100 Baggers Leave Fingerprints | Chris Mayer Wrote the Book and Tells You How to Find Them

[00:00:00] You're going to miss the very, very early stage where you're not going to be able to tell companies that are not profitable or very, very early stage. But, you know, that's okay. If they're still a real deal, you'll have plenty of time to buy them. The multiple thing is hard, but then again, it's always hard. You know, the great businesses will often trade near their highs and often trade for what seem to be high multiples.

[00:00:26] Every business has just a handful of really important variables and everything else is kind of noisy. Everyone's always talking about this quarter and next quarter. At most, you're talking what the rest of the year is going to look like. There's no attention on or questions about what the business might look like over a decade. I always think of Charlie Munger, you know, he used to say, if you're not confused, you don't really understand what's going on.

[00:00:53] I don't believe in the trimming and adding and trading around your positions, which all my peers seem to love to do. You're watching Excess Returns. I'm Matt Ziegler hosting today, but who do I have with me slumming it from his normal status of exclusively talking billions, an investment advisor to families and the founder of Blue Infinitas Capital, as well as the host of one of my favorite podcasts, Talking Billions. We've got Bogomil Baranowski joining me as co-host today. Bogomil, say hello.

[00:01:23] Hello, everyone. Hello, Chris. Hello, Matt. I'm so excited to be a part of this. Well, don't spoil the hosting job. I got one job today because our next guest, our guest, our sole focus of our love and attention and admiration, he needs no introduction, but we'll do it anyway. Author of the investing classic, 100 Baggers, Stocks That Return on 100 to 1 and How to Find Them, former editor of the Capital in Crisis and Meyers Special Situations newsletters, and most recently, co-founder and portfolio manager at Woodlock House Family Capital.

[00:01:53] Hello, my fellow time binder. It's Chris Meyer. Welcome to the show, Chris. How are you doing? Hello, Matt. I was going to say that's a very tame introduction by your standards, but then you got your zinger there in the end. That's it. I had to sneak something in. Yes, yes. You got to go to just press records to hear the John Mayer and Oscar Mayer Wiener references. Let's dive straight in. We got lots to talk about today. I want to talk with AI, and I want to start here because you're a creative person and you're an investing person.

[00:02:23] And when I think about AI and artificial intelligence and how huge or huger this market is supposed to be, and you're out there talking about 100 to 1, social media is telling me there's like 1,000 to 1 opportunities out there. We seem to have this trend in artificial intelligence and companies and businesses around this stuff. You literally wrote the book on 100 baggers. Do you see anything in this space? I'm not asking you for a stock or a prediction, but do you see any of this space that's the fertile soil of where the next 100 bagger could emerge from?

[00:02:54] Oh, probably definitely something will happen. I mean, it's still so early, you know, and I mean, my eyes are getting open with this stuff. Every week, somebody does something that I'm like, wow, that's pretty incredible. I mean, one of my friends sent me an analysis done by ChatGPT on Old Dominion Freight Lines, and it was really good, actually. And I think the key was in the way he did the questioning.

[00:03:21] I mean, he did it very detailed and in-depth, like methodically, show me this, then show me that, show me this, show me that. And what ChatGPT did out was pretty good, you know. So I think financial analysts might be in trouble. But that's just the beginning. I mean, I don't know. I mean, well, I'm sure like any new technology, there will be fortunes built on it for sure. But picking, especially in the early days, is very difficult.

[00:03:51] I mean, you can go back to automobiles and radio and same thing. So, and internet. So it'll be interesting to watch, but I don't have any specific answer there. The follow-up inside of that, is there anything about looking around emergent or brand new industries to try to find who those winners are? Or do you just literally need to let time play out, like in autos or the internet or whatever else? Yeah, I think it's the latter.

[00:04:17] I don't know any particular way to weed out the very, very early players. I mean, when I did the 100-bagger study, one of the things I did intentionally was weed out a lot of the very small caps. For example, I think the market cap limit may have been 50 million. It's really low. But the idea there was to try to get to a point where we can at least maybe make some predictions. And for that, we need to see some of the numbers. We need to see some of the results.

[00:04:48] So, you know, great companies leave fingerprints in their financials. Now, you're going to miss the very, very early stage where you're not going to be able to tell companies that are not profitable or very, very early stage. But, you know, that's okay. If they're a real deal, you'll have plenty of time to buy them. I mean, one of my favorite case studies in the book was Mopter Beverage. And one of the key lessons off that is that you had years, really, to buy it and make more than 100 times your money. You could see it. You could see the returns. You could see the growth in sales and cash flow.

[00:05:18] So you didn't have to buy it when it was very, very early and more conceptual. You know, I'm thinking, you and I spoke about profit pools. When you have a new innovation, I'm always wondering, are we going to destroy some profit pools? Are we going to create new ones, right? So internet by itself, we haven't really made money on it. We benefited from it and created thousands of businesses that wouldn't be possible.

[00:05:41] And with AI, I'm thinking for a minute that maybe we're going to create new businesses, but the initial wave, they're not the real profit pools. Yeah. Or it will be, or AI will be used by some existing player to enhance something that they do. So they'll get the benefit that way. But, you know, you wouldn't necessarily say, think of it as an AI play, you know. So I suspect we'll see a lot of that. Yeah.

[00:06:11] I want to ask you about the twin engines. When you talk about the 100 beggars, usually you talk about the multiple and grow. And today we're looking at pretty high multiples across the board. Anything I look at, I feel like this could be half off easily. Maybe because I've been looking at markets for too long and I can see it trading at half a multiple. And then on the growth side, maybe it's just my impression that it's harder to find sustainable growth. There's so many businesses that are actually the opposite. They haven't grown in a long time.

[00:06:39] How do you think about looking for those twin engines today in these markets? I think it's easier to find the growth, actually. I guess it depends on what you're drawing the limit at. But, I mean, to find companies that could sustainably grow 15 to 20 percent, I don't know. Globally, I think there's lots to look at in that department. But the multiple thing is hard. But then again, it's always hard.

[00:07:03] You know, the great businesses will often trade near their highs and often trade for what seem to be high multiples. But, I mean, if you really truly find a great one, then, and multiple is your only concern. You know, maybe buy small or something and at least get your foot in and then wait patiently for when that opportunity comes. Because it could be a long time. But, I mean, you look at some of these businesses, you might have to wait several years.

