#35 – The 100 Bagger Hunter

Chris Mayer is the founder of Woodlock House Family Capital and the author of 100 Baggers: Stocks that Return 100-to-1 and How to Find Them.

SUMMARY

Chris Mayer is the founder of Woodlock House Family Capital and the author of 100 Baggers: Stocks that Return 100-to-1 and How to Find Them. He has written several other books and formerly wrote an investing newsletter which led him to travel the world seeking investment ideas.  Studying the universe of 100 Baggers has led Chris to a clear set of investing principles which mean his universe of investible ideas is extremely limited and his fund owns just 11 stocks. Our discussion covers his respect for family owned businesses, his emphasis on corporate culture and his focus on the very long term. He even rejected an institutional investor as a client because they wanted monthly performance.

GETTING INTO INVESTING

Chris became curious about the stockmarket as a teenager during the 1987 crash. His dad bought Fortune magazine and he read about Buffett ad Benjamin Graham and he then started reading about them and then got into reading Peter Lync’s books and he was hooked. He read Security Analysis and he didn’t really understand it but he thought the idea of making money by not doing very much was magical.

Some takeaways

100 Baggers

He wrote the book to update an old book 100 to 1 in the Stockmarket by Thomas Phelps. And Chris’ book has been very successful and has some interesting concepts as to what are the common threads among the 100 baggers. One common theme which Chris likes is family ownership, the owner operator model.

Another common theme is revenue growth – obviously a company has to grow to become a 100-bagger. Chris thinks the sweet spot is 20-25% growth pa which delivers a 100-bagger in 20-25 years. Faster growth, 30% or above can bring problems, while slower growth means it can take much longer to achieve the 100x level.

Interestingly,  another recent guest soon to be published, suggested that 10% growth pa is a sweet spot – he is not looking for 100-baggers but predictable long term compounding returns without losses.

Chris is also looking for sustainable growth. If it will take 20+ years even growing at 20%+ pa to achieve the 100x level, you have to be confident of the sustainability of the growth. Chris wants to understand the competitive advantage and gain conviction that the company has an advantage that’s hard to reproduce. He uses the example of Copart which operates salvage yards. They have a massive landbank which is in the books at historical cost and gives them an immediate advantage over a new entrant in terms of returns on capital. And they have a network of buyers, an online marketplace and hence they have an ongoing advantage.

Woodlock House Family Capital

Chris named his fund after a building in Ireland owned by the Bonner family who originally seeded the fund. The main house dates to 1864 and today it is the office of some of their publishing businesses. The logo is a rendition of the skylight in the grand foyer.

Chris added “family” because the capital initially invested to start the firm was family money. The purpose of his firm is to solve the problem of how to invest family wealth without turning it over to “Wall Street” and to people who do not have “skin in the game”?

The word “family” also reflects the orientation that successful families tend to think long-term. And family owned businesses also tend to outperform.

Research Process

Chris writes research notes to himself about his stocks and he tracks them in a google document which he updates for each set of results. And this document shows how he was thinking about different facets of the business at different times.

Corporate Culture

The longer Chris has been investing and just studying businesses generally, the more he has seen that really long-term success comes from having a a great culture where the incentives are aligned and where people buy into it. He believes that there are certain traits that great cultures have. One of them would be they retain their people, or they promote fro within and he likes to see high employee ownership. He therefore likes to spend time talking to employees of the company and to competitors.

Concentration

Chris currently owns just 11 stocks. There are a lot of sectors he won’t touch so he has a narrow universe. But the stocks he owns are individually diversified with 100 or 200 operating businesses in the case of Constellation Software or his Swedish conglomerates so he feels comfortable with this balance. And having the right type of investor clients is critical to being able to take a long term view.

ABOUT CHRIS MAYER

Chris Mayer is the Co-Founder & Portfolio Manager of Woodlock House Family Capital, and author of 100-Baggers: Stocks That Return 100-to-1 and How to Find Them. Before starting Woodlock House (which went live in January 2019), Mayer worked with Bonner & Partners and the Bonner family office. He was the editor of Capital & Crisis, published by Agora Financial from 2004-2015. He was a corporate banker from 1994-2004, and graduated magna cum laude with a degree in finance from the University of Maryland. He also has an MBA from the same institution.

He is the author of Invest Like A Dealmaker: Secrets of a Former Banking Insider (2008), World Right Side Up: Investing Across Six Continents (2012), 100 Baggers: Stocks that Return 100-to-1 and How to Find Them (2015) and How Do You Know? A Guide to Thinking Clearly About Wall Street, Investing and Life (2018).

You can find Chris on Twitter and on the fund website.

BOOK RECOMMENDATIONS

Steve has read and really enjoyed two books by Chris. Some years ago, he was fascinated by 100-Baggers: Stocks That Return 100-to-1 and How to Find Them which obviously advocated a practice of buying stocks and holding them for decades which was almost the opposite of the special situations strategies he deployed at the hedge funds.

In preparing for the podcast Steve also read How Do You Know? A Guide to Thinking Clearly About Wall Street, Investing and Life which he also thoroughly enjoyed. Although he didn’t agree with all the concepts in the book, this art of detachment and thinking about labels is an important oen for investors who should get something out of this book.

He also recommended Neff on Investing which is a book Steve rates highly:

HOW STEVE KNOWS THE GUEST

Steve is grateful to Tillman Versch of Good Investing Plus for the introduction .

 

Transcript

A lightly edited AI transcript.

steve (00:27.013)

Did you always want to be an investor? I mean, you think I think you started as a corporate lender, didn’t you?

Chris (00:33.35)

Yes, I did. I did. I started off as a corporate lender right out of school. I studied finance in college. I would say I always wanted to be an investor, but I would say somewhere around the 87 crash is where I started to get interested in things. I was about 15, 15 years old then. I wanted to learn more about what was this thing, the stock market, creating all this news and I remember, well, the most famous investor was Warren Buffett. So my dad got Fortune Magazine. I remember reading about Buffett and Fortune Magazine and discovering he had a teacher, Ben Graham. So I got those books and before you know it, I was often reading all kinds of finance investing books. Investing is a strange thing. It’s like the path of initiation is could have strewn by books. So, you know, I remember reading Peter Lynch in 89 and then I think 90 or 91 is two best sellers. So yeah, that’s how it got started.

