Adam Karr: The Investing Blueprint

0:00 How do we go about selecting the game that we're playing in life? Thinking about what game is it that you're playing and so just using the investing landscape. It surprises me. all the time that Um People don't think about that more deeply. You know, you see this over and over again in markets and there's a whole continuum. You know, one end of the continuum

0:18 the the algos that are scraping to the millisecond to a day trader. To The the hedge funds and pod shops that are trading on a catalyst. Stan Druckermiller who likes to talk about, you know, I want to look eighteen months out. To us. So We consider ourselves long term investors, we're trying to take a

0:34 four to five year view. Two be infinite investors, right? Depending on what game you're playing. you're gonna approach it quite differently. And so a really important question, and I see it over and over, even today, people in the business for years of like But what game are you playing?

0:50 And being really clear and thoughtful about that and then really leaning into that and playing to that, I think makes A huge Different. Welcome to the Knowledge Project. I'm your host, Shane Parish.

1:10 In a world where knowledge is power, this podcast is your toolkit for mastering the best what other people have already figured out. Can you do me a quick favor? Most people who listen to this show are not subscribers. Go ahead and hit that follow button right now. Thank you. My guest today is Orbus president and portfolio manager Adam Carr. who reveals his battle-tested system for creating advantages, a method that's transformed organizations and careers. He calls it the blueprint, and for good reason. You'll discover how to identify patterns that others, exploit hidden edges others can't copy, build repeatable success in any arena. Warning, this is not another work harder sermon. It's a practical proven framework for outperforming your competition. It's time to listen and learn.

2:02 There are too many podcasts and not enough time. What if you could skip the noise and get just the insightful moments, even from shows you didn't know existed? That's what Overlap does. Overlap is an AI-driven podcast app that uses large language models to curate the best moments from episodes. Imagine having a smart assistant who reads through every transcript. finds just the best parts and serves them up based on whatever topic you're interested in. I use overlap every day to research, guess, explore, and learn.

2:33 Give it a try and start discovering the best moments from the best podcasts. Go to join overlap.com. That's join overlap. dot com How do we go about selecting the game that we're playing in life? Using the investing landscape. It surprises me.

2:50 all the time that Um People don't think about that more deeply. You know, you see this over and over again in markets and there's a whole continuum. From You know, one end of the continuum.

3:01 the the algos that are scraping to the millisecond. Right. That's their game. And if that's your game, you have to do certain things, you have to invest in certain infrastructure and Certain capacity. to a day trader to the the hedge funds and pod shops that are trading on a catalyst and around a court

3:15 quarter. Two Call it. Stan Druckermiller who likes to talk about, you know, I want to look eighteen months out. To us. So

3:22 We consider ourselves long term ambassadors, we're trying to take a four to five year view. Two be infinite investors, right? A buffet. Who is trying to own things forever, right? That's a that's a huge

3:35 continuum, but depending on what game you're playing You're gonna approach it quite differently. And so a really important question, and I see it over and over, even today, people in the business for years of like Well what game are you playing? Um And being really

3:51 clear and thought about that and then really leaning into that and playing to that, I think makes A huge different. I mean, in theory, you're not gonna be good if you're playing a long term game, you're not gonna be good at day trading because the skills and the environment necessary to be successful at those two things are sort of opposed. How do you think about Buffett and his style changing four or five times over the course of his career? Uh you know, he was never a day trader, but he went from cigar butts to buying and I wouldn't say holding, but trading, you know, quite frequently to buying and and not trading as frequently. How are you going to adapt your game? to something that's authentic to you in a way that

4:28 can play to your strengths. Right. Market change. I even I've seen that from the time that I started. The mid nineties to today. Right. And so if you're playing cigar butts Um which can be very profitable. Um

4:39 But it's difficult to scale that. And so as his capital grew over time. You know, you have to think about how you show up and how you approach it. And and we know that Munker was also you know, keep part of like that conversation and Framing and helping Warren, think about w what he focused on. Underneath that is thinking about how

4:57 He needed to adapt based on his own size and the amount of capital he was trying to deploy. And the environment is not just You know, the computers you might need if you're day trading. It's like if you're running a public firm, it's how do I maintain control of that firm? So that we don't have an outside shareholder come in and take control that'll make me change strategy or change environment. How do you think about environment and the role that it plays? Try to think about your obsessions. You never want to compete with somebody who's obsessed. Kobe Bryant, like y he would say, what's your four a.m. She's at the gym.

5:29 At four AM shooting baskets. Are you at the gym at four AM? Because if you're not, like you're competing against that guy who is. You know, he took up tap dancing. 'Cause he wanted to strengthen his ankles so he could be a better basketball player. Are you obsessed to that degree that you're going to undertake those kind of actions? The elements that you're so you're you're so drawn to that you're willing to do those kind of things and whatever the kind of the chosen Aspect is Um is really powerful and if you consistently do that over time and that compounds

5:58 set yourself up to play to Your obsessions. I was just I mentioned to you last night that I just back from Japan and Um The author Mirakami is one of my favorites. You know, he's like set your life up for your obsessions.

6:12 'Cause if you do that, like you're You're you c you're all in. Like you're just You're grinding at that in a way that very few other people will do. And so it's to the setting up your environment that plays to all of the ways that You do your best work. The other side of that um is just the concept of alignment, right? And so you might say, I'm a long term investor, but you're only gonna be able to be as long term as your clients.

6:35 Mm. Allow you to be, right? If you're in a position that's offsides to kinda the market sentiment at that time and You have in your in your mind that You know, this is something that'll play out over

6:46 four to five years. But your clients are knocking on the door and want to redeem. You're not gonna be able to play your game. Right. And so you have to think going in. How am I going to communicate in a way that I'm looking at this kind of time horizon.

6:59 How am I gonna attract and retain the types of clients that have genuinely have that same kind of time horizon because that will empower you to actually be in that environment that serves you the best. How do you find obsessed CEOs? Like what are the markers from the outside as an investor looking in? Because I'm assuming you want to invest with people who are obsessed. It's just doing the work. You know, it's it's looking at their track record, demonstrated action. One of the things that I spend a lot of time on is thinking about the questions. You know, we do a lot of work before we initiate a position. We tend to take reasonably sizable positions. Going and sitting down with a team, you know, you've done A ton of work in advance, really looking at their demonstrated track record. But then you want to have that conversation.

7:42 What are the questions you you ask? Like what are the questions that come to mind when you're like if I had ten minutes with a CEO And my goal is to determine if they're obsessed or not. What are the questions you're asking? Context matters a lot. And so you kinda never know. You gotta be prepared to play jazz in the moment, but sometimes a very generative question. It really opens it up and seeing where they take it. can be super helpful. And sometimes that'll be, you know, they just

8:07 They're putting in the C D and they're giving you the script. That's not gonna be really helpful, right? And you gotta approach that very differently. But one of the things that I tend to I like to go to is around culture. More often than not They sit down with folks and they they tend to be relatively short term oriented. They want to understand something round the quarter particular

8:25 Um You know. profit margin point or capital allocation point. Tell me about your culture and what's important here to be successful, or you know, my nephew is gonna start at your company. Next week and what would you tell them?

