Invest Like the Best with Patrick O'Shaughnessy - Lee Ainslie - Hedge Fund Maverick - [Invest Like the Best, EP. 341]

Starting point is 00:00:02 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'Shaughnessy 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.

Starting point is 00:00:44 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'Shaunacy asset management may maintain positions in the securities discussed in this podcast. My guest today is Lee Ainsley, the founder of Maverick Capital. Lee started his investing career at Tiger Management, where he worked for Julian Robertson. In 1993, he left to start Maverick and has built the firm into one of the top performing hedge funds of the last 30 years. Lee doesn't speak in public often, so this is a fascinating insight into what it takes to build an enduring investment business, both psychologically and operationally.

Starting point is 00:01:22 Throughout the conversation, we flick between his lessons building Maverick, his perspective on the market, and what he's learned about the craft of investing. I hope you enjoy this great conversation with Lee Ainsley. So Lee, this is going to be such a blast. I think a fun place to begin is actually with your origin story because the firm is so old. It's just not often that a firm like yours is able to stand the test of time. We're going to talk a lot about investing culture and building a team. The tenure of your team is remarkable relative to others over several decades now that have been with you for so long. And that has to be rooted in the earliest days of building the firm, of meeting other peer investors at the time. Obviously, you were at Tiger. At lunch, you were telling me

Starting point is 00:02:05 this incredible story about Steve Mandel and your relationship with him early on. Maybe you could retell that as just an amazing precursor to some of your ideas about integrity, ethics, and culture in an investing business. Well, thank you. I appreciate you. Have me on. It was a great fortune to work at Tiger in that amazing environment with so many really talented people. As you were pointing out one of the people that was quite nice to me at that point in time was Steve Mandel. We started about the same time, but I had just come out of business school and he already was a well-recognized investor, All-American at Coleman Sachs, etc. And so it was under his wing for the first few months. And then I went into my year in review. I think there was a decent chance.

Starting point is 00:02:48 I was probably about to be let go. But to my surprise, I was paid well beyond my expectations. They actually doubled my percentage interest in the firm's profits. And they made it very clear, all happening because Steve's recommendation, and indeed they wanted me to take over a new sector altogether technology, which I was really excited about. I thought that was a big promotion throughout the rest of the day. Three or four people came in to give me their condolences and give me some pep talks. And I finally found out that my two predecessors had not lasted very long in that role, but nevertheless it worked out. But I look back in the time at Tiger, obviously was not only very formative and learned a lot from Joy and but I've really had the

Starting point is 00:03:28 opportunity to work with so many talented people, it became the basis for what we did going for it. Why do you think Steve did that? And what can be a very cutthroat environment in the investing world, incredibly competitive, lots of type A people, that seems like a pretty generous and kind thing to do. What do you think was behind that? Well, I agree. It was generous and kind, which, if you know, Steve is very consistent with how he interacts

Starting point is 00:03:52 with folks. I will say, I started playing with socks when I was 13 years old and I don't think Joy and fully recognize the depth of my knowledge, and so it was quite comfortable to what we were doing. And I think Steve concluded that it would be in Tiger's best interest for me to have more responsibility more than any else. Why do you think there has not been another diaspora, I'll call it, of amazing investors that came from one ecosystem like has happened with Tiger? Obviously, the first generation of those firms, yours, Lone Pine, etc., Viking, are well

Starting point is 00:04:25 known, but it's continued through time, almost like the Parcell's coach. tree or something, this amazing singular investing family tree, I'll call it. Why is that not happen more often? I think the only organization, which has spawned as many successful investment firms, there's probably Goldman Sachs. But I think it's important to keep in mind, if you get back to the late 90s, Tiger had probably a dozen investment professionals, and Goldman probably had hundreds, if not thousands. So it's really different. The hit rates. It's crazy, yeah. Exactly. I don't think there's any one magic, I don't know. I don't think there's any one magic item that drove the fact that a few of us have been fortunate to enjoy success after Tiger,

Starting point is 00:05:02 but I do think it is a testament to the fact that Joyne had a really good eye for talent. And sometimes in places and people that weren't completely obvious. He created a culture where we worked closely together. We had a lot of trust in each other. It was pretty unusual at that point in time because Julian was so senior and already was such a well-known investor. And the bulk of the investment team were in our 20. So we all recognized who was in charge, and therefore we as a team worked really hard to support

Starting point is 00:05:32 each other and to learn from each other. A lot of how I think about investing in different industries came from my time at Tiger, not so much talking to Julianian, but talking to other folks that were my peers. And as I left Tiger than others after me, the strength of that network really continued. We continued to work hard to help each other, to root for each other. One of the things I've always loved about the hedge fund industry, as even the largest funds have just tiny market shares when you think about not only the hedgeman industry, but the stock market in general. Therefore, there's really no reason to be competitive with our competitors. On the contrary to this day, I like to see the long, short community do well together as NASA class and typically

Starting point is 00:06:16 am very supportive and helpful of those that I'm quote unquote competing against. You said Julian was a great spotter of talent, and that's something obviously that's been a key part of your role too in building Maverick the firm. What does investing talent mean to you? What is behind that idea or that concept? Well, again, I think very hard to distill in terms of here the two or three attributes you have to have because whatever magic list you can come up with, there are a long list of people that have those attributes and yet do not seem to make it as an investor. And this is something internally we studied with great rigor because the end of the day, I would argue investment firm only has two assets, the confidence of the investor base and the talent and dedication of the investment

Starting point is 00:06:59 team. And so we work really hard on both those. To your point, bringing people in at Maverick lease is a very intensive process involves a lot of different steps, meeting with a lot of different people, a lot of testing work we do, and all that does lead us to making one or two offers a year, and those are typically accepted. If you were to look for some of the commonalities, some I think you would expect intelligence, competitiveness, a real passion for stocks, but some are probably a little different Maverick than elsewhere. We spend a lot of time trying to evaluate emotional consistency. So the highs aren't that high, the lows aren't that low.

Starting point is 00:07:39 If you're right in your stock picks, meaning you're outperforming on the long side or underperforming on the short side in January Alpha, if you're right 55% of the time, you are one of the best in the world. That's a really hard number to attain. So by definition, you're going to be wrong a lot in how you deal with, quote, unquote, being wrong. And again, it's a very competitive name. And usually there's someone on the other side. So when you're wrong, they're right. How you deal with that is really important because a lot of people, I think, have those

Starting point is 00:08:07 moments. They just want to put their head in the sand and wait for the world to pass them by. But in reality, those are some of the most important decisions you make. When it's sock is going against you, is that an opportunity? Has the world misunderstood it? and we need to take advantage of this? Or wait a bet, this is on a different path than we were thinking, this is not a good use for capital, because usually to be one or the other. So emotional consistency is important. We place a great deal of importance on a team orientation. Now, part of that is just

Starting point is 00:08:36 from the beginning recognizing the environments that I personally enjoy. I like environments where our success is driven by a team. We were talking about this the other day, but one of my favorite sports growing up was basketball, in part because to really excel, you had to be a highly functioning team where individual players are willing to make sacrifices for the greater good of the team, and yet at the end of day, everyone knows who really contributed. So to me, it's a great parallel of the importance to success of teamwork and yet still maintaining a meritocracy. And at Maverick, everything we do is based on teams. If you look at a lot of the stats that we track, we actually don't track them per individual. We track them for the entire team because we want that mentality

Starting point is 00:09:21 of we're all pulling together to achieve a common goal. And also we recognize that given we have a rather concentrated portfolio and very long-holding periods, that simply any one investor on our team, it's not going to have enough stocks to consider it to be a valid sample set. And then lastly, and it may sound a little corny, but it's very important to us. We really do spend a lot of time I'm trying to make sure we have a very strong sense of someone's sense of integrity, whether not they conduct themselves with the utmost ethical values, et cetera. So those are some of the things that we perhaps put a little more emphasis on than others. On the topic of emotional consistency, what episode across your entire investing career most tested your personal emotional consistency or

Starting point is 00:10:05 stability, I guess you could say? Well, that's a hard question. This is a very long list. If I get back to early years at Tiger, and this is back in 91, we had bought a lot of Oracle and I had concluded and actually wrote a memo that technology tends towards standards and became very clear to me in the database world back then that Oracle is becoming that standard, and there are these flywheel impacts about what that means in terms of other products they can sell and customer switching, et cetera, et cetera. And I think my basic thesis is right. So we started to buy a decent size of position, and they missed a quarter by an order of magnitude that was hard to comprehend.

Starting point is 00:10:43 And if I recall, the stock went from $11 to $6, and there was such stress on the balance sheet, its ability to survive was all of a sudden brought into question. And this was obviously a challenging discussion would join, but I did convince them this would be the absolutely wrong time to sell, even though I felt management had not been fully forthright and certain issues. But it was a real gut check because at that point in time to say, yeah, Julie, I was wrong. We used to sell. I don't think would have been great for my career, but more importantly, would not have been great for Tiger because it ended up being a very successful investment. So you have to take those moments of disappointment. One of the phrases

Starting point is 00:11:24 we use, hey, we're not playing football. We're playing chess. Getting wound up and emotional is just really counterproductive. We have a new set of facts today. Let's understand how that impacts our longer-term view. Let's compare what the market is offering us in terms of value today versus what we now think the longer-term value is. And if it's an opportunity, let's take advantage of it. And it's clearly not an opportunity. Then let's move on and work that as a loss and start focusing on the next investment. The last thing you listed there, this notion of ethics and integrity and sussing that out in somebody feels like one incredibly important. I know it's incredibly important to you, especially given how long people have tended to stay at Mavericks.

Starting point is 00:12:05 So it can be something that defends you against bad situations for a long time. But it also seems very hard to suss out in an interview process. So how do you do that? How do you come to peace with that aspects of someone's background or character or worldview or whatever during an interview process specifically? Well, and this is really important, not just for potential members of the team, but for management teams as well. And we go about it a few ways.

