“Love of knowledge echoes in our hearts and nourishes great thoughts.” (Socrates)

The sun was already at its peak against a blue sky, interspersed with a few scattered clouds, as I drove along the small road that leads to one of the many small villages on the many charming hills that are woven into the beautiful landscape that is Umbria. The road to Solomeo is as unpretentious as one could imagine, given the role this village plays in the creation of a company that today sells over a billion euros worth of products. As an ardent follower of Mr. Cucinelli's journey, I was expecting signs, logos or just some kind of indication that there was more to this sign marking the departure for Solomeo than foreign travelers might see at first glance — but there was none of that. Nevertheless, filled with excitement over seeing the hamlet on the hill, we continued on the tiny passage, soon passing the small Cimitero di Solomeo, and finally arriving on the hilltop of Solomeo, nearby the ancient church of San Bartolomeo.

By now it was past midday, but on this regular Tuesday the village felt almost empty as we walked through the narrow streets of beautifully restored houses. I was fascinated by all the details and especially by the busts of ancient philosophers that had been placed on various walls to guard and oversee the daily life of Solomeo's inhabitants. Then, the investor’s heart in me leapt as I found the first “branded” object, confirming my hope that I was really in Solomeo, the place I had heard so much about in every article or interview devoting to Brunello Cucinelli. The banner, which reads “GENTLE LUXURY, A SYMBOL OF TAILORED BEAUTY” shows images of “great ladies in the history”, as Cucinelli told analysts in late August this year. In general, every endeavor he undertook since founding the company in 1978 has been in the spirit of combining business acumen and a philosophical humanism — Humanistic Capitalism as he titled his vision later. I felt deeply inspired, experiencing this life’s work myself and seeing how it impacts the daily life of the people in Solomeo — even on a regular Tuesday afternoon. I mean, analyzing and understanding businesses as a private investor is most of the time a very disconnected activity, while the fundamental work happens behind closed doors.

Reflecting on the impressions I made in Solomeo, I now feel differently about this particular company. Brunello Cucinelli is no business of short-term trendiness, nor any phantasm of empire-building business men. It’s a steadily growing manufacturer of fine garments and apparel, a guardian of Made in Italy, and a true brand of the luxury Olympus.

Continuing down the hill, past the houses of Solomeo's small population, you'll soon notice an increasing collection of industrial buildings in the valley, testimony to Brunello Cucinelli's significant expansion. Despite this, the company continues to make all its apparel in Italy, with around eighty percent still produced in Umbria.

The decision not to outsource parts of the manufacturing process to countries with lower labor costs limits the company's ability to rapidly increase its profitability - and yet I would argue that it's certainly the success factor for Brunello Cucinelli, as it preserves the key value for any luxury brand: authenticity. The cherished and nurtured village of Solomeo embodies this feeling perfectly, reinforcing the consumer's sense that with each product they're buying a piece of this extraordinary Umbrian dream.

And visitors can do so, as Solomeo, of course, entails a store right in its center—guarded by Platon and Confucius. I'm not kidding, I actually had to use a map to find the place, because the entrance to the store was so inconspicuous that we missed it the first time. And again, neither a logo or sign beckoned tourists to end their journey by buying a souvenir of this beautiful place.

This is the kind of “quiet luxury” that has made “quiet luxury” the overly successful trend it has become in recent years. Any brand could easily produce similar-looking sweaters, even in a desirable quality, yet people are buying more and more goods from the Solomeo-based philosopher. And while I was already aware of these qualitative nuances before my trip, I’m even more impressed now that I’ve experienced them myself (without actually buying anything, unfortunately).

Thank you!

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In my latest writing on serial acquirers, I picked several ideas that were crucial from my perspective to understand what builds a successful serial acquirer. While I find the majority of values to be similar between Idun and this group of companies, there are also small differences on which I come back later.

The story of Idun began in 2013, when now-working chairman, Adam Samuelsson, founded the company following his career at the private equity company Nordic Capital with a simple motivation: keep and develop the fantastic businesses, instead of selling them later and “throw the chips back on the roulette table and start over”1. As a consequence, Idun became a new contender in the Swedish niche of serial acquirers that are offering a permanent guardianship for the life’s work of passionate entrepreneurs. The commitment to keep and nurture these businesses with Buffett’s favorite holding period—“forever”2—lead inevitable to constraints with regard to the quality of the business, its management, profitability and cash flows.

The Playbook

The business model of Idun focusses predominantly on the development and acquisition of small- and medium-sized companies from Sweden. These companies are leading in their specific niche in slowly changing industries, generating stable cash flows, while requiring little investment expenditures for maintenance. The basic idea is that the inflow of exceeding cash is send back to HQ in Stockholm in order to finance further acquisitions. Due to the focus on a decentralized management, Idun operates closely at business level (two people of Idun in each board, always the chairman) and requires only a small overhead of around six people in the rented rooms in a Stockholm office hotel.

It suits us very well. We don't need any special premises to project anything special. In the majority of cases, we are out with the companies, both those we have in the group and potential acquisitions. That's how we work. We want to meet the entrepreneurs on site in the business.3

Personally, I really enjoy these small insights as they are remarkably helpful to imagine how the management operates and thinks. Similar to what I described as “drinking coffee” in one of my latest writings, Idun generates most of its deal flow internally by ongoingly searching for promising businesses and building relationships with potential sellers. Having a decentralized M&A approach enables Idun additionally to find interesting add-on acquisitions already at the subsidiary level, which increases the speed and flexibility of the organization. Keeping the responsibility and entrepreneurial spirit at the business level further aligns the incentives of both parties to focus on long-term value creation—not least because most of these entrepreneurs still hold shares in their companies. Overall, Idun plans with around 2-3 acquisitions a year, including one or two add-on acquisitions. However, these numbers vividly fluctuate given the deal flow, timing and size of the acquisitions as well as the strength of Idun’s balance sheet. As Karl-Emil Engström states to this regard: “We would rather do zero acquisitions than the wrong acquisition”.

Another aspect worth highlighting is Idun being a sector-acnostic serial acquirer, thereby constantly expanding its circle of competence and field of potential add-ons. In contrast to strategic buyers, the company does not pursue synergies, which diversifies the group portfolio and reduces the potential downside of the purchase price paid. At the same time, seeking to find high-quality companies in once circle of competence at low multiples inevitably leads to “boring” industries and businesses that can appear unattractive at first sight. Therefore, I looked at the group companies a second time and prepared a small overview of Idun’s cash flow contributors.

Group Companies

The group portfolio currently consist of 18 businesses, which are categorized in the segments: Manufacturing, and Service & Maintenance.

