One of my very favorite annual traditions is conducting this interview with my friend David Kim, aka Scuttleblurb (๐ต๐).
His investment research journal/company deep dives/business explorations were a key inspiration for this ๐ข steamboat. While the format is different, I hope there are similarities in the spirit. And I know that he has influenced and inspired many others โ especially the good ones!
In our conversation this year โ the fifth one! โ we explore the State of Scuttleblurb ๐, his analyses of key industries and companies from the past year ๐ญ, and our perspective on the market looking back at 2024 and heading into 2025 ๐ฎ. We also discuss the evolution of his research process and the new tools he's adopted ๐ ๏ธ.
I hope you enjoy listening as much as I enjoyed having the conversation!
๐ง Listen on Spotify
If you prefer to listen on Spotify, hereโs the feed:
๐ง Listen on Apple Podcasts
Hereโs the podcast feed on Apple Podcasts:
๐บ Watch on YouTube
Photo: David and his brother Rich.
๐ Previous Four Interviews with David ๐
If you missed them, here they are:
Also, as mentioned in the interview, David has also recently launched a podcast with our mutual friend Mostly Borrowed Ideas (๐ง๐ฉ๐บ๐ธ):
๐ฃ๏ธ๐ฃ๏ธ๐๏ธ Never Sell: MBI + Scuttleblurbโs Podcast ๐ง
You can also listen to Never Sell on Spotify and Apple Podcast.
๐ More podcasts from the Archives ๐ก
๐ง Going deep on Constellation Software with Mostly Borrowed Ideas (MBI)
๐ง TENET Deconstructed: โ๏ธ Christopher Nolan's Mind-Bending Time Thriller ๐
You can become a paid supporter to get access to paid Editions + access to the private Discord + Zoom Q&As with me + support the recording of more podcasts:
๐ค Raw Machine Transcript ๐
Liberty: David, it's the fifth year we're doing this. Time really flies. I was looking back at the old interviews earlier and it's like, in the first one you have one daughter and she's tiny and then the twins are born and then they grow up and like we can see life, go by with these things.
David Kim: Yeah.
Liberty: guess I had fewer gray hair back then too.
David Kim: Yeah, me too.
Liberty: Welcome to the show. think we could do it super simply, right? The state of Scuttleburb this year. I'm really curious about how things have gone for you as a, as a writer, as an investor about the Scuttleburb as a business, all that stuff, and about the market and investing in general. super simple.
So state of Scuttleburb. How's it going?
David Kim: Yeah, sure. Yeah. Uh, things are going well. Let me kind of just maybe open with, numbers here, so for 2024, gross revenue. uh, let me just back up. So I've got ScuttleBlurb. I've got like a WordPress version of the site. And then at the start of 2023, I also launched, a Substack version of the site.
Across both of those platforms. Total gross revenue for 2024 was about 310,000, and that's up from 285,000, a year ago. So about 9% year over year growth.
and that's, um, an acceleration from last year. So in 2023, gross revenue was up about 5%. And so the, uh.
Substack, last year was about 21 percent of total revenue and this year it's grown to about 32%. it's become quite sizable, the, the substack side of the business and it's, the part of the business that's, growing. So if I look on the WordPress site, the gross revenue on that side was down about 6 percent and then, uh, the substack.
Bookings were up about 65%. And so that kind of blended out to, that 9 percent growth.
Liberty: Do you think most of the substack subs are additive
David Kim: Yeah, it's a good question. I don't know. I've asked myself, uh, that too. And I, just don't know how much of that is like cannibalizing, what otherwise would have, come on the, on the WordPress side. but you know, overall, just happy to see, Growth in the aggregate.
Liberty: yeah, I know that's always nice. you escaped the curse of 2022. I think that was the toughest period for everybody
David Kim: that was tough. Yeah. Yeah. And so 2022, there was a, I had a pretty, big. Yeah, about 10 percent decline from 2021 as far as revenue goes. So, glad to see that things are growing again.
Liberty: And you think this is mostly kind of a macro thing, right? Like the market is more interested in this, or have you made Changes. Do you have like change plan for the future? Are you like, I know you did the podcast with MBI. That's a new thing. I really liked the first episode. Curious about the format of Scuttleblurb.
How is it evolving?
David Kim: Yeah. So I think, probably the biggest on the business is just the, the pricing actions I took, towards the end of last year. I've raised prices before, but it's only been on new subscribers. So I've done an the board, price hike in like the eight years that I've been doing this.
