Concentration, Risk, and Recurring Revenues

The episode originally aired on Excess Returns Podcast, and it is reposted here with permission. Thank you, Jack Forehand & Matt Zeigler.

Matt and I sat down with Joseph Shaposhnik, and what an hour it was, enjoy!
In this episode of Excess Returns, we sit down with Joseph Shaposhnik, founder of Rainwater Equity and former star portfolio manager at TCW. Joseph shares the investment philosophy that drove his track record of outperformance, why he focuses on recurring revenue businesses, and how he evaluates management quality and capital allocation. We also explore lessons from great investors like Warren Buffett, Bill Miller, and Peter Lynch, along with insights on valuation, portfolio concentration, and the role of passive investing in today’s markets.
Main topics covered:
* How Joseph achieved long-term outperformance at TCW and what drove his results
* Why recurring revenue and predictable cash flows are central to his approach
* The importance of management quality and identifying “fanatics” vs. mercenaries
* Lessons investors should and should not take from Warren Buffett
* Bill Miller’s influence and backing of Rainwater Equity
* Characteristics Joseph looks for in great businesses and red flags in management teams
* Portfolio concentration, position sizing, and risk management
* Why you don’t need to have an opinion on every sector
* Selling discipline and knowing when it’s time to move on
* How valuation fits into his framework and how he thinks about paying up for quality
* The impact of passive investing and why active managers must take a long-term view
* Stories and lessons from Peter Lynch, including his enduring influence
Timestamps:
0:00 If a stock has doubled, you haven’t missed it
1:00 Introduction and Joseph’s track record at TCW
2:00 Keys to long-term outperformance
8:00 Lessons from Warren Buffett’s wins and mistakes
11:30 Bill Miller’s influence and support for Rainwater Equity
14:00 What defines a high-quality business
20:00 Free cash flow compounding and moats
24:00 Red flags in management teams
31:00 Why active management is broken and Joseph’s solution
35:00 Portfolio concentration and risk management
42:00 Sectors to avoid and why
47:00 Joseph’s selling discipline
53:00 Exceptional leaders and the role of management quality
58:00 Valuation, future value, and the changing economy
1:04:00 Passive investing and market distortions
1:09:00 Lessons and stories from Peter Lynch
1:14:00 Closing questions and key investing lessons
1:20:00 Where to learn more about Joseph and Rainwater EquityPodcast Program – Disclosure Statement

Blue Infinitas Capital, LLC is a registered investment adviser and the opinions expressed by the Firm’s employees and podcast guests on this show are their own and do not reflect the opinions of Blue Infinitas Capital, LLC. All statements and opinions expressed are based upon information considered reliable although it should not be relied upon as such. Any statements or opinions are subject to change without notice.

Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed.

Information expressed does not take into account your specific situation or objectives, and is not intended as recommendations appropriate for any individual. Listeners are encouraged to seek advice from a qualified tax, legal, or investment adviser to determine whether any information presented may be suitable for their specific situation. Past performance is not indicative of future performance.