Dan Sundheim - The Art of Public and Private Market Investing - [Invest Like the Best, EP.460]

Transcript from https://podmenti.com/t/6798f34bc25c302a

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.
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All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of Positive Sum. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of Positive Sum may maintain positions in the securities discussed in this podcast. To learn more,
Visit PSUM dot VC
Um
My guest today is Dan Sundheim. Dan is the founder and CIO of D1 Capital Partners.
I've wanted to do this conversation for a long time. Dan is one of those investors who thinks about markets and business constantly and has built a career entirely around that obsession. What makes him unique is that he operates at full intensity across both public and private markets simultaneously.
with major stakes and some of the most important private companies in the world like SpaceX, OpenAI, and Anthropic.
While running a global public equity portfolio that spans nearly every industry and doesn't concentrate in the consensus names.
We start at the beginning of his career with a story I've never heard him talk about publicly before.
How a shortcase he wrote on Orthodonic Centers of America and posted on Value Investors Club crash the stock and help him land his first job.
He shared he backed Anthropic at a moment when many people told him it was the lift to open AI's Uber.
What reading Dario Amade's essays reminded him of Bezos' letters to shareholders and how he thinks about LLM business models through the lens of Netflix and Spotify.
We spend time on the extraordinarily stressful moment in early two thousand twenty one when GameStop hit the firm and what Dan believes is the single biggest tail risk facing the global economy right now.
It's hard to spend time with Dan and not come away struck by how much he genuinely loves his work.
I hope you enjoy this great conversation with Dan Suntime.
I wanna spend a bunch of time talking about public versus private. You do both. You started investing in privates more than ten years ago.
You were kind of one of the pioneers of this. You've got some amazing huge private positions. Draw the contrast today in twenty twenty six of the difference in how the two markets feel.
I'm curious a lot of things here. Like how you think about valuation differences, what one tells you about the other, you know, the business of privates versus
A public equity hedge fund. I want to go into kind of all of it. At a high level, what is your feeling on the difference between the two markets?
It changes over time. It depends where you are in a cycle. Let's say right now.
I think
that there's a lot of interesting opportunities in late stage private. Some of the largest companies in the world by market cap are private right now.
And not only are they
large and private. They are
innovating in a way that's gonna change the world.
This moment is particularly interesting.
I think that in general private markets are
Less competitive.
There's obviously the core skill set of
Analyzing businesses is
the majority of what create value.
But there's other aspects of it too. Like
Oftentimes
There's no disagreement among private investors that a certain company is is
Excellent. That company has to want you to be an investor in the company.
So it's competitive from the standpoint of like
being able to
create a situation where you can invest in the best companies.
But in terms of like how difficult is it to generate
returns by assessing
Companies I'd say the public markets are the most competitive in the world, even though they are less efficient than they were before.
It's still you have
More people
in more places looking at information companies where the private side
just by definition, you fewer people looking at every situation and less capital.
I would say that one difference that equalizes a bit.
Is that you don't have this dynamic on the private side of people doing
things that are economically irrational because they're focused on the short term.
Or they're just
Their business model is
not consistent with investing based on long term insurance value where you have in the public market.
In the private market.
Every time we're looking at a business.
Everybody's doing the same thing.
We could talk to other firms that are investing in the same company.
the research may be
different than ours, but it is all trying to get at
Same answer.
That's very different than the public markets.
So there's fewer people competing, but they're all doing the same thing.
Whereas the public market there's tons of people competing.
But they're all playing a different sport.
If you think about the
Key companies in your private portfolio today.
Entropic, open AI, companies like SpaceX, Ramp, et cetera.
What does that group teach you?
What do you think you see coming that maybe the public markets don't fulciate yet?
That don't have that same exposure to those great private businesses.
As long as I've been doing private and public investing, at some point in time there's synergy.
But I'd say if you go back to when we founded the firm, twenty five percent of the time we looked at a private company, there was some synergy with what we were doing on the public side.
Now because of AI and because of there's so much innovation happening in the private markets.
The synergies are just
greater than I've ever seen before. In that I think if you're gonna take a view on public companies that are deeply impacted by AI, which eventually will be almost every public company.
You should have
An opinion on
Where's the technology now?
Where's the technology going?
What are the implications of it?
And
Investing in those companies.
Gives you that.
perspective.
In a way that
I've never seen greater synergy.
When you first were considering your initial investments in open and anthropic,
Did you pattern match their businesses or their business models on anything that you had seen historically? Did they remind you of anything?
They were very different in that when we first invested in open AI
I wouldn't say it was contrarian at all. To some extent, we invested originally the hundred and twenty five billion dollar round.
So I don't think people were entirely sold on LMs as a business model.
But if you want to invest in L L Ms as a business model, open AI was the one.
Whether you invest in LLMs or didn't invest in LLMs was debated quite a bit. I mean, I think there was a lot of
uncertainty about the ultimate business model these companies. So that was what we had to figure out.
Hydropic was a different situation.
In that
We first invest in Anthropic.
A number of people that I spoke to who I think are very smart.
Drew the analogy of
Uber versus Left or
Why do you invest in the second player in
most industries investing in the second player is not the path to glory.
But the way I viewed it was
It was
incredibly difficult at that stage to say like who is gonna be first and who's gonna be second.
The pattern recognition to answer your question for me
On anthropic was
Just reading Dario's essays.
And listening to him on podcasts. When I look back at my career and look back at the companies we missed.
Amazon in the early days.
And I think what could I have
seen. If you look at their income statement, you would just see a sea of red.
The only telltale sign was
reading Jeff Bezos's nineteen ninety seven and yeah, ninety seven shareholder letter, which was like
The clarity of thought.
his understanding of what
he wanted to achieve and how to create value for shareholders.
was greater than
Almost any public CEO I dealt with.
If I had read that and
Almost ignored.
Everything else it would have been
A really important sign and very profitable.
Dario struck me.
Like that.
It wasn't that the models at that point were
So differentiated.
I think they were considered to be one of probably maybe that point five, six, seven players that could ultimately be
Important. There's still a lot of debate around LLMs as a business model.
But
I felt like
He was incredibly skilled.
and extremely focused.
And
I place
A lot of weight.

clarity of thought and the ability to communicate as a CEO, like what you want to achieve and how you're going to achieve it, especially in written form because
Taking the time to
write something down, you actually really have to
Go through
everything you plan to do and express it.
In a way that
Makes sense to
Everybody else.
And Darrow just did that better than almost any CL I've seen since Bezos
How would you frame the debate today about LLMs as a business model?
Now that we know a bit more.
Back then it was like are these businesses
going to ever generate an economic return.
I think
One analogy was
AI will be huge.
So is air travel.
Airlines were not a good business.
There's just nothing differentiating about one airline from the other, and so therefore the returns go down to the cost of capital.
Obviously we took a different view, but that was like a
Sixty five, thirty five, seventy, thirty.
degree of confidence in that at that point.
It was more about the skew.
If things played out like we thought and the business models were actually moted would be huge. I think at this point we're in a different place in terms of the debate that's important.
The debate that's important now
If you want to
look through a positive lens, which we do.