I think on a blended basis, maybe the average subscriber was paying about, call it 220 bucks a year. And I raised, prices to about 320 per year. So we're talking a pretty substantial increase there, maybe a 45 percent plus price hike. the reason for that is, when I first started this blog, I didn't really give much thought to the audience.
I just kind of hope that if I did a thoughtful job and I did good work, people would pay to read it. And I'm Lucky to have built the audience, that I have, but now, some time has passed, and I have a much better sense of who reads my stuff. And so here's, kind of how I'm thinking about things.
this is speculation. I could be completely wrong about it, but here's how I think, I think like most, most folks out there who have an interest in, Investing or investing newsletters are, just kind of like looking for a guru to give them the answers. Right? Like, so, I kind of understand that, like, they don't look at stocks for a living.
They're not going to come home after a long day's work to evaluate the arguments for buying or shorting a stock that's laid out in a 7000 word post. Right? they see, you know, David Tepper pitching Chinese stocks on CNBC and they think. Well, Tepper's a billionaire. That proves he's smart. He's, balls deep in Chinese stocks, so I am too, right?
like, the justifications for buying Chinese stocks kind of beside the point, right? It's sufficient that, you know, billionaire investor David Tepper likes Chinese stocks. And I think that, like, a lot of people fall into this So, this would be like Your neighbor who couldn't pronounce Nvidia two years ago and now is like wondering why you don't own it.
Right. and that's why I think like most newsletters out there are so light on analysis and so heavy on pomp. It's, you know, I set this stock at 300 percent upside a year ago and now look how right I was. in part people, I think they, they look for investing gurus because, you know, You know, they don't have the time or confidence to look into things themselves.
I think maybe part of it is they want to, um, deflect blame if things don't go right. you know, it wasn't my read of the analysis that led to this poor result. It's, you know, I put my trust in so and so, it's his fault. in I think. Expertise. It's such a, um, it's such a fuzzy, concept.
Like if somebody were to tell you that they're an expert in, black holes or US GAAP accounting, and they have all the right credentials and the right experience, don't really blink an eye at that, right? just kind of take them at their word. But if somebody were to come up to you and say that they're a stock picking expert or a market expert.
of their credentials, that should raise some red flags. Right?
Liberty: Yeah. it's almost a red flag in itself.
David Kim: Yeah, right. Because like, no legit investor would ever. Describe themselves that way. Right? maybe another way to say this is, you know, you. don't ever hear about, Surgeons saying that they had a bad year, like a surgeon's patients are dying at, you know, 10 times the rate of other surgeons, who are operating on very similar patients in a similar setting, you're going to maybe draw the conclusion that this is a bad surgeon, right?
but if you run into an who's underperformed the market in any given year, they could be a bad investor. or they could just be having a bad year, right? That's a perfectly valid thing to say, that's the kind of thing that happens. Buffett has had long stretches of underperformance.
Munger had two, minus 30 percent years back to back in the 70s. you and I sort of understand this, right? but there are a lot of people Um, who, who don't I think. and there are, um, a lot of, you know, goobers out there with newsletters who, who try to exploit that fact for their advantage.
so let's just exclude that audience, I guess, people are looking for gurus because they're not going to be interested in the stuff, that I'm writing, right?
So among the group that's left, my guess would be at least half are just looking for pitches that are immediately actionable, and I don't do stock pitches, of course, and I don't do like immediately actionable ideas except on rare occasions. And so that kind of further limits, my audience. And then so, you're left with people who, they aren't looking for gurus. they're looking for like a reasoning process, but they also want like immediately actionable ideas.
so if you're looking for immediately actionable ideas, I think think you're also kind of, Not my audience either. And then so you're, you're left with people who are okay, reading stuff that isn't immediately actionable. That doesn't have like the carrot of, like, you can put money behind this idea today.
but even of the remaining audience, I tend to find is that, their interests tend to cluster around certain industries. And so, if you're very active on Twitter and you to a lot of Substacks, my guess is you're, probably in like a younger demographic, you're probably in your thirties, maybe early forties and, your interests, from an or, industry standpoint.
are probably more concentrated in like tech tech and growth and consumer and that kind of stuff, and maybe less so in industrials in commodities. and there's some overlap here where like, if you're interested in, like big tech, you're probably also interested in, you know, Mag 7 or in like FinTech.
people are considering whether or not to read a post, needs to be, this of recognition, right? the writeup it can be about like a company that, they own. It can be about like a competitor, of a company that they own.
or it could just be like, you know, people are about a name a lot on Twitter. I don't know how like certain ideas get into the water supply of, Twitter, but, there's some names like, you know, floor and decor, for example. I don't know that people would be intrinsically interested in a, um, lumber flooring, provider.
