Invest Like the Best with Patrick O'Shaughnessy

My guests this week don't need to be introduced. In celebration of the one year anniversary of invest like the best, I asked Josh Brown, Mike Batnick, and Barry Ritholtz to join me for a hour, during which I spent more time laughing than asking questions. I chose this team because they are the pioneers of mold breaking honesty and personality in our industry. They all figured out that just being themselves yields incredible results. This is a strategy that everyone should try, but very few do. Honesty and transparency require vulnerability, which is hard for most of us. I still struggle with it. But the evidence is in. The Ritholtz team has grown as fast as almost any RIA. Listen to this and tell me you wouldn't want to spend your career working with people this friendly, funny and open. Hell, I want to give them some money just so I have an excuse to drop by more often.  Thanks to everyone who has listened in the past year. We are past 1.25mm listens, and growing fast. You own this thing as much as I do, because the size helps me penetrate deeper and get the best people, which begets more listeners. This podcast is one hell of a discovery machine, and the first year was our warm up. We have a ton of new angles, formats, and events coming in year two. Stay tuned. But first, time to laugh in celebration of year one. Please enjoy my conversation with team Ritholtz For comprehensive show notes on this episode go to http://investorfieldguide.com/ritholtz For more episodes go to InvestorFieldGuide.com/podcast. To get involved with Project Frontier, head to InvestorFieldGuide.com/frontier. 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 Barry @ritholtz on twitter a16z Podcast Scott Galloway and Aswath Damodaran on Bitcoin vs Gold Latest 'These Are the Goods' post   Show Notes 2:35 – (First question) – What stock best represents you  5:09 – How was this team assembled at Ritholtz  8:50 – Why larger asset management firms are slow to pivot on new technology  10:00 – The humor of Barry @ritholtz on twitter  11:48 – What technology channels are working best 13:08 – What would happen in a Ritholtz stock picking contest 15:19 – How do you keep investors from wanting to move money into or out of buzzworthy trades 20:23 – Pricing out the news and the value premium 23:41 – Why people want complexity and activity in their portfolios 29:51 – People always want to be a part of the next frontier, example bitcoin             31:08 – a16z Podcast 33:13 – Exploring research in action and living the investments 39:35 – Biggest argument against bitcoin could be the underlying utility and what will make it successful 45:13 – The Hindenburg Omen             46:34 - Scott Galloway and Aswath Damodaran on Bitcoin vs Gold 47:38 – How the relationship with clients has evolved 49:50 – Mike’s new book project that he is working on 51:41 – Why the Mark Twain chapter is the most interesting in his book thus far 53:32 – How a business should balance sales and marketing 58:09 – Who would they draft to the Ritholtz team             58:22 – Latest These Are the Goods post 1:05:18 – Kindest thing anyone has done   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

My guest this week is Pat Dorsey, who was the longtime director of equity research at Morningstar, where he specialized in economic moats: sources of sustained competitive advantage that allow a few companies to deliver huge returns over time. Several years ago he left Morningstar to form his own asset management firm, Dorsey asset management, and build a portfolio of companies with wide moats like those he studied at Morningstar. And while moats are critical, equally important is how companies allocate the capital generated--or made possible--by the existence of the moat.   A special thank you to Brian Bares who introduced me to Pat, and to Will Thorndike--an earlier guest on the show. In the vast majority of conversations you hear on this show, I'm meeting the guest for the first time. I mention this to encourage you to connect me with anyone whose story or way of looking at the world might resonate. Always feel free to contact me with ideas.   Pat and I begin our discussion with the key differences between the sell side and the buy side, and then discuss all aspects of moats and capital allocation.    For comprehensive show notes on this episode go to http://investorfieldguide.com/dorsey For more episodes go to InvestorFieldGuide.com/podcast. To get involved with Project Frontier, head to InvestorFieldGuide.com/frontier. 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   Show Notes 2:23 – (First question) – Transition from the sell side to the buy side and the biggest surprise  3:40 – What is a moat  5:16 – What part of the stock market universe has a moat  6:57 – Pat’s framework for identifying moat, starting with intangibles  8:32 – The power of brands  9:44 – what chance does an upstart have to come in and usurp a well-established brand    12:24 – Switching costs as part of the framework for identifying a moat  14:55 – The third component of identifying a moat, network effects, and what businesses should do to effectively build one  17:29 – Last component, cost advantages/economies of scale  19:29 – How do you analyze these four components into an investing framework that can be built into an actual strategy  21:13 – How does Pat think about this from a mis-pricing standpoint  23:37  – How does Pat incorporate current price of a company in consideration for future returns when pricing a moat  25:39 – How should a company with a moat operate to protect that characteristic, especially when it comes to their capital allocation  26:51 – Which characteristic of a moat does Pat find most intriguing  30:35 – What makes for good and smart capital allocation  35:58 – What is Pat’s process for identifying the best investment opportunities  38:38 – What are good economics when looking at a company  41:03 – If Pat could take any business, but have to swap leadership, what would he choose.  44:13 – Back to his process of finding investment opportunities  46:05 – Kindest thing anyone has ever done for Pat   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

