#278: How to Find Hidden, High Quality, Small-Cap Stocks

0:00Small caps outperformed by 4 % per year on average. The funny thing is, if you would pick all the small caps, and within the small cap space, you would only take the ones that have a positive free cash flow, your outperformance wouldn't be on average 4 % per year, but it would be something like 6, 6.5 % per year, which is ridiculous because 90 % of all investors underperform.

0:30Howdy folks, we've got a very special guest returning to the pod today. Peter Schliegers is back. For those of you who missed Peter's first pod a few months ago, he's the founder of Compounding Quality, a global investment newsletter followed by over 1 million investors across social media and email. With more than 425 ,000 subscribers, Peter's mission is to educate and empower long-term investors by focusing on high-quality companies and timeless investing principles. He's here today to talk about his newest project, Tiny Titans, a service aimed at finding small companies of high quality with big potential.

1:01So Peter, welcome back to the show. How are you getting on? Thank you so much, Michael. It's always an honor to be here. And yeah, we've seen each other physically in Dublin a month ago. And the audience of My Wall Street is amazing. So it's lovely to have a conversation with you again today. Yeah, I know. Compounding quality and My Wall Street has gotten very close in the last three, four months. You've been on the podcast. You've been with us at Investicon. now you're back again to launch tiny titan so um i think i think the best place to start this is before we get into tiny titan specifically i just i want you to talk about your investment philosophy and and the art of quality investing because i've heard i've heard you say this before in person but i think it's a really good um intro to what we're talking about today sure so basically i'm about to turned 29 years old right now.

1:55Started investing at age 13. So investing has always been my passion. And probably like many investors, I would say for myself that I started as a classical value investor. So buying cheap stocks based on traditional metrics like the price to earnings ratio, price to book ratio, and so on. And then gradually over the years, well, yeah, reading a lot of books, reading everything from Charlie Munger, from Warren Buffett and so on, I gradually start evolving from value investing to quality investing. Why does that make a lot of sense? If you ask me is because when you're a value investor, you try to buy cheap stocks based on the traditional metrics, based on the P-U ratio, based on the price to book ratio and so on.

2:43But when you buy the stock and your investment thesis is correct, well, the valuation will go up In other words, the undervaluation will come down and you need to sell the company because the reason you bought a company isn't no longer valid anymore. And you need to buy another undervalued company again. It's quite a short-term mindset. For such a traditional view of investing, it isn't the long-term mindset that everyone preaches about. It's Michael Burry that calls it roadkill and sells it when it looks slightly less like roadkill. Yeah, exactly. That's exactly the case. And everyone probably knows Benjamin Graham.

3:19But we also all know that over the past 20 years, this strategy, just buying companies that are really cheap on traditional metrics, it doesn't work anymore. And I think, well, we can learn two things from that. First and foremost, well, it's always important as an investor to remain very humble and to keep learning. And the second point for me personally, when I start reading everything from Buffett, from Terry Smith, from Francois Rochor, Lawrence Cunningham, and so on, about quality investing, trying to invest in the best companies in the world. Well, to me, that immediately clicked because we know for a fact that in the long term, stock price always follow the evolution of the intrinsic value.

4:05And the intrinsic value is always determined by the free cash flow per share growth and the earnings per share growth. And if you know that, I think it makes complete sense that when you have a company that is quality, when you have a company that can keep growing at above average rates for very long periods of time, that you will do really well on the stock market. And that's a funny thing. Many of you, most of us will know this kind of cash flow model, where you try to estimate the free cash flow of a business for the next 10 years and then discount it today. Well, what is the case with quality investing is that those kind of companies, they can often grow at above average rates for 15 years, for 20 years, for 25 years.

4:49And it's a fun thing to do behind your laptop. If you would make a discount cash flow where you estimate that someone's free cash flow is above average for 20 years, almost every company is undervalued. And I wouldn't recommend to do that because it's a dangerous thing. No. But it shows you why quality stocks are often structurally undervalued in the long term. And maybe one last thing I want to add here is you have a wonderful quote from Terry Smith who said, well, if you bought the S &P 500 at the best possible time ever, which was just after the Great Depression in the 30s, you could buy the S &P 500 at a PE of six times earnings back then.

