Guest: Chris Waller
Founder of Plural Investing, a seasoned investor known for his disciplined approach to small cap value investing. Chris identifies hidden gems through meticulous research with a keen focus on governance and management integrity.
Key Discussion Points:
Early Background and Investing Journey (03:17)
Chris grew up in Hong Kong and the UK, giving him a broader perspective on different environments
First became interested in investing in September 2008 at age 16
The 2008 financial crisis and reading "The Snowball" about Warren Buffett shaped his early investment philosophy
Columbia Business School and Joel Greenblatt's Influence (06:08)
Studied under Joel Greenblatt at Columbia Business School
Key Greenblatt principles: "If you do good valuation work, the market will agree with you - it just won't tell you when"
Focus on companies off the beaten track, especially small caps and special situations
Concentration on best ideas (7-8 stocks can provide diversification benefits)
Value Investors Club as a valuable resource founded by Greenblatt
"Sleuth Investing" Approach (11:37)
Going beyond annual reports and readily available materials
Becoming an investigative journalist to deeply understand a company or industry
Speaking to 10-20 people in an industry before investing (competitors, suppliers, customers)
Attending industry events and trade shows in person
Building a knowledge database over time that creates advantage
Hidden Gems Investing (17:08)
Looking for companies that are not widely known with little easily accessible information
Often smaller businesses with little to no sell-side coverage
Focus on incremental returns on capital versus multiple of free cash flow
Qualitative research to determine if competitive advantages are sustainable
TerraVest Case Study (21:32)
Company involved in storage tanks and cast iron boilers - not exciting at first glance
Strong track record: 20% returns on capital, management owned significant stock, trading at high single-digit free cash flow multiple
Chris contacted founders of companies TerraVest had acquired
Discovered TerraVest had major scale advantages (10-20% cheaper steel procurement)
Different profit-focused mindset compared to previous family owners
Sustainable advantage in acquiring "mom and pop" businesses in various niches
Corporate Governance and Management Integrity (28:06)
Four key areas: shareholder base, board of directors, executive management, employee base/culture
Looks for alignment across all areas with shareholders' interests
Red flags: board members who don't own shares bought with their own money, sitting on too many boards
"There's no price worth paying to partner with someone of low integrity"
Portfolio Management and Risk (33:49)
Position sizing based on downside risk, not upside potential
Risk defined as permanent capital loss over a three-year period
Prefers companies with net cash or little debt
Focus on businesses with competitive advantages that gain market share during downturns
Holds winners when they can continue deploying capital effectively
Small Cap Misconceptions (38:40)
Not inherently more dangerous or speculative, just a wider range of outcomes
Requires more work because of the divergence in outcomes
Management quality makes a bigger difference in small caps
Despite fewer public companies today, still thousands of opportunities globally
Luxury Goods and Value Investing (44:31)
Challenge for value investors to understand why people pay up for luxury
Luxury companies sell prestige and status, not just physical products
"Share of mind" concept: dominant brands achieve recognition beyond market share
Value investors can still wait for relatively attractive entry points
Closing Thoughts
Chris defines success as becoming an expert in the small cap space, building a comprehensive knowledge database of companies, and having the freedom to direct his attention where he chooses.
Podcast Program – Disclosure Statement
Blue Infinitas Capital, LLC is a registered investment adviser and the opinions expressed by the Firm’s employees and podcast guests on this show are their own and do not reflect the opinions of Blue Infinitas Capital, LLC. All statements and opinions expressed are based upon information considered reliable although it should not be relied upon as such. Any statements or opinions are subject to change without notice.
Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed.
Information expressed does not take into account your specific situation or objectives, and is not intended as recommendations appropriate for any individual. Listeners are encouraged to seek advice from a qualified tax, legal, or investment adviser to determine whether any information presented may be suitable for their specific situation. Past performance is not indicative of future performance.
