Please enjoy this transcript of my conversation with Robert Cantwell, Portfolio Manager of Compound Kings. We cover longevity in investing, source documents, and learning from fintwit. Transcripts for other episodes can be found here.
“I wish someone told me that who you work with peer-wise is the number one driver of whether or not you enjoy working or not.” – Robert Cantwell
Robert Cantwell is Founder of Upholdings and Portfolio Manager of Compound Kings, which is an exchange traded fund focused on investing in compounders. I had Robert Cantwell on last year in episode 23, where he joined me shortly after launching Compound Kings in late 2020. Before founding Upholdings and launching Compound Kings, Robert had an incredible career, both as an operator and an investor. Robert started his career as an analyst at Elevation Partners, which was co-founded by U2's lead singer Bono. He then worked at the long short hedge fund Meru Capital before serving as Everlane CFO for five years. Robert founded Upholdings in 2019 and officially launched Compound Kings in late 2020.
In this episode, we cover why Robert is obsessed with how we think, process information and make decisions. The single biggest lessons that Robert has taken away from launching and scaling Compound Kings over the last two years, how being a compounding focused investor is different than being solely growth or value focused, why he skips to the back of investment books and goes straight to the source material to form his own opinions about the contents of the book, the investing tools that he and his team use daily at Compound Kings to beat the S&P 500, and his three-step process for consuming thinking through and ultimately coming to conclusions about everything that he reads.
Transcript – #130 Robert Cantwell of Compound Kings: My Favorite Books, Tools, Habits and More | 20 Minute Playbook
Daniel Scrivner (00:05):
Hello, and welcome to another episode of 20 Minute Playbook, where each week we sit down with an elite performer from iconic founders to world renowned investors and bestselling authors to dive into the ideas, frameworks, and strategies that got them to the top of their field, all in less than 20 minutes.
Daniel Scrivner (00:22):
I'm Daniel Scrivner. And on the show today, I'm joined again by Robert Cantwell, founder of Upholdings and Portfolio Manager of Compound Kings, which is an exchange traded fund focused on investing in compounders. I had Robert Cantwell on last year in episode 23, where he joined me shortly after launching Compound Kings in late 2020. Before founding Upholdings and launching Compound Kings, Robert had an incredible career, both as an operator and an investor. Robert started his career as an analyst at Elevation Partners, which was co-founded by U2's lead singer Bono. He then worked at the long short hedge fund Meru Capital before serving as Everlane CFO for five years. Robert founded Upholdings in 2019 and officially launched Compound Kings in late 2020.
Daniel Scrivner (01:07):
In this episode, we cover why Robert is obsessed with how we think, process information and make decisions. The single biggest lessons that Robert has taken away from launching and scaling Compound Kings over the last two years, how being a compounding focused investor is different than being solely growth or value focused, why he skips to the back of investment books and goes straight to the source material to form his own opinions about the contents of the book, the investing tools that he and his team use daily at Compound Kings to beat the S&P 500, and his three-set process for consuming thinking through and ultimately coming to conclusions about everything that he reads.
Daniel Scrivner (01:45):
You can find the show notes and text transcript for this episode at outlieracademy.com/130. That's outlieracademy.com/130. And you can learn more about Compound Kings at Kings ETF or by following Robert Cantwell at Upholdings on Twitter. With that, let's dive into Robert Cantwell's playbook.
Daniel Scrivner (02:07):
Robert, I'm so thrilled to have you back on 20 Minute Playbook. Thank you so much for coming back on.
Robert Cantwell (02:11):
Nice to be with you again, Daniel.
Daniel Scrivner (02:13):
So I'd love to start by talking about a recent fascination, you spend an enormous amount of time studying companies, studying industry, studying trends that are playing out all to inform the work that you do at Compound Kings. What have you been fascinated or obsessed by recently? What can't you stop thinking about?
Robert Cantwell (02:30):
It's a fun question because you can't make up an answer to it. I have been thinking a lot about thinking. It was only a few years ago that I learned that brain power peaks in your late twenties. And that unfortunately, is now well behind me. And so in investing, longevity is the number one recurring theme amongst people that have successful careers in it. And so when you think about longevity, you want to think about what are the things that you need in order to attain that?
Robert Cantwell (02:59):
John Templeton was a really famous investor for a long time, talked a lot about mindset management and what he would talk a lot about is the amount of time that it takes to process information, how feelings can affect you coming to a decision on something that has nothing to do with the facts around the issue that you're considering. And so balancing these two things of the time that it takes to process something versus the amount of information that is required to make a good decision is something that I've been trying to do a much better job about honing and being conscious of. Do I have enough information and have I given the issue enough time in order to get to a high-quality decision?
