We Study Billionaires - The Investor’s Podcast Network - TIP800: Navigating an AI-Driven Market w/ François Rochon

Episode Date: March 20, 2026

On today's episode, Clay is joined by François Rochon to discuss his 2025 annual letter and the key themes shaping markets in 2025. He also digs into his top holdings, including Constellation Software, Alphabet, and Meta. IN THIS EPISODE YOU’LL LEARN: 00:00:00 - Intro 00:02:18 - François's key takeaways and lessons from 2025 00:03:58- Why François views AI as a revolution on par with the early internet 00:07:04 - The circular investment dynamic in AI infrastructure and what it means for companies like Nvidia 00:11:46 - How Alphabet and Meta are using massive capex spending to both defend and grow their businesses 00:17:52 - Why François believes shares of Constellation Software are cheap despite the AI-driven sell-off in software stocks 00:30:03 - What made Mark Leonard one of François's favorite CEOs 00:42:09 - Why François sold CarMax after 18 years 01:11:29 - The three essential qualities every successful long-term investor must develop Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences. BOOKS AND RESOURCES Join the exclusive ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠TIP Mastermind Community⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ to engage in meaningful stock investing discussions with Stig, Clay, Kyle, and the other community members. Learn how to join us in Omaha for the Berkshire meeting ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠here⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Rochon’s firm: Giverny Capital. Rochon’s annual letters. Follow Clay on ⁠⁠X⁠⁠ and ⁠⁠LinkedIn⁠⁠. Related ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠books⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ mentioned in the podcast. Ad-free episodes on our ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Premium Feed⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. NEW TO THE SHOW? Get smarter about valuing businesses in just a few minutes each week through our newsletter, ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Intrinsic Value Newsletter⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Check out our ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠We Study Billionaires Starter Packs⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Follow our official social media accounts: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠X⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ | ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠LinkedIn⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ | ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Facebook⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Browse through all our episodes ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠here⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Try our tool for picking stock winners and managing our portfolios: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠TIP Finance Tool⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Enjoy exclusive perks from our ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠favorite Apps and Services⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Learn how to better start, manage, and grow your business with the ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠best business podcasts⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. SPONSORS Support our free podcast by supporting our ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠sponsors⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠: HardBlock Human Rights Foundation Vanta Unchained Netsuite Fundrise Shopify References to any third-party products, services, or advertisers do not constitute endorsements, and The Investor’s Podcast Network is not responsible for any claims made by them. Learn more about your ad choices. Visit megaphone.fm/adchoices Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

You're listening to TIP. On today's episode, we bring back returning guest and investing legend, Franchois Rochon. Francois is the founder and portfolio manager at Giverney Capital, which he's been running for over 30 years. He believes that owning great businesses at fair prices, staying fully invested, and exercising patients are the keys to long-term investing success. Since Franchois started the Rochon Global Portfolio in 1993, he's compounded capital at 13, 14.4% per year net of fees, while the S&B 500 compounded at 10.8%. He's one of the rare investors who have outperformed the market over multiple decades. During this conversation, we discuss

his key takeaways and lessons from 2025, why Francois views AI as a revolution on par with the early internet, the circular investment dynamic in AI infrastructure, and what this means for companies like Nvidia, how Alphabet and Meta are using their massive Kappex spend to both defend and grow their businesses, why Francois believes that shares of Constellation software are cheap following the software sell-off, what made Mark Lanner one of Franchois's favorite CEOs of all time, and the three essential qualities every successful long-term investor must develop. That's rationality, humility, and patience. With that, I really hope you enjoy my conversation with Francois Rochon. Since 2014 and through more than 190 million downloads, we break down the principles

of value investing and sit down with some of the world's best asset managers. We uncover potential opportunities in the market and explore the intersection between money, happiness and the art of living a good life. This show is not investment advice. It's intended for informational and entertainment purposes only. All opinions expressed by hosts and guests are solely their own and they may have investments in the securities discussed. Now for your host, Clay Fink. Hey, everybody, welcome back to the Investors podcast. I'm your host, Clay Fink, and today we welcome back Francois Rochon from Giverney Capital. Franchois, as always, it's great to have you back. Thank you.

So you just published your annual letter for 2025, which I certainly always enjoy visiting each year. And we'll be getting to, you know, your letter, the markets and your investments as always. But I'm curious, as you look back on 2025, what are some of the last? the things you learned throughout the year. It can be investment related or anything you found useful or interesting. Well, it was a tough year. At first, our biggest holding consolation software, although I had good results, the stock went down 26%. So that was a little tough. Of course, we always keep the eye on the long term. And, you know, it's been in the portfolio for 12 years. So, so far it's been a very rewarding investment, but last year was a lot tougher. And we had two

stocks that didn't do very well last year that really hurt us, CarMax and FISA, and perhaps we could go into a deeper later in the interview, but we sold them during the fall, but they were disappointing investments. CarMax even more, because it's been in the portfolio for 18 years. So for many years, it was a great growth company, but in the last few years, it's been tougher, and that's all quite we decided that I think the business was not as strong as it was. years ago, so decided to sell. These were the three main stocks that really affected a little bit to our performance last year. But we accept that there'll be ups and downs in the market in our portfolio or in our relative performance. And we know it's not a sprint. It's a marathon. So we're

there for the long term, been investing for 32 years. And I intend to be there in 32 years. So let's hope that the best years are yet to come. Excellent. Well, I do want to talk about some the holdings you mentioned in a bit. But early in your letter, you started talking about artificial intelligence. And that was kind of, you know, what's top of mind for so many investors as of late. And we've seen a lot of advancements in AI over the past few months. And that's, you know, sending ripple effects throughout the markets. Before we get to, you know, how it's impacting the market, I'm curious, what are some of your takeaways with regards to AI? Maybe it's how you're using it, how it surprised you, or any other observations.

There's two or three things that I'd like to point out. First, the growth of improvement in the LLM has been quite impressive. I mean, was it three and a half years ago? Chad GPT was launched. At first, you know, it was a resolution and we used it, and it was great. And then Google came up with the version, well, many versions, but the latest version of Gemini was very, very strong. So for a while, we only use Gemini.

Moreover, because we're shareholders of alphabet, but recently I've been working a lot with Claude, so the Anthropic LLAP, man, this is quite something else. And it's very well done, especially for finance people where we asked Claude to build Excel model or graphics, which are very, very well done. So it's a very impressive tool.

