VALUE: After Hours (S06 E23): Matthew Sweeney on Laughing Water’s Boutique Concentrated Value Strategy

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In their latest episode of the VALUE: After Hours Podcast, Tobias Carlisle, Jake Taylor, and Matt Sweeney discuss:

  • Finding Value in Optically Expensive Stocks: A Deep Dive
  • Why Pod Shops Are Gaining Popularity Among Large Capital Pools
  • Why Biologic Drugs Are the Future: A Look at Industry Trends
  • Exploring Fishbone Diagrams: A Visual Tool for Root Cause Analysis
  • Paying Up for Quality in a Passive Investment World
  • The Importance of Patient Capital in Small Cap Investing
  • The Intersection of Business Fundamentals and Future Earnings Predictions
  • Recession-Proof Construction: Focusing on Healthcare, Education, and Data Centers
  • How Management Incentives Can Double Earnings Power
  • Small Cap Investments: The Frustration of Delayed Market Reactions
  • Balancing Cash Flow and Timing: Strategies for Portfolio Managers

You can find out more about the VALUE: After Hours Podcast here – VALUE: After Hours Podcast. You can also listen to the podcast on your favorite podcast platforms here:

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Tobias: This meeting is being livestreamed. That means it’s Value: After Hours. I’m Tobias Carlisle, joined as always by my co-host, Jake Taylor. Our very special guest today is Matt Sweeney of Laughing Water Capital. He’s a small cap value specialist. So, we’re going to get into all of the things that are ailing small cap and value. We’ll have a petty session. No, that’s been doing very well. So, how are you, mate? Good to see you.

Matthew: I’m doing great. Thanks for having me. I know I’ve told you guys this in the past, but this has always been like my water cooler session.

Tobias: Then good.

Matthew: The Value: After Hours podcast is a– I’m a solo practitioner. I spend a lot of the time by myself. And then I flip on the Value: After Hours podcast and it’s like my trip to the water cooler to just kick around whatever ideas might be bouncing around my head without actively being a participant. It’s always me doing the listening. So, it’s nice to be here live at the water cooler.

Tobias: That’s cool. [crosstalk]

Jake: Well, it probably would have been more substantive discussions had you been part of it. [laughs]

Matthew: I don’t know, man. Obviously, the format has changed a little bit since Bill has moved on. But I always felt like you guys had the perfect mix of different personalities and different views on everything. I felt like I could hear a little bit of myself in each of your different approaches.

Tobias: Oh, nice.

Matthew: So, water cooler for me.

Tobias: We’ve got Billy coming back next week, and then we’re going to take a little break for a while. But Billy’s back. Let’s talk a little bit about Laughing Water Capital.

Jake: Where’d the name come from first? That’s what’s on everyone’s minds.

Matthew: Yeah. That is the top of everybody’s diligence checklist when they’d ask me.


My family has a small place on the north fork of Long Island in a little community called Laughing Waters. The joke in the hedge fund industry is you name your fund after the street you grew up on. But I grew up on Homestead Avenue, and there’s already 20 different homestead funds. [Jake chuckles] So, Laughing Water was next on the list. It’s a place that I’ve always gone to think about, like reading a book, laying in a hammock, listening to the waves or whatever, that kind of thing, just being thoughtful about the world. That’s what it means to me.

Jake and Tobias: Nice.

Tobias: What’s the strategy in laughing water? What’s the philosophy?

Finding Value in Optically Expensive Stocks: A Deep Dive

Matthew: Concentrated value. It’s a short version of that. It’s typically around 15 stocks. I think I’ve been as high as 20 and as few as 12. Typically, taking a three-to-five-year view on a business with an intelligent business person’s perspective on how the business is going to change over time. The underlying belief is underneath all of that is if a business is creating cash flow, you’re going to do okay as long as you don’t overpay going in.

Jake: That was one of the things, and I don’t want to rehash the complete discussion because I think people should go listen to it. But your podcast that you did with Bill– One of the observations that you made there was about how much of the market participants now are driven by really just numbers today. You were observing that– Please tell me if I have this wrong. Your businesses that you have in your portfolio, you vision what they might look like in three to five years, and why those numbers would look attractive to that other 80% who’s maybe just only focused on some of the most next quarter type of things. So, maybe just unpack that a little bit for us.

Matthew: Yeah. So, one of the things that has been discussed ad nauseam in the value investing world for the last, I don’t know, a couple of years, I guess, is the question of whether or not value investing is, “broken.” David Einhorn has been a leading proponent of that theory. I think he has a great way of coming at it, as do other people. The way I’ve thought about it, it relates to a piece I read from JP Morgan back in 2019.

The piece basically said that, by their estimate, 80% of equity market participants these days, or in 2019, it’s probably higher now, but 80% of market participants were relying entirely on quantitative inputs for their decision making. So, that’s indexes, ETF’s, any kind of quant investment platform, the AQRs of the world. Tobias, you might have a view here as well. [Jake chuckles] So, my thought was basically, in today’s world, if 80% of the world is just looking at the numbers, maybe we should be looking somewhere else. If something looks quantitatively cheap– [crosstMatthew: Yeah, that’s a huge part of it. Sure. I spent a lot of time in small cap where I have less of that. The basic idea being that if something looks quantitatively cheap and 80% of the world is just looking at the quantitative numbers, what is not in those numbers, what is cheap, that is not there, because there are definitely exceptions. But from a high level, it’s not hard to imagine that if it looks cheap and 80% of the world has looked at it and it’s still cheap, that means 80% of the world has passed. And if 80% of the world has passed, well then who’s the incremental buyer?

Because on a long enough timeline, the only thing that matters, of course, is fundamental business performance. But in the real world, opportunity cost is a real cost. So, we can’t just rely on things that are going to execute without anybody ever buying them. You want to know that there’s going to be a buyer. So, I just chewing on that idea a little bit and the implications of that came around to the view of what if we could find businesses that the quantitative screeners cannot identify, or cannot identify as attractive right now.

So, let’s just imagine that some quant fund out there has a value factor. Well, let’s not look at value factor. Let’s look at things that are optically expensive, and then have a view on the actual business and the people running it, and the competitive nature of the industry, and how things are going to evolve over time and how the numbers are going to change over time.

Just a theoretical example. You could take a stock that today maybe looks like it’s trading at 100 times earnings. Well, nobody would argue that based just on the numbers. That’s cheap. But then do some work on the business and understand the people. Maybe the reason it’s trading at 100 times earnings is because margins are temporarily depressed because of any number of reasons. It could be because they are spending more money on R&D.