My guests this week are both veterans of the podcast, Jason Zweig and Morgan Housel. They are two of the best in the world at making the complicated simple, and in that spirit, I’ll keep this introduction short. Morgan shifted from public markets to the private markets a year ago when he joined the Collaborative Fund, so we begin with what he has learned about venture capital in his first year on the job.   For comprehensive show notes on this episode go to http://investorfieldguide.com/writers For more episodes go to InvestorFieldGuide.com/podcast. To get involved with Project Frontier, head to InvestorFieldGuide.com/frontier. 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   Books Referenced The Devil's Financial Dictionary Modern Monopolies: What It Takes to Dominate the 21st Century Economy Thinking, Fast and Slow Shoe Dog: A Memoir by the Creator of Nike Life and Fate   Online References A Rediscovered Masterpiece by Benjamin Graham Rishi Ganti podcast Small Companies Are Gone, But Should they Be Forgotten (Zweig Column)   Show Notes 1:43 – (First question) – Morgan on why he got disenchanted with the investment industry and shifted to venture capital 4:05 – Jason’s thoughts about investing in the private markets             5:19 - A Rediscovered Masterpiece by Benjamin Graham 7:57 – Morgan’s thoughts on how private market investments differ from public market investments 10:24 – Exploring valuations of businesses and what they say about broader trends in the market 13:21 – How much does Jason think about individual companies when exploring the overall market trends             18:41 – The Devil's Financial Dictionary 19:28 –What does it take to be a successful founder 23:40 – How does Jason look at activities that are work related vs just for pleasure 25:33 – If Jason had to start a business, what would he do 27:22 – What business would Morgan start 29:18 – Problems with the financial planning industry 30:56 -  The role of stress in personal and business development             31:04 – Modern Monopolies: What It Takes to Dominate the 21st Century Economy 38:17 – Are there signs that let you know when to cut and run vs when to keep slogging along with something             42:02 – Thinking, Fast and Slow             44:03 – Shoe Dog: A Memoir by the Creator of Nike 44:20 – Principals to approach learning 50:10 – The idea of keeping your identity small in a world where social media encourages one-upmanship 53:56 – Last significant thing Morgan changed his mind about 55:23 – Why Morgan chooses passive investing with stocks, but as a VC, essentially is a stock picker in private markets             1:00:44 – Rishi Ganti podcast 1:02:14 – What major thing did Jason change his mind about             1:02:30 – Small Companies Are Gone, But Should they Be Forgotten (Zweig Column) 1:06:33 – What was the most interesting idea Jason and Morgan have been tackling and what data helped to spark that interest             1:09:32 – Life and Fate

Brad Stulberg, an author and journalist known for co-writing Peak Performance, dives into the science of sustained growth and creativity. He shares insights on the growth equation: stress plus rest equals growth, emphasizing how this applies to both athletes and creators. Stulberg discusses the power of 'just manageable challenges' to foster improvement and the importance of recovery for aging athletes. He links purpose to enhanced performance, revealing how our values can counteract fear and drive breakthroughs in various fields.

