Invest Like the Best with Patrick O'Shaughnessy
· 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?
· Patrick O'Shaughnessy, Dan Sundheim
[00:00:00] S0: Say more about that. How would that come to pass? [00:00:00] S1: It's very straightforward, in that Taiwan produces 90-something percent of the most advanced semiconductors, and everything we use is semiconductors. It's almost as if you went back 50 years, if there's only one country that produced oil. I mean, oil was that important. We went to war over oil, even though you could get it all over the world. Taiwan produces vast the majority of the leading semiconductors, and that is what powers everything. And that supply chain is fragile. It’s not like it's easy to replicate, it's easy to destroy. If that supply chain were to get screwed up or disintermediated, we would have an incredibly bad economy, on the order of a depression type economy. Probably a lot of people in government understand this. I've heard Scott Bessent talk about it. I think people understand it. There are some scenarios that are okay for the global economy, but there is no scenario I can think of where everybody's happy – China's happy, Taiwan's happy, and the US is happy. Somebody's going to be unhappy, either because the economy collapses, or because their sovereignty is handed over. [00:00:00] S0: What do you hope happens? That we build fabs here?
· Patrick O'Shaughnessy, Dan Sundheim
[00:00:00] S0: What do you hope happens? That we build fabs here? [00:00:00] S1: What I hope happens is that we replicate the supply chain over time in the US, and we work something out with China where they see a path to integrating Taiwan. I think that if we replicate the supply chain, the risk is that we're probably less likely to defend Taiwan, in which case China will attack Taiwan anyway. Bad for Taiwan. Fine for the US. China achieves its objectives. I would like to see the world avoid depression and that's going to require, I think, some understanding of “We need 10 to 20 years to replicate this supply chain.” Over that period of time, China will not screw up the world economy by being very aggressive with Taiwan. And then eventually, there's a path where China feels comfortable that they will be able to reintegrate with Taiwan. Usually when dictators say something and they say it religiously, you should believe them. Like when Putin starts talking about like the glory days of the Soviet Union – he may not have the capabilities always, but like as soon as he did, he acted on it. And so like, every time Xi makes a speech that's of any importance in China, he emphasizes Taiwan. And so, we can pretend like this is going to happen in some time that’s not relevant, but it's so important. And AI just raises the stakes so much that it would affect everybody. [00:00:00] S0: Zach told me to ask you what you've learned or what you like about the Real Dictators podcast.
· Patrick O'Shaughnessy, Dan Sundheim
[00:00:00] S0: Zach told me to ask you what you've learned or what you like about the Real Dictators podcast. [00:00:00] S1: I like history. You know, sometimes I just like listening to what's happened in history and how many horrible leaders there are. It's like Charlie Munger used to say, “Tell me where I'm gonna die, so I never go there.” Learning about bad things so you don't go there, to me it's interesting, whether it's communism or fascism. All of these things are still possible and relevant in the modern day. Understanding how things have played out in the past, and it tends to repeat itself – like, communism starts, but communism without dictatorship doesn't work, because eventually people realize it's not good and so then they want to change, and the only way it doesn't change is if you have a dictator who’s really benefiting from all this. That to me is interesting, just because the world – a lot more things have gone wrong in the world than right. In our lifetime, things have gone right – technologically, geopolitically. But over history, more things have gone wrong. [00:00:00] S0: Good leadership can be as impactful or more than bad leadership. You've worked with a lot, invested in a lot of great leaders. I'm wondering specifically around CEOs, but broadly about leadership. What are you looking for in a leader that you back?