[00:03:02] Hari Ramachandra: But just a recap about Brookfield. They have a strong stock track record. They have been here forever as a public company and even before that, they have a hundred year history. In the past 20 years, they have returned around 19% annualized return, but the term, but their shareholders, their AUM has grown 250 x now at around $850 billion.

[00:03:30] Hari Ramachandra: Their fee bearing capital level is around $400 billion at 292 x increase in the last 20 years. And their fee revenue at 4 billion is a 200+ increase in the last 20 years. And their strengths include their scale, flexibility, and global presence. They’re one of the few options and partners of choice for global institutions.

[00:03:54] Hari Ramachandra: And so sovereign funds to deploy their capital, which gives them a significant access to pools of capital that’s not available to every other company. There are only few who can play at this level, like BlackRock or Apollo or Carlisle can be some of the ones. And especially with Global Capital looking for alternative investments, Brookfield is well positioned.

[00:04:20] Hari Ramachandra: They have access to opportunities that few institutions have. One of the interesting fun parts I learned recently is they actually invested along with Elon Musk in Twitter, which I didn’t know. So that’s one example. Now, similarly, they have many such investments. And they have a unique combination. Like if I look at, Berkshire is very good at acquiring companies, but not really operating them.

[00:04:46] Hari Ramachandra: They don’t have that operational DNA in Berkshire, so they just acquire and delegate. But Brookfield actually has operated many infrastructures, renewable energy projects. They have 180,000 employees worldwide. So they have good experience. They have, and more importantly, their management compensation is aligned with shareholders.

[00:05:08] Hari Ramachandra: So their lock-in period is something like 10 years plus, basically. So that gives them a long-term thinking for the management in terms of why now there are some tailwinds that are forming for them. One is the reassuring or nearshoring or [Inaudible] that’s happening, especially in the high tech.

[00:05:28] Hari Ramachandra: Chip manufacturing they actually invested in with Intel for one of their fabs. They invested $16 billion. It’s a $32 billion fab that intel is building. They have a similar deal with [Inaudible] but another manufacturing plant, and they probably will do more. And as I said, like they’re going to be investing in many high tech software companies also along with Sequoia.

[00:05:51] Hari Ramachandra: The other one is the transition to net zero plan, especially renewable energy infrastructure. A lot of governments started with debt, so they are looking for private partners who can invest and operate those projects efficiently. And finally, three years ago, they didn’t have insurance arm at all.

[00:06:11] Hari Ramachandra: Now they have built a solid insurance business with 10 billion in equity in the last three years, and 40 billion in assets and with aging demographics and developed countries. Demanding products like annuities and guaranteed income. So they both have demanded supply that they can leverage and to have a very good operator. [inaudible], who’s kind of Ajit Jain for Berkshire, think of it that way. He’s the CEO of the insurance operations, doing a great job in the last three years reading this company. And one of the moves that he did was when interest rates were all low, a pool of 25 billion of capital, they kept in really short term maturity instruments, cash equivalent instruments, and they waited.

[00:07:03] Hari Ramachandra: And now they have the opportunity to deploy those 25 billion in save high returning assets. So that’s a short-term tailwind that they will have as well in their insurance. Apart from the secular growth they project to grow to 400 billion in assets in the long run. So based on all these facts, according to them, their next five year projection is that they’ll continue to grow at around 17% comforted annual return.

[00:07:32] Hari Ramachandra: For their share. They expect 46 billion of accumulated cash flow generated in the next fives 2 trillion in an aum in the next five in. Right now it’s around eight 40 billion and 1 trillion in fee bearing capital at 13% debt equity. They kind of, you know, want to have that’s their hallmark, like really careful use of debt and no debt needed.

[00:07:56] Hari Ramachandra: So I think these make it very interesting. But why BM not BAM? For me, BM has the diversification.

[00:08:06] Hari Ramachandra: They have the insurance business, they have the asset management business, they have other function opportunities that we wouldn’t otherwise get, whether BAM is more like an operator of the, of the manager of the assets they already have.

[00:08:21] Hari Ramachandra: And because of that there are risks as well associated obviously geopolitical risks, the fund performance risks as well as access to capital risk in case that dries up. And that’s one of the reasons why BM might in the long run, also command a lower multiple than b a m because it’s more complex to understand has some risks associated with it as well.

[00:08:47] Hari Ramachandra: But as a value investor, I’m attracted to BM, but at today their market cap is around 52 billion. And when they said we are going to return 46 billion in five years, I thought, okay, that’s interesting. But then I thought maybe I should bring up to you guys because you are the number wizard here, not me. So that’s my pitch now to get your take on it and the ticker symbol is BM.

[00:09:17] Stig Brodersen: You’re talking about that conglomerate discount and the multiple on that? I think it’s, to me, it’s a, it’s a bit difficult to value the company, which is a bit ironic because my biggest single position is Berkshire, which is also a conglomerate, and they start, I’m going to a pitch later today is also a conglomerate. So I do see that irony that I’m saying, oh, it’s collaborated. It’s, it’s difficult to, to value, but there is something to it whenever it is. So the bigger businesses become, especially companies like this, the more complex they are to, to analyze. At least they are for, for me, a lot of value.

[00:09:50] Stig Brodersen: Investors are probably familiar with it. Mohnish, Mohnish Pabrai that we talked quite a bit about here on the show. And also speak too, from time to time. He took a position in Brookfield in Q3 2022, got his part of the spinoff. And I just kind of felt that was interesting. And he sold BAM. So the Brookfield as a management in Q1 2023, and here in Q2 the 13 F just came out. He also sold BM or Brookfield Corporation. So, that’s not the same as saying that it’s now, it used to be a good investment. Now it’s a bad investment. There could be a ton of reasons why that’s the case. I just kind of felt it’s, it’s interesting to see what others have done. I don’t think I have any unique insights into whether or not the, the valuation is good right now.

[00:10:34] Stig Brodersen: I have a bit of a hard time understanding some of the some of the accounting, you know, I, I can say some things like Bruce Flatt owning, what, five Ish percent of, so the CEO, I think that looks quite attractive, really going in and, and valuing those assets. I kind of feel it’s a bit more complex. I don’t know. I kind of feel I’m touching that question. Toby, so let me just put it on you instead, Toby.

[00:10:57] Tobias Carlisle: Did you say it’s 46 billion returned over the next what period of time?

[00:11:02] Hari Ramachandra: Five years. 46 billion cashflow accumulated. Cashflow generated basically. I’m not sure whether they’re going to return that, but…

[00:11:13] Tobias Carlisle: Where does the 46 billion come from?

[00:11:15] Hari Ramachandra: It’s like, well, based on the calculation of annual cashflow generated, they’re saying if we take five years’ worth of cash flow generated for year, in five years, we expect it to be 46 billion. Just in cashflow.

[00:11:29] Tobias Carlisle: And is it return to shareholders?

[00:11:31] Hari Ramachandra: No, I think, I don’t think it’ll be return. All of them will be returned to shareholders. I think their strategy has always been reinvesting those cash flows and only returning part of it do with that basically.

[00:11:43] Tobias Carlisle: And it’s somewhat under demanding given that it’s a $55 billion market cap and they’re going to return 40, or sorry, they’re going to generate 46 over the next five years. That’s if they hit those numbers, that’s, it seems at to be trading at a pretty good value here.

[00:11:59] Tobias Carlisle: The knock on them has always been that it’s very, very hard to analyze cause they’re such a messy capital structure and all of the subsidiaries and the cross holdings and so on. So I think maybe this is an effort to rationalize that a little bit and make them a little bit more understandable.

[00:12:16] Tobias Carlisle: I’m not familiar with them since they spun. I had looked at them, pre-spin and had always sort of got to that point where I get a headache when I’m trying to reconcile all of those subs. So it’s potentially a very good outcome and perhaps that’s what attracted Mohnish, that they would simplify in the spin.

[00:12:36] Tobias Carlisle: And then clearly, it’s a very good business. Bruce Flatt’s a very good operator, so I think it’s very interesting pick. I’m going to go and have a look at it afterward when were finished here and have a deep dive into it, but I think it’s interesting.

[00:12:49] Hari Ramachandra: Thank you for your feedback, Stig and Toby, I think Stig, maybe next time we can ask Mohnish why he’s sold out.

[00:12:55] Hari Ramachandra: One of the things I was thinking when I was reading their investor letters as well as their presentation sales, they are projecting a 17% C A G R going forward. Mohnish looks for 26, so it might not, yeah, it might not pass as bar.

[00:13:14] Tobias Carlisle: One of the problems with look with setting very high return expectations like that is that, you know, you get a little bit of what the market offers to you and there are periods of time when there really there’s nothing around it will do any, anywhere near those numbers.

[00:13:28] Tobias Carlisle: And so you, you’re really off the run looking for those things and you have to, you know, higher returns are typically attended by higher risk or complexity or something else. That’s, that’s what you have to do to find them. You know, Mohnish has found that Turkish warehousing thing that could be a 100 bagger.

[00:13:43] Tobias Carlisle: So yeah. Probably going to hit that mark there. So I have to take my hat off to him there. But I, I, I just as a general rule, I look for about, I, I want to get a 15 because I think that for me that’s the right level of risk and reward to look, you know, I’m happy to be surprised to the upside, but I think that 15 is, and even 15, you know, that is a, in this kind of market where this market is trading, that’s aggressive.

[00:14:07] Tobias Carlisle: If I said 15 to some people, let’s say that’s a high kind of target try to hit. And then of course the idea is that you probably don’t get the 15 because there’s life gets in the way and it’s just hard to, hard to target. 26 is, is a big number, Mohnish, it’s hard to see what Mohnish holds in his portfolio because he’s got so much international stuff in there that’s not reported in the 13 F.

[00:14:30] Tobias Carlisle: So if you just looked at his 13 Fs, it looks like he’s just turned over a hundred percent of his portfolio. He’s liquidated what he held in the US and he’s put in, it was only a few positions and he’s put in a few more positions there. There’s really nothing unusual about that. It’s just that if you only have that window where you only see his US hold because it looks like he’s, he’s woken up and decided that he doesn’t like anything that he holds.

[00:14:51] Tobias Carlisle: He sold everything, bought it all new. Again, I do like this pick and I want to dig into it a little bit more offline, but I’m, I think it’s interesting at this level, people should probably have a close look. And then I still don’t know what the subsidiary holding structure looks like, but you know, there’s a few things.

[00:15:06] Tobias Carlisle: Insurance is, is a complex business. You’ve really got to know what you’re doing in there when you’re analyzing it. And across all the holdings in the sub was always very difficult to kind of wrap my head around. So, but I’ve all, you know, it’s performed very well. Bruce Flatt is recognized as being a very good operator.

[00:15:22] Tobias Carlisle: I think it’s, it’s a very interesting pick.

[00:15:25] Hari Ramachandra: Yeah. Thank you, Toby. I think to your point about the annual return, a couple of things that I was thinking about it is, it’s not just a written in terms of percentage, 26 or 17 or 15, it’s also the runway. 19% for the last 20 years. If you are just thinking of like cigar, but investing where you just get a pop like Facebook did in the last six months to one year, that’s a different thing.

[00:15:54] Hari Ramachandra: But for me as an individual investor, that has tax consequences because now I had to sell it, pay taxes or whatever percent, and then I had to look for another opportunity that will make up for the tax lost plus another 26%. Whereas if I can get a compounding machine that can go for decades, preferably like Berkshire or Brookfield, that is much better for me as an individual investor.

[00:16:25] Tobias Carlisle: But it would be very hard to find a compound of doing 26% CAGR. Yeah, but that’s, that’s an extra, that’s, that eliminates Berkshire for example.

[00:16:33] Stig Brodersen: Oh yeah, you have to go to Turkey, Toby.

[00:16:37] Hari Ramachandra: Yeah, and that’s the reason I’m saying like, you lower the hurdles.

[00:16:41] Tobias Carlisle: My brother’s a doctor and works long hours shift work, all that sort of stuff. Likes investing, likes net nets. And I always tell him it’s just too much brain damage on both ends. He should be finding higher quality companies that will grow. And I would tend to think conglomerates are probably the wrong place too. You just want to find the simpler you go and buy a makeup company at a reasonable price, go and buy something that you know that the brand name’s been, you know, the kind of stuff that Buffett buys is actually the sort of stuff that really busy people should buy.

