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  • Todd Peters

Woodlock House - Chris Mayer

Updated: Aug 26

On Thursday June 17 we hosted our next "Meet the Manager" webinar . Chris Mayer, the Co-Founder of Woodlock House Family Capital joined Todd Peters for a great discussion. We are so excited to offer NS Capital's unique investment research with an ever growing audience. Enjoy the full video below.


Full Transcript:


Eric Hahn:

Okay, hello, everyone. Thank you for joining us. My name is Eric Hahn, I'm a managing director at NS Capital, and now without further ado, I'm going to hand this off to the chairman of NS Capital's Investment Committee, Todd Peters. Todd, take it away.


Todd Peters:

On today's call we have Chris Mayer Co-founder of Woodlock House Family Capital. Chris has been a part of our Alpha Ring portfolios since September of 2019. We were very fortunate to cross paths with Chris in 2014 over a shared interest in holding companies. At that time, Chris was writing two very successful industry newsletters, one, Capital and Crisis and the second, Mayer's Special Situation. What became very obvious to us off of that initial meeting was Chris was an incredibly talented investment analyst and portfolio manager. And also that he had a global reach as all of his ideas were coming from every corner of the globe. Thankfully for us, Chris appreciated our approach as well and as a result, an ongoing and frequent communication has continued ever since. We've attended industry events together, shared ideas and built our respective networks together.


Todd Peters:

During that time, it gave us a chance to reinforce what we already knew was Chris's investment talent. And it also gave us a chance to see Chris, the person, a man of great character and integrity, which is a very important to us. So we were very excited when Chris made the transition from newsletters to the chief investment officer of a family office to ultimately the co-founding of Woodlock House Family Capital at the end of 2018. This gave us our opportunity to bring Chris in.


Todd Peters:

Before I have Chris join us today, there's one last thing I'd like to mention about Chris. He is also an accomplished author having written four books, three on the investment industry, and one on critical thinking. The one of the investment books is called 100 Baggers, which is not only critically acclaimed about the industry, but has truly reached all corners of the globe. And we know this firsthand because we have had outreach from those that have purchased and read the book from Australia, Singapore, China, Israel, the U.K. and Canada. So once again, reinforcing Chris's global reach. So Chris, thank you for joining us today.


Chris Mayer:

Hey, Todd. Nice to see you.


Todd Peters:

Good to see you, sir. Thank you so much.


Chris Mayer:

Good to be on with you.


Todd Peters:

I think a great place to start would be your path to the founding of Woodlock House Family Capital as we believe your path has been kind of critical to creating your differentiated perspective. So if you wouldn't mind, would you start by kind of sharing your path with the audience today?


Chris Mayer:

Sure. Well, it was kind of an unconventional path, I would say. I always liked investing in finance. I remember being fascinated by the crash of 87 and reading everything I could read about Warren Buffet and then deciding I wanted to study finance in school. And then when I got out, I started in commercial banking. So that actually turned out to be a good proving ground, I think, because you learn a lot about many different kinds of businesses and how to value them. You learn about balance sheets as a banker you're more conservative naturally. So you're thinking about payback and collateral value and thinking about insiders, whether you trust the people you're dealing with, that was very important. So those things definitely influenced my investment thinking. I know Martin Whitman at Third Avenue was a famous investor who died a couple of years ago, maybe last year. And he started out in credit. So I remember he was an early inspiration for me as well.


Chris Mayer:

So I while I was in banking also was interested in writing. So I wrote a newsletter for banking customers. I started myself, it was a quarterly newsletter and I would write book reviews or things that were going on in the market, but I always had my eye on investment markets. And so eventually in 2004, I started my own newsletter and it was just a nights and weekends project, kind of a hobby. But it grew pretty quickly. And I remember I got some famous early subscribers and within six months of starting it, I left my banking job to pursue the newsletter business full-time. And that was a great ride. So I wrote newsletters from 2004 up until, as you say, I joined the family office in 2016 and writing the newsletter, it got me to travel all over the world, meet all kinds of interesting people. I met you through writing the newsletter. And I wrote four books and learned a whole lot about investing.


