The Exchanges

Q think of future opportunity costs? You mentioned sort of taking advantage of whatever the world brings, but if you take on too much debt at now for an acquisition, you're reducing your ability to adapt in the future. Should interest rates rise? Should a company become available that you really want? That's a dream that wasn't available when you took on all the debt. How do you think about that?

A I have a Zen Buddhist approach to debt. Not too much, not too little. I don't think it's an optimal balance sheet if you have no debt. Because you can improve the returns by shrinking your, your, your share count, because you have fewer shares. So the same amount of returns is, is greater per share, because you have fewer returns. So I think it's good to have a little bit of leverage. I don't think you should have a lot of leverage. Particularly in today's world, I don't think you should have a lot of leverage because there's significant geopolitical risk. There's geopolitical risk in the Middle East, in Ukraine, in Taiwan, there's, in the United States, politics is very volatile. There's a lot of things that could go wrong Real quick. And, and, uh, a kind of shock to the system would, would hurt companies that have too much debt because business would slow down. Look what happened during COVID. If you were very highly levered during COVID, if you had way too much debt, And then everything slowed down and your revenues went down. You might not have been able to make your interest payments or your debt repayment payments and could have gone bankrupt. Companies don't go bankrupt unless they have too much debt. You go bankrupt from not being able to repay your debt. So I don't think you should have too much debt. In my new company that I'm forming, QXO, we're going to have, I thin…

AI assessment note: “I have a Zen Buddhist approach to debt. Not too much, not too little.”

Q Do you do the forecasting because you're going to be going to the capital markets for, for capital at some point in the future with an acquisition strategy, or would you not do that if you knew you weren't going to raise additional capital?

A Well, I, I am a big user of capital markets because all my companies have grown through, uh, acquisitions, and I've, I've needed capital to grow those acquisitions, and we've raised money from the largest sovereign wealth funds in the world, and some of the largest pension funds in the world, some of the largest long-only funds, and, you know, all, uh, endowments, and a lot of different people whose money we've taken and given them back a lot more money than they, than they gave us. So in order to do that, You've got to hit the, you've got to meet your promises. Your results matter. Results matter. They're very, very important. So even if we weren't raising capital, the fact that we've taken capital, sometimes we've gone for years without raising capital. Well, we've maybe refinanced debt to take advantage of changing interest rates or something like that. But in terms of raising equity, which is the dear thing, raising equity, sometimes we've done some acquisitions, like in 2015, we did two big acquisitions and then we digested them. And we integrated and optimized and doubled and tripled the profit without doing any acquisitions. During that period of time, we didn't need to raise equity and we didn't. So, but even though we weren't raising equity, even though we were not going to back to the capital market chain, we still paid extremely rigorous attention to how we doing on …

AI assessment note: “even though we were not going to back to the capital market chain, we still paid extremely rigorous attention”

Q Do you do the forecasting because you're going to be going to the capital markets for, for capital at some point in the future with an acquisition strategy, or would you not do that if you knew you weren't going to raise additional capital?

A Well, I, I am a big user of capital markets because all my companies have grown through, uh, acquisitions, and I've, I've needed capital to grow those acquisitions, and we've raised money from the largest sovereign wealth funds in the world, and some of the largest pension funds in the world, some of the largest long-only funds, and, you know, all endowments, and a lot of different people whose money we've taken and given them back a lot more money than they, than they gave us. So in order to do that, You've got to hit the, you've got to meet your promises. Your results matter. Results matter. They're very, very important. So even if we weren't raising capital, the fact that we've taken capital, sometimes we've gone for years without raising capital. Well, we've maybe refinanced debt to take advantage of changing interest rates or something like that. But in terms of raising equity, which is the dear thing, raising equity, sometimes we've done some acquisitions, like in 2015, we did two big acquisitions and then we digested them. And we integrated and optimized and doubled and tripled the profit without doing any acquisitions. During that period of time, we didn't need to raise equity and we didn't. So, but even though we weren't raising equity, even though we were not going to back to the capital market chain, we still paid extremely rigorous attention to how we doing on the n…

AI assessment note: “even though we were not going to back to the capital market chain, we still”

Q A lot of people who reach your level of success sort of outsource a lot of this work to other people, and by that I mean, um, do research on this, come back to me, give me these points, but you seem very Hands on, in the weeds, very involved in the detail. Why is that important to you?

