TIP723: The Art of Buying Growth Companies for Value Prices w/ Jim Zimmerman and Abigail Zimmerman
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You're listening to TIP. Today's guests have outperformed the S&P 500 for most of the last 19 years, all while holding a 20% cash position on average. Let that sink in for a minute. Outperformance and a hefty cash cushion? That's incredibly rare. The father and daughter duo, James and Abby Zimmerman of Lowell Capital, have an investing strategy based on a simple but powerful idea, which is to focus on resilient and cash-generating businesses that they understand deeply.

This means they actively search for companies that have cash flow today, not tomorrow. They want businesses as close to the center of their circle of competence as possible. They're looking for overlooked businesses with Fort Knox balance sheets, which require minimal capital to maintain operations, all while factoring in growth. We'll explore their investing journey, starting with where they source ideas from popular investment idea factories such as the Valley Investors Club. We'll examine how they use the equity bond framework to aid in their decision-making.

We'll discuss their approach to keeping things simple, how they stay disciplined around portfolio construction, and some non-obvious signals that management is aligned with shareholders. One of my favorite topics was how they navigate the delicate balance between growth and value. While many investors put themselves firmly in one camp, they've managed to play both sides of the pendulum in a very value-accretive way.

and their ideas just simply work. I recently came upon a tweet that showed the 30 best performing stocks in Canada over the last three years. And I was very impressed to see that Lowell Capital invested in three of them. And these three were in the top five of returns to boot. You'll also learn how they use cash as a strategic tool to navigate uncertainty, reduce risk, and seize opportunities while competitors are forced to the sidelines.

Let's get right into this week's chat with Jim and Abby Zimmerman and learn how to buy growth businesses at value prices. Since 2014 and through more than 180 million downloads, we've studied the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected. Now for your host, Kyle Grieve.

Welcome to The Investor's Podcast. I'm your host, Kyle Grieve. And today, we welcome James Zimmerman and Abby Zimmerman from Lowell Capital onto the show. James, Abby, welcome to the podcast. Thanks for having us. Yeah, thank you very much for having us. Appreciate it. I really enjoy it.

So one thing that I found really interesting while reviewing your investor letters is just the frequency, which with you mentioned things such as the Value Investor Club, SumZero, and MOI Global. So I personally have used Value Investor Club before and I've been really impressed with the quality of some of the write-ups on there. So my question for you here for today is how has your strategy for generating ideas kind of evolved over the years?

So I would say, I mean, all of these websites have been genuinely really valuable resources for us over the years. We read a lot of write-ups on Polyinvestors Club and we read almost all of them, even the ones that may not make sense for us. It's just part of our process. And I would say that nine times out of 10, they don't make sense for us. And it doesn't mean they're not great ideas. It just means they're not within our circle of competence. And we try to be very strict about that.

So I'd say we tend to steer clear from industries like biotech, financial services, real estate, oil and gas. For us, they just tend to be pretty volatile and a bit unpredictable. And we tend to gravitate towards more service companies, software companies, industrial IT. We're just looking for simple, good businesses that are easy for us to understand, resilient during difficult economic periods.

and have some kind of sustainable economic moat that differentiates them from competitors. So I'd say we get a lot of really great ideas from all of these sites. And we're mostly looking for just small, under-followed companies that are already generating strong free cash flow with low or no debt, what we like to call Fort Knox balance sheets. And so all of these websites have really helped us find some of those overlooked companies. And so we'll

essentially create a short list. And if something catches our eye, we'll do our own due diligence process. And we'll have direct calls with management teams. We'll go deeper into the financials. And we really just learned that a lot of companies don't make sense for us. They either just don't have the cash generation, they don't have the balance sheet that we're looking for, or the valuation. And so I'd say our process has really become more structured around

repeat patterns that we've seen work in our winners and the ones we've considered to be compounders. We have a very simple approach, which is let's evaluate companies. If we own the entire company, it's our company. You buy one share, you buy the whole company, right? What's the most important thing? Well, you want cash coming in. A company that flows cash, you could sleep at night,

It's not that the other companies' write-ups aren't great ideas, but our approach and what's worked over time is companies that generate cash and then can use that cash and grow. And so we'll look at the enterprise value, the net debt or cash, the market cap, and then look at how much cash are we getting against that from cash from operations literally coming in the door, not EBITDA necessarily. And I would say, yeah, 19 out of 20 of the write-ups we read

don't make sense for us, but we're sort of cutting them down very aggressively to just a handful that we can really hone in on. We don't need very many ideas and there's 4,000, 5,000 public companies in North America alone and we also invest in Western Europe and we just need a handful. And so we're looking for a hack to slash those down to just a few that we can do a deeper dive on and start. And then the other thing is Abby will look at the track record of the author. There's nothing more important than does this person...

he or she get things right? Do they not make mistakes? That's critical. And nobody in... A lot of these write-ups are really, they're 20 pages and the person writing it up has got all these great insights and they're really smart. And we don't like that. We want something that you could, as Abby said, do an elevator pitch to Peter Lynch, writing down, and what are the key points? And so not that all the other stuff weren't great, but this is just...

will work for us. And then, yeah, we want the Fort Knox balance sheet. We want something because it really reduces risk tremendously to not have that leverage when you've gone through the financial crisis or you've gone through COVID and all of a sudden you don't have a good balance sheet. So it's just a whole process of how can we de-risk and

and defensively involves investing in public equities. But there's so much brainpower on Vick and some of these other sites. We're just looking for a handful that work for us. It doesn't mean that all the other ideas aren't great. It's just they're not kind of our type of thing. And we've kind of evolved to, over time, what produces the fewest mistakes. Because we're just trying to not make mistakes. We're not necessarily trying to hit the ball up.

You've already brought up your circle of competence here, so let's turn to that. So even in your letters, I also have noticed that you bring it up quite often as well. So it's clearly an area that you focus on deepening and expanding over time. However, let's kind of consider here the circumstance when you're analyzing a company and maybe just a completely unfamiliar industry or something that you've never maybe looked at in the past, which is a reality for most investors that are seeking new opportunities in kind of an ever-growing way. So

What are kind of the first things that you tend to study to decide if it's even worth going and digging deeper and deeper into an idea?

I would say when we first come across a business, our first step is really to ask, is this simple enough to understand? And if we can't understand the business model clearly, we're going to pass on it pretty quickly. We'll also check on the financials as well. As I mentioned, just is it generating a strong free cash flow today and does it have that clean cash-rich balance sheet that we're looking for? And we also look at specific dynamics that we've seen in many of our compounders or winners.

