I didn't pick up on much here, but I did notice that he emphasized company lifecycle and the risk of obsolescence more than the other investors. Maybe this came from seeing the performance of the amazing stocks of the prior decades and recognizing that not all of the survived. It may have made him more willing to accept that failure actually was an option, even for great companies. "Is the company built to last, or is it at risk from competition, fads, obsolescence, or excessive debt?"
Q3:
Hansen's Natural (Monster)--This was good example of the importance of understanding where growth is coming from. He was originally interested in the small growing company because of fruit juices but eventually found that the real driver of growth in sales was in their energy drink that tasted better the currently dominating drink. They had a 'superior product in a niche market'.
Q4:
I didn't like the 2 oil investments in Russia and Brazil (Yukos and Petrobras). Seemed very risky to 'work with' governments with the track record they had.
Q5:
I found a few that looked interesting, but I'm not comfortable saying these are Tillinghast style picks. I would want to put more research into them and, as he noted in some cases, possibly conduct a DCF. That said, this one looked interesting to look into: UHS
UHS checks many of the qualitative boxes and some of the quantitative:
• Hospitals are essential infrastructure, durable, hard to substitute
• Demand is noncyclical, TAM is enormous and slow‑growing.
• 10‑yr earnings are positive and stable
• High earnings yield relative to quality.
• ROE >10% for last 5years
• Balance sheet debt might be a concern
• Founder/Executive Chairman of the Board has largest ownership of public shares at around 12%
• High earnings yield ~9%
Q6:
---Research help---
He mentioned footnotes to 10k's being important. AI might help with heavy lifting, particularly Notebook LLM would be useful for this task.
Task: Read through all the footnotes in the 10k's from the last 10 years for TIKR. Are the footnotes easy to follow or are the overly complex (indication that company might be trying to do some 'hand waving'). Special areas to focus on include pension and retirement plans, capital and operating leases, forward commitments, derivatives, and joint ventures.
Output: Summarize the important patterns. What picture do the footnotes paint about the character of the company? Are the red flags about how the finances are being managed?
---Idea prompt---
Use below to find a list of stocks Joel Tillinghast would be interested in. Output: list of stock tickers with and how they 'score' on each item.
• Quantitative Filter:
○ Uses long-term normalized 10-year earnings
○ high earnings yield that supports plausible growth rate not a heroic one
○ ROE >10% in nearly all of the last 10 years
○ Stable, predictable financials
○ healthy balance sheet
○ Not loss-making
• Qualitative Filter:
○ Real, durable competitive advantage
○ does something unique
○ slow-evolving industry where lifecycle decay is minimal
○ Will it be missed it goes away?
○ Durable, hard to substitute, a reason for profits to survive
○ Noncyclical, not commodity
○ 'High growth' comes from enabling users to do things they have never done before
Your first observation on him rang very true. It struck me as well just how many ways there are for a company to fail to give a good result to investors and how many different examples there are. I think he was trying to ram home the point that all companies fail eventually, it's a matter of when not if. One of my takeaways was to ask the question:
How long do you think this company will last?
5 years? 10 years? 20 years? 30 years? 70 years?
He makes the point that after 30 years you have captured 90% of the value, and after 70 years more than 99%. I'm always struck when I do DCF valuations how much of the value is sitting in the terminal value 10 years out, usually a meaningful 30-50% or more. So you do have to take a view of the longevity of the company if your valuation is going to be used for buying a company for the long term.
That is interesting to think of how much value is available at any given point. Maybe that helps one decide if a situation is more “buy and hold” or “harvest”.
And was this because, as James was pointing out, although it wouldn’t have been cheap to jump in later on there was enough value ahead to justify holding it?
Q1. Small v large cap, value v momentum, low volatility v high, casts a wide net - 800 securities held in portfolio, stays withing circle of competency , deep financial research, uses qualitative measures evaluating a stock, uses second level thinking to un-bias decision making as much as possible.
