My guest today is Will Thorndike. I first spoke to Will in 2017 about his excellent book The Outsiders and his career in private equity. I titled that conversation: How Skilled Capital Allocators Compound Capital. In many ways this conversation continues where that one left off. Through the lens of his new project, a podcast called 50X, we explore the power of multi-decade holding periods and the shared characteristics of businesses that are able to compound returns at high rates for abnormally long periods of time. Please enjoy this discussion with my friend, Will Thorndike, and if you haven’t subscribed to 50X, I highly recommend doing so.
For the full show notes, transcript, and links to mentioned content, check out the episode page here.
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[00:02:45] - [First question] - How working on The Outsiders project shaped his thinking
[00:06:29] - His interest in long-term holding periods and dealing with multi-decade time horizons
[00:09:42] - Shared characteristics among compounding machines
[00:11:23] - Defining capital efficiency and the return on tangible capital metric
[00:13:02] - An example of an attractive business that requires a lot maintenance CapEx
[00:14:22] - Thoughts on the measurement of intangibles and whether or not he’d avoid great businesses that are intangible heavy
[00:15:25] - Tangible ways capital efficiency rolls into compounding capacity
[00:17:45] - Being patient early on and things that reveal themselves after doing thorough year long research in a company like TransDigm
[00:20:32] - Lessons learned about good game selection for companies
[00:22:47] - Common features of customers that tend to be served by the businesses he invests in
[00:23:43] - Evaluating culture and its ability to propagate forward in the public equity markets
[00:25:09] - An example of a decentralized structure and why it works so well
[00:27:53] - Successful decentralized companies regularly assemble general managers and compare their results and share ideas
[00:28:46] - Thoughts about software as a business model and lessons learned about this industry across his career
[00:30:00] - What the best serial acquirers do for long-term holders
[00:31:46] - Advantages of using debt for financing and acquisitions
[00:33:39] - How different the future might be for young CEOs with capital allocator mindsets
[00:35:40] - Other forms of recurring revenue he’s seen and things that are one the line between recurring and non-recurring revenue
[00:37:42] - The biggest changes for him moving from outside client capital to just managing his own
[00:39:09] - 3 companies that Housatonic Partners has owned for more than 25 years
[00:40:29] - What made Karen Moriarty so good for so long
[00:42:36] - The crossover between public and private investing and the virtues of each sector
[00:45:35] - How he thinks about the function of Compounding Labs and what he wants it to become
[00:47:10] - What is at the top of his wish list of the companies he wants to explore
[00:49:15] - Which companies he’d still be fascinated to learn about that don’t fit the criteria he’s laid out today
[00:50:25] - The development of investor conviction over time and what he’s learned about it
[00:52:19] - Lessons learned about producing great media
[00:53:43] - What he can teach us about deep research on companies with analysts
[00:55:10] - Adjusting his thinking and investing in a high variance world