#279: Chris Mayer’s 100X International Stocks

0:00But the underlying free cash flow is good. And I think the return on capital there, yeah, it's going to be something in the name of 25%. Oh my goodness. Sure. That's what we want. That's the sweet spot.

0:18How are we doing folks? We are not here in Ireland. Me and Emmett are off away on holidays, not together. That would be very strange. so instead of a podcast that's up to date I suppose this week we are giving you what was once an exclusive interview with Chris Mayer for our Nexus subscribers so Chris Mayer is the author of 100 Baggers and Where to Find Them he's been on the podcast a few times I think this might be his third time now and he's one of the great stock pickers of our time his book 100 Baggers and Where to Find Them is kind of a seminal piece on what we're doing here in terms of stock picking and finding those life-changing investments.

0:58So I think this interview will be really beneficial. It is dated. So this was first published in November of 2023. So any facts and figures, take that into account when you're listening. But all the stuff he's saying, all his kind of ethos around stocks, the companies he mentioned, they all kind of feed into this thinking of finding those life-changing stocks. And I think it's going to be really beneficial, even if it is a bit dated in terms of the actual content. So hopefully enjoy, and we'll be back to normal programming next week. Chris Mayer, author of 100 Baggers, Stocks That Return 100 to 1 and Where to Find Them, or rather How to Find Them.

1:41Welcome back. Chris, I have a very practical question to ask you, and it concerns brokerages, every broker of which there are thousands has their own angle and um i wondered how do you access a stock for example in sweden that you see and you identify as one you want to hold in your folio can you talk to me about brokerage solutions or even the solution you use for accessing businesses yeah i mean i can tell you you know what i use i use interactive brokers and i'm able to access swedish market no problem and really every market in europe i haven't had any problem with anything that i've wanted to buy there and also uh interactive brokers is you know very cheap and competitive on commissions and all so that's what that's what i use great uh that was such a simple answer you know i thought you'd say well when i'm buying shares in in australasia i have a brokerage over here no i do i mean i do have a swedish broker that i uh use but only in like very special special circumstances where i'm buying a block from somebody but for you know otherwise um retail trade things on the exchange no problem yeah well chris you are uh one of the handful of people who've dedicated a portion of their life and intellect to identifying the attributes of a stock that's going to have mega growth and we know 100 like 100 fold growth is really just an eye-catching return but if a company grows 10 fold 20 fold 50 fold look everybody is happy so what i'd like to ask you is can you name two businesses that you believe have the attributes you look for uh in multi-fold growth that you own and that you think will be multi-baggers and hopefully someday 100 baggers yeah i mean my my holdings are fairly public on you know on twitter i think everyone's always figured out my portfolio and i write about things on blog and whatnot so um yeah i wouldn't put the 100 bagger expectation on anybody so um certainly these are not it's not saying these will be 100 baggers but i think I think, again, based on what we talked about, the underlying compounding, high rates of compounding and the ability to do it for a long time.

4:11There's a couple that I like. I mean, the two most recent, that's not a lot of turnover in my portfolio. So the most recent one was Lumine Group, which was a spinoff from Constellation Software this year. That's the latest addition to my portfolio. And I don't know if you're familiar with Constellation. I know you are Emmett, but maybe our listeners aren't necessarily, but Constellation Software has been a long-term big winner in the stock market. It's what's called vertical market software. So software that's focused on some industry niche. So as opposed to horizontal market. So horizontal market software, you could think of say like, I don't know, say like Excel spreadsheet.

