Every company I own goes through the same leadership transition test. This issue of Confluence is about what I look for and one company I have chosen not to own because of it.

My written rule: reduce exposure when a C-suite executive leaves unexpectedly, especially if confidence in the thesis is already waning. Reevaluate the thesis even when succession is planned and communicated effectively.

The questions are the same each time. Why is someone leaving? Who now runs strategy, operations, and the financials? What changes with them?

Most departures are not nefarious. People outgrow roles. Take chips off the table. Move on to something new. In fairness, that is exactly what I did in founding Cymer. The point isn't suspicion. A thesis is partly a judgment about who will execute it. When a key person leaves, the judgment needs a reevaluation.

A leadership change doesn't automatically mean selling or passing. What makes the answers acceptable is usually visible before the change happens.

The board has run a competitive process, ideally with outside help, rather than announcing a name under pressure. The successor has already been running a meaningful share of the plan: operations, strategy, the budget, and the relationships that matter most to the business, whether with customers, regulators or partners.

Then I listen to how the new leader frames the first public appearances. Continuity of an existing strategy, stated plainly, is reassuring. Shifts in emphasis are fine, and sometimes welcome, as long as they are explained. What I'm looking for is evidence that the person who now owns the plan already understood it.

None of this guarantees an outcome. It answers "who runs it now" well enough to keep underwriting the business on its own merits. Stated differently, do I have the same conviction in the thesis with the new management team?

MercadoLibre is one of Latin America's leading e-commerce and fintech platforms. The opportunity is real: e-commerce penetration still in the mid-teens in key markets, financial inclusion growth, small and medium-sized business enablement, and a large addressable market ahead.

MELI's CEO transition was planned. The co-founder announced in mid-2025 that he would step down effective January 2026, remaining Executive Chairman with a focus on AI. That is how succession should work. The CFO's departure in mid-2023, after more than two decades, was the unexpected one.

A planned handoff still carries more weight at a founder-led company. The founder often shapes the strategy itself: the risk appetite, the capital allocation, the willingness to trade margins today for scale tomorrow. The question isn't whether the transition was orderly. It's how that judgment carries forward.

The numbers make the question sharper. Over the last three years, revenue has grown about 40% a year while net income has stalled near $1.9 billion. Competition and investment have weighed on margins. The investments may prove sage. I just can't tell yet.

This isn't a verdict on the new team. They may well be excellent. It's a question of conviction. A concentrated portfolio needs more than "probably fine," and right now I can't get there. Who owns the plan? Can margins recover while the investment continues? Does the spending stop? My conditions are written down. A clear AI strategy. Margins that hold or rise. No credit stress in the fintech book.

A rule like this will sometimes take me out or keep me away from a good business over a departure that turns out not to matter. In a concentrated portfolio, that is the price of managing a known risk. I would rather pay it knowingly than discover the problem in the numbers.

Same checklist. Different answers. That is the point of having one.

Change is never the red flag. Unexplained change is. David Bowie, Changes

Disclosure: Cymer does not hold a position in MercadoLibre (MELI). Positions may change without notice. For informational purposes only. Not an offer to sell or a solicitation to buy any security, or investment advice.