You'd say that
the businesses have taken slightly different leans and have excelled at different things within AI.
So open AI has been created. Consumer
And has
Good traction enterprise.
Anthropic has been incredibly successful at coding.
There was a thesis when we first invested that APIs
or the business of having other software companies plug into your other developers plug into your model.
would be commoditized. It'd just be a rate to the bottom.
I think that debate is
More
Or less irrelevant because
You've just seen with Clog Code and even OpenAI's API business.
These are durable businesses, and yes, can you switch?
You can the same way you could switch AWS or Azure.
But it's not worth it for a lot of businesses to do it. And uh there's sufficient differentiation among the models.
If you look at the underlying margins of these companies,
They are not the margins that you see in a commodities industry.
the gross margins are quite high.
the competitive landscape, I think, is
Not heavily debated.
At this point you probably have four or five LMs that will be relevant in the long term.
I don't see that changing.
Not that there's not sufficient talent out there. It's just that the
capital required to get into this business is too great in these companies.
are too big at this point and then you kinda get
The snowball of
the more capital you have, the more compute, you get better researchers. I think it can be very difficult. So the competitive landscape is not really in question.
I don't think anyone would say that these business models are commoditized. I think the real debate is these are extremely capital intensive businesses. Capital intensive to a degree that we've never seen before in the history of business.
And the question is
You're spending a ton of capital.
And
the ultimate return on the capital is unknown.
So it's not like a normal business who builds a factory and knows that they're gonna sell.
You are spending tons of capital to train a model.
And the question is
Do the scaling laws
Work such that the returns on that capital continue to be attractive.
Which means that you will be able to attract more capital.
And
Build better models.
Or
Are you gonna get to a point where
Everyone looks back and says, We raised too much money.
We spent too much training models, we didn't get the economic return.
Or I think equally likely not
More likely people would say
ultimately you will get the economic return, but it just happened slower than you would have thought.
Enterprise adoption just didn't
take off as quickly as you saw and therefore
The problem is
When you are this capital intensive as a business.
It introduces financial leverage and operating leverage to degree you don't see in normal businesses.
So you don't have the luxury of
Two or three years of things going slower than you otherwise would expect. I think the scaling laws, the returns on capital, and uh the speed at which these tools and AI is adopted throughout the economy are the questions.
Is there anything that like Netflix or something like that could teach us?
That's another business that comes to mind where there's crazy amount of capital that was spent to build an asset and then it gets amortized over a bigger and bigger user base. And that's turned out to be a great stock and
One that I know you've owned a lot.
Is there any analogy between those two that's interesting to you?
When I was speaking to the executives at the LMs
The way I framed it is I said, look.
I think your business is
Some kind of
combination between
Netflix and Spotify. Netflix in that unlike other tech companies
You are spending a ton of money up front to train these models.
Once these models are trained.
You go sell them at extremely high incremental margins.
You don't know what
the revenues are gonna be from that fixed asset that you've built.
But to the extent that you've built that asset, you want to sell as much as possible so that you can get the cash flows to build the next model and so on and so forth.
That's very similar to Netflix in that they invest in content.
And
when you're an early mover, this kind of fixed asset.
Business.
You invest heavily, you get the capital to invest heavily.
You get the revenues.
You spread it out.
over increasing number of people
You invest more in that fixed asset and that just kind of has a flywheel effect.
Of generating more revenue, more content, more revenue, more content.
And eventually you get to the point where it's almost impossible to compete because
It's just a first mover gang is too great. Yeah.
The difference, if you were to say like what is an important difference of Netflix versus these models is
Netflix's content was differentiated. The models are more similar than they are.
Different.
At any given time open AI may have a better model, Anthropic may have a better model.
But a lot of the expertise and the innovation gets disseminated pretty quickly. So these models are not terribly different.
And that's where the Spotify analogy comes in.
In that I think if you're Google or you are OpenAI.
The differentiating factor
will not necessarily be that Google gives you a better answer.
Like if we were just like to query Gemini or ChatGPT on something, I don't think it's the case that
we would say definitively one will give you a better answer over time.
However, the personalization matters. And the first mover advantage is like
The
more that these models know about you.
How you live your life.
Your health, all the things are important to you.
You build up this
Dada.
History.
And
It becomes very sticky.
The music on Spotify is no different than Apple music or Amazon music.
Theoretically it's a pure commodity.
What makes Spotify have pricing power? What makes it differentiated? Why would people
be incredibly upset if you said like you had to not use Spotify anymore. It's because it's personalized. It's because
They've tailored the service to take a
product which is a commodity and personalize it to the point where
You're willing to pay a premium for that commodity.
If you were giving advice to the executives at these companies.
And telling them what to lean into and what to look out for.
Or the next five years.
I'm curious what you would say because
the scaling laws are so interesting in the sense that like the models keep getting unbelievably better. And that probably means the revenue available is like who knows how big it could be. It could be the whole world.
But the cost keeps going up by like orders of magnitude. The Colossus two data centers, this unfathomably big
Thing it's a
Two gigawatts of power. It's crazy.
What advice would you give them based on everything you've learned about these big massive businesses?
The
really interesting thing and challenging aspect of these businesses, the LLMs, is
That the models they are building.
now and especially in the future can be applied to
Almost any aspect of the economy.
You can take these models and you can make consumers lives more efficient.
by having them be personal assistants.
You could solve physics problems, you could help with drug discovery.
You could make enterprises more efficient.
The TAM is certainly not the problem.
Focus is gonna be a question mark and
On the one hand, the more and markets you go after with a fixed asset
The better. You're spraying that.
Cost over
more and markets and having more revenue which then can be reinvested.
I think the flip side of that is that
I rarely have seen any company
succeed trying to do
Go after
Multiple end markets at the same time.
Usually you have an A team. An A team is focused on one thing.
Your culture as a company is
Orient towards
either consumer or enterprise.
Even Amazon, which
you'd say is like the example of a consumer company that got into enterprise?
They get into it like
Seven years later, after even after they went public.
So try to do everything at once is tempting because
If you're successful, you're effectively just
advertising that fixed asset over more revenue streams.
А те сам у риск
not being the best at any one thing.
So that is the trade off and I think that
I'm not sure we have the final answer right now. The market has gone through periods where they thought
Anthropic was left.
And open I was Uber and up until recently the sentencing on open AI was more negative.
I think open AI is taking the strategy of
Let's do everything.
We're gonna go after Apple hardware, we're gonna go after robotics, we're gonna after enterprise consumer.
Science
They've been
very successful in a lot of ways, but that's hard. I'm sure there are companies I'm not thinking of, but I can't think of many examples where that's been uh successful. I understand the temptation to do it.
And obviously the
Difference versus history is that
The smartest people in the world are all going to work at these companies. So if anyone's gonna pull it off, they will.
And Thrapa took a different approach and just said
We are going to focus on enterprise.
They tried consumer early on, but it came clear they didn't have traction. So then they just went all in an enterprise.
They've had a lot of success with coding and enterprise.
because they've now taken a market leading position.
generally sentiment is that anthropic is winning and they are like now the Uber, if you want to use that analogy.
