Welcome to Galician Investor,
Today, I am pleased to announce content that is different from what we usually offer: an interview with an investment industry professional. I will try to make these interviews a regular feature, though it won’t depend solely on my will.
The first guest is Michael Gielkens (@MichaelGielkens on X), partner at Tresor Capital, whom I had the pleasure of meeting thanks to his detailed publications on companies like Brookfield, Berkshire, Constellation Software, Investor AB, and other excellent serial acquirers. His work impressed me with its level of detail, which is rare to find for free. For this reason, I decided to reach out to him to see if he’d be willing to answer a few questions and share an investment idea. To my surprise, he didn’t hesitate for a second, for which I am extremely grateful.
I’d also like to highlight that the interview wasn’t conducted over the phone; Michael took the time to answer all my questions in writing, which speaks to his dedication and generosity.
Thank you very much, Michael. 🙏
Below, I am sharing his responses in full, except for the investment idea, which will be exclusive to premium subscribers.
When engaging in conversations, one can be convinced that management is focused on the right aspects to create value for shareholders. Sometimes, this can be perceived in small details. For example, when we visited Judges Scientific in London in 2022, the CEO, David Cicurel, welcomed us and made us a coffee. It wasn’t an assistant, but the billionaire CEO himself. - Michael Gelkins
Introduction to Tresor Capital
First of all, thank you very much for your interest. I’m a fan of your posts, so it is great to be able to contribute.
For the history of Tresor Capital, we have to go back in time a bit. Since 2016, three colleagues and I have put together a portfolio of family-owned holding companies at a Luxembourg-based wealth management company. Historically, we already had a position for most clients in companies like Berkshire Hathaway and Investor AB. The success of these companies inspired us to look for companies with a similar approach and configuration, which resulted in the Tresor Family Holding Mandate. At the end of 2021, together with the aforementioned colleagues, we have formalized the Dutch investment boutique Tresor Capital, where we built upon the jointly developed investment vision. We have also been able to set up a great collaboration with two new, experienced and valued colleagues, and have recently started hiring some new, valued additions to the team as well. We’ve been growing quite substantially, I’m happy to say, both due to performance and new clients that are joining us.
In addition to the family holding mandate, which we manage in-house, we also offer clients access to unique investment opportunities. For instance, we can offer clients access to the institutional founder share class of the Turtle Creek Equity Fund, which is a unique offering in Europe. The historical track record of Turtle Creek has been excellent, with a CAGR of over 20% since 1998. Furthermore, their approach with a focus on founder/family-led businesses, with a significant tilt towards serial acquirers, very much complements the family holding mandate. I recommend watching one of the interviews with CEO Andrew Brenton on YouTube. In addition, we offer clients access to private equity and venture capital funds at attractive conditions, as a component of their portfolios.
Currently, we offer managed accounts in two distinguished ways. Clients can get a full portfolio managed by us, which offers complete diversification for their total wealth and investment goals. Alternatively, we also offer tailor-made solutions, so that clients can get access to one of the building blocks of the portfolio. For instance, we have several clients that exclusively want access to either the Tresor Family Holding Mandate, the Turtle Creek Equity Fund, private equity, another building block, or a combination thereof.
1. Michael, could you tell us a bit about your background, how you came to work at Tresor, and your early steps in the world of investing?
During the financial crisis of 2008/2009, I started to get interested in investing. My father worked at a listed company as a financial director, and had shares and employee options of the company through his job. This was quite interesting, and I talked a lot about it with him. When I was studying business economics in 2010, one of the teachers pointed me to an investment club with (former) students, which caught my interest. I was inspired to study more about it, and found the works of Warren Buffett, which firmly cemented my interest in investing. Through my dad's brokerage account, we bought shares of Berkshire Hathaway, my first investment in equities.
After completing my MBA, I was asked by a member of the aforementioned investment club to join a wealth management company as an analyst in 2016. My first task was to write a research report on Berkshire Hathaway, and to find similar companies, which was the basis for the Tresor Family Holding Mandate that we have today.
2. I've noticed that you like to invest in serial acquirers and have some high-quality ones like Constellation Software, Berkshire Hathaway, Danaher... What led you to choose this type of company?
The excellent historical performance of Berkshire Hathaway and Investor AB prompted us to dive deeper into the investment company universe. First we looked for similar companies, like Markel or Exor, pure family led holding companies. Gradually, we expanded our universe to include serial acquirers as well, as they are quite similar in many aspects.
