YouSaid · the spoken record

Matthew McLennan

lines on the record: 108
first: 2022-10-02
most recent: 2022-10-02
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“It was about an inventor, Tim Jennison, I think his name was, who was trying to recreate a Vermeer painting. And he had an interesting theory, which was that, you know, because everyone's been mystified for centuries how Vermeer could so perfectly capture the shading of light. And Tim Jennison had this idea that maybe Vermeer used a camera obscura. And so when he was painting, he had a superimposed image and he could compare the likeness of the edge of what he was painting to the actual color palette of the image and do it very closely. So rather than trying to paint the image directly, he looked at it with reference to another image. And the reason I go down this discretion is that, you know, we've long been owners of gold. And gold is somewhat paradoxical because people say, well, why do you own this useless lump of metal?”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, we don't have any perfect investments. Like, if you were to look through our portfolio, and I always get stressed out when someone asks me the question, give me your best idea, because I just don't have one. I wish I was smart enough or had enough conviction to do so. But we're very focused on what can go wrong. And sometimes it helps to look at things indirectly. I don't know if you ever saw, there was a documentary. It got mixed reviews, but I thought it was an interesting one called Tim's Veneer Vermeer.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Businesses. Some of them are run by very expeditionary management teams who don't have much of an equity stake in the business and are much more like bankers or bureaucrats than they are like owner managers. And so by asking a handful of questions bottom up, we basically say no to 90 plus percent of the universe. And I think that's a really important way in which we approach markets is asking the right splitting questions. And then occasionally there are some macro observations where you cast a wary eye to what can go wrong. And I think it's a combination of bottom-up splitting questions and the odd top-down insight that helps steer you away from trouble.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Through the dictionary sequentially word by word. If I told you serendipity was the word, you know it's kind of towards the back third of the dictionary, you'd flip it open there and you'd get closer. It might take you four or five parsings of the dictionary to get to the page, not 800 pages being turned sequentially. What I try to go to the analyst and do and say, what are the handful of splitting questions that can find us the one in a hundred investment opportunity that makes most sense? So part of it's incumbency, part of its price, and then there are some other questions we would ask. We'd look at what we call the cash audit. How is the business lived and breathed over the last decade? Has its balance sheet really grown at a measured clip? Can we understand how the business got to where it's at? There's a lot of businesses that you can't, and that takes out part of the universe. And then of those remaining businesses,”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“When you think about incumbency, it's like prime numbers. If you look at a sequence of numbers, only so many of them primes. And there's actually a rule in math that can show you the frequency of prime numbers. But if you had a sequence of three or five thousand numbers, probably only a low double digit percentage of those numbers will be primes. And I think it's the same for business. So immediately by trying to focus on the equivalent of prime numbers or businesses with the advantaged incumbency, you're taking out 80% of the market. And then if you're saying I want to focus on the subset of those that haven't gone through the best decade, there's an engine and an issue. Then you're taking out at least another half of the market. And then when we speak to the analyst, there are other sort of splitting questions I sort of call them. And what do I mean by a splitting question? If I gave you a dictionary, William, and I said, you know, find a word, you wouldn't go.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Well, it really starts bottom up for us. I would say, first of all, we do have a strong preference for businesses that have already demonstrated some form of incumbency. As Bruce Greenwald, who's one of our senior advisors, said, if something is likely to be around as long as it's been around, it's like the envelope principle in physics. We're looking for businesses that are time-tested. This is an important starting point. The second thing is that price does matter. I mean, it's not enough to find something good. You have to find something that's good, that's better than people think it is. And so the situations that get us most excited are when we find a kind of blue chip business that's had a lost decade. If someone comes to me with an idea and says, oh, it's a great business, but it's also trading at a decade high valuation, it's less likely to be appealing. And so, you know.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“We want to provide for resilience long term. If we can have a portfolio of these kinds of businesses scattered around different industries and parts of the world, it surely provides for a more resilient experience than just betting on one. I don't see the elevator being disrupted anytime soon, but who knows?”