The Coffee Can Investor

Speaker A: Hi, mark. Andy for CFO Bookshelf. The first investment book I read was in 1989 or, uh, thereabouts. And I'm not even sure if this title counts. It was Wealth Without Risk by Charles Givens. And that was the Rich Dad, Poor dad book at the time. I mean, that guy was everywhere. He was on all the morning talk shows, he was so popular. But that book, it did lack a lot of details on investing in stocks. So in 1991, I think I can say I read my first real investing book, One up on Wall street by Peter lynch, and I was hooked. So a couple times a year I'd be making this pilgrimage from Marbly, Missouri to Columbia to Walden Books to buy a few investment titles. And after a while, the content seemed to be the same. So that's why even today, when I read an investment book, I ask the question, has this content or has this book been written before? In the case of the Coffee Can Investor, absolutely not. Neeraj Kamlatti is a brilliant storyteller. He's a former news chief at CBS and used to be a 60 Minutes producer. He found a story in his dear friend Mat Ankrum, who is pairing coffee can investing over a 30 year period for his three daughters and the Coffee Can Investor. We'll learn how to find stocks through the long haul, but not in theory. You see Neeraj and Matt pull back the curtain and we're shown the 13 or so stocks Matt is investing in for his daughters and why the Coffee can investor. That's coming up next here on CFO Bookshelf. Cum Laude is the author of the Coffee Can Investor. Matt Ankrum is also joining us as he's the subject of the special book. My first question was for Neeraj because when I was prepping for this conversation, I found a Facebook post by Dan Rather promoting the book. Now, how cool is that?

Speaker B: It's amazing. I mean, he is an icon. Um, he is, is on the Mount Rushmore of journalistic, um, anchors. Um, and he is and has been a great mentor of mine. And, um, you know, when I first came to CBS many moons ago, we did some really incredible stories together. Um, you know, we visited the first secret city, first Americans to go inside a secret city in the former Soviet Union. Um, you know, we went and told the stories of the Kali cartel and Pablo Escobar. Um, you know, he's the kind of person that generations of people who grew up at CBS News idolize. And the amazing thing is he's still reporting, um, and has, you know, a Twitter following, uh, an ex following that most people would die for and really represents the best of the business. So for him to say what he said, um, was a dream come true.

Speaker A: This is a book podcast. If I could interview Dan Rather and I would love to, the book would be the Camera Never Blinks. It's one of the great books for young journalists. It is phenomenal. And I wonder if he remembers that book. I read it in college. Degree number one. Outstanding. We're going to come back to that in a minute. If I were to introduce you to. On a stage, I'd start out with Matt. I'd say with Matt. And by the way, I want to make sure I don't get this wrong. I would say that Matt, once upon a time, you were one of the 18% who passed all three exams in the three consecutive years he took them. I guess that means you're pretty smart, Matt, right?

Speaker C: I don't know. We're just really hardworking. Um, but yeah, the CFA is an amazing validation of the investing, um, kind of learning process and education that they must go through. And at that time, they used to only give it one time a year. So if you didn't pass, you always had the ability to go back and take it again, but then you would have to wait a year. And I had friends of mine who were brilliant individuals who, they would fail the exam one or two times and then still kind of go through that process. So one of the things, I want to call it cheating, but, um, I was starting the CFA while I was at graduate school, and why that was great is once I'm in kind of that study mode, it just made it easier just to go in and take one more class, one more test of that.

Speaker A: And by the way, you also started your career at Janus. Can I. Do I have permission to ask the question? Did you lose any money in the Janus 20?

Speaker C: Um, I actually was not an investor in the Janus 20 fund. Um, I had. I had my money in, uh, several other Janus funds of which I worked more, uh, directly with. Um, but the Janus 20 fund was a. When I first started there. So I started there in 1996. And what made it such a great fund was that it was a concentrated portfolio. And, um, when I was there, it was, uh, Marsco, uh, Tom Marscoe, who was actually running that. And he had a phenomenal track record for a long, long period of time. And then Scott Sozel, um, took over. And as you might guess, we were at the epicenter of when the dot com. Uh, kind of boom hit. And so, you know, think about, I started there in 96 and you know, rode that rocket ride up, you know, right up till March of 2000. And then we had the rocket ride down, um, and it was a great time. It's actually, I think, very equivalent, um, to understand kind of where we're at today in the AI innovation cycle as well. And so it was an amazing time to be right at the center of that.

Speaker A: Come on. And if I were introducing you, I would say that once upon a time you were a 60 Minutes producer. How cool is that? And that's how you know Dan, uh, Rather, amongst some of those other iconic names, uh, with 60 minutes, once upon

Speaker B: a time, um, I think the greatest job ever. Um, it was very much like sitting at King Arthur's roundtable, uh, and deciding what story you wanted to tell, what bad guy you wanted to chase, you know, getting a green light and being able to go anywhere in the world to tell that story, you know, and then to have the eternity of, you know, a mini documentary that of, uh, time to be able to tell that story was foundational for me to learn, to learn from the best, um, and the greatest brand in television journalism, period.

Speaker A: I think some authors who pitch the show, you don't realize I'm a customer first. So when I read a book, I'm a customer and then I become the guy who asks questions. So I'm going to talk to you to right now as a customer of your book. The question I like to ask is, has this book been written before? You want to hear my answer, please. This book has not been written before. It's unique. It's very unique. I think one of you, I don't remember which one of you said this. You said this book has some a, uh, feel to it, like good to great and then rich dad, poor dad. I was thinking, now some people may think, people who know me well, by the way, I've already recommended this book to multiple people in my inner circles. They may be thinking, oh, he's going to say a hundred baggers. And the answer is no. This book has a few, uh, I would say the education of a value investor field to it. What made this book special is, I believe books are meant to inform, inspire, entertain. Usually a book does one or two of those. A great book does all three. And I think unwittingly, either purposefully or wittingly, you've hit all three. I love the part at the end of each chapter where Matt is talking to his daughters about Some of these investments. So this book has a. It's. I don't know if this book was architected. That's not a verb. I don't know if the architecture of this book was meant to be this way. But the end result is this is a very special book. Uh, surprise. Or am I saying what everyone else has said? That that's interviewed you too?