Several weeks ago my conversation with Leigh Drogen on quant investing proved timely and popular--because everyone in asset management is facing the rise of big data, and the use of data science in investing strategies. Because of the rise of quants, many are asking themselves how to survive and thrive in a changing industry. In short, how can traditional managers compete with quants? This second conversation with Leigh was set up to answer many of the questions posed in the first one. If quants are taking over, what should other investors do about it? Leigh proposes a method by which old school asset managers can restructure their thinking and their process to compete with and even beat purely quantitative competitors. The method involves pulling the best from both worlds and combining them into a hybrid structure. But it will be impossible without a wholesale change in mindset, which is where we begin. Please enjoy round two with Leigh Drogen.   Links Referenced Revenge of the Humans Part II: A New Blueprint For Discretionary Management   Show Notes 2:14 – (First question) –  What role will ego and mindset play for traditional hedge funds looking to transition into quantitative investing strategies 4:21 – Describes the traditional process that hedge funds use to make investment decisions and how the internal politics can hamper it 6:08 – What value has portfolio managers played at hedge funds traditionally as the quarterback of a fund 9:57 – A look at what Leigh has seen as he sits with teams 12:20 – A look at places that have tried to simply add quant to their firm’s strategies without “tearing it down to the studs” and properly integrating them into the process 15:00 – Leigh is asked to define the basics of a good investment firm’s strategies 16:57 – Strategies for writing down core beliefs, whether it’s for yourself or your firm 17:49 – Exploring the second step, finding a differentiating view and how to succeed with it. 21:43 – The importance of force ranking and structuring the unstructured 26:14 – Building factor models 29:42 – How the portfolio manager position should have less room for subjectivity than at the analyst level 33:44 – Is anyone integrating this kind of high level data at the portfolio manager level into the decision making the way Leigh describes 35:07 – What blind spots are created by systematizing their processes 36:18 – Why much of this applies more to shorter and structured periods 38:23 – Shifting to portfolio constructions and what Leigh would do to create the right mix 43:39 – Shifting to management structures in these firms starting with the role of the CIO 45:24 – Looking at the different quant roles that exist in a firm and what they should be responsible for; data engineers, data analysts, pure quants, and quantitative engineer 48:20 – If you are an undergrad or grad student right now interested in asset management, what are the roles you should be thinking about targeting 49:25 – Why communication skills are still so important, no matter what role you are in 50:25 – With all of the tools and skills that Leigh has at his disposal at Estimize, why not institute an active strategy 52:01 – What has Leigh observed in the dispersion of skill in the Estimized data set 53:47 – What is the relationship between specialization and accuracy among funds 55:29 – The pros and cons of the generalist 56:56 – A look at Leigh’s background into War Theory and what lessons that he still draws on today 1:00:19 – How the field of study around war and battle relates to the investing world   Learn More For more episodes go to InvestorFieldGuide.com/podcast.  For complete shownotes, go to InvestorFieldGuide.com/leigh.  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

My guest this week is a version of me—a funnier, cooler version who has a PhD and served as an active duty marine. Lots of you will already be familiar with Wes Gray, and those of you who are not are in for a treat. Wes is the founder of Alpha Architect, a firm which manages quantitative equity strategies for clients using factors like value and momentum. He also advocates for a more concentrated, pure approach to factor investing, which listeners know is music to my ears.While we share a lot of the same views on markets and investing, you will still find this refreshing. The conversation was easy to structure--I just took all the questions clients and prospective investors always ask of me and my firm, and turned them on Wes. These range from very specific questions on quant investing to big existential ones. I listened to this on a long drive home and laughed out loud in the car at least 5 times. You are going to love it all.I close this introduction by offering you an opportunity which is not for the faint of heart. On September 16th, I will be joining Wes and his crew on a 28-mile trek called “March for the Fallen” which is a small but important way of honoring those who have given their lives in service of our country. Wes and I invite you to join as well. If you are interested, check out the post on Wes’s site with all the details. I will link to it in the shownotes at investorfieldguide.com/wes. If you are still interested, then email me with the subject heading “March for the Fallen.” I told you Wes is a much cooler version of me, and true to form he will be doing the hike with a 40-pound rucksack. I will be doing the version without a rucksack. Either way, it will be a day of comradery and remembrance that we won’t soon forget. Join us. Books Referenced The Devil Dogs at Belleau Wood: U.S. Marines in World War I Thinking, Fast and Slow Online ReferencesThe Limits of Arbitrage Show Notes3:07 – (First question) – Exploring the mindset that is ingrained into Marines3:16 – The Devil Dogs at Belleau Wood: U.S. Marines in World War I5:27 – Most memorable experience growing up in the mountains of Colorado6:29 – What experiences in the military have transferred to what Wes sees in the public markets6:48 – Thinking, Fast and Slow7:51 – Wes’s first foray into stocks10:51 – What was the transition into the quantitative investing space12:29 – How Wes would describe quantitative investing and what the landscape looks like today17:10 – What is the nature of the strategies Wes uses, like high-frequency and market-making, and what makes them stand out in those20:57 – What about the human capital arms race in this space and how different firms are attracting the top talent23:21 – What the approach is for Wes and what his research suggests is the best predictor of performance in stocks25:36 – Wes’s approach to portfolio construction33:19 – What is the thinking behind the number of and the size of names in the QVAL ETF36:20 – Why the data suggests momentum is the better pick37:36 – Why price-to-book sucks relative to other value factors39:55 – What things worry Wes about the future of this strategy44:39 – How does Wes think about research and what to explore next.50:05 – Who would Wes have manage his money since he thinks Vanguard is not the best choice57:01 – Exploring his firm Alpha Architect, how it started and has evolved since launch57:39 – The Limits of Arbitrage1:08:15 – How the influx of people to passive investments are impacting the overall market, especially for active investment strategies1:13:13 – Wes’s most memorable day of his career both in the military and as an investor1:17:19– Kindest thing anyone has ever done for Wes  Learn MoreFor 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/bookclubFollow Patrick on twitter at @patrick_oshag

