1 00:00:01,560 --> 00:00:03,800 Ladies and gentlemen, welcome to the Business Brew. 2 00:00:04,200 --> 00:00:07,360 I am your host, Bill Brewster. As always, this episode features 3 00:00:07,360 --> 00:00:09,320 Adam Wilk. It is a very interesting 4 00:00:09,320 --> 00:00:10,960 conversation. I hope you like it. 5 00:00:11,720 --> 00:00:15,320 There is a good portion of conversation that talks about 6 00:00:15,320 --> 00:00:18,400 Duolingo, which I found very interesting. 7 00:00:19,240 --> 00:00:21,520 Admittedly not something that I've thought about a whole lot 8 00:00:21,520 --> 00:00:26,080 in the past but have been since, and overall just an interesting 9 00:00:26,080 --> 00:00:29,520 conversation on how Adam thinks and where he came from, so I 10 00:00:29,520 --> 00:00:33,200 hope you enjoy it very much. As always, nothing in this 11 00:00:33,200 --> 00:00:36,480 episode is financial advice. Everything is for entertainment 12 00:00:36,480 --> 00:00:38,840 purposes only. Please consult your financial 13 00:00:38,840 --> 00:00:41,480 advisor before making investment decision and do your own due 14 00:00:41,480 --> 00:00:45,600 diligence. This episode is sponsored by 15 00:00:45,600 --> 00:00:49,520 Trata TRATA. You can try Trata at 16 00:00:49,520 --> 00:00:57,480 tritrata.com, TRYTRA, ta.com/brew for a free trial. 17 00:00:58,280 --> 00:01:03,360 Trata is a transcript library analyst to analyst. 18 00:01:03,920 --> 00:01:06,640 You are going to hear conversations between two 19 00:01:06,640 --> 00:01:09,200 informed individuals or you were going to read. 20 00:01:09,760 --> 00:01:14,480 You can listen, but there it's informed conversations between 21 00:01:14,480 --> 00:01:17,720 two analysts. I happen to like that because I 22 00:01:17,720 --> 00:01:20,680 think it gets some of the fluff out of some of the more 23 00:01:20,680 --> 00:01:24,560 traditional transcript libraries and you get to the point. 24 00:01:25,000 --> 00:01:29,120 So I find it, I find it to be useful. 25 00:01:29,120 --> 00:01:33,120 I've been using it a lot and I, I think that they highlight some 26 00:01:33,120 --> 00:01:35,960 very interesting things. I also, one thing that I enjoy 27 00:01:35,960 --> 00:01:43,200 very much about it is you can read clearly, we are interested 28 00:01:43,200 --> 00:01:48,920 in this company, but we do not, do not own it because of XYZ or 29 00:01:48,920 --> 00:01:51,720 you know, whatever comes up. But I do think that it helps 30 00:01:51,720 --> 00:01:54,240 frame what some of the discussion in the stock is 31 00:01:54,240 --> 00:01:56,440 doing. So I find that particularly 32 00:01:56,440 --> 00:02:00,240 interesting. Anyway, try Trata forward slash 33 00:02:00,320 --> 00:02:04,600 or try trata.com/brew for a free trial. 34 00:02:04,960 --> 00:02:10,960 Check it out. This episode is also sponsored 35 00:02:10,960 --> 00:02:15,800 by fiscal dot AI. Fiscal dot AI Forward slash brew 36 00:02:15,800 --> 00:02:18,920 will get you 15% off any paid plan automatically. 37 00:02:18,920 --> 00:02:22,360 It will be applied at checkout. You should check out the episode 38 00:02:22,360 --> 00:02:28,080 with Braden that gives the long pitch the sort of prosumer 39 00:02:29,040 --> 00:02:30,840 level, for lack of a better term. 40 00:02:31,120 --> 00:02:33,760 Fantastic data, super quick uploads. 41 00:02:33,760 --> 00:02:36,800 They just got Canadian filings in there, so if you hate messing 42 00:02:36,800 --> 00:02:40,320 with Cdr, that's a great use case for you. 43 00:02:40,840 --> 00:02:43,760 The pitch I'm going to make today is if you are an 44 00:02:43,760 --> 00:02:49,400 enterprise and you need data, Braden and his team think that 45 00:02:49,400 --> 00:02:52,840 they can save you a bunch of money if you're using a provider 46 00:02:52,840 --> 00:02:56,560 like FactSet or something of similar quality. 47 00:02:57,640 --> 00:03:01,640 Braden and the teams, the data is high quality. 48 00:03:01,960 --> 00:03:06,480 It is completely auditable. You can get it much cheaper than 49 00:03:06,480 --> 00:03:10,320 you can elsewhere. Check it out and use fiscal dot 50 00:03:10,360 --> 00:03:14,160 AI forward slash brew to get 15% off while you save your business 51 00:03:14,160 --> 00:03:43,880 money. Much awesome. 52 00:03:44,160 --> 00:03:48,280 Yeah. So anyway, everyone, Adam Wilk 53 00:03:48,280 --> 00:03:50,400 of Greystone, tell me, tell me the firm name. 54 00:03:50,400 --> 00:03:53,920 I should know this. It is Greystone Capital 55 00:03:53,920 --> 00:03:55,400 Partners. There you go. 56 00:03:55,560 --> 00:03:57,200 All right. Thank you for coming on. 57 00:03:57,600 --> 00:04:00,000 And you've been, you've been doing the podcast circuit 58 00:04:00,000 --> 00:04:00,800 lately. Yeah. 59 00:04:02,280 --> 00:04:07,080 So I've done a few and the last one I did was actually value 60 00:04:07,080 --> 00:04:09,640 after hours a couple months ago. It was really weird that you 61 00:04:09,640 --> 00:04:12,760 weren't on there. I'm not sure how to how to piece 62 00:04:12,760 --> 00:04:15,200 that together, but I love talking to those guys. 63 00:04:15,200 --> 00:04:18,600 Tobias and Jake are great. I'd met Tobias at an event years 64 00:04:18,600 --> 00:04:21,079 ago. And I think, I think our mutual 65 00:04:21,079 --> 00:04:24,280 friends, you and I are mutual friend Ian Castle, I think, 66 00:04:24,440 --> 00:04:26,920 asked them to talk to me or something. 67 00:04:27,120 --> 00:04:30,360 You know, I'm the beneficiary of people doing nice things for me. 68 00:04:30,360 --> 00:04:32,080 But yeah, that was the last one I've been on. 69 00:04:32,800 --> 00:04:35,800 Well, that's the goal, is to just pay the nice things 70 00:04:35,800 --> 00:04:37,960 forward, right? Sure. 71 00:04:39,200 --> 00:04:43,280 So what I, I apologize for not knowing this, but what you had 72 00:04:43,280 --> 00:04:45,760 mentioned a couple times when we were talking that that you had a 73 00:04:45,760 --> 00:04:47,280 background in professional sports. 74 00:04:47,280 --> 00:04:51,040 What did you do before you were an investor? 75 00:04:52,880 --> 00:04:57,800 Yeah. So, so I, like most investors, I 76 00:04:57,800 --> 00:05:01,560 think I'm a Buffett acolyte. And I discovered his writings 77 00:05:02,240 --> 00:05:07,320 probably 1415 years ago and sort of immediately knew I want to do 78 00:05:07,320 --> 00:05:10,520 that, you know, to think the way he thinks and allocate capital 79 00:05:10,520 --> 00:05:12,960 the way he does. But I took a pretty convoluted 80 00:05:12,960 --> 00:05:15,800 path to get there. Before investing, I spent time 81 00:05:15,800 --> 00:05:19,960 around the NBA as a scout, including in San Antonio with 82 00:05:19,960 --> 00:05:21,720 the Spurs and in Houston with the Rockets. 83 00:05:22,240 --> 00:05:24,200 And I had a short stint in commercial lending. 84 00:05:24,760 --> 00:05:27,680 And I always get asked this question because on the surface, 85 00:05:27,720 --> 00:05:30,960 basketball to investing looks like a big leap, but it actually 86 00:05:30,960 --> 00:05:32,800 wasn't at all. And I've kind of always been 87 00:05:32,800 --> 00:05:37,480 drawn to decision making under uncertainty and pattern 88 00:05:37,480 --> 00:05:40,400 recognition kind of long before I ever owned a stock. 89 00:05:40,400 --> 00:05:43,760 And I think what most people miss about an organization like 90 00:05:43,760 --> 00:05:47,160 the Spurs is that it's not really about basketball. 91 00:05:47,800 --> 00:05:50,240 And if you're not familiar, they have one of the most successful 92 00:05:50,480 --> 00:05:54,400 organizations in all of sports. And it's not it's more of a 93 00:05:54,400 --> 00:05:56,440 systems thing or a systems problem. 94 00:05:56,440 --> 00:05:59,680 So I learned very quickly when I was there, you're evaluating 95 00:05:59,680 --> 00:06:02,200 talent with incomplete information and you're making 96 00:06:02,200 --> 00:06:05,960 irreversible decisions. You're allocating resources and 97 00:06:05,960 --> 00:06:08,040 you're doing all of it under pressure and uncertainty. 