Left Brain Thinking: From Growth to Value

Hello again and welcome to this week's Left Brain Thinking podcast. On the podcast, we welcome dynamic thinkers from the worlds of investing and personal finance designed to help you in your journey of building your personal assets. And a few words and a disclaimer: the opinions expressed by our guests are not endorsed by Left Brain and may not reflect the views expressed by other clients or investors. Depending on the facts and circumstances, public commentary made directly by a client about their own experience with or endorsement of an investment advisor, their personal investments, or their approval of Left Brain is considered a testimonial. Testimonials are based on unique experiences from current clients or private fund investors and are not representative of all client experiences. Testimonials are unsolicited and no cash or non-cash compensation is provided. To learn more about Left Brain and our research service, which provides subscribers 8 to 10 full-length stock reports per month and The Chosen, our favorite stock and bond opportunity of each month, head to leftbrainir.com. With that, we'll welcome this week's guest. Hello everyone, and welcome back to the Left Brain Thinking Podcast. We are joined today by Chris from Growth to Value. You can find him on Twitter @fromvalue, and he has the, um, he has the newsletter Potential Multibaggers. From Growth to Value. So Chris, welcome to the program. We're happy to have you.

Well, uh, I'm happy to be here. Thank you for having me.

All right, Chris, well, uh, we generally, when we have our interview guests on, we ask for a little background. And can you tell us a little bit about yourself and how you got started with investing?

It actually started not that long ago, um, 2013. And my wife was pregnant then. And I got some sort of primal feeling of having to gather for our unborn child. And the very first thing I thought of was, you know, for people looking on YouTube, you can maybe see a few bottles in the background, you know, single malt whiskies. My wife, she's a lawyer and a tax specialist on top of that. And she said, you know, That's not such a good idea. I mean, you're going to want to taste it for yourself. And I said, well, I'm just going to buy 3 bottles, 1 for me and 2, you know, as an investment. And she said, that's 33% of your investment already gone before you start. And I thought, well, yeah, you got a point there. And then I came across Toxx and I thought, well, yeah, why not? Why not try it? And of course, you know, as a beginner, I made all the beginner mistakes that I could. And, you know, unlike Maybe a lot of people, I'm very, you know, very stubborn. And if something doesn't work for me, it's, you know, it doesn't work yet. It has to work. And so I started reading, I started studying, I started, you know, listening to podcasts, reading books, listening to books, you know, and I came across Seeking Alpha. And, you know, I started reading articles ferociously. I mean, I have read literally thousands and thousands and thousands of articles, some really bad ones as well. And, you know, I started making comments more and more. Somebody said, you know, your comments are often more interesting than the article itself. That you react to, and almost as long when you start writing. And I thought, well, you know, you're actually, you know, you're probably right, so I should give it a try. And I started writing, and, you know, it became quite a success, you know, I mean, then followers. And then in 2017, I started my Potential Multi-Baggers series because it was a series on Seeking Alpha. So 3 articles actually, and the first pick was Shopify at $77. And then that was May 2017, and from there, you know, it started grow— it, you know, didn't stop growing. And I launched Potential Multi-Baggers as a, you know, uh a paid subscription service then, um, in 2019. And, um, you know, uh, we're still here and we're doing great, and we have a great community at Potential Multi-Baggers. And, uh, yeah, that's, that's a bit my, my background, uh, as an investor.

It's all really interesting, Chris. How did you kind of start making decisions for yourself in terms of investments and kind of, can you tell us about, I know Shopify was the first one you detailed in an article form. Can you tell us a little bit about your first investments and what took you those directions?

Well, it was not my first article or so. It was the start of Potential Multi-Baggers series because I had already written for more than a year. But, you know, when you start out, you want to imitate actually. And, you know, as a lot of, you know, much followed people on Seeking Alpha were value investors, I started out with value investing actually. And I was already, you know, working with growth stocks as well once I started writing because, you know, that's what my name comes from, my moniker, from growth to value, you know, it's because it's both. It's also because, you know, I try to pick growth stocks and hold them for so long that they become value stocks. And I want to give, you know, Amazon as an example. It has been a growth stock and it was called, you know, dramatically overvalued for a very, very long time. Probably, you know, 15 years or so. But I don't hear that anymore. And, you know, in the last probably 3 years or so, even some value investors I still know, you know, like Amazon and can see, you know, the investment case. So I started there. And then I realized, you know, you have to make your portfolio reflect who you are. And that was a, that was a really important insight for me. And it's also one that I always, you know, talk about to my subscribers. Make sure that your portfolio reflects who you are, just like your, you know, your books should reflect who you are. I have here, you know, we're in, in our library here, and I have investment books. I have, you know, I have some poetry, I have, you know, a lot of novels, et cetera. So if you look at all those books together, you can more or less see who I am, right? And the same thing should apply to your portfolio in, you know, in my opinion. And then I, you know, I heard Toby Lutke in, I think it was February 2017 in podcast. And I thought, man, I like this guy so much, but this stock is crazily overvalued, right? So, but, you know, I still bought, you know, a few shares even before I wrote the article because that was 3 months later. And I started exploring more and more and more about Shopify and about other growth stocks as well. And I thought, well, This is an important part of me because growth investing is— this is very black and white, so I probably shouldn't do this. But if you would have to put the two, value investing and growth investing, on two sides of the spectrum, you would put— I think, in my opinion at least, you would put value investing at the— you can call it cynical side, or you can call it the realistic side, depending on your point of view. And you could put growth investing on the side of dreamy or visionary, again, depending on your point of view. And I thought, well, I'm more the optimistic, the visionary type of guy. And that's why my portfolio should probably reflect that as well. And then I started looking for a system because I, you know, I wanted to have a system in there. And, you know, I developed my potential multiple characteristics. I also developed before I started the series. So the first pick, Shopify, was May 2nd, I think, in 2017. Well, actually at the end of April, I had already written an article about the theoretical part of potential multibaggers, meaning that how they will behave in your portfolio. So high volatility, a few huge loses, and then a few gigantic winners. And there's an unbalance in investing. You can only go down when 100%, uh, which I haven't had up to now. So let's keep it that way. Uh, but you can, you can go up, you know, 20x or 30x or 50x, uh, over time. And, and, you know, you, if, if you have one stock that goes, you know, let's say 20x, you can have quite a few losers and still beat the market convincingly. And that's actually the, the, you know, the system that is behind Potential Multipliers. So yes, Higher volatility. Yes, probably more losers than the safe stocks like Google and Amazon. And I mean, I have nothing against Google and Amazon. I have them in my portfolio as well. And that's a part of me as well. I am optimistic, but I'm, you know, and I can see the future at the same time. I can see the future of Google and of Amazon. I'm not going to invest in technologies that I think in, you know, 20 years' time will not be as important as they are now.

