Invest Like the Best with Patrick O'Shaughnessy - Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235]

Episode Date: July 20, 2021

My guest today is Steve Mandel, founder of Lone Pine Capital, one of the most successful hedge fund and investment firms of this generation. In our conversation, we discuss how the investing business has evolved since Steve’s start in the 1980s, why it’s so difficult to drive alpha by shorting stocks today versus 20 years ago, and why Steve still loves to get into the guts of a business. Steve shares his lessons through a variety of great stories, which made this such a fun experience. Please enjoy my conversation with Steve Mandel.   Before we transition to my interview with Steve, I’d also like to highlight the newest Colossus show, Business Breakdowns. If you like Steve’s idea of getting into the guts of a business, this is the show for you. Please find a list of our episodes at joincolossus.com and subscribe to Business Breakdowns on your preferred podcast player.   I hope you enjoy my conversation with Steve Mandel.    For the full show notes, transcript, and links to the best content to learn more, check out the episode page here. ------   Invest Like the Best is a property of Colossus, Inc. For more episodes of Invest Like the Best, visit joincolossus.com/episodes.    Stay up to date on all our podcasts by signing up to Colossus Weekly, our quick dive every Sunday highlighting the top business and investing concepts from our podcasts and the best of what we read that week. Sign up here.   Follow us on Twitter: @patrick_oshag | @JoinColossus   Show Notes [00:03:36] - [First question] - His first encounter with Walmart [00:05:51] - What about Sam Walton made him worth idolizing  [00:08:14] - The juxtaposition of business to management quality [00:10:57] - Why a career in retail influenced the lens he sees the investing world through [00:11:23] - What bad company culture in retail looks like [00:12:33] - Aspects of Walmart’s culture that could be applied to other companies [00:13:54] - Defining the core essence of retail company culture [00:15:02] - How long it used to take for a stock to properly reflect new information [00:16:40] - The nature of edge and what it looked like back then [00:21:09] - Investing behind change and assessing trends [00:23:06] - Scars and stories from just how vicious short markets can be [00:26:32] - Thoughts on building an enduring firm and how it’s evolved over time  [00:32:14] - The process and decision to remove himself from the day-to-day operations [00:33:55] - Lessons learned over time about what separates good from bad analysts [00:34:42] - Where to start looking when getting into the guts of a business [00:36:31] - What is most exciting when you’re inside the guts   [00:39:19] - Interesting aspects about payments today writ large [00:42:15] - Broad trends around change in consumer trends  [00:43:02] - How he views software businesses looking forward as an investor [00:45:14] - Great managers and their emphasis on analyzing their competitive advantage [00:48:02] - Ways that pace as a variable has changed in importance [00:49:27] - What he thinks we’ll look back on as silly in how markets currently operate [00:50:33] - Whether or not all markets becoming 24/7 will be a good thing [00:51:59] - Big iconic business stories that newcomers should study [00:56:06] - Whether or not business building is an art form [00:57:38] - Key levers that typically always matter for a business [00:59:53] - Other major aspects of the world that are important to consider [01:01:13] - How his personal motivations morphed over the years and what has changed [01:02:55] - Valuable lessons learned about the inputs and outputs of education [01:04:15] - Advice for would-be future investment analysts [01:05:46] - The kindest thing anyone has ever done for him

This episode of Invest Like the Best is sponsored by Canalyst. Canalyst is the leading destination for public company data and analysis. I'd heard of Canalyst over the past few years and became more interested after meeting the founder and CEO last year to pick his brain about SaaS businesses. Founded by a former byside analyst who encountered friction in sourcing, building, and updating models, Canales is now used by over 300 institutions, including the largest money managers in North America and by a number of guests on the show. With detailed company-specific models, on virtually every investable public equity, Canalist clients are able to react more quickly. If you've been scrambling to keep up with a deluge of IPOs and SPACs these days, Canalist has models on Robin Hood, Marquetta, Grab, and everything in between. Their pre-IPO models are built as soon as the S-1 hits and include all segments, KPIs, and non-gap figures. If you're a professional investor and haven't talked to Cannibalist recently, you should give

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or email invest at hallcapital.com. That's invest at hallcapital.com. 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 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 O'Shaunacy asset management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Shaunossey asset management may maintain positions and the securities discussed in this podcast. My guest today is Steve Mandel, founder of Lone Pine Capital, one of the most successful hedge fund and investment. firms of this generation. In our conversation, we discuss how the investing business has evolved since Steve's start in the 1980s, why it's so difficult to drive to Alpha by shorting stocks today

relative to 20 years ago, and why Steve still loves getting into the guts of a business. Steve shares his lessons through a variety of great stories, which made this such a fun experience. Please enjoy my conversation with Steve Mandel. Before we transition to my interview with Steve, I'd also like to highlight the newest colossus show, Business Breakdowns. If you like Steve's idea of getting into the guts of a business, this is the show for you. Please find a list of our episodes at join colossus.com and subscribe to business breakdowns on your preferred podcast player. I hope you enjoy my conversation with Steve Mandela.

So Steve, an appropriate place to start this, what will be a wide-ranging conversation that I've really been looking forward to, is to set the early stage of your career, because I think one of the most interesting topics we'll cover is what has changed the most and what has changed the least across your investing career. And when we were talking on the phone in preparation for this, there were some great anecdotes from the mid to late 90s around shorting and the way that information was disseminated through the system. And what about Walmart really stood out to me? So I thought that would be an interesting place to start. Your experience with Walmart, the company, the stock, everything it taught you about investing and about business and how different things used to be back then.

So can you talk about your first encounter with Walmart and why that might be an appropriate, interesting company to frame our conversation? Well, I think it's a very appropriate company to frame the conversation because Sam was my idol, actually. So I was a retailing analyst at Goldman Sachs back in the 80s. And I started out as a food and drug retailing because I won't go into this, but I had a background looking at supermarkets as a consultant before joining Goldman Sachs. Walmart was getting into the food business. And my colleague and mentor, Joe Ellis, was the person following Walmart. And he was good enough to hand it off to me, I think, in 19. 1885 or six somewhere in there. It was my most important stock that I was following and I spent a lot of

time there. And the world was a very different place. So when Walmart reported earnings, they reported them during market hours. There was no conference call. I literally had to go into a separate room. There was no internet or anything. I had to go into a separate room with a like teletype machine and ripped the paper off the machine as it was coming across with their earnings. The earnings had some level of detail, but then I would literally call up the CFO to get other data items that weren't in the, you know, the release. And then I would put something out over the Goldman Sachs system. And that was basically it. There was no, they beat the number, the whisper number. There was None of that. The earnings just came out and it was usually pretty uneventful and that was it.

