We Study Billionaires - The Investor’s Podcast Network - TIP608: Long-Term Compounding w/ Chris Mayer

Starting point is 00:00:00 You're listening to TIP. On today's episode, we bring back fan favorite Chris Mayer. Chris is the author of the very popular book, 100 Baggers, and the co-founder and portfolio manager of Woodlock House Family Capital. This is Chris's third time coming on to the podcast. Because of Chris's book, his great blog, and the appearances he's done on various podcasts, like the one you're listening to, he's inspired thousands of people to recognize the power of long-term compounding in the stock market.

Starting point is 00:00:29 During this episode, Chris and I chat about the power of long-term compounding by investing in very high-quality businesses, as well as a few of his holdings, including Constellation Software, Topicist.com, and Lumine. I did a deep dive on Constellation Software back on Episode 531 last year, and Mark Leonard, the president and founder, is a great case study of an amazing capital allocator. From a high level, Constellation is a conglomerate that continually acquires very small vertical market software businesses and historically has had a return on invested capital of roughly 25%. Constellation has been one of the best performing stocks on the market, as it's been a 200-bagger since the IPO in 2006. During this chat, we also touch on a review of

Starting point is 00:01:14 how Chris's fund performed in 2023, where Chris focuses much of his attention in managing a fund, how Chris first discovered Constellation software, how Constellation 2.0 has developed in recent years? Why Constellation has started performing spinoffs and why Chris invested in both Topicus and Lumine? Why Topicus is targeting higher organic growth rates and their subsidiaries? Chris's thoughts on the valuations of these businesses, how Chris would consider allocating fresh capital today in his fund, and much more. Chris was too humble to say it, but his fund achieved a 45% annual return before fees in 2023, which vastly outperforms the market return of only 24%. I've personally, deeply resonated with Chris's approach to investing in the stock market, as I believe

Starting point is 00:02:00 it not only works well, but also allows you to sort of set it and forget it once you get to know a great business very well, and then monitor its performance over time. We recently started our TIP Mastermind community, and I've been quite surprised by the number of people in our audience who have also came to the same conclusion as me as to how they want to invest in stocks. In the mastermind community, we talk stocks and network with like-minded investors, so if this is something you'd be interested in, you can click the link in the show notes to learn more, or simply go to the investors podcast.com slash mastermind. With that, sit back and relax as I bring you today's episode with Chris Mayer. Celebrating 10 years and more than 150 million downloads. You are listening

Starting point is 00:02:46 to the Investors Podcast Network. Since 2014, we studied the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected Now for your host, Clay Fink. Welcome to the Investors podcast. I'm your host, Clay Fink, and today I'm thrilled to bring back Chris Mayer, Chris, it's always great chatting with you on the show. Yeah, great to be back with you, Clay. It's going to be a good one, I think.

Starting point is 00:03:22 During this episode, I wanted to particularly talk about Constellation Software, Topicus, and Lumine. But before we get to that, Chris, I just want to start this by just saying congratulations. You shared with your audience that you had your best annual returns since you started your fund in 2023. You had your best returns in 2020 since you started your fund. And you managed not to sell any of your holdings during the year. And I think back to our last chat, you had mentioned you only sold one holding in 2022. So making progress on the little you had left to go.

Starting point is 00:03:54 And I don't think too many fund managers can say that they had zero turnover throughout a year. So I just really admire your ability to stick with. the names you find and give them plenty of room to run. So you can take this in any direction you'd like, but I just wanted to give you an opportunity to share some of your thoughts and reflections from 2023. Yeah, I mean, 2023, you know, you know you're having a good year when your worst performer is up 19% of the year. That was HICOA, but I had a couple that were up about 80%. I'm Technion and Lumine, which we'll talk about later, we'll both big winners. You know, I think Copart was up 60%. Constellation, which we're going to talk about, was up about 60%.

Starting point is 00:04:33 percent, I think. And these are all, you know, big, chunky positions. I run a concentrated fund. So it's just everything really came together and I've owned all these positions for a while. And it's just, it's nice to see that. Other than that, I would say, yeah, I didn't sell anything, which was interesting. And I didn't, you know, I had some inflows. So I had some chances to do some things. And I had really two moves during the year that I made and they were both very impactful. One was adding a lot to Lumine, which again, we'll talk about. And also adding a lot to Technion. when I had the chance. So those two worked out well. I mean, the other thing that's always I like to do is you go back and just look at the high and low and the differences. And, you know,

Starting point is 00:05:13 last year it was typical, even though it was a very strong year that the difference between highs and lows and a lot of names was quite wide, 50% or more. And it wasn't like it was just a straight line up through the year. I mean, I remember in October I had maybe two or three positions that were negative for the year. I think maybe, you know, I can't remember. I think Lyftcoe might have been one of those that was actually down year-to-date at one point and wound up finishing, you know, plus 40 or something. So it's the lesson we get every year, which is there's lots of opportunities even just within a year if you're patient with these things. And maybe the last thing I'll say about 2023 was it was another year where the market

Starting point is 00:05:51 serves us some humble pie as far as macro forecasting goes. I mean, how much talk we had about there being recession, slow down. And even if you knew the results ahead of time, I'll take Old Dominion, company I have in the portfolio, LTL Trucking Company. If you knew what 2023 looked like, have I gave you the financials ahead of time. You would have seen a decline in revenues and a decline in earnings per share for the year. You would for sure not thought that the stock would be up 43%, which is what it was. So, you know, again, just it's difficult to forecast on those kinds of macro variables. And that's why I like to just stick with, you know, really good companies. that I know well and that are compounding capital high rates and otherwise sit back and let them do

Starting point is 00:06:38 their thing. It's funny when I look back over the past few years, some of the narratives or best love ideas you have to overcome, as Munger says. And there are two that come to mind that, you know, just starting out as a newer investor and just developing over time and overcoming some of these narratives, there are two that sort of stick out to me. The first is that markets are mostly driven by the Fed. You know, it's sort of a narrative.

Starting point is 00:07:04 I've heard some people tell me that, you know, there's no use trying to pick individual companies because the Fed essentially just drives the entire market. And the second one I wanted to mention is that you need to own Fang stocks. I mean, this is essentially developed to be the magnificent seven, but the addition of, I think, Nvidia and Tesla. You need to own these stocks in order to do well as an investor, maybe even outperform the market. As you mentioned, 2022, Fed raised rates. Many people were worried about a market crash, market correction, and stocks overall were down.

