Path to investing

• Was a numbers kid; 6-7 years old studying baseball statistics and memorizing them; tracking them week to week

• Started reading at a young age; how to buy stocks by louis ingle

• Loved puzzles; $200 of savings to buy a share of Johnson and Johnson when i was 10

Started Baupost right after HBS

• 1982 - TV station investors, computer publishing business; was second full time employee to oversee investment of family office capital

• Stewardship mentality rather than investment business

What is value investing then?

• The principles continue to apply; buying a dollar for 50 cents

• Securities come into being and go away; entire industries as well

• We had never owned a mortgage security before 2007 and when those collapsed we dug in

• Misconception that value investing is buying the cheapest stocks

• Book value and earnings less important; price to cash flow is more important now

Forecasting long term

• Ben Graham - future is hard to reckon with; he lived in an analog world; things went down in things like the great depression

• Disruption - department stores may not come back; entire business models have been out-moated

• Future of alphabet may be more clear than the present or near future of a magazine or department store

• This moment of time - don't know if you are at the peak or trough of the market; we can tell that this moment - market approaching record highs, partially pushed by federal reserve

• Investors have said - I'm not going to buy bonds; TINA - there is no alternative; that has driven people into stocks; lower discount rate - value of future is more important; people have been discounting at lower and lower rates; profitless companies have been

• Growth is complicated - one company's growth is not representative of an entire industry; really need to focus on the downside; need to know what gets in the way

• People could make a good case for facebook - potentially being treated like not a growth stock

• Grab - growing at an incredibly rapid rate - stock is in the 3's; not a ton of change in its results

• Even the newest, fastest growing companies are subject to disruption as well

Competition Neglect and private markets

• Savings and Loans collapsed and we came in in 1990's

  • Real estate collapsed in early 1990s and Drexel failed; direct ownership and loans

  • Warren Buffet used to only buy public companies

  • At times the best bargains are in the private markets

• Venture capital is pretty interesting; institutions will never say I reached my limit; people are paying more and more for the same kind of deals; those funds are limited in capacity; people are staying in an area that they may feel is getting quite frothy

• In certain activities your skillset is your skillset - if you are a good plumber, it doesnt really matter if there is a better plumber; in investing, a good competitor can destroy a mispricing; in investing its different; closer to a baseball general manager

• Moneyball - people read the book and it destroyed some of the arbitrage;

• Edges come and go - a source of competitive advantage regardless of what the competition does; you are always be building new edges

• Markets are inefficient

  • Greed and Fear

  • Institutional structures - people organize themselves into silos but sometimes best opportunities move outside of silos

  • Best opportunities lie just outside the edges

• Howard Marks - most people think investing 1.0 - its trading at a good price, investing 2.0 - why is it trading at that price

We always build new edges

• We can make the talent we have better; finding that security that's mispriced is good but how can I make my team better

• Pulling threads of existing opportunities and finding new opportunity

• Whats the asset class nobody is thinking about right now; a type of security or type of bet

• When the building gets 50%, its not plain vanilla; owner of that loan wants to sell at a pretty good rate compared to cash flows; don't like uncertainty of leasing up vacancy; we like to see a lot of moving parts

• Build comfort with discomfort

• All of investing is the consensus is wrong - you have to develop the conviction and then not retain the bias that your original view is correct

Reallocation after COVID

• Pandemic accelerated change

• Will offices be in demand; will people need space for employees; I might be careful buying an office building

Inflation - how do you prepare yourself for that?

• Bond bull market for about 35 years; until very recently they haven't lost money because rates have gone up; in investing everything is cyclical over a long enough time

• We ran the economy super hot; caused very low unemployment but has contributed to supply chain

• Shortages - nursing; minimum wage has pulled up as well; we have seen that the higher wages have attracted back some workforces

• Immigration - politically very difficult right now

• Fed tightening - likely to have an economic downturn; we don't focus - we think about it a lot

• Hedges - interest rates up, market down; we try to hedge against some of our exposure there

Advice for investor at home

• 2 parts to that

• For young people on the webinar - investing is a great field; its great whether markets are going up or down; puzzle that is always interesting and evolving; I'm 40 years in and I find it a challenge every day; its essentially a meritocracy - if you know how to make money, you are likely to be successful

• Diverse portfolio of what they know; over time you can buy anything

• Market will probably reward selectivity and stock picking rather than buying the whole market; overall market has had some pitfalls but some people have been able to avoid those pitfalls

