Podcast Review | Owning Best-in-Class Businesses w/ Joseph Shaposhnik by The Investor’s Podcast

Owning Best-in-Class Businesses w/ Joseph Shaposhnik by The Investor’s Podcast

Joseph Shaposhnik, a seasoned US-based fund manager, honed his craft under the legendary Peter Lynch at Fidelity before carving out a successful career in large-cap US equities. Now, as the founder of Rainwater Equity, Shaposhnik focuses exclusively on companies with recurring revenue profiles, a strategy designed to navigate the inherent uncertainties of equity markets.

Benjamin Franklin famously said that “nothing is certain except death and taxes”. In equity markets, uncertainty is everywhere. Shaposhnik uses the example of the management team of NVIDIA Inc., which sold billions of dollars of stock in 2022, a year in which the share price experienced a ~50% drawdown. Given the nature of the NVIDIA business, one would think management would have a reasonable understanding of the general trajectory of future customer orders. If you saw this signal, you’d likely be worried as an investor. However, only three years later, it is the most valuable company in the world and the customer demand profile is extraordinary. The point of this is to demonstrate that equity markets are unpredictable, both good and bad.

How do you give yourself the best chance of things not going wrong and having fewer surprises? By investing in businesses that have recurring revenue profiles, which in turn equate to predictable cash flows. Businesses such as software companies, credit bureaus, stock exchanges and aftermarket parts providers are all types of businesses he highlights as having repeatable characteristics which stand the test of time through recessionary periods. These types of businesses allow management teams to be more confident in making investments and hopefully provide a better foundation for higher returns on incremental capital.

‍Link to Podcast

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