Gavin Baker – Truth-Seeking and Crossover Investing at Atreides (EP.489)

25:33I would modify that and say the price you pay determines your return for a given business outcome. That's a very important modification. If you're paying 40 times earnings and the company is actually going to compound their earnings at a high rate over time, which is possible with a lot of these great growth stocks where they have low margins because they've been investing. And then you go into a period where the revenue growth, maybe it slows a little, but the operating margins explode. But I don't know a single growth investor with good numbers who isn't extremely sensitive to valuation. John Hempton's a famous value guy, short seller.

26:11He wrote this thing about an investment memo. It should be eight to 10 pages. Valuation should be two sentences at the end. It's that complicated. If you've been doing this long enough, you can do a DCF in your head really quick. If you've been doing this more than five years and you can't instantly do a DCF in your head, this is the wrong business for you. People are not confused about valuation. And I do think this is why a lot of fundamentally based value strategies have struggled for a long time, because the alpha in those strategies was being willing to own these stocks that other people were embarrassed to own because they were so out of favor.

26:48And you didn't have that different of an opinion on the future business outcome. You just were willing to tolerate six to nine months of pain, owning something really out of favor, and then it would mean revert. The problem is when algorithms and quantitative investors came in, they took all that alpha because they don't feel embarrassment. They don't feel shame. They don't feel emotion. And that's why a lot of human-driven fundamental value strategies really struggled. I've struggled for a long time. And the alpha in the market as a fundamental investor comes from having earnings estimates or free cash flow estimates or whatever metric you choose that are materially different from consensus and being right.

27:29The three people you talked about effectively had their whole career at Fidelity. You were on that path. At what point in time did you decide you wanted to do your own thing? I did my first venture deal in 2001. I was on the floor of the Consumer Electronics Show, and I met this company. They could do something called RF on CMOS. At that time, most Wi-Fi chips were made with very specialized, more expensive materials. They could do it on the standard silicon. This is going to be amazing. And I said, man, when are you going to go public? I can't wait to invest. because I was at Fidelity. The CEO had heard that this Fidelity guy was at the booth asking about how to invest, and a sales guy eventually comes out of whatever, you know, at CES, people are in these rooms.

28:15And he's like, well, you can invest right now. We're looking to raise a round. And I'm like, but you're private. He's like, well, you can still invest. So I call up Weimer, and I'm like, man, I think this is really exciting. And he's like, oh, yeah, RF on CMOS, Wi-Fi, that's going to be amazing. It's going to change the world. You have a lot of unusual experiences as a young person at Fidelity, because sometimes, you know, at 15 % of a company, You're the most important shareholder and you're 22 or 23 and you're sitting down with the CEO. So anyway, as I go to this room in New York, it was at a law firm's office and I was by myself.

28:45There's this giant team. It's the management team. They've hired a banker. It's their lawyer. And we're there to negotiate the terms. They say, hey, we think this is the price we want. And I'm like, no, that's not the price. This is a fair price. I'm not going to pay an unfair price. And they're like, OK. And I was like, I have to go meet with a big public company where we own$800 million worth of it. We need to wrap this up quick. I wasn't even negotiating. That was just the truth. We're only going to put 30 million into this company or 50. And I was going to be late to see the CEO of a company where he owed a billion dollars worth of stock.

29:16I was like, guys, I don't have a lot of time. Let's either do this or not. And then they're like, well, what kind of terms do you want? And I'm like, the standard ones. And they're like, well, what kind of preferences do you want? What kind of liquidation preferences? I had no idea what they were. And I was like, I just want the standard ones. And then they sent over a term sheet. The Fidelity attorney got involved the next day and explained it all to me. And then I re-engaged with venture. Right around the time Alan and company started bringing growth stage equity opportunities to big mutual fund managers, which is so important to own Facebook privately in 2010.

29:51From that point on, I became very involved in Fidelity's venture efforts. I was getting more into this and it was more exciting. It's becoming clear to me that doing public and private investing together was a big advantage. So for instance, there's this company, Roku, no VCs would fund it because every venture capitalist was worried about competition from Amazon, Google, and Apple. I was like, well, I'm really familiar with those companies. Competing with Roku, it is not on their top 50 list of priorities. It's not like the A-team is being staffed on this. And I think there's a room for a connected TV box.