98 00:06:08,520 --> 00:06:11,000 And over time, you build that kind of pattern recognition in a 99 00:06:11,000 --> 00:06:14,320 number of areas. And I think that I was a scout 100 00:06:14,320 --> 00:06:18,160 and I worked at the analytics department and you kind of a 101 00:06:18,160 --> 00:06:20,040 Jack of all trades, master of none, I would say. 102 00:06:20,520 --> 00:06:23,480 And the Spurs were formative for me, not just because of the 103 00:06:23,480 --> 00:06:27,040 talent evaluation piece and the culture, but because their 104 00:06:27,040 --> 00:06:31,320 advantage couldn't be replicated and other teams would try to 105 00:06:31,320 --> 00:06:34,520 copy their tactics and they missed that the real edge was 106 00:06:34,520 --> 00:06:37,320 kind of like embedded in the system itself that was built 107 00:06:37,320 --> 00:06:40,080 over years and enabled them to make better decisions. 108 00:06:40,680 --> 00:06:45,560 And that idea that a durable advantage comes from systems, 109 00:06:45,560 --> 00:06:48,880 culture, incentives, etcetera, rather than like surface level 110 00:06:48,880 --> 00:06:52,160 stuff ended up really shaping how I think about companies. 111 00:06:52,160 --> 00:06:56,680 And when this, the sort of spark faded and I had this kind of 112 00:06:56,680 --> 00:06:59,360 recurring feeling that I was sitting kind of on the wrong 113 00:06:59,360 --> 00:07:02,480 side of the table, which has been, I think, a theme 114 00:07:02,520 --> 00:07:05,680 throughout my life and career where I was kind of close to 115 00:07:05,680 --> 00:07:09,560 decisions, but not really accountable for the outcomes and 116 00:07:09,960 --> 00:07:12,200 I wasn't kind of rewarded for getting them right. 117 00:07:12,920 --> 00:07:15,880 I started studying public between lending and studying 118 00:07:15,880 --> 00:07:17,960 public markets. It just became very clear to me 119 00:07:17,960 --> 00:07:22,840 that modern capital allocation is broken in some ways and also 120 00:07:22,840 --> 00:07:25,800 over optimized in other ways, whether it's short time horizons 121 00:07:25,800 --> 00:07:28,360 or career risk or institutional incentives. 122 00:07:28,960 --> 00:07:31,680 And I actually never set out to be a fund manager. 123 00:07:31,680 --> 00:07:34,160 Greystone started as a personal playbook, like how I would 124 00:07:34,160 --> 00:07:36,520 manage capital for myself and my family. 125 00:07:36,800 --> 00:07:40,720 And once I realized that the way that I think kind of naturally 126 00:07:40,720 --> 00:07:45,160 aligns with capital allocation, building the fund has kind of 127 00:07:45,160 --> 00:07:48,440 felt less like a career decision and more like kind of the 128 00:07:48,440 --> 00:07:49,960 logical endpoint of everything I've done. 129 00:07:49,960 --> 00:07:51,880 So it was more of an inevitability than anything 130 00:07:51,880 --> 00:07:54,760 else. But yeah, you know, again, the 131 00:07:54,840 --> 00:07:57,680 sitting on the wrong side of the table thing has been I started 132 00:07:57,680 --> 00:08:00,680 out working in the sports agent world and then went to the NBA 133 00:08:00,680 --> 00:08:03,240 and then transitioned to the lending and then investing. 134 00:08:03,240 --> 00:08:06,760 So it's been kind of a process of iteration. 135 00:08:07,800 --> 00:08:15,760 I know a guy that that used to work in football agency and it's 136 00:08:15,760 --> 00:08:20,080 interesting to talk to him about my perception is it, it was 137 00:08:20,080 --> 00:08:25,120 super sexy and very cool. And to hear his version of 138 00:08:25,120 --> 00:08:28,680 reality being that fees are getting pushed down and it's, I 139 00:08:28,680 --> 00:08:33,000 mean, obviously hyper competitive, but turns out it's 140 00:08:33,000 --> 00:08:36,360 not as sexy as might look from the outside looking in. 141 00:08:38,240 --> 00:08:43,480 No, there's also in the agency world they, there's a, a 142 00:08:43,480 --> 00:08:47,080 significant power law effect as well, like the largest agencies 143 00:08:47,080 --> 00:08:49,160 that have been around the longest and have the most 144 00:08:49,160 --> 00:08:52,480 clients are the most dominant. And I don't see how that changes 145 00:08:52,480 --> 00:08:54,960 anytime soon for a number of reasons. 146 00:08:54,960 --> 00:08:59,120 And so if unless you are with one of those bigger groups or 147 00:08:59,120 --> 00:09:02,680 you have some sort of edge that allows you to get players over 148 00:09:02,680 --> 00:09:05,240 them, I think it's very difficult to kind of start from 149 00:09:05,240 --> 00:09:08,720 scratch nowadays. And I think those advantages 150 00:09:08,720 --> 00:09:10,840 will will widen just with the reach that they have. 151 00:09:10,840 --> 00:09:16,120 And now with players sort of post career endeavors starting 152 00:09:16,120 --> 00:09:19,040 well before they retired, it's just a very different game now. 153 00:09:19,040 --> 00:09:22,520 And so having a leg up in those areas and being able to more 154 00:09:22,520 --> 00:09:26,400 resources means more players, which means more Commission 155 00:09:26,400 --> 00:09:29,960 income, which means the ability to do things to to market and to 156 00:09:29,960 --> 00:09:32,320 sign more players, which means getting more players in the 157 00:09:32,320 --> 00:09:33,440 door. And it becomes this really 158 00:09:33,440 --> 00:09:38,240 difficult flywheel to disrupt. And so I, I, my first experience 159 00:09:38,240 --> 00:09:40,760 was working with a boutique agency and I learned that lesson 160 00:09:40,760 --> 00:09:42,880 first hand that they were very good. 161 00:09:42,960 --> 00:09:45,760 They did right by their clients and they deserved a shot more 162 00:09:45,760 --> 00:09:48,760 than anybody. But the ultimate decision in 163 00:09:48,760 --> 00:09:51,080 many times, many cases came down to things that didn't have 164 00:09:51,080 --> 00:09:52,840 anything to do with like the representation. 165 00:09:52,840 --> 00:09:56,080 It was more about the incentives and what another agency can 166 00:09:56,080 --> 00:09:59,040 offer and the attention put on the, the person and that sort of 167 00:09:59,040 --> 00:10:01,040 thing. So very, very difficult 168 00:10:01,040 --> 00:10:04,240 industry, but if you do it well and you're you end up making it 169 00:10:04,360 --> 00:10:06,760 to become one of the bigger guys, it can be very sexy. 170 00:10:08,840 --> 00:10:11,280 Yeah, you got you. If you're working for one of the 171 00:10:11,280 --> 00:10:14,840 bigger agencies, you got to hope that the bigger guys like to, to 172 00:10:16,080 --> 00:10:20,200 disperse the, the spoils of the winds among the employees, which 173 00:10:20,200 --> 00:10:23,680 can also be a bit of an issue from what I understand what of 174 00:10:23,800 --> 00:10:27,440 course. So I mean, obviously, you know, 175 00:10:27,440 --> 00:10:32,640 like if you're thinking about sports and, and businesses, you 176 00:10:32,640 --> 00:10:36,160 have sort of the, the, the tangible things, right? 177 00:10:36,320 --> 00:10:39,920 And anyone can pull up a financial, you know, historical 178 00:10:39,920 --> 00:10:42,480 financials and see what a a company has done. 179 00:10:43,080 --> 00:10:47,880 But getting to the core of the culture of it is, is, is 180 00:10:47,880 --> 00:10:50,520 slightly different. I would think with sports 181 00:10:50,520 --> 00:10:53,240 players you've got, OK, these are the, you know, the 182 00:10:53,240 --> 00:10:55,720 measurements is how high somebody can jump, whatever. 183 00:10:56,000 --> 00:10:58,040 And then you've got the character side of who that 184 00:10:58,040 --> 00:11:00,040 person is. Are they going to work for the 185 00:11:00,040 --> 00:11:02,520 team after we pay them, etcetera, etcetera. 