It’s not really important what it is for this conversation, but figure out why the screeners would be missing it and figure out what’s going to happen. If it is a temporary problem, a temporary blip, then something that looks like 100 earnings today might really only be like 10 or 12 times earnings, looking out three years when the business is running more efficiently.

The quants, in theory, if they’re really paying attention to that value factor, they’re going to pass on it today. But then a couple of years from now, when they say, “Oh, wait, it’s actually only 10 times earnings.” They’re going to buy it. That’s your incremental buyer there. You have the added benefit, of course, is that the business is presumably executing. At least in this example, they’ve either grown top line and widened margins, or taking cost out and widened margins. But just from a fundamental business perspective, a business with wider margins is more valuable than a business with less wide margins. So, you get both sides there, the fundamental business performance as well as the incremental buyer.alk]

Jake: And 50% of that purely just what market cap is, like one number?

The Intersection of Business Fundamentals and Future Earnings Predictions

Tobias: Your view is that the business normalizes and then the market’s view of that business normalizes. We’ll see normalized business, normalized multiple and that would be what you estimate fair value to be around?

Matthew: Yeah. In theory, all businesses should eventually trade at some normalized multiple of normalized earnings. That never works that way in the real world. There’s that idea of normal– We might pass it going around the street corner, and then we’re back on the circle again and who knows when we’ll get there again. But yeah. That’s the basic idea, is figure out what earnings are going to look like a couple of years from now and then figure out what those earnings will be worth. That’s the work. That’s the job that that is the craft. It’s figuring out what the earnings are going to be.

The multiple part is also part of it. That’s a little more formulaic, where you can just look at comps, and past transaction multiples and interest rates if you want that it’s a little more formulaic. But actually figuring out the business, that’s the craft. It’s not as easy as just looking at the numbers and saying, “Oh, well, this is where we are. How is the business going to change? How is the competitive environment going to change? What are the growth prospects?”

The real idea that I come back to is the fewer variables you have, the better. So, you could make an argument that a business’s earnings are going to be higher several years from now because they’re going to spend the next seven years jumping through flaming hoops while juggling knives. That’s fine. Like some people, that’s how they invest. That’s not what I’m looking for. I’m looking for the one-foot hurdle of why earnings power is going to be higher a couple of years hence.

Tobias: We’ve been kicking around a few ideas before we started about. So, it’s been a long, tough run for value for smalls, and we’re throwing around a few of the ideas. One of them was Schumpeter’s– JT, do you want to expand on that one a little bit?

Jake: Yeah. There was a podcast recently with Michael Mauboussin and Tano Santos of Columbia and this economist named James Bessen. They were talking specifically about creative destruction and the pace of creative destruction. What Bessen found through some research was that they looked at the likelihood that a top four firm, as far as sales goes, how likely were they to be still in the top four in a year later or three years later or five years later, whatever. They measured this in a variety of ways.

What they found was that the rate of disruption was rising in the 1970s, 1980s, 1990s, as you would probably expect. We all have this intuition that technology is speeding up. But they found in starting in the late 1990s, early 2000s, that it peaked, and it’s gone down sharply since then. And so, the rate of disruption is half of what it was 30, 40, 50 years ago. That may play into why some of the big have stayed big and gotten bigger and small caps by extrapolation then would maybe have a harder time catching a bit at that point if there’s not as much disruption.

Tobias: Is that by industry? Top four in each industry?

Jake: Yeah.

Tobias: What do you think, Matt?

Matthew: Well, two things. It’s hard to know, one. And two, I’m not sure it’s actually all that relevant if you’re a stock picker. In terms of hard to know part of it, I think if you take any large sample set of however many businesses, you’re going to have some that are the best. The ones that are the best in theory have some true competitive advantage. That’s difficult to replicate. And over time, more people are just going to figure out new competitive advantages or new ways to rise to the top, and the old ones are probably still going to be there because if in the 1980s or 1970s or whatever it was, the average business, let’s just say, have a five- or seven-year life, well, today maybe that’s 15 or 20 years for the best ones because they’re literally the best.

So, there’s going to be more overlap where some existing business is still enjoying its competitive advantage period, but a new business comes up with a slightly different niche or something like that. So, I guess that’s my first initial thought, that it makes sense intuitively to me.

The other part of it is people learn. So, if you look at the best technology company from the 1970s or whatever– I don’t know. Let’s just say it was IBM. Like, IBM has made a number of mistakes along the way. Everyone at Google or Microsoft or wherever you want to think about today. They’re, broadly speaking, aware of the mistakes that were made by IBM, and they’re going to try their hardest to not repeat them.

Now, human nature being what it is and markets being what they are, there’s going to be some mistakes still, of course. But in theory, if people are getting better over time, then you would expect their businesses to last a little bit longer as well.

Tobias: That was one of the suggestions for why small cap had struggled, where previously companies had listed in small cap and then outgrown small cap. Now they stay private for much longer because they’re VC backed and they don’t come public until they’re bigger. Also, part of that was that there are many more exits by acquisition. They listed the acquisitions and it was all Android by Google, YouTube by Google, Instagram by Facebook and so on, like that very material. Any of those businesses stand alone are very impressive companies, but they just add to the glory of Google or Meta or whatever it happens to be.

Matthew: Yeah. I don’t know how deep we want to go here, but if you go back and read Karl Marx and stuff like that, he said “The problem with capitalism on a long enough timeline is that the competition goes away because the strong just keep getting stronger and they gobble up all the competition.” I’m certainly not anticapitalism. I assure you of that. But there are arguments saying there has been too much consolidation in the world and it has not benefited enough people or however you want to think about it.

Tobias: But at least we’re stopping the handbag retailers from combining together.

Jake: Jesus.

Tobias: 10% market cap is too much in handbags.

Matthew: Yeah. I don’t even know what to make of that. It just doesn’t make any sense on any plane that I can think of so.

Tobias: You guys follow this the pod shops? Do you know what the pod shops are?

Matthew: Mm-hmm.

Why Pod Shops Are Gaining Popularity Among Large Capital Pools

Tobias: Do you want to explain what a pod shop is, and then what’s your thoughts?

Jake: As if were five years old.