8:37 to be successful, right? Like they probably haven't gotten that question and so they they can't use the The CD script. They gotta go somewhere else. What do they talk about in that? And do you see that kind of that passion come out? And then you just follow that thread. Not always, but it can it can often be very telling. We talked about alignment, but one aspect of alignment is sort of timeline. The average tenure for an S P five hundred CEO is I don't know what it is, but it seems pretty short. How do you go about building a long term position? Your average holding period is longer. than the average CEO tenure. How do you think about the mismatch between quarterly, annually, long term investing, building a company that lasts? These are all sort of like interconnected. Good question can often be just very simply

9:22 Sitting now with the CEO and saying What's important to you. How they answer that can be very telling. Like I wanna build something special. Versus They go into like hitting their quarterly guidance. Like

9:33 Very different lens, right? So I think the average S P tenure is somewhere between three and four years. So To your point, it it it is relatively short. We very much approach it as owners and we're thinking about what you would as an owner, like capital allocation and defensibility of the business and what they're able to create over time and show up in that way asking questions around that. And in the midst of that conversation, you can typically glean pretty quickly like the way in which they're thinking about the business. And that's an important talent. I think that's part of the reason like controlling your fate is so important too. Cause I often think of like CEOs and this analogy is not perfect. So like correct me here, but They're almost like coaches going into a losing team. There's a reason the old CEO is no longer there in most cases, and it's not retirement, you know, it it's sort of like being pushed out. Your incentive is I know I have three years to turn this program around, like going back to the NFL thing.

10:25 or any sports team, I'm gonna take a risky behavior. that is increasing. I'm gonna trade the first round draft pick. I'm gonna bet the firm on a player because I know at the end of the day I have three years to win or I'm out anyway. But then the next person comes in and you're in this increasingly worse and worse position. And then you don't get the endurance of a hundred year, two hundred year company that survives. And culture's always taking a hit because it's like one hand you're preaching long term, on the other hand, you're taking these increasingly risky short term actions. Before I was doing public market investing. It it it or was my current firm.

11:01 I did. Um Distress turnaround investing, private equity. We were often going in situations where you're buying it based on asset value, buying deep margin of safety, you have contractual value, hard asset value, and and And very often you were changing the management team. We're just buying the assets or we're gonna bring the team in that which gonna make a difference. When I made the pivot and I I came to the public market side. Um I very much had that mindset. And it turns out on the public market side.

11:27 That's pretty difficult. Like public market turnarounds are Tough and have very low base rates. For all the reasons that you were just drawing out. The market's tolerance for doing the hard work is very short. One can take a lot of shortcuts in doing that.

11:42 And it's probably the way that I change the most as a public market investor over the past twenty plus years is Um very leary to go into turnaround situations where I'm betting on the management team making some kind of dramatic change, like the base rates. suck. It's very difficult to do and the public vibes. I mean it's almost like I would sit down and advise him like

12:02 You'd be better off going private. kinda doing this outside of the lens of the public world because you're gonna be able to do it in a better way. When you have those conversations, it can be very telling Terms of how they respond. How they're gonna approach it.

12:15 what their scoreboard is. Is it just asking like what are the KPIs that you're gonna hold that are really important to you? Talk to me about the blueprint. First uh know yourself. Second, I'll be clear on the game you're playing. And then third, like Have a blueprint. So what do I mean? Like this is um Invoking Charlie. Like one of my favorite Charlie quotes is Take a simple idea and take it seriously. Everybody as they're coming up should have a clear

12:38 Blueprint of Somebody That does what they want to do. has done it really well. A lot of times people talk about mentors. And one of the things that always frustrates me with young people and they ask me like Oh, it's difficult to find a mentor and I'm like

12:53 What? You can have any mentor. in the world that you want. There's so much out there like Pick somebody that you really respect. And just like be a sponge.

13:03 Get obsessive. Learn everything you can about them. How did they do it? What did they do? Like You can really you can you can watch videos, you can read and you really develop a mosaic, a blueprint of what they did. And why they did it. And pretty much everybody's accessible to you. You'd use it the same way that you would with any mentor, right? And so I'm gonna go see my mentor. What questions do I wanna ask my mentor? You can do that.

13:26 virtually, right? And so you study somebody You can pose those questions to yourself Socratically and you could answer the way that they would answer it for you, right? Yeah. And I don't understand why more people don't do that and take it take it really seriously. But the most important thing is for whatever your domain is and the way that you want to do it, like Have a clear Blueprint for you. In the beginning, you're just, you know, you're imitating it. And then you're gonna find there's certain things that don't totally resonate with you and they're not completely authentic.

13:54 And you change those things. And there's gonna be some new things. you draw in that you kind of adapt from whatever that blueprint was. And then that's gonna become you. And over time it becomes you and it's something completely different. A friend of mine says you have to imitate before you can innovate. I mean, there's so many examples when you start thinking about it, like Jay Z, I think his best album, 2001, called The Blueprint. I think it was paying respect and homage to those that he studied, right? And when he was growing up, you know, he used to always carry a notebook with him and he would write lyrics or ideas that he had. And he would take it with him.

14:26 Everywhere. And that was his thing. I mean, to this day, like I still carry A notebook every day. Like this is with me. Every day. And when I have an idea like I'm I'm on it. Like I And that comes from

14:38 the blueprint, right? And it works for me. So then you go to people like you know, Saul Price, like he the Price Club, I mean the people that he laid the blueprint for from Jem Sinegal with Costco to Bernie Marcus with Home Depot to Sam Walton. Who's laid a bigger blueprint than Saul Price or Um

14:58 Arnold Schwarzenegger. Like I mean, it's a fascinating story. If you think I mean he grew up in Austria and his original blueprint is I wanna be Mr Austria and then he did that and then it's like I wanna be Mr Universe he followed Reg Park. And then he decided he wanted to be a big movie star and he did that. And then he decided he wanted to go into politics, became governor of California. Three different domains completely different. Each one he had a blueprint. And so it just could be really, really powerful. So if you're looking to acquire a skill and you're using a blueprint or a mentor. as a role model. You almost want somebody who just did the thing.

15:32 Not somebody who did it thirty years ago. Unless What happened thirty years ago is enduring. So the way that you set up Uh maybe you know. Price club or something is enduring or Costco is sort of like enduring, right? Where you have this operating model where we operate basically

15:48 uh break even and then we make our money on memberships. That would endure in like thirty years probably. But often we look for skills. We look for sort of like I want to do this particular skill. I want to learn this. I need this. This is going to make me get a promotion, go to the next level. But if I go to, you know, my mentor in the organization, he's like thirty years older than me. who did this thing before, but now the environment is like so different. And in their mind, it hasn't really changed. You know, it's like, well, here's how I did it. This is what you should do. But if you follow that

16:21 You just wanna emulate it, right? And that and then that gives you something to scaffold up over time. But as you're scaffolding it, then you're also questioning not just what they did, but why they did it. So lots of things will probably change, but what's not gonna change. Like the the concept of Having a membership club. hasn't changed like powerful concept of being low cost. hasn't changed. There other elements of that.

16:46 in the delivery that have changed and so Those are the parts that you will adapt as you scaffold it out. If you want perspective, you want to go to somebody who's at the end of the miz, who who's done it before. And it's almost regardless of when they did it. It could be, you know, six months before and it could be twenty, thirty years before. But they're gonna give you perspective which removes blind spots. And if you want skills, you have to go to people who have relevance in the in the the current operating environment and copy those sort of like skills. because they're more likely to be successful. But I like the idea of adding this extra layer of What's not going to change.