186 00:11:03,160 --> 00:11:08,520 How have those skills crossed over, or how have your sort of 187 00:11:09,240 --> 00:11:14,320 younger experiences influenced what you're doing as an investor 188 00:11:14,320 --> 00:11:16,640 today? In a big way. 189 00:11:16,960 --> 00:11:19,800 It's really hard to evaluate those things, especially the 190 00:11:19,800 --> 00:11:23,560 culture and human side. Just speaking about management, 191 00:11:23,560 --> 00:11:25,960 I think. I think there are times when I 192 00:11:25,960 --> 00:11:27,640 can figure it out and I can judge it. 193 00:11:28,120 --> 00:11:29,840 There are other times when I'm not sure I can. 194 00:11:30,240 --> 00:11:33,400 And what I'm really big on is a track record and then channel 195 00:11:33,400 --> 00:11:37,400 checks and doing sort of examinations of the people in a 196 00:11:37,400 --> 00:11:39,760 person's life. That was very big in the sports 197 00:11:39,760 --> 00:11:41,360 world. Obviously, we spent a lot of 198 00:11:41,360 --> 00:11:44,160 time just talking to the people sort of in and around the 199 00:11:44,160 --> 00:11:47,240 player, and that helped paint a picture of who they were and how 200 00:11:47,240 --> 00:11:48,760 hard they would work. And that's really what you're 201 00:11:48,760 --> 00:11:52,040 trying to figure out. And on the management side, I'm 202 00:11:52,040 --> 00:11:54,560 really looking for kind of a longer track record and people 203 00:11:54,560 --> 00:11:56,240 making really sensible decisions. 204 00:11:56,520 --> 00:11:59,080 And if I can find that even before I get involved, that's 205 00:11:59,080 --> 00:12:02,080 usually a good sign. And one of the insights I've had 206 00:12:02,080 --> 00:12:05,360 over the years, I think, and this was aided a little bit by 207 00:12:05,720 --> 00:12:09,480 human talent evaluation in, in sports, is that if somebody's 208 00:12:09,480 --> 00:12:13,800 making decisions from kind of a first principles, very sensible 209 00:12:14,040 --> 00:12:17,400 reason based approach, that's usually a very good sign. 210 00:12:17,720 --> 00:12:21,840 And on the management side, I've had, I've had managers say 211 00:12:21,840 --> 00:12:24,920 things like, you know, we thought we thought the market 212 00:12:24,920 --> 00:12:29,000 would have value, you know, a faster growing, you know, XYZ 213 00:12:29,000 --> 00:12:32,040 segment and, and assign it a higher multiple or we made this 214 00:12:32,040 --> 00:12:35,200 decision because our shareholders had asked us about 215 00:12:35,200 --> 00:12:37,720 XYZ. And generally speaking, I think 216 00:12:37,720 --> 00:12:39,400 those are terrible reasons to do anything. 217 00:12:39,800 --> 00:12:43,640 And what you're really looking for is we evaluated this 218 00:12:43,800 --> 00:12:51,240 industry and what we learned was XYZ or we, we studied this part 219 00:12:51,240 --> 00:12:55,360 of this vertical and we decided to acquire this business because 220 00:12:55,360 --> 00:12:58,200 here's what we learned. And it's just a more, I think 221 00:12:58,200 --> 00:13:02,200 durable approach over time. When you're thinking through the 222 00:13:02,200 --> 00:13:07,560 actual layers of a business and you're, you have a, a kind of 223 00:13:07,560 --> 00:13:10,240 long term view about how things can turn out over time that 224 00:13:10,240 --> 00:13:14,360 allows you to make decisions in that way, but also to kind of 225 00:13:14,360 --> 00:13:16,760 ignore short term noise. And it's important in both 226 00:13:16,920 --> 00:13:19,120 sports and, and investing in business. 227 00:13:19,120 --> 00:13:22,960 And I think now I'm not saying this came directly from 228 00:13:22,960 --> 00:13:26,520 basketball, but one, one of the edges I think I have is having 229 00:13:26,520 --> 00:13:30,600 kind of a coherent worldview about how durable advantages are 230 00:13:30,600 --> 00:13:33,560 formed within a business and using that worldview to make 231 00:13:33,560 --> 00:13:36,720 kind of like fewer, higher conviction decisions. 232 00:13:36,720 --> 00:13:41,280 And so I try to spend less time predicting the outcomes of 233 00:13:41,280 --> 00:13:44,240 things and looking at surface level stuff and more time 234 00:13:44,240 --> 00:13:46,560 understanding like the systems that produce them. 235 00:13:46,680 --> 00:13:50,280 And that is a very interconnected idea with sports. 236 00:13:50,280 --> 00:13:54,440 And I like to focus the work on, just like with evaluating 237 00:13:54,440 --> 00:13:57,840 players, like why certain businesses get stronger over 238 00:13:57,840 --> 00:13:59,680 time, not just why they're growing today. 239 00:14:00,040 --> 00:14:04,960 And I like to see, you know, players and businesses to where 240 00:14:05,120 --> 00:14:07,240 their advantage like compounds over time. 241 00:14:07,240 --> 00:14:10,040 They get better as they work on their game through learning, 242 00:14:10,040 --> 00:14:12,400 constraint system, evolution, that sort of thing. 243 00:14:12,400 --> 00:14:17,320 And so on the culture side, you know, you can observe it within 244 00:14:17,360 --> 00:14:19,840 a business. It's very hard to judge, but 245 00:14:19,840 --> 00:14:23,000 talking to employees or former employees is a really good way 246 00:14:23,000 --> 00:14:24,920 to do that. I think if you want to learn a 247 00:14:24,920 --> 00:14:27,960 lot about a business, you have to talk to people and you know, 248 00:14:27,960 --> 00:14:31,240 the publicly available stuff will probably get you 10 or 15% 249 00:14:31,240 --> 00:14:33,640 of the way there. And getting a sense for how 250 00:14:33,640 --> 00:14:37,360 people feel about the place they work and the the structure in 251 00:14:37,360 --> 00:14:40,160 terms of whether it's centralized or decentralized and 252 00:14:40,640 --> 00:14:43,320 what the attitude is around the company is really, really 253 00:14:43,320 --> 00:14:45,080 important. I think that drives a lot of 254 00:14:45,280 --> 00:14:48,440 results over time. If people care for the business 255 00:14:48,440 --> 00:14:50,640 and they believe in it and want to work hard for the people that 256 00:14:50,680 --> 00:14:53,000 they're working under with, that's really important. 257 00:14:53,000 --> 00:14:57,480 And so there was this thing we used to pay attention to and in 258 00:14:57,480 --> 00:15:01,760 basketball where they would say like within this team or this 259 00:15:01,760 --> 00:15:04,080 organization, like everybody takes out the trash, so to 260 00:15:04,080 --> 00:15:07,840 speak, like the GM runs the team, but the, the, there's not 261 00:15:07,920 --> 00:15:10,000 a huge amount of hierarchy sort of so to speak. 262 00:15:10,000 --> 00:15:13,520 And so I generally try to look for that in companies and you 263 00:15:13,520 --> 00:15:16,520 know, the the capital allocator sits on top of all that. 264 00:15:16,520 --> 00:15:18,680 So it is important to have somebody making those decisions. 265 00:15:18,680 --> 00:15:22,600 But combined, I think that, you know, just digging into the 266 00:15:22,600 --> 00:15:25,440 sports background and where I came from, I think it provided a 267 00:15:25,440 --> 00:15:28,160 nice framework to just move forward on the investing side 268 00:15:28,160 --> 00:15:30,400 and be able to, I think, evaluate things that way. 269 00:15:31,480 --> 00:15:37,120 So how much of your time is spent like really cultivating, I 270 00:15:37,120 --> 00:15:39,800 don't want to say an expert network, but some sort of 271 00:15:39,800 --> 00:15:42,320 scuttlebutt network, for lack of a better term? 272 00:15:42,320 --> 00:15:45,920 Like if you were to say what you allocate your time to in a given 273 00:15:45,920 --> 00:15:48,240 week, I know that's kind of tough to pinpoint, but. 274 00:15:48,520 --> 00:15:54,800 Most generally, most of it. So I would say between 1520%, 275 00:15:55,120 --> 00:15:58,400 whether it's a new idea or something in the portfolio, I 276 00:15:58,400 --> 00:16:02,440 would say between 15 and 20% is allocated to like publicly 277 00:16:02,440 --> 00:16:05,040 available things. Let's take looking at a new 278 00:16:05,040 --> 00:16:07,920 idea, for example. I'll go through all that stuff 279 00:16:07,920 --> 00:16:11,960 and probably do what most investors do and model the 280 00:16:11,960 --> 00:16:14,560 company and go through the filings and read the calls and 281 00:16:14,680 --> 00:16:17,040 everything that's publicly available I'll digest. 282 00:16:17,440 --> 00:16:20,440 And then the rest of the time is spent actually determining what 283 00:16:20,440 --> 00:16:22,920 reality is. And to do that, I spend a lot of 284 00:16:22,920 --> 00:16:26,600 time talking to people, unfortunately or fortunately, I 285 00:16:26,600 --> 00:16:28,960 guess because I do think this is another differentiator for us. 286 00:16:28,960 --> 00:16:33,280 But I spend a lot of time sourcing these people and the 287 00:16:33,280 --> 00:16:35,800 hit rate is very low, which is why I said unfortunately. 