Matthew: High level massive hedge fund platform, where there are many different pods, each pod being a PM who typically has a sector focus or a product focus or something like that. They typically run net neutral, so they’re not really taking a market risk. And then at the parent level, they’re levering it up several times and then running super tight risk controls. But there’s been a lot of articles over the last, I don’t know, a year, 18 months, maybe even two years about how much money has flowed to the pod shop structure over the last, that period, I guess. There’s been some commentary too around what that means for the market, which–

Actually, I think it was when Brian Bares was on just a week or two ago. He was talking about how in today’s market, if you miss earnings by a penny, the stock could be down 20% or whatever, because a lot of the money is in these pod shops, where a big part of the strategy, it’s typically super short-term holding period. I know some of them– I don’t want to name any names, but some of them, if you’re a manager on the platform, you get charged for your capital. Some of them, if you hold a position more than 30 days, the rate you have to pay just to access your capital goes up. So, you are really incentivized to have super short-term holding periods, which means you’re just trying to game the events. You’re trying to game whatever happens with earnings or maybe it’s a conference presentation or whatever it might be.

Look, the model has been very successful. I sometimes wonder how much of the success of the model has been because of the interest rate environment. Meaning, that if you’re running four to six times levered and you’re not paying anything for that extra capital, well, then you can afford to recruit more pods. If you have more pods, you’re smoothing your returns even more, and then you can lever it even more, in theory. Then rates go up. I don’t know what happens if that starts to unwind a little bit. They’re a huge factor in the market these days. It’s probably not good.

Jake: Plus, volatility has been just hardly anything.

Matthew: Yeah. So, I don’t know. That’s definitely another factor to think about though as an investor. It’s funny because not long ago, one of the major pod shops filed, as all of a sudden, like a huge holder of one of my positions. I got emails from a couple of people saying, “Oh, did you see–? They filed?” I said, “Yeah.” All that– [crosstalk]

Jake: Next week.

Tobias: Wait them up.

Matthew: That means there’s a big seller in three months or whatever it is. I don’t know.

Jake: I have a little bit of possible, the hypothesis on some of this, why so much has flown to the pod shops. I think some of it is the large pools of capital like foundations and endowments have– One, they have not been getting the cash back from their private side as much as they thought they were going to. So, there’s been a lot of illiquidity in the privates. What that means then, is to meet their obligations for tuition and whatever the budgets at the schools, they have had to find liquidity somewhere. So, where do you find liquidity? That’s like your public managers. They’re much more liquid than your private.

Then therefore, if you’re very much stuck in privates, you need to have liquidity terms that are much easier to handle, and the pod shops are good at providing easy come, easy go liquidity, relative to say like a long only value manager that’s looking three to five years out. So, therefore, more money sloshes into the pods because they know that they can get their hands on it again, easier if they need to, almost like– Not that it’s a money market fund, but they’re treating it as kind of- [crosstalk]

Tobias: Short term?

Jake: Yeah, it’s a much shorter-term investment. Therefore, the people who are in the middle, who are public equities long term, have gotten squeezed out by short-term one side and then private on the other that’s locked up.

Matthew: Yeah, that makes perfect sense to me.


The Importance of Patient Capital in Small Cap Investing

Tobias: I know that you’re not purely small cap, but have you seen rates impacting the businesses of those smaller companies that you look at?

Matthew: Yeah. Well, sure in some cases. If you own something with adjustable-rate debt and rates go up, that matters. It’s going to take some of the near-term cash flow out of the picture. One of the things I’ve struggled within the portfolio is businesses that are executing on every level you can imagine. They also have some floating rate debt. The floating rate debt is the only thing the market seems to care about. It doesn’t matter if the business is executing if they have floating rate debt.

I imagine, part of that is fundamental. Again, there’s a real cash cost to increased interest expense that matters. But if you think about the value of a business hypothetically being the discounted value or the present value of all future cash flows, it shouldn’t matter all that much over to the hypothetical true intrinsic value, but it seems to really matter. So, it’s been frustrating. It’s a time where you have to think about those factors. If your base assumption is always that if this company can generate a lot more cash flow three to five years from now than they can today and we don’t overpay going in, the stock’s going to work out.

I still think that’s true. But that three-to-five-year period when rates are moving around and everyone’s just focused on the macro, can be a really volatile three-to-five-year period. That’s where we’ve been, I think, with a lot of small cap.

Jake: So, do those end up trading based on what everyone thinks the Fed is going to do?

Matthew: Yeah, absolutely. You see it all the time. At least some of my names, and I don’t want to really talk about specific names, but headline earnings report, they’re doing everything right. Beating expectations, raising guidance, rates are up, stock is down. [Jake laughs] What are you supposed to do then as a manager? The answer is, well, one, you should have patient capital, which I do, which is a huge help. But if you don’t have patient capital, you have to just go along with the herd and play the rates game. That’s what the pods are doing, and that’s what so many other market participants are doing. But it’s not fun when you are just focused on the actual business value and you are just focused on fundamental business performance and execution. It doesn’t seem to matter for extended periods.

Look, you can look back in history and see this isn’t the first time this has happened. There’s plenty of businesses and plenty of stock charts you look at. They go sideways for a number of years and then something, somewhere switches and the stock all of a sudden catches up that huge sideways period that it had. All of a sudden, the CAGR goes from a three-year CAGR of 2% to a four-year CAGR of 18% or whatever it might be. You just have to stay in the game, which is hard.


Why Biologic Drugs Are the Future: A Look at Industry Trends

Tobias: Do you see any demand destruction? The sales are impacted as a result of the rates or just the general–? Like, does it give you any insight into the underlying health of the economy?

Matthew: I’m not really a macro guy. Most of my businesses, I think of that more being maybe consumer facing, stuff like that, where you would see that most of my businesses are not really consumer facing. I’m typically looking at, starting with the bottom up, looking at a business where I have a strong understanding of why I think the earnings power is going to be a lot higher, but also then having a top-down view on some specific industry force, which is going to explain why there’s going to be some tailwinds too, independent of whatever rates are doing or the macro is doing.

Just a quick example without saying specific names. I own a couple large molecule CDMOs, so basically biologic drug manufacturers. I can’t think of a single reason. It’s basically impossible for me to believe that 5 years from now or 10 years from now, there won’t be more biologic drugs. High level, if you think of a small molecule drug, think of like Aspirin or Tylenol that might have 25 molecules to make Tylenol or Aspirin and then look at a biologic drug and it might be 25,000 molecules. They’re infinitely more complex.