• We don't spend any real time thinking about the market; is its management focus on the interest of investor; will we have more money in 3-4 years; sometimes its an uncatalyzed stock - problem goes away or results speak for themselves

• Company buying back stock - value being enhanced by corporation; separation of businesses - company can see more clearly

• Restructuring plan in a credit investment

• You need an approach that is eclectic; take the long term view

I run loose centralization

• I delegated more and more responsibility over time

• Constantly trading off opportunities - a building vs a whole company vs a foreclosed loan vs. a public company

• We have returned capital in 2010 and other times

• We are constrained more by cultural and process ramifications than an opportunity set

Value investing

• Early 1960s - Warren buffet - super investors of graham and doddsville; he and his many value oriented friends had very different investing styles

• Tweedy Browne - look at the numbers and valuation focus; Tom Russo is a value investor focused on higher quality companies; room for all of it

• When something gets fully priced I get antsy and normally sell; we are going to buy them at bad prices and sell them at mediocre or better

• I'm very interested in the psychology of myself; I know I'm under pressure if I use leverage and I'm down a bunch; forced to sell things when you want to buy more of; when you own something that went up a lot and you didn't sell out of it; could've bought more

• Some people are really capable at finding that

Geopolitical risk

• Investors have fallen in love with being exposed to places like China; people felt like they needed to know those businesses

• In an authoritarian society, the rules can change ina second; china and russia things can change super quickly

• Government laws around student tutoring - you can lose what you thought you had

• Investing in different locales should come with different discount rates; emerging markets should require a higher return; more prone to hyper inflation, military takeovers

• Wind at your back with growth rates

• We don't really focus on geopolitical risk but we worry about it for our holdings; we might buy credit default swaps; we hedge foreign currencies to dollars because we live here

• Our own risk to democracy - States and localities making voting harder and counting of elections to be harder

How do you view global investing today?

• Nestle - entire conversation since the 1980s has been becoming deeper and broader everywhere

• You have advanced markets performing like not advanced markets

• Heinekein and nestle

• Warren Buffet 25 years ago would have talked about liquidation value

• I met Mr. Buffet in 1982 - and his first suggestion was taking advantage of unrealized taxation of capital gains; more tax inefficient

• He was in between transitioning into

Inversion of yield curve, supply shocks with economy, demand shocks in certain areas, recession in sight? How can investors protect themselves? Are you prepping your portfolio in any way?

• Companies that have substantial competitive advantage - you can advance during periods of uncertainty

• Would rather go with businesses that would have gone through some things where theyve already prepared for some of these crazy things

• Its within those businesses that we spend our most productive research time - they may help us understand interesting opportunities we haven't seen yet

• We met with CEO of Heineken North America - met with Twitter and Facebook; they told us that they could not do without these companies - we bought Google as a result of that recommendation

How do you think about Google?

• Endless reinvestment opportunities within Cloud; YouTube had no advertising revenues 7 years ago; now has 30B of advertising revenue

• There are other inventions that are nascent

• Google is taking things in logistics - trying to find space in the route to market logistics - so early

• I prefer businesses that have the capacity to reinvest and that they have the capacity for their management to suffer criticisms from wall street; they have non-voting family controlled stock - allows Google to do what they want for the long term of their business

• Google started to bump up against itself 4-5 years ago; family wasn't brought in touch as frequently as they should have been; Sundar has changed a lot about Google; families conceded that they let Sundar make the decisions

Dual class share companies or family controlled companies - double edge sword

• Comcast - led by technology and more aggressive pursuit of market share and higher reinvestment; talent within comcast was great

• Adelphia was just down the road - both were family controlled; the stuff that took place in the company had nothing to do with the cable business; family was focused on increasing their share price

• 85% of top 10 holdings - in contact with management on a frequent basis

Products that consumers can't do without

• If you are a heineken drinker, you probably won't drink bud light

• One clear way of dealing with inflation - dont think cheaper alternative hits their needs

Culture within an organization - lead to differing outcomes of success - how do you apply that at your company?

• Our director of research - refers to his friends who are business school graduates - his competitive advantage is that we ask of him things that make sense

• We are constantly re-audit top 10 holdings; were not trying to figure out next quarters earnings nor their competitors earnings for the next 15 competitors; if something is not worth doing at all, its not worth doing well

• We only ask them to handle things that matter, because we don't turnover our portfolio

• Compensation - we don't have a mandate that you have to knock something out of the portfolio to put something else in

How can you tell what is good talent? Who are you going to hire?

