Recapping Mistakes and a Few Wins
Rubbing my nose on mistakes so I don’t repeat them, or at least that’s my hope.
Burford Capital
This is the business I might’ve researched the most, and the one that had the worst outcome. I ended up closing my position after the reverse judgment on YPF, a position that stood at ~7% before that 50% drop. Burford might still do well, as the business model is unique and managers very able, but I made several analytical mistakes in this investment decision:
Backlog of cases went much slower than I thought. I took management’s words at face value.
I thought book value was close to intrinsic value. Trading at near net asset value, I thought my margin of safety was large. I ignored that it wasn’t tangible net asset value; a large portion was FV adjustments.
I ignored OpEx, for the most part. Having a ‘machine’ doing 25-30% IRRs, I thought it would be able to deliver strong profits even on high opex.
I didn’t fully acknowledge how (mis)aligned incentives were. If I don’t misrecall, managers are taking $16M+ every year (+ some shares of proceeds generated by private funds I think), while shareholders have been in hell for a while. Though it’s great that managers earn a ton of money, those earnings should match the value created for owners. Added to other high opex, the business feels more run for insiders.
I thought YPF was essentially won, assigning ~0-10% chances of judgment reversion. Given it actually happened, was it really a low-probability event? My sense is that no matter how much I read about the industry, I just went far outside my circle of competence. Ignorance about the legal field undermined my analysis.
Besides this, I even thought that the business traded fairly with respect to deployed cost ex-YPF. I believe I thought a 30-40% markup on cost was fine, given their historical ROIC.
I viewed the black box element favorably, which proved somewhat unwise. It’s a very interesting idea if you have someone like Mark Leonard leading such black box. Systematic mispricing is normal in these types of situations. If you trust management, it’s a plus as you build a position.
I ignored that we don’t earn extra points for complexity.
Having said all this, I hope Burford does well. It’s a fascinating business model with a long runway in a nascent industry that I think is a net plus for society, and Jon and Chris are extremely smart.
Quality businesses
Many inevitable companies have fallen 50-80% in the past 2 years. Companies one would think are so high quality that a 20-35x earnings multiple was appropriate. Absolutely mind-boggling.
The business that marked me on this front is Zoetis. Fortunately, I was able to spot this in real time. Opportunity cost led me to close my position before the fall.
There’s no asset so good that it can’t be overpriced.
We think that terminal value justifies it; that it has decades of growing free cash flow ahead. And the worst of all mistakes might be thinking the exit multiple will be the same as the one I bought into. “I’ll get a 12% return because it has a 4% dividend yield and it will grow 8%.” Sure, provided that you exit at the same 25-35x earnings that you paid.
I didn’t ignore history out of a bias, but because I wasn’t fully acquainted with what has happened throughout time. Further readings have served me well.
Opportunity cost saved me on this one.
I started seeing businesses in an everything-agnostic while customized manner. They are things that generate cash; and a dollar generated in O&G is just as green as a dollar generated by a SaaS business. How much cash will come out of them until judgment day determines their intrinsic value.
Why would you pay $1M for a $30k earnings stream when you can pay $1M for a $200-$500k earnings stream?
It’s easy to attribute the gap to Quality, but that’s not always the reason they trade at distinct multiples. Oftentimes, the second kind of business is just cheap. It might be just as high quality, with similar growth prospects, and limited downside, but unknown and thus overlooked, or mispriced due to short term events.
Time has to Pass
You can build a 2-3-year thesis on a business, but sometimes the 2-3 years will have to go by, and holding on for 500-1,000 days is an interesting test of conviction. Furthermore, you might’ve made a mistake in purchasing the business so early. It’s ultimately irrelevant if the dislocation is large. However, if you were expecting a 30-50% appreciation, having that occur in 1-3 years provides for wildly different IRRs. That’s why buying a dollar for 50 cents is only half the job; the dollar needs to be growing so that your returns and margin of safety aren’t capped.
A few wins since adjusting my investment strategy
Alpha Metallurgical Resources and Warrior Met Coal
My first bet was in May/June 2025: Alpha Metallurgical Resources and Warrior Met Coal (HCC). If I don’t misrecall, they were trading at ~$1.3B and ~$2.2B respectively. Both were priced at around book, with little debt, a large net cash position, and at 3-7x normal upcycle fcf. Both had signs of being low-cost producers and I had reasons to believe they were very well run, especially HCC, which had most capital already laid out for a new, extremely low-cost, high quality met coal mine.
Both returned 100%+ over the subsequent ~4-6 months, after which I sold. I left under the impression that Warrior Met Coal is the better business out of the two. Under the right circumstances, I would consider re-entering HCC.
Starting in October 2025, I switched to pursuing this avenue full time, which I’d summarize in 3 ideas: (i) Look for the margin of safety in the balance sheet and/or normalized EBIT/EV multiple, ideally both; (ii) growth, the more the better; (iii) bet on the operator.
