We Study Billionaires - The Investor’s Podcast Network - TIP576: Mastermind Q3 2023 w/ Tobias Carlisle and Hari Ramachandra

Starting point is 00:00:00 You're listening to TIP. I always love recording these mastermind episodes with my friends and fellow investors, Toby and Hari. The stock on pitching today is Constellation Software, an iconic stock in the value investing community. And I cannot believe that we waited this long to discuss in detail. Horace Pick is Brookfield Corporation, one of the world's largest alternative investment companies, with over $700 billion in asset under management. And Toby, he pitches Winnebago, a company, trading at single-digit multiples to earnings led by smart capital allocators.

Starting point is 00:00:34 Make sure to stick around for the end of the episode where I'm joined by my co-host, Clay Fink. You will learn how you can join our live event in New York City from October 6 to 8 and about the mastermind community where you can pit stocks and get feedback from the podcast host and other listeners of this show. You are listening to The Investors Podcast, where we study the financial markets and read the books that influence self-made billionaires the most. you informed and prepared for the unexpected. Welcome to The Investors Podcast. I'm your host, Dick Broderson, and today, as always, I'm here with Tobias

Starting point is 00:01:22 Carlisle and Hari Ramachandra. Jens, it's always great to see you. Good to see, Steve. Good to see, Harry. Yeah, good to see you, Toby. Nice day. Glad to be here. So we're going to put Harry on the spot here and have him pitch his pick here for us today. So, Hari, let's do it. It's been quite a eventful few months since we need our last mastermind. And there were a couple of news that came out in the valley over here in Bay Area. And one of them caught my attention. And that was Sequoia, which is one of the legendary venture capital funds,

Starting point is 00:02:03 announced they're partnering with Brookfield and in their Heritage Fund. and one of the intention was to take some of the troubled start-ups private. So I thought that was interesting. And then I started revisiting some of the notes I had about Brookvale. Brookfield last year, December, spun off their asset management business. So the original BAM is now a spin-off. and BAM is now BN. So BAM is now BN, which is Brookfield Corporation.

Starting point is 00:02:45 So I thought, okay, time to revisit. Since I remember reading this, you can be a stock market genius, where Joel says that, you know, anytime there is a spin-off, time to look at it. But I'm six months or so late. But still, I hope we still have time, and you guys will tell me.

Starting point is 00:03:05 But just a recap about Brookfield, they have a strong track record. They have been here forever as a public company and even before that they have a hundred year history. In the past 20 years, they have returned around 19% annualized return for their shareholders. AUM has grown 250x now at around $850 billion. dollars. Their fee-bearing capital level is around $400 billion, a $292x increase in the last 20 years. And their fee revenue at $4 billion is a $200 plus X increase in the last 20 years. And their strengths include their scale, flexibility, and global presence. They're one of the few options and partners of choice for global institutions and sovereign funds

Starting point is 00:03:59 to deploy their capital, which gives them a significant access to pools of capital that's not available to every other company. There are only few who can play at this level like Black Rock or Apollo or Carlyle can be some of the ones, and especially with global capital looking for alternative investments. Brookford is well-positioned. They have access to opportunities that few institutions have. One of the interesting fun pipes I learned recently is they actually invested along with Elon Musk in Twitter, which I didn't know. So that's one example.

Starting point is 00:04:37 Now, similarly, they have many such investments. And they have a unique combination. Like, if I look at Berkshire is very good at acquiring companies, but not really operating them. They don't have that operational DNA in Berkshire, so they just acquire and delegate. But Brookfield actually has operated many infrastructure, renewable energy projects. They have 180,000 employees worldwide. So they have good experience. And more importantly, their management composition is aligned with shareholders.

Starting point is 00:05:11 So their lock-in period is something like 10 years plus, basically. So that gives them a long-term thinking for the management. In terms of why now, there are some tailwinds that are for, farming for them. One is the reshoring or near shoring or friend shoring that's happening, especially in the high tech chip manufacturing. They actually invested in with Intel for one of their fabs. They invested $16 billion. It's a $32 billion fab that Intel is building. They have a similar deal with boundary, but another manufacturing plant, and they probably will do more. And as I said, like, they're going to be investing in many high tech software companies also

Starting point is 00:05:53 along with Sequoia. The other one is the transition to net zero, especially renewable energy infrastructure. A lot of governments are sadly with debt. So they are looking for private partners who can invest and operate in those projects efficiently. And finally, three years ago, they didn't have insurance arm at all. Now they have built a solid insurance business

Starting point is 00:06:20 with 10 billion in equity in the last three years, and 40 million in assets. And with aging demographics and developed countries, demanding products like annuities and guaranteed income, they both have demanded supply that they can leverage and to have a very good operator, Sachin Shah, who's kind of a jane for Borkshire, think of it that way, he's the CEO of the insurance operations, doing a great job in the last three years, reading this company.

Starting point is 00:06:51 And one of the moves that he did was when interest rates were all low, a pool of $25 billion of capital, they kept in really short-term maturity instruments, cash equivalent instruments, and they waited. And now they have the opportunity to deploy those $25 billion in safe, high-returning assets. So that's a short-term tailwind that they will have as well in their insurance. Apart from their secular growth, they project to grow to 400 billion in assets in the long run. So based on all these facts, according to them, their next five-year projection is that they will continue to grow at around 17% comforted annual return for their share. They expect 46 billion of accumulated cash for generated in the next five years, two trillion in the AUM in the next five. And right now it's around $40 billion and $1 trillion in fee-bearing capital, a 13% in debt equity.

Starting point is 00:07:52 They kind of want to have that that's their hallmark, like really careful use of debt and no debt needed. So I think these make it very interesting. But why BN, not BAM? For me, BN has the diversification. They have the insurance businessmen, they have the asset management business, house they have other functioned opportunities that we wouldn't otherwise get,

Starting point is 00:08:18 whereas BAM is more like an operator of the, or the manager of the assets they already have. And because of that, there are risks as well as associated in Lian, obviously, geopolitical risks, the fund performance risks, as well as access to capital risk in case that dries up. And that's one of the reasons why BN might in the long run also command a lower multiple than BAM because it's more complex to understand, has some risks associated with it as well. But as a value investor, I'm attracted to BN. But today their market cap is around

Starting point is 00:09:00 52 billion. And when they said we are going to return 46 billion in five years, I thought, okay, that's interesting. But then I thought maybe I should bring up to you guys, because you are the number wizard here, not me. So that's my pitch. Now to make your take on it. And the ticket symbol is B.M. You're talking about that

Starting point is 00:09:22 conglomerate discount and the multiple on that. I think to me it's a bit difficult to value the company, which is a bit ironic because my biggest single position is Berksia, which is also a conglomerate. And the stock I'm going to pitch later today is also a conglomerate.

Starting point is 00:09:38 So I do see the irony that I'm saying, oh, it's a clumber. It's difficult to value. But there is something to it whenever it is so. The bigger businesses become, especially companies like these, the more complex they are to analyze. At least they are for me. A lot of value investors are probably familiar with it. Mnish and Marnes-Pabri that we talk quite a bit about here on the show and also speak to time to time. He took a position in Brookfield in Q3, 2022, got his part of the spin-off. And I just kind of felt that was interesting, and he sold Bam, so the Brookfield as an advertisement in Q1, 2023 in here in Q2.

Starting point is 00:10:15 The 13Fs just came out. He also sold BN or Brookfield Corporation. So that's not the same as saying that it's now, it used to be a good investment. Now it's a bad investment. There could be a ton of reasons why that's the case. I just kind of felt it's interesting to see what others have done. I don't think I have any unique insights into whether or not the value, is good right now.

Starting point is 00:10:40 I have a bit of a hard time understanding some of the accounting. You know, I can say some things like Bruce Flat owning, what, 5-ish percent of so the CEO. I think that looks quite attractive. Really going in and valuing those assets, I kind of feel it's a bit more complex. I don't know. I kind of feel I'm touching that question, Toby. So let me just put it on you instead, Toby. Did you say it's $46 billion returned over the next, what period of time?

Starting point is 00:11:09 Five years. 46 billion in cumulative cash flow, accumulated, cash flow generated, basically. I'm not sure whether they're going to return that. Where does the $46 billion come from? It's like, based on the calculation of annual cash flow generated, they are saying if we take five years worth of cash flow generated per year, in five years, we expected to be $46 billion, just a cash flow. And is it returned to shareholders?

Starting point is 00:11:38 No, I don't think it will be returned to shareholders. I think their strategy has always been reinvesting those cash flows and only returning part of faith in the dividends, basically. I mean, it's somewhat undermining, given that it's a $55 billion market cap and they're going to return 40, or sorry, they're going to generate 46 other next five years. that's, that's, if they hit those numbers, that seems to be trading a pretty good value here. The knock on them has always been that it's very, very hard to analyze because they're such a messy capital structure and all of the subsidiaries and the crossholdings and so on.

Starting point is 00:12:18 So I think maybe this is an effort to rationalize that a little bit and make them a little bit more understandable. I'm not familiar with them since they spun. I had looked at them pre-spin and had always sort of got to that point where I get a headache when I'm trying to reconcile all of those subs. So it's potentially a very good outcome. And perhaps that's what attracted Monash, that they would simplify in the spin. And then clearly it's a very good business. Bruce Flats a very good operator.

Starting point is 00:12:48 So I think it's a very interesting pick. I'm going to go and have a look at it after we're finished here and have a deep dive into it. But I think it's interesting. Thank you for feedback, Stig and Toby. I think maybe next time we can ask Monezsche why he's sold out. One of the things I was thinking when I was reading their investor letters as well as their presentation sales, they are projecting a 17% CAGR going forward. Monish looks for 26.

Starting point is 00:13:17 So it might not, yeah, it might not pass his bar. One of the problems with setting very high, return expectations like that is that, you know, you get a little bit of what the market offers to and there are periods of time when really there's nothing around it will do anywhere near those numbers. And so you're really off the run looking for those things. And you have to, you know, higher returns are typically attended by higher risk or complexity or something else. That's what you have to do to find them. You know, Monash has found that Turkish warehousing thing that could be a hundred bag or so. Yeah. It's just probably going to

Starting point is 00:13:55 hit that mark there. So I have to take my hat off to him there. But I just as a general rule, I look for about, I want to get a 15 because I think that for me, that's the right level of risk and reward to look, you know, I'm happy to be surprised to the upside. But I think that 15 is and even 15, you know, that is a, in this kind of market where this market is trading, that's aggressive. If I said 15 to some people, let's say that's a high kind of target, try to hit. And then, of course, the idea is you probably don't get the 15 because life gets in the way and it's just hard to, hard to target. 26 is a big number. Monish, it's hard to see what Monish holds in his portfolio because he's got so much international stuff in there that's not reported in the 13F.

Starting point is 00:14:39 So if you just looked at his 13Fs, it looks like he's just turned over 100% of his portfolio. He's liquidated what he held in the US and he's put in, it was only a few positions and he's put in a few more positions. So there's really nothing unusual about that. It's just that if you only have that window where you only see his US hold, because it looks like he's, he's woken up and decided that he doesn't like anything that he holds and sold everything, bought it all new again. I do like this pick.

