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0:28

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0:30

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1:23

Hello and welcome everyone. I'm Patrick O'Shaughnessy

1:26

and this is Invest Like The Best. This

1:28

show is an open-ended exploration of markets,

1:30

ideas, stories, and strategies that

1:32

will help you better invest both your time and your

1:34

money. Invest Like The Best is part of

1:37

the Colossus family of podcasts and

1:39

you can access all our podcasts, including

1:41

edited transcripts, show notes, and

1:43

other resources to keep learning at joincolossus.com.

1:48

Patrick

1:48

O'Shaughnessy is the CEO and founding

1:51

partner of Positive Sum and

1:53

the CEO of O'Shaughnessy Asset Management. All

1:55

opinions expressed by Patrick and podcast

1:57

guests are solely their own opinions

1:59

and- do not reflect the opinion of positive

2:01

sum or O'Shaughnessy asset management. This

2:04

podcast is for informational purposes only

2:07

and should not be relied upon as a basis for

2:09

investment decisions. Clients

2:11

of positive sum or O'Shaughnessy asset management

2:14

may maintain positions in the securities discussed

2:16

in this podcast.

2:20

My guest today is Lee Ainslie, the founder

2:22

of Maverick Capital. Lee started his investing

2:25

career at Tiger Management, where he worked for Julian

2:27

Robertson. In 1993, he

2:29

left to start Maverick and has built the firm into one

2:31

of the top performing hedge funds of the last 30 years. Lee

2:34

doesn't speak in public often, so this is a fascinating

2:37

insight into what it takes to build an enduring

2:39

investment business, both psychologically

2:41

and operationally. Throughout the conversation,

2:44

we flick between his lessons building Maverick, his

2:46

perspective on the market, and what he's learned

2:48

about the craft of investing.

2:50

I hope you enjoy this great conversation with

2:52

Lee Ainslie.

2:55

So Lee, this is going to be such a blast. I think

2:57

a fun place to begin is actually

3:00

with your origin story, because the firm is

3:02

so old. It's just not often that a

3:04

firm like yours is able to stand the

3:06

test of time. We're going to talk a lot about investing

3:09

culture and building a team. The tenure

3:11

of your team is remarkable relative to others

3:14

over several decades now that have been with you for so

3:16

long. And that has to be rooted in

3:19

the earliest days of building

3:21

the firm, of meeting other peer investors at

3:23

the time.

3:24

Obviously, you were at Tiger at lunch. You were

3:26

telling me this incredible story about Steve

3:28

Mandel and your relationship with him early on.

3:30

Maybe you could retell that as just an amazing

3:33

precursor to some of your ideas about

3:35

integrity, ethics, and culture

3:38

in an investing business.

3:39

Well, thank you. I appreciate you having me on.

3:42

It was a great fortune

3:44

to work at Tiger in that amazing environment

3:46

with so many

3:47

really talented people. As you were pointing

3:49

out, one of the people that was quite nice to me at that point

3:52

in time was Steve Mandel. We

3:54

started about the same time, but I had just come out

3:56

of business school and he already was a well recognized

3:58

investor.

3:59

American, Coleman Sachs, et cetera. And

4:02

so it was under his wing for the first few

4:04

months. And then I went into my year

4:06

in review, thinking there was a decent

4:09

chance I was probably about to be let go. But

4:11

to my surprise, I was paid well beyond

4:13

my expectations. They actually doubled my percentage

4:16

interest in the firm's profits.

4:18

And they made it very clear this was all happening

4:20

because of Steve's recommendation.

4:22

And

4:23

indeed, they wanted me to take

4:25

over a new sector altogether

4:27

technology, which I was really excited about.

4:29

I thought that was a big promotion throughout

4:31

the rest of the day. Three or four people

4:33

came in to give me their condolences and give

4:35

me some pep talks. And I finally found

4:37

out that my two predecessors had not lasted

4:40

very long in that role, but nevertheless, it worked

4:42

out. But I look back in the time at Tiger,

4:44

obviously, it was not

4:46

only very formative and learned a lot from

4:48

Joy and Bed, really had the opportunity to work with so

4:50

many talented people. It became the basis for

4:52

what we did going forward. Why

4:54

do you think Steve did that? And what can be a very

4:56

cutthroat environment in

4:59

the investing world, incredibly competitive,

5:01

lots of type A people that

5:02

seems like a pretty generous and kind thing

5:05

to do? What do you think was behind that?

5:07

Well, I agree. He was generous

5:09

and kind, which if you know Steve is very consistent

5:11

with how he interacts with folks. I will

5:14

say,

5:15

I started playing with stocks when I was 13 years

5:17

old, and I don't think Joy and fully recognized

5:19

the depth of my knowledge. And so I was

5:21

quite comfortable with what we were doing. And I think

5:24

Steve concluded that it would be in Tiger's

5:26

best interest for me to have more responsibility

5:28

more than anything else.

5:29

Why do you think there has not been another

5:33

diaspora, I'll call it, of amazing

5:35

investors that came from one ecosystem

5:38

like has happened with Tiger?

5:40

Obviously, the first generation of those firms,

5:43

yours, Lone Pine, etc., Viking,

5:45

are well known, but it's continued through time,

5:47

almost like the Parcels coaching tree or something,

5:49

this amazing singular investing

5:52

family tree, I'll call it. Why does that not happen

5:55

more often?

5:55

I think the only organization which

5:58

has spawned as many successful... successful investment

6:00

firms, there's probably Goldman Sachs. But

6:03

I think it's important to keep in mind, if you get

6:05

back to the late 90s, Tiger had probably

6:08

a dozen investment professionals and Goldman

6:10

probably had hundreds if not thousands.

6:12

So it's really different. The hit rate

6:14

is crazy. Yeah. Exactly. I

6:17

don't think there was any one magic item that drove

6:19

the fact that a few of us have been fortunate to

6:21

enjoy success after Tiger, but

6:24

do think it is a testament to the fact

6:26

that joining had a really good eye for talent.

6:28

And sometimes in places and

6:30

people that weren't completely obvious,

6:32

he created a culture where we

6:34

worked closely together. We had a lot of trust

6:37

in each other. It was pretty unusual

6:39

at that point in time because joining was so

6:41

senior and already was such a well-known investor

6:44

and the bulk of the investment team were in our 20s. So

6:47

we all recognized who was in charge

6:50

and therefore we as a team worked really hard

6:52

to support each other and to learn from each other.

6:55

A lot of how I think about investing in different

6:58

industries came from my time at Tiger,

7:00

not

7:01

so much talking to Julian, but talking to other

7:03

folks that were my peers.

7:05

And as I left Tiger than others after

7:07

me,

7:08

the strength of that network really continued.

7:10

We continue to work hard to help

7:13

each other, to root for each other.

7:15

One of the things I've always loved about the hedge fund industry

7:18

is even the largest funds have just tiny

7:20

market shares. When you think about not only the hedge

7:22

fund industry, but the stock market in general,

7:25

therefore there's really no reason to be competitive

7:27

with our competitors. On the contrary to this

7:30

day, I like to see the long

7:32

short community do well together

7:34

as an asset class and typically very

7:37

supportive and helpful of those that I'm quote unquote competing

7:39

against. You said Julian was a great

7:41

spotter of talent and that's something

7:43

obviously that's been a key part of your role too in building

7:46

Maverick the firm.

7:47

What does investing talent mean to

7:49

you? What is behind that idea or that concept?

7:52

Well, again, I think very hard

7:54

to distill in terms of here,

7:56

the two or three attributes you have to have because

7:59

whatever match. you can come up with, there

8:01

are long list of people that have those attributes and

8:03

yet

8:04

do not seem to make it

8:06

as an investor. And this is something

8:08

internally we studied with great rigor

8:10

because at the end of the day, I would argue

8:12

the investment firm only has two assets,

8:15

the confidence of the investor base and

8:17

the talent and dedication of the

8:19

investment team. And so we work really hard on both

8:22

those. To your point, bringing people

8:24

in at Maverick Lease is a

8:26

very intensive process, involves a

8:29

lot of different steps, meeting with a lot of different

8:31

people, a lot of testing work

8:33

we do and all that does

8:35

lead us to making one or two

8:37

offers a year and those are typically accepted.

8:39

If you were to look for some of the commonalities,

8:42

some I think you would expect, intelligence,

8:46

competitiveness, a real passion

8:48

for stocks, but some are probably

8:50

a little different at Maverick than elsewhere. We

8:52

spend a lot of time trying to evaluate emotional

8:55

consistency. So the highs aren't

8:57

that high, the lows aren't that low. If

9:00

you're right in your stock picks, meaning

9:02

you're outperforming on the long side or underperforming

9:04

on the short side in journey alpha,

9:06

if you're right 55% of the time, you

9:09

are one of the best in the world. That's a really hard

9:11

number to attain. So by definition, you're

9:13

gonna be wrong a lot and how you deal with

9:16

quote unquote being wrong.

9:17

And again, it's a very competitive name and usually

9:19

there's someone on the other side. So when you're wrong,

9:21

they're right. How you deal with that is

9:24

really important because a lot

9:26

of people I think have those moments,

9:28

they just wanna put their head in the sand and wait for the

9:30

world to pass them by. But in reality,

9:33

those are some of the most important decisions you make.

9:35

When a stock has gone against you, is that

9:37

an opportunity as the world misunderstood it

9:40

and we need to take advantage of this?

9:42

Or wait a minute, this is on a different path

9:44

than we were thinking,

9:45

this is not a good use for capital because

9:48

yours would be one or the other.

9:49

So emotional consistency is important.

9:52

We place a great deal of importance on a

9:54

team orientation and how poor that

9:56

is just from the beginning and recognizing

9:58

the environments that I personally enjoy. I like

10:01

environments where our success is driven by

10:03

a team. We were talking about this the other day,

10:05

but one of my favorite sports growing up was basketball,

10:08

in part because to really excel,

10:11

you had to be a highly functioning team

10:13

where individual players were willing to make sacrifices

10:16

for the greater good of the team. And

10:19

yet at the end of the day, everyone knows

10:21

who really contributed. So to me, it's a

10:23

great parallel of the importance

10:25

to success of teamwork, and

10:28

yet still maintaining a meritocracy. And

10:30

at Maverick, everything we do is based on

10:32

teams.

10:33

If you look at a lot of the stats that we track,

10:36

we actually don't track them per individual, we

10:38

track them for the entire team because

10:40

we want that mentality of we're all pulling

10:43

together to achieve a common goal.

10:45

And also we recognize that given we

10:47

have a rather concentrated portfolio and very

10:49

long voting periods, that typically

10:52

any one investor on our team

10:54

is not gonna have enough stocks to consider

10:56

it to be a valid sample set.

10:58

And then lastly, and it may sound a little corny,

11:00

but it's very important to us, we really do

11:03

spend a lot of time trying to make sure we

11:05

have a very strong sense of someone's sense of integrity,

11:08

whether or not they conduct themselves with the utmost

11:10

ethical values, et cetera. So those are

11:12

some of the things that we perhaps put a little more emphasis

11:14

on than others.

11:16

On the topic of emotional consistency,

11:18

what episode across your

11:20

entire investing career most

11:23

tested your personal emotional

11:25

consistency or stability, I guess you could say?

11:28

Well, that's a hard question, this is a very long

11:30

list.

11:31

If I get back to early years at Tiger,

11:34

and this is back in 91, we had bought

11:36

a lot at Oracle and I

11:38

had concluded and actually wrote a memo

11:40

that technology tends towards standards

11:42

and became very clear to me in the database

11:44

world back then

11:46

that Oracle is becoming that standard

11:48

and there are these flywheel impacts about

11:50

what that means and there's other products they

11:52

can sell and customer switching, et cetera, et cetera.

11:55

And I think my basic thesis is right.

11:57

So we started to buy a decent sized position.

12:00

and they missed a quarter by an order of magnitude

12:02

that was hard to comprehend. And if I

12:04

recall, the stock went from $11 to $6

12:07

and there was such stress on the balance sheet, its

12:10

ability to

12:12

survive was all of a sudden brought into

12:14

question. And this was obviously a challenging

12:16

discussion would join,

12:18

but I did convince them this would be

12:20

the absolutely wrong time to sell,

12:22

even though I felt management

12:24

had not been fully forthright and certain

12:27

issues. But it was a real gut check

12:29

because at that point in time to say,

12:31

yeah, Joey, I was wrong, we just sell. I don't

12:34

think would have been great for my career, but

12:36

more importantly would not have been great for Tiger

12:38

because that ended up being a very successful investment.

12:41

So you have to take those moments

12:43

of disappointment.

12:44

One of the phrases we use, hey,

12:46

we're not playing football, we're playing chess. Getting

12:49

wound up and emotional

12:51

is just really counterproductive. We

12:53

have a new set of facts today.

12:55

Let's understand how that impacts our longer

12:58

term view. Let's compare what the market

13:00

is offering us in terms of value today versus

13:02

what we now think the longer term value is.

