Adam Karr: The Investing Blueprint

24:22And the data tells you that really clearly. One of the things that we've done with that is then we create these nudges, what we call nudges. And so this is coded into our system. It's watching your behavior real time. And then if you're demonstrating one of these, it'll send you an email. And I'm never that excited when I get them, to be clear. and it'll say, remember the data. You're demonstrating this right now in this position. It doesn't dictate that you do it, but just encourages you to think about it. And so all of that, that whole mosaic is kind of like, how do you create a rigorous process that's repeatable, that really leans on the factors that can really help reinforce making the best decisions in a way that can be most constructive to you as an individual?

25:08Is there a correlation between the clarity of people's writing and their performance? I haven't studied the data to specifically support that, but I believe so. When you're able to clarify your thinking in writing, it's a very strong representation that you've clarified the thinking, right? And that's just one of the reasons why writing is so important, is helping to distill it to what's really key. We do a lot of work. We're really fundamental. we can spend months working an idea and then you get this 50 page report. I don't want a 50 page report. Like I want a few pages that really distill, like that's the hard part is to do all the work, but then distill it down to like the few things, the two or three really key points.

25:52And in particular, where we see this differently than others, capturing that and knowing kind of those fulcrum issues, like that's the sauce. Coaching too, how do you go through that process to do that really fundamental bottoms of work, but then be able to like really distill it. It's also a manifestation, I think, which you're pulling on that you've gotten to that. It's like there's simplicity on the other side of complexity, but you can only get to that simplicity if you've gone through the complexity. But I feel like everybody wants the simplicity. They want to consume the simplicity. They don't want to do the work.

26:29They don't want to go through the raw material. We were talking about this last night, sort of like listening to book summaries in a way, right? It's like they sound great and you listen to them in your ear and you're like, oh, that's amazing. But then you go to the source and you're like, how do they miss this? And it contextualizes differently in your head. And the degree of filters between you and the information also matters, right? If you're reading an author talking about a subject that they have no experience with directly, it's going to be very different than reading direct from the source, somebody who touched the problem and had the direct experience.

26:58So indirect versus direct experience. And then you talk about sort of distillations, two different people are going to come up with two different distillations. But if everybody just wants to consume the distillations, they're not going to be in a position to know this is a good distillation and this is a bad distillation. There's a couple really good threads in there to pull on. One is the filter, right? Like it's a really important thing to think about when you get that distillation back of like what's not in there. You really do want to source it. So a lot of times for me, I'll see someone and it's like, well, I want to either talk to the management team or listen to them directly.

27:37I just want to hear it for myself because I'm going to process it differently and I'm going to pick up on different threads. And you've got to be authentic to that. There's a tendency to want to convince somebody or persuade somebody to buy a stock. And so when you're persuading, you're persuading. And you may not as equally kind of pull out the potential risks or other factors to weigh against that, creating that objectivity and that honesty in it, I think is an important part in a process. And sometimes people over time will develop a skill at doing that, but sometimes not. And so you really want to remove the filter so that you can get to that kind of direct read.

28:14And then the other aspect of that is just, you know, really doing it on a primary basis. Like I like to say the magic's in the last 5%, you know, all of the standard stuff, you know, you've got to do and looking at the balance sheet and understanding the core strategies and the key drivers at P &L, et cetera, et cetera. But really getting to that last 5 % where you understand the business in a way that you do make that breakthrough, that synthesis, that's where the magic's at. Don't stop short of that. Keep pushing until you get to that point that you can distill it. What is the essence of this?

28:47One of the things we talk about in the team is what's the essence statement for this company? Meaning what's the thing that really drives it, it can take you a long time to get to that. When you've grinded on it enough and you get to that point, if you've really been able to dial into that thing that is the driver, that can be a real ballast to help you through as an owner and a holder of it. I like this notion of the magic being in the last 5%. Are there examples from other domains that come to mind where it makes a difference? Going back, this is probably a decade, we had built a position in a company called Motorola Solutions.

29:20You think of like the Motorola flip phone. And that was the original business, but they ended up splitting it to the handset business. And then what was their public safety business? They make devices and they manage networks for first responders. So police officers and firemen and whatnot. They run these networks over what's called a proprietary network. In the US, it's called LMR. The big bear thesis at the time, as fiber rolls out and you have broadband networks, these proprietary networks are not going to be necessary in the way that they were. I'm not a technologist, but we spent a lot of time understanding LMR networks for first responders.