Starting point is 00:15:04 I want to dig into it a little bit more offline, but I think it's interesting at this level. People should probably have a close look. And then I still don't know what their subsidiary holding structure looks like. But there's a few things. Insurance is a complex business. You really got to know what you're doing in there when you're analyzing it. and across all the holdings in the sub,

Starting point is 00:15:23 it was always very difficult to kind of wrap my head around. But it's performed very well. Bruce Flatt has recognized as being a very good operator. I think it's a very interesting pick. Yeah. Thank you, Toby. I think to your point about the annual return, the couple of things that I was thinking about it is,

Starting point is 00:15:42 it's not just a return in terms of percentage, 26 or 17 or 15. It's also the runway. they have done 19% for the last 20 years. If you are just thinking of like cigar but investing where you just get a pop like Facebook did in the last six months to one year, that's a different thing. But for me as an individual investor that has tax consequences because now I have to sell it, pay taxes, 40 or whatever percent.

Starting point is 00:16:12 And then I had to look for another opportunity that will make up for the tax loss plus another 26%. Whereas if I can get a compounding machine that can go for decades, preferably like Berkshire or Brookfield, that is much better for me as an individual investor. But it would be very hard to find a compound of doing 26% Kaga. Yeah. That's an extraordinary, you know, that eliminates Berkshire, for example. Oh, yeah.

Starting point is 00:16:43 You had to go to Turkey, Toby. Yeah. That's the reason I'm saying. Like, you Lord Burke, I heard of it. My brother's a doctor and works long hours, shift work, all that sort of stuff, likes investing, likes net net. And I always tell him that's just too much brand damage on both ends. You should be finding higher quality companies that will grow. And I would tend to think conglomerates are probably the wrong place too.

Starting point is 00:17:04 You just want to find the simpler. You're going by a makeup company at a reasonable price. Going by something that the brand name's been, you know, the kind of stuff that Buffett buys is actually the sort of stuff that really busy people should buy, you know, like Coke and those kind of things. I'm not saying Coke here. I'm just saying as a general idea, like the high quality where you really have to make one decision. The thing is, though, like to get those compound returns, like somebody's got to be doing that work. You know, somebody's going to be doing those buying and selling in the business.

Starting point is 00:17:30 And the world is very competitive. The world is much more quick to copy. You know, so where previously you could do something in the States and then you could roll it out through all the English-speaking countries in the world, and you can't roll it out through the rest of the world. You really can't do that anymore because the competitors pop up immediately, you know, all of the, these other jurisdictions. And so you're doing acquisitions in those jurisdictions. And you could look at something like Uber as an example.

Starting point is 00:17:54 That was a kind of revolutionary idea when they did that in the States. That was very, very quickly copied in all those other countries. And the way that Uber expanded was by buying those locally. It's not an easy game, I guess, but Brookfield have proven that they can do it. So that does make them, it is an interesting, it's a very interesting pick. And I've looked at it for a long time and tried to work out where a good entry point is. and I've never really found it, but I didn't, I hadn't followed the spin. One of the challenges about conglomerates is that you have to have a lot of faith in management.

Starting point is 00:18:27 And I know that you can say that about any business. And here there's this wonderful Buffett quote, and I'm going to push it to the quote, but he says something like, you have to buy a business that it's so great that even the idiot can run it or something like that. Because eventually someone will. Right, right. Sorry, Stig, I took your punchlow. No, no, no worries. So, and I think that, I think that's wonderful in that approach to it.

Starting point is 00:18:50 And so, so that's really to Toby's point about, like, finding a really simple business, because some point in time, you know, an idiot is going to run that business. And so whenever you're dealing with conglomerates, and perhaps it's just me of my own ignorance, it's, it quickly becomes so complex that unless you really understand it, which can be quite tricky. You have to have that trust in the managers like the Mark Lenners of Constellation Software or the Warren Buffett's of Berksie Hathaway or whoever. So at least to me, it very much comes to that. And that's also the weakness in investing in conglomerates. And then you have that, like you sort of like have those two engines, right? Like you want

Starting point is 00:19:30 to grow earnings and you also, which I wouldn't say you have a big influence on that, but if you can identify a good business, it probably will grow their earnings. But then you have the other thing, which is how would the market value that those earnings and what's the multiple going to be like? So you have those two engines that determines your return. And I guess I've made the mistake myself too many times where I'm like, this is such a great business. The market must value this in this multiple. But you're buying it at, you know, your seven times PE and earnings grows a little, but the market, it's still being valued at like six PE or even worse, you know, like 10 years or five years from now. And so you don't really get that return. And so I feel that's

Starting point is 00:20:16 one of the challenges about investing in conglomerates. Again, with irony, I'm going to pit a conglomerate here very soon where you can say the exact same thing. So I'm coming up with that criticism here because it's one of the same issues I have about my own pick. I guess that's what I'm trying to say here. I think that's a really interesting discussion. And there's two there's two different approaches to it. I don't want to step on your pick because I don't want to foreshadow too much, but you could look at Brookfield against Berkshire. So Brookfield does lots of acquisitions

Starting point is 00:20:47 of infrastructure type assets and security. It does all these different things with them. And Berkshire has a different approach where it's one guy makes the decision. He sits on cash for a really long period of time, waiting for it to build up. And then with one fell swoop, he will put a third or some giant portion of the cash to work.

Starting point is 00:21:06 in one company, and then he'll sit in his hands for another long period of time. You've really, really, really got to trust Buffett when he's doing that. And of course, everybody does because he's generational investor. But these other guys are not doing that. They're doing kind of more regular Bolton type acquisitions that operators tend to do where they're buying stuff and they've got a template and they can do them. And I do think that that is a more replicable strategy for them. It's almost like that's their business is acquisition.

Starting point is 00:21:36 So they get good at doing these acquisitions. And you know that if one goes wrong, it's not really fatal to the whole enterprise because it's not a third of the value of the company. It's 5% or something like that. So I think of those guys more as like investors in the more traditional kind of value sense where they're taking a much more spread bet rather than Berkshire, which will take one big swing every five years or so, and that's transformative for the business.

Starting point is 00:22:04 actually that's a very good point, Toby, because in an interview of Bruce Flatt did say that he encourages his team to make lots of small mistakes and often. So he says the problem is that we don't want to make mistakes that will just take us out of the game. But we have to keep making small mistakes because that's where our learning is and that's where our opportunity is because many of those small bets are not to be big for them eventually. Man, I'm smiling. Lots of mistakes. All right.

Starting point is 00:22:39 Toby, do you want to go? If you don't mind staying because since I have to go and I have an opinion on Constellation and I'm very interested. If you can go next. Yeah. It's fine by me. Yeah, is that okay, Toby? Sorry, we are making you last.

Starting point is 00:22:56 I think it ties into this conversation really nicely. So my pick that perhaps ties into this conversation is Constellation Software. It trades under Ticket CSU and the Canadian Stock Exchange. And this will be a tough act to follow. The last two times I've been pitching stocks here on the mastermind meeting. I had positions in them. It was Spotify and Technion. And I will, of course, be habit to say that both stocks have done very well.

Starting point is 00:23:21 Technion that it pits last time. 10 weeks ago, they're up like 35%. And that is in Swedish Kroner. So I don't know if you feel that's good or bad, but whenever you've been looking at Turkey's warehouses for quite some time, and you're like, how much of this is like real returns and how much of that is like inflation returns? That sort of like gets your juices flowing. Full disclaimer, I do not have a position in Constellation Software. I do have a position through Monish in Races. So I don't want this

Starting point is 00:23:50 to go across the wrong way as I was joking about that. I'm very much invested in that. Constellation Software is a great stock. And you might be thinking if that, if it's such a wonderful company, why don't you have a position? Well, as it's very often the case, whenever you find a high quality company, the market also knows that it's a high quality company. So it sells that. Mr. Margaret sells the company to you at a very high multiple. And so you have to pay attention whenever that is to your advantage and the multiple

Starting point is 00:24:20 is more attractive. And so they say that the best time to analyze the stock is whenever you're not interested in buying it. And that's sort of like a bit how I feel about Constellation right now. I kind of feel it's too expensive. I'm not saying it's outrageous, expensive, anything like that. I think there's a lot to be said about the company, but it's a little easier to control your biases as an investor.

Starting point is 00:24:40 If you're more approached it to, like, let me just put this on my watch list type of thing. So, Consolation Software, it's a relatively well-known stock in the value investing community. It's IPO in 2006. It's more than 100-bagger. It's compounded annually for 34% annually. And this is since IPO. it's kind of crazy. So the market cap right now is around 42 billion USD. If you look it up, remember, sometimes, like, for example, if you just Google it, you will get the market cap

Starting point is 00:25:12 in Canadian dollars. And so you have to like, and whenever you do, whenever you look at their accounting, it's usually in USD. So you sort of like have to have to separate the two. But yeah, so Constellation software, they buy small vertical software businesses often below $10 million. And if you're like, what is a vertical software business in the first place. It's a company that or a piece of software that's tailored to a specific need of an industry. So think about the software your hairdresser uses whenever he's booking you for an appointment or the software that the bowling alley uses whenever you go there. So it's highly specialized and it's very, it's very sticky. Constellation aims to be a perpetual owner of these small businesses and they want to buy,

Starting point is 00:25:59 hundreds of them. And they're close to having a thousand businesses now. In 2002, in 2022 alone, Constellation bought 134 of them for a total of 1.7 billion. So they're quite active. And it also covers a wide range of deal sizes. Traditionally, it's been as low as $5 million, but, you know, last year, for example, they bought a Terra for 727 million. So it's an all sizes. And they typically acquire them at a low multiple for, say, one to two times revenue. So you can more or less think of a constellation today as a private equity vehicle with permanent capital. It just happens to trade publicly. But, Harry, I know you have to go here soon. And so I just wanted to throw it over to you and give your thoughts before I continue here on my

Starting point is 00:26:51 pitch. Yeah. I think as you were rightly touched take, I think I want value investors and also a lot of tech folks who are also into value investing, Mars Leonard is a legend. And I think the what he has accomplished is phenomenal. And interestingly, both my pick and your pick are Canadian companies at this time. He has this ability to identify software companies that are basically operating in a niche. And they probably will not grow. It's almost like cease candy for software. So he has many seas candy.

Starting point is 00:27:23 So that's one interesting thing. Buffett couldn't find, probably Buffett found other Seas Candy. candies. But Mark has never scaled up. He has never tried to buy big companies, which is a good thing. The only thing that in the last few years, and he actually acknowledged it, that it has become harder and harder to find good investments in the software sector because of the height and because of a lot of cash flowing in. It's almost like what Toby was saying, like good ideas get copied really fast, and there are so much of money coming into Silicon Valley, software in general, people even started buying companies that probably concentration would

Starting point is 00:28:06 have bought for very high multiples, which obviously, in consideration, would never pay. So my main concern is the competition and how are they going to replicate, going back to another point that will be made, like, is it a replicable strategy going forward? How easy is it? Are there natural barriers to entry for other players to come in and invest in these kind of deals, either because of the size of the deal or access to capital or regulatory issues, if consolidation has an advantage over others? If not, and this multiples, it becomes hard to by constellation because then you're baking in that for a foreseeable future

Starting point is 00:28:54 we'll be able to duplicate what they'll be in the past. That's my main concern, but I love the company, I love the CEO. It's one of the best, but my main concern will be that. I think you bring up a good point and it's the main risk. I took in like three different types of risk.