Steve (01:31.089)

But what did your dad do that he bought Fortune magazine?

Chris (01:34.782)

He was in insurance. He worked for Geico Insurance. So that’s the connection. I heard stories about Buffett early on. I remember my dad told me the story about how Buffett went down to see Lorimer Davidson once on a Saturday and banged on the door and they met and talked for hours. And so yeah, I heard those stories from a pretty early age.

Steve (01:38.413)

Oh really? So you had a link to it?

Steve (01:59.897)

And why was the 87 crash? I mean, obviously you had that one day, that 20% drop that made all the news. And then there was a lot of news afterwards. But what was it that sparked that interest? Was it just, it was so, because your father was slightly close to it?

Chris (02:18.742)

Yeah, I mean, I don’t know. I don’t really know for sure. You know, just whatever I say now is probably, you know, my imposing, you know, ideas on that memory. I don’t really remember exactly why, but I think it was just it was this big thing that I didn’t really understand. It seemed kind of magical, you know, making money by not doing much. I remember even when I got Ben Graham’s book, Security Now is pretty young. I thought it was in high school. I couldn’t make head or tails of it. I couldn’t make any sense of it. But I remember thinking of it. To me, it was like a magic book. I was like, I want to understand this. How do you make money by just buying on stuff and holding onto it?

Steve (03:00.145)

Cool. And the inspiration for 100 Bagger’s, what made you want to write that book?

Chris (03:09.966)

Well, that one I know for sure what it was because, well, first I discovered Thomas Phelps’s book, 100 to 1, and Chuck Ackray was the one who was kind of the bird dog on that. He mentioned that book in a speech in 2011 called The Investor’s Odyssey. You can find it on, if you Google it, you can find it. I definitely recommend reading it. In that speech, he talks about Phelps’s book, which I was an investing junkie, you know, and read all these books.

I had never heard of that one. So I got that book and I read it and loved it. And I used to quote from it a lot. And finally I had a friend of mine say, you know, you should update it. That’s something I never, cause this book came out in 1972. And I was like, wow, that’s really a great idea. So that was the very germ of the idea was kind of updating Phelps’s book.

Steve (04:06.493)

But have you felt like updating it again because you took an old book and revitalized it and came up with some very new things. But I mean, presumably if you were to do that again, you would come up with some different ideas, different conclusions, do you think?

Chris (04:28.702)

No doubt. Well, I don’t know about different conclusions. I think the conclusions would probably hold up, but there would be different names. I think I’ve changed a lot and grown a lot as an investor over the last decade since that book came out. I’d probably add a chapter on the serial acquirers, for example, which is something now that I know a lot more about. I didn’t really know at all about then.

I’ve always had an interest in international markets and mine was totally focused on domestic markets. If I were updated, it’d be interesting at least to pull some case studies from other markets. So yeah, there would be some things that would be different, no doubt.

Steve (05:15.101)

Do you think the size would be different? Because if I recall, $170 million was kind of like the starting point revenue sweet spot. And obviously the markets have changed quite a lot because more companies stay private for longer. So you aren’t getting the same, if you’ve got a really, really good company, the chances are the IPO is a lot later. I mean, you think about something like Stripe, which is valued, I don’t know whether it’s still valued anywhere near the 96 billion. And presumably it’d be closer to 50, but it’s a long way from 170 million. Do you think the change in the market would affect the conclusions?

Yes. Well, I think the market cap would definitely, that’s one thing that I would change. So in the beginning, in the book, I really emphasize, I think I said 300 million or something is to keep people to start at that, try to stay small. But my view on that’s changed. I mean, I think if you find a company that’s got a $10 billion market cap, but otherwise meets all the criteria you shouldn’t pass on it because it’s a $10 billion market cap. So I would definitely change that.

You know, also market caps have just, I mean, you hinted at it, but I mean, they’ve ballooned in general. When I wrote the book, the idea of having a company with a trillion dollar market cap was inconceivable. Now we have more than one, you know, so.

Steve (06:38.173)

Yeah, it’s astonishing. But I was thinking more from the respective of the revenue size because the market cap size as was it as a as an impact is obviously If you’ve got a ten billion dollar market cap You’ve got you’ve got a very slim chance of being hundred beggar, but there is a chance I think of it more in terms of the revenue side. The market cap must be important as well

Chris (07:04.266)

Yeah, I would suspect the revenue size would creep up because just as you said, companies that are going public today are more mature and further along. And, and we’ve had some very big ones. So they probably would skew the skew the average.

Steve (07:19.473)

The revenue growth has been a big driver of many of these or probably most of these businesses. And I think you said you like double digit revenue growth. And I just wondered how you sort of thought about this because when you start growing faster than double digits, it brings a lot of other strains, but you can’t grow, well.

There are a few businesses that can grow at double digits without adding any capacity, without adding any fixed assets, without adding any employees. But they tend to be quite rare. If you’re going to grow at double digits, you tend to end up having to open new factories or new stores or new outlets. And I just wondered, was there a sweet spot in terms of revenue growth? When you looked at the 380 or whatever companies, was there a level that you thought, oh, that’s what we should be looking at? And obviously it varies from year to year.

Chris (08:17.953)

Mm-hmm. Yeah, I think it’s kind of in that 20 to 25% growth rate range. That’s where a lot of them fell into. And if you grow 20 to 25% a year, then you’re 100 bagger in about 20 to 25 years. So that’s the nice sort of symmetry of it too. If you look at it, it’s like a curve. And the fat part of the curve was kind of in that range. So I think that’s a range that’s not too extreme.

