Alpha In Podcasts? - [Business Breakdowns, EP.222]
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This is Business Breakdowns. Business Breakdowns is a series of conversations with investors and operators diving deep into a single business. For each business, we explore its history, its business model, its competitive advantages, and what makes it tick. We believe every business has lessons and secrets that investors and operators can learn from, and we are here to bring them to you.

To find more episodes of Breakdowns, check out joincolossus.com. All opinions expressed by hosts and podcast guests are solely their own opinions. Hosts, podcast guests, their employers, or affiliates may maintain positions in the securities discussed in this podcast. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. This is Matt Russell, and we've got a short special episode today on Alpha in Podcasts.

Now, what sparked this episode? Well, I'm glad that you asked. A few weeks ago, a Wall Street Journal article highlighted the behemoth Millennium had hired portfolio manager Steve Scher from Ballyasney with a potential $100 million payout. Who said you need to be an AI engineer to cash in, right?

The journal noted that Schur is known for mining overlooked sources of research, such as podcast transcripts. The article also noted his team generated $150 million in investment profits for Belyazny in 2023 and $250 million in 2024. And as I like to say, hey, that'll pay for lunch.

Now, I'm not here to tell you that there is massive alpha waiting for you on this podcast or on any podcast. If I had to guess, this has more to do with industry commentary coming from niche podcasts. I can remember listening to an old oil field services podcast way back when. And it is amazing what you get from people on the ground and what they see and how often that can differ from broader sentiment.

But this is an opportunity to explore the data. Every Business Breakdowns episode has a disclaimer that this is not investment advice. And that remains true. It will always remain true. But if you enjoy markets, you can't help but tracking how things perform. Since launching Business Breakdowns in 2021, we've covered over 200 companies. Naturally, we get tagged as pumpers when the market is rising. And we get tagged as a curse when the market is falling.

But those who took a math class will appreciate neither of those is really true. There are some winners. There are some losers. Let's start out with some of the aggregate data. Since launching breakdowns, the S&P is up 45%. A rolling business breakdown portfolio is up 30%. Not much alpha there. Your best shot at outperforming would have been a basket of breakdowns covered by my esteemed colleague and host, Zach Foss.

I am glad that I waited to record this episode today on July 1st because he was outperforming the market as of yesterday, but has about 130 basis point drag as of today. So timing is everything. Now, I know you might be thinking to yourself, well, maybe the impact is felt on a shorter time horizon. Obviously, a podcast released three years ago.

It's a little bit different than what is happening today. We want these episodes to be evergreen, but let's look at the numbers. Well, not much to see there. On average, the companies featured on breakdowns lagged the market by about 30 basis points over a seven-day period. They outperformed by seven basis points, if you consider that outperformance, on a 30-day period. And over one year, they underperformed by just over 5%. So the trend line is...

gradual on an aggregate basis. And again, this is a simple average of the names put together. We're doing this rolling, so it gives you some sense. But let's look at some of the individual names of note. We often get asked, what's your favorite episode? Or what's been the best performing name from breakdowns? Well, the best relative performer from business breakdowns was AppLubbin.

Now, Applovin has outperformed by nearly 540% since we featured CEO and co-founder Adam Ferughi in April of 2022. But what's most interesting is that Applovin actually underperformed the market by nearly 60% in the one year following the episode. So not only did it recover, but it recovered and then some.

And we generally try to limit having management teams on as guests. Maybe we should revisit that one. But for those of you who want to use that data as ammo, we serve everyone here. If CEO's going on podcast is a red flag for you, reference the one-year data. If CEO's going on podcast is how you learn about their mentality, reference the long-term performance. It's a win-win.

Coming in at number two on the all-time performer list is GE, General Electric. We also covered this name in 2022. And whether you measure the GE Remainco shares outperforming by over 300% or include the spinoffs, those haven't been too shabby either. If you are planning to write a Twitter thread or a LinkedIn post on Warren Buffett or Brad Jacobs, take a breath.

Stop yourself. Larry Culp is waiting for you. He is the Brooklyn hipster version of great manager that just is under discussed out there and will probably be more in vogue sometime in the future. Here's your opportunity. That's your alpha. Now...

Again, we just highlighted two names from 2022 that have been massive outperformers. You might be saying, Matt, time is going to help with these big compounders. What about some annualized performance numbers? We have some data here. Look no further than Siemens Energy, an episode recorded...

last August 2024. Less than a year later, the stock has outperformed the market by 250%. Not too shabby. We also have Axon from July of 2024. I think I mentioned this on the Axon episode that I let that stock chart scare me away five years prior. Shame on me. Stock has outperformed by another 140% in less than a year.

And then from earlier this year, we have Nintendo, which has outperformed by 53% since January. And if software startups can reference annualized monthly recurring revenue, you have my blessing to reference annualized year-to-date returns. Completely fair game on my side. On the other side of the coin, we have plenty of underperformers, several that are essentially zeros. And we won't go through all those names, but you can find them from the 2022-2023 era.

It is notable that of the 20 worst performing names from breakdowns, Zach Fuss has only hosted one of those episodes. That episode was UPS and the guest was yours truly.

I had to share that data point. I tried sorting through the data in a variety of different ways to figure out some interesting data point. If you look at all of the names that outperformed by over 40% in the year prior to the recording, so a lot of momentum behind these names.

Only nine out of 25 have outperformed since. Somewhat of an interesting data point. And on the opposite side, we've had 35 names that have underperformed by over 20% in the year prior to recording. Only nine of those have reversed course and outperformed the market since.

So interesting from both angles. You definitely could argue fading the massive outperformers going into recordings, but it's not so much the same case in terms of buying those names that have underperformed going into the recordings.

The lesson is always the same here. Do your own research. I think there are things to learn. There's a way to understand these businesses. If I were to describe the idea behind the podcast, it is if you're just starting to research a name, rather than look at the 10K or annual report, listen to an interesting conversation,

about this company, likely from an investment manager that owns the company, understand what this business is all about, and do it in a time-efficient and entertaining way.

That said, there are things you can take away from this. We have a fine friend of the show who I will refer to as CP, and he unearthed Casey's from the show along with some other names, and he noted the pattern matching that he does from these key names. And if there's one way that it showed up for me in my personal investing process, it is very much the pattern matching.

One of my favorite themes is finding businesses that have mission-critical products that they're selling. They have dominated those markets. They have a path towards organic growth and towards acquisitive growth. And in 2021, a company was featured on another podcast.

I noticed a lot of the themes around this business were similar to the later stage compounders that we know of today. This company, I would say, was still in its early innings, not so much as a business itself, but as a public company.

And it has done incredibly well for me since. So there are different ways to take the lessons that you learn from business breakdowns. We hope that's how you apply it. We hope that's how you use it as an educational resource. If you want some of the additional data, I'm happy to share tidbits here and there with you. Just give us a shout. We will be back in the coming weeks with episodes. We have a lineup of recordings happening this week and next week. So stay tuned for those. And as always, thank you for listening.

To find more episodes of Breakdowns ranging from Costco to Visa to Moderna, or to sign up for our weekly summary, check out JoinColossus.com. That's J-O-I-N-C-O-L-O-S-S-U-S dot com.