Chris Mayer:

And again, as you said I always traveled the globe. So I've been to some pretty far out places to just kind of poking around for investment ideas. I was in Mongolia and Myanmar when it was just opening up in South Pacific, all through Asia, all through south America. It was a lot of fun. I learned a lot and it gave me a chance too to continue to hone and improve on my own investment philosophy as it was going, because this was like a real test where I would recommend ideas and follow up for readers. So that was all a lot of fun. And then I also was then promoted to managing editor for Agora Financial as a publisher for awhile. So in between there I-


Todd Peters:

That was like a director of research job in a lot of ways, wasn't it?


Chris Mayer:

Yeah. So I forgot to say so when I started the newsletter myself, I ran it for a little while on my own, but then I made a deal with Agora, which is a company in Baltimore and they're a publisher and they really are a marketing machine and they really allowed to grow big. And so I was successful with that. And then I became the managing editor for them as well. I wrote my own newsletter. I also helped hire other writers and start new franchises for them. So that was really good. And then finally, the family office came along in 2016, so the Bonner Family was the owns the Agora my publisher. And so they had upfront seek to see how things worked and track record and all that. And that was a natural move for me to make.


Chris Mayer:

So I worked with the family office for a couple of years and did some good things there for them. And then we had the idea that how can we open this up for the public a little bit? And then I came and proposed to them, the idea of starting Woodlock House. And I named the firm after a historic property they own in Ireland. It's in Portlaw Ireland. And that's where I went to make that proposal to them. So it seemed natural. I had the logo and everything all made out and they loved the idea. They seeded it. And so we opened our doors in 2019 and that's how Woodlock House got started.


Todd Peters:

I think that it's such an interesting thing because you were able to pull kind of different experiences from your difference kind of spots along the way that has enabled you to kind of now ultimately kind of create the Woodlock House organization. And I think that's such a valuable thing when you have the ability to kind of constantly build on your background.


Chris Mayer:

Yeah. I mean, like I say, banking gave me the solid kind of credit basis for things. And then the newsletter allowed me to go to a bunch of different markets, see how things worked. And I remember I would reach out and interview different money managers. I mean, I've met a number of people through the newsletter, some of them I still keep up with. So I have contacts all over the world and in almost all kinds of industries. So that's the other interesting thing. Any kind of idea I come up with, there's always someone I can reach out to who knows that industry or is in that market. So really it does give me some interesting global reach.


Todd Peters:

That's right. And for us, we appreciate that because your global reach benefits us through our research as well. One of the things that I'd like to transition to Woodlock House, as we are big on wanting to partner with individuals that actually know they're running a business of portfolio management, not just some collection of ticker symbols on a sheet, and you've gone to great lengths to construct Woodlock House to maximize the efficiency of the organization so you can focus your time and attention on research and portfolio management. I think it would be valuable to kind of understand kind of your vision for what you see with Woodlock House and how you're trying to go about methodically deliberately building what you hope to be the last stop in your career.


Chris Mayer:

Right. Well, I mean, that started with... Well, the vision started, I wanted to have a partnership that could take a really a long view and could own businesses for a long time and not play the hedge fund game where you're reporting monthly returns and sort of worried about where you are every quarter. And you've got constant inflows and outflows you're dealing with and where you have to spend a lot of time marketing and looking for clients.


Chris Mayer:

So to get the structure I wanted to have had a strong anchor which was the Bonner Family. And I had to be very selective about the other partners I took on. They had to be people who were willing to go on that journey. And so that was where you and NS capital came into play as well because I know you have that same patient orientation. And what else I liked in particular by NS Capital was that I was one of seven managers in this Alpha Ring as you call it. And so I could concentrate because that's the other thing I wanted to be able to do. I don't want to have to run a big diversified portfolio of 20 stocks or something like that.


Chris Mayer:

I wanted to own a real select list of businesses that met the criteria that I was looking for. I wanted to be all over the world and then I wanted to be able to sit on them and let their stories play out over many years. And so that's how I envisioned it. When I look ahead, the other thing is, as part of that would be closing the fund at some early point. And so I've kind of had in my head than a hundred million seems like a nice round number to sort of close it and then just let it compound from there.


Todd Peters:

No, that's excellent. And we're very grateful that you allowed NS Capital to be one of those partners. So thank you for giving us a sleeve there.


Chris Mayer:

Yeah.


