Invest Like the Best with Patrick O'Shaughnessy - Dan Sundheim - The Art of Public and Private Market Investing - [Invest Like the Best, EP.460]

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Starting point is 00:01:02 Visit workOS.com to get started. Felix by Rogo is a personal finance agent that turns a single prompt into finished client-ready work using your firm's own templates, context, and standards. Send Felix an email like, take these comments and turn them for me, or update my tracker with the context of these emails. Or run the ability to pay math on this buyer,

Starting point is 00:01:21 and Felix sends back finished PowerPoint decks, Excel models, and sourced research. Felix works the way your team already does, delivering work quickly and accurately around the clock. Learn more at rogo.a.ai slash Felix. 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. If you enjoy these conversations and want to go deeper, check out Colossus, our quarterly publication with in-depth profiles of the people-shaping business

Starting point is 00:01:53 and investing. You can find Colossus along with all of our podcasts at Colossus.com. Patrick O'Shaughnessy is the CEO of Positive Sum. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of positive sum. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of Positive Some may maintain positions in the securities discussed in this podcast. To learn more, visit psum.vc. My guest today is Dan Sundheim. Dan is the founder and CIO of D1 Capital Partners.

Starting point is 00:02:32 I've wanted to do this conversation for a long time. Dan is one of those investors who thinks about markets and business constantly and has built a career entirely around that obsession. What makes him unique is that he operates at full intensity across both public and private markets simultaneously, with major stakes in some of the most important private companies in the world, like SpaceX, OpenAI, and Anthropic, while running a global public equity portfolio that spans nearly every industry and doesn't concentrate in the consensus names. We start at the beginning of his career with the story I've never heard him talk about publicly before, how a shortcase he wrote on orthodonic centers of America and posted on Value Investors Club crash the stock and help him land his first job.

Starting point is 00:03:10 He shares why he backed Anthropic at a moment when many people told him it was the lift to open AI's Uber. What reading Dario Amade's essays reminded him of Bezos's letters to shareholders and how he thinks about LLM business models through the lens of Netflix and Spotify. We spend time on the extraordinarily stressful moment in early 2021, when he's GameStop hit the firm and what Dan believes is the single biggest tail risk facing the global economy right now. It's hard to spend time with Dan and not come away struck by how much he genuinely loves his work. I hope you enjoy this great conversation with Dan Sondheim. I want to spend a bunch of time talking about public versus private.

Starting point is 00:03:45 You do both. You started investing in privates more than 10 years ago. You were kind of one of the pioneers of this. You've got some amazing, huge private positions. Draw the contrast today in 2026 of the difference in how the two markets feel. I'm curious a lot of things here. Like, how you think about valuation differences, what one tells you about the other, you know, the business of privates versus a public equity hedge fund. I want to go into kind of all of it.

Starting point is 00:04:06 At a high level, what is your feeling on the difference between the two markets? It changes over time. It depends where you are in a cycle. I'd say right now, I think that there's a lot of interesting opportunities in late-stage privates. Some of the largest companies in the world by market cap are private right now. And not only are they large and private, they are innovating in a way that's going to change. the world. This moment is particularly interesting. I think that in general, private markets are less competitive. There's obviously the core skill set of analyzing businesses is the majority of what

Starting point is 00:04:42 create value, but there's other aspects of it too. Oftentimes, there's no disagreement among private investors that a certain company is excellent. That company has to want you to be an investor in the company. So it's competitive from the standpoint of like being able to create a situation where you can invest in the best companies. But in terms of like how difficult is it to generate returns by assessing companies, I'd say the public markets are the most competitive in the world, even though they are less efficient than they were before. It's still, you have more people and more places looking at information in companies. Where in the private side, just by definition, you fewer people looking at every situation and less capital. I would

Starting point is 00:05:28 would say that one difference that equalizes a bit is that you don't have this dynamic on the private side of people doing things that are economically irrational because they're focused in the short term or their business model is not consistent with investing based on long-term insurance like value where you have in the public market. In the private market, every time we're looking at a business, everybody's doing the same thing. We could talk to other firms that are investing in the same company. Their research may be different than ours, but it is all. trying to get at same answer. That's very different than the public markets. So there's fewer people competing, but they're all doing the same thing, whereas the public markets, there's tons of

Starting point is 00:06:09 people competing, but they're all playing a different sport. If you think about the key companies in your private portfolio today, Anthropic, Open AI, companies like SpaceX, Ramp, etc., what does that group teach you? What do you think you see coming that maybe the public markets don't fully appreciate yet, that don't have that same exposure to those great private businesses. As long as I've been doing private and public investing, at some points in time, there's synergy. But I'd say if you go back to when we founded the firm, 25% of time, we looked at a private company. There was some synergy with what we're doing in the public side. Now, because of AI and because of there's so much innovation happening in the private markets,

Starting point is 00:06:48 the synergies are just greater than I've ever seen before in that I think if you're going to take a view on public companies that are deeply impacted by AI, which eventually will be almost every public company, you should have an opinion on where is the technology now? Where is the technology going? What are the implications of it? And investing in those companies gives you that perspective in a way that I've never seen greater synergy. When you first were considering your initial investments in Open A&A& Anthropic, did you pattern match their businesses or their business models on anything that you had seen historically? Did they remind you of anything? They were very different in that when we first invested in OpenAI, I wouldn't say it was

Starting point is 00:07:32 contrarian at all to some extent. We invested originally the $125 billion round. So I don't think people were entirely sold on LLMs as a business model. But if you want to invest in LLMs as a business model, Open AI was the one. Whether you invest in LLMs or did invest in LLM's was debated quite a bit. I mean, I think there was a lot of uncertainty about the ultimate business model these companies. So that was what we had to figure out. Anthropic was a different situation in that when we first invested in Anthropic, a number of people that I spoke to who I think are very smart drew the analogy of Uber versus Lyft or why are you going to invest in the second player in most industries. Investing in the second player is not the path to glory. But the way I viewed it was it was incredibly difficult at that stage to say like who is going to be.

Starting point is 00:08:23 first and who was going to be second. The pattern recognition, to answer your question, for me, Ianthropic, was just reading Dario's essays and listening to him on podcasts. When I look back in my career and look back at the companies we missed, Amazon in the early days, and I think, what could I have seen? If you look at their income statement, you would just see a sea of red. The only telltale sign was reading Jeff Bezos's 1997-197-Shareholder letter, which was like the clarity of thought, his understanding of what he wanted to achieve and how to create value for shareholders was greater than almost a public CEO I dealt with. If I had read that and almost ignored everything else, it would have been a really important sign and very profitable. Dario struck me like that. It wasn't that the models at that point were so differentiated. I think they were considered to be one of probably maybe that point five, six, seven players that could

Starting point is 00:09:25 ultimately be important. There were still a lot of debater on LLMs as a business model, but I felt like he was incredibly skilled and extremely focused. And I place a lot of weight rightly or wrongly on clarity of thought and the ability to communicate as a CEO, like what you want to achieve and how you're going to achieve it, especially in written form because taking the time to write something down, you actually really have to go through everything you plan to do and express it in a way that makes sense to everybody else. And Dara just did that better than almost any CEO I've seen since Bezos. How would you frame the debate today about LLMs as a business model, how that we know a bit more? Back then, it was like, are these businesses

Starting point is 00:10:14 going to ever generate an economic return? I think one analogy was AI will be huge, so was air travel. Airlines were not a good business. There's nothing differentiating about one airline together, and so therefore the returns go down to the cost of capital. Obviously, we took a different view, but that was like a 65, 35, 75, 70, 30 degree of confidence in that at that point. It was more about the skew. If things played out like we thought and the business models were actually moated, would be huge. I think at this point, we're in a different place in terms of the debate that's important. The debate that's important now, if you want to look through a positive lens, which we do,

Starting point is 00:10:56 you'd say that the businesses have taken slightly different lanes and have excelled at different things within AI. So Open AI has been great a consumer and has had good traction enterprise. Anthropic has been incredibly successful in coding. There was a thesis when we first invested that APIs, or the business of having other software companies plug into your, other developers, plug into your model, would be commoditized. It would just be a rate to the bottom.