29:57And it turns out that there are really, really strong reasons why having standalone proprietary LMR networks are really important. One, they're backward compatible. That's a big deal because you have really big infrastructure install base out there. Two, the redundancy is way higher. They can go several days, which we saw during 9-11, like the networks went out, but the first responder LMR networks were still operable. The common narrative out there, and when you talk to most people, they would quickly riff of like, oh, they're going to be disintermediated as broadband networks are more commonly adopted.

30:31Really getting into that last five to understand it and build conviction about it was the difference for us. Ended up taking a pretty sizable position and ended up being really rewarding for us. But to grind at it and really understand that bottoms up was a difference maker, right? And it also ties to some of my favorite investment situations are the bear case is the bull case. So there's this common bear narrative. And if you don't kind of do it on your own, your own work, if I were bringing up this name and I was talking to someone, they would have told me all of the reasons why I was going to get disintermediated.

31:04And I would have sounded really sensible and I was like, yeah, I'm not touching that. I'm not going to spend any time on it. But if you build it up yourself and you really spend enough time to get into that last five to understand it. It's like, not only is that wrong, but actually this is the bull case for why this is going to be a great company, because they've got a very formidable mode in a way that you don't understand. Are there other examples that come to mind? I really like this thread of the bear case is the bull case. You've had Brad Jacobs on your podcast. We first invested with Brad in 2013.

31:34There have been more than a few occasions through that journey where being able to get into that last five to understand in a way that wasn't commonly appreciated, I think allowed us to be a holder and an owner in a way that would have been difficult for a lot of folks that were only approaching that on the surface. So the first one, 2015, you made a big acquisition. It was a big pivot. Probably one of the best capital allocation decisions I've seen in my investment career. We bought a company called Conway. It was a complete pivot from the stated strategy at the time. His frame was, you know, we're asset light, brokerage, truck brokerage business.

32:11He pivoted to go into the LTL industry, which was capital intensive. And even when the deal was announced, even I was taken back like, hmm. But when we made the initial investment, we spent a lot of time on Brad as a CEO, as a capital allocator. He's a serial entrepreneur. And one of the things that's very clear in his track record is he's a capital allocator and he's opportunistic. When we pushed on this and the strategic logic of it, he framed it from the perspective of an opportunistic situation to create something special that wasn't in the original plan, but was uniquely attractive. And if you understood him and his history, and you'd seen that in his demonstrated track record, it reframed how you thought about that capital allocation decision.

32:58And so building up kind of that prior track record of understanding how he makes decisions, trader mentality. And by the way, one of his first businesses that he started was an oil trading business, right? So that DNA is in him and that track record was demonstrated. And then the second time was, and I'll never forget, I mean, we were actually sitting, we went to see Brad in December. In the midst of the conversation, his assistant came in and said, a short report has been filed. And she had printed it out and she said it on the table. And I can still distinctly remember the thud of this report.

33:36It was like a 75-page report. And so we continued to chat. About 15 minutes later, his assistant came back into the office and said, I think at that point, the stock was down more than 20%. And he said, sorry, guys, I think we need to cut this short. I need to attend to this. My colleague and I, when we got in the car and we're trying to read this short report, I'll never forget the feeling of anxiety in my stomach. And we had done a lot of work on it. It was intimidating to hear these claims on the surface. In the next three weeks, we leaned into that. We hired a forensic accountant to go through all of the statements, every one of the claims that were in there.

34:22Hired a private investigator. We knew what cars they drove, whether they had loans or not, whether there were any disputes The people on the short side? No, in the company. To understand Brad, his CFO, his chief operating officer. Because there were certain aspects in there that were claimed to kind of on dealing. Really to go into that last 5%, maybe the last 1%. It's how I spent my Christmas and New Year's is going down this route. But the beauty of it on the other side is it built a deep conviction, right? And we probably put a billion dollars into it on the back of that. and the stock was extremely dislocated.

35:00I think Brad and the company bought back 2 billion, like unprecedented magnitude of company buyback at the time. He borrowed money to buy back and bought back huge. It was a gut check. But on the back of extremely, extremely deep, rigorous conviction building, the easy thing would be to go the other way. Like, oh, this is messy. This is noisy. The common trope is rollups never work. And it's true. The base rate on rollups is not good. It doesn't mean all roll-ups don't work. What are the factors and common hallmarks of roll-ups that are successful? And are those conditions precedent here? And those are the things that we found as we went deeper and deeper and peeled back the onion.

