Good Investing Talks - Alex Kopel, how do you focus on great returns at Rowan Street Capital?

Episode Date: November 10, 2021

Alex Kopel has left his Wallstreet job to found Rowan Street Capital. There he focuses on investing in high-quality businesses & great returns.

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And now, enjoy the video. Hello, audience. It's great to have you back. Today I'm having Alex Coppell of Rowan Street on. I want to start with my first question. Alex, frustration has led you to found Rowan Street. Where did this frustration come from? So the frustration basically came out of this feeling that both me and my co-founder Joe Mass, who I've known for about 15 years now, we actually met back while we were studying for our CFA exams back in the day. So we both ran into this frustration that we could not manage money the way we would do it for ourselves for our clients. So we both

came from, I worked for a number of big Wall Street banks and so did my co-founder. And that was our frustration. And here's the truth that we found is all the effort and time and energy on Wall Street is currently spent on asset gathering. And because of that, the effort goes to, is focused on basically short-term relative performance and what I would call nurturing clients' emotional well-being while creating this illusion of safety. that's not even there and that almost always comes at a cost of reducing clients long-term investment returns and sometimes pretty drastically so what we all know that in order to perform better than average you have to pretty much stand apart from the crowd and do things very differently from what everybody else is doing.

However, you know, that behavior invites periods of underperformance from time to time. And that underperformance tends to be pretty disastrous if you're trying to retain client assets. So what the average money manager does in the industry is they try to engineer a portfolio in order to retain client assets and basically mediocrity is the result. So that was our frustration, and that's why back in 2015, we tried to do things differently and set up Rowan Street from day one with a structure and the compensation system that is geared towards or allows us to focus on almost exclusively on the long-term compounding of client assets and not asset gathering, which in turn, allowed us to focus on one basically thinking and acting like business owners and not salespeople so how do your structures look like you decided to build for roan street to achieve this goal of a great performance so we started off really slow in the beginning in 2015 we just started with

our personal assets, own assets, and we took in some very close friends and family. And the majority of the fund was actually not invested while we kind of developed our and executed on investment strategy and developed our internal processes. And we didn't take, start taking outside capital until about 2017 when we were ready for it. But we set it up. from day one in terms of compensation is we don't charge any management fees at all. So for us, it's not about, you know, growing or gathering assets. All our compensation comes from performance. So it's as simple as if our clients make money, we make money.

If they don't, we make nothing. And from that, from that setup, everything becomes completely different. focus is different. The way you spend your time is different. And the kind of clients that you take into your fund are completely different from the rest of the industry. Why did you go for the zero management fees? Zero management fees was basically a way for us, just like I said, we wanted to get away from the focus on how much assets we have and trying to constantly grow our assets and bringing new clients. Because when you're when you're charging the fixed percent or percent in half or whatever it is.

Basically, you make money, whether, you know, if your performance is good, if your performance is not good, you still make money. You make money in positive years and down years and as long as you have assets and your portfolio. However, if you, if those fixed management fees are at zero and all your charging is performance fee and then your focus turns on to compounding of clients assets over the long run and we obviously have a high watermark so if we if we lose clients money then we have to make the capital the capital hole again before we earn another dollars so not only it focuses

our mind on long-term compounding but also focus on our mind on protecting clients clients assets from permanent impairment of that capital, which fixed performance fees don't do. So with this system, you have to compete a lot and be competitive and focus on great returns. But the reward in terms of your compensation is quite far out sometimes. If you think about the first two years you had where you had just like, only your money managed by you from friends and maybe if you have one two lumpy years or three lumpy years it can get quite challenging with the compensation you also need to cover your cost of livings how do you manage this so absolutely that's actually an interesting question

because it was very difficult actually in the beginning and we were advised against it by numerous people because that's just not the industry practices and that's not how people do do things. And we had our own, obviously, capital and our own savings to begin with, to start with this. But it, yeah, it makes it, I think in the first few years, we weren't making any money at all, first of all, because we had very low, our only, only our capital and some of our friends and family. And also the returns were, we were only 25% invested because we were very slow and deliberate and investing our money and we weren't making much money and that creates kind of a hurdle for the majority of doing that because if you're not getting paid and you