13:05

And if it's an opportunity, let's take advantage

13:07

of it. And it's clearly not an opportunity, then

13:09

let's move on and work that as a loss and

13:11

start focusing on the next investment. The

13:14

last thing you listed there, this notion of ethics and

13:16

integrity and sussing that out in somebody

13:19

feels like one, incredibly important. I

13:21

know it's incredibly important to you, especially

13:23

given how long people have tended to stay at Maverick.

13:25

So it can be something that defends you against bad

13:28

situations for a long time, but also

13:30

seems very hard to suss out in an

13:32

interview process. So how do you do

13:34

that? How do you come to peace with

13:37

that aspects of someone's background

13:39

or character or

13:40

worldview or whatever during an interview process

13:43

specifically?

13:44

Well, and this is really important, not just

13:46

for potential members of the team, for

13:48

management teams as well. And we go about it

13:50

a few ways. One, there are certain questions

13:53

that you tell me about a difficult situation

13:55

you were put in and how you resolve it. If you

13:57

ask those questions to enough different

13:59

people, you do start to develop a

14:02

sense of who struggles with some of those

14:04

and who doesn't. But I mentioned earlier, we do

14:06

a lot of testing. Most of that is personality

14:08

testing. And these questions seem

14:10

bizarre. Would you rather clip

14:13

the hedges or mow the lawn? And yet,

14:15

the sum of that is a very long test. You got a lot of these strange

14:18

questions.

14:19

Tensor integrity is one of the factors that

14:21

they do try to evaluate. And there's been

14:23

some evidence that they've done that rather well,

14:25

just to give you the example of how far we'll take things.

14:28

We actually hired a group of ex-CIA

14:31

interrogators who call themselves BIA,

14:34

the Business Intelligence Analyst, to

14:36

train us on interviewing people.

14:38

And again, helpful in both the interview process, but

14:40

also in the management teams. And they're basically

14:43

trying to teach you how to be a human

14:45

lie detector test. And there are all these

14:47

things about little tells and how

14:49

they anchor their arms and their feet,

14:52

where they look, hesitancy

14:54

to respond, obfuscation.

14:57

No one of those little things in itself

14:59

goes, aha, this person's not being honest. But

15:02

as you start trying to compile

15:04

a lot of those different signs, it may

15:07

relay where someone's just being flat out dishonest,

15:09

but what's even more likely, it helps

15:11

you understand where they're clearly uncomfortable. So

15:14

that's played a role. And despite all that,

15:16

you do make mistakes. And I think

15:18

it's worth pointing out, for a training

15:21

period, which every new member of the investment team

15:23

goes through each year, the first session

15:25

has been taught by me, for

15:28

the past 15 plus years, and it's entitled, Integrity

15:31

and Ethics. And we spend the entire time trying

15:34

to make sure people fully understand how

15:36

damaging even a small

15:38

lapse of judgment can be,

15:40

not just to you, but to everyone else at

15:42

the firm. And also that this is

15:44

the one area where we do not give second chances.

15:47

You can't get to work on time, we'll buy

15:49

an alarm clock. You seem to have a drinking problem,

15:52

we'll send you to rehab. But if

15:54

you, in any way, shape or form, make

15:57

a statement or conduct yourself in a way we

15:59

think is... does not reflect a total

16:02

understanding of the importance of ethics,

16:04

we'll let you go. And we'll let you go immediately. And

16:06

we're upfront again from day one.

16:09

And that happened, that's happened in the firm system. That's

16:11

happened a couple of times unfortunately. And again, over

16:13

issues that I think at most firms will be considered

16:16

rather minor, hey, please don't do that again.

16:19

But we just decided early on,

16:21

if we're gonna really emphasize how important

16:23

this is,

16:24

that's the appropriate reaction. And secondly,

16:27

if someone was thinking about, oh, I could

16:29

get away with this,

16:30

making sure they fully understand the ramifications

16:32

of doing that. So it all goes back to

16:34

having environment were very transparent

16:37

about mistakes as much as anything else.

16:39

I wanna go again back to the beginning seeds

16:42

of Maverick and why you decided to do

16:44

it when you decided to do it in 1993. What

16:47

was the precipitant that made you think, okay,

16:49

now it's time to strike out on my own and

16:52

build something separate from Tiger?

16:54

I clearly was not looking to leave. Joining

16:56

was treating me extremely well, both in

16:58

terms of compensation and responsibility.

17:01

I loved everybody I worked with, but

17:03

I was approached by a family, a

17:06

guy named Sam Wiley, who was really serial

17:08

entrepreneur. And he was sworn up

17:10

to recognize, huh, this hedge

17:12

fund business model, that's pretty attractive,

17:14

that works. Let's start one of those.

17:17

He at the time was the CEO

17:19

of two different public companies.

17:21

One was a software company, one was a retailer.

17:24

And they were both companies I happened to know well.

17:26

When he went to those management teams, asked

17:29

for ideas, my name came up in both cases. So

17:31

we started talking, enjoyed our conversations,

17:34

but made it clear I had absolutely no interest

17:36

in leaving. Sam's a pretty competitive

17:38

guy. So he kept making the idea of

17:40

leaving more and more and

17:43

more attractive. And I did know

17:45

that I always, again, I started

17:48

playing with socks when I was quite young. I always

17:50

had this objective

17:51

to have my own portfolio, to have

17:54

my results purely determined by my decisions

17:56

and have it be very clear what those were.

17:59

And it was clear to me.

17:59

that was very unlikely to happen

18:02

at Tiger. Again, joining him was this

18:04

very senior guy that we all held incredibly

18:06

high regard,

18:07

but he made every single final decision.

18:10

And the only catch was I really didn't

18:12

think I was ready for that responsibility. At

18:14

the time I was 28 years old,

18:15

I'd only been at Tiger for three

18:18

years, but at some point it hit me,

18:20

okay, easily, you're gonna wake up

18:22

two, three, five years, who knows, and

18:24

decide that you're ready, but no one's

18:27

gonna offer you the opportunity that these guys are

18:29

being generous enough to put in front of you. So

18:31

I decided I really had to force myself to pull

18:33

the trigger. In hindsight,

18:36

that was pretty naive. I don't think I fully understood

18:38

the challenge I was getting myself into,

18:41

but luckily it worked out. What were

18:43

the hardest parts about launching

18:45

the business itself back

18:47

in those days? Well, there

18:49

weren't a lot of precedents. So

18:52

one person had left Tiger at that point,

18:54

David Gerstenhauverster, Orgnot, which was

18:56

a macro fund.

18:57

Today, you can go to a prime broker and

18:59

say, hey, I wanna hang my shingle, and boom,

19:02

overnight, you have

19:03

the whole apparatus, springs to action. And

19:05

you have all your systems, you have people

19:08

helping you raise money, Cap-Intro people, et cetera,

19:10

et cetera.

19:11

None of that really existed.

19:13

And we started a pretty small basis. We started with $38

19:15

million, most of which came from

19:17

the Wiley family back then.

19:19

The hardest parts were getting

19:21

recognized, convincing people to even

19:24

meet with you. The name Maverick certainly

19:26

didn't help.

19:27

I chose that name because I was 29.

19:29

I thought it sounded pretty cool when I

19:32

was living in Dallas and wanted to reflect that,

19:34

but realized my first management

19:37

meetings or potential investor meetings in Europe,

19:39

what is this Maverick you shoot from the hip? Oh,

19:42

no, no, no, no, we're actually very, very

19:45

conservative. Dude, why this name Maverick?

19:47

I don't understand. I remember distinctly

19:49

being in Geneva going, oh, Ainslie, you're an idiot,

19:51

what did you do? So that created

19:54

some challenges. And then like everything else,

19:56

performance drives all, we started October 93

19:59

in our first quarter.

19:59

had a strong start, but again, it was on tiny

20:02

assets. We had an okay 94 up

20:04

mid single digits during a year that was quite challenging

20:07

for most hedge funds, at least in Amazon,

20:09

the public equity side.

20:11

And I just don't remember beginning of 95, this

20:14

is make or break. We don't have

20:16

a good year in 95 running this firm, the

20:19

economics of this firm are not gonna make

20:21

sense to continue

20:22

and I'll be back in New York looking for a job.

20:25

Luckily we did have a strong 95 and even a

20:27

better 96 and then has

20:29

to start growing and all that took care of itself,

20:32

but it was a challenge.

20:33

You and I were talking at lunch about the three jobs

20:36

of someone running an investment firm that

20:38

it's probably hard to appreciate if you haven't done

20:41

that specific job, how hard it

20:43

is to do all of these things well. And I wanna talk about

20:45

what you've learned about each of the three responsibilities.

20:48

So those being selecting the assets, whatever

20:50

the stock picking, whatever you wanna call it,

20:52

building and managing the portfolio, managing

20:55

risk portfolio construction and

20:57

building the business. And we'll probably tackle them in

20:59

that order because I think they build upon each other. So

21:01

starting with stock picking, you said at age 13, I

21:04

think was when you first started getting into this.

21:06

So you were young, you caught the bug, so to speak.

21:09

In the early days, as you were learning about

21:11

this from great teachers that you've mentioned,

21:14

what was your early conception of what makes a

21:16

great investment or a great business and how

21:18

those two things relate to each other?

21:20

Well, it depends. I went to engineering

21:22

school and I think that gave me some perspectives

21:24

of

21:25

different ways of trying to evaluate

21:28

and analyze different businesses

21:30

that probably would not have had and then I was a

21:32

consultant for a couple years focused on small

21:35

businesses and that gave me a lot of insight

21:37

into how businesses ran.

21:39

In some ways, probably the best job

21:41

when I was in college paid my way,

21:43

but developing systems for small businesses

21:46

and the one where I had the most intensive

21:48

interaction over a couple of years was a small

21:50

printing company,

21:51

which in hindsight was so cool because it was

21:54

both a manufacturer and

21:55

a service oriented business. And so

21:58

we built a lot of systems to track. costs

22:00

accounting, inventory control, uses

22:03

of presses, labor management.

22:06

And yet, on the other side, we did a lot to track

22:09

advertising expenditures, IR, customer

22:11

acquisition, now that you price things. So

22:13

at the time I got to start investing

22:16

for real, I do think I had a strong

22:18

understanding of different business models,

22:21

a very strong understanding of the importance

22:23

of moats or these defensible

22:25

positions.

22:26

I think, again, given a little bit my background

22:29

in leading a tech effort at Tiger, really

22:32

understood the value

22:34

of sustained growth and also how challenging

22:36

it is to sustain growth. And working

22:38

with Steve and others at Tiger, obviously I've learned

22:41

a ton by how they thought Steve, for example,

22:43

was always super focused on the individual

22:46

unit economics, developed a better

22:48

appreciation from that.

22:49

So I think by the time I was really

22:52

picking socks, I did have a fairly good

22:54

understanding of the attributes. I

22:56

was looking for, and yet

22:58

to this day, I think my ability to

23:00

identify those attributes

23:03

correctly continues to improve day after

23:05

day. Hopefully that's true for everybody at Maverick.

23:08

How does that happen? So let's say that each business

23:10

has a couple of key attributes,

23:12

variables, whatever you want to call them, that are going to be

23:14

the drivers of success or failure. And

23:17

if you understand those better than the market, maybe

23:19

it's a big opportunity.

23:21

How has that evolved?

23:22

What would be examples of

23:24

a way you look at a business today that you think

23:26

is significantly more productive than how you

23:28

might've looked at it 10, 20, 30 years ago?

23:31

Well, you know, back 30 years, people forget there

23:33

was no internet, there was no email. You

23:36

want to get to 10Q, it usually came by

23:38

the fax machine. And if you happen

23:40

to pour through the 10Q in an hour,

23:43

you are now at a huge informational advantage to

23:45

everyone else you were competing in. So

23:47

it was just a much, much less competitive

23:50

environment. I remember going to

23:52

IPO launches in 1990

23:54

and recognizing about half the guys there

23:57

were having their two martinis

23:59

and thinking, wow. How are they going to get

24:01

anything done? Go back to the office. It's

24:03

just a different world. Today it's almost,

24:05

I would argue, the opposite where the challenge is, how

24:08

can you possibly survive the

24:11

tidal wave of information that comes at you

24:13

every second? There are so many self-sided

24:15

reports. You could use the internet

24:18

for days and days and days. There are podcasts

24:20

like this. There's a lot of discussion about stocks

24:22

on TV. It's a very different world.

24:25

So some of the basics, back

24:27

to your question, I think are so present.

24:30

Can you have meaningful dialogues

24:32

with customers, with competitors, with

24:34

suppliers? Can you triangulate

24:36

what you're hearing from a company?

24:38

This is more challenging these days than it used to

24:40

be. Thanks for RAG-FT.

24:41

But we like to talk to several different members

24:44

of management, look for consistency of

24:46

answers. We like to talk to the same members

24:48

of management over time,

24:49

look for consistency of answers. But now

24:52

we also have data that helps support

24:54

what we're trying to understand in terms of business

24:56

trends. So we first went down the path

24:58

of investing and trying to develop a quantitative research

25:00

effort in 2006,

25:02

which is still a really important part of what we do. But

25:05

in 2015, we turned that talent to

25:07

focus on alternative data. And

25:09

can we recognize, or do you want to call

25:11

them alpha signals or KPIs?