35:41That's what it takes. And again, kind of turned it like the bear case is actually a bull case. And you're thinking about what's happening here. We've sort of talked about knowing ourselves. We've talked about game selection. We've talked about having a blueprint or a model to sort of follow and imitate before you innovate. Consider this a map. Now what? Now what do we do with this? How do we apply this to create an unfair advantage? So now it's about like accelerating that learning curve and those feedback loops. Try to put yourself in a place that's good game selection for you based on who you are and what your strengths are.

36:15you got a clear blueprint about how to go after that. And now, you know, you just want to, you want to turn the rocks and you want to accelerate the learning curve. And a big part of that, creating those case studies of writing it down, like, why am I doing this? Showing your work. Part of showing your work is distilling for you why you're doing it, tracking that over time and measuring yourself to it and improving your algorithm. You know, how strong is the learning machine? Like, are you seeing them take in new inputs based on the feedback that they're getting? adapt that and employ that as they go forward into how they're thinking about stocks, how they're making decisions.

36:51And it's really hard for us the way in our game selection because we're making these four or five year decisions. So it's very easy to say, well, it's about this and let's check in in five years. No, there are many incremental steps between now and then that you want to track to and hold yourself accountable to. It doesn't mean you're trading every day or every quarter, but you want to be really thoughtful around, this is why I bought it. These are the things I'm going to be looking for. And then holding yourself accountable during those interim steps and identifying those situations where it's worked well when it hasn't and then adapting for that, right?

37:27And just being really obsessive about that. It seems like one of the key skills is sort of being able to sift what's important from what's irrelevant. And a lot of people get confused. How do we get to the point where we can actually sift what's important from what's relevant?

37:58I think it's just learning from the feedback, right? We took it in 2018, we took a position in Symantec. So Symantec did use software like antivirus software, like on the retail side, it's to protect your laptop and desktop. You know, it was a mature business, very high free cash flow yield for a software business. They had hired a new CEO who was a real technologist. And so I spent a lot of time on him as a technologist because they needed to infuse that in the business in order to be able to grow and adapt. Most all of my work was around that. I thought that was the important question. In the very later stages of the work, we started to get some reads that, yeah, he was genuinely a very savvy technologist, but had a reputation for playing fast and loose.

38:49A little aggressive, very aggressive sales culture. And just as we started to get that read, the company came out, the board came out and announced the audit committee was going to undertake a review of the financial statements. Stock gap down 35%. Covered somewhat, but not fully, right? And so there was a layer there. And part of what goes in the mosaic of two things. One is if you're over myopically focused on one thing that you think is the important thing, you need to keep your mind open that there may be other things in the mosaic that are critical. And that when you do see those threads and we started to get a little bit of the flags, like you got to go after that and go after it really aggressively.

39:32Tying back to your question is, you're writing it down, you're showing your work. What are the things that you think are important? But then you're measuring yourself back to that and seeing the degree to which you've been demonstrating a good success ratio of zeroing in on the thing that is the thing. When I talk to entrepreneurs, it's so interesting to me because compliments, and this is a generalization, so it doesn't apply in all cases, but compliments, they tend to shut down. They don't tend to listen. They're already like a minute they anticipate a compliment out of you, they stop listening and you can kind of see it in their faces if you pay attention really closely.

40:07But if you say something that's a threat to their business, then there's almost like a predatory instinct that they have to be like, I want to know all about this. I'm curious about this. Like, why do you think this? Where did this information come from? How does this affect me? Like, how do we validate this? I feel like a lot of people are almost the opposite, right? Where it's like compliments are great. things that might be criticisms or things that we might not be great at. They sort of go in one ear and out the other, or you stop listening to them. I've heard that before, you know? And I think that's really interesting when it comes to running a business or getting better at things is like almost being like Darwin, right?

40:45Who kept this journal of things that didn't conform to his beliefs. And then he had to go through and like, how do I integrate this or just prove it? Or how do I think about this in lieu of dismissing it? I don't want to dismiss it. I want to incorporate this. How do you go about doing that and sort of like having, we'll call it a predatory instinct to listen to criticism? Well, three ways. One is we were talking about questions and it can be a really valuable way when you sit down with a CEO is to frame a question in a way that they have to respond. So like you might sit down and say, we've been hearing that you're having a lot of turnover in your sales department?