[00:17:06] Tobias Carlisle: You know, like Coke and those kinds of things. I’m not saying Coke here, I’m just saying as a general idea, like the high quality where you really have to make one decision. The thing is though, like to get those compound returns, like somebody’s got to be doing that work. You know, somebody’s got to be doing those.

[00:17:18] Tobias Carlisle: Buying and selling in the business and the world is very competitive. The world is much more quick to copy. So where previously you could do something in the States and then you could roll it out through all the English speaking countries in the world, and then you could roll it out through the rest of the world.

[00:17:33] Tobias Carlisle: You really can’t do that anymore because the competitors pop up immediately in all of these other jurisdictions. And so you’re doing acquisitions in those jurisdictions, and you could look at something like Uber as, as an example, but that was a kind of revolutionary idea when they did that in the States that was very, very quickly copied in all those other countries.

[00:17:52] Tobias Carlisle: And the way that Uber expanded was by buying those locally. It’s, it’s not an easy game, I guess, but Brookfield have proven that they can do it so that that does make them, it is an interesting, it’s a very interesting pick and I, I’ve, I’ve looked at it for a long time and worked out, tried to work out where a good entry point is, and I’ve never really found it, but I didn’t, I hadn’t followed the spin.

[00:18:11] Stig Brodersen: One of the challenges about conglomerates. Is that you have to have a lot of faith in management, and I know that you can say that about any business. And, and here there’s this wonderful Buffett quote, and I’m going to push up the quote, but he says something like, you have to buy business. That is so great that even the idiot can run it.

[00:18:28] Stig Brodersen: Something like that because eventually someone will. Right, right.

[00:18:31] Tobias Carlisle: So sorry, Stig I took your punchline.

[00:18:34] Stig Brodersen: No, no, no worries. So and I think that’s wonderful in that approach to it. And so that’s really to Toby’s point about like finding a really simple business because some point in time, you know, an idiot’s going to run that business.

[00:18:49] Stig Brodersen: And so whenever you’re dealing with, with conglomerates, and perhaps it’s just me of, of my, my own ignorance, it’s, it quickly becomes so, so complex that unless you really understand it, which can be quite tricky. You have to have that trust in the managers like the Mark Leonard’s of Constellation Software or the Warren Buffett’s of Berkshire Hathaway or whoever.

[00:19:09] Stig Brodersen: So at least to me, it very much comes to that. And that’s also the weakness in investing in conglomerates. Then you have that, like, you sort of like have those two engines, right? Like you want to grow earnings. And you also, which I wouldn’t say you have a big influence on that, but if you can identify good business, it probably will grow the earnings.

[00:19:29] Stig Brodersen: But then you have the other thing, which is how will the market value that those earnings and like, what’s the multiple going to be like? So you have those two engines that determines your, your return. And I guess I’ve, I’ve made the mistake myself too many times where like, this is such a great business, the market must value this, this multiple, but you’re buying it at, you know, your seven times PE and earnings grows a little, but the market, it’s still being valued at like six P or E, even worse, you know, like 10 years or five years from now.

[00:20:01] Stig Brodersen: And so you don’t really get that return. And so I feel that’s one of the challenges about investing in conglomerates. Again, I. With the irony I’m going to pitch and glomerate here very soon where you can say the exact same thing. So I’m coming up with that criticism here because it’s one of the same issues I have about, about my own pick. I guess that’s, that’s what I’m trying to say here.

[00:20:23] Tobias Carlisle: I think that’s a really interesting discussion and there’s two different approaches to it. I don’t want to step on your pick cause we, because I don’t want to like to foreshadow too much, but you could look at Brookfield against Berkshire.

[00:20:35] Tobias Carlisle: So Brookfield does lots of acquisitions of infrastructure type assets and security does all these different things with them. And Berkshire has a different approach where it’s, one guy makes the decision, he sits on cash for a really long period of time waiting for it to build up and then he, with one fell swoop, he will put a third or some giant portion of the cash to work in one company and then he’ll sit in his hands for another long period of time.

[00:21:01] Tobias Carlisle: You’ve really, really, really got to trust Buffett when he is doing that. And of course everybody does cause he’s generational investor. These other guys are not doing that. They’re doing kind of more regular bolt-on type acquisitions that operators tend to do, where they’re buying stuff and they’ve got a template and they can do them.

[00:21:18] Tobias Carlisle: And I do think that that is a more replicable strategy for them. It’s almost like that’s their businesses acquisitions. So they get good at doing these acquisitions and you know that, that if one goes wrong, it’s not really fatal to the whole enterprise because they, it’s not a third of the value of the company, it’s, it’s 5% or something like that.

[00:21:39] Tobias Carlisle: So I think of those guys more as like investors in the, in the more traditional kind of value sense where they’re, they’re taking a much more spread bet rather than Berkshire, which will take one big swing every five years or so. And that’s transformative for the business.

[00:21:55] Hari Ramachandra: Actually, that’s a very good point, Toby, because in an interview of Bruce Flatt did say that he encourages his team to make lots of small mistakes and often.

[00:22:04] Hari Ramachandra: So he says, the problem is that we don’t want to make mistakes that will just take us out of the game, but we have to keep making small mistakes because that’s where our learning is and that’s where our opportunity is because many of those small bets are not to be big for them eventually.

[00:22:20] Tobias Carlisle: Man, [inaudible] lots of mistakes.

[00:22:27] Stig Brodersen: Alright. Toby, do you want to, do you want to go?

[00:22:30] Hari Ramachandra: If you don’t mind Stig, because since I have to go and I have an opinion on Constellation and I’m very [inaudible] if you can go next.

[00:22:38] Stig Brodersen: Yeah, I’ll- [crosstalk]

[00:22:40] Tobias Carlisle: Fine by me.

[00:22:41] Hari Ramachandra: Yeah. Is that okay, Toby? Sorry we are making your last.

[00:22:44] Tobias Carlisle: I think it ties into this conversation really nicely.

[00:22:46] Stig Brodersen: So my pick that perhaps ties into this conversation is Constellation Software. It trades under ticket C S U and the Canadian Stock Exchange. And this will be a tough act to follow. The last two times, I’ve been pitching stocks on the mastermind meeting, I had positions in them. It’s, it was Spotify and Teqnion and I of course be happy to say that both stocks have done very well.

[00:23:09] Stig Brodersen: Teqnion had a pitch last time 10 weeks ago is they’re up like 35% and that’s in that, that is in Swedish kroner. So I don’t know if, if you feel that’s good or bad, but whenever you’ve looking at Turkey’s warehouses for quite some time and you, and you’re like, how much of this is like real returns and how much of that is like inflation returns?

[00:23:27] Stig Brodersen: That’s sort of like, it’s your, it gets your juices flowing. Full disclaimer I do not have a position conation software. I do have a position through monies in racists, so I don’t want this to come across the wrong way. As I was joking about that, I’m very much invested in that. Constellation software is a great stock.

[00:23:46] Stig Brodersen: And you might be thinking if that, if it’s such a wonderful company, why don’t you have a position? Well, as it’s very often the case, whenever you find a high quality company, the market also knows that it’s a high quality company. So it sells that Mr. Market sells the company to you at a, at a very high multiple.

[00:24:03] Stig Brodersen: And then you have to be, you have to pay attention whenever that is to your advantage. And the multiple is more attractive. And so they say that the best time to analyze a stock is whenever you’re not interested in buying it. And that’s sort of like a bit how I feel about Constellation right now. I kind of feel it’s too expensive.

[00:24:19] Stig Brodersen: I’m not saying it’s outrageous, expensive, anything like that. I think there’s a lot to be said about the company, but it’s a little easier to control your biases as an investor if you’re more approach it to a like, let me just put this on my watch list, type of thing. So cancellation software, it’s a relatively well known stock in the value investing community.

[00:24:39] Stig Brodersen: It’s IPO-ed in 2006. It’s more than a hundred bagger. It’s compounded annually for 34% annually. So, and this is since IPO, it’s kind of crazy. So the [inaudible] cap right now is around four 2 billion U S D. If you look it up, remember sometimes, like for example, if you just Google it, you’ll get the [inaudible] cap Canadian dollars.

[00:25:00] Stig Brodersen: And so you have to like, and, and whenever you do, whenever you look at their accounting, it’s usually in U S D. So you sort of like have to have to separate the two. But yeah, so Constellation Software, they buy small vertical software businesses often below $10 million. And if you’re like, what is the vertical software business in the first place?

[00:25:19] Stig Brodersen: It’s a company that, or a piece of software that’s very, that’s tailored to a specific need of an industry. So think about the software your hairdresser uses whenever she, she’s booking you for an appointment or this software that the bowling Alley uses whenever you go there. So, it’s highly specialized, and it’s a very, it’s very sticky Constellation aims to be a perpetual owner of these small businesses, and they want to buy hundreds of them.

[00:25:48] Stig Brodersen: And they’re close to, to having a thousand businesses Now in 2022 alone, constellation bought 134 of them for a total of 1.7 billion. So they’re, they’re quite active and it also covers a wide range of deal sizes. Traditionally it’s been as low as $5 million, but you know, last year for example, they, they bought a terra for 727 million.

[00:26:13] Stig Brodersen: So it’s an all sizes and they typically acquire them at a low multiple for say, one to two times, times revenue. So you can more or less think of a constellation today as a private equity vehicle with permanent capital. It just happens to trade publicly. But Hari, I know you have to go here soon and, and so I just wanted to throw it over to you and give your thoughts before I continue here on my, on my pitch.

[00:26:38] Hari Ramachandra: Yeah. I think as you were rightly [inaudible] I think I want value investors and also a lot of tech folks who are also into value investing. Mark Leonard is a legend and I think the, what he has accomplished is phenomenal and interestingly, both my pick and your pick are Canadian companies. This time he has this ability to identify software companies that are basically operating in a niche and they probably will not grow.

[00:27:05] Hari Ramachandra: It’s almost like sea candy for software. So he has many see’s candies. So that’s one interesting thing Buffett couldn’t find, probably Buffett found other see’s candies and, but Mark has never scaled up. He has never tried to buy big companies, so, which is a good thing. The only thing that in the last few years, and he actually acknowledged it that.

[00:27:25] Hari Ramachandra: It has become harder and harder to find good investment in the software sector because of the hype and because of a lot of cash flowing. And it’s almost like what Toby was saying, like good ideas get copied really fast and there is so much of money coming into Silicon Valley software in general.

[00:27:47] Hari Ramachandra: People even started buying companies that probably Constellation would’ve bought for very high multiples, which obviously in Constellation would never pay. So my main concern is the competition and how are they going to replicate. Going back to another point that Toby made, like is it a replicable strategy going forward?

[00:28:10] Hari Ramachandra: How easy is it? Are there natural barriers to entry for other players to come in and invest in these kinds of deals either because of the size of the deal or access to capital or regulatory issues? Constellation has an advantage over others. If not at this multiple, it becomes hard to buy Constellation because then you are baking in that for a foreseeable future, they’ll be able to replicate what they have done in the past.

[00:28:42] Hari Ramachandra: That’s my main concern. But I, I love the company, I love the c e o because it is one of the best, but my main concern will be that.

[00:28:51] Stig Brodersen: I think you bring up a, a good point and it’s the main risk I took in like three different types of, of risk. I know it’s easy for me to say at the top of my list here, and Mark Leonard actually addressed this in one of his shareholders letters that the barrier to compete with him was a checkbook and a telephone.

[00:29:10] Stig Brodersen: He literally said that. And so he’s very humbled about that. I would say that there’s more to it. I do think that they have a moat, but I think, I think that there’s also something to be said about how competitive the industry has been. He also talks about in this letter and I should also mention that you can find his letters on the website and they’re absolutely amazing.

[00:29:29] Stig Brodersen: So if you’re one of those who have read Buffett’s letters on Nick Sleep’s letters, like you’re going to, you’re absolutely going to love Mark Leonard’s letters. Unfortunately, he started to write fewer and fewer of them. He said that, now I only want to write something whenever I have something to say, which apparently is not that often.

