Patrick O'Shaughnessy's Blog, page 9
July 2, 2019
Bill Gurley – All Things Business and Investing – [Invest Like the Best, EP.137]
My guest this week is Bill Gurley, a general partner at
Benchmark Capital and one my favorite investment thinkers. As you’ll hear,
despite enormous success through his career, Bill is clearly still in love with
business and investing. Where many might discuss past glories, I’ve been
incredibly impressed with how both Bill and his partners emphasize the current
portfolio and market landscape. I’m thankful to have had the chance to speak
with him in this format. I hope you enjoy our conversation.
Show Notes
1:13 – (First Question) – The idea of increasing returns
1:21 – Competiting
Technologies, Increasing Returns, and Lock-in By Historical Events
2:07 – Complex Systems
Theory – Santa Fe Institute
4:35 – Markers that could be a sign of network effect in a
company
6:27 – The opportunities for companies to capture network
effect
8:46 – Are there certain teams/leaders that are more
conducive to leading a network effect company
11:55 – Liquidity quality
13:35 – How important is the revenue model at the beginning
15:59 – Fascination with Nextdoor
17:56 – Paradox
of Choice
18:39 – Finding opportunities
20:17 – Potential marketplaces and assets that could be
commoditized
20:20 – All
Markets Are Not Created Equal: 10 Factors To Consider When Evaluating Digital
Marketplaces
21:39 – Usage yield on the world’s assets
23:50 – Has technology changed the world of value investing
26:28 – Hyper niche marketplaces
27:52 – Challenges of labor marketplaces
30:12 – User generated content businesses
32:44 – People who are capable of building UGC businesses
33:16 – His interest in Discord
34:31 – Factors of a healthy marketplace
37:57 – Fools’ gold in marketplace businesses
39:04 – How influx of cash is impacting the marketplace
business landscape
40:43 – All
Revenue is Not Created Equal: The Keys to the 10X Revenue Club
43:20 – How does the influx of money into the space impact
him
46:44 – Spending money to attack top brands
50:32 – Regulatory capture
53:36 – His thoughts on the IPO market
57:49 – How did he realize this was his passion
1:00:42 – Qualifying his passion
1:01:52 – Favorite thing about working with entrepreneurs
102:48 – Honing your craft
1:04:33 – Making yourself a good mentor
1:05:56 – Kindest thing anyone has done for him
June 25, 2019
Jesse Livermore – The Search for the Truth with the Anonymous Master – [Invest Like the Best, EP.136]
This week I have a very special guest years in the making.
Like another favorite episode, with anonymous guest Modest Proposal, this
conversation is with one of the stars of the financial twitter universe who
writes anonymously and goes by the pseudonym Jesse Livermore. I met Jesse 6
years ago after reading his unbelievably unique investing research, which
tackled all the big and interesting issues in markets. He now also works with
me as a research partner at OSAM, where’s he’s used our data to continue to his
search for truth in markets. Despite being one of the brightest minds I’ve
encountered he is also as humble and unassuming as they come. I’m at least a
slightly better person because of trying to emulate how he conducts himself. I
get to have many conversations with him that go from 0-100 fast, and I’m
thrilled to be able to share one of those with you.
Show Notes
1:33 – (First Question) – Jesse’s origin story for investing
4:37 – Exploring his ways of problem solving starting with
intuitive
7:53 – David
Epstein Podcast Episode
11:46 – Looking at the analytical way of problem solving
15:42 – Statistical inference
24:45 – Should we opt for simplicity in the investment
process
25:26 – Does his own investing include all three, intuition,
analysis, and statistics
26:09 – The evolution of his research, process, and thinking
on various investment factors.
31:38 – Thoughts on inflation and its impact on market
valuation
40:05 – The Earnings Mirage
46:25 – Free Cash flow and valuations
50:51 – What should investors take
away from this research
53:01 – Thoughts on trend as an
interesting market signal
59:00 – The problems with trend
1:00:34 – Post on “The
Single Greatest Predictor of Future Stock Market Returns”
1:11:15 – His work into
understanding factors
1:15:36 – Looking at momentum
1:18:16 – His curiosity into the
current market cycle
1:20:04 – Lessons learned from his
time in the military, an effective way to create an environment where people
can safely disagree with their co-workers
1:30:10 – The concept of progress
in meaningful work
1:33:08 – Kindest thing anyone has
done for him
June 18, 2019
Chuck Akre – The Three-Legged Stool – [Invest Like the Best, EP.135]
My guest today is Chuck Akre, a now widely famous investor
who founded Akre Capital Management in 1989, which now manages approximately
$10B dollars. We discuss his investing style and his “three-legged stool” for
evaluating companies. Please enjoy this great conversation.