Todd Peters:

The concentration part, I think is interesting, I would like to just kind of talk about that in a second again, because that's as big for us. We want just the best ideas, what we like to call, we want your major league players, not necessarily the firm team, although we know the firm team can be great over time, but we want kind of in your mind, the major league teams. When you're thinking about that, is that kind of that 3, 4, 5, 6, 7 range where you can just pick and choose the exact names and that you want within our portfolio with that freedom and flexibility?


Chris Mayer:

Yeah. I mean, I think in the NS league, yeah. I think there's six, although a couple of them kind of double up because they're holding companies that own pieces of each other. So I think it's really down to four. And that's exactly right. I mean, they're sort of the four top names and we started with an international focus. All these names are not listed here in the U.S. but they're great businesses, nonetheless, and they're certainly the kind of businesses that you could put lots of dollars in and hopefully they will continue to perform. I mean, a lot of things we're not buying a little speculative, small companies that are doing things where they haven't yet proven themselves. All the companies we have really wonderful assets that are worth a lot now, and it should continue to be worth even more in the future.


Todd Peters:

And that's a great segue for the next area I'd like to cover. One of the things that we believe is incredibly important is actually one of our number one things is we want the manager partners that we have to have actually developed the strategy they're implementing. We believe that that gives them that extra buy-in because it's sort of their legacy, their belief system on the line. And clearly the strategy that you're implementing is one that you've developed over all these years. Would you please share a little bit about that approach and let people know what you are looking for in these companies that you're scouring the world for us for?


Chris Mayer:

Yes. You know what? When I was younger, I experimented with of lots of different things and lots of different approaches and it took some time to kind of work down to an approach that I liked and it fit my own personality and what I wanted to do. So I used for many years now, I've used an acronym called CODE C-O-D-E, and I've added to that CODE Q. You NS call it. And so that could have I'll go through real quickly what those stand for.


Todd Peters:

Yes. Please.


Chris Mayer:

So C was for cheap, which is just meant that valuation is part of the process. Obviously we want to buy something that we think is a good price. O is for owner operator. And that's really one of the most important pieces of the puzzle which is we want to invest in companies where the people are in control of skin in the game where they own a lot of stuff themselves. So we're on the same fence there. That's a very, very important piece that I'm not willing to compromise on. The D is for disclosures, which simply means that the business has to be something that we can understand the public disclosures have to be adequate. And that's may surprise you, but it's a tough hurdle to meet, especially with some of the overseas markets.


Chris Mayer:

E is for excellent financial condition. So I'm not interested in taking a balance sheet risk. I'm not interested in owning companies where they have a lot of leverage, a lot of debt. And the importance of that came out last year when we had the pandemic, certainly companies that were in good financial condition didn't need to raise capital inopportune time. And that would prove costly to their shareholders if they had to do it.


Chris Mayer:

So that's the CODE. And then the last part, the Q is really for quality. And I have a particular notion of quality where I'm looking for companies that generate high returns on their capital and then have the ability to reinvest and earn those high returns again and again. So if you have a business that earns 20% returns on capital that's a high quality business versus one that may only take 10% of return on its capital.


Chris Mayer:

So when you put all that together in a blender you get a pretty good potent mix of things. And there's an awful lot that doesn't meet that. So it's a good filter. There are thousands and thousands of public traded securities but when you start knocking them out by leverage and knocking them out by companies where there is an insider and so on, the list comes down pretty quickly.


Todd Peters:

I think that's the helpful thing of you having developed the approach is what you're looking for. So when you see something it's very easy to say yes or no. And so as you said, when you're kind of looking internationally this is one very quick way for you to be able to go. This is worthy of some time, and this clearly isn't worthy of my time. So it's actually, as you said, a great way to kind of manage your most important resource, which is time.


Chris Mayer:

That's right. And some of this stuff is not something that's so easy to screen for. The owner-operator PCS, you can set up screens for that, but even not even that the quality of ownership can vary quite a bit. It's not just you want someone who owns a bunch of stuff but you also want someone who is fair for shareholders. Someone who is a plays fair, I guess, is what I would say, not necessarily taking advantage of the minority shareholders or other shareholders.


