Sanjay Ayer – Think Different and Get Better at WCM (EP.366)

25:33We found that we were, for instance, doing too much in the way of earnings updates. Once a quarter, we'd publish updates on every earnings announcement. And from a team return on time standpoint, it started to become clear that was very low. People were spending a lot of time publishing those. Everyone was consuming those. In reality, generally speaking, not much changes in a given quarter. The worst impact was we were missing slow motion change because we were too zoomed in. So one of the changes that came out of a series of audits was let's do a more higher level thesis refresh every six to nine months on a name as opposed to getting inundated with these quarterly updates.

26:12What are some of these other guardrails that you put in place so that you are spending your time on the right things? We signal, we message, we have artifacts in the office. If you walk over to our conference room, you'll see two airplane seats. And the reason for that is we found our best ideas are not standing in front of a screen. They are going on travel in a group, flying back home, sitting across from each other with no Wi-Fi and just chatting, downloading on the trip, chatting about what we can improve on, talking about the team. These are conversations that just would not happen in the office, despite everyone's best intentions.

26:48Thinking about things creatively as far as how should we travel to really maximize insights through constraints, through modeling, through reflection week and audits. And then thinking about how do you generate feedback to get better? It's great conceptually to say we have a get better mindset or core value. How do you go about doing it? I'm curious of these airline seats. Have you found that you can replicate the experience just by having the seats in your office? It's funny. Now, they don't get used enough in the office. We tell people, if you want to go on a drive and just think, don't listen to music or podcasts, sorry, but just make sure you carve out time to think and be intentional about it.

27:32Go on a walk. We don't clock office time. We like being in the office, but there's no requisite for FaceTime. Really where I get bothered, I just see people in their office looking at daily pricing quotes all the time. I'll say, you know what? Get up, get out, go take a walk, think about something creative and come back. How do you think about the balance of the need, whether it's guardrails or just process of staying on top of what's happening with companies with that more creative or even the R &D concept of how you want to improve your process? I think the course correction will always have to be towards R &D.

28:10Because I think just definitionally, just given how much you're inundated with news flow and quotes and just coming into the office every day, it's very hard for me to envision a case where someone's focused too much on R &D and is missing the boat on individual stock picks. So I think the guardrails, at least to date, are always pointed towards how do you carve out time to think more big picture. because the blocking and tackling tends to take care of itself, given you're just confronted with a lot of this news flow and information on a daily basis. What's an example of how some of that R &D has impacted your investment process?

28:46So one significant process tweak we made is replacing our, what was a generic risk section in our write-ups with now what we call a premortem section. And the premortem goes something like this. It's three years from now, so say 2027, and this company's mode trajectory has flipped negative. What happened? And I think the premortem really, getting back to cognitive dissonance, really acts as a forcing function for coming to grips on the front end with cognitive dissonance and owning it at the time as opposed to suffering from it later on if and when the story turns for the worse. And I think mitigating risk of confirmation bias down the road significantly enhances cell discipline.

29:32And it also helps you think through the key focus areas for maintenance research. And I draw a big distinction there with what we were seeing in our risk section, which often amounted to vague or abstract risks that you either really weren't worried about or weren't specific enough to create any useful focus, things like macro or just generic competition and so on. I think the pre-mortem, we find it especially helpful when a company is firing on all cylinders, the story is perceived to be bulletproof. There's a lot of consensus excitement around it because it really forces you to think hard and be creative when thinking about how the story could flip.

30:12One example of pre-mortem on an idea or theme that's doing extremely well at the moment is in the obesity drug space. So companies like Nova Nordisk, Gila Lily, which have come up with these new seemingly blockbuster drugs where the future looks very bright. And so in the previous world, a risk section might look something like, I'm worried about competition down the road or unexpected side effects from these drugs emerging. And you see there it's not really specific. It doesn't really guide focus areas for ongoing research. Presumably, you were comfortable with those two risks in the course of your write-up.

30:49Whereas a premortem for us would be something like, look, a generalist investor could get tripped up with these names because they are misapplying lenses from consumer goods or technology where breakout products can benefit from positive feedback loops. In technology, you have network effects. In consumer goods, you have brand virality. And in healthcare, especially in pharmaceuticals, through history, you notice there are negative feedback loops. You have big major counterparties, namely managed care companies and regulators, who have very different incentives than the drug companies and can act as a limiter to growth.