cannot you cannot be paid for several years that's that kind of kind of roots out a lot of a lot of you are competitors they're trying to do the same thing also it it instilled sort of a lot discipline in terms of how we manage our expenses of the fund. We probably have one of the lowest expenses in the industry. We didn't start off with nice fancy offices and a team of analysts and Bloomberg terminals or anything like that. We tried to, since we weren't getting paid in the beginning, we tried to keep our expenses as low as possible. Work from home. Didn't get any fancy subscriptions. We went to kind of the original, our research was done going through original materials that's published out there for free. We didn't have Bloomberg terminals and we had

sort of different contracts with people who outsource with, but it's very, very low cost in the early years. So it's sort of, it's a, it was a very lean operation, but now that we've been doing it for six years it's it's very helpful because we're still running that way and we're much bigger now and we are making money but the mindset is still the same as as when we founded it maybe let me add another question i'm not sure if i can get it that concrete it works how you're creating stability with this this system especially in the first two or three years because there was always the risk that you didn't have success.

And with this, you don't have any income to cover your cost, even if they are the lows as they are, but you need food and water and stuff and housing and whatever. Sure. So again, when we started off, we both did have savings to live on. So it was enough to get us through the first couple of years because we knew that we weren't going to make. We knew we were going to make money in the long run, but we weren't counting on making money in the first two or three years. So we had enough savings to set up, set us up that way.

But again, like we were advised against this theme, but we had to believe that if we focus on the long-term compounding of our clients' assets, and we have this mindset of business owners. and we acquire a bunch of businesses in the portfolio that could compound for us in the loan run over the next five plus years, we would deliver the results. And if the results are delivered, we would get paid. So it's basically kind of running the lien operation, living off our assets. I actually, excuse me, I had to actually move. I used to live in San Francisco when I had my job with big banks. and I was earning pretty good money, getting the bonuses, and I could afford the San Francisco

cost of living. I actually had to make a decision to move to Sacramento, which is a suburb. I mean, it's not a suburb, but it's about two hours away, and the cost of living pretty much is half, or even less than half over there. So I had to reduce my expenses very significantly, maybe by more than half, in order to get through the first few years and also helps you to be much more disciplined in your own finances as well as well as the funds you also made another decision to partner with your partner joe maas why did you decide to see this guy as more as your wife or girlfriend well i wouldn't put it

In those terms, I don't think of them as my wife or a girlfriend. No, I haven't said this, but it's the time you spent with him is a lot, I think. Yeah, we did. So we met back when we were studying for the CFA exams and we actually got to be where there's this boot camp up in Canada, which is right before the CFA exams that goes for about a week. So you live in the dorms and you eat dorm food and you go to class. for eight hours a day and then we take two mock exams. So we actually got to be roommates in that boot camp.

And we for level one and level two, so we kind of kept in touch. And throughout the years, he lived in Seattle. I lived in San Francisco. Eventually, back in 2014, we kind of accidentally met up in this one training for software we were doing for financial software and it was up in seattle and we kind of met up and started talking about what we the vision of what kind of what i wanted to build uh over over the next 20

years let's say and and uh and he kind of was thinking along the same lines and what was very good about what was very good about our combination is that our skill set is very complementary I am very much of a guy that likes to very analytical. I do all this really in-depth research. I like to spend most of my days reading and studying companies and thinking about companies and industries and just reading annual reports and books. And Joe, he's a little bit older in me and he had much more savvy as an entrepreneur because he started a couple businesses, financial businesses,

of his own. So he was very knowledgeable in terms of how to set things up, all the right people that we need to bring in, bring in. And he was much more skillful in the business development part of this, which you really need them. That's the, you never want your partner to be exactly like you are. You want your partner to complement your skills that you may lack or you're not as good end. So I found that in Joe and he found that in me. Is there also any downside of having a partner? It's a bit mean to ask this question, the situation he isn't here, but let's try it. Downsides of having a partner. Well, there could be, however, like we were fortunate, I would say that we haven't had much of a downside because we are just very good. We're, you know,

at operating from, you know, I started off doing it from California. He was in Seattle. We lived, I moved up to Seattle for a couple of years so we can operate from the same office, but we're also very good from working from different offices in different locations. And we're very kind of understanding of each other's processes and kind of personality and mindset. So Joe knows that I'm very kind of an independent thinker. And I like to spend, you know, most of my days the way I said, like the reading and thinking

about things and tend to structure. your portfolio in a very focused way, and I try to develop really solid, strong convictions of companies that we put in our portfolio. And of course, we discuss them together, but he and he asked really good questions, but he gives me sort of the freedom to, to play my game and to be my best, and I give him the freedom to do what he does best. And I thought, again, And it's rare to find the partner that compliments you so well. But I think we've been very fortunate from the past six years of Ryan, the same together.

