#90 | Serial Acquirers, The Long View & Nordic Compounders | Interview w/ Joel Sherwood

Welcome back to The Dutch Investors podcast. In this episode, we sit down with Joel Sherwood, an American investor who has lived in Sweden for over 20 years. Joel documents his journey on Substack through the Sherwood Investment Letter, focusing heavily on the Nordic markets.

We dive deep into the playbook of serial acquirers; businesses whose entire model is based on buying other niche companies and letting the capital compound. Joel unpacks why the Nordic region has become such a hotbed for these long-term, family-owned compounding machines.

We also get into the psychology of staying objective when everyone else is panicking. Joel shares his strategy of "running into the burning house" to buy high-quality companies when the market overreacts and sends them to 52-week lows.

Transcript

SPEAKER_01 0:08

I'm gonna say it's uh it's a mentality and it's scary as well. I can't uh you know deny it would give me very nerve-wracking to hit that buy button in the middle of these kinds of plummets. I think the US will will uh will continue. I like to look at sort of what has been happening over a long period of time, and I give a lot of weight to that. The dominance, the way they have come to dominate up until now, I don't think that's disappearing. Then the valuation does not matter as much to me as it does for something like you know, these sort of more mean reversion things where you're buying something that has been pummeled and is now at a 52-week low.

SPEAKER_00 1:26

Someone who lived in uh the United States and now lives in Sweden for over 20 years, he has a frontmost seat on how companies, especially in Nordic areas and serial quais, for example, operate there. Let's jump into today's conversation with Joelle Sherwood. Great. Did I pronounce your name right? You did, Joel Sherwood, absolutely. Joel Sherwood. It's good to have you on the show. Uh we went back and forth for a couple months and uh things happened in between, but we're here and uh excited to have you on the show. Great to be here. We've been following and each other for a while now. Um from what I've seen, you focus especially on like the Nordic companies, European companies. I'm excited to ask you some questions. Think how you how you think about investing, how you think about finding quality companies. But before we get in, what is it about investing that intrigues you? What what got you into the world of investing in the first place?

SPEAKER_01 2:28

Well, let's see, I've been a financial journalist for uh a while, and my background is in journalism, and I've also worked at banks now for for over 15 years. So I've I've been into sort of uh the financial world for a while now. And you know, I mean, I think it's when it comes to investing, I mean, it's such a sort of intellectually demanding sort of uh challenge task that sort of really rewards you in the end if you can if you can do it right. So I I really kind of I like that challenge and I like the idea of sort of you know the the process. I'm more into the process than sort of the results. I believe the results will come. But if you can find that process, find a way to sort of do this, you know, find a system, find the way to do this, then the it's it's uh it's it's a nice way to to to spend to spend my free time, you can say.

SPEAKER_00 3:21

Yeah, absolutely. I agree. Uh I think it's uh one of the few topics, if you could call it that, where it combines everything psychology, money, the way people think, the way the world works, economics, it combines everything into one. And I do, I do really like the challenge, the process, and what I find difficult myself, and I don't know about you, but you never really know whether you made a right decision or not, right? So you can make a right the right decision now or next week. You can be up next year, but you can be down five years from now. Or where did you make the mistake in the process, in the end result? How do you think about that? I find it very challenging.

SPEAKER_01 4:06

I couldn't agree more. And at the same time, I think that's a real opportunity as well. So, this idea that sort of, you know, I think a lot of people are out after sort of instant results, instant gratification. This is kind of true in life in general, and I definitely think in sort of investing. And, you know, so if you can somehow overcome that and really kind of think in terms of years and and decades, that's that's you know, I think that's that that's a real that's sort of a superpower if you can actually pull that one off. So and it's I mean, I guess investing kind of trains that muscle as well, doesn't it?

SPEAKER_00 4:46

It does, yeah. So what do you like to do? Uh uh do you like to read a lot? Do you do you read books? Do you listen to podcasts, go to conferences? What is it that you like to do when it comes to investing?

SPEAKER_01 4:59

So I have I have read a lot. I read a lot, I have read a lot, I've studied it, and I sort of started realizing a few years ago that like, you know, kind of in my free time, I was kind of looking this stuff up. I was reading those those uh investment books and and you know, kind of following earnings when I didn't really need to be doing that, you know, and probably should have been watching Netflix or, you know, doing something else. So it really kind of evolved. I I kind of slowly but surely. And then, you know, it's it kind of snowballs once you once you get into it, you really kind of get addicted. You get addicted and you find that you find that next thing. Um, and then you sort of you you learn something and then you and then you say, oh, wait a second, you know, they were talking about that thing and or mentioned that book or mentioned that guy, and then you you sort of, you know, uh go on to the next ones. Something like that. I I listen to so I I have a dog, and you know, when I'm out walking the dog, uh we uh we we listen to to uh or I listen to uh investment books as well, then so that's I don't know if books, listening to a book does it count as reading. Let's let's say it does, yeah. Yeah. So that's uh that's something as well. So that's I mean it's it's I mean I think it kind of has to be that. Has to be something that you're you sort of really have a drive for, a passion for, and you do it in your free time.

SPEAKER_00 6:27

Yeah. It's about how you consume information, right? It doesn't really matter whether it's just it's through listening or reading. I think it has a I think it both has a place. I don't think uh I think reading is very underrated. I think as an educator myself, I see a trend where people are reading less and less and less. But the people that actually read a lot, you can tell by their intellect that they read a lot, they think differently, and I think it's uh it's a it's a lost skill. I think uh kids should read a lot more, but you know it's boring, it doesn't move, it's not fast, it's not fast-paced, you can scroll through TikTok and stuff, and uh you don't get the dopamine shots uh lots of children are looking for. But anyway, um I thought it could be fun just to get started to play a little short game where you can only give a single answer and you have to choose. Oh goodness just to see what kind of investor you are, and uh yeah, just to see uh what you think. Let's do this. Alright. In a perfect world, do you think everybody should invest somehow? Yes. Okay. Right, it was a one one word answer. Yeah, yeah, yeah, yeah, for sure. What market will have the best returns the coming decade, you think? The United States, Europe, emerging markets, Asia? So what what was the time frame? And the next uh coming decade.