There's a lot to unpack there. I have to congratulate you on actually taking the plunge on Shopify. I did some research on Shopify, I want to say late '18, early '19, had a similar experience with, you know, hearing from Tobi Lütke I was similarly impressed, but just as you said, the stock was always overvalued and difficult to take a position for a long time there. So there's a lesson in that somewhere, I think. And it all depends on kind of what— how the market's responding to, like, you know, today it may be different. We want to get into this a little bit more about how you respond to when the market changes. But we often say here that the best growth stocks are almost never on sale, almost never cheap.

[Speaker:TAVI_COSTA] I would even leave out the word almost.

[Speaker:TREY_LOCKERBIE] Fair enough. Although it might be, some of these stocks might be cheap in a couple months' time here. But I like what you said about the asymmetry. Of growth investing where, you know, that you can only lose your initial stake, but there's so much more possibility for winning. And, you know, that's what attracts us to growth stocks as well. Although we have, you know, we work with clients and so some of the puts and takes are different and, and we all have different styles. But I definitely respect where you're coming from on that. Um, let's talk about—

to go into that, I think it makes a huge difference. And I have a few subscribers who are portfolio managers, and, um, you know, they have to think differently because I know two portfolio managers, you know, who got fired because of what, you know, the state growth stocks are in now. And they, um, you know when they were asked, what are you going to do about this? And they say, well, nothing. And well, that's not something, you know, their bosses wanted to hear. And probably it's a good thing that, you know, they were gone then because if you invest for the long term, long term should be the long term and not, you know, year to date, you're down. So, and I think for individual investors, it's a huge, you know, edge that you have that you— I mean, I'm investing for the next, you know, 20 years or so. So why would I care if my stocks go down by, you know, even 50, 60, 70% right now? I mean, it's the best thing that can happen as long as the company is fundamentally good. And I think a lot of individual investors don't understand how well off they are that they don't have to, you know, that they don't have clients and that they don't have to, you know, explain why they are down so much because they, you know, they know the company very well. And, you know, the price is just the temporary reflection of what the market thinks about that company, and it's not that much more. It's not that the price itself determines, you know, a company. And that's something that, you know, only a very, very few individual investors appreciate enough, I think, about, you know, about the stock market, that they have a huge advantage over, you know, a lot of professionals.

I want to dig into that a bit more. I think this is really interesting. So if you like a company and the price goes down, from your point of view, nothing, nothing dramatically changes if the business is, is the same.

Yep.

I mean, one thing I think about is with growth stocks, a lot of them raise money through equity markets, right? So I guess there's one challenge when the stock price goes down is that your cost of capital gets higher.

So that's, that's the one thing that you really should pay attention to because, um, you know, that's why I also give a financial strength rating, uh, to, to the stocks that I pick. Because it's, it's so important that you know what, you know, what financial state they are in. And if they need that extra capital because they're still losing money, you know, you can see that in balance sheet. And that's, that's very important to check as well, of course.

Okay, so I guess we can talk a little bit more about what you are looking for. So I suspect now you mentioned Luke Key at Shopify I suspect management's important to you, sort of the vision.

Yeah, well, management is extremely important. Why? Because, you know, it's the most important thing to me because companies are built by people. It's the CEO who decides the company culture or who instills the company culture, who decides on how they go to the market, what products they will develop, develop, etc., etc. And that's why, you know, that man or woman is so, so incredibly important. Um, so that's already the second thing I look at— company culture— because it's very important that you give people, um, enough freedom to, you know, to be some sort of entrepreneurs themselves inside of a company.

In terms of management, how do you determine whether a business has a good management team? Like, what are the inputs there? Do you have objective measures? Is it subjective? Talk a little bit more about how you assess management.