[00:29:44] Stig Brodersen: He also, going back to the risk factor you talked about before, he also talks about how his employees are being poached by competitors. And so it is like, you are right. It’s, it’s very, very competitive. And let me go to, to risk number two. I have here on my, on my list disruption. That’s just like inherent in what they’re doing.

[00:30:05] Stig Brodersen: So it’s having traditional always been vertical market software? And it’s much cheaper to create software today than it’s ever been. It’s probably only getting going to get cheaper. Cloud computing is getting cheaper and cheaper. AI will disrupt it and make it like, and as much as it’s sticky what they’re doing right now will become cheaper and cheaper and easier and easier to create that software.

[00:30:24] Stig Brodersen: So that’s definitely a risk size. That’s also a drag. And in all fairness, we can probably say that about most companies and you always have this balance be between you want to have a proven track record, but at the same time you also want a lot of runways. So it’s always like you want to have your cake in and eat too.

[00:30:44] Stig Brodersen: But it is tricky. And Mark Leonard also talked about this in one of his letters and I might, I think he said something along the lines of, I’m just perceiving I can pull this up, that there are like 70 to 80 big companies that go into the market and they’re not aware of all of them. And they’re only invited, I think it was like 16%.

[00:31:02] Stig Brodersen: That’s just off the top of my head. They’re in invited to because. It’s not the, the company that brokers would typically invite you to bid on. And whenever you are at that size, you would very often go through brokers. Whereas if you have like a 5 million or $10 million acquisition, it’s like the owner doesn’t want to run it anymore, looks for a way out and they’re there to, to pick it up.

[00:31:22] Stig Brodersen: And it’s like, it’s a very different competitive situation whenever you, you reach a certain size, they’re like, they’re more bidders that drives up the price. You typically also have sellers that are not as, as motivated and they’re probably more sophisticated financially and will get closer to a market based price.

[00:31:37] Stig Brodersen: So one of the challenges, and this is also something that Leonard had as hinted to if quite a few times, has been about the hurdle rates and potential lower the hurdle rates for big acquisitions. There’s a big, big asterisk here. He talked a lot about how it’s magnetic and you cannot do it overall, but how it might be the case for big acquisitions.

[00:31:55] Stig Brodersen: And whenever you employ as much capital as they do, you have a natural ceiling at some point in time you’ve seen that not just with Constellation software with, with so many other conglomerates, and that just translates into a, a lower turn on invest capital and hence also a lower expected stock return.

[00:32:12] Stig Brodersen: So I don’t think I had a good rebuttal to your, your criticism. I, I, I think I just agree to, to that. And so very much, whenever you’re going to value it, we’re going to talk a bit about later, like it’s garbage in, garbage out. How long can they sustain this type of return on invest capital? Probably not for decades like they have in the past.

[00:32:31] Stig Brodersen: And so you’re going to see a different you’re going to see that differently, and I don’t, I’m not sure if that’s baked completely into the current valuation. So, Hari, I want to throw it back over to you.

[00:32:42] Hari Ramachandra: No, I think fair point Stig. I think, again, you never know. They might be able to replicate. I’m not saying they’ll not be able to, but I think it is priced into the stock now that they will be able to replicate the way I see the multiples.

[00:32:57] Hari Ramachandra: And that’s my concern going forward because I don’t have any optionality to the upside. So what will be the surprise to the upside is what I’m looking at. But definitely if the price is right, I would peacefully own this company for a long term.

[00:33:13] Stig Brodersen: They have two different modes. One is the I group one and call it culture management reputation and then the other, I will call that data. So they have a very strong culture. And like you also said before, Hari, like Mark Leonard is, he’s a legend and he, he has this very unique way of, of running the business. And for example, he hasn’t issued N E C S since the I P O in 2006. He also makes sure to align the interests, not just for himself, where together with his family, he has 7% of the shares, but like he’s doing so many things that to, to align interest with, with him, with his directors and with the shareholders.

[00:33:49] Stig Brodersen: So one thing, he doesn’t take any salary anymore. He used to, he used to travel economy. He used to stay at very modest hotels and so that’s not the case anymore. He said that he’d getting a bit more, he gotten a bit more comfortable with life. So now he wanted to, to travel. He’s a big fella too, right? So and so he wanted to, to travel nicer.

[00:34:09] Stig Brodersen: Like, and, and so he’s paying that out of pocket, which is an example to follow. And because, and, and he said that he wanted to be a good example before, and also think he’s a good example now, but he wanted to be a good example and not freeloading on other the shareholders. That’s not the type of things you typically hear from CEOs of, you know, big companies.

[00:34:29] Stig Brodersen: Then executives they must spend 75% of their after-tax bonuses on common. Yes. And very importantly, they have to buy them in the open market. Senior employees here defined as more than 75 K in in base and more than 10,000 bonuses must spend at least 25% of their bonus on buying Constellation. And then there is an escrow and errors of four years and non-employee members of board of directors, they must take their entire fee to purchase common gss.

[00:34:56] Stig Brodersen: And so you have to love how they’re incentivized their own team and making that consistent with the shareholders. So the other competitive advantage would be data. They have a lot of data available more than the competitors. And this is not just on the acquisition side, which is also very important.

[00:35:14] Stig Brodersen: It’s also on the operational side. If one of their business unit managers is considering whether or not one could do X, Y, Z, they can actually go into the database and see what happened. Last time we did something similar. So it’s a very interesting system that have, we don’t know too much about it. It’s a, it’s an ip, but what we can sort of like glean from the public information that we have, it’s been quite efficient for them in terms of operations.

[00:35:38] Stig Brodersen: So you see these wonderful returns like 20% plus annually, which is just amazing. So yeah. Now the question comes like, can they sustain that?

[00:35:49] Hari Ramachandra: Yeah. Actually, if I may, I know we haven’t let Toby speak yet, so I’m actually curious to know what Toby thinks about the valuation. But one point I wanted to highlight what you sent, the second point data they have and also the operating capabilities they have built over period of time in-house.

[00:36:07] Hari Ramachandra: What we haven’t seen or what we haven’t factored in so far in our discussion is the organic innovations that can come out of this company rather than always looking for buying opportunity. Now that is not talked about much so. Upside is very hard to put a value on because you never know. It’s zero. I mean, it’s not really zero cost, but it’s not like you’re buying another company.

[00:36:31] Hari Ramachandra: But each company that consummation has the data they have with ai, if they can keep innovating and expanding their earning capability and market share, that can also produce organic growth, which I have not looked deeply into to kind of have an opinion on, but that’s, that’s one point that probably I will take away from this discussion, which I had not thought about before.

[00:36:56] Stig Brodersen: Yeah. You bring up a lot of great points there about organic growth and. This is also something I’m, I’m referring those letters quite a few times and I’m going to do that again because they’re, they’re so wonderful. And if you are just, even if you’re not interested in conation software, just like read the letters and get a business list, it’s absolutely amazing.

[00:37:14] Stig Brodersen: And so one of the things also to consider here, and this is something Leonard discusses, is he outlines for actually quite a few years, he outlines the organic growth and how that is composed. And then he actually stops doing that some part in time, which is partly because he feels that it would give his competitors a competitive advantage, or at least it would give them more information that they should have.

[00:37:35] Stig Brodersen: I probably shouldn’t say competitive advantage. I think that would be the wrong way of using that term. He would give them too much information that they don’t need to get, but also because it becomes a little less relevant considering where the company is now. We we’re going to get back to some of the accounting later on that, but, and so now he talks about using different valuation metric to capture the increase in intrinsic value.

[00:37:56] Stig Brodersen: But that component is really interesting. You also have to consider that yes, we would all of course always like to see organic growth and that is a very important component. But really whether hurdle rates are, which is typically between 20 and 30, depending on, on the type of company or the target, in turn rate of churn I should say.

[00:38:15] Stig Brodersen: We also have to consider what kind of multiple are they paying so they can go into, into a company with that has declining business, but if the multiple that they’re paying is low enough, it can still be worth them acquiring that company. So yes, we want organic growth, and yet yes, we want to optimize that, but it also comes back to what do we pay for it in the first place.

[00:38:36] Stig Brodersen: Which is also why lowering that hurdle rate, they actually adjusted the hurdle rate three times and they had not had good experiences with that because it’s like, like magnetic. It sort of like drags down the entire company whenever you do that. Sorry, you’re smiling Toby, so I got to throw it over to you.

[00:38:54] Tobias Carlisle: I like lots of other value investors. I like Constellation and like lots of other value investors. Every time I look at it, I think it’s too expensive. So it’s hard to, it’s very, as you say, it’s very hard to find a good entry point. And if anybody has a look at the chart, have a look at the chart over the last 10 years, it’s this very consistent, it doesn’t draw down much.

[00:39:13] Tobias Carlisle: It’s basically you could take a ruler and draw a line through it had a little draw down in 2020 and otherwise really, it’s hardly drawn down at all. The way that they’re able to achieve it is, it’s like Brookfield, it’s a listed private equity is a good description of it with a specialization previously in vertical market software and it’s the.

[00:39:33] Tobias Carlisle: They’ll do a bigger acquisition in some sort of new vertical market, and then they’ll do some other bolt-on acquisitions around that and they’ll continue to buy. And so it’s not Mark Leonard making 100 and something acquisitions a year. The acquisitions are all astonishingly small. The acquisitions have always stayed small.

[00:39:51] Tobias Carlisle: There’s a few charts floating around. You can find that show. I think that they’re still buying, the average is still like two something million dollars in EBITDA a year, which is, which is tiny. That may have changed with the more recent big acquisition, but I think that reading those letters gives you a good flavor of what they have achieved there.

[00:40:11] Tobias Carlisle: And there are lots of other people out there trying to replicate that cause it’s a very good idea to buy those things as long as you’re disciplined about what you pay and, and the way you incentivize people after you’ve made the acquisition. That’s a very good business, you know, and their business is acquisitions.

[00:40:27] Tobias Carlisle: I think that the problem for them is that they’re, I do think that they are running out of runway a little bit with these companies, and I think that, I don’t think I imagined this, but I think Mark Leonard, I think they made some change over the last year or so where they said, we’re no longer going to just be exclusively focusing on V M S.

[00:40:44] Tobias Carlisle: I think we’re going to be, they get a more traditional private equity firm, essentially by anything. Now, is that, is that the case? Yeah, that’s correct. Yeah, so that’s, I think they’ll probably be able to do that without much, without changing too much, but it’s worth noting that it is outside of their core competency, which has been software and now they’ll be doing other things and probably they have to go up the food chain a little bit to buy slightly bigger companies.

[00:41:08] Tobias Carlisle: All those things just add a little bit more complexity and make them a little bit more difficult. But I still think it’ll be provided they keep that same. Approach they have worked where they exercise discipline about what they’re prepared to pay. And I think that’s why Mark took it out of the letters because it, you can sort of back into what they all pay and then know that if you’re just prepared to pay like a turn above it.

[00:41:30] Tobias Carlisle: I always thought, you know, Buffett used to say he doesn’t get enter into the competitive auctions cause he doesn’t like, because once you know what Buffett’s going to pay, there’s your flaw and you know he doesn’t bid again. So you just bid a little bit over Buffett. I would pay a small premium to buy something that Buffett wants to pay.

[00:41:44] Tobias Carlisle: I mean, you do that in the market all the time, right? If Buffett bought Apple for whatever he paid for it, a hundred bucks, you’d be prepared. I’d pay 110 for it and I’m still going to get comparable returns to what he has done. And I think it’s the same thing. There are enough young guys with MBAs and some capital behind them running around trying to replicate the strategy and if they can back into what he will pay, then they can bid just a little bit over and know that they’re not going to face any competition.

[00:42:10] Tobias Carlisle: So I think. All of the DNA that got them to this point still exists. And that’s the discipline and the incentives mostly. And then their cost consciousness, which, you know, an example of that is the way Leonard flies that all exists, but they are going to transition over the next few years into, out, outside of software.

[00:42:28] Tobias Carlisle: And probably the size of the acquisitions increases a little bit of what that’s not certain. So I think all of those things together, I mean, this is a pretty good bet, but I’d be inclined to kind of wait. There will be a moment over the next few years, at some point every year the average stock, I think goes up and down something like 3x.