31:27And so our premortem with the obesity drug companies would be at this point that they held a deaf ear to these counterparty relationships. And that ultimately short-circuited the durability of the growth curve. And in fact, the super high exponential growth early on, which investors got excited about, actually seeded the conditions for an eventual counterparty backlash and a negative inflection in that mode trajectory. And you can see there the focus areas for ongoing research would be asking questions to the companies and counterparties as far as how are you managing these relationships? What lessons did you learn from other drug classes like statins or PCSK9 drugs?

32:09What lessons have you learned from insulin pricing over the last decade where there might have been some self-inflicted wounds from mistakes of this kind? So I think the pre-mortem has been a really effective process change for us. and in fact, it surprised us to the upside in several ways. We're going to take a quick break in the action to tell you about SRS Aquium. Want to make sure your M &A processes aren't stuck in the past? Partner with a company that's been defining the future of dealmaking for nearly two decades instead. When it comes to M &A innovation, SRS Aquium has reshaped the way that deals get done, streamlining processes for maximum efficiency and minimum headaches, professional shareholder representation, online M &A payments, digital stockholder solicitation.

33:00SRS Aquium pioneered each and continues to set the bar for game-changing innovation. So leave the days of disjointed deal management behind and define your future with SRS Aquium, the smartest way to run a deal. Learn more at srsaquium.com. That's S-R-S-A-C-Q-U-I-O-M.com. And now, back to the show. As you've grown both in assets and the organization over the last bunch of years, how have you taken some of those ideas to make the team better? That's an interesting thought, Ted. Well, the third unstated core value of the research team, this think different, get better is make the team better. And all the leaders say we all intrinsically prefer a team-based approach.

33:49We believe it leads to more durable outcomes, and it just happens to be more fun. And I think what I've found is if you have a culture where people optimize for themselves and their own career path, you really just introduce a bunch of unspoken friction into the process that just bubbles underneath the surface and gets in the make good judgments of insecurities, biases, fear, career standing, porn scoring, all this friction and noise. Whereas if people are waking up thinking about how can I make the team better? Am I truly rooting for my colleague's success? All of a sudden that friction melts away and it shifts the mindset from a zero-sum one where your views are competitive to almost a win-win one.

34:30What views can be additive because all you're trying to do is collectively push the ball forward to get the best possible outcome. So that's been something in the last few years, we've really started to highlight more is try to wake up every day and take that team mindset, perspective take, what's in the team's best interest as opposed to just focusing on your own silo. I'm really curious when you take that concept into practice, there's a nice, warm, feel good concept of, hey, we'll all make mistakes, but we can get better with, you also want to have the best players on the field. And inevitably, you're going to have both of those things happen.

35:04I'm curious how you've managed messaging and the culture through the need at times to make change. Yeah, I think we're wired to change and get better. I think we just have the by way of luck, maybe initially, but now our hiring process, we hire people who are wired to take advantage of this platform we created, where we insulate you from group think and fix mindset and self-optimization. And we empower you to take advantage of a creative mindset, a growth mindset, and making teammates better. We're very intentional about who we bring in. We think about trajectory over pedigree. We like people who bet on themselves.

35:41We just want to plug them into this platform and see what happens. We don't get too defined with career roles. We want people to reinvent their own roles and evolve over time. I think for us, it's about really leaning into this platform we've created, find the best talent, but talent that's wired to really take advantage of the platform as opposed to just individuals operating in silos. How do you tease that out as you're getting to know someone and think about bringing them in? It takes time. I think just more interactions is better. Simulate working with them before you work with them. So we like long dialogues over, in some cases, years where we exchange thoughts with a candidate.

36:19Hey, I'm thinking about this. What are you thinking about it. So if you could de-risk the simulation process and almost act as if you're working with them in the moment, I think that helps a lot. It's getting better now with things like Substack and journals and social media where you can see how people thought historically. So that helps you perspective take and how they would act today. There's a lot of thinking about building questions that really get to the core values of, do you have first principles thinking? Are you willing to admit mistakes? Are you self-aware? Are you scrappy? Do you have a solutions mindset?

