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Welcome to the Compounders Podcast. On this show, Host and Investor, Ben Claremon, will explore the topic of compounding from various angles, including through interviews with public and private company executives, investors who focus on compounders, and newer investment firms that are building a business they hope will become more valuable over time.
Episodes
Tuesday Aug 31, 2021
Tuesday Aug 31, 2021
My guest on the show today is Jim Hallett, the former CEO and now Executive Chairman of KAR Auction Services. KAR is a $2.25B market cap company that operates within the wholesale auto remarketing industry. Jim is very well known in the used car auction industry and has built up a wealth of knowledge over his close to 30 years at KAR. He joined the company back in 1993, then became CEO in 2009 and just this past April stepped back to Executive Chairman.
During his tenure, Jim has overseen the company’s spin-off of IAA, which is now a $7.3B market cap company on its own. He also has helped spearhead the company’s aggressive initiatives to extend its digital offerings and add scale beyond KAR’s physical car auction facilities.
In this wide-ranging discussion, we covered:
- Jim’s thoughts on KAR’s very important pivot to digital that occurred in 2020
- What has changed about the car auction industry over the last three decades
- Why he thought it was the right time to pass the torch
- Maintaining the company’s culture within a rapidly changing industry
- Why KAR believes that the model of the future is hybrid: digital and physical
If you are at all interested in how incumbent companies defend their turf against digital upstarts, this was a great discussion.
This episode of Compounders: The Anatomy of a Multibagger is sponsored by Tegus, an innovative and disruptive company that is changing the way professional investors work. For more information, please visit: https://www.tegus.co/
Timestamps for this episode:
1:50 - Introduction
3:42 - KAR’s rapid digital transformation
6:12 - Putting customer safety over market share
9:30 - Managing stakeholders during a transformational change
11:50 - Layering a digital strategy on top of a historically brick and mortar business
13:42 - Balancing KAR’s rapid digital transformation with the needs of customers
16:37 - Digitizing their dealer-to-dealer business through M&A
20:43 - Key lessons learned competing against digital upstarts
23:14 - M&A: to build or to buy?
25:30 - Successful leaders have to embrace change
28:56 - How do you know when to pass the CEO torch?
31:31 - Digitization of the used car auction industry
33:42 - Imparting a culture of optimism
36:42 - Growth opportunities via expanding into Europe
40:02 - Limiting management distraction while expanding outside the US
41:12 - Competing for digital talent from Indiana
44:40 - Pushing old school customers to digitize their business
48:42 - Maintaining a moat within an increasingly digital world
51:35 - Jim Hallett’s ideal legacy
54:45 - Biggest changes in the car auction industry over 3 decades
57:57 - Most underappreciated aspect of KAR’s hybrid model
1:00:25 - Why the industry may never be fully digital
To get all the latest updates about the podcast, see who we’ll have on next, as well as watch the video version of the pod, please follow us on twitter at @BenClaremon and subscribe to the SNN Network YouTube Channel at www.youtube.com/snnwire. For more information about Cove Street Capital, please visit: https://covestreetcapital.com/
iTunes: https://apple.co/3xlUvPY
Spotify: https://spoti.fi/3jxkxLl
Each new episode will be available every Tuesday morning on Apple, Spotify and all podcast streaming platforms.
All opinions expressed by your hosts and the podcast guests are solely their own opinions and do not reflect the opinion of Cove Street Capital or any affiliates. This podcast is for informational purposes only, it is not investment advice, and should not be relied upon for any investment decisions. We are not recommending the purchase or sale of any securities. The hosts and guests may be beneficial owners of the securities discussed. You should not assume that the securities discussed are or will be profitable.
