how do we go about selecting the game that we're playing in life set your life up for your obsession cuz if you do that you're all in you're grinding at that in a way that very few other people will do you never want to compete with somebody who's obsessed Kobe Bryant he's at the
gym at 4:00 a.m. shooting baskets are you at the gym at 4:00 a.m. because if you're not like you're competing against that guy who is it's survival and adaptability right if I had 10 minutes with a CEO and my goal is to determine if they're obsessed or not what are the
questions you're asking one of the things I like to go to is talk to me about the will to win versus the will to practice if you're a concert pianist even though you're one of the best musicians in the world you practice your skills every day for us as investors
like what's the equivalent of practicing skilles every day talk to me about the blueprint the first blueprint for me in [Music] investing how do we go about selecting the game that we playing in life using the investing landscape it surprises me all the time that um people don't think
about that more deeply you you see this over and over again in markets and there's a whole Continuum from you know one end of the Continuum the the alos that are scraping to the millisecond right that's their game and if that's your game you have to do certain things
you have to invest in certain infrastructure certain capacity to a day trader to the the hedge funds and pod shops that are trading on a catalyst and around a qu quarter to call it Stan duck Miller who like talk about you know I want to look 18 months out to us so we consider
ourselves long-term investors we're trying to take a four to five year view to the infinite investors right a Buffett who is trying to own things forever right that's a that's a huge Continuum but depending on what game you're playing you're going to approach it quite differently and so a really
important question and I see it over and over even today people in the business for years have like well what game are you playing um and being really clear and thoughtful about that and then really leaning into them playing to that I think makes a huge difference I mean
in theory you're not going to be good if you're playing a long-term game you're not going to be good at day trading because the skills and the environment necessary to be successful at those two things are sort of opposed how do you think about Buffett and his style
changing for or five times over the course of his career you know he was never a day trader but he went from cigar butts yeah to buying and I wouldn't say holding but trading you know quite frequently to buying and and not trading as frequently how are you going to adapt your game to something
that's authentic to you in a way that can play to your strengths right Market change I even I've seen that from the time that I started the mid 90s to today right and so if you're playing cigar butts um which can be very profitable um but it's difficult to scale that and so
as his Capital grew over time you know you have to think about how you show up and how you approach it and we know that Monga was also you know a key part of like that conversation and Framing and helping Warren think about what he focused on underneath that is thinking
about how he needed to adapt based on his own size and the amount of capital he was trying to deploy and the environment is not just you know the computers you might need if you're day trading it's like if you're running a public firm is how do I maintain control
of that firm so that we don't have an outside shareholder come in and take control that'll make me change strategy or change environment how do you think about environment and the role that it plays try to think about your obsessions you never want to compete with somebody
who's obsessed Kobe Bryant like he he would say which your 4: a.m. he's at the gym at 4:00 a.m. shooting baskets are you at the gym at 4: a.m because if you're not like you're competing against that guy who is you know he took up tap dancing because he wanted to strengthen
his ankles so he could be a better basketball player are you obsessed to that degree that you're going to undertake those kind of actions the element that you're so you're so drawn to that you're willing to do those kind of things and whatever the kind of chosen aspect is um is really powerful
and if you consistently do that over time and that compounds set yourself up to play to your obsessions I was just I mentioned to you last night that I'm just back from Japan and um the author marami is one of my favorites you know he's like set your life up for your
obsessions because if you do that like you're you're you're all in like you're just you're grinding at that in a way that very few other people will do and so it's to the setting up your environment that plays to all of the ways that you do your best work the other side of that um is just the
concept of alignment right and so you might say I'm a long-term investor but you're only going to be able to be as longterm as your clients allow you to be right if you're in a position that's offsides to kind of the market sentiment at that time and you have in your in your mind that you
know this is something it'll play out over four to five years but your clients are knocking on the door and want to redeem you're not going to be able to play your game right and so you have to think going in how am I going to communicate in a way that I'm looking at
this kind of time Horizon how am I going to attract and retain the types of clients that have genuinely have that same kind of time Horizon because that will Empower you to actually be in that environment that serves you the best how do you find obsessed CEOs like what are
the markers from the outside as an investor looking in because I'm assuming you want to invest with people who are upset it's just doing the work you know it's it's looking at their track record demonstrated action one of the things that I spend a lot of time on is
thinking about the questions you know we do a lot of work before we initiate a position we tend to take reasonably sizable positions going and sitting down with the team you know you've done a ton of work in advance really looking at their demonstrated track record but then