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Installed base of elevators much more reliably and cheaply than just doing it all manually. And so being ahead of the curve there and like the other companies I mentioned, they have no net cash and management's been willing to buy back stock in the past. You have the Schindler family behind us. They own close to 40% of the company. The Schindlers and the Bonnards together. And so you have this long-term stewardship of a sort of a stable cash flow generative business that's out of favor right now because everyone's focused on the construction cycle in China. And so whether it's an ice machine maker or a bicycle breaks in gears company or an elevator company with long maintenance agreements, these kinds of businesses essentially like eclectic royalties on small slices of world nominal GDP. And it comes back to the point before that I made about diversification. These families have done well at concentrating. But to the extent that we invest other people's money.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“More concentrated in given geography, so Schindler is particularly strong in Europe. And the beautiful thing about this business is that the stock, this is a newer investment for us because everyone's worried about what's going on in China and the construction cycle globally. But the money is really not made on new elevator installations. It's made on the maintenance of existing elevators. Typically an elevator needs to be maintained for 20, 30, 40 years after it's installed. And the majority of their EBIT comes from these long-term maintenance arrangements that are very sticky. And this is a company that, like the other two, truly thinks about the long term. Not only do they have these long-term annuity-like maintenance agreements for their business, but over the last decade, they've doubled their R&D relative to EBIT to focus on embedding technology better in the elevator. So if you use the Internet of Things and sensors, you can maintain the”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Do you think of a typical business trading at 10 times cash flow, the management team is going to reinvest the enterprise value of that business every decade? So management quality is a key intangible asset. And here the businesses family run, the Shimado family, they're a large shareholder and they run the business for the long term. And over the last 20 years, they bought back about 40% of the stock. They don't have any debt. They have net cash. So rather like the Ice Machine Company, you don't have to worry about financial contingency. So that's another good example. And you mentioned the elevator company. This is a Swiss company, not a Japanese company like the other two, but the company that my colleague was probably referring to there was Schindler. And Schindler is the second largest elevator and escalator company in the world behind Otis. They've been around since the late 1800s, so they benefit from favorable incumbency. And even though there are a handful of large makers of”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Brakes and gears is the key part of the business. They're also big in fishing tackle. Another extraordinarily exciting market. But bicycle braking gears are 80% of their market. But the business has really compounded out at a high single digit clip over decades because they've added more value to the bicycle brakes and gears. And people are as they become more energy conscious and whatnot are adopting healthier habits. And so bicycling is certainly one of them and recreationally having some fishing tackle is not such a bad thing either. And this business has compounded out gradually. And meanwhile, management of being good stewards. The second great intangible asset of the business, aside from market share, is the extent to which management act like owners in their stewardship. Because management accretion can change on a compound basis your investing experience.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“In the case of the bicycle components, we've owned a stake in a company called Shimano for a couple of decades now, so it's truly been a long-term holding for us. And Shimano has over 50% of the market for high-end bicycle brakes and gears. And people know the brand of the brakes and gears more than they know the brand of the bicycle. I went to a farmer's market with my daughter once and she found some old comics that were on sale there from the early 70s. And it was, I think they were advertising the Browning Bicycle Company, but the big feature of the ad was the Shimano brakes and gears. And so this is a company that has basically devoted itself to perfecting a single process and getting to global distribution scale, one local market at a time. And what's great about Schimano is device.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“It's a good example. I mean, the company you're referring to is in ICE machines for commercial establishments, whether it's restaurants or hospitals or schools. And there's actually a fair amount of precision processing that goes into an ice machine because you don't want bacteria to creep in there. It needs to be reliable. It's at the core of a decent customer experience in a restaurant or any catering facility. And you want it to be reliable and therefore having the network of aftermarket support and sales force helps embed that business. concentrically expanded that business into strong position in commercial refrigerators and ovens and so businesses that you think are lacking in a certain amount of appeal can be quite stable over time and because the business has good economics you know you don't have to worry at a time like covert that they're going to go out of business their customers may be suffering for a time but the customers will come back and restaurants change all the time but the need for”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Or it's a company that's got a good market share position in a stable industry that's doing the things that it needs to do to perpetuate itself into the future. Now, those kinds of businesses often trade it at high value. So the reason we sort of refer to mundane scarcity as attractive is that if you want a shot at buying quality at a reasonable price, it can't have too much obvious allure. That's the key. What is often mundane to the average investor ends up being beautiful to the long-term compounder because it means that you can buy in at a reasonable multiple of cash flows, you can benefit from that scarcity over the long term. And if the business never scales the heights to an outsized valuation, you can hold it indefinitely with a margin of safety. And so it enables you to make a single decision and therefore have a very long average holding period.