The Canadian Investor - Braden’s Back to Discuss Constellation’s Wild Week

Episode Date: October 6, 2025

Braden’s back with Simon and Dan for the quarterly mastermind discussion. In this episode we primarily talk about Constellation Software’s wild week: Mark Leonard’s abrupt exit for health reasons following a rare conference call with investors on AI. We weigh continuity vs. key-person risk, why the slower pace of big deals might be prudence (not decay), and whether AI fears are overblown for mission-critical vertical software.  Tickers discussed: CSU.TO  Check out our portfolio by going to Jointci.com Our Website Our New Youtube Channel! Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Dan’s Twitter: @stocktrades_ca Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Web player - The Canadian Real Estate Investor Asset Allocation ETFs | BMO Global Asset Management Sign up for Fiscal.ai for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

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This has to be one of the biggest quarters I've seen from this company in quite some time. The Canadian Investor Podcast, welcome into the show. My name is Braden Dennis, joined by Mr. Simone Belanger and Mr. Dan Kent, the band is back together, and we thought for old time's sake, I would bring us into the episode, but I haven't done that in a while, and I probably messed it up, but it's all right. No, no, it sounds great. Bridge us until our holiday episodes I'll be coming up in a few months from now,

which is kind of crazy how fast a year went by. Yeah, the bold prediction review. No, I mean, for those who may have forgotten, I did promise that I would come back, the show at least quarterly and so here we are then this is the second quarterly mastermind episode of the boys and we figured no better time to talk about constellation software i mean of course i think a lot of people on the podcast associate media and this company together but with the big change is the huge drawdown and now mark leonard stepping down you guys this i believe discussed the AI conference they had already right yeah yeah we did so we went over

that but obviously didn't really see it coming with Mark Leonard stepping down just what like two three days after the two days after yeah yeah it was very shortly after and it was kind of abrupt too so yeah we only talked about the call we didn't talk about the resignation yeah well the I think yeah the day after you guys would have recorded Mark Leonard announced that he's stepping down from the business for health reasons effective immediately and that Mark Miller and we'll talk about who that is is stepping in And I hope he's okay. First of all, he is my Warren Buffett and as a Canadian. I've learned so much from him as a longtime shareholder.

And I think he is the gold standard of how public company executives should work for shareholders. They need to work for customers. They need to work for employees. And they need to work for shareholders. And I think that that three-legged stool, a lot of companies are really good at one of three or two of three, but it's rare to get all three of three of three-of-three. And there's examples of companies that have gotten that three-legged stool done really, really well. And the stock price take care of itself on the long run. It definitely did, yeah.

Yeah, it's been one of the best. 27,000, 27,000 or something since 2006. I think 28,000 total return. Yeah, yeah, maybe total return with the. $1 dividend it pays the dollar dividend. Yeah. And we probably should timestamp this. This is September 30th,

just because they are doing a call tomorrow on October 4th. So you'll be listening to this a bit after that conference call. So we haven't had the chance to listen to what they'll be talking about, the leadership transition. So that's a call that's going to be

addressing that specifically. So just want to make that note because it seems like for a company that is pretty boring or kind of goes and you don't hear too much about there's been a whole lot of news within like a very short span of time for for CSU here yeah it's so weird you just don't they don't have much content when it comes to investor relations it's kind of just the the type of investment you want not a lot of drama and we've gotten all like all of the drama that of the entire

stock since 2006 basically dumped in one week and now it's on the huge drawdown. So there's two things I want to talk about that we should discuss, which is the new Mark Miller coming in, but sorry, the very tenured Mark Miller, who is now newly in this position, let me be clear. And then the big question that everyone wants us to answer, opportunity or not, like what are the pros and cons of the stock today moving forward? Because that's what people actually want to hear so who is mark miller he stepped in in this mark to mark baton passing he was the co-founder of a company called trepreet trapeze i don't know how to i don't know how to actually say that the company's still around by the way that company still

around is pretty big but it was constellation's first acquisition i don't know if you guys knew that i did not know i did not know that so that's how mark miller came into constellation it was the first acquisition of the company and that's how long a thousand acquisitions later he he was he's been there from the very beginning and he has served as the head guy at valeris valeris is one of the largest of the six operating groups and there's 250 companies roughly inside of valeris alone so he served as the head man at Valeris, one of the largest operating groups, and officially titled Chief Operating Officer of Constellation Software.

So he had both of those titles. And, you know, Leonard's indicated that he's the most obvious and logical choice. I've taken some time to listen to interviews with Mark Miller over the last week, which is such a, this changes the era of Constellation, where the head man is actually accessible, right? That, to me, is the biggest change moving forward. There's no YouTube videos of Mark Leonard. Can't get anything.