25:15

Are there ways of tracking different elements

25:17

of the business through data? That's

25:19

not perfect, but it gives us some greater

25:21

clarity.

25:22

And after working on this for almost eight years

25:25

now,

25:25

we can touch every single industry

25:28

in which we invest in terms of using all

25:30

that to give us some insights. Now, to be

25:32

clear in certain industries, it's far more effective

25:35

than it is in others,

25:36

but yet it helps us have an indication

25:38

of different trends and all that gives us a

25:40

slight edge.

25:42

How do you think about the different

25:44

edge that you can source from? You talked about informational

25:47

already and how that's evolved. There's analytical,

25:49

there's behavioral, there's a couple of different ways that you can

25:52

have a persistent edge. How do you answer

25:54

that question for Maverick itself, the

25:56

business?

25:57

How do you get and maintain?

25:59

an edge versus your competitors

26:03

when the world is so competitive

26:05

and full of information and fast and

26:07

connected and all these things. Seems like a daunting

26:10

task. So how do you think as

26:12

the architect of this system, back to your system

26:14

engineering days,

26:16

about that edge inside the investment

26:18

business itself?

26:19

I've always felt investing is really

26:21

a matter of doing everything you

26:23

can to slightly improve your

26:26

odds. In other words, you're not going to find this

26:28

magic algorithm or magic bolt, no one else

26:30

has thought up and aha, I've got this huge advantage

26:32

now, no one else has.

26:34

But it's can we do a slightly

26:36

better job of gathering information? Can we do a

26:38

slightly better job of interpreting

26:40

information? Can we do a slightly better job thinking

26:43

about risk?

26:44

And all those little slightly betters I think

26:46

add up to be hardcore advantage. So just to

26:48

give some examples,

26:49

we'd simply only have three, two, five

26:52

investment positions per investment

26:54

professional.

26:55

I think you'll find that ratio is a fraction of

26:57

what you'll see elsewhere.

26:59

So right there where we're talking about the level of due

27:01

diligence, it's quite unusual.

27:03

You combine that with the fact that we have much

27:05

longer holding periods than most long short

27:07

funds.

27:08

On the long side, we average 17 months. On

27:10

the short side, it's 13 months.

27:12

So people focus on fewer and fewer positions

27:15

and yet interacting with those

27:16

management teams for a longer period of time

27:19

helps us not only improve our understanding of

27:21

that business,

27:22

but again, developing real dialogues with

27:24

those that can give us insights into that business,

27:27

competitors, suppliers, customers. We

27:30

use quantitative research in several ways.

27:32

Every portion of the investment cycle is

27:34

informed by quant at Maverick. And

27:37

then even outside of all that, over

27:39

the years, we used to hire people to go count cars

27:41

and parking lots.

27:42

Now we do that by using satellite inventory.

27:45

Remember

27:45

one company in particular, which is extremely

27:47

successful short,

27:48

we ordered something from them once a week,

27:50

only so we can look at the PO number,

27:52

which told us how many POs they had processed in

27:54

the past week. There

27:55

are all these things we've done to try to have

27:57

a slight advantage in our business.

27:59

objective, and I can't say we've always fulfilled it, but

28:02

the objective has always been to never

28:04

be

28:05

at an informational disadvantage

28:07

to another public investor.

28:09

Because our depth of resources, because

28:12

how long we hold positions, there's

28:14

really no excuse for that to happen. Now it does,

28:16

obviously, but

28:17

to me, that's one of our most important

28:19

differentiating advantages. I think

28:21

I combine that with the depth and experience

28:24

of the team.

28:25

So the entire investment team is 29 individuals.

28:28

On average, they have 14 years of experience.

28:30

Importantly, 10 of those 14 years have been

28:32

within Maverick.

28:33

It's a team that has worked together for a long time.

28:35

And

28:36

if you look at our six senior decision

28:38

makers at Maverick, 21

28:40

years experience, 16 of

28:42

those years within Maverick. So it's

28:45

that talent, that experience,

28:47

combined with a better set

28:49

of tools and hopefully a better set of information,

28:52

there

28:52

are competitors that leads to what we hope ends

28:55

up being superior results.

28:57

You said earlier in the Oracle example

28:59

that a lesson you learned early in technology was

29:01

that you tend towards standards. And once someone

29:03

achieves that default mode, if you will, the

29:06

power that the business generates is enormous,

29:08

as Oracle did. Are there other features

29:10

like that that did or still

29:12

always get your attention as it relates

29:14

to an individual business, features of a business

29:17

that

29:17

are not

29:18

sufficient to buy the stock or belong

29:21

the stock, but just get your attention in a unique

29:23

way?

29:23

There's one magic bullet, but there's several

29:26

different aspects that can be very helpful.

29:29

One's to really understand secular trends.

29:32

Where is the world headed and who's

29:34

going to win and who's going to lose? Not

29:37

that you can't have a great investment without that secular

29:40

trend,

29:40

but it's a tailwind. So again, it improves

29:43

the odds if they had that tailwind at their back and

29:46

pretty short, but then that headwind in their face.

29:48

Thinking about competitive advantages. So we spend a lot

29:51

of time with industries trying to understand

29:53

the competitive positioning among different

29:55

companies.

29:56

We spend, I think, much more time than most folks

29:59

as we're working at companies. companies looking

30:01

at the quality management teams and not just

30:03

what they say. One of the things I concluded

30:05

a long time ago, almost anyone

30:08

who's the CEO of a large public company,

30:10

it's pretty darn impressive in that 45 minute

30:13

interview.

30:14

And they're smart enough to know what answers

30:16

you want to hear.

30:17

They won't be dishonest, but they will certainly shape

30:20

their answers to make it close to what you want to

30:22

hear.

30:22

So for us, it's much more important to judge

30:25

actions, what decisions did they make,

30:27

and how those decisions turn out over time.

30:30

And then as I mentioned earlier, going back and comparing

30:33

what they say they're going to do versus what they end up actually

30:35

doing.

30:36

So I think all those things do help you

30:38

have a better perspective.

30:40

When I say outstanding management team

30:43

and you think across your whole career

30:45

studying management teams, is there an example

30:47

that just flashes to mind?

30:50

Ed Breen had a couple of different

30:52

stops, leading up to Taiko being the

30:54

most impressive, but he's the guy that's had a total

30:57

situation where he took Apollo crap

31:00

and turned to something which was very rewarding for

31:02

shareholders.

31:03

And you look at what Satya has done at Microsoft.

31:05

He's just pretty amazing. And you don't mind, you could

31:07

argue, Jeff Bezos, the Amazon,

31:09

et cetera, et cetera. But I point to Microsoft

31:12

just because

31:13

where that business was headed

31:15

per conventional wisdom

31:17

and where it is, there are not anymore it is today where

31:19

it was just in two years

31:21

really shows the power of the CEO.

31:23

What was Ed Breen's method since he was

31:25

able to do it multiple times? What was his

31:27

operating style that unlocked that value?

31:30

That's a great question I should ask him next time

31:32

I see him. I would argue

31:34

something along the lines of brutal honesty,

31:37

he was very willing to take, I don't care

31:39

what we've done while you've done it, I'll start

31:41

from scratch. We call this the

31:43

fresh sheet of paper exercise. This applies to

31:45

Maverick.

31:46

We've always had the philosophy,

31:48

if we were given this amount of

31:50

money to invest today, how

31:53

would we invest it? If we didn't have any investments, have a fresh

31:55

sheet of paper, what

31:56

are we gonna do?

31:57

Okay, so why is our actual portfolio?

32:00

different than that. That's the ideal portfolio.

32:03

Let's move the actual to the ideal. And

32:05

I think Ed's always had the same approach when it comes

32:07

to business. What are my set of businesses? What

32:09

should be my set of businesses? Where is your

32:11

opportunity improvement? Where is your non-opportunity improvement?

32:14

And all of the obvious things as well in terms

32:16

of

32:17

cost controls, motivating people, rewarding

32:20

shareholders, using the balance sheet more efficiently,

32:23

et cetera, et cetera. But not many people have

32:25

had that kind of impact in three different industries

32:28

that Ed has.

32:29

What did you learn from Sol Price? You

32:31

got that quote.

32:33

And this applies to Maverick, but also applies

32:35

to other businesses. So

32:36

everyone's heard of Costco, but unfortunately,

32:38

Price Club is not as well known as it used to

32:40

be.

32:41

Price Club is actually the first warehouse

32:43

business. So both Sam's Club and

32:46

Costco copied Price Club. Price

32:48

Club was eventually bought by Costco. Why

32:50

Price Club is a great name in terms of

32:52

it conveys what the retailer's trying to do.

32:55

It's

32:55

also the name of the founder. It was founded by getting

32:57

Sol Price.

32:58

And one of my favorite business quotes from

33:01

Sol Price was, the

33:02

intelligent loss of business.

33:05

Now, what he was referring to is let's have

33:07

a really limited SKU count

33:09

so we can excel on the few SKUs

33:11

where I'm buying such force. We get great

33:13

pricing. We'll be able to advertise

33:16

them, push them, give them the end caps.

33:18

We're

33:18

going to excel on these smaller number of things

33:21

and not clutter our buying or the consumer's

33:24

mentality with all these different options. That's

33:26

something we thought about a lot in Maverick,

33:28

this corny, but 1995,

33:30

I wrote to myself our long-term strategic

33:32

plan. And it basically laid out by 2000,

33:35

by 2005, by 2010, what

33:38

I wanted Maverick to look like. And it

33:40

was essentially based on we're

33:41

going to start a new fund every X years.

33:44

We need to raise X assets, you know, many people you have

33:46

to hire. The new funds were

33:48

Maverick credit, Maverick currency, Maverick,

33:50

whatever. But somewhere between 1995 and 2000,

33:53

I started adopting that mentality. Wait a minute.

33:57

We know we're really, really good at

33:59

picking socks.

33:59

we know we're good at investing in equities.

34:02

I don't know if we would be as good at these

34:04

other things.

34:05

Let's focus our resources on what we know

34:07

we can excel. And

34:08

I think that principle has really served us and

34:11

our investors well.

34:12

The sole price impact on a hedge fund, really

34:14

cool. If you think about the second

34:16

part of the job, so obviously

34:19

you need to pick great companies and

34:21

invest in them, table stakes.

34:23

I think people probably have a hard

34:25

time that don't do this for a living, understanding

34:27

how challenging it could be to take, even if

34:29

you've got a bunch of great ideas, and

34:31

building a really good portfolio from

34:33

them.

34:34

What lessons have you learned there over the

34:36

years about doing that really well?

34:38

And here we could talk about the role that Quant plays.

34:41

We could talk just in general about

34:43

how you think about risk in a portfolio context,

34:45

not just risk in an individual investment context.

34:48

Talk us through the lessons of portfolio construction

34:50

and risk.

34:52

So at Maverick, at least, every investment we

34:54

make is driven on a bottom-up basis.

34:56

It is in the portfolio because our

34:58

team's concluded it is one of the very best uses

35:00

of capital. But then we look at that

35:03

collection of different ideas

35:05

to see where our portfolio ends up from

35:07

a risk perspective. And this really started

35:09

up until 2011. When we thought

35:11

about risk, we thought about our net exposure

35:13

or beta adjusted net exposure. And

35:16

then in August of 2011, when Treasuries

35:18

were downgraded, our portfolio

35:20

went sideways.

35:22

It performed much worse than you would

35:24

have thought possible

35:25

simply looking at those rather basic measures.

35:28

And it became very clear to me

35:30

that our approach to thinking about risk was not

35:32

sufficiently sophisticated. There were some important

35:35

things at work

35:36

we just weren't thinking about.

35:37

As I mentioned earlier, by then we had

35:39

a Quant team that had been at Maverick for five years

35:42

who had a lot of different tools at their disposal.

35:45

And we tried to take, again, fresh sheet of paper,

35:47

a completely different approach

35:49

to understanding the risk of work portfolio.

35:51

We could make this the entire podcast, so I won't try

35:53

to get too detailed. But

35:55

now we look at everything such

35:57

as order factor biases, how that can how

36:00

that compares to our history,

36:01

how that compares to the market, how that compares

36:03

to other funds,

36:05

a lot of tools to help us understand whether

36:07

those biases

36:08

are likely to be productive or unproductive.

36:10

A lot of things looking at risk appetites and

36:12

likely that those risk appetites are changing.

36:15

Indicators of what's happening in the economy in real

36:17

time, which ends up being 90% plus correlated GDP. So

36:21

it's a real time look at GDP.

36:23

A lot of work on other hedge funds, our

36:25

position and whether we share a position that

36:27

may be not productive going forward.

36:29

And the tweaks we've made out of that, it's

36:32

not that often, again, usually

36:34

we rely upon what we're getting from bottoms up perspective.

36:36

But when we have, whether it's

36:38

a factor or regional exposure that

36:42

we think may not be productive going

36:44

forward, we're very proactive in controlling

36:46

that. And I do think that's led to a risk

36:49

or volatility profile that we're proud of. There's

36:52

a spectrum here coming from the quant world.

