Brad Gerstner – Public and Private Investing - [Invest Like the Best, EP.179]

My guest today is Brad Gerstner, the founder and CIO of Altimeter Capital, a multi-billion dollar technology-focused investment firm. Brad and his team are known for a deep expertise in internet-enabled businesses, including Expedia, Facebook, Uber, and many more. We discuss the evolution of opportunity in this style of investing, including the important shift to private investing, where so much of the value creation now happens. I won’t soon forget our discussion of consumer intent on the internet and how it has shifted, the role that essentialism plays in Brad’s business and life, and the rise of the Chinese internet giants like Bytedance. Please enjoy this great conversation with Brad Gerstner. This episode is brought to you by the MIT investment management company (MITIMCO) Reach out or learn more: Email: [email protected] Website: https://mitimco.org/partner/ MITIMCo 10 year Letter: https://mitimco.org/wp-content/uploads/2017/03/MITIMCo-Alumni-Letter.pdf MITIMCo brochure: https://mitimco.org/wp-content/uploads/2019/01/MITIMCo-Brochure_web_2018-12-05.pdf For more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub. Follow Patrick on Twitter at @patrick_oshag Show Notes (2:32) – (First question) – Overall investment philosophy at Altimeter (5:12) – Most interesting thing in the landscape today (11:16) – Disrupting the tech giants moving forward (13:56) – The investing opportunity in the backend of the internet (16:42) – His take on old line businesses and how technology could shift his view on them (18:56) – Lessons from company founders whose platforms rely on consumer discovery (21:32) – Running his business on essentialism (21:40) – Essentialism: The Disciplined Pursuit of Less (26:11) – Tactical applications of essentialism (29:46) – Applying essentialism outside of business (31:16) – What travel has taught him about business (33:43) – What we should know about the Chinese internet market (37:11) – The emergence of bite sized transactions across the web (39:22) – Bite sized work (42:43) – How early on can you figure out what company would win a vertical (45:36) – What problem space would he tackle today (48:49) – Collaborating in the private markets (57:27) – Pricing businesses as a key component of his investment choices (1:02:47) – Fascination with life sciences and software (1:04:12) – What about the future excites him (1:06:48) – Kindest thing anyone has done for Brad Learn More For more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub Follow Patrick on Twitter at @patrick_oshag

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Patrick O'Shaughnessy?

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• 0:45Patrick O'Shaughnessy?

  MITIMCO is looking to find investors starting funds today. MITIMCO is partnership-driven, long-term focused and has an extensive history of backing investors early in their careers. These partners are key to delivering the outstanding investment returns required to support MIT's pursuit of world-class education, cutting-edge research and groundbreaking innovation. MITIMCO is focused on finding and partnering with the best investors across the globe, no matter the market environment. No firm is too small, too young or too non-institutional. If you or someone you know is currently in the process of starting a fund or recently launched, please email [email protected]. Again, that's partner@m i t i m c o dot o r g. Or discover more on their website, www.mitimco.org.

• 1:30Patrick O'Shaughnessy?

  Some of MIT's best partnerships have been initiated during challenging market environments. MITIMCO looks forward to hearing from you.

• 1:40Patrick O'Shaughnessy?

  Hello and welcome, everyone. I'm Patrick O'Neal and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, methods, stories and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com.

• 2:01Speaker 02

  Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast.

• 2:24Patrick O'Shaughnessy?

  My guest today is Brad Gerstner, the founder and CIO of Ultimeter Capital, a multi-billion dollar technology-focused investment firm. Brad and his team are known for a deep expertise in internet-enabled businesses, including Expedia, Facebook, Uber, and many more. We discuss the evolution of opportunity in this style of investing, including the important shift to private investing, where so much of the value creation now happens. I won't soon forget our discussion of consumer intent on the internet and how it shifted, the role that essentialism plays in Brad's business and life, and the rise of the Chinese internet giants like ByteDance. Please enjoy this great conversation with Brad Gerstner. So Brad, this has got to have been one of the most interesting investing periods of

• 3:09Patrick O'Shaughnessy?

  your career. I'd love to begin by giving the audience some perspective on your overall investment philosophy. We're going to talk about lots of private and public investing, some of the businesses you founded, life in general, but I'd love to begin with just an overarching investment philosophy that you hold out for Ultimeter.

• 3:26Speaker 03

  First, thanks for having me, Patrick. It's great to be here. I love listening and it's fun to finally get a chance to do it together. I really founded Ultimeter in 2008 with a view to invest in the world's best technology companies, both public and private. At the time, I think it was a fairly differentiated view that most LPs were looking for firms to either be venture capital firms or to be hedge funds. They didn't, particularly coming out of the depths of 2008, didn't love the idea of a fund that did both. But from my perspective, we always viewed this as more of a throwback fund. It was a way to compound my own capital, do it in partnership with great long-term investors

• 4:10Speaker 03

  who viewed the future of technology the way we did. Our objective is to find terrific companies that can be multi-year compounders in secular growth areas that are denting the universe in one way or another. We thought then, and we believe even stronger now, that a lot of that value creation would occur in the private markets. So when I started in the venture business back in 99, 2000, a big exit was a couple hundred million dollars or a billion-dollar exit. A billion-dollar exit to a single venture firm put them in the Hall of Fame. But if you look at it today, we have internet companies that are going to go public after

• 4:49Speaker 03

  having created $200 billion of equity value, in the case of ByteDance, or software companies that go public after generating tens of billions of dollars in enterprise value. And so a lot of that value capture has moved to the private markets. From our perspective, we want to participate in that value capture and these long-term compounders over the lifecycle of the business. And oftentimes, companies we invested in, in early venture, mid-venture rounds, a Series B, a Series C, were the largest buyer in the IPO. And we may own those companies for years after. And so when I think about generating alpha, one of the keys for us is obviously stock

• 5:32Speaker 03

  selection, but it's over the lifecycle of the business, allowing our compounders to compound, and then making sure that we own them in sufficient concentration that it can really move the needle for the fund.

• 5:45Patrick O'Shaughnessy?

  You've been famously involved in a lot of the online travel companies, as one example, Booking.com and Uber and Airbnb and I think Expedia. I'm curious, those are trends now that seem obvious in hindsight, and of course, the magic is getting them right before they seem obvious. What is the most interesting thing in the landscape for you today?

• 6:04Speaker 03

  If you rewind the clock a little bit, I've been lucky enough to teach the securities analysis class at Columbia a few times, the old Graham and Dodd class, over the last decade as a guest lecturer, and I bounced around doing a case study with Glenn Fogel on Priceline, with Spencer Raskoff on Zillow. And one of the important lessons that I'm trying to teach to this class, which is very quantitative oriented, is that Buffett, although he comes out of the quantitative school, he has a quote where he says, "My highest returning investments, those that have really made the cash register ring, have come from simple qualitative insights, applied to a big business opportunity."