4:55You know, it's just, it's going to be used, but anybody can use it in any different industry is not particularly tailored for a specific tax. But if you were running, say, a golf course, or, you know, an auto dealership, there would be a specific software solution you would use for that business. And that's vertical market software. And so that's what Lumine, and that's what Constellation does. And Lumine was spun out of Constellation. And what Lumine focuses on is a particular industry vertical, which is anything to do with media and communication. So they've got some interesting businesses underneath that really, you know, they provide software to tv radio stations and all kinds of other things and they're basically following that constellation playbook so there'll be acquisitions high returns software business high returns a lot of reinvestment so i'm excited about that one seems like it has a very very very long runway and a good team and i i stuck it into our tool here that we've built nexus to see what scored gets and it wouldn't stand out with a simple number as elite because its return on equity is just not growing gangbusters yet and it's a perfect example of why you really have to get under the hood and no number will tell you it's a constellation spin-off that's a human intellect observation um are do any of does does does the roe concern you or do you believe they're going to right that ship as the business gets more efficient yeah i mean it's part of this the way they do the spin-off there's uh some complicated preferreds that are involved and then they convert at the end of the year so it's kind of the same thing as as if you look at topicus which is a constellation spin-off before this it's they had the same effect so the first year is a mess is the accounting treatment of those of convertibles but um next year or at least the year after that financial will start to be cleaner and then people will be able to see it so right now it takes a little work you have to um okay the underlying free cash flow is good and i think the return you know return on capital there yeah it's going to be something in the neighborhood of 25 percent oh my goodness sure that's what we want that's the sweet spot um insider ownership is a little on the low side i noticed so are the managers and the owners were they formerly in constellation software yeah yeah and constellation software and the mothership is uh is going to own a lot and when the pervert when the convertible is preferred you know you're going to have that insider ownership and and also constellation software has probably well has the best i think compensation program I've seen you know it's focused on ROIC and growth and that's the way Lumine Group will also be compensated and the executives at Lumine Group when they get their bonus portion of it they use to purchase stock in the open market same as consolation so you have really good alignment that way your management team is going to be buying shares in the open market with their bonuses and invested right alongside with you there's no gifts no that's great absolutely wonderful and then uh so effectively it's a it's a topicus kind of twin yeah topicus is different because topicus is a is a european constellation it's focused it can go anywhere any industry and so there's a lot of different businesses there that's really like the constellation kind of a mini constellation in europe and lumine is different because it's confined to one vertical So this median communication is sort of vertical, as opposed to, you know, I can see them do, you know, something in trucking or medicine or something like that.

8:44Yeah. You mentioned in your book, Chris, that you just need good filters. And we've seen, I mean, we've the best of data now in My Wall Street has been upgraded, upgraded quite a lot in recent times. But we still see discrepancies from various information sources. I'm sure you've seen it too you could go to like most people jump on Yahoo Finance and we have a fact set data feed and then we'll jump on to the other websites and we have a high belief with an incredible smaller business called stratosphere.io who seem to have everything bang up to date for every company out there I use that as well oh interesting oh very interesting so which source like when you see a discrepancy what do you do?

9:30do you go and figure it out yourself? Yeah, I would go and figure it out myself. Yep, I would go. But I will say, like, with filters, you know, you're going to miss a lot of things. So, like, Lumine, to be honest, I would never come up on my radar if I didn't own Constellation. I would just never, because of the things you mentioned, it's not a clear, it's not something that comes up cleanly on your screen. So that's one thing that makes it interesting, too. um but otherwise uh yeah my filter would probably miss that and that's okay i guess that's the point i wanted to make is you don't have to feel like your filter has got to capture everything and um you're going to miss some things and that's okay as long as you've got a good enough population to work with uh i think your filter is good and you don't want too much that's the point of the filter there's thousands of securities and we have to find a way to yeah at least get down it's Yeah, exactly.

10:23I think you answered this already, but when you look at filters, you know, there's almost no business that ticks all the boxes and there's absolutely no business with no risk. So when we look at businesses that are small, have a peg that's less than one, has accelerating revenue and improving return on equity and a competitive advantage in a growing industry. it's a long list of complex things for a business to go green light green light green light which of those parameters or indeed which parameters are you most happy to relax is it market cap um and after market cap which one would you be happy to um let's say you wouldn't give it yeah great question because i've thought about that a lot uh so one thing i'm very reluctant to relax but number one yeah market cap would be one so uh yeah i would you know let's say 20 billion dollars or something like that i i would probably that would be the one where i had to check everything else like you say that would be one that i would relax yeah but otherwise i would be very reluctant to give up on for me it's like the you know i look for insider ownership and that alignment that's that's key uh the balance sheet risk those are things i never i would never compromise on.

11:40And some of the other stuff is a little bit of a sliding scale. So we talked about you know like high returns on capital but there are trade-offs there too. So for example, I've owned Brown and Brown since the inception of my fund. In January 2019 I bought my first shares around 25 bucks. It's like$73 a share now. So it's you know doing well. but it's got the lowest returns of capital in the portfolio. But there's trade-offs there because otherwise, it's also such a low risk, kind of low drama, steady as she goes sort of name. And so I like having it in the portfolio and it's such a resilient sort of business.