But it's fascinating to see in just three short years how much it has evolved and also who were the leader is and how it change very rapidly. So I think that's one thing that people should remember. This is changing fast. It is a fast-growing industry, but it's very hard to predict where it will be in five and ten years and more important what kind of earnings and profits should investors use in their model. Now,

anthropic and chatibati, Open AI, they are not public companies. But there's many things that are related to them. In a way,

the market is very optimistic about some valuations. And in the annual letter, I said, you have to be very prudent because there's also this circle

where NVIDIA invest in Open AI, and then Open AI gives a contract for Cloud's software for Oracle, and Oracle buys NVIDIA chip

quit to build it in the system. So it's all complicated and it's hard to really, in those instances, I think it's hard to value all the related companies. But it is, in my opinion, a very big thing. It is a revolution in some ways, probably as important as the Internet 30 years ago. We take it very seriously and that I know that the markets is worried that it will be a threat to a lot of companies. And this is where I think you have to be able to share.

to find out or at least try to gauge which one will be very hurt and which one the market is perhaps or too much about it. Well, two things sort of stand out to me in your response there. One is just the speed of the advancement. I think it was Claude at the end of 2025, sort of had a breakthrough release that really impacted so many stock prices, right? A lot of software names just getting hammered after that release. And I think it's just The market's looking forward at seeing these advancements over the past three years, and who knows where we'll be five, ten years from now. And then the other thing that stands out to me is how the leader is changing so quickly.

So for any of these companies to have a moat in the space is going to be very difficult. Yeah. And, you know, I took the example of the NLETA of Google. When Google came out with their search engine, was it 1998 or something on that, they weren't not the first company with the search engine. There was Yahoo, there was Altavista, Fosicc, Excite, Lycos. It was something, 20 big players. And it was really the late arrival of Google that changed everything.

And they are the ones that really got most of the market share. So it's really hard at the beginning to see which company will lead and which technology will prevail. And so there's nothing wrong with that. It's the beauty of technological advancement. it goes very fast, but if you're an investor, it makes the value assessments a low complicated when it's very hard to predict the future. Yeah, so you sort of touched on the circular nature that you're seeing in the AI space

where Nvidia is investing $100 billion in Open AI and Open AI is going out and doing these deals with these other companies. So I'd like for you to talk a little bit more on that where it can be very difficult to value some of these companies if the contracts they're getting. are related to chips that might have a lifespan of three to five years, you know, if you're making billions of dollars this year, that's not necessarily going to be there a few years down the line. So it's really hard to say what those profits are actually worth.

I'm curious if you could just talk a little bit more about that. Yeah, in the annual letter, I took an example with just fictional numbers. But let's say, Nvidia invests $100 billion in Open AI. Open AI gives a contract of $300 billion to Oracle and Oracle buys 40 billion of chips of Nvidia over a three-year period. So it translates to something like $7 billion of profit per year for Nvidia, let's say. So how should you value this $7 billion of profits? That's the key question.

If you're a shareholder or Nvidia, look at that. Well, if you look at the stock market, it gives a P of 25 times. So 25-107 billion is $175 billion. So they capitalize the $7 billion over 25 years, very short ways. It's more complicated than that, but let's say let's keep it very simple. Well, how recurring is this $7 billion? It's not that recurring because in theory, Nvidia would have to reinvest regular new money into Open AI and Open AI give the other contracts

so that Nvidia can sell more chips. So in this example, I use a three-year contract of $40 billion. Well, you should capitalize at $7 billion just three years because in fact it's not a recurring revenue. Because when you have a 25-time p ratio, well, it means that in some ways they believe those profits will be recurring for at least, let's say, two decades. And that's not the case in this example.

There's probably NBDio will get new contracts, of course, but the fact that they indirectly, they are financing their own cells, that makes it a little more complicated to value those profits to us, to put a P ratio on those kind of earnings. But it's not all the earnings of NVIDIA that are that way. But I'm just saying it makes it more complicated to value those companies. It's a little easier to value, let's say, Microsoft that sells. you know, licenses and they give recurring revenues from those licenses. And so you can, you can

capitalize those recurring revenues and recurring profits over many years and it makes sense. When it's not as recurring, you should probably have a lower P ratio to reflect the fact that it's not a recurring revenue. But for I'm not to argue with the investors that invested in Vedia because it's been such a fantastic company and such a fantastic investment. Just saying that I think investors should be aware of that. So as a student of history, you drew parallels between these investments in the AI infrastructure with the fiber buildout in the late 90s and the railroad boom in the 19th century, where hundreds of railway companies would end up going bankrupt due to the overinvestment

that was happening at that time. And Javerney has long been invested in two companies that are now pertinent. in the AI buildout. We have Alphabet and Meta. Alphabet you purchased, I believe, in 2011, meta in 2018. Alphabet, they're projecting Cappex spend of around 180 billion for 2026, and meta's projecting over 100 billion. So as a student of history, and given how history has played out, as these new technologies emerge, and you see, so are the winners emerge later down the line. And a lot of the early players tend to generate just not so strong returns. So how do you think about how these investments could play out for them going forward.

Yeah, I used the example of the railroads, and it was a little different like that, because most of the capital was a true debt offering. So those companies had lots of debt. So the reason most of them went under it's because the interest chargers were higher than the operating profits of the railroads. So it's a different situation. Well, it depends. If a company that build data centers doesn't have the money and borrows it, it's a different story.

But in the case of Alphabet, for instance, they have the money. So the 180 billion, which looks like a big sum, it is a big sum. They generate that every year. So I think cash flow are estimated at $200 billion next year, well, 2026. So they don't borrow that money. So even if they have a very low return on that investment, while it doesn't, put the company jeopardy. So it's a little different situation. There are some other companies probably that are building, so that are borrowing money and those one probably would be in a

tougher position if things don't turn out as expected. But in the case of both alphabet and meta, the only drawback is probably low return on those investments. Now, we could argue, being a shareholder alphabet that I see those investment, not as I'll use the hockey language, they're not as much as offensive as defensive. I think they are investing those large amount of money to protect their business, mostly. That's my opinion. Probably they'll say something else, but for myself, they are protecting their business because when Chatchipiti was released, it was a valid threat to Google search business. Really valid. It was a real worry. They really had to took that seriously and they got all in into AI and Gemini is a great product, but at first,

it was about a threat. And you could argue a similar reason for meta, probably a little different, but for instance, I think it was in 2022 Apple changes privacy settings and it cost something like 10% of revenues at meta because it was harder to target ads to meta or Facebook and several users, while they invested a lot of money in AI and with those investments, they were able to better target the ads. So those investments were very rewarding for META. And probably, in my opinion, meta is probably the company that has got the best return of investing in AI than all the companies have been following because it really helped selling ads to all the advertisers and They were able to better target the ad to the consumers using all the data from the users of Facebook and Instagram.

