YouSaid · the spoken record

Jonathan Brolin

lines on the record: 75
first: 2021-10-07
most recent: 2021-10-07
sittings or episodes: 1
sources: podcast

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“Who I am is enough, but I can always be better. In other words, I can always be 1% better each day than I was the day before. You know, I go down to Red Sox Fantasy Camp and there's this quote up on the board, which I'm sure is in hundreds of locker rooms around the world. Be 1% better today. And I really believe that. And I think measuring myself against myself and whether I've improved and whether I know more, you know, I try to learn something new every day and be better at something every day. And measuring myself against myself has been a much more valuable use of time than measuring myself against anybody else. Because at the end of the day, I'm the only person I'm looking in the mirror. I'm the person who has to go to sleep at night and get a good night's sleep. And so all these other extraneous things that might have bothered me more when I was in my 20s don't bother me at all anymore. And I think that's a really valuable lesson to just try to be a better version of yourself. That's enough competition to last me a lifetime.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think I'm in a balance of the two sides of them. My father is a very calm, measured person. He is, you know, the Comcast commercials with the Slowskis, the Turtles. He's the Slowskis. He will wait forever to make a decision on something, to measure all sides of something. He's a classic. He will play a chess game for eight hours if that's how long it takes. I don't have quite that amount of patience. My parents are like the book Thinking Fast and Slow. They are both sides of that coin. And so the ability to know, I think I've tried to balance the ability to know when to react quickly to something, whether it's my mother is the Beverly Goldberg type of mother from the Goldberg. So the quick to react mother. But knowing when to do that and when to go the slower, more patient route has been a really interesting road to travel on. But I learned a lot from both of them as far as how to do that and when to do that.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“Push forward that I needed for the rest of my life to show that if you're really going to do it, you have to do it. You can't steal second base with your foot on first. Sometimes you just have to go. And it's so easy to look around and say, well, maybe I shouldn't. It's always easy to come up with a reason not to do something. And I think that I knew I wanted to do this for a long time. And I'm super glad I did. It's the best decision I ever made outside of marrying my wife to do this. And I would do it again. And it's not easy. It has been a hard road at the beginning was challenging. And it is, as Jerry Maguire said, it's an up at dawn all day seeds that I'll never fully tell you about. But I love it. I'm super passionate about it and I love doing it every day. I wish I had started sooner. But I would say in general, that's been a mistake in life is waiting too long to do something that I know I should do.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“The biggest mistake I made was waiting too long to do something that I knew was the right thing to do. That's a common mistake I think I've made multiple times, but I can point to starting my business. I could have started this sooner. I think starting this was the real...”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“I love historical fiction. I love the David Liszt series that involve Benjamin Weaver. So Conspiracy of Paper was the first book in that series. And there are a couple of others, Spectacle of Corruption and the Devil's Company. I love history books. I've read dozens of Civil War and grant books and all the Ron Chernau books and all those sorts of things. So pretty varied interest list. And I love all the great classic investing books as well. My bookshelf here is full of them and I learn a lot from those that I take with me. And I love going back and reading ones against the gods is a great book, those sorts of things. Not the textbook kind of books, but the ones that have real applicable stories.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“I have many series of things I like. So if I had to pick one, I would say Weinsburg, Ohio. Sure, what Anderson book, which I read in high school. It's essentially a book of short stories, but they all involve this one character, George Willard. And so you get to see his progression going from child to adult through the lives of all of these people in his small town. I really enjoy, I've always been a fan of small town stories and small town music. But that was a book that had a real impact on me when I was in high school. It led to a lot of other”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“To think through those things, to really think through what happened in a decision making process. And it shouldn't be a painful process if you're not looking at the numbers related to it. As an example, and I'll tie it back into process, we don't have an eat what you kill philosophy here. Everything that goes wrong is my fault. Everything that goes well, we all share. And so nobody has to feel like I can't say something about a given idea because that's somebody else's. Everybody is responsible for everything. We don't have that many positions, so it's easy to do that. And then it also takes away the difficult discussions that might otherwise arise if somebody doesn't want to bring up a point. You know, I don't want to bring up a point that's going to hurt somebody's feelings. If you think that the capital is at risk because we've missed something on an investment, you have a duty to bring that up. And I think not having the assignment of this is your idea, this is my idea takes away a lot of that. And I think it's true in life too. People don't do what can be difficult work of really figuring out why something went right or went wrong. And it's very hard to make good incremental.