[00:07:35] And you're giving a lot of returns in that timeframe. So, yeah, the twin engines, harder to find. I mean, where you can really find those every once in a while. We have a crack up, like a March of 2020 where you can get those working for you. But absent some sort of broad market crisis, it's very hard to get. What about on the pure avoid side with the twin engines?

[00:08:00] Like, do you also look at that and see a lot of stuff in the market that feels like you'd avoid because maybe that growth engine isn't as firing as high as the multiple suggests? Yeah. I mean, there are some businesses where I would say for me, I mean, there's lots of businesses that I would say I come to the conclusion where there's no reason in particular to get involved now.

[00:08:25] Like, I have a portfolio of existing names and the only way I'm going to swap out something I own for something new has to be very, very compelling. So, yeah, I would say there's not a lot that's getting me super excited to make those changes right now. Stick with me on this point, specifically around this concentration idea. Feels like, especially in 2024, you couldn't go anywhere without hearing about the Mag 7 over and over again.

[00:08:51] And in my heart of hearts, I really liked imagining Jack Bogle as a concentrated investor with only seven stocks in his portfolio that he's like living or dying by. But you semi-famously, infamously, dare I suggest, run a fairly concentrated portfolio. I mean. Number one, what do you think about market concentration, index concentration as it relates to your own concentration?

[00:09:14] And then, you know, are there some lessons as a concentrated investor you'd like to tell people in a concentrated index fund these days? Well, it shows you it's very difficult to beat a concentrated portfolio when the top names are allowed to run. And so the S&P has been difficult to beat during that run. And it works the other way, too.

[00:09:38] I mean, you can just get unlucky and you're concentrated and two or three of your names aren't moving for whatever reason and you're way behind. So I had that happen to me a little bit last year. And now this year, I'm actually, you know, up pretty decent and the market's down. So it all kind of washes out over the many cycles. But I've always been a fan of concentrated investing. And it's not for everyone.

[00:10:03] I mean, you have to know what you're buying and you have to be able to analyze a company and do all that. I remember there's a story Greenblatt told in one of his courses. I think he was quoting Warren Buffett. And he said, you know, if you lived in some town and you suddenly, for whatever reason, came into a bunch of money and you decided, well, I'm going to invest in the best businesses in town.

[00:10:26] And you go around and you meet the management teams and you study the businesses and you come to, you know, there's seven businesses around you in town that you think are good to put your money in. So you divide it up and you put a little bit of money in each one. And you would say that sounds like a pretty prudent thing to do. But if you change that to stocks, then all of a sudden people are like, oh, that's very risky. What are you doing? Putting all your money in seven stocks.

[00:10:52] So, but again, I think the important part of that is you have to, you know, do the research and know what you're buying and think of it as if you were buying a private business or if you were buying real estate, something that you're going to own for a long time. And then you forget about the prices as much as possible. Otherwise, it's not possible. Otherwise, you're better off probably in an index fund, which is hard to beat anyway. The challenge is that you get the daily price quote.

[00:11:16] So, you know exactly how much those seven businesses are priced at at a given point in time. I think so. That's like the call to action. You know, they just get those prices blinking. And when you watch them every day, it enhances the feeling of volatility. So suddenly, you know, when you're watching stocks every day, something goes up 2% or down 2% in a day. You're like, well, what's going on? Or it's down 5% or 6% a week or up 5% or 6% a week.

[00:11:45] You're right away hunting for reasons. Like, what's going on? But if you zoom out over a year or two years or three years, then those just don't matter at all. And the volatility diminishes as well. So the movement up is fun. It's cool to see you open the portfolio in the morning. You see, oh, wow, three of them are up so much. Hopefully more than the market. But then you have the drawdowns. And you and I talked about drawdowns in the individual stocks in the market. You brought up March 2020. How do you deal with those times when you have a drawdown?

[00:12:14] And when you hold stocks, and we talk about the 100x, you will have, and you make a point in your book, many times drawdowns when your stock reached a certain high. And sometimes it's down 50% before it resumes the ascent. How do you deal with that time? Yeah, I mean, part of it is knowing that that happens, right? I remember I saw just recently that the overall market, the S&P 500, since 2009, has had something like 10 corrections of 10% or more.

[00:12:43] And of those 10 times, three of them were more than 20%, and one of them was more than 30%. But I think it was Charlie Bilello who said that every time that happens, it's felt like the end of the world. And it's true. Every time it happens, it feels like, oh, well, this is the big one. This is it. This is going to change. This is, and then, you know, with the passage of time, it doesn't seem like such a huge deal. So I think number one is appreciating that perspective.

[00:13:12] Like I also tell people too, you know, like look at the names you own now, even look back 10 years and see how many drawdowns they've had for how long. I mean, it's remarkable. Even companies that you think are very stable and they've had lots of drawdowns. Now that's one. And then two is really educate yourself about the business and what are the key things. Like I always say, like every business has just a handful of really important variables. And everything else is kind of noisy.

[00:13:42] And as long as those five things are all in place, then you just, you keep holding on. And it has to be that way. Otherwise you're, you're just going to be whipsawed and every, you know, you're getting whipsawed by bad quarters or even a bad year will put you off a great name. And so you have to give these businesses a certain band of performance and they're allowed to slightly disappoint or disappoint sometimes or allowed to get ahead sometimes, but there's this band of expectation.

[00:14:11] And as long as you're kind of in that, you don't really worry. And meanwhile, the stock price has been going all over the place. You know, one of the little handy tricks that Thomas Phelps wrote about in his first book and, you know, he just made a little table of like, it was Pfizer. And he had just basic financial information, you know, like ROE and sales and earnings. And you look at it and then he would ask you, you know, just if this was all you knew, would you ever sell this business? Of course you would.

[00:14:37] You know, every year it was, of course there was a year, oh yeah, what it was maybe flat or down and then they would pick back up. But she would never sell. But the stock price was all over the place during that time. You know, people were buying and selling it every day. Oh, it's a powerful lesson in that. You have this quote from Floyd Odlum from 1933. You remember it from the book where he says, there's a better chance to make money now than ever before.

