Rick Buhrman & Paul Buser - Find Your X, Nurture Your N - [Invest Like the Best, EP.346]

Transcript from https://podmenti.com/t/5bac721e8a15a168

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Hello and welcome everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best.
This show is an open ended exploration of markets, ideas, stories, and strategies that will help you better invest both your time and your money.
Invest Like the Best is part of the Colossus family of podcasts, and you can access all our podcasts, including edited transcripts, show notes, and other resources to keep learning at joincolosis.com.
Patrick O'Shaughnessy is the CEO and founding partner of Positive Sum and the CEO of O'Shaughnessy Asset Management.
All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of Positive Sum or O'Shaughnessy Asset Management.
This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.
Clients of Positive Sum or O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast.
My guests this week are Rick Berman and Paul Bucer.
Rick and Paul spent over a decade managing the public equity portfolio at Notre Dame's endowment before leaving in 2020 to set up a permanent capital vehicle.
Called Cedar Grove.
As you'll hear in this conversation, they know, have studied, or have invested with most of the world's best capital allocators.
A few years ago, they also set up a class in Notre Dame for 40 of the college's brightest students, called The Art of Investing.
The class is devoted to exploring the joys of compounding, and each week they bring in a world class investor or operator to share in detail how they built their lives, portfolios, and businesses around the principles of compounding.
I've been so enamored by their class that earlier this year I asked them if they'd open up the class so that more people could benefit from it.
I'm delighted to say that they've agreed and starting next week, it will be available as a podcast so that you two will be able to join their class and learn from the likes of Todd Combs, Andre Perold, Honam, and many others.
The trailer is linked to today's show notes, and I'd encourage you to search Art of Investing in your podcast player now.
and subscribe so you do not miss the first episode.
Now onto my great discussion with Rick and Paul.
Gentlemen, where to begin?
I think
Our conversation today is gonna be
For the audience a sort of first and unfair inside look at
the world of institutional investing.
And the alignment of incentives
Which I think everyone understands, like the principal agent problem and
how pervasive that is in all things, but especially in investing, and how you've thought about
What an investment
company firm should look like.
And you have a total unfair perspective because you've met
all the worlds and worked with
all or most of the world's great investment managers.
You are one yourself now. I'll obviously tell the Seder Grove story in some detail.
But maybe the fun place to begin for me.
'Cause I don't I don't think I've ever asked you guys this specifically is to go back to like the moment that comes to mind.
when you think about your transition between a very long career helping run Notre Dame's endowment
to
the first days of Cedar Grove.
And just talk about that phase transition. We were with somebody yesterday that's going through an extreme version of this.
I'd love to hear about yours.
Especially Rick, because I think you said before we hit record that
your intention was that you were gonna be at this one place at Notre Dame probably for your whole career, and then things change.
And so I just want to zoom in on that moment and have you tell us about what it was like
Before I get into all my nitty or gritty questions about investing.
We will do that. I think
Before doing that though, I do think it's important to set the context of just how important
Notre Dame has been to the two of us and really
our story and and our friendship.
How we see the world.
how we think about investing.
really all comes back to this connective tissue that is Notre Dame.
When I recruited.
Paul back during the financial crisis. Was just finishing up his dual degree.
MBA and also getting a degree in
Public policy.
And there was a genuine interest there too.
Explore.
a variety of disciplines and to continue to
Learn and grow and
I think both of us having
studied at a number of universities.
had a common vision that
These major universities
The ethos that guided them.
was very compelling.
Most of the people at these universities
Embrace.
The concept of lifelong learning.
That was the sort of common thread for us.
that within the context of learning the craft of investing in a world class
institutional investor like the Normandowment.
We were able to seek integration in our lives and
In some ways the transition
The pivot.
to building Seder Grove was actually to continue to
Preserve that.
First principle of integration.
Yeah, I mean if we think back
Two
When this all happened.
We were a month into COVID.
And there was a moment where we looked at each other and realized that
In terms of that integration
of investing and teaching, which we have done for fifteen years in Notre Dame
That was gonna pivot.
So there was a moment when we said to each other
Well, things change. We had this forever mentality.
when we look at our mentors, look at the best investors, look at the best company builders.
There's often a moment when
things internally or externally change.
And you need to be ready to pivot. And we were very fortunate
To have each other.
So I think within twenty four hours of a moment when we
decided that we needed to do this, we called each other and said, Are you thinking what I'm thinking? What was really
fascinating for us looking back three years ago on that.
Was that within a couple weeks we wrote
the only document we've ever created. It was a five page memo
That outlined our vision for
Seder Grove.
the values which we wanted to espouse and
The people we wanted to do it with. And really we look back and it was
An excuse to formalize
A set of friendships and projects that we could work on for decades.
Going forward.
My favorite part of that story is that
It is absolutely correct that Paul and I
Immediately.
A hundred percent.
were aligned and
Tethered.
But
I think it was many months after the fact once we had already gotten Seder Grove going.
that I learned that when Paul came back from one of those early outdoor planning sessions that Molly actually was like, No, I just wanna make sure. I mean I think you know, I like Rick too and everything, but like I just want to make sure is this the guy that we wanna be partnering with for the rest of time.
And
It's a fair question. It's a fair question and it's working out. But it's always good to have a senior analyst in the back.
Double checking your work.
Maybe just literally describe what Seder Grove is. You guys have been very quiet.
No publicity around this.
You've done this very quietly. Give me like the quick
Two minute rundown.
On
Not the why, not the when or how, just what literally it is.
as an entity, what it does
Who the shareholders are.
Et cetera. I just think before we

Define this thing because it's a bit unusual and different.
At a high level, we are a private holding company.
And we have a balance sheet of about half a billion dollars.
We exclusively back company builders, and that can be at any stage.
I think one important
dynamic to mention
Is that we've got a shareholder base that's made up only of principals.
So that means no institutional capital is involved.
In our prior lives, we helped to design all kinds of entities and funds around the world.
And we settled on a private holding company.
Because in the end Rick and I were looking for
both radical alignment of incentives
And we wanted the ability to operate with an unusually long time horizon.
A typical business plan for an investment firm
probably would contemplate how much capital you'd want to raise.
But we didn't care if we raised ten million dollars or ten billion.
The only thing that matter to us is
was setting and maintaining a really high bar for the people around us.
Because we knew that these would be the people.
They were likely gonna shape us for the rest of our lives.
I actually remember being in Rick's backyard early on.
And on a whiteboard we rift on
say fifty to seventy five names of people we dream of doing things with
Over the coming decades.
And it turned out that many of these people
Came aboard.
And they ended up being some of the very best company operators and GPs we had ever come across.
So
That was
A former student all the way up to
Some of the very best
Company builders on earth.
around thirty GPs that started investment firms that we were
close friends with
And they all came in in their own way to buy sharing Cedar Grove.
If you go to our website
The main page.
Says one line.
Seder Grove, a permanent capital investor rooted in love.
So let's just for a minute
Take that apart.
Why is permanent capital so important?
In a couple of weeks we're gonna have Todd Combs of Berkshire Hathaway and Geico.
teach class. Todd's spoken in our class a handful of times and he's a remarkable human being.
The reason that Todd reached out to Charlie, cold called Charlie several times, and eventually got him
was'cause he had just come through the global financial crisis and his hedge fund at the time had done extremely well.
But
he had come to the realization and we have heard this time and time again.
that the temporal nature of that structure was just
Not what he wanted.
His main question
that he wanted to discuss with Charlie.
was how do I transition to a permanent capital vehicle.
And so
A lot of the features of Seder Grove may seem unique.
But none of them are really novel.
We operate with a budget. So does almost every company I've ever come into contact with.
A permanent capital holding company.
Everybody knows about Berkshire Hathaway.
There are obvious reasons why
When
Buffett shut down the partnership, he did not just reopen the partnership.
And he evolved to that model. And so all we simply said was
We've never run a permanent capital vehicle before.
But these people who are much smarter than us have seemed at some point in their careers come to this determination that it's a superior design.
Why would we not embrace it? And I think
The obvious reasons not to embrace it is because it's less conventional, you worry about
How much capital you can raise.
how it'll be taken in market and those were questions we could care less about.
Same thing with our shareholders.
Our shareholders are co owners. They're not limited partners. They're not limited
In any way.
Paul and I
And Greg.
literally pay portions of our own salary.
We don't have multiple share classes.
We're all in this together.
And the construct
Of
our shareholder community.
I think of it like
The championship Little League game when you were little.
Who do you want to be at that game?
You want your biggest fans, you want your family. You might have that uncle that helped you to
Learn how to hit a baseball.
You want people who believe in you, but also maybe people who can give you instruction.
And that is really how we've thought about designing this crew of individuals and families. These are people who we just know over time we're gonna learn more and more from them.
And at various points.
they're gonna contribute to the success of Seder Grove. We have some of our shareholders who
are world class in certain disciplines and industries
We lean on them for analysis.
We in some cases we lean on them to mentor
Our founders and our CEOs.
Some cases they sit on boards of our companies.
But the sense that
We wanted to build something.
that had that same kind of community that we would have wanted to select into if we were looking for that one single investment. It was really just
the mindset of what is the investment entity that we want to put all of our capital in.
And let's build that.
That's the permanent capital investor part.
The second bit.
Roo in love.
stems from our first and most fundamental value, which is that love wins.
In our careers, we've observed plenty of zero sum thinking and
While I'm not trying to convince anybody else of anything, we just believe that there has to be another way.
And if there isn't, then we need to find another profession.
Our conviction here is based on our own experience and through the study of human nature and this history of civilizations.
And that's that in the final analysis and with the fullness of time
Love is actually the most enduring force in the universe.
So in that context it seems
totally sensible to us that a truly long term approach
In philosophy.
has to be informed and nourished by qualities.
Such as patience, kindness.
Respect.
Trustworthiness and perseverance.
And in our opinion, anything else would be lunacy.
But you can see how the two are tethered to be rooted in love.
Necessitates an unusually long time horizon.
And vice versa.
Maybe say just one more click about the particulars, like how much did you raise?
How many investments have you made so far? Like
I just want to give people a sense of scale and scope.
We launched officially on April first, twenty twenty one.
with a little over three hundred million dollars of capitalization.
In the permanent capital holding company.
What was very important for us was that
in the legal documents, in our ethos, in the conversations we have with our shareholders that
We were not bound to any
one type of investing. That was actually a big learning from our time.
That the endowment that
There were things that we did that we had experience in and we did know, but if we were
building something for decades that we were gonna have to evolve. So we wanted flexibility.
What also came out of it day one
Was a
fifteen years worth of investing in a network.
And some serendipity where
very quickly over the course of twenty twenty one, our first year
We invested in what we define now as almost three subsidiaries. So one is four de novo companies. Three of those are in vertical market software that we've helped to create a couple of them in Europe.
And one here in North America.
The fourth platform is rebuild manufacturing that
Jeff Wilkie, who used to run Amazon, he came out. One of our close friends and collaborators, Will Barker of Camelot.
Partners.
help to bring us in on day one for rebuild with
We're just so excited about that one in terms of what
is possible over the next couple of decades. So we have those four platform companies
Alongside that we have
Ten investments.
Approximately ten in
private companies.
We're minority investors and all of them.
They range from very early stage up to
much more mature growth stage.
And then the last bucket is a handful of investment firms.
One area in particular.
is biotech.
And we have about
fifteen percent of Cedar Grove invested in biotech.
through two investment partnerships.
And we know that that's one area that
While we have experience allocating to biotech funds, we are not scientists or medical doctors.
ourselves and we want the flexibility
Given that this is our family office too.
to invest over the long term in biotech because we think
If you look back
ten to twenty years from now, it will then an incredibly
fruitful area for investment. And we have shareholders that can help with that as well.
I think one way to think of Seder Grove from an investment lens is we are a friends and family office. If you look at really sophisticated family offices, they don't tend to be
as narrow as only direct investors or only fund investors. And that's because oftentimes I think
That kind of specialization is more
dictated by the market terms.
when you're selling an investment product.
there's not a lot of clients out there that want you to sort of be able to do almost anything.
Which is totally understandable and totally why we never have tried to sell Sato Grove to anybody.
But if you think about if you were going to establish your family office, which we did, we sold our houses, we downsized our houses. I went from two cars to one car, we liquidated our retirement accounts.
I had to check with Greg last year whether it was okay if I
bought a CD literally because there's nothing we do outside of Sato Growth.
When you think about it in that context, it would be
ridiculous for us to say, Okay, we're only going to invest in this
Particular subset.
Here.
At any given time that would be ridiculous, but particularly if you're thinking about
creating a mandate that's gonna be lasting.
for several decades and it's gonna allow for
The kind of evolution that we
Hope to have.
And so
From the outside in, it looks like we do a little bit of a lot of things.
one of the learnings though, I think is just
on that entrepreneurial journey.
The lessons come quickly. And so we have already evolved.
tremendously. And I I would suspect that what we will
see within the next three, four, five years.
is further and further concentration. We have a several holdings where a single company is
more than 10% of our balance sheet.
But we're on our way and we have a structure that gives enough latitude
And enough alignment of interest.
So hopefully give us a chance to last.
And maybe just say
literally what it is that you're looking for across that
Lineup.
whether it's a fund or a new platform you're starting or an existing company in which you're a minority shareholder.
What is the common
Thread.
What are you
entering into each of those engagements looking for
I think at the highest level, almost every investor thinks
Consider risk in return.
And so do we.
The two additional factors that you see less frequently
R
the requisite for there to be mutual trust with the key people.
And unusual duration.
And so
Oftentimes we encounter investments that have
From our assessment.
high potential for very high IRRs.
But not clear that
they have the potential to be tenure plus investments.
We recognize those can still be very successful investments for somebody
But they don't fit us and so
When you put
Those four criteria risk, return.
Mutual trust.
Which by the way is really hard to achieve with a lot of people. And so and then you add on this duration.
factor.
It's actually a very, very
Tight funnel.
where we're, you know, essentially fishing for ideas.
It's not a surprise that
our largest holdings in particular.
generally we've known that founder CEO for at least 10 years. We have a couple situations, our very largest positions like Asumas Global
or expedition growth capital where
We have literally known these people intimately for twenty years.
That's the kind of foundation that we feel like is important.
Based on the kind of investing that we wanna
Achieve.
When you look at the actual criteria of the types of companies that we might
Pursue and those we want it.
The way we like to think of it is that every situation that would interest us
We have to think it's both ambitious and edifying.
And just to be clear, we are not ESG investors or impact investors. But when we say edifying
Essentially what we were saying is
Time is precious. We only have one life.
We only want to work.
on projects that we care a lot about.
And everybody's got different criteria for what is edifying.
But
Again, this is a labor of love. This is the full integration of our of our everything.
Every project just has to matter to us. So therefore, there are certain industries, and I'm not talking about sin stocks or anything, I'm just saying there's massive industries that are very, very
attractive to most investors that we don't look
Uh
gaming, for example. And again, I know you're really into gaming.
We don't think that gaming itself is like in any way a negative force in the world, and there's all kinds of really cool applications for how gaming can be
educational, et cetera.
It just doesn't get us out of bed.
We've never looked at a gaming company.
The other component to that is just as important, which is ambitious. I mean
If you look at the projects and this ties a little bit to duration, right?
Because most things
that have the potential to be very big require time.
Usually more than three to five years.
If you look at the underlying
Ways in which the companies
We invest in
Serve others.
there tends to be that sort of missional aspect against Sumas Global, the leading
virtual specialty care platform in the world, essentially democratizing access to the world's best doctors.
Forward.
Those who would never have that kind of access to
At the critical moments in their life.
where the cost and complexity is highest.
This is an amazing business. We think that
the need for that kind of service is
Universal.
And yet if we win
We know that we're gonna impact literally millions of lives in an extremely profound way.
That's a perfect investment for Seder Growth. There's also very little
traditional
venture private equity capital on the cap table.
We have a very close relationship with the team.
including a twenty year friendship with the founder.
And we have
all kinds of ideas for where this might go.
with an unlimited time horizon being essential.
Think there's one structural component to highlight.
For instance in the case of Sumas or a couple of our other biggest holdings.
And that is that we don't run a fund.
And we don't have to raise another fund. We did raise another
hundred twenty five million dollars in a commitment pool.
Last year
to add mostly just to our biggest holdings.
We don't have to find any new holdings. We can do a lot this year, we can do nothing.
There's constantly new ideas coming our way.
But the bar gets ratcheted higher and higher.
Because we don't have to be in a frantic search.
For something new.
I think it's important if for those who are interested in terms of