Starting point is 00:12:30 One, there are certain questions that you tell me about a difficult situation. were put in and how you resolve that. If you ask those questions to enough different people, you do start to develop a sense of who struggles with some of those and who doesn't. I mentioned earlier, we do a lot of testing. Most of that is personality testing, and these questions seem bizarre. Would you rather clip the hedges or move the lawn? And yet, the sum of that is a very long test.

Starting point is 00:12:56 You've got a lot of these strange questions. Sense of integrity is one of the factors that they do try to evaluate, and there's been some evidence that they've done that rather well. Just to give an example of how far we'll take things, we actually hired a group of ex-CIA interrogators who call themselves BIA, the business intelligence analyst, to train us on interviewing people. And again, helpful in both the interview process, but also in the management teams. And they're basically trying to teach you how to be a human lie detector test. And there are all these things about little tells and how they anchor their arms and their feet,

Starting point is 00:13:31 where they look, hesitancy to respond, obfuscation. No one of those little things in itself goes, aha, this person's not being honest. But as you start trying to compile a lot of those different signs, it may relay where someone's just being flat out dishonest, but it's even more likely it helps you understand where they're clearly uncomfortable. So that's played a role. And despite all that, you do make mistakes. And I think it's worth pointing out for a training period, which every year,

Starting point is 00:14:01 a new member of the investment team goes through each year, the first session has been taught by me for the past 15 plus years, and it's entitled, Integrity and Ethics. And we spend the entire time trying to make sure people fully understand how damaging even a small lapse of judgment can be, not just to you, but to everyone else at the firm, and also that this is the one area where we do not give second chances. You can't get to work on time. Well, buying a alarm clock. You seem to have a drinking problem, we'll send you to rehab. But if you, in any way, shape, or form, make a statement or conduct yourself in a way we think does not reflect a total understanding of the importance of ethics, we'll let you go, and we'll let you go immediately. And we're up front again from day one.

Starting point is 00:14:48 And that happened. That's happened a couple times, unfortunately. And again, over issues that I think at most firms would be considered rather minor, hey, please don't do that again. But we just decided early on, If we're going to really emphasize how important this is, that's the appropriate action. And secondly, if someone was thinking about, oh, I could get away with this, making sure they fully understand the ramifications of doing that. So it all goes back to having an environment were very transparent about mistakes as much as anything else. I want to go again back to the beginning seeds of Maverick and why you decided to do it when you decided to do it in 1993. What was the precipitant that made you think, okay, now it's time to strike out on my own? and build something separate from Tiger.

Starting point is 00:15:33 I clearly was not looking to leave. Julian was treating me extremely well, both in terms of compensation and responsibility. I loved everybody I worked with. But I was approached by a family, a guy named Sam Wally, who was really a serial entrepreneur, and he was sworn up to recognize, huh, this hedge fund business model, that's pretty attractive. That works. Let's start one of those. He at the time was the CEO of two different public companies, one of the first.

Starting point is 00:16:00 one was a software company, one was a retailer, and there were both companies I happened to know well. When he went to those management teams and asked for ideas, my name came up in both cases. So he started talking and enjoyed our conversations, but made it clear I had absolutely no interest in leaving. Sam's a pretty competitive guy, so he kept making the idea of leaving more and more and more attractive. And I did know that I always, again, I started playing with stocks when I was quite young, I always had this objective to have my own portfolio, to have my results purely determined by my decisions and have it be very clear what those were. And it was clear to me that was very unlikely to have been at Tiger. Again, Julian was this very senior guy that we all held

Starting point is 00:16:45 an incredibly high regard, but he made every single final decision. And the only catch was, I really didn't think I was ready for that responsibility. At the time, I was 28 years old, They're only been at Tiger for three years. But at some point it hit me, oh, Kinsley. You're going to wake up two, three, five years, who knows, and decide that you're ready, but no one's going to offer you the opportunity that these guys are being generous enough to put in front of you. So I decided really had to force himself to pull the trigger. In hindsight, that was pretty naive.

Starting point is 00:17:16 I don't think I fully understood the challenge I was getting myself into, but luckily, it worked out. What were the hardest parts about launching the business itself? back in those days? Well, there weren't a lot of precedents. So one person had left Tiger at that point, David Gerson, however, started Argonaut, which was a macro fund. Today, you can go to a prime broker and say, I want to hang my shingle, and boom, overnight, you have the whole apparatus springs to action.

Starting point is 00:17:45 You have all your systems. You have people helping you raise money, cap intro people, et cetera, et cetera. None of that really existed. And we started a pretty small basis. We started with $38 million, most of it. which came from the Wiley family back then. The hardest parts were getting recognized, convincing people to even meet with you. The name Maverick certainly didn't help.

Starting point is 00:18:07 I chose that name because I was 29. I thought it sounded pretty cool when I was living in Dallas and wanted to reflect that. But realize my first management meetings or potential investor meetings in Europe, what is this, Mavrick, you shoot from the hip? No, no, no, no. We're actually very, very conservative. Do I just name Maverick? I don't understand. I remember stinkly being in Geneva going, oh, Angel, you're an idiot. What did you do? That created some challenges. And then like everything else,

Starting point is 00:18:36 performance drives all. And we started October 93. In our first quarter, we had a strong start. But again, it was on tiny assets. We had an OK-94 up mid-single digits during a year that was quite challenging for most hedge funds, at least that was all on the public equity side. And I just simply remember beginning of 95, this is make a break. We don't have a good year in 95 running this firm, the economics of this firm are not going to make sense to continue. And I'll be backing your work, looking for a job. Luckily, we did have a strong 95 and even a better in 96 and then has to start growing and all that took care of itself. But it was a challenge. You and I were talking at lunch about the three jobs of someone running an investment firm

Starting point is 00:19:17 that it's probably hard to appreciate if you haven't done that specific job, how hard it is to do all these things well. And I want to talk about what you've learned about each of the three responsibilities, so those being selecting the assets, whatever the stock picking, whatever you want to call it, building and managing the portfolio, managing risk, portfolio construction, and building the business. And we'll probably tackle them in that order because I think they build upon each other. So starting with stock picking, you said at age 13, I think, was when you first started getting into this. So you were young, you caught the bug, so to speak. In the early days, as you were learning about this from great teachers that you've mentioned. What was your early conception of what makes a

Starting point is 00:19:55 great investment or a great business and how those two things relate to each other? It depends. I went to engineering school and I think that gave me some perspectives of different ways of trying to evaluate and analyze different businesses that probably would not have had. And then I was a consultant for a couple of years focused on small businesses. And that gave me a lot of insight into how businesses ran. In some ways, probably the best job when I was in college, paid my way by developing systems for small businesses. And the one where I had the most intensive interaction over a couple of years was a small printing company, which in hindsight was so cool because it was both a manufacturer and a service-oriented

Starting point is 00:20:36 business. And so we built a lot of systems to track costs accounting, inventory control, uses of presses, labor management. And yet, in the other side, we did a lot to attract advertising expenditures, IR and customer acquisition, now that you price things. So by the time I got to start investing for real, I do think I had a strong understanding of different business models, a very strong understanding of the importance of moats are these defensible positions. I think, again, given a little bit my background and leading a tech effort at Tiger, really understood the value of sustained growth and also how challenging it is to sustain growth. And more than a more, working with Steve and others at Tiger, obviously I've learned a ton by how they thought Steve,

Starting point is 00:21:22 for example, was always super focused on the individual unit economics, developed a better appreciation from that. So I think by the time I was really picking socks, I did have a fairly good understanding of the attributes I was looking for. And yet, to this day, I think my ability to identify those attributes correctly continues to improve day after day. No, it's true for everybody at my ever. How does that happen? So let's say that each business has a couple key attributes, variables, whatever you want to call them, that are going to be the drivers of success or failure. And if you understand those better than the market, maybe it's a big opportunity. How has that evolved? What would be examples of a way you look at a business today that you think is significantly

Starting point is 00:22:06 more productive than how you might have looked at it 10, 20, 30 years ago? Well, you have at 30 years, people forget there was no internet. There was no email. You want to get to, The 10Q, it usually came by the fax machine. And if you happen to pour through the 10Q in an hour, you were now at a huge informational advantage to everyone else you were competing. So it was just a much, much less competitive environment. I remember going to IPO launches in 1990 and recognizing about half the guys there were having their two martinis and thinking, wow, how are they going to get anything done? Go back to the office. It's just a different world. Today, it's almost, I would argue, the opposite where the challenge is, how can you possibly survive the tidal wave of information that

Starting point is 00:22:52 comes at you every second? There's so many sell-side reports. You could use the internet for days and days and days. There are podcasts like this. There's a lot of discussion about stocks on TV. It's a very different world. So some of the basics. Back to your question, I think, are still present. Can you have meaningful dialogues with customers, with competitors, with suppliers? Can you train? articulate what you're hearing from a company. This is more challenging these days and it used to be, thanks for Reg FD. But we like to talk to several different members of management, look for consistency of answers. We like to talk to the same members of management over time, look for consistency of answers. But now we also have data that helps support what we're trying to understand in terms of

Starting point is 00:23:35 business trends. So we first went down the path of investing in trying to develop a quantitative research effort in 2006, which is still a really important part of what we do. But in 2015, we've earned that talent to focus on alternative data? And can we recognize what they want to call them alpha signals or KPIs? Are there ways of tracking different elements of the business through data? That's not perfect, but it gives us some greater clarity. And after working on this for almost eight years now, we can touch every single industry in which we invest in terms of using all that to give us some insights. Now, to be clear in certain industries, it's far more effective than is than others, but yet it helps us have an indication of different trends and all that

Starting point is 00:24:19 gives us a slight edge. How do you think about the different edge that you can source from, you talked about informational already and how that's evolved? There's analytical, there's behavioral, there's a couple different ways that you can have a persistent edge. How do you answer that question for Maverick itself, the business? How do you get and maintain, an edge versus your competitors, when the world is so competitive and full of information and fast and connected and all these things. It seems like a daunting task. So how do you think as the architect of this system, back to your system engineering days, about that edge inside the investment business itself? I'm always felt investing is really a matter of doing everything you

Starting point is 00:25:03 can to slightly improve your odds. In other words, you're not going to find this magic algorithm their magic bolt, no one else has thought of, and aha, I've got this huge advantage now no one else has. But it's can we do a slightly better job of gathering information? Can we do a slightly better job of interpreting information? Can we do a slightly better job thinking about risk? And all those little slightly betters, I think it add up to be our core advantage. So just to give some examples, we'd simply only have three, two, five investment positions per investment professional. I think you'll find that ratio is a fraction of what you'll see elsewhere. So right there, we're talking about a level of due diligence, that's quite unusual.

