MI295: From Numbers to Riches: Return On Equity’s Impact on Investments w/ Jason Donville and Jesse Gamble

25:59It's not that different from EBITDA. So let's just say it has a 20 % EBITDA margin, and it's growing by its revenues by 20%. Those combined pieces come up to 40%. With a lot of companies, that rule of 40 number is not too far away from where their ROE is. And so if you have a low margin company that's low growth, even though it's on five times PA, it could be a value trap, right? Equally, if you have a high ROE company, and this is not one in the portfolio, but it's an example that everybody can look at, which is Apple. Apple has super high margins, but not a lot of growth right now, but it has like a 50 % margin.

26:31So they're growing to some extent by buying back their stock every year because they're so profitable. That means every dollar that you spend at Apple, 50 % of it goes to profit. That's how big their mode is, right? So those... Now, ideally, what you want is a company that, let's say, has a 30 % profit margin and 20 % growth. But looking at that metric, that rule of 40 metric, where you add together basically the revenue growth rate of the company and the margin as another excellent proxy for looking for a high quality business. And Jason's used Apple as an example. So I pulled it up just to kind of give the listeners an idea of what we're talking about.

27:05Businesses don't necessarily operate their companies off their balance sheet, right? Like financials do. But with Apple, so Apple has 60 billion in equity on the reported balance sheet, and they're going to make 100 billion in earnings. So 167 % ROE. Do they have 167 % ROE? No, they don't, right? But that's what if you just took your textbook calculation would tell you. But what you will have to do is Jason and I, if we were digging into it, we would go and say, what's their real cash margin? What type of leverage factor? So that's where that DuPont analysis comes in. What type of leverage factor?

27:41What type of asset turnover do they have? So like Jason said, they have a really high net margin. So they're going to have a high ROE. Their stocks compounded the last 20 years at like 39%. So that probably gives you in the range of what their ROE has been with some multiple expansion, right? Now, Constellation Software at times has had negative equity on the balance sheet. So how do you calculate an ROE then? It's the same type of idea. You break it down into your parts. So it is a lot more cumbersome than your finance 101 class would kind of tell you it is, but that's kind of how we really kind of delve into it.

28:16So it's more work than just screening for higher-reacombs. Piggybacking on this question, and you kind of answered it already, but so a business like IBM, I looked at, and if you look, like you said, at the textbook definition of ROE, it was high, like 27 % for a decade, but pretty recently. But it had a massive debt load. So the ROE looks super attractive, but when you looked at returns on invested capital and added debt back in, it was bad, mid-single digits. And then when you look at the share price, they basically were destroying shareholder value during this time. Do you guys, when you're doing the ROE, do you guys take into account, you must take into account debt.

28:55So how do you guys compare the ROE versus ROIC numbers? Do you use them interchangeably or how do you guys look at them? I mean, first of all, we don't want to own a company that if you take their annual cash flows that they couldn't pay it all back in four years. So they've got to be four years or less, right? Well, that's the upper limit for us. Typically, we want to own companies that are at two times or less, because that means that they've got the capacity to do big acquisition, right? But let's say we own a company that's got two years of debt, and then they do a big acquisition, the stock pops, but now it's got four years of debt.

29:28We're likely to, that would be a stock we might take some profits in or something like that, because they're not likely to acquire anything for a while. So if they're a grow-to acquisition company, they're just going to spend the next two or three years paying down that debt before they can really take anything on. Or they're going to do a dilute of financing or something like that, right? So we look at that balance sheet level all the time. As well, when we look at a company that has a high ROE, but maybe it's not reflected in certain other metrics, one of the first things we'll say is, oh, the only reason their ROE is high is they're leveraged up the wazoo, but they're not actually running a great business.

