Simon Kold, Author of "On the Hunt for Great Companies", on what makes a great company
Summary
Kold’s framework asks investors to test business quality empirically instead of treating high returns, rapid growth, founder status, or eloquent shareholder letters as conclusions. His ideal analyst behaves like a hunting dog, gathering observable evidence, while the “senior dowser” starts with intuition and validates it through convenient anecdotes. “You can do much better than heuristics.”
Authentic, norm-breaking communication can signal managerial passion, but it is evidence about the person—not a prescription for running every company the same way. Andrew Walker challenges Expeditors International’s intensely incentivized parking-lot culture as potentially distracting at a company such as Google; Kold clarifies that his point was the CEO’s willingness to “totally deviate from the norm,” not that every business should copy the practice.
Management that aims directly at per-share shareholder value can destroy the conditions required to maximize long-term per-share value. Valeant’s Mike Pearson looked superficially like an Outsiders-style capital allocator, illustrating how CEOs can learn both to allocate capital and “how to pretend to be good capital allocators.” Kold instead looks for genuine product obsession, customer focus, employee care, and thoughtful capital allocation.
Buyback math must incorporate operational irreversibility, although extreme valuation gaps can still make repurchases overwhelmingly attractive. Kold describes a listed company he regarded as clearly undervalued, with an 8% base hurdle rate, where buybacks appeared capable of earning an incremental 25% IRR. Walker’s pushback: halting projects when a stock falls from 30x to 10x may dismantle people and capacity that cannot be rebuilt when the valuation recovers.
Reported excellence can be a warning when aggressive value extraction has temporarily inflated growth, margins, and returns on capital while depressing the apparent multiple. Kold contrasts the “tapeworm,” which extracts until its host resists or dies, with the “honeybee,” which leaves its ecosystem better off and takes only a small share of the surplus. Past price increases prove pricing power existed, but “they have also used some of it.”
Industry staying power is multidimensional, not a license to extrapolate the past indefinitely. Beer scores highly because it is culturally rooted, technologically stable, and supported by an extraordinarily long adoption curve; Walker counters with health concerns, GLP-1s, marijuana, and falling consumption among younger generations. Kold concedes that objective harm reduces long-term predictability even when the historical framework scores well.
The most attractive under-monetization may occur while a company is still building a competitive advantage. Kold uses Costco as an example of a company that might be able to charge more, while noting that he does not know it well enough to conclude that specifically. His unnamed three-sided network would impair adoption by raising prices today but might possess substantial pricing power after 10 years. The analytical task is to distinguish unused power from a business that simply cannot monetize.
Deep dive
1. Great-company analysis should begin with evidence, not archetypes
Kold conceived the book as an overarching framework for “empirically evaluating business quality,” analogous in ambition to a moat framework but covering quality more broadly. Its intended reader is the young, in-the-weeds professional analyst who needs observable determinants, examples, and practical questions rather than another collection of admired companies.
The book’s recurring distinction is between the hunting dog and the dowser. The hunting dog follows evidence through “let’s sniff around” boxes; the dowser forms a theory a priori and validates it with anecdotes, with the “senior dowser” especially dangerous because status allows instinct to replace work.
Walker recognizes the type: every unfamiliar investment somehow reminds an experienced portfolio manager of JPMorgan in 2007, even when none of the companies are banks. Repeated analogy becomes a substitute for examining the actual business.
2. Authentic communication is a clue to passion, not a management template
Expeditors International’s unusual written Q&A—including the CEO’s personally funded executive gathering and the profit-minded parking operation—was Kold’s specimen of authentic communication. The important signal was a leader willing to take a “wild detour,” reveal genuine opinions about corporate America, and risk being mocked by deviating from convention.
Walker’s pushback is operational: making every unit maximize its own economics could distract more valuable employees. A Google engineer hassled over parking may lose time and goodwill worth far more than the parking lot’s incremental revenue.
Kold accepts the distinction because he was never advocating a universal “hustling culture.” Alongside Masayoshi Son and Ringkjøbing Landbobank, Expeditors illustrated communication in which “you really feel the person behind it”—one determinant of passion among several, not proof of overall quality.
His other initial checks include whether executives personally understand and use the product and whether people stay. A quick proxy is to compare today’s management roster with the annual report from five years earlier, although tenure only helps when the underlying record is good: “I’d rather hug a cactus than invest with a long-tenured executive at a chronically underperforming company.”
3. Founder worship and Buffett-style language are easy to imitate
Walker distrusts shareholder letters that conspicuously echo Warren Buffett. They may signal alignment, but he worries that an imitator could then buy a Bitcoin miner at 500 times EBITDA, pay itself a large bonus, and see the stock fall 90%. Kold sees the same hazard in CEOs who have read The Outsiders—its lessons teach better allocation while also teaching executives “how to pretend to be good capital allocators.”
Valeant’s Mike Pearson is the load-bearing warning. Through an Outsiders-style lens, his intense shareholder-value focus could look compelling, and sophisticated investors were burned; the example illustrates how that lens can fail to distinguish durable value creation from an extreme that “tilts to the wrong side.”