Starting point is 00:11:25 I think that debate is more or less irrelevant because you've just seen with clog code and even opening eyes, API business, these are durable businesses, and yes, can you switch? you can, the same way you could switch AWS or Azure, but it's not worth it for a lot of businesses to do it, and there's sufficient differentiation among the models. If you look at the underlying margins of these companies, they are not the margins that you see in a commoditized industry. The gross margins are quite high. The competitive landscape, I think, is not heavily debated. At this point, you probably have four or five LLMs that will be relevant in the long term.

Starting point is 00:12:06 I don't see that changing. Not that there's not sufficient talent out there. It's just that the capital required to get into this business is too great and these companies are too big at this point and then you kind of get the snowball of more capital you have, the more compute, you get better researchers. I think it can be very difficult. So the competitive landscape is not really in question. I don't think anyone would say that these business models are commoditized. I think the real debate is these are extremely capital-intensive businesses. Capital-intensive to a degree that we've never seen before in the history of business. And the question is, you're spending a ton of capital, and the ultimate return of that capital is unknown. So it's not like a normal business

Starting point is 00:12:47 who builds a factory and knows what they're going to sell. You are spending tons of capital to train a model, and the question is, do the scaling laws work such that the returns on that capital continue to be attractive, which means that you will be able to attract more capital, and build better models? Or are you going to get to a point where everyone looks back and says, we raised too much money, we spent too much training models, we didn't get the economic return, or I think equally likely, not more likely, people would say,

Starting point is 00:13:22 ultimately you will get the economic return, but it just happened slower than you would have thought. Enterprise adoption just didn't take off as quickly as you thought, and therefore the problem is, When you are this capital intensive as a business, it introduces financial leverage and operating leverage to a degree you don't see in normal businesses. So you don't have the luxury of two or three years of things going slower than you otherwise would expect. I think the scaling laws, the returns on capital, and the speed at which these tools and AI is adopted throughout the economy are the questions.

Starting point is 00:13:58 Is there anything that like Netflix or something like that could teach us? That's another business that comes to mind where there's crazy amount of capital that was spent to build an asset and then it gets advertised over a bigger and bigger user base. And that's turned out to be a great stock and one that I know you've owned a lot. Is there any analogy between those two that's interesting to you? When I was speaking to the executives at the LLMs, the way I framed is I said, look, I think your business is some kind of combination between Netflix and Spotify. Netflix in that, unlike other tech companies, you are spending a ton of money up front to train. these models. Once these models are trained, you go sell them at extremely high incremental margins. You don't know what the revenues are going to be from that fixed asset that you've built.

Starting point is 00:14:41 But to the extent that you've built that asset, you want to sell as much as possible so that you can get the cash flows to build the next model and so on and so forth. That's very similar to Netflix in that they invested in content. And when you're an early mover, this kind of fixed asset business, you invest heavily, you get the capital to invest heavily, you get the revenues, you spread it out over an increasing number of people. You invest more in that fixed asset, and that just kind of has a flywheel effect of generating more revenue, more content, more revenue, more content. And eventually you get to the point where it's almost impossible to compete because

Starting point is 00:15:18 it's just a first-member advantage is too great. Yeah. The difference, if you were to say, like, what is an important difference of Netflix versus these models is Netflix's content was differentiated. The models are more similar than they are different. At any given time, Open AI may have a better model. Anthropic may have a better model. But a lot of the expertise and innovation gets disseminated pretty quickly. So these models are not terribly different. And that's where the Spotify analogy comes in, in that I think if you're Google or you are Open AI, the differentiating factor will not necessarily be.

Starting point is 00:15:57 that Google gives you a better answer. Like, if we were just like to query Gemini or chat GPT on something, I don't think it's the case that we would say definitively, one will give you a better answer over time. However, the personalization matters. And the first mover advantage is, like, the more that these models know about you, how you live your life, your health,

Starting point is 00:16:18 all the things are important to you. You build up this data history, and it becomes very sticky. The music on Spotify is no different than Apple Music or Amazon music. Theoretically, it's a pure commodity. What makes Spotify have pricing power? What makes it differentiated? Why would people be incredibly upset if you said, like, you had to not use Spotify anymore?

Starting point is 00:16:41 It's because it's personalized. It's because they've tailored the service to take a product, which is a commodity, and personalize it to the point where you're willing to pay a premium for that commodity. If you were giving advice to the executives at these companies and telling them what to lean into and what to look out for over the next five years, I'm curious what you would say because the scaling laws are so interesting in the sense that like the models keep getting unbelievably better and that probably means the revenue available is like, who knows how big it could be, it could be the whole world. But the cost keeps going up by like orders of magnitude,

Starting point is 00:17:16 the Colossus two data centers, this unfathomably big thing. It's like two gigawatts of power. it's crazy. What advice would you give them based on everything you've learned about these big, massive businesses? The really interesting thing and challenging aspect of these businesses, the LLMs, is that the models they are building now and especially in the future can be applied to almost any aspect of the economy. You can take these models and you can make consumers' lives more efficient by having them be personal assistance. You could solve physics problems. You could help with drug discovery. You could make enterprises more efficient. The TAM is certainly not the problem. Focus is going to be a question mark. And on the one hand, the more and markets you go after

Starting point is 00:18:05 with a fixed asset, the better. You're spraying that cost over more and markets and having more revenue, which then can be reinvested. I think the flip side of that is that I rarely have seen any company succeed trying to do, go after multiple end markets at the same time. Usually, you have an A-team. An A-team is focused on one thing. Your culture as a company is oriented towards either consumer or enterprise, even Amazon, which you'd say is like the example of a consumer company that got into enterprise. They got into it like seven years later. after, even after they went public. So trying to do everything at once is tempting because if you're successful, you're effectively just advertising that fixed asset over more revenue streams. At the

Starting point is 00:18:51 same time, you risk not being the best at any one thing. So that is the tradeoff. And I think that I'm not sure we have the final answer. Right now, the market has gone through periods where they thought Anthropic was Lyft and Open AI was Uber. And up until recently, the sentiment on Open AI was more negative. I think Open AI is taking the strategy of let's do everything. We're going to go after Apple hardware, we're going to go after robotics, we're going after enterprise, consumer, science. They've been very successful in a lot of ways, but that's hard. I'm sure there are companies I'm not thinking of, but I can't think of many examples where that's been successful. I understand the temptation to do it. And obviously, the difference versus history is that the smartest people in the