SPEAKER_01 7:53

Um US. Really? Why? I thought it was only one word. I mean, I think they still have have the advantage. I mean there will be there will be sort of pockets of outperformance in certain other areas, but I think the sort of the dominance, the way they have come to dominate up until now, I don't think that's disappearing in the next decade or two. So sure there will there are contenders, uh, and you know, there will be there will be shifts. Maybe it's sort of a kind of Europe's time a little bit right now. But uh, you know, and the dollar is maybe a little bit weaker. But no, I th I think the US will will uh will continue. I like to look at sort of what has been happening over a long period of time, and I give a lot of weight to that. And so so I think that if something has been going on for quite a while, it's sort of bound to continue. I think the effect, right? This is the Lindy effect, exactly.

SPEAKER_00 9:02

So uh so yeah, so we we we have that here. Yeah, I'm not saying I disagree, I'm just uh wondering uh why you made that decision. Um what's your answer, yeah. You know, I do put a lot of weight on like what history tells me. Uh I'm a I'm a real history guy, and I think that uh people always make the same mistakes looking back. So the chance that America will be the best performer the coming decks decade is very likely. But I do think that uh Europe has a very good set of cards if they play it right, where they can sort of become like the trustworthy partner for other countries and other continents. And obviously the elephant in the room is China, but um, you know, they they still have like the political red flag that a lot of people don't like to invest in. So uh it's probably going to be America, but I wouldn't be surprised if Europe, if they keep playing the cards right, loosen the regulation a little bit, and uh, you know, invest in businesses, and uh I wouldn't be surprised.

SPEAKER_01 10:12

I mean, this is one of the fun things about this is that you know, you you never know, first of all. And I mean, it will be very interesting to follow this very closely and see, of course. Yeah, yeah.

SPEAKER_00 10:24

We'll have to do this again five years from now. Right. And see what all right, next one. Um, your favorite European company right now. Um Ignore valuation, just your uh overall favorite European company.

SPEAKER_01 10:40

I mean, oh, I don't really choose favorites like this. I mean, a company I really look up to is Investor. So investigate B. This is a big Swedish holding company. So I mean, these these guys are amazing. You really can't sort of you know overstate significance to to sort of the Swedish economy, and they're just a model for long-term ownership, long-term holding and compounding, which is sort of what I'm after as well. So family-owned as well for you know many generations. It's a cool story. Yeah.

SPEAKER_00 11:15

We might get into it. If you had to hold one company for the next 20 years, and you can only pick one, which would it be investor A B or a different one?

SPEAKER_01 11:25

Yeah. I mean, maybe it would be Berkshire. Okay. So I'm big into holding companies. I I like, I really like the sort of you know, having a like multiple assets that you sort of control. You know, this is this is different from you know, companies with with you know, sort of one or two or a sort of series of products that are selling like crazy. This is always a good thing. This is this is you know what sort of economies are built on. But you know, you never know what happens with those. So when you choose sort of one company, it looks amazing, it's it's you know, it's going like gangbusters, that's great. If it if it fails, you know, then you're sort of out of luck. With something like a holding company, you you have you have some built-in diversity there that you can fall back on. So if one isn't isn't doing so well, then you you have the other ones. I think that's really smart.

SPEAKER_00 12:21

Yeah. Yeah, I I agree with you. Uh, in my portfolio, it's it's only about 10 companies, but uh there's a couple holding companies as well. Uh for example, um Process for for Tencent, uh 3i Group, uh it's the uh discount retail chain uh action. So I I agree with you. I think holding companies uh are a great way to diversify in a sense, right? Where uh one part can alleviate the other and uh vice versa.

SPEAKER_01 12:48

Of course, what you get is is with with that diversification and that safety, you do lose some outperformance. So you there is a trade-off there. So if the question is you just have to have one, um you know, then it has to be it has to be something like that where you're where you're you're you know you're playing it safe in some ways. But of course there is a trade-off, you know, if you with with holding companies, they do not, they typically don't grow as fast um as you know some of these high growth companies. So you you're you're making a trade-off there, and and I definitely am also a believer in sort of the the uh you know sort of diversity, uh like diversification is diversification or something. So so you know, I I tend to go for, you know, I'm trying to go for more concentrated and have a have a you know a fund that is is a fewer holdings. So, yes, I realize that those are two conflicting points of view there, but uh you know, for very, very long term, then something like a holding company is is um is a safe bet.

SPEAKER_00 14:00

Alright. Um final one. Do you think AI is currently over or under hyped for its potential?

SPEAKER_01 14:12

So it's uh it's it's of course, you know, it's the big thing. I personally use, you know, more than I realized I would, actually. I'm a little bit sort of tech averse. I don't, I'm not super, I'm not super into tech. And that definitely is true for for investing. But so AI, I mean, I I think it's very, very real, and it's it's it's gonna impact, you know, basically everything. It's becomes something that we really don't even think about. So in that sense, that's that's it's it's maybe underhyped in in kind of our sort of daily use and kind of how it's going to to impact our you know our society. In an investment standpoint, I think it's it's um is it overhyped? I don't know, but I I don't really get into it very much. I do not. No. I'm trying to think. But yeah, no, I'm um um I in fact that would that would definitely sort of uh turn me off. Um I think I have a little bit of Nvidia, but it's like um uh kind of like a as a benchmark uh to compare it to some to to other ones. So but otherwise I'm in fact I yeah, look, not at all because that's it's really early days. We don't know where this is going. And so it's really hard for me to make any kind of long-term assessment on sort of you know who is going to be the winners here and stuff like that. So no, I I actually avoid it.