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Mines at the low end of the cost curve. So scarcity in the world of real assets is usually locationally driven. On the other hand, scarcity is manifest in the world of intangible assets, and usually that's companies that have strong market share positions. It's the most valuable form of intangible asset. A company that's had 40, 50, 60% market share that's been stable for decades is a scarce intangible asset because that large market share position gives them the ability to have a degree of pricing power through the cycle, reduces the volatility of their cash flows, improves their margins, but it also gives them the scale to outspend competitors on R&D, product development, density of their sales force so that they can provide more duration to that advantage. And so when we're thinking about scarcity in the world of investing, it's typically a well-located physical asset that's of a long-duration character.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“From the best block of land in Burgundy, or you're buying an old master's painting from someone who painted only very few paintings, that concept of scarcity is very intuitive and easy to understand. When it comes to business picking, I think you have to disentangle two forms of scarcity. One is scarcity in the world of real assets, and the other is scarcity in the form of intangible assets. Now, real asset scarcity, I think, is also pretty easy to understand. Imagine a really well-located piece of real estate like the vineyard. It could be an apartment right in the center of the city. It could be a beachfront apartment, or it could be a timber land on the edge of a city where there's optionality to either grow the timber or sell part of that land for higher and better use in any given year. Scarcity in the world of real assets could also be a company like a gold miner, for example, that owns very large-scale”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“What's interesting to me, and the beauty of modality at its core, or apparent modanity, is that it rarely leads to excesses. You know, if the goal is to buy a quality business, the only way you're going to make money is through some identification of asymmetry between price and prospects. It's not enough to buy a quality business because if the whole market views it as a high quality business, it'll be priced for low returns. And so it's really the search for unpriced quality that's critical. And so there has to be an engine for quality, but there usually has to be an issue. And that's where scarcity is kind of the engine and mundanity is often the issue. And so let me just sort of”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“And by holding them for a decade, the arithmetic starts to dominate the short-term changes in sentiment. And that's, I think, a really important principle when it comes to long-term investing, that if you're going to go for incumbency and you value arithmetic, you have to give it the right time rise. And rather like it would be crazy for my mother to plant and then sort of tear down the garden every year. Some trees take a long time to grow.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Well, part of it's a reflection of the way in which we invest because if you think about an investor who's trying to trade every quarter, by definition, they're going to have a lot of turnover in their strategy. Or if they're looking for the hottest new growth story, that changes every year. So by definition, you're going to have to shift to wherever the pocket of momentum is in any given short-term period. So if you're trying to trade short-term surprise or you're trying to trade shorter-term momentum, it leads you into the territory of being high turnover. On the flip side, if we go back to our discussion about collectibles, whether it's wine, art, or businesses, if you're identifying incumbency, it shouldn't change that quickly if you've done a solid job of identifying a business with staying power. And so, you know, a big part of what we do is to try and find businesses that are going to be around for the next generation and buy them at an advantage price and let the arithmetic play out.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Is that when you have a portfolio with 100 or so investments, it would be foolish to think that you could play a control or influence role in all of those investments? And what we've done instead is we've essentially created an ecosystem of managers who act like owners. And so it's more about the ecosystem that you're self-curating than you having to have control.