30:31They had a great UI. The founder, Anthony Wood, was great. We led three rounds in a row at Roku. Made plenty of mistakes as well. I did invest in WeWork. They pushed the price and I did cut my order in half. Never did anymore, to the best of my memory. But it's not like it was all roses or successes. But I really liked it. A venture fund, a hedge fund. I got excited about them. They felt like my calling. I'd become passionate about the products. so told my boss it makes sense for me to leave. So you go to launch Atreides. How did you think about bringing the best of what you saw, both from yourself at Fidelity to a firm?

31:10When we started, I had a couple of ideas. I do think being at Fidelity for 18 years was an advantage because I saw a lot of different regimes for how you compensate analysts and PMs. Probably most big asset management firm changes the way they pay people every three to five years. And it's really hard. You got to find a balance between accountability and incentivizing risk-taking. I had participated in the hiring decisions for hundreds of people, and I'd seen how those people had worked out as analysts. Like anything, repetition and seeing a lot of film helps. What were some of the things that you learned about how to interview analysts well to get at good outcomes?

31:52Point number one, when I started, I thought there was way too big of a bias for people who'd played college sports or been a fighter pilot in the Navy. And I was like, hey, we need to have room for a violinist. In today's world, actually having played sports is an advantage or done anything where there's objective outcomes. For a lot of children, they've lived in a world of participation trophies and great inflation. They haven't been confronted with losing, with an empirical reality where they're wrong. Having participated in a competitive endeavor is now more important to me than it was. Having a tremendous amount of passion and curiosity is important.

32:29And again, I think investing is interesting enough that you can take somebody who has a demonstrated history of competitive success, hard work, passion, curiosity, and a lot of those people will succeed in investing because it is so inherently interesting. I was a little less sensitive to experience, but then a lot of it is I would always ask people, tell me about sometimes when you were really wrong and how you made a decision. And then I would ask everyone, tell me what your favorite class was and the three most interesting things you learned in it. And if you didn't have a good answer to that, you probably weren't that passionate.

33:05And even though I was an indifferent student, there were some classes that I was passionate about. I loved my class on the Iliad and the Odyssey. I loved my class on romantic poetry. I loved my class on behavioral finance. I loved my class on macro. You don't have to be interested in everything, but you have to be really interested in something. And then you have to be really curious. Tell me 10 things you've learned in the last three months. Because if you're a curious person, you should always be learning. So I'd look for curiosity, passion, and try to tease out this ability to be rational when wrong, that's, I think, the hardest thing to do.

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34:21If this is the year your firm is ready to modernize operations and harness AI, you can learn more at ridgeline.ai. And now, back to the interview. you. What are some of the other things that you brought to Atreides from your experience of Fidelity and how you wanted to build the firm? I wanted it to be a place where I do think investing is a search for truth and truth alpha generation is. Truth comes out through discourse and discussion. You become friends with people you work with and you don't want to make an analysts look bad in front of the portfolio manager. So I wanted it to be important for the analysts to argue with each other in a constructive, respectful way and to tell me I was wrong.

35:15Those are the most important things to me is I wanted it to be a place where debate was really encouraged. People understood that I genuinely liked being told that I was wrong. So I did a lot of that, tried to lead by example. Anytime somebody tells me I'm wrong, wow, thank you, let's talk about that more. I wanted to really incentivize people to not seek out confirmatory information. So instead of having an investment thesis, we have an investment hypothesis. thesis being a literal statement of belief. And if you state a belief, as a human, you become attached to it, whereas a hypothesis is quantitatively falsifiable and you're attempting to falsify it all the time.

35:59And I think that's an important distinction because everyone here always looking to falsify our hypotheses. A lot of being a successful investor, you have to find an investment philosophy that fits your own emotional makeup. And then you always have to find the right balance to quote Michael Steinhardt, between the courage of your convictions and the flexibility to admit when you're wrong. I tried to set all of that up to make it safe for people to have high conviction and also make it safe for them to change their mind when the facts changed. In some investment organizations, it's not safe to change your mind.

36:35So just try to set up an organization where there was healthy, respectful discussion and dialogue about stocks. People felt comfortable debating each other and suggesting that other people were wrong. People felt safe telling me that I was wrong. And all of that, trying to find the right balance between conviction and flexibility and get to truth. It's hard to do. How did you organize your team with this idea that you yourself want to know the names really, really well, what you learned from Steve at Fidelity, and yet you need that research support to have bandwidth? The way I think about it, and maybe it's not a perfect analogy, every position in the fund, I think of it as like an airplane.