Starting point is 00:29:13 I know it's easy for me to say at the top of my list here. And Maglena actually addressed this in one of his year-holders letters, that the barrier to compete with him was a checkbook and a telephone. He literally said that. And so he's very humble about that. I would say that there's more to it.

Starting point is 00:29:31 I do think that they have a moat, but I think that there's also something to be said about how competitive the industry has been. He also talks about in this letter, and I should also mention that you can find his letters on the website, and they're absolutely amazing. So if you're one of those who have read

Starting point is 00:29:46 Buffett's letters or an explicit, letters, like you're actually going to love McLean's letters. Unfortunately, he started to write fewer and fewer of them. He said that now I only want to write something whenever I have something to say, which apparently is not often. He also, going back to the risk factor you talked about before, he also talks about how his employees are being poached by competitors. And so it is like, you're right.

Starting point is 00:30:11 It's very, very competitive. And let me go to risk number two I have here on my list, disruption, that's just like inherent in what they're doing. So it has traditional always been vertical market software and it's much cheaper to create software today than it's ever been. It's probably only going to get cheaper. Cloud computing is getting cheaper and cheaper. AI will disrupt it and make it like, and as much as it's sticky, what they're doing right now, it will become cheaper and cheaper and easier and easier to create that software. So that's definitely a risk size. That's also a drag. And in all fairness, we can probably say that about

Starting point is 00:30:46 most companies. And you always have this balance between you want to have a proven track record, but at the same time, you also want a lot of runway. So it's always like you want to have your cake and eat it too. But it is tricky. And Maglena also talked about this in one of his letters. And I might, I think he said something along the lines of, I'm just perceiving, pull this up, that they're like 70 to 80 big companies that go into the market and they're not aware of all of them and they're only invited, I think it was like 16%, that's just off the top of my head they were invited to because it's not the company that brokers would typically invite you to bid on. And whenever you are at that size, you would very often go through brokers.

Starting point is 00:31:27 Whereas if you have like a $5 million or $10 million acquisition, it's like the owner doesn't want to run it anymore, looks for a way out, and they're there to pick it up. And it's like, it's a very different competitive situation. Whenever you reach a certain size, they're like they're more bidders that drives up the price. You typically also have sellers that are not as motivated and they're probably more sophisticated financially and will get closer to a market-based price. So one of the challenges, and this is also something that Mark Leonard had as hinted to quite a few times, has been about the hurdle rates and potential lowering the hurdle rates for big acquisitions.

Starting point is 00:32:02 And there's a big asterisk here. He talked a lot about how it's magnetic and you cannot do it overall, but how it might be the case for big acquisitions. And whenever you employ as much capital as they do, you have a natural ceiling at some point in time. You've seen that not just with Constellation Software with so many other conglomerates. And that just translates into a lower turn on investor capital and hence also a lower expected stock return.

Starting point is 00:32:28 So I don't think I had a good rebuttal to your criticism. I think I just agree to do that. And so very much, whenever you're going to value it, we're going to talk a bit about later. It's garbage in, gabbits out. How long can they sustain these type of return in investor capital? probably not for decades like they have in the past. And so you're going to see a different, you've got to see that differently.

Starting point is 00:32:50 And I'm not sure if that's baked completely into the current valuation. So Hardy, I want to throw it back over to you. No, I think fair point, Steve. I think, again, you never know. They might be able to replicate. I'm not saying they'll not be able to. But I think it is prized in to the stock now,

Starting point is 00:33:09 that they will be able to replicate the way I see the multiples. And that's my concern going forward because I don't have any optionality to the upside. So what will be the surprise to the upside is what I'm looking at. But definitely if the price is right, I would peacefully won this company for a long time. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You got long days of daylight, incredible food, floating saunas on the Oslo Fjord.

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Starting point is 00:37:33 dot com slash WSB. All right. Back to the show. They have two different modes. One is the, I grew up one and call it culture management reputation. And then the other I would call that data. So they have a very strong culture. And like you also said before, Harry, like Mark Leonard is, he's a legend.

Starting point is 00:37:53 And he has this very unique way of running the business. And for example, he hasn't issued any. since the IPO in 2006. And he also makes sure to align the interests, not just for himself, together with his family, he has 7% of the shares, but he's doing so many things

Starting point is 00:38:11 to align interest with him, with his directors, and with the shareholders. So one thing, he doesn't take any salary anymore. He used to. He used to travel economy. He used to stay at very modest hotels.

Starting point is 00:38:23 And so that's not the case anymore. He said that he's getting a bit more, he's gotten a bit more comfortable with life. So now he wanted to travel. Philot, too. Right. So he wanted to travel nicer. And so he's paying that out of pocket, which is an example to follow.

Starting point is 00:38:41 And he said that he wanted to be a good example before and also think he's a good example now, but he wanted to be a good example and not free loading on all the shareholders. That's not the type of things you typically hear from CEOs of, you know, big companies. Then, executives, they must spend 75% of their after-tax bonuses on Commentsias, and very importantly, they have to buy them in the open market. Senior employees here defined as more than 75K in base and more than 10,000 bonuses must spend at least 25% of their bonus on buying consolation, and then there is an escrow in average of four years.

Starting point is 00:39:18 And non-employee members of board of directors, they must take their entire fee to purchase comment she asks. And so you have to love how they're incentivized their own team and making that consistent with the shareholders. So the other competitive advantage would be data. They have a lot of data available more than their competitors. And this is not just on the acquisition side, which is also very important. It's also on the operational side. If one of their business unit managers is considering whether or not one could do XYC, they can actually go into the database and see what happened last time we did something similar. So it's a very interesting system. We don't know too much about it. It's an IP, but what we can sort of like glean from the public information

Starting point is 00:40:02 that we have, it's been quite efficient for them in terms of operations. So you see these wonderful returns like 20% plus annually, which is just amazing. So yeah, now the question comes, like, can they sustain that? Yeah, actually, if I may, I know we haven't let Dobby speak yet. So I would, I I'm actually curious to know what Taui thinks about the valuation. But one point, I wanted to highlight what you said, the second point, data they have and also the operating capabilities they have built over a period of time in-house. What we haven't seen or what we haven't factored in so far in our discussion is the organic innovations that can come out of this company rather than always looking for buying

Starting point is 00:40:45 opportunity. Now, that is not talked about much. So that upside is very hard to put a value on because you never know. It's not really zero cost, but it's not like you're buying another company. But each company that conservation has, the data they have, with the AI, if they can keep innovating and expanding their earning capability and market share, that can also produce organic growth, which I have not looked deeply into to kind of have an opinion on. But that's one point that probably I will take away from this discussion, which I had not thought about before.

Starting point is 00:41:23 Yeah, you bring up a lot of great points there about organic growth. And this is also something. I'm referring those letters quite a few times. I'm going to do that again because they're so wonderful. And even if you're not interested in consolation software, just read the letters and get a business list. It's absolutely amazing. And so one of the things also to consider here, and this is something my glance, discusses is he outlines for actually quite a few years, he outlines the organic growth and how

Starting point is 00:41:51 that is composed. And then he actually stops doing that some part in time, which is partly because he feels that it would give his competitors a competitive advantage, or at least it would give them more information that they should have. I probably shouldn't say competitive advantage. I think that would be the wrong way of using that term. But he would give them too much information that they don't need to get. But also because it becomes a little less relevant considering where the company is now. We're going to get back to some of the accounting later on that. And so now he talks about using different valuation metric to capture the increase in intrinsic value. But that component is really interesting. You also have to

Starting point is 00:42:28 consider that, yes, we would all, of course, always like to see organic growth, and that is a very important component. But really, whether hurdle rates are, which is typically between 20 and 30, depending on the type of company, or the target internal rate of turn, I should say. we also have to consider what kind of multiple are they paying. So they can go into a company that has a declining business, but if the multiple that they're paying is low enough, it can still be worth them acquiring that company. So yes, we want organic growth and yes, we want to optimize that,

Starting point is 00:43:02 but it also comes back to what do we pay for it in the first place, which is also why lowering that herd rate. They actually adjusted the hurdle rate three times, and they had not have good experiences with that. because it's like magnetic, it sort of like drags down the entire company whenever you do that. Sorry,

Starting point is 00:43:19 you're smiling, Toby, so I'll go to throw it over to you. I like, I like lots of other value investors. I like Constellation and like lots of other value investors. Every time I look at it, I think it's too expensive. So it's hard to,

Starting point is 00:43:31 it's very, as you say, it's very hard to find a good entry point. And if anybody has to look at the chart, have a look at the chart over the last 10 years. It's this very consistent. It doesn't draw down much. It's basically you could,

Starting point is 00:43:43 take a ruler and draw a line through it. They had a little drawdown in 2020, and otherwise, really, it's hardly drawn down at all. The way that they're able to achieve it is it's like Brookfield, it's a listed private equity is a good description of it with a specialisation previously in vertical market software. And it's the, they'll do a bigger acquisition in some sort of new vertical market, and then they'll do some other bolt-on acquisitions around that,

Starting point is 00:44:11 and they'll continue to buy. And so it's not Mark Leonard, making 100-something acquisitions a year. The acquisitions are all astonishingly small. The acquisitions have always stayed small. There's a few charts floating around that you can find that. I think that they're still buying the average is still like two something million dollars in EBITDA a year, which is tiny.