Speaker B: You know, first of all, um, that's high praise from the high priest of, uh, finance literature. So thank you, um, for that and not, um, that we seek that, um, you know, the best stories are the ones that are true. And the best stories are usually from people who don't even realize they have a story and you have to pull it out of them. And I think what was

Speaker A: powerful, um,

Speaker B: about this is, you know, I've known Matt for a very, very long time. And you know, at 60 Minutes we used to have a term called Marvin the Explainer. Um, and it was someone you would talk to who would just break everything down. And Matt was that for me when it came to things like corporate America, um, or Wall Street. Uh, and so I learned a lot from that over the years. Um, but when he told me he was about to create a coffee can full of stocks based on research of what hundred baggers have in common, um, I thought that was interesting. There were lots of headlines, which I'm sure you'll query Matt about, about what Hunter baggers have in common. But when he told me that he was putting $5 million of his own to buy stocks like those hundred baggers that he had studied and giving them to his three girls, I just knew that that was a book that, um, was going to be accessible to anybody. And because everyone has big dreams for their kids. And so this is a sizable dream because $5 million could turn into a half a billion dollar coffee can. How do you not want to be a part of that journey? Um, and so understanding what was inside Matt's head, his motivation to doing it, really allowed this to become a story not just about investing and value investing, but a story about the dreams a father has for his three girls. And it's about families and it's about the rise of retail investors and what they need to understand about long term investment in businesses as opposed to trading stocks. And so I thank you for what you said, but it's a true story about someone who has a lot to give.

Speaker A: Speaking of family, your son even got to work for Matt in an internship. He, as I was reading that, I thought he will never ever forget this Ever did. Did he do a good job, Matt?

Speaker C: Oh, he did a phenomenal job, Ian. First, I want to say thank you as well for the kind compliments on the book. That is all Neeraj. He is being very humble, um, in that he is not only a phenomenal author. I mean, anybody who can make me sound interesting has a true talent. Um, but the second thing is that Neeraj has had his own, um, uh, successful career. And his brilliance and understanding of businesses, I think, was actually what made the book so accessible and how he explained that. Um, so now talking about Ian, I, He. He comes, you know, he did, you know, what did they say? The apple doesn't fall too far from the tree. He is a brilliant young man. He's got a tremendous future. One of the things that I actually always love about working with, uh, Ian and others like him is just his insatiable cur. Curiosity. He really, you know, um, he asked all the, you know, the good questions, but he. He never was satisfied with the easy answer. And so I, you know, he is, um, going to go do great things. In fact, he recently, um, got accepted to be part of the Goldman Sachs um, internship. And I mean, this is the highest of high, you know, kind of internships that you could get. And that was a real testament to him.

Speaker A: The title is a great hook. Let's go back in time. What is it? What is the Coffee Can?

Speaker B: Yeah, I'm happy to jump in that because that's what really hooked me when Matt, um, told me about this paper, um, and, you know, the folks at Columbia University Press, the Columbia Business Press, you know, just a comment on the title. Part of why they, um, suggested that title, the Coffee Can Investor was to pay tribute to, you know, Benjamin Graham's the Intelligent Investor, um, which, you know, um, how could you say no to that title in a, In a meeting? Um, and so, you know, we wear it with pride. The Coffee can investing philosophy, um, was something that a guy named Robert Kirby wrote about for Journal of Portfolio Management, you know, which is something that Matt reads, um, for fun on Saturday nights. Um, and I say that with a smile because it amazes me how much Matt reads. Um, he's, you know, a young Charlie Munger in that capacity. And, and so he, you know, he's reading this archival story about Coffee can investing. Robert Kirby, who wrote the article, was working for Capital Research in Los Angeles, um, very famous, uh, firm and someone who, you know, worked for Ronald Reagan, um, after the stock market crash in the mid-80s, um, and was a part of the Brady Commission just to make sure things like that don't happen again. Anyway, he managed money for a lot of people, and he managed this money. He went to a Los Angeles heiress and asked if he could manage her money, and she said, sure, I like you and all the rest. Uh, I don't really know anything about investing, but, you know, why don't you deal with my husband on, um, day to day matters? He's a lawyer. And so Kirby said, sure, I'll deal with him. And so over the years, he would recommend stocks to the husband to buy for his wife. The husband would dutifully buy those stocks, uh, for his wife, but without telling a single person. He would buy the same stocks for himself with his own money and not tell anybody, which is totally fine. And then over the years, Kirby would call, the husband says, sell those stocks for your wife. And he would dutifully sell it for his wife. But he was like, hell no, I'm not selling anything I ever bought. M In fact, he kept his stock certificates just to tell you how long ago this was in a coffee can and just refused to sell them. So anyway, lots of time goes by. The husband unfortunately passes, and the wife discovers this coffee can full of stock certificates and has no idea what this is about. And so she gives it to Robert Kirby. And Kirby, you know, in a hot minute realizes what's been going on, that the husband has been piggybacking off of all the buy recommendations but never selling. In fact, he put $5,000 into each one of those stock buys. And he tells his, you, um, know, Kirby tells the wife, I'm sorry to say this, but your husband's portfolio did far better than yours. And, um, you know, and what really happened was, you know, those $5,000 investments, you know, not all of them hit some trended down to 3,000, a whole bunch went to 100,001 went to 800,000, and that was Xerox, and that one had over a hundredfold return. And so at the end of the article, Herbie invites anyone who's reading this article and says, I hope that someday someone somewhere will repeat this experiment. And of course, that person is Matt Ankrum. And so when he told me that he was going to do the same thing, but with a twist, instead of like short and midterm stock recommendations and holding them, he was going to focus on finding stocks that were like Xerox, that a hundred time fold and began this journey to figure out what 100x100 bagger stocks have in common. Um, and so It's a chocolate meets peanut butter moment of coffee can investing meeting 100 baggers. Um, and really the genesis for, for Matt's, for Matt's incredible research, Kirby asked