5:32so you bought it then at six times earnings and you sold it at exactly the best possible time so the highest valuation it was just before the dot-com bubble bust you could sell it for 30 times earnings in other words you bought at six times earnings you sold at 30 times earnings that's a 5x return you just made from multiple expansion so thousand dollar became five thousand dollar but over that period over 85 percent of all your returns were made by just the earnings growth and the free cash flow per share growth in other words well in the short term the valuation of a company is really important but in the long term what is the most important is the intrinsic value per share growth and that's what you try to focus on entirely as a quality investor yeah yeah you You mentioned especially about DCFs.

6:23It reminds me of a story. We had Bill Mann with us at an event once, and he said 20 years ago, if you walked into any finance class and he said, this burrito shop is going to compound free cash flow at 20 % a year for the next 20 years, you get laughed out of it. But that was Chipotle, and you've seen the growth in Chipotle. And it's almost like the companies that subvert those traditional rules and laws and in finance are the ones we end up talking about, you know, and these are the quality companies you're searching to find. So with that all in mind, talk to us about Tiny Titans. Yeah, sure.

6:59So Tiny Titans is something I'm really excited about, something I've been working on for nine months. It has been a very intense time, but it's a lovely time. So what is the goal with Tiny Titans? It's to find companies that can go from tiny to titans over time. In other words, you try to find those small cap quality stocks that have still plenty of room for growth. Where you believe, okay, this is a company that can maybe 5x over time, 10x over time. And yet with a tremendous upside potential. And there are a few reasons for this. Well, first and foremost, well, some of you may recall the quote of Warren Buffett.

7:41Go where competition is weak. Well, I used to work in the asset management industry myself. And I can give you an example about that. I live in Belgium. I was co-managing or involved in the daily management of an equity fund with 200 to 250 million in essence under management. And we never even looked at a company with a market cap below 10 billion. And if you take this small Belgian fund, 200 million, 250 million, compared to Wall Street, it's nothing. It's just peanuts. and I think the key lesson you can draw from this as investors everyone in the space is looking at the big tech companies everyone is looking at Microsoft at Apple at Amazon Netflix Nvidia and so on and it's really hard to get an informational in bad advantage there but if you look at the small companies companies yeah that maybe aren't followed by analysts companies that fund managers can't buy at this point in time, well, they have tremendous upside potential.

8:45And history has also proven this because, for example, you have an amazing book from Jeremy Seigel, Stocks for the Long Run. He says, well, if you just buy the 10 % smallest companies over the past 100 years, you would have generated a return of 14 % per year compared to 10 % more or less for the S &P 500. So that's a 4 % per year outperformance. And if you combine that with quality, I think at my Wall Street, there are also a lot of quality investors, right? Well, if you look at the Morningstar White Moat Index, for example, this index outperformed by 3 % per year on average. So if you combine them, I think you tend to do really well.

9:27And one extra thing maybe to add, one thing why I think it's really exciting today is, Well, over the past five years, even over the past 10 years, especially in the US, almost all returns have been driven by big tech companies. It has been 40 years ago that the top 10 companies in the S &P 500 had such a large weight as today. Never has any company had such high weight as NVIDIA has today. And in the financial markets, on the stock market, you have a term called reversion to the mean. in other words well i don't think this trend can continue i think there will come a time that big tech will start to struggle and in the long term on average well those small companies tend to outperform this hasn't been the case five over the past five years over the past 10 years but i think it should be perfectly doable or there will come a reversion to the mean that small caps tend to outperform again because this is also no secret.

10:29Well, everyone says, well, the valuations are really expensive today, especially in the US. That's true. It's a fact. But if you, for example, out of the S &P 500 would exclude the 10 largest companies, those are mainly big tech companies, right? The valuations are already way more reasonable. So I think if you look at big tech in terms of a historical perspective. Right now, they are overvalued 30%, 40 % to 50%. But if you look at the small cap space, they are valued more or less in line with its historical average. So that's something that makes me really excited to start with Tiny Titans today.

11:10And yeah, to recap, I think the goal, the key goal here is to find companies that can go from tiny to Titan over time. So that's where the name Tiny Titans come from. perfect yeah and it's funny you mentioned the the the concentration at the top of the market we've talked about the s &p 493 on this podcast it seems like for the last two years and the outperformance in between but there is a reason why say when at your fund back in the day you couldn't cover stocks below 10 billion and there's a much higher level of risk for small caps for micro caps whether it be kind of the lack of coverage lack of oversight it just seems more difficult waters to navigate as an investor.

