July 21, 2026
So much of our investing is making winners count (Slugging) vs having a lot of OK returns (Batting Average). We are highly concentrated and, frankly, we much prefer being a slugger. Since we are going for home runs and not singles, we construct our approach accordingly. When looking at a target, we want to see a pathway for the business to become meaningfully larger (and, importantly, better) while staying with a strategy that sits squarely within management's core competencies.
Time works to our advantage. We do not trade in and out of positions, and in our privates we are forced to hold due to the extreme exit illiquidity in the types of opportunities we pursue.
Our goal, in essence, is to get a few walk-off grand slams over time while staying disciplined enough to not swing at the tough pitches. I think you need qualitative "extremes" across certain parts of the business to get to the extreme outlier returns. We, as a rule, try to look for the extreme outlier management team.
Imagine a theoretical world where you have two identical restaurants. These restaurants, initially, are the same in every possible way – name, location, food, and so on. The only difference is that one restaurant is managed by an A+ operator, while the other is managed by a C player. We'll call the restaurant with the A+ player Restaurant A, and the restaurant with the C player Restaurant C. Looking out 18 months (or even 2-3 years), the difference between the two businesses would not be meaningful. Sure, Restaurant A might have slightly better processes, incrementally higher revenue, better tasting food, or stronger margins, but by and large these would still be two relatively similar operations. If we move out 7+ years, however, the difference is dramatic. Restaurant C might have gone bankrupt by then, killed by the grueling economics and operational demands of the restaurant business. Or maybe they still have their first spot open, and have launched another one with slightly lower unit volume and profitability. Maybe the C operator chose to focus on their other ventures (a gym, a car dealership, or some niche retailer). Whatever the case, things have gone roughly as you'd expect them to. Now, let's take a look at Restaurant A. With the A+ operator manically focused on his business, Restaurant A might have grown into a city-wide chain of restaurants with entrenched share of mind and reputation. The chain might have tech-forward operations (maybe it even has its own app). It might be seeding opportunities in other cities, looking to build a truly national franchise. Or maybe the founder chose to pivot to distribution, capturing a nascent market and becoming a dominant distributor in the region. Whatever the case, no customer could imagine that Restaurant C and Restaurant A started out the same at the same time with identical concepts – the difference is simply too big.
Let's try and quantify this. Assume both restaurants have an initial average unit volume (AUV) of $300,000 with EBITDA margins of 10%. Within 7 years, assuming it's even open, Restaurant C (with its single location) might have an AUV of $420-450k. Because the founder also focuses on other ventures, the restaurant is not as operationally efficient, in turn producing EBITDA margins of 7%. At a 2x EBITDA multiple (a price the founder will, honestly, be lucky to get), the business will have an EV of ~$60K on the low range. Meanwhile, Restaurant A has, say, 8 locations. Its brand power helps drive traffic, enabling AUVs of $500-600k. Because the founder is so focused on operations, unit EBITDA margins are a strong 20%. What's more, the A+ operator has focused on building the systems and processes within the business and nurturing an entrepreneurial culture. Restaurant A can now open 4 restaurants a year. Such a business might be valued at, say, 6-8x EBITDA. At its low range, this is an operation worth $4.8mm (sure we're not counting overhead and so on but this is all for illustrative purposes). The difference between $4.8mm and $60k is 80x.
This long and albeit imperfect illustration helps underline one of our core beliefs – good management compounds. Certain extremes can be truly extreme. I think it is hard for the human brain to properly comprehend this dynamic. Think of Nubank. Over just 13 years, Velez has built a bank with more customers than Banco do Brasil (a bank founded in 1808 by King John VI). Think of MELI, a business that was founded in the same year as DeRemate, but one is worth $90b while the other one went bust and was later acquired for ~$40mm (a difference of 2,250x!).
These examples – naturally – go past business and investing. Shohei Ohtani, for example, is an N-of-1 when it comes to his 50/50 (plus!) season or his 10K / 3HR game. Just 135 words account for roughly 50% of all printed English. The sequoia tree has a 250-500x larger total mass than the average forest tree. I'm sure there are many articles out there discussing precisely this phenomenon.
We want to achieve this dynamic for our private companies (and to go for the grand slam in our public equities). If we can find talented operators and build the proper system around them, I believe we can get exceptional results doing not-so-exceptional things.