37:17You can pick any moving vehicle. On some positions, I'm the pilot. On other positions, I'm the co-pilot. Some positions, I'm in the plane, and maybe the pilot or the co-pilot are people who I've worked with for a long time I've come to really, really trust. But I'm still in the plane. I'm going up to the cockpit regularly. A lot of that comes down to my knowledge level, where I feel the analyst's knowledge level is, but it's a balance. How do you get to the depth of research on a name that allows you to feel sufficiently comfortable to know when to buy and sell? I think just doing primary research.

37:59You do want to know those bullish and bearish prisms. And any stock, there's like three to seven key analytical debates. You need to understand all those debates. Every once in a while, you'll have an analytical angle that no one is thinking about, but that's rare. The analysts need to understand the analytical prisms for a given stock through which they're driving price action in the market. Where are we in consensus? Where are we out of consensus? How do you think of the concept of an edge on a name or knowing something that other people don't? Idea generation and edge are the concepts that I struggle the most with.

38:37None of this is to compare myself to Michael Jordan. But if you watch The Last Dance or you read any histories of the Bulls, Jerry Krause, who was the GM, after their second to last championship, said, listen, players don't win championships. Organizations do. He went on to say, it's not just Michael and Scotty and Dennis Rodman. It's the way we scout players. It's the way we draft players. It's the way we evaluate players and trade for them. It's the training facilities we have. It's the offense we have. Tex Winter's triangle offense. It's a system. We have an organizational edge. Well, after Michael Jordan left, they never won another championship.

39:25That is a truth that a lot of allocators struggle with because it feels safe and good to say, oh, wow, there's a process and it's repeatable. By the way, you have to have a process and you have to have the process that works for you. But any process that's repeatable that generates significant alpha, it's a very competitive world. It's going to quickly be armed away. In fundamental investing, any process-driven advantage just isn't going to last. So where does the repeatable performance come from? I would just submit that any investment organization, no matter how big, there's somewhere between two and 10 people.

40:04And if you took those people out and the organization had the exact same process, the results would be very different. I always think of idea generation as a very funny concept because particularly as a crossover investor, there should be no new ideas if I'm doing my job well. You should have a defined universe where we have a very high knowledge level. You should be aware of the fundamentals and then the fundamentals drive the valuation. The places where you have the biggest gaps to consensus and ideally the stock's cheap on both consensus numbers and dramatically cheaper on your numbers. That's where you hunt and vice versa for shorts.

40:49I think of the most important edge has recruiting, training, and retaining a great team. And then going back to that pilot-co-pilot, having an internal process such that we get the most out of our combined insights. For me, execution is the gap between our performance and the performance we could have had based on the quality of our insights. I make an effort to measure that every year. And every year get better. That's incumbent on me as a portfolio manager. And it's incumbent on the analyst. we're a team on each stock and it's our job to deliver the best outcome on that stock given what we know and then the rest of the team is there to be additive to that discussion and debate kaizen is a word that we often use here and my goal is to get a little bit better at execution every year if you bring all of those insights the ideas the team together ultimately comes into the Construction of a portfolio.

42:01Let's talk about the liquid side for now. How did you think about building a portfolio at a tradies that had shorts that you weren't involved with at Fidelity and a bunch of different levers that go into driving returns? The only thing everybody who ran a hedge fund said to me, and these are hedge fund luminaries, is listen, Gavin, you are going to hear from every allocator that shorting stocks is very different from a long only. And you should be cautious and learn to short. So it is super important that you ignore them. There's no difference except for the risk. But the same principles apply.

42:38If you're good at buying stocks, you're going to be good at shorting stocks. Now, you have to understand the risk differently. That was the second thing. I've had such a lucky career. I was so lucky to be assigned small and mid-cap semis in the year 2000. Another really lucky thing that happened to me. I took over my first fund. I think I was 25 years old. I went down 700 basis points relative in my first month. It's a lot. I'm like, oh my God, I clearly have no idea what I am doing. Fidelity had just hired a team of quantitative researchers. There was a lot of skepticism back then about the quants.