I think this is gonna go back and forth over time and people probably get carried away in both directions, but I think those are the biggest
Differences.
I would probably err on the side of focus, but I do understand
the economic rationale for trying to do as many things as once.
The only thing I early on we invested in Open AI, this is probably a year and a half ago, I said to them you have to I've
I understand, I've seen it so many times.
People in Sullivan Valley.
The idea of ads is like you're allergic.'Cause it's like I have this amazing pure technology product and you want me to like
Taint it. Taint it's ad and like
You see Anthropics Super Bowl commercial.
That being said.
Even the companies that were the most adamant about never getting into ads like Netflix.
If you go back and just listen to what Netflix was saying even fifteen years ago, it was like
Getting it to adds.
Even read would have been like
You are out of your mind. We would never do that.
Ultimately
They did it. And to me it's like if you're going to do it ultimately
One you can't.
really compete against companies that are using ads if you're not very hard.
If you're ultimately gonna do it, you might as well
start earlier because you have to build a culture around
Just takes time. I don't think it's a big deal that opening I waited.
But I was probably rightly or wrong, I was
pushing for ads sooner than they've
chosen to do it. I think now they're probably gonna get it right.
I'm so curious what you think is gonna happen to the hyperscalers now. I saw this news report the other day that
And Tropic's considering securing ten gigawatts now of their own power, which just makes me think, okay, they're gonna have the power.
The scale's gonna be so big, why don't they just create their own clouds effectively? The hardware might be different, more focused on inference, et cetera.
Does that jeopardize what
These business models which I think people have thought of as pretty damn good at the hyperscalers. Do you think the future is different as a result of AI?
I do. I've kinda thought this for probably about a a year now. I am more confident in
the thesis that the hyperscalers are a worse business model going forward. Now it's interesting because usually when you say something's a worse business model.
You're implying that growth is gonna slow, margins are gonna contract. I actually think you're gonna see the opposite.
I think that AWS and Azure
Maybe Azure doesn't accelerate. Certainly G C P
I think these businesses are gonna accelerate for a while.
Just because they are their customer bases anthropic, open AI are growing at enormous pace.
And as they get to be a bigger part of the business.
The growth sorry. The problem is is that
You went from a dynamic where
AWS, Azure, some extent G C P
Their customer base was like every corporation in the world.
And therefore.
They had fragmentation and they had the benefits, massive economies of scale that no single company could get.
And it was a good very good business.
The problem going forward is that
I think that
Economically it's
highly unlikely that LMs are not
very concentrated in the hands of four or five companies.
those companies right now, they are obviously, as we discussed, they're investing a ton.
And they're
Cash flow negative.
And therefore they're looking for compute.
Anywhere they can get it.
But
If we're correct and if anyone who owns these companies is correct, at some point in the next five to ten years.
they will be generatus amounts of free cash flow.
When that happens, I think that they are likely to in source the compute.
And
Every year AI is going to be a bigger percentage of the workloads.
At any hyperscaler.
And so if you roll out ten years from now.
I think that
The majority of the workloads will probably be AI. The LLMs will probably be
Providing a lot of those workloads and
I think that it will make economic sense to take it in house.
Right now I think that
They look at
The hyperscalers as
More of a financing.
These are well capitalized companies with big balance sheets.
But I don't think these companies are better than them at building data centers. Like building CPU clusters is different than building GPU clusters.
Running inference on GPUs is very different than workloads on CPUs.
I think these D L Ms are actually better at inference than the hyperscalers.
Then you have this whole dynamic of
Neo clouds.
Yeah, I think it
The initial view from most public investors was that
This was like pure overflow capacity.
There weren't enough GPUs and these things would be dead as soon as Microsoft got their
Absolutely would not.
make the case that they are fantastic businesses.
But I don't think they're going away.
Like people thought. I think they're better at
running GPU clusters than the traditional hyperscalers are.
And I think there's a lot of interest from NVIDIA.
and other chip companies to
Make sure that there
Customer base.
is diversified is a very big balance sheet and they want to keep
These players in business.
So over the next
Ten years, I think that these hyper shellers, AWS, Azure will grow.
fast I think the margins my guess is will be challenged both because
The businesses are getting a lot more capital intensive because AI is capital intensive.
More capital intensive than traditional workloads.
And also the customer base is getting more concentrated.
Meta is not a hyperscaler, but they in sourced all their compute.
Why would they pay I mean they're just too big to use somebody on the outside.
If you think about the last couple of years
probably the best thing you could have done is just belong the AI build out in all its various forms. And maybe that will remain true going forward.
But it seems like the market a little bit is starting to think now ahead to the other
implications of AI, software we're talking like the week after software got absolutely decimated.
in the market and everyone thinks
'cause of Claude Code and the amazing experiences that they're having with Claude Code, like software businesses are just screwed.
I'm curious how you're starting to think now.
Beyond just the AI built.
There's a thing, like it's gonna be here.
Now the rest of the world has to start to absorb this technology.
How are you thinking through that? Maybe I'm just super curious what you think about the software
Sell off.
But even more broadly.
the real economy now start has to start to swallow this new technology. I'm so curious how you think that's gonna happen.
It is incredibly difficult to know.
I don't think that's because
I don't have perfect information. I think it's just
These models are
improving at a rate which
is exponential and understanding
how that makes its way into the real economy and the implications is
Difficult.
You probably want to use a few frameworks.
It really comes down to like
Which companies do you think will have a mo
In
most circumstances.
It's
Fairly straightforward to identify most
That are protected from
Digital LLMs. Like
Just
The proliferation of
Digital intelligence.
Once you get into
Robotics and
Other areas.
You start to have to question
the moat around some other
traditional industrial companies and
globally
How do countries
that we're arbitraging labor due relative to a developed economy. So there's gonna be
phases of this where
The first phase is software.
And that's really'cause I
Clog code.
And it's like guys, and it's like all of a sudden
People receive call code and all of a sudden they just see on Twitter that people are saying, like, Oh, I you know, I created a CRM system in like a day and it was like, Oh my God, this isn't good.
That's kind of where people are now.
We wrote our letter the other year, I said
Look, the build out is still gonna be a thing in terms of like places to invest in the public markets, but it's increasingly gonna
become which companies are affected and it's gonna become there haven't been any shorts
In AI there was like
Basically no shorts prior to twenty twenty six, really. Like if you wanted to just say like
I'm gonna short something because of AI. You didn't make a lot of money.
In our letters.
There are going to be a lot of shorts.
Some longs because of AI.
Software's the first one.
I think
The market tends to swing to extremes.
My guess is that
Software
will have to evolve. We'll probably be a worse business model going forward. But I think
The same way that
Walmart evolved with e commerce and yes, would they have all its equal
Prefer that e commerce never happened.
Probably, at least at the beginning, required an enormous amount of investment. Their margins took a hit.
They had new competitors.
I think that'll be the case software too, where
Companies that have really great distribution and great business models and their systems of record for companies.
One of the things I did is like I asked the LMs, I said
Are you
Designing your own ERP system.
They said
No we're
Buying a new airperson from this.
Company.