But, Munger says the words floor and decor, and then, other people sort of append the label, you know, Costco of flooring. and people have a sense of what that means, right? so if I were to write a post about Florin Decor, there's this imprint in their mind of like, Oh yeah, okay.
Costco of flooring. Like I know what Costco, I know what Costco is and how it competes. they'll be more, willing to read something like that than like a Simpson manufacturing, which they've never heard of. Right. or an Atlas engineering or, or Louisiana Pacific.
So it helps, I guess, from a business standpoint to write about stuff that people,
it's not that people have to know the names intimately, but they have to have, some recognition, I guess, right? so people, you know, they cluster their interest tend to cluster by industry.
and here's me and writing about, you know, FinTech one month and, building materials, distributors another month. And I think, you know, that gives people whiplash. It's not, throws people off. And I think, that kind of further limits, my audience. And so. You know, essentially we've, kind of narrowed this audience down to, you know, people who are, compelled by reasoning rather than reputation, Who weren't just looking for the gurus, number two, who are just intrinsically interested in learning about businesses and don't need the care of an immediately actionable idea, and then three, who don't limit themselves to certain industries, but are fine kind of jumping around from, one industry to another.
And I think, you're left with a pretty, small group of, weird, obsessive, passionate generalists, like me. And I think, like, the chances are, if you, are, are pretty high that if you fit that profile, you probably invest for a living or do something very closely related to that, and you have a high willingness to pay for the stuff that I write.
And so. You know, I was charging, 220 a year, and it just felt like that price point was sort of in no man's land. where the vast majority of people who subscribe to investing in these others would never pay even like 50 to read my stuff, let alone 220. And then I've got like this very small niche of enthusiasts who I, think do get enormous value from what I write.
And so, um, was why I raised prices. I, in a nutshell.
Liberty: yeah, when I think about your stuff, I think about it as training, right? So, some stuff is like, oh, I'm looking for an idea to invest. With your stuff, what I like is, even if it's a company I don't know anything about and I, I may never invest in, learning with you, you think out loud with your writing.
And so going through the process is a transferable skill, right? When I see how you think about a business and I'm like, Oh, he went to this source or he asked this person, or he asked about this specific KPI or thing. that's, what's most useful to me because. Then I look at my own stuff. I'm like, shit, I didn't do, I didn't do that.
I, I didn't think of even asking that question or looking at that or, and so that's what I think makes me better by reading your stuff Sometimes, like the idea aligns with the type of companies I like or the type of industries I like, and I, it's purely aligned and we, like, we may invest in the same thing, but sometimes you, you look at things that I don't have direct interest in, but I still learned a bunch.
think, I suspect your readers are probably feeling a lot of that too.
David Kim: Yeah, yeah. And I, I've always tried to gear my writing, um, I mean, it's research, right? It's it's not me trying to persuade my audience of anything, right? it's not a pitch. and I try to be as, as clear about that as possible. Unfortunately, a lot of people still like assume that everything I'm writing is, is a pitch.
Cause I think they've just been accustomed to that. Right. when they subscribe to newsletters, it's almost always like pitch oriented. But yeah, it's, an exploratory process and I'm still figuring things out. and the vast majority of the time, the conclusion is
Liberty: Heh
David Kim: look, I don't know, I don't know what to do here.
Liberty: like a, bank of idea that you're building up. And even things that may not be investable now, if in five years there's a great opportunity, a lot of the time these don't last forever, right? So it's, it's great to have pre studied the industry in advance, know some about the company and then you can act when it's the time.
But too many people expect that you're going to have the exact right idea at the exact right time when the valuation is perfect and it's That very rarely happens.
David Kim: yeah, right, right. And so, yeah, it's, it's more about, you know, building the foundation, right.
