YouSaid · the spoken record

Connor Leonard

lines on the record: 62
first: 2017-11-21
most recent: 2017-11-21
sittings or episodes: 1
sources: podcast

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“So, first, I think Pat Dorsey's been on your podcast. He does a really good job of defining what even is a moat. I think it's a structural advantage inherent to a business that allows you to earn great returns on capital. So why is that important? Well, if you're actually going to own a business for five to ten years as an outside shareholder, you want to have some confidence in terms of where's the earnings power of that business going. There's a lot of businesses out there that I think provide a good service, good people. Just think of your gas station in a small town or a convenience store. Those are good businesses for that community, but in terms of what are they going to be earning seven years from now, I don't really know. So that's why I focus on businesses that have these structural advantages. It's because I want to have conviction over where is this earnings power going. When you get into the world of moats, and this is a very small percentage of companies that are out there, it might be”
2017-11-21 · Invest Like the Best · Connor Leonard - Capital Light Compounders & Reinvestment Moats - [Invest Like the Best, EP.64] · IDENTIFIED FROM THE TRANSCRIPT · source
“And then stay with it along the way, which is a very tough thing to do to almost not get in your own way. That's our business model. And the thought process there is that one, it's less competitive because not as many people can play that game. And then two, you get leverage on your decisions. So in that short-term model, you need to be constantly going back to the well and finding new ideas, new ideas. And you're turning over your ideas frequently versus if I do my work correctly in my thesis on point for one investment that I could own for seven years that compounds internally at 20%, I got a lot of leverage off of that work I did. And so that's a better business model for me. And I'd say it doesn't work for everybody's personality in a lot of investing is that there's not a right or wrong way to do things, but it has to match your personality. And so for me, I love looking at hundreds of companies a year and only pulling the trigger on one and then owning it for six years.”
2017-11-21 · Invest Like the Best · Connor Leonard - Capital Light Compounders & Reinvestment Moats - [Invest Like the Best, EP.64] · IDENTIFIED FROM THE TRANSCRIPT · source
“Markets investing versus I'd say most of our peers are maybe in a three to six month time horizon. So if you're investing for three to six months, frankly, the quality of the business, the return on invested capital, the runway that they have to redeploy that, it's not as much of a factor in terms of will your investment be a success or not. It's more about sentiment change or multiple expansion. So I'd say that's an incredibly competitive game. I'm a one-man investment operation. I don't want to compete against funds that have a $100 million research budget who are forecasting netflix's subscriber gains within $1,000 for next quarter. I'm going to lose that arms race. But if I can look at on the curve five to ten years where there's fewer people who have the willingness or the capacity to look out there. And I can buy it for a fair price.”
2017-11-21 · Invest Like the Best · Connor Leonard - Capital Light Compounders & Reinvestment Moats - [Invest Like the Best, EP.64] · IDENTIFIED FROM THE TRANSCRIPT · source
“I think if you go back to that qualitative versus quantitative, traditionally people think of intrinsic value as static. So you think of I'm buying a dollar for fifty cents. I tend to look for businesses that are a little bit more dynamic where they're actually taking the intrinsic value of $1 today and increasing it to $2 over time. So I'm not as much looking to buy a business at a discount of intrinsic value and then sell it when it's fully appreciated. I'm looking to buy one for I'd say fair or slightly below so a decent discount and then hoping to latch on for the ride as it goes from one dollar to two dollars. So the way I think about it is I'm trying to make money more as a business owner rather than sort of jumping in and jumping out at the right time. And the reason why it's sort of tied to the advantage that IMC offers just as an entity to do investing work out of. So we can legitimately apply a five to ten year time horizon to our public money.”
2017-11-21 · Invest Like the Best · Connor Leonard - Capital Light Compounders & Reinvestment Moats - [Invest Like the Best, EP.64] · IDENTIFIED FROM THE TRANSCRIPT · source
“Markets and you're a patient, you can pick off that business maybe when it's a little bit out of favor and then own it over the long period of time and capture that compounding of intrinsic value.”
2017-11-21 · Invest Like the Best · Connor Leonard - Capital Light Compounders & Reinvestment Moats - [Invest Like the Best, EP.64] · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I think when you're buying a company privately, you're typically buying the business from an owner who knows it exceptionally well, and they know exactly what that business is worth, they're probably selling it at an opportune time. And if you offer fifty cents on the dollar unless they're in a distressed situation, they're probably not going to be interested in that. The different dynamic in the public markets is I get a quote every day. I'm buying a piece of the business probably from a secondary party. So I might have the ability to know more about the business than they do. They might be selling for non-economic reasons. And I can use that volatility to my advantage where typically a business, especially the ones we're looking for, they're on a somewhat steady path. Hopefully they're increasing intrinsic value gradually over time, but the price that you get quoted on every day can fluctuate all over the place. So if you apply that fundamental business investing but to the public market,”
2017-11-21 · Invest Like the Best · Connor Leonard - Capital Light Compounders & Reinvestment Moats - [Invest Like the Best, EP.64] · IDENTIFIED FROM THE TRANSCRIPT · source