Starting point is 00:07:35 But if you look at a lot of these great businesses, a lot of businesses that you own, you know, the drawdowns you could argue weren't really justified if you look at the actual business performance in 2022, 2023. So investors who were patient saw that opportunity, ended up being rewarded handsomely like you were in 2023 with your money, your holdings being up over 60%. And it's sort of ironic how with the benefit of hindsight, what many people saw as bad things happening, all this uncertainty being around, actually ended up being a blessing. And I remember actually one of your old tweets, you posted that you had added to Technion in late 2022, and you shared the multiple. And it was like a 17. And from that

Starting point is 00:08:19 purchase, you've got 100% appreciation just from the multiple expansion. So it's quite interesting to think about how, you know, this noise in the markets can really keep people out of it. for things to become more clear. So could you talk more about that, distinguishing that signal and noise? Yeah, I mean, that's important to do. I think, you know, one thing I do is I don't spend time on that macro sort of guesswork. So, I mean, I can't tell you how many times someone has sent me, you know, some kind of think piece about something or other. And, you know, I politely thank them. And then I put that in the delete pile. I don't spend any time on that. I spend more time on names. I mean, last year I met with several CEOs. And of course, then I spent time looking at new

Starting point is 00:09:00 ideas, which is always fun. And so it's really where you put your attention. I really guard that attention carefully. If you allow yourself to, you know, read into these narratives that people create, then it makes it more difficult to make a good decision, I think. You know, another thing is just kind of habits. I don't, it's taken a long time, but I don't, I don't log into my account every day. I don't, and I try not to look at stock prices during the day. You know, I try, I usually will check in the morning, see what's going on, and then I look again at the close. But, um, even that's probably too much. You know, for most people, I don't think they should probably be looking at it every day. So, you know, I think another key part of distinguishing the noise from the real signals is

Starting point is 00:09:40 if you spend time on the businesses that you own and really try to drill down on what the essentials, figure out what really will matter for this business over the next, say, 10 years. And when you make that, your filter, you know, what, what are the critical success points for this thing over the next 10 years? What has happened? A lot of these other details sort of dissolve. Talks about whether to might be a recession next year. It doesn't become very important because, again, you're thinking, you're thinking way out. You're thinking 10 years and you're going to own it through a recession or two, you know. And so I spent a lot of time in that, figuring out what one of the essential pieces of a business that will help it succeed and identifying that and then really staying focused on that.

Starting point is 00:10:21 And again, mentioning the Magnificent Seven and the Fang, it's probably been like over a hundred times now. I've seen a chart where it shows the magnificent seven performance being way up. And then after you take those companies out of the S&P, it's just like a flat or it's like a downside. So it kind of gives this illusion to where, you know, there's only a handful of companies that deliver returns in the market. But there's plenty of names out there. But when you put some of these great companies in with all these, you know, just straight up bad companies or poor performers, you know, it sort of hides them. Yeah. I mean, this is another thing why I even hesitate to talk too much about like the market because people will talk about the market as if it's just sort of one

Starting point is 00:10:58 thing. But of course, when you look within it, there's huge variations, even just looking at the S&P 500, as you mentioned, there's huge variations within it. So you have to be careful about that. And then when you throw in overseas markets, I mean, there's a lot of diversity, a lot of stuff going on. I'm also reminded, I just recently shared a book review on Willis Johnson's book, junk to gold. And I mentioned during that episode that over the last 30 years, there's a chart that was shared that showed the top performers over the past 30 years. Copart came in at number 14. And I think so many people would be surprised that Copart did better than companies like Google and Amazon. You know, just kind of like, it like defies what you would really think about how like you'd

Starting point is 00:11:43 think like the Amazon's of the world would be like by far the best performers. But there's these regular everyday type companies that, you know, just show up every day, compound. Yeah, I love those kind of lists because those, you know, because you always find lots of names like that. I mean, you look at the last 20 years or so old, the Minion shows up there as well, way up there. And you're just like, wow, you know, this little humble trucking company has been that much a performer. I know like Monster beverage, I think, was actually the number one performing stock over the last maybe it was 20 or 30 years. I forget what the metric was. But again, it's a little bit shocking because you, you know, you see this mix of business and you're

Starting point is 00:12:15 Right. You expect it to be dominated by the Amazon's and Google's and Microsoft, but there's lots of pretty humble businesses in there that just compound at high rates for a long time. All right. So let's turn here to Constellation Software. Most in our audience are going to be aware of this company. And if you're listening and you're not quite as aware as what this company does, I did a deep dive on it and a deep dive on Mark Leonard's wonderful letters back on episode 531, so you might go back and reference that. And I have to give a thank you to Chris for putting this company on my radar last year. How about we started off by just talking about how you discovered this company and how long it really took you to coming around to really understanding its long-term

Starting point is 00:12:57 potential? Yep. That's a good question. I'm not sure exactly when. I'm going to guess it was somewhere around maybe, I don't know, somewhere around, say, 2016 or so. And I remember being skeptical of it for a long, long while. It took years. I didn't really, I knew of it, but I didn't bother looking into it because I had such a bias at that time against a super acquisitive company like that and it was buying software companies and I think the kind of a common area of doubt around it was, well, I guess I remember this was my thought. They just must be buying a bunch of junkie software companies and, you know, it has no terminal value and these things are all going to eventually be zeros and they're just, you know, I've got to

Starting point is 00:13:33 keep running faster and faster to keep it going. And I didn't really spend a lot of time on it for several years. So I would say it was probably around maybe 2019. where I got more serious and I actually sat down and read Mark Leonard's letters. And then I was like, wow, you know, this is worth digging into more. And so, yeah, so that's, I started to do a lot more work then. And shortly after became shareholder in my fund. When I released that episode I mentioned last year and purchased my first shares,

Starting point is 00:14:04 the share price was around $2,300 Canadian dollars. And at the time, I was thinking, hey, I'm paying up for quality. And now here we're sitting today, February. 2024 share prices north of 3,700 Canadian dollars. So over the past year alone, share prices are up nearly 60%. And that's quite high for a company like Constellation where it's compounding consistently at the 25% range. And yeah, I just like to get your thoughts on the recent run-up because it's easy to think, you know, it's just a company that was overpriced is now more overpriced. Maybe there's some developments within Constellation that potentially warrant such an income.

Starting point is 00:14:43 over the past year. Well, I would say the big thing is I think the market has come around to the idea that Constellation has found another gear when it comes to deploying capital. So if you look at, you know, 2018, 2019, 2020, those years they were probably spending $500 or $600 million in acquisitions deploying capital. And then it's really kicked up in recent years. It did, you know, a billion and a half. I think it was in 2021 and 2022 is similar.

