🎙️ Chris Mayer
Do you know Chris Mayer?
He is the founder of Woodlock House Family Capital and has a true passion for investing in great businesses.
In this interview, you’ll learn more about Chris Mayer’s view on multibaggers, valuation, diversification, Evolution Gaming, and much more.
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🎙️ Interview Chris Mayer
Compounding Quality: How would you define yourself as an investor?
Chris Mayer: Well, first of all, I want to highlight that I am not a big fan of labeling myself. As a matter of fact, I wrote an entire book about this called ‘How Do You Know? A Guide to Clear Thinking About Wall Street, Investing, and Life’.
When you label yourself, you limit yourself.
Everyone should keep an open mind and capitalize on the opportunities that arise.
In general, I’d say that I am looking for companies with the following characteristics:
Skin in the game
A healthy balance sheet
High returns on capital
Plenty of reinvestment opportunities
Think about businesses like Constellation Software, Old Dominion Freight, and Heico.
Compounding Quality: Besides ‘How Do You Know?’, you’ve also written the excellent book ‘100 Baggers’. What are the key takeaways of this book?
Chris Mayer: Multibaggers often have the following characteristics:
Attractive revenue and earnings growth
A sustainable competitive advantage
Still run by its founder or the family of the founder
They are relatively small as it’s easier for these companies to grow at attractive rates
Multiple expansion (the P/E ratio increases)
I learned a lot from writing the book 100 Baggers. I would like to highlight two key things:
For great performers, it’s very common for huge drawdowns to take place from time to time. Be prepared for drawdowns of 30%, 40%, or even more. Even Berkshire Hathaway got cut in half 3 times since Warren Buffett took over the textile company in 1965.
There can be long stretches when a stock goes nowhere at all. That’s why you should be very patient. It’s one of the most important things for investors. Be prepared to do nothing at all for a very long time.
Compounding Quality: Have you ever owned a 100-bagger yourself?
Chris Mayer: I started Woodlock House Family Capital in 2019.
Back then, I liquidated my entire portfolio (except for Berkshire Hathaway) to invest all my investable assets in my fund. This means the timeframe isn’t long enough to create serious multibaggers.
Since the launch of the Fund in 2019, my biggest winner has probably been Copart, which has more than tripled. Brown & Brown has been another multibagger within my Portfolio.
Onepager Copart (click on the picture to expand):
Onepager Brown & Brown (click on the picture to expand):
Compounding Quality: I would love to own Copart one day but I think the valuation looks quite expensive (Forward PE: 34.2x). How do you look at Copart’s valuation?
Chris Mayer: I don’t think Copart is too expensive today.
Every year, I’ve heard that the company looks expensive but so far the company has never disappointed investors. I first discovered Copart in 2011 and since then the stock has been up more than 1,500%.
If you’ve found an attractive company but the valuation looks expensive at first sight, I think you can still end up with great investment results if you are very patient.
Great companies tend to underpromise and overdeliver. You shouldn’t be too afraid to pay up for a great business.
What I would do when you think a great company looks expensive, is to buy a small stake. You can still buy more when its valuation comes down.
Compounding Quality: How do you think about diversification?
Chris Mayer: My portfolio is quite concentrated. I own 11 companies and I let my winners run.
I never buy a company for more than 10% of the Portfolio, but I let my runners run. I would have no problems with it when a certain company grows to 20% or even 40% of the total portfolio value.
All I’m trying to do is find great businesses with a high ROIC and plenty of reinvestment opportunities. Even companies with a market cap of $20 billion (like Brown & Brown) can keep growing at very attractive rates in the future.
When a company with a market cap of $20 billion would 100x, the company’s market cap would be equal to $2 trillion, which sounds ridiculous at first sight.
But investors should be aware of the fact that $2 trillion today is something different than $2 trillion in 40 years from now. If the stock market keeps compounding at 7-8% per year, the Dow Jones will hit 1,000,000 in less than 100 years from now (current level: 36,204).
Compounding Quality: What is the most important characteristic a good investor should have?
Chris Mayer: Patience. Extreme patience.
You should give your investments some time to let the magic of compounding do the work for you.
This year, I haven’t bought or sold a single stock within the Portfolio. Last year, I only sold and bought one stock.
In addition to patience, you also need to be able to be an independent thinker. Every day, you are bombarded with ideas as an investor.