Gulf Island
Started reading about Gulf Island in October, but only had a small position; news came out too quickly. I saw Richard Heo had gotten involved a few years back and he turned the business around, focusing on higher-margin offerings while divesting undesired assets, driving efficiency gains, and landing large contracts. Business had rerated and, in Nov-Dec, they announced they were being acquired at a ~50% premium.
Xponential Fitness
Xponential Fitness came onto my radar in February, before Q1 results. The business had been an almost criminal disaster from ~2018-23, after which there were two CEO changes. They had acquired many fitness-related studio franchises. Since 2024, some have been divested; with the last round of divestitures done by Mike Nuzzo, who took over as CEO in mid 2025.
A lot of cleanup that was needed and the business model changed in some ways (i.e. used to sell equipment, now 3rd party in charge while XPOF gets a commission). In addition, Nuzzo inherited a poor capital structure; he restructured it in December, converting preferred shares into debt.
Q1 results showed a lot of this clean-up, including a huge settlement; XPOF dropped 50% and I started a 3-5% position. My bet was that, the underlying business being strong, with maybe 30-40% normalized operating margins and a well-known brand, it was likely to be acquired. News came out a few weeks later, saying they were considering M&A after an activist investor got involved. Stock rose 50-70% and I sold.
Since then, XPOF returned to around my cost level. I did not initiate a position again because I’m less sure about their sustainability. Debt interest is eating all cash the business is generating and they are in the middle of the turnaround. Although these are the times from which the highest returns are obtained, financial risk deters me from investing in the equity.
After thinking about it since I sold back in March, I realized I misanalyzed the whole thing and have later come to realize how big a burden the debt is. They might generate ~$60M in cash per year, maybe growing, of which ~$50M is eaten by interest, and their $500M debt matures in 2030. I don’t know how they’ll manage to come up with that much cash by then, and I don’t think it’s sound to bet on refinancings without deep involvement.
Total Telcom
Started reading about the business in March and opened a ~7% position in April. Understandable business model, high insider ownership, growing topline at 20-40%, systematically profitable, key decisions should lead to margin expansion, main industry in recovery from down cycle, and a few potential opportunities for large hardware deployments, which could mean 100-200% growth.
Total Telcom was worth ~$4M EV, trading at ~5x my normalized EBIT. Thought a 20% EBIT yield, combined with the above, made for a good setup. After a few months, I sold a third of the position for a 50% return. The balance stands at a ~70% return.
I suspect this could be a long-term compounder, for which I might regret further sales. Nonetheless, I’m trying to find equilibrium. The reason I sold is that the new 10% EBIT yield was not as enticing as before; there are better opportunities elsewhere and buying/holding at current levels is placing a bet on accelerating growth and large contracts materializing. The margin of safety has been greatly diminished.
HireQuest
I published my write-up in Nov-Dec 2024. The stock fell from ~$13 to ~$7 per share as of late 2025. Having started in Oct 2025, I accumulated at the $8-$11 per share level, getting to be a 40% position at one point. Its weight gradually dropped to 18% pre-earnings as I deployed income into more attractive opportunities.
The bet was: industry recovering from longest down cycle in 20-30 years, margins recovering to ~40%, acquisitions for growth, and a great operator at the helm. About the latter, what convinced me was that Hermanns is able to pull all capital allocation levers: he quickly divested/restructured an acquisition made in late 2023 that went poorly, knows when to take on debt, acquires assets at ~1-4x multiples, and announced a 20% buyback when the business was severely undervalued. This, combined with the fact that the business drowns you in cash, that it has never reported a loss, and runs on a clean balance sheet, made for a large margin of safety.
I closed ~40% of the position after Q2 earnings for a ~70% return. Business was trading at an adjusted EV of ~$180M (need to re-check numbers), while having normalized EBIT of ~$12-16M. I left a large balance, even at such a multiple, granting full credit to the idea that great CEOs tend to surprise you on the bright side, though it’s unclear if I should push for higher yields.
Closing Remarks
Top three current bets include OMS Energy, Canaf Investments, and NTG Clarity Networks. Smaller positions include HireQuest, Total Telcom, Thermal Energy International, SuperCom, and Cleantek Industries.
I feel increasingly attuned to the idea that weight should depend on how big the margin of safety is. The larger a position is, the fewer the chances of losing money.
OMS trades at <1x EBIT/EV and below book value, with ~85% thereof being made of current assets, mostly cash. Canaf trades at ~2x EBIT/EV and at book, with book being 75% current assets, mainly cash. NTG Clarity trades at 2-3x normalized EBIT/EV, with great growth prospects, and at ~1.4x book, with the latter being mostly in receivables.
Additionally, I’m trying to build a portfolio that’s proportional to my thinking. In the last few months before closing Burford, the business consumed ~30% of my investing thoughts while being a <10% position. I don’t like that, a priori.
Finally, the period when I found the most ideas was March-May, when I went over hundreds of small businesses, mainly Canadian microcaps. Every time I start turning over dozens of rocks, I find one or two things. If you don’t look, you won’t find.
Feel free to reach out at giulianomana@0to1stockmarket.com
Best, Giuliano
Disclaimer: This is not financial advice. Do your own research.