Stegaföretagen (“Stega”) initially started with Prowash, the leading provider of complete service and product offerings to the wash operators in Sweden and Finland. Additionally to organic growth, the group acquired further car- and washing-related businesses over the years, and as a consequence currently consists of six operating subsidiaries. Interestingly, Stega appears to be a small serial acquirer on its own of which Idun holds 49% since 2014. Due to this below-average ownership and and the operating model, Stega represents a special case in Idun’s overall group. While the business seems to post solid returns, we should notice that the missing majority stake is definitely hindering the Group to access exceeding cashflows.

Fredahl Rydéns is the newest and largest acquisition of Idun to the time of writing. Consolidated in March 2023, Fredahl Rydéns offers a complete range of mainly chests and urns to funeral homes in Scandinavia. Recently, Carnegie Research published an extensive research report on Idun and estimated Fredahl Rydéns’ market share to be around 55-60%, which already caused an investigation by the Swedish Competition Authority in 2017/18 (later dropped). Overall, the company appears to be a great exemplary acquisition, combining the core ideas: stable and predictable cash flows, market leading position in a niche, circle of competence and co-ownership with the family.

Culina Products contributes approximately 13% to Idun’s top-line through the manufacturing and distribution of equipment for commercial kitchens in Sweden. After initiating this small group in 2021 with the acquisition of Culina Products AB, the subsegment is now combining the six operating businesses—thereby representing a good example of using add-on acquisitions to built on existing industry expertise and further consolidate market share. Overall, these businesses are expected to have around 50% market share, while most of their customers are operating in the public sector.

In addition to these examples, Idun’s group companies have exposure in the markets for material handling, healthcare and various industrial niches. Therefore, I find Idun’s sales to be widely diversified, which complements my ideal of a sector-agnostic “classic” serial acquirer—also visible as the Swedish word for synergy appears 0x in Idun’s annual report.

Profitability

Although synergies are apparently not focused by the company, Idun grew its EBITA by 41% annually—even outpacing the revenue compound rate of 37% since 2015. Last year, the EBITA margin decreased to 13.7%, after finding its peak in the year prior. The large acquisition of Fredahl Rydéns can be named as a reason, as the market leader is expected to achieve an EBITA margin of around 9%, thereby diluting the overall margin. In the coming years, however, Idun’s group companies should be able to benefit from their leading positions and increase profitability—narrowing the gap to the weighted average of 15%, which I obtained using the company’s acquisitions since 2019 and the respective annual sales/EBITA estimates.

Over the course of a business cycle, Idun targets to achieve an organic EBITA growth of about 5% per annum with its group companies, thereby contributing 1/3 to the overall growth target of 15%. Unfortunately, Idun didn’t disclose the organic growth rate constantly in the last years, but the expected growth for the industries mentioned above would probably result in a similar assumption.

Acquisitions

Another aspect of Idun’s generation of shareholder value lies in their ability to buy these companies at attractive prices in order to obtain a decent return on the invested capital. According to Engström’s comments at a presentation this year, Idun acquires companies at around 6-8x operating profits, which is quite in line with the Swedish peers.

Unfortunately, I have only been able to accumulate the disclosed purchase prices since 2021, but the findings reinforce the range given by management. To this extent, I would like to emphasize that such an analysis is always lacking the “normalized” earnings that the management of serial acquirers apply themselves.

Looking at the capital returns of Idun, however, we still find some headroom left in comparison to its peers, especially due to a lower sales turnover and the diluted margin. This is already being addressed by management’s efficiency measures, which could narrow the gap if they bear fruit.

Co-Ownership

As already mentioned, Idun follows several ideas and principles of successful serial acquirers. However, while most of them are acquiring 100% of the targeted company, Idun prefers a “co-ownership” approach and usually buys only a majority stake of around 70-90%—leaving or selling the remainder to the operating management. Idun also enters complete ownership, but generally prefers to share interests with the management, which aligns incentives to focus on long-term value creation instead of a relatively narrow earn-out period. As a consequence, Idun’s financials come with a twist. While the group companies’ performances are fully consolidated (despite Stega) within Idun’s Group results, each remaining minority shareholder receives its share of the pie before the ordinary shareholders in Idun come to the turn.

Currently, Idun’s shareholders receive around 76% of the reported EBITA, thereby indicating the average ownership in the acquired businesses. As mentioned earlier, the decentralized organizational structure and the minority shareholding are a great way to align interest in the group companies. Idun highly emphasize this approach using Buffett’s phrasing “we eat our own cooking”, while also referring to the fact that the founder and working chairman, Adam Samuelsson, still owns 31% of the capital and even 81% of the voting rights. Karl-Emil Engström, the current CEO, owns 140,000 shares, or about 1.3% of Idun’s capital, which also accounts for most of his net worth.

Implications for Cashflows

The flipside of this additional incentive lies in the increased complexity of assessing each companies’ cashflows or even more to analyze the cash available for acquisitions.

Firstly, Idun can access most of the group companies cash flows without difficulties due to the majority shareholding—the only exception being Stegaföretagen as Idun only holds 49% of the company. However, by using dividends at the subsidiary level, Idun can generally get liquidity up the structure very effectively. In addition, the company recently set up a cash pool, which combines the liquidity reserves of currently 8/18 subsidiaries. From my perspective, seeing these challenges addressed underscores the fact that management is constantly thinking about how to allocate capital and how to improve Idun's cash flow and thus its ability to make further acquisitions.

Financing

Idun’s past performance was built on the solid cash flows of its specialized group companies. However, Idun's outstanding growth in recent years has been achieved through a remarkable buying spree. Since the beginning of 2021, Idun has already acquired 12 companies, thereby spending on average 240% of its operating cash flow on M&A. This kind of “kick-start” was fueled by the IPO proceeds in 2021 and two bond issues in 2022.

As a consequence, we find Idun’s leverage to be higher compared to e.g. Lifco or Lagercrantz, who achieved their extraordinary track records without really exceeding a net financial debt of 2x EBITDA. Especially, in current times of higher interest rates, Idun faced constantly rising interest payments—with more than 50% of those resulting from the issued bonds.

The combination of an increased leverage and fast acquisition pace lead to the assumption that 2024 is likely to be a year of “normalization”, maybe with an increased internal focus on decreasing financial liabilities and working on efficiency measures. Yet, Idun is of course continuing their search for promising companies, building relationships and so on. But the management as well knows that a successful serial acquirer requires financial strength in order to be bold and fast when opportunities arise.

As we mentioned in the last quarterly report, our intention during the year is to use the group's good cash generation and strong cash position in part to reduce gross debt in order to improve capital efficiency and net interest, and we have during Q1 in a first step amortized debts with approx. SEK 115 million. (Q1 Report, translated)

As a consequence of these amortizations, Idun currently states a net debt to EBITDA ratio of 2.4x, which leaves enough room to the bond’s covenant and financial target of below 3.5x. However, one should not forget the company’s dividend payments to minority shareholders, which reduce the cash available for debt repayments and increase the somewhat actual coverage ratio.

