Capital Light Compounders & Reinvestment Moats, with Connor Leonard – [Invest Like the Best, EP.64]


This week’s conversation is an ode to old school, fundamental public market investing. My conversation is with IMC’s Connor Leonard, who spends most waking hours thinking and reading about markets. His mandate is to invest purely as if it was his own money, with no pressure to hug a benchmark, and no pressure to do much of anything other than earn strong long-term returns.

The portfolio that results from this approach is highly concentrated and unique. Connor’s strategy is to sort companies into four categories based on their type of sustainable competitive advantage. As you’ll hear, the vast majority fall into the first category, which means they don’t have such an advantage and therefore should be largely set aside.

We spend the majority of our conversation talking about the other three categories: 1) companies with a legacy moat, 2) companies with a re-investment moat, and 3) an interesting category Connor calls “capital light compounders,” which we explore in detail.

When you step back and think about public markets, you realize how amazing it is that we can, from afar, buy an interest in so many companies around the world. A select few go on to deliver outstanding returns. This conversation highlights how hard that can be, but also how fun and ultimately rewarding. Please enjoy my talk with Connor Leonard.

 

Books Referenced

Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor

The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success

 

Links Referenced

Pat Dorsey Podcast Episode

David Tisch podcast

Will Thorndike Podcast episode

Show Notes

2:31 – (First Question) –   Trends in value investing

2:52 – Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor

 

4:43 – A look at Connor’s backstory and the history of IMC, parent company of Golden Corral

 

8:01 – Why Connor loves the public markets so much

 

9:21 – The concept of intrinsic value when looking at companies

 

12:36 – How Connor categorizes MOATS

13:21 – Pat Dorsey Podcast Episode

 

14:27 – Legacy MOATS

 

16:11 – Reinvestment MOATS

 

17:58 – Capital light compounder MOAT

 

20:00 – Why classifieds are an interesting business model

 

25:12 – Looking at platform businesses

 

26:56 – Looking at companies in the 500 million to 5 billion range and what makes it so enticing

 

30:34 – What is the process that gets Connor to find investment opportunities

35:53 – David Tisch podcast

 

36:15 – How Connor looks at industry classifications

 

41:30 – Connor’s strategy for running his portfolio

 

46:36 – The circumstances in which Conno would buy a legacy MOAT company

46:49 – Will Thorndike Podcast episode

46:51 – The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success

 

49:21 – How do you pick managers that will beat the markets

 

52:21 – Second reason to buy a legacy MOAT

 

54:48 – Comparing the reinvestment MOAT and Capital A compounder in Connor’s portfolio

 

58:16 – Connor’s Mt Rushmore of Capital Allocators

 

1:00:03 – Impactful mentorships for Connor

 

1:01:52 – kindest thing anyone has done for Connor

 

103:04 – What in the discussion with founder of IMC got him the job