[00:15:03] When the market collapsed in the 30s and his partners were all pessimistic and he was thinking, wow, this is the time. We haven't lived for anything like this before. But every time we have that 10% correction that you talk about, it feels like this is a better time to put some money to work than two weeks ago. And every time it's hard. Yeah. Yeah, that's right. That's why people say, you know, I'll just wait and wait till we get the correction. But then the correction comes and they can't pull the trigger. And then they just revise their target lower.

[00:15:33] Wait, oh, I think it'll go lower. Yeah. I'll wait for a bigger correction. Then when it does drop 20 or 30%, you're too scared. And you're like, no. So, yeah, that's not a good game to play. Try to catch all those and avoid all those down drafts. Go back, at least in theory here. Go back to that, the green blood example.

[00:15:57] And I love that story and how it makes for an easy, almost, I guess, straw man for the concentrated investing. If you were that person, if you were that person today, if we, you know, you're resetting the portfolio. If you just had a giant pile of cash and no actual investments today. What are some of the questions you would ask at the beginning of 2025 here where we're doing this in the end of March?

[00:16:23] Tariffs, politics, markets, parts of the market crashing, other parts holding up well. Where do you think you would start looking if you had a pile of cash around that global neighborhood? Well, I think I would not really pay attention to that. I wouldn't make, I wouldn't be creating a portfolio that I expect to do well with tariffs. So I wouldn't, I wouldn't do that because that's not something that's going to probably last. I mean, that's going to change, right? There'll be tariffs. Maybe it'll last some years. They'll go down or go up. They'll go away.

[00:16:52] Next administration will have different ideas. And so I'm looking for things I can own for, you know, 10 years out more. And so I would be looking at the same kind of timeless things. I would create a portfolio very close to what I have. I mean, I'd have the vertical market software with Constellation and Topicus. I'd have the Swedish serial acquirers that I like so much. I'd have Brown and Brown in there. Insurance broker. I'd own Hiko with its business and great moat in and is around it.

[00:17:22] Copart with, you know, also tremendous moat around that business. So those are businesses I know well and I've owned for a long time. I feel comfortable that they'll do well in a variety of different environments. And so I don't think the question in March, 2025 would be that different than March of 2020 or March of 2010. I mean, it's the same principles and ideas that I would be looking for.

[00:17:48] You know, maybe the menu would change a little bit like if it was an extreme condition like in March of 2020 where you could get something super cheap that you could never get any time else. But I wouldn't play any kind of particular macro trend or idea like that. And that's very popular. That's all what the financial press writes about all the time, you know. Five ways to play Trump's tariffs or whatever. You can write the headlines yourself, you know.

[00:18:17] Chris, your approach resonates with a certain client. And you and I spoke about it. You happen to manage family wealth in many cases. And the first capital you started with came from a family. And I'm intrigued by it because I manage money for families and I realize that they resonate with a certain investment approach. They can wait. They have the patience. They have the capital. They're not in a rush. Can you talk about that? Because I think it's very important, especially when you manage other people's money. What kind of capital are you investing? Because that capital may or may not allow you to do what you're trying to do.

[00:18:47] Yeah, that's definitely true. That's a great point. Because if you're not, if you're capital is not aligned with what you're doing or you're going to have problems. So, yeah. It's almost a little self-selection because, you know, I have the book. And so that does a lot of my pitch for me. People, when they come to me, they're already kind of bought into that idea. But still, you know, I have to have the conversation.

[00:19:11] And I have turned down quite a bit of money over the time from investors that I felt like didn't really sync up. And so, yeah, I've been very, very lucky that way. Like, I have a great group of partners who think a lot like me as far as owning, looking at stock market investing as if you were just owning a business. These just happen to be publicly traded. And you approach it in a very business-like manner. So, they understand that. They appreciate that.

[00:19:37] When I talk about investing alongside people who have skin in the game, you know, madman teams that own parts of this business, they get that. They understand intuitively why that's important. They rent most of them. You're right. It's family wealth. But how do they get it? They almost, oh, they all, in my case, is they all had businesses of their own that they either sold or they still have. And so, they approach the world with that businessman's mind.

[00:20:04] And they're naturally skeptical of people who come to them and try to, you know, predict where the stock market's going or, you know, has these ideas about where the world's headed. They're naturally skeptical of that. They're more, they like this kind of long-term just owning businesses. They appreciate that. So, they can put up with the ups and downs. Like, I've had, you know, I have had virtually no redemptions.

[00:20:34] I had one in March of 2020 with a guy who got into some trouble and I let him out. And I had one other due to a death of this particular investor. And, you know, the heirs, not all of them held. So, but that's pretty typical, right? Someone told me it's like death, divorce. And maybe there's another D in there that leads to redemptions that you can't really avoid so much.

[00:21:03] But, yeah, it's been a great group. A great group and critically important. I mean, if you have someone who's not aligned with that, then they're questioning you all the time. And it makes for unpleasant, experienced, and affects the returns of the partnership. Do you think that's a critical part of their DNA? Especially the ones who have been with you the longest or get it in your sense? Like actually owning a private business and understanding how that maps across the rest of life?

[00:21:33] I think so. I think that's pretty important. I mean, I just noted just myself speaking with other investors or potential LPs that, yeah, I connect much better with the ones who have a business of their own or they had a business and they sold it. And they just have a somewhat different mindset than someone who came into the market.

[00:21:55] You know, studying the stock market as a thing outside where they didn't have that connection to how it connects with individual businesses. So they tend to think of it more like a trader's game or, you know, so it's very different. Do you feel like you earned that in the same right from your own businesses, from like running the newsletters, doing the things that you did? Or did you hone that DNA for yourself and learning to think like an owner? Yeah. Yeah.

[00:22:25] And for me, it came different ways. Like I started off in corporate banking, as you know. So I did a lot of just making loans to just local businesses. So it'd be the guy on the, you know, rental equipment store, general contractor, the auto body shop. And so these, you kind of see, you know, they're kind of locked in. They don't have the opportunity necessarily to flip their business so much. But every now and then they do. And they, but they keep it. And they have a certain sensibility, you know, running a business yourself like that. So there's that.