43:11They asked to schedule a meeting with me, and these are like people with PhDs. And they say all this stuff to me about how to think about risk and construct a portfolio and size decisions and selection for sizing. And I was like, oh my God, this is awesome. And I was like, well, when is the next time I can meet with you guys? They're like, well, to be honest, not many people want to meet with us. So we're excited to meet with you as much as you want. So I met with this team of quants for one or two hours a day, every day for more than a year. I read the Barra book on factor risks. I got used to thinking in terms of vol adjusting position sizes.

43:48But after a rough start, that background and thinking about risk and portfolio construction from a quantitative lens helped me make this transition. Because it's not the dynamics of shorting that are different in terms of what makes stocks go up or down. It's the risk. Because they can go up infinitely. You have to manage short squeezes, crowding. One of our clients had this great phrase, there's three risks for a hedge fund, LLC. liquidity leverage concentration. I now say LLCC, liquidity leverage concentration crowding. Understanding all of those was maybe a little easier for me because of that incredible education I got from those quants who I'm so grateful to.

44:30Where did that land you in terms of the gross net exposures that you like running? If you're going to run a high gross, the most essential thing that you have to manage is basis risk. Basis risk is when your longs and your shorts are not correlated. So quantitatively, if you're a hedge fund and you run a levered long book and a net exposure over zero, the most important factor for your returns is long short spread. You can generate an immense amount of long short spread by being long names that are uncorrelated. You can't be long a stock like GM and be short Tesla. From a quantitative perspective, that makes no sense.

45:12If you're long growth and short value, that's equally painful. If you're long value and short growth, that means you're just levered value. If you're long growth and short value, you're just levered growth. So if we're going to run with a high gross, it was important to me to try and generate long short spread in stocks that were quantitatively and fundamentally similar. If you do that, you can lever that up. And then that's how you get a sharp ratio that's ahead of the index. That's a hedge fund. Typically, a long short fund makes people spend more time on the shorts than the longs as a result.

45:49I'm curious, what drives the hypothesis? Is it a long idea? And then you're looking at the shorts to balance it? Is it a short idea that then you have to find longs to balance? Both, yeah. An alpha short without a funding long is hazardous to any hedge funds. The allocators always ask about alpha shorts, particularly as a contrarian. There's nothing more emotionally satisfying than being short a name that's a consensus long and being right. Alpha shorts are great, you just have to have a funding long against them. If you're going to run with an unlevered long book, maybe it's a little bit different.

46:30This is another thing about hedge funds that are underappreciated. If you're going to run with an unlevered long book under 100, then short alpha is irrelevant. All that matters is your shorts must make money. Full stop. How do you think about position sizing? I think of position sizing as being conviction-adjusted risk reward. What I mean by that is the best risk reward that we have in the book might be on a name where I don't feel like we have enveloped all of the outcomes in a high fidelity way. You can't envelope them. So that will be a lower conviction name. That's the conviction adjusted risk reward.

47:08Beautiful thing about a hedge fund relative to a long-only fund is a long-only fund is actually very hard to manage risk. And a long-only, you can manage it with a blunt instrument. In a hedge fund, it's with a scalpel. This isn't to say we're Citadel or a pod shop, but I do try to be pretty factor aware. I took the discipline I had from Fidelity in terms of long-only portfolio construction. There's three tranches of position size, just high, medium, and low, and just conviction-adjusted risk-reward. The one thing that is important to me is if you have a 35 % position in one stock, and then your second position is three or five percent, you're not a fund, you're a stock.

47:44Maybe some people like that. If I'm going to have one position in a 10, 12, 15 % range, a necessary condition for having that one position is feeling like there's at least two, three, four other names that I have a similar conviction adjusted, risk adjusted IRR in. Therefore, you have a diversified top of the book. Even if your biggest position is 15, the number two is one and a half percent, you're still a stock, not a fund. I'm always trying to balance risk-reward between those three tranches of bet size within that. The link that people have between turnover and time horizon is one of the strangest concepts I've ever encountered.

48:26Turnover should be a function of how often you change your mind. And part of that, in any discipline, valuation-based process, should be about how the stocks move. For me, turnover is mostly a function of volatility. What do I mean by this? You can have a one-month time horizon, never change your mind, and own the same three stocks for 10 years. You can have a 10-year time horizon and change your mind every month, and you'll have 1 ,100 % turnover. We underwrite stocks. We look out three to five years. We come up with a framework for risk and reward. If you're evaluation sensitive and a stock goes up 100 % in three months, either the expected IRR that you underwrote to just got cut in half or you took your numbers up 100%.