Todd Peters:

Right. Right. And I would think we've talked obviously a lot over the last year, but that quality of asset base was certainly an important part of kind of maneuvering through the pandemic. Wasn't it? Making sure that the assets that the companies had were what people needed, wanted, or strive to have was critical.


Chris Mayer:

Yes. That's right. I mean, and they became more valuable really during the crisis because those qualities came out. I think the weaker businesses or let's say maybe they weren't weaker but certainly the pandemic exposed weaknesses. So the good times kind of hide and then suddenly have something like this happen and you can really test how important a product is or how loyal customers are and all that kind of thing.


Todd Peters:

That's right. That's right. Well as you mentioned, we have asked you to search the globe for us in looking internationally for the names that meet kind of your criteria, the CODE plus Q. And I think it would be instructive for our audience to hear about a couple of the names to give them just an idea of kind of what you were looking for, why you like them in that story, and I have them into two areas, one, is you have quality companies that have true global reach, and then you have quality companies that can have a little bit more of a localized. And so I think it would be very interesting for people to hear about your views on Vivendi, which would be the global firm and maybe Domino's Pizza U.K. for the more localized.


Todd Peters:

So if you wouldn't mind, let's start with Vivendi and just a few thoughts on that company. I know there's a lot going on underneath the surface at Vivendi these days that would be very interesting to most of us out here.


Chris Mayer:

It's been the headlines lately because Bill Ackman is, of course, is very prominent investor has revealed he's buying a stake in Universal Music Group and Universal Music Group is the key asset that the Vivendi owns. In fact, the way the market has things priced now Vivendi is worth what Universal Music is worth even though Vivendi has other investments such as Canal+, which is a pay TV station in France and in Africa.


Chris Mayer:

So what makes universal music were really interesting is you think about the popularity of streaming music on platforms like Spotify and Pandora and Apple Music. Well where do they get all that music? And there's basically three big labels where more than 70% of all commercial music is housed. And one of the biggest is Universal Music Group. And then there's Warner Music Group, which went public last year and is a publicly traded and then Sony.


Chris Mayer:

So they have this vast, vast libraries of recorded music and everybody from Beatles, Fleetwood Mac, everybody. And they're the ones who supply the music for Spotify and their business it's very good. It's a high margin business streaming growing 20% plus year over year. I liked the idea of owning the labels because at that time you didn't really have to necessarily pick which of the platforms would win. And the economics of the labels were already very secure and apparent. And so you were able to buy into Universal Music Group, I think at an attractive price by owning the Vivendi. And at the time we bought it we weren't sure really how they would monetize or unlock that value. And they were looking to sell pieces of it. 10 cent bought 10% of it at a good value that came after our ownership.


Chris Mayer:

And then they announced that they're going to take UMG public and that will happen this fall. So those are nice catalyst. And we did a little maneuvering during 2020 because we did own Vivendi but then in the depth of 2020 Bolloré, which is a holding company that owns a good chunk of Vivendi and which owns Universal Music Group got a lot cheaper. And so we switched a lot of our Vivendi we got a big, big position in Bolloré. We still hold on some Vivendi. And Bolloré has out performed Vivendi by quite a bit over the last 12 months because of that. I think it's up 67%.


Chris Mayer:

So the other thing about it is Bolloré is run by a man named Vincent Bolloré. And the Bolloré Family owns a big stake in Bolloré and also through Vivendi. And he is a long-term value creator in Europe. If you look at his record over 20 years, he's compounded capital at close to 20% a year. So it's a good guy to partner with. You got a really nice asset there, and we have interesting things happen that are going to unlock that value. So that kind of... I mean, also just to go through some of the other check marks, Vivendi is certainly a simple business and balance sheet is in great shape, lots of cashflow. So certainly no concerns there. So that's one that fit pretty well.


Todd Peters:

It was interesting too with Vivendi and it still is to a large degree where it's, as you said, it's almost 100% valued on the Universal Music Group component, but it does have significant assets that are not just small other assets. So you have this as a catalyst but they do have other assets throughout Europe that could over time be drivers on their own right.


