We Study Billionaires - The Investor’s Podcast Network - TIP671: Unconventional Value: Contrarian Thinking and Outperformance w/ Larry Connor

Starting point is 00:00:00 You're listening to TIP. Today, I have an unconventional guest on the show who has returned 30.4% per annum since 1992. He's unconventional in many ways. But the primary reason he's different from many of the other guests that I've spoken to is because he comes from the real estate industry. Since inception, his returns have outpaced those of some of the best asset management businesses in the entire world, such as Brookfield and Blackstone. Now, what drew me to Larry was his ability to think about investing in real estate as, distinct business units. Instead of considering the Connor Group's apartments as kind of, you know, set it and forget it investments, he and his team actively improve the underlying business

Starting point is 00:00:40 inside of each apartment complex. He successfully increases the operating margins of the apartment complexes by an astounding 60 to 80 percent within just a few short years of ownership. This is tremendous value creation and I think it's worth researching a little bit more how he does it. Larry considers himself an investor in real estate, not simply a real estate investor. He's used his past knowledge and experiences, including his successes and more importantly his failures, to design his business in his view. He is a contrarian, which I greatly appreciate as a value investor. A couple great examples of his contrarian nature are that he doesn't hire from within

Starting point is 00:01:16 the real estate industry. He deploys capital during economic downturns. He's paid particular attention to aligning his employers with the investors of his company. He deploys long-term thinking. And he doesn't come from a traditional financial or, real estate background. Another fact about Larry that I found really interesting was his take on risk. Larry is someone who has done some hazardous activities on the face of it, such as piloting the historic Axiom Mission 1, the first fully private mission to the International Space Station.

Starting point is 00:01:46 He completed three dives in five days in the Mariana Trench, the deepest point on Earth. He executed the highest altitude, low open formation skydive ever, and he's competed in the 24 hours of LaMance, arguably the most famous endurance-focused sports car race there is. So you could say Larry enjoys a couple things that would cause most people a lot of stress. However, Larry views risk differently, both in his personal and professional life. If he had an inkling of doubt that any of these activities would have been unsafe, there isn't a chance that he would have participated in any of them. He also brings this type of thought process to business.

Starting point is 00:02:23 During this episode, we'll discuss one of Larry's most significant business blunders, which he was more than happy to share with me. You'll learn how he was in the red, after this enormous blunder, ended up paying back his debtors and got to where he is today. You'll learn why contrarian thinking has been such a key to his success. You'll also understand and appreciate his importance on a few key fundamental principles. Even if following these principles means he'd make a little bit less money. Now, much of Larry's life reminds me of Warren Buffett's inner scorecard.

Starting point is 00:02:50 You'll see how Larry uses his principle of always doing the right thing and how it's a non-negotiable for him and all of his colleagues. So if you want to learn more about how some essential value investing concepts can be successfully applied to a real business, you'll definitely want to check out this episode. Now, let's get right into this week's episode with Larry Connor. Celebrating 10 years and more than 150 million downloads. You are listening 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.

Starting point is 00:03:28 Now for your host, Kyle Grieve. Welcome to the investors podcast. I'm your host Kyle Grieve, and today we bring Larry Connor onto the show. Larry, welcome to the podcast. Thanks for having me. So one thing that really stood out to me when I was learning about you was your just disregard for the word impossible in business and in other areas of life. Your business model and mindset are just very, very different from the industry standard. Can you maybe explain why you built your company this way?

Starting point is 00:04:06 and how it's factored into your success? Sure. So think about this, Kyle. If you truly want to be exceptional, if you want to be the best, you want to be a lead, don't you, by definition, have to be different? If you're like everybody else,

Starting point is 00:04:24 you're going to end up at or close where everybody else is. So I think it's a willingness, a mindset, to be different. By the way, don't be different just to be different. different. Be smart different. Don't be disruptive to be disruptive. Be smart disruptive. Don't set ceilings. Like someone says, well, that's impossible. In my experience, 97% of the time, that's just someone's opinion. And so a fellow told me one time, I think it's almost 20 years ago. And it really rings true. You will never out.