you want to have that conversation what are the questions you you ask like what are the questions that come to mind when you're like if I had 10 minutes with a CEO and my goal is to determine if they're obsessed or not what are the questions you're asking context matters
a lot and so you kind of never know you got to be prepared to play jazz in the moment but sometimes a very generative question that really opens it up and seeing where they take it can be super helpful and sometimes that'll be you know they just they're putting in the CD
and they're giving you the script that's not going to be really helpful right and you got to approach that very differently but one of the things that I tend to I like to go to is around culture more often than not they sit down with folks and they they tend to be
relatively short-term oriented they want to understand something around the quarter or a particular um you know profit margin point or Capital allocation Point tell me about your culture and what's important here to be successful or you know my nephew is going to start at your company next week
and what would you tell them to be successful right like they probably haven't gotten that question and so they they can't use the the CD they got to go somewhere else what are they talk about in that and do you see that kind of that passion come out and then you just
follow that thread not always but it can it can often be very telling we talked about alignment but one aspect of alignment is sort of timeline the average tenure for an S&P 500 CEO is I don't know what it is but it seems pretty short how do you go about building a long-term position your
average holding period is longer than the average CEO 10e how do you think about the mismatch between quarterly annually long-term investing build building a company that lasts these are all sort of like interconnected a good question can often be just very simply
sitting down with the CEO and saying what's important to you how they answer that can be very telling like I want to build something special versus they go into like hitting their quarterly guidance like very different lens right so I think the average S&P 10 years is somewhere between three and four years
so to your point it it is relatively short we very much approach it as owners and we're thinking about what you would as an owner like Capital allocation and defensibility of the business and what they're able to create over time show up in that way asking questions around that
and in the midst of that conversation you can typically glean pretty quickly like the way in which they're thinking about the business and that's an important to I think that's part of the reason like controlling your fate is so important too because I often think of
like CEOs and this analogy is not perfect so like correct me here but they're almost like coaches going into a losing team there's a reason the old CEO is no longer there most cases and it's not retirement you know it's sort of like being pushed out your incentive is
I know I have three years to turn this program around like going back to the NFL thing or any sports team I'm going to take a risky behavior that is increasing I'm going to trade the first round draft pick I'm going to bet the firm on a player because I know at the
end of the day I have three years to win or I'm out anyway but then the next person comes in and you're in this increasingly worse and worse position and then you don't get the endurance of a 100e 200-year company that survives and culture is always taking a hit because it's like one hand you're
preaching long term on the other hand you're taking these increasingly risky short-term actions before I was doing Public Market investing at at at Oris my current firm I did um distress turnaround investing private Equity we were often going in situations where you're buying it based on asset value
buying deep margin of safety you have contractual value hard asset value and and very often you are changing the management team we're just buying the assets and we're going to bring the team in it's going to make a difference when I made the pivot and I it came to the
public market side um I very much had that mindset and it turns out on the public market side that's pretty difficult like public market turnarounds are tough and have very low base rates for all the reasons that you were just drawing out the Market's tolerance for
doing the hard work is very short one can take a lot of shortcuts in doing that and it's probably the way that I've changed the most at as public market investor over the past 20 plus years is um very leery to go into turnaround situations where I'm betting on the management team making some kind of
dramatic change like the base rates suck it's very difficult to do in the public Vis I mean it's almost like I would sit down and advise them like you'd be better off going private and kind of doing this outside of the lens of the public world because you're going to be
able to do it in a better way when you have those conversations it can be very telling in terms of how they respond how they're going to approach it what their scoreboard is and just asking like what are the kpis that you're going to hold that are really important to you talk to
me about the blueprint First Step know yourself second be clear on the game you're playing and then third like have a blueprint so what do I mean like this is um invoking Charlie like one of my favorite Charlie quotes is take a simple idea and take it seriously everybody as
they're coming up should have a clear blueprint of somebody that does what they want to do has done it really well a lot of times people talk about mentors and one of the things that always frustrates me with young people when they ask me like oh it's difficult
to find a mentor and I'm like what you could have any Mentor in the world that you want there's so much out there like pick somebody that you really respect and just like be a sponge get obsessive learn everything you can about them how did they do it what did they do like you
can really you can you can watch videos you can read and you really develop a mosaic a blueprint of what they did and why they did it and pretty much everybody's accessible to you you'd use it the same way that you would with any Mentor right and so I'm going to go see