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“Actually, related to which I think is coming investment pet peeve, which is I've listened to 180 something capital allocator show, so I know that one's coming. It's lack of intellectual honesty. It's so easy to say that, but when people come up with different reasons for why they're doing things or when on the investment side, it's easier to talk about on the investment side. It's an easier example. A lot of times when something doesn't go right with an investment and people say, oh, let's just sell it and we'll learn a lesson here. And they sell it because they don't want to see it on that morning sheet and they don't want to have it looking at them. But if you just sell it and then don't talk about it again, you've actually learned nothing from it. So the same thing happens in life where people just say, let's just throw some money at this problem and it'll go away and we won't have this problem again. And I think it's really important to do the analysis to go through what is sometimes a painful discussion of really trying to figure out, well, did we get something wrong for the wrong reasons? Did we miss something? Did this go down because we missed something? Did it go up for a reason that we didn't anticipate? Were we right for the wrong reasons? And I think it's really important in life and in investing.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“I know everybody says meditation these days. I have meditated a grand total of zero times. I know it would be awesome if I said that, but it's just not true. Reading is definitely my most important daily habit and not work reading. Reading for interest outside of work. I'm going to read all day at work also, but it's really important to me to have outside things to read about historical fiction, fiction, biographies. That is a very important daily habit in the evening. In the morning, I'd say a very important daily habit is exercise. I try to exercise every day. It really just sets me up for the day feeling better. big believer in the whole sound mind, sound body. They go hand in hand.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“Definitely baseball. Although music, too, I'm a big music fan. I listen to music. They have a nice vinyl collection that I really enjoy. It's old school. There is definitely something to it that I really enjoy. I play the piano, but baseball is probably number one.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“Criteria, they just don't meet the quantitative criteria right now of risk reward, and they're on our watch list, and we'll wait. And when they get there, we'll buy them. We don't use any leverage. That really helps us. We try not to overpay for anything. We try to significantly underpay for things. That helps us. We have cash. That helps us. I mean, cash to me is a costless option. People say, oh, it's such a drag. It's such a drag. I don't think it is. I mean, you've seen those situations we've had where something we have falls 40% on earnings. If you have a 15% position and a falls 40%, now it's a 9% position. If I want to take it back to a 15% position that day, I want six points of cash to put into it. I don't want to have to make a separate decision. Well, what do I have to sell in order to buy that? And when you can make those incremental investments and then those investments then go up by multiples of that price, it more than offsets whatever drag there might be in the short term of not having that cash invested.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“20 plus percent now in cash and we would be no there's some things that we're buying today and there's some things that we're selling today so there's some changes to that and we have periodic inflow so that can change the cash level but i think the average net cash position across all of Wall Street right now is about 2%. So there's not exactly a lot of dry powder. It's one of the biggest things people talk about how much dry powder there is out there. I'm not sure that's true. And if it is, maybe that gets you some last euphoric burst before the bubble pops, but things will come down eventually. And I'm prepared to wait for those. We have a portfolio of attractively priced investments that we are adding to. And we're happy to continue to do so at current prices. But we also know in terms of our research process, we're considerably ramping up the work on things that are trading at levels above where we want to pay today, but we're doing the work today, identifying good businesses that meet all of our qualitative.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“Overpaying for things is never a good idea for long-term investing. And so if we have to wait for the next great set of opportunities, we'll do so”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“Have that kind of nitroglycerin type of company in our portfolio, that's a risk I'm willing to take to protect capital. And so we have a sizable cash position now to be able to play offense should things happen immediately. I mean, we are deploying capital. We are looking for companies where the risk awards are attractive today, recognizing that if we have some big sell-off, they'll probably trade to lower prices and better valuations and we'll add to them. But what we're absolutely not going to do is chase on valuation. Again, how do you protect from that happening? If price is the biggest determinant of risk, we have to be really, really disciplined about not overpaying for something. And we can't, especially in this light