This episode continues the story we started with Neeraj Khemlani, author of The Coffee Can Investor. Neeraj told Matt Ankrum’s story. Now we hear it from Matt himself. He explains how he studies 100‑baggers, how he invests, and why he built a long‑term portfolio for his three daughters.
Matt built his career across investment banking, portfolio management, corporate strategy, and running a SaaS business. Each role taught him how companies make decisions. He saw why some firms win and others stall. That experience shaped the way he now searches for long‑term compounders.
When he stepped away from the corporate world, he wanted to create a “coffee can” portfolio for his daughters. To do that, he studied every US 100‑bagger since 1980. He read S‑1 filings. He dug through old newspaper archives. He looked at companies as they were at IPO, not as they appear today.
Matt also learned that management quality matters more than models. His firm consulted with an FBI investigator to find the questions to ask to see how leaders think under pressure. He wants “parents,” not “babysitters.” Leaders who protect the business for the long run.
This episode shows how Matt thinks, how he invests, and why patience still wins. It’s a grounded look at long‑term investing from someone who actually does the work.
TRANSCRIPT FOLLOWS AFTER THIS BRIEF MESSAGE
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EPISODE TRANSCRIPT
What is a 100 bagger stock and is it possible to find any common characteristics in them? How can you discover companies that may be boring but are in fact essential? In this episode we meet Matthew Ankrum, portfolio manager, father of of three daughters and the real life inspiration for the book the Coffee Can Investor. We spoke with the author Neeraj Kemlani in a recent episode and this continues the story from Matt's point of view. Hello Matt.
Matt: Hello Phil. Honored to be here.
Phil Muscatello: Matt grew up in working class, Beloit, Wisconsin. Is that the correct pronunciation, Matt?
Matt: It is.
Phil Muscatello: And he now lives in Kansas City. For years he studied every 100 bag of stock in the US since 1980. And now he's putting real to 20 potential 100 baggers that he believes can compound for his daughters over the next 20 to 30 years. Before we get into that, just tell us about your time working as an investment manager and if it was in fact better to be located away from the distractions of Wall Street.
Matt: Yeah. Uh, well again thank you Phil for having me on the show. I started out in the investment industry a long, long time ago and I had gotten in, I started out as a investment banking analyst. This is the jobs that you typically hear about, working 100 hour plus weeks and the like. And so I got into that working for a company called William Blair and Company. After a couple of years I went back to graduate school and then I got my first job in investment management working for Janus Capital. Here I actually was a generalist and for your listeners, a generalist is somebody who actually covers a wide range of companies. I wasn't specialized in any specific industry, but it did focus a lot of my energy on the small and mid cap names. Stayed with Janus for a little over 10 years, moved my way from being an analyst to eventually running money there as well. And then I went on to go to work for a company in California actually called Lateef Investment Management. And what Lateef did was the same thing that we did at Janus is that we did very deep fundamental research, but we actually owned in a concentrated portfolio. So for our clients we actually and these were what's called separately managed accounts. So at Janus we managed it through a mutual fund. For Lateef, we actually did it through separately managed and for them what we did is we had actually owned anywhere from 15 to 17 names that we looked to hold for as long as we could. Most of these we held for anywhere from kind of five to 15 to 20 years then. And this is probably a little bit different than most of the portfolio managers you may have on your show is that I then went on the other side and actually became head of strategy for Fortune 5 company. The reason why I did that was I was really interested in understanding how decisions get made. And why I say that is that when I would cover companies and oftentimes I'd cover two or three companies in the same industry but it always seemed like one of them actually always did better than the others. Even though it seemed like they were offering the same product or service, there always seemed to be one that was a little bit better. And so the reason why I went on to become head of strategy is uh, I want to see how that decision made process got made within a company. And so I did that for a little over four years. Years. Then went on to start and found my own fintech as software as a service business which I ran for about I guess it was about eight or nine years. Eventually sold a license to that, become CEO of a brain neurorehabilitation business and then eventually stepped away from that and got back into managing money and which is where I'm sure you're going to go when we started talking about the hundred bagger study.
Phil Muscatello: Well, let's get on to a hundred bag. What is the definition of a hundred bagger? I always get confused. Is it 10 times 100 times thousand times, uh, increase in value? It's funny that those zeros, M and digits can get a little bit confusing sometimes.