At least you're protected at least for a few years if they're not doing it yet. So I think I'll be systems of record are gonna be difficult to displace
I think companies, while it's neat to create software for small productivity enhancements.
If you really want to run your entire business on something like an ERP system or a CRM system.
I think it's gonna be quite a while before people are just gonna be vibe coding a ERP system.
But I don't think that you can just sit back as a software company and say, We're system of record will be fine. You're gonna have to integrate AI and find ways the same way Walmart integrated e commerce into their business model.
And it was painful for a long time and
Probably on the other side of it.
But this is like
I'd say
fairly low conviction because
Everything
about AI's impact on
The economy is inherently
low conviction because
I think everyone is likely underestimating how much these models are gonna improve.
And to
really think about what's going to happen, you have to almost
Not think like an investor.
You have to think like somebody who's
Into science fiction.
Can you imagine a version of the story where this is all just overblown?
Is there any
Coherent.
potential future where five years from now we're just like
Actually these things weren't that big of a deal and or they were much less of a big deal than we thought they were gonna be sitting here today.
I think the only way that would be the case is
And even this, I think that argument wouldn't hold.
would be if scaling laws just totally stop.
But even if scaling laws stopped.
Even if these models got no better, I think you probably have three years of
people learning how to incorporate AI into their daily life or their companies.
Certainly it wouldn't be good for the businesses if scaling laws stopped.
But I still think you'd have pretty profound changes within
The economy.
And
Betting that scaling laws are gonna stop.
is a really low probability assumption. I mean there's just nothing to suggest that's the case.
And so
In fact, everything suggests the opposite.
I think
It's difficult to really
Get your arms around what that means.
'cause we went from like
This is like an interesting like chat both Google to like
Oh my god.
These are gonna be solving problems that humans can't do. We're already almost there.
I have a twelve year old son who's interested in investing. I think your son's interested in investing, we've talked about before as well.
What do you tell
Him about
The future of this profession
Given these tools.
Surely it applies to us too.
We may be smart now.
Elon Musk says I think the line he's used is it's better to go through life being optimist and be proved wrong than a pessimist and be proved right.
to be young and to be interested in something and be dissuaded because the guy's gonna be better than you, I think is like a very self defeating mindset.
So
Do I think that it is likely that at some point in the future
Everything that we do is
Arbitraged away by AI.
For sure. I mean I think that that would be naive of me to say no.
Do I think that's happening anytime?
The next couple of years, I don't
But
It's almost like
What do you tell someone to focus on? Like first of all
Unless someone is really interested in something, they're not gonna be good at it. So
It might be the case being a plumber or being electrician is the most motive job in the world, but if you don't want to be
I'm sure it doesn't help very much.
So it's hard to tell your kids
Don't do this or don't do that because
It's gonna be irrelevant. I saw a podcast recently with the Google researcher who left and he said, Like, Oh, I don't even tell my daughter to study. It's just like go out and
Have a good time. I think that's like a very
Destructive.
way of going through life. You should go through life thinking that
you want to achieve things and that you're interested in things and you're curious and
Same way as if this doesn't exist. And if it turns out that
Whatever job you envision having no longer exists, then you you'll have to adjust.
You've talked with John and Daniel about the GameStop story. We can touch on it here too.
I'm curious though what you most learned about yourself during that.
period of time.
When Lore has it that
February of twenty one, so January was game start.
That you went to your team
And basically said
Look, the way we're gonna calculate your comp this year is not gonna include January. Like that was just a completely insane period of time.
And so you took certain steps to like create stability in the business or whatever.
But in such a stressful period of returns, I'm just curious what you learned about yourself or what it was like.
emotionally to go through that time.
It's incredibly difficult. I never want to come across as like too exaggerative about my experience because there's people who go through a lot worse things in life. But as an investor, I'd say that was about as bad as
It gets
We went from being top of the world, everyone thinks we walk on water.
to being like everyone thinks we're gonna go to business. I don't think I have an enormous ego, but I have a lot of pride in what I do and I don't need to be celebrated, but I also really did not like having our firm and our performance track for the mud.
Granted, it deserved to be
treated that way because the performance was very bad. It also is a bit lonely and that like, you know, there's so there during GameStop there was probably
Couple of people on the call. Two other people who are going through the same thing you had.
I found it helpful to go back and like
read and and listen to like Ken Griffin's interviews in two thousand eight and the people that I respected.
But it's lonely.
It's a matter of testing your resilience.
First of all, we never came close to going into business. That that was just nonsense.
Oh.
I never
was going to quit.
Even though we had made some mistakes.
I deeply believe that we were still good at what we do. And that we have something to offer the world and
we could be excellent again.
I was confident in that, but
Yeah, GameStop. It was the beginning of a change in the market structure.
On the retail side. So I knew we had to adapt to that.
I didn't know exactly how that would play out.
By that point, by twenty twenty one, twenty twenty two, I've been doing the job for twenty years.
I never really had severe adversity.
Probably because at some point like Andreas would just like he was just a very quick to risk manage.
But I never really had that. And so like I thought to myself, like am I really gonna be like
Guy who quits the first time.
I think the analogies that people gave is like
one day at a time, like Bill Ackman was like look every day try to do something makes things a little bit better
'Cause it's not like
Something that when you have that kind of a drawdown
If I hit the ball out of the park for like three months, like investors would be like he's just volatile and and crazy and
If I
slowly and methodically did it. Some people would just give up because they'd say
This was just
Too crazy.
We don't believe in him. So it's impossible to disprove the negative narrative in the short term. Takes
A lot of time, years. And so
Acknowledging that.
This was not going to be something that
You
changed overnight, people's perception of you as investor, people's perception of
D1 as an attractive place to invest capital, that was not going to change overnight no matter what I did.
It was looking inwardly at the team.
Making sure that we're all on the same page what we're trying to achieve.
And that no matter how many
People outside might doubt us we were gonna do it.
Or at least we're gonna
Try very, very hard.
Was there one moment in the whole experience that most stands out in your memory?
as particularly salient, whether it was on the difficult side, like you know, emotionally difficult or on the resilient side, like a decision that
You were gonna forge ahead like any does any one moment stand out?
There are different moments that like emotionally just hit you in different ways, like news articles and friends calling you saying, Are you going into business or
A lot of that. And obviously like those things are painful and something I had never had to deal with before. I've never tried to be a public figure.
And all of a sudden it became very public. The most important moment was
We do semi annual investor dinners with our LPs.
That's our primary form of communication. We write letters periodically, but we
We do these semi annual dinners.
Where over a period of four nights we meet with all of our LPs.
It was June of twenty two, beginning of June of twenty two.
trough of our drawdown was at the end of May twenty twenty two.
And these dinners were scheduled for like
June third. Jeremy, the president of our firm, he said to me, he said like
We can't do these together. It's like, you know, this is gonna be a bloodbath.
To me, it was like really clear. I said no.
we have to do these dinners and
This is the most important time to go out there and speak to our investors.
I had a message I wanted to convey.
Message was that
We were gonna do things differently.
Stock selection.