36:53There's no shortcuts. And that's why our process is pretty painstaking if you're on the other side of it. I'd love to turn to how you take some of these concepts and put them into practice. Maybe the best way to do it is to start with the concept of moat trajectories. And as you've created these typologies for what a growing moat looks like, What have you found that's a little different from what someone who thinks about a moat might? Moat trajectory conceptually is a pretty easy idea to get your head around. You think about economic moats, port of five forces, and you just take the second derivative of it.

37:27Instead of looking for bargaining power, is your bargaining power growing, et cetera. Conceptually, I think even before you get to a framework, we find it very effective because it steers you away from value traps. Just fundamentally asking the question, is this business getting better? Just, I think, improves your sell discipline quite a bit because you don't get stuck in that growth to value whipsaw that can really hurt performance. And then the second thing it does is steers you towards where change and relevance is happening. So the world is changing, mode trajectory, just having that second derivative mindset steers you towards where there is positive and negative change happening from the ground up.

38:07But then the question is like, how do you tease out mode trajectory? And through the notion of return on time, we had this premise that history might not repeat itself, but it tends to rhyme. So let's carve out time to do backward looking work. So case studies, data projects, looking back at large collections of companies and trying to tease out what separated good companies from great companies, from companies that haven't stood the test of time. And when we did enough of those, we started to develop these, what we now call mode typologies, which are effectively just pattern mapping onto economic modes.

38:43One example would be we've had a lot of success and we found historically a lot of outsourcing companies in various industries that can climb the value chain over time and evolve from low-value outsourced manufacturers, which is tend to be how outsourcing companies are born, to high-value outsourced R &D partners. They can grow their modes for incredibly long periods of time. And because the industry is organized around specialists, that creates an opportunity for significant variant perceptions. There was a Danish company we own called Christian Hansen, which made the dairy cultures used in the production of yogurt and cheese.

39:22The company came public, I think, in 2010. It had maybe mid-20 % profit margins out of multiple in the 20s. And what sell-side analysts should cover it? It's a weird company, right? Bacteria cultures. So maybe you covered Dow and DuPont, other chemicals companies. Maybe you cover consumer brands. But whoever you are, this is a one-off company. And you look at it and you're saying that the margins look high relative to history. The valuation looks high relative to the rest of my coverage list. But through that pattern mapping and developing this outsourced service R &D typology, we're just redefining the reference class and saying, forget about what sector it is or industry.

40:00It's an outsourced R &D business model. what do similar business models who are more mature, what type of margins do they generate? The Taiwan Semiconductor, CRO in healthcare, and you find they can generate 30 % and 40 % profit margins. So you just take that same set of information and you believe in mean reversion, you're just redefining the mean in a way. So you're fading those margins up, you're fading the valuation up, as opposed to the typical specialist who would take all that information and fade it downward. So that's how you can, through these mode typologies, we have about 12 or 13 of them today, just see patterns that others might not see through an outside view type framework.

40:40What's another example of one that cuts through different industries, but works if you look at it as its own typology? One that we find ourselves owning more and more is what we call niche industrials. And so these are companies that operate in a niche, have a significant market share, but in an industry with limited scale. So it doesn't invite multiple competitors. There tends to be a complicated route to market. It could be an engineer-to-engineer sale. And oftentimes, there is that climbing the value chain element to them. And niche industrial would make you think they should be industrial companies.

41:12But in fact, many healthcare companies. We owned a company called West Pharmaceutical, which is a pharmaceutical packaging company. And for us, what it is effectively, it's a niche industrial. It's a low cost of goods, extremely high cost of failure product, 75 cents for a rubber stopper or plunger that goes in a syringe for a drug that costs$1 ,000 plus a dose. What makes our business model unique is the packaging is part of the product from a regulatory standpoint. So if you want to switch suppliers and switch from West to a competitor, you have to refile for approval. So that's going to take years of testing and trials, and you're not going to take a chance on a fly-by-night operator in China to save a few cents.