12:28So some of these times, you're making a little bit of trade. There might be qualitative trade-offs. So there might be, to take it the other way, there might be a company that has really lights out numbers, like super high returns on capital, really good growth. But I can't really get so comfortable that the competitive advantage is real. I know, for example, I looked at a bunch of payment companies and I could never get comfortable because there are just so many competitors. There's so many different, you know, I just felt I couldn't really get a handle on it. So I don't have any exposure to that space.

13:01That's a very good point. Yeah, there's over in the UK and in Ireland, there are different regulations on startup investing when compared to the US where you need to have a, what is it, a Reg D entity or something like that. You need to be approved by the SEC to do a raise from the public. And my point is that I keep an eye on small companies that are in build and are doing crowdfunding raises. and honestly last year i must have seen 12 13 14 that were in the payment tech space and you just don't know it's and they they kind of say the same thing they kind of do the same thing they're differentiated on what i regard as small points but it is a very very crowded market and and really if you're not already so ad yen yes a year ago or so was the monster everybody loved and now you're starting to see you know competitive pressures so they're margin is coming in and you know so you you got to be careful about that and the advantage i spent a lot of time on that a lot of time and every time i looking at a business uh i spent a lot of time on that competitive position and whether or not i think they can sustain those kind of returns um i'm sure you saw the paper by bcg and morgan stanley published about a year ago anything in the past that isn't last month i say about a year ago but it was a bcg paper and morgan stanley where they did a 20-year study on what single factor is the greatest determined of share price appreciation and the net bottom line was sales growth revenue growth so that's there that we put let's put that in box a revenue growth and they say by association ultimately that means it's net profit growth but just year on year you see sales growth in the other corner We also have, let's say, I don't want to call it a competing number because really it's a complementary number, but let's just say it's a competitor for now, which is return on equity.

15:00If you could only look at one of those two numbers, which would you choose? In other words, which in your mind carries the greater importance? Right.

15:18Well, you see, if I was like looking at a 10 year number or something like that, and I could see looking back. Yeah, that's a tough one. That's a tough one. I mean, I, I guess I might see the problem with ROE is it does have some definitely I know there's some companies that have pretty good ROEs, but they're leveraged, I wouldn't be interested in them or their financials. You know, that's the main thing. A lot of financials will show pretty good ROEs, but they're businesses I'm not interested in. And then there's a lot of accounting things that can make ROE look good. But with revenue, it's kind of hard to fake it.

15:56I mean, you either have the sales or you don't. So I think I might lean revenue growth. I think you might get a better list that way. And then if I have this population of companies that have grown revenues by whatever it is, 20 % a year for 10 years, I bet that's a better list. than if I took a list of companies with 20%, 25 % ROEs for 10 years. I think I might get a better list, but I don't know. That's a tough call, I think. It is a tough call. And like you, I look in the rear view mirror and how everything is trended out. And with Stratosphere, for example, they do some lovely graphs where you can just see revenue growing year on year, and then you throw ROE on top and it's a wavy line.

16:37Exactly. exactly or we is it sways a little more in the wind but you can see quality jump off the page um like for example wise the uk um international money transfer agent now within five minutes of dissing payment tech companies i'm about to say i think wise has something special at powers b2b and b2c for money transfer but it's sales growth it is just unbelievable or rather it's revenue growth and then when you look at its roe on top it's just growing and growing but for me i i'm i i have we have built in nexus we've put a slight or higher weight on revenue growth and i was keen to hear what you had to say about that yeah so i think that's probably right i think that's where i would lean it and of course you always come up with ones i mean i i think of co-part as being one of those where it's just like a super clean you know on roe it's not really so wavy consistent this just bangs out the number every year so you can run into those but i think that's right and probably slightly weight the revenue growth uh last time we spoke you you uh mentioned a pal of yours or let's say a business associate almost friend uh chuck acray who who when I spoke to about 10 years ago said just buy American Tower and don't sell it and did I yeah he does actually and I'm sure it's served him well um so I know you speak to Chuck on Charles on occasion uh regularly perhaps what businesses do you both admire at this time or better still is there a business that you both I mean I don't uh well I don't want to overstate my familiarity with Chuck Opera I don't want people to think like I'm sitting here chatting I was on the phone about ideas all the time.

