My guest on the show today is Ben Brostoff, software engineer at Klaviyo and the writer behind the Stock Talk newsletter on Substack. Ben has a fascinating perspective on investing—he started out in investment banking, taught himself to code, and now spends his free time researching microcap companies, especially in the software and tech space.
In this episode, we dive into Ben’s investing philosophy—why he targets 8–10% returns with the least amount of risk, how AI is changing the way he evaluates software moats, and why he won’t own a company unless he’s written a blog post about it. We also dig into some of the key lessons he’s learned, from the dangers of leverage to the power of doing more than just reading a 10-K.
Ben shares actionable frameworks for evaluating microcap software companies, offers a nuanced view on AI’s impact on infrastructure and margins, and explains why, for him, true due diligence means turning over every rock. And for full disclosure, we discussed a number of companies during today’s podcast. I am not a shareholder in any of them.
For more information about the Stock Talk Newsletter, please visit: https://stocktalknewsletter.substack.com/
Watch on YouTube:
Overview/Breakdown of the interview:
From Wall Street to Startups: Ben Brostoff’s Journey
Summary:Ben Brostoff began his career in investment banking at Wells Fargo, focusing on securitizations in commercial aircraft and container leasing—an industry he describes as stable but capital-intensive. Wanting to work in a more dynamic, innovative space, he taught himself to code and joined Boston-based startup Klaviyo. This pivot helped him see the deeper layers of value creation in tech.
Notable Insights:
* Early banking experience taught him how to evaluate credit and leasing businesses.
* At Klaviyo, he realized the product wasn’t “just email marketing” but rather “the brains behind your marketing engine.”
Quote:
“This actually isn't email marketing. This is personalization. This is kind of the brains behind your marketing engine.”
A Pragmatic Investing Philosophy
Summary:After becoming a father, Brostoff shifted to a more conservative, risk-adjusted return mindset. He targets 8–10% returns, matching historical equity returns, and views risk mitigation as central to his approach. In today’s higher interest rate environment, he often compares stocks to fixed-income options to gauge attractiveness.
Key Principles:
* Set return targets before picking stocks.
* Only invest in companies he has deeply researched—via writing.
* Microcaps must offer asymmetric return potential to justify risk.
Quote:
“I'm very comfortable just saying I'm going to take an eight if I get 8% returns... I'd like to take the least amount of risk possible to achieve that.”
AI and Software: First-Inning Impacts
Summary:Brostoff believes the AI revolution is fundamentally altering how software is built and evaluated. Tools like Cursor are significantly boosting developer productivity. However, he emphasizes that durable software businesses still rely on infrastructure, people, and deep ecosystems that AI alone cannot replicate.
Subtopics:
* Development evolution: Open-source and cloud infrastructure laid the groundwork for today's AI tools.
* Moats matter: Ecosystem lock-in, APIs, and migration costs preserve competitive advantage.
* AI in practice: Used more for enhancing margins or product capabilities than creating standalone business lines.
Quotes:
“AI has to impact every single investment decision you make.”“The laws of competitive moats have changed a lot for software… but people and processes are not trivial to replicate.”
MicroCap Software: What to Look For
Summary:Brostoff is cautious when evaluating microcap software companies. He emphasizes that enterprise sales are challenging and demands evidence of traction and pricing power. He distinguishes hype from reality by analyzing growth drivers and margin potential.
Key Filters:
* Growth realism: Enterprise success must be proven, not projected.
* Margin dynamics: AI should support—not cannibalize—margins.
* Competitive advantage: He looks for businesses with clear cost or performance edge, like Backblaze.
Quotes:
“Enterprise sales is really hard.”“This new AI feature shouldn’t just be a buzzword—it should justify a price increase or deepen the moat.”
Lessons from the Field: Leverage Cuts
Summary:One of Brostoff’s biggest lessons came from his investment in National Cinemedia. Despite an industry rebound post-COVID, the company’s high leverage left it vulnerable. A key customer bankruptcy led to a cascade that wiped out equity holders.
Takeaway:Even with strong fundamentals, over-levered companies can collapse under unexpected stress. Time, a key investor advantage, disappears when debt is too high.
Quote:
“Leverage cuts. You don't get the benefit of time when you’re that levered.”
Research Discipline and Advice to New Investors
Summary:Brostoff attributes much of his investing success to his insistence on writing detailed blog posts before buying any stock. He encourages new investors to “turn over every rock” by reaching out to management, investors, and peers to build a 360-degree view of each opportunity.
Practical Advice:
* Write your thesis. Forces clarity and conviction.
* Talk to everyone. Information asymmetry still exists in microcaps.
* Understand incentives. Management’s behavior often tells you more than filings.
Quotes:
“I'm not going to own anything unless I've written a blog post about it.”“Turn over every rock.”
Final Thoughts: Investing in a Changing Landscape
Summary:Brostoff is cautiously optimistic about trends like AI and data centers but warns that identifying the trend is not the same as picking a winner. He watches Nvidia’s calls and the semiconductor cycle for insight but avoids falling for fads, comparing it to the cannabis real estate hype.
Quote:
“Understanding a trend is different from getting the investment right… only a small percentage of companies in emerging industries ultimately succeed.”
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