my mentor what questions do I want to ask my mentor you can do that virtually right and so you study somebody you can pose those questions to yourself socratically and you could answer the way that they would answer it for you right yeah and I don't understand why more people don't do that and take it
take it really seriously but the most important thing is for whatever your domain is and the way that you want to do it like have a clear blueprint for you in the beginning you're just you know you're imitating it and then you're going to find there's certain things
that don't totally resonate with you and they're not completely authentic and you change those things and there's going to be some new things that you draw in that you kind of adapt from whatever that blueprint was and then that's going to become you and over time it becomes you
and it's something completely different a friend of mine says you have to imitate before you can innovate I mean there's so many examples when you start thinking about it like Jay-Z I think his best album 2001 called The Blueprint I think it was paying respect and homage
to those that he studied right and when he was growing up you know he used to always carry a notebook with him and he would write lyrics or ideas that he had and he would take it with him everywhere and that was his thing I mean to this day like I still carry a notebook every
day like this is with me every day and when I have an idea like I'm I'm on it like and that comes from the blueprint right and it works for me so then you go to people like you know Saul price like he the price Club I mean the people that he laid the blueprint for from Jim sagol
with Costco to Bernie Marcus with Home Depot to Sam Walton who's laid a bigger blueprint than Saul price or um Arnold Schwarzenegger like I mean it's a fascinating story if you think I mean he grew up in Austria and his original blueprint is I want to be Mr Austria and
then he did that and he was like I want to be Mr Universe he followed regge Park and then he decided he wanted to be a big movie star and he did that then he decided he want to go into politics became governor of California three different domains completely different each one he had a blueprint and so it
just can be really really powerful so if you're looking to acquire a skill and you're using a blueprint or a mentor as a role model you almost want somebody who just did the thing not somebody who did it 30 years ago unless what happened 30 years ago is enduring so the way that
you set up uh maybe you know Price Club or something is enduring or Costco is sort of like enduring right where you have this operating model where we operate basically uh break even and then we make our money on memberships that would endure in like 30 years probably
but often we look for skills we look for sort of like I want to do this particular skill I want to learn this I need this this is going to make me get a promotion go to the next level but if I go to you know my mentor in the organization he's like 30 years older than me who did this thing before but
now the environment is like so different and in their mind it hasn't really changed you know it's like well here's how I did it this is what you should do but if you follow that particular blueprint you're you're not going to be successful to start you just want to
emulate it right and that and then that gives you something to scaffold up over time but as you're scaffolding it then you're also questioning not just what they did but why they did it so lots of things will probably change but what's not going to change like the the concept
of having a membership club hasn't changed like powerful concept of being lowcost hasn't changed there other elements of that in the delivery that have changed and so those are the parts that you will adapt as you scaffold it out if you want perspective you want to
go to somebody who's at the end of the maze who's done it before and it's almost regardless of when they did it it could be you know six months before and it could be 20 30 years before but they're going to give you a perspective which removes blind spots and if you
want skills you have to go to people who have relevance in in the current operating environment and copy those sort of like skills because they're more likely to be successful but I like the idea of adding this extra layer of what's not going to change uh from the past that I can also bring back to right
now like it might work for them but it may not be so good for you which ties back to knowing yourself and listening to that tell I think is is important so who are some of your role models and like how did you use the blueprint methodology with them the first
blueprint for me in investing goes back I I can't if in high school or in college but was Peter Lynch you know his book one up on Wall Street um I think it's one of the best like in incredibly accessible I remember that reading that and just totally connected for me right and you
know a lot of people will cite security analysis Ben Graham like I've read it like it didn't it put you to sleep not exactly a page Turner right opposite with Peter Lynch went up on Wall Street I was like like it just really resonated and connected and I think one of the big
themes was focus on the things that you know that are accessible Buffett might call it circle of competence he didn't call it that but it was focus on the things that you touch see know understand like make a difference for you just look at your bank statement and
what are the things that you spend money on and what are the things you really like in that experience now it's not just that like you have to understand the valuation and other elements of business but like a guiding principle um was right there he talked a lot about win ratio like you're not going to be
right a lot and I think as a young investor that's a that's an important concept to internalize because you you see young kids come through and they've pretty much been successful at everything that they've done and then you you're investing in like if you're right 55% of
the time like you're you're doing pretty darn well um and so being wrong a lot is an important concept to internalize and then the last one he talks about he had six categories for his stock slow Growers fast Growers stall wordss um turnarounds cyclicals and it was just it
