00:16:45 · Dean Pernas, Mikk
We think there there are definitely great things in the pipeline coming down. So that was that was one of the more obvious ones. [00:16:53] S0: Okay. And when when is the we see with private market companies as well, sometimes it's a it's a good idea to just sell the business. What is the what is the take from from your end when it's the right time to exit this position? What has to be true for you to exit? [00:17:13] S2: To to sell the position? Yep. Well, two... It would be a couple of things. Number one, if something happens that changes the thesis. So if if something is thesis breaking, you you have to sell. And number two, if the price is just too high. At the end of the day, we're not investors that would... Are just gonna hold on to a company if it's trading a 100 times sales. There's opportunity costs. There's other investments out there in the public space that have more attractive profiles. And so it's just... It's a combination of, number one, did anything at this break? If not, how does this... How do return profiles on a go... Going forward basis compared to other investments out there? And it's it's a combination of those two questions.
00:17:53 · Deiya Pernas
[00:17:53] S1: Yeah. I'll add to that a little bit. So you can always be wrong. Right? The the new material can present itself that you did not consider beforehand, and you're you're constantly in this game of updating your priors in the face of new information. And, if something comes along that you do consider, a change of the thesis then potentially takes time to sell. The other part of it is that maybe there was a risk that you were underwriting that came into fruition. Like, we owned, well, we still own our remittance business a long time ago that, and we knew that it was some sort of risk that regulation come down, the pipe that could really affect some of these companies. And, essentially, the big beautiful bill that, Trump had, implemented last year contains some provision that was essentially so incredibly onerous and unfair to, remittances and basically unconstitutional. So we had thought there was a huge... Way an outside chance that anything like that happening, and then it happened. So, like, sometimes you you do your analysis roughly right, and maybe there's a 2% chance of something that you're considering that happening in the company that would obviously make it uninvestable, and that thing happens. It's kinda like, you know, if you're at a poker table and, you know, you get it all in with pocket aces against, you know, pocket twos. Like, clearly, that's a good decision, but sometimes you're, you know, you're gonna lose. You know, a two's gonna show up on river and it's gonna crack your aces. So... Yeah.
00:19:20 · Mikk
[00:19:20] S0: Now when it comes to your research process, you mentioned before you're sometimes jealous for those guys buying businesses in in in the private markets. What would be the obvious things you would do if you would get access to those private companies? Like, three, four things you would you would do, and what would you include to your research process to get the the best best information to make a decision?
00:19:45 · Deiya Pernas
[00:19:45] S1: Well, one of the reasons why, I guess, we're sort of jealous, so to speak. So I think there's a few ways you can you can create alpha in markets. And one of them is really understanding business as well and kinda where they're headed, which is, what we do. I think there's another way you can generate alpha, which is really finding great managers and being very... And being a very good judge of managerial talent and capital allocation talent. And that second way is not the purview of public equity investors just because they don't have the access. Like, you really have to understand somebody very well to know how good they are at managing. Oftentimes there are people that'll say like, Oh, this guy's a great CEO. And maybe it's because they haven't had a really good COO. And then they just happen to have an amazing COO and then COO left. But these are things that if you're a private market investor, you know the management team, you know all these people very, very well, and you're a good judge of character, you're not fooled by charisma or you don't fall for the, you know, a lot of the other traps. Like, you're gonna be able to suss out these really good munitions and essentially bet on people, which is something we can't do in public markets. So that's the part that we're... We wish we could do, but we just can't. We'll we'll just never have the access. Sure. We'll be able to have a few calls of the CEO and even go to their headquarters and meet them, but never will we have that level of access to potentially a private equity investor.
00:21:17 · Mikk, Deiya Pernas, Dean Pernas
[00:21:17] S0: So how is your thought process? How do you actually charge a management team? What makes you conclude that someone is actually a great, great CEO? [00:21:26] S1: So for us, it's for us, it's really just about focus and are they doing what they're saying they're gonna do? And just really just verifying everything that they're saying in the act. Like, we never take anybody to work for anything. You know? So it's really verifying what they're doing with the actual facts, with the actual with the actual data, with expert transcript, [00:21:48] S2: so on and so forth. [00:21:50] S1: And they they really have to have also a talent for capital allocation as well. Like, we think the great CEOs would also make great investors, but the other way around isn't exactly true. Because, you know, managerial talent has come kinda come together with capital allocation talent, which, you know, it's not always intuitive for a great management to also be a good app... Capital allocator. You kinda have to have that investing sense, like, what's too much risk? Am I overpaying for something? Is this... Know, is it a good time to make a really big investment to... In order to gain share in the marketplace? Those are all, like, investor type of intuitions that don't... Aren't easily parallel with great managers. So that's that's what we would consider a CEO. Somebody who's a really good manager and really good kind of investor, those kind of rare skill sets come together.
00:22:43 · Dean Pernas, Mikk
[00:22:43] S2: Yeah. To add to that, I would also say the the lens that the management team brings as well. So at points in a company cycle, it's... The company's dealing with different problems, whether it's an engineering problem at one point, a sales problem at another, and kinda matching where the where the CEO came from that trees up with the... Where the company where the company's needs are most, most demanding. And, also, if they can just... If they elucidate a a well thought out strategy. So it's not like, hey. We're gonna be the market leader in this. It's like, no. We're gonna go after this customer in this geography. And and it's just hyper focused. I forget who said it, but it was like a company is the sum of all the vectors. So you have a tons of employees in the company, tons of managers, and if they're all scattered in different directions different directions, the vectors cancel out, the company goes nowhere. If they're all pointed in the same direction, they're focused, the company can move a lot faster. So it's it's focus, belief in your strategy, and executing. [00:23:36] S0: When it comes to capital allocation, some of the listeners, they may manage two companies, some of them five, some of them 10. We have had on the show someone who manages a portfolio of 160 companies. So based on what you've seen, where can you when can you say someone is an excellent, maybe, capital allocator? What have been some of the examples of someone being exceptional and someone who you've seen made a made a mistake?