29:59So we're adjusting for that. But let's say a company just sort of comes to my attention that I've never looked at before. One of the first things that I'll look at is pull up the 10-year share price chart. This business, as it appears to me right now, it should be reflected in a chart that is showing the company performing over time. And if that company has been going sideways or whatever, then the first question I have to ask myself is, did it suddenly get changed? Is there somebody improving it? Like, is there something new going on here? Or what explains why, if these numbers are putting up numbers like this, what explains why this stock hasn't gone anywhere?

30:28And sometimes it's a phenomenon like good year, bad year, good year, bad year, good year, bad year phenomena. enough. Sometimes it's a change. We've seen some pretty interesting turnarounds in companies where they change management or they reposition themselves. Sometimes in the SaaS area, it's a company converting over from the old system of purchasing software to subscription models. And they often will have an 18-month period where their numbers will kind of make it look like they're not doing too well. And in fact, it's just the trick, the conversion. And often, if you can get in late in that conversion, you can actually do really, really well.

30:56I'm interested in knowing how you use ROE just with upcoming businesses that aren't aren't yet optimized for profitability. So are you using an adjusted number? I guess you mentioned using EBITDA. And how's this adjusted number been a good measure for you guys for future value creation? I think so for a company that's kind of just coming like looks, but we think it's going to be a higher ROI company, but it's not quite there. We're looking at the trend, right? We're looking at the direction it's moving. So I'll give you an example, a company called Docebo, right? Which a software company, you know, it's kind of headquartered in Canada, but does a lot of their operations in Italy.

31:30this company was unprofitable and now it's trying to move towards breakeven, but it's still on a pretty high multiple. It's probably on 40 or 50 times, right? So this is one that I'm watching where it's like, okay, at some point, this I think is going to become a fairly interesting company. The question is today or is it 12 months or now, but the trend line, they've gone from being quite significant losses to above breakeven now. So that trend line is exactly where you want to go. And if you can catch a company that's going through that re-rating, they can often be real rocket ships. Yeah. I think Jason has said that since kind of the first day I started working here is it goes, what's the only thing better than a higher RE business is a company becoming a higher RE business.

32:06Because then with that, you get the multiple expansion and the new eyeballs and all that along the way, right? Like you're saying, there's margins and there's growth and there's ways to project out what it could be over time. So that's kind of what we're doing. So since you guys like to invest in businesses with such a high RE, this usually means that from a business standpoint, the best use of earnings is to pump it back into the business at the high rates of return. So a business that you guys own, such as Hammond Power Supply, pays a small dividend, whereas a business like Decisive Dividend pays a pretty big dividend.

32:44How do you guys analyze businesses with high ROE but are also distributing profits back to shareholders as dividends? Just from a mathematical standpoint, we have something that's called a sustainable growth rate. You take that ROE, say it's 20%, and we'll use decisive dividend as an example, but they aim to have their payout ratio at like 60%, but I think it's like 42 % right now. Anyways, 20 % ROE, they pay out 42%. So that's a sustainable growth rate of roughly 12%. So that's how we kind of start to do apples to apples. Then you're like, okay, as a shareholder, then you obviously get the yield as well, which is around 6%.

33:23So you're roughly 18 % as a return, which you can compare to an 18 % ROE or an 18 % yield with no growth. It's a way to compare apples to apples. So we have something that internally we call the sustainable growth rate and that's kind of how we calculate it. So then we can compare that growth rate to its earnings and we'll say, well, how much growth are we getting per unit of value? Anyway, so that's kind of like the technical way we do it. Jason, you kind of have an idea? Yeah. Essentially what Jesse's saying is we can convert a dividend paying stock, convert its ROE. There's a formula, and we didn't invent the formula.

34:04I get sure it's in the textbooks. So you can say, okay, this 20 % ROE company, given its dividend is actually a 17 % ROE company. We're typically trying to find 20 % ROE companies, but we'll take something a little bit lower than that if we like the valuation and all that kind of thing. Can you guys talk a little bit about Hammond Power Supply? I'd love to know what is it about that business that you guys like so much? Yeah. So it's a new name. It's not a massive name for us and we'll get to what they do. But what I'll start with is we don't invest in like a theme necessarily, right? The investment was found in the true margins and growth and valuation.