believe that incentives matter a great deal. Just how do we get paid?
We mentioned that we have this operating budget, essentially we take salaries as the managers of this entity. We eat our own cooking and we pay for our own meals as shareholders. The way in which we ultimately can earn
More shares of the company.
is to a combination of a multiple on capital.
And a hard compounding hurdle.
So in a sense.
We racked our brain for so many years when we were mainly fund investing.
On what's the right way to
Pattern.
And Senefi payouts.
And the conclusion we came to was that time was less relevant. It was more about the multiple on capital.
Until we double the NAV.
of our partnership.
There's nothing beyond our salary that accrues to us.
When we double.
And then hopefully when we four X and eight X and sixteen X.
Then there is a look back.
on how fast we have doubled.
If
That doubling occurs
below a six percent hard compounding hurdle, we still don't earn any shares.
If they
occurs at a faster rate than that six percent, then we have the potential to earn.
fifteen percent over that six. And then that's where the waterfall of
share is coming to us that then flow to the foundation, et cetera.
I don't know if this is the perfect strategy.
But I think it was the best outcome.
That we could
Devise

Both a hurdle rate and a multiple matter.
And we want to reflect that in the way in which we're
Compensated.
When you think of
An investor.

Everyone's a
When you think of an investor who is clearly devoted to something greater than themselves, who comes most immediately to mind?
Oh, there's so many great examples.
One, since we're right across the street from the lone pine offices, that's certainly worth mentioning is Steve Mandel.
For a number of years going back
twelve or thirteen years.
Paul and I and a few others on the team.
started this exercise of writing case studies.
of what we called horses in the GP investing landscape.
And this was actually inspired
by our close friend Yin Liao.
Who
at the time was actually teaching about compounders like this in his class at Columbia.
And it was really looking at
Firms
People who had compounded at extraordinary rates for at least
twelve.
Usually fifteen years.

