A (3:29)

And just to kind of elaborate a little bit on what you were saying there, you're basically saying that you have more confidence in kind of the companies you own. There's a shorter, we'll call it left tail probability distribution where there's not, you know, a big bankruptcy risk. And so that's why you can own a more concentrated portfolio of these.

B (3:48)

That's it. I mean the balance sheets are very strong or there's no debt, lots of cash. They're in really strong competitive positions. So these are businesses also. Most cases been around a while. So yeah, the odds of putting up a goose egg on them is very low.

A (4:07)

So how do you think about margin of safety in this context?

B (4:12)

I think margin of safety comes primarily from the quality of the business. So with a combination of good entry price, we all want that, of course, but that wouldn't be the primary driver. So the first thing has to be a quality business and then getting in at a good entry price. And so yeah, the margin of safety doesn't necessarily come from price alone, but it comes from owning a quality asset and something that will, it's going to suffer drawdowns. We know all these things suffer drawdowns. And one of the things I've certainly learned in my own hundred bagger study, but also it's been affirmed by other people. I know Mike Mauboussin recently had a paper on drawdowns and he had, I think it was 6, 6 over 6,000 stocks he had from 85 to, through 2024. And median drawdown was insane. I think it was like, you know, 60 or 70%, something like that. And for the funds it was similar, like the top 20 funds, the drawdowns were, I think it was a 60% drawdown. So if you're going to own something for a long period of time, you really, you can't get it, get around that. And I remember even from, you know, Hundred Baggers that Berkshire Hathaway was the best performing stock in that study and still got cut in half at least three times. So there's no, yeah, there's no avoiding it. So margin of safety doesn't mean that the price doesn't go down, but it means, you know, the business not going to be impaired.

A (5:42)

I want to touch back on the drawdowns, but just on the margin of safety aspect a little bit more in that when you are thinking of kind of the growth of cash flows, you're comfortable with assuming for some of these compounders, does having a margin of safety there, does it mean that you're assuming lower growth or does it mean that you have higher confidence in the growth you are assuming?

B (6:05)

Yeah, I think it's higher confidence in, in their ability to compound. So that's one. But you, when you build in these models, you have to also assume that growth will slow down at some point. Right? Nothing, you know, you, you're not going to grow 20 a year forever. So that, that has to factor into it somehow. But yeah, margin of safety, safety really comes from that, the confidence in that business. And where does that come from? You know, I spent a lot of time on competitive advantage and also the industry generally. So I don't know, you look at something like say, you know, commercial insurance brokers that as a group, you know that that industry has performed very well over long periods of time. And, and so that's, you know, a good area to fish. You know, those know that industry pretty well or you know, the Swedish serial acquirers like the Lyftco logger, Kronz ad tech model that's been around a long time, compounded capital at good rates for a long time. And you can have a high degree of confidence in what they're doing and their ability to keep doing it for a long time. So that's really where you get that margin of safety, the way I think about it.

A (7:17)

So that does kind of mean though that you will be sometimes paying up, you could say, for these names and paying higher multiples and you're kind of hoping to make it up in that it's a higher growth, maybe for a longer period of time than most market participants are comfortable assuming. Does that create its own kind of risk because of this high Entry price multiple or is that, are you going to say you could compound the value through that if you're willing to hold through a long enough period of time?

B (7:45)

It sort of depends. I mean multiple only makes sense in the context of well, you know, I look at well what, what's the organic growth rate, what's the reinvestment rate, you know, and you pound that out say five years from now and you put a multiple on it and then you compare that to the present day stock price and you know, what's your irr? And sometimes there have been periods of time where the multiple that I assume is lower than today's multiple, but they can work the other way around too. Like in this environment now, it's much easier to find these stocks that are trading at, you know, 15 times free cash flow. And you're probably going to have some uplift on the multiple over say the next five years. Hey, I can't guarantee that. But you know, if you model out 20, 20 is your exit and before you were paying 25 and now nine months later it's 15, you know, that has dramatic impact on your IRR. So the multiple risk, I'd say it depends. And sometimes, you know, these companies will hold their multiple for a long time, over a long time. So it's not like it trades at a premium multiple and that goes away. You know, a lot of times these great businesses carry a premium multiple for years and years, decades above the market premium. So it's not, you know, and when you go over a long enough period of time, that multiple, the importance of that multiple, it's not, doesn't go away entirely but it, it starts to shrink over time. You know, whether you paid, you know, if you have a business that compounding capital at 20% a year, after a decade it's like 6x increase in cash flow, let's say. So does it matter that much that you pay, you know, 20 times or 25 times? You know, it doesn't matter as much in that whole arc. But obviously you want to try to get as low a price as you can if that is a big influence on your outcome at the end of the day.

A (9:38)

Right, because eventually you're going to get the same return as the businesses return on invested capital. And any premium you pay gets amortized over a long investment enough period of time. But that could be, you know, a 20 to 30 year period.

B (9:50)

So yeah, the famous, famous Munger quote, right, where he says, you know, we, whatever you pay, if the business earns a 6% return of capital. That's what you're going to get over. Yeah, as you say, a very long period of time.

A (10:01)

Yeah. And it's interesting because I was, I was just talking to Bill Nygren of Oakmark Funds and he is kind of takes a little bit of, I'll call it a middle ground position between this, where he, he says he will actually sell a stock if it does kind of get to an extended valuation. And he's not willing to assume, you know, kind of that it's going to continue to compound through that, that period. Whereas I think you would hold through that period of compounding. So maybe what is he maybe missing that, that you're seeing there?

B (10:32)

I don't know that he's missing, missing anything. He's just choosing not to take, you know, a particular risk. And for me, I look at it and say I really won't know. It's very difficult to say when the stock gets ahead of itself. There's lots of examples. You look at the past data and you look at these compounders and what they've traded for. A lot of times they look expensive every year for years and years. And so if you're gonna sell or not buy it just because it trades at a high multiple, you're gonna miss out on a good part of the returns. I mean, another way of saying is the market's not always so dumb. Right. And so sometimes the higher multip. Because the market expects pretty good performance. And then you get those situations like, you know, Terry Smith does this where he says, you know, if you go back and you could, what you could have paid for L' Oreal and still gotten, you know, a 10 return or whatever and it's a, it's a crazy multiple like you know, 150 times earnings or something, what you could have paid. So the market, in some ways, you know, cons, there is a persistent mispricing of those companies that can continue to compound at those rates for a long period of time. So sometimes you can get, you can get some good value that way. But yeah, I'm just saying that I'll take that risk and sometimes, you know, I will get those drawdowns and that will give me a chance either add to it or when I just continue to hold it and you know, you suffer those fluctuations along the way.

A (11:59)

Yeah, it's interesting because I do remember this quote too. I think it was. There was a letter Howard Marks had where he was talking with the sun and his son was saying, you know, you should hold a great company through any and every Period. I think they were quoting Coca Cola or something. And the price you could have paid for that and it would have still all worked out. And at the time, I believe he was a big investor in Sea Limited. And very shortly afterwards, it's had, you know, a 90% drawdown. It's still 60% lower than it was five, six years ago. And it's, it's one thing, I think, to say these things, it's another thing to, to do them and live through them. And you could point to all sorts of financial metrics. Yes, they're GMV is up, their revenues are up. But that's a tough thing.

B (12:38)

Yeah. And there's also, you know, there's, there are extremes where, you know, you. Where I think I would like to say that I would make that call, but I haven't really done it very much, I have to say. I mean, most of the time I've just letting it, let it ride. And, you know, if there's, there's a lot of problems, I mean, there's a lot of challenges. If you're going to make that a regular decision, if you're going to say, okay, I'm always going to make this decision that if stock gets a little, gets ahead of itself by however much, whatever valuation or multiple you're going to say, then you're opening yourself up to making a lot of decisions across your portfolio all the time. And what are the odds that you're going to get them right? So that's the other thing. We assume that we're going to get them right, but you're going to get some of those wrong and you may get some right and then you reinvest the capital somewhere else and get that wrong. So, and then there's a tax drag also. So you have to, you know, when you work through the math, okay, so you sell an idea, you take a tax hit on that, your next idea has to be quite a bit better than the idea you have. And then you have to play around with some sort of odds on how often you're going to be right. I mean, if you're at 50, 50, it's not worth it. You know, if it's just a coin flip, you have to get right a certain percentage of the time. And then your reinvestment risk, you have to get that right. So I think that if you're, for me, again, if I'm just erring on the side of just letting it go, I'm cutting back on these number of decisions I have to make and I'm Cutting back on the potential to make a lot of mistakes. That's, you know, it's a difficult, humbling game, as we all know.