All of that was gonna be the same, but the portfolio construction was gonna be done in a way that
was much less risk prone. The analogy I gave was like we're gonna hit singles and doubles. It might take us longer to get back to the high water mark because singles and doubles are not fireworks.
But we feel like what we've gone through in twenty one and twenty two
was tough enough that like even if like the right positive MPV thing would be to just keep taking a ton of risk. And obviously usually the best time to take a ton of risk is when you've lost a lot of money. Emotionally I would not be able to go through this.
Again. So we just said, look, we're gonna run the business differently. We very much understand if this is like not what you signed up for here. Although I think at that point people were not like, Yeah, I signed up for like
Then to take on more risk. They were kinda like I think most of them were like happy to hear it, even if they didn't believe in it. Yeah, we really went about managing the firm differently.
And so that was a pretty pivotal moment just looking in the eyes of all the investors feeling pretty horrible in every way.
There is something invigorating about
Turn around.
When you're going through something like GameStop and like there's the world collapsing and there's nothing you can do, it's like
That's a very uncomfortable position.
Even if things are really bad.
When you have a plan.
And you believe in that plan?
It changes the perspective entirely.
And I really did believe in the plan and I believe in the team.
And so all of a sudden I felt like
Okay, everybody else may doubt us, but I believe it, and we are now the start of a mission to
dramatically improve our returns, improve our firm.
And earn back our reputation as being great investors. Assuming some did. What do you think of the people that redeemed from D One during that time?
Well I don't harbor any ill will. I mean look the act of redeeming is like to some extent we deserved it. I mean obviously I
appreciate it much more when people stayed. I always start out these dinners, even though it was the worst time I say like ask me anything, criticize me.
It is my job to deliver for you. If I don't do it it's on me.
I ultimately think that
When you
Screw up.
in business capital follows returns and when you deliver poor returns capital will leave.
We had
A lot of great investors that stuck through it, and I
Deeply appreciate that more than I resent.
People redeeming. It's pretty asymmetric.
What's interesting about the story is
When you ask around, most people would say that you have an incredibly
calm like your resting heart rate is very low. Like your
Always between a four and a six. Like you're never overly excited when things are going well or overly despondent when things are going poorly.
And I'm curious how much you think that disposition
matters for great investing.
Can you do great investing in your experience?
meeting others without having like a pretty
narrow band of excitability versus despondency.
For better or worse, I've always from the first day I got the job
had a lot of confidence what I was doing.
I never like stepped in and said like I'm just better than everyone else. That was never it. But when it came down to looking at a company and making a decision
I felt confident in it and when I felt confident in the analysis, I generally am pretty balanced.
Із possiва формати волті?
But train themselves to
Deal with the ups and downs of markets? I think the answer is yes.
I think there are some hedge fund managers that have been like
truly generationally great. And you hear the stories of early on, they were just like
throwing things at people on the trading floor and yelling and like ultimately they ended up
being great, but you have to be able to not let that emotion influence your treating.
If you think about the future of the world
Given the crazy changes in technology, we haven't talked about SpaceX yet. That's a whole different dimension of like an incredible technology curve that's going on.
You mentioned earlier the importance of being optimistic. Where are you the most optimistic and what parts of the world and its progression gives you the most pause, or or you know things you have your eye on to be
You've not worried about, you know, keep your eye on.
I'm most optimistic in economic growth and I think
Yeah.
has to be the case that if you believe in scaling laws,
Hey, you believe in AI.
That economic growth will be very powerful. I mean, this is the ultimate productivity tool. And what productivity does is allows you to grow.
While having
Disinflation.
Which is like Nirvana for markets.
So I'm very bullish on that. And then there's implications that flow from that, which are more macro, which is something we don't do, but like that can cure deficits.
Do a lot of great things.
Economic growth does a lot of great things for
Everybody from
hedge fund managers and CEOs to
people in lower level jobs. If a country's not growing, it's hard to have a better standard of living.
That's my more optimistic take.
The part of me is more uncertain is that
I think that we
as humanity uh
We've never encountered something that we're about to encounter. So
With that kind of profound change, like we're going from the smartest
animals on the planet. We were never the fastest or the strongest, just we're smarter.
And other animals.
We're no longer going to be the most intelligent beings on the planet.
So what are the implications of that?
I'm not really sure.
I think that
there's a lot of negative externalities in that like I don't think humans
As much as people like Dario, who I respect a lot, might say like, Well, we're just gonna give everybody a check and like
Everybody just kinda live off universal basic income. I I just don't think humans are wired
To just collect a check and go around and like
Play sports all day.
Humans are wired to
create relationships to
create value, to work, to coordinate with other humans and achieving things. And I just I don't think you're gonna have a great society if it's just a bunch of people living off of
Checks.
That come
from the government as a result of this massive economic boom.
One of the most interesting stories you've told me before was this time when you made, I think, similarly sized investments in Rivian and SpaceX at the same time.
Can you tell that story of both big big bets? Obviously, SpaceX, you've got this huge position now. But I loved that story of like
This style of big bet private market investing and exciting technologies and then the way things can go. And if you could bring us back to that those moments of decisions, those are huge checks that you wrote into those companies. I would love to hear that story.
Fis
was that EVs were going to dominate the auto market and that
E Vs were entirely different.
kind of automobile, like in that they were software. And it was the equivalent of like the iPhone versus Motorola and Nokia. The same way Motorola and Nokia were not able to
move it to smartphones, because that was like hardware, not software. There'd be few companies that would be able to do this successfully. Ultimately
Autos are a bad business. It could be software autos, hardware autos. It is a bad business. And it's a really tough business to scale.
Very capital intensive. The manufacturing didn't go as smoothly as it could have.
And the cost of delays in manufacturing when you're
ramping up and burning a lot of cash are quite significant.
The technology I think was always good. And
Not getting up the manufacturing curve very quickly scale fast enough. And I really believe that scale
in E's is gonna be important, which is why Tesla's one of the reasons why Tesla's one
Yeah, the IPO it was great. It looked like a great investment.
But ultimately I don't I don't know what our ultimate return was on Rubyan, but it wasn't what we planned for when we made the investment. The bad ones tend to be
More obvious.
Faster.
The great private tech investments, I think, are sometimes slower to
Prove how great they are.
because like you have these amazing founders who are just
constantly making decisions which
take the business in one direction or another and
Ultimately the compounding of those decisions takes time, but leads to create outcomes.
SpaceX was pretty obvious to me that the launch business at a minimum was going to be a very good business. And what they had achieved, I thought was just like from an engineering perspective.
Insane so to me if I could buy a company that had achieved
The most amazing engineering fee I'd ever seen.
at some multiple of revenue with
Very little cash burn at that point. I didn't know what was going to come. I just knew that the ski was very good.
If they achieve that.
then like who knows what they could do in the future.
What do you think about that business today? Like so much has changed since you first invested.
What's your updated prognosis for it or or thoughts about it?
The initial prognosis was just always that like you know they were gonna be a low cost provider of launch.
I think the success of Starship
I wouldn't say like we're fully there, but I I I think we're pretty much there.
approve full reusability and scale, like yeah, okay, there's more to come.
Starship is a game changer, which we knew about fairly early on, but didn't know if it would work. And what that means, very simply, is
that the cost of launching everything goes down dramatically.
