Why Moats Matter with Todd Wenning, President and CIO of KNA Capital
Jan 13, 2025
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Todd Wenning, President and CIO of KNA Capital, shares his insights into the world of economic moats and investment strategies. He discusses the crucial role of moats in ensuring long-term growth and the complexities of building a concentrated portfolio. Todd also touches on the unique impact of nostalgia in investing, particularly how beloved brands like Nintendo thrive across generations. Additionally, he highlights the rewarding experience of teaching finance and the importance of thoughtful investment decisions drawn from consumer behavior.
Todd Wenning founded KNA Capital to create enduring value for clients, driven by his investment philosophy and personal growth aspirations.
Economic moats are central to Wenning's investment strategy, as they indicate a company's ability to maintain competitive advantages and sustainable growth.
Wenning believes nostalgia can be a powerful investment theme, as brands that evoke positive memories foster consumer loyalty and long-term value.
Deep dives
Founding K&A Capital: A Personal Journey
Todd Wenning founded K&A Capital at a pivotal moment in his career, driven by the desire to help clients compound capital effectively over the long term. Having gained extensive experience throughout his career, including significant time spent at Ensemble Capital, Wenning felt ready to apply his investing philosophy independently. His eagerness to create a firm stemmed from a combination of personal growth and a desire to test his investment strategies in a real-world setting. This move also reflects his understanding that to truly assist individuals in their financial journeys, he needed to build a structure that would provide enduring value.
Investment Philosophy: Focus on Economic Moats
Moats, or competitive advantages, play a crucial role in Todd Wenning's investment philosophy at K&A Capital. He believes that businesses with strong moats have a higher likelihood of consistently outpacing their cost of capital, allowing for sustainable growth over time. By defining moats not just in terms of market position, but as factors that provide enduring competitive edges, Wenning aims to identify companies that can remain profitable in the face of competition. This concentrated focus on moats enables a more strategic selection of investments, ensuring a portfolio of companies that are resilient against market fluctuations.
Understanding Client Expectations and Long-term Investing
Wenning emphasizes the importance of aligning investor expectations with the long-term nature of his investment approach. He seeks clients who appreciate that success should be measured over extended periods, typically five years or more, rather than focusing solely on short-term gains. This patient investment strategy encourages collaboration with individuals who share a business-ownership mindset, focusing on enduring partnerships with companies. As a result, Wenning aims to build long-lasting relationships that support shared financial goals and foster mutual understanding.
The Importance of Simplicity in Business Models
In Wenning's view, simplicity in a company's business model enhances understanding and investment conviction. He believes that straightforward operations allow for greater clarity when evaluating potential investments, reducing the risk of unforeseen complications. Companies with intricate or opaque business models may present unexpected challenges, making it harder to navigate their performance. By prioritizing businesses with clear and manageable structures, Wenning fosters an investment environment grounded in transparency and trust.
The Role of Nostalgia and Networks in Investment Strategy
Wenning identifies nostalgia as a compelling theme in his investment strategy, acknowledging its growing relevance in today's market. Brands that evoke positive memories tend to hold value over time, influencing consumer behavior and loyalty, which is evident in cases like Nintendo. Additionally, Wenning explores physical network effects, particularly in businesses like Old Dominion Freight Line, to illustrate how expanding operational networks can enhance efficiency and competitiveness. By focusing on companies that leverage nostalgia and physical networks, Wenning strategically positions K&A Capital for sustainable growth.
My guest on the show today is Todd Wenning, the President and CIO of KNA Capital. Many of our listeners might have come across Todd’s excellent discussions of moats during his time at Morningstar and Ensemble Capital—or on his Substack Flyover Stocks. Todd founded KNA Capital earlier this year and I was eager to speak with Todd about:
What pushed him to start his own firm;
Why economic moats are so important to him and his process;
How he decided on the right level of concentration;
What he finds so valuable about the process of teaching undergrads; and
Why nostalgia can be a very attractive theme to invest behind
All opinions expressed by your hosts and the podcast guests are solely their own opinions and do not reflect the opinion of SNN or its affiliates. This podcast is for informational purposes only, it is not investment advice, and should not be relied upon for any investment decisions. We are not recommending the purchase or sale of any securities. The hosts and guests may be beneficial owners of the securities discussed. You should not assume that the securities discussed are or will be profitable.
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