Starting point is 00:15:11 And then, you know, the results. we have through three quarters of last year, they were over $2 billion in capital deployed. So you're already, through three quarters of a year last year, they're already, you know, three or four times more what they did in a full year just a few years ago. And so, you know, the market knows that constellations deploying capital at, you know, high rates. And so when they deploy that much capital, it's going to be some nice growth in free cash flow. So I think that's the big one. And I think there was a narrative that started a little bit that, you know, they were butting up against the limits of what they could do. And then,

Starting point is 00:15:45 you know, they've just been able to put together some pretty attractive larger deals. I mean, the one last year was with Optimal Blue, where they bought a business for $700 million, and they paid $200 million up front and they get a note for the $500 million that doesn't pay, you have to pay any interest in it for five years. And it's like, wow, you know, how did you, how did you come up with that idea? And that was a business that, you know, they bought it as complicated. It's part of a transaction, Black Knight is merging with intercontinental exchange and they had to ditch this thing. So it was kind of like a really motivated seller and Constellation stepped in and bought it. And this was a business that Black Knight had bought for a valuation of like $1.8 billion in 2020.

Starting point is 00:16:23 And then they bought another piece of it in 2022 where it was, I think it was like two something, $2.8 billion, let's say, something like that. And here's Constellation swooping and buying it for $700 million with those kind of deals. So now I think, you know, the market's starting to think that, Yeah, Constellations got lots of room to deploy capital still and we'll figure out ways to put it to work. So that's one. And then the other thing, I think that, you know, the other key part of Constellations is organic growth rate. And I think that's been pretty strong. I think it's maybe even surprised a lot of people.

Starting point is 00:16:55 It's been running about 5 or 6% all year. Even better if you look at kind of the core maintenance and recurring. So I think the combination of those things together, you've got, you know, rocket fuel. So, yeah, I'm really, I'm real excited to see what they do next. So with regards to the optimal blue deal, if I am understanding correctly, they put down around 200 million. The purchase price is around 700 million. And this seems to be a case where their return on capital isn't going to be, you know, what they typically target like a 30% range. It sounds like it's going to be a lot higher in this case.

Starting point is 00:17:28 Yeah, it could be. I mean, it seems like it. I don't know. We'll have to, you know, still kind of early. So, I mean, the usual rule of thumb is as deals get bigger, you know, your IRA comes down, which I, think is okay in Constellations case because like you mentioned, they were doing 30 and now if they do 25 or 20 but can deploy a whole lot more capital doing that. I think that's still creating a tremendous amount of value. So yeah, we'll have to see what the specifics of that, of the optimal

Starting point is 00:17:52 blue deal are. But yeah, I'm pretty optimistic that they're going to do pretty well on that. I mean, it's hard to not do well when you only put 200 million down for a business of that size, probably generating, you know, 100 million in profits. Over the years, I think a lot of people assume that the competitive landscape is going to get quite overwhelming for consolation. Have you seen that intensify over the years since you've started researching it or first owned it? Yes. I would say yes, there's certainly been a lot more copycats. And, you know, in practice, as a firm has done some good work on this. And they identified at the time of their report, which I think was last year, something like 34 private VMS consolidators. So it's quite a bit.

Starting point is 00:18:36 But one thing that's interesting is that, you know, they are trying to copy Constellations, and they're trying. But when you look at the deals, it's still quite a bit of difference. So, for example, Constellations average a deal, you know, they're buying a company like one-time sales. These are very, those smaller deals I'm talking about now. You know, they may buy something, let's say, around 3 million of revenue and their organic growth is like zero, you know, very little. But when you look at the private consolidators and the type of deals they're doing, they are larger, two or three times larger typically. And they have a lot more organic. growth. So they're playing a little bit of a different game. A lot of them they're also, you know, because they're also leveraging up a little more. So I would say, yes, there's more competition, but with kind of the niche, the constellation is in, I don't know that they have still, they have that much competition on those small things. So it's kind of weird. You know, I would say, yes, there's more competition, but there's still interesting nuances and it seems like there's plenty of room to deploy capital still. And since they're getting such attractive returns on these deals, I'm sure many of these companies have options in terms of

Starting point is 00:19:36 who they want to sell to? What do you think the main motivation is for them wanting to select consolation, given the attractive purchase price that Constellation is getting? Yes. So this is something I had to spend some time on to get convinced of, but, you know, there is some value in the idea that Constellation is a permanent home for these businesses. They're not going to, you know, fold it and lay off everyone or, you know, kill the business or whatever. I mean, the owners who sell these businesses, if your goal is to sell for the top dollar, then Constellation is not likely going to be your buyer. But if you're more concerned about, you know, you want to have a home for your business there, then that's where Constellation has an

Starting point is 00:20:13 advantage. I know that a lot of people are going to be skeptical about that, but I've talked to enough people to know that that is part of it. So, yeah, I mean, other than that, again, consolation is still, you know, you are dealing with businesses where they're not, there's not a whole lot of competition for some of these where there's not a lot of organic growth or no, no organic growth. So Constellation may still be the best option there in those cases. 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've got long days of daylight, incredible food, floating saunas on the Oslo Fjord,

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Starting point is 00:24:53 It really helps them scale their acquisitions over time as many different people are making these acquisitions within the holding company. It gives each business the autonomy to make the decisions they feel as best for them. And it helps keep the corporate bureaucracy that Leonard wrote about in his letters. You mentioned how corporate bureaucracy tends to creep up in businesses as they grow. But I think as with most things in life, there's no free lunch. what do you believe are some of the drawbacks to decentralization? Well, first, yeah, you're right. I mean, the decentralization has been kind of a key thing.

Starting point is 00:25:29 I think it's, I think it was Larry Cunningham who said that the genius in CSI was that the people coming up with solutions to the problems were the ones who were the closest to the problems, which I liked the way that was put. And they do have this culture of sharing knowledge, so it works really well for them. Drawbacks, I would say, well, first, it might be worth pointing out that they're not all decentralized. Like, Lumine is not decentralized. They have a centralized M&A team that work together in Toronto with David Nyland. So I have heard that this is not necessarily, you know, I guess you could say it's decentralized because Lumine is making their own decisions rather than Constellation in HQ. I would say the biggest drawback talking to people is it seems to be perhaps around, you know,

Starting point is 00:26:11 keeping your team together. There may be some thought that retaining people that are, you know, flung out all over the place is harder than when you're all working together. I've heard that. There might also be, you know, you might lose something by not having, you know, a closely knit team that works together versus teams that are spread out all over. But some of that is, you know, by design. I mean, I think Constellation attracts a sort of person. And, you know, for example, if you want to get rich very quickly, probably Constellation is not going to be a place you're going to stay very long. So I would say, yeah, I mean, it's hard to say because they've got, they're so good at it. So, you know, what's the

Starting point is 00:26:46 drawbacks for them specifically. I don't know that there's too many other than perhaps there's something to this that there may be some difficulty in retaining people. But again, part of that is by design and they seem to have managed through it pretty well. Yeah. And since I mentioned decentralization being a key aspect of Constellation as they continue to grow overall, senior managers within Constellation are required to invest anywhere between, I think, 25 to 75% of their bonus into shares of consolation. So there's a lot of a skin in the game within these managers and a lot of, you know, an incentive to act in the best interests of shareholders. But as they grow, each senior manager has less of an impact on the overall performance of the

Starting point is 00:27:34 conglomerate. And I could see that making some managers maybe a bit frustrated over time. I'm curious if this is a concern from your perspective. Yeah, I think it's a concern from like the comp perspective, like it's compensation. If you're suddenly, if what you do has your compensation is tied more toward the overall, then that could be a problem. But I think that, you know, Constellation spends a lot of time. Think about this. Mark Leonard certainly has mentioned it.