41:23Why is that? It puts it in a position where they kind of have to respond. Because to your point, a lot of times when you will frame something in the negative or as a threat or challenging, you know, CEOs are very skilled, like they'll shift it to something else. But if you frame it in a way that they have to respond, so that's one. I think two is, to your point of when I use the semantic example, like it was disconfirming, not to the big point, but in terms of the broader narrative of what I was thinking about the company and anytime that comes up, like you got to really focus on it. Like that's the most valuable information in the situation.

41:58And that can be really valuable also when you're working with an analyst and they're filtering, you're not getting it directly. When you hear that kind of stuff, that's what you want to go to and really pull on it. Cause they may not be that excited to put that first and foremost, cause they want to persuade. But when you hear it, you got to really, you got to pull on that. And then the third way, going back to the blueprint, we didn't talk about, but probably the most meaningful blueprint for me is the founder of my firm, Alan Gray. Genius is dissonance. I mean, the ability to kind of hold to competing.

42:29And so on the one hand, he was super long-term, but he was always obsessing also in the short-term. The long-term is just building up those short-term things. He was a person that was very convicted about things, like tremendous conviction, but it was always loosely held. And so if he heard anything that was counter threat, he would really grab that. And he was never ashamed, embarrassed, shy to then grab onto that and then totally flip his view. And so that ability to be very convicted, but then constantly in search of, he never wanted to talk to somebody that agreed with him about a position.

43:04Like who's got the opposite view on that? That's the person that I want to wrestle with intellectually and hear about that. Cause he was, he was like seeking it. And if he thought that whatever they were putting forward was good in that, then, then he was off. That ability to go both ways, I think is really, you know, really powerful. It's like intellectual ambidextrous. Are there other lessons that stand out that you learned from him? There's so many. I mean, he, he's a special person. I mean, the first thing that comes to mind is just his enthusiasm, his love of the game, right? Like it's just infectious.

43:38He used to say, there's nothing more perishable than a great idea. He was always turning rocks. Like the secret to a good idea is a lot of ideas, like always turning rocks. But then when he saw something he thought was really interesting, like it was just, it was all in. There was this dissonance, right? Where he was incredibly convicted, but at the same time, he was always actively seeking the opposite side of the view. to your Darwin reference, it's survival and adaptability, right? You want to be looking for the things that don't conform to the construct. And he always liked to talk to folks that were younger.

44:14And I think for a couple of reasons, one was it's less filtered, that it's closer to the source. And it's probably more contemporary in its view. I was reading earlier this year, I was reading a biography on Andy Grove and it talked about you rise to the level in the company that you're a manager, a more senior engineer. You lose your connection to the cutting edge engineering. And so it was a very clear part of their culture. It was non-hierarchical, quite flat. They would interact directly and they're like, why do you do this? And he was like, it's survival. I need to be close to the source of the people that know the problem the closest.

44:56And when I read that, I was like, wow, that's the same thing that Alan did in a different way, a different industry, a different business, but it's the same concept. I never called it survival, but I know that that was underneath it of like getting directly to unfiltered the best information. I had a friend who was the chief of staff to a CEO of a billion dollar company. before he assumed this role, he sort of said, you know, I think by and large, I know I'm paraphrasing here. So these aren't his exact words, but like these guys make incredibly stupid decisions. Uh, and I want to help change that.

45:32And then he got up there and he's like, actually, they make really good decisions with the information they have. They just have completely terrible information because it's been so filtered by the time it got up to the CEO's office. And so So he started this thing where he just started calling the person that he could get in touch with closest to the problem to understand the problem and having briefs from that person and skipping like five layers or six layers of management. And he got in so much trouble for this. I just think that's like a fascinating thing when you think about like, how do we shift what's important from what's not?

46:06And some of the variables you mentioned are like getting closer to the information, getting unfiltered information, going direct to people who have experience. And if you think about this in the context of learning, I also think it's fascinating because I think of learning as a loop. There's like you have an experience, consider that like the 12 hand on a clock. You reflect on that experience, which is the three hand. You create a compression or abstraction, which you can think of as the distillation, as the six. and then you have an action. So you have this loop that constantly feeds back into itself.