Starting point is 00:05:06 perform your own self-image. Think about that for a second. You'll never outperform your own self-image. So yeah, we just think we get a bunch of talented people. We think it's a team sport. We don't care what anybody else thinks. We don't care that we're different. We don't care if we fail. We'll fail. We'll fail fast. We'll learn. And the results have worked out pretty well. So another area of your business that I found very fascinating was the characteristics that you search for when you're looking for new talent to help build the business up like you just kind of mentioned there. So you've noted that you don't hire from within the apartment industry and that's actually been vital to the Connor group's consistent health performance. Can you maybe expand a little bit on your reasoning for taking this route and maybe why you think that has fueled your L performance? Yeah. So a short history lesson when we started,

Starting point is 00:06:00 my partner and I, we had a fundamental belief that departments are just like any other operating business. And we had background knowledge, experience, some success in operating different kinds of businesses. And so we said, we think we can bring a different type of operating model to the industry, do better on what we call customer satisfaction, because we never call them tenants, that we could control costs, have higher productivity, find sources of revenue, and give the resident a great experience. And in the first year or two, we did hire a few people from the industry. The problem was our ideas were so radical. They thought we were crazy. And in fact, that kind of followed us the first six, seven, eight years. Like, we'd go to buy properties or we'd work with

Starting point is 00:06:55 brokers and they'd be like, oh yeah, you guys, everybody says you guys are crazy that, you know, and so we finally just, after a couple of years said, we're going to hire all people who share common beliefs, common philosophy, and ultimately kind of a common culture, and we're just going to do it our way. And we believe people are the number one key to success. And given that, yeah, I think you can make the argument if you said, what's the number one thing that's separated you. And that is we hired all people who have never done it before and just built our own models and own systems and processes. And so what kind of adjacent or different industries do you usually end up hiring from? Where did you end up finding a lot of that talent?

Starting point is 00:07:43 Yeah, it's very eclectic. So we hire for personalities. So for example, we can tell you what we call the big six, anybody in a leadership role. And they're all important. I'll go through them quickly. One, you've got to be able to motivate and inspire people who work for you. Two, you've got to be super organized, really good at multitasking. Even though we're in a low-tech business, we run a complex operating system. Three, you've got to have accountability, self-accountability, and you've got to be able to hold each other other people accountable. But doing it in an honest, honest, direct, constructive manner. Four, you've got to be culturally aligned with our philosophies and beliefs.

Starting point is 00:08:30 Five, you've got to have grit. We define that as passion and perseverance. Six, you've got to have a work ethic. You know, if you want to come in at eight and leave it four, hey, that's great, but this isn't a place to work. And so, wherever we can find that, we have two or three super successful people who are from, by the way, the media world. A couple of them from print, one of them from TV. We have people from retail. We have people from service industries. We have people from logistics distribution. So we don't get hung up on where you went to school, what your GPA was. We're far more interested in the content of your

Starting point is 00:09:10 character and have you had success managing and motivating and leading people. So when it comes to investing, I really like looking at first principles. So, you know, whether you're buying real estate, owning shares in Amazon stock or buying a local business, I think one vital area to consider is value, right? And if you can buy an asset below its intrinsic value, you're going to be very, very well set into the future in terms of both mitigating risk and also obviously having a good upside. So can you outline some of the specific assets that you focus on buying and how intrinsic value and price kind of affect your investing strategy there? Yeah, good question. Let me give you a maybe kind of an interesting answer that I'll speak to.

Starting point is 00:09:52 And by the way, this is true. As you know, Kyle, in any kind of investing. So let's take a typical year. We're in 18 markets. We'll get information on roughly 7 to 800 properties that throughout the course of the year come for sale. Our team, which is small, it's about a half a dozen, but really elite, will do initial analytics. will underwrite about, let's say it's 700, about half of them, about 300 to 350. We will physically, around the country, go visit 175 to 200. So a tremendous amount of legwork. And we're going to do both quantitative analysis as well as qualitative. And we've built all these proprietary systems and questions we ask and profile.

Starting point is 00:10:46 we do. And even though we started with 700, went to 325, 175, we'll buy maybe eight or nine properties. So basically 1%. So at the end of the day, like so many other things in life, it's about hard work, determination, discipline, and perseverance. So there's not like, and I think you probably, they're not like silver bullets, you know, people think that, Okay, anybody maybe gets lucky. They bought Amazon early on or Facebook or whoever it may be. And yeah, we look for different things. And so we look for what we call businesses. These are going to be large luxury apartment community. The average acquisition we do is an $85 million property. We look for a great property and a great location with bear.