Speaker A: the question, why index? Why not index? How do you answer that question?

Speaker C: For the average investor, indexing is the best and most powerful way of investing. And if you do not have the time, you don't have the energy, you don't have uh, the capability, that's exactly what you should do. And what we're talking about here with my coffee can portfolio that we're talk is even though I uh, have high conviction in these names and want to own them for a long time, it's only going to be up to 10 to 20% of my total portfolio. And I actually own several different indexes as well, um, on this process. And the reason being is, and hopefully we'll get into this in a little bit, um, further detail is that the hardest thing about investing is not necessarily the analytical research. It is the, think about it, the psychological, um, ability to stay the course. And for anybody who has invested um, for any length of time, you'll realize that in different periods of time, the market has a way of humbling everybody. The challenge that you have is do you have the conviction, do you have the ability to withstand that volatility? Because volatility when you own individual stocks is actually a feature of the process, not, not a bug.

Speaker A: Kirby also asked the question, can passive be active? And after reading through this book a couple of different times, I know the answer to that. But do you want to answer that one as well?

Speaker C: Yeah, you absolutely need to actually be active in your passive holdings on this. And what I mean by that is that companies evolve and grow and kind of move forward and the world changes. And so what you can't do, as opposed to kind of what um, is implied by just taking a stock certificate and putting it into a coffee can and burying it in the backyard. That's not what exactly we're talking about. In fact, what we're talking about is saying that's the idea of what we were looking to do. But we're doing that with that twist of saying we are actively monitoring these on a, you know, on an ongoing basis. And what uh, the focus of that is not to go in and be a trader and kind of be in and out is just to ensure that the companies that we own continue to have the competitive advantage that we thought they had at the beginning and will continue to kind of endure and grow.

Speaker A: You know, with time pragmatically about how many? Now, again, in the book, I don't want to give anything away from, feel free to share. But if anyone wants to try to replicate this, are we talking 5, 20 in between suggestions?

Speaker C: Yeah. And I think one of the most important things is that individuals have to define for themselves what is the right investment philosophy. So, you know, somebody can go out there. I've got friends of mine who actually own five names. One of them actually owns only three names. And they feel very comfortable even though, you know, you go through these massive, you know, valuation, you know, value change for, in their portfolio. For me Personally, I think 20 names is about the right amount. Um, and the reason being is that for, and remember, this is a sleeve of my total portfolio. So let's say it's 20%, that's 20 names in that 20%. And then I'd own, you know, indexes or I own other, other names with different investment styles on that. But for me, about 10 names, they've shown that about 10 names, uh, you know, across different industries, you get to about 80 to 85% of the diversification benefits that you have. The reason why I go a little bit further on the 20 names is because it gives me an opportunity to be into kind of more industries and more different companies. The reason why I don't go a lot more than that is because when you start going further out, like say you own 100 names or 200 names, well, the problem that you have there is now you're actually taking the work that you have and you're diversifying into something where your 137th name might not be nearly as interesting as your number 5 name or number 12 name that you have. And so why would you actually do that? A lot of people look to do that because it's about diversifying, uh, in reducing risk. But a lot of it, if you think about it, it's also diluting genius. Because if you really have insight, if you really have a great company that you have a strong conviction in, why would you want to diversify deeper into something, a name that you have much less conviction in?

Speaker A: And I think one of you already said it, the time horizon around 30 years, or it could be longer if you're in your 20s just getting started, uh, 30 years longer. Is that about the time horizon we're looking at?

Speaker C: Yeah, and the reason why I chose that 30 years is if you go and look at, um, when we did the hundred bagger study, I capped it at 30 years, um, when I said they had to achieve the Hundred bagger status. And the reason why I did that is that at that amount it's about a 16.6% return, which is nearly double what the overall market would have done. So that's how I was defining exceptional for the holding period. The ideal amount is actually forever, if you could. But what I'm trying to do when we Talk about the 30 years is use that as a baseline to say whenever I'm looking to invest in a company, I want to start out with the mindset that I'm going to have to own this for 30 years. And then, you know, as you talked about, we actively, passively, you know, evaluate that with time. But 30 years is about the right amount of time frame the age.

Speaker A: There's A list of 10 attributes of these hunter baggers. And I'm going to use the percentage 68%. Before, before diving into this topic, would you have thought that 68% was B2C or B2B?

Speaker B: Uh, before, before this, um, you know, I would have said it was probably business to consumer.

Speaker A: Me too.

