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nasdaq.com/solutions slash

1:16

solovis. Hello,

1:26

I'm Ted Seydes and this

1:28

is Capital Allocators. This

1:31

show is an open exploration of

1:33

the people and process behind capital

1:35

allocation. Through conversations with

1:37

leaders in the money game, we learn

1:39

how these holders of the keys to

1:42

the kingdom allocate their time and their

1:44

capital. You can

1:46

keep up to date

1:48

by visiting capitalallocatorspodcast.com. You

1:52

may remember my popular first meeting from

1:55

a few years ago with Paul Black

1:57

of WCM, then a

1:59

$25 billion dollar asset manager in

2:01

Laguna Beach, California. Since

2:03

then, WCM has gone up and to

2:05

the right in every way. They

2:08

sold a minority piece of the business to Natixas,

2:10

continue to put big numbers on the board and

2:12

have grown to north of $66 billion,

2:15

defying the fade of

2:17

active management outflows. My

2:20

guest on today's show is Mike

2:22

Trigg, a partner and portfolio manager

2:24

of WCM's focused international growth strategy

2:27

that comprises the majority of the

2:29

firm's assets. We discuss

2:31

Mike's background, arrival at WCM

2:33

in 2005, the near implosion

2:35

of the firm shortly thereafter,

2:38

and the rising of the international strategy

2:40

from those assets. We

2:42

then dive in deeper to the core

2:44

tenets of WCM's approach, discussing

2:46

how the firm analyzes widening

2:48

moats and cultures tied to

2:50

competitive advantage. Lastly, we

2:53

talk about how WCM's growth has

2:55

impacted the firm. Please

2:58

enjoy the second meeting, if you

3:00

will, with Mike Trigg from WC. Mike,

3:05

great to see you. Great

3:07

to see you, Ted. Well, this is going

3:09

to be fun. We did a nice overview

3:11

at WCM, I guess a couple of years

3:13

ago now with Paul. It's going to be

3:16

fun to dive in a little bit deeper

3:18

on what's become increasingly just such an interesting

3:20

story. Why don't we start with your

3:22

initial interest in investing? Before

3:25

we get into that, I was thinking about

3:27

Paul's podcast and how I

3:29

enjoyed it as well. In the

3:31

situation, I mean it reminded me of having to

3:33

go after the guy at a rehearsal dinner

3:35

that just gave a really great toast. I

3:39

don't know if I'll be able to top

3:41

it, but I am happy to be here

3:43

and dig more into the firm and our

3:45

story. I have a bit of an unconventional

3:47

background, I think, by investment management standards. I

3:49

really probably fell in love with investing when

3:51

I was in college. Back then, we had

3:53

a computer lab. You'd go to the library,

3:56

you'd study, and then you'd inevitably go

3:58

take a break. I was in the

4:00

late 1990s, and so it was a pretty exciting

4:02

time to be in the stock market. You

4:05

could invest and you could kind of throw a dart at the wall and

4:07

make two or three times your money. So my

4:10

buddies and I would go up there and

4:12

talk about different stocks, and I ended up

4:14

stumbling across the Motley Fool message boards. The

4:18

Motley Fool was a website that wanted

4:20

to empower the individual investor, and then they had

4:22

these message boards with all these really interesting, smart

4:24

people that you could sort of interact with. It

4:27

was kind of like you think about all the

4:29

stuff that's happened on social media now. They were

4:31

kind of way ahead of their time, and started

4:33

learning more about investing. Obviously, I was a finance

4:35

major, so I had some practical schooling as well

4:37

that was going on at the same time. When

4:40

it came time to graduate, I did

4:42

conventional type interviews. I tried to interview

4:44

at a couple big money management firms,

4:46

some big banks, and I thought, hey, I'm

4:48

just on a whim. I'm going to throw a

4:50

resume at the Motley Fool and see if they

4:53

respond, and lo and behold,

4:55

they did. They called me up, and

4:57

I flew out there, and I ended up getting a

5:00

job writing for the website. Literally,

5:02

just imagine you're 22 years

5:04

old, really next to nothing

5:07

about investing, and then a website like the Fool comes

5:09

to you and says, hey, we want you to write

5:11

like two articles a week about pretty much anything you

5:13

want. I

5:15

hope most of those articles are deleted

5:18

from the EMC tape storage that they're

5:20

probably on somewhere. So

5:22

I did that for about a year and a half. It

5:25

was an awesome experience. So much of

5:27

the Motley Fool, what

5:29

they're about really resonates with me, so

5:32

there's an irreverence to what they do.

5:34

David Gardner, one of the founders, had

5:36

this portfolio called the Rule Breaker. A

5:40

lot of it was about empowerment, right? Like,

5:42

hey, this industry hasn't served individual investors well.

5:44

You guys can do this on your own.

5:47

So much of my story, too, has

5:49

just been about being a

5:52

self-taught investor. I

5:54

became a really good writer while I

5:56

was there, and I still to this

5:58

day think being a good writer. is

6:00

a really great tool

6:02

to being a good investor. It's important

6:04

to be able to, I think, articulate

6:06

how you're thinking about things. It's important

6:08

to be able to simplify

6:11

your ideas down to a few key principles.

6:13

Writing's a really great way to do that.

6:15

The Fool was on a major growth curve at

6:17

that point. So I joined just kind of at

6:20

the very peak of the internet euphoria, because I

6:22

graduated school in 2000, and

6:24

thinking that things were gonna continue to grow a lot.

6:26

So the headcount probably doubled or more in the time

6:28

that I was there. And 18

6:30

months later, when I left, there

6:33

was 30 employees. So

6:35

I remember calling my dad on

6:37

the phone and being like, I

6:39

can't believe I joined this company. And he'd always be like,

6:41

you are getting the better education than you would ever get

6:43

at business school or anything like that. So as

6:46

that situation kind of unwound, Morningstar proactively

6:48

reached out to The Moby Fool, knowing

6:50

that they were laying off a significant

6:53

percentage of their editorial staff. And within

6:55

a couple of weeks, actually had taken and

6:57

interviewed and accepted a job at Morningstar.