Matt: Exactly. So a hundred bagger is a company that actually stock price increases in value by 100 fold. And what that is. So for viewers you buy it at a dollar and then over a timeframe eventually it gets as high as $100. I took it and did it. Um, when I went and did the study I actually did a little bit kind of more clarification on that. And what I did was I said it has to become 100 bagger in a 30 year period. My reason for doing that was I wanted to actually go out and find companies that are truly exceptional. So to give you context, The S&P 500 here in the States actually is up 133 fold. But it took it 66 years to get there. So if you think about kind of what I'm looking at as I'm basically trying to find companies that are two times better than what the S and P returns have been over that time frame. And to dig in a little bit deeper on 100
00:05:00
Matt: bagger. 100 bagger is something that increases then about 16.6% a year, every year for 30 years. Think about that as it essentially doubles every five years. And for a lot of people when they look at this, I was comparing that hundred bagger versus the S& P, which has historically run right around 10% type of returns, annualized returns the first 10 years you can't really see a whole lot of difference. But by the time that you get to year 31 is up 100 fold and the S and P would be up only about 20 fold. So you can see about an 80 beggar difference between the two. And that's a lot of compounding that happens now to put that into perspective, because as us, as humans, we oftentimes don't think of things exponentially, but we see, you know, kind of think of things linearly. If you think about Warren Buffett, who I think most people from your show would, would know and admire, he actually has made 98% of his net wealth after the age of 65. And between you and I, Phil, that gives me a lot of hope that I still have, still have a long way to go. So that's what, that's what a Hundred Bagger is. And that's kind of uh, kind of the basis for then the companies that I was looking for when I started the study.
Phil Muscatello: I think it's important for listeners, especially beginners, to realise that 100 bagger and you're looking at 20 to 30 year uh, time frames, whereas many people approach the market like a casino and they're going to be able to do that in two weeks, five months, a year. But this compounding effect is so important, isn't is?
Matt: And to your point, you bring up an exceptional point that's happening right now in the marketplace. So again, I'm going to be talking primarily from the U.S. uh, but in 1950s and 1960s, the average holding period, how long somebody would actually hold the stock for before they sold, it was eight years. Today that's five and a half months. And so what's happening is that in this world of 140 characters and always on information and everything else that's happening, we've gotten more and more people to your point that have gotten into the world and thinking stocks are actually trading instruments as opposed to investments in Real companies. And so what we're talking about here is true investing. It's saying I am actually buying a company that I want to be part of the company's fundamentals, uh, kind of growth in its earnings, its cash flow over that 30 years. And if I'm right about that company, that's what you get to compounding effect. And that's why the patience of being willing to hold through the volatility over that 20 to 30 years is really important.
Phil Muscatello: Getting back to your study, how did you approach it and what were the kind of little tweaks that you made along the way?
Matt: If I could let me just take a step back. And so one of the things that I did when I stepped away from being the CEO of the company was I wanted to actually sit down, kind of figure out how I wanted to create kind of a lifetime inheritance for my three daughters. So I've got three daughters, two of them in college, one of them actually in high school. And when I was going through that process, I wanted to say, what would I want my retirement or my children's retirement to look like? And to do that, one of the things that you oftentimes want to do is say, uh, I started thinking about it like a coffee can. And the idea came to me when I read this Robert Kirby article. And I don't know if Neeraj had actually spent any time kind of explaining that, so I won't go into detail on that. But the whole idea was, could you find kind of a group of stocks that you would want to own for 30 plus years that could compound in value and give my daughters the kind of the inheritance and the retirement that I was seeking for that? So that was, uh, the idea. So once I had that concept in mind, then the next question is, okay, which companies would make sense to be kind of put into that metaphorical coffee can? And so that's where the idea of the Hundred Beggars came about, is saying, what are those exceptional companies? What were the characteristics about those companies? And that if I could identify what they are, would that provide some predictive value so that I can buy the companies today? So that is, uh, as a background, that's what I started out with, the 100 bagger study. And so one of the things I went and did is I said, I'm going to look at all companies that went public between 1980 and 2000. Now this is US based. But the reason why I couldn't go before 1980 is because there wasn't a lot of good information. Financial information available. And the reason why I cut it off at 2000 is because if I'm thinking about companies hitting a, you know, kind of 100 bagger over 30 years, I'd have to give them enough time to actually, you know, kind of grow into that. So that was kind of the basis of that. Then I went through and I said, all right,
00:10:00
Matt: now I have all those companies. I need to then get rid of all the, you know, what I call the pink sheet ones, the penny stocks, the ones that were not still trading because I wanted to have limited information. And I got that and it was narrowed down to 50 companies. And then within those 50 companies I, uh, then said, could I put myself at a position when they went public and to see what characteristics they had at that time and uh, as it progressed over that time to then decide if there was any predictive factors that they had that. So at first you would ask, kind of going down that study, the first thing I thought, this is going to be like a two week study, right? I can go in, I can pull the financial information, I can kind of see. And it ended up being almost a six month study. And the reason why it kept getting longer and further out is that I kept having more and more questions that I wanted and needed to get answered. So what I did is I put myself at that time, I looked at all newspaper articles, you know, two years prior to the company going public and one year after you read their S1, which is their IPO prospectus, looked at all all the financials that they had at that time. And then I took all of that information and then I just wanted to see was there anything that kind of came out of that. And so that's what the basis of that study was. And through that I was able to identify a number of things that was definitely common among each one of them. But also there's a few surprises that had come out of, you know, kind of through that study as well.
Phil Muscatello: Ditch the spreadsheets. Share site is Investopedia's top tracker for DIY investors. Invest smarter, not harder. Grab four months free on an annual premium plan at shareside.com sharesforbeginners. Okay, well tell us about some of those surprises.