Starting point is 00:28:02 You know, this is the biggest challenge with them getting so large is how do you incentivize teams and keep it so that what they do, they still have a big impact and can still do well for themselves. So yeah, that's something to always keep an eye on. And that's kind of where the experiments with the spinoffs are interesting too. There's ways to harness incentives a little differently there. So definitely something to keep an eye on. It also reminds me, Leonard historically, he's shown that he tries to talk the share price down at times. And I think back, well, shares in Constellation have gone up 60% over last year. So how many of these managers want to say, hey, I want to put a significant portion of my income into shares of Constellation?

Starting point is 00:28:40 I'm sure there's other things they might want to do with their compensation. Yeah, I've heard people say that. You know, when those concerns are voiced, Mark Leonard and the senior execs basically have this line where they tell them that, you know, evens out over the long run. And, you know, it's kind of think more like dollar cost averaging, sort of. So, well, so far, you know, it's worked very, very well because I'm sure there's lots of times. I mean, even in recent years, you know, me owning it might find how many times people have told me it's expensive.

Starting point is 00:29:05 So far, they, it's, you know, it's worked out. In Leonard's 2021 letter, he started to talk about what we can call Consolation 2.0, where Consolation starts to reinvent themselves. And that letter, he talked about how they needed to create new avenues to deploy capital. For those not familiar, their typical deal is around the $5 million purchase price. And just as business scales up, you can only do that for so long. And he mentioned two ways or two avenues they could go down to reinvent themselves. The first of which was simply doing these bigger deals, for example, the Blue Optimal deal, you mentioned. And then the second way is to start venturing outside of the VMS space and start looking at new verticals, new

Starting point is 00:29:53 industries. Maybe you could talk about how this has developed. Leonard wrote that letter in 2021 and it's been a few years since then and take that whatever direction you'd like. Yeah, I mean, among Constellation shareholders, this is the talk, like, what's Constellation 2.0 look like? And I think we've gotten a preview last year. We've seen them deploy bigger deals and do bigger deals, more complex deals. You know, will they drift outside of VMS? I mean, I think they've already done it to a degree.

Starting point is 00:30:18 I mean, I talk to people, former CSI people, and they already own companies that are not really true, you know, well, VMS, they have some HMS, they have some, they're more service-oriented. So I think in some ways, they have crept a little more into adjacent software. And then I think it wasn't that last letter where they, he wrote about how they looked at a deal, came close to doing a deal that was oil and gas related and where the motivation was more taxes or something like, I'm sure it would have been, you know, a really interesting deal. But that was, you know, that was certainly something beyond VMS. So, so yes, I would say you have to be comfortable with this potential drift to be a shareholder today because I think that they will eventually

Starting point is 00:30:57 do something outside of VMS. It may be a bigger way. And part of that, I mean, you just have to You know, given there a long track record, thoughtful capital allocation, you know, I feel pretty good. It's not going to be something dumb that we're going to wake up and go, gosh, why did they do that? You know, so yeah, I'm really interested to see what they did. And they may not find anything. They may just be that Constellation 2.0 is what we see today, which is that they do. They still do these little tiny VMS deals, but they're also deploying sizable amounts of capital in things like optimal blue deal and other things like that. In terms of the runway and continuing to scale up the business, one of the.

Starting point is 00:31:32 parts that has been or is difficult for me to wrap my mind around is when I hear people say there's a hundred thousand, a database of a hundred thousand potential companies that they could acquire. It's like, you know, there's only so many markets. There's only so many niches that can be addressed, but 100,000. So it almost sounds too good to be true. So could you talk about how it's possible? The database is that large. Yeah, I remember when I first heard a 100,000 number, I was surprised too, but then I kept hearing it from different people who, you know, used to work at CSI, they'd keep putting that number. One person even said it was 200,000. I don't know, but it's a big number. And when you, you know, they acquired what? It was 100 companies in 22 or so suddenly it puts

Starting point is 00:32:12 that all in perspective. You know, there's a lot. And part of it's, you know, there are new companies being added to that pool all the time too. So it's new software companies being created all the time, do all kinds of things. And it's, I agree. I mean, it seems like it's a huge number. But I mean, it's real. I think about, you know, for every different business there are potentially who know, you know, how many different software potential software packages for that business, you start to think about it across all kinds of geographies. It's a big number. So Constellation has spun off two different businesses into public companies. Topicus.com, which we'll refer to as Topicus and Lumine, both holdings in your fund as well. Topicus was spun

Starting point is 00:32:52 off in 2021, and Lumine was spun off in 2023. And since you were an owner of Constellation, you had these shares deposited into your account, which is a quite interesting dynamic how you have this great performing stock and it just starts depositing these new companies in your account. That's right. You know, that reminds me, we talk about Constellations gain. You know, sometimes you have to include the spinoffs in there. It's even better. Right.

Starting point is 00:33:19 So maybe you could just talk about why they ventured into doing these spinoffs and how their value accretive to Constellation shareholders. Well, I mean, I think in Topicus case, you know, it was an experiment, partly an experiment with incentives like we talked about before. I think it was a natural there because Constellation also didn't own 100% of it anyway. There was a seller still on the large block, so it was kind of a natural. And my understanding is that they were kind of their own little castle over there anyway. So, but I keep hearing people refer to it as an experiment. And to see if, you know, what constellation might learn, there are some small, some differences. Topikus's organic

Starting point is 00:33:56 growth rate, for example, is higher, as traditionally been higher. And so I think that's part of the motivation with Topicus. And with Lumine, maybe it was a little different because Lumine is more tied to one vertical, median communications. And that spinoff came off a transaction they did with wide orbit, pretty sizable transaction for that group. And it allowed the owners of wide orbit to kind of roll over their shares into this thing and probably made the purchase price work there. So I think I've also heard that Lumen was an experiment in a way for David Nilein to kind of run his own thing. He's a

Starting point is 00:34:29 CEO of Lumine and he wanted to do that. So those are some of the reasons I've heard. But there are interesting differences and it'll be interesting to see how they kind of play out over the next five, ten years because Topicus is as can go across any vertical but they're more supposed to be confined

Starting point is 00:34:45 to Europe. And then Lumine is confined to one vertical but they could go anywhere. So you have two little two different wrinkles there and how those play. out. So Topicus is confined to Europe, does that mean Constellation isn't going shopping in that market? I think they can still do that. I mean, they have, you know, the way Constellations database works, my understanding is that if you have a certain target and you're in contact with that group regularly, it stays. It can't be poached by another group. But if you did lose contact with it,

Starting point is 00:35:17 I think contact means having a meaningful conversation within a year, then it's open for anyone. I think Topicus has advantages in Europe because they're actually there and there's intricacies about that market. You know, there's different, obviously different rules and regulations for different European countries. There's different languages. And so I think Topicus has an advantage there. But I don't think that it means Constellation can't do deals in Europe.