36:54

I wanted to the spectrum, you could say, okay, just give

36:56

me your ideas. Maybe this is more like the platform

36:58

approach to the millennium and others. Give

37:00

me the ideas. And then the portfolio construction

37:03

is basically gonna be quantitative. It's just

37:05

gonna be rules-based. And then the other end of course would

37:07

be like no rigor around factor exposures

37:09

or whatever. Where do you think of Maverick

37:12

as sitting on that spectrum and that slider?

37:14

The extent to which it's not entirely rules-based.

37:17

And there's still at the end of the day, judgment,

37:19

position sizing, position selection, and so

37:22

on.

37:22

How and when does that play a role? And you

37:24

don't just purely hand it off to a machine.

37:26

So nothing is purely handed

37:28

off to a machine. As an example, Hardwood

37:31

Quant does for us is come up

37:33

with recommended position sizes

37:36

that looks at a lot of fundamental data that

37:38

comes from our team, no one else has.

37:40

But it also looks at a lot of off the shelf,

37:42

pretty typical quant factors. Looks

37:45

at odds of success, looks at transaction costs,

37:47

et cetera, et cetera, et cetera.

37:48

And makes a recommendation from the machine point

37:50

of view,

37:51

this position should have 2.8% of our

37:53

capital. The portfolio management team

37:56

looks at that. We especially pay attention to our big

37:59

outliers.

37:59

but human judgment is gonna have the final

38:02

decision

38:03

just because as you understand, there's a fundamental

38:05

weakness in quant

38:07

and that it doesn't really look forward. You

38:09

could argue it looks at

38:10

sell-aside estimates for revenues and earnings,

38:13

et cetera, et cetera. Gives us some glimpse of the world

38:15

looking forward, but it certainly doesn't understand

38:18

changes in secular trends or changes

38:21

in strategic positioning. Certainly does

38:23

understand

38:25

there's a new management team that's gonna do wonderful

38:27

things or there's a new management team that we

38:29

don't have confidence in.

38:31

Since we're fundamental investors, it's really important

38:33

to us that all final decisions are made by

38:35

humans,

38:36

but hopefully we're making more consistent,

38:39

more accurate, more informed

38:41

decisions by using quant as a tool

38:43

to support our decision-making process.

38:46

What are the hardest parts about

38:48

that aspect of the job?

38:50

What recurrent thing that you have to

38:52

face down

38:53

provides the most challenge when

38:55

making portfolio-constructing decisions?

38:59

Well, we're very fortunate in that

39:01

almost all the senior people at Maverick

39:04

started at Maverick. And you saw that in the stats

39:06

about how long people have been at Maverick, but every

39:08

one of our sector heads started

39:10

a year or two after college, they've grown up

39:12

at Maverick.

39:13

If you were to bring in a successful investor

39:16

from another long, short firm who's

39:18

five-plus years into his career,

39:20

he would think he landed on Mars.

39:22

You're making me do what?

39:24

So for a model for income

39:26

statement, cash flow balance sheet,

39:29

every element is picked up by

39:31

our quant systems. Therefore it has to

39:33

be entered in a pretty particular way. One

39:35

of the things the quant's gonna do is it's gonna screen

39:37

your model. Hmm,

39:39

you think revenue growth is gonna be 14%? Could

39:42

be,

39:43

but that would be a two-standard deviation difference

39:45

from historical.

39:46

Or you think incremental offer margins from the X.

39:48

You think whatever metric there

39:51

is, they're all screened against history.

39:53

Not that they're wrong,

39:54

but let's just recognize that's

39:56

unusual. Unless debate why you

39:58

have an assumption that outlives.

39:59

what you would expect, like in history, or

40:02

also not do it just for history, but versus

40:05

the sublicide.

40:06

Often, yeah, that's why we own

40:08

that sock, exactly. I get that, but

40:10

let's make sure we recognize that

40:12

merits discussion. So it helps us be, again,

40:15

certainly more efficient, hopefully more accurate investors,

40:18

but those things are head-scratching at first

40:20

for people that didn't grow up in Maverick.

40:22

It's just a lot of work. I don't like anything.

40:25

Well, they get the lot of work part, they may not always

40:27

get the incremental value part.

40:30

When it comes to the third leg of the stool, the notion

40:32

of building the business. If you

40:34

were addressing an audience of people that were all

40:36

about to embark on that journey, let's say starting

40:38

asset managers or hedge funds or whatever, investment

40:40

firms of different types,

40:42

what would you say have been the most surprising

40:45

challenges that they might then face in

40:47

their journey to create their own business

40:49

that maybe you didn't expect going in, but were really

40:51

important

40:52

challenges to building a good, enduring

40:54

investment business?

40:56

I'll answer it in real time rather in 1993 time

40:59

because the world has just changed so much. There

41:02

weren't a lot of long,

41:03

short funds. You had two

41:05

hedge funds, probably had 60, 70% market

41:07

share of the hedge fund space.

41:10

We have a little seeding business

41:12

where we've helped start funds that are starting up

41:14

and

41:15

give them a lot of advice, a little bit of capital, and hopefully

41:17

a sample of approval with our brand.

41:19

It's hard. I've been surprised

41:21

by there's

41:23

an escape velocity where you have

41:25

to be at least a hundred million, if

41:27

not more like 250 million, to

41:29

even get meetings, no matter how good your

41:31

numbers are. Secondly,

41:33

having solid risk adjuster

41:35

returns

41:37

does not do you any good.

41:38

You need to stand out, which I've included

41:41

to see now, it means you gotta take a lot of risk. If

41:43

you're starting out, you

41:45

better have numbers that two or three years into it

41:48

are pretty eye popping.

41:49

That's hard.

41:50

So the challenges of starting

41:53

a small firm today,

41:54

don't get me wrong, there will be another day behind

41:57

Warren's short and virtually no money. quite

42:00

well year after year after year, and it finally

42:02

became a real big business.

42:04

It's just the odds that happening are much more today

42:06

than they used to be. And the enduring

42:08

piece of advice I give everyone is,

42:10

you've got to make sure that

42:13

everything you do represents

42:15

integrity and

42:16

represents your ability to

42:18

do what you say you're going to do, because you

42:21

won't get a lot of second chances in those regards.

42:23

Fascinating comment that great risk congestion returns

42:25

is maybe necessary, but not a sufficient story

42:28

to build an investing business. One of the things

42:30

that's been really interesting in the world of hedge

42:32

funds has been the role that rates have

42:34

played just historically, whether it's related to

42:36

the short rebate or other aspects of

42:38

portfolio construction.

42:40

How do you think about

42:42

the role that zero interest rates

42:44

for so long in the post-financial crisis period

42:46

played in the attractiveness

42:49

of the opportunity set for this long,

42:51

short style of investing?

42:52

I'm amazed how often the higher

42:55

rates are good for hedge funds because short

42:57

rebates are higher.

42:59

Okay, true, but that's just a

43:01

very tiny part of the story.

43:03

So the HFRI and Long Short Index, which is

43:05

the most comprehensive hedge fund index, started

43:07

in 1990.

43:08

If you go back from 1990 and

43:10

look at how hedge funds, again, not

43:12

maverick, just the average Long Short Fund, did

43:15

when rates were over 2.5% versus under 2.5%, there's

43:19

some interesting data. Now,

43:21

first of all, people may forget, but that's about 50-50. In

43:24

other words, since 1990, the pet funds

43:26

rates went over 2.5, 47% of the time, so

43:28

it's a healthy sample set.

43:30

When rates were over 2.5%, on average, hedge

43:33

funds have outperformed the markets by 6.5%,

43:36

driven by 12% alpha.

43:39

Under 2.5%, they've underperformed

43:41

by 4% on the back of less than 1%

43:43

of alpha.

43:45

So clearly, higher rates is

43:47

a more productive environment, rebates

43:49

playing a tiny role in that.

43:50

I think what people forget, especially now, as

43:53

I sit on a computer for investment committees,

43:55

I can promise you the world hates

43:57

Long Short equity,

43:58

and with good reason.

43:59

the underperformance over the last 12 years

44:02

since the financial prices.

44:03

And then what really was the nail in the coffin last

44:06

year, a lot of funds were down

44:08

more than the market, even though the exposure is well

44:10

under 100%.

44:11

And I think people are missing that we are

44:14

now in a different world and likely to be in

44:16

a different world. And so we use that 2.5% benchmark and

44:19

you just look at futures curve. So

44:21

market is essentially predicting that

44:23

then funds will be between 3.7 and 5.5% for next

44:25

five years. So

44:28

no, we were near 2.5, which

44:30

I think is a fair way of saying we're likely to be over

44:32

that 2.5.

44:33

And what's also interesting about the over

44:36

and under 2.5%

44:37

is you just look at the rate of returns of the equity

44:39

markets is not that different.

44:41

When rates have been under 2.5, annualized is 9%

44:44

for equity markets over 9.7%.

44:48

So in terms of just looking at equity returns,

44:50

those worlds don't look too different.

44:52

But again, something else is going on. If

44:54

you think about the stats I mentioned earlier,

44:56

I compare it to you

44:58

have two swimmers, one slightly better

45:00

than the other,

45:01

and they're racing downstream.

45:03

Well, the delta between how they finish

45:05

has knocked me that big.

45:06

Okay, now turn it around. Now they're gonna

45:09

swim upstream.

45:10

Now we're gonna separate the men from the boys. Now

45:12

you're gonna more clearly see who that stronger

45:14

swimmer is. And I think the

45:17

same is true for companies when they're operating

45:19

in different capital costs. So

45:21

when capital is essentially free, it's

45:24

harder to understand which company

45:26

is making better decisions than the other, because

45:28

every use of capital is a good decision.

45:30

Who cares if it had a small return? The

45:33

investment was zero.

45:34

In a higher cost of capital world,

45:37

well, wait a minute, my cost of capital is 5%, and

45:39

I only got a 6% return.

45:41

That's a problem versus my competitor who got

45:43

the 14% return.

45:45

And so over time, higher cost of capital,

45:47

I think, becomes that more demeaning environment

45:49

that helps separate stronger companies from

45:52

weaker companies.

45:53

One way to look at that is, again, thank you,

45:57

thisThiswasselfrats, the big

45:59

revenue beaten misses and subsequent

46:02

stock reaction.

46:03

And so this is reported revenues versus

46:06

sell side expectations. They

46:08

beat, does the stock go up, they miss, stock go

46:10

down.

46:11

That correlation for the first six months

46:13

of this year,

46:14

was as high as it's ever been going back 20

46:16

some years, which is far back so we can track the

46:19

data.

46:20

And if you do look at other periods which had

46:22

the strong sorts, 96 and 99,

46:25

it wasn't a hot six months,

46:27

which then mean reverted.

46:29

In each case, that was the beginning of very strong

46:31

periods of returns.

46:33

And then began to mean not the driver, but

46:35

it's worth noting on the short rebate side.

46:37

So you short a stock, you borrow it, you

46:39

sell it,

46:40

but when you sell it, you get a pile of cash.

46:43

That cash pays an interest rate.

46:45

Here what's deducted from that rate is what you pay

46:47

to borrow a stock. So our

46:49

net is the highest it's been in 20 some

46:52

years. A, interest

46:54

rate is higher than it's been a long time. But B,

46:56

this is a whole different discussion.

46:58

What we're being charged to borrow is

47:00

about the lowest it's ever been because competition

47:03

on the short side is about as low as it's ever been.

47:05

That's so many people have given up on shorts. So

47:07

I

47:08

don't think people fully appreciate

47:11

how anomalous and how challenging

47:14

the free cost of capital world we've been living

47:16

in

47:17

for 12 years was to

47:19

all fundamental investors.

47:20

When you have stocks that are driven by or

47:23

did a Fed sale last night,

47:25

not how was earnings,

47:26

that's challenging for a fundamental investor. But

47:28

I think we're back in the world, which is more normal.

47:31

Again, thinking about rates,

47:32

long term average is 4.6%. So

47:35

the sale or two and a half is nothing crazy,

47:37

but it can have rates sustained at more

47:39

typical levels or even

47:41

anything less than free money.

47:43

It should be a very, very productive environment

47:45

for fundamental investors.

47:47

How do you make sure that your team is

47:49

best positioned for that whole opportunity

47:52

setup? So if you're right and the current is now

47:54

a headwind or assuming upstream, sorry,

47:56

don't mean to script the analogy

47:58

and the strength of the. swimmer,

48:00

your team is now going to get magnified.

48:02

How do you make sure that's the case? Because

48:05

you're also swimming against other great swimmers.

48:07

In this case, there's lots of now, probably versus

48:10

when you started,

48:11

incredibly well-trained, really

48:13

smart investors with incredible

48:15

access to data and information.

48:17

So yes, the absolute story is

48:19

clear cut as you just laid it out.

48:21

But what about the relative story of like, okay,

48:24

but the maverick sector PM still

48:26

has to

48:27

outdo other great investors out there that

48:29

are pricing the same securities?