Matt: Well, I thought you'd never ask. And so one of them, um, probably the biggest one is when I was doing this right now, most people when they're investors, they hear about all the companies. And some of the companies in the hundred baker studies that you probably heard of as Starbucks and Apple, a Nike, these are all great B2C companies, ones that are, that have done exceptionally well. Most people know about them, um, and the media talks about them a lot. But here is the biggest surprise of the whole study is that 68% of all of the hundred baggers in the study were what's called B2B companies. These were companies like a fastenal that actually does, literally is a distributor of bolts and nuts. Then there's Mettler Toledo that actually does precision scales that you see in the chemistry kind of labs. But they also do the scales that when a big semi truck is driving along the highway, they have to uh, move over. So what you realize the surprise was that most people think all of these great phenomenally successful investments were names like A B2C names in the consumer space. But what the reality was, almost all the companies that created the most value were names most of us had never heard of. So that was the first surprise. Second surprise in being a young analyst for the longest time, I was told organic growth is the only growth that you should value. Acquisitions don't add any value. You don't want to actually have them. A company that is acquisitive, you want to discount that because most acquisitions kind of fall apart. What the study actually found was that 82% of all of the hundred beggars actually were active acquirers. Now these weren't primarily like the big mega mergers like an AOL Time Warner or a lot of those. Most of them were actually bolt on acquisitions, ones that were adding to what the company was doing. And in fact the deeper I uh, went into that, what you found was most of them were actually an acceleration of the roadmap, both of their R and D roadmap as well as their kind of the growth roadmap. Now they weren't trying to empire build. What they were really doing was actually going out and really building out the capabilities and strategic positioning that they needed in the marketplace. And now the last kind of big surprise was that every one of the companies in the study were part of an industry that was, I would kind of equate to GDP plus. These weren't really fast growing industries. You know, think about it. They were in construction, they were in uniform rentals, they were, you know, on again scales. Right. These are not fast growing and yet these were companies that compounded their top line 20 years after they went public. The average compounded was 20%. So how did they do it? Well, they obviously were taking a lot of share, you know, building that out. But they were also part of actually expanding the market as well, so they, you know, um, that was a big surprise. So you're not looking in
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Matt: the areas of like the fastest growing. So like, great example right now people that ask me, is there AI right now? Should I be investing in AI if I'm thinking about the next hundred bagger? And my response is, according to the study, do not. Now it doesn't mean that we couldn't have some companies that become 100 baggers from this. But the challenge that you have right now is that there is so much uncertainty about who the winners and losers are going to be in the AI space that you just, you know, it'd be really difficult to pick. Whereas the companies that in the study that I really found, you actually didn't have to take that risk. These were already great companies that actually only got better with time and they had already proven out the economics, they'd already proven out the demand and so you didn't have to take that same level of risk.
Phil Muscatello: Yeah, that's what really came across to me in the book is that all of these businesses have got a flywheel that spins off revenue and it's this well understood flywheel that everyone in the company understands. And I mean Neeraj and I talked about the Rentokill example and that they're acquiring the small businesses, small businesses that are, you know, the little local pest control business run by mum and dad, they just keep on acquiring those and uh, building up the company that way. Can you give us another example of that kind of flywheel?
Matt: Yeah. Um, so this will play right into what I was talking about on the acquisition front. In fact, a key part of their entire business model is acquisition. So the company's name is Diploma plc. They're out of the uh, UK. They were founded in 1931, so almost 100 years ago. And what they do is they actually go out and distribute some of the most boring things in the world. Right. Think about gaskets, nuts, O rings, um, I mean these, you know, uh, fasteners and stuff that they actually have. And so they've been doing this for a long, long time. And what really that they're actually bringing is they are distributing these really mission critical parts to their customers. And the more that they actually get deeply involved with the customers, the more that they become more critical. So that's why what they're is a value added, uh, distributor. And so one of the things that they do is that not only do they actually, you know, go in and distribute these, but a big part of their process is actually acquiring and bolting on new products that they can sell to these same customers. So think about it. They're in, like, the aerospace and defense industry, or they're in the, you know, kind of with hospitals and in the healthcare. What they do is by getting to know these customers, they figure out some of the new products that are in there, and they develop these really deep, strong relationships with a lot of the other providers in that marketplace. And by doing that, they then actually are building up their future pipeline of new companies that they can buy. And I hope Neeraj talked about this, but I actually call this the capital, the compound. So what they are able to do is they have underlying organic growth of their industries is anywhere from kind of 5 to 7%. It's been running a lot stronger than that for some time now. But they, but then they layer on another kind of, uh, 2 to 3% from their, from their acquisitions. And by doing that, they're gaining more scale so that they can actually grow their margins even more. And then by, you know, creating that part of it, they actually generate a lot more cash. That cash then is then recycled back in and buying more business. That's the compounded effect that can go on and on and on for a long time. And that's why they've been in business for 100 years. And, you know, uh, you know, if they keep doing the great job that they're doing, this should be around, you know, hopefully another hundred years or more.