Daniel Scrivner (03:37):
It's fascinating perspective. And I'm going to come back to that in a couple of questions and ask you kind of a nuanced question around that. Your ETF Compound Kings launched nearly two years ago in late 2020, and just kind of thinking and preparing for this interview, one thought that comes to mind is boy, did you pick a two year period to launch a fund? Because we've had an enormous amount of volatility and change in that two year period. Very difficult question, but if you had to try to distill down what you've learned in that period so far into just one takeaway, what would that be?
Robert Cantwell (04:10):
The biggest takeaway is that the investment management business is not, in fact, different from any other business. It is about products, marketing, and distribution, and you've got to be superior at all three of those things to build a business that matters. It turns out that investment management is not in fact just about investing.
Daniel Scrivner (04:32):
And so it doesn't matter if you just print a great return, you have to then be great at marketing, at great be telling the story.
Robert Cantwell (04:37):
There are so many great funds with great returns out there that have not been marketed well or have not been distributed well. And consequently, investors lose out.
Daniel Scrivner (04:46):
On that note, how do you describe or think about your investment philosophy at a high level? And if that's evolved at all over the last kind of two year period, how has that evolved?
Robert Cantwell (04:57):
The simplest way we explain it now is first by what it's not. So a lot of investing has been distilled into either growth or value. And in growth, you are trying to buy the most amount of growth for the most reasonable price. In value, you are trying to buy the biggest balance sheet or the most durable cash flow for the cheapest price.
Robert Cantwell (05:20):
And what we do in hunting for compounders is a little bit different from each of those, which is we are focused on the businesses that are putting capital into the highest return on investment opportunities and then trying to pay the best price relative to getting that really high ROIC that those companies are able to achieve with what they're doing.
Daniel Scrivner (05:44):
Do you think about that then as basically growth and value together? Or how do you identify with one or both of those? I love the way you described it. I'm just curious how you square that.
Robert Cantwell (05:54):
Well, the way some people will say it is that growth is a component of value. I think that's one way of merging the two. The other is to use examples and say that there is a low growth company might actually have a really high ROIC investment opportunity if duopoly merges into a monopoly.
Robert Cantwell (06:15):
Conversely, there can be a really high growth company that looks really expensive, but investors tend to underestimate the size of the market that they're going after and they fade those growth rates and they don't realize that they're sustainable for much longer periods of time. So in doing so, they're underestimating the return on investing capital in a growth business like that because they don't realize the multiple of capital they can earn on that return if they can wait around long enough.
Robert Cantwell (06:40):
So the differences can be slight, but when we boil it down to the very simplest thing, it's for the headcount that management is investing or the data centers that they're building, what is the gross profit and earnings extraction that they're ultimately getting out of those physical investments? And we care a little bit less about the growth rate. We care a little bit less about the multiple and we prioritize that return on investment above and before either of those two variables.
Daniel Scrivner (07:06):
Yeah, that's a fascinating, and I think a very well articulated way of thinking about that and explaining it. I'd love to talk about the areas where you have an edge, either as a person or as an investor, where do you think that you have an edge or a superpower and how has that shown up in your investing work at Compound Kings or in how you've built the business at Upholdings?
Robert Cantwell (07:28):
Some of this stuff is pretty meat and potatoes. I was fortunate to get to work for successful investors, which is a great place to get to learn as an analyst. I was also fortunate to get the experience as an operator, building a real company at Everlane. And that really helped me learn how operators view a business versus how investors view a business. And there's quite a number of differences in their approaches.
Robert Cantwell (07:51):
I'll be honest, I mean, the third thing, which I do think is quite important, having been in the startup business now for almost 10 years, my livelihood is determined on the success of the investments that we make. And that forces a level of focus that is higher than a lot of casual market participants, whether that's on the institutional side where there's heavy fee structures with very passive investors, or it's in the retail market where you have lots of people that like to participate in the investment market, but don't get to the same level of diligence around individual companies. And I think making your life depend on something can in fact be an advantage.
Daniel Scrivner (08:32):
I mean, that's very well said. The only thing I would say is in my experience, I think that puts you in a very unique, probably less than 1% of the market use case. And it definitely makes me think more of an entrepreneur that has 90, 95% of their net worth riding on the company that they're building and much less the investor. Something that's always surprised me, even in venture is just how low and how often there is no GP commitment in a fund and how much that goes undiscussed and unflagged, which is really surprising.