pattern recognition around that by the more academic exercise of actually
writing up cases around them.
And one of my very first cases that I took on was Sloan Pine.
And I remember
Through that.
And also because at the time Paul was writing a case study on
Julian Robertson and Tiger.
We got
Just extraordinary access to
So many people just around that ecosystem, including Julian himself and family members of Julian.
Steve certainly.
John Griffin.
And many others.
And I remember Julian telling us a story once.
about when he was recruiting Steve.
And
I think initially
Correct me if I'm wrong, Paul, but it as I recall the story
Steve warns Julian.
That he might want to consider not.
hiring him because he had
other ambitions. I think for example, he had an ambition to study
and write books on consumer businesses.
But it was very clear that
He had these other passions, and then of course.
Anybody who has looked closely at Lone Pine and understands the culture that Steve really built.
understands the paradox that was present at all times, which was
A founder who essentially was
Becoming in a way.
Smaller so that others could get bigger.
Or allowing that humility.
to create a culture where
Even though it was all about Steve.
It wasn't at all about Steve.
And
Every year we would go to the
One Pine annual meetings.
Unlike almost any other annual meeting that I've ever attended.
Steve, in terms of his presentation,
Responsibilities.
Would just simply present another investment idea.
Right alongside all of the other analysts.
Really not much more than that.
We
saw time and time again just that
Deep, deep humility.
And I think a lot of it was because
in his own process of self actualization, both as an investor and as a person.
He was always focused on
The bigger picture and
Some other
Greater source of motivation.
A long time friend and mentor.
author of The Outsiders. Will Thorndike I had the chance back in business school
To spend a year with him.
working on a chapter of that book.
and thinking about what capital allocation means. And at the time I had no idea I would ever work at an endowment.
Or that that would ever affect us.
fifteen years in the future.
And
When we started Seder Grove, Will was right there by our side.
And prodded us to think about
Broadening out our network.
He brought a gentleman named Mitch Rails, who co founded Danaher.
into our network and
I think as we think about Seder Grove and the types of things we've invested in the people
Who are surrounding us as shareholders.
We like to think about, and this is what we teach to our students too, is
Everybody can be an investor. Everyone has to be, actually.
They're looking at investing their time
their resources, their capital
So on this question of what investor out there
thinks broader than themself, we would put Mitch right at the top of the list. And while he's the
chair with his brother of one of the greatest companies in United States business history.
He's actually an investor, too, and we've learned what's possible when you match
Investing capital allocation and company building
into a culture what's possible not only for his employees, but all the people they touch with the products they build.
Can you describe the method that you shared with me that drives him in terms of constant, insatiable
learning and how often you encounter someone like this that
Even as they get
through their twenties and thirties and forties and fifties, like somehow it accelerates rather than congeals.
'Cause it sounds like he's one of these rare people.
that I think Danahers had five completely different chapters in its history just like
Some snake shedding its skin and moving on to the next chapter. Maybe just say a bit more about what you've learned.
watching him. I think he's your largest shareholder too at Satur Grove.
So Mitch is our largest shareholder and the most active shareholder we have, which we're very grateful for and very surprised about, given all the things he has going on. When he was in our classroom last year,
He shar just fantastic story.
Very early on.
And then Danaher.
In the first decade.
He and his brother had had a lot of success
Building Denher from scratch. And
Not even ten years in.
They had this moment where they found the ideal CEO
to essentially take their jobs. And
They knew they had to do it.
Mitch shared with us and our students that
It's a really difficult year.
But I think it epitomized
This mindset that he's gonna put the best person
in the right place to do the job the right way.
And that he himself in his early thirties was ready to evolve.
And do it's right.
To compound capital and make Danher as strong as it can be.
You fast forward it started as a vinyl siding company.
then moved into all kinds of filtration diagnostics.
They just have done their the last shedding of the former assets and
It's now the world's largest dedicated life science company.
Which you would never have predicted.
Looking back, you can see the golden thread and how it all connects.
What we've learned from Mitch is
And you often talk, Patrick, about growth without goals.
I actually think Mitch is one of the best at creating goals. He's a Jim Collins aficionado.
But in the midst of that, he's incredibly open minded.
And just seeking the best team and excellence and everything.
Well being patient.
Knowing that over the long term
You compound it.
twenty three percent for forty five years by
Doing things in an excellent fashion, but also
Pivoting, knowing the world is changing, your team is changing.
I think another gift that Will Thorndyke has given us that's worth mentioning is
An essay.
Pattern after talk that
John Gardner.
gave many decades ago called the road to self renewal.
This has been required reading for our Art of Investing class in five years that we've
Todd and it's a document that Paul and I probably read every few months.
Anybody that we've shared this with, I think has had a similar
reaction of the impact that it immediately
has on them and their thinking.
And in that essay.
Gardner talks about
One of the major pitfalls that we all are at risk of in life.
Which is
Two
Strive to be interesting.
When really
The opportunity
To live a full
Rich life.
The opposite.
is to seek to be interested.
And I think all of the greats
Who have
Figure it out.
How to continue to compound their knowledge.
And compound their capital alongside it.
have this insatiable
Curiosity.
Behind them.
And it doesn't end
When they get out of school.
It doesn't end when they make their first hundred million dollars.
If anything, it accelerates.
Paul and I have this obsession with
The people that we spend time from.
That's not our idea.
When we were building Seder Grove.
one of the most important documents for us was the nineteen eighty nine shareholder letter
For Brookshire Hathaway.
The buffer wrote it in there.
He again addresses the learnings of only doing business with people you like, trust, and admire.
And we really took that to heart. Our shareholders, they're only individuals first. We've turned on all institutional capital.
But they're all people that we know.
Like, trust, and admire.
And when I
Think about
That concept
We have extended that in every direction we can think of.
Including
Cap tables.
Who's around us in a situation?
But I think it's most important for anybody in life, whether you're an investor or not.
To appreciate the fact
That
Over the course of time.
you are most likely going to become
the product of the five or ten
people that you've most spend time with.
And I think that's just a very critical
element to this and
surrounding ourselves with folks who are
Have lived a much longer life than we have, and yet
In many ways, we are struggling to keep up with their curiosity.
is an extremely good source of motivation and inspiration.
If you go back to this really interesting exercise of writing cases
about investment managers.
I'm curious, how many did you write, do you think?
Probably about fifteen or so.
So walk me through the process of
producing one of those documents because
Many listening will be
in the business of either working with LPs that are
looking to invest in them or
LPs themselves looking to invest in GPs and managers.
And I'm really curious how you refined that craft.
on the first one what you did and on the fifteenth one what you were doing that was different.
To learn about a manager.
and capture what you felt was the essence of what made it go.
I'd love to spend a little time on this because
Fifteen's a lot of investigations, like a formal investigation, to say nothing of the hundreds and thousands that you did without the memos.
What was the first one like?
What did you literally do to get the raw material to turn into that case?
Rick and I
Have been joking a lot since we've gotten to know you, Patrick.
We had to create
our own invest like the best before podcasts were around or before you've
gifted this to the world. And there was something about an obsession with
Getting to the root cause of
Why a firm can last ten years or fifteen years or twenty years.
And frankly, why more didn't?
We met so many talented people, so many people that
we would objectively look at and say, I will never be the calibre of investor that that individual
Is
And yet
obstacles came in the way of compounding.
And so often comes, I think, in that seven to twelve year period.
In many respects the obstacles that
can often take firms down or just lead them.
Down closer toward mediocrity.
Are not functions of failure, they're functions of success. They're what happens after you have a great three to five year.
track record.
Yeah.
became one of the outputs of every case was how are they structured?
What are the incentive schemes?
And we learned a lot about that. We can come back to that later because that Fed
So much into our thinking of how we set up
Seder Grove.
But just the brass tacks of doing one of these.
I had the fortunate and unfortunate background of starting my career at
Boston Consulting Group.
Learned
Way too much how to build slides.
I was the guy tasked with
creating the structure. And they tended to be a hundred fifty page PowerPoints.
where we would go as deep as possible. So
For instance on Tiger
With Julian
That was a little bit easier because there are so many tiger cubs and by that point grand cubs.
We interviewed as many as we possibly could.
took detailed notes. We had a group of five or six of us doing this who ran the public
side of the Not Rame Endowment.
And we would have weekly meetings on what are we learning. And we did a few at a time. So it took a couple of years to get to the full set of what we called R and D case studies. It would culminate in an interview with the protagonist. And we learned this from our time
At Harvard Business School
I learned this working with Will Thorndike on the outsiders. It was a year's worth of work.
And I at the end of it, I got one two hour call.
With the subject of the chapter, Bill Stirrets.
Which was extraordinary.
We had the model. We knew that's how you had to do it. You had to do your homework.
And
Very quickly when we got to case three, four, five.
commonality started emerging and that was really powerful. That fed a flywheel into
building these. It was a lot of work and you needed that
output and energy
To do that, I think one of the more interesting takeaways at the end of it was
Essentially all these firms were singular.
There were commonalities.
But
Steve Mandel or Seth Clarman or Ray Dalio.
Hom we all spend time with on these cases.
By the end you just realize they're extremely special, mixed with maybe a few of these
Commonalities.
I think honestly that threw us into a tailspin the next few years because we then
How to go figure out what our philosophy was.
We're gonna take those learnings, but
This is very difficult.
To know who the next
Steve Mandel is gonna be success was idiosyncratic. Idiosyncratic.
I would say two other features of the process that were really important.
One was that we tried to create these cases retroactively in real time. In other words
We gave ourselves the group of colleagues that were
working through these cases ultimately together.
An opportunity to a different
Point in the chronology of the firm.
to make an assessment. What would you have done?
when Lone Pine first opened back up a year or two.
after they launched and actually
The Nasdaq bubble had not yet burst it.
And the concept of shorting.
He's highly valued.
Technology stocks.
was losing people a lot of money.
There was an opportunity to actually double down, triple down.
On Lone Pine and Most Dinnet.
But it would identify those kind of three to five sliding door moments of the firm in hindsight.
And then build the cases around trying to put ourselves in the position

what we would have needed to know in order to make the right judgment.
The other component that I think
was really important.
In order to
Do this successfully.
It's really important to gain the trust.
Uh
The protagonist and the people around.
Them that you are going to talk to.
particularly I think in investing is an industry that doesn't lend itself to transparency.
in each case, particularly the cases I think that we felt were the most formative for ourselves, it was
Because for one reason or another, a lot of times not because of
Anything we did.
We were able to gain a certain level of intimacy.
Access.
In order to uncover something.
That otherwise we would have never been able to understand.
And again, that sounds like a very soft feature.
But I think if you're gonna try to study the greats
Those who are
still practicing their craft.
obviously the best source is usually the primary source.
And accessing those people.
These are really busy folks.
Who don't necessarily want
A couple of twenty or thirty somethings.
snorkeling around, you know, trying to figure out
An additional layer to the story.
We made one exception to the ten year rule and
This was for one of our
close friends, mentors, we had seen his firm from the beginning, the liaison of Hill House Capital, we think
amazing investor based in Asia now globally.
one outcome from that because I think we did a case technically it was about ten years ago in year seven or eight for him, but we
The returns were extraordinary. What he was building and evolving to, we thought
Was an amazing
Case study to learn from the
Even to this day, whenever we're with him or his team, they talk about the case study.
It's almost in the mindset, and we saw this with so many others.
They wanted the learnings from the other cases, but
Back to this point on obsession with learning.
They wanted to learn about themselves, but they were so curious about
All the other greats.
They knew we were doing this work and
For years they would ask.
What did you learn?
from studying all the great investment firms because they wanted to benchmark themselves.
They wanted to improve and get better. And so we didn't realize that. We didn't know it would have such long legs, but
Not only did it become part of our mindset.
to do these cases, which we still try to do, it created
A community of the folks that actually care about
Continuous learning.
I think Lay's an interesting one just to
sit on the story of Hill House for a second,'cause I don't think it's a story that's well understood.
What we were particularly interested there
was there were elements of evolution
that were highly, highly unique that Hill House was embarking on.
If you think about it in two thousand five when Hill House was first constituted.
They were essentially a China only manager.
And
Essentially public equity.
Long only public I would be China.
Think about what Hill House is today.
completely global in nature.
Invest across all stages.
And I think one of the areas that we've learned the most about
And have the most interest in.
is their decision to begin to incubate
de novo businesses when they identified a what they would refer to as a battlefield
that was really attractive to him and to the team.
And yet there wasn't an obvious public or private target.
they began to start building these companies.
So that's one thing that we just that just struck us as
fairly unique and we're studying.

their emergence as one of the leading biotech investors
I would say in the world today.
One of the reasons we are so drawn to biotechnology
Is
Is that
The vast majority of
of world class investors we've studied.
It's
the only area they say they will never go.
Because it's too complex, it it requires too much specialization.
A little over ten years ago.
Lay started talking to
His LPs.
About
the work that they were doing in studying and researching biotechnology and for years
He kept saying, We don't have a single investment here.
But Michael Yee, one of the co founders.
Became his entire effort.
For multiple years before they made their first investment. And I think if you look at the first four or five drugs that got CFDA approval in China.
Hill House was behind at least three of them.
And that was all in a matter of ten years.
And I think
We're fascinated by this concept that
As human beings, it's very easier for us to
overestimate what we can do in shorter time periods like a month or a year.
But we see this all the time that
People
tend to underestimate what's possible in the course of a decade.
I continue to be struck by how exceptional it is that a firm would not step back
and begin to cultivate an expertise in an area that has historically been so rich.
For active management.
If idiosyncrasy ruled the day in these case studies.
What were the exceptions? What were some of the commonalities that you saw multiple times across the fifteen that you think matter where
I love the way Miles Grimshaw from Benchmark talks about the DNA or the genes of a business.
Are there any DNA or genes of an investment manager that you think are like, we want this as part of the recipe here, regardless of whether it's a Chinese manager or a real estate manager or whatever it is?
One that comes to mind for me is
The tight rope.
Walk.
between maintaining discipline and embracing change.
So many of the investors that we've been shaped by and that have found success
know that they invest in change. Companies that
by definition have to change in order to survive and continue to thrive. And yet we've been struck by how few investment firms themselves
go through the process of exploring
the changes that they themselves need to embrace.
And that could look like a lot of different things.
This all comes back to the
challenges and the joys of compounding.
How do you get to those out years, those years where the exponential growth really starts to happen? And again, I'm not just talking about capital. I'm talking about
the compounding that can occur across the human condition.
In order to get there though.
In any meaningful amount of time.
Just requires.
A tremendous amount of evolution and adaptation.
I don't pretend to know exactly why that is, but certainly it does seem like one reason
Is because the world itself
is extremely dynamic.
And we ourselves are extremely dynamic. And you put that together
And add on any complexity.
Like a large team that's
Constantly changing.
To be able to keep that going.
I think requires
Constant tinkering.
Constant experimentation.
And certainly
one of the takeaways for us from the cases that we wrote was how should we be
Experimenting
Not completely changing.
our approach or philosophy.
But setting up these small experiments, knowing that most of them are gonna fail or that most of them are gonna
maybe not necessarily result in a dramatic
change that we're going to embrace.
But that there will inevitably be a few.
That will
Emerge.
That will be highly important for us.
given our obsession with duration.
Two others that come to mind, Patrick.