SPEAKER_00 15:47

Fair. Just out of curiosity, you told me you work for a bank, so I assume you uh you work with lots of financial people, financially literate people. Have you noticed AI helping out like in your daily job? Uh, do you see it changing uh how your job is being done a couple years from now? Has it become I'm just curious uh what happens in like the financial world with AI and what you see in uh in person?

SPEAKER_01 16:19

It's uh it's happened really quickly. It is profound change. There is really a lot happening, and it's all happening very fast. And I think you know, certainly in the in the financial uh analysis world, then this is going to be key. There's there's no question about that. And I use it, you know, uh for for my you know independent investing. I mean, this has become an absolutely you know vital thing for me. And if it's vital for for someone like like you and me, of course it's gonna completely change the the uh the the you know the financial analysis equity research industry, no question about that. And then of course, you know, banks are in some ways a reflection of society. So yeah, we'll we will feel that just as every other uh does.

SPEAKER_00 17:15

How would you um describe your investing style? You know, that when you look a when you look around, you see growth investors and quality investors, and I think it's all a little bit of you know nonsense. I think everybody should be in some way just be an investor, no better, and it's always like a a balance between risk and reward. How would you describe your investing style?

SPEAKER_01 17:40

Great, yeah, exactly. So I try to think very long term, and that's sort of both for me, for my when I make a move, I'm thinking very long term. And I also want the company to be very long term. I want I want to see that they have sort of decades, you know, ahead of them. And that's a big, you know, that's that that can be hard to find. You don't you don't know that, but I really want to kind of feel sure or as sure as I can be that this is something that's gonna make sense not only now but in the future. That's why sort of maybe some startup AI, um you know, hot startup AI company. You don't know because you don't know if five years from now there won't be another new startup AI company that is even better. So, you know, something that actually isn't that is easier for me. So very long term, I'm focused on like, you know, sort of protecting the downside. I want to have margin of safety. I want to be sort of, you know, I'm not trying to buy sort of at the top and and ride some sort of momentum. It's it's quite the opposite. I want to, you know, zig when the others are zagging. This is a famous uh investing phrase. You know, I do I'm into sort of being very um sort of rational about what's going on, which to me means sort of like not getting caught up in the noise, not getting caught up in the headlines. I want to see past that and I want to see sort of like okay, what's sort of really going on? I think a great example of that is last year when uh when sort of oil was just really out of favor. Like nobody cared about oil. There's a big you know headline in the FT um about sort of you know, like, oh, you know, the the outlook looks horrible for decades. You know, that's bad news for the oil industry. That to me, that's good news. Bad news is good news. So when I see something like that, I know you're not gonna be overpaying. You're you're sort of you're not buying the hype. And you know, that is a good time to buy. And then sure enough, you know, what is it, six months later, something like that. Here we are, and you know, everybody wants oil. Like you, you know, it's the hottest thing in the world right now. It's a great example. You know, six months ago nobody cared. Now somebody, now everybody wants it. I love this kind of stuff. So, you know, this means buying sort of at the at the lows. I love 52-week lows, you know. I wanna I want to see that, you know, buy as much as I can. Stuff like stuff like that, yeah.

SPEAKER_00 20:09

So how do you do that? Staying out of the noise, avoiding the headlines? How do you stay rational and not get influenced too much by others? What helps you?

SPEAKER_01 20:20

I mean, it's uh I guess it's a mindset, it's a decision. And then, you know, when you see those those lows, when you see the sort of, like I said, when you see the bad news, you know, to sort of train this muscle where where you say, you know what, like kind of, you know, when when the the the house is burning, you kind of run into the the burning house, uh run it running into the fire. You know, something like uh with Novo Nordisk, for example, you know, they had several big sort of you know drops last year, uh, I think even one earlier this year. Um, and this is kind of thing, you know, as it's dropping, you you you buy more, right? You run into the the burning building, this kind of thing. So it's it's uh and it's uh I'm gonna say it's uh it's a mentality and it's scary as well. I can't uh I don't want to sort of um you know deny that that it's it can be a little bit or can be very nerve-wracking to hit that buy button in the middle of these kinds of plummets.

SPEAKER_00 21:28

I would like to expand on this a little more because I think this is something all investors face. Uh, you know, if you buy individual equities, somebody is right and somebody's wrong. Somebody's buying, somebody's selling. Where where there's smoke, there's fire. So when a company is at a 52 week low, there are people seeing things which makes them sell. I've been asking this question to some of my close investing friends, and the answers. very widely. But how do you determine whether you think you're right and somebody else is wrong? I I think Novonordisk is a very high quality company, but there's a reason it's dropping. And so what makes you decide to get in when it's so low and the narrative is so bad? I think you're right.

SPEAKER_01 22:21

The market isn't isn't wrong. And I I really accept that. You know, I I know analysts and you know I really appreciate what the analysts say and and and uh and their their research and their conclusions. You know the market isn't wrong. So what I typically think is that it's overreacts. Yes there is some bad news there but there's it goes too far. And the same is true on the opposite side. When there's good news it goes too far. You get too excited. So that's when you see these valuations that are sort of you know sky high that don't make sense. So it goes you know it's this sort of Mr. Market manic depressive it's too high and too too low. So it's it it gets the bad it gets the news but it reacts too much to it. So I definitely think that's that's one thing. And that's that's something that you sort of say you know okay where where is that overreaction? How you know how much does it have to go down to sort of be a regular reaction just a correction or actual overreaction. And that's a that's a judgment call. You can try to base it on numbers but you know you can also go by sort of like a company that's you know been around for 100 years drops 20% today on you know some kind of you know one news item stuff like that. It seems it seems extreme. And then I think you know the other the other advantage is to think that you know it's it's if you do think long term. So a lot of times what's happening is this is these are sort of short-term you know gains and losses and and you know the market is try is reacting you know on kind of what's going to happen in a couple you know maybe minutes weeks you know months maybe a year or something like that and if you have a five year frame or longer then you don't you don't have to worry about that. So yes the market is right probably if you're gonna you know in the middle of that dip you want to sell because it's gonna go lower for a while. So the market in that sense is right. And then of course they're wrong because why would you give away a really good company for such a low price when in five years there's a very high chance it's gonna be it's gonna recover and be and doing much better. So something like that.