You know, you start getting up to 30, 40, 50% growth rates that can invite problems. And if you start, if you go too far in the other way, then you wind up with companies that get there but take forever, you know, 35, 45 years to get to 100 baggers. So we’re not so interested in those either. But you also mentioned that, you know, that it’s rare. And I would say, you know, the way I look at these companies today is, you know, just because you’re growing 20, 25% doesn’t mean you automatically get there because there’s a lot of other things. So like capital intensity, you mentioned, if you have a very capital intensive business that makes it more difficult, doesn’t mean it’s impossible. So there’s a lot of other factors that kind of go into it. But that’s a good, not a bad initial screen, which is just kind of the raw growth rate kind of start.

Steve (09:34.529)

Yeah, I mean, the 10 to 10 plus seems to me the sort of more manageable end. And when you get when you get to beyond 30 plus, it’s actually very hard to sustain that for very many years. And even 20 plus.

Chris (09:50.498)

And you can do quite a bit even at 10 or 15. I mean there’s a lot of these kind of slow, you know, I mean I own Brown and Brown and that’s not like necessarily been growing 25% plus a year. But you look at the performance of it, I mean it’s a steady as she goes. There’s a lot of these kind of companies that seem like somewhat, I hate to use the word, but boring industries, you know, just seem like they’re ordinary businesses but they just compound year after year after year. And certainly that’s a nice path.

Steve (10:22.065)

Well, I like these boring things. I find them interesting. The more boring they are, the more interesting I find them. But this idea of how long it takes to get to the 100 bagger. I mean, if you looked at your book and there were retailers in there, so L Brands, Home Depot, Gap took seven, 10 and 11 years. And then Berkshire took 19, Boeing took 20, Apple took 25, Southwest Airlines only took 10.

Chris (10:29.188)

Exactly.

Chris (10:40.67)

Steve (10:52.313)

And then I looked at just a few so just, the ones beginning with C, companies that people would recognize. Coke took 29, Colgate took 29, Caterpillar took 42, Cummins took 48. So that’s a bit of the Caterpillar and Cummins, I would guess, are probably more capital intensive, probably not as easy to create the, to generate the sales growth. Does it matter how long it takes? Because presumably if it’s… I mean, obviously we would all like the 100 bagger to occur next week, but in life, you know, usually the ones that grow quickest have got the highest valuation and the riskiest. I mean, how do you think about the, you know, the time pattern?

Chris (11:38.178)

Yeah, I mean, you know, it comes down to what sort of IRR, what sort of return you’re looking for. I mean, if you’re okay with a 10 or 12, and that’s kind of what you’re shooting for, then that expands your universe. Then if you’re looking for something that’s, where you can get at least 20, for example. And, you know, sometimes one of the lessons that certainly comes out of doing this study is you appreciate more, putting valuation in a certain context.

So the way people traditionally think about valuation and they’ll look at a high grower and they’ll see it’s trading at 35 times or something and they’ll say, boy, that looks expensive. But again, if you’re compounding at 25% earnings, if you do that math on that, that compounding is rapid. I mean, I think 25% a year for 10 years, I think it’s a tenfold increase.

Suddenly, whether you’re trading at 35 or 30 or 25 or 40, it doesn’t really matter so much in the context of that growth. So I think when you get a company that you’re very confident can grow that, it’s surprising what multiple you can pay and still get a really good return. It’s more than you kind of think. So you have to adjust valuation for those things. And the long-term market sort of sorts it out.

Companies that consistently compound at high rate capital at high rates get higher valuations than those companies that compound at lower rates.

Steve (13:16.849)

And what do you look for in the company to know how sustainable that growth is? So let’s just say we’re growing at 20, 25%. What are the signals that the 20, 25% is going to be sustainable over long enough that it can deliver those parts of exceptional returns?

Chris (13:36.395)

All right. Yeah, so this is where I spend most of my time. I would say when I look at a stock or look at a new idea or even monitoring my existing names is how, he’s getting conviction on how long they can compound that capital. So that really entails analysis of competition and what the competitive advantage is. So you have to be really convinced that they have something that’s hard to reproduce.

So I always like to use the example of Copart because it’s one of the cleaner, simpler competitive advantages, but they run, you know, salvage yards that when you, when you get an accident, your car is totaled, it winds up in a Copart lot probably, and from there it’s sold either overseas or dismantlers or whatever. But that business is really very difficult to compete with. They’ve been in it for a long time. They required this massive land bank.

They have this huge network of buyers. Uh, and, uh, you know, it’s like an online marketplace for these, for these cars. And so, um, you know, that’s one way you look at it. It’s, and it’s actually gotten better over time returned on capital, gotten better benefits of scale and that network effects. So you look at that and you say, well, that’s really, really tough to compete with. And, and one of the first.

Steve (15:02.341)

The Copart advantage is the land because they’ve owned the land for a long, long time. So they’ve got a very low historic cost of land. So any new entrance has to pay up for the land so they automatically can make higher returns. Isn’t that the key to Copart?

Chris (15:19.47)

Yeah, either pay it for the land or they got to find a way to lease it, right? So yeah, that’s an enormous big hurdle right off the bat. And then I wouldn’t also dismiss, you know, just their network. I mean, you’re talking about thousands and thousands of buyers all over the, all over the world, uh, log on there and buy cars. And so there’s some power to that as well. The relationship with everyone, insurance companies that provide them the cars, you know, um, so there’s a lot of, a lot of interesting things that tie into that.

Steve (15:47.749)

You see, I always have, I was going to say arguments, not arguments, but interesting discussions with American podcast guests, because you all love cars. You all love anything related to the automobile, and you all love investments related to the automobile. And I’m like, I’m a car lover. You know, I like cars. And, but as investments, the automotive industry looks to me, to be undergoing so much and such radical change that it’s very difficult to make a very long-term investment case. Now, obviously, Copart is downstream to a big degree, it’s not affected by the change to electric vehicles in nearly the same way, but what happens in 20 years time if we’re all running around in, I can’t say it, autonomous vehicles? If… Elon is right. And I mean, he’s been saying that, you know, Tesla would drive from LA to New York.