Chris Mayer:

Yeah. And Bolloré himself continues to buy shares. So the insiders already own a lot, continue to buy it. And knowledgeable buyers like 10 cents, not dumb about the quality of the assets there and they were buying it. Ackman bought it. So I just think people will get to know the story a little bit, really like what they see. And I think the appeal of that will be unveiled over the next few months, especially with when Universal Music Group goes public. If you look at some of the... It's tough to get public comps on what Universal Music Group is, we have the markers of what different people have paid Ackman so forth, but your best comp is Warner Music Group and Warner is not as good as Universal Music Group.


Chris Mayer:

Universal Music Group is bigger. It's actually growing faster, has higher margins. If you look at top 10 artists Universal Music Group has four of the top five and I think eight of the top 10 overall. So it's a higher quality catalog. It's bigger and it should get evaluation that exceeds Warner Music Group. And if that happens I think we'll do very well.


Todd Peters:

Absolutely. Absolutely. Well let's shift gears to maybe a little bit more of a localized story but equally as interesting and that being Domino's Pizza U.K. and the U.K. is important to mention here. It's not Domino's Pizza in the United States, it's Domino's Pizza U.K.. But I know you found this at a time when there were a couple of people taking fairly large ownership stakes to really help turn the company around. So I think this one would be a very interesting one to just your understanding of kind of the transition that this company has made over the last year, year and a half.


Chris Mayer:

Right. So pizza delivery is an excellent business. The cost of the ingredients for the pizza is relative to what pizza people pay to buy a pizza is low. So their margins are high. And so Domino's was interesting because the Domino's U.K. business had been badly mismanaged. They had the previous management team had botched an international expansion. They went into markets like Switzerland and Norway and Iceland. And I think they sunk over a hundred million pounds into those businesses and really got a net negative at, even though they were losing money there. They did a buyback that was badly timed where they also borrowed money to do it. They fought with the franchisees. The biggest franchisees didn't have a good relationship with the home office. There were other things that they did not do, but even despite that, when you looked at the numbers, return on capital were good. And the business was so good that the still put up pretty decent numbers, despite all that mismanagement.


Chris Mayer:

So that's where activists came involved. And there in particular one who's Manabi at the Browning West Partners who took a big stake in it and I thought that was really interesting. He had a very successful run with Six Flags, which then increased, I forget how much went up five, 10X, whatever it was. And so he came in here and started to make some noise. And when we bought it the company had an interim CEO, didn't have a CFO but we had a very good board and that's what really attracted me. I talked to was Manabi, I've talked to other members of the board and I got a good sense the story there at what they saw and the people they brought. Our people are experts in restaurants and franchises. They brought in a new CEO, a guy from Costa Coffee. He was a very talented individual and someone who could have worked at a much larger company, but came to work at Domino's again, a new chairman.


Chris Mayer:

And then so they started to make some of the changes. And I think even just with better capital allocation, Domino's will be much better. They've sold a couple of the international businesses already, and that was hard to do. Some of them they weren't... In Norway, I think they actually had to pay someone to take it off their hands. So these were not well, but that I got rid of those anchors and the new management team has outlined a nice strategic plan where they've made clear their capital allocation priorities, which include timely stock buy backs.


Chris Mayer:

And so I think it's under good footing now. I like the management team. I like what they're doing. There was a lot of little things they can do that at the other management team didn't do. So, for example, they don't have a rewards program in the U.K. Domino rewards in the U.S. has millions of people. There's little things like that. I remember hearing about how and part of my due diligence that the website would go down on Saturday nights during the sometimes their busiest hours, which would drive franchisees crazy.


Chris Mayer:

So they're going to fix that and little things like that, I think can make a big difference. So I'm pretty excited about Domino's. And then as you say, it's almost entirely a U.K. and Ireland play at this point. Not to say that at some point down the road they could. They're once successful franchise outside the U.K. and Ireland and in Germany where they're I think they own half of it or maybe 40% or something like that. And they have good operators there.

Chris Mayer:

So it's not to say that they couldn't at some point continue that partnership and expanded to some adjacent markets, but they have pretty good runway still grow in the U.K.. They can grow 25% and add their store count by 25% there. And like I say, a better capital allocation, better cashflow. And I think that could be a very good story. We got it at a very attractive price because when we bought it, there was all that uncertainty around management and people, a lot of people didn't want to buy it just because of that.


