Volume 47 April 2019

7 ROE REPORTER | DKAM The second key to success is the actual skill and ability to find the stocks that can compound like Company A from above. This process demands diligence and many hours of what we refer to as “ripping companies apart” (financial modelling, meeting with management teams, inspecting businesses in person). Many companies won’t be able to grow in the future like they have in the past. It is the responsibility of the stock picker to filter this stock universe and only own the companies that will be able to compound at +20% for the next 10 years. The third key to our success comes from our actual structure. The hedge fund model is the optimal way to run our business because it gives us the ability to make large investments in our best ideas. There aren’t many super compounders in the world and even fewer that are attractively priced. Concentration allows the fund to only own the best of the best and not have to reach into the efficiently priced part of the market. Top Picks At the time of this writing (April 26 th ), the top picks from the last newsletter are up on average 27.3% so far this year. ▪ Constellation Software 35.4% (plus a $20/share special dividend) ▪ Boyd Group 29.8% ▪ Spin Master 16.6% We still think Spin Master has significant upside with limited downside. Spin Master has a ROE of 30% and is trading on 12x 2020 cash earnings. We expect the Toy R’ Us disruption to completely dissipate by the second half of 2019 and for Spin Master to start to put is cash hoard to work with multiple tuck-in acquisitions or even a transformational one. Constellation Software has obviously rebounded well from the late 2018 sell- off. That being said, we still think the stock is a buy and we own it in size. Constellation has a 30% ROE and is trading on 21x 2020 cash earnings. They recently announced a $20/share special dividend and we expect similar announcements in the years ahead. Due to valuation, we are replacing Boyd Group in our top picks with RediShred Capital. Over the years RediShred has proven to be an excellent acquiror and they recently deployed a significant amount of capital on acquisitions in 2018 and the beginning of 2019. This is a small and not well- known stock with a 20% ROE on 9x 2020 cash earnings.