Tuesday Aug 24, 2021
Tuesday Aug 24, 2021
My guest on the show today is Sean O’Connor, the CEO of StoneX Group (NASDAQ: SNEX), a $1.2 billion dollar market cap financial services company that generated over $50 billion in revenue in fiscal year 2020. Sean became the CEO of International Assets Holding Company in 2002 and was a key architect of the 2009 transformational merger with FCStone that serves as the foundation of what StoneX is today. During his tenure, the company has been quite acquisitive and has added several new product lines and geographies. Currently, StoneX is involved in a number of businesses, including:
- Risk management and hedging services
- Commodities trading
- Equity securities trading
- International payments; and
- Foreign exchange services
Sean has been a steward of a stock that is now 3.5 times higher than it was when the FCStone merger closed, a period of time in which book value per share is up over 4 times. In this wide-ranging discussion, we cover:
- Sean’s philosophy on M&A and integrating companies
- How StoneX approaches risk management and what the company has learned from prior mistakes
- The process of incubating and funding an international payments business; and
- How financial services companies can distinguish themselves from competitors
This episode of Compounders: The Anatomy of a Multibagger is sponsored by Tegus, an innovative and disruptive company that is changing the way professional investors work. For more information, please visit: https://www.tegus.co/
Timestamps for this episode:
1:50 - Introduction to SNEX CEO Sean O’Connor
3:35 - Why even attempt a transformational merger during the Global Financial Crisis
12:04 - The challenges associated with deals where the minnow swallows the whale
19:30 - Deep integration vs. a hands-off approach post-acquisition
23:00 - Building a differentiated risk management culture at StoneX
31:01 - Important lessons from significant loss events
37:11 - Starting an international payments business from scratch
44:04 - How StoneX looks at cryptocurrency as an opportunity
47:37 - Creating a moat around StoneX despite the competition
59:13 - StoneX’s relationship with regulators and becoming good at regulation
1:03:19 - Key elements that have propelled StoneX’s valuation
1:06:27 - The most underappreciated aspect of StoneX: long term-compounding
To get all the latest updates about the podcast, see who we’ll have on next, as well as watch the video version of the pod, please follow us on twitter at @BenClaremon and subscribe to the SNN Network YouTube Channel at www.youtube.com/snnwire. For more information about Cove Street Capital, please visit: https://covestreetcapital.com/
iTunes: https://apple.co/3xlUvPY
Spotify: https://spoti.fi/3jxkxLl
Each new episode will be available every Tuesday morning on Apple, Spotify and all podcast streaming platforms.
All opinions expressed by your hosts and the podcast guests are solely their own opinions and do not reflect the opinion of Cove Street Capital or any affiliates. This podcast is for informational purposes only, it is not investment advice, and should not be relied upon for any investment decisions. We are not recommending the purchase or sale of any securities. The hosts and guests may be beneficial owners of the securities discussed. You should not assume that the securities discussed are or will be profitable.
Tuesday Aug 17, 2021
Tuesday Aug 17, 2021
My guest on the show today is Tom Gayner, the co-CEO of Markel Corporation. Markel is a Fortune 500, $16.7 billion market cap financial holding company that primarily operates in the insurance and re-insurance industry. Though Tom has only been in the co-CEO seat since 2016, he has been with Markel for close to 30 years and he has been an investor longer than that. Markel has been compared to Berkshire Hathaway in both structure and performance and Tom has been a key architect of the company’s diversification away from insurance through the acquisition of operating businesses. In fact, Markel Ventures has gone from $1.2 billion in revenue in 2016 to about $2.8 billion today.
Tom is well-known in the value investing community for his charm and intellect. Also, many people who have made the trek to Omaha for the Berkshire Shareholder Meeting have also attended the Markel Breakfast event. I had the opportunity to listen Tom speak a number of times in Omaha and that is why I thought he would be a great guest on the podcast. In this conversation, we will cover:
- His thoughts on what makes a compounder
- How to invest more like a grandmother than a Wall Street trader
- And why he is a better investor because he is a CEO—and vice versa
Click the timestamp to jump to each answer:
1:38 - Introduction
3:07 - The 2008-09 financial crisis and Markel’s response
7:55 - The benefits of a legacy of family ownership
11:39 - Comparing today’s market to that of 1998-99
15:53 - The benefits of investing like a grandmother
18:18 - How being a Co-CEO has made Tom a better investor
24:09 - How to tell if a person is a good cultural fit
28:35 - Building culture by articulating what your company stands for
32:15 - Bottom up and top down approaches to compounding
35:39 - Applying the Colfax Business System at Markel
38:08 - Some challenges of working within a family-controlled business
42:03 - Markel’s willingness to invest today for future benefit
48:45 - How Markel Ventures helps diversify the company
51:53 - Why culture is a big part of the moat around Markel’s insurance operations
55:14 - The emergence of ESG and embedding Quaker values
62:30 - Tom’s ideal legacy within Markel
63:50 - Learning from your mistakes to become more adaptable
66:14 - Starting with principals and then learning by doing
69:15 - The most under appreciated aspects of Markel
To get all the latest updates about the podcast, see who we’ll have on next, as well as watch the video version of the pod, please follow us on twitter at @BenClaremon and subscribe to the SNN Network YouTube Channel at www.youtube.com/snnwire.
iTunes: https://apple.co/3xlUvPY
Spotify: https://spoti.fi/3jxkxLl
Each new episode will be available every Tuesday morning on Apple, Spotify and all podcast streaming platforms.