So for them, it was not only to protect the business, but more than that, they were able to better target the ads. And if the ads are better targeted, they can sell them at higher prices to advertisers because they have higher odds of being watched or used or translated into revenues for the advertisers. So meta has been early adapter AI, it's probably one that benefits the most of those investments. The great thing about Google and Facebook or Alphabet Meta, it's the reason we own it. The main reason is that when you think about it, the products are free to users. This is fantastic. There's no other business like that. So people, billions of people use Google search engine or they go on Facebook and Instagram and they pay nothing.

It's the advertisers that pay. So this is a fantastic business. You have no incentive to use another product because everyone's there and it's free. So why would you change to anything else? So in terms of mode, I think that both Google and Facebook slash Instagram, they have an incredible mold. So that's the reason we invested some years ago. There's something really unique about those businesses. Microsoft is a great business too, I have to admit, but Google and Metaio, something else.

It's sort of ironic that meta, businesses still growing, call it 20% year over year at this massive size that they are. But the market's still not necessarily convinced on their huge KAPX guidance. and they've already shown that these investments so far are paying dividends today. It's not speculative by any means. It's not the Metaverse 2.0. So it'll be interesting to see how this shakes out, especially if their CAPEX continues to increase exponentially and how that ends up playing out.

Yeah, I remember three years ago when Metta was all out of favor and people would talk about Mark Zuckerberg, how he was making mistakes and all that. My response, the proof is in the pudding. It's an fantastic business and the results are incredible. So, you know, I gave him the benefit of the doubt. Let's take a quick break and hear from today's sponsors. All right.

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have looked at in recent months in light of the drawdown and share price, full disclosure. I personally own shares in the company in Giverney Capital has owned shares for much longer than I have. It was your firm's top holding going into 2025. And it's a company that I think it felt like it could just do no wrong for so long. The stock, I should say, never had a drawdown greater than something like 20%. But over the past six to nine months, the stock fell by more than 50% from its all-time high. And that's in light of Mark Leonard, their president and CEO stepping down, and then fears related to, of course, disruption from AI.

So talk about how your investment thesis in Constellation has changed, if at all, in light of what's happened in recent months. The reason I invested in 2014 the first time was really Marge Endardt. I remember it was, I think Christmas Eve 2013, and I read the annual report of Constellation. I didn't know cancellation at all. And I was a Christmas party at a friend. Another friend told me about this company, and I was a little pissed off. I didn't know about it.

So, you know, first thing I did when I got home was to read the annual report. And I thought that was, it has been a while since I've been that excited. Not about the business, not about necessarily the results, but the qualities of Marge entered, which I instantly saw it was a great CEO instantly. So you could argue that, you know, I had some 20 years experience, but, you know, I've read a lot of lateral ports and it's something else. And so that's the reason we invested. I thought that the margin lender was a fantastic CEO. And we invested in 2014.

So for more than 11 years, we've been very rewarded. I think from 2014 to 2025, earnings have grown by 20% a year, which is really something. And I think the stock is up 12-fold, something like that. So when Mark stepped down, that was quite worrisome because he was the main reason I invested. He had some serious health issues. He had to be operated without waiting for a single day. It was an urgent matter, and his life was in jeopardy. And the good news is the operation went well, so Mark is still with us, so we're very happy,

but he's now just on the board of directors. He's not the CEO anymore. But the person that took the job, Mark Miller, has been with the company since almost they won. I think it's one of the first company that cancellation software purchase, and he was Mark Leonard, right, and man probably since 95.

So I don't think there's anyone better than Mark Miller to take, you know, the succession of Mark Leonard. So, yes, I was a little disavisel. disappointed, of course, that the bartender was not the CEO anymore about the thing. We've got a very, very good CEO to continue the task of building consolation. And he has been there since they want. He knows a business as well. So I'm comfortable that the new management is fine.

Now, the second thing that what a stop went down and probably do more for deeper reason was those AI threat. And it's not just consolation. It's almost boldy software. our related companies, all the software service companies, all the companies like Intuit or Adobe or FACSET research or Morningstar, there's many companies that I've seen their stock go down, 30, 40, 50%, even more in some cases in the last, let's say, two quarters. Now, they believe that companies can replace software by, you know, having some AI do the coding and replacing the software.

business. I know that it's very impressive that AI coding can do a lot of things, but there's many things that are important when you are company and you purchase of software, either as software install or as a service. Well, first, if there's something that goes wrong, you need someone that will be reliable and responsible. I'm not sure that the ALM will do that. So that's the first thing. And second thing, which is very important, the AI tools are as useful as the data they have. They just process data faster than you and I, but that's what they do. They need data. So they need public data. And a lot of data for clients are private, so they don't have access to it. They cannot just replace the software. They don't have access past data of a client. So that's one thing.

And also, there's many software companies, let's say for Intuit, for example, that handle the money of clients. So they send it payrolls or they send money to other companies they work with, employees. So when money is involved, I don't see ChatGPTO clod handling billions of dollars of money. It's a different kind of business. It's not just coding. There's a lot of things that are related when a software I've been installed. and kind of intertwined into the whole business of a company. So I think that's the case for most of the software that Constellation sells.

They've got something like thousand different companies all selling niche software. And even if AI coding could replace a few software, sometimes the cost of those software is not that big related to the whole business. So if you have a business that generates about $3 million, a small business that generates a million dollars of revenues, and you have a software that costs you $5 or $10,000 a year, well, I'm not sure you're ready to disrupt everything to try to code it to yourself, to save $5,000 or $10,000 a year.

