The Wisdom Wall

“The more accurately an LLM predicts that next word, i.e. the name of the criminal. Ipso facto, the greater its understanding, not only of the novel, but of all general human-level knowledge and intelligence, because you need all of your experience in the world and as a human to be able to guess who the criminal is.”

“That whole strategy of a fire hose of content is completely orthogonal to the flywheel strategy of only the best content very infrequently.”

“the IP that works best for Flywheel Dynamics almost has to be animated, i.e. not live action, because with live action characters, the characters are too bound up in the actors that play them, and that creates all sorts of problems.”

“The beauty here and the discovery that Disney makes is that when you put the IP into these other ancillary nodes, it doesn't cannibalize the core IP.”

“Vanguard, the downside of its structure is that there are no excess profits that can be invested for the long term in things like technology and things like customer service.”

“You can hire lawyers. You can hire accountants. You can hire advertising men or financial types. But if you want to get rich, you got to know how to make a product. And you aren't going to hire anybody to make a product for you to make you rich. They'll only make it for themselves.”

“ByteDance is an AI company. ByteDance is not a product company. And the core product that ByteDance makes is its AI, along with all sorts of other stuff. TikTok is like the product vector, one of many, and the biggest. By which they deploy their actual product, which is AI.”

“the Microsoft versions never actually won until there was a platform shift that they could take advantage of to beat the incumbent. Like, Microsoft wasn't gonna beat Lotus one, two, three until the graphical paradigm came along, and then Excel being graphical was just obviously so much better.”

“Dee maintained that if you give computer people more time, they will just consume it. So he always insisted. So it's so true. So he always insisted On shorter projects with uncompromising deadlines.”

“Allow the entrepreneurs to take some money off the table so they don't sell the company for fifty million dollars and instead let everybody make fifty billion dollars.”

“This is 15 years of CUDA and the hardware underneath it and the libraries on top of it that Nvidia has built. To go recreate that and surpass it on your own is such an enormous, enormous bite to bite.”

“his quote is everything linear dies, everything on demand wins. And it's so true. Like, you know, the being able this, this element of being able to access Best in the world content on your schedule when you want it.”

“I think these franchises, whether it's core Disney, Pixar, Lucasfilm, Marvel, are just like luxury brands. You cannot kill them. They will have uptimes and they will have downtimes, but they will always come back.”

“A company is perfect when the number of partners in it is odd and less than three.”

“there is not a direct correlation between Ferrari victories on the track and the number of cars that you can sell, but If for many years you do not win, it means that you do not add wood to the fire of the myth. The myth of Ferrari is based on competition on cars. In the competition, you can win or you can lose, but…”

“Even as the NFL has become this incredible business, they don't trade at rational economic prices because the people buying them are doing net present happiness value equations, you know, not economic value.”

“I think a lot of people think it is a analytical industry. You're learning all about the company. You're doing diligence. It's not that you're not. You are doing that. But that's the commodity. It's an access business.”

“Anytime you've got government coming in and distorting a market, you're going to get weird stuff happening. And especially anytime you have government coming in and regulating how products are to be developed and used in a market, you're going to get really messy stuff happening.”

“They could sell their products for much, much more than they do, and they do not, because it is the right long-term decision to do so.”

“The goal of managing a successful luxury brand is to manage for the long term. And by the long term, I mean, like, Centuries. And so you're actually willing to sacrifice huge amounts of profits to do so.”

“The insight is that like the goal that you are playing for is to be the largest volume player kind of at the end of the game. So if you take that as a given of like, if we get to be the largest volume player, this is a fixed cost business. This is a scale economies business. We can spread that fixed costs over the…”

“There is no amount of money you could spend to catch up next year. You can't. Because the engineering is so hard, and the learning curve takes decades to get to this point.”

“I think the candy industry is much like the luxury industry in that once you have an established product and product brand, it is impossible to kill it. You just can't.”