All opinions expressed by your hosts and the podcast guests are solely their own opinions and do not reflect the opinion of Cove Street Capital or any affiliates. This podcast is for informational purposes only, it is not investment advice, and should not be relied upon for any investment decisions. We are not recommending the purchase or sale of any securities. The hosts and guests may be beneficial owners of the securities discussed. You should not assume that the securities discussed are or will be profitable.
Tuesday Aug 10, 2021
Tuesday Aug 10, 2021
My guest on the show today is Weston Hicks, the CEO of Alleghany Corporation. Alleghany is a Fortune 500, $9.3B market cap company that focuses primarily on the insurance and re-insurance industry. Weston became CEO all the way back in late 2004 and since then, the company has grown its book value significantly and, like a mini-Berkshire Hathaway, has built up an interesting portfolio of non-insurance businesses that includes everything from a machine tool company to a toy company. And the Berkshire parallels don’t end there. Weston is a value investor at heart and is well known for his eclectic shareholder letters where he dives deep into the insurance industry and the capital markets as a whole.
Weston was a key driver of the company’s 2011 transformational merger with TransRe, a deal that established Alleghany as a global insurance powerhouse.
After close to 20 years with the company, Weston will be retiring at the end of this year. So, I thought it would be a great opportunity to talk to Weston before he officially leaves the CEO seat and get his insights and perspectives, on a variety of topics, including:
- His thoughts on what makes a compounder
- The benefits and the setbacks associated with the merger with TransRe
- How to compensate people and establish a competitive advantage within the insurance industry
- The emergence of ESG and how that impacts a company that underwrites catastrophe risks
Click the timestamp to jump to each answer:
3:40 – Introduction and the transformational merger with TransRe
7:50 – Weston’s plan as CEO (why the diversification into reinsurance)
9:50 – What made TransRe such a compelling opportunity
11:30 – The difficulties of M&A and why Alleghany is unique as a company
13:30 – The big surprises from the TransRe deal
14:55 – Looking back on the TransRe transaction 10 years later
17:50 – The impact of new competition moving into reinsurance
20:24 – What makes insurance companies such effective compounders
23:19 – Compensation as a lever for performance
25:40 – The history of Alleghany’s investment strategy
28:11 – How involved the board is in capital allocation
32:00 – Alleghany’s capital allocation strategy, investing North Star, and inevitable missteps
36:20 – Alleghany Capital and family run businesses
40:47 – Growing Alleghany Capital & the insurance business
43:17 – Weston’s approach to growing shareholder wealth
48:30 – Hiring, compensation, and employee retention
52:08 – The emergence of ESG
57:20 – Why Alleghany utilizes special dividends
61:20 – Alleghany’s exceptional stock growth
64:40 – What about Alleghany makes Weston so comfortable stepping away
67:50 – Areas where Alleghany has had to adapt
70:25 – What is the most misunderstood aspect of Alleghany?
To get all the latest updates about the podcast, see who we’ll have on next, as well as watch the video version of the pod, please follow us on twitter at @InoculatedInves and subscribe to the SNN Network YouTube Channel at www.youtube.com/snnwire.
iTunes: https://apple.co/3xlUvPY
Spotify: https://spoti.fi/3jxkxLl
Each new episode will be available every Tuesday morning on Apple, Spotify and all podcast streaming platforms.
All opinions expressed by your hosts and the podcast guests are solely their own opinions and do not reflect the opinion of Cove Street Capital or any affiliates. This podcast is for informational purposes only, it is not investment advice, and should not be relied upon for any investment decisions. We are not recommending the purchase or sale of any securities. The hosts and guests may be beneficial owners of the securities discussed. You should not assume that the securities discussed are or will be profitable.