So, yes, there are some application. They're very useful. And I've seen some example of companies that I believe will have a tough time to endure with AI. But there are many different kind of companies in the software industry. It's a very, very large business. It's a very large industry,

and there's all types of companies. And I think the type of service and software that Constellations sell, I believe in my opinion that most of them will not be too affected by AI. And Constellation is also aware of the threat, and they're taking it very seriously. So they can use AI to improve their software and improve the efficiency that they sell those software.

So it's quite complicated and it's very hard to know where it's going to be. So what the market really said is we used to pay three or three five times earnings for good growers in the software industry. With this new environment, Wall Street says, well, we're not ready to pay 30 times anymore. ready to pay 18 perhaps, but not 35 times. So it's really a reevaluation of the P ratio. And, you know, in some cases, those P ratio were very high. So it discounted many, many, many years of good growth going forward. So the Wall Street is not just as enthusiastic about industry to put such a high P ratio as it did before. But now, if you look at cancellation, you can buy a 20% I'm grower at 18 times earnings, well, that's quite low.

It's low relative to their historical valuation, and it's low compared to other companies that train at 18 times earning, and they're probably growing 4% or 5% a year. So if we're right about their assessment that the business is intact, I do believe that the stock is cheap. So you highlighted there your admiration for Mark Leonard, and in your letter you even mentioned that he was your favorite CEO of the companies you owned. And given the recent departure, I thought it would be appropriate. Just to talk a little bit more about that, you know,

what was it that you admired in Leonard in the way he communicated with shareholders and just built this phenomenal business over the past 30 years? I've met him a few times, so I know him pretty well. It's going to sound strange, but, you know, he's kind of an awesome, someone I would like to adopt as an uncle. I mean, he's wise, kind, he thinks of others before him. It's not that common with people that build businesses and they have strong ambitions and, you know, strong testosterone.

That's just the nature of business leaders. But he's not like that. He looks like someone that was in the Zizi top of a rock band, you know, with this big beard. But he was like an artist. He was very thoughtful, very sensitive. And, you know, at some point he said that I don't want any salary. So he cut his salary to zero.

No bonuses, no stock options. I mean, where do you see that? How often do you see that? I mean, the last time I met someone like that was many years ago, Robert Turlin at the Fastenol. I think his yearly salary was 120,000 and no options. and no bonuses. And I remember at some point, that was many years ago, but at some point, all the other managers convinced him that they needed to have a stock option program for young

managers. And he didn't want to dilute the shareholders or what they did, they gave his own shares, part of his own shares, to give to employees instead of issuing new shares. Now, I've never seeing that anywhere in the business world. I mean, these are very, very rare kind of people, very generous, always thinking the long term, always thinking for the good of the business and the shareholder. And they're not common. I can tell you that. Just before we hopped on the recording here, I was revisiting your letter. And you have the appendix A and the appendix B at the end of the letter. And I just pulled this line from the appendix A, where you share just, just your investment philosophy on one page, just so each year your partners are able to revisit that.

And I just pulled a one bullet point from that page. You wrote, we choose companies that have high and sustainable margins and high returns on equity, good long-term prospects, and are managed by brilliant, honest, dedicated, and altruistic people. And what stands out to me about your response there is the altruistic piece. I mean, you know, Shirley Leonard, when he's president and CEO, he could be making at least 10, 20 million. He could be getting stock options. He could be diluting shareholders just a little bit each year and paying himself in line with others.

But for some reason, he just looks out for the best interests of shareholders. Yeah. What can I tell you? What's one of behind? You've been speaking with some people in the VMS industry and monitoring what's happening within that industry. In learning more about the developments that are happening in AI, Do people generally seem to think of AI as a headwind in terms of, you know, there's going to be more competition, the cost of coding is dropping dramatically, or is it an opportunity in a sense where these software companies can start integrating AI into their solutions, maybe creating new solutions that provide even more value to the customer?

What was some of the things you learned in that? I have a good friend that owns a AI-related business, and he knows it was one of the first one to see the potential a few years ago. ago of AI and got two friends, in fact, that owned all the AI business. So I'm very lucky to have people that educate me about that industry. It is a big thing. It is a big revolution. I think anyone that takes it lightly is probably missing something because it is important. But you know, when computers became used in the corporate world, the 80s and 90s,

It was important, too, if you didn't purchase computers and software, you know, you were out of business very fast. So I think it's similar. You have to adapt AI to your business and use it intelligently because, you know, if your competitors do it, you'll be handicapped if you don't. So, yes, it is important to use the latest technology all the time to improve your business. And it's true about AI. It was true about software. It was true about computers many years ago. So it's just the nature of our capitalist system that there's always new tools to improve things.

So, of course, you have to use them. Some companies will be using them more intelligently than others. And some companies will probably benefit from this transformation. And some companies will be left-line. And it's very hard at the beginning to see which one will be who will be who. But to go back to Constellation, one thing that people didn't really think about when they sell their shares of Constellation is that they're growing to acquisitions. And I think going the next few years, acquisition will be much cheaper than they were five years ago.

So they couldn't benefit, at least on that front, by purchasing good companies that fit in their model, but are more attractive prices. So we don't know, but perhaps some software companies are owned or purchased by private equity firms with a lot of leverage. And, you know, perhaps at some point they'll have a little bit problem with the high price they paid and the leverage that came with it. And perhaps they'll need to to sell a few of them. So Constellation have a good balance sheet. They have a lot of experience in acquiring and integrated companies. So I think they'll be well positioned first to integrate AI within their business.

but also to make acquisition in the industry probably at a better price. And better price means better return going forward. It was actually just even a couple of weeks ago was announced that Constellation was purchasing shares in Sabry Corp. That's a public company. It's not a arena you see them get into often just because public valuations tend to be higher. But yeah, it could even, you know, expand their opportunity set to make acquisitions at good prices. is one of the other things that I personally saw in this drawdown with Constellation,

I think a lot of people were sort of caught by surprise by just how quickly the share price pulled back. And I noticed that some investors and even some fund managers sold their shares in the company during the decline. And they might not have necessarily sold because, you know, they were suddenly bearish on the company. But I think it was more a combination of trying to protect themselves from short-term underperformance and maybe even, you know, trying to appease their clients, making sure their

clients don't leave due to underperformance. And it reminds me of the Thomas Phelps quote about never making an investment decision for a non-investment reason. Maybe you could talk a little bit how you go about handling client or in your case partner relationships during these difficult times where your view might differ fairly significantly from what the stock market is telling us. I've been doing this for 32 years, so I've been investing in the stock market, and I've seen my share of ups and downs, and I have my share, personally, of bad years and underperformance. Probably the worst ones were in 2006 and 2007 when everything related to oil. I was doing very well, and now we underperform in that period. And, you know, some clients or partners were not happy about it and wanted me to invest in oil-related.

securities or even some potash related securities, anything that had the word commodity into it. And, you know, I said, well, you can do whatever you want, but the way I've been managing Giverney Capital since day one is I manage my own portfolio. I invest in what I believe is the best 25 names with a long-term view that I believe will be the best investment, combining return at risk, and I buy for the partners, the Shirley County Capital Pines, the same securities as a Pye for myself. So that's been the philosophy since day one. I think that's the right philosophy.

