TIP690: Top Stocks for 2025 & The "Buy" List w/ Eddy Elfenbein

Episode Summary

Executive Summary: The episode centers on Eddie Elfenbein’s annual 25-stock buy list for 2025, a disciplined equal-weighted strategy that changes only five names per year and has historically beaten the S&P 500. Eddie explains his focus on high-quality, reasonably priced businesses, the importance of patience, and why macro headlines matter less than fundamentals. The second half shifts to Clay Fink’s thesis on Lumine Group, a high-ROIC serial acquirer in communications/media software.

Main Topics: Eddie Elfenbein’s buy-list framework (Priority: 5/5): Eddie explains how the annual portfolio is built: 25 equally weighted stocks, five changes per year, held with a five-year mindset, favoring durable businesses with strong niches and favorable prices. 2024 market and macro backdrop (Priority: 5/5): The discussion highlights the dominance of the Magnificent 7, the strong two-year market run, and how recession fears, geopolitics, inflation, and elections did not derail returns. 2024 winners, losers, and lessons (Priority: 4/5): Eddie reviews standout performers such as FICO, Miller Industries, and Fiserv, while also acknowledging poor holdings like Celanese and Polaris and using them as learning examples. Stock selection and selling discipline (Priority: 5/5): He describes why additions like Adobe, Allison Transmission, Heico, and McGrath RentCorp fit the process, and why removals occur when the original thesis changes or a company becomes less attractive. Role of patience and macro awareness (Priority: 4/5): Eddie argues that big gains often arrive after years of waiting, and that macro factors should inform risk assessment and style rotations without overriding bottom-up stock selection. ETF structure and investor experience (Priority: 3/5): The conversation covers why he launched the AdvisorShares Focused Equity ETF (CWS), how it gives access to the buy list in one vehicle, and why the investor base has been stickier than expected. Clay Fink’s Lumine Group thesis (Priority: 5/5): The episode’s second segment presents Clay’s purchase of Lumine, a Constellation Software spin-off focused on media and communications vertical software, emphasizing reinvestment, ROIC, and long runway.

Key Arguments: A simple, rules-based process can outperform by forcing discipline and preventing emotional overtrading. Equal weighting is preferable because it keeps the portfolio neutral, reduces overconfidence in any one idea, and lowers overall risk. High-quality businesses with recurring revenue, strong market positions, and good prices can compound over long periods. Patience is essential because stock gains often come in short bursts after long periods of stagnation. Macro headlines matter less than many investors think; the market often ignores recession fears, geopolitics, and politics when fundamentals remain solid. Cyclical businesses must be evaluated over full cycles, not just short-term price moves or temporary rate pressure. A company should be sold when it no longer matches the original thesis, not merely because the stock has moved up or down. Lumine’s appeal is its ability to reinvest capital at high rates into a niche software vertical with durable customer demand and aligned incentives.

Data Points: Buy-list history: Since 2006 - Eddie has published one annual buy list per year since 2006. Portfolio size: 25 stocks - The buy list holds 25 equally weighted names. Annual turnover: 5 buys and 5 sells - Each year five names are replaced, implying an average holding period of about five years. Long-term performance: 11.2% vs 10.6% - Cited cumulative/annualized long-run return of the buy list versus the S&P 500. ETF launch: 2016 - AdvisorShares Focused Equity ETF (ticker CWS) was launched to replicate the strategy. 2024 GDP growth (Q3 estimate): ~2.8% - Used to illustrate the economy’s resilience in 2024. FICO 2024 return: Up 77% - One of the strongest performers among the 2024 buy-list holdings. Miller Industries 2024 return: Up 59% - Highlighted as a small, undercovered winner. Fiserv 2024 return: Up 58% - Another major top performer in the basket. Amphenol 2024 return: Up 44% - A strong contributor to performance. Heico 2024 return: Up 34% - Referenced as a high-quality name with continued strength. Celanese 2024 return: Down over 50% - An example of a poor holding that hurt results. Polaris 2024 issue: Suffered from rate sensitivity/cyclicality - Eddie said he underestimated interest-rate impacts on the business. Hershey crop shock: Global cocoa crop disruption - He used this as part of the reason for exiting Hershey after a rejected buyout offer. CWS share price: Around $64-$66 - The ETF price was mentioned during the discussion. Miller Industries price appreciation: Up about 150% over two years - Eddie referenced prior coverage and the stock’s subsequent gains. Lumine purchase price: $32.88 CAD average - Clay disclosed his average entry price in October 2024. Lumine share price at recording: Around $41.1 CAD - Current price mentioned during the second segment. Constellation Software purchase price: $23.61 CAD - Clay’s initial purchase price of CSU. Constellation Software share price at recording: $44.50 CAD - Current share price cited for CSU. Lumine market cap: $7.5 billion - Used in a valuation discussion for LMN. Lumine estimated 2024 EBIT: $194 million - Basis for the valuation multiple estimate. Lumine valuation: ~45x EBIT - Computed from market cap and estimated EBIT. S&P 500 valuation: ~25x - Used as a comparison to Lumine’s premium valuation. Lumine acquisition pace: 2 to 6 acquisitions per year - Describes historical cadence of deals. Constellation acquisitions: 700+ acquisitions - Illustrates the long-term serial acquisition model.

Pivotal Quotes: "I wanted to show investors that you could beat the market by doing less." — Eddie Elfenbein: Explaining the philosophy behind the annual buy list and its low-turnover discipline. "I feel like I'd been promised a recession that never came." — Eddie Elfenbein: His summary of 2024’s unexpectedly resilient economy and market. "It wasn't my thinking that made me money, it was my sitting." — Jesse Livermore: Eddie cited this to explain the value of patience after identifying Miller Industries as a winner.

Implications: The episode reinforces that disciplined, patient ownership of high-quality businesses can outperform noisy macro forecasting. For investors, it argues for process over prediction, and for long-term compounding models like Lumine’s, it highlights the power of reinvestment and aligned incentives.