Yeah, it's a very good question, because I think it's still, you know, not emphasized enough. And part of the reason is that, you know, as, as human beings, we all have, you know, objectivity and subjectivity. If you look at the, the amount of information that we get, um, in a subjective way, how we experience something, that's dramatically more than the objective information that we get. And a lot of that subjective information we cannot even express because it's subconscious. And I think that a lot of people underestimate that. And it's almost like, you know, in investing you cannot be human, right? You have to be some sort of computer. You cannot use your emotions. I think that's wrong. I think in judging management, you can use your emotions. You can use your human intelligence and your people skills. And, you know, when I heard Toby Ludwig, I thought, wow, this guy is so impressive. Of course, there has to be some sort of objective, you know, second phase, you know, if it's just a story or if the numbers confirm what, you know, that great visionary CEO says. So that's very important as well. But for me, that's the second step. And the first step is just using my people skills. I used to be a teacher. Well, you know, if I had a new class, And I, you know, I come into the classroom and I saw those, you know, pupils that were, you know, there were students, uh, 16, 17, 18. When I came into the classroom, in a matter of, you know, 2 or 3 seconds, I already knew, ah, that one will be like that, and that one probably will cause some trouble later. And and, you know, he's a bit uncertain and she is, she's very confident. And, you know, why do I know that? I don't even know. It's not that it is a, you know, a conscious process. But if you look at that, you know, and if you look at science, science has measured that. If you have the— if you can look at a person for 5 seconds and you have to judge that person. And then, you know, that was the new colleague. And one year later, you judge that person, you know, just as a colleague. And what you see is that almost 90— was it— it was more than 95% of the qualifications were exactly the same after a full year of day-in, day-out contact. And 5 seconds. So that means that we have some sort of intuition, and I think it's very important to not disregard that in investing. I mean, why would we not use a part of our intelligence, right? And, and so that's always the first step. And then the second step is, is of course just, you know, looking at the numbers and, and see if what they are saying is also visible in the numbers, because that's very important as well. Of course. But, you know, usually the really, the really good ones that jump out, almost always, you know, the numbers almost always confirm what they say.

I'm gonna go ahead and spare my ego and not ask you for your 5-second, uh, read on myself. I, um, I tend to agree. I, I've come across a number of CEOs, like, uh, Jensen Huang is one that comes to mind.

Jeff Green, The Trade Desk.

Exactly. No, and I think you cover a lot of the same stocks that we've liked over the years. And we've done CEO profiles here a number of times, and it's really a good way, in my opinion, to take a look at a company. You know, of course, the numbers do matter. And I like what you said about using the numbers to confirm the credibility comes out in the quarterly calls. You know, that's why we love earnings season so much. It's our chance to actually, you know, touch and feel what is going on inside of the company. You know, of course the numbers are there, but it's that earnings call gives you so much information. And I really like what you said there.

Yeah. And if you listen, you can hear a voice and it gives extra information than if you read. You know, I sometimes read as well. It goes faster. But I often listen and then make notes while I'm listening.

[Speaker:TREY_LOCKERBIE] It's been a challenging time for growth investors. We've been growth investors over the years. Like I said, we've done a little bit of shifting to some more value-oriented sectors, again, because of some of the constraints that we have and considerations. How does a time like this impact your process? Are you looking to profitability a bit more now than you have in past years? Um, are you looking at different type of companies? Um, what's changing for you? You know, I think growth stocks have struggled since about February of last year. Has that changed your process at all, or are you kind of still locked in on the way you were doing things before?

Every situation brings new information throughout the years. And I'm pretty sure that even in 10 years there will be some changes in that year as well. So, um, yeah, look, I look at profitability a bit more, or, you know, if, if, you know, if there are losses, you know, um, how much and how much, uh, you know, how much cash, cash is there on the balance sheet. And, um, So yeah, in that way I look at it a bit more. I haven't changed that much because I, you know, I dollar cost average every 2 weeks. So I invest every 2 weeks, and if my stocks go down, I mean, I'm happy that I can buy more shares with the same amount. I even, you know, add a bit extra now that, you know, a lot of very high quality companies or stocks are on sale. And that's not a prediction. I mean, in that it's not market timing because it can go on for quite a few more months or who knows, maybe even years. But that will only make my long-term investment case better. And it's very important to look at the trends of the future. And if you, you know, uh, usually trends— people overestimate trends and then underestimate them. And for, for example, you know, the internet, you know, if, if we look back, it's, it's always easier to see, um, you know, the internet.com bubble, um, you know, people completely, uh you know, thought, you know, this is the new thing and eyeballs matter and, you know, profits are for later. And of course, I mean, you can think about that and say now, well, they were naive or something like that. But the problem was that, you know, the adoption, the general adoption takes time. And there are still parts of the world where, you know, there's no full penetration of the internet right now. It takes decades for trends to fully unfold. And that's what people underestimate. And they overestimate what a trend will do over the next 1 or 2 years. And if you see the imbalance there, I don't think you should change your process too much because you were probably right seeing the that trend, it's not because that trend has been punished that it's gone. And think of Teladoc, for example. Teladoc has been probably the poster child of the COVID stock, the pandemic stock that has been crushed right now. But if you look at telehealth spending, from now until 2028, you see, and that's for the industry, you see a compound annual growth rate, uh, estimates of course, uh, of, uh, of 32%. 32%. And, you know, um, Teladoc is the clear leader there. And yeah, indeed, you know, spending has come down a little bit compared to the pandemic, um, so I mean, the trend has not gone away, even though the, you know, the story that people hear has changed. Oh, it's pandemic and, you know, gone, right? Right. They, they don't look back. So, and, and you see that instead of looking at the long-term trend, they look at the short-term stock trends, not the, the long-term industry trend. There's no such thing as a smooth ride. You know, if you look at the revenue growth of Amazon, for example, one of the best stocks ever, you know, it was probably around, you know, 22% per year over the last 20 years or so. But there have been years in which it was 48%. There have been years in which it was, you know, high single digits, et cetera, et cetera. So it's, it's never a smooth ride, and people are always attracted to the negative. If, you know, if it's— if revenue comes down a year, or not even down but slows down a lot, um, then people already start panicking and they, they think the trend ends, but it doesn't.