Starting point is 00:19:37 world are all going to work at these companies. So if anyone's going to pull it off, they will. Anthropa took a different approach and just said, we are going to focus on enterprise. They tried consumer early on, but it came clear they didn't have traction. Then they just went all in an enterprise. They'd had a lot of success with coding and enterprise because they've now taken a market leading position. Generally, the sentiment is that Anthropic is winning and they are like now the Uber, if you want to use that analogy. I think this is going to go back. and forth over time, and people probably get carried away in both directions, but I think those are the biggest differences. I would probably err on the side of focus, but I do understand

Starting point is 00:20:16 the economic rationale for trying to do as many things as once. The only thing I, early on, we invested in opening eye, this is probably a year and a half ago, I said to them, you have to ads. I understand, I've seen it so many times. People in Silicon Valley, the idea of ads is like, you know, they were allergic, because it's like, I had this amazing, pure, technology product, you want me to like, tape it with ads and like you see Anthropics, Super Bowl commercial. That being said, even the companies that were the most adamant about never getting into ads, like Netflix, if you go back and just listen to what Netflix was saying even 15 years ago, it was like getting into ads, even Reed would have been like, you are

Starting point is 00:20:57 out of your mind. We would never do that. Ultimately, they did it. And to me, it's like, if you're going to do it ultimately, one, you can't really compete against companies that are using. using ads if you're not. Very hard. If you're ultimately going to do it, you might as well start earlier because you have to build a culture around. It just takes time. I don't think it's a big deal at opening. I waited, but I was probably, rightly or wrongly, I was pushing for ads sooner than they've chosen to do it. I think now they're probably going to get it right. As your business scales up, everything gets more complex, especially your compliance and security needs. With so many tools offering Band-Aids and patches, it's unfortunately far too easy for something

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Starting point is 00:23:35 Visit Ridgeline apps.com to see what you. they can unlock for your firm. I'm so curious what you think is going to happen to the hypers now. I saw this news report the other day that Anthropics considering securing 10 gigawatts now of their own power, which just makes me think, okay, they're going to have the power. The scale is going to be so big. Why don't they just create their own clouds effectively? The harbor might be different, more focused on inference, et cetera. Does that jeopardize what these business models would be? I think people have thought of as pretty damn good at the hyperscalers. Do you think the future is different as a result of AI? I do. I've kind of thought this for probably about it. A year now, I am more confident

Starting point is 00:24:13 in the thesis that the hyperscalers are a worst business model going forward. Now, it's interesting, because usually when you say something is a worst business model, you're implying that growth is going to slow, margins are going to contract. I actually think you're going to see the opposite. I think that AWS and Azure, maybe Azure doesn't accelerate. Certainly GCP, I think these businesses are going to accelerate for a while, just because they are, their customer bases, Anthropic, opening are growing at enormous pace. And as they get to be a bigger part of the business, the growth accelerate. The problem is that you went from a dynamic where AWS, Azure, something like GCP, their customer base was like every corporation in the world. And therefore, they had fragmentation

Starting point is 00:24:55 and they had the benefits, massive economies of scale that no single company could get. And it was a very good business. The problem going forward is that I think that economically, it's highly unlikely that LMs are not very concentrated in the hands of four or five companies. Those companies right now, they are obviously, as we discussed, they're investing a ton and they are cash flow negative and therefore they're looking for compute anywhere they can get it. But if we're correct and if anyone who owns these companies is correct, at some point in the next five to ten years, they will be generating enormous amounts of free cash flow. When that happens, I think that they're likely to insource the compute. And every year, AI is going to be a bigger percentage of the

Starting point is 00:25:41 workloads at any hyperscaler. And so if you roll out 10 years from now, I think that the majority of the workloads will probably be AI. The LLMs will probably be providing a lot of those workloads. And I think that it will make economic sense to take it in the house. Right now, I think that they look at the hypers as more of a financing mechanism. These are well-capitalized companies with big balance sheets, but I don't think these companies are better than them at building data centers. Like, building CPU clusters is different than building GPU clusters. Running inference on GPUs is very different than workloads on CPUs.

Starting point is 00:26:19 And I think the LLMs are actually better at inference than the hypers. Then you have this whole dynamic of neoclouds. Now, I think that the initial view for most public investors was that this was like pure overflow capacity. they weren't about GPUs and these things would be dead as soon as Microsoft got the GPUs. I certainly would not make the case that they are fantastic businesses, but I don't think they're going away like people thought. I think they're better at running GPU clusters than the traditional hyperscalers are.

Starting point is 00:26:53 And I think there's a lot of interest from Nvidia and other chip companies to make sure that their customer base is diversified. VINVIA is a very big balance sheet, and they want to keep these players in business. So over the next 10 years, I think these hyper-shillers, AWS, Azure will grow fast. I think the margins, my guess, will be challenged, both because the businesses are getting a lot more capital-intensive, because AI is capital-intensive, more capital-intensive than traditional workloads, and also the customer base is getting more concentrated. Meta is not a hyperscaler, but they insourced all their compute. why would they pay, I mean, they're just too big to use somebody in the outside? If you think about the last couple of years, probably the best thing you could have done is just

Starting point is 00:27:38 be long the AI build out in all its various forms. And maybe that will remain true going forward. But it seems like the market a little bit is starting to think now ahead to the other implications of AI. Software, we're talking, like the week after software got absolutely decimated in the market and everyone thinks because of cloud code and the amazing experiences that they're having with cloud code, like software businesses are just screwed. I'm curious how you're starting to think now beyond just the AI built. Okay, it seems like there's a thing, like it's going to be here. Now the rest of the world has to start to absorb this technology. How are you thinking through that? Maybe I'm super curious what you think about the software sell-off, but even more broadly, the real economy now has to start to swallow this new technology.

Starting point is 00:28:19 I'm so curious how you think that's going to happen. It is incredibly difficult to know. And I don't think that's because I don't have perfect information. I think it's just these models are improving at a which is exponential and understanding how that makes its way into the real economy and the implications is difficult. I think that you probably want to use a few frameworks. It really comes down to like which companies do you think will have a moat in most circumstances. It's fairly straightforward to identify moats that are protected from digital LLMs, like just the proliferation of digital intelligence. Once you get into robotics and other areas, you start to have to question the moats around some other traditional industrial companies. And globally,

Starting point is 00:29:14 how do countries that were arbitrage and labor due relative to develop the economy? So there's going to be phases of this where the first phase is software. And that's really because like clog code entered the zeitgeist. And it's like all of a sudden, people receive cloud code and all of a sudden they just see it on Twitter that people are saying like, oh, I created a CRM system in like a day. And I was like, oh my God, this isn't good. That's kind of where people are now. We wrote in our letter in the year. I said, look, the build out is still going to be a thing in terms of like places to invest in the public markets, but it's increasingly going to become which companies are affected. And it's going to become, there haven't been any shorts in AI. There was like

Starting point is 00:29:54 basically no shorts prior to 2026, really. Like, if you wanted to just say, like, I'm going to short something because of AI, you didn't make a lot of money. In our letter, I said, like, there are going to be a lot of shorts, some longs, because of AI. Software is the first one. I think the market tends to swing to extremes. My guess is that software will have to evolve, will probably be a worse business model

Starting point is 00:30:20 going forward. But I think the same way that Walmart evolved, with e-commerce. And yes, would they have all as equal prefer that e-commerce never happened? Probably, at least at the beginning, required an enormous amount of investment. Their margins took a hit. They had new competitors. I think that'll be the case with software, too, where companies have really great distribution

Starting point is 00:30:43 and great business models and their systems are record for companies. One of the things I did is, like, I asked the LLMs, I said, are you designing your own ERP system? And they said, no, we're buying a new ERP system from this company. Quite teller. At least you're protected at least for a few years, if they're not doing it yet. So I think systems or record are going to be difficult to displace. I think companies, while it's neat to create software for small productivity enhancements, if you really want to run your entire business on something like an ERP system or a CRM system,

Starting point is 00:31:18 I think it's going to be quite a while before people are just going to be vibe coding an ERP system. But I don't think that you can just sit back as a software company and say, where a system of record will be fine. You're going to have to integrate AI and find ways, the same way Walmart, integrated e-commerce into their business model. And it was painful for a long time and probably on the other side of it. But this is like, I'd say, fairly low conviction, because everything about AI's impact on the economy is inherently low conviction because I think everyone is likely underestimating how much these models are going to improve. And to really think about what's going to happen.

