Patience Is the Ultimate Edge in Investing | Matt Sweeney

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**Tobias Carlisle** (1:01)
We're live.
This is Value After Hours. I'm Tobias Carlisle, joined as always by my co-host, Jake Taylor. Our special guest today is Matthew Sweeney from Laughing Water Capital. Matthew is celebrating 10 years in business this year. Congrats, Matthew. How are you? Good.

**Matthew Sweeney** (1:16)
Thank you very much for the congrats and happy to be back. I think this is the third time actually, so celebrating the hat-trick here.

**Tobias Carlisle** (1:24)
What is the mindset change with 10 years? How are you feeling?

**Matthew Sweeney** (1:28)
Well, we're jumping right in, huh?

**Jake Taylor** (1:30)
Yeah, let's do it.

**Matthew Sweeney** (1:33)
The last two times I've been on, we've talked more about building the business, developing the business, the philosophy, that stuff.
The big change that I have felt on a personal level lately is that there's no pressure for me at this point to build the business. And it's important because over the last couple of years or last decade, I guess, there were times where in the early days, if you're trying to build a business, you feel the pressure to behave a certain way. Specifically if, for example, the market is going up, but you don't have anything you're super excited about, you feel the pressure to participate. And that had been a challenge for me at times over the years, especially with so much of that period, SaaS stocks, for example, were dominating the headlines.
I could never really get comfortable. A couple exceptions, but for the most part, I was underweight, massively underweight, what was powering the market for a lot of that time. And it comes with some pressure, because if you're trying to build a business, but you're not participating in the market's upside, you're swimming upstream, right? It's very hard to build a business with the message of, well, I don't really feel comfortable with what's working for everybody right now. Like, no allocator hears that message and says, great, let's give it to the guy who's uncomfortable with what's working.

**Jake Taylor** (2:47)
Yeah. He has no good ideas, let's give him some money.

**Matthew Sweeney** (2:49)
Yeah. Right. So there's a pressure to participate. But now, not there's anything magical about 10 years, but it's that nice round number where I'm at the point where I, on a very personal level, on the emotional side of it, which is a big part of the game, I really don't feel any pressure to prove myself or to participate or chase. I feel much deeper clarity of thought around what I own and my process and not really worrying about what is going on in the world and what is working for other people, and really just being able to focus on what I think works for me, for the portfolio, of course, for my LPs. I'm hopeful that will translate into better returns over time. We'll see, obviously, we can't predict the future by any means, but there is definitely some advantage to being established versus being in startup phase, and trying to prove your strategy and prove your philosophy to the world. I think 10 years with marketing reasons, I can't talk about returns, but I'm pleased with the returns we've had over 10 years. I think my LPs are pleased as well.
It's better this way. It's better to know that you did it and not feel like you have to chase to participate or anything like that.

**Tobias Carlisle** (4:02)
We know what you're not. Let's talk about what you are, your small cap values. How would you characterize your portfolio?

**Matthew Sweeney** (4:09)
Yeah. Well, I mean, small, mid-cap, for the most part, I can go anywhere. I mean, the documents are agnostic, but in practice, I've had almost all the success at the smaller end of the market cap. Right now, the average position size or average market cap size, rather, is somewhere north of a billion, so not super tiny. I've never done anything like the extreme nano caps, $40 million market cap or anything like that. I've never been down there. I've had plenty of success in the $500 million market cap or something like that. Over time, specifically over the last couple of years, I've gravitated to be slightly larger, and that's mostly just due to my experiences with the quality of the management teams. There could be great management teams at any size, but broadly speaking, you just go on a little bit larger in market cap. You get a lot better management teams, and you get a lot more focused board of directors, and often more engaged shareholders as well. All of those things can be positive in terms of governance, which can contribute to returns and also importantly, contribute to the idea of sleeping well at night, knowing that the people that are minding your company are properly incentivized and on the right side of the page as you or the same side as the page as you. Yes, value strategy, it's very much a bottoms up fundamental approach. Value can of course mean a lot of different things. I don't tend to think of value as low PE or low PB or anything like that. It's much more value the way an intelligent business person would think of something, which is being mispriced versus what it's actually worth, independent of what the quantitative side might say.