cycle. Now, I hear so many people saying the opposite now, which is, well, you have to understand valuations have changed and some of these things were permanent changes. And so you have to expand your parameters and you should be paying more for these businesses. While I'm sure there's some degree of conservatism that we have in the way we look at things,”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“Coming into March of twenty twenty, we had about low double digits in cash, but we had all of these puts that we had bought. And so when those puts really paid off, they became an extra significant amount of cash in the portfolio. So the VIX went up into the low 80s and we were selling these puts. And why do we do that? Their portfolio insurance. But when the VIX spikes like that, you have to take advantage of that and sell them because eventually things will come down, the volatility will come out, and the put prices will collapse. So we bought those to protect the portfolio. They did. And then when we sold them, it created all this additional cash to put into our existing portfolio, as well as into other things that were on our watch list. So we could provide liquidity at a time when others, people were selling things to prices we couldn't believe last year. And I've seen where prices will go to in periods like that. And we want to be in a position where we're never going to be forced to sell. So we're set up in advance of that. If that means we trail during periods where things go bananas in the short term and we don't.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“To be in a position to play offense when it happens. So we've done a number of things over the years where we saw cheap forms of protection, whether it was in late August, early September of 2018, which helped protect us in December of 2018. We saw it going into, again, I didn't know that it would be COVID that was going to tip the scales last year, but a lot of these frothy data points were concerning to us. And so we.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“So a few pieces of that going back even pre-pandemic. I mean, there were things that we were writing about, about the acceleration of prices being outside of the historical bounds or the acceleration of earnings, just things getting out of whack. Certainly that has continued to a much larger extent post-pandemic rebound. But so much of the bubble-like quality, you don't even see necessarily just invaluations. It's in this rush into things that people don't understand and they start talking about things like NFTs. They've been around for 50 years and everybody understands the ins and outs of them. And this type of bubble-like behavior is, to me, what's really symptomatic of nearing some sort of a peak. When that happens, it's always hard to tell. But when it does happen, it's not going to be some sort of benign neglect drift down in the market. But as you said, I don't want to predict exactly how or when that's going to happen. I just want to be in two situations. A, I want to have some protection should that happen. And B, I want to...”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“To explain that bridge to people, and you can go fill this in, or here are questions we think people would like to have answered or would be helpful if you could answer these questions on the next earnings call. And again, we get the information at the same time other people do, but we can help management teams think through what some of those things should be. And I think that's become more important because there isn't a lot of cell side coverage of a lot of our companies. There might be anywhere from zero to a handful of sell-side analysts. And so we can be that almost outsourced IR communications help to them in that regard.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“I feel like a lot of the time we are managing private investments based on how little they trade, how little the price moves in certain Windows of time. And so, again, we interact with the management teams of our companies as though we're private investors in them. We're not getting any information that others aren't, but we can certainly ask a lot of questions to help them think through information they should be providing. So, you know, for instance, we might say, hey, you're going through a situation right now where it seems like people are having trouble understanding how you're going to get from A to B. Maybe it's how you're going to get your operating margins from X percent to Y percent. So here's a chart that we think would be really helpful. Here are buckets of categories within your operating expenses. Here's what you're going to do with R&D. Here's what you're going to do with sales and marketing. We don't want to know any of these answers until you tell everybody else. But this would be a really nice chart for you to put up if you have an investor day or if you go to a conference or as part of an earnings presentation to be able.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“I like that this notion of the flexibility to do it instead of you raise a fund, you're going to find some companies to take private end of story really speaks to the fact that in a world awash with liquidity, the ideas are going to fall through their cracks and be opportunistic. And just as you saw during the early stages, the early months of the pandemic, there are fleeting opportunities whereby you could take something private at such an attractive price as to maybe eliminate the going private discount for control.