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Businesses end up doing reasonably well, then you're able to cover the costs of those that don't do as well. The other thing I'd say other than diversification is I guess the opposite of leverage is to travel a journey with deferred purchasing power. And so if you look at our portfolios where we have roughly 20% in a combination of cash and gold and diversified foreign short-term sovereign bonds. I guess it's a recognition of the fact that a non-linear system like the economy is going to have episodic periods of crisis. And hopefully the businesses we own are well positioned to endure those. But if we have some net cash and gold, we can put it to work in very distressed environments and convert it to the ownership of enterprise on very advantageous terms episodically. And the willingness to kind of wait with some amount of your portfolio, I think has been a kind of an important element of how we've generated resilience historically. The final thing I'd say is”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“I've become convinced that there's only so much one can know. And so diversification is an acknowledgement, a humble acknowledgement of that fact, but it's also an interesting strategy because if you're willing to invest globally as we are, diversification doesn't mean that you look like a passive representation of the market. We might own 100 securities out of a universe of 5,000. And so you can still selectively curate the garden, to use the analogy of before, but to do it across industries and across countries in a way that gives you a degree of resilience. And to the extent that you've paid decent cash flow multiples and you've identified what you think is incumbency for individual businesses, it helps produce an error-tolerant approach because if the starting free cash flow yield compensates you for the cost of capital and a certain number of these”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Know And if you think of the difference that it can lead you to, if that's the port to which you're sailing, the first thing is that you become far more at peace with the notion of diversification. And you introduced me some time ago to Tom Gainer at Mark Hall, and I think he described it well. He discussed this notion of emergent position sizing. And that is that every investment you go into you think is going to be a sound investment. The future plays out in different ways. Some businesses are the victims of entropy, some are transient beneficiaries of substitution going in their favor. And so having a diversified portfolio is something that we're actually quite at peace with. And it's an expression of humility. It's an acknowledgement that there's only so much we can know. And going back to the discussion on Karl Popper or Wolfram and complexity,”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“The combination of concentration and leverage and the time sink of control devastating if the laws of entropy work against you in an unanticipated way. If there's a new product that disintermediates what you focus on. So you might have bought what you thought was a great business, but then the world changes. And if you're concentrated and levied and all of your time is sunk into controlling that business, then you're in a sort of troubled spot.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Well, you made an interesting comment before about sort of knowing where you're going, and I remember Seneca saying, you know, if you don't know to which port you're sailing, no wind is favorable. And I think for me as an investor, I like the idea of resilient wealth creation a lot. And I recognize that's not for everybody. Some people are investing for a different reason. Some people are investing because they want to max out rather than grind it out. And sometimes you'll come to surprisingly different conclusions depending on what your sense of travel is. So if your goal is to get large outsized returns, then it's going to drive you more towards portfolio concentration, the use of leverage episodically, and the desire for control so that you can influence the underlying companies that you're investing in. And many of the great fortunes that have been made have those three”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“And I think it's important because when people think about a growing business, they tend to think, well, if the business is growing revenues 10% a year, I'm growing my intrinsic value 10% a year, and it's not actually the case because trees don't grow to the sky. So that rate of growth will fade and markets become penetrated. And secondly, even if you dominate a market, substitutes get created. And so you have to recognize the fact that as a business matures, it will trade at a lower multiple than it does when it's growing. And so the fact that there's fade rates to growth and that the multiple of a mature business is going to be less than a growing one means that the growth in intrinsic value is going to be a lot less than the growth in revenues today.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Are in industry verticals where market share positions move around a lot. And so by definition, your ability to capitalize their terminal earnings at any given period of time is low because easy come, easy go, as it would relate to market share shifts. And so we do like to try and focus on businesses that have a stickiness to their market share over time, high customer retention rates to try and sort of slow the curve of entropy. We approach it with a great deal of humility and respect and we recognize that even our favorite ideas are going to get disrupted at some point or another.