Phil Muscatello: One of the fascinating parts of the book for me was where you talked about management and that you really have to understand management, and you don't. You're not just giving them easy questions. And you've actually hired, well, I think in a previous role, an FBI investigator to kind of work out how to ask the questions that will catch management off guard. Tell us about that.
Matt: Yeah, uh, I, uh, will tell you. One of the hardest things as an analyst is to truly assess management. And the reason why it's really hard is because management is human. And management has incentives, they have different alignments. Sometimes they have things that they're working in their best interest. So as a analyst, one of the most important things that I'm trying to evaluate is, are we on the same page? Uh, are they looking at the business the same way that I am? And now this is going to sound like a crazy assertion that I'm making, but most of the companies that I've actually met, they don't know how to create value. Now you can look at that and say, well, wait a minute, they're running this company, how do they not know? And what I would say is they understand the concept I need
00:20:00
Matt: to grow revenue, I need to grow profits, and this will drive the stock price. But what they're not fully understanding is how do you grow value for your company in your industry? And what I mean by that is they don't have a good sense of what their enduring competitive power is. And so they spend money on a bunch of different things. And it's not necessarily adding to the value of the business. What it's doing is it's kind of spending money, but not necessarily in the right ways. So you brought up the FBI one, and this was a fascinating. One of the things working for a large investment management firm is we got exposure to some really fun and interesting kind of ways to help us become better. And so this one was the FBI agent who had come in, and what he did was he said, here's how to start understanding whether management is lying to you. And so, you know, the best way that he talks about it is he's like, first you want to do is you get the person comfortable. You know, start talking about things that they can answer very quickly. You know, how is, you know, how are your kids? How is your wife? What is your, you know, tell me a little bit about your job, whatever. And you can notice body language, and you can understand kind of how they do it. Then when you're then in asking questions, you'll notice how their body language changes when you're asking it. And so one of the key takeaways that I actually had when I heard this guy was he said, you don't want to ask confirming questions. You want to ask disconfirming questions. And he said, the reason being it's really easy for us to go through and answer in the affirmative when you ask a confirming question. Film. I don't even know if you're married, but do you love your wife? Well, it's very easy for you to respond, Yes. A better question would be, phil, I don't think you actually love your wife, do you? In our mind, we actually have a metabolic process that we actually have to go through to actually answer that question as opposed to the first one. It actually forces us to have to answer. And so when you do answer in the affirmative, it's actually conclusive. So how did I use this in practice? The company I just talked to you about, Diploma plc, when I was first getting to know the company, they were having a, uh, big annual meeting. And then at the end of it, they opened it up to questions. And throughout the entire day, they were talking about, here's what our growth strategy is, here's what we're doing. We've been doing this for nearly 100 years. You continue to go down that. So what I wanted to ask them is I wanted to see how, um, convicted they were about keeping discipline to that. Because one of the big problems you have when you have a company that is growing through acquisitions, you have a management team that actually kind of overextends themselves and put themselves in harm's way. So my question to them was something along the lines of, you have everything in place. You got great management. Um, you've got the team set up right, you have capital, you have this. Why aren't you trying to grow faster? And the response from Johnny Thompson, who's the CEO, was absolutely spot on. He said, who asked that question? Have you not been listening all day? He's like, we feel like we're growing fast enough. And his whole point was, we don't want to get, uh, basically out in front of our skis. We got to actually be disciplined in what we do. Because every acquisition matters, and everything we do as a management team is driven by culture. And if we make any kind of decision on that that doesn't help us is going to put us in bad position. That was the day that I knew I needed to own that stock.
Phil Muscatello: And the body language checked out as well.
Matt: It did, it did. And the other one, I also get a lot of questions on people like, well, how do you evaluate, you know, management teams? What really criteria are you thinking about? And it's really hard, like I said at the beginning. But here's the one that I try to use a lot is, do you know the difference between a babysitter and a parent? And most people, you know, if their parents, they'll get this right away, right? The babysitters are more than capable of actually taking care of your kids. I mean, uh, some of them probably, especially relative to me, they're probably a lot more capable. They have, you know, they got cpr, they got everything else that they can do. But the difference is when that babysitter actually goes home and that her or his shift is over, they're not thinking about the child. Whereas as a parent, we don't get the, you know, kind of the ability to not think about our kids. We are always thinking about them. We're always wanting to put them into the best position to succeed. We're always thinking about what are the things that they need to be doing now. To make sure that they are, you know, in the best spot 20 years from now. And what you find, and this
00:25:00
Matt: comes up, uh, with that study, is that every company experienced some kind of existential threat, whether real or perceived. So if you are a management team and you actually are thinking more like a parent, you're willing to make the hard choices today so that it puts you in the best position 15, 5, 10, 15, 20 years from now. And that's what parents do. So, you know, again, it doesn't tell. You know, I'm not trying to say I have a checklist. I can tell you exactly what it is, but if, if you ask me what that intangible is, that's what I'm looking for. I want to find the entrepreneur that says, I will not let my company fail because it's not only failing for the company, but it's failing for my, my customers, and it's failing for my employees. And I can't let that happen. I want to win. And, you know, those are the, those are the management teams you want to back.