“for the first six or seven years of its life, Facebook was a change maker, defining what social networking was, and then after that, it became a change taker, and we'll talk about this when it happens, but like, again, the mental flexibility of Mark and the company to be like, okay, I'm not gonna have pride about that…”

“TikTok and ByteDance, its parent company, as you point out, Ben, was so completely orthogonal to everything that Facebook had learned over the past 15 years. Because, yes, number one, most importantly, it's not social media. It's media. There's no social. And your graph doesn't matter anymore.”

“I think the only way that this new paradigm exists is because of AI and because of GPUs specifically, and I'm not even talking about generative AI, I'm talking about, like, feed recommender systems and personalization systems. And so, like, there is a very, very large minimum barrier to entry there that keeps going…”

“this is almost always true, really is true in every great company that I can think of. The core senior most executive team are all people who came up in the company Or have been there for a very, very long time. It's not a whole bunch of mercenaries there at the top.”

“When IT becomes your customer, when you become an enterprise business, the quality of the software, especially the user-facing software, is no longer priority number one.”

“Money is not the scarce resource. The scarce resource is time and talent and focus.”

“Hermes has this incredible unassailable flywheel, but it operates in the exact opposite way of An Amazon flywheel. It's not about maximizing the cycles. It's slowing. It's minimizing. It's a intentionally rate-limited flywheel, and it all works together.”

“There's the opposite of scale economies to an individual luxury brand, but at the group level There is power, and specifically scale economies power, that does not exist at the brand level.”

“As Saul is running the company during these first few years, he starts to codify some retail management philosophies, and he, uh, famously sort of canonizes these as FedMart's four priority order principles, and he teaches every new employee throughout the whole company about this. Number one, first priority, provide…”

“There are actually only three sports that matter. So Nike, Adidas, you know, Reebok, they sponsor lots of sports, but running, basketball, and tennis are the only sports that matter, because those are the only shoes that normal people can wear. Normal people don't wear baseball cleats or football cleats. Or soccer…”

“Early Nike did so many things right, but they made one critical mistake. They mistook the running and the jogging boom for the broader fitness boom. The broader fitness boom was a massive secular trend that continues through to this day. The running boom was a cyclical trend that was part of the fad-driven fitness…”

“The NFL is a better business as a league than the NBA. No question in my mind. But the amount of value created out of the leagues, I think more value is created out of the NBA. The NFL just captures way more value, and thus is the more valuable league.”

“While they were drawing on the brand equity to make the SUV, this was a big part of putting cash back in the bank of the brand equity.”

“For most groups of people, I think it actually trends towards mediocrity. And this was some of the criticism of LPs and some of the other GPs in the early days thinking they were crazy. They called it communist capital. This looks like communism, right? Like if everybody's responsible, nobody's responsible. And so you…”

“our job as venture capitalists is not to see the future, but to see the present very clearly.”

“obviously you gotta be smart. You gotta be right. You know, you gotta have managed your company in a way that you have access to capital during those times, but that's the best time to build moats.”

“It's not your growth rate in any given year that matters. Frankly, that doesn't matter at all. Uh, what matters is how many years of growth do you have left? Like that is the ultimate question. And in the case of Amazon, in the case of Apple, if you have decades of growth left, again, that's all that matters.”

“being an unregulated utility company in technology, it, it can be so defensible and powerful. Like, that's what Square is. That's what Shopify is.”

“like, up to a certain point, saying something makes you look guilty, but then past a certain point, not saying something makes you look guilty, and standard past this point.”

“Anytime somebody declares the end of something, like, you know, this game is over, this market is over, blah, blah, blah. They're wrong. That is the, uh, bottom of the market and is all going up from there because it is never the end.”

“Rockefeller and standard oil as a organization, but Rockefeller as a person is really like the prototype of so much of American culture today. Like he is, he was simultaneously viewed as this like, you know, sinister villain and as this great hero. And like people, you know, people hated him, but people wanted to be…”

“Sports have a very limited shelf life. You are not going back and watching Manning cast episodes from last season. The flywheel does not apply here. So you can't build long-term value around that original content.”

