Invest Like the Best with Patrick O'Shaughnessy
00:52:18 · Patrick O'Shaughnessy, Dan Loeb
[00:52:18] S0: It's like the best venture investor [00:52:19] S2: of this Cursor, Anthropic, Solano, everything he did, I mean, the guy had a great nose for value. So that was probably the toughest. The mistake that we made within the last two years, we obviously were looking for and we've taken some great shorts and things that are being disrupted by AI. But where we've made the mistake is thinking that companies that were controversial, but we thought we knew better, that AI wasn't really going to affect this part of the info services business, or these guys had proprietary information. That's where we've made some mistakes. There probably will be a shakeout there where there will be some phoenixes that rise from the ashes, but that's been the investment lesson of the last year or so. [00:53:06] S0: How do you guide your team through this? You've got a bunch of extremely smart, ambitious, I'm sure hungry analysts, investors, etc. What do you tell them going into this crazy uncertainty?
00:53:06 · Patrick O'Shaughnessy, Dan Loeb
[00:53:06] S0: How do you guide your team through this? You've got a bunch of extremely smart, ambitious, I'm sure hungry analysts, investors, etc. What do you tell them going into this crazy uncertainty? [00:53:18] S2: First of all, we all have to just start using it. The only way to get good is this is just to use it. And we have people at different levels. We have some experts that we have brought on that are native computer scientists that are coming at this as expert AI people who are working on specific projects, they're coaching the team, but we're also encouraging everyone to use AI. We do hire system integrators. We have a system integrator working with us. But I'm obsessive about continual improvement, both the individual level and organizationally. The Claude really enables you to be an individual self improver. It makes you very autonomous. It'll give you back whatever you put into it. You put a lot of time and energy and effort into it. So I'm encouraging everyone to do that. And I think collectively, we're all sharing best practices and some people are running agents overnight and using tons and tons of tokens. Other people are probably more like me just using it more for queries and things, but we're all very involved with it. [00:54:28] S0: Where do you feel like you're in the firm's view is the most different from your peers these days? You're close with lots of the great investors of this era that run firms like this one. Everyone's trying to do the best they can. Where do you feel the most out by yourself or distinctive in how you view the world?
00:54:28 · Patrick O'Shaughnessy, Dan Loeb
[00:54:28] S0: Where do you feel like you're in the firm's view is the most different from your peers these days? You're close with lots of the great investors of this era that run firms like this one. Everyone's trying to do the best they can. Where do you feel the most out by yourself or distinctive in how you view the world? [00:54:45] S2: I think we're maybe less pessimistic that there's going to be some kind of apocalypse from AI. I'm still pretty optimistic that it will create opportunities and create jobs and create net jobs. Obviously, it'll lose in some places, gain in other places. The differentiator for us is that we can always default into credit investing. We haven't been in a scenario where we had like a real credit cycle, but I'm very comfortable investing in incredibly stressed times. We really haven't had any since 2020. So going back to like COVID, the thing that we got really right, because we had a good year that year, but it wasn't because we piled into stocks, piled into IG credit. Answering the question a little bit differently, having that credit arsenal in our back pocket. [00:55:32] S0: Why do you suppose more places don't do that? It seems like it would be an obvious thing to provide an advantage, have more options for expressing a view.
00:55:32 · Patrick O'Shaughnessy, Dan Loeb
[00:55:32] S0: Why do you suppose more places don't do that? It seems like it would be an obvious thing to provide an advantage, have more options for expressing a view. [00:55:40] S2: It's so different. I grew up in credit, I worked on a trading desk, you don't just electronically trade bonds, you have to have relationships with these firms. Part of the reason for expanding into the CLO business is that we had the high yield market, trillion and a half dollar market, pretty well wired. We were sort of dabbling in the broadly syndicated loan market, is another trillion and a half dollars, But we also have eyes on a $6,000,000,000,000 structured credit market. But these are not markets that lend themselves to tourism. When the opportunities really come up, we're already there with the relationships and the understanding the companies. [00:56:21] S0: What makes a great analyst today in any way that's distinctive from what made a great analyst twenty years ago?
00:56:28 · Dan Loeb
[00:56:28] S2: The great analyst twenty years ago was like someone that could build a model really fast and understand some really complicated restructuring. Like when I was, I'll use myself as the example of that ancient dinosaur of an analyst that used to be useful. When I was at Jefferies, Drexel went bankrupt And there was a thick disclosure statement about three or four inches thick on this bankruptcy of a company called Drexel Burnham. And this thing got passed around and nobody could crack the code on this thing. And I was relatively new. And I knew I had to differentiate myself. So I just spent like a whole weekend studying this thing. And ultimately, that was one of the best investments ever in the history of bankruptcies was the claims on Drexel, because people didn't understand the complexity of the different value pools and liquidations, and the claims were overstated, the assets were understated, but it was super complicated. And that was the kind of thing that differentiated the analysts of the nineties when I did that. I think now it's somebody who's like a Gavin Baker type, a junior Gavin Baker, somebody who understands a company or understands an industry and understands the nuances of a technology. Let's get away from technology for a minute. Casey's General Stores. Why was this one of the best performing stocks? It looked like a tech stock. It was because they were not a convenience store chain, were a pizza chain masquerading as convenience stores. I had an analyst who went to Texas and ate pizza and that kind of an analyst today, I think is what is different.
00:58:10 · Patrick O'Shaughnessy
[00:58:10] S0: If you think about the next ten years for yourself and everything going on in markets, I feel like we're all lucky to be alive to watch this era. What excites you the most about this next ten year period as an investor? And you're lucky you have all these resources and you can invest in anything and credit, equity, whatever. And then what worries you the most?