Aaron Edelheit, Mindset Capital - The Best Investors Are Those That View It As A Game | #342

Episode Summary

Executive Summary: Aaron Edelheit argues that the biggest opportunities come from structural mispricings in underappreciated markets: Mexican homebuilders, Nintendo, and U.S. cannabis. He ties his views to decades of investing in real estate, emphasizing supply shortages, long-term secular demand, and the value of patience, writing, and game-like decision-making in investing.

Main Topics: From U.S. foreclosures to single-family rentals (Priority: 5/5): Edelheit recounts building a rental business during the financial crisis, learning that underbuilding and land scarcity can create powerful long-term opportunities in housing. Mexican housing shortage and undervalued homebuilders (Priority: 5/5): He argues Mexico has a severe housing supply deficit, making companies like Consortio ARA deeply undervalued due to years of underinvestment and a rising need for new homes. Investment philosophy and portfolio construction (Priority: 4/5): He describes a concentrated, long-only, low-leverage approach built around 10–15 names with low downside and uncertain upside, emphasizing patience over trading. Video games as a training ground for investing (Priority: 4/5): Edelheit says games help investors practice decision-making under uncertainty, and that video-game thinking maps well to modern markets with multiple paths to success. Nintendo as a long-term IP and platform story (Priority: 5/5): He sees Nintendo as undervalued because of its cash, digital transition, recurring revenue potential, and under-monetized intellectual property like Mario and Zelda. Cannabis as a legal, capital-constrained growth market (Priority: 5/5): He is bullish on cannabis due to health-and-wellness demand, state-level legalization, and the disconnect between market size and limited institutional participation. Knowing when to sell and the role of writing (Priority: 3/5): He favors holding winners with long reinvestment runways, but trims when better opportunities appear; he also sees writing as a source of alpha and feedback.

Key Arguments: U.S. housing underinvestment from 2009–2014 created today’s housing shortage; similar dynamics are visible in Mexico. Mexico is building far too few homes relative to population growth and demand, creating a likely price and earnings tailwind for homebuilders. Consortio ARA appears exceptionally cheap on book value, free cash flow, and net asset value while remaining profitable and unlevered. Video games teach strategy, adaptability, and emotional discipline—traits that matter in investing. Nintendo’s console cycle may be smoothing into an upgrade-and-subscription model with more recurring digital revenue and underpriced IP. Cannabis demand is being normalized faster than it is being legalized, and the sector remains starved of capital and institutional ownership. Concentrated portfolios work best when positions are chosen for unique assets, misunderstood businesses, or capital-constrained situations. A good investment can be held for years if the business still has reinvestment opportunities and the valuation isn’t absurd. Writing publicly helps improve ideas, attract feedback, and surface information that would otherwise be missed.

Data Points: Homes raised in initial side partnership: 16 homes; $1.3 million - Early foreclosure-investing partnership launched in March 2009 Charlotte rental example: $75,000 purchase; $10,000 renovation; $1,000/month rent - Illustrates economics that led him to see housing as a business Single-family rentals built/sold: 2,500 homes sold for $263 million - The American Home transaction in 2015 U.S. homebuilding pace: 1 million to 1.5 million homes/apartments per year - Current U.S. construction context discussed in housing shortage argument Mexico new home/apartment construction: 158,000 per year - He uses this to show Mexico is building far less than demand requires Mexico population: 130 million - Compared with U.S. population in the housing discussion U.S. population: 330 million - Used to compare scale with Mexico Population growth comparison: Mexico has twice the population growth of the U.S. - Supports the argument that Mexico needs more housing Mexico available housing inventory: Down from roughly 600,000-700,000 in 2012 to just above 200,000 - Evidence of severe inventory decline Mexico housing supply gap: Underbuilding by 50,000 to 75,000 homes - His estimate of annual demand shortfall Consortio ARA valuation: 40%-45% of book value - He argues the stock is trading far below asset value Consortio ARA dividend: 4% dividend - Compensation while waiting for the thesis to play out Consortio ARA average home price growth: +15% YoY in Q1; +19% in Q2 - Presented as proof of tightening housing supply Bolsa Mexicana yield: 9% unlevered free cash flow yield - His first Mexican investment thesis Bolsa Mexicana capital return: ~5% dividend plus up to 5% buybacks - He frames this as roughly 9%-10% return of capital Cannabis market size: Existing $100 billion market - He describes the current market as mostly illegal or informal Legal cannabis sales forecast: $25 billion next year - Estimate of legal sales growth Opioid overdose deaths: 90,000 last year - Used to frame the health-and-wellness appeal of cannabis Institutional ownership in cannabis: ~4% - Jeffries estimate cited to show capital scarcity Verano valuation: Below 6x cash flow (projected 2023) - Example of a low-multiple cannabis operator Cannabis growth and margins: 25%-50% growth; 30%-40% EBITDA margins - Describes attractive fundamentals for leading operators Nintendo cash as % of market cap: 25%-28% - Used to argue the operating business is even cheaper than headline valuation suggests Nintendo ownership exposure: ~50% of Pokémon company - Part of his IP/asset-value argument Nintendo/IPO valuation framing: 9-10x earnings outside of cash and investments - His rough valuation view on the stock Single-family rental offers: $30,000 deposit immediately, no contingency - Example of intense current U.S. housing demand

Pivotal Quotes: "if something can't continue, it won't. Something has to give, right?" — Aaron Edelheit: His core framework for spotting supply-demand imbalances in housing and other markets "I think it is the most undervalued company in North America." — Aaron Edelheit: His view on Consortio ARA after discussing book value, land, and profitability "I think the stock market and investments are a game." — Aaron Edelheit: Explaining why game-playing and strategic thinking help investors

Implications: Listeners should look beyond obvious U.S. mega-cap ideas and focus on durable shortages, asset value, and capital-constrained markets. Edelheit’s framework favors patience, research, and non-consensus global opportunities over short-term trading.