Invest Like the Best with Patrick O'Shaughnessy
· Patrick O'Shaughnessy, Gavin Baker
[00:00:00] S0: I didn't know that. [00:00:00] S1: I climbed. I did all my homework at the gym. I got to the rock climbing gym at 7:00 AM, would skip a lot of classes to stay in the gym. I'd do my homework on a big bouldering mat. Every weekend I went and climbed somewhere with the Dartmouth Mountaineering Club. It was super important to me. I'm not a good athlete, so I was never a very good climber, but I did dedicate myself entirely to rock climbing. And as part of that, on climbing trips, the movie Rounders came out while I was in college, so we started playing poker. I like to play chess. I was never that good at chess or poker, never really dedicated myself to either. And my plan after two or three years of college was I was going to leave. I was a ski bum at Alta in college. I was a housekeeper. I've cleaned a lot of toilets. It was shocking to me how people treated me and it has permanently impacted how I treat other people. You'd be cleaning somebody's room and they'd be in it and they'd be reading the same book as you, and you'd say, "Oh, wow, that's a great book. I'm about where you are." And A, they'd look at you like you were a space alien like, "You speak?" [00:00:00] S0: It speaks.
· Patrick O'Shaughnessy, Gavin Baker
[00:00:00] S0: It speaks. [00:00:00] S1: And then they get even more shocked, "You read?" So it had a big impact on how I've just treated everyone since then. Being nice is free. But anyways, I was going to be a ski bum in the winters. I was going to work on a river in the summers, and that was how I was going to support myself. And then I was going to climb in the shoulder seasons. I was going to try and be a wildlife photographer and write the next great American novel. [00:00:00] S0: Wow. I can't believe I never knew this. [00:00:00] S1: That was my plan. This was my plan of record. I was really lucky. My parents were very supportive of everything I wanted to do. My parents had very strict parents. So of course, they were extremely permissive with me. So I'll probably end up being a strict parent, the cycle continues. [00:00:00] S0: The cycle continues.
· Gavin Baker
[00:00:00] S1: And my parents were lawyers. They'd done reasonably well. They both grew up in, I would say, very economically disadvantaged circumstances. My dad talks about he remembers every person who bought him a beer. He couldn't afford a beer. He worked the whole way through college. He was there on a scholarship. He had one pair of shoes all through high school. And so they were super on board with this plan and I'd been very lucky. They sent me to college and I didn't have to pay for college. So they said, "Gavin, we think this plan of being a ski bum, river rafting guide, wildlife photographer, climbing the shoulder seasons, trying to write a novel, we think it sounds like a great plan, but we've never asked you for anything. We haven't encouraged you to study anything. We've supported you in everything you've wanted to do. Will you please get one professional internship? Just one. And we don't care what it is." The only internship I could get, this was at the end of my sophomore summer at Dartmouth, was an internship with Donaldson, Lufkin & Jenrette, DLJ. Every time DLJ published a research report, it was in the private wealth management division. And I worked for the guy who ran the office. And my job was whenever they produced a piece of research, I would go through and look at which of his clients owned that stock, then I would mail it to the clients. So this day we wrote on General Electric. So I need to mail the GE report to these 30 people, mail the Cisco report to these 20 people. And then I started reading the reports. And I was like, "Oh, my God, this is the most interesting thing imaginable." So investing, I conceptualized it. It's a game of skill and chance, like poker. There's obviously chance in investing. If you're an investor in a company and a meteor hits their headquarters, that's bad luck, but you own that outcome. So there is chance that is irreducible, but there's skill too. So that really appealed to me. And the way you got an edge in this greatest game of skill and chance imaginable was you had the most thorough knowledge possible of history. And you intersected that with the most accurate understanding of current events in the world to form a differential opinion on what was going to happen next in this game of skill and chance. Which stock is mispriced in the pari-mutuel system that is the stock market?
· Gavin Baker
And that was day three. I went to the bookstore and I bought the books that they had, which were Peter Lynch's books. I read those books in two days. I'm a very fast reader. Then I read all these books about Warren Buffett. Then I read Market Wizards. Then I read Warren Buffett's letters to his shareholders. This is during my internship. Then I read Warren Buffett's letters to his shareholders again. Then I taught myself accounting. There's this great book, Why Stocks Go Up and Down. Then I went back to school. I changed my majors from English and history to history and economics. And I never looked back. And it consumed. I continued to really focus on climbing, but I would be in the gym and I would print out everything that the people on The Motley Fool wrote. They had these fools. They were early to talking about return on invested capital. Incremental ROIC is a really important indicator. And I would just read it and I would underline it and I'd read books and then I'd read the Wall Street Journal. And then eventually there was a computer terminal finally set up near the gym, and I'd go to that gym and just read news about stocks. And it was the most important thing in my life. And I barely kept my grades up. And yeah, that's how I got into it. History, current events, skill and chance. And I am a competitive person and I've actually never been good at anything else. I got picked last for every sports team. I love to ski. I've literally spent a small fortune on private skiing lessons. I'm not that good of a skier. I like to play ping pong. All my friends could beat me. I tried to get really good at chess, and this was before, when you actually had to play the games. And my goal was to beat one of the people. I'm sure there's a park somewhere.
· Patrick O'Shaughnessy, Gavin Baker
[00:00:00] S0: It's literally right there. [00:00:00] S1: Oh, just right there. [00:00:00] S0: The most famous one is right there. [00:00:00] S1: Okay. Well, there's one in Cambridge and I wanted to beat one of them. Never beat one of them. I've never been good at anything. I thought I would be good at this. And the idea of being good at something other than taking a test that was competitive was very appealing to me. And so I think that's been a really important thing too. And to this day, this is the only thing I'm good at. I'd love to be good at something else. I'm just not. [00:00:00] S0: I think I'm going to start asking this question of everybody, the ongoing education of Pierce and Maeve. Amazing place to close. I love talking about everything. [00:00:00] S1: Thank you. [00:00:00] S0: Thank you so much for your time. [00:00:00] S1: This was great, man. Thank you, thank you, thank you.