Starting point is 00:11:44 to entry, meaning demand-watt-strip supply long-term, that we can massively increase bottom-line within 24 months. If we can't improve the bottom line at least 60, 6.60% in 24 months, we won't buy. And by the way, that's obviously easier said than done, but maybe that's why we'd buy out of 700, we'd buy 1%. Let's take a quick break and hear from today's sponsors. 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, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo Freedom Forum is entering its 18th year bringing together activists, technologists, journalists, investors, and builders from all over the world.

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Starting point is 00:16:10 Go to Shopify.com slash WSB. That's Shopify.com slash WSB. All right. Back to the show. So let's kind of unpackage that 60 to 80%

Starting point is 00:16:25 kind of boosts an operating income that you guys are able to do within quite a short period of time. So obviously this is going to be a pretty significant boost to the intrinsic value of the apartments that you buy

Starting point is 00:16:35 after you decide to sell them to someone else. So I'm interested. in understanding a little bit more about what are you some of your key strategies for how you go accomplishing this? So we have a four or five pronged attack. So we're going to look at interesting. First thing we're going to do is we're going to look at customer service or resident. Many times these are large, super nice located. The assets are nice, but they're really poorly run. In fact, the warsuits run, the better we like it. And so we get there, we do.

Starting point is 00:17:08 a very unusual on-site due diligence. When we see if it's a train wreck, that's perfect, as long as it's got everything else we're looking for. And so we're going to go in and address that. We're going to bring our own team of people, management, sales, and service. We're going to really focus on customer issues. We're going to fix those. Then we're going to think about where we can decreasing costs and increasing people productivity. And by the way, you can increase productivity. and reduce costs and have a better customer experience, not worse. Then we're going to look at the typical can we raise rates. Is there anything on the physical facility we need to improve?

Starting point is 00:17:51 We'll invest huge dollars if we need to. Many times, by the way, it's an operational plate. You don't have to do the capital. And then we will, people will pay for value. So maybe we can raise that rent $100 or $200, but they're not going to take it if you don't give them perceived value. And one of the really unique things is we have an exceptionally high what's called resident retention rate. So the industry turns over about 60% of their units on an annual year.

Starting point is 00:18:23 We only turn over about 45%. It doesn't sound like a lot, but if you've got a 300 unit property, that's 45 less units to turn over. And the people who stay generally will pay a higher rate because they perceive value than the people are coming in. You aggregate all that together. It's very hard to do. That's why there's virtually nobody in the industry. We haven't found anybody in an industry who does it like we do. But it's also the reason why you end up extracting, if you look at our returns, which your viewers are probably interested in, over the last 32 years, our average annual return to our investors, After fees is 30.4% 30.4 IRR.

Starting point is 00:19:11 And over the last five years, it's like 38%. Yeah, that's very impressive. So I wanted to move this conversation on to more about risk. So it's impossible not to see while I was researching you that you like doing some very thrill-seeking adventures that you've been on. And, you know, whether that's skydiving, out of balloons from insane mounts of heights or visiting Marianas Trench, the deepest area. on Earth or even traveling to space to see the International Space Station. You seemingly enjoy doing some very risky things. But, you know, as I dug more and more deeper, I felt that maybe you don't view some

Starting point is 00:19:46 of these things as being super risky. For instance, you've said that I've had this belief that you never take unacceptable risks. So can you maybe share a little bit on, you know, why you enjoy doing some of these activities that maybe seem risky to the naked eye and then maybe weave that into your reviews of risk in business. Very good question. You've done your homework. So let's talk about the business side first, and then I'll go over to the personal side. So here's an interesting stat that basically we had this belief from day one. We believe we can really limit downside risk and really ratchet up upside opportunity. And so let's look at the numbers. In the last 32 years, we've done, you know,

Starting point is 00:20:34 We've done 231 acquisitions of a partner communities around the country. We've lost money on eight. So it's like, what? Like 96, 97%. Yeah, how would you like to do that in a stock market? I sure can't. So we think people don't understand risk. Why take risk when you don't have to?

Starting point is 00:20:58 Can't you stack the odds in your favor? By the way, it's much harder to do, but it's not impossible. And so that's what we've done to visit. Well, we carry that over, like, we will do no project. The last one, which actually we just celebrated the one-year anniversary like two days ago. We built the largest hot air balloon ever built in the United States. Flew it to 38,000 feet, myself and four Air Force pararescue guys, stepped off the thing, did a five-man formation, and set a world record, nobody's ever done a halo, jumped that high, and got everybody on the ground.