Like if you're setting up your portfolio, you also gave this analogy of a team. You have with 10 or 15 players. How do you make consensus, how to nominate for your portfolio? And are there any, or how do you go about negotiating conflicts between you, if you say about position sizing or should this stock or player be added to our team do you have such things or how do you go about this sure we pretty much i can think of that we actually had conflicts over this because uh again like joe is very good letting me play my game he knows my strength he knows what i do best and uh basically and we're the main thing is we're in agreement in on our

pretty much 100% aligned on how we want to manage our money and the investment philosophy and the investment process. We've honed it for many years before starting the fund, and we worked on that quite a bit in the first two, three years to make sure they were on the same page. This philosophy of 10 players on the team were getting all the best all-stars in our team, is we're pretty much 100% aligned on. And Joe, we both do this, but I spend the majority of my time on this as I try to find the most extraordinary opportunities,

the most extraordinary companies to put on our list that we would like to own. And from time to time, we get an opportunity to own them. And as I've described in one of my previous letters, I think it was back a couple years, that if we have this 10 player all-star team with 10 positions on average in the portfolio, and they're all incredible companies with very wide modes and incredible management teams and just a long runway for growth and reinvestment opportunities, it's pretty hard to compete with them. So any new player that comes in has to compete with the example.

existing eight or 10 companies that we have in our portfolio and that we know incredibly well. And that's it's a it's a very high bar to to get over. So so these companies need to be to do either significantly better, need to be to have much better management team, much more opportunities for for growth and reinvestment or something special about them that would, if one comes basically we have to take one out and that's not very easy thing to do if you've been following the company for example for three or four years and you know well and you're very well convicted in that it's not easy to kick it out take your capital gains and put a new new star on the team so it's usually a gradual process and we if we do decide to do it the player comes in

at a small weight. So in one of my letters, I'm a hockey player since I grew up in Moscow. So I use a hockey analogy where this player gets very little ice time. And as we get more and more confidence in this player's game and how he complements the overall team and the overall game of the team, then the player gets increased ice time, which means increased portfolio. waiting more and more of our capital and eventually if that player has a potential to be an all-star in the team he makes it up to be a core position in the portfolio what is the performance hurdle you give the player before you let him on the ice so our from day one we uh we wanted to compound our client's capital that's our kind of long-term goal is to complain compound our client's

capital at double-digit returns over the long run, so over the long run, meaning more than five, five, ten and more years. So any player that comes in on the team has to be able to, to compound at that rate of a long period of time. So, and we place a big importance in that on the internal compounding of the company. So there's an internal compounding of the company, so the company has to be able to grow its revenues and earnings over a long period of time at least double-digit returns. And then the second part of this kind of compounding engine is also the price that we pay for the company. So obviously we try to pay a fair price.

we try, basically, we're not trying to, you know, go after cheap valuations, but we just try to simply not pay too much. And if we do pay too much, that can work against that long-term compounding over the long run. So that definitely plays a factor. But again, our long-term goal is that double-digit compounding over the long period of time. How do you make sure that too much isn't too much like we're coming from this Graham world or this cheap world as investors

being nurtured in this with this idea but if you think about Google or Facebook or other things stocks they always look didn't look that cheap. Sure. Sure. No, it's actually a great question and it's something

that I think I've evolved pretty tremendously in how I think about that since I started the fund because I also come from the world of Buffett and Graham and value investing and that's how I actually got interested in this business and that's who I learned from. So again, in the 20th century, in the old century, the paying a cheap price for certain assets was basically the paying like 40 cents or 50 cents on the dollar is basically the way, the way you made your returns.

However, I've evolved that thinking quite a bit and over the years. And we no longer try to, we realize that valuation of companies is not our stronghold. And probably it's nobody's stronghold, especially with the type of, in the 21st century, the kind of technological and platform companies that we have going on right now and the rate of change that's going on, I don't think it's anybody's stronghold to actually assign a value to a certain technology company.

You would not know what Amazon was worth in 2010 or Netflix was worth in 2011. Although, but you could value, for example, you know, maybe an oil company or some asset-based company back in the day. is significantly better. So valuation is not our stronghold and our focus actually, and let me actually come back to that.