Starting point is 00:32:00 You have to almost not think like an investor. You have to think like somebody who's into science fiction. Can you imagine a version of the story where this is all just overblown? Is there any coherent potential future where five years from now we're just like, actually these things weren't that big of a deal and or they were much less of a big deal than we they were going to be sitting here today. I think the only way that would be the case is, and even this, I think, that argument wouldn't hold would be if scaling laws just totally stopped.

Starting point is 00:32:30 But even if scaling laws stopped, even if these models got no better, I think you probably have three years of people learning how to incorporate AI into their daily life or their companies. Certainly, it wouldn't be good for the businesses of scaling laws stopped, but I still think you'd have pretty profound changes within the economy. betting that scaling laws are going to stop is a really low probability assumption. I mean, there's just nothing to suggest that's the case. And so, in fact, everything suggests the opposite. I think it's difficult to really get your arms around what that means. Because we went from,

Starting point is 00:33:08 like, this is like an interesting, like, chatbot that's like Google to like, oh my God, these are going to be solving problems that humans can't do. We're already almost there. I have a 12-year-old son who's interested in investing. I think your son's interested in investing. we've talked about before as well. What do you tell him about the future of this profession given these tools? Surely it applies to us too, and we may be smart now. Elon Musk says, I think a line he's used is, it's better to go through life being an optimist and be proved wrong than the pessimist and be proved right. To be young and to be interested in something and be dissuaded because you're just obsolete. Yeah, it's going to be better than you.

Starting point is 00:33:45 I think is like a very self-defeating mindset. So do I think that it is likely that at some point in the future, everything that we do is arbitraged away by AI? For sure. I mean, I think that that would be naive of me to say no. Do I think that's happening any time the next couple of years? I don't. But it's almost like, what do you tell someone to focus on?

Starting point is 00:34:09 Like, first of all, unless someone is really interested in something, they're not going to be good at it. So it might be the case being a plumber or being an electrician. is the most mowed job in the world, but if you don't want to be over-nutrition, it doesn't help very much. So it's hard to tell your kids, don't do this or don't do that,

Starting point is 00:34:24 because it's going to be irrelevant. That's a podcast recently with the Google researcher who left, and he said, like, oh, I don't even tell my daughter's study. It's just, like, go out and have a good time. I think that's, like, a very destructive way of going through life. You should go through life thinking that you want to achieve things and that you're interested in things and you're curious. and the same way as if this doesn't exist.

Starting point is 00:34:47 And if it turns out that whatever job you envision having no longer exists, then you'll have to adjust. You've talked with John and Daniel about the GameStop story. We can touch on it here too. I'm curious, though, what you most learned about yourself during that period of time when lore has it that February of 21, so January was GameStop, that you went to your team and basically said, look, the way we're going to calculate your comp this year is not going to include January.

Starting point is 00:35:12 Like, that was just a completely insane period of time. And so you took certain steps to, like, create stability in the business or whatever. But in such a stressful period of returns, I'm just curious what you learned about yourself or what it was like emotionally to go through that time. It's incredibly difficult. I never want to come across as, like, too exaggerative about my experience because there's people who go through a lot worse things in life. But as an investor, I'd say that was about as bad as it gets.

Starting point is 00:35:40 We went from being top of the world, everyone thinks we walk on water, to being like, everyone thinks we're going to go to business. I don't think I have an enormous ego, but I have a lot of pride in what I do, and I don't need to be celebrated, but I also really did not like having our firm and our performance dragged through the mud. Granted, it deserved to be treated that way because the performance was very bad. It also is a bit lonely, and that, like, you know, there's, during GameStop, there's probably A couple people with a call.

Starting point is 00:36:09 One of the two other people who were going through the same thing you had. I found it helpful to go back and read and listen to Ken Griffin's interviews in 2008 and people that I respected. But it's lonely. It's a matter of testing your resilience. First of all, we never came close to going into business. That was just nonsense. But I never was going to quit.

Starting point is 00:36:30 Even though we had made some mistakes, I deeply believe that we were still good at what we do and that we had something to offer the world, and we could be excellent again. I was confident in that, but, you know, GameStop, it was the beginning of a change in the market structure on the retail side, so I knew we had to adapt to that. I didn't know exactly how that would play out. By that point, by 2021, 2022, I've been doing the job for 20 years. I'd never really had severe adversity, probably because at some point, like Andreas would just like, he was just a very quick service manage, but I never really had that. And so, like, I thought to myself, like, am I really going to be a guy who quits the first time. I think the analogies that people gave was like

Starting point is 00:37:11 one day at times, like Bill Ackman was like, look, every day try to do something that makes things a little bit better because it's not like something that when you have that kind of a drawdown, if I hit the ball out of the park for like three months, like investors would be like he's just volatile and crazy. And if I slowly and methodically did it, some people would just give up because they'd say, this was just too crazy. We don't believe in him. So it's impossible to disprove the negative narrative in the short term. It takes a lot of time, years. And so acknowledging that this was not going to be something that you changed overnight, people's perception of you as investor, people's perception of D1 as an attractive place to invest capital, that was not going

Starting point is 00:37:57 to change overnight no matter what I did. It was looking inwardly at the team, making sure that we were all on the same page, what we were trying to achieve, and that no matter how many people outside might doubt us, we were going to do it, or at least we're going to try very, very hard. Was there one moment in the whole experience that Moe stands out in your memory as particularly salience, whether it was on the difficult side, like, you know, emotionally difficult or on the resilience side, like a decision that you were going to forge ahead? Does any one moment stand out? There are different moments that, like, emotionally just hit you in different ways, like news articles and friends calling you saying, are you going into business or a lot of that? And obviously,

Starting point is 00:38:37 like, those things are painful and something I had never had to deal with before. I'd never tried to be a public figure. And all of a sudden, it became very public. The most important moment was we do semi-annual investor dinners with our LPs. That's our primary form of communication. We write letters periodically, but we do these semi-annual dinners where over a period of four nights, we meet with all of our LPs. It was June of 22, beginning of June of 22, trough of our drawdown was at the end of May of 2022. And these dinners were scheduled for like June 3rd of Jeremy, the president of our firm. He said to me, he said, like, we can't do these dinners. Like, you know, this is going to be a bloodbath. To me, it was like really clear. I said, no, we have to do these

Starting point is 00:39:20 dinners. And this is the most important time to go out there and speak to our investors. I had a message I wanted to convey. A message was that. that we were going to do things differently. The stock selection, all of that was going to be the same, but the portfolio construction was going to be done in a way that was much less risks prone. The analogy I gave was like, we're going to hit singles and doubles. It might take us longer to get back to the high watermark

Starting point is 00:39:44 because singles and doubles are not fireworks. But we feel like what we've gone through in 21, 22 was tough enough that like even if like the right positive MPV thing would be to just keep taking a kind of risk. And obviously, usually the best time to take a ton of risks is when you've lost all the money. Emotionally, I would not be able to go through this again. So we just said, look, we're going to run the business differently. We very much understand if this is, like, not what you signed up for here.