was a categorization framework almost like a mental mental model for each type of stock I don't use those exact Frameworks today but when I was starting having a clear framework and thinking about them kind of in mental models for each was you know was en tiful talk to
me about being wrong how do you recognize you're wrong and then do the hard thing which is sell it a lot write it down show your work track it measure it as that thesis is evolving and events occur measuring it relative to that and trying to be as accountable and objective as you can that's always hard
it's nice to have people also around you that that will push you to do that I think having your own investment Journal so it's different than the specific decision but just understanding what um emotions are at play for you they're study that show that those people that
are better at describing what emotions they're feeling end up demonstrating better investment performance and it's just the simple concept of like having a better read of what you're feeling I used to have a um a framework for myself that when I came to a decision I
wouldn't sell the same day and it turns out like that's a really good kind of level Setter because you go into a meeting with management team and they do something that um Sparks you and you're like particularly turned off you're like I'm selling this if you just give yourself a
little bit of space to step back from that go back look at what you wrote originally pair that up with what you saw that can be really helpful in like putting you in a better mindset to make a more objective decision the data would say I'm better at like cutting a loss earlier knowing something's off in the
decision there's some situations where like I hang with it it's continued to not work and then I have this sort of endowment effect of like I want to see it play out over time and I and I stay with it for whatever reason so it's an interesting question for me of like what
what causes it to flip from one to the other what role does writing play in terms of thinking and what's the process do you share this with the team is there a format what what variables are you writing about you know one of the themes is like how do you accelerate learning
and accelerate feedback loops and so one of the things that we do is all of our analysts run paper portfolios or model portfolios and this is something we've done for decades when you go through the investment process you write up you know your various research reports when you
want to buy it you put forward something to investment committee um you debate it and then you buy it in your paper portfolio and what you're for any decision a buy or sell you're writing down your reasoning you're putting down why you're buying what the thesis is um
I like it when you show the things that I want to be looking for and holding accountable to you just writing things down like helps you crystallize the why and putting it down and then tracking you know show your work and then track it one of the things that we do every 6
months is you know we consolidate that we look at the performance and then we share that with the the team members it's really powerful feedback mechanism for the analyst but it's also powerful for us is we're thinking about um you know looking at the simulation if you
will like who's making good decisions and what kind of decisions are you demonstrating more skill on the buy decision the sell decision are you doubling down down when something's working against you are you making better decisions depending on stocks that you've researched yourself versus
stocks that somebody else is written up like those are all Dimensions that are in there that's giving you feedback which is you know really powerful way to like help the Improvement algorithm one of the things that we did a couple years ago uh which has been really interesting
is um we created this what we call decision analytics initiative right so we have a Standalone team um for individuals we went out and got third party software and we run all these decisions from our portfolio managers and our analysts through and we're looking at to
pick up strengths weaknesses and biases it's meant to be kind of like you know internal um coach and what's fascinating about it is it's showing you these patterns right like I have specific patterns that I've demonstrated over time I talked about one of them already
with regard to the endowment effect another one is Regret aversion the riskiest position in the portfolio is my newest position so when I'm initiating a position I tend to scale into it so let's say I want to take it to 3% of capital I'll buy 50 basis points and then I'll another 50 and I'll scale into
it turns out that's wrong the bias that I'm demonstrating the Rion is a regret aversion is if it's reached the hurdle that but I want to buy it buy it and so it's interesting to get that feedback objectively because I have this kind of like working heris but it turns out it's
not right and 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 um and it'll say you know 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 you know can really help reinforce making the best decisions in a way that can be most constructive to you as an individual is there a correlation
between the clarity of people's writing and their performance I haven't studied the data to specifically support that but my I believe so when you're able to clarify your thinking and writing is a very strong representation that you've clarified the thinking right which 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 know you get this 50-page report I don't want a 50-page report like I want a few pages
that really just still 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 and in particular where we see this differently than others capturing that and knowing kind of those fulcrum issues
like that's the sauce coaching to how do you go through that process of do that really fundamental Bottoms Up work but then be able to like really distill it it's also a manifestation I think what what you're pulling on that you've you've gotten to that it's like there's