SPEAKER_00 24:36

That makes sense. Yeah I think uh I'll have to agree with you it's about a time horizon right and uh it depends on your style I guess uh as well if you're a trader it's probably makes sense to buy and sell lots more often and uh when it drops. But um yeah it's it's uh it's a difficult it's difficult even for someone who's been investing for years and maybe even decades you never you never really know if you're right until you decide what to do with your company whether to hold it sell it buy more it's uh it's difficult.

SPEAKER_01 25:08

It's the uh unknown right that's the unknown and then yeah again it's that's sort of what's sort of what's also a challenge not knowing is is can also be an opportunity in the sense that if you really can kind of you know give it five years you know like look at it in that long term sense you know I really think a like most people are not doing that. You know the vast majority of the market is not doing that. So it's it's it can be a real advantage. You know I think sort of stock ownership times have you know fallen you know continuously drastically drastically that kind of thing. So it's in everybody's everybody's very short term. So if you can if you can think long term scary unknown you know but but an advantage hopefully yeah and and the the stock ownership time of other investors actually um increases our the long term thinkers the long term investors increases your chances of uh getting companies that are oversold right which is uh what we're trying to look for so what sort of companies uh do you uh look for uh do you have some examples great so so yeah I mean I'm up here in the Nordics can let's see what's the best way to answer this I of course I'm looking for these you know we're all looking for the quality companies at a low price and you know I like these sort of you know mean reversion plays I don't really see them as plays I shouldn't use that word because I definitely look at it as a kind of a long-term thing but you know a company that has dropped drastically you know and it's its multiples have collapsed and it looks to be sort of some sort of disconnect between its valuation and its its uh uh intrinsic value then you know those kinds of things so here we're talking about you know like a novanordisk for example that is that is trading you know way way below its typical multiples and you know given time you can sort of see that that's going to recover that's or you can you can uh perhaps make a bet that that's gonna recover I should say quickly that you know these are not recommendations this are only opinions I in no way am allowed to give recommendations this isn't a recommendation so I'm just speaking about my opinion about companies so you have the mean reversion aspect and then the other one and I think we should get into this a little bit is the uh these serial acquirers here in Sweden these are compounders these are these are companies who are about their business is actually buying other companies and compounding these these this is a fantastic thing going on up here in Sweden and if you can somehow get a combo of these two then that's then I'm I'm I'm I'm loving that yeah we can we can definitely get into that you know we've noticed that in places like Sweden uh Norway Nordic countries there are a lot of companies with families behind them many serial acquires like Technion uh you could probably name a few others as well so why is that you think what makes the Nordic country such a good place for serial choirs and family led businesses to to thrive okay so why has it started from there why has this become a hotbed I think there's a tradition of it I I mean I think you have first of all you have a tradition of for example investor sort of you know buying and holding companies in the long term and then you have there there's sort of it comes from the serial acquires that we have now a lot of them are traced back to sort of one company that didn't really start doing this but sort of got into this eventually and then and then I think it just sort of it's kind of developed from there. There was a crisis in the 90s um here in Sweden and I believe that forced companies to sort of start to focus on making sure that the companies that they acquire are sort of very asset light very profitable very efficient. So you know a crisis kind of you know sort of fueled the flames of this and and this generally speaking I mean this they sort of something started to work here there's long-term ownership there's you know sort of thing like family ownership and then there's this sort of you know thing of of of the serial acquirers that started to work and people started to see it and all of a sudden then you have this kind of hotbed going on here are you so drawn into these types of business models for serial acquires what makes you interested in them as an investor so this is that they have a lot of what I like right they have this downside protection because they are diverse they are they are buying companies and holding them and so at the end of the day you have a company that owns you know 20 50 100 200 other companies this is a nice safe base that you can that you can sort of fall back on. And then they do the next thing they do they are it's math they have a system where they just continue to buy companies the wheel just keeps turning there's no end to the amount of sort of niche uh companies that they can uh that that that you can find around Europe and it's a it's a machine it can just continue to just just the machine can just keep rolling. And this is other companies don't have this most companies are sort of they're selling a product or they're selling a service and if people don't want that product or service anymore they're they're kind of out of luck they have to sort of do something else. Whereas the product or service that these guys are doing is compounding is capital allocation that is that is the product and as an investor I mean isn't that what you want you want a nice safe foundation and then you want you know a company to be able to continue to grow itself forever.

SPEAKER_00 31:37

Yeah what it's about okay so let's let's talk a bit more about that serial choir playbook and you know let's say you're looking for a a serial choir you're interested in those types of companies someone is listening maybe you've read a couple books you saw the successes of companies like Constellation Software Topicus maybe even Berkshire and you want to find one yourself so where do you start how do you typically look for these serial choirs I mean there are hundreds of them so how do you know which ones to pick and to avoid so I think in one way there's there's sort of um uh there's a history of this in another way it it is kind of new it is a newer thing at least in my understanding of it it's kind of something in the last uh I want to say a couple decades maybe three you know so yeah two three decades two or three decades so this this is the there isn't a huge amount sort of written on this topic um in sort of in book form to example of course there's sort of research papers and and equity analysis and things like that so so the point I'm trying to make here is is it's kind of a new thing and then the playbook has in some ways been established by some of the big players okay you got Livco you got Indutrade Adtec you got Lagerkranz these are Swedish these are sort of the big Swedish serial acquires so so that that is that's good that's been established they're there they're still doing their thing actually which is pretty cool um you know they still got that sort of 15% revenue growth and 19% you know earnings growth and stuff like that still you know it's it's amazing what I think is really cool is that it now there's kind of coming a second wave of this guys who have actually sort of you know they're f they they they've learned the playbook they know the blueprint about how to do this and they're kind of branching out on their own.