Starting point is 00:21:37 Well, the reason why is we won't do a project like that unless it meets two standards, and they both start with us. Number one is safe. Number two is successful. So in every single thing we've done, we've been able to manage down risk in a significant manner. And so I think that's about philosophy and it's about people and it's about approach. So as you kind of alluded to here, the Connor group, once it acquires these assets and is able to improve the operating income bottom line there in as that short period of time, you then are usually looking to sell it. So I'm just interested in learning a little bit more about, you know, the price that you're paying and maybe the price that you're selling for that if you can share it. So, you know, what's your sweet spot, I guess, in the multiple of, let's say, operating income that you're buying these in and then, you know, what are you able to then sell it for? or once you are able to improve the operations there?

Starting point is 00:22:35 Yeah, so fair question, which you have to constantly adjust. So if you look, we've done well in up markets. We've done well in down markets. We've done well in markets that have traded sideways because we keep adjusting the return expectations. So we never look at, let's say, the multiple is or the cap rate based upon today or history. We are always forecasting the future. And so, for example, like last year, 2023, U.S., nobody's buying apartments.

Starting point is 00:23:08 Like, we didn't sell a thing. That's the first time at 14 years when it's only thing. We, on the other hand, bought a billion dollars, like unbelievable buys. So we're countercyclical. When everybody's buying them, we're selling. When people are selling, okay, I mean, so you have to. have to have the faith and the discipline and the systems to be able to make those adjustments. So is there a typical property that we buy?

Starting point is 00:23:42 So, yeah, we're kind of a collective buyers, but if you said, well, give me a pro phop, generally they're going to be suburban, generally they're going to be in what they call class A locations, generally they're going to be 10 to 15 years old, and they're going to fit the other profile of barriers, you entry dramatically to improve the bottom line. And so we think the thing to really kind of to think about

Starting point is 00:24:07 that will dictate the outcome of your investment return are three fundamental things. And by the way, this is true and by and we believe any kind of operating business. Number one is, how much can you improve the bottom line?

Starting point is 00:24:23 Number two is, how long is it take you to do that? Number three is leverage. By the way, you can make a fourth point, the quality of the asset. And so we're really good at combining all those together and compressing the period of time and using prudent leverage, not over leveraging, but using smart leverage and always buying high quality assets. So when you end up selling these properties, who are you usually selling these two?

Starting point is 00:24:50 Is it, you know, private owners, is a venture capital, private equity, or other asset managers. Yeah, so I would probably bifurcated into a couple of different groups. So group A is going to be institutional owners. You know, we're in a lot of what you would call high profile lifestyle markets, Denver, Colorado, Austin, Texas, Tampa, Florida, Charlotte, Fort Waterdale, you get the idea. So you got a lot of institutional buyers there. By the way, we also operate in the Midwest where we've done super well, that tends to be more private capital. But it's generally one of those two groups. But again, it can be, it just depends upon the asset and who's in the market. Groups move in and out of the market. Like there hadn't been a lot of institutional money

Starting point is 00:25:38 in the market. It's been a lot of private capital. That's rapidly changing right now. Your business has been around here since I think 1992. So you've survived through, you know, 30 years of market cycles and gyrations going up, going down, going sideways. So I'm interested in learning a little bit more about, you know, how you've engineered your business to kind of withstand, especially these down markets, such as, you know, the great financial crisis. Sure. We don't withstand anything. We are built for turmoil. So like the Great Recession, we did unbelievably well. Real forward to COVID, okay? COVID, by the way, very soon. Very soon. serious, very real. We just decided not to participate. So it's mindset. Why? Well, wait a minute.

Starting point is 00:26:26 We're in a fundamental business. We didn't wait for the government to tell us we were. We all met on a Monday when COVID had been officially announced and said, wait a minute, we're a fundamental business. We have an obligation to take care of our residents. This is 8 o'clock on a Monday morning. Everybody's got till 5 o'clock. We have 12 different departments here at the headquarters, how we're going to support the people in the field. And we did that. We never closed for a day. We never closed our offices here. We took great care of our associates. We did a lot of really unique things, some of which have been publicized, to really show appreciation for our residents, show appreciation for our associates. And so we love turmoil. We love disruption. The more convoluted stress the market is, the better for us because we have very permanent capital. We have very patient capital.