simp 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 they 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 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 so 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 um to pull on one is the filter right like it's a it's a really important thing to think about um 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 you know I will I'll see something it's like well I want to either talk to the management team or listen to them directly I I just want to I 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 you got to be authentic 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 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 and 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 got to do and looking at the
balance sheet and understanding the core strategies and the key drivers of the p&l etc etc but really like 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 like keep
pushing until you get to that point that you can distill it like what what is the essence of this like one of the things we talk about in the team is what's the essence state statement for this company meaning like 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 balance 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 we had built a position in a company called Motorola Solutions you think of like the Motorola flip phone um 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 um 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 bare thesis at the time fiber rolls out and you have Broadband networks like these proprietary networks are not going to be necessary in the way that they were I'm not a technologist but we spend a lot of time understanding LMR networks for
First Responders and it turns out that the 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 like
they can go go several days which we saw during 911 like the networks went out but the first responder LMR networks were were still operable the common narrative out there when you talk to most people like they would they would quickly riff of like oh you know they're
going to be dis intermediated as Broadband networks are more commonly adopted really getting into that last five to understand it and bu build conviction about it was the difference for us um ended up taking pretty sizable position and ended up being really rewarding for us but to 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 bare 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 dis intermediated and that would have sound really sensible and I was like yeah I'm not 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 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 be case is the bull case you've had Brad Jacobs on your podcast we first invested with Brad in 2013 there have been more than a few occasion through that Journey where the
kind of being able to get into that last five to understand in a way that wasn't L 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 the first one 2015 you
made a big acquisition was a big pivot probably one of the best Capital allocation decisions I've seen in my investment career brought a company called Conway it was a complete pivot from his stated strategy at the time his frame was you know we're asset light
brokerage Truck Brokerage business he pivoted to go into the LTL industry which was Capital intensive and even when the deal was announced you know even I was taken back like but when we made the initial investment we spent a lot of time on on Brad as a as a CEO as a capital allocator he's serial
entrepreneur and one of the things that's very clear in his track record is he's he's a capital allocator and he's opportunistic when we pushed on this in 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 this demonstrated track record it reframed how you thought about that Capital allocation decision and 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 CLE was demonstrated and then the the the second time um was and I'll never forget I mean we were actually
sitting we went to C Brad in December in the midst of the conversation his assistant came in and said i' um a short report has been filed and she had printed it out and she set it on the table and I I like I can still distinctly remember like the thud
of this report was like a 75 page report and so we continued to chat about 15 minutes later his assistant came back in to the office and said um you know I think at that point the stock was down more than 20% and he said you know sorry guys I think 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 like the the feeling of anxiety in my stomach um and we had done a lot of work on it it was intimidating to kind of you know hear these claims on
the surface in the next three weeks we lean into that like we we hired a forensic accountant to go through all of the statements every one of the claims that were in there hired a private investigator um we knew what cars they drove whether they had loans or not whether there were any disputes the
people on the short side on no in the company to understand Brad his CFO Chief Operating Officer there were certain aspects in there that were claimed kind of on on dealing really to to go into that last 5% maybe the you know last 1% is how I spent my my Christmas and New
Year's is going down this 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 I think Brad and the company bought back 2 million like
unprecedented magnitude of company buy back he borrow he borrowed money to buy back and bought back huge it was a gut check but on the back of like extremely extremely deep rigor like conviction building you know 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 I it's true like 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 rollups 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 that's what it takes and again kind of turned it like the be case is actually the bull case and you 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 that
learning curve and those feedback loops you know try to put yourself in a place that's good game selection for you based on on who you are and what your strengths are you 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 you know how they thinking about stocks
