Invest Like the Best with Patrick O'Shaughnessy
01:01:12 · Jeremy Giffon, Patrick O'Shaughnessy
[01:01:12] S2: There is this funny notion that it's sort of specific to the labs but it's a broader thing as well I suppose. We're sort of recreating the feudal system from first principles where there are the Lords, Elon, Zuckerberg, Dario, Sam, they can sort of make landed gentry by giving out allocations because these allocations are sort of these best example of generational wealth. You get this allocation in SpaceX or in Waymo or whatever, you get to charge huge fees on it and it's sort of this like wholly synthetic product which is someone gives you a sort of arbitrary number, they know you don't have the money so they know you're gonna go fill it and then you get to go out and basically say I've been given a deed, the king has given me 500 acres in this country and Elon has given me a $100,000,000 to allocate in SpaceX and you get to go out and charge fees and make a bunch of money from it. Do you have allocation? And I guess I'm interested in it because it's sort of this purely relational wholly synthetic thing that I'm not sure has ever existed before, certainly not at the scale and magnitude, you can go due to your relationship, basically get this like landed estate and then take it to a sovereign or a foundation and they will pay you for that access, like a pure paid for access. But maybe where it's different is that's just brokering, but the difference is obviously that brokering is sort of like a one time transaction but these allocations sort of, you know, they live on forever. [01:02:31] S0: What's the most egregious fee setup you've seen in one of these?
01:02:31 · Patrick O'Shaughnessy, Jeremy Giffon
[01:02:31] S0: What's the most egregious fee setup you've seen in one of these? [01:02:34] S2: No GP commit, ten percent one time upfront fee with some carry structure generally, where you're just demanding basically that you get paid life changing amounts of money with zero risk and then you also get a huge amount of upside. The other thing is I've seen a few that don't have a term limit. I know there was like famously some a lot of SpaceX ones. I think people were doing that ten years ago. I know there's certainly some that just collect the fee forever. To Capital's credit, you're very happy to be paying that 2% on the SpaceX thing that you did fifteen years ago. So it's sort of a win win. It's not to say these are all bad, it's just it's sort of funny because it's not investing, it's not strictly brokering, it's this very different thing that is like a wholly insider access game. And then of course, there's all the fraud and bad behavior that I think comes with all the bubble and stuff. [01:03:22] S0: How do you think about your own productivity, for lack of a better word? We talked before about how content is really just entertainment, not learning. We shouldn't kid ourselves about that. Therefore, it is largely unproductive, which is fine. It's entertainment. How do you think about, to the extent you care about yourself personally being a lot more productive with all this insane tool?
01:03:47 · Jeremy Giffon
[01:03:47] S2: I certainly care about productivity. For me, by far the most generative thing is conversations, which I guess are downstream of relationships. Part of the reason my book reading has gone down is I'm friends with a lot of people that read a lot of books. If I can only keep one thing, it would be conversations with people that I find interesting. But I also think like I'm uniquely tolerant of distasteful and weird people. I get asked for a minute like what's your media diet and conversations are my answer and it always feels like the answer falls flat with people. And I think it's because they're not friends with like weirdos. A lot of my friends I think are sort of people would largely find strange at best, distasteful at worst. If I can't predict what the person's gonna say after knowing them for a while, I like them a lot and that's a very high variance thing. Old books are good. I think YouTube remains underrated. There's a lot of really obscure things on YouTube that I really enjoy listening to. YouTube sort of remains the library of Alexandria of our time maybe of ever. But yeah, YouTube doesn't feel generative. I think the only thing that's generative is conversations so far in early twenty twenty six. I would say chatbots can lull you into feeling generative, but if I actually look at like the actions that I've taken, you can feel really productive after like a good two hour session on a chatbot, but I actually don't think they're that generative.
01:05:11 · Patrick O'Shaughnessy
[01:05:11] S0: If you think about great investing ideas, what is the right balance between simplicity and complexity? Both in the ones that you've done yourself but also studied.
01:05:22 · Jeremy Giffon
[01:05:22] S2: I really do think people value complexity for the sake of complexity a lot. I think a lot of investors are in the like feel clever, look smart game more than the money game. Personally I think this has been a big area of self development for me which is the clever thing is not always the thing that makes money obviously. You either have to say I am looking for investment ideas that are so complex that no one is gonna do them or it should actually be quite simple. I'm a bigger and bigger believer in the simplicity which is you probably want to be long Elon Musk. That level of idea, I actually think the gift is being able to sell that idea and maybe even dress up this. I think a lot of the investing media actually serves for the people who are really good to dress up those ideas in a way that makes them feel differentiated and smart enough to what is actually sort of long Elon or long Bitcoin. I think of a guy that I know who exclusively does bankruptcies. He makes a lot of money. That's very complex and very difficult, but it's a tremendous amount of work. It's grimy. It's difficult. There's a lot of risk and personal stuff and that to me is like an example of getting paid for complexity. Whereas a good example of simplicity is you should just buy big companies when they're at their two hundred week moving average. I love that idea because it's just so simple but it's right. One story that I absolutely love cutting through the mess and getting to like complete clarity on how to evaluate an investment is from Richard Rainwater which is there's these stories about him that you would basically come into his office with a yellow legal pad and you would write out your thesis on one page and then you would tell them what percentage of your net worth you're gonna put in the deal and based on your one page thesis and the percentage of net worth that was gonna put in he would say yes or no and I think that's genius. People don't do that because that's really hard. It makes things way harder. First of all, it's hard to write a compelling thesis in a page, much easier to do it in a 400 page slide deck. And second of all, no one wants to say well I'm only putting 3% of my net worth in this. To me that's one of the most simple, clear examples of really cutting to is this a good investment or not that I've ever heard.
01:07:36 · Patrick O'Shaughnessy
[01:07:36] S0: One of the I think natural points of leverage now is the ability to hire extraordinarily well, which means two things, attract an amazing differentiated talent pool and then select from that group effectively. That's something that you thought a ton about in building your business and it seems like a skill that if you got good at it would be unbelievably valuable in this era specifically, where the returns to like outlier talent seem to be going up and up and up. What did you learn about the two stages of that process? I'm especially interested in attracting a unique pool of talent in the first place.