A I do both, Shane. I do have a team that researches things for me, but I also, I should, I like to roll up my sleeves and get into it myself. I like to find, even like when I do M&A. So I, you know, my teams that I've led have done about 500 acquisitions. I've been involved in those acquisitions. So I, I, I get into the details of what are we buying? And to buy those 500 companies, we looked at thousands and thousands of other companies that we didn't buy, and I, and I, I love the process. I love studying each company, figuring out how they get to the point where now there are millions or hundreds of millions or billions of dollars of, of revenue, and they started from scratch, and how do they do that? It's like a miracle. It's fantastic. I'm, I'm very impressed and excited and enamored with entrepreneurs and companies that have Created huge growth and huge value, and I want to understand that. So I want to get into the detail of it. I want to pick their brains. I, I, I see a big value in asking lots of questions to people. Now today, you're the one asking questions I'm answering, but normally it's a role reversal. Normally I'm asking a lot of questions. If you go into a management meeting, I'm usually asking lots of questions.

AI assessment note: “I want to understand that. So I want to get into the detail of it.”

Q And they report to the CFO. Is that the structure internally?

A FP&A has, has two lines. One is to the CFO on the, and they have a dotted line to operations and to me. So I, I rely on my FP&A person like every day. I want to know for two reasons. I want to know internally how we're doing on the projects that we're, we're, we're attaching high priority to. I also want to know how we're doing on our commitments to shareholders, to investors. When you're a CEO of a public company, you have a really important mission in that you've promised What your numbers are, are going to be in the, in the future, how much your profit's going to be, how much your organic revenue growth is going to be, how much your margins are going to be, what your return on capital is going to be, how much your free cash flow is going to be, and now you've got a, you've got a promise out there, you've got a guidance, you've got a forecast, and, and you're working really hard to achieve that. I need to know, and FP&A is the best place to know that, how are we tracking against that? And if we're tracking higher than that, and significantly higher than that, there's a big deviation from that, well, we'll talk to, To legal, we'll talk to IR, the investor relations, and we'll say, should we update the, the investment community ahead of the quarter, ahead of when we normally produce our results? And equally importantly, maybe even, maybe even more importantly, I want to know, G…

AI assessment note: “FP&A has, has two lines. One is to the CFO”

Q What's the biggest lesson you've learned from the past year?

A You could pick any timeframe with this last 12 months, last 10 years, my whole life, and ask me, what's the biggest lesson I've learned? For sure, I'm going to immediately default to something with people. It's, first I'm going to default to people, then I'm going to default to technology. These are the two things. Because these are the two biggest needle movers. These are the two biggest categories of things that make a difference. So in the last year, what have I learned about people? Ok, one thing I've learned about people is, I'm working with a team now, at my, my new company, that's largely the same, they were on my teams before, they were either XPO or one of the XOs, and what I've learned is, it's great to have the band back together. It's great to work with people that you know, that you've been in the battles with, you've shared the glories, you've shared the pain. It's great to be work, work with people who, We've been in the dark days together. We've been in the strong days together. We've won together. We've been victorious together. We can complete each other's sentences. We, we get each other. We know each other's spouses. We know each other's kids. That's, that's a beautiful thing. I haven't always had that. I have brought some people from company to company usually. Initial founding management for QXO were all XO people. And, uh, one thing I've taken away from t…

AI assessment note: “what I've learned is, it's great to have the band back together.”

Q What CEOs do you think are underappreciated capital allocators?

A When I look at, um, the companies that have, uh, taken money and had small amounts of money and turned it into huge amounts of money, Immediately, I'm thinking Mike Moore at Sequoia, Sequoia. He was chairman of Sequoia Capital. Now he's retired from that, and he's at Sequoia Heritage. He's a senior advisor at Sequoia Heritage. But if you look at his career, everything he's done over the decades, and I've studied Mike very, very well for many, many decades. He was one of my first outside investors. Sequoia Capital came into my United Waste System way back in 1989, 1990. And what is he the chance, what is he the genius of? He's the genius of taking small amounts of money And turning them into huge amounts of money. So you look at, at Google, at Yahoo, at Netscape, at Sun Micros, all these companies that he invested relatively small amounts of money in and ended up being worth like ten billion bucks. That's That's good capital allocation. That's really, really intelligent capital allocation. So I, I immediately think of, I think of a Mike Moritz for something like that. I think in the industrial sector, there's also people who, who have gone through the same kind of processes I've gone through, And been, been disciplined at how they allocate capital and achieved high ROIC as a result of that. You think of the academy level CEOs over the years, Dave Cody, for example, when he was a…

AI assessment note: “Dave Cody, for example, when he was at Honeywell for years, he was very, very rigorous”

Q You said you can get a lot of things wrong if you get the big trend right. What major trend are you most interested in right now?