17:22 uh from the past that I can also bring back to right now. Like it might work for them. But it may not be so good for you, which ties back to knowing yourself and listening to that tell, I think, is is important. So who are some of your role models and like how did you use the blueprint methodology with them? The first blueprint for me and investing goes back I don't I can't remember if it was in high school or in college, but was Peter Lynch. You know, his book won up on Wall Street.

17:49 Um I think it's one of the best. Like in incredibly accessible. I remember that reading that and just totally connected for me. Right. And you know, a lot of people cite Security analysis Ben Graham, like I've read it, like it didn't

18:04 Not exactly a page turner, right? opposite with Peter Lynch one up on Wall Street, I was like like it just really resonate and connected. And I think one of the big themes was Focus on the things that you know that are accessible. Buffett might call circle of competence. He didn't call it that, but it was Focus on the things that

18:25 You touch, see, know, understand, like, make a difference for you. Just look at your bank statement and What are the things that you spend money on? And what are the things you really like in that experience? Now, it's not just that, like you have to understand the valuation and other elements of the business, but like a guiding principle. Um was right there.

18:44 win ratio. Like you're not gonna be right a lot. And I think as a young investor it's a That's an important concept to internalize because you you see young kids come through and they've pretty much been successful at everything that they've done and then you're investing in like if you're right fifty five percent of the time, like you're you're doing pretty darn well.

19:07 Um and took being wrong a lot. is an important concept to internalize. And then the last one he talks about he had six categories for his stock. Slow growers, fast growers, stalwarts. Um Turnarounds, cyclicals.

19:23 And it was just a it was a categorization framework, almost like a mental Mental model for each type of stock. I don't use those exact frameworks today, but When I was starting, having a clear framework and thinking about them kind of in mental models for each was you know was insightful. Talk to me about being wrong. How do you recognize you're wrong and then do the hard thing, which is sell at a loss. Write it down.

19:47 Show your work. Track it, measure it. As that Thesis is evolving and events occur measuring it relative to that.

19:57 And trying to be as accountable and objective as you can. It's always hard. It's nice to have people also around you. that that will push you to do that. I think having your own investment journal. So it's different than the specific um decision, but just Understanding what um emotions are at play for you. There's studies that show that those people that are

20:17 better at describing what emotions they're feeling. In uh demonstrating better. Investment performance. And it's just the simple concept of like having a better read of

20:27 what you're feeling. I used to Have uh um a framework for myself that when I came to a decision I wouldn't sell. The same day.

20:37 And it turns out like that's a really good kind of Level setter.'Cause you go into a meeting with the management team and They do something that Um Sparks you and you're like

20:48 particularly turned off and like I'm selling this. If you just give yourself a little bit of space To step back from that. Go back, look at what you wrote originally. pair that up with what you saw that can be really helpful in like putting you in a better mindset to make a more objective decision. The data would say I'm better at like

21:06 cutting a loss earlier, knowing something's off in the decision. There's some situations where like I hang with it, it's continued to not work, and then I have this sort of Endowment effect of like I want to see it play out over time. And I and I stay with it for whatever reason. So it's an interesting question for me of like what What causes it to flip from one to the other? What role does writing play in terms of thinking and what's the process? Do you share this with the team? Is there A format, what variables are you writing about? You know, one of the themes is like how do you accelerate learning and

21:37 accelerate feedback loops. And so one of the things that we do is all of our analysts run Paper portfolios or model portfolios. And this is something we've done for decades. process, you write up, you know, your various research reports when you wanna buy it, you put forward something to investment committee. Um you debate it and then you buy it in your paper portfolio in what your For any decision of buyer or sell, you're writing down your reasoning. You're putting down why you're buying what the thesis is.

22:06 Um I like it when you show the things that I want to be looking for, holding accountable to. Just writing things down like Helps you crystallize. the why and putting it down and then tracking, you know, show your work and then track it. One of the things that we do every six months is You know, we consolidate that, we look at the performance. And then we share that with the the team members. And it's a really powerful feedback mechanism for the analyst.

22:30 But it's also powerful for us as we're thinking about Um You know, looking at the simulation, if you will, like Who's making good decisions and what kind of decisions. Are you demonstrating more skill in the buy? Decision.

22:42 Cell decision. Are you doubling down when something's working against you? Are you making better decisions opining on stocks that you've researched yourself versus stocks that somebody else is written up. Like those are all dimensions that are in there that's giving you feedback which is, you know, really powerful way to like help

23:02 The improvement. Algorithm. One of the things that we did a couple of years ago. Uh, which has been really interesting is um we created this what we call decision analytics. Initiative. Right. So we have a standalone team.

23:16 Um For individuals. We went out and got third party software. And We run.

23:24 All these decisions from our portfolio managers and our analysts Through. And we're looking at To pick up. strengths, weaknesses, and biases. It's meant to be kind of like, you know, internal

23:37 um coach. And what's fascinating about it is it's showing you these patterns, right? Like I have specific patterns. That I've demonstrated over time. I talked about One of them already with regard to the endowment effect, another one is regret aversion. The riskiest position in the portfolio is my newest position. So when I'm initiating a position, I tend to scale into it. So let's say I want to take it to

23:58 three percent of capital. I'll buy fifty basis points and then I'll Another fifty and I'll I'll scale into it. Turns out That's wrong. The bias that I'm demonstrating, the reversion. is a regret.

24:11 A version. Is If it's reached the hurdle. But I want to buy it. buy it. And so it's interesting to get that feedback objectively.

24:19 Because I have this kind of like working heuristic, but it turns out it's not right and the data tells that really Clearly. One of the things that we've done with that is then we create these nudges, what we call nudges, and so this is coded into our system. It's watching your behavior real time. And then if you're demonstrating one of these, it'll send you an email and I'm never that excited when I get them, to be clear. Um and it'll say You know, remember the data. You're demonstrating this right now in this position.

24:45 It doesn't dictate that you do it, but just encourages you to think about it. And so all of that the that whole mosaic is kind of like How do you create a rigorous process? That it's repeatable. that really leans on the factors that you know, can really help reinforce making the best decisions in a way that can be most constructive to you as an individual. Is there a correlation between the clarity of people's writing

25:13 And their performance. To specifically support that. But my I believe so. When you're able to clarify your thinking and writing Is a very strong

25:24 Representation that you've clarified the thinking. Right. That's just one of the reasons why writing is so important. is helping to distill it to what's really We do a lot of work. We're really fundamental. We can spend months working an idea and then, you know, you get this fifty page report. I don't want a fifty page report. Like

25:42 I want a few pages that really just so like that's the hard part. is to do all the work, but then distill it down to like the few things, the two or three really key points. And in particular, where we see this differently than others, capturing that and knowing kind of those fulcrum issues. Like that's the sauce. Coaching to how do you go through that process of do that really fundamental bottoms up work? But then

26:05 be able to like really distill it. It's also a manifestation I think which the what you're pulling on that you've You've gotten to that. It's like there's simplicity on the other side of complexity, but you can only get to that simplicity if you gone through the complexity. But I feel like everybody wants