how they're making decisions and it's really hard for us the way in our game selection because we're we're making these four five year decisions so it's very easy to say well it's about this and you know let's check in in 5 years no like there many incremental steps between now and then that you want to
track to and hold yourself accountable to doesn't mean you're trading every day or every quarter but you want to be really thoughtful on 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 has it and then adapting for that right and 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 I think it's just learning from the feedback right we took it in 2018 we took a position in sematech so sematech did do software like anti virus software like
on the retail SED to protect your laptop and and and desktop you know it was a mature business very high free cash flow you 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 I 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 um a very Savvy technologist but um had a
reputation for playing fast and loose 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 um the audit committee was going to undertake uh 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 into 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 time back to your question is 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 of zeroing in on the thing that is the thing when I talk to entrepreneurs it 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 listen and you can kind of see it in their
faces if you pay attention really closely but 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 uh things that uh might be criticisms or things that we might not be great at they sort of go in one and out the other or you stop
listening to them I've heard that before you know and and I think it's really interesting when it comes to running a business or getting better at things is like almost being like Darwin right who 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 lie of dismissing it how 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's 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 why is that it puts it in a position where they they kind of have to respond cuz to your point A lot of times when you will frame something in the negative or as a threat or challenging you know cosos 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 used the semantic example like it was disconfirming um not to the big point but in terms of the broader narrative 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 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 because they may not be that um excited to put that first and foremost because 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 um we didn't talk about but probably the
most meaningful blueprint for me is the founder of my firm Alan gray you know genius is is um dissonance and mean you know the ability to kind of hold to competing and so on the one hand like he was super long-term but he was always obsessing also so in the short term the
long term is just building up those short-term things he was a person who was very convicted about things like tremendous conviction but it was always loosely held and so if he heard anything that was counter you know threat he would really grab that um and he was
never ashamed embarrassed shy to then grab on to that and then totally flip his View and so that that ability to like be very convicted but then constantly in search of like he never wanted to talk to somebody that agreed with him about a position like who's got the the opposite view on that that's the
person that I want to wrestle with intellectually um and hear about that cuz 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 ambid dextrous are there other lessons that stand out that you learned from him I mean there's so many I mean he um he's a special person I mean he I the first thing that comes to mind is just his enthusiasm his love of the game right
like it's just infectious he used to say there's nothing uh 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
was Allin 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 like it's it's it's survival and adaptability right you want to be looking for the
things that don't conform to the construct he always liked to talk to folks that were younger um and I think for a couple reasons one was um it's it's less filtered that it's closer to the source um and it's probably more contemporary in its view you know I was reading earlier this year I was reading
uh was a biography on Andy Grove and it talked about you rise to the level in the company that you're a manager more senior engineer like you you lose your connection to like The Cutting Edge engineering and so you know it was 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 he was like it's survival like it's I need to be close to the source of the people that know the problem the closest and and when I read that I was like wow that's the same
thing that Allan did in a different way a different industry a different business but it's the same concept never called it survival but know that that was underneath it of like getting directly to unfiltered the best information I had a friend who was the um Chief of Staff to
a CEO of a billion dollar company before he assumed this role he he sort of said you know I think by and large and 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 and 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 cuz it's been so filtered by the time it got up to the CEO's office and so he started this thing where he just started calling the 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 about
like how do we sift what's important from what's not and 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 12and on a clock you reflect on that experience which is the three-and you create a compression or abstraction which uh you can think of as the distillation uh as the six and then you have an
action so you have this Loop that constantly feeds back into itself often what we're consuming is other people's compressions and when we do the book summary is a great great example of that right you're consuming somebody else's uh 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 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 of 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 this 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 and the way that I try to explain this to my kids as imperfect as