7:00

And that was fun because

7:02

it was more of a traditional equity

7:04

analyst role. Morningstar at that time is

7:06

2001. They're just really

7:09

building out their equity research

7:11

capability. And unlike

7:14

the traditional sort of self-side research

7:16

coverage model, they really wanted to

7:18

have a singular philosophy that

7:20

drove how the analysts would look at the

7:22

stocks. And it was sort of rooted in,

7:25

I'd say more of a classic Warren

7:28

Buffett methodology. It was every business has

7:30

a moat or should have some type

7:32

of moat. There's

7:35

six or seven pretty well understood

7:37

moat sources. Things like network effects

7:39

and switching costs and economies of

7:41

scale. So understand those, see if

7:43

they apply to this business based

7:47

on some backward looking analysis and your

7:49

sort of qualitative assessment of the moat

7:51

sources, give it a moat rating. Every

7:53

business would either have a wide moat, a narrow

7:56

moat or a no moat. And

7:58

then there was evaluation method. So we

8:00

had a discounted cash flow model. Every company

8:03

would be valued and there'd be an estimate

8:05

of intrinsic value. And then the star rating

8:07

or the level of conviction that the recommendation

8:09

had would be based on the discounts of

8:11

your intrinsic value. So where the stock was

8:14

trading relative to what you thought it was

8:16

worth. And depending on the

8:18

assessment of the moat, you might demand a

8:20

smaller discount to intrinsic value for a wide

8:22

moat business and a bigger one for a

8:24

no moat. I was given a lot of

8:26

freedom, a lot of autonomy. And then also

8:28

indoctrinated in this way about thinking about competitive

8:30

advantage. How did you

8:33

end up going from Morningstar to

8:35

WCM? So I was there for about

8:37

four and a half years. And

8:40

after about three years, my

8:42

boss at the time had come to me

8:44

and asked me about writing a newsletter. She

8:47

and I were sort of kindred spirits along

8:49

with probably Sanjay that there were some inherent

8:51

flaws in Morningstar's process. And we were kind

8:53

of missing these growth companies. She said, hey,

8:56

what about writing the newsletter about growth stocks?

8:58

I had been toying with this idea of

9:00

buying moats that weren't just big moats, but

9:03

small moats that were going to grow. And

9:05

so kind of a core feature

9:07

of that newsletter was this watch list

9:09

called emerging moats. And it was kind of like,

9:11

hey, buy the wide moat businesses of the future

9:13

today. And Paul and

9:15

Kurt both subscribed to that newsletter. And I found

9:18

that out later. But one day I was sitting

9:20

at my desk in Chicago. Paul called me up,

9:22

left me a voicemail, said, hey, I'm Paul Black,

9:24

one of his big, very enthusiastic voicemails. I'm Paul

9:26

Black, W.C. on investment management, a big

9:28

fan of your work. I'd love

9:30

to be in Chicago in a couple of weeks. I'd love to have

9:32

lunch. And I thought it was really

9:34

just like a portfolio manager looking to fill

9:37

a slot of a day of consultant meetings

9:39

or something in Chicago. So we had lunch

9:41

and it was very clear that within a

9:44

couple of minutes that they had been reading the

9:46

prior, I don't know, nine or 10 months that

9:48

I'd been doing the newsletter. And we

9:51

had a lot of similarities in terms of

9:53

the way we thought. And he was looking

9:55

for an analyst and I had no intentions

9:57

of wanting to leave Chicago. I was

9:59

just so. taken with the conversation that I

10:01

had with Paul that I

10:03

ended up coming out here. When I look

10:06

back at that lunch, it was at a

10:08

tie-in restaurant with one of those paper table

10:10

covering and he had

10:12

taken out a pencil and he was like

10:14

drawing up the org chart and like had

10:16

all these arrows and things and was kind

10:19

of like a coach almost planning out the

10:21

next five or ten years of the firm

10:23

and I just loved his energy, loved

10:25

his enthusiasm and I think he asked me at the

10:27

end of lunch, what do you want to do and

10:29

I'm like I want to go on the buy side and

10:31

so that was my opportunity that just sort of came and

10:33

found me. What was WCM like when

10:36

you got there? From what I could

10:38

tell before I joined the firm, it was really

10:40

successful. I mean they had grown a ton in

10:43

the last say five years. It was about 3.9

10:46

billion in assets at

10:49

the end of 2005. So this was when I met Paul, it was

10:52

December of 05. They had started to

10:54

build a pretty good institutional business. The

10:57

overwhelming majority of those assets were in a

10:59

domestic large cap growth

11:02

product. They had had a rough year in 2005 which

11:04

was largely explainable

11:06

by what was going on in the market at

11:08

that time with commodities and energies and things that

11:11

they weren't nowhere close to investing in and so

11:14

Paul basically sort of pitched it as an opportunity

11:16

to come in and have a big impact. I

11:18

had two animals at the time, wanted a third

11:20

and it seemed like

11:22

a really no-brainer, great culture, great people. Then

11:24

when I got there, you never know what

11:26

it's gonna be like right until you actually,

11:28

I mean I always ask that now if

11:30

CEO's like okay well I know you took this

11:32

job and you probably had some idea of what the

11:34

culture was like before you took it but like what

11:36

are the big surprises? I mean that I've lived that

11:38

right? Like you only know until you actually walk

11:41

in the door and are a part of it and

11:44

so it turned out to be quite the wild ride

11:46

and what I think I pitched to my

11:48

wife when we moved out there turned out to be

11:50

something that was very very different. I really thought it

11:52

was like okay there's a lot underneath the hood here

11:55

but candidly when I got here I remember

11:58

in the first couple

12:00

of weeks just starting to pick up that

12:02

Paul and Kurt, they're

12:04

clearly great business people, but they're

12:06

not investor first people. Paul's

12:09

passion was really running this

12:11

business. And philosophically,

12:13

everything they talked about, I completely resonated

12:15

with me and was well thought out

12:17

and you go through the pitch

12:20

book and it was pretty flawless, but it

12:22

seemed like that wasn't their focus. And in fact, they

12:24

were kind of looking to me to really

12:28

help not just like be part of the team. It

12:30

was like, what are the next names? I just

12:32

got here like two days ago, you know? And remember I was 27

12:34

or 28 then, then an unconventional

12:40

background, but a limited set of experiences. So

12:42

there was all these crazy places where you

12:44

can go have lunch around that Lake Forest

12:47

office. And I finally got

12:49

up the courage to tell Paul, I don't

12:51

think we have the horses basically. And

12:53

he's like, what do you want to do? So just

12:55

imagine me moving out here. My God, Paul basically being

12:57

like, you know, what do you think we should do? So

13:01

on the one hand, it's great that someone

13:03

looks at you like that. They're like, yeah,

13:05

we really need you. But

13:07

at the other hand, I didn't know what to

13:10

do. I was still trying to figure it out

13:12

for myself. And so, you

13:14

know, I really just tried to do what

13:18

I was hired to do, which was try to find

13:20

ideas for the portfolio. But we're

13:23

underperformed by over 2000 basis

13:25

points in the first five quarters

13:27

that I joined the firm. Very quickly, there started

13:30

to be emotions and

13:32

cultural issues. And I think it was maybe

13:34

the first year having a meeting with the

13:36

whole company and Paul basically saying to everybody

13:38

like, Hey, everyone in here needs to be

13:40

prepared that our assets are going to get

13:42

cut in half. And I was

13:44

like, Whoa, okay. And back

13:46

then, you still are

13:48

kind of naive enough to think like, okay, yeah,

13:50

it really does just take one

13:53

great idea and we'll be back rocking and rolling

13:55

again. And you don't realize that two

13:57

bad years, three really bad years.

14:00

years of 800 basis points under the

14:02

bench annually, those aren't things you really come

14:04

back from. And then at the

14:06

same time, from a

14:08

process and portfolio management point of view,

14:11

things kind of unraveling because of all

14:13

of the pressures

14:15

and disappointment around performance.