26:24 the simplicity. They want to consume the simplicity. They don't want to do the work. They don't want to go through the raw material. We were talking about this last night, sort of like listening to book summaries in a way, right? It's like they sound great and and you listen to them in your ear and you're like, oh that's amazing. But then you go to the source and you're like How do they miss this? And it contextualizes differently in your head. And the degree of filters between you and the information also matters, right? If you're reading an author talking about a subject that they have no experience with directly, it's going to be very different than reading it direct from the source, somebody who touched the problem and had the direct experience. So indirect versus direct experience. And then you talk about sort of distillations, two different people are going to come up with two different distillations. But if everybody just wants to consume the distillations, They're not gonna be in a position to know This is a good distillation and this is a bad distillation. There's a couple

27:15 We're gonna get threads in there. Um the pull on one is the filter. Right? Like it's a It's a really important thing to think about. Um When you get that distillation back of like

27:27 What's not in there. You really won't do want to source it. So a lot of times for me. You know, I will I'll see something that's like well, I wanna either talk to the management team or listen to them directly. I I just wanna I wanna hear it for myself because I'm gonna process it differently and I'm gonna pick up on different threads and And you gotta be authentic to that.

27:44 There's a tendency to want to convince somebody or persuade somebody to buy a stock. So when you're persuading You're persuading. And you may not as equally kind of pull out the potential risks or other factors to to weigh against that. Creating that objectivity and that honesty in it, I think is an important part in a process. And sometimes people over time will develop a skill at doing that.

28:08 Sometimes not. And so you really want to remove the filter so that you can get to that kind of direct read. And then the other aspect of that is just, you know, really doing it on a primary basis. Like I like to say the magic's in the last five percent. You know, all of the standard stuff you know you gotta do and looking at the balance sheet and Understand the course strategies and the key drivers of the P L, et cetera, et cetera. But really like

28:31 getting to that last five percent where you understand the business in a way that you do make that breakthrough, that synthesis. That's where the magic's at. Don't stop short of that. Like keep pushing until you Get to that point that You can distill it. Like what what is the essence of this? Like one of the things we talk about in the team is

28:49 What's the essence statement for this company? Meaning like what's the thing that really drives it? It can take you a long time. to get to that. When you've grinded on it enough and you get to that point, if you've really been able to dial into that thing that is the driver, that can r be a real ballast to help you through as an owner and a holder of it. I like this notion of the magic being in the last five percent. Are there examples from other domains that come to mind where It makes a difference. Going back, this is probably a decade, we we had built a position in a company called Motorola Solutions. You think of like the Motorola flip phone. Um and that was the original business, but

29:24 they ended up splitting it to the handset business. And then what was their public safety business. make devices and they manage networks for um first responders, so police officers and firemen and whatnot. They run these networks over what's called a proprietary network. In the US it's called LMR. The big bear thesis at the time is fiber rolls out and you have broadband networks like these

29:47 proprietary networks are not gonna be necessary in the way that they were. Not a technologist, but we spend a lot of time understanding LMR networks for first responders. And it turns out that there really, really strong reasons why having stand alone proprietary LMR networks. are really important. One, they're backward compatible. That's a big deal because you have really big

30:09 infrastructure install base out there. Two. the redundancy is way higher. Like they can go several days, which we saw during nine eleven. Like the networks went out, but the first responder LMR networks were were still operable. The common narrative out there and when you talk to most people, like they would

30:25 they would quickly riff of like, Oh, you know, they're gonna be disintermediated as Broadband networks are more commonly adopted, really getting into that last five to understand it and build build conviction about it was the difference for us. Um ended up taking pretty sizable position and ended up being really rewarding for us, but to to grind at it and really understand that bottoms up was a difference maker, right? And it it also ties to some of my favorite investment situations are the bear case is the bull case. So there's this common bear narrative.

30:54 And If you don't kinda do it on your own. your own work. If I were bringing up this name and I was talking to someone, they would have told me all of the reasons why I was gonna get disintermediated. And that would have sounded really sensible and I was like, Yeah, I'm not I'm not touching that. I'm not gonna spend any time on it. But if you build it up yourself and you really spend enough time to get into that. That last five. To understand it.

31:14 It's like not only is that wrong, but Actually This is The bull case for why this is going to be a great company because they've got a very formidable mode in a way that you don't understand. Are there other examples that come to mind? I I really like this thread of the bear case is the bull case. You've had Brad Jacob's on your podcast. We first invested with Brad in two thousand and thirteen. There have been more than a few occasions through that journey.

31:38 Where the kind of being able to get into that last five to understand in a way that wasn't commonly appreciated, I think allowed us to be a holder and an owner in a way that would have been difficult for a lot of folks that were only approaching that on the surface. So the the first one, 2015, you made a big acquisition. It was a big pivot. Probably one of the best capital allocation decisions I've seen in my investment career. You got a company called Conway. It was a complete pivot from his stated strategy at the time. His frame was you know, we're asset light.

32:09 Brokerage, truck brokerage business. He pivoted. To go into the L T L industry. Which was capital intensive. And even when the deal was announced, even you know, even I was taken back. Like

32:20 Yeah. But when we made the initial investment, we spent a lot of time on on Brad as a as a CEO as a capital allocated. He's serial entrepreneur, and one of the things that's very clear in his track record Is She's

32:33 He's a capital allocator and he's opportunistic. When we pushed on this in the strategic Logic of it. He framed it from the perspective of an opportunistic situation to create something special. That wasn't in the original plan, but was uniquely attractive.

32:50 And if you understood him and his history and you'd seen that in his demonstrated track record It reframed how you thought about that capital allocation decision. And so building up kind of that prior track record of understanding How he makes decisions, trader mentality. And by the way, one of his first businesses that he started was an oil trading business. Right. So that DNA. is in him and that track record was demonstrated and then

33:13 The the second time. Um was and I'll never forget, I mean we were actually sitting We went to see Brad in December. In the midst of the conversation, his assistant came in and and said I Um

33:27 A short report has been filed. And she had printed it out and she set it on the table and I I I make I can still distinctly remember like The thud. of this report. It was like a seventy five page report. And so we continued to chat. About fifteen minutes later his assistant came back in to the office and said

33:46 Um You know, I think at that point the stock was down more than twenty percent. And he said, You know, Sorry guys, I think uh I think we need to cut this short. I need to attend to this. My colleague and I when we got in the car And we're trying to read this short report. I'll never forget like the the feeling of anxiety in my stomach.

34:03 Um, and we had done a lot of work. On it. It was intimidating to kind of, you know Here. these claims on the surface in the next three weeks we

34:14 lean into that. Like we we hired a forensic accountant. all of the statements, every one of the claims that were in there. Hired a private investigator. Um We knew what cars they drove, whether they had loans or not.

34:28 Whether there were any disputes. The people on the short side. on on dealing Really to to go into that last five percent, maybe the you know, the last one percent. That's how I spent my my Christmas and New Year's is going down this This route.