SPEAKER_01 33:55

And so you have you have smaller uh sort of players coming into the market or or they've been here for a while but they're sort of they're they're establishing themselves who are the next in line to do this. And and this I find amazing I mean we all are after the sort of the 10 baggers and the hundred baggers and and this kind of thing. So the the first phase of these serial acquirers have have done this already. Awesome now now comes the next group and it the I'm I'm loving these guys actually so this is this is what I'm looking for.

SPEAKER_00 34:35

When uh a serial acquirer owns dozens if not hundreds of uh different businesses do you um actually try to understand uh every single one of them or are you basically just betting on management to making the right decisions how do you think about it I think it's hard to become an expert of yeah 200 companies or something like this.

SPEAKER_01 34:57

I am very focused on the the owners and the ownership. I think in fact this is true for for everything I do. I think the owners is much more important. I mean it's sort of all kind of comes down to that in many ways. And that's kind of dating back to kind of like find inspiration from that from investor as well. So I'm very focused on the owners and I want what I want to see is something that's really going to be long term and that they really have sort of skin in the game. So I'm I'm less inclined to go for a company that is sort of owned by institutions and private equity firms and stuff like that. I'm much more interested in if the sort of owners are sort of you know the founders they're still there they founded the company they still own it they have significant stake this kind of thing. So this is this is something I really look at another thing I really look at is the size of these guys. So and I want in some ways sort of the smaller the better. Of course it's risky you know it's much much better to sort of you know when you have Lifco or something like this they have their 200 companies or whatever it is now. You know when you get these other ones and that they have you know 20 right they have 30 they have 10 you know this the the you know even sort of if if they're still kind of 90s one of the companies I really like I think they have around 90 or so. You know so this this is kind of I'm looking at the the actual number of companies the number of sort of you know uh and also their their market cap. And so these types of things are are very important to me. And then also I'm looking at I want to see a niche that that makes sense to me. And so you know it's not necessarily any individual specific company. I sort of like it when they are you know when the niche makes sense. You know one of the companies is in sustainable tech. So this is kind of a good thing. This is you know clean water and valve technology and this kind of thing. So district heating pumps and things like that. It makes sense they get sort of you know uh government contracts and and these kinds of things it's it's it makes sense it feels stable. So I'm I'm looking more in the in the sectors and the niches. Yeah and maybe incentives I mean definitely so I I mean absolutely so if you have the owners you know with with large stakes you know they have skin in the game and then I want the of course the the CEO to have skin in the game and be sort of a big big owner of the company as well. So this is this is sure this this is an incentive then okay you have also this and this is a very sweet this is something that the Swedes have have perfected and that is you know you have to get companies to sort of sell themselves to you. And in this way you have to be a good owner. You have to be a a responsible owner and I think when you have some sort of private equity firms sometimes they have been known for coming in and like you know gutting the place and maybe loading it up with debt and and you know selling it onward you know at a much sort of worse version of itself and maybe in some ways destroying the legacy of the people who founded it the family who founded it and sold to the private equity firms this kind of thing. This this isn't this doesn't feel good. I'm sure it's a good moneymaker but you know it kind of makes sense so I think it's really important how these guys like you know handle and treat and and are as owners of these companies because they keep them it's very decentralized. They keep them they let them run they want them to continue to grow and to to continue to sort of dominate whatever niche they're in. And to do that you have to be you have to be you have to be good you have to be a good owner. And so so that I think is really really sort of important. I think some of these guys almost advertise the fact that we never sell we're not gonna buy you and then sell you like another so these kinds of qualities it's not so it's not exactly which company specifically becoming an extra an expert in each each um company.

SPEAKER_00 39:23

Of course I'm also looking at I mean you have to buy at a good price the model doesn't really work if you are paying too much for companies I think that's a good segue because valuing a serial acquire is a lot it feels a lot more difficult than a simple I don't know software business that generates subscription revenue. How do you think about valuation for any company but also specifically serial acquires so you just use regular price to free cash flow do you build a uh valuation model do you just look at averages and see where it sits like Buffett always says just I use napkin math or how do you think about valuation?

SPEAKER_01 40:08

I think one of the things about these companies is it's good to look at the the value in terms of the earnings before interest taxes and amortization so this level is actually this is the level you want to be looking at. And then you know when you see that you see that you've got your sort of LIFKOs and and you know the the sort of the big players they're sort of up there I believe if I checked I would see them kind of up in the 20s or something like that. So then on this number you know you want it to be down if you see that it's significantly lower than than those guys this is something I look at. This is very important to me so I don't want to be overpaying. Also I want to see that it's sort of gone you know sometimes perhaps at these 52 week lows or something like that. If there's if there has been some issue something that's sort of pushed them down preferably for no reason I want them to be pushed down because the whole market is worried about oil or war or something like that, which has nothing to do with how these guys are running their operations. So some sort of you know superficial pushdown this kinds of things and you can see that in the in the valuations as well they react just like everybody else and that's a big opportunity you know there will be some sort of big market scare coming up and there will be a correction in the market that will push everyone down you know 20 30% this will be good for them. You know this this kind of sort of what could you say that's more of a of a macro issue that pushes these. So it's this kind of evaluation. And then I also have to say in some ways I am much less concerned about the valuation of something if I get the feeling that they are going to be able to continue to compound for the next 20 years at sort of 15 to 20%. So if you if you have if you really have a good feeling about that then the valuation does not matter as much to me as it does for something like you know these sort of more mean reversion things where you're buying something that has been pummeled and is now at a 52 week low.