Most of the simple drugs have been figured out. So, the whole world is going towards more complicated drugs. You could see it in the FDA application process, the percent of the FDA pipeline that is biologic and everything else. You could also see in terms of drug adoption in the US versus less developed parts of the world where the US is increasingly going biologic. Africa, for example, is still primarily small molecule. That’s going to shift over time. The trend behind large molecule drugs, it’s almost impossible to think of how it gets disrupted. If you can combine that with a single stock or a single business where they are set to increase their earnings power against a trend that is pretty much unstoppable, the macro is frustrating in the near term and the stock trades on REITs and everything else. But ultimately, it’s going to be fine, I hope.

Recession-Proof Construction: Focusing on Healthcare, Education, and Data Centers

Tobias: What about large-scale construction type businesses? That’s going to be somewhat impacted by the macro backdrop, isn’t it?

Matthew: Large scale construction?

Tobias: Or, construction.

Jake: Housing.

Tobias: I’m just thinking Limbach, for example. It’s one that I’ve held in the past, but don’t currently hold them.

Matthew: Yeah. There’s more than meets the eye there though. So, there’s an argument that construction can slow down and not slow down based on the macro. They are focused in the right areas. So, they specifically focus on healthcare institutions, educational institutions, data centers is a big area of growth, although they’re not on the new build side. They’re more on the facility maintenance side. So, all of those things tend to be more recession resistant.

If you’re building a hospital or you’re– They’re getting away from the new build side anymore, it’s like facilities maintenance side. If they have the contract for a hospital to minimize their heating and cooling bills, they still need to minimize their heating and cooling bills if there’s a recession or not. So, they are more insulated.

But that’s also part of thesis is like historically, they had most of their business focused on, what they call, general contractor relationships, where they might be working with a GC who is actually overseeing a new build. And now they’re going more towards facilities management, owner direct relationship is what they call. So, somebody who owns a number of buildings or even one large facility, and they’ll go to them and pitch them and say, “Hey, let us take a look at your HVAC system and we will come back to you with a proposal for how you can save costs, save money.” When your business model is saving people money, that never really goes out of fashion.

Tobias: Yeah, good one. Let me give a shoutout to all folks at home. Santo Domingo, Dominican Republic. Bendigo, Aus, Dead Cat Gully, New South Wales. Castleford, England. Mendocino. California. Milton Keynes. Krakow. Always jumps on me. Gothenburg, Sweden. Limerick, Ireland. Tampa. Quebec City. Rochacha, New York. Durham, Connecticut. Tomball, Texas. Atlanta, Georgia. Jupiter, Florida. Still winning. Clemson, South Carolina. Lincoln, Nebraska. Victoria, BC. New Delhi. Kerava, Finland. Portugal, Lisbon. Petah Tikva, Israel in the house.

Jake: Oh, my God.

Tobias: Macedonia. This is a good spread today. Macedonia. [crosstalk] rise again.

Matthew: Have you ever gotten any information or done any work on how some of the people in the most random locations have heard of the podcast? Like, for example, could it be someone from New York that then moves to Northern Finland and still tunes in, or is there some–?

Jake: No. We’ve done literarily zero.


Tobias: We’ve got billboards in Macedonia.

Matthew: Maybe not doing work. But if you’ve ever gotten an email from someone that’s like, “Hey, so, you know, I live in a town of 700 people above the Arctic Circle in Finland, and I love your show,” it’d just be interesting to hear the story on that.

Jake: If anyone wants to write in, please email Toby about that.


Tobias: I think that we were previously– You geographically limited for your interests, or maybe you had a subscription to some weird service. Now, you coalesce around your interests, and so this is a very specific niche value and very niche value investing podcast.

Jake: Yes. But it’s a global tribe.

Matthew: That’s right.

Tobias: There are dozens of us.

Jake: Dozens.

Matthew: No. It’s funny though, when you– I’m thinking I had a meeting last week with someone from– He invests in India and I believe he lives in Singapore and he was coming through New York on his way home from Omaha. So, mutual connection. Introduced us and we sat down and chatted. We were talking for 30 seconds, and it’s just immediately clear like we speak the same language.

Tobias: Yeah.

Matthew: You don’t have to spend time on the awkward pleasantries or anything. You just dive into it. That was actually a big part of my experience talking about Omaha. The first time I went to Omaha was probably, I don’t know, maybe 2011 or 2013, and I got on a plane by myself. I didn’t know anybody. I didn’t even know anyone that had ever been. I just had been reading and following along with greenback and other things and beginning to see the world a certain way. I figured, I don’t know, I’ll go, and then you start walking around and you realize how many other people are there doing the same thing. You don’t need an icebreaker because it’s like, “Oh, you’re part of the tribe too.” I don’t know, it’s like nerd prom or something.


Everybody’s on the same page. But there’s people I met that first time that I still exchange ideas with now, and it’s great.

Tobias: What appealed to you about value investing? How did you find out about it? Well, fundamental investing. It doesn’t have to be value. I say value, but I mean fundamental investing.

Matthew: Yeah, I’m very much a late bloomer. I didn’t grow up around the stock market. I managed to make it through four years of college without ever having taken accounting or business or finance or anything. I probably never even seen a balance sheet until I was 25 years old or something. It’s ridiculous to say, but here we are.

My short story is I wound up through a twist of fate with a job on the sell side that I was completely unqualified for. I don’t want to get into the whole thing because I know this is a short window here, but basically as a result of 9/11, I got a job at Cantor Fitzgerald, because they lost a lot of people and they were hiring. A friend of a friend who survived basically called me and said, “Hey, we need someone. Can you come in?” And I said, “Sure, I’ll come in.”

And then I wound up on the trading desk, the equity trading desk, which for a while was super exciting. Literally, this doesn’t really exist anymore, but if you go back and watch a clip from the 1990s or the 1980s of guys running around yelling and screaming and super high energy– I thought it was great. But eventually, I realized how ridiculous it was because [Jake chuckles] I was calling portfolio managers that were twice my age or more, who managed a billion dollars. I didn’t know how to read a balance sheet and I’m telling them like, “Oh, my God, they missed earnings. You should sell.” They’re saying, “Oh, let’s sell. Sell 100,000 shares of X, Y, Z or whatever.” It was a commission generating role, so that was great. But eventually, I figured it out like, this doesn’t make sense. Nobody at all should be listening to me and they are listening to me, so I got to get up the curve.

So, I started just reading broadly, and then eventually somebody pointed me in the right direction and said, “Go read Warren Buffett, read Ben Graham, read Joel Greenblatt.” And then I just really got down the rabbit hole, and all the blogs, and everything else and got to the point where I’m sitting on a trading desk with people whipping a football past my head and screaming and yelling at each other and I’m just looking at– [crosstalk].