48:31

Not to brag, but when you look at how

48:33

the average hedge fund in different regimes,

48:35

we did substantially better during all those regimes.

48:38

And the real question is, how do we keep that up? I

48:41

go back to, and it's already a little repetitive, but back

48:43

to the fact we have so much more focus

48:46

in every individual investment given

48:48

how few we have per person and given holding

48:50

periods.

48:51

I don't think many other fundamental firms

48:54

had developed what we have developed

48:56

both on the quant side, alternative data side.

48:59

And the other piece, and this has really been totally

49:01

helpful recently, where

49:02

we have a significant advantage

49:04

is the fact we've been investing in private

49:06

companies back to 1994.

49:09

We made that a more segregated focus

49:11

back in 04

49:12

and end up because we had so much success. We made

49:15

all those investments within the hedge funds.

49:17

A few of them worked out so well. Back

49:19

in 2014, we concluded too much of the hedge fund capital

49:21

was essentially locked up in these private investments

49:24

and that forces launching new entity altogether,

49:26

Marib

49:27

Ventures.

49:28

We have learned so much

49:31

over the years from those activities, from

49:33

talking to private companies,

49:35

some which we invested in, some which we haven't, but had

49:37

dialogues

49:38

that influenced our thinking on

49:41

disruption, on secular trends

49:43

that had huge impacts on public

49:45

companies.

49:46

That why the ventures business has become a very

49:49

successful business in its own right.

49:51

There's also extraordinary value just

49:53

into what we're learning through those

49:55

efforts day in and day out.

49:59

you're making these private investments,

50:02

which means you're in the flow of founders

50:04

and new companies and, like you said, disruptive

50:06

innovation. How

50:08

does that actually manifest? What are

50:10

some examples, let's say in the last 10 years

50:12

that you've been doing this, where you saw

50:14

something on the private markets and that

50:16

gave you some window into, again,

50:18

back to your notion of improving odds, what

50:20

might happen to

50:22

public market companies? Just give us a felt

50:24

sense of what that's like. I'm

50:26

giving an old one and a new one. So years

50:29

ago, probably 15 years ago, we

50:31

invested in a company called Core Valve,

50:33

which would put new valves in your heart,

50:36

but was the first company to figure out how

50:38

you can then size the valve perfectly

50:40

to fit what you're trying to replace,

50:43

as opposed to a doctor taking

50:45

their best guess from looking images and

50:47

then sewing it to get as close as they could. This

50:49

is a perfect fit that was done while

50:52

it was being put in your heart.

50:53

And as it became clear, wow, this

50:56

is really going to work. How's

50:58

it going to impact the people who make the old valves?

51:00

So one, that led to a great private investment and two,

51:03

led to two pretty good shorts as well.

51:05

Most recently, AI

51:06

has just been a great example

51:09

of where the public side and the private side

51:11

have been of a tremendous benefit to each other.

51:13

So just to give a little history, we

51:16

invested in Sam Altman's first company, Loop,

51:18

back in 2011 when he was at Stanford.

51:21

Sam ended up moving over to Y Combinator,

51:23

a very successful sitting platform. And he

51:25

brought us in as one of the early investors. We

51:28

had a long history with Sam and as part

51:30

of that, our ventures team had a very

51:32

early look at chat, GBT.

51:34

And like most of us, they went, holy

51:36

cow,

51:37

this is something different. What

51:39

does this mean? Where's this going?

51:41

And started making sure the public team was aware

51:44

of what the world was about to be aware of in a few

51:46

months.

51:46

And we concluded pretty early on that

51:49

the bottleneck to a lot of this will be GPUs

51:51

and video chips.

51:52

And as we started having more discussions

51:55

in 2022,

51:56

one of the leading LLM developers

51:59

told us, yeah,

51:59

our total compute budget in 22 is 10 million.

52:03

This year it's gonna be 100 million

52:05

and in 24 it'll be a billion.

52:07

Huh, that's a pretty quick ramp. One of

52:09

the lessons of investing around mobile and

52:12

the iPhone was it's great there's not

52:14

a lot of phones. Let's start thinking about what's inside

52:16

those phones.

52:17

Likewise, you just don't pick up an NVIDIA

52:19

GPU chip and ask it to do AI. There

52:22

are a lot of things that surround that to make

52:24

that work and we're talking a lot of those vendors.

52:27

Yeah, there's actually an order out there. It's da da

52:29

da da da, huh. Well that'd be

52:31

like half their revenues next year, are you sure?

52:33

So it became very clear to us late 22 that

52:37

there was gonna be a wild supply, demand,

52:39

mismatch for GPUs.

52:41

So we started thinking about ramification on

52:43

public side. Likewise,

52:45

you think about the last 10, 15 years, most

52:48

technology investors have been really focused on

52:50

software for good reason. And

52:52

same he's got thought of as commoditized,

52:54

it's very cyclical.

52:56

One reality over the last 10 years, the

52:58

number of semiconductor companies, this slightly

53:01

over a billion dollars is slightly down on the software

53:03

side that's more than doubled.

53:04

And yet collective market cap of those semiconductor

53:07

companies has grown fivefold and origins

53:09

have almost doubled.

53:10

So it's not what people have thought about

53:12

semi's in a classical fashion. So in this

53:14

new world where while the bottlenecks

53:17

are gonna be NVIDIA chips and other type

53:19

forms of compute power, let's go figure

53:21

that out.

53:22

Even Lord's long short funds are scrambling

53:24

to try to hire semi people.

53:26

I guarantee you virtually no one in

53:28

the venture world is semiconductor expertise.

53:31

What we do,

53:31

Andrew Hohmann who leads our technology efforts has

53:34

been at Maverick actually a little bit over 19 years now.

53:36

We first bought NVIDIA back in 2004.

53:39

I mean, this is a company we've known well for a long

53:41

time.

53:42

And as the venture's team is starting to

53:44

meet with some of these companies on the semi side

53:47

to bring in Andrew who's

53:48

been investing in the semi for 27 years and knows

53:50

all the management teams on a first team basis,

53:52

we were able to make some decisions that

53:55

I think other firm just didn't have the

53:57

knowledge and experience to make.

53:59

Those have already worked out pretty well. So our

54:02

venture team and private teams are

54:04

in meetings together all the time.

54:06

Andrew, the guy that runs technology

54:08

on the public side,

54:10

meets with the entire venture team once a week,

54:12

all just making sure, what did you hear this week? What did

54:14

you learn?

54:15

And I'll say there's sometimes the venture team doesn't

54:17

understand this turnover nugget,

54:19

that, oh wow, really? Because they don't understand

54:21

the ramifications for bigger companies. And

54:23

likewise, bringing Andrew's

54:25

relationships and his experience to

54:27

bear on these small private companies,

54:30

not only is helping us make better decisions,

54:33

but it's helping us win the deals.

54:35

Wow, here's someone that actually knows a lot. Oh, and you know

54:37

that guy and that guy?

54:38

It's a unique period, this whole different

54:40

line of discussion, but this kind of disruption

54:43

historically creates great opportunities.

54:45

I wanna come back to that disruption point, but make sure

54:47

I squeeze the last little bit out of the semis example,

54:49

because I think it's a great one.

54:51

Semis obviously became uninteresting, lots

54:53

of hedge funds and long-short managers, therefore everyone

54:55

left. There was no expertise,

54:57

but when you dig into why they're

54:59

interesting in terms of the

55:01

moats around the business, it's not that hard.

55:04

Dig into TSMC or Nvidia,

55:06

it's pretty clear why they're good businesses.

55:08

It's easy to say that now in summer of 23, of course.

55:11

But when you think about software, that same question for

55:14

software businesses, do you think it's as easy?

55:17

The narrative has been that

55:18

software business is the best business in the world, super

55:20

high margins, high retention,

55:22

can grow them cost effectively, and so on.

55:25

Obviously, there's some great public software businesses,

55:27

but do you think they're as defensible as

55:30

some of these semi-stories that you've spent decades

55:32

watching unfold and grow?

55:34

I think it's a really interesting point in time.

55:37

So software is king, software eats

55:39

the world, all these phrases proved

55:41

to be very true. You look over the last

55:43

dozen, 15 years, software businesses

55:46

gained tremendous market cap, garnered

55:48

tremendous value add, et cetera, et cetera,

55:51

but you need to think about what drove

55:53

that. And to me, it's a few different issues.

55:56

A,

55:57

not very capital intensive, B,

55:59

switching. costs. And while walking in Maverick

56:01

and say, hey guys, it's already Monday, we're not going to

56:03

use Excel, we're going to use Google documents, whatever

56:06

they're being up for. The network effect,

56:09

there's

56:09

a reason we use Instagram and not

56:11

something that no one's ever heard of because your friends aren't

56:13

on that one.

56:14

Just the value of having a better mousetrap.

56:17

There's a reason you don't use Altavista or

56:19

Yahoo to search because Google came

56:21

up with a better solution

56:23

that everyone gravitated towards, and it virtually

56:25

cost us white. And then just critical

56:27

mass.

56:28

Well, AI turns a lot

56:30

of that on its head.

56:32

So the infrastructure costs are now sky

56:34

high.

56:35

Again, talking to private companies, they're

56:37

for one, but another very large company said, you

56:39

know, we're just finally starting to get our heads around that

56:41

we've looked at our cost structure. It's not going

56:44

to be 90% labor and 10%

56:46

infrastructure costs. It's going to be the opposite.

56:48

Aren't higher, everything we do,

56:50

Microsoft just put in their annual report,

56:53

a material risk, they may not get enough

56:55

access to GPU chips to maintain

56:57

their competitive positioning. That's

56:59

an interesting line item.

57:00

So the low cap X roles, mind you,

57:03

switching costs, who cares what

57:05

AI engine you're talking to

57:07

chat, GBT, obviously is amazing, but anthropic,

57:10

probably the number two player just released cloud

57:12

to

57:13

there's a lot of things where it blows chat, GBT

57:15

away chat,

57:16

GPT does some things better as well. But

57:18

there's more than one of these. There

57:21

is no user interface. You just type in your question

57:23

or talk to it. I

57:24

don't have to be retrained. I can use either one

57:26

network effect.

57:28

Some would argue, well, chat GPs

57:30

gets sporter and squirter of all the more and more questions,

57:32

but you don't want chat GBT to

57:35

be taking in your knowledge. You don't want your knowledge

57:37

to be accessible at the public. Number one, number

57:39

two,

57:40

chat GDP does want to be driven by

57:43

people putting in garbage.

57:44

So I don't think there's going to be a huge network

57:46

effect. And then

57:47

finally, in terms of the better mousetrap, it

57:50

doesn't really matter for 99% of use

57:52

cases for an

57:54

AI engine.

57:56

What was Robert Breford's best

57:58

movie?

57:59

You can get a pretty similar.

57:59

range are slightly different, who cares? So write

58:02

me a poem about

58:04

this Oak Conference Table and the

58:06

style of Robert Frost.

58:08

They'll be slightly different, but they'll all be good enough.

58:10

Now, gee, please read my

58:13

radiology report. Okay, maybe I want

58:15

the best one now. But for most

58:17

things you're gonna use it for,

58:19

if one's slightly better, you're not gonna be able

58:21

to tell, so I mean discernible. So I think,

58:23

and I went back to the last decade how semiconductor

58:25

margins almost doubled. At the same

58:27

time, cell phone margins have already been degrading.

58:30

They're 29% down to about 24% today.

58:33

I think that may continue. I think the ability

58:35

for star for companies

58:37

to maintain their moats, if you

58:39

will,

58:40

will become more and more challenging. Not that they

58:42

still won't be great businesses for a long time.

58:45

Going back to what we were talking about earlier,

58:47

technology tends towards standards,

58:49

which is a memo I wrote back in 91. I

58:51

think it's been a pretty useful paradigm

58:53

as we think about technology. I'm not sure

58:56

that's true anymore.

58:57

Is that the key idea to understand

58:59

the standards idea around investing through

59:02

periods of disruptive innovation? You

59:04

mentioned the iPhone. It's discreet, it's not

59:06

continuous. The thing didn't exist and then it

59:08

existed. It became the dominant platform

59:10

and everyone builds on it and all this stuff happens. And

59:13

obviously investing in companies around

59:15

that platform change

59:17

led to a lot of fortunes. You all of a sudden

59:19

enable companies to exist that couldn't before.

59:22

What are those lessons? Is it the standards thing?

59:24

Is it something else? How do you think about

59:26

if we're faced with another one here today, right

59:28

now,

59:29

what are the key things you're telling your team? This is

59:31

what you need to know from what we've learned from history.

59:34

Well, unfortunately, I'm old enough that I've been through

59:36

a few of these. That's why I'm asking you.

59:40

I first met Michael Dell, probably 91.

59:43

We're both in our mid 20s and saw what

59:45

the PC revolution did to DEC,

59:48

IBM, et cetera. First met Jet

59:50

Bezos in 98.

59:52

Amazon had a $400 million market cap.

59:54

In Altavista, it was a much bigger company back then.

59:57

Then of course we saw mobile and the rise

59:59

of Apple.