46:39Often what we're consuming is other people's compressions. And when we do the book summary, it's a great example of that, right? You're consuming somebody else's, you don't know what's missing. You don't know how they formulated it. Often they don't have direct experience in the thing that they're even summarizing. And so they're not able to capture the essence of something. Their distillation works for them because they did the work on the raw end and And you feel like it works for you as a person, but when you go to put it in practice, it doesn't work. The experience is like this thing that's, you know, like four gigabytes, right?

47:13Of memory occupying in your brain. So your brain sort of like, we're going to compress this into something much smaller. That's the reflection angle. You're sorting what matters from what doesn't. You're sort of like decompressing the emotions from things. You're determining what are the variables that govern the situation going forward? How do they interact across time? What are the models that sort of carry the weight here? And then you come to this compression, but you can go back from that compression to the experience where somebody who consumes just that compression can't go back to the experience.

47:45And the way that I try to explain this to my kids, as imperfect as this is, is they, every Sunday we have this cookie recipe and I make them make cookies before they can have the wifi password. So I leave the recipe on the counter and, you know, when they follow the recipe, the cookies turn out amazing. And when they don't follow it exactly, they have no idea what went wrong. Now the chef or the baker who created that recipe would instantly be able to look at a photo probably or take a bite of the cookie and they would know instantly what went wrong. Did they heat the butter too much? Did they not melt it enough?

48:22Did they compact the sugar too much? Was the oven running a little hot? And you know, even though it said 360 degrees, was it 375? five, but the baker, they would know that. And you want to surround yourself when you're trying to acquire information with bakers, right? And you want to be the baker, but you can't be the baker in everything. So you have to pick your discipline going back to what game are you playing? Where am I going to be a master? And where can I borrow and just crib from other people? Because by borrowing and cribbing the compressions, I'm going to get to average really quickly.

48:53I love that. Two thoughts on that. One is if they were making the cookies and following the recipe, if they wrote it down at each step, what they were actually doing, that gives you something to look back. Like let's say the cookies didn't turn out well, right? It gives you something to look back at and go on track and see kind of where they might have been off. And then the second part of that, just to the point of having a blueprint and the importance of that is you start with the recipe and you do it you know exactly but then you adapt it you're like well maybe if i put i really like walnuts or whatever chocolate chips i'm gonna put some chocolate chips in this and then you try that and the first time you do it it may not work that well but i still really like chocolate chips that's authentic to me and so you adapt it a little bit and then in the end you end up with something that's uniquely you and really special totally and now i want cookies fry me for cookies talk Talk to me about the will to win versus the will to practice.

49:55It's nice to have that goal, that aspiration. It's very different to have the will to practice, to grind, to make the cookies every day, and to write it out, and then look back at yourself, and look at the steps, and measure yourself, and showing up in that. That's why I also tie it just to the concept of it is the journey that gets you to that place. One of the questions that I really love, I think about, and I'm still evolving on is music. If you're a concert pianist, even though you're one of the best musicians in the world, you practice your scales every day. For us as investors, what's the equivalent of practicing scales every day?

50:35It's an interesting question. I think there's some parts of it that are temperament related, like just practicing deferred gratification. There's elements of it that are thinking about the world probabilistically, everything, just continuing to practice that every day or the uncertainty of a situation, but not taking that for granted and really practicing that day after day. Essentially inoculate yourself to prepare yourself for that. it's interesting because as you were saying that part of what popped in my head was if we go back and we look at the grades and in sports because that's an easy reference but like i talked to somebody who played with tom brady and they basically said like practice was a game and if you talk to somebody who played with mj it's like practice was a game like you you're not coasting and if you are he's calling you out and like um and kobe was the same way where they treat the practice like they would treat a game with the same respect, the same effort, the same dedication, the same frustration if they don't make a play, they don't sort of like half-ass it and expect to win on game day when they don't do it in the practice.

51:44How do you instill that mindset in your kids? Like where the will to practice, the will to grind, the consistency, the routine or ritual of it and taking pleasure in that and not the outcome. I mean, if I just draw my own example and I go back with my grandfather, which is the example that he set. I think kind of just the first layer of that with my own kids is just them seeing me grind every day. They make fun of me like, you know, I want to do what you do. I want to be an investor. You don't really have to do anything. You just sit around and read all the time. They don't necessarily see those difficult moments or, you know, getting up at four o 'clock in the morning.