And it's probably a good thing. I would say like kind of somewhere in the middle where, you know, I think a lot of people, it also created this almost mythical figure of Mark Leonard. He's like in Lord of the Rings. Yeah, exactly. You didn't hear much about him. And I think, and we were talking. about, I think the US, the Trump administration was talking about making like just, you know,

semi-annual earnings release because quarterly are a bit too frequent and focuses on short-term stuff. And I know it's something Buffett had mentioned, a wild bag, that could probably be a good thing. And I think to me, like the sweet spot's probably a bit somewhere in middle where, you know, maybe not a mythical creature, but you still want some information, but maybe not as much as we're getting and used to getting now in the public markets and of course probably to our own detriment because we we do talk about earnings and news so it gives us content but it's probably a nice kind of middle just a communication style obviously mark leonard is a big loss to be leaving the team there dan you mentioned the question did they do quarterly calls now i wonder yeah that's kind of what i was

starting to say like do they go by especially with you know a lot of the potential headwinds like do they go from like what do they do now they just do the annual call and then a little Q and A, don't they every quarter? Like, they answer kind of a base Q&A. So you would mention that you don't think they're going to go to this, but it's just kind of an interesting concept. Do they kind of transition to this? Because there's a lot more headwinds that some people might want quarterly updates. I mean, I think in terms of the transition, another element here that would be huge in terms of a bullish side would be the continuity of it. You're not kind of overhauling and and bringing in an outsider like just something off the top of my head like a Starbucks where

you know you're bringing in an entirely new person who yeah like Chipotle did pretty well it's also you know you're losing that continuity there's somebody coming in that's brand new never been with the company whereas this is kind of a like he's been with what three decades pretty much since the inception of the company so I mean I think a lot of times people and like Buffett is a perfect example of this like you know kind of the poster boy of the company leaves but really i mean these you know what's constellation 80 billion dollars berkshire's like nearly a trillion i think i mean there's more than one person at the helm of these companies making a lot of decisions for sure it's not just one guy the company's already so so decentralized yeah right and that's the other thing from like an

operational standpoint like does it really matter all that much i would say more on the m&A side it might impacted but yeah and i always come back to the same argument right if he's such a great leader and manager wouldn't you trust him to have a plan in place a succession plan to make sure that there are people that can take the baton once he leaves or a situation like this happens and that's why i bought some berkshire stock when buffett announced that he was leaving which by the way buffett like we've known for what like seven eight years that he was planning to leave at some point it's nothing new we you who is replacement would be. Here it's a bit more abrupt, but that's the approach I took and I saw it as an opportunity

because, you know, I've been a long time admirer, I guess, of consolation on the sidelines and regretting not having started a position. I thought it definitely provided an extra margin of safety, that big pullback that happened. It was a good opportunity for me to start a position there. Yeah, Dan, are you a shareholder? Yeah, I've owned it. Since 2020, probably, I think around $1,000 to share. Yeah, I've owned it for $1,000 right on.

Okay, okay, right. And so the three of us are on here with that context. The three of us are all shareholders. Some of us for many, many years, some of us knew. You're by far the biggest bull, though. Let's let's just be fair. In this kind of market, I like having some cash on the sidelines. It gives me the flexibility to jump on opportunities when the right

stock goes on sale. But just because the cash is waiting, it doesn't mean it shouldn't be working for me. That's why I use EQ Bank. They offer some of the best interest rate among Canadian banks, so my money's still earning while I wait. You can even get a boosted rate by setting up direct deposit for your payroll and depositing $2,000 or more per month into your EQ bank account. Your cash stays liquid and ready to go when it's time to invest. And if you're not in a rush to access your funds, EQBanks' notice savings accounts and GICs are great ways to grow your returns even more. It's a smarter way to park your cash. Visit EQBank.ca to learn more and keep your money earning even while you wait. Want to buy a stock but don't want to shell out hundreds or

even thousands for a single share? With Questrade's new fractional shares, you can invest any dollar amount and build a diversified portfolio instantly. No delays, no trade fees, no excuses. Want to put $10 into a stock trading at $100? No problem. Questrade has you covered. They're the first broker in Canada to offer real-time commission-free trading for U.S. fractional shares in ETFs. It's simple, powerful, and finally available in Canada. Head to quest trade.com to open and fund an account, use code TCI, and you get $50 to get you started. One of my favorite trips this year was a cottage stay on Airbnb less than an hour away from Ottawa. Every morning, my daughter would run straight to the lake, sometimes splashing,

other times poking at the water with her little pink net, trying to catch frogs. Getting her out for dinner was always a challenge, but after days like that, she went down so easily at bedtime. That gave my wife and I the chance to finally unwind in the hot tub and watch a sunset together. Having a cozy place to come back to made the whole trip feel effortless and special. It also got us thinking about our own place. If someone else's home could be such a perfect fit for us, maybe ours could be for another family too. Hosting our home on Airbnb would let them make their own memories in our beautiful neighborhood while giving us a little extra money to put towards our next trip. And the nice thing is the flexibility hosting provides

so we can decide when it makes sense to host our home. Your home might be worth more than you think. Find out how much at Airbnb.ca slash host. Well, you know what? You know, we all have a segment that we're going to talk about on the show and it all relates to this inspired by Constellation and some other key insights that we can bring to looking at other investments. Before we get to that is pros and cons of the opportunity. Okay, so today it trades on a next 12 months. So forward PE of 24.6, four and a half times enterprise value to sales and around 17 times EV to EBITDA.