[00:42:47] Tobias Carlisle: So you just pick your spots and wait, have your list of things that you want to buy. And Constellation might be one of them, where in a pullback you should, you could buy some of this and that would de-risk it a little bit. But I, I like, you know, I like everybody else. I, mark Leonard’s got an extraordinary track record and it’s worth, it’s worth keeping on the watch list at the very least.

[00:43:08] Stig Brodersen: Are you leaving us Hari?

[00:43:10] Hari Ramachandra: I have to get to my meeting now. Alright. Thank you.

[00:43:13] Stig Brodersen: [Crosstalk] Good, see you. Yeah. Bye. You bring up a really good point about the future here at Constellation cause after all, you’re not buying the past, you’re buying the future as it is with stock investing. And I think there was something to be said about Mark Leonard is not a software guy.

[00:43:30] Stig Brodersen: He’s a capital allocator. At the same time, I also completely agree with you whenever you say that there’s a learning curve there. Like he won’t just hub into something completely new and be just as successful part because of the size there are, but just because you know what’s inside or outside of the circle of, of competence.

[00:43:47] Stig Brodersen: And it’s, it’s tricky, right? Like, so right now Constellation Software are not approximately a hundred verticals. Verticals as in healthcare could be a vertical. And so nothing really stops competitors coming in, just competing in one, one vertical and really have the core competence there. And that’s, that’s tricky.

[00:44:05] Stig Brodersen: Now I do think that there is a competitive advantage in the systems that Mark built and he’s now implemented, I think, I want to say they have six operating groups that are sort of like, you’re right to, it’s not like Mark Leonard he’s sitting like browsing through all the, all the acquisitions anymore like he used to whenever they’re much smaller.

[00:44:21] Stig Brodersen: So all that is decentralized, which is also one of the, one of the things that they do really well. I’d say that those systems are probably difficult to replicate. I’m not so much talking about data, even though I think that’s another point that we already covered, that’s hard to replicate. But the financial discipline, if you have a really good system, which financial discipline that is hard to replicate because there is a bias to breach that discipline.

[00:44:45] Stig Brodersen: And if you have a traditional business background, at some point in time someone has said to you, you should continue to invest as long as your whack is slower. And if you are not confused, you don’t understand it probably right now. But basically what it means is that you should invest way too much and see if the interest rate is.

[00:45:05] Stig Brodersen: Low or you have some kind of arbitrary stock market expected return, like you can always put into an Excel sheet why you should continue to invest in something because so many people have incentive for you to continue to invest. And so that discipline that they have where they have been accumulating cash at times where others haven’t because they would rather sit on that cash or pay it out as a special dividend, they actually made a small change with that.

[00:45:29] Stig Brodersen: But a sort of like different discussion because they still want to target those high hurdle rates. I do think that that’s a competitive advantage because you might have someone coming out competing with them and they start out having that financial discipline with those high hurdle rates. But the way that incentive systems are set up, everyone wants to get, everyone wants to get bigger and if the internal rate of return is, is not 25 anymore, but 18 it seems still seems good, and now they can take on level.

[00:45:56] Stig Brodersen: Like there are so many things with the biases where it’s just very difficult to do exactly what, what they’re doing or they would, you know, be competing with private equity that would take on a lot of debt or do leverage buyouts or, so there are so many components to that. I should also have mentioned before that a competitive advantage would be the preferred buyer status.

[00:46:16] Stig Brodersen: I do think that to some extent has probably been a bit overused in you by, we think of Berkshire, Markel, Constellation but there is something to be said about founders generally want to sell companies to perpetual buyers or owners, I should say, and not necessarily to your, to your random hedge fund or private equity that would slice and dice it, use a lot of leverage and then resell it afterwards.

[00:46:40] Stig Brodersen: So I also just wanted to, to mention that. Toby?

[00:46:45] Tobias Carlisle: That is real. There are a lot of private equity firms around, particularly in software where they acquire them, strip out all of the costs, like strip out all of the employees and, and continue to operate them on these bare bones basis where they’ve got recurring revenue and they, that’s how they maximize the value of those things.

[00:47:01] Tobias Carlisle: That’s very, very common. And so it is a, it is a, an advantage to say our culture is we don’t do that. We, we will preserve your existing culture and team and we assure you, we guarantee that we will do that because we’re going to keep on making this claim in the future. That’s, that’s why we operate, which is what Berkshire has done and which is part of the reason they’ve been so successful and have become a preferred acquirer because there are people who spend their entire lives building businesses and have relationships with the people who work with them and don’t want them thrown out on the street when they leave.

[00:47:36] Tobias Carlisle: But, you know, the cost of that is they don’t maximize the price when they sell. And for some people they just want to maximize the price when they sell on, that’s how they, that’s how they achieve those ends, which is also fine. I think that C S U is like constellations, like it, it is sort of at that level now where it’s a Berkshire type conglomerate where people know who Mark is.

[00:47:56] Tobias Carlisle: They know that they have a, the way that they operate, they’ve been doing it for a long enough period of time that they probably are a preferred acquirer. So I think that’s fair to say in relation to CSU, but I agree it, it’s used far too often.

[00:48:08] Stig Brodersen: Yeah, and last time I interviewed Mohnish and we’re actually talking about Constellation, he talked about how in some cases Constellation software was like more or less the only way out for some venture capital companies.

[00:48:19] Stig Brodersen: cause like, so when, whenever Venture capital and Mark, Mark Leonard has a background in venture capital, whenever they have a portfolio companies, they would expect quite a few of them to go bankrupt. And then, you know, they’ll all be saved by those highflyers your Amazons of, of the world that would sort of like make the returns.

[00:48:34] Stig Brodersen: But you also have this middle segment that sometimes are referred to like Walking Dead. And it’s like those companies that are too good to, to kill really, but they’re not so good that they’re going to be the next Amazon. And it takes focus away from those venture capital companies if they have to sit on the board and doesn’t really go anywhere.

[00:48:53] Stig Brodersen: So they have an incentive to sell to a company like Constellation and, and, and form that relationship with the company.

[00:49:00] Tobias Carlisle: Yeah, I hadn’t put it that, that’s an interesting idea there are that they follow that model where it’s one or two big winners out of 10 and then there’s one or two big losers and then there’s whatever it is in the middle six that tastes like chicken.

[00:49:13] Tobias Carlisle: Right. You got to do something with them and yeah and acquirer, that’s acquirer like csu works really well Constellation.

[00:49:20] Stig Brodersen: So I just quickly wanted to touch on the evaluation. I kind of feel I’ve been monopolizing a bit too months’ time here with my pick. So is Constellation software worth it?

[00:49:31] Stig Brodersen: Very much depends on who you’re asking. If you just look at it on a pure multiple basis today, at the time of recordings trading at 29 times free cash flow, historically that’s been quite expensive. And you might say that historically if that’s been expensive, a sale the past 10 years, that’s not good because it’s more or less than been bigger than it is now.

[00:49:54] Stig Brodersen: So it’s sort of like, is what it’s, but the, I would also say that first of all, I don’t necessarily think you should evaluate based on free cashflow. I just wanted to use that cause it’s a somewhat standard benchmark to, to use and sort of like to give you an idea what the evaluation is that, but like we talked about before, you are buying a future, not the past.

[00:50:13] Stig Brodersen: Free cashflow has been compounding 26% annually since its i p o 23% annually over the past 10 years. Very, very high quality company here. So can, can they sustain that growth? Probably not. And so we also need to, to factor that in. One of the things I was. I was hitting on before there was that in Mark Leonard’s earlier letters, he was talking about how you could look at the delta and intrinsic value by looking at the return on invest capital and then you would add the organic net revenue growth if you had to put that into a single metric.

[00:50:50] Stig Brodersen: And as we all know, there are no perfect single metric like pick your poison. All metrics have their advantages and their disadvantages. And he also talks about how perhaps that’s not the right metric anymore, considering where the company is. And he talks about why you should be looking at the free cash flow and not just the symbol free cash flow.

[00:51:10] Stig Brodersen: Because if you do that, you know, you also have to, there’s this element about excluding amortized intangibles, for example. There are other items too that you can go into where he’s saying, let’s take a bit more conservative measure here. And whenever you do that, you actually have the accounting loose look less attractive to you as an investor.

[00:51:29] Stig Brodersen: If we do that adjustment before I said that the free cash flow, like the traditional way of measuring was 29. If we do the other, the one that he suggests, we TTMs or, or sorry, the, the last 12 months we get just short of a, of a billion and the market cap is four 2 billion right now. And so there are a few things to that.

[00:51:50] Stig Brodersen: I’d say it’s probably a conservative number. I think that’s one thing, but I also like what Mark Leonard is doing about under promising and overdelivering. And the other thing I also just want to say we really speaks highly about who he is, is that when everyone else are doing adjusted EBITDA or whatever they were doing, like they do whatever they can to make the accounting look more attractive.

[00:52:10] Stig Brodersen: I love how Mark Leonard is doing what he can to make it, make it look less attractive. I mean, how amazing is that?

[00:52:18] Tobias Carlisle: I think for something like this, free cash flow is probably the right metric. I’m not sure whether this is a yes. Canadian dollars, 59 billion in enterprise value market cap of 56 and a half billion Canadian, so market cap USD is 42 billion, EV 44 billion, so it’s got a couple of billion dollars in net debt in there.

[00:52:41] Tobias Carlisle: Just trying to find the, the, what was your multiple for free cash, did you say? 29?

[00:52:45] Stig Brodersen: Yeah, 29. Yeah.

[00:52:47] Tobias Carlisle: And I think that’s a little bit of a premium to where it has been over the last five years, and you can look at, you can go back to sort of 2013 or 14, so 10 years ago it was on 20, so it’s expanded. You’re paying another 10 times over that period of time, which is which, when you look at the chart, you know they’ve had good free cash flow generation and good multiple improvement, which in some ways Constellation’s very well known.

[00:53:10] Tobias Carlisle: Value guys are always watching it and watching it very closely so it never really gets too cheap. Well, that’s a good thing in the sense that once you hold it, you’re not going to have that big vomit. That sometimes happens in stocks that panic people out. But then again, we haven’t seen what it looks like through 2000.

[00:53:26] Tobias Carlisle: Haven’t seen, you know, a scenario like 2008, 2000. I think it’ll be perfectly fine cause it’s cashflow. Generative tends to hold cashflow, probably benefit from something like that because it’ll make some acquisitions through that period of time at better valuations. I think the valuation is a little bit stretched here for me, which would mean that forward returns will be lower than they have been historically.

[00:53:45] Tobias Carlisle: And so I, like I said earlier, I’d be more inclined to wait for maybe like a, not a company specific stumble, but just a market level stumble, which, you know, they come along. You just have to be patient. You get probably one every year or so and you get that when the sentiment is very bad. Often that’s a good time to go and pick up the higher quality companies like Constellation.

[00:54:07] Tobias Carlisle: So, I think the valuation is, I think it’s, I don’t think it’s outrageous here. I don’t think it’s an insane valuation where, where you’re going to lose money on it. I just think it’s a valuation that is full and the returns will pro-, you’ve, you’re really depending on their ability to execute at an operating acquisition level and the, you know, they’re transitioning a little bit from where they have been previously.

[00:54:29] Tobias Carlisle: All those things together. I think probably more like a watch list, wait for market level weakness and then buy something like this would be the, the way that I would think about it. And I don’t know where, I don’t know what the fair value is, but it’s probably trading around it now. So a discount to that, that would improve your forward returns?

[00:54:48] Stig Brodersen: Yeah, I completely agree with you. I put in here in my notes, I said it’s fair value slash on the expensive side, considering the outlook, considering the assets that they own. But, you know, it’s one of those things where, and you know who, who knows, someone might listen to, to this in like 10 years and, and who knows what they see, like, Be [crosstalk]

[00:55:08] Tobias Carlisle: I’m sure it’ll be up. I’m sure it’ll have performed fairly well. It’s just, you know, there’s an opportunity cost to other, other better opportunities that are cheaper. They’re less demanding probably.