I think it's really difficult in times like this to separate, you know, as you mentioned, there's volatility in an earnings growth trajectory like Amazon, right? Obviously, in retrospect, holding through those moments of volatility was the right decision, but there are far fewer Amazons and there are probably far more companies that end up not being successes.

Padelt.coms.

Exactly. So how do you differentiate between the two? Again, and we're in a difficult time now, How are you orienting your portfolio? Have you made changes? Have you sold some stocks that you initially thought were on a great trajectory and have kind of broken?

The most important thing in investing is conviction, especially if you do that for the long term. You have to be convinced about the company. And it's always a good idea to try to falsify what you think constantly. In times like these, uh, it's, you know, it's a natural thing to do that, right? I have sold a few, um, but, you know, they were just not living up to my expectations. And I always err on the side of, of holding too long. Why? Because I, I want to give companies, you know, um, that I had trust in at one moment— I want, I want to give them the credit to, you know, one, one stock that I haven't sold, for example, which is a huge loser, and I mean, uh, it's Peloton. I haven't sold it yet because I think there's still, you know, huge potential. But at the same time, you cannot, you know, you cannot say that they have done that well, right? I mean, they're really screwed it up fundamentally, not just from the stock, stock, uh, you know, price perspective. And, um, you know, I was close to selling because I didn't think management really stepped up. And then the new CEO came in and, you know, I have, you know, I have read several articles and interviews with him and I think, you know, he has a good plan, that there's still a lot of steps to take there. And, you know, I won't be adding at the moment. And, you know, if it doesn't work out, it just, you know, become a very small portion of my portfolio overall. Sure. You know, that's how it goes. So I try to give companies time to turn around. I mean, if you look at Amazon, to go back there, if you look at Amazon, um, how they did in, in, you know, uh, 2001, uh, and, and, you know, they, they were not profitable, and all of a sudden the market asked profitability. Well, it took them probably, probably 2 years or so before they, they became free cash flow, free cash flow positive. And since then they have been on a monster ride if you look at free cash flow. You know, if somebody really, uh, completely screws up, I sell. I mean, the thesis is broken then. And, and, um, I, I— some people call me a, uh, buy and hold at any cost. That's completely not true. I, I, um, I, uh, I, I'm a buy and verify kind of guy. And, and I mean, I have sold, uh, I think 10 of my 25 picks, which says enough, I think. Uh, some, some even at, you know, I, I sold a stock at a double because I didn't like the fundamentals anymore. Um, and of course losers as well. But, you know, it, it, it's, it's a, it should not be. And of course, uh, the stock price is one point of information for a lot of people. It is the only point of information that they have, and then it becomes very, very hard. And that's what I try to do, you know. I'm, I, I try to give the information to my subscribers that they need to make their decision. And I'm not saying, you know, I'm not saying you should not sell either, but, you know, this is the information. Make up your own mind. And if you still think this company, you know, doesn't execute as it should, sure, why not? Why not sell? Even if, if I'm buying more, if you don't, you know, believe in it anymore, if you don't have the conviction, I mean, sure, you have to have that conviction. And I give my— I have conviction ratings as well. I give my own conviction and I give all the arguments. I give all the information. I have, you know, weekly updates. And, you know, in that way, uh, I follow companies closely. And, you know, my subscribers can do that as well. But if, you know, if they don't believe in it anymore, I mean, sure, you know, sell it and maybe buy, you know, some Apple or or Google or Amazon or anything that you feel more comfortable with. I mean, it should not be black and white. It should be nuanced. Always, always, always. If you— but make sure that you know the information and, you know, that the stock price itself is not the only information that you look at. You should look at everything and then you look at fundamentals if you are a long-term investor, of course. If you want to trade, that's something completely different, of course. Of course. But, you know, if you want to be a long-term investor, you should not take the price as your, you know, your, your only or even your main point of information.

Yeah, we often say around here it's, it's more art than science. There's a lot of science involved, but, um, it's times like these where the diff— the decisions do get a little more difficult. And, uh, it's good to hear your perspective on how you manage that. And we're going to get into some— a couple of your ideas here in a second. But I have one more question, which is, how do you think about portfolio construction? Kind of what does your strategy look like in terms of how you size positions and that sort of thing?