Phil Muscatello: It's also inspired m me to ask some of these, uh, style FBI agent style questions to some of the CEOs I have on the podcast as well.
Matt: Yeah, that's great.
Phil Muscatello: Let's talk about a couple of the concepts. Well, actually, Neeraj covered diversification pretty extensively, but shibboleth. And one of the reasons I wanted to say that is because I like saying shibboleth. What is a shibboleth? And, uh, how does it affect your investing philosophy?
Matt: Yeah, so the shibboleth is probably the one you should have talked to Neeraj about, because it was his shibboleth that he wrote about in the book, in that it was that 68% that were B2B. And so what he was referring to there is that, you know, Neeraj is an exceptionally, um, talented person. He downplays it a lot. But he is not only a highly elegant writer and storyteller, but he is, uh, a highly accomplished executive and one of the most brilliant minds that you can meet. So when he actually heard me with that, with the B2B, 68% of that study, that was, to him, kind of the shibboleth. Because what he was thinking at that time is this is exactly what the company he was working at, Hearst, was doing. They were buying up all in the B2B. And so his view was, this makes perfect sense. This is where it's going to go. And so that's what he was referring is almost like a secret was revealed to him is that the B2B is really the, you know, kind of one of the most important things that came out of that study and a shibboleth
Phil Muscatello: is, I think the definition is. It's an old and outmoded idea, isn't it, just to define that for listeners.
Matt: Yeah, yeah. And that's why, like I said, it was there in plain sight, but nobody's actually, you know, nobody's talked about it. They, you know, we still, if you jump on any of the financial media, most of them are still talking about, you know, the exciting B2C companies. They're talking about, you know, all the ones that their audience probably spends the most time thinking about understanding. It's the apples, it's the Netflix. It is, you know, those. Whereas the kind of the boring, unsexy kind of just plotters in the background are truly creating most of the, you know, net wealth in the markets.
Phil Muscatello: Yeah. Now, this is something I always try and push on the podcast, is that the whole industry, the finance industry and the media that is around it is research as what people want to hear. And so people are given in the media the same stories over and over again because they know that that's what's going to get the clicks and the views and so forth. And, um, within the industry, you've got to resist that temptation and urge, don't you?
Matt: Exactly, yeah. And I would just add to that, the biggest challenge is that when these B2C companies are working, then the question if you have fund holders is like, why don't you own more of that? Or why don't you own that? Whereas if you own a lot of these others, they're just kind of like, wow, you own an industrial supplier that sells nuts and bolts. What's kind of exciting about that? And then all you got to do is bring up the stock chart. And then all of a sudden they start to get a little bit more excited about the company.
Phil Muscatello: Okay, well, let's move to an Australian company, which I'm quite proud about. That is on your list, Technology one. And as I mentioned before, we recorded. I've just come back from the Australian Shareholders Association Annual Conference in Melbourne, where there was a bit of excitement around technology 1. And especially the chart that showed their revenue going up steadily increasing for about, I think, the last eight years. That particular chart showed how did that come up and why Australia and what is it about this company that you like?
Matt: So first thing I always, when I have a portfolio of 20 stocks and I'm looking for some of the best companies in the world. I don't try to limit it just to the United States. As much as some people might think the United States has a monopoly on great companies, we don't. There are some exceptionally great companies. I was very fortunate as part of my screening
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Matt: process is to actually find technology 1. It takes a little while to understand the story and the like, but what, you know, through that process, one of the things I kind of really came to realize is how forward looking and visionary that management team really is. As you know, being an Australian company that was started in 1987, I think they've been profitable every single year that they've been, that they've existed. But what you have right now with Ed chung and Stuart McDonald and Cale Bennett and you know, the rest of the team, they're really on the cutting edge of kind of where the future is. And the best thing that you have with Technology one and I can go through in a little bit more in depth, but the best thing you have with Technology one is that they are truly a niche player that provides such exceptional value to their customers that the customers want to stay with them, um, for not just a couple years. They literally are looking at them as kind of 10 to 20 years out. And their customers can look at it that way because most of them are in highly regulated, highly compliant, um, things. Obviously you guys know, local councils, but in the unis and the like. And so that's what kind of makes this, you know, Technology one and a very powerful position to be able to, not only, you know, succeed today, but succeed long term. So let me go through a little bit for your viewers. If they don't know who they are, most of you have probably all used the product. So if you're in Australia, they actually have a 70, 73% market share of all the local councils. And what they do there is if you have to pay a parking ticket or if you got to go get a permit for your dog or, you know, everybody has to do it, but if you go have to pay your taxes, it's all run through Technology One software. And so what they do is they provide all of the information, all of the workflows, all of the structure that these local councils and universities need to manage and run their business. So that's what they do. They're the operating system, uh, for their customers. What attracted me though was when you look at their returns and their growth and like they have been exceptionally consistent for a long time and what they are able to do is when you started to Kind of dig through this. They are generating, you know, kind