Good Investing Talks - Why do you like DoorDash, Jackson Zhu (Square Street Capital)?

Episode Date: February 12, 2025

Why do you like DoorDash, Jackson Zhu (Square Street Capital)?

My style is I look for the kind of opportunity that has great fundamentals, attractive valuation, and also come with high certain. How I think about portfolio composition. I think it is critical that we mentally separate two concepts. One is payoffs. One is odds, ODDDS. Younger generation, I think across the world, there are a lot of surveys coming up. People just don't like cook. People like convenience. People like just ordering in. People like go to a restaurant. Cooking is increasingly become a special

habit that certain people enjoy, but it's a special habit. It's becoming become, it's increasingly become sad. Dear viewers of good investing talks, it's great to have you back on the podcast and it's great to welcome Jackson Sue from New York. He's an emerging manager and an investor with a square street capital. Great to have you here, Jackson. Timon, good to see you again. Jackson, there's one interesting story around you that is fun to listen to.

It's about the oil and the negative oil. price in 2020 and you. So maybe you can share it also with this audience to learn a bit more what you did at this time. Oh yeah. So it was an investment opportunity that I predicted in early 2020. Many of you probably remember oil price collapsed during the beginning of the pandemic. And that time I was able to predict in advance oil price become negative. It was an unusual opportunity and it was just too good to let go. And I was, I'm still very glad that I was able to seize that unusual opportunity. And I think it's probably the first time in history that a major physical asset traded into the negative zone. So it's quite unusual.

How did you see it? What led you to see this opportunity? frank in the beginning I was thinking about buying oil because it was too cheap but I was moving it over and over again just like I do like that's my thinking process I suddenly realize an asset sometimes can flip to become a liability and in this case I think I was in between sleep and awake of being on the bed and suddenly the idea come to me that if there is a negative sign attached to the price, it becomes negative. And I did some quick research and I realized the supply and demand relationship during that time with a physical relationship. We were running out. The world was running out of storage for oil.

And that piece of fact, physical fact, was almost certainly going to drive oil price into negative. So that's what drove me, um, uh, enlightened me to that idea. At this, this time you were an analyst, if I'm right, working as an analyst. Yeah, I was in my, I was in my prior career. So you want me to give you a quick introduction on my background or do you want me to talk about that specific? No, no, I'm just curious here. Did this kind of oil trade help you to start out as an emerging manager?

Oh yeah. So at that time to your question, for the answer to a question. I was working as a institutional allocator. I was on the other side of the table. My full-time job was interviewing and researching hedge fund managers. Now I run an investment business myself as investor. And to your question, I think the negative oil experience and did help me. It helped me on more of a philosophical level because

I've been investing since high school, but I always had an idea that most institutions and investors has so much resources available to them that for small investors, there is almost no way to compete. But a negative oil experience told me is actually not that clear-cut picture. I don't have any oil experience, I don't have any energy experience, and I was able to see in advance negative oil because exactly I don't have any background, I was able to think out of the box. After the negative oil prediction, there was actually an investor called me up on the phone, and if I remember correctly, he told me, Jackson, listen, if you have ever worked for oil and gas hedge fund, or if you have consulted industry expert, you would never come. to this tradition of negative oil that brought me to a higher level of understanding of

what's important and what drives great investment ideas so to your question it does help and does this background as an allocator also make you different as an investor and if so how compared to other investors you see that's a very good question tillman do you want a long answer Or do you want a short answer? Start with the short and if it's more interesting, I dive deeper. All right. So I give you a short answer. So the short answer, in the beginning, I thought it was not going to be helpful because

I do not have formal full-time work experience with any direct investment institutions, such as any active direct managers. I do not. So in the beginning, I saw this going to be a handicap on me. as I have ventured out for several years on my own, I increasingly realize my experience working as allocator is a tremendous asset for me because I was interviewing, evaluating, asking questions to hundreds and hundreds of probably

the smartest and most hardworking investor on this planet. I was able to see how each talented, investors think, how they strategize, how they make mistakes, how they recover from mistakes, and how they try to beat the market, even though it's a very difficult game. So it's a very high-level experience for me, evaluating many other managers, and I was able to distill some important lessons from the allocated experience and apply those lessons at what I'm doing now. Maybe at another one of your learnings that might be a bit more surprising to listeners who are passionate investors and already run a fund. Maybe that it's more one of the sophisticated insights you took away from the allocator perspective.