A I'm most interested in AI because it is the trend. It is the number one trend whereby our technology, the software, that intelligence We'll be able to consume so much information, much more than we human beings can, even with a hundred billion brain cells. The, the power of compute computing is so much greater, and be able to then analyze that, and be able to spit things out, and be able to eventually, I, I'm looking forward to the point where computers become emotional, where they do have emotion, where they do have empathy, just like we have mirror neurons in the front of our brain, in the prefrontal cortex. I'd like to see That trend materialize where computers can feel, can have theory of mind, can be sitting here with a conversation with Shane Parrish, and, and feeling what you're feeling, and, and feeling happy about what you're feeling happy about, and feeling sad about something you're not feeling happy about. Now, I'm looking forward to that trend a lot.

AI assessment note: “I'm most interested in AI because it is the trend.”

Q You have some unique questions when you interview sort of the top 10 to 15 people as part of the diligence process. Can you walk me through what at least two or three of those questions are where you get the most useful information?

A Yes. So you see some companies when they're negotiated by a company do this very lengthy and detailed and bureaucratic diligence process and they hire a firm and they write this big huge memo that nobody ever reads and or some wonk reads it but nobody important reads it and It's basically just to cover their butt. I'm not trying to cover butts. I'm trying to make money for shareholders. My goal is to make money for shareholders, period. And so what I'm looking for in diligence is I want to know how they make money. I want to know the history of this company. I want to know the current state of this company. I want to ask those people. I like to interview the top 15 or so people, one on one, like an hour, hour and a half. And I like to ask them, if this was your money, would you buy this company? And what would, if you did buy it, what would you change? What would you do differently? Where's the opportunity to do something differently than it's been done? And I like to ask them, okay, if you were buying this company, What would you not change? What is so good about this company that's making it successful, that's attracted a big bidder like ourselves, that we should make sure we'd be crazy to change that. So I like to ask questions like that. Questions that give me insights into how the business got to where it is. What are the, what's the future of this company? How could we im…

AI assessment note: “if this was your money, would you buy this company? And what would... you change?”

Q Let's deep dive on M&A. How do you think about it at a high level? And then specifically walk me through your process for not only evaluating companies, but beginning to end, including integration.

A M&A has been a big part of my business career. Not in the first 10 years. In the first 10 years from 1979 to 1989, I was in the oil business. It was all organic. We didn't do one single acquisition. It was all just trading and brokering and building up a business organically. But since 1989, I've been doing Roughly about 500 acquisitions. I've done a lot of M&A. I love M&A. I love M&A as a way to create value for shareholders because I don't know of another way on a risk-adjusted basis on a certainty level that is more likely to create massive shareholder value than doing sensible M&A. In order to understand how to create value, I have to understand how am I going to scale up the business? I only know how to create tremendous shareholder value by growing a business tremendously. That, that's how I know how to do it. And, of course, it's organic, and I've had very good organic growth. The companies I've led have been well-performing companies that have had good market share and growing market share, and we've taken customers away, we've taken business away from our less, not our competitors who aren't managed as well, but the real, when you look at the, the numbers, the real growth has been through M&A, through acquisitions. What's been my secrets on acquisitions? I'll try to be concise, because I did a, Hour and a half podcast with McKinsey a couple of years ago with Andy West.…

AI assessment note: “I love M&A as a way to create value for shareholders”

Q Is the work with the, uh, the psychotherapist, is that where you learned about rearranging our brain and controlling the mind and the importance of sort of thought experiments and mindset? Or talk to me a little bit about that.

A It was one of the places, you know, from my, my main hobby since I was a teenager has been meditation and various forms of meditation and then from meditation into learned self-hypnosis and then, and then from there I learned all the Mindfulness and the positive psychology and cognitive therapy and so forth. So I've mixed and matched a lot of different schools of thought and customized it for me, my own personality and my background and my individuality. So it's not just one thing. I've had many different influences that have created the way I look at life and the way I, I deal with reality. And a lot of that was my education when I was a kid was I studied music. I studied music and math, but in music, It is a lot about relationships. Unless you're a solo performer, and I was not, I like playing a group, I like, I like a band, I like playing with other people. Interacting with the other folks is part of the magic of making really great music. That's, that's had a big influence on me, too. I, I define myself, I self-identify as a, as a musician more than a business person, which you might find odd, because I've spent a lot of time building big businesses and running large enterprises, but When I think about myself, I, I think about myself as a music, musician who happens to be doing a lot of business and has done well at business, but I, I feel like a musician. And by that I mea…

AI assessment note: “It was one of the places, you know, from my, my main hobby”

Q What do you think the benefits of that are, and what do you think the drawbacks are?