Chris Mayer:

I remember when they finally got a CEO stuff pop like 8% that day. And now we're in good shape. I mean, we're up probably, I don't know, 30% or so in that name. And there's lots of good things to happen. We've only owned it for a year.


Todd Peters:

That one, the story for me that was very interesting was your ability to communicate with the board. And it just goes to show you, when you have a strong board you can actually really move companies forward or increase the speed of the turnaround. And they certainly seem to have done that.


Chris Mayer:

Yeah. And I remember asking them things about the compensation, because that was the other thing. The old comp plan, compensation plan, for the executive was pretty poor. Rewarding, just a EBITDA growth, which is like a very broad pre-tax kind of earnings measure that doesn't really necessarily mean you're creating value if you just increase that number. And I remember one board members specifically told me when I asked, I said, well what can you do there? And he said, and he said to me, well, we're going to push it as far as we can. And the direction I wanted to go, which is always telling me, you should have some return on capital measures, there should be some other things, not just the profit number. You want to have a profit number, but you also want to tie it into return on capital.


Chris Mayer:

So you don't want someone to just pay a dollar to increase your earnings by a dollar, for example, you want them to do it that makes sense. If I can put 20 cents create a dollar of earnings, that's what's the kind of stuff you want if you want to see. So I got all kinds of good feelings about that from the board and their unified front on that, on what they can do, and you can see it already. And the management they picked and the things that are happening, I'm pretty pleased where that's going so far.


Todd Peters:

Excellent. Excellent. Well, I think right now, Chris, let's open it up to the audience to see if they have any questions for us. So for those of you listening in, at the bottom of your screen, you should see a Q&A button. Feel free to click that and type in any questions that you have. And we will answer all that come through and we'll give it a second to start to queue up. Okay. It looks like, here we go. We have first question, Chris, actually this one, somebody asking about 100 Baggers your book. Tell us about a 100 Baggers and did that work for the book impact your investment approach?


Chris Mayer:

Most certainly did. So 100 Baggers was inspired by a book that came out in 1972 called In 100 to 1 in the Stock Market by Thomas Phelps. And that book looked at every stock that had returned at least a hundred to one from, I think it was 1932 to 1972 about when the book came out. And Phelps tried to look for some common elements between these different big winners. And his book is written in kind of and I think a pretty good writer. He's got kind of a folksy manner and he has some nice little metaphors and things he uses. It's all about power of long-term compounding.


Chris Mayer:

So I really liked that book. And I remember I would quote it my newsletter and I would talk about it from time to time. And then finally, I had a reader who suggested and said you should update that book. And I thought, wow, that's a great idea. I should do that. So I went and we got data from 1962 was as far back as I could get up until about 2014 or so. The book came out in 2015 and I did this kind of the same similar study that he did. We looked at all the stocks that returned at least a hundred to one and came up with 365 names and there was some cutoffs there. I had a minimum market cap cut off because I wanted to screen off the little penny money stocks or something that you buy and go up 10X and then crashed after that. I was trying to find businesses where he might have a shot at actually identifying them before somewhere around the time when they're making their run.


Chris Mayer:

And ironically Phelps also found 365. So the same number. But I mean, that study impacted me quite a bit. I say a couple of things stand out. One is I really came to appreciate the ups and downs of a lot of these businesses. So let's say let's use Berkshire Hathaway as an example. That was the number one stock in the study. It was the best performing stock, but even Berkshire Hathaway was cut in half, three different times. And that was mild. Most of these 100 baggers had taken multiple drawdowns. Some of them quite severe Amazon went through an 80% drawdown. Apple had a couple that were more than 60%.


Chris Mayer:

So, the volatility, the ups and downs on these was number one. And number two there are extended periods of boredom. So let's say Berkshire Hathaway, again, again, the best performing stock in the study, there was a seven year stretch where it went exactly nowhere. And during that run the S&P was up like 200% or something crazy like that. So you can imagine how difficult it is for most professionals to hold onto a stock that long and getting their butt kicked by the index for so long.


Chris Mayer:

So those are two things. And the other thing that really drilled home, the importance, this is probably the most important thing. And the thing I didn't really appreciate as much until after I did the book, and that is the power of reinvestment. So I mentioned before about how I'm looking for companies that generate high return capital. If I have a business and they have a hundred dollars of capital they've invested in, they're able to do $30 in profit, 30% return on capital. That's fantastic. But the real key to get the high compounding number is the ability to take that $30 profit reinvest it in the business again and generate 30% again.