Yeah. Well, as I said, I think everybody should have their own portfolio, which reflects who they are. So, you know, I have potential multi-buys and Potential Multi-Baggers, the aim, the explicit aim there is to go 10x or higher over the next 10 years. So 10x means about 26%, uh, you know, annual growth. It's a very personal decision on how much of your portfolio those kind of stocks are. And for me personally, I'm, I'm, I'm a very calm person and I'm not that much influenced by volatility. So I have, you know, I have quite a big portion of potential multibaggers in my portfolio. I have 3 categories of stocks that I write about. It's potential multibaggers, which I have already said are companies that I think have the potential to go up 10x over the next 10 years. Then you have budding anchors, which are already big, bigger, a bit bigger. That I think have the potential to go 5x over the next 10 years. So they are already bigger and because of that, a bit safer. And then you have anchor stocks, which are stocks like Adobe, Salesforce, Google, Amazon, companies or stocks that I think can still beat the market over long term. Uh, but you know, they will not go 5x probably over the next 10 years that, you know, probably because, you know, what we have seen with those mega caps even in the last 5 years is crazy, right? If you see those market caps, it's, you know, you know, I couldn't have thought that, you know, Apple would be, uh, you know, what is it now, $2.7 trillion, right, uh, market cap company. So those are my 3 buckets. That I invest in. And again, other people can, you know, add on other buckets, uh, dividend stocks, or sure, maybe bonds, or, you know, what they want. Um, so that's, that's one part. That's, um, the other part is how I, uh, you know, position sizing. I think it's, um, it's again a very personal, um, thing. I, I have quite a few subscribers who like who like concentrated portfolios. I'm a bit in between there. I have about, you know, 30, 35 stocks in my portfolio. I usually don't go over 8% original allocation in any position. Original is important there. Sure. Yeah, if it grows higher, sure, I'll just leave it there. Excuse me. Um, and, um, and, and, and that, you know, I, I scale in very, very slowly. As I said, I add money every 2 weeks, and if I pick a new stock, I, you know, I make it the first, you know, the first buy is like 0.1% of my portfolio, or, or even less, uh, because I, I, I want— I'm not going to buy that one stock, I'm going to add to my portfolio, which means that I will buy other stocks in there as well, or add to other positions. Right. And so, and the big advantage there is that, you know, for me, investing is not a, you know, a point of time, in time. It's a process which takes months and even years before I have a full position. And that allows me to give the company, uh, the opportunity to prove that they belong into my portfolio, um, even after that, that point. And that they're, they're, uh, you know, and, and once I see, um, deteriorations in, in fundamentals, I, I don't add anymore. I'm not selling directly, but I don't add anymore. And, you know, because I keep adding, those positions become smaller and smaller. So that's a bit my process of allocation and how I think about portfolio construction.

Is there any point where it becomes— a position becomes too big for you and you need to trim it, or is that not even part of your process?

Not really, but, you know, again, it's a personal thing, and I can— I have not had that. I have had a position that is, you know, 35% I have not been in that situation yet.

Okay.

And, you know, I could, you know, I could imagine that. I think, well, maybe here I'm, you know, I'm not that comfortable anymore and I will trim a bit. But again, it's a very personal decision. And even there as well, your personality should probably decide there on, or, you know, should be the, the, the way in which you make that decision for yourself. Um, because, you know, if, if, if you have a— maybe you have a 15% position and you, you know, you're awake at night because you're, you're stressed about it, well, I mean, that's not the aim, right? So, um, probably your conviction is not high enough. So you should probably trim that position a bit then, um, because your conviction doesn't match your position.

Okay, I like, I like all of that. Um, I think we all have a different concept of exactly how we want to position, and, uh, that's part of why we wanted to start bringing people on, is to just get those different perspectives. And I, I really appreciate yours, and it's, uh Well thought out. And yeah, I appreciate you sharing those thoughts with us. Let's get right into some, some actual ideas here.

Yeah.

So you have the 3 buckets. We, we got 3 stocks that looks like you want to speak on here. The first is kind of more in that reliable bucket. Can you tell us about that, Chris?

Yeah, it's Constellation Software. It's a Canadian company. And, um, you know, I have a, I have a, you know, second service as well called Best Anchor Stocks together with, uh, Leandro, uh, at InvestQuotes. And that was our first pick there. Uh, it's, it's a, you know, it's a fantastic company. Um, it has never been down, uh, 30% since its IPO, and that includes the, you know, great financial recession in 2008, 2009. It's a completely different company from, from potential multi-baggers. Why? It's a serial acquirer of software, software companies that, you know, cater to specific needs. For example, if you want to go to the fitness, you go, you know, to the website and you you can make a reservation there. Well, that type of software, which, you know, is a software that, you know, will not be applied in other companies, or I mean, it's not something that I will use, for example. And Constellation Software has been acquiring that type of companies for a very, very long time. And They have a huge return on invested capital. They have huge cash flows. They really have perfected the art because usually if a company is a serial acquirer, they, you know, they have a bottleneck around 10 companies a year, and that's the maximum. What Mark Leonard, the, you know, fantastic CEO, founder and CEO of Constellation Software, has done is that he has brought those decisions to the divisions. So every division can make its own acquisitions, and in that way, they, you know, they can, they, they can buy 100 companies, uh, in a year. They almost did 100 last year. And, you know, usually the companies are quite small or they haven't made a big acquisition right now. But, you know, usually it's, you know, it's, for example, it's $10 million and they can buy it at a 1.3x free cash flow or something like that. It's, you know, it's really crazy because Constellation Software has a great advantage in that way that it's, It's known in the industry, in the software industry, as being a company that doesn't sell. It has sold one company in all those years. It has only sold one company, and Mark Leonard still regrets that he has done that. And if you— those type of smaller companies are very important to the people who have founded them. They are often family businesses. And it's incredibly important for them that, you know, the legacy continues and they can still operate the companies themselves. And, you know, maybe their children can come into the company and lead the company as well. And Constellation helps them, you know, to have scale advantages, extra know-how. They're getting a little bit bigger And I think, you know, they will outshine competition there as well.

