Motley Fool Hidden Gems Investing - Meet the Fool: Bill Mann

Episode Date: August 18, 2024

To get outsized returns, it can pay to find a pond where fewer people are fishing.  Bill Mann is the director of Small Cap Research at The Motley Fool, lead advisor for our Global Partners service, and a frequent guest on the show. In today’s episode, Bill talks with Mary Long about: how travel has informed his investing philosophy. what initially caught his eye about Chipotle. why he thinks you should “keep turning over rocks.”  Have an analyst you want us to feature on an upcoming “Meet the Fool” episode? Want to share your own investing journey with us? Send a note (or a voice recording!) to [e-mail] Host: Mary Long Guest: Bill Mann Engineer: Tim Sparks Tickers mentioned: CMG, CNSWF Learn more about your ad choices. Visit megaphone.fm/adchoices

From morning hockey with a cup of coffee to Timbits and road trips, Tim's and Canadian Tire have always gone together. Now it's official. You can now earn Canadian Tire money at Tim's. Link your Triangle Rewards and Tim's Rewards accounts to earn twice with every Tim's run. Terms and conditions apply. Visit timhordens.ca slash triangle for details. If you are open-eyed about both the opportunities and the risks of markets outside of the United States,

it gives you almost, I mean, it gives you a massive advantage. You're talking about 4,000 or so companies on the US stock markets and 250,000 of them internationally. Like, if you just invest in the United States, and really, if you're doing that, it's totally fine. You're investing in something like 2% to 3% of the total names available on stock markets around the world. And that's not that big. I'm Mary Long, and that's Bill Mann. He's the Motley Fool's Director of Small Cap Research and Lead Advisor for our Global Partner Service. Throughout the summer, we've dedicated some time to getting to know a few of the foolish analysts that you hear from regularly on Motley Fool Money.

The idea is that you can get to know them even better. I caught up with Bill recently to learn more about how he went from working in telecom and goofing around on Motley Fool message boards while in Karachi, to becoming an investment analyst. We also discuss how curiosity led him to an early Chipotle investment, testifying about Enron before Congress, and lessons learned from traveling to 115 countries and counting. So I grew up in Raleigh, North Carolina, and the reason that I ended up in North Carolina, well, besides being born there, that's kind of how that works, is my dad's father was an executive with a textile company called Cannon Mills. So they were from New York, but he came down all the time. Cannon Mills was a

North Carolina textile company based in Kannapolis, North Carolina. So that's how my dad ended up in North Carolina, met my mom. And that's probably not key to the story. But what is key to the story with me investing is that my grandfather, from when we were little, gave us stock in Cannon Mills. That was a thing that he did. And it was always very fascinating. Every once in a while, we'd get a check or dividends, and that's how that happened then. They would mail you a check. So I was always fascinated with how it was and why it was that this was happening and what my grandfather did. And so that was really the beginning of my path. Did I go back too far? No, I was going to say, I love that I say, let's start at the beginning. And you're like, okay, well, I was born on a dark and stormy day.

It's kind of a Forrest Gump beginning, don't you think? And this is why people want to know about you. It's movie-like from the get. There we go. So you get the stock in Cannon Mills. You're intrigued by the dividend payments that land in your mailbox. When does the interest in actually coming to understand, I don't know, the mechanics of the company itself, when does that kind of come into play? So I went to American University here in Washington, DC, and my intention was to go into the Foreign Service and ended up meeting a girl who I ended up marrying. She was like, I'm not coming to Chad with you, so figure it out. I ended up working with a Japanese ministry

called the Ministry of International Trade and Industry at the time, MITI. It's got a different name now. I think they call it METI, which is not as good as MITI, but there you go. And I was doing regulatory work for them in the electric utility industry. And I had a friend who had managed to get a contract with MCI and he'd started a business and he was trying to get regulatory approval for certain things. And we kind of realized that the regs were exactly the same. And so I ended up going and working with him. I became a partner in a little telecom company. And this was the 1990s. It was telecoms. It was red hot. It was the exciting place to be. And we would get business plan after business plan on our come across our desk. And they ended up with me and everybody was going to capture two or three percent of some market somewhere. And so on my desk alone, there was 300% of the telecom market accounted for, you know, forget AT&T and MCI and companies like that. So I just took an interest in what these plans were and what, you know, and what the accounting was. And I had, you know, like I said, a regulatory background. And I was more fascinated by that than I was, you know, in the provision of telecommunications.