I didn't invent a will. I really copied Warren Buffett when he says that Bersher were partners, and I stole from his ideas in Bershathaway, annual report. But that was the idea since they once. So when there's some years that the results are a little disappointed. And yes, I have some pressure to adapt to whatever is popular. We said, well, if I don't buy it for myself, I won't buy it for you. Or if I think this company is sound and we should continue to hold onto it, I won't sell

it because some of my clients or partners are not happy about it. It's tough, but being ready for that for 30 years. So I've accepted that there will be ups and downs in my approach. I accepted that I'll make mistakes, and when I make mistakes, try to recognize it that as soon as possible. And, you know, if the right thing to do is to sell, I'll sell. And I believe that the stock, like I think the example, constellation applies if a stock has gone down 50%, but I believe that the business is still intact and the company is still growing at reasonable or even better, a strong growth rate.

Well, I'll just hold on to it. And that's one reason many years ago, 30 years ago, I started to measure what I call the owner's earning again. I use Warren Buffett's approach in his annual letters. But by focusing on what's happening to the company, what's the growth and the earnings of my company, I can probably have more perspectives and be less affected by what the market is saying about the companies I own. I let the company themselves tell me what's happening. So I really try to act as an owner. So let's say the portfolio was kind of a private equity.

So I would own 20 companies. I would not let the market decide how much the companies are worse because it wouldn't be listed on the stock market. I would value, I would assess the value of the portfolio based on what's happening to the company themselves. So I would take the 25 companies I own. I would look at their earnings. I would combine them together and say,

okay, last year my portfolio earned a million dollar. This year it earned one million. So I know that the earnings for the whole group increased by 15%. So they must be worth 15% more. So I let the company's own really indicate to me what they're worth. And the great thing with the table in the annual letter is if you look over 30 years, there's been a very, very strong correlation between the increase and the owner's earning of the global companies we've owned compared with the portfolio, the ocean global portfolio.

I think it's very close. There's been a very strong correlation, but it's over three decades. Sometimes it takes a few years for the stock market to really reflect what's happening to the company. But that's a great thing about the stock market. you know that at some point, it will reflect the intrinsic value of business. So if you're right about the business, eventually you'll be right about the stock. So in a very Buffett-like fashion, you highlighted your mistakes in the letter as well.

You mentioned at the top of the interview, you mentioned at the top of the interview, CarMax and Pfizer. These were two stocks in your portfolio that fell sharply in 2025. I think both declined by more than 50% throughout the entire year. year and you decided to sell both of these holdings and both of them also went through changes in management in an attempt to revitalize the business and get them back on the right track. Walk us through one or both of these examples on how you came to this decision that the thesis was broken and it was time to move on from the position.

Yeah, in terms of Carmack, there's probably many reasons, just not one reason, but I've owned it for many, many years. And I remember when Carvana came into the picture, probably 2016 or 17, and the company was losing a lot of money. So I thought, well, I'm not sure the business model will last. And I think it was in 2022. The stock went down 98%. So it almost didn't make it. But they didn't make it. And they were able recently to become profitable. So really, they have proves that selling cars by the internet only, and I was a little skeptical that people would buy a car online without trying it first, but yes, it worked very much for Kavana. Now, Karmax adapted to that, and they realized they had you to sell online too, and so they

created, I think five or six years ago what they called the Omnichannel strategy. So you could buy a used car online, or you could buy it on one of Karmax's a store, or you can have a combination of the two, so that's why they call it an omnichannel. And I think it did okay, but it increased the cost of doing business. So yes, the adapted, but it increased the number of people they needed to offer those services. So margins went down a little bit. Now, at the same time, new car retailers, let's, for instance, use auto nation, decided to be more aggressive in selling used car. And although they don't have the same margin as CarMax, it didn't really matter to them because they realized that the real profit isn't the service business. So I think 50% of allotination's

profits comes from the service side. So say, well, we're going to sell a used car probably at a very low margin, and directly afterward we'll get the service business. So now the problem with this for CarMax is they don't have the service business. So it put pressure. in terms of cross-margin and also in terms of market share. So they had more competition not only from Kavana, but also from stores that used to only focus on new car sales. So they started to be more aggressive in used car. So the market just became more competitive for Karmax.

And so margins went down. And at first, I thought it was a temporary problem, more related to the used car cycle than specific problems to Karmax. But at some point, when I compare the results for Kavanaugh and Autonation and Karmax, realized that the Karmax was having more permanent problems than what I thought first. So when we realized that, we thought that the business model was not as strong, or the moat was not as strong as it was 10 years ago, because we've been out in Karmac in 2007.

So we've seen very, very good years of profitability for them. So I thought the moat was not as strong. I think there's nothing wrong really with. the company. It's just, the mold is not as strong. The margins are not as high. It made me realize that perhaps the company was not as strong as it used to be. Probably, I wasn't sure that it would ever get back to the kind of margins they were in Ignatine in 2018 or 90. So it said, well, we've been patient enough and decided to sell. In the case of higher service, it's all different. As I wrote in the annual letter, the CEO left the company.

I don't remember when during the summer, Lincoln went into politics and spying his cut the right to do whatever he wants. But I thought it was a little strange. And he was the one that really turned around for his data. And then when Pfizer acquired for Zeta, he became the CEO. So I thought it was the right man to lead that Pfizer. And Pfizer had that incredible track record, I think, 37 years of growing. Henry every year.