If you focus first on the valuations, what I found myself is I was tied to this difficult situations or sub-part companies that were very difficult to understand. And I basically, when I focused on the valuations first, I got involved in these difficult situations that didn't really play out well over the long run. So I shifted my focus towards basically extraordinary businesses. And that's where I spent probably 95% of my time on. And the theory behind that is if you find extraordinary businesses, which there are very few actually out of thousands and hundreds of thousands of

public companies out there and and you and they're managed by super smart shareholder friendly management with a vision and passion these things tend to compound that very high rates of return over the loan run and if you're if you're a long-term holder you're likely to do incredibly well with these companies for example it was pretty much a great price to pay for Amazon at any of the years. If you look at the past 15, 20 years, Amazon, there was never a bad time to buy Amazon. However, you know, we just try not to pay too much. So for example, when the valuations get overly exuberant, meaning they discount something

completely unrealistic into the future. This is the kind of situations that we try to stay away from. When we do find a business that we really would like to own, a fair price is good enough for us and even paying a little bit of a premium is good enough for us because these kind of quality companies never come at almost never come at a discount. I brought a quote for a moment of the year letters for this point and maybe if you can see it, you can read it out. It's still loading at the moment, but maybe I can also read it out. Do you want to go ahead or should I, because it's your words? Sure. One of the biggest revelation for us that year was in the past,

our think it was heavily influenced by Warren Buffett in this 20th century. Success of finding businesses, they are highly predictable and do not change very much, observing the rapid technological investments and the emergence of the platform companies in the 21st century that have had tremendous influence. in our lives and not disrupting almost every single industry out there had pushed us to evolve our value investment approach to the 21st century. We realized over and over that, in fact, change is the driving force for creative destruction and value creation. Thus, we needed to spend more and more time understanding change and the people behind it rather than trying to find

businesses they are unlikely to change over the next five to 10 years. I think the most important important word from this quote is change. So how do you put change or devaluation of change of the thinking about change in your investing framework? And what instruments do you have to measure change and to predict it right in a certain way or directionally right in a certain way? a lot of questions. It's just give you the chance to answer. So change is a given.

If you're not changing, if the company is not evolving, it's not making any progress, it's not innovating. If it's not thinking 10 to 20 years ahead, it's not going to survive in today's space of change. And this is exactly why, you know, why I really. wrote this in the letter and there was a huge departure from what Warren Buffett honed his success on in the past century where he was looking for businesses that, you know, like Criggily Chewing gum or Coca-Cola that don't change very much. And he, he was, it was very predictable what this business was going to do over the next 10 years or the kind of service or a product is going to sell over the next 10 years. However, in today's environment, from what you see in the platform

companies you know company that you saw starting to sell books is now is now in the cloud the company that you first start seeing you know mailing uh discs in the in the you know compact discs over over mail competing with blockbuster is now you know the the biggest player in Hollywood and has the biggest budget in Hollywood so these kind of things are very difficult to predict over the long run, but you can kind of have a little bit of a sense of the mission and the vision of the founder of the company and the culture where this train is basically gone. And that's why I try to spend a lot of my time on is basically understanding the history. So I go in my research, I typically try to go very deep and I try to understand the founding

history with the company, I try to understand why the founder did what he did, what problems he was trying to solve from the beginning and what his vision was and what the typical principle, foundational principles that he founded the company based upon and what his vision really is. And that vision typically tends to evolve from all the founders as they grow the company and they start to see new opportunities they start to go into different industries and different product lines and different service lines and that that is extremely difficult to predict as you're looking out 10 years however what's what's what's easier to look at is that foundational kind of underworkings of the company and that's and that's basically

It starts with the founder and the cultural foundation and the cultural values of the company. And that takes actually, it's very intangible. So as when I was working for these large Wall Street firms, and even when I started the fund, I tend to focus a lot on numbers and spreadsheets and the financial statements and trying to do the valuations and come up with price targets. and that's typically what everybody does in the industry. However, I've learned that that's completely unimportant if you're trying to make long-run bets.