Starting point is 00:25:42 You combine that with the fact that we have much longer holding periods, the most long, short funds. On the long side, we average 17 months. On the short side, it's 13 months. So people focus on fewer or fewer positions, and yet interacting with those management teams for a longer period of time, helps us not only improve our understanding of that business, but again, developing real dialogues with those that can give us insights into that

Starting point is 00:26:06 business, competitors, suppliers, customers. We use quantitative research in several ways. Every portion of the investment cycle is informed by Quant at Maverick. And then even outside of all that, over the years, we used to hire people to go count cars and parking lots. Now we do that by using satellite imagery. Remember one company in particular, which is an extremely successful short, we ordered something from them once a week, only so we could look at the PO number, which told us how many POs they had processed in the past week.

Starting point is 00:26:34 There are all these things we've done to try to have a slight advantage, and our objective, and I can't say we've always fulfilled it, but the objective has always been to never be at an informational disadvantage to another public investor. Because our depth of resources, because how long we old positions, there's really no excuse for that to happen. Now, it does, obviously, but to me, that's one of our most important differentiating advantages. I think I combine that with the depth and experience of the team. So the entire investment team is 29 individuals. On average, they have 14 years of experience. Importantly, 10 of those 14 years have been within Maverick.

Starting point is 00:27:13 So a team that has worked together for a long time. And if you look at our six senior decision makers at Maverick, 21 years to experience 16 of those years within Maverick. So it's that talent, that experience combined with a better set of tools and hopefully a better set of information that are competitors that leads to what we hope ends up being superior results. You said earlier in the Oracle example that a lesson you learned early in technology was that you tend towards standards. And once someone achieves that default mode, if you will,

Starting point is 00:27:45 the power that the business generates is enormous as Oracle did. Are there other features like that that did or still always get your attention as it relates to an individual business, features of a business that are not sufficient to buy the stock or belong in the stock, but just get your attention in a unique way? I think there's one magic ball, but there's several. different aspects that can be very helpful. Once you really understand secular trends, where is the world headed and who's going to win and who's going to lose? Not that you can't have a great investment without that secular trend, but it's a tailwind. So again, it improves

Starting point is 00:28:23 the odds if they had that tail one at their back and pretty short, but that headwin in their face. Thinking about competitive advantages, so we spend a lot of time with in industries, trying to understand the competitive positioning among different companies. We spend, I think, much more time than most folks as we're looking at companies, looking at the quality of management teams and not just what they say. One of the things I concluded a long time ago, almost anyone who's the CEO of a large public company, it's pretty darn impressive in that 45-minute interview. And they're smart enough to know what answers you want to hear. They won't be dishonest, but they will certainly shape their answers to make it close to what you want to hear. So for us, it's much more important to judge actions.

Starting point is 00:29:05 What decisions did they make and how those decisions turn out over time? And then, as I mentioned earlier, going back and comparing what they say they're going to do versus what they end up actually doing. So I think all those things do help you have a better perspective. When I say outstanding management team and you think across your whole career studying management teams, is there an example that just flashes to mind? Ed Breen had a couple of different stops, cleaning up the Tyco being the most impressive, but he's a guy that's had a total situation where he took Apollo crap and turned to something which was very rewarding for shareholders.

Starting point is 00:29:42 And you look at what Santio's done at Microsoft. This is pretty amazing. And you've done what you'd argue, Jeff Bezos, the Amazon, et cetera, et cetera. But I point to Microsoft just because where that business was headed per conventional wisdom and where it is, or not even where it is today, where it was. just in two years, really shows the power of the CEO. What was Ed Breen's method since he was able to do it multiple times? What was his operating style that unlocked that value?

Starting point is 00:30:10 That's a great question I should ask him next time I see him. I would argue something along the lines of brutal honesty. He was very willing to take, I don't care what we've done, while we've done it. Let's start from scratch. In Maverick, we call this the fresh sheet of paper exercise. So it applies to Maverick. we've always had the philosophy, if we were given this amount of money to invest today, how would we invest it? If we didn't have any investments, have a fresh sheet of paper,

Starting point is 00:30:35 what are we going to do? Okay, so why is our actual portfolio different than that? That's the ideal portfolio. Let's move the actual to the ideal. And I think Ed has always had the same approach when comes to business. What are my set of businesses? What should be my set of businesses? Or is your opportunity improvement? Whereas you're not opportunity improvement. And all the obvious things, as well in terms of cost controls, motivating people, rewarding shareholders, using the balance even more efficiently, et cetera, et cetera. But not many people have had that kind of impact in three different industries that it has. What did you learn from sole price? I don't know where you got that quote. And this applies to Maverick, but also applies to other

Starting point is 00:31:15 businesses. So everyone's heard of Costco, but unfortunately, Price Club is not as well known this used to be. Price Club is actually the first warehouse business. So both Sam's Club and Costco, copied Price Club. Price Club is eventually bought by Costco. Why Price Club is a great name in terms that it conveys what the retailer is trying to do. It's also the name of the founder. It's founded by getting Sol Price. And one of my favorite business quotes from Sol Price was the intelligent loss of business. Now, what he was referring to is let's have a really limited skew count so we can excel on the few skews, we're going to buy in such force. We get great pricing. We'll be able to advertise them, push them, give them the in caps. We're going to excel on these smaller number of things

Starting point is 00:32:00 and not clutter our buying or the consumer's mentality with all these different options. That's something we thought about a lot in Maverick. It was corny. But in 1995, I wrote to myself our long-term strategic plan and I basically laid out by 2000, by 2005, by 2010 what I wanted Maverick to look like. And it was essentially based on we're going to start a new fund every X years. We need to raise X assets. How many people you have to hire? The new funds were Maverick credit, Maverick currency, Maverick, whatever. But somewhere between 1995 and 2000, I started adopting that mentality. Wait a minute. We know we're really, really good at picking stocks. We know we're good at investing in equities. I don't know if we would be as good at these other things. Let's focus on resources on where we know

Starting point is 00:32:47 we can excel. And I think that principle has really served us and our investors well. The sole price impact on the hedge fund. Really cool. If you think about the second part of the job, so obviously you need to pick great companies and invest in them, table stakes. I think people probably have a hard time that don't do this for a living, understanding how challenging it could be to take, even if you've got a bunch of great ideas, and building a really good portfolio from them. What lessons have you learned there over the years about doing that really well? And here we could talk about the role that quant plays. We could talk just in general about how you think about risk in a portfolio context, not just risk in an individual investment context. Talk us through the lessons of portfolio

Starting point is 00:33:29 construction and risk. So at Maverick, at least, every mess we make is driven on a bottoms up basis. It is in the portfolio because our team's concluded is one of the very best uses of capital. But then we look at that collection of different ideas to see where our portfolio ends up from a risk perspective. And this really started up until 2011. We thought about risk. We thought about our net exposure or beta-adjusted net exposure. And then in August of 2011, when treasuries are downgraded, our portfolio went sideways.

Starting point is 00:34:01 It performed much worse than you would have thought possible simply looking at those rather basic measures and became very clear to me that our approach to thinking about risk was not sufficiently sophisticated. There were some important things at work we just weren't thinking about. As I mentioned earlier, by then we had a quant team that had been a Maverick for five years, who had a lot of different tools at their disposal. And we try to take, again, press sheet of paper, a completely different approach to understanding the risk of our portfolio. We could make this entire podcast, so I won't try to get too detailed. But now we look at everything, such as R-factor biases, how that compares to our history, how that compares to the market,

Starting point is 00:34:42 how that compares to other funds, a lot of tools to help us understand whether those biases are likely to be productive, run productive, a lot of things looking at risk appetites, and likely that those risk appetites are changing, indicators what's happening in the economy in real-time, which ends up being 90% plus correlated GDP, so it's a real-time look at GDP. A lot of work in other hedge funds are position and whether we share a position, that may be not productive going forward. And the tweaks we've made out of that, it's not that often. Again, usually rely upon what we're getting from bottoms of perspective.

Starting point is 00:35:16 But when we have, whether it's a factor or regional exposure that we think may not be productive going forward, we're very proactive and controlling that. And I do think that's led to a risk or volatility profile that we're proud of. There's a spectrum here coming from the quant world. I wanted to the spectrum, you could say, okay, just give me your idea. Maybe this is more like the platform approach, Citadel Millennium, and others. Give me the ideas. And then the portfolio construction is basically going to be quantitative. It's just going to be rules-based. And then the other end of course would be like no rigor around

Starting point is 00:35:48 factor exposures or whatever. Where do you think of Maverick as sitting on that spectrum and that slider? The extent to which it's not entirely rules-based and there's still at the end of the day judgment, position sizing, position selection, and so on. How and when does that play a role? and you don't just purely handed it off to a machine. So nothing is purely handed off to a machine. As an example, part of what Quant does for us is come up with recommended position sizes. That looks at a lot of fundamental data that comes from our team, no one else has, but it also looks at a lot of off-the-shelf, pretty typical quant factors,

Starting point is 00:36:24 looks at odds of success, looks at transaction costs, et cetera, et cetera, et cetera, and makes a recommendation from the machine point of view, this position should have 2.8% recalpt. The portfolio management team looks at that. We especially pay attention where we're big outliers, but human judgment is going to have the final decision, just because, as you understand, there's a fundamental weakness in quant and that it doesn't really look forward. You could argue it looks at sell-side estimates for revenues and earnings, et cetera, et cetera, gives us some glimpse of the world looking forward, but it certainly doesn't understand changes in secular trends or

Starting point is 00:37:00 changes in strategic positioning. Sterling doesn't understand. understand there's a new management team that's going to do wonderful things or there's a new management team that we don't have confidence in. Since we're fundamental investors, it's really important to us that all final decisions are made by humans, but hopefully we're making more consistent, more accurate, more informed decisions by using Quant as a tool to support our decision-making process. What are the hardest parts about that aspect of the job? What recurrent thing that you have to face down provides the most challenge when making portfolio constructing decisions. Well, we're very fortunate in that almost all the senior people at Maverick started at Maverick.