You want a sophisticated one? Let me put in one here. It may be a little bit of debatable and many of the audience listening now, you may strongly disagree. Okay, but let me put it out there. I might be wrong, but let me just make a temp here. It has become increasingly obvious to me that successful active investing cannot be systematically taught. That's a piece of insight.

and why do i think so i'm not saying this to discourage anybody from investing it's an empirical observation i've made and the reason behind this observation is the following one um if successful active investing can be systematically taught then why don't we see any specific education institution has a long-term great track record of continuously and consistently produce superior investors that can outperform index. We have great institutions with great names, but in terms of producing investors at the track record, I think this is debatable. The second is if successful investing can be systematically taught, why we have so many investment books being published year over year.

One book should be enough. The third is if successful investing can be systematically taught, then in the investment industry, why do we not see any family dynasty, meaning father, mother, passed down the generations into the children and grandchildren? children. For example, in politics, we have the Kennedy family. In medicine, we have the Mayo Clinic, Mayo family. In music, we have the Bach family, classic music. But in investing, we don't have. You can think about it. Do you know any successful investor who have a long-term

successful investment track record? Their children also have a long-term successful investment and their grandchildren. So between parents and children, they share similar genetics. And if parents cannot pass anything to their children and produce a family dynasty, I'm not sure successful investing can be systematically taught. So I think that is a piece of deeper insight.

I'd like to share. I understand it may trigger some feeling in some audience. I understand it's probably available. I'm also fully open-minded in that. Probably in the future, I realize this is totally a wrong assessment, and I will acknowledge I'm wrong. Let's take the learnings to another step. How have they helped you to make your firm different?

That's a very good question. What I realize is, because the industry is highly competitive because very few investors has truly long-term track record. One of the realization I realized is those conventional elements that people call them an edge probably doesn't matter as much as we think they do. For example, we see investors competing on corporate access. We see investors competing on corporate access. We see investors competing on having the most amount of alternative data, like credit card receipts, etc. We see investors competing on many other metrics. I realize they may not matter

that much at all because otherwise those who pursue on those dimensions should have consistently outperform others, but we don't see this kind of pattern. So to me, back to your question, in my own investment journey, in my own investment process, I try to do things makes sense that can generate great returns and I give you some more narrowly defined example for example when I look at investment opportunities I'd like to think about whether an investment opportunity is actually researchable or not because there can be a lot of companies or ideas that no matter, for example, I'm a smaller shop or a large shop,

no matter how much time and resources you put on, we still can't understand it, or we still can't predict its future detractory with high certainty. So that's one example I'm trying to give you is the industry is competitive. People have a lot of resources. A lot of people are doing something very similar or all working very hard.

But we have to take one step back and do things that only makes sense in order to have a few chance to generate a strong investment results. What kind of goal are you trying to achieve? So I interpret your question as the kind of goals I'm trying to achieve when I venture out on my own. I think the very important goal is generating investors. returns. And I expanded a little bit here. Let me do it. I think in investing,

investing as a business, it has two faces. One, investing is investing for investment performance. On the other side of the face is investing as a business. When we look at different people in the industry, some put more emphasis on running investing as a business, meaning there's fees to generate income, there's client relationship to be maintained, and there is an overarching brand and all the things attached to it. And on the other hand, it's a pure investing as a craft that trying to generate superior returns. I see that distinction. I see that distinction from very early on. And my goal, to your question of venturing out on my own is to focus as much as I can on the pure

investing side meaning aim for great investment results and you'd already touched based on some elements of your investing style but maybe how would you describe your current style of investing is it a value investing influence style or how would you describe it? I understand the conventional definition of value versus growth, and there are many different dimensions people use to categorize themselves. Let me give you this short definition that I find that describe my style the best at this moment. Obviously, I feel a big caveat. I want to be an investor that continue to learn, so my style may evolve.

But answer your question, at this moment, my style is I look for the kind of opportunity that has great fundamentals, attractive valuation, and also come with high certainty. That's a big story. And I have a too small one to attach to it. the most ideal opportunity i can't ask for it because most opportunities cannot the most ideal opportunity has two additional to it they can be independently verified and independently tracked so big three and plus two small ones that's how i currently um how i would like to currently describe my approach let's go into one of these big frees how do you get to certainty So I understand certainty describe a concept that doesn't have a very certain definition. I think there are two English words that probably describe certainty better than others.

