrott (07:04): Yeah. Cool. So whoever wants to explain this one, could you please explain the idea and the reasoning behind the punk itself?

Daye Deng (07:11): Right, right. so I’m guessing most of your listeners would be like, familiar with Crypto Punks, right? So, so basically our logos like a, like a punk or NFT if you wanna call it that, a Warren Buffett. And yeah, frankly, we, we kind of just, at first we thought it was just hilarious, right? Because, you know, you kind of have like the polar opposite, right? Because you got like the most insane kind of investment subculture with no regard for value on one hand. And then you got like Warren Buffet, who’s like the most value conscious investor in the world. So like, we just found it hilarious, but actually, like, there’s a bit more serious note to this as well, because like, as Balkar said earlier, you know, we started our career in Toronto at a very, very conservative investment job which manages like, you know, endowment money and money for a lot of older high net worth clients.


So, so, you know, while there we really studied Buffett closely. So that was our starting point. but then also gradually over our careers, we, we really try to like to broaden the kind of stuff we look at as well. So, for example, Buffett hates gold, as you know, right? And, and you know, we’ve looked at that and we decided, hey, we like it and we want some portfolio exposure stuff. And then you know, Buffett also not back keen on tech, but we’ve spent a lot of time there too, and have invested a lot there. So, so, so if you go on our website, like you’ll see us covered stuff from like, very traditional businesses like banks all the way to tech and things that Buffett himself wouldn’t consider, you know, investible probably, right? So, so it is kind of like about like, you know, starting point being Buffett, but we expand our own circle of competence knowing that we’re probably gonna make some, I guess, like mistake along, along the way as well.

Kalani Scarrott (08:59): Yeah. Perfect. Cause yeah, cloning only gets you so far, so you gotta add a little bit of what’s your own, and maybe starting with Balkar here, stock research on Substack is obviously a hot topic and there’s a lot of people doing it, but how do you view Value Punks’ strength and maybe unique value compared to others?

Balkar Sivia (09:14): Yeah, so, you know, Daye, and I had a lot of conversations on this when we, when, when we were just starting out. I mean, you know, first of all, you know, we just kind of bring in a lot of experience to this, right? So kind of combined Daye, and I would have more than 25 years of experience. and, you know, this is again, experience in kind of established blue collar investment firms, you know, in this time we have made mistakes, we’ve had successes, and we’ve kinda learned from all of that. We have learned from people that you know, were much more experienced than us that worked at these firms and kind of derived lessons from them. so, you know, now we are just kind of putting all of that together into our reports as we kind of, you know, research and, and write and publish.


And then, you know, one of the things that we found that was a bit missing in kind of the Substack discourse, I mean, you know, it was very focused tech, it was very focused on some of these popular companies, it was, there was almost nobody doing international stocks, and there was kind of not many people doing, you know, writing on companies opportunistically where, you know, you can kind of, you know, ideas are actionable, you know, day one because the evaluations are, are, are, you know, are where they are. but again, you know, in our day jobs, Daye and I are both looking at stocks all the time for our own portfolios. and then a subset of those, you know, which we think would be relevant to a broader audience, kind of make it to the Value Punk subs.

Kalani Scarrott (10:46): Yeah. And Daye, anything to add there?

Daye Deng (10:48):  yeah, just briefly, like, I guess the starting point was like let’s take whatever we, you know, research jobs on the buy side, you know, the kind of research we produce internally for our portfolio managers, right? And let’s just do similar kind of writeups at that and try to make it public and see if people like it. Because I think, you know, a lot of folks in, in the industry who are, I guess folks who are not in the industry, right? They might be curious like what kind research is done on the buy side. And so we kind of put it out there, right? This is like the kinda write ups that we produce for our, you know, portfolio managers while working for these long only, like these billion-dollar funds. so, you know, not saying what we do is relevant for everyone, but I think it could be useful for it, I guess first, you know, buyside portfolio managers, but also students or people aspiring maybe for like a research role in the future, right? and you can kind of see what is maybe to be expected, you know, in, in these kind of research roles.

Kalani Scarrott (11:51): Yeah. And to go back, back to your day, and then Beko can chime in after you guys were both analysts at big institutional funds. So how is doing research different from there, doing it as an independent writer now compared to doing it as a large asset manager?