Starting point is 00:35:42 Same with Lumine. I mean, when I talk to, you know, David Nile about it, he's, you know, pretty confident that he's got a good lock on media and communications, you know, that industry. But I suppose if another CSI group had a media communications deal and they source themselves, then they can do that. Yeah. And from my understanding, Constellation still owns, you know, a portion of Topagus in Lumai. It's not like they completely sold it off. So it seems to me that these spinoffs are sort of a tool for Constellation and sort of a special situation type deal where it helps them make a certain type of acquisition, make the deal still work, you know, make everyone happy.

Starting point is 00:36:20 You know, for example, that CEO wanting his own company to manage. So it seems more so like it's not so much a strategic play where they're trying to arbitrage the public markets or do something to that extent. It's more so a very, very special situation type. Special situations, yes. And I think in the future, we will see more spinoffs. And when I've talked to people there, yes, and it's unequivocal, there will be more spinoffs. It's just kind of, you know, what it will look like. I think it will look more like Lumine. It would be those kinds of spin-offs. It'll be part of a larger deal and that will be the natural time to spin off something by itself. That's what I suspect. And I think Jamal, the CFO, the Constellation may have said this at some point that they're not likely to just take like Harris and spin it off at its own one of this operating groups and just spin it off on its own. It's more likely to be a specific vertical. And my guess is that it will be a specific vertical in conjunction with some kind of larger transaction like with Lumine. That's my guess.

Starting point is 00:37:19 One aspect I particularly find interesting with these spinoffs is that it can actually lead to a pretty good investment opportunities from the aspect that institutions that own consolation, they get these other shares deposited. And just because of their mandates, they can't hold Lumein or they can't hold Topicus. So they don't even care about the price. They're just selling it. And it can lead to the situation where you have four sellers. It overwhelms the market with sell pressure.

Starting point is 00:37:48 and gives long-term investors a pretty good opportunity in terms of the entry point, too. I think with Constellation is maybe a little different because Constellating shareholders, I think it's a little different. Like, with Topicus, I don't think you saw a lot of that dumping early. And you can see it in like the volume. I remember doing this. This was, I saw the numbers might be wrong, but I did this at the time. When you looked at like the first 10 days of trading at Topicus, maybe it was like 15% of the shares

Starting point is 00:38:14 traded of those shares turned over. So a lot of Constellation shareholders kept it. And because Topicus was pretty sizable, even out of the gate. But Lumine, it was different. Lumine, it was like more than 50% of the shares traded hands in those first 10 days because it was a lot smaller. And so I think even some of the large, you know, consolation shareholders were just dumping it because it was just two, it was too tiny, too small.

Starting point is 00:38:35 So I think that plays into it. You have a little bit of different dynamic that way, which makes an interesting. And with Topicus, you know, that was in 2021. I think it spun off in February. And if you remember 2021, I mean, you know, software and tech and stuff got, yeah, it was a very, kind of a little bit frothy. And so I think that stock got kind of caught up in that wave. I held it the whole time through. So I wrote it all the way up. I remember at one point and maybe I was up 140 some percent. And then I wrote it all the way back. And eventually, I think it did touch my

Starting point is 00:39:02 cost basis very briefly. So it's been a wild ride. But if you look at the overall, you know, Kager return that I had since I bought it, it's been good. It's been decent. I've used those times to acquire more. So, yeah, I think the journey for those has been a little different. But the spin-off dynamic, I think it definitely happened more with Lumen because that started trading. Again, if memory serves, it was like 17 out of the gate. And over the next several weeks, it fell to like 14. You know, just think about that. And then it finished a year over 30.

Starting point is 00:39:32 So quite an opportunity that was. Yeah. So you had these shares of Topicus deposited on the spinoff. And of course, you could have decided to sell those shares, purchase another name in your portfolio, go back and purchase more shares in consolation. And so what was it about Topicus, you think, that, you know, warranted it deserving a spot in your portfolio? Yeah. I mean, I'm intrigued by the whole thing. I mean, in some ways, we talk about Constellation 2.0. I mean, Topicus is the next kind of little constellation. I mean, it's consolation, but in Europe.

Starting point is 00:40:05 And a friend of mine pointed out to me by email that Topicus today is the same size as consolation was in 2013. So if you roll back then, you'd probably be pretty delighted if you could go back and invest in constellation in 2013. And I think you have that chance now. I mean, they have a very big fragmented Europe, a big market in Europe, I think, to deploy capital. And it's just that basic underlying algo there is attractive. I mean, you're buying a company that I think should be able to grow at least 25% a year and they're reinvesting everything, 25% return on invested capital. And they're reinvesting everything. And, you know, you throw in some organic growth and you've got a company that, you know, could compound free cash flow per share 30% a year for years. So that's the basic

Starting point is 00:40:46 attraction. And you're doing that in a business without leverage, without, it's not cyclical. It's very sturdy. Generates a lot of underlying cash. You know you've got great incentives. Same incentive structure at Constellation carries over to Topicus. You know, you don't have to worry about dilution. Another great thing about consolation. You know, the share count stays the same. You don't have to worry about necessarily them doing something really dumb with a lot of leverage. You know, so there are ways these companies get in trouble. I think you're pretty safe there with topics. So that's the appeal. And it's a little smaller. So like we said, the runway in theory should be greater.

