Charts, Scars and Market Stories: Episode 2 - Valuation Based Investing
Valuation Based Investing
Introduction
Charts, Scars & Market Stories, Episode 2: Valuation Based Investing
The response to the launch of Charts, Scars & Market Stories has been fantastic. It confirms what I have always suspected, there is a huge appetite for the real stories behind the trades. While many focus solely on the end result, the true value lies in the process and the psychological hurdles crossed along the way.
Following on from our deep dive with Freedom Trades, I am excited to bring you the next chapter. Its not just about strategy; they are about the person behind the price action and the specific experiences that shaped their discipline.
Next up is Mervyn from Valuation Based Investing, they are a standout voice on this platform, known for fundamental value investing with a touch of momentum. Whether you are a seasoned trader or just starting to find your feet, there is no doubt you will learn something from this former banker who shares his wisdom.
Getting To Know You
Before we get into the markets, tell us who you are away from the screens. What is your day job, and do you think that background has shaped the way you approach stocks?
I came up through banking, working across trading, structuring, risk, and stress testing, so markets have always felt like home to me. That background trained me to stay humble and disciplined, and never confuse excitement with conviction. Remember, anything can happen. Today, I spend my time managing my own portfolio and teaching working professionals how to invest, which is what inspired VBI.
Away from the screens, I’m a family man who enjoys running and badminton. I’ve always loved numbers, and that’s what first pulled me into stocks.
How long have you been actively investing, and if you could sit down with the version of yourself who was just starting out, what’s the one thing you’d tell them that would have saved the most time or the most money?
Firstly, try to find something that fits your inner personality and psyche. I’m a value guy down to my soul and bones. Till this day, whether its buying orange juice at the supermarket or big vs small bottle of beauty products for my wife I still look at the cost/ml and try to find bargains. So almost by definition, anything that fits me will always be more value based rather than momentum based.
Secondly, understand the difference between pro/semipro/casual and realizing that you need to be at least semi-pro in your niche to do well in finance. I’ll give you an example – I can cook a reasonable pasta dish for family dinner but I’m totally aware that my cooking is at casual level. If I go out and set up a pasta restaurant, I’ll be completely killed. Same for investing – I know which aspect I’m good at, and which aspect I’m casual at so I only deploy capital in the areas I’m good at – even when the other areas are showing much better returns I try to steer clear of the hype
The Philosophy
Your framework, 80% value, 20% momentum, viewing equities as producing assets rather than trading tickers, is a clearly defined way of thinking. Was that clarity something you arrived at deliberately, or did it emerge from the friction of getting things wrong along the way?
Like many others, I am a huge fan of Buffett/Munger, and the concept of producing assets giving 2 ways to win really resonated with me and gave birth to my entire investing ethos.
Buffett paraphrased – I will never trade a producing asset for a non-producing asset
Whether asked about their views on crypto in recent years, gold and loss-making companies, both legends have been consistent throughout the decades. So I thought I better follow this
For readers earlier in their journey who want to think more like you, which two or three metrics do you keep returning to that tell you the most honestly whether a business is actually worth owning?
If I only had 15mins to talk to someone and I had no clue on their sophistication or background, I would choose (actual, real) earnings and PE ratio
And then read their annual report and earnings notes to figure out if you can really understand if these earnings will still be there next quarter, next year, next decade and so on – and then figure out how much you want to pay for it.
This goes back to the original ethos of making sure your investment is a producing asset.
On the flip side, I would steer clear of trying to price equities off other variations of earnings like EBIITDA, Underlying profit, adjusted operating profit, etc unless you’re really really sophisticated
Where do you think most retail investors go wrong when they try to apply valuation principles in practice? There’s usually a gap between understanding the theory and actually executing it with discipline, where does that gap tend to open up?
There are so many mindset mistakes that beginners make but the one I feel for the most is one I’ve personally made myself - investing in high dividend stocks without properly checking that earnings can cover because this inevitably means divis will be cut in the future.
