I wanted to share with you some edited excerpts from a Q&A session I held with readers a while back. In this email, we’ll discuss how to handle market pressures and our view on serial acquirers.
How do I quiet pressures from the market?
I think the number one thing is, I have the luxury of owning individual stocks, so I try not to spend much time thinking about the market, but instead focus on individual businesses. When the market is expensive and there are few opportunities, I have the ability to hold a lot of cash. I’m fortunate to have clients who are comfortable with me doing that.
I’m extremely aware that if I allow the market to waltz into my office, and if I look at the portfolio all the time, the market will get the worst of me. My frequency will calibrate to the frequency of the market.
I rarely have my TV on, or if I do, it usually plays classical music. A lot of times I go through the day forgetting the market is open. To answer your question, I think you have to actively work on this, countering the thinking that if you do nothing, you’re going to lose. The market will waltz into your life and start running it if you’re not careful.
Let me give you one more example. I have my office, where I have computer screens, and then I have another room I call my reading cave. Why is it called a reading cave? Because I keep it at a very low temperature – I like cold – and there’s no computer, just a chair, a blanket, headphones, and an iPad that’s connected to the internet but doesn’t have Slack or other messaging apps. I just sit there and read. I’m forcing myself to be disconnected from the market.
It’s a proactive effort. Like everyone else, I’m susceptible to market influences. Without deliberate actions to counteract this, it’s easy to become a victim of market pressures. The key is to actively create an environment that allows you to focus on what truly matters: the businesses you’re investing in and your long-term strategy, rather than the day-to-day noise of the market.
How do you feel about serial acquirers?
That’s a good question. For companies that are serial acquirers, it has to be their business model. It’s a very different skill set than somebody who acquires companies occasionally. Take Constellation Software or Danaher, for example – that’s their business model. Companies that are very good at this, I have no problem with them.
Where I usually struggle is with companies that become tourists in acquisitions. It’s a different skill set and a different culture. These companies are often very difficult to value.
So, you don’t usually see these types of companies in our portfolio, but I think there is a place for them. I don’t have a problem with them per se, but if one of my companies decided to become a serial acquirer, I would probably sell the stock. In these cases, you’ve got to prove it to me first.
It’s not something we typically invest in, because it adds a layer of complexity and unpredictability. The success of these companies often depends on their ability to continue finding good acquisitions at reasonable prices, which becomes harder as they grow larger. But for those who do it well, it can be a powerful growth strategy. It’s just not one we’re usually comfortable betting on without a proven track record.
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