Starting point is 00:41:18 And in doing my research on Topicus, it seems that the private equity market in Europe is less developed, which potentially leads to less competition for the likes of Topicus in terms of these acquisitions. And then another piece I thought interesting was that Europe seems to be a pretty fragmented market where you have one niche in France, the same niche in Italy, and you have two different companies operating within that. So it's difficult for companies to cross borders, I should say, or maybe more difficult than say the United States, for example. Is there anything that you maybe don't like as much with Topicus relative to the other two? Well, I mean, if I had a complaint about Topicus, it would be, I wish they could be a little more accessible, let's say. I'd love to

Starting point is 00:42:03 see, like, you know, Robin, the CEO write an annual letter to shareholders, you know, kind of giving us the lay of the land from his point of view. You know, I think like in general, I think sometimes the complexity of Topicus keeps shareholders away. There's kind of a little bit of a bar you got to get over. If you're not familiar already with Constellation, there's just kind of this bar you got to get. It's almost like Mark has designed it so that there's this hurdle you got to get over to be a shareholder. It's not so easy. I guess it kind of works because it attracts a certain kind of shareholder, right? You know, you're not going to get someone who's just looking to make a quick trade because you have to put so much work and understanding it. There's some

Starting point is 00:42:38 accounting things that have been bizarre, you know, the way the deals have been structured. And like I say, you don't get a quarterly earnings call. You know, management's not doing road shows. I don't have a nice little presentation, all these things that investors love to digest. You get a very simple, you know, public disclosures. And then Robin participates in the annual meeting the Constellation has. And sometimes, you know, their questions put his way. But you don't get a lot. And management doesn't really talk to investors. So these are kind of the hurdles and things that if I, you know, could change a little bit about Topicus, I would go in that direction. You know, I don't think they have to go so far as the whole quarterly calls or do that. But I would like to see maybe topic is hold their own annual meeting or, you know, or like I said, an annual letter

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Starting point is 00:46:41 This is a paid advertisement. All right. Back to the show. What's also quite interesting about Topicus is the organic growth rates being higher of the companies they're purchasing. Is this a strategic play in terms of the European market? Or why do you think they're approaching it a bit differently of looking for higher organic growth?

Starting point is 00:47:02 Yeah. I mean, this is part of the original appeal of Topicus is that they had this higher organic growth. And it is higher. I mean, it's probably run like, you know, six to eight percent and higher when you look at, yeah, it's higher. And I would say like the maintenance recurring. The key piece is probably eight to nine. And I think in third quarter, it's 11. So I mean, it's, the model works better. It's easier when you have that organic growth, right? It's just kind of the math. It makes it easier to compound when you already start with your base assets are going 10% a year or whatever. So that's always been part of the appeal. And why that is, you know, I think that's, I think Mark Leonard's talked about that. It's one of the things they want to learn more from. Topicus, how they achieve that organic growth. I think it comes down to being focused on it. You know, we've talked already a lot about incentives on this interview, but from my understanding is Constellations, incentives, you get paid for, you know, deploying capital, making deals,

Starting point is 00:47:50 and at least traditionally, you haven't been so much paid to create organic growth because create organic growth requires attention and expense. And when you look at it, it's maybe not the best focus for that management team. But Topicus has figured out a way to do it. So it'll be interesting to see if they can keep that up. And if some of that knowledge-based transcripts over to Constellation, I think maybe some of it has. I would be curious to hear what Mark says on that because the Constellation's organic growth, as we've talked about earlier, has, I think, been pretty strong, stronger than most people would probably have guessed, you know, 5% plus in the last few quarters of last year. Let's turn to Lumine now. This one's also different, just like Topicus is a

Starting point is 00:48:29 a little bit different. This was the 2023 spinoff. It was merged with wide orbit. So Lumine seems to be doing fewer volumes of acquisitions and they're doing larger deals. And they don't have a wide range of verticals they can go into. They just have one vertical they're getting into, which is the media and communications. So Lumine is another one that, you know, you got the shares and presumably added to them. So I'd like for you to talk about this one as well. Yeah. I mean, I mean, when I first looked at Lumine and I remember talking to, you know, David Nyland, the CEO, and he, you know, kind of trying to suss out what the differences would be how Lumine would be different maybe than consolation. And one of the things that appealed to me about it was this idea that Lumine would do, would be have a heavier weight or tilt towards carve-outs.

Starting point is 00:49:18 I know it's not the technical definition of a carve-out what they're doing, but that's the kind of the language they use is when they buy a subsidiary, you know, kind of an orphan from a much larger company like they did with Nokia. and that was the deal that really put rocket fuel and the share price at the end of the year there last year. So I like that and I like that because there's a lot less competition to do that. There's a lot more technical skills and things involved in doing those kinds of deals. So there's not as much competition. And so I thought that that would also yield lead to high returns. And David and his team have done this. So they know what to do.

Starting point is 00:49:52 So actually the way it's played out is kind of the way I thought it might, which is you wouldn't see deals for a little while. And then all of a sudden they would do something kind of sizable and interesting. And I think that's kind of what we should expect from Lumine. So it's really interesting because it's, again, it's constellation. You know, it has the same incentives and, you know, the reporting is same. So it's very similar. It feels familiar. But then they have this different tilt or bent.

Starting point is 00:50:16 You know, they have the specific vertical, larger deals, carveouts. I think that's very attractive. And they have a lot of room. You know, one of the things I've heard sometimes when I talk to. to people about Lumine earlier, they're like, yeah, well, you know, it seems like it's confined to one vertical and not as attractive, but it's an enormous vertical. And when you talk to them, David, about what kind of pipeline they have. I mean, they talk, we're talking about low thousands is their pipeline. And they're in touch with companies in the low hundreds. So again,

Starting point is 00:50:48 this is a Lumine owns, what, less than 30 businesses today. So a lot of room, a lot of space to grow. And so I thought it was a really appealing setup and worth having its own real estate in the portfolio. With that spinoff in the acquisition of wide orbit, they paid $497 million. And from what I've researched or picked up, it seems like they paid around 11 to 12 times EBIT, which doesn't seem like Constellation to pay that sort of multiple. But it does have a strong organic growth rate in 2021, its organic growth was 10%. Have you thought about whether they've taken a lower hurdle rate in this deal or what have you found on this front? Yeah, the deal, it's higher than what you would see typically for a CSI deal.

Starting point is 00:51:37 But Wideover is a very good business. They've got tremendous pricing power. I mean, it's a business that's involved with advertising for radios and TV stations and it's not something you can rip out. I mean, it's really mission critical and functional to those businesses. So I suspect that, you know, because I know just culturally within CSI, how they cling to those hurdle rates, I don't think that they lowered their hurdle rate on this deal. I suspect that they will get there or they must see a path to get there. And my suspicion is that it's in that pricing power and the stickiness of that business. So, you know, we'll have to see.

