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particular form of investing which some of our members of the audience may not understand and it's sometimes called activist investing so maybe you can just help you know orient the audience about what exactly does persian square capital do what's the general investment style and and why did you set it up that way um so the vast majority of capital invested in the markets today is passive so if you think of index funds or etfs or even the big kind of long only institutions the vast majority of that capital is by charter passive passive means you you do your research in some cases you don't do the research you sort of just blindly follow an index and you judge based on how closely you follow the index if you think about investing 100 years ago though investing you had andrew carnegie owning twenty percent of u.s steel or you had jp morgan as a large owner of various companies over time and in the old days of investing an owner would act like an owner so if they're unhappy with the performance of the business they would replace the ceo they were unhappy with the board's judgment they would make changes to the board and as capitalism sort of democratized the investment process and as any kid in business school can open a brokerage account and as uh it's you know the the owners of many of these great businesses over time you know gave the shares away to a university or their heirs and the ownership was just you know spread out you know the sam waltons of the world uh kind of passed away and the boards became to be managed by uh professional owners and so uh what we do is we look for situations where business has lost its way uh where an otherwise great company with in a in a business that we would define as one that has significant barriers to entry that warren buffett would describe as having a moat around it a business that is simple predictable generates cash and we can be confident we'll be here 50 years from now a good example is we own a stake in canadian pacific which is a a railroad in canada um and if you think about the railroad business you know it's not it's a business where they're not going to build a new one across the street you can have absence some fairly dramatic changes in technology you can be pretty comfortable that you know goods will be shipped on rail for a very long time to come so it's a business we can predict we can think about it from a very long term perspective we can buy it at a price that's interesting in the case of cp this was the worst run railroad in north america it had the lowest profit margins it was trading at the lowest valuation relative to earnings and had a very unhappy shareholder base but there was nothing they could do about it because they were inherently again the biggest investors tend to be very passive and we saw an opportunity and the opportunity was if you could replace the worst ceo in in the railroad industry with the best ceo in the railroad industry a lot of money could be made and we bought uh first twelve percent of the stock and then another two percent about fourteen percent of the stock we recruited a guy named hunter harrison who is uh widely considered the best railroad executive of all time you know certainly in north america he had retired at 65 he was 66 and a half he had signed a two-year non-compete with his employer and i think the biggest mistake they made was a two-year non-compete because he was running the the other canadian railroad canadian national and we hired him as a consultant he helped us study the railroad and he had plenty of fire in his belly and we said look would you be interested in the day job and he said let me check with my wife she said you know what it's time to get you out of the house again and uh my wife says that all the time and and uh we recruited them and then we had to simply put them in place now the problem was canadian pacific has one of the most sort of esteemed and illustrious boards in canada at least at the time and it was the former head of the royal bank of canada the former ceo of suncor energy the former head of the steel business you know it's very very important board and they didn't like the idea that this idea was coming from outside the company so they said no um so we went to the shareholders and we ran an election in a proxy contest we put up seven directors for uh seven seats on a 13 seat board and the shareholders voted with us uh ninety percent of the time and voted against the other guys uh and they got between three and eleven percent of the vote we put our directors on uh we did a review of the best ceos in the world turns out the guy we identified was the best guy we put him in a ceo that was 16 months ago and it's almost the most profitable railroad in north america after 16 months that's how quick this guy goes to work stock's gone from 46 uh to 151 dollars a share it's you know a little under 8 billion market cap to a 25 billion market cap that's kind of the perfect example now it doesn't always work that way and i have a feeling that peter might ask me about one of those cases you
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