Thread by @Gautam__Baid

1/ This is value investing GOLD. A compilation of 75 best business and investment lessons from Mark Leonard, Constellation Software’s President. I am sharing some of my favorite points in this thread:

microvalue.es/2019/05/19/mar…

2/ "Our favourite single metric for measuring our corporate performance is the sum of ROIC and Organic Net Revenue Growth (“ROIC+OGr”), (…) which represents the annual increase in Shareholders’ value."

3/ "Part of a perpetual owner’s job, is to make sure that energetic, intelligent and ethical general managers (“GM”) are running their businesses and that the GM’s are incented to enhance shareholder value over the very long term."

4/ "We have the same objective when we buy a piece of a business as when we buy 100%."

5/ "Why did Constellation do so well in such a difficult environment? The facile answer is that we have robust businesses with inherently attractive economics run by good managers whose compensation is tightly aligned with that of shareholders."

6/ "Many entrepreneurs have a huge bias towards growth at the expense of profits...At Constellation we try to find an optimum position where incremental investment still generates good incremental long term returns."

7/ "In a capital intensive business you couldn’t just add Organic Net Revenue Growth to ROIC, because growing revenues would require incremental Invested Capital. In our businesses we can nearly always grow revenues organically without incremental capital."

8/ "Our employees, and the customer relationships that those employees have built and fostered over many years, provide our competitive advantage."

9/ "As a rule, I prefer to use these letters to write about our business, not our stock."

10/ "I hope you’ll join me in thanking the CSI employees for a wonderful decade. It is a rare company that consistently increases its per share financial fundamentals by 25% or more for such an extended period."

11/ "A respected investor told me, 'You end up with the shareholders you deserve.' I’m hoping that’s true."

12/ "We didn’t get to that point with central edicts or grand plans.We just had a hunch that our internal ventures could be better managed, and started measuring them.The people involved in the Initiatives generated the data, and with measurement came adjustment and adaptation."

13/ "Our favourite and most frequent acquisitions are the businesses that we buy from founders. When a founder invests the better part of a lifetime building a business, a long term orientation tends to permeate all aspects of the enterprise."

14/ "Our business units are small for a reason… that the advantages of being agile and tight far outweigh economies of scale."

15/ "Does CSI have the ability to scale at the rates which it achieved during the last decade? I don’t think we are sufficiently humble not to try. I do think we will be pushing our luck."

16/ "ROIC isn’t one of those metrics that is necessarily subject to 'reversion to the mean.' Some businesses seem to be able to widen their moats at reasonable cost."

17/ "Our favourite businesses are those that are growing just slightly faster than their markets, gradually adding market share and customer share (i.e. 'share of wallet'), while generating a good return on the capital that they have invested to produce organic growth."

18/ "We’d prefer the price to be high enough to discourage a takeover bid and low enough so that our sophisticated long term oriented investors are not tempted to sell. It takes lots of time and effort to attract and educate competent shareholder/partners."

19/ "Our employee bonus plan requires that all employees who make more than a threshold level of compensation invest in CSI shares and hold those shares for an average of at least 4 years. In practice, their average hold period has been much longer."

20/ "Last year I asked the board to reduce my salary to 0 and to lower my bonus factor. CSI had a great year, so despite those modifications, my total comp. actually increased. This year I’ll take no salary, no incentive comp., and I am no longer charging any expenses to the co."

21/ "I’ve traditionally travelled on economy tickets and stayed at modest hotels because I wasn’t happy freeloading on the CSI shareholders and I wanted to set a good example for the thousands of CSI employees who travel every month."

22/ "I’m your partner in CSI, not your employee."

23/ "For the same price you can purchase a high profit declining revenue business or a lower profit growing business. (…) We care about IRR, irrespective of whether it is associated with high or low organic growth."

24/ "To date there are over 100 CSI employee/shareholder millionaires. Ten years from now, my hope is that there will be five times as many."

25/ "Perhaps dividends are perceived as a failure… but to my mind, they are less of a failure than sitting on excess cash."