34:43that's where we always start is with the numbers the numbers led us to this company net margins have doubled over the past couple of years and continue to grow and growth has accelerated so you look at a company like jason said we'll pull up the stock price chart why has it been doing well recently and not in the past like well because margins are doubling and growth is accelerating right okay well what's that play there so ham and power is the leading manufacturer of transformers and why. And okay, that's great for infrastructure. But the idea that almost every single city in the entire world needs to upgrade its infrastructure if they want to hit their EV or heating goals, because if we hit the goals now with the way the infrastructure is, the grid can't handle it.

35:31I have a couple, I'm just pulling up my email of a couple of studies, but there was a study in Palo Alto, that more than 95 % of residential transformers will be overloaded if the city hits at 20, 30 electrical targets. So pretty much all of the grids will get overloaded if they hit the targets that they're trying to push for. And then there's another one where most electrical grids, the clusters themselves are designed to be cooled at night because that's when electrical demand is less. But if we hit our EV targets, that's when everyone's charging their EVs. the idea that a level two charger used to be used to last 30 to 40 years because it kind of went through that cycle but they're predicting that it'll last three years if it if it has to hit this kind of like 100 like always on always working type of model right so that's the reason so when jason was mentioning before of like well what's changed that's one of their fastest growing segments is on like kind of like the ev renewable side but then it's just the grid in general right It's air conditioning.

36:34It's these buildings. It's growth in population. It's the need for these transformers where you can stand back and you go, okay, it makes sense that growth is accelerating and margins are improving and the stock still looks extremely cheap for its size. So that's kind of the Hammond Power investment in kind of a nutshell. They are expanding capacity at two sites. So when you ask about growth, you have to be able to make these transformers at scale. And with their expansion that's undergoing, they should be able to grow revenue over 50 % with those two expansions. So we think it's a good growth, good margin, good return, and still looks fairly cheap to us.

37:10Excellent. And what about, can you give me your nutshell for decisive dividend as well? Sure. Jason, do you want to take that one? I mean, it's a pretty straightforward manufacturing company. The people that run it have a good background, both in acquiring companies and also in running companies. And really, it is an arbitrage, I guess, between the fact that you can buy small industrial companies that manufacture things like heating supply stuff or fireplaces or whatever, bundle those companies together, pay out a dividend, and the market will pay you a good rate. Shotcut has been great. I'm not suggesting in any way this is a constellation of software, but as they acquire more businesses, their dependency on any single business diminishes over time.

37:49So it becomes more of a diversified basket of manufacturing companies that have good cash flows and it creates a lot of value. The payout ratio is reasonable right now. So even if there's a little bit of a whoops, they should be able to kind of get through from a dividend payout point of view. We like it. We met with management twice in the last three or four months. It's early days still, but the stock's performing quite well. And like I said, very, very, very attractive dividend. Let's take a quick break and hear from today's sponsors. Hey, it's Sean O'Malley, just popping in with a quick message.

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41:31That's theinvestorspodcast.com slash tip-finance. All right, back to the show. So you've mentioned in a previous interview a couple of years ago that you shifted your strategy from looking mostly at profitable businesses to more tech type businesses that are maybe sacrificing a little bit of profitability now to improve relationships with potential customers. Just wondering what brought this strategy change on? I think we're still fairly focused on profitability. It's more like what Jesse talked about before, which is the ROE is on its way to where we want it to go. So let's say I'm using a Dogebo as an example of something we're looking at right now.

42:09But you're getting all these really interesting tech companies like Magnet Forensics, for example, that came out and now it's disappeared because it went private. But you're getting all these interesting tech companies and we had to be just a little bit more flexible because a lot of them were in really, really fast growing places where they were focused on market share and things like that more than they were focused on the bottom line profitability. So we just wanted to give ourselves a bit more of that flexibility. But I still think if you go through the portfolio, we don't own very many stocks that are not profitable.