The first one, I would say it is visibility. just like if you are driving in a bad weather, we can't see too far out. That's low visibility. If you are driving in a sunny day, it's much easier for you drive because you can see. That describes one aspect of certainty. In real life, I think empirically, for example,

try to predict company turn around story is very hard. The company getting into some troubles, the product getting to some troubles. They try to engage a new management team. They try to do different creative things. And then we try to, like as investors, people try to predict those turn around. Generally, we can say, not absolute for sure, generally can say those are low visibility. But in some cases, either the investor himself has special background, special knowledge, or the case itself presented in a certain way that has high visibility.

So to your question, the first word is visibility. The second word I like to use, and I don't think they are, they're pretty similar to visibility, the word predictability. Is something highly predictable? And I give you an obvious example of what is predictability. For example, Tillman, you and I,

we're gonna have a bet on whether, 60 days from now is going to rain in Berlin. Oh, we make another bet. 60 days from now, the exact temperature, 2 p.m. in the afternoon in Berlin, those would be extremely unpredictable. I think even today with all the modern technology, maybe with AI is already resolved, I don't know, short-term weather, extremely unpredictable.

However, if Tim and you and I, we have a different kind of bet, I'm going to bet you over the next three years, summer is going to be warmer than winter in Berlin. This kind of bed, I can make a very, very large bed on it, because it's highly predictable. So this is what I mean by predictability, even the same subject matter, weather, climate. If you see it differently, it has different predictability.

So to your question, wrap it up. high certainty my current thinking and my current answer is it is highly visible and highly predictable can you maybe give a bit of elaboration based on a case of a company so we will talk later about door dash feel free to use this on door dash but another company where you your work you did to get to visibility and certainty? Sure. I give you a quick one. It was before I ventured out on my own when I was still personally investing. It's Airbus, the European company Airbus.

And again, I'm just recording from my memory. Some of the numbers may be wrong, but it should be roughly in this shape. So it was also during pandemic that Airbus stock collapsed like many other travel companies or many other businesses in general. I would recall Airbus stock price collapsed probably from 90 or 100 to 49 euro a year within a very short period of time. I'm recording this from Amory and the number of previews slightly off. And to me, Airbus is a high-certainty investment candidate. And where does that certainty come from? Several bits of common sense.

One, we know civil aviation is a high- certainty, high-growth industry. No matter which country you come from, no matter where you come from, as people get wealthier. They want to jump on an airplane and see the world. In professional term, the growth curve of civil aviation resemble the global GDP curve with probably a little bit of faster speed.

That's in professional term. In the labor term, I does explain. Second, I always think like when I was younger, it's also another intuitive common sense is, there are a number of companies, not that many, that are critically important for human civilization. One of it is Airbus. If we remove Airbus, so let's say we wake up tomorrow,

Airbus disappeared from this planet. We will get into some issues as a human civilization, meaning we won't have enough plans being produced We still have Boeing, as we all know, Boeing has been in trouble for quite a long period of time in terms of manufacturing, etc. We will have not enough supply for new airplanes to replenish the fleet around the world. And human travel will get into troubles. I think if you and I jump on a boat trying to beat each other, I think no one will opt for that option. So Airbus is a critical infrastructure for human civilization, and that is where certainty coming from.

And then I can dive into the specific financials, for example, in terms of the price earnings, in terms of the size of all the books they have, this company was cheaply valued with huge visibility into their future revenue and the extreme high certainty. So that is my answer to your question. Hey, Tinlan here. It's great that you have made it that far into the video, and I think it shows a certain passion for investing you are having. If you want to dive deeper and go further down the rapid hole,

you're invited to apply to my community good investing plus it's a place that's very helpful to people who are ambitious about investing it's helpful to investment talent as well as experience fund managers so if you're interested please click on the link below and now without further do enjoy the conversation another question i want to raise is like you already mentioned like these three components plus the two reflected in your research process what are like your most important aspects of this where do you spend most time off in your research process when an interesting idea gets so good that it might turn into investment for you so you're asking like among the your allocation of time and

research depth where would you say this is my strongest part that you want to research got it got i think there's i want to answer your question it's an abstract question and i want to answer it in two ways the first is i want to comment a little bit on my own research process is writing heavy and second i want to talk about the importance of coming into an aha moment in investing. So one, my research process is writing heavy. I truly enjoy writing. As I mentioned a bit earlier on this interview,