Speaker B: Right. But the moment that Matt shared this. Right. So in, in his study, the, the, you know, he has got so many incredible headlines. The headline that really sort of made me, um, excited about this project was that 68% of the companies he studied that IPO'd since 1980, uh, were business to business, uh, companies, not business to consumer. And if you're asking why did Neeraj get excited about that, it's because I spent 12 years at Hearst, um, a private media company and you know, that has everything from newspapers and magazines to television stations. Um, you know, at one point I was overseeing the entertainment cable networks and partnership with Disney. Um, and you know, back then the, the biggest businesses were like ESPN and A and E, business to consumer businesses. Um, but our, uh, CEO at the time wanted to accelerate capital allocation and into business to business media companies, meaning companies that provide data and information to other businesses. And today the single largest profit contributor at Hearst is Fitch, a bond rating agency. Now doesn't, doesn't really touch, uh, consumers, you know, um, you know, their health care information and database companies. And so over the years Hearst was evolving and doing the capital allocation to B2B media. And so when Matt said, hey, I'm seeing that in the public markets, I was seeing that in the private markets, at least in media. Um, and right away I'm like, you know, this was a shibboleth almost, um, for us. And, and I said I needed to focus on this headline because consumers think about Apple and Nike Right. But they don't think about, you know, some, you know, one of the companies, um, In Matt's original 100 bagger study was Fastenal, um, you know, which is a bunch of guys who were making nuts and bolts, um, and opening up stores around the country, supplying, supplying fasteners to construction sites and got so good at it, they started opening up vending machines on those sites because they knew what their customers really needed. And if you've got, you know, million dollars at stake of Caterpillar equipment and big construction projects, do you really care how much a dollar nut or bolt costs? Um, no. And so they, they, they grew a hundred, you know, fold. Um, and they're still growing. Um, and you know, in fact I think, you know, maybe as a handoff, Matt, Matt followed them back when he was a Janus, um, and, and has a great tell story to tell about what he learned about holding on to 100 baggers. Um, because it's a long time. To Matt's point, you've got to be, you know, you got to have a lot of conviction about what you're doing.

Speaker A: The reason I'm smiling is because when you mentioned fast stop, the definition of a great nonfiction book or one of my definitions is when the reader is reading and they're led to go off and read something else. And when I got to the Fastenal story, I did some quick research on them and there are several other names that came up to where you got me going down a rabbit hole. A good thing. So again, great, great mention on Bassetal. I'm not going to read through all of the 10 attributes. We'll have those on the show notes. But I do have a quick question about one of them and I'm not saying I disagree with it. I just had to think through it. I'll be curious if you know the one I'm thinking about. It says valuations matter semicolon less in the long term. I'm going to, I'm going to, I'm going to let you. I'm going to stall here. I'm going to say it again so you can start formulating a response. Valuations matter less than the long term. Help me to think about that the way you want me to think about that.

Speaker C: Yeah. And it's one that I think for a lot of people it is a surprising one, um, in that they always view that the valuation is a big definer of the total long term return of a company. And the reality is if you are owning this for a shorter period of time. Valuations actually are very important. And the reason why they're very important is because if you think about the fundamentals of a business, don't change that dramatically over a shorter period of time. To give you an idea, a Hundred Bagger is effectively, if you back into it, it's growing about 16.6% a year. So if you had a company and you owned it, you know, you're looking to own it for, you know, one year. I, uh, you know, in it, just playing it out, on average, it's only going to change by 16.6%. So if you had a valuation that was overvalued in the short term, if the market changes its view of that, you know the value that's going to be the biggest driver of that return. Now, why it really matters is that today the average holding period is about five and a half months. Now that is down from the 1950s and 1960s. That was about eight years. So again, going to your question, valuations really have a big, you know, swing factor if you're holding it for less than, you know, less than half of a year. Now, if you hold it for the long term, what actually really matters is what the fundamentals do in that business. And Charlie Munger has a great quote that says, held over the long enough time frame, the returns of the business will define the returns of the stock within that timeframe. So if you own a 18% return, uh, on capital business, over the long term, you should expect to earn about 18% return on the stock. And that's true if you own a 6% kind of return on capital business. And going through that Hundred beggars study, as I went through that, that actually was proven out. And so when we talk about the valuations don't matter as much. What we're talking about is if you're holding things for 30 years, that valuation, you can overpay, you know, in the, in the short term. But it's the fundamentals and how that business performs which is going to truly define what the long term returns of that stock will be.

Speaker A: Several ahas in this book, especially the way it's laid out. And again, we want the reader. I don't want to give away too much because we want the reader to be delighted, which I was. But one of my favorite parts, you followed a structure of all the investments, which, by the way, I didn't say this near the beginning. If I were in your shoes, Matt, if I were in your shoes, I don't know if I would have the guts to Open up and be completely transparent. So I'm just saying you have a lot of guts to let your good friend that you've known since about 1999. You have a lot of guts to be able to let people like us see how you went about this. So that's just a lead in to one of my first observations. Every business you introduce us to, there are three key numbers. And I'm just thinking this. Do you have any idea how educational this is, especially for a young finance student? And plus, they're not, they're not recycled for every, each one is different. Which means you've done your homework, you've done your due diligence. I just want to say this was very, very, I can't think of a better word, educational. The three numbers that you bring us,

Speaker C: when Neeraj and I had talked about this, we um, decided that to truly help the, you know, the readers of this, we had to open up and actually use real examples. Um, because you can always talk looking back and that's what the Hundred Baker study really is. It's about talking about what works before and, you know, then using that as a reference point to help us, you know, think through what might work in the future. And you're exactly right on those three numbers. One of the things that I do and as Neeraj talked about at the beginning, this is, this is all fact, um, based on what we're doing. So I have. And your listeners won't be able to see it, but, um, for every one of the companies that, you know, I buy, I actually go through and I build out an entire, um, you know, ah, presentation of this. And these are generally anywhere from like 30 to 45 page decks that I put together. And it's not meant to be some kind of like, hey, look how much work I've done on this. It's really meant to say I need to ensure that when I am making an investment decision, I am actually being intellectually honest with myself. This is what I know at the time, this is why I'm making this decision. And this is what I even have in there, what I call a pre post mortem. This is what would get me to change my opinion as part of that process. What I'd like to do is then go through and say, what are the three key things when I think about this business that define what that company is and what makes it special? But it's also what I use to simply go back and track and say, are they still on that path? Remember when we talked about being actively Passive owners of this. What I'm really looking to do is say I can't, uh, what I call, um, go through and actually change my opinion and evolve it just because what the market is trying to tell us. I go back and then re, underwrite and rethink to make sure that my investment, uh, philosophy was right. But on your question on the three numbers, um, you know, let me think about it.