of 15, uh, plus percent top line. Their margin grows a little bit all the time. So they're growing their, you know, kind of the operating profit a little bit faster. And they just do this year in, year out. And so they're doubling every five years. That's kind of the goal that they have. But then you look at the margin and here's a software company that is investing 25% of their revenue into R and D. Now, why that is such an important metric is because that's the revenue that they're going to be generating in three, five years from now. They're having to spend in front of that curve so that they can, when they get there three years, five years from now, they actually have products that really matter. And how that comes into play is what we're seeing right now. Everybody's talking about the rage of AI and kind of what it can do. And there is naysayers on, um, kind of what's going to happen with AI, uh, and there's the kind of permeables who think the world is going to change. So one thinks there's magic, one thinks there's complete doom. The reality is going to be somewhere in the middle. But here's what TechnologyOne has already done. They've been involved with AI for six to seven years now. What they are actually now have done is in the last two years they have become much more focused on bringing AI through their product. And what they did, they just announced it about, I guess going on now kind of eight months ago, is they announced their product. Plus and why this is such an important product is what they went and understood with their customers. Again, the local councils in the unis is that they are needing a orchestration layer. So today what happens is that you can pull all the data, everything you need from Technology one, because there's a system of record, they have the system of action, they have access to all the data, everything that kind of goes into it. But if I wanted information, let's say I'm the CFO of a kind of a university, let's say I wanted to know what the profitability by degree program is by year, by, you know, uh, very kind of detailed today, you would actually have to just, you know, have your junior analysts go out there and pull it all and then can provide it to you. What technology one does for you today, all you got to do is ask. And now they do, is they go out and pull all that for you. They created the Orchestration layer so that it enables these, their customers
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Matt: to get more value add out of the same product that they had. But here's the brilliance of what technology one has done is they not only understood what their customer needed, but they now understood what their customers customers need, which helps obviously the university and the local council. So this is getting a little bit deeper in it. But going from B2B to B2B to C, what they created is they took that same AI and they said, what if we could go out and actually make it easier for the users, you know, of kind of the customers of their customers, the students in the local residents to make it easy for them to get what they need. So here's the example that they use is that for university, let's say you're a student and it is Thursday at 4 o' clock and you realize you're not going to get your paper done for tomorrow. Well before what they created, which is called guide their AI driven response to this, you would probably write to your professor saying, hey, I'm not going to be able to get this. What can I do? Professor might not respond, it's four o', clock, he or she might have already left and all of a sudden you don't have, uh, take it up to the administration. Well, what tech1 said is why don't we actually just do this for them? All the student has to say is, hey, I'm not going to get my paper done for tomorrow. What do I do? Because they have all the information, they can now go in there and they can actually search through the entire curriculum and all the different things. And what they find is they can come back and say, oh, is this the paper that you do on volcanoes for tomorrow? Yes, that's the one. Well, the class actually allows you one late for this. Would you like to, you know, kind of. Would you like to use that? Yeah, that would be great. Well, how long do you think it's going to take? I think I can get done in five days. Would you like me to write an email to your professor telling them about that and then citing that, you know, one to that would be great. Boom, off sent, everybody's happy. But here's where it got really interesting for tech1. They could have gone out there and said we're going to go charge our customers for that. But they flipped it. They said, wait a minute, what if we don't charge them for that? And what if we build a revenue stream around advertising which would then we can share then with our customer. Now you've completely changed the script. Now you actually have for that university student. Now you actually put looks like you're really stressed out. How would you like to order a pizza? I can get you to your local pizza spot right here. Click here and you're on your way. Fantastic. Right that now you can now share with your customer. That customer now actually is oftentimes budget constrained. They're always strapped for money. You now turn a problem that they had into a revenue generator for them. That's the brilliance of what this Tech1 management team. So when I talk about visionary, that's what I'm talking about. And then you know, we can get into all the other things they do with SAS plus and owning the entire experience in one code and keeping complexity down. But it's really what got me to, you know, get excited and wanting to own Tech One really was that management team that was doing all the things and thinking ahead that they were going to be on the front end of any wave that we're seeing, not on the back end. And we're seeing it play out today.
Phil Muscatello: Super is one of the most important investments you'll ever make. But how do you know if you're in the best fund for your situation? Head to lifesherpa.com to find out more. Lifesherpa, uh, Australia's most affordable online financial advice. What shines through to me in the book is that not only are uh, you researching these companies, but you're talking about this with your daughters and your wife and your family around the dinner table. And the questions that they ask you are illuminating as well. And it's part of the education process for them moving forward. Tell us about that process.