Cash Flows

During the last 12 months, Idun spotted a solid cash conversion of 76%, which increased significantly over the last years compared to about 50% in 2015. Reducing the operating cash flow of 260m SEK with capital expenditures of 44m SEK, we derive at a free cash flow of 216m SEK.

In addition, I usually monitor the free cash flow excluding the movements of working capital in order to understand the underlying cash flow without its short-term distractions. The case of Idun likely showed the largest temporarily diverge so far as a consequence of a significant inventory build-up and rise of accounts receivable in 2022. In the annual report, the management addressed the situation and the measures taken with a focus on the working capital, which has worked so far, as the figures for the following year have shown.

It is in itself nothing unusual for the group to show a strong operating cash flow, but perhaps rather a reasonable expectation of a "normal year" (given e.g. strong niche market positions and relatively good margins) but it is none the less gratifying to state that measures taken during 2023 concerning not least inventory levels have borne fruit. Most of the correction work may have been done, but we will continue to maintain a focus on working capital in 2024 as well. (Annual Report, translated)

As I write this, I really appreciate the work of management with opportunities and challenges, as their clear communication and hands-on mentality seems to be a recurring pattern across different themes.

Valuation

Idun currently trades at 239 SEK per share, equalling a market cap of about 2.54 billion SEK, 219 million EUR or 1/50 of Lifco. To get a grasp on the current valuation, I predominantly use EV/FCF and EV/EBITA multiples, which are obtained using the underlying FCF (excl. NWC changes) and the EBITA attributable for Idun’s shareholders.

Following the IPO in March 2021, Idun’s share price rose immensely similar to various serial acquirers at the time. However, probably a mix of “normalization” in market valuations and the higher interest rate environment caused the stock to enter more reasonable valuation stages. Currently, Idun is priced with about 15x EBITA and 19x free cash flow, thereby indicating more cautiousness towards future growth rates than we find at sector-agnostic peers like Lifco, Lagercrantz or Momentum Group.

This could be the consequence of a shorter track record and significantly higher net debt to EBITDA ratios. In the past of serial acquirers, running too fast was often a mistake in hindsight, due to issues with interest payments, shareholder dilution or the quality of acquired businesses. Therefore, it is crucial for a successful serial acquirer to maintain a high hurdle-rate and persistence when it comes to business quality. Idun’s run over the last years was excitingly fast, but simultaneously rises uncertainty for the coming years. To this extent, I find the management of the company to have the right mentality, demonstrating the ability to focus on internal efficiency measures and debt reduction instead of blindly pursuing empire building. Nevertheless, it remains to see how the acquisition pace and organic development of the group companies evolve over time and cycles—thereby answering the question, whether Idun will close the gap to proven serial acquirer peers.

Conclusion

I find Idun to be an interesting new contender on the map of Swedish serial acquirers, following proven strategies and lead by a highly-motivated and experienced management team. The company already demonstrated its ability to find and acquire market-leading companies that are able to grow top-line and margins organically over time without being too exposed to cyclical industries. In addition, Idun set up a good incentive structure to ensure long-term focus and entrepreneurship across the whole group, thereby also enabling subsidiaries to benefit from add-on acquisitions without overruling them to achieve certain synergies.

On the contrary side, I find myself struggling with the very high acquisition pace over the last years, which could only be financed by raising additional equity (IPO) and debt (although they were likely various other reasons to go public). While I would hope that Idun reduces its debt further and continues its M&A journey more in line with its cash available for acquisitions, I understand that the short, but intense history justifies a discount towards the Olympus of serial acquirers.

Thank you!

During the last two weeks, I read a little book called “The Lessons of History”, which is an exciting journey throughout the lessons that history accumulated for us in the last 5,000 years. While we should certainly be able to enjoy a read without consciously wondering about its application and practice for ourselves, I found myself unable to withstand the urge of taking notes in this instance due to the poetic and insightful writing of Will & Ariel Durant.

But why should lessons from history be of relevance for an investors’ mind?

In my pursuit of finding ideas and practices of the world’s greatest investors and capital allocators, I often find my myself with just a handful of ideas or concepts after reading a certain writing of wisdom. Willing to learn how these people gained this edge over so long periods of time, I eagerly searched for formulas that I could follow blindly in order to get the same results. Therefore, I felt a little bit disillusioned reading predominantly about mental models or conceptual thoughts that wouldn’t be able to solve my problems of practical nature. As I searched for the exactly right solution to the numerical exercise of fundamental analysis, I totally missed the fact that there was a simple reason for its absence.

Obviously historiography cannot be a science. It can only be an industry, an art, and a philosophy—an industry by ferreting out the facts, an art by establishing a meaningful order in the chaos of materials, a philosophy by seeking perspective and enlightenment.

Similar to historiography, investing cannot be a science. “It can only be an industry, an art, and a philosophy”, as described in the first pages of the book. Accordingly, our task is not to find the right answer, but moreover the pursuit of “establishing a meaningful order in the chaos of materials”. Throughout our journey of learning, we increasingly recognize that there is so much more depth to investing than solving a numerical exercise. It is therefore no surprise that a substantial amount of great investors were students of philosophy. From Carl Icahn and George Soros, to Peter Lynch and Bill Miller - all these investors have studied philosophy.

Analyzing annual reports is surely necessary, but not sufficient for achieving excess returns. Nurturing the mind through reading and thinking is indispensable for a great investor as it is enabling us to see patterns and links in the flood of information pieces to which we are continuously exposed.

History repeats itself in the large because human nature changes with geological leisureliness, and man is equipped to respond in stereotyped ways to frequently occurring situations and stimuli like hunger, danger, and sex. But in a developed and complex civilization individuals are more differentiated and unique than in a primitive society, and many situations contain novel circumstances requiring modifications of instinctive response; custom recedes, reasoning spreads; the results are less predictable. There is no certainty that the future will repeat the past. Every year is an adventure.

I find this a remarkable description of learning from history. While the human nature and its instinctive responses to certain circumstances do enable us to derive recurring themes, we must not lose the right perspective, namely that all lessons from history are by definition 100% hindsight. In the world of investing, this perspective on the past surely is inevitable due to our tendency to extrapolate current trends into the future. And it seems so reasonable to do so, but regardless of the current state being positive or negative, we’ll likely see a reaction in some way or the other. A business, which is currently growing in high double-digits will sooner or later revert to a “normal” growth path, while challenging times or even managerial mistakes are likely to be followed by changes and adjustments intending to fix the problems and get the business back on track. So while we should be cautiously extrapolating the past, we must also recognize a certain degree of uncertainty regarding the future that just can’t be included in discounting models or consensus estimates.