A Well, the benefits are, we should be able to accomplish a lot more. So if you look at us as a planet, eight billion people, There's a lot of things we do well, but there's a lot of things we don't do well. Primarily get along with each other. And information sharing is not there. Resource sharing is not there. I think with advances in technology, we will be able to distribute resources more intelligently and, and, and, uh, more abundantly and have more resources for more people. And I think, uh, medicine will be better and science, science will be better and be able to live longer. We'll be able to Be more in touch with the way we think and to be able to think more constructively because that's one of the places where it's an area of improvement for humans is we don't think rationally a lot of times. And I think with technology and AI advancements that we will think more rationally. So it'll be nonstop therapy, so to speak.

AI assessment note: “Well, the benefits are, we should be able to accomplish a lot more.”

Q Let's deep dive on M&A. How do you think about it at a high level, and then specifically walk me through your process for not only evaluating companies, but beginning to end, including integration?

A M&A has been a big part of my business career. Not in the first 10 years. In the first 10 years from 1979 to 1989, I was in the oil business. It was all organic. We didn't do one single acquisition. It was all just trading and brokering and building up a business organically. But since. I've been doing roughly about 500 acquisitions. I've done a lot of M&A. I love M&A. I love M&A as a way to create value for shareholders because I don't know of another way on a risk adjusted basis on a certainty level that Is more likely to create massive shareholder value than doing sensible M&A. In order to understand how to create value, I have to understand how am I going to scale up the business? I, I, I only know how to create tremendous shareholder value by growing a business tremendously. That, that's how I know how to do it. And, of course, it's organic, and I've had very good organic growth. The companies I've led have been well-performing companies that have had good market share and growing market share, and we've taken customers away, we've taken business away from our less, or not, our competitors who aren't managed as well. But the real, when you look at the, the numbers, the real growth has been through M&A, through acquisitions. What's been my secrets on acquisitions? I'll try to be concise, because I did a, Hour and a half podcast with McKinsey a couple of years ago with Andy …

AI assessment note: “The gist is you first have to select an industry.”

Q What have you learned about asking questions that you wish you knew five years ago?

A I take questioning from the therapist. So I wrote in the book that the only time in my life that I've been depressed, but I was really depressed, was in the mid-two thousands, when I had stepped down from being CEO of this big company, United Rentals, and now I didn't have anything to do. I didn't, you know, I was, I was doing some art, I was, you know, studying art and buying art, and I was doing things with my family and so forth, but I didn't have a business, and I learned from that that everyone has their own thing that makes them excited. Me is running businesses. I've been a CEO since I've been 23 years old, and I like being a CEO. I really like that job really a lot. Now I wasn't a CEO, and I felt a big gap. I felt, I felt depressed. I was down, and had a lot of unconstructive thoughts and inaccurate thoughts and so forth, and that Drew me to, to meeting a lot of fantastic psychotherapists. And I mean, fantastic at the top of their game. So there was a psychotherapist in New York City called Albert Ellis. He died about 10, 15 years ago. And he had formed a school of therapy called Rational Emotive Behavior Therapy, R-E-B-T. But in short, it was cognitive therapy. It was cognitive behavior therapy. He, together with another Psychiatrist, actually. Aaron Beck, whose family and friends call him Tim. I got the privilege of meeting him, too, and spending time with him and his…

AI assessment note: “I take questioning from the therapist.”

Q You've said in the past that you need to be liked and loved, and yet you're quite contrarian at times in your approach to things. How do you reconcile these two things?

A I think you have to be contrarian. I think if you want to make a lot of money, In business, you can't just be a conformist to do at what is in fashion and what everybody else thinks. If you're going to do what everyone else thinks, you're going to get returns that everyone else gets, which is by definition average. So my companies have not made average returns. My companies have outperformed their indexes, not by one or 200 basis points, but sometimes by five or six times what the, what the index was. So You have to do, you have to think differently and take things that are from a different point of view. So one of my favorite investors in my companies has been Orbis, uh, out in California and in Bermuda, and they're contrarians. They're willing to make a bet and a significant bet if they have a high conviction about a trend or a company that the market's not seeing. Something's out of favor, but the market doesn't understand something about it. Maybe a company's not studied enough. It's not covered enough. Maybe management's not good at communicating their story and, and it's dislocated. The price is dislocated, and you can get a real good value by buying those shares and then being patient, playing it out the cycle and make real good returns. And I've seen them do that with my companies when something happened in the marketplace that made us a cheap stock for, for a short per…

AI assessment note: “I think you have to be contrarian. I think if you want to make a lot”