What is important is other intangible things. And those intangible things you can't read from a spreadsheet. Obviously, spreadsheets and numbers are helpful in understanding whether the managers of the company are delivering upon the vision and what they promised. However, the intangibles come from really studying the company over the long run, studying, you know, listening to a lot of interviews with management, listening to a lot of earning calls,

trying to read between the lines to see what they said five years ago and what they're currently executing upon. It's kind of a conviction is, is something that's developed over the years and it's kind of a little bit like love and trust that it's earned over the years and either it grows stronger as the longer you own the company or it dissipates so it's very intangible it's it's very hard to place in any kind of number so what factors have strengthened your conviction and what factors have lessened your conviction. Maybe you can also, we decided to think about two examples, PRR group, PRAA group

in Spotify or you can answer based on the examples or we can go to general factors if you have general factors in mind. Hey, Tillman here. I'm sure you're curious about the answer to this question, but this answer is exclusive to the members of my community Good Investing Plus. Good Investing Plus is a place where we help each other to get better as investor day by day. If you are an ambitious, long-term-oriented investor that likes to share, please apply for Good Investing Plus. Just go to good minusinvesting.net slash plus. You can also find this link into show notes. I'm waiting for your application.

And without further ado, let's go back to the conversation. So maybe if you like this honest answers, I would love to have an honest answer on this question. What were your mistakes in the last years? So there's definitely been plenty. There's lots of mistakes that I've made. And if I tend to think of those, my biggest mistakes, if I focus on my biggest mistakes, there were actually mistakes of omission, meaning that we're. passed on a number of opportunities that were right in front of us and that completely fit all

our investment criteria. We could understand the business. It fit all our three-part, you know, three-part kind of compounding machine engine. But we didn't pull the trigger. We kind of sat in our assets and did not pull the trigger. And that actually cost our shareholder base. Quite significant money because so mistakes of a mission is pretty much number one mistake that I would say that I've learned from and that I've made over the past six years of running the fund. Another huge mistake is selling too early. So I have also found from experience that one of the big lessons that I learned is that if you. Basically, if you own a great, extraordinary business, the time to sell it is almost never. And, you know, we actually did that mistake with Chipotle is one of the companies that we've owned

and we're lucky to pick it up at a very nice price when it was experiencing. It's kind of the health issues that were going on in their kitchens back in 2016, 2017, and then all the scandals that were going on. We purchased them at the very attractive price, and then we actually sold it only six months later when we made 80% profit. We made the profit of 80% in six months, and we decided it was a great time.

We decided the stock was overvalued, and we decided to take our profits, only to see it become another fallbacker since then as the management executed then the company continued to be great. So this Wall Street term, you never go broke, taking a profit, this complete BS in my mind. It's actually you couldn't be further from the truth.

Selling Amazon or selling Netflix was always a mistake if you were lucky enough to own those. So those are, I think, my two biggest mistakes that I've really learned from. So what did you change in your process looking at these mistakes? And what do you now want to make differently? So I think my process started significantly changing in 2017. That's where I made this really abrupt shift from like I read in that quote from one of my letters from the Graham and Buffett approach, you know,

value investment approach of 20th century and looking for undervalued companies to actually studying greatness. And that completely shifted not only my mindset, but how I allocate my time. So if you're in this day and age, if you're focused on cheap companies or companies that are statistically cheap, you're basically spending a lot of your time on companies that have problems. they're not great and and that takes away from from all your time that you can be spending on studying great businesses that studying winners that actually deliver year after year on the management team that are winners so that back in 2017 i started you know instead of kind of kind of shining these businesses because they were you know there were there were

they were labeled as technology and their pace of change was too fast or they were unpredictable kind of businesses that was labeled by the typical value investors. I actually spent a lot of time studying them and I read a lot of books and I actually went back. One of the first things that I did was actually went back and read Jeff Bezos letters all the way back to 1997 from the first letter, which for some reason I've never done. that kind of hit a, you know, a light bulb switched in my head because the guy pretty much laid, laid it all out there even in the early years, what he's going to do, his vision, how he's going to do it the way he thinks about it. It was all out there.

They're kind of the early signs. Obviously, it's, you know, hindsight is 2020, but there's a lot you can learn by studying these kind of companies and studying greatness. You can learn a lot of ingredients they're in there. Even in the early days, they're required for a company to be extremely successful and to compete against all the much bigger companies with much bigger resources, for example, like Spotify did than that's outlined very well in the book. So that was a huge kind of shift in my kind of thinking, in my mindset and approach and how I spend my time.