11:51What's your plan for that with Tiny Titans? Yeah, it is. And maybe one extra thing I want to share is I've been going to the Berkshire AGM for three years straight now. And three years ago, the last year that Charlie Munger was still there, Buffett said on stage, well, if I would only invest 1 million today, well, I would have no problem to generate a return of 50 % per year, 5-0 % per year. And Charlie Munger was still sitting on left of him and he said well i think buffett is right here so what can we learn from this yes the upside potential is way higher in the small cap space but you're also perfectly correct michael that the risk is also higher there so you really need to make your own homework um there why because often analysts don't follow it maybe there are the companies are not that mature yet so for example when a key person, well, something happens to him, that can be a risk.

12:48But yeah, if you do your own homework there and you need to make your own homework there, by the way, you always need to make your own homework, but maybe for an Apple or an Amazon, you can find plenty of interesting investment cases online. But if you make your own homework in the small cap space, well, the upside is way higher. So the risk is higher, but the upside is also higher. I've said at Tiny Titans, the goal is to find companies that can double every five years so that is equal to a yearly return of 15 per year you are targeting but then the power of compounding of the magic of compounding also can do its work because if you want to double every five years and that's yeah what you want it's no certainty right the future is per definition uncertain but then you 2x you double your money every five years you 4x your money every 10 years you 8x your money every 15 years 16x in 20 years so that's the magic of compounding and one thing I would maybe add regarding to the risk aspect that you just mentioned which is by the way a very fair point I think there are two things that are really important in this field the first thing is because they are small it's I wouldn't recommend people to try and find or try and invest in a very promising AI startup that are still burning 10 million in cash every month or something like that but to really pick the companies that are for example the market leader in a niche market or companies that already have a healthy balance sheet that are profitable that have plenty of reinvestment opportunities and that's the field you want to to be in so pick the companies that are profitable already i briefly mentioned that well small caps are performed by four percent per year on average the funny thing is if you would would pick all the small caps and within the small cap space you would only take the ones that have a positive free cash flow your outperformance wouldn't be on average four percent per year but it would be something like six six point five percent per year which is ridiculous because 90 of all investors underperform and just by picking the small caps that are high quality they're profitable already yeah your outperformance is it's really yeah amazing it's tremendous so pick the ones that are profitable already and the second point that is so important well skin in the game the power of incentives uh show me yeah show me the incentive and i'll show you the outcome as charlie munger said i think in the small cap space it's even more important to try and invest your money alongside someone who has all his own money invested in the company.

15:32Because you have a study from Harvard Business Review that states well companies with skin in the game, companies where the founder is still involved outperform the market by 3.9 per year on average. On the other end Credit Suisse, well Family Towson study, family companies are performed by 3.7 per year on average. and personally I always try to look for companies with skin in the game but within the small cap space it's even more important because though there the systems aren't as streamlined as with a large cap company when the 10 most important people at Microsoft would fall away obviously that would be an issue but the company will still go on but when you have a company with a market cap of 100 million for example and the ceo well something happens to him that could be an issue and to me honestly that could be a reason to sell the company but it's so important that you invest alongside managers ceos that are still heavily invested in their own company and that really where the company is their baby it's their passion and they will do everything they possibly can to to generate as much shareholder value okay that's great i'm going to keep asking your questions, Peter, but first I have a question for our audience.

16:46So if you're listening to this, if you're watching this on YouTube, on Spotify, on Apple, wherever it is, I want to ask if you are a subscriber and if you are not, please click the button because it does really help us as a podcast, as a company to just expand our reach. And if you are enjoying it, why wouldn't you want to hear about us when we come out on Thursday mornings? And if you are really enjoying us, but only if you are really enjoying us, you have to leave us a review as well. we only accept five stars it's just a weird thing it's only our podcast you're actually not able to do a one star so don't even try but uh it does really help us out of my wall street and stock club so if you are listening to this and you haven't subscribed and you haven't left this review please do but uh peter you've touched on uh something there that i want to dig into and that's kind of something that because we shared notes uh on tiny times before this episode and And one thing you put huge impetus on is screening and actually finding these companies because obviously they don't have the same coverage as the big companies.

17:50You know all the Magnificent Seven, but you don't know a tiny$100 million company that's, I don't know, selling secretarial software in Poland, but has the most incredible metrics you've ever seen in your life. And that's what screening uncovers. So I'd love for you to expand more on your screening process, how you do it, what characteristics you focus on, and just if you could kind of touch on everything there. Yeah, sure. Michael, first and foremost, I think I will repeat you and say, please hit the subscribe button for my wall street. Because just think about it for a second. The fact that you are listening this right now and it's 100 % free and that Michael is spending his very valuable time on this, that guests are spending valuable time on this.