“It turned out that sound was the critical enabling technology for animation to go beyond a novelty and allow the characters that are on screen to actually have personality that audiences connects with.”

“What's happening at Disney isn't just the intersection of art and commerce. It's the three-way intersection of art and commerce and engineering and always has been.”

“There really is something unique about animated IP in its timelessness, in the ever availability of its stars, in the better economics of not having to share too much on the back end or in merchandising fees, et cetera, with stars.”

“I have always thought about Berkshire as the vanguard of private equity funds. Like, it is essentially a no-fee private equity fund. You get to buy shares, and you don't pay fees and carry on it.”

“Similar again, though, to the Fidelity strategy, BlackRock's profits elsewhere in the business allow them to subsidize the ETF business and just win massive amounts of clients.”

“Venture capital and private equity is an access business. And it's not like you can just call up your broker and say, hey, I want some shares of Anthropic today and execute an order. Like, you need to pay for access, and that's what venture capital is doing, and that's what private equity is doing.”

“There actually is no built-in incentive or obligation to grow. With a structure like Vanguard. The only reason to do so is if you believe the mission of the company either As set up by Jack, or as it should be today, is to bring the service to as many people as possible. But that's just a value judgment. There's no…”

“The primary ingredient in French luxury is the dream, and specifically the dreamlike connection to French royalty and this, like, mostly imagined past that, you know, if you buy a Birkin bag or if you buy a Louis Vuitton trunk, you too Can be like the bygone French royalty.”

“So with Italian luxury, the primary ingredient is the craftsmanship. And that's embodied in the design and the passion.”

“Fiat's attempt, their best solution to fixing the problem of the road car business is to produce more road cars, which is the cardinal sin of luxury strategy management.”

“Like they've expanded the pyramid so much in recent years that a period of slower growth probably is the right thing to do in terms of luxury strategy management here.”

“During the dawn of the TV era, I think they were counter positioned against major league baseball in that while decline in revenue from the gate by adding TV certainly was a hit to them. It wasn't as much of an existential hit in the way it was for major league baseball. And so the NFL was more able and willing to…”

“The product is scarce. You know, a 162 baseball games a year. It's called America's Pastime. You pass a lot of time with it. But with the NFL, because the product is scarce, and then they have very smartly cultivated that and engineered it to be more scarce, more of an event-driven sport, That's made all the…”

“If one of us feels passionate about something, even if the episode is a relative dud, it's still worth doing, because invariably, somebody latches onto that passion.”

“Most, uh, podcasts sell their ads on a CPM basis, and they are incentivized to make as many episodes as possible. With as many ad slots as possible. Our business is entirely structurally different.”

“The beauty of Doug, his, his key insight, Was, you know, all the other car YouTubers are making, making videos for car enthusiasts. He makes videos for, like, people who need to buy a family SUV.”

“This is textbook counter positioning. Coca-Cola cannot respond because they and their bottlers have just invested all of this capital and all of this IP into the six and a half ounce contour bottle. They can't react.”

“This is the unlock for thinking about Trader Joe's. They are wine merchants, and they merchandise everything in the same way you would merchandise wine.”

“The other retailers want to use the house brand brand name to signal to customers this is the same product at a cheaper price. Trader Joe's Wants to signal to customers with all of their products, this is an N of one product.”

“And because of scaling laws, you need your models to be as big as possible in order to have the best performance possible. If you're trying to maintain multiple models within a company, you're repeating multiple huge costs to maintain huge models. You definitely don't want to do that. You need to centralize on just one…”

“The faster that we get the internet using public to fall in love with and use web applications, the less and less leverage Microsoft has over us.”

“if your formula for placing ads is a combination of the price that an advertiser is willing to pay per click and the click through rate of the ad, Well, that's actually the mathematically optimal formula for maximizing your own revenue as Google.”

“every great company has like a stored potential energy of value maximization that it doesn't fully maximize. Like Costco is the, the extreme example of this, but Google has this too.”

“And that's the existential need for an electronic medical record system, but really also, and maybe more importantly, an electronic medical billing system.”

