TIP750: Generating Alpha, Digital Payments, & AI w/ Deiya Pernas

Episode Summary

Executive Summary: Daya Pernas outlined a variant, future-focused investing process built on judging whether a business’s “motor” is strengthening and whether the market is mispricing that future. He emphasized that past financial trends have little predictive power, that portfolio sizing and cash are crucial, and that working capital and business structure often reveal hidden strengths or risks. He also made bullish cases for digital payments, Remitly, Wise, and select AI beneficiaries.

Main Topics: Future-oriented, variant investing philosophy: Pernas Research looks for businesses whose future state will be better than today’s and whose future is meaningfully different from market expectations. The firm focuses on whether a company’s underlying business engine is strengthening, not just on current financial statements. Why historical financial trends are poor predictors: Daya argues that revenue and earnings growth over the past five years have very low correlation with the next five years. He says past financials are useful mainly for context and life-cycle analysis, not as the basis for forecasting. Portfolio management, sizing, and cash: He stresses that good stock picking is insufficient without disciplined portfolio construction. Drawing on poker, he explains sizing, adding/trimming, dry powder, and the Kelly criterion, while defending a meaningful cash balance as a source of optionality. Working capital as a hidden driver of value: Working capital is framed as the amount of money tied up to support revenue, with special importance for small caps and businesses facing changing supplier/customer terms or inventory intensity. Shifts in DSO, inventory, or supplier terms can alter future free cash flow materially. Digital payments, remittances, Remitly, and Wise: Pernas is bullish on payments because M2 growth and digitization create structural tailwinds, but he sees different sub-segments as distinct. He argues Remitly is a digitally native share gainer in remittances, while Wise serves a broader cross-border payments market with heavier infrastructure demands. AI as a structural investing theme: He believes AI is too important to ignore because it is affecting every industry. He sees opportunity in hyperscaler efficiency gains, robotics, energy, biotech, and small companies enabling AI infrastructure, while noting the biggest breakthrough would be AI enabling new scientific discoveries. Examples of portfolio holdings and outcomes: The discussion references successful and current ideas such as Meta, which benefited from AI-driven ad optimization and operational improvement, and Xometry, which could benefit from robotics and digital manufacturing demand.

Key Arguments: Investing is fundamentally about predicting the future, not extrapolating the past; the key question is whether the business engine is strengthening. Past financial growth rates have very low correlation with future growth, so financial trends should be used only as context, not as the core of a thesis. Stock returns show momentum, but financial statements generally do not, making naive trend extrapolation misleading. Portfolio returns depend heavily on position sizing, additions, trims, and cash management, not just on selecting good businesses. Cash is an asset because it allows investors to exploit dislocations quickly; being fully invested can prevent buying the best opportunities. Working capital should be analyzed economically, not just through accounting definitions, because it affects a business’s ability to finance growth and free cash flow. Payments are attractive because money supply growth and digitization create a long runway for firms with scalable, low-capital-intensity models. Remitly is compelling because remittances are a huge and growing market, legacy competitors are losing share, and the company is digitally native and trust-driven. Stablecoins are currently more relevant inside crypto than in the real economy; they are more likely to emerge first as an alternative payment method than to disrupt remittances immediately. Wise and Remitly are different businesses serving different use cases, with Wise focused on broader cross-border payments and more direct infrastructure integration. AI is creating both risk and opportunity across sectors, and investors should study its effects because it is changing competitive dynamics in real time.

Data Points: Audited net return (Pernas Research since Jan. 2017): 27.1% - Performance figure cited at the start of the episode for Daya’s firm S&P 500 annualized return over same period: 14.7% - Benchmark performance versus Pernas Research since January 2017 Podcast downloads: More than 180 million - Mentioned in show intro about The Investors Podcast network Cash allocation target: Around 15% - Daya says the portfolio typically idles at roughly this cash level Core position sizing: About 5-15% - He describes core holdings in a concentrated portfolio Remitly forward P/E: Close to 20 - Discussed in valuation context after earnings Remitly revenue multiple: Under 3x - Used to argue the stock is attractively priced versus growth Remitly growth rate: 30%+ revenue growth - Described as the company’s current/expected growth profile World Bank remittance market size: Over $800 billion per year - Introduced when discussing the remittances opportunity Alternative remittance market estimate: Closer to $1 trillion - Daya says current remittance flows are now nearer this level Global remittance growth rate: 5%-6% annually - Describing structural growth from demographics and migration Wise median send amount: Significantly over 10x Remitly’s - Illustrates Wise’s focus on larger transfer sizes and broader payment use cases Remitly median send amount: Around $300 - Used to differentiate product-market fit from Wise Wise country coverage: Less than half of Remitly’s - Used to show Remitly’s broader remittance corridor coverage Remitly country coverage: Around 170 countries - Highlights the scale of Remitly’s remittance network Western Union payment volume: About $120 billion - Example of a legacy leader steadily losing share Remitly run-rate volume: Around $80 billion - Used to compare scale with Western Union Stablecoin adoption in real economy: Limited / not yet meaningful - Daya says usage is mostly crypto-exchange related, not broad commerce Data-center electricity share by end of 2025: About 2% - Used in the discussion of AI-related energy demand Meta stock gain during holding period: Over 300% - From March 2022 entry to end of July 2025 when position was closed Hyperscaler AI/data-center investment: Close to half a trillion dollars - Referenced as the scale of capital being deployed into training models and infrastructure Remittances vs FDI in emerging markets: Remittances have outstripped foreign direct investment - Supports the claim that remittances are a durable mega-trend

Pivotal Quotes: "Is the motor of the business strengthening?" — Daya Pernas: Describes the central internal question his team uses to evaluate businesses "Financial trends themselves should never serve as a sole basis for prediction in what the trends will do in the future." — Daya Pernas: Core critique of extrapolating historical financials into forecasts "The point, the takeaway is this: financial trends themselves should never serve as a sole basis for prediction in what the trends will do in the future." — Daya Pernas: Reinforces his broader warning against trend-chasing in investing

Implications: Listeners should focus less on extrapolating history and more on business quality, changing economics, and market mispricing. The episode suggests strong opportunities in digital payments, AI infrastructure, and structurally growing platforms, but only for investors who manage risk, sizing, and cash with discipline.