Starting point is 00:40:09 Although I think at that point, people were not like, yeah, they signed up for, like, then to take on more risk. They were kind of like, I think most of them were, like, happy to hear it, even if they didn't believe in it. You know, we really went about managing the firm differently. And so that was a pretty pivotal moment, just looking in the eyes of all the investors, There's feeling pretty horrible in every way. There is something invigorating about turnaround.

Starting point is 00:40:33 When you're going through something like game stop and like, there's the world's collapsing and there's nothing you can do, it's like that's a very uncomfortable position. Even if things are really bad, when you have a plan and you believe in that plan, it changes the perspective entirely. And I really did believe in the plan. And I believe in the team. And so all of a sudden I felt like, okay, everybody else may doubt us.

Starting point is 00:40:56 but I believe it. And we are now the start of the mission to dramatically improve our returns, improve our firm, and earn back our reputations being great investors. Assuming some did, what do you think of the people that redeemed from DeWon during that time? I don't harbor any ill will. I mean, look, the act of redeeming is, like, to some extent, we deserve it. I mean, obviously, I appreciate it much more when people stayed. I always start out these dinners, even though it was the worst time. I say, like, ask me anything, criticize me. It is my job to deliver for you. If I don't do it, it's on me. I ultimately think that when you screw up in business, capital follows returns.

Starting point is 00:41:40 And when you deliver poor returns, capital will leave. We had a lot of great investors that stuck through it. And I deeply appreciate that more than I resent people redeeming. It's pretty asymmetric. What's interesting about the story is when you ask around, most people would say that you have an incredibly calm, like your resting heart rate is very low. Like you're always between a four and a six. Like you're never overly excited when things are going well or overly despondent when things are going poorly. And I'm curious how much you think that disposition matters for great investing. Can you do great investing in your experience, meeting others, without having like a pretty narrow band of excitability versus despondency?

Starting point is 00:42:23 For better or worse, I've always, from the first day I got the job, had a lot of confidence when I was doing. I never, like, stepped in and said, like, I'm just better than everyone else. That was never it. But when it came down to looking at a company and making a decision, I felt confident in it. And when I felt confident in the analysis, I generally am pretty balanced. Is it possible for somebody to have a very volatile personality but train themselves to deal with the ups and downs of markets?

Starting point is 00:42:48 I think the answer is yes. I think there are some hedge fund managers that have been, like, truly. generationally great. And you hear the stories early on, they were just like throwing things of people on the trading floor and yelling and like, ultimately they ended up being great. But you have to be able to not let that emotion influence your trading. If you think about the future of the world, given the crazy changes in technology, we haven't talked about SpaceX yet. That's a whole different dimension of like an incredible technology curve that's going on. You mentioned earlier the importance of being optimistic. Where are you the most optimistic? And what parts of the world is

Starting point is 00:43:23 then its progression gives you the most pause or, you know, things you have your eye on to be, if not worried about, you know, keep your eye on. I'm most optimistic in economic growth. And I think it has to be the case that if you believe in scaling laws and you believe in AI, that economic growth will be very powerful. I mean, this is the ultimate productivity tool. And what productivity does is allows you to grow while having disinflation, which is like nirvana for markets.

Starting point is 00:43:52 So I'm very bullish on that. And then there's implications that flow from that, which are more macro, which is something we don't do. But like, that can cure deficits, do a lot of great things. Like, economic growth does a lot of great things for everybody from hedge fund managers and CEOs to people in lower level jobs. If a country is not growing, it's hard to have a better standard of living. That's my more optimistic take. The part of me is more uncertain is that I think that we, as humanity, as we as humanity, we've never encountered something that we're about to encounter.

Starting point is 00:44:27 So with that kind of profound change, like we're going from the smartest animals on the planet, we were never the fastest or the strongest, just we're smarter than other animals. We're no longer going to be the most intelligent beings on the planet. And so what are the implications of that? I'm not really sure. I think that there's a lot of negative externalities

Starting point is 00:44:49 in that, like, I don't think humans, as much as people like Dario, who I respect a lot, might say, like, well, we're just going to give everybody a check and, like, everybody just kind of live off universal basic income. I just don't think humans are wired to just collect a check and go around and, like, play sports all day. Humans are wired to create relationships, to create value, to work, to coordinate with other humans and achieving things.

Starting point is 00:45:14 And I just, I don't think you're in a great society if it's just a bunch of people living off of checks that come from the government as a result of this matter. massive economic boom. One of the most interesting stories you've told me before was this time when you made, I think, similarly sized investments in Rivian and SpaceX at the same time. Can you tell that story, both big, big bets, obviously SpaceX, you've got this huge position now. But I loved that story of like this style of big bet private market investing and exciting technologies and then the way things can go. And if you can bring us back to that, those moments of decisions, those are huge checks that you wrote into those companies. I would love to hear that story. The thesis was that EVs,

Starting point is 00:45:53 were going to dominate the auto market and that EVs were an entirely different kind of automobile, like in that they were software. And it was the equivalent of like the iPhone versus Motorola and Nokia, the same way Motorola and Nokia were not able to move into smartphones because that was like hardware, not software, there were a few companies that would be able to do this successfully. Ultimately, autos are a bad business. It could be software autos, hardware autos. It's a bad business.

Starting point is 00:46:21 And it's a really tough business to scale. very capital intensive. The manufacturing didn't go as smoothly as it could have, and the cost of delays in manufacturing when you're ramping up and burning a lot of cash are quite significant. The technology, I think, was always good. And not getting up the manufacturing curve very quickly meant you didn't get the scale fast enough. And I really believe that scale in EDS is going to be important, which is why Tesla's one of the reasons why Tesla's won. You know, the IPO was great. It looked like a great investment. But ultimately, I don't know what our ultimate return was on Rivian, but it wasn't what we planned for when we made the investment. The bad ones tend to be more obvious faster. The great private tech investments, I think, are sometimes slower to prove how great they are because you have these amazing founders who are just constantly making decisions which take the business in one direction or another. And ultimately, the compounding of those decisions takes time, but leads to create outcomes.

Starting point is 00:47:27 SpaceX was pretty obvious to me that the launch business at a minimum was going to be a very good business. And what they had achieved, I thought was just like from an engineering perspective, insane. So to me, if I could buy a company that had achieved the most amazing engineering fee

Starting point is 00:47:40 I'd ever seen at some multiple of revenue with very little cash burn at that point. I didn't know what was going to come. I just knew that the ski was very good. If they had achieved that, then, like, who knows what they could do in the future. What do you think about that business today? Like, so much has changed since you first invested, what's your updated prognosis for it or thoughts about it? The initial prognosis was

Starting point is 00:48:03 always that, like, you know, they were going to be a low-cost provider of launch. I think the success of Starship, I wouldn't say like we're fully there, but I think we're pretty much there. Approved full reusability and scale, like, yeah, okay, there's more to come. Starship is a game changer, which we knew about fairly early on, but didn't know if it would work. What that means, very simply, is that the costs of launching everything goes down dramatically, 97, whatever percent. And the engineering that they've done with the satellites to harness solar power and be able to deliver really high-speed bandwidth has surprised me to the upside. And there's a lot of software that goes into that, too, just given these networks of satellites are all communicating.