Liberty: I wonder how
many of your readers, like, or maybe first time readers, they load up a post and then they scroll to the bottom and look for the recommendation and the valuation price. Now they're going to be
David Kim: Right. In general, I think way too many people are focused on the valuation part of my writing. Like almost all the emails I get, it's always like, oh, I think you should have used a 30 multiple instead of this 20 multiple. Or, you know, I think margin should have been 28 instead of 25. I just think, well, look, when usually dedicate maybe a paragraph at most the valuation side.
my thinking there is it's not me saying, look, here's what it should be. It's just, here's one possible scenario out of many, and if you want to toggle the margins the multiple, like, knock yourself out, go for it,
Liberty: Yeah, you're not preventing them from
doing their own math, right?
David Kim: yeah, but the feedback I get, it tends to focus on like that part of the write ups, and I, um, never really know how to respond to those
Liberty: I'm curious if your research process has changed, especially now, have you started playing with some of the new AI tools or like, are you using Perplexity for some of the research? Are you using some of that stuff to help you polish up the writing, find the grammar mistakes or whatever, or turn a phrase or are you using any of that stuff?
Or are you still like old school?
David Kim: yeah, no, I use Perplexly all the time for research. I would say it's, it's sort of become my default search engine, away from Google. It kind of surprised me how quickly, because like Google, there's, kind of like a muscle memory, behind using Google, I was kind of surprised by how, quickly that sort of dissipated as, as I started using more, I just find it a lot more useful.
I think there's. I think helpful around the margins, I guess, in my research, I would never use it to, um, like, I wouldn't upload a bunch of transcripts and then start asking questions to learn about a company. I don't think that's the right way to go.
because you just don't know at the start, like, what are the right questions to ask. Right? I think you need to kind of do the hard work of going through all the. SEC documents and the transcripts and whatnot, just on your own, and kind of build that foundation to start with and then you can start.
Using, the AI tools to to kind of round things out and flesh out your knowledge. certain areas. so that's, how I use it so far. I don't use it for writing, at all. at this point, it's, sped things up the research front.
It just made me more efficient there. yeah, so perplexity, I use that all the time.
Liberty: I find it also useful for, if you're getting into something new for the first time, like a brand new industry, right? Or a brand new concept in science and history and the Roman, it could be about anything. And sometimes you just want to have a kind of a tutor to ask a few questions to and go back and forth and get the, the outline of the thing.
And then you can fill in the details by more research. but for that, find it very useful. I haven't used it that much for investing, more for other things. But I, I could imagine it like at some point if I don't know, I want to learn about a company, brand new industry that I've never looked at, like getting the one on one on things like
that would be
David Kim: Yes, exactly. Yeah. So like right now I'm kind of looking at some like life science tools type companies yeah, I'm reading through all the transcripts and the SEC documents, but I don't have a background in chemistry and biology. And so I'll run across certain terms, that I don't understand.
is great for that. I'll just kind of ask, How are capping reagents used in mRNA production and, there's a pretty good summary there with, all the links attached and I've found that to be like, a really useful way To get up to speed, but yeah, you described is kind of how I use it as well. I use it in parallel with the research that I'm doing. It's not like a substitute by any means. but it's great when I, like, come across concepts I don't have familiarity with, and I just need to know them. a quick tutorial.
it's great for that.
Liberty: life sciences and biology, and that's a perfect example. Like you may never want to be a biologist, but to do the kind of 80, 20 on getting the big concepts and how things fit together and make sure you're not misunderstanding stuff. Like, what a world we live in that we have this super, well, not super intelligence in all aspects, but super knowledgeable in, as far as facts and all that at our fingertips.
David Kim: Yeah,
and I'll just, uh, by the way, to go back to the pricing thing, let me just share, I guess, how things have gone so far with that. so I, I raised prices starting on November 1st. 2024 so. I have basically two months of data at this point. And so just looking at the WordPress side of things, I haven't dug into the Substack side, but just on the WordPress, part of the business, the number of orders, in the two months, November and December, 2024 are down 16 percent relative to a year ago, but the revenue is up about 23%.
Liberty: So when you say down, is that new subscribers or is that like renewals too? Or what, what does that
David Kim: yeah, exactly. It's, it's everything. It's just the number of orders. and it's interesting because if I were to look at, net new subscribers for November and December, so the WordPress subscriber base, that's still shrinking, but it actually shrunk by less in November, December than it did, November, December, 2023 and in 2022.