Todd Peters:

Got it.


Chris Mayer:

And then to continue to do that again and again. So that's really the key because what happens with a lot of businesses is they'll make a decent return but then they don't really have the reinvestment for it. So they wind up either having a payout, a good chunk of it in dividends, or it just sits on cash or a worse the management team does something bad, like makes an acquisition, it waters down the business.


Chris Mayer:

And so that's really a key lens that came out of the book. And I think is if I had to pick a real secret sauce to the whole a hundred bagger thing, it would be that the ability to reinvest at a high rate and continue to do it for years and years and years because ultimately it's a math problem. It sounds crazy. You didn't multiply your money, a hundred fold, but if you have a 25% return for 20 years, that's a hundred bagger.


Todd Peters:

That's right.


Chris Mayer:

And then everything else is just moving along that scale. So if you find businesses that are doing 20 or 25% return on capital reinvesting and earning that again and again you hold for long enough, you're going to get there.


Todd Peters:

No, that was very interesting. Very interesting. All right. Second question. What are holding companies? And do you have any in the portfolio?


Chris Mayer:

Yes. So holding company would be Berkshire Hathaway is a holding company. It's a business that owns lots of other businesses and those businesses aren't necessarily related to each other. So that might be a good kind of rough working definition. And the idea of a holding company, what makes them interesting is that if you have someone who's smart about allocating capital between the businesses like a Warren Buffet who takes cash, the cash all comes up to him at Omaha and he'd re-deploys it. He decides where to invest it. It can be very good vehicles.


Chris Mayer:

So we do have holding companies in the portfolio. We own Exxor, which is another one. I think that's a really interesting holding company. The Agnelli Family in Italy owns more than half the stock and the Agnelli Family is a family that founded Fiat way back when the John Elkann is I think, fifth generation, if I'm right Todd on that. He is the CEO and he's proven to be a very good capital allocator himself made a number of interesting deals. So and of course we talked about Vivendi already has a investments in Universal Music Group and other assets like Canal+, movie studios and other things like that. So that's really what holding companies are and that's why they can be interesting.


Todd Peters:

Excellent. Next question has come through. What qualifies as an owner operator?


Chris Mayer:

I think people might have different definitions, but I think the best definition would be if the top guy or gal a CEO is an owner, a significant owner of the business that would qualify as an owner operator. So sometimes I will be a little more elastic about that definition. I'll be happy if I have a chairman that owns a good chunk of the business even though he might not be the guy who's in doing the day-to-day. But for me, the idea is you really want someone there to sort of go to the chicken coop. You want someone there who is an owner themselves. So they have the long-term interests of the business at heart. And that's the idea. That's the hope.


Chris Mayer:

And so whether it's a CEO or chairman or a board. In the case of Domino's, we have a CEO and CFO who I would really call them owner operators because they don't own a lot of stock, but we have a board that owns a lot of stock. And then the franchisees themselves, we have 1200 Domino's pizza franchises, where that's the family business and for them it's very important. And I don't want to get too dogmatic about not necessarily what is, and isn't an owner-operator, but that's the basic theory idea behind it is to ask any of the game, having an alignment of interests. And the beauty of having that is then it's cliché, but you say you sleep well at night because that you have these talented people are making decisions. I don't have to sit there and worry and second guess everything and wondering whether or not they're doing the right thing. I have confidence that these guys know their businesses and they're going to make good decisions.


Todd Peters:

And this is me not the audience question, but isn't it also that typically not all the time but typically those individuals that have their own ownership, it's significant ownership stake, they are thinking more strategically. They're thinking more long-term. They're not caught up in the news flow. And so they are actually being much more far reaching in their thought process. Is that also typical of when you see some of these owner-operators?