[00:55:18] Stig Brodersen: Yeah. cause it’s not like it’s a great company, but it’s certainly not selling a discount. And I know there’s, there’s code about it’s better to buy a wonderful company at a fair price and a fair company at a wonderful price. But obviously we would like both. And that’s probably not the case right now. Or if [crosstalk]

[00:55:37] Tobias Carlisle: He does tend to play, he does tend to pay wonderful prices as well. He wants wonderful companies at wonderful prices if we’re being honest.

[00:55:43] Stig Brodersen: Don’t we all, don’t we all? Yeah. So that was my, that was my pick here for today. Constellation Software. Toby?

[00:55:52] Tobias Carlisle: And now for something completely different. Whenever I looked at it, I was like, I always introduce it as something like, this is such a Toby kind of pick, and I look at it and I thought to myself, this is such a Toby kind of pick. So let’s go ahead.

[00:56:09] Tobias Carlisle: I should introduce for, for people who don’t know me, I’m a deep value guy, which means that I prefer fair companies at wonderful prices, too, wonderful companies at fair prices.

[00:56:18] Tobias Carlisle: I run two deep value funds. They’re both ETFs, Zig, which is mid and large cap domestic us, and deep, which is, these are the tickers deep, which is small and micro domestic. Us. I like to buy little operating businesses that have, you know, replicable cash flows or not, not necessarily they don’t necessarily have great economic moats the way that it’s not necessarily a Buffett stock that has that defensible moat.

[00:56:47] Tobias Carlisle: It’s just that it has a very, very undermining valuation and it doesn’t need to do much. To get reasonable returns out of the business over the next, say, three to five years, which is normally my, that’s my, that’s my aspirational holding period. You know, sometimes that tends to be a bit shorter because often these things, what happens is they, there’s some event that makes them cheap, and over a period of 18 months, people just forget about it.

[00:57:16] Tobias Carlisle: And it kind of goes back to probably what is closer to a fair valuation, at which point I’m moving into something else that’s, that’s also a disaster. So my pick today is Winnebago, probably everybody knows what Winnebago is, but they make the RVs that you see, they own a, they own a number of brands and they have done a few acquisitions over.

[00:57:37] Tobias Carlisle: So the thing, let me just give you the stats and then then we can talk about a little bit. So at its currently trading at $64, which gives it a market capitalization of $1.9 million. So this is a small company, enterprise value is 2.4 billion. So that means there’s about $500 million of net debt in there.

[00:57:55] Tobias Carlisle: And EBIT is about 300 million, which means it’s trading on eight times what I call the acquirers multiple. So you could, you could pay it, you pay eight times, or you, you could think about it as like a 12.5% EBIT yield pays a dividend yielding about 1.7% at the moment over the last few years.

[00:58:14] Tobias Carlisle: Winnebago is an interesting company, so they had to shut down operations in the very depths of Covid. And then there were a big covid beneficiary when people couldn’t fly internationally and they couldn’t travel. People bought Winnebago and all of their other brands and there was a, there was an in there, a bit of a Winnebago [inaudible] a bit of a hangover.

[00:58:36] Tobias Carlisle: And you could, I’ve just come back from vacation on a lake. You could drive past all the last few years. Every time we drove past a yard, it’d be filled with these RVs, secondhand RVs for sale because people bought them, don’t need them anymore and sold them. And so they had this extraordinary growth run where they went.

[00:58:55] Tobias Carlisle: They probably pulled forward a few years of demand through 20 20, 20 21, 20 22. The stock picked in 2021 in May at $84. So it’s $64 now. So it’s about $20 lower than it was two years and a quarter ago. Below was March 2020 and it traded at $20. Norbert Lou, his punch card investing, he holds very few securities.

[00:59:20] Tobias Carlisle: I think he holds three wins. He’s a good investor. Winnebago was one of them. He’s got a 13 D, which is an active note where he was critical of when they shut down operations in Q three. He had been asking them to pay down some of the debt, sorry. He had been asking them to pay down some of the debt cause they’ve been carrying too much debt as a result of these acquisitions that they had done.

[00:59:41] Tobias Carlisle: And while he, he says in this note, while Covid wasn’t foreseeable, it was foreseeable that something would come along. And this is my view too. There’s always businesses stumble all the time and you need to have some margin of safety in the business so that you see the other side of whatever you go through.

[00:59:57] Tobias Carlisle: They stopped paying some of their employees. He brightly pointed out that all of the C-suite was still collecting very nice compensation packages through that. And he just said, you should have paid down the debt, you should forego some of your salary and so on. His purchase price is about $30. So, and his, that, that was Q3 2020.

[01:00:16] Tobias Carlisle: And before then he’s had $70 million in Holt across about $2.4 million, sorry, 2.4 million shares, about $30 on average, and now it’s trading at 64. So you’re paying quite a substantial premium for that. You can see when you look at the financial statements, you can see this sort of the, the pig moves through the python of their, their 2021 and 2022.

[01:00:39] Tobias Carlisle: Where 2021, they earn 23% on equity. 2022, they earn 25% on equity. This year they’re going to earn about 15% on equity, which I think is about a little bit closer to their long run rate, maybe around 15%. The low in 2020 was still 7.5%. So that’s still a pretty, you know, given the, given the, the backdrop, not a bad year for them.

[01:01:05] Tobias Carlisle: They own, it’s not just Winnebago, they own a few other brands. They hadn’t this thing called, thing called Grand Designs. They’re Newmark and they have some boats, some like pleasure craft type things. Chris Craft and Pontoon Boat brand, that’s just the name just escapes me a little bit at the moment.

[01:01:22] Tobias Carlisle: They have all of these businesses that they’ve acquired and I think they’ve done pretty well with these acquisitions. What I think is interesting about this stock here at the moment, there, there are, you can, you can look around at the various different, there’s a very widespread and opinion about what this stock is worth and what it’s going to do in the future.

[01:01:42] Tobias Carlisle: And that’s caused by the covid, the covid bump, the covid stoppage, and then the covid bump has sort of muddied the water a little bit. It’s very hard to work out what the run rate is likely to be in the future because they’ve got to work through probably a little bit of the blood. So I think the analyst estimates here are kind of interesting.

[01:01:58] Tobias Carlisle: So EBIT this year say it’s around 300 million, maybe a little bit more than 300 million. The estimates are for next year, 360 million, so that’s 20 24, 20 25, it’s almost 600 million. And to 2026 it’s almost 650 million. And so those numbers, if they do eventuate, paying $1.9 billion in market capitalization now, enterprise value about 2.4 billion.

[01:02:26] Tobias Carlisle: In 2026, which is four years in the future, three years in the future, you’re paying you, you’re going to get 650, which is about double what it’s currently earning now. So if that does eventuate, I think that’s the, the way that this, you know, that’s assuming no multiple expansion and it has traded at a higher multiple and this’s also traded at a lower multiple list.

[01:02:50] Tobias Carlisle: But this is a, this is a bare multiple I think for, you know, a fair two, undermining multiple for this eight times. So I think if they do achieve 650 out four years, assuming it’s still trading on eight times, that’s two and a half times in stock price performance, sorry, two and a two and a little bit, but times stock price performance over four years, which is, I think that would be a sufficiently good return for what is the businesses, you know, people recognize the Winnebago brand, but the reality is when you go shopping for these things, they all basically look the same.

[01:03:26] Tobias Carlisle: They all basically look, and the interiors are very similar. Nobody’s buying it because it’s Winnebago, although that might mean that they don’t, it might be hard for new entrants to come in, but there’s plenty of competition there already. So I, I think it’s the, I think it’s a reasonably low risk purchase here.

[01:03:44] Tobias Carlisle: And I think that there’s reasonable upside for the risk that you take over a period of the next two to five years, which is sort of the, the, the kind of business that I like to buy. And I buy them as I buy a basket of these things. So I hold 30 of these names and I rebalance that basket on a quarterly basis back to equal weight until I find a better opportunity.

[01:04:07] Tobias Carlisle: So this will either run up and I’ll rebalance it out or it will not perform and I’ll rebalance it out. cause it didn’t, it didn’t sort of perform and I find a better opportunity. So that’s how I think about it. I will, I do hold Winnebago in the fund. It’s a 3.3% position. Hasn’t done much since I bought it.

[01:04:26] Tobias Carlisle: Not that I would expect it to. It’s only a reasonably recent acquisition. So that’s how I think about it. I, I think it’s a reasonably undermining valuation. It’s hard to, hard to sort of see where it normalizes because we’ve had some very strange last few years, particularly for, but I think if the analyst estimates eventuate, then it’s very good value here.

[01:04:50] Stig Brodersen: So Toby, I always like your picks and this is no different. There’s a little hair on it, which, which is just the premise of buying something in a single digit multiple. And then I can like show your company a constellation that has very little hair on except for the valuation. So it’s sort of like two sides of the same coin, but whenever you look at the financial statements, it’s, it’s kind of, it’s, it’s, it will be so interesting, sort of like to, to your point about where peaked in Covid and now you can just see the margins are contracting and everything’s contracting. Like see where ends One dynamic that’s quite interesting is that they are, so they’re, they’re in three different businesses, right?

[01:05:29] Stig Brodersen: So they’re in the rv tow balls and boats, which are generally all ballistic markets, as they call it. It’s basically a, a fancy word of saying there are just very few. And so for example, in the RV market they have they have 10% market. Yeah, I think it’s increasing. The industries would have just a, a 40 Ish and then Berkshire owned Forest River close to 42.

[01:05:50] Stig Brodersen: The rest would be like one point whatever kind of market. Yeah. So that would be very, very small. And so, and you can more or less say the same thing about motorized for example, where there’re only those three players and then there are some, some very small ones. And so, the reason why I bring this up is that as a shareholder is typically a good thing, not as a consumer, but as a shareholder.

[01:06:10] Stig Brodersen: It’s typically a good thing if there are very few players because they can communicate with each other how they want the prices to be. That’s illegal, I should say. But there are different, there are ways to do it that is not illegal. So, for example, they can go in and say something like, I think Mohnish have used the example of Micron in semiconductors for example.

[01:06:30] Stig Brodersen: There are only like three in that specific type of, of industry for the memory ones. And he said that they actually make like public statements about what they, what they want the Capex to be, and then the sort of like signals to each other what they want to do. And as long as that’s public information, that’s perfectly fine.

[01:06:47] Stig Brodersen: But if they call each other and say, this is our Capex, what do you want here? That’s, that’s definitely legal. And so, you would have these, these type of, of market structures where you have very few competitors and they will be going to out-compete, you know, and, and drive the margins down. That’s the type of companies you don’t want to invest in those markets.

[01:07:07] Stig Brodersen: Or they can sort of like signal that to each other, what they want to do. So for example, if all the, if the three big ones here in the industry decide to compete on everything else, then then price, which you very often see. If they’re really smart, then, then they communicate to each other. That’s the way we want to compete.

[01:07:21] Stig Brodersen: We don’t lower our prices, which means that the others won’t, won’t lower their prices. So as a consumer, you don’t have that optionality because you don’t have that competition in the space. And so whenever we look at the business or, or both thesis for this stock, it very much depends on how they communicate that they have too much inventory right now.

[01:07:40] Stig Brodersen: Or, you know, to your point before Toby said about just like people are selling the Peloton bikes, they, they’re also selling their, there are these that they bought during Covid and so. I don’t know how that’s going to, to play out. I think that would be my big question mark. And also, they have been gaining market share here recently.

[01:07:58] Stig Brodersen: I don’t understand the product well enough to know why Winnebago’s, why their products are, are better than Forest River. I don’t know if there’s anything there to be, to be gained and, and even if there, there is, I don’t know how much of that could, could just be, be replicated.

[01:08:14] Tobias Carlisle: Yeah. I don’t think there’s much, honestly, there’s, I don’t think there’s much differentiation between these products.

[01:08:18] Tobias Carlisle: I think that anytime they come up with an innovation, it’s very rapidly copied by their competitors. I think the, the really big negatives to Winnebago, putting aside the fact that the last three years are very hard to handicap because of the effects of covid, the stoppage, and then the, and then being the beneficiary of people not being able to travel.