288 00:16:36,520 --> 00:16:39,040 But at the same time, it's a very manual process. 289 00:16:39,040 --> 00:16:43,120 So I think it sets us apart from I think maybe the, the average 290 00:16:43,120 --> 00:16:45,560 fund or who knows, it's just manual. 291 00:16:45,560 --> 00:16:47,120 And so there's a lot of work involved. 292 00:16:47,720 --> 00:16:49,840 And I'll, I'll generally not always come away with some 293 00:16:49,840 --> 00:16:52,280 insight about the business. That's very helpful going 294 00:16:52,280 --> 00:16:56,160 through that process. And a lot of times I'll run the 295 00:16:56,160 --> 00:16:59,120 gamut of people, whether it's competitors, customers, 296 00:16:59,400 --> 00:17:02,720 employees or former employees, suppliers or vendors or people 297 00:17:02,720 --> 00:17:05,040 adjacent to the business. And like I said, what I'm really 298 00:17:05,040 --> 00:17:08,119 trying to do in that process is determine what reality is, if I 299 00:17:08,119 --> 00:17:12,839 think a company can grow at 15% per year and they have 20% 300 00:17:12,839 --> 00:17:14,440 margins or something along those lines. 301 00:17:14,440 --> 00:17:17,560 I just want to sort of baseline to that and see what other 302 00:17:17,560 --> 00:17:20,520 people who operate in and around the industry or the business 303 00:17:20,520 --> 00:17:23,480 think and just get a kind of more wholesome picture of a 304 00:17:23,480 --> 00:17:26,599 company. And so it's become my preferred 305 00:17:26,599 --> 00:17:28,040 way of learning about a business. 306 00:17:28,040 --> 00:17:31,640 And it's also probably more fun than reading a 10K or so. 307 00:17:31,640 --> 00:17:33,800 And so I, I spend a lot more time doing that. 308 00:17:34,280 --> 00:17:39,360 And then I think over time those relationships will compounds not 309 00:17:39,360 --> 00:17:43,120 only my own learning, but just pattern recognition and the idea 310 00:17:43,120 --> 00:17:46,560 search because I can sometimes tap on that network when I don't 311 00:17:46,560 --> 00:17:49,920 know something or revisit a prior relationship when I'm 312 00:17:49,920 --> 00:17:53,160 trying to figure something out. And so that's become very 313 00:17:53,160 --> 00:17:57,800 different from the early version of the fund where I think great, 314 00:17:57,800 --> 00:18:00,240 the early Greystone was made-up of just statistically cheap 315 00:18:00,240 --> 00:18:03,800 micro caps and spent less time doing that and less time focused 316 00:18:03,800 --> 00:18:07,240 on business quality, etcetera. But that talking to people and 317 00:18:07,240 --> 00:18:10,800 scuttlebutt as you mentioned, has probably become a much 318 00:18:10,800 --> 00:18:13,200 bigger part of my process over the last couple of years. 319 00:18:14,480 --> 00:18:17,120 Yeah. Well, and it's, it's interesting 320 00:18:17,120 --> 00:18:22,560 that you've chosen to specialize in the small Cap universe, which 321 00:18:23,080 --> 00:18:26,040 is not the most loved universe in the world, right. 322 00:18:26,040 --> 00:18:31,040 So what about that universe sort of attracts you? 323 00:18:31,040 --> 00:18:34,280 Is it, is it something inherent? Is it that you think you have a 324 00:18:34,280 --> 00:18:37,640 scuttlebutt advantage or is it just kind of where the 325 00:18:37,640 --> 00:18:40,280 opportunities are? Yeah. 326 00:18:40,640 --> 00:18:46,360 You know, I ask myself that every day as I watch other parts 327 00:18:46,360 --> 00:18:49,040 of the market, you know, socks and other areas of the market go 328 00:18:49,080 --> 00:18:53,000 up every day. The short answer answer is I 329 00:18:53,000 --> 00:18:57,040 think that there is more opportunity in this area. 330 00:18:57,040 --> 00:19:00,480 And going back to to what I've said, what I said earlier about 331 00:19:00,480 --> 00:19:04,600 modern capital allocation, I'm not the first person to say 332 00:19:04,600 --> 00:19:09,320 this, but they're because of the way that because of the current 333 00:19:09,320 --> 00:19:12,360 structure of the market that's made-up of mostly passive 334 00:19:12,360 --> 00:19:16,160 investors and quantitative base strategies, which there are 335 00:19:16,160 --> 00:19:19,040 estimates all over the the place for the percentages here. 336 00:19:19,040 --> 00:19:23,040 But something around 80% or so of the market is made-up of 337 00:19:23,040 --> 00:19:25,320 passive investing and quantitative based strategies. 338 00:19:26,120 --> 00:19:29,960 I think JP Morgan or Goldman Sachs put out a study relating 339 00:19:29,960 --> 00:19:34,320 to this fairly recently. And the remaining active 340 00:19:34,320 --> 00:19:38,720 universe has changed drastically in the last couple of decade 341 00:19:38,720 --> 00:19:41,360 where the industry has gotten smaller as fees have compressed 342 00:19:41,560 --> 00:19:46,320 and is consolidated and active capital has moved into these 343 00:19:46,520 --> 00:19:49,440 really large asset managers or pod shops as people call them 344 00:19:49,720 --> 00:19:54,000 like Citadel or Bally Asney. And that is left those those 345 00:19:54,680 --> 00:19:58,080 those shops have such large amounts of assets that they can 346 00:19:58,240 --> 00:20:00,760 almost only focus on certain areas of the market like the 347 00:20:00,760 --> 00:20:04,880 largest, most liquid companies. And that has left a sort of wide 348 00:20:04,880 --> 00:20:09,480 open hole for companies in the small cap, even midcap space 349 00:20:10,280 --> 00:20:14,320 where they're overlooked and under followed and are more 350 00:20:14,320 --> 00:20:18,080 difficult to own. For some of these larger asset 351 00:20:18,080 --> 00:20:22,440 managers, and I think in some way that provides an advantage 352 00:20:22,440 --> 00:20:27,520 because there's a little bit of a, you know, information 353 00:20:27,520 --> 00:20:29,800 advantage that that's mostly been arbitraged away. 354 00:20:30,480 --> 00:20:33,320 There's a, a big time behavioral advantage if you're willing to 355 00:20:33,600 --> 00:20:37,840 sift to this area and own stocks, view stocks as ownership 356 00:20:37,840 --> 00:20:40,480 shares and businesses, which I do and own them for longer 357 00:20:40,480 --> 00:20:42,600 periods of time. Sometimes a small cap company 358 00:20:42,600 --> 00:20:46,120 might not work for years before it, you know, triples or 359 00:20:46,280 --> 00:20:48,480 quadruples. I have this conversation with 360 00:20:48,480 --> 00:20:51,640 investors all the time about about that dynamic. 361 00:20:51,680 --> 00:20:54,960 And and then there's a little bit of what I think is an 362 00:20:54,960 --> 00:20:59,520 interpretive advantage where by doing some of the work that 363 00:20:59,800 --> 00:21:03,760 we're doing, I think there's a way to interpret what's actually 364 00:21:03,760 --> 00:21:08,680 happening inside a business and distinguishing the narrative or 365 00:21:08,680 --> 00:21:11,520 the surface level stuff from the reality. 366 00:21:11,520 --> 00:21:16,640 And what what type of understanding how two different 367 00:21:16,640 --> 00:21:19,080 financial profiles could diverge, similar financial 368 00:21:19,080 --> 00:21:20,520 profiles could diverge over time. 369 00:21:20,520 --> 00:21:25,000 So for example, if in the small cap space, a lot of times 370 00:21:25,160 --> 00:21:28,640 businesses will be lumped into certain buckets, whether it's 371 00:21:28,640 --> 00:21:37,320 cyclical or low value add or M&AS value destructive or, you 372 00:21:37,320 --> 00:21:40,280 know, whatever the case may be that that mislabels a company on 373 00:21:40,280 --> 00:21:43,320 the surface. And a lot of times if you do the 374 00:21:43,320 --> 00:21:47,800 work and you talk to people and spend a lot of time on the 375 00:21:47,800 --> 00:21:50,480 actual advantage that a business has or peeling back the onion, 376 00:21:50,480 --> 00:21:54,160 so to speak, there's a, there's a way to define a differentiated 377 00:21:54,160 --> 00:21:56,120 insight about what the company actually is. 378 00:21:56,320 --> 00:21:58,880 And through that process, I think a lot of times you can 379 00:21:58,880 --> 00:22:01,600 find a business that's much higher quality than the market 380 00:22:01,600 --> 00:22:03,960 thinks it is. And there's a couple examples of 381 00:22:03,960 --> 00:22:06,680 that in the portfolio