Build winning teams.
They're obsessed with talent.
They create cultures where the best people want to be.
They were great talent.
Is nurtured to become even greater.
Tiger Bow Post.
Bridgewater.
Dinamo down in Brazil.
These come to mind, and if you're anywhere near their zip code.
In your approach to investing
And you work there, you can't imagine
Working anywhere else.
The last point I would make is that great firms we studied
Usually are built.
By one cult of personality figure.
And succession.
always extremely difficult.
It's just a quick aside, I remember from my quantitative days.
That
the most important lesson when doing
our version of the same research you were doing on investment managers.
We would have this data set and we'd say to analysts, the most important companies in this data set are the ones that are dead that no longer exist.
Because without them you have this tremendous survivorship bias.
in the sample.
How do you think about survivorship bias?
We have and we'll spend a lot of time talking about some of the all time greats.
But what about the Julian Robertsons, the Lazowns that had a similar skill set as those two guys and died?
They didn't make it. They failed. They did something wrong.
Those lessons to me seem
as important or maybe even more important than what the greats did that led to their success. So when you were studying managers, how did you think about that? How did you make sure to
account for survivorship bias in your study of the ingredients of a great investor.
The takeaway was it was all the more important
to have a mosaic of competitive advantages in a fund.
That was the same for our endowment team, and it's the same that we're building it
Seder Grove. So
Hundred percent.
luck could come into this. So you raise a fund
I mean, this is actually not that atypical. When markets are frothy, it's a little bit easier
Yeah.
And generally
Over the course of time.
You probably have the odds stacked against you.
To survive because
There may be a downturn after that. You may not perform well.
But if you combine
Team.
incentives.
A little bit of luck then
I think that you put the odds in your favor.
There's obviously a ton of survivorship.
Bias here, but
Maybe that gets back to and it's something ephemeral.
The idiosyncratic nature of these leaders.
All these leaders we're talking about, the great investors go through
Massive down drafts.
Huge macro headwinds.
Team changes and there's something about the culture they set.
that allows them to survive.
Maybe at the end of this our baseline is most investment firms
Aren't meant to last that long. Now we were in the public
Realm for most of our
Time there. And so there's daily liquidity or monthly liquidity, or always pressure from LPs.
It almost is bound to lead to
Most firms heading towards mediocrity
Or failure.
Private firms have a little bit of an advantage with 10 and twelve year life funds, but even there, you need some luck early on.
in your first few years to then go raise the next fund. So I don't know if there's any way to get rid of
survivorship bias.
Maybe there were ten others we should have studied, but
Some unlucky thing happened.
Or a team member left, or
Who knows, maybe a macro headwind got in the way and we used what was in front of us in terms of that sample set.
We are often struck by just how
Ever present the power law is
Not just in investing, but
All around us.
And I remember when that data came out.
I think from a faculty member at Arizona State.
Around
The last hundred plus years of
US equity market history and
That the
Majority of returns, if not
over a hundred percent of returns had been driven by
I think it was something like four, maybe even less percent.
Of the stocks.
that had ever been present during that time.
And for years we've been hearing that that was what venture capital was, and as a result.
of that power law dynamic, you would have a follow a different process.
for how to invest, how to evaluate other managers.
I think there were many folks and I think we were in that
category once too, where you just thought that the public markets were a little more different. There was some kind of more implicit stability. Maybe it's because these companies eventually didn't mature. And if you were going to be listed in the S P five hundred, surely
You had to have developed
resiliency in a way that would mean that you were safer. And again, over long enough periods of time.
Most things don't survive.
Very important.
distinction for us that we made shortly into
Seder Grove and it really came at the nudging of Mitch.
One time we were chatting with him and he said, You know
One of our values is that our time horizon is eternity. And that's a little bit of a play on words, but
Mitch said, You know, you Catholic boys, your eternity mindset. He said, You know, let me just encourage you to consider
Tweaking that a little bit.
And we said, Really?
What would you suggest?
Unlimited.
Because
Sometimes there is a very good reason.
to move on, say from an investment.
And again, as the data suggests, with enough time
Most things will not endure.
And you need to be able to spot that.
But that led us down to leaning into another, I think
oddity of the two of us and this obsession with the people that we're surrounded by it, just this obsession with
making sure that in every investment that we make
We have as
sound of a shareholder base is possible.
that is aligned as possible with what's in the best interests of the company. Now that's very hard to do, obviously in public markets, but certainly also in private markets as well. When
Oftentimes the story
the fundraising story of a company
is that they are taking capital
at different stages from stage specific investors.
As a result, it's totally understandable.
That orthodoxy would be that
you end up with a set of shareholders that all have
different interests and time horizons.
I think the far more important
Realization for us.
Was it while all of that matters, what matters most

There is high degree of mutual trust.
Ideally that is compounding on itself.
Because
If you are focused on long duration investing,
You are guaranteed to encounter
Hardship.
And periods that will last several years.
Of
Poor outcomes.
I'm reminded of that article the the super investors of Graham and Doddsville.
They just
By the definition, if you look at all of these extraordinary
public market investors in time.
They've all had these kind of fifty percent plus
corrections in their portfolios and have all had
Three, four, in many cases five years in a row of underperformance.
First of all, if your investor base doesn't have the ability
structurally to hold on in those periods. You're dead on arrival.
But in addition to that
If there is not a level of
Mutual trust that's present and goodwill.
There's really nothing to fall back on.
And particularly in the context of institutional investing, when so much of this is
Motivated by agency dynamics.
Why would you stick around?
We see this time and time again. Maybe it's turnover of a CIO and it has a bunch of different opinions, and therefore the deck is cleared. And all of these great investors.
Get redeemed from.
Probably right at the time.
when they should be being added to.
Or there could be a variety of reasons for it.
But it's something that I think

Cases where
Oftentimes that investor in a way
It wasn't that they did something
that existentially took them out of the game.
from a pure investment standpoint, it was that
Their house wasn't in order.
Maybe they're all P based.
Was
Shaped in a way that was
Not designed.
To ultimately.
Last for the long term.
We then thought about this.
Structurally.
So one of the learnings from our case studies was
Alignment of incentives.
And you mention
survivorship bias, we're talking about power law.
Why things don't survive.
We wanted to put the odds in our favor. And so when we looked at
The greatest companies in the world, greatest funds in the world.
Those that
Just went back old school and had a
budget based fee.
We're the co CEOs, we design our company.

resources to do the job right.
But no more. There's a way over very long periods.
to earn incentive in our company.
I think importantly, we always joke about this and we're very grateful
to Molly and Chelsea, our wives for
Letting us pay part of our own salaries.
And investing
Every single cent.
Of our capital.
into the company. So this is the
Vehicle that we created.
to invest our retirement.
our kids' college.
funds all the stocks that we would have had. We put it all into Seder Grove. We feel extremely lucky that
We along with the nearly hundred families around us.
have a chance to look at things with a multi decade time horizon.
We knew that these dynamics exist that
Nothing.
Last forever and
We wanted to just nudge the odds in our favor.
With an extremely aligned structure.
That was a huge learning from these case studies and
It was an amazing opportunity for us to
Put our money where our our our mouth was.
And actually just