“It is super important that your central revenue stream of your TV rights, deals, and your central sponsorships, that that be very, very large, and that that be the most important revenue stream for your teams, because that's what keeps competitive parity.”

“the only way for a team to gain an advantage over any other team in the auction is to have superior market intelligence, which has come to mean have superior analytics and superior player evaluation.”

“That is the absolute opposite of what you need to do as a luxury company. It can't be like, this one's better than that one, or different levels of quality, or these imperfections here, and it's cute. It's like, absolutely not. That is critically important because all the clientele that are buying these products are…”

“It was, for basically the entirety of the 20th century, the only acceptable form of male jewelry.”

“When it comes to candy, and specifically when it comes to chocolate, the most important thing in the business is being first to market, and setting the taste of a specific regional area.”

“The issue with that, though, about going global is that tastes at the high end are way more heterogeneous and fragmented, especially across geography. Than they are at the middle and low ends.”

“So it's kind of like this amazing simulation of what it's like to run one of the top 10 market cap mega capitalization companies in the world today.”

“this is like the first time in history where you need neither money nor permission to launch an application like this on the internet.”

“And a good test for this is when you bring somebody brand new into the organization and plug them in, does the power transfer to them as well? If no, then it's a cornered resource. If yes, then it's process power.”

“Only a company of the scale of Meta can kind of run this playbook, playbook in quotes, because no startup is going to be like, oh, okay, what is my strategy to make sure that OpenAI and Anthropic don't get leverage over me?”

“It's quite ironic that Facebook became the prototypical startup, given that the goal was never to be a startup. The goal was first to be a project, and then to build, like, a very profitable business. The largest empire in the world. Yes. There was no in-between of, like, we are building a startup here. It was, like,…”

“Windows at this point in time didn't need technical vision. It was trying to be the Dodge Viper. That's what Longhorn was. It needed to be the Toyota Camry. And he comes in, and he makes Windows Seven the Toyota Camry of PC operating systems.”

“LVMH, as we talked about on that episode, has world-class, best-in-the-world business executives who partner with world-class, best-in-the-world creatives. At Hermes, these are not different people.”

“No matter where you live in the world and no matter what your cultural background is, when you attain this status, there's still something about this connection to French and European nobility that you cannot buy from a brand from any other country.”

“Hermes is doing the opposite. They want this to happen In order to maintain the image of Hermes, and specifically the Birkins and the Kellys, as a brand and a product that is not accessible to everyone.”

“I think there's basically like a law of economic nature that if your gross margins exceed, call it, 75, 80%, and you are of a certain revenue scale threshold... you're, you know, in the billions of dollars of revenue scale, you must have scale economy power.”

“Whatever advances are happening in Moore's law and the number of transistors on a chip, If you have an algorithm that can run in parallel, which is not all problem spaces, but many can, then you can basically lever up Moore's Law by hundreds of times, or thousands of times, or today tens of thousands of times, and…”

“If you're operating a wholesale warehouse, you don't have to operate any logistics. The manufacturers deliver the product right into your warehouse. You don't need to run trucks. You don't need to operate other warehouses. You don't need to move stuff around the country.”

“Nike sells these incredibly limited edition retro and otherwise sneakers, but they sell them for a 150 bucks, 200 bucks, maybe 300 bucks, like not a lot of money. The instant that they get purchased, you can turn around and sell them on the secondary market for 5000 dollars, some of these shoes, 10,000 dollars, maybe…”

“Only thing I would add to that is just reiterate what kind of has hit me through doing the research in this episode is that athletes are Netflix shows. Yeah. I didn't think of that until we were actually recording here. And these days, especially in the beginning, it was athletes are billboards and Netflix shows in…”

“nine 11 sales stay relatively robust throughout the seventies because it's a luxury good, right? Like just like in any recession and, and even like sector targeted ones like the oil crisis and the auto industry for true luxury goods, like those people, like the market for that is very resilient.”