What about Sam made him an idol to you in terms of how he built and ran this business? I think he was in his mid-40s when he started Walmart. So we got a late start sort of an interesting backstory. Yeah, he was in his mid-40s is right. I had never seen anybody before, really, or since who had the capacity to connect with people and make them feel like they were the most important thing to him. And I used to talk to other guys at Walmart about we would try and guess how many people he knew by name. And we would come like 100,000 people by name. I would go every year to the Walmart annual meeting. And the Walmart annual meeting was held in the University of Arkansas fieldhouse where they play basketball and stuff. And in the beginning, that fieldhouse was not

air conditioned because basketballs played in the winter and it was not a need to air condition it. And it was never used in the summer much except. And the annual meeting, takes place in June. So actually after a while, Sam's brother Bud donated the money to build a new field house, which is where they hold it now. But anyway, so every Walmart store would get to send three employees, excuse me, they're not called employees at Walmart. They're called associates. And they would come by unair conditioned school bus from around the country, you know, sometimes a 20-hour drive or whatever. And they would go right to the field house. And they might arrive at three in the morning or whatever. And Sam would be there at like five in the morning.

So I would always make sure to get there early just to sort of watch this. And he would stand up on the podium there on the stage. And all the people who were there would kind of crowd in in front. There are probably only maybe a few thousand people there. The place holds 14,000 or something. And there was spillover into another place. And he would just be answering questions. And he'd go, you know, oh, Betty Lou, I, you know, was in your crafts department. in Ocala, Florida, and your VPI item was just incredible. And you'd see Betty Lou just go like, oh my God. I was just captivated by that.

His office was this little plastic faux wood paneling, you know, eight by 12 foot little room, right? And just how he conducted the Saturday morning meeting. They would have a Saturday morning meeting at 7 o'clock a.m. for all the key people, all the regional managers would be out in the field, flew back for that and all the key merchants. and finance people, et cetera, would be at that meeting. And just how he conducted that meeting and how he, you know, motivated that crew was just something to watch. And the great thing was at the time,

this was, I guess, pre-rule FD and all that kind of stuff. You as an analyst could participate. I mean, not watch. You weren't asked questions, but it was kind of a great thing. I'm sure a quadrant that we'll come back to a number of times during the conversation is the notion of good business quality and good management quality. And whether you have both or you have one or you have none is interesting from an investing standpoint. I think in the case of Walmart, maybe related to software, which we'll talk about later too, is this concept of sort of like design the store once and print it many times, right? Like obviously a lot more involved in the case of a store than software, but this elegant concept of a unit, which is valuable that can be replicated. How did you start to build

your understanding of that two by two quadrant? Again, maybe with Walmart or other companies as an example. How do you think about the juxtaposition of business to management quality? When people talk about margin of safety in investing, they usually talk about things that are financial in nature. They talk about asset value or they talk about sustainable return on equity or whatever. I'm much more focused on nature of business franchise and the replicability of that and the quality of the people running it. Now, the quality of people running it obviously can change. You have the Warren Buffett thing.

You know, you should invest in a company that a chimp could run because someday a chimp will run it. But I've always leaned more towards the business quality aspect of it. And retailing was an interesting area to grow up in as an investor because it is a rapidly changing field. And there's always winners and always losers. And it does get to your notion of, the business unit at replicability. If you look at a lot of, it's changed a little bit in the last

few years or more recent times, but many of the richest people in the world are retailers. Number one right now, I think. It gets to both the scale of the market, but also when you have a better mouse trap and can replicate it. And that was certainly true in the case of Walmart. But there's many, many examples of this around the world. You can look at Zara and you can look at IKEA and their examples all over the world of this. It needs to be incrementally better. It does not have to be leaps and bounds better. That was one thing that I learned from Walmart and others in the retailing.

What about your lens on the investing world do you think is most distinct because of that retailing background? So relative to somebody that came up in, I don't know, energy or in software or something, what's the most unique way that it trained you? Retailing is a lot about culture and it taught me to look at culture and understand what makes a good culture and what doesn't make a good culture. It taught me also about how things can be replicated and what scale means and what can be done with scale. I would say those are probably the two biggest things. How high is the variance of culture in retailers?

What is bad culture in retailer? Well, bad culture, and I will not name this company, but there was a company I used to follow way back at Goldman Sachs, whose basic idea of how we be successful financially is if we screw our suppliers enough, screw our landlords enough, and screw our customers enough, there'll be money left over for us. One way to do it. And that is what I would describe as a bad culture. There have been retailers that were modestly successful for a reasonable period of time

until that catches up with them. Yeah, I say that the best model is clearly one that wins for everybody, wins for your employees, wins for your customers, wins for your suppliers, and then ends up winning for your shareholders. Costco is the one to me that has demonstrated that maybe more than any other, where the employees get paid the best and treated the best

in terms of benefits, et cetera, in retailing. No one charges lower prices. Vendors love them because they're totally straightforward, and simple to deal with. They get paid on time and they do business in huge volume. And the shareholder is one. If you think about the back to the Sam Walton example, aspects of his management style and maybe even Walmart's culture that might be replicable, like remembering all those names, most people can't do that. Sometimes there's just things that make people special that can't replicate. But if you could somehow pour away some aspect of what you loved about him in that culture and install it

in other companies, what would it be? There's been controversy about this, for sure, but I think treating their people with respect. You know, Walmart has been critiqued over the years for many things, but they have always treated their people with respect. And that doesn't mean that they were necessarily paying the highest scale, but they offered people, and this was more, probably more true in the early days when it was still growing like crazy. A, great chance to advance. They took many, many people, including Doug McMillan, who's the CEO now, started working at age 16, part-time in a store. And there are just example after example after example of they took people from working part-time in the summer, after school, whatever, to

rising up through the management ranks. And so I think ultimately, particularly in a business that requires tons of people, which is one of the things that retailing does, even, Even Amazon requires tons of people, even though they don't have stores, or they have some stores, but very few. You have to treat your people right and give them opportunity. How do you think about what the essence of a retailer even is, given the rate of change, given the Amazon's of the world, the fact that physical stores, who knows what will happen in the future, but the nature of what's important has changed? So what is the core essential of retail? Oh, that is still the same, which is you are curating some. group of products, whether you're making them yourself or you're buying them for others, but you are

curating an array of products to offer to customers, and you are pricing them at a certain level relative to the marketplace, and you are getting them to the customer in a certain way. That may be having the customer pick them up themselves in the store, that may be delivering them to the customer's door. There's a whole variety of ways that the product moves from the retailer or actually even the manufacturer to the customer. But that's the essence of it. You're curating a group of products. You are figuring out how to price them and you're figuring it how to get them to the consumer. If we go back to the room where you're tearing the sheet away to get the financials middle of the business day, can you discuss how you think price information dissemination was back then versus today?