I think he started saying that in 2019. But that’s not to say that in 2029 or 2035, that couldn’t happen. And once you get autonomous vehicles and they’re going to say, well, actually, we’re going all autonomous, so you can’t drive yourself. And you might say, oh, well, this would never happen in America. Nobody would vote for them. That might be possible. But the safety benefits could be overwhelming.

And look, you know, look at what’s happened in the last 12, 18 months to AI. I mean, this doesn’t, I’ve got no idea how realistic this is, but if I own Co-part, I would be quite interested in that risk. I mean, how do you think about things like that? Because you own shares for a very long time.

Chris (17:38.89)

Yeah, I mean, I’ve spent a lot of time thinking about this, and this is something that comes up frequently. So there are a couple of things. Definitely the safety features on cars have got a lot better, and accident avoidance technology has gotten a lot better. With all that, though, comes a lot more complexity. So the cars are a lot more complex. So the threshold to total them is also…

gotten a lot lower. I mean, you can have a car today could be totaled in 15 mile per hour accident just because the airbags go off and you’ve destroyed a bunch of sensors in the bumper. I mean, that is so that that’s a countervailing force and the cost of repairs gone way up. So yeah, it is hard to predict. I think that it’s probably something we’ll be able to see. It’s not going to happen overnight. You know, there’s this huge fleet of existing vehicles, not just in the US, but all over the world.

And a certain amount of those cars are retired every year, either through accidents or whatever. And it’s gonna take, you know, the question is, what percent has to be autonomous vehicles where the accident rate then comes down? And you really never know, because the accident rates in the US, for example, came down for a long time and then recently ticked up because people are distracted with their technology on their phones, speeding, so.

You know, there’s a lot of factors, but it’s definitely something to keep an eye on and watch. And then I would say with Copart, you know, the other thing to keep in mind is there are new verticals. There are different things they can do. So they’ve just started getting into, you know, they have a $200 million business in yellow iron, which is just construction equipment and things. They’ve got a division does power motor sports. So you think about anything that’s large, that needs space to be stored, that

I mean, there’s a lot of different things that they could get in down the road as well.

Steve (19:39.481)

No, sure. I wasn’t trying to single out Copart. I was just interested in your thought process. And how do you because, you know, when I was a professional investor, I was doing special situations. So, you know, you’re buying high quality, sustainable businesses to own for a long time, which I now understand would it be, you know, I should have spent my time thinking about that.

I’m rather late to the party because I was renting rubbish. You know. I was buying stuff that was really depressed and hoping it would double in a relatively short timeframe. So it’s like the complete antithesis. And I’m now trying to learn about investing in quality companies because obviously doing that special situation is incredibly labor intensive. And I don’t have the time and I don’t have the resources, I don’t have the inputs to be able to do that effectively. So for my own investing, I’m thinking, okay, well, I’ve got to be looking for the next Copart rather than the next, you know, bombed-out commodity play. I still do a few of the bombed-out commodity plays. But you like family ones.

Chris (20:45.378)

Right, right. Well, I will say one thing, you know, about just also just one thing about, you know, the competitive figuring out the competitive advantage. I mean, there are really. It’s it’s very, very rare. I mean, I would say there’s no company whose moats totally intramodal. I mean, we can always imagine alternatives. We can imagine things happening. So it’s kind of a relative game you’re playing. You know, there are some companies that you have definitely you can.

figure out, have some competitive advantages. They’ve earned high returns on their capital for a long time. It’s difficult to compete with them. There are other companies where you can clearly see they’ve got lots of competitors and returns on capital and industry are lower as a result because there’s a lot of alternatives. So, you know, it’s one of these things where you’ve sort of got to grade the scale. I mean, if you’re gonna start out with 100% insurmountable moat, you’re not gonna find anything, I don’t think. Everything has got soft points and weak points at some point.

Steve (21:39.577)

No, absolutely. You like family run businesses, a lot of research around that says family owned businesses outperform. I don’t know, I’ve now forgotten what percent, did you say what percent of the 100 baggers were family run businesses? Did you do any work on that sort of subset? And I just wondered, are there particular things you look for in a family business? You know, is it first generation or, you know, where are the risks? Sometimes is there a risk in the second passing on to the second generation?

Just talk a little bit about family run businesses. I know they’re a big part of your portfolio.

Chris (22:13.046)

Yeah, I have a lot of family run businesses. I don’t know, you know, looking at the population of hundred baggers, how many would be family owned? Uh, that’s something I guess you could do, although, you know, it’s not always that a company is or is not family owned. They could be family owned for a period of time and then not owned for another stretch of time and still be in that hundred barrier class.

So it’s probably a little murkier. You know, what exactly .what exactly account as a family-owned, it could be the founder initially and then it’s a family and then it’s not a family. So it’s not necessarily a black and white category. But the main reason I love the family-owned companies is it’s just for the alignment of the incentives. And the research you pointed to will show or shows that family-run companies tend to be less leveraged. They tend to take a longer view. And these are things that make intuitive sense.

A rent a CEO type or you’re only gonna be there a certain amount of time, you might not think so much about making investments for 10 or 20 years out, which family companies tend to do. So that’s the reason why I like them. Of course, not all families are equal. Sometimes, as you mentioned, there’s definitely the passing of the torch. So that’s something that you have to evaluate. I mean, I have Brown and Brown, and the CEO now is the grandson of the of the founder.

That’s very rare and he’s an excellent CEO. So in that case, you know, that that’s a nice situation that that’s rare. And a lot of times you’ll find family run companies where the family after the first generation, maybe even after the second, they’re no longer actually operating the business, but they may just have like positions on the board. And that can be OK, too.

Again, I mean, the main thing I’m looking for is having that alignment of incentives. And there’s certain big moves that can be value destructive, which you hope that a family that’s on the board that has a big block of shares can prevent from happening. So, you know, big dilutive acquisitions, you know, getting in trouble with leverage and certain things like that.

Steve (24:28.273)

So would you always want to have the family being present on the board? Would that be like a must have for you?