Starting point is 00:44:32 That may have changed with the more recent big acquisition. But I think that reading those letters gives you a good flavor of what they have achieved there. And there are lots of other people out there trying to replicate that because it's a very good idea to buy those things. As long as you're disciplined about what you pay and the way you incentivize people after you've made the acquisition, that's a very good business, you know, and their business is acquisitions. I think that the problem for them is that they are, I do think that they are running out of runway a little bit with these companies. And I think that, I don't think I imagine this, but I think Mark Leonard, I think they made some change over the last year or so

Starting point is 00:45:09 where they said we're no longer going to just be exclusively focusing on VMS. I think we're going to be a more traditional private equity firm. I'll essentially buy anything now. Is that the case? Yeah, that's correct. Yeah. So that's, I think I'll probably be able to do that without much, without changing too much. But it's worth noting that it is outside of their core competency, which has been software

Starting point is 00:45:31 and now they'll be doing other things. And probably they have to go up the food chain a little bit to buy slightly bigger companies, all of those things just add a little bit more complexity and make them a little bit more difficult. But I still think it'll be, provided they keep that same approach that have worked where they exercise discipline about what they're prepared to pay. And I think that's why Mark took it out of the letters because you can sort of back into what they will pay and then know that if you're just prepared to pay like a turn above

Starting point is 00:45:58 that. I always thought, you know, Buffett used to say he doesn't get entered into the competitive auctions because he doesn't like because once you know what Buffett's going to pay, there's your floor and you know he doesn't bid again. So you just bit a little bit over Buffett. I would pay a small premium to buy something that Buffett wants to pay. I mean, you do that in the market all the time, right? If Buffett or Apple for whatever he paid for a hundred bucks, you'd be prepared to, I'd pay 110 for it. And I'm still going to get comparable returns to what he has done. And I think it's the same thing. There are enough young guys with MBAs and some capital behind them running around

Starting point is 00:46:31 trying to replicate the strategy. And if they can back into what he will pay, then they can bid just a little bit over and know that they're not going to face any competition. So I think all of the DNA that got them to this point still exists and that's the discipline and the incentives mostly and then their cost consciousness, which, you know, an example of that is the way when it flies, that all exists, but they are going to transition over the next few years into outside of software. And probably the size of the acquisitions increases a little bit of a lot. That's not certain. So I think all of those things together, I mean, this is a pretty good bet, but I'd be inclined to kind of wait. There will be a moment over the next few years at some point. Every year,

Starting point is 00:47:12 the average stock, I think, goes up and down something like 3x. So you just pick your spots and wait, have your list of things that you want to buy. Constellation might be one of them, where in a pullback, you could buy some of this, and that would de-risk it a little bit. But I like, you know, I like everybody else, so Mark Leonard's got an extraordinary track record and it's worth it's worth keeping on the watch list at the very least. Are you leaving us, Harry? Yeah, I have to get to my meeting now. All right.

Starting point is 00:47:42 Thank you. No worries. Yeah. See, Harry. Yeah. Bye. You bring up a really good point about the future here at Constellation, because after all, you're not buying the past,

Starting point is 00:47:51 you're buying the future as it is with stock investing. And I think there was something to be said about Maglena is not a software guy. He's a capital allocator. At the same time, I also completely agree with you whenever you say that there's a learning curve there. Like he won't just hub into something completely new and be just as successful, part because of the size there are, but just because what's inside or outside of the circle of competence.

Starting point is 00:48:16 And it's tricky, right? So right now, Constellation software are not approximately 100 verticals. Verticles as in healthcare could be a vertical. And so nothing really stops competitors coming in, just competing in one vertical and really have the call competition. there, and that's tricky. Now, I do think that there is a competitive advantage in the systems that Mark built, and he's now implemented.

Starting point is 00:48:41 I think I want to say they have six operating groups that are sort of like, you're right, Toby. It's not like Michael Lennon, he's sitting, like browsing through all the, all the acquisitions anymore. Like he used to whenever they're much smaller. So all of that is decentralized, because it's also one of the things that do really well. I'd say that those systems are probably difficult to replicate. I'm not so much talking about data, even though I think that's another.

Starting point is 00:49:02 point that we already covered that's hard to replicate. But the financial discipline, if you have a really good system with financial discipline, that is hard to replicate because there is a bias to breach that discipline. And if you have a traditional business background, at some point in time, someone has said to you, you should continue to invest as long as your whack is slower. And if you're not confused, you don't understand it probably right now. But basically what it means is that you should invest way too much and say if the interest rate is low or you have some kind of arbitrary stock market expected return. You can always put into an Excel sheet why you should continue to invest in something because so many people have an incentive for you

Starting point is 00:49:46 to continue to invest. And so that discipline that they have where they have been accumulating cash at times where others haven't because they would rather sit on that cash or pay it out as a special dividend. They actually made a small change with that with a sort of like different discussion because they still want to target those high herd rates. I do think that that's a competitive advantage because you might have someone coming out competing with them and they start out having that financial discipline with those high herd rates. But the way that incentive systems are set up, you know, everyone wants to get, everyone wants to get bigger and if the internal rate of return is not 25 anymore, but 18, it still seems good and now they can take on leverage. There's like,

Starting point is 00:50:26 There are so many things with the biases where it's just very difficult to do exactly what they're doing. Or they would be competing with private equity. They would take on a lot of debt or do leverage buyouts. So there are so many components to that. I should also have mentioned before that a competitive advantage would be the preferred buyer status. I do think that to some extent has probably been a bit overused in Yo, Bye, by we think of Berkshire, McKell, Constellation. But there is something to be said about founders generally want to sell companies to perpetual buyers or owners, I should say, and not necessarily to your random heads fund or private equity that would slice and dice it, use a lot of leverage and then resell it afterwards.

Starting point is 00:51:10 So I also just wanted to mention that. Toby? That is real. There are a lot of private equity firms around, particularly in software where they acquire them, strip out all of the costs, like strip out all of the employees. and continue to operate them on this bare bones basis where they've got recurring revenue, and that's how they maximize the value of those things. That's very, very common. And so it is an advantage to say our culture is we don't do that.

Starting point is 00:51:39 We will preserve your existing culture and team. And we assure you, we guarantee that we will do that because we're going to keep on making this claim in the future. That's why we operate, which is what Berkshit has done. and which is part of the reason they've been so successful and have become a preferred acquireer because there are people who spend their entire lives building businesses and have relationships with the people who work with them

Starting point is 00:52:03 and don't want them thrown out on the street when they leave. But, you know, the cost of that is they don't maximise the price when they sell. And for some people, they just want to maximize the price when they sell and that's how they achieve those ends, which is also fun. I think that CSU is like, Constellations like, it is sort of at that level now where it's a Berkshire-type conglomerate where people know who Mark is, they know that they have a way they operate,

Starting point is 00:52:28 they've been doing it for a long enough period of time that they probably are a preferred acquirer. So I think that's fair to say in relation to CSU, but I agree. It's used far too often. Yeah. And last time I interviewed Manus and we're actually talking about Constellation. He talked about how in some cases, Constellation Software was like more or less the only way out for some venture capital companies. Because like, so whenever venture capital and Mark, Mark, Mark, has a background in venture capital. Whenever they have a portfolio of companies, they would expect quite a few of them to go bankrupt, and then they will all be saved by those high flyers, your Amazon's of the world that would sort of like make the returns. But you also have this middle

Starting point is 00:53:06 segments that sometimes are referred to like walking debt. And it's like those companies that are too good to kill, really, but they're not so good that they're going to be the next Amazon. And it takes focus away from those venture capital companies if they have to sit on the board and doesn't really go anywhere. So they have an incentive to sell to a company like Constellation and form that relationship with the company. Yeah, I hadn't put it. That's an interesting, that's an interesting idea. There are, they do follow that model where it's one or two big winners out of 10. And then there's one or two big losers and then there's whatever it is in the middle, six that tastes like chicken.

Starting point is 00:53:44 You've got to do something with them and, yeah, and acquire it. I acquire like CSU works really well, Constellation. So I just quickly wanted to touch on the evaluation and kind of feel I've been monopolizing a bit too much time here with my pick. So what is Constellation Software worth? It very much depends on who you're asking. If you just look at it on a pure multiple basis, today at the time of recording, is trading it 29 times free cash flow.

Starting point is 00:54:13 Historically, that's been quite expensive. and you might say that historically, if that's been expensive, say over the past 10 years, that's not good because it's more or less never been bigger than it is now. So it's sort of like what it is. But I would also say that, first of all, I don't necessarily think you should value it based on free cash flow. I just wanted to abuse that because it's a somewhat standard benchmark to use. And I sort of like to give you an idea whether the evaluation is that. But like we talked about before, you're buying the future, not the past.

Starting point is 00:54:43 free cash flow has been compounding 26% annually since its IPO, 23% annually all the past 10 years, very, very high quality company here. So can they sustain that growth? Probably not. And so we also need to factor that in. One of the things I was sitting on before there was that in Magalena's earlier letters, he was talking about how you could look at the delta in intrinsic value

Starting point is 00:55:12 by looking at the return on invest capital, and then you would add the organic net revenue growth if you had to put that into a single metric. And as we all know, there are no perfect single metric like pick your poison. All metrics have their advantages and their disadvantages. And he also talks about how perhaps that's not the right metric anymore, considering when the company is. And he talks about why you should be looking at the free cash flow and not just the simple free cash flow.

Starting point is 00:55:40 because if you do that, you know, you also have to, there's this element about excluding amortized intangibles, for example, there are other items too that you can go into where he's saying, let's take a bit more conservative measure here. And whenever you do that, you actually have the accounting loose look less attractive to you as an investor. If we do that adjustment, before I said that the free cash flow, like the traditional way of measuring was 29. If we do the other, the one that he suggests, we, TGMs, or sorry, the last 12 months, we get just short of a billion. And the market cap is 42 billion right now.

Starting point is 00:56:19 And so there are a few things to that. I'd say it's probably a conservative number. I think that's one thing. But I also like what Mark Lenn is doing about under-promising and over-delivering. And the other thing I also just want to say would really speak highly about who he is, is that when everyone else are doing adjusted EBIT or whatever they were doing. Like, they do whatever they can to make the accounting look more attractive. I love how Mark Lennon is doing what he can to make it look less attractive.

Starting point is 00:56:46 I mean, how amazing is that? I think for something like this free cash, that was probably the right metric. I'm not sure whether this is, yes, Canadian dollars, 59 billion in enterprise value. Market cap of 56.5 billion Canadian. So market cap USD is 42 billion. V 44 billion. So it's got a couple of billion dollars in net debt in there. Just trying to find that.

Starting point is 00:57:13 What was your multiple for free cash? Let you say, 29. Yeah, 29. Yeah. And I think that's a little bit of a premium to where it has been over the last five years. And you can look at, you can go back to sort of 2013 or 14. So 10 years ago, it was on 20. So it's expanded.

Starting point is 00:57:28 You're paying another 10 times over that period of time, which is, which when you look at the chart, you know, they've had good free cash flow generation and good multiple improvement, which in some ways, Constellation's very well known and value guys are always watching it and watching it very closely, so it never really gets too cheap. Well, that's a good thing in the sense that once you hold it,

Starting point is 00:57:48 you're not going to have that big vomit that sometimes happens in stocks that panic people out. But then again, we haven't seen what it looks like through 2000. I haven't seen, you know, a scenario like 2008-2009. I think it'll be perfectly fine because it's cash flow generative, tends to hold cash flow, probably

Starting point is 00:58:04 benefit from something like that because it'll make some acquisitions through that period of time of better valuations. I think the valuation is a little bit stretched here for me, which would mean that Ford returns will be lower than they have been historically. And so like I said earlier, I'd be more inclined to wait for maybe like a, not a company-specific stumble, but just a market-level stumble, which, you know, they come along. You just have to be patient. You get probably one every year or so.