A (14:11)

So does that mean when you're kind of buying a stock, you're looking at what the return on invested capital is and you're kind of just saying whatever happens with the stock price, that's the return I really think I'm going to get. And if the stock price goes up a lot, I'm going to just hold through that.

B (14:25)

Yeah, that's right. And usually, you know, over like a 10 year period of time, even some of those fluctuations that seem large at the time, then they sort of, you know, they fade out over that 10 year period of time and you'll get something close to that, that multiple, that return, that return on capital and whatever your, you know, your exit multiple is, you're going to get some close to that, that irr if you've, if you've done it pretty well. But there'll be a lot of fluctuations along the way. Sometimes you'll be well under, sometimes you'll be way above. And yeah, I think the only way you can really own a business for a really long period of time. Well, not even really long period of time. Let's just say, you know, own something for five years or 10 years, you're going to have to not watch the stock price so carefully.

A (15:05)

Yeah.

B (15:06)

Have you ever on those results?

A (15:08)

I don't know if you've ever invested in Apple.

B (15:10)

I haven't.

A (15:11)

You haven't? Okay. Because that was one I was talking with Bill Nygren about and we had a little back and forth on this because I bought my first shares of Apple in like 2013. And he also bought a little earlier than that. And he was saying for the whole period that they owned the stock and it was trading at, you know, below market multiple basically. And it kept outperforming and doing better than they expected. But the valuation never really ran up much above that. And so it was kind of easy to hold it.

B (15:37)

Yeah, beautiful situation. Right, right.

A (15:40)

But then comes, you know, 20, 21, somewhere around there and the re rates basically in the multiple. And now it's, you know, it used to be a 20 times multiple, now it's a 25, something like that. They sell out of it, the multiple expands even more, the stock price is up even more and I don't know exactly what they left on the table, you know, 150, 200% gain, whatever it was. But he was saying, you know, that was a perfectly fine result I was happy to make my money during that period of time and leave the rest on the table. And I myself, you know, having held Apple through all that period of time, was trying to figure out, okay, 30 times, you know, earnings. It's not growing earnings that much. Like, is this really. Why am I really owning this? I would never buy it at the current prices. I kind of like the tax friction. It makes it a little easier for me to be like, okay, it's not really owning at 30 times. It's like owning at 22 times after, like, the deferred tax piece. But I get why that's such a hard, you know, thing to kind of solve. And then you do make the decision to sell it. And the thing you could buy it, to your point, could not be quite as good as the company that, you know is. Well. And so all of these are kind of the issues that we have to try to solve for. And there's not great solutions.

B (16:46)

No, there really isn't. And it comes down to personal preference. That's why, you know, it's just, what. What risk are you more willing to live with? Are you more willing to live with the fact that, yeah, you're going to get rid of companies or lighten up on them when the multiples, you know, expand a little outside your comfort zone and you're okay with leaving money on the table? Or are you willing to go ahead and take the risk of continuing to own it, but possibly suffer a drawdown later when the multiple comes in? And like you say, there's no real answer. There's no perfect answer to this. So it's. It's how you want to play the game and what your goal is and what your skill set is. Some people are really good at making those switches, have to say, and some people are not.

A (17:32)

You were talking about reinvestment risk. We were talking about it from our perspective as investors moving in and out of different positions. But there's also, businesses, of course, have their own reinvestment risk. And this is perhaps the most clear with Constellation Software, because they're basically kind of like an investment holding company in a way. Since I'm going to assume we probably both are pretty positive on the name, I'll take the more bearish takes for this conversation. One of kind of the biggest risk, I guess, to Constellation Software. I'm not going to say it's AI. I'm going to say it's reinvestment risk.

B (18:08)

Yeah, I would agree.

A (18:10)

Yeah. Because if you are kind of doing that math out of compounding at 20% a year, the capital they're retaining very quickly, in seven years or so, it's going to get to like 5 billion plus dollars that they're going to have to deploy. And that's very different when most their capital used to go to these $5 million VMS acquisitions. So how do you get comfortable around them being able to navigate that transition? And when you are thinking about the returns you're getting because you're saying I'm going to buy a stock and my return is ultimately going to be their return on invested capital as their capital base swells and it's not so clear if they're going to be able to retain capital and earn that 20% anymore. Do you assume kind of a lower ROIC on that? Does your return threshold lower?

B (18:52)

Yeah, my return threshold is lower. I'd say like Constellation is kind of unique in that, yes, it's much larger, but it's so decentralized. You know, you have six, well now seven operating groups deploying that capital. So it's like 5 billion split up among these seven groups roughly, that have to then deploy the capital. And I think the particular genius of, you know, Mark Leonard and what he set up with Constellation is that is kind of what this organization is set up to do. I mean, this is what it's designed to do, is allocate capital. And so I feel like they will figure out ways to do it. And now I agree with you, it gets more difficult. Actually, you know, I, I sort of like the daughters here more now than, than the mothership. Topicus and Lumine are more attractive. The multiples are similar, but their returns are higher, they're growing faster. But Constellation Stealth is still attractive because, yeah, the multiples come in a lot and still very reliably compounding capital at, you know, I think we can pencil, I would say, as confident as you can be in this business that it's going to at least double free cash flow over the next five. I think that's, that's probably a good base and maybe they'll do quite a bit better than that as they do larger deals. And now they have this other strategy now. So yeah, you assume you can't really be sure. Obviously this is another thing we can't be sure. But so far they've managed to solve that problem pretty well. They've deployed an enormous amount of capital. And I always think of Warren Buffett's quote where he says, well, this is both an opportunity and a risk, you know, where he says that a company with a 15% return on equity is going to deploy more capital in the next five years than the business has deployed, you know, in its history up to this point. So it's an enormous amount of capital that they're gonna have to deploy over the next five years. And it's, again, both the risk and an opportunity. So we'll have to see how they, how they do it. But I feel pretty good about their process and, and the team and, and the opportunities. And even though it's much bigger than, you know, itself, it's still a relatively small fish in a very big pond. I mean, how. There's a lot of these. There's a lot of software in the world and a lot of potential ways to deploy capital, and who's to say they couldn't, you know, expand into other verticals at some point? So we'll have to see.

A (21:22)

It's very hard, though, for a company to keep their culture. And with Mark Leonard now stepping out of the picture more and more, I don't think there's been that many companies that have, over a long period of time, really been able to stick to their DNA and not stray from it. So how do you have kind of confidence that that's not going to happen here, especially to your point when most of the capital is going to be deployed, you know, just a few years out from now?

B (21:45)

Yeah, well, when it comes to Constellation, again, it's sort of a weird animal in that I'm not sure you could say there is one culture across all Constellation. I mean, I've talked to a lot of people work there and, and their experience is different depending on where they were and who they work for in that particular, you know, subsidiary or subsidiary or, you know, whatever. I think what unites them is they do have that, that framework that they use for acquisitions and the framework they use for running companies. You know, there are all these different points and metrics that they share and they certainly share best practices and things like that. So there is this sort of. There is a culture that we would love as investors. There's this mindset of focusing on return on capital, which I love. And, and they have this experimental. I think they also have this culture where they're willing to experiment and try and try different things, test one versus another, and again, like I said, share those practices across the, the organization. So there is. There's always a cultural risk when businesses grow. And yeah, I mean, it will probably change. And I think another way to get comfortable with it in this particular case is in Constellation, there's Still a lot of people at the higher level that have been there a long time and so I think they can carry that, carry that same culture forward. I don't think we're going to see any, you know, big changes in the way they do business for a long time still.

A (23:13)

Yep. And Mark Leonard's also talked about how there is no top down culture. And to your point, every, you know, subsidiary has their own culture. And it's also interesting too because he would sometimes say, like, we'll never assume cost synergies when we're like buying a company. And then you could just pull up the M and A decks of the different companies and some of them do assume synergy. So they're making their own decisions.

B (23:37)

Yeah, yeah, yeah. And it's hard with those models. I mean, you know how it works, you know, when you're working with spreadsheets and you need to get over the extra half percentage point, you know, you can make it work. There's lots of ways. So again, that's something that will probably vary by subsidiary and how they really handle it. But I mean overall it's been pretty good result over many years the way they've done it.

