Invest Like the Best with Patrick O'Shaughnessy
00:47:28 · Vlad Barbalat
[00:47:28] S2: How does that filter through to your investing? And of course, get very tactical here. You think about software or things like that, but I'm also curious just more holistically, what are the conversations like inside of Liberty about this topic? I'm sure like everyone you're wondering what to do. What's super different about this technology than other versions of how this came about is it requires people to engage with it, get into a relationship with it, have agency. It's not a software package that the technology department's gonna install on your desktop, and then you're gonna put your workflow through. That's not what it is. It's a absolute superpower that's given to you to get the thoughts out of your brain, and have the superhuman assistant that is able to rationalize your thoughts, present them in a coherent way, interact with you. By the way, it makes you sharper if you go back and forth and jostle with it, and really become an editor, as opposed to just taking that first output that it gives you and saying, oh, good enough. Because that's where slop tends to live. If you just ask for something and you get it back, it will give you generalities, and it will drive everything to kind of an average. Right? That's what these models are. So in order to get the best out of them, you need to engage with your knowledge, your experience, your ideas and creativity. It is amazing what you get back. And so I think in the investing sphere, creativity is such an incredibly important part. The ability to take an obscure or well organized set of data and find insights that are not easily observed from it, that's the art of investing. And now you can iterate on that in such powerful ways. I find myself using AI every single day, more and more so, and frankly it raises other questions for me. The more I spend of my day with AI, I'm actually not spending it with my colleagues. I begin to worry about that now. How much are you taking from those messy relationships that are human relationships and messy ways of getting information into the super interesting, smart, and efficient way of interacting with artificial intelligence? I don't know how that part is gonna play out because it almost is if you take it again to the max, it's isolating.
00:49:51 · Patrick O'Shaughnessy
[00:49:51] S0: Your finance team isn't losing money on big mistakes. It's leaking through a thousand tiny decisions nobody's watching. Ramp puts guardrails on spending before it happens. Real time limits, automatic rules, zero firefighting. Try it at ramp.com/invest. As your business grows, Vanta scales with you, automating compliance and giving you a single source of truth for security and risk. Learn more at vanta.com/invest. Every investment firm is unique and generic AI doesn't understand your process. Rogo does. It's an AI platform built specifically for Wall Street, connected to your data, understanding your process, and producing real outputs. Check them out at rogo.ai/invest. The best AI and software companies from OpenAI to cursor to perplexity use WorkOS to become enterprise ready overnight, not in months. Visit workos.com to skip the unglamorous infrastructure work and focus on your product. Ridgeline is redefining asset management technology as a true partner, not just a software vendor. They've helped firms five x in scale, enabling faster growth, smarter operations, and a competitive edge. Visit ridgelineapps.com to see what they can unlock for your firm. What are the biggest debates if I think about the team that you've built, you plus the heads of the various parts of the organization, what are you guys debating and discussing most right now in this combined interesting environment, geopolitics, AI, everything else that's going on?
00:51:17 · Vlad Barbalat
[00:51:17] S2: One of the newer ones that is really interesting is this notion of how do you think about valuations across not just software, software I think has been the most talked about one. How do you think about valuation of businesses in a world where the future is increasingly invisible? It was perhaps always invisible, but you could get comfortable that certain things had a lot more staying power through thick and thin than not. And whenever you have that dynamic, you could put a higher multiple on things, and that's how you rationalize paying a price for an asset. I think today, you kinda gotta ask, well, do I really really know which businesses will thrive ten years from now or fifteen years from now? I think that's really difficult, and that could be everything from Yes Software, but maybe perhaps even Home Depot or John Deere, things that are not obvious in the AI crossfire. So that leads you to a question of should multiples be actually lower across the board. And I don't think I've experienced a question like that in my career, where you question multiples based on macroeconomic variables like, oh, inflation's higher, rates are higher, therefore multiple should come down, or some version of. This is very different. You're literally saying the future is so unpredictable that how can I possibly place some higher multiple on something? So that is a really fascinating question because it comes against the backdrop of possibly very favorable macro, which historically would have just had higher multiples. It can come against the backdrop of an expanding economy. Another way to put it is, you will likely have trillion dollar companies in 2030 that currently don't exist, and you probably have trillion dollar companies or many $100,000,000,000 companies that will not exist. We're starting to see that. We're starting to see therefore more volatility. So that's the next extension of that is there's a multiple question. Now you also have potentially structurally higher volatility. You combine that with some of the tactical stuff like perhaps the SEC will not require quarterly earnings. And so you can make an argument that volatility is just gonna be structurally higher going forward. The other part of that is everything I've talked about for now is through the equity lens. In the credit space, same concepts apply.