[01:08:36] Tobias Carlisle: It’s also, it is a real kind of luxury item. It’s, it’s really the last thing on a long list of stuff that you would buy. So people tend to buy them when they feel good. They don’t tend to buy them in bad times, and probably we’ve gone through a period where people have had a lot of disposable income.

[01:08:55] Tobias Carlisle: Perhaps we’re going into a period where people have got a lot less disposable income. It’s hard to, you know, the last time we had a real recession in the states is 2000 7, 8, 9, and since 2009, it’s grown very strongly what it looks like if we go back through a proper recession. I don’t know, I’m relying a little bit on the analyst assessments here where, you know, they’re saying revenues this year, they’re projecting like 3.6 billion flat next year, 3.5, but then 4.8 and over 5 billion.

[01:09:25] Tobias Carlisle: I’ve got no idea really how likely that is to eventuate. I’m sort of saying that on a steady state basis, eight times is probably a fair value multiple, and then if any of this growth eventuates, then you get that’s, that’s all of the upside. That’s all of you. That’s you’re outperformance and I think that it has demonstrated that it can survive through a difficult time and they’ve de-risked a little by paying some down some of their debt.

[01:09:48] Tobias Carlisle: That, and a lot of that debt is, it’s come from good acquisitions. They’ve bought these, these other marks that they have, you know, I, all of the positions that I have are going to be, there’s going to be hair on those positions. There’s a reason why they’re trading where they are. And that’s, that’s the real issue for, it’s very cyclical and that’s sensitive to the economic cycle.

[01:10:09] Tobias Carlisle: It’s sensitive to how consumers feel and their disposable income. They’ve gone through probably a lot from 2009, bottom of the last recession through to 2019, say, which was their last year. Pre covid. Really good growth through that period. Probably that’s an expression of how people were feeling stoppage in 2020 and then another, like really good few years.

[01:10:32] Tobias Carlisle: To what extent that is representative of the next 10 years. I don’t know. It seems unlikely to me that it’ll be as good as that. But I don’t think it’s, I don’t, I think the downside risk is very low. I think the, the donut risk is very low. I think it’s probably cheap to fair value here. And then if these growth rates do eventuate, then it will prove to have been way too cheap here.

[01:10:56] Tobias Carlisle: So that’s the sort of, that’s the, that’s the, that’s the thesis. And I buy these things as one of 30 names in a portfolio, and it’s a 3.3% position. So I’m prepared to take a little bit of upside risk in something like this. That in my view is that probably the, I don’t want to say the worst case scenario cause I don’t want to be proven wrong subsequently, but, you know, my base case, my base case assumption is basically where it is over the next three to five years.

[01:11:27] Tobias Carlisle: And I think that the, there’s some good potential for upside here as a part of a basket where I include a lot of these names and there’ll be some winners and some losers out of that basket. And that’s generally how I think about it. I should say that my, my pick from last time is my worst performing stock out of my entire portfolio.

[01:11:46] Tobias Carlisle: So that was virtue. Sorry, everybody who followed me into that one, I still hold it. I still think it’s cheap. We, we’ll have to circle back on the next quarter and see how it’s done. Unfortunately, that that pick was, that pick is probably needs a little bit more volatility in the market, which we haven’t seen just yet.

[01:12:01] Tobias Carlisle: We’ve been, had pretty benign markets for this period. But I think that, you know, where I’ve had to apologize for the performance of, you know, deep value for years and years now, the last few years have been a little bit brighter for deep value and a lot of the multiples that, you know, I’ve been, I’ve talked about the spread between the most undervalued and the, and the, and the market, or the most overvalued that has started to close pretty materially.

[01:12:23] Tobias Carlisle: And that has sort of manifested in, in better returns for deep value tended to outperform the market over the last three years. Which is, you know, taking us back to about, that’s just after the covid. Bottom and then, you know, out the other side, which is typically what I would, I would expect value to do best.

[01:12:40] Tobias Carlisle: And I think that the spreads still remain very wide and the forward returns still look pretty good to me across the portfolio.

[01:12:49] Stig Brodersen: Wonderful. Toby, it’s always great chatting with you and Hari about what’s on our mind and what in the market. Before we end this conversation, please give a handoff to your audience and where they can learn more about you and, and what you’re up to.

[01:13:03] Tobias Carlisle: I have a website, acquirersmultiple.com, and my funds are on acquirersfunds.com. acquirersfund.com is Zig. I’ve written some books, they’re all on Amazon. Under my name Tobias Carlisle. Last one was Acquirer’s Multiple. It’s a bit of a theme there. I’m on Twitter @Greenbackd, G R E E N B A C K D and I always love doing these shows. I get some great feedback from everybody. So thanks for having me on Stig. It’s always great to chat.

[01:13:29] Stig Brodersen: It is always great to chat Toby, and I look forward to in the next one here in three months-ish time.

[01:13:35] Tobias Carlisle: Thanks for having me.

[01:13:37] Stig Brodersen: In this segment of the show. As I’m letting go of Toby and Hari, I want to welcome my co-host, Clay Finck. Hey Clay, how are you?

[01:13:43] Clay Finck: Doing great, Stig. You know, we just started this recording and it’s Tuesday morning here and I forgot to hit the record on the video, so here we go again.

[01:13:52] Stig Brodersen: Here, here we go again. As the listeners or can probably tell not recording right after I’m speaking with Toby and Hari. We’ve been doing the first part of record that, of the episode, which is the quarterly mastermind meeting that we had for, I don’t know, I want to say since 2015 or something like that. So, so the, the key word there is really Mastermind and perhaps a lot of our listeners do not know that we also have something called a Mastermind Community. Clay, I don’t know if I could kindly ask you to present to our audience. What is the mastermind community?

[01:14:25] Clay Finck: Simply put the TIP Mastermind community, I would call it a hub for those in our audience who are most passionate about networking and becoming better investors. And that’s likely the type of people who are listening right now who are all the way into this, you know, discussion, talking about individual stocks, kind of needing out on these types of things.

[01:14:46] Clay Finck: And we had talked in our previous discussion at the end of your previous mastermind meeting, how so many people in our audience, they flew out to Omaha for the Berkshire meeting and they attended all these events and Omaha, such as our TIP meetups, and the audience members just absolutely loved it.

[01:15:05] Clay Finck: They got to meet the TIP hosts, they got to meet other audience members. And I would say it’s like the one time in the year where they got the chance to talk about investing with like-minded people, you know, and actually talk about, you know, the things we talk about on the show here, you know, things like.

[01:15:23] Clay Finck: Understanding, you know, value investing, how that’s changing over time. Talking about investing for the long term purchasing with a margin of safety. Just terms that are like totally alien to many people who would call themselves investors. So that’s why we created the community in the first place instead of having it, you know, just this onetime event in Omaha where people have to, you know, go through all these headaches and all these pains of traveling, sometimes 24 hours, 12 hours.

[01:15:50] Clay Finck: Instead of doing that just once a year. Why don’t we give our audience the opportunity to do this at practically anytime? One of the amazing things about the community is that people have been joining for many different reasons. Some, some people join just cause they want a place to bounce ideas off of.

[01:16:08] Clay Finck: Maybe get new ideas from, from others and, you know, be able to share those ideas with people who they see as credible and people they can trust. And then there’s just so many things we’re doing in the community. For example, we’re bringing in special guests like TIP guests, such as we’ve recently brought on Chris Mayer.

[01:16:25] Clay Finck: We’ve recently brought on, got Made. And members of the community have absolutely, absolutely loved having the chance to, you know, be able to see them talk with them and ask them questions. And then other people have been really interested in the opportunity to do more live events. So October 6th through the eighth, we are doing live events in New York City, which we’ll be chatting about here later.

[01:16:49] Clay Finck: And we’re also, of course, going to be hosting more meetups in Omaha for Berkshire Weekend in 2024. So, so many exciting things happening in the community and it’s been a ton of fun and a big learning experience for me too.

[01:17:04] Stig Brodersen: If I can add to that Clay. I was so surprised whenever I, you know, met up with, with the community members in, in Omaha, and you, you ask them like, so who are they here with?

[01:17:16] Stig Brodersen: And they’re like, no one. And you know, it’s not just people in the States. They might have gone from, I don’t know, flew in from Australia or whatever, and it’s like, yeah, I don’t really know anyone. I’m just here to check it out. And you go, wow. Like what, like the passion for doing, doing something like that.

[01:17:35] Stig Brodersen: It’s just, it’s absolutely amazing and so especially also for me not living in the states and, and value investing isn’t as big in, in Europe as it certainly is in, in the states, even though a lot of people would probably also say it’s a bit more niche even in the States. But like, it’s hard to come by really good live events.

[01:17:51] Stig Brodersen: And so it’s always, it’s always something very special going to, to the main one. At the Berkshire meeting in, in Omaha, may. You know, we, we long wanted to start an online community for TIP because that was really how it all started. Before it was called TIP, we, we had an online forum, which was mainly just Preston and me talking about accounting to be completely frank.

[01:18:12] Stig Brodersen: But, you know, we’ve always procrastinated, like always been so many other things to focus on. Whenever I say we, you should probably say me. I don’t think I can, I can blame anyone else than me that’s taken so long. But you’ve taken this project on Clay this year, and how has it been for you and for the community so far?

[01:18:31] Clay Finck: Yeah, we started the community back in April going into the Berkshire weekend. We kind of had a hunch, you know, you’ve done these meetups in previous years. We kind of had a hunch that, you know, people would really enjoy this. But going in, I would say we weren’t really sure how it would go, whether people would want to join, whether, you know, people would find value in it, maybe they join and then just.

[01:18:56] Clay Finck: Leave and never see us again after the first month. So I’ve really been quite surprised how much people have enjoyed being a part of it. As I mentioned, I think there are just so many aspects of how people see the value, and it’s really interesting to me how different people see value in totally different ways and people are just, they’re on different journeys in their life, but when it comes to TIP and value investing, in many ways, they’re on the same journey, which is why they’re all in the same group together.

[01:19:29] Clay Finck: It’s just so fascinating to me. But as we chatted about during the previous discussion on the mastermind chat, there are just so many people out there that really, really want a place to talk about these different things with like-minded people. And you know, they’re again on the same journey and they’re kind of listening and consuming very similar content.

[01:19:50] Clay Finck: They’re many of them listen to a lot of William Green shows and they’re thinking about. Things outside of just money. So that’s just been really, really fascinating. And I’ve been meeting with pretty much all of the members on a call, one-on-one. And I’ve noticed that many of them, they just don’t have anyone in their circle to talk about these types of things that really understand what they’re talking about.

[01:20:12] Clay Finck: And they’re just, they’re speaking the same language, for lack of a better term. So, you know, since they don’t have anyone to talk about these types of things with, they’re just sort of out there on their own. They’re investing on their own, they’re thinking about these types of things on their own. And you know, tuning into our episodes and kind of having this internal dialogue with us and the mastermind community, it’s just filled with some of the greatest people I’ve ever met, honestly.

[01:20:38] Clay Finck: And part of its probable cause I’m biased and I’m a TIP host and I already, you know, talk and think about all these types of things, but I. I just truly believe these, these people in the group are just incredible. They’re oftentimes very knowledgeable, sometimes much more knowledgeable than me, admittedly.

[01:20:55] Clay Finck: And it can just be a great place to get new ideas, share ideas. And I think for me personally, it really helps to have people share these ideas that they’ve like really vetted, they’ve really looked dug into, they’ve really done the homework because there’s always opportunity costs with our time. You know, I could spend time, you know, doing other things after work or I could spend it, you know, sifting through hundreds of stock ideas.

[01:21:22] Clay Finck: And it’s just really helps to have that credible network where they’re sharing ideas that are really high quality. And that’s personally one thing I just get really interested in and, you know, I find a lot of value in, so I definitely think the community’s really good in that regard and helping me spark new ideas because, You have other others in the group who are really diving into these businesses in ways that oftentimes, you know, goes much further than I would ever consider diving into something.

[01:21:52] Clay Finck: So one example is Kyle, who I met through the community, and he actually just recently joined TIP and will be the new host of our millennial investing show. Kyle’s just really knowledgeable and he has a very similar investing process. To me, I’d say. I’d say it’s very similar to the Chris Mayer type approach, which we’ve talked a lot about in the community.