right now, which we can definitely talk 382 00:22:06,680 --> 00:22:09,080 about. But in the in the large cap 383 00:22:09,080 --> 00:22:12,840 space, it's a little bit harder. I find that it's certainly not 384 00:22:12,840 --> 00:22:15,920 impossible, but I find that it's much more difficult to find a 385 00:22:15,920 --> 00:22:20,400 true mispricing outside of a systemic event because of the 386 00:22:20,400 --> 00:22:23,000 amount of information flow and eyeballs on these businesses and 387 00:22:23,000 --> 00:22:25,920 the liquidity profiles. And so it's a combination of 388 00:22:25,920 --> 00:22:29,480 things, but I had, I'm also a little bit biased because I had 389 00:22:29,480 --> 00:22:32,520 some early success in micro caps and small caps and have kind of 390 00:22:32,520 --> 00:22:36,120 just leaned into that advantage. But as time has gone on, what 391 00:22:36,120 --> 00:22:40,120 I've realized is that I believe that there is a, there's an 392 00:22:40,160 --> 00:22:43,800 advantageous approach to finding these companies early and then 393 00:22:43,800 --> 00:22:45,800 being able to hold them for long periods of time. 394 00:22:46,360 --> 00:22:48,880 And you know, it's hard, not all these companies make it, but a 395 00:22:48,880 --> 00:22:52,600 business that goes from, you know, a $200 million market cap 396 00:22:52,600 --> 00:22:56,840 to a billion, we can own it at the $200 million level. 397 00:22:56,920 --> 00:22:59,960 And then at a billion, maybe it gets added to an index or 398 00:23:00,000 --> 00:23:03,200 institutional crowd starts to get involved and it becomes kind 399 00:23:03,200 --> 00:23:06,080 of a different maybe liquidity story overall, But people get 400 00:23:06,200 --> 00:23:09,720 more interested at that level. And whereas they weren't earlier 401 00:23:09,720 --> 00:23:12,160 because the company was small or maybe it was misperceived or 402 00:23:12,160 --> 00:23:13,400 mischaracterized as something else. 403 00:23:13,400 --> 00:23:18,200 So it's a combination of things. But I think that I think in the 404 00:23:18,200 --> 00:23:22,080 small cab area and midcap area, even like a $10 billion public 405 00:23:22,080 --> 00:23:23,720 company, I would argue with small these days. 406 00:23:24,040 --> 00:23:27,440 These days, I think those advantages kind of improve with 407 00:23:27,440 --> 00:23:30,360 experience and they compound across decisions. 408 00:23:30,360 --> 00:23:32,920 And they, I don't think it's something that can be arbitraged 409 00:23:32,920 --> 00:23:36,400 away at least yet. And it doesn't require a lot of 410 00:23:36,400 --> 00:23:38,400 size. And so a smaller fund that's 411 00:23:38,400 --> 00:23:41,840 kind of willing to cap assets, think like a business owner own 412 00:23:41,840 --> 00:23:44,680 businesses for a long term. It's a great place to to sort of 413 00:23:44,680 --> 00:23:47,640 fish. And the last thing I'll say is I 414 00:23:47,640 --> 00:23:51,000 think everybody read that amazing Colossus profile on 415 00:23:51,000 --> 00:23:53,360 Henry Ellenbogen and I hope that's how you pronounce his 416 00:23:53,360 --> 00:23:55,680 last name. I'm sorry if I butchered it. 417 00:23:56,320 --> 00:24:01,000 But he's, he's talked a lot about how how finding good 418 00:24:01,000 --> 00:24:04,520 companies early is a huge part of durable capital strategy and 419 00:24:04,520 --> 00:24:07,920 also how companies go through multiple iterations over their 420 00:24:07,920 --> 00:24:11,200 life cycle, sometimes starting out as one thing and then 421 00:24:11,520 --> 00:24:13,920 evolving into a completely different thing that the market 422 00:24:13,920 --> 00:24:16,480 doesn't understand. And being able to own and hold 423 00:24:16,480 --> 00:24:19,320 those companies through those periods can be some of the most 424 00:24:19,320 --> 00:24:23,760 lucrative investment returns because you're maybe not only 425 00:24:23,760 --> 00:24:26,280 having a chance to buy it at Lowe's when the market sells a 426 00:24:26,280 --> 00:24:28,080 stock off because they don't understand what's happening. 427 00:24:28,080 --> 00:24:33,400 But you are able to kind of, again, sort of enact that 428 00:24:33,400 --> 00:24:36,400 behavioral edge and think of stocks as as businesses as 429 00:24:36,400 --> 00:24:38,160 opposed to just, you know, trading vehicles. 430 00:24:38,160 --> 00:24:40,480 And so I, I couldn't agree more with what he said. 431 00:24:40,480 --> 00:24:43,040 And I think this area in general is just for those reasons 432 00:24:43,040 --> 00:24:45,480 provided a lot of really interesting advantages and 433 00:24:45,480 --> 00:24:50,800 opportunities to sift through. The letter that you wrote about 434 00:24:51,480 --> 00:24:54,440 a Moat, I'm going to butcher exactly what you said, but the 435 00:24:54,440 --> 00:24:56,800 good news is you're going to be here to to correct me. 436 00:24:56,800 --> 00:25:04,160 But the, the Moat is basically the output of a lot of small 437 00:25:04,160 --> 00:25:09,280 decisions that that create the conditions to solve problems 438 00:25:09,280 --> 00:25:12,160 down the road. I, I couldn't help. 439 00:25:12,160 --> 00:25:14,680 I don't know why my mind goes here, but I couldn't help but 440 00:25:14,680 --> 00:25:18,080 thinking about like there's an interview of Kobe when he's 441 00:25:18,080 --> 00:25:21,400 talking about when he's young, he would work on what he wasn't 442 00:25:21,400 --> 00:25:24,240 good at and the other people would work on what they were 443 00:25:24,240 --> 00:25:26,320 good at. So if you were a scout and 444 00:25:26,320 --> 00:25:30,320 you're watching a 15 year old game, you might see him, you 445 00:25:30,320 --> 00:25:33,640 know, going left when he's better right and, and clanking a 446 00:25:33,640 --> 00:25:39,480 shot that you know, the other guy is, is doing a drop step in 447 00:25:39,480 --> 00:25:42,640 dunking. But Kobe's mindset was, I don't 448 00:25:42,640 --> 00:25:44,520 care that you're going to beat me when I'm 15. 449 00:25:44,520 --> 00:25:47,920 I'm going to kick the crap out of you when we're 22 and, and 450 00:25:47,920 --> 00:25:53,240 later, right. So I get the sense that 451 00:25:53,240 --> 00:25:56,320 sometimes when these companies are younger, they're still 452 00:25:56,320 --> 00:25:59,440 trying to figure out where they're strong and where they're 453 00:25:59,440 --> 00:26:06,360 weak and how to how to sort of become stronger and get the, you 454 00:26:06,360 --> 00:26:08,160 know, find the magic somehow, right? 455 00:26:08,160 --> 00:26:11,760 I mean, a lot. There's there's the concept of 456 00:26:11,760 --> 00:26:14,560 overnight successes. I I think has been dispelled of, 457 00:26:14,560 --> 00:26:16,320 right? It's the ten years that no one 458 00:26:16,320 --> 00:26:17,680 heard of you. And then all of a sudden you're 459 00:26:17,680 --> 00:26:22,360 an overnight success. And I'm just kind of curious if 460 00:26:22,360 --> 00:26:24,920 anything that I said resonates with you and if you want to talk 461 00:26:24,920 --> 00:26:28,040 a little bit about the thoughts that you put down on paper about 462 00:26:28,040 --> 00:26:30,680 moats. A lot of what you said 463 00:26:30,680 --> 00:26:33,000 resonated, and we could take that in a lot of different 464 00:26:33,000 --> 00:26:35,720 directions. I'm was such a huge Kobe fan. 465 00:26:36,840 --> 00:26:40,560 Yeah, I don't know. I mean this, this may be one of 466 00:26:40,560 --> 00:26:45,520 the very few insights I've had over the last decade or so after 467 00:26:45,520 --> 00:26:49,320 reading a book from the 70s called Systematics that was 468 00:26:49,320 --> 00:26:51,840 written by a a machinist and a theorist. 469 00:26:52,400 --> 00:26:54,760 Just about the book is about complex systems and mostly about 470 00:26:54,760 --> 00:26:57,880 how they fail. And I just have found that to be 471 00:26:57,880 --> 00:27:02,000 a really interesting, excuse me, mental model for how to think 472 00:27:02,000 --> 00:27:04,800 about businesses and for generating investment ideas. 