I could pull up, you know, price to free. cash flow available to shareholders as well too which they disclose but you know this this basis that this gives us some grounding on the conversation of valuation i think people will wrongly think that it trades at a hundred times earnings because that that that metric doesn't properly doesn't actually make sense that's why when you see like on fiscal for example the ntm valuation is so much lower it's not because the growth is just astronomical it's because forward consensus estimates use the adjusted numbers. That's why.

And so that's why you're getting this kind of cleaner 25 times earning. So the multiple is not crazy. Can we agree that the multiple is not crazy? Well, especially not in today's market with everything we're seeing in tech, definitely not crazy. Yeah, and didn't he mention that the stock price was too expensive anyway?

What was that? Was that during the annual call that he said he was going to struggle to provide, you know, like, oh size returns? He's been doing that for a long time. Yeah. I mean, it looks like he's not. He sandbags the stock like every AGM, but he did say last AGM, don't give me the exact quote is not this, but along the lines of, if you want like an 8% return, go into the S&P, we're trying to compound your money at over 20% a year, but he said, but for that to work, I think Constellation Sock needs to be about one quarter of what it is today.

Yeah, he pretty much said like 20% compound annual growth rates are just not going to happen anymore. But it doesn't really need to have. You don't need to compound at a 20% pace to be a good investment. I mean, if you can even do it at 10%, 15%, it's not guaranteed, but probably market beating over the long run. Yeah. And, you know, there's going to be more spins. There's going to be value creation. The big question, okay?

let me go through some cons as a shareholder for the stock. Let me steal man the other side of the argument. They crushed it in the 22 to 24 years era with a bunch of big acquisition carveouts. And they made a special group inside of Constellation that is dedicated to big, big acquisitions that don't fit into the model of the niche small vertical market acquisitions vertical market vertical market software acquisitions inside of the operating groups and they they did those big carve outs they did you know the three or four massive probably about a billion and a half of deployment in just four acquisitions in that time frame there has been nothing since there's been no big needle moving

capital deployments since and that is why the the stock was sliding a lot, in my opinion, before this, before the AI theaters, before that whole narrative, I believe that narrative formed as soon as the stock started to fall because they have been on a slower than normal pace for over four quarters now. That is one of the cons. Yeah. I would probably spin that and say, as someone is a bit more reluctant about the current valuations of the markets right now, I think that would, that's just being prudent.

I think that's just seeing that there's probably a lot of companies in the tech space that are just being overhype right now and they're having trouble finding value. And I would rather that they slow down acquisitions, then they start overpaying for a bunch of acquisitions and then short-term market might be happy. But then you're looking at two, three, four, five years down the line you're why you tell yourself, wow, they really blew some money on those acquisitions and now you're starting to pay the price for it. Oh, don't get me wrong. That's just why you're seeing the slide. Yeah. Yeah. Well, I mean, the cash is doubled. Like their cash on the balance sheet is doubled over the last two years. I mean, at the end of 2023, they had $1.7 billion and now they're at $3.5. So I mean, obviously it's kind of the same as Berkshire. The war chest definitely works out if the markets go down and you can get, you know, more attractive valuations. But if they continue to run up by 10, 15% a year, obviously it's, you know, on the short term inefficient. But I mean, they have said it themselves as well that they need to expand more likely into the horizontal market. Like there's not going to be enough acquisition targets. And obviously this is just an element of scale when they were $10 billion.

You're going to find a lot more opportunities than when you're $80, $90, $100 billion. So I think that's going to be the key thing here is kind of adapting. But I think on like if we're looking to the bullish case in terms of AI would just be the fact. And probably why maybe a bit of this is overblown is, and they had mentioned this in the call, is just people maybe not understanding how complex the coding process is for a lot of these pieces of software. I mean, it's even way too complex for me to understand. But I think one of the things that kind of hit home is when they had mentioned a lot of these pieces of software have tens of millions of lines of code. So they had mentioned that AI, you know, it can write it brand new relatively easily, not this scale.

They even said it wasn't that scale. But like if you think about like the main thing here is obviously there's a lot of fears that the company might lose clients who try to do it themselves. But like I mean, in my opinion, what company wants to deal with that nightmare? Like you're talking about creating that code and then imagine having that, having to debug and maintain that code with artificial intelligence. Yeah. The maintenance. Especially on like, if. you think about a lot of mission critical stuff like let's say health care or like government they're not

they're not going to do that they are not going to do that it's just a nightmare waiting to happen i think anyway but that's the thing is is like a i's advancing so fast who knows in five years if it can debug the code well or you know i guess the other risk too would be that a competitor comes in at a fraction of the cost right and is able to do a similar offering for a much better price so maybe that's you know, the alternative to in-house that could create some impact for consolation. But again, I don't think from, and Braden, you're more plugged into that space than I think Dan and RR, but I haven't heard any kind of situations, like at least on a massive scale of these kind of things happening.

I've heard of, you know, companies getting more efficient a little bit on the margins, but so far that's the extent I've seen. I will say this. it is a technology that has completely transformed my life and my business but MIT came out with a study that 95% of internal investments into AI projects are failing yeah I saw that too yeah so so so how do I how do we delineate that and why right how can that be true and chaty BT go to 100 million users how can that be true and you know, you have all these companies getting to 100 million ARR like overnight.