Starting point is 00:37:44 You know, we saw that in the stats about how long people have been at Maverick, but every one of our sector heads started a year or two after college. They've grown up in Maverick. If you were to bring in a successful investor from another long, short firm who's five plus years into his career, he would think he landed on Mars. You're making me do what? So for a model for income statement, cash flow balance sheet, every element is picked up by our quant systems. Therefore, it has to be entered in a pretty particular way. One of the things the quads going to do is going to screen your model. Hmm, you think revenue growth is going to be 14%? Could be, but that would be

Starting point is 00:38:23 a two standard deviation difference from Ms. Oracle. Or you think incremental operating margins are going to be You think whatever metric there is, they're all screened against history. Not that they're wrong, but let's just recognize that's unusual. And let's debate why you have an assumption that outlies what you would expect looking in history or also not do it just for history but versus the sole side. Often, yeah, that's why we own that sock. Exactly. I get that, but let's make sure we recognize that merits discussion. So it helps us be, again, certainly more efficient, hopefully more hacker investors, but those things are head scratching at first for people that didn't grow up at Maverick.

Starting point is 00:39:02 It's just a lot of work, like anything. Well, they get the lot of work part. They may not always get the incremental value part. When it comes to the third leg of the stool, the notion of building the business, if you were addressing an audience of people that were all about to embark on that journey, let's say starting asset managers or hedge funds or whatever, investment firms are different types, What would you say have been the most surprising challenges that they might then face in their journey to create their own business that maybe you didn't expect going in but were really important challenges to building a good enduring investment business? I'll answer it in real time rather in 1993 time because the world has just changed so much.

Starting point is 00:39:41 They weren't a lot of long, short funds. You had two hedge funds, probably had 60, 70 percent market share of the hedge fund space. we have a little seating business where we've helped start funds that are starting up and give a lot of advice, a little bit of capital, and hopefully a sample of approval with our brand. It's hard. I've been surprised by there's an escape policy where you have to be at least $100 million, if not more like $250 million, to even get meetings, no matter how good your numbers are. Secondly, having solid risk-adjusted returns does not do any good.

Starting point is 00:40:17 you need to stand out, which I've concluded to stand out means you've got to take a lot of risk. If you're starting out, you better have numbers that two or three years into it are pretty eye-popping. That's hard. So the challenges of starting a small firm today, don't know what I'm wrong, there will be another David Einhorn, stored virtually no money, did quite well year after year after year, and it finally became a real big business. It's just the odds that are happening more than they used to be. And the enduring piece of vice that gives everyone is you've got to make sure that everything you do represents integrity and represents your ability to do what you say you're going to do because you won't get a lot of second chances in those regards.

Starting point is 00:41:03 Fascinating comment that great risk adjusted returns is maybe necessary but not a sufficient story to build an investing business. One of the things that's been really interesting in the world of hedge funds has been the role that rates have played just historically, whether it's related to the short rebate or other aspects of portfolio construction. How do you think about the role that zero interest rates for so long in the post-financial crisis period played in the attractiveness of the opportunity set for this long, short style of investing? I'm amazed how often the higher rates are good for hedge funds because short rebates are higher. Okay, true, but that's just a very tiny part of the story. So the HFRI and Longshore Index, which is the most comprehensive hedge fund index, started 1990.

Starting point is 00:41:47 If you go back from 1990 and look at how hedge funds, again, not Maverick, just the average longshore fund, did when rates were over 2.5% versus under 2.5%. There's some interesting data. Now, first of all, people may forget, but that's about 50-50. In other words, since 1990, the Fed funds rates from over two and a half, 47% of the time. So it's a healthy sample set. When rates are over 2 and a half percent, hedge funds have outperformed the markets by 6.5% driven by 12% alpha. Under 2.5% they've underperformed by 4% on the back of less than 1% of alpha. So clearly, higher rates is a more productive environment. Rebates playing a tiny role in that. I think what people forget, especially now, as I sit on a few different investment committees, I can promise you,

Starting point is 00:42:35 The world hates long, short equity. And with good reason. So the underperformance over the last 12 years since the financial prices, and then what really was the nail on the call from last year, a lot of funds were down more than the market, even though the exposure is well under 100%. And I think people are missing that we are now in a different world and likely to be in a different world. And so we use that 2.9% benchmark, and you just look at futures curve.

Starting point is 00:43:00 The market is essentially predicting that fund funds will be between 3.7 and and five and a half percent for the next five years. So nowhere near two and a half, which I think is a fair way of saying we're likely to be over that two and a half. And what's also interesting about the over and under two and a half percent is you just look at the rate of returns of the equity markets is not that different. When rates have been under two and a half annualized is nine percent with equity markets over 9.7 percent. So in terms of just looking at equity returns, those worlds don't look too different. But again, something else is going on. You think about the stats I mentioned earlier.

Starting point is 00:43:35 I compare it to you have two swimmers, one slightly better than the other, and they're racing downstream. Well, the delta between how they finish is not going to be that big. Okay, now I'll turn it around. Now they're going to swim upstream. Now we're going to separate the men from the boys. Now you're going more clearly see who that stronger swimmer is. And I think the same is true for companies when they're operating in different capital cost. So when capital is essentially free, it's harder to understand which company is.

Starting point is 00:44:05 is making better decisions than the other, because every use of capital is a good decision. Who cares if I had a small return? The investment was zero. In a higher cost of capital world, well, wait a minute, my cost of capital is 5%, and I only got a 6% return. That's a problem versus my competitor who got the 14% return. And so over time, higher cost of capital, I think, becomes that more demeaning environment that helps separate stronger companies from weaker companies. One way to look at that is, again, thank you, Quanting. I look at a lot of these things, but just the correlation between revenue, beaten misses, and subsequent stock reaction. And so this is reported revenues versus sole set expectations.

Starting point is 00:44:47 They beat, does the stock go up? They miss, stock go down. That correlation for the first six months of this year was as the highest has ever been going back 20-some years, which is as far back as we can track the data. And if you do look at other periods, which had the, strong starts, 96 to 99. It wasn't a hot six months, which then mean revert it. In each case, that was the beginning of very strong periods of returns. And then began to me not the driver, but it's worth noting on the short rebate side. So when you short a stock, you borrow it, you sell it. But when you sell it, you get a pile of cash. That cash pays an interest rate. It was deducted from that rate is what you pay to borrow stock. So our net is the highest it's

Starting point is 00:45:30 been in 20-some years, A, the interest rates higher than it's been a long time, but B, and this is a whole different discussion. What we're being charged to borrow is about the lowest it's ever been, because competition on the short side is about as low as it's ever been, as so many people have given up on shorts. So I don't think people fully appreciate how anomalous and how challenging the free cost of capital world we've been living in for 12 years was to all fundamental investors. When you have stocks that are driven by, or did the Fed sale last night, not how was earnings, that's challenging for a fundamental investor. But I think we're back in the world, which is more normal, again, thinking about rates, long-term average is 4.6%. So the sale over two and a half

Starting point is 00:46:15 is nothing crazy. But we can have rates sustained at more typical levels or even anything less than free money. It should be a very, very productive environment for fundamental investors. How do you make sure that your team is best positioned for that whole opportunity setup? So if you're right, and the current is now headwind or swimming upstream, sorry, don't me to script the analogy, and the strength of the swimmer, your team is now going to get magnified. How do you make sure that's the case? Because you're also swimming against other great swimmers. In this case, there's lots of now, probably versus when you started, incredibly well-trained,

Starting point is 00:46:52 really smart investors with incredible access to data and information. information. So, yes, the absolute story is clear cut as you just laid it out. But what about the relative story of like, okay, but the Maverick sector PM still has to outdo other great investors out there that are pricing the same securities? Not to brag, but when you look at how the average hedge fund in different regimes, we did substantially better during all those regimes. And the real question is, how do we keep that up? I go back to, and I'm sorry to be a little repetitive, but back to the fact we have so much more focus in every individual investment, given how few we had per person and given our holding periods. I don't think many other

Starting point is 00:47:32 fundamental firms had developed what we've developed both on the quant side, alternative data side. And the other piece, and this has really been totally helpful recently, where we have a significant advantage is the fact we've been investing in private companies back to 1994. We made that a more segregated focus back in 04 and end up because we had so much success. We've made all those investments within the hedge funds. A few of them worked out so well. By 2014, we concluded too much the hedge fund capital was essentially locked up these private investments, and that forces launching a new entity altogether, Madrid Ventures. We have learned so much over the years from those activities, from talking to private companies, some which we invested in, some which we

Starting point is 00:48:16 haven't but had dialogues that it influenced our thinking on disruption, on secular trends that had huge impacts on public companies. That why the venture's business has become a very successful business in its own right, there's also extraordinary value just into what we're learning to those efforts day in and day out. Can you let us behind that curtain a little bit? So you're making these private investments, which means you're in the flow of founders and new companies and And like you said, disruptive innovation, how does that actually manifest? What are some examples, let's say in the last 10 years that you've been doing this, where you saw something on the private markets and that gave you some window into, again, back to your notion of improving odds,

Starting point is 00:49:00 what might happen to public market companies? Just give us a felt sense of what that's like. I'm giving an old one and a new one. So years ago, probably 15 years ago, we invested in a company called core valve, which would put new valves in your heart, but was the first company to figure out how you can then size the valve perfectly to fit what you're trying to replace, as opposed to a doctor taking their best guess from looking images and then sewing it to get it as close as they could. This is a perfect fit that was done while it was being put in your heart. And as it became clear, wow, this is really going to work. Huh, how's that an impact that people to make the old valves? So one, that led to a great problem.

