Invest Like the Best with Patrick O'Shaughnessy - Carl Kawaja - Dealing with Regime Change - [Invest Like the Best, EP.314]

Episode Date: January 31, 2023

My guest this week is Carl Kawaja. It’s the second time I’ve had Carl on the show and my first conversation with him is one I go back to often. Carl is a portfolio manager at Capital Group, where he’s quietly overseen a huge portfolio for decades. He is one of the top investors operating today as well as one of my favorite people. The investing world has changed quite a bit since Carl and I first spoke in mid-2021 so this was a great chance to use Carl’s curious mind and wide range of experiences to discuss the regime change taking place across capital markets. In true Kawaja fashion, we go all over the map and discuss Apple, the Amazonian rainforest, baseball, the oil & gas industry, Muhammad Ali, and more. Please enjoy my great discussion with Carl Kawaja.   For the full show notes, transcript, and links to mentioned content, check out the episode page here.   -----   This episode is brought to you by Tegus, the modern research platform for leading investors. I’m a longtime user and advocate of Tegus, a company that I’ve been so consistently impressed with that last fall my firm, Positive Sum, invested $20M to support Tegus’ mission to expand its product ecosystem. Whether it's quantitative analysis, company disclosures, management presentations, earnings calls - Tegus has tools for every step of your investment research. They even have over 4000 fully driveable financial models. Tegus’ maniacal focus on quality, as well as its depth, breadth and recency of content makes it the one-stop, end-to-end research platform for investors. Move faster, gather deep research to build conviction and surface high-quality, alpha-driving insights to find your differentiated edge with Tegus. As a listener, you can take the Tegus platform for a free test drive by visiting tegus.co/patrick.   -----   Invest Like the Best is a property of Colossus, LLC. For more episodes of Invest Like the Best, visit joincolossus.com/episodes.    Past guests include Tobi Lutke, Kevin Systrom, Mike Krieger, John Collison, Kat Cole, Marc Andreessen, Matthew Ball, Bill Gurley, Anu Hariharan, Ben Thompson, and many more.   Stay up to date on all our podcasts by signing up to Colossus Weekly, our quick dive every Sunday highlighting the top business and investing concepts from our podcasts and the best of what we read that week. Sign up here.   Follow us on Twitter: @patrick_oshag | @JoinColossus   Show Notes [00:02:44] - [First question] - What the market feels like to him today [00:06:00] - The pros and cons of the cost of capital and experimentation [00:09:09] - Things we can learn from Oil & Gas stocks and resource commodities in general [00:14:38] - Pulling apart the key lessons from Berkshire’s purchases of IBM and Apple [00:20:37] - The practical implications of wanting to land more soft-wins in investing that aren’t apparent out of the gate [00:25:52] - How he approaches and considers products and product cycles writ large [00:31:10] - The Systems Bible [00:33:15] - Thoughts about making money from value based strategies  [00:38:31] - His methodology to go about finding the next diamond in the rough  [00:42:48] - A New Innings [00:45:13] - The Arc of Boxing; Lessons from Muhammad Ali fighting Cleveland Williams [00:48:54] - Someone he thinks is an exemplar in both business and the world [00:54:37] - Don’t Sleep There Are Snakes [00:59:41] - The role fossil fuels play in the energy transition and the current regime change  [01:07:35] - What we can learn from uncontroversial transitions in the past

This episode is brought to you by Teegas, the modern research platform for leading investors. I'm a longtime user and advocate of Teegis, a company that I've been so consistently impressed with that last fall, my firm, Positive Sum, invested $20 million to support Teegis's mission to expand its product ecosystem to unify and streamline investor research processes. In addition to the library of 55,000 transcripts, Teagis now combines at-cost, on-demand calls with a full suite of financial workflows, Whether it's quantitative analysis, company disclosures, management presentations, earnings calls, TECIS has tools for every step of your investment research. They even have over 4,000 fully drivable financial models.

Tegas' maniacal focus on quality as well as its depth, breadth, and recency of content makes it the one-stop end-to-end research platform for investors. Move faster, gather deep research to build conviction, and surface high-quality alpha-driving insights to find your differentiated edge with Tegas. As a listener, you can take the Teigas platform for a free test drive by visiting tegis.co slash Patrick. Hello and welcome, everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, stories, and strategies that will help you better invest both your time and your money. Invest Like the Best is part of the Colossus family of podcasts, and you can access all our podcasts,

including edited transcripts, show notes, and other resources to keep learning at join colossus.com. Patrick O'Shaughnessy is the CEO and founding partner of Positive Sum and the CEO of O'Shaunacy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of positive sum or O'Shaunacy asset management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of positive sum or O'Shaughnessy asset management may maintain positions in the securities discussed in this podcast. My guest this week is Carl Kowaja. It's the second time I've had Carl on the show, and my first conversation with him is when I go back too often. Carl's a portfolio manager at Capital Group, where he's quietly overseen a huge portfolio for decades. He's one of the top

investors operating today, as well as one of my favorite people. The investing world has changed quite a bit since Carl and I first spoke in mid-2020. So this was a great chance to use Carl's curious mind and wide range of experiences to discuss the regime change taking place across capital markets. In true Kowajah fashion, we go all over the map, discuss Apple, the Amazonian rainforest, baseball, the oil and gas industry, Muhammad Ali, and more. Please enjoy my great discussion with Carl Kowajah. So Carl, it's been kind of a shockingly long time since we first did this time really goes fast as you get older, which is terrifying to me. A lot has changed in the world and in the market. Definitely, we are in a different regime. And so I thought after revisiting our last discussion,

that the best place to start would be really just to ask you about what the market feels like to you today. You've seen a lot of markets. You've been through all sorts of different regimes in your career, looked at a million companies through all those regimes. And I always love with investors like you that have seen so much to just know what this feels like. Does it feel like some other part of your career, does it feel a certain way to you? Do certain things feel more important to you than others in this environment? We're recording in January of 23. How does the world feel today? Thanks, Patrick. And it's fun to be on the show again. I was kind of hoping you might have a little jacket for me like they do on SNL for returning guests. I do know it's not in the mail.

Yeah, waiting for that. And have my eye on Michael Movison, of course, who's the all-time record holder I do feel like we've had regime change, and I feel like regardless of whether we're in a bull market or a bear market now, or if the bear market is conclusively over or not, I don't know, but I do think that the environment and the regime has changed irreparably, and probably for the better. We're seeing a variety of companies, Amazon, meta, alphabet, wayfair, kind of across the board, engage in significant layoffs, and reduce their flexibility to sort of fund things where the NPV or the path to profitability is uncertain. And of course, in the private arena where you obviously have so much expertise and positive some looks,

it's probably really interesting and exciting because there have been a lot of big wipeouts. That's probably an ideal time to have raised some money and be looking at the field because now we'll separate the wheat from the chaff. And for a while, the chaff was doing great, doing better than the wheat. And the farther you were from ever making money and the crazier idea was the more your stock price went up and the higher valuation you've got. got because you were just tackling things that were audacious and that got people excited. So that is a change that I feel like we've gone through. And I don't think that we're going back.