And the reason for that is those horizontal players have extreme product market fit and they're finding a lot of success in the enterprise. Like Open AI is finding a lot of success in the enterprise. But the internal implementation of their own tooling with AI is failing miserably in the enterprise. And so if those investments start working, I'd be a lot more concerned with like a CRM type software, where I'm spending $50 million a year on it, where there's an internal incentive to actually maintain that software and say it cost me $1 million a year instead of $50. Now there's real savings. With vertical market players and government players, there is no incentive to create this, maintain it. Bugs are like whackable.

Like, Dan, you and I are staying online after because I can't recreate this bug you have on fiscal. Yeah, perfect example, yeah. I can't recreate it. No one of my team can. So I'm like, hey, can you record this? Give me the logs. Dude, software is not like, yes, it provides so much leverage. and that's why people love it and love investing in it.

But it is not a set and forget. It is living. It is always breaking. If you change anything, then you open the floodgates for everything else to work. There's so many edge cases. And by the way, you have to maintain software

through new versions of software, open source software changing, new hardware, new browsers, new frameworks, frameworks. You can't just let this thing live on forever and you're on Chrome number like 10 revisions from now and expect everything to work the same. That's not how this works. So yeah. And I was as I was talking about that 95% figure you mentioned from that MIT study, it kind of, it's reminiscent a little bit and just forget about the valuations right now and

people will think about that. But in the mid to late 1990s, I know you guys are a bit younger than me, but I remember vividly people thinking that the internet would change everything then the way it did 10 to 15 years later. So I think there's a little bit of that right now as people are seeing how powerful AI can be, but they're almost expecting what AI will be in 5, 10, 15 years to be happening right now. Or maybe they were expecting that a year ago and now they're starting to realize, okay, well, those changes are probably coming, but not as fast as we think. It's not quite there yet. I mean, I use AI every single day. I use it all the time. It's great, but it has its limitations. And I mean, I'm sure you've seen Braden for your business or people sending you stuff where it's so easy to tell when someone has asked Chad GPT to draft something and made no changes. And it's very robotic. It's very, there's all the dashes. There is kind of, things you can pick up on and it's not as clean as a human writing it and the way i see it yeah it's more of a it's a really good tool but it's not an n lPL just yet what i think they kind of

i think they kind of highlighted it what did he say a lot of those like internal systems are solutions looking for a problem i think that's how he put it so like they're building out because they did it i can't remember what they did it on but they built out some sort of AI system in one of the, the companies they own. And like they said, they said, hey, it works 100% does what it is intended to do, but nobody used it. Like, so it didn't really provide any value. And he said there's a lot of companies that are, again, they're, they're, you know, making these solutions when they don't even know if there's a problem there or any sort of use case for it. So obviously, because it's just flashy to put AI into your, into your platform.

like what I got think of something like Adobe's Premiere Pro like they've integrated tons of AI stuff into Premiere Pro and I haven't found like one valuable use case for any of it right now at least so I think there's a lot of that going on there's definitely a lot of that going on and I'll give you an example of like use something actually useful and something not we built this like co-pilot feature for people to like query anything they want and have to solve for all these like endless edge cases impossible and then we had a professional customer on a demo go why can't I just open the the transcript and press summarize or query just that piece of content because right now what I'm doing on your platform is I'm going to the transcripts

I'm downloading it uploading and chatting a T and then doing it's like why is that not just right in there and that that's when it hit me I'm like we're trying to do cool stuff instead of help customers and the easy implementation helps customers and is actually useful and like the complicated sexy AI thing no one was using yeah yeah no and that's probably one of the best piece of feedback you probably got because that is a part that I really like on fiscal dot AI just seeing that summary just gives you a quick idea and if I wanted to dig into the transcript or the gall even further then I decide whether I want to or not but just having that It's right there.

It's super useful. Yeah. And it was probably not the hardest thing to do. Yeah, no, it's easy. So I guess roundtable in one sentence, opportunity, yes or no, I'll kick us off with, yes, am I personally allocating a lot of capital? This is a 40% position for me already on a significant drawdown, right? As your risk management officer, I am willing to. So, like, I might pick up a share to.

here but like no I people are like oh you must be backing up the truck I'm like the truck already got backed up like I got I got nothing to give here so that's that's my answer yeah well for me I think I mentioned it already started a small position about 1.5% of my portfolio definitely very interested to hear what they have to say on the leadership transition but I think it's more opportunity than risk but let's be honest there is still some risk like there are a lot of unknowns going forwards and I think that's what their AI call reflected and then you have an additional unknown now with Mark stepping down. Yeah, I mean, I ended up adding as well. I added, I believe it was like one share before the call and then one after the resignation. I mean, I would say

opportunistic, but probably with more speculation than there's been over the last while. I mean, I used to buy this company pretty much, I mean, especially when fractionals came out on well simple. They still don't do it on Questrade. But I used to buy this company pretty routinely with absolutely no worries. Now there's more of a, a bit of a worry moving forward, I guess, but the price is also 27% cheaper, 28% cheaper. So there's a bit of an offset to that. But yeah, I add it. Got it. None of this is investment advice. Do your own due diligence. In this kind of market, I like having some cash on the sidelines. It gives me the flexibility to jump on opportunities when the right stock goes on sale. But just because the cash is waiting,

it doesn't mean it shouldn't be working for me. That's why I use EQ Bank. They offer some of the best interest rate among Canadian banks, so my money's still earning while I wait. You can even get a boosted rate by setting up direct deposit for your payroll and depositing $2,000 or more per month into your EQ bank account. Your cash stays liquid and ready to go when it's time to invest. And if you're not in a rush to access your funds, EQBanks' notice savings accounts and GICs are great ways to grow your returns even more.