The attractiveness of these kind of investment companies, is that the main focus of management teams is on creating value. The main job of management teams is to focus on capital allocation and (re)investing cashflows at high returns on capital. The fact that these companies have decentralized and diversified portfolios offers some resilience and antifragility, while also improving dynamism, as a group of smaller companies can better adapt to a changing environment than a large, centralized, top-down type of company. What we also find essential is skin in the game; the fact that a family, founder or other reference shareholder is there to keep the strategic focus on the long term.
We recently wrote an article on our website about why we think holding companies and serial acquirers should be a part of every investment portfolio:
https://tresorcapital.nl/waarom-familie-investeringsholdings-in-elke-portefeuille-thuishoren/
We also wrote an article about the different types of investment companies, from holdcos to serial acquirers, including their similarities and differences, and compare Berkshire Hathaway and Constellation Software as an example:
https://tresorcapital.nl/van-holdings-tot-serial-acquirers-soorten-investeringsmaatschappijen/
Both articles are in Dutch, but Google Translate works quite well to put this into English, Spanish or other preferred languages.
3. Since you invest in serial acquirers and often the success of the investment depends on the people in charge, how do you evaluate these executives and gain the confidence to invest in them?
With the smaller and midsized companies, it is easier to get access to management. By engaging in conversations, one can build conviction that management is focusing on the right matters to create shareholder value. It’s sometimes indicated by small things. For instance, when we visited Judges Scientific in London in 2022, CEO David Cicurel welcomed us and offered and made us coffee. Not an assistant or whatever, but the multimillionaire CEO. That indicates Judges is quite frugal at the head-office with a very small core team, something we of course like to see. Such small things can indicate that management has their eye on the ball.
If a company organizes them (including Q&A that is), annual shareholder meetings are a great place to engage with management and the reference shareholders, or alternatively shareholder/capital market days. Not only the formal part, where they present their strategic vision and answer questions, but also just engaging with them before or after such events can give one more insight into the minds of the insiders.
Gaining (and keeping) confidence also boils down to skin in the game. You want to see a reference shareholder with a significant amount of the shares outstanding in ownership, who can block opportunistic and more short-term focused activists for instance and keep the eye on the long term. It is also important that key management has a decent amount of their wealth in shares of the company, so that they are aligned with the external minority shareholders. Ideally you want to see more than 5 to 10 years of annual base salaries in share ownership of the firm. However, skin in the game doesn’t guarantee that nothing bad will happen. For instance, Richard Fuld had over 90% of his wealth in the company where he was chairman and CEO. That company was Lehman Brothers… This last point to say, skin in the game is very important, but it doesn’t absolve you from doing further due diligence. It’s one piece of the puzzle.
In the end, of course, the proof is in the pudding. How is the return on invested capital, employee turnover, is there an absence of value destructive deals, for what metrics is the company optimizing? These are all indications of management quality. Corporate culture is the most crucial factor for long term returns. If you look at Danaher, the Danaher Business System and the corporate culture is so strong, you could say it is a competitive advantage in its own right.
Incentive structures are also of crucial importance. As Charlie Munger used to say: “Show me the incentives, and I’ll show you the outcome.” Constellation Software takes the cake in that respect. While countless software companies dilute their shareholders with the virtually unbridled issuance of employee stock options, Constellation employees are required to invest 75% of their bonus in Constellation shares on the stock exchange and hold them for at least four years in an escrow account. This creates the ultimate form of skin in the game and a long-term focus. A look at the share price shows that hundreds, if not thousands, of employees have now become millionaires by simply holding on to the shares (there is also a lesson here: don’t sell your winners too early). Something that is most characteristic of the exceptional company culture for me is the fact that the absolute majority of those employees still work for Constellation and still own the majority of those shares. They may have retired a long time ago, but still see a lot of opportunities and potential at Constellation.
4. When investing in a company, what do you look for? Quality, durability, price... anything else?
The importance of skin in the game has already been mentioned, but cannot be understated. It is one of the first things we look at before diving deeper into a company. We might miss some great investment opportunities of companies without material insider ownership, but skin in the game is a non-negotiable requirement to be included in the Tresor Family Holding Mandate.