Q2. Friends with Peter Lynch, John Templeton, and followed Buffett- all practicing their own versions of value investing. He is a student of history and combines both qualitative and deep financial research also including qualitative factors when making investment decisions.
Q3. Petrobas - he was able to get out in time. International investing adds levels of risk which must be considered in making investment decisions, especially those related to government stability.
Q4. Sino-Forest - there were hidden relationships and financial information. He probably wouldn't have made the investment had he been aware of them. This is where being able to change your mind when new information becomes available is as essential skill to have.
Q5. Cullen Frost Bank - a bank in South Texas which is a rapidly growing part of the country. This is a difficult area to find investment opportunities at the present moment.
Q6. I would incorporate his set of criteria including: what are the profits as a whole over time, will capital be secure, will there be an adequate return, evaluate risks, where are the costs and incentives, is the data accurate, is the industry understandable, are the financial statements accurate, is the management honest, do they create a quality corporate culture, is the company profitable, does it have a long life, is it growing, are the chances of maintaining these qualities fairly certain, is the profit stream durable, does the stock have a high earnings yield - low PE, does the company do something unique or have a moat which protects it as it grows
Question 1: Please “map” Joel as an investor on as many dimensions of an investment style as possible.
The mapping is somewhat less revealing than usual because Joel Tillinghast spends a lot of time looking at all the ways that investors can be fooled into buying without fully understanding the business and risk they are buying into. He spends much less time on how he actually invests.
Question 2: What about Joel’s background and circumstances made his approach the right one for him?
He had a mathematical intellectual bent from an early age and started reading Value Line from age 8. He bought shares in Beckman Instruments and still holds the resulting spin-offs – he never sold them. Rational, low-key, and intellectually curious, and by his own admission, tries to expand his circle of competence, sometimes too far. Analytical, then professional analyst, then ran his own fund.
Question 3: What are your favourite Joel investments? Why?
United Health Care. Started with 4 questions:
1. Does the stock have a high earnings yield/low PE?
2. Does the company do something unique that will allow it to earn super-profits on its growth opportunities? Does it have a moat?
3. Is it built to last? Is it at risk from competition, fads, obsolescence or excessive debt?
4. Are the company's finances stable and predictable into the extended future, or are they cyclical, volatile and uncertain?
Answers:
1) PE 7.3 – margins in the middle of a 10-year range, so not at the edge of the range
2) Equity ROE averaged over 20%; the worst year in 11 years was 14.4%. Why? Economies of scale. Good capital discipline over many years, share buybacks when the price was depressed, and driving good per-share returns. predicted 8% per year growth for a number of years, with detailed reasons why. Built a detailed DCF using this data. The best-case scenario gave a 4x uplift in value from the current share price. A more conservative one gave closer to 1.5-2x.
3. Built to last for at least a few decades, which is enough. 30 years captures 90% of the value. Scale, an ageing population and a regulated market give a competitive advantage over the very long term.
4) After a detailed look at the risk of ACA regulation by two different methods, both gave a 10% discount to the price. Not enough to make the investment case worthless given the large margin of safety in the valuation method.
Outcome. Bought the shares, and they quintupled in 6 years.
Question 4: What are your least favourite Joel investments? Why?
Petrobras
It was a successful investment, but the risks were prodigious, and I don't think there is any easy way to quantify them. I don't like country champions in places with a weak rule of law. It's a heads they win, tails I lose proposition. If the bets fail, you have a disappointing outcome. If the oil price rises and the company strikes big, the temptations to tax, nationalise, or embezzle become too great, and you lose the other way.
Question 5: What are 1 or 2 stocks that Joel might find attractive in the current environment?
I struggled to find a classic candidate that met his theoretical requirements, but he did buy very cheap on occasion and took significant risks. So I have stuck my neck out and chosen one for the brave. When everything is looking black is when you maybe should take a deep breath and buy.
My choice is the somewhat ironically named Future PLC.
It has 3 broad segments:
B2C websites, with affiliated brands, built out of magazines, with subscriptions still making up 50% of sales, are still the most resilient part of the group. 175 of them. 67% of the group by turnover
GoCompare is a price comparison website mostly focused on car insurance. 26% of the group.