It's a smarter way to park your cash. Visit EQBank.ca to learn more and keep your money earning even while you wait. Want to buy a stock but don't want to shell out hundreds or even thousands for a single share? With Quest Trade's new fractional shares, you can invest any dollar amount and build a

diversified portfolio instantly. No delays, no trade fees, no excuses. Want to put $10 into a stock trading at $100? No problem. Questrade has you covered. They're the first broker in Canada to offer real-time commission-free trading for U.S. fractional shares in ETFs. It's simple, powerful, and finally available in Canada. Head to questrade.com to open and fund an account, use code TCI, and you get $50 to get you started. One of my favorite trips this year was a cottage stay on Airbnb less than an hour away from Ottawa. Every morning, my daughter would run straight to the lake, sometimes splashing, other times poking at the water with her little pink net, trying to catch frogs.

Getting her out for dinner was always a challenge, but after days like that, she went down so easily at bedtime. That gave my wife and I the chance to finally unwind in the hot tub and watch a sunset together. Having a cozy place to come back to made the whole trip feel effortless and special. It also got us thinking about our own place. If someone else's home could be such a perfect fit for us, maybe ours could be for another family too. Hosting our home on Airbnb would let them make their own memories in our beautiful neighborhood while giving us a little extra money to put towards our next trip. And the nice thing is the flexibility hosting provides so we can decide when it makes sense to host our home. Your home might be worth more than you think.

Find out how much at Airbnb.ca slash host. Simom, your segment of the day. Yeah, I mean, I think I want to make it a bit more discussion, but it is something we had talked about. We had definitely talked about that way. I think we had done an episode about Risk and I think is a abrupt department Archer from Constellation Software just highlights key person to risk. And I'm not talking about it as much from like Berkshire where clearly, you know, Buffett's in his 90s. Like you know he's been talking about it for some time. But at the end of the day, even when you have younger leaders, stuff like this can happen. I mean, unfortunately, everyone has expiry date. You just don't know when it is.

And clearly, you can see it in founder-led businesses. For founders, obviously, it's often about the vision of the company but it's also about reputation attracting capital can be especially important for smaller companies and i don't want to say consolation is smaller i just don't really know what small and big anymore with the kind of market cabs that we're seeing but it just goes to show that it can really hit the the stock pretty pretty hard like we saw with consolation here the stock price, at least in the short term. But also, if the company doesn't do a good job on the succession plan on the transition, it could really have a big negative aspect long term. We saw it for one of our longtime sponsors, EQ Bank. Unfortunately, their CEO passed away a few months ago

abruptly. These are the kind of things. And he had been there for a very long time that you definitely have to factor in. And when you listen to conference calls, sometimes they will talk about that. So I think it's really important. You can also see it for long-term, long-time CEOs. I think Buffett's a great example. For him, obviously, it wasn't abrupt, but Buffett did not start Berkshire, contrary to a lot of people, what they might think. He did not cite Berkshire Hathaway. He used to be a completely different business, so you can probably make the case that he's almost the founder in the way it is. It is seen today. But the last one of key person is that I think especially with AI, now I think people should be more and more aware. And

Braden, I'll be really interested in what you have to say, but it's the concentration of knowledge in one individual. And that doesn't need to be the CEO, right? Like it could be chief technology officer. It could be chief investment officer for an investment firm, for example. It could be a lead engineer. You're seeing meta throwing billions of dollars at AI specialist or AI engineers, I think this one is really, really fascinating, especially what we're seeing right now. And also in companies that may be a bit smaller and a bit more niche where really that key individual leaving or passing away could have a really big impact on the business. Yeah, I'd say this key man risk is especially concentrated or magnified, maybe is the right

word the earlier stage the company it is right and you know we just talked about Buffett any Buffett's been getting the what's the what's the plan for you and Charlie they got that for like 35 AGMs in a row and they put that all together actually in a move for the movie when I went on Charlie's last year they put together a clip of like 35 years of them asking what the replacement plan is for the continuity plan for the two of them you know Leonard built this, like, decentralized web of people that are unilaterally making their own decisions to grow the company and empower the employees. So, yeah, the key man risk for me and my co-founder's in this company is a lot higher

than someone else, right? But this does relate to my section on founder-led companies as well. What do you think, Dan? Yeah, I mean, I think you get it a lot in probably acquisition-heavy companies. as well. I mean, what is, I don't know why I can't remember his name, but Fairfax's guy. Premoza. Yeah. Again, like, and I'm pretty sure there was a bit of difficulties in the succession of that

too, because I think it was his son or something that was going to take it over, but they were having, they weren't too happy with that. I mean, yeah, it's a big deal, especially when you look at, I mean, I guess you'll talk about it a bit, but like family run businesses. I mean, especially like some in Canada, there's, Thompson Reuters would be