Sounds like a little bit like a Berkshire model there.

It is. It is. And if you read the president's letters of Mark Leonard, I mean, it's almost a younger version of Warren Buffett. He's incredibly thoughtful and In his way, it's very innovative as well. Just like, you know, Buffett was at the time, you know, using that money from insurance or insurance float to buy stocks, right, and companies. And it's the same model actually that indeed Mark Leonard uses. And they they usually buy companies that are not growing that fast or even declining a little bit, but have huge free cash flow and are very, you know, reliable. Because, you know, if you are, if you are, uh, you know, a fitness owner, you're not going to change your, uh, your software unless it's not good enough, but you're not going to change it, you know, just because it's such a small costs, uh, and, you know, you just keep it. And, um, and that's, um, that's what, uh, Leonard saw, and that, that's— he saw an edge there. And, uh, yeah, that's why he started Constellation Software. And it has, you know, become that quite big company. It's, um, about a $35 billion market cap, but it can still grow a lot, I think. And it's very, you know, very reliable, not, not It's not volatile at all to the country.

Okay, so that's the first one. We'll put all these down in the, uh, show notes for everyone to, uh, be able to take a look at, um, all three of these names. Um, so let's talk about the second name. Uh, this is one that we've covered extensively on our side too. Uh, Chris, um, tell us about the second name.

Yeah, the second name is, uh, Roku. And I think it's another one that has, you know, got the stamp of a COVID stock. And if you just look at the surface, you could say that, you know, the results are not as expected. And, you know, it's partly true, and that has to do with supply chain issues, but that's the completely uninteresting part of Roku because their hardware sales are, you know, in best case they don't lose money there. And, you know, now they do because, you know, they— the really important part of Roku is their platform. And I don't remember exactly the number, but I thought I was— maybe you know— I thought it was already about 85% of their revenue came from platform now and not hardware. And still people look at hardware and say, oh, you know, revenue miss, um, yeah, and it's just that hardware. So actually, the, the more they miss, the less they will lose money right now. Um, it's a good point. Um, and, and, and that the same trends, um that I talked about in telehealth goes for CTV. And it will not be 32%, but it will grow at firm double digits and for years and years and years and years. And Roku is, you know, it's the leading platform and people really underestimate how much power that gives them. And, you know, We saw what, I mean, this is recorded the day after Netflix announced its results and what we saw now that, you know, Reed Hastings has always said, you know, no advertisements on Netflix. And now he said, well, maybe. And of course it will happen. And that will be a good thing for Roku as well because each time that, you know, One of the channels on Roku has an advertisement block. Roku inserts its own ads and gets revenue from that. And, you know, that's such a powerful model. And, you know, you cannot say it as a channel. You cannot say, well, I don't want that, because then you're not on the Roku channel. And the Roku channel Or sorry, not the Roku channel. That's another very important part of Roku, uh, about which I wanted to talk in a sec. But you're not on Roku, and that means that you, you, you do not reach 42% of the American public, uh, which, you know, in CTV, which will be the biggest grower for years and years and years to come. And people will, um, stream more and more and more, and you're not there. That's impossible. You have to, right? You have to be on Roku. It's, you know, and we have seen that, you know, Google threatens to remove YouTube. Well, they didn't. And Amazon was a bit difficult about Prime and IMDb TV, and, you know, they reached an agreement because they know how important it is to be on Roku. And then the Roku Channel, their own channel, You know, it's great to, you know, to make those ad placements as well, and they have even more control there. And even, you know, Disney+ and probably Netflix will pay a lot to be on the, you know, both the start, the starting screen of Roku, and on a probably on the Roku channel as well with free content. Which people always love and, you know, ads. And a lot of people I hear don't mind the ads that much on the Roku channel because they're not that intrusive. And that, you know, those are the highest CPMs. So cost per mille, so the dollar amount that you pay for 1,000 impressions are the highest on CTV. Much, much, much higher than on any other medium like, you know, the internet or podcasts or, you know, you even YouTube. So, um, I think there's a, there's a lot of potential there, and I think people underestimate, um, the leadership that Roku has built out despite the fact that they have always, you know, had to battle Google and Amazon and Apple And they're still the clear leader, and that will continue.

Feels like we're hearing our research back to us, Chris. Um, I, I wanted to just kind of dig in on one aspect of Roku. Um, you know, as you said, Netflix just released its report. That's two quarters in a row, um, with declining results, or decelerating results. And a lot of what's going on is the competition between streamers is really strong, and that means a lot of these companies are spending more and more money. In practice, what we've seen is that the stock— Roku stock's trading in a way like it's another streamer a lot of the time. And I think, you know, folks that haven't haven't done a lot of research on Roku and really dug deep into the fundamentals misunderstand and think maybe it's just another streamer, whereas it's more a platform, an agnostic platform that aggregates all of these different streaming platforms. Right?