Starting point is 00:27:21 We have total control of our capital. The largest monetary investors are us in-house. So we're not under any pressure or dictate to make short-term decisions. So obviously I don't want to take away from COVID and the seriousness. But during these concentrated times where things are not so good, such as you mentioned the great financial crisis, COVID last year, Have you noticed that the years usually after those years, you end up getting really good results just because of the discounts that you're able to make purchases at?

Starting point is 00:27:57 The short answer is yes. Like we bought last year nine assets. We recently had a reason to review those nine. So I hand a short note out to some of our investors like, we're going to kill it with these guys. And we, by the way, you should never say anything. anything that you can't back up. And we have a long history of backing it up. And yeah, I mean, when you're buying a property,

Starting point is 00:28:26 I could give you some different examples. I'll give you one. I won't go into all the details. But essentially, this asset was in a high-profile market, should have traded for probably 86, 87 million. The sellers who were very institutional. So they just decided to sell. There was no financial pressure, but they just decided we're remixing the portfolio.

Starting point is 00:28:53 Get rid of it. So we bought it for $70,500,000. Today, it's probably worth about 110 to 150. But again, those are, I mean, it's not easy to do. I'm not trying to say, oh, yeah, wake up and you just do this. You know, but seize the opportunity, seize the moment. When everybody runs to the side lines, we turn and go to the opposite direction and we move in a discipline in control, but decisive manner.

Starting point is 00:29:29 And that's worked well for us over the years. So let's move to the other side of the cycle, which is probably the side that most investors want to participate in, which is when the cycle goes upwards. So obviously, many investors get caught up in the wave of euphoria and greed during these times. And the real estate market, unfortunately, is incredibly right for this behavior with, especially I guess retail investors, you know, just with the ease of accessing capital when times are very, very good. So can you tell me a little bit more about how you utilize, you know, market cycles to your

Starting point is 00:29:59 advantage when trying to find maybe well-priced deals when that's challenging to do and maybe how you mitigate some of your risk during those times? Yeah, so fair question, but we think about it completely differently. So just you have to think about the apartment industry. about, I don't know the latest stats, but roughly 70% of all the apartment communities in America are not institutionally owned. So it's a very fragmented market. And if you think about it, let's say for example, let's just pick a market. Dallas, Texas, we've been in Dallas, 20 years, great market. There are, literally, I forget the latest numbers, I think it's like

Starting point is 00:30:49 1.1 million apartment units. Well, how many of those are mismanaged? I mean, stop and think about. Keep in mind, most people think about real estate investing as a passive investment. You put your money in, maybe there's a third-party management company. We think about completely different. We think about a living, breathing, operating business. We operate it like an operating business, not a passive investment. So all we have to do is go find that 1% that are great assets and great locations that are all screwed up. And we go buy them. So whether the market's good or bad or static, at the end of the day, Kyle, if we improved the bottom line on a property, 60 or 80%,

Starting point is 00:31:41 The only thing you and I are going to argue about is how much more it's worth. And we may not agree upon that, but we're both going to agree it's worth more, as long as you bought a good asset and a good location. So that's why we can make money in any cycle. You are absolutely right, by the way. For most of your investors out there who are doing this passive, man, you've got to be careful. Like, you did not. We went out publicly in 2019 and said,

Starting point is 00:32:09 the market had moved from premium pricing to the absurd. We were really public about that. We were still able to buy some things because we can kind of find these hidden gems. And then COVID had the market shut down. We went aggressively in and bought a bunch of stuff. As soon as the market, the market corrected itself. People don't realize like six months into COVID, we became massive net sellers. We sold like 60% of our portfolio.

Starting point is 00:32:39 in two and a half years. So Howard Marks is one of my big, big role models here, and he has one of the best quotes on cycles that I've ever read, which is, we may never know where we're going, but we'd better have a very good idea of where we are. That is, even if we can't predict the timing and extent of cyclical fluctuations, it's essential that we strive to ascertain where we stand in cyclical terms and act accordingly, unquote. So given your experience in the commercial real estate industry, I'm just interested in where you

Starting point is 00:33:09 think maybe we are in the cycle and maybe how you are reacting to the observations in terms of capital deployment? So we're getting ready to have an investor day in six weeks. So I'm not sure this my delivery will be what people want to hear. But here's what I honestly think. I think we've exited a decade of unprecedented returns fueled in great part by economically. growth, monetary policy, both in terms of liquidity, debt, everything else like that. So, for example, we last five years, I think it's 38%. I'm going to tell our investors do not expect that going forward. I think the next 10 years will be much tougher to extract, not impossible, but much tougher