And I know some stocks that were out of favor last year have come ripping back this year. But I think some of the chaff has gone forever. And the wheat is changing and adapting. Actually, I had a conversation with some senior folks at Amazon this month on the first day of the new year. We're catching up. And just about general things, nothing too specific. But it's just the tone was, in my view, palpably different. Is it fair to summarize that as the cost of experimentation has gone up a lot? And so everyone is just realizing we have to experiment less and focus more on the core thing that we're good at.

And if so, what are the pros and cons of that in your mind? Some experimentation seems really good, but obviously a lot of the experimentation that happened, that's probably not even a fair word. It was just craziness, crazy projects being funded. So how do you think about that dynamic of the cost of capital affecting how much exploratory action companies take? Yeah, I think it definitely has responded to the cost of capital. but all that became more expensive to do things because money became more expensive. And the alternatives for sitting on your hands and buying tea bills all of a sudden got more promising. In terms of the consequences of it, I don't think we've completely wiped out desire for innovation and risk-taking.

I think there's a fair amount of it. My sense is that people are still planting wheat and corn and soybean fields, but they're not just throwing chaff in the air and hoping it drifts on the wind and ends up growing in something that is a crop that people could use. There was too much of that, and it feels very healthy to me. And I would draw a contrast, Patrick, maybe with the, and these are long cycles. I draw a contrast with the oil and gas industry where for years, for a long time, for much of my investing career, exploration and production companies were valued based on reserve life increases to reserves and how much they were growing production. With little concern for the true economics of finding new wells, it was just deemed that oil was valuable.

always would be, and finding more of it was a good thing, and whoever found more of it faster was valued the most highly, because that was the skill that people rewarded in the marketplace. And now we've just seen this radical change in terms of people's long-term estimation of the value of fossil fuels, and I know we could debate what that is. But there's no doubt that that's happened in the marketplace. So all of these companies said, our primary goal is not to have a press release that says we just grew our production 27 percent and we found this new field. Our primary goal is to say we're going to grow our cash flow 27 percent and we're going to return 20 percent of its investors. And I actually would say that in the oil and gas arena, if the scale ran left

to right. It's moved very sharply back to the left, having been on the right, whereas I feel like in technology, e-commerce, things like that, we were on the extreme right of the barbell distribution, but now we've drifted back more towards the middle. We're not over on the left yet. What else can be learned from the history of oil and gas stocks? Because they have been so out of favor. I remember when I started my career, they were something like 12% of the S&P, and they got down to like 1.5% of the S&P. I mean, they became like a pimple on the back of the technology contribution to the benchmarks. So everyone forgot about them. Oil and gas hedge funds all went away. There was just like nothing left. Obviously, that's kind of changing now. Is there anything else from studying those

companies or any kind of resource commodity type companies, which have just been so out of favor? I was talking to a friend about a company called RIG TransOcean recently, which is just like a fascinating, highly recommend people just go look at the history of the company. It's just wild. And that tells the story of resources and commodities and oil and gas in general. And I'm just curious what lessons you've learned from that category of companies that might give us some ideas for thinking about some of these newer world companies, the technology companies. I'd say one lesson about the oil and gas is stretch your mind. Don't get stubborn. Don't forget about things and give up on things. deem them not worthy of your investing time. And I remember reading a few years ago, and I'm not

sure how much truth this had, but some of it certainly was true that Warren Buffett was investing in gold. After decades of saying that he'd never invest in gold, he really didn't think gold was a good store of value or a good investment option. And he's compared the stock of the world's gold, to owning 35 Exxon mobiles and all the farmland in America and said he'd rather take the latter. And then someone who argued so passionately about this then went out and bought gold. What a lesson there is to be learned from that about his mental flexibility. They made large investments Berkshire did. This is certainly factual in the Japanese trading companies, which in a way are kind of the same thing. How so? How are they the same?

Well, they're leveraged commodity investments. I think when you buy the Japanese trading houses, some of them I think more highly of than others, but it's not really an investment decision that is so predicated on, gosh, they're going to introduce a new phone and it's going to have a higher price point and it's going to have an app infrastructure behind it and they're going to offer new services. You're not really doing that. You're kind of investing in iron ore and coal and gold and oil and things like that. And if those all go up, then the stock will go up. And frankly, if they go down, it probably won't be spared from going down either.

With oil and gas, I'm reminded of how important it is to have an open mind to things. That's one lesson I would take from it. And I guess specifically, these cycles, they take a long time. And it takes a long time for behavior to correct and for the market to correct. and you have to be patient. And at the start of the podcast, you were saying, how is the environment changed? And I'm always asking myself,

I'm trying to be introspective and say, what could I have done better? How did I navigate last year? How could I do a better job of navigating this year and any other years that come along? I'm reminded of how important sometimes it is to be patient. And in the case of some of the oil and gas stocks, I will admit, last year, for me, having exposure to that group was a source of positive relative

return. I was an investor in several energy-related companies, and many of them did extraordinarily well. And if you look at the biggest contributors to the S&P 500 last year, Chevron, Exxon, it was hard to do much better than the market last year without having exposure to energy. but I think I partly got to that position of having some investment in these companies by suffering on my way there. I wish I could say that I brilliantly bought them all on January 1st, but I didn't. Some of them I had owned for a long time before, in the case of one of them for maybe a decade, I had owned it. and I owned it. It went down as all other energy things did. It was painful, but I thought that the core thesis was still there, so I hung on to it. Then it started to do better actually in

2021, and then I really started to do better in 2022. And I added to it because I felt like I knew it well, and I had confidence in it, and the backdrop behind it improved. So I guess another lesson about the oil and gas investing and investing generally is I do think that you plant the seeds for success five years from now today. Not all of them. I'm sure there are probably some investors out there who are smart enough to start with a brand new sheet of paper every year on January 1st. do well, but I'm not one of those. I struggle even with the challenge of saying, how might the world evolve five years from now? And how can I position myself for that? Because the world surprises you so much. Your comments on open-mindedness and patience

remind me of a conversation you and I have had before about the lessons embedded in Berkshire's purchases of IBM and Apple as two separate incidents. And I'd love you to pull that lesson apart for everyone because I do think it's such an interesting pair of stories. The story on its own is interesting, but the pair, I think, is especially interesting. Why are you interested in that storyline? I'm glad you asked that question. I'm kind of interested in that storyline, and I generally have a philosophy that often in investing were not much more than half right.

