Invest Like the Best with Patrick O'Shaughnessy
· Dan Sundheim, Patrick O'Shaughnessy
[00:00:00] S1: I don't harbor any ill will. I mean, the act of redeeming is like – to some extent we deserved it. I mean, obviously I appreciated it much more when people stayed. I always start out these dinners – even though it was the worst time, I say like, “Ask me anything. Criticize me. It is my job to deliver for you. If I don't do it, it's on me.” I ultimately think that when you screw up in business, capital follows returns. And when you deliver poor returns, capital will leave. We had a lot of great investors that stuck through it, and I deeply appreciate that more than I resent people redeeming. It's pretty asymmetric. [00:00:00] S0: What's interesting about the story is – when you ask around, most people would say that you have an incredibly calm – like, your resting heart rate is very low. You're always between a four and a six. Like, you're never overly excited when things are going well or overly despondent when things are going poorly. And I'm curious how much you think that disposition matters for great investing. Can you do great investing, in your experience meeting others, without having a pretty narrow band of excitability versus despondency?
· Patrick O'Shaughnessy, Dan Sundheim
[00:00:00] S0: What's interesting about the story is – when you ask around, most people would say that you have an incredibly calm – like, your resting heart rate is very low. You're always between a four and a six. Like, you're never overly excited when things are going well or overly despondent when things are going poorly. And I'm curious how much you think that disposition matters for great investing. Can you do great investing, in your experience meeting others, without having a pretty narrow band of excitability versus despondency? [00:00:00] S1: For better or worse, I've always – from the first day I got the job – had a lot of confidence in what I was doing. I never stepped in and said like, “I'm just better than everyone else.” That was never it, but when it came down to looking at a company and making a decision, I felt confident in it. And when I feel confident in the analysis, I generally am pretty balanced. Is it possible for somebody to have a very volatile personality but train themselves to deal with the ups and downs of markets? I think the answer is yes. I think there are some hedge fund managers that have been truly generationally great. And you hear the stories that early on they were just throwing things at people on the trading floor and yelling. And ultimately they ended up being great. But you have to be able to not let that emotion influence your trading.
· Dan Sundheim, Patrick O'Shaughnessy
[00:00:00] S1: For better or worse, I've always – from the first day I got the job – had a lot of confidence in what I was doing. I never stepped in and said like, “I'm just better than everyone else.” That was never it, but when it came down to looking at a company and making a decision, I felt confident in it. And when I feel confident in the analysis, I generally am pretty balanced. Is it possible for somebody to have a very volatile personality but train themselves to deal with the ups and downs of markets? I think the answer is yes. I think there are some hedge fund managers that have been truly generationally great. And you hear the stories that early on they were just throwing things at people on the trading floor and yelling. And ultimately they ended up being great. But you have to be able to not let that emotion influence your trading. [00:00:00] S0: If you think about the future of the world, given the crazy changes in technology – we haven't talked about SpaceX yet, that's a whole different dimension of an incredible technology curve that's going on. You mentioned earlier the importance of being optimistic. Where are you the most optimistic, and what parts of the world and its progression gives you the most pause? Or you know, things you have your eye on to be – if not worried about, keeping your eye on.
· Dan Sundheim
[00:00:00] S1: I'm most optimistic in economic growth. And I think it has to be the case that if you believe in scaling laws and you believe in AI, that economic growth will be very powerful. I mean, this is the ultimate productivity tool, and what productivity does is it allows you to grow while having disinflation, which is like nirvana for markets. So I'm very bullish on that. And then there's implications that flow from that, which are more macro, which is a thing we don't do. But like, that can cure deficits, do a lot of great things. Economic growth does a lot of great things for everybody from hedge fund managers and CEOs to people in lower level jobs. If a country's not growing, it's hard to have a better standard of living. That's my more optimistic take. The part of me is more uncertain is that, I think that we as humanity, we've never encountered something like we're about to encounter. So, with that kind of profound change, like we're going from the smartest animals on the planet – we were never the fastest or the strongest – just were smarter than other animals. We are no longer going to be the most intelligent beings on the planet. And so what are the implications of that? I'm not really sure. I think that there's a lot of negative externalities, in that I don’t think humans – as much as people like Dario, who I respect a lot, might say, “Well, we're just gonna give everybody a check, and everybody can just kind of live off universal basic income.” I just don't think humans are wired to just collect a check and go around and play sports all day. Humans are wired to create relationships, to create value, to work, to coordinate with other humans, achieving things. And I just – I don't think you have a great society if it's just a bunch of people living off checks that come from the government as a result of this massive economic boom.
· Patrick O'Shaughnessy
[00:00:00] S0: One of the most interesting stories you've told me before was this time when you made, I think, similarly sized investments in Rivian and SpaceX at the same time. Can you tell that story of both big, big bets? Obviously SpaceX, you've got this huge position now. But I loved that story of this style of big bet private market investing in exciting technologies, and then the way things can go. And if you could bring us back to that – those moments of decisions, those are huge checks that you wrote into those companies. I would love to hear that story.
· Dan Sundheim
[00:00:00] S1: Thesis was that EVs were going to dominate the auto market and that EVs were an entirely different kind of automobile, in that they were software. And it was the equivalent of the iPhone versus Motorola and Nokia. The same way Motorola and Nokia were not able to move into smartphones because that was like hardware, not software – there'd be few companies that would be able to do this successfully. Ultimately, autos are a bad business. It could be software autos, hardware autos. It’s a bad business, and it's a really tough business to scale. Very capital intensive. The manufacturing didn't go as smoothly as it could have, and the cost of delays in manufacturing when you're ramping up and burning a lot of cash are quite significant. The technology I think was always good. And not getting up the manufacturing curve very quickly meant you didn't get to scale fast enough. And I really believe that scale in EVs is gonna be important, which is why Tesla's – one of the reasons why Tesla's won. You know, at the IPO, it was great. It looked like a great investment. But ultimately, I don't know what our ultimate return was on Rivian, but it wasn't what we planned for when we made the investment. The bad ones tend to be more obvious faster. The great private tech investments, I think, are sometimes slower to prove how great they are. Because you have these amazing founders who are just constantly making decisions which take the business in one direction or another. And ultimately, the compounding of those decisions takes time, but leads to great outcomes. SpaceX was pretty obvious to me that the launch business, at a minimum, was going to be a very good business. And what they had achieved I thought was, just from an engineering perspective, insane. So to me, if I could buy a company that had achieved the most amazing engineering feat I'd ever seen, at some multiple of revenue with very little cash burn at that point. I didn't know what was going to come, I just knew that the skew was very good. If they had achieved that, then like, who knows what they could do in the future?