42:38They just may not quite have the ROE today that we think they're going to have in a year or two. I don't think I would call it a change in strategy because it's still pairing growth profitability valuation. But I think what happened was with SaaS specifically, it's one of the best business models that there ever has been, right? In the sense of how you can scale and how profitable you can be. And then what Jason was getting to is like, literally, there was probably 10 tech names you could count in Canada for years. Blackberry, Constellation, CGI, OpenTest. And then there has been like kind of an explosion of new up and coming, like Jason mentioned, Magnet Forensics, where really interesting new tech names came to the market.

43:22So I was starting to evaluate these new businesses that are new to the market, not new businesses that have been around. And that was kind of, well, your tech weighting's up significantly. Well, it's not necessarily us trying to invest in tech. It's us just trying to invest in the best companies we can find, which happens to be tech because you can have high growth, high margins in tech. So that's kind of been what's happened, but I wouldn't necessarily call that a change in strategy. So I've noticed over the years, your fund has also moved towards investing in business that are coming out of the IPO phase.

43:55What advantages are you seeing in Canadian businesses that are entering public markets this way? Yeah. So I think it just kind of just goes back to what we were just referencing was for years, there just wasn't anything coming to market that kind of fit what we were looking for. and now there is. Real companies, real earnings market. And we did a significant amount of work in one of our past newsletters, but people were like, well, why now? And it's because the business models work now. The cost of being in the cloud, the B and accessibility of the internet, the proliferation of the smartphone, you add all those together and guess what?

44:35You can have real business models in the cloud on phones around the world, right? Where that just wasn't the case. The cost of the cloud was too much or bandwidth wasn't enough. And you kind of got this perfect storm of infrastructure and accessibility all at the same time. So the idea that new business models could work was a real thing. Again, we're very concentrated funds, so we weren't adding a ton of these, but every one or two a year, you're taking a really good look at some new business a couple of times a year. And so just to follow up about the IPOs in Canada versus the US, I don't know how much you guys follow US markets, but it seems like in the US, a lot of these businesses are IPO-ing now way later in their growth stages.

45:17Is there something specific about Canada that is allowing these businesses to IPO earlier? Is there just more need for capital from these businesses? Or what are the differences you see in Canada versus US? The only thing that I see in Canada, because we watch, but the IPO market is like open and closed, open and closed, right? So I think we watch the US tech market fairly closely. And I think Canada and the US have some similarities. But one of the differences in Canada is companies will go public as much smaller companies, right? Like a company is happy to go public with$100 million market cap.

45:47That smaller company in the States really gets orphaned. It's questionable whether you should go publicly that small in the States. Whereas in Canada, you'll get paid attention to. So that's one of the things that I would say is different. But there are tons of like the SPACs and the pre-profitable companies in the States. They had tons of those as well. We have them in Canada, but we don't know a lot about them because we don't spend a lot of time looking at the pre-profitable ones. But we keep them in databases so every quarter that goes by, as they go from being unprofitable to profitable, we go, hey, maybe it's time to revisit company X, Y, Z kind of thing.

46:18And there's definitely a few of those in Canada, tech companies that went public two or three years ago that have been doing actually fine on a revenue business development side, but they're slowly but surely working their way to profitability. And we could come in before they're profitable if we think the trend line is fast and operate. So. I'm interested in knowing, well, out of the companies that you guys have owned during the entirety of the fund, what have you held on to the longest? Does this go to Constellation Software? What other names have you guys held for long periods of time? We've had that for a long time.

46:46Collier's would be another one we've had for a long time. We mentioned earlier, we owned MTY Food, Alimentation, Kushtar, Boyd Group, each for long periods of time. But Constellation would be the winner because we still own it. We owned it since the beginning. Jason, any other ones that come to life? In the past, we've had some that we had for a long time. Halden Labs would be one. I think we had Dollarama for a fairly long time. I think we had First Service for a long time. We still have Collier's. So yeah, those would be the major names. So let's discuss another business that your fund owns, which is Ready Shred, which most people think just does paper shredding, but it clearly do quite a lot more than that.