52:23I don't think you're getting a lot of sympathy from our audience. But it's just, it's the setting the example is the first layer, I think. And the craftsmanship of it, no matter what you're doing, from a janitor to a soccer player to whatever. And then the second dimension I try to think more about with my kids is just trying to help them get in the way of the things that they really love. I have three kids from age 21 to 12 and they're so different, right? But for each one of them, to help them get in the space of, it goes back, what can you be obsessed about? It doesn't matter what it is, but what is that for you?

53:01And be deliberate about it. Be intentional about it. The concept of deliberate practice of really having that blueprint, grinding on it, leaning into it, measuring yourself relative to it. That's the thing. What have you learned about time management? As investors, we allocate capital. You could argue that's our most important job. You say that a lot of CEOs, erotically, most important job is allocate capital. I think there's something on top of that, which is more important, is how you allocate your time. People just don't think about it enough. And they fall into these patterns without really thinking about the most important question because you can get more capital, but you can't get more time.

53:43And so just as an investor, one of the things that comes up a lot is, okay, we're going to go deep on this company. and we're going to spend the next three months really grinding on it to understand it. But if we do that for three months, will we be in a better position to move the odds on a better outcome? That's the question. And there's some situations where absolutely you would be able to do that. A big question is how they might adapt or modify their distribution network. But on the other side, it might be something like TSMC, the semiconductor company, one of the best companies in the world.

54:18the big question there is a geopolitical question. I could spend three months on that. And I'm not sure that that would move my probabilities in terms of making a better decision on that thing that is the big driver. Every time I'm making a decision about where I want to focus and where I want to spend my time, it's like, will doing that result in the highest return on time as opposed to capital? And just being really rigorous with yourself and your team about that question, I think is something that is often overlooked or not really challenged to the degree that it should be. I like the notion of time allocation and capital allocation.

54:54Does that carry to your personal life as well? I can fall in the trap of like, is this useful right now? That's a horrible question to ask with your kids. Just to give yourself the space for play to just be in that moment with them on whatever it may be. You know, on Fridays and Saturdays, we have family dinners together and it'll start, call it at six o 'clock and everybody's got a role in doing something and everybody's in the kitchen and you're just mixing it up and you're just totally in that moment. the next thing you know, it's 10 or 10.30 and it's the end of dinner. That's been a four, four and a half hour journey and just totally lost in the moment of it.

55:39Those are some of the times that I value the most. And there was nothing intentional in that, except that you were going to be in that space. Going back to TSMC for a second, I think one of Buffett's filters is, is it knowable? That if the answer is no, he doesn't want to hear your opinion on it or your facts or anything. He just doesn't waste any time on it. I don't know if that's true, but I find that as a good filter. It's a great filter for like when you're in an argument with somebody or, you know, you're at a family dinner, big family reunion or Thanksgiving or something. And, you know, people are like arguing about very subjective things.

56:15If you just have this filter in your head, which is like, is this knowable? And if the answer is no, you just sort of say, you're probably right. You might be right. Uh, and just move on, but it's just not worth sort of spending time on. I think it's, it's an area to keep reminding yourself and have a discipline. I was recently in Australia seeing a number of clients and a big topic is the election, the US election in their mind. And obviously for us, it's a big deal, but the best answer is like, it's 50, it's kind of 50, 50, you know, and I'm not going to position and tilt the portfolio for a particular outcome.

56:46One, because I wouldn't be well served to do that. But two, to this point, like it's, it's unknowable. And so I just want to be resilient as opposed to spend all this time obsessing on. Is there going to be a particular candidate that wins and position the portfolio in that way? Much better to just focus on it from a position of resilience. Talk to me about that a little bit, because I think one of Buffett's earned secrets that most people don't recognize is that he's always in a position for success. He's very rarely put himself in a situation where circumstances dictate any action that he takes.

57:18And the optionality and adaptability that that provides makes him look like a genius because he can always take advantage of whatever the world's offering him. And if you think about it now, it's like they have 300 billion-ish in cash. And it's like, well, if the stock market crashes and the economy goes to shed, who wins? Buffett wins. And if it stays the same, who wins? Buffett wins. And if it skyrockets, who wins? Buffett wins. He's just set up this scenario where he's not predicting. He's positioning. Wrote a book on his. Through your eyes. I mean, positioning is everything, right? In the sense of you can think about it in the portfolio of do you have the resilience to absorb what may come?