Speaker A: Um, you want me to grease the, can I grease the wheel a little bit?

Speaker C: Oh, absolutely. Whichever one you'd like to talk about.

Speaker A: I loved globent, which is near the beginning here. And here's what I love, 29K. Now here's what was really, this knocked it out of the ballpark, hundred by 100. And I just thought this is so cool. And then greater than 700 billion, what I liked the most was the hundred by 100. I went, I read it a few times, I thought this is so inspiring. And it's like I believe they can achieve this. But that was one of your three numbers. Now again, that's just one company of, I think of about 10ish. And uh, again they're all good.

Speaker C: Yeah, yeah. And again what we're trying to do when I put those down is to then go back and revisit those to make sure that, you know, I'm thinking about this in the same way. But it also helps me ensure that when I talk to the management teams or when I'm doing research on this, reading through another 10k that again, are they still on path for what they were doing? So what you were talking about there with 100 by 100, this separates them very much apart from other consulting types in this space is what they're looking at there is they want 100 clients that do $100 million or more per year in revenue with it. I mean that is huge. Now they're not there today, but that's an upgrade from what they were first looking at. It's 50 by 50. So they had moved that up. They have several um, companies that actually are over $100 million, including their largest one, Disney.

Speaker A: Right.

Speaker C: But what, what really is remarkable about that from a consulting standpoint is that these are companies that year in, year out spend, you know, for Disney, uh, it's about $183 million a year. And they're doing it because it actually helps them attract more consumers to their parks through their, you know, throughout all of their different properties that they have as well. And so that's why I like to keep that in mind is because then When I go back and talk to him, which I just did a couple days ago, is to really come back and look at that and say, how, you know, how viable is that? Is that still kind of the goal strategically? Are you still looking at that? And if things have changed, then I know that I need to, um, update my own thinking on the name.

Speaker A: I'm just. Again, this whole concept, the three numbers, is so genius. It's. It's. Again, you're helping the reader who's trying to learn what's most important. Uh, I'd be remiss if we did not mention the four E's. I want to know if I have permission to. To not modify, but add to one of your four E's. So your four E's are, uh, it's. Is it an essential product or service? Uh, excellence in operations, enduring power, competitive advantage, and then entrepreneurial management. I agree with all four, but I was having lunch recently. So you're in Kansas City. I'm in Columbia, Missouri, our top microbrewer brand, which is very well known in Columbia, Missouri. I had lunch with the founder. His name is Tyson. Uh, his product. Is it essential? Not really. But is it extraordinary? Yes. So I'd like to know if I have permission, as I'm sharing your four Es, do I get to add essential and. Or exceptional or extraordinary? Do I have your permission?

Speaker C: You can. I will tell you, however, when you're thinking about owning something over the long period, call it three decades, something could be extraordinary. You could have a great, extraordinary product. But, uh, it really, in my opinion, has to be essential to you as a customer, because that essentiality that we talk about as one of the four E's is truly what gets the customer to want to commit to you. And it plays into one of the other key findings that we had of the Hunter Baker study, that 76% of the companies in that hundred regular study had recurring or repeatable revenue. That's. That's the power of what we believe is essentiality. Part is because if you are so essential to me that if you were not there, like a fastenal or, you know, uh, another company like that, if you were not there, it would actually materially damage my ability to be successful. So what they do, getting back to what I was saying before, is that's where they commit to the company. So that's where it plays into this concept of recurring, repeatable revenue.

Speaker A: I want to ask Mr. K. Uh, one of my. We're not supposed to have favorites, but I once had the author of the Phoenix project. And it's a great book. The author is just outstanding. About every five minutes he'd ask mark, how am I doing? How am I doing? And I'm thinking, dude, you can have this show. But Mr. K, Mr. 60 Minutes, how am I doing? I'm a little nervous.

Speaker B: I think you're doing a fantastic job. And, you know, I'm sitting here also thinking about just a couple of comments. Matt's, um, um, tool of the 3K numbers really dovetailed into the storytelling because the three numbers, I mean, no one wants to read, um, you know, a, ah, big financial, you know, case for. For buying a stock. And the three numbers that Matt uses for each one of his companies are not always the same three kinds of numbers.

Speaker A: Exactly right.