Ninety seven, nine, whatever percent.
And the engineering that they've done with the satellites to harness solar power.
And be able to deliver
Really high speed bandwidth.
Has surprised me to the upside.
And there's a lot of software that goes into that too, just given these networks of satellites are all communicating.
The ramification of that, I think, is that
The
telecom market globally is
Now the TAM.
They've come so far down the cost curve.
I think that
In a
relatively short amount of time.
Months, few years.
They are gonna be dramatically cheaper than
Any other form of delivering broadband.
You said how much you love shorting stocks.
What is it about it that you like? Because you just don't meet that many people that are focused on this or really that good at this anymore. My wife begs me all the time to stop shorting stocks.
It's a bad business.
You really have to be
intellectually stimulated by it. Most people in the market are just not fundamentally based, period. And even if they are fundamentally based, they're not interested in shorting.
Or they pretend like they're shorting and they kinda shorten the Cs or whatever.
Very few people are doing it.
There are tons of people investing
In things that are just based on stories, like because of social media and because of
Robin Hood and
There's just endless amounts of shorts if you have duration and if you take a fundamental view.
Why do you think markets are less efficient now?
I think it's just the people transacting in the market.
Or the nature of the institutions transacting in the market. If you go back
Ten, twenty years ago.
mutual funds.
long short hedge funds they were a big part of the market. Now it is a lot of passives.
A lot of retail investors, people who are making investment decisions, they're not
based upon long term
Considerations of intrinsic value.
Even multi manager
long short funds while they are focused on fundamentals.
By necessity they are short term oriented.
If you're focused on trying to uh
Get an edge in the short term.
That is extremely efficient.
Uh and it's a game I just
Don't play. You have firms which are incredibly sophisticated using
Yeah, amazing quantitative uh methods to go through alternative data.
There's absolutely no edge there. Once you go beyond any kind of short term event and you start to think about
What is a business worth?
What is it?
long term cash flows, you know, what are the Porter's five forces attributes of the company.
That's when the competitive set gets pretty thin.
And frankly, the more people focus on the short term.
The more opportunity there is to arbitrage that and
Have a medium term view. I don't think.
Anyone knows it's gonna happen past three years for most companies and for
Yeah, the economy as a whole, it's hard to predict.
And so I don't consider myself to be an investor that just buys and holds things for five or ten years, but we do focus entirely on what is a company worth.
And
A quarter.
May or may not.
Impact what we the long term value is.
The majority of the time
The moves you see in the short term exaggerate.
The true change in intrinsic value of the company, which makes
or a less efficient market.
One of the things that interests me a lot about you is I'll use the word like loyalty.
So Jeremy's been your partner. He's your one of your best friends from growing up. The guy runs your family office, your director of research, lots of your
Key partners you've known a really long time and are good friends of yours.
I think you met your wife in college.
I did too, so I'm always that always perks me up when I hear that example.
Can you say a little bit about how you feel about
Loyalty and
kind of the role that all those data points
Suggest.
There's a few.
Things to consider. Like
I know these people the best.
And so I've just dealt with them through so many different things in life, and I have a lot of confidence in their competence. So to me
There's a lot of people that I love in life for different reasons and are wonderful people and
Yeah, would be loyal.
But they have to be really competent in the job. This is a very like intense shot. The bar is extremely high and the people that I've hired that are friends of mine forever
I am just confident cleared that bar by a lot.
But when you are able to find people that
you know for a long time and
liked you before you had
Any money.
Or any signs you'd ever have any money.
That is a different kind of relationship. For me at this point, I don't know.
They nice to me because
They think I can do something for them.
There are a group of people in my life that
I've always been there.
And that
they will be close to me for the rest of my life.
And like to the extent I can work with those people.
Great. But as I said, they have to be excellent.
One of the things that you do is for your portfolio host that's like
group chat that's just full of your thinking on what's going on in markets.
And one of the things that struck me the most about this is just how prolific you are in it. Like you're just
Thinking and writing about the shit.
At all hours.
all the time. Clearly like this is the thing that you just love and are passionate about.
What has been the impact of that, like constantly communicating
with the people that you care about.
About markets.
I asked the question because I just want to give examples to encourage other people to do the same. It can be so powerful.
When you're investing in a company privately
There is obvious
a financial aspect to it, that's the driver. But there's also a relationship part of it. Like in that
You are signing up to
hopefully help that person grow their business.
Be with them through ups and downs.
When you're doing the initial investment, you spend a lot of time together.
But then
I find that like it's very easy for me to go months
without communicating with the CEO on the private side, if nothing's happening. I don't like that.
If we have something that we can offer people and they can just opt in, they can either read the stuff I write or not read the stuff I write.
It is a way to
broadcast communicate with people that I want to be
in touch with and I want to know us better as a firm.
Know me better as a person, know us better as a firm.
I find that now
Even if I haven't spoken to a CEO in like three months and I call them.
It's almost like they feel like they talk to me every day.
It's the same way like when you meet someone on Zoom during Cove, you don't realize you never met that person in yeah, in person.
I know that being a founder is lonely, going through all kinds of
Issues and so being around other founders.
Almost universally the feedback I get is that
Founders like to be around other founders because there's the only people that can at least sympathize and understand everything that they go through.
And so by having a bunch of them together in a chat.
It's helpful to us from a business perspective, but I think it's also just
group therapy would be too strong of a word, but I think it's like nice for them to
No that
These other people are
part of this community that they're in and that they wanna reach out to these people, they can and they hear these people's perspective and
Some of these people are
world leading experts in areas like AI that are gonna be
impactful to companies that
Are not experts in AI, so just
Okay, that input I think is really helpful.
We have a network of a lot of companies, a lot of industries being able to share the insights, not just my insights on markets, but
having companies share insights with each other.
And
Seeing how the world is impacting companies.
Do you care?
Whether or not D one has enterprise value as a business.
Is that something you think about?
It's something I've started to think about more recently.
I think the answer is no.
Money to me is a scorecard.
I wanna have the best score.
It is a really great positive externality of being a good investor.
And maybe I will just be so intellectually interested by the idea of being a CEO.
That I want that go from being ten percent of my job to thirty to forty percent of my job, and that's how you would create enterprise value.
I'm just not there right now and I want to
Deliver amazing returns.
That'll be financially more than compensatory. Maybe one day. But I don't think hedge funds are a good business.
Objectively, our business like it's horrible.
It's amazing cash flows.
has no terminal value. I told this to my companies I invest in. I'm like, you have no cash flows and tons of terminal value. I have tons of cash flows and no terminal value. So we're good together, like we can kind of arbitrage that.
But I think there's other businesses within asset management that have value.
I definitely do not
ever aspire to having
hundreds of employees or something like that. So and that's kind of what you need to do to have enterprise value.
Why do you care so much about the score card?
Like where does the competitive drive
Come from.
This is what I've devoted my life to, right? And so
Hey you devote your life to you wanna be
great at or at least having an impact.
that is tangible and measurable. I can be a family office right now and there's plenty of positive
Things not being a family office.