49:13You probably shouldn't be revising numbers up three to five years out, 100 % all that often in a high integrity research process. For me, turnover is a function of volatility, not time horizon. The concept that there are a few real stars that are driving the performance of a fund seems to fly in the face of the success of the pod shops. And I would love your perspective on that hypothesis and whether it applies to what's become a very significant part of the hedge fund landscape. At a lot of these multi-managers, there are a couple of pods, and maybe I am out of date, who are running a disproportionate amount of money with really good returns.

49:56The reason they have a disproportionate amount of money is because they have a long history of generating excellent results. At some places, there's an investment team of 50. And if you take the top 25 away, it's really different. And it's not to say it's just two or three people, but any competitive endeavor, it comes down to individuals. So let's turn over to the private side. You talked initially about the synergies across public and private investing. Where have you found that to be particularly relevant? It's always been relevant, but I think it's paramount in AI. One of the benefits of being a crossover investor is theoretically, if any company is good enough to go public, you should have had a decent amount of exposure to it as a private investor.

50:41You should have a familiarity with the business. You've probably met with the company a few times. You've probably done a lot of due diligence on them. Maybe if you're conflicted out because you're in a competitor. When a company goes public, instead of starting from scratch with the S1 or the testing the Waters meeting, you might have three to five years of history already. It's funny that some investors have an idea that you can do 90 days of work on a business and really understand it. I don't think it's possible for me to really understand a business. I need years of history, in some case decades, to see how the business and the management team have responded to challenges, how they have overcome adversity, how they've adapted to changes.

51:27It's really hard to do 90 days of intensive work and have a deep, thoughtful opinion on a business that gives you at least the knowledge level, the conviction I need to have one of those big conviction-adjusted attractive risk rewards. So what are some of the other reasons you think it's important? I have never seen a new technological trend where at every level of the stack, the competitors are both public and private. In other words, in the early days of the smartphone, it's not like Apple had loads of private competitors. There was this company, I think it was called Danger, became the basis of Android.

52:10The competition was mostly taking place with public, with Apple, and for a period of time, Nokia, and lots of other new technological revolutions. It's taken place in public, even with SaaS. Amazon was public. Salesforce was public. AI is different in that at every level of the stack, whether it's the frontier models, you have OpenAI, Anthropic, XAI competing with Google, whether it's semiconductors, at every level of semiconductors. The key competitors are both public and private. From an application perspective, there's all these verticalized AI companies that are running fast at different things and doing things in a very different way than SaaS companies are doing them.

52:50To invest in AI, whether privately or publicly, it's a big advantage to have both lenses. I don't know how it'd underwrite a private semiconductor company without a really detailed understanding of the public companies. And I don't know how it'd underwrite the public companies, vice versa. For AI, having both a public and a venture investment practice, it's important, at least for me and Atreides. How have you thought about competing for deals in the private markets? A lot of this comes from my friend Antonio Gracias. You want to be a repeat player in life with people, with institutions, with everything.

53:29In public equities, relationships are important. I'm very close to a lot of my peers. but in privates, people really remember how you behave when the chips are down. If you approach venture with the goal of, I want to be a repeat player with everyone I encounter, every partner at a venture firm, they're like a client. We need to take care of them. We want to have a repeated relationship with them over time. With founders, I want to generate references. So there's founders who we've passed multiple times on them, but I still talk to them every six to nine months. Viewing venture has a business where relationships are very important.

54:10Being a repeat player is important. Doing what you say you're going to do is important. All of this sounds easy, but I don't know how many people actually do it. And it's a big advantage. If the people around the table, trust each other, you can get a deal done really quickly and fairly. And those references are so important. Having CEOs who are willing to drop everything to give you a reference for a new founder, that's essential. A lot of venture firms are more resourced to try to create operational value add. In a world where you're not trying to compete on depth of resources applied to the businesses you're backing, what is it that's causing these CEOs to want to give you those recommendations to others.