But give Seder Grove the best shot to succeed.
Coming back to one of your initial questions around
that pivotal moment for us in beginning Seder Grove. I mean, I think it's important just to reinforce that
None of it was premeditated.
We had this change that occurred.
On the one hand.
I think it would seem very strange to outsiders that we
looked wholly unprepared.
For that transition.
And there is a degree to which that's correct.
On the other hand
The minute that Paul and I
Got our wits about us.
and realized that we needed a second act and we needed a plan B.
It only took
A couple days.
for essentially the only document we've ever created, this Jerry McGuire manifesto.
On Seder Grove to emerge.
And
That is because Seder Grow was never a commercial endeavor.
It was the two of us.
Essentially answering the questions
How do we want to spend the rest of our lives and with whom?
And by your forties.
I think you're in a pretty good position to address that question.
And
Everything about
The structure of Seder Grove, the
private holding company an operating budget rather than a management fee.
And the litany of other sort of nuances.
None of those are our ideas.
It's the alchemy of other people's ideas.
That we just happen to be
studying for the prior fifteen years together.
And never thought that we would have a situation like this to actually build it ourselves.
But we look back and feel extremely grateful.
That none of this was premeditated?
At least for us in our own journey.
It led to a very authentic expression.
a manifestation of really the two of us coming together
And
Thinking about
Hopefully what the next forty to fifty years looks like.
I'd love to talk a bit about
the alignment of
compulsion skill
what you do on a Saturday morning sort of left to your own devices with the success of the investment platform.
I'll use two examples you brought up earlier, Steve Mendel and Join Robertson.
understanding that Julian started as a cigar butt investor and you know evolved into this cedar extraordinaire.
But I think they're really good examples of one person in Steve who is just you get him going on a retailer or something.
You can just feel the intense curiosity and knowledge.
on his Saturday mornings probably still he's uh we can see it's building from here. He's probably still reading weird esoteric stuff about sole price or something right now.
Clearly like an asset focused
investor.
passionate asset focused investor. And then Julian
the whole Tiger Cove Network are very people focused.
Talent spotter.
What have you learned about those two camps?
And now that you're at Seder Grove doing both, you're doing asset level investing, you're doing fund and person level investing.
What do you think?
marks the difference between those two things. It's something I've struggled with a lot too, because
For sure, like I fall more in the people camp.
Obviously you can tell with the podcast, and I am not spending my morning in 10 K's and Q's.
But I am obsessive about what makes a person tick. What's their history? What are they gonna do in the future. And I'm curious if there's anything notable from the case studies or from your own experience.
How explicitly important you feel this is.
that the investor, you in this case
know what makes them good.
and where their energy naturally comes from.
and how they get that to align with the success of the platform that they built.
Don't trust the two of us. Please look at the greats again. I mean you look at Buffett
and his evolution and appreciation more and more toward the importance of
People and quality.
We love Dan Hur's core value that the best team wins. It's just a fact.
And so
I do think it's important though to define what you mean by people and talent, and for us
The key inputs to talent.
Our judgment.
And character.
And then you have
an individual's capabilities, but
What's of far more importance when you're investing for the long term.
Is
the slope of their capacity to learn.
Connected to the capabilities they have today.
And so
When we think about talent
We look for people that
We have mutual trust in
And that we will not be surprised.
By the way that they behave.
over the course of ten, fifteen years.
In fact, we could talk about this.
We've led a number of financings.
both public and private companies at various stages.
We have never written our own term sheet.
Every single time we have led a financing
We've had the founder write the term sheet.
Because our determination is that
If we're gonna go into business with this individual
We better trust them enough.
to come up with the terms of engagement.
I think
In doing that.
We've actually got
Better pricing quite often.
But it's a signal.
It's a signal to these people.
We're in this alongside you.
It's not us versus you.
In order to get to that point.
I think you really have to have a heavy weight on
The character.
portion of that talent equation.
We're totally fine being somewhat unique on that.
I think more and more, particularly with the level of investing that we've been doing w around vertical market software aggregation, we're getting
A lot of software entrepreneurs reaching out to us.
that seem super compelling, very talented. We just don't know them well enough.
to do anything with them yet. And so
And it usually is not a very I think
enjoyable thing for these entrepreneurs to hear that on average
are the CEOs and founders we've backed we've known for eight to ten years, some cases twenty.
But the reliance on talent comes from
That
benefit of having so much time.
to really understand
Who these people are.
What they really want in their lives.
What their capabilities are.
At the age of twenty five, at the age of thirty five, forty five, are they still continuing to learn and grow?
And it's okay if the answer is no, it just means it's not gonna be
A fit for us.
When you were looking at managers
that were clearly
Talented.
Let's isolate a sample here of no doubt they're smart, talented, maybe even potentially great investors.
What did you most hate?
Seeing.
in their firm and then
And their teams.
It was
Embracing the conventions.
Of
The investing industry.
Despite
not agreeing with them from a first principles basis.
Oftentimes we would talk to
An investor.
In a certain strategy.
Say a fairly simple
Public strategy.
Focused portfolio.
didn't really rely a lot on
the need for thirty, forty new names every year.
And yet
you could see the evolution of a team growing and getting bigger.
And other forms of complexity that were finding their way into the
organization and when you would
Ask
the founder about that.
Oftentimes.
The answer
Is either
Something along the lines of
Inertia.
Or
The sense that
some of the decisions with how the firm
evolved toward complexity.
was because
That's what oftentimes LPs want to see.
Bigger teams, more process, fancier systems.
Exactly, exactly.
And not appreciating that
With all of that complexity.
begets new challenges.
And for me it was often
the vast majority of these people we knew were more intelligent, certainly than me, maybe not Paul.
But it wasn't their investing acumen.
That
was most frequently the reason why you would decide to not invest or
to move on from a manager.
It was often just you could see that there was not that integration, that radical integrity.
With the way that they themselves
understood the world around them.
Yeah, and I think
More specifically
Let's just take
L P bases because we were an L P
We knew the good, the bad and the ugly.
And oftentimes, especially with a really talented investor, maybe they had a great pedigree.
Spinning out of a great firm.
They had a lot of work already to do. They were trying to attract talent. They were trying to have the first
ten names in their book. And
It was just frustrating all the time to see
than then maybe outsource the idea of choosing LPs.
hire a giant IR team.
You know, when we look back at it
People thought we were nuts when we started Seder Grove, but
Patrick, you're looking at the whole team. So the two of us
Who started this thing, we've taught hundreds of former students
We knew what it looked like.
to build big teams and yet we decided not to
We've made one exception.
About a year into our firm.
Based on a lot of these learnings, we knew that
Whether it's SEC registration
All kinds of
Things that need to be done.
legally, operationally, that we needed a new team member and
We had an N of one.
Greg Dugard.
Who been again longtime friend for nearly twenty years. It's the constant theme and everything we in day one shareholder.
And we made one call and
Thank God he accepted. I was with you guys on a beach the day before you did this.
You prodded us along here on
Making sure we knew our strengths and our blind spots and Greg his filling.
And Greg has been extraordinary, but it's it's just the three of us now.
I think your exact question was how is Rick not in jail yet? I will say that I have
Developed.
A tremendous
Amount.
of empathy for GPs ever since
Starting our own entrepreneurial journey.
And I think also with founders themselves because
One of the things that we've
grown to appreciate
is the trade offs that come.
With building.
And we kind of simplify it that
The entrepreneurial equation is really
An exponential increase in existential uncertainty.
most of the time people who go off and set off to build something
They have found themselves
in a place where if they wanted to
They could
have a very comfortable niche.
in a large organization.
It paid extremely well.
And have their sort of at least economic lives de risked.
Alongside that
You have
Not necessarily an inevitability, but certainly in our cases, and I think a lot of cases with entrepreneurs
Just an immediate decrease in
In your income.
And particularly as as life
goes on and complexity builds and you have a spouse and children.
That's a very hard pill to swallow.
But what we've also found on the other side of that
Is
The reason
That
I rarely have encountered an entrepreneur who ever goes back.
to working for a large organization.
And that is because
On the other side of that equation stands
A radical increase in joy and freedom.
I think that that
largely has to do with something about
The nature of us as humans.
And
Are hard wiring.
Two
originate something.
And to be a part of that creative process.
maybe I'm completely wrong about it, but I think that's how Paul and I
Have felt.
And yet as you move on in your journey
As an entrepreneur.
Everything about the organization falls back on you.
And managing all of those tensions.
It's extremely difficult.
Even when this is the only guy I have to manage, you know. To be clear, Greg manages both of us.
But I'm much more empathetic to the trade offs that need to occur.
In the context of a G P
than I was, say, five or ten years ago.
What do you think are the
Ugliest truths.
About the world of
the big complex of LP investors.
So if you think about
The world's assets.
They tend to pool.
Whether that's in huge pensions at the company or state level.
Or at the sovereign wealth level.
Very wealthy individuals and families and multifamilies.
the world's assets largely if you just broke them down into a pie chart.
tend to coalesce into these big massive pools of capital and then the capital is directed by a team, usually agents.
Not principles.
And that's just how it is. It's probably is how it always will be. I'll never forget opening the Wall Street Journal on a train ride one time to read about the guy at the state of Nevada that decided to just put a hundred percent of the assets of the fund into the S P five hundred.
And just fire everyone and just come in and read the paper every morning and that's all he did. And I thought, Oh my God, somebody broke the seal and now this is what's gonna happen. But clearly, obviously that didn't happen.
So we're in this situation of huge pools of capital, teams of people hired to administer that capital and spread it around.
I'd love to just hear like what you view as the problems with that model. Yeah, like I said, the ugliest truths about
how capital gets allocated in the world on the back of this tendency of it to pool in these huge places.
I think the first thing to do is just to qualify
Anything that we're about to say in terms of these ugly truths because
We have a tremendous admiration for the vast majority of our peers
In that world.
extremely smart people. This has nothing to do with intellect. I think you already hit on it.
A lot of this has to do with the agency dynamics.
And not tending to those agency dynamics.
I think one of the
Ugliest truths about
Most
institutional investors, particularly those who say like an endowment
Or foundation or in theory.
said to be multi generational investors.
Is the collapsing, the utter collapsing of the time horizon. I mean, if you were to just look at the average holding period.
of a manager or of
an underlying company.
by virtue of the kinds of investments that that supposed multi generational investor makes.
I bet it's not very much more than a handful of years.
And I just think that that is a massive opportunity lost for those institutions. Again, I don't know whose fault it is per se, but I think that
The fact that that is not
Necessarily been.
addressed or acknowledged as something that needs to be sort of worked on is a major problem. I think one of the other
dynamics that we see often is the overdiversification of portfolios.
aware because maybe on account of
The
specialization of biaset classes.
And the creation of
A multitude of what essentially can become little fiefdoms.
You have an explosion.
of underlying holdings.
every team, every individual's
gotta be having something in the portfolio. I think there's also
A
over indexing on
Sourcing.
As opposed to other
Maybe more.
Passive.
Work.
that could be extremely valuable for the long term outcomes of those institutions.
It's almost as if
the primary way you can be recognized as an investor in a lot of these institutions is to make new investments.
Which is only good if the current investments you have aren't good. On the flip side of it is when you look at how real wealth
accrues and often this is in the context of individuals.
so frequently it has to do with the opposite of what we're talking about. It has to do with
Extraordinary concentration. Concentration in that which you know extremely well.
But
There are aspects of the investment industry
That stack the deck against the institutional investor even wants to do that.
I mean even if you think about
the traditional fund structures they lend themselves
Toward selling assets every five or so years.
at most. And there are folks like Will Thorndyke and Ponama Baltos and Han Kim and and Anthony Lee.
who really push back against that and have found creative ways to hold on to
really compelling assets for much longer durations, but by and large
there's a sense that that medium term time horizont that three to five year time rise is really what
L Ps want. They want to get that capital back in their hand. Even though they're going to turn around and give it right back to those same investors. They want to touch it for a few minutes.
and then give it back. And I think you could look at a number of examples of companies public or private.
Where
Initially it seemed like
a pretty solid outcome of it making three to four times your money.
And in just a handful, five, six, seven, eight more years, you realize that that three or four X could have been a twelve or fifteen X.
If the alignment of sentence were more accurate.
There's all kinds of reasons why
the world has settled on these traditional models, but it's
Kind of the fundamental reason why
Even though it seemed particularly I think a couple of years ago, it seemed very odd that we would build
a private holding company.
Rather than set up.
a more traditional kind of evergreen fund or private equity fund.
But a lot of it was just guided by some of these learnings that we had observed.
Sum up a fascinating set of observations from you both so far.
We've got this interesting underlying truth that like
We know
that whatever it is, four percent of the world's companies create more than a hundred percent of the world's market cap.
And that
By definition, to get to that point takes
compounding over many years.
Decades.
And
all these agency problems effectively like interrupt compounding unnecessarily, to use Charlie Munger's line.
So
I want to talk about compounding, like in in in like a great amount of detail. You used the line earlier, I think you said compounding across the human condition.
You teach a class at Notre Dame called The Art of Investing, but really it's a class about compounding.
about the inputs and outputs of that process.
So give me your philosophy of compounding. Like give me the opening spiel you might give your students in the first class every fall.
About
why this concept is so important and why they should take it so seriously and then we'll pick it apart.
Compounding is a
Actually a really simple equation. You have
growth rate on the bottom and then you have an exponent. And
You can use either of those to get to a large
Outcome at the end.
Over the course of our careers
And our time spent together over the last twenty years.
The exponent became way more important and a lot of our mentors and you study the greats
Berkshire Hathaway going for sixty years or Danaher going for forty five years.
They grow at really high rates.
They're the unicorns'cause they do both.
But the exponent is so powerful.
And as we started to deconstruct
The roadblocks to that.
We decided
Let's try to unpack
The concept of the ubiquity of compounding
So
Let's think about the fact that all of us are investors. No matter whether we choose it or not, we're
Allocating time.
We're allocating resources. We're choosing whether to spend time with our family or work or on fitness or all different
Aspects of our lives.
And
These are the topics that we feel like are the inputs.
To compound and they give you a shot.
To get that exponent.
To go way further out.
The two of us remind each other about it all the time.
We decided
That
We had already been teaching for about ten years at Notre Dame.
About five years ago we said, Let's just make a class about
This.
Because whether you wanna be an investor, you wanna run a company, you wanna go run a nonprofit
There are universal truths that are really important and they're gonna evolve over the course of your
Your life. So
What we try to do in our class is bring together
World class
Friends, guest speakers that
can talk about compounding in various
Industries, investment firms all to just try to repeat for ourselves anything times zero is zero.
That if the duration stops
Then the whole compound equation goes back to square one.
And so for us we start within the class just to try to define
What these inputs can look like.
Before even get into the output, we'll show'em the math on compounding.
But it's very important to get to those inputs.
Yeah, on the one hand it's a very simple equation and yet on the other hand it's a very difficult to
Really rap.
One's mind around.
When we say that compounding is ubiquitous.
We mean that it shows up.
Literally everywhere.
Most of the time.
It doesn't really matter that much to be aware of it.
Initially.
because there are other forces at play, inertia or youth.
Or
Tailwinds of a an integrated industry.
But
If you are really focused on
A meaningful duration.
one has to get much more active.
in order to perpetuate