I don't know if I did. Since I was in graduate school, I've been writing a personal blog. I have a passion for writing. I took history class. I enjoy and reading is basically part of the writing process. I enjoy reading, I enjoy writing. So my research process is writing heavy. I read, for example, for the major company I invest in,

I read everything I can find about the company. Thank you, thank you for sure, different announcements. I watch all the podcast interviews of the funding team and key management members. I write summaries, try to distill what's said and what's not said, what seemingly important and what's said and what's not important. So the writing process, I think, have several benefits. One, a large quantum of writing activities is an effective discipline,

mechanism to discipline my thinking. Without writing, sometimes the thinking process are not disciplined, are not analytical. Writing has a certain feature, just like geometry, actually. Things has to square up. When we make a voice thinking process, when we just talk, sometimes things doesn't necessarily square up. But if you write it down, it has certain geometry,

mathematical relationship to it. You have to establish your case and make an analytical argument and things have to close up on itself. So that's the importance of writing. One more is writing is basically an effective tool to filter out noise from signal because when I write, I don't know if other people experienced like this.

When I was writing, I'm able to see what is noise, meaning it doesn't really matter and what is signal. So that's the importance of writing. And the second part is an aha moments. Or you call the epiphany, or you call it the moment of transcendence, the moment of enlightenment. I found it to be hugely important in investing. Back to what I said before, maybe a little bit repetitive, but I think it's definitely true.

The investing industry has attracted some of the most hardworking and most talented people to work on the same problem, meaning try to find investment activities and try to generate returns. Everybody's working hard. How to constantly get ahead. It's very hard. Therefore, I think any kind of book knowledge, a standard mechanical way of repetitive execution may not perfectly work in a human-to-human highly competitive environment. In this kind of thinking game, competitive thinking game, it is the moment of transcendence, the moment of the ha moments, the epiphonements, the epiphonements, the epiphany. that really make a difference.

And I just share with you the negative oil experience, which I was laying on the bed, in between sleep and awake. This idea come to me. I remember it was a visual image when I was closing my eyes, asset and liability switch. And I realized you can add a negative sign to a price. So I saw that vision first in my head when I was closing my eyes.

I jumped out of the bed and went research right there and see that picture and validate that picture. So those moments are very, very rare. We don't, I don't think maybe somebody can, but I can't get this kind of realization every single day. It is grounded, I think, on a high volume, a large volume. large volume of reading, a large volume of writing, and a lot of life experiences as well. Experiencing life, for example, researching consumer companies go out down to the street, do some window shopping, do some real shopping, and interact with life. And sometimes those women will come.

Let's maybe go back to 2020, 2021 when we were still like the private investor, Jackson. and now you're the professional investor, Jackson. What has changed in the research process since then? And where have you put way more effort in, too? I think I have versus the prior me, today's me. And first of all, today's me is not a fixed me. And I will try very hard to prevent my. mind and my process become ossified into a fixed state and I can't develop I'll make sure

very hard I'll make sure that I don't get stuck in in a defined process I think that's really important because there is one investment philosophy for time but there's no one philosophy for all time since I think has to evolve and has to change so that's that's the opening remark to your question. And versus the old me, I would say today's me relies a bit more on a certain structure and framework to guide my thinking process. And today's me also understand better about how my own mind works. So the structure and framework. So my undergrad's accounting, and I later self-taught myself, self-trained myself into become a coder.

So I'm very familiar, at least with spreadsheets, and also with processing big data and writing some codes to speed up the process. So that gave me some, that gives me some. that gave me a set of skills that I can easily build tools and templates to speed up my own investment process. So, for example, this year, so now we are talking already late into 2024. This year, I can recall that I have refreshed several templates, build new templates. And I also wrote some, I no longer write very long. No, I don't, I used to do that. But this year I also wrote some pretty short snippets of codes

just to do some repetitive work for me, basically having the semiconductor and computer do the work for me. So I rely on that a bit more than I was in my prior state. Second point, I developed a deeper understanding of myself. Like I said, investing is a thinking game. It, to some degree, in some sense, is highly abstract. It's highly abstract. You can even say it's basically just making decision what to buy, what to sell.