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Existing incumbency. And so entropy is a fundamental principle in investing. And when you go through business school and learn about asset pricing, you really only talk to think about beta risk or systemic risk. But idiosyncratic risk is interesting to think about as well. And in fact, entropy is a form of systemic risk because change in the economy, the overall improvement in the economy imputes that existing companies will grab a smaller share of the future pie given enough time. And so, you know, I've focused a lot on this question. The paradox of it is that buying businesses that have been around for a long period of time that have demonstrated persistence in some ways can be a safer strategy than trying to buy a business that's growing a lot today. Because many of the businesses that are growing a lot today”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“It's a good question, William. Entropy is probably one of the few absolute truths. It's a second law of thermodynamics that any form of order is essentially transient. And perhaps it's the fight against entropy that sort of gotten me interested in old master art or grape wine that can survive for generations from vineyards that have been planted for generations or a business that has a slow feed rate relative to the typical business. But if you think about the economy as an ecosystem rather than as machine, productivity happens every year, productivity growth. And over the last century, we've grown productivity close to 2% a year. But the dark symmetry of productivity is that the existing pool of companies won't control the future profit pool in perpetuity. New businesses get created that chip away at the margins.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Was converted to words and symbols. But there are obviously a lot of false starts along the way in the world of art. I think it's going to be very hard to predict which contemporary art becomes an old master. You can buy art today from a master that was painted four or five hundred years ago that survived the test of time. And it may look mundane relative to the sizzle of the contemporary art market, but it's more likely than not to maintain its relevance if it has done so already for four or five hundred years. And so I think the appeal of identifying incumbency in those collectibles market has sort of bled across to the way I think about looking for businesses.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“With the passage of time, an advantage business tends to benefit from kind of brownfield concentricity, the ability to invest around the fringes of your business with marginal economics that are much better than someone who is trying to get into the business with greenfield investment. And so time aids the intrinsic value of a good business. Meanwhile, a good business is producing free cash flow, so it could be shrinking its shares outstanding rather like bottles of wine disappearing for any given vintage over time. And the real value could compound up over time. And the same can be said for art. There's a lot of enthusiasm for contemporary art, just as there is a lot of enthusiasm for growth stocks. People want to own the new thing. But if you think about the big movements in art, they tended to precede big movements in physics and mathematics and language, often by a couple of generations. Sometimes artists were intuiting how to perceive things long before”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Looking for good value propositions, and I still enjoy good value whenever I can find it. But over time, I realized that there are certain wines that are just fundamentally advantaged and that those wines tend to also age themselves well. And it's interesting from an investment standpoint what can happen if you let time and quality combine because if you think of the analogy of a nice bottle of wine that matures gracefully over 30 or 40 years As it matures and its real quality goes up, the real quantity goes down because bottles of that wine in that particular vintage get consumed every year. And so there's a reason the equilibrium price for a fine bottle of wine can go up exponentially over time. Quality improves, supply goes down. And I saw that analogy with businesses because if you own an advantaged business over time,”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“I think so because when I look at a business in the stock market, I'm most often attracted to something that's survived the test of time, that has some form of advantaged incumbency. And I think the same can be said if you're a wine collector or an art collector. You know, if you're a wine collector, there's certain terroir that is just advantaged where people may have been growing vines there for over a thousand years. the cumulative effect of that is that the ecosystem around that plot of land has very complex soil and it has unique geographic exposures but it also has the sort of software benefit in inverted commas of cumulative learning of how to tend that those particular vines in that particular location is often passed on from generation to generation and so you know when i initially started collecting wine i was”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“It's a combination of less competition. And I think patients as well, it encourages you to wait for ideas that are truly stacked in your advantage. And I think that's an interesting perspective that I try to convey to new analysts who join our platform, because when an analyst shows up, they're tempted to produce a new idea every week. And like, actually, no, I'd like you to do a lot of work every week, but I'm really looking for one or two ideas every year or two that are exceptional. And it's just a different way of thinking.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Strategy of just letting the forest grow around you wasn't necessarily the safe strategy. My mother had worked in all of these fire buffers and things like that. So selectively curating something and letting time take its course is something that doesn't seem like a very well rewarded activity in the short term. But when you step back and let time play out, it can be very rewarding.