Daniel Scrivner (09:05):
I'd like to think that you'd agree that it feels like there's been more books written about money, about finance and investing than probably any other category, at least it seems like there are always new books coming out to read. I wanted to ask kind of a unique question, which is if you have any investment books that are near and dear to your heart and they can be about any part of it, that can be about deconstructing businesses, due diligence, putting together a portfolio, it can be about anything. And if there's any that you hold uniquely dear that are kind of older or timeless? And if there's been any new books that have come out that you've really liked or enjoyed recently?
Robert Cantwell (09:42):
I'm going to give a different direction on this one, which is source documents. I am currently at an age, I've read a lot of the investment books. I think they're great for when you're building a skill set and when you're trying to understand different styles of investing, but ultimately, any book is editorialized to some degree or another. And now, even before I'll read a book, I'll read through the bibliography and you'll often know what the book's going to be about based off of what's in the bibliography without even having to read through all the chapters or something.
Robert Cantwell (10:13):
And so source documents has become a fascinating thing, whether it could be court transcripts, it could be earnings calls, it could be an old piece of research that was put out by university. And what I've enjoyed about going deeper into source documents is that it challenges you to come up with your own conclusion on something, as opposed to relying on a news outlet or another writer to offer their interpretation of it.
Robert Cantwell (10:40):
As an investor, I have enjoyed it as sort of the next area of openness because it's allowed us to develop our own view of what reality is without having to overly rely on another investor's style. Because I think we're three and a half years now into managing this fund and we've had some successes, but I think that it takes easily a decade to really refine a really excellent investment program. And I found this to really level us up from where we've come from.
Daniel Scrivner (11:10):
I mean, I love that perspective because it seems in many ways it's by going to the source documentation, you're removing that interpretation lens that's sitting between you and that source information and just saying, let me just go and read it for my own conclusions about it.
Daniel Scrivner (11:23):
It leads to another question I wanted to ask you, which is very related, which is, I'm really curious how you think about how much time you spend consuming information and how much time you spend reflecting and thinking and making decisions on that information. And I think obviously, this matters for anyone. If you're an entrepreneur, I think it matters, especially if you're an investor. How do you approach that time allocation? How do you think about that trade off of kind of consuming versus reflecting and thinking?
Robert Cantwell (11:49):
And we were talking a little about thinking at the beginning, I would add a third dimension of that, where I see the process as there's consumption, there is the thinking about what to do or what to work on, and then there's the actual process of analysis in which there's just work being done. It's not even necessarily thinking per se.
Robert Cantwell (12:07):
And it's pretty evenly split across three. In consumption, that's you pick your selected sources of news or earnings or source documents as we've discussed. It's the team speaking to me about the things that they've learned and discovered and sharing that. The thinking process really boils down to given this deluge of information or new data, what is the next question that we're trying to answer? So the thinking process is almost as much of one of prioritization or deciding which questions we're going to work on.
Robert Cantwell (12:36):
And then the third component of it is well, great, those are the questions we have our biases, we have our hypotheses and now we either have to prove or disprove those based off of doing more work. And so it's really kind of a three step process that I'd say each of those takes pretty equal amount of time. And we can only really handle two or three cycles of that in a given week, given the capacity of the human mind.
Daniel Scrivner (13:02):
Yes. It's somewhat limited. Related to that, you obviously touched on, there's a tool aspect of what you just talked about and in investing, there's a plethora of tools. There's charting tools. There's obviously a number of ways that you can get information, there's services like Tegus, that's kind of crowdsourcing a bunch of earnings calls and transcripts. Are there any tools that you or your team use and really enjoy? Are there any tools that you would recommend?
Robert Cantwell (13:27):
Yeah, we're always really blunt with our tools. It's Tegus for the interviews. It's CapIQ for the financials. It's Twitter for discussion and sentiment. Twitter's a great place for testing how much you think about a security already, put it out there, let the community help you see whether or not you've asked all the right questions about something. And then even Google sheets, those are all the analysis we do are shared and are updated in real time. And everyone is always testing each other's assumptions inside of there. You need internal testing, external validation, and then a constant influx of new source materials.
Daniel Scrivner (14:02):
We're going to spend more time in the long form interview that we're about to do in a second, talking about Twitter and how you use Twitter. But I want to take a moment here to just bring that up because as you just talked about, when you think you know something about a company expressing that view on Twitter and seeing what people share back, what have you learned by doing that? And what value do you get out of doing that? Maybe if you could share one or two examples.
Robert Cantwell (14:26):
So I'll give you one great example on this. So again, having built a startup out in San Francisco for a long time, really last decade, there was a lot of excitement and fervor over everything needs to be built new and that's the best way to build companies of the future. And Microsoft was always very much an afterthought to a lot of the businesses that were trying to build all these new pieces of enterprise software out there.