So this was outstanding business. But when the CEO left and was replaced by another team, results started to be a little disappointing. I'm not sure how deep the problems are, and it's probably temporary. The thing is, the company has a little bit of debt, not a lot, but a little bit. And I'm very wary of debt in general. So I always put a threshold that I don't want the company to be a lot. higher than that. So my threshold is five times net income. So let's say if a company earns

a 200 million a year, though the net debt shouldn't be higher than $1 billion. And they were right on that level. So I thought if earnings went down 10, 15, 20 percent, I'm not sure exactly what kind of earnings I'll have this year. But if earnings went down, my threshold would make me more uncomfortable and I decided that I didn't want to live with that risk. So there's many companies have sold over the years. The main reason was that I was not very comfortable with the debt level. And I remember some years ago, we owned the Intercontinental Exchange, and then acquired Bright Night and they increased the debt, and we sold shares. And I think the stock has done well since then. So it's not always the right decision, because sometimes

companies do improve things, and in the end, the debt level is not that bad. So it's just that I'm a very, prudent investor. And I'm very wary of that. So I'm very disciplined of that. But I've missed my shares of big winners because I thought that the debt level was high. Probably goes back

to Ben Graham's approach. I have to have a margin of safety. So I think being very disciplined on the debt level adds to me a margin of safety. And I thought that Piserver didn't have that margin of safety when it happened when we sold.

But I know that the stock is very cheap. I think it trades at 7 or 8 times earning. So I realized that we're selling at very depressed level. But I thought that was a prudent thing to do. 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.

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three decades. And you compared that return to that of the S&B Vibe So your portfolio outperformed the S&P over the first two decades and then underperformed over the most recent decade from 2015 through 2025. And I would say that the most recent decade has more to do with how the S&P has performed rather than how you've necessarily performed. And you've been consistent as usual over five, 10-year time periods. So over the most recent decade, the S&P returned 14.8%.

But much of that performance has been due to multiple expansion. So the median PE ratio of the S&P historically has been around 18 times. And the end of 2025, it was around 25 times or 40% above historical norms. I know you're not in the business of forecasting the direction of the stock market. But I was curious to get just your take on what this might tell us about where the S&P might go in the decade that lies ahead. Yeah, in the last decade, it's been an extraordinary period for the S&P 500. It's not just the increase in the P ratio. The earnings have done very well also.

I'm not sure I think on the table was 10.8%. Probably a little more than 9% of that is burning growth, and there's an average dividend probably 1.8%. So 9% is higher than historical norms for the ES&P 500. If you go back 50 or 60 years, I think the growth rate in earnings for the S&Bs bit 6.7% per year, which makes sense in the world where there's real GDP growth of 3%, some inflation of 3%, some improvement there and there, so 6.7%. And it's really, in other way, if you go back to an old article by Warren Buffett, I think

was in Fortune in 1977, and they use the argument that companies earn 12%. on equity on average over the long term. So if you retain 60% of those earnings, well, that means that it translate into a growth of 7.2%. Because let's say 40% of profits are distributed in dividends. So that 6.7% is pretty a constant. Could be 7, could be 6, but let's say between 6 and 7% is a constant. So 9% is an exception.

It's been an exceptional 10-year period for the SMP 500. And the reason is that those extraordinary companies, Amazon, NVDR, Alphabet, Meta, Microsoft, have grown at extraordinary rate for companies their size. I mean, when Microsoft was a small company and was growing 25% a year, it was an extraordinary fees. They were small, so they could double in science. every two years, but once you're at $1 trillion of market cap, I would have think that it would be much harder to grow at, let's say, 12, 15% a year in an economy that grows 4% or 5%.

But they achieved it, and they build these incredible businesses dominant in their industry, but also worldwide. It's not just the US GDP, it's the world GDP because they're really worldwide, those companies and they're really dominant everywhere. So these five companies have been incredible growers, even when they got very big. So that's one reason. So that 9% growth, it's not a bubble. It's really because those companies have grown at an incredible rate. So as they cut to be bigger weight than the S&P, their performance increase overall growth in earnings of the S&P. Because if you wouldn't probably subtract those companies, all the other sectors, I would guess that the growth

has been close to 6%, the average of the ad. So, yes, it's justified that the 14.1% growth in the last decade for the SNP, this, while the 10.8% growth in earnings and plus dividend, but also the increase in the P ratio, it's also justified because these companies are growing faster than the typical company and they weren't a higher P ratio. Now, of course, the key question is going forward, will that be sustainable? Will it be sustainable for all the companies in aggregate for the S&P 500 to continue to go at 9% a year? And can the P ratio be maintained at 25 trailing or 22, 23 forward? I think if you look at history, every time the S&P 500 p ratio went up a little higher than average, something happened to normalize thing at some point.

And I always say that the normal curve or the bell curves or the gouse curve, you can call it whatever you want. It's a very strong force in the universe. I don't know exactly how it works, but I understand that it's very powerful. So even when you're an extraordinary business and you're dominant, at some point, size becomes an anchor. I mean, when you're at the trio, $400 billion of revenues, it's much harder to grow 15% a year than when you were at $1 billion of revenues. So at some point, those companies won't be able to continue to grow at such growth rate. And when that happens, I think that the P ratio of the SNP will go back to more than low level.

Will it happen in two years or in five years? I don't know, but I would keep my expectation low for the S&P 500 for the next five or ten years. I don't think there will be anything wrong with those business business. I think they're very well managed and they're good companies. At some point, they won't be able, just by their mirror size, they won't be able to grow at such ratios. So that the companies will continue to grow at 12, 13 percent annually. and if they do, I think at some point, they'll look better the average, as they did for the first two decades. I mean, Nvidia has to be the anomaly of anomalies throughout history.

