The Exchanges

Q Why don't you take me back to your first investment work?

A I mean, as a kid, I was a passionate baseball card collector, and so if I were going to somehow locate my very first investment work where I was actually doing research and trying to understand how prices interacted with air quotes fundamentals, that would be it in the eighties and early nineties, which turned out to be a bubble for baseball cards. The key price input Was something called Beckett's Baseball Card Monthly. That was sort of the Bloomberg of baseball cards, and it really was a once a month magazine that arrived in your mailbox, and it had primarily a list of every baseball card that had ever been printed, and what it was worth if it was in mint condition, and how that compared to the prior month. And so I was obsessive About tracking, collecting, and managing my baseball card collection. So that would definitely be my first set of investments. My first stock purchases in my young teens were not well researched, not surprisingly, I guess, but included, uh, GE and Microsoft and Cisco systems and a company called Fiocall, which is a defense contractor that made boosters for A space shuttle, but also had a propulsion system for airbags and airbags were beginning to roll out. So I had a thesis that, oh, that's going to be a thing.

AI assessment note: “if I were going to somehow locate my very first investment work”

Q And so how'd that flow through to the beginning of your professional career?

A Yeah. I mean, I would have said when I was 10 or 11 and all my friends wanted to be Like a policeman or a fireman or a superhero. I wanted to be a stockbroker. I didn't know what that meant. I just knew that it somehow involved trying to take money and turn it into more money. And that always seemed like a fun and remunerative profession if I could somehow pull it off. And when I went to UVA undergrad, I put myself on the investment banking manufacturing line. And I always joke that It's a little misleading because investment banking is neither investing nor banking, but I found that out after arriving, so to speak. Obviously, investment banking has a great set of tools that it teaches you, but it certainly wasn't the destination that I wanted in the end, and I was there. I just started my third year of investment banking. I was in New York, And I got an email forwarded to me from my mom, of all people, and it was about a job opening at the University of Virginia's endowment management company, which is called UVimco. And I, I didn't know anything about it, except that the chief investment officer at the time was a guy named Michael Bills, who Was the one professor from UVA who I'd done a pretty good job staying in touch with, and was someone who I really admired and looked up to, and his background was he'd been at Tiger, the old Julian Robertson Tiger for years and years, and…

AI assessment note: “when I went to UVA undergrad, I put myself on the investment banking manufacturing line.”

Q So what's the composition of the portfolio at LBP look like?

A Kind of gets everybody upset. It's both too concentrated and too diversified. We probably own 60, 50 positions. Very long tail of small things where they're still doing diligence, or we started buying and it ran away from us, or the purpose it serves is small. And we're too concentrated. Our top five positions are 70% of capital. Our largest investment is high teens. Percent of capital. And, you know, over time, that is very strongly my preference is to have fewer, better positions. If I think about the process every day, the goal is find the next thing that we can put 10 to 20% of our capital in. And if we find something along the way that doesn't quite fit that, but that we can get our arms around pretty quick, we're fine to put one or two percent in. Or it might be that we put two percent in on the way to understanding it well enough to put 10% in. But the real mission is go find those things that you can back up the truck on and that you're excited to own for years and years. And where with each new turn of the cards, you're sort of expecting it to get a little better and not a little worse. That's probably one of the areas where I could use the most improvement.

AI assessment note: “We probably own 60, 50 positions... Our top five positions are 70% of capital.”

Q What's the biggest mistake you've made and what did you learn from it?

A I'll give you two quick ones. One is when we first started Investure, I very much had the mindset, and I think we all did, that with venture capital, that if you're not with the best managers, you just shouldn't do it. And so we just didn't spend time on venture because the best managers were closed, or maybe we could get a couple million dollars, but it wasn't going to move the needle. And in the end, that caused us to miss out on a new generation of managers that emerged, and so I would say there's a very fine line between a mantra and a dogma, and you risk taking a good idea and turning it into a terrible idea when you get attached to your initial thought. What's that saying? That the worst ideas seeds are in good ideas, and so I think it is correct that you want to be with the best venture managers, and you've got to keep hunting. The second would be, I think I've learned a lot from looking at Amazon as a business. I mentioned the duration of compound, but I always remember when I first joined Evimco, October of, 2002, Tim gave me this stock pitch on a short that was the stock at 16 dollars, and the pitch was it would fall in half to eight, and that turned out to be Amazon. And it always stuck in my head because the Pitch seemed so thoughtful, and if you looked at Amazon for the next 10 years, It didn't make more than a billion dollars. I think until 2015 or 16, it made may…

AI assessment note: “I'll give you two quick ones. One is when we first started Investure”

Q So let's dive into the investment side at Investure. You're taking on this challenge in early OCIO. How did you think about structuring the portfolios?