• 6:48Speaker 03

  And he points to GEICO, that they had 1% market share, a superior product in a massive market, and if 1% could go to 10%, you would have a company that would command for decades to come. The high-quality insight that I had, dating back frankly to 2002, 2003, was that all search and discovery was migrating toward Google, that all intent on the Internet was going to be funneled through this super aggregator, and that if you could figure out how to optimize yourself within the Google ecosystem, that you could effectively build really big businesses in the underbelly of Google. And so Booking.com is the one that's most famous.

• 7:32Speaker 03

  We started investing in it when it was a billion-dollar business. And Priceline became the single largest global advertiser on Google, and built a $100 billion vertical search business by providing better access to hotels and hotel inventory. But that business would not have existed without Google. You know, if you look at the vertical search engines that we invested in, in this first, if I think about the first era of the Internet being dominated by search, we had an insight that vertical search was going to be a significant beneficiary. So my largest investment, when I started investing on the public side in 2005, was Google. But on the private side, we invested in companies like Kayak, Zillow, where we led

• 8:16Speaker 03

  the Series B, and I went on the board. I started a company called Room 77 and Openlist, that were both vertical search engines. And all of the online travel agencies were really vertical search engines, Yelp, TripAdvisor, et cetera. The high-quality insight. Was simply that Google was going to do more searches in the future than they did in the past, and that the revenue per search was going to go up over time. Play that forward. By 2012, we had a couple seminal events occur, and all of this is background to why we're interested in what we're interested today. But in 2012, a couple important things happened. I remember in a period of months, Facebook goes public at 38 bucks a share.

• 9:00Speaker 03

  It falls, it breaks its IPO price. You have desktop search for queries that we follow, like hotel queries, actually went negative on Google in 2012. What happened was the rise of iOS, the rise of iPhones, created this platform where discovery and intent was beginning to shift to the supercomputer in your pocket, to applications that were on the homepage of said supercomputer, and away from Google. And that had profound implications for the defining thesis of the Internet that we had invested against for a decade. And it was going to have implications for Google, but Google was probably the best

• 9:45Speaker 03

  position to deal with this, because as you know, they famously undermonetized the platform for years. But as Bill Gurley and I often talked about back in those years, the tax collector would eventually come, and TripAdvisor and Yelp went from being the biggest beneficiaries of Google, would not have existed without Google, to testifying to the Senate about the rate of Google's tax collection. And all of that was bound to occur as Google's own query volumes started to diminish. And so you had the rise of this new way that people were discovering information, people were discovering destinations they wanted to travel to, clothes they wanted to purchase, etc. So fast forward to the themes around Internet we're investing against today, it's really

• 10:30Speaker 03

  the rise of the super app. So we invested in an early round in ByteDance, which happens to be one of our bigger private holdings today. And the observation in China was that we saw the shift away from search, away from Baidu. I mean, Baidu is worth 50% less today than it was six years ago. Notwithstanding the fact that all of the big internet platforms in China are worth multiples today of what they were five years ago. Because you had the rise of WeChat, you had the rise of ByteDance, you had the rise of Pinduoduo and Baba. They were giving people access to the information they want, whether it's purchasing information, shopping information,

• 11:13Speaker 03

  news information, entertainment information. And they didn't have to be funneled through Baidu to discover that information. Facebook became our largest position in 2012. While we've managed the position over a period of time, it's still our largest position in the fund today. And that was driven by this insight that, yes, aggregators were going to accrue the lion's share of the profits. But we had this pretty significant shift away from search. Search is clearly still important. But increasingly, commercial intent is occurring in other places.

• 11:49Patrick O'Shaughnessy?

  Looking forward now, how much room do you think there is to run on what I'll call like the mobile platform that has maybe kicked Google off the crown, if you will, as the center of intent? And how carefully are you always looking for a platform shakeup that might materially change that thesis?

• 12:10Speaker 03

  I'm looking at, we presented our Investor Day this stat. In 2006, the top six or seven global internet companies represented about 5% of the NASDAQ. Today, they represent about 35% of the NASDAQ. So the big have gotten bigger at an accelerating rate. And I would argue, in some ways, the era of search democratized the Internet. Notwithstanding the monopolistic accusations that were thrown at Google, right? It gave rise to a booking.com. It's very difficult to build a large application if you can't be discovered.

• 12:52Speaker 03

  And so we have the big getting bigger, adding more and more capabilities to their platforms today, whether it's payments, whether it's chat, whether it's micro apps to allow you to purchase things within that application. And so from our perspective, when we look at, take ByteDance today, which is most recently valued at $150 billion, we think that company still has five to 10x ahead of it. As consumers increasingly turn to those platforms, whether it's TikTok outside of China, or whether it's Tootsie or other video assets they own within China, to consume content, and monetization dollars will ultimately follow.

• 13:37Speaker 03

  When we think about the future, we're always paying attention. You know, one thing that I would say is, I remind my team, it's just as dangerous to be too early as it is to be too late. And I was talking of, I was worried about the future of search and the future of vertical search, starting in 2010. But look at Google's compounded at about the rate the other big platforms have in the US. They've done an extraordinary job of diversifying the business, raking more out of their ecosystem, and continuing to grow earnings at over 20%. And if you look at the things they're investing in today, developing today, they may very well bridge to an AI future, where despite the fact that their core product, desktop

• 14:19Speaker 03

  search, went into a state where it was shrinking, they managed to grow earnings consistently right through that period because it's such a productive and innovative company.

• 14:29Patrick O'Shaughnessy?

  We've talked a lot about what I would call the front end of the Internet, the places that aggregate consumer attention or demand. We haven't talked about the back end. So I've become fascinated with the cloud, generally speaking, its evolution, gaps in things that you can access on the cloud that are coming onto market. Talk to me a little bit about how you view the back end of the Internet as an investing opportunity.

• 14:52Speaker 03

  I think we'll look back at this and still view June 10th as the middle of the COVID crisis. But our single biggest area of investment over the last decade, certainly in the venture space, has been in the digitization of the enterprise. You have famously a trillion dollars of enterprise spend that's shifting to the cloud. It makes sense. It should occur there. It's less expensive. It's higher yielding. It's probably more secure. And so while we've been talking about the cloud since really 2002, 2003, and I remember by 2010, 2011, we actually saw decelerating rates of growth at a lot of cloud companies. And people started wondering, did we overestimate the cloud?