18:34Well, that's something that is lovely, right? So subscribing is probably the least you could do. So truly appreciate everything you guys do. Regarding the checklists or the screening process. Well, one story I want to tell first is, well, I had one big aha moment for me personally. Is like I mentioned already, I started investing at age 13. Always been my passion. and I also did some so the local version of an MBA in Belgium and I joined the asset management industry and I was quite young naive probably a bit arrogant and I said well 90 % of all investors underperform the market 90 % of all investment funds underperform the market but I'm different and I'll show those guys how it's done so that's a bit naive a bit arrogant and I entered the industry and then I noticed okay it's a bit more difficult because you have a lot of bureaucratic things going on and asset managers and so on but the real aha moment for me was when I was in London at the Goldman Sachs event and we were at the events where several CEOs were speaking and one CEO from a Spanish company was speaking and I was looking around in the room and there were thousands people sitting in the audience so thousand professional investors fund managers, long side, buy side analysts, sell side analysts, CEOs, venture capitalists, what have you.

20:02And I was looking around and I thought, oh God, the statistics are what they are. 90 % of all investors will outperform them, underperform the markets. There are a thousand people here. This means that 900 people in this room will underperform the market statistically seen and those are all people that are very smart very hard-working very passionate probably doing 80 90 80 to 90 hours a week and I was sitting there looking around I was afraid and I thought oh god I'm probably the dumbest guy in this room so why would I even have a chance against all those people and it's a question that literally kept me awake for a few days and then I found it well so for those people who are listening on youtube or watching on youtube you see the charlie munger poster uh on the right back of me um checklists i think that's so important and you can give stupid examples you have a beautiful book called the checklist manifesto which proves that for example someone was doing a surgery when he does a checklist like did you wash your hands Did you not forget the scissors in the patients?

21:17Those stupid checks, stupid questions. Well, they decreased the number of faults in surgeries with 80 to 90%. The same with pilots. And I think it's exactly the same in investing. So investors are way less rational than we actually think. We make plenty of emotional mistakes. We start to panic when a stock goes down. you start to get a fork when a stock goes up and the other and the other way around. So what you try to do is to go and combine different criteria that are quantitative, that are objective, that are rational, that have proven that they can beat the market over time, or that at least in the long term, on average, they do better in the market.

22:04And by combining them while you're actually going to buy or create your watch list and based on that watch list you are going to create your your portfolio so in other words it's a very systematic approach that you are using just to oblige yourself to try and stay as rational as possible we already briefly touched upon some examples like harvard business review founder-led businesses are performed by 3.9 percent per year on average well you have companies with a moat outperformed by three to four percent per year on average and you're combining all those criteria and in total you go over eight criteria and you put them into a stock screener and that's the beautiful thing about the world we live in today it's really easy to find great stocks via stock screener nowadays and based on that well you build your watch list so if we do those criteria for tiny titans right now and for tiny titans i would say well we want companies with a market cap below three billion if we do it there well you will see that that so far our at least for me personally you've identified 94 companies that tick all the boxes so what are all the boxes skin in the game a healthy balance sheet You want a moat or a competitive advantage, a low capital intensity, the less capital you need to better, great capital allocation.

23:30We also already talked about that in the long term, stock prices follow the evolution of the intrinsic value, which is determined by the EPS growth and the 3K slope per share growth. So you also want attractive historical growth, attractive outlook so that they can keep going well. Then we've had seven criteria. And then obviously those are our quality statistics. So those companies are sometimes expensive. Then it's the arts or the crafts to try and buy them at at least reasonable valuation levels. So you're combining all those different criteria to try and find amazing companies. And based on that watch list, I would be quite comfortable to state that if you would do an equal weight ETF, for example, but those 94 companies that in the long term on average you would tend to do quite well um that those kind this watch list would outperform the market but then you take the next step obviously and based on that watch list you are going to try and do your own work and look for the most attractive ones to be bought for the portfolio so that's a bit uh yeah very quantitative approach to try and find companies that might fit the boat for Tiny Titles.