41:54So that's one where a similar concept, we looked at it, I think, at 15-ish percent margins when we bought it. And we said, look, other similar niche industrial companies, if it's a Graco and Amphidol, et cetera, they have margins in the 20s, sometimes 30s. So similar concept is the answer to R &D one. How have you gotten better at research on the culture of businesses? It's a journey, Ted. I was a skeptic on culture when I first joined. I had read the book The Halo Effect before I read Good to Great. And almost everyone who loves culture started with Good to Great is what drew them in as far as the secret sauce of durable, outstanding companies.

42:33Whereas Halo Effect will say people get the cause and effect. They reverse the causality there. If a company is performing well, people will describe it as having a good culture. But it's the performance dictating the explanation as opposed to the culture driving the performance. So I had a skeptical view. And it was only through a lot of learning, mistakes, auditing some of my winners and losers over the years that I got to a point where I was drinking the Kool-Aid on culture. And really, over the last 15 years, we've just steadily developed a playbook around it. For instance, I think a lot of people think about culture as touchy-feely, right?

43:07Are employees happy? And for us, that's not the question. It's more about alignment. Are employees behaving in a way that will help that company grow its moat? Very different for an industrial company or railroad versus a tech company like a Google. You could just conceptualize the different behaviors and cultures. That notion of alignment, that notion of adaptability, we found a lot of our best investments have been companies, especially in fluid industries like technology, companies that have been able to adapt and turn potential roadblocks into opportunities and capitalize on new opportunities that come their way.

43:43And so we have lots of examples of that. and then cultural strength. We did make a few mistakes where we're just betting on the people at the top and not asking ourselves, like, how deep is that culture? How widely held are those beliefs? How intensely felt are they? Figuring out the right questions to ask, who to talk to, we feel like this is something we're building on our own. There's no real textbook on how to analyze culture as an outsider. It's been a fun journey, and we've built out a whole team now that really focuses the majority of their time on just culture. What are some of those key questions that you've learned to ask that just help point you in the right direction?

44:19They sound simple. It's tell me about a mistake you made and what you learned from it. That sounds like a basic interview question, but maybe you would be shocked. How many CEOs struggle to answer that question or talk about some irrelevant small acquisition they made? Whereas we own a company called Mercado Libre, which you probably know is like the Amazon, Slush, PayPal, and Latin America. And what we always loved about them was the level of candor they had about mistakes they made and the level of external awareness. Tell me about something you admire that a competitor does. That'll jar most companies.

44:51They don't want to talk favorably about competitors. Whereas MercadoLibre would talk about, hey, here's what Alibaba is doing against JD in China. Here's what PayPal, maybe the mistakes they made in the U.S. And so having that external awareness, which I think is critical for adaptability. adaptability. So each of those pillars, we break down and have various questions that we use to tease out how our company will score on those. But we also are constantly iterating on those questions as well. What have you found been the most effective practices to learning from mistakes through feedback on the team?

45:22I think feedback quality is the biggest challenge in investing. And I think concepts like deliberate practice have become popularized, like how do you get better at golf? Just get out there, you take a lot of swings, you course correct, you embed the feedback. The problem in investing is that feedback quality is poor, at least for our flavor for investing. You're long-term, you're not making that many decisions, takes a long time to get the feedback, multiple years if you're right or wrong. And then there's just a ton of noise and randomness in that time period. If you have any kind of formula around feedback quality, I think investing would score among the poorest of any professions.

45:57You have to be mindful of that challenge and make sure you are generating feedback that has high signal, which means generate lots of feedback, and then carving out time to reflect on that feedback and looking for patterns. So you don't want to just act on an individual mistake because you can actually compound that mistake. But if you see patterns where it seemed to be getting this type of investment wrong, let's explore why. And maybe it's an individual mistake, maybe it's a team mistake, that can bubble up into a conversation. And one major initiative, we actually completed recently to address this feedback quality problem in investing is building out a fully-fledged proprietary journaling app that's custom-made for investing.

46:40And so we've long here at WCM had a journaling culture to help create that raw material for learning, but it was highly scattered. Think Evernote journals, Excel spreadsheets, who knows, sticky notes. And we decided if we really want to be serious about high quality, high signal feedback, we needed to really step up and centralize this raw material for learning. So we spent a lot of time, a lot of money building an application we call Project Everest that centralizes all this learning, raw material, and provides a really easy user interface for analysts to enter your entries and eventually do analytics on this data over time.

