The Exchanges

Q Sorcery has had a lot of fun with tech over the last year or so. One of the most fun podcasts we did in the last couple weeks was with Keithra Boy, and this was when he just rejoined Opendoor as board chair. The funny thing about that was specifically like the cult sentiment behind it. How has the public market evolved?

A If you look back maybe, you know, six, seven years ago, the idea of retail investors like was, was not a thing, right? Like, you know, what I love about the public markets is that anyone can invest in it, right? So, you know, I would debate, it's actually kind of how I got started. Like I used to debate stocks with my grandfather and he worked in the plumbing industry. So he, you know, he wasn't a professional stock picker, but he loved investing. And so he would invest in, you know, companies that he thought were long-term compounders. He loved Warren Buffett and the idea of value investing. Well, fast forward to, you know, a few years ago with companies like Robin Hood and retail trading, and then just the internet broadly, more and more people have gotten into investing and the impacts on the market have been huge. And so before I worked at Code Two, I was working at Melvin Capital. And so, you know, many of you guys probably heard of Melvin as the hedge fund that was short GameStop. And so I lived through this period where we went from, at the time, probably The best performing hedge fund in the world from a return perspective, like single manager, long, short equity to basically down 50% in two weeks. And the reason was we were at the time betting against GameStop and we didn't realize like how powerful retail could be when they focus all their energy on the single stock. …

AI assessment note: “the market dynamics have, you know, very much evolved”

Q So, in terms of Cotu's fund, how big is the fund, and what's your main portfolio that you cover?

A Yeah, so the, Cotu as a, as a whole is probably, it's around sixty billion of assets under management. On the public equities, so we basically have public equities, which is around twenty-five billion, and then you've got a private's business, and then a, a credit business too. So, I focus almost all my time on the public equities. The nice part about doing both is, I also, you know, follow open AI and Anthropic and am very in tune to what's going on in the private markets. A, because a lot of those are impacting the public stocks, especially today, but also because when we're, our private teams looking at a private investment, there's a lot of times often interesting insights from the public markets. You know, my knowledge of how digital ad works might, you know, impact some business or how they think about it, you know? So I, but mainly I focus on TMT investing in the public markets, trying to find, you know, stocks that are going to go up and then trying to find stocks that are going to go down. It's internet, China internet, cloud, and then we have a pretty tight knit team. So we all, you know, we all work together, um, kind of the core group of us.

AI assessment note: “it's around sixty billion of assets under management. On the public equities”

Q How do you get his buy-in on a new trade? What's like the process to get through?

A I think there are a lot of people that can pick stocks, but what really matters at Code Two is you have to be able to do the analysis. You have to be able to pick stocks, you know, that bet on longs that go up and Find shorts that go down. But the key piece is how do you then convince Philippe and Thomas, uh, his brother, And the rest of the group that you're right. Ultimately to get that name in the book and then have it play out, right? There's a lot of people who I've seen come through code too. And it was true. It was true at Melvin too. I mean, this is true at any hedge fund where they're really smart. They're really good at picking stocks. They have great ideas, but they were never able to convince the person above them. Who's ultimately the decision maker to put that in the book. Um, So this is a bit of an art, and I think the most important thing is, you know, you spend 95% of your time doing all this deep work and all this deep analysis, but can you take that, you know, thousand line Excel model and all the expert calls and all the nuances around margins and growth rates and sequential growth and all those things, and can you Summarize it and simplify it into a three sentence pitch that when he hears that pitch, he's almost ready to buy the stock before even opening the model because the pitch is so good. And it, that is a skill that I'm still developing. I mean, I, I …

AI assessment note: “Summarize it and simplify it into a three sentence pitch”

Q One thing that we talked about before was positive, negative indicators on if companies are not hiring anymore, if they're doing layoffs, if AI is going to be automating more jobs. So how do you view job automation with picking companies and betting on them?