And those can include customer stickiness, some kind of really strong competitive advantage or strong returns on capital and trades at a low valuation. And so if those things are present, I'd say we're definitely interested. And those questions can really help us avoid wasting time and keeping us focused on businesses that we can truly understand because we're obviously a very small team. And so we only have so much time and resources. So...

It's important for us to have a strategy to kill ideas quickly so that we can focus on ones that are actually going to work out for us. I would say we're looking for resiliency. We're looking for predictability. It's kind of the Buffett thing of the, you get a card with 20 punches your whole life. You got to be pretty careful about picking those. So something that people are excited about, something that's volatile, something that doesn't have a long track record.

We're looking for stuff that's really steady. And when you look at Buffett in his portfolio, he owns the economy, like, you know, whether it's a furniture company or jewelry company or the railroad, or he's growing with the United States economy. And so if you can do that and your business is maybe better than the economy and more resilient, you've got a winner. And so

We really talk about a business we're not familiar with, or we're probably going to shy away from that because we don't really need many good ideas. I think also the cash flow, if it doesn't flow cash and it hasn't over multiple years, we're not looking at just one year of cash flow. We're looking at three, four, five years, how much cash is coming in against the enterprise value.

And sometimes you can find stuff that, you know, the last three or four years, it's paid off the entire enterprise value. So it doesn't mean it's going to work, but if it just keeps going like it is, you can buy the whole company back. And so we love stuff like that. Anybody buying massive amounts of their shares back with still a good balance sheet, we kind of stick to industries that we can sort of figure out and understand. And anything that's kind of far afield or new or exciting, it's, you can't really handle that. We'd rather sleep at night.

So kind of piggybacking here on the circle of competence here is a really good concept, which is just simplicity, which I know you've also written a lot about. So it's something that I've unfortunately learned a lot about the hard way, which is mainly from losing money on investments that I ended up figuring out were a lot more complex than I'd originally envisioned. So how do you guys kind of determine if a company's value drivers are truly simple versus kind of having this deceptively complex nature underneath?

So I would say in terms of determining a company's value drivers, if they're actually simple or potentially deceptively complex, we start with a couple of questions, kind of like a filtering process. So first, we'll ask, can we easily explain how the business makes money in a few sentences? If we are not able to do that, or we feel there are too many conditions or moving parts, I'd say that's a red flag for us.

Secondly, highly focused on cash flow. We're not focused on projections or future promises of businesses that are already generating strong, sustainable, free cash flow today and not based on multiple future steps going right. So we heavily like discount story stocks where success relies on predictions or multiple catalysts have to occur for the pieces to play out.

I'd also mentioned we always keep in mind Charlie Munger's too hard pile where, you know, if we can't quickly understand the competitive moat or the business, we'll immediately just put it into a hard pile and move on to something that we feel could be a more simple business for us to understand. And I'd also say sometimes

simplicity doesn't mean easy. And I think it can be natural, but maybe associated to in some way. But Steve Jobs has a great quote where he says that it takes a lot of deep thinking to reach something truly simple. And I'd say that's very much reflective in our due diligence process with our multiple calls with management teams, studying customer stickiness, management quality, just making sure that the simplicity is across multiple fronts is very important to us. And I'd say that

True simplicity often shows up in how resilient a business performs across multiple environments and in how few things need to go right in order for it to work.

Yeah. And I'd say also the fewer things that can go wrong, like somebody said, I don't know, Jim Rogers, that he likes to walk down and just sees a dollar on the ground and you stoop down and pick it up. And we're always asking, again, there's a lot of these elegant investment ideas with many pages. That's just not for us. How simple can we make it? And you look at Steve Jobs when he designed the icon and the simplicity he was focusing on, just how could he simplify it even further? So-

It's like Munger says, invert, invert, always look at what can go wrong. So we're always trying to figure out, well, what can go wrong with this thing? Because stuff does, the world's very unpredictable. So simplify, and we don't really rely on projections. So you've got a picture of Ben Graham behind you there. And when you read The Intelligent Investor, he's constantly talking about not relying on projections, buying businesses that are modest multiples of existing earnings,

And then he goes back and looks at three or four or five years or 10 years of earnings and averaging that. And so we're trying to kind of do that, like what's already kind of working and has worked and can it just sort of continue? So you're going to surf that growth path. Those tend to work really well for us. So we like to keep things simple, cheap. And, you know, a lot of times we can find companies that are sort of boring. The organic growth rate isn't very fast.

but they generate a lot of cash and they're bolting on tuck-in acquisitions. And then they generate cash, they pay the debt off and they go do it again. And they can get very big over time and do very well. We've had some really good luck with those. So just stuff we can kind of understand. That's our sort of approach. Keep it simple.

Yeah. So last question here on circle of competence. So I think it's really important that if we are trying to expand our circle of competence, which I think everyone in investing probably is to some degree, but some people maybe are trying to just force yourself to expand into new areas where you might not have any actual strengths. So your team, like you guys already pointed out, you have three people, which is kind of a bonus because it means that you each have your own strengths that hopefully make the whole stronger than any single one of you.

But given the fact that you have specific strengths that you are already aware of, how are you deciding when is the right time to maybe push the boundaries of your circle of competence versus just trying to stay smack dab in the middle of it? Because obviously, while it'd be really good to just be able to stay smack dab in the middle of it, there's always the fact that we want to learn more and more and we want to try to test out maybe some of our new knowledge and enter into new realms and new types of investments. Robert Leonard

I would say we're very conscious of balancing the two, carefully expanding our circle of competence, but always with discipline and patience. I would say I think a big risk in investing can sometimes be confusing enthusiasm for expertise. And so I would say we know what we're good at, which are simple cash-flowing businesses with durable competitive advantages. And I'd say when an idea comes across our desk, our first question isn't, oh, is this really exciting and something new? It's more, can we understand this business? And

And so we're just extremely selective. And I think of Howard Marks often, and he just talked about the dangers of venturing too far outside of your area of true expertise. And we do take that very seriously. So I would say we really don't expand beyond our circle of competence much just because we feel we do have such a clear analytical edge in what we do, unless there was an opportunity that was just so compelling and understandable that it would justify maybe pushing that edge a little bit.