• 15:36Speaker 03

  Just as they wondered in 2005 and 2006, after the demise of companies like Danger, whether we overestimated mobile. And the reality is, we weren't even getting started. So we look at, we break down the backend of cloud software really into system infrastructure, the infrastructure software that enables companies to do the things they want to do on the cloud, and then application software. And whether you look at the TAMS of all three of those, by our account, we're still a decade away from having 50% penetration to the cloud. Now, let's say that COVID just accelerated the rates of digitization. And we know, you know, talking with fantastic CEOs of these companies,

• 16:19Speaker 03

  clearly their phones are ringing more today than they were six months ago. All sorts of businesses needing to speed up their shift to the cloud. But the reality is, the key pieces of architecture, whether you're talking Azure, GCP, and AWS, or whether you're talking about the cloud database providers, data warehouse providers, whether you're talking security and identity with companies like Okta, or whether you're talking about key pieces of application infrastructure like Tableau or Salesforce. We still think we're early in that transformation. And the 20% penetration that has already occurred in the cloud mostly came from cloud-native businesses.

• 17:01Speaker 03

  These were businesses like Uber and Airbnb that grew up in the cloud, right? For a United Airlines, for an iHeartRadio, for the Fortune 1000, they're just starting their journey into the cloud.

• 17:16Patrick O'Shaughnessy?

  Talk to me a little bit about how you view what I'll call old line businesses that you mentioned United as an interesting example, very real tangible assets, traditional business models, I would call them, but potentially places that could gain a competitive advantage from technology adoption. How do you look through that part of the investment landscape for opportunity relative to the more, what I'll call, pure technology businesses?

• 17:40Speaker 03

  I would say we spend 98% of our time thinking about the pure technology businesses, certainly what I've dedicated the last two decades to. But having started two online travel companies, I also, out of curiosity and from an investment opportunity set, follow the airlines, a very interesting business that obviously has been devastated by COVID, but was in the middle of a transformation that had led to seven years of record profitability, and really driven by two things. Number one, the rationalization of the industry. So we went from 60% of the industry being managed by 12 airlines in 2004, 2005, to 90% of the

• 18:23Speaker 03

  industry being managed by four airlines, which gave rise to pricing power and structural transformation within an industry that made the industry look very interesting. I mentioned at a conference, I suppose about a year ago, talking about the impact of artificial intelligence on various sectors in the economy, that it seems to me that the opportunity that will come from traditional industry applying more intelligent software to their businesses, the productivity gains that that will unleash may be bigger than the internet itself. And whether you take something like an airline, how we route planes, how we maintenance engines,

• 19:05Speaker 03

  we're going to be able to take massive costs out of these businesses employing technology. Now replicate that across every industrial business in the world. I think that there's going to be powerful effects on the economy. I'm bullish on what that means for the economy more generally. But the value that will be delivered will allow for significant value creation by the software companies that are providing those services.

• 19:30Patrick O'Shaughnessy?

  Tell me a little bit about what you've learned from the founders who have been able to execute these business models that rely on consumer discovery and intent on the internet. So you mentioned Zillow and Expedia. I think of Rich Barton immediately. You know, I love his power to the people concept. What have you learned from the entrepreneurs who have either successfully done this or failed at doing it that you think is important for those going forward, trying to succeed in a similar space?

• 19:55Speaker 03

  Well, one observation, and Rich personifies this, is he identified a very large TAM in the case of real estate. So he had started Expedia while still at Microsoft. And when he and Lloyd were looking for their next opportunity, you know, the observation simply was here's a massive market that is a very poor experience for the consumer. And we don't know how we're going to fix it. But if we bring the same principles that we applied to online travel to real estate, and we bring enough bright engineers over out of Expedia and Microsoft, and we think about the problem long and hard enough, we'll sort it out.

• 20:38Speaker 03

  And when we originally looked at that investment, they thought, and I thought, that the solution would be something more akin to Expedia, where you disintermediate the realtor and you create a marketplace for homes. Now, it turns out that they famously developed this estimate that turned very quickly into a viral form of real estate porn for neighbors to look at the value of their neighbors' homes. And all of a sudden, we had this massive advertising asset on our hands. Fast forward 15 years, and in many ways, the company's getting back to those founding

• 21:19Speaker 03

  principles, which I think can unleash a huge new set of opportunities, which is enabling consumers to buy and sell their homes in a much more efficient way. And so the challenge of starting a business is massive.

• 21:35Speaker 03

  And it's equally massive whether you're going after a small market or a large market. I might argue it's even harder going after a small competitive market. So one of the things I've learned from founders, and certainly it is a critical part of our investment philosophy, is assume everything that you hope to be true occurs. How big is the prize? Focus on those opportunities with a big prize if it goes right.

• 22:06Patrick O'Shaughnessy?

  I'd love to hear a bit about how you think about the efficiency of your own process at Altimeter. I've heard that you're a big fan of the book Essentialism, which is, I think, a fascinating, almost like philosophy book on how to structure systems. And I'd love to just riff on your thinking on how this might pertain to running a successful investment business.

• 22:25Speaker 03

  Yes, it's not only a business philosophy for me, it's a life philosophy. I love how Greg McKeown talks about it as the discipline pursuit of less. In my life, that equates to more happiness. But let's talk specifically about how it pertains to the business. If you're lucky in this business, you get to work with incredible analysts that are really anthropologists on everything going on around them. Like you, we spend a lot of time reading, a lot of time thinking, a lot of time studying, a lot of time talking to people smarter than we are about how the world might evolve. And then you have to be very patient. And you have to look for asymmetric opportunities or that unique set of opportunities to present themselves with the right team

• 23:11Speaker 03

  at the right time with right evidence that the market is starting to take to the product that they are building. And I would say I stand in a very, very long line of investors who've observed over the years that, as Buffett says, you only need six punches on your card over the course of your career. For almost all investors, a hugely disproportionate amount of their career profits that they generate, whether in public markets or private markets, will come from a few bets, a few great investments. And if you

• 23:47Speaker 03

  Succumb to the ego that is easy to succumb to, which is if I just studied this hard enough, I'll be able to figure it out. And you look at your Bloomberg every day and you have 100 different opportunities you can go invest in every day, or maybe a couple hundred opportunities. People tend to over-trade, invest in too many things. It divides their attention. And so the opportunity cost is they're not there when the fat pitch comes, or they don't have capital available when the fat pitch comes. And I would argue for myself, it leads to less happiness because I can't go as deep on a particular subject as I want to go because I'm managing too many things at once.

• 24:31Speaker 03

  So I would say if there's one hallmark of Altimeter more than any other, on the venture side, we say we come to fast nodes. First, we don't do early-stage venture at all. There are better practitioners than us. We don't have any competitive advantage there. I've started a few early-stage companies. I'm certainly curious when I see them. We track them, but it's not where are advantages. And so we really focus on that Series B to Series D, 100 million to a billion dollars, out of our dedicated venture funds. And then out of the hedge fund, we'll invest in what I call the quasi-public market. So this is all late-stage private companies, then well into the public market.

• 25:13Speaker 03

  But at any given moment in time, in the public markets, we may have 75% of our portfolio in our top four or five ideas. And if you look through our private investments, you see much more significant concentration than you would in, I think, typical venture funds. You know, in a $400 million fund, we may have 10 investments. And I think that there are a couple of things that fall out of that. Number one, you don't have nearly as much FOMO because you're not just placing small bets on everything in a market. It doesn't look like a set of vintage returns. But you have to live with the fact you're either good or not good at the stock picking. So you either pick good companies or you don't.