Starting point is 00:52:11 But I think it looks like a very good deal. And I could see one potential advantage for Lumine is the potential synergies within the subsidiaries. I had found some notes that one company that sold to Lumine did so so they could learn operational best practices, eat industry peers, and look at natural synergies and complementary product offerings. So this seems to not be as big of a priority for the Constellation Software Topicus, but maybe more so an opportunity for Lumine. Yeah, could be. I mean, I also think, you know, you look at media and communications,

Starting point is 00:52:49 and there's a lot of these older media communications that are not really growing. And so in that sense, it's a very target-rich environment for a CSI-type mentality to come in and redeploy those cash flows. So I think that's part of the appeal there as well. The other interesting thing is about Lumine is that David Nalind and his team, they have sourced all their own deals. At least, you know, up to the time when I talked to them, maybe the last couple deals, maybe this isn't true. But, I mean, I think there's quite a bit talent in that team also that I think plays into it. In Lumine is generally doing deals that are a bit larger. Do you expect the return on capital to be similar for them? Yeah. I mean, you know, this is another thing where, you know, again, like we talked about before, the larger deals in theory, you're going to have

Starting point is 00:53:36 lower IRA. So, but, you know, Lumine are doing these sort of quirky one-off deal. So it may surprise us. I mean, we'll have to wait and see. But I suspect with Lumine, you're still going to get, you know, 5% type returns on capital in that business, you know, maybe even better with some of these. And one aspect that is probably pretty intriguing is a sort of a copy and paste format. For example, the incentive structure carrying over from Constellation to Topicus to Lumine. Have you seen that incentive structure overall carry over one to one essentially? Yeah, it's the same. And, you know, that's part of the big appeal too.

Starting point is 00:54:16 So they're not handing out stock options and comp is the same. So it's something like, you know, 75% of the CEO's bonus is used to purchase shares. And then those shares are locked up for, you know, three to five years. So I've always really liked that about Constellation. When I think about, you know, incentive structure in my portfolio companies, consolation is the number one, the gold standard. And then the spin-offs are the same. So, yeah, that's a big part of the appeal.

Starting point is 00:54:41 That's exactly the kind of things we focus on are the kind of things we focus on as investors, which is, you know, turns on capital and growth. And that's what we want. I also wanted to talk about the valuations. I had spoke with a member of our investment community that manages a fund. And he was sharing some of the information he had on these companies and he owned all three. He was kind enough to share with me the analyst expectations that he had for these companies for 2024. You know, take analyst expectations with a grain of salt.

Starting point is 00:55:12 But it just sort of points to what people are expecting. So the multiple, this is from mid-January, so prices change day to day. But just to give you a general direction, he shared a multiple of 36 on 2024 earnings for consolation, a multiple of 32 for Topicus, and then 32 for Lumine as well. So the market seems to be putting a bit of a premium on Constellation. They're probably much more well-known and a lot more investors probably know about them. And it seems a little bit counterintuitive given Constellation size that they would be trading at a higher multiple. So maybe you could just share your thoughts on their current valuations in light of everything we've talked about in light of the quality, the management teams and

Starting point is 00:55:54 such. Well, I mean, taking those numbers at face value is 36 and 32. To me, that's kind of in the realm of the rounding error. So I don't know that it would be that much different. I also think that if you're a long-term investor in these, then, you know, the exact multiple, maybe it'll fade in importance a little bit. And the way I think about it is, I always think about things that kind of like 10-year commitments, you know, you look out. And, you know, the basic math of it is if it's 25%, let's just say, if it's 25% Kager, over 10 years, that's 9x. You know, think about that. 9x. So suddenly, and it doesn't have to be that number. You know, make it, if it's 20%, it's, I think it's six something. So suddenly, whether it's trading for 25 or 30 or 35, kind of doesn't take on as

Starting point is 00:56:37 much if you knew it was going to be nine times higher, or let's say earnings were going to be nine times higher 10 years from now, you know, then I think you're not so much worried about whether you're paying 32 or 35 or 29. So that's the frame of rough. Obviously, you can't pay 50. You know, you can't pay crazy multiples, but you have more room than you think with some of these. And then even so, if you wait, you almost always get chances. I mean, we talked about it. I mean, Lumine briefly hit, you know, got down the 17 handle. I think it was October. And it finished a year over 30. So that's dramatic. You might not get quite that swing. But for all these companies, you're going to get some chances.

Starting point is 00:57:15 So there's two different ways. You know, I always say, like, if you really, if you love a company, you've done all the work. And for me, you know, the hurdle rates are high for me to find something. So if I find something, I'll start small, even if it's trading at 31 or 32, 35. And then you can always build it up later. But the problem is if you wait too much, sometimes, you know, it might go a year or two before you really get a shot. and then you would have been better off just buying it when you first wanted to buy it. So I don't get too, you know, I don't put too fine of a point on, you know, what the multiple is to that extent.

Starting point is 00:57:50 You know, the way I think about it is just a very simple model of, you know, they have so much capital of a earning a return on that capital. You forecast that out, how much are they going to reinvest of what they make and you kind of, you know, you get a number 10 years out, put a multiple on that, what's your I are? So you've got quite a bit of room to play around with those variables and adjust them along the way. But I think these are pretty attractive to own over a 10 year period of time. I love that you just kind of showcase the example of 25% over 10 years is a 9x in the earnings potential. And I was actually on a call with our community yesterday talking about this idea of paying up for quality. And I wanted to tie in the numbers and share just

Starting point is 00:58:31 something very similar to what you did. You know, I don't think enough people probably do this because they probably think 25% consistently isn't likely or it's going to be just extremely difficult to do. So what I did is I spanned it out over five years and I said, what multiple could you pay today to get a 10% return and then, you know, say you sell at a multiple of 25. Well, many people would be surprised to hear that you could pay a multiple of 47 and get a 10% return over that period. And there's a few assumptions there that are baked in. So one, a consolation has had return on capital over 25% over its tenure today. So that's, you know, if you would have modeled out constellation five years ago, you would be underestimating its growth. And then you're also underestimating the terminal

Starting point is 00:59:14 multiple. So you're getting much higher returns in that example. And to your point, you know, looking out over 10 years, you know, that just lengthens your returns and, you know, increases your returns over time if you have that longer time horizon as well. Yeah. I mean, this is a great secret to have a long-term investing in high, high-quality businesses is that, uh, The compounding is amazing. I mean, when you work it out in a spreadsheet, you can do 20%, 25% eat whatever you want over 5 and 10 years and see what those numbers are. And then you can kind of love what you did, you know, backing the multiple. I do that too all the time. I remember I did that for my investors in Copart. My investors in my fund, I use Copart. And I think it was 2022 because

Starting point is 00:59:54 I went back to 2012. And I said, you know, what multiple could you have paid back in 2012 and earned at least, you know, I don't remember if it was 10 or 15% return that I used. And the multiple was really high. It was like 60 some times you could have paid and still gotten, you know, 15% return your money. That's what it was. And at the time, it was trading for 25. So, Terry Smith does this too. You know, his letters, he'll look back at some of these great compounders and say, you know, what you could have paid, what the multiple could have been and you've still gotten a market return. And it's always a surprisingly high number. Hey, you have to be a little careful with that, right? You can't just willy-nilly start paying big multiples and