[00:22:53] And then, yeah, I ran, I was, I ran my own newsletter for a while. So you get a sense there. I mean, if someone came to me and offered me however much for the business, you would, you know, I would have said no, because I believed in what it, what it could have done and achieved. And so, yeah, I think that all definitely colors your experiences. It's not just then an academic exercise, but you've tried to, you know, you've been a part of it.

[00:23:17] And that learning doesn't stop because I just recently finished my first year on the board of a publicly traded company, uh, in Sweden. And again, got, you know, a whole different perspective again about how, you know, there's a real business going on here behind the ticker and behind the conference calls and, uh, has challenges with people and different things are going on. So I like that. I like how it keeps me one foot in that world. It's very different.

[00:23:45] Uh, and totally changing the questions you would ask too, when you meet with other management teams and, you know, what kind of questions you ask. I mean, sometimes like nowadays, I don't even listen to the quarterly earning calls when they come on. I'll just, I'll just get a transcript and kind of skim over it for a few minutes because the questions of the analysts is just driving me crazy. I mean, I appreciate what they're doing. They have, they have a certain role to play and they have models they have to sell out.

[00:24:12] But, you know, everyone's always talking about this quarter and next quarter. At most you're talking what the rest of the year is going to look like. Um, there's no attention on or questions about what the business might look like over a decade. Of course, those guys aren't on the call. They're not worried about it. I've been in meetings with managements where everybody had questions about the next quarter, this penny or that penny. And I was the only one asking about the longer term vision.

[00:24:41] And the CEO would say, can you stay over? Because you're the only one that asked an interesting question. And I thought really, I'm in the back of the room, the only one with a question that the management actually wants to spend more time on. Yeah. I've had the sense sometimes when I've met with managing teams that don't know me, I'll say, you know, that I have to kind of overcome a little bit of a prejudice. Like they just assume, you know, hedge fund manager coming in and they have certain assumptions about what I want to know.

[00:25:07] And at some point in the conversation, I have to tell, look, I'm not really interested. You know, what are you going to do this quarter? I'm not interested in these questions. You know, I'm interested in the longer term. We own things for a decade out and blah, blah, blah. And then it changes and the conversation changes and they kind of settle. We need more investors like that. They're actually investors, owners of businesses. I think that could elevate the conversation and also the managements would be more at ease. Definitely.

[00:25:37] And some of these managing teams, I know that, you know, I've come across somewhere they don't even meet. They don't even want to meet with investors at all. You know, they just because they know it was just such a waste of time. You know, they just spend time in meetings asking, you know, and get answering these questions. So they just write it off entirely. And I sympathize with that because most of the time it is a waste of their time to meet with investors. So it's a conundrum in our industry. I don't know what the exact answer is there, but I don't want my management team spending a lot of time answering investor questions either.

[00:26:07] No. But there has to be some, well, you won't do it. It has to be some avenue where you can lay out your vision for the company, you know, talk to your investors. And so, yeah, I mean, maybe Buffett's got it right with his annual meeting. You know, like Constellation Software, they just have an annual meeting. There's no quarterly calls. You can't, you know, Mark Leonard's not going to sit there and meet with you. And so, yeah, I don't know.

[00:26:34] But something our industry has to deal with. I want to bring up a quote from 100 Beggars. You have this quote that says, the best shot you have at growing your wealth is to own stuff. You want to be an owner with real people trying to figure things out with real assets and real profits. Ownership of assets is your best long-term protection against calamity. And that's the essence of what you're talking about. We want to own those businesses to grow wealth over time. Can you talk about that? Because I think we get lost sometimes.

[00:27:04] What is it we're trying to do? You know, there are tickers and prices and portfolios and 30 stocks and 10 stocks. At the end of the day, we want to own stuff. I think also what I think of when you were reading that, you know, I think a lot of the asset allocation kind of mindset where, especially for wealthy families, they'll want to have, you know, something in forestry or land or bonds or gold. And those things have a role.

[00:27:30] But you should understand that the role there is, it's not really a creation of wealth over time. That consistently is people own stuff, own businesses that are able to grow over time. That's where the real wealth comes. And they are inherently problem solvers. So, yeah, there's going to be problems. I don't know. But that's what businesses do. Overcome them, create new businesses.

[00:27:58] I mean, it's fascinating to study businesses and just look at how much they change over time. I mean, you know, I remember A.O. Smith, for example, is a publicly traded business now that makes water heaters and boilers and things. But when you started off making baby carriages, you know, and then there's other things they manufactured along the way. And so who would have predicted it? But, you know, there's consistently all kinds of examples like that in corporate history.

[00:28:25] And then, of course, the famous ones, when you look at something like Amazon, when early on they were just selling books. And if that was all you could imagine them as being, then it would never have made sense of an investment for you. So that's what owning great businesses can do for you. Just adjust, adapt, raise new markets, new verticals. It's a great thing.

[00:28:47] I'm really fascinated by this idea of you having this Rolodex of questions in your brain as like Chris, the banker, Chris, the portfolio manager, now Chris, the board member. And do you actually desegregate that at all in your brain? And do you think about when those different toolboxes get opened?

[00:29:09] I don't necessarily think about them as different buckets, but there's definitely, yeah, there are definitely some questions now from Chris, the board member. You know, we'll be asking management teams about, well, what about the board? You know, what kind of interactions do you have with the board? So I know for investors like, you know, sometimes they'll say, oh, look, you know, so-and-so is on the board. And as if, let's say if it's a famous investor, a famous person, like, you know, and that's a positive.

[00:29:37] But it really depends on the interaction. I mean, boards can be very different. They can be very passive or they can be very active and involved in setting things like incentives and strategies. And so I really asked a lot of questions around that. Now, like, what are your interactions with the board like? Who's, how so-and-so, do you ever talk to them? Have they ever talked to you? Just to get a sense for how that business is governed.

[00:30:07] And then other things come up too. Like, I know as investors, we often talk about the incentives at the executive, the C-suite level. So everybody will say, if they think about incentives at all, they'll think about the incentives for the CEO and CFO. But nowadays running, you know, having seen tech being on behind the scenes, I think it's very important to look at that next level down. Like, the people are actually running subsidiaries out there. You know, how are they incentivized? What's that job like? You know, do the people there, do they stay?