47:18And so really everything we do and all decisions we make, not just buys and sells, but passes, random predictions we make in the office, It's logged in there and tagged with a whole host of custom tags that we've created. It's been a fun initiative, and you can already see some of the signs as far as accelerated high-signal learning. One example of that would be the setup we often see with founder CEOs who have come out with a major new product or initiative. In the near term, it looks murky. Maybe the uptake from customers has been slower than expected, or there's some near-term financial pain because of the new initiative.

47:55I think there's often a notion that that's a setup where you want founder CEOs because they have that long-term vision, long-term thinking, willing to look through short-term pain for long-term gain. Reed Hastings with Netflix and moving into streaming, Jeff Bezos with Prime. Those are often examples that people would point to. But we found for every Bezos or Hastings, there's dozens of examples we've encountered of these setups where a founder can actually run a company off the rails because the idea proved to be flawed. And you can imagine these scenarios where the founder has a track record of being a visionary.

48:30As an investor, it's very difficult to distinguish that grit and long-term thinking with stubbornness on a flawed idea. So with this Project Everest, we've been able to surface a bunch of these setups and launch a project to see if we can better tease out X and Y if there are common patterns, right? So maybe bench strength is something to dig into. You're not having a bunch of yes-men where people can push back if the idea is in fact flawed. Maybe it's self-awareness or introspection from the founder to pivot or course correct when the feedback is negative. Maybe it's teasing out whether there's a defensive component to the new initiative, and it's not purely offensive.

49:10Ideally, Everest, you have a lot of data points, and you can run sophisticated analytics on. But even when you just have a handful of data points, I think you can explore hypotheses around certain patterns and launch some, I guess, R &D projects that, for us, could prove to be very high return on time. Over the last 10, 15 years, you've been at the firm, for the most part, you've been on this exponential one-way trajectory. and then fall of 21 hits. And for the first time in a while, growth stocks sell off a little bit. And I'm curious what you experienced over those last two years. Yeah, it really dovetails with your last question to the best, how do you incorporate feedback?

49:49It was a tough backdrop for us as growth investors, just given the pond we fish in, not having investments in areas like energy was difficult from a relative standpoint. But it was a unique environment for us because typically we tend to do well during down markets. and this was an outlier. And yes, there were some macro considerations to explain that. But I also think there were some mistakes we made. And there weren't mistakes in 2022. There were mistakes in 19, 20, 21, as far as maybe, for instance, how we didn't maybe diversify our research pipeline sufficiently. But again, it gets back to that feedback question, because you could take two extremes.

50:30You could say like a football cornerback, just next play. Forget about what happened. It's always about the next play. That's the best way to operate. And there's puts and takes to that. On the opposite side, there's this notion of taking the intensity and grit to learning, which is about every day trying to get better. And the challenge with that is twofold. One, as we talked about, you could learn the wrong lesson because of poor feedback quality. But actually, the worst possible outcome, in my view, is learning the right lesson at the wrong time. At least in the medium term, you'll end up compounding a mistake you just made and drag out underperformance for many years.

51:05And so I think you have to take the feedback, understand, reflect on mistakes, but sometimes there are media changes to be made and sometimes you want to park those mistakes and make more structural changes that won't yield payoffs for three years. It takes a lot of intentionality to strike that balance. There's an example. You mentioned tweaking what was coming through your research pipeline as one of those lessons. I'd love to hear more about that. When you think about building a watch list and what you cover versus what you don't cover, in the last four or five years, there was a lot of new names coming across our radar in areas like software with a lot of IPOs, areas like semiconductors, areas like fintech.

51:48In the spirit of not having blind spots, I think we leaned into that from a research pipeline perspective and wanted to build sufficient coverage around these up and coming sectors. And I think just as we build a portfolio or at least aspire to a portfolio that's all weather that can do well in different cycles, I think you could take that same mindset into your research pipeline and make sure your pipeline is adequately diversified by the type of business, the industry. Obviously, in hindsight, you could think about long duration, short duration type considerations. And then I think those guardrails were in place, but not to the extent of which they could have been.

