How to hunt 100 bagger stocks? And how to kill bad ideas? A talk with Chris W. Mayer

hello everyone it's great to have you here for a conversation with Chris Maya hello Chris little German how are you today I'm excellent to give us that I want to ask you for an introduction because you're the first time on a channel it's great to have you here and I just want to ask you what's interesting that other investors should know about you and what makes a good investment for you as a beginning question all right well let's see yeah about me I started my career in corporate banking and where I made loans to all kinds of businesses that was an interesting place to start my career in finance because as a lender you really think a lot about the downside and balance sheets and you learn how to value different assets so that was a very good training ground thinking about downside first I did that for about 10 years and I always liked to write and my passion was always for stock market so I started a newsletter on my own in 2004 called capital and crisis and I did well enough so that within six months I quit my banking job and did that full-time and I did that for about Oh until about 2016 in 2016 I started working with the Bonner family office the Bonner family owned Zagora a big publisher and they were published with my newsletter and so I started helping them with a family office and then in the middle of 2018 I proposed to them the idea that maybe we could start a fund and long story short there's they seeded it with twenty five million dollars of capital called it would lock house family capitals named after a property they own in Wardlaw Island and we started to find opened its doors in 2019 and that's what I've been doing ever since full-time ever since one good thing I always like to point out why I did the newsletter is uh I got to travel all around the world into 40 some-odd different countries and wrote four different books and made all kinds interesting people so that was a that was a really good time doing that and then you asked them what makes a good investment well these days I'll say a like kind of ideal drop the ideal it would be a business that produces lots of free cash flow as a long runway for growth it generates a very high return on invested capital as the ability to reinvest those profits and cash flow and earn consistently high returns on that investment they have a good balance sheet I'd have a very good insider like a CEO owns a lot of stock and it's preferably on the young side maybe 50s 40s 50s and then I would sit back and watch it compound for years and years that would be the ideal it sounds good now before we could go into details I want to post a disclaimer but before that I want to ask you you have this great bookshelf behind you yeah you to grab a book that's some good investing book for you if you have good investing books there and a book that's a good non investing books you can recommend and alright I will post a disclaimer so everybody can see the disclaimer and you cannot be right back get the book so guys as promised here's the disclaimer you can find it also link below the video and look at it it just says do your own research we are having here your good conversation we have knowledge but it's always that you have to do your own research and we make no advice just do your own research Thanks and now I'm curious about the books and to see what Chris found okay well yeah behind me I several shelves of investing books looks also like an awesome bookshelf yeah some of them go back quite a way so that I think maybe the earliest I have some Peter Lynch books from 80 and 89 and I think was his first one side and they're hardcover so they go back quite a ways and some of them are even older than that so I picked two the first investment book is is one that people have heard me talk about it might be hard to get now but it's a great read and it's a sauce sauce yeah by Martin sauce enough humble on Wall Street and came out in 1975 he's a money manager and he's been a money manager for buy at that point life thinks since the 60s and he managed I thought I forget but anyway he's a very good writer so I enjoy this because he talks about a lot of experiences investing money and one of the things I take from saw snuff is he he was one of the ones who really drilled into me the idea of how important it is to have an ownership that has skin in the game and that cares about you know the business so I mean this this book is just really really fun to read and again it might be might be hard to get now but definitely definitely like this book I guess freed like I'll read a little beginning for you it says as a state of mind Wall Street is no different from Main Street lazy and avaricious prejudiced and easy to panic it can believe in anything and just as readily shared its belief its deeds and misdeeds or clothes and generic rhetoric of petty politicians and it's people are there only to make money anyways just rights really well so I think that one and the other one I had to grab because it inspired me is she may know is hundred to one mm-hmm Thomas Phelps book so again this book you know there are parts of it that that don't you know date that well but it's the original study of 100 baggers and stocks that went you know hundred to one and that's also very well you know he says it's also very well written so the number a little quotable things in here I know I remember saying things like if not for thieves you know there'd be no locks talking about how problems create opportunities so it's a fun read I definitely recommend that one and for not investing I have a lot also on my shelf I have a lot of philosophy books and some of my favorite thinkers be pretty quirky like Buckminster Fuller and Alfred Korzybski so I grab Krasinski although I don't recommend anyone really start and read this science insanity it's a very thick book it's hard to read but I think if you could find if you could read a little bit of general semantics I think it would help your help your thinking I think the way think about general semantics just a another way to aid critical thinking and I saw I wrote a book that applies general semantics to investing is called how do you know so anyway those are some things I pulled what did you learn from the transfer from semantics to investing well I learned I came to appreciate more how language influences how we think and the power of naming something when you call something a name what it how it can influence will help people think about it and so it comes up all the time people call a stock a growth stock or they call something a compounder or they say it's a large cap or a mid cap and they treat these entities as if there were real and if there as if you know they had certain meaning to them and you really break it down you know a lot of these terms are they're really arbitrary and not as useful and so when you start seeing even something like people talk about the economy then you break that down what does it really mean were they talking about and so that's one thing I think is important just to pay attention to language and particularly how we use these abstractions and we just sort of pass over a myths if they were real things and you kind of break them down and examine them you find there's not really much there that's interesting to take this idea with me thanks already to the viewers for the questions you've handed in I already saw them and I'm happy to receive more questions to Chris because this day is all about the questions from the audience and already saved a lot of questions and one I want to ask in also in the metaphor of the bookshelf you have behind you think about the current time we are in we had a big bookshelf set on the internet and there's a lot of information a lot of offers and it's that with your time you can only read one book at once so the question is how you stay focused in this time mega cap best wishes