54:57Giving them good, honest feedback and having that good, honest feedback be proven correct. That's one aspect. Being a crossover firm is powerful. Being able to say to a founder, I never have to sell your stock to get paid. That's so powerful. If you execute, I can hold you forever. And then being really honest with the founders. If you execute, I'm going to try and be very helpful to you for future capital formation. And if you don't execute, I'm going to be there to catch you. That's probably a different deal, but it's a fair deal. When you're in that position, you can do a lot of things. People really remember if you do those things.

55:35That just goes to being a repeat player and not optimizing for a single interaction or a single transaction. If you recap someone and you do it in a fair way, also you do it in a fair way to the existing shareholders who maybe can't participate, people remember that and appreciate that. The golden rule is powerful. treat others the way you want to be treated. For whatever reason, not a lot of people live that, particularly in venture. How do you position yourself against or alongside venture firms that are very well resourced and are trying to contribute operational value to the companies they invest in?

56:12I don't know how much operational value those venture firms are really contributing. I think a few of them do. So we're very close partners with Valor Equity Partners. If you were to read the Walter Isaacson biography on Elon Musk, there's a chapter called Antonio and Tim and all of the hard things they did. But they're doing real work. Tim worked in the tube shop at SpaceX, working on the supply chain, working on distribution. Valor has stood up repair centers for companies. They've sent teams to China to help stand up a supply chain. Going back to how important relationships are, I don't like to invest in a company and make it a big position unless it's either a repeat founder who I've had a long-duration relationship with, or there is a VC who I have a close personal and professional relationship with who has a really good track record, and they are on the board.

57:10I like to invest when I trust that wise advice is not needed because they're already getting it. And I will pick my spots like cut burn. But I think that's actually a pretty powerful pitch, series C and up. If you're a founder, the VCs who do seed A and B, who've built companies, they actually have really valuable wise advice. But by the time you have three of those people on your board, if you're a founder, you're wise advised out. Okay. And so one thing I say is I'm investing because I trust you and these people on your board to make really good decisions. And I trust you that when I have an opinion, which is rarely, you guys will listen.

57:54And hey, if we disagree, reasonable minds can disagree, but I'm not going to be another person continuously giving you wise advice. The value add that a firm like Atreides or any crossover firm can have is going public is actually pretty scary to a lot of these companies. There's all sorts of things. This is what you do the first time you get a short seller, write a report about you. Do not respond. I know it feels so personal. I know how personal it is. But just don't respond. Let the numbers do the talking. If you get in a public fight with them, it's just blood in the water. Even if you're right, it's just pattern recognition for them.

58:31It's going to attract more sharks, and it's going to be less pleasant. So the best thing to do is say, I'm aware they're short. I'm confident in the numbers. Let's see what the numbers hold. That's what you say. There's a whole set of things we can do to help companies go through the process of going public. You can go on the cover of the S1. You can be there during the lockup. And that's often an opportunity to acquire more stock in a company you know really well at a time when there's a lot of low information sellers. The short answer is a lot of the operational value add from a lot of these firms is wildly overstated.

59:07The wise advice is super not appreciated. Apart from the truly exceptional VCs, I try to be very high value added per minute I speak to one of these CEOs. After our discussion on thinking about portfolio and construction and risk in the public markets, I'm curious how you go about thinking about putting a portfolio together in your private market strategies. It takes time to get to know someone. The way we try to manage risk in the private portfolio is when possible, we start with a small check or have a long duration relationship with someone. And it goes back to it's really hard to make a high quality decision with 60 to 90 days of diligence.

59:47So the way we try to manage risk is by making sure that our larger positions in private companies are ones where we've had a long-duration relationship with whether it's the CEO, some of the investors. That approach has served us well. There is more bad behavior in private markets than I think people realize. FTX, it's very public, but these companies, they're not filing always audited financials. They don't have the controls. Particularly when something starts to go bad, there's a lot of bad behavior that can be really damaging. And then there's bad behavior when a deal goes south by other investors.

1:00:28That bad behavior costs you a lot of money. And the way to avoid that is to take your time getting to know people and only make a really large bet. Once you have a history with a person in a company, do they do what they say they're going to do? Are they honest? Do they behave honorably? Are they as relationship and repeat-oriented as I am? My rule is, trust, but verify. I will bounce the ball to anyone once. Then if I like them, I'll bounce the ball one more time. And if the ball doesn't come back, okay, no more bounces. It is funny. I think there's this community of people who are like-minded who bounce the ball to and from each other.