34:51 The beauty of it on the other side is it built a deep conviction. Right. And we probably put a billion dollars into it on the back of that. And the stock was extremely dislocated. I think Brad and the company Bought back two million, like unprecedented magnitude of company buyback. He borrowed money buyback and bought back huge. It was a gut check. But on the back of like extremely, extremely Deep, rigorous. Like conviction building. You know, the easy thing

35:17 would be to go the other way. Like oh this is messy, this is noisy. The common trope is roll ups never work. And I it's true, like the base rate on roll ups is not good. It doesn't mean all roll ups don't work. What are the factor and common hallmarks of

35:32 Roll ups that are successful. And Are those conditions? Precedent here. And those are the things that we found as we went deeper and deeper and peeled back the onion. That's what it takes. And again, kind of turned it like the bear case actually the wool case and you thinking about what's happening here.

35:47 We've sort of talked about knowing ourselves, we've talked about game selection, we've talked about having a blueprint or a model to sort of follow and imitate before you innovate. Consider this a map. Now what? Now what do we do with this? How do we apply this to create an unfair advantage? So now it's about like accelerating that. that learning curve and those feedback loops. You know, try to put yourself in a place that's good game selection for you based on who you are and what your strengths are. You got a clear

36:17 blueprint about how to go after that. And now, you know, you just wanna You wanna turn the rocks and you wanna accelerate the learning curve. And a big part of that creating those case studies of Writing it down, like why am I doing this? Showing your work. Part of showing your work is distilling for you why you're doing it, tracking that over time.

36:34 And measuring yourself to it. And improving your algorithm. You know, how strong is the learning machine? Like are you seeing them take in new inputs based on the feedback that they're getting? adapt that and employ that as they go forward into you know how they thinking about stocks, how they're making decisions. And it's really hard for us the way in our game selection because we're

36:55 We're making these four five year decisions. So it's very easy to say, Well It's about this and you know, let's check in in five years. No, like there are many incremental steps between now and then that you want to track to and hold yourself accountable to doesn't mean you're trading every day or every quarter. But you wanna be really thoughtful around this is why I bought it. These are the things I'm gonna be looking for.

37:18 And then holding yourself accountable during those interim steps. And identifying those situations where it's worked well and when it hasn't, and then adapting for that. Right, and just being really obsessive about that. It seems like one of the key skills is sort of being able to sift what's important from what's Relevant.

37:35 And a lot of people get confused. How do we get to the point where we can actually sift what's important from what's relevant? think it's just learning from the feedback, right? We took a in two thousand eighteen we took a position in Symantec. So Symantec did you do software like antivirus software like on the retail side it's to protect your laptop and and and desktop. You know, it was a mature business, very high free cash flow for a software business. They had hired a new CEO Who was a real technologist. And so I spent a lot of time

38:06 On him as a technologist. Because I and they needed to infuse that in the business in order to be able to grow and adapt. Most all of my work was around that. I thought that was the important question. In the very later stages of the work, we started to get some reads that yeah, he was genuinely um A very Savvy.

38:25 Technologists but Um, had a reputation for playing fast and loose. Little aggressive, very aggressive sales culture. And just as we started to get that read, the company came out, the board came out and announced um the audit committee was gonna undertake. Uh

38:40 a review of the financial statements. Stock gap down thirty five percent. Covered somewhat, but not fully. Right. And so There was a layer there. And part of what goes in the mosaic of

38:54 Two things. One is If you're over myopically focused on one thing that you think is the important thing, you need to keep your mind open. that there may be other things in the mosaic. that are critical. And that when you do see those threads and we started to get a little bit of the flags.

39:10 Like you gotta go after that and go after it really aggressively. Time back to your question is You're writing it down, you're showing your work. What are the things that you think are important, but then you're measuring yourself back to that? And seeing the degree to which you've been Demonstrating a good success ratio of of zeroing in on the thing that is the thing.

39:27 when I talk to entrepreneurs, it it's so interesting to me because Compliments. And this is a generalization, so it doesn't apply in all cases, but compliments they tend to shut down. They don't tend to listen. They're already like the the minute they anticipate a compliment out of you, they stop listening. And you can kind of see it in their faces if you pay attention really closely. But if you say something that's a threat to their business. Then there's almost like a predatory

39:52 Instinct. that they have to be like, I want to know all about this. I'm curious about this. Like why do you think this? Where did this information come from? How does this affect me? Like how do we validate this? I feel like a lot of people are almost the opposite, right? Where it's like compliments are great Uh things that Uh might be criticisms or things that we might not be great at. They sort of go in one ear and out the other, or you stop listening to them. heard that before, you know. And I think that's really interesting when when it comes to running a business or getting better at things is

40:23 like almost being like Darwin, right, who kept this journal of things that didn't conform to his beliefs and then he had to go through and like How do I integrate this or just prove it or how do I think about this in lieu of dismissing it? How I don't want to dismiss it. I want to incorporate this. How do you go about doing that and sort of like having We'll call it a predatory instinct to listen to criticism. Three ways. One is you we were talking about questions. And

40:49 It's can be a really valuable way when you sit down with a CEO is to frame a question in a way that they have to respond. So But you might sit down and say, We've been hearing that you're having a lot of turnover. in your sales department. Why is that? It puts it in a position where they they kind of have to respond.

41:08 'Cause to your point, a lot of times when you will frame something in the negative or as a threat or challenging. You know, COs are very skilled, but like they'll shift it to something else. But if you frame it in a way that they have to respond. So that's one. I think two is To your point of When I use the semantic example, like it was Just confirming.

41:27 Um not to the big point, but in terms of the broader narrative of what I was thinking about the company. And any time that comes up, like you gotta really focus on it. Like that's the most valuable information In the situation. That can be really valuable also when you're working with an analyst and they're filtering, you're not getting it directly. When you hear that kind of stuff, that's what you want to go to. And really pull on it.'Cause they may not be that

41:47 Um excited to put that First and foremost,'cause they wanna persuade, but when you hear it, you gotta really You gotta pull on that. And then the third way, going back to the blueprint. Um We didn't talk about but probably the most

42:00 meaningful bluprint for me is the founder of my firm, Alan Gray. You know, genius is is Um Dissonance. I mean, you know, the ability to kinda hold to competing. And so on the one hand, like he was super long term, but he was always obsessing also in the short term.

42:14 The long term is just building up those short term things. He was a person that was very convicted about things. Like tremendous conviction. But it was always loosely held. And so if he heard anything that was counter You know, threat. He would really grab that. Um, and he was never Ashamed, embarrassed.

42:32 Shy. To then grab onto that and then totally flip his view. And so that that ability to like be very convicted. But then constantly in search of like he never wanted to talk to somebody that agreed with him about a position. Like who's got the The opposite view on that. That's the person that I want to wrestle with.

42:48 Intellectually. Um, and hear about that.'Cause he was he was like seeking it. And if he thought that w w w whatever they were putting forward was good in that, then Then he was off. Really you know, really powerful. It's like intellectual ambidextrousness. Are there other lessons that stand out that you learned from him? I mean there's so many. I mean he um

43:11 He's a special person. I mean he I mean the first thing that comes to mind is just his enthusiasm is love of the game, right? Like it's just infectious. He used to say there's nothing Uh more perishable than a great idea. He was always turning rocks, like the secret to a good idea is A lot of ideas, like always turning rocks. But then when he saw something he thought was really interesting, like it was just was all in. There was this dissonance. Right, where

43:34 he was incredibly Convicted, but at the same time he was always actively seeking the opposite side of the view. To your Darwin reference, like it's It's It's survival and adaptability, right? You wanna be looking for the things that don't conform. to the constructing he always liked to talk to folks that were younger.