A Our thinking at that time was best ideas win, and we are not going to put tons of top-down structure onto it. We may, in the end, look at our bottoms-up collection of ideas and make some tweaks if it seems like we're missing big opportunities or taking certain kinds of risk, but in general, it's compete for capital, opportunity cost is the bar, and Ideas need to compete in against the next best idea. So very bottoms up. And the way to differentiate, and for me, frankly, to enjoy it, was to sit co-pilot with our managers from the diligence process on through when we were partners. And that meant if we were going into a meeting with a prospective manager, it might be that we spend three hours talking about one business. And just the research, the competitive advantage, what the environment that they compete in looks like, how the value chain that feeds into it and then flows out of it evolves, what the implications of that are, how they think about cash generation, et cetera. And while others might think about portfolio management and beta and net and gross exposure, those are things that were interesting to us. But our real angle was we're going to understand it as the investment itself. And so we're, we own a look through portfolio of these underlying businesses in the end. And so what matters the most is how those businesses are coming into our collective portfolio. If there i…

AI assessment note: “best ideas win, and we are not going to put tons of top-down structure”

Q Did that bias towards focusing on the underlying research process of the managers and wanting to know who's doing the work lead you into any particular either style or structure of an investment management organization over others?

A Yes, it definitely led us into concentrated, long-term oriented, hardcore fundamental investment firms. Stylistically, what I would say started out as long short in one bucket, and maybe long only in another, those things began to collapse together for us. And I would also say even public private, you know, we were very Early in saying that if the best investment idea you hedge fund manager are finding is in a private business, we're very open to that, and we'll help build in tons of latitude for that. And ultimately that could sometimes put us at odds with other LPs. So we began to realize that our partners were not just the manager on the other side of the table, but all the people who sat in our seat. And I would say that increasingly led us to make a strategic decision to get earlier and earlier in the manager's life. A manager would come to Charlottesville, show up, and they would have this amazing PowerPoint deck, and we'd go through it, and then the next day, another manager would show up, and they'd have an amazing PowerPoint deck, and man, it really looked so similar to the one I saw yesterday, all the way down to, like, the way the bullets looked, and how it was organized at the end, and I started to realize, you know, what's happening is the Goldman Sachs and Morgan Stanley's of the world are getting these guys in their cap intro department And they're creating their…

AI assessment note: “Yes, it definitely led us into concentrated, long-term oriented, hardcore fundamental investment firms.”

Q I'm curious how you balance this, let's call it internal and external. So for the most part, your funds closed, you're just doing your thing. You have this Twitter account, you're engaging, but it's anonymous. We're talking on a podcast, it's public. So how do you think about where you want to position yourself in this whole ecosystem?

A I think my default has always been the sort of tall poppy mindset of the British and the Aussies. Tall poppy gets cut on the field of poppies, and so keep your head down and just do your thing. I very much like the low profile. I don't think you'll see me becoming a real regular in the podcast circuit. However, it has been such a shocking surprise going back to Twitter, sort of how much value I have received for just putting a little bit out there. I think there is a ton that I don't know and that I could learn, and I think by maybe having a slightly more willing exposure to expanding my profile through something like this, my hope Is that it leads to engagement and ideas and feedback. That would be a massive home run for me. I mean, I don't have any LB partners fundraising needs or desires. Obviously we have the bite index, which definitely want to get the word out there about it. But to me, this change in profile posture a little bit, it becomes very successful if it leads to relationships and feedback. And even you and I, we've known each other a long time, but I would say it really deepened in the last year and a half, and I used to go into work every day, and there were 40, 45 people there, and they'd all be willing to tell me what I'm doing wrong. It's healthy to recreate a little bit of that, and to see are there new pathways where I can get people who I trust and who I …

AI assessment note: “to me, this change in profile posture a little bit, it becomes very successful”

Q and an awakening. If that's not how you would describe your investment management tech, request a demo at ridgeline.ai. And now, back to the show. I'm curious, in those last couple of years at Investure and then now at LB, you worked with a lot of the best money managers you could find in the world. What did you learn from them and then apply to your own direct investing?

A There's the joke in LP land that you don't just want to hire a guy, a Bloomberg and a dog. You want a team and you need institutional infrastructure and all that sort of thing. And it turns out that actually what I was very drawn to was a guy, a Bloomberg and a dog. And I actually think that is where the most special returns lie. And it doesn't have to be someone who has no team. But in small units where they are very, very synced up on this longer term mission. So that was on kind of like the business structure side. I would say on the investment side, there's probably two things that I really underappreciated early on. One really is, I mean, you joke about the power of compounding as the eighth wonder of the world. I don't mean the compounding of returns necessarily. I mean, the compounding of Business performance and how it allows for you to pay up early and allow the business to earn into itself, so Amazon or Walmart would be great examples of that, and it's something that I keep failing at even now. That is one of the most important lessons and truly one of the hardest on board, and so I would say I saw the great investors They are able to manage through that, and I think the way that the really great ones do it is that saying of looking for a great business on a bad day. It's how can I justify finding an on-ramp to a company that I can own for two decades, but I don't fee…

AI assessment note: “I would say on the investment side, there's probably two things that I really underappreciated”

Q All right. What's your most important daily habit?