Matt: Given this was kind of the gift that I would like to, you know, kind of lasting gift that I wanted to give to my daughters. And a lot of times, you know, I grew up in an era where my parents never told us what we had. And we grew up, you know, we were never want for anything but we were never, we didn't, we didn't have a lot of money and that was okay. You know, my dad was an engineer, very well respected in what he did, but we just never really knew anything about the money and kind of where that stood. My wife and I really wanted to kind of change that. We wanted our daughters to be very self sufficient. We wanted them to be very educated about the process and about investing and about financial matters. We didn't want them to be reliant on any one person even though they may not go in to this full time. I really
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Matt: wanted them to feel like they could be comfortable asking the right questions and then, you know, kind of partnering up with the right people to make the right decisions that they had. So to your point, one of the things that I was doing as I was going through these and I was finding these companies is I, uh, then at the dinner table, we talk about them. Yeah, let me tell you about this company that I'm, you know, talking about or looking into. And, and they'd always ask, you know, they're always, all of them are bright, they are, you know, extremely inquisitive. And so they'd asked me these really good questions. And so as part of that, it actually helped make me answer them better because they definitely ask a few that I had to go back and kind of research on. But it also put it in a way that they now were learning how I was thinking, how we were going through it. The reason why this is so important is it goes back to what we were talking about earlier is that we're not buying a piece of paper, we're not renting a piece of paper, we're literally buying a piece of a company. We're buying a piece of a business run by, we hope, exceptional and kind of high integrity management teams. So what you want to know, because we're looking to own these things for a long time, is we really want to understand the business. Not only kind of what the business can do, but what are the risks to the company. What are some of the challenges that any business might face. And so the more that I help educate them and the more anybody who was looking to own their own company, they need to be part of that. I tell the girls, and I stole this from Warren Buffett, but I'm like, if you're not willing to own a company for 10 years, you shouldn't own them for 10 minutes. And the reason why I say that is that the market can do crazy things in the short term. You could buy a stock and it's immediately down 30, 50% on the market, could be down or something happened with your company. But if you're really a long term investor, these are just blips along the way. If this company continues to drive and kind of build that free cash flow per share over time, the stock is going to follow that. Uh, and that's ultimately the lesson I really wanted them to learn.
Phil Muscatello: Are you concerned that readers of this book will just look at it as a tip sheet? That they're just going to go out and say, oh, someone's done all the hard work. I'm just going to go and buy these stocks. What would you say to those kind of listeners and viewers and readers?
Matt: I do hope they read the book, but to me, what I'm really hoping that they do and the big takeaway for us when we wrote the book was not trying to tell people what to think. We really wanted to tell people, give them an example of how to think. And so, yes, I do believe many of those companies are going to do very well. The challenge, though, with just going out and buying them without doing your own due diligence is the buying part is not hard. The holding part is the hard part. And that's what challenged anybody who's kind of looked at these companies and in the industry, in the market, honestly, in whole, will realize there's a lot of volatility. And so in that Hunter Baker study, I went back and looked at, said, tried to figure out what was the maximum drawdown, so peak to trough for the companies in there, meaning the stock price, how far did it fall at any kind of given time? And here was the crazy part. The average, not, not even, you know, kind of not even the worst, the average was a 70% drawdown. Amazon, you know, obviously was one of them. In the 100 Baker study, it actually had a 95% plus drawdown. This is really difficult for a lot of investors to be willing and able to kind of hold it through that. It takes an extreme amount of intestinal fortitude to go do that. So anybody who wants to, you know, just go buy the stocks, I mean, they have every right to do that. But what I'd really want them to do is first understand the principles that we laid out in the book on how to actually, you know, kind of find these, these great ideas, but more importantly, then go into each one and understand the companies well enough. So when you go through this volatility, when you go through them missing a quarter and the markets, you know, kind of beats them up. I always joke, uh, to people, I'm like, you know, when the stock gets cut in half, I call that the unannounced two for one stock plate. You need to actually, you know, kind of understand that and, and have the ability to say, has anything changed in this company that would make me not want to own this for the entirety of the, you know, kind of that 30, 30 years that we had. So that's the first one. Second one is I want to have them understand, can they, if they actually go through this, do they have the own personal temperament to go through this volatility because most of us, you know, uh, honestly have a really hard time when they look at stocks and they're thinking about it every day. They think the market knows more than they do.
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Matt: And they might in the short term, but if they've done their homework and they understand these companies well enough, they will get more comfortable, you know, kind of longer time that they hold it and kind of understand where the business going. And then the last thing I would tell people is that make sure that this is a small enough percent of their portfolio that they can kind of withstand the volatility. And so what I, you know, even in the book I tell, even for me, that is doing all the work. And I know this company's kind of inside and out. I've met with the management team, you know, I've studied this for a long time. I'm making this a maximum of about 20% of my total portfolio. We recommend in the book that they don't make it any more than a 5 to 10%. And I think you have been a huge advocate for this. But it's more your exposure to the market and the time in the market that matters than trying to be right on any given time and timing the market. So we recommend in the book that most people actually own the market, own the indexes, own kind of low cost indexes and be there and uh, own those for the long term because you will get kind of great returns over the long term as we have. So that I know that was a very long winded answer of uh, doing that. But from my standpoint, I do hope that they read this, they understand it, they understand why and what these companies do. But don't blindly just go buy them. Go use this as part of a learning experience to really understand how we went through the process. And then hopefully they can go out and find their own if they so choose.