• 25:54Speaker 03

  If you're lucky enough to pick good companies, then the returns, the alpha you can generate... From a portfolio that is more concentrated will be significantly greater than a fund that looks more index-y for the period of time in which you're investing it. But listen, there are a lot of ways in this business to make it work. I know great momentum investors. I know great traders. It depends on the game you're trying to play. We know the lane that we do well in. We know the game that we're playing. For me and for the team here, essentialism is our cultural north star. It leads to the trade-offs that we make every day when we're talking or when we're operating alone.

• 26:34Speaker 03

  And frankly, I think it leads to a much more durable and happy way, certainly for me to invest, when you can devote the time to a few core areas of focus.

• 26:44Patrick O'Shaughnessy?

  A few more questions on essentialism because I think it's just such a such an elegant idea, not just in business, as you said. My second question will be more personal. You've defined strategically what it means for Altimeter to pursue essentialism and it manifests as interesting portfolio concentration, but also thesis concentration. I'm curious if there are tactical applications of this idea that you use inside of the firm that you found to be effective, whether that's like the way you literally work or how you interact with the team, anything like that that you found to be valuable.

• 27:15Speaker 03

  Well, I had the luxury of working with a great investor named Paul Reader, who started Par Capital. And one of the things that I learned, you know, I really learned a lot of this from Paul, but he taught me there's a real danger to group think within an organization. And there's certainly an intellectual debate on the subject. But within Altimeter, what we want to do is hire deeply passionate people about their craft and give them an area of focus that's digestible and then give them the time to think and to study that craft. And so as a consequence of that, unlike a lot of venture firms, we don't spend a lot of time in group meetings.

• 27:57Speaker 03

  We don't take all day on Monday to review the portfolio, to review the pipeline, to vote on companies that we may want to invest in. It's much more decentralized than that. By all areas of the business process are organized around that. And certainly, there are some upsides. It doesn't mean that we're not collaborating. We certainly like to gather others' opinions. But I would say, organizationally as a firm, it leads to less meetings. It leads to less emails. And it really devolves the responsibility to people to both do the analysis and to ask the question like, is this important to share? Does it rise to the level that we need to share? So I'll give you an example.

• 28:42Speaker 03

  At a lot of places, I say, people have an idea of the day. And I have a few friends that you know well, and they'll call me up. They'll be like, did you see what's happening to this company? You ought to buy this, you ought to sell this. You know, at Altimeter, if you have an idea of the day, you're not a fit. If you have an idea a week, you're probably not a fit. If you have an idea a month, you're probably... Here, it's study something for a few years. By the time you've shown up here, you've probably deeply studied something for years. And we tend to be way slower twitch. And so what allows us to outperform, and I'll tell you, far more money has been lost in this business. And I'm not talking just Altimeter. I'm talking generally, the venture business, the hedge fund business.

• 29:27Speaker 03

  Far more has been lost betting on the end of times, trading out of your good ideas, trying to hedge out of COVID, than just making great bets on great companies and allowing them to compound. We are constantly, and this is where essentialism really plays an important role. During periods of crisis like we've experienced over the last 90 days, I mean, we put hundreds of millions of dollars to work in the private software market at the end of March and early April.

• 30:00Speaker 03

  Because we weren't thinking about the next six minutes or the next six weeks. And we had built relationships with partners who understand that. And if you're slower twitch and you think about the trends. And you have something like essentialism as your cultural north star. It makes it much easier to operate during those periods of duress.

• 30:19Patrick O'Shaughnessy?

  What do you think the most interesting application of the idea is outside of business in the personal setting?

• 30:25Speaker 03

  I host a series in my place out here and we did one on essentialism. And we went around the room and I don't know, pray a hundred folks there. And everybody is hyper busy and a ton of activity. And what became pretty clear that there wasn't a positive correlation between activity and happiness. And I think for all of us, again, this period, you and I, before we started the actual podcast, you said, these have been some extraordinarily happy times for you. You spent more time in nature, less time commuting into the city. I think asking the question, you know, is what I'm thinking about doing an easy yes.

• 31:05Speaker 03

  Right? Is going to this dinner, is having this coffee, is having this meeting, is joining this board, making this investment? Is it an easy yes? And if it's not an easy yes, then it's an easy no. And organizing your life with less, but enriching the stuff that you do choose to do. Your children, your interaction with friends and family, your time in nature, your time spent with a couple management teams instead of divided across 15 boards. I can't promise that that leads to maximum financial return for you. But I'm pretty confident that your return on happiness is going to be pretty extraordinary.

• 31:49Patrick O'Shaughnessy?

  One of the things that's clear you love, not just through your investments, but just through your own activity is travel. What has travel taught you either about business or just about life?

• 31:58Speaker 03

  First principle is thinking at the heart, the red thread that connects everything that I've done is I'm an analyst. I'm curious, curious about the world, curious about how systems work, curious about how companies work, curious about new places and you go to new places and you see different ways of doing things. We had an extraordinary experience with my family a couple of years ago in Nepal, where I partnered with an organization called Give Power, where we take solar power to different parts of the world and light up schools and health clinics and get the family involved. And pretty extraordinary experience. And I remember leaving the country and my then nine-year-old, now 12, said to me, "Dad, they don't really have anything.

• 32:41Speaker 03

  They have a really simple life, but everybody's so happy." I think that there is both life philosophy that's impacted by that. I think on the business side, I remember going to Beijing in 2000 and really talking about what was going on in the internet in China in those early days. And back then, as you remember, I mean, they were just taking whatever was being done in the US and copying it. Baidu was copying Google and Ctrip was copying Expedia. And I remember talking to a professor in those early days and he said, "In China, a lot of the inventiveness, a lot of the entrepreneurialism has been lost for a couple of generations." And what you see happening in this first

• 33:25Speaker 03

  generation of internet entrepreneurs is the entrepreneurialism is still there, but rather than reinvent the wheel, rather than to create the new thing, they're just going to copy what is going on in the US, he said. But fast forward a generation or two, and you're going to see the innovation come out of China. And as I look at what ByteDance is doing as an example, I remember four years ago when they came over and we made our investment, and they said, "We'll be the first global internet company." That was before they had ever heard of Musically, before they had ever conceived of the concept that would become TikTok. But to see how, for example, the internet is evolving in

• 34:08Speaker 03

  China, to ask the questions, and then to think about the application of that in other parts of the world, I think makes you a much better investor.

• 34:17Patrick O'Shaughnessy?

  What's the most important thing for us in the West to know about what's happening in the business landscape in China? You know, we've talked a little bit about the Chinese internet, ByteDance being, for me, one of the most interesting companies in the world right now. Maybe for those that aren't initiated in the difference, you could describe sort of the Chinese internet company complex versus what we're used to here in the US?