Speaker B: And they're really used as a vehicle to highlight what makes Matt's eyes go big and bright, um, whenever he sees an opportunity. Um, so I' other quick comment here. You know, we've been talking about 30 years. Um, you know, that just seems like forever, um, for these kinds of companies. But one of the things for me is, as the newcomer to this was the idea that, um, when you have something compounding like that for 30 years, what's really happening in the background is it's doubling every five years, right? And so when you look at those curves, they kind of bump along for a while, and you're like, well, this isn't 100 bagger, Matt. Like, what's going on here? It's just, you know, inching along. Um, it takes some time for, you know, the stew to marinate together, right? And when they're doubling every five years, it starts to take on a sharper growth pattern in that curve in that back half. And I just think for, you know, for those who are reading this and listening to this, that's where the magic happens. And you really start to discover that human beings are not that good at seeing exponential behaviors. Um, you know, Albert Einstein called compounding the eighth wonder of the world. And one of the things that we did just to sort of explain this to people is, you know, there's a great story about, um, the. The, you know, the man who invented chess, the game chess. And he's invited by the king of India to celebrate this game. And the king says to the guy who invented it, I love this game so much. I'll give you whatever you want. And the inventor, who obviously is a thoughtful, strategic guy, says, you know what? Just give me a grain of rice, uh, for each square of the board of the chessboard. And on Each square just double what you previously put. So one grain of rice, two grains of rice, four grains of rice. Well, we, we attached a dollar value to a grain of rice, and it takes a whole bunch of squares for this thing that's compounding, doubling, um, to even be worth a dollar. But then as you get back into that board, it starts to keep doubling, and suddenly the amount of money to attach to the rice grains is worth more than Warren Buffett and Elon Musk before or after SpaceX net worth combined. Um, and by the time you're done with the board, it's worth more than the gdp. And so you can't see that happening. You have to allow it to happen and allow it to unfold, and you have to allow for patience. And so there's a deep philosophical streak in the book as well that tries to demystify some of Matt's, you know, concepts, um, that justify his picks. And so, you know, I, I just think it's important just to. Because this is really meant for the rising retail investor class, right, for their own retirements and for intergenerational wealth transfers to their kids and beyond. So I just wanted to underline that, and I appreciate that.

Speaker A: Mark, do we have time to do a quick lightning round? Am I, Are we doing okay on time?

Speaker B: I think absolutely.

Speaker A: Maybe 12 minutes. I do want to do one more plug on the book. The other thing that has not come up is, again, this book is very human. I, uh, loved the way the both y' all brought up your parents, your fathers. This again, I love that part of the book. So this book, there's a little bit of everything for everyone. So the lightning round again. Thank, uh, you, James Kramer. I hope we don't get. Gets sued. I don't know if that's trademarked the lightning round, but I, I tip my hat to him. This is a cheat code. I haven't even come close to scratching the surface. So the lightning round is just a quick way to hit some of the, the fun ideas on the book. Some of these are going to be really. You're going to think, why did he bring this up? But these are just things that I wrote down. I write lots of notes. Some of these are words, some of these are phrases. If you need an explainer, I will. I don't care who jumps in. You can kind of switch off. I'll leave it up to you, too. Hope I can get this word right. Uh, diversification. Who wants to talk about that one? Diversification.

Speaker C: So I'll jump in on that one. It's the concept that we were talking about before, where if you're going in and you're investing in your 112th best idea, you're probably not truly, um, investing. What you're trying to do is just, um, actually minimize risk. And oftentimes what you're doing is you just, you know, like we talked about diluting your own genius number, by the way.

Speaker A: Loved it. Uh, Nick Sleep. Nick Sleep.

Speaker B: I love Nick Sleep. I mean, when. When Matt talked about, um, having a concentrated portfolio, it was important to understand, well, who else has done concentrated portfolios and what have they done? And Nick Sleep doesn't really do interviews. And so you really have to, uh, go through the investment letter that he does and, um, his partner. And what you discover in that is that I think, if I remember correctly, he had two, possibly three whole things, um, that he held forever. And that was Amazon, Costco and Berkshire Hathaway. Okay. M. And so when you think about Amazon and Costco, they're actually the same idea.

Speaker A: Right?

Speaker B: Right. One before, the other of, hey, you know, uh, here's a subscription and we're going to use it to drive prices down and you're going to come back and we're going to do well by, you know, the customer. That's Costco's model. That was Amazon's model. Um, and so he doubled down, really, on a single idea. Um, so he's one of the greats out there who loves concentrated portfolios.

Speaker A: I'm eager to read your facial expression when I say this person's name. Hamilton Helmer, I bet you.

Speaker C: Yes. Yeah. If you haven't read his book called Seven Powers, um, I highly recommend it after reading the Coffee Can Investor, of course. But, um, Hamilton Helmer, what he really does is he lays out the concept of what a competitive power is as opposed to competitive advantage. And the short of it is that competitive power is, uh, competitive advantage is only valuable if you can actually turn that into an economic advantage or an economic benefit. And so that's what he talks about with competitive power. And he then breaks that down into, you know, um, uh, uh, scale economies, network effects and the like. And he does a brilliant job of just explaining through that. And so, um, he truly is one of the ones. You've heard a lot of them, you know, how they kind of play out, um, from a competitive vantage. But he's one who really defined that competitive power and then gets into great examples of how companies have gone through and actually utilize that to their advantage.

Speaker A: Now this next one is a line not A word, but a line. On its own, it may mean nothing, but the context where I pulled it from is brilliant. Nike is a great company, but every year they have to sell all those shoes again just to get back to where they were last year. I know who's going to respond to this one.

Speaker B: Yeah, I'll jump in on that one. You know, um, the idea Matt talked about recurring revenue.

Speaker A: Yes.

Speaker B: Uh, you know, businesses that have to start from scratch at the beginning of every year. I've had a lot of experience in because, you know, media businesses, you gotta go out there and sell the advertising every year from zero and grow that back up. And some of these B2B businesses, not only are they retaining most of their customers, they're adding new ones and their price increases. So their overall revenue base just continues to grow. And I liken it to a Swiss watch. Um, and you know, it makes, um, it takes a lot of the worry out of the business because I want

Speaker A: to squeeze in one last question about one of my favorite chapters in the book, the book on risk. I think it's chapter 14. I'm going to share three names on my list and you pick which one you want to comment on. I wrote down Missionary Leader, Red to Kill, which is a great chapter by the way. And drop the. The from Facebook or the Facebook. So you get to pick one of those three to comment on. Missionary Leader, Rent to Kill or the Facebook.