to you yeah well you know I I'm pretty disciplined about not letting always carving out time to read books and self carve some time to reflect on things that don't directly have to do with market so fact just recently I read a biography of Montaigne and the French essayist in the 1500s and there were some unexpected parallels and with our own time that I didn't expect to find some 1500s in France where he was you know there was the plague and so he talks about how difficult is to travel during the plague and all the different things people did and it was interesting reading that again because I didn't anticipate that that but it had obviously me it impacted we're going through something well not like the plague but we have our own pandemic and makes you think that we have been through humanity has been through worse things and as as bad as the pandemic is it's it's certainly not the plague and we're in much better shape than he was but um yeah I always carve off sometime and usually that time is at night to try to read things that just I'm interested in carve out time for biographies or books on philosophy or other topics like that and and the other part important part about staying focus is you have to manage your you have to really be good at managing your time even on social media I mean Twitter can be I'm on Twitter but Twitter can be a huge time sink you know if you let it you can spend you could spend an hour on Twitter and then you get to the end of the hour and you're not really sure what you doing that whole time you know what you really take away it's like junk food just kind of so I try to manage those times as well you know there's certain times I like to do it and then otherwise I stay away from it and also managing your newsfeed I mean there's some things I like to read in the beginning of the day you know I always read the journal the Financial Times but you know there's just so much that you could read and it comes really important to carve off time so you're not just being a news junky all the time it's important to leave time not only to read those books like I mentioned a night but also to just spend time with primary documents just spending time reading annual reports or I'm going through investor presentations and transcripts and those are things that you usually get a good bang for your time there so you just have to it really requires you to manage your time well and not allow the distractions to take over so how do you select what you read them that's just nightly reading yeah well the nightly reading is always just sort of whatever grabs my interest so I'm interested in a lot of different things and like I told you I read Montaigne typography I think I have been a little bit of a biography kick I read a recent biography and søren kierkegaard recently so again doesn't really have to do anything to do with markets just interesting people and what they've done I like reading about philosophers or writers and different time periods and their life experiences so really it's just allowing me just follow my interests not necessarily you know done that looking for a payoff or some key market insight all the time just allow some time to reflect on other things it's interesting there's one quote where you you make the metaphor of a hunt 400 beggars so what are your ways if you're hunting how are you coming closer to the deer or yeah yeah yeah yeah to use this metaphor yeah well you know there's certain there are certain ingredients are important and sometimes I think of like if I had to do the book again I would emphasize more than that perhaps I did that though the key ingredients are really you have to have that high return on capital you have to have a business that generates higher return it's very difficult to do it otherwise now you could you know they're always exception so there are lots of companies where we've been very hard to discover that they would been hundred backers because they either didn't make money for a long period of time or whatever but the ones where you have a better chance of perhaps identifying earlier are those ones where the economics of the business themselves are great so you could if you looked at the early days of McDonald's or Starbucks you could see that they are the underlying store economics were always very good and so their returns on capital are high and then they have the ability to take their profits and reinvest it again that's where you really get that compounding in the real world it's hard to find companies that can do that most of the time they're paying a dividend or there's some leak you know they're not investing 100% they're investing reinvesting maybe half or even thirty percent or even less and so that doesn't that slows down your compounding a little bit so ideally you would want a company that can reinvest the whole thing and some of this you can get out with screens I mean you can screen for companies that have generated you know high returns on capital returns on assets over a 10-year period of time you can start to dig your way through those names and a lot of them are going to be names it you know you know a great businesses the other thing is I mean if you're really looking for under bagger 6 just stay on the smaller side I mean Apple is still a great business today but not gonna be under bagger I think we can safely say so some of it is you can week helpful screen otherwise you know this kind of reminds me of the question I get a lot is like well where do you get ideas and you know it's could've changed over time because I've been doing this a long time I now have a watch list of a lot of names that I keep track of and you just do a lot of different reading you can get tips from other investors somebody finds something excited about maybe you take a look at it yeah I mean there's really no magic trick to it I wish I wish there were I wish I could say you know you plug in these four or four or five numbers and you do screen and you're gonna get a list of 30 names and have at it but it's just you know it's not that simple I think you could make a great product I love that like that yeah houma LA or something like that alright a magic formula is not not terrible screen I mean that's a start you just need you need something some way to filter out you need some way to filter stocks I mean another way the filter that I like is just insider ownership so you know if I look for insider ownership at least 15% of some it chops out a whole bunch of names now am I missing some really good companies by doing that of course but you have to find a ways to filter filter somehow and I like investing with companies that have high insider ownership I think it does brings the alignment with shareholders closer together and you know there are many examples of hundred baggers where you had a strong insider presence not all of course with lots of exceptions but it's also kind of a matter of taste you know also screening is like a good idea of screening is to look what other good people do what all of us do to look what this for yeah hasn't its portfolio well that's right I mean you know that you make it you make a good point because you know nowadays is probably the easiest time in the history of investing to find ideas I mean there's just so much I mean just an amount of you know hedge funds and that and mutual funds that published quarterly letters tons of ideas there for you to look at if you wanted to just read there and you know you're looking for certain things so you just kind of look and you get a lot of ideas that way with all the computer screening the process that we have I mean there's just a ton of ways to get ideas I have the question what makes you kill this ideas but I also have another question let me answer both but let me let's start with a question from the chat because you have also good people have also your block yes your block and that's a good way to screen for ideas well because