So that happens. There's new financial information on Walmart. Back then, like how long would it take for the stock to properly reflect approximately the new information. I put it on two levels. If there was a significant surprise, let's say a company had been banging out 20% earnings increases and then all of a sudden they weren't. Yeah, that reaction would be instant then as it is now. But in many cases, there are things that were much more subtle that wouldn't be reflected until some analyst was smart enough to suss it out.

I remember there were a lot of companies that I followed then that literally they might report at 5 p.m. and all that would come out would be sales and net income. No balance sheet, no funds flow statement, no complete income statement, nothing. And it was basically up to you or the investor, the analyst, whoever to call up the company and get the rest of the information. Again, some of This was pre-rule FD. I mean, when I was at sell side analyst at Goldman, and even when I joined Tiger in the earlier days, we just call up these companies,

our sales last week, and they would tell you. And frankly, that sometimes was an edge because not everybody was actually doing that, hard as that is to believe. Now we have 18 zillion tracking, tracking services that, you know, tell you how sales were this morning.

If you think about the nature of edge and how that has evolved through time. This is another way of asking, what has most changed? The very slow burn edge, which is find a great company own it forever and have some insight early on and some ongoing support of that insight. And then there's the super fast information arbitrage or what have you. When you started Lone Pine, had I asked you back then if I was an LP or something to find your edge, how would you have defined it at the start? I think the same way I would define it now, but with a little bit of a twist on the short side versus the long side. On the long side, I think

it's really the same. We have invested pretty much forever behind change largely. And when I say that, sometimes it can be a large technological change that is sometimes it can be a managerial change, sometimes it could be a regulatory change, but something that is changing the dynamic for a multi-year period. And investing behind those big areas of change has generally been what we've done, on the long side forever. And I don't think that really has changed. Clearly, what you started alluding to before in terms of the amount and type of data and the speed with which you could access that data has changed dramatically with the

internet largely. That's helpful in understanding companies and analyzing them, but it really has very little to do. We are not making any decisions about, oh, gee, we just saw a little change in inflection in sales this quarter and we're going to barrel in behind something or dump something as a result of that. No. And the other dynamic is on the long side, the actors have changed quite a bit. There weren't ETFs, passive was small, hedge funds were small. But there was a large amount of aggregate money invested long in public stocks. Whether it's an ETF or a large mutual fund or a hedge fund

or a family office or whatever, they own the stocks. And somebody buys them and somebody sells them and there's still sort of the same supply demand dynamic. On the short side, it changes a lot because at the beginning, there weren't a lot of hedge funds. It wasn't that big a business. And the competition on the short side was much, much less than it is now. And when there's incremental capital playing on the short side, that does change the supply demand dynamic because it's actually truly incremental to incremental demand for a limited supply of A borrow and good short ideas. And the way I phrase it was a lot of the things that we did back in the late 90s and early 2000s shorting in the internet and telecom bubble, we absolutely

couldn't do today. I mean, there was no problem borrowing Pets.com and e-toys and on sale and all these crazy things. And today, when things like that appear in the markets, the borrow cost shoots up to ridiculous levels immediately. Access to borrow is very limited. And so the best shorts, if you will, the things that are generally are retail driven and a large misinterpretation of the economics of the business are much harder to execute. Does it then mean that the emphasis on shorting as a potential source of return is just diminished in your mind? Yes. Back to your earlier question, when they phrased it a little differently, but when I was going around with my tin cup starting this business and investors would basically ask like, how are you going to make me money? I would say,

well, this long side is very efficient thing. And if we can scratch out a couple hundred basis points a year of alpha on the longs, that would be pretty good. But this short side, this short thing is very inefficient. And we think we can really do quite well with that. That'll be a larger source of, quote, alpha than the longs. And that actually for our first till the financial crisis was true. And since the financial crisis, that has definitely not been true. And there's a whole bunch of two major factors in that statement. One, interest rates were very different pre-financial crisis and post, and there's just the P&L dynamic of short rebate, et cetera, that plays with that.

But then second, there's just way much more competition. The whole notion of these platforms, Millennium, Citadel, et cetera, that really, I mean, barely existed back in the late 90s. And now there are hundreds and hundreds of these pods out there competing every day. If we go back to this core idea, which I really like, of investing behind change, obviously it begs the question, what real change looks like and maybe what fool's goal there is, something that seems like it's a big new trend or change, but in fact, is not. What have you learned about assessing trends and sources of change and underwriting them as

separate concepts before you get to the companies themselves? Well, it usually does start the other way around. It usually starts with the companies, and then we figure out that they're part of a trend. And you're right, things don't last forever. Some last much longer than others. So in our early days, wireless was, I think, our single biggest area back in the late 90s, early 2000s. And that was when smartphones hadn't even existed yet. People carrying cell phones was not ubiquitous.

And as that grew and developed, it was a terrific growth business. And we surmise that all the big incumbent telecoms would have to get into the business, and they'd probably have to get into it by buying some. of the companies that we invested in. But after a period of time, it's a commodity business. And we haven't owned anything in the wireless space in, I don't know, probably 15 plus years, right? But other things, I've had much longer legs, payments, which is a huge area for us now and has been a big area for a long time. The move from cash and check to digital forms of payments has been going on for a quarter century or whatever longer. And it still has a long way to go. And it's still innovating and new

forms are being created and it's still a really dynamic area of change, even though it's been for a long, long time. So when you see something that where either the market itself is not that big or the incremental innovation is quite marginal, that's where you stay away, basically. Before we leave Shorting, because I think such an interesting evolution, you have some fantastic stories from sort of what I'll call the scars of shorting. And there's still scars. I mean, fresh scars all the time. Some of my favorite examples were ones you described to me in the late 90s. And I think right in the early days of Loan Pine, Books a Million was one. I think that stands out. Maybe it was on after Thanksgiving. I can't remember the exact details. Tell us a story or two,

just how vicious short markets can be for investors. Well, they can be very very, very vicious. And our first year in business was 1998. I don't know if people will remember, but it was a pretty tumultuous year. This was the Russian debt crisis. There was a run on emerging markets. The Hong Kong authorities jumped in in, I think, August of 98 and actually bought 10% of the index. Greenspan came in and basically eased big time monetarily. And speculation went wild in the fall of 98. And we had come through the Russian debt crisis and all that doing pretty nicely. And then we were short a number of things in the internet and telecom space that we thought did not have business models that were going to survive. So I'll tell one particular one was a company called

On Sale. It was founded by the guy who founded Go Computer, which was a pen-based computer thing. And the business model was buying last year's HP and compact computers and peripherals one year. out-of-date last year's models and selling them online out of a warehouse in California. And the company was basically bleeding. It had like $100 million of cash on the balance sheet. It was bleeding like $20 million a cash a quarter. It never made underwriter estimate, et cetera. And it had been public, I don't know, for two or three quarters.