For more episodes go to InvestorFieldGuide.com/podcast.
Sign up for the book club, where you’ll get a full investor
curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub.
Follow Patrick on Twitter at @patrick_oshag
Show Notes
1:06 – (First Question) – Advantage of being in Middleburg,
Virginia
2:11 – What a day looks like for Chuck
3:06 – Why imagination is more important than knowledge
3:38 – Difference between curiosity and imagination
4:38 – The origins of the Nirvana Three-Legged
Stool concept
10:14 – First leg of the stool, Extraordinary business and
ROE’s with a focus on Bandag.
14:36 – How his evaluations of value has changed over the
last 10-15 years
16:10 – A look at recent businesses that he’s bought and why
they are interesting
19:56 – Why they keep things simple
21:35 – Second leg of the stool, the people involved and
characteristics of managers he has invested in
23:20 – Role of capital allocation in the people he focuses
on
28:03 – Favorite biographies
29:34 – Third leg of the stool, reinvestment
21:09 – How does he think about diversifying across an
investment area
33:32 – Great businesses wrapped in a bad balance sheet
37:35 – What would cause him to sell
38:52 – What does he look for in people
43:27 – How curiosity has impacted his interest in land
conservation
43:51 – Advice for investors, especially younger ones
46:14 – Kindest thing anyone has done for him
June 11, 2019
Jerry Neumann – Why Venture is Hard – [Invest Like the Best, EP.134]
My guest this week is Jerry Neumann. Jerry is one of the most thoughtful early stage investors that I’ve encountered, and his writings at reactionwheel.net are my favorite on this topic. He applies an incredibly structured way of thinking to a notoriously mysterious investment category. This is our second conversation, in which we cover why investing with one’s gut is a bad idea and why some of the popular edges in startups, like network effects, may be picked over. Please enjoy our conversation.
Show Notes
1:17 – (First Question) – His take on the venture landscape
and the type of investments new VC’s are making vs what they should be making
3:44 – Most important implications of excess VC firms
5:32 – Misalignment of incentives in the VC space
8:19 – What he does differently from angel investors or VC’s
8:21 – Post about what he does
not being VC
10:11 – The notion of risk and the types of risk the people
he invests in takes
14:33 – Protections that he thinks about when it comes to
the ideas he invests in
19:37 – Is there an area of expertise that provides an edge
for startups
20:11 – Network effects are picked over
21:35 – IP protection
23:08 – One of the two most interesting things for VC’s to
go after, brands
25:13 – The other most important thing, the value chain
27:42 – A current example of a disruptive value chain
29:14 – Innovation as the source of profit
29:16 – Schumpeter
on Strategy
31:50 – Efficiency innovation vs value innovation
31:52 – Energy
and Civilization: A History
35:50 – Efficiency investments he’s made
37:13 – Investment in Unsupervised and the machine learning
landscape
41:25 – Investment in Sila
43:14 – Investment in Edmit
44:44 – investing on gut
48:59 – Management Assessment Methods In
Venture Capital: Toward A Theory Of Human Capital Valuation
50:32 – Black boxes and their value in investments
52:58 – Kanaman and Danny Klein
on instinct/gut
53:23 – Metrics about the predictive level of whether people
are going to succeed
54:45 – What defines good people worth backing
57:50 – Advice for LP investors in this space and how they
should evaluate VC’s in this space
May 28, 2019
David Epstein – Wide or Deep? – [Invest Like the Best, EP.133]
Show Notes
0:00 – (First Question) – What he uncovered in “The
Sports Gene: Inside the Science of Extraordinary Athletic Performance” that
led him to his latest book
1:26 – Debate with Malcolm Gladwell
(YouTube)
3:00 – What did the public pay most attention to and what
did they gloss over
6:44 – How his views on nature vs nurture shifted during the
process of writing The Sports Gene
8:53 – Blending practice with your nature
11:52 – His process of reading 10 journal articles a day as
part of his research
17:54 – Exploring his new book “Range:
Why Generalists Triumph in a Specialized World”, and his idea of Martian
tennis
21:51 – Idea of the cult of the head start and how we set up
our own feedback loops
27:46 – What does his research say about the nations
education system
29:30 – The Flynn Effect chapter
32:43 – Hacks for learning
36:40 – The concept of struggle and harnessing the power of
it
45:19 – Personality changes and how to drive those changes
in a positive way
50:48 – Using the outside perspective in businesses for more
productive outcomes and how it applied to Nintendo
51:47 – Josh Wolfe Podcast Episode
1:03:34 – Other examples of using withered technologies, 3M
1:07:48 – The arc of his work and how it has evolved
1:12:42 – Taking a different view on problems
1:16:40 – Ending
Medical Reversal: Improving Outcomes, Saving Lives
1:16:52 – Anyway to change these bad trends with new
strategies
May 21, 2019
Priya Parker – The Art of Gathering – [Invest Like the Best, EP.132]
This week I’m hosting an investor retreat and so thought it
fitting to release this conversation with Priya Parker on the art of gathering.