• For the deeply curious - we offer the ability to find final answers

• In the 1980s we went to Switzerland to find Nestle, to Holland to find Heinekin,

• We dont hire outside analysts - we have had 4 visits by sell-side analysts in 40 years; we are not being bombarded with bad recommendations - lengthen your horizon

• The information might not matter if you stretch your horizon a bit

Berkshire Hathaway

• Culture and Belief are very undervalued by wall street; desire to know this will be the case

• Element of belief gives berkshire an opportunity to reinvest; they are agnostic to reported profits - it is the steps they've taken more

• Investments that destroy reported profits but build wealth; equity index put options that took place a decade ago; $5B premium - $30B of notional puts; unlikely that the indices would remain low; Berkshire looked like it was losing a bunch;

• Being indifferent about reported profits is super helpful

• Can't make a good deal with a bad person; agency costs - Joe Brandon - was superstar at General Re; they've had three hundred underwriters at National Indemnity - voracious then slow then voracious - willingness to suffer the consequences of paying employees; they were always prepared to write a ton when no one else would; Berkshire continued to build capital

• Berkshire is set up to take the opposite side of what a lot of people think they should be focused on (reported profits)

• Buffet - willing to do anything but able to do nothing

• Send cash back to Berkshire headquarters - they don't have to think about how to deploy capital - focus on running business for the longest term - don't have to manage; yield on investing is higher than average; willingness to not reinvest in a business that doesn't need it

• Transferring funds internally there is no tax owed; Berkshire isn't burdened with selling a business to trigger the gain and get carried interest

Willingness to not deploy capital when it doesn't make sense - a lot of alpha is destroyed by not exiting positions when they should exit - when is the right time to exit?

• We exited a bunch of companies through acquisition; we tend to stay largely invested; our mandate is to deploy capital and we tend to be pretty fully invested

• We have rebalancing transactions that happen pretty consistently; pull from business that is overly loved and turn it over into a business that was unfairly sold; couple percent here or there

• Valuation - 1999 - Warren Buffet - analyst wanted him to buy Cisco - Cisco is a $550B market cap earning $2B; you have to recover opportunity cost of capital in first year; you have to feed it with 6% hurdle every year

• Wall street almost prefer that money get returned to shareholders to show better cash flow conversion; Berkshire doens't make a practice of deploying money regularly; players are ready to go when the market is ready

Long holding period - competitive advantages are existing for shorter time - will investment horizons be shortened?

• Clearly our companies ahve the ability to take advantage of disruptive technology; it opens a new investment platform for us

• Small position in Alibaba - we made it small on purpose; Jamison, richemont, cartier - using the disruptor to great effect; we think of that as another opportunity - keep our businesses that exist going well

• It requires that our companies change radically; are our businesses able to cover the risks of their entitled franchise

Alibaba - geopolitical risk

• In the US - there are tons of requirements and risks

• Substantially undervalued but will grow

What motivated running your own firm and that decision

• Attention that came about - I started a partnership with a couple of families; that portfolio had good results as a result of a couple businesses that did quite well; it was receiving requests for investments; I was at the Sequoia fund at the time; living in NYC with two young children - partner was based in Lancaster PA; school was fine and we made the big leap

Investment industry has changed a lot - shorter time horizons, more VC - what characteristics do funds need?

• There are so many forces going on; enormous push to index funds; SPACs, PE have ascended to a far more critical part of asset allocation; venture and PE have blown the lights out; those businesses can be capacity constrained; each firm requires that they have enough talent to oversee subsidiary of those private funds; competing funds - index funds - allocations they become more important in board room dynamics - less about reinvestment and capacity to suffer through reinvestment

How did you get started as an investor?