In the way you described companies, you still mentioned the word moat. How does this fit with your framework of change? And how do you think moat and the ability to change in the company? So moat is something that's been pretty much, well, it's been termed by, obviously, by Warren Buffett, but it's been pretty much used very widely by pretty much everyone. but it can mean very different things the moat i think the modes that were typical in the old

you know in the oldest century because in the 20th century before we had all these internet and platform companies developing like they are today where came from brands came from possession of some physical property came from um basically The MOTS were completely very different from how I judge MOTS today. The MOTS today come, in my opinion, from me studying companies for quite a long period time, come from the mindset and the culture, like I've said, that the founder develops early on and the values and the principles that he instills in the company early on, because from day one, it's given this company is going to look very different in the year from now

and three years from now, and especially it's going to look very different from five years from now. And it's very unpredictable where this business is going to go, what industries and verticals it's going to participate in. However, that's one thing that kind of stays constant, what I found. for example, you know, one company that that gets a lot of kind of negative media press for obvious reasons. And it gets a lot of backlash as Facebook and Mark Zuckerberg for a lot of ways he manages the company. But if you really study what he has done and how he put together Facebook and his visions that he had for the company from the early days, as a founder, have not changed very much. He's a very mission-oriented guy that is willing to stay the course, no matter what

kind of hurdles come his way or what kind of competition or what kind of scrutiny comes his ways. And he is pretty much unwilling to stray away from his mission. So I think his biggest advantage is his focus. and everything he does with his day, every piece of energy that he expands is focused on that mission. That never changes, whether he was trying to build Facebook out of his dorm room in Harvard

and nowadays trying to develop Metaverse. What he was focused on and his vision and the way he runs his company never changes. And so those are kind of the, the ingredients, kind of intangible ingredients that I would say that I try to look for. And those are not easy and these things take a lot of time. It's not something that you can read in the magazine or from the article or from studying, you know, some numbers on the Bloomberg Terminal.

Romans Street is one of these investors who's looking for high-quality businesses. What is your characteristic of a high-quality business? So high-quality business again, it goes back to our focus on this compounding machine and three components, three main components that go into that component machine and that's the mode of the business and the management and the reinvestment opportunities. So it has to have all three. I actually borrowed this concept. I didn't invent it.

I borrowed this concept from the acre funds. And I must give them credit that it's incredible. Incredible manager that I followed for a long period of time. It's been a huge inspiration for me. And it was a three-legged stool that he named it at. But the concept was very, pretty much the same is the company has to exude all the ingredients for it not only to have, not necessarily have a mode, a wide mode today, but to develop that mode over the long run, it has to have some certain ingredients that would make it very. very difficult for competitors in the future to come in and replicate their business. And it has to have, obviously, we look for very attractive growth rates, a very long runway for that growth, huge markets.

And the management teams, there are, like I said, visionary, they're focused on their mission, they're able to execute year in, year out, regardless. and they're able to be majority shareholders on the firm and stay invested in the firm and be very shareholder oriented. And again, from the opportunities that they have, they have to have a number of reinvestment opportunities and not only to have them, but to actually be able to execute on those in a very kind of exceptional manner. So that's why I would consider a very high quality companies.

And those are simple kind of ingredients, but they're not very easy to attain. If we look through, you know, thousands of publicly traded companies out there, even if you take United States market, for example, we maybe will find less than 100 companies or even less than that that would fit that criteria. So there's not very many companies you're working. The universe is very small to begin with. In your letters, you also mentioned the term exceptional opportunities for doing investment. What are such exceptional opportunities for underwriting investment?

So exceptional opportunities meaning from the company's perspective or from our perspective as portfolio managers? managers to do an investment you're looking for this you said you're looking for exceptional opportunities what are these like oh so from my perspective so the again these uh like i said continue in our old on our previous question once we identify these kind of very exceptional companies which aren't very many of them it's a it's a pretty small universe uh we try not to pay too much for them obviously and we we still try to be mindful of what we pay we're not you know buy the any price kind of investor still but again the valuation part and the price part comes after after the quality of the business not before however you know and from time to time

these the market you know gives us average if you look at the average stock that's it's trading even in S&P, if a high to low ratio is pretty much maybe 70 or 80%. So average, if you, most people are taught that the markets are very efficient. However, it's in the short run, the truth is very far away from that. Average stock fluctuates maybe 80 or even more so in the recent years, 80% or 100% or more. So from time to time, a company may hit a speed bump where it can start doing something that the majority of the market players don't understand yet or are not willing to look beyond next several quarters, not willing to focus on the next five, ten years. And from that, you know, come exceptional opportunities to exceptional opportunities to be able to acquire these kind of companies at least fair prices because most of the time these these companies