Starting point is 00:48:47 The ramification of that, I think, is that the telecom market globally is now the TAM. They've come so far down the cost curve, I think that in a relatively short amount of time, months, a few years, they are going to be dramatically cheaper than any other form of delivering broadband. You said how much you love shorting stocks. What is it about it that you like? Because you just don't meet that many people that are focused on this or are really that good at this anymore. My wife begs me all the time to stop shorting stocks. It's a bad business. You really have to be intellectually stimulated by it.

Starting point is 00:49:24 Most people in the market are just not fundamentally based, period. And even if they are fundamentally based, they're not interested in shorting, or they pretend like they're shorting and they're kind of short indices or whatever. Very few people are doing it. There are tons of people investing in things that are just based on stories, like because of social media and because of Robin Hood. and there's just endless amounts of shorts if you have duration and if you take a fundamental view. Why do you think markets are less efficient now?

Starting point is 00:49:52 I think it's just the people transacting in the market or the nature of the institutions transacting in the markets. If you go back 10, 20 years ago, mutual funds, long, short hedge funds, they were a big part of the market. Now it is a lot of passives, a lot of retail investors. People who are making investment decisions, they're not based upon. long-term considerations of intrinsic value, quants, even multi-manager, long-short funds, while they are focused on fundamentals by necessity, they are short-term-oriented.

Starting point is 00:50:26 If you're focused on trying to get an edge in the short-term, that is extremely efficient. And it's a game I just don't play. You have firms which are incredibly sophisticated using amazing quantitative methods to go through alternative data, there's absolutely no edge there. Once you go beyond any kind of short-term event and you start to think about what is a business worth, what are the long-term cash flows, you know, what are the

Starting point is 00:50:56 quarter's five-forces attribute to the company? That's when the competitive set gets pretty thin. And frankly, the more people focus on the short-term, the more opportunity there is to arbitrage that and have a medium-term view. I don't think anyone knows what's going to happen past. three years for most companies and for the economy as a whole. It's hard to predict. And so I don't consider myself to be an investor that just buys and holds things for five or ten years. But we do focus entirely on what is a company worth and a quarter may or may not impact what we think the long-term value is. The majority of the time, the moves you see in the short term exaggerate the true change in intrinsic value in the company, which makes for a less sense.

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Starting point is 00:52:24 perplexity, use WorkOS to become enterprise ready overnight, not in months. Visit WorkOS.com to skip the unglamorous infrastructure work and focus on your product. Ridgeline is redefining asset management technology as a true partner, not just a software vendor. They've helped firms 5X in scale, enabling faster growth, smarter operations, and a competitive edge. Bridgelineapps.com to see what they can unlock for your firm. One of the things that interest me a lot about you is I'll use the word like loyalty. So Jeremy's been your partner. He's one of your best friends from growing up.

Starting point is 00:52:55 The guy runs your family office, your director of research, lots of your key partners. You've known a really long time and are good friends of yours. I think you met your wife in college. I did too. So that always perks me up when I hear that example. Can you say a little bit about how you feel about loyalty and kind of the role that all those data points suggest? there's a few things to consider.

Starting point is 00:53:16 I know these people the best, and so I've just dealt with them through so many different things in life, and I have a lot of confidence in their competence. So to me, there's a lot of people that I love in life for different reasons and are wonderful people and would be loyal, but they have to be really competent to the job. This is a very, like, intense shot. The bar is extremely high, and the people that I've hired that are friends of mine forever, I am just confident cleared that bar by a lot. But when you are able to find people that you know for a long time and liked you before you had any money or any signs that you'd ever have any money, that is a different kind of relationship. For me, at this point, I don't know. They're nice to me because they think I can do something for them. They're a group of people in my life that have always been there and that they will be close to me for the rest of my life.

Starting point is 00:54:08 And like, to the extent I can work with those people, great. but as I said, they have to be excellent. One of the things that you do is for your portfolio host this like group chat that's just full of your thinking on what's going on in markets. And one of the things that struck me the most about this is just how prolific you are in it. Like you're just thinking and writing about the shit

Starting point is 00:54:26 at all hours all the time. Clearly like this is the thing that you just love and are passionate about. What has been the impact of that? Like constantly communicating with the people that you care about about markets. I asked the question because I just want to give examples to encourage other people

Starting point is 00:54:41 to do the same. It can be so powerful. When you're investing in a company privately, there is obviously a financial aspect to it. That's the driver. But there's also a relationship part of it. In that you are signing up to hopefully help that person grow their business, be with them through ups and downs. When you're doing the initial investment, you spend a lot of time together. But then I find that like, it's very easy for me to go months without communicating with the CEO on the private side. If nothing's happening, I don't like that. if we have something that we can offer people and they can just opt in, they can either read the stuff I write or not read the stuff I write, it is a way to broadcast communicate with people that I want to be in touch with and I want to know us better as a firm, know me better as a person, know us better as a firm.

Starting point is 00:55:27 I find now, even if I haven't spoken to a CEO in like three months and I call them, it's almost like they feel like they talk to me every day. It's the same way like when you meet to on Zoom during COVID, you don't really if you never met that person in person. I know that being a founder is lonely, going through all kinds of issues. And so being around other founders, almost universally, the feedback I get is that founders like to be around other founders because there's the only people that can effectively sympathize and understand everything that they go through. And so by having a bunch of them together in a chat, it's helpful to us for a business perspective, but I think it's also just group therapy would be too strong of a word,

Starting point is 00:56:07 but I think it's nice for them to know that these other people are part of this community that they're in and that they want to reach out to these people, they can, and they hear these people's perspective. And some of these people are world-leading experts in areas like AI that are going to be impactful to companies that are not experts in AI. So just getting that input, I think, is really helpful. We have a network of a lot of companies, a lot of industries, being able to share the insights, not just my insights on markets, but having companies share insights with each other and seeing how the world is impacting companies. Do you care whether or not D1 has enterprise value as a business? Is that something you think about? It's something I started to think about more recently.

Starting point is 00:56:52 I think the answer is no. Money to me is a scorecard. I want to have the best score. It is a really great positive functionality of being a good investor. And maybe I will just be so intellectually interested by the idea of being a CEO, that I want that go from being 10% of my job to 30% to 40% of my job, and that's how you would create enterprise value. I'm just not there right now, and I want to deliver amazing returns. That'll be financially more than compensatory, maybe one day, but I don't think hedge funds are a good business. Objectively, our business is horrible. It's amazing cash flows. It has no terminal value. I told this to my companies I invested. I'm like, you have no cash flows and tons of terminal value. I have tons of cash flows, no terminal

Starting point is 00:57:35 value. So we're good together. We can kind of arbitrage that. But I think there's other businesses within asset management that have value. I definitely do not ever aspire to having hundreds of employees or something like that. And that's kind of what you need to do to have enterprise value. Why do you care so much about the scorecard? Like, where does the competitive drive come from? This is what I've devoted my life to, right? And so if any of you devote your life to, you want to be great at, or at least having an impact that is tangible and measurable. I can be a family office right now, and there's plenty of positive things about being a family office.