14:18

You can read about the dysfunction

14:20

of investment committees, but

14:22

until you're on one and you actually

14:24

hear people say the stuff, you don't

14:27

really realize that it's real and it

14:29

happens. And that's exactly what was

14:32

taking place. I went

14:34

to my first investment committee meeting, which were

14:36

these big three hour, track on marathon

14:40

meetings and the

14:42

book Wisdom of Crowds, it just came out.

14:45

And so everyone in the firm basically would go to

14:47

this investment committee meeting. And then at the end, when

14:49

it came time to make a decision on the portfolio,

14:51

which it seemed like there was always an intention if

14:54

there was a meeting to have a decision at the

14:56

end of the meeting, which probably isn't a great idea

14:58

either. Every single person in the

15:00

room, I mean, you could be in operations, you could have

15:02

been in sales. I mean, everybody wrote down on a piece

15:04

of paper what they thought we should do with the next

15:06

trade and the portfolio. And then all those votes were tallied

15:09

up and looked at what the consensus was in

15:11

the room. And if you actually read the book

15:13

Wisdom of Crowds, you realize that that's not the

15:15

most appropriate application of it. So

15:18

what seemed like a rocket ship and

15:21

a growth engine suddenly had some really

15:23

significant headwinds. You join

15:25

a firm, you think it's going to keep growing, you're

15:27

excited just to be part of the team, and then

15:29

suddenly you're a year and a half in and the

15:32

product that you were hired to be an analyst on

15:34

is looking like it doesn't have a future. I

15:37

needed to find other sources of growth. And

15:41

something really fortunate and dramatic happened,

15:43

which was one of my partners,

15:45

Pete Hunkle, had

15:48

been incubating a international

15:51

strategy that was loosely based

15:53

off the domestic strategy in

15:56

that it was concentrated and had a

15:59

quality orientation. and focused on

16:01

growth companies. And

16:03

so the idea was sort of hatched, okay, this

16:06

is an opportunity to go build something, and

16:08

Mike, why don't you team up with Pete and

16:10

go try to build something. Where'd

16:12

the assets go to at the time? The

16:14

assets ultimately bottomed out at less

16:16

than a billion dollars. And

16:19

so that created a couple interesting

16:21

challenges. One was the firm's reputation

16:25

at that point in the institutional market. I

16:27

don't think it was all that great. And

16:29

we were known for this domestic strategy that

16:31

had significantly underperformed. And so I

16:33

think it was by the time 2010 came, we

16:37

had gone from four billion when I started

16:39

to a little under a billion

16:41

dollars in assets. So there's lots

16:43

of things I could talk about during

16:45

that period, but the most important ones

16:47

are, first, nobody left, which is pretty

16:50

remarkable. I mean, if you think about

16:53

the challenges that a business can face

16:55

when it goes through performance and business

16:57

struggles like that, I don't know if

16:59

other stories of firms where that

17:01

happened, and basically everybody stuck together

17:04

and committed to seeing it

17:06

through and hopefully getting to the other side.

17:08

So that was fantastic. And

17:10

I think we all agree, forget about what we're doing

17:12

now and what we've done. It's like that in and

17:14

of itself is one of the proudest moments I think

17:17

we all have. The other

17:19

piece is we learned a lot

17:21

from some of the mistakes that

17:24

were made with that domestic

17:26

product. None of us would

17:28

be the investors and the people we

17:30

are if not having gone through those

17:33

experiences. And

17:35

a big one being coming back

17:37

to this idea of moats and moat trajectory.

17:39

I mean, the big mistake I think

17:41

that we made was really

17:44

focusing on really big moats,

17:46

really wide moat businesses, and

17:49

trying to buy them as

17:51

cheaply as possible. So our valuation discipline, which

17:53

was largely sort of rooted in doing a

17:55

lot of DCF work, continued

17:58

to overtake the investors. investment

18:00

process and philosophy. If

18:03

you look back in time, we

18:05

were buying Dell instead of Apple,

18:07

eBay instead of Amazon, Yahoo instead

18:09

of Google. Those three

18:11

trades alone, had they

18:13

been done differently, would have had dramatically different

18:16

results for that domestic product. Was

18:19

that experience combined with some

18:21

of the stuff I had brought to the table

18:24

from my Morningstar experience combined with some

18:26

of the successes we've had with the international product

18:30

and other folks that were here that said, hey,

18:32

this is really what we think we've kind of

18:34

unlocked the key element

18:36

here when it comes to growth investing, which

18:38

is really rooted in this idea of buying

18:40

wide mode businesses and not only finding great

18:42

investment ideas, but also steering you away from

18:44

companies that are essentially big

18:47

value traps. I don't think those insights would

18:49

have been had or been as acute if

18:51

not for going through the struggles that we

18:53

had. What was interesting

18:56

about that as well is I knew

18:58

we had learned so much and

19:00

gotten so much better because

19:02

of that. It took a while for

19:04

other people to believe us. I think we

19:06

outperformed by 900 basis points annually in

19:09

the first six years of the product and it still took

19:11

us that long to get to $100 million. So

19:14

much of investing is, I think,

19:16

getting out of your own way and

19:18

letting the importance of staying humble

19:20

and recognizing that you're not perfect.

19:24

People today, I think, look at us and

19:26

see what we've done and how big we've

19:28

gotten and think, oh, these guys must have

19:31

huge egos and think they

19:33

know everything. It's like, well, not really actually.

19:35

Let's dig into the history here and tell

19:37

you where we came from. I

19:40

still think that how we run the

19:43

company, how we treat people, how we

19:45

think about our investment process, it all

19:47

kind of traces back to that experience

19:49

and knowing how fragile the business can be if you

19:51

don't continue to get better, if you don't continue to

19:53

innovate, you don't continue to treat

19:55

people right. This is a fun business when it's working,

19:57

but it's a really difficult one when it's not. So

20:01

there's a big difference between those

20:03

starts on the international product after six years

20:05

being a hundred million and where you are

20:07

today. And we had talked to Paul about

20:09

this sort of two key features of the

20:11

investment process. But let's start on this question

20:13

of moats and widening moats. How

20:16

do you think about assessing

20:18

companies through that lens?

20:20

It's been a huge evolution, right?

20:22

I think if you asked anybody

20:25

intuitively, they'd say, okay, yeah, like I get

20:27

it. Why wouldn't I want to own a

20:29

business with a set of advantages or a

20:32

moat that's strengthening? But how

20:34

do you detect that? How do you do that

20:37

with any sort of consistency? And

20:40

we've done it a bunch of different ways. The

20:42

first thing we really started doing was case studies

20:45

actually on companies. A lot

20:47

of it is rooted in

20:49

backward-looking analysis, which is

20:51

funny because I think a

20:53

lot of people are attracted to this

20:55

industry for kind of the immediate gains,

20:57

the cause and effect relationship of investing.