But I would say, you know, we feel that long-term performance really comes from not knowing a little bit about everything, but knowing a lot about a few things. I just throw in there too, one of the things we do that's kind of interesting, we will go through the transcripts of conference calls and I've heard Brian and others who's

really smart guys talk about this and go through word by word. What is the management team saying for multiple calls? Do they deliver? Do they under promise? Do they overperform? Are they salesy? Are they, you know, and so here's what they told us was going to happen. And does everything they're saying make sense? And that's very interesting because there's a lot of information on those calls and they're getting asked questions off the cuff. They don't read from a script and they will drop little nuggets of gold many, many times.

you can get an edge with what's going to happen. And so we tend to really, when we have a good size position in something, hone in on those calls, everything they're saying, what's the tone? Did they deliver what they said they were going to do? Did they under-promise and over-deliver? And I think that is one way we do it. And then we did really well with Celestica, a contract manufacturer, and the electronics manufacturing business had been horrible to investors.

There was high turnover many, many years in a row. Investors just got really down on the company and the industry. And somebody had written about Flex and Celestica that the industry was changing and the relationships with the customers were multi-year, strategic, deep, deep, which is what we want to see.

And so we spent our time and gradually built a position in Celestica, which was generating a lot of cash. We invested a very low multiple cash from ops, you know, five or six times with a great balance sheet. And we listened to the management team. We followed them for multiple years because it was an area that we were like, well, it looks like this is a real thing with these customer relationships. Then we had it at $10, $12 a share, and they were doing $2 share of earnings. And we were like,

What are we missing here? This is insane. They have almost no death. And so, as always happens...

We hung in there and we were reading the conference calls in great detail and they were delivering everything they said. And this management unit worked very, very hard over multiple years to build this strategic relationship inside the data centers. And they were solving problems for the hyperscalers that the hyperscalers didn't even know for Google and really sophisticated stuff. And eventually the market woke up all of a sudden and realized, okay,

oh, this is kind of a backdoor play on AI and data centers. And they're deeply involved with these hyperscalers and the stock went through the roof. But as always, it took a while for that to sort of happen. But we were sort of saying, gee, did we make a mistake or what did we miss? Or this thing's got a $12 or $13 price that's doing $2 burnings with no debt. What's going on here? So, you know, that's kind of a...

Yeah.

And when you're in a position like that, the shift in the business model often has multiple years to run. They've done a lot of work and you're sort of piggybacking on it. So that's one more workout, but that's kind of how we approach getting out of a little bit of our circle of competence. And that one worked out really well. So.

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Right. So one thing that you guys have already mentioned multiple times on this interview so far is cashflow yields. So I know that you guys are very, very laser focused on free cashflow yields. Now, throughout your investment thesis in each quarterly letter, you write essentially what the free cashflow yield is for pretty much every single one of your investment ideas. So my question here for you is how are you defining a sustainable free cashflow yield and what kind of gives you confidence to underwrite that durability over a long period of time into the future?

Yeah, I would say absolutely free cash flow yield is at the center of our investment process. And we don't want companies that are just profitable on paper. We want businesses that consistently convert those profits into actual cash. And so when we talk about a sustainable free cash flow yield, what we mean is cash flows that are repeatable, resilient and relatively predictable and not dependent on one time events.

or things like that. And so I would say in terms of a few specific things we look for to kind of underwrite that sustainability would be capital-like business models. We really like trying to find companies where maintaining and growing the business doesn't require a massive reinvestment and low capital intensity relative to revenues, we feel is a great starting point. And just businesses that have the recurring revenue and a sticky customer base

And we feel that that is one element that can contribute to sustainable cash flow generation. Competitive modes as well, which we've talked about several times so far. We spend a lot of time assessing whether there's something unique about a business, whether it's brand or scale or cost advantages or switching costs. Something that can kind of protect margin and cash flow generation from being eroded from over time. Fort Knox silent sheets as well.

We find that having that strong balance sheet really ensures that the free cash flow is truly available to equity holders and is not used for debt. And I would just say, you know, on the Fort Knox balance sheet, a company that has that kind of balance sheet, that's our kind of company. We're conservative, you know, somebody that doesn't want a lot of leverage. Now, some businesses, you can have the leverage and they can handle it and they're fine. And

But we're happy with management teams that want that super strong balance sheet because you never know what's going to happen, what the economy is going to do, the tariffs, anything. And when you've got a strong balance sheet, you can get through almost anything. And so the risk in the company is much lower. And the market doesn't really tend to look at balance sheets until it becomes an issue in an economic cycle. And I think that's really missed. And we think there's a

big factor of risk there that we try to adjust for. So we always talk about Fort Knox Ground Sheet and everyone teases us about it. And our fund has a Fort Knox Ground Sheet because we're holding a lot of cash. But that's just kind of how we roll. And we like to have our powder dry to take advantage of really good opportunities. And it has tended to work out pretty well over time. The other thing I would just throw in there is...

Again, you're going back to Ben Graham. We look at multiple years of cash generation. So anyone can have one good year cash generation. You've got a mortgage servicer and the rates are low and that doesn't mean anything to us. Tell us what she did over the last five years. So we really, like when we invested in Sprouts, which we did really, that company had generated tremendous cash from operations when you added the last four or five years.

It had no real net debt for grocery store, which is highly steady. It had a great new guy coming in with a strategy to differentiate. And it had Abby as a customer at their Sprouts stores, who I don't know all the keto and all that. But they had a strategy of like the people that do keto and vegan. And when the economy gets bad, they might buy a little less, but they're still going to go to Sprouts and not Walmart. And their overlap with Walmart was 10 or 11%. So it was a very differentiated strategy.

But they had that cash to allow them to execute their strategy. And then they started opening up stores. And they're talking about free cash flow. We're laser focused on, okay, what's the payback on? You put that money out. How much do we get back? How fast do we get it back? Is the cash from ops climbing over time? And we'll stay in there. That will redo our work. So we did really well with Strauss. That worked out really well for us. So

But we really try to look at a long track record. We'd rather pay a little more for a business and let it execute and have it be working than sort of take a risk and see if it's going to work or not.

It's kind of like a great line by Tom Gaynor. I was listening. He said, do more of what's working. And so if something's working, you don't want to be a momentum person, but a lot of times the market won't react that quickly and it's executing. And you can see in the conference calls what's going on and you can get in there and take that ride. And it's a lower risk ride to us because they've executed all that. So that's sort of more on sort of the pre-cash flow and how we try to sort of make sure it's sustainable over multiple years.

And it has a history. It's not just a one-off.

So sticking here with durability, let's talk about one of the metrics that I think is one of the most important metrics in all of investing, which is return on invested capital, which I'll refer to as ROIC. So one thing that's been on my mind lately after reading a lot of research by Michael Mobison is just how sensitive ROIC is to progressing towards the mean of its industry average ROIC, or just in simpler terms, over long periods of time, ROIC generally just gets dragged down by

say a really good business down to the average of that industry. So what are some of the signals that you are searching for that might give you extra conviction that a business's capital efficiency metrics are truly defensible versus succumbing to that regression to the mean?