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think so because A, it would probably be too big. It would cross that asset threshold for privates inside of the fund. And also it's possible not everybody would want to do it. It's not my money. It's our investors' capital. And so therefore, I want to make sure that we're not locking up capital longer than they intend to lock up capital. So we'd have to get people's permission. And we'd ask them to positively acknowledge they want to be in that vehicle and go through it that way. I think that's just a better alignment.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“Attractively. And I don't really want to just focus on privates, but if something really unique came along with a public company and we would raise capital maybe through an SPV to take it private, it would have to have those characteristics that I defined. Our LPs would have to understand that that would be a private investment for a period of time. But I think that we've developed good enough relationships with companies where I would feel comfortable doing it in the right circumstances. They would feel comfortable doing it in the right circumstances. We've had discussions at various times with companies about that potential. And so it's not outside of the realm of reason that we could do that at some point.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“Benefit current shareholders by bidding a fair price for it so that they would be rewarded, but at a level that would still allow us to compound at high rates of return over a three to five year period if it were to stay private that long before then potentially selling the company to a strategic buyer or maybe taking public again, depending on what the market environment was like. We've explored it with attorneys to the extent that we know what sort of structure that would look like. And we've talked about it with some of our largest LPs in terms of what kind of a vehicle that might be in. had conversations with some of our family office investors who have said, why don't you just have a separate private strategy for that? Which I'm reluctant to do because I think if you go out and you raise capital for an idea, you're tempted to put the capital to work. And I don't want to do that. Just like I love the day-to-day data that come out of baseball, I love the day-to-day opportunities that exist in the market, even though I don't want to be marked on a daily basis. We are, but I don't want to pay attention to the marks. I like that any given day something could be priced.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“It could happen certainly during the height of the pandemic. Some of those conversations occurred because companies traded down to ridiculous valuations. And I think it would be a combination of a really attractive valuation, a really strong alignment of interest with management teams in the boards, a belief that we could”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“We are not restricted fully bound by all of the regfd requirements. Certain percentage of the assets in private companies. So I am on the board of one private company, but I'm also on the board of one public company. And that arose because I thought we could really make positive change in a way that by being on the board that would not have been possible as an outsider. It has a lot to do with the characteristics of the board at the time. I went on the board, the legacy of people that were on the board, the tenure of the people that were on the board, and our ability to introduce some new ideas plus At the time we already owned a large percentage of the company. So I was much less worried about being restricted if we couldn't buy another share except for the six-week windows that we have, we would be okay because it was already a large position. Those are unique situations and all else equal, we'd much prefer not to be on a board.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“So in general, I would prefer not to because it's very time consuming and I don't want to be restricted. I don't want our investors to be restricted. And it's not so much the sale because I think if we get the risk reward correct and the asymmetry of it, it's really the buying window that can disappear when you're on a board. So many companies will have this two-business day rule where something happens and management teams and boards can't transact for 48 hours afterwards. Many times we wish they would transact. But sometimes a lot of the liquidity that you're going to find when something sells off after earnings happens the day after or the day of if they report in the morning. We want to be able to be buying on those days and not have to 48 hours later that liquidity may dry up. Now we can still source blocks. We work with a number of block trading firms that we can work with and try to source blocks. But those really liquid days can be great days to buy. We prefer to be collaborative involved shareholders where”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“Story. This is why we like the company. This is what we want to do over the next couple of years. Over time, because we have had a good track record of relationships with management teams and boards, we have a reference list. We give this out to potential investors, but also to companies that we talk to where they'll say, hey, here are three or four people that you can talk to who will talk about this type of situation you were in is the same situation they were in. Here's how we worked with them. So again, it takes a lifetime to build their reputation. You can lose it in a minute. We try very hard to make sure that people management teams and boards understand that we're not like that. We want to be collaborative. We want to work with them. But it takes time. It takes time to build that relationship.