18:24That's not the case. No, no, I got it. Well, he's a, yeah, we have to find the right, he's a friendly associate who'd know you in a crowd. He would, yes, he would. That's fair to say. Well, I mean, I think, I mean, he owns a big position in Constellation and he owns Topicus. I think Chakre is one of the largest shareholders in Topicus. So I own a good slug of Topicus. I think he's the second biggest shareholder in Topicus. So that's definitely one we both admire and we both own it.

19:00Yeah, so that's definitely fair to say. So you mentioned to me recently a company that I was hoping you might talk to me about, and then we'll let you off the hook, and it's Technion, which was also produced on our list of 10, our first cut of 10 from Nexus. And I really would appreciate if you are familiar with the business. Yeah. I mean, again, this is another one pretty public that I own it. I mean, they recently raised capital and I was among the handful of investors there that participated in that. So that's out there. Yeah, I own it. I bought shares almost a year ago. And, you know, we talked about Sweden before.

19:44Yeah. And I love that Technion is what you would call what people call Swedish serial acquirer. So it's a business that's where it's built to acquire other businesses as part of its plan to grow. And there are some longstanding, very successful models of this in Sweden. You know, there's Lyft Pro, there's Lagercrons, there's Indutrade, there's Bergman and Breving sort of spun out these companies. There's AdTech is another one. So I was over there in Sweden for a conference and I met the Technion guys were there. So this is one where it's just random chance. I happened to see CEO Yuan present and I liked what he had to say and dug more into it.

20:35And I've spoken some time with Daniel, who is the head of acquisitions there. and I think yeah so Technion they have I think about 25 businesses now different businesses and small but I love the culture there I think both those guys have a they're out there publicly if you google them or put it on YouTube there's some good interviews and things that they've given and talks about Technion but you'll get a sense of their culture and how they think about So think about these things. They're very in line with what we're talking about, this long-term focus is appreciation for compounding. So yeah, I really like that one.

21:19Again, I own a couple of different Swedish serial choirs and it's a space that I'm definitely interested in and watch. We're just in, as you and I are recording, we and my Wall Street are in the final stages of tightening insofar as you can the scoring mechanism and we're tweaking it. but right now it is in our top five and it has like a five-year revenue growth that's trending up it has five-year return on equity it's gone trended up four out of five years and as we said it's like a leaf in the wind um it has return on equity currently think 25 26 percent uh it's a wonderful business and what i get excited about is you telling me has a great culture because that is never going to be a number i can be measured i guess and whether it's a trust pilot or a glass door would be but really there's something about culture that you need to see it and feel it and um that is really encouraging for me personally as an investor to hear the technian so you're a long-term uh you plan to be a long-term holder of technian and lumine and here's an awkward question for you and then i'm going to let you go if you could only hold one in your coffee can for the next 20 years would you choose luma or technium

22:42sure yeah i i if i can only choose one of those yeah i think uh i i like technium i'd go with that one now you know uh again i'm in for the long term so if this you know the stock's up or down a year from now it's not gonna not gonna bother me so um oh yeah uh i'm thinking of this as you know 10 years out we'll talk about what it's what it's done oh we'll have you in 10 years yeah we'll look back we can play clips of us talking 10 years before and see how those ideas planned out but i should own both over that i don't i don't see why i would ever sell no i get it i get it yeah so i should i should definitely have both we'll see it's an unfair question because has really quality, you just don't know which of your winners will keep winning.

23:28And very often the one that you think it's ranked 20. Exactly. That's one of the reasons why nowadays I keep a portfolio when I start, when I started the portfolio to build it, I keep them kind of close and wait. I don't do this thing where people like to put 20 % in their favorite name and then 3%, a couple of 3 % positions. The problem with that, and it's happened to me so many times that I've changed, is that the 3 % position winds up doubling and the one that you really love you know, is the one that underperforms. So it's very hard to know which one of your babies and which one of your darlings is going to be the best.

24:02So that's why you have a portfolio and set them off into the world. And entirely here, here, I mean, since I was a kid investor and I only had 200 a month to put into stocks, that's, I got used to having a fixed amount. So I didn't go kind of heavyweight on anything. Chris Mayer, it has been a pleasure. it always is and i look forward to talking to you again if i can ever help you just let me know and in the meantime here's to 2024 here we go emmett yep thank you very much