[00:30:37] Is there a lot of turnover there? You know, I mean, get a sense for that because it can really, really make a difference over time. And also to give you an idea of what kind of operational list there is in running that company. Some companies, they're just constantly, you know, dealing with HR issues and filling shoes. Others, they're very stable and they have a set group of people that kind of get it, grow with the company. They're able to make a lot of money and do well.

[00:31:06] So those are some questions that I asked that came right out of my board experience. I'm very curious about the people. You know, you brought up the CEO. And I've seen those examples in the last few years when we're betting so big on a CEO coming and going. The stocks actually move. And I don't want to name any companies, but there were two companies that traded CEOs last year. And one went down because the CEO left and the other went up because they got that CEO.

[00:31:32] But then I'm thinking, whatever those companies are offering, the people that show up every day, greet customers and, you know, see the suppliers and drive the trucks, whatever it is. They showed up the same way they did the day before. They're looking forward to hearing from the new CEO or the replacement CEO. But when I think about it, I get it that the CEO can make a big difference. But think about the other, you know, 50,000 people working for that company that are doing something and they will show up the next day and do the right thing.

[00:32:02] That's right. And, you know, that's where you start getting into, well, how's the process of, you know, the business below that executive level? I mean, and it depends on the business. I mean, but I would say most businesses, the CEO, you know, stepping down is not such a big event as the market often makes it out to be. And of course, there are exceptions, but hard to generalize that.

[00:32:32] But I say for most businesses, that's probably true. Those businesses will outlast that CEO if you hold them for as long as you want to wait for the hundred beggar. You might have maybe even five or ten CEOs. Hopefully not, but you might have a few. Well, the counter to that, though, is the old Buffett point he makes about the, you know, a CEO that is controlling, you know, where you reinvest your capital.

[00:32:57] And you have a business that's 15% return over five years span of time. That CEO is going to determine where half the capital of that business goes. Not just half the capital over that five years, but half the capital the business has ever had. So a CEO can, in the capital allocation side, make a huge impact. So that's why it depends.

[00:33:18] Like if you're talking about a CEO that's running a restaurant chain or a grocery store where the reinvestment opportunities are relatively well-defined and limited, maybe the impact is less. But if you're dealing with a company that, you know, is involved in, say, acquisitions or where that investment, reinvestment decisions can be much more impactful, then that CEO is going to be more important.

[00:33:44] How do you think that through this U.S. board member investor angle, how do you think about capital allocation specifically as something that the board can help support and shape incentives around? Yeah. I mean, I think the board ultimately will or should set the incentives. So the board has to consider, well, how do we want business?

[00:34:13] How do we want our capital to be allocated and have to come up with some kind of framework, ideally working with a CEO? And then we come to some sort of agreement, kind of broad parameters, what that should be. And it's much and it's hard. You know, it's not so easy when you sit down and think about, well, how do we want to incentivize people?

[00:34:35] Particularly when we talk about actual financial hurdles and numbers, because once you put that number out there, you know, there's a lot of old games you can play to get over it. You don't want to set it too high. You don't want to set it too low. You don't want to have the wrong number. You want to have it be something that's important, that reflects an health of the business or something you want.

[00:34:56] But, you know, I would say like a few broad things I would say that every board should try to implement is number one, it should be like on a per share basis, whatever it is. None of these open-ended, you know, rewarding people on profit growth without a per share consideration. And then second, there has to be some kind of consideration given to the return on capital or the amount of capital required.

[00:35:26] So if you have a profit hurdle, well, you know, there has to be some consideration given to how much capital is consumed to get to that profit level. And I'm not dogmatic about what the number is. You know, every business you can custom tailor something that makes sense for that business. But those are the two broad considerations. But I will say it's hard, hard to come up with a really good incentive compensation scheme. I can see why many businesses have such mediocre compensation schemes because it's a hard thing to think through.

[00:35:56] And who wants to do that? It's just easier. Well, let's look at our peers. We'll come up with some peer group and then we'll just do what everyone else is doing. You can use an example if you want to use one. But I'm just curious as an investor then, when you take some of this information in and you're looking at a company and how they're structuring this, what's an example or philosophically, if not specifically, where you're like, this is it. This is really making a lot of sense. This is really working. I like to see this.

[00:36:25] I mean, the first thing that comes to mind, you know, in Sweden, they have these serial acquirers. And one popular metric that was pioneered by Bergman and Beving was a measure called profit over working capital. And what's nice about that is if you think about you're running a subsidiary, you know, these guys who run these subsidiaries are not financially, you know, like we are. They're not sitting there. You told them what the return on invested capital was. I mean, I don't know what that is. And they should know that. They're running the business, you know, whether it's distributorship or something.

[00:36:55] But they know what their profit number is. And they know what they have in receivables. And they know what they have in inventory. And they get their payables. So they can kind of, you know, they can get, they understand how these levers work. And if you tell them, well, we want you to keep your profit over your working capital, you know, at 45% of whatever the number is. I think that was a common number for them on distributors. You know, that's something they can, they can get the hang of that. And they know what that is. And I like that because it's, it's a rough approximation for return on capital for that business, at least at that level.

[00:37:27] So that's another thing I appreciate. Like you come in first as a financier and you're like, I have return on invested capital. That's the metric. Perfect. But you have to understand, like the people that are out there in the field that you're trying to incentivize. They have to be able to connect that to what they're doing. That's what makes it, that's what makes it tough. So you have to like work around, oh, it's something that's an approximation, but it's something that they understand and have some control over. Yeah. That's where the art comes in. I think. Do you want to do that business banker?

[00:37:56] Make a gif of this so you can put it out of the episode. At the same time, isn't it fascinating that the kind of CEO that we want to find is somebody that does it no longer for the money. You know, I know that there are not enough Buffetts in the world, but there are other CEOs that clearly are doing it because they love it. Right. Right. So it's not about fine tuning the compensation to the, I don't know, EPS or cash flow or whatever metric. He or she will just show up.

[00:38:26] And I know the entire economy cannot run on people like that. We don't have enough of them. But if you find one like that. Yeah. In fact, I would say that's true. Most of the CEOs that I've talked to in my companies, of course, they're not motivated by that. So, you know, the incentive compensation scheme is really not for them. But it's for other people around. Haven't yet. Who are hungry and haven't yet made their, you know, they're nuts and are out there and they want to do it. So you're absolutely right.