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“So in the earlier days that was harder because AI was younger, but when we first started out and we would own half a percent or one percent of a company, because our ideas were positive, we could establish good relationships with companies. Generally, if you want to be negative, the thought was you have to be over 5% and then you could run a process and whatnot. But the combination of being positive and collaborative and being big shareholders of these companies I think is a powerful combination that has helped us because A, we can influence them positively, B, we can provide some cover C, we still have the ability though we don't want to exercise it if we ever really wanted to push for something, if we think they're doing the wrong thing, we could if we had to. We don't want to go that route. But there were times when we were smaller where there were two other 13D fires and then we came along and filed a D and there might have been an assumption that we were working together and I had to go out of my way to demonstrate that we have nothing to do with them. I would fly around the country and individually meet with each board member to say, hey, this is us, this is our.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“Investor, and there might have been other 13D filers ahead of us who had shorter term game plans and they wanted to put a pelt on the wall. They wanted to be able to say, hey, we did something here. We made something happen. But that something that they made happen wasn't necessarily the best long-term outcome. So when we identify a company that we think is going to need some assistance and be a longer term, probably non-linear situation, we want to be able to be at least one of the largest, if not the largest, shareholder, to be able to provide cover for management and the board from more confrontational activists.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“Investors that you don't have. We just try to take good care of the people that we do have. And over time, again, that because things have generally gone reasonably well, that leads to some positive introductions. And if we're fortunate enough to grow, that would be great. But I really think that we're in a sweet spot. We've got a, I think we have a competitive advantage in investing in the size companies that we do, working closely with management teams and boards. And again, what is that spurred by? A lot of these companies just don't have the bandwidth at the managerial level or the board level to really think through what are the things we should be doing to really increase value over the next three years and or they just don't have institutional support to do it. So we try to be that support for them. We want to be one of the top shareholders, not because it looks nice, but because in many cases can help protect them against more confrontational activists who might have a shorter-term game plan. I mean, we've been in situations where we haven't been the largest.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“I want a post better long term numbers and size is the enemy of performance in many cases and we wanted to institutionalize that and memorialize it so that we would be held to it. We certainly have the ability if we get to that level and then there's massive drawdowns either because of idiosyncratic things in our portfolio or the world blows up or whatever it is for people to then add to those positions so that they can take advantage of big drawdowns. But the goal and the signal is our goal is to compound capital, not to be a big manager of assets. In fact, we have a new family office who came into our fund in April and when I was doing one of the last meetings with them, one of the senior people at the family office said, how come you haven't been more of an asset gatherer? I explained this very situation. It would not be to the advantage of our existing investors for us to do so. I have to manage our investors' capital. There are LPs. It's like you can't worry about the investments you haven't made. You can't worry about the”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“Fees go down, and that's a wonderful thing because our goal, I did that when we had nothing because I wanted to signal that this is not a marketing vehicle. This is not an asset gathering business. I'm a very competitive person. My long-term ability to compound capital is much more important to me than the amount of capital that we're managing because that's what we do for our investors.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“Some of it's going to depend on the structure of the market in that the longer I've been in this business, the fewer competitors we seem to have in terms of people that are willing to be multi-year investors in smaller capitalization companies. And so maybe that creates a little bit more headroom than we thought we had. But I would say that we've capped ourselves at $500 million of raised institutional capital. So we'll be above that because of compounding. Something in that high hundreds of millions of dollars range feels like the right place to stop. So whether it's six, seven, eight, something in there is where we'll stop. We might stop before we hit that $500 million cap because I really want to leave room for compounding from a process standpoint. What we started with under $2 million, it was laughable to put in terms that said if we get to $300 million, we're going to lower these fees here. Yeah, okay. Good for you. And when you're seven foot two, you can dunk. We hit these breakpoints.