B2B websites, with affiliated brands, built out of trade magazines. 7% of the group
All segments are in decline, around 6% this year, with the AI threat looming large, both in reduced traffic because of AI summaries and threats by competitors due to reduced moats.
It has a new CEO six months into the job, who has been promoted from CTO. His emphasis is on technology rather than branding, which is reflected in the reporting, which is all about the technology rather than the brand strength.
So why might you want to buy this?
This company is really, really cheap. It has a PE ratio of 3.3. It currently generates an FCF of 95M per annum on a market cap of 381m. It has debts of around 300m, with a 5-year bond of 300m paying 6.75% funding this. It also had a facility for another 300m of borrowing at 5.75% unused in Sep 2025, now being used to fund the 40m acquisition of Sheerluxe and a share buyback. If you do a DCF on the basis of the broker forecasts, followed by no growth, the theoretical market cap is 1.2bn. If you take a pessimistic view that it will shrink 5% a year in perpetuity, the valuation comes down to £488m. It is bravely using its financial strength of both facility and cash flow by buying growth with Sheerluxe, hoping to turn this shrinking ship round. It has incentivised the managers/former owners of SheerLuxe with a promise to double their payout to 80M if some aggressive targets to 2029 are met. It is also buying back its very cheap shares.
Many of these brands stand to benefit on costs by using AI to generate images, copy and content, as well as programming and website design. They have low running costs and capex requirements as it is, which is why the cash flows are resilient and ROCE is around 10%.
Even a modest stabilising of its growth position should keep the cash flowing and provide a very significant upside. It has a lot of brands, and even limited success with a few of them would make a significant difference. In its annual report it considers a very bad combination of worst-case scenarios and still survives. The downside is limited by the large overdraft headroom and the strong cash generation.
The share price has fallen catastrophically, as you would expect to get to these levels (£38 per share down to £4 over almost precisely 5 years). It shows no certain signs of stopping yet. Joel does not talk about trading or how he buys, so it's hard to know when he would begin if he decided the valuation justified it.
My second and much shorter pitch is GSK, identified by the AI search below, and a safer choice.
It is a big pharma company and is slowly rerating. Under the 9-year tenure of the previous CEO, it focused on fundamental research. This is a slow approach, but its success in this area has improved very markedly over the last 7 years and is now bearing fruit. The market has been slow to recognise this, partly due to a very long period of research underperformance, patent cliffs and litigation risk, which have clouded its reputation for decades. Comparisons to AstraZeneca are useful, as it is following a similar strategic path, and it is slowly looking more like its much higher-rated competitor.
I think this story would have appealed to Joel as it is a little dull, a little slow, and the company has been out of fashion for so long, most people have forgotten that it was once one of the most admired high performing companies in the UK.
Question 6: Come up with an AI prompt based on Joel’s approach.
First prompt:
"Look for a list of companies listed on the UK stock exchange that might have interested Joel Tillinghast as possible candidates for investment with reasons."
Second prompt:
"Look for a list of companies listed on the UK stock market that have as many as possible of the following characteristics:
The company must have a low PE.
The company does something unique that will allow it to earn super-profits on its growth opportunities.
The company must have a moat.
The company must be built to last, not at risk from competition, fads, obsolescence or excessive debt.
The company's finances must be stable and predictable into the extended future, not cyclical, volatile or uncertain."
There was not a single company mentioned on both prompts, which is interesting. The 5 found for the second list were better matches to his approach, I felt. 2 tobacco companies, Imperial and BAT, Phoenix Group, Auto Trader (very depressed price due to AI scare) and GSK.
Q1:
https://docs.google.com/document/d/e/2PACX-1vS0kQQ29QN0O-yL3MfYCS6FFTHTOJ8eq894FNe0jzNSh1AH3aWU8aQ4VkbK_3ZeyTPkzDQZSss5DJoO/pub
Q2:
I didn't pick up on much here, but I did notice that he emphasized company lifecycle and the risk of obsolescence more than the other investors. Maybe this came from seeing the performance of the amazing stocks of the prior decades and recognizing that not all of the survived. It may have made him more willing to accept that failure actually was an option, even for great companies. "Is the company built to last, or is it at risk from competition, fads, obsolescence, or excessive debt?"