Jake: You reading Carlisle?

Matthew: Yeah, I’ve told Tobias in the past, like, Greenblatt was one of my big ones. Reading about some obscure net-net and being like, “Oh, my God, this is amazing.” The more you read, the more you learn. And over time, my own style developed and I got away from the historic quantitative value where most people start. Most people start in “value investing.” I think start with Ben Graham.

Going back to what we were talking about before, my thesis that the world has changed to the extent that things that are quantitatively cheap, maybe are not cheap anymore. Maybe they are. But I think there’s an argument that 75 years ago, if you found something quantitatively cheap, you had a much better chance that it was actually a good business, a real business, versus today if you find something that’s quantitatively cheap, you have to be more suspicious.

Tobias: I think they tend to be just a little bit more cyclical. Now, things get cheap because there’s some– You know why they’re cheap. Energy is getting beaten up or there’s a whole lot of banks failing with SIVB or something like that. It’s often a reason why you can identify them. There’s no mystery why they’re cheap anyway.

Matthew: Right. I guess what I struggle with sometimes, the more cyclical stuff is like, are they cheap, because–? So, a cyclical if it’s cheap often looks like high PE though, right?

Tobias: Yeah.

Balancing Certainty and Timing: Investment Strategies for Unpredictable Markets

Matthew: Because the bottom side of the cycle, the earnings are lower, so it might look expensive. That fits into my theory of things that are not– They don’t look cheap. It might actually be cheap. So, if a cyclical does look cheap, I think what the market is often telling you is that earnings are not sustainable or that earnings might fall off. Now, the market obviously gets that stuff wrong sometimes, because that’s a timing question. Timing is very hard. I try to avoid situations where you have to get the timing right.

One of the ways I try to frame investments is if you go back to just super basics, literally as basic as it gets, just think of a government bond and let’s pretend for a second that the government does not have a spending problem and has no chance of getting over its skis. But you think about a government bond, you know– [crosstalk]

Jake: I don’t have that creative of imagination, Matt.

Matthew: [laughs] This is fantasy now.

Jake: Yeah, okay.

Matthew: If you think about a hypothetical country, you know what the amount of money is going to be returned to you and you know the timing. If you know the timing and you know the amount, well, then that’s your baseline for any investment. Of course, part of the amount is growth, but we’ll roll growth into there. I guess for a bond, it’s a double-edged sword. It’s like, you know what you’re going to get, but you’re also not getting more. So, for some people, that’s no good. But if you start there with the two things that matter is the certainty of the cash flow and the timing, I tend to focus more on the certainty of the cash flow and less on the timing.

Now, certainty can mean different things. I’m not investing in, I don’t know, Vanilla Blue Chips where it’s Coca-Cola or whatever, where you could say like, “Wow, this is a rock-solid business. I’m investing in things that are less predictable, but it seems like the future is going to be a lot more attractive than the past has been.” But the timing is the part that I don’t know.

Again, the previous example like, I am very confident that biologic drugs are going to continue to take share and I’m very confident that that will benefit drug manufacturers. But I don’t know the timing. It’s not Coca-Cola, where you could look at a CDMO over the last 20 years and say, “Oh, every year, they take a little bit of price and they take a little volume.” That’s not what it is. It’s very much a more nascent trend, but it is still a very strong trend.

Exploring Fishbone Diagrams: A Visual Tool for Root Cause Analysis

Tobias: It’s the top of the hour, which means that it’s time for Jake Taylor’s veggies. Mark it down, 11:03 on the 33 minutes.

Jake: Okay.

Tobias: Timestamp.

Jake: Timestamp.

Matthew: I have to say quickly. I don’t think I ever realized that this was top of the hour. I thought you just jammed it.

Tobias: Ah, we just stick around.

Jake: Yeah.

Matthew: Oh, okay. All right.

Jake: It’s a rough approximation. All right. So, we are sliding in today with some amazing facts about fish. [chuckles] So, mark your calendars. So, this is surprising to me, but fish have been around for more than 530 million years. So, pretty successful as a biological entity. There’s around 32,000 species of fish in the world, more than all mammals, amphibians, birds and reptiles combined. Catfish have over 27,000 taste buds, while us humans only have 9,000. Now, thankfully, it probably for the catfish that they don’t eat each other, because catfish tastes terrible.


That’s just science. There’s this little fish called the cleaner wrasse. They’ve been shown to, not only respond to their own reflection in a mirror, but they attempt to remove marks on their own bodies when looking in a mirror. So, it’s a sign that they’re actually self-aware. Fish use tools, there’s an orange-dotted tuskfish, which has been filmed repeatedly smashing mollusks on rocks to get to the clams inside.

There’s this one fish called the goby fish that its survival depends upon being able to leap from one tide pool to another at low tide and without getting stuck on the rocks, which would be fatal for them. They have this very clever solution. While they’re swimming along at high tide, they’re actually memorizing the topography of the bottom of the ocean, and they make a mental map. So, when the tide goes out, they know where all the pools are and they know where to jump. The studies have shown that these little fish can remember this information up to 40 days later, which I find to be quite shocking. So, fish are quite a bit more impressive and interesting than I think I gave them credit for.

But what I really want to talk about today is these things called a fishbone diagram. I don’t know if you guys are familiar with this concept. I hadn’t really heard about it before, but I read about it in Luca Dellanna’s new book called Winning Long-Term Games. We’re having Luca on the show here when we come back from break. I’m excited to have him on. But in there, he talks about it’s this visualization tool that it’s used to systematically identify and present all the possible causes of a problem. So, they’re also known as Ishikawa diagrams, after its development by Dr. Kaoru Ishikawa, I believe it’s said in the 1960s.

Ishikawa was a key figure in quality management processes. Think about the Toyota lean manufacturing stuff that was happening in Japan. He was influenced by a series of lectures by Deming, who was one of the figureheads of that. Deming gave to Japanese engineers and scientists in 1950 and Ishikawa happened to be a part of that. So, these diagrams really help teams brainstorm and categorize potential causes of problems in a very structured way. It’s really getting at root causes instead of just symptoms, and they really turn complex problems into these much clearer visualizations.They’re part of the six-sigma lean manufacturing continuous improvement like Kaizen processes.