And so like, if you were to just like, look at a chart. Or graph of my net new subs. You wouldn't be able to tell like, when the price increase went to effect. So it doesn't seem to have had, any material effect here. worsened the trend, I guess, is the way to put it. quite, quite pleased about that.
Liberty: And I'm not surprised that the WordPress subs are like the hardcore OGs. They're not going away.
David Kim: Yeah.
Liberty: looking back at the past year of like everything you've, published, I'm curious if there's anything that stands out, That you're particularly proud of or anything you wish you could go back in time and do differently or change or there's always some drama, right? So XPEL had some drama, you had some updates.
Like I'm curious to discuss some of the, the year's highlights in both directions.
David Kim: yeah, I mean, I think a lot of the stuff I've written about, the past, it's been like companies that were widely acknowledged or appreciated to be exceptional businesses. Right. And I think. you know, when I first came onto the scene, there was a void in the market as far as explaining why these were exceptional businesses and why they may or may not continue to be.
Liberty: was the compounder era.
People are
David Kim: start of the compounder area. Era. That's right. Yeah. But now there are so many people doing that, right. There are like entire podcasts dedicated to explaining why companies that everyone knows are great businesses are, in fact, great businesses. get me wrong.
Those are valuable. I think, I mean, even for businesses that are well known. You want to know, like, the what's and the why's, think that helps develop conviction when the stock inevitably draws down 30%. And, and look, writing about Constellation Software helps you. Learn in public and develop conviction, even though, you know, 100 people have already written about it.
go for it, not hating on that, at all. But, I think what I'd like to do more of is like to like mix things up a bit more, go off the beaten path. talk about names that I think are less well known. or have some controversy or. you hair on them, or like, you know, maybe going through some kind of big transition that isn't reflected in the financials. So,
you know, like, something like LP, like, Louisiana Pacific is maybe one example of that. I wrote about them earlier this year. They, um. Their legacy is they used to manufacture oriented strand board. And so that's, you know, you, you take a log, you cut it up into thin, strips of wood, and then you lay some out, vertically, some horizontally. You glue them together with
wax and and resin. And then you apply a lot of heat and pressure to it a commodity business. and what they're doing is they're sort of repurposing the OSB plants towards making like, branded siding products, which are much higher margins, uh, generate higher returns on capital.
Because, like, in the building product space in certain niches, you'll find like, these, branded oligopolies like Trex in composite decking or James Hardy in siding, that are very, like, to dislodge from the value chain, because you need to, like, Simultaneously win mindshare with homeowners and contractors, and then also get placed with dealers and distributors too, and those things reinforce one another.
So an interesting part of that, of the value chain. yeah, so I spent a lot of time on, building materials. that was pretty much my entire summer.
Liberty: Yeah. Sexy stuff this summer. Vinyl sightings versus wood, composite decks and framing lumber and roof trusses and everybody else was on the NVIDIA and TSMC, you
David Kim: exactly. Yeah. So I, I don't think I did myself many favors from a business standpoint, focusing on, on names like that. and so, yeah, always that trade off because I know what people are interested in. Right? and I know that I could just write about that stuff. Right. and I think it would be good for growth, but I don't want to be captured by my audience.
I
Liberty: and I think your audience appreciates the authenticity too, right? if you turn into something that you're like, I don't think it would work that well anyway, because that wouldn't be you, that wouldn't be, that wouldn't be real.
David Kim: yeah, right. Right. Yeah. So I think, might be good short term. I think longer term it would, um, I think longer term it would be, harmful. so, yeah, and so I did, spent a lot of time on building materials. I wrote up some lesser known names like, Simpson. And. and then revisited some stuff with like some hair on it, like XPEL and Lamb Weston, Burford.
yeah, so I'd like to, I guess, continue in that general, sort of, direction. So, yeah, we'll see how that goes, but that's kind of where my head's at from a content standpoint.
the other big news from a content front, I guess, is the podcast,
Liberty: can
you say what the second episode will be about? Do you know?
David Kim: yeah, so the 2nd episode.
It's going to be about XPEL.
So, uh,
yeah, so that that'll be a good one. Yeah, So, podcast is, um, that's me and, and, um, and our, our mutual friend, MBI, going to be doing, like, a podcast once a month. the idea there is like, I've always looked at the Scuttleblurb blog as, as like a diary of my investment related thoughts, and that turned into kind of like a lifestyle business. I like it that way. I've never really had ambitions to turn this into like a big media, business, and I've never really thought of myself as a, as a media guy. don't want to be out there, like tweeting constantly and going on all sorts of podcasts.