[01:22:13] Clay Finck: We’ve talked, you and I have talked a lot about one-on-one and you know, since we’re on the same journey of, you know, the types of companies we’re looking for, the, where we’re at, sort of in our investing careers, where we’re at in our investing journeys, it just really helps to have someone who’s, you know, Kyle has looked into, you know, businesses I’m already interested in and he’s the one person I know of that knows a stock, this particular company better than anyone else.

[01:22:42] Clay Finck: And I just happen to be interested in it as well. And you know, it’s just hard to, you know, put a price on something like that to have access to information that you otherwise wouldn’t be able to get, if that makes sense. It’s just like, you know, opening yourself up to a network of people that without the, something like the internet, it’d just be impossible to, you know, have that sort of access to that sort of information.

[01:23:07] Clay Finck: So today we have around 70 members in the group when we plan on opening the group up to another cohort of members here soon. And another amazing thing about the community, I think I wanted to mention here is that, as we’re adding more content over time, we’re recording all these chats we’re having with the community and then, you know, people are sharing all these ideas.

[01:23:28] Clay Finck: The community has this compounding effect, I think, where it becomes more valuable over time. And I think the people who have joined, especially early on, they sort of get that where early on it’s a lot of like the TIP host sharing content, since it’s very early, we haven’t had a lot of people join, but they, they recognize that, you know, more and more great members keep joining more and more, keep sharing these ideas.

[01:23:50] Clay Finck: So I think they just know that, you know, it’s a long-term type of relationship, if you know what I mean. I think you see that with some of the retention we’ve had, who’s been staying, who’s been leaving the group, and it’s, it’s really cooled to see what’s sort of been happening with, you know, this network and community we’ve been building Stig.

[01:24:08] Stig Brodersen: Clay, if I can add one thing to that, I would say that the key word there is really journey, like what you talked about before, being on this journey with like-minded investors, and you might be a beginner, and that’s completely fine. You might be a bit more seasoned, you might really, you know, read all the financial statements.

[01:24:24] Stig Brodersen: And that’s, that’s also wonderful. But I, I think it’s, it’s important that we have the same, the same vision. Not that we all have to have the same, exactly the same approach. So please don’t get me wrong but let me put it like this. If you are really interested in, let’s say, real estate investing and you focus on Wyoming or any other state, I should mention for that matter, this is not the community for you, it’s about stock investing.

[01:24:48] Stig Brodersen: That’s the premise and if you have a say, Warren Buffett type of foundation, it’s the right place for you. That doesn’t mean that you cannot sprinkle any into, you know, any other kind of flavor you want into it. We don’t have a lot of day traders, I, I should say, but like we all interpret and we all have, you know, our own vision of what kind of strategy works for us.

[01:25:11] Stig Brodersen: You know, some people invest a bit more in ETFs, some people more in in stocks, some in, and, and you know, some in deep value, some in what you would typically refer to as value or refer to as, as growth. But it’s really around the, the core is really stock investing. And I would also say that if you have this warm Buffett type of mindset, which you probably do if you made it this far into this episode, there’s also a lot of other things I think you can benefit from.

[01:25:37] Stig Brodersen: I know later Clay, you got to talk a bit more about book clubs and social hours and a bit of other things, but like, if you have that as a reference point and, and outlook on, I. I should say life investing and life. It’s not just about meaning like-minded investors, it’s also about, I’m prone to say richer, wiser, and happier life.

[01:25:57] Clay Finck: Yeah. And one of the things I have, like one, it’s just amazed me and I love to see it, is people join and they have this opportunity to connect with members of the group. And you know, I hop on this one on call, one-on-one call with them. I kind of figure out the type of person they are, the type of investor they are, why they join the group.

[01:26:17] Clay Finck: And right off the get go, some of these members, they’ve been actively searching for the type of people they want to connect with. And within their first two weeks of being in the group, they’ve already hopped on a handful of calls with people. And you know, Kyle tells me he’s talked with other members of the group cause they reached out.

[01:26:34] Clay Finck: And it’s just like really cool to see people, you know, just be so active and wanting to contribute and collaborate in the community and truly build those relationships. There’s of course value in sharing ideas in an online forum that we’ve created, but I think there’s a whole new layer of value when you have these small groups of op open discussions where maybe a TIP host might not even be in it.

[01:26:59] Clay Finck: So people, you know, they feel more comfortable to share and sort of be themselves, do things like hop on a one-on-one call and have a, a way to do that. Many members, I’ve just loved that they’ve taken full advantage of that opportunity and then I mentioned a special guest earlier, TIP has access to many people that other, you know, those in the audience just don’t have access to, or they don’t feel like it’s appropriate for them to reach out via email and feel like they’re bothering them or whatever else.

[01:27:28] Clay Finck: For example, we’ve had many guests on the show who have been very generous with their time and their knowledge. Chris Mayer or Gautam Baid, they’ve agreed to join the community and have a q and a session, and then another route that’s sort of taken me is I’m on Twitter and connected with all these people on Twitter who are super knowledgeable about stocks and you know, Stig, you just pitched Constellation software in this mastermind episode and I was connected with a guy on Twitter, he’s owned Constellation Software for the past 10 years and he’s been writing on his sub stack and sharing sort of his thoughts on the constellations, the Topicus and other companies he’s interested in.

[01:28:09] Clay Finck: So, you know, he’s someone who knows as much about Constellation as much as anyone. He has been studying the company for a decade, and so I brought him into the community and he came and chatted about Constellation software and how he views the sort of investing world and sharing his thoughts on where the company’s at today and where he sees it going in the future.

[01:28:28] Clay Finck: So, Again, it’s just a place to connect with people who understand maybe particular businesses really well or understand just investing really well because they’re just so passionate about it. And then of course, Stig, you’ve joined us for a couple q and a session, and then I’ve invited Preston a couple weeks ago to talk to us about, you know, his thoughts on the macro and how he uses things like momentum with his investing strategy.

[01:28:54] Clay Finck: So I think members really enjoyed, you know, getting a new flavor of types of investors coming in and chatting with us. So, like you mentioned the group, it’s not for everyone, of course. And you know, I think I’ll also mention with these calls that a lot of our members live really, really busy lives. So a lot of them are able to join our live chats, but they love that we’re recording these chats for people to view after the fact.

[01:29:21] Clay Finck: And again, it’s compounding and we’re building this library of resources, which I think is. Also amazing as well, because we’re talking about so many different ideas. It’s nice to have that sort of repository of content that’s building up over time too.

[01:29:36] Stig Brodersen: Yeah, and I think you bring up a great point about the time zone. So you’re Central Time. Kyle, who’s also a big part of the community, our new Millennial Investing host. He’s Pacific. So there’s definitely some of the calls I cannot participate in because it would just be in the middle of the night. And so, but luckily you also sometimes have some in the morning, which it makes it a little easier if you’re based in Europe and perhaps even in Asia.

[01:29:58] Stig Brodersen: But, you know, I think that one thing is, you know, watching the recordings afterwards, which is amazing. We also have a written component to the forum and, and some analysis in there that people can check out. But it’s, what I really enjoy is the, is the interactions I can have with hosts guests we have on the podcast and, and talk.

[01:30:19] Stig Brodersen: A bit more in detail with them. And so, for example, you know, our mastermind discussions, like we actually, we do talk quite a bit about each stock and which the listener probably already know by now. But you can really dive so much deeper into it whenever you have an entire call or perhaps a series of calls just about, say, constellation software.

[01:30:37] Stig Brodersen: And so some of the listeners might be sitting out there and saying, well stake, you didn’t, you did a pretty poor job talking about this specific part of your stock analysis. Could you please elaborate on that? And so we don’t have that, of course, I can have the interaction with, with Hari and Toby, but there’s probably a ton of other great questions that the audience could ask.

[01:30:56] Stig Brodersen: And then, so it’s really like we really see it as a, as a win-win. cause we learned about new stocks, but we also learned about the stocks. That’s already on our radar per what you said before, Clay, you know, I, I haven’t studied Constellation for the past 10 years, right? And so it’s relatively new to me.

[01:31:13] Stig Brodersen: I love learning from, from more experienced investors or if they’re perhaps not had more time in the market, then say more experienced investors in that they, like Andy, that we had on, have owned this for I don’t know how many years. And sort of like followed that story. And I think that’s, I think that’s very powerful.

[01:31:30] Stig Brodersen: And so we talked here about like the mastermind piece of the should I say the Mastermind community? Like that’s probably been the, one of the key words so far. Like we wanted to call it the Mastermind community because we wanted that to be like an extended version of the mastermind episodes that we have here on our podcast.

[01:31:47] Stig Brodersen: But we also have different type of calls with the audience. Clay, I don’t know if you could elaborate a bit on that.

[01:31:54] Clay Finck: Yeah, before I do you mentioned the online forum or forum, for lack of a better term. It’s just a place online where people can share ideas and chat about different things. So one example that, you know, really stuck out to me of, you know, people really getting value out of that.

[01:32:12] Clay Finck: One of one of the members after he joined the group, he shared a pick that he was interested in and it was a spinoff. And I think it was a really interesting example where you think about how most retail investors generally just don’t have the time or maybe just the investing knowledge or like, they’re not quite there to read the disclosures and really understand what’s going on in a special situation type, you know, spinoff type situation.

[01:32:38] Clay Finck: And he shared the idea, he shared his analysis and people in the group who, you know, understand disclosures and understand these types of things really well, they ki they really shed light on what was actually happening. You know, the company was great and the analysis was really good, but was kind of exposed and, you know, that interaction was like the shares outstanding was going to go up with this, the spinoff and, you know, that of course changes how you evaluate the company and your intrinsic value of it when you’re looking at it on a per share basis.

[01:33:10] Clay Finck: And you know that interaction led him to, you know, just adding the company to his watch list and not investing in it at that time. So that, I think that’s one example of people, you know, sharing these ideas and being able to tap into the knowledge of the overall community. So yeah, the, regarding the live calls we’ve been doing, there are just so many things you can do on Zoom.

[01:33:33] Clay Finck: It really starts with trying to add value to as many members as possible and adding as much value as possible to those members. Just use, use some examples. You know, it feels like it’s ever changing what we’re doing as people sort of evolve of what they’re interested in, what they have time, what they make the time to do cause members themselves are sort of figuring out where the value is for them. So, to give you some examples, we’ve had a number of what we call round table discussions where members of the community, they get together and two or three of them present a stock that they believe is good value today.

[01:34:06] Clay Finck: So members get to see, you know, how the how other members analyze stocks, how they think about, you know, analyzing a company. And then the members of themselves obviously have the opportunity to field questions from others and kind of vet their ideas and, you know, really again, tap into the knowledge of the overall community and see if they, if it truly is a really good idea and something.

[01:34:32] Clay Finck: And of course, obviously for me or other members of the group, it’s a way to get new ideas because, you know, they’re hopping on a call, they’re creating a presentation around a company. They’re looking through, you know, all their opportunity set of companies they’ve looked into. So people have really enjoyed the round table discussions we’ve been doing.

[01:34:49] Clay Finck: And it’s very similar to the Mastermind episodes you’ve been doing here on the podcast since 2015, I believe you said. Then we’ve been hosting a book club for the joys of compounding. You know, most of the members of the group have already read the book and then many have been introduced to it. And it’s a book that just everyone just really, really, really loves.

[01:35:10] Clay Finck: And I think it’s good to do that book club too because, you know, it just shows that we’re all consuming similar types of content and we’re all along that same journey of, you know, ideas like lifelong learning, learning about different types of businesses continually refining our investing process.

[01:35:26] Clay Finck: The list goes on and on. So we’ve been doing the book club every few weeks we’ll walk through one of the sections of the joys of compounding, and I’m sure in the future we’ll move on to a new book once, once we finish that one. And then we do occasional social hours where members get together and they have the opportunity to connect and chat with other members and I’ve been trying to have it where the TIP hosts are sort of out of that. So people feel, I think they, they feel more comfortable when it’s just them and a couple members of the community who, you know, essentially are just like them or they’re looking for a place to connect with others and, you know, have a chance to chat about these ideas and bounce questions that they might have.