So in the third quarter of 98, September quarter, they reported earnings like mid-October. Again, same thing, burning cash. no sign of this business is actually going to create any value. And stock was $12, and we were short 50 basis points of the stock. Six weeks later on no news, the stock was 108, nine-fold increase in six weeks. I still have not looked to, I think I know the answer that we stuck with the short, but obviously cutting it back a fair bit along the way.

And the company was bankrupt like a year later, and I'm sure we lost money on it in aggregate. And the other one that always sticks in my mind, this was the day I feared the most every year, was the day after Thanksgiving because it was the day when a lot of people were at home, echoes of what's going on now, you know, retail traders sitting at their desks. It was a half trading day, so short a period of time. That day, day after Thanksgiving, 1998, market closing at one o'clock or whatever. There's a company called Books a Million. We were fortunately not short the stock going into that day that operated a chain of, I think,

a couple hundred bookstores in strip centers in the southeast. And the stock was $5 going into that day. and they announced that day before the open that they were going to have a website to sell books. Not that they had one, but they were going to have one. You know, and Amazon at that point in time was a... It was a real thing, yeah. Well, but it was a small thing, and all they sold were books and DVDs. Anyway, the books a million that day, it was probably a $100 million market cap company, I don't remember,

but closed that day at 39. From five. From five. So when we look at AMC and GameStop and all this going on now, we've seen this before. Before we get into some of the things that I think are most interesting, the zones of change, I'll call them in today's world. I'd love to understand how you thought about building and structuring the firm itself with a couple of things in mind. One, to obviously produce great investment returns and sort of people that can fuel that. But also in terms of things like succession and culture and how to make it something as a firm itself,

enduring in the same way that a great business might be. Can you talk about in the early days how you thought through those things beyond just alpha and how that's evolved over time? I had the benefit of, I worked at three different places before I started Loan Pye. And I learned a ton at each of those three places and had really good mentors at each of those three places. I learned a ton about businesses and investing, but I also learned a ton about what works well and what doesn't work well in terms of how to organize a business. And if I hadn't had that benefit and I had tried to do this 10 years earlier or something, I'm 100% certain we would have failed. So I worked at a consulting firm called Marz and Company where I learned how to have

had a mentor named DDA Pins, as in French for Bread, who taught me a lot about businesses and how they work. Then it was a retail analyst of Goldman, worked under a gentleman named Joe Ellis, who also taught me a lot and was a great mentor and then worked with Julian Robertson at Tiger and he taught me a lot different things in each case but a lot does one lesson stand out from each just for fun as like a sampler dda taught me really the details of how to dive into the guts of a business and that's what we did there joe taught me a lot about how to present things actually interestingly enough but also a lot about retailing and managements and all that and julie I mean, I think there were two things. One, just how a hedge fund works and how the balance sheet

works and doesn't work and all those things, but also just such a stickler about people, about integrity, about smarts, about background, about everything just burnished into the brain. Anyway, I learned a lot not only about those things, but each of those businesses were run differently at different ownership structures, different comp structures, all those things. And I took what I thought were the good things from all those things. And some of the things that were not so good and tried to leave those out and bring in all the good things. And so the overarching thing when we started was to try and create a business that was going to go on for a long time and outlast me. And so what do we do? That's how we set up our ownership structure, which is

very broad ownership and not a, as is somewhat typical in the financial services business and certainly in the hedge fund business, not a lords and serfs type thing. People who are not investment people are also owners and very much a part of this business. We wanted to be as fair and transparent as possible, so we charged enough so we could cover our overhead, but not what the market would bear. We charged less than what the market would bear. We set up a variety of fee structures to allow people choice, but also to give us greater duration of capital should they want to get a lower fee for, we have no lockups, but for capital commitments that you have a penalty associated with if you get out early.

We wanted to have a very diversified LP base, so we sought that. And then within the business, just trying to do a lot of the little things, I guess, I would call them, and some of them not so little, that are. both signals to people, but also make people want to come to work every day. So this is from just having the best health care we can provide to the most generous 401k, to buying people breakfast and lunch, to establishing the Lone Pine Foundation where every single employee is a board member, little clues also, like every office here is the same size. So we don't have different gradations of that. We have the glass fronted offices on the inside and the assistance on the

outside. That was something I saw at Tiger, which actually makes the span of views better because it's not chopped up by offices, but it also gives the more junior people better views, basically, to the outside, not that our view is largely of I-95. So it's not the, not the greatest view in the world. But nothing, this is a great office building, nothing against this office building. But what I did was I wrote a business plan, literally the day one, which was July one, I mean, before we actually took in money, July 1, 1997. I wrote a business plan. It was Celia Canning and me in an 8x12 foot windowless room.

I still can't type. She typed it. And I took it on the road. I went for the next two or three weeks, I think, something like that, to a lot of people that I knew and some people I didn't know and cold call people. And I said, here's what we're doing. What do you think? I took input from that, made some tweaks and iterated.

And then sent out a, today would be a massive. email, then it was mass mailing then, snail mail to like, you know, I don't know, two or three hundred people, both lawyers and accountants and bankers and all that kind of stuff, but also potential LPs, potential employees. Here's what we're doing. It laid everything out. And it laid out our philosophy of doing business. It laid out what the fee structures were going to be, how we were going to invest, et cetera. And that's how I built it iteratively over the next few months. If you zoom to the decision to make sure that there was a point at which you were not the person, the roadblock, if you will, day to day running the firm, talk me through that decision and process.