you've written a lot of interesting content you can find the link to the block under this video so can easily find it and thanks that you also made an hour is s I asked you for that and it's great so I can hear easier and the question is like if you look back and yeah you're good work you're doing there are there currently maybe two or three names that we should look again now you're looking again now or you think if I ask his question oh I couldn't look at that again now ideas they look at now well I mean you know we've we've had such a bounced well you know I'm tempted to think about things that are really unpopular but that I think are good assets so I don't know when's the last time I wrote about Intercontinental Hotel for example but that that's one that's interesting you're not just Intercontinental but also you know Marriott and Hilton those big three there's similar there are some differences between them kind of what you favor but what's remarkable about them is their asset light mostly franchise businesses so even in during this time which is the worst time you could possibly imagine for hotels really had the worst year you know going back I don't know how long you gotta go back to find numbers as bad as they're putting up this summer but they're still gonna produce free cash free cash flow this year so it's a real kind of proves out how their model I think the stocks are all pretty cheap when you consider what they could earn you know back in a more normal environment and say another they could take two years hey it takes two years so that's one that's interesting because they if you look back and they've consistently generated very high returns on their capital they're in fact intercontinental if you look back over the last ten years the amount of capital invest in the business I shrunk and they've generated a lot more free cash flow so that's kind of the ideal business we're here getting a lot more free cash today than you were ten years ago and actually doing it with a lot less capital so so that's one interesting idea you know well there's other things that I've written about that I'm not as and not as enthusiastic about anymore because it's the world this change with the kovat and the pandemic and you know I've written about aircraft leasing for example I'm no longer in that name that was one of my best performers last year but they just have a very very difficult road and you know if I was gonna get involved in aviation I would probably choose it to choose a different way to play maybe you know something like heiko would be a good way to play it's a much better business so anyway that's a couple of a couple of thoughts to mind thank you for the good answer for the question from the chat and to our audience you're welcome to ask more questions in the chat window I already saw two other questions I want to trop them in during our conversation but I also have a question that's coming I've already asked and it's coming from one of the people who were right before our chat is how you kill ideas yeah there are a lot of ideas out there and what's your way to decide that's interesting I waste more time or just kill the idea yeah lots of ways to kill ideas one for me is if it's got a lot of debt that's easy kill I don't like the ideas that are really deeply cyclical so I'm gonna I'm not gonna be interested in say mining companies were I'm not gonna spend a lot of time looking at tanker stocks or you know these sort of heavy industrial very cyclical names where you look at their performance over the last ten years and they're all over the place that's easy kill that's easy kill there are certain industries that probably are easy I mean I'm not gonna invest in say like you know little biotech names where they won one or two drugs that's just not I don't have a skill set in that area so that's easy to kill you know there's a lot of businesses that are not really that good they're just mediocre so when you see businesses that you know their return on assets low single digits you know the only way they get into a double-digit return on equity is they're using a lot of debt businesses that don't really have much of a competitive advantage for there's lots of competitors and it's nothing particularly special about it and those those businesses are kind of easy to kill I mean it's alright that many really good businesses around and so those ones are easy to kill if there's any sort of whiff of that there might be some sort of fraud or any sort of whiff that there's a accounting issues I stay away from those like overly complicated things and additionally I've been elected to get involved with roll ups where these companies dual acquisitions but I've changed that recently as I wrote down the blog there's there are some companies that have been very skilled acquiring lots of companies constellation software is one that I've written about I do not own hiko of course is not a skilled acquire brown and brown this insurance broker that I own has proven to be very good acquire over over a long period of time so those are some those are some ways to kill ideas how important is management to you to kill I beers credit critically important critically important it's become more important over time I remember when I was a younger investor I wouldn't worry so much about management I I would feel like you know good management teams leave their imprint in the numbers and if I was also trying to evaluate and put a premium on a good business that I was sort of double counting in a way but I've come to think investing more and more as just a people business and that management is critically important so for a couple reasons one is the capital allocation over time you know one of my favorite Buffett quotes is the one where he talks about you know a CEO it's on the job for ten years you know and a locating 10% of the profits or whatever it comes to an enormous number that they're that CEO is responsible for allocating that capital so that's very important and has a big impact on returns so in the honesty and management there's any question about imagine if there's anything in their history that gives you pause you know it's just a lot of other companies I would would not mess with it because markets always gonna test you so there's always gonna be a time whether it's gonna with where the stock is gonna be down and there's gonna be some questions about it and if you don't have that confidence you know you'll likely get scared out at those those opportunities but if you have the confidence you know those are times you can add to it and that's really what you generate some alpha so management's definitely very very important and I spend a lot of time trying to to evaluate the track record there and the integrity of the people involved one of your fans from Twitter Fox Counsel holdings or fans of friend friends yeah he has asked question on a certain form of management the family yeah and the question is about how you deal to evaluated change of family generations in management well you know a lot of times in broader those kind of transitions don't really go so well but there are always exceptions I mean I think about John Elkanah EXOR who is so far I think shown he's a pretty good capital allocator pretty good manager and he was groomed for that role you know very young and so I think that's one way to look at it is to say well has this person been involved in the business when they were very young what kind of training did they receive another one would be you know sons of Vincent bola ray also have people who've been in the business a long time and have been trained to run it from very very beginning so it's hard to know that those transitions will go well and you're as OE some risk but I think what you'd want to look for is someone who has been in the business a while and you know and talking to people I mean if you can meet them all the bet all the better but talking to other people