Yep.

And so taking a step back and looking at these competitive dynamics in streaming, you know, more competitive landscape actually might be a positive for Roku, right? Rather than a negative. And that's kind of my interpretation of how things are playing out in the story now.

Yeah, I couldn't agree more. I couldn't agree more. And it's something that, you know, you could foresee because of everything will go— almost everything will go to streaming, maybe everything in, you know, a few decades. You know, even, you know, live sports were, you know, an argument for a long time there. We'll never go, but you know, you already see that people stream live sports. So, and, you know, there will be extra functionalities added there. You know, Roku is now testing, it's still in beta, but it's testing inserting, personalized ads in live, you know, live streaming. And if you watch, you know, that, you know, that game, or I do, we will get different ads, and nobody else is even capable of doing that. Sure. So there's still a lot of ground to cover there, and still a lot of opportunities that people don't seem to realize. And I think that you're right, indeed, that a lot of people look superficially to a lot of things, by the way, not just, you know, Roku, but, um, you know, they see one or two headlines and they have— they already have their opinion ready. And, uh, I think it's— it pays off over the long term to, to dig a bit deeper and to, to look at the, you know, what's really going on. I think that you, you made a very good summary of, of, um, you know, what, what the future will bring in, in, in advertisement on, on CTV. And indeed, the competition between streamers will become extremely, extremely high, and then, you know, Roku will benefit.

All right, well, if we keep talking about Roku, I'm going to jump up on the table and start yelling they don't understand Roku. So let's move on to the third idea. Um, yeah, tell us about—

I would have wanted to see that.

Let's talk about the third idea, um, that you had, uh, in mind here, Chris.

Yeah, and, uh, let me share a screen, uh, please, for people, people, uh, you know, watching this. I, uh, I sent this to, you know, a Fiverr seller, and she made a great presentation in just, I think, 5 hours or so.

Oh, so for a Fiverr presentation, you had to go and use Fiverr?

Yes, indeed, I did that. But I opened the wrong one. I have my, you know, bare basic version here, which I sent to her, and I got back, as you know, a piece of art.

No worries.

It was great, but you know, let's just take this one. Let's just take this one.

Sure.

So what does Fiverr do? It sells services, and I think that's very important to know. It has actually made services into products, which is very, very easy because I'm a, you know, I'm a regular user myself of Fiverr. And, you know, if you look for a logo, for example, you just have products and it means that you go there, you type logo, you get all sort of suggestions. You can then, you know, go for vintage or modern or whatever style. You see portfolios, you see different formulas. So for example, basic, and that includes one logo. You have packages. That you can buy, which is very, very easy. And because you see the portfolios, it's also very easy to, you know, to find your style. So what problem does Fiverr solve? You know, for sellers, it offers worldwide exposure. So, you know, the cliché of the Pakistani developer, because, you know, you can make an app, for example, if you— or you can let them make an app, for example. Um, so money without the hassle is another, uh, advantage. Um, so payments, uh, marketing, safety, of course. Um, and there, um, you know, Fiverr definitely has the edge over Upwork, its main competitor. And there are more and more perks for sellers like Plus and Subscriptions and Pro. Those formulas actually help them, you know, get more insights. And, you know, they can, they can do all of the administrative work on the platform as well. And then for Bias, of course, staffing problems. There are lots of people who are, you know, highly skilled that are hard to, you know, to get into your company, to hire. And often you don't need them that long. Maybe you just need them a few weeks, and you can probably— you can perfectly do that with Fiverr. You just add them to some sort of virtual room, you get in the other people, and there you go. Cost savings, because it's often, you know, very cheap. And it used to be Fiverr because it cost $5 at the time, and I was a user then as well. It probably was 2015 or something like that, but the quality was really, you know, not what I was looking for, and that has changed. The price is clear, also very important. This is the package that you buy, this is what you, you know, will pay. And as I say, working with Freelancers is great, but managing them is not so. And that's also why, where Fiverr definitely helps. It's a very typical disruptive innovator. If you know the theory of theory or the book of Clayton Christensen, disruptive innovators always start out as, you know, the clunky version of something that is already in the market. and then it goes up and up and up, the quality, as I have seen in Fiverr. And then at a certain moment, it, you know, it doesn't mean that the, you know, the incumbent doesn't grow as well or gets better, but at a certain moment, it's just not needed anymore, and the disruptive innovator will go faster. And, you know, for me Having read, you know, that book, it's very clear that Fiverr is one of those. They have ratings as well, which is very important, like, you know, from Amazon sellers. They have Pro Sellers, which is about 1% of total sellers, and they, you know, they are verified, and they are verified as being very good. If you need, you know, an intro for your podcast and you go to a Pro Seller, you know, you know it will be good because that person had to prove to Fiverr that he's really good at making that intro or intros in general. And they have a lot of new things, and, you know, let me summarize them with they go upmarket, they go to businesses, not just, you know, small and medium-sized business, but big ones as well. They, they work with Unilever already, they work with a few other big ones. And, um, so achieving some scale there. Yeah, definitely, definitely. And it's just starting out. Um, and, and also, for— it's very important to understand that this is a very long-term trend. It's like In, like I said, another trend unfolding over decades, and this is definitely one for me. If you look at e-commerce, for example, in 2009, that was 5% of the total market, and you see the same thing now happening with, you know, the freelancing world. So about 5% is online, all the rest is still offline, and that will You know, Farfetch will not grow at 150% per year or so, but it will probably grow between, I don't know, something like around 25% for years and years and years and years, which makes it after 10 years almost a 10-bagger, right? If the evaluation stays the same, and valuation, by the way, is very reasonable. I would even almost call it cheap. If you look at it, I think it trades at 9 times gross profits. So that's quite cheap, especially if you see that they're still growing that fast. There are lots of trends as well. They have— they are already in 160 countries. A lot of trends in society, I mean. So more freelancers, more people take on a side job or a side gig. Um, and yeah, maybe the metaverse or NFTs or what have you, all those kind of things live on Fiverr. And you can ask somebody, you know, I want an NFT, could you make that for me? Um, so the market cap, it says $3.5 billion. It has gone down, I think it's $2.3 billion right now. So there's, uh, definitely huge potential. It's, it's also quite a, you know, a common name, um, among a lot of professionals, um, and still that, that small of a market cap, um, which gives them, uh, you know, a long way to grow. Uh, very high take rate as well. They, they, they take— last quarter it was, uh, 28.7% even. Uh, if you compare that to Upwork only 13%, and that has to do with their formulas and their packages, which are so clear. And that's why they can, you know, they have a better user interface, they have a better process, and that's why they can take more. And I know as a buyer, I know this very well, that their take rate is high, but I'm definitely, uh, very willing to pay that because it's so fluid and it's, it's so fast.