43:53 Um And I think for a couple of reasons. One was Um It's it's less filtered, that it's closer to the source. Mm.

44:02 Um, and it's probably more contemporary in its view. You know, I was reading Earlier this year I was reading Uh It's a biography on Andy Grove and It talked about you rise to the level in the company that you're a manager, more senior engineer, like you you lose your connection to like the cutting edge engineering.

44:21 And so, you know, it was very clear part of their culture. It was non hierarchical, quite flat. They would interact directly and they were like, Why do you do this? And he was like, It's survival. Like it's I need to be close to the source. Of the people that know the problem the closest. And I and when I read that, I was like, wow, that's the same thing that Alan did. In a different way, a different industry, a different business, but it's the same concept. Never called it survival, but I know that that was underneath it of like

44:45 getting directly to Unfiltered. The best information. I had a friend who was the um chief of staff to a CEO of A a billion dollar company. before he assumed this role, he he sort of said

45:01 Yeah, I think By and large, and I'm I'm paraphrasing here, so these aren't his exact words, but like these guys make incredibly stupid decisions. Uh and I want to help. Change that. And then he got up there. And he's like actually they make really good decisions with the information they have.

45:17 They just have completely Terrible information. 'Cause it's been so filtered by the time it got up to the CEO's office. And so he started this thing where he just started calling The person.

45:29 that he could get in touch with closest to the problem to understand the problem and having briefs from that person and skipping like five layers or six layers of management. And he got in so much trouble for this I just think that's like a fascinating thing when you think about like how do we sift what's important from what's not and Some of the variables you mentioned are like getting closer to the information, getting unfiltered information. going direct to people who have experience. And if you think about this in the context of learning. I also think it's fascinating because I think of learning as a loop.

46:00 There's like you have an experience consider that like the twelve hand on a clock. You reflect on that experience, which is the three hand, you create a compression or abstraction. Which uh you can think of as the distillation. uh as the six, and then you have an action. So you have this loop that constantly feeds back into itself. Often what we're consuming

46:21 Is other people's Compressions. And when we do the book summary is a great great example of that, right? You're consuming somebody else's uh you don't know what's missing, you don't know how they formulated it. Often they don't have direct experience in the thing that they're even summarizing. And so they're not able to capture the essence of something. Their distillation works for them because they did the work on the raw end.

46:43 And you feel like it works for you as a person. But when you go to put it in practice, it doesn't work. The experience is like this thing that's, you know, like four gigabytes, right, of memory occupying in your brain. So your brain sort of like, we're gonna compress this into something much smaller. That's the reflection angle. You're sorting what matters from what doesn't. You're sort of like decompressing the emotions from things, you're determining What are the variables that govern the situation going forward? How do they interact across time? What are the models that sort of carry the weight here?

47:16 And then you come to this compression, but you can go back from that compression to the experience. Whereas somebody who consumes just that compression. can't go back to the experience and the way that I try to explain this to my kids As imperfect as this is, is they uh every Sunday we have this cookie recipe and I make them make cookies before they can have the wifi password. So I b I leave the recipe on the counter and

47:39 You know, when they follow the recipe, the cookies turn out Amazing. And when they don't follow it exactly, they have no idea what went wrong. Now the the chef or the baker who created that recipe would instantly be able to look at a photo probably or take a bite of the cookie. And they would know instantly what went wrong. Did they heat the butter too much? Did they not melt it enough? Did they compact the sugar too much? Was the oven running a little hot? And you know, even though it said three hundred and sixty degrees, was it three seventy five?

48:10 But the baker. They would know that. And you want to surround yourself when you're trying to acquire information with bakers, right? And you want to be the baker. But you can't be the baker in everything. So you have to pick your discipline going back to what game are you playing. Where am I gonna be a master and where can I borrow and just crib from other people?

48:29 'Cause by borrowing and cribbing the compressions, I'm gonna get to average. really quickly. I love that. I re um two thoughts on that. One is If they were Making the cookies and following the recipe.

48:41 If they wrote it down at each step what they were actually doing. That gives you something to look back like let's say the cookies didn't turn out well, right? It gives you something to look back at. Go and track and see kind of Um where they might have been off. And then the second part of that, just to the point of the um

49:00 having a blueprint and the importance of that is You start with the recipe and you do it, you know. Exactly. But then you adapt it and you're like, Well maybe if I put I really like walnuts or whatever.

49:10 Chocolate chips. I'm gonna put some chocolate chips in this. And then you try that and the first time you do it, it may not work that well. But I still really like chocolate chips. That's authentic to me. And so you adapt it a little bit and then in the end you end up with something that's uniquely you and really special. Totally.

49:27 And now I want cookies. Prime me for cookies. Yeah. Talk to me about the the will to win versus the will to practice. It's nice to have that goal, that aspiration. It's very different to have the will to practice.

49:40 To grind. To make the cookies every day. And to write it out. And then look back at yourself. And

49:48 Look at the stabs and measure yourself and showing up in that. And that's why I also tie it just to the the concept of it is the journey that gets you to that place. You know, one of the questions that I really love, I think about and I'm still kind of like evolving on is you know, music. Like if you're uh A concert pianist.

50:06 Even though you're one of the best musicians in the world. You practice your skills every day. For us as investors, like what's the equivalent of practicing skills every day? It's an interesting question. I mean, I think there's some parts of it that are Temperament related, like just Practicing deferred gratification. There's elements of it that are

50:23 You know. Um Thinking about the world probabilistically. Everything. Just

50:29 continuing to practice that every day or The uncertainty of a situation. But not taking that for granted and like really Practicing that day after day. Essentially inoculate yourself.

50:41 To to prepare yourself for that. It's interesting'cause as you were saying that, part of what popped in my head was If we go back and we look at The grids. in in sports,'cause that's an easy reference, but like

50:54 Uh, I talked to somebody who played with Tom Brady. And they basically said like practice was a game. And if you talk to somebody who played with MJ, it's like practice was a game. Like you you're not coasting and if you are it's calling you out and like Um, and Kobe was the same way where they treat the practice like they would treat a game with the same respect, the same effort, the same dedication, the same frustration if they don't make a play, they don't sort of like half ass it and expect to win. on game day when they don't do it in the practice. How do you instill that mindset in your kids, like where The will to practice, the will to

51:30 To grind to the consistency, the routine or ritual of it, and taking pleasure in that and not the outcome. I mean if I just draw my own example and I go back with my grandfather was just The example that he set. I think kinda just the first layer of that With my own kids it's just Them seeing me grind. Every day.

51:50 they make fun of me like, you know, I wanna do what you do. I wanna be an investor. You don't really have to do anything. You just sit around and read all the time. They don't necessarily see those difficult moments or, you know, getting up at four o'clock in the morning or I don't think you're gonna get a lot of sympathy from our audience. But it just It it's the it's the

52:11 setting the example is is is the first layer, I think. And the craftsmanship of it, no matter what you're doing, it from a janitor to Um you know, a soccer player to whatever. And then the second dimension I try to think more about with my kids is just trying to Help them get in the way of the things that they really love. I've three kids from age twenty one to twelve and They're they're they're so different, right? But for each one of them, like to help them get in the space of

52:36 It goes back like what can you be obsessed about? Doesn't matter what it is, but What is that for you? And be deliberate about it. Be intentional about it. The concept of deliberate practice of like Really having that That blueprint, grinding on it. Um, leaning into it, measuring yourself relative to it, like that's the thing.