Daye Deng (12:04): Yeah. So, so definitely pros and cons, right? Like, you know, you obviously get a lot more corporate access in other resources at a large manager, and that’s something we, we, we miss for sure. I’m not, I’m not really sure how much of your listeners like actually come from the buy side or have been in that seat, but the one important thing I guess to emphasize is that like when, as a buy side analyst, you, you aren’t really writing the report for a general audience or like for the world to read. You know, usually you’re just reporting to a single portfolio manager, and most of the time it’s this one person who is evaluating you and, you know, deciding on your bonus and whatnot. So like you can imagine in this kind of setup, right, there’ll be some interesting, you know, let’s just call it institutional nuances.


So, yeah, so like, to give you an example, right? Like many analysts, they see one of their most important jobs as to get their portfolio managers to like buy their ideas. And because that’s the way, you know, they would measure the impact you have as an analyst and what your bonus is gonna be and blah, blah. So you can see, you know, with this, there’s like a bias to be positive because when you convey such a nuanced position to your portfolio manager, right? Like they don’t know if you have the conviction they want to test to see that you’ve really done the work, you have conviction, you know, let’s buy this idea kind of thing. So, you know, that’s an example of what drives behavior in that setup, right? and then I’ve also seen, like in some larger shops the teams can get really, really big for some large cap mandate.


Like I’ve seen teams that they as like 14 people. that wasn’t really my team, but, you know, you can imagine in that kind of situation, you know, everyone’s competing for the portfolio manager’s time. You want to get on this good side, right? With that one rare interaction. So the focus isn’t really about the research anymore. Like, it, it’s a, it’s like a beauty concept. So, so I’ll just say like, as an, as an independent analyst, I think, you know you know, Balkar and I, I think we were enjoying this in the sense that like yeah, you don’t have to think about any of that stuff, just focus on the research without worrying about the institution or the political side of things. And it’s almost as good as it gets.

Kalani Scarrott (14:20): Yeah. Interesting. And Balkar, anything to add there? How have you found it?

Balkar Sivia (14:24): Yeah, no, I’ll just, I’ll just second what, what they said in the sense that it is much more enjoyable to write on Substack for a more broader audience and just have the, have the freedom to kind of, you know, because it’s your own sub to, you know, say what you want and you know, say what you don’t want, work on the ideas that you want. don’t work on the ideas that you don’t want just because you know, you know, you know, you know that those ideas would, again, as Daye’s saying, create a bigger impact on the, on the portfolio. but you know, again, just the other part of your question is I think there’s nothing given all the free research tools that are today available that are, that are out there, I don’t think there’s anything that impedes somebody outside a big institutional buyside firm to do similar quality research as you would do inside that firm. You know, you, you, you do have to hustle a little bit more, but I don’t think, I don’t think you’re at a, you are at a disadvantage at all.

Kalani Scarrott (15:32): Interesting. Interesting. And yeah, something I’m interested about with you guys and your work and maybe Beki can start off with this. How does Division of Labor work when writing together? How do you guys’ plan and go through the process? yeah, just talk me through that.

Balkar Sivia (15:46): Well, well, Daye’s the task master, so I, so I let him, yeah, so I let him take it.

Daye Deng (15:53): So you know, our, our universe is global, right? Like coverage universe, so I guess in that sense, it does help to have two people to cover such a wide universe with international thoughts. but I think the more important like part is that it also keeps the two of us honest in a sense that like, you know, we actually review all of each other’s work everything that we put out, both of us, you know, goes through it. and so Behar would say to me, for example, like Hey, you know, there’s an important piece of analysis here that I think you might be missing or something. And like, we would try to ask each other the tough questions before like, our leaders, before our readers would ask us. so I think that helps to, you know, keep things rigorous somewhat.


 it, it, it definitely has it challenges though, right? Like doing this with two people. like I would say consistency is something we worry about sometimes. Like, you know, consistency of writing when, when you’re juggling between two people. Yeah. and yeah, like, I would say this, right? Like, we only gave it a shot because we, we worked with each other we know each other well or haven’t been former colleagues for five years. this kinda set up, I don’t think it’s something that I would like recommend to everyone because like, the truth is like co like co-founders and, you know, partnerships, they fail more often than not. So it, it’s really important that to think about it. and, and trust is, you know, really, really important.