So, why is it called a fishbone diagram? They look like fish skeletons when they’re drawn. So, you take the defect or the problem that’s to be solved, and it’s shown as the fish’s head, and it’s typically on the far right of the diagram and then the causes extend to the left as fish bones. And so, these ribs branch of the backbone as the major causes of a problem, and then you could have little sub branches coming off of each main rib, and really as many levels as you want to require. So, they can be used in conjunction with that five whys exercise where you just keep asking why until you get at the root cause of an issue.

There are this different kind of catchy collections of different fishbone diagrams that can be done depending on the industry. So, I’ll give you some of them. In manufacturing, they have the five Ms, which are manpower and mind power, so physical and knowledge work, machine equipment, technology, materials, so your raw materials, consumables and methods. So, that’s the process that are being used. And then measurement and medium, which is like the inspection and the environment. If you’re trying to diagnose a problem in a manufacturing context, these five Ms drawn out on this fishbone diagram can help you to understand like, where might we be going wrong and get at the root cause of it.

There’s an eight Ps for product marketing, see a product, price, place promotion, people, process, physical evidence, and performance. And then the last one is in the service industry, there’s the five Ss, which are surrounding, suppliers, system skill and safety. So, those are just generic ones that people have built that they apply more generally. But I think this is a useful tool if next time that you have a problem that you’re trying to really figure out how to solve it.

Drawing one of these fish diagrams can really help you to unpack, especially in a team dynamic where everyone is trying to understand like where the problem is and what’s the root cause of it. And hopefully, this ties together a little bit with some fun facts with fish.

Tobias: Good one, JT.

Matthew: I like it. I’m still trying to figure out with catfish have 27,000 taste buds, why they basically eat garbage.

Tobias: I was going to say eat mud. [laughs]

Jake: Yeah, I got stuck on that too. I didn’t make it much past that. [laughs]

Matthew: It’s fun. I know exactly what you mean. I’ve seen in like, I don’t know if it’s an artist or a sculptor or something like that, but if you’re a fisherman as a taxidermy, you can get the actual fish skeleton and you could really see all the bones. I know exactly what you mean in terms of why they call it. That actually is an interesting way to frame it.

Jake: Yeah. If you just do a quick google search on the image of a fishbone diagram or Ishikawa diagram, you’ll see it and it’ll just immediately make sense.

Matthew: Right.

Tobias: I did that while you’re telling the story.

Jake: Yeah. Did it make sense?

Tobias: It does make sense. Yeah.

Jake: [chuckles] The math checks out.

Balancing Cash Flow and Timing: Strategies for Portfolio Managers

Tobias: Good name for it. Matt, you’ve identified some of themes in your portfolios. Do you have any other themes that you think are driving the future, things that you think we will see?

Jake: Plastics. One word.


Tobias: AI.

Matthew: Look, it’s funny just where we are in the market cycle and how the market is behaving. Before getting into industry themes or anything like that, I think the most important theme to just stay focused on for fundamental investors is that, if you increase earnings power, you’re going to do okay. That’s it. If you don’t overpay and you increase earnings power, you’re going to do okay.

It seems odd. I don’t think it’s exactly where you’re going with your question. But I think right now, I’ve heard from a lot of investors who are as frustrated as I am. About the world where there’s so many stocks out there right now, which they look very cheap, they are executing very well and they are not going up, it’s frustrating. I think that’s one of the problems that investors have over time, is that they lose patience. So, if you have businesses and they are executing and the stock isn’t “working” when do you have to give up on it? When do you throw in the towel?

Tobias: Well, that’s now a question. Do you have answer for that?

Matthew: No, I don’t. Mohnish Pabrai has said he does two years and then he throws in the towel. I don’t think it’s as simple as that. Thinking of one stock in particular, I held it for about two years. It maybe went up, I don’t know, 3% or 4% and I sold it and then immediately continued to go up 4x. Those ones are really frustrating. As a portfolio manager, it’s tough. You can’t know in advance. Not only can you not know in advance, if you do sell in advance, it’s much harder to buy back in at a higher price when it does start to work. So, you could wind up really putting yourself in a mental box focusing on that stuff too much.

So, for me, it’s constantly just reminding myself like, if the cash flow is there, it’s going to matter, I don’t know when, but I promise you it will. But then also spending time cycling through the world and looking for new ideas and saying, “Okay, if the future cash flow profile is reasonably similar, then we need to shift to the timing aspect, and are there ones where we can pull forward that return because the cash flow will be here sooner.”

So, it’s less so much thinking about those individual sector themes that I think you were actually referring, but more thinking about how predictable can the world actually be. Look, there’s a ton of evidence, and I’m sure Jake has done several veggie segments on how bad people are predicting the future. But sometimes you see it and say, “All right, this might be an unknown. That’s an 18-month to 24-month unknown, and the other one might be 36 to 48 month unknown.” Well, you should probably then move to the unknown that’s a shorter unknown, even though you’re never going to be right 100% of the time.

Where it gets tricky though is also thinking about the interim steps. Because if the ultimate goal is more cash flow, there’s a couple of steps on the way. One of them is revenue starts to build, and then the next one might be operating leverage starts to kick in, and then operating leverage really flexes each step along the way. So, it might be the situation where you’re looking at something, or I’m looking at something saying like, “I feel like this inflection is going to happen sooner.”

There’s just two hypothetical businesses, similar future cash flow profiles, but one inflects sooner. It’s not as easy as just saying it’s going to inflect sooner because that one might actually get to the real cash flow sooner, but the other one might have that interim step that comes first. So, I don’t know, I’ve been spending a lot of time trying to come up with a better system to understand to think through those problems. It’s hard because none of it fits in a spreadsheet, really. It’s a lot of just thought experiments and trying to understand the world and how it’s working and how you can try to categorize things that do not lend themselves to be categorized very easily and then again, focusing on the cash flow.

Part of the categorizing though and part of thinking about when that cash flow might come, I guess going back to your original question, as I understood, it’s just those sector themes. The biologics is one that I’ve talked about. Another is just small medium businesses adopting software where most small medium businesses today, they’re not in the cloud, they’re still running their business on sticky notes and an Excel spreadsheet and QuickBooks maybe.

Restaurant tech is another one that’s been widely discussed on Twitter that I have exposure to. I think restaurants are definitely going to have more and more software going forward. None of these answer the questions of who’s going to win these battles, but they’re interesting tailwinds to think about and then if you can have that tailwind against the individual companies that seem to have the distinct competitive advantages to win, it makes it a little easier to hold on through the unknown timing period if you have the bottom up and the top down.