Yeah, I would say when we search for businesses where high returns on investment capital are truly defendable, I'd say there are a few key signals that really stand up to us. I'd say first, we heavily emphasize the existence of a strong economic moat. We've said that multiple times, and that's just part of our process. And we feel that without a moat, any period of high return on investment capital is unlikely to last. So we tend to deeply study how real and sustainable that moat is.

And as Buffett says, the company with that wide economic moat has sustainable competitive advantages that can shield it from competition and allow it to earn those high returns of invested capital. So we mainly focus on that. I'd say, secondly, we pursue business models that are low capital intensity. And we feel that if a business doesn't require constant reinvestment to sustain its economic, it's more structurally resilient to competitive pressures. That can really help sustain that high

high return on invested capital as well. And then I'd also say we definitely evaluate if the drivers of high returns on invested capital are internal rather than market dependent. And so I would say if a company's return is dependent more on favorable macro conditions, we're much more cautious about cloud, of course, because we want returns that are driven by internal efficiencies, cost advantages, or

or proprietary offerings that are harder to replicate. Yeah, we're big fans of the green black formula, which is brilliant and the magic formula. And we'll even look on there sometimes, but good businesses at low prices. And so we look at that, the working capital, and we look at the tangible assets of the business that

the PP&E, put those together and how much free cash flow or how much operating income or how much can that business generate? And then is it sustainable? What trend is it showing? And really the whole economy has become more of a service economy with higher returns, which is why sort of the multiples of these companies that seem really high, they might be a little more sustainable than people think.

And so we really look for high returns on invested capital, sort of the operating income, their stable operating income relative to how much assets it takes to sort of generate that operating income. And then what's the trend in that? So with the Sprouts or with some of these other companies that are making investment positions, is the cash from ops climbing?

based on the money going out. And the other thing we look really closely at is working capital. Companies that manage their working capital really well tend to have strong management teams and are very efficient. And we came through the pandemic where people had to sort of expand their working capital and they're bringing it back down. How well does it matter if you can do that? But you can go bankrupt with no debt if your working capital really just goes the wrong way because it can keep expanding. And so

We do ask the management team, well, how do you manage working capital? What's the incentive to tightly control that? And the companies that can spin that very quickly and efficiently, those tend to be really well managed. So that's an area of ROIC that we watch very closely. Because I'd say the economy just generally has, it's a less capital intensive economy these days. It's, you can rent almost anything with, you know, pay as you go software or

And so people are doing that and it's very efficient. But most of our businesses, as Abby said, have high RIC because they generate free cash flow. And if you stop generating the free cash flow, the cash from ops goes the wrong way. We're sort of looking at the exit door, just trying to really get comfortable with why is this happening? And we tend not to wait around for, you know, we don't trade a lot, but if something's sort of questionable, we don't always want to just wait around and see if it works out or not.

We'll move on to something that's working

So shifting here from returns on invested capital here to more management. So one area of management that you guys have discussed a lot is alignment, which is an area that I think is incredibly important. And the more and more experience I get investing, the more and more importance I understand that alignment really, really matters. But let's look beyond just looking at insider ownership. Obviously, that's a good barometer, but let's look a little bit deeper. So what are some of the other deeper signals that you're looking for that might confirm that

Management incentive programs are genuinely aligned with shareholders.

Yeah, I definitely say insider ownership is just one aspect when it comes to assessing alignment. And we definitely do work to assess if genuine alignment is there beyond that. And so beyond insider ownership, I would say we tend to look for behavioral evidence over time that management thinks like owners. And there are some deeper signs that we'll look at closely, like their capital allocation discipline and how they deploy cash, companies that create

consistently reinvest cash into high return on invested capital opportunities to return capital via buybacks or dividends that show real shareholder orientation. Also companies that maintain that Fort Knox balance sheet as well to us indicate management teams that choose to operate conservatively with low or no debt to us that often signals that they perhaps prioritize long-term resilience over maybe short-term leverage back

back growth. And we look at their track record as well. We do a deep dive into their track record. What have they done? Have they executed on what they're what they've said they're going to do? We tend to really like companies with management teams that kind of under promise and over deliver. And so we kind of tend to view management teams as our business partners. And we want to ask ourselves if we feel confident that these are people we want to work with and we like and we trust and they're honest and great integrity.

And when we can find that alignment, we have found that that really becomes a powerful force for compounding over a long period of time. Yeah, I think this is again where you could look through the transcripts and you could hear the management team talk and you can go through what they're saying and you look very closely at it and you can really get a sense of what they're like and personality and kind of risk tolerance and how they answer questions off the cuff.

And do they want a Fort Knox balance sheet? Is that kind of how they roll? Are they sort of aligned with us? Do they admit mistakes? You know, Buffett's the obvious classic answer. You read his letters. He's very straightforward about what he makes a mistake. And so really going through those transcripts where they're asked questions they're not really prepared for. We love that because a lot of times they're industry analysts. They're asking questions, but the answers are relate more to cashflow and stuff and

And there's just great information there and no one's really paying attention to the answer. And you definitely read a few of those and you get a sense. We own this lighting company, LSI. The guy running it, Jim Clark, has done a really good job. And he talks about they have a very strong say-do ratio. So he wants to make sure that...

They do what they say they can do and they deliver and he puts it out there and they put projections. We like the management team that will stick a projection out there multiple years. They'll, hey, this is what we think we're going to do. And we'll put our neck on the chopping blocks if we don't make it and just that type of stuff. But management teams that deliver and you can sort of read through what they're saying in responses and just their whole process.

tone, you could get a pretty good feel as to whether you could be comfortable with someone. And we rely on that. And the stock ownership is obviously important too, but you can really get a sense of kind of, do they under-promise, over-deliver in reading through letters a lot of times? And so we will definitely do that.

So I've enjoyed reading a lot of the ideas from your shareholder letters. And there's a lot of ideas that I've already explored myself before even hearing about you guys. And I've also, there's some overlap with other investors that I've interviewed. And one area that I really appreciate about your investing strategy is how you've balanced value and growth. So there's obviously this kind of these two schools of thoughts in investing, the value crew and the growth crew. And so while there are value investors that just look for super cheap, low value,

single-digit PE stocks, and then just wait for them to re-rate and then repeat that process. It's just not a strategy I personally find very interesting. I think that's part of the reason why I've enjoyed just Buffett's transformation where he went from looking for those cigar butts to now looking for quality businesses. So yeah, with that said, I'd love to just learn a little bit more about your guys' process here and how you've balanced that strategy between both value and growth investments. Robert Leonard

Yeah, I'd say we're much more aligned with the Buffett evolution you referenced of buying quality businesses at reasonable prices that can compound over time. And we try to strike that balance by focusing on buying growth companies at value prices. We met with one of our investors and we were more in detail explaining our philosophy. And he's like, oh, you guys are kind of buying growth companies at value price. And we're like, that's exactly it. So we've taken that phrase and ran with it. And we have that on our office door here to remind ourselves.