24:46Yeah, well, it's just a filter system on top of a filter system on top of a filter system, if that makes sense. So you start off with whatever there is, 60 ,000 publicly available companies in the world, and you want to whittle that down as low as possible to a list. And then once you get that list, that's kind of when the work starts. Isn't that true? where in the sense of, okay, well, this company has all these characteristics, but wait a minute, it's selling, I don't know, sand in the desert. And I don't like the sound of that. So I'm not going to, that's a no for me. But I wonder with screening process, especially with checklists that are quite built out and that have all your values kind of built in in some way.

25:33Do you feel that that can be overly restricting sometimes? Because obviously there's amazing businesses that don't fit every criteria. Or is it just a trade-off of I'm happy to miss some to exclude the rest? It's a very fair question. And as you mentioned, there are more or less 60 ,000 listed stocks. And the beautiful thing is you can have three piles, right? You can have a yes pile. I want to invest in those companies. no pile and a too hard pile or I don't know the third pile and if you use those very strict criteria so the criteria we use it's out of the 60 ,000 companies only 94 remain so you are filtering out 99 % of all listed companies and then a very common question is yeah but aren't you throwing away a lot of good companies in that case as well and I think the honest answer is yes you are throwing out a lot of companies that would have done tremendously well on the stock market but for me personally i don't really care as long as the companies that remain that they are beautiful companies you have a book for what works on uh what i learned about investing from from pulak prasad who said you can make two mistakes two types of errors as investor type one mistake type two mistake the type one mistake is that you buy a stock that you shouldn't have bought and type two mistake is that you didn't buy a company that you should have bought and it's as long as the companies that you're main in your watch lists it's no issue that you throw away a lot of good companies in my case because the major mistakes and the major reason why most investors underperform the market are more behavioral mistakes and behavioral mistakes emotional mistakes and by using this checklist by being rational um yeah you try to minimize them as much as possible and it's also really important i think to to understand that there's no golden truth in a checklist or in the stock screener no um but silver bullets if you get a bit more experience is also really interesting to start playing around with those stock screens because for example maybe if you don't screen for i want an eps and earnings per share growth of at least 10 over the past five years you take a free cash flow per share growth of 10 and then maybe some companies that didn't make the screener first make it in the second screener with the free cash flow or the other way around you can use return on invested capital but also return on equity and to play around with those kind of things that's really important plus for example we i briefly talked about eps versus free cash flow when a company is for example and that's the golden goose for for tiny titan investors for quality investors if a company is still investing everything in future growth well then the free cash flow will be really low it will be lower than what the economic reality is because it's using all the money to fund the growth of tomorrow and that's actually a really good thing but then maybe it won't make your your screener you have a company like Dino Polska for example who's still investing heavily in itself yeah expanding from the west of Poland to the east of Poland well that's the best thing that can happen to you and that's maybe also an important rule for investors while the best thing that can happen to you is to have a company that has a high that is a great capital allocation get a great capital allocator apologies with a high return invested capital that can still reinvest everything in future growth because then well you have the compounding effect the magic of compound interest within the business and the earnings per share and the free cash flow per share over time will grow tremendously and it's also the same with with 100 beggars so i know my wall street has had chris mayer on the podcast a few times already he wrote an excellent book how to find 100 beggars well if you look at the characteristics or of 100 beggars often they are still very small that's the first point the second point is they can still reinvest heavily in itself to yeah grow a tremendous rate and tremendous rates in the future and a third point is well they are also often still trading at cheap valuation levels so what happens there is you have a very small company they are growing very attractively the company is growing and growing and growing the market cap also goes up but maybe because of the market cap goes up it also starts to catch the eye of professional investors and it gets large enough for professional investors to to be bought and when that happens well it creates some extra momentum the the valuation goes up as well and that's how you can yeah generate exceptional returns as an investor if for example yeah a company can grow its earnings per share 3x over the next 10 years and evaluation remains constant well then you have a 300 return right but if the valuation yeah increases from a pe from 10 to 30 for example and they still grow their eps by by threefold well then your return is 9x you made a 900 return and that's how you get the compound interest effect also when trying to look for those tiny titles absolutely and i have this question it's probably based on personal um experience because we've obviously we've had our nexus and our nexus 2 products which follow in a similar sense of uh you mentioned chris mayer and we kind of tried to try to distill chris mayer's book into a certain number of criteria And that was kind of our formula for calculating our Nexus scores.