Rishi Ganti, investor in esoteric assets, discusses his core idea of avoiding markets and investing in things without a market. He explores examples of esoteric assets like charter school financing. The podcast also highlights the vastness of the world's asset base and Rishi's inspiring answer about the kindest thing anyone has done for him.

I am drawn to a group of investors that I call practitioner philosophers. These are people who have gotten their hands dirty in their respective fields, but despite being doers, they still often sit back and ponder the big questions in business and life.My guest this week is one such practitioner philosopher, NYC based venture capitalist Jerry Neumann. I came across Jerry's essays a year ago, and he is on a very short list of writers whose work I read without fail and almost always more than once.You can think about this conversation on business, investing, and venture capital as a big funnel. We start very broad, discussing where we may be in a large 70-year economic cycle. We then break down the so-called power law which seems to govern venture capital returns and business outcomes. Then we get even more specific, discussing Jerry's process for evaluating early stage companies, and the particulars of what might make a good venture capitalist. I say "might" because as Jerry explains often, nothing is certain, and luck may always play a huge role.I just loved this conversation. It is the type that without the podcast as an excuse would be a very odd and intense one if I were just meeting someone for the first time. You'll find no small talk or even medium talk here. This is a meaty discussion with one of the smartest and most straightforward people I've come across. Books Referenced Carlotta’s Perez - Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages Thomas Hughes – Networks of Power: Electrification in the Western Society, 1880 – 1930Frank Knight – Risk, Uncertainty, and Profit Jeffrey West - Scale: The Universal Laws of Growth, Innovation, Sustainability, and the Pace of Life in Organisms, Cities, Economies, and Companies Links ReferencedDeployment AgeOswald Spangler About Men; Corporate Man Howard Mark’s 2x2 matrix of superior investment resultsMichael E. Porter - How Competitive Forces Shape Strategy DJ Teece: Profiting from Technological InnovationPorter’s Five Forces Show Notes3:27 – (First question) – Start with Jerry’s essay the Deployment Age and a look at what it means for where we sit today (looking forward as investors)?3:40 - Deployment Age4:26 - Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages9:28 – What time in history can you compare our current deployment age to and what does that say about the next 10, 20, and 30 years?9:40 – Oswald Spangler11:09 – About Men; Corporate Man18:06 - Networks of Power: Electrification in the Western Society, 1880 – 193020:40 - What lessons should venture capitalists make from these deployment age cycles25:27 - Risk, Uncertainty, and Profit26:50 – Howard Mark’s 2x2 matrix of superior investment results32:56 – Nassim Taleb: Powerlaw42:31 – Venture Follow-on and the Kelly Criterion (Jerry's Blog)44:34 - How have you have actually done this, Jerry? What is your process like and your focuses?54:00 – Are there any circumstances where it is wise for friends and family to make venture investments?59:20 - What is this idea of who profits from innovations?56:12 - DJ Teece: Profiting from Technological Innovation1:02:57 – Understanding complimentary assets1:05:06 - Porter’s Five Forces1:09:24 - Are Augmented and Virtual Reality interesting areas for venture capital and why?1:15:28– What makes a successful venture capitalist? What makes you special?1:26:03 – Kindest thing anyone has ever done for Jerry Learn MoreFor comprehensive show notes on this episode go to http://investorfieldguide.com/jerryFor more episodes go to InvestorFieldGuide.com/podcast.To get involved with Project Frontier, head to InvestorFieldGuide.com/frontier.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 