“Looking for majority acquisitions, typically five to $25 million of earnings power or owner's earnings. And we're looking for the capital light franchisor type business model to kind of add to our family of companies. So a perfect scenario for us would be family-owned business. Maybe there's three family members that own it. Two would like to exit the business. One would like to stay on and run it. And we think that we could be an ideal long-term home for that business. So that's our core business. That's what I've spent a lot of my time on. I've been fortunate to work for the Maynards my entire career, and I've done public investing, private investing. I've been on the board of one of the companies we own, I've worked in one of the companies we own, so I've seen business from a lot of different angles. But what I really love to do in my passion is”
2017-11-21 · Invest Like the Best · Connor Leonard - Capital Light Compounders & Reinvestment Moats - [Invest Like the Best, EP.64] · IDENTIFIED FROM THE TRANSCRIPT · source
“And some of those original shareholders are still shareholders in IMC, and it's been a phenomenal run of compounding. I'd say one of the issues, and when I say issue, it's a good problem to have with a franchisor or capitalite business model, is that they generate a lot of cash, but there aren't always obvious opportunities to redeploy that capital inside of the business. So you have a decision to make as an owner. Do you send the cash out of the business, or do you keep it in the business and maybe acquire other companies? So that's the process IMC went through, I think beginning in the 1990s. The Maynards are big fans of Berkshire Hathaway. They really like the Berkshire model. And they tried to mimic that in a sense and use the cash flow that Golden Crowd generates as a source of permanent capital to fund the acquisition of other privately held businesses. So the same way Berkshire uses insurance float, we use the cash from Golden Krow to get the ball rolling. And then today we have eight businesses that we own privately.”
2017-11-21 · Invest Like the Best · Connor Leonard - Capital Light Compounders & Reinvestment Moats - [Invest Like the Best, EP.64] · IDENTIFIED FROM THE TRANSCRIPT · source
“Sure, it's not my business, but I think it's one of the better known or one of the lesser known business stories that I think is really interesting. And outside of North Carolina, I don't think the IMC story is very well known. So IMC is a privately held holding company in Raleigh, North Carolina. It's controlled by the Maynard family. It was set up in nineteen seventy one. It was a legal entity that James Maynard and a business partner used to raise capital. They raised $50,000 from friends, family, local businessmen. I think their middle school teacher was even in there. And their goal was to start a restaurant business. That restaurant was Golden Corral. It's gone on to have an incredible multi-decade run. They are now the number one buffet and grill restaurant. I think they have $1.7 billion in system sales, 500 locations. And it's an 85% franchise business. So the best part is that that original $50,000 that went into IMC remains the only outside equity capital that's ever gone into the business.”
2017-11-21 · Invest Like the Best · Connor Leonard - Capital Light Compounders & Reinvestment Moats - [Invest Like the Best, EP.64] · IDENTIFIED FROM THE TRANSCRIPT · source
“Earnings power will be. That's something that a model or a chart and value line isn't going to pick up on. So I think that that's where the game is moving because it's harder to replicate. You need to study a lot of different business models and kind of put it all together and apply to the situation that's right in front of you.”
2017-11-21 · Invest Like the Best · Connor Leonard - Capital Light Compounders & Reinvestment Moats - [Invest Like the Best, EP.64] · IDENTIFIED FROM THE TRANSCRIPT · source
“Maybe you see some of this still, but I don't see as much of nine banks being at one time's book value, and then the tenth one for no reason is at 0.5 times book value. So I think the game is shifting towards more of a qualitative game. So what I mean by that is some of the businesses that I'm looking at, people ask me, well, yes, you're looking for a long-term growing business, but how do you value that? Well, I think part of it is you're not valuing it based off of a static multiple today. You need to have a little bit of a qualitative aspect. You need to say, I'll just do an example. This is not a security we own, but Zillow group is one I just looked at recently that earns essentially zero percent margin. It's a similar business model to right move, which is in the UK, that earns a 70% epidemic. I'm not saying Zillow can earn a 70%, but if you study that other business model of a company that's a little bit more mature and then you apply it to a company today that hasn't quite gotten there, you can see where there are”
2017-11-21 · Invest Like the Best · Connor Leonard - Capital Light Compounders & Reinvestment Moats - [Invest Like the Best, EP.64] · IDENTIFIED FROM THE TRANSCRIPT · source
“Sure. So I think that there's been a change over time in value investing from quantitative to qualitative. So what I mean by that is if you're to go back to securities analysis, Ben Graham's work or even looking more at like Seth Clarman's stuff from margin of safety, a lot of it is you're looking for statistically cheap securities. So the classic example would be there's a host of banks that are all more or less the same. They trade for one-time book value. Then there's this one bank that happens to trade for 0.5 times book value. And that would be your opportunity to essentially arbitrage. You're buying a 50 cent dollar when it gets to 90 or 95 cents. You would sell. What I've seen lately, and I think you have a role in some of this, is that those statistically cheap kind of no-brainer opportunities are in a sense being picked off by quantitative models or just different players in the market than have historically been there.”
2017-11-21 · Invest Like the Best · Connor Leonard - Capital Light Compounders & Reinvestment Moats - [Invest Like the Best, EP.64] · IDENTIFIED FROM THE TRANSCRIPT · source