Chit Chat Stocks – Episode 6 Summary

Title: Future Share Cannibals; Ryan’s New Favorite Small-Cap; Mark Leonard Tribute (Constellation Software)
Date: September 26, 2025
Hosts: Ryan Henderson & Brett Schafer

Main Theme & Purpose

This episode centers on identifying "future share cannibals"—companies poised to aggressively and intelligently buy back their own stock over the coming decade, a nod to concepts from investing legend Charlie Munger. Ryan and Brett break down what makes a true share cannibal, debate companies best positioned for big buybacks, and run a competitive draft of their top picks. The episode also weaves in market news, a tribute to Constellation Software’s Mark Leonard, and a spotlight on Yelp as a small-cap to watch.

Key Discussion Points & Insights

1. AI Bubble Watch: Nvidia, OpenAI, and Energy Usage

[01:50 – 16:44]

• News Recap: Nvidia and OpenAI partner for a massive $100B+ investment in AI data centers (first gigawatt coming online 2026).
• Nvidia’s “investment” is essentially money to OpenAI, which is then spent on Nvidia’s own chips—“a little circular” as Ryan notes.
• Staggering predictions: AI data centers expected to require gigawatt-scale electricity, potentially 2–3% more of total US power use in five years.
• Hosts are openly skeptical:
  • Will society tolerate sky-high energy use for dubious ROI? (“Is this really...do we want them consuming that much energy?” —Ryan, 08:35)
  • Historic analogies to railroad and dot-com bubbles abound: big spend, questionable investment outcomes.
• Notable Quote:

  "In less than 48 hours, OpenAI has announced commitments to equal 17 nuclear power plants or about nine Hoover dams. The scale is staggering."
  —Brett (CNBC paraphrase, 06:10)

2. Share Cannibal Draft: Criteria & Picks

[16:44 – 41:30]

a. What’s a Share Cannibal?

• Companies that reduce shares outstanding significantly over time by consistently buying back stock—creating enduring tailwinds for shareholders.
• Tough to predict because buybacks work best when stocks stay “cheap” and management remains rational.

b. Criteria for Selection

• Commitment to buybacks
• Earnings and revenue growth (fueling buybacks)
• Stock trading at a fair/low valuation (enabling more buybacks)
• Rational, disciplined management

Brett’s analogy:

"It’s someone that continuously climbs the wall of worry...They keep getting doubted, buy back stock, and valuation stays cheap." (18:52)

c. The Draft Picks & Rationale

Ryan's Top Share Cannibals:

• Adobe [21:08]:
  • Recent aggressive buybacks (~5.5% share count reduction annually).
  • Considered an “AI loser” by some, keeping valuation reasonable and allowing buybacks.
  • Potential risk: management shifting to acquisitions (“tired of being the AI losers”).
• D.R. Horton [27:20]:
  • Largest US homebuilder, efficient cost model, land-light strategy.
  • 8% buyback yield; resilient even amid interest rate spikes.
• Airbnb [33:04]:
  • Aiming to follow Booking Holdings’ share cannibal model.
  • 5.5% buyback yield recently.
  • Future depends on not over-investing in new initiatives.

Brett's Top Share Cannibals:

• MGM Resorts International (MGM) [24:04]:
  • 8.4% annual share count reduction since 2016 (over 50% total drop in less than a decade).
  • Consistent cheap valuation from market doubts about casinos’ future.
• Dropbox [30:08]:
  • Doubters galore, but ~8.7% annual share reduction, with sticky, profitable cashflows.
  • Potential concern: long-term growth.
• Builders FirstSource [38:48]:
  • 13% annual share count reduction since 2021.
  • Supplies building materials/services; capital allocation savvy, especially during downturns.

d. Honorable Mentions

• By Ryan: PayPal (“narrative hasn’t improved, but if you believe in its durability, it’s a share cannibal recipe”)
• By Brett: Zoominfo, Expedia, General Motors

3. Tribute to Mark Leonard & Constellation Software

[41:30 – 47:10]

• Occasion: Mark Leonard (legendary founder/CEO) steps down for health reasons.
• Historical performance:
  • Since 2006 IPO: $10,000 → $2.8 million (+280x).
  • Revenue CAGR since 2005: ~24%. Free cash flow per share: 27%.
  • Notoriously low-drawdown stock, exceptionally long-term focused, pragmatic communication.