So the state of a person's mind and a person's understanding of how his or her mind works is critical. I keep you some examples. And this is something I learned when I was an allocator. People are smart. People are hardworking. Why so few investors has a great long-term track record? There are many answers to it. But from mental perspective, from how a mind work,

I realize an interesting insight is in investing, the output of investment performance and the input of a person's mind is not linear as it is in other industry. For example, Tumann, you and I, we go and open a bakery shop.

We make bread and we sell bread. Don't compete against the German in this. Don't compete against the German. So I partner with you. They run a bakery shop. So let's say we run a bakery shop, we are partners. And one day,

Jacks and me, I come in, feeling sad, grumpy, and spacey. Okay, I'm just not focused. I can still work. I can still go into the kitchen. I can do the bread, okay? I can press the ovens, the electric ovens. So in most industries,

a people, a person's mental state doesn't have a tremendous amount of relationship to the final output. You put in the hours, you get some outcome. I just use bakery as one obvious example. The bread is going to taste more or less the same. In investing, there is a very unusual relationship between a person's mental state and final investment outcome. Let's say you and I run a partnership to invest money, Hypothetically. Don't do it with me. That's not a good idea, but pick another person. Okay, let's say somebody pother up to run a investment business, they invest money.

If a person coming to the office one day, feeling not right, feeling sad, feeling not focused, are you going to trust his or her judgment and investment decision during that day? if he still or she still put a trigger of making buy and sell decisions we all understand it's not going to be good it's is why a person is not feeling right the investment is not be good and in investing not good means lose money not only you're not making progress actually losing money backtracking not only not producing bread you are deleting bread you are losing money. So that's terrible. Then... A negative bread price. A negative bread. That's this in investing. Making investment mistake is basically negative. It pulls back from making further

progress. Then how about if you have a partner coming to the office that day, feeling just normal, just normal. Then that is basically the normal state of almost all other hardworking investor analyst. And as we have already talked about before, very few investors can produce consistent out performance results. So if person feeling normal is just the par, and with all the different fees and expense involved,

it's probably a little bit of subpar. Then the final point I'm trying to say is, only if you have all of this, This hypothetical example, we have analysts with a partner who can consistently execute at a very heightened mental state with very high self-awareness, very high mental clarity. Understand all the companies, all the news, all the texts he's reading, all the phone calls, he or she or she's participating on the phone calls. understand what's important, what's not important, what's common sense, what's not common sense, what is apparently funny but deeply insightful, being able to tell A from B, then great investment insights can be generated and hopefully great investment decisions can be made.

So that is the unusual relationship between the mental state and outcome in investing is very, very unusual. In many other industry, not all, I would say, don't use absolute word, but in many industry, there's not that kind of relationship in existence. I already talked about in the stock we want to discuss here in this program, and it's Dordesh. So what is your investment thesis on Dordesh? You're currently still invested in the company? Yeah. So I am currently invest in the stock DoorDash, it's a long position. But you could change your mind at any time if there's an aha moment? Yes, and I want to make sure, I make it very clear.

This is not financial advisory for anybody. I'm not giving financial advice and I may change my idea any moment going forward. So DoorDash as a business, I mean, there's a distinction between a stock and a business. People can invest in great business at extreme valuation, that's a stock, and can end up either not making money for a very long time or losing money. The valuation piece, the stock price come in to separate a business from a stock. So let's first talk about a business. So DoDash is a great business.

And I've been following this company for quite a few years. And I mean, let me know if any aspect you want me to talk into. And very quickly, when I look at DoorDash many years ago, it's a great business. Why it's great? Food. Eating is probably the single most frequent consumption activity for human beings.

You think about it. What other activities in our daily lives are more frequent? I will say there too. Breathing, we breathe ear in and out, and go to bathrooms. I don't think breathing so far has been commercialized. into a product that you have to pay and swipe your credit card every time you breathe. No, I don't think it has. Going to bathroom.