Balkar Sivia (17:27): I’ll just add here that, you know, this idea came to me but, you know, I was not prepared to do, you know, 12 reports a year, which, which is what any relevant reader would want to see from a Substack. but what happens here is they and I split the work. We do six reports each one report every two months you know, and that becomes very, very doable. again, we have our day jobs, right? We have our individual kind of investment management practices where we spend a majority of the time. And then from there, whatever’s relevant, we can kinda apply that to apply that to value punks. and, you know, with, with two people, you know, not only do you share the work that kind of comes with writing, but you also share the, the admin kind of the strategy, you know, the other aspects of kind of running at operating a Substack.


 the last point that, you know, I I’d say here is that, you know, every investor is different, you know, Daye, and I, you know, think alike in many ways, but we are also very different. I mean, the idea is that Daye brings the sub stack, you know, I think are very unique. His perspective is very unique that I wouldn’t be able to bring. And I, I think similarly some of the, some of the things that I can bring to the table you know, Daye hasn’t worked in those markets to kind of talk about those ideas. So again, I think it, you know, working together kind of having the Substack together, I think it kind of gives the reader kind of a more diversified thought out product.

Kalani Scarrott (19:09): Yeah, fair point. And to move into the content and idea side of your work, Value Punks obviously focuses on international ideas, which has been a challenging time, is one way to put it. So it’s the 25th of October now, just for reference. But given how the world is changing and how tough this year has been, especially, does, does this change your thinking regarding your focus on international companies? Or how do you view this whole shift?

Balkar Sivia (19:31): Yeah, I’ll take that. You know, it’s you know, we started off with international, kind of knowing that international has underperformed for more than a decade at this point. you know, having said that, international has always had kind of bursts of outperformance compared to US equities. you know, their 2002 to 2008 time period was kinda the last time period where, you know, international equities, emerging market equities did really well compared to, compared to the US. And, you know, you, you know, you’d have a time like that again at some point at some point in the future. You know, we don’t know when, but you know, what we have is we have a Substack with kind of a large repository of inventory of these ideas, quality ideas that, you know, I think when, when, and if the market kind of moves towards our style international companies I think, I think then we can, we can kind of be very, very relevant to, to many players.


You know, in the meantime, you know, we, you know, we’ve argued you know, in, in, in, in one of the posts we wrote you know, why investors should consider investing a part of their assets in, in international markets. and you know, one of the biggest reasons, and you know, we are value investors at the end of the day, and one of the biggest reasons is valuations. you know pound for pound quality for quality. International companies are cheaper than US companies. you know, they, they, they grow their earnings, they have aligned shareholders. Management compensation is, is not that, you know, not as, as bad as some of the US companies. you know and then, you know, for people that have international benchmarks you know, it’s, it’s been a bit easier to outperform with international companies than it has been, you know, if you’re bogies the S&P500 you know, again, if, if, you know, from our perspective, if we can make the case for somebody having a portion of their assets in quality international companies I think that’s, that’s kind of what we are, what we are aiming for, we aiming, we are aiming to kind of occupy and dominate that, that niche.

Kalani Scarrott (22:03): Yep. Very good. And Daye, anything to add there?

Daye Deng (22:07): Maybe just a, you know, small subtle point is that you know, if you think about it, like public equities is like the most efficient, low-cost way to get international exposure, right? So, you know, if, if not public equity, like how else do you plan on getting international exposure? Unless, like, you don’t want to do that at all, like private companies, no, right? Real estate, no. like, this is your best and really, I think the only way that anybody could add some geographic diversity to the portfolio. So, so I think it’s worth thinking about and, you know, just taking advantage of this really, like, simple fact.

Kalani Scarrott (22:46): Yeah, totally agree with that. And in value investing more so in general, you guys wrote a piece back in April titled Value Investing Revisited. So you challenged some conventional thinking around the value investing community. Balkar, do you wanna start with that and then Daye can follow up?