A There are two camps here. There's the camp that says AI will Make workers 10 X more efficient, and therefore you probably actually want to hire more workers because, you know, companies, industries are competitive, right? So if your workers are 10 times more efficient, you're going to hire more workers than your competitor because then you're going to be able to do more things. The other camp says, and this is the camp I'm in, says, you're probably going to get, you're going to get more efficiency I think it's orders of magnitude way higher than 10 X. I mean, if you think about me, right, like my dream with AI is that instead of having, you know, a few analysts work for me, I have 20 agent analysts doing their same job, and those two guys that work for me also have 20 or 30 agents that are working around the clock. And so, like, we, I want to kind of see that world happen, but I think in a lot of industries, what you're, what you're starting to see is, People aren't, there are some example, some extreme examples, but it's not that people are getting fired today or their jobs are being automated today. It's that the hiring's slowing. You know, you've seen these charts of this kind of college grad software developer chart. And if you think about what's the first obvious use case in the market of an AI application people are using for work, it's software engineering. And so my vie…

AI assessment note: “For the stock market, that's good. Because if you think about, let's take”

Q What is it called? Sherlock? Sherlocking or something? Yeah. I think that was with another one. Um, I know we covered this a little bit, but I want to touch upon it again. So Sorcery is sponsored by Brex. They're all about performance, spending smarter, moving faster. We love Brex. Um, for you particularly, what are the metrics that you track within these different companies to determine their success?

A It kind of depends on the industry, but broadly Like the, the, you know, we have this sort of, as I told you, like a, a five, six year view of these companies, but in the near term, what we're tracking is broadly inflections, right? Inflection in the digital ad business. That's inflection in growth rates, um, in, you know, the cloud business inflection and growth rates inflection and margins where you have a quarter That is better than people think, or worse than people think, and helps prove out your thesis faster, right? Because if you think about, like, if we have a five-year view of what a stock's gonna be, like, Ideally, we want the market to figure out that's where it's going as quickly as possible, and so you'll, like, we say, like, IRRs get pulled forward, right? And so when you have a moment of inflection, that's where your IRR can get pulled forward, and the stock reprices higher, kind of, more toward your view. Um, so, but, like, we're tracking everything. Like, you know, I'll give you an example. We're tracking, you know, everything from credit card data to email traffic to Uh, I mean, we, my analyst sent me this today, like, we go through every Thursday, we sit down, and we have KPI tracking using some real-time data set, or a mixture of them, for every single company we cover. Like, even if I'm not looking at, uh, even if we're not invested in the company, I look …

AI assessment note: “what we're tracking is broadly inflections, right? Inflection in the digital ad business.”

Q You have to be watching what's going on and like gathering as many data points as possible to like adjust accordingly. And then another thing, And I'm curious for your perspective on this was Reid Hoffman was talking about how business models define different generations of technology. Advertising was majority of the last one. We don't really know what the AI business model is yet. Do you have any idea?

A On your first point about things changing, I mean, that could not be more true. And it is also like, this has been the longest year of my life. Like, I feel like we're at this point in tech where the implications of AI, like, They are going to be big. It's not a question of like how big they're going to be. It's what is actually going to be impacted and who's winning from this and who's losing from this. And that changes like literally every day. And so you, like part of a big part of my job is, you know, I'm not making an investment, closing my eyes and waking up in five years, right? Like stocks are priced every single day. I'll give you a great example. Like, uh, opening, I did their dev day a couple of days ago. Like this was so insane. They get up and if you got named in the presentation, Like, by the way, you could argue a lot of these companies that are, kind of, named in the presentation to go and be part of this, like, agent layer, like, like, it might not actually be a good thing, like, if everyone's using ChatGPT and now you just got, like, sort of, you added an additional layer of, like, maybe disintermediate. Like, it might actually be good, but if your name got mentioned, bang, you're up five. And the best was, like, Mattel, like, uh, the, the toy company, right? Like, not even a tech company. Like, they got mentioned in this thing, Mattel, the toy company, stock …

AI assessment note: “On your first point about things changing, I mean, that could not be more true.”