I think in some countries there are some bathroom businesses, but at large, in general, going to bathrooms have not been made into a business at large. Eating then likely to be the most frequent human activity. That's actually a business. So that is a big aha moment for me. We eat three times or some people eat two times a day or some people on a special diet eat one time a day, but people eat, let's say three times a day.

You don't order a taxi most time. I don't think anybody order a taxi three times a day. No one ordered from an e-commerce website for three times a day. Nothing else to do three times a day. So that is the aha moment. Let me realize this. is a special business and to add to it increasingly people don't like cooking I think our parental generation or our grandparent generation for the lack of restaurant industry

development and also for the conventional lifestyle people generally cook younger generation I think across the world there are a lot of surveys coming up people just don't like cook People like convenience, people like just ordering in, people like go to a restaurant. Cooking is increasingly become a special habit that certain people enjoy, but it's a special habit. It's increasingly become that, than a daily norm. So there's those human elements that is not on the income statement of balance sheets. That's not on the 10K, 10 Qs that constitute this aha moment. and let me realize is a very special business that has certain human behavioral elements that's

strongly supporting it. So I think that what made DoorDash a great big business that attract my attention in the first place. And the other part at the stock, I just do want to make sure I made it very clear. First, I'm not giving financial advice to anybody. And also I may change my mind anytime. DoorDash has been wildly successful as a business. It was under a lot of doubt in its early years and up until probably a year ago or two years ago. Over the past year or two, the apparent and very obvious business success, DoorDash at the business, has increasingly convinced a larger and larger group of investors that this is actually a good business. And as you can imagine, as more people get convinced, more people will comfortably invest

in DoorDash stock and therefore push up the stock price. So today, I don't think any sensible investor will make an absolute judgment call saying DoorDash is a cheap stock. anymore. How expensive that is. That's a separate topic. And people can use different serious or different future scenarios to assign a different valuation framework to it, but it's no longer cheap stock. And when investor has to execute a much higher level of caution when they are dealing with a not cheap stock. So that's what I want to say. What is your future scenario? for DoorDash the business. Okay, so I'm not talking about DoDash the start.

Let's talk about DoDash as a business. The future scenario is the younger generation going to increasingly cook less and less. The kind of people who still cook will increasingly see cooking as a special habit. and most people will have someone else to cook for them. So the demand for food delivery will continue to grow. Or in professional term, the penetration has a high chance to keep increasing in this country

and probably around the world as well. That is one. On the adjacent new category, such as grocery delivery, convenience delivery, or even in general retail, there is certain signal, there's some signal that there is some possibility those new verticals can grow into large businesses as well. but it is, I think, still too early to make as convincing a prediction as those kind of predictions for food delivery is. We can remain hopeful on the new record, but we need to see. Then the other area, I think, is notable is autonomous driving. Listen, for food delivery. I'm not talking about for calling a taxi or ride sharing, that obviously has been widely discussed.

Autonomous driving for food delivery, I think going to be, let me use the word, I think it will be potentially nuclear huge for food delivery. Why? The reason that food delivery as a business has traditionally has a stigma as a low margin business is because finding a human to spend 20, 30 minutes of his or her time, to drive to a restaurant, wait for the food, grab the food, and drive to your doorway, and drop off the food, it's very expensive. Paying somebody for his or her 20 minutes or 30 minutes of time doing that task I just described. With autonomous driving, obviously I'm not issuing an opinion on

how likely we'll have attorney's driving or when we're going to have it. But assuming we wake up tomorrow, till when you and I will wake up, autonomous driving is 100% completely fully resourced. Then you can imagine a future where in the downtown area where all the restaurant cluster, you're going to have those robotic vehicle that's parked there and say DoorDash or say some food delivery company's name on it. You will have restaurants who are cooking food,

receive those orders, get food ready. The restaurant server will bring those bags of food and drop it into this vehicle. And this vehicle is parked in front of a group of restaurants. Then this vehicle, every 10 minutes, and there will be many of them. Every 10 minutes, one vehicle going to leave, or maybe every 5 minutes. I'm just saying, for example, regularly, we're going to leave and drive towards a cluster of consumer who ordered those food that are now already cooked and in those vehicles.