20:59

And maybe that explains why people don't

21:01

do more backward-looking work. But

21:05

we started doing case studies on companies like

21:07

great companies and tracing the full lifecycle of

21:09

the business and trying to figure out, okay,

21:12

what is this company's moat? What were

21:14

the early signs that this moat was

21:16

actually developing and being built? What

21:18

did the market think about the company at the time?

21:21

And then going all the way through to

21:23

say, okay, and then what were some of

21:25

the early warning signs when this moat maybe

21:27

started to peter out and then ultimately maybe

21:30

even start shrinking? And so we did that

21:32

on a bunch of different companies. And the

21:34

interesting thing was we started

21:36

to see patterns amongst companies. And

21:39

sometimes those patterns were not just several

21:42

companies in the same industry that had

21:44

done really well. They've shared certain characteristics,

21:46

but oftentimes there were

21:48

companies that shared business model attributes

21:51

that were in totally different industries.

21:54

And so from that, we created

21:56

a set of typologies or frameworks.

22:00

really rooted in this idea of pattern

22:02

recognition. And so

22:04

we have a bunch of these things where

22:06

if we're looking at an outsourcing business model

22:08

as an example, we think we've isolated the

22:11

four things that are really consistent with long-term

22:13

mode expansion for an outsourcing business model. And

22:16

when we look at a new company and there's lots

22:18

of different outsourcers in lots of different industries, if they

22:20

sort of pass these four

22:23

criteria, then it gives us a lot of

22:25

confidence that it's a business that's going to

22:27

be able to sustain

22:29

its growth and grow its returns for a really

22:31

long period of time. And then more importantly, I

22:33

think it also helps you tune out all the

22:35

noise that you're sort of inundated with companies. In

22:38

that example of the outsourcers, so

22:40

what are those four criteria and

22:42

what's an example of where

22:45

you saw that across different industries? The

22:47

first thing we would look for is we

22:49

want a runway of outsourcing. You don't want

22:51

to invest in outsourcers when the

22:54

majority of the market has already been

22:56

outsourced. And that can take a

22:58

really long time, to be honest with you.

23:00

These things are actually pretty slow moving. Even

23:03

in some of the other industries that we're

23:05

involved in today, things like outsourced clinical trials

23:07

or outsourced pharma manufacturing, you're looking still at

23:09

well under 50 percent of those markets being

23:12

outsourced. And then the second

23:14

piece is you

23:16

want the outsourced service to

23:19

be relatively small

23:21

part of the customer's P&L, but

23:23

the cost of failure to be

23:25

really high. So if

23:28

it's a really high piece of the

23:30

expense line, oftentimes

23:32

you don't get the pricing that becomes

23:34

a little bit more contentious. And so

23:36

you want more of a cozy relationship.

23:38

And it's easier to achieve that when

23:41

the actual service cost is relatively

23:44

small. And then the other one

23:46

is a fragmented customer base. And

23:50

that too is pretty apparent. You don't

23:52

want an outsourcer that's largely relying on

23:54

two or three customers. That can become

23:57

also something that's not

23:59

going to lead. to the same amount of

24:01

durability or not the kind of durability

24:03

that we're interested in. So you want

24:05

some level of customer fragmentation and

24:08

high barriers to entry. And then the last

24:10

one, and this is probably the most important

24:12

one is you want evidence that the outsourcers

24:14

continuing to move up the value chain. That's

24:17

ultimately what's gonna really extend the growth curve

24:19

of the business. And that's

24:21

a fairly qualitative assessment. But if

24:24

you go back and you study what

24:27

the great outsourcers have done over time,

24:29

they started doing pretty routine basic things.

24:32

And then over time, just

24:34

became a lot more essential. Their role in

24:36

the ecosystem became a lot bigger. And a

24:38

lot of that's just by becoming more of

24:40

a, effectively like an outsourced

24:42

R&D arm for those companies. Pi-1 Semiconductor is

24:45

the one that we've owned, the outsourcer that

24:47

we've owned, the longest. But this is kind

24:49

of a playbook that's been pretty

24:51

successful in lots of companies. For many

24:53

years, we owned a

24:55

company called Christian Hansen, which is they

24:58

make cultures and enzymes for yogurt, milk,

25:00

and cheese. So they serve the dairy

25:02

industry predominantly. And

25:05

Nestle, Denone, companies like that

25:07

used to largely produce all

25:09

those cultures and

25:11

enzymes in house. And over time, they

25:13

just became big branding and distribution businesses.