Phil Muscatello: What's the biggest mistake new investors make when they're trying to pick long term winners? And what's the first step that they can take to start their own coffee can portfolio? And I might refer back to that point that you made a, uh, little while ago about the if you don't want to own it for 10 minutes, you don't want to own it for 10 years or something to that effect.
Matt: Right, right. So I think the biggest mistake investors make, and you'll notice that there are very few institutional investors that own for the long term. And there's a couple reasons for that. One is that there is an institutional mandate. Their fund Holders are looking and be, and it's driven by consultants in the market. It's driven by, you know, uh, the CNBC and others that are constantly telling you whether you're winning or losing. So most institutional um, investors don't own great companies for the long term. They end up trading them. And I don't blame them per se because that's that mandate. And they, if they're not winning every, you know, quarter, every week, every month, they get, you know, redemptions. So that's the first thing. Second thing that happens is that one of the hardest things that you can do as an investor is truly have the patience to go through the volatility and recognize that, that great companies, they don't go up in a straight line. A lot of them, you know, when I told you before they had 70% was the average drawdown that you'd have to endure and that, but they also had drawdowns of 25% or more. And this over a 30 year period could be 8 to 10 times. I mean that you would have that. So it is, it is not a easy, you know, kind of, kind of transition that you have to, or journey that you have to go on. But I think the biggest one that a lot of investment people who are looking at owning kind of long term is they don't give the credence to the compounding effect enough weight. And what I mean by that is even the smartest people out there, it's really hard as a human to understand. 15% a year is equal to nearly a doubling every five years. We all can do the math. But if I took that 30 bagger study and over that 30 years, if I'm halfway through going to that hundred, I'm up only tenfold. Now I use that a bit jokingly, up only tenfold. But the reality is that feels like uh, I'm not even there, right? 15 years and I'm only one tenth of the way. That's the exponential part of the account. And that's why when you look at the investments that Warren Buffett has made in like a uh, Coca Cola, he's pulling in more in dividends today than he made in his initial investment, what 40 some years ago. That is the part that people don't understand because even you know, using that example of 15 years in a 15% growth on say you put $100,000 in at the beginning, at 10 years you're at a million, that's throwing off 150,000 type uh, of increase. So you're increasing more than what you put in in just one year from that. So that's where I think a lot of it has. And that's why the patience is so hard
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Matt: for people to truly understand.
Phil Muscatello: And conversely, people get to that point where they say a stock has gone up 10 times in value and think, I've done really well, I'm going to finish now and get out of it.
Matt: And you end up leaving a lot on the table. If it is an exceptionally good company that will continue to have the opportunity in front of it. You're absolutely right. That's why when I first started, I spent most of my time when I started screen, I'd started on the valuation and then I'd look at a stock price and I'm like, oh, that thing's up, you know, fold over the last, like five years. You know, I can't own that. And what I've come to realize is that you can't start with evaluation. What you have to do is start with the quality of the company, then start with your understanding of what that opportunity is in front of them. Then the last decision you need to make, the final arbiter, as I call it, is then look to do the valuation.
Phil Muscatello: Well, Matt, it's been great chatting with you and hearing about the book. Now there is a blog post and episode description where we're going to link, give you the Amazon link where you can find the book. And I think believe there's also a website that Neeraj told us about that gives us a bit, a few more details. Yeah, Matt, it's been really fascinating, uh, chatting with you and I hope you'll come back on sometime and chat some more because I think you've got a great way of explaining things. Obviously inspired by your own daughters.
Matt: Oh, they are the brilliant ones. I am just kind of, you know, so happy and, uh, blessed that they've turned out as well as they have. And one of the things I hope we didn't touch on in depth, but I really hope sometime we have the opportunity, is the concept of a quality company versus non quality. And you had at one point had brought up a question of what and how do, um, investors put themselves in the best position. And one of the most important things is to don't buy low quality. Said differently, a bad company will never be a great investment over time. They just aren't, they can't be. Whereas a good company, they are the ones that do that. So if you can, if you can eliminate cold negative art, right? If you can eliminate, you know, the bad companies, you may not may or not pick the best company, but you have a much higher probability of being successful than that than you would, you know, just starting out with some random company. You need, you need to kind of weed out those lower quality accomplish.
Phil Muscatello: Matt Akram, thank you so much for joining me today.
Matt: Thank you, Phil. It's been a pleasure.
Phil Muscatello: Thanks for listening to Shares for Beginners. You can find more@sharesforbeginners.com if you enjoy listening, please take a moment to rate or review in your podcast player or tell a friend who might want to learn more about investing for their future.
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