Invest Like the Best with Patrick O'Shaughnessy
· Patrick O'Shaughnessy, Dan Sundheim
[00:00:00] S0: What do you think about that business today? So much has changed since you first invested. What's your updated prognosis for it, or thoughts about it? [00:00:00] S1: The initial prognosis was just always that they were going to be a low cost provider of launch. I think the success of Starship – I wouldn't say we're fully there, but I think we're pretty much there. To prove full reusability and scale, yeah okay, there's more to come. Starship is a game changer, which we knew about fairly early on, but didn't know if it would work. And what that means, very simply, is that the cost of launching everything goes down dramatically. 97 or whatever percent. And the engineering that they've done with the satellites to harness solar power and be able to deliver really high-speed bandwidth has surprised me to the upside. And there's a lot of software that goes into that too, just given these networks of satellites are all communicating. The ramification of that, I think, is that the telecom market globally is now the TAM. They've come so far down the cost curve, I think that in a relatively short amount of time – months, a few years, they're going to be dramatically cheaper than any other form of delivering broadband. [00:00:00] S0: You said how much you love shorting stocks. What is it about it that you like? Because you just don't meet that many people that are focused on this, or are really that good at this anymore.
· Patrick O'Shaughnessy, Dan Sundheim
[00:00:00] S0: You said how much you love shorting stocks. What is it about it that you like? Because you just don't meet that many people that are focused on this, or are really that good at this anymore. [00:00:00] S1: My wife begs me all the time to stop shorting stocks. It's a bad business. You really have to be intellectually stimulated by it. Most people in the market are just not fundamentally based, period. And even if they are fundamentally based, they're not interested in shorting. Or they pretend like they're shorting and they kind of short indices or whatever. Very few people are doing it. There are tons of people investing in things that are just based on stories, like because of social media and because of Robinhood. And there's just endless amounts of shorts if you have duration and if you take a fundamental view. [00:00:00] S0: Why do you think markets are less efficient now?
· Dan Sundheim
[00:00:00] S1: I think it's just the people transacting in the market, or the nature of the institutions transacting in the markets. If you go back 10, 20 years ago – mutual funds, long-short hedge funds, they were a big part of the market. Now, it is a lot of passives, a lot of retail investors. People who are making investment decisions that are not based upon long-term considerations of intrinsic value. Quants, even multi-manager long-short funds – while they are focused on fundamentals by necessity, they're short-term oriented. If you're focused on trying to get an edge in the short term, that is extremely efficient, and it's a game I just don't play. You have firms which are incredibly sophisticated, using amazing quantitative methods to go through alternative data. There's absolutely no edge there. Once you go beyond any kind of short-term event and you start to think about – what is the business worth, what are the long-term cash flows, what are the Porter's Five Forces attributes of the company – that’s when I think that the competitive set gets pretty thin. And frankly, the more people focus on the short term, the more opportunity there is to arbitrage that and have a medium-term view. I don't think anyone knows what's going to happen past three years for most companies, and for the economy as a whole. It's hard to predict. So, I don't consider myself to be an investor that just buys and holds things for five or 10 years. But we do focus entirely on "what is a company worth", and a quarter may or may not impact what we feel the long term value is. The majority of the time, the moves you see in the short term exaggerate the true change in intrinsic value of the company, which makes for a less efficient market.
· Patrick O'Shaughnessy
[00:00:00] S0: One of the things that interests me a lot about you is – I'll use the word loyalty. So, Jeremy's been your partner, he’s your one of your best friends from growing up. The guy that runs your family office, your director of research, lots of your key partners, you've known a really long time and are good friends of yours. I think you met your wife in college, I did too so that always perks me up when I hear that example. Can you say a little bit about how you feel about loyalty, and kind of the role that all those data points suggest?
· Dan Sundheim
[00:00:00] S1: There's a few things to consider. I know these people the best, and so I've just dealt with them through so many different things in life, and I have a lot of confidence in their competence. So to me, there's a lot of people that I love in life for different reasons, and are wonderful people and would be loyal. But they have to be really competent do to the job. This is a very intense job. The bar is extremely high, and the people that I've hired that are friends of mine forever, I'm just confident clear that bar by a lot. But when you are able to find people that you know for a long time, and liked you before you had any money or any signs that you'd ever have any money – that is a different kind of relationship. For me at this point, I don't know. Are they nice to me because they think I can do something for them? There are a group of people in my life that have always been there and that they will be close to me for the rest of my life. And to the extent I can work with those people, great. But as I said, they have to be excellent.
· Patrick O'Shaughnessy
[00:00:00] S0: One of the things that you do for your portfolio is host this group chat that's just full of your thinking on what's going on in markets. And one of the things that struck me the most about this is just how prolific you are in it. You're just thinking and writing about this shit at all hours, all the time. Clearly, this is the thing that you just love and are passionate about. What has been the impact of that – constantly communicating with the people that you care about, about markets? I ask the question because I just want to give examples to encourage other people to do the same. It can be so powerful.