00:53:30 · Vlad Barbalat
Am I worried about four year paper in most of the software names? Probably not. I mean, they're contracted out. This is not a four year issue. That paper should be money good. Would I be worried about holding thirty year credit on Salesforce or Oracle or any of these things? I just think that it's a much much riskier proposition, and so it would feel like that should drive steepness in credit curves. If that's a structural shift that takes place, that will change capital market behavior. I go back to the fact that I have not experienced a framework or a time in my career, and I can't really go back through history and identify something similar where it's not really the macro conditions per se, although you can maybe call this macro, that are driving potential repricing of equities, and long duration credit, and volatility, all because it's just uncertain as to how this technology will evolve and change the fabric of the economy. You've had things that changed the fabric of the economy, but it would be slow burn. It would not be something that you need to think about today. Things like Salesforce, this is a company that is embedded in the vast majority of large companies in The United States and globally. The first question was, are people just gonna vibe code their own CRM? No, of course not. I sit in a large enterprise, that's absurd. That's not the question. The question is, is the company, that trillion dollar company I mentioned before, that isn't even around today, that's still an idea somewhere, will they ever use Salesforce as part of their ecosystem? And if the answer is no, that should absolutely be a massive headwind to the valuation of Salesforce, even though every Fortune 500 company may use Salesforce into perpetuity. You know, it's a different business, it's a cash cow business, deserves a different multiple. And that's what I think the markets are wrestling with in the public sphere, which has its own cascading effects into the private sphere.
00:55:23 · Patrick O'Shaughnessy
[00:55:23] S0: Yeah. Was gonna ask that specific question. If we've got this rise and fall, a new mag seven is emerging or something like this, the question of public versus private seems really important. This is an important question no matter what. There's the three or four biggest companies in private markets, if they go public this year or next year, will be three of the 10 biggest companies in public markets. That's never happened before. What is this debate like internally of how you should allocate to the public part of the market versus privates, especially interested in
00:55:50 · Vlad Barbalat
[00:55:50] S2: the equity piece? So public markets are substantially more difficult to hold than private markets. Many parallels to this. You don't think about the value of your house every day, even though it changes arguably every day, but if you own a public REIT, real estate, you'll probably look at it every day and have some kind of feelings from it. But fundamentally, equity exposure is equity exposure. So we don't think about moving between the two based on this dynamic. It comes back to what do we own in private markets, and I think the more significant reason private markets have evolved the way they have in the past decade is, you went public historically for very specific reasons. You needed to raise a certain amount of capital that was simply unavailable in private markets. They were just not robust enough, and if you wanted to grow your business, you would have to go to the public markets. There was a clear element of prestige with going public. So that was a milestone in a company's history to go public, that was a thing. And the trade offs would be you give up a significant amount of control, the ability to make decisions for longer horizons and sit through difficult moments because public markets punish you, shareholders react, boards react. Private markets have more or less addressed those challenges. You can now raise gigantic amounts of capital, so the capital need has been solved. The prestige and milestone thing, that's kind of gotten diluted. These companies have grown so large, we all know what they are. And now the cost of being public is actually quite high, whether that is a literal cost of the amount of compliance required, to people being really careful about saying, do I want the kind of pressures that are naturally present in public markets in in the way I'm gonna run my company. And what is it that my company does? Can I operate on a more of a quarter to quarter or maybe year to year basis? Or is my business really going to suffer if I have to operate that way? I really need that three to five year window which public markets very rarely give. That's what's driven the growth of private markets and some of those things may mean revert, so maybe regulatory burden reverts, that's at least fixable. But the main reason of capital being available to you as a private company, I think that stays and so this balance will persist.