Daye Deng (23:02): Actually, maybe I’ll talk about it because I mostly wrote this article. Yeah. So like, it, it basically really comes down to the fact that we, we don’t think there are any hard truths out there in investing. and maybe that’s lost on some people because in our opinion you know, value investing seems to have especially gotten increasingly become like a dogmatic field. you know, just look at how many accounts there are on Twitter that do nothing other than, you know, quote Ben Graham and Charlie Munger, Buffett and all that, right? So like people think you do, you just follow these timeless principles and, and you can do, okay. now, you know, what’s interesting though is that when you look at the reality, right? And what you tend to see is that so many investors lose money and get hurt by being so dogmatic with these principles.


And that’s actually what we observe. So, you know, the way I think about it is like you know, the application is very nuanced, right? Buffet makes this sound so easy, but literally, it’s like listening to a pro parkour athlete telling you, okay, jumping across that 10-foot cliff is so easy. Like, you, you don’t take that at face value. You have to think situationally, you know what I mean? so, so, okay, so on for, for this piece, what we did was like, we, we, we tried to give like a practical footnote to, you know, some of the most reference value investing concepts. and it’s important to know how each one could not only benefit you, but also hurt you at the same time. like just as an example, right? We talk about, you know, there, there’s this, like, everyone likes to say volatility is not a risk and that it’s a friend that you take advantage of, right?


That’s what Graham and Buffett teaches us. But in reality, what, what we observe, well, most people get burned by volatility. That’s what I see. And, you know, and that’s because people are not taught to think of volatility as a risk. That’s part of the reason. And because of that, for example, you know, they don’t demand to be adequately compensated for taking on that volatility, which is a problem, right? you know, there’s this also this other concept like, you know, Mr. Market is this like really irrational manic-depressive character. And I also think if you, if you take this too hard and don’t question this narrative, it also has more potential to do harm than good. Because like, how many people do you know who, who think that the market is dumb, but they’re the ones who lost potential amount of money, right?


So, so, you know, they would’ve better off, they would’ve been better off if they, if they thought that the market is like smart and that they might have, you know, that might have prevented them from these stupid things. So like, we’ve just identified like a couple of these points and wrote about them and, you know yeah, like, I guess I would encourage listeners to check it out if it sounds interesting. You know, we have some funny means in there too. Yeah. so, so yeah, go, go check it out.

Kalani Scarrott (26:05): Yeah, the Mr. Market description I very much agree with, cause it can be a bit of a coping mechanism if you have losses. Oh, no, it’s not me, it’s Mr. Market, you know, it’s a, so I’ll maybe go with Baca now. So obviously you’re an emerging market analyst for 10 years, but you’ve written on some emerging market banks including HDFC and NU. Do you do you wanna talk about what’s interesting there and yeah, just tell us what’s, what’s your thoughts?

Balkar Sivia (26:28): You know, again, being an emerging markets analyst, I had the opportunity to kinda look at banks because the banks in emerging markets and the opportunity in banks in emerging markets is very different from that in the US or Europe or Japan. you know, anybody who started investing after 2008 probably doesn’t know how to fundamentally analyze a bank because, you know, why would you ever look at a bank? because, you know, they are bad businesses and they kind of blew up during, in GFC again, but in emerging markets, they have been some of the biggest compounds. you know, again, if you, if you think of a typical emerging market, I mean, again, ex China, you know, these, these markets are, you know, typically speaking capital starved you know, GDP is growing at a high rate. There’s also inflation. So nominal growth has high requiring high credit growth.


And on top of that, you have, you know, the better banks taking share from some of the weaker banks, and then also a large swath of kind of unregulated entities like money lenders, which exists and, and have large shares in these, in these markets. So we kind of used HDFC Bank, which is kind of the largest private bank in India as kind of a kind of an example and kind of a primer on, on how to analyze a bank. you know, so again, the, you know, if you look at the balance sheet, you look at the income statement for a bank, it’s all kind of very different compared to a regular operating business. and there’s some nuances there that, you know, that are important to appreciate. And, you know, somebody who hasn’t looked at a bank in the past wouldn’t know.


So we, so we try to kind of you know, peel that, peel that onion and, and really kind of bring forward a framework to analyze a financial institution. HDFC bank itself, you know, again, has been a big success story coming out of India. the bank has compounded in the low twenties over 25 years coming into this year. It had some short-term headwinds due to its stock was available at a, at a discount to its historical valuations. So we figured it was an optimal time to kind of do a, do a, do a write up on the bank so that, you know, it was, it was, it was received quite well, which, you know, which we were happy about. But then again, you know, given our, again, the kind of the dive, the diversity of thought that we have year value punks, you know, new bank, which is a bank in Brazil is a very different story.