And I'm not a
Neuroscientist.
But think even about the way in which the human brain develops.
Over the course
My understanding is that over the it's really over the course of the first fifteen to twenty years where most of the development occurs. And often for those of us who have children, we know that there are certain aspects of their brain that are not anywhere close to fully formed yet. And we need to take that into account in our parenting.
What happens in that back end of life?
It starts to become much, much more difficult.
to create new neural pathways.
to learn new anything.
And yet there are habits that you can form and disciplines that you can embrace.
to push back against that and to keep that compounding of knowledge, for example, going. And we were talking last night
All of us know a handful of folks who are
in their eighties or nineties then of course Charlie
Munger getting very close to I think turning a hundred and
Anybody who I speak to and I think David Senro was recently with him. Paul had dinner with him last
Year sometime.
Everybody's reflection is the same.
The guy is as much a learning machine today as he ever
was and it pays to step back and say, Why is he so unique in that regard and why are all these
Other people.
Do they just want to be more curious than others?
I think a lot of the times it comes back to f starting with that motivation, but then formulating the disciplines.
And creating the daily habits that are gonna perpetuate
Compounding. I don't think it's any different.
When it comes to capital.
So when you're teaching this concept, so
You've got the number at the bottom.
Whatever you want to call it, and then you've got the exponent, how long it's gonna keep going for.
Is most of the class that you're teaching
strategies for keeping the exponent alive.
In your estimation, having thought about this more than me.
And this is not just invest in compounding, but any form of compounding.
For those listening, like, Yeah, I want one of those compounding stories and I wanna keep it going, like is that really where you encourage people to focus in on? It's almost more like a negative thing, keep out the things that will
destroy the exponent versus nurture something that will enable it.
Yes, and I think a major reason for that is that the vast majority of our students
Are absolutely incredible.
They are currently.
Learning machines.
who have a tremendous capacity to
Develop new talents and skills.
And so they already have
the sort of velocity.
Of growth.
Harnessed?
And so when we look at
what might be useful for them as their
Culminating in their
Time it and Notre Dame.
Getting ready to graduate college.
what kind of lessons can we instill that actually will move the needle and matter is just planting seeds.
That
Most of the time
Only reach their
Maximum relevance decades later.
When the default to
Turn off the learning switches.
starts to set in. And so I think for us
the class that we teach is the class we want to take.
We often tell our students that
What we're trying to do is
build up that capacity in ourselves and in one another.
To be able to look around life's corners.
And to recognize that
There's something
Ubiquitous.
Just
innate about
Investing.
about allocation of resources of time.
Of energy.
And ultimately two of capital.
That is fundamental to the human condition.
That will ultimately
be a major contributing factor.
To the degree to which
you experience the life that you want.
And so in a way
We've often joked and have heard this from our students that
this class, even though it says it's the art of investing, it's kind of like the Seinfeld of classes. It's like it seems like it's a class about nothing.
And yet often just before we were starting the semester.
I have a folder of tons of notes and letters from former students who talk about it being the most transformative
class that they've ever taken.
both at the university but also in their lives.
I think that is
has nothing to do with the two of us, has everything to do
with stepping back and try to help these extremely talented people
connect some of these dots that are gonna put them in a position to
Increase that exponent.
There's a very
practical thing we're trying to get done in class two, which I think goes more to the
bottom part of the compounding equation.
There's a war for talent out there and a lot of our students who are seniors already have signed up
Two careers.
I think people in general are are afraid if they go off the usual path. And
One of the things that's beautiful about this compounding equation is
And when we bring all these guests in, there's so many roads to Rome.
They don't have to do the usual thing and
You're the beneficiary. I know two of our top students the last couple of years.
Gabby and Joanna have come to join your team.
We also want to show them that you don't have to feel like
in terms of that growth or compounding, let's say it's
the best investment bank or the best private equity firm, which are great jobs.
But if you go a different way that's more aligned with
your internal wiring and you're compounding in other ways
Then at the end you're gonna be as successful or more because it's defined
Based on who you truly are meant to be.
I think it's important too to frame
how the class is taught and why it is so practitioner led.
The class that we
Felt.
We wanted to take
was patterned after some of these remarkable teachers who have come before us. I mean you think about all the investors that
when you ask them about their most important
Sources of inspiration.
if they went to Stanford G S B was Jack McDonald, who for a time I think even Warren and Charlie would take part in teaching that class.
for us at Harvard, if you were interested in investing
And you went to Harvard in the last thirty or forty years.
You wanted to be in Andre Perole's class.
And
Similarly at Columbia, Bruce Greenwald and all of the amazing practitioners that he bought in to help
Two.
Round out.
a traditional faculty approach, which again has its value and has its place in our class.
But to bring to bear
more of this human case study method and practicality
Because of the far reaching
multi disciplinary approach that
Upon which we wanted to engage.
And so if you look at our class
Today.
There's really three types of faculty.
There's the traditional faculty. We actually have Andre
We will teach a class this semester and we're so excited about that. I mean, I don't think either of us have had
any more of a m inspirational professor, somebody who's just
all teacher and also just a world class investor.
Chris Bagg, who teaches the famous security analysis at Columbia that Buffett took
under Ben Graham many years ago.
It will also be a guest.
Last year we had legendary historian and current Notre Dame provost John McGreevy teach
Just
Incredible.
nuggets on why it is so important to build a historian's toolkit.
And to have an appreciation for everything that's come
Before you.
And again.
We just keep coming back to this kind of importance of studying the greats.
That's why it's been so important for us to integrate
alongside those traditional faculty
this sort of modern MBA faculty of which you are one.
David Senra.
What he's doing with founders podcasts.
What Ben and David are doing with acquired.
Because you all have become
In our minds.
The great
Historians of entrepreneurship.
and of company building.
And so
That's a more relatively
New addition to
our curriculum, but we feel it's really important.

the traditional faculty with
The creative case study.
work that's coming out of the podcasting world.
And then finally
We do have these other world class
Practitioners.
What we focus on there is not to just try to find
Big name.
super successful
highest
IR compounding
investors.
First and foremost
We want people who really have a desire to teach.
and who really have a desire to give back specifically in a classroom setting.
And secondarily have something
That we think is really compelling to say.
to young people.
And so
Over time we fashioned the curriculum around those three buckets.
The default that most
society will
leave you with is the sense that
Your learning stage is your first twenty to thirty years. There's all these classic frameworks
Learn, earn, return.
And we just don't fundamentally believe in that.
All the people that
We admire the most.
their stages are to learn.
Learn some more.
Keep learning, die at their desk.
You have these extraordinary figures.
just a couple of weeks ago we lost a legendary investor
John Glenn of Glen Capital.
one of the very first investors in the early nineteen seventies in Intel.
since that time over the last forty plus years, has built an incredible firm devoted to investing in technology.
And we were fortunate enough to get to know John and his son David and
I remember when we were starting Seder Grove and
Spending time.
sharing with John on the fifth page of our Jerry McGuire Manifesto.
Are all the reasons why you should not invest in Seder Grove. And the first one is
That we made the proactive decision.
That we were gonna continue to devote.
A disproportionate amount of our time to continue to teach.
That was always controversial in our prior jobs.
It always to some people felt counterproductive.
Unfocused. But I remember John.
Who had a
I think thirty year career teaching at Darden
as well as G S B.
really reinforced to us.
Is that
There's no better way.

grow and learn and become a better investor?
than to continue alongside that teaching.
And so
Again, some of this is just
We want to reinforce around us.
those voices that are gonna encourage us to continue on that
growth on that learning path.
Because the default
is something utterly different. The default is
Slow down.
Easy back off, you've earned the ability to start doing other things or whatever.
And
The evidence suggests that
The richest, fullest lives are ones that are full to the brim.
I love this idea that you could frame so many conversations through the X and the N, the thing that is being multiplied on itself and the N the duration of the compounding.
And that like you said, the legends figure out both.
And that if you compound one percent for a hundred years, it's not that interesting. If you compound ten percent for a hundred years, it's very interesting, and so on.
It's really both and that
I'm guessing what the students get out of it is
We gotta think about both parts of this equation.
And take them very seriously.
But I'm curious, just empirically, like what has been the most common feedback you've gotten from the students about how they've changed.
If you are uh a student that goes into this class'cause you're curious and you come out of it.
For the students that it most affects or most changes their trajectory.
What is that common story? Like what is this
Message.
do to people, young people.
that you've seen across five cohorts so far.
The two things that
Come to mind or
One.
Across fifteen classes.
And we talked about this the other day when we were teaching
There's gonna be a handful of people that you just you write off, you don't see at eye. Maybe it's someone who runs a private equity firm, you just don't care about private equity. But there are gonna be a handful.
That are literally life changing and by design.
The people that come and help teach with us.
are there because they want to get to know these students. And we encourage everybody to
shoot'em an email or a text or go meet them.
It's such a common piece of feedback that
We hear time and time again that
Someone actually
replies or they go see them and it leads to a job or it leads to a
A mentorship. And I would say the second thing
is that now where we're five years into art of investing and fifteen years into teaching.
We get emails every couple of weeks from somebody.
Tells us that they kept their notes.
From art of investing.
And that they're in the midst of their first job change, for instance.
And that
They thought class five gave them the perfect advice to deal with what that looked like. That's really important for us that
Like Rick said, some of these lessons that we're trying to get across might
Only be applicable
to your thirty year old self or your fifty year old self. And it's just really fun to think about the leverage, like
you have in the podcasting world where you can get the message out to a lot of people and you probably have a range of seventy years of ages of people that listen to Invest Like the Best, and every episode is going to be listened to differently. People are at their own phase in life.
So I think that idea that
We're giving the students something permanently to hold on to.
So that at the right time it's there.
And just some
very specific mentorships, friendships.
And maybe new career ideas.
What I'm sure of is that
These students do not need Paul and I to teach them
how to discount cash flows. There's
A billion
mediums for them to learn how to
understand the fundamentals of investing and valuation, et cetera.
I think a lot of times they come in thinking, particularly because half of our class comes from outside the business school. These are some of the Nordim's very best students.
They've all applied into the class.
But these are political scientists, they're neuroscientists, they're peace studies majors.
We have twenty majors this semester.
Forty four students.
What I think that they need
Is the same thing that I think I need.
I think I need
Encouragement.
Direction.
As to the art of what's possible.
What is possible in a human life?
And specifically your human life.
And to sort of
Reveal to them.
That there is so much more out there.
Just to inject a healthy dose of FOMO for everyone listening,'cause I'm so damn excited this US C weekend. I'm gonna interview Mitchell's one day.
And then Sam Hickey the next day, who might be the two people
that I've studied or encountered that have the most lessons to teach about this long term thinking compounding.
It's an incredibly powerful format. I can tell everyone listening. I'm excited for it.
I can't stop thinking now you guys are saying this.
This simple equation.
The phrase in my head is find your X, nurture your N.
And probably in that order.
The N is irrelevant unless you find
The X first.
You have to find the thing.
And
I think that's like an almost emotionally beautiful
Way of thinking about a life.
mostly emotional for me because of how sad it is.
Then most people.
Never find
One, let alone the other.
that we talk about life's work or something, that's the X.
That's the thing that you can then turn N number of times.
But I think I'm not sure.
Nurturing people in that rough direction, helping them nurture the end.
is
A very noble thing.
And I'm just curious, I guess, if there's anything else that comes to mind.
With that phrase in mind.
That you've learned about or seen.
There's one other nuance.

brought up with us and he's gonna talk about this when he comes to class. And
It's just the difficulty in
focusing on one thing. He comes at it from a much more investing point of view.
That if you actually picked, let's say, an amazing company that you thought could compound for 10 or 15 years.
If you do the math and you do the X and the N
Nobody ever thinks about it this way, but if it is that good.
It will become like ninety percent of your portfolio.
If everything else falls away.
He's gonna unpack the compounding equation from that way and a lot of other
angles but for us we thought it was really profound.
Because it's to this point of finding your ex.
This is actually really
Scary.
If you find that one thing and it's actually the highest potential growth rate for X,
And it is a line with who you are, it becomes who you are.
Because if it is that good and you do it long enough, it's the hundred percent.
It dries everything else out.
Which is beautiful. It's w we're all seeking life, but
It's actually what nobody's seeking because everybody wants
diversification and they're afraid to go all in on something. There's all these layers to this equation.
That we get excited about. Every time we teach this class, we can unpack it.
I won't share who told me just'cause it's a private conversation, but there's this incredible
Entrepreneur household CEO name.
That said to me that the happiest he ever
was was when he removed optionality from his life, when he increased conviction.
When he concentrated more.
And it's so funny that one of these investing principles is like, Oh, you can diversify
Away all idiosyncratic risk in the portfolio by your twentieth holding
Free lunch.
That diversification is the free lunch and investing, which look, mathematically, there's a degree of to which that's true. The the lesson here is so contra that.
It is focus and concentration and
Conviction.
being all in and actually really risk
Real
Hard risk.
I just think that's really interesting.
Those are very opposed in my mind.
And maybe diversification is the way you stay rich, not get rich, or whatever.
It's a phenomenal set of ideas. You guys have been lucky to
draw in the Kobe Bryant sense.
study all the greats and sort of draw
ingredients from each of those and then combine those things into your own recipe. If you're up for it, I would love to do like a speed round on people.
Say a name and have you just say
Briefly what
lessons you take from your time with them. This is very selfish. Most of us just
haven't or can't spend time with some of these people. So if you don't mind, I'd love to do that.
Maybe starting with Chris Hone, who
Is someone that investing nerds will know that name
For sure, but non nerds may not.
What have you learned from Chris?
Yeah, Chris is somebody who we've not necessarily been particularly close with for many years, but was a great source of inspiration
For us when we
founded Seder Grove and we're thinking about
radical integration.
And the challenge in front of Paul and I was
If we were to envision Seder Grove as
Essentially our shared family office alongside
other families
An obvious output of
Our time.
Together.
Would be
This need.