• 34:39Speaker 03

  Again, we started the conversation about how search-centric the US was. The organizing principle was really Google. I didn't sit in a board meeting for a decade where we didn't talk about SEO and SEM. And really, the winners of Web 1.0 were those who figured out how to game Google. The muscle that was developed in the West, I think predating 2008, was very search-centric. In fact, I remember back in 2007, Mark Pincus coming to me and saying, "Hey, I think I'm going to start a new business." I got to know Mark when he was running Tribe, and I said, "Well, what's the website?" And he said, "Well, it's not going to have a website." And I said, "Well, how can you have an internet business without a website?"

• 35:23Speaker 03

  He said, "We're going to build it on top of Facebook." And that was the first time that I really started thinking about this metaphor that we had been using to describe the internet was going to change with the advent of platforms like Facebook. And then, of course, iOS blew that out and changed everything. If you look at China today, perhaps one of the most significant trends I see is Chinese e-commerce is way less about search than US e-commerce is. So if you think about the way items are purchased, we go to Amazon, we look for that wakeboard you want to buy for your kids, but you're typing into a search bar. If you look at China, an investment, probably our biggest winner last year was a company

• 36:08Speaker 03

  called Condoto, where 100% of their e-commerce is bought through the stream.

• 36:15Speaker 03

  People aren't doing search at all. On Baba today, similarly, if you look at ByteDance from day one, was about algorithmically putting in front of you the content that would cause you to act on it. In the West, the company that's the furthest ahead in doing this, of course, is Facebook. And if you look at the power of the platform that is Instagram, I don't know about you, Patrick, but the number of friends I have who say, you know, I was in Instagram and it was unbelievable. Like, they showed me the surfboard I wanted to buy, or the wetsuit I wanted to buy, or the new bike I wanted to buy. Contextually, we're all logged in. They know who we are. Their ability to market to us.

• 36:55Speaker 03

  And so, in the early phases, this was about serving up content and entertainment to us. But now, that content is actually e-commerce. And so, as I look forward, I fully expect that a lot of the commercial intent, and I think this will be a challenge for Amazon, who's certainly one that they'll attack. It's a challenge for Google, certainly one they're getting after. But I think Facebook is in an excellent position. Is the way millennials and others are consuming content on their phone, is they're not typing in search queries into a small, little search box. Right? They're opening up their Instagram feed, they're opening up their Facebook feeds and other feeds they have on the phone.

• 37:38Speaker 03

  And particularly, as it relates to nondiscretionary items, I think increasingly, they'll be purchased that way.

• 37:44Patrick O'Shaughnessy?

  It's a fascinating difference. I've never thought about it in those terms. But it also jives with just the data on TikTok, the amount of time that people spend on there. It's sort of staggering. I mean, I tried it once because I was curious what the hell it was. And I had to delete it because it was so addictive. And it's pretty amazing to see how that seems to be coming to the West.

• 38:04Speaker 03

  It's here in spades. But I also just think this idea of long form versus short form when it comes to consumption of content. As I look forward, you know, and this is where Google and their knowledge graph, I think, can be particularly powerful. I mean, it's slow in coming, but will invariably be here. What's the natural evolution of all of this? We have search space where I know what I want. I go there, I type it in the box, I find the product, I buy it. But that's a lot of effort. We have a stream-based experience where I'm just browsing, I'm in my car, I'm standing in a line, I see something, I tap on it, one click, I buy it. I've reduced a bunch of friction, I've entertained you, you've gotten something that you didn't even know you wanted.

• 38:50Speaker 03

  You know, it seems to me that this next phase, maybe it's in the form of these smart assistants, the Google Home, the Alexas, maybe they'll move into our offices. But it's this predictive search. It's contextually understanding my life, getting me the things I need before I even ask for them. You asked earlier, what's the end state, or how much more is there to run? I remember when I graduated from HBS in 2000, I thought I'd already missed it.

• 39:18Speaker 03

  Google was already too big, had a few hundred employees. And the reality is, we're just getting started. And the reality is today, when we look back two decades from now, there's gonna be, I would venture to say, there'll be more value creation and destruction over the next two decades than we've seen over the last two decades. And just as I wouldn't have forecasted, a lot of the developments in 2010 that we've had over the last decade, I'm not exactly sure what it's going to be, but all of those things that reduce friction, make our time more enjoyable, more productive, they're gonna have a lot of deep traction in both internet and software.

• 39:55Patrick O'Shaughnessy?

  So, bite-sized content has created this stream experience that's transforming things. I'm curious how you think about bite-sized work. So, sort of like what I guess people call the gig or the passion economies, I think those are probably two slightly different things. What's your take on companies that are building platforms or services to support that general trend or idea?

• 40:14Speaker 03

  I'll answer that from two different perspectives, one from an investment perspective, perhaps, and the other just from a societal perspective. At a societal level, while we build a society where it envisioned, at least in the United States, it envisioned us all going to work. Nine to five for a company, we had worked there for a long period of time. We'd collect a retirement package, our healthcare would be provided by the employer, because most certainly we were going to be attached to an employer. And it was a very static view of the world. And so the transition from that to something else, while ultimately may be better for all of us,

• 40:57Speaker 03

  is certainly going to have some dislocation challenges, and none more obvious than healthcare, right? So if you're a gig worker, you're not a full-time employee, in this country, right? Where healthcare is attached to the corporate employer, right? How do you get healthcare? Uber has talked extensively about their desire to be able to provide healthcare to their part-time gig workers, without coming under all the other government regulations associated with kind of full-time employment. And as you know, there's a push by a lot of people to force all of these gig workers into being classified as full-time employees.

• 41:40Speaker 03

  And I for one, having talked with hundreds of drivers and delivery people over the years, I would say overwhelmingly, they love the flexibility. They love the ability to work part-time. They love the ability to work for multiple companies. And I think at a societal level, we certainly need to make sure that we evolve the social safety net, that we attach healthcare to people instead of to employers. But I'm most confident we'll figure that out after we try a bunch of boneheaded things. But the idea of giving people flexibility in employment, the idea of allowing that single mother to work three hours a day and spend five hours a day with her kids,

• 42:24Speaker 03

  to allow the person trying to put themselves through college to deliver food for an hour a day via DoorDash. I would have loved those opportunities when I was trying to earn a few extra bucks when I was in college. So I certainly think that that future's here to stay. And I think both sides of the transaction are made happier. I'm not standing in an hour-long taxi line in the rain, hoping that more supply will show up so that I can get a ride across town. Because now we just have more drivers that take to the streets because we're offering them a good yield on their time. And so the rider is happier, the driver is happier. And I think we head down that curve toward the optimal use of labor and capital

• 43:08Speaker 03

  when we allow for these things to occur. There's way too much friction that exists today, but I think we're going to see more of this, not less of this in the future.