Speaker C: So I, uh, love to talk about, uh, the missionary leader on that side. And the reason why that is so important is that there is a very big difference in a management team that, and you rarely see it until there's times of distress or there's times of some kind of existential, either real or perceived crisis that takes place. And missionary leaders are ones that actually are there not just to drive the stock price up or not just there to kind of increase revenue. They're there because they know how they create value for their customers. They know how they push, um, the benefit to not only their customers, but to their employees and to really building something up. One of them that we talk about in the book is Axon Enterprises. And in there you got Rick Smith, who has a mission as a company to protect life. And for those of you listening, Axon Enterprises is the manufacturer of the Taser, um, uh, device. And, but they also have a lot of other things like uh, the body cam M and the fleet cams, which can, you know, get a, uh, connect a license plate at 140mph and they put it all into their Software. So they're building out this. But his mission is to protect life. And he then has three pillars that he actually brings into that. Um, one is that promote transparency. The other is to accelerate justice. And the third is to preserve truth. And all three of these combined are uh, for the benefit of not only the officers, but also for the citizens that they're there to protect. And then what he's done, he's gone out and he's built the moonshot goal of actually going out and decreasing gun related deaths by 50% by 2033. Why that's so important is that that drives the entire organization around one big, one big goal, one big thing. And what it does is it attracts those people into the company. And by doing that it actually creates this culture of very like minded people willing and able to go out and kind of drive their own kind of future in that business. And they've been obviously very successful in that.

Speaker A: Chapter 14 was excellent. We were talking before we hit record, just the hook, the hook for chapter 14 again, it's brilliant. The reason I love chapter 14 is also the heart of it is the mistakes made in investing. Either of you two, you want to just favorite highlights of that chapter? Again, very well done.

Speaker B: Well, um, you know I, I was um, hinting at it before when we were talking about Fastenal, um, that one of the mistakes that Matt, um, made early in his career back when he was a Janus was he, you know, had done incredible investigative work for a financial analyst and he realized that, you know, Fastenal was going to miss their numbers, um, and told his bosses and sell the stock and look great. Um, but Matt, I'm going to need you to fill in the blank on the end of the statement. But if Matt had held on to Fastenal, it would have grown. How much, Matt?

Speaker C: It would have been up 19 fold. Um, and that was from the point that we sold it. So what neer just talking about is that we went out there and this was in 1998 and again, I was a young analyst, figured, yeah, figured out that they were going to miss numbers, got them to sell the stock. It went down 55%. I mean think about that. You know, as Neeraj said you know, at the time, looked like a hero, um, you know, and the like. But from the time that we sold it to like in 2023 or somewhere, it was up 19 fold and the market was up fourfold. Just that one stock would have probably defined the success of that fund for that entire period. Now one of the key Things that we hope your listeners take away is that what we tried to lay out here is a framework for, you know, thinking about and investing in exceptional companies. And so we Talk about the 4e framework on looking at, uh, what are those type of companies. But the other side is about patience and discipline.

Speaker A: Right?

Speaker C: And you know, as we defined in that chapter, that was one of my big mistakes is because we not only sold it, right, but we then never went and bought back in. And that is one of the things that happens as an investor is you might be right on the sale of it, but then you have to make the other decision to get back in and then to own it through. And if you go in and you just pull up the chart on Fastenal, just pull up the long term chart, that 55% was harrowing. It was scary. It was, you know, it felt like a falling knife and the world was falling apart. Their fear of Amazon coming into the markets and, you know, a whole bunch of other things going on, but you can't even see if you look at that long term chart, I defy you to actually find where that is, you know, when you're looking at it, it. But the other thing that people, um, forget too is that from 2011 to 2018, Fastenal stock was basically flat. And yet it was growing over that time frame about, you know, about 12 to 14% their earnings per share over that entire time frame. And yet this stock, as we talked about, you know, went up 19 fold from 98, you know, 2023. You have these periods in there that are challenging for those who don't have a long term mindset. And so the key when you look at that is that you watch what the fundamentals are doing. You watch the management team, you ensure that you are actually, um, that the business is continuing to compound. So I always love that the markets in the short term, Ben Graham has said this, are a voting machine, but in the long term, they're a weighing machine. And what was so, you know, kind of compelling about that is that if you look at Fastenal stock From kind of 1998 to 2023, they compounded their earnings per share at about 13.6% a year. Their stock went up 13.7% a year. And that's the key that you have is if you focus on the fundamentals, focus on the, you know, kind of the competitive advantage that these companies have, those are the ones you want to continue to own. That's when we talked about being actively passive. If they're continuing to do that, then you kind of have to, you know, close your eyes and not spend a whole lot of time looking at the little squiggles that go on in the stock price in the near term, really focus on what the long term value creation that they're, they're developing.

Speaker A: Great point. Was it in that chapter that I learned stay away from Chinese based companies in Nigerian companies? Is that the right chapter?

Speaker C: It is, it is, yeah. And one of the key things that hopefully comes across when you read the book is that owning the best, uh, exceptional companies generally starts by ensuring that you avoid the losers, the bad businesses. Because as you know, I like to say no bad business over long term ever makes an exceptional stock. They just don't, you know. And one of the key things when you look at the four E's on that, particularly at essentiality, is that if they are adding value, they're now in a position to control more of their destiny. On where they go. Um, a lot of commodity like companies, you know, that's why we talked about in the book, like oil companies, you know, they can have periods where the stocks do really well. But the problem is, is that they don't actually control their destiny because it's all determined by what they, that oil price is. And companies don't have the ability to control that. And so that's why over time you really want to focus on the exceptional businesses, the really high quality businesses that you can, you know, continue to feel comfortable that they're going to be that great over, you know, over that long period of time.