A (24:01)

So of the stocks in your portfolio, which kind of at current prices, I'm assuming, you know, a lot have kind of been beaten down recently. Which excite you the most? Maybe other than Constellation Software.

B (24:15)

I mean there's a number of, I mean, almost across the portfolio, you know, I have at least 12 names and probably, you know, there's probably nine of them now that are trading somewhere in teens free cash flow for, you know, this year's, this year's free cash flow Teens multiple. So I don't know, I mean there's a lot, a lot of things. I like Roko, I don't know if you've heard of Roko. It's in Sweden. It's a Swedish serial acquirer and it was started by the former CEO of Lifco. Lyfco is a very successful Swedish serial acquirer model there. And so Roko went public last March and yeah, it's kind of a go anywhere acquirer of a variety of different businesses. And you know, they'll buy 70 or 80%, they'll leave the existing management team with a piece. So there's some continuity there. And yeah, I think now you know that that business, you can, you can, you sort of have the roadmap, you have Lyft Co. And you have these other larger serial acquirers which they're just doing, following that same Playbook. And you know that business is trading oh you know, under probably 18 times this year's free cash flow, something like that. A pretty reliable compounder I think that will be. They've already done three acquisitions this year. And so that's one that I think will reliably compound for a long time experienced team. We have Frederick there, you know, again, he's the guy who gets credit largely for building Lyftco, which has been a very successful company and worth worth studying. So that's one. I mean I mentioned the insurance brokers before. You know, they're as cheap as they've been in a long time. Again, you could probably do well with anybody in that group. You know, AJ Gallagher, Brown, Brown, Marsh, Aon, those are the kind of the big four, but those are very resilient cash generative businesses and very sticky customer base and reliable, reliable growers. So I remember when I was doing research on Brown and Brown 2008, their revenue went down 1%. So there aren't too many businesses where you know, that kind of resilience. And these businesses now are going through drawdowns that draw down for Brown and Brown, I know is the second worst since the worst was the 2008 crisis, which is kind of hard to believe when it was cut in half the stock price. And I think it's almost cut in half this time. So it's a combination of slower insurance markets and AI fears there as well. But you know that, that's another one. I think it will work out pretty well if you can, you know, you have a little patience because they're starting multiples pretty low. The returns on that business isn't as high as something like Constellation. But I think you could reliably do something like 12 to 15 and then be plenty, be good result and you may get some uplift as the insurance market changes at some point in the next five. Yeah, I mean Copart's another one that's been slammed and I think that's another one that's trading less than 20 times free cash flow. It's interesting. You know, they've started buy back stock. Oh, I mentioned Brown, Brown also buying back stock. I think they announced it was one and a half billion. I think it's about maybe 6 or 7% of the company at today's prices. So Copart is, has also bought back stock. This is what I love when you know, management teams respond rationally to big steep declines in stock prices. So yeah, I've got buybacks in Copart as well. They bought back about 500 million in the first quarter and they've got still 5 billion in cash on their balance sheet on what is, I think it was roughly 32 billion market cap. So they could buy, you know, 10% of the company easily just with cash on hand and still have a lot left over. So yeah, those are some things. You know, these are high quality businesses that have done well over long periods of time and they are out of favor at the moment. But it's been interesting. I'm sure, you know, you're aware of this. But like anything that smacks of quality has been whacked. I mean, you look at, you know, there's a whole lot of a list of companies that, where the multiples have come in 35, 40% or more. You know, everything from Cintas to Danaher to, you know, the luxury Hermes and Ferrari to, you know, the alt managers. This looks like a lot of carnage right now. So yeah, it's a good time to go fishing.

A (28:54)

So I definitely want to ask some company specific questions. But just kind of zooming out big picture, a lot of these quality stocks have you just mentioned are in these kind of stock drawdowns. I think if you were an efficient market theorist, you would say that, you know, the market, the market's reflecting, you know, new risk and it's currently being probabilistically weighed. And that's why, you know, the stocks are selling off. Of course, as an investor, if you're thinking of this as an opportunity, you have to kind of dismiss these risks. And so I'm wondering if you think that a market can really sell off to this extent for basically risks that don't really exist, which is kind of like what we're implying.

B (29:33)

Yeah, I mean, I think it depends on, depends on the companies, you know, some of this. If we were to go look at individual companies, I'm sure there are some that we're going to look at and say, well, they were just, you know, just too expensive and something has definitely changed. Like, I don't know, you know, is Duolingo going to get back to where it was? Is that a business that we can assume is, you know, probably not. I mean there are some businesses that are, have real risks.

A (29:59)

You just made a lot of enemies with that one.

B (30:01)

I'm sorry, maybe they may not do a lingo, but what. I'm just throwing it out. I don't know that much about it. I'm just saying, you know, there's some businesses out there that might have some, you know, real challenges with and are they gonna be able to come back? This. I'm laughing too, because I remember there was one time I did a podcast several years ago and I threw out Peloton as the one that I thought, you know, might not, you know, would not come back. And I got a lot of enemies from that too. But at least that one worked out. I mean, it didn't come back.

A (30:31)

Chris Myers says Duolingo is the next Peloton. Oh, God.

B (30:35)

I'm not saying that, but I'm just, I'm just saying there's something like, to your point, there are some real, you know, we go by company by company. I'm sure there's, you know, some of these, there are real risks and. But I do think the market sometimes gets in these modes where it just throws out everything, you know, altogether. So software, all software has kind of been radioactive. Does that mean that, you know, it's all compromised or, you know, I don't think so. I think the AI risks fall unevenly across different kinds of software. You know, brown and brown insurance brokers generally. Is, is the AI a real risk there or are we going to look back and say actually it was a tailwind? Because you can also make the case as they have, like A.J. gallagher on their investor day, they are saying that over the next five years, they think because of AI initiatives, their profit margin will go up 6 percentage points to 40%. So if that happens, that's huge. And there's been other, you know, but of course, the insurance brokers, their largest expenses, mislabor and people. So to the extent they can automate certain things or enhance the efficiency of their brokers. Yeah, maybe this is a tailwind. So the market can obviously get things wrong. I mean, we've had, I guess the efficient theorists would say that in the moment, you know, it was, it's priced right for what we know. And then subsequently, depending what happens, you know, those things get re rated back upward or, you know, some of them, as we said, will never recover. So I think, you know, what we have now is this. There's a lot of risk. So there's, you know, there's the trade wars and there's real wars and there's AI and there's energy prices and then there's private credit. And so all these things affect businesses different ways, but across the board, at least. Actually, I shouldn't say across the board because some companies have not suffered multiple compression. In fact, it's gone the other way. You know, ExxonMobil used to trade wasn't that long ago where it was trading a single digit multiples earnings and now it's you know, 25 times or look at something like, you know, Caterpillar and John Deere, you know, they're trading in still 30 times plus earnings, you know, never mind free cash flow. So for businesses that are growing, you know, mid single digits at best with returns that we would regard as, let's say lower than some of the other higher quality businesses we would like. And you know, Walmart is another example. I mean it's trading at a very large PE relative to, you know, its expected growth rate. So it hasn't hit everything. Energy has done very well and anything that seems like it might be a, a haven or a place to hide out from AI is, has also held up and done very well. So you know, time will tell, have those multiples hold up and whether or not investors got a decent return from here.

A (33:31)

Yeah, and I'm curious your thoughts on this because when we're thinking about the AI risk and we're actually thinking about the ways it can impact businesses in most, most scenarios they're fine. Right? You know, you could transition your business model from seats to usage. You can incorporate AI models into your product. You know, an AI native startup isn't going to be able to do anything you can't do if you move quick enough, all of that. But the one kind of AI risk that still lingers over there, I'll call it an existential risk, is like we get super intelligence AI that is able to do everything we could possibly conceive of and just do it automatically and perfectly without any sort of issue. And I call this an existential risk because if that was the case, it's not just, you know, your software company that's going to be in trouble. We as humans are especially when you add robots to the mix and put the two together. And so I think when you get to these existential risks, this is something markets are particularly bad at pricing because you ultimately come to the realization that you can't price it, you have to just accept it at the risk. So I'm curious your thoughts on that.