But, you know, at the same time, I can't, uh, ignore the fact that, you know, this blog, it's, my primary source of income and, you know, like people, people often say, you know, quality over quantity. But I think that matters in ways that people may not consciously, recognize. I like to sometimes joke that I could probably take, 1 of my posts and instead of having it come out, like, once every 3 weeks or whatever, I could cut it up into 3 pieces and have it come out, like, once every week and maybe people would think that they're getting more out of that because of the frequency.
I feel like it shouldn't work, but I feel like it would work. there's just so much stuff out. Like there's, there's so many newsletters and so many commentators and everyone sort of like competing for attention. when you're writing like once a month or twice a month, in some cases, it's, um, tends to happen is like you kind of slip in and out of people's memory.
you're not kind of. Constantly, up there, right? and so, like, I kind of like I should be out there more, but I also, like, you know, didn't want to be one of those cheese balls who's constantly thumping his chest on Twitter about how all the calls he's gotten right and memory holing all the ones he's gotten wrong.
and I wanted to, like. be out there in a way that provides value, but also doesn't subtract value from, who are paying for my stuff. And also, it has to be something I enjoy and also it has to be like, low effort because I'm busy with my research and my kids and I don't want to, trade off that time.
And so, and so I thought like, yeah, a podcast was like Good way to sort of achieve those objectives here. And so, MBI reached out to me, uh, a while ago. And I turned it down at first because, um, guess so with writing, I've always found a comfort writing because you can put forth like the version of your argument.
if you're doing a podcast, you have to, be okay with the fact that, you're not always going to be able to make all your points in the best possible way. And, I think you have to be a little bit charitable to yourself and you have to have faith that the audience sort of, like, understands that, that there's going to be a lot of and you're not going to say things perfectly.
but I also see it as, this high impact, low effort way to connect to your audience because I mean, it's literally your voice in somebody's head, right? And so
that's that's a kind of intimacy that's hard to replicate through writing, I think.
Liberty: Exactly. You can't say things perfectly. You can't think things through, but you get a connection with people that you don't get with text. It's slower effort for them too. They can walk the dog and listen to you. And like you can reach them at times that you may not reach them otherwise. And I think once people get to know you and if they, they like the way you think, they kind of like you, they'll be more tempted to want to read your stuff and pay for your stuff and like get the whole package.
think it kind of fleshes out their, mental model of you, right? they see you as a more three dimensional person.
David Kim: Yeah, no, I think that's that's a good way to put it. this is something I think I'll enjoy because I like talking to MBI about stocks. I think he's smart and he's, and he's very thoughtful.
Liberty: He's great.
David Kim: yeah, and it's low effort because we're going to, we're talking about stuff that we've already written about and covered.
and yeah, and, and I don't think it subtracts from, The value that paid subscribers are getting because the write ups, they're, more organized and they're, they're, they're exhibits and, it's just a different, product, so
Liberty: Well, it's a conversation.
David Kim: yeah, exactly. And so this is going to be, you know, the approach that we take, there are a lot of investing podcasts out there and, um, a lot of them do a good job kind of digging deep into companies. I think though, I tend to find that, a lot of them have this, like, again, like a pitch oriented, flavor to that where it's, uh, let me try to persuade you why this company is, is great or, or the stock is a buy.
And, and that's something that I think MBI and I, um, we're both trying to avoid. So, like, you should think of these podcasts as, casual conversations that you'd have. about companies with a friend at a bar or something. It's going to be meandering and, impressionistic and, and it's not going to be very well, organized.
Liberty: that's the best kind of podcast when, you see where it goes. And as say, like you, you feel like you're just sitting down with a couple of friends and learning stuff. I want to learn something in detail, I'm going to go read the deep dive. don't want someone to sit down for an hour and a half and Going through every single detail that's in one of those deep dives.
Like I can understand how some people like listen to the audio version as a kind of audio book, but that's fine. But that's not the best way to learn about these things to me. Like you want to see the graph, you want to pause and do the research and make some notes and like look up some charts and go in Koyfin.
And the research process is very different from just sitting down chatting about how terrible XPEL has been doing lately or whatever.