And so, in 1999, I was actually in Pakistan on a project and exhausted. And I'd been goofing off on the Motley Fool message boards. You were goofing off? Yeah. Applying my own certain take on stocks, I guess. But no, I was goofing off. And the reason I was is that when you get back to the hotel in the evening in Karachi, you're not going out. You're in.

So, I got a note from David Gardner saying, hey, listen, we've been reading the things that you've been writing. Would you be interested in coming to The Motley Fool? And at the time, I was like, ah, I've got my wife's in law school. I don't know if I can move out to Silicon Valley. They're like, well, it turns out we're in Washington, D.C., or in Alexandria, Virginia. And The Motley Fool was literally 300 feet from where I was living. Wow. And I had no idea they were there. So thankfully, my lack of research in that particular facet of things didn't get me nagged from having a job. And a couple of weeks later, I was at the full. You kicked that story off by saying, oh, I wanted to be in the State Department, but my wife didn't want to go to Chad with me. And the next thing we know, you're in Karachi. So you didn't go to the State Department, but you still were able to get some international travel in there. I did. Through work and pleasure, I've been to about 115 countries. Wow. I say about because kind of depending on how you count a country. Is Puerto Rico a country?

The Olympics say yes. We say no. I was a German and a Japanese major in college. I mean, I really was studying to go for that life. And oddly enough, my wife, after she graduated law school. She ended up at the State Department. She's an ethics attorney for state. We both have had a real love of things international. We've been fortunate to travel a lot. It has given me a deep interest in the real rummage sale of being an international investor. I find it completely fascinating. I feel like it's an area where I have an edge just simply by virtue of the experience that I've had overseas. And some of those experiences started pretty early, didn't they? I can recall a conversation maybe where you were telling me that as a kid,

you were kind of shipped off and let loose into the world. Oh, well, yeah. I mean, I did go to boarding school, so I'm not sure that I would count Northern Massachusetts as the world. But my parents were really interesting. So my great grandfather was a train engineer. And so my family, at least on my mom's side, they were very accustomed to just the wonder. And on my dad's side of the family, my great grandfather opened up the Merrill Lynch offices all over the United States. So they both were kind of itinerant families. And so, my parents both had a belief that if we could find opportunities to go places, my brother and sister and I, that they would help support it. Now, opportunities to go

places didn't mean like, hey, I want to go hang out in Bali for the summer. It was things, right? So, I worked on a coffee plantation in Brazil. I worked on a UN project in Senegal. This is while I was in high school. So yeah, those opportunities came early. So I guess it was a form of me being shipped out, but I think it was more of a lifelong fascination that both my parents have had with going other places. You kind of went here already, but you run our global partner service now. So obviously, this international exposure and travel, there's a clear line and way in which that has informed your experience as an investor. But apart from just being able to invest in international companies and have knowledge about how other countries operate and how companies in other countries operate, are there other ways in which you think that travel, whether it was when you were younger or as an adult, have informed your experiences and your perspectives as an investor?