But I think part of succeeding as an investor is convincing yourself that you're right most of the time. Because if you weren't, if you didn't believe that, you'd be too discouraged to do the job. So you need to maintain a little bit of a positive internal narrative. And I enjoy playing tennis and my spare time, I'm fairly mediocre at it. But I have read a fair amount about how to be better at playing tennis. And one of the things I gleaned from that is after you hit a bad shot, it's not a good idea to say, as I often do, I am the worst tennis player that has ever existed on the face of this earth, and I'm an embarrassment to tennis players everywhere and my family and the state of California. And it is more constructive to say, oh, gosh,

that's okay, you're going to get them next time. I remember that I met Motsvilander. I played tennis with Motsvielander once a great Swedish tennis champion. And he said to me, me, you always have to reset and just think about the next ball that you're hitting. So to have that positive mindset. And I'm struck in the case of Warren Buffett, who if he's not the greatest investor that's ever lived, which in my view he probably is, certainly he's somewhere on the victory podium. He made this big significant investment in IBM. I know that he became friendly with the leadership. I think he had confidence in Gina Romody and what they were doing at IBM. And respectfully, I feel like he was totally wrong. And we did a lot of internal work and we had analysts here.

And I went to our analysts internally and I said, gosh, Warren Buffett's buying IBM. We must really be missing something here. What are you idiots doing? They kind of responded in great detailed chapter and verse saying, here are the areas we think they're uncompetitive. Here are the things where we feel like they're being disrupted, and they were very convincing and cogent. Warren Buffett obviously also made an investment in Apple, and there were pros and cons at the time, but obviously he's been so incredibly blindingly, brilliantly right. It's fair to say this. I guess now they've also invested in TSM, but in his history of technology investing, he's been right about half at the time. And I think, aside from what I was saying about keeping your spirits and morale up, it's also important sometimes

to understand that you are often only right about half of the time and a little more than half of the time. Now, luckily, on the times that you're right, let's say it's baseball, you might strike out half the time, but fortunately, sometimes when you connect, you hit a home run, or the analogy that Jeff Bezos has made is you hit actually 30 home runs when you connect, and that's particularly helpful. But I do think part of the job is just getting on base sometimes and understanding that being 55% right is pretty good. I love this movie, Bull Durham, and there's this quote where the protagonist in the movie Crash Davis is describing the difference between playing minor league baseball and major league baseball. And he talks about how thin the margins are. He

says, do you know what the difference is between hitting 250 and 300? It's 25 hits, 25 hits and 500 at bats is 50 points. There's six months in a season. That's about 25 weeks. That means if you get just one extra flare a week, just one gork, you get a ground ball with eyes, you get a dying quail, just one more dying quail a week, and you're in Yankee Stadium. As an aside, I love that word gork. way. Yeah, you've never heard that word. I like to think of my investments occasionally sometimes as gork. And sometimes the margins of victory, the difference between being a minor leaguer and making $80,000 a year and riding on buses across towns all across America and staying in cheap motels and being in Yankee Stadium and all the glory and comfort that comes with that is really just a

couple of those gorks. I actually did an analysis where I looked back at my investments, one of our global funds called New Perspective Fund. And I looked at 10 years of my own investing experience in the fund and a period when the fund had done well and it was also a good period for me as an investor. There were so many gorks in there. There were so many things that I had not expected. And for those are not familiar with, baseball, like a gork basically is not a cleanly hit ball. You made contact with the pitch and you hit it maybe into the infield or short into the outfield and it kind of fell over the second baseman, but before the outfielder, and you got to first base, and then from first base, you made your

way home over time. A lot of investing is like that. I have two follow-up questions there. The first is Gork related and the second is more focused on Apple and that I'll call it financial discipline, especially with their capital allocation policy, which is very Buffett-esque, but I want to hear your view on it. On the gork side, if the difference between being a Hall of Fame investor and one of the also rands is the sort of game of inches kind of idea, the 25 gorks, what does that mean in terms of action and behavior? If you respect that as a fact, what does that mean for you, just keep it to you, in terms of what you control. Is it a function of working a little harder?

Is it getting a little bit more out of your field and exploring a bit wider than your colleagues? What are the practical implications of, okay, I want to hit more gorks? So like, how do you do that? I'm curious how you react to that. Sometimes the gorks, they land kind of in that shallow part of the outfield, and then they keep bouncing. And they end up bouncing over the fence, and then they roll down the street. and then it ends up in the bay on a boat,

and the boat goes to China. It starts as a gork and becomes a home run, but you didn't hit it cleanly out of the park to start with. But I guess one way you expose yourself to having more gorks is being open-minded like we discussed. And also one of my colleagues, I was talking to her this fall. Her name is Hilda Applebaum,

and she had this great expression, or a great way of describing her way of investing. She said, I'm schizophrenic. She said, I have some stocks in my portfolio that are levered to interest rates going higher because I really think that they might. And if so, I think these, let's call them banks to make it up, banks are going to do great. And I own a lot of those.

And then she's like, but I own a couple stocks in my portfolio that are leveraged interest rates going a lot lower and like completely reversing and going in the other direction. and those might be like SaaS companies, for example. And she's like, and people say, how does that make sense? And she says, it doesn't. I keep my mind flexible so that I can balance two different things. And you like one thing because you're compelled by it. You like the meeting with the CEO and you like the setup for how they're going to grow net interest margins.

And you like the return of capital strategy and stuff like that. And then maybe you saw some SaaS company. and you just think that their new feature innovation is going to be very significant and increase their market penetration, and you think the new CEO has more financial discipline around stock-based comp and da-da-da-da. But you own two things that in a way reflect contradictory underlying worldviews, but you embrace the uncertainty of that and you allow yourself to own both of them. I guess that would be one practical implication of it.

And another thing that I would say that I try to do, but I find hard, is I try not to be prideful. And as you get older and you have more experience, and invariably you end up getting more titles or something like that, or you get invited to speak on Patrick O'Shaughnessy's podcast, then you think, oh gosh, I must be right about quite a few things. And it's important to remind yourself that actually you're not and that there are so many things you get wrong.

I try to do that, not always with success. Luckily, I'm at a firm where I'm surrounded by colleagues who don't hesitate to tell me how wrong and foolish I am and to challenge me on things. And I try to learn from other people. Our job as investors is easy. There's so many smart people out there, and you can actually identically copy them.