Sure.

High gross margins, 83% on a GAAP basis. You know, it's a serial outperformer, although they have had one, you know, they missed in guidance once, and that's about it. A very good CEO, Mitch Kaufman. So by the way, this is an Israeli company. But, you know, it's worldwide and it's in 160 countries. And so it has a high short ratio, by the way, which is always interesting because it means that probably at a certain moment there will be a, you know, a squeeze, a short squeeze, or not. I mean, that's not a part of my investment thesis at all.

It's not the thesis.

No, no, no, not at all. And as I said, I think it's a very good executioner as well. It lives up to what it says that it does. I think that, you know, and Michiel Kaufman, the CEO, is somebody who always talks very straight and who makes great analysis, not just about the company itself, but also about, you know, the broader market. He was the first one that, you know, in the third quarter probably of last year talked about, you know, hyper-seasonality. So people who were in front of their screens, you know, for a full year and a half or so because of the pandemic and lockdowns wanted to get out. And he was honest about, you know, we underestimated that a little bit. So That's why we, uh, so they, they didn't miss on earnings, but they, um, you know, they, they brought down their guidance by, uh, 6%, I think, for the next quarter, uh, which of course, uh, you know, made the stock crash 27%. So that's always how it goes.

Familiar story, um, yeah, in the last year or so.

So that, that's, that's Fiverr. And I think, um, yeah, it's, it's, uh, it's attractively priced, uh, right now. And, uh, I'm, I'm still adding to that position, uh, with a lot of, uh, you know, um, confidence, uh, in the future. And, uh, you know, I have, as I said, I have my conviction ratings. Well, uh, Fiverr is still a 9 out of 10, which is very, very unusual for me for such a small company, uh, to give that high of a conviction rating. Um, so, uh, yeah, I think, I think the quality is there. And if you, if you just, you know want to try it out, I would definitely— if you need a logo or an intro or, you know, editing, or you want to have an app, or you want, you know, anything, you can find anything on Fiverr. I would definitely recommend it. A lot of my subscribers have started using it as well, you know, in their professional lives then, and they're all, all very happy customers. I haven't heard any complaint. Yeah, of course, about an individual seller sometimes But in general, everybody, you know, thinks it's very intuitive and, you know, very easy to use. And I think so too.

That's a little bit of Peter Lynch's One Up on Wall Street research there.

It's one of my favorite books, and it's one of the, you know, probably 3 books that have, you know, influenced me the most, together with Phil Fisher's book Common Stocks and Uncommon Profits. And 100 Baggers by Chris Mayer is another one I want to plug here because I think it's a great book as well. And I already had my potential multibaggers when I read it, but it's completely in the same line as how I think about investing in general.

There's a similar book that I really like. I don't remember the author. It's from 1972, I want to say. 100 to 1 in the Stock Market, I believe it's called.

Well, it's actually here. Yes.

Yes.

Yeah, it's Thomas Phelps and 100 Baggers was based on this book.

Excellent. Well, I appreciate all your thoughts, Chris, and you're sharing these ideas with us, your philosophy, your background. It's been a very interesting conversation. Where can folks find you if they want to learn more about your services?

Yeah, they can go to Seeking Alpha, of course. And if you just type From Growth to Value, you'll find me, or Potential Multi-Baggers, or Best Anchor Stocks. Uh, you can, uh, you can also, if you're driving, uh, you can just, you know, go to my, uh, Twitter account and look in my profile there as well. There's a link there as well. And, um, you can follow me on @fromvalue on Twitter.

Thanks, Chris. Thanks to the listeners, the left-brain thinkers, for being with us this week. We will be back with you in a couple of weeks again with the next guest. But until then, thank Thank you to Chris from Growth to Value, and we'll see you again next time.

Thank you for having me. It was a pleasure.