David Kim: Yeah, yeah, oh
Liberty: project you had this year that was kind of different, kind of, uh, in between, right? Not like super sexy, but like still pretty high quality company the Serial Acquirers. these were close to my heart because I knew them in advance. AMETEK, Roper, I suspect that starting with learning about Berkshire first, you kind of learn that model, and then you're kind of looking for other companies that are good at M&A and can create value that way and redeploy capital that way, because it's so rare for anyone to create value with M&A.
Once in a while when you find someone that can do it, it's one of those special skills. And so I'm curious if you have any. Takeaways from looking at those or what you think of those companies. It does feel like they're having a harder time finding good targets at good valuations. but anyway, I, I'm curious if you had any,
David Kim: Yeah.
Liberty: series that you did?
David Kim: Yeah, they're they're very interesting only are they serial acquirers, but they like completely transformed their business, right? like if you were to look at Roper today, it's a company They focus on vertical software, but that's not how they began and the same is true with, um, with Ametek and Teledyne, they maybe started off with like heavy industrial, type products, and then they, they sort of deviated away from that into more like instrumentation products with higher IP.
it's a bit different from something like Constellation, right? Where they, they've kind of always done software and it's always been like these small, little companies. I think you're right. I think 1 of the challenges with, a company like, Teledyne, is that They're trying to acquire, like, differentiated IP, and that's not something that Constellation is necessarily doing.
when you're trying to acquire differentiated IP you're targeting, like, these oligopolistic, niches, and, run into a scarcity problem, right? Especially like, as you get bigger and you need to do bigger acquisitions. Like, you can move the needle by doing a lot of small acquisitions.
So that's kind of what, like, constellation has done. Or you can, like, do fewer really big acquisitions and I, think, if you're operating in a space like Teledyne, where really focused on IP differentiation in these niches, you're more in that latter camp. You've got to put out, like, you've got to take bigger swings, in a smaller pool of opportunities.
Liberty: And
it's more case by case. You can't have a playbook that you just rinse and repeat, turn the crank, do more of those. It's like every time it's kind of make or break.
David Kim: Exactly right. Yeah. And so like, yeah, so constellation, obviously they're, they're the ๐ and they've kind of executed upon this playbook and done it very well over and over again. and I think Teledyne, they're just different in the sense that, um, if you're going to be taking these big swings in these narrow markets with high IP differentiation, you're, you're to be paying up more.
And so that's what you've kind of seen over time. they're paying bigger and bigger multiples. Whereas I think Constellation, I think on the bigger stuff, they've, they've had to
pay out more than they have for the smaller stuff, but there's still like a vast opportunity, I guess, within like these, um,
yeah.
Liberty: And even for the bigger stuff, they'll tend to go for stuff that's like a
turnaround or a divestiture for non economic reasons or like they got some great stuff from the ICE merger. That way, but they're not winning many big ones, right? They, it's going to be the cherry on top, but I think the main engine will have to remain the smaller deals
David Kim: Yes. Yeah. And well, you would know this better than me, but like, I don't think they're paying that much more for these smaller deals than they were. You know, five or 10 years ago, right? Yeah. So, so that's just a, a different, dynamic. And I think it's a, it's a that, Teledyne may be facing, but yeah.
Liberty: one in between that I saw is, uh, Cintas, where I was looking at, they have a, 10 year or 27% CAGR selling like uniforms and hand soap and all that kind of stuff. That that's one of those businesses that I think was kind of a little bit popular on FinTwit, like maybe 10 years ago with Bluegrass and these guys, but I haven't heard much about it, since.
And that, that's a very interesting one.
Yeah
David Kim: it is interesting. I don't think. I don't know that, like, uniform rentals It's like a good business in and of itself, right? It's. logistically complicated. So it's not just, it's like, with waste management, you're, going out there, you're picking up the trash, and then you're, dumping it with uniform rentals.
You're going out there, you're picking up the uniforms, but then you've got to bring it back, clean it, and then send it out, and you've got to do that reliably week in, week out. And so, um, and if you look at other players in the space, they really haven't Done that Well, like if you were just back out Cintas and just look at, Aramark and,
Liberty: Yeah,
is it just like their, execution, or are they just
David Kim: yeah,
Liberty: much better and that's the secret sauce?
David Kim: I think it's the route density that they have. They have better route density. but a lot of it is, it just seems like execution. Yeah, they've just done a much better job and they've, um, they've been more serious about, ERP implementation and, just, getting, I guess, the nuts and bolts.