52:22And so I think we got a little bit lopsided in the types of names we were writing up for a few years. And so that was a change we've made since. One of the other things that has changed in the organization over the years is expanding different strategies beyond international growth. And would love to hear your experience in building out the firm to be a more diversified offering. It's a really interesting question because I think growth in this industry has a bad name. If you're trying to product proliferation, it's a common concern if you're an allocator. And so we think about a few ways. One, if we're going to build a new product, the first question is, can we do something different?

52:59We have no interest in building Me Too products. Can we leverage the WCM platform, those core values I talked about before? The third question, and the most challenging one, is how do you balance the added resources it'll take to sufficiently do that product well? versus the notion that could this product make our existing products better? And I think we have a hypothesis, at least, that the products we've launched, like emerging markets, China, international small cap, they are making our flagship products, for lack of a better term, better. And I'll give you an example. Nowadays, a lot of investors are thinking about industries like semiconductor equipment, life sciences, because there's really good businesses in these industries, and there's maybe a notion that the cycles are bottoming.

53:45That could be an area to deploy capital. I think where investors would be liable to get tripped up in these industries here is the snapback tends to be less sharp than expected because there's emerging competition from Chinese competitors. And so having a portfolio that invests in emerging markets, having a portfolio that invests in China, I think takes an offensive mindset towards those emerging competitors to the companies you own. And I think you'll be quicker to uncover blind spots and manage risk. If there is a potential moat situation at play that if you didn't have those products, you just wouldn't be on top of.

54:24For instance, if I'm looking at Danaher, am I better off from a team return on time standpoint reading another case study on Danaher business system or researching a local Chinese competitor that's up and coming? And our view is the latter is at this point in time, a higher return on time. So I think when you think about growth, it doesn't necessarily have to be bad. You have to be mindful of the outside view and what scale does to managers. But I think if you're intentional about it and you do it deliberately and you're self-aware about some of the trade-offs, you could do it in a way that improves the whole.

54:54What are some of the other areas of groupthink that you see in the industry that you've decidedly tried to do things differently? I think one of the things I think a lot about, Ted, is this notion that, yeah, I like to use this term internally, creative laziness. And people hate it because analysts build their identity on grit and self-sufficiency and hard work. And if you're using some laziness, it's instantly rejected. But I like it because I think, again, it's this notion of everyone works hard in this industry. Everyone puts in the hours. And I think people zoom in too quickly. And they try to tackle things through brute force.

55:27And that's what we talked about earlier with that information gathering mindset. And not asking, like, before rushing to answer a question, ask, is this the right question? As opposed to doing 10 expert network calls, maybe the best insight is coming from a small partner in Scandinavia. That's the person. We should fly on a plane and just meet that company because that's going to be the unique insight. I just see in the industry this notion of just tackling things through brute force, not bringing a creative elegance. I use this example, which people laugh at, is Nathan's hot dog eating contest.

55:59This guy Kobayashi wins all these contests. And what he did is he legitimately reframed the question, put like, how do you eat more hot dogs? So how do you make hot dogs easier to eat? He snaps it in half, he dips the bun in water. Maybe elegance is not the right word in that sense. But there is a creativity, a creative laziness that he brought to bear, which I think there's something to learn from there. As you've grown the assets and had more conversations and more clients come in, And I'm curious what you've seen from the other side of the table as some of the things that resonate both positively and negatively.

56:34Negatively is easy. This notion of drift, it drives me crazy because I think getting better, it's almost punished. If you have a notion of getting better, learning from mistakes, showing vulnerability, having a growth mindset, the industry writ large will be very quick to ascribe the term drift, style drift, process drift, thesis drift. It's like, we're going to make mistakes. We have made mistakes. Here's what they are. Wouldn't you rather us learn and get better rather than have our heads in the sand? Just have the blinders on. And I totally get why you're plugging a hole in the portfolio. You want to make sure that the fund plays the role you intended it to.

57:11But I think not just being too quick to jump to this notion of drift and understanding that everyone is trying to get better and evolve. And that shouldn't just be reflexively punished. You should try that perspective take on where you're coming from. I think we do a pretty good job, Ted, of being candid with prospects and allocators about, here's when we're going to do well, here's when we're not going to do well. We're pretty transparent about who we are, what our values are, types of markets that will be more difficult. So I think we try not to make false promises. And so I think that is the same way if companies get the shareholders they deserve, I think we try our best to get the right aligned allocators involved.