Give away.
capital and pursue charitable endeavors alongside
our investing endeavors.
And of course most people understand
by the very name of Chris's firm, the children's investment.
Fun.
That he essentially designed
his firm in a way where I think
Certainly one of the largest economic beneficiaries of it was a foundation.
that is massive today.
and focused on children's initiatives around the world. Similarly
Paul and I'm not going to be able to do it
took that inspiration and in our own way designed
a mechanism so that the largest beneficiary
Seder Grove as the way that
over time we are able as managers are able to earn
A larger share of the company.
immediately flows to another entity.
A foundation that
Will be established.
as that capital starts to flow
that will be a means for
good across children's initiatives, including various education, healthcare, poverty alleviation. And so
Again, to my knowledge, there's not too many people that even though that was
Probably a good fifteen.
Plus years ago that Chris did that.
that have been so bold is to tie those two
really critical components together of the making and giving away of capital.
The next one's a name that comes up
all the time I haven't been lucky to meet this person yet, but it's just like one of these names that
people I respect most seem to respect him most, which is Kevin Compton.
I'm very fortunate to have developed a friendship and mentorship with Kevin going back to really
My very first day Scott had introduced me to Kevin.
He knew that we had a lot in common in our personal lives.
And for those who don't know Kevin, he's a remarkable venture investor.
Former partner of Kleiner Perkins.
Tremendous.
Technology investor.
And Kevin has had this way speaking.
truth into my life at those critical moments. It was just over ten years ago
At that point, Chelsea and I had not had any biological children yet.
And she had this crazy idea that we should become
Foster parents.
Basically parents to other people's kids.
And
I understood where she was coming from, but I also
thought it was completely nuts.
I already felt like I had enough going on in my professional life. How could I take on that level of responsibility?
And Kevin and I were catching up one day on campus.
And I was telling him all the wonderful things going on at work.
And teaching and blah blah blah.
And
Kevin just very abruptly said, All of that is great, but what are you doing for others?
And that message just happened to hit me.
on the same week that Chelsea was really challenging me at the same time.
And we went on to have a very
Which
Although not without
Difficulty.
foster parent experience.
welcoming in total eight eight kids into our home and
several of whom we're still extremely involved with.
And similarly, when Paul and I built Seder Grove.
When I shared with Kevin what we were doing.
He was very quick to acknowledge that actually, in his opinion,
Some of the giftings and probably my deficiencies
Blind up a lot more.
With

Venture investor.
Look like
Rather than necessarily
Whatever an allocator was.
And in fact he was exactly right. I mean neither Paul and I
We're looking to get into the world of valuators. We didn't really
much context for what even an endowment was. I was studying theology before I came back to Nordame.
And you were getting ready to get into private equity.
And that really gave me the confidence.
That Kevin gave us that
We in effect.
might have some of the elements to be able to
become
direct investors ourselves.
certainly propelled, accelerated that path for the both of us.
A hard left turn. How about David Robinson?
We've been fortunate to get to know the Robinson family.
Largely because one of David's
Three children, Corey.
attended the University of Northeim.
She
was a football player, captain of the football team, and went on to become student body president.
And
In my time in Notre Dame, I traveled to one
football game with the team.
And that was down to play Florida State. Probably Paul's gonna know exactly when that game was. Florida State was number one at the time. I think we were somewhere in the top five.
It was an extraordinary game.
We actually ended up losing the game.
what would have been Corey's third touchdown of the game.
was called back on a very obscure
and frankly, in my opinion, incorrect offensive pass interference and it invite me to come to meet his family and hang out a little bit in in his hotel room.
And
After just fifteen or thirty minutes.
Of
Being exposed.
Two
who everybody else refers to as the Admiral.
I was in absolute awe of him as a father.
The way in which
The boys interacted with him.
At once.
Felt like
They were interacting with their best friend.
Their peer.
And yet also somebody that they absolutely revered.
For me it was probably the strongest aha moment of
That is exactly the kind of father.
That I wanna be to my own children.
has nothing to do with investing, despite Dave Rumson having being a very successful investor also in his own right. And
over time, I think, learned a lot from the family. They've actually uh David and the boys have actually been guests in art of investing and we've learned lots of other lessons, but for me it was really
This is the pinnacle of fatherhood.
Paul, since you were part of the book The Outsiders that
almost everyone listening will probably have read or certainly heard of
How about Will Thorndike?
What about we'll
has shaped
your thinking and who you are.
I had the extraordinary opportunity
To get to know Will back in two thousand eight.
On a whim.
I actually thought it was a great way to get
two semesters worth of credit at Harvard Business School without doing too much work. And I heard about this project that this
private equity firm was working on in downtown Boston.
From the first moment I met
Will though.
I knew for one it was gonna be a heck of a lot of work. The most work I did for any class.
And
The greatest opportunity to learn from
An extraordinary human and compounder of capital.
For the whole year. I went every week downtown, met with Will
We would talk about
The research for the book
And then interwoven in that was
a master class on capital allocation. Everybody uses the term now he's taught the world.
I didn't understand it. And he took
An immense amount of research.
And a complex set of subjects and made them
So simple. And if you talk to Will
He's just so approachable and so kind and
So wise at the at the same time. I also learned
All the nuances of
The good and the bad of private equity and some of Will's frustrations
The firm that he
Founded it extraordinarily well.
But his secret favorite investments
were a couple actually there was one that was a file storage company. They used to be his favorite kind of business. It's just incredibly high margins.
Ninety nine percent
Revenue retention. Now he's channeled that into vertical market software.
But at the time I learned
Well, there actually is a way.
Two
own a company and say fund two.
And then bring it into fund three. And you have to work around the LPs a little bit.
Everybody was very happy at the end of the day because there were
Companies that
Use a Tana going for twenty five years and just the multiples on capital.
were extraordinary. So I think that mix of
A guy who
When on a ten year quest.
To write
A book.
We've talked.
All day here about that insatiable curiosity.
This is very abnormal.
For a guy running.
А суперсусфов ек.
On the side to mentor
Ten business school students over the course of a decade.
And then write this book. And I mean it's no wonder that
Warren and Charlie wrote about in their annual letter, and now it's one of these must have go to books, but part of the beauty of that friendship.
mentorship that continues to this day. He was one of those very first calls when we started Seder Grove and
Influenced
Us completely on the holding company structure.
because of his learning, so who's satonic and that carries forward into what he's doing today.
compounding labs and elsewhere and what we're doing at Cedar Grove.
What about Bill Steeritz, the guy that you studied for the book?
I finally had a chance to meet him in person at the first singleton foundation event in two thousand nineteen. And that was
Ten years after we did the work.
And
The guy he's just like so many of the other

Kobe Bryant.
He wasn't a business major. We talk about this a lot in our class with the PLS majors coming in or
The theologians
that some of the greatest company builders and those that
Fit.
That idiosyncratic mindset.
that Thorndyke opens up the outsiders with
The iconoclasts. He was exactly like that.
And he mixed that with simplicity.
Small team around him.
And the ability to pivot.
And change. I mean Ralston Purina.
own the St. Louis Blues and a bunch of restaurants in nineteen eighty.
And then you fast forward and all of a sudden he's chair of
herbalife for many years and doing so many things and
All those classic learnings from the people that Will outlines
And
The things that we're trying to emulate in terms of our own evolution.
How about Henry Ellen Bogan?
Henry is just a consummate gentleman for those who know him and
frankly a gift teacher. I think he's taught in art of investing
every semester that we've taught the class.
Alongside Bob Mylad, the chairman of Booking Holdings, who's longtime co conspirator of Henry's