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Having troubles. Whereas there's a gentleman who lived next to us who mowed his lawn every week and it just looked pristine and clean. And we had another house behind us at the bottom of the rainforest where he just lived amidst the rainforest. I only realized the wisdom of my mother's long-term strategy when I came back to the house some 20 years later with children, my children. The garden had really grown into this resplendent beautiful space. It had been selectively curated over time whereas the house next to me was still being, the lawn was still being mowing every week, but there was nothing to show for all of this activity. It was like the active manager turning over the portfolio once a week and the gentleman who had had his house down the hill behind us had some fire damage I heard at some point. And so the passing”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“That compound accretion tends to take time to flay out. And so the things that attracted me tended to be longer-term variables. And if I true to myself, I was less good at trying to pick up on the short-term scatter pattern and mosaic and predict near-term earnings surprise. And so I went to where I felt most comfortable. And if you'll permit me, one sort of digression here, I mentioned that my grandfather was a gardener and he passed that skill on to my mother. And this little home that we built, she was an ardent gardener in this home. As a child, I always wondered why she went to the effort because there was always some issue. There were drought conditions or the bamboo root would spread to somewhere where it wasn't meant to be or there was some weird fungus or virus.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“He's very focused on the limiting arithmetic of the investment. And in a sense, he's looking to make one good decision as opposed to a series of decisions. The more decisions you make, the more difficult it is to make excellent decisions. If you're selective with the decisions you make, the odds of making an excellent decision go up. And so I kind of realized”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“No, it's actually a really interesting question because I'd say that as more time has passed in my career, my time horizon has continued to grow longer. And I'd say to give you an analogy, if you felt that you were going to pursue a quantitative strategy that had a small edge, imagine you were flipping a coin that was slightly biased, well, then you'd want to flip that a lot of times to magnify a weak signal. It's akin to having a short-term horizon for investing. And a lot of people are very focused. They obsessively sort of trading the quarter, if you will, and trying to pick up on sentiment shifts. And I guess the more I thought about it, the more I realized that that field is, because it offers the allure of large returns if done successfully, it attracts a lot of competition. Whereas, you know, you look at what Buffett's done, he looks to buy forever.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“But even so, it wasn't absolute because you saw companies that had highly inflated valuations that were able to use that currency to go and acquire other businesses that were cash flow generative. So they could turn hope into reality. And that's always a bit distressing when you see that as a value investor. I think by and large it was just the nature of the fact that if you bought a real business and it had a real cash flow stream and you had a long enough time horizon, arithmetic was pretty powerful. It's almost like a law of gravity that if you had the right time horizon, things would shine through.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Well, you know, it's interesting if you're a bond buyer, you know that you've got a contractual principle that's due to you in five years time or whenever the bond matures. And I think that gives bond buyers a lot of peace of mind that they can endure short-term vicissitudes in quarterly reports and the like. And I think it's difficult as an equity buyer because what you're buying is ostensibly a perpetuity. But I think what gave me the conviction the more I thought about it was that ultimately you're buying access to a cash flow stream. If the business were cash flow generative and it was stewarded by a management teams that were willing to distribute at the lion's share of those cash flows to you, that ultimately arithmetic would work, that sentiment could shift around the multiple relative to that cash flow a lot in the short term. But ultimately, the math would converge upon the arithmetic of the cash flow. And so I think that gave me a lot of comfort.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“And yes, some businesses will live into high valuations, but one of the metrics I couldn't get around was the enterprise value per employee of some of these newly listed companies was quite large. In fact, I said to the partner at the time, I said, you know, would you pay 30 times as much per human for this business as the market cap of Goldman Sachs? You feel like you've got good people. Would you pay 30 times as much? And by the way, in a labor market where unemployment rates were below 4%. How are they going to hire the people to live into that valuation, even if they can find the best people? And so I guess looking at strange things like that gave me the conviction to stick it out. But it was a trying time.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“I definitely have to face those pressures. I mean, I was dragged in front of one of the partners for lunch and he's like, why aren't you buying these hot IPOs? It's free money. And I tried to explain the fact that it's a sucker's game, the IPO market, because you spend all of your time researching businesses that haven't proven their incumbency. And secondly, you tend to get the smallest allocations of the best businesses. And so there's a lot of adverse selection in that market. And so, you know, I spent a lot of time thinking about why I didn't want to spend my time focused on that. But it seemed like there was free money to be had. And I remember a conversation with the retirement committee at Goldman Sachs where they were sort of questioning whether there would be any mean reversion in this dot-com era or whether everything had changed. And I recall back then saying that, look, you can look at enterprise value to cash flow or revenue.