From time to time, your stocks will perform badly while the general market does well and the other way around.
You need to feel strong about yourself and stick to your investment thesis.
Compounding Quality: What would you do differently if you could start all over again?
Chris Mayer: At the beginning of my career, I took way more risk than I do today.
When I was young, I bought some ‘moonshot’ companies in the oil and gas industry. These companies are cyclical and have a leveraged balance sheet.
These investments didn’t turn out to perform well. Luckily, I wasn’t investing a lot of money back then.
This taught me to focus more on great companies with healthy balance sheets. I am looking for beautiful companies led by outstanding managers with plenty of reinvestment opportunities.
When I would start all over again, I would focus on these kinds of companies right away.
Compounding Quality: How much do you read per day?
Chris Mayer: On a typical day, I spend at least 3-4 hours reading.
The rest of the day, I’m talking with other people to share investment insights and ideas. You talk with employees of the companies you invest in, competitors, other investors, and so on.
Investing is a beautiful intellectual game. You keep learning every single day. One book I would like to recommend is ‘Creative Act’ by Rick Rubin. Investing is also an art rather than a science.
Compounding Quality: Do you talk with the management of the companies you own?
Chris Mayer: It depends from company to company. To give you an example, I’ve never talked with the management team of Copart for example.
On the other hand, I have talked with the management team of Brown & Brown and Teqnion.
The smaller the company, the more likely it is that I want to talk with management.
I want to know what kind of people are running the business.
Compounding Quality: You like serial acquirers a lot. Can you explain the investment rationale and give some examples?
Chris Mayer: What I like about serial acquirers is that they often have good returns on capital and plenty of reinvestment opportunities.
The managers that run these kinds of companies often have skin in the game and put the creation of shareholder value first.
They also often use a decentralized business model which results in the fact that a lot of employees think and act like shareholders as well.
Think about companies like Brown & Brown, Lifco, Teqnion, and Constellation Software.
Compounding Quality: Evolution Gaming is a company we both own. What’s your investment rationale?
Chris Mayer: The investment thesis is quite simple. Evolution Gaming ticks all the boxes.
They have a very high Return On Invested Capital, plenty of reinvestment opportunities, a healthy balance sheet, high margins, dominant live casino solutions, and attractively growing end markets.
One thing I’d love the company to do is to focus more on buying back shares instead of paying out a dividend*. The company isn’t valued expensively today and share buybacks are a more tax-efficient option for shareholders.
Update*: On the 23rd of November, a few days after this interview, Evolution Gaming announced it would buy back shares for up to $436 million (2% of the company’s market cap).
Compounding Quality: Thank you very much, Chris. Maybe one last question. What is the best piece of advice you have for our readers?
Chris Mayer: Invest in great companies that are within your circle of competence.
As we already talked about, the key characteristic of great investors is patience. You need to be willing to own these kinds of companies for very long periods.
This is only possible when you know the company inside out.
You should plant some seeds and leave them alone for 20 or even 30 years.
“Selling companies that are doing well and purchasing ones that are faring poorly is like watering the weeds and cutting the flowers.” - Peter Lynch
Compounding Quality: Thank you very much, Chris. It was an honor to have you.
Chris Mayer: The honor was all mine.
Chris Mayer’s Portfolio
Last but not least, here you can find an overview of Chris Mayer’s Portfolio. This table was made by Brad Kaellner.
In the Community, we discuss which of these companies we like to most today.
Whenever you’re ready
That’s it for today.
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CQ, thank you for posting this wonderful interview!
Chris Mayer is a giant in the Quality Investing community. There is so, so much to learn from him. I haven't read his first book yet, but I just bought it, and I will read it through my Christmas break.
And you, my friend and partner, keep delivering outstanding quality content to your subscribers. My work load has been quite heavy lately and I hardly have any time and energy left for reading at the end of the day. However, if there was only one thing I would read each day, it would be the latest post from Compounding Quality.
I greatly admire and appreciate your work!
Hello compounding quality, I have paid for a subscription yesterday (via an email promotion and I received a receipt of payment thereafter) but I am still not showing as a paying member, I contacted substack yesterday they said to log out and wait etc but I still don't see it. Can you please either help me or refund me as this is inconvenient to say the least. Thank you