• English major at Bowdoin college and was bad at it

• Took Economics my junior year - decided to become an economics professor

• Was at U of M for 1 year; they were trying to jam the world into a math formula

• Dropped out

• Worked construction in vermont for 3-4 months

• Pittsburgh national bank; went through credit training program; guy on 30th floor - taught investments - had similar personality

• 23 years old - gave me banking and chemicals; never had a course in business or accounting - didn't know what I was doing; was there 1.5 years and says I'm going to make you director of research

• I'm sending an 18 year old to war; I can't pull the trigger; was made head of trust department at

• Shah of Iran went under - put 70% in energy, 30% in defense - it worked out super well

• In 1981, bank was doing pretty well and I was paid 43,000; that was founding of Dusquene

Extreme concentration - describe how you came to be comfortable

• It was pure luck; I didn't know any better

When I started Dusquene, fed fund was 18%, inflation was 11%; I started with banking industry and learned a lot of federal flows and central banking; pure luck

• This guy is hell bent on breaking inflation; whole world is afraid to own 14% yielding bonds

• 50% in 30 year bonds; yielded 14%; 50% in cash; things worked out; bonds went through the roof; stock market went down

Interest rates are more predictable than stock market; stock market can be a fashion show from time to time

• Studying currencies to try to analyze things; currencies were the most predictable assets; I was analyzing commodities; matrix approach - invest in credit, currencies, bonds, and equities; started to be core of investing philosophy with concentration as well

• You would see a big bet in those areas when other areas weren't very exciting; you could take other avenues

• Concentration provided a discipline - you go home paranoid every night and you are really watching them; stayed with me rest of career

• Original boss - was big into charts and technical analysis - third stool of discipline; ideas from charts - if the chart didn't look good and fundamentals were bad

• Didn't meet anyone until I read Soros's book; I called him - he had similar ideas; counter-intuitive; multi-asset approach with a brutal investment to say I'm wrong and get out; kind of made both records

What forms the basis of one of these ideas?

• Original mentor was very cynical about investing in the present; everything from the present is in the price; envision the world 18-24 months from now; stock, economy, interest rates, whatever - where will security prices be in that different world? That often times aligns me with contrarians - when things are really bad I can envision them doing well; sell the stocks when they are making a fortune; I end up being aligned but I'm very cynical around what the current view is and what the world looks like 18-24 months

What you define seems straight forward - how much of it is innate sense of trades vs. analytical skills?

• I don't care what i paid for something, the next day - I'm constantly reexamining my thesis with an open mind; if the reason I bought something or shorted something is not working, I'm out

• Soros started in equities - my macro view does not come from looking at unemployment claims - it comes from talking to companies in search of equities to buy and sell; housing tends to lead the eoncomy; retail coincident; capital spending lags economy;

• For whatever reason, I've been able to consistently go with that approach

Pound trade

• Before the pound, when the wall came down in Germany; Deutschemark went down a few days; my theory was germans would have an economic boom - they wouldn't deal with inflation because it led to hitler

• August of 1992 - equity analyst sitting in london; tells me housing is falling apart in England - inflation and growth is rampant in germany and they need higher rates; pound needs lower rates and housing led and its clear they need lower rates

• You could buy the deustchemark and short the pound for half a percent

• Fund was 7B at the time; buy 1.5b of deutschmark and short the pound

• Risk reward of 30 or 50:1

• September 15th - head of the bundesbank - says they dont want to be linked to the pound anymomre

• Soros - was in the office - I wait til the end of the day and at 4pm I tell him my thesis; say its a catalyst

• I'm going to buy 7B with deutschemark and short the pound;

• Soros looks at me and says that is absolutely ridiculously - we need to put 2x the fund in this trade; if im wrong i lose a % and if im right

• I start shorting the pound; by 10pm it starts to leak out; by midnight everyone is shorting the pound and going long the deutschemark

• Forwards cost 8%; i've already done 6 or 7B

• 5am - Lamont comes out in Britain and they raised their rates to peg the pound to 12-15%; i then shorted the last billion because i know they are toast

• Pound breaks - make 1.5B that day; interestingly enough; gilts (british bonds) go down 2 points; buy a ton of gilts and other european bonds and british stocks

• We made a lot more money for the companies around it

Spring of 2000 stories

• In the spring of 1999, I start shorting internet stocks; I short 200m

• Literally a few weeks later, the 200M is 800m and i cover my position

• I hire two thirty year olds and we go long internet and we do super well

• I sell in january 2000 and I tell soros what im doing;

• Two thirty year olds are making like 60% a day; its going crazy; I'm fighting my own emotions; I keep reaching back thinking oh man i should just go long

• March 10th - I buy most of it back - I put 6B into tech stocks - 22B fund at the time

• Interday reversal; two days later I know I'm dead; I've made a huge mistake and I'm quitting; fund is down 18% in like 2 weeks; I go on a sabatical for 4 months; I'm completely devistated; I have a great summer with my wife and kids

