60: Constellation Software Map; Risks of Investing In Financials
Constellation's constellation...
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Constellation Software
My friend, Carter Johnson, put together an updated map of Constellation Software’s many (that’s an understatement) businesses and business units. I’m not too familiar with $CSU other than its value-based approach and well-respected record. Carter is an expert on the company.
Subscribe to his newsletter and you won’t regret it. I’ve learned a TON from Carter over the years.
Watch out for financial companies
Here’s a clip of Warren and Charlie talking about financial companies, and specifically lending institutions like banks as well as insurance companies. Unlike other businesses, financial companies can look great until they fall off a cliff and wipe out shareholder wealth. It’s all too easy to hide risks from shareholders. And you can’t count on the fact that these industries are heavily regulated and audited on a regular basis. That’s why Buffett and Munger are extremely sensitive to things like changes in business strategy. Even growth makes them nervous as that’s often an invitation to mishaps.
My 10+ years in banking showed me how risks can be hidden intentionally or unintentionally. Let me be clear: I worked for honest institutions. But I was able to see how the risk-rating process for loans and the bias inherent in lenders, managers, and auditors could lead to problems.
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Stay rational! —Adam