1:00:00

cloud computing, software as a service, and

1:00:02

I mean a few of these disruptive technological changes.

1:00:05

Maybe you could argue internet's going to be as

1:00:08

big in hindsight, but I really think AI will be bigger

1:00:10

than any of those.

1:00:11

And so we try to look back at all those and

1:00:13

see what lessons we can learn and hopefully

1:00:16

we can avoid some mistakes as well.

1:00:18

And I'd say it's really twofold in our minds

1:00:20

to recognize that these disruptions

1:00:23

create winners and huge

1:00:25

losers.

1:00:26

In AI, we have some ideas. I still

1:00:28

think it's a little early. It's not as obvious.

1:00:30

Number two, don't forget about

1:00:33

the peripheral players. A little while ago, we

1:00:35

were talking about when we were thinking about the GPUs,

1:00:38

what other components are needed to make those GPUs

1:00:40

work. So we'll

1:00:42

just take Apple and the iPhone. As

1:00:44

well as Apple SOC did, they're

1:00:46

actually in terms of percentage gains. Some

1:00:48

of their components players did even better being

1:00:50

along for the ride.

1:00:52

But you look at their competitors. So 2007, the

1:00:54

iPhone comes out.

1:00:56

Both Apple and BlackBerry or RIM

1:00:59

have about a $70 billion market cap.

1:01:01

Year one, RIM actually goes up over

1:01:04

Apple, doesn't have great security. Oh

1:01:06

my God, who wants to type on a flat screen?

1:01:09

Give me my keyboard.

1:01:10

But by after about 2008, it became

1:01:12

pretty clear

1:01:13

where we set it. You go to 2012,

1:01:16

Nokia's gone from 100 billion market

1:01:18

cap to 10.

1:01:19

BlackBerry went from 70 then 80 to 3 and Apple went

1:01:22

to 600 and now

1:01:23

it's 3 trillion.

1:01:26

But the winners aren't just going to have a bad

1:01:28

quarter.

1:01:29

It's going to be much more extensive than the last

1:01:31

longer.

1:01:32

So as we think about this world of AI, identifying

1:01:35

winners and losers, identifying

1:01:37

the peripheral plays of you all, the secondary

1:01:40

effects

1:01:40

is something we've been really focused on

1:01:43

since late last year. I think being ahead

1:01:45

the curve helped us a little bit. And again, that was thanks to our

1:01:47

private team.

1:01:48

And in the private world,

1:01:50

as you can guess, there are so many talented

1:01:52

people on so much money trying to chase

1:01:54

after different ideas. And I think

1:01:57

a lot of our competitors frankly don't have

1:01:59

the background.

1:01:59

ground to really evaluate those efficiently. So we'll

1:02:02

see.

1:02:02

What has been your personal strategy

1:02:05

for staying up to speed on

1:02:07

an increasing pace change

1:02:09

of innovation in all these

1:02:11

different fields?

1:02:13

You mentioned Sam Aldman, and I wonder if part of this

1:02:15

is just get aligned with the right people

1:02:17

because so often, Sam's a good

1:02:19

example, Elon's an example, the most talented

1:02:22

people are actually now doing multiple things across

1:02:24

multiple technology fields.

1:02:26

So is it people-centric? Is it something different?

1:02:28

I'm even curious, are there specific things

1:02:30

you read or conferences you go to or like literal

1:02:33

actions that you feel have most contributed to staying

1:02:36

up to speed

1:02:37

in, again, a world that's drinking from a fire hose all

1:02:39

the time?

1:02:40

Absolutely, personal relationships are really

1:02:42

important for all the bad

1:02:45

press, deservedly so, that San Francisco

1:02:47

gets.

1:02:48

First quarter of this year, there

1:02:50

was twice as much money, VC

1:02:52

money, invested in companies based in

1:02:54

San Francisco than the rest of

1:02:56

the United States combined. And that's

1:02:58

still where it's at. And I think AI actually

1:03:01

is going to make that even more true.

1:03:03

And so yes, to have relationships with people

1:03:05

that are thought leaders and also who

1:03:07

attract a lot of talent around them

1:03:10

is very helpful.

1:03:11

You start the question, personally,

1:03:13

I'm very fortunate in that I work

1:03:15

with extraordinarily talented people that

1:03:18

will give me this disease of

1:03:21

things they've read, things they've heard, that

1:03:23

you really should focus on this one, whether it's

1:03:25

a sell side report or magazine article,

1:03:27

et cetera.

1:03:28

But it's a challenge. We

1:03:29

haven't really talked about analysts and developing analysts,

1:03:31

but one of the most common reasons

1:03:34

a person on paper that should be a home

1:03:36

run

1:03:37

doesn't really make in our world

1:03:39

is because up through being

1:03:41

a investment banker, college, et cetera,

1:03:43

they lived in a task oriented world.

1:03:46

Break this paper, turn it in, take this test, great.

1:03:48

Build this PowerPoint presentation, build the

1:03:50

Excel model, yes sir, what's next.

1:03:52

And we've turned them into our world.

1:03:54

There is no what's next. It's every second every day.

1:03:56

You got new things floating around and you're

1:03:58

never thinking

1:03:59

about it.

1:03:59

You never can say, hey, I

1:04:02

talked to every single customer, every

1:04:04

single supplier, and every single competitor, and

1:04:06

every single employee. I'm not, it

1:04:08

just is not possible. And so

1:04:10

your questions are really critical on how

1:04:12

do you make the right decisions

1:04:14

to use your time as reductively as

1:04:17

possible to stay on top. And that's everything

1:04:19

from being pointed in the right direction

1:04:21

to having a nose of what's going to be important, not important,

1:04:24

to have experience. I've read every time I read something

1:04:27

or listen to this podcast, it's really

1:04:29

been useful. Let's do more of those.

1:04:31

But I think it's a really challenging question these days.

1:04:34

You say a bit about the

1:04:35

topic of money.

1:04:37

We're an industry that's funny. It's literally the product

1:04:39

is turning money into more money.

1:04:42

It's the scoreboard. It's a motivator. It's

1:04:44

compensation. It's a key part of what drives the ecosystem

1:04:47

of talented investors.

1:04:48

And I'm trying not to get too specific with my question.

1:04:51

And start by just asking, like, what have you learned about money?

1:04:55

Seeing a lot of it,

1:04:56

being in an industry that's so focused on

1:04:58

it as a thing.

1:05:00

What big lessons have you taken away on a strange

1:05:03

topic when you step back and think about it?

1:05:05

It's officially the most open question I've ever gotten

1:05:07

in my life. Congratulations.

1:05:09

So as it relates to Maverick,

1:05:11

I mean, it goes back to who we're trying to attract.

1:05:14

We try to make sure people are focused on

1:05:16

the net present value of their economics

1:05:19

over the next five, 10 years. And did you have the

1:05:21

opportunity to make more money somewhere next year? Yeah,

1:05:23

probably, but think it through. And that becomes or

1:05:25

counters some of the platform type businesses.

1:05:29

For whatever reason, our first all at Tiger and true

1:05:31

at Maverick as well.

1:05:32

When there is more money at stake, the more

1:05:35

people care about it, even though on absolute

1:05:37

terms, wait a minute, you should be the happiest guy on the earth.

1:05:40

Even things are tough. And

1:05:41

there's not a lot of money because we didn't have a good year.

1:05:44

People don't get us concerned.

1:05:46

People are always more concerned about how

1:05:48

they're compensated on a relative basis.

1:05:51

Not relative to the value they added, relative

1:05:53

to what their friend made,

1:05:55

whether that friend works at Maverick, works at a different

1:05:57

firm.

1:05:58

And I get that. human nature?

1:06:01

Well, it's one measure of status,

1:06:03

if you will, and I may more need to agree.

1:06:05

And again, going back to being fair and

1:06:08

make sure we have this balance of a team

1:06:10

orientation and meritocracy, I

1:06:13

worked really hard, maybe not in any

1:06:15

one year, but if I look,

1:06:17

one of the things we do do, we have four different metrics

1:06:19

that we track that drive the compensation decisions,

1:06:22

and we look how each team does in each

1:06:24

of those metrics, whether trailing five years, three years,

1:06:26

and one year.

1:06:27

And I also have a lot of different metrics regarding

1:06:29

how a team got compensated in different ways.

1:06:32

Over time,

1:06:34

which team got compensated the most and which team

1:06:36

had the best metrics should be highly aligned around

1:06:38

not doing my job.

1:06:39

And that's been true just a long

1:06:42

time ago.

1:06:43

At Tiger, there were times that people would, after

1:06:45

they got their comp, go on the next day and say, I don't think

1:06:47

it's really fair. I think I deserve this. And here's

1:06:49

why.

1:06:50

In the systems back there aren't that great.

1:06:52

And every now and then, that worked. Oh, you get my money.

1:06:55

But once the word got around, you felt like an idiot

1:06:57

if you didn't feel back in National.

1:06:59

And about year two, at Tamaic,

1:07:01

had someone do that, and I held

1:07:03

a firm-wide meeting the next day and say,

1:07:05

look,

1:07:05

there is someone here who's asked me to review their compensation.

1:07:08

I just want everybody to know the policy. I'm happy

1:07:10

to review it. I can promise you it will not go

1:07:13

up. Some chance it will go down. But

1:07:15

if you'd like me to review it, feel free to come to

1:07:17

my office. We'll talk about it.

1:07:19

Next, at the tone.

1:07:21

No more reviews after that. Because

1:07:23

I've worked really hard to be fair.

1:07:25

As you think back on your

1:07:27

career, I'm always interested in zooming really

1:07:29

far in on the building blocks that make

1:07:31

up the story.

1:07:32

If you think about the most important

1:07:35

individual conversation

1:07:37

that you had in Maverick's whole history,

1:07:39

what comes to mind?

1:07:41

So I mentioned earlier that the first handful

1:07:43

of people that joined were all people I'd known

1:07:46

for a while. And I mentioned one with someone going to business school

1:07:48

with a guy named Steve Kapp.

1:07:50

After business school, Steve worked

1:07:52

for a public company briefly and then started his own

1:07:54

hedge fund.

1:07:55

I went to Tiger

1:07:57

and when I decided that, gee,

1:07:59

there's a

1:07:59

I'm really going to lead Tiger because this

1:08:02

is a very interesting opportunity.

1:08:04

I also decided, no, I shouldn't just,

1:08:06

if I'm going to do this, let's make sure I understand all my options.

1:08:08

And the only other thing I seriously considered was

1:08:11

partnering with Steve and his hedge

1:08:13

fund as some success, but purely driven by

1:08:15

him

1:08:16

as I recognized that was helping him out in certain

1:08:18

things.

1:08:19

And Steve and I have always liked each other a lot,

1:08:21

but at that time, what he and I were thinking

1:08:24

about didn't really compare well

1:08:26

to

1:08:26

what this family has offered me suicide and not to work together.

1:08:29

He fast-forward a few years, four

1:08:32

years, yes,

1:08:33

but now Mavericks has some success, has become much larger,

1:08:35

his fund is doing fine, but not nearly as large.

1:08:38

He has some frustrations in his position

1:08:40

and we were comparing notes one day and I said, maybe

1:08:42

you should come work here. And we always wanted to work together

1:08:45

because,

1:08:45

yeah, I would be interested in talking about that.

1:08:48

So he came down to Dallas,

1:08:49

wise him to go look at houses, we'll meet

1:08:51

them for dinner. We started about 9 a.m.

1:08:54

Now it's 6.30, you were supposed to meet our wives

1:08:56

and the whole day we've talked about

1:08:59

what a fair economic arrangement would be.

1:09:01

And of course, are all these different how about we grow

1:09:03

at this and returns in this or smaller

1:09:05

room, grow faster, and we

1:09:07

spent all the two reasonable, logical people

1:09:09

who had shared objective of getting that then

1:09:11

diagrammed overlap.

1:09:13

And then we got to leave in five minutes, we've got nowhere.

1:09:16

We don't even have a rough idea.

1:09:18

And he finally just says, I'll tell you what,

1:09:20

if you can promise me you'll be fair, I'm

1:09:23

in.

1:09:23

And we shook hands, didn't have a contract for

1:09:25

years, then

1:09:27

some general counsel said, I know everybody has set up contracts

1:09:29

eventually did.

1:09:30

And we've lived off that handshake for now 20

1:09:33

some years.

1:09:34

He's still there. Oh, yeah. And

1:09:36

still a very important partner. He's semi-retired,

1:09:39

but any project where I need someone

1:09:41

I trust who's super smart and will

1:09:44

dive in deep,

1:09:45

I call to see him and is taken care

1:09:47

of. And to me, the conversation

1:09:50

has always been the back of my head, because it's just

1:09:52

the way you hope anyone who does

1:09:54

know you now worked at Maverick for five or

1:09:56

six years

1:09:58

can just say, Hey, it's going to be okay.

1:09:59

I can't tell you what the numbers are doing to know.

1:10:02

Just it's going to be okay.

1:10:04

And I deal with responsibility to earn

1:10:06

that trust. And I think it's a good reminder of

1:10:08

how important that is. Power of a handshake,

1:10:10

pretty amazing story. Handshake's

1:10:12

going to work. Long-term partnership.

1:10:15

I'd love to talk about the episode in 2011

1:10:18

when you made the decision to

1:10:21

start the transition towards not

1:10:23

being the sole decision maker at the top

1:10:25

of the investment process anymore, having a co-CIO

1:10:27

and then a CIO

1:10:29

as part of Maverick. And I want to really

1:10:31

dig in on the story because

1:10:33

when you study investment firms, the number

1:10:35

one killer is succession. That it's really

1:10:37

hard.

1:10:38

Often there's a very talented, very tenacious,

1:10:41

very entrepreneurial

1:10:42

investor that starts the business.

1:10:44

And then when they go to hand it off to

1:10:46

a second generation, it just fails for whatever reason.

1:10:49

It just happens over and over again in our industry.

1:10:51

So how did you manage that?

1:10:53

And I'm curious about why you did it, how you

1:10:55

did it, how it's gone.

1:10:56

This whole process of starting

1:10:59

to share some of the responsibilities in

1:11:01

the portfolio specifically, it's fascinating

1:11:03

to me. So I'd love to hear the story.

1:11:05

Well, as we mentioned earlier, there was this recognition

1:11:07

that I had three different jobs and I wasn't doing

1:11:10

any one of them as well as I would hope to do

1:11:12

them.

1:11:12

To really excel at that role, I do

1:11:14

think takes an almost 24 seven dedication.

1:11:18

It certainly takes a level of commitment and

1:11:20

energy because again, it's a very,

1:11:23

very, very competitive world.

1:11:24

And I was getting to the point where

1:11:27

I was not as intellectually

1:11:29

interested in stocks as I had been earlier in my life.

1:11:32

I was getting to the point where I missed

1:11:35

not seeing my kids and starting to recognize,

1:11:37

wow, they're not gonna be kids a whole lot longer.

1:11:40

And then when it became evident through performance

1:11:42

that I was not doing either of those,

1:11:45

well, the three, but they did stock picking

1:11:47

or

1:11:48

portfolio management risk control,

1:11:50

particularly on either side,

1:11:52

that to me was, okay, now it's really

1:11:54

time and

1:11:55

it's a little bit different than that it

1:11:57

wasn't handing down to the next generation

1:11:59

because

1:11:59

the senior team, I was just a few years older

1:12:02

than, sound like they were 15, 20 years younger.

1:12:04

So it was more a sideways thing,

1:12:07

if you will, and in part driven by,

1:12:09

so

1:12:10

Tiger by contrast, there was

1:12:12

Julian Robertson, there was everyone else beneath

1:12:14

him beating him ideas. He said, yes or

1:12:16

no. We even very beginning back that team on

1:12:18

culture were much more five

1:12:20

individuals working together to come up with the best decisions

1:12:23

we could. And I was the leader of that five, but

1:12:25

I was a member of the five, not the boss of

1:12:27

the five.

1:12:28

And so in that way, it wasn't as a dramatic

1:12:30

change

1:12:32

in the person. And now we've had a minority

1:12:34

changes, but

1:12:35

as someone that was living, breathing,

1:12:37

waking up at 3am to see what happened in

1:12:39

Japan,

1:12:40

just couldn't let it go the way I used to be.

1:12:43

And so allowing myself to get

1:12:45

more focused on the business and especially

1:12:47

on

1:12:48

risk management portfolio and develops

1:12:50

in the tools that we still have in place today, I

1:12:53

really do think it worked out well for investors,

1:12:55

which is the most important dust of all.

1:12:57

And then almost three years ago, we

1:12:59

went with a co-CIO structure and

1:13:02

Ben Silver and David Tkaczynski have

1:13:04

led our

1:13:04

fundamental efforts ever since. It's interesting

1:13:07

because they have slightly different investment

1:13:09

styles, certainly different areas of expertise

1:13:12

and bringing both of their strengths together. It's

1:13:15

really created a yin-yang type

1:13:17

dynamic that I think has been really, really effective.

1:13:20

What advice would you give to

1:13:22

those facing down that same challenge for

1:13:24

how to affect that

1:13:25

and not trigger those landmines that

1:13:28

seem to lay all in and around this process?

1:13:30

Well, as I've mentioned you at lunch, I did

1:13:33

consult with a few people that I really respected

1:13:35

who'd been through similar transitions,

1:13:38

Seth Korman, and Sandy Ruckenmiller, the

1:13:40

list goes on. And they all had

1:13:42

different perspectives, but one that was

1:13:44

probably most influential to me

1:13:46

was Stan's point that if you're on give someone

1:13:49

the responsibility and the authority,

1:13:51

you have to really give it to them. You can't

1:13:53

say,

1:13:54

usually you make decisions every now and

1:13:56

then on coming over, but it will be fine.

1:13:58

Don't worry about it.

1:13:59

One, the odds are you'll probably make a worse

1:14:02

decision, not a better decision, because you're not as close

1:14:04

to it.

1:14:05

But even if your decision was a good, say

1:14:07

even slightly better, just the demotivating

1:14:10

impact of being in charge, but not quite being

1:14:12

in charge,

1:14:13

has a real significant cost.

1:14:15

So we had a year where that transition

1:14:17

sort of gradual and then a dig at to the point that

1:14:20

I would still give advice and coach, but

1:14:22

also made it very, very clear

1:14:24

to everyone that, hey, on the day-to-day

1:14:26

investing,

1:14:27

I do not have final sight.

1:14:29

And less than involved risk.

1:14:31

So at finals, there were risks. And if I thought a

1:14:33

position was just too big, I would take it down,

1:14:35

but not because I didn't think it was a great investment,

1:14:38

more because I thought it contributed to our risk

1:14:40

profile in a way that was inappropriate.

1:14:42

If we zoom back to today, so

1:14:44

we're in the summer of 2023,

1:14:47

and you just surveyed the landscape of long,

1:14:49

short equity, the whole industry,

1:14:51

you said it based on your experience on investment committees,

1:14:54

you can promise, it's not necessarily a popular

1:14:56

camp, given performance over the last 12 years.

1:14:58

How do you see the landscape and where

1:15:01

there's opportunity, especially given the

1:15:03

presence of Citadel, of

1:15:05

Millennium, of Belliazny, these firms that have

1:15:08

seemed to create a better mousetrap? If you just

1:15:10

look at the raw output

1:15:12

of these insanely sophisticated risk

1:15:14

systems, plus leverage, plus talented

1:15:16

stock pickers,

1:15:17

seems to be a pretty productive model.

1:15:20

How does a traditional

1:15:21

investor, hedge fund manager, compete

1:15:24

against the gravitational force that

1:15:26

is these new models in the long, short

1:15:29

industry today?

1:15:30

I'm touching the first part of the question first,

1:15:33

the frustration of long, short equity, one thing I did

1:15:35

not point out, but I think says it all in a nutshell.

1:15:38

If you look at the correlation between the HFRI

1:15:41

long, short index and the equity markets

1:15:43

on a trailing three-year basis,

1:15:45

back in 98, 25 years ago, it was under 30%.

1:15:49

Today at 70, it peaked

1:15:50

at 92 years ago.

1:15:53

Well, 90% correlation, why

1:15:55

am I paying hedge fund fees?

1:15:57

I'm just getting data,

1:15:59

even at 70 now.

1:15:59

just to rag at Maverick that's been in the teens.

1:16:02

So we've knocked one out of that path. And so going

1:16:04

back to senior investment committees, this is noticed.

1:16:07

And the way we got there, shorting's

1:16:09

really tough.

1:16:10

Through this world of crazy monetary

1:16:13

easing, fiscal stimulus, et cetera, et cetera.

1:16:15

And so many funds, the intro one, let's

1:16:17

just take up net exposure, do less

1:16:20

of the shorting stuff.

1:16:21

Number two, I can use S&P

1:16:23

puts or short futures to create

1:16:25

my short exposure. The catch is that doesn't

1:16:28

generate alpha. By definition, and by

1:16:30

the way, most of your sophisticated investors could do that themselves.

1:16:33

They don't need to pay you to do that for them.

1:16:35

More ETFs, okay, maybe slightly better,

1:16:37

but not nearly as good as researching every single

1:16:39

stock in that ETF and making your own conclusions,

1:16:41

how they should be weighted, et cetera, et cetera. So people, soybeans

1:16:44

surely gave up on shorting,

1:16:46

especially after January 21, Wall

1:16:48

Street bets. That's what I'll be able to say, okay, I

1:16:50

was totally I gave up.

1:16:51

Forget it, it's torpedoing firms.

1:16:54

Ridiculous. So the longshore

1:16:56

profile has looked more and more like the beta

1:16:58

profile,

1:16:59

no wonder people saw it giving up.

1:17:02

You're right in that world,

1:17:04

the platform, you guys are going to call them,

1:17:06

that the very successful Millennium Citadel

1:17:08

have generated different return profile

1:17:11

in a very different way.

1:17:12

So every little pond has extraordinarily

1:17:15

tightly controlled parameters on

1:17:18

not just exposure but different factors, et cetera.

1:17:20

Those are then collected.

1:17:22

They typically have a center book, which they have their

1:17:24

own algorithms to pick off the best of the best and upsize

1:17:27

those.

1:17:28

And then they have leverage, which all works

1:17:30

because they had very strict control.

1:17:32

Where I think the flip side is, again, if

1:17:35

we're back in a world where

1:17:37

fundamental stock picking is more productive,

1:17:39

that model I would argue is going to have

1:17:41

a harder and a harder time keeping

1:17:43

up,

1:17:44

just because when you put together all

1:17:47

these collective books, when you've

1:17:49

got a lot of things you're long and short at the same time, now

1:17:51

they're smart enough from a transactional point of view

1:17:53

to pair those

1:17:55

but nevertheless,

1:17:56

collectively, you don't have your

1:17:59

very best.

1:17:59

on each side.

1:18:01

Leverage is important, especially help on a low-vol

1:18:03

world. Higher-vol world, higher-cost

1:18:06

world, leverages different implications. And

1:18:09

those places are hard places to work. And

1:18:11

turnovers are higher there than elsewhere.

1:18:14

I have huge respect for Ken Griffin, considering

1:18:16

my friend. I get what they built,

1:18:18

who can't, but be tremendously impressed

1:18:20

with what they built. But it's just the person that

1:18:23

we're asking, joining Maverick,

1:18:25

that's not typically the experience they're

1:18:27

looking for.

1:18:28

So, yeah, the last 10 years,

1:18:30

they've won, no question.

1:18:32

I hope that the next 10 years, and I think the next 10 years

1:18:34

may paint a tippy story.

1:18:36

How do you think about the next 10 years for Maverick

1:18:38

specifically? What trends will continue

1:18:40

from the firm's past? What do you hope breaks

1:18:43

with the trend line and goes a different direction?

1:18:45

How do you think about the vision for the business? I'm

1:18:47

not asking you to redo your vision questing that

1:18:49

you gave up because of Sol Price, but in the next 10

1:18:51

years, what do you think

1:18:53

the direction of the firm will be?

1:18:55

So I think one of the mentalities that's really

1:18:57

served this role over time

1:19:00

is the desire to continuously

1:19:02

improve.

1:19:03

What can we do better this year? Whether

1:19:06

it's part of the investment process or data

1:19:08

gathering or managing people,

1:19:11

interacting with our investors, how can we do

1:19:13

it better? And you need to balance that with

1:19:15

consistency.

1:19:16

Investors don't wanna hear,

1:19:18

aha, we decided we're gonna invest

1:19:20

in used cars because it's a great opportunity.

1:19:23

And so if you think about that, we described

1:19:25

early in the conversation that they won the

1:19:27

concept of being long

1:19:29

and short within every region, within every

1:19:31

entry between invest, and now factors

1:19:33

take care of that, that really hadn't changed. Our

1:19:36

average net exposure, average gross exposure,

1:19:38

average industry weighting,

1:19:40

all very consistent with number 30 years. But

1:19:42

within that, our ability to execute

1:19:45

on those objectives of preserving growing capital

1:19:47

and developing variable protection

1:19:49

has improved rapidly. There's so many things we're

1:19:51

doing today that probably you wouldn't even dream would be possible 20

1:19:54

years ago. So back to your question,

1:19:56

I think in 10 years, not just from average,

1:19:58

many places, AI.

1:19:59

and play a really big role. There are

1:20:02

already ways we're using it, both in

1:20:04

the back office and the front office that already

1:20:06

have been minor step function improvements.

1:20:09

And it's in the very early days. So

1:20:11

back on that business plan, we do all these different things.

1:20:13

One of the reasons we decided to just focus

1:20:16

on equities bleeding back then, it

1:20:18

would be the most impervious to

1:20:21

computers, to machine learning, to AI, we're

1:20:23

going to call it.

1:20:24

Because we're in the bottom

1:20:26

spectrum of the cap table,

1:20:28

therefore the most sensitive to decisions

1:20:31

humans make.