I’ve been interested in the topic of community and gathering
for some time and along with the book The Art of Community, Priya’s book on the
art of gathering is by far the best I’ve read. It is both conceptually
interesting and extremely practical. In the book there is literally a table for
how big a gathering space should be per person, sorted by the type of vibe you
are after.
We had a time constraint but I could have talked to Priya
for much longer. I hope you enjoy our conversation as much as I did, and that
it inspires you to do something new and different with friends, family, or
colleagues.
For more episodes go to InvestorFieldGuide.com/podcast.
Sign up for the book club, where you’ll get a full investor
curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub.
Follow Patrick on Twitter at @patrick_oshag
Show Notes
1:23 – (First Question) – Overview on what she does as a
conflict resolution facilitator
1:38 – The
Art of Gathering: How We Meet and Why It Matters
4:45 – Lessons about structuring a gathering from her early
very difficult work and the idea of sustained dialogue
7:43 – First event she facilitated
9:38 – Importance of a good opening for any gathering
12:30 – Identifying a good purpose for a gathering
15:06 – Why being specific on rules/code of conduct leads to
more success
18:54 – Do rules help facilitate more creativity in groups
21:22 – Segregating a good from bad purpose
24:34 – Identity and good/bad gatherings
26:50 – Purpose and the guest list for a gathering
31:03 – Community building is line drawing
32:27 – Dreams
from My Father: A Story of Race and Inheritance
34:29 – Importance of well crafted invitations
35:17 – Making the middle of gatherings interesting
39:21 – Exploring risk at gatherings
41:28 – Patterns of Transformation
41:43 – The hero’s journey
46:54 – Making a meaningful transition out of these
gatherings
52:39 – Kindest thing anyone has done for Priya
May 7, 2019
Stephanie Cohen – The Evolution of M&A and Corporate Strategy – [Invest Like the Best, EP.131]
My guest this week is Stephanie Cohen, who is the chief
strategy officer for Goldman Sachs and a member of their management committee.
Prior to her current role, she spent the majority of her career in the
investment banking and M&A divisions at Goldman.
We discuss lessons learned from her career in M&A and
the many initiatives she now leads at the firm. I really enjoyed her
perspective on how a big, established firm like Goldman can balance innovation
with improving existing businesses. Please enjoy our conversation.
For more episodes go to InvestorFieldGuide.com/podcast.
Sign up for the book club, where you’ll get a full investor
curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub.
Follow Patrick on Twitter at @patrick_oshag
Show Notes
1:15 – (First Question) – Motives on both sides for doing M&A
3:26 – Most difficult deal she worked on
4:50 – Biggest value add she brought from her seat on the
Fiat deal
5:59 – Biggest changes since she started to today
8:31 – Smartest ways for companies who want to be acquired
to be prepared
10:14 – Best M&A banker she’s seen
11:13 – What should businesses looking to make an
acquisition be thinking about
15:16 – What does a strategy from her perspective mean
17:16 – Tension between innovation and change
19:46 – Difference between bottom-up and top-down components
of strategy
22:15 – Exploration vs exploitation
26:28 – Submission process within accelerate
29:37 – Next step after you see a good idea
31:05 – Her take on FinTech and Industrials and their
collision
35:15 – Lessons from elite early stage investors
37:21 – The origins of the LAUNCH program
40:06 – Important pieces beyond just the capital
42:42 – How they market to women starting business
44:56 – Lessons that she has learned about narrative and
communications
47:07 – How she handles developing talent internally
49:28 – Managing her time
59:28 – Biggest concerns about OKR’s?
52:09 – Kindest thing anyone has done for Stephanie
53:07 – Kids in the area of competing
April 23, 2019
Josh Wolfe – The Tech Imperative – [Invest Like the Best, EP.130]
My guest this week is Josh Wolfe, co-founder and managing
partner at Lux Capital. I had Josh on the podcast last year which was one of
the most popular episodes in the shows history. This is a continuation of our
ongoing conversation about investing in the frontiers of technology. My
favorite thing about Josh and the way that he invests is the mosaic that he and
his team at Lux are constantly building to understand the world and where new
companies may fit in. We cover a crazy variety of topics from business model
innovation, roles of a CEO, the military, the death of privacy, and arrows of
human progress. Please enjoy round two with Josh Wolfe.