[00:38:54] I mean, ideally, you would have business. They love the business. They want the business to grow. So, and because I'm investing in companies, there's already a lot of skin in the game. They're going to participate in that anyway as owners. So that's not so important to them what their salary is or their bonus. That's not going to be the needle mover for them. So pulling on that thread of skin in the game, a lot of companies pay with shares these days, all kinds of stock-based compensation, right? And on the surface, it looks like a good idea because more people are on the same page.

[00:39:24] The company does well. The stock does well. They do well. They feel invested. But now and then I come across companies where they spend half of their profits or more on stock-based compensation. I'm not sure if I want to be a shareholder if I feel like I'm second class in this equation. Do you have a thought about that? Yeah. I mean, I don't want to invest in companies that are passing out their shares like Confetti either. I'd much prefer the companies that very rarely a few shares.

[00:39:52] Or, you know, I think Constellation Software has got a great incentive plan. And they have the same number of shares outstanding now as they did when they went public. And their incentive comp is, you know, they pay a bonus, but then some portion of that bonus is used to purchase shares on the open market. And that really creates, you know, some skin in the game. I think you can't just give people things. They have to have at least some money. I'm all for like giving discounts or something like that.

[00:40:22] But you have to have them have some skin and come out of pocket somehow. Otherwise, it's just all upside, no downside. And that doesn't really do any good. Now, I understand there's something that people who have had these debates with, some people push back and say in certain industries, it's almost like you can't do it any other way. You know, if you're going to get talented people in the business, this is the way they're compensated. And so you just have to accept it. And I guess that's, you know, for some Silicon Valley type businesses that you're going to have to just accept it.

[00:40:52] And that's the way it is. And you can see companies who share accounts have expanded greatly over the years, but the stocks have still worked. So it's a different game. But yeah, I'm kind of more old school on that. I prefer to companies value their shares very highly. What about, and I'm thinking about this almost from the legacy perspective. When you think about a CEO or you think about the constituents of a board as it exists at one point in time.

[00:41:20] And this ties all the way back to the client question about losing clients from divorces and deaths and the just natural course event stuff. How important is it when you're looking at a company to think about how they think about their internal operating legacy and what they're setting up to pass forward beyond their careers, lifetimes, whatever else? Yeah. So you mean kind of like almost like succession plans kind of things like next? Yeah. We can make it as simple as succession plans. How much do you think about that? Yeah.

[00:41:48] I mean, but yes, I think that's important. Like who management depth is something I've definitely explored with different companies of their own. Just kind of get like, okay, if he had stepped out, there's someone internally you can step in. And some teams are deep and some of the smaller cap names, this is maybe an unappreciated risk that is that sometimes, you know, they're not as deep on that. They don't have that deep bench.

[00:42:14] So when somebody at very senior level goes, somebody, the replacement is going to have to come from the outside. So there's some risk in that and you just have to accept it. But yeah, we definitely have discussions around that. And I think about, well, what the business would look like, you know, five, 10, 20 years out, even when we're all gone. Very forward thinking companies can do that.

[00:42:43] I wouldn't say that's very common actually, but something investors have to think about. Not to say that it's an edge per se, but trying to extend that thinking beyond, beyond when you might be a shareholder, beyond when this management team might be there. That's, that's a, that's a pretty mind stretching exercise. Just think about what all these variable components look like and if it can survive all those moves.

[00:43:07] How, when do you feel like that really came into your own understanding that you're like, I'm actually implementing on this timescale? I don't know when exactly, but I do know, like, I do know. I don't know why, why you're talking. That made me think of a meeting at one time with Pear. I was the CEO at Lifco and one time he hopped up and gets on a whiteboard and starts sketching out, you know, boxes.

[00:43:34] And he starts like laying out how far thinking he was thinking about the problem of, well, who's going to be behind him. And then after them, and you know, he had, he had all kind of mapped out how this person to this level. And then they move here and they move here and, you know, and this person's like 75% of the way there, but another, you know, five years over here. I remember when I first met with him five years ago, I guess it was five years ago, 20, yeah, 2021 or so.

[00:44:03] And I was asking him about, well, you know, do you have other capital allocators? Because it was just him doing acquisitions mostly. And he said, well, you got to give me like, you know, give me like two or three more years and I'll have, I'll have more. And he did, you know, he had built his plan and they've got like, you know, half a dozen people are well along and people behind them, they're still coming up. So I feel like that's an example of what you're talking about.

[00:44:28] Like that's an organization that's already like building it in their current processes, you know, how they're going to perpetuate their way of business or way of doing things beyond the people who are there now. How rare is that? How often do you think that actually exists? I mean, that's pretty rare. Yeah. It's an impressive mark of quality when you run into it. You and I spoke about how investing is not really about being right, but about being the least wrong.

[00:44:58] And when I'm thinking about making mistakes, I'm thinking of general semantics as a toolkit. And I would love this audience to hear a little bit about general semantics if you indulge us. What's it all about for somebody that has never heard of it? And maybe we'll dive into an idea or two behind it. Yeah. Yeah. Well, general semantics is a name given. I had kind of a discipline, you call it, set of critical thinking tools.

[00:45:24] And it was created by, or at least, yeah, I would say created by a guy named Alson Krasinski in the 1930s. And if I had to summarize, I'd say like, it's a difficult thing to summarize, but I would say in general, it deals with challenging the assumptions behind our abstractions.

[00:45:50] So our words, our symbols, and challenging the common assumptions behind those things. And it gives you a number of little tricks and tools so that it becomes almost second nature to you. And it will greatly, yeah. I found it tremendously helpful. So I've written a couple books about it. And yeah, I use it all the time. The one example I want to bring up that really stayed with me after we spoke was English without absolutes.

[00:46:18] How often we use the words always, never, nobody, everybody. Can you tell the audience what's that about? Yeah. So part of a general spandex is that there are certain words that raise a flag for you to at least stop and consider. So anytime you hear those absolutes, anytime anybody says always or never, uh, or yeah, everyone or nobody, uh, there's a whole list of them.