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“I think there's some truth to that, William. I think that I definitely came in with an outside perspective. And I think as well, I take comfort in the purity of ideas. And so I think the combination of coming at something from the outside and seeking purity and ideas, even if you, I'd recognize by that point there weren't any absolute truth. I think it was those two things that were very helpful an environment like that. And indeed, when I spoke to Jean-Marie, who hired me to First Eagle many years later, he said, one of the things that gave him comfort about hiring someone like me was that I had endured an experience like the late 1990s. It was almost a kind of a condition precedent to feeling comfortable that you'd have the stamina to do it again.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Will. And I think that was a really formative moment for me. And I have a friend who was a very successful trader, and he used to trade exotic options. And he said to me once as he retired from the field, he said, he learned the hard”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“For periods that are quite a bit longer than you'd feel comfortable with. I mean, when one grows up and one goes through grade school, you get essentially promoted each year to the next grade. You get your grades every semester. And even in the early stages of a career, you typically get annual feedback and your annual bonus. But investing is a lot more like gardening where the seeds you planned intellectually or the business investments you make often play out over five to ten years. And I realize that the timeframe that one had to apply to assessing the feedback loop was quite a bit longer than conventional timeframes and you have to learn to manage that emotionally, which I think was a good lesson to learn relatively early on in an investing career because those things repeat themselves. And I saw a lot of people leave the business because they weren't willing to sort of stick it out.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Well, the late 90s were difficult as a value investor. And I'd had the benefit of some interesting mentors at Goldman as well. Paul Farrell had worked with Lou Simpson at Geico, who taught me the buffet way of thinking, Mitch Cantor, who'd worked at Bernstein, who was a deeper value investor, who really got me to think about how businesses normalize over time. And so I had these value influences on me. And I was just getting my own legs as an investor. But then the late 90s ended up being just a woeful period for value investors, rather like the period we've just been through. History does rhyme sometimes, focusing on cash flows and price was not a profitable thing to do in the internet bubble. And it was very challenging emotionally. I was obviously quite a bit younger at the time and you're trying to navigate a period. But I think what it solidified for me is this notion that sometimes if you've got a discipline mental model, you need to be willing to be short social.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“And that's when I chose to study finance and accounting at college and got exposed to some more empirical elements in the world of finance and start to read about other investors. And meanwhile, all of these wheeler, dealer, entrepreneurs were blowing up in the market because financial conditions got tight in the late 1980s. And so I think it was just having the benefit of seeing certain schemes unfold and then unfurl and then certain simple truths play out over time for the patient.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Of historical prices and figure out what's going to happen next. And all of this seemed to have this kind of allure to someone who wanted to have freedom in life. And at the same time, my grandfather, who was a sort of long-term philosopher, gardener, collective wine, whatnot, he gave me a small amount of shares in a company which was a small but fairly dominant regional bank. And time took care of any illusions that I had because the investment venture with the math teacher went to zero pretty quickly. He certainly couldn't see the future and employing leverage when you can't see the future is a dangerous thing to do. And meanwhile, this little company compounded out quietly, almost unnoticed, never into a large amount of money because it was a few hundred dollars, but it got me thinking. And as I sort of sifted through all of this in my mind, I thought, well, I really have to learn about this in a more disciplined way.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Interested in stock markets, and for all of the wrong reasons initially, this was the time back in the early 80s when you had the early days of the leverage buyout booms and people were creating fantastic wealth. And there were a lot of sort of speculative enterprises that were being formed that were sort of rolling up other businesses. And it seemed like that there was this sort of mystical elixir that one could learn about. At the same time, in about grade 11, I had a math teacher who wanted to create an investment club at high school. And he figured out he had discovered the pattern and the roulette wheel, to quote Fred Schwed from where all the customers' yachts. And as Fred Schwed said, for every new person who thinks they've discovered the pattern and the roulette will, it's unfortunate for them because they haven't. And he had studied Elliott wave theory. And I thought, well, here's something interesting. He can look at the past.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT