The Knowledge Project with Shane Parrish - Adam Karr: The Investing Blueprint

Episode Date: November 12, 2024

Investor Adam Karr reveals his hidden playbook for spotting exceptional CEOs and building extraordinary businesses. Learn his counterintuitive techniques—from the surprising link between writing skills and executive performance to the 10-minute test that unveils a leader's true potential. Packed with battle-tested wisdom, Karr shares the deceptively simple principles that separate great business leaders from the merely good. Adam Karr is the President and Portfolio Manager at Orbis Investments. (00:00) Intro (02:44) Investing Strategies and Market Games (04:08) Adapting and Evolving Investment Styles (05:20) The Importance of Obsession and Environment (06:29) Aligning with Long-Term Investment Goals (07:11) Identifying and Evaluating Obsessed CEOs (08:13) The Role of Culture in Investment Decisions (08:54) Building Long-Term Positions and Overcoming Short-Term Pressures (12:21) The Blueprint for Success (15:24) Learning from Role Models and Mentors (21:25) The Power of Writing and Decision Analytics (29:11) The Magic in the Last 5% of Investment Research (35:25) Understanding Roll-Ups: Success Factors and Challenges (36:01) Applying Knowledge for an Unfair Advantage (37:42) Learning from Feedback and Case Studies (40:47) The Importance of Independent Thinking (43:06) Lessons from Industry Leaders (49:32) The Will to Practice and Time Management (56:44) Positioning for Success and Resilience (01:08:59) Defining Success and Helping Others Newsletter - The Brain Food newsletter delivers actionable insights and thoughtful ideas every Sunday. It takes 5 minutes to read, and it’s completely free. Learn more and sign up at https://fs.blog/newsletter/ -- Upgrade — If you want to hear my thoughts and reflections at the end of the episode, join our membership: ⁠⁠⁠⁠⁠⁠⁠https://fs.blog/membership/⁠⁠ and get your own private feed. -- Follow me: ⁠⁠⁠⁠⁠⁠⁠⁠https://beacons.ai/shaneparrish⁠⁠⁠⁠⁠⁠⁠⁠ -- Watch on YouTube: https://www.youtube.com/@tkppodcast Learn more about your ad choices. Visit megaphone.fm/adchoices

How do we go about selecting the game that we're playing in life? Thinking about what game is it that you're playing? And so just using the investing landscape, it surprises me all the time that people don't think about that more deeply. You see this over and over again in markets, and there's a whole continuum. You know, one into the continuum, the algos that are scraping to the millisecond, to a day trader, to the hedge funds and pod shops that are trading on a catalyst, to call it Stan Drucker Miller who like to talk about, you know, I want to look 18.

months out to us. So we consider ourselves long-term investors. We're trying to take a four to five-year view to be infinite investors, right? Depending on what game you're playing, you're going to approach it quite differently. And so a really important question, and I see it over and over, even today, people in the business for years of like, well, what game are you playing? And being really clear and thoughtful about that and then really leaning into them playing to that, I think makes a huge difference. Welcome to the Knowledge Project. I'm your host, Shane Parrish.

In a world where knowledge is power, this podcast is your toolkit for mastering the best what other people have already figured out. Can you do me a quick favor? Most people who listen to the show are not subscribers. Go ahead and hit that follow button right now. Thank you. My guest today is Orbis president and portfolio manager, Adam Carr, who reveals his battle tested system for creating advantages.

a method that's transformed organizations and careers. He calls it the blueprint and for good reason. You'll discover how to identify patterns that others miss, exploit hidden edges, others can't copy, build repeatable success in any arena. Warning, this is not another work-harder sermon. It's a practical proven framework for outperforming your competition. It's time to listen and learn.

there are too many podcasts and not enough time what if you could skip the noise and get just the insightful moments even from shows you didn't know existed that's what overlap does overlap is an a i driven podcast app that uses large language models to curate the best moments from episodes imagine having a smart assistant who reads through every transcript finds just the best parts and serves them up based on whatever topic you're interested in i use Overlap every day to research guests, explore, and learn. Give it a try and start discovering the best moments from the best podcast. Go to joinoverlap.com. That's joinoverlap.com. How do we go about selecting the game that we're playing in life? Using the investing landscape, it surprises me all the time that people don't think about that more deeply. You see this over and over again in markets, and there's a whole continuum from, you know, one into the continuum, the algos that are scraping to the millisecond, right? That's their game. And if that's your game, you have to do certain things. You have to invest in certain infrastructure

and certain capacity to a day trader, to the hedge funds and pod shops that are trading on a catalyst and around a quarter to call it Stan Drucker Miller, who like to talk about, you know, I want to look 18 months out to us. So we consider ourselves long-term investors. We're trying to take a four to five-year view to be infinite investors, right? a Buffett who is trying to own things forever, right? That's a huge continuum, but depending on what game you're playing, you're going to approach it quite differently. And so a really important question, and I see it over and over, even today, people in

the business for years of like, well, what game are you playing? And being really clear and thoughtful about that and then really leaning into them, playing to that, I think makes a huge difference. I mean, in theory, you're not going to be good if you're playing a long-term game. You're not going to be good at day trading because the skills and the environment necessary to be successful at those two things are sort of opposed. How do you think about Buffett and his style changing four or five times over the course of his career? You know, he was never a day trader, but he went from cigar butts to buying, and I wouldn't say holding, but trading, you know, quite frequently to buying and not trading as frequently. How are you going to adapt your game to something that's authentic to you in a way that can play to your strengths?

Market change. I've seen that from the time that I started the mid-90s to today. And so if you're playing cigar butts, which can be very profitable, but it's difficult to scale that. And so as his capital grew over time, you know, you have to think about how you show up and how you approach it. And we know that Munger was also, you know, a key part of like that conversation and framing and helping Warren. think about what he focused on. Underneath that is thinking about how he needed to adapt based on his own size and the amount of capital he was trying to deploy. And the environment is not just, you know, the computers you might need if you're day trading. It's like if you're running a public

firm, it's how do I maintain control of that firm so that we don't have an outside shareholder come in and take control that'll make me change strategy or change environment. How do you think about environment and the role that it plays? Try to think about your obsessions. You never want to compete with somebody who's obsessed. Kobe Bryant, like he would say, which are 4 a.m., he's at the gym at 4 a.m. shooting baskets. Are you at the gym at 4 a.m.? Because if you're not, like, you're competing against that guy who is.

You know, he took up tap dancing because he wanted to strengthen his ankles. So he could be a better basketball player. Are you obsessed to that degree that you're going to undertake those kind of actions? The elements that you're so, you're so drawn to that you're willing to do those kind of things. and whatever the kind of a chosen aspect is, is really powerful. And if you consistently do that over time and that compounds, set yourself up to play to your obsessions. I was just, I mentioned to you last night that I just back from Japan and the author Marikami

is one of my favorites. You know, he's like, set your life up for your obsessions. Because if you do that, like you're all in, like you're just, you're grinding at that in a way that very few other people will do. And so it's to the setting up your environment that plays to all of the ways that you do your best work. The other side of that is just the concept of alignment, right? And so you might say, I'm a long-term investor, but you're only going to be able to be as long-term as your clients allow you to be, right? If you're in a position that's off-sides to kind of the market sentiment at that time and you have in your mind that, you know, this is something that it'll play out over four to five years.

but your clients are knocking on the door and want to redeem, you're not going to be able to play your game, right? And so you have to think going in, how am I going to communicate in a way that I'm looking at this kind of time horizon? How am I going to attract and retain the types of clients that genuinely have that same kind of time horizon? Because that will empower you to actually be in that environment that serves you the best. How do you find obsessed CEOs? Like, what are the markers from the outside as an investor looking in? because I'm assuming you want to invest with people who are obsessed. It's just doing the work.

You know, it's looking at their track record, demonstrated action. One of the things that I spent a lot of time on is thinking about the questions. You know, we do a lot of work before we initiate a position. We tend to take reasonably sizable positions. Going to sit down with the team, you know, you've done a ton of work in advance, really looking at their demonstrated track record. But then you want to have that conversation. What are the questions you ask?

Like, what are the questions that come to mind when you're like, If I had 10 minutes with the CEO, and my goal is to determine if they're obsessed or not, what are the questions you're asking? Context matters a lot. And so you kind of never know. You've got to be prepared to play jazz in the moment. But sometimes a very generative question that really opens it up and seeing where they take it can be super helpful. And sometimes that'll be, you know, they just, they're putting in the CD and they're giving you the script.

That's not going to be really helpful, right? And you've got to approach that very differently. But one of the things that I tend to, I like to go to is around culture. More often than not, they sit down with folks and they tend to be relatively short-term-oriented. They want to understand something around the quarter or a particular, you know, profit margin point or capital allocation point. Tell me about your culture and what's important here to be successful or, you know, my nephew is going to start at your company next week. And what would you tell them to be successful, right? Like, they probably haven't gotten that question.

And so they can't use the CD. They've got to go somewhere else. What do they talk about in that? And do you see that kind of that passion come out? And then you just follow that thread. Not always, but it can often be very telling. We talked about alignment, but one aspect of alignment is sort of timeline. The average tenure for an S&P 500 CEO is, I don't know what it is, but it seems pretty short.

How do you go about building a long-term position? Your average holding period is longer than the average CEO tenure. How do you think about the mismatch between quarterly, annually, long-term investing? building a company that lasts. These are all sort of like interconnected. A good question can often be just very simply sitting down with the CEO and saying, what's important to you? How they answer that can be very telling.

Like I want to build something special versus they go into like hitting their quarterly guidance, like very different lens, right? So I think the average S&P tenure is somewhere between three and four years. So to your point, it is relatively short. We very much approach it as owners and we're thinking about what you would as an owner, like capital allocation and defensibility of the business and what they're able to create over time and show up in that way asking questions around that. And in the midst of that conversation, you can typically glean pretty quickly like the way in which they're

thinking about the business. And that's an important tell. I think that's part of the reason like controlling your fate is so important too. Because I often think of like CEOs and this analogy is not perfect. So correct me here, but they're almost like coaches going into a losing team. There's a reason the old CEO is no longer there, most cases, and it's not retirement. You know, it's sort of like being pushed out. Your incentive is I know I have three years to turn this program around, like going back to the NFL thing or any sports team, I'm going to take a risky behavior that is increasing. I'm going to trade the first round draft pick. I'm going to bet the farm on a player because I know at the end of the day, I have three years to win or I'm

out anyway. But then the next person comes in and you're in this increasing. worse and worse position, and then you don't get the endurance of a hundred year, 200-year company that survives. And culture is always taking a hit because it's like one hand, you're preaching long-term. On the other hand, you're taking these increasingly risky short-term actions. Before I was doing public market investing at Orvis my current firm, I did distress, turn-around investing, private equity. We were often going in situations where you're buying it based on asset value, buying a deep margin of safety. You have contractual value, hard-out. asset value, and very often you are changing the management team. We're just buying the assets,

and we're going to bring the team in that's going to make a difference. When I made the pivot and I came to the public market side, I very much had that mindset. And it turns out in the public market side, that's pretty difficult. Like public market turnarounds are tough and have very low base rates for all the reasons that you were just trying out. The market's tolerance for doing the hard work is very short. One can take a lot of shortcuts in doing that. And it's probably the way that I've changed the most as public market investor over the past 20 plus years is very leery to go in the turnaround situations where I'm betting on the management team making some kind of dramatic change. Like the base rates suck. It's very difficult to do in the public vice.

I mean, it's almost like I would sit down and advise them like you'd be better off going private and kind of doing this outside of the lens of the public world because you're going to be able to do it in a better way. When you have those conversations, it could be very telling in terms of how they respond, how they're going to approach it, what their scoreboard is, just asking, like, what are the KPIs that you're going to hold that are really important to you? Talk to me about the blueprint. First step, know yourself. Second, I'll be clear on the game you're playing. And then third, like, have a blueprint. So what do I mean? Like, this is invoking Charlie. Like, one of my favorite Charlie quotes is, take a simple idea and take it seriously. Everybody, as they're coming up, should have a clear blueprint of somebody that does what they want to do has done it really well.

A lot of times people talk about mentors and one of the things that always frustrates me with young people and they ask me like, oh, it's difficult to find a mentor. And I'm like, what? You can have any mentor in the world that you want. There's so much out there like, pick somebody that you really respect and just like be a sponge, get obsessive, learn everything you can about them. How did they do it? What did they do? Like, you can really, you can watch videos, you can read, and you really develop a mosaic, a blueprint of what they did and why they did it. And pretty much everybody's accessible to you. You'd use it the same way that you would with any mentor, right? And so I'm going to go see my mentor. What questions do I want to ask my mentor? You can do that

virtually, right? And so you study somebody. You can pose those questions to yourself socratically, you could answer the way that they would answer it for you, right? Yeah. And I don't understand why more people don't do that and take it, take it really seriously. But the most important thing is, for whatever your domain is and the way that you want to do it, like have a clear blueprint for you. In the beginning, you're just, you know, you're imitating it. And then you're going to find there's certain things that don't totally resonate with you and they're not completely authentic. And you change those things. And there's going to be some new things that you draw in that you kind of adapt from whatever that blueprint was, and then that's going to become

you. And over time, it becomes you, and it's something completely different. A friend of mine says you have to imitate before you can innovate. I mean, there's so many examples when you start thinking about it, like Jay-Z, I think his best album, 2001, called The Blueprint. I think it was paying respect and homage to those that he studied, right? And when he was growing up, you know, he used to always carry a notebook with him, and he would write lyrics or ideas that he had, and he would take it with him everywhere and that was his thing i mean to this day like i still carry a notebook every day like this is with me every day and when i have an idea like i'm i'm on it like and that comes from the blueprint right and it works for me so then you go to people like you know

sol price like he the price club i mean the people that he laid the blueprint for from jem sinigal with cosco to bernie marcus with home depot to sam walton who's laid a bigger blueprint than Saul Price or Arnold Schwarzenegger. Like, I mean, it's a fascinating story. If you think, I mean, he grew up in Austria and his original blueprint is, I want to be Mr. Austria. And then he did that. And it was like, I want to be Mr. Universe.

He followed Reg Park. And then he decided he wanted to be a big movie star and he did that. And then he decided he wanted to go into politics, became governor of California. Three different domains, completely different, each one he had a blueprint. And so it just can be really, really powerful. And so if you're looking to acquire a skill and you're using a blueprint or a mentor as a role model, you almost want somebody who just did the thing, not somebody who did it 30 years ago unless what happened 30 years ago is enduring. So the way that you set up maybe, you know, price club or something is enduring or Costco is sort of like enduring, right? Where you have this operating model where we operate basically break even and then we make our money on memberships.

That would endure in like 30 years probably, but often we look for skills. We look for sort of like, I want to do this particular skill. I want to learn this. I need this. This is going to make me get a promotion, go to the next level. But if I go to, you know, my mentor in the organization, he's like 30 years older than me, who did this thing before, but now the environment is like so different. And in their mind, it hasn't really changed.

You know, it's like, well, here's how I did it. This is what you should do. But if you follow that particular blueprint, you're not going to be successful. To start, you just want to emulate it, right? And then that gives you something to scaffold up over time. But as you're scaffolding it, then you're also questioning not just what they did, but why they did it. So lots of things will probably change. What's not going to change? Like the concept of having a membership club hasn't changed, like powerful. The concept of being low cost hasn't changed. There are other elements of that in the delivery that have changed.

And so those are the parts that you will adapt as you scaffold it out. If you want perspective, you want to go to somebody who's at the end of the maze, who's done it before. And it's almost regardless of when they did it. It could be six months before and it could be 20, 30 years before. But they're going to give you perspective, which removes blind spots. And if you want skills, you have to go to people who have relevance in the current operating environment and copy those sort of like skills because they're more likely to be successful. but I like the idea of adding this extra layer of what's not going to change from the past

that I can also bring back to right now. It might work for them, but it may not be so good for you, which ties back to knowing yourself and listening to that tell, I think, is important. So who are some of your role models and, like, how did you use the blueprint methodology with them? The first blueprint for me in investing goes back, I can't remember from high school or in college, but was Peter Lynch. His book won up on Wall Street, I think it's one of the best, like incredibly accessible.

I remember that, reading that, and just totally connected for me, right? And, you know, a lot of people cite security analysis, Ben Graham. Like, I've read it. Like, it didn't put you to sleep. Not exactly a page turner, right? Opposite with Peter Lynch, went up on Wall Street. I was like, like, it just really resonated and connected. and I think one of the big themes was focus on the things that you know that are accessible.

Buffett might call it circle of competence. He didn't call it that, but it was focused on the things that you touch, see, no, understand, like, make a difference for you. Just look at your bank statement and what are the things that you spend money on and what are the things that you really like in that experience. Now, it's not just that. Like, you have to understand the valuation and other elements of business, but like a guiding principle was right there. He talked a lot about win ratio. Like, you're not going to be right a lot. And I think as a young investor, that's an important concept to internalize because

you see young kids come through and they've pretty much been successful at everything that they've done. And then you're investing in, like, if you're right, 55% at a time, like, you're doing pretty darn well. And so being wrong a lot is an important concept to internalize. And then the last one, he talks about he had six categories for his stock, slow growers, fast growers, stallwords, turnarounds, cyclicals. And it was just a categorization framework, almost like a mental model for each type of stock. I don't use those exact frameworks today, but when I was starting, having a clear framework and thinking about them kind of in mental models for each was, you know, was insightful.

Talk to me about being wrong. How do you recognize you're wrong and then do the hard thing, which is sell at a loss. The white chocolate macadamia cream cold brew from Starbucks is made just the way you like it. Handcrafted cold foam topped with toasted cookie crumble. It's a sweet summer twist on iced coffee. Your cold brew is ready at Starbucks. Bankmore oncores when you switch to a Scotia Bank banking package. Learn more at Scotiabank.com slash banking package.

packages. Conditions apply. Scotia Bank. You're richer than you think. Write it down. Show your work. Track it, measure it. As that thesis is evolving and events occur, measuring it relative to that and trying to be as accountable and objective as you can. That's always hard. It's nice to have people also around you that will push you to do that. I think having your own investment journal, so it's different than the specific decision, but just understanding what what emotions are at play for you.

There are studies that show that those people that are better at describing what emotions they're feeling end up demonstrating better investment performance. And it's just the simple concept of having a better read of what you're feeling. I used to have a framework for myself that when I came to a decision, I wouldn't sell the same day.

And it turns out like that's a really good kind of level setter. Because you go into a meeting with the management team and they do something that sparks you and you're like particularly turned off, you're like, I'm selling this. If you just give yourself a little bit of space to step back from that, go back, look at what you wrote originally, pair that up with what you saw, that can be really helpful in, like, putting you in a better mindset to make a more objective decision. The data would say I'm better at, like, cutting a loss earlier, knowing something's off in the decision.

There's some situations where like I hang with it. It's continued to not work. And then I have this sort of endowment effect of like I want to see it play out over time and I stay with it for whatever reason. So it's an interesting question for me of like what what causes it to flip from one to the other? What role does writing play in terms of thinking and what's the process? Do you share this with the team? Is there a format? What variables are you writing about? You know, one of the themes is like how do you accelerate learning and accelerate features? feedback loops. And so one of the things that we do is all of our analysts run paper portfolios or model portfolios. And this is something we've done for decades. When you go through the investment process, you write up, you know, your various research reports, when you want to buy it, you put forward something to the investment committee. You debate it. And then you buy it in your paper portfolio. And what you're, for any decision of buyer or sell, you're writing down your reasoning. You're putting down why you're buying, what the thesis is. I like it when you show the things that I want to be looking for, holding accountable to you. Just writing things down,

like, helps you crystallize the why and putting it down and then tracking, you know, show your work and then track it. One of the things that we do every six months is, you know, we consolidate that, we look at the performance, and then we share that with the team members. It's a really powerful feedback mechanism for the analyst, but it's also powerful for us as we're thinking about, you know, looking at the simulation, if you will, like who's making good decisions and what kind of decisions? Are you demonstrating more skill on the buy decision, the sell decision? Are you doubling down when something's working against you? Are you making better decisions of pining on stocks that you've researched yourself versus stocks that somebody else has written up? Like,

those are all dimensions that are in there that's giving you feedback, which is, you know, really powerful way to like help the improvement algorithm. One of the things that we did a couple years ago, which has been really interesting, is we created this what we call decision analytics initiative, right? So we have a standalone team for individuals. We went out and got third-party software, and we run all these decisions from our portfolio managers and our analysts through, and we're looking at to pick up strengths, weaknesses, and biases. It's meant to be kind of like, internal coach. And what's fascinating about it is it's showing you these patterns, right? Like I have specific patterns that I've demonstrated over time. I talked about one of them already

with regard to the endowment effect. Another one is regret aversion. The riskiest position in the portfolio is my newest position. So when I'm initiating a position, I tend to scale into it. So let's say I want to take it to 3% of capital. I'll buy 50 basis points. And then I'll another 50 and not I'll scale into it. Turns out, that's wrong. The bias that I'm demonstrating, the reversion is a regret aversion, is if it's reached the hurdle that I want to buy it, buy it. And so it's interesting to get that feedback objectively because I have this kind of like

working heuristic, but it turns out it's not right. And the data tells you that really clearly. One of the things that we've done with that is then we create these nudges, what we call nudges. And so this is coded into our system. It's watching your behavior real time. And then if you're demonstrating one of these, it'll send you an email, and I'm never that excited when I get them, to be clear.

And it'll say, you know, remember the data. You're demonstrating this right now in this position. It doesn't dictate that you do it, but it just encourages you to think about it. And so all of that, that whole mosaic is kind of like, how do you create a rigorous process that's repeatable, that really leans on the factors that, you know, can really help reinforce making the best decisions in a way that can be most constructive to you as an individual. Is there a correlation between the clarity of people's writing and their performance? I haven't studied the data to specifically support that, but my, I believe so, when you're

able to clarify your thinking and writing is a very strong representation that you've clarified the thinking, right? And it's just one of the reasons why writing is so important is helping to distill it to what's really key. We do a lot of work. We're really fundamental. We can spend months working an idea and then, you know, you get this 50-page report. I don't want a 50-page report. Like, I want a few pages that really distill. Like, that's the hard part, is to do all the work, but then distill it down to like the few things, the two or three really key points. And in particular, where we see this differently than others, capturing that and knowing kind of those fulcrum issues, like that's the sauce coaching to how do you go through that process and do that really fundamental

bottoms of work but then be able to like really distill it it's also a manifestation i think which you're pulling on that you've you've gotten to that it's like there's simplicity on the other side of complexity but you can only get to that simplicity if you've gone through the complexity but i feel like everybody wants the simplicity they want to consume the simplicity they don't want to to do the work. They don't want to go through the raw material. We were talking about this last night, sort of like listening to book summaries in a way, right? It's like, they sound great, and you listen to them in your ear, and you're like, oh, that's amazing. But then you go to the source, and you're like, how do they miss this? And it contextualizes differently in your head. And the degree of filters

between you and the information also matters, right? If you're reading an author talking about a subject that they have no experience with directly, it's going to be very different than reading direct from the source, somebody who touched the problem and had the direct experience, so indirect versus direct experience. And then you talk about sort of distillations, two different people are going to come up with two different distillations. But if everybody just wants to consume the distillations, they're not going to be in a position to know this is a good distillation and this is a bad distillation. There's a couple really good threads in there that pull on. One is the filter, right? Like it's a really important thing to think about when you get that distillation

back of like what's not in there. You really do want to source it. So a lot of times for me, you know, I will, I'll see something and it's like, well, I want to either talk to the management team or listen to them directly. I just want to, I want to hear it for myself because I'm going to process it differently and I'm going to pick up on different threads and you've got to be authentic to that. There's a tendency to want to convince somebody or persuade somebody to buy a stock. And so when you're persuading, you're persuading. And you may not as equally kind of pull out the potential risks or other factors to weigh against that. Creating that objectivity and that honesty in it, I think is an important part in a process. And sometimes people over time

will develop a skill at doing that, but sometimes not. And so you really want to remove the filter so that you can get to that kind of direct read. And then the other aspect of that is just, you know, really doing it on a primary basis. I like to say the magic's in the last 5%. You know, all of the standard stuff you know you've got to do and looking at the balance sheet and understanding the course strategies and the key drivers at P&L, et cetera, et cetera. But really like getting to that last 5% where you understand the business in a way that you do make that breakthrough, that synthesis, that's where the magic's at. Don't stop short of that.

Like keep pushing until you get to that point that you can distill it. Like what is the essence of this? Like one of the things we talk about in the team is what's the essence statement for this company, meaning like what's the thing that really drives it? It can take you a long time to get to that. When you've grinded on it enough and you get to that point, if you've really been able to dial into that thing that is the driver, that can be a real ballast to help you through as an owner and a holder of it. I like this notion of the magic being in the last 5% are there examples from other domains that come to mind where it makes a difference? Going back,

this is probably a decade. We had built a position in a company called Motorola Solutions. You'd think of like the Motorola flip phone. And that was the original business, but they ended up splitting it to the handset business. And then what was their public safety business? They make devices and they manage networks for first responders, so police officers and firemen and whatnot. They run these networks over what's called a proprietary network. In the U.S., it's called LMR. The big bear thesis at the time, as fiber rolls out and you have broadband networks, Like these proprietary networks are not going to be necessary in the way that they were. I'm not a technologist, but we spend a lot of time understanding LMR networks for first responders.

And it turns out that the really, really strong reasons why having standalone proprietary LMR networks are really important. One, they're backward compatible. That's a big deal because you have really big infrastructure, installed base out there. Two, the redundancy is way higher. Like they can go several days, which we saw during 9-11. like the networks went out, but the first responder LMR networks were still operable. The common narrative out there, and when you talk to most people, like, they would quickly

riff of like, oh, you know, they're going to be disintermediated as broadband networks are more commonly adopted. Really getting into that last five to understand it and build conviction about it was the difference for us. Ended up taking a pretty sizable position and ended up being really rewarding for us. But to grind at it and really understand that, bottoms up, was a difference. maker, right? And it also ties to some of my favorite investment situations are the bear case is the bull case. So there's this common bear narrative. And if you don't kind of do it on your own, your own

works, if I were bringing up this name and I was talking to someone, they would have told me all of the reasons why I was going to get disintermediated. And that would have sounded really sensible and I'm like, yeah, I'm not touching that. I'm not going to spend any time on it. But if you build it up yourself and you really spend enough time to get into that, that last five to understand it, it's like, Not only is that wrong, but actually this is the bulk case for why this is going to be a great company because they've got a very formidable mode in a way that you don't understand. Are there other examples that come to mind? I really like this thread of the bear case is the bull case.

You've had Brad Jacobs on your podcast. We first invested with Brad in 2013. There have been more than a few occasions through that journey where the kind of being able to get into that last five to understand in a way that wasn't commonly appreciated. I think allowed us to be a holder and an owner in a way that would have been difficult for a lot of folks that were only approaching that on the surface. So the first one, 2015, you made a big acquisition. It was a big pivot. Probably one of the best capital allocation decisions I've seen in my investment career. He bought a company called Conway. It was a complete pivoted from a stated strategy at the time. His frame was, you know, were asset light, brokerage, truck

brokerage business. He pivoted to go into the LTL industry, which was capital intensive. And even when the deal was announced, even I was taken back like, but when we made the initial investment, we spent a lot of time on Brad as a CEO, as a capital allocator. He's a serial entrepreneur. And one of the things is very clear in his track record is he's a capital allocator and he's opportunistic. When we pushed on this in the strategic logic of it, he framed from the perspective of an opportunistic situation to create something special that wasn't in the original plan but was uniquely attractive. And if you understood him in his history and you'd seen that in this demonstrated track record, it reframed how you thought about that capital allocation

decision. And so building up kind of that prior track record of understanding how he makes decisions, trader mentality. And by the way, one of his first businesses that he started was an oil trading business, right? So that DNA is in him and that track record was demonstrated. And then the second time was, and I'll never forget, I mean, we were actually sitting, we went to see Brad in December. In the midst of the conversation, his assistant came in and said, a short report has been filed. And she had printed it out and she said it on the table and I can still distinctly remember like the thud of this report. It was like a 75-page report. And so we continued to chat about 15 minutes later, his assistant came back in to the office and said, you know, I think at that point

the stock was down more than 20%. And he said, you know, sorry guys. I think I think we need to cut this short. I need to attend to this. My colleague and I went and we got in the car and we're trying to read this short report. I'll never forget, like the feeling of anxiety in my stomach. And we had done a lot of work on it. It was intimidating to kind of, you know, hear these claims on the surface. In the next three weeks, we leaned into that. Like, we hired a forensic accountant to go through all of the statements, every one of the claims that were in there. I hired a private investigator. We knew what cars they drove, whether they had loans or not, whether there were any disputes. The people on the short side? No, in the company. To understand Brad,

his CFO, chief operating officer, because there were certain aspects in there that were claimed of kind of on dealing, really to go into that last 5%, maybe the last 1%, is how I spent my Christmas and New Year's, is going down this route. But the beauty of it on the other side is it built a deep conviction, right? And we probably put a billion dollars into it on the back of that. And the stock was extremely dislocated. I think Brad and the company bought back $2 billion, like unprecedented magnitude. of company buyback at the time.

He borrowed money to buyback and buyback huge. It was a gut check. But on the back of like extremely, extremely deep, rigorous, like conviction building, you know, the easy thing would be to go the other way, like, oh, this is messy, this is noisy. The common trope is roll-ups never work. And it's true. Like, the base rate on roll-ups is not good.

It doesn't mean all roll-ups don't work. What are the factors in common hallmarks of roll-ups that are successful? and are those conditions precedent here? And those are the things that we found as we went deeper and deeper and peeled back the onion. That's what it takes. And again, kind of turned it like the bear case

is actually the whole case and you're thinking about what's happening here. We've sort of talked about knowing ourselves. We've talked about game selection. We've talked about having a blueprint or a model to sort of follow and imitate before you innovate. Consider this a map. Now what?

Now what do we do with this? How do we apply this to create and unfair advantage. So now it's about like accelerating that, that learning curve and those feedback loops. You know, try to put yourself in a place that it's good game selection for you based on who you are and what your strengths are. You got a clear blueprint about how to go after that. And now, you know, you just want to, you want to turn the rocks and you want to accelerate the learning curve. And a big part of that, creating those case studies of writing it down, like, why am I doing this, showing your work. Part of showing your work is distilling for you why

you're doing it, tracking that over time, and measuring yourself to it, and improving your algorithm. You know, how strong is the learning machine? Like, are you seeing them take in new inputs based on the feedback that they're getting? Adapt that and employ that as they go forward into, you know, how they're thinking about stocks, how they're making decisions. And it's really hard for us the way in our game selection, because we're making these four or five year decisions. So it's very easy to say, well, it's about this and, you know, let's check in in five years. No, like there are many incremental steps between now and then that you want to track to and hold yourself accountable to. It doesn't mean you're trading every day or every

quarter, but you want to be really thoughtful on this is why I bought it. These are the things are going to be looking for. And then holding yourself accountable during those interim steps and identifying those situations where it's worked well when it has it and then adapting for that. Right? And just being really obsessive about that. It seems like one of the key skills is sort of being able to sift what's important from what's irrelevant. And a lot of people get confused. How do we get to the point where we can actually sift what's important from what's relevant? With Amex Platinum, access to exclusive Amex pre-sale tickets can score you a spot trackside.

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It's never just coffee. I think it's just learning from the feedback, right? We took it, in 2018, we took a position in Symantec. So Symantec did you do software, like Andavirus software. Like on the retail side, it's to protect your laptop and desktop. You know, it was a mature business, very high free cash flow yield for a software business. They had hired a new CEO who was a real technologist. And so I spent a lot of time on him as a technologist because they needed to infuse that in the business in order to be able to grow and adapt.

Most of all of my work was around that. I thought that was the important question. In the very later stages of the work, we started to get some reads that, yeah, he was genuinely a very savvy technologist, but had a reputation for playing fast and loose, a little aggressive, very aggressive sales culture. And just as we started to get that read, the company came out, the board came out and announced the audit committee was going to undertake a review of the financial statements. Stock gap down 35%. We covered somewhat, but not fully, right? And so there was a layer there, and part of what goes in the mosaic of two things. One is, if you're over-miopically focused on one thing that you think is the important thing, you need to keep your mind open that there may be.

maybe other things in the mosaic that are critical. And that when you do see those threads and we started to get a little bit of the flags, like you've got to go after that and go after it really aggressively. Time back to your question is you're writing it down, you're showing your work. What are the things that you think are important? But then you're measuring yourself back to that and seeing the degree to which you've been demonstrating a good success ratio of zeroing in on the thing that is the thing. When I talk to entrepreneurs, it's so interesting to me because

compliments, and this is a generalization, so it doesn't apply in all cases, but compliments, they tend to shut down. They don't tend to listen. They're already, like, a minute they anticipate a compliment out of you, they stop listening, and you can kind of see it in their faces if you pay attention really closely. But if you say something that's a threat to their business, then there's almost like a predatory instinct that they have to be like, I want to know all about this. I'm curious about this. Like, why do you think this? Where did this information come from? How does this affect me, like, how do we validate this? I feel like a lot of people are almost the opposite, right? Where it's like compliments are great things that might be criticisms or things

that we might not be great at. They sort of go in one ear and out the other, or you stop listening to them. I've heard that before, you know. And I think that's really interesting when it comes to running a business or getting better at things is like almost being like Darwin, right, who kept this journal of things that didn't conform to his beliefs. And then he had to to go through and like, how do I integrate this or just prove it or how do I think about this in lieu of dismissing it? I don't want to dismiss it. I want to incorporate this. How do you go about doing that and sort of like having, we'll call it a predatory instinct to listen to criticism? Three ways. One is we were talking about questions and it can be a really valuable way when you sit down

with the CEO is to frame a question in a way that they have to respond. So like you might sit down and say, we've been hearing that you're having a lot of turnover in your sales department. Why is that? It puts it in a position where they kind of have to respond. Because to your point, a lot of times when you will frame something in the negative or as a threat or challenging, you know, CEOs are very skilled, like they'll shift it to something else. But if you frame it in a way that they have to respond, so that's one. I think two is to your point of when I use the semantic example, like it was disconfirming.

Not to the big point, but in terms of the broader narrative of what I was thinking about the company. And any time that comes up, like, you got to really focus on it. Like, that's the most valuable information in the situation. And that can be really valuable also when you're working with an analyst and they're filtering. You're not getting it directly. When you hear that kind of stuff, that's what you want to go to and really pull on it. Because they may not be that excited to put that first and foremost because they want to persuade. But when you hear it, you got to really, you got to pull on that.