Starting point is 00:49:41 investment led to them two pretty good shorts as well. Most recently, AI has just been a great example of where the public side and the private side had been of a tremendous benefit to each other. So just to give a little history, we invested in Santa Altman's first company looped back in 2011 when he was at Stanford. Sam ended up moving over to Y Combinator, a very successful seating platform. And he brought us in as one of the early investors. So we've had a long history to Sam. And as part of that, our ventures team, a very early look at ChatGBT, and like most of us, they went, holy cow, this is something different.

Starting point is 00:50:18 What does this mean? Where is this going? And started making sure the public team was aware of what the world was about to be aware of in a few months. And we concluded pretty early on that the bottlenecked, a lot of this will be GPUs and video chips. And as we started having more discussions in 2022, one of the leading LLM developers told us, yeah, our total compute budget in 22 is

Starting point is 00:50:41 10 million. This year, it's going to be 100 million, and in 24, it'd be a billion. Huh, that's a pretty quick ramp. One of the lessons of investing around mobile and the iPhone was, it's great, there's not a lot of phones. Let's start thinking about what's inside those phones. Likewise, you just don't pick up a Nvidia GPU chip and ask it to do AI. There are a lot of things that surround that to make that work, and I'm talking a lot of those vendors. Yeah, there's actually an order out there. It's da-da-da-da-da. Huh. Well, that would be like half their revenues next year, you sure. So it became very clear to us late 22 that there was going to be a wild supply, demand mismatch for GPUs. So we started thinking about the ramifications on

Starting point is 00:51:22 public side. Likewise, you think about the last 10, 15 years, most technology investors have been really focused on software for good reason. And semi's got thought of as commoditized, it's very cyclical. One of reality over the last 10 years, the number of semiconductor companies It's slightly over a billion dollars is slightly down on the software side that's worn and doubled, and yet collective market cap of those semiconductor companies that's grown fivefold, and margins have almost doubled. So it's not what people have thought about semis in a classical fashion. So in this new world where, wow, the bottleneck's going to be Nvidia chips and other type forms of compute power,

Starting point is 00:52:00 let's go figure that out. Even large, long, short funds or scrambling to try to hire semi-people, I guarantee you virtually no one in the bench world has semi-conductor. direct expertise. We do. Andrew Homan, who leads our technology efforts, it's been a maverick actually a little bit over 19 years now. We first fought in Midia back in 2004. I mean, this is the company we've known well for a long time. And as the Ventures team is starting to meet with some of these companies on the semi side to bring in Andrew, who's been investing in semis for 27 years and knows all the management teams on a first

Starting point is 00:52:31 team basis, we were able to make some decisions that I think other firm just didn't have the knowledge and experience to make. Those are, already worked out pretty well. So our venture team and private teams are in meetings together all the time. Andrew, the guy that runs technology on the public side, meets through the entire venture team once a week, all just making sure what did you hear this week? What did you learn? And I'll say there sometimes the venture team doesn't understand this turnover nugget that, oh, wow, really? Because they don't understand the ramifications for bigger companies. And likewise, bringing Andrew's relationships and his experience to bear on these small private companies, not only helping us

Starting point is 00:53:11 make better decisions, but it's helping us win the deals. Wow, here's someone actually knows a lot. Oh, and you know that guy and that guy. It's a unique period, this whole different line of discussion, but this kind of disruption historically creates great opportunities. I want to come back to that disruption point, but make sure I squeeze the last little bit out of the semis example, because I think it's a great one. Semis obviously became uninteresting to lots of hedge funds and long short managers, therefore everyone left. There's no expertise. But when you dig into why they're interesting in terms of like the moats around the business, it's not that hard. Dig into TSM or NVIDIA, like it's pretty clear why they're

Starting point is 00:53:47 good businesses. It's easy to say that now in summer of 23, of course. But when you think about software, that same question for software businesses, do you think it's as easy? The narrative has been that software business is the best business in the world, super high margins, high retention, can grow them cost effectively and so on. Obviously, there's a very important. and great public software businesses. But do you think they're as defensible as some of these semi-stories that you've spent decades watching unfold and grow? I think it's a really interesting point in time. So software is king. Suffer eats the world. You know, all these phrases prove to be very true. You look over the last dozen, 15 years, software businesses gained tremendous market

Starting point is 00:54:27 gap garnered tremendous amount of value ad, et cetera, et cetera. But you need to think about what drove that? And to me, it's a few different issues. A, not very capital intensive, B, switching costs of all walking to Maverick and say, hey, guys, starting Monday, we're not going to use Excel, we're going to use Google documents, whatever. They're being a foreign. Network effect. There's a reason we use Instagram, and not something that no one's ever heard of because your friends aren't on that one. Just the value of having a better mousetrap. There's a reason you don't use AltaVista or Yahoo to search because Google came up with a better solution. that everyone gravitated towards

Starting point is 00:55:04 universally cost-de-swegg and then just critical mass. Well, AI turns a lot of that on its head. So the infrastructure cost is now sky high. Again, talking to private companies, a different one, but another very large company, said, you know, we're just finally starting our hedge around that we looked at our cost structure. It's not going to be 90% labor and 10% infrastructure costs.

Starting point is 00:55:26 It's going to be the opposite. Our entire, everything we do, Microsoft just put in their annual report, a material risk they may not get enough access to GPGU chips to maintain their competitive positioning. That's an interesting line item. So the low-cap-x world is, mind you. Switching costs. Who cares what AI engine you're talking to?

Starting point is 00:55:47 ChatGBT, GBT, obviously is amazing, but Anthropic, probably the number two player just released Cloud 2. There's a lot of things where it blows chat GBT away. ChatGP does some things better as well, but there's more than one of these. There is no user interface. you just type in your question or talk to it. I don't have to be retrained. I can use either one. Network effect.

Starting point is 00:56:07 Some would argue how chat GDP is going to spawner and smarter of all the more and more questions, but you don't like chat TBT to be taking in your knowledge. You don't want your knowledge to be accessible by the public, number one. Number two, chat GDP doesn't want to be driven by people putting in garbage. So I don't think there's going to be a huge network effect. And then finally, in terms of the better mousetrap,

Starting point is 00:56:29 doesn't really matter. For 99% of use cases for an AI engine, what was Robert Buford's best movie? You can get a pretty similar answer of your slightly different, who cares? So write me a poem about this oak conference table and the style of Robert Frost. They'll be slightly different, but they'll all be good enough. Now, gee, please read my radiology report. Okay, maybe I want the best one now. But for most things you're going to use it for, if one's slightly better, you're not going to

Starting point is 00:57:00 able to tell us, I mean, in this terminal. So I think, and I went back to the last decade, how semiconductor margins when it was doubled, at the same time, Salford margins are already been degrading. They're 29% down to about 24% today. I think that may continue. I think the ability for Salfour companies to maintain their moats, if you will, will become more and more challenging. Not that they still won't be great businesses for a long time. Going back to we talked about earlier, technology tends towards standards, which is a memo I wrote back in 91. I think it's been a pretty useful paradigm as we think about technology. I'm not sure that's true anymore. Is that the key idea to understand the standards idea around investing through periods of

Starting point is 00:57:42 disruptive innovation? You mentioned the iPhone. It's discreet. It's not continuous. The thing didn't exist and then it existed. It became the dominant platform and everyone builds on it and all this stuff happens. And obviously investing in companies around that platform change. led to a lot of fortunes. You all of a sudden enable companies to exist that couldn't before. What are those lessons? Is it the standards thing? Is it something else? How do you think about if we're faced with another one here today, right now? What are the key things you're telling your team? This is what you need to know from what we've learned from history. Well, unfortunately, I'm old enough that I've been through a few of these. That's why I'm asking you.

Starting point is 00:58:19 I first met Michael Dell, probably 91. We're both in her mid-20s and saw with the PC, revolution did to deck, IBM, etc. First met Jet Bezos in 98, Amazon had a $400 million market cap. And Altavis, it was a much bigger company back then. Then, of course, we saw mobile and the rise of Apple, cloud computing, software as a service, and a few of these disruptive technological changes. Maybe you could argue internet's going to be as big in hindsight, but I really think AI would be bigger than any of those. And so we try to look back at all those and see what lessons we can learn, and hopefully we can avoid some mistakes as well. And I'd say it's really twofold in our mind to recognize that these disruptions create

Starting point is 00:59:02 winners and huge losers. And in AI, we have some ideas. I still think it's a little early. It's not as obvious. Number two, don't forget about the peripheral players. A little while ago we were talking about when we were thinking about the GPUs, what other components are needed to make those GPUs work. So we'll just take Apple on the iPhone, as well as Apple's side.

Starting point is 00:59:24 did. They're actually in terms of percentage gains, some of their component suppliers did even better, being along for the ride. But you look at their competitors. So 2007, the iPhone comes out. Both Apple and Blackberry or RIM have about a $70 billion market cap. Year one, RIM actually goes up over Apple, doesn't have great security. Oh my God, who wants to type on a flat screen? Give me my keyboard. But by, after about 2008, he became pretty clear where we're headed. You go to 2000. In 2012, Nokia's gone from 100 billion market cap to 10. Blackberry went from 70 than 80 to 3. And Apple went to 600, and now is 3 trillion.