Chris (24:37.902)

It doesn’t have to. I mean, I would say it doesn’t have to be family run. I mean, I want skin in the game. So it could be that the founding CEO is owns a good significant block of stock. And he’s the guy or she. So I would say, but for a family run business, if you don’t, if you’re not on the board, then what’s kind of like, what’s the point? You’re almost too passive. So, yeah, I would say you want to you want to have be on the board.

Steve (24:52.197)

but they’ve retired. No, I, you know, we’ve got companies like Heineken, where obviously, you know, it’s been through several generations. But I was interested.

Chris (25:10.254)

Right. That one is so diluted out. I don’t know if that counts in this. I don’t know if that would be interesting.

Steve (25:16.778)

Yeah. I mean, it’s not really a family run business, but I was quite interested that I was sitting next to the one of the senior people at a conference and he was saying that the family will take a real interest and they go to the events. And so there’s still the company still run with an eye on the original family and their principles. And I think that

It doesn’t make it qualify as a family-run business, perhaps, but it gives you some additional comfort beyond the rent to CEO. Now, your fund has got a very unusual name and it’s got a very interesting story behind it, which you talk about on your website. Can you explain to the listeners, why did you name the fund the way you did?

Chris (26:06.11)

Yeah, it’s called Woodlock House. Woodlock House Family Capital. And so, yes, yeah, it has families in the name. And that was I have a partner, Bill Bonner and Bonner family seeded the fund with 25 million dollars to start in 2019. And when I went to, you know, present the idea of doing the fund to them, I’ve known them for a long time. They’re my publishers in the newsletter.

Steve (26:12.101)

But it’s got a family in the name, that’s why I…

Chris (26:36.022)

when I was writing my newsletter and I worked in their, uh, with their family office invest handling investments. Um, so I named it after a property they own in Ireland called woodlock house. And, uh, yeah, I created the logo. It’s the logo is like the skylight and the foyer. And so, um, but I liked that it worked out as nice, uh, kind of image for the firm too, because this particular property has been a lot of different things. It’s been a convent, it’s been like a home for old people, it’s office space, you know, so it’s still less structured and yet it’s sort of adjusted and adapted to the times, which I kind of like that idea. And then family was a word that he wanted to put in there because well, initially it was started with family money and we also wanted to…

And since we have already that sort of family view, long-term view of investing, we thought it would be good to put that in the name also as kind of a distinguishing feature. So that’s how it became Woodlock House Family Capital.

Steve (27:37.817)

It’s a fun name. And you mentioned you used to write a newsletter and then you became an advisor to their family office. Writing I find is quite an interesting occupation. I had a cup of coffee with Vitaly Katsenelson this week, he was in London and we were talking about writing because he’s like a massive writer. I mean, he gets up at four in the morning or something and writes every day.

And I was like…you know, I write a weekly substack and I don’t do it very well or anything. But, you know, it’s funny because when I started, I was really nervous about the deadline and, oh, how am I going to find anything to write? And I found, well, I’ve got plenty of things to write about and people say, oh, that’s the writer’s brain. And one of the things I think is quite interesting about writing is it helps you with your thought process.

And I wondered if this, I know you write a blog, but,is it harder to invest when you’re not writing? I just wondered if it was one of those things that helps you think through the story because I’ve always found that I find it helpful to write down the hypothesis. Writing about the stock helps me work out how convinced I am, helps me think about the risk. Do you do that? I know it sounds a bit stupid to write a research note for yourself, but…

Chris (28:39.789)

Yeah, I mean, it’s a good question. I don’t know because I’ve always been a writer. I’ve always, even when I was a kid, I was writing stories and novels and things to myself. Yeah. So I’ve always been writing when I, even now, even though I don’t write as often on the blog, I still, you know, I write internal memos to myself. Like you said, writing out the thesis. And I think that really helps organize your thoughts and also sort of creates questions and

And you know, as you’re writing, you realize you don’t know enough here and you sort of fill things, fill things out. So yeah, I would definitely agree with you that writing definitely helps organize and deepen your thoughts in a way that without writing, yeah, I can’t, I don’t know. It would be, it would be different.

Steve (29:51.453)

And what do you do with those notes once you’ve completed them? Do you update them? Do you refer back to them? I mean, are they part of your process?

Chris (29:56.738)

Yes. I update them. I have a Google Doc on all these names that I have. And for some of these names, because I’ve owned them for a year, the Google Doc is hundreds of pages. So yeah, because I’ll update and I’ll do little bits on earnings. And so, and if I talk with the company or wherever, I’ll put that in the document as well, notes. So it creates this interesting historical document that shows how I was thinking about all these different things. And like I sometimes will tell people, it makes it harder to lie to yourself. You know, if you, if you’re changing your story, you can see it. That’s not what I thought when I wrote it up, you know? Um, so that’s helpful to have too.

Steve (30:37.593)

Yeah, no, absolutely. Yeah. No, I think it’s a very good. It’s a very good discipline. But you do write a blog and the blog’s really good. I like the one you wrote on corporate culture and you cited examples from Brown and Brown, Old Dominion Freight. Can you talk a little bit about why you think corporate culture is so important?

Chris (30:59.122)

Yeah, you know, this is something that it’s kind of been an interesting evolution because when I started out as a younger analyst in the twenties, I would have sort of discounted this, you know, it was much more focused on the numbers and, and whether things made sense and valuation and those kinds of things versus more of these soft squishy subjects, like, you know, the quality of the management team and the culture of the business.

But the more I’ve been in investing and just studying businesses generally, the more you see that really long-term success comes from having a a great culture where the incentives are aligned and where people buy into it, where they’re there for a long time. There’s a lot of these factors that play in. So it’s more anecdotal or based on the research that I’ve done that these great successes come out of these companies that have these great cultures. Even defining that word culture is a little weird because what does that mean exactly?

And I think there are just certain traits that have great cultures have. One of them would be they retain their people, or they bring along their own people. And I mentioned that, you know, Old Dominion and even Brown and Brown, they have these internal universities and a lot of the people that they have are people they’ve brought along. I also like to see some employee ownership of people who are, you know, buying their stuff, buying the stock and having their 401k. And there’s this culture of ownership that invariably comes out of that.

