Around The World In 5 Years

I think it is good, if not mandatory, to experiment with different investment approaches when you are starting out. Certain styles feel “right” to you and certain styles don’t. As Buffett said, “there is more than one way to get to heaven.”

I of course started with the traditional value approach — stuff that’s optically cheap. I then discovered Kaspi. I think it is very healthy for any investor to find a company growing at 30-40% and trading at 6-7x earnings (and paying a fat dividend). Even better when said company has the qualitative characteristics Kaspi possesses. Mr. Kim, Mr. Lomtadze, and their management team are in a league of their own. You PRINT money over time (subject to a long-tail risk not materializing of course).

After discovering Kaspi I played around with a bunch of other styles, even recently trying out technicals and momentum on a small portion of my book. Suffice to say, technicals and momentum are not really my cup of tea. I also tried a more quantitative approach — finding stuff that looks pretty cheap and building a basket of that. This approach worked out pretty well (mostly a Polish smallcap basket).

That being said, I spent ~4 hours yesterday relistening to lot of my favorite Greenblatt talks and presentations, and more and more I am coming back to a style I know deep down is the right one for me. I recall Nick Sleep saying in one interview that there are broadly two buckets where he finds outperformance — stuff where years of compounding are not priced in, and stuff where sentiment is so bad that too much is priced in. That in a nutshell is what I believe works for me.

My issue is that I have no problem being patient, sitting at a loss, and averaging down when I have long-term conviction in value. WOSG is a good example. I was sitting on a 30% loss at some point, and a few months later I was sitting on a 40%+ profit on a much higher original investment base. Was a 30% drawdown hard? Of course it was! But it was easy to reopen my notes and my model and stare at the facts. This was a dominant business with unique competitive advantages and a great management team trading like a dog. Averaging down has been easy. So too has been sitting on a paper loss and letting time do its thing.

Contrast this with some lower conviction names where while I understood the business, the mispricing was not as extreme. In such cases I don’t really feel like averaging down — sure there is value 3 years out, but qualitatively this might not be such a good business. More often than not I just want to get out as I realize that the investment case is not attractive and in reality I’m just looking for a 15-20% pop to get out and recycle. With WOSG the upside was 100%+.

And that’s the issue for me — I just don’t have it in me to stick with stuff I don’t find super attractive. I am not a 20-30 position type of investor. I don’t want to have 10-15 names I think are 20-30% mispriced and trading around these positions. I want to have sub 10 names of stuff I have strong conviction in, and follow fundamentals to see if I am right or not. I’m happy sitting on a big loss on a name where I know 3 years out (as sentiment improves) the thing is going to be worth A LOT more. I’m not happy being even 10% down on a name where I don’t really have “the feeling.”

I essentially have a basket of names I absolutely love — Kaspi, MELI, WOSG, Nu, Fiducian, Amazon, and Bouvet. You can add Softcat to that if it ever gets cheap enough. I then have names which are candidates at the right price — TXRH, Capcom, GAW, LULU, DECK, JIN, DKS, MONC, and Prada. These are names where I would be super happy putting a lot of money to work if I believed they were SEVERELY mispriced.

The other bucket is stuff like Claranova. Here’s a quick thesis:

While the business is not insanely good, it is decent and stable. Claranova, after its sale of myDevices, will have 2 basic businesses. PlanetArt is essentially a niche e-commerce player for customizing various products (children’s books, wall decor, pictures, etc). It’s a nice business doing around 25-27mm in EBITDA and coming off of COVID highs. The other (better) business is Avanquest, which offers a PDF solution and ad blocker, PC cleaner, and driver manager software, among other things. Avanquest is doing around 25-30mm in EBITDA. The story is simple. Claranova has recently undergone a major board and management restructuring and lifted Eric Gareau (previously overseeing the Avanquest business) to CEO. Unlike previous French management, Gareau is from Quebec. An outsider! The board also has 2 major shareholders from Quebec who are affiliated with Gareau.

Gareau has made important strategic changes to the business and is attempting to capture low-hanging fruit left over by previous management. The board is now made up of previous founders of certain businesses Claranova acquired and major shareholders with meaningful skin in the game. Management announced recently that it is in talks to sell its PlanetArt division for net proceeds of around 150-160mm if not higher. They expect the deal to close in the second half of 2025. PlanetArt’s revenue has been marginally declining and while management has done a good job of improving EBITDA margins, this is an OK business that’s not going to grow much. The company has (as of 1H25) cash of 97mm and gross debt at ~150mm. Cash is a bit elevated here, but let’s just use the numbers. At proceeds of 150mm and net debt of ~50mm, Claranova is going to be left with a net cash position of ~100mm. Management has been committed to paying down debt. After its sale of PlanetArt, Claranova is going to be left with Avanquest. Avanquest has grown revenue from 35.8mm in FY18 to 121.2mm in FY24, recently posted 21% EBITDA margins in 1H25 (vs 18% in pcp), and has around 80-90% of revenue made of of recurring SaaS subscriptions. At a current market cap of ~135mm, we are left with a ~100mm net cash position and a business doing around 30mm in EBITDA with margins likely improving over time. You do the math. The outstanding debt is mostly made up of a 108mm loan from Cheyne Capital due April 2028 at 6.5% p.a. quarterly interest + Euribor benchmark rate. After its sale of PlanetArt, Claranova should have no problem paying down this debt or refinancing at more attractive rates. If the PlanetArt sale is unsuccessful, this thing is still deeply discounted. For context, Claranova did around 40mm in FCF in FY24. EBITDA margins for both PlanetArt and Avanquest have since meaningfully improved.

If I can have my portfolio made up of A+ businesses I love and believe trade reasonably and then stuff like Claranova or FILA (credits to Daniel Smoak for the idea), I would be super super happy.

No more trading around. No more good but not great businesses at good but not great valuations. No more baskets for the sake of baskets. I want fat pitches. I want pitches where you can smell the absurd mispricing. For those that read my 2024 letter, you would see that that is yet again a 180 pivot. I experimented for a bit and I did not like how I felt doing that approach. I’ll be sticking with good old concentrated bets. This is my bread and butter and this is what I love about investing. Everything else is not as interesting and, quite frankly, not as profitable.

To close up, Greenblatt said something along the lines of “you should be able to drive a truck between the mispricing” in one of his interviews I relistened to earlier and I just love that.

I look forward to lower trading costs!