Perhaps steroid assisted. Barry Bonds was an extraordinary baseball player. I kind of think it is peak, maybe the greatest baseball player that's ever lived. But I could tell you what Barry Bonds does, and neither you nor I would have a hope in hell of hitting a 96 mile and hours basketball. But the nice thing is, if I tell you what Warren Buffett does, you can actually do the

exact same thing. In fact, he sort of tells you exactly what he did and how to do it exactly like him. And there are a lot of people to learn from. I have another colleague, a woman named Anne Rie Peterson here. And she's very ruthless about selling companies that have disappointed where the thesis has changed, I would say she's good at not being prideful and saying, oh, I really believe this. I love the CEO.

I love the story. I love the product. I love the company and proselytizing for it. But when they disappoint her, goodbye. And a weakness of mine sometimes is they disappoint me. And I'm like, well, they're going through a lot right now. Sometimes, of course, you have to be patient and hang with things. But sometimes the thesis changes and you've got to

be brutal and move on. I'd love to talk a bit more about Apple because one of the things that I've learned about myself in the last seven years is, you know, in public markets, I'm sort of a pure quant. I've found in my research and my own ability that a lot of where I think outperformance can come from for me is really more in things like multiple change and misvaluation, I'll call it, versus some thesis about the fundamentals of a business over five to 10 years. The reason I've gravitated more towards direct investing in the private markets is I've realized I just, love products. Really, what I love to understand and think about is products. It really makes me think about Apple because when you've been involved in all these companies that I'll mention here

in one way, shape, or form, so I'm just fascinated to hear how you think about product cycles. Because in many ways, Apple's success story, I don't know if it's apocryful or not, but apparently Tim Cook and a few of his executives went to Buffett and said, look, like, here's our plan for capital allocation. We're going to return excess capital to shareholders through dividends and buybacks. and that was a major contributing factor to his buying Apple versus a meta on the other side of the spectrum where it's like, no, no, no, we're going to roll this and bet the farm on this whole new platform that's very different and maybe control the next big interface platform or something.

And then in between, you've got Amazon, which you know really well with this amazing second act in AWS. And it's very confusing to me how an investor like you might approach a second act or a new big bet or a new bet the farm moment for a company like these three that we just mentioned, because in many ways it seems like Apple is just like, we'll keep doing R&D, but like we've got these unbelievable products, we're going to keep making them better, we're going to return tons of capital, and the returns have been otherworldly as a result. And that seems very Buffett-esque. And like you said, he's telling us what to do. Like, why don't we all just do that?

How do you think about all of this? I don't have like a cleanly formed question in all of that, but I think you see my point that I just love these product cycles. And I'm curious, how you approach one or think about one. Like you, I love good products. I'm a bit of a sucker for it. So if a company has a product that is exceptional, it makes me very interested. You and I were chatting casually before we started on the podcast,

but about the GLP1 class of drugs that Lily and Nova Nordus Cav and Pfizer's working on one. And if you speak to someone who is on Wagovi, it's just astounding the health benefits that they're having and how quickly they're losing weight. When I see something like that, it really makes my ears perk up. You're like, oh, my God, I love this thing. That's a good base to start with. I feel like Buffett was correct and determined in his own way that the iPhone is just really totally and utterly awesome. and you become very bonded to it. And I know that they're expensive,

but if you said to me, instead of having the iPhone, you have to use this phone that Patrick O'Shaughnessy invented, that works pretty well also. That would be a very sad day for me. I would pay a lot of money to stay on the iPhone, and actually, like everyone else, we have a bunch of family chats in my family,

and one of my siblings stubbornly refuses to use an iPhone. phone and uses an Android. But you don't see the videos as well. The family videos, if someone's on the chain who's not in the iPhone chain. And my father, I'm shaming my relative, but my father kicked my brother off of the family text chain because he was so irritated that they didn't have an iPhone. That's a powerful product. And you're right. I think Buffett's genius was that they've got a great product and they're going to focus 100% on that and that's great. So, So what makes what meta is doing problematic or potentially problematic? Mark Zuckerberg may end up being right.

I think we have to be open to that. And in fact, I love his vision of the future. And I love that TV show this fall, happened to be on Amazon Prime, the peripheral, based on the William Gibson book, which is the metaverse in a way writ large. And if that ends up being right, then meta is going to be brilliantly right. The thing that I find slightly problematic about meta and where I draw a contrast with AWS and Amazon is I often find that good, brilliant new ideas and new products start out small and then catch on like wildfire. And when the fire is burning, throw more wood on it, as opposed to things where you gather a huge ton of wood and try to start the fire.

and I'm a little worried, and I know Mark Zuckerberg with his absolute brilliance, which is widely acknowledged, may be right, and he thinks a lot of scale needs to be thrown at it, but I worry that good things start small and run from there. And if you're investing eight to ten billion a year in something to get it started, and you do that for five years, it might even just prima facie be a sign that it's a bad idea. Have you ever read that book, The Systems Bible? I reference it all the time. I love it.

Yes, I know. I ordered it. I haven't read it yet. The lesson in there that stands out is that every successful complex system evolves from a simple system to start. You can't air drop in a complex system. Like, it just does not work. It will not hold.

And that's another way of saying the same thing you're saying, I think, about meta, whereas AWS was an organic outgrowth in 2005 or six or whatever of the retail infrastructure, basically. To be humble for both of us, though, about the fact that we may be wrong, I do have one good counterfactual, I think, which is Reliance Enterprises, the Indian conglomerate. Years ago, they thought that organized retail had the potential to do really well in India, and they were going to invest in it, and they were going to open hundreds, eventually thousands of new stores, but they had a concept for selling goods in India, where, for example, they would package rice and sell rice and packages rather than in a big bin

where you self-serve into a package and stuff like that. And a lot of Indian retail is not organized chain retail. And they said, well, we're going to open hundreds of stores. We have this very innovative idea. I said, I don't know if I've ever heard of a retailer who opened 100 stores and then like 300 more and was successful. Like pretty much every retailer started with like one Walmart and then three Walmarts. They're one dollar general and two dollar generals. And I was like, honestly, internally I sort of said, this is a really dumb idea. This will never succeed.

Boy, has it been successful. They kind of were right. They had a different vision for retail. It was grounded in insight and data. Of course, it took a while to optimize it, but it really looks like it's working. So some things maybe you do have to do at scale. It's higher risk and it's probably higher reward too. What about the total opposite end of this spectrum, which is the idea of making money from

crappy businesses that maybe deliver crappy products or something like that. Not the thing you see in a lot of investing pitch decks. We buy low-quality businesses at bad prices or something. But I do think if you study market history and something simple like in quant world, like the value factor, value factor is a nice way of saying buy bad stuff and make money when it gets a little bit better through some classic mean reversion or something. What do you think about this category, which usually you and I don't talk about? But I do think is an important part of the investing spectrum or toolkit, if you will.

