Driftwood and Diamonds

Host: In a market obsessed with growth, disruption, and the next big thing, there is a quiet, stubborn breed of investor who buys what everyone else has discarded. They are mocked when they are wrong, ignored when they are right, and ultimately vindicated — if they survive long enough. Captain Hannah is one of the survivors. She spent three years buying dead industries while the world chased tech stocks. Hannah, welcome.

Hannah: Thank you. I should warn you: I'm not exciting. My stories don't involve $500,000 losses or dramatic comebacks. They're about spreadsheets, patience, and learning to enjoy being bored.

Host: Let's start with your strategy.

Hannah: Simple. I buy companies trading below their tangible book value, with positive free cash flow, and a dividend yield above 3%. That's it. No AI. No biotech. No crypto. Just boring, profitable companies that the market has decided are obsolete. I hold them for 3–5 years. Most of the time, nothing happens. Some of the time, they go bankrupt. And occasionally — very occasionally — the market remembers they exist, and they double.

Host: 2018 to 2020 was brutal for value.

Hannah: Brutal doesn't cover it. I underperformed the S&P 500 by 15% in 2018, 12% in 2019, and 25% in 2020. My portfolio was full of oil companies, regional banks, and department stores. The S&P was full of Apple, Microsoft, and Amazon. Every family dinner, someone would ask why I wasn't in Tesla. My brother-in-law — a dentist who made $80,000 on Tesla calls — gave me investment advice. A dentist. Who trades options. Was advising me. A professional investor with 15 years of experience. That was the low point.

Host: What kept you in?

Hannah: The math. I knew my companies were cheap. I knew they generated cash. I knew the market was pricing them for extinction, and most of them weren't going extinct. Take Exxon. In 2020, it traded at 0.8× book value with a 10% dividend yield. The market was saying: This company is worthless. But Exxon had $200 billion in revenue, $15 billion in free cash flow, and reserves that would last decades. Was it a growth stock? No. Was it worthless? Absolutely not. I bought it at $32. It hit $100 in 2023.

Host: But you held through the dividend cut.

Hannah: Yes. Exxon cut its dividend in 2020. That hurt. I had held it partly for the income. But I didn't sell. The cash flow was still there. The reserves were still there. The market had just decided that oil was over. It wasn't. It never is. Energy is cyclical. The pendulum swings. My job is to buy when the pendulum is at one extreme and wait for it to return.

Host: Your other positions?

Hannah: I bought Bank of America at $22 in 2019. It went to $18 in 2020. I bought more. I bought Macy's at $15. It went to $6. I bought more. I bought Ford at $9. It went to $4. I bought more. By March 2020, I was fully invested. No cash left. My drawdown was 35%. I was terrified. But I didn't sell. I couldn't. My strategy required me to hold. And the companies were still generating cash, still paying dividends, still operating. The market price was wrong. I believed that.

Host: When did it turn?

Hannah: November 2020. The vaccine announcement. But the real move came in 2021, when inflation started rising and rates started climbing. Growth stocks got hammered. Value stocks woke up. My portfolio, which had lagged by 50% cumulative over three years, caught up in 12 months. By mid-2022, I was ahead of the S&P 500 on a 5-year basis. The brother-in-law who gave me advice? He lost 60% on ARKK. We don't talk about stocks at Thanksgiving anymore.

Host: What's the hardest part of being a value investor?

Hannah: The loneliness. When you're a value investor in a growth market, you have no tribe. The financial media mocks you. Your friends pity you. Your clients fire you. You question yourself every day. The only thing that keeps you going is the knowledge that you are right about the arithmetic, even if you are wrong about the timing. And the timing is always uncertain. Value can underperform for years. But it never underperforms forever. The reversion is inevitable. The only question is whether you are still there when it happens.

Host: What are you buying now?

Hannah: Chinese tech. Everyone hates China. The regulatory crackdown, the real estate crisis, the geopolitical tension. But Alibaba trades at 8× earnings with $70 billion in cash. Tencent trades at 12× earnings with a dominant gaming and fintech franchise. Are there risks? Absolutely. But the price reflects those risks and then some. I'm not betting on China. I'm betting on arithmetic. And arithmetic always wins eventually.