Starting point is 01:00:05 But the winners aren't just going to have a bad quarter. It's going to be much more extensive than it lasts longer. So as we think about this world of AI, identifying winners and losers, identifying the peripheral plays, if you will, the secondary effects is something we've been really focused on since late last year. I think being ahead of the curve helped us a little bit. And again, that was thanks for our private team. And in the private world, as you can guess,

Starting point is 01:00:30 there are so many talented people on so much money trying to chase after different ideas. And I think a lot of our competitors, frankly, don't have the background to really evaluate those efficiently. So we'll say. What has been your personal strategy for staying up to speed on an increasing pace change of innovation in all these different fields?

Starting point is 01:00:52 You mentioned Sam Aldman, and I wonder if part of this is just get aligned with the right people because so often Sam's a good example. Elon's an example. The most talented people are actually now doing multiple things across multiple technology fields. So is it people-centric? Is it something different? I'm even curious, are there specific things you read or conferences you go to or like literal actions that you feel have most contributed to staying up to speed in, again, a world that's drinking from a fire hose all the time? Absolutely, personal relationships are really important for all the bad press, deservedly so, that San Francisco gets.

Starting point is 01:01:28 First quarter of this year, there was twice as much money, VC money, invested in companies based in San Francisco than the rest of the United States combined. And that's still where it's at, and I think AI actually is going to make that even more true. And so, yes, to have relationships with people that are fault leaders and also who attract a lot of talent around them, It is very helpful. You start the question, personally, I'm very fortunate in that I work with extraordinarily talented people that will give me some disease of things they've read, things they've heard, really should focus on this one, whether it's a sell-side report or magazine article, et cetera. But it's a challenge. We haven't really talked about analysts and developed

Starting point is 01:02:10 analysts, but one of the most common reasons a person on paper that should be a home run doesn't really make in our world is because up through being investment banker, college, etc., they lived in a task-oriented world. Write this paper, turn it in, take this task, great, build this power port presentation, build the Excel model, yes, sir, what's next. And then we've tried them into our world. There is no what's next. It's every second every day.

Starting point is 01:02:36 He got new things floating around, and you're never finished. You never can say, hey, I talk to every single customer, every single supplier, and every single competitor and every single employee, I thought, it just is not possible. And so your questions are really critical on how do you make the right decisions to use your time as reductively as possible to stay on top? And that's everything from being pointing in the right direction to having a nose of what's going to be important, not important, to have experience. I've read every time I read something or listen to this podcast, it's really been useful.

Starting point is 01:03:09 Let's do more of those. But I think it's a really challenging question these days. You say a bit about the topic of money. We're an industry that's funny. It's literally the product is turning money into more money. It's the scoreboard. It's a motivator. It's a key part of what drives the ecosystem of talented investors.

Starting point is 01:03:28 And I'm trying not to get too specific with my question. And start by just asking, like, what have you learned about money? Making a lot of it, being in an industry that's so focused on it as a thing. What big lessons have you taken away on a strange topic? when you step back and think about it. It's officially the most open question I've ever got in my life. Congratulations. So as it relates to Maverick, and it goes back to who we're trying to attract,

Starting point is 01:03:53 we're trying to make sure people are focused on the net present value of their economics over the next year and did you have the opportunity to make more money somewhere next year? Yeah, probably been thinking through and that becomes or counters some of the platform-type businesses. For what a reason, our first-all at Tiger and it's true at Maverick as well, when there was more money at stake, the more people care about it, even though on absolute terms, wait a minute, you should be the happiest guy on the earth. And when things are tough, and there's not a lot of money because we didn't have a good year. People don't get us concerned. People are always more

Starting point is 01:04:26 concerned about how they were compensated on their relative basis, not relative to the value they added, profit to what their friend made, whether that friend works at Maverick, works at a different firm. And I get that. It's human nature. Well, it's one measure of status. if you will, and I may more need to agree. And again, going back to being fair and make sure we have this balance of a team orientation and meritocracy, I work really hard, maybe not in any one year, but if I look, one of the things we do do, we have four different metrics that we track that drive the compensation decisions, and we look how each team does in each of those metrics, whether trailing five years,

Starting point is 01:05:05 three years, and one year. And I also have a lot of different metrics regarding how a team got compensated in different ways. over time, which team got compensated the most and which team had the best metrics should be highly aligned during not doing my job. And that Maverick, that's been true. It's a long time ago. At Tiger, there were times that people would, after they got their comp, go in the next thing and say, I don't think it's really fair. I think I deserve this.

Starting point is 01:05:28 And here's why. And the system's back there aren't that great. And every now and then that worked. Oh, you get my money. Well, once the word got around, you felt like an idiot if you didn't feel back in Nashville. And about year two, had to Maverick had someone do that. that and I held a firm-wide meeting the next day and say, look, there is someone here is asking to review their conversation.

Starting point is 01:05:48 I just want everybody to know the policy. I'm happy to review it. I can promise you will not go up. Some chance will go down. But if you'd like me to review it, feel free to come to office. We'll talk about it. That's at the tone. No more reviews after that.

Starting point is 01:06:02 Because I've worked really hard to be fair. As you think back on your career, I'm always interested in zooming really far in on the building blocks that make up the story. If you think about the most important individual conversation that you had in Maverick's whole history, what comes to mind. So I mentioned earlier that the first handful of people that joined were all people had known for a while. And I mentioned one with someone going to business school with. There's a guy named Steve Cap. So after business school, Steve worked for a public company briefly and then started his own hedge fund. I went to Tiger. and when I decided that, gee, there's a chance I'm really going to leave Tiger because this is a very interesting opportunity.

Starting point is 01:06:43 I also decided, no, I shouldn't just, if I'm going to do this, let's make sure I understand all my options. And the only thing I seriously considered was partnering with Steve and his hedge fund has some success, but purely driven by him, as I recognize us, because I was helping him out in certain things. And Steve and I've always liked each other a lot. But at that time, what he and I were thinking about didn't really compare well to, what this family has offered me, suicide, not to work together. You fast forward a few years, four years, yes. But now Mavericks has some success as become much larger. His fund is doing fine, but not nearly as large.

Starting point is 01:07:17 He has some frustrations in his position, and we were comparing notes one day. And I said, maybe you should come work here. And we always wanted to work together because, yeah, I would be interested in talking about that. So he came down to Dallas. Why, I seemed to go look at houses, we'll meet them for dinner. We start about 9 a.m. now at 6.30, you're supposed to meet our wives, and the whole day we've talked about what a fair economic arrangement would be. And, of course, are all these different, how we grow

Starting point is 01:07:43 at this, and returns in this, where we're smaller, we're going to grow faster, da, da, da, and we spent all the two reasonable logical people who had shared objective of getting that bend diagram to overlap. And now we've got to leave in five minutes, so we've got nowhere. We don't even have a rough idea. And he finally just says, I tell you what, if you can promise me, you'll be fair. I'm in. we shook hands, didn't have a contract for years, then some general counsel said, no, everybody has up contracts eventually we did. And we've lived off that handshake for now 20-some years. He's still there. Oh, yeah. And still a very important partner. He's semi-retired, but any project

Starting point is 01:08:20 where I need someone I trust who's super smart and will dive in deep, I call Steve and it's taken care of. And to me, the conversation has always been the back of my head because it's just the way you hope anyone who does know you, now work to Maverick for five or six years, can just say, hey, it's going to be okay. You can't tell you what the numbers are done, do, do not. Just it's going to be okay. And I deal responsibility to earn that trust, and I think it's a good reminder of how important that is. Power of a handshake. Pretty amazing story. Handshakes can work. Long-term partnership. I'd love to talk about the episode in 2011, when you made the decision to start the transition towards not being the sole decision maker at the top of the investment process anymore,

Starting point is 01:09:06 having a co-CIO and then a CIO as part of Maverick. And I want to really dig in on the story because when you study investment firms, the number one killer is succession. That it's really hard. Often there's a very talented, very tenacious, very entrepreneurial investor that starts the business. and then when they go to hand it off to a second generation, it just fails for whatever reason. It just happens over and over again in our industry. So how did you manage that? And I'm curious about why you did it, how you did it, how it's gone. This whole process of starting to share some of the responsibilities in the portfolio specifically is fascinating to be. So I'd love to hear the story.

Starting point is 01:09:44 Well, as we mentioned earlier, there was this recognition that I had three different jobs and I wasn't doing any one of them as well as I would hope to do them to really excel at that role. I do think takes an almost 24-7 dedication. It certainly takes a level of commitment and energy because, again, it's a very, very, very competitive world. And I was getting to the point where I was not as intellectually interested in stocks as I had been earlier in my life. I was getting the point where I missed not seeing my kids and starting to recognize, wow, they're not going to be kids a whole lot longer.

Starting point is 01:10:19 And then when it became evident through performance that I was not doing, Either of those, well, no, the three, but day-day stock picking or portfolio management risk control, particularly on either side. That, to me, was, okay, now it's really time. And it's a little bit different than that. It wasn't handing down to the next generation because the senior team, I was just a few years older than. It sounded like they were 15, 20 years younger.