• 43:17Patrick O'Shaughnessy?

  How hard is it to parse early on? Or I guess a different way of asking it would be, how early on do you think it's safe to evaluate who might win a given vertical? So the Uber story has been fascinating to watch. Obviously, now we know that they're the winner, right? Or the biggest in this field. But it seems like to take like the food delivery wars right now, it would be incredibly hard to parse who's going to emerge most victorious from this. So how do you think about that? You mentioned earlier, being too early is a problem. How do you address something like that in this space?

• 43:47Speaker 03

  I know a really well-known investor in China. And they said in 2005, 2006, they knew e-commerce was going to be huge in China. They wanted to make it a huge part of their firm bet. And so they did, they went in, they bet big on VIP shops. And here they did all the work, they were right on top of it. They got the thematic bet right, right? But bet on the wrong horse. Their conclusion was in 2005, we should have bought JD, should have bought Baba, should have bought VIP shops. We didn't have to make a bet on the winner. The market was so vast, it was going to be so big.

• 44:31Speaker 03

  And so I think when it comes to something like ride share or something like food delivery, once you get to the point of concluding it's a good business, good team, good management team, I think you can bet on multiple players. I think the bigger question in that world has been, is it a good business model? Clearly, over the course of the last 20 months, we had excess capital in the world, epitomized, I think, by over-investment out of SoftBank. That excess capital led to excess competition, excess discounting. Companies were burning extreme amounts of cash. And I think it really obscured the profitability of the model.

• 45:15Speaker 03

  Uber just reported their quarterly reports. And I think their segment EBITDA margins in January and February for Rideshare were over 30%. I believe six quarters earlier, they were negative 20%.

• 45:32Speaker 03

  For us, where we spent our time wasn't, is Uber going to win over Lyft or Kareem or Didi? It was really to study the market. And our conclusion was that these were ultimately going to trend toward two-player markets. And in a two-player market where your supply base was highly fragmented, we thought that these marketplaces would ultimately end up with 15% to 20% rakes and 25% to 30% EBITDA margins, like a lot of other marketplaces. And that was really where you had to develop conviction as opposed to who the absolute winner was going to be.

• 46:10Patrick O'Shaughnessy?

  So you started four, I think, different companies, operating companies, investment companies. If you had to scratch everything today and go start another operating business, what problem space or area do you think you would investigate first?

• 46:24Speaker 03

  It's a great question. Well, let's be clear. In 1999, I started working with David Fialco and Joel Cutler. They were thinking about starting General Catalyst. And they made an early investment with SoftBank in the online travel space. I helped them put that deal together and became the co-CEO of that business. That business was kind of like the Shopify for online travel. SoftBank had another investment that really was the Shopify, which was GSI Commerce, run by Michael Rubin. And we sold that business in 2001, or our stake in the business to Barry Diller, at the same time that Rich Barton sold Expedia. Interestingly enough, Dara Khosrowshahi was the head of M&A for Diller at the time.

• 47:04Speaker 03

  We were early believers that all of this commerce was going to shift online. As I look at the digital transformation today and say, where is the biggest gap? I think consumer is certainly got the biggest upside opportunities. But I also think it probably has the highest beta and the most difficult point of entry for success. I'm fascinated by all the gaps that still exist in software. I'm fascinated about the application of software and data to life science problems. It would be very contextual as to where I was in my career. Rich Barton once told me after investing in one of my companies, he said, you're a terrible entrepreneur. And I said, why? And he said, because you convinced us all to give you money.

• 47:49Speaker 03

  And now you're being too conservative in how you're spending it. Like you just need to go for it. And it was really kind of that moment in time that I realized, you know, I'm trained as a lawyer. My dad had started a business and went bankrupt. And so we kind of lost everything when I was young. And I spent a lot of time thinking about what can go wrong. And as an entrepreneur, that's a really challenging place to be. As an investor running Altimeter, I get paid a lot to think about what could go wrong. For me, the beauty of building Altimeter is it really is an operating business. You have to figure out what your competitive advantage is. You have to recruit a team. You have to set a vision, set essentialism as your cultural north star.

• 48:30Speaker 03

  You have to raise capital, which is the act of selling to these enterprise customers who happen to be university endowments, et cetera. And then you have to execute. And your craft happens to be finding great companies where you can go be a part owner and for a long period of time. So for me, I feel like I found my, the perfect fit, a place where I can scratch the operational itch, the entrepreneurial itch. But at the same time, I think from my heart of hearts, I'm an analyst. I don't run Altimeter as some platonic guardian and let everybody else do the analyst work. I'm in the trenches as an analyst because that's where I'm most intellectually satisfied.

• 49:12Speaker 03

  And we run a very flat organization around that. So if I had to do it all over again, and if you ask the question, out of the four companies you ran or started, which would you start again? I would say Altimeter.

• 49:22Patrick O'Shaughnessy?

  Fascinating. One of the great things about Altimeter is its crossover nature, that it's doing both private and public investing. And this shift from public to private as the zone of value creation has got to be one of the most important and interesting trends. And I would just be curious to ask a few questions around this long-term trend and how you think about it. So the first is around collaboration. So I've seen lots of occasions when you are making investments in the private market alongside or in collaboration with other great investors. I saw just scrolling through your feed that you and Eric Fishria had something done together, I think in the ML space. It seems like there's the opportunity to be fairly collaborative in the private markets in a way that doesn't really even make a lot of sense in the public markets. I'm curious

• 50:07Patrick O'Shaughnessy?

  if you agree with that, and maybe if you could shed some light on your experience there.

• 50:11Speaker 03

  Yeah, it's greatly satisfying to do that. But let me first just click back and say, I started the investment business in Boston. And in Boston, there are a few great investors that I spent time talking to. Seth Klarmann from Baupost, David Abrams from Abrams Capital, Paul Reader. And they were all running very throwback funds. These funds looked like Buffett's original hedge fund. Like, if you ask Buffett back in 1965, why did you invest in a private company out of your hedge fund? He would say, well, I invest in good companies. I just go try to find the best investment. My LPs, who happen to be my friends and wealthy families, because before you had an institutional class of LPs, they just get a pro-rata share

• 50:55Speaker 03

  of all my best ideas. And some of them are public and some of them are private. And clearly, he still runs Berkshire that way today. And so that was my exposure. And if you really look at the evolution of institutional investing, it was LPs who pushed the investment firms into specialization. We want the best adventure, the best at mid-stage private equity, the best at late-stage private equity, the best at this type of hedge fund, absolute return, macro, etc. And so the investors started forcing themselves into formulas that for me didn't look particularly interesting, looked very difficult to generate meaningful alpha over a long period of time,

• 51:39Speaker 03

  and certainly didn't optimize my happiness. So the biggest challenge that I had in raising Altimeter was, you know, saying like, this is what I'm going to do. And coming out of 2008, you know how many LPs wanted to invest in a hedge fund that was also going to have illiquid private investments? Precisely zero. It would have been easy, and I had plenty of people offer to make seed investments, but they said, you can't do this, or you can't do that. And fortunately, I had a mentor in Paul Reader, who had started Par Capital with 2.5 million bucks and grown it to, at that point in time, well over a billion dollars. So I had a roadmap. Baupost started with less than 25 million.