473 00:27:04,800 --> 00:27:08,400 And the idea is basically that kind of in what in line with 474 00:27:08,400 --> 00:27:12,360 what you're saying is that a complex system that works comes 475 00:27:12,360 --> 00:27:15,560 from a very simple system that worked and you can't sort of 476 00:27:15,560 --> 00:27:19,840 reverse engineer that process. And I learned that first hand in 477 00:27:19,840 --> 00:27:23,520 San Antonio as we were talking about, where decades of doing 478 00:27:23,520 --> 00:27:27,520 things one way made it so other teams could not replicate that 479 00:27:27,520 --> 00:27:29,600 because the advantage was the system itself. 480 00:27:30,000 --> 00:27:33,120 And that's a really powerful thing to look at through the 481 00:27:33,120 --> 00:27:35,160 lens of business. And it it's one of those things 482 00:27:35,160 --> 00:27:39,440 where I think once you see it, you can't Unsee it. 483 00:27:40,000 --> 00:27:43,640 And we have a couple, excuse me, we have a couple examples of 484 00:27:43,640 --> 00:27:46,920 that in the portfolio. In my last letter that I just 485 00:27:46,920 --> 00:27:50,000 put out, I wrote about Shift 4. And that's a great example of a 486 00:27:50,000 --> 00:27:54,080 business that has basically grown and iterated and evolved 487 00:27:54,080 --> 00:27:56,600 through cumulative learning, which has made the advantage 488 00:27:56,600 --> 00:27:59,160 that they have very difficult to replicate. 489 00:27:59,440 --> 00:28:03,360 And there we don't have to get into the business now, but a big 490 00:28:03,360 --> 00:28:07,440 part of their strategy is acquiring customers via M&A. 491 00:28:07,440 --> 00:28:10,440 So they'll buy a business with an embedded software piece of 492 00:28:10,440 --> 00:28:13,880 software and a customer list that they can then cross sell to 493 00:28:13,880 --> 00:28:18,000 their end to end payments. And that's a very different 494 00:28:18,000 --> 00:28:20,720 strategy than most of their competitors who lead with 495 00:28:20,720 --> 00:28:22,960 feature rich software and point of sale systems. 496 00:28:23,360 --> 00:28:27,160 And it's worked for them over time, not only because they 497 00:28:27,160 --> 00:28:29,440 figured out how to do it and integrate it well and cross sell 498 00:28:29,440 --> 00:28:33,040 their cross sell their payments, but also because 20 years ago 499 00:28:33,280 --> 00:28:36,120 they've been, they started out in the payments ecosystem as a 500 00:28:36,160 --> 00:28:39,840 simple processor, a reseller actually of processing systems. 501 00:28:40,320 --> 00:28:42,760 And they've sort of evolved over time to be at the forefront of 502 00:28:42,760 --> 00:28:44,520 every new development in payments. 503 00:28:44,520 --> 00:28:48,560 And so they have this like 2025 year head start on all of their 504 00:28:48,560 --> 00:28:51,240 competitors. And so when people say things 505 00:28:51,240 --> 00:28:54,560 like the M&A is value destructive or payment 506 00:28:54,560 --> 00:28:57,680 processing is commoditized or it adds no value, looking beneath 507 00:28:57,680 --> 00:28:59,840 the surface would reveal something very, very different. 508 00:28:59,840 --> 00:29:03,000 Not only that they, the economics of that business are a 509 00:29:03,000 --> 00:29:06,240 lot better, but that their advantage from solving these 510 00:29:06,240 --> 00:29:08,560 kind of like intractable problems, which is what I wrote 511 00:29:08,560 --> 00:29:11,360 about, has just grown over time and it's really hard to 512 00:29:11,360 --> 00:29:14,120 dislodge. Whereas if a company that has 513 00:29:14,120 --> 00:29:18,400 LED with feature rich point of sale software, they can't really 514 00:29:18,400 --> 00:29:21,960 just go buy, you know, full gateway capability, payment 515 00:29:21,960 --> 00:29:24,840 gateway capabilities or a merchant acquirer or try to 516 00:29:24,840 --> 00:29:27,560 enter into the payment space where they're capturing the full 517 00:29:27,560 --> 00:29:30,720 stack of end to end payments because they lack the learning 518 00:29:30,720 --> 00:29:33,040 that's embedded in the system that Shift 4 has created. 519 00:29:33,040 --> 00:29:36,760 And so I think that's just a very interesting concept. 520 00:29:36,760 --> 00:29:41,600 And there's a, there's a, we, we own a small position in Duolingo 521 00:29:41,600 --> 00:29:44,360 also, which has been a pretty controversial business to talk 522 00:29:44,360 --> 00:29:47,240 about, but it's, it's by all means an excellent business. 523 00:29:48,560 --> 00:29:50,680 The stock keeps going down, which is interesting. 524 00:29:51,560 --> 00:29:54,760 They've done a little bit of a strategy shift lately and, and 525 00:29:54,840 --> 00:29:58,480 we can talk about that, but they, they are involved in some 526 00:29:58,480 --> 00:30:02,160 of the same dynamics where the, the business didn't even really 527 00:30:02,160 --> 00:30:04,040 start out as a commercial product. 528 00:30:04,120 --> 00:30:07,640 And, and was, was just something that where the founder, who's 529 00:30:07,640 --> 00:30:11,280 very engineer based and he's a PhD from Carnegie Mellon, was 530 00:30:11,280 --> 00:30:13,960 just very interested in how you can help people learn a language 531 00:30:13,960 --> 00:30:17,200 more easily or learn anything. And they were almost anti 532 00:30:17,200 --> 00:30:20,200 commercial for a very long period of time since the 533 00:30:20,200 --> 00:30:22,360 inception of the business. And then finally took on some 534 00:30:22,360 --> 00:30:25,640 outside capital and decided to go public and saw a real 535 00:30:25,640 --> 00:30:26,880 opportunity there. And it's an, it's an 536 00:30:26,880 --> 00:30:29,480 unbelievable business. You know, they're growing 30% a 537 00:30:29,480 --> 00:30:32,200 year. They, they've got 35% free cash 538 00:30:32,200 --> 00:30:36,440 flow margins. And the interesting part about 539 00:30:36,440 --> 00:30:38,720 that business is that they wouldn't have made it. 540 00:30:38,920 --> 00:30:43,320 It, it's a consumer application business where they're 541 00:30:43,440 --> 00:30:47,000 basically, if you're not familiar, it's an app that you 542 00:30:47,000 --> 00:30:52,480 can use to learn a language. And what you see today, this 543 00:30:52,480 --> 00:30:56,560 very easy to use, gimmicky, almost cartoonish sort of app is 544 00:30:56,560 --> 00:31:02,440 the result of a decade plus of iteration and AB testing and 545 00:31:02,720 --> 00:31:06,240 trying to solve these problems for how people learn best, how 546 00:31:06,240 --> 00:31:09,960 to keep them engaged and what will keep them coming back to 547 00:31:09,960 --> 00:31:12,840 this thing that is very different from a Spanish class 548 00:31:12,840 --> 00:31:15,720 in high school or college or even some of the other learning 549 00:31:15,720 --> 00:31:18,360 software that's out there like Rosetta Stone or Language 550 00:31:18,360 --> 00:31:21,240 Transfer, etcetera. And so the answer is kind of 551 00:31:21,240 --> 00:31:24,280 what people often talk about Duolingo being disrupted by AI 552 00:31:24,280 --> 00:31:26,120 and how the barriers to entry are low and there's lots of 553 00:31:26,120 --> 00:31:28,040 competition. But I think that misses the 554 00:31:28,040 --> 00:31:35,360 point because Duolingos users solve 1.3 billion puzzles per 555 00:31:35,360 --> 00:31:38,440 day on the app, which is an advantage that can't be 556 00:31:38,440 --> 00:31:40,200 replicated. And they've scaled the business 557 00:31:40,200 --> 00:31:44,120 to 150 million daily active users. 558 00:31:44,120 --> 00:31:49,720 And there's, and they did it with almost no, no marketing 559 00:31:49,720 --> 00:31:52,200 spend, like they spend like 10% of their revenues on marketing. 560 00:31:52,640 --> 00:31:55,880 And so they've created this unbelievable brand, I'll call 561 00:31:55,880 --> 00:31:59,240 it, but also sort of flywheel of engagement and new user growth 562 00:31:59,480 --> 00:32:01,200 and people that are familiar with the business. 