one of them, would be like huge family owned. I don't think it's really family operated anymore, but they effectively own like something crazy, like 66% of the company in a holding company. And they did say it will be passed down to future generations. But I mean, I find it's more concentrated in, you know, companies that have specific strategies, especially on an acquisition basis. Like, let's just say, for example, I'm trying to think, I mean, if like Royal Banks, CEO or something stepped down and kind of it was replaced it wouldn't be all that big of a deal but you have like kind of these founder led especially acquisition heavy companies that require a lot of management kind of input in order to have

the success i think that's where you see the huge impacts yeah yeah and i think for me the yeah the family owned is very fascinating because i think especially when you have a family own business depending how long it's been family owned and whatnot and how good the patriarch or matriarch has been and then their plan is to give their children, to run the business afterwards. You never really know. And sometimes it could be really tricky, right? Because they have that last name, so it could provide some false confidence. Whereas, you know, the children might do a really good job, but people might not do a really good job either.

They might do a terrible one, but there's going to be a lot of fate put into them because of that last name. And this one, this one gets really tricky. I don't really, I don't know. I don't know if I've ever really owned family, family-owned businesses all that much in my portfolio, but that one I would just make sure you, if you do own some businesses like that, you have a good sense of what they're looking to do and not take for granted that the children will do as good of a job as the parents. For example, in terms of minimizing the risk, I think succession plan, I think that a lot of companies will actually talk about that on conference calls.

So you will be able to get some information on that. You can always reach out to investor relations if they don't. They might be able to provide some more information there. Board independence is really good because, of course, CEOs are pretty commonly on the board, oftentimes even chair of the boards. So having a strong board and independent board is probably a good thing to be able to take decisions of the seal as an abrupt departure. The culture and processes, if it's strong within the business, it definitely minimizes the risk of a key person leaving. And a deep bench and that's probably where mark miller kind of falls into a little more here with CSU where do they have a deep senior management team that could help not necessarily just one

person but it could be like two three four key people that can kind of help share the load that have different expertise different strong trades that actually complement each other so that's that's something that can minimize the risk too yeah i think one thing that hasn't really been discussed that much is we don't really even know i don't know i don't know if anyone really knows what the situation is with mark's health like with mark leonard no i don't think they mentioned i didn't see anything mentioned they just said for health reasons right yeah and and it was it was very strange given that he was on the call facilitating the call on monday yeah and so you know if it's just a short-term thing and he comes back as probably not probably not going to head my this is just me

speculating. My prediction is if he comes back, he's going to come into that kind of chairman Bezos into Amazon role more than like back into the operations day to day. That's just my speculation. I don't know. That would be that would be great too, right? You have, it's always good to have that kind of visionary still, still in the in, in the mix. Who knows? Well, let me go ahead. Go ahead. Well, I was just going to say. Here, I'll go. Ed. Love it. it has happened before with waste connections actually so Ron Middlestad who was a CEO founder CEO he had to leave in 2019 due to health concerns and then he eventually came back in 23 and they put him back in place so I mean it's not a guarantee that'll come back but if it's

if it's something that's maybe minor maybe goes away something like that you could see him come back I mean I in this type of situation maybe because he's Miller's been with the company so long they probably wouldn't want to disrupt that whereas i think the waste connection situation that the guy had not been with the company very long but it does happen like this is it was pretty much the exact same situation he left he didn't call they didn't call mark miller to the interim yeah but i mean in that situation they didn't either they named him the CEO and then and then three years later his health improved and he ended up coming back honestly i think they called tomorrow will

shed some light depending whether even Mark Leonard's on the call or not like whether that's the case I think just him being on the call versus not I really don't know right like I'm just speculating but that would tell us a whole lot of things if he's not on the call then it's

unfortunately probably more serious than we're hoping for if he's on the call depending on what he says like obviously could be a slew of different things as you get older you're more apt to get certain kinds of illnesses that could be life-threatening in the short term or not. Maybe it's just a temporary thing and you'll be back six to 12 months or maybe you'll do a bit like Buffett, right, take a step back,

just stay as chair of the board and then let Mark Miller kind of run things as the CEO. Like there's to me, I'm very, yeah, curious to see like the Calder's just kind of, I don't know, your brain kind of thinks of all the different possibilities that there could be, but I will be listening to that attentively tomorrow. with one comment on your family controlled businesses is it's the same as any other situation where you want the right leader in the right spot so like the rules of the game haven't changed and sometimes the succession to the next generation it only goes two ways it's only it's only a disaster or incredible yeah there's there's no there's no middle of the road like i'll give you an example of how this works incredibly so yon vanek who runs vanek asset management who i've gotten to know very well and he's he's he's the man by the way yon's one of my favorite business people

and he's great to listen to i've was great to listen to him on a few podcasts yeah he's been exceptionally nice to me when he go to his office he's just unbelievably like welcoming his dad john and started the firm in 1955. And Yon stepped into work at the firm in the 90s, early 90s. But when he took over the business, he completely was going, skated to where the puck was going and noticed how ETFs was going to be the big way for asset managers to get more AUM.

