Interview #96 : Jeremy (French Hidden Champions)
Exploring French micro, small and mid cap stocks
For this issue we have the pleasure of interviewing Jeremy from the French Hidden Champions newsletter.
⚡ The Q2 2024 Fund Letters Round-Up has recently been published. 48 letters have been added so far.
You will not find a bigger and better collection of quarterly investment letters anywhere else in the world.
Especially the letters of many 'under-the-radar' small/microcap investors. It’s a treasure trove of ideas and insights from many bright minds.
We have subscribers from all around the world who enjoy consuming our content.
This includes fund managers, analysts, family offices, and other institutions. We have many individual investors and students who enjoy the content too.
If you’ve not done so already we hope you consider becoming a paid subscriber to get all the full benefits (and a shedload of stock ideas too).
Hi Jeremy, thanks so much for taking the time out to do this interview.
Can you please tell readers about your background, and how you got involved in investing?
First, I went to University where I studied law (company and tax law) and I then went on to business school. I began as an external auditor, then went to work in the banking sector.
I got interested in investing when I saw all these weird company names in the French financial newspaper (La Tribune Defossés) and with the price changing every day. The weirder the name the more interested I was.
As time went by I honed my skills and improved my accounting and financial analysis skills by reading lots of annual reports and exchanging with mentors who have become friends.
I also give a lot of importance to management. My father was a lawyer and I saw him read a lot of papers. He worked really hard but died young so I wanted to work hard but also smarter.
Why do you focus solely on French companies?
I am based in France so I can see management quite a bit through shareholder meetings, financial meetings or investment forums. I also know how things work in France (the importance of the network, building trust).
I am urban but have strong roots from rural France which keeps me grounded and to be able to hear what is going on in the field.
I understand local rules. I think that it is a moat to see management as they are the ones who are taking the decisions. It brings in a subjective dimension but as time goes by my “reading” skills and “gut” feeling have guided me.
If I do not like a management team (not humble, not respecting minority shareholders) I am out as a shareholder the next day.
What type of businesses do you like to invest in?
I like to invest in holdings with families who have all their wealth tied to their company. I want to be with managers who have skin in the game. It is the best incentive that there is.
They are building multi generational wealth and are transmitting a heritage. This helps them a lot in allocating capital and in avoiding big mistakes. It matches my approach of “let us first take care of defense and offense will take care of itself”.
Holdings give you access to private companies which are in themselves not quoted and also to the business network of these holdings. They have access to deals that enable them to invest in companies that I cannot have access to as an individual.
They also have a common trait that they have solid balance sheets (net cash positions or a very low level of debt). They also tend to have hidden assets which can have different forms: real estate, self controlling loops.
The best ones tend to use the whole span of capital allocation tools (buybacks, special dividends, carve outs, spin offs, M&A) and they don’t like to see their share count increase.
Holdings also have a permanent capital approach which I also share. Having a long term view and being patient is the way to go.
I tend to like capex light business and I want to avoid companies which use financial shenanigans (R&D amortisation, one off expenses which tend to repeat themselves, factoring).