[01:36:03] Clay Finck: So, and then we’ve also had chats where it’s more of a learning type environment. Kyle our new host, our new MI host, he recently did a deep dive on Brookfield Corp and that was surprisingly one of our most popular events. And the way we set that up was we put it up to the members to vote, which company they wanted to learn more about.

[01:36:27] Clay Finck: So we listed say 10 names and anyone can contribute what name they wanted to do. And then Brookfield Corp got the most votes. So that’s the one we covered for our members. And that was a really collaborative session where people were. You know, giving their insights into the company. Many members of the group, I believe, already own the stock.

[01:36:45] Clay Finck: So they’ve done the analysis and they probably learn from Kyle’s presentation and then Kyle learns from the insights they give. So it’s just a win-win for everybody. And then one more thing I wanted to mention here is we’ve been diving into specific topics that, that members of the group wanted to learn about.

[01:37:02] Clay Finck: For example, in one of the one-on-one calls I had a member just wanted to get a better understanding of how to analyze financial statements. So right then I just booked a time, hey, on this date, I’m going to talk about how to analyze financial statements, kind of like a one-on-one type of analysis.

[01:37:19] Clay Finck: And then I’m just like, here’s, here’s the resources I use to learn how to analyze financial statements. So if they members want to go a step further and learn even more, they can go to the resources I sort of use to do the presentation. Then they can ask me questions, they can, you know, other members of the group.

[01:37:36] Clay Finck: Like during that chat, we had a very seasoned accountant join that discussion and he is, he understands some of the stuff better than me, right? So he’s jumping in and just like adding a whole another layer of value during that discussion, talking about financial statements. So it sounds like we have a ton going on in the group, which we kind of do, but we tend to have one, sometimes two live Zoom calls each week.

[01:38:01] Clay Finck: And I’d also mention that given the wide variety of events we do, we really cater to both those investors who are earlier on in their journey and earlier on in developing their process. And we’re, we also, I think we cater to those who are later in their journey who are sort of looking for different things and again, they’re on the same journey, but they’re sort of on a different path to get there.

[01:38:26] Stig Brodersen: Clay, that’s a really great point because there’s also something about. Outlining your thesis, for example, for, for a stock. And so one of the advantages of say, pitching a stock here for the Mastermind, meaning here with Toby and Hari, is that I get to hear myself talk about a stock and sort of like you, you learn a lot whenever you have to present to others, especially if they’re going to ask you questions like, what do you say that?

[01:38:48] Stig Brodersen: And so it’s sort of like it helps you to well help yourself and to your point there, it’s really and to your point about what you said there about the intro to fundamentals, it’s really a community for investors by investors. Like, it’s not like you and I were sitting there back in, I want to say we started in April.

[01:39:06] Stig Brodersen: It wasn’t like we were sitting there with like a, a master plan and like, this is what we want to do in September 2023. It was more, we wanted to see if we could find like-minded investors who are on the same journey as us, and then ask them, what do you want the community to be about? And so whenever we hear enough people saying, you know, we should have some classes about how you analyze change statements, well that’s a, that’s good now.

[01:39:30] Stig Brodersen: Now we know. So now we can create classes of how to do that. Or you know, we didn’t expect, you know, the joy of compounding that book series to be so popular and that you did Clay and like it turned out that everyone read it or seemed like everyone read it and everyone wanted to talk about it. And we didn’t know Gautam at the time, and he was very kind and that he wanted to jump on the call with the community.

[01:39:51] Stig Brodersen: And so all of a sudden, it’s like, Let’s create a book, a book club, around that book and, and talk more about it. So a lot of it is, is unplanned. It’s, it’s planned, unplanned, if, if that makes any kind of sense. And so it’s very much the, the community we wished we, we had whenever we started investing. And as you said there, Clay we’re like 70 members right now, it’s not a lot.

[01:40:12] Stig Brodersen: Also because a lot of people are, a lot of the members all living very busy lives. So it’s not like we are 70 people on the call at the time. We might be depending on the type of call, like 6, 8, 10 people. And so there’s a lot of time for each individual either just to, to, to listen to what’s being said, but also for them to present whatever they need to present and get feedback on whatever they need to get feedback on.

[01:40:35] Stig Brodersen: The online part is definitely very important also because it gives you that flexibility. But also Clay, we heard from quite a few members that they’re very excited about the live events. And so I want to hear a bit more about the live event that you and Kyle are going to be at in New York City.

[01:40:51] Clay Finck: I honestly can’t wait for New York City. We’ve been working on a number of events there. We have 20 or so people planning to attend thus far. So we’re going to be getting together, having great food, creating an environment where great conversations can take place. So, you know, the community can really build even stronger relationships.

[01:41:14] Clay Finck: So I feel like my job is to sort of facilitate these sorts of conversations similar to what we did with our events in Omaha. So Friday we have a social hour planned. I assume that many people are going to be flying in on Friday, Saturday, Sunday we have a lunch and dinner planned, and then that leaves us time in the mornings and afternoons on Saturday and Sunday for members to go off and do things like tour the New York Stock Exchange Tour, the JP Morgan Library and Museum.

[01:41:43] Clay Finck: I think many people are excited where, you know, there’s sort of this new, New York City’s where Wall Street’s at and you know, we’re all like-minded investors. So yeah, I think part of the other events where it’s more recreational, I think some of that’s going to be organic, but I’m going to plan on sharing, you know, some of the things, hey, I’m going to go here at two 30 and, and anyone that wants to join me, just feel free to it.

[01:42:04] Clay Finck: So it’s, it’s going to be a lot of fun. A lot of great connections and conversations and just further building out those relationships. Lance in the community is actually from New York City. He had the idea of going to a comedy club on Saturday night. I thought that was a brilliant idea. I’m not sure, sure how many in the group are going to want to join me for that.

[01:42:23] Clay Finck: So plan on purchasing tickets for everyone that would like to attend, and I think that’ll be a lot of fun. And I’d assume that. Most who are, you know, going to be attending, they’re going to be, you know, meeting us for the meals because we’ll be covering those. And then other things are probably going to be more optional.

[01:42:41] Clay Finck: And I’m sure many people will chat and connect, talked about the things they’re doing that weekend, and then just naturally sort of go off and do their own thing. And I think that’s you know, makes our, our lives a little bit easier. But it also just really, you know, gives people what they wanted. They wanted a, you know, a place to network and meet those like-minded investors.

[01:42:59] Clay Finck: So if you’re listening to this and you maybe already live in the New York City area, I believe joining the community will be a great way for you to, you know, meet people who already live close to you. I think there’s value in that too. And I’d say close to 10. Members of the group who are going to be attending these events already live in the New York City area or are very close. So possibly in the future, maybe we’ll be hosting more events in New York City, given that so many that are already in the group are in close proximity.

[01:43:31] Stig Brodersen: Yeah, and also cause we discussed back and forth Clay, like where to where to host it. And I wanted to say New York and I sort of accept that because it’s, it’s easy to, to relatively easy to get to.

[01:43:44] Stig Brodersen: If you’re based in Europe, that’s probably cause my comparison is to, I’m comparing it to Omaha would say to like three flights to, to get to whereas press for others like if they’re already in states, you know, I’m sure it’s, it’s even easier obvious reasons just to go to New York.

[01:43:59] Stig Brodersen: And so, you know, you might want to attend, you might want to combine it, visiting friends, going there with your significant other, whatnot. And so we kind of felt it would be interesting to, to test out New York and you know, sort of like he get feedback from, from the audience and if the members like it, perhaps we, we got to do it more.

[01:44:17] Stig Brodersen: And, and, you know, we also talk about other cities to do it and who knows perhaps we’re going to do that. But I think the, the, the key question is more, do you want to hang out with the TIP hosts? I don’t know if you, if you want to, I hope you do, but if you want to hang out with the t a p host, it would be, it would be fantastic.

[01:44:35] Stig Brodersen: And, you know, this would be online, but also, yeah, in person. For example, the event in New York could be next year in, in Omaha. We are also considering doing other events. I kind of feel it’s a bit too early to talk about that because it’s still on, on the drawing board where those events would be. But if you are interested in hanging out with us hosts and I should say perhaps you’re even more excited about meeting up with like-minded investors who are also listening to this show, you can apply to become a member of the mastermind community and could you please Clay, give a handoff to how do, how do people apply.

[01:45:06] Clay Finck: For those who want to join the community or are interested in learning more, I want to mention that one of the focuses we have with the community is that we really want it to be, you know, just filled with high quality members and high quality people.

[01:45:22] Clay Finck: You know, we don’t want people to join thinking one thing and then, you know, everything, everything people are talking about is trading or they’re talking about whatever. So to do that, we’ve been having audience members apply to join, and I think this is beneficial both for us and the community, but also for, you know, people who are applying.

[01:45:40] Clay Finck: We don’t want people to apply who want to learn how to invest in a S&P500 index fund. Like if you’re looking to do that, joining our community probably isn’t the right place to go. So we want to make sure the people who are joining are a really good fit for the community and they’re joining for the right reasons.

[01:45:58] Clay Finck: So you’ll be, you know, essentially each member is vetted a little bit before they join. I think that’s beneficial both for those who are applying and for the group overall. So this also helps us keep the group relatively small. So, you know, our Zoom calls aren’t getting too overcrowded. Our live events aren’t getting too crowded.

[01:46:19] Clay Finck: And it also ensures that the content people are sharing are high quality and you know, they’re not opening some forum and it’s just a bunch of junk that they’re reading. So, yeah. So again, the high quality content and the high quality people is something I think we’ve really put a big focus on in creating this.

[01:46:40] Clay Finck: And I also want to, you know, caveat that. Just because someone is early on in their investing journey, it doesn’t mean they can’t join the community or join it and get value from it. It’s really about being on the same journey as we’ve been talking about and joining a group where the members are truly like-minded and they really understand what TIP is all about.

[01:47:02] Clay Finck: What value investing’s all about. You know, the joy of compounding is a perfect example of that. If you’ve read that book and you enjoyed that book, you, you’re probably a pretty good fit for the community if that is something you’re really interested in. You know, again, we don’t want to let someone in if they’re, they just want to talk about trading ideas or shock.

[01:47:18] Clay Finck: Talk about like short-term investing, you know, generally what the concepts that we cover on the show here. You know, many of the members have listened to TIP for years, so if you haven’t listened to too many TIP episodes, then you might not be a great fit for the group. So we currently have a wait list to sign up, which you can join at theinvestorspodcast.com/mastermind.

[01:47:43] Clay Finck: That’s theinvestorspodcast.com/mastermind. You’ll learn a little bit more about, you know, what the community’s all about, what’s offered in the community, and then there’s a link there to join the wait list and once we open up the group to new members here soon, which will be likely in mid-September 2023, we’re going to be sending an email out to those on the wait list and let them know we’ve opened the group back up.

[01:48:06] Clay Finck: We’re going to send them a link to apply, to join, and then we’re going to focus on vetting that cohort of members and ensure they’re the right fit for the community that we’re creating and growing. And then once, and then we’re going to close the group again to new members and then shift our focus back to creating that content and creating that value to members.

[01:48:26] Clay Finck: So we have a couple of slots open for our New York City meetup actually as well. So if you’re interested specifically in attending that, you can shoot me an email at Clay at the investors podcast.com. Again, it’s October 6th through the eighth and. Especially when you’re in the New York City area. Those people in part in particular have been super interested just because of proximity reasons.

[01:48:48] Clay Finck: Whereas if someone’s in, you know, Australia or Europe, then they’re probably less likely to join. Although some in Europe have signed up to join, which is amazing. So, again, you can feel free to email me if you have questions. You want to attend the New York City meetup, Clay@theinvestorspodcast.com. I’d be more than happy to help you out.

[01:49:07] Stig Brodersen: Fantastic. Well, thank you for jumping on here, Clay. That was amazing. I hope everyone enjoyed the mastermind discussion and also to learn a bit more about the Mastermind Community. But that was all that Clay and I had for you this week and we’ll be back again soon.

[01:49:20] Outro: Thank you for listening to TIP. Make sure to subscribe to Millennial Investing by the Investor’s Podcast Network and learn how to achieve financial independence. To access our show notes, transcripts or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.