Well, there was no real plan at the beginning. It was just an idea. And it was an idea that was backstop by having broad ownership structure, having a relatively concentrated team, etc. But day one, I didn't know none of the analysts I had worked with before. We start out, there were six of us. I had not worked with any of them before at the beginning. And so I didn't know somewhat of a crapshoot, right? I didn't know exactly who was going to turn out to be what. So over time, I got to know them and they got to know me. And of course, that cast of characters changed over time.

But particularly in areas where I was less knowledgeable, I started handing off that responsibility. And we had no fixed amount of capital allocated. You have 200 million or whatever. First, Sarah Gordon in healthcare, and then it was Mala and telecom and then Marco and Dave Craver. And we would just manage that within the constraints of our balance sheet. We had guideposts in terms of where we would not go in terms of gross and net exposure,

et cetera. But they were making the decisions long and short. That's been going on for 20 years. Changed in certain ways over time. But basically that was the idea. And that's how we've evolved. And that translated to the last three years, now the three of them, Mala, Dave Craver, and Kelly Granite have been making the investment decisions and not me.

I'm still piping in. Sometimes they listen, sometimes they don't. But they've been making the decisions. What have you learned over time about what makes for a good analyst or not? There are a lot of things, but one thing that we've learned, or I've learned, is people can be unbelievably smart, but if they're very linear thinkers, it will never work. as an analyst. We are always dealing in shades of gray probabilities. If somebody has to know the answer, like to a math problem or whatever, if they have to know the answer, there is never the answer in our

world. And so those people can be incredibly smart and might be winning Nobel prizes or whatever, but they can't work in our world because our world is all about probabilities and weighing outcomes. and if that makes you uncomfortable, it's just not going to work. If you think of yourself today as an analyst, and you mentioned this lesson from the first stop of getting into the guts of a business, what does that look like today, getting into the guts? How has that changed? I don't think it has changed a ton.

I do think we have more resources to do that with than we did 20 plus years ago, but it certainly means getting to know the people running the business yourself. And we have far more data to work with now than we ever did then through web scraping, et cetera, et cetera, that are things like glass door. And I mean, there's all kinds of things that are inputs to our process that didn't exist before. But the basic process is the same. We have more inputs to the process, but it's basically the same. What when you're in the guts is most exciting to you?

Like, what are the moments you live for? Oh, well, that to me is the single most fun. part of the job and what keeps me excited. And we see it all the time now. I mean, there's more innovation and more amazing things happening in the business world than ever before. And learning about how Costco became the dominant seller of olive oil in America, a premium olive oil in America, is something that just excites me tremendously, right? What happened? So cashew. right? I'll take cashews. It's the same thing in olive oil. So they go to planters and they say, gee, we would like you to produce for us a larger cashew. And just for us and planners was like,

no, we can't do that. So they figure out and they go direct to the growers and they disintermediate planners and they sell whatever the highest market share of premium nuts in the country. And same with olive oil. They go direct to the growers in Italy. They start out buying, oh, you know, Mr. Grower, you've got this great olive oil production thing here. We'll try this out. We'll buy container load. They're like, container load. You know, that's pretty good. Now they're buying, you know, multiple, multiple container loads. We invested privately in this company that's now public figs. Sure, yeah, the scrubs. Right. The scrubs. When I learned about this, I was like, this is just awesome because, you know, I sit in there thinking like most every little niche in

retailing has been mined, poured over. And here's a fairly large business that has just been done horrible, terrible product, terrible way it goes to market. And these two women figured it out. And they figured it out in a very organic way, like one of them and a friend, like, let me sew something for you that's better. And they've also built their other exciting aspect about it is one of the things that the web allows you to do and a direct-to-consumer model allows you to do is build community around product. And so they've brilliantly, I think, had this be all about health care workers, making them better at their jobs, making their lives better, da-da-da-da-da, particularly, you know, pandemic, obviously helped some with that, but created this just brilliant community around the product.

We're not at huge investors in health care, but you just look at what's going on there with stuff in immunotherapy, continuous glucose monitors, you know, that just that are radically changing people's lives. It's just incredibly exciting. I mean, we own a small hospital chain in China and seeing what they're doing and how they can take over a hospital and improve outcomes. And that's what's exciting about this job. You've mentioned a few in passing zones of big change that are happening today. And I'd love to just pick on a few of them and just hear you riff on them. You've mentioned payments a few times. This is a fascinating one. I think people understand the move to digital payments as a general concept. But what still is so interesting about this as a place of exploration? I think many aspects of the

banking business now are being partially disintermediated by digital payments companies. So it's been amazing to watch these wallets develop and the amount of customers they get, the amount of money that goes into, you know, this is square cash, et cetera, has been just a real eye-opener to me. I mean, I realized that millennials, et cetera, are doing everything through their phone, but to watch many banking functions, Forex, regular old transfer money to either individuals or paying bills, happening through apps and the speed with which that's happening has just been eye-opening. And oftentimes, I sort of, you know, analogy is like little PT boats firing at the big aircraft carrier, which are the big banks, and picking off not

necessarily large elements of their P&Ls, but areas where they've been earning very outsized returns and people willing to, able to either do this much more efficiently and charge less and still make good money doing so. And then just watching the level of innovation at the online checkout to watch, I don't know how familiar you are with the shop pay out and how it works, but just watching how that's iterated and gotten better and better over time. And, many things that have enabled small merchants who several years ago were hopeless selling on the web. And now they have all the tools at their disposal to quickly get up online, facilitate transactions, market themselves, manage their inventory.

So, yeah, I think there's a lot still happening. And it's beyond just a consumer to business payment, right? It's business to business payments. It's consumer to consumer payments. It's the software around facilitating the payments. It's the software around all the other aspects of running a small business. It's an area of tremendous innovations. I had an experience the other day where I bought something with Shop Pay

and it does that thing where it texts you the code and then you have to fill it in. And the first friction they removed was it would just auto fill it in from your text. This time it happened where the whole loop happened without me even doing anything. No, it is the best product out there. It's unbelievable. It is great. is a great product. And it'll be interesting to see now that Google and Facebook have opened this up to them, what the uptake is. Because all those people for merchants on Google or Facebook

are using something now. So they would have to switch. So it will be interesting to see how that evolves. What about just the nature of the consumer and they're evolving preferences and ways of buying things? Is there something here that you think is still a zone of change and that could just be offline to online, but anything else more nuanced than just that broad trend that you think is important? Well, that is the biggest trend for sure. But I do think this notion of community is really important in terms of how people are getting information, who they trust for that information, sometimes for good, sometimes for bad as we, you know, see in our political sphere a little more. But people being able to build community around their product is something we hadn't really seen, not only before the web, but

before, you know, that's how social media really amplifies what goes on for people selling. How do you view software businesses, especially relative, I love that going back to where we started, this retailer concept of like you build some really effective unit for franchise and might be a web app today that can then be reprinted for a lot of people's benefits and the economics are amazing. Everyone now knows that. Like, there's not a secret that software is great businesses. How do you think about that from an investor lens looking forward in 20th? Well, I'd say the only difficult thing is, yes, this is not lost on people.