Starting point is 00:34:04 to extract exceptionally high returns. And so what I'm going to say to our investors, is the following. Hey, look, over 32 years, we've averaged 30%, last 538. Your expectation should be in the low to mid-20s over the next 10 years. And I think that's contrary to what some people think. I think the real estate specifically as apartment space is still going to be a great real estate space to be in, but I don't think the returns will be as high. But they'll show me better than almost any other option. So I want to take this conversation to another area that you actually reference earlier,

Starting point is 00:34:41 which is failure. So, you know, all investors and entrepreneurs are obviously going to be very, very familiar with the concept of failure. But the thing about success is that you must tow the line between both failure and success in order to ultimately succeed. And often on that road to success, you're going to fail multiple times before you eventually succeed. Now, I know that you think of failure as kind of an exercise of open-mindedness, courage,

Starting point is 00:35:05 and resolve that creates freedom eventually once you access it. Now, can you just kind of expand a little bit more on your concept of failure and learning processes? So if you were to say to me, besides people, besides culture, why are you successful? I would say because we had the willingness to fail and the ability to own it and the ability to be able to assess it and the ability to be able to self-correct it. And so, yes, we try to get everybody to think about failure as a learning experience. So when we fail, we try to think about, okay, first thing, oh man, I feel bad about it. Oh, God, we really screwed this up. And we do.

Starting point is 00:35:53 Like, all right, rule number one, what do we learn? Rule number two, what are we going to change? Rule number three, how do we make sure that we don't go back to rule number one and repeat that same? We think about two kinds of things, honest mistakes and avoidable. Everybody makes honest mistakes. What you've got to do is eliminate or greatly minimize avoidable mistakes. And we're really good. We never make excuses.

Starting point is 00:36:19 We own everything. And I think that's, again, that's people, that's mindset, that's culture. It just gives us the liberty, the freedom to not be willing. This is a problem, by the way. You've probably seen it, Kyle, in your endeavors. A lot of people, many of them institutional, although the private sector can have the same. It's like, it's not about maximize a return. It's about not failing.

Starting point is 00:36:46 Well, just think about that. That's a negative approach. You're never going to be exceptional. You're never going to excel if you're always trying to not. to fail. You've got to embrace the failure, but not stay in that place very long. 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. Vanta automates

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Starting point is 00:40:35 This is a wonderful trick to learn. And that just makes me think exactly kind of what you were just saying there. So can you maybe cover some of the failures from your past and maybe discuss some of your significant takeaways that you had from living through them? I'll give you the one that, you know, I talked about in Forbes that certainly people have asked me about. So we have owned eight different operating businesses. Seven of them have been super successful. One was a colossal failure. And that was in the computer industry in the 80s.

Starting point is 00:41:08 So I'll give you that Cliff Notes version. We owned that business for nine years. We were in hardware and software and system integration. We grew in the business. We didn't really were way undercapitalized. We didn't kind of know what we were doing. The industry, the margins got crushed. We had too convoluted of a strategy. We didn't understand the concept of simplicity as brilliance. And so we closed the doors. And I'm like, well, that's a problem. Because at the time I'm age 40, all the money I'd made from other things I had put into the company, I'm broke. I got a wife, two kids. in a farm. I have no job. That got Morrison broke because I had gone out and borrowed, this is 1990. I had borrowed $900 from small banks, like personal loans, things like that. Well, today that's what, three or four million dollars. And I'm like, so I'm broke and I owe all that money and somehow some way I'm paying every single bankback, every single dime with interest, which I was

Starting point is 00:42:11 able to do in the next, whatever it was, three, four year period of time. So it's a little tough when you're in that situation and you're 40 years old. So the moral of story is don't give up. The moral of the story is it's never too late to start. The moral of the story is learn from your failures. But just so much in business is about grit, determination, and perseverance. It's not about necessarily who's the most brilliant. Now, I think you got to have people. We talk about the three or four P's you got to have to be successful. And we think, number one is you've got to have the right people. Number two is you've got to have a plan.

Starting point is 00:42:50 Number three is you've got to have good processes. Number four, you're going to have perseverance. Notice, I didn't see capital on any of those. If you have those four in almost any endeavor, your chances for success are pretty darn good. Let's now discuss an area that I'm passionate about in business, which is an area that probably doesn't get enough attention. So these are a couple of areas.