And then the third way, going back to the blueprint, we didn't. talk about, but probably the most meaningful blueprint for me is the founder of my firm, Alan Gray. You know, genius is, um, dissonance. I mean, you know, the ability to kind of hold to competing. And so on the one hand, like he was super long term, but he was always obsessing also in the short term. The long term is just building up those short term things. He was a person that was very convicted about things, like tremendous conviction, but it was always loosely held. And so if he heard anything that was counter or, you know, threat, he would really grab that. And he was never ashamed, embarrassed, shy to then grab onto that and then totally flip his view.

And so that ability to be very convicted, but then constantly in search of, like, he never wanted to talk to somebody that agreed with him about a position. Like, who's got the opposite view on that? That's the person that I want to wrestle with intellectually and hear about that because he was like seeking it. And if he thought that whatever they were putting forward was good in that, then then he was off. That ability to go both ways, I think, is really, you know, really powerful. It's like intellectual ambidextrousness. Are there other lessons that stand out that you learned

from him? There's so many. I mean, he's a special person. I mean, he, I mean, the first thing that comes to mind is just his enthusiasm is love of the game, right? Like, it's just infectious. He used to say there's nothing more perishable than a great idea. He was always turning rocks. Like, the secret to a good idea is a lot of ideas. Like, always turning rocks. Like, always turning rocks. But then when he saw something he thought was really interesting, like it was just was all in. There was this dissonance, right, where he was incredibly convicted, but at the same time, he was always actively seeking the opposite side of the view. To your Darwin reference, like it's survival and adaptability, right? You want to be looking for the things that don't conform

to the construct. He always liked to talk to the folks that were younger. And I think for a couple reasons. One was it's less filtered, that it's closer to the source. And it's probably more contemporary in its view. You know, I was reading earlier this year, I was reading a biography on Andy Grove, and it talked about you rise to the level in the company that you're a manager, a more senior engineer, like you lose your connection to like the cutting edge engineering. And so, you know, it was a very clear part of their culture. It was non-high hierarchical, quite flat, they would interact directly and they're like, why do you do this? And it was like, it's survival. I need to be close to the source of the people that know the

problem the closest. And when I read that, I was like, wow, that's the same thing that Alan did in a different way, a different industry, different business, but it's the same concept. I never called it survival, but I know that that was underneath it of like getting directly to unfiltered the best information. I had a friend who was the chief of staff to a CEO of a billion dollar company. Before he assumed this role, he sort of said, you know, I think by and large, I know I'm paraphrasing here, so these aren't his exact words, but like these guys make incredibly stupid decisions. And I want to help change that. And then he got up there and he's like, actually, they make really good decisions with the information they have. They just

have completely terrible information because it's been so filtered by the time it got up to the CEO's office. And so he started this thing where he just started calling the person that he could get in touch with closest to the problem, to understand the problem and having briefs from that person and skipping like five layers or six layers of management. And he got in so much trouble for this. I just think that's like a fascinating thing when you think about like how do we sift what's important from what's not. And some of the variables you mentioned are like getting closer to the information, getting unfiltered information, going direct to people who have experience. And if you think about this in the context of learning, I also think it's fascinating

because I think of learning as a loop. There's like you have an experience, consider that like the 12 hand on a clock. You reflect on that experience, which is the three hand. You create a compression or abstraction, which you can think of as the distillation as the six. And then you have an action. So you have this loop that constantly feeds back into itself. Often what we're consuming is other people's compressions. And when we do the book summary is a great example of that, right? You're consuming somebody else's,

you don't know what's missing, you don't know how they formulated it. Often they don't have direct experience in the thing that they're even summarizing. And so they're not able to capture the essence of something. Their distillation works for them because they did the work on the raw end

and you feel like it works for you as a person, but when you go to put it in practice, it doesn't work. The experience is like this thing, that's, you know, like four gigabytes, right, of memory occupying in your brain. So your brain sort of like, we're going to compress this into something much smaller. That's the reflection angle. You're sorting what matters from what doesn't. You're sort of like decompressing the emotions from things. You're determining what are the variables that govern the situation

going forward. How do they interact across time? What are the models that sort of carry the weight here? And then you come to this compression. But you can go back from that compression to the experience where somebody who consumed just that compression can't go back to the experience. And the way that I try to explain this to my kids, as imperfect as this is, is they, every Sunday we have this cookie recipe and I make them make cookies before they can have the Wi-Fi password. So I leave the recipe on the counter and, you know, when they follow the recipe, the cookies turn out amazing. And when they don't follow it exactly, they have no idea what went wrong. Now, the, the chef or the baker who created that recipe would instantly be able to look at a photo probably

or take a bite of the cookie and they would know instantly what went wrong did they heat the butter too much did they not melted enough did they compact the sugar too much was the oven running a little hot and you know even though it said 360 degrees was at 375 but the baker they would know that and you want to surround yourself when you're trying to acquire information with bakers right and you want to be the baker, but you can't be the baker in everything. So you have to pick your discipline, going back to what game are you playing, where am I going to be a master, and where can I borrow and just crib from other people? Because by borrowing and cribbing the compressions, I'm going to get to average really quickly. I love that. Two thoughts on that. One is, if they were making the cookies

and following the recipe, if they wrote it down at each step, what they were actually doing, that gives you something to look back. Like, let's say the cookies didn't. turn out well, right? It gives you somebody to look back at, go and track and see kind of where they might have been off. And then the second part of that, just to the point of having a blueprint. The importance of that is you start with the recipe and you do it, you know, exactly, but then you adapt it. You're like, well, maybe if I put, I really like walnuts or whatever, chocolate chips. I'm going to put some chocolate chips in this. And then you try that and the first time you do it, it may not work that well. But I still really like

chocolate chips, that's authentic to me. And so you adapted a little bit. And then in the end, you end up with something that's uniquely you and really special. Totally. And now I want cookies. Fry me for cookies. Talk to me about the will to win versus the will to practice. It's nice to have that goal, that aspiration. It's very different to have the will to practice, to grind, to make the cookies every day and to write it out and then look back at yourself and look at the steps and measure yourself and showing up in that. And that's why I also tie it just to the concept of it is the journey that gets you to that place. You know, one of the questions that I really love I think about and I'm still kind of like evolving on is, you know, music, like if you're a concert

pianist, even though you're one of the best musicians in the world, you practice your scales every day. For us as investors, like, what's the equivalent of practicing skills every day? It's an interesting question. I mean, I think there's some parts of it that are temperament related, like just practicing deferred gratification. There's elements of it that are, you know, thinking about the world probabilistically, everything, just continuing to practice that every day or the uncertainty of a situation, but not taking that for granted and, like, really practicing that day after day, essentially inoculate yourself. to prepare yourself for that. It's interesting because as you were saying that, part of what popped in my head was if we go back

and we look at the grids in sports, because that's an easy reference, but like I talked to somebody who played with Tom Brady and they basically said like practice was a game. And if you talked to somebody who played with MJ, it's like practice was a game. Like you're not coasting. And if you are, he's calling you out and like,