• 52:22Speaker 03

  Go through these distress era funds that had started pretty small and grown great businesses. And so that's what I did. I started with less than 5 million bucks. And my first day of trading was November 1st, 2008. The vision I had when I started at Par in 2005, getting back to your original question, I said to Paul, listen, I want to run the technology book of your business, but I want to do both public and private. He said, great, just make good investments. So on the private side, we led that series being Zillow, ITA Software, Faircast that we sold to Microsoft that became Bing Travel, Sidestep. On the public side, Google and owned Priceline and a bunch of, not a bunch,

• 53:06Speaker 03

  but a handful of other internet companies. And the observation was just that there were massive information synergies between these two sets of activities. And back to your point around collaboration, if you think about where the best research you do, oftentimes on the public side, it's not calling up sell-side analysts at Goldman Sachs and asking them what they think about ByteDance or what they think about Alibaba. It's calling up Bill Gurley, or Rich Barton, or other folks who, you know, are listening to you. The networks that I developed, having started businesses in the venture world, were profoundly important. In shaping my thinking that would lead to our biggest public investment.

• 53:47Patrick O'Shaughnessy?

  It's a fascinating change and like you, I'm so interested in just good investments, right? Good companies, right? That's what makes this whole game interesting and fun. It's surprising to me that there's not more of it.

• 53:58Speaker 03

  I would say one other thing, or two other things. When I started this, nobody wanted them commingled. It was a hard sell. I would say today, all of our LPs, and we are extraordinarily grateful for world-class LPs, and nobody questions it anymore. And one of the things, we presented, I think, probably six years ago, a slide that said, was talking about how much incremental value creation was accruing in the private markets and why that was occurring. And there were three reasons. Number one, you had platforms that were now allowing companies to scale faster and in a more capital efficient way. So if you think about where Google went public, if you think about where Priceline went public,

• 54:41Speaker 03

  compare that to where ByteDance is going to go public. Compare their path to $10 billion in revenue to Facebook. With every successive generation, the winners scale faster. They scale in a more capital efficient manner. And in the case of ByteDance, likely will go public at 150 to a $200 billion valuation. All of that value creation accrued to the private market investors. Compare where the software companies that are in the pipeline or that have recently gone public, compare those valuations to where Salesforce went public. And I know you had Chathin on, he does a great job in Twitter, reminding us all of this.

• 55:24Speaker 03

  But the fact of the matter is because of AWS, GCP and Azure, software companies are scaling faster and in a more capital efficient way. And as a result of that, for the winners, the first $10 or $15 billion of value creation is likely to accrue to private market participants. So it's not just that you have information advantages. It's not just that there's less competition. It's not just that you can be a lifecycle investor and invest through the period of time where the company's worth 200 million to 20 billion. If you want, if your fidelity, if your TRO, if you're one of these companies that wants to participate in all of that value creation, you can't not be in the private markets.

• 56:07Speaker 03

  There's one other advantage to venture that I remind people, which is you can't sell.

• 56:12Patrick O'Shaughnessy?

  Illiquidity is a virtue.

• 56:14Speaker 03

  The biggest mistake we've made as a firm, and if I look around me for technology investors over the last two decades, it's what Buffett pointed out way back in the day. You show up at the office every day, you do your homework and you can't resist the urge to trade because they're going to miss the next quarter or because COVID is going to cause bookings to go down or whatever it might be at that moment in time. And so you did all this work, you bought the company, now you sold it and then it goes up 30% against you.

• 56:45Speaker 03

  And now you have behavioral lock in, you don't want to buy it back because it's up 30%, you're going to wait until it comes back down. But then it doesn't come back down, or when it does come down, you're panicked about something else. And so here this business compounds, in the case of Mongo, at over 90% for the last five years, or Okta at over 90% for the last five years. And then you look at your portfolio returns and you're like, wow, we own those in the private markets. How many gross profit dollars have we generated from those extraordinary returns? And I would say that that's where that cultural North Star, having that deep alignment with your LPs and resisting that urge when you find those special companies in those big

• 57:30Speaker 03

  markets that are executing well. Great management teams always figure out how to expand their TAM. I mean, look at Marc Benioff. Just figure out how to expand the TAM. I would say that this idea of public and private, we feel incredibly blessed to live in the heart of Silicon Valley and we're going to spend our lifetime investing against the continuing innovation that we think is going to drive our economy on both the software and the internet side, and we're far, far from done.

• 58:01Patrick O'Shaughnessy?

  One thing that we haven't talked about more than an hour in is price. Obviously, in the investing world, price is a really important determinant of outcome. And for a long time, really for the last 10 years, you can make a clear quantitative argument that the market drastically underestimated the potential of these big companies that we've spent our time talking about today. Today, you can make the argument that the market has gotten at least a bit smarter and has priced these great businesses with a multiple, maybe more similar to that that they deserve. How do you think about that multiple paid or price in general as a key piece of your investment process?

• 58:38Speaker 03

  Like trading, the number of times I've allowed a limit order or a behavioral anchoring in the private markets, you do all the work, you find the company. I'll give you this example. We were within probably $100 or $200 million of doing a meaningful pre-IPO round in Zoom. The company was valued at around $5 billion compared to where it is two years later. You have to be disciplined. You have to have a framework. You have to live by that framework. But the desire, the biggest mistake most investors make is they over-index to their 12-month return, their 24-month return. I mean, if you have to earn a return over the next six months, good luck.

• 59:22Speaker 03

  I would not go out and sell a product to anybody that said I had a special advantage at earning a return over the next six months. But if you ask me about the next three years, the next five years, the next 10 years, I think we have a real competitive advantage. For us, I don't even want to look at price targets over the next 12 months. Right? Show me what you think this thing's going to be worth at the end of 2023. Because frankly, any great growth company is going to look expensive, perhaps excessively expensive over that shorter time horizon. And again, maybe it's because I grew up in the Midwest. Maybe it's because I'm prone to look for the things that can go wrong. I don't look for cigar butts, but I always love a good value.

• 1:00:07Speaker 03

  The problem is if you spend all your time waiting for the best technology companies to be delivered to you at a great value, you won't own many of them.