I mean, the stock's up 56% over the past 12 months, as of the time of recording. Revenues in the most recent year are up 65% to over 200 billion. So, I mean, just extraordinary levels of growth. And what also is somewhat remarkable to me about today's market is that despite the S&P 500, practically being at all-time highs, a lot of very good companies seem to be trading at, you know, beaten down or what we can call reasonable valuation levels. You look at, you know, just a couple of names in your portfolio. Brown and Brown has seen its stock fall significantly due to AI fears, despite the business continuing

to grow. And then shares of Kinsell Capital, they're also down as well, despite it being a very, very well-run business with a very capable management team. So it's just being quite interesting. You know, a lot of my investing experience is that, you know, the market's up and up and, you know, about everything seems pretty pricey. But today, it seems to not be that case, really. Yes, you're right. I mean, I follow hundreds of companies and I look at their valuation. And there's easily 20 companies that I think are very attractive these days. And it seems when I look at their valuation and their performance in the last six months that were in the very market

for that, really. So many of them are down 30%, 40%, and valuation are much more reasonable. So I think these days you could build a portfolio for scratch, you and have 25 companies that are very good companies and they trade. Probably you could have a portfolio below 20 times. So yes, I think strangely enough, you're right. There's lots of opportunities. And there are some specific reasons there and there.

I think you talk about the insurance industry like Brown Brown and Kingsell. Yes, we are kind of entering a softer market. But, you know, when you're investing in the insurance industry, you have to accept there will be ups and down in the cycle of the industry, which is sometimes unrelated to what's happening with the economy, order stock market. But, you know, if you want to purchase Brown Brown, because you think it's a great business long term,

and it has a great manager and a good crew of companies that are acquired, well, probably it's better to buy it at 16 times earnings than 24, 25 times. And same thing with Kingsel. I think Kingsell is an outstanding insurer. Their underwriting ratio is incredible. I think the CEO is great. And, you know, not that long ago, I think the stock was trading peer ratio in the I-20s, and today it's, what, 17 times, something like that.

So there are opportunities, yes. And I actually wanted to ask you a little bit about Ken Zale because I was listening to a presentation that their CEO gave and he was comparing Kenzel Capital to the early success that Progressive had. So Progressive had something like 2% market share in the auto insurance market in the early 90s and today it's around 15, 16%, something like that. And today Ken Zale has less than 2% market share of the excess and surplus insurance market. niche part of the market they're targeting. And the reason I wanted to mention it to you is you first owned Progressive back in 1999. So you've been following this company for a very long time. And then you purchased shares in Kensale in 2024. Do you see similarities between the two in how this investment might play out with Kenzale and your experience following Progressive for just so long? Well, it's not exactly in the same business, but probably they have similar qualities. Probably one, the adoption of technology to help them improve their underwriting ratio.

Progressive was very early using telematics to better measure the risk drivers, and Kingsell has been very, very keen on using technology to have strong software and strong advantages, and it's all one software compared sometimes with other competitors at that different kind of software. They're not as integrated and as probably efficient as King's Cell is. So that's one analogy. And the consequence of that is that they have a better underwriting ratio. So meaning they have better margins of profits. So higher return on equity and they probably can write more insurance because their cost ratio is lower than competitors. So yes, you're right. There are similarities. these. Yeah, I think that's, we own both. So we like them both.

We can also talk a bit about the new positions you added in 2025. That's LVMH in Universal Music Group. So remarkably, I don't know why I'm surprised, but you've been following LVMH for over 20 years now. You purchased when the share price was below 500 euros, which is roughly where the stock is trading today. Why is now the time to enter LVMH? Well, I'm not that good in timing because I bought it last year and so far does not use the good results. So it's always the same thing. I try to assess what's the earning power and what kind of earnings will the company have in five years. And, you know, after or during the pandemic, or after the pandemic, there was a very, very strong demand for Weaverton products, almost all the luxury products were very much in demand.

in the last two years has been much tougher. It's just the nature of the luxury market that there will be ups and downs. Usually, it's linked to the economic cycle, but sometimes not. And I think probably the years 21, 22, 23 were very, very strong, but at some point, consumers need a little pause in their purchasing. And it's very hard to predict, but I think part of the slowdown is just a return to no more. So probably the first the years, 2021, 22 was both too strong relative to, let's say, historical norms. So there's part of that. Also, you know, inflation makes those products pretty expensive.

And it's been a tougher period for consumer in general. But I think the key factor is that you want the brand to be as strong as it ever been. That's what you want. So perhaps people are all wary of purchasing Wiviton and bags, but what you really want is the brand and they still resonate to clients as quality, something you want to own because it's of quality and also it's a symbol of wealth. So I think those are intact. So that's the key elements.

They've got many great brands. It's not just Wiviton. They've got also DR and they've got Tiffany Brand, the Tiffany Jewries, which I think is a fantastic business. I follow it when it was a service in the stock market, so I know the company pretty well. And CIFORA, I think it's a fantastic business. I think people, when they talk about healthy image, they don't talk that much about Cephora, but it's probably just 10% of revenues, but I think it's growing pretty fast and it's a very,

very strong retailer. We've been following also ULTA Beauty, which is a very, very well-managed company, but there have been some pressure on margins because in the IAM, they got more competition from Sephora and the United States. So I think there's a lot of great grant in Wiviton, LVMH. Now, the only thing I'm not as enthusiastic is everything related to spirits. I mean, young people drink less. And I think, I don't think that changing. I don't really understand why because personally I like good wine, but young people drink less than the previous generation.

So I think this part of the business of LVMH, it's more a secular problem than a typical problem. But the rest of the business, I believe, is more typical. So I think at some point, earnings were rebound. And I think probably from here, earnings could include, 60 or 70% of the next five years, so let's say a 10, 11% growth rate, and you've got a 2% dividend. So together, I think we should be able to attain our objective of finding a 13% grower, including the dividend. So I think LVM is from today's level, from today's a little bit

depressed earnings. And also one thing that did it help last year, there was a temporary increase in the tax rate in France. So I think the tax rate went on 20,000. 28% or 32% for companies earning more than 1 billion euros. So that doesn't help also the earnings per share. But let's say, let's hope it's really temporary and the tax rate goes back to 28%. It will be helpful for LVMH shareholders. So in all of your letters, you aren't shy to glorify the benefits of capitalism. And on that note, LVMH does have some decent exposure to mainland China.

It's around 20% of their revenue and perhaps even much more when you consider what citizens are purchasing when they're traveling. I wouldn't consider China the most capitalistic country out there, but I know that some people might disagree with me. So just for fun, I asked Claude's AI chat bot on a scale of 1 to 10, how capitalistic are the U.S. and China. And it told me China was a 5 to 6 out of 10 and the U.S. is a 7 or 8. So it seems to agree with me on that part.