And so he launched the gold miner ETF in 2006. I was going to say that one. Exactly. Like when you hear about people mentioning like gold miner ETF or junior gold miner, it's always GDX or GDXJ. Yep. And now he has the de facto semiconductor ETF too with SMH. So he has like those two on lock and that, you know,

they drive like so much of the. But that's an example of where like he took his dad's vision and like took it into the next version of how the business was going to work. and made it even way bigger than it ever would have been. So it only goes that way or crashes and burns is my, like, it's pretty binary and that's what makes it really risky. Yeah, well, especially too when you think about like when there's drama, when there's multiple children.

I think the one that comes to mind. Yeah, Rogers is an easy Canadian one. I think we all heard about like what's happening with the Murdox too in the US with Fox and all that. So there's a lot of drama happening there. They didn't sort it out in the two. TV show? Succession.

Yeah, but Rogers is the best example, right? Remember what? A couple years ago when there was all this drama happening. So I think, yeah, there's definitely both sides, but yeah, you're completely right. I think it often is one way or the other. Even Magna International when Frank Stronick handed it off to his daughter, as far as I know, they don't speak to each other anymore. I was like all this drama and then it got handed to her or one.

husband at the time, who actually was a good CEO. I was an intern through all of this, but it was, it was weird. It was, it was an awkward situation. It didn't work out. You know, the company's big enough and sophisticated enough to pass it, but it was, it was not a good leadership transition. Okay, for, for my segment, and then we'll go to Dan after, is I wanted to highlight founder-led companies, because you're, you know, you're talking about key person risk, but, you know, what is the kind of upside for,

having these long, tenured, founder-led public companies. Because in the private world, all the companies pretty much, unless they're really, really big and old, are run by the founders. So in private world, it's the assumption that the founders are running the company. But in public markets,

it's actually fairly rare to have really large S&P Fortune 500 type companies run by their founders. There's actually not that many of them. And so I wanted to just look at, and see if I could, find some data on how these companies have performed and maybe why they perform so well. And so, you know, you look at Constellation and it's what you inspired this. It's on this 27% drawdown, which by the way is absolutely bizarre that it's only ever had a drawdown less than

25% before. A $10,000 investment turned to $2.8 million and it would have been $3.8 million in May before the sell-off. And setting, the stage here is public companies run by their founder still is fairly rare and the data is actually kind of absurd when it comes to outperformance. The reason for that absurd data is Nvidia. So it's hard to find clean data on this because if you run the actual data, you have like just bonkers outperformance. Like it's it's off the screen outperformance and that's because NVIDIA and Jensen, Jensen, Long. So I actually had to go and try to find some old data.

You know, between 1990s and video. Yeah, XNVIDIA. I should maybe just do XNVIDIA. But yeah, so between 1993 and 2002, found some more data that founder, CEO firms outperformed other companies by 4.4% during that time. And between 98 and 2010, another study found around 4% as well. and actually commented on how risk-adjusted they performed much, much better on a risk-adjusted return basis. Any comments here before I go into maybe why some of the reasons this could be happening?

Well, it's their babies, obviously. I mean, their founders of the company. They want to do what's best for the company, whereas, I mean, if you sell it off, especially to some other corporation, it tends to be more of a profit-driving thing. I mean, this isn't a publicly traded company, and it's kind of a weird. example and it's only one that I heard about on the news like probably 10 days or so but ben and jerry's you remember that ice cream company yeah they were they were founder led they were growing at a pretty crazy pace and then they got bought up by unilever and effectively like they didn't kill the company but it pretty much doesn't grow anymore it just got kind of commercialized I guess you could say like non founder led and I mean ultimately I think one of them ended up leaving a couple of weeks ago because he just doesn't like how the company he's kind of been managed, and you just typically won't get this from a founder-led company because obviously they've been there since the start.

Yeah, I mean, not to get into Ben and Jerry's, but they basically only have one flavor that people care about, that cookie dough. People go for that cookie dough flavor, and like, I don't think that, I don't think they sell another flavor. Yeah, and I mean, I think for me, it's probably a reflection that founders tend to have more of a long-term vision. Yeah. I think that's probably the biggest reason.

And if I had to pinpoint it, not on data itself, but founders typically will, when you listen to them, they'll tend to have a longer-term vision where a CEO that might be influenced more by large shareholders and is more driven by, you know, maybe not the right reasons sometimes and more immediate kind of turning around and so on of the company or making more profits in the short term where I think CEO's founder-led CEOs will actually have a longer turn. vision. Yeah. And that's exactly where I'll start with my four points on like why this is most likely the case. Number one is long term vision. But I also, I also would add to this short term urgency. It's like extreme short term urgency that we have to get this done now. It's like, you know, you operate on extreme deadlines, like you operate almost unrealistic deadlines, but you still have a long term vision intact. It's like that kind of ying and yang. High ownership and incentive structure. This is just a no-brainer when it comes to any public company.