You know, I'm a voracious reader, and I think that every great investor is interested in reading from an early age. But then, particularly, I've been incredibly blessed to have teachers who were great writers and instructed and helped me that way become a very clear communicator. But I actually think – I love the question because when you talk about people who have experienced things that are outside of their own cocoons or outside of their own frame of reference, if your mind is open, you almost can't help but increase the grid upon things that you're analyzing anything on. It doesn't have to be companies. It could be foods. It could be music. It could be really anything. But as it particularly pertains to investing, I think one of the things that it does is that if you handle it correctly, and I will not say 100%, I would say that I'm still learning this, if you are open-eyed about both the opportunities and the risks of markets outside of the United States, it gives you a massive advantage. You're talking about 4,000 or so companies on the US stock markets and 250,000 of them internationally. If you just invest in

the United States, and really, if you're doing that, it's totally fine. You're investing in something like 2% to 3% of the total names available on stock markets around the world. And that's not that big. It's so much more opportunity, but it's also so much more overwhelming. If you have 250,000 choices, that's almost the same as having no choices, right? That's way too many. Where do you start? I don't know, at A? One foot in front of another. Right, exactly. I mean, and, you know, half the countries in the world, the letter A is not a construct that, you know, that they actually use. So, you know, you start with a really wide palette, and then you draw things in from there. Like, what is it that you know? Well, I have a pretty good grasp of the Japanese language, so I feel like an advantage for me is being able – and I don't want to overstate this because it's not like I pick up a Japanese financial statement and it is an easy process for me to do.

It's a slog, but I'm willing to do it, right? And there are not that many investors here in the United States who do that, right? So that is an absolute advantage that I have that I bring to the table. Same with German. Same with telecom, by the way. I mean, that's still something that, you know, that's still something, you know, having had that past experience. So it just goes on to the palette of things where you feel like you have a circle of competence.

And then from there, it's both deepening that competence and then widening the circle. So we've talked a bit about your circle of competence. Let's go back to when you're goofing around on the Motley Fool message boards and you get scouted by David Gardner, you said. I thought you're going to go to let's talk about your square of incompetence because I've got a I've got a list. Well, so you get scouted and you come out for this job that's 300 feet away from where you're already living. What are those early days look like? Are you learning on the job? You already come in like feeling, OK, I've got this regulatory background.

I've got like I'm already pretty well equipped for this. What were those early days like? No, I was horribly equipped. No, I mean, I guess what I bring to the table. I think that you have to have it as a baseline if you want to be an individual investor is I have an endless amount of curiosity. But what you haven't heard me say is that I don't have an accounting background. I took accounting classes. I've taken business classes, but I've done them – I did them sort of outside of the construct of a formal training, right? So, I think that in investing, something like some knowledge of accounting is so crucial because in the same way that figuring out what a Japanese financial statement says,

you've got to know Japanese, accounting is the language of business. So, no, I was prepared as a logician. I was prepared as someone who was curious. I was not prepared as someone who understood cost accounting versus accrual accounting and things of that nature. But having a really, really strong gene towards curiosity and learning, that was something that I was able to – I've been able to develop over the years, actually once I came into The Fool. Are there any specific stock-related examples of when that curiosity led you someplace really fascinating? Yeah, there are a lot. And I would say one that's still pretty interesting today.

I was actually the first person at The Motley Fool to recommend Chipotle as an investment. And it was $54 a share. So I guess after a 50 to 1 split, we're talking about a dollar a share at this point. But even deeper than that, and this is where curiosity comes. At the time, there were Chipotle shares, but then there were these Chipotle B shares. And Chipotle had been spun out by McDonald's. A lot of people don't remember this, that it actually came from McDonald's. And they had these B shares that got more votes, but were for some reason valued between 10% and 15% less than the A shares at all times. And so you would look at a situation like this. And your curiosity would say, okay, this is dumb. Why does this exist? There's no way that

the market doesn't understand that these are basically the exact same thing. And these are actually, if you value votes worth a little bit more. And so it was just kind of an endless amount of checking and figuring out that got me to say, you know what? I'm going to recommend these B shares because I don't know what's going to happen with Chipotle, what's going to happen with the share classes. But I do know that if you buy something at $0.85 on the dollar, that tends to give you a little bit more of a margin of safety. Being one of the first fools to recommend Chipotle is quite the badge of honor. To kind of turn things around, I mean, do you have any, what's an early or more recent mistake