But I'd say we really just want to own businesses that are already generating strong free cash flow and high returns on invested capital, but trading at valuations that reflect low expectations. So we're looking for misperceptions. Maybe the company's in a misunderstood industry or has a new management team turning things around the market doesn't recognize yet, or just flying under the radar due to its size. I would say like one thing that's really awesome about the companies that we study, most of them have little to no analyst coverage.

And a lot of them, people aren't paying attention to. And one specifically, Hammond Power Solutions in Canada, they're like the number one producer of dry type transformers. And I think the funniest story is we had a call set up with Bill Hammond, CEO, and this was before the stock went up like crazy.

But we had a call planned with him and he was driving home and pulled over to the side of the road to do the call. He was like, I'm on my way home from work and going to have dinner with my wife and kids. And we're just really excited you guys wanted to chat. So it makes sense because when management is so invested, obviously, in their story and they really believe in it, to get that investor interest when no one else is really interested in is very exciting. And that one was an awesome winner for us. And...

Yeah, I would just say, you know, we're trying to underwrite modest cash flows over just two to three years from today's cash generating pace and just ask ourselves, could this business be worth more if the market kind of re-tributed its expectations? And so when we find a business that keeps compounding, we're happy to hold it longer and it can grow into larger, more valuable enterprise. But yeah, I'd say our balance is really low expectations going in with high quality businesses that are underneath that the market doesn't yet recognize.

Yeah, it's hard to know which ones are going to work. So we'll do a bunch of, not a bunch, but carefully study a Hammond Power and we'll talk to the management team. And you find no one's paying attention to these companies and they're working so hard and they're doing such a great job. I mean, Hammond Power has a really strong position in dry transformers.

And they hooked up with these distributors who could deploy their better solution, more customized across very quickly across North America. And they were just starting to execute that. And Bill Hammond talked to us two or three times and he was so excited to talk to us. It seemed like, you know, we didn't know it was going to work, but they had very little debt. They had really good cashflow. We were paying a very low multiple. And that's kind of the formula. And that one worked out really well. We had another one.

Duratech in Australia, this defense sort of contracting company, a rehab company. They basically go and defend spaces.

will do work on them remediation work but it's low risk it's just remediation they're not building a new bridge or anything like they're just so they're in defense and a lot of and that company was trading we invested very little multiple of ebida and cash flow they had a net cash balance sheet so and it's worked out really well they and it just seemed to us like geez he's got a lot of running room so we'll deploy there is that one going to work

We had Sterling Construction that became Sterling Infrastructure, the guy there totally executed, generating lots of cash. So we don't know how well they're going to work, but we know some of them will probably work big. And as Abby said, you make your real money on the compounders and the ones that really grow. And I repeatedly, Gabby doesn't do this, but we buy it personally as well as for some investors.

I sell too early, you know, the multiple gets really high and I'm like, well, and you know, it repeatedly, we've had ones that have gone far higher because the business was just so good and they, it may take a couple of years, but that's where your big money is. And we've come to realize that. So,

to use Pabrai's saying, heads we win, tails we don't lose much. But sometimes you win really big and those, if it doesn't work, you get most of your capital back. And so that's kind of the formula, but really finding that good growth business is where you're going to make your really big money because you just need a handful of those and you can do very, very well. And even though we pare down as they go way up, we still have earned really good returns on

on some of these and TerraVest is another one. We talked to that company quite a long time ago, Dustin, fantastic. And he was telling us what he was going to do. And he was just so thorough when he described TerraVest.

how he bought companies and what he would do to make them profitable and how he could execute it. And just no air about him whatsoever, the most down-to-earth guy. And we held onto that one for a while. We still have a little bit, but there's a person and a team there that the value was him and his team, and he could keep doing this rinse-repeat on adjacent industries. And the leverage got a little high, but he could handle it. But we got a little comfortable with that.

But just stuff like that, you know, you just need a couple of those and you can do quite well. So it's a strategy of do a lot of work on it, try to make sure you're not making a mistake. And then some of those are going to work out really big and try to hang on to them as long as you can. Redo your homework as it goes up. And so, but yeah, the growth is obviously key and compounders is an overused word, but it's, we are like everyone else looking for those. So hopefully that makes some sense.

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That's shopify.com slash WSB. All right, back to the show. I'd like to touch on something that you brought up earlier, which is your very, very large cash position here. So reviewing your letters, I've noticed that your cash position has declined a few times, such as the COVID times, and as well as times when interest rates have fallen pretty drastically. But you've also gone up pretty high, even exceeding 40% of the fund's assets when you feel that you need a more defensive approach.

So let's weave this into one of the biggest influences of mine, Howard Marks, which I know you've already referenced is probably a big influence on yours as well. So how have you utilized maybe some of his teachings on market cycles to help improve your decision-making concerning your cash positions?

Yeah, Howard Marks has definitely been a very significant influence on just how we think of market cycles and the role of cash as a strategic tool. And as we already mentioned, one of the lessons we reference by frequently that we learned from Marks is the idea that markets are cyclical and

You cannot predict, but you can prepare. And another quote he references often, it's not his quote, I can't remember who said it, but there are two kinds of forecasters. There are those who don't know and those who don't know they don't know. And I love that quote. And, you know, we want to be in the former camp. And so we use the phrase often in our approach. And while we don't try to time the market, we do calibrate our aggressiveness or defensiveness accordingly. And something else I like that Mark talks about is just

the pendulum of investor psychology and how when optimism and risk-taking are dominant, you should be more cautious and vice versa. And so I would say we view our cash position as a dial for adjusting risk exposure. As I mentioned, we're not trying to predict macro events, but we do pay very close attention to where we think valuations are and what sentiment is across the market.

And we're very selective about what's in our portfolio. And so we have no problem holding substantial cash to wait for really good opportunities. And so after the COVID shock, we deployed cash steadily but cautiously. Once we had a clear view on the implications of our portfolio companies, interest rates effectively went to zero. We dialed down our cash, but then we moved deliberately, not all at once. So it's very cautious, defensive approach, as we've mentioned.