I'm going to drive to the collection point of where the customers are, and then you will have a food delivery driver that wait for that vehicle to come, grab, I don't know, 5, 10, 20 of food, and then drop, them in this building or in this neighborhood. So this kind of delivery model, as you can imagine, going to be economically massively different from the kind of model that we currently have. Yes, we have some kind of order batch, meaning one food delivery now can pick up more than one bag of food for one crew, but it's not at that kind of scale

as the one, the hypothetical scenario that's described to you. Once that happens, the entire economy economics will look very, very different for food delivery, meaning it is likely that food delivery at the business will be massively more profitable than it is today. So that is the autonomous driving part. But right now the company is still lossmaking, if I'm not wrong.

At this moment, DoorDash, for its food delivery part of the business has been profitable for quite a long time. Other food delivery business some are profitable,

some are not. So it's a mixed picture. When do you plan to sell Dordesh? It's a good question. And it's also a very hard question because in my own professional prior life as a professional allocator and also since I have been investing after high school, it is very apparent. I have experienced this and other

people have said it. It's very hard to buy the stock back once you sold it. That is one. But on the other side, I also understand buying or holding up. to your expensive stock can result it in either no return or even lose money. So I have to basically hold two opposing ideas at the same time. And then to fully answer your question, I think about the framework that I just described to you early on. Great fundamentals, attractive valuations, high certainty. Either one of the three or a combination, which means more than one, a combination of the three are missing from investment, that would be a very big signal for me to either trim or completely

liquidate an entire investment. So I hope that is a full answer for you. it is how does door dash fit in your portfolio and what is your portfolio framework portfolio construction framework do we have an algorithm that's doing all the work for you based on the codes you've written or how do you think about your portfolio yeah um investing process or investment journey, this current journey, by trying to do things that make sense. And I realize that one of the many reasons that is very hard to consistently outperform.

And I give you this example in order to answer your question. I just want to say that. I give you an example that one of the many reasons very hard to outperform the index is how most people structure their portfolio. Here's an example. Imagine we have investors coming to us say, oh, I run a highly concentrated portfolio

with 10 different stock equal weighted 10% each, 10 different stock. It sounds like a typical portfolio that people call relatively concentrated. And Tumann, you probably also know this. The hitting ratio or hit rate of an average investor is actually not very high. There are some empirical evidence, and I hope somebody had done some research,

but I would say on average, a very good investor's hit rate rate is probably only 55, somewhere between 50 and 60%, meaning you recommend 10 stocks, you probably get six stocks right. Legendary investor, the hit rate probably can be in the zone of 70, 80%, and for a not that good investor, probably we're talking about hit rate, that's materially under 50%, meaning all the stock recommendation he or she going to make, you can assume almost all going to be wrong.

So that is the reality we operate in. And for a 10 stock, before you imagine, if you are a good investor, let's say 60% are cutting some slack. 60% hit rate. You're going to get six stock working for you and four stock not working. All right, and this is not going to be rocket science.

Four stock not working, six stock working. Four are losing, six are making money. the four losing stock probably going to cancel out four winning stock. Your portfolio, this kind of portfolio, is doing internal cancellation. Four cancel out four, you get two winning stock left. 20% of your portfolio is left, and you want to outperform the index. Beta, you need to have these two stock, have a beta of five. in order for such a portfolio just to match index performance.

Then the question is, how likely for any investor first to have a hit rate of 60%, then in a 10 stock portfolio successfully hold on to identify and then hold on to two stock that can run at five times the speed of index, then only to match the stock. stock index. That is how difficult investing is, as that's how I would say textbook knowledge or conventional structure portfolio is very, very hard to outperform index. And back to your question, like how I think about portfolio composition. I think it is critical that we mentally separate two concepts. One is payoffs. One is odds, ODDDS.

What we've been taught in school is that we should structure our portfolio based on the pay-off model. Imagine you have a very simple spreadsheets, you have different investment ideas, you assign a likelihood, the investment idea go right, a likelihood investment idea go wrong, you assign a pay-up, right, winning dollar, losing dollar, you do the simple, average percentage likelihood times the pay-off, you get expected return, quote-unquote. That is what we've been taught at school, and a lot of people use this framework to guide their investment decisions. I have seen that a lot in my prior life as well. I argue this process has practical problem in actual execution. Let me extreme. Let me extreme rise with one extreme example. Let's say Timon, I come to you with a great investment idea. This idea, 50% of the chance is going to go up 10 times in the next year. And the other 50% of the chance

is going to go to zero for next year. And Tillman, you and I are trained by standard financial textbook. We go home and build a spreadsheet. 50% go 10x, 50% go 0. Expect to return, 5X. We follow textbook knowledge. Man, 5X expect return. That's better than anything I know. Are you going to put all your money in such an idea, because expect to return are not so good?