1:20:32

And it won't happen eventually, I guess, but it's going to be a very

1:20:34

long time before any AI engine

1:20:36

can evaluate a person,

1:20:38

their intentions,

1:20:40

their integrity,

1:20:41

as well as we can. And for

1:20:44

equities, it's still management, management,

1:20:46

management. So while

1:20:47

I do think we'll become more proficient, more

1:20:49

productive, etc.,

1:20:51

we will continue to focus on where we think we

1:20:53

can excel.

1:20:54

And that is understanding the value of businesses run

1:20:56

by humans.

1:20:57

If you were throwing a dinner and

1:21:00

the goal is just maximum interesting stimulating

1:21:03

conversation, what three other investors

1:21:05

would you invite to the dinner? Recognizing

1:21:07

that there's a lot more than three that I'm sure would be great, but

1:21:09

just for fun.

1:21:11

Let's say, well, I'm a little biased, but

1:21:13

joining the top of us just because I love the opportunity to

1:21:15

have another conversation with him, period.

1:21:17

You got to put Warren Buffett on the list, not

1:21:19

that agree with everything he says, but he also is so

1:21:22

amusing, so he makes for a fun dinner. What

1:21:24

do you disagree with most of what he says?

1:21:27

Well, a couple of things, but he really,

1:21:30

and I understand the logic,

1:21:31

likes to argue that high

1:21:33

turnover's evil

1:21:36

mutual funds are always over

1:21:38

time underperformed the equity markets. They pay

1:21:40

commissions,

1:21:42

taxes,

1:21:44

and I could make a compelling argument

1:21:46

just looking at maverick data

1:21:48

that do agree to which we about perform

1:21:50

the markets for a long period of time now. And

1:21:52

we're doing that. We do pay commission, so it's after

1:21:55

commission costs and even after our fees,

1:21:57

more than compensate for the incremental taxes.

1:21:59

So, if he's right, if

1:22:02

you're just going to invest in indices,

1:22:04

but there are in the sciences and math, there are a lot of

1:22:07

firms that have added enough value to more than compensate

1:22:09

for those costs, but try to hand that to someone

1:22:11

on time with him, he wouldn't really...

1:22:13

Wasn't having it.

1:22:14

Actually, my best conversation with Warren Buffett,

1:22:16

who I've met several times and probably

1:22:19

went, he never had much interest,

1:22:21

and he came up to me on time and said, oh, hey, are

1:22:23

we still having that?

1:22:25

As he's talking, I'm so excited he's talking to me.

1:22:27

I realize he thinks he's talking to someone

1:22:29

else. Mr.

1:22:32

Buffett, I'm actually liaise, oh rightly.

1:22:34

I just walked away. See ya. So,

1:22:37

that's

1:22:38

why I invited him to dinner, give him to finally talk to me.

1:22:40

And the third, probably Jim Simons, sort of

1:22:43

Renaissance, and I do know Jim a

1:22:45

little bit, and he's a fascinating guy that

1:22:47

I think has impacted our world more

1:22:49

than most people recognize through his extraordinary

1:22:52

philanthropy,

1:22:53

private, but he certainly is not very public about it, but

1:22:55

I think very few people really have an understanding of the

1:22:58

dollar amounts that he's been supporting. Causes

1:23:00

are important to him for decades.

1:23:02

And

1:23:03

he was really, in my mind, the pioneer

1:23:06

of quant investing, and likewise, A.W.

1:23:08

Jones, pioneer of long-short investing,

1:23:10

but I've read everything he's ever written or written about,

1:23:13

so I don't think I've learned as much from A.W.

1:23:15

Just zooming to today and very much

1:23:17

a selfless question,

1:23:19

and we've talked a lot about the importance of great management

1:23:21

behind teams and some historical examples.

1:23:24

If you had to go study three active

1:23:27

managers, CEOs, what have you,

1:23:30

any three that come to mind as ones

1:23:32

that you think would be fruitful to go study how they're

1:23:34

operating their business today?

1:23:36

So,

1:23:37

fruitful in terms of becoming

1:23:39

a better investor, I

1:23:41

mentioned it earlier, but I do think the turn

1:23:43

around at Microsoft is something

1:23:45

that I can't remember a good parallel, not

1:23:47

just in terms of, hey, operating results are

1:23:50

better, but completely new strategic focus,

1:23:53

unique change in leadership style.

1:23:55

So, Sadi would definitely on the list.

1:23:57

Andrew Jassy, I don't know, Elvin Meadow, I don't

1:23:59

know.

1:23:59

a few times.

1:24:01

Again, very different than Jeff

1:24:03

Bezos.

1:24:04

Almost like a Tim Cook to Steve Jobs,

1:24:06

but highly competent and

1:24:08

this blood with an Amazon

1:24:11

be loved.

1:24:12

He does this cool thing on the first day

1:24:14

of March Madness, which is a Thursday where there's

1:24:16

so many games he employed. He bites over 200 different

1:24:19

Amazon employees to watch basketball

1:24:21

all day long until the very last game.

1:24:24

So meaning out there, it starts at 9 AM

1:24:26

or something.

1:24:27

And for number three,

1:24:30

probably Ed Breena, hate to be repetitive. I

1:24:32

don't know. We've already talked about him, but again, it's just someone

1:24:34

I've held in such high regard. And even

1:24:36

when he's been in situations that people thought were

1:24:39

pretty hopeless, he's shown the power of management.

1:24:41

We talked at lunch about basketball, a shared passion

1:24:44

of ours. Who's your favorite basketball

1:24:46

player ever and why?

1:24:48

Well, this is a wimping answer. So I apologize,

1:24:50

but I would say Michael Jordan in

1:24:52

large part because my dad played basketball

1:24:55

Carolina. So I grew up a huge

1:24:56

basketball fan and very partial to Carolina.

1:24:59

Even to the point, my first year at UVA, I was pulling

1:25:01

for Carolina, which against UVA, which

1:25:04

did not go over very well with my friends.

1:25:06

Actually that was the last dance show.

1:25:08

Got my kids to recognize, wow,

1:25:10

maybe he was as good as LeBron. What do you know?

1:25:13

And my favorite set of all time to be both

1:25:15

leading scorer and defensive player of the year in the same

1:25:17

year is something you have to admire and respect. Yeah.

1:25:20

The idea of basketball you mentioned earlier

1:25:22

as this team game that nonetheless obviously

1:25:25

superstars matter a lot, but without

1:25:28

the team, this is not going to happen. I'm not going to

1:25:30

work.

1:25:30

As you think about

1:25:32

teamwork going forward with your

1:25:34

team, anything else that you would leave

1:25:37

people with thinking about as they cultivate their

1:25:39

cultures and teams inside of

1:25:41

investing orgs that we haven't talked about that you think

1:25:43

is critical to Mavericks stitching.

1:25:46

The obvious, make sure them has been treated fairly

1:25:49

and respected. We've worked really hard

1:25:51

to try to have a culture of what we call constructive

1:25:54

debate. I mean, you want to be friendly.

1:25:56

You want to be a good team.

1:25:57

Doesn't mean you're not going to tell someone they're wrong.

1:26:00

Now you can say it politely, you can say it's a jerk,

1:26:02

we prefer politely,

1:26:04

but again, one of our phrases,

1:26:06

if you're only telling me things I already know,

1:26:08

if you're agreeing with me on everything,

1:26:10

you're serving of no value.

1:26:13

You're not helping me in any way, shape, or form, maybe just, oh

1:26:15

yeah, I think so too.

1:26:17

So we want people to be motivated

1:26:19

to have differentiated perspectives. Sometimes

1:26:22

even this just to be thought-provoking,

1:26:24

but that's an important part of teamwork

1:26:26

working effectively.

1:26:28

And then finally, we've always had

1:26:30

the approach, once you're on our team,

1:26:32

you better be ready to start. You asked

1:26:34

to be a brand new analyst, first

1:26:36

year or two, and you asked to do a lot of models and

1:26:39

you're going to support the people above you.

1:26:41

But if you've been a member for like six months and

1:26:43

you haven't come up with a potentially

1:26:45

interesting investment idea, you're on the wrong path,

1:26:47

because that is your job. And we'd rather

1:26:49

you have

1:26:50

something that has to be thoughtful,

1:26:52

even if we disagree, but we'd rather have those

1:26:54

wheels turning and you're showing us that,

1:26:57

hey, I'm thinking about these things and here are some potential

1:26:59

ideas.

1:27:00

Didn't that tell you a lot? We hire some

1:27:03

super talented person that has a little too much confidence.

1:27:05

We always hope his first idea is a disaster, just

1:27:08

so the way of making sure people understand just

1:27:10

how hard this job is and let's all have seemingly

1:27:12

no because we have a very difficult job.

1:27:15

Since you're doing it to each other all day long for so

1:27:17

long now, what are the components of

1:27:19

a great investment pitch?

1:27:21

It hadn't changed that much.

1:27:23

So we have a version of

1:27:25

a slide deck we put together back in 94.

1:27:28

And one the size was what

1:27:30

we looked for in investment company fundamentals,

1:27:33

competitive

1:27:34

positioning, quality management, different

1:27:36

valuation metrics, et cetera. And over the

1:27:38

years, it's different marketing people have been involved

1:27:41

and different senior people

1:27:43

that's been tweaked, this, this, and that.

1:27:45

But you'd be shocked by how

1:27:47

similar it is. And part of this, we're

1:27:49

talking earlier about why so many folks have done a mile of

1:27:51

tiger.

1:27:52

I think most folks coming out of tiger would give you a pretty

1:27:54

similar list of what we're looking for

1:27:57

and people not too off track, but there was so

1:27:59

now there's period.

1:27:59

I'm like, oh, all the tiger folks talk

1:28:02

all the time, just copy each other's positions,

1:28:04

look at the 13 Fs.

1:28:06

In reality, we hardly, at least me,

1:28:08

I mean, I've talked to a couple, but

1:28:10

one based on we talk to each other is based on we're

1:28:12

looking for the same qualities, we're identifying the same

1:28:14

companies.

1:28:15

This is a strange question, but what do you think the hardest

1:28:18

question, but still good question

1:28:20

is that anyone could ask you? Hardest

1:28:22

but good question. That's not fair, because

1:28:24

then you're gonna ask it. Maybe.

1:28:28

I don't know the answer, but the hardest question

1:28:30

I ponder with is

1:28:32

how do you raise your children in

1:28:35

a way that when you look back on

1:28:37

your deathbed, you're really proud of them?

1:28:39

What are some things that you think might be

1:28:41

true as an answer to that?

1:28:43

Again, typical me, I try to research a ton of different things.

1:28:46

When I recognized that my children are likely

1:28:48

to grow up with more fortune and more

1:28:51

comfort than I had, that concerned

1:28:53

me. So I spent a lot of time with people I knew

1:28:55

that

1:28:56

kids were old enough, they had their heads screwed on straight

1:28:58

and despite having some success, etc.

1:29:01

And I had probably a half dozen

1:29:03

different conversations thinking I was gonna find,

1:29:05

aha, here's a magic algorithm.

1:29:07

Everyone in completely different opinions.

1:29:11

And the only one that was pretty

1:29:13

common throughout,

1:29:14

now my kids are adults, since then we apply,

1:29:17

but spend a lot of time with your kids. Someone

1:29:19

said, have we talked about quality time? I don't know what that

1:29:21

means. It matters this quantity of time,

1:29:24

just be with them. Discuss

1:29:26

the meaning of life or watch TV. It

1:29:28

doesn't matter, just be with them. So I think there's importance

1:29:30

to that.

1:29:31

And clearly the

1:29:32

example you set, so of course, with

1:29:35

regards to integrity and ethics, but

1:29:37

also with regards to work.

1:29:39

There's a downside that I was in a very

1:29:41

present parent through some critical

1:29:43

years,

1:29:44

but there's the upside is

1:29:46

my kids think it's the normal thing to do, to work

1:29:48

their butt off. They both work their butts off. And

1:29:50

I think that is largely from learning

1:29:53

from example.

1:29:54

And then lastly, learning from example in terms

1:29:56

of a healthy marriage and healthy dialogue and

1:29:58

healthy arguments.

1:29:59

that. But all these things kids learn about

1:30:02

watching more than do by listening.

1:30:04

In bringing work to them, was

1:30:06

there anything that you did understanding that kids are going to go

1:30:08

their own way? You're going to be interested in what you do or not

1:30:11

some percent of the time, and

1:30:12

a lot of that's baked into their DNA probably.

1:30:14

But is there anything that you look back on and

1:30:17

think, oh, that was pretty good. It was a good strategy

1:30:19

for telling my kids about what I do

1:30:21

or involving them in some way. Certainly

1:30:23

something I'm thinking a lot about. My kids are nine and seven,

1:30:26

so they're beginning to ask those questions and be

1:30:28

interested or not.

1:30:29

Curious if there's anything you did that you think was

1:30:31

especially good.

1:30:32

Well, we always, and this is obviously

1:30:34

not a unique idea, but

1:30:36

when it came to allowance, a third was money

1:30:38

that they could spend however they wanted. A third

1:30:41

went into philanthropy and a third was

1:30:43

savings.

1:30:44

And on the philanthropic part,