And then another thing we've touched on already, but is a concept that Marx talks about that the future holds a range of outcomes that you just cannot predict. I mean, I think he had mentioned in one memo that in January 2020, there was no economist that mentioned anything related to COVID-19 whatsoever. And so it's typically those things that are going to throw you off track that you never would have expected. And so we feel that having cash really gives us optionality when the opportunity set changes. And

I'd also say our primary objective is to survive. And we like to reference Tom Gaynor, and he often says, you know, you just have to be able to survive so you can ring the bell the next day. And that's how we've been able to manage through really difficult periods. Like, I mean, OA and COVID was building up this cash position. Yeah. Yeah. I mean, you look at who holds cash, Seth Klarman, Howard Marks, Warren Buffett, Steve Romick. Yeah.

So the point is some investors like, well, I want you to always be fully invested. And we've generally done pretty well taking our time redeploying cash as we're doing now with the tariffs thing. And what are the rules now? Do we understand what's really going to happen here? And we generally can always find something interesting and we'll just do our work one at a time and redeploy the cash. During the financial crisis, we went up to 50% cash at the end of 05.

08 and we gradually deployed that through 09 and so many funds blew up or they had redemptions or they were poorly positioned. So you always want to be the last man standing if you can. You can't be all cash, but just in our experience, and I hate to say this because you look to regret it, but usually having that cash, we can deploy it and earn good returns and it doesn't hurt us that much to dial up

the cash during periods of uncertainty and it helps us sleep at night and we get worried too. We're normal. And so as we went into this tariff thing and we had a lot of very high multiple stocks that are run up a lot, we took chips off the table and we may go back into them

So we have just felt we can always find and do work on another idea that's really attractive as things get beaten down. And that certainly happened with the financial crisis. We just took our time in. The bottom tick was March 09, and we just found a couple of things that looked really crazy cheap, deployed our cash into them, and we had a fantastic year, but we took our time. And so we're really not good at trading or managing. It's just a matter of...

If we get nervous about the macro picture, we can step back a little bit and pare things down, keep our favorite positions, but go back into them as our comfort level goes up. Other people have their appetite for volatility is much higher than ours, and they don't mind it. We like to even try to sort of manage that. But as Abby says, we always want to be around to ring the bell for the next round. Or Buffett says...

To finish first, you have to first finish. And look at all the cash he's holding now, you know, and he finds stuff. And so that's kind of our feeling. There's so many, you've got four or 5,000 publicly traded companies just in North America. We're going to find something no one's paying attention to. We like stuff that a lot of people aren't looking at. And we'll do our work and put some capital to make that there. And that's worked for us pretty well over time through these periods of

uncertainty and doesn't mean it'll always work, but it's been pretty effective so far.

So another concept that I really enjoyed learning about from your writing is, because I've researched it a lot as well, is just treating equities like bonds. So this is something I'm sure you probably learned it from also from Warren Buffett or maybe from Benjamin Graham. But basically, it's just for listeners who might not understand, it's when you're evaluating a business, you just kind of look at the free cash flow yield of that business and then compare it to the bond market. And I think a lot of investors do this. It's just, it's a super simple way

to compare the opportunity cost of a stock versus the kind of guaranteed risk-free rate. So the difference though, is that the beauty of stocks is that they can reinvest those coupons, which bonds obviously can't really do. And if they can do that successfully, they can actually increase the future yields if they have a very, very good return on those reinvestments. So my question is for you, how has this kind of bond framework changed how you tend to underwrite specifically equity investments? Robert Leonard

Yeah, I would say treating equities like bonds is a very simple but powerful mental model for us. That's worked very well for us. And we look at the unleveraged free cash flow yield relative to bond yields as our starting point. And it really forces us to be disciplined and consider what cash am I getting based on today's enterprise value? And how does that compare to the sure return I could get from something like a government bond where I know the cash flows are fixed and guaranteed? So

So am I being paid enough today to take on that uncertainty of an equity investment? And if a company can sustainably reinvest those cash flows at high rates of return on capital, the free cash flow today is really just the starting point to a much higher yield on the road. And so I would say our underwriting process begins with what is sustainable free cash flow yield today?

And how confident are we that the business is defensible and recurring and doesn't need massive reinvestment just to stand still? I mean, part of what investing is, as Buffett says, it's putting up money today, get more money later, right? It's every asset's a bond, whether you're buying real estate, whether you're buying equities, whether you're buying junk bonds, you can always strip out the debt, look at the enterprise value and see how much cash you're getting in. You can make them all somewhat comparable and...

And that's kind of in the back of our minds, something that we're doing to convert the equity. Because at the end of the day, we're just trying to capture as much sustainable cash flow in our little fund as for ourselves as we can. And everybody's trying to do that. There's a certain amount of cash flow on the earth and you're always trying to buy some that can grow at a low multiple. And so...

thinking of equities as bonds is really normal. And when you look at Berkshire and the companies they buy and they invest in, very consistently, the enterprise value of the business, just as for the balance sheet, with the cash coming in, you look at when Buffett bought Apple and the multiple, I don't know what it was, but it was very low. It was very low. And so he has a business that is essential to people. And the

People were worried about all kinds of things, you know, and the next cycle of the upgrade. But this thing was gushing cash. It was at a very low multiple and it's essential and very sustainable and it could grow. And when you'd go back in Ben Graham's day and even earlier, a good company would always be one that was paying a dividend. Why? Well, because it had the cash to pay the dividend.

So, that was how people judged companies way back when in the 20s and 30s. And so, this is all the same thing. It's all just converting what are you paying for the asset and how much cash is it generating? What are you getting for what you're paying?

And I don't, you can really sort of take that approach with any asset and figure out, you know, okay, well, here's how much I'm paying. How much is it going to grow? And maybe it'll really grow a lot. And it's got a great business model. But we find doing that tends to make the investment less risky.

because we're requiring a lot of current cash flow as a bond, the return is being loaded more currently than maybe in the future with some technology company where maybe it'll do really well, but it's got massive negative cash flow before you ever get there. And maybe that's going to work, maybe it's not, but we'll get scared out of that investment when something bad happens we know in the future. So it doesn't work for us worse. We have something that is sort of paying us now, whether, you know, and a lot of our investments do pay really good dividends.