Back then I remember thinking, I’m disciplined and won’t chase the hype of making 50% per week. I’ll invest in something stable that pays good div yield instead. So when divis and stock price both dropped eventually that really hurts – almost felt like the good boy got punished. I was younger back then…
Valuation Based Investing
You’re only a couple of months into publishing Valuation Based Investing. What finally pushed you to start writing publicly, and what do you hope it becomes, both for your readers and for yourself?
VBI began with what I call my “Walmart employee lightbulb moment.” If you’ve spent years inside a big system, at some point you start asking: how do I get the efficiency without the bureaucracy? In investing, I wanted the best parts of institutional thinking, fundamentals, stress testing, risk management, without the endless committee meetings and PowerPoint slides. That was the spark that helped shape my own style.
The Substack and masterclass came next because I think the need is real. We’re living in a world with rising debt and growing fiscal pressure, and that means people have to take more responsibility for their own financial well-being.
My hope is that VBI gives like-minded readers a practical investing framework they can actually use, one that helps beginners and intermediate investors move closer to a semi-pro level of understanding and decision-making.
One of the things I want readers to gain from this series is that Substack can be a genuine place for investors to connect, learn from each other, and grow together. Has publishing changed how you think, or pushed you to sharpen ideas you thought you already had nailed?
Absolutely. One of the things I respect most about Substack is how smart and engaged the investing community can be. I wouldn’t claim to be at the level where I’m teaching everyone something, there are plenty of highly sophisticated voices out there, but writing publicly has definitely made me think harder and sharpen ideas I thought I already had nailed down.
In a way it forces clarity. You can’t be sloppy when you know thoughtful readers will push back, question your assumptions, and hold you to a higher standard.
What do you want someone to walk away with after reading your work, a specific insight about a stock, or something deeper about how to approach the markets altogether?
Start with the framework and mindset. Once you get the mindset, we don’t always have to agree on the same stock or even the same sector.
Final Thoughts
For anyone reading this who wants to follow your current thinking as it develops, what can they expect if they subscribe to Valuation Based Investing, and do you have an example of your recent work your would like to share?
The event that started on Feb 28th is still unfolding and IMHO is nowhere near concluded. That reasonably means that rates will be (much) higher for (much) longer – so I would look for banks.
Reason – they are the one of the few sectors that actually do well when rates go higher
Last question. If you could put one book, one resource, or one idea into the hands of every retail investor trying to do this properly, what would it be and why?
If you’re starting out – can’t go wrong watching youtube videos of Buffett/Munger
If you’ve already started – Black Swan by Nassim Taleb pls. Helps to stay humble and understand that anything can truly happen
Final thoughts from Sean.
Another episode, another perspective that has genuinely shifted how I think. That is exactly why this series exists.
The concept of producing assets versus non-producing assets is one I had simply never come across before, and it stopped me in my tracks. The idea of segregating businesses through that len, asking whether what you own is actually producing something before you commit capital to it — feels almost obvious once you hear it, yet it is not something I had ever consciously applied. That is the beauty of learning from others. You can spend years developing your own framework and still find a blind spot you never knew was there.
What also resonated deeply was Mervyn’s point about people needing to take greater responsibility for their own financial futures. He is absolutely right, and the reality is uncomfortable. The world has changed beyond recognition over the past six years. Pandemic, inflation, rising interest rates, geopolitical instability — the financial ground has shifted under all of us. For younger generations especially, the honest truth is that pensions will simply not stretch the way they did for those who came before. That safety net is shrinking, whether we want to acknowledge it or not.
The message is straightforward: learn the basics of how businesses and markets work, or eventually learn the hard way. There is no third option.
A huge thank you to Mervyn for his time, his honesty, and for sharing ideas that will stay with me. If you haven’t already, head over to Valuation Based Investing on Substack and give it a follow. This is exactly the kind of voice the community is better for having.
Until next time.
Sean
Really appreciate these stories, so helpful for a new investor like myself. I had this marked unread over the weekend to read this morning and its set me up with some helpful further material to pursue and learn more. Great series, thank you!