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(Small Business) Market Wizards

Here is something that caught our eye this week:

Lessons from an old book hold true

Before we started our first “real” job, our soon-to-be boss gave us Jack Schwager’s iconic Market Wizards, which featured interviews with some of the world’s top traders across financial marketspeople like Paul Tudor Jones, Bruce Kovner, Michel Steinhardt, and Ed Seykota (if you don’t know these names, they are impressive traders).

We’ll admit that our twenty-year-old selves didn’t understand most of what was in the book.  However, one thing from the book stuck with us: while the end result was the samethey all made oodles of moneyevery trader had his own unique, focused, approach.

A recent post by Fred Wilson titled “Knowing What You Are Looking For” reminded us of this point.  As Wilson outlines, there are tens of thousands of publicly listed stocks across the globe, not to mention the trillion-dollar global bond, commodity, and currency markets.  There’s also private equity, real estate, venture capital, and esoteric assets like bitcoin.  From Wilson’s post:

“How do you make sense out of all of that opportunity? I’ve always been a fan of knowing what you are looking for and ignoring everything else.  We call that thesis based investing at USV, but it is actually more than that.  We can say that we are looking to back trusted brands that increase access to capital, wellness, and knowledge, and we do.  But we do more than that.  In each of those sectors, we go deeper and identify specific areas within them that we want to target.  We call those ‘deep dives.’  We identify areas we want to focus on and areas we don’t want to focus on…. In a world with so much opportunity, it pays to ignore the vast majority of it and focus on a tiny bit of it.  That may seem counterintuitive, but I am certain that it is the right thing to do.”

At Chenmark, we focus on acquiring small operating businesses that we intend to hold indefinitely.  We define “small” as $1-3 million of owner earnings, and like businesses that have a stable, durable revenue base.  We like businesses with retiring owners who wish to exit but care about their employees being taken care of post-transaction.  We care less about industry or geography, and more about a strong market presence.

We will admit that from time to time, we still get distracted by opportunities outside our lanea rapidly growing consumer good, a real estate development opportunity, or a promising start-up.  Thankfully, between three co-founders, we are able to hold ourselves in check and focus on building the core of our businesssomething we are getting better at as Chenmark grows.  Candidly, part of our ability to focus is simply having the confidence in ourselves and our strategy to say “no thank you, that’s not what we do”.  As the Market Wizard book note outlined, While their responses differed in the details, all of them could be boiled down to the same essential formula: solid methodology + proper mental attitude = trading success.  We would argue the same formula holds true for acquiring and managing small operating businesses, too.

Have a great week,

Your Chenmark Team

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