1:01:07And then you end up in that community and doing deals together. Some of this comes from people knowing you. I'd love to ask you about how you thought about your brand, your presence on X, things like that. When I was at Fidelity, X became a very important part of my investment process. Going back to AI, AI happens on X. The Jax team at Google got into a giant fight with the PyTorch team on Meta on X. And the heads of each company's respective AI division had to make a public truce and instruct their troops to stop fighting. You learned a lot following that fight. Anthropic researchers have said a lot of our hiring comes from what people say on X and what they might write in a substack.

1:01:54To a large degree, AI happens on X. But even before that, there's this giant community of investors sharing ideas, critiquing each other's ideas, in some cases dunking on each other. But you learn from all of it. And there's a lot of really smart people. So for the last three, four, five years that I was at Fidelity, X was a very important part of my investment process, but I was not allowed to post. It felt like, wow, I've learned so much from X as a consumer, as a lurker, as they say, that I want to contribute back. And then I found the more I posted, the more I got back. It's very funny. two things are true of most analysts.

1:02:37One is they're on X, probably under an anonymous account. And two, they think they're smarter than their PM. They may not work at a firm like Atreides where the PM loves to be told he's wrong. I love it. Sometimes I'll get in these dogfights with 15 analysts. They're clearly smart and they know it. And it's like, great. I'm not here to be right or wrong. I'm not here for ego validation. I'm just here to learn. When you put something out on X, even if people are dunking on you, as long as it's a smart dunk, you're learning, you're pressure testing your ideas. Our friend Patrick O'Shaughnessy has said having a big, high IQ following is actually a superpower, and it really is.

1:03:21So I think for sharpening your ideas. It's incredible. Then there's a whole nother dynamic. It really matters for deal flow. So that's why I got on it to contribute. And then I found the more I contributed, the more I got back. One of my friends said X is an exercise in cultivated equanimity. I try really hard to be nice on X. Sometimes people say that was the dumbest podcast I've ever heard. He's totally wrong about everything. I may or may not have a lot of draft replies, But I don't send them because I try really hard to be nice. People get a sense of who you are by how you behave in public.

1:03:58Because once you get a big X following, you have this huge community of trolls who are continuously dunking on you and quote tweeting you and replying. If you'd fly above it all, are respectful to everyone, never really get down in the mud. I think people get a sense of who you are. I want to ask you one more question before we dive in the closing questions. How in the world do you find time to talk to all the people you do, cover what you do in as much depth as you do, particularly in some of these fast-moving sectors? My personal life and my professional life are very integrated. I have only a few really good friends who aren't in the business because they've been friends with me since college.

1:04:42I have a doctor in California and a writer in Vermont. And apart from that, essentially everyone I spend time with, at least some chunk of the conversation is about investing. It's about technology. It's about venture. That is what it is. There's no real difference. I'm a very competitive person. This is the only thing I've ever been good at. Djokovic said, to be a good tennis player, you have to like hitting the ball. For me, hitting the ball is the first thing I do. I wake up and I'm either looking at emails or X, and my X is all about investing. The first eight hours of any day that I'm awake, whether it's a weekend or I'm on vacation, I'm working and it doesn't feel like work.

1:05:27You can't be competitive in this game if you don't, to quote Buffett, tap dance into work. And if you don't tap dance into learning about things and investing in technology, you're just not going to be successful because you're competing against people who are equally smart, equally hardworking, but for them, the work is just fun. Gavin, let's turn to a couple of closing questions. Before we get to the closing questions, I want to tell you about one of our strategic investments. We've made a few and each are working on a product or service we think will be valuable to our community. One is Thema.

1:06:01For all the private equity managers out there, Thema uses AI to help map the landscape and source private businesses. It's incredible what a well-designed AI tool can do to accelerate the discovery of businesses in private markets. There's a link in the show notes so you can learn more. And here are those closing questions. What's one thing most people don't know about you that you find interesting? Geez, well, I've done a lot of these at this point, Ted. I'm pretty open. I'm probably a bigger NFL fan than anyone knows. I'm an extremely competitive fantasy football player. And I should actually say fantasy football is probably the only thing other than investing that I'm good at.