Starting point is 01:10:44 So it was more a sideways thing, if you will, and in part driven by. So Tiger, by contrast, there was Julian Robertson. And there was everyone else beneath him beating him ideas. He said, yes or now. We from the very beginning, back that team learning culture were much more five individuals working together to come with the best decisions we could. And I was the leader of that five, but I was a member of the five, not the boss of the five. And so in that way, it wasn't as a dramatic change in the person, and now we've had one more of these changes,

Starting point is 01:11:14 but as someone that was living, breathing, waking up at 3 a.m. to see what happened in Japan, just couldn't let it go the way I used to be. and so allowing myself to get more focused on the business and especially on risk management portfolio and develop some of the tools that we still have in place today, I really do think it worked out well for our investors, which is the most important dust of all. And then almost three years ago, we went with a co-CIO structure and Ben Silver and David Tickaginski, a letter fundamental effort ever since. It's interesting because they have slightly different investment styles, certainly different areas of expertise, and

Starting point is 01:11:52 and bringing both of their strengths together has really created a yin-yang-type dynamic that I think has been really, really effective. What advice would you give to those facing down that same challenge for how to affect that and not trigger those landmines that seem to lay all in and around this process? Well, as I've mentioned you at lunch, I did consult with a few people that I really respected who have been through similar transitions, Sop Korm and St. Rucamore, the list goes on. and they all had different perspectives, but one that was probably most influential to me was Stan's point that if you're on, give someone the responsibility and the authority,

Starting point is 01:12:30 you have to really give it to them. You can't say, usually you make decisions every now and then I'm going to come and overrule, you'll bet it will be fine, don't worry about it. One, the odds are you'll probably make a worse decision, not a better decision, because you're not as close to it, but even if your decision was ag-good or, say, even slightly better, just the demotivating impact of being in charge, but not quite being in charge, has a real significant cost. So we had a year where that transition is to a gradual and then I dig it to the point that I would still give advice and coach, but also made it very, very clear to everyone that,

Starting point is 01:13:04 hey, on the day-to-day investing, I do not have final say, unless it involved risk. So I had final several risks. And if I thought a position was just too big, I would take it down, but not because I didn't think it was a great investment more because I thought it contributed to our risk profile on a way that was inappropriate. If we zoom back to today, so we're in the summer of 2023, and you just survey the landscape of long, short, equity, the whole industry. You said based on your experience on investment committees, you can promise. It's not necessarily a popular camp, given performance over the last 12 years. How do you see the landscape and where there's opportunity, especially given the presence of Citadel, of Millennium, of Balliazni,

Starting point is 01:13:46 these firms that have seemed to create a better mousetrap. If you just look at the raw output of these insanely sophisticated risk systems plus leverage, plus talented stock pickers, seems to be a pretty productive model. How does a traditional investor, hedge fund manager, compete against the gravitational force that is these new models in the longshore industry today? I'll touch on the first part of the question first, the frustration of longshore equity, one thing I did not point out, but I think says it all in a nutshell. If you look at the correlation between the HFRI Launchword Index and the equity markets on a trailing three-year basis, back in 98, 25 years ago, it was under 30%. Today, it's 70. It peaked at 90 years ago.

Starting point is 01:14:33 Well, 90% correlation, why am I paying you hedge fund fees? I'm just getting data, even at 70. Now, just a rag at Maverick, it's been in the teens. So we've not going out of that path. And so going back to senior investment committees, this is noticed. And the way we got there, shorting was really tough through this world of crazy monetary easing, fiscal stimulus, et cetera, et cetera. And so many funds, the intro one, let's just take up net exposure, do less of the shorting stuff. Number two, I can use S&P puts or short futures to create my short exposure. The catches that doesn't generate alpha. By definition, And by the way, most of your sophisticated investors could do that themselves.

Starting point is 01:15:12 They don't need to pay you to do that for them. Or an ETFs, okay, maybe slightly better, but not nearly as good as researching every single stock in that ETF and making your own conclusions how they should be weighted, et cetera, et cetera. So people slowly gave up and shorting, especially after January 21 Wall Street bets. That's when I'll be was out. Okay, I totally give up. Forget it. It's torpedoing firms.

Starting point is 01:15:33 Ridiculous. So the longshore profile has looked more and more like the beta profile. No wonder people are sort of giving up. You're right in that world, the platform, guys are you going to call them, that the very successful Millennium Citadel's have generated a different return profile in a very different way. So every little pond has extraordinarily tightly controlled parameters on not just exposure over different factors, et cetera. Those are then collected.

Starting point is 01:16:02 They typically have a center book, which they have their own algorithms to pick off the best of the best and upsize those. and then they have leverage, which all works because they had very strict control. Where I think the flip side is, again, if we're back in a world where fundamental stock picking is more productive, that model, I would argue, is going to have a harder and a harder time keeping up, just because when you put together all these collective books, we've got a lot of things long and short at the same time. Now, they're smart enough from a transactional point of you to pair those, so do-da-da. But nevertheless, collectively, you don't have your very best

Starting point is 01:16:39 on each side. Leverage is important, especially helpful in a low-vaal world, higher ball world, higher-cost world, leverages different implications. And those places are hard places to work. And turnovers are higher there than elsewhere. I have huge respect for Ken Grickman, consider my friend. I get what they built, who can't but be tremendously impressed what they built. But it's just the person that we're asking joining Maverick, that's not typically the experience they're looking for. So you look at the last 10 years, they've won, no question. I hope that the next 10 years, and I think the next 10 years may paint a different story. How do you think about the next 10 years for Maverick specifically? What trends will continue from the firm's past? What do you hope

Starting point is 01:17:22 breaks with the trend line and goes a different direction? How do you think about the vision for the business? I'm not asking you to redo your vision question that you gave up because it's all price, But in the next 10 years, what do you think the direction of the firm will be? So I think one of the mentalities that's really served us well over time is the desire to continuously improve. What can we do better this year? Whether it's part of the investment process or data gathering or managing people interacting with our investors, how can we do it better?

Starting point is 01:17:53 And you need to balance that with consistency. Investors don't want to hear, aha, we've decided we're investing. and used cars because it's a great opportunity. And so if you think about that we described early in the conversation that day one, the concept of being long and short within every region, within every industry which we invests and our factors take care of that, definitely hadn't changed. Our average net exposure, average gross exposure, average industry weighting, all very consistent with number 30 years.

Starting point is 01:18:22 But within that, our ability to execute on those objectives of preserving growing capital and developing reputation has improved dramatically. There's so many things we're doing today that, in fact, you wouldn't even dream to be possible 20 years ago. So back to your question, I think in 10 years, not just from Aver, for many places, AI has played a really big role. There are already ways we're using it, both in the back office, in the front office, that already have been minor step function improvements, and it's in the very early days.

Starting point is 01:18:50 So back on that business plan where we do all these different things, one of the reasons we decided just focus on equities that bleeding back then, it would be the most impervious to computers, to machine learning, to AI, we're going to call it, because we're in the bottom spectrum of the cap table, therefore the most sensitive to decisions humans make. And it will happen eventually, I guess, but it's going to be a very long time before any AI engine can evaluate a person, their intentions, their integrity, as well as we can. And for equities, it's still management, management management. So, while I do think will become more proficient, more productive, et cetera, we will continue

Starting point is 01:19:31 to focus on where we think we can excel, and that is understanding the valued businesses run by humans. If you were throwing a dinner and the goal is just maximum interesting stimulating conversation, what three other investors would you invite to the dinner, recognizing that there's a lot more than three that I'm sure would be great, but just for fun. Let's think. Well, I'm a little biased, but joining me top of us just because I love the opportunity to have another conversation with him, period.

Starting point is 01:19:56 You got to put Warren Buffalo in the list. Not that I agree with everything he says, but he also is so amusing, so he mixed for a fun dinner. What do you disagree with most of what he says? Well, a couple things, but he really, and understanding the logic, likes to argue that high turnover is evil, mutual funds are always over time going to underperform the equity market because they pay commissions, taxes, da-da-da-da. and I could make a compelling argument just looking at Maverick data, that degree to which we have outperform the markets for a long period of time now, and we're doing that. We do pay commission, so it's after commission costs and even after our fees more than compensate for the incremental taxes.

Starting point is 01:20:39 So if he's right, if you're just going to invest in indices, but there are in the scientists Mavericks, there are a lot of firms that have added enough value to more than compensate for those costs, but tried to have that discussion on time with him. He wouldn't really. He wasn't having it. Actually, my best conversation with Warren Buffett who I've met several times and probably he never had much interest. And he came up to me one time to say, oh, hey, are we still having that da-da-da-da-da-da.

Starting point is 01:21:04 As he's talking, I'm so excited, he's talking to me. I realize he thinks he's talking to someone else. Mr. Buffett actually liaise, oh, rightly, you just walk away. So that's why I invited him to dinner and give him to finally talk to me. And the third, probably Jim Simons, started Renaissance, and I do know Jim a little bit, and he's a fascinating guy that I think has impacted our world more than most people recognize through his extraordinary phlythraignment, but he certainly is not very public about it, but I think very few people really have an understanding of the dollar amounts that he's been supporting causes are important to him for decades. Then he was really, in my mind, the pioneer of Juan Bessing, and likewise, A.W. Jones pioneer of launch, investing, but I've read everything he's ever written or written about, so I don't think I've learned as much from AW. Just zooming to today and very much a selfish question, and we've talked a lot about the important of great management behind teams and some historical examples. If you had to go study

Starting point is 01:22:05 three active managers, CEOs, what have you, any three that come to mind as ones that you think would be fruitful to go study how they're operating their business today? So fruitful in terms of becoming a better investor. I mentioned that earlier, but I do think the turnaround on Microsoft is something that I can't remember a good parallel, not just in terms of, hey, operating results are better, but completely new strategic focus, complete change in leadership style. So, Sadi would definitely on the list. Andrew Jassy, I don't know well, but met a few times. Again, very different than Jeff Bezos. I'm just like a Tim Cook to Steve Jobs, but highly competent in this beloved. with an Amazon, be loved. He does this cool thing on the first day of March Madness, which is

Starting point is 01:22:55 Thursday where there's so many games he played. He invites over 200 different Amazon employees to watch basketball all day long until the very last game. So meaning out there, it starts at 9 a.m. or something. And for number three, probably Ed Breiner, I hate to be repetitive. I know we've already talked about him, but again, it's just someone I've held in such high regard and even when he's been in situations that people thought were pretty hopeless, he's shown the power of management. We talked to lunch about basketball, shared passion of ours. Who's your favorite basketball player ever and why? Well, this is a wimpy answer, so I apologize, but I would say Michael Jordan in large part because my dad played basketball at Carolina, so I grew up a huge basketball fan and very partial to Carolina. Even to the point my first year at UVA, I was pulling for Kailana, against UVA, which did not cope very well with my friends.