Chris Mayer:

Yes. And you can see evidence of that. A lot of times family-owned businesses don't necessarily give quarterly guidance to the same degree that a hired hands do. You can see it in the way they think about compensation not necessarily looking for certain earnings targets and things. They have more long-term goals. You can see it in the amount invested in R&D. The family-owned firms, for example, invest more in R&D typically than their non-family-owned peers. Again, taking more of the long view. You can see it in the way they treat their balance sheet. Typically, a family-owned firm that's owned by an insider will be less leveraged, will use less debt than a company that doesn't have that interest. And again, because they're thinking long-term. They're thinking about the ups and downs and the cycles. And they're thinking about when things get bad, they want to have the balance sheet to deploy capital and do things.


Chris Mayer:

We saw that in the 08 crisis too. There was quite a big difference between some of the hired hands who just kind of buckled down and just tried to kind of make it through versus the real owner-operators who use it as a time to make deals and do things. I always remember that was when John Malone picked up Sirius which was a hundred bagger for him because again, he was willing to invest when a lot of people were afraid to, and he also happened to have resources to do it. To answer your question, there's a lot of differences between the way owner operators and the hired hands behave.


Todd Peters:

Very true. Very true. Okay. Next question. Are you concerned about inflation and does inflation factor into your approach?


Chris Mayer:

Well, that dominates the headlines and I would say, well, the two great enemies for investors would be inflation taxes. That's why we do it. We do this. If we had no inflation, no taxes you're need to invest would be a lot less. But I think we just naturally live in a world where the dollar is going to buy less in the future than it does now, by some amount. We don't necessarily know. So it's not something I specifically worry about. Like I say, oh, well, it looks like we might have inflation now. So I have to change my approach in some way or I have to swap out a stock or something like that. That would not be the case. Whether inflation where we have more inflation, I don't know. There's always some kind of macro worry.


Chris Mayer:

I saw a great chart in the financial times, maybe a month ago. And it had the number one kind of concerns. And I think it was by week. And you could see by month for the last, like 10 years. So it showed things like the China trade wars, Euro zone crisis, the end of quantitative easing. All these things that people worry about. Every year there was always something. But for me, when I look at that kind of chart, what stands out to me is how little any of it really mattered. I mean, if you owned some of these great businesses that we talked about you'd be crazy to sell or try to play around with these daily, monthly concerns the market has. So that's kind of the way I look at the inflation issue too.


Todd Peters:

Gotcha. Gotcha. It makes sense. Next question we have here. Did COVID help Domino's in the U.K. the way pizza delivery rocketed up in the United States.


Chris Mayer:

I think that it helped to a certain degree because they were naturally prepared for that kind of, well, I wouldn't say naturally prepared, but I mean people order to have their own online app, people order online delivery, you don't have to eat. So their sales went up quite a bit. It wasn't total boon for them because it also came with increased costs. For safety equipment for the employees and of like gloves and plastic guards and all this sort of stuff costs some money. And that was a one-time hit for that because it's, Domino's pizza decided to help their franchisees bear some of those costs as kind of a one-time thing. And there was also that it helped the other food delivery companies as well. So it kind of expanded food delivery entirely, which is both a positive and negative, I think. Another positive it allowed Domino's pizza to take market share.


Chris Mayer:

I mean, some of the other pizza companies that depended more on dining lost share to Domino's. So I guess the short answer would be that it definitely helped and to help top line and hopefully we'll see those sales stay sticky and they were able to operate through the whole thing. And the share price was very consistent kind of held up really well during the whole mess in 2020. It never really went down dramatic amount. But there were some negatives in there, some additional costs and things that came out of it that they will occur at one time but they should recede as the crisis recedes.


Todd Peters:

Excellent. Well, Chris, it looks like we've answered all the audience's questions.


Chris Mayer:

All right.


Todd Peters:

We want to thank you so much for joining us today. We really appreciate your perspective. Eric, I'm going to turn it back over to you buddy. Take it away.


Eric Hahn:

Great. Thank you, Todd. And thank you, Chris. That was a great discussion. Once again, I want to go ahead and thank everyone who took some time out of their day to join us. Our hope is you found today's presentation, informative and insightful. We're going to have a replay of today's full webinar being made available at the beginning of next week. We'll be sure to send that out to you. We ask you to share that with whoever you think may find this of interest. And now our next Meet the Manager Webinar is scheduled for September 16th. So be on the lookout for us and save the dates and we hope everybody enjoys their summer. Once again. Thank you everyone. Have a great rest of your day.