Starting point is 00:58:31 And you get that when the sentiment is very bad, often that's a good time. You go and pick up the higher-quality companies. like constellation. So I think the valuation is, I think it's, I don't think it's outrageous here. I don't think it's an insane valuation where you're going to lose money on it. I just think it's a valuation that is full and the returns are probably, you're really depending on their ability to execute at an operating acquisition level and that, you know, they're transitioning a little bit from where they have been previously. All those things together, I think, probably more like a watch list, wait for market level weakness and then buy something like this

Starting point is 00:59:09 would be the way that I would think about it. And I don't know where, I don't know what the fair value is, but it's probably trading around it now. So a discount to that. That would improve your Ford returns. Yeah, I completely agree with you. I put in here in my notes, I said it's fair value slash on the expensive side, considering the outlook, considering the assets that they own. But, you know, it's one of those things where, and you know, who, knows. Someone might listen to this in like 10 years and who knows what they see. Like they've been at like, I'm sure it'll be up. I'm sure it'll perform fairly well. It's just, you know, there's an opportunity cost to. Are there other better opportunities that are cheaper, the less demanding,

Starting point is 00:59:48 probably? Yeah, because it's not like, it's a great company, but it's certainly not selling at a discount. And I know there's this quote about it's better to buy a wonderful company at a fair price and the fair company at a wonderful price, but obviously we would like both. And that's probably not the case right now for Consolation Software. As much as Buffett says that, he does tend to play. He does tend to pay wonderful prices as well. He wants wonderful companies at wonderful prices, if we're being honest. Don't we all. Don't we all? Yeah. Yeah, so that was my pick here for today, Constellation Software. Toby? And now for something completely different. Whenever I looked at it, I was like, I always introduce it as something like, this is such a Toby kind of pick.

Starting point is 01:00:32 And I look at it and I thought to myself, this is such a Toby kind of big. So let's go ahead. I should introduce for people who don't know me. I'm a deep value guy, which means that I prefer fair companies at wonderful prices to wonderful companies at fair prices. I run two deep value funds. They're both ETF, ZIG, which is mid and large cap domestic US and deep. which is, these are the tickers deep, which is small and micro-domestic US. I like to buy little operating businesses that have, you know, replicable cash flows or not necessarily,

Starting point is 01:01:11 that they don't necessarily have great economic moats, the way that it's not necessarily a Buffett stock that has that defensible moat. It's just that it has a very, very undermining valuation. And it doesn't need to do much to get reasonable returns out of, the business over the next, say, three to five years, which is normally my, that's my aspirational holding period. You know, sometimes that tends to be a bit shorter because often these things, what happens is there's some event that makes them cheap. And over a period of 18 months, people just forget about it. And it kind of goes back to probably what is closer to a fair valuation, at which point I'm moving into something else that's also a disaster. So my pick today is Winnebago.

Starting point is 01:01:55 probably everybody knows what Winnebago is, but they make the RVs that you see. They own a number of brands and they have done a few acquisitions over the years. So the thing, let me just give you the stats and then we can talk about a little bit. It's currently trading at $64, which gives it a market capitalization of $1.9 million. So this is a small company. Enterprise value is $2.4 billion. So that means there's about $500 million of net debt in the market. there and EBIT is about 300 million, which means it's trading on an eight times. What I call

Starting point is 01:02:31 the acquires multiple. So you could pay it, you pay eight times or you could think about it as like a 12 and a half percent EBIT yield. Pays a dividend yielding about 1.7 percent at the moment. Over the last few years, Winnebago is an interesting company. So they had to shut down operations in the very depths of COVID. And then they were a big COVID beneficiary. when people couldn't fly internationally and they couldn't travel, people bought Winnebago's and all of their other brands. And there was a bit of a Winnebago glut, a bit of a hangover. I've just come back from vacation on a lake. You could drive past all the last few years every time we drove past a yard,

Starting point is 01:03:13 it'd be filled with these RVs, secondhand RVs for sale because people bought them, don't need them anymore and sold them. And so they had this extraordinary growth run, where they went, they probably pulled forward a few years of demand through 2020, 2020, 2021, 2022. The stock peaked in 2021 in May at $84. So it's $64 now. So it's about $20 lower than it was two years and a quarter ago. The low was March 2020 and it traded at $20. Norbert Liu, his punch card investing, he holds very few securities. I think he holds three. He's a good investor, Winnebago is one of them. He's got a 13D, which is an active note where he was critical

Starting point is 01:04:01 of when they shut down operations in Q3, he had been asking them to pay down some of the debt, sorry, he had been asking them to pay down some of the debt because they've been carrying too much debt as a result of these acquisitions that they had done. And while he says in this note, while COVID wasn't foreseeable, it was foreseeable that something would come along. And this is my view, too. There's always businesses stumble all the time and you need to have some margin of safety in the business so that you see the other side of whatever you go through. They stopped paying some of their employees. He brightly pointed out that all of the C-suite was still collecting very nice compensation packages through that. And he just said, you should have paid down the debt.

Starting point is 01:04:38 You should forego some of your salary and so on. His purchase price is about $30. So, and his, that was Q3 2020 and before then he's had $70 million in Holt across about $2.4 million, $2.4 million shares, about $30 on average. And now it's trading at 64, so you're paying quite a substantial premium for that. You can see when you look at the financial statements, you can see this sort of the pig moved through the Python of their 2021 and 2022, where 2021 they earn 23% on equity, 2020, they own 25% on equity. This year, they're going to earn about 15% on equity, which I think is about a little closer to their long run rate, maybe around 15%.

Starting point is 01:05:26 The low in 2020 was still 7.5%. So that's still a pretty, you know, given the backdrop, not a bad year for them. It's not just Winnebago. They own a few other brands. They have this thing called Grand Designs. They own Newmark and they have some boats, some like pleasure craft type things, Chris Craft and a pontoon boat brand that's just the name just a sketch. a little bit at the moment. They have all of these businesses that they've acquired,

Starting point is 01:05:57 and I think they've done pretty well with these acquisitions. What I think is interesting about this stock here at the moment, there are, you can look around at the various different, there's a very widespread an opinion about what this stock is worth and what it's going to do in the future, and that's caused by the COVID, the COVID bump, the COVID stoppage, and then the COVID bump has sort of muddied the water a little bit. It's very hard to work out what the run rate is likely to be in the future because they've got to work through probably a little bit of the glut. So I think the analysts estimates here are kind of interesting. So this year say it's around 300 million, maybe a little bit more than 300 million. The estimates are

Starting point is 01:06:37 for next year, 360 million. So that's 2024. 2025, it's almost 600 million. And to 2026, it's almost 650 million. And so those numbers, if they do, eventuate paying $1.9 billion in market capitalization now enterprise value about $2.4 billion, or in 2026, which is four years in the future, three years in the future, you're paying, you're going to get 650, which is about double what it's currently earning now. So if that does eventuate, I think that's the way that this, you know, that's assuming no multiple expansion it has traded at a higher multiple in this. It's also traded to the lower multiple than this,

Starting point is 01:07:23 but this is a fair multiple, I think, a fair to undermining multiple for this eight times. So I think if they do achieve 650 out four years, assuming it's still trading on eight times, that's two and a half times in stock price performance. Sorry, two and a little bit times stock price performance over four years, which is, I think that would be a sufficiently good return for what is, the businesses, you know, people recognize the Winnebago brand, but the reality is when you go shopping for

Starting point is 01:07:56 these things, they all basically look the same. They all basically look. And the interiors are very similar. Nobody's buying it because it's Winnebago, although it might mean that they don't, it might be hard for new entrants to come in, but there's plenty of competition there already. So I think it's, I think it's a reasonably low risk purchase here. And I think that, I think that there's reasonable upside for the risk that you take over a period of the next two to five years, which is sort of the kind of business that I like to buy. And I buy them as I buy a basket of these things. So I hold 30 of these names and I rebalance that basket on a quarterly basis back to equal weight

Starting point is 01:08:37 until I find a better opportunity. So this will either run up and I'll rebalance it out or it will not perform and I'll rebalance it out because it didn't sort of perform and I find a better opportunity. So that's how I think about it. I do hold Winnebago in the fund. It's a 3.3% position. It hasn't done much since I bought it. Not that I would expect it to.

Starting point is 01:09:00 It's only a recently recent acquisition. So that's how I think about it. I think it's a reasonably undermining valuation. It's hard to sort of see where it normalizes because we've had some very strange last few years, particularly for Winnebiger. But I think if the analyst estimates eventually, then it's very good value here.

Starting point is 01:09:23 So, Toby, I always like your picks. And this is no different. There's a little hair on it, which is just the premise of buying something in a single digit multiple. And then I can, like, show you a company that constellation that has very little hair except for the valuation.

Starting point is 01:09:41 So it's all like two sides of the same coin. But whenever you look at the financial statement, It's kind of, it's, it will be so interesting, sort of like to your point about where it peaked in COVID and now you can just see the margins are contracting and everything is contracting and like, see where it ends. One dynamic that's quite interesting is that they are, so they're in three different businesses, right? So they're in the RV, tour balls and boats, which are generally oligalistic markets, as they call it, which is basically a fancy word of saying they're just very few. And so, for example, in the RV market, they have. they have 10% marketia. I think it's increasing. The Thor Industries would have just a 40-ish, and then Berkshire owned Forest River, close to 42. The rest would be like one point in whatever

Starting point is 01:10:27 kind of market share. So they'll be very, very small. And so, and you can more or less say the same thing about motorized, for example, where they're only those three players. And then they're some very small ones. And so the reason why I bring this up is that as a shareholder is typically a good thing, not as a consumer, but as a shareholder, it's simply a good thing if they're very few players, because they can communicate with each other how they want the prices to be. That's illegal, I should say, but there are ways to do it that is not illegal. So, for example, they can go in and say something like, I think monies have used the example of micron in semiconductors, for example.

Starting point is 01:11:04 There are only like three in that specific type of industry for the memory ones. and he said that they actually make like public statements about what they want the capix to be and then they sort of like signals to each other what they want to do and as long as that's public information that's perfectly fine but if they call each other and say this is our capex what do you want here that's that's definitely illegal and so you would have these these type of market structures where you have very few competitors and they were going to outcompete you know, and drive the margins down, that's the type of companies you don't want to invest in those markets, or they can sort of like signal that to each other what they want to do.

Starting point is 01:11:45 So for example, if all the, like, if the three big ones here in the industry decides to compete on everything else than price, which you very often see if they're really smart, then they communicate to each other. That's the way we want to compete. We don't lower our prices, which means that the others won't lower their prices. So as a consumer, you don't have that optionality because you don't have that competition in the space. And so, So whenever we look at the business or the bold thesis for this stock, it very much depends on how they communicate that they have too much inventory right now. Or to your point before Tobler said about, just like people are selling the Peloton bikes,

Starting point is 01:12:21 they're also selling their obvious that they bought during COVID. And so I don't know how that's going to play out. I think that would be my big question mark. And also, they have been gaining market share here recently. I don't understand the product well enough to know why Winnebago's, why their products are better than Forest River. I don't know if there's anything there to be gained. And even if there is, I don't know how much of that could just be replicated. Yeah, I don't think there's much, honestly, I don't think there's much differentiation between these products. I think that anytime

Starting point is 01:12:56 they come up with an innovation, it's very rapidly copied by their competitors. I think the really big negatives, Winnebago, putting aside the fact that the last three years are very hard to handicap because of the effects of COVID, the stoppage, and then being the beneficiary of people not being able to travel. It's also, it is a real kind of luxury item. It's really the last thing on a long list of stuff that you would buy. So people tend to buy them when they feel good. I don't tend to buy them in bad times. And probably we've gone through a period where people have had a lot of disposable income. Perhaps we're going into a period where people have got a lot less disposable income.