58:09We have these situations where you wouldn't have anticipated it and then it can be quite devastating. If I go back to, I mentioned Symantec, but 2018, really one of the most difficult years of my professional life. So Symantec hit about a month later. It was in November, and I'll never forget because it was on my birthday. We had a position in a company called PG &E, which is a California utility. The wildfires. Yeah. So we went into it after they had had their wildfires, thinking that legislation had passed, but there was this little loophole, if anything happened before the end of the year, we were already through the main part of the heavy wildfire season, but then another fire hit.

58:51We're in San Francisco, I'm literally in my office looking out to Marin County and I see the flames and the smoke billowing and I'm thinking that's my position billowing, that's my portfolio, that's my investing track record, just kind of devastating. And I sized it at a level that I could take an impairment. I thought it was lower probability than the actual probability, but I wanted to try to position for that to weather it. And then a month later, the story I told you about XPO and the short report hit. So three hits, pretty devastating. It's part of the concept of kind of going back to this journey that you're on of like knowing yourself, think about game selection, accelerating your learning feedback, know that you're on this hero's journey and there's going to be these setbacks.

59:42And I think one of the things that really was helpful for me was kind of inverting it and just thinking like, this is part of it. Like this is part of the struggle. Like, you know, you're going to be in these moments and how you handle it. Part of it is a positioning going in, but part of it is also how you embrace it when you're in the moment, right? So it's another form of positioning, right? It's sort of, do you have the balance sheet when you go into things that are unexpected, but do you also have the mindset for how you embrace things like that when you're in the moment? Because you could sort of just suffer, woe is me, or you could say, okay, this is the hand that I have now.

1:00:16How am I going to play that? If you embrace it in that way, I find that it puts you in a very different position. I didn't get there immediately. It took me a little bit while, a little bit of a time period to get there. But I think that's less discussed, but in another element of positioning. I really think that that's key, right? It's like you can't live a hundred years and not go through all of the things that life has to offer from heartbreak to losing money in an investment and how you respond and your approach to those things. It's usually not now and the people who try to push it away or why me that causes sort of you to start reacting versus reasoning your way through it's like no this is where i'm at how do i deal with this which i think is very helpful mindset right which is i didn't i maybe not have created this i might not have anticipated it my contribution to this might be really low or it doesn't change the fact that i'm here and where do i go next and what do i do next we talked about time allocation as sort of capital management There's another parallel, I think, between business and life, which is personal life and sort of overhead.

1:01:23Talk to me about that. This is much less discussed, but I think is squarely in your positioning frame is, you know, how you run your personal life very much impacts your ability to make good decisions, particularly if they go sideways. Right. And so you see people in the industry who then, you know, adopt a certain lifestyle, a certain fixed cost base. And then you need the investment to work as opposed to making what you think are good risk-adjusted decisions. And I think once you kind of cross over into needing to work, you've changed the dimensions of your temperament and your emotions. And once you do that, you put yourself in a bad position to make great decisions.

1:02:13And companies do that. I mean, that's something to be very mindful of. It's something to think about as a firm and investment teams. Like it's, you're looking for a certain type of individual, but you're trying to create a certain culture within the team. You're trying to have a certain relationship with your clients. Like those are all part of enabling you to try to make the best decisions in the way that work for you. But if you break any one of those kinds of components of the flywheel, if you will, like then you really got grit in the flywheel and it could be dangerous, you know, in its worst case.

1:02:40Will you invest with attention seeking CEOs or like high lifestyle CEOs? Generally not. I mean, it's a part of the mosaic of what will be the driver. I mean, it's an interesting thing with CEOs. They're like, what are the characteristics that allow one to be in that seat? And they're not always correlated with the skills that are best to allocate capital, to make certain strategic decisions, to make decisions that are independent of what might be popular. have talked to me about the role of focus. We don't have infinite time, right? And so what you choose to allocate it to is really a critical decision.

1:03:26And it's really underestimated how important that is over and over and over again. And it's part of the journey, right? Because you're going to be in the rabbit holes, but that's part of like seeing the algo improve over time. And it's an area that you can help, you know, as a coach, kind of give some feedback on that. But just asking your question, like when you're spending the time to what we were just saying, Is this a question that I can answer? They're very simple, but take a simple idea. Take it seriously. Are there particular lessons from Munger and Buffett that you try to remember every day that have made more of an impact for you?