Q3:
Hansen's Natural (Monster)--This was good example of the importance of understanding where growth is coming from. He was originally interested in the small growing company because of fruit juices but eventually found that the real driver of growth in sales was in their energy drink that tasted better the currently dominating drink. They had a 'superior product in a niche market'.
Q4:
I didn't like the 2 oil investments in Russia and Brazil (Yukos and Petrobras). Seemed very risky to 'work with' governments with the track record they had.
Q5:
I found a few that looked interesting, but I'm not comfortable saying these are Tillinghast style picks. I would want to put more research into them and, as he noted in some cases, possibly conduct a DCF. That said, this one looked interesting to look into: UHS
UHS checks many of the qualitative boxes and some of the quantitative:
• Hospitals are essential infrastructure, durable, hard to substitute
• Demand is noncyclical, TAM is enormous and slow‑growing.
• 10‑yr earnings are positive and stable
• High earnings yield relative to quality.
• ROE >10% for last 5years
• Balance sheet debt might be a concern
• Founder/Executive Chairman of the Board has largest ownership of public shares at around 12%
• High earnings yield ~9%
Q6:
---Research help---
He mentioned footnotes to 10k's being important. AI might help with heavy lifting, particularly Notebook LLM would be useful for this task.
Task: Read through all the footnotes in the 10k's from the last 10 years for TIKR. Are the footnotes easy to follow or are the overly complex (indication that company might be trying to do some 'hand waving'). Special areas to focus on include pension and retirement plans, capital and operating leases, forward commitments, derivatives, and joint ventures.
Output: Summarize the important patterns. What picture do the footnotes paint about the character of the company? Are the red flags about how the finances are being managed?
---Idea prompt---
Use below to find a list of stocks Joel Tillinghast would be interested in. Output: list of stock tickers with and how they 'score' on each item.
• Quantitative Filter:
○ Uses long-term normalized 10-year earnings
○ high earnings yield that supports plausible growth rate not a heroic one
○ ROE >10% in nearly all of the last 10 years
○ Stable, predictable financials
○ healthy balance sheet
○ Not loss-making
• Qualitative Filter:
○ Real, durable competitive advantage
○ does something unique
○ slow-evolving industry where lifecycle decay is minimal
○ Will it be missed it goes away?
○ Durable, hard to substitute, a reason for profits to survive
○ Noncyclical, not commodity
○ 'High growth' comes from enabling users to do things they have never done before
○ TAM is meaningful.
Your first observation on him rang very true. It struck me as well just how many ways there are for a company to fail to give a good result to investors and how many different examples there are. I think he was trying to ram home the point that all companies fail eventually, it's a matter of when not if. One of my takeaways was to ask the question:
How long do you think this company will last?
5 years? 10 years? 20 years? 30 years? 70 years?
He makes the point that after 30 years you have captured 90% of the value, and after 70 years more than 99%. I'm always struck when I do DCF valuations how much of the value is sitting in the terminal value 10 years out, usually a meaningful 30-50% or more. So you do have to take a view of the longevity of the company if your valuation is going to be used for buying a company for the long term.
@aswathdamodaran talks about lifecycle a lot too.
That is interesting to think of how much value is available at any given point. Maybe that helps one decide if a situation is more “buy and hold” or “harvest”.
Love the prompts. Also incredible how he was able to hold on to Monster for so long despite it no longer being statistically cheap
And was this because, as James was pointing out, although it wouldn’t have been cheap to jump in later on there was enough value ahead to justify holding it?
Q1. Small v large cap, value v momentum, low volatility v high, casts a wide net - 800 securities held in portfolio, stays withing circle of competency , deep financial research, uses qualitative measures evaluating a stock, uses second level thinking to un-bias decision making as much as possible.