Show Notes
1:22 – (First Question) –Ability to tackle massive scale
problems
4:05 – Key roles of leaders and his checklist for evaluating
them
5:55 – Common traits among founders that make them
incredible storytellers and leaders
10:22 – The concept of ill-liquidity
14:53 – Thoughts on the types of companies going public
16:41 – Most innovative business models
19:14 – Advice for LP’s
23:51 – Common devil
24:01 – The
True Believer: Thoughts on the Nature of Mass Movements
25:09 – Big internal debates at his firm, starting with
price discipline
28:45 – The value debate internally
33:34 – CRISPR from an investment standpoint
36:50 – Edge cases they are looking at
46:52 – How they target ideas in a single concept
50:01 – The
Coast of Utopia: Voyage, Shipwreck, Salvage
51:04 – New theses that they chase
56:31 – Recent adventure with special operations guys
April 16, 2019
Katherine Collins – Impact and ESG Investing – [Invest Like the Best, EP.129]
My guest this week is Katherine Collins, who is the head of
sustainable investing at Putnam Investments, a portfolio manager on two of
Putnam’s sustainable investing funds, and the author of the book The
Nature of Investing: Resilient Investment Strategies through Biomimicry.
Our conversation is on the ins and outs of ESG and impact
investing, a young but increasingly common topic in the investing world. This
is challenging ground for me as a quant, because the data available is so new
and limited—so Katherine’s perspective was very helpful as we continue to
learn. Given the importance of this topic, I’m also searching for more guests
with both positive and negative views on the role of ESG in an investing
framework, and welcome suggestions for future guests. Please enjoy my
conversation with Katherine Collins.
Show Notes
1:29 – (First Question) –Mechanical vs human judgement
processes
4:21 – ESG, and the non-utility portion of it.
7:11 – Data behind the objective function that is different
from returns
12:34 – What are the most interesting data sets
16:04 – How does she determine what factors to target
19:31 – Why do we know that diversity of
experience/opinion/background is good for a company
21:30 – The social vertical and how it plays into her
investing system and better returns
25:51 – Corporate
Sustainability: First Evidence on Materiality
27:00 – Environmental factors and the issues that jump to
mind
29:48 – Importance of signing the UNPRI and is it just box
checking
32:33 – Data for companies on the solution oriented
companies
34:53 – Why doesn’t the market recognize the Alpha
36:17 – LP interest in ESG investing
38:25 – How other groups of investors approach ESG
40:03 – Best practices at business making an impact in ESG
44:01 – Unique or interesting tactics in environmental
46:33 – Who is the biggest opponent or position in
opposition of ESG
47:37 – Most interesting edge
48:20 – Playbook for business managers thinking about social
for the first time
49:59 – Measurements vs principles/values
51:21 – Advice to quants trying to use ESG in how they
gather data
53:04 – Most memorable encounter with a company through the
lens of ESG
53:53 – Where to learn more about ESG
54:50 – How much role regulation plays in the future of
business sustainability
56:30 – Any more lessons from her research into natural
systems
57:05 – Kindest thing anyone has done for her
Learn More
For more episodes go to InvestorFieldGuide.com/podcast.
Sign up for the book club, where you’ll get a full investor
curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub
Follow Patrick on twitter at @patrick_oshag
April 9, 2019
Geoffrey Batt – The Nature of Transformational Returns – [Invest Like the Best, EP.127]
Show Notes
0:00 – (First Question) – What does it take to earn
transformational returns
3:28 – How he deals with LPs, especially given the
volatility of the market he invests in
9:11 – Why LPs have to think about the other investors in a
fund
10:02 – How Geoffrey got interested in the Iraqi market
15:00 – Factors he was considering when exploring Iraq
15:38 – Harvey Sawikin Podcast Episode
18:05 – Visiting companies in Iraq
21:15 – Most memorable meeting with a company on his first
trip
26:03 – Size and nature of Iraqi market when he first got
interested
29:29 – A specific allocator in Iraq
33:22 – Does price reflect the work over there
36:36 – What does he perceive as his role in the changes to
Iraq’s equity market
38:57 – How do Iraqi equities look today compared to when he
started and is the opportunity still interesting
42:59 – How businesses perceive him now that the market has
opened up more
46:13 – Scale of potential return and where it comes from
48:36 – Advice for younger aspiring investors exploring
frontier markets
52:01 – Kindest thing anyone has done for Geoffrey