So, you know, HDFC bank is kind of your steady eddy compounder that kind of does the same thing year over year. Gross book value at, you know, high teens every year while keeping you know, credit quality very, very high. NU is a new bank, which is following the business model of a Capital One or, or a tank off. you know, the business model here is essentially to, to introduce credit cards to the population with a digital first strategy and a great customer experience and kind of use this kind of credit card as a customer acquisition tool and then a data gathering tool to then, you know, sell other products to this customer to actually make money. hmm. Again, you know, you manage the risk on the credit card portfolio, which is an unsecured portfolio by, by you know, both with data and by keeping just low limits to the, to the, to the customers in the beginning.


So again, it’s, you know, it’s a little less proven compared to an HDFC bank. but we know that it’s not easy to build a bank in a country like Brazil. It’s even more difficult to execute on the strategy, you know, and they’ve done a great job, you know, in between Brazil, Mexico, and Columbia, they have 77 0 million clients. wow. You know, the, the thesis is that these clients are currently doing about $7.80 per month, and they can eventually go to 10, 12, $15 a month, which, you know, which kind of more than doubles their revenues. And, you know, with the operating leverage in the business, you know, you can have a business that’s trading at kind of single digit PE in 2025. So again, kinda a very different approach to evaluations. A very different financial, very different country, but kind of applying the same value investing principles, looking for good operators, quality companies, you know, we think you know, they’re both very, very investible and kind of both you know, good ideas that can do kind of higher IRRs from here.

Kalani Scarrott (31:28): Yeah, great explanation. I love it. That’s, yeah, such a good rundown. So Daye now, your turn, I guess, so you wrote about Hong Kong exchange, so you’ve lived and worked there as well. what’s misunderstood about that opportunity, do you think?

Daye Deng (31:41): Yeah, so, so, well, interesting timing, right? We just had China’s congress like two days ago, and the market’s been kinda crazy. Maybe I, I won’t go into that here. yeah, there’s just been so much, I think bearish pieces written about Hong Kong in the media. And you know, recently I was reading about an article saying, you know, how Hong Kong is moving to Singapore, right? People cite these financial center rankings and go like, oh, Hong Kong’s going down the rankings. But I think like one of the best ways to really understand, just like a financial center, is to look at the most important infrastructure, which is exchanges. and I really think more people should be doing this because like they really disclose some good information. and once you start seeing this, you start to, you know, understand, okay, what, what are Hong Kong’s strengths at the financial center?


And, you know, for example, why can’t Singapore just like replace Hong Kong? and I’ll just tell you something interesting because, you know, there’s a bunch of people right now who think Hong Kong is losing its relevance or, or market share, right? But if you look at the data, in fact, like Hong Kong’s relevance has actually only grown. and, and that’s counterintuitive, right? so for example, with Singapore, right? you, let’s look at like futures. So Singapore used to be a monopoly in the world for trading offshore, you know, aha futures. And then last year, last October, Hong Kong came in and really came and from nowhere and grabbed 15% of the chairs and less than a year, right? and if you go read some interviews, it’s actually the Singapore execs that are worried about this and, and not Hong Kong. and it’s not just Singapore that Hong Kong kind of taking share from, but it’s also the US as well in that, you know, you’ve got these geopolitical headwinds as, as everyone knows with the, these listing risks, right?


And those have been leading to homecoming, so mainland tech listings. and so we’ve actually seen volume migration from names like Alibaba, JD, NetEase, all these Chinese internet companies’ volume has migrated from, has been migrating from the US to Hong Kong through this process of ADR’s conversion. So like investors in the us, they could convert their US ADRs to Hong Kong estate shares, right? There’s a process for this and, and these shares are fully fungible. So when you look at the data, you know, Hong Kong is actually taking volume share from the US and in a couple of years, you look at, based on trading for these names, like Hong Kong volume could actually eclipse the us. And I just think not many are talking about these underlying trends because like the market’s been doing horribly this year, everyone is suffering. but maybe this is like masking the underlying trend where Hong Kong has actually been taking share in some of these places. and, and so yeah, so like in, in this piece, like we, we, we talk about these you know, long term structural opportunities for Hong Kong that I think it’s getting increasingly hard to find because everyone’s just so thereish about the prospects there.