So as many times before, we’re reminded of how important resilience is to fundamental investing, especially with regard to the right people managing the business - as these are the ones that have to deal with the appearance of unforeseeable events.

In discussing the social evolution of man throughout history, the Durant’s describe a similar phenomenon in the recurring rise of new situations that require “novel, unstereotyped responses” and a “capacity for experiment and innovation” in the mind of human beings. Linked to the biological evolution these attributes are the equivalents of “variation and mutation”, thereby indicating a likelihood that some individuals will be better suited to adapt to these new situations.

“Here the initiative individual — the "great man," the "hero," the "genius" — regains his place as a formative force in history.”

We already talked about the topic of heroes in my notes on Rick Rubin’s book, however, in this case we’re regarding it from a different angle. Throughout the course of history, heroes were certain individuals that left their mark in the history books, often due to a very specific combination of personal characteristics, abilities and timing.

At times his eloquence, like Churchill's, may be worth a thousand regiments; his foresight in strategy and tactics, like Napoleon's, may win battles and campaigns and establish states.

Interestingly, timing is often less considered yet ultimately decisive. In the words of Will and Ariel Durant, “without some situation requiring a new response his new ideas would be untimely and impracticable”, which can certainly be stated equivalently for the financial world. A tribe of highly intellectual and analytical human beings is constantly pursuing to find the next prospering opportunity in the markets. And although certain businesses appear to be so obviously of high quality that we’d love to own them, we are not willing to bet on them as of right now as timing, or valuation in this case, comes into play.

During economic downturns or times when the individual growth prospects of a business become threatened in the public eye, we can see these windows of opportunities open up, however, they’re now increasingly hard to take. According to the our drawings from history, whether this challenge “will or will not be met […] depends upon the presence or absence of initiative and of creative individuals with clarity of mind and energy of will (which is almost a definition of genius), capable of effective responses to new situations (which is almost a definition of intelligence).” This clarity and self-confidence to act against the current reminded me immediately of François Rochon’s theory of the missing gene, which I recalled from a recently published interview. This gene “prompts most individuals to follow group behaviors instinctively,” which was quite useful in primitive societies when certain dangers arose, as asking too many questions and not running away immediately could end in misery. Following his analogy, however, there is a certain group of people that “lacks this gene, enabling them to act independently from the group.” What would be recognized as a handicap in history, can be seen as a behavioral advantage of an investor, today. Or to abstract even further, what we consider to be good or bad traits for success in the field of investing, would be rephrased in the light of nature and history; “they define good as that which survives, and bad as that which goes under,” as the Durant’s pointed out in their writing.

Survival appears to be a recurring theme of significant importance throughout various fields of wisdom. “Victory in our industry is spelled survival,” as Steve Jobs once remarked, or the popular saying of Andy Grove that “only the paranoid survive,” just to mention a few that came up to my mind. So interestingly, this broadly-shared perception of survival appears to be closely related to biological and social history of mankind. To this extend, we can find another wonderful analogy in the book:

Life has no inherent claim to eternity, whether in individuals or in states. Death is natural, and if it comes in due time it is forgivable and useful, and the mature mind will take no offense from its coming.

Similarly, we can recall that companies also do not have an “inherent claim to eternity”, although the best of them are able to revive the business through internal disruption before the external circumstances put an end to it. Yet, only a minority of business leaders and organizations are able to accomplish and survive such groundbreaking transitions. Think of Danaher: what started as a serial buyer of small industrial companies is now to be considered a market-leader in life sciences and diagnostics. Such an organizational agility and willingness to adapt constantly is outstanding (and vividly described by Mitch Rales in an episode of the “Art of Investing” podcast).

Finally, Will and Ariel Durant point out that “a great civilization does not entirely die.” There are some achievements that “have survived all the vicissitudes of rising and falling states”, e.g. language, art, family, social organization, morality, et cetera, because we make use of “teaching to transmit the lore of the family and the race.”

These are the elements of civilization, and they have been tenaciously maintained through the perilous passage from one civilization to the next. They are the connective tissue of human history.

Therefore, education can be defined as the “transmission of civilization” by handing down “our mental, moral, technical, and aesthetic heritage”, representing the true achievement of humanity. History, in this context, can be generally regarded as the “creation and recording of that heritage”, but also as “an encouraging remembrance of generative souls.” A true testament to the pursuit of making friends with the eminent dead, which is beautifully captured by the following excerpt:

[The past] becomes a celestial city, a spacious country of the mind, wherein a thousand saints, statesmen, inventors, scientists, poets, artists, musicians, lovers, and philosophers still live and speak, teach and carve and sing.

The ability to capture the essence of human history in such a poetic way is truly inspiring, and I hope that some of those outpourings flowed to me as I read this book—you will probably be the first to notice and benefit in future writings.

For now, I end my reflections on this great book with its remarkable ending, which seems like a compelling theme to live by and share our fruits of lifelong learning.

If a man is fortunate he will, before he dies, gather up as much as he can of his civilized heritage and transmit it to his children. And to his final breath he will be grateful for this inexhaustible legacy, knowing that it is our nourishing mother and our lasting life.

Thank you!

We already talked about the different games an investor can choose to play. Rising popularity and an incredible performance, periodically, will attract the path of incautious jackpot-seeking that forsakes any hurdle rate or foresighted vigilance. Contrarily, we can strengthen our behavioral edge by consistently practice patience and diligence in order to build something that lasts. While the first can be regularly observed in a noticeable manner, as is their nature, the latter subtly takes one step at a time, thereby revealing its beauty only when reviewing the total work of art. Also, I noticed that the success of the latter is often accompanied by a great simplicity with regard to the core ideas and values that are largely unaltered and safeguarded by the management. Reflecting on this note, I find my mind sprinkling new ideas and references to other successful businesses. Think of Brunello Cucinelli and his idea of preserving the company by being a guardian of its values and creation. Or the most fundamental principles on which Buffett has successfully built Berkshire Hathaway for nearly 60 years. In order to let compounding do its work, we must to be patient and reluctant to mess things up for short term profits.

Perpetual Ownership

Similarly, we can view the characteristics of long-lasting serial acquirers. Much like Berkshire itself, the success of serial acquirers is based on the fundamental principle of perpetual ownership. Confirming that this concept is nothing new, Olle Backman (CEO of Vitec Software) said “I almost feel sorry for the audience here, because you stand here listening to us and we basically say the same thing, but the proof is in the pudding.” According to him “it comes to values, culture and also showing that you’re actually not just the slides, but what you’ve been doing over time. So I think it’s delivering over time and being that permanent home.”