57:49What are some of the lessons you've learned from some of the CEOs of your portfolio companies? There's a few that come to mind. A recent one is a portfolio holding called Arch Capital, which CEO's name is Mark Grandison. And Arch Capital, by way of backgrounds, it's an insurance company. It just has a phenomenal track record of growing book value and attractive returns on capital with limited volatility. And their secret sauce is this notion of cycle management. How do you operate with a counter-cyclical mindset in a predictably cyclical industry? Taking advantage of human psychology, market psychology.

58:23But to the point where I learned, the CEO, Mark Grayson, he uses this quote, luck is the residue of design. I think Branch Rickey, it's attributed to him and it probably predates him, I'm sure. But this notion of designing an organization and the culture, whether it's temperament, messaging, incentives, hiring, which you talked about, it's what investing is. How do you bring a counter-cyclical mindset to a cyclical industry and marry that as Arch does with an entrepreneurial bent? I've learned a lot and I've tried to increasingly try to aspire to model WCM after what they do. There's another executive at a company called Bajaj Finance in India.

59:00His name is Rajiv Jain. Bajaj is probably the most understudied consumer finance company in the world. It's probably what every emerging fintech company should aspire to be. And he uses this quote, like, long-term planning is often overrated and counterproductive. We think about that a lot because we're not big strategic planners, five-year vision type of manager because we think it can create blinders, right? You miss opportunities right in front of you. But I used to hide from that a little bit because it was that build your plane as you're flying it. And I think seeing a company like Bajaj evolve and just emerge into a Goliath through that mindset kind of gives me a conviction we're on the right path.

59:37And then the last one is one of my favorite executives. His name is Pedro Arndt. He is the CEO of DLocal. He came from Acata Libre. And what I learned from him is just how to interact with the person on the other side of the table. He does it with candor and active listening or learning mindset, talking about mistakes. It opened my eyes to whether it's the fund manager with a corporate, whether it's a manager with an allocator. It doesn't have to be adversarial. It doesn't have to be nitpicking. You don't have to be trying to get point scoring or gotcha moments. You can build a really fun win-win journey with the person on the other side of the table.

1:00:13And I learned a lot of that from Pedro. Even though you're not big five-year planners, curious to ask how you think about where WCM goes from here. Yeah, we're not big planners, Teddy. I think if you ask me what the five-year plan, it's 10-year plan, it's all I care about. What are the vibes when I walk into the office in 2035? Are the core values more vivid or are they less vivid? Are we finding people who are flourishing in the platform we've created and pushing the organization in brand new ways I can't envision now? That's a good thing. Are we looking back at what we're doing today and cringing a little bit at the way we do things?

1:00:46That's a good thing. That would be my measures of success. I would hate to walk into the room and get any semblance of bureaucracy or groupthink or everything we've tried so hard to insulate ourselves against. What are some of the things today that if you look back five years ago, you would say are cringeworthy from how you were doing things five years ago? Oh, there's so much. We have a big believer in leading with vulnerability. We did an offsite several years ago where Mike Trigg and myself, we got up and we just talked about every mistake we made over the last 10 years. And that was it was like a 50 point PowerPoint deck and showing about these mental models that you just look at them like, what were we thinking?

1:01:25Individual stock picks. And I think just doing that and having that vulnerability, it just gets people the right mindset. I'll give you a very live example, Ted. We're doing a reflection week now, which I talked about. One of our newer analysts, Dave Hange, he just wrote a beautiful piece about how he struggled with vulnerability because he viewed vulnerability as imposing on others, taking rather than giving. And a lot of his identity growing up was being scrappy, self-sufficient, having grit, figuring stuff out on their own, don't impose. But now he's seen other people show vulnerability and he's viewing that as courageous.

1:01:56It makes him want to help them more. So he wrote a really interesting piece, How to Reconcile That. When I'm doing it, I feel like I'm a taker. When I see other people doing it, I view them as a giver. I think really leaning into that vulnerability is critical and something we as leaders always try to do and try to overdo it sometimes. but I think if you want to build a high trust team, you've got to get all the noise out of the way, the frictions, the insecurities. And I think starting with vulnerabilities, at least I've found to be the best starting point. Sanjay, I want to make sure I get a chance to ask you a couple of closing questions before we wrap.