25:15

And so they realized that they could

25:17

outsource somewhat a capital intensive business

25:20

to companies like Hansen. And

25:23

when the company first came public, the narrative

25:25

was not that different than what you saw

25:27

with Pi-1 Semiconductor 20 years ago, which is

25:30

why would you wanna own an outsourced culture

25:33

and bacteria company? Wouldn't

25:35

you wanna own brands and wouldn't you wanna

25:37

own distribution? And these are the

25:39

kinds of companies that are gonna play to the emerging

25:41

middle class consumer. There's nothing really sort

25:43

of all that unique. But if you dug into

25:45

it, you realized in the same way they were

25:47

living up the value chain. And that is companies

25:50

like Denone wanted to basically

25:53

make certain feature claims about their products,

25:55

either being sugar free or

25:58

being able to be stored. at

26:00

certain temperatures or I mean

26:02

a lot of it ended up being

26:04

about health and wellness. All that stuff

26:06

was like getting enabled at the supplier

26:09

level and so all

26:11

they were becoming an increasingly important

26:13

partner to those customers and that

26:15

over time just manifests itself in

26:17

not just great growth opportunities but

26:19

also opportunities for more margin and

26:22

so when we looked at

26:24

the company initially its margins were around

26:26

20% I think when it first

26:28

came public and we sort of obviously didn't look at

26:30

it as an ingredient

26:32

supplier like most people did we looked at

26:34

it as more of an outsourced business and

26:36

so if you looked at the other outsourcers

26:38

that we'd studied and to us it was

26:40

clear that this could be a 30-35% operating

26:43

margin business and that

26:46

turned out to be the case and actually much more

26:48

so that's a form of pattern

26:50

recognition that we do and I think

26:53

it's kind of enabled in part by the fact that

26:56

we're not just a bunch of specialists we're global generalists

26:58

we cover the world you know we can kind of

27:00

see some of these patterns I think that we

27:03

wouldn't be able to if we were all stuck

27:05

in certain lands just covering certain countries or certain

27:07

industries. With the outsourcers

27:09

there's this typography you've

27:11

kind of figured out there are these four key

27:13

criteria that help you figure out what's happening with

27:16

the moat. What are the

27:18

other ways that you've tried to

27:20

measure these widening moats across either

27:22

different typologies or industries? Yeah

27:25

well one thing that we realized

27:27

eventually with the case study approach

27:30

was there is some selection bias

27:32

that comes with that. If

27:35

I know intuitively that most outsourcers turn out

27:37

to be great businesses okay

27:39

I can give you a list of 10 that we

27:41

should go study but I kind of forget about the

27:43

ones or I never knew about the ones that tried

27:45

and failed right and so certainly you

27:47

can study the life cycle of the moat

27:49

and figure out what potential sources of deterioration

27:51

there are but it's

27:54

hard to know what the failed examples were

27:56

and so we've also done this I think

27:58

in a more quantitative way. by

28:00

taking an industry and all the

28:02

participants in the industry and then study

28:04

what's happened to them over the course

28:07

of a few decades. So as an

28:09

example, luxury goods is if you're a

28:11

global investor, odds are you've spent a

28:13

lot of time looking at luxury good

28:15

stocks over the years. And

28:17

we studied about 50 luxury companies

28:20

over the course of 30 years and tried

28:22

to find what were the markings of the

28:24

ones that really compounded returns

28:26

at really high rates for a long

28:28

period. So sure there's many of them

28:30

that had their day in the sun, but what are

28:32

the ones that were really lasting and enduring? We're the

28:35

real coffee can investments in that group. And

28:38

when we did that, it was really clear

28:40

that there was two criteria. One, the higher

28:42

the price points, the better. So

28:45

the more aspirational the brand, the more enduring

28:47

it tends to be. And

28:50

then the other one is controlling your own

28:52

distribution. So direct sales, not heavily reliant on

28:55

wholesale channels. And that in and

28:57

of itself explains to you probably why the companies

28:59

we've been involved in in the past are things

29:03

like Louis Vuitton, Hermes,

29:05

Ferrari. They all sort of

29:07

fit that criteria. And then at the

29:09

same time, we've been reluctant to invest

29:12

in stocks like Caring Group, which owns Gucci.

29:16

Not that they haven't done extremely well in recent

29:18

years because they have, but it doesn't really

29:20

fit that framework that I'm talking about. And

29:23

oftentimes we think that if anything, the

29:25

frameworks or the typologies, one of the

29:27

things they really do is help you

29:30

make distinctions between what's just momentum

29:32

and what's actually really structural

29:37

differences in companies that's going to

29:39

lead to long-lasting above-average growth. It

29:41

doesn't mean they're always right, but more often than not,

29:44

they're going to be very helpful in that regard. So

29:47

that, along with the filtering piece that I mentioned

29:49

a second ago, like kind of tune out all

29:51

the noise, I think is probably two of the

29:53

more important things that they do. The

29:55

other really important part about motor trajectory, and to

29:58

be honest, we talk about this internally, all the

30:00

time. It's a mindset, right? It sort of steers

30:03

a lot of the questions that we ask companies.

30:05

It's as

30:07

good as it is for finding

30:09

great ideas. I think actually it's

30:11

probably more valuable in just steering

30:13

you away from bad ideas. And

30:16

I think so much of

30:18

successful investing is you're going to make mistakes

30:20

and so you want to minimize the frequency

30:22

and then the damage when they take place.

30:24

I think that's an unappreciated part about it

30:26

and particularly growth investing, I think. Maybe that's

30:29

historically partly why growth investing got a bad

30:31

name. Another way to kind

30:33

of think about moat trajectory is there's the

30:35

moat and then there's the growth formula. And

30:38

those two things combined give you

30:40

a positive moat trajectory. And depending

30:42

on the type of business that

30:44

you're looking at, for

30:47

some you have to be more sensitive to the

30:49

moat and then for others you have to be

30:51

more sensitive to the growth piece, right? So if

30:53

you're looking at a consumer staple company, take Pernod

30:57

Ricard. Their moat is pretty well

30:59

understood. It's not going to change

31:01

its brands, its distribution, its scale.

31:06

But what's going to dictate whether that's a

31:08

good investment or not is their ability

31:10

to execute on growth. But if you

31:12

contrast that with something like Shopify,

31:17

which is another name that we own,

31:19

the growth piece of the Shopify thesis is

31:21

pretty well known. Everyone can look in pretty

31:23

quickly and realize, okay, Shopify is going really

31:25

fast and they've got a huge TAM and

31:28

they've got probably 7% of their total addressable

31:30

market in terms of merchants and they've got a massively

31:33

growing ecosystem. What's going to

31:35

derail that investment is really things

31:38

around. It's going to be disruption. It's going to be their

31:40

moat. It's going to be competition,

31:42

right? So we have different sensitivities that

31:44

we'll sort of focus on. Those

31:47

are all designed to, once

31:49

we own the name, obviously just make sure that we

31:51

don't end up owning, in the case of the Pernod's,

31:53

a bunch of dead money, high quality stocks. And in

31:55

the case of things like Shopify,

31:57

businesses that we're going to wake up one day and

31:59

they're there's going to be a significant change to

32:01

the competitive landscape and we're going to find that

32:04

there's been a really significant impairment in the valuation

32:06

of the business. I

32:09

want to take a break in

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And now back to the show. How

33:22

do you think about valuation to some of these

33:24

companies? Because when one or the other aspect of

33:27

what's creating growth, or

33:29

where the mode is well known, often the

33:31

market prices that in. And some of the

33:33

names you mentioned are traded, you

33:35

know, traditional looking valuations pretty expensively and have

33:38

for some time. I've gone

33:40

through a full life of learnings when

33:42

it comes to valuation, right? I mean,

33:44

my first lesson really in

33:46

investing coming out of 2000 was like the importance

33:49

of valuation. And then

33:52

I gravitated towards discounted cashflow models

33:54

because there's something so

33:56

seductive about that, especially when you're young

33:59

and very impressionable. I remember

34:01

the first time I did a discounted cash

34:03

flow model and I put in what I

34:06

thought were some reasonable estimates for growth and

34:08

for margins and capital

34:10

expenditures. And then I looked at what the

34:12

price was and I thought, oh my goodness,

34:14

I'm actually pretty close to the current stock

34:16

price. I actually might be decent at this.

34:18

And so there's this false precision that I

34:21

think can become pretty

34:23

seductive. But over the years,

34:26

for one, I've learned that it's just

34:28

ridiculous to think that you can precisely

34:31

determine what a company's worth. I

34:33

mean, things are changing constantly. And

34:36

particularly if you're investing in companies that

34:38

are in growing industries with moats that

34:41

are growing and then with cultures that

34:44

are super adaptable and finding other ways

34:46

to grow, your valuation work is going

34:48

to look so wrong in a very

34:50

short period of time that it's not

34:52

really worth all

34:54

the effort and problems that come from relying

34:57

on discounted cash flow models. Not

34:59

to mention the fact that focusing a lot on

35:01

DCFs, there's

35:03

false precision. It gets you very focused on

35:05

the short term when in the reality, most

35:08

of the value in a discounted cash flow

35:10

model resides in that terminal period, right, which

35:12

you spend zero time actually thinking about. And

35:14

if you're a long-term investor, that makes no

35:16

sense. And we've kind of actually

35:18

come up with this term called Defy

35:20

the Fade. Is one

35:23

of the big mistakes that you see people

35:25

make when you do modeling is you

35:28

look at a company and you're very focused on

35:30

the short term and

35:32

the company's growing five or six percent today.