563 00:32:01,200 --> 00:32:04,760 And they did so at such a low cost because they are, it's 564 00:32:04,760 --> 00:32:08,960 really a business of engineers and they figured out how to keep 565 00:32:08,960 --> 00:32:12,360 people engaged for a very low cost, a very favorable customer 566 00:32:12,360 --> 00:32:16,120 acquisition and how to grow this sort of DAU flywheel that they 567 00:32:16,120 --> 00:32:18,040 have over time. Like once you join the app, 568 00:32:18,160 --> 00:32:21,200 you're kind of locked in, at least for the most part. 569 00:32:21,200 --> 00:32:23,880 And so why is that? What's that? 570 00:32:24,280 --> 00:32:27,000 Why is that? Well, there's a number of 571 00:32:27,000 --> 00:32:32,760 reasons, but they have they have figured out, they have created 572 00:32:32,760 --> 00:32:36,880 the most habit forming education application that I've ever seen 573 00:32:37,040 --> 00:32:40,960 in my life. And their, their engagement 574 00:32:40,960 --> 00:32:44,600 metrics rival that of Meta and some and Roblox and some of the 575 00:32:44,600 --> 00:32:48,040 other really large consumer application businesses because 576 00:32:48,040 --> 00:32:53,440 they have made the, the learning of language almost gamified. 577 00:32:53,440 --> 00:32:57,640 They have created this really interesting dynamic where you 578 00:32:57,640 --> 00:33:01,920 feel like you are being productive and you are, once you 579 00:33:01,920 --> 00:33:04,520 Start learning a language, you, you begin a streak. 580 00:33:04,520 --> 00:33:07,520 And keeping up with this daily streak has been really important 581 00:33:07,640 --> 00:33:10,320 to users and you reach certain milestones. 582 00:33:10,320 --> 00:33:13,200 And it's very different from all the other language apps that 583 00:33:13,200 --> 00:33:16,600 I've tried and I've studied and they've, you know, it's, it's 584 00:33:16,600 --> 00:33:19,640 very difficult to even explains a little bit, but it's, they've 585 00:33:19,640 --> 00:33:22,200 really figured out how to keep people engaged in this app. 586 00:33:22,200 --> 00:33:24,360 And they've also figured out how to do it while growing the 587 00:33:24,360 --> 00:33:29,400 business. And they've run, you know, 1516 588 00:33:29,400 --> 00:33:33,400 thousand or so AB tests per day about what works, what keeps 589 00:33:33,400 --> 00:33:36,040 people engaged, how to limit churn, what works in terms of 590 00:33:36,040 --> 00:33:39,360 monetization and just, you know, putting that all together, it 591 00:33:39,360 --> 00:33:41,640 becomes outside of how fast they're growing or what 592 00:33:41,640 --> 00:33:43,920 competitors are doing. It becomes a very interesting 593 00:33:44,200 --> 00:33:46,520 exercise. And if you wanted to replicate 594 00:33:46,680 --> 00:33:49,800 this business, you would have to figure out how to scale to that 595 00:33:49,800 --> 00:33:53,360 daily active user base with very limited capital while building a 596 00:33:53,360 --> 00:33:57,000 brand that people know and are familiar with and make it fun 597 00:33:57,000 --> 00:33:59,320 and, and educational and gamified. 598 00:33:59,480 --> 00:34:01,320 And so that people keep coming back to the app. 599 00:34:01,320 --> 00:34:05,920 And so that's a very interesting sort of intractable problem that 600 00:34:05,920 --> 00:34:07,760 I'll call. And it's something that they've 601 00:34:07,760 --> 00:34:10,639 really figured out where the data that they're bringing in 602 00:34:10,639 --> 00:34:15,040 from their application, as they learn more, their advantages get 603 00:34:15,040 --> 00:34:18,480 stronger because instead of, you know, repeat integration, like 604 00:34:18,480 --> 00:34:21,719 just bringing on a user in a vacuum, it's cumulative 605 00:34:21,719 --> 00:34:24,960 learning, which should compound over time about what works, what 606 00:34:24,960 --> 00:34:28,600 people like, what allows people to learn a language faster. 607 00:34:28,760 --> 00:34:31,080 They can then translate that to other subjects, like they've 608 00:34:31,080 --> 00:34:33,560 introduced music and piano lessons and things like that on 609 00:34:33,560 --> 00:34:34,679 the app. Oh, interesting. 610 00:34:35,080 --> 00:34:38,960 Yeah, and so anyway, I I've gone on about Duolingo, but. 611 00:34:38,960 --> 00:34:40,480 No, I think that's really interesting. 612 00:34:40,480 --> 00:34:43,880 I mean, I mean, to your point, I, I believe you said like the 613 00:34:43,880 --> 00:34:46,760 puzzles were, were something that can't be replicated. 614 00:34:47,159 --> 00:34:52,800 And my mind sort of went like, well, the puzzle itself could be 615 00:34:52,800 --> 00:34:54,159 replicated right? Like that. 616 00:34:54,159 --> 00:34:56,760 But that's, that's not the insight. 617 00:34:56,760 --> 00:35:03,720 The insight is the, the culture of AB testing and trying to 618 00:35:03,720 --> 00:35:06,360 think about what's the most effective way to help people 619 00:35:06,360 --> 00:35:11,240 learn this and then developing a puzzle and then looking at how 620 00:35:11,240 --> 00:35:15,080 the, the user behavior is changing. 621 00:35:15,080 --> 00:35:18,720 Like, that's the stuff that's really, really easy to say can 622 00:35:18,720 --> 00:35:22,360 be replicated, but really hard to actually replicate because it 623 00:35:22,360 --> 00:35:26,280 requires a way of being in order to replicate it. 624 00:35:27,760 --> 00:35:30,560 I agree with that. And there's also a path 625 00:35:30,560 --> 00:35:34,320 dependence and kind of evolutionary selection there 626 00:35:34,320 --> 00:35:36,440 too. And I feel this way with another 627 00:35:36,440 --> 00:35:39,520 one of our businesses and Kits eye care is that, you know, 628 00:35:39,520 --> 00:35:44,000 Duolingo was not AVC funded. Let's capture this massive Tam 629 00:35:44,000 --> 00:35:46,640 of language learning and throw a bunch of money at it. 630 00:35:46,640 --> 00:35:49,000 And we'll monetize the crap out of everything. 631 00:35:49,000 --> 00:35:53,280 And we'll, we'll make our money back down the road when we get 632 00:35:53,280 --> 00:35:56,200 the kak LTV thing, right? And we'll just again, funnel, 633 00:35:56,200 --> 00:35:58,320 funnel a bunch of money into marketing and make it work. 634 00:35:58,880 --> 00:36:02,760 It was the the founder of the business, a guy named Louis von 635 00:36:02,760 --> 00:36:05,200 Ahn, is again APHD from Carnegie Mellon. 636 00:36:05,760 --> 00:36:09,200 He founded CAPTCHA. You know the the verification 637 00:36:09,200 --> 00:36:09,480 app? Yeah. 638 00:36:09,680 --> 00:36:11,400 Yeah, yeah. And he sold it to Google. 639 00:36:11,400 --> 00:36:13,760 I can't remember the year, but he made a bunch of money before 640 00:36:13,760 --> 00:36:16,000 starting Duolingo. And then he founded the business 641 00:36:16,000 --> 00:36:18,160 with one of his PhD students at Carnegie Mellon. 642 00:36:18,720 --> 00:36:21,600 And so from day one he was a, he's a very long term thinker. 643 00:36:21,800 --> 00:36:25,120 He's an owner operator and he wasn't worried about, I think 644 00:36:25,120 --> 00:36:28,640 like what most maybe VC type of businesses are worried about, 645 00:36:28,640 --> 00:36:31,360 which is monetization. It's almost like had to, I think 646 00:36:31,360 --> 00:36:34,160 early backers of the company had to figure out if he was allergic 647 00:36:34,160 --> 00:36:37,400 to money, so to speak. And he just what he just was 648 00:36:37,400 --> 00:36:39,440 just did monetization for a very long time. 649 00:36:39,760 --> 00:36:43,600 And that's very interesting to me because early constraints in 650 00:36:43,600 --> 00:36:46,760 a business, I think determine what a company becomes good at 651 00:36:46,920 --> 00:36:50,840 and funding is not neutral. I think it shapes behavior a lot 652 00:36:50,840 --> 00:36:54,840 and V CS, VC capital or venture capital in my view. 653 00:36:55,280 --> 00:36:57,680 I'm not an expert so take this with a grain of salt. 654 00:36:57,880 --> 00:37:01,880 I think works best in sort of tractable, easily solvable. 655 00:37:01,880 --> 00:37:05,240 We can throw money at this winner take most markets, but 656 00:37:05,240 --> 00:37:08,240 something like Duolingo or integrating payments and 657 00:37:08,240 --> 00:37:13,600 software and hardware or manufacturing eyeglasses for 1/3 658 00:37:13,600 --> 00:37:16,400 of the price that their competitors do and still being 659 00:37:16,400 --> 00:37:19,840 profitable on them, that that is an intractable problem that 660 00:37:19,840 --> 00:37:23,360 funding alone can't solve. And so I like to find these 661 00:37:23,360 --> 00:37:27,200 businesses where they have these constraint driven advantages 662 00:37:27,200 --> 00:37:33,920 where either either self self-imposed or just because for 663 00:37:34,000 --> 00:37:37,160 of resources where they're unable to spend and that forces 664 00:37:37,160 --> 00:37:39,880 different solutions. And those solutions often look 665 00:37:40,120 --> 00:37:43,480 inferior early or and and superior later, which is very 666 00:37:43,480 --> 00:37:46,240 interesting to me. And so there's a couple 667 00:37:46,320 --> 00:37:48,200 businesses that fit that theme in the portfolio. 