You're loading a lot of the risk up front and we feel that de-risk the investment process a little bit. And so that's kind of, you can have companies that can't really grow and even though they're equities, they really are a bond and they never really go anywhere. And we've definitely, we invested in some radio stations and there was no growth, great cashflow, but no growth. We're

We didn't really make a lot of money on it. But we also invested in the Celesticas, the Sprouts, the Sterlings, the Hammonds, where cash was coming in and they were able to deploy it to create significant growth. And those went up a lot. So that's sort of... Yeah, we do say we have a bond-like approach to investment. People say, well, that doesn't sound very exciting. Well, if the bond can grow really fast and it can...

It can get very exciting. The stock can go up quite a lot. So it's sort of a downside way to look at stocks.

One thing I wanted to carry on here is in regards to your affinity for capital-like businesses, which is also a business model that I also tend to look for as well. I think probably both like capital-like businesses for the same reasons. I mean, you outlined it very well. It's just simply, you don't need to put a lot of capital into them and they just output cash. And so I like those. So let's talk more about this in light of being maybe a traditional value investor. So you know,

Capital light investments make strong investments specifically because they don't necessarily have to reinvest back into themselves, but that doesn't necessarily protect the downside. If we're looking at, say, Benjamin Graham, he was obviously looking at businesses that had way more assets than the value of the company. And therefore, if it was liquidated, you would still get all your money back. Whereas nowadays, when you have these businesses that are gushing cash flows, but don't necessarily need to add to their capital base or their asset base, that kind of margin of safety has just changed now. So

In light of this, how are you guys thinking about downside protection specifically in capital light businesses?

Yeah, I think it really, again, just comes down to the cash flow generation. And as we mentioned, we really like the green blood approach and we're trying to buy businesses at low multiple and just really like businesses that don't require a lot of capital, whether it's CapEx or working capital investment. We're always looking at that free cash flow. And the fact that we're always looking for businesses that have a lot of free cash flow kind of already pushes us towards capital light businesses.

Because if you have a lot of CapEx, it's required. It's really not going to be a business we're interested in because it's not going to be generating a lot of free cash flow. So we find those capital light businesses attractive because, as we mentioned before, that cash generation gives companies a lot of options. And so you don't really have a lot of money going in to keep the business running. Again, it has to have a moat. And what is it doing to generate revenues, generate those free cash flows sustainably?

and how to fend off competition and what is unique about the good or service that that company is providing. And sometimes you have a business that does have a lot of CapEx, but it could be growth CapEx like Sprouts. So they were opening a lot of new stores. And so that's very much growth CapEx. So we're going to want to see that flow into an increase in...

in cash from operations as the business gets larger over time. And so if they're spending, if a company just in general is spending that money and they're not getting a good return on that, we're probably going to exit. So we monitor that very carefully. Yeah, I think when you get the capital like business, the value is dependent on the franchise and that cash generation. So as Abby's saying, the moat becomes really important. But our economy is not really an asset intensive economy anymore, right? It's all goods and services. And so people...

people have really moved to that. So you're really sort of assessing the franchise they have, as she said, the good or service they have, what are they doing that's unique? Are they doing something that other people can't do, whatever it may be? And how are they outperforming other competitors?

With this LSI Lighting Company, they probably come up with 20 or 30 new products a year for the customer, and they try to be a solution provider for the customer of not just one product, but what is the lighting issue inside a convenience store, inside a grocery store, or outside, or...

how can we design lights that you can put in very quickly and last a very long period of time? How do we manage the displays for Arby's or, you know, when you drive through? And so they're trying to in little subtle, super little subtle things, but they're sort of a partner for the customers, which tends to create a recurring relationship. And so it's,

It gets down to stuff like that. You've got to be doing something, coming up with new products, a lot of R&D, something that really ties you to the customer so the customer feels like...

They're not as concerned about the pricing. Maybe it's more of the value add you're doing for them. So yeah, I would say with the capital, like the moat, as Abby said, becomes really important that it's got to be sustainable. And if you get that wrong, you know, you're going to have a bad outcome. So we'll, we'll look closely at that. And we just really don't do a lot of asset intensive businesses because that's not really where the value in the economy is these days.

So you wrote that you typically look no more than say two to three years out when you're underwriting an investment. And this is quite different for many investors who use forecasts where they're looking 10 years out determining a company's intrinsic value with something like a discounted cashflow model. So I'm curious to learn more about what led you to settle on that specific horizon and not longer or shorter.

Yeah, so we, as you mentioned, we're two to three years out in underwriting investments, obviously very different from the DCF model that stretches out five, 10 years. I'd say the main reason, which we kind of touched on, the main reason we limit our forecast horizon is simple, and we just believe that uncertainty compounds over time. And as we said before, the world is just so unpredictable between macroeconomic conditions, competitive dynamics, customer behavior, technological shifts.

All those things make long-term forecasting very difficult to do and very fragile.

We believe that trying to predict business performance beyond two or three years often creates a false sense of precision. And so, as we've said several times, Howard Marks, you can't predict, you can prepare. And so what we do is we feel we can prepare by focusing on our analysis, on what we can reasonably observe and control within a relatively short time. And as we've said before, we want to own businesses that are already producing significant cash flow with resilient and competitive positions.

and trade at low valuation. And I'd say another reason we stick to that two to three year horizon is more behavioral because we want to deliberately avoid overconfidence. We find that many investors, whether it's Investors Club or elsewhere, as we mentioned, have incredibly long write-ups that are very complex. And we get concerned about getting trapped into the thinking that you can forecast growth rates or margins like a decade out. And

as we've discussed, we're opposite and we always want to know what's going to go wrong, very focused on the downside. What does management worry about? And we feel that it's much safer and more realistic to focus on businesses that are already working out today versus valuations or add valuations that are undemanding today. Yeah. I think Bob Rubin, the former head of Goldman Sachs and treasury secretary, really smart guy said he had a line in one of his books that I don't even know if the sun's going to come up tomorrow, you know, and

So, it's really hard to predict the future. And a lot of these people we write, we read, you know, they'll predict things that are going to happen four or five or 10 years out in the future. And

It's just, they're too confident for us. We just don't, we want to keep what's happening very close to us the next year or two. By a year or two, if your investment thesis hasn't played out, there's probably some kind of problem. That's plenty of time generally to, and we tend to be not that patient. So we're trying to load the whole investment into what's currently going on.

And what's going to happen over the near term, a very simple model out of a couple of years of a cash from ops, EBITDA, CapEx, net debt, net cash, blah, blah, blah. And it's just another way to try to de-risk the investment relative to other alternatives. So that's what the thesis is. And I would say we're...