Quote:

“He did it in a manner that was sustainable, where people wouldn’t sell...the way he communicated with shareholders...made it so easy to own his shares for a long time.” (45:25, Ryan)

4. Ryan’s Small-Cap of the Week: Yelp

[47:10 – 52:00]

• Surprisingly strong: $2B market cap, revenue CAGR of 26% since 2010.
• Shifted focus from restaurants to services (plumbers, electricians, etc), now 64%+ of ad revenue.
• Profound turnaround: operating profit from –$40M to $183M in five years; EV/EBIT ~9x; 12% buyback yield.
• Brett: "It seemed more durable than people are giving it credit for. People go ‘Nobody uses Yelp,’ but the numbers back up that they’re wrong.” (51:16)

5. Real Estate Shakeup: Compass & Private Listings

[52:45 – 59:22]

• Compass acquiring Anywhere Real Estate to merge 340K+ agents—aiming to shift listings private before hitting MLS/zillow.
• Implications: Potential threat to Zillow/OpenDoor’s inventory.
• Brett: “A bold move by Compass...We’re finally about to see real changes in this residential market after that lawsuit took away the cartel mentality.” (55:54)
• Side note: “If there’s any company that will shell out money for an acquisition and then do nothing with it, Zillow’s up there.” —Ryan (59:13)

6. Listener Mailbag & Quick Hits

[60:13 – 65:14]

• Portfolio disclosure: Hosts confirm portfolios shown (e.g. on Portseido) are their main investable assets, not side accounts.
• Nike & LA Olympics 2028: Zero interest as a catalyst; “Never invest in apparel” (Brett, 62:20).
• Adding to watchlist buys: Typically waiting for “cheaper price”—valuation first.
• Olympics confusion: Ryan admits not knowing 2028 LA Games refers to Olympics, gets friendly ribbing from Brett & listeners.

Notable Quotes & Moments (with Timestamps)

• "[Share cannibals are] companies that continuously use their capital to buy back stock, thus the share cannibal—can be super beneficial to earnings per share assuming they're making those repurchases at good prices."
  Ryan, 16:44
• “This feels like 1999 officially.”
  Brett, 08:28 (on staggering AI investment)
• “Congrats on saying the biggest number!”
  Ryan, 09:45 (referencing the endless billion-dollar AI funding headlines)
• “He did it in a manner that was sustainable where people wouldn't sell...he made it so easy to hold shares…”
  Ryan, 45:25 (on Mark Leonard)
• “People are worried about Las Vegas spending, worried about casino spending, especially with online sports betting...but with their core casinos in Las Vegas, that is going to be durable over the long haul.”
  Brett, 24:04 (on MGM)
• “Does this all just end up being great for TSMC? Answer is, probably yes. But I would take it a step further: this all benefits ASML.”
  Ryan, 16:27

Segment Timestamps

| Segment | Start | End | |----------------------------------|---------|---------| | Intro & Outline | 00:00 | 01:35 | | AI News & Bubble Skepticism | 01:50 | 16:44 | | Share Cannibal Draft (setup) | 16:44 | 21:08 | | Share Cannibal Picks | 21:08 | 41:30 | | Mark Leonard/Constellation | 41:30 | 47:10 | | Small Cap of the Week: Yelp | 47:10 | 52:00 | | Real Estate Market Shifts | 52:45 | 59:22 | | Listener Q&A & Quick Takes | 60:13 | 65:14 |

Tone & Style

Casual, candid, and sometimes irreverent, Ryan and Brett deliver high-density financial insight mixed with personal anecdotes, light banter, and healthy doses of skepticism. They invite listeners to think fundamentally about real investment outcomes, not just headline hype, and engage with the nitty-gritty realities behind popular trends and long-term winners.