what they think of them what their interactions have been like I you know you positive feedback on on those things they give you some comfort those people know what they're doing they're not just someone who fell into that position because of their last name but families are I think are generally a positive for me when if there's a large family ownership in the business because there's a Pyrrhic Ulrika Jonsson general are good stewards of capital because they tend to be less levered and less aggressive they don't like more willing to invest long-term you know and not play that the quarterly earnings gain of course there are always exceptions but I'm thinking of several of my holdings where there's a family involved and they've been good stewards over a long period time how do you take into account possible conflict of interest between the family and minority shareholders yeah well again that's gonna be something gonna just look at track record do they have they have they treated investors fairly in the past the minority investors have they treated them fairly in the past and if they have it then stay away there's really not necessarily any other easy way to do it um actions speak louder the word so how have they treated minority shareholders in the past that's what you have to think about so hello again to our audience for all the new viewers you're welcome to handle questions and for all the other viewers and also the New Year's I'm welcoming your likes for this interview so that many people can see it thank you there's one question that I found quite interesting and I haven't thought that this kind of question might be handed in what sectors or specific stocks will benefit most from a Biden victory in your eyes yeah that's an interesting question I've thought about a little myself but I don't I don't think if you're really gonna be a long-term investor that you should necessarily worry too much about you know the outcome who's gonna be present because even if is if Bryden is president and you have an investment hopefully if you're right it'll be one that you own past his presidency so I wouldn't let those influence you too much and now there's be a lot written about that as we get closer to the election people will come over there you know Biden portfolio and their Trump portfolio but I don't really think of it that way unless unless there was something that would be like an obvious target like maybe I know I'm trying to think of an example where you might be particularly scared I mean if I if a politician had it had it out for a particular industry and you were you know you might be a little more more cautious but you know I think I don't know for sure but depending on how the US election goes you're still probably gonna have the I did government it's not so easy for one person to just you know do what they want and so I'm not that concerned about whether Biden or Trump wins I don't think you know if he told me who the next president was gonna be and I would know for sure I don't think I would change anything in my portfolio as a result I'm pretty I'm sure I wouldn't there's also one question coming from the chat from a friend of you from again Gina a gatina it's Diego Martinez goes psycho I hope I spell it right and he's asking about where do you currently see more well you like in the US or in the emerging markets uh-huh well you know I used to especially when I was writing newsletters I used to do a lot more in emerging markets so I don't really do that as much anymore and so I don't have a strong opinion on the emerging markets I mean I think there's there's always value in there in every market but the question is you know sometimes they're cheap stocks are cheap for a reason of course there's lots of cheap say in the US if you're looking at cheap stocks you might look at there's a number of energy companies or something but maybe there's not exactly a kind of businesses you unknown I mean I think there's some pretty good value in certain patches in Europe but again this is not necessarily a question I would think about that way because you know where companies listed of course doesn't necessarily mean that's where they do business so I mentioned InterContinental Hotels listed in London it's also listed in the US but they have a big business all over the world the US Europe Asia I could think of another example like air lease is listed in the US but 95 percent of business was outside the US so is that really an American company I mean more than 20% of their business was in Asia so I don't really look at it that way anymore like I don't think of in terms of this market is cheap I try to focus more on the individual companies and you have to of course consider where they're operating so a company that you know trading at ten times earning in a tough market might not be so much cheaper than a market been and then a company's trading 20 percent in an easier market so I just don't think about it in terms of geographies that much so I don't have as helpful opinion there as I might have one time a question from the chat or annotation by yens was about dividends and their roll 400 beggars maybe you can say something about these two points dividends and hundred beggars yeah so this is sometimes a hard point for people to swallow because I'll say with hundred beggars that dividends are not important and then ideally again you would have a company doesn't pay a dividend all and people sometimes will shape at that because of course there's lots of research that shows a dividends make up a substantial part of equities returns and people like getting that dividend check but it's all say is if you're looking for you know hundred baggers you really need to have have the full effect maximum compounding and the way to get there is to have a company they can take all of its profits and reinvest it in the business and earn that I return and do it again and again if it has to take its profits and has to pay out a piece to shareholders well just intuitively you know you have that much less to reinvest and it slows down your compounding so again this is ideal in the real world it's hard to find companies that can reinvest all their cash flows and most companies will pay some dividends or theirs where they do some buybacks or there's other ways that you know there are other uses for cash so but you know dividend shouldn't I would say shouldn't be a consideration and Thomas Phelps said that as well in his uh in his book I believe he called it an expensive luxury he said dividend was an expensive luxury because it if you sought dividends you were kind of intentionally slowing down your own compounding of capital over time so you know I would say don't worry about the dividend instead focus on the cash flows and then how they how they reinvest and allocate those cash flow sometimes you know business really is super capital light requires very little capital in it and they pay out dividends that's fine I mentioned Intercontinental Hotel before and that's a business says if you look at a ten-year history it's paid out quite a bit of its cash flow and dividends and special dividends because again they don't they don't need the capital it gets a business that can grow with minimal capital which is kind of the holy grail if you can find business like that in one of your former interviews you mentioned that the importance of networking events getting connected to have the people to find good ways to find uncommon ideas that might turn out of the hundred beggars now we're living in a different world somehow yeah what are you wasted to track different ways to finding ideas in the last months or weeks yeah so yeah I am a person who loved to go to conferences you know berkshire hathaway it was a big networking event berkshire hathaway's annual meeting Omaha's it was a big networking event I go to every year of course couldn't do that this year I often make the trick that attract Toronto