Invest Like the Best with Patrick O'Shaughnessy
· Patrick O'Shaughnessy, Martín Escobari
[00:00:00] S0: Commentating, yeah. [00:00:00] S1: Yeah, maybe not so fun, until you reimagine the game and you live vicariously through the people you're training and you enjoy their wins almost as much as you enjoyed your wins. That's been the mental flip that I had to do to enjoy this face because of course scoring goals is better than coaching, unless you make the mental shift that live vicariously through them. The hard thing, and that's why there's not that many venture and growth equity investors over the age of 50, it's not just that we call in rich or we get tired or we develop new interest. I think our brain ages and stops being plastic. One of the great learnings from beautiful mind, Dave Hodgson, whose age beautifully is in his late 60s and is very sharp and very much on top of the new trends, he defies the convention. And I said, "What is the secret?" And he said, "Three things. The most important one is I refuse to think like an old man. My mind still plays. I still wonder. I'm still in awe and I don't fall into the trap of thinking I have the answer to everything. I'm always learning, experimenting, and play." And that's the hardest part because we have this illusion as we get older that there's no room for play. There's no room for play, there's always room for play. [00:00:00] S0: How do you inject that into your life?
· Patrick O'Shaughnessy, Martín Escobari
[00:00:00] S0: How do you inject that into your life? [00:00:00] S1: You just don't take yourself too seriously. I'm always laughing about everything, making fun of everything. Even when confronted with worst, perfect storm where something happens, I start laughing and I say, "What are the odds so many bad things could happen all at once." This has never happened before. Seven things at the same time, let's work through it. That attitude I think makes life full up. [00:00:00] S0: What do you make of this current bubble that we're inside, outside, depending on the person? You mentioned humanoids, you mentioned bio a little bit. There's all this exciting stuff happening, probably all of which in the long run will be amazing for people, be a lot of consumer surplus in all this. You want to make money through this process for yourself and your partners. How does it feel to you?
· Martín Escobari, Patrick O'Shaughnessy
[00:00:00] S1: This is more meaningful, because it will touch a higher percentage of GDP. The internet was the other very meaningful one, but it changed how we interact with each other. This will change much more than that. An ambiguous recommendation. If you're in your 20s or early 30s, go work at AI because you're going to live through dog years. Meaning, we're talking about.com, seven years of activity in one year, and regardless of whether the company does well or you make money, you're going to have compressed learning. That only happens once every 20 years. So, don't miss that opportunity. And when I say that age group, I mean that mental age group, you could be in your 50s and be in that mentor after. Would you ready to take risks? Just go do it. If you have a young mind today, go work in AI because it's going to be so much fun. I think investing is risky. Our approach, which may prove to be too conservative was to take it slow, because it's not clear yet where the value is going to be created. It's not clear yet how much more powerful the large language models are versus others that are more efficient, or how much of the value will be captured by the models versus the applications. So, it's exciting to watch. I know we're going to have a moment where we're all going to wake up and say we've invested too much. I don't know if it's three years away or 18 months. [00:00:00] S0: It already happened, yeah. [00:00:00] S1: I don't think it's happened. For sure, it hasn't happened yet.
· Martín Escobari, Patrick O'Shaughnessy
[00:00:00] S1: I don't think it's happened. For sure, it hasn't happened yet. [00:00:00] S0: You don't think so? You don't think there's a chance that we're in that moment already? [00:00:00] S1: No. [00:00:00] S0: Why not? [00:00:00] S1: It's not crazy enough. I was looking at some stats comparing the AI wave, let's not call it a bubble, wave to the dot-com and to the railroads and it's looking at the ratio of CapEx to revenue and what percent of GDP was involved in this and how was this CapEx funded? CapEx to revenue is still not crazy. New revenue streams are managing and the biggest difference relative to railroads and dot-com is the funds are coming from really rich companies. The magnificent six who are printing money out of their dominant positions are reinvesting a lot of this money into the CapEx that's powering all this innovation. So, it's very healthy. It's not junk bond speculators, or thin margin telecom companies that are levering up the wazoo with retail money to fund this wave of innovation. It's really profitable companies. So, I think it's got more legs. Will it be bumpy? Yes, but the thing about predicting the future is it's really hard. Slaying the past is a lot easier. [00:00:00] S0: So, what do you think happens from here in markets? Predicting the future is impossible, but fun.
· Patrick O'Shaughnessy, Martín Escobari
[00:00:00] S0: So, what do you think happens from here in markets? Predicting the future is impossible, but fun. [00:00:00] S1: I do think the IPO markets are opening up. The corporate M&A market is opening up emerging markets, which were dead for the last four years on lighting up. So, barring a black swan or an orange swan event or some other geopolitical surprise, I do think the next 18 months will be constructive and that's a much needed shot of liquidity for our industry. And I'm a little more attention to the rest of the world. I'm generally optimistic. I do worry a little bit about the fiscal situation in the US. As the reserve currency of the world, that you have so much time and so much permission to make mistakes. I think the real issue that we face that I think a lot about, I think politically globally, we're screwed because neoliberal and centrist ideology can't get elected. We missed the main concept that prosperity needed to be shared for it to be electable. So, now we're not just in the US, but across the globe, forced to choose between nationalist leaders who are like we against the world or socialists, which is, "Oh, we're all together and we're going to share and take away from the rich to give to the poor." Both are very suboptimal and we need to find ways to create a center position that's neither socialist nor nationalist, but is one of shared prosperity. I worry that there are not that many people that are focused on that or investing in that, but the world needs that, not just the US. We did it in Brazil, we did it in Mexico, we need it across Europe.
· Patrick O'Shaughnessy, Martín Escobari
[00:00:00] S0: I'm always interested in this difference between risk, which I think of as sometimes quantifiable or imaginable and pure uncertainty. We literally just don't know what's going to happen. And if you think about where you've made money, how much do you think came from the willingness to embrace uncertainty versus taking really calculated risks? [00:00:00] S1: You never invest a lot of money without visibility of what you're doing. There is fog and different layers of fog, and what the fog does is it slows you down. But if you look pierced through, you see clarity. You see a monopolist at six times EBITDA. It's not a shot in the dark and hope for the best. What you can't do is just shut down and say, "This is too rush, too unpredictable." You shut down and say this is too rush, too unpredictable. You just have to engage with the unpredictability until you see something before others, and you strike for the fish. [00:00:00] S0: In an era like this when it's all changing so fast and understanding the core technologies is important, how do you personally learn? What is your preferred method to stay abreast of what is going on and stay in touch with reality? [00:00:00] S1: Talk to young people, surf TikTok, try different apps, try crazy things. Go to places where there are no old people. And you don't care, I don't care if someone calls me old, I'm just playing. Keep it fresh. Value is in the new, being the new always. Even if it turns out to be a dead end, most of what we do is dead ends, but it doesn't mean it was invaluable to try it. That's the hardest thing.