Starting point is 00:43:11 One is a great company culture, and then the other is creating alignment between management and the shareholders. So in the Conner Group's case, you've also made many of your employees' shareholders along with you. Now, can you discuss maybe how your views of culture and alignment have been shaped and why you think this is a competitive advantage for the Conner Group? It was $900,000 that I owed in personal loans, so we might have to make that clarification. And anyway, we paid them all in three or four years.

Starting point is 00:43:42 Yeah, so we believe that really exceptional people work for more than just a paycheck. They work for some kind of purpose. And by the way, it can be different for different people. And one of those purposes is that they're part of assumption, something bigger, better, special. and that they got to share the wealth and act like can be treated like an owner. So about 20 years ago, you know, we had formed core values, and there's five. And the first one is always do the right thing. I think virtually anybody knows that.

Starting point is 00:44:31 I don't care what part of an organization. Two, people count. And by the way, it's very vogue. been in recent years, but we believe that for a long time. And it's by actions and Ds, not by words. Three, relentless pursuit of excellence in everything you do. Four, think long term, not short term. That's why we'd be a lousy public company. And five, this management thing we call circle of success. And so going back to that, I'm like, I think we're headed on a good path. We're being pretty successful. So think about it as a pie. And you're a business.

Starting point is 00:45:07 owner, you want a pie that that's big that you own 100% of? Or would you like a pie that's like that big that you owned 80% of? Well, it looks like to me that pie is better, even though you only got 80%. Plus, it's the right thing to do and people count. So what's share of the wealth? So we start a unique partner program. Anybody in the organization can be a true equity partner. No dilution to shareholders. It all comes for me. And today, we have a unique partner. And today, we have a of 76. We actually have to give you some example. We have things called groundskeepers. Those are people who basically pick up trash and things like that and our properties. Two of those people are partners. We have people in accounting, recruiting, service, sales,

Starting point is 00:45:56 administrative assistance. But once you become a partner, what's unique is you're not a partner for life. You have to recertify every single year. So you've got to show up and we expect you to do three things. Be exceptional at your job, be a role model, and help other people. And as long as you do that, you recertify, and 95% of the people are recertify every year. And so we literally have people who have been partners five, ten years. They make more money from their partnership than they do from their base in bonus. And it's been wildly successful, and I'm just surprised that more business owners don't take a bigger picture of you. to long-term sustainability, people retention, people productivity, all which happens with this

Starting point is 00:46:46 partner program. Yeah, so I completely agree with you. It's kind of boggles my mind why more companies don't take that view of trying to make partners out of their employees. But one thing I'm really interested in is learning is how did you actually arrive at this conclusion? Because, you know, so few people do it. I mean, obviously you like to think differently.

Starting point is 00:47:05 So maybe that's part of the reason. but I'd be interested in learning more about how you arrive at the conclusion. We are not confined by conventional thinking. Maybe that's why an English major or a concentration in Shakespeare and literature ends up in the investing world. So you have to be willing to step back, think about unconventional things. Ask yourself why that will work or why it won't. What really matters, right?

Starting point is 00:47:35 Don't look at your peer group. In most industries, as you and your listeners know, it's herd mentality. Break out of the herd. Don't run wild. Don't run off, you know, but pick a different path, you know, sailing uncharted waters. You know, maybe if you lose sight of land, maybe you'll find a new place to go to. So it's, yeah, I'm with you. I'm just, to me or to us, it's kind of utterly amazing.

Starting point is 00:48:04 This is never an eye game. This is a team sport, building businesses. And I know people talk about team. In my experience, most of the time, it's more words than it is actions and deeds. And all you're going to do with any company go, okay, well, you believe in team, you believe in chair the wealth, you believe, show me exactly every single factual, measurable thing you're doing. And then I can determine myself whether you're really doing or not. My experience, 90% of them don't, and the 10 that do turn out to generally be elite. So I'd like to touch on a few of your core values because I actually think many of the values that you have are also going to be ones that resonate with a lot of the listeners here.

Starting point is 00:48:47 So one of the values that you resonated with me that you just kind of said was just doing the right thing. So this reminds me of a really good Buffett quote, which is, you know, it takes 20 years to build reputation and five minutes to ruin it. If you think about that, you'll do things differently, unquote. So I'm just interested to learn a little bit more about this principle. You know, how has this principle maybe added value to your business in a tangible way? It's a complete non-negotiable. If you said outside of people, outside of, you know, what is the most important thing, historically or for your long-term success, it's reputation.

