Invest Like the Best with Patrick O'Shaughnessy
· Dan Sundheim, Patrick O'Shaughnessy
One of the things I did is like I asked the LLMs, I said, “Are you designing your own ERP system?” And they said, “No, we're buying a new ERP system from this company.” [00:00:00] S0: Quite telling. [00:00:00] S1: If they're not – at least you're protected at least for a few years if they're not doing it yet. So I think systems of record are going to be difficult to displace. I think companies, while it's neat to create software for small productivity enhancements, if you really want to run your entire business on something like an ERP system or a CRM system, I think it's gonna be quite a while before people are just gonna be vibe coding an ERP system. But I don't think that you can just sit back as a software company and say, “We're a system of record. We'll be fine.” You're gonna have to integrate AI and find ways the same way Walmart integrated e-commerce into their business model. And it was painful for a long time and they’re probably on the other side of it. But this is like, I'd say fairly low conviction, because everything about AI's impact on the economy is inherently low conviction. Because I think everyone is likely underestimating how much these models are going to improve. And to really think about what's going to happen, you have to almost not think like an investor, you have to think like somebody who's into science fiction.
· Dan Sundheim, Patrick O'Shaughnessy
[00:00:00] S1: If they're not – at least you're protected at least for a few years if they're not doing it yet. So I think systems of record are going to be difficult to displace. I think companies, while it's neat to create software for small productivity enhancements, if you really want to run your entire business on something like an ERP system or a CRM system, I think it's gonna be quite a while before people are just gonna be vibe coding an ERP system. But I don't think that you can just sit back as a software company and say, “We're a system of record. We'll be fine.” You're gonna have to integrate AI and find ways the same way Walmart integrated e-commerce into their business model. And it was painful for a long time and they’re probably on the other side of it. But this is like, I'd say fairly low conviction, because everything about AI's impact on the economy is inherently low conviction. Because I think everyone is likely underestimating how much these models are going to improve. And to really think about what's going to happen, you have to almost not think like an investor, you have to think like somebody who's into science fiction. [00:00:00] S0: Can you imagine a version of this story where this is all just overblown? Is there any coherent potential future where five years from now we're just like, “Actually these things weren't that big of a deal.” Or they were much less of a big deal than we thought they were going to be, sitting here today?
· Patrick O'Shaughnessy, Dan Sundheim
[00:00:00] S0: Can you imagine a version of this story where this is all just overblown? Is there any coherent potential future where five years from now we're just like, “Actually these things weren't that big of a deal.” Or they were much less of a big deal than we thought they were going to be, sitting here today? [00:00:00] S1: I think the only way that would be the case is – and even in this I think that argument wouldn't hold – would be if scaling laws just totally stopped. But even if scaling laws stopped, even if these models got no better, I think you probably have three years of people learning how to incorporate AI into their daily life or their companies. Certainly that wouldn't be good for the businesses if scaling laws stopped, but I still think you'd have pretty profound changes within the economy. And betting that scaling laws are going to stop is a really low probability assumption. I mean, there's just nothing that suggests that's the case. In fact, everything suggests the opposite. I think it's difficult to really get your arms around what that means. Because we went from “This is like an interesting chat bot that's like Google” to like, “Oh my God, these are going to be solving problems that humans can't do.” We're already almost there. [00:00:00] S0: I have a 12-year-old son who's interested in investing. I think your son's interested in investing, we've talked about it before as well. What do you tell him about the future of this profession? Given these tools, surely it applies to us too, and we may be smart now.
· Patrick O'Shaughnessy, Dan Sundheim
[00:00:00] S0: I have a 12-year-old son who's interested in investing. I think your son's interested in investing, we've talked about it before as well. What do you tell him about the future of this profession? Given these tools, surely it applies to us too, and we may be smart now. [00:00:00] S1: Elon Musk says, I think a line he's used is, “It's better to go through life being an optimist and be proved wrong than a pessimist and be proved right.” To be young and to be interested in something and be dissuaded because… [00:00:00] S0: You're just obsolete, yeah.
· Patrick O'Shaughnessy, Dan Sundheim
[00:00:00] S0: You're just obsolete, yeah. [00:00:00] S1: …AI's gonna be better than you, I think, is like a very self-defeating mindset. So, do I think that it is likely that, at some point in the future, everything that we do is arbitraged away by AI? For sure. I mean, I think that that would be naive of me to say no. Do I think that's happening anytime in the next couple years? I don't. But it's almost like, what do you tell someone to focus on? First of all, unless someone is really interested in something, they're not gonna be good at it. So it might be the case that being a plumber or being an electrician is the most moated job in the world, but if you don't want to be an electrician, it doesn't help very much. So it's hard to tell your kids, “Don't do this or don't do that because it's gonna be irrelevant.” I saw a podcast recently with a Google researcher who left and he said like, “Oh, I don't even tell my daughter to study. It's just like, go out and have a good time.” I think that's a very destructive way of going through life. You should go through life thinking that you want to achieve things and that you're interested in things, and you're curious in the same way as if this doesn't exist. And if it turns out that whatever job you envision having no longer exists, then you'll have to adjust.
· Patrick O'Shaughnessy, Dan Sundheim
[00:00:00] S0: You've talked with John and Daniel about the GameStop story. We can touch on it here too. I'm curious though, what you most learned about yourself during that period of time, when lore has it that February of ’21 – so January was GameStop – that you went to your team and basically said, look, “The way we're gonna calculate your comp this year is not gonna include January. That was just a completely insane period of time.” And so you took certain steps to create stability in the business or whatever. But in such a stressful period of returns, I'm just curious what you learned about yourself or what it was like, emotionally, to go through that time. [00:00:00] S1: It's incredibly difficult. I never want to come across as too exaggerative about my experience because there's people who go through a lot worse things in life. But as an investor, I'd say that was about as bad as it gets. We went from being top of the world, everyone thinks we walk on water to being like, everyone thinks we're gonna go out of business. I don't think I have an enormous ego, but I have a lot of pride in what I do. I don't need to be celebrated, but I also really did not like having our firm and our performance dragged through the mud. Granted, it deserved to be treated that way because the performance was very bad. It also was a bit lonely, in that like, during GameStop there's probably a… [00:00:00] S0: A couple people to call.