Q2. Friends with Peter Lynch, John Templeton, and followed Buffett- all practicing their own versions of value investing. He is a student of history and combines both qualitative and deep financial research also including qualitative factors when making investment decisions.
Q3. Petrobas - he was able to get out in time. International investing adds levels of risk which must be considered in making investment decisions, especially those related to government stability.
Q4. Sino-Forest - there were hidden relationships and financial information. He probably wouldn't have made the investment had he been aware of them. This is where being able to change your mind when new information becomes available is as essential skill to have.
Q5. Cullen Frost Bank - a bank in South Texas which is a rapidly growing part of the country. This is a difficult area to find investment opportunities at the present moment.
Q6. I would incorporate his set of criteria including: what are the profits as a whole over time, will capital be secure, will there be an adequate return, evaluate risks, where are the costs and incentives, is the data accurate, is the industry understandable, are the financial statements accurate, is the management honest, do they create a quality corporate culture, is the company profitable, does it have a long life, is it growing, are the chances of maintaining these qualities fairly certain, is the profit stream durable, does the stock have a high earnings yield - low PE, does the company do something unique or have a moat which protects it as it grows
Question 1: Please “map” Joel as an investor on as many dimensions of an investment style as possible.
The mapping is somewhat less revealing than usual because Joel Tillinghast spends a lot of time looking at all the ways that investors can be fooled into buying without fully understanding the business and risk they are buying into. He spends much less time on how he actually invests.
https://datawrapper.dwcdn.net/JGmkN/1/
Question 2: What about Joel’s background and circumstances made his approach the right one for him?
He had a mathematical intellectual bent from an early age and started reading Value Line from age 8. He bought shares in Beckman Instruments and still holds the resulting spin-offs – he never sold them. Rational, low-key, and intellectually curious, and by his own admission, tries to expand his circle of competence, sometimes too far. Analytical, then professional analyst, then ran his own fund.
Question 3: What are your favourite Joel investments? Why?
United Health Care. Started with 4 questions:
1. Does the stock have a high earnings yield/low PE?
2. Does the company do something unique that will allow it to earn super-profits on its growth opportunities? Does it have a moat?
3. Is it built to last? Is it at risk from competition, fads, obsolescence or excessive debt?
4. Are the company's finances stable and predictable into the extended future, or are they cyclical, volatile and uncertain?
Answers:
1) PE 7.3 – margins in the middle of a 10-year range, so not at the edge of the range
2) Equity ROE averaged over 20%; the worst year in 11 years was 14.4%. Why? Economies of scale. Good capital discipline over many years, share buybacks when the price was depressed, and driving good per-share returns. predicted 8% per year growth for a number of years, with detailed reasons why. Built a detailed DCF using this data. The best-case scenario gave a 4x uplift in value from the current share price. A more conservative one gave closer to 1.5-2x.
3. Built to last for at least a few decades, which is enough. 30 years captures 90% of the value. Scale, an ageing population and a regulated market give a competitive advantage over the very long term.
4) After a detailed look at the risk of ACA regulation by two different methods, both gave a 10% discount to the price. Not enough to make the investment case worthless given the large margin of safety in the valuation method.
Outcome. Bought the shares, and they quintupled in 6 years.
Question 4: What are your least favourite Joel investments? Why?
Petrobras
It was a successful investment, but the risks were prodigious, and I don't think there is any easy way to quantify them. I don't like country champions in places with a weak rule of law. It's a heads they win, tails I lose proposition. If the bets fail, you have a disappointing outcome. If the oil price rises and the company strikes big, the temptations to tax, nationalise, or embezzle become too great, and you lose the other way.
Question 5: What are 1 or 2 stocks that Joel might find attractive in the current environment?
I struggled to find a classic candidate that met his theoretical requirements, but he did buy very cheap on occasion and took significant risks. So I have stuck my neck out and chosen one for the brave. When everything is looking black is when you maybe should take a deep breath and buy.
My choice is the somewhat ironically named Future PLC.