Starting point is 00:49:24 We are awarded deals. We're not the highest bidder. We may be third or four. But they know we're going to do everything. I'll give you one great, real short story. This is during COVID. So we had a property for sale in Atlanta. I forget the name of the property.

Starting point is 00:49:41 And travel was restricted. I don't know. It was like six months after COVID started or four months and something like that. And traveling on airlines was challenging. We had this property. And we were down to a couple of different groups. And so there was a group in California that really was interesting. rest in by them. But they hadn't been to the property yet. They'd done everything else. I'm like,

Starting point is 00:50:04 well, we're not going to sell you. And they're like, okay, this wasn't a big organization. They go, we're willing to charter an airplane. That's very expensive. Fly across the country, and we'll get our whole management team. They're like six people. And I said, well, this is the price. And they go, okay, we'll pay that. Keep my way, we had nothing and right. And so they said, well, we're going to get this organized. We're going to come there tomorrow afternoon. This is like in the morning. The broker calls me the next morning and said, hey, look, stop everything. We got an offer from this other group that was kind of stalking us. That's like a million and a half dollars higher. And they're based in Atlanta. And they know the property and they're ready to go. I said, absolutely not. I said, these guys are.

Starting point is 00:51:00 on an airplane right now, we gave them our word to what we were going to do, and they're going to land here, and as they come out and do what they say they're going to do, it's theirs. He's like, wait a minute, I don't think you understand. You're going to leave a million and a half on the tables. And I said to him, I don't think you understand. I know that may be a little unconventional, but that's how we do things. And so that, I can give you other examples.

Starting point is 00:51:24 With us, if we tell you we're going to do something, even though it's maybe not in writing, we're doing it. And if it was a bad decision, then it's on us. My opinion, there aren't a lot of companies that will do that. And it's just a huge difference maker, which plays to our long-term advantage. Because word travels. I mean, that's an interesting story. That broker told everybody their brother about that.

Starting point is 00:51:49 I heard it for people all around the country. So another core value that really resided with me was how you think long-term, not short-term. This obviously places a very intentional focus on the long term while hopefully avoiding a lot of short-term thinking that seems to plague a lot of other investors. So what are some examples of how you guys utilize this long-term thinking that differs from the standard industry practice? So yeah, two thoughts. Number one is I think, I think it was Warren Buffett too. And maybe Charlie Munger are talking about this idea of quarter by quarter earnings is a completely flawed idea that companies shouldn't do. that. They ought to report more like on an annual basis because you end up being enslaved to the street and what perceptions are quarter by quarter. I just don't think it's a good bench more.

Starting point is 00:52:42 So here's a very interesting, another key to our success. So in the depths of the recession, COVID, why do we have the conviction to go by a, 80 or $100 million property because we always think long term. And so while what's happening right now is relevant, we're going to think out into the future and go, what's going to be the cap rate, what's going to be the marketplace, what's going to be the valuation long term.

Starting point is 00:53:20 And that's going to be more like two or three years from now. And so as a result, we can forecast that, maybe not perfectly, but within a certain range. And because we think long-term, if our thesis doesn't play out, if it plays out earlier, all the better. If it plays out longer, we're long-term, and we got permanent capital. So we don't have to sell, as I said, like 2003, terrible year to sell. First half at 24, bad. We haven't sold anything in a year and a half. And that's the liberty that long-term thinking provides. Well, Larry, I just want to say thank you so much for coming on to the show.

Starting point is 00:54:04 Before I hand it off here, just tell the audience maybe where they can learn more about you. So, yeah, you can go to our website at the Connor Group and you can see what we're doing. By the way, both on the for-profit than not-for-profit, we didn't have an opportunity to talk about that. But we're huge believers in shared a well. We try to do that. We have 23 in our kids and community partners initiatives, some of them national and scope, some of them regional, some of them local. And we really believe that it's an obligation as well as an opportunity for companies

Starting point is 00:54:40 that have been successful to play it back. Our focus is under-resourced kids, whether it's local, regionally, or nationally. So you can read about that by going to the Conner Group for kids and community partners. Thank you very much. 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.

Starting point is 00:55:16 This show is copyrighted by the Investors Podcast Network. work. Written permission must be granted before syndication or rebroadcasting.

We Study Billionaires - The Investor’s Podcast Network - TIP671: Unconventional Value: Contrarian Thinking and Outperformance w/ Larry Connor

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