as well to go the Fairfax's annual meeting for similar reasons not not only because the Fairfax being there's a lot of things going on around that time and they're people come in town for that that you maybe only see there the same is true at Omaha and then you know there are other financial conferences that come on here and there that I would like to go to but you know all that stopped so you know it depends I find value in those kind networks because I enjoy meeting and speaking with other investors about ideas and what we're seeing what we're talking what we're what we're doing so um you know there's also one of my favorites is my global and a lot of that's online so we're still able to do that and and all the people that I've met over the years at these different events we still talk and swap emails and call Gaugin aliso it's easier stay connected with other other investors than ever before I think so you hang a lot of you do a lot of phone calls yeah I mean definitely I'm on the phone you know one of the ironic things too is I'm not doing as much travel well I'm not doing any travel this last few months but I have probably talked to more management teams and I and I ever did before and part of it is because they're also not really they have much less to do and less travel and more time to talk to people so it's maybe one of the silver linings of this whole of this whole process so it's easier to get an appointment definitely it's either I find I've found it's been much easier to talk to people now than before have you used these days also to think about portfolio composition how you size positions how you allocate which is your way to do this and how has it changed maybe in the last weeks well I would say the for the pandemic definitely made me rethink positions because I had walked into this with a lot of exposure to travel and aviation and and some other positions that were directly affected by the pidemo either because they were had to shut down or whatever so there was a lot more turnover in my portfolio than I would have liked but I have to you know this is a new risk now to underwrites I tell people this now we now we have something new to think about so before when I would underwrite a company I always look back to 2008 see well how did they--how did this business - in 2008 how did it hold up and now it's also going to be well what happened during the pandemic and you and as a building that portfolio you have to build a portfolio that can weather a pandemic so again you you you can take some risk on pandemic of course I'm with you know if you're gonna own a hotel or a restaurant but you're not you're just going to pay attention to how those positions connect and pandemic I like to say it like it connected the dachshund and I'm to a number of my positions connected and number of my positions together in a way I wouldn't have thought before so that force force to change as a result of this to though there's I've become a little more concentrated I think early part of the year I had like 15 positions and now I'm down to 10 so a lot of that has been selling one thing and rolling the proceeds into other things I like better so the way I think about petróleo construction now is ideally out have maybe you know 10 to 12 names somewhere between 8 and 10% each on cost so it's pretty balanced I don't think I'm not a big fan of trying to overweight positions or you know people say well this position is riskier so I'm gonna make it a smaller position you know for me I just want to have it all balanced because at least for me out I found this that there isn't that much difference in return in other words if I were to give you my top 10 names it's not necessarily that number one gonna beat number two is gonna beat number three you know sometimes number six is the best one and you just not sure where the performance is gonna come from and though I found it's better to just kind of keep it more balanced and the other thing that I try to do is have a limit for how much I'll put in any one name on a cost basis so for me it's no more than 10% of the portfolio in any one position on a cost cost basis so that's there just to protect me against myself I mean every investor gets enthusiastic about a name and then you know it doesn't work out so you don't want to have that happen when you're when you love a name and you've got 25-30 percent in it and it doesn't work and that now you're you know you're really in trouble so I'll okay if it appreciates you know much larger I think in my my fun the limit is 20% on any position so and it's actually tough to get there if when you if you work out the math even if you put 10% and one one name you know it has to double and everything else has to go nowhere which really not usually how it happens so that's how I think about portfolio construction that and again keeping keeping in mind trying to keep a balance of risks so if I have one hotel stock I'm just gonna have one not gonna nother if I have one oil name I'm just gonna have one oil name one you know I don't want to have too many connected positions there's one question related the 300 beggar mentality about cutting your winners when do you do it or do you even do it like rebalancing winners and yeah that's a that's a good question so I mean this is where an individual individual investor might have an advantage because they can allow a position to really become big you know there's a professional investor running a fund you can I guess some people do but it'd be very risky to allow one position to become half your portfolio let's say but really this is this is a matter of personal preference and if you really find one that's a that's a winner and you have to cut back on it and that's a good problem half but ideally I think you just let it ride as long as everything is in place now I remember reading like for example you know I've talked to chuck cooperate he's had 200 baggers berkshire hathaway in american tower and I've talked to other money managers who've had big big winners like that I know uh there was one money manager I know who was retired now but he had Walmart and he says it was just every quarter he was selling it it's because you know he hid his limb I just didn't every quarter with a former he's just constantly selling so um yeah I would say you know that's a personal preference let it ride as long as possible just don't touch it let it go there's a question from the chat from Frank what one what are you excited about currently and what companies or sectors have maybe made a positive surprise for you well I mean there hasn't been a lot that's been it's been like too much of a positive surprise this year it's been pretty tough what I'm excited that is I mean there are several companies that a couple I don't want to mention yet because there may be a little small and but let's say in general you know the kinds of companies I'm talking about I've found a handful names where I have really good owners I've got long runways where I can they're gonna compound at least double digits and so I'm really excited just to follow their stories I I don't think there's any particular sector that would point to you as being particularly interesting I mean yeah so anyway I don't want to give any of those any there was a couple specific names just now but you know I don't think of I don't think of it necessarily on a sector basis think there's just there's some really good businesses I'm excited down and see how their story plays out maybe I'll write about them on the blog here soon and maybe let me try to reframe those questions what were a positive surprises for you and this year as no investor I think some of the positive surprises would be the resilience of some of these businesses in this environment have been encouraging so when I look at you know I have a pizza delivery business has done stock has held up pretty well this year so the you know it's very adaptable to the pandemic