Starting point is 01:13:35 It's hard to, you know, the last time we had a real recession in the States is 2007, eight, nine. And since 2009, it's grown very strongly what it looks like if we go back through a proper recession. I don't know. I'm relying a little bit on the analyst estimates here where, you know, they're saying revenues this year, they're projecting like $3.6 billion, flat next year, 3.5, but then 4.8 and over 5 billion, I've got no idea really how likely that is to eventuate.

Starting point is 01:14:04 I'm sort of saying that on a steady state basis, eight times is probably a fair value multiple. And then if any of this growth eventuates, then you get, that's all of the upside. That's all of your outperformance. And I think it has demonstrated that it can survive through a difficult time and they've de-risked a little by paying down some of their debt. And a lot of that debt is, it's come from good acquisitions. they've bought these other marks that they have. All of the positions that I have are going to be,

Starting point is 01:14:37 there's going to be hair on those positions. There's a reason why they're trading where they are. And that's the real issue for, it's very cyclical, and that's sensitive to the economic cycle, it's sensitive to how consumers feel and their disposable income. They've gone through probably from 2009, bottom of the last recession through to 2019, say, which was their, last year pre-COVID, really good growth through that period. Probably that's an expression

Starting point is 01:15:03 of how people were feeling. Stoppage in 2020 and then another like really good few years. To what extent that is representative of the next 10 years? I don't know. It seems unlikely to me that it'll be as good as that. But I don't think it's, I don't, I think the downside risk is very low. I think the donut risk is very low. I think it's probably cheap to fair value here. And then if these growth rates do eventual it, then it will prove to have been way too cheap here. So that's the sort of, that's the, that's the, that's the, that's the, that's the thesis. And I buy these things as one of 30 names in a portfolio and it's a 3.3% position. So I'm prepared to take a little bit of upside risk in something like this that, my, my view is that

Starting point is 01:15:51 probably the, I don't want to say the worst case scenario because I don't want to be proven wrong. subsequently. But, you know, my base case, my base case assumption is basically where it is over the next three to five years. And I think that there's some good potential for upside here as a part of a basket where I include a lot of these names and there'll be some winners and some losers out of that basket. And that's generally how I think about it. I should say that my pick from last time is my worst performing stock out of my entire portfolio. So that was virtue. Sorry to everybody who followed me into that one. I still hold it. I still think it's cheap, which we'll have to circle back on the next quarter and see how it's done. Unfortunately,

Starting point is 01:16:32 that pick was, that pick is probably needs a little bit of more volatility in the market, which we haven't seen just yet. We've been at pretty benign markets for this period. But I think that, you know, where I've had to apologize for the performance of, you know, deep value for years and years now, the last few years have been a little bit brighter for deep value. And a lot of the multiples that, you know, I've been, I've talked about the spread. between the most undervalued and the market or the most overvalued. That has started to close pretty materially and that has sort of manifested in better returns for deep value tended to outperform the market over the last three years,

Starting point is 01:17:07 which is, you know, taking us back to about, that's just after the COVID bottom and then, you know, out the other side, which is typically what I would expect value to do best. And I think that the spread still remain very wide and the fold returns still look pretty good to me across the portfolio. Wonderful, Toby. It's always great chatting with you and Harry about what's on Amman and what we see in the market. Before we end this conversation, please give a hand off to your audience and where they can learn more about you and what you're up to. I have a website, Acquireasmultable.com and my funds are on Acquireasfunds.com. Acquireusfund.com is

Starting point is 01:17:48 the zig. I've written some books. They're all on Amazon under my name, Tobias Carla. The last one was Acquiris multiple. It's a bit of a theme there. I'm on Twitter at Greenback, G-R-E-N-B-A-C-K-D. And I always love doing the shows. I get some great feedback from everybody. So thanks for having me on stick. It's always great to chat.

Starting point is 01:18:07 It is always great to chat, Toby. And I look forward to in the next one here in three months-ish time. Thanks for having me. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up. and customers now expect proof of security just to do business. That's why VANTA is a game changer.

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Starting point is 01:21:37 In this segment of the show, as I'm letting go of Toby and Harry, I want to welcome my co-host Clay Fink. Hey, Clay, how are you? Doing great stick. You know, we just started this recording and it's a Tuesday morning here and I forgot to hit the record on the video. So here we go again. Here we go again. As the listener can probably tell, not recording right after I'm speaking with Toby and Hari.

Starting point is 01:22:02 We've been doing the first part of we encoded that of the episode, which is the quarterly mastermind meeting that we had for, I don't know, I want to say since 2015 or something like that. So the key word there is really mastermind. and perhaps a lot of our listeners do not know that we also have something called a mastermind community. Clay, I don't know if I could kindly ask you to present a tool audience. What is the mastermind community? Yeah, simply put the TIP mastermind community, I would call it a hub for those in our audience who are most passionate about networking and becoming better investors. And that's likely the type of people who are listening right now who are all the way into this,

Starting point is 01:22:44 discussion talking about individual stocks, kind of nerding out on these types of things. And we had talked in our previous discussion at the end of your previous mastermind meeting how so many people in our audience, they flew out to Omaha for the Berkshire meeting and they attended all these events in Omaha, such as our TIP meetups. And the audience members just absolutely loved it. They got to meet the TIP host. They got to meet other audience members. And I would say it's like the one time in the year where they got the chance to talk about investing with like-minded people, you know, and actually talk about, you know, the things we talk about on the show here, you know, things like understanding, you know, value investing, how that's changing over time, talking about investing for the long term, purchasing with the margin of safety, just terms that are like totally alien to many people who would call themselves investors. So that's why we created the

Starting point is 01:23:41 community in the first place. Instead of having it, you know, just this one-time event in Omaha where people have to, you know, go through all these headaches and all these pains of traveling, sometimes 24 hours, 12 hours. Instead of doing that just once a year, why don't we give our audience the opportunity to do this at practically any time? One of the amazing things about the community is that people have been joining for many different reasons. Some people join just because they want a place to bounce ideas off of, maybe get new ideas from others, and, you know, be able to share those ideas with people who they see as credible and people they can trust. And then there's just so many things we're doing in the community. For example, we're bringing in special guests like

Starting point is 01:24:25 TIP guests, such as we've recently brought on Chris Mayer, we've recently brought on Godham Bade, and members of the community have absolutely, absolutely loved having the chance to be able to see them, talk with them, and ask them questions. And then other people have been really interested in the opportunity to do more live events. So October 6th through the 8th, we are doing live events in New York City, which we'll be chatting about here later. And we're also, of course, going to be hosting more meetups in Omaha for Berkshire weekend in 2024. So so many exciting things happening in the community. and it's been a ton of fun and a big learning experience for me too.

Starting point is 01:25:07 Yeah, and if I can add to that, Clay, I was so surprised whenever I met up with the community members in Omaha, and you asked them, like, so who are they here with? And they were like, no one. And, you know, it's not just people in the States. They might have gone from, I don't know, flew in from Australia or whatever. And it's like, yeah, I don't really know anyone. And I'm just here to check it out and you go, wow. Like the passion for doing something like that, it's just, it's absolutely amazing.

Starting point is 01:25:41 And so, and especially also for me, not living in the States and value investing isn't as big in Europe as it certainly is in the States, even though a lot of people would also say it's a bit more niche, even in the States. But like, it's hard to come by really good live events. And so it's always, it's always something very special going to, to the main one at the Berkshire meeting in Omaha and May. And, you know, we we long wanted to start an online community for TAP because that was really how it all started. Before it was called TIP, we had an online forum, which was mainly just president of me talking about accounting, to be completely frank. But,

Starting point is 01:26:18 you know, we've always procrastinated, like it's always been so many other things to focus on. Whenever I say we, I should probably say me. I don't think I can blame anyone else than me that's taking so long, but you've taken this project on, Clay, this year. And how has it been for you and for the community so far? Yeah, we started the community back in April. Going into the Berkshire weekend, we kind of had a hunch. You know, you've done these meetups in previous years. We kind of had a hunch that, you know, people would really enjoy this.

Starting point is 01:26:50 But going in, I would say we weren't really sure how it would go whether people would want join, whether people would find value in it, maybe they'd join and then just leave and never see us again after the first month. So I've really been quite surprised how much people have enjoyed being a part of it. As I mentioned, I think there are just so many aspects of how people see the value. And it's really interesting to me how different people see value in totally different ways. And people are just, they're on different journeys in their life. But when it comes to TIP and value investing, in many ways, they're on the same journey,

Starting point is 01:27:32 which is why they're all in the same group together. It's just so fascinating to me. But as we chatted about during the previous discussion on the mastermind chat, there are just so many people out there that really, really want a place to talk about these different things with like-minded people. And, you know, they're, again, on the same journey. And they're kind of listening and consuming very similar content. Many of them listen to a lot of William Green shows and they're thinking about things outside

Starting point is 01:28:01 of just money. So that's just been really, really fascinating. And I've been meeting with pretty much all of the members on a call one-on-one. And I've noticed that many of them, they just don't have anyone in their circle to talk about these types of things that really understand what they're talking about. And they're just, they're speaking the same language for lack of a better term. So, you know, since they don't have anyone to talk about these types of things with, they're just sort of out there on their own. They're investing on their own.

Starting point is 01:28:28 They're thinking about these types of things on their own and, you know, tuning into our episodes and kind of having this internal dialogue with us. And the Mastermind community, it's just filled with some of the greatest people I've ever met, honestly. And part of it's probably because I'm biased and I'm a TIB host and I already, you know, talk and think about all these types of things. But I just truly believe these people in the group are just incredible. They're oftentimes very knowledgeable, sometimes much more knowledgeable than me, admittedly. And it can just be a great place to get new ideas, share ideas. And I think for me personally, it really helps to have people share these ideas that they've really vetted.

Starting point is 01:29:13 They've really dug into. They've really done the homework. because there's always opportunity to cost with our time. You know, I could spend time, you know, doing other things after work, or I could spend it, you know, sifting through hundreds of stock ideas. And it just really helps to have that credible network where they're sharing ideas that are really high quality. And that's personally one thing.