this is is they uh every Sunday we have this cookie recipe and I make them make cookies before they can have the Wi-Fi password so I 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 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 did they compact the sugar too much was the oven running a little hot you know even though it said 360° was at 375 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 I'd love that I um 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 and track and see kind of um where they might have been off and then the second part of that just to the point of the um having a blueprint 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 would to 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 to me about the the will to win versus the will to practice it'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 and that's why I also tie it just to the the concept of it is the journey that
gets you to that place you know one of the questions that I really love I think about and I'm still kind of like evolving on is you know music like if you're a a concert pianist even though you're one of the best musicians in the world you practice your skills every day
for us as investors like what's the equivalent of practicing skills every day it's an interesting question I mean I think there's some parts of it are temperament related like just practicing defer gratification there's elements of it that are you know um 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 like really practicing that day after day essentially inoculate yourself to 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 GDs 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 calling you out and like um and Kobe was the same way where they treat the practice like they would treat 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 how do you instill that mindset in your kids like where the will to practice the will to to grun 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 it was just the example that he said 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 4:00 in the morning or I don't think you're going to get a lot of sympathy
from our audience here but it's just it's the it's the setting examples is is the first layer I think and the craftsmanship of it no matter what you're doing it from a janitor to um you know 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 they're they're so different right but for each one of them like to help them get in the space of it goes back like what can you be obsessed
about doesn't matter what it is but what is that for you and be deliberate about about it be intentional about it the concept of deliberate practice of like really having that that blueprint grinding on it um leaning into it measuring yourself relative to it like that's the thing what have you learned
about time management you know as investors we we allocate Capital You could argue that's our most important job you say that a lot of CEOs you know ironically 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 you can't get more time and so just you know as an investor one of the things that comes up a lot is okay
we're going to spend we're going to go deep on this company we're spend the next 3 months really grinding on it to understand it but if we do that for 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 like uh a big question is how they might adapt or modify their distribution networkers but you know on the other side it might be something like like tsmc the Semiconductor Company one of the best
companies in the world the big question there is a geopolitical question I could spend three months on that and I'm not sure that that would move my probabili 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 is like will doing that result in the highest return on time as opposed to 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 degree that it should be I like the notion of time allocation and sort of capital allocation does 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
right and so just to give yourself the space for play to just be in that moment with them or whatever it may be you know on Fridays and Saturdays we have family dinners together and it'll start call it at 6 o' and everybody's got a roll and doing something and everybody's in the
kitchen and you're just mixing it up and um you're just totally in that moment the next thing you know it's it's 10 or 10:30 and like it's the end of dinner like that's been a four four and a half hour journey and like just totally lost in the moment of it you know those 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 in that space going back to tsmc for a second I think one of Buffett's filters is is it knowable and if the answer is no he doesn't want to hear your opinion on it
uh or your fox or anything he just doesn't waste any time on it and 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 or a big family reunion or Thanksgiving or
something and you know people are like arguing about very subjective things if 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 because it's not
worth sort of spending time on I think it's it's an area to keep reminding yourself and have the discipline I was I was recently in Australia seeing number of clients and a big topic is the election the US election in their mind and obviously for us it's 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 in tilt the portfolio for a particular outcome one 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 like from a position 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 and 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 is in cash and it's like well if the 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 like skyrockets who wins Buffett win like you know he he's just set up this scenario where he's he's not predicting he's positioning you wrote a book on us through your eyes um it I mean positioning is uh is everything right in the sense of um you can think about it in the
portfolio of do you have the resilience to absorb what may come you know we have these situations where you wouldn't have anticipated it and then it can be quite devastating if I go back to um I mentioned sem anch but 2018 like I um really one of the most difficult years