I had not thought of that before you just said it right now. but you're of course right that over time value-based strategies have had a lot of success. And if you boil them down to their essence, they probably are buying crappy companies that become less crappy. I have a lot of sympathy for that. And those would definitely fall probably into the category of gorks. Usually those aren't ones that go out over the fence down the hill and on a boat to China. but a very good living can be made doing that.

And I think it's a great idea. And I often say you can make so much money buying an incredibly terrible company that goes to being God awful. Like incredibly terrible to God awful is a huge move. And that has been, for me, sometimes I've had good investing results doing that years ago. I invested in a Canadian conglomerate called George Weston. And this is roughly right. I may be slightly wrong on the history, Patrick,

but George Weston was in a series of businesses. They were in the ice cream business. They were in the bread business. I think they had a little bit of a forestry business, a salmon fishery business. And they also had a stake in a Canadian grocery retailer called La Blah. And in the 1970s, the CEO, Gailen Western, hired someone he'd known in business school and thought was very bright,

a guy named Dick Curry to run the grocery retailer in the 70s. And over a period of, call it, 25 years or something like that, this CEO took that company to a point where it made more EBITDA in a day than it made in a year when he joined it. I'm not even exaggerating the numbers. Like, he grew the scale of it so much and was so successful. So this Loblaw ended up going from this tiny little division of this conglomerate to 100% of the NAV, basically. But they hadn't to have these other businesses.

Believe it or not, Weston wasn't that great of stock because all the other stuff did so poorly that it kind of offset some of the success of the other thing being worth more. But then Galen Weston had the foresight. After a long period of time, maybe it arguably took him a little bit of a while, to put Dick Curry in charge of his holding company, which everyone thought was totally lousy. And he transformed that company and made a series of brilliant decisions. Some of it was pruning bad things, but others were improving good things. And he had this great insight about the bread business that always struck with me. He said, baking bread and selling bread, it's not a bakery business.

It's a transportation business. And we have these bakeries all across Canada that are in downtown neighborhoods, because we're a very old, established company. where it's very hard to get trucks in and out, and where the building is old and uses old technology. And what we really should do is sell all those old buildings and let somebody else turn them into condos or trendy young urban professionals. And we should build bread bakeries and warehouses

on the nexus of inter-provincial or cross-country highways so that we bake the bread, we put it on a truck, and we ship it somewhere, And that's the key to making this business more profitable. And the stock did incredibly well under his tenure. I mean, I think it may have gone up as much as seven times in short order. And that's another element, I think, that underlies your point about value factor investing. It also leaves yourself open to the conditions changing and things getting better.

Sometimes it's tough in growth investing to have someone come in and be seven, times better. Service now is a pretty good company, and I like John Donahoe a lot when he was the CEO there. But are you going to have someone come in when John leaves his seven times better than him? Probably not. But with some crummy companies itself are like two and a half times even die, stocks down to 80 percent, can you get someone seven times better? Your odds are better. I love that point. I've never really thought about it that way. Like the discounted future value of the future CEO relative to the current one in growth businesses, that factor is like an inhibitor in an interesting way. That's not in a DCF, but it's a very real factor for the future of

the stock. Back to your point on regime change, if all that remains true, this sort of truffle hunting would seem to be much more valuable now than it was two, three years ago. How do you go about that? What is your method for finding the next Weston or something like that, something like this, like I've never heard of that company. I've never heard that story. So I'm sure there was some interesting way you found it. But just as someone that's always searching, which I know you are, what are some of your methods for finding those potential diamonds in the rough? One thing I try to do is I try to screen for good stocks and bad stocks like anyone else. But I try to see what's been really bad last year. And we had a colleague who's no longer with us.

He retired and then passed away, but a guy named Jim Dutton, he used to look at the Dow when people still cared about the Dow as opposed to the S&P, and he'd look at the dogs of the Dow and the three to four-year laggards. And he'd start his year by saying, I'm going to spend some extra time on those. This is obviously an established company. It must be a bit of an icon. It's in the Dow. And it's really sucked for the last four years. Let's do some work. but I also sometimes like to look at things that have been exceptionally good,

especially where there's some element where they're considered flaky or people don't believe that their success is sustainable, but the market is telling you otherwise and try to do work on that. So some of it is just screens, screens for outliers. The other thing that I try to do, and I benefit from being at a firm where we have a lot of analysts and luckily get lots of meetings with companies, is I try to just see as many possible ideas that I can and read about as many possible things as I can.

So I just have a ton of flow. So some people are probably disciplined, and I think it probably works for them. And they're like, I'm going to look at 20 different things this year and do deep work on them, and I'm going to find the three winners. Whereas I would say, I'm going to look at 2,000 things this year. When I start sensing, like when my pattern recognition kicks in that the thing is interesting,

I'm going to go deeper on that. But the rest I'll let just flow over me because I want to just keep looking at stuff that is random and different and try to find it and try to have a really big funnel. And frankly, your podcast is pretty helpful that way because you surface so many different things my son Marcus, who you know Patrick, when he asked me for how he can learn more about investing, I'm like, well, make sure to listen to All They Invest like the Best podcast, because there's so many interesting smart people on there. And I know you had Daryl Morey on there the other day.

I actually haven't listened to that one yet. But that's pretty interesting. And look how incredibly successful sports investing has been in the last 20 years. And who would have told you that? Everyone thought that every wealthy person who bought a sports franchise was a fool. It was an idiot. A vain idiot. You're never going to make any money on this.

And I know Joe Si from Alibaba, but also the owner of the Nets. And I remember talking to Joe last summer about promising investment areas. And obviously, he's very expert in the Internet and e-commerce and China and Asia generally. and we had good discussions around that. But he also said, look, if sports investing were a public class of investing, I'd encourage you to spend some time on that. Those fundamentals look pretty good to me. It's totally fascinating that the combination of power law of wealth and wealth inequality

and scarcity of the number of professional teams has produced this crazy return for the franchise values, I would love to see an analysis if someone out there has it, of overall NBA, NFL, Premier League, whatever, franchise values versus the S&P, it'd be a pretty fascinating chart. Yeah, it's extraordinary. And a friend of mine, Manage Badali, he's the managing partner of an entity that controls a Indian cricket team. He wrote a book called The New Innings, but he's written a bit about the structure of the industry and why it works, and it's really compelling. I think cricket is something like 90 or 95 percent of live sports viewing in India by a factor of 100 or something, the most popular sport in India and in test cricket,

which is not commercial cricket, significant portion of the country just shuts down when India's playing New Zealand or something like that. Does that sound like a good investment to you? It kind of does to me. I suspect that's not going away. That has good fundamental. So that same kind of theme of looking at different stuff. I think it's important to expose yourself to reading, and doing things outside of just our business. Some people work so hard in our business, but I find that occasionally insights come from something else. So I had a colleague who was flying to Walmart one day

to meet with the company and has a very good, deep relationship with the company. And she told me that she was planning a bunch of store visits to Walmarts and Bentville and other stores and stuff like that. And I said, the Crystal Springs Museum, is in Benville now, and it's America's foremost American art museums now. I encourage you to carve out an hour of your day to go there and see that, because I think that oddly will inform you and open your mind too. I mean, I think it's good for life also, but I also think it'll open your eyes.