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“And that's what we did. So at the beginning, it was really growing through referral in the friends and family network. I have investors here from every place I've worked since college, college roommates, college friends. I have friends who every year they get their bonus, they put a little bit more in the fund. And then when you and I met, we were first starting to think about doing something on the institutional side. And by that point, we had demonstrated a turn plus of the portfolio and we had a good track record to point to, not just financial track record, which is important, but a process standpoint. We are explicit about why we're investing in something. We invest because it's got these characteristics and this is what we think is going to happen and this is how we think it's going to play out. And these are who we think are potential buyers of this company. We've had 15 companies acquired in a fairly concentrated portfolio. We haven't gotten everything right, of course. And sometimes other things happen than what we initially thought would happen. But we've got a pretty good track record that we've written down.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“Amount of time to play out on average some long or some shorter, but I wanted to have that ability. So when I started the company, several of my day one LPs put strategic capital, I guess you would call it, but really they put some money into the management company to allow me to run the business for three to four years if I never raised a penny. And that allowed me to just focus on the returns. I mean, you see people start firms all the time. They do a couple of things that I think are dangerous where they either hire a huge staff in advance of assets, in which case there's this huge rush. You've got to raise assets because now you've got this big staff. Or even if they have a long-term strategy, they feel they have to put up results in the first three to six months in order to raise capital. I thought, well, first of all, a long-term strategy, what are the first three to six months even mean? It could be lucky, good luck, bad luck, whatever it is. Let me get to the point where a number of these companies have been acquired and we can show what the portfolio really looks like.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“Old Warren Buffett practice, I believe, when he was running the Buffett Partnership, he never asked anybody to invest. He wanted them to ask him because then they're making the decision to commit. And, you know, at the end of the day, if you have bad results, it doesn't really matter who asked him. People are still going to be upset. I do think it's important for somebody else to make the commitment. I do have a good friend, though, when I was first starting here who wanted to invest early on and he said, I'm only going to do it if you ask me for the order. We were sitting at a cafe in Little Havana in Miami, and he asked me, he said, I'm only going to invest, but you have to ask me for the order. I said, okay, you're the one person I'm going to ask. And that was March 2012, I think. And I've never asked since. He's still with us, thankfully. So part of it's just patience. I just figured, we'll get there when we get there. You know, I started small intentionally. I started with friends and family capital. I wanted to show what a turn of the portfolio would look like. And I knew that would take at least three plus years to do because the kinds of companies that we're investing in generally will take that.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“On X date, but if you see better opportunities before that date, please let us know. We'd like to do that. I mean, that takes time, and I'm really fortunate that we've been able to do that. But a portion of that is self-selecting because there's so many people we've identified as not being good fits. I mean, you can tell when, you know, if we have a great quarter and all of a sudden, the phone starts ringing off the hook and people say, hey, now we really want to ramp up our due diligence. We try to be very clear about this in every one of our letters. And those who take the time to read them and understand what we're doing will really know what we're about. And over a multi-year basis, we've done the things that we have set out to do. But I think turning down the easy money and the quick money, I think you told me this very early on that not being greedy about growing too fast will actually allow us to have a much better long-term business. And you were absolutely right. I've also never asked anybody to invest. I've explained what we do. And if people want to invest and they say, well, I'm interested, send me the docs, great, but I've never asked anyone that came from an”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“I had a long term view that I would do this for 25 to 30 years. There's this old Mickey Mantle line about when he realized he had not treated himself so well with the way he lived. He said, well, if I knew I was going to live this long, I would have treated myself better. I would have taken better care of myself. He died shortly after I started working in investment banking. And seeing that clip over and over with him saying that it really stuck with me. When I started this, I thought, well, I'm going to do things with the belief that I'm going to be doing this for 30 years. And so I don't want to make short-term decisions. If I find the right person that I want to hire, what does it matter if that person starts six or 12 months after I first think about hiring them? It's when it's the best opportunity for that person mixed with when it's a good opportunity for us. And so also with the LPs, what was the rush? We've built a wonderful investor base that I wouldn't trade for anybody else's because they've been patient and supportive. We have investors that will call us and say, we're thinking about putting in more capital.