B (34:38)

Yeah, I've thought about that. Where you know, sometimes I'll say to people, well you're asking me to like prove a negative. Like if you're going to tell me AI can do X and Y and Z in five years from now, I can't tell you that it won't. You know, and some of the, you know, the real AI Max bowls. Yeah, they do what you just said which is they create this almost godlike thing that can do everything perfectly. Yeah. And if that's the case, then we have much, much bigger issues and I don't think we'll be talking about our portfolios then. So I think, I think when it comes to these kinds of transition, I think you're right when you say most businesses will be fine. You know, it's like, it's not a perfect analogy, but it does remind me of, you know, the late 90s and you had, you know, the Internet and stuff coming along and, and everyone thought retailers would be toast and newspapers would be toast. Speaking of newspapers, that's another interesting one. You know, us A today, I think that's trading. It. I know it's trading at a bigger multiple than Constellation Software, and it is a newspaper stock that's been declining revenues for five years in a row and it's leveraged two and a half times. So it's a little funny. But yeah. So I think with these things, you have to. I think most businesses will be fine and I think it's the incumbents really battle to lose. So if you just sit in your hands, you don't do anything, then you're, you're going to be. You'll probably be in trouble. I think there are a lot of these businesses, too. You have to think about why they exist in the first place. You know, like vertical market software, for example. It is an outsourced solution. It. People use vertical market software because they don't want to do it themselves. And just because you have that capability doesn't mean you're necessarily going to do it. I mean, just because you can, you know, go to Home Depot and get the same tools as contractors doesn't mean you're going to want to do it, you know, do your own contracting work all of a sudden. Just because you can, you know, have all the tools to make. Make whatever you want in your kitchen doesn't mean you don't go out to eat. I mean, so point is that businesses also have things they do well and then there are things that they would rather outsource. So I tend to think of BMS in that way. It's an outsourced solution, but AI risk, I mean, yeah, it's impossible to answer. It's. It's impossible to answer that question. If it's, if it is a godlike thing and you just. It's just something we have to stay on top of and watch and, and when we get some disconfirming evidence. Yeah, that's when you're gonna have to change your opinion.

A (37:07)

And if it starts to happen, then you pile into Walmart. Yeah, that's a joke. So as we are talking about this existential risk, though, you know, one company I've talked about a lot too, and you mentioned it, Copart as well, there's this lingering risk in autonomous vehicles. I live in Los Angeles, I see them out on the streets now. And so it seems quite likely that this is going to be a trend that only continues to improve over time. And so what do you think about kind of the terminal value of Copart, given that? It seems like that's it's going to happen at some point. Maybe soon.

B (37:42)

Yeah, I don't know if it's going to happen soon. I mean, you have to think like big picture, you know, there are 280 million whatever, plus registered vehicles in the US and how long is it going to take before autonomous vehicles make even, you know, or even 10% of the fleet? I think those adoption curves tend to be slow. I remember I heard a, I heard, I read a GEICO SVP who had a lot of interesting data on this, and he used the example of front prevention crash technology, you know, and I think it was introduced in 2000, and I think by 2009 it was something like, it was something like 1% of the fleet. And then by 2000, I want to say 24, let's say it was like 70% of new cars have this technology, but it's still only like, it's not a high percentage still the fleet. So. Yeah, so these curves can take a long time. Another interesting thing to think about would be like, Waymo, which, you know, that they, they're very advanced as far as autonomous vehicles go. But I think they're active still in only four cities. I think that's right, four or five cities. And they've been in development, you know, 10 years. So this stuff takes a long time. And especially there's still a lot of stuff that has to be worked out. Like if you get in an accident, you know, what's legally who's responsible? And I mean, what if it is, you know, how do you determine who's responsible if one of the people are not driving? And so there's just a lot of things that have to be worked out. So I'm less concerned about that. But you do what, you can watch it. This is one thing you can watch, like use new car sales. We can see how many of them. Or autonomous vehicles, let's say, if it's a, you Know, if it's a million new cars and we can start to think about how long it might take. But I agree. I mean, I'm not, I know a lot of other Copart shareholders and they're more dismissive of this risk that's like, you know, decades away. I wouldn't say it's decades away. I think it's going to come pretty, you know, quicker than that. I don't know if it'll be like five years, but it's going to be soon. That we'll, we'll see. But then with Copart, it's interesting because then there are offsets and you know, as, you know, the, it's much easier to total one of these kinds of cars, you know, a new modern car. Okay, you can total a car the, in a fender bender, you know, you know, like when the airbags go off and you have all these whatever, they have 16 sensors in the front bumper. You can easily total a car. Copart now. So that's a compensating factor. And then with Copart specifically, there's possible other verticals. So, you know, they've started to get into yellow iron, which is more RB Global's traditional bread and butter. But they do have purple wave where they're trying to do that and who knows what other big things they could do down the down the way, what other services they could add, what other things could happen in that network, what all that real estate they have might, you know, what that could be worth, what they could do with that. I'm not saying any of that should factor in necessarily today, but it's interesting to think about. So yeah, with Copart, I think I agree at some point it's coming, but I think for now it's not something to worry about yet.

A (40:57)

So one of the metrics you would look at to see whether or not autonomous vehicles is having an impact is you'd want to look at something like their insurers volume. And that's something that's been down for past two or three quarters, I believe. And this is the first time it's ever had negative volume. And I, I don't believe by any means that this is currently autonomous vehicles impacting their volume. But that would be the metric you would look at. And my guess is, you know, that does give some people fear. Some people probably conflated the two as they saw a rollout of av. But what do you think about, I guess, you know, the fact that this metric is down and maybe it's not driven by av, but isn't that kind of a worrisome thing for you? And is that, would that be the metric you would want to look at to kind of as a health barometer for whether or not AV is taking a hold?

B (41:46)

Yeah, I think that would be, that would be a good measure. But I think also we can track autonomous vehicle sales. So I don't know what that number is right now. I want to say it's, you know, it's very low still, but that would be a number to track. You know, how many new cars are on the market that are, do have autonomous driving or it doesn't have to be fully autonomous like, you know, Tesla's. Now you can drive as long as you, you know, you keep your eyes sort of on the road. Things drives itself. So I think that will, will have an impact. But again, it's not necessarily just that, you know, it's, it's volumes, it's, it's the salvage rate. So there's a lot, there's other factors involved that we'll have to keep track of. You know, all those things and insurance volumes. I mean, some of that is, you know, there's competitive dynamics here. You know, Progressive has grown a lot and that's more of an IAA company. So, you know, there's, there's other tugs and there's other things tugging on that thread as well. So yeah, we'll, we'll have to see how that, how that plays out.

A (42:54)

Were you surprised by iaa? Who, for those that don't know, it's one of Copart's big competitors and they traded ownership, I think three times in the past 20 years. They've kind of a worse run company. Their returns on invested capital have been worse. They would lease their land instead of owning it. That weighed on their returns. It was also a strategic miscalculation because then the landowner kept raising the rents on them because it was critical that it turned out that you actually own this hard to get land. And now though, in the past couple of years after it's been acquired by Ritchie Bros. It seems like they've actually kind of gotten their act together a bit. I was reading an Alpha Sense expert call where a VP of Geico said the lead times the amount of time it takes to get a car picked up and sent out to auction. It was actually about the same. It was at parity. He thought maybe IA was even a little better in some respects. I don't know that I buy that, but clearly they've gotten a lot better. Were you kind of surprised how Quickly they've been able to improve their operations. And does that change your overall opinion on Copart?

B (43:53)

Yeah, I was surprised how quickly they got together and I guess it makes sense when you figure RB Global bought this thing and they're not just going to sit there and, you know, do nothing with it. So they have obviously.

A (44:03)

What happened to the last couple owners?

B (44:04)

Well, that's true. I guess I should have given them, maybe given them more credit as operators. But yeah, what they've done is pretty impressive because I've also heard those things as well that the, the gap between IA and COPAR had shrunk and the insurance industry has this weird dynamic where the industry as a whole likes to have a number two. You know, they don't want to have all their volume go to Copart. So it's a little bit frustrating that you could be the, still be the top performer and still, you know, you could lose, lose a little market share here to IAA because now people are like IA is back and it's not such a big gap so they'll get a little more volume than they might, might have beforehand. So that is kind of a frustrating dynamic. But it does, it does change a little bit. Yeah, I mean you can't, I, I think it's easy to look back now and say that Copart was probably over earning for a stretch of time there where they were just sort of feasting on IAA and, and you know, winning all that volume and that that's no longer going to happen. So I think that growth is, the growth has probably slowed a little bit. But Copart, when you look at it historically has always been kind of a lumpy grower. It's a little surprising if, you know, you could look at it and it'll have a 20% year and then I'll have 10% year and it'll go nowhere and then I'll suddenly do 20% again. So it's a little bit uneven in that respect. But I still think, you know, it does a necessary thing. It's, there's one of two and it's in a great position still competitively against iaa. So I don't see, I don't see the volume going like 50, 50 between the two. I mean, from what I gather still Coparts Network is still getting better returns than ia. It's closer again, but it's still the co parts advantage. So yeah, I mean it's, it's an interesting two horse race now with a more capable number two, that's for sure.

