Dear Subscribers,
We have executed a strategic portfolio reallocation, completely exiting our position in Duolingo (DUOL) to immediately and fully deploy the capital into Copart (CPRT). This “quality-for-quality” swap reflects a deliberate decision to maximize the structural coherence of our investment philosophy, prioritizing mission-critical ecosystem infrastructure over standalone product excellence.
This is not a reflection of a deteriorating thesis in Duolingo, which remains a phenomenal, rapidly growing business with an excellent product. Instead, it is a choice about the exact type of asset we want to own for the next 10 to 20 years.
To an outside viewer, our frequent portfolio updates over recent months might look like overactivity or short-term churning. However, every single one of these adjustments was made only after rigorous, deep-dive examination of our holdings and their alignment with our investment philosophy. With each of these recent moves, we have not been chasing trends; rather, we have deliberately aligned our portfolio more closely to our core philosophy and strict investment principles.
Business Overview
When looking across our portfolio, a clear and deliberate pattern emerges. We do not simply seek out “high quality”; we intentionally own companies that control the critical infrastructure of their respective ecosystems.
Mastercard & Visa: Global payments infrastructure
S&P Global & FICO: Capital markets data, ratings, and credit decision infrastructure
Verisk & Equifax: Insurance and consumer credit data infrastructure
Broadridge: Securities processing backbone
Constellation Software: Essential vertical market software infrastructure
Amazon: Cloud infrastructure via AWS
Copart belongs naturally in this elite group; Duolingo does not. Copart operates the dominant, two-sided online marketplace infrastructure for salvage vehicle liquidations. It sits at the absolute center of the automotive insurance ecosystem, acting as a non-discretionary partner for insurers who must clear total-loss vehicles.
Why We Own It
Copart aligns almost perfectly with our core compounding criteria:
A Flywheel Moat: While many view Copart merely as an auction company, its true model is a highly entrenched two-sided network. Every additional insurer, dismantler, exporter, and repair shop that joins makes the platform structurally more valuable. Insurers seek maximum recovery values, which draws global buyers looking for inventory. A larger buyer pool drives up auction prices, which in turn attracts more insurer volume. This self-reinforcing flywheel has compounded for decades and shares striking economic similarities with Mastercard’s payment rails.
Extreme Customer Dependence: A core question we ask of any holding is: How painful would it be if this company disappeared tomorrow? If Duolingo disappeared, users would migrate to alternative language apps; the ecosystem does not depend on it. If Copart disappeared, insurance companies would have to completely redesign their total-loss frameworks, recovery values would plummet, claims costs would spike, and operational efficiency across the automotive industry would collapse. Copart’s sticky, integrated position makes it incredibly difficult for customers to realistically switch.
Disciplined Capital Allocation: Copart joins the ranks of Constellation Software, FICO, and S&P Global as a premier capital allocator. Management has consistently reinvested free cash flow into high-barrier assets, such as purchasing land near major metropolitan markets, expanding physical auction facilities, and scaling internationally, all while maintaining exceptional ROIC.
Portfolio Fit & Construction
This transaction represents a conscious choice to trade growth optionality for defensive resilience and structural alignment. By fully redeploying our Duolingo capital into Copart at once, we are taking a definitive step to expand Copart into a core holding, further strengthening the portfolio’s aggregate cash-flow durability in stressed macroeconomic regimes.
Crucially, the timing of this swap is heavily favored by an opportunistic valuation window. While Copart traditionally commands a steep premium, recent short-term volume headwinds have compressed its multiple down to roughly 18x P/E—its lowest valuation footprint in nearly a decade and a ~38% discount to its 10-year historical average.
While our top five holdings already comprise over 72% of our total capital, running a high-conviction portfolio means moving decisively when an elite infrastructure monopoly hits a deep valuation trough. Absorbing the entire Duolingo allocation into Copart today reflects our commitment to maintaining a concentrated, uncompromising collection of infrastructure monopolies at the best possible risk-adjusted prices.
Risk Considerations
Replacing one premium franchise with another requires a clear-eyed assessment of the trade-offs:
Technological and Structural Evolution: The primary long-term operational risk we monitor with Copart relates to the multi-decade evolution of automotive technology. Over time, the widespread adoption of autonomous driving and advanced driver-assistance systems (ADAS) aims to reduce absolute accident rates. While this secular headwind is currently heavily countered by the skyrocketing complexity and cost of repairing modern tech-heavy bumpers and sensors (which increases the frequency of insurance total losses today), we must continually evaluate whether technological safety strides will eventually outpace rising vehicle repair costs over a 15- to 20-year horizon.
Industry Concentration: This transaction modestly increases our exposure to the broader insurance ecosystem, alongside Verisk. However, we do not view this as redundant. Verisk and Copart occupy entirely different, complementary parts of the value chain: Verisk serves the front end by helping insurers price and assess risk, while Copart serves the back end by helping them efficiently dispose of total-loss assets.
Conclusion
Copart answers “yes” to every foundational question in our investment framework: Is it mission-critical? Does it become more valuable with scale? Are switching costs prohibitive? Can it compound capital for decades? And crucially, would we be comfortable owning it through a 50% market drawdown?
While Duolingo is a spectacular business, it lacks the infrastructure characteristics that define our highest-conviction holdings. Fully scaling our Copart position during this rare valuation disconnect hardens our portfolio against macro shocks while ensuring our capital remains explicitly aligned with an entrenched, wide-moat incumbent.
Sincerely,
Stiliyan Loukanov - Fund Manager, Feather Fund
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