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“So a couple parts to that. So on the LP side, I try to be very upfront with people that this is probably not for them. The first conversation is this is volatile. It's a very low hit rate endeavor. So I don't want to do anything proactively. Most of our capital that we've raised over the last four or five years has come via referral. And so that's the best source. And so it's a really efficient way to grow your business. And you're already when you get recommended by someone that has had a good experience with you, it's a much better way to find new investors. But we've been very slow to raise capital intentionally. We've turned down more capital than we've raised because people are not great fits for it. I can tell when someone is going to be a bad fit. When we were first starting out, we talked to some cedars. That has worked for many firms and God bless those folks who have gone that route. But to give up that portion of the business and that much control wasn't a good fit for us. I had a long-term view. I started this business when I was...”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“And that would be fine if we were just passive investors. But what if we can work with the company going through the playbook of other things that we've done with other companies or something new that we spot in this company to help them take that potential, whether it's through improved operations, outsourcing of some business line or whatever the case might be that's unique to that company, now all of a sudden we've had a direct impact on the risk reward of that investment. So it's a virtuous circle of working with the companies to”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“But if we invest in a company at, say, it's $20 a share and we think over three years our expected value is that it'll be worth $40 a share under probability weighted bulb base bear case scenarios. And our downside case, we think it could be worth $16. So you've got $20 of upside, you've got $4 of downside. That's a five to one risk reward. Let's say the stock drops 10% because something happened on earnings or it's Tuesday or whatever the reason. Now it's at $18. Nothing else has changed. You've got $22 of upside. You've got $2 of downside. That's now an 11 to 1 risk reward. So your risk reward is more than doubled on just a 10% move in the stock. That's a great opportunity for us to put incremental capital to work.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“The best way to not lose money is to invest at a low price. Now, you have to do all the work to make sure you're not in a value trap because you can invest in a low price and find out it's got a lot more room to go. Companies can be volatile. The size capitalizations that we invest in can have lower trading volume. They can have more tightly concentrated holders. So there can be a lot more volatility in them. And certainly in the short run, companies can trade below what our downside estimate is, but that's a point in time. Short-term voting mechanism. It has nothing to do with the long-term value. And so we try to assess what we think a company is worth today, what we think is reasonably likely to be worth over the next three years under a range of scenarios. And we're trying to invest at a significant discount to what we think it's worth. If you can do that consistently, it makes it less likely you're going to lose money. And then our involvement, which goes back to the private equity side, we're not just passive investors. We try to be actively involved in the companies we invest in. So this is a very simple example.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“You don't get many things wrong. Our realized losses have been very modest because if things do change early in our process, we've got a pretty defined process for how to grow our positions over time. We try to cut bait early if we got the thesis wrong or whatever it is. But if we really think we're right and we've got data to support that and we think the investment is really asymmetric risk reward, we'll continue to invest in it over time. I mean, one of the benefits of having grown for the last 10 years is we've had capital come in episodically and the ability to continue to put that new capital into the same companies at improved risk rewards along the way has been a powerful force for continuing to coil the springs we have in the portfolio. So when they pop, they pop in a big way, both in terms of percentage and dollars. To us, it's worth waiting for those. So knowing the position well is a big risk control, but price is the biggest risk control. Well bought is half sold. I firmly believe that.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“In our companies, we try to add a lot of value that way by being informed about what's going on with the competitors, etc., and the industry. But it also allows us to really get a nice return from all these coiled springs that we have in the portfolio. I don't know what's going to hit at any one time. We have things that have been in this portfolio for a long time that will hit at some point. When they do, I don't know. But if you have a 10% or 15% position that's going to go up two to three times, whenever that happens, that's a really nice incremental source of returns. Last year, we had a position that was a 15% position that went up 300% in the fourth quarter. That's going to be additive to returns. And so to me, it's worth waiting to get those things right. And we have the patience and temperament to wait for those and work through them. But there's also a portfolio management side to it, which is we will trade around our positions. We'll do a lot of that through options. So in terms of risk control, there's a few things. If you're going to be so concentrated, make sure.