Of course not. Who are going to bet all their portfolio, all their money on something 50% chance to go to zero next year? However, if we blindly sleep, follow, expected return framework. We're going to get into those situations. And in actual investing, I have seen some cases. And I mean, I started investing early in my life.

So I also have learned a lot of lessons. I paid that quote unquote tuition early in my life. Is if we don't think about those scenarios of massive, super large-scale loss, it's going to do. do extreme harm onto a portfolio. Everybody knows on this program. If your portfolio is down by a very large number, it will take a lot to recover.

So this is the drawdown, the problem of the expected return or the payoff framework. And therefore, in structuring my portfolio, I think about odds ODDS a lot. What is the odds? Something goes wrong. And let me give you also an extreme example, just to illustrate the point. So let's say we have an investment opportunity that's on weather.

We already use weather in this program. So we can make a bet of weather over the next three years, Berlin's summer weather, going to be hotter, warmer than Berlin's winter weather. And you can make, let's say, 20%. out of this investment if you get it right, meaning it's harder in the summer, and you will lose, say, 20%, or you can even lose all your money

if summer turns out to be colder than winter. We have this investment opportunity, okay? Belling summer is a hot or warmer for Berlin. In this kind of investment opportunity, I argue we can make very, very, very large bet on those investment opportunity. Or if someone has a guts to do it, If you have 20% returning a year,

betting, burning summer weather, you should go and borrow money to make this bet. Because unless something catastrophic happened onto this planet, summer weather going to be warmer than winter, especially if you average over three years, make it even safer. So that is the odds framework. Sure, if the summer turned out to be colder than winter,

we lose everything. What's the odd that happens? It may happen. I'm saying when we're recording this in 2024, it may happen, but the odds is very low from what we can sense and analytical understand. So I use this kind of framework to inform my portfolio construction. So in my portfolio, I tend to size up investments that has a kind of profile that I describe to you. that I'll describe to you and size down the investment with the other kind of profile that describe you, meaning if an investment had a very large chance to a very large drawdown,

that has to be downsized as much as I should put this way. Has to be, at least let me reframe it. It has to be sized very cautiously so that it doesn't bring extreme harm to the portfolio. So did you reduce then Dorish when it went up more and more because the odds were worse or? Yes, I have. Thank you. Then thank you for your answers till now. I'm done with my questions. But for the end of the interview, I also want to give you the chance to add anything we haven't discussed. Yeah, too much to share a little bit of my learning on risk management. Go ahead, please. Oh, thank you. So my current understanding of risk management, obviously my understanding will continue to evolve, and I hope so as well. My current

understanding of risk management is risk management investing is not about making fewer mistakes, but it is about making fewer large mistakes. Losses on a very large scale, of a permanent nature should be avoided at all time, at all cost as well. And losses in miniscule amounts actually, I think, should be welcomed because they are the results of a learning process. And for active investors, by being active,

making mistake is basically inevitable. It's basically inevitable. So in this process, back to what I said just now, it is really about making sure no extreme large-scale mistake to take place. But we should be very welcome, I argue, to continuously to lose very small, minuscule amount of money here and their area where that help me learn.

That, I think, helped me understand how I'm not good at doing what I think I'm good at doing, how I'm not doing enough work while I thought I have done enough work. And those small mistake is a very good part of a dynamic learning process. So that, I think, is currently how I see risk management. Thank you. So to sum it up, we can only start a small bakery together. otherwise it might be a big mistake if we go all one good point thank you to the audience for staying till here and thank you for coming on jackson it was my pleasure and now it's time to say bye bye bye i really hoped you enjoyed this conversation if you did please leave a like

and a comment and for sure subscribe to my channel Additionally, I want to close this conversation with the disclaimer. So here you can find the disclaimer. It says, please do your own work. This is no recommendation. What we are doing here is just a qualified talk that helps you, but it's no recommendation. Please always do your own work. Thank you and hope to see you in the next episode.

Bye bye.