Right. And so valuations are the issue. When you get a great vertical software business, there's little that's better because it's very sticky. You generally have pricing power. And oftentimes you are riding on the back of something that's growing itself, particularly if you have some type of per usage pricing. And the shocking thing to me about both the software business and the healthcare business,

particularly as it relates to both biotech and medical products, is just how many companies there are out there and how many little, not even so little, niches there are in the business and how much there's sort of just continuous improvement that goes on. And that's, I think, ultimately what you have to be very mindful of in software. is not so much are the big legacy incumbents suddenly going to rear their heads up and take market share from you, the newer cloud-based guy, but it's, is the next guy coming along going to take it from you? Because the amount of capital that it takes to get into the business is not high. The barriers are really around, well, both IP and then habit, stickiness from just not wanting to change

and processes embedded in your organization. But that being said, I mean, we are still finding new, innovative software companies all the time. The prices that one needs to pay to play are the issue. And you have to be pretty damn sure that this company is still going to be vibrant and growing nicely out in 25 and 26 to be able to get the math to work. Do you find that the best quality management teams, thinking back to Sam again here, are always thinking about the nature of their competitive advantage as a business. So it's not just like serve the customer, but there's things that we can do as a business that

defend us from would-be competitors. Do you find that instinct common amongst the great managers that you've encountered over the years? Two things. I think they understand what their competitive advantage is if they have one. And second, they are always looking over their shoulder. I always remember being sort of, I won't name the companies here because it doesn't reflect well on them, but there were two companies in the same business. One was the leader and one was kind of the number two. And I would ask each, what have you learned from the other guy? And the leader basically said, you know, I never spend any time on the other guy.

They're not as good as we are and our numbers are better and da-da-da-da. And the other guy was always looking for this guy. and the second guy ended up being better than the first guy over time because they improve, they learn things, they stole things from the first guy. So I think understanding what makes customers come to you and why you have some kind of edge over somebody else, because it's the rare thing. I mean, maybe a drug in its early stage of being on patent, but it's the rare thing in any field where you sort of have a quasi-monopoly.

Right. You have relatively intense competition. This is what sort of gets me about some of these FTC cases that have existed in retailing are the ones that are popping up now. I remember I had to testify at the trial of when the FTC objected to the Staples Office Depot merger way way back on like 20 years ago, the company sued to try and over time. turn it and there was a trial and I was an expert witness at the trial. And so the FDC's case was that in markets where Staples, Office Depot and Office Max, where the three office supply

super stores operated when there was only two, that was anti-competitive. And there were lots of markets where there were only two. But my argument was, well, wait a minute, there's Walmart and Costco and all kinds of catalog retailers and online. And if you want to buy copy paper or pens and pens and Lots of ways to do it. Or HP printer or whatever. It's hard to imagine a more competitive way. There are a lot of ways to do it, right? And you don't have to just go to an office.

But that was the FTC's argument. And I'm sitting there making this argument to the judge, Judge Hogan. I remember he's nodding and smiling. And I'm thinking, oh, you know, this is great. Ruled against him. How has pace as a variable in the work that you do changed in importance? Because in the venture world where I spend a lot of time, it's become, we talk about table stakes.

Like you have to move ridiculously fast. In the public markets, you don't have to do that. Get a chance every day. Yeah, there's a price every day. And we're relatively newer last like three years or so to private investing. I mean, we did a little bit before that, but really, you know, in any significant way that like the last three years. Yeah, and that's a different game.

I mean, there are times when it's a fire drill and you have to sort of, all hands on deck and drop everything else and make a decision with less than perfect. I mean, not that information we have, even public markets is never perfect, but less information than we'd like to have. And those markets have evolved in recent years to a point where people, and I don't think this was really probably ever the case even five or ten years ago, where people were using capital and balance sheet size, et cetera, as a competitive way. and trying to clear the field before other people had a chance to do anything.

You have to adapt in this business and doesn't mean you have to play. There's no one saying you have to invest in something. So sometimes you play when you feel like you have done adequate due diligence and can make a good decision. And other times you just say can't play. To some of the young investors that are listening, the story you told earlier about reading the information during the business day off the telemachine will sound like silly.

What do you think about today's world will we view similarly in 20, years time looking back as equally silly about how markets operate. I wish I knew the answer to that because there are going to be things not just how markets operate, but things we do in our everyday lives that people are going to say these guys are idiots. Well, I always, the thing I, my father-in-law was an orthopedic surgeon and he describes the lecture hall in medical school, every chair had a little ashtray in the arm. Okay. This is medical school lecture hall. Okay.

And people are sitting there smoking. This is in the 50s. So there are things that. There are ashtrays somewhere today. Yeah, that we are doing. And I wish I knew what they were because I would think hard about stopping doing them or changing how we were doing them. But I've thought about that.

And I'm not sure what those things are. Do you think it would be good or bad if one of those things is some of the frictions that still remain around trading assets, meaning crypto markets are 24-7 increasingly liquid. Do you think that all the world's assets, including stocks, might move that direction, and would that be good or bad? Well, I think that might happen. I don't think it would be a good thing because I think, I mean, just totally selfishly,

this job is enough 24-7 as it is. I mean, basically the only thing that I don't like about this job is that I look at Bloomberg, 365 days a year, many multiple times per day, et cetera. And you're chained to it. And if markets were 24-7, probably be chained to it even more. Now, markets around the world largely are 24-7. There's a brief time when it's only like New Zealand is open. I mean, that is probably more the trend. And there are certain markets that undoubtedly will, where the friction costs will come down and it will become more efficient, et cetera, et cetera. It is shocking, to me anyway, in some parts of the fixed income world, that it's still a kind of who's your buddy and back slapping

tree. Large bid-ass spread. Quoted is very different than the bid-ass spread when you actually go to transact. So those probably will get more, and that's a good thing if they do. As we wind down the discussion on business specifically and a couple other topics to close with, if you were to create a curriculum, let's say, of companies whose whole history, a young would-be analyst out there should study to really just learn as much as possible, maybe Walmart is one of them. What are the other in your mind like big iconic business stories that have maybe changed a lot and adapted with the times or not or faltered that could teach people lessons?