so my insurance brokerage firm Brown Brown has held up pretty well year to date and so there's a couple of companies I have that volved in necessary industries that were allowed to operate and you know they've been positive surprises they've held up much better than the market and I think that's one interesting takeaway from this whole panicked processes to see which businesses were able to survive this and profit and continue to operate and prosper during this and those are that's kind of like the ultimate test of durability and resiliency so I really have a high degree in confidence and those businesses going forward and maybe to see the other side of the coin what were a negative surprises maybe also nobody is talking about but you were experienced in the field of investing well you know negative surprises I think would be the length of these shutdowns I think if you had told me in March that it would still be a lot of businesses closed here at the end of June I wouldn't believe you so that's definitely being a big negative and and even some of the in the u.s. some of the states that have opened up and now rolling back or closing again closing businesses again so that's very that's definitely a negative and and I'd say a build bit of a surprise I think maybe another surprise has been the resistance of people to do the social distancing and wear masks it's kind of a surprise maybe a maybe I shouldn't have been surprised but it's it's made it more difficult to beat the virus here in the US you know we're right new all-time high in cases so it's gonna be difficult to roll that back if people don't play ball [Music] so it's been some negative surprises interesting to you those pawns is also kind of intense debate about masks in Germany but I think most people are following the rules and it's not this kind of intense politicized debate we as you have in the USA states and I hope there's a turning point to that because it's really helps to wear masks in that basis yeah especially if you have a high virus load all right yeah maybe let's get to one question from the chat it's from William Walsh and he's he liked your piece on visible mode last week it was great you mentioned you OD FL they got it with a rollup which you mentioned you recently changed your opinion on expiry or astral network effects needed for roll-ups to work and he's also asking how do you evaluate roll ups such acquisitions yeah well there's a very simple way not a very simple way but there's one way where I look at roll ups and that is hopefully you have a long history so I've done this before we take company look at the last 10 years and you see how much they put towards acquisitions and then you see how what the return has been on those acquisitions so a simple way to do it to start is you know you could say over a 10-year period company spent however much on capex and however much on acquisitions and then you can also see free cash flow brochure return you have free cash flow went up however much percent you can see the changes so you try to get a sense for what their return has been on those on those acquisitions and the other way is if a company is earning a pretty stable return on invested capital over that time or you know look at some return metrics ROA roee ROI CEOs kinds of things and if they're pretty stable that means they're doing a pretty good job that means they're acquiring these companies and they're folding them in and they're keeping their same high level of financial performance so that's one the other way is to attract impairments you know I mentioned brown and brown I believe Brown Brown has never had an impairment on an acquisition so I also tells you that they're probably doing a good job a company that has to take that's constantly writing down those acquisitions in three or four years later they're writing them down you know this company it's probably not doing good job on acquisitions likewise if you have a company it's doing a lot of acquisitions and over time you see slow degradation and returns on capital that would also be a sign that they aren't doing such a good job maybe they're showing great growth in earnings maybe they're showing great growth in sales but if their return numbers start to degrade that that's a warning sign that they're not creating value thanks for this answer I also want to welcome all our new viewers and if you like what we are talking about you please leave a like so that the video can be seen by many people and I want to say hello to Dennis Hong who is also soon on the livestream and he has two questions what is your long-term vision for woodlock house family capital and what do you feel is your edge was a professional investor so what my long-term vision well my long-term vision would be that real I don't need any additional capital capital I have I just compound that at a good rate over a very long period of time owning a concentrated portfolio that does not turn over much that would kind of be the ideal and that would be that would be what I would hope to look to achieve what was the second question what is your edge as a professional investor my edge yeah the edge is always an interesting question I think a lot of people talk about edge and they don't really have an edge so you know it's difficult to really have an edge analytically I think because we're all doing the same sort of stuff we're looking at the same numbers I guess perhaps there are firms out there that have an analytical edge where they're going well well beyond normal due diligence but I think that's a hard way to build an edge I think the best edges are more built around soft skills like a behavioral thing so being patient and it might be the real last edge because there's so much trading and algorithms and all these things you're not going to compete with those on a short-term basis so your your edge this is true for individual investors - your best edge may be your ability to look out more than the next couple of years and plant your flag that way so I think I think one edge mine is around the behavioral things I think I'm very good at holding positions patient I think some there are some basic things that I really focus on I think maybe other investors don't pay as much attention to so for me it's all about the incentives getting the incentives right I spend a lot of time looking at management teams of my companies and how they're incentivized whether they own a lot of stock or what their incentive comp is it always makes me think of Charlie Munger's favorite famous quote where he talks about you know show me the incentives I'll show you the outcome and so that's that's an important piece for me as well so you know the other thing I like to say is that I did I wrote newsletters for 15 years I have a very good network of of people both in in the investment world itself but also in industry I mean if there's an industry or business I want to learn about odds are I can find somebody who knows something about it and I think that's a nice advantage to have I have also a question from Steven asana in before what do you feel is not emphasized enough in investing well I think I'm gonna flip that around a little I think there's one thing that's emphasized too much and that is I think there's far too much emphasis on the market as a whole what market might do what the economy might do and most investors even investors I even professional investors I think will spend too much time thinking about those kinds of things sort of a noble's and i think you're better off focusing on the smaller things that you can know like really understand the economics of a business what makes it what makes it tick you know how does it really create value why is it it why does it exist at all and so that's not emphasized enough there's another thing sometimes I like to say which is that which people forget is that you know the stock market is a market of secondhand goods so the only you know reason