And I remember, I was at the Whitney Biennial a long time ago, maybe 20 years ago, which I always try to see when it's in New York. And an artist there had an exhibit called Six Degrees of Warren Buffett. And this artist put together a schematic that had Warren Buffett in the middle, and I don't mean to say anything bad about Warren Buffett. It's just a more point about the artist, but traced Warren Buffett through six degrees of separation to every board member of every corporate board in the Fortune 500. And the point was that everyone's all connected. And that was an interesting thing that kind of informed my thinking about boards and board structure and governance and things I should be mindful of. Maybe now you'd see that somewhere. But 20 years ago, the only place I saw

that was at a modern art exhibition in New York, and it informed me. One of the things that when you mentioned the 2000 versus 20 opportunities seems really interesting is during regime change to really open your aperture. I'm thinking about our discussion last time offline about Cleveland, the fight between Muhammad Ali and Cleveland Williams. It can make sense if you're on a long wave and you're sure of it, get really specialized and ride the wave. But then when things change, like to really open up the aperture of the possible of what you might spend time looking at, maybe tell that analogy because I thought it made the point drive home. I was recently reading a bit about boxing and I read this great book called The Arc of Boxing that I would recommend to people.

I didn't mention this to you incidentally, but it's a fun book, and it makes a point that in most sports people get better, but actually in boxing, he argues people have gotten worse, and he thinks boxers from 80 years ago were better at boxing than boxing today. But I've always been a little bit interested in boxing, and my dad is very interested in boxing and used to take me to see boxing matches, not in person, but in the old days when it was pay-per-view at a big arena, and you stood with like 3,000 other people on the floor and watched it on TV. But my dad was always a huge Muhammad Ali fan

and made me one as well growing up. And when Muhammad Ali was fighting Cleveland Williams, it was considered to be a pretty challenging fight. It was in 1966. It was not his most famous fight, but some people who are knowledgeable about boxing consider it his greatest fight. And Mike Tyson has said it's technically the best fight

that Ali ever had. And one of the things he introduced at that fight It was the Ali shuffle, which is that move where he would move his legs back and forth very quickly without moving at all. And it's very disorienting for the other boxer because boxing is a series of faints and retreats. Boxing in a way is like a chess match where you're constantly fighting for position and positional advantage. Anybody can knock anybody else out and anybody can hit anybody else hard.

You just have to have the footwork and the strategy and the combination of the person. punches to put yourself in a position to land that punch. And the Ali Shuffle was an innovation in terms of disorienting and approaching your partner. And also was this flamboyant, beautiful gesture like a 360 dunk in a basketball game of athleticism. Ali was sort of taunting Cleveland Williams and moving without moving. But before the fight, they asked him what his strategy is and whether he would use his typical strategy and he says, no, I have different strokes for different folks. God, he was a master. Yeah, exactly.

And I think that's important when there's regime change. Like, you're right. I think companies like GoPuff, for example, is probably the kind of thing that has worked for a while and may continue to work it. I mean, to cast aspersions on them, but big idea, kind of unproven concept, addressing a huge market, in a different way, or Carvana. Be another example. But if that regime is over, let's open our eyes and find the next thing.

And maybe it'll be oil and gas. Maybe it'll be electric utilities. Maybe if we're all using electric cars, who knows? Maybe the biggest beneficiary will be PG&E. Because everyone in California is driving an electric car and they have a regulated return base. And I think if you ask most tech investors, whether PG&E is the most exciting. technology. Yeah, they can think of. I doubt many of them would concur, but it may be. So, have different strokes for different folks. One of the things I always think about from our early

conversations is the role that different people have played in how you think about businesses or think about the world. In our first conversation, we talked about Brunello Cucinelli a lot, who I've since read everything that exists about him and his business and Solomeo and how he's built the town in Italy to sort of reflect this business. Is there anyone else like that that you and I haven't talked about before that comes to mind as like a person who is an exemplar of something that you find interesting about business in the world? About business, yes, and maybe the world also.

There was a CEO that I learned a lot from. He was Norwegian. I suspect you haven't heard of him. His name was Jens Hairedahl. He ran a Norwegian company called Orkla. and when he took over at a relatively young age in the 70s as the president and I guess CEO, Orcla's main business was pyrite mining. They had this pyrite mine that went back to like the 1500s or something like that in Norway,

but kind of a small, relatively inconsequential company. And I think from roughly 1982 to 2002, I believe it was somewhere in that time period, can get you the exact data. I believe it was the best performing stock in Europe, probably in EFA and Europe. And he succeeded, and this ties into some of the earlier stuff we were saying, but he succeeded by making a series of positive net present value decisions in different industries. So he was just very flexible about what he invested in. So he ended up getting into the frozen pizza business and didn't know this, but I guess Norwegians ended up being crazy. for frozen pizza, and he was very good at it. He ended up getting into the beer business,

and then they actually ended up getting into the beer business in Russia as well. And they got into the beer business in Russia, kind of in the 90s, when beer had a very short expiration life in Russia. So you bought it from the brewery, and it went bad six days later or something, and he sold more shelf-stable beer like we have here. And it turns out Russians love beer, just like Americans do. He got into the detergent business. He got into the hydroelectric power business. And he got into the securities investing business. He bought stocks as well, and he started a broker-dealer. And he just did a series of things that were kind of uncorrelated and different, but each made sense.