Well, I think the two in more recent times that come to mind are Amazon and Netflix, which are two businesses that literally were, I mean, maybe over-dramatizing, but somewhat were on the brink of extinction and chose to make an enormous pivot. So people forget, I always ask this question, Amazon started Amazon Prime, I forget, maybe like 2002, something like that. The quarter before they started Amazon Prime, Amazon's total company revenues grew 9%. it was a young company and that rate of growth had been declining and Amazon Prime arguably there are many important aspects of Amazon today but it may be the single biggest unlock unlock and element of glue in the in the company it was sort of a bet the company thing it started

out at $79 or $79.95 the risk was that people were going to order one tube of toothpaste and crush them on shipping costs and it would be an economic negative and obviously it turned out to be exactly the opposite and it turned out to be a brilliant move so there was that and then there have been you know a number i mean obviously a ws was a found thing through things they were doing internally and decided to sell it on the outside how they've managed first party versus third party how they've migrated into the advertising business what the entertainment business does for them and so there are many many things and a number of things they failed with, right, internally, that I think are real lessons to be studied in terms of both

risk-taking, how you incubate things within a large culture. And I was a skeptic at the very beginning to be completely blunt. I just, I didn't see how the economics, and frankly, they weren't working at the outset. But he created value by pivoting and changing things that allowed them to work. And, you know, Netflix went through two enormous pivots, right? One was We're sending DVDs through the mail and you return them. And clearly, you know, the business was migrating to online. And they had to make that pivot, which was brutal. Yeah, brutal.

And very unclear what the results of that were going to be. And then secondly, they realized, gee, if we're just in the game of bidding against others for so-and-so's already released movies, that's not much of a distinctive proposition. We've got to spend a whole ton of money getting our own content produced. both of those things not only saved the company, but created value, but created significant modes. So those are two current last 25 year kind of companies that I would have people study for sure. With something like Netflix, there's a joke online calling it Netflix where, you know, there's so much capital required to sort of, and the anti keeps going up, right?

And there are others that are also now at the anti table. How do you think about, even though it is obviously an incredible story, that interesting position where they're still having to produce, you can't just, it's not like an Amazon third-party marketplace or something. Well, yeah, I mean, there was the argument, which was true for quite a while, that they're kind of like the hamster on the wheel. But, you know, those lines are crossing now. There's two ways to think about this, right? One is gap accounting, which is how long do you depreciate the content that you have created?

or acquired. And the second is, are you producing more cash than you're spending? This year, the lines will probably pretty much cross in terms of producing as much as we're spending. Now, each year in the future, they will likely have to spend more to stay in the game or ahead of the game. But the cash flows should go up faster than the, which is the bet. And at some point in the eight year future or something, gap earnings will equate to

cash earnings as that cycles through. So that's the, we'll see, you know, we don't know what the future brings necessarily, but I think one thing to think about with Netflix that doesn't get a lot of focus is production and the content, local content in various countries around the world, and how that content doesn't just work in those countries but works in other places and the value of that. I mean, I think certainly investors here in the U.S. tend to look at Netflix and most companies in a very parochial way. And we often fall victim to that, I'm sure. But there's a lot more nuance to it when you think about it through that lens.

Do you think that business building is an art form? Is that overdoing it? No, I don't think it's overdoing it. I think it is more an art form than something that is formulaic, for sure. And it is constantly evolving. I mean, I just think about our business and how it has changed over the last 25 years or whatever. and unless you adapt, you keep your basic principles. You keep your basic principles,

but you have to adapt your tactics, your structures, all of that over time, or else you will not survive. Have you found through your career that there's almost always one or two key levers that matter for a business? Yes, that is a thing we try and impress on our analysts here, et cetera. Yeah, just identify what the one,

one, two, three things that really matter here. And let's own them, understand them, understand how they might change, understand the data sources to stay on top of them. Can that be trained? Can you train people to get better at doing that? I think so, yes. In some cases, it's relatively obvious. In other cases, it's less so.

And then you have businesses where the business is changing a bunch and the prime thing that, like, Wall Street analysts have focused on, is no longer the prime thing. So United Healthcare is an example for me where companies migrated from being basically a pure health insurer many, many years ago to being a health care provider in all kinds of ways and a data company

and a lot of things surrounding health care. But the first thing that people will talk about when the company reports earnings is medical loss ratio. And you're like, that is not the central issue anymore here. And the medical loss ratio actually is a short-term thing. And if it's higher or lower, it generally corrects itself over the next less than a year because contracts are rewritten every year. So yes, finding the central key driver is and keeping your eye on that ball is

incredible. It seems like the big theme across our conversation is these big zones of change writ large within a company and that sometimes like maybe AWS is another good example where when the thing changes, that's where people are slow on the uptake and that's the zone of opportunity. Yeah. And I can't say we've been great at that. But That's exactly right. When there's that inflection point or change, I remember when Google came public through like a Dutch auction thing, and I was like, oh, I hate this structure,

and we didn't participate in the offering. And then they reported their first quarter. What that is? Oh. Oh. Let's go. Yeah, there are times when that happens, right? It's not often, but there are times when that happens.

And you go, okay. I get it now. Is there any other major thing that's happening in the world that we haven't talked about that you're interested in and think is really important in the business world? And then I want to talk a bit about your philanthropic work and wrap up. There's literally billions of people who 30 years ago did not know really much of anything going on outside their village and we're living in poverty. And in the last 30 years, most of them now know things that are going on well outside their village.

village and have been lifted out of poverty. So there's bad news in the press every day, but there are fewer people in the world dying from disease, starvation, violence than as a percentage of the global population than has ever existed any time in the history of the world. And I think we often sort of lose sight of that when we're micro-focused on some of the things that have caused that to happen across the world have been less good. for the U.S. because many jobs that were forcibly done here can now be done other places for less and where people think that less is mana from heaven. So I think that the fundamental shift in technology that's kind of enabled most of that, that is the big thing.

