In episode 148 we welcome Paul Lountzis. Paul starts with his background in consulting that led him to develop a skillset in competitive analysis that meant going out into the field to conduct research far beyond the numbers, leading to “differential insights.” He wanted to get into value investing and reached out to a number of firms including Warren Buffett’s assistant, Gladys Kaiser. He ended up interviewing with Chuck Royce’s partner, Tom Ebright, and after Chuck saw his work, he was put on research projects for Chuck. He then went to work for Ruane, Cunniff & Goldfarm before founding Lountzis Asset Management.
Paul then discusses his framework of finding outstanding businesses that are unique, different, and special. He talks about that changes that are taking place and how the qualitative characteristics are becoming significantly more meaningful in company analysis. He highlights the importance of field research primarily to prevent permanent loss of capital, and to drive greater conviction to potentially make bigger bets on companies.
Meb then asks Paul to get into the investment process at Lountzis. Paul emphasizes a long-term holding period, screening on financial metrics like return on investment capital, free cash flow, revenue growth, and covering 600-700 names across the team. Beyond that, the team digs into further insights, from management elements like capital allocation, shareholder friendliness, and the quality of their operating ability, to valuation and the general level of inflation and taxation. He then dives into some examples of how he and his team identify businesses that are unique, different, and special in practice.
Meb then gets into questions on risk. Paul discusses how he and his team look at position sizing and risk based on the clarity in which they understand the business.
The conversation then shifts into a discussion about the current and future state of Berkshire Hathaway. Paul talks about how unique and special Warren Buffett is, how valuable the underlying businesses are that Berkshire owns, and a couple of items that concern him about life after Warren Buffett and Charlie Munger.
All this and more in episode 148, including a special story about a hand he played in helping students meet Warren Buffett.