1:02:30What is your favorite hobby or activity outside of work and family? Yeah, I've gotten into this sport called paddle, which is like a tennis squash hybrid. And Mike Trigg likes to talk a lot of trash. So I've got a great doubles partner, So I'm looking forward to taking him down soon. What's one fact that most people don't know about you? I like to move a lot, like move houses a lot. And it drives my wife crazy. But I try to explain to her, there's a thought process behind it. I do feel like moving slows down time, or at least stretches out your perception of time. Because you find a new neighborhood, you build out into a new home, you get ingratiated in a new community.

1:03:06I think it slices life into individual chapters. And there's some novelty and memories around that. No, but if anyone out there is nodding, my wife is not nodding. I can tell you that. What's your biggest pet peeve? Problem admirers. I think if you can't think of a solution to a problem, or at least a pathway to a solution, don't make your identity just constantly griping about the problem, amplifying drama around it. I feel like a lot of young people especially get trapped in that identity. Which two people have had the biggest impact on your professional life? Two people you've had on the show before, Ted.

1:03:37Mike Tridpaul Black. Mike, I said this in front of a firm recently. If you really want to grow as a person, find someone in your life who, when you're down, will pick you up. And when you're up, will push you, often beyond your comfort zone. I think there's a lot of people out there who'll do one or the other. Exceptionally few people will do both. And Mike's been that for me for 20 plus years. Paul, that leadership style. He is throw you in the deep end, but with a lot of grace and a lot of patience. I'll give you a quick anecdote. I was like 28 at the time, pretty new to WCM. And I went to Paul.

1:04:12And this is a problem admirer mindset right here. I said, Paul, I don't think we have a research culture here. If I was him, I would have been like, just shoot me out. What do you know about research culture? And instead, he just said three words. He said, go build it. That jolted me into a solutions mindset. It was so important for my career. And it's something I've carried forward to this day is always look for solutions. And if you hadn't said those words, maybe I would be a problem admirer today. What's the best advice you've ever received? I've had a few people tell me this, and it sounds so simple, but just do exceptional work because someone will eventually notice.

1:04:46I think people short circuit their potential by you just get too caught up in your circumstance. Maybe you don't get along with your boss, your colleagues, you're not getting the promotion you think you deserve. It results in demotivation, your work suffers. But I think if you just pour your energy into doing great work, someone will notice and it'll usually be someone you can't anticipate, a customer, a partner, someone outside their organization. All right, Sanjay, last one. What life lesson have you learned that you wish you knew a lot earlier in life? Made me pick my sports teams more wisely.

1:05:15I was a long-suffering Knicks, Mets, Dolphins fan on the East Coast. Now I'm a long-suffering Angels, Clippers, Chargers fan. But more seriously, it's finding your own voice, Chad. I think when I first joined WCM, I think a lot of young people get in this trap is you hear Paul Black, Mike Trigg, Kirk Wynrich, our founders tell a story and tell it so persuasively about what WCM is, what makes us tick. And you try to memorize those words and spit it back in the marketing setting, for instance, and you just get blank faces on the other side because it's not authentic. And so I think you can borrow ideas, but once you develop your own voice on the topic and lean into your journey around it, it changes everything.

1:05:54Your disposition changes, your body language becomes much more engaging. Meetings transform from a test or a conversation and you just have more fun doing it. So that's a big lesson. Well, Sanjay, I want to thank you. This goes all the way back. I remember an email you sent me almost seven years ago as one of the first true fans of the show. So it's really fun to come full circle. And thanks so much for sharing this insight into the research process and the continued evolution of WCM. That's a pleasure, Dan. It's been fun watching your journey as well and seeing the podcast have so much success.

1:06:24Thanks for listening to the show. To learn more, hop on our website at capitalallocators.com, where you can join our mailing list, access past shows, learn about our gatherings, and sign up for premium content, including podcast transcripts, my investment portfolio, and a lot more. Have a good one, and see you next time.