How have your personal core motivations morphed over the years? And it's kind of my excuse to ask about how you formed your philanthropic strategy and views. What has changed about what matters to you personally? I would say not much has changed and what matters to me personally. I mean, matters to me personally. I mean, I guess family and friends come first. I mean, I've never asked myself as explicitly this way, but maybe more explicitly all the time,

is what is my highest and best use to the world? If we're here, we should try and make the world somehow better while we're here. and what is my highest and best use? I've always thought, okay, gee, if I stopped doing this and then became a high school history teacher or whatever, is that really the highest and best use of me? Because no, probably I would not be nearly as good high school history teachers as many other high school history teachers. And I might be impacting 50 kids or something. Fortunately, this business, I just pinch myself every day.

We get to do this, get to go out and meet all kinds of interesting people, learn all kinds of interesting things, understand all kinds of interesting businesses, meet all kinds of leaders, and you get to make money while doing it. It's amazing. And so my highest and best use, for better or for worse, is trying to take some of that money and make things better for other people. My wife and I, she kind of focuses on the environment, and I focus largely on education, and we do a bunch of other things, too, more recently, trying to make sure that our democracy stays a democracy. And we devote a fair amount of time to that, sometimes successfully and sometimes less successfully. When it comes to education,

given you've focused there, what have you learned that's valuable for others to understand about inputs and outputs from that system? I have learned that the problem with education in this country is the system and the politics around the system. I've learned a bunch of things by working with a bunch of organizations in this, and then a bunch of the work we've done at Lone Pine Foundation, a lot of it relates to education and as involved a lot of our people here. So 30 years ago, we did not know that much

about what worked and what didn't work, and when I say what worked. I meant taking kids who are two and three years behind in school and not only catching them up, but putting them on a path to success in life. And we know now 30 years later that 30 years ago, we had virtually no examples. Now we have hundreds and hundreds and hundreds of examples.

And we know by and large what it takes to do that. And it's not pouring a lot more money. It can be done with the kind of amount of money we spend now. But what is required is for both politics and I'll call it embedded structures. to change. And that's really hard. If you were with a group of young really talented would be equity investment analysts, what advice would you give them early on in their career, given everything that you've experienced? I think the most important thing is to get themselves into a organization.

It could be public markets, private markets, doesn't really matter, where they are mentored by people who teach them really good fundamentals. And a lot of that is sort of by osmosis. I mean, not like we don't have... Sit in the classroom, right? Yeah. You know, it's a lot of it is going and visiting companies with people and working on transactions with people. And that has benefited me. Just, I just was very lucky. Each of the places I have worked, which is not many, but I work with tremendous people. I learned a lot from them. I mean, I used to walk in. I used to walk in, to take the 548 train from here and then the subway downtown to Goldman Sachs and I would

walk on whatever it was Stone Street looking at 85 Broad Street and I'd looked up at 85 Broad Street to be like 10 of 7 or whatever and I would go there are more smart people good people in that building maybe than another building in the United States and probably not totally true but was directionally true and yeah there were incredible people that I learned a lot from Tiger I mean I learned a lot. They're great people. I learned a lot from not only Julian, but my contemporaries, too. This has been so much fun. I ask everybody that I speak with the same closing question. What is the kindest thing that anyone's ever done for you? Probably I would say my wife saying yes to me asking her to marry her, but she kind of knew that was coming. So I really always

have admired and been thankful for both Joe Ellis. at Goldman and Julian Robertson at Tiger giving me the freedom and runway to express myself, advance, do things without, you know, there can be a tendency of to dampen, dampen, right? And they both let a thousand flowers bloom. And that enabled me to have freedom to do my best and to learn. And I don't know if I described those as acts of kindness so much, but they were certainly acts of generosity. And I think anybody who gets themselves in that kind of situation is lucky. Wonderful place to close.

This has been so much fun. Learned a lot as I expected to. Thank you so much for your time. Thanks, Patrick. This episode was brought to you by Canalist. In this four-part mini-series, I sit down with Canalist client Ryan Cope from American Century Investments and talk about how Ryan found out about Canales,

how he got involved in small-cap investing, and his favorite aspects of using the Canalus, models for him and his team. In this week's episode, Ryan and I talk about the difference between analyzing and inputting and how Canalyst opens up time for him and his team to do real value-ad work. I think that we've talked about elsewhere ahead of this conversation of the difference between analyzing and inputting. You just talk about what that difference is and what gets lost, if anything, from not inputting the data yourself and what having a clean, good model allows you to spend your time on instead. Yeah, that's a great question. So, and I think,

think that's the best way to put it really. So Canales opens up time for our portfolio managers and our analysts to really do the most value add aspect of our daily work, which is analyze the numbers rather than inputting them, as you mentioned, with thousands and thousands of companies out there, any more time that we get to do what we love as small cat value investors, which is finding new and interesting businesses that the market doesn't appreciate, is extremely valuable time for us. So that's really what that frees us up to do. bit specifically about literally on your desktop, like how you're using Canalyst. So what are the dimensions of it that you use that matter? Are there ones you don't use? How do you use it today?

Yeah. So as I mentioned, we heard about Canalyst about three years ago. We started trialing it then, and we've been continuing to adapt it to our process. One of my favorite Canalist tools is their updater. So in our small cat value portfolio, we have about 100 names and in our small cat income portfolio about 70 names. So earning season can be a bit overwhelming. We have a quarterly template so that when a company reports, we use the Canalist Updator to bring in all of the data, which has been back-checked for the metrics that we are focused on directly into our model, really within a few hours of a company reporting. So with the 150 companies across both of our portfolios, you can imagine the benefit of saving roughly an hour per company each quarter by

and not having to input that data. Just so I understand. So when you say the updater is putting new information after an earnings release directly into your model, what do you mean by your model? Is this like a Canales model that you've tweaked? Or is it just a de novo, like custom Excel model that you somehow marked like a certain cell should get populated with the updater by a canales? How does it literally work?

Yeah, it's actually a little bit different than other providers we've used in the past. But the way Canales model works is you download it from their website. Once you do that, it lives entirely on your own computer, and you can make whatever tweaks that you need to to that model and add in additional ratios. You can really do anything that you need to, except for touch one of their automatic rows. And so when you use the updater,

it doesn't mess with any of the customized formulas or information that you've been put. It just updates the same information that it had before, and it pulls directly into that model that you've updated. It actually creates a new spreadsheet with a new date. Got it. So you might have you and another Canales user that's covering the same small cap industrial or something could have drastically different, you know, looking spreadsheets or models.

And that's all based on the work you do yourself. But there's just common items that back to undifferentiated heavy lifting that canales updates so you don't have to do that whatever hour process per quarter. Yeah, that's exactly right. And we had compliance issues with sharing our proprietary information. and the way that Kallis is set up, you do not have to share that proprietary information. 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.

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