Where Value Still Lives: Evan Tindell

TL;DR

1. Investment Focus on Japan: Emphasizes undervalued firms like Daiwa Industries, worth $500M, with strong cash positions.
2. Software Sector Insights: Japanese software companies offer attractive PE multiples compared to expensive US firms, despite AI challenges.
3. AI in Investing: Simple algorithms remain effective; AI tools aid in research but don't replace professional investors yet.
4. Content Creation Strategy: Original research and niche markets, like Colombia, are critical for content differentiation and credibility.
5. Behavioural Market Trends: Caution against conflating speculative behaviour with investing skill; prediction markets offer insights but require scepticism.

Investment Strategy and Market Insights

The discussion with Evan Tindell, CIO and co-founder of Bireme Capital, focused on identifying undervalued market opportunities, particularly in Japan, and understanding evolving software industry dynamics.

• Japan’s investment appeal centres on undervalued companies with strong cash positions and improving corporate governance, despite an aging population
• Evan highlighted Daiwa Industries, valued at approximately $500 million with an annual EBIT of $50-60 million and $400 million in net cash
• The company’s ownership structure limits private equity intervention but ongoing regulatory reforms and activist funds are expected to reshape the market over the next decade
• Population decline in Japan is a fraction of 1% annually, making demographic risks less impactful on stock growth compared to valuation and dividend yields
• Evan anticipates increased immigration over 10–20 years to support economic growth, despite current political resistance
• Private equity interest in Japan is growing, with more funds and assets focused there than ever before, driven by a shift in market culture and regulatory easing

Software sector challenges were discussed with emphasis on the impact of AI and market valuation corrections

• Evan noted that while LLMs (Large Language Models) like ChatGPT are transforming industries, market valuations for many AI-adjacent companies are ahead of their actual value capture
• Certain Japanese software companies trade at single-digit PE multiples net of cash with low churn and moderate growth, presenting attractive investment opportunities versus expensive US counterparts
• Cost declines in technology development, such as low-code/no-code solutions, create efficiency pressures but also raise questions about future profit margins for traditional software firms
• The market is skeptical about software firms’ ability to maintain margins amid easier customer self-service and growing open-source alternatives, though support and security services still hold value

Market efficiency and AI in investing were debated with focus on AI’s current and future roles

• Evan emphasized that simple algorithms like market-cap-weighted index funds remain highly effective, despite advances in machine learning over the past 20 years
• AI tools can enhance individual investors’ circle of competence and research efficiency, but sophisticated quant funds still hold an edge due to specialized training on financial data
• Stock picking contests involving LLMs demonstrate short-term success but lack validation over 10–20 year market cycles, which limits conclusive evidence of AI’s superiority in portfolio management
• Evan is cautious about AI replacing professional investors soon but sees it as a tool that will widen participation in investing and improve decision-making

Operational and Technical Considerations

• Evan foresees new business models emerging from lowered barriers to entry and automation of complex tasks, altering how companies operate and scale
• Despite these advances, most people do not fully exploit available knowledge, leaving significant opportunities for early adopters

Prediction Markets and Risk Management

The discussion highlighted behavioural trends in markets, gambling parallels, and the influence of prediction markets on decision-making.

• Evan noted a current peak in speculative behaviour and gambling disguised as investing, cautioning against conflating enthusiasm with skill or knowledge
• Prediction markets like Polymarket serve as useful aggregators of public sentiment and probability but remain a form of gambling with some information advantage
• Evan explained that the best odds come from people betting money on opposite outcomes, which often align with real probabilities
• While prediction markets reflect collective wisdom, they can be noisy and are not always reliable predictors of political or economic events
• There is a potential risk, though limited, that these markets could influence political actors’ behaviour if they become widely monitored, especially in fragile regimes
• Evan speculated on scenarios like coups where prediction markets might serve as coordination signals for conspirators
• Overall, Evan sees prediction markets as a helpful tool in gauging probabilities but advises skepticism about their direct impact on major policymaking