Interestingly, while this concept might appear to be theoretical, e.g. holding your stocks for many years, it is crucially real for serial acquirers as they deal only with people and often with regard to their passionately built enterprises.

“I think it’s important to realize that when we’re out there, we usually come across companies that are fairly small, there might be 50-100 employees. They’re living in a local community, they have a company that has been run for 3 generations the same way, and I think they very much would like to have someone that act very responsibly taking over their company, so that they can go to the local grocery store for many years and feel proud that the company was well taken care of.” Jörgen Wigh (CEO of Lagercrantz) perfectly described how serial acquirers bring these fundamental ideas to life.

A Different Game

And being a honorable guardian of the life’s work of another human leads to another advantage with regard to the increasing competition between serial acquirers and smaller private equity firms. As Johan Andersson (CEO of Addnode Group) explains “the best salespeople with regard to that are the guys that we’ve previously acquired.” Seeing that these businesses are prospering (perhaps even on a higher level) after the transaction is the best argument serial acquirers have in conversations with newly interested companies. Calling back to my earlier statements, we also find here another reference to Buffett’s popular statement that “it takes 20 years to build a reputation and five minutes to ruin it.” And these serial acquirers certainly do anything to avoid ruining the promise of being “a safe haven for your business” (Lifco).

While we as investors can rashly come to the perception that the crucial decision criteria for the selling party is the offered price, we’re now learning that the interhuman relationships and post-acquisition prospects are even more significant for the outcome. And this advantage to private equity is even more strengthened as planning to hold the company indefinitely also naturally causes an incentive to make the businesses better. As Johan Andersson therefore puts it, as perpetual owners “we need to reinvest, because we’re going to make money 5 years from now, and 10 years from now. There’s no end the game to it.”

In this way, we can see why the multiples paid for acquisitions have not increased significantly for a number of years, although the interest in this industry surely has. Serial acquirers kind of play a different game (think of my recent notes on Guy Spier), which is their competitive advantage.

Drinking Coffee

Another thought that came to my mind listening to these conversations was how the serial acquirers’ description of the acquisition process differed from my own perception. During the panel talk, the question arose whether there are any specifics of the M&A process that are not well understood by investors. Recalling Jörgen Wigh’s description of a owner-operated niche business, it’s reasonable why “you don’t have all these advisers, 150-pages reports” as Olle Backman further adds, “you have to narrow down the specifics.”

So instead of analyzing the last points of data one could possibly find, the experience of serial acquirers helped to evolve an intuition. I noted Backman’s description:

“We buy the same company all over. We look at something that looks like ourselves and then we try to find it and those characteristics. And then we’re just doing a confirmatory, really light kind of due diligence, because we know what we’re looking for. And yet again we have the time to fix it if there’s potentially something that’s fixable.”

I find a possible reason for the great admiration that investors hand towards serial acquirers, perhaps lies in the similarities of their values and practices with those of fundamental investors, thus aligning their visions and interests. Therefore, it comes at no surprise that Backman’s thoughts are similar in many aspects to Buffett’s approach. In the book “What I Learned Before I Sold to Warren Buffett”, Barnett Helzberg described the story of how Buffet bought his family business.

“This can be the fastest deal in history,” Buffett said.

“But what about the due diligence?” I asked, surprised at how fast the negotiations were moving.

Most suitors demand to see every scrap of paper you’ve ever generated and to interview every top manager.

That wasn’t Buffet’s way. “I can smell these things.” Buffett said. “This one smells good.”

(I found this excerpt on an episode of David Senra’s Founders podcast)

The advantage of serial acquirers through buying family-owned businesses is that these sellers won’t do anything that harms the company. Also, those kinds of negotiations appear far more attractive from the seller’s perspective as to see the company being sold at an auction to a random private equity firm. As a preventive action serial acquirers have to constantly reach out to potential sellers, thus Jörgen Wigh at Lagercrantz calls it “drinking coffee” - a way to describe them “meeting with companies and getting acquainted with people.” Interestingly, this approach gives serial acquirers with an established and proven reputation an advantage over their younger peers, as Frederik Karlsson (CEO of Röko) recalls. As a former CEO of Lifco, who is currently building a new serial acquirer, he recognizes a disadvantage with regard to the available number of opportunities: “But we will get that, I call it Lagercrantz and Lifco natural deal flow, as we prove ourselves.”

So there’s still a moat around the Olympus of serial acquirers.

To finish first, you have to first finish.

All my reflections have shown how serial acquirers successfully bring the wisdom of long-term investing to life. This is also true for my last thought. As Charlie Munger recalled: “to finish first, you have to first finish.” Personally, I’ve considered the concept of survival as trivial for a long time, but more and more recognized its significance. With regard to serial acquirers, I find this idea to capture the essence of this business approach remarkably well, because in order to built the company for decades, all the discussed practices and values have to be aligned for longevity.

As a consequence, asking a serial acquirer to define their perspective on risk leads to the following response (is this case from Frederik Karlsson):

“If the general business cycle would be very bad for a long long time - it’s happened probably in the Great Depression and the World War 2 - you have to have situations like that, otherwise these kind of short disturbances - we have had the financial crisis, it was no problem at all, and corona was no problem, the inflation was no problem - so this kind of model is very robust and can handle short downturns at least. If you have a 10 or 20 year downturn it will be tough.”

These serial acquirers are here to stay and built to last.

Thank you!

Miscellaneous

While I hope you’ve found joy in reading my personal reflections on the conference, I want to warmly recommend reading the more comprehensive comments of my friends at “The Compounding Tortoise” and the outstandingly helpful research of Redeye regarding Swedish serial acquirers. And finally, Chris Mayer’s reflections from 2022 that initially started my admiration for this business model.

Therefore, I was eager to read his recently published annual letter1 to partners of his fund and share with you my findings and reflections.

The Game of Long-Term Compounding

As introduced at the beginning, I’ve learned a lot from Guy about the power of compounding. While beating the index by a small margin can seem minor, only an extended perspective of several decades is able to reveal the underlying force of compounding at these returns. Thus, extrapolating the funds’ annual return of 9% the initial investment of $1 million in 1997 would grow to $9.7 million today, $31.4 million in 2037 and even $74.4 million in 2047.

These numbers are a testament to the extraordinary power of steady compounding sustained over decades.