We're always, as Abby said, you know, we're looking at the downside, what can go wrong? Because there's so many things that happen and you want to just make sure you have a good risk reward in the investment. So we'd like to load the reward in fairly close to us as opposed to something that's going to happen in 10 years or this little

or, you know, predicting really anything. Again, it goes back to the intelligent investor, Ben Graham, you know, not wanting to rely on projections at all. That's the upside. If that works out great, you can do really well. It doesn't mean it won't happen. And we'll, you know, if the company does well, we'll redo our work and we'll, we can hold on stuff for probably a long time sometimes because of that, but really try to not have to go out too far for the investment to work.

That makes sense. So kind of continuing on this theme of near-term forecast, I know you guys are looking at metrics such as earnings, EBITDA, cashflow. And one area of investing that I just find very fascinating is learning about some of the accuracy of investors' predictions regarding a business's fundamentals after they make them. Peter Lynch, who you guys have mentioned here, has said that a great investor is going to be right only probably six times out of 10. So with that said,

What do you think your hit rate has been historically on some of those shorter term projections? And when wrong, do you think your forecasts have been conservative enough to protect from significant losses?

Yeah, I would say if we can get two out of free write, we're happy with that. And when we do make a mistake, we try to get our capital back quickly and try not to lose a lot of money. We just try to be very careful and defensive. And if we have a situation that's not working out as we thought, or we perhaps did make a mistake, which of course happens, we, you know, give it time to work and try to be patient. But ultimately, we will kind of cool down our position and take some chips off the table.

And if we think that we can get two out of three right, get most of our money back on some of our mistakes, we feel that has worked out pretty well for us over time. But we tend to I mean, we watch it very closely. As we mentioned, we're not just buying and holding or buying homework. So, you know, we'll buy a position. And if we can get some more confidence in whether it's through calls with management or that the business can grow, that's

then we'll increase that position. But yeah, if it's not playing out, we definitely will move on to something else and put our capital to work in something that we feel can be a winner for us. Yeah, I think Abby's, I agree with Abby, you know, two out of three is, they had a pretty good batting average. That's probably something close to that. Sometimes it takes a while to work, you know, where the company's

Celestica, where they're executing and doing really well and the market doesn't really care. And did you miss something? What did they know that we don't know? The market's pretty smart. What did we miss? That's what we're asking ourselves. And fortunately on that one, we hung on and the market finally recognized it. But people tend to be very confident about that they're right. And it's very arrogant to pick stocks, as Klarman has said, that you know more than what all these things

things out there. So you really have to find a mispriced situation where you really feel like, and we try to do them just one at a time, almost as if, you know, we, which we are, we have a small family office, we're deploying our capital. Is it worth, what did we understand about this situation that people are missing or why aren't they paying attention to it? Or what's special about what were our insights? And if we can get two out of three, right.

and hang on to them. We had some really big winners and then most of our capital back on the mistakes. And if the cash from ops starts going the wrong way, we're going to exit stage left probably. We're not going to stick around. The company always has an explanation and we're like, well, you're probably right, but we're going to exit stage left and see how things play out from afar.

we've had sort of better luck doing that than staying in things. And, you know, a lot of investors, if the Sox go against them, they'll add to their position. And we kind of do the opposite. We just sort of hang on to what we got. And we're always questioning if we made a mistake. And there's a lot of

self-doubt and concern. And that's just sort of our approach because investing in equities is an extremely difficult, volatile task. And we kind of try to respect that, I guess. Yeah.

So we had a great chat before this interview so I could learn more about what you guys were doing at Lowell Capital. And when I asked you about some of your specific investments that you consider mistakes, you were very candid about two of them. So those two were Barnes & Noble and Tilly's. So you mentioned that these were mistakes for kind of a common reason, which was that both businesses had stagnant or declining cash flows.

And mistakes can often sting often for a lifetime, whereas winners can kind of fade in importance. But in regards to this mistake, is this a mistake that you think you've put a lot of work on and improving? And maybe what are some of the other errors from the past that you feel you've improved upon?

Yeah, I would say that we tend to have a bad habit of really liking retailers because we've found some that generate a lot of cash. And we just have to be really careful because they can look really attractive, but we could be missing something, which has been the case for, as you mentioned, we did Tilly's and Barnes & Noble, which were disappointing investments for us. Tilly's had great cash flow, but we...

We didn't recognize that that was kind of more related to the pandemic and stimulus payments. So it wasn't really recurring and it was more discretionary. And Barnes & Noble had great cash flows for difficult periods, but just their business model couldn't survive well against Amazon. And so it didn't have as much of a moat as we thought. So I would say that we try to focus more now on industrial companies. We still do retailers. We've had some successful retailers, as I mentioned, Sprouts. But we're just really careful and cautious and really...

want to understand what their differentiation is. Sprouts, they were very much focused on the health conscious consumer and having unique products you only get at Sprouts and things like that. I mean, other retailers could definitely work out very well too. I mean, AutoZone with more non-discretionary products where people have to get their cars maintained with oil and auto parts and it's not really a choice. They like, you have to drive to get to work. So it's a bit more critical.

And so I'd say just if we're doing retailers, really doing a deep dive on what their moat is and making sure we understand it and just having those deep calls with management teams. So I would say, as we've said before, our padding average on retail could probably be better. We'll still do retail, but that scenario, we had several mistakes. So we try to be very cautious. Yeah, I mean, we've been very careful with retail going forward and just really looking

Okay, what's special about this? And it's just such a competitive area and...

So there's definitely a learning there and we're very careful about looking at it. We have had some big successes there. Industrial companies, we like those, but it just goes to what's the sustainability and resilience of the business. And in both those cases, it was nearly as strong as we thought. Now we got out of both of them pretty quickly. We were just, this isn't working and so we...

exited with most of our capital back, but you just know that's a thousand in this business and you have to really constantly redo your work on the investment and the mode and your thesis and does it still make sense, et cetera. So those are kind of the learnings there for us. So James, Abby, I want to thank you so much for coming onto the show and sharing your insights with me and the audience. So I'd love to give you a handoff and share with the audience where can they learn more about you and what you're doing?

Yeah, definitely. I'd say if anything we spoke about today resonated with you, we would love to connect. We're located in the South Bay of Los Angeles, or right by LAX airport. And so I'd say feel free to reach out to us via email. My email is abigail at lolcap.com. And James is jez at lolcap.com. And we always enjoy talking to like minded investors and people and just talking about different ideas. So if

feel free to reach out. We really enjoy that. And yeah, thank you, Kyle, for having us on today. This is such a cool opportunity and we're so grateful for it. Thank you very much. Really fantastic. We really enjoyed it. We enjoy your show and watch it religiously. So appreciate you having us on. Very nice. My pleasure.

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