35:35

You think, okay, I like the business. Things

35:37

are going well. Six percent seems pretty good.

35:39

That's close to company's guidance. Maybe

35:42

they'll do that again the next year. And after that, it's

35:45

probably going to be five and then it's going to have

35:47

to go down to four. And then before you

35:49

know it, it's down to GDP. And the

35:51

same is true for your return on invested

35:53

capital assumptions in a discounted cash flow model.

35:56

And so what really mo trajectory and

35:58

culture are designed to do are

36:01

identify those companies that can defy

36:03

the fade, defy that

36:05

inevitable. So we're not saying that fade will never

36:07

take place, but by focusing on the companies with

36:10

this attribute, they're going to maintain

36:12

that competitive advantage period far longer than

36:14

anybody thinks. And it's that delta between

36:16

what the market's expectations for the fade

36:19

are and when they actually take place

36:21

is where all that alpha generation opportunity

36:23

exists. And I think we've just come

36:25

to a place where focusing

36:28

on the qualitative

36:30

assessments of a business around moats and

36:32

culture and how that

36:35

translates into the durability of a company's

36:37

growth rate, I think that is far

36:39

more predictive of a successful investment than

36:41

trying to find things waiting

36:44

for price breaks on businesses of reasonable

36:46

quality, that there's some sort of short-term

36:48

impact that's like disrupted the stock price

36:50

and you jump in at a 20%

36:52

discount close that

36:55

gap, earn a little bit of the cost of capital on top

36:57

of that and then you're out of the business in a few

36:59

years. I think a much more successful way to

37:01

invest is the way we do it now.

37:03

So you touched a little bit on culture

37:05

and this notion of culture being aligned with

37:07

that competitive advantage that creates that growing moat

37:09

trajectory. And Paul's talked about

37:12

that, you've mentioned it a bunch of

37:14

times. What does it actually mean to

37:16

do the analysis on a company's culture

37:18

that's aligned with their competitive advantage? It's

37:20

been a huge evolution here. So when

37:22

I came to WCM, actually Paul and

37:25

Kurt were already talking about culture. They

37:27

had experienced a huge

37:29

transformation in their own lives, which Paul talked

37:31

about I think in your conversation and became

37:33

convinced that culture really, if it mattered for

37:35

our company, it should matter for the companies

37:37

we invest in. But the

37:39

truth of the matter is that at the time,

37:41

I think there was a pretty narrow

37:43

view of what a great culture really meant. In fact,

37:45

I think Paul would tell you that basically

37:48

what we were trying to do is just go find

37:50

a bunch of companies that smelled and tasted like WCM.

37:53

Hey, if they talk about the same things that I'm

37:55

talking about, I'd really want to go

37:57

work at that company too. If I was in that industry,

37:59

then that's my... must be a company with a great

38:01

culture. And over

38:04

time, we just realized that that's a really

38:06

flawed way to kind of look at

38:09

things. That number one, there's no perfect

38:11

culture. And particularly what

38:13

culture works in one industry might not

38:15

be right for another, right? So the

38:17

joke that we've used for years is

38:21

Google's infamous for unstructured time that they

38:23

give developers to go work on pet

38:26

projects and create things. And that's a

38:28

huge part of their culture. And

38:31

Canadian Pacific, which is a railroad that

38:33

we've owned for a long time that

38:35

is a very operationally driven company that's

38:37

all about sweating its

38:39

assets and operational excellence and efficiency. Suddenly they

38:41

decided to give everybody in the company unstructured

38:43

time. I mean, there's gonna be a serious

38:46

problem in terms of the company's competitive advantage.

38:48

And so at the same time,

38:50

if you applied some of the things that Canadian

38:52

Pacific does from a cultural perspective to

38:55

the developers at Google, I mean, there's gonna be a

38:57

pretty big revolt. So there is

38:59

not one perfect culture. You have to start

39:01

from it there. And you have to make

39:03

sure that your own personal biases of what

39:07

is and isn't a good culture actually

39:09

get in the way. That's another key

39:11

piece. And the ultimate question is, let's

39:13

try to understand what

39:16

the company's strategy is

39:19

to grow their moat. Like every company has

39:21

a strategy to

39:23

differentiate itself from its competition, to grow

39:25

its business, to take market share, to

39:27

whatever their strategy for shareholder value is.

39:29

Let's try to understand what that is.

39:33

A lot of that comes through in the

39:35

moat trajectory analysis. And then once we think

39:37

we understand that, then we wanna talk to

39:39

the company about what

39:42

the behaviors are that they think are

39:44

necessary to achieve that strategy. So

39:46

what are the parts of your research that

39:49

you'll go into the company and kind of

39:51

ask about to tease that information out? What

39:54

we've done over time is developed a bunch

39:56

of questions that we think are really helpful

39:58

in terms of teasing those things. out. So

40:01

there was a period of time not a

40:04

year ago when unfortunately we'd sit down with companies and just

40:06

say, hey, will you do me a favor and just describe

40:08

your culture for a little while? And most

40:11

companies can't do that interestingly enough, particularly if

40:13

you're reserving the last 20 minutes of an

40:15

hour and a half meeting to ask them

40:17

that question. And what that really hit home

40:19

with me a number

40:22

of years ago, we were actually going up to

40:24

visit Tencent. Tencent has a

40:26

fantastic culture. We've done extensive amounts of research

40:28

into it, but we had never really had

40:31

just a dedicated culture meeting with them. And

40:33

so we were talking to

40:35

one of the senior executives there and I

40:37

started off and I asked that stupid question,

40:39

hey, just describe your corporate culture. And he

40:41

immediately just gave a horrific answer to be

40:43

honest with you and started

40:45

talking about having to pay programmers more

40:47

money because of competition for Malababa.

40:50

And so I sort of pivoted the conversation

40:52

and ended up asking them about a decision

40:54

they'd made to close down their search business,

40:57

which they had spent a bunch of money on. And he said,

40:59

oh, that was a, I go, well, talk to me about that

41:01

decision and why you did it. And this

41:03

was when they were trying to build a competing product with Baidu. And

41:05

he said, that was a

41:07

really easy decision. Our product managers came to us

41:09

and told us we should shut the business down.

41:11

And I said, well, that's pretty impressive that they

41:13

felt like comfortable enough to do that. I mean,

41:15

after all, they were probably responsible for a lot

41:17

of the product. And he said,

41:19

well, actually it was a pretty easy form because we

41:22

compensate people based on user satisfaction, not based

41:24

on revenue growth. And that really is sort

41:26

of the core of what Tencent's culture is

41:28

all about. It's been obsessive focus on the

41:30

user. That was a pretty light

41:32

bulb moment for me that we weren't asking great questions.