A (45:59)

How are you able to kind of get that market share data? Because I know when I was doing my research on them, they disclosed market share once in like 2003, 2004. You could kind of extrapolate out from there the volumes. It's not perfect though. But then there's also this issue of what you're actually including as you know, the market because as you know, there's something called Copart Blue now, which is kind of higher end and quote cars, because these are cars that are at least drivable, but these are not nice cars by any means. And I've never been able to actually find a very clean market share number. I, for some estimates, I had them at 50. 50.

B (46:37)

Yeah. I haven't been able to get a clean one either. I will say, like, well, you could ask, you know, when you talk to the companies themselves, they tell different stories. So Copart will say they haven't lost any share to a exception of one. There was one regional customer that they lost in, I think it was 2024, maybe it was 2025, I don't remember. But other than that, they'll say they haven't lost. And then you talk to, you know, IA and they'll say they, they are, they have taken some share. So, but it is com. It is complicated. So we're, it's, it is kind of guesswork on that because just like you said, there's a lot of complicating factors. It's not like a clean market share data. So I, I'm kind of guessing there when I said, you know, I don't think going back to 50, 50, I'm operating on a, an older number where, where it was at one point roughly 60, 40, COPAR and IAA, the volumes within 22. But that was, that was several years ago. It was years ago. And I can't recall the source of that exactly, but yeah, in either way. Well, it is tough to get that.

A (47:55)

This would have been a perfect segue to ask you about your research process, but I had one more Copart question I want to fit in. So, as you know, just so listeners are aware, there's a difference between severity and frequency. And so severity is how bad an accident is. Frequency is how often it ends up happening. Now, Copart, of course, a lot of their volumes comes from these salvage vehicles, which are cars that get in a car accident, it gets picked up, it's totaled, they go and they resell that. So for the past, I guess, 40 years, basically frequency has been dropping while severity has been increasing. So Even before we get autonomous vehicles we get stuff like anti locking brakes that's reducing the amount of accidents, all sorts of other safety features. And when there is an accident though, it's getting more and more expensive to repair the car. Not least of which because there's now a lot of sensors technology in them. Sometimes there's literally miles of wiring and so you get an offender bender, they can't rewire the car, they just total the whole thing. How do you have confidence that the severity is going to continue to offset the frequency? Because as soon as that flips, I feel like the narrative for Copart is going to be very different because then they're all sudden going against a volume tailwind or headwind. Sorry.

B (49:08)

Yeah, I definitely agree. And I mean, you know there's that crash report that comes out every quarter that you probably get as well from CCC and that has a lot of interesting data on the cost of repairs and, and yeah, I mean so far that has, that trend has only been up and to the right. But so I don't know about again confidence about, about forecasting it per se, but that's something that, you know, it's certainly data point you watch as a Copart, Copart shareholder. And that can fluctuate too. I remember, you know, in 2020 there weren't people doing as much driving but then severity went up because you had a lot of speeding and distracted drivers. And so you know, you had this temporary, temporary changes. So that, that can, that can fluctuate a little bit. But over a long term, over period of years, it seems like cost repair only goes. I don't see that coming down. I just don't see how that would happen. But I guess it could happen. So it's something again, it's one of those data points you watch as a co port shareholder. You always check in there and see what, you know, what cost of repairs looks like. But I agree with you, when that flips then that would change the story quite a bit.

A (50:19)

Do you think you'd still own it at that point?

B (50:25)

I don't know.

A (50:27)

Honest.

B (50:28)

Yeah, I don't know. Yeah, it's honest. I'd have to depend on a lot of other things too, like where it was and you know, where it was, the stock price was and what else I had as alternatives. And yeah, it depends on a lot of factors. But I've owned Copart for a long time and you know, I like to say I give it the benefit of the doubt but that's a pretty important metric. So I'm not sure we'd have to see.

A (50:59)

So let's maybe shift a little bit to talking more about your research process because you own a lot of companies in different countries, companies that I'm not that familiar with. Roko was the name of one of them that you just mentioned. So maybe first, how do you find these companies?

B (51:17)

Well, you know, I would say, because I've been doing this for a long time, that there's just a lot of companies I just happen to know about. I don't know that where I got them initially. I mean, earlier I. When I was younger, I used screens and you know, you do a lot of reading and you read other letters and other investors and chat and talk and you get ideas, go to conferences and things. But I don't really do that much any. I don't do any of that anymore. So it's more like reading and you get, you know, you find adjacent ideas. So the way I found out about Roko was, you know, I invested in Lyftco and the CEO there when I bought it was relatively new. He was only there for maybe, I don't know, a couple years or something like that. So I thought, well, it might be good to talk to the old CEO. That's why I looked up Frederick. He had started this new thing, Roko, and it was private. And then that was in 2021. And I stayed in touch with him ever since and I was on his distribution list for the results. So it was like I would see how the company was doing and following that along before it went public. And, you know, so part. So. So that's how, you know, that's how you find out. Really. It's not. For me, it's not really so systematic. It's more just. It's a lot of reading, a lot of talking to people. And then you, you know, you find these adjacent ideas and just keep exploring and yeah, that's how you find them. But. And then, you know, the. I do try to get to know them very well. So that. So. And sometimes this can, you know, like, I'm on the board of Technion, which is not something necessarily planned, you know, when I. When I invested in it. It's just that, you know, you're there and you. You get to know them really well and then. And then you kind of get invited to be, you know, part of the board. So, you know, it's all part of the process getting to know the business really well. And. And being someone not just always comes with just, you know, trying to take Take, take. But trying to also be helpful to them, you know, trying to help. You know, I remember sharing research with some of the CEOs of my companies. Things that I found I'd share with them. And so you try to, you know, not always, you know, try to make it so you're getting something that maybe try to give them some value, too. So when they talk to you and they feel like it's not a complete waste of time, I think that's a hurdle too, sometimes to get over. When you first meet with someone, a team, you know, they meet with a lot of investors, and they know that most of the investors they'll probably never see again, or the first time the stock's, you know, down 20%, then those guys are all gone, you know, so. So when you're there and, you know, year after year, you're still there, and they start to, you know, you learn more, I think, as you. As you get to. And they start to know that you're, you know, it's not a waste of time to spend some time with you. And so I've had some pretty good fruitful meetings that way, where they really, you know, open up and explain some things to you about the business. And it's been helpful.

A (54:17)

Yeah. Because I've sat in on a lot of investor meetings, and a lot of my experiences are investors asking questions that I'm like, this was in the earnings call transcript. This was in the conference call. Yeah, it's like first paragraph of the 10K guys.

B (54:29)

Yeah. Pet peeve of mine. Like, you ask things that are in the disclosure, you know.

A (54:33)

Yep. Yeah, yeah. And, well, so thank you for that answer. I can imagine people that are trying to learn to become better investors. That was an extremely frustrating answer to hear because you basically told them, you just have to do it for a long amount of time. It'll just kind of happen, which is, you know, kind of the same thing. I'll tell people because they'll be like, how do you find them? I'm like. Like, you. You can use a stock screener. I've never found a stock from a stock screener, though, so I don't really know.

B (55:00)

Yeah, yeah. I mean, yeah. I wish it were more of a magic bullet that way. I mean, I did did use screens when I was younger. That's how you kind of, you know, you get ideas and say, what's that company? You research it and whatever your screen is, you know, I remember I screen on insider ownership, and that alone would screen out a lot of things. And so you'd find all these cool family owned businesses that have been around a long time. That was something that I was very interested in. But yeah, just over time you just sort of build up a, a list of companies you think are interesting and, and you're always adding and taking things off and it's just a process. But for me, at least it's not so systematic. I know other fund managers are much more, you know, systematic and they've got, you know, they're looking at lots of names routinely and, but for me it's a, it's a little more organic, I guess how I find those ideas.

A (55:49)

What about your research process? Because I don't do the same thing for any company. I research even though my goals are kind of the same, but it's different for each. Or are you similar?

B (56:00)

Yeah, I would say it's similar. Like even something basic like, I don't know, meeting with management. I mean, I may not do that. You know, it depends on the company. Do I feel like I really need to meet management? I mean, I own COPAR for years before I talked to the cfo, you know, but I talked to people who worked in yards, I talked to people who worked at IAA yards. I talk to people or, you know, sales managers and so forth. So it does sort of depend on what you're trying to learn, you know, what you, what you want to get out of it. Some companies, I don't know that I mean, you know, there's just, they're very open or they have calls and so it's easier. You know, the hurdle is easier. Constellation Software, you know, I think they make the hurdle. The bar to be a shareholder is pretty high. You know, there's no investor presentations, there's no up till just recently there was no call. So you really had to kind of dig and understand it on your own. So it really depends on the company. I agree with you.

A (56:58)

What about how much research do you feel like you need to do before you buy a company? And maybe there's a company you kind of superficially know and it's down 40% and you're like, sure, I really kind of want to own this, but do I need to do more research first? How do you kind of square that?

B (57:12)

Yeah, I mean, this is a big difference between having a PA and running other people's money. If it's like your own account, yeah, you just take a little flyer on it and you work on it later and. But I feel like when it's other people's money, there's probably there's a higher hurdle. So I do feel like I have to get there. I have to get. I don't have to get all the way there. I can try to, you know, take a 2 or 3% position to start and be most of the way there and then keep working and learning. And that's actually, I prefer that better. I didn't always do it this way, but I like it better now where you take a small position, say 3%, 2 or 3%, and you know, you've done some work on it, but you're not all the way there. And then you just keep learning and. And, you know, you just. You don't feel like you have to ratchet up so quickly. You know, you could own it for six months, nine months, and still have it at the same price. Okay. You know, you're still researching it, whatever. It's fine. Because what I find too is that you learn a lot when you own something than when you're just following it. No matter how closely you follow it, it's somehow different when you actually own it. You always. You're learning different things that you maybe don't appreciate as much when you don't own it. And you were just looking at it from the outside. So. I don't know, like, I used to own Dino Polska, which I had. I sold early, 2025, but I had an okay run with it. But I remember, you know, one of the things early on going in, I knew you just can't talk to the top guy. You know, you can't talk to Tomas Bernat Key. He just doesn't. He doesn't talk to people, which is okay. You know, I went into it knowing that was going to be the way, and there's certain other things. But, you know, as I got to own it, it just kind of got a little bit. I got kind of. Yeah, it kind of bothered me more and more that I couldn't talk to him. Especially like when they went through a period that was diffic. I would have loved to get his take on the business, but really can't. So, you know, that's like a little thing, but it's just an example of something that, you know, you're okay with it initially, but then as you go on, you own it, it starts to bother you. And there are other things about the business that started to bother me a little bit. So I don't know. It's sort of a roundabout answer to your question. But yeah.

A (59:29)

And it's interesting because I've noticed that Too, when you do manage someone else's money, it does change your decision making, I think, usually for the better. But it makes you, at least for in my case, more risk adverse, I think.

B (59:42)

Yeah, I mean it makes you a little more disciplined. Right. You feel like you have to like, so we talked about, you feel like you have to do more. You can't just take flyers on things, you know, it's so that can be good or bad. If you're good at taking flyers on things, it's not going to be good for you.

A (59:57)

Yeah. And I, you know, I myself have been trying to figure out exactly how much research you need to do before you take whatever you want to call a full position to be. And it's tricky because I feel like I could get up to speed on a name very quickly and know it better than 95% of people that you'll talk to and all that. But then that could almost give you like a sense of false confidence that you actually, you know, understand what's going on in the business. And the unfortunate thing too is that a lot of the extra research you do after the first, we'll call it 20, 30 hours, like you learn, you'll learn interesting things that very commonly, at least in my case, doesn't change the investment thesis. And then if it does though, you have to be intellectually honest enough to like, you know, sunk cost fallacy, move on. But also if you did take a position, a small one, you have to sell out even if it's down or something like that. And I don't know if that's going to present a different sort of, you know, psychological friction. And so that's why I've been a little careful around that too.

B (60:50)

You know, I often think that the main reason we do all this research, like you mentioned, you know, after 30 hours you don't really learn anything that changes your thesis. You just, you learn interesting things. But I often think the real reason why we do that sort of in depth research is to just to build up our own, our own conviction as like, you know, the more you know it and the more you increase the odds that perhaps down the road that you'll make the right decision, you know, because lots of things happen. You'll get news and if you know it really well, you'll know how to correctly interpret that news. And until you'll react differently maybe than someone who doesn't know that, know it as well. And you have to have that conviction too if you're going to own something for a long period of Time. So yeah, that's, that's another reason to do all that deep research. Not that you're expecting to like find something that you didn't know or you're, you know, it's going to be like this gotcha moment where you found something, but it's really just about really building up your own conviction and your ability to hold it. But also you're hopefully increasing the odds that you'll make the right decision later when there's other information that comes in.

A (61:58)

Yeah, and I especially like looking at businesses who have gone through prior challenges. I could think of Meta, for example. That was a stock I was researching in 2022. And it's helpful to know that people freaked out, you know, when the transition from desktop to mobile happened. It turned out that at one point they thought a third of their business was going to be from developers and they lost that entire business. And it was just helpful to be aware of kind of that history, this business transition and all that. When you are looking at these kind of different moments in time and it doesn't perfectly parallel where you could say, you know, this happened in the past, thus this is going to happen in the, in the future. But you're right in that it does give you like confidence in just holding it through, that you're like, oh, that must have been pretty scary. And they figured out how to get through that, right? That's right, yeah. So is there any other. So we kind of already talked about Copart and a little bit on Constellation software. I'm curious if there's any companies that you do actually worry about the AI risk. I think we're looking in the stock market. I think Chegg is the only business that is actually homework helpers. Only business that's actually, you know, totally sold off and you actually see a financial impact. I was pressed this question on Twitter, but I have yet to find actually a business that outside of Chegg maybe that's really been impact AI yet. It's like a lot of it is kind of off in, in the future and theoretical and that doesn't mean to be dismissive, but I, I'm kind of curious, why haven't I found one of these?

B (63:23)

Well, Drew, that's a fantastic question. Really? Yeah, it's a fantastic question because often, you know, I, I was having this conversation with someone the other day. I was like, yeah, you know, a lot of the AI stuff at this point is just sort of hand waving. It's like nobody can really point yet to a specific, you know, AI product that has made a dent in anyone's business yet. So I'm with you. I'm. I'm. There's lots of things that I might think about. Oh, that sounds scary maybe. And we can intellectually make a case where that business might be vulnerable. But I haven't seen anything yet. And that will be really interesting to see. Yeah, and the flip side of that will also be interesting to see. I would love to see more use cases where companies are using AI to make their business better. I think there's been some examples here and there. You know, I seem to remember reading something where Rocket Mortgage had used AI to increase the number of, you know, applications they can process. I think the C.H. robinson had showed some sort of data where they were using AI and otherwise. I've heard little pieces of stories here and there. And I was talking to Chapter's CEO and he was telling an interesting story about like, I think it was the Hamburg transit system and it was like their large customer and they get 2 million in ARR from that customer and they'd introduce an AI feature on top of their existing software that saved the transit system like $6 million, something like that. It's like 3x what they get paid, you know, so you can imagine what the next renewal season is going to be like when they go to that customer. But it also poses possible risk because if the savings are potentially that large, if an AI native were to get to that customer before they do, maybe they suffer the pain of making a switch if the delta is that large. That's why I think it's really the incumbent's battle to lose. If you're proactive about it, you can stave off that competition. But yeah, so both ways I think it'll be really interesting to see businesses that are actually impaired in some way by AI. But then also the flip side I think will be also be very interesting. And again, it sort of reminds me of the, of the 90s, you know, the Internet and all that with you have some companies when they did master the Internet, some of the big box retailers that made their business, you know, better when they had an online business. So it might be something like that too here where you have, you know, margins are better in some way or somehow the business improved with AI. I'm really interested to see if that comes to be as well.

A (66:09)

Yeah, I can't help but wonder if it might be a mistake for businesses to actually improve their margin on AI. I'm thinking of like Intuit here. Their margin's been increasing on AI. And one of the kind of interesting things they're doing is they're rolling out more basically human services. So someone that's human is going to do your tax return, but they really just drop it into AI and AI does it and they'll charge you a premium on that because people are more comfortable with there being a person there than. And also Intuit will stand behind the tax return. But as we're thinking about how sustainable of kind of an advantage something like that is, that to me seems a little bit more tenuous. And I can't think of too many instances where there have been big cost savings and, and the business has just been able to retain that and competition never came and all that. So, right.

B (66:55)

Customers will probably get, you know, will probably get most of that windfall in a lot of these businesses. Right. That's how, that's how it winds up. And also, you know, there's, to the extent that there's increased expenditure, you know, expenses to try to try to do this AI technology that may not pay off, it may not be worth it as well. That's where I think, you know, I have a lot of confidence in Constellation Software as an organization. They're not just, they're not just going to do it for the sake of doing, doing it. They'll make sure there is an ROI attached to that. Because I think a lot of businesses will do it just so they can say they have it and it may cost them something extra, but they won't really get any return from it. Or like you said, the, it will kind of just become something that really maybe the customer benefits ultimately, but it won't be like a permanent, you know, raise in margins because you have AI thing.

A (67:46)

Yeah, yeah, that, that would be interesting to see because I think if you do see margins expand, then it's a little bit like innovator's dilemma. It's very hard then for you to say, okay, we're going to cut pricing back down after we just enjoyed these, these lofty margins in response to these new competitors that we just seeded into our market. And it, I'm not going to lie, it reminds me a little bit of evolution, I think, believe that's a business you studied. I don't know if you currently own it or not, but they, you know, also had very high margins. And as a result of that, you could say there was a lot more competition in that area than you would have expected otherwise.

B (68:23)

Sure, yeah, sure. I mean, that's, you know, when you have really high margins, that's sort of the sort of the honey pot that tracks competition. So, yeah, sometimes when I look at businesses when the margins are really high and they're out of whack with everything else, yeah, that's. That can be a little tricky. I almost prefer something that's more, you know, kind of middle of road just because you feel more confident that it can be sustained, you know. But yeah, that's definitely a risk.

A (68:52)

What, what was your decision to sell? Evolution. Because it certainly wasn't. Because the valuation multiple got extended.

B (68:58)

No, in fact, yeah, the multiple was always, you know, cheap relative to the growth rate. I mean, I think I finally gave up when there was a quarter where the growth rate went below 20% and then I decided to get rid of it because, you know, I'd owned it for a. Again, I had a pretty decent run with it, but actually, I don't think I, I was pretty flat on an overall average cost because my initial buy was pretty good. But then I added to it and so, yeah, I didn't really make any money on it for like, I owned it for four or five years, I think. But yeah, in the early years it was, you know, it was 35, 30% and then it was like 32, it was like 28, it was 26, it was 23, it was 20. I think one quarter was 17. I was like, you know, what am I doing? You know, it's not what I thought it was. So there was that plus, you know, the capital allocation kind of got on my nerves after a while too. You know, they were always paying this huge dividend and now I know they're doing buybacks, but at the time they were not.

A (70:01)

And we don't know what they're doing yet. They suspended the dividend and we're, we're kind of waiting. They have been doing buybacks, but they haven't announced like this next big one.

B (70:09)

But you're not f. Yeah, I'm not following it as closely anymore, but so those were kind of the warning signs and, and then, you know, just doing a lot of work around the gray markets and working with the people with the in practice folks. In practice at an expert network. Yeah, I mean, covered some things in the gray markets that were not so good and made me a little more uncomfortable with that exposure. So it was a combination of all those things, made me go ahead and finally take it out. I had no, no guess that the stock would, you know, fall apart after that.

A (70:51)

Yes.

B (70:52)

Kind of got lucky on that part. But yeah, that was the thinking at the time.

A (70:57)

I'M curious because you talk about, we were talking about this earlier on, kind of having confidence in the businesses you own and all of that. I'm curious how much confidence you have when you make a purchase decision or a sale decision is there because there's always going to be some doubt and risk. Like what does that really feel like in the moment?

B (71:13)

Yeah, I mean the selling is always hard and I'm kind of a slow trigger anyway on the, on the out. So it never feels good. And yeah, I mean a lot of times when I sell something, eventually it's, it's higher just because of the nature of stuff I'm buying. You know, most of the times it's, it's quality businesses. And most of them, if you stick with them, eventually they're gonna, you know, they're gonna go up in price. So yeah, it never feels good to sell. But I also recognize that, I think selling, being a good seller is probably the hardest thing in investing. I mean, it's just very difficult to do that well. So it's really the sell decision comes down to company specific things most of the time, but can also be other things going on in the portfolio. You have more attractive opportunities so you, you decide to go ahead and let something go, create space for something else so that, that can happen as well. Although again, I don't like to do that very much with the bar. Has to be very high, you know, for the new things. But yeah, there's not. You're. I mean, we talk about confidence, but you know, it's like a relative confidence. You're never like 100 confident. You always realize that you could be wrong. And that's why, you know, you have a portfolio where you sort of take a variety of different positions and why you're careful, you know, stepping into something new, like I talked about earlier, ideally sort of build up the position slowly over time, get getting to know it well. I mean, ideally for me, the portfolio would be, you know, the top names would be names that kind of earn their way to get up there. They've appreciated a lot. So they're 10, 11, 12% positions. But you know, I've doubled my money on it or whatever. That would be ideal. Doesn't always happen that way, but so you sort of balance that confidence with recognition that you're, you could be wrong.

A (73:04)

Do you think that you can learn consciously? And what I mean by that is, you know, I just did this video on different psychological biases and as I'm kind of going through all these different psychological biases, I realized that I've fallen prey to all of them. But even, well, after I read about them, learned about them, knew they existed, I still fell into a lot of their traps. And it reminds me a little bit of like when you're at a restaurant and the first thing you do when you're at a restaurant and the waiter comes over and says, you know, this is a hot plate. Don't touch it. You touch it. And that's because I'm wondering if there's a difference between knowledge, you know, just, just learning something versus actually kind of incorporating it into your nervous system in a way that it can actually take into account the decisions you make before, you know, you hit the buy decision on a stock.

B (73:53)

Yeah, that's really interesting. Now, you know, I think while you're talking, I, I definitely agree. Like, even though you know these things ahead of time, you still fall prey to them all, you know, all the time. So, you know, I'll throw out one, for example. You know, we all know how anchoring bias works. You know, you either anchor on your cost, prices or price, or you anchor on the price that you saw when you first, you know, learned about the stock and you're doing research and it's 120, you know, you're, you can't help it. You know, you shouldn't anchor on it. But your, your brain is like 120. You know, it's always, it's okay now it's 100, it's cheaper, it's 135. Oh, no, it went up. So it's very difficult. Even, I would say even it, when you, when you're doing it, even if you're still done it, you're still going to make those mistakes. I think, you know, even though if you're conscious of it and you know, it's, you know, you're doing it and sometimes you still can't help it. It's one of the frustrating things about investors. I mean, we get in our own heads. And that's why, you know, a lot of my approach, I, I try to kind of minimize as much as possible, like the decisions. So, you know, that gets back to what we talked about in the beginning. Trying to hold on positions longer and not necessarily having it in my mind all the time that, you know, I can pull this, or I should think about this price relative to my IR every day, because then you're, you're leaving yourself to think, to make these decisions. And it even weighs on your subconscious. Like if you know that it's something you can possibly do. It's just always, it's always thinking about sometimes like put aside. I'm not worried about the stock price now. I'm just going to continue to, you know, do the work on the, on the business, learn more, you know, what do I want to learn more next or whatever or just work on new ideas. So yeah, I think some of it is trying to map out maybe a part of your process that can overcome those. Because even I think doing it, I still think you're still going to be susceptible to a lot of those biases.

A (75:53)

Yeah. And I think I'm also a little pessimistic on someone's ability to, to learn these things. I think you do kind of need to experience them and hopefully you do it while you're young and poor. So it's not as big of a financial impact.

B (76:07)

Absolutely. Those are the best lessons. I mean I remember, you know, you know, early on losing all my money on one stock. I still remember, remember it's lone group was a Canadian like you know, funeral company, roll up type thing. Too much leverage.

A (76:23)

And then there was you like roll

B (76:24)

up back then too completely went to zero. And yeah, and I remember thinking to myself it was like $2,000 or something at the time, but time it was like good hit. But I remember thinking, well that's like tuition, you know, I'll never do that again. I've learned that lesson. I'll never do that again. So yeah, I do think there's certain aspects of it that it helps to actually do it and make lots of mistakes when you're younger and then hopefully when you're older you'll find different mistakes to make, but they're always mistakes to make.

A (76:54)

Yeah, it's interesting because I had a similar thing where I bought the same stock that John Paulson did. This was back in like 2009 or something. It was like a Romanian gold mine. And I was like this, the guy that, you know, just shorted, you know, the MBS and bought the CDS at the right time. So he knows what he's about talking, talking about. And it was pretty mixed and then it ended pretty bad. And after that I never, I never bought another stock just because another investor bought it. I wasn't even tempted to buy anything that, you know, Buffett bought just because he bought it. Which, you know, if you followed him, obviously he's a fantastic investor but you could have made a lot of mistakes and you know, Paramount, the airlines, there's plenty of times to follow him into stuff and trip up.

B (77:35)

Sure, sure, sure. And I, I remember that too. I mean, and then you find out, like, you start learning about some of the big blow ups, you know, like Enron and what was the one, the Canadian one, Valiant. Yeah. So you, and you start looking at all the smart investors who were involved in all these things and you know, how they lost a lot of money. So, you know, to your point, you can't just follow them along. And then I love the people who, you know, want to follow, like Druckenmiller. And of course he says, you know, he changes his mind. He's, you know, changed his mind multiple times and looking at his 13F doesn't have any value whatsoever most of the time. So, yeah, I would agree you learned that lesson pretty quick.

A (78:17)

So I'm glad you actually brought up Drunken Miller. Obviously he does a very different thing than you or I do in terms of investing, but it's a little, I'm going to say it this way, a little annoying that his record is as good as it has been and he exists talking about how he buys a stock like Nvidia before he even knows what it is.

B (78:35)

I saw that.

A (78:37)

Yeah. And it's annoying because then, you know, people come to me and they'll say like, what is the point of, you know, this research and investing, all that? And I have to kind of make the argument that for the vast majority of people, if you try to trade and do what he is trying to do, it's going to go poorly. And I know that's what the research backs it up. I also know that's what anecdotal experience backs it up. You know, you could go to Reddit investing page and all that. It's filled with people that lost all their money trying to just speculate. And so I know it's good advice and yet I don't quite know how to explain why he was as successful as he has been.

B (79:09)

Yeah, yeah. And his track record would be very difficult to parse. You know, it's one thing to study Warren Buffett. You can kind of see a lot of the moves he made, you know, you know how it was made. But with Drunken Miller, I mean, it's impossible. It's just so many trades and there's so much going on. I don't, I don't know that we have that kind of record that you could piece it exactly how it, how he did it. But yeah, I mean, I just think, you know, he's a freak genius of whatever he does. And then that's just the way it is. I You know, I'm perfectly fine that there's going to be lots of investors who will do, you know, better than me, using very, very different styles. That's perfectly fine. You know, you have to find something that you can live with and you can do and you have some aptitude for and you like that. I think sometimes that gets underplayed in investors thing. It's not necessarily like the best thing or even with companies that you own, you know, you have to, you have to like it, you have to be interested in the business, you know, you have to want to study it and you have to kind of be rooting for the people involved. You can't. If you buy something and you hate the people and the business, you find it boring, it's probably not going to work out very well. You're not going to own it for very long. So those kind of things play, play into it. But I also think, you know, something you said made me think of this, like there are times when what we do just doesn't really matter. And I feel like, you know, the last eight or nine months or so you know, hasn't really mattered what the stuff that we think is important that we do, you know, it doesn't matter because we've just had this huge RE rating downward and there's really nothing you could do. The stocks I own, the stocks I have on my watch list, doesn't really matter what I had done. You're going to be down during that stretch, you know, and that's okay too. You have to just, you know, and then so the energy crowd is gonna, has their day in the sun, you know, the stocks that I wouldn't, wouldn't own, now that's the strongest sector in the S P. It's done well. And this has happened before. I'm, I know we brought the 90s a bunch of times in this conversation, but I was recently telling the story, which was in the late 90s. I remember I was in banking still these days, and I forget if it was 97 or 98 or 99, whatever it was, was one year that the NASDAQ itself went up like 85% or something like that. And I had a friend of mine who worked in the next office, and he's not a sophisticated investor by any means, who just bought, you know, the QQQs. It was up 86% that year. And I had Berkshire, which I think was down that year if I, if I can remember correctly. So I remember him kind of rubbing in my face a little bit, you Know, I mean, it's a huge delta, but over the long term, you know, obviously NASDAQ crashed and Berkshire worked out okay. So just, you know, there are definitely going to be stretches where you look like a fool. And if you're not comfortable with that, then investing is going to be tough for you.

A (82:02)

Yep, yep. Yeah, it's, it's interesting because when you do have these, we all know the market's going to sell off. And then people ask, well, what do you do to try to avoid that? You don't, you just accept it. Like if you could try to buy, you know, puts and insurance and it's just going to reduce your overall long term return. And if you could think you could time the market, then don't even bother buying individual stocks. Just go try to trade if you think you're that good at it. And then you'll learn that you're not sure.

B (82:28)

So there's really, you know, you know, just casual friends, they know I'm involved in the market and they want to ask me about the market or something. And I always give them the same kind of answer. I said, look, you know, if you have at least a five year time horizon, at least longer the better, you know, just, you know, you can invest in the S and P is what they commonly do or whatever that, you know, don't worry about trying to time it, whether it's this higher, if you're that worried about it, you can step in it in stages. You have this amount of money you want to invest, you know, break it up in quarters and, and invest it over the next four, five, six, seven quarters or whatever. But don't try to time the words. It's a, yeah, it's too hard.

A (83:04)

Well, they want to know what are the stocks that only go up?

B (83:07)

Yeah, I want to know those too. How do we find those out? Drew?

A (83:13)

It's actually really funny. There was a high schooler who was a family friend who was asking me, just kind of getting into the stock market, not that sophisticated yet. And the question he asked me, and you know what I'm going to ask you this as a final question was why don't you only buy the stocks that go up?

B (83:34)

I would love to only do that, believe me, I would love it. But, but obviously we can't know. And the stocks that go up also go down and they go down ferociously violently. And that's a feature of stocks. You know, the other thing I'll say sometimes is, you know, people invest in stocks and they don't. It's like they don't want, they want stocks to be something other than stocks. It's like ordering fish, but you want the fish not to taste like fish. You know, you always have people say, well, this tastes fishy. Well, well, it's a fish. If you don't want to eat fish, order something else. So, you know, people like, they want to buy stocks because they're volatile or to try to reduce this volatility, well, just go invest in something else. Because this is the nature of stocks. They are volatile. It doesn't matter what stock it is. I mean, like I say, Berkshire Hathaway couldn't pick a more diversified, bulletproof kind of business. And that thing's been cut in half, you know, three times. So it happens.

A (84:35)

Well, Chris, I really enjoyed this conversation. I know listeners and viewers will as well. Just as a reminder, you have another book coming out. It's called the Investor's Odyssey. Do you want to say anything else about that book?

B (84:48)

Yeah, it should come out. I'm not sure. Sometime I think either may, maybe, but I think it's on Amazon for pre order already. It's called the Investor's Odyssey. And the basic idea is, yeah, if we think about, well, usually the Odyssey, because, you know, being a long term shareholder is like going on an adventure and there's all kinds of, you know, hurdles and things you have to get over. And there's the sirens and there's all kinds of things just like that. So I thought it was a good metaphor for that. But the basic idea of the book is, yeah, if you're going to set out to own something, let's say for 10 years, and Odysseus's journey home to Ithaca was 10 years, what would you pay attention to what becomes, you know, not so important? And so it's just kind of like an extended, you know, sort of meditation idea on research on, you know, what that means. So, yeah, it should be, should be fun. I hope investor. Hope people like it. And that'll be out maybe in May.

A (85:44)

I like the metaphor. I wonder if you had to tie yourself to the, to the boat so far so you didn't have to make any other decisions.

B (85:51)

Yeah, yeah, yeah, exactly. Tie myself to the mast. Have my crew.

A (85:55)

There's that word mast.

B (85:56)

Wax in their ear.

A (85:58)

Yeah, wax in your ear. Yeah. Well, Chris, thank you again. I really enjoyed this. And until next time.

B (86:04)

Yeah, it was fun conversation, lots of great questions, Drew. And yeah, thanks for having me on.

A (86:09)

Thanks for coming. And until next time.