• I come back and something very interesting has happened; Nasdaq was down 30-40%; nasdaq is almost back to even; dollar has gone up; price of oil up; greenspan has a tightening directive on; next move in rates will be up

• Call a lot of clients that stuck with me - anecdotal information is all weak

• I start buying two year treasury - 6% yield; fed funds is 6.5%; think that rates will come down; bush gore fight kills economy

• I build a position that is 15x the fund of notional value; 3B fund, i'm long 40B of paper; im long 3.5x the fund; next thing that happens the dam breaks, recession becomes obvious, I have a 40% quarter and I don't have a down year after all

Today

• I've had a view for quite some time starting at the end of 2020; 5 trillion of spending + 5 trillion of fed balance sheet stuff would be inflationary - outcome turned out to be inflationary; debate about how inflation was transitory - said it wasn't transitory but predicting it will come down because they will raise rates beyond neutral (2.4%)

• This chart makes me skeptical of that view; once the gray line moves the green line has to get to it; you get the cost push - it starts infecting corporate and consumer behavior; cost of living increases; it needs to be murdered with a sledgehammer to get beaten out of the economy

• 2022 - the current policy is so far away from where it should be; neutral is probably not anywhere close to 2.4%; neutral might be where CPI is; media and everyone have adopted this narrative that its 2.4%; you probably will need fed funds way higher

• Is it wages and services vs. durable goods vs. use car prices - economists love to decompose; once inflation takes off - cost push thing - yes goods inflation will come down at some point but it will be more than made up for with rents and services; it rotates - it gets embedded; i do not decompose it

• Core Inflation

  • Larry summers has been vocal about this; once inflation gets above 5%; it never has come down unless you had a recession that brings it down; currently you see we are way above 5%; in the feds forecast - not only is it going to

  • Violates all history - almost incredulous that people with a brain people forecasting unemployment to 3% and inflation coming back to 2%; it defies all history

• Stock Market

  • Its selling at 27x earnings; selling at very high valuations; i've just shown you two charts that says higher inflation or we are going to get a recession; recession is clearly bearish for stocks;

  • This to me provides a very challenging environment - may have increasing inflation; then the fed will be behind

  • We will get a recession in second half of 2023

• Feds insistence on forward guidance has been a bit tragic; I would want fed funds at 3% yesterday; my office is abdicating - they went to 0 during covid super quickly; when inflation is 7.9% and you have been talking about it for a year and you give them 0.25% - it screaming at you - they are worried at markets

• Happy to go big on downside; we coddle markets on the upside

Opportunities available

• We are 5% net short stocks; with a heavy bias toward inflationary beneficiaries - energy, miners

• Shorts are concentrated in things like retail - they were major over earning beneficiary of COVID - brick and mortar were in downtrend before covid; a dollar of the consumer wallet - 85 cents to goods /15 experiences; went to a full dollar to goods; labor pressure - go back to where it was

• Short fixed income - mainly on short end and also at to 10 years; I dont think fed funds need to go to 8% interest rates; im a little leery of that

• Short the dollar - against every commodity currency; Australia, canada, brazil

• Long crude and copper and ESG beneficiary metals

Bitcoin as an inflation hedge

• I missed the first run up

• I bought it when 85% of holders are religious zealots; fed printing money; might be an interesting spot

• Since then, my view has morphed; learned a lot more about use cases in gaming, DeFi

• I own solana and ethereum; dont own bitcoin anymore; i believe in the blockchain technology; i'm not sure how you play it; we are participating in private companies - 80% will go under; a couple could be 100B companies

• Do think it will disrupt the financial system; pay to play for gaming

• Move from store of value to use cases; having said that - what we just did to russia; when we sanctioned central banks - really puts our status as a reserve currency at risk; logical replacement would be a cryptocurrency

Macro outlook for China

• Extremely complicated

• Unfortunately i dont think Xi Jinping appreciates the great role that the free market played when Deng Xioaping turned the country quasi-capitalist

• Market view for china is quite challenged; but its unbelieveably dynamic;

• Zero covid on a cyclical; only room for one monopolist in china; not sure Xi Jingping; want to buy challengers not incumbents in China; once companies become big the government hates them

View on cash - retail portfolios to go to cash in short term

• Because I'm a matrix investor I never have cash

• If you don't have access to information or approach I have, you should have maximum amount of cash that you have had historically; you have record margins in corporations - costs are going to increase with profits high

