The Ledger
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The fiftieth portfolio stock exists purely to gather asset-based management fees
“The evidence is that after eight stocks, you're 80% diversified, right? So the 50th name in your portfolio is doing nothing to get you more of the free lunch, right? I mean, it's just a exercise in gathering assets to get more asset based fees for a manager.”
Multi-manager portfolios with hundreds of stocks yield passive returns for active fees
“I mean, 10 equity managers, each holding a hundred stocks, charging one percent, you're charging active fees and getting passive results. It's ridiculous. And so everybody should be concentrated.”
Multi-strategy fund structures eliminate the existential operational risks of single-strategy firms
“I think a lot of endowments take the approach that we only invest with single strategy firms. And I get that, but I would argue vehemently against that. I think there's been huge benefits to us having the various strategies and the benefits are to both us and …”
Investors should hold exceptional compounding businesses even at 120 percent of value
“Whether it's something, 60 cents on the dollar, 80 cents, or even 120 cents on the dollar, if it's the right business run by the right people with great growth prospects, the default setting here is just to hang on to it.”
Bares Capital pre-qualifies investment candidates without looking at historical stock prices
“So everything that we pre-qualify for purchase is done without any knowledge of what the stock price is or has been.”
Unplanned large-scale acquisitions by portfolio companies usually signal investment trouble
“Unless that's an overt part of the plan, and we have underwritten as part of that plan the ability of the people to do M&A successfully, it's typically a red flag for us that this is not going to end well.”
Bares Capital abandoned quantitative scoring overlays after repeated system backfires
“We have made certain attempts at trying to score these various things quantitatively, and every time I try to layer a quantitative element onto this qualitative process, it sort of backfires for us, and so we've stopped doing that.”
Bares Capital automatically trims any stock position exceeding 30 percent portfolio weight
“We say 30% is our hard cap. And so nothing gets over 30% of the portfolio by weight will automatically start scaling it back.”
Bares Capital Management operated without legal counsel for its first nine years
“Little known fact about my firm is for the first nine years, I didn't have an attorney. I was just so frugal that I didn't want to pay for one, which was, I do not recommend to people. I think it was completely reckless. Course of action. And now we have great…”
Bares Capital spent eight years manually analyzing micro-cap stocks without computer screens
“We actually do, despite the quantitative aspects of my old firm and my math background, we do no computer screening or filtering. Like we started from A and went to Z and microcap. It took us eight years, but we did it.”
Bares Capital forces junior analysts to leave after a three-year tenure
“So we have a rotating stable of junior analysts. So we hire people and put them to work and then tell them in three years, I got to go find different employment. Part of that is because we have a capacity limited set of strategies and that capacity limitation …”
Bares Capital limits its concentrated ten-stock portfolio to three annual trades
“If you look at the numbers, we're actually roughly about 30% turnover. So it's thinking in a 10 stock portfolio about three new positions per year.”
Bares Capital Management has maintained a 65 percent historical investment win rate
“Our batting average is like 65%. That's been a historical sort of win rate”
Bares Capital Management operated without institutional salespeople for twenty years
“Over 20 years, we've never had a formal sales and marketing effort. We don't have any, you know, institutional sales people on staff or anything, and we closed one out of every three conversations we had with institutional allocators back in 2000”
Bares Capital Management launched with $21,195 in total paid-in capital
“All the capital that was ever put into my firm is 21,000, but 195 dollars and 14 cents is all the paid in capital.”
Brian Bares regrets letting downside risk management prevent him from enjoying success
“And it is impacted my business life because I've had some business success and I haven't enjoyed it because I'm constantly thinking about the downside, the risk management or the future planning or the future optimization. So I know it's kind of an unusual ans…”