The drawback is like
You're not in the arena. I'm very collaborative with other investors. It's not like I'm sharp elbowed, but being out there like
being able to prove that we can be great and not just me, like our firm can be great is
Invigorating.
kinda bored if I was just like investing my own money.
Going back to some of the history, something I've never heard you talk about publicly is the early writing you did in Value Investors Club.
And specifically the Orthodonics of America shortcase that you wrote about?
I'd love to just hear the origin story of how you found Vic, why you started doing it. I'm very interested in this idea of
How much can come if you do some great posting online. This is a very early version of this. So maybe just tell us the story of Vic and that early passion for stocks.
It was two thousand two.
I was working in a private equity group within Bear Stearns.
I always had an interest in stocks, but the only way to really get exposure to
Investment ideas written up by hedge fund managers.
Or mass managers.
was this site called Value Investors Club.
We had the send an idea, I applied and like
Every week you have tens of ideas posted by people anonymously.
You can read them.
I would just
consume everything. So it was like long ideas, short ideas. Every week they paid five thousand dollars for the best idea.
I just got inspired by all the stuff I was reading and
decided to try to find some of my own ideas. After maybe six, twelve months I had a portfolio of things I'd written up on by investors club and
I decided I wanted to go work at a hedge fund.
First thing hedge funds.
Ask you to do is talk about investment idea. And so I had all these investment ideas.
One of the hedge phones I went to interview at
It was a spin off of SAC
That did healthcare.
And they said to me,
We want you to do a case study.
For the interview.
The company is called
orthodontic centers of America.
So I for me, this was not like a task. It was like something I was really excited to do.
'Cause I had never had my work
given to somebody who is a professional.
I went home and I spent well maybe like
Hours and hours.
Going through
the financial filings and trying to build a model.
I was
pretty good at accounting. I really tried to get deep into the financial statements.
And I realized nothing reconciled. Nothing made sense.
It hit me that
what they were doing was
The simplest form of accounting fraud, which is just
capitalizing expenses that should have been expensed.
In a big way. There are other things too, but that was the most egregious.
I was able to
Effectively prove that.
It wasn't incontrovertible.
Proof, but it was pretty close.
Just by
building up all the unit economics as they said they were, comparing them to the unit level economics that you could actually
the cipher by going through their financial statements and it was clear I did a write up
That was about
Six pages long.
It was good. It was well done.
Before I went back to do
the follow up interview where I presented my case study.
I was like
I think I'm on to something here.
Let me post it online first.
And I'll get some feedback.
I wasn't allowed to trade stocks'cause I was working at an investment bank.
So I wasn't short the stock, I wasn't on the stock.
Value Investors Club is done anonymously with a tag name.
So I post it online.
Within
A few hours the stock started to
Go down.
I was like, That's cool.
People are noticing there's a couple of comments online.
The market closed a few hours later.
Whatever.
I'm watching online, there's some more posts being like this is really interesting. Does anyone double check these numbers? There's people like
commenting.
Next day stock starts to crater, stock's down like twenty, thirty percent.
I started getting calls from people.
working mutual funds who own the stock because even though it was anonymous online
I had told friends of mine at hedge funds, I'm like, You should look at this stock and short it. I think it's a fraud.

And so I started getting calls at Bear Stearns, like people at T Row Price and Fidelity.
You were in an investment bank. The last thing trying to do is supposed to like posting about companies that are fraud. Like I didn't know even though they were a client. The stock just got halved. I went back into the
interview to present the case study at this point.
They were just like
What did you do?
And I was like, look, you told me to look at this. I thought it was a fraud.
They're like, did you tell anyone that we told you to do this?
I was like, No, no. You're like You sure? And I'm like
Yeah. Nobody knows.
You know, like we basically thought you were gonna come back and tell us if they were gonna miss earnings. I didn't want to do healthcare, so I didn't work there, but I now had this
Right up that could go around to different hedge funds. And most of them already knew about it'cause they would short it.
After the write up.
That's how I got my job.
You end up in Viking, you're there for a long time as a CIO.
You've got an incredible track record while you're there.
If you think about the moment that you decided to go
Start D one.
Bring us back to that moment to go hang your own shingle and build this thing.
I started out as a banks analyst. That's what I did for the first couple of years.
I still had a value bet. I think most investors who love investing start out with a deep value bet. If you want to read
About
Great investors historically. Most of them were deep value investors. Ben Graham, Buffett. I was working for somebody named Tom Purcell, who's a amazing investor. I realized that Tom was
An awesome mentor, but I realize that
Tom was very well equipped to
generate returns and financial services for Viking. And so if I wanted to grow my career
I had to
move it to other areas. Gradually I
Took on
other sectors, like starting with healthcare, industrials, TMT, and the nature of those companies was different than banks.
That was a learning process. It was just like
years of covering different companies and different industries.
The deeper you got into like
What created value in TMT was different than
what might create value in industrials or healthcare. So to me, if you love investing, my time at Viking was
Amazing because I was able to get exposure to
Every industry almost.
By twenty sixteen
I was managing
Just over half of Vikings Capital, somewhere fifty five, something.
percent of Vikings' capital.
And I'd start out.
In two thousand two, being analyst with no portfolio.
had gone from no portfolio to portfolio to eventually CIO to
Managing more than half the firm's capital, which was
an abnormal percentage historically for Viking. Viking's usually more diversified.
It was pretty clear to me that
From a
business perspective.
It was not in Andreas' best interest to have one person manage more than half the capital.
I don't think that would be even good for LPs.
And so I kind of recognize that
I had
Pretty much achieved what I
could achieve a Viking
over time I'd be probably managing a smaller percentage almost regardless of how well I did. I've always had a mindset of like I want to grow, I want to get better, I want to achieve new things and
I kinda felt like
There wasn't that much more for me to achieve a Viking. And I was forty
I started a fun.
relatively late in life. I kind of recognize that
At some point you just wouldn't have the
Energy to go
do something like starting a fund is you know, obviously it's a big endeavor.
I felt like I had the energy and so everything kinda came together.
What interests you about art? Like it's something that obviously you care a lot about.
You've devoted some time to understanding
What is it that attracts you?
I've always had more of a leaning towards humanities than STEM.
Which is unusual and certainly tech and
Somewhat finance.
That is why I perhaps look at my job as more art than science. The science is very simple. DCF I could learn how to do it twenty five years ago and it doesn't change.
The humanity side interests me and art is certainly
one aspect of that. And I'm particularly interested in aesthetics. I like
design, I like architecture, I like art. To me like it's just beauty. You gotta
the beach and like watch the waves. That's beauty. Like there's beauty in the world and like
Art is one example. Beauty.
There's usually a story behind it and there's people behind it.
Art is important because it is created by
people and I think the bull case in our would be
as everything else is automated and in infinite supply because it's being created by AI.
Art created by people reflects emotion and
Oftentimes like what's happening in the moment in the world when they're making that piece of art or what's happening in their life. If you apply the same aesthetic idea, the beautiful idea, what is the most beautiful business you've ever seen? Just like the best business you've ever seen.
I think that the best businesses are usually
low cost producers of something that's very durable. And I think people underestimate like
the ability to provide a given product or service sustainably at low cost.