1:06:42I've won my leagues at a statistically improbable rate. And that's because fantasy football and investing, they're fundamentally the exact same thing. You have to have a differential opinion. If you just draft everybody where their ADV is, you're never going to win. You have to understand, wow, the reason this running back wasn't good is the offensive line was better. they're changing to a different system and they've upgraded the left guard. And I actually think he's going to be good. I think I'm probably a much bigger NFL fan and bigger fantasy football, more competitive player than possible.

1:07:12All proceeds go to charity. I've also become a college football fan because of my wife, Becky. It's a big Penn State family. I have not missed a Penn State game in many years. And I do like Penn State. They don't have the names. It's all about the team. I think that's cool. Which two people have had the biggest impact on your professional life? The three fund managers that I referenced at Fidelity, Jennifer Urick, Steve Weimer, Will Danoff, they've had the biggest impact on me from public and then from a private market investing perspective, for sure, Antonio Gracious at Valor. One of my closest friends, we do a lot together.

1:07:46A large part of the way we approach venture is driven by the way Valor approaches venture. What's the best advice you've ever received? This concept of Ikigai was very powerful for me. Ikigai is a Japanese concept. There was a possibility that there's what you're good at, there's what you love, and there's what the world values. Ideally, I want to find something at the center of all of those. That was very helpful to me to decide to go all in on investing. Because early on, I felt like I got off to a good start. Okay, I'm okay at this. Although, I think it takes five to seven years to really know.

1:08:24And then I love it, and the world values it. So I think Ikigai has a concept was really powerful to me. From a business perspective, your former colleague, Mike Barron, who now is at Goldman Sachs, he gave me very good advice starting at Tradies. You have to get to a billion dollars. Don't worry about how you get to a billion dollars. Once you're at a billion dollars, you have some level of durability and resilience. Hedge funds are fragile. And the smaller they are, the more fragile they are. I do think it's becoming a scale game. And that was very important advice from Mike. So if you have a diversified business, it makes it a lot easier to be rational when you're wrong.

1:09:02If you don't have a diversified business, when you add on all the performance pressure that you naturally feel, the pain you feel from being wrong, if you're also worried about business fragility, it's a problem. And so resilience is an advantage for performance. All right, Gavin, last one. If the next five years or a chapter in your life. What's that chapter about? I think it's about a few things. Point number one, something I profoundly believe is that 50 through 70 are peak performance years for professional investors. I'm about to turn 50 and I'm really excited about that. Some of my closest friends like Steve Weimer, who's still investing, he's nearly 15 years older than me and it's just a big advantage.

1:09:45I am excited to be entering my peak performance years and really looking forward to that. Atreides is going to celebrate its 7th anniversary of our launch in May of this year. And so I had a 14-year track record of running money. And there are all these allocators who were like, no, we want to see one year of numbers. We want to see three years. And I was like, really? 15 years is different than 14? 17's different than 14? What are we talking about? But I have come to see the wisdom because it did take a long time to build processes and frameworks internally. internally. It took a long time, in some cases, for me to learn how to work with some of the really talented analysts we have.

1:10:24You can't just make no-look passes day one. What I do think, going back to that execution gap, the gap between your insights and your performance, I'm optimistic that they will help narrow that. We're, I think, in the very early days of AI. If ChatGPT is to AI as Netscape Navigator was, we're in year three of what should be a 20, 25, 30-year, really exciting cycle or trend. Given that semiconductors are my first love, both as a private investor and a public investor, and semiconductors are so foundational to AI, I think all of that is exciting. All of that will play into building Atreides into a firm that can hopefully endure beyond me, which would be so fulfilling for me.

1:11:08I'm excited for that, but that's a long way away. I'm going to do this for a long time because I love it. Gavin, thanks so much for spending the time. Really enjoyed it. Thank you, Ted. It was awesome. Thank you for being a friend. I've learned so much from you. Thank you. Thanks for listening to the show. If you like what you heard, hop on our website at capitalallocators.com, where you can access past shows, join our mailing list, and sign up for premium content. Have a good one, and see you next time. All opinions expressed by me or podcast guests are solely their own opinions and do not reflect the opinion of capital allocators or their firms.

1:11:43This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. It should not be construed as investment advice or a solicitation, recommendation, endorsement, or offering of any kind. Clients of capital allocators or podcast guests may maintain positions and securities discussed on this podcast. The statements and opinions contained herein may change at any time based on market or other conditions.