Pat Dorsey Returns - The Moat Portfolio - [Invest Like the Best, EP.77]
Invest Like the Best with Patrick O'Shaughnessy
Market Share Only Matters With Economics
Pat distinguishes competitive advantage from market share and shows why fragmented markets can be more attractive than duopolies.
My guest this week, back for a second conversation, is Pat Dorsey. Pat ran equity research at Morningstar before leaving to start his own asset management company: Dorsey Asset Management. His areas of deep interest are competitive advantage and capital allocation. He believes that capital allocation should be in service of competitive advantage and invests in a concentrated portfolio that he and his team feel embody these ideas.
If you have not already, I strongly recommend listening to our first conversation, which is a sort of crash course on moats. In this conversation, we cover different ground. We spend much more time on individual stocks like Facebook, Google, and Chegg, using them as examples to explore Pat’s investment philosophy and strategy.
Across a few conversations with Pat, I can tell he is in love with this stuff, and I always enjoy talking to investors like him who so passionately pursue and edge. Please enjoy round two with Pat Dorsey.
For more episodes go to InvestorFieldGuide.com/podcast.
Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub.
Follow Patrick on Twitter at @patrick_oshag
Links Referenced
Pat Dorsey's first appearance on the podcast
Books Referenced
Show Notes
2:15 – (First Question) – Pat’s methods for valuing a business
4:17 – Is this process done after they would first identify potential targets for investment
5:11 – Pat’s take on how the market classifies stocks as growth vs value
6:40 – Qualitative insights and why the market can’t price them very accurately
9:57 – The business model behind zero marginal cost distribution business model
12:00 – Network effects and the potential downside to them down the road
13:54 – Valuing Facebook as a business heavily reliant on network effects
16:45 – What would have to change for Pat’s position on Facebook to radically change
18:58 – Most important lessons that a smaller/private business could learn from Facebook or Google’s business models
19:48 – Where is Amazon in Pat’s portfolio
22:06 – An example of where primary research led to a big surprise about a company
24:05 – The value of travel in this business, starting with recent travel to India
26:05 – Why are they targeting India and Japan
27:24 – How does he think about the risk of investing in foreign markets
29:52 – His thinking on relative vs absolute market share
31:26 – Exploring the SaaS business model
34:35 – The application of moats and pricing power with SaaS businesses
34:36 – Pat Dorsey's first appearance on the podcast
40:07 – Other models that Pat explores and how to screen for them
41:37 – How does he parse the difference between attention and demand
43:19 – How would Pat monetize something like HQ - Live Trivia Game Show that has aggregated massive amount of attention
45:19 – How does Pat react to the idea that attention is scarce and human capital is so crucial
45:14 – World After Capital
47:04 – How does Pat evaluate human capital in a business
48:09 – Experience in starting an asset management business
50:20 – What are the levers that are biggest value drivers in the asset management business
53:57 – Pat’s view on the strength of the relationship between risk and return
57:06 – The most risk Pat has taken in the face of uncertainty
59:23 – Favorite recent learning resource
59:43 – Principles: Life and Work
Learn More
For more episodes go to InvestorFieldGuide.com/podcast.
Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub
Follow Patrick on twitter at @patrick_oshag
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