A Writing, whether that's journaling or writing letters. I love writing, writing tweets, which forces concision. Although sometimes I find my way around that emails. I mean, I love the process of taking cloudy fragments of ideas that are in my mind and trying to put them on paper in a way that Is clear and concise and complete. I also think it's an important part of deliberate practice. So if you were a basketball player and you were playing a game at the end of the game, you get video that you can go break down, you know, how'd you do, you know, did you show some tendency to me and investing journaling is probably the closest thing you can get to that where you can go back and see what was I thinking when I made that decision on that day. In addition to being a very relaxing, enjoyable thing for me, it's something I enjoy being able to go back and see what I was thinking when I made a mistake.

AI assessment note: “Writing, whether that's journaling or writing letters.”

Q So UVIMCO has this long history, both attached to Julian Robertson, Michael of Virginia mafia hedge funds, a lot of public equity, long short equity hedge funds. Where did you dive into that ecosystem in your time there?

A When I took the job at UVA, I was telling the guys at the investment bank that I was leaving. And this guy, Paul goes, oh, what are you going to do there? I said, well, I'm, I think I'm going to spend a lot of time on hedge funds. This is 2002. They have 55% of the portfolio in hedge funds. And he said, no, they don't. I think they do. And he said, I'm sure they don't. That's completely inappropriate and risky. Like, nobody could actually do that. And so, I believed him, to be honest. I was like, I must have misread something. I got down there, and they had 55% in hedge funds, and it was going higher. Almost nothing in loan only, and the rest in privates. And so, yes, my start was really, we're going to get to know the best investors in the world. The best investors in the world are generally running structures where they can get paid the most, where they can have the most creative freedom, and where they can attract and surround themselves with the best talent and the best investors, and that, that moment really was hedge funds. And to a lesser extent, private equity and venture capital. So almost everything I did from the beginning was fundamental long, short equity hedge funds. So you can picture the tiger structure, the blue ridges of the world. And then that evolved also, I'd say to include loan only funds that really took a differentiated perspective to the world. So what…

AI assessment note: “almost everything I did from the beginning was fundamental long, short equity hedge funds”

Q And so how'd you go about that process?

A You know, when I was 24, it was the things that were handed to me. I walked in, and very fortunately, it just happened that UVA had established a franchise, so to speak, and exactly what you were talking about. These very best, long, short, equity, fundamental managers in the world. From there, I almost had this sort of ignorant view in the sense of I didn't know what I didn't know, and I wasn't Afraid of what I didn't know. And within two months, I was proposing a manager into the endowment that I had sourced with Tim and then ran the diligence basically on my own and ended up getting in the endowment and today is a multi-billion dollar fund. And so my view was always just go, build your network, figure out sort of the nodes that go out from the first person you meet That should lead to five more, and those five should lead to five more each, and all of a sudden you have a network. I'm actually very naturally an introvert and not extroverted, but somehow I managed to stumble into building great relationships on the one hand, and then on the other hand, I was extremely clear about what really investing meant to me. Not trading, not macro, and that allowed me to, I think, stay zoomed in and focused on A certain type of approach that allowed me to narrow the world. I really believe in the power of focus, and so by trying explicitly to not do everything, but to do a few things rea…

AI assessment note: “build your network, figure out sort of the nodes that go out”

Q How about on the investment side? What's your biggest investment pet peeve?

A Going to the Munger idea of, you know, he quotes the Algebras, Jacoby, invert, always invert. He says, if I knew where I was going to die, I just wouldn't go there, which I love. And so when I was early in my career, I made a list that was called how I would hire a hedge fund manager if I wanted them to blow up. So like, what are all the characteristics that they would have? It was very long, but I spoke earlier about the intersection of hubris and humility. I Ticket is such a fine line. So my biggest investment pet peeve is both sides of that equation, and I find myself violating it all the time. So on the hubris side, I'm a big believer in pride cometh before the fall, and I find myself being too prideful and too confident, even in this conversation at times, and I view that as a very ugly trait of mine, and I don't like it when I see it elsewhere. And likewise on the humility side, I think it is dangerous for people to possess a false humility or a misplaced disbelief in themselves. I think people have so much to offer. And so it's asking a lot for people to live right at the intersection of hubris and humility. But I really think that is the goal, both in investing and in life.

AI assessment note: “my biggest investment pet peeve is both sides of that equation”

Q Why don't you describe what that tweet was?

A The tweet was around some of the funky market mechanics that have been going on this year and 20 21. And obviously this is the year of crypto and GameStop and AMC and NFTs and all this. And I think some of those topics have created so many questions in everyone's mind. But in particular, these are finance topics where the public is seeing them and saying, what is going on? And so on a particular one, I think I had a useful series of insights that helped illuminate some of the behind the scenes to the everyday person. And even I think was information to finance professionals. And for me, it was just a way of getting my own thoughts out. It kind of came out in a big blurt in an hour. There was a long series of tweets and for whatever reason, people really connected with it, felt like it was very helpful.

AI assessment note: “The tweet was around some of the funky market mechanics that have been going on”