Henry and I became fast friends.
We got to know him a little bit while he was a T Row, but when he decided to leave and build durable.
We started spending a lot of time together.
What I've observed about Henry from a pure investment standpoint is that gosh, even just the last four or five years, there's been a couple of these sea change moments.
where the world just shifts of course, Covid and then everything that transpired in the last eighteen months.
And
On the one hand
you have a guy who, from an investment philosophy standpoint, is completely committed to the long term.
On the other hand
I'm astonished at how
intellectually flexible.
Henry is
and his ability to reassess the situation
when the situation needs reassessment, most investors just tend to be emotive or tend to be locked into
One or
The other
side of that, but he has this beautiful way of when the time call for it. I've heard the same
is true with Steve Mandel, but I've seen it up close here more recently with Henry, and it's something that we've taken noted and will absolutely seek to apply.
In the rest of our careers.
We mentioned Scott Malpas earlier, who was the head of the Notre Dame Endowment forever.
And certainly one of the pioneers of that style of investing.
What are the lessons that you remember most from working with him?
We both could say a lot about Scott. He started off as our
Professors.
in a class that he taught.
And that's probably the first obvious gift showing us
There was value in teaching alongside investing. As Paul said, part of that is I think
it became this funnel for talent, but I think it was also just
part of Scott's missional mindset.
And when we built Seder Grove, something that was so critical to us.
was to reinforce what we were doing.
with that same missional mindset that we had.
at Notre Dame and even if something as basic is building in the foundation.
or focusing only on companies that we found
We're not only ambitious in nature, but also edifying.
If the company wins
the society was gonna in some way
big or small win, not lose.
And I think being around Scott
That was something that
has always been infectious about him.
And of course he's become a
close friend of us, our families.
and very involved in other aspects of our lives, but just a tremendous mentor.
Can I push a bit harder on
Of all those, the two things that really kinda hit me as you're describing them is the example set by David and the question that Kevin asked you.
That's all great, but what are you doing for others?
Is there anything else I wouldn't know who to ask about, obviously, because I don't know the answer to the question, but
Are there other moments like those two that either of you can remember?
across all this great wealth of experience with meeting and studying some of these greats that impacted you in the way that say David did and that Kevin did with that question.
I remember one time we were on a walk with uh Lazar of Hill House out at
Stanford and there was a big L P meeting around it and
We had had a habit every time we would go to those.
of doing a walk with Lay or just having some time
to talk about life in general and get his advice. And I remember he had just had a full day with Warren Buffett.
And he shared with us this advice that
It goes back to everything we're talking about around being all in
Being focused.
That Buffett said he has five people.
That he calls the one.
And then if
They call him morning or night.
Before they say anything.
He says yes.
Then there's this next layer.
of around ten people where he needs twenty minutes or half hour. And then there's another layer outside of that. And
Lay has an incredible energy.
About him. And I think we looked at each other and said
Who is our set of one? I mean, maybe maybe over the course of a career you could build up to
a handful of people that would be that. I mean we are that for each other.
And I think we're constantly
Seeking that out.
is we look at the close to hundred families in Seder Grove, I think
There's varying levels of that with everybody. And we've kind of handpicked this crew.
So that any time we all want to answer that call.
And go all in on each other.
Yeah, for me, there's a subset of investors that we've been fortunate enough to build friendships with.
that have been really critical
In
demonstrating to us what real partnership looks like and real friendship looks like.
I think about
Bob Peck and Andy Rob at FPR partners.
Ben Stein and Zack Sternberg at Spruce House. Just these beautiful friendships that have
been fused into a investment partnership.
Can't not.
mentioned Bruno Roca and really all of the partners at Dynamo, one of the leading investors over the last thirty or forty years.
out of Brazil and across Latin America.
I think that Paul and I
Had we not encountered
So many of these individuals who not only
We're great investors, but also people that we
respected and admired and wanted to emulate.
We would have stopped investing a long time ago.
Every so often you meet somebody like that, it's so energizing.
And I think it's exactly the reason why when
We switched
to a plan B and knew that we had to
make a pivot a few years ago to build Seder Grove. Actually the first question Paul and I asked
One another was do we want to be investors?
Implicit was that we wanted to do something together, but it was not immediately obvious that
Without those examples.
That we could pursue the good life alongside
hopefully pursuing
the lifelong path of trying to self actualize is investors too.
Then we would have looked for something else to do.
What else is key to know about your definition of the good life? Okay, this is maybe the most vital question debated over all of recorded human history.
And
I have nothing novel to add except maybe just to shine a light on on some of what's already been said by
Some of the world's great teachers.
You know, if you look at
Plato and Socrates, for example, I think
It at least in part had something to do with
The pursuit of virtue.
Which for them essentially came down to knowledge of the good.
So that's a combination of epistemology.
In ethics.
Jesus gives us the beatitudes, which are a bunch of declarations that seem completely upside down about the good or
The blessed life.
And yet
have resonated w with more people probably than any other teaching in the last two thousand years.
It seems to suggest that
The life that we all ultimately need.
Is somehow only found in a life with God.
Paul in his letter to the Philippians talks about the concept of kinosis, which is a literal self empty for others.
Victor Frankel and Man Search for Meaning suggests that
Being human always seems to point
To something or someone.
Other than oneself.
that the more one forgets himself actually by giving himself to a cause or to serve
Another person to love.
The more human he is.
I think what's critical is that
None of them point to a life of ease.
And all point two.
a life of devotion and specifically to another centered orientation as being somehow central to the good life.
That we as humans seem to be singular across species in the obvious
divergence between this isness of things and the oddness of ourselves.
And seems to be the case that the good life is
Wrapped up in the mystery of
Taking steps.
From the former.
Toward the ladder.
Some might call this self
Actualization.
Kevin Kelly was recently on and I really enjoyed his commentary on that.
But key is that
Me achieving my honest is somehow tied up
in me helping others to achieve their oughtness.
And that starts with
Those closest to me, my wife, children, parents, siblings.
But I think it extends to everything I do and and everyone that we encounter, including as investors.
And this is why we say that Seder Grove is a permanent capital investor rooted in love because
If we can't do this while being rooted in love, then we need to find something else to do.
In addition to Gardner's road of self-renewal, we always ask our students to read Clay Christensen's How Will You Measure Your Life. And I would highly recommend that to anybody who's interested in
This fundamental question into just going a bit deeper.
Setting aside the moment.
in which Seder Grove was seated or born, which I know is
A great moment.
What do you think is the defining moment of your investing careers?
So far.
Each of you.
The defining moment has to be around the time that I uh hit the the the the ten year mark
Managing public equities Notre Dame.
At that point, uh we commissioned a study by Cambridge Associates, uh which many of your listeners might know is the
gold standard in institutional investing benchmarking.
And at that point
across all time periods are long only public equity portfolio.
was in the top fifth percentile.
Of returns versus our hundred plus peer institutions.
It was the top result.
On a relative basis across our fund.
That was a great moment, and to be honest, it didn't always seem like that.
On the decade long ride to get there.
Where it always seemed like there was volatility.
Every month.
Or every quarter.
With a manager or a geography.
Or a theme.
And over the course of time, as our team gelled, it was incredibly gratifying, even though we focused on the inputs.
Just to have this checkpoint of an output.
Um to look at how the myriad decisions we had made over years
Lots of successes and and plenty of mistakes.
Add up to a track record we could be proud of.
Of two hundred fifty basis points over the world markets, which
At times didn't seem like a lot, but in the fullness of time was a lot of
value add and put us right at the top of of our peer group.
We know that it's a tough go managing billions of dollars in the public markets.
Like a lot of other institutional teams have to do.
And as we
transition to the building of Seder Grove.
A couple of lessons emerge from that ten year track record.
First, it doesn't hurt to avoid the volatility of public markets at times.
I'm getting really sick and tired of the ratio of Rick's hair to my hair continuing to increase.
Throughout the stress of managing through the ups and downs of public markets.
And second, it's given us the confidence that as we planted the seeds.
On several of our decade long plus
Projects at Seder Grove.
That we can be patient and we can be confident that when when the inputs are right.
That over years and decades in our case.
And maybe with a little bit of luck along the way.
They're really good outputs, have a good shot of happening.
Without question for me, it's the opportunity to support Sumas.
I've talked about the company
a little bit already. They're the leading virtual specialty care platform in the world.
And I know like children we shouldn't have favourites, but
I have
Never cared more for a company and believed more in a mission than I do for Sunus.
And I think it stems from my earned secret over the last seven years, just advocating for my son Theo.
Across dozens of specialties and
numerous children's hospitals across United States.
Always looking for that needle in a haystack expert who could flip the odds in his favor.
And just stepping back.
Within healthcare, of course, every part of the ecosystem plays a vital role.
But there's just no question that the cost
And the complexity

within specialty care and that by meeting a patient at their scariest
most vulnerable time.
in their health journey and by delivering
Faster, better access to specialists.
is one of the greatest services that I think a business can deliver.
And Sumas has built a platform of over five thousand specialists from all the top academic medical centers.
channeling this extraordinary group of experts to improve outcomes for patients.
Working with
Anyone responsible for helping manage patient populations, including employers, and
health systems and also peer to peer supporting primary care physicians as they tend to their flock.
And how could I not be completely obsessed with this company? It's a business that delivers just dramatic cost savings, first of all.
gives the world's best doctors a marketplace oriented platform to expand their impact.
take on more challenging cases.
and get appropriately compensated for their expertise.
This is a company that daily drives better patient outcomes and and I think some members would even say miracles to patients and to their families.
And it's a company that was co founded and led by one of my very best friends of nearly twenty years, Julian Flannery.
We've actually led or co led the last three financings of the company and
I'm honored to serve on their board as as as their lead investor.
It just gives me
immense satisfaction to see Sumas flourishing and and
you know, to witness the tremendous value that they're
creating for so many as they democratize access to the world's top doctors.
I'm really especially gratified that the institution I care so much for that we've talked about our Alma Mater Notre Dame is a delighted customer.
And I just hear stories from campus all the time about
The
Success.
for patients and the cost savings that are occurring on a regular basis and
I'll just conclude with a shameless plug. If
You're an employer, you're a primary care platform, a health system.
If you have any hand in caring for employees or patient populations of any kind,
trust my completely unbiased opinion as
Their largest investor and board member
And customer
it will be worthwhile for you to at least look into whether SUMIS can help you lower your costs and improve the quality of your healthcare delivery.
This has been a fantastic conversation, so interesting in so many different regards.
I know we didn't talk a ton about like cash flows and the nitty gritty of That's good because I know next to nothing about that topic. I do love the way that you guys have approached your investing careers.
What you've taught me is always reinvest your learnings in the things that you're doing. Back to this compounding equation.
If you can constantly learn from the best and observe the best and try to incorporate those own lessons in the platform that you're building, I think very good things will happen. Obviously we're tied at the hips in lots of different ways. So I hope I'm right on that. You know my traditional closing question for everyone, I get to do it twice. What is the kindest thing that anyone's ever done for you?
All right. I'm gonna lay out for you
A job description and you're gonna tell me if you're interested.
What if I told you that you
would have the potential to take care of a little person that for the first couple of years was gonna
Spit up on you constantly.
periodically go to the bathroom on you.
That would eventuate to them.
Just yelling at you.
For absolutely no reason.
And then eventually that would
become something to the effect.
Of ignoring you and then probably taking a lot of your money.
Does that sound interesting to you?
Yeah, welcome to parenting.
As I have
gotten older and experienced parenting both as a foster
Dad and as a father now of three
Of our biological kids.
It's so cliche.
But it's impossible for me to think of anything
Kinder than the total self sacrifice.
that parents make for their children.
And by the way, when I say self sacrifice, just to be clear, I am not talking about
Not being able to go to Burning Man with my buddies.
I really just want to be able to
go to the dentist, which I don't think I've done in three or four years, or maybe every once in a while do my own laundry.
And so first just acknowledging
My mom and dad, who especially after losing my oldest brother
were able to provide a life for us
an amazing childhood.
and pour themselves into us and stay together the whole time, I think.
Later in life things have happened.
where I appreciate more and more just how
difficult that was for them.
And so I owe them everything. And then of course
To Chelsea.
We really we were talking about this last night.
I think this is probably the case for all of us.
Our wives are really
The eighty percent to our twenty percent.
And it's a partnership and we both contribute
But Chelsea is the one who is really
made that total sacrifice for
our kids and given me that opportunity to be a dad.
And maybe just to close, this is kind of a basket answer, you know, a lot of investors like to build baskets
I think about your definition of the life's work.
And
Our oldest son Fio, who just turned seven, spent the first six months of his life in
Several NICUs, he was eventually.
To Indianapolis and at Riley Children's Hospital.
And while we were living in that NICU for almost a half a year, we saw a lot of kids who
Passed away.
Most of those kids were not as sick as Theo was.
I don't know exactly why
Theo survives, but I know that a major part
Of how he survived was because
For several decades leading up to that moment.
Numerous.
Nurses, nurse practitioners, respiratory therapists, doctors, surgeons
had committed themselves wholeheartedly to mastering their craft.
Yeah.
I could give you tons and tons of examples of these people.
And I know that in the moment it wasn't necessarily viewed as kindness.
But maybe in some sense.
the kindest thing that all of us can do is to pursue something radically
that in some ways in service to others because you just don't know.
how it's going to change the trajectory of human life. And so for all of those
Medical practitioners.
None of whom I'm sure are listening to this.
I owe everything to'cause they gave me the gift of being theostatic.
It's hard to
Talk the miracle face Theo and
We're just so blessed to be surrounded by
People that love us. And
To Rick's point.
That's
originally from our parents and our families and
For us a few years ago.
To have this moment.
It's a company, it's but there's a lot more to this. We've talked about
The radical integration that Seder Grove represents.
It was instantaneous. It felt like
The universal web that connects us all.
instantly came
to support us and

take on a second act. And
To the specific people like Molly and Chelsea who saw us
give up free tuition for all of our kids and change our jobs and do all the the practical things and be okay with that, or at least they pretended they were okay with that.
to friends, parents
All these mentors and
People that we were just so lucky to
Having our lives.
Did you see how kind they were?
Instantly and selfless.
It's an embarrassment of riches and we don't take it for granted.
We get to
hop, skip, and jump to work every day. We love what we're doing and we know that
Life is full of ups and downs and to have this crew around us is just the greatest gift in the world.
We're experimenting as a group three of us with bringing some of what you guys are bringing to the students to everybody else.
More on that to come around.
The art of investing.
But man, well, I remember this conversation for this very simple, beautiful idea.
That everyone can do.
Find the X, nurture the N.
Do it in the right way.
And I hope that those listening are as appreciative as I am of your guys' story and how you've conducted yourselves
And how investing could be so much more than assets and returns and multiples on capital and and that the ideas that underpin great investing are much more broadly applicable.
I think it's a beautiful set of ideas you shared with us, so thank you so much for your time.
Thanks, Patrick.
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