Starting point is 00:58:13 The drawback is like, you're not in the arena. And I'm very collaborative with other investors. It's not like I'm sharp elbowed. But being out there, like being able to prove that we can be great and not just me, like, our firm can be great is invigorating. I think I'd be kind of bored if I was just like investing my own money. Going back to some of the history, something I've never heard you talk about publicly is the early writing you did in Value Investors Club, and specifically the orthodonics of America Shortcase that you wrote about. I'd love to just hear the origin story of how you found Vic, why you started doing it. I'm very interested in this idea of how much can come if you do some great posting online. This is a very early version of this. So maybe just tell us the story of Vic and that early passion for stocks. It was 2002. I was working at a private equity group within Bear Stearns. I always had an interest. stocks, but the only way to really get exposure to investment ideas written up by hedge fund managers

Starting point is 00:59:07 or investment managers was this site called Value Investors Club. You had this end in idea. I applied, and like every week you'd have tens of ideas posted by people anonymously. You could read them. I would just consume everything. So it was like long ideas, short ideas. Every week they paid $5,000 to the best idea. I just got. got inspired by all the stuff I was reading and decided to try to find some of my own ideas. After maybe six, 12 months, I had a portfolio of things I'd written up on Value Investors Club, and I decided I wanted to go work at a hedge fund. First thing hedge funds ask you do is talk about investment idea, and so I had all these investment ideas.

Starting point is 00:59:49 One of the hedge funds I went to interview at, it was a spinoff of SAC that did healthcare, and they said to me, we want you to do a case study for the interview. The company is called Orthodontics Centers of America. So I, for me, this was not like a task. It was like something I was really excited to do because I had never had my work given to somebody who was a professional. I went home and I spent maybe like hours and hours

Starting point is 01:00:14 going through the financial filings and trying to build a model. I was pretty good at accounting. I really tried to get deep into the financial statements. And I realized nothing reconciled. Nothing made sense. It hit me that what they were doing was the simplest form of accounting fraud, which is just capitalizing expenses that should have been expensed in a big way.

Starting point is 01:00:38 There are other things, too, but that was the most egregious. I was able to effectively prove that. It wasn't incontrovertible proof, but it was pretty close. Just by building up all the unit economics, as they said they were, comparing them to the unit level economics that you could actually decipher by going through their financial statements, and it was clear I did a write-up that was about six pages long. It was good. It was well done. Before I went back to do the follow-up interview where I presented my case study, I was like, I think I'm on to something here. Let me post it online first, and I'll get some feedback.

Starting point is 01:01:15 I wasn't allowed to trade stocks because I was working at investment bank. So I wasn't short the stock. I wasn't long the stock. Value Investors Club is done anonymously with a tag name. So I posted online within a few hours, the stock started to go down. I was like, that's cool. People are noticing there's a couple comments online. The market closed a few hours later, whatever. I'm watching online. There's some more posts being like, this is really interesting.

Starting point is 01:01:42 Does anyone double-check these numbers? There's people like commenting. Next day, stock starts a crater. Stock's down like 20, 30%. I started getting calls from people working at mutual funds who own the stock, because even though it was anonymous online, I had told friends of mine at hedge funds, I'm like, you should look at this stock and short it. I think it's a fraud.

Starting point is 01:02:01 And they had told other people. And so I started getting calls at Bear Stearns for people at T-Roe Price and Fidelity. You're working in an investment bank. The last thing you're trying to do was supposed to like posting about companies that are fraud. I didn't know if you know if they were a client. The stock just got halved. I went back into the interview to present the case study. At this point, they were just like, what did you do?

Starting point is 01:02:22 And I was like, look, you told me to look at this. I was a fraud. They're like, did you tell anyone that we told you to do this? I was like, no, no. They're like, you sure? And I'm like, yeah, yeah, yeah, yeah. Nobody knows. And they're like, we basically thought you were going to come back and tell us if they were going to miss earnings. I didn't want to do health care, so I didn't work there. But I now had this write-up that could go around to different hedge funds. And most of them already knew about it because they would short it. After the write-up. That's how I got my job. You end up at Viking. You're there for a long time, the CIO. You've got an incredible track record while you're there.

Starting point is 01:02:54 If you think about the moment that you decided to go start D1, bring us back to that moment to go hang your own shingle and build this thing. I started out as a bank analyst. That's what I did for the first couple years. I still had a value bent. I think most investors who love investing start out with a deep value bent. If you want to read about great investors historically, most of them were deep value investors, Ben Graham, Buffett. I was working for somebody named Tom Purcell, who's an amazing investor. I realized that Tom, Tom, Tom. Tom was an awesome mentor, but I realized that Tom was very well equipped to generate returns and financial services for Viking. And so if I wanted to grow in my career, I had to move it to other areas. Gradually, I took on other sectors, like starting with healthcare, industrials, TMT,

Starting point is 01:03:43 and the nature of those companies was different than banks. That was a learning process. It was just like years of covering different companies and different industries. the deeper you got into like what created value in TMT was different than what might create value in industrials were healthcare. So to me, if you love investing, my time at Viking was amazing because I was able to get exposure to every industry almost. By 2016, I was managing just over half of Vikings capital, somewhere 55% of Vikings capital. And I had started out in 2002 being an analyst with no portfolio. I'd gone from no portfolio to a portfolio to eventually CIO to managing more than half the firm's capital,

Starting point is 01:04:28 which was an abnormal percentage historically for Viking. Viking is usually more diversified. It was pretty clear to me that from a business perspective, it was not in Andreas's best interest to have one person managed more than half the capital. I don't think that would be even good for LPs. And so I kind of recognized that I had pretty much achieved what I could achieve at Viking over. time, I'd be probably managing a smaller percentage, almost regardless of how well I did. I've always had a mindset of like, I want to grow, I want to get better, I want to achieve new things, and I kind of felt like there wasn't that much more for me to achieve a Viking. And I was 40.

Starting point is 01:05:10 I started a fund relatively late in life. I kind of recognized that at some point, you just wouldn't have the energy to go do something like starting a fund is, you know, obviously it's a big endeavor. I felt like I had the energy, and so everything kind of came together. What interests you about art? Like, it's something that obviously you care a lot about. You've devoted some time to understanding. What is it that attracts you? I've always had more of a leaning towards humanities than STEM, which is unusual and certainly tech and somewhat finance. That is why I perhaps look at my job as more art than science. The science is very simple. The DCF I could learn how to do 25 years ago and it doesn't change.

Starting point is 01:05:50 The humanity side interests me, and art is certainly one aspect of that. And I am particularly interested in aesthetics. I like design. I like architecture. I like art. To me, like, it's just beauty. You go to the beach and, like, watch the wave. That's beauty. Like, there's beauty in the world, and, like, art is one example of beauty. There's usually a story behind it, and there's people behind art. Art is important because it's created by people. And I think the bold case in art would be, as everything else is automated and in infinite supply because it's being created by AI, art created by people reflects emotion and oftentimes like what's happening in the moment in the world when they're making that piece of art or what's happening in their life. If you apply the same

Starting point is 01:06:38 aesthetic idea, the beautiful idea, what is the most beautiful business you've ever seen? Just like the best business you've ever seen? I think that the best businesses are usually low-cost producers of something that's very durable. And I think people underestimate, like, the ability to provide a given product or service sustainably at low-cost and where there's a positive feedback loop of, like, low-cost, drives more value in, which drives low-cost. And I think I could say, like, a bunch of businesses, which are really great, like Moody's or S&B. Those are great businesses when you're wrong. but something where the cost advantage is so substantial and so impenetrable, like SpaceX with launch or Costco with groceries.