52:55 What have you learned about time management? You know, as as investors, we we allocate capital. You could argue that's our most important job. You say that a lot of CEOs Ironically, the most important job is allocate capital. I think there's something on top of that.

53:09 Which is more important is how you allocate your time. People just don't think about it enough. And they fall into these patterns without really thinking about the most important question because you can get more capital

53:21 You can't get more time. And so just, you know, as an investor, one of the things that comes up a lot is Okay, we're gonna spend we're gonna go deep on this company. We're spend the next three months really grinding on it to understand it. But if we do that, for for three months, will we be in a better position to move the odds? on a better outcome.

53:40 That's the question. And there's some situations where Absolutely. You would be able to do that. Like Uh a big question is how they might adapt or modify their distribution networkers. But

53:52 You know, on the other side it might be something like like T SM C, the semiconductor company, one of the best companies in the world. The big question there is a geopolitical question. I could spend three months on that. And I'm not sure that that would move my probabilities in terms of making a better decision.

54:09 on that thing that is the big driver. Every time I'm making a decision about where I want to focus and where I want to spend my time is like Will doing that result in the highest return on time. As opposed to to capital and just being really rigorous with yourself and your team about that question, I think is something that is often overlooked or not really

54:28 Challenge to the agree that it should be. I like the notion of of time allocation as sort of capital allocation. Does that carry To your personal life as well. I can fall in the trap of like

54:40 Is this Useful. Right now. That's a horrible question to ask with your kids. Right. And so just to give yourself the space

54:49 for play to just be in that moment with them or whatever it may be. You know, on Fridays and Saturdays we have family dinners together. And It'll start Call it at six o'clock and

55:01 Everybody's got a role. And doing something and Everybody's in the kitchen and you're just mixing it up and Um you're just totally in that moment. The next thing you know, it's it's ten or ten thirty and like it's the end of dinner. Like that's been a four, four and a half hour journey and like just totally lost in the moment of it. No, th those are

55:20 Some of the times that I value the most. And there was nothing intentional in that except that you were gonna be in that In that space. Going back to T S M C for a second. I think one of Buffett's filters is is it knowable. And if the answer's no, he doesn't want to hear your opinion on it, uh, or your facts or anything. He just doesn't waste any time on it. I don't know if that's true, but I find that is a good filter. It's a great filter for like

55:45 when you're in an argument with somebody or you know, you're at a family dinner, big family reunion or Thanksgiving or something and you know, people are like arguing about very subjective things. If you just have this filter in your head, which is like, is this knowable? And if the answer is no, you just sort of say it, You're probably right, you might be right. uh and just move on, but it's just not worth sort of spending time on. I think it's a it's an area to keep reminding yourself and have a discipline. I was I was recently in Australia seeing a number of clients in a big topic. is the election, the US election in their mind, and obviously for us it's it's a big deal. But the best answer is like it's fifty it's kinda fifty fifty, you know, and

56:22 I'm not gonna position and tilt the portfolio. for a particular outcome. One, because I wouldn't be well served to do that, but two, to this point, like it's it's unknowable. And so I just want to be resilient as opposed to spend all this time obsessing on Is there gonna be a particular candidate that wins and position the portfolio in that way? Much better to just focus on it like from a position of resilience. Talk to me about that a little bit, because I think one of Buffett's earned secrets that most people don't recognize is that he's always in a position for success.

56:53 He's very rarely put himself in a situation where circumstances dictate any action that he takes. And the optionality and adaptability that that provides makes him look like a genius. Because he can always take advantage of whatever the world's offering him. And if you think about it now, it's like they have three hundred billion ish in cash. And it's like Well if the stock market crashes and the economy goes to shit. Who wins?

57:17 Buffett wins. And if it stays the same, who wins? Buffett wins. And if it like skyrockets who wins, Buffett wins like you know, he he's just set up this scenario where he's he's not predicting. He's positioning wrote a book on it. Through your eyes. Um

57:37 It I mean Positioning is uh is everything, right? In the sense of Um You can think about it in the portfolio of do you have the resilience to absorb what may come? You know, we have these situations where you wouldn't have anticipated it and then it can be quite devastating. If I go back to

57:56 Um I mentioned Symantec, but two thousand and eighteen like I Um Really one of the most difficult years of my professional life. So the Symantec hit.

58:07 Um About a month later it was in November and I'll I'll never forget because it was on my birthday, we had a position in a company called PG and E, which is a California utility. Uh the wildfires. Yeah. So we we went into it after they had had their wildfires thinking that legislation had passed, but there's this little loophole if anything happened before the end of the year. We were already through the main part of the heavy wildfire season.

58:29 Than another. Fire hit. We're in San Francisco. Um Literally in my office looking out to Marine County. And I see the flames and the smoke billowing and I'm I'm thinking that's my position billowing, that's my portfolio, you know, that's my investing track record. Like just kinda devastating and

58:46 You know I Yeah. I sized it. Uh a level that I could take an impairment. I thought it was lower probability than the actual probability, but

58:55 I wanted to try to position for that to weather it. And then A month later. The story I told you about XPO and the short report hit. So Three hits.

59:08 Pretty devastating. Of kinda going back to this journey that you're on of like knowing yourself. Think about game selection. Accelerating your learning feedback.

59:19 know that you're on this hero's journey and there's gonna be these setbacks. And I think one of the things that really was helpful for me was kind of inverting it and just thinking like this is part of it, like this is part of the struggle. Like you know you're gonna be in these moments and how you handle it. Part of it is the positioning going in, but part of it is also how you embrace it when you're in the moment. Right. So it's another form of positioning.

59:40 Right, it's sort of Do you have the balance sheet when you go into it? Things that are unexpected. But you also have the mindset. For how you embrace things like that when you're in the moment because you could sort of

59:51 Just suffer, woe is me. Or you could say okay. This is the hand that I have now. How am I gonna play that? If you embrace it in that way, I find that it puts you in a very different position. I didn't get there immediately. It took me a little bit while Little bit of a of of a time period to get there, but

1:00:06 Um I think that's less discussed, but it in Another element of positioning. I I really think that that's key, right? It's like you can't live a hundred years and not go through uh all of the things that life has to offer, from heartbreak to losing money in an investment. Yeah to and like how you respond and your approach to those things, it's usually not now, and the people who try to push it away.

1:00:30 Or why me, uh that causes sort of um you to start reacting versus reasoning your way through. It's like no. This is where I'm at. How do I deal with this? Which I think is a very helpful mindset, right? Which is I didn't I maybe not have created this, I might not have anticipated it. My contribution to this might be really low, but it doesn't change the fact that I'm here. And where do I go next and what do I do next? We talked about time allocation as sort of capital management. There's another parallel, I think, between business and life, which is personal life and sort of overhead. Talk to me about that. This is much less

1:01:05 Discussed. Squarely in your F positioning frame. Is You know, how you run your personal life.

1:01:16 Very much impacts your ability to make good decisions. Particularly if they go sideways, right? And so you see people in the industry who then, you know, adopt a certain lifestyle. A certain fixed cost base. And then Like you need the investment to work.