It has 3 broad segments:
B2C websites, with affiliated brands, built out of magazines, with subscriptions still making up 50% of sales, are still the most resilient part of the group. 175 of them. 67% of the group by turnover
GoCompare is a price comparison website mostly focused on car insurance. 26% of the group.
B2B websites, with affiliated brands, built out of trade magazines. 7% of the group
All segments are in decline, around 6% this year, with the AI threat looming large, both in reduced traffic because of AI summaries and threats by competitors due to reduced moats.
It has a new CEO six months into the job, who has been promoted from CTO. His emphasis is on technology rather than branding, which is reflected in the reporting, which is all about the technology rather than the brand strength.
So why might you want to buy this?
This company is really, really cheap. It has a PE ratio of 3.3. It currently generates an FCF of 95M per annum on a market cap of 381m. It has debts of around 300m, with a 5-year bond of 300m paying 6.75% funding this. It also had a facility for another 300m of borrowing at 5.75% unused in Sep 2025, now being used to fund the 40m acquisition of Sheerluxe and a share buyback. If you do a DCF on the basis of the broker forecasts, followed by no growth, the theoretical market cap is 1.2bn. If you take a pessimistic view that it will shrink 5% a year in perpetuity, the valuation comes down to £488m. It is bravely using its financial strength of both facility and cash flow by buying growth with Sheerluxe, hoping to turn this shrinking ship round. It has incentivised the managers/former owners of SheerLuxe with a promise to double their payout to 80M if some aggressive targets to 2029 are met. It is also buying back its very cheap shares.
Many of these brands stand to benefit on costs by using AI to generate images, copy and content, as well as programming and website design. They have low running costs and capex requirements as it is, which is why the cash flows are resilient and ROCE is around 10%.
Even a modest stabilising of its growth position should keep the cash flowing and provide a very significant upside. It has a lot of brands, and even limited success with a few of them would make a significant difference. In its annual report it considers a very bad combination of worst-case scenarios and still survives. The downside is limited by the large overdraft headroom and the strong cash generation.
The share price has fallen catastrophically, as you would expect to get to these levels (£38 per share down to £4 over almost precisely 5 years). It shows no certain signs of stopping yet. Joel does not talk about trading or how he buys, so it's hard to know when he would begin if he decided the valuation justified it.
My second and much shorter pitch is GSK, identified by the AI search below, and a safer choice.
It is a big pharma company and is slowly rerating. Under the 9-year tenure of the previous CEO, it focused on fundamental research. This is a slow approach, but its success in this area has improved very markedly over the last 7 years and is now bearing fruit. The market has been slow to recognise this, partly due to a very long period of research underperformance, patent cliffs and litigation risk, which have clouded its reputation for decades. Comparisons to AstraZeneca are useful, as it is following a similar strategic path, and it is slowly looking more like its much higher-rated competitor.
I think this story would have appealed to Joel as it is a little dull, a little slow, and the company has been out of fashion for so long, most people have forgotten that it was once one of the most admired high performing companies in the UK.
Question 6: Come up with an AI prompt based on Joel’s approach.
First prompt:
"Look for a list of companies listed on the UK stock exchange that might have interested Joel Tillinghast as possible candidates for investment with reasons."
Second prompt:
"Look for a list of companies listed on the UK stock market that have as many as possible of the following characteristics:
The company must have a low PE.
The company does something unique that will allow it to earn super-profits on its growth opportunities.
The company must have a moat.
The company must be built to last, not at risk from competition, fads, obsolescence or excessive debt.
The company's finances must be stable and predictable into the extended future, not cyclical, volatile or uncertain."
There was not a single company mentioned on both prompts, which is interesting. The 5 found for the second list were better matches to his approach, I felt. 2 tobacco companies, Imperial and BAT, Phoenix Group, Auto Trader (very depressed price due to AI scare) and GSK.
I have not had a good batting average on investments where the only/main positive thing I could say about them is "it's cheap"
Me neither. Investment (and life) lessons learned with a hefty bill attached tend to stick in the mind.