Visualizing the power of persistently compounding capital is delightful, but even more an exercise to reset one’s focus on the long term - a character trait so mandatory to make decisions today. Especially, as the default setting of human minds causes linear thinking and overweighting of short-term results, reminding oneself of the actual game we’re envisioning to play can be useful from time to time. As a consequence of this variety of manipulating biases, I recall a widespread sense of humility among the greatest investors with regard to protecting the momentum of compounding by all means. Reflecting on myself, I found this reverence to move away constantly as daily news of certain highflyers and quarterly results are being actively discussed, thereby unconsciously shifting my focus. Willing to take Guy’s letter as another chance to revive this effort, I found a section of him particularly helpful:

What I’ve come to realize is that the key is really to get just a couple of big ideas right. In our case, the big ideas have been remarkably simple:

1. Focus on long-term compounding by buying and holding good businesses.

2. Reduce friction by resisting the urge to trade the portfolio.

[…] You’ll do extremely well over the course of your investment life if you simply hold good businesses that keep compounding over many years—so long as you avoid self-defeating behavior like trading too much, shorting, leverage, or living beyond your means.

A Different Game

“Self-defeating behavior” is accurately describing my issues that I noted earlier. A tendency to act on the constant flow of information under the guise of making “smart decisions”, while actually just interrupting the power of compounding to unfold. This impression to act becomes particularly insistent when recognizing the performance of the companies that are currently everyone’s favorite and the new “must-have” for every portfolio. And while these companies certainly achieved great returns in the past, Guy recalls that “the momentum can reverse, and they could easily go nowhere for a decade”. So by reviewing the past performance, as well as the current valuation and future prospects, individually, we resist the urge to chase the current and avoid self-defeating behavior.

Of course, I wish that I had owned these stocks, and I should try to learn from my mistakes. At the same time, there’s an enormous danger that, in trying to correct for my mistakes, I end up lunging at dumb behavior.

The last thing I want to do is blindly chase whatever jackpot strategy has been working best in the casino today. After all, what worked today may not work tomorrow.

The reflections of his on the impulse to correct the past mistake of not having benefitted from these great companies are resonating deeply with me and will, as I find, perhaps also be of help to other private investors. Guy is lively describing the virtues of value investing through the analogy of different players in a casino. While everyone’s attention is focusing on the high-rolling gamblers that are constantly putting everything on one card, we’re overlooking the croupiers of the casino, who are earning a sustainable and low-risk return over the long-term. According to this narrative, the "dumb behavior" of the croupier, as Guy mentioned it, would be to suddenly change the previous strategy, give in to the urge for faster profits, and start chasing the big jackpot. However, as easy as it seems to avoid this behavior under favorable circumstances, e.g. an outperforming portfolio, things can quickly change once we’re faced with ongoing underperformance due to missing various highflyers. So was Guy Spier finding himself underperforming the S&P 500 in the last year, particularly due to the astonishing returns of the Magnificent 7 that are of low fraction in his fund’s portfolio. And while he’s surely taking the time to reflect on his strategy and principles, Guy is foremost sticking to his approach persistently, recalling to protect the momentum of compounding as more decisive. In the meantime, he shares with us the principles that he has found to be most practical when faced with a similar situation:

1. Accept the fact that, in any given period, I’m bound to underperform some other winning strategy that appears to be making other investors wildly rich in the short term.

2. Recognize that there will be pressure to stop doing what I’m doing and replicate what’s been working brilliantly for these other lucky or skillful investors.

3. Resist that temptation.

4. Focus instead on sticking resolutely to the strategy that I believe will work well over the long run, despite these intermittent periods of underperformance.

5. Make peace with the reality that my long-term strategy will, on a regular basis, make me look and feel stupid over shorter periods of time.

6. Focus exclusively on taking actions that are consistent with my long-term strategy.

7. Look back in 10, 20, or 30 years and see how few of those high-rolling gamblers made it successfully to the finish line.

Oak Trees

Nebst principles to persist the journey of compounding, Guy is also sharing valuable lessons for portfolio management. Deeply inspired by Buffett’s virtues, Guy is pursuing a strategy at the Aquamarine Fund that “is built on a bedrock belief in the benefits of owning exceptional businesses that are highly likely to compound at an attractive rate for many years to come.”

Accordingly, the portfolio contains businesses that developed to be a key holding as a consequence of continuous outperformance. These companies demonstrated their ability to be long-term compounders and own, what Guy describes as the economic high ground.

At the core of our portfolio, we hold a fairly concentrated selection of these long-term compounders, which occupy what I regard as the economic high ground. To put this another way, these companies remind me of oak trees — strong, resilient, and capable of enduring over long periods of time even under the most challenging conditions.

In his letter, Guy often returns to the analogy of portfolio holdings as growing oak trees, making his portfolio a forest of great ideas. In addition to its core holdings, the giant oaks, the fund’s positions include a few “younger, faster-growing saplings that could eventually turn into oak trees.” This concept immediately reminded me of my reflections on Rick Rubin's "The Creative Act", in which the producer also describes the process of generating ideas through seeds as "potential starting points that, with love and care, can grow into something beautiful." In this previous note, I already linked the concept to portfolio management, but I find Guy’s thoughts to be even more extensive and very helpful, so I added them here.

Coming back to Guy’s letter, one of these younger and faster-growing saplings is CARE Ratings, one of India’s leading credit rating agencies. It’s an example for the idea of starting new positions rather small, as saplings in the garden, while monitoring them closely to see, whether the company has the ability to grow and compound into a resilient tree.

If everything pans out and it [CARE Ratings] turns out to be a 20-bagger, I’ll regret not having owned a bigger position. But if, for whatever reason, it doesn’t work out, it won’t be painful. This is a good example of the way we plant a bunch of seeds in fertile ground and wait to see how they grow.

Perhaps I just have a weakness for these kinds of analogies, but thinking back to my earlier statements about practicing a long-term view, I find these concepts to be very useful. They're a great way to slow down the constantly stimulated mind and bring the focus back to the big picture with ease.

And while we're certainly planting our seeds carefully, we should be careful not to fall in love with them nor make a personal commitment to hold these companies permanently. In other words, Guy refers to these stocks as "core-for-now" holdings that, in the course of the aforementioned strategy, receive the “time and space to continue growing and compounding at a reasonable rate.”

Some of the investments really enjoyed their time of growing astonishingly in the grove, while opening up the challenge of letting these winners run. Although the fund started most of its positions with a reasonable small fraction, Guy recognized that the top seven holdings now account for nearly three-quarters of the fund's assets. Such a result can only be achieved by holding on to your winners, even if you may be facing overvaluation in the meantime.

I’m willing to live with moderate overvaluation, not least because I know how hard it is to buy a great business once, let alone twice. If a company is truly a long-term compounder, it may be worth holding even through periods of extreme overvaluation.

While his reasoning seems easy to understand, it can be a much harder challenge in practice. And Guy further elaborated on this by explaining his reasons for trimming his stake in Ferrari once again in early 2024:

On the one hand, Ferrari, like Hermès, is one of those rare luxury brands that are virtually impossible to recreate. On the other hand, the company could face significant risks in the coming years, including questions over the transition to electric vehicles. In the meantime, there’s a heady sense among investors that Ferrari can do no wrong. […] To me, it seemed clear that I had to scale back our position in Ferrari, given that the whole world is cheering for the company and that its stock is priced for perfection.