• Fiscal balance is negative 13%

• Fed tightening; valuations in 90th percentile; margins at a record

• Multiples are super high; economic view and fed challenged; max 25% cash - I'd go to the max you are used to

• I've been short the stock market for 12 days

What made me comfortable were things like Collected work of Charlie Munger; Consumation of business competition

Arbitraging Time

• Does time help you - is the business getitng better every single day or is it getting worse

• Does time hurt you - is the business continually falling apart every single day

Large positions

• What is the risk reward skew

• What is the downside scenario - where do you see competitive moat decaying over time

• We size things based on the risk reward skew

• Ticker symbol diversification equates to a diversified portfolio - a lot of time the same r

• We think asset based diversification matters more

• You could have a single position and be diversified - we think about asset based diversification

Challenges around aligning incentives behind it; how do you think about aligning LPs?

• We've had amazing LPs; are supportive of that

• It takes a lot of time

• Do you want to be in the iRR hall of fame or AUM hall of fame

Incenting Team - what are the mistakes other firms are making with incenting their teams?

• Much easier with a small team; larger and larger organizations there is a lot of principle agent mismatches - one might be incentivized on p&l which favors longs because more likely to get bigger p&l from longs than shorts

• Dollars of exposure - trying to not sell exposure

• Recency Bias - pitching an idea and its wrong; done work on something new and exciting - that might be the wrong thing vs something you looked at two years ago

What are your processes to manage yourself?

• Understanding which ones you are exposed to; I am good at changing my mind; hard to talk about ideas and it becomes tougher to change your mind

• Naturally I have exposure to FOMO - do i limit talking to certain people

• What are the ones that you are exposed to and then trying to self analyze and understand your own psychology?

What was the process you went through to figure out your time?

• I tried it out for 2 years

• Which positions do I buy when they go down; which shorts do you stick with; focus on competition and durability; what i was successful with from a portfolio perspective

• I wasn't great at predicting cyclicals but I was good at finding long term business;

• I have a spreadsheet with all my notes; make sure bias and years of work

• 4 to 5000 names that I have notes on

Disconnects to PAs and what they hold in their portfolio

• Whats your favorite position? Whats the largest thing in your PA?

• What is the reason the thing in their PA is not the one in their position

• People are generally like to pitch something that is unique; pressures on people that are not compliant with ESG vs. their own interests

Graduate HBS in 2014; started your own fund 2 years later

• When can you have enough runway to prove out your philosophy or company

• How much money / lock in for 3-5 years; what are the costs in my personal life;

• Outsourced trading firms, outsourced CFO firms, outsourced compliance firms

When you are young

• Need to show them the portfolio, do modeling

• Tell them the philosophy you have; chipping away and staying in touch with people; coming prepared to meetings with a one pager or a deck to stay in front of people

Charter and Samsung pitch led to job; its more the work and thought process;

When i started out it was just me; outsourced trading, compliance, and CFO

Pressure out of the gate to deliver in first 12-18 months; how did you manage that stress?

• Don't gross up to where the portfolio should be

• Chip away and try to get into the black

• Have to swing the bat when you see an opportunity that is rich

• Much of returns come from chilling to

Consistent process for keeping your persistent processes for getting your sleep

• Maintain equilibrium

Pros and Cons of Seed deals

• Capital locked in with seed deal; give up stake in mgmt company but locked in; create a track record

• Separately managed accounts - have your assets under a family office or endowment - transfer custody of assets + transparency

• Keep cost structure as low as possible

Public / Private investments

• Only made three investments in privates; roughly 2% of the funds performance

• Compression of IRR's below equivalent public markets; dedicated, crossover, and other private markets - have been disciplined despite lots of interesting exposure

Philosophy - Microsoft in 2017

• Monopoly or duopoly in many product areas

• SaaS transition - had some compression in sales in near term but much easier to take pricing in out years

• Azure - emergent duopoly with AWS; used distribution and sales funnel

• Satya we thought was excellent

• Valuation was great 6.5% FCF yield; thought growth would accelerate

We have a watchlist and positions we'd scale up at different prices and where we would buy or sell

Investing Mistake

• Pitched Charter - monopolistic provider, unregulated monopoly; we exited Charter and Altice in 2017 at modest losses

• Thought that on a 5 year basis you would have other providers that would break up the monopolistic structure of high speed digital broadband