• 1:00:16Speaker 03

  At least value defined in the next 12 months. But if you look out a couple of years, I mean, Facebook, I think, is trading at nine or 10 times our 2022 EBITDA estimates. Right? Like, that's not a taxing valuation. If you look at it on this year, you may say, talk yourself out of it. So we go through, we're relentless about comparing those prices. But, listen, I was on CNBC, I think, on March 24th, and I told the halftime report, the depths of this, that we had just covered our shorts, but we were really nervous. Like, we didn't know if this is going to last a week, three months, a year. But we were confident we had LPs that would stand with us.

• 1:00:59Speaker 03

  And so we thought that the trade going longer in our best ideas was the right thing. I tend to believe that those opportunities where you can buy great companies at deeply dislocated prices, those are the exceptions. Right? The harder thing is to continue to own a company that you love at a high price. And so if you look at it over 12 months, you're probably going to talk yourself out of it. If you look at it over a longer period of time, I think it's a lot easier to do. And then one final thing I'll say is, because we always turn on CNBC and you hear all these smart people talking about valuations. You know, Stan Druckenmiller, talks, who I respect an enormous amount, talks a lot about

• 1:01:40Speaker 03

  interest rates and liquidity as perhaps being even more important than earnings on determining price. And I think that when you remember the last time the technology sector really got hammered in that fourth quarter of 2018, it wasn't because of a bunch of big misses on the earnings side. It was because the market was worried that the Fed was going to raise rates three times in 2019. That's what the dot plot was showing. So as investors, we also have to stay humble that we've been the beneficiaries over the last 15 years of massive liquidity and extraordinarily low interest rates.

• 1:02:24Speaker 03

  I mean, just in the last year, interest rates, the 10 years down 140 bips. If I reduce my discount rate on any growth software company by 150 bips over the next 10 years, the multiple will go up by two to three turns. Right? So if that index last year was trading at 12 and a half times, it should be trading at 14 and a half times, all else being equal. Simply because the discount rate is lower. And so, you know, we don't spend an enormous amount of time thinking about that. But I think that, you know, that is, Druckenmiller is extraordinarily eloquent on it. And I think that that is a place where we've been great beneficiaries.

• 1:03:08Speaker 03

  And if there was a macro item that I worried about, it's less about cycles, it's less about viruses, and it's more about what the competing cost to capital is.

• 1:03:20Patrick O'Shaughnessy?

  Brad, what today do you not understand well that you wish that you did?

• 1:03:25Speaker 03

  If there's one area that I really would love to invest in because I just, I'm deeply passionate about it and I think it's going to so radically impact the quality of life. It's the intersection of life sciences and software. So we are, I spent a lot of time just out of curiosity, reading about it. We really haven't made any investments there. And I don't think we have any special differentiation there. But when we look back over the course of the next two decades, it reminds, we've been laying the groundwork for breakthroughs in these medical advances for decades, since we sequenced the human genome. And if you just look at how rapidly we're developing and how systematically,

• 1:04:09Speaker 03

  it's like software development of these vaccines for COVID.

• 1:04:14Speaker 03

  Right? They're sitting on top of two decades worth of research around SARS, around Ebola, around HIV. I think they said it took us two years to decode the DNA sequence for the original SARS virus. It took us something like six days for COVID-19. And so I think they're going to be exciting and profound developments that can equal the playing field for lots of populations around the world. But it's not something today that we are spending much time institutionally looking at or investing in.

• 1:04:46Patrick O'Shaughnessy?

  Setting aside the life sciences piece, which could be an answer to this next question, what about the future excites you most?

• 1:04:54Speaker 03

  I'm an optimist. We live in an age where every day we're inundated with, maybe it's particularly under this president, I don't know, but with a massive amount of information in our feeds that creates extraordinary cognitive dissonance. And the level of anxiety is, we're coming out of this pandemic, but the level of anxiety is so high. And yet you read, when I'm feeling bad, I read the Gates annual letter. Right? And by almost every measure, the world is radically better today than it was

• 1:05:33Speaker 03

  a decade ago. Whether this is mothers who are dying in childbirth, whether this is deaths from malaria, whether this is access to clean drinking water, whether this is access to basic forms of education, whether GDP in developing nations. And so for me, I really believe that all of these productivity gains that have led to the massive improvement in the quality of the human condition over the last four decades are the result of enterprising people working on technology solutions to some of our most basic problems. And so that I'm not two pie in the sky, I'm reminded over the last two weeks of the

• 1:06:17Speaker 03

  fallibilities of the human condition, the racial protests we have going on in the streets, right? Certainly racial inequities have not been solved by venture capital and technology. Arguably, they're exacerbating the societal problem. The wealth gaps inherent in capitalism are going to be even greater in a world of winner take most. And so I think we will most definitely have problems to solve. But I think, Ned, when I look ahead, I could not be more excited about how technology will bear on the future of our climate, how technology will bear on the human condition through life sciences, how technology will allow us to be even more productive in using our

• 1:07:02Speaker 03

  limited resources, labor and capital to generate more human happiness. But I'm not Pollyanna about the fact that there's going to be a lot of challenges along the way. And hopefully, we can be a small part of levering these technical advances to solve some of these really important human conditions.

• 1:07:21Patrick O'Shaughnessy?

  So my closing question for everybody is to ask for the kindest thing that anyone's ever done for you.

• 1:07:27Speaker 03

  Wow. It's a great question. Listen, my mother was a single mother. My parents were divorced. She was working multiple jobs. We didn't have a lot of money. And now that I'm raising children, to think about how much it hurts not to be able to give your kid what they want, but just to make the sacrifices she's made that put her four children in the position that they're in today, and me specifically, helping me get a scholarship to college, which then sent me to law school, sent me to business school, and really just gave me the economic freedom to pursue my interests.

• 1:08:08Speaker 03

  So I'm the beneficiary of extraordinary acts of kindness along the way, but the sacrifice of my mom would probably have to be front and center.

• 1:08:16Patrick O'Shaughnessy?

  I love all the categories of answers I get to this question, but maybe my favorite is versions of providing enormous opportunity for others, whether that's children, or friends, or people you hire, or whatever. It just seems like one of the core kindnesses that we do. So I love the closing answer.

• 1:08:32Speaker 03

  Yeah, it's great.

• 1:08:33Patrick O'Shaughnessy?

  Well, Brad, I've learned so much from you today. I really appreciate the time you've given us and the interesting investment strategy that you've prosecuted over the last now 12 years at Altimeter. Thanks for your time.

• 1:08:43Speaker 03

  Thanks for having me. Look forward to continuing the conversation.

• 1:08:48Patrick O'Shaughnessy?

  Hey everyone, Patrick here again. To find more episodes of Invest Like the Best, go to investorfieldguide.com/podcast. If you're a book lover, you can also sign up for my book club at investorfieldguide.com/bookclub. After you sign up, you'll receive a full investor curriculum right away and then three to four suggestions of new books every month. You can also follow me on Twitter @Patrick_OShag, O-S-H-A-G. If you enjoy the show, please leave a quick review for us on iTunes, which will help more people discover Invest Like the Best. Thanks so much for listening.