are trading either nowadays at abnormal crazy valuations or or huge premiums to what we would like to pay for them initially. So, you know, if these exceptional opportunities come, we try to kind be very, we're very patient and waiting for those, but we try to be very aggressive and execute kind of assets, time of the assets for us. How many of such opportunities do you find a year? So we actually, contrary to kind of what I find most, you know, also we actually don't do a whole lot in terms of activity. We spend most of our time on reading and thinking and not doing so much. And from our perspective, if we find only one to two opportunities per year, that's a successful year. Sometimes we may find zero. But if you're running on average a 10,

a 10 player team and that's an exceptional team finding one to two opportunities that could potentially get into that portfolio and replace some of those core holdings is very difficult so if if I find one to two I would I would think it's a successful year and we tend to our turnover tends to be pretty low I would say you know below 20% it varies from obviously year to year what happens in the marketplace maybe let's go back to the beginning and the reference to walfreth you also make maybe let's imagine after this interview someone from ball streets decides to call you and wants you back to work in a firm setup and says you can name me the amount i'm happy to give it to you to come back

where would you say i would consider it or where would you say do it i would definitely not consider that because for no money it's not even consideration because why would I give up something that I've built on my own and I love to do every day

and I pretty much like Warren Buffett Coins at tap dance to work every day where I really enjoy doing what I'm doing. I have a great partner, great LPs and I'm doing exactly what I've always dreamed of doing since college pretty much and doing it in my own way on my own

terms, running the firms and my own principles. Why would I ever trade that for doing it for somebody else for more money and giving up on, you know, on the principles they're so dear to me? Maybe let's go back to the idea of change and also think about how you have changed coming from Wall Street. What is still in you from this time of being at Wall Street, if you want to name a percentage or some things you still do like you did it like 10 years ago, for instance? That's an interesting question. I would say very little now, very, very little. The good kind of, the knowledge I've learned from Wall Street is I got to see who my competitors are and how the money is being managed and what the typical mindset out there. Because sometimes when I acquire companies, I try to reason with myself, why is this opportunity selling it where it's selling at?

what am I doing wrong and being able to understand the flip side what Wall Street is thinking, how they run money and how they approach things and the whole compensation system that the Wall Street has got is very helpful. And I think that's the only pretty much helpful thing to me in writing the fund. In my early days, when I first started the fund in 2015, I would say quite a big portion of me was carried over from my Wall Street days because

in my early days I did focus quite a bit on the macro perspective and I was still reading Wall Street journals and the Barrens and you know again when you start a fund you were just trying to survive in your early days and

the worst thing that can help do is you start a fund then the market goes down 30, 40%, and you lose all your clients. So we were very careful in the early days investing the cash and developing the processes to develop that initial track record. And that came with paying a lot of attention. Instead of focusing on the great companies, we were paying a lot of attention to the macro economics,

which was a huge, huge distraction from our returns. in the early days, and again, that came from a lot of BS that I have acquired working for in my previous life for big money management firms. However, you know, I've learned from that and that completely dissipated then. I would say today there's very little left. And one huge difference also I would like to add this is how I spend my time, where typically, on Wall Street as a portfolio manager, I would spend more than 90%, sometimes even 95% of my time in various meetings, meeting with clients, meeting with prospects, company meetings, offices, which, again, which is completely structured that way because if your goal is asset gathering.

However, I've always wanted to flip it on upside down and spend 95% of my time on actually researching and managing the client's money and maybe 5% on doing these other things that I need to do in order to run and grow my firm. So I think that that's one of the things that pleases me the most is how I spend my time nowadays versus where I spend my time before. Thank you very much for your insights. For the end of our interview, I want to give you the chance to add something we haven't discussed. Is there anything you find that's interesting for the year you want to add?

I think we covered a lot of topics. It's a little, you know, it's a little difficult to think of something else to add without starting a huge other topic that we may go into. So I would say we've covered things pretty well for our first interview. Great. Maybe then if you, if you have one or two ideas you want to just want to drop maybe it might be the catch for the next interview you have as a chance but you don't have to at this point i i would say that's good as i would leave it as is thank you very much for your time and thank you very much to the audience for listening to this interview it was a great pleasure and yeah thanks very much film and thanks very much for the time bye bye bye bye as in every video also here is the disclaimer

you can find a link to the disclaimer below in the show notes the disclaimer says always do your own work what we're doing here is no recommendation and no advice so please always do your own work thank you very much