“You get to spend all your time on the field when you're a small equal partnership. Yes. You're not spending your time managing the firm, or worrying about managing the firm, or worrying about where your career is going, or worrying about this, that, or the other thing. Like, literally, 90, 95% of your time is spent…”

“Most series A's are not done post product market fit anymore. Now seed and A and B are often pre-product market fit.”

“Andy would later say, this is a great quote, and this is absolutely true. He says, if you believe developers will build applications from scratch using web services as primitive building blocks, Then the operating system becomes the internet. And that's so true. That's what AWS is today.”

“Like the definition of brand power is you would buy a commodity at a higher price from brand with power over a brand that doesn't have power.”

“Sam and the Walmart story is like the bridge between the business America that was John Rockefeller and Standard Oil and Amazon and Jeff Bezos. Like, this is the connective bridge between those two realities.”

“If you want to be a billionaire in the media business, you should do all of those things, and you should never, ever, ever, ever give away the rights To your content. Or sell the rights to your content.”

“when you climb the mountain as a founder and a company of finding product market fit, it's very different than climbing the mountain of then having to go develop power. It's a whole, you know, second journey that you have to go on.”

“And I just assume that any location that's coming up the learning curve of product production is going to get to a high quality place.”

“the Peloton idea, like, it was, it was revolutionary. On a whole bunch of dimensions. You know, one was democratizing location, like you didn't have to be in New York to get the best stuff. Two was, like you said, elastically scaling access to the best instructors, not the average instructors or the low quality…”

“you could have the best hardware in the world, but You needed the books. Like the content was what really mattered. It didn't matter if the Nook hardware was better than the Kindle or not. Like Amazon had the biggest selection of books, the easiest buying experience, and had the most lock-in.”

“And then even relative to other connected fitness companies, because Peloton has the largest member base, just like with Netflix, they can invest in more great content because they have more resources from more subscribers. And then that's a virtuous flywheel.”

“Management companies of investment firms have phenomenal operating leverage, as we talked about earlier. As you are growing your funds under management, you don't Have to scale your head count or your operations or your costs in the same way, and so you can get this, you know, amazing operating leverage and profits.”

“Wine By nature is branded. It's not big brands, but it's the brand of the winery and the label, and that carries a huge amount of value. Health foods, nuts, dried fruit, bran, granola, this stuff is unbranded at the time. And thus emerges the opportunity for Trader Joe's to start introducing their own product brands.”

“It's, if you're waterproof, that's shorthand for saying you're element-proof. You're durable. Nothing is gonna get inside this watch and mess up your movement if water can't get in.”

“So later, after thefacebook.com blew up, Mark told the Harvard Crimson in an interview, I don't really know what the next big thing is, because I don't spend my time making big things. I spend time making small things, and then when the time comes, I put them together. That's the kind of stuff I do. Small little…”

“This network is actually a five-sided system. There's the consumer, That is buying something. There's the merchant that is selling that something to them. There's the Visa network in the middle, that's the third party, but then there also are the fourth and the fifth parties, which are the banks for each of the…”

“If there's very high revenue growth, very high reported earnings and profit on the income statement, and there is low return on invested capital and poor free cash flow dynamics, probably your radar screen should be going off.”

“The split of the carry in any individual fund, while it tends to reflect ownership in the management company, these are two wholly different entities. And so what you often had and what you had with all these firms, these old firms back at this point in time, was the management companies were owned and controlled by…”

“You can't bring them in as a junior partner and see what happens and be like, oh, you know, you'll get a sliver of economics in this fund. We'll see if the partnership gels, you know, we'll see if you perform here, you know, and then no, you can't do that. You gotta go all in from the beginning.”

“pocket watches are also like smartphones today in that they're fidget devices. If you're out in the world and, like, you're waiting in line, or you don't know what to do with your hands, you're in a socially awkward situation, you know, whatever, you take your pocket watch out, you're gonna open the clask. This is what…”

“I mean, it was the e-commerce industry before the e-commerce industry. Anybody could do it. It was just about aggregating demand.”