This blog's content was taken from episode 256, "What S&P 500 Companies Are Saying About 2023"
You can go check out the whole episode here:
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Listener Question from Shae:
Simon, how come you don’t own Constellation Software? Has Braden not convinced you yet? I am interested in starting a position and going to start researching more but curious to hear why you don’t own it. My portfolio is a lot closer to yours than Braden’s.
It’s great that you’re interested in starting the position but wanting to do more research.
First off, I do own Constellation Software indirectly. I recently made some changes to my pension funds and one of the allocations I now own has a decent Constellation Software allocation.
This is new as of a few weeks ago and I’ll go over the fund change reasoning in the next jointci.com monthly update.
Constellation Software has been an amazing performer since it’s been publicly listed and has been outperforming the market. It’s grown free cash flow per share at an amazing rate although it recently slowed down slightly. Given its track record, I assume that this slow down is temporary and it’ll start growing again.
I wouldn’t say I’m not interested in Constellation Software. I simply haven’t dedicated the time to do more research on the company. Sure, Braden liking the company as much as he does is pretty convincing but I would need to do my own research before I decide to personally start a position.
My greatest concern with Constellation Software is probably the Berkshire Effect.
Warren Buffett alluded to the Berkshire Effect many times. Buffett mentioned that in order to make needle moving investments, Berkshire has to invest pretty large amounts of capital.
Constellation Software is obviously nowhere near the size of Berkshire. However, it isn’t a small company anymore and although its acquisition strategy has worked extremely well, I wonder if there isn’t going to be enough of these acquisitions to keep the needle moving at some point.
Having said this, the carnage in the tech industry that we’re seeing could be a big opportunity for them.
I may personally own Constellation Software at some point. I haven’t decided but more research is definitely required on my end.
We constantly remind people to do their own due diligence and what we talk about is not investment advice. It is critical that people do their own research.
If you don’t have conviction in that company it’s probably a sign that you shouldn’t own it no matter how much Braden or I like it. Without conviction and knowledge of the company, it can be hard to know whether you should buy, hold or sell a company especially if there is a material charge.