We see that even the world's greatest investors struggle to answer the question of whether a stock has become too expensive to keep, while simultaneously weighing the prospects of the underlying business and the intended pursuit to protect the momentum of compounding.

Nevertheless, I felt again deeply inspired by Guy’s writing, and hope that my reflections here were also a little bit of help to you. Again:

"We’re not rolling dice with the high rollers in a casino. We’re planting and nurturing our grove of oak trees.”

We’re playing a different game.

Thank you!

Art is choosing to do something skillfully,
caring about the details,
bringing all of yourself
to make the finest work you can.
It is beyond ego, vanity, self-glorification,
and need for approval.

During my journey in the field of investing, I definitely took me a while to recognize that a lot of wisdom and useful experiences lie beyond the finance and investing literature, on which I relied on during the beginning. Realizing that any form of storytelling can bring an idea or thought to life, even if it's not directly related to finance, has greatly increased my motivation to read and learn because of the joy of variety. Reflecting on my latest readings, I found particular joy in Rick Rubin’s manifest on “The Creative Act”. The book is a compilation of his thoughts and experiences as an artist, but abstracted in a beautiful way that invites everyone to reflect on their own ways of being creative.

Personally, I found many of his ideas resonating with my beliefs and processes in the field of investing and my interest in writing. Classifying investing as a form of art, on a level with painting, music, and more, felt a little odd at first. However, acknowledging both the personal creative act and the craft and practice of investing as a form of art allows us to expand our thinking beyond the conventional rules and beliefs of investing, leading to new and exciting results.

Rubin’s thoughts have definitely helped me meditate on my beliefs and practices and I hope you’ll find my reflections to be of help.

Some ideas may resonante, 
others may not. 
A few may awaken an inner knowing, 
you forgot you had. 
Use what's helpful.  
Let go of the rest.

Lifelong Learning

Thinking about the versatile and incredible wealth of wisdom accumulated throughout the history of investing, the pursuit of lifelong learning struck me the most.

Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day.

- Charlie Munger

While this concept can find manifestation in various forms, the habit of genuine curiosity will in every way extend our perspective and the sensibility, thereby enabling us to become an increasingly better investor ourselves. Interestingly, and perhaps induced by the significance of this topic, this concept was also reflected for me in several paragraphs of Rubin’s writing.

The heart of open-mindedness is curiosity. Curiosity doesn't take sides or insist on a single way of doing things. It explores all perspectives. Always open to new ways, always seeking to arrive at original insights.

Rubin is pointing directly at the significance of curiosity as an essential in the creative toolbox. Especially during the process of idea generation, an open mindset enables us to recognize far more opportunities due to the enhanced flexibility and sensitiveness of our mind. As with reading in particular, open-mindedness is an active way of being that demands us to constantly practice thoughtfulness and curiosity in order to connect the dots or generally extend our point of view beyond the set of beliefs we initially hold.

To keep the artistic output evolving, continually replenish the vessel from which it comes. And actively stretch your point of view. Invite beliefs that are different from the ones you hold and try to see beyond your own filter.

Challenging our own beliefs is generally the defiant part of learning, though it’s getting increasingly tougher with regard to our own investment ideas we’re holding with a high conviction after spending a significant amount of time researching. The tendency to filter incoming information and only let the confirmatory pass prevents us from doing our best work. Here, collaboration can be the next important tool. Buffett’s concept of having Charlie Munger as his sparring partner to openly discuss ideas is a popular manifestation of this concept.

When a collaborator's feedback or method seems questionable and conflicts with your default setting, reframe this as an exciting opportunity. Do all you can to see from their perspective and understand their point of view, instead of defending your own. […] In addition to solving the problem at hand, you may uncover something new about yourself and become aware of the limits boxing you in.

Rubin shared a lot of thoughts on collaboration, probably rooted in his own rule as a music producer being a sparring partner himself for other artists, which are also highly relevant for us as investors. In his writing he pictures the benefit of cooperation as giving or getting a boost to see over a high wall, therefore including no competitive thinking at all. By discussing our ideas and working together, we can accomplish results that would otherwise be beyond our individual reach.

The ego demands personal authorship, inflating itself at the expense of the art. It can reject new methods that appear counterintuitive and protect familiar ones. The best results are found when we're impartial and detached from our own strategies. We all benefit when the best idea is chosen, regardless of whether it's ours or not.

I noted the quote down to keep reminding myself that detaching from my thoughts is necessary to choose the best idea possible. Though I unconsciously feel the urge to find investment opportunities by myself, I actually know that this is only a need of my ego that I shouldn’t give in to. Especially, as tremendously helpful writings and shared wisdom was never as accessible as today. Furthermore, Rubin argues that all creative work will always be just an interpretation of the available information, which is especially important for investors, who may feel save with the takeaway from a new press release or media article, as they seem to be so clear and objective at first. The same applies to copying the ideas of other investors.

Heroes

Every artist has heroes. Creators whose work we connect with, whose methods we aspire to, whose words we cherish. These exceptional talents can seem beyond human, like mythological figures.

Thinking of cloning, we’re probably arriving at our favorite investors, our heroes. I immediately noticed the connection towards the concept of baldly copying the world’s best investors, popularized by Mohnish Pabrai, while reading Rick Rubin’s thoughts on heroes. Interestingly, Rubin points out that copying the work of other artists is not always to be condemned, since we are not in a position to copy their point of view anyway.

It's impossible to imitate another artist's point of view. We can only swim in the same waters. So feel free to copy the works that inspire you on the road to finding your own voice. It's a time-tested tradition.

So, although we have an easy access to the portfolios and latest transactions of these investors, they still seem to be surrounded by a special atmosphere. Meanwhile, this supposed transparency can be misleading, creating a false sense of certainty about the motivation (or point of view) behind these decisions.

Without witnessing a beloved work's actual creation, it's impossible to know what truly happened. And if we did observe the process with our own eyes, our account would be an outside interpretation at best.

I would never disagree with finding inspiration in the work and ideas of great investors. Recalling the fact that we’re only capable of interpreting the available data without seeing the full picture, seemed important to me though. And due to Rick Rubin’s fascinating ability to describe these human traits, I’ll end this section with his summary on interpretation and labeling:

Generally our explanations are guesses. These vague hypotheticals become fixed in our minds as fact. We are interpretation machines, and this process of labeling and detaching is efficient but not accurate. We are the unreliable narrators of our own experience.

