Invest Like the Best with Patrick O'Shaughnessy
· Henry Ellenbogen, Patrick O'Shaughnessy
And then, for sure we do investment reviews where we do deep dives on stocks. Multiple people look at this, I learned this from, you had Kelly on from the firm Lone Pine, really I learned that from Steve. I'm sure Lone Pine still does it. We do KPIs, we call KPIs the operating reviews where we go through the whole portfolio and every colleague reports to everyone else how they did, and we do this not to basically be a session and where “you’re great” or “I got it wrong”, it's more like here's clinically what happened and everyone can learn from it but also lend their lens because it's not great, bad. A lot of times it's subtle. This thing was good, this thing was mixed. People can add their lens. And then we get together twice a year and we have offsites. You can probably tell we have a lot of fun at Durable, but our offsites don't look like other people's offsites. We used to do team building activities. [00:00:00] S0: Now you do KPI reviews? [00:00:00] S1: And now we don't do them. Why don't we do them? Because actually we're a group of people who likes learning from each other and likes sharing insights. And the activity we're gonna get together for three days, it’s gonna be, we're gonna basically do lookbacks, we're gonna look at reviews, we're gonna go study an industry, we're gonna go talk to a CEO, and then we're gonna all learn from something such that we can all make each other better.
· Henry Ellenbogen, Patrick O'Shaughnessy
[00:00:00] S1: And now we don't do them. Why don't we do them? Because actually we're a group of people who likes learning from each other and likes sharing insights. And the activity we're gonna get together for three days, it’s gonna be, we're gonna basically do lookbacks, we're gonna look at reviews, we're gonna go study an industry, we're gonna go talk to a CEO, and then we're gonna all learn from something such that we can all make each other better. [00:00:00] S0: It must be very powerful when you're making an initial projection on a KPI or something to know that in the six months and year and two years and three years hence, it's gonna be looked back upon. You probably sharpen your pencil a little bit.
· Patrick O'Shaughnessy, Henry Ellenbogen
[00:00:00] S0: It must be very powerful when you're making an initial projection on a KPI or something to know that in the six months and year and two years and three years hence, it's gonna be looked back upon. You probably sharpen your pencil a little bit. [00:00:00] S1: You do. But I think what's special about our culture, and I always tell this to people before they join, and we tend to hire young people and develop them. But if you've been anywhere else, you don't believe us. People think when we get together and we do KPIs or do three year lookbacks or we'll do a session sometimes where we'll look at reinitiation in the portfolio, things we sold before and then we bought back. And a lot of times if we did that, why'd we sell it in the first place? Maybe we got it wrong. We don't do any of this in the spirit of “You made a mistake; this is an environment where you should critique yourself negatively.” It's like, no, we should be intellectually honest just like we want our executives to be. We want to be clinical in what we did, but then we wanna do in the spirit to try to learn from it and get better or put our data out there so we can learn from our colleagues who might have a valuable perspective to make us better. And if we can take the attitude of intellectually honest, self-improvement, humility; that makes us better. [00:00:00] S0: When you were doing your tour to learn about the franchises that were better at the end of the founder's run and those that didn't make it, what did you learn?
· Henry Ellenbogen, Patrick O'Shaughnessy
[00:00:00] S1: I won't mention the names of those who didn't make it, because the thing about not making it is a little bit like our investment memos when we invest in great people who are trying to build companies. A lot of them do great things and they just don't make it. In success, there’s a lot of good fortune. I think what I learned was if you don't architect the system on day one for success, then you end up with a lot of conflicts that sometimes undermine what you could have accomplished. We try really, really hard at Durable not to make compromises. If we go hire someone on the investment team, we want to go hire someone who one day could be a senior partner, or one day go basically manage the capital base. Or if we were to ever launch a new product, go launch that product. We're looking for people who can be as good as I am or Anouk is, or Corey is, or Kathryn. We want great people. For sure, you usually start in our parlance as an associate, you're gonna start supporting someone and you’re truly gonna be an apprentice in that way. And then even when you become an analyst, the first three years you're probably doing real analytical work, but probably you're early in your journey. But we don't wanna hire you, we don't want to promote you unless we think you can actually one day lead the investment organization and drive the firm. And the reason I feel that's so important is we just don't have that many slots. [00:00:00] S0: It's just like the companies, if you don't believe it can get better, you don't do it.
· Henry Ellenbogen
[00:00:00] S1: Right. That's hard. The other thing that's hard about it is when I went and looked at these firms, I do think a level of growth you have to pursue. Durable is a performance driven organization. We break every tie in pursuit of investment excellence. We haven't really, you know, marketed ourselves or tried to get new investments since 2022. And why is that? Well, I think we're performing really, really well, but I just believe markets are pretty full, and we're a long only firm. We're not gonna short, we're not gonna really try to time markets, but if you're gonna be our investor over time and we're gonna do well by you, we should probably take more of your capital when on balance, the entry point is lower than higher. We're gonna break everything. We're gonna really understand if we're gonna do less, what it means to be able on the public side to be able to own meaningful positions and companies to really be able to trade if there's quarterly volatility, such that we can buy more when things are attractive. Everything that—if we're only gonna do maybe five, I think since 2023 we've done 14 new private investments—so we’re back to doing five a year. If we're only gonna go do five and we're gonna start relatively small, a lot of times we start by investing 10 or $20 million, it's gonna make an impact for our investors, right? We’ve got to be be a performance driven organization. And for our entrepreneurs, we gotta be able to do exactly what we've done for Luis. We have to be able to do for Dylan, and what I think we're doing for Dylan, we have to be able to support Canva and Bending Spoons and the next generation of those. So we gotta go do that. With that said, I do believe that these investment firms that have persisted actually have done a good job of, at some point in time while the initial team was at its high performance and so had plenty of runway, started to prove that other people could participate in the investing process. That's something that we’ve started to do internally with how we approach the private markets. We gotta over time flush that out.
· Patrick O'Shaughnessy, Henry Ellenbogen
[00:00:00] S0: What is your pitch to all the great and emerging private companies out there that they should soon or eventually be publicly traded? [00:00:00] S1: This is controversial. This is why I love what we do. Because first of all, the world keeps on adapting. And when I first started investing in private companies, it was highly controversial that any late-stage private company would be valued at above a billion dollars, right? We talked about Workday earlier. When we led the investment round at Workday at $2 billion, everyone thought we were crazy. We invested in Twitter at a billion dollars, I was severely publicly critiqued. Now people look back at that and it's just like, wow, the idea that you would have a billion dollar private company that's not even newsworthy anymore. What has changed obviously in the private markets is that you can be a growth company that loses money and continues to, or be marginally profitable and not only be valued at a billion dollars, you can be valued at a $100 billion. And there's even a view—and I think it's thoughtful, I'm not criticizing it—there's even a view that you can be an indefinite private company. [00:00:00] S0: SpaceX or something.