Beta adjusted net between 50 and 100; 150-160 gross; John Griffin started lower; 130 longs, 30 shorts = 160 gross, 100 net

I narrowed the people I talk to about ideas over time; important to have dialogues

Had success in software space; Guidewire - very base of accelerating S Curve; high barrier to entry businesses in spaces like that

• Growth adjusted free cash flow generation - slowing grower; 10% FCF yield + 10% growth; that is sorta a 20% return as well; yield + growth

Competing for talent

• Found people who are talented; takes a long time to get to know someone from an investment side

Closing piece of advice

• Trying to figure out your investment philosophy

• What are you comfortable with and what you will stick with; read extensively; read peoples books and letters; learn as much as you can from different resources

• 3 reads - competition demystified; alchemy of finance (trading diary)

Intrinsic values

• Sum of all cash discount from now til forever

• Holding above perceived intrinsic value when the runway is long and the business is getting better that is the important change

In Istanbul in 2019

• Thought about buying a small amount because company

• Bought a third of the company for 7M; liquidation value was 800m and trading for 20m on an exchange; gone up 5-6x in the past few years

• Liquidation value is close to $1B

• I would hold above intrinsic value because son is 37 years old and better than the father

Turkey - Erdogan - did some crazy things

• Inflation was 50% a year; currency will weaken at 50% per year; it was 5 turkish lira to the dollar; now its 15 turkish lira to the dollar; 70% decline in lira; in dollars that investment is up 6x (in lira its 18x)

• Why did I invest when there was massive inflation?

  • Everyone has exited the country - its the cheapest market in the world

  • There are businesses in turkey that benefits from inflation; Reysas benefits from more crazy macro environment

  • Government artificially kept interest rates low; all their debt is at 14%; their rents increase at 25%; bottom line is capex is done in yesterday's lira; reysas is not hurt at all; gives them more tailwind

• Juice manufacturer - all exported; revenue in euros and expenses are in lira; that company has rising profits in euros in light of this macro environment

Inflation - government bond yields around 2%; inflation at 7-8%

10 bets

• 5-6 out of 10 are correct; 50-60% accuracy

• Don't spend time on things that I can't figure out

• I look for things that are absolute no-brainers that is hitting you in the head with a 2x4; don't have to think too much to know it will work

• In the US I don't see a ton of obvious miss pricings

In a typical year

• I may find 1 or 2 things to buy and 1-3 things to sell

• Read and think but don't act

• The reading could be related to investing;

Creating Checklist in investing

• I looked at great investors where they lost money

• If there was a negative return - was there data available before the investment was made; why did it fail? Was it visible before it failed?

• US Airways - in the end he ended up not losing money; he miss read the moat; southwest hammered US airways

• Misreading competition and moat; created this checklist that fell into a small bucket

• Leverage hurt a lot of investing

• Some kind of misunderstanding of moat or competitive advantage of business

• Third issue was management or ownership issues

• Unions, others next

• Leverage, moats, and management were the big issues

• Checklist has 170 questions - more than carries its weight; i run the checklist before I pull the trigger; there is usually 7-8 to 10 questions where I don't know the answer to it; forces you to do more research - could take more time

• Every business has issues - but the checklist highlights where you might be OK - fiat chrysler in 2012

SRG

• We don't own Seritage anymore

• We bought it right when the pandemic was hitting; the stock had collapsed from 30 per share to 6 and 9 dollars per share

• Last year I concluded that i had made a mistake in the Seritage thesis; they are redeveloping all of these properties - each municipality and city has its own nuances how they look at rezonings and approvals; I had underestimated how difficult it would be to move that stock

• We had bought it so cheap that we were with a signficant gain when we were selling; saw that it was a flaw in the analysis

• Best analyst would be right 2/3 times; need to be honest with yourself

• Opportunity cost of selling at 100% return even though we got a 40%

Model your principles off of yourself vs. Warren Buffet

• I am a shameless cloner

• A lot of smart people have done a lot of heavy lifting;

• Munger

• Companies that are cloners - Microsoft (has either stolen legally or illegally stolen and copied things) -

• Burger king - just cloned McDonalds

• Ryanair - cloned the southwest model

• I look at what Bill Ackman does because why not

New fund managers you find abnormal that students should clone -

• Investing business - when investment managers start out they have very little capital; look in nooks and crannies other people are not; the great ones in that group - bet size increases; they have to leave the bottom which gave them the success

• Josh Tarasof

• Andrew Wilkinson