So those are some kind of telltale signs, and it tends to, I think it contributes to that long-term success. There’s always exceptions, but that’s what I found.

Steve (32:40.209)

But even bad companies will tell you, oh, you know, people love working here. We promote internally. Well, we only promote, you know, oh, yes, we recruited Johnny there, but he was such an exceptional guy and we didn’t have any, you know, and yet every employee on stock because they give them a chair. You know, these are difficult things to actually really get your hands around. I mean, how do you dig a little bit deeper beyond the slick presentation from the slick CEO.

Chris (33:11.77)

Yeah, I mean, that’s a great point. So there’s lots of things that are not the true authentic kind of cultural marks that you want. I mean, I do talk to a lot of people who’ve worked there. That’s the best way is to talk to people who work there, talk to even competitors. Sometimes they will admit it. So, you know, I’ve talked to, for Old Dominion, I’ve talked to all kinds of people who’ve worked there in all variety of capacities.

Just to use as an example. I mean, and I hear anecdotal stories about drivers waving around their 401k statements because they’ve done so well with their investments there. And so there’s no way to easily do that other than actually piece it together by actually talking to people who’ve worked there and can tell you what it’s really like.

Steve (34:02.285)

And I mean, meeting management, you didn’t used to like to do that, but you now do. Is that right? Well, what now it’s interesting because that guy Spear on the podcast a few months ago. And I said to him, well, in his book, he says, I don’t like to meet management because they just spin you a yarn. I said, well, okay, they might be spinning you a yarn, but the way they spin it can tell you quite a lot. And he said, Oh, actually I’ve changed my mind. It’s quite interesting. What made you change that approach.

Chris (34:33.75)

Yeah. Well, I think my old view was that, you know, you don’t want to one sort of double count for management. So a lot of times I will see people say, well, it’s a great company and they have great manager. It’s almost like they’re sort of double counting it because if it’s, if these are the numbers and you don’t want to also pay in addition for the, for the great managing team. And I used to think also that just what you mentioned with Guy said is that when you meet with them, all these people are in these positions because they are.

They’re charming people in some way. They have some charisma and you can’t help but like them. And then that’s going to influence how you think about the investment. Now I’ve had that happen. So I was worried, worried about that for a long time, but then I, you know, you do learn, like you were saying, you do learn things for meeting with them that. Even if you go in knowing that, yeah, you’re, you might be a little bit spellbound because they’re going to be, you’re going to like them or you can’t help but like them, but if you’re keep open to other details, how they tell you certain things or even just picking up what you get on a visit.

I always think about one company I own is Technion in Sweden and they have office space. It’s not in downtown Stockholm. It’s in Solna. It’s a beaten path sort of place. It’s rented office space. It’s very modest and that says something. I met them for lunch. First time I met them for lunch, we went to a cafeteria in the building.

You know, it says a little something versus going to a building that’s really slick and got, you know, it’s in the most expensive part of town and they’ve got, you know, all the glitter. And that says something too. There’s a little detail as you kind of pick up about what’s important, our management team. And, you know, I remember when Lyftco is another company I own in Sweden. I remember the first time I met that company, I knocked on the door. The CEO himself answered the door. He was the only one in the office at the time. Didn’t even have a secretary there.

So, uh, you know, the little things you learn that are valuable. And when you talk to management, I like to just talk more about sort of their philosophy about things, how they think about things. And that’s really where you get some separation. If you just get kind of Wall Street speak, you know, then that puts that person in a certain bucket. But if you really get some thoughtful answers, then I think that, you know, that’s worth knowing. And you can only really get that by actually meeting them and talking to them.

Steve (36:56.581)

funny you’re just saying about how, you know, people there, these guys get to the top is they’re very likable. It made me think about one US CEO and CFO who were so unlikable that I ended up, I couldn’t wait to get, I couldn’t, yeah, I knew the stock was going to go up. I couldn’t wait to get out. No, they were just so arrogant. I mean, I just thought, you know, I really don’t want to be, I didn’t, you don’t, you’re not treating me like a partner.

You’re not treating me like you’re treating me like somebody that you want to use to get your share price up so you can cash in your options. So I think often people give off signals, you know, I and I, I’m. I met a lot of managers. I don’t really think it’s one of my particular skills in assessing their abilities, but I think you’re right. The way they answer the questions and their attitude can tell you can tell you a huge amount.

I was wondering, I mean, you own about 10 stocks and that seems like a very small number. And I know there’s a sort of trade-off between knowing the companies and but is 10 enough diversification?

Chris (38:18.698)

Yeah, I mean, it depends on the 10, right? I have 11, 11 right now, but it depends on those 10. Let’s say if you had 10, it depends on the 10. Like I say, the bar to get in the portfolio is very high, so there’s lots of things I won’t touch, anything that has any sort of leverage or any sort of existential risk. I don’t do banks at all. I don’t own any banks. But maybe if I had a 25-stock portfolio, then I could have a banking position.

I don’t own anything in the…you know, mining extractive is there’s lots of things that are just off the table. The businesses I own or businesses generate a lot of cash. They have good returns on their capital. They have plenty of reinvestment opportunities. They have very strong balance sheets. They’re solid real businesses been around. Most of them have been around a while. So it’s not like, uh, I’m investing in things that are, you know, really ramping up revenue, but haven’t generated a profit yet, or they’re somehow a riskier situation.

So I wouldn’t recommend the 10 stock portfolio for everybody, Mika, unless you have a really good sense for that sort of thing. What’s the real risk of an equity of a business? So I think for me, it feels like it’s plenty of diversification. And some companies I own, they have multiple businesses within them. I mean, if I own Constellation software and there’s hundreds of software companies within that, it makes it very durable. Its hard to kill business. So I mentioned Lyfco. Lyfco owns 200 different businesses within it. So I think that those kinds of ideas play into it as well.