And he had sensible capital allocation policies and had intelligent people run them. And I just loved his success because a little bit like Warren Buffett, it's one thing to invent the iPhone and do well at it. And that's a phenomenal incredible achievement, unbelievable and hugely value-creating. But it's a different thing

and a different kind of difficulty to succeed at like 30 different things. And he had failures too along the way, but then to have that aggregate be extraordinarily successful. And I learned a lot from him. One year, I remember he sold some companies and he returned dividends to investors that I think were something like 75 or 80%

of the share price at the start of the year. And then he still basically had the same earnings base that he did at the end of the year. I like magicians like that. In terms of someone else I've learned from, and in terms of our theme of being open-minded, I think I told you, and you've read the book subsequently,

but I was really impressed. One of the favorite things that I've read, and maybe it'll make it on to your investor's field guide reading list, is this book called Don't Sleep There Are Snakes by a linguist and anthropologist named Daniel Everett. he went to the Amazon as a Christian missionary to basically translate this language that a tribe in the Amazon speaks called a Pira, pretty remote tribe. And he discovered some very interesting things about the language that are a source of controversy in the linguistic world. But essentially,

he proved that the language doesn't have any numbers beyond two. So it's one, two, and then few or many, but that's about it. And they don't have a past or a future tense. They only speak in a present tense. They don't have words for colors, really. And their system of orientation is exocentric as opposed to endocentric. So they don't have a word for left hand or right hand. And I was actually having dinner last night with some friends who were saying like,

oh, I always get confused with my left hand or my right hand. And I'm like, well, you're like this tribe in the Amazon. on who doesn't orient themselves based on their left hand or right hand, but relative to their external environment. So they live near the river, and if they're on the west side of the river, their left hand is upriver, and if they're on the east side, their right hand is up river, and it's either the upriver or the downriver hand, and the concept that your hand has a position in space in and of itself doesn't really make sense to them. Like, why would you orient yourself that way. And actually, when you start to think about it, it kind of does make sense to orient yourself

that way. But they have these very different ways of thinking. And I'd recommend the book to folks, don't sleep their snakes by Daniel Everett and recommend studying him because he sort of found a group of people who think about the world in a very different way. And any time that I can get insight into that, I think it's helpful to me. And helpful to me as a person, I mean, And another thing they do is they live very much in the present. And I feel like for many of us, we spend so much time living in the future in a bad way because we're anticipating future stress or future work. And my wife likes to say that I never go on a vacation with our family without spending

half the vacation planning the next vacation. And she says, why can't you just enjoy the vacation we're on right now rather than spend half your time on the phone trying to get reservations at the hotel for the vacation next year. And that is a failing. And that's something that the piranha don't do. Their language doesn't even allow it. Yeah. Doesn't incorporate those concepts because it doesn't make sense to them.

I just finished the book last night. One of the things that's so striking about it is the tradeoffs. So on the one hand, he remarks through the book of how incredibly happy they are. just by like simple, objective measures, how much they smile and laugh and lack of stress, all these measures that you would associate with the happy people. And that one, two, and many thing, it's just so fascinating to think about the implications of it. If the rest of your life, you could only say one, two, and many. Once you get to many, you're at many and you kind of stop.

And that's reflected in the tradeoff of there has been no progress. One of the things they said is they'll only make baskets out of this very degradable material. and the baskets last like a couple of days and it degrades and it's gone. And like, they could make a basket out of like tree bark or something that lasted a long time, but they just like don't think to and don't care because of this orientation. And it's so strange that to me, the tradeoff could be between contentment and happiness and like, we'll call it technological progress, which very much lives in the future. I don't know what the hell to make of that other than it's like very, very interesting.

And it sure sounds like the life of the good aha was pretty good for the most part. And I do think there's something we can take from it. Like, we make durable baskets to store things so that we can use them later. And yes, that's nice not to be hungry later, but in a way it's stressful to be worrying about later. And sometimes it's nice to begin each day when you go out and look for food. And there's that story you remember from the book where they talk about the dugout canoes. they canoe in these very shallow, flat-bottomed canoes that work well in a variety of environments, but aren't good for catching a lot of fish because you just can't store a lot of fish in a very

shallow canoe. And so Daniel Everett embarks on a process with the help of another tribe of teaching them how to make deep canoes. And they learn how to make deep canoes, and they perfected and they make a very good deep canoe. And then I think they give it to Dan. And he says, Well, aren't you psyched about this? Now you can make these really deep canoises and just filling full of fish. And they're like, why would we do that? Is there any reason on earth why we'd do that? And I know you love Emerson and you love that self-reliance essay.

There's a relationship between the Pita Ha and Emerson a little bit. It's like a constant creative response to the needs in a moment. This is very alive. Everything he describes is very alive. There's no lots of upfront investment and effort and then like coasting for a while. And then lots of it, you know, which is kind of I think how we all like to live. We want to be protected against all risks, all problems, everything with this risk-averse thinking. Whereas they just sort of like, oh, I need this now.

Let's just make a quick boat real quick and go out at three in the morning because I'm hungry and fish. Like they even don't sleep regularly. They kind of sleep whenever and not at night. And the title of the book is like they don't say nice of these to each other, which I thought was fascinating. They're not like, hey, how you doing? Nice to see you. They're just like, don't go to sleep. There's snakes there.

And there's probably a lesson for investing, or if not for investing for companies, that some process of constantly challenge yourself and don't build too many baskets. Of course, it's good to have some baskets to store things, but also have a process that says, we don't have any baskets. I always love it when you interview the folks

from Shopify on the podcast. And I can't remember whether I heard Toby say this. I heard him say it in person. I think you may have said it on your podcast as well. But you built this program that automatically goes into people's calendars and deletes their meetings. Yeah. And that's like kind of taking away the baskets.

No baskets, no boats, no matches today. Go figure it out. What do you think about stretching that one step further, the idea of making sure we're approaching things fresh and coming full circle to a topic we were talking about earlier, which is around energy and all the changes that are going on there. There were so much capital stock and investment and kind of the world's infrastructure, I guess. If you study the world through the history of energy, like you go read the prize and the quest and read like Backloff-Smil's energy histories, which are all awesome, by the way.

You find this modern history completely intricately linked with the type of energy that we can use and how efficiently we can extract units of work or whatever from that energy source. And fossil fuels has been the way that we've done this for a really, really long time. How are you thinking about that today as like one other big subcomponent of the regime change that will bookend our conversation with? Well, I think that's really extraordinarily interesting. and I don't think I'm in a position to really give anyone advice probably about anything. But if someone who was interested in investing and was 40 years younger than I am or something

like that said, oh, what is an area where you think it would be good to become expert if I want to have like a deep knowledge base for investing success in the decades ahead or whatever, I think I would encourage them to spend time on this question of this question of the energy transition more than SaaS or AI. You ask most people that question, they're like, well, you've got to understand AI. Chat GPT is going to change the world and you've got to become an expert in AI. Maybe you do, but respectfully, I would argue that you don't. I kind of think everyone's so busy becoming an expert on chat GPT and experimenting with it

and texting other people that it's not a huge source of alpha. It's like very well known. It kind of reminds me of there was a period about 15 years ago when everyone was like, unless you learn Chinese, you're never going to succeed in the new world. I remember that, yeah. And I got a little sucked into it myself, to be honest. But it turned out that everyone in Chinese was learning English, and being better at English would help you be really good at English because they're all conversant in English.