Starting point is 01:23:46 Actually, that was the last dance show got my kids to recognize, wow, maybe he was as good as LeBron. What do you know? And my favorite set of all time to be both leading score and defensive player of the year in the same year is something you have to have been in my respect. Yeah, the idea of basketball you mentioned earlier is this team game that nonetheless, obviously superstars matter a lot. but without the team. This is not going to happen and not going to work. As you think about teamwork going forward with your team, anything else that you would leave people with thinking about

Starting point is 01:24:17 as they cultivate their cultures and teams inside of investing orgs that we haven't talked about that you think is critical to Mavericks, stitching. The obvious makes sure it must be treated fairly and respected. We've worked really hard to try to have a culture of what we call a constructive debate. We want to be friendly. you want to be a good team, doesn't mean you're not going to tell someone to wrong. Now, you can say it politely. You can say it's a jerk. We prefer politely. But again, one of our phrases, if you're only telling me things I already know, if you're agreeing with me on everything,

Starting point is 01:24:50 you're serving of no value. You're not helping me in any way sure or form. Maybe just, oh, yeah, I think so too. So we want people to be motivated to have differentiated perspectives. Sometimes even it's just to be thought-provoking. But that's important, part of, teamwork working effectively. And then finally, we've always had the approach. Once you're on our team, you better be ready to start. He asks if a brand new analyst and first year or two, we ask to do a lot of models and you're going to support the people above you. But if you've been a member for like six months and you haven't come up with a potentially interesting investment idea, you're on the wrong path because that is your job. And we rather you have something that has

Starting point is 01:25:30 to be thoughtful, even we disagree, but we'd rather have those wheels turning and you're showing us that, hey, I'm thinking about these things and here are some potential ideas. Couldn't that's how you learn? When we hire some super talented person that has a little too much confidence, we always hope his first idea is a disaster. Just a way of making sure we will understand just how hard this job is and let's all have seemingly a little bit because we have a very difficult job. Since you're doing it to each other all day long for so long now, what are the components of a great investment pitch? I hadn't changed that much. So we have a version of a slide.

Starting point is 01:26:05 that we put together back in 94. And one of the slides was what we looked for in investment company fundamentals, competitive positioning, quality management, different valuation metrics, etc. And over the years, it's different marketing people been involved and different senior people. It's been tweaked, this, this and that, but you'd be shocked by how similar it is. And part of this, we're talking earlier about why so many folks have done in a while of Tiger, I think most folks coming out of Tiger would give you a pretty similar lists of what we're looking for. And people not to get off track, but they're less so now, there's a period of time. Like, oh, all the tiger folks talk all the time, just copy each other's positions, just look at the 13Fs. The reality, we hardly, at least me, I mean,

Starting point is 01:26:48 I have to talk to a couple, but one based on we talk to each other, is based on we're looking for the same qualities. We're identifying the same companies. This is a strange question, but what do you think the hardest question, but still good question is that anyone could ask you? Hardest, but good question. That's not fair because then you're going to ask it. Maybe. I don't know the answer, but the hardest question I ponder with is how do you raise your children in a way that when you look back on your deathbed, you're really proud of them. What are some things that you think might be true as an answer to that?

Starting point is 01:27:23 Again, typical me, I try to research a hundred different things. When I recognize that my children are likely to grow up with more fortune than more comfort than I'm. I had that concern me. So I spent a lot of time with people I knew that kids were old enough. They had her head screwed on straight, and despite having some success, et cetera. And I had probably a half dozen different conversations thinking I was going to find, aha, here's a magic algorithm. Everyone in a completely different opinions. And the only one that was pretty common throughout, now my kids are adults and this doesn't apply, but spend a lot of time with your kids. Someone said, have we talked about quality time? I don't know what that.

Starting point is 01:28:01 means. What matters is quantity of time, just be with them. Discuss the meaning of life or watch TV. It doesn't matter. Just be with them. So I think there's an importance to that. And clearly the example you set, so of course with regards to integrity and ethics, but also with regards to work, there's a downside that I was in a very present parent through some critical years, but there's the upside is my kids think it's the normal thing to do to work their butt off. They both works their butts off. And I think that is largely from learning from example. And then lastly, learning from example in terms of a healthy marriage and healthy dialogue and healthy arguments and all that. But like all these things, kids learn about watching more than do by listening.

Starting point is 01:28:43 In bringing work to them, was there anything that you did understanding that kids are going to go their own way? You're going to be interested in what you do or not some percent of the time. And a lot of that's baked into their DNA probably. But is there anything that you look back on and think, oh, that was pretty good. It was a good strategy for telling my kids about what I do or involving them in some way. Certainly something I'm thinking a lot about. My kids are nine and seven, so they're beginning to ask those questions and be interested or not. I'm curious if there's anything you did that you think was especially good. Well, we always, and this is obviously not a unique idea, but when it came to allowance, a third was money that they could spend however

Starting point is 01:29:19 they wanted. A third went into philanthropy and a third was savings. And on the philanthropic part, we would sit down at your end and their analysis go up and down depending on behavior or whatnot, cannot how much they had and make them make the decision of where it's going to go. And sometimes those things I thought weren't that great, but they weren't bad, and that's what's important to them. And then the savings for it could be just let it sit there. And I think I gave them a really high rate like 20% or something just so they could clearly see compounding the value of that. Or they could pick a stock. And I would guide them and give them a list of stocks they could pick from.

Starting point is 01:29:53 and my older son was less interested in that last piece. My younger son was extremely interested in that last piece. So my goal was to get them exposure and as they move forward their life, let them understand where their interests and passions are. But by at least exposing them, it opened up the avenue as a potential passion. Again, my younger one works at a venture capital firm and thinks about all things investing all the time. My older son works in environmental consulting firm and cares about the environment.

Starting point is 01:30:23 We didn't talk earlier about Maverick Ventures, and your point about your son just reminds me to ask the question. Any, apart from the obvious advantage of information learned through that effort being very positively impactful on the public equity portfolio, anything else that you think is really important about having started that inside of Maverick, especially given our discussion that you didn't want to start seven different business lines, credit and all this other stuff. Say a little bit more about the Maverick Ventures experience. So we first made a private mess of back in 94. For their first decade, and this was within the hedge funds, it was on a very opportunistic sort of sporadic basis. If something came away, we'd look at it and so it was interesting or not. And after a decade of that, we already concluded that we had learned a lot, that again was

Starting point is 01:31:11 very helpful to decisions we were making the public markets. But I also recognized that the returns were okay, they weren't great, but most importantly, to really add value, you needed the expertise and experience to help these companies be successful. One is public equity investors. We pick up the phone and buy the sock and pick up the phone and sell the stock and occasionally tell management what we think and they usually not listen to us, but this was a very different responsibility to help these small companies be successful. So we concluded we were going to continue making such investments that we needed to bring in that expertise. David Singer started three different companies, all three went public. We invested

Starting point is 01:31:49 two of them. And I think Dave was at the point that he was looking for, a change in his responsibility. So we convinced David to come join us late 2004. Fast forward 10 years. We'd had a lot of success under his leadership. To the point, some of the investments have become quite large. We concluded we had a larger percentage of hedge fund capital in ill liquid privates was appropriate, started Mavridventure so we can continue to make those investments, but have a different pool of investors to support that. That in itself has become a great business, thanks to the leadership of David and other members of his team. To your point, has continued to be just invaluable in terms of not only what we learn, but what we can bring to bear on the private side. And it's also

Starting point is 01:32:35 fun. In a matter of fact, I think one of the risks, one of the disadvantages, if you will, is you have to, every now and then remind a member of the public team, I'm glad you're really jazzed up about that $5 million private investment, but you do have this multi-hundred million dollar investment over here that I also need you to focus on. I haven't had too many of those conversations, but... It's funny how that happens. It really does happen. But thinking you can really help influence a company to the next level of success, giving with the management team that really is interested in your input, it's just a different experience on what we have on the public side. So...

Starting point is 01:33:09 Leah, this has been really fun. It's been so fun spending a day with you, learning about the history of the business with you and with your team. I always ask you, the same traditional closing question in all these conversations. What's the kindest thing that anyone's ever done for you? So having listened to a few of your podcasts, I had the suspicion that I may get this question. And so, you know, think about different things like my parents teach me importance of integrity or the electoral science professor who made me retake an exam because he thought it didn't do a very good job in the first one. And I finally realized there's nicest in kindness that are connected. And so the nicest thing that ever happened to me, I don't even know the person's

Starting point is 01:33:45 same. But whoever was director of admissions at the Stanford Business School in the late 80s and did not let me in was the nicest thing that happened to me. The kindness, thanks to that, was going to University of North Carolina. I was asked to work with a board on something. Julian Robertson was on that board. We started talking stocks all the time, going back to Jordan, and it was just like talking basketball with Michael Jordan in my mind. And I was on my way to go work at Goldman Sachs and Al the Blue, he asked me if I would consider working at Tiger, and I consider it the kindness because I didn't really realize that time, but once I was at Tiger and saw the other people they were bringing in and how smart and talented and driven

Starting point is 01:34:25 they were, I recognized that I didn't really fit the mold. I didn't go to Harvard Business School, obviously didn't go to Stanford, I didn't go Ivy League College, I didn't play Division I sport, but what I think Julian did see is I had real passion for socks. And to me, which again, I didn't realize that time, it was so kind of him to give me that chance. Wonderful way to close. Lee, thank you so much for your time. Thank you. Enjoy the conversation. 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, as well as share the best content we find on the internet every week.

Invest Like the Best with Patrick O'Shaughnessy - Lee Ainslie - Hedge Fund Maverick - [Invest Like the Best, EP. 341]

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