Steve (39:53.405)

But there’s a common thread that goes through your investment. So you could, I don’t know what your portfolio is, but say we were in 1996 or 1997. Would your portfolio have done OK? Or would it have been, presumably, wouldn’t have been very successful in the dot-com boom, but then…nothing was successful. But I mean, could you go through a period like that and feel comfortable when the indices were racing ahead of you? How would you feel and how would your clients feel?

Chris (40:40.522)

Yeah, I mean, that’s interesting and we’ll have to test that and see. Hopefully, I don’t ever have to test it. But yeah, I always emphasize to my investors and even in my quarterly letters, I don’t talk about performance on a quarterly basis, the stock performance, but I always focus on the underlying businesses and then at the end of the year, look at the overall performance, stock performance and how things have done.

So t’s kind of where you put your emphasis. And as long as those businesses are performing really well, you know, the stock prices are gonna, are gonna fluctuate around, then you’re just gonna have to, have to suffer it. I mean, there’s no way, easy way around this. You can’t have these big multi-bagger winners if you’re not willing to sit through periods of time where they don’t go anywhere. I mean, you know, I always like to say in the hundred bagger study that I did, Berkshire Hathaway was the top performing name.

Yet there was a seven year stretch where it went nowhere. That’s a long time to wait when you’re a professional, especially. Um, so, and that was the best performing stock. And I’ve looked at my portfolio, looked at names in the past and, and just from my own, you know, I’ve gone to looked at Brown and Brown and coparts history and I’ve looked and I’ve always found stretches of time running years where they, where they didn’t go anywhere, you know, you take a stock point here and here and there was lots of movement, but nowhere. Uh, and that happens. So.

It’s part of equity investing and you just have to be able to suffer through it. That’s partly why I have a portfolio of different names, hopefully in different industries so that cycles and things are not exactly synced up. This is, you know, going back to, you know, what those 10 names are. If you, if you own five insurers, that’s probably not a good idea. Uh, but I have a lot of different industries and so hopefully if, uh, let’s just say, uh, you know, trucking is going through a bad spell with old Dominion, then there’s other parts of the portfolio that can pick up that performance.

Steve (42:39.109)

No, sure. I mean, 10 gives you a reasonable amount of diversification. I think the studies I’ve read, 15 is kind of like the once you get 15, you’ve got quite a lot of the diversification you can get. I mean,

Chris (42:55.335)

Right. Each incremental name doesn’t really add that much. I’ve seen studies like that too, and the numbers vary. I think Joel Greenblatt had one where he said after, I think it was six to eight names, it drops off. That’s pretty low. But yeah, it’s somewhere in that neighborhood where adding a name, adding more names isn’t going to save you. That’s one thing I sometimes will tell people. If you feel safer with 20 stocks, that’s probably a conceit. You just don’t know them very well.

And so it could easily outperform or get in trouble with 20 stocks or 30.

Steve (43:26.781)

But I think the point is more that the more concentrated the portfolio, the more the random drawdown makes you nervous. And it’s about your disposition. So I did a spell managing portfolios for private clients. I was advising a wealth manager. They’d asked me to come in a couple of days a week just to help build them an international model portfolio.

And then…the portfolio was doing so well, they said, oh, could you manage some, some stocks for these people? And, you know, they did very well, but because I wasn’t, you know, full time there, and I wasn’t full time investing, I didn’t have the same information flow. So I couldn’t find as many ideas.

So, and, I think it’s quite a curious anomaly that people that manage private client portfolios have got in many ways, the most difficult job because the new person coming in, you’ve got to find a whole new portfolio for. And I remember, you know, I owned a stock that, I went to the investor day and I, I mean, I just wanted to be sick. You know, I just thought, why do I own this? These people were horrible and it’s a good business, but they’re clueless.

And I ended up selling it and, but the banker was giving me a lot of pressure because of course the stock had fallen. And that, you know, I can’t remember, it was maybe it had fallen by 20% and it was 10% of the portfolio. So the portfolio had fallen by 2%. And I was getting a lot of flak about that. And I can’t look, you know, I just look at it. Well, you know, I don’t, I didn’t set out last week to lose 2%. You know, I’ve lost 2%. I’m just going to make the best decision I can at this point.

But people’s psychology, I mean, it’s quite difficult. I mean, how do you manage that?

Chris (45:27.658)

Yeah, I mean, I think it is for most people. That’s why they probably shouldn’t do it. They can’t do it. But, uh, I say, you know, one of that value add that I have for my investors is I’m doing things they can’t do, which is nothing, which if nothing else is just, you know, hang on when they were, where they might lose, uh, lose faith. So, yeah, I mean, uh, I think that’s a big, big hurdle for a lot of people.

Uh, you know, one is. One is choose your partners very carefully. I mean, if I had a partner chirping in my ear about, you know, being down on some month or something, it’s not going to last long. I can tell you.

Steve (46:04.901)

So how do you screen your customers?

Chris (46:09.506)

Well, there’s some cycles. One, the hurdle to get in is high. I got a high, high minimum on the fund already, so that’s not for everyone. I’ve only got 28 partners or something like that outside the family. So it’s a million dollar minimum to start, which takes out a lot of people. And then I talk to them. And sometimes people take themselves out of the consideration. I remember one time, I don’t have any institutional investors. These are all individuals, high net worth individuals.

One time a institutional investor asked me for monthly returns. It’s like, what is that going to tell you? That’s what my response was. What is that going to tell you? Monthly returns. That’s not meaningful. So you talk to them. You see what kind of questions they ask. There’s self-selection going on. I mean, I don’t market my fund. It’s closed anyway. But people come to me because they’ve, you know, they’d maybe read something or they, they know then I’m out there as far as what, what I’m all about. People, you know, don’t invest here unless they kind of buy into that already. So there’s some, there’s some pre-screening involved already. I have to say.

Steve (47:16.359)

Funny. Now, I just wanted to before we finish, I just wanted to talk about your book, How Do You Know a Guide to Clear Thinking about Wall Street Investing in Life? What made you want to write this book? It was very good. I really enjoyed it.