31:29But we also were happy enough to do the odd exception to the rule as well. So two perfect examples we said were Constellation Software spinoffs for Nexus and Nexus 2. And they were two of the best performers in each service. And they didn't meet a lot of the criteria. But we were like, well, I'm willing to make an exception to the rule because of everything else. because of the history, the track record of the company before it, and Constellation Software, maybe one of the best stocks of all time. Because of the known strategy there, the business model we know works, and also spinoffs do well, you know, as well.

32:11So there was a big mix there of, okay, well, this is worth going beyond, say, what would come up on a checklist. Have you thought about that with Tiny Titans? Or, again, it's just you're filtering from too large a field that we would be happy to leave some businesses far by the wayside. Yeah, sure. So you're talking about Topikers and Lumine Group, correct? Exactly. Perfect, perfect. It's not surprising, actually, you know this, but yeah. Yeah, so Topikers is also companies in my portfolio. And I think you make a very fair point. So my take on this, and it's the same with diversification, the more experienced you are, the more you can say, okay, these are my criteria, but for this company, I will, well, make an exception and actually buy it.

32:57And to be honest, I also make exceptions. So Tiny Titans is launching this week. I think when this episode comes out, it launched two days ago. And the portfolio is still in the build-up phase. But for compounding quality, for example, I also have companies that don't fit the quantitative criteria, but which I still bought, like Kelly Partners Group, for example, which is a serial acquirer in accounting software. They're up 160 % over the past, yeah. two years, I think. But then, indeed, those are the companies that a stock screener won't find. And you need to dig into the companies yourself. And maybe, for example, for me, I always want to return on invested capital to be higher than 15%.

33:38But maybe for some reason, for some exceptions, and I think MedPace is a great example of that. Well, MedPace has a, yeah, somewhat a lower return on invested capital but it's because 10 years ago or a bit longer already in 2012 they were acquired by a private equity firm and as a result 50 of their balance sheet is goodwill and if you exclude the goodwill well the return on invested capital it doubles because half is goodwill but it's just for one from one acquisition back then and it isn't the structural thing for med base so in that case for example well it makes a lot of sense to probably yeah make an exception take that into account and actually buy the company for your portfolio but then that's not something you can do for 60 000 companies for example so i think using this checklist using the stock screener is great to um yeah to start and to create your your pawns to vision as an investor but you need to keep reading, keep evolving, keep looking for new companies.

34:43And one thing maybe to elaborate on this, and I think this is really important for starting investors, you and the audience will obviously know Joel Greenblatt with the magic formula and also maybe a bit less well-known, but still famous, I think, James O'Sharknessy with the book What Works on Wall Street. Well, what Joel Greenblatt said is, well, the magic formula, where that's also a quantitative methods to screen and pick stocks he said well the magic formula it works really well but where the most mistakes are made is when the magic formula you just run the screen and it says okay those are the 25 companies you need to buy and then investors see the list and they think oh i'm not going to buy that company because i don't believe in the future prospects of that industry are they go down in order so they only buy the first 10 because they're the first ones that came Yeah, exactly.

35:37Exactly. But that's actually the point. But what he said and what he has proven is, well, the magic formula still works. But investors don't succeed because, for example, if the formula says you need to buy those 25 companies, they say, oh, I'm going to exclude this one and that one because I don't believe in the industry. I don't believe in the CEO. And those are often exactly the ones that create all the outperformance. So with a quantitative model, they have proven to work, but as a human being, it's very difficult to stick to it because you want to do your own thing. And one other example there is James O'Sharknessy.

36:18He has written the book What Works on Wall Street. And he backtested. It's funny because actually my laptop is sitting or standing under the book What Works on Wall Street from James O'Sharknessy. just just for your reference that's funny i actually have to check which mine is on no i think okay it's it's a tourism book called the bass country so we're not the same there i'm afraid next time we sit together it needs to be an investment book uh yeah i know i i'm not covering myself in glory but but anyway yeah he he said well over the past 100 years i found a strategy trending value that's tremendously well average return of 22 per year i'm going to build the fund built on that strategy so we did that it's pure quant pure quantitatively pure with computers and so on and you can already hear me well first year of the fund it wasn't doing well second year of the fund also underperforming the markets clients start to do to become a bit upset and so on third year performance wasn't good as well so james or shocknessy couldn't yeah get it anymore, couldn't handle the emotional aspects.