Kalani Scarrott (35:08): Yeah. It’s just the geopolitical risk gets everyone in a tizz, and they can’t even, all logic goes out the window.

Daye Deng (35:14): But I think on, on that point, I just think like there’s geopolitical risks, but you know, there has been that risk all the way until now. And if you look at Hong Kong exchange, they’ve doubled their profit in the last five years, right? even amidst geopolitical risk. So I think the key, the more important question is probably to think about, you know, how is Hong Kong really aligned with, with China’s development? And, you know, I, I happen to think that they’re quite well aligned. and so that really, that is really the, the driver for a lot of, lot of the girls there. yeah.

Kalani Scarrott (35:48): So one last general question before I get into my closing around, as I’m very conscious of both you guys to especially Balkar so late at night, but evident from your work, and you’ve mentioned it very briefly beforehand, but a ton of work goes into the ideas. But what happens if the price moves substantially, or a curve ball hits the company when research is nearly finished? Like, how do you navigate these kind of scenarios when you’re doing a writeup?

Daye Deng (36:10): Well, maybe, maybe, maybe like, I’ll go first, and I don’t know if I have a great answer, but maybe Balkar talking that, but I think, I think you know, I think this is one benefit to doing in depth deep dives in the sense that, you know, it gives you some context to assess things. So hopefully, you know, by the time the curve comes, you know, you would’ve spent enough time, you know, deep on the, like, the history, the management business model, enough, enough to really make an informed decision on that curve ball. And yeah, you have to determine if that curve ball is completely like thesis altering or, or not, right? and it also helps that you know, we, it helps to try to kind of treat your writeups not as not as a sales pitch, but more like providing both sides of the story so that and we try to do that, do that as much as we can. So, you know, get out, getting outta this sales pitch mentality helps because you are no longer that stressed when, when shit happens and you know, because it’s less about making that pitch and driving that narrative, but it’s more like, it’s more about providing a balance speak, right? So we, we try to provide actionable ideas and we try to be, but, but it doesn’t have to be always. Yeah. Okay. You have anything to add?

Balkar Sivia (37:32): Yeah, no, I, I’ll just, I’ll just quickly say that, you know, the way we look at it from, from an investing perspective, kind of a lot of the job is just to kind of get to know companies, get to know them well and then follow them follow them for a while and just wait for the price to kind of come to you, right? So part of what we are doing here is, you know, also educating, right? We are trying to do a deep dive, trying to really go into kind of unit economics, trying to really go into what the business does you know, its history, its kind of management culture, all of that so that, you know, the reader can appreciate, you know, what the, what the, you know, what the quality of the businesses. and then, you know, I’ve, I’ve found even through personal experience that, you know, valuation is something that kind of, everybody looks at differently based on their own biases, right?


I mean, something that’s cheap for me is not cheap for you. something that’s high conviction for me is not high conviction for you, again, because the way you and I kind of think about risks is different. The way you and I think about returns is different. So it will be difficult for us to kind of, you know, always have an actionable idea for every person that reads or post. So it’s more about, you know, can we, can we, you know, did you learn about a new business model? Did you learn, did, did you learn about a new industry? you know, did you learn about a new management team that’s doing things a bit differently? and can you then kind of apply those lessons to something else that you’re looking at? Right? I mean, most of what we do you know, Daye and I, at this point in our careers is, you know, we’ve built this database in our heads of kind of, you know, business models, mental models, things that work, you know, trends that we know work, and then we try to just look for similar things that have you know, that, you know, that that can have relevance for our portfolios and for value pumps.


So that’s, that’s kind of the, the kind of the objective here you know to both to kind of provide ideas, but also to kind of educate and inform.

Kalani Scarrott (39:48): And I’ll go onto my closing round of questions, so I’ll start with day first. What do you think is an underrated skill or an experience that university age students don’t give weight to? So what do you think is an underrated skill or an experience that you think they should have or maybe something that you wish you had at the time and developed earlier?