and Kobe was the same way. they treat the practice like they would treat a game with the same respect, the same effort, the same dedication, the same frustration if they don't make a play, they don't sort of like half asset and expect to win on game day when they don't do it in the practice. How do you instill that mindset in your kids? Like where the will to practice, the will to grind, to the consistency, the routine or ritual of it, and taking pleasure in that and not the outcome. I mean, if I just draw my own example and I go back with my grandfather, which is just, the example that he said. I think kind of just the first layer of that with my own kids is just

them seeing me grind every day. They make fun of me like, you know, I want to do what you do. I want to be an investor. You don't really have to do anything. You just sit around and read all the time. They don't necessarily see those difficult moments or, you know, getting up at 4 o'clock in the morning. I don't think you're getting a lot of sympathy from our audience. But it's just, it's the setting the example is the first layer, I think, and the craftsmanship of it, no matter what you're doing, from a janitor to, you know, a soccer player to whatever. And then the second dimension I try to think more about my kids is just trying to help them get in the way of the things that they really love. I have three kids from age 21 to 12 and they're so different, right? but for each one of them like to help them get in the space of it goes back like what can you be obsessed about it doesn't matter what it is that for you and be deliberate about it be intentional

about it the concept of deliberate practice of like really having that that blueprint grinding on it um leaning into it measuring yourself relative to it like that's the thing what have you learned about time management you know as investors we we allocate capital and you could argue that's our most important job, and you say that a lot of CEOs, erotically, most important job is allocate capital. I think there's something on top of that, which is more important, just how you allocate your time. People just don't think about it enough. And they fall into these patterns without really thinking about the most important question, because you can get more capital, but you can't get more time. And so just, you know, as an investor, one of the things that comes up a lot is, okay, we're going to

spend, we're going to go deep on this company, we're going to spend the next three months really grinding on it to understand it. But if we do that for three months, will we be in a better position to move the odds on a better outcome? That's the question. And there's some situations where absolutely you would be able to do that. Like, a big question is how they might adapt or modify their distribution networkers. But, you know, on the other side, it might be something like like TSM, the semiconductor company, one of the best companies in the world, the big question there is a geopolitical question. I could spend three months on that, and I'm not sure that would move my probabilities in terms of making a better decision on that thing. That is the big

driver. Every time I'm making a decision about where I want to focus and where I want to spend my time is like, will doing that result in the highest return on time as opposed to capital and just being really rigorous with yourself and your team about that question, I think is something that is often overlooked or not really challenged to agree that it should be. I like the notion of time allocation and sort of capital allocation. Does that carry to your personal life as well? I can fall in the trap of like, is this useful right now? That's a horrible question to ask with your kids, right?

And so just to give yourself the space for play, to just be in that moment with him on whatever and maybe, you know, on Fridays and Saturdays, we have family dinners together and it'll start, call it at 6 o'clock and everybody's got a role and doing something and everybody's in the kitchen and you're just mixing it up and you're just totally in that moment. The next thing you know, it's 10 or 10.30 and like it's the end to dinner. Like that's been a four, four and a half hour journey and like just totally lost in the moment of You know, those are some of the times that I value the most. And there was nothing intentional in that except that you were going to be in that space.

Going back to TSMC for a second, I think one of Buffett's filters is, is it knowable? And if the answer is no, he doesn't want to hear your opinion on it or your facts or anything. He just doesn't waste any time on it. I don't know if that's true. But I find that as a good filter. It's a great filter for like when you're in an argument with somebody or, you know, you're at a family dinner, or big family reunion or Thanksgiving or something. And, you know, people are like arguing about very subjective things.

If you just have this filter in your head, which is like, is this knowable? And if the answer is no, you just sort of say, you're probably right. You might be right and just move on, but it's just not worth sort of spending time on. I think it's an area to keep reminding yourself and have a discipline. I was recently in Australia, seeing a number of clients in a big topic, is the election, the U.S. election in their mind. And obviously for us, it's a big deal. But the best answer is like it's 50. It's kind of 50-50, you know, and I'm not going to position and tilt the

portfolio for a particular outcome, one, because I wouldn't be well-served to do that. But two, to this point, like, it's unknowable. And so I just want to be resilient as opposed to spend all this time obsessing on, is there going to be a particular candidate that wins and position the portfolio in that way? Much better to just focus on it, like, from a position of resilience. Talk to me about that a little bit because I think one of Buffett's earned secrets that most people don't recognize is that he's always in a position for success. He's very rarely put himself in a situation where circumstances dictate any action that he takes. And the optionality and adaptability that that provides makes him look like a genius because he can always take advantage of whatever the world's offering him. And if you think about it

now, it's like they have 300 billion-ish in cash. And it's like, well, if the stock market crashes, and the economy goes to shed, who wins, Buffett wins. And if it stays the same, who wins, Buffett wins. And if it, like, skyrockets, who wins, Buffett, went. Like, you know, he's just set up this scenario where he's not predicting. He's positioning. Wrote a book on us. Through your eye.

I mean, positioning is everything, right, in the sense of, you can think about it in the portfolio of do you have the resilience to absorb what may come? You know, we have these situations where you wouldn't have anticipated it and then it can be quite devastating. If I go back to, I mentioned Symantec, but 2018, like I really one of the most difficult years of my professional life. So the Symantec hit about a month later, it was in November, and I'll never forget because it was on my birthday. We had a position in a company called PG&E, which is a California utility, the wildfires. Yeah. So we went into it after they had had their wildfires, thinking that legislation had passed,

but there was this little loophole, if anything, happened before the end of the year. We were already through the main part of the heavy wildfire season, but then another fire hit. We're in San Francisco. I'm literally in my office looking out to Marin County, and I see the flames and the smoke billowing, and I'm thinking that's my position billowing, that's my portfolio. you know, that's my investing track record, like just kind of devastating. And, you know, I, I sized it at a level that I could take an impairment. I thought it was lower probability than the actual probability, but I wanted to try to position for that to weather it. And then a month later,

the story I told you about XPO and the short report hit. So three hits. Pretty devastating. It's part of the concept of kind of going back to this journey that you're on of like knowing yourself, think about game selection, accelerating your learning feedback, know that you're on this hero's journey and there's going to be these setbacks. And I think one of the things that really was helpful for me was kind of inverting it and just thinking like, this is part of it. Like, this is part of the struggle. Like you know you're going to be in these moments and how you handle it. Part of it is a positioning going in, but part of it is also how you embrace it when you're in the moment. Right. So it's another form of positioning. Right. It's

sort of do you have the balance sheet when you go into things that are unexpected, but you also have the mindset for how you embrace things like that when you're in the moment, because you could sort of just suffer, woe is me, or you could say, okay, this is the hand that I have now, how am I going to play that? If you embrace it in that way, I find that it puts you in a very different position. I didn't get there immediately. It took me a little bit while, a little bit of a time period to get there. But I think that's less discussed. But in another element of, you know, of positioning. I really think that that's key, right? It's like you can't live a hundred years and not go through all of the things that life has to offer from heartbreak to losing money in an investment