1:03:57Take the simple idea, take it seriously, and really lean into it. Focus on a few things where you can really make a difference that plays to you. But the discipline to actually do it, do it consistently, really lean into it. I'm really a believer that the magic in the sauce is in the extremes. And so like, just keep like, if you think it's worthwhile, like push on it, really push on it, like really go deep in the company in terms of how you size positions when they're ones that you really see, like you see the matrix clearly, like just take that and really lean into it. So what would you say are like the three simple ideas that you take seriously?

1:04:35Alignment, you know, is really an important one. Like give me an example. You profess to be a long-term investor, and that's really part of you, and you have the temperament to do it. But you need to manifest that in every way. So that starts with the kind of people that you hire. When I'm hiring and interviewing people, everybody likes to say they're contrarian, but are you really contrarian? Let's talk through some examples when you've done something that's different to the crowd in a way that had consequences and was difficult to do. create an environment. It turns out if you hire people that are really independent minded, they like to be given a lot of space.

1:05:10So you have to create an environment that gives them the space to do that. And you have to create a culture in the way that you interact, the way that you talk, the way you structure your meetings that focus around independent thinking and taking a longer term time horizon. On the other side, it means that you need clients that are actually willing to absorb the volatility that might come from taking a long-term position that are not going to be the first to redeem when you're out of sync with the market. And they don't just profess that, but that when they're in that situation, that's something that they actually do.

1:05:44By the way, maybe you put a fee structure around it. So all of our fees are performance-based, but they're refundable. So when we go through these periods that we're underperforming, we're refunding fees back to them in the same ratio. And we do that because it tends to be, when you're in that period, a way to cushion for the client being in that period which elongates their timeframe. But that reinforces us to be in a position to take long-term decisions. So it's one idea, simple idea, alignment and kind of having a long-term. But it permeates everything that you do. From type of people that you hire, the culture you have, to having paper portfolios that allow them to express themselves, to the clients that you have to the fee structures you have.

1:06:26Like it's everywhere. What's the next one? So alignment was number one. What's another one? First principles thinking and having an independent view, not filtering. I first met Alan, our founder, in the mid-90s, that very first meeting. He said to me, he was like, you know, if you want to get a 10 alpha, you got to come at the problem completely differently. You got to turn it on its head. When I was young and I was very new in my investing journey, I don't think I fully appreciate it, but 30 years later, I've internalized it. And just kind of that first principle is independent thinking and really just trying to get to the truth of an answer and then being rigorous around pulling on the threads that are opposing to it and grinding on that to get to the right answer and being okay, being different from everyone else is like, that's the thing.

1:07:23Like if you're with the crowd and with everyone else, like you're going to look just like everyone else. Just prioritizing first and foremost, always like, what do I think is the right answer, regardless of kind of whether or not somebody else says it. You know, the way I encapsulate that idea in my head often is through creating positive deviation or advantageous divergence. So it's not enough to diverge from the crowd. You actually have to be correct if you want to create results towards the tail. It's no fun being a contrarian just to be a contrarian. But a lot of people are, right? I mean, when I used to work at the three-letter agency, there's a lot of people who are contrarian just to be contrarian.

1:08:00Okay, you're contrarian all the time and then people just start to dismiss you and nobody listens to you. And then the odd time you're right, but you're no better than a lottery ticket at that point. You have to be thoughtful about how you do it. You do want to create advantageous divergence from the crowd. I like that. I mean, it's just truth. What is the real truth here? We always end with the same question, which is what is success for you? What's interesting to me about this question is how it's changed for me over time. When I was in high school, if you would have asked me that, I would have said, it's just to get out.

1:08:30When I was in my 20s, it was a number. And then as I got into my 30s, it was more about certain career aspirations and relationships, you know, my wife, my kids. But today I get a lot of meaning in using kind of my strengths and skills to help other people. Like I get a, it's, I call it being dream builder. That's in my firm, but it's outside of the firm too. And success to me is like having something that's meaningful to you that you're really going after and helping other people. I know what it It feels like to be in that position where you don't know how to do it, but it's in you. It's a hunger that you have.

1:09:12And when I see that in others and I'm able to help them do that, there's just tremendous satisfaction in that for me. That's success.

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