Starting point is 01:29:36 I just, I just get really interested in and, you know, I find a lot of value in. So I definitely think the community is really good in that regard in helping me spark new ideas because you have others in the group who are really diving into these businesses in ways that oftentimes, you know, goes much further than I would ever consider diving into something. So one example is Kyle, who I met through the community and he actually just recently joined TIP and will be the new host of our millennial investing show. Kyle's just really knowledgeable and he has a very similar investing process to me, I'd say. I'd say it's very similar to the Chris Mayer type approach, which we've talked a lot about

Starting point is 01:30:17 in the community. We've talked, you and I have talked a lot about one-on-one. And, you know, since we're on the same journey of, you know, the types of companies we're looking for, where we're at sort of in our investing careers, where we're at in our investing journeys, it just really helps to have someone who's, you know, Kyle has looked into, you know, businesses I'm already interested in. And he's the one person I know of that knows a stock, this particular company better than anyone else. And I just happen to be interested in it as well.

Starting point is 01:30:51 And it's just hard to put a price on something like that to have access to information that you otherwise wouldn't be able to get if that makes sense. It's just like opening yourself up to a network of people that without something like the internet, just be impossible to have that sort of access to. that sort of information. So today we have around 70 members in the group when we plan on opening the group up to another cohort of members here soon. And another amazing thing about the community, I think I wanted to mention here is that as we're adding more content over time, we're recording all these chats we're having with the community. And then, you know, people are sharing all these ideas. The community has this compounding effect, I think, where it becomes more valuable over time. And I think the people who have joined, especially early on, they sort of get that where early on,

Starting point is 01:31:44 it's a lot of like the TIP host sharing content since it's very early. We haven't had a lot of people join. But they recognize that, you know, more and more great members keep joining, more and more keep sharing these ideas. So I think they just know that, you know, it's a long-term type relationship, if you know what I mean. I think you see that with some of the retention we've had, who's been staying, who's been leaving the group. and it's really cool to see what's sort of been happening with, you know, this network and community we've been building Stig. Clay, if I can add one thing to that, I would say that the key word there is really journey, like what you talked about before, being on this journey with like-minded investors.

Starting point is 01:32:24 And you might be a beginner, and that's completely fine. You might be a bit more seasoned. You might really, you know, read all the financial statements, and that's also wonderful. But I think it's important that we have the same vision. Not that we all have to have the same, exactly the same approach. So please don't get me wrong. But let me put it like this, if you're really interested in, let's say, real estate investing and you focus on Wyoming or any other state, I should mention that matter, this is not the community for you. It's about stock investing. That's the premise. And if you have a, say,

Starting point is 01:32:59 Warren Buffett type of foundation, it's the right place for you. That doesn't mean that you cannot sprinkle any into, you know, any other kind of flavor you want into it. We don't have a lot of day traders, I should say, but like, we all interpret and we all have, you know, our own vision of what kind of strategy works for us. You know, some people invest a bit more in ETFs, some people more in stock, some in, and, you know, some in deep value, some in what you would typically refer to as value or refer to as growth. But it's really around the core is really stock investing. And I would also say that if you have this Warren Buffett type of mindset, which you probably do if you made it this far into this episode, there's also a lot of other things I think you can benefit

Starting point is 01:33:43 from. I know later, Clay, you've got to talk a bit more about book clubs and social hours and a bit of other things. But like, if you have that as a reference point and an outlook on, I should say, life, investing and life, it's not just about meeting like-minded investors. It's also about I'm prone to say rich, a wiser, and happy a life. Yeah, and one of the things I have like, it's just amazed me and I love to see it is people join and they have this opportunity to connect with members of the group. And, you know, I hop on this one-on-call, one-on-one call with them. I kind of figure out the type of person they are, the type of investor they are, why they join

Starting point is 01:34:23 the group. And right off the get-go, some of these members, they've been actively searching for the type of people they want to connect with. And within their first two weeks of being in the group, they've already hopped on a handful of calls with people. And Kyle tells me, he's talked with other members of the group because they reached out. And it's just like really cool to see people, you know, just be so active and wanting to contribute and collaborate in the community and truly build those relationships.

Starting point is 01:34:52 There's, of course, value in sharing ideas in an online forum that we've created. but I think there's a whole new layer of value when you have these small groups of open discussions where maybe a TIP host might not even be in it. So people, you know, they feel more comfortable to share and sort of be themselves, do things like hop on a one-on-one call and have a way to do that. Many members, I've just loved that they've taken full advantage of that opportunity. And then I mentioned the special guests earlier. TIP has access to many people that other, you know, those in the audience,

Starting point is 01:35:27 just don't have access to or they don't feel like it's appropriate for them to reach out via email and feel like they're bothering them or whatever else. For example, we've had many guests on the show who have been very generous with their time and their knowledge. Chris Mayer, God and Bade, they've agreed to join the community and have a Q&A session. And then another route that's sort of taken me is I'm on Twitter and connected with all these people on Twitter who are super knowledgeable about stocks. and, you know, Stig, you just pitched Constellation Software in this Mastermind episode,

Starting point is 01:36:00 and I was connected with a guy on Twitter. He's owned Consolation Software for the past 10 years, and he's been writing on his substack and sharing sort of his thoughts on the consolations, the Topicus, and other companies he's interested in. So, you know, he's someone who knows as much about consolation as much as anyone. He's been studying the company for a decade. And so I brought him into the community. And he came and chat about Constellation Software and how he views the sort of investing world

Starting point is 01:36:30 and sharing his thoughts on where the company is at today and where he sees it going in the future. So, again, it's just a place to connect with people who understand maybe particular businesses really well or understand just investing really well because they're just so passionate about it. And then, of course, Stig, you've joined us for a couple Q&A sessions. And then I invited Preston a couple weeks ago to talk to a... about his thoughts on the macro and how he uses things like momentum with his investing strategy. So I think members really enjoyed getting a new flavor of types of investors coming in and chatting with us.

Starting point is 01:37:07 So like you mentioned, the group, it's not for everyone, of course. And I think I'll also mention with these calls that a lot of our members live really, really busy lives. So a lot of them are able to join our live chats. But they love that we're recording these chats for people to view after the fact. And again, it's compounding and we're building this library of resources, which I think is also amazing as well because we're talking about so many different ideas. It's nice to have that sort of repository of content that's building up over time, too.

Starting point is 01:37:42 Yeah, and I think you bring up a great point about the time zone. So you're based your central time, Kyle, who's also a big part of the community, our new Milan investing host. he's specific. So there's definitely some of the calls I cannot participate in because it would just be in the middle of the night. And so, but luckily, you also sometimes have some in the morning, which it makes it a little easier if you're based in Europe and perhaps even in Asia.

Starting point is 01:38:05 But you know, I think that one thing is, you know, watching the recordings afterwards, which is amazing. We also have written components for the forum and some analysis in there that people can check out. But it's what I really enjoy is the interactions. I can have with hosts, guests we have on the podcast, and talk a bit more in detail with them. And so, for example, you know, mastermind discussions. Like, we actually, we do talk quite a bit about each stock and which the list I'm probably already know by now, but you can really dive so much deeper into it whenever you have an entire

Starting point is 01:38:40 call or perhaps a series of calls just about, say, Constellation Software. And so some of the listeners might be sitting out there and saying, well, Stake, you didn't, you did a pretty poor job talking about this specific part of your stock analysis. Could you please elaborate on that? And so we don't have that. Of course, I can have the interaction with Harry and Toby, but there's probably a ton of other great questions that the audience could ask. And then so it's really like we really see this as a win-win because we learned about

Starting point is 01:39:09 new stocks, but we also learned about the stocks that's already on our radar per what you said before, Clay, you know, I haven't studied Constellation for the past 10 years, right? And so it's relatively new to me. I love learning from more experienced investors. Or if they're perhaps not had more time in the market, then say more experienced investors and that they, like Andy, that we had known this for, I don't know how many years and sort of like followed that story. And I think that's very powerful.

Starting point is 01:39:38 And so we talked here about like the mastermind piece of the, I should I say, the mastermind community. Like that's probably been the one of the keywords so far. We wanted to call it the mastermind community because we wanted that to be like an extended version of the mastermind episodes that we have here on our podcast. But we also have different type of calls with the audience. Clay, I don't know if you could elaborate a bit on that. Yeah, before I do, you mentioned the online forum or forum, for lack of a better term.

Starting point is 01:40:09 It's just a place online where people can share ideas and chat about different things. So one example that really stuck out to me of people really getting value out of that, one of the members after he joined the group, he shared a pick that he was interested in and it was a spinoff. And I think it was a really interesting example where you think about how most retail investors generally just don't have the time or maybe just the investing knowledge. They're not quite there to read the disclosures and really understand what's going on, in a special situation type, you know, spin-off type situation.

Starting point is 01:40:46 And he shared the idea, he shared his analysis, and people in the group who, you know, understand disclosures and understand these types of things really well, they really shed light on what was actually happening. You know, the company was great and the analysis was really good. What was kind of exposed and, you know, that interaction was like the shares outstanding was going to go up with the spinoff. And, you know, that, of course, changes how you evaluate the company and your intrinsic value of it when you're looking at it on a per share basis. And that interaction led to him to just adding the company to his watch list and not invest in it at that time. So I think that's one example of people sharing these ideas and being able to

Starting point is 01:41:30 tap into the knowledge of the overall community. So yeah, regarding the live calls we've been doing, there are just so many things you can do on Zoom. It really starts with, trying to add value to as many members as possible and adding as much value as possible to those members. Just use some examples. It feels like it's ever-changing what we're doing as people sort of evolve of what they're interested in, what they make the time to do, because members themselves are sort of figuring out where the value is for them. So to give you some examples, we've had a number of what we call roundtable discussions where members of the community, they get together and two or three of them present a stock that they believe is good value today.

Starting point is 01:42:15 So members get to see, you know, how other members analyze stocks, how they think about, you know, analyzing a company. And then the members themselves, obviously, have the opportunity to field questions from others and kind of vet their ideas and, you know, really, again, tap into the knowledge of the overall community and see if it truly is a really good idea and something. And of course, obviously for me or other members of the group, it's a way to get new ideas because they're hopping on a call, they're creating a presentation around a company, they're looking through all their opportunity set of companies they've looked into. So people have really enjoyed the roundtable discussions we've been doing.

Starting point is 01:42:58 And it's very similar to the mastermind episodes you've been doing here on the podcast since 2015, I believe he said. Then we've been hosting a book club for the joys of compounding. You know, most of the members of the group have already read the book and then many have been introduced to it. And it's a book that just everyone just really, really loves. And I think it's good to do that book club too because, you know, it just shows that we're all consuming similar types of content. And we're all along that same journey of, you know, ideas like lifelong learning, learning about different types of businesses, continually refining our investing process. The list goes on and on.

Starting point is 01:43:37 So we've been doing the book club every few weeks. We'll walk through one of the sections of the joys of compounding. And I'm sure in the future we'll move on to a new book once we finish that one. And then we do occasional social hours where members get together and they have the opportunity to connect and chat with other members. And I've been trying to have it where the TIP hosts are sort of out of that. So people feel, I think they feel more comfortable when it's, It's just them and a couple members of the community who, you know, essentially are just like them or they're looking for a place to connect with others and, you know, have a chance to chat about these ideas and bounce questions that they might have.