Starting point is 01:07:26 To me, it's like the only way to win in most businesses is to provide a great product at a low cost. Businesses that do that at scale and build a mode around it are amazing. Amazon's e-commerce business is amazing. So many amazing businesses, very, very, few monopolies, and when they are a monopoly, usually what happens is they tend to get lazy and the returns aren't as good. What parts of the world do you think are underappreciated right now?

Starting point is 01:07:53 Like, when I look at your top ten holdings, actually, like, didn't recognize a number of the companies. Lots of them are not in the U.S., they're international. Where's your eye right now do you think the world is not paying enough attention to? It's hard to say Europe in that, like, Europe is economically stagnated, so I'm not sure anyone should pay attention to it other than if you are a pure fundamental stock picker. it's an easier market. I think there's really interesting things happening in Asia, just as globally as politics change. Like you saw what happened in Japan, and for the first time,

Starting point is 01:08:24 Japan's probably going to become a military power at some point in the future again. And, you know, that has all kinds of implications. I think there's a lot going on within defense. I think there's obviously AI geographically. Europe is always the most inefficient. I think Japan and Korea are probably pretty inefficient as well, a lot of retail investors, some really great companies. Japan and Korea were not well positioned for the last 20 years because it was just like digital companies. But when it comes to like actually hard assets and good engineering, Germany, Korea, Japan have a lot of companies that have excellent physical assets in engineering. Is there anything else that we haven't talked about today that you have on your

Starting point is 01:09:06 mind or you're especially passionate about things you're thinking about in the world? The thing that troubles me to most, frankly, is I think we, We are on a collision course with China over semiconductors. I think there are ways to get out of that, but none of them are easy. To the extent that we don't figure that out, we're going to have something akin to the Great Depression. Say more about that. How would that come to pass?

Starting point is 01:09:29 It's very straightforward. In that Taiwan produces 90-something percent of the most advanced semiconductors, and everything we use is semiconductors. It's almost as if you went back 50 years, if there's only only a few-old-one-old. only one country that produced oil. I mean, oil was that important. We went to war over oil, even though you could get it all over the world. Like, Taiwan produces vast majority of leading semiconductors, and that is what powers everything.

Starting point is 01:09:56 And that supply chain is fragile. Like, it's not like it's easy to replicate, it's easy to destroy. If that supply chain were to get screwed up or disemediated, we would have an incredibly bad economy on the order of depression type economy. Probably a lot of people in government understand this. I've heard Scott Best to talk about it. I think people understand it. There are some scenarios that are okay for the global economy, but there is no scenario I can think of where everybody's happy. China's happy, Taiwan's happy, and the U.S. is happy. Somebody's going to be unhappy, either because the economy collapses or because their sovereignty is handed over.

Starting point is 01:10:40 What do you hope happens that we build fabs here? What I hope happens is that we replicate the supply chain over time in the U.S. And we work something out with China where they see a path to integrating Taiwan. I think that if we replicate the supply chain, the risk is that we're probably less likely to defend Taiwan, in which case China will attack Taiwan anyway. Bad for Taiwan, fine for the U.S., China achieves its objectives. I would like to see the world avoid depression, and that's going to require, like, I think, some understanding of we need 10 to 20 years to replicate this supply chain.

Starting point is 01:11:22 Over that period of time, China will not screw up the world economy by being very aggressive with Taiwan. And then eventually, there's a path where China feels comfortable that they will be able to reintegrate with Taiwan. usually when dictators say they say something and they say it like religiously, you should believe them. Like when Putin talks about like the glory days of the Soviet Union, he may not have the capabilities always, but like as soon as he did, he acted on it. And so like every time she makes a speech that's of any importance in China, he emphasizes Taiwan. And so we can pretend like

Starting point is 01:11:59 this is going to happen in some time that's not relevant. But it's so important. And AI just raises the stakes so much that it would affect everybody. Zach told me to ask you what you've learned or what you like about the real dictators podcasts. I like history. Sometimes it's just like listening to what's happened in history and like how many horrible leaders there are. It's like Charlie Munger say, like, tell me where I'm going to die so I never go there.

Starting point is 01:12:27 You know, learning about bad things so you don't go there to me is it's interesting whether it's like communism or fascism. just like all of these things are still possible and relevant in modern day, understanding how things have played out in the past. And it tends to repeat itself. Like, communism starts, but like communism without dictatorship doesn't work, because eventually people realize it's not good. And so then they want to change.

Starting point is 01:12:56 And the only way it doesn't change is if you have a dictator who's really benefiting from all this. That to me is, like, interesting just because the world, a lot more things have gone wrong in the world than right. In our lifetime, things have gotten right, technologically, geopolitically. But over history, more things have gotten wrong. Good leadership can be as impactful or more than bad leadership. You've worked with a lot of, invested in a lot of great leaders. I'm wondering specifically around CEOs, but broadly about leadership.

Starting point is 01:13:22 Like, what are you looking for in a leader that you back? Real passion, a strong competitive streak, desire to win, deeply engaged in the business. Somebody who, like, knows the details when you talk to them. somebody who people want to work for. And that could be because they like the person personally, or it could be because they don't necessarily love the person day-to-day, like Elon Musk, I'm sure, in the factory, it's not like all giggles. But people are like, I'm going to learn more by working with this person. Buffett always says, like, the business is more important than a leader. I kind of disagree with that. I think if you look over 30 years, sure. But over any period of time,

Starting point is 01:14:03 like businesses are just people. And if you have amazing people, they make great decisions and bring great people. And my investing time frame is like five to ten years at max. And I think people are more important in that time frame, especially in technology businesses. I think it's come through today that you are clearly one of the most passionate stock pickers, stock people, markets, people that's active today. Mostly I like these things just to be inspirational to other people that might want to do the same thing. So it's been so much fun to do with you. I ask everyone the same traditional closing question. What is the kindest thing that anyone's ever done for you?

Starting point is 01:14:36 With my wife right now, I was a pretty bad boyfriend in college, and that, like, I was busy doing other things. And I was not very attentive. I was not, like, somebody that you'd want to, like, necessarily marry. And we broke up, and I remember I sat down with her and I said, like, you know, we went to get a drink and just to, like, catch up his friend. And I said, I got a job at Bear Stearns. And I just remember, like, she just started crying.

Starting point is 01:14:58 I was fine, but I wasn't like, I was Goldman Sachs. knocking down my door to get me to go. I didn't really work for the first three years of college. She just started, like, crying, like, tears of joy. And I was like, wow, like this person who I really didn't properly appreciate how much they cared for me and how much they were and, like, how much they were rooting for me. To me, like, it wasn't an act that was kind. It was just a gesture that I was, like, I was kind of taken back for it.

Starting point is 01:15:27 And immediately I walked out and I was like, I'm going to marry that girl. and I'm going to be a better boyfriend slash husband going forward. I love that story. I haven't heard a specific moment quite like that one and the 500 times I've asked this question. So an awesome place to close. Thanks for your time.

Starting point is 01:15:42 Awesome. Thanks, Patrick. If you enjoyed this episode, visit colossus.com. You'll find every episode of this podcast complete with hand-edited transcripts. You can also subscribe to Colossus our quarterly print, digital, and private audio publication featuring in-depth profiles of the founders,

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Invest Like the Best with Patrick O'Shaughnessy - Dan Sundheim - The Art of Public and Private Market Investing - [Invest Like the Best, EP.460]

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