Invest Like the Best with Patrick O'Shaughnessy
· Henry Ellenbogen
And then what doesn't work, well, a company that doesn't earn financial returns and is showing no progress. And the other one that doesn't work, which we don't do a lot of was go buy a low quality return business at a high price but leverage really cheap debt. So I felt strongly, because we had seen cycles before and because we truly had expertise, and also because we're really, to companies that we invest, in a long-term partner. We wanna invest in companies that are private and still own them when they're public, we want to help them with that transition. I thought we had expertise and a perspective that many people had not gone in before. And so to reference what this meant was we had these conversations with a number of our companies that were in this situation. And so we had some version of this conversation with Aman at Toast, with Luis at Duolingo, with Max at Affirm. And all of them were a little different. As an example with Luis, I had dinner with him and the CFO, and his CFO's very talented, just like he is. And I just presented them the data. Knowing them, I knew they would have a lot of questions on it and they asked a lot of good questions. The other thing I said to them is, look Luis, when we invest in your company, one of the things I always ask people is we'll articulate what we're looking for in you, but what are you looking for in us? And one of the things he said is, I'm gonna be a first time CEO and my sense is you're gonna see things based on your experience that maybe I don't see because this is new to me. And I said, the reason I wanted to have dinner with you is not because I have all the answers, but I have a strong view that you're dominant in what you do. AI's amazing for you. AI was just getting started. You have a very unique humic capital culture, but if you're gonna communicate to people this strength in the market, it doesn't mean you need to get to your long-term margin targets at 30%, but you have to show progress towards it. With other companies, we restricted the stock, we spent more time with them, we helped them understand what this means. We even helped a bunch of them think about how to communicate what they were gonna do in this path of this transition to their investors.
· Henry Ellenbogen, Patrick O'Shaughnessy
That to me is different than where we are in 2025 because I felt we had real expertise there and something to add to the conversation that a lot of these executives hadn't seen before as operators, and frankly many of their board members had come of age in a period of time where money was free, and frankly probably hadn't been in involved as many durable companies as we had been involved in. So the answer is I think probably we're more back to learning and normal interaction than we are having a perspective that we're dying to explain to people. [00:00:00] S0: I heard that in the early T. Rowe days that you were studying media and you studied 20 or 30 years’ worth of media history and condensed it down to a very small three or four page report. Can you bring us back to that study and what you learned about media? I'm obviously interested in media. I'm curious what you learned then about media and how that has evolved ever since.
· Henry Ellenbogen
[00:00:00] S1: I tend to wanna do this. I always believe that if you really understand something, you can make it super concise. And where we are with robotics and less so with AI, our internal memos are probably too long, because frankly there's too much unknown and so we can't be concise. I was very lucky in media, and it's something we try to do at Durable with people, because I was an outsider to the media industry. I think I brought fresh perspective to it. When I was assigned to be a media analyst—this is so hard to believe, but the companies that were viewed as the darlings of balancing durability in terms of competitive moats and having strong growth were companies like Comcast, Time Warner, Disney, Viacom. I did a bunch of work on the companies individually and then I started to really think hard about it. And I started to realize that the best businesses inside of all of them had been the cable networks. If you read about media back then, the entrepreneurs that became the most famous were the ones that launched cable networks. John Hendricks, Ted Turner, Bob Johnson—by the way, John Malone basically backed almost all these people and put the most investment in. So John Malone was at the center of all this. For 20 years, cable networks grew 20% with 20 ROEs. So they were compounders and that's how you had all these entrepreneurs that had become billionaires, and that's how you had media companies that really fought over a balance of content and distribution so they could all get their fair share of these economics. And then when you went and you looked at a bunch of the other industry, it was like an average ROA business, and that was what the whole industry was. But the whole thing, if you really thought about it, a systematic level was predicated on a closed system, which is so obvious today. What the closed system was predicated on, I'm only gonna show you the product or the TV show that you most wanna watch when I can make the most money. Not when you wanna consume it. Even in a world of linear TV, even though the most people watched TV on Sunday night, the worst shows showed up on Sunday night because people had spent their money on the weekend, and they were going back to work and they weren't gonna go shopping and go out. And the best shows showed up on Thursday Night Friends, the Cosby Show.
· Henry Ellenbogen, Patrick O'Shaughnessy
And in the movie business obviously there was windowing. I was like, okay, so the best business is cable networks. That's why we have this fight over content distribution and then it's all predicated on this closed system. What I believed at the time, which obviously proved to be true, was that this TMT bubble that had burned so many investors and no one wanted to think anything good could come out of at the time it, had laid the seeds of the end of the durability of that industry. Because even though people lost so much money on telecom infrastructure and laying the seeds of broadband, what broadband was enabling eventually was things like YouTube and Netflix, which would break down this whole closed system that was run like an oligopoly. That's what my memo summarized, was the riskiest thing is to own the durable asset and the safest thing to do is go buy the next standard. [00:00:00] S0: I mean lots of people will say investing's an apprenticeship business, and you yourself have said the best investors are better at 70 than at 50 than at 30. I would love to hear a lot about what you've learned about selecting great people when you don't know them as well and then making them better as part of Durable over time, because that's gonna determine how well you do as a business. So it's a critical component. How do you do it?
· Patrick O'Shaughnessy, Henry Ellenbogen
[00:00:00] S0: I mean lots of people will say investing's an apprenticeship business, and you yourself have said the best investors are better at 70 than at 50 than at 30. I would love to hear a lot about what you've learned about selecting great people when you don't know them as well and then making them better as part of Durable over time, because that's gonna determine how well you do as a business. So it's a critical component. How do you do it? [00:00:00] S1: One of the major goals I had when we started Durable was to actually build an investment firm that would be better the day I left and the initial partners left than when we were the best while we were there. So I thought really hard about that. [00:00:00] S0: That's a hell of a goal.
· Henry Ellenbogen
[00:00:00] S1: I went on a listening tour and I went to see firms that had a period of greatness and some of them didn't get it done and then some of them actually accomplished that goal. I learned a lot in that. Part of it is how we have structured Durable's incentives and the whole ethos we have internally, but it was really a reinforcement of this goal about people. You’ve spent time with our team. When you look at the senior people at Durable, Anouk Dey, one of my partners, incredibly talented woman, she started working with me at 26. She had never worked in the investment business before. She had finished her master's at Oxford and she was working at a nonprofit. Corey Shoal, he started working with me either 21 or 22 right out of William and Mary. And then we have a host of other people who came out of liberal arts, not rigorous. I had to work at a bank, at an investment firm or anytime I interview with people, I have to tell people since I was five is basically what you have to do nowadays. Go work at uh, most investment firms or banks. You gotta tell people that ever since the age of five I wanted to do exactly what you're doing. But all jokes aside, we really believe that you have to be an expert in what you do, develop into it. There's a whole matrix we have about the development of security analysis excellence and how it’s a journey. We do our reviews based on it. I tell people, look on this sheet, this is a journey. I'm probably the most experienced security analyst at the firm and I still have a journey to go here. I gotta get better. And then we also believe at the same time, that the youngest person in the room, on our investment team, actually can have the most valuable perspective. So we have an investment team of 12 people. And in my career, a lot of times the best insight comes from the most junior person who's looking at something with a fresh set of eyes. Early in Anouk’s career, when I was looking at consumer companies, she really helped understand a millennial mindset and then we did a lot of work against it. And I think that led to some great investments both in the public and private markets. We were private investors in DoorDash, Sweetgreen, Warby Parker, some of the leading companies of the day. Anyway, what do we look for? We look for deep intellectual curiosity.