SPEAKER_00 42:26

I agree I think this is overlooked often I think if you uh a valuation is very important don't get me wrong and I often don't buy a company because of valuations but um the longer your time horizon the less it matters right most definitely and again you know if you're if you got the blueprint and you're starting from a small place you know each individual acquisition really moves the needle.

SPEAKER_01 42:57

So you you have you have a you have a long runway.

SPEAKER_00 43:02

And so just as you say it's I mean it's kind of like whatever they are right now that just might be just kind of a blip if you if you um uh you know sort of look 10 years down down the road so so absolutely it's the it's the model it's the sort of it is the long-term trajectory and that really takes the pressure off actually trying to find sort of that you know that that uh kind of diamond that is that is now you know pushed down to to some you know low walk me through your um through your process from start to finish and you don't have to expand on it like fully in detail but you you you start at a company you find maybe something you've heard you've read something you find an interesting company how do you determine from A to Z whether the company is going to be in your portfolio or not what does the company need to Have in order for you to either replace it with something else or be added to your portfolio. I I just would love to get into your thought process of start to finish.

SPEAKER_01 44:13

So I like to, like everybody, I like quality. You want to see those quality metrics, you want to see margins, and you want to see, you know, like free cash flow. You want to see strong returns on capital. These are things that we're all looking at. I also, of course, want to, you know, as I mentioned, I want to see that I want to, I want to have a feeling that it's going to be able to be around for the next 10 or 20 years, this kind of thing. So so these are these are kind of like this is this is this is a starting point. Then I mean I use the Kelly formula, which I think is is really, really helpful. This is uh an equation, this is for sort of betting. You know, you can go to Vegas and use this. It's really helpful in terms of of allocation and what to buy for for stocks. So I am I am actually running the figures and sort of like putting sort of the Kelly formula into action and kind of taking out the results and saying, okay, you know, this one looks like a better bet than this one. And so, and this changes week to week. It definitely sort of is is price dependent. If you see something like Adobe, you know, drop like heavily, then of course its Kelly score goes up. So I'm very sort of I'm very Kelly score in sort of how I'm on my sort of you know decisions, weekly decisions on investing. And uh and then also on allocation. This actually is very helpful on allocation. How much should you have of this and how much should you have of that? So, and I think you know, allocation is actually almost a harder science for me. It's easier to kind of value and buy a company, but kind of how much should it be versus the other ones can be a very difficult decision. So, you know, here you have a formula that actually helps.

SPEAKER_00 46:06

I am unfamiliar with the Kelly formula. Can you just uh for a stupid investor like myself explain what that entails?

SPEAKER_01 46:15

It uh let's see. It's uh now you now you're now you're getting me here. It's gonna take in the sort of the probabilities, it's looking at probabilities and takes in the probabilities of sort of like losing, and then it also estimates the the sort of the gains, the potential gains that you could have. Are those your inputs or this is um I mean it's the numbers for the uh companies, the the sort of financials estimates, for example. Also, I think you can sort of I think it's based on industries as well. I'd put this put this into sort of you know an AI agent and it helps and it spits out a spits out an answer. And then you can sort of tweak, and in a sense, you can tweak your um kind of like what you want. You can if you're looking for kind of something that says, you know, how's this going to perform over, you know, perhaps the next month, versus say, you know, I'm looking for something that is going to be sort of you know a longer term bet. So you can you can sort of tweet tweet these kind of incomes or uh inputs.

SPEAKER_00 47:28

I just look I just googled the uh Kelly formula and the first word I found is the gambling the gambling formula, so that just made me laugh a little bit. But uh maybe it's useful that scary?

SPEAKER_01 47:39

It's it's I mean, let's see if I can get the history of the Kelly formula. I mean, I think it was it was you know devised as a way to sort of you know to place bets. So of course this is uh this is a this is a you know something to to you you know if you're trying to win in Vegas, you should definitely sort of use this. I think you know, somebody the guy who wrote the book on on uh sort of you know how he beat the house in Vegas, I believe he, you know, he was doing the Kelly formula, I think, in his head as he's sitting there at the table, you know. So it's a gambling thing, absolutely. Also very, very prevalent in the in the investing world. And it's actually what's very typical is something called the half Kelly. Half Kelly is when you uh you know you the the outputs from some of Kelly formula calculations would be like too strong. Like it would say you should allocate, you know, sort of 80% of your you know capital to this. And when you're in Vegas and you're sort of you know sitting with a pile of of chips and you get a really good hand, that kind of makes sense. So fine. Okay, I'm gonna I'm uh I'm all in here. But in the investing world, you don't want to be all in. You or I mean yeah, you you you you want to be careful, of course. So it's very typical to do a half Kelly from the results. Interesting. It's it's uh it's I find it very helpful because of as you say, this is all sort of, you know, in many ways one big guessing game. And here is some sort of a a mathematical formula that helps to protect the downside guide. Yeah, and to help guide. You can't like with anything, with with with any tool, whether it's a screener, whether it's some sort of something AI, um, you know, you have to make the decision in the end. So this just these are just guiding you. So I get guidance from the Kelly formula, I get guidance from from I mean, you know, screeners and things like that. But in the end, it's you're making the calls, right?

SPEAKER_00 49:46

So when do you decide to sell a company? When do you just sell because uh the stock price has gone up uh too much, and you now have a 10-bagger and you decide that it's a time to cash, or when you're down 50%, or when the fund when do you decide to sell a company? Or partially?