Paying Up for Quality in a Passive Investment World

Jake: Matt, do you feel like the–? You said that having not overpaying for all of these propositions as well. One, it seems like that perhaps there’s a little bit of frog in the boiling pot that’s happened with valuations over the last 15 years where– 20 times for earnings for a quality company used to be high end. At least not low end, and you wouldn’t say that was cheap. But I feel like today now, people talk when they say 20 to 25 is relatively cheap.

Tobias: Entry point.

Jake: Yeah. It’s like, “Oh, man, this is a great generational buying opportunity at only 25 times earnings for a good company.” Well, one, I guess the question, is that true? Will we see reversion to the mean in that, or do you think that there’s some new permanent version of the world where a good business should just trade for 20 or 25 times?

Matthew: It’s hard to answer. There’s a couple of different major currents, I think about, one of which is a low interest rate environment, which we just had reset the normal, if you will. A lot of it I think was basically as bond proxies. You could look at companies, especially blue chips companies that actually generate real cash, and then they’re trading at 25 times earnings or something like that as a bond proxy, that has already receded quite a bit. The other part of it though– [crosstalk]

Jake: That much though? I feel like not as much as I would’ve thought. Like, you put rates back up at 5% or 6%, I would’ve thought that you wouldn’t still take a 2% earnings yield on a Costco or something.

Matthew: I totally agree. But the other part of it, going back to where we started, about how much of the world is just looking at quantitative inputs, the amount of money that has gone passive plays right into this, because by definition, the index is– The S&P, for example, is market cap weighted. So, if you have two businesses that are exactly the same but one of them is more expensive, well, the S&P is going to buy the more expensive one.

I don’t know. In theory, that doesn’t make sense. On a long enough timeline, that does not make sense. That’s not the way the world is supposed to work. But the trend, that is a huge pendulum that has been swinging for a long time, and we’re past the 50% mark. I think it’s something maybe 60%.

Don’t quote me on this, but maybe 60% of the market has gone passive or something like that. You’re just dumping more and more fuel on the fire for that and that helps explain, I think, why it multiples or elevate it for some of these best businesses. I wish criticism of myself. I wish I was better at paying up for quality. I’m not great at paying up for quality. I’m much more interested in things where you look at it today, it looks expensive. But looking out two or three years, its only trading for a single digit free cash flow yield.

Part of that is because it’s just margin of safety. Let’s say I’m wrong and it’s not trading for a single digit free cash flow yield because the cash hasn’t inflected the way I thought it would, well, fine, then it’s still probably the average business should trade at 16 times free cash flow or something like that. If instead of trading at eight, I’m low on the number, you can get to the same point, the same price target by putting a higher multiple on the lower number and feel comfortable with it. That’s how I come out.

My strategy, it’s not the type of strategy that should be 100% of anybody’s portfolio, although it is 100% of my portfolio or 98% of my portfolio, because I want to eat my own cooking. I don’t want to even call it my strategy, because I don’t want that to be too close to the marketing line. But for most people, if you’re thinking about allocating a portion of your portfolio to concentrate at small cap, it should be exactly that. It should be a portion as a way to find some different exposures and you can get a little juice if the strategy is executed well. Maybe not as much juice as if you just put all your money in Nvidia, but it’s a different kind of juice. [laughs]

Jake: Yeah.

Tobias: There’s been this wave of bankruptcies in restaurants. It seems like restaurant chains have been going under. I saw this story today about Boston market evidently the bankers have seized their HQ and they’ve effectively ceased operations. There are franchisees that are out there that are still operating, like the last soldier and Atoll in the Pacific. [Jake laughs] Have you seen any of that?

Jake: That one’s gone bankrupt like how many times now?

Matthew: Yeah, I don’t know that one. I’m aware of the restaurant chain. I don’t know about the bankruptcy. I think it was a Red Lobster, maybe.

Jake: Yeah.

Tobias: Red Lobster.

Jake: Although we did hear that it was– The all you can eat shrimp, I guess, that went [Tobias laughs] bankrupt for them. But it turns out that the private equity company that owned-

Tobias: Oh, yeah.

Jake: -Red Lobster had a shrimp company and were just taking all their margin out basically on the shrimp that they were supplying.

Matthew: That’s amazing. I had not heard that.

Tobias: Sold off all of the locations and lease them back. If you got all you can eat shrimp, you short the American eater, and that’s just a crazy position to find yourself.

Matthew: Yeah, you don’t want to do that. But what a great hedge though. It’s all you can eat shrimp, but we own the shrimp.


I have to imagine, that was disclosed. But I don’t know if that was a franchise model, but you– I don’t know.

Jake: Feels dirty though, doesn’t it?

Matthew: Yeah, absolutely. That’s why you wonder if how much was disclosed and how much the actual owners– Again, I don’t know if Red Lobster was franchised, but if it was and you’re a franchisee and you don’t realize that, that’s obviously a big problem.

Jake: We got to worry about handbags, Matt. We don’t have time for-

Matthew: That’s true.

Jake: -those kinds of shenanigans.

Tobias: Have you seen that in your restaurant adjacent software focused business? Is that fair? Are there a lot of these businesses going under, or is that just a–?

Matthew: So, yeah, the businesses I’m invested in are, they’re not really dealing. There is a move towards table service, but it’s more focusing on tier one quick serve. So, the McDonald’s, the Burger Kings, the Yum! Brands, all those. Those ones I think are a lot more stable and less like– Well, one, they’re not private equity owned which is I think where some of these companies have gotten into trouble as we just discussed. Putting leverage on those businesses is not necessarily the greatest playbook, I don’t think. So, I’m not really worried about the customer base that they’re dealing with. In theory, extremely stable businesses, the end customer, these high quality QSRs are stable businesses through cycles.

Small Cap Investments: The Frustration of Delayed Market Reactions

Tobias: You’ve spoken a little bit about frustration with some of these small businesses that are executing and not getting recognition from the market. What do you think it takes to get that recognition?

Matthew: Yeah. My thesis, at least, is basically the actual improvement that they’re making working its way through the financials. If you’re a quant, there’s only two inputs. Quants are way more sophisticated than I will ever understand. But at the end of the day, there’s only two sets of inputs. One of them is backwards looking and one of them is forward looking.

A lot of the names in small cap world, they don’t really have great forward-looking net earnings. In some cases, there’s maybe two or three analysts who cover 45 names and they regurgitate a press release and call it a research report. So, I think a lot of the heavy lifting for the quants on that is just looking through the rearview mirror.