And where there's a positive
feedback loop of like
Low cost drives more volume, which drives low cost. And I think the
I can say like a bunch of businesses which are really great, like Moody's or S P, those are great businesses, don't be wrong.
But something where the cost advantage is so substantial.
And so impenetrable.
Like SpaceX with launch or Costco with
Groceries.
The only way to win in most businesses is to buy a great product.
At a low cost.
businesses that do that at scale.
And build a mode around it are amazing. Amazon's
E commerce business is amazing. So many amazing businesses.
Very few monopolies, and when they are a monopoly.
Usually what happens is they tend to get
Lazy.
And
The returns aren't as good.
What parts of the world do you think are underappreciated right now? Like when I look at your top ten holdings.
I actually like didn't recognize a number of the companies. Lots of them are not in the US.
They're in their national
Where's your eye right now do you think the world is not paying enough attention to?
It's hard to say Europe in that like Europe is economically stagnated. So I'm not sure anyone should pay attention to it, other than if you are a pure fundamental stock picker, it's an easier market. I think there's really interesting things happening in Asia.
Just as
globally as
Politics change.
Like you saw what happened in Japan and
for the first time, Japan's probably gonna become a military power at some point in the future again. And you know, that has all kinds of implications.
I think there's a lot going on within defense. I think there's obviously AI
Geographically
Europe is always the most inefficient.
I think Japan and Korea are probably
pretty inefficient as well. A lot of retail investors, some really great companies.
Japan and Korea were not well positioned for
the last twenty years because it was just like digital companies. But when it comes to like actually hard assets and good engineering, Germany, Korea, Japan.

companies that have excellent physical assets in engineering.
Is there anything else that we haven't talked about today?
that you have on your mind or you're especially passionate about things you're thinking about in the world.
thing that troubles me the most, frankly, is I think we are on a
collision course with China over semiconductors. I think there are ways to get out of that. But
None of them are easy.
To the extent that we don't figure that out.
We're gonna have something
Akin to the Great Depression.
Say more about that, how would that come to pass?
It's very straightforward.
Taiwan produces ninety something percent of the most advanced semiconductors and
Everything we use is semiconductors.
It's almost as if you went back
fifty years if there's only only one country that produced oil. I mean oil was that important. We went to war over
oil even though you could get it all over the world. Like
Taiwan produces
Vast majority of leading semiconductors.
And that is what powers everything and that supply chain is fragile. Like it's not like it's easy to replicate. It's
Easy to
Destroy.
If that supply chain were to get
Screwed up or
Disremediated.
We would have
Incredibly bad economy.
Depression type economy.
Probably
A lot of people in government understand this. I've heard Scott Besson talk about it. I think people understand it. There are some scenarios that are
Okay.
The global economy.
There is no scenario I can think of where everybody's happy.
China's happy, Taiwan's happy, and the US is happy.
Somebody's going to be unhappy.
Either because
The economy collapses.
Or because their sovereignty
is handed over.
What do you hope happens?
That we build fabs here.
What I hope happens.
is that we replicate the supply chain over time in the US.
And we work something out with China where they see
a path to integrating Taiwan. I think that if we
Replicate the supply chain.
the risk is that we're probably less likely to defend Taiwan, in which case China will attack Taiwan anyway.
Bad for Taiwan, fine for the US.
Trying to
achieves its objectives.
I would like
To see the world avoid
depression and that's gonna require like I think some understanding of
We need
ten to twenty years to replicate this supply chain.
over that period of time.
China will not
screw up the world economy by being very aggressive with Taiwan.
And then eventually
There's a path where China feels comfortable that
They will be able to
Reintegrate with
Taiwan usually when dictators say they say something and they say it like religiously
You should believe that.
Like when when Putin so you know talks about like the glory days of the Soviet Union.
He may not have the capabilities always, but like as soon as he did, he acted on it. And so like
Every time she makes
speech that's of any importance in China, he emphasizes Taiwan. And so
We can pretend like this is
gonna happen in in some time that's not relevant. But it it's so
Important
And AI just
raises the stakes so much.
That
It would affect everybody.
Zach coming to ask you what you've learned or what you like about the Real Dictators podcast.
I like history.
listening what's happened in history and like how many horrible leaders there are it's like
the Charlie Munger say, like tell me where I I'm gonna die should I never go there. So you don't
Go there to me is
It's interesting whether it's like
communism or
Fascism, it's just like all of these things are still possible and relevant in modern day.
understanding how things have played out in the past. And it tends to r repeat itself. Like
Communism starts, but like
Communism without dictatorship doesn't work.
because eventually people realize it's not good and so then they they w they want to change
And the only way
It doesn't change is if you have a dictator who's really benefiting from all this. That to me is like interesting just'cause the world
A lot more things have gone wrong in the world than right. In our lifetime things have gone right technologically, geopolitically.
But over history more things have gone wrong.
Good leadership can be as impactful or more than bad leadership.
You've worked with a lot of investment in a lot of great leaders.
I'm wondering specifically around CEOs, but broadly about leadership. Like what are you looking for in
A leader.
But you back.
Real passion.
a strong competitive streak.
desire to win deeply
Engaged in the business.
Somebody who like knows the details when you talk to them.
Somebody who people want to work for.
And that could be because they like the person personally, or it could be because
They don't necessarily love the person
Day to day, like Elon Musk I'm sure in the factory is not like all giggles, but people are like, I'm going to learn more by working with this person. Buffett always says like the business is more important than the leader. I kinda disagree with that. I think if you look over thirty years, sure.
But over any medium term period of time, like businesses are just people. And if you have
amazing people, they make great decisions and bring great people and
My investing time frame is like five to ten years max.
And I think people are more important in that time frame, especially technology businesses.
I think it's come through today that you are clearly one of the most passionate
Stock pickers, stock people, markets people.
That's active today.
Mostly I like these things just to be inspirational to other people that might want to do the same thing. So it's been so much fun to do it with you. I ask everyone the same traditional closing question. What is the kindest thing that anyone's ever done for you?
with my wife right now, I was a pretty bad
boyfriend in college and that like I was busy doing other things and I was not very attentive. I was not like
Somebody that you'd want to like necessarily marry.
And we broke up and I remember.
I sat down with her and I said, Like, you know, we went to get a drink and just to like catch up his friend. And I said, I got a job at
Bear Stearns. I just remember like
She just started crying.
I was fine, but I wasn't like I was Goldman Sachs.
knocking down my door to get me to go.
I didn't really work for the first three years of college.
She just started to like
crying with tears of joy. And I was like
Wow, like this person who
I
really didn't properly appreciate
how much they cared for me, how they were and like
How much they are rooting for me.
To me like it wasn't an act that was kind, it was just a gesture.
That I was like
I was kinda taken back for it.
And immediately I walked out and I was like
I'm gonna marry that girl. And I'm gonna be
A better boyfriend slash husband going forward? I love that story. I haven't heard like a specific moment quite like that one in all the five hundred times I've asked this question. So an awesome place to close. Thanks for your time.
Awesome. Thanks, Patrick.
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