1:01:33 As opposed to Making You know, what you think are good risk adjusted decisions. And I think once you kind of cross over In two.

1:01:42 Needing to work. You've changed the dimensions of your Your temperament and your emotions. And once you do that put yourself in a bad position to make great decisions. And companies do that. I mean, that's something to be very mindful of. It's something to think about as a firm and investment teams. Like it's You're looking for a certain type of individual.

1:02:01 But you're trying to create a certain culture within the team, you're trying to have a certain relationship with your clients, like those are all part of enabling you to try to make the best decisions in the way that work for you. But if you break any one of those kind of components of the flywheel, if you will, like then You really got grit in the flywheel. And it could be dangerous, you know, in its worst case. Will you invest with attention seeking CEOs or like high life style CEOs. Generally not. I mean it's

1:02:28 Um It's It's a part of the mosaic of You know what? will be the driver. I mean it's an interesting thing with

1:02:36 Um With CEOs are like what are the characteristics that allow one to be in that seat? And they're not always correlated with The the skills that are best to allocate capital.

1:02:48 to make certain strategic decisions to um make decisions that are independent of what might be popular. Um talk to me about the role of focus. We don't have infinite time. Right. And so what you choose to Allocated to is

1:03:04 is really a critical decision. It's really underestimated how important that is. over and over and over again. And it's part of the journey, right? Because you're gonna be in the rabbit holes. But that's part of like seeing the algo improve over time. And It's an area that you can help, you know, as a coach, kinda give some feedback on that, but Just asking your question, like when you're spending the time to what we were just saying, like is this a question that I can answer?

1:03:27 Very simple, but like, you know, take a simple idea. Take it seriously. Are there particular lessons from Munger and Buffett that you try to remember every day that have made more of an impact for you? Take the simple idea. Take it seriously. And really lean into it. Focus on a few things. where you can really make a difference at place to you. But the discipline to actually do it, do it consistently, like really lean into it. I'm really a believer that the magic in the sauce is in the extremes and so

1:03:55 Like just keep like if you think it's worthwhile, like Push on it. really push on it, like really go deep in the company in terms of how you size positions when the ones that you really see. Like you see the The matrix clear, like just Take that and really lean into it.

1:04:09 So what would you say are like the three simple ideas that you take seriously? Alignment. You know, it was really an important one. Like give me an example. You profess to be a long term investor. And that's really part of you and you have the temperament to do it. But You need to manifest that in every way. So

1:04:28 That starts with the kind of people that you hire. When I'm hiring and interviewing people Everybody likes to say they're contrarian, but are you really contrarian? Like you let's talk through some examples when you've done something that's different to the crowd in a way that like had consequences and was difficult to do. Create an environment. It turns out if you hire people that are really independent minded. They like to be given a lot of space.

1:04:50 So you have to create an environment. That gives them the space to do that. And you have to create a culture in the way that you interact, the way that you talk. the way you structure your meetings that focus around independent thinking and taking a longer term time horizon. On the other side, it means that you

1:05:07 You need clients that are actually willing to absorb the volatility that might come from taking a long term position. that are not gonna be the first to redeem when You're out of sync with the market. And they don't just profess that, but that when they're in that situation, that's something that they actually do. By the way, maybe you put a fee structure around it. So we all of our fees are performance based.

1:05:28 But they're refundable. So when we go through these periods that were underperforming We refunding. fees back to them in the same ratio. And we do that because it tends to be, when you're in that period, a way to cushion for the client being in that period which elongates their time frame.

1:05:46 But that reinforces us to be in a position to take long term decisions. So it's one idea, simple idea, alignment and kinda having a long term But it permeates everything that you do. From type of people that you hire, the culture you have. to having paper portfolios that allow them to express themselves to the clients that you have, to the fee structures you have, like it's

1:06:07 It's everywhere. What's the next one? So alignment was number one. What's another one? First principle's thinking. And having an independent view.

1:06:17 Um Not filtering. I first met Alan, our founder. Um In the mid nineties, that very first meeting. Mm.

1:06:26 He said to me, he was like, You know, if you want to get a ten alpha. You gotta come at the problem completely differently. You gotta turn it on its head. When I was young. Um And I was very new in my besting journey and I don't think I fully appreciate it, but thirty years later, like I've I've I've internalized it and

1:06:43 Um Just kind of that first principle's independent thinking. And you know, really just trying to get to the truth of an answer and then being rigorous around pulling on the threads that are opposing to it and grinding on that to get to the the right answer and being okay, being different.

1:07:00 From everyone else is Like that's the same. Like if you're with the crowd and with everyone else, like You're gonna look just like everyone else. Just prioritizing first and foremost always, like what do I think is the right answer, regardless of kind of Whether or not somebody else says it. Yeah, the way I encapsulate that idea in my head often is through creating positive deviation or advantageous divergence. So it's not enough to diverge from the crowd.

1:07:25 If you want to create Uh results towards the tail. It's no fun being a contrarian just to be a contrarian. But a lot of people are, right? Like I mean, when I used to work at the three letter agency, there's a lot of people who are contrariant just to be contrarian. Okay, you're contrariant all the time and then people just start to dismiss you and and nobody listens to you. And then the odd time you're right, but you're you're no better than a lottery ticket at that point. You have to be thought about How you do it.

1:07:51 You do want to create advantageous diversions. From the crowd like that. I mean it's it's just truth. Like what is the real truth here? Uh, we always end with the same question, which is what is success for you? What's interesting to me about this question is how it's changed for me over time. When I was in high school, if you would have asked me that, I would have said

1:08:09 It's just to get out. You know, and I was in my twenties. It was it was a number. And then as I got into my thirties, it was more about certain career aspirations and relationships, you know, my wife, my kids. But today Um I get a lot of meaning in

1:08:24 Using kind of my Um Strengths and and skills to help other people. I can't.

1:08:33 I call it being dream builder. That's in my firm, but it's outside of the firm too and Success to me is like having something that's meaningful to you that you're really going after and Helping other people I know what it feels like to be in that position where you won't You You don't know how to do it.

1:08:49 But it's a it's it's in you. It's a it's a hunger that you have. And when I see that in others and I'm able to help them do that, like there's just tremendous Satisfaction enough for me, like that success. Um Thanks for listening and learning with us for a complete list of episodes, show notes, and

1:09:12 transcripts and more go to fs dot blog slash podcast or just Google the Knowledge Project. Recently I've started to record my reflections and thoughts about the interview after the interview. I sit down, highlight the key moments that stood out for me, and I also talk about Other connections to episodes, and sort of what's got me pondering that I maybe haven't quite figured out. This is available to supporting members of The Knowledge Project. You can go to FS dot blog.

1:09:41 Slash membership. Check out the show notes for a link and you can sign up today. And my reflections will just be available in your private podcast feed. You'll also skip all the ads at the front of the episode. The Fernham Street blog is also where you can learn more about my new book, Clear Thinking. turning ordinary moments into extraordinary results.

1:10:01 It's a transformative guide that hands you the tools to master your fate. Sharpen your decision making. And set yourself up for unparalleled success. Lear more at fs dot blog slash clear. Until next time.

What you see above is a preview of the first minutes. One unlock costs 10 credits and covers this episode forever: full segment and word-level timestamps on this page, plus .txt, .srt, .vtt and word-level JSON downloads, as many times as you like.