High quality is crucial, as exemplified by the return on invested capital. There must also be sufficient opportunities to reinvest the cashflows at those high returns, so that we can benefit from the wonder of compound interest. That is one of the general benefits of our focus on diversified holding companies, they are often unconstrained in their capital allocation possibilities. Of course it requires good allocators to do something worthwhile with that capital, so management quality is an important factor as well, as already discussed.
A competitive advantage, or moat, is of vital importance. Often, with holding companies and serial acquirers, there are moats in different niches for subsidiaries. For instance, Constellation Software owns a portfolio of over 1.000 companies which are a significant player in the specific niche where they operate. Lifco is another good example, with strong moats in the markets for dental tools and demolition, while also having a portfolio of more diversified sectors dubbed “system solutions,” which allows for unconstrained investments in different industries. Investor AB has a portfolio that consists of strong players in their respective markets (including serial acquirers like Atlas Copco and Patricia Industries), which makes both Investor AB and its portfolio companies of very high quality. You could say that there is a double moat with such companies, both at the holdco level and at the portfolio company level.
We also look at the operating history. Has the company consistently created value over a longer time period, without too much cyclicality? How did the company and its subsidiaries perform in financial crises, for instance. We want companies with relatively consistent earnings and cashflow over longer periods of time, that are well capitalized. High levels of debt can be detrimental, so we always prefer companies with relatively low leverage.
We are aware of the interplay of the factors of earnings/cashflow growth, return on (incremental) invested capital and valuation, a topic on which Michael Mauboussin has written extensively. We don’t rely on singular metrics like the price/earnings ratio, which can be misleading due to accounting rules. In our valuation models, with multiple scenario’s we try to assess a range of the intrinsic value of a company, with realistic assumptions. We tilt the valuation in such a way that the more conservative scenario’s get assigned a higher probability, thereby resulting in an additional margin of safety layer (the first one being buying these companies at a discount to intrinsic value). By comparing the current difference between the calculated intrinsic value and the share price and comparing it to historical levels, we can find out if a company is relatively more attractive, thus resulting in a potentially higher allocation in the portfolio.
5. What three companies would you love to have in your portfolio but consider too expensive at their current price?
I’ve always admired the Swedish company Investment AB Latour of the Douglas family. They have created a tremendous amount of value and have a very strong, high quality portfolio, with Assa Abloy, Tomra and Hultafors, for instance. But I can’t find myself to pay a premium of 46% above intrinsic value, even if we take optimistic assumptions for the subsidiaries. We keep following the company for an attractive entry point, though.
I also think serial acquirer Heico has a very strong moat in the aftermarket parts for airplanes, but never really got there in terms of valuation either. They've never had an accident, yet… but if it happens, it will permanently impair the valuation people are willing to pay.
There are some smaller holding companies in Sweden which also have interesting exposures in their portfolio, such as Bure Equity or Linc AB, but they almost exclusively trade at a premium. As such, they haven’t been seriously considered in recent years.
6. Something that intrigues me about professionals in the sector is their sources of information. Besides reading company reports and listening to earnings calls, where do you get information or stay up-to-date? Websites, blogs, specialized services... Any must-haves for you?
It’s interesting how many great people there are on FinTwit. X really is a great source to find some of the best informed writers/investors with positions in companies that we follow. Often, they also follow similar companies, which in turn helps build the watchlist and shortlist with potential candidates. They often have a Substack as well, which is very insightful. I try to retweet good sources from time to time. Websites such as In Practice and Quartr also publish good background data, interviews with (former) managers of companies etc. And TIKR and Gurufocus are useful sources to find some more information on historical performance, transcripts, insider ownership/transactions, financial metrics and the like.
Funnily enough, I gather most news by just Googling the names of companies (and their subsidiaries) we follow and gathering it from there. That’s where a lot of input for the articles of our weekly newsletter are sourced. Of course, every country has some specific sources for information, mostly specialized financial media. In Belgium, De Tijd often has good articles on the holding companies in Belgium, while there are also several sources for the Swedish holding companies. For an overview of real-time intrinsic values of Swedish holdcos, including information on historical intrinsic values and discounts, I can highly recommend
https://ibindex.se/
I can also recommend following the official LinkedIn or Twitter/X pages of companies. Interesting information, which often doesn’t get put in a press release, is shared there. This gives some more in-depth knowledge. They also share interviews, video’s and podcasts in which top management has appeared.
And, I’ve found that several podcasts have covered a lot of the companies we also follow, which is also a good source. Think of Business Breakdowns, Acquired, In Good Company with Nicolai Tangen, and Invest Like The Best.