Speaker A: We. And every show, I love asking authors what are some of their favorite books? Can I ask that question? Is that okay? And every once in a while I have someone say, well, I'm not, I don't really read. I, I'm a podcast listener or I do something else. But a lot of authors are readers. Do I have permission to ask, what are some of your favorite books?

Speaker B: One of the best business books I've ever read is, you know, you know, the Outsiders. Um, and, and those were case studies of people who just, you know, a lot of people say they create value, but that's a tall order. Each of the people profiled in that book created value. But perhaps the book that is most inspiring to me, at least at this moment in my life, was a book that I read when I was just starting out as a reporter called the Investment Biker. And it was written by Jim Rogers.

Speaker A: I love that book. I love it.

Speaker B: It's just fantastic. Because here you have this guy running this Fund for George Soros, the Quantum Fund. Puts on a leather jacket, grabs his girlfriend uh, at Columbia, buys two BMW motorcycles and goes off to Africa to tell you the story of nascent stock markets, you know, and how Botswana was feeding off of South Africa and all those kinds of things. And that book always stayed with me because I like the idea of an investing adventure. And so when I started this book, the idea um, of Matt, who is open kimono, not only about his picks but his foibles and his mistakes over the years that actually made him smarter about his picks moving forward, um, and to go on an adventure with him to fill up a coffee can for his three girls. I just love that idea. And so I actually am so inspired by that that I'm writing more books about other great investors who are letting me sidecar with them um, on their investing adventures. And so I, I would say to you it's a sub genre that I'd like to bring back in a big way.

Speaker A: Do it, do it, do it and, and then, and then come back so I can, we can talk about it. It done Matt sir.

Speaker C: So uh, for me the most important thing I always tell people and I shared this with Ian and every young uh, person that I mentor is read as much as you possibly can, be curious. And it's great to read investment books but I also encourage them to read other things, you know, uh, more by operators, better understand how a business runs. So as uh, you look through my background, I was in uh, did investing for 20, 20, 25 years. Then I went into the corporate side and so as head of strategy for Fortune 500, went out and co founded my own fintech software as a service business. Then actually was CEO of a brain neuro rehabilitation business and now you know going back and um, back on the investing side. So what I feel like that gives me is a lot different perspective than a lot of individuals who are just either investors or operators. But I think you know, given I've got more experience for younger people, I think this is how you get some of that experience by reading some of the, you know, getting great books about that. So a couple of books that I might recommend is one, um, absolutely. Read every annual letter that you know, Berkshire Hathaway has ever put out. Um, just I think that is kind of baseline for everybody. But another book um, that I read that was really influential to me was Build by Tony Fadell. And if you haven't read it, Tony Fadell is the guy um, who actually created the ipod and he actually helped co create the iPhone when he was at Apple. Then he went out on his own and actually built Nest, which was eventually bought out by Google. And why I like that book is he really talks about the challenges of building a, kind of building a business and where that goes. And then probably the third book, just, um, because I feel like in this day and age where we're at AI right now is there's a book actually out called Power and Prediction, and it's actually by three professors out of the University of Toronto. It's Agrawal, um, uh, Gans, and Goldfarb. And what I loved about how they did is that they laid out the concept of what actually AI does and how it's a prediction machine and how that, when you actually have that, how it can help change how you view what AI can and cannot do in the market. Because I think a lot of people either think that AI is either magical and it can do everything for me, or on the other hand, it's completely like farce and, you know, has all these problems and in fact it's somewhere in the middle. And so it was a great book on helping do that. So, you know, there's, um, if I had to give a fourth one, A Brief History of, um, A Brief History of Learning by William Bennett. Um, A Brief History of Intelligence by William Bennett. He, um, did a great job of actually walking through how we went from essentially amoebas all the way to where we're at on machine learning and AI. So those are the type of things that, again, curiosity is really what helps you become not only a better thinker, a better decision maker, but I also think a much better investor.

Speaker A: Uh, this book, the Coffee Can Investor, is a five star book. You two and your families combined are ten stars. I cannot thank you enough for writing this book. This is very well done, guys.

Speaker C: Thank you so much for having us. This has been incredible.

Speaker B: Thanks, Mark. And, um, I just got to say, as someone who has produced some of the greats, um, you architected a really wonderful interview structure for this podcast. And, uh, it's been a real pleasure to be a part of it. So thank you.

Speaker C: You are listening to CFO Bookshelf, Lifelong

Speaker A: Learning for Financial Leaders.

Speaker C: And now back to our host, Mark Gandy.

Speaker A: We're not even close to being a, uh, Joe Rogan type podcast where some shows can go four plus hours, but had I had more time, I would have enjoyed having Neeraj's son talking about that internship, uh, with Matt. I also wanted to hear more about how Neeraj finds and develops a story like he did with Matt and then with Matt the ultimate girl dad. I'd like to have asked any of his daughters guys we're going to start a podcast is called girl uh dad investor what are the first 10 shows and why? That would have been interesting to hear. In this book Matt reveals the 13 or so investments he made for his daughter's eyeball. I purposely chose not to turn this into a toxic uh, Google type interview. Uh, let's let the reader learn about investment through Matt's eyes. But for questions maybe six to 12 months down the road from now which yeah maybe we should have another interview are the long term fundamentals consistent with the original investment thesis? And then for near is how is this new learning impacting your investment decisions for you and your family? Again, very fascinating book, great premise, extremely educational and I appreciate just the human part of this book. Neeraj Kamlani and Matt Ankrum, thank you very much. We need to call this a wrap. I'm Mark Gandy for CFO Bookshelf.

Speaker C: It.