Adam Patinkin
speaker
64 appearances
1 recordings
1 series
first heard Apr 2025
last heard Apr 2025
Adam Patinkin’s voice in public audio — every appearance, attributed to the second.
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Appearances
I'll still give you a good exit where you can retire and be happy and all of that. But you get all of these other things where your legacy is preserved and your friends still have their jobs. And it really works because then these young, hungry, talented, oftentimes post-MBA individuals come in. And they professionalize the business. Maybe they replace pen and paper with technology.
They go from founder-led sales to a professional business development team. And they grow the EBITDA over time. And the multiple tends to go up as well as the business gets to scale. And so the model really, really works. And that's exactly what Kingsway is doing. Kingsway has – they get 100 applicants for every seat that they have.
And then they have all the infrastructure to support these searchers as they go out, find a wonderful business to buy, and then help them grow the business. And so now over time, Kingsway has built this wonderful collection of these high quality asset light recurring revenue services businesses.
they keep buying them and they keep adding them to the portfolio and the EBITDA keeps going up and over time you know our view is that this can be a much more profitable and much larger company following this wonderful search fund model and and just to add one final kind of coda to a final point to it for some historical reasons the the structure of Kingsways the Kingsways corporate structure
It was formerly an insurance company that almost went bankrupt and it generated almost a billion dollars in tax losses. And as a result, they have these net operating loss carry forwards that essentially mean that Kingsway can keep buying these businesses and growing its profitability and compounding at a high rate.
And they don't have to pay taxes for a while because they've got these net operating loss carry forwards. And so for me, what was attractive was I get to join this company that I think has a wonderful model that's the only way to invest behind search in the public markets is in Kingsway KFS. And it also has this tax advantage structure and a really wonderful management team and a great board.
I mean, it's the people that matter most. And it's a great set of people. And as the flywheel is really kicking in here, I'm excited to be a part of it.
Yeah, so I think that our approach is bottom up. So we're looking at individual companies doing heavy amounts of due diligence, really understanding them inside and out and kind of the rifle approach where we're finding these great undervalued businesses and then buying them for the long term. But every now and then, It's not the micro that matters. It's the macro that matters.
And one of those times was in inflation in 2022. I mean, if you remember that, the market was in full meltdown. It was pretty scary. CNN has a fear and greed index, and it literally registered zero on a zero to 100 scale. In other words, maximum fear. And it was all around whether inflation was out of control.
And so we did our homework right in these moments when the macro is all that matters, we will do our work around the macro and really try to understand it in a deep way. And we did our homework, built a model of, of CPI of, of inflation, uh, the main gauge used by the federal reserve. And we came to the conclusion that inflation was not out of control.
And instead that inflation was going to mean revert a lot lower back to normal. And that's essentially what's turned out to happen. Headline inflation is down from 9.1% at peak to 2.8%. Core inflation is down from 6.6% to 3.1%. Our thesis has really played out. And I think that we had two key insights at that time. One was, what was the cause of inflation?
I think that there was a lot of worry that it was caused by monetary policy or fiscal expansion policy, but our conclusion was different. We thought that it was caused by a supply shock, that when COVID lockdowns happened, it caused a lot of capacity to come out of the market. You know, you might have 100 retail stores. You shut them all down during lockdowns.
And when you go to reopen them, well, you don't reopen the 10 that were losing money. And the same thing happens across the supply chain, across manufacturing, across all these different industries. And so we ended up having this huge supply shock that caused prices to go up.
And as my grandfather, who bought a small farm in northwestern Illinois half a century ago, used to tell me, he would say, Adam, the best cure for high prices is high prices. And that's exactly what happened.
These high prices caused by the supply shock led to a significant supply response that caused in category after category after category, whether it was airfares or shipping expenses or whatever it was, prices came down. And that's the reason why inflation has moderated so much. It was a supply shock that market horses resolved.
Hit me with it.
Yeah, so I think that cattle prices can stay high for a good amount of time, and I think it has to do with the biology of the animals. So it's really interesting when you look at chicken. You know, you can lay eggs, and you have a chicken that can – be a mama hen and start producing within 90 days. I mean, literally, you have the supply responses within a few months.
With pork, you're talking about a little bit longer, but, you know, a little longer gestation period, et cetera. But, you know, within a year, you can have a pretty significant supply response with pork. That's not the case for cattle. It's a 10-month gestation period.
Then you got to get them to over a heifer to over a year, and then you drop another calf, and then it's another year before you slaughter the calf. or sort of the yearling. And so it can take three, four, five years before there's a supply recovery in beef. So it can happen much quicker in chicken and pork, but in beef, it takes a long time for a supply response to be solved.
Yeah, I mean, maybe let me just use that question to kind of pivot back to the inflation conversation, because I know it's so important here. The things that you learn in life, including with sports, how to train, how to work hard, being on a team, all of those things, that really has an application in the investing world.
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