you're able to buy a share in the companies but somebody else didn't want it and so when you think of it that way not only that somebody else not wanna but the original owner didn't want it anymore the guy who started it why is that I think if you come at it with the mentality that you know this there's always someone on the other side of trade gives you gives you some pause think about it before you buy make sure you have a good thesis and you know why you're buying you know why someone might be selling it to you you know and what the counter thesis is to your thesis and you understand it I think those things are very helpful and they're not really talking about very much that's also a good pitch to build up for the next question it's how you're building positions two-electron shows to you by overtime or how do you build positions and when you make exceptions to your when you're doing it if you yes make any exceptions yes definitely so normally I would like to buy it in a little bit a little bit electron cheese so for me if a full presenters at full position is something around eight or nine or ten say like eight eight between 89 and I might start something around three or four and then kind of you know quickly get it to three or four and then maybe wait and then work to build that position up over you know the next coming months but usually have a full position on certainly before years up and to make accept make exceptions for that definitely and the one where I would make an exception was when we had something like we did in March so when you have market just fall out of bed and you have a big stiff drop like that you might go ahead and just say well this instant I'm gonna go ahead by it all pretty quickly so that's that's the exception I can think there's been times when that's happened we've had big corrections in the market and where you're gonna say okay well I'm just gonna buy this and you're not going to trash it but in general I prefer to do it in tranches because also no matter how much research you do how much work you do on a name there's some more things you learn about it owning it is something is psychological about it I don't know but it's like your level of tension kicks up another notch when you own it and that's why I know some money managers who just like to even take you know very small positions maybe one or two percent just because they know that now they own it it raises their awareness some to another level and they work harder on it than if they didn't own it so everyone's different you have to think what works for you but for me I don't really like to keep little positions around when something when I have a position is like 3% you know I have to hold myself back because I want to make it I want to make him you know meaningful I make it rigged I want to make it big or I just want to either or that or get it off you know or get it out so that's just the way how I think about it what I examples for what has changed when you had a position in the company like what you came out of this magic of having a position well for me I don't know yeah for me personally I don't know if there's anything that comes out of it specifically I just think it's a more of a general sense like so you start to you know you start to pay attention in a different way on earnings calls and you start to when the management's speaking at conferences and new stories come up you just you know I don't know there's any madness like magic to it but it just feels like once you've owned something for a little while you've gotten used to it it's got even you've been seen at how it trades and you're just used to it and [Music] you're more comfortable with it I left you've owned it for a little while I don't know how to explain other than that it's a weird psychological thing I guess but at least I find it it's I find it's true most of the time you know you know you own something you feel you get a little more familiar with it than if you just didn't own it you just followed it more distantly after buying and hopefully having a hundred begger the process of selling comes in how you go about selling and what's your yeah approach to it I have to say selling is the hardest thing investing you know because if you're doing a good job you know you're almost always gonna sell something and you're gonna see it just goes higher you know it's higher a year or two later and that always drives you crazy but if you're really buying good assets in good businesses that's gonna happen no it's easier to sell not easier but when something goes wrong the company starts to go off the rails maybe they did an acquisition you'd think totally disagree with and and you just and you sell it for me I prefer to go out quick I don't I have did partial sales but I'm never really happy with that because for me I'm either in or I'm out and I don't like to you know something goes up then take half of it just let the rest ride I don't I don't really like to do that so for me most of the time when I decided I don't want to be in something and I just sell it all pretty quickly pockets can be somehow proof also you have sometimes faces where things just go nowhere and then explode so and they feel confidence in the company how do you keep to that company even if there's nothing happening I'd say that happens most of the time I mean most of the time seems like sort of nothing happens and then and then you have this big move you know 30 40 % moving months and then sir not much happens again and well for me I you know it's very hard but have to not let your emotions get tied up in the stock prices so you can't feel good because it's up and you can't feel bad because it's down in and you just have to focus on that on the business and you really don't have that much to look at because again you're gonna get a report every quarter or a every half year for the European these European companies all your port in half year results so then you you know you don't let the trading influence you I don't know how to really say it other than that I mean it's almost you just have to train yourself not not to get down when the stock price is down do you have any ritual or is something you do before you want to press the sell button yeah you know sometimes always feel I always feel a little a little sick when I sell something because it just feels like you know that's us always feels like yeah this is a little voice like are you making a mistake you know and it does never it's never fun to sell anything my opinion it's rare that I've sold something with great authority and be like yes this is the right time to sell is always some doubt and so and you've done a lot of work with it you know for me to sell something usually I've done a lot of work on the name already you probably for me I've owned it for a while and so it makes it harder to sell but I would say no there's no ritual to it just um you just sweat bullets and sell and you know life goes on you can have to focus on you know what's ahead and what you have not what you've necessarily sold I know sometimes it's also attempting to keep track of all your cells which I do and then review them you can see kind of how your decisions played out and then you know you get a sense about how how you are when you're baizen yourself sometimes when people say they're always a little early or they're always a little late and you can get a sense for how you are maybe there's a practice to it like yeah yourself alone in this case and we're here to question you so further questions I will account this is the last call for questions so if you have any drop them in the chat they are free waiting for you and mission is asking what's your take on high growth SRS on the high growth SAS sector high growth what software is the service of the higher well I mean I think those things can be great businesses and they're they I don't own anything in that sector right now so I don't know that my opinions