Invest Like the Best with Patrick O'Shaughnessy
· Patrick O'Shaughnessy
[00:00:00] S0: You end up at Viking, you were there for a long time. You were the CIO, you've got an incredible track record while you're there. If you think about the moment that you decided to go start D1 – bring us back to that moment to go hang your own shingle and build this thing.
· Dan Sundheim
[00:00:00] S1: I started out as a banks analyst. That's what I did for the first couple years. I still had a value bent. I think most investors who love investing start out with a deep value bent. If you want to read about great investors historically, most of them were deep value investors. Ben Graham, Buffett. I was working for somebody named Tom Purcell, who's an amazing investor. I realized that Tom was an awesome mentor, but I realized that Tom was very well equipped to generate returns and financial services for Viking. And so if I wanted to grow in my career, I had to move it to other areas. Gradually, I took on other sectors, starting with healthcare, industrials, TMT. And the nature of those companies was different than banks. That was a learning process. It was years of covering different companies in different industries. The deeper you got into like, what created value in TMT was different than what might create value in industrials or healthcare. So to me, if you love investing, my time at Viking was amazing because I was able to get exposure to every industry almost. By 2016, I was managing just over half of Viking’s capital. Somewhere like 55-something percent of Viking’s capital. And I had started out in 2002 being an analyst with no portfolio. I'd gone from no portfolio to a portfolio, to eventually CIO, to managing more than half the firm's capital, which was an abnormal percentage historically for Viking. Viking’s usually more diversified. It was pretty clear to me that, from a business perspective, it was not in Andreas' best interest to have one person manage more than half the capital. I don't think that would be even good for LPs. And so, I kind of recognized that I had pretty much achieved what I could achieve at Viking. Over time, I'd be probably managing a smaller percentage almost regardless of how well I did. I've always had a mindset of like, “I want to grow, I want to get better. I want to achieve new things.” And I kind of felt like there wasn't that much more for me to achieve at Viking. And I was 40. I started a fund relatively late in life. And I kind of recognized that at some point you just wouldn't have the energy to go do something like starting a fund – you know, obviously it's a big endeavor. I felt like I had the energy and so everything kind of came together.
· Patrick O'Shaughnessy, Dan Sundheim
[00:00:00] S0: What interests you about art? It's something that obviously you care a lot about and you've devoted some time to understanding. What is it that attracts you? [00:00:00] S1: I've always had more of a leaning towards humanities than STEM, which is unusual in certainly tech, and somewhat finance. That is why I perhaps look at my job as more art than science. The science is very simple. The DCF I could learn how to do 25 years ago and doesn't change. The humanities side interests me. And art is certainly one aspect of that. And I am particularly interested in aesthetics. I like design, I like architecture, I like art. To me, it's just beauty. You go to the beach and watch the waves, that's beauty. There's beauty in the world and art is one example of beauty. There's usually a story behind it, and there's people behind art. Art is important because it's created by people. And I think the bull case in art would be – as everything else is automated and in infinite supply because it's being created by AI, art created by people reflects emotion, and oftentimes what's happening in that moment in the world when they're making that piece of art, or what's happening in their life. [00:00:00] S0: If you apply the same aesthetic idea, the beautiful idea – what is the most beautiful business you've ever seen? Just like, the best business you've ever seen.
· Patrick O'Shaughnessy, Dan Sundheim
[00:00:00] S0: If you apply the same aesthetic idea, the beautiful idea – what is the most beautiful business you've ever seen? Just like, the best business you've ever seen. [00:00:00] S1: I think that the best businesses are usually low-cost producers of something that's very durable. And I think people underestimate the ability to provide a given product or service sustainably at low cost, and where there's a positive feedback loop of like, low cost drives more volume, which drives low cost. And I think that – I could say a bunch of businesses which are really great, like Moody's or S&P, those are great businesses, don’t get me wrong. But something where the cost advantage is so substantial and so impenetrable, like SpaceX with launch or Costco with groceries. To me it's like the only way to win in most businesses is to provide a great product at a low cost. Businesses that do that at scale and build a moat around it are amazing. Amazon's e-commerce business is amazing. So many amazing businesses. Very few monopolies, and when they are a monopoly, usually what happens is they tend to get lazy and the returns aren't as good. [00:00:00] S0: What parts of the world do you think are underappreciated right now? When I look at your top 10 holdings, I actually didn't recognize a number of the companies. Lots of them are not in the US, they're international. Where's your eye right now that you think the world is not paying enough attention to?
· Patrick O'Shaughnessy, Dan Sundheim
[00:00:00] S0: What parts of the world do you think are underappreciated right now? When I look at your top 10 holdings, I actually didn't recognize a number of the companies. Lots of them are not in the US, they're international. Where's your eye right now that you think the world is not paying enough attention to? [00:00:00] S1: It's hard to say Europe, in that Europe is economically stagnated, so I'm not sure anyone should pay attention to it – other than if you are a pure, fundamental stock picker, it's an easier market. I think there's really interesting things happening in Asia. Just as – globally, as politics change – like, you saw what happened in Japan, and for the first time Japan's probably going to become a military power at some point in the future again. And you know, that has all kinds of implications. I think there's a lot going on within defense. I think there's obviously AI. Geographically, Europe is always the most inefficient. I think Japan and Korea are probably pretty inefficient as well. A lot of retail investors, some really great companies. Japan and Korea were not well positioned for the last 20 years, because it was just digital companies. But when it comes to actual hard assets and good engineering, Germany, Korea and Japan have a lot of companies that have excellent physical assets and engineering. [00:00:00] S0: Is there anything else that we haven't talked about today that you have on your mind or you're especially passionate about – things you're thinking about in the world?
· Patrick O'Shaughnessy, Dan Sundheim
[00:00:00] S0: Is there anything else that we haven't talked about today that you have on your mind or you're especially passionate about – things you're thinking about in the world? [00:00:00] S1: The thing that troubles me the most, frankly, is I think we are on a collision course with China over semiconductors. I think there are ways to get out of that, but none of them are easy. To the extent that we don't figure that out, we're going to have something akin to the Great Depression. [00:00:00] S0: Say more about that. How would that come to pass?