Right, they just seem to be a lot more on the ball than their other peers.
Liberty: No, it's not one of those sexy ones, uh, at first glance. But when you look at the stock chart, you're like, Oh, some things going on here, I was thinking back to the last time we did this interview as a podcast, we talked about Carvana and how like bombed out it was and what a terrible situation.
And like, cause you wrote about them and like, it was probabilistic, right? And then we're like, Oh yeah, it didn't turn out well. And then since then, that was basically the bottom, right? And since then it went straight up. I'm like, okay, what's going to be the Carvana for this year? For this year, I'm like, I hope it's Expel.
That would be, that would be fun. Like get, get the bottom of Expel right here. But, uh, anything went kind of sideways. I know that the, the FOUR CEO left, all kinds of like unexpected things, but nothing Carvana-like this year, right? G
David Kim: yeah, I don't think
Liberty: think GFL sold a bunch of assets or
David Kim: yeah,
Liberty: closely, but I don't think that was necessarily a bad thing. Maybe just,
David Kim: no, that was not a bad thing. Yeah, they sold the, environmental services part of the business, but they sold it at a, at a good multiple and they're keeping like a 44 percent stake in it. So I think that that was all good. Um, I'm trying to think if there's. I don't know. I don't think anything comes to mind as far
Liberty: Oh, that's good. That's probably
good. Um, the next thing maybe to open up the aperture to the General market in 24 and maybe going into I'm just curious if you have any thoughts about it. Like we don't have a crystal ball, right? The real answer is we don't know and stuff just, there's so much randomness in the system, but just as a, as a kind of like market feel or how are you thinking about it?
What are you seeing? What, what, I don't know any, any thoughts there.
David Kim: Yeah, I mean, there are certainly some parts of 2024 that rhymed with 2020 and 2021. as far as just kind of stupidity goes. Um, I think the meme that, comes to mind is the one with the guy throwing the Intelligent Investor into the trash.
Liberty: I won't need this anymore.
David Kim: Right. And so, um, that stuff is like fun and interesting.
At the same time, I think it's, it's also like easy to avoid. I don't think we need to wonder like what we're missing with MicroStrategy or Fartcoin or like Destiny Tech
100 You you're not levered up Fartcoin?!. And so I think, um, the compoundary stuff, I think it's, um, think reasonable people can agree or disagree on, on whether, um, those would make for good returns going forward. I mean, if you look at like a company that everyone sort of acknowledges has an incredible moat and. relevance and they're kind of growing. High single digits. Businesses with those kind of I guess I'm thinking like Copart and Moody's and even Cintas, like those things are trading between like 30 and 50 times
Liberty: Yeah,
Visa and S&P Global and all these, classic high quality compounder companies are.
David Kim: yes, exactly.
Liberty: well, but the valuation is tough.
David Kim: Yeah. not that those can't work. I, I just think that, um, we're at this point where I think you have to ask yourself if you're getting. Paid enough to own those given treasuries are kind of bumping up against 5 percent here. there hasn't been too much action on, uh, from my end.
I mean, I bought some expel, some Visa, some Meta, I dumped Dollar General at a loss. I trimmed a bunch of stuff. And so I'm holding more cash. was holding more cash at the end of last year than I was at the, at the start of the year. as with my writing, I'm, I'm just trying to like, look, I guess, off the beaten path a bit more.
And so, like, there are plenty of life sciences names that have gotten slaughtered or have lagged behind, I'm putting a little bit more time there. I bought some Maravai recently, and maybe there's more to do in that space, but, we'll see.
Liberty: All right. you so much for doing this.
anything to add before we go?
David Kim: Um, I don't think so.
Liberty: did we forget? Yeah. How are the kids doing?
The most Oh yeah, no, I mean, no, the kids are fantastic as usual. yeah, we got through the holidays without incident and everyone's back in school again. So mornings at House Kim are, are quiet.
Recharging the batteries. I know that feels awesome. Well, I'll put all of your links in the, the show notes, for Skullblur, for your Twitter, for the podcast with MBI, for the past four interviews like this. if someone's coming to this, new and hasn't read and heard the past ones, I recommend them.
but Yeah. thank you so much,
David Kim: Yeah. Awesome. All right. Cool.
Thank
you.
Liberty: day. Bye bye.
David Kim: All right. You too. Bye.
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