SPEAKER_01 50:07

So it's a really tough decision, and I trust not to do it. And it's you know, I think one thing that you read a lot of sort of the investing legends, they typically say, you know, that they sold too soon. It's a very common mistake. So, and I really take that to heart. And I'm not in it to sell. So I'm very looking, I'm very much looking long term. I did make a big switch when I I got it more and more into sort of smaller companies looking for that sort of 10x and 100x and things like that. You know, it's it's I sort of had a switch there where I sort of said, you know what, I'm not gonna get that 10x from some company that's actually already massive. So what is that? That's sort of a I want to say it's a it's a philosophy shift. And then I sell when I when something doesn't fit into the sort of the philosophy or the sort of the system. And in this case, for example, I talked about oil before. You know, I was actually, you know, in Norway, they had this wonderful, you know, sort of value income companies where that's it's you know, you're getting it's it's a value purchase, really high dividends. So it just feels safe and in lots of different ways. Oil companies, typical example. So this was great. Massive dividend, very low price, it's sort of best of both worlds in my mind. You know, I shifted from this. I just kind of came to a feeling that this is not where I am going to get that 10x, like that super compounding that I'm out after. You know, if you're spitting it out in dividends, then I'm getting it, then I'm have to put it somewhere else. They're not doing it themselves like the serial acquires do. I shifted there. So I actually sold in a oil, uh, I want to say, you know, earlier this year is when it when it was. And it hurts a little bit, you know, now, now and it really does. I mean, I'm um, of course, I I'm I'm you know happy where I where I am now and where I put the capital and what I sort of you know shifted into. It does hurt a little bit. So no, I I it's it's it's a hard, it's a hard one. Selling is even when it falls outside of the philosophy, it's it's hard. And I think maybe something I can kind of recommend or a mistake I made is is you know, be careful with that in mind, maybe be careful what to buy. Be careful what you buy, you know, because it is really hard to sell it, actually.

SPEAKER_00 52:52

What has been your best and worst investment percentage-wise so far? Oh, that's okay. That's that's hard to do. You don't have to go into the numbers, but I'm curious about which companies. Right.

SPEAKER_01 53:06

So with the fund I have right now, it is it is actually, I mean, the worst one, that's an easy answer, because that is novel nordisk. All right. The those guys, you know, they just go from one sort of bad, one bad move, one bad day to another, basically. And you know, I bought the dip and it just keeps dipping. And so that dip has not recovered, and it it sort of seems to get worse, actually. So they are they are down, and that's uh the the they keep going down. So that's the easy answer. And you know, I can actually say there that I'm sticking with them. There's somebody who, you know, I've been up here in the Nordics for a couple decades, I have been watching them for a couple decades. So so I'm you know, I'm familiar, I have, I have faith there. They are they are the worst one. You know, I think Nvidia, this benchmark right now, is the best one that I have. And I'm a little bit disappointed in that. I want to say that maybe I can sort of in a way to explain it's a it's early days for my fund. I essentially really kind of started stock picking only last year, or early last year. It's been, you know, kind of a long time in the coming, and of course I've done other investing, but sort of really kind of kicking this off, it's still early days. And so these compounders and and and and other bets that I sort of multiple expansion, these have yet to play out, and that's fine with me. I have three to five year kind of window that I don't sort of judge myself on until I reach that. Uh so so I'm cool with that. But it is early days, and I am ever so slightly disappointed that the that the my best performer right now is the company that everybody else is buying, and and and you know, is sort of uh in no way sort of something that I take credit for some fantastic find there, you know, where I sort of beat the market and and made some big contrarian move there. I didn't. I did buy it when it had dipped for the what was it, Deep Seek or whatever when that was. So yeah.

SPEAKER_00 55:23

That's honest. That's very honest of you. What's one book, investing related or not, that has fundamentally changed how you think about life or investing or money in general.

SPEAKER_01 55:38

So I like the uh the Philip Fisher book, Common Stocks and Uncommon Profits. Profits. This one really got me to to think about quality and think about just kind of really finding those few winners and then and then holding them. This this was an important book to me. I mean, of course, I have to say, I think I think nearly every investing book has been has been helpful in some way. So I really recommend them. And of you know, of course, I'm speaking about sort of the popular ones that that everyone knows about and reads. So what could there be 50 of those? And I think they're all they're all good. You should read every single one of them. So so just generally they all help in some way. That but that book stuck out to me. And then the book on uh 100 baggers. Yeah, it's really good. This this one also changed, and and you know, it it uh I mean the idea that's you know, you the you know, I mean one of the main bits of advice there is the best way to find hundred baggers is to is to look for them. Right? It's very it's very logical. Um, and I kind of realized that I wasn't doing that, you know. I mean, let's take the oil investment, for example. You know, like that's that was a I felt felt good about it. It felt like a good thing. Um, there's value, there's income, you know, the downside was protected, it was only upside. But you know, a big oil company, I I didn't see it like as the next hundred bagger, right? This is this type of thing. And so this this changed me. This one was a good one where you say, you know what? If if you're if you're really going for that, then you have to go for it.

SPEAKER_00 57:32

I I think I I bought it when I turned 17, so it must have been like 10 years ago. I think it was released somewhere in 2015, 2016. 100 beggars, and I remember reading some part in the book, it was about the coffee can portfolio, right? And they told me this um uh this statistic that uh the best investors are debt investors, and I remember being like 17 and I was like, really? There's people making this their job, they do this day to day, and the best investors are the people that don't touch their portfolios, and I know that has always been stuck in my mind where uh whenever I buy or I sell, I always think back to just don't do anything, right? So uh it's it's been uh a very good book, yeah.

SPEAKER_01 58:17

So that, yeah, I mean I saw something very similar, some study of some financial firm that looked at whom were the best investors in their and you know, of their customers. And it was the same thing. The the ones who had performed best were the ones who had forgotten that they that they had an account. Yeah, and they completely forgot for you know decades. Those were the best performers, and then the the the the other ones were the ones that were dead.

SPEAKER_00 58:45

I couldn't which makes our job so redundant and stupid, actually, right? I mean it's basically just finding great quality companies and then just not doing anything. That's it. I mean, we're hoping so, aren't we?