[00:46:45] And I have a bunch of them in the book, but anytime you hear that word and those words, you're just meant to just stop and pause for a minute. Like really everyone, it can be very common. It can be just something like people say stocks. And a lot of times I'll talk, people will be casual. Oh, you know, stocks are so expensive these days, you know? And I always think, well, all stock, every stock, which stocks? Uh, so these kinds of questions just come naturally to when you start thinking about those kinds of questions.

[00:47:16] But it's, it gets deeper than that, even because then they're, you know, one of the tools, uh, Krasinski uses, for example. It's just a dating, uh, date system. And where you say like, uh, you know, Matt Ziegler today thinks, uh, he likes vanilla ice cream. So, uh, love it. Love that. There you go. So that's, you know, Matt Ziegler in 2025 here in March, you know, 26 or whatever it is. And, uh, but he might not think that a year from now, we might ask him the question. You may have different answer.

[00:47:46] Rocky. Uh, there you go. Or if you asked him that 10 years ago, you might have a different answer. So you start to see people as not one thing, one of it's the same all the time, but they have opinions at certain dates and you can do that with your own thoughts too. Like today, I think these things, and so I'm comfortable saying them. And then if I were to change my mind a year from now, well, you know, that's what I thought then at that. And that's what I think now. And it makes it easier for you to let go of certain ideas and change your ideas.

[00:48:14] You're not so wedded to, but really general semantics, I mean, gives you a rich, rich treasury of tools and ideas and you don't have to use them all, but you just take a few things. And, uh, I think it greatly aid your own critical thinking. Talk about that a little bit more in the journaling sense. We've talked about this before, like writing stuff down and the act of thinking, uh, or, you know, spending time to actually carve out your thoughts about something without needing

[00:48:43] to necessarily do something about it, but capturing those. What have you learned about the journaling process for you? Yeah. I'm a big fan of journaling, uh, both financially and just keeping my own journal because yeah, I love getting those ideas and thoughts down. And then when you look at them later, you, you know, you see how much you change over time. And I've been keeping a journal since 2005 and it's amazing.

[00:49:09] Sometimes you just kind of go back and read some of the earlier ones and you're just like, you feel like a completely different person. You're like, you know, I thought that, you know, yes, you did. You did think that. Without that written record, it's easy to kind of lie to yourself about it. You just rationalize, but you say, well, you know, this happened that I didn't really think that. Well, you did. And, and with investing, it's also very helpful. I mean, with all your ideas, I keep track of what I thought different times and, um,

[00:49:37] and that particular exercise, you can also see how things that seem really important at the time become much less so. And it doesn't even take that long. I mean, it could be a quarter, you know, it can be very short amount of time. I'll look back and say, boy, you know, I thought that was important. I'd merely ever think about it or whatever, you know, there's all kinds of lessons that way. So yeah, I'm a big fan of keeping some sort of written record of what you're thinking. And that's your, and you really learn it.

[00:50:05] I mean, it's one thing to say, yeah, you change, you change opinions, but I think when you keep a journal, you're really in your face and then surprising ways. Kind of feels like journaling is investing in future humility almost. Yeah. And then I find myself addressing my future self, future self. You look at this, you'll know I was an idiot. I was wrong. I was just, and so, yeah. Related to that, I want to ask you about cause and effect. And you share a story from Alan Watts about a cat.

[00:50:36] Can you retell the story ahead of the cat? Yeah, it's one of my favorites about that. Because, you know, the way we think about cause and effect, you know, especially with investors, we always think, you know, this happened and then that happened. And so it was one cause or the other. But Alan Watts' example on this gets you to think a little differently. He says, you know, imagine if you're looking through like a hole in a fence and you see a cat's head go by and then you see the tail go by. And then a little while later, you see a cat's head go by and you see the tail go by later.

[00:51:04] So cause and effect thing is, okay, the head causes the tail. But that's kind of a weird thing because you know what's happening really is it's just all one thing. It's all one movement. And so that's the way I think about cause and effect. The way I think about the market too. It's really all one thing. I mean, everything is connected to everything else. Everything is the way it is because everything else is the way it is. And so you can't just, you know, change one thing and then have this aspect over here.

[00:51:34] It's, it doesn't work that way. It's much more complicated and connected. And I find that to be a very helpful mental model to use. That's why policies are so hard to develop and implement because people try to think in a very simplistic way. We're going to increase taxes. That's what's going to happen. We're going to cut the tariffs. That's what's going to happen. But the secondary and tertiary effects of it are unpredictable.

[00:52:02] And then the effects start to interact with each other and you can come out with a result that you would never imagine. Hopefully more good than bad, but it's something worth paying attention to. Yeah. I always think of Charlie Munger, you know, he used to say, if you're not confused, you don't really understand what's going on. You know, it's the truth. I mean, once you see the complexity of it, you're just like, it's just no way you can figure that out. Um, so again, that's another reason why, you know, Matt asked earlier about, well, you know,

[00:52:31] like March today, you were looking at certain investment questions. What would you think tariffs and all that? I mean, it's like, it's such a puzzle. It's, I'm just very humble about my ability to figure out what that is. And so I just fall back on those more essential eternal principles and, uh, stick as closely as I can to those. It kind of feels like with, with your written works. And so with a hundred baggers, with the, the time binding and the general semantics books,

[00:53:01] it kind of looks back at what are some really good old principles that feel essential, that feel timeless and then how can I update them for today, make sure they're up to date and then map them in the future. Do you have any, like, is there a common thread between why you looked back to some older works to help inspire your current works? That's a good question. Yeah. You know, I know it's a pattern with me. Maybe it's some sort of hardwired thing because it's happened a couple of times, like a hundred baggers.

[00:53:29] You know, I pulled out the self's book, which came out in 1972. And with general semantics, when I wrote, how do you know, I wasn't the first one to try to apply that to wall street. There was a book that came out and I think it was 1958. It was originally called general semantics on wall street. I always like, uh, the follow on to that is that that was the title only for one year. And then after that, it was winning on wall street, which probably meant the book wasn't selling very well.