that you've made that you've learned from? We'll turn this into a positive story, but what's an early mistake that you've learned from and carried with you? So, there was a mistake I made earlier on. So, not long after I came to The Fool, one of the companies that I had spent a lot of time on was Enron. And I don't want to overstate what I had found with Enron, but what I found with Enron was it doesn't make sense. And so, because of what I'd written about Enron, I ended up testifying before Congress as an expert witness, which I don't know. I think they've defined down the level of expert by virtue of the fact that I was there, but I was there and it was a really, it was a neat way to be able

to represent the Motley Fool speaking out for individual investors. So that was a great day for me and it was a great day for the Fool. But on the same day, there was a company that I had recommended called ACLN and it was the Cypriot Car Carrier Company, which sounds weird from the start and it gets weirder. And what they were doing was they were hiring space on car carriers that had come from Japan to Europe and were going back empty. So they were putting used cars on the car carriers and dropping them off in ports in Africa. This sounds like a great business. And it would have been a great business if it weren't for the fact that it was a complete fraud. And I had done so much work on it, but I just never – I think one of those things that happens is if you've got a level of knowledge about things, sometimes that level of knowledge can override your does this make sense gene.

And in this case, it overrode my doesn't make sense gene, which was painful because it turned out that they were doing nothing of the sort. It was – I mean, I hate even talking about this. I mean, it was literally a garden variety fraud. It was not even particularly sophisticated once you peel back the layers of the onion. So, endless learning and I didn't love that lesson, but I do – I have onboarded it. You're regular on Motley Fool Money. You've been at The Fool for a long time. Many listeners are probably already familiar with your investing philosophy. For those who aren't, how would you summarize your investing philosophy? Keep turning over rocks is what it comes

down to. I tend to think of the market as being largely efficient, but not 100% efficient, which is why you can have things like an NVIDIA being as a $300 billion company going up 10 times in value in 18 months. That's not a story of an efficient market. But I think the larger the companies, the more people are looking at them. When you think about international investing, when you think about small caps, there are not as many people looking at these companies. It's an area where I have continued to focus because I think the fewer people who are fishing in the waters where you are, the better the outcome is going to be over the long term. And I really do – one of the reasons that I love The Motley Fool from the off is that

it made perfect sense to me that the market itself is going to zigzag. But if you are able to take a longer-term view, you are going to have an advantage over almost everyone else in the market for psychological reasons alone. And so for me, fishing in waters where I feel like I'm, you know, there aren't that many people who are looking at these companies and having a, you know, a true one year plus view on them is, you know, I think that there's a magic there. And it's something that obviously, as a lifetime learner, I would not say that I'm the complete vessel, but that's what I would ultimately describe how I go about my day in looking for companies. We've talked a lot about curiosity throughout this conversation. Is there a business story kind of unfolding right now, could have been unfolding for a long time, that's caught your eye, that's piqued your curiosity? So, I guess at this point, it's a pretty well-known story. But there's a company in Canada

run by a guy named Mark Leonard called Constellation Software. It's a big company at this point, but it's also spun out a few smaller firms. And it is a roll-up. And roll-ups are companies where they go out and buy lots of other companies. And it's, generally speaking, a great way for companies to waste money. But there is something about the process that Mark Leonard installed from the outset from Constellation Software. You don't go out and buy Constellation Software software. They own the software that runs bowling alleys and hair salons and water supply, things you would never hear of, never think of, and also, by the way, have very little competition. I think this type of connoisseurship of investing is absolutely

fascinating. And it's fascinating because it is very hard for other people and other companies to mimic. Bill, as always, a pleasure to have you on to Motley Fool Money. Thanks for taking some time to talk to us a bit about your background and how you got here. Great. Thank you so much, Mary. We'd love to hear about your investing journey. Send us a note or a voice recording at podcasts at fool.com to tell us about how you got to be the investor you are today. That's podcasts with an S at fool.com. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Mary Long. Thanks for listening. We'll see you

tomorrow.