47:28Can you guys explain why you own this business and what you think its future prospects are like? We found the business, again, years ago, we've been investing in this for a few years, because you could see when you were looking at the income statement that it was actually a good, gross, and profitable business, but they were over-liebered. So we went to them and we said, okay, well, let's help solve your debt issue, which we did. We helped invest into that business, solve their debt issue, and then they've been off to growth phase since then. But why we really like the business is one, the unit economics of running a shredding truck are really good.

48:02So can you scale it? And then the management team in place is phenomenal. So they're on top of all their metrics. And if I were to say, well, what does a shredding company look like? And just to use kind of a number that everyone would know, but they have 30 plus percent EBIT demarc, right? For a shredding company. okay can you scale it and yes the answer is yes they've been scaling extremely well and with scale comes route optimization and the ability to kind of it's called bailing your own paper so you actually can resell for more than you could otherwise and all this kind of comes with scale right what's the market missing the stock trades extremely cheap and it's again it's grown well and it has it has a long runway still in front of it but the idea that people always push back on is paper use, right?

48:48So yes, paper use has been declining for something like 20 years at a gradual pace, right? But what has been happening is the actual amount of paper making it into shredding boxes is increased, it's growing. And what does a shredding company care about? It cares about the paper in the box, it's not necessarily paper overall, right? So it's going in because of security reasons, paper that needs to get shredded because, well, there's new regulations that say it has to, or just the way it's getting used. Or from an environmental standpoint, a lot of younger employees know that if it goes in a shredding box, it actually gets recycled.

49:22Versus, for example, in our office, if we throw it into our garbage beside our table, it doesn't get recycled. So there's that aspect to it of actual the volumes getting shredded are increasing. So the idea that it's a declining market isn't necessarily true, but everyone at first glance would assume that. You kind of go through this whole idea. It'll never trade at a premium valuation, but the idea that it's growing at 20 % to 30 % a year at really good margins and we'll be able to do so for a while and trade extremely cheap, it kind of ticks a lot of boxes, even if you're perhaps small at it.

49:55I'd like you guys to tell me a little bit more about your investment in GoEasy. It looks like a high ROE business that is guided for an ROE that's above your 20 % threshold over the next two to three years. When businesses guide for growth like this, how likely are you guys going to trust what they say? Obviously, you're probably pretty comfortable with M management, but I'm interested in knowing how you guys view this company's guidance. There's a couple of reasons why we're comforted there. We've been invested with this company for a while. So management says something, we see what they do. Do they actually live up to what they say?

50:25But also before I got into the hedge fund business, I was a financial services analyst. So I used to analyze companies like GoEasy. So I'm fairly comfortable with their model when the government recently changed the whole lending structure for like the super high interest stuff. I was very relaxed with that, but the market sold off. So I would say a combination of we have a good trust or with management combined with the fact that I know a little bit more about this industry than the average Joe. I think those two factors mean that for us, we know that GoEasy is always going to be super volatile because it becomes kind of a proxy for people's perceptions of whether the economy is strong or weak.

50:59So we live with that. And then, And if anything, if there's a sell-off, we would add to the position. But that said, we have a pretty large position in the stock. They're very comfortable with it. But a lot of companies that are like subprime lenders, lenders, that kind of stuff, like GoEasy, we say they have a lot of headline risk. There's a headline in the newspaper about something to do with the economy. The lenders all sell off kind of stuff. You just have to live with that and know that that's just part of the game. So let's move into some of the small caps and micro caps. So why are small and micro caps in Canada?

51:30so inefficiently priced. Have you guys observed this inefficiency in other geographies as well? How long has it been this way? And do you think it's likely to change in the future or is it just cycles? Yeah. So I would start with like Canada versus the US. So we started looking more closely at the US five or six years ago, and we thought the fund would have more exposure to the US, but they're just the difference in multiples. The quality is, you know, in Canada, we have extremely high quality, but it doesn't make a lot of sense to invest in the US names that we're finding because we can find cheaper, higher quality names here.

