VALUE: After Hours (S07 E29): Blending Value and Growth Opportunities

During their recent episode, Taylor, Carlisle, and Jason Hirschman discussed Blending Value and Growth Opportunities. Here’s an excerpt from the episode:

Second, should you be a value investor or growth investor? I think the best opportunities tell you the answer. Value of growth? I think the answer is yes. Again, consider American Express when Buffett bought it in 1964. Travelers checks and money orders were its top two segments. But you’ve got this amazing young credit card operations too. Actually, I just want to read you a few lines from the 1964 Amex annual report about the credit card operation, because I think they’re hilarious if you geek out on investing.

For the American Express credit card, 1964 was a year of unprecedented growth. Billings total $344 million, a remarkable 42% increase over $242 million billed in 1963. Total number of cards in force at the year-end increased 20%. This is the money line. These increases were the largest of the last five years, strengthening our conviction that the market for this comprehensive credit instrument is far from saturated [Jake laughs] in 1964. It’s just hilarious. To me, when you get these rare opportunities, combining value and growth as I experience with XPEL, you have to take advantage. You have to follow the bottom line, be greedy when others are fearful.

Now, when I use this a few performance figures, my younger son’s UTMA to illustrate four mentioned points. I’m using his account record, because it’s a bit less concentrated, more conservative and the cash flows are frankly just easier to track. I’m not going to refer to the real dollar amounts, but I’ll use real percentages and ratios. We put a dollar in mid-2006, a dollar each in January 2007, in 2008 and 50 cents in January 2009. So, $3.50 invested in four different calendar years.

In the S&P, dividends reinvested, that $3.50 turns into about $23.65 as in the end of June of this year. No taxes, ETF, management fees or withdrawals apply. The 2006, 2007, 2008 dollar CAGR in the 10s or so, that lucky 50 cents invested in early 2009 earned about 14.6% through June in the S&P 500.

Now, my son’s portfolio turned that $3.50 into $70 at the end of June. That’s about a 17.5% CAGR. By the way, that’s with all the dividends and realized capital gains taxes paid out of the account. Also, because we wanted him to have some skin in the game, we withdrew some of his upland money to pay for part of his private high school education. So, it’s really not apples to apples with the S&P 500. But there’s one hitch. Those returns are based on the premise that his XPEL investment went to zero. That did not happen.

So, include those XPEL returns or the returns of positions purchased with his after tax XPEL proceeds and the portfolio turns $3.50 into $130. So, that’s about a 21.7 CAGR or net of tax realized in gains. Despite some tuition withdrawals from mid-2006 through June 2025, I think it’s a pretty solid job.

Now, this is a portfolio that holds XPEL, but it also holds Blackstone, Apollo, Ares, The Alts, MasterCard which we bought in 2006, Visa which we bought in 2010, CME, ICE from 2008 and some micro-caps and small-caps like a company called Hype and THEON and Nordrest. And a few other micro-caps and small-caps, I just can’t disclose today. So, I think this is like a salad oil investing portfolio and I think it can be applied to all sorts of assets.

For my son’s UTMA, my goal was an 80/20 result. 80% of investments should outperform the S&P 500. So, this was like a later entry, lower risk but also lower reward approach. So, I’ll pause there. I certainly want to talk about why I like micro-caps and small-caps, and also why I see the opportunity set going forward, at least for me, which makes my historical returns difficult to replicate. But I can go on and talk about micro-caps or we can pause and see maybe where some of your listeners are handling from today, Toby.

Jake: I thought the 80/20 was 80% of the portfolio has to do better than 20% IRR.

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VALUE: After Hours (S07 E29): Blending Value and Growth Opportunities

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