Seeds

Seeds are a beautiful way of describing the “potential starting points that, with love and care, can grow into something beautiful.” Imagining a handful of seeds that all grow differently once planted, with no way to predict the outcome, is a helpful way to think about portfolio management. With regard to the question, what portion of the portfolio a new investment should represent, we see that there’s no right answer at the beginning. We have to start somewhere, perhaps somewhere at the lower end, and watch the seed grow. Maybe something beautiful is coming soon.

Developing this sense for the potential of our seeds can help us adjusting the portfolio allocation. Similarly, we can think of Peter Lynch’s famous analogy that selling your winners and holding your losers is like cutting the flowers and watering the weeds.

Artists are ultimately craftspeople. Sometimes our ideas come through bolts of lightning. Other times only through effort, experiment, and craft.

Likewise, we can think of seeds as simple ideas or thoughts that could appear by coincidence or as the consequence of work and effort. Importantly, the effort invested to obtain the idea doesn’t amplify the its quality.

Rules

Often the standards in our chosen medium are so ubiquitous, we take them for granted. They are invisible and unquestioned. This makes it nearly impossible to think outside the standard paradigm.

While meditating on Rubin’s thoughts on the process of idea generation, I additionally noted his sayings on rules and standards. The community of investors has constantly redefined its admired standards regarding several forms, may it be favored industries, business models, regions or valuation metrics. Moreover, we're constantly being asked to come up with a basket of labels for each idea, ranging from SaaS to Serial Acquirer to New Berkshire Hathaway and the like. While some of these labels may fit better than others, we're certainly limiting ourselves and preventing ourselves from seeing something completely new. Also, standards and labels have the fallacy to be general approaches that most of the time miss individual details. At this point, I recalled Buffett’s persuaded citing of John Maynard Keynes:

It is better to be roughly right than precisely wrong.

A quote that resonated with Rubin’s thoughts for me, influencing me to think of the necessity of adjustments we make during the analytical process. Contrary to my initial urge to calculate each financial measure according to standard accounting or even the companies’ own definitions, thinking of the rationale behind them on yourself and obtaining them as best you can, will improve the outcome more than a precisely wrong attempt would harm it. Or as Rubin summarizes:

When we make a discovery that serves our work, it's not unusual to concretize this into a formula. On occasion, we decide this formula is who we are as an artist. What our voice is and isn't. While this may benefit certain makers, it can be a limitation for others. Sometimes a formula has diminishing returns. Other times, we don't recognize that the formula is only a small aspect of what gives the work its charge. It's helpful to continually challenge your own process.

So in order to avoid the “diminishing returns” of limited perspectives, we’re circling back to being open-minded and genuinely curious. And although these conclusion may seem a little abstract, I find them really helpful to reflect on my own behavior in the process of investing. So the next time someone suggests a business or investment thesis that you'd normally dismiss out of hand because of prejudices and labels, try to redefine the situation as an opportunity to try something new or at least challenge your beliefs. Historically, this could’ve offered you a tremendous amount of great opportunity, perhaps because the effort required to be curious and to look beyond the obvious provides some kind of competitive advantage.

Invert, always Invert

Another way of getting the mind beyond existing limitations or rules is to invert the phrasing of the problem at hand.

For every rule followed, examine the possibility that the opposite might be similarly interesting. Not necessarily better, just different. In the same way, you can try the opposite or the extreme of what's suggested in these pages and it will likely be just as fruitful.

Similar to Munger before, Rubin’s description of challenging the current state relies on the old Jacobian maxim: “invert, always invert.” Nebst the concept of lifelong learning, this in probably one of the concepts that I appreciated the most practicing. Therefore, I found it useful sharing Rubin’s interpretation of it as well. Applied to problems or limitations in the creative process, trying the opposite can be really fun, even if the results are likely to be unprofitable. A good example in the investment universe was given by Gautam Baid in “The Joys of Compounding”:

What can go wrong? versus What growth drivers are there? Rather than focusing just on the growth catalysts, think probabilistically, in terms of a range of possible outcomes, and contemplate the possible risks, especially those that have never occurred.

Particularly in the field of investing, letting your thoughts wander about the opposite of your actual question can immediately ease the process. Also, playing with the opposite form of our usual practice can lead to unexpected results.

Craft

In the Experimentation phase, we planted the seed, watered it, and gave the resulting plant time to grow in the sun. We let nature take its course. Now, in this third phase, we are bringing ourselves to the project to see what we can offer.

Having collected a handful of seeds or in our case a handful of companies, we’re now actively “applying our filter” and developing the work. For me, this is reflected in my active analysis of a company or industry. Where before I was just collecting data and information, I am now ready to apply my own practice and filter to develop my own personal interpretation of the situation at hand.

However, starting this process with several ideas in mind, we can become unsure how to approach the next step. According to Rubin, we may follow the “hints of excitement” to get on a path allowing us to complete our work without getting stuck by losing the earlier temptation.

If several directions seem captivating, consider crafting more than one experiment at a time. Working on several often brings about a healthy sense of detachment.

Although every form of craft differs, I find the concept of detachment generally a useful one as I recalled my latest research attempts. Sometimes, I would analyze a particular company and really dive into without considering others as equally likely-to-buy. Other times, I would come across an industry and analyze several companies without having a particular favorite at the beginning. Although I hadn't considered it before, I always felt more confident and convinced to hold companies that were the fruit of the latter. Stepping away from a company by analyzing several ideas that excite us simultaneously deepens our knowledge overall, but also improves the results individually.

Great Works

After I’ve shared my reflections on the creative process for an investors mind, I want to end with a note on great works. Following Rubin’s thoughts, the pursuit of greatness is an unconscious desire fueled by the curious mind.

It is not a search, though it is stoked by a curiosity or hunger. A hunger to see beautiful things, hear beautiful sounds, feel deeper sensations. To learn, and to be fascinated and surprised on a continual basis.

This temptation to learn from the greatest, as a consequence of lifelong learning, returns us to the beginning of our discussion. And again, this mindset manifests itself through various forms.

If you make the choice of reading classic literature every day for a year, rather than reading the news, by the end of that time period you'll have a more honed sensitivity for recognizing greatness from the books than from the media. This applies to every choice we make.

This instantly reminds me of Charlie Munger’s approach to make friends with the eminent dead and the great thinkers of the past. By exposing ourselves to the great works, we increase our minds’ ability to “distinguish good from very good, very good from great.” The process increases our awareness for greatness and also raises the bar for our own expectations. This inspires my pursuit of learning and analyzing great companies, and also motivates me to share my reflections in the hope of satisfying my and your desire for great works.

The objective is not to learn to mimic greatness, but to calibrate our internal meter for greatness. So we can better make the thousands of choices that might ultimately lead to our own great work.

Thank you!