to and like how you respond and your approach to those things. It's usually not now and the people you try to push it away or why me that causes sort of you just start reacting versus reasoning your way through. It's like, no, this is where I'm at. How do I deal with this? Which I think is a very helpful mindset, right? Which is I didn't, I maybe not have created this. I might not have anticipated it. My contribution to this might be really low. It doesn't change the fact that I'm here and where do I go next and what do I do next. We talked about time allocation as sort of capital management. There's another parallel, I think, between business and life, which is personal life and sort of overhead. Talk to me about that. This is much less discussed, but I think is

squarely in your positioning frame is, you know, how you run your personal life very much impacts your ability to make good decisions, particularly if they go sideways, right? And so you see people in the industry who then, you know, adopt a certain lifestyle, a certain fixed cost base. And then, like, you need the investment to work as opposed to making, you know, what you think are good risk-adjusted decisions. And I think once you kind of cross over into needing to work, you've changed the dimensions of your temperament and your emotions. And once you do that, you put yourself in a bad position to make great decisions. And companies do that. I mean, that's something to be very mindful of. It's something to think about as a firm and investment

teams. Like it's, you're looking for a certain type of individual, but you're trying to create a certain culture within the team. You're trying to have a certain relationship with your clients. Like, those are all part of enabling you to try to make the best decisions in the way that work for you. But if you break any one of those kind of components of the flywheel, if you will, like, then you really got grit in the flywheel. And it could be dangerous, you know, in its worst case. Will you invest with attention seeking CEOs or, like, high lifestyle CEOs?

Generally not. I mean, it's a part of the mosaic of, you know, what will be the driver. I mean, it's an interesting thing with CEOs are like, what are the characteristics that allow one to be in that seat? And they're not always correlated with the skills that are best to allocate capital to make certain strategic decisions to make decisions that are independent of what might be popular. Talk to me about the role of focus. We don't have infinite time, right? And so what you choose to allocate it to is really a critical decision. And it's really underestimated how important that is over and over and over again.

And it's part of the journey, right? Because you're going to be in the rabbit holes. But that's part of like seeing the Algo improve over time. And it's an area that you can help, you know, as a coach, kind of give some feedback on that. But just asking your question, like when you're spending the time to what we were just saying, like, is this a question that I can answer? It's very simple. but like, you know, take a simple idea, take it seriously.

Are there particular lessons from Munger and Buffett that you try to remember every day that it made more of an impact for you? Take these simple idea, take it seriously, and really lean into it. Focus on a few things where you can really make a difference, the place to you. But the discipline to actually do it, do it consistently, like really lean into it. I'm really a believer that the magic in the sauce is in the extremes. And so, like, just keep, like, if you think it's worthwhile, like, push. on it, really push on it, like really go deep in the company in terms of how you size positions

when the ones that you really see, like you see the matrix clearly, like just take that and really lean into it. So what would you say are like the three simple ideas that you take seriously? Alignment, you know, is really an important one. Like you mean an example. You profess to be a long-term investor and that's really part of you and you have the temperament to do it. But you need to manifest that in every way. So that starts with the kind of people that you hire. What I'm hiring and interviewing people, everybody likes to say they're contrarian, but are you really contrarian?

Let's talk through some examples when you've done something that's different to the crowd in a way that had consequences and was difficult to do. Create an environment. It turns out if you hire people that are really independent-minded, they like to be given a lot of space. So you have to create an environment that gives them that. the space to do that. And you have to create a culture in the way that you interact, the way that you talk, the way you structure your meetings that focus around independent thinking and

taking a longer term time horizon. On the other side, it means that you need clients that are actually willing to absorb the volatility that might come from taking a long-term position that are not going to be the first to redeem when you're out of sync with the market. And they don't just profess that, but that when they're in that situation, that's something that they actually do. By the way, maybe you put a fee structure around it. So all of our fees are a performance base, but they're refundable. So when we go through these periods that we're underperforming, we refunding fees back to them in the same ratio. And we do that because it tends to be when you're in that period a way to cushion for the client being in that period which

elongates their time frame. But that reinforces us to be in a position to take long-term decision. So it's one idea, simple idea, alignment and kind of having a long term, but it permeates everything that you do, from type of people that you hire, the culture you have, to having paper portfolios that allowed them to express themselves, to the clients that you have, to the fee structures you have, like it's everywhere. What's the next one? So alignment was number one. What's another one?

First principles thinking and having an independent view, not filtering. I first met Alan, our founder, in the mid-90s, that very first meeting, he said to me, he was like, you know, if you want to get a 10 alpha, you've got to come with the problem completely different. You got to turn it on its head. I was young, and I was very new in my investing journey. I don't think I fully appreciate it, but 30 years later, like, I've internalized it. And just kind of that first principles, independent thinking.

and, you know, really just trying to get to the truth of an answer and then being rigorous around pulling on the threads that are opposing to it and grinding on that to get to the right answer and being okay, being different from everyone else is, like, that's the thing. Like, if you're with the crowd and with everyone else, like, you're going to look just like everyone else. Just prioritizing first and foremost always, like, what do I think is the right answer, regardless of kind of whether or not somebody else says it. You know, the way I encapsulate that idea, in my head often is through creating positive deviation or advantageous divergence. So it's not enough to diverge from the crowd. You actually have to be correct if you want to create

results towards the tail. It's no fun being a contrarian just to be a contrarian. But a lot of people are, right? I mean, when I used to work at the three-letter agency, there's a lot of people who are contrarian just to be contrarian. Okay, you're contrarian all the time and then people just start to dismiss you and nobody listens to you. And then the odd time you're right, but you're no better than a lottery ticket at that point. You have to be thoughtful about how you do it. You do want to create advantageous divergence from the crowd. I like that.

I mean, it's just truth. Like, what is the real truth here? We always end with the same question, which is what is success for you? What's interesting to me about this question is how it's changed for me over time. When I was in high school, if you would have asked me that, I would have said, it's just to get out. You know, and I was in my 20s, it was a number. And then as I got into my 30s, it was more about certain career aspirations and relationships, you know, my wife, my kids.

But today, I get a lot of meaning in using kind of my strengths and skills to help other people. Like I get a, I call it being dream builder. That's in my firm, but it's outside of the firm too. And success to me is like having something that's meaningful to you that you're really going after and helping other people. I know what it feels like to be in that position where you don't know how to do it, but it's in you.

It's a hunger that you have. And when I see that in others and I'm able to help them do that, like they're just tremendous satisfaction in that for me. Like that's success. Thanks for listening and learning with us. For a complete list of episodes, show notes, transcripts and more go to fs.blog slash podcast or just google the knowledge project recently i've

started to record my reflections and thoughts about the interview after the interview i sit down highlight the key moments that stood out for me and i also talk about other connections to episodes and sort of what's got me pondering that i maybe haven't quite figured out this is available to supporting members of the knowledge project you can go to fs dot blog slash membership, check out the show notes for a link, and you can sign up today. And My Reflections will just be available in your private podcast feed. You'll also skip all the ads at the front of the episode. The Frontom Street blog is also where you can learn more about my new book,

Clear Thinking, turning ordinary moments into extraordinary results. It's a transformative guide that hands you the tools to master your fate, sharpen your decision-making, and set yourself up for unparalleled success. Learn more at fs.blog slash clear. Until next time.