Starting point is 01:44:13 So, and then we've also had chats where it's more of a learning type environment. Kyle, our new host, our new MI host, he recently did a deep dive on Brookfield Corp. And that was surprisingly one of our most popular events. And the way we set that up was we put it up to the members to vote which company they wanted to learn more about. So we listed, say, 10 names and anyone can contribute what name they wanted to do. And then Brookfield Corp got the most votes. So that's the one we covered for our members. And that was a really collaborative session where people were, you know, giving their insights into the company.

Starting point is 01:44:52 Many members of the group, I believe I already own the stock. So they've done the analysis. And they probably learned from Kyle's president. and then Kyle learns from the insights they give. So it's just a win-win for everybody. And then one more thing I wanted to mention here is we've been diving into specific topics that members of the group wanted to learn about. For example, in one of the one-on-one calls I had, a member just wanted to get a better

Starting point is 01:45:17 understanding of how to analyze financial statements. So right then, I just booked a time, hey, on this date, I'm going to talk about how to analyze financial statements, kind of like a one-on-one-type. analysis. And then I'm just like, here's, here's the resources I use to learn how to analyze financial statements. So if they, members want to go a step further and learn even more, they can go to the resources I sort of use to do the presentation. And then they can ask me questions. They can, you know, other members of the group, like during that chat, we had a very seasoned accountant join that discussion. And he's, he understands some of the stuff better than me, right?

Starting point is 01:45:54 So he's jumping in and just like adding a whole other layer of value during that discussion talking about financial statements. So it sounds like we have a ton going on in the group, which we kind of do. But we tend to have one, sometimes two live Zoom calls each week. And I'd also mention that given the wide variety of events we do, we really cater to both those investors who are earlier on in their journey and earlier on in developing their process. And we also, I think we cater to those who are later in their journey who are sort of looking for different things. And again, they're on the same journey, but they're sort of on a different path to get there. Clay, that's a really great point because there's also something about outlining your thesis, for example, for a stock. And so one of the advantages of, say, pitching a stock here for the mastermind meeting here with Toby and Hari is that I get to hear myself talk about a stock.

Starting point is 01:46:52 And sort of like, you learn a lot whenever you have to present into others, especially if they're going to ask you questions. Like, what do you say that? And so it's sort of like it helps you to, well, help yourself. And to your point there, it's really an true point about what you said there about the intro to fundamentals. It's really a community forward investors by investors. Like it's not like you and I were sitting there back in, I want to say we started in April. It wasn't like we were sitting there with like a master plan. And like this is what we want to do in September. for 2023. It was more, we wanted to see if we could find like-minded investors who were on the same journey as us, and then ask them, what do you want the community to be about? And so whenever we hear enough, people saying, you know, we should have some classes about how do you analyze financial statements. Well, that's good. Now we know.

Starting point is 01:47:42 So now we can create classes of how to do that. Or, you know, we didn't expect, you know, the joy of compounding that book series to be so popular and that you did, Clay, and it turned out that everyone read it or seemed like everyone wanted to talk about it. And we didn't know Goddum at the time. And he was very kind that he wanted to jump on a call with the community. And so all of a sudden, it's like, let's create a book club around that book and talk more about it. So a lot of it is unplanned. It's planned on planned, if that makes any kind of sense. And so it's very much the community we wished we had whenever we started investing. And as you said there, Clay, we're like 70 members right now. It's not a lot.

Starting point is 01:48:23 Also, because a lot of the members are living very busy lives. So it's not like we are 70 people on the call at the time. We might be depending on the type of call like six, eight, 10 people. And so there's a lot of time for each individual, either just to listen to what's being said, but also for them to present whatever they need to present and get feedback on whatever they need to get feedback on. The online part is definitely very important, also because it gives you that flexibility. But also, Clay, we heard from quite a few members that they're very excited about the live events. And so I want to hear a bit more about the live event than you're Kyle going to be at in New York City. Yeah, I honestly can't wait for New York City.

Starting point is 01:49:05 We've been working on a number of events there. We have 20 or so people planning to attend that's far. So we're going to be getting together, having great food, creating an environment where great conversations can take place. So, you know, the community can really build even stronger relationships. So I feel like my job is to sort of facilitate the sort of conversation similar to what we did with our events in Omaha. So Friday, we have a social hour planned. I assume that many people are going to be flying in on Friday. Saturday, Sunday, we have a lunch and dinner planned. And then that leaves us time in the mornings and afternoons on Saturday and Sunday for members to go off and do things like tour the New York Stock Exchange, two are the

Starting point is 01:49:51 JP Morgan Library and Museum. I think many people are excited where, you know, there's sort of this New York City's where Wall Street's at and, you know, we're all like-minded investors. So, yeah, I think part of the other events where it's more recreational, I think some of that's going to be organic, but I'm going to plan on sharing, you know, some of the things, hey, I'm going to go here at 2.30 and anyone that wants to join me, just feel free to it. So it's going to be a lot of fun, a lot of great connections and conversations and just further building out those relationships. Lance in the community is actually from New York City. He had the idea of going to a comedy club on Saturday night. I thought that was a brilliant idea.

Starting point is 01:50:31 I'm not sure how many in the group are going to want to join me for that. So plan on purchasing tickets for everyone that would like to attend, and I think that'll be a lot of fun. And I'd assume that most who are going to be attending, they're going to be, you know, meeting us for the meals, because we'll be covering those. And then other things are probably going to be more optional. And I'm sure many people chat and connect, talked about the things they're doing that weekend, and then just naturally sort of go off and do their own thing. And I think that's, you know, makes our lives a little bit easier, but it also just really, you know, gives people what they wanted. They wanted a, you know, a place to network and meet those like-minded investors. So if you're listening to

Starting point is 01:51:13 this and you maybe already live in the New York City area, I believe joining the community will be a great way for you to, you know, meet people who already live close to you. I think there's value in that too. And I'd say close to 10 members of the group are going to be attending these events already live in the New York City area or are very close. So possibly in the future, maybe we'll be hosting more events in New York City, given that so many that are already in the group are in close proximity. Yeah. And also, because we discussed back and forth, Clay, like where to host it. And I wanted to say New York. And I sort of like said that because it's relatively easy to get to, if you're based in Europe. That's probably because my comparison is to

Starting point is 01:52:00 I'm comparing it to Omaha, I would take to like three flights to get to, whereas perhaps for others, like if they're already in States, you know, I'm sure it's even easier for obvious reasons just to go to New York. And so, you know, you might want to attend, you might want to combine it, visiting friends, going there with your significant other, whatnot. And so we kind of felt it would be interesting to test out New York and, you know, sort of like he got feedback from from the audience. And if the members like it, perhaps we've got to do it more. And, you know, we also talked about all the cities to do it. And who knows? Perhaps we're going to do that. But I think the key question is more, do you want to hang out with the TAP hosts? I don't know

Starting point is 01:52:43 if you want to if you want to hang out with the TAP host, it would be fantastic. And, you know, this would be online, but also in person. For example, the event in New York could be next year in Omaha. how we're also considering doing other events. I kind of feel it's a bit too early to talk about that because it's still on the drawing board where those events would be. But if you are interested in hanging out with us host, and I should say perhaps you're even more excited about meeting up with like-minded. Investors who are also listening to this show.

Starting point is 01:53:11 You can apply to become a member of the mastermind community. And could you please give a handoff to how do people apply? For those who want to join the community or are interested in learning more, I want to mention that one of the focuses we have with the community is that we really want it to be, you know, just filled with high-quality members and high-quality people. You know, we don't want people to join thinking one thing and then, you know, everything people are talking about is trading or they're talking about whatever. So to do that, we've been having audience members apply to join.

Starting point is 01:53:49 And I think this is beneficial both for us in the community, but also for, you know, people who are applying. We don't want people to apply who want to learn how to invest in an S&P 500 index fund. Like, if you're looking to do that, joining our community probably isn't the right place to go. So we want to make sure the people who are joining are a really good fit for the community and they're joining for the right reasons. So you'll be, you know, essentially each member is vetted a little bit before they join. And I think that's beneficial both for those who are applying and for the group overall. So this also helps us keep the group relatively small. So, you know, our Zoom calls aren't getting too overcrowded.

Starting point is 01:54:31 Our live events aren't getting too crowded. And it also ensures that the content people are sharing are high quality. And, you know, they're not opening some forum and it's just a bunch of junk that they're reading. So, yeah, so again, the high quality content, and the high-quality people is something I think we've really put a big focus on in creating this. And I also want to caveat that just because someone is early on in their investing journey, it doesn't mean they can't join the community or join it and get value from it. It's really about being on the same journey as we've been talking about and joining a group

Starting point is 01:55:11 where the members are truly like-minded. And they really understand what TIP is all about, what value investing is all about, the joy as a compounding is a perfect example of that. If you've read that book and you enjoyed that book, you're probably a pretty good fit for the community if that is something you're really interested in. Again, we don't want to let someone in if they're, they just want to talk about trading ideas or talk about like short-term investing. You know, generally what the concepts that we cover on the show here, you know, many of the members have listened to TIP for years. So if you haven't listened to too many TIP episodes, then you might not be a great fit.

Starting point is 01:55:48 for the group. So we currently have a waitlist to sign up, which you can join at theinvestorspodcast.com slash mastermind. That's the investorspodcast.com slash mastermind. You'll learn a little bit more about what the community is all about, what's offered in the community. And then there's a link there to join the wait list. And once we open up the group to new members here soon, which will be likely in mid-September, 2023, we're going to be sending an email out. to those on the wait list and let them know we've opened the group back up. We're going to send them a link to apply to join. And then we're going to focus on vetting that cohort of members

Starting point is 01:56:27 and ensure they're the right fit for the community that we're creating and growing. And then once, and then we're going to close the group again to new members and then shift our focus back to creating that content and creating that value to members. So we have a couple of slots open for our New York City meetup actually as well. So if you're interested specifically in attending that, you can shoot me an email at Clay at the Investorspodcast.com. Again, it's October 6 through the 8th. And especially if you're in the New York City area, those people in particular have been

Starting point is 01:57:00 super interested just because of proximity reasons, whereas if someone's in Australia or Europe, then they're probably less likely to join, although some in Europe have signed up to join, which is amazing. So again, you can feel free to email me if you have questions. you want to attend the New York City meetup, Clay at the Investorspodcast.com. I'd be more than happy to help you out. Fantastic. Well, thank you for jumping on here, Clay.

Starting point is 01:57:25 It was amazing. I hope everyone enjoyed the mastermind discussion, also to learn a bit more about the mastermind community. But that was all that Clay and I have for you this week, and we'll be back again soon. Thank you for listening to TIP. Make sure to subscribe to Millennial Investing by the Investors Podcast Network and learn how to achieve financial independence. To access our show notes, transcripts or courses,

Starting point is 01:57:49 go to theinvestorspodcast.com. This show is for entertainment purposes only, before making any decision consult a professional. This show is copyrighted by the Investors Podcast Network. Written permission must be granted before syndication or rebroadcasting.

We Study Billionaires - The Investor’s Podcast Network - TIP576: Mastermind Q3 2023 w/ Tobias Carlisle and Hari Ramachandra

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