And not all of them, obviously, but many of the business people you interact with. And that's the way I kind of feel a little bit about AI, cool as it is and all that. And I think that the energy transition is incredibly interesting. I realize there are very polarized views on this topic. So I want to tread carefully. But I'm of the belief that is probable that global warming is a phenomenon. And I'm more significantly of the belief that in fact, if it is true and if Bill Gates is book, which I read is correct and other things, other people have said correct, that the consequences

of it are pretty extreme. And I'm not sure whether it's attributable to global warming or not, but we had these harrowing fires here in San Francisco a few years ago that were surreal. Probably the strangest physical experience I've had in the external environment in my life to walk outside and have the sky be dark at midday with the sun and the sky. It was so dystopian and strange. And now we've had these torrential floods recently. So if global warming is real and if it's going to get worse, I think it's a really big problem. So I think we should be focused on it. And I think that it is possible that there will be a lot of nuance in terms of how we approach it. And that I have little doubt that some of the ways that we tackle the problem will be surprising

and unconventional, and that a lot of money will be made for companies and for investors that have an open and flexible mindset. And we've made huge progress in renewables, obviously, in lowering the cost and the availability of solar and wind power. But we really have made, in my view, much less progress on the technologies for storing solar and wind. And I feel like hydrogen is what people say is probably the best technology for storing solar and wind and transporting it. But we really don't have the hydrogen infrastructure. It's hard to build pipelines in America. It's going to be hard to build hydrogen pipelines. It's a lot trickier to

transport hydrogen than transport oil. So we've got to be a lot more careful about it. And I'm open to the idea that some existing fossil fuel companies will come up with technologies that lower their carbon emissions significantly. As you know, I'm interested in the Canadian oil sands. It's a very polluting source of oil, but it is a very geopolitically stable one. I say that as a Canadian-born person, so it might be kind of biased, but I feel like it's a geopolitically stable partner. obviously proximate to the United States. And the problem with the oil sands, and maybe not everyone knows how the oil sands works, basically the way many people look for oil is they stick a straw into the ground and under pressure, the oil is released, the oil and gas, and it bubbles up through the

straw. And that's a good way. But the way you find oil in the oil sands is you send these gigantic caterpillar dump trucks with shovels attached to them out into the sand, and you scoop up the sand, and then you drive it back, and you heat the sand, and the oil comes out, and then you refine it. That's simplified, but that's sort of the essence of it. And that's very polluting because you've got trucks going out there, bringing it back, the sand's pretty dirty, and then cooking the sand to release oil produces a lot of emissions, also, and then the oil it produces itself, isn't that super clean oil that you might get from a straw. But the nice thing is you basically bring most of the sand back to the same place, and you heat it

and produce emissions at the same place. And what if you could capture those emissions, sequester the carbon, turn it into liquid, and then pump it back into the ground? Wouldn't that be great? You'd get the energy output without the carbon emissions. And the Canadian AllSands companies have this program called Pathways, that the goal is that with $75 billion or so in 20 years, they will essentially sequester the majority of the carbon emissions output that they have in the oil sands. So a lot of people are very opposed to the oil sands and opposed to it for very understandable reasons. But what if this works and what if they do it? I don't think we'll be free of using fossil fuels in 20 years. And what if we could cut the carbon emissions there by

90% wouldn't that be powerful. So I'm really interested in exploring ideas like that and trying to bring rigor to the analysis of it because therein lies opportunity. And I'm telling me that chat, GPT can write your business goal last day. Maybe it's a little sexier and more fun and more of an approachable idea. And honestly, I think to some extent reminds me a little bit of our wheat and chaff discussion, it feels a little chaff-like to me. I'm not saying open AI and artificial intelligence is chaffed, but some of the discussion around it feels a little frothy and unsubstantiated. What can we learn from uncontroversial past transitions where the story is set in stone now? I'm thinking specifically about the story of Nantucket and the whaling industry, which I know

you've studied. And I find just totally fascinating because it's really the, if you go read Daniel Juergens the prize, where they find rock oil, as they originally called it in Pennsylvania, right before that story starts is this other story of this massive industry that now is sort of like a quaint museum in downtown Antucket or something. But since that one's set in stone, and we don't have to guess at the future, what can we learn in closing about transitions like that? Well, I do think the whaling industry, I mean, I have a romanticized interest in it. You know, in the early days of the whaling industry. It's roughly true that when people hunted for whales with harpoons by hand, that they took a couple thousand whales out of Nantucket. And at one point, whale oil and whale

products were the number one export from the colonies, the British colonies, back to England. So it was a really big industry. Whale oil oil had several qualities, but one of the most salient was that it burned very cleanly. And so if you think of the other technologies for lighting your home, basically blackened the insides of the wall. So sometimes, you know, when you go in old historic homes, everything's all black inside. That's because there's byproduct stuck all over the wall. So whale oil was very pure and burned very cleanly. Then when they invented whale guns, they started taking out several thousand whales a year.

And it kind of decimated the industry. And then obviously a tragedy for whales. And I guess I'm reminded by that of how technological change can disrupt and invalidate things and how you have to be mindful of it. My own judgment is I doubt that'll happen quite that rapidly in fossil fuels, but I do think tremendous change is coming from greater electrification of automobiles, for example. But I don't think the investing community in general kind of understands how profound it is. We have two analysts internally last year, Dominic Phillips and the Gigi and Partisani who wrote this

great note that I love that I think is a good thing maybe for all panelists to do, but a theme for you and I as well. They said, what will we do when electricity is free? The marginal cost of electricity is heading towards zero. And when it's free, what changes will it bring? And I don't know if electricity will become free or not. And I'm slightly paraphrasing their note. They didn't say for sure it would be. But think about that. It's a fascinating place to kind of to wind down. I feel like our conversation today, which represents the broader investing world, is that this is like a great potential transition. We call it regime change, whatever. But I love talking to you in these times because of all the investors I know well, I feel like you always

have the most interesting aperture. Like, it's always the widest. There's always the greatest variety of stuff, whether we're talking about chat GPT or oil sands or Argentinian bonds or a town in Italy or whatever it might be. I just love how refreshing it is. So I've already passed the traditional closing question of you, so we'll just wind down more simply this time. But thank you so much for your time and for all the fantastic ideas. Thank you so much, Patrick. I really liked it. If you enjoy this episode, check out join colossus.com. There you'll find every episode of this podcast complete with transcripts, show notes, and resources to keep learning. You can also sign up for our newsletter, Colossus Weekly, where we condense episodes to the big ideas, quotations, and more,

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