The Calendar Portfolio | The Acquirer's Multiple®

In their recent episode of the VALUE: After Hours Podcast, Taylor, Cassel, and Carlisle discussed The Calendar Portfolio. Here’s an excerpt from the episode:

Tobias: I have done a little bit of testing in that space, just because I’m interested in what happens if I just buy the list of the best, and not a particularly strict valuation basis. I’m just saying they need free cash flow better than the existing 10-year. Then you assume some growth. I’ve found that the portfolio is like, in any given year, you’re buying 40 or 50 companies because I think there’s 200 or 300 worthwhile ones globally, you end up buying 40 or 50 in any given year, and then a portion of them go to zero. It’s very, very hard to detect at the outset I think to eyeball and work out which one’s going to be a zero. Then some of them end up going up quite a few times.

You do become each little portfolio that you form in any given year winded for 20 years, it becomes concentrated just unavoidable. You’re going to have positions in it that go up 10, 20, 60 times in some instances and they become material to the portfolio and then you have lots that go to zero or don’t go anywhere. It becomes a concentrated high-quality portfolio at the time, it’s just you really riding on a handful of– by that stage pretty overvalued name, so you won’t end up owning Netflix and you’ve got a big chunk of Netflix like. I don’t know what I’d be doing with that if it was concentrated, it’d be very nervous-making.

Jake: Not sleeping at night.

Tobias: Not sleeping, yeah. Even not being concentrated, it still ends up being like 8% of the portfolio.

Jake: I was thinking about what if there was like a Ender’s Game bait-like layer between you and what was actually happening in the portfolio. You’re picking names and you’re overweighting this concentration, but what actually is getting done after that is like, “Oh, it’s even positioned sizing it. It’s holding for longer than you were going to.” It’s doing all the things that you think you should be doing, but you are really too hard to execute because they’re just too mentally painful. [laughs]

Tobias: Well, I don’t mind that as an approach. I think you get there with a quanty kind of doing it explicitly from the outset.

Jake: You have to watch what’s happening on a day-to-day basis, so that can be painful, right? [giggles]

Tobias: Yeah, I think that’s probably the solution just to forget about. Once you’ve formed a portfolio, that’s the 2021 portfolio and you’re not allowed to look at individual names and it’s just going to trade as a monolith and then next year, you’re going to form the 2022 portfolio and you’re not allowed to look. You just going to torture yourself if you look.

Ian: It’s almost like the VC vintage. You’re going to have vintages. [crosstalk]

Tobias: Yeah. That’s exactly what it is. Who had the idea of– They would trim these smaller positions. Do you remember that? If it fell below some portion of the portfolio 1% or 2%, I forget what the exact number was, but then they’re just sell out. Do you remember who that was, JT?

Jake: Yeah, the first person I heard talk about that was actually, Mark Simpson.

Tobias: Mark Simpson, yeah.

Jake: Yeah, in his book saying, like, once it falls below a certain level– it’s just a distraction for me at that point. I need to cut bait and find something else.

Tobias: I think that’s a good approach because if it’s a good company and it gets cheap again, you buy it again with a full-size holding. I don’t know what the level is, I don’t know what the materiality is, but 1% suggest, if you get 50 stocks in a force of 1%, it’s basically halved.

Jake: Yeah– [crosstalk] [laughter]

Ian: I like that thought process though, Toby. I think the first time ever, he said so eloquently, but Brian [unintelligible [00:28:49] on Twitter, he had a tweet about that. If you naturally just let your winners run, they become more concentrated and your portfolio becomes more concentrated your winners and that should be sort of your goal. That’s what you described.

Tobias: The problem is, and this is the only thing that gives me pause. I look at it now and we’re close to where the market is. The market is high. Everything’s performed for a long period time, 12 years of performance. What does that portfolio look like? If you go through a drawdown, would I regret? You had Netflix there and you had some huge waiting in the portfolio in it and you knew it was overvalued. Why didn’t you sell it at that point?

Ian: Yeah, it gets really difficult. I’ve had the same thought just with putting that to work even in micro-cap, just gets back to what I was saying about nano-caps. A lot of them that are even hustles can 5x and are still hustle. Same thing, a lot of really big micro-cap winners, they went up 10x, but that’s all they went up and then they went down 50% and they stayed there. You don’t want to just coffee can these things, and especially in the smaller realm of micro-cap. Usually it’s more obvious when something stops working on a large cap from a business level. It’s stupid just to keep holding things you know aren’t working.

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