SPEAKER_01 59:01

We're hoping so. It's really concept that's sort of you know, the the best thing you can do is nothing, right? That's a good that's kind of a good but it's all but it's also the hardest thing to do. And I mean, you know, so we're on Substack, uh, and I mean, you know, the the the news flow there. Yeah, yeah. And you know, uh again, it's sort of this this kind of superpower or training your brain to sort of not to not get really into into the noise there. I find myself, you know, of course I do a little bit of the scroll, but I really try to to sort of not really try to limit it and stuff like that. So yeah, I think we're I think that's a little bit of a theme of this of this this podcast now. Our discussion here is sort of see past the noise and and try to try to really really try to do nothing, right?

SPEAKER_00 1:00:02

Yeah. But I I really I really believe it's such an overlooked part of investing, and I don't think it can hurt it doesn't hurt to to keep talking about it and um mentioning it. You know, the system we live in today is just so designed to release dopamine and always keep us active. Um, what helps me personally is to always think about the incentive of what I'm using. And uh, you know, brokers want you to buy and sell as much as possible. It's that simple. So just do the opposite of what the business wants you to do. Instagram, Facebook, TikTok want you to scroll through all the garbage on there. Just don't do it. Start reading, start, you know, doing less. And uh yeah, that helps me. I am a big believer in friction, for example. I really believe that you should remove the broker apps from your phone, turn as many friction things in between you and buying and selling. So, you know, I I I I don't have the brokerage apps on my phone. I have to open my desktop and log in and use all these extra steps, and it just makes me think a lot longer before making any decision, and that helps me personally. Do you have anything that helps you?

SPEAKER_01 1:01:24

Well, I can also say I'm just I'm glad to hear that somebody else, you know, is looking at the same way and struggling with these kinds of things in the same way that I do. So so it's fun to talk to you and hear that we have the same problems, definitely. So, so the more you can kind of get away from this kind of stuff, the better. I couldn't agree more. So, and then, you know, I think another thing I wanted to add to that was with analysts, you know, I think it's also it's hard to take in the sort of the advice of sort of analysts and the market as well. So I try to distance myself or sort of, you know, when things get kind of crazy and kind of when you really need, you know, so some, you know, perspective, you know, it can be really counterproductive to turn to analysts and the market at that at that moment. It's right when you need them, they're almost very common for them to be exactly the wrong people to listen to and to speak to because they're sort of overreacting in in some sort of way. So, so it's, I mean, this is playing to the point where it is very tough, you know, and even kind of when you're trying to find answers and stuff like that, the people who you kind of think you should turn to for those answers, the analysts and the experts, are almost exactly the ones who are screaming self, like get out, you know, or screaming, you know, AI is going to change everything. So sell, sell every, you know, like um software company that that ever existed. This kinds of things it's not is not helpful, you know, right when you need it.

SPEAKER_00 1:03:06

I agree. Yeah. Let's work towards an ending, Joel. I have two more for you. When you look 10 years down the road, what does success look like for you and the fund? And is there an end goal or is it the journey? Right.

SPEAKER_01 1:03:22

I mean, I think you have to like it. I think you have to have fun. And I think it's true also with with Substack as well. So, so sort of the writing about it and and doing that, the entire thing has to be fun. If if I look back in 10 years and, you know, it's been a horrible 10 years because I've been, you know, stressing, that that would be bad. I want the opposite. So I think it it just has to be something where you look back and say, wow, you really did something that you wanted to do. And that this very much is that. You know, I want to sort of see if I can get that sort of compounding magic that I've heard so many others talk about. So of course, there's there's you know the results, but also just in I want to see that I'm that that I've that I've enjoyed it along the way.

SPEAKER_00 1:04:17

So before we go, I always end with uh the most valuable or important lesson you'd give to uh our listeners. Maybe something you've experienced, a massive mistake you've made, just life advice in general, something you wish you knew when you were young. Uh it can be anything. What would be what would it be? It's a hard one.

SPEAKER_01 1:04:39

You can edit out this the silent part here.

SPEAKER_00 1:04:41

No, I think this is a great section. It's it's called thinking.

SPEAKER_01 1:04:45

I mean, I like the idea that uh that markets crash and that they they recover. This I think is a big this is a big thing to keep in mind that there will be there there have been crashes and and you recover from them. And it's a good thing to sort of take advantage of when that when that happens. So I was around and and I was a journalist during the financial crisis. Um and so I have sort of kind of had a front front row seat to that. And it was amazing, you know. I mean the you almost felt like the sort of the you know financial world was coming to an end. It might have, actually. So so the idea that you have crashes and then that they recover and you know that you can that you should take you can take advantage of that. That that is something I would have really liked to to have had in me when I was when I was uh a kid.

SPEAKER_00 1:05:56

Yeah, I think uh being a rational optimist fits the That quite well. Being realistic about how the market works and behaves. But if you're investing for the long term, I mean, you have to believe in some sense that the world will be a better, more profitable, better place 10, 20, 50 years from now. And yes, markets will crash, there will be wars, there will be bad times. I think that's a that's a beautiful one. So, Joel, as we uh end this episode, where can people find and learn more about you?

SPEAKER_01 1:06:32

Yeah, great. So, I mean, I think Substack is the place. So the the newsletter is called Sherwood Investment Letter. So just just straight straight to the point there. My name is Joel Sherwood, I think, because that's the handle on Substack. So yeah, and and sort of I am documenting my journey. I'm doing, you know, um, I'm focused on the Nordics, and I'm super into these serial acquirers, which I think is something that everybody should know about. This is a really kind of cool thing going on in the investment community that that sort of every investor should at least know about and be able to sort of make decisions on it. So I invite you to follow that journey along with me as I try to sort of realize that compounding magic focused on you know this small little you know random place up north, way up north in the world.

SPEAKER_00 1:07:32

And if uh our listeners would like another episode with you, just purely focused maybe on serial choirs, just uh let us know. I would be open to it. Sound sounds unique and interesting and uh insightful. Thank you so much, Joel, for coming on the show, taking the time to do this out of your day. It was a pleasure and uh I really enjoyed it. It has been a pleasure. Thank you so much for having me. Thank you, thank you.