Founder status is similarly non-binary and heavily exposed to survivorship bias. Kold contrasts Brian Chesky’s long-dated compensation and charitable commitment with Marc Benioff’s aggressive package and repeated senior-management churn, including two failed co-CEO transitions. Yet Benioff scores strongly on other passion indicators—evidence must be weighed, not converted into a founder/no-founder rule.
4. Durable shareholder value is usually reached indirectly
Kold’s preferred manager is genuinely obsessed with customers and products, cares about employees, and then allocates capital rationally. His formulation is categorical: “You don’t maximize long-term per-share value by aiming straight at it”; the route runs through superior customer value, organizational health, responsible conduct, and disciplined allocation.
This explains why Valeant’s apparent shareholder intensity was insufficient. Walker loosely summarizes its specialty-pharma playbook as buying drugs priced around $100 per dose and moving some toward $100,000 because patients needed them—a vivid case of value capture becoming extraction rather than mutually sustaining economics.
Retention remains useful but contextual. Apple’s management continuity can suggest employee retention, while Walker notes that Salesforce has been a great organization despite its churn. Kold’s broader point is that Benioff can still score well on other passion indicators: passion “is not binary,” and the determinants must be weighed together.
5. Buyback spreadsheets can miss operational reality
In Kold’s anonymized case, a clearly undervalued listed company published a three-year plan whose per-share consequences were easy to model. Assuming roughly a 12x multiple, he estimated that repurchasing undervalued shares could add an incremental 25% IRR, far above management’s 8% base hurdle rate plus project-specific risk premium; the chairman appeared never to have considered the comparison.
Walker offers the strongest counterexample: a company whose stock falls from 30x earnings to 10x cannot necessarily redirect capital temporarily. Stopping construction, emptying facilities, or dismissing teams could suppress growth for three years, while the repurchase might retire only 1% of shares before the stock rebounds.
Kold agrees in a less extreme case where managers adjust project hurdle rates and investment intensity at the margin, much as investors trim positions. His example was deliberately extreme: the valuation gap justified a major repurchase, and hindsight suggested the foregone buyback really would have created substantial value.
6. Pricing power can be consumed, not merely demonstrated
Aggressive pricing can make a company look simultaneously wonderful and cheap: historical growth, margins, and returns on capital appear unusually high, while the multiple looks low. Those heuristics may be measuring temporary over-earning rather than underlying economics.
Kold’s metaphor separates a tapeworm, which extracts value without contributing until the host dies or removes it, from a honeybee that remains a net positive to its ecosystem and takes only a small share of the surplus. A honeybee’s metrics may need to be “honeybee-adjusted” because current figures understate what the company could sustainably capture.
Online classifieds supplied his practical experience. Repeated price increases show that real pricing power existed, but they also mean management has exercised—and therefore used some of it; a platform that has not raised prices may possess more unused power than its financial statements reveal.
Kold declines to force that conclusion onto TransDigm or Constellation Software because he does not know them well enough to comment specifically. His preference is for companies that remain hesitant to monetize when doing so could damage network effects, and he has become less interested in classifieds as aggressive price increases became normal.
7. Staying power survives only if its causal foundations survive
Airlines create enormous consumer surplus but have historically captured little, while railroads similarly struggled for decades before industry consolidation. Kold is interested in Ryanair and continued European airline consolidation, but warns against assuming the railroad outcome repeats: aircraft can be moved around, so the underlying asset and industry dynamics differ.
This is his “arguments from analogy” warning—the intellectual slip on a banana peel behind formulations such as “the Airbnb of X.” Analogies can generate hypotheses, but analysis must identify the differences capable of breaking the comparison.
Beer scores well on Kold’s staying-power determinants: fermenting grains has changed little, electricity was brewing’s biggest technological change, distribution has not changed rapidly, and alcohol’s adoption curve is extraordinarily elongated and culturally embedded. It contrasts sharply with semiconductors and their relentless technological change.
Walker compares a possible future decline in drinking with today’s much lower smoking prevalence. New health evidence, GLP-1s, legal marijuana, and younger consumers drinking less could turn a sleep-well-at-night holding into a disrupted “AAA bond.” Kold concedes beer is not guaranteed another 100 years; products with objective harm are less predictable because substitutes might preserve the benefit without the harm.
8. Under-monetization can hide the strongest economics
Kold does not know Costco well enough to answer specifically, but uses it as an illustration of metrics that may understate quality because the company could potentially charge more without immediately eroding its competitive position. Walker’s concrete test is a friend who considers driving 45–60 minutes to Costco despite a BJ’s only 10 minutes away; raising an approximately $100 membership to $150 might, in his estimate, lift earnings about 33% with little churn.
Kold is most interested before monetization, while restraint is still strengthening the moat. In his unnamed three-sided network example, employees say that higher prices would damage adoption across all three sides; waiting 10 years could allow the network effect to become powerful enough to monetize. Such a company may already be a kind of monopolist, but it can still damage its own network-effect position.
Early AT&T chairman letters interested both speakers because they articulated network effects clearly in the early 1900s. The broader lesson is not that every network eventually monetizes, but that current returns may omit the value of deliberately retained customer surplus.
Kold considers the first appendix’s self-critique checklist the book’s most original contribution. An investment thesis usually depends on “four or five things that need to happen”; investors should identify those claims, examine their standard forms of argumentation, and actively test where their reasoning could slip.