52:06So that goes to your question of why. And obviously, Jason, I think you've been in this industry for long enough. You have your thoughts on why Canada might be underpriced versus other countries. I don't know if it's, once again, I think a lot of companies in the States are discouraged from going public of the size that they do in Canada. So I don't think it's like their small cap market is more efficient than ours. I think that ours is actually relative to the size of the country, a lot larger. And it goes back to the whole CPC kind of way of thinking and Western Canadian entrepreneurialism and all that kind of stuff, right?

52:39But as far as why that segment, the micro caps are generally speaking, so inefficient, that's the whole story because if something goes wrong down there, you don't have a lot of liquidity, that kind of stuff. And you don't have institutional money in there pushing up valuation. So as you go from large to medium to small to micro, the valuation should come down, right? And it's a risk reward. If you're comfortable going into that area, like micro caps, we're probably more a small to mid cap fund with some micro caps. You've got to be really patient there. You have to recognize that it's kind of like a venture capital almost with a little bit of liquidity.

53:10So you really can't play these where you say, oh, well, any day, if I want to take 100 ,000 or whatever off the table, in the micro caps, you can't do that. You have to basically say four or five years from now, it's going to get taken out. It's going to move up very sporadically, it's going to always trade on very low volume. And you've got to use that inefficiency to your advantage, not be beaten up by it. And then you mentioned the cyclical nature of valuations. Again, I would reference the newsletter we've written on our website, but what we're seeing in the current small cap space is all-time lows in valuation.

53:47So what happened in the 2021 tech craze and then everything blew up and sold off? Guess what? Everything sold off indiscriminately of valuation and earnings and business outlook, maybe except the large cap names that everyone knows about. But what we've seen is, yeah, 100%, there was definitely companies that should have sold off. They were a bubble. They were overvalued. They shouldn't have been trading at 100x, whatever, multiple. But we have companies that were trading on 12 times that have now sold off to four times, like cash earnings, net cash balance sheets. And that's the market we're living in now.

54:25And we've referenced this idea of a pendulum before, but that's kind of the cyclical nature is we think we have a basket of stocks in our fund that is literally the cheapest that we could find through history. And we compare it to 08, 09 bottom. And we think the stocks now in the fund are cheaper with higher growth margins than 09. So that's kind of, it's crazy to think about because it's a different segment of the market and it's not that NASDAQ's hitting all-time highs and it's Apple and Amazon and Google Microsoft. That's just not the world we're living in. And then that's kind of where we see this opportunity is these names are just so under followed at the moment.

55:07But if you go through history, that it's a cycle and the cycle swings the other way. And so that's kind of how we're positioned is for that cycle to swing the other way. What are your catalysts going to be to narrow the price value gap for some of the heavily underpriced names in your portfolio? In your most recent newsletter, you discussed how you believe that interest rates were the prime culprit for suppressing value of many of your holdings. Are there other macro catalysts outside of declining interest rates you believe that will help re-rate some of the small cap names in your portfolio? Yeah.

55:39So I think rates are number one, right? Your discount rate you use on your valuation is exactly tied to interest rates, right? Interest rates go down, technically the value of your stock is worth less. That's what's happened with fastest increase in interest rates in history. But that being said, we think that's peaked. And then so people start to look at these small growth names. But to your point, are there other macro issues? I don't think I see any. I'll let Jason answer too. But what we've also been seeing is kind of activism and takeouts, right? So we We ourselves have been pushing some of our names to really increase the amount of buybacks they're doing because those companies will look back years from now and we'll be astonished with how accretive some of these buybacks at these levels will be from that standpoint.