But you’re talking about fundamental business change, it doesn’t happen in one or two quarters. Its typically measured in years. So, over time, as long as they continue to execute eventually, we will all be in the rearview mirror. But it’s frustrating, whereas a couple of years ago, if you have forward looking things– Even improved guidance, for example. There’s plenty of times where you see improved guidance and the market just doesn’t care because it’s not in the numbers. Eventually, if they hit the guidance and it flows through, then the market can’t ignore it. Sometimes you see a little bit of a move.

There’s examples, and I have a file somewhere that lists some of these weird things I don’t have access to it right now. You know, examples, where they announce guidance or they increase guidance by some number. If you’re looking at it and you’re just extrapolating, you should say, “Oh, well, the stock should be up 20%,” instead it’s up like 4% or something like that. That’s fine. It’ll come through eventually. But it used to be, at least my memory and maybe I’m fooling myself, but it used to be more like, “All right, if you’re guiding up 20%, you’ll get a little more credit from the market for that, because there’s more people that are out there actually doing the work and understanding that you’re executing.”

It feels like now, fine, if you’re getting added to an index or something, you might get a larger jump like that. But if you’re just executing without any of the flows impacting it too, you don’t get rewarded with the same magnitude that you used to.

Tobias: It sounds like you’re sympathetic to Einhorn’s view of the world.

Matthew: Yeah. Well, one, I promise you, he’s way smarter than me and done way more work than me on it. So, I think his views are well formed. I just think his approach is more to focused on companies that are going to repurchase their own shares, and that’s fine. His portfolio, I think, has a lot more companies that are currently profitable and currently doing, where a lot of my companies, they might not be currently profitable because they’re investing in that future capacity or something like that. So, they might not have the cash flow today to be buying back shares because they’re using that current– whether it’s cash flow or balance sheet capacity, but maybe they’re using that to invest in the future, so that future earnings will be higher.

That’s of course a risk that I’m taking more of than he is. Part of that I think is because given his size, there’s fewer, smaller companies that he can invest in. So, he’s restricted to more companies that are more mature than I am. But again, that comes back to the craft of investing, is figuring out like, are these companies making investments for the right reasons and are they likely to be successful or are they lighting shareholder money on fire? Look, if they’re lighting shareholder money on fire, then it’s never going to– If it passes through the numbers, it’ll be in a bad way, like their earnings are not going to inflect. But if they are in making good investments and margins are temporarily reduced for whatever reason it might be, when we get back to “normal,” we should be rewarded.

Tobias: I’ve heard Ian Cassel say that one of his favorite setups is a company that will be profitable in a quarter or two and you can see it coming, because you can see the rate of growth, what the margins are roughly and you can see if they’re about to get over their fixed costs. At that point, they’ve got that enormous operating leverage when they go from losing money to making money. And then they screen very well after that as well. So, they get picked up by guys like me. So, is that analogous to what you’re doing?

Matthew: Yeah, 100%. Except often, if you can see it in one or two quarters, we’re like–

Tobias: That’s already picked up.

Matthew: Yeah, that’s pretty tight. By that point, people start to pay attention because that’s pretty short term, even by pod shop standards in one quarter. So, I’m typically more looking– I’ve always said historically three to five years out, which now it feels like that’s too long. I’m consciously trying to shift more of the portfolio to opportunities that are maybe shorter dated, even with lower duration, maybe not quite as much upside through the cash flow, but it’ll get here sooner and the market seems to care about those more.

It’s a balance all, right? From a portfolio approach I want to be diversified along timelines as well. I don’t want to have everything’s going to mature next quarter or whatever, and then I have to recycle the whole portfolio. I want to have some things that are longer dated with more upside and more variability of course too. If your cash flows are three or four years out, in the interim, you’re going to be more volatile than a company whose cash flows are one year out. So, you want to have a good mix of those. But I’m definitely more focusing on trying to bring it as forward as much as I can these days, and we’ll see if that works or not two years from now or three years from now.

Jake: Do you think it’s easier to predict over a quarter, over 1-year, 2-year, 5-year or 10-year?

Matthew: Predict what?

Jake: What normalized earnings would look like, let’s say.

How Management Incentives Can Double Earnings Power

Matthew: Yeah. You don’t want to go out too far. For me, personally, I don’t even really bother on the quarterly stuff. Huge percentage of the pod shops, that’s all they do. I’m more thinking in an unknown time period, looking out a little bit and typically more tied to the specific levers that a management team can pull. Growth, everybody can just start by extrapolating and then move up and down and whatnot. That’s one way to come about it. I do have some names that are on the growthier side where I think I can add the most value though, is situations where it’s not necessarily tied to growth. It’s more tied to the incentives and the behavior of a management team.

I know I’ve talked about this in the past. But high level, the example of that is just like good good-cop, bad-cop, where if you have a business line that earns a dollar a share– One business with two business lines, one business line earns a dollar a share, one loses 50 cents a share on a net basis, they make 50 cents, the market puts a multiple on it. The quickest way to double that earnings power is for the management team to kill off that money losing business.

So, I try to spend a lot of time looking at that, trying to understand like, what are the incentives of the people and how are they going to drive earnings power rather than how is the world going to drive earnings power.

With growth, you’re trying to figure out what customers are going to do, what competitors are going to do, what all these different people are going to do. If you’re just killing something off, you’ve really just trying to understand the incentives of management. Now that is a very clean-cut example that only really exists here on this podcast. In the real world, it’s always a lot more messy.

Jake: [laughs] Yeah. Right.

Matthew: It’s always a lot more messy. But if you can take that mental model and then look at it through different lenses and different permutations, where it’s never so easy as, “Oh, just kill it all.” Sometimes it is that easy, but it’s usually not that easy. But just understand like different levers that the management team has to pull. And then also just different industry forces that might impact the business in different ways, you can try to isolate it down to one or two variables instead of trying to get every variable right that is tied to growth. I typically think of growth as having the most variables that you have to get right.

Tobias: Hey, Matt, we’re coming up on time here. If folks want to follow along with what you’re doing or get in touch with you, what’s the best way to do that?

Matthew: is the website. And on Twitter, I think I’m @laughingh2ocap on Twitter.

Tobias: Yeah, I was just searching for you today and I couldn’t find it and then I just remembered it was H2O. I should have–

Matthew: Yeah. There you go.

Tobias: We’ll put it up. Well, Matt Sweeney, Laughing Water Capital, right as always, we’ll have you back in the not-too-distant future. Thanks very much.

Jake: Thanks, Matt.

Matthew: I appreciate it.

Tobias: And folks, we’ll be back next week. It’ll be our last–

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