A future guest just told me, every band has a song about being in a band, so today I give you my version. I won’t do this often, and only do it this week in case listenership drops due to the holiday—I didn’t want any guest to have a smaller than normal audience. I have now been doing this for almost one year, and have learned a tremendous amount. Since the whole idea behind the show is to learn in public, I am going to share a few of the lessons I’ve learned with you today. I’ll shape it as a top ten list, which ends with a fun story about my recent dinner with Warren Buffett. You’ll notice that many of these are just good business and life lessons applied to something specific: a podcast. I hope you can pull the essence of one or more of these and change how you do things, especially if you create any sort of content as part of your job.

If you told me a year ago that I’d be learning critical life and business lessons from the founder of a ketchup company, and that thirty to fifty thousand people would listen to our conversation, well, I’d have told you that’s impossible. But the fact that it is true proves many of the points laid out by this week’s guest Scott Norton, co-founder of Sir Kensington’s which was recently acquired by Uni-Lever. Sir Kensington’s, which makes “condiments with character” is no ordinary Ketchup company, and Scott is no ordinary founder.We talk about the most elemental aspects of business: product, relationships, sales, marketing, and culture. I love that we can do so through the lens of such a seemingly simple product, something that we use all the time with our families at a BBQ. Scott’s observations on culture, the importance of relationships in sales, and competitive edge are all memorable. But above all, I’ll remember his line: seek to learn that which cannot be taught. And I will continually return to the mental image of the Temple of Poseidon.Oh, and as a bonus we also talk about biking around Asia, which like all of Scott’s stories comes complete with thought provoking lessons.Enjoy this unique conversation with one of the most interesting people I’ve met on this journey. We begin with the history of ketchup. For comprehensive show notes on this episode go to http://investorfieldguide.com/nortonFor 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 They Call Me Supermensch: A Backstage Pass to the Amazing Worlds of Film, Food, and Rock’n’Roll (Movie) Books Referenced Getting to Yes: Negotiating Agreement Without Giving In How to Win Friends & Influence People They Call Me Supermensch: A Backstage Pass to the Amazing Worlds of Film, Food, and Rock’n’Roll (Book) Show Notes2:40 – (First question) – A look at the history of ketchup5:16 – The milestones of ketchup’s history in the US10:26 – What were the early days like to compete in a market where the leaders have such a stronghold on the consumer14:41 – Effective ways to negotiate14:57 – Getting to Yes: Negotiating Agreement Without Giving In16:32 – How may stages were there in the early products19:04 – A look at kaizen and what it means to Scott20:38 – Scandinavian business principles that they bring to the company23:40 – As the company has grown, has Scott seen downsides to the stakeholder model especially when competing against larger companies that use the shareholder model28:19 – How did they use outside capital in getting started31:07 – What was the most memorable story from the early days of disrupting this legacy industry, especially as it relates to the sales of this product 33:30 – How to Win Friends & Influence People33:58 – How do you create trust and show the benefits of your product in sales37:48 – How culture started for the company, how it’s shifted since then and what competitive advantage the right culture creates41:47 – Some of the best outcomes are the result of mindset and culture43:28 – What new frontiers is Scott and the company looking at today51:41 – The power of giving and how it will bring large returns, especially when you don’t expect them as part of the giving53:04 – They Call Me Supermensch: A Backstage Pass to the Amazing Worlds of Film, Food, and Rock’n’Roll (Book and Movie)55:37 – Look at Scott’s decision to bike around Asia and what he experienced during that time1:02:49 – Best advice for someone in their early 20’s Learn MoreFor 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/bookclubFollow Patrick on twitter at @patrick_oshag