56:22And we're starting to see a little bit more of takeouts, right? Where if a stock is really worth what we think it's worth, a company will come in and buy it out, right? So that's what we're starting to see. I would say that's only within the last kind of few weeks, months. I think the interest rate cycle globally is the big one, right? And I don't think interest rates are going to go much higher. The question is, are we just going to stay up here or are we going to roll over, right? Other stuff that is interesting that's out there that could be positive for small caps are the following. The war in Russia and Ukraine would be one and China figuring out its place in the world, given that everybody's deep, deep, like disinvesting in China, right?

57:00All of these things, though, speak to a phenomenon which we refer to as risk on, risk off, right? Kyle, you know that term. So we were in a massively risk off posture up until probably three or four months ago. Then the large mega cap tax started to roll, and now it's starting to trickle down. So we're not back to normal as far as sentiment and all that kind of stuff, but we've just started to turn that corner. Interest rates are going to be the big driver. I would say the war in Ukraine and then just China figuring out whether it's a growth story or not. I think those are kind of add-ons. I don't think the war in Russia is sustainable.

57:34I'm not sure what brings it to hand. Is it a coup? Does Putin get replaced? Or God knows what happens, right? But Russia's already lost the war. It's just a question of when they realize it. So in your January 2023 ROE reporter, you said that the portfolio went through some painful losses. However, the bulk of your investments were on pace to have record years in terms of fundamentals. As of right now, this quarter, are you still seeing massive improvements in the fundamentals of some of your highest concentration bets? So companies are reporting right now. So we're right in the middle of Q2 results, right?

58:08And so generally speaking, the results are coming in. What's kind of not happy is if a company comes in and they miss by one or 2%, they're often getting whacked by 20 or 30%, right? And we know that that's the way the algos are starting to trade the markets now, right? So you're getting these hyper reactions to small misses are resulting in massive movements in the stock. Now, given the nature of algos, they'll do the same in the other direction as well. So we've got to be attuned as we move forward and we tweak the portfolio that if a stock, and I'll use an example like Nuve has just been absolutely crushed and it trades on four and a half times earnings now, right?

58:42And it's growing at 17 % this year, right? So instead of growing at 20, they're now growing at 17 and that's the movement of the stock. So we've got to be able to say, hey, are we going to, once it's settled down, are we going to add to some of those positions when they've been really, really crushed, right? We added to Dye and Durham when it got down to kind of 16 or 17. So you got to let the stock kind of find its bottom and settle up and then be prepared to take some moves there. But some of these stocks, the misses are not even misses sometimes, sometimes it's a little change in their working capital and the sell-off of the stock is just, it's unbelievable.

59:12So that's part of that, the world that we live in. Yeah. So Jason's referencing a lot of the stock price moves. I'm just looking at the portfolio now. And from what we have, eight of our top 11 investments, which make up majority of the portfolio are on pace again for record revenues and record earnings this year with no kind of outlook that that'll decline going forward, right? So that's a majority of those names. And some of the other ones would be like a Collier's that slowed down because of commercial real estate, but it's still obviously making money and it's a strong business. But that's kind of what we were referencing before where just everything sold off indiscriminately.

59:48And now we're finding stocks, like Jason said, are four and a half times earnings growing at 17, 20%. That's just not sustainable in the sense of where stocks will trade. So yeah, it's painful in the short term, but as long as we're deadly focused on making sure revenue and margins and management teams continue to execute, that will reverse. That's kind of how we're positioned. Jason, Jesse, thank you so much for joining me today. Before we close out the episode, where can the audience connect with you guys and learn more about your fund? Yeah, we write a quarterly newsletter. So if you'd like to get on that list, you can email info at donvillekent.com or all that information is on our website at donvillekent.com.

1:00:31Okay, folks, that's it for today's episode. I hope you enjoyed the show and I'll see you back here very soon. Thank you for listening to TIP. Make sure to subscribe to We Study Billionaires by The Investor's Podcast Network. Every Wednesday, we teach you about Bitcoin, and every Saturday, we study billionaires and the financial markets. To access our show notes, transcripts, or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by The Investor's Podcast Network. Written permission must be granted before syndication or rebroadcasting.