Daye Deng (40:03): Yeah. if, if I could go back in time and tell my 18-year-old self I think I would try to tell myself to be more curious about history and to know more about history, right? Because when I was younger I used to think history as this useless humanity degree, right? And I was a science student. but now I, I’ve come to a point where I think, like, I really think if you don’t understand history, then you don’t understand the present and, you know, there’s even less chance you can forecast the future. So I definitely wish I, I, you know, came to this realization earlier. yeah, I think that’s one underrated thing I would tell young, younger people

Kalani Scarrott (40:47): And Balkar, for you?

Balkar Sivia (40:48): Yeah, I mean, you know, there’s, there’s I mean, I mean, there’s a lot of things. I mean, there’s, you know, there are different things from a life perspective of different things from a you know, if you want to work in this industry perspective, maybe I’ll talk about the latter. and it’s just that, you know, in the beginning, I think, you know, young people just have to say, you know, I don’t know anything. And then just go on finding answers to everything that they, you know, think they don’t know. And if they think they know something, then keep asking why, right? keep asking why and you know, you’ll realize very quickly that there’s a lot that you don’t know, you know, why does this has to have a 15% operating margin? Why do earnings have to grow at a certain level?


Why does the management take that decision? You know, some many things that we take as obvious are sometimes not obvious. Sometimes the answers that are in front of us, the easy answers are not the right answers. So I think it’s, it’s just very important to be curious, very important to learn, very important to put in the effort, keep your head down. you know, again, you know, when Warren Buffet was asked, you know, how do you start? And, you know, he just goes, I pick up the Moody’s manual and start at a, you know, I think that is the right advice. There’s no shortcuts in this business. You just have to go report after report and report after report, company after company put in the time to be able to kind of accumulate knowledge that can then compound for you as you, as you kind of grow in your career. Yeah.

Kalani Scarrott (42:29): And back at you again, Balkar, then we’ll go to Daye, and you can treat this as either life or investing, but any books that have been influential in shaping you and your views?

Balkar Sivia (42:39): I think, I mean, you know, many books many books, you know, I, I think again, in the beginning for me it was, it was all kind of about, you know, just kind of reading everything that they that they kind of put out their letters, their partnership letters, books, et cetera. and that I think would, I would say would’ve had the biggest influence on just not how I invest and kind of think about business, but also in, you know, in terms of how I kinda live my life. I think some of these, you know, again, from, from, from a younger person’s perspective, I think a lot of people, you know, read, you know, one book and say, you know, I know what Buffet said. I think it’s really have to kind of go through a lot of material to kind of really kind of get to understand you know, what he did you know, and what, what they’re trying to say and how they kind of live their life. and you know, how they were able to kind of build Berkshire into, into what it is today. yeah, so that’s, that’s, that would be I think the biggest influence from my perspective.

Kalani Scarrott (43:53): Yeah. And you Daye?

Daye Deng (43:54): So I’m a really, so if I was to give, you know, two book recommendations, I’m really a big fan of Joe Studwell’s books on Asia, so How Asia Works and Asian Godfathers, Kalani. Have you read?

Kalani Scarrott (44:06): Only Asian Godfathers. How Asia Works is next.

Daye Deng (44:08): Oh wow. It’s a must read. I think, like, I think for those who are looking to invest in Asia, just to understand when understand Asia in general like it tell you how things got here, got to where it’s today, and just kind of going back from my previous point about history being something I think is super important. yeah.

Kalani Scarrott (44:26): Thank you guys so much for coming on today. Anything else you want to add or, yeah, where can people find you? You obviously, and anything you wanna plug?

Daye Deng (44:33):  yeah, like check, check, check us out at our Substack. Both Balkar and I are also on Twitter as well.

Kalani Scarrott (44:40): Perfect. Balkar, anything else?

Balkar Sivia (44:42): Yeah, no, I, I’ll just say, can I check us out on, on Value Punks. It’s you know, let us know if you have any questions or feedback. We kinda love to hear from our readers. and, and you can find us on Twitter, you can find us on LinkedIn if, if anybody wants to get in touch for anything, I’m happy to talk.

Kalani Scarrott (45:01): Perfect. Thank you guys so much for coming on. Been a blast.

Balkar Sivia (45:03): Yeah, likewise.

Daye Deng (45:04): Thank you.