Robert Cantwell (14:53):
And what a lot of builders missed, and what I missed was that Microsoft's entrenched relationships with its customers is more valuable than much of the new technology that was even getting built in some of the tools. And that Microsoft could take longer to build some of those tools and services. And that was something that I wasn't surrounded by that thinking. I wasn't surrounded by those opinions. And I think we did a piece about a year ago on Microsoft and we were like, well, we took four or five other tools or their products and then lined it up and said, "There's a better version out there in this company, this company, this company, this," and we got razzed for it.
Robert Cantwell (15:33):
I mean, just investor after investor came in and said, they've had this contract with this company for this long, they get to take their sweet time. And it turned out that those investors were absolutely right. And that was the thing to care about before caring about the relative productivity differential between two comparable software tools. And so I think that was a great example of having the wrong framework around an investment and understand what really was driving the moat for a company like that.
Daniel Scrivner (16:00):
Yeah, it's a fascinating example. As you spoke to there, it's a fascinating example of how entrenched companies can still beat out obviously new players that you think may be smarter, but they're earlier in their cycle. And Microsoft already has the entrenched relationships, as you talked about earlier. In business, in any business, you have to be good at everything. You can't be good just at product. And if Microsoft is fine, good at product, but they're really great at distribution, that's not going to stack up really well that someone that maybe spikes hard on product, but has no distribution built in.
Daniel Scrivner (16:30):
I wanted to ask kind of a little bit of a different question. So this is less investing related, more just related to your life and how you work in general. And it's what tiny habit or practice has had the biggest positive impact on your work or on your performance? And this could be psychological, can be fitness, health related, can be anything.
Robert Cantwell (16:48):
Yeah, this is my sweet answer, which is never settle in the relationship department. Having a wife that equally loves and challenges me is an incredible source of energy. And you can feel free to edit this out of the final version, if you'd like.
Daniel Scrivner (17:09):
No, I think it's a great answer. And it's not an answer that I think I ever heard. So you win some bonus points there.
Robert Cantwell (17:16):
Daniel Scrivner (17:20):
I mean, I think most people can probably use a reminder there. Finally, if you could go back to the start of your career or this can be the date that you kind of founded and started building and getting ready to launch Upholdings, and you could whisper some words of advice in your ear as you kind of think back and reflect, is there any advice you would give yourself?
Robert Cantwell (17:39):
I wish someone told me that who you work with peer-wise is the number one driver of whether or not you enjoy working or not. It was never ingrained. Everything was about a recruiting process and there was all this pressure to just get the best job you could or the highest paying job, whatever it was. And there was never any focus on, well, who or what type of person might you be the most interested in working with? And it's something that takes a long time to kind of figure out and experience, but I see it time and time again. It's the thing that drives satisfaction with careers.
Daniel Scrivner (18:13):
I'm guessing that's been a big lens with which you've built your team, is just thinking about how people mesh together and hiring people you enjoy working with and that will challenge you.
Robert Cantwell (18:22):
Big time. I always take it an extra amount of time in the recruiting process, knowing that you are signing up to a multi-year, hopefully multi-decade relationship with these people. And if it takes you an extra six months to find the right person, it has always been well worth it.
Daniel Scrivner (18:41):
Well, I think that's the perfect note to end on. Thank you so much for coming on again. I really appreciate having you on, Robert. Thanks for taking the time.
Robert Cantwell (18:46):
Daniel Scrivner (18:49):
Thank you so much for listening. You can find the show notes and text transcript for this episode at outlieracademy.com/130, that's outlieracademy.com/130. For more from Robert Cantwell, listen to episode 129, where he joins me on Outlier Academy as part of our outlier investor series to breakdown what he's building at Compound Kings, from the three largest positions in the fund now, and the thesis behind each to the three biggest lessons he's learned building Compound Kings over the last three and a half years.
Daniel Scrivner (19:20):
To listen to that episode, simply visit outlieracademy.com/129. It's outlieracademy.com/129. You can find videos of all of our interviews on YouTube at youtube.com/outlieracademy. On our channel, you'll find all of our full-length interviews as well as our favorite short clips from every single episode, including this one. So make sure to subscribe. We post new videos and clips every single week. And if you haven't already, follow us on Twitter and LinkedIn under the handle Outlier Academy. Thank you so much for listening. We'll see you right here with a brand new episode next Friday.
On Outlier Academy, Daniel Scrivner explores the tactics, routines, and habits of world-class performers working at the edge—in business, investing, entertainment, and more. In each episode, he decodes what they've mastered and what they've learned along the way. Start learning from the world’s best today.
Daniel Scrivner and Mighty Publishing LLC own the copyright in and to all content in and transcripts of the Outlier Academy podcast, with all rights reserved, including Daniel’s right of publicity.