41:34

It was kind of like the straw that broke the

41:37

camel's back. I kind of already knew it intuitively. And

41:39

so we set on a journey

41:41

to figure out how to have good conversations

41:43

with companies about their culture. And we

41:45

just talked to lots of folks and built some

41:48

relationships with people that had spent a lot of

41:50

time talking about this in the academic community, tested

41:52

a lot of questions, asking CEOs, and ultimately have

41:54

come up with a series

41:56

of questions around one, around alignment, because that's a

41:59

huge piece of it. and then

42:01

two, around adaptability. That's the other

42:03

big hallmark of a great

42:06

culture is one that's adaptable. And so there's

42:08

certain trappings or things that we look for

42:10

in adaptable cultures and we have questions that

42:12

we ask around that. So as an example,

42:14

if we're trying to

42:16

get an alignment, which is like I said, it's

42:19

sort of like behaviors. We'd

42:21

ask, first question would be let's hypothetically

42:23

say the son or daughter of a

42:25

good friend of yours is going to

42:27

work at the company. They start next

42:29

week. You're going to have coffee with

42:31

them this afternoon. What

42:34

are the three pieces of advice you're going to

42:36

give them to be successful? That's

42:38

a much easier question for a CEO to answer

42:40

than saying, hey, just describe your culture. Tell me

42:42

what it's all about. So you have to prime

42:44

them and put them in a place to answer

42:46

the kinds of questions and give you the information

42:48

that you want. And then

42:51

like things like on adaptability, ultimately

42:53

for adaptability you're looking for a

42:55

learning orientation. And well

42:58

what does that require? Lots of candor,

43:00

learning from mistakes, external awareness.

43:02

And so we'll ask companies, it's a pretty

43:04

simple question, but you could ask a company

43:06

about mistakes. Like what's

43:08

a mistake that you made that you

43:10

look back on now and you're like,

43:13

wow, I'm so glad we made that

43:15

mistake because we're so much smarter because

43:17

of it. And when you ask

43:19

that you'd be surprised. Sometimes you get

43:21

really good answers, but oftentimes you don't.

43:23

When we ask that question and somebody

43:25

starts talking about some ten million dollar

43:27

acquisition they made three years ago

43:30

where they misjudged the people and they had to

43:32

write it off, I'm like, seriously, you're a fifty

43:34

billion dollar company. Like give me like a real

43:36

mistake. That would be kind of

43:38

a yellow flag that maybe there's not as much

43:40

adaptability here as I thought. So

43:42

it's that we do that with management, we

43:44

do that with former employees, and then really

43:47

the next big foray for us and things

43:49

we're spending a lot of time on now

43:51

is more data-oriented culture work. And

43:54

I think that's going to become a source of

43:56

meaningful differentiation and some of that's being enabled

43:58

by a lot of the work that's going on

44:01

in the ESG landscape. There's just going to be

44:03

more data to

44:05

look at and to glean cultural insights from. And so

44:07

I think that'll be the next big push for us

44:09

in the next five years. As

44:11

you've gone through this incredible trajectory in

44:13

the firm, even in the last three

44:15

years that we've known each other, how

44:18

do you turn that lens onto WCM? So

44:20

how do you think about what's

44:23

happening with WCM's moat

44:25

and what's happening with WCM's culture?

44:28

For all of the view that nurturing

44:31

and protecting and keeping the culture as

44:33

healthy as possible is probably the single

44:37

most important thing we can do. And I

44:39

think the culture's, obviously things are going to

44:41

change. They change with size. But we

44:44

spend a lot of time trying to articulate

44:46

where we've come from, the difficult

44:49

periods, the behaviors

44:51

that we think were essential to get us

44:53

where we are. I

44:55

worry, honestly, when you have people that have

44:57

come in and all they've done is experience

44:59

a tremendous amount of success and prosperity, and

45:02

they don't have a big reference class of

45:04

experience to look at, that they

45:06

might miss certain attributes that I think have

45:08

been sort of core to making this place

45:11

successful. And I worry that they stop trying

45:13

to make the firm better because they think

45:15

it's already so great. We

45:17

talk about the core values of the firm,

45:19

which are fun and gratitude. I think

45:21

Paul went into those in your conversation.

45:25

On the research team, we have our own

45:27

core values as well, and they're think different

45:30

and get better. And in some ways, the

45:32

firm embodies those as well. But the research

45:34

team went through its own process of establishing

45:37

core values. And it

45:39

was a very similar process to what the leadership

45:41

team did when we came up with fun and

45:43

gratitude. A lot of it's like just looking back

45:45

and saying, okay, how did we end up here?

45:47

And what really makes us different than everybody else?

45:49

It's not talking about smart

45:51

people or hard work. That sort of permission

45:54

to play in the investment community. But what

45:56

are the behaviors that I think have really

45:58

made us successful? through it,

46:00

think different and get better just bubbled

46:02

up to the surface. And if you

46:04

step back, it

46:06

actually makes perfect sense because when you

46:08

think about the industry, and

46:12

one of my other partners, Sanjay Ayers,

46:14

does a really good job articulating this

46:16

and we've now dubbed it the WCM

46:18

platform. But if you think

46:20

about the industry where you've come from in

46:22

your career, it's really difficult to detect and

46:25

know whether somebody's talented or

46:27

not. And some of

46:29

that's because there's really long feedback loops in

46:31

the industry. It can take 10 years or

46:34

longer to know if somebody's actually a really

46:36

great investor. There's a lot of noise. There's

46:38

a lot of luck involved. And so because

46:40

of that, these rules

46:42

emerge in the industry. These unwritten rules,

46:44

everybody acts the same way. They dress

46:47

the same way. I mean, if you

46:49

go to an investment conference put on

46:51

by one of the big banks, it's

46:53

a little sad almost how

46:55

much uniformity there is in those

46:58

rooms. And people tend to

47:00

look at the same schools for hiring.

47:03

Everybody watches and reads the same

47:05

things. And so from that, you

47:08

get, I think, these really counterproductive

47:10

behaviors that largely

47:12

explain why active management struggles. And

47:14

it's a lot of groupthink. People

47:17

are worried about standing out from

47:19

the crowd. They're worried about careers.