of my professional life so the sanch hit um about a month later it was in November and I I'll never forget because it was on my birthday we had a position in a company called pg& which is a California utility oh the wildfires yeah so we we went into it after they had had
their wildfires thinking that legislation had passed but there's this little loophole if anything happened before the end of the year we were already through the main part of the heavy wfire season then another fire hit like we're in San Francisco I'm literally in my office looking out to
Marin County and I see the flames in the Smoke billowing and I'm I'm thinking that's my position billowing that's my portfolio you know that's my invest in track record like just kind of devastating and you know I I 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 XO 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 thinking about game selection accelerating your learning feedback know that you're on this hero's journey and there's going to be these setbacks and 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 the 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 is sort of do you have the balance sheet when you go into things that are unexpected but 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 how 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 of a time period to get there
but um 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 100 years and not go through uh all of the things that life has to offer from heartbreak to losing money in an investment yeah to and like how you respond in your
approach to those things it's usually not now and the people who try to push it away or why me uh that causes sort of um 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 a very helpful
mindset right just I didn't I maybe not have created this I might not have anticipated it my contribution to this might be really low but 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 talk 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 like you need the investment to work as opposed to making you know 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 your temperament and your emotions and once you do that put yourself in a bad position to make great decisions and 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 if you break any one of those kind of components of the flywheel if you will like then you really got crit in the flywheel and it could be dangerous you know in its worst case will you invest
with attention seeking CEOs or like high lifestyle CEOs generally not I mean it's um it's it's a part of the Mosaic of you know what will be the driver I mean it's an interesting thing with um with CEOs are 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 um make decisions that are independent of what might be popular um talk to me about the role of focus we don't have infinite time right and so what you
choose to allocate it to is is really a critical decision 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 hole 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 give some feedback on that but just asking you a question like when you're spending the time to what we were just saying like is this a question that I can answer very simple but like you know take a simple idea take it seriously are
there particular lessons from Munger and baffet that you try to remember every day that have made more of an impact for you take 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 like really lean into it I'm really a believer that the magic and 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 The Matrix clearly like just take that and really lean into it so what would you say are like the three Le ideas that you take seriously alignment 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 like give let's talk through some examples when you've done something that's different to the crowd in a way that like had consequences and was difficult to do create an environment turns out if you hire people that are really
independent-minded they like to be given a lot of space so 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 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 by the way maybe you put a fee structure around it so we all of our fees are performance space but they're refundable so when we go through
these periods that we're underperforming we 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 time frame 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 like it's it's everywhere what's the next one so alignment was number one what's another one first principal thinking and having an independent view um not filtering I first met Allan our founder um in the mid 90s that very first
meeting he 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 um and I was very new in my investing Journey you I don't think I fully appreciate it but 30 years
later like I've I've internalized it and um just kind of that first principle is independent thinking and you know 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 the right
answer and being okay being different from everyone else is like that's the thing like 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 uh results towards the tail
it's no fun being a contrarian just to be a contrarian but a lot of people are right like 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 okay you're contrarian all the time and then people just start to
dismiss you and and nobody listens to you and then the odd time you're right but you're 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
it's just truth like what is the real truth here uh 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 you know when I was in my 20s it was 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 um I get a lot of meaning in using kind of my
um strengths and 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 out after and helping other
people I know what it feels like to be in that position where you you you don't know how to do it but it's a it's in you it's a it's a hunger that you have and when I see that in others and I'm able to help them do that like there's just tremendous satisfaction enough for me like that's success