Starting point is 01:00:29 thinking that you're going to get bailed out. But there are some companies that, you know, you do the work on it and you get conviction that they can repeat their formula over five and 10 year periods of time, then it should work out. And you collect enough of those, right? It's not like you have to make one bet. You can't create a portfolio. You get 10 of these kinds of businesses. And that's the other thing. When you do it on a portfolio basis, you're doing 10 of them, how many do you really need to work out just like you think? It's, you know, you get a couple. You're going to have, you're going to be very happy. especially if you let them just run and you don't cut back and trim your winners all the time,

Starting point is 01:01:03 which is what another thing people tend to do, the sabotage their returns. Yeah, and I think it's also important not to chase things. You know, chase something that's gone up in price, you know, say, hey, I'm paying up for quality. It's a long-term compounder because, you know, you mentioned 2023. A lot of these companies are very choppy. 40, 50% differences between the high, you know, it's a lot and just well than one year. So, and these are among the highest quality companies around. So yeah, you're going to get chances. I'm curious, if you were given fresh capital today, how would you think about allocating it? You don't have to say Constellation topic. Like, you know, you have 11 holding. So how would you generally think about putting it to work?

Starting point is 01:01:47 Well, like, first, I will, I think about position sizing. So sometimes, like, I don't mind using Constellation here. I probably wouldn't add to it if I got fresh capital only because it's my number one position. now and I think it's probably 12 or 13 percent. So whereas certain other positions are a lower percentage and perhaps, you know, just as attractive. So some of it is, you know, position sizing kind of guides where that fresh capital goes, but then also looking out on that sort of 10-year model that we looked at, where is the most attractive a place to put it. And there's always, you know, a couple that stand out as obvious places that I would put it that are well below kind of my thresholds on position sizing because there are some garden rails that I put in place for myself. You know, I don't like to necessarily push anything above 10% with capital.

Starting point is 01:02:34 I'm perfectly happy letting it compound and if, you know, gets to a bigger number, great. Totally willing to do that. But as I get inflows, I don't like to push things above 10. So my positions tend to be kind of right now because the fund's still relatively young. It's only five years. The span between kind of these positions are like, you know, eight to 12 kind in that range. It's not like I have 15%, 20% position, and then I have four or five, three percent positions. I don't have that. So I answer your question, I mean, that's the way I would think about. First, just kind of looking at the position sizing and then kind of gauging attractiveness from there. And then, you know, it doesn't bother me to hold cash for a while. If I, you know,

Starting point is 01:03:10 sit on cash for five or six months while I think about it, it's okay. When I look at the stock chart for Constellation, I can't help but draw parallels to something like a Microsoft in 1999. I think Microsoft is like a 60 PE or something. And I mentioned a forward multiple for Constellation of 36. Is there ever a point where you'd trim it back if it became too big of a position in the portfolio or the valuation felt a little bit uncomfortable? Well, as a general rule, I don't trim.

Starting point is 01:03:42 So it would have to be like really egregious. So that's number one. And even then, I mean, Topicus, as you could argue, got pretty egregious in 2020. I never sold it. But that's also because I didn't necessarily have anything else that I was pounding on my, you know, anything else that I was really wanting to buy. So, you know, sometimes it's dictated by what other opportunities there are. If I had something today that was like screaming by that I have to own, you know, I have to give some hard thought to whether, whether I wanted to trim something else or where I would get the capital. Because right now,

Starting point is 01:04:12 I'm fully invested and I've been fully invested for a while. I mean, cash is less than 1%. So it's not like I have room to do anything right now other than sell something first. So all these considerations come into play. But in the general rule, I think the source of outperformance comes from investors' willingness to let something become a bigger part of their portfolio. Let's really ride those winners. And if you do get something that, you know, the ideal would be you get something that sort of takes over, you know, and you look at it and it's 20, 25% of your portfolio and it's just kind of gone up 20x and you're delighted, you know. So that's kind of how I think about it. It's funny. There's a few people, I don't know personally just see them on Twitter posts their portfolios and constellations become an outsized portion because they've never sold a share. I also wanted to mention that you had a great conversation with my co-host, Kyle Greve on our millennial investing show. You talked all about serial acquirers. And that's sort of a bigger theme in your portfolio. We didn't talk really too much about Tech Neon or Lithco or Highco. And those are also in your portfolio. So if people would like to learn, more about the serial acquirer model, I would point them to that episode that I'll be sure to link in the show notes. And for those in our audience, Chris, who would like to learn more about serial acquirers, other than referencing that episode, is there any other resources you would point to? My friends that in practice have done a lot of good work on the serial acquires. That's a paid subscription, but they have a lot of stuff on all the names we've talked about

Starting point is 01:05:41 serial acquires. So that would be one. Definitely recommend that. You know, there's a free site called Acquires.com. You can check that out. There's a, there's a free book there to give kind of an overview of the serial choir model. So I'd recommend that. You know, my friend over at Audbjorn over to REQ Capital, they've just released within the last, what was it, a couple months, a huge mammoth 300-page slide deck on serial acquires. I'd definitely recommend that. So yeah, those are, those should definitely, that's enough to chew on for anybody there. I would say those things, start there. Wonderful. Well, Chris, always enjoy having you on the show. It feels like such a privilege to have an opportunity to chat with you and start to pick your brain on some of

Starting point is 01:06:27 these things. I want to give you a final handoff. For those in the audience who want to learn more about you and what you're up to do, please point them to any resources you'd like. Sure. Well, thank you, Clay. It's always good to be on. You always agree. Because we have good conversations. You ask good questions. So I enjoy it as well. Yeah, I mean, if people want to find me that, you know, Woodlock House, Family Capital is named my firm, and there's a, I write a very occasional blog, and I haven't really written it in a while, I know. But there's a lot of stuff on there to read from the past. And I'm still active on, well, we used to be Twitter and now X, and not as much, but I still will post things

Starting point is 01:07:04 occasionally there. So those are two ways to keep up with what I'm doing. Great. Well, thanks a lot, Chris. And I'm excited to watch the Constellation Story play out over the next 10 years and see how it ends up. Yep, great. Thank you. Thank you for listening to TIP. Make sure to follow We Study Billionaires on your favorite podcast app and never miss out on episodes. To access our show notes, transcripts or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only before making any decision consult a professional. This show is copyrighted by the Investors Podcast Network, written permission must be granted before syndication or rebroadcasting.

We Study Billionaires - The Investor’s Podcast Network - TIP608: Long-Term Compounding w/ Chris Mayer

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