[00:53:55] So they came out with another one, but maybe there were such scars there that took 50 years more before someone else came along and decided to give it a crack. So yeah, I have this, uh, for whatever reason, I had this attraction to kind of the, you know, the forgotten ideas and kind of bring me back some of these old ideas that we've lost. What kind of forgotten and not dead, right? Isn't that some of the appeal? Right. Yeah. I mean, you know, um, like for example, with general semantics, there's, uh, there's the

[00:54:25] Institute of general semantics still, still around and kicking, which basically founded in the 1930s. And it's been an operation continuously since, but it's not very well known of course, but they keep the flame alive. And every once in a while someone comes along and, um, they bring more national attention to it. I mean, Neil Postman was, uh, he was a big general semantics guy. I don't know if you know who he is, but he wrote Amusing Ourselves to Death and these were

[00:54:53] more popular books in the eighties and. Technopoly and Amusing Ourselves. Technopoly is another great one. Books of my life. Yeah. They're great books. Yeah. Great books. So, you know, that's an example every once in a while. Somebody will bring a lot of attention to it, but yeah, those, those, uh, there are people out there keeping the flame. So keep the flame alive. Well, let's ask a couple of these favorite standard closing questions.

[00:55:18] The one I want to ask you first is what's one thing you believe about investing today that the majority of your peers would disagree with? Yeah. Well, I mean, mine is much more, uh, hands-off style investing. So I don't believe in the trimming and adding and trading around your positions, which all of my peers seem to love to do. You know, when stocks get expensive in their mind, they cut it back.

[00:55:48] And when they seem to find something that thinks more expensive, they add to it. So there's a lot of activity going around the periphery of the portfolio. And, um, I don't do any of that. I would buy something and just leave it. And, um, sometimes, uh, and I should say that grows directly out of the work that I did for a hundred baggers. I mean, I saw repeatedly again and again, stocks, these great businesses that they would look

[00:56:15] very expensive for a time, but, uh, you know, the market's making them expensive on the expectation of something good happening. And if you just left it alone, you, you would have done just fine. Um, even from some times from peaks, peak to peak, which, you know, were surprising. So I, it doesn't mean that you only buy things once and don't because, you know, if I have capital inflows or whatever, yeah, sure. I would add to some favorites that are down or whatever, but I'm much less active.

[00:56:43] And I think people would disagree with that a lot. They feel like as a money manager, they have the ability and they ought to, as part of their job, determine when something is, gets very expensive and they should cut it back. And when something becomes very compelling, they should add more capital to it. And, um, the way I look at it is that, uh, if you really sit down and work out the math on that after taxes and the amount of time you have to be right, it's a very high bar. It's not so easy.

[00:57:13] And, uh, so the way I look at it is that these truly great businesses are so hard to find, very hard to replace. You're probably just better off just leaving alone. Um, so that's, that's one area I think, uh, I disagree. I'm hearing the coffee can portfolio approach from you. Yeah. If you put it in chest. It's very, very similar to that. Yeah. It, uh, yeah, definitely.

[00:57:46] One more question for you based on your experience in market so far, if you could teach one lesson to the average investor out there, what would that lesson be? Yeah. Well, you know, word, I would say it's patience, you know, patience. It's, I know like when I was learning investing and off my twenties and thirties, I was much more jittery about things like, you know, company reports a bad quarter, stock starts falling.

[00:58:16] You know, I get, you get really antsy if you want to get out of it, you know? And, uh, and I think if you could, if there's one thing I could pass on, it would be, it would be that just, you know, when you buy something, be a little, be more careful about what you buy. Be sure you think that you won't own it for a long time and then let it, leave it alone. You know, be willing to suffer through some ups and downs and, and not everything's going to work out. So you're going to have to buy, you know, more than one thing.

[00:58:44] But if you want, you know, 10 stocks, give them a chance, be patient. And, and part of that, you know, that embeds a lot of other things too, when you say you have to be a patient like that, because it means you have to tune out a lot of things. You have to, you have to tune out the, I mean, a good part of financial media and wall street is geared towards making you do things. I mean, they want transactions. They want you to move that money around. That's how they make their money. They take a little bit off those movements.

[00:59:11] They want to say the latest fund or this or that, or, and the resist that is a big part of it. And that, you know, being patient, big part of being patient, being able to tune out all that and not the way you think, but that would be, if I could tell the average investor one thing, that would definitely be it. There's that beautiful through line in this where it's, and as I've explained you and suggested your work to people in the past, I said, Chris knows how to be persistently patient.

[00:59:39] He's going to tell you that in 80 different ways. That's right. You need to hear at least 75 of them. That's right. I would say like when I think about my books, I'm starting to repeat myself, but I, a lot of different ways, you know, different stories, different ways, but. It's that old thing. You write the same article, you know, three articles, a million. Brilliant. I have one idea. I'm just playing on. The one big lesson I walked away from your books is that it just takes time.

[01:00:09] You know, when you even identify the hundred potential, a hundred beggar, you can't escape it. It will take time and it will take sometimes, you know, decades. And you show those charts and charts and studies and examples. The one thing in common, all of them that have, it took time. You can't. There's no shortcut. Yeah. You're planting seeds and you can't, just like you can't rush nature. You have to give it time.

[01:00:36] Chris, if people want to spend more time with you, where should they look you up on the internet? Well, um, you can search, you can, if you put in Woodlock house, my name, my firm will come right up there. So you can certainly contact me there. My books are listed there. Blog posts, other things. And I'm also an ex Chris W. Mayer. So you can find me there as well. And Bogomil, my co-host with the Comos, tell the people they want to connect and see more of your talking billion stuff. Where should they look?

[01:01:06] We'll put links to all this in the show notes here too. Well, they can search my name. There are not too many people with my name and they'll find out how to billions and my firm. So yeah, just. That's good. Timeless wisdom. If ever there was some, I want to thank both of you for joining me today. You're watching excess returns, like, comment, subscribe, all the things below. Thank you guys so much. This has been a ball. Chris. Thank you. Great conversation. I love it. Thanks so much for tuning into this episode.

[01:01:33] If you found this discussion interesting and valuable, please subscribe on YouTube or your favorite podcast platform or leave a review or a comment. We appreciate it. No information on this podcast should be construed as investment advice. Securities discussed in the podcast may be holdings of the participants or their clients.