47:23

So they play it safe. They

47:25

hug the benchmark. They focus on

47:27

a lot of short-term information. They

47:29

become information gatherers, largely not trying

47:33

to stick their neck out on really

47:35

unique insights. And then they have a

47:37

fixed mindset. They perpetuate

47:40

that myth that there's like just some people

47:42

that have the it factor in this industry

47:44

and some that don't. And they

47:47

want you to think that they're smarter than

47:49

everybody else, even though everybody in the industry

47:51

is already pretty darn smart. And so think

47:54

different and get better is kind of the

47:56

antidote to that. If there's a lot of

47:58

groupthink that's part of the problem, like,

48:00

okay, well, let's totally flip that on

48:02

its head and make the whole culture

48:04

about being different. Let's

48:07

run really concentrated portfolios. Let's

48:10

again focus on things where there's compounding knowledge

48:12

like motor trajectory and culture where we can

48:14

actually get better at assessing those things over

48:16

time. Let's not

48:18

focus on developing insights that are going to

48:21

be worthless in six months once they come

48:23

to fruition. And then let's pound this idea

48:25

of being irreverent and scrappy and just a

48:27

little different than everybody else. And

48:30

then let's really make the firm about

48:32

this journey of getting better. And

48:36

what does that take? Well, it takes a lot of

48:38

candor. It takes a lot of trust. You got to

48:40

be willing to talk about your mistakes and

48:42

you got to lean into them. You got to make them not

48:45

just an opportunity for you to learn, but from the whole firm

48:47

to learn, hey, we're not perfect. We've made mistakes. But

48:49

what I think we've always done is really learned from

48:51

them. And I think that that's been core to the

48:53

success of the firm. And so when new people come

48:55

in and I think about, well, how the culture is

48:57

going to change, I mean, I'm actually pretty confident if

49:00

people can just continue to think different and get

49:02

better, then I think the firm's going to be

49:04

in really good hands. Mike, I'm

49:06

curious as you've grown and you think

49:09

about the business, so much of

49:11

that incredible growth has really

49:13

come in one product. Have

49:15

you thought about just trying to

49:18

get better and better at doing

49:20

that one thing and mostly international

49:22

growth compared to taking

49:24

the skill set and broadening out in

49:26

different investment strategies? Yeah. I mean,

49:28

I think that's going to become a huge part of our story

49:30

in the next 10 years. It's

49:33

interesting because I think growth is kind of

49:35

a dirty word in investing. And

49:38

I look at it slightly differently and

49:40

say growth is such a huge part

49:44

of our story and what makes this a

49:46

fun place to work, why people are so

49:48

engaged. And so we need to

49:50

continue to find other avenues of growth. So

49:52

we've done that out of the global equities

49:54

team by

49:56

moving into global emerging markets,

49:59

international small-scale. Global Launch Short,

50:01

we have a China fund now. There's

50:03

a lot of interesting things that we're doing and

50:05

I think asset classes that we're exploiting

50:08

some major inefficiencies and we're going to develop

50:11

some great businesses out of those products. But

50:14

then also what's really exciting is trying to make

50:16

this a platform for other people. I mean, I

50:18

think I look at it and say we are

50:20

the luckiest guys in the world to be sitting

50:24

where we are and what better thing

50:26

to do than give other people an

50:28

opportunity to do what

50:31

we've done. And so we

50:33

started doing this actually a number of years ago. We

50:35

brought a team in that now does small cap value

50:37

that's based in Cincinnati. We've got a team in St.

50:39

Louis that does small cap growth and then we've got

50:41

an ESG team in Denver and I hope we continue

50:43

to do those. I mean, our intention is to continue

50:46

to find people that are

50:48

passionate about what they do. They've

50:50

got a good idea. Maybe they've been stuck in

50:52

a bank or an insurance company or they've been

50:54

at a firm or something went sideways and they

50:57

just haven't had that really true moment and the

50:59

time needed to really make it work. And

51:02

we have the resources and the platform that

51:04

they can come in, plug into and then

51:06

really just have the freedom to go chase

51:08

whatever it is they're most passionate about. I

51:10

think that that's definitely something that at

51:13

the firm level that we'll continue to pursue because I

51:15

think there's just a lot of opportunity that we can

51:17

give to people. If

51:20

you make it this far each week, you're

51:22

probably ready for the closing questions. But

51:24

wait, there's more. If you

51:27

sign up for a premium membership, you

51:29

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51:31

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51:33

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51:38

pitch to subscribe. Hop

51:40

onto the website to sign up. Thanks

51:42

and let's get on with it. Great.

51:46

Well, Mike, I can't let you go

51:48

with asking a couple of closing questions. So

51:50

what is your favorite hobby or activity outside

51:52

of work and family? I

51:54

love cooking. I think that's one

51:56

of my favorite things to do. It's one of the few

51:59

things I can do that. actually distracts me

52:01

from what else is pretty

52:04

meditative about chopping an

52:06

onion and in California we're obviously blessed

52:08

with an unbelievable amount of grape produce

52:10

and so like right now we're transitioning

52:12

from the summer of corn and heirloom

52:15

tomatoes into blood oranges and stone fruit

52:17

and it's kind of fun to watch

52:19

that happen and take advantage of that

52:21

in the kitchen. What's your

52:23

most important daily habit? You

52:26

know I try to start every day

52:28

doing some type of

52:30

spiritual related reading and

52:32

well the thing I find that's so helpful

52:35

with that is starting your day that way

52:37

is it just kind of grounds you a

52:39

little bit and what really matters gets me

52:41

a little bit more focused on what's to

52:43

come in the day how to handle it

52:45

and it makes me worry a little bit

52:47

less actually so everyone has their own version

52:49

of what spiritual is to them but I

52:51

think that's just a fantastic way before you

52:53

pick up your phone and start plowing through

52:55

emails or check your Twitter account doing something

52:57

like that I think has been for me

53:00

really really helpful. What's your biggest pet

53:02

peeve? Probably the biggest one

53:04

is people that just lack

53:06

self-awareness. I find that to be

53:08

a hugely important thing here in the firm people

53:11

that aren't self-aware they tend to be really

53:13

really difficult to deal with they get defensive

53:16

without recognizing it and it sort of chokes

53:18

off the ability to I think get better

53:20

right if you're not self-aware about what you're

53:22

good at and what you're bad at then

53:24

that it could become pretty difficult to attack

53:26

those bad things so I think probably lack

53:28

of self-awareness is the biggest one for me.

53:31

What teaching from your parents has most stayed

53:33

with you? I think my dad

53:35

was always really good about when I made mistakes

53:37

like looking at them as learning opportunities so that's

53:39

part of the reason I feel so strongly about

53:41

some of the stuff that I mentioned earlier and

53:44

then I think my mom I

53:47

came from what seemed like a dysfunctional family at

53:49

times and I remember as a kid complaining to

53:51

my mom about that and she'd be like you

53:53

just don't realize every family's got their issues and

53:56

as I got older I started to realize that's actually

53:58

really true so the

54:01

more you can have open trusting and

54:35

celebrities and athletes and the more

54:37

I've interacted with people like that.

54:39

The more I realized that it

54:41

can oftentimes be disappointing more so

54:43

than not. And that really

54:47

wisdom comes from talking to people that

54:49

have had struggles, that have made mistakes.

54:52

And oftentimes it could come from a teacher.

54:55

It could come from a cab driver. And

54:57

so creating those moments of just random interaction

54:59

and talking to people and

55:01

hearing about people's stories and journeys and

55:03

looking for it in unusual places, I've

55:06

really leaned into that idea in recent years. And

55:08

I wish I would have known that at a

55:11

much earlier age. Mike, it's great.

55:13

Thanks so much. Thank you. Really appreciate

55:15

it. Thanks for

55:17

listening to this episode. I hope you found a

55:19

nugget or two to take away and apply in

55:21

your investing and your life. If

55:23

you'd like what you heard, please tell a friend

55:26

and maybe even write a review on iTunes. You'll

55:28

help others discover the show, and I thank you

55:30

for it. Have a good one and

55:32

see you next time.