Finally, the writings of great investors can be a very useful source. Think of shareholder letters (Warren Buffett, Mark Leonard, Tom Gayner), but also professional firms that publish their writings, such as Akre Capital, Fundsmith, Giverny Capital, Turtle Creek Asset Management and many others.
7. If you had to guide someone who wants to start investing on their own today, what would you say? What mistakes that you've made would you try to help them avoid?
Be curious and inquisitive is perhaps the most important advice. Furthermore, it’s important to find an investment style that fits with your personality. There are many different investment styles, after all. Often, investors focus on beating the market. I’d say there is nothing wrong with just following the market (passive investing). What’s most important, is that you build a portfolio that fits with your risk appetite. No amount of future returns is worth it to lie awake at night, worrying about your investments.
I’d say start investing today, if you’re not doing so already. You don’t need to be a millionaire to invest, with many brokers you can open an account with small amounts. Making monthly contributions is a great way to build up your portfolio. It is very important to create a plan and stick to it. Let compounding do its magic and do not interfere, it takes a decade before the miracle of compound interest really starts to become material.
Regarding mistakes, even though the Buffett vision of value investing and quality investing was quite clear for me early on, like many other young investors I made some early mistakes with my own money. I paid my dues by investing in individual mining companies because of the perceived high return probability, investing solely based on an enthusiastic analyst presentation without doing proper due diligence myself, or trading too much. All mistakes that have cost me a pretty penny, but which have put me squarely on the track of having a more long-term focus and finding high quality companies with permanence, strong moats and management teams and a good culture. Although I’m still not immune to some biases, I’m only human after all. It’s an ongoing learning experience.
The most difficult bias to prevent is to take profits. Charlie Munger’s quote: “The first rule of compounding: Never interrupt it unnecessarily,” really speaks to mind there. On the road to multibaggers (stocks that return multiples of the principal investment), not taking profits in the meantime is very hard to do. That is why Fidelity found that the accounts of deceased investors outperformed. They didn’t trade too much, weren’t tempted to time the market and didn’t engage in the practice of portfolio rebalancing. This often yielded significantly concentrated portfolios, as the winners kept on winning. Peter Lynch once made the apt statement that “selling your winners and holding your losers is like cutting the flowers and watering the weeds.”
Finally, I’d just say: you will undoubtedly make mistakes. Rather make them earlier in your investment career, than later, as the amounts are probably still manageable. As Charlie Munger and Warren Buffett have often said, it’s important to learn from your own mistakes, it’s even better to learn from the mistakes of others. So always keep learning and studying other investors.
8. Your Favourite books?
Perhaps they don’t qualify as books, but I’ve learned the most from the shareholder letters of Warren Buffett from Berkshire Hathaway and Mark Leonard from Constellation Software. It really is like a crash course in do’s and don’ts for being successful in both business and investing. Both entrepreneurs and investors can benefit tremendously from reading them.
In terms of books, I’d definitely recommend Poor Charlie’s Almanack, which contains insightful life lessons and teachings from Charlie Munger, for becoming a better person and a better investor. I think this one kind of speaks for itself and is essential reading for all investors.
The Outsiders is also a great book, detailing the chronicles of some great investors and giving some insight into managers that could have something unique about them. Also follow Thorndike’s subsequent interviews and writings, his list of current examples is quite a good pond to fish (and contains several companies mentioned in this interview).
The book “To move from the old to what is about to come is the only tradition worth keeping” by Ronald Fagerfjäll is also a very worthwhile read. It chronicles the 100 year business history of Swedish holding company Investor AB, and is named after the motto of the founding Wallenberg family, which still owns a controlling stake to this day. Despite all the challenges, strategic changes, pandemics, and geopolitical/macro-economic shocks throughout 100 years, Investor AB was able to deliver close to a 12% CAGR during this time-period, thereby significantly outperforming the stock market.
And finally, I think Quality Investing by Larry Cunningham gives an investor important tools for selecting high quality businesses, with insightful case studies that make the theory more lively, in my view. Many works by Cunningham, on Quality Shareholders, Buffett and others, are worthwhile as well. It’s no surprise that he co-wrote a book with Buffett, and is a board member at companies like Markel and Constellation Software. I think his work has cemented my belief that quality shareholders are essential to keep a company focused on the long term, and allow external shareholders to compound alongside them.
Little-Known Company Thesis
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