37:29So Annelse bought over his funds, didn't change anything about the strategy because James O'Sharknessy did all the work, 100 years of data, it worked. So the guy bought a fund, kept doing exactly the same. And from that point in time, well, the strategy started performing really well. In other words, yeah, don't, it's really hard, even for James O'Sharknessy, who worked years and had hundreds of years of data about a strategy, even he couldn't stick to to his own strategy so i think that's also a very important one to yeah understand that it's not easy to to purely follow a stock screen and that's also why with tiny titans you first bolt the watch list of 94 companies but then you are going to do your own homework and pick the 30 companies more or less that why you think that have they have the most upside potential yeah yeah three years as a data point mightn't be that long a time but three years emotionally his eternity.

38:27So I can feel the pain there. Right, Peter, we're going to let you go, but I can't let you finish this podcast without giving us and our listeners some examples of Tiny Titans. It doesn't have to be, you don't have to give away the whole shop here, but just a couple of tickers and then why they fall into that category. Yeah, sure. So one company we discussed in Dublin at the Investical event is Chapters Group. It's a company I'm really enthusiastic about. well what is chapters groups in one sentence really short well it's a company that tries to copy paste constellation software in Europe so it's also active in VMS software vertical market software just like constellation a lot the interesting thing a lot of people in the team of chapters group today well they actually used to work for constellation so the company is literally playing or copy pasting the the playbook there they have high quality shareholders so Jan Moore was the CEO owns almost 8 % of the business the founder of Danaher has a stake William Thorndike from the book the outsider outsiders is also invested in the company you have Daniel Eck from Spotify also a significant stake in the business so in other words yeah the the quality of the shareholders is really high.

39:51It's an interesting business model. And I have a friend in Belgium who also was looking at Chapters Group and we were discussing it a few months ago. And he said, well, I also think everything looks good at the company. The fundamentals look good. The CEO looks good and so on and so on. There's one thing I don't really get is, is the CEO the real deal? Is he walking the talk or not? And we didn't know. So what we did is in the beginning of July this year, we went to Hamburg, which is a more or less eight hour drive one way for us to attend the Capital Markets Day and the annual general meeting.

40:27And it was really interesting, especially when I was still in asset management. I did a lot of Capital Markets Day, but I never became so enthusiastic about a company as Chapters Group. so in in general or in short I would say from my side as long as nothing happens with the Amor as long as she keeps doing what he's doing right now at Chapters Group investors will be will be fine and the company will keep doing well one side note to make for chapter group is that the valuation is not cheap it's not cheap at all at this point in time but yeah the flywheel is still going it's still a small company so they have a lot of upside potential so to give you some insight I think the the EPS the earnings per share is expected to 4x 5x by 2032 so growing really really hard and hopefully this will remain the case so this is a company where I believe okay they actually have the potential to do something similar as constellation software they have quality shareholders they have plenty of room for growth so those are the companies of tiny titles that you get really excited about that's that's the third time chapters group has been mentioned on this podcast in 2025 would you believe which is a good thing um yeah i talked about it i wrote it up for charging and fearless at the start of the year and then we talked about we did a investicon recap where we were highlighting our favorite stocks i mentioned it there and now you're coming around to talk about it again so that's great a hat trick for chapters group okay peter it's an absolute pleasure to have you on tell people that where they can find tiny titans if they want to learn more yeah sure it's a hard thing to find right now because it will be something exclusive so the goal and by the way very short that's something i didn't talk about yet or we didn't touch upon tiny titans will be something exclusive because i noticed with compounding quality that we start to influence stock prices so for example when i wrote something about chapters group initially and i didn't buy it yet it went up eight percent that day that day so that's something you absolutely want to avoid so it will be something exclusive so the doors will or it will only be possible to to subscribe over the next four days probably for for people listening um to this and And it will be at tinytitancexclusive.net.

42:55So if you go to the website there and go to the about page, there you will find all the information you need. And yeah, I think this is the most essential thing. So I truly appreciate it. And hopefully we can find some companies that can go from tiny to Titan over time. And maybe, hopefully, 5x, 10x. If you can have one or two companies, if you can have one company in your investment life, for example, it can go 50x well that's the only thing you will need as an investor and all the other investments can be horrible if you have one amazon in your portfolio for example well you forget about all the rest so that's the lovely thing about compounding the lovely thing about letting you win this run that's the goal that's why we're all here all right peter it's an absolute pleasure uh thank you for joining us and thank you everyone for listening and if you are listening and you're not subscribing, please change that right now.