And it seems to me that part of what is weighing on LVMH today is their segment in China. I was even surprised to find in my research that the Chinese government has even been cracking down on those who flaunt their wealth on social media. So just pretty interesting to see. So what is your take on LVMH having exposure in China? I think a long term is going to be a positive thing. For the simple reason, it's not going to be a straight line. But I think China, the Chinese people going forward, will continue to increase their wealth, their GDP per capita, just because they're starting from a lower point than, let's say,

France or Germany or the United States, of course. So they will increase their GDP per capita at a higher rate than North American, for instance. Not because they're smarter. It's just they're starting from a lower base. It's a very low base because of all the years was a communist country. So I don't know. I'm an optimistic person. I think at some point it's going to be a real capitalist society.

But because I think capitalists will always triumph at some point, but it takes decades. But until then, I think even in a communist or semi-communist state as they are, they will continue to improve their GDP per capita. So as they get richer at a faster rate than North American, I think they'll want to acquire LVMH products, luxury products. It could also be Hermes bags or Prada bags, but in general, I think demand for luxury goods in China will increase. There will be ups and downs. Perhaps there will be some periods like you described that the government doesn't really sponsor showing up your wealth. But that's temporary. At some point, we'll be back to normal. And as the country, you know, improve and continues to improve the GDP per capita, it's going to be a stronger economy and

they'll purchase more luxury goods. And I think it's going to be a good market for all with it all, perhaps not in one year or two years, five years, ten years, 15 years. And they're building a business for the next decades. They're not building it's the next year or two. Excellent. Well, to wrap up the discussion, I wanted to touch on some of the fundamental basics that you highlighted in your letter. So you highlighted that the three essential qualities for success in the stock market are rationality, humility, and patience. And it reminded me of, you know, Buffett talking about, you only need so much intelligence to be a good investor. So much of it is just temperament. And I couldn't think of many investors who embody those traits as well as you have.

So how about you talk about these traits and why investors tend to fall short in these areas from a behavioral standpoint? Well, there's many reasons. I can't really talk about what the others are going through in their own feelings or minds or everything. I'll talk about my own experience. Well, first, rationality. I always thought that to succeed in the business world, you have to be able to look at reality as it is. It's so easy to believe in things that would favor you. It's just human nature.

You'll tend to want what's good for you to happen. And at some point, you'll have trouble making the difference between what you want and what really is. So it's hard, but you have to always constantly try to look at things with a fresh pair of eyes that are the most objectives that they can be. It takes practice because it's not intuitive, but I think if you're really motivated, then, you know, the goal is very noble where we want to have good returns and get rich. So I'm very motivated to whatever it needed, even if it needs me to become rational. So from very early, and, you know, Warren Buffett helped a lot and Charlie Munger also. So you can read all the writings of Charlie and Warren, and then you'll have very, very good arguments to use,

rationality in your daily life. And the stock market is a place where there's so much emotions, there's so much hopes and fears that when you try to put aside emotions and just focus on the facts and be irrational and objective, it gives you a fantastic advantage because most investors aren't able to do it. So that's one important quality. The second one, humility, it's a little bit similar, but if you've been investing for many years in the stock market, I don't see how you cannot be humble because you'll have your share of mistakes, you'll have your share of things. You didn't buy that you should have by. You have your shares of stocks that you were very, very hopeful. It would do well in their big disappointments. But humility is the quality needed to improve yourself. If you want to be a better investor, and again, you're in a quest of a noble quest for wealth

and high return. So you're really motivated to improve yourself. Humility is the key quality needed because you cannot improve yourself if you think you know everything and you're very good. You always want to be a better investor. And if you want to really learn and be a better investor every day, well, you have to be humble enough to say, well, I have something I can learn every day. And I remember many years ago, Charlie has had something at an old meeting.

I don't know if everyone really understood how important that phrase was, but he said that the greatest quality of Warren is that he was humble and he always wanted to learn Warren. And, you know, this is about the greatest investor of all time, already really really. in billions of dollars. And Charlie was saying he's improving because he's still humble after 60 years of investments. And that really stayed in my mind. And I said, that's so important to always be humble and always strive for improvement. And finally, patience. Well, I think you learn it by experience. Sometimes it takes years and years to be rewarded investment. And I use the example of five below in the annual letter because we purchased five below, I think, in March

2020, the beginning of the pandemic, the stock went down 50%. I think they paid first $71. And five years later, so in April 2025, the stop was 55. So we had a loss of 20% over five years. So that's a tough loss for quite a long period of time. And we decided that we needed to be patient. And things did improve. And finally, today, almost six years later, I think the stock is 220. So we probably tripled our money over six years. But after five years, we're still losing money and that investment. So patience is very important.

And I think the best way to be patient in the stock market is focusing on what's happening to the company. And I thought that the key factors for the key reason I invested in Fibilor were still there, five years later. They were opening new stores. Their stores were popular. There were some pressure on margin, but I thought they could be changed and addressed and improved. And there was the fear of a terrorist that could put pressure on gross margins that in the end were not that bad, so things were okay. But, you know, we decided that we should be patient with that investment. But there's many other examples where patients was needed and to be rewarded. I don't know.

I don't remember where I read that, but I think it said that genius in the stock market is really a disguised patience. I think the greatest corner is patience. And I remember many old stories. I saw an interview with Charlotte Carey on Wall Street with Lewis Rokheiser. I think it was in 1995. So when I started to invest on Friday evening, you had this stock market program on PBS, which I watch religiously. And Louis Rokaiser asked Philip Carey with your 75 years of experience because I think Phil Carré was 98 at that time.

And he said, what's your biggest lesson from those 75 years of experience? And Philip Carrey thought about it and said patience. And I still think after all those years, that's the greatest quality to add. You have to be humble. You have to be rational. But you also need patience to get the reward from all the work. all the analysis, all the rationality you put into it. If you don't have the patience, you won't get the rewards.

So well said. Well, Franchois, I always enjoy the opportunity to chat with you, bringing on the show. Really appreciate the opportunity, and I'm sure the audience will certainly enjoy your insights and your timeless wisdom. For those interested, I'll be sure to get Franchois's annual letter linked in the show notes. For those interested in giving it a read, I would highly recommend it. So with that, I think we'll wrap it up there. Thanks again. Thank you. Thanks for listening to TIP.

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