If you have the leadership with a high ownership, that's always a good sign. Buying stock is always a good sign. Number three, this is probably not one you're going to hear that often, but the starters of the business had to pivot probably like seven, eight times before anyone knew who they were. they had to reinvent themselves a bunch of times and go through hardships that people will never know and hear about because it'll feel like an overnight success after they pivoted like eight times and reinvented their self that's in the DNA of the company I've seen I've seen you pivot a few times yeah I've seen you pivot a few times

I won't go into much detail but it's not meant to me be pumping my own tires but I could see how you know and yeah you know if you're if I was to run this company for 40 years like it would need eight more pivots, you know? Yeah. And then cultural consistency is probably the fourth one across all of that. So some interesting stats to back this up in terms of long-term vision and the financials. You guys would find this really interesting. For these companies, the study from 93 to 2010 found that R&D was 22% higher investment.

The R&D line on was actually much, much higher by 22% and cap it. was up 38% more. So that's, you know, and this is, this is pre-Amazon skewing it with like hundreds of billions of Kappex. To the long-term vision, right? You're foregoing profits now for profits later. Exactly. And the best performing stocks over 10 billion in market cap of the last 10 years.

Nvidia, AMD, I don't know how to pronounce that, some German company. Shopify, Arista, Broadcom, Mercado Libre, Tesla, KLA, Lamb. Those are both a semiconductor companies. Delta, not the aviation company. A mining company in China, cadence, micro strategy, and applied materials. A lot of semiconductors to no one's surprise. Yeah, yeah.

Hey, I mean, Founder led. There's a one key person risk there, yeah. Oh, yeah. Founder led. Nvidia, Shopify, Arista, Mercado, Libre, Tesla micro strategy still run by the founders today. Again, that's a, there's not that many founders had public companies today. And to have that many in that list is a massive skew towards the data here.

So I guess what's the takeaway? I mean, if I learned from anything here with Mark Leonard, you know, being a shareholder for a long time, is I think the takeaway that I have is, yeah, the data tells you one thing is, I find that they're easier to hold. I find that they're easier to own for a long time. I mean, it seems ironic now that Mark is just stepped down from the company, but I've been a chairholder for a long time of this business. And it has felt really easy to let him work for me and compound my capital,

knowing that like that type of person's at the home. So over 10 year periods, right, management really, really matter. It really, really matters. So the takeaway for me is they're just a little easier to hold. And that's what that can make all the difference. Yeah. No, I think that's good a takeaway. I don't know if we'll have time for your segment on economic modes now,

but we can always keep that for another episode. We should just keep that for the normal episode. Yeah, because it'll be a normal episode. Yeah. It was kind of related to like I'll just say when Braden says you need good management. and that is primarily what I boiled that segment down to. It's going to be a pretty interesting one and it would probably be good for a full episode.

But yeah, on the founder front, I mean, I don't really know because the only founder-led company I own would be consolation and I guess waste connections in a way, but I just bought that one like two days ago. So, yeah, I mean, I... You just bought waste connections. Yeah, I just bought waste connections a couple days ago.

But yeah, I mean, it's been a great company. Obviously, when you have the founder, in place. I mean, as I mentioned, it's his baby. He's probably less incentivized for short-term gain and more incentivized to kind of, you know, finish the story, I guess I would say, which is obviously why you see ramped up CAPEX research and development, stuff like that. I mean, they're willing to sacrifice profitability for long-term compounding. And they've definitely done it, even after, you know, the largest drawdown in its history, which, as you mentioned, 27% is just crazy for a company that's been traded for 20 years went through the financial crisis like

COVID bubble that big drawdown in 2019 yeah it's it's impressive 22 yeah tech sucked tech sucked to own in 22 I think people forget how brutal 2022 was it was oh I don't yeah I don't but any final thoughts gentlemen before we wrap this one up no it's good to catch up with you guys I don't know how people who run three-man podcasts do it because how do you know who speaks next i know you just wait a little bit and somebody eventually talks or you i mean i guess you do it so much that you can probably get a sense and you're a bit more used to it but i guess we'll use the next what two months and a half to prepare our bold predictions for 2026 and start working on the reviews i mean

it'll still warm outside but it feels like you know by the time we know it will uh looking back at 2025 and what looks like what what's on track to be another phenomenal year in terms of stock returns has anyone cash some bold predictions already through through September here I can't even remember mine are going to be way off I mean I had Shopify for a bit there but again like Royal Bank took it over we'll see how it finishes at yeah the end of the year we'll keep it further did did Royal Bank go back on top market cap wise yeah well because they reported a crazy good quarter. I mean, it probably wouldn't have happened if they hadn't reported the quarter they did. But yeah, it's back on top. It's okay. There's still time now.

Yeah, there's still time. That's the curse, right? You can't. It is the curse, yeah. You can't overtake RBC. All right, thanks guys. Thank you. Appreciate you all for listening. How do you guys usually sign these things off these days? Yeah, that's good. Yeah. Thank people for listening. If they want to see our portfolios when you see this, we'll put a monthly update on Joint TCI. So I make sure you have a look if you're interested in seeing what we did in the last month and the months prior but if not you know we appreciate whatever support we get just listening to podcasts giving us a review it's all appreciated the canadian investor podcast should not be construed as investment or financial advice the host and guest featured may own securities or assets

discussed on this podcast always do your own due diligence or consult with a financial professional before making any financial or investment decisions.