Chris (47:30.922)

Well, thank you. Not many people have read it, I don’t think. Ha ha ha. What made me want to write it? Good question.

Steve (47:34.885)

Yeah, never enough.

Chris (47:42.23)

You know, I became, I’m a fan of Alfred Krzybski, who’s a guy who created this discipline called general semantics, and it’s kind of like an aid to critical thinking, and I find myself using it a lot, and really not much else written about it. And this was kind of, again, I was inspired by this. I was thinking about, well, maybe I should write something about it, and I looked around.

And I found there was one book that was written about general semantics way back in, I think it was 1950s. And it was first, it was called general semantics on Wall Street. And then that title must’ve been real dud. Cause then they changed it in the second edition was winning on Wall Street. So that was, and that book really wasn’t, it was kind of a very superficial look at it. It kind of hinted at some things, but so I said, yeah, there’s nothing about this. I use it all the time.

And so I’ll put together something and I enjoyed doing it. It was really a lot of fun to write it. I hope it’s fun to read. And I really didn’t think it would sell or become anything special. I just, you know, we talked earlier about how it helps organize your thinking and all that. And writing this book certainly helped sort of put more of a framework on how I use that, preserves these ideas in investing. So hopefully it will be helpful for other people.

Steve (49:07.873)

I’m sure. I’m sure. Well, I mean, it was funny that I hadn’t read it. But I mean, it’s very controversial. Because I mean, the book does have the benefit of listeners. The book talks about definitions and why they can mislead us. And obviously, I mean, labels are just so badly used in the investment world. They’re used to cheat and create obfuscation often.

But they are too conveniently used. But you said in that book, there is no such thing as a value or a growth stock. Now, I understand and sympathize with the argument, but what’s the reaction when you tell someone that? When you go to Omaha, what’s their reaction?

Chris (49:54.542)

Yeah, right. Well, yeah, there’s disbelief. There’s that kind of incredulous kind of look because it takes some argument to get there. So yeah, I think a lot of people, they don’t buy it or when they read the argument, they’re like, wow, that’s interesting. So maybe they still use those labels, but maybe more thoughtfully, which I would consider a win. But yeah, I think it’s interesting because some people…

I’ve gotten some really nice, I don’t know what to call them, almost like love letters from people who have read the book and really liked it, where it really resonated with them and changed their worldview. But it hasn’t been very many people. It’s never going to be a popular book for the reasons that you cite. Because the labels are so, because the way we do it now, I mean, that book brings out a way to think about these ideas. It’s just so counter to what’s out there. It will never be popular. But the one thing about that book, I’ll say it too, it was…

Chris (50:53.226)

It was rewarding that it was the Institute of General Semantics awarded it the S.I. Hayekawa Award. It’s a book award they give out every year to best book on the subject in that year. And so that was a nice little feature. And then I wound up giving the book to them. So it’s published by the Institute of General Semantics now. And I don’t get any royalties or anything from it. But I thought that’s a nice, nice book.

Steve (51:14.609)

All right. Oh, well, I mean, the book royalties are so pathetic anyway, that it’s funny, I interviewed somebody for the podcast yesterday in their office and their office had a meeting room that’s a library. And I said to them, I said, for goodness sake, my book isn’t on your shelf. You’ve got every investing book you’ve ever heard of, two of most of them.

And you know, the founder of the firm was quite embarrassed. And he said, oh, Steve, you must tell me what your book’s called and we’ll go and buy it. And so I emailed the secretary today, she said, oh, look, I’ve sent you a copy of the book. And she said, oh no, we’d like to buy it. And I said, honestly, you know, it doesn’t make any difference. I’d rather, you know, the podcast supports this charity, Duchenne UK, which is a sort of dreadful disease that affects children. I said, just donate the money to the charity instead. Because the book royalties are really not worth having. One thing in the book I did disagree with was you said, you wrote, Cape is an assault on common sense. It’s not a stupid concept, is it?

Chris (52:42.034)

So, yeah, I mean, I think the basic idea of CAPE would be, you know, I disagree with it. I mean, it’s a 10-year average earnings. And so, you know, when I look at a business, what the earnings were 10 years ago or nine years ago or eight years ago has no bearing on the valuation today. And then the other problem with it is it’s based on PE, which is when I really want to be controversial with people, I’ll say that price earnings ratio is not a valuation metric. And there’s too much missing. Yeah, it’s too much missing.

Steve (53:14.045)

We don’t have time for that, but we’ll have a separate conversation about that. I mean, I think, you know, CAPE is actually more commonly and more properly applied to market valuations and it has got some, I think it’s got some use. I mean, it’s not obviously not been very useful in the last 10 years, but well, you know, I think people that sort of say, oh, well, you know, it hasn’t worked, so therefore we are binning it, are forgetting that last 10 years have been an extraordinary time in markets. That’s 15 years, 20 years. I mean, we have been living through extraordinary times. I’ve been very different from the last previous hundred. And I think it’s foolish.

Chris (53:57.266)

Yeah. Well, my objection would be more to just the idea of it rather than whether it works or not. Just the very idea of it is. But we don’t have time to get into that so much. But it’s in the book for people who want to explore.

Steve (54:07.545)

Yeah. No, no, we won’t. We won’t. Yeah. Well, listen, Chris, I really appreciate your coming on. It’s been lovely to talk to you. I really enjoyed. I mean, you’ve written a number of books. I’ve only read two of them, but they’ve been they’ve both been good. Maybe I’ll get to the others. Where can people find you if they want to learn more about you, the fund and your books?

Chris (54:31.854)

Sure. Well, thank you, Steve. It’s been a great conversation. Yeah, good questions. I enjoyed it. Well, to find me is not, it’s not hard. If you Google Woodlock House family capital, you find my website and the blog is there and other books are there. And, and then I’m on Twitter or it’s now called X. And so the handle there is at Chris W. Mayer, M-A-Y-E-R. And I tweet things out occasionally there too. So those are two best ways to Find me and keep up with what I’m doing.

Steve (55:04.273)

great. Thank you very much. We’ll put those links in the show notes. Thanks for coming on.