worth much there but I mean obviously it's great business it's just always a matter for me if you know what's the last evaluation or how much can you pay okay that's the clear answer I have another question from Dennis yes asking what's your advice for young people who want to get into the investment business yeah get in the investment business hmm well you know I think now because there's so many different ways to get ideas out there you could create a website or a blog or there's get on something like a seeking alpha and you can start to share investment research that you do that's always a good way to get in because you can distinguish yourself with your analysis and over time and maybe you'll get picked up somewhere maybe somebody will be interested I've known people who've gotten positions that way and they've picked up work at hedge funds even if just part-time analyst position or something that's a way to get in you know and that's one good thing about the world we live in now is you can so it's so easy to publish and share ideas and there's so many platforms so that's that's the best way and you just get out there and just do it start doing and start trying to share ideas start trying to improve get you know feedback and criticism on your ideas I've had people send me write-ups and say you know love for you and just read this and give you feedback and I'll read their riot and give them feedback and hopefully you know that it helps them improve as investor going forward there's another question from Tyler how long is your research process and how was that been affected by the kaabah crash you know it sort of depends some companies are simpler than others and they require don't require as much work and some are more complicated like you know if you're doing a real estate company and you want to visit all visit some of their major properties that's gonna take a while so I'd say the research process really depends if it's a a simpler company you might be able to you know your my research process then I'm thinking might only take might be a matter of weeks before you know I get comfortable enough where I can start to buy something but if the positions more complicated or if it's in an industry that I'm not as familiar with then it might be months and of course that's not the only thing I'm working on but it might be a while before I really ever get oh get comfortable I may never get comfortable and then how is it affected during this crisis well the biggest thing is I'm not that any traveling so I haven't done any company visits haven't met with anyone face to face and that's been a hindrance but not as great a hindrance so for example one of the companies I bought in March was Copart and they actually have a YouTube channel you can you can go there and they have tours or they're different yards I think I toured like half a dozen different yards all over the place and so you get a good sense for what their places look like what they feel like people work there they're even customers will put up videos like going through Copart yards looking to buy certain cars I got a kick out of watching a number of those so you get both perspectives you get the company showing off its yards and then you get the customer perspective actually using it so in that case it was remarkable I was able to do quite a bit um even more than I would have because I don't know that I would necessarily found that before so I will do quite a bit just using the computer and you know online YouTube so really depends that's an interesting story to hear like if you look ahead five or ten years and from from now and think about interesting hunting crowns for stocks and maybe hundred beggars which fields coming to your head well my first thought listening your question is that it doesn't really matter that much what about the industry or the sector because when I did that hundred bagger research that was one of the things that surprised me was the number of sort of just bros aook businesses that you wouldn't necessarily expect there on there so there were a number you know oil gas passes there simple number of simple businesses and it wasn't like they were dominated by you know tech names like it was all you know Microsoft and Amazon Intel or whatever it was quite a mix you know so I wouldn't worry too much about sector I think people maybe put too much emphasis on that they want to know like what sector is most attractive but if you just focus on the basic economics of the business itself it can be in any it can be in a variety of sectors I mean I wrote up you know Old Dominion OD FL and the blog and it's a trucking business who would you know who would think that trucking business could be such a wonderful compounder I mean things done twenty thirty percent for years and years and years so that's because they have a good model and they have a good culture they're good ownership group and they managed to get this car of this niche out so you know if I would have sat here and said you know well you should look at the trucking industry no I would never have said that I know so I think don't worry too much about sector there's there's there's good businesses in there and then sometimes they do very simple things you know look at Domino's Pizza it's been a fantastic stock I think I saw some thing where I forget if it was Domino's in Google or something they would I think they went public around the same time tell me you may remember I don't know but Domino's pizzas actually outperformed who would hey this is crazy right who would give would he guessed that but let's go to the economics of that is so so wonderful to come to the end of our interview which was fun and it was great to have all your questions so thank you very much to the audience for all the good questions I was able to ask do you have something to add we haven't covered and may be interesting that comes into your mind and made to bring back the bookshelf if you've maybe came up with another idea for an interesting book you've reasonably read oh yeah I mean I of the book I like to recommend for people is you know Peter Lynch's first two books they're easy reads and I think you know he has in search of 10 baggers he was the one who started who liked to talk about 10 bangers and he had a number of big winners but what I liked about those books is how he talks about how he found these different ideas and a lot you know people simplify and say it's just by what you know but you know he had some interesting insight in there about how he found sir ideas and still it's dated because a lot of the examples he chooses are things that aren't even around anymore but those are good reads I'd recommend those are kind of classics and I think they're helpful for today but ya know I think it's been a fun interview tell mine it's been good talking to you and I know I've come across you on Twitter before so it's good to meet you sort of on zoom and then now I have a face to connect to your handle I hope we meet one day in Omaha because my plan was going there and I'd love to meet you but I'd love to go to Stuttgart you're welcome we can I love Germany I've been to Germany a couple times I love loved it I loved the whole Ola I like Germany I like the whole beer garden culture sausages and stuff yeah great stuff yeah you're welcome here thank you so thank you very much for the great interview and thank you to the audience for the great questions and have a great day or yeah week as well thank you again

Channel: Good Investing Talks

Views: 23,680

Keywords: Good Investing, Good Investing TV, valuedach, investing, chris mayer, 100 bagger, 100 bagger stocks, next 100 bagger stocks, potential 100 bagger stocks, 100 bagger stocks 2020, chris mayer 100 baggers, chris mayer investor, value investor, family businesses, owner operators, family businesses stocks, stock research, stocks

Id: gWtqjGOWl3A

Length: 73min 26sec (4406 seconds)

Published: Tue Jun 30 2020