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“Continue to go up over time, we will build a position up to 15% at market, and then we generally aren't buying after that. We let it work. But if we're going to build something up to 15%, we also have to let it run. We can't build it to 15 and then say 20 is our max because then we're only going to get an incremental five points out of that investment. You've seen our results. They can be a little lumpy. But when you're investing in businesses that you think, just to put it in rough numbers, if you think you're investing in businesses that are going to double over three to four years, that's an 18 to 24 percent compounded return. If you're not fully invested, you're talking about something in the mid-teens that you're targeting on a multi-year basis. If you can do that without leverage, that feels like a pretty good opportunity set for us. And one way to get there is by being concentrated, we can know our companies really well. We're generally one of the largest shareholders in our companies. We think we're one of the best informed investors.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, first off, concentration. I think you should, as I mentioned when I was in private equity, we would have eight positions on average in the portfolio. And that is partly a function of time. You can only spend so much time working closely with companies, but it's from my perspective on the public side, it has a lot more to do with yes, efficiency of time, but also if you can get the risk reward right, especially when you're trying to find these really asymmetric risk rewards where you can potentially have a very good long-term compounded return. And in your downside case, you have a fairly limited amount of downside during periods like the pandemic and so on. We find these really asymmetric opportunities that are multi-year compounders, we want them to work and they can take a long time. I mean, we've had situations where we've owned something for three or four years and you get 90% of the pop in the last two weeks that you own it because it finally gets acquired at a good price. But sometimes these are multi-year compounders where they”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“So you are describing a courtship process that requires a lot of patience. You're sharing a lot of your thoughts and ideas and support of what are typically smaller companies, microcap companies primarily in the US, and maybe newer managements that are not used to dealing strategically with the street. So that leads quite naturally, I would think, to a highly concentrated portfolio. You are a believer in concentration. I would love for you to talk to us a little bit about concentration and risk control.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“I have found that having that private equity approach thinking through what would we do if we owned the whole company, how would we make improvements, and then working with the company to try to effect those changes along with whatever good ideas they might have, things that dream projects they wanted to do. There are times when companies will say, boy, I would have loved to have invested more in R&D to widen our moat, but I was afraid it was going to hit our earnings. Look, if you can create a much more valuable company three to five years down the road by doing that, you should do that. And the people that don't want you to do that are not the shareholders you should be chasing anyway. So by the time we get involved and invested, it's a fairly sleepy, plain vanilla shareholder base. There are not a lot of funds that look like us in the shareholder roster, and it's a good time to build a position and work with management to try to create and foster long-term value-creating change.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“But you're certainly not communicating that to Wall Street. Nobody knows that's what you're doing because you're not talking about any of that. So if that is the plan, here's how you can better communicate that. I would say most of the time that doesn't happen. Most of the time we come to them after they've been on this treadmill of quarter to quarter performance. And if you've got a stock that's been going up and you've got a sell side following, it's much harder to make those long-term investments in the business to make real change. Because I'll give you an example. There was a company that we had an investment in, we still have an investment in it, so I don't want to say exactly which it is, but they had a division that we thought was not providing a whole lot of value to the company. And we thought that they should sell it off. And there was a time when the stock was doing better and they thought, well, if we sell it off and if people are valuing us on a multiple of revenue and we get rid of a”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source
“Qualitative criteria that we use for evaluating investments is alignment of interest. And we want management teams and boards that are aligned with us. And that includes share ownership. It includes demonstrated history of using their own aftertax salary proceeds to buy stock in the open market, potentially using the company's balance sheet at appropriate times to repurchase undervalued stock. It includes compensation plans that are well aligned with what we think are the levers for increasing value. And if you've identified all of those things in advance, it's much less likely that you're going to go in to talk to someone, have a rational conversation with them, explain to them how what you're proposing could create a lot more value down the road and have them say no. Because if their owners of the stock, they should at least be interested. Now, they may say, hey, sounds good, kid, but we've got a much better plan. I will say, great, what is it? NFA say it and it sounds reasonable, I would tell them that sounds really interesting. I don't have a monopoly on good ideas.”
2021-10-07 · Capital Allocators · Jonathan Brolin – Edenbrook Capital (Manager Meetings, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source