668 00:37:48,200 --> 00:37:51,240 But I think you're right, it's there's a path dependence there 669 00:37:51,240 --> 00:37:53,360 that would be very difficult to replicate. 670 00:37:53,360 --> 00:37:56,280 Not that people can't create another language learning app or 671 00:37:56,400 --> 00:38:00,080 that AI can't help as well, but I think I see this narrative a 672 00:38:00,080 --> 00:38:01,960 lot where it's like Duolingo doesn't bring you to full 673 00:38:01,960 --> 00:38:05,080 fluency and that's fine, but that misses the point in my 674 00:38:05,080 --> 00:38:06,440 view. I don't think that is the point. 675 00:38:06,440 --> 00:38:08,760 I think the point is they figured out how to keep people 676 00:38:08,760 --> 00:38:12,600 engaged in the same way that watching reels on meta all day 677 00:38:12,720 --> 00:38:15,160 keeps people engaged. The utility there is. 678 00:38:15,160 --> 00:38:17,800 I'm not comparing Duolingo to Meta, but the utility there is 679 00:38:17,800 --> 00:38:21,640 very low in my opinion, whereas at least I think that's I think 680 00:38:21,640 --> 00:38:23,400 you can. Objectively say it's low 681 00:38:23,400 --> 00:38:25,560 utility. I don't know why. 682 00:38:25,560 --> 00:38:27,760 I don't know that we have to call that opinion on this show. 683 00:38:28,280 --> 00:38:28,920 Sure. All right. 684 00:38:28,920 --> 00:38:30,480 Fair enough. We're not we're not. 685 00:38:30,760 --> 00:38:34,000 We're not judging those that want to use the some of their 686 00:38:34,000 --> 00:38:37,360 time in a lower utility manner. We're just saying that if you're 687 00:38:37,360 --> 00:38:40,960 flipping through looking at hedonistic things, it's probably 688 00:38:40,960 --> 00:38:45,200 not as good for your mental ability as learning a language. 689 00:38:45,200 --> 00:38:48,080 That's that's the only comment. Correct. 690 00:38:48,160 --> 00:38:52,800 You said it, not me. It's the easier to monetize 691 00:38:52,800 --> 00:38:57,000 hedonism though, but that's it. That's really interesting the 692 00:38:57,160 --> 00:39:02,360 your point on not not bringing people to fluency. 693 00:39:03,560 --> 00:39:06,240 My kid is trying to learn a language now. 694 00:39:06,280 --> 00:39:09,600 He's not going to get fluent. It's actually on Duolingo, but I 695 00:39:09,600 --> 00:39:12,600 kind of view it as well. He might get fluent, but that'll 696 00:39:12,600 --> 00:39:15,400 be from speaking to his mother, not the, the language. 697 00:39:15,720 --> 00:39:21,320 But I, I kind of, I like that he's exercising his brain in a 698 00:39:21,320 --> 00:39:22,920 way that I think builds the muscle. 699 00:39:22,920 --> 00:39:27,360 I don't really care about the end outcome, you know? 700 00:39:27,360 --> 00:39:30,520 Like, I mean, I don't know, eventually that muscle being 701 00:39:30,520 --> 00:39:33,240 exercised will benefit him in some way, shape or form. 702 00:39:34,800 --> 00:39:38,560 So that's interesting. The current I, I would agree 703 00:39:38,560 --> 00:39:42,160 with that. I've put my 4 1/2 year old 704 00:39:42,160 --> 00:39:46,840 daughter on to Duolingo and she loves it and it's very gamey to 705 00:39:46,840 --> 00:39:48,560 her. And so that's, that's been fun 706 00:39:48,560 --> 00:39:51,960 to just watch. As a side note, but to set the 707 00:39:51,960 --> 00:39:55,120 stage here and and I'm not pitching the stock just to 708 00:39:55,360 --> 00:39:59,320 provide some context, the sort of debate now Duolingo stock is 709 00:39:59,320 --> 00:40:01,760 down significantly from last year and they were growing 710 00:40:01,760 --> 00:40:05,680 really, really fast and they were Daus were, were growing 711 00:40:05,680 --> 00:40:08,680 significantly during the past couple of years and they were 712 00:40:08,680 --> 00:40:12,320 monetizing really nicely. And this current debate, I 713 00:40:12,320 --> 00:40:14,960 believe around the business not only is that AI will kind of 714 00:40:14,960 --> 00:40:20,720 disrupt their advantages, but also that they're in the middle 715 00:40:20,720 --> 00:40:23,880 of a strategy shift where they are going to focus less on 716 00:40:23,880 --> 00:40:27,040 monetization and more on what they call improving teaching 717 00:40:27,040 --> 00:40:29,800 outcomes. And what I think is behind that 718 00:40:29,800 --> 00:40:33,560 is that management has, management has incorporated AI 719 00:40:33,560 --> 00:40:36,320 into the app in a big way. And what they've realized is 720 00:40:36,320 --> 00:40:39,280 that as these capabilities get better over time, they have the 721 00:40:39,280 --> 00:40:43,240 opportunity to do a lot more things using AI, whether that's 722 00:40:43,240 --> 00:40:46,960 additional languages or improving, excuse me, additional 723 00:40:46,960 --> 00:40:48,960 subjects or improving the languages that they are 724 00:40:48,960 --> 00:40:51,800 teaching. And really leaning into becoming 725 00:40:51,800 --> 00:40:56,280 a, an application where you can log on or you can sign on and 726 00:40:56,280 --> 00:41:00,240 have AAI based tutor teaching you a language in the same way 727 00:41:00,240 --> 00:41:02,160 that you would a human. Now, obviously we're not there 728 00:41:02,160 --> 00:41:04,880 yet, but that's the long term vision for management. 729 00:41:05,440 --> 00:41:08,040 And it's, they've sort of muddied the short term picture 730 00:41:08,040 --> 00:41:11,880 in a way by saying that instead of focusing on just converting 731 00:41:11,880 --> 00:41:14,880 every free user to pay that we can, we're going to take a step 732 00:41:14,880 --> 00:41:18,480 back and try to make the app as as great as possible and as 733 00:41:18,480 --> 00:41:21,440 useful as possible. That's interesting to me because 734 00:41:21,640 --> 00:41:24,240 the majority of Duolingos users are free. 735 00:41:24,440 --> 00:41:28,080 And one of the things that in terms of their advantages, one 736 00:41:28,080 --> 00:41:29,840 of the things that I think is interesting is that they've 737 00:41:29,840 --> 00:41:33,440 created such a great free product that you don't have to 738 00:41:33,560 --> 00:41:37,200 join a paid tier to get most of the advantages of being on 739 00:41:37,200 --> 00:41:39,840 Duolingo. So I would say between 75 and 740 00:41:39,840 --> 00:41:44,320 80% of what a paid user gets, you can, you can get for free on 741 00:41:44,320 --> 00:41:46,800 the app and that's intentional. And so right now I think it's 742 00:41:46,800 --> 00:41:49,720 under 10% of their users are monetized and it was growing at 743 00:41:49,720 --> 00:41:52,520 a nice clip, maybe about half a percentage point per quarter 744 00:41:52,520 --> 00:41:54,760 over the last couple of years. So they've done a really good 745 00:41:54,760 --> 00:41:58,040 job of monetizing and it is growing over time, but it's kind 746 00:41:58,040 --> 00:42:02,360 of like a small subset of their users subsidized the remaining 747 00:42:02,360 --> 00:42:04,240 users. And I, I think it will probably 748 00:42:04,240 --> 00:42:07,720 be that way just given the, the demographics they target and the 749 00:42:07,720 --> 00:42:12,320 countries that they're in and the wealth, the, the income 750 00:42:12,320 --> 00:42:15,280 statistics in each country and how that translates to free 751 00:42:15,280 --> 00:42:18,480 versus paid users. But the interesting thing there 752 00:42:18,480 --> 00:42:21,800 is that they, they basically came out and said, we're going 753 00:42:21,800 --> 00:42:23,880 to focus on making the app better and teaching better. 754 00:42:23,880 --> 00:42:26,040 And we have these opportunities with AI to do this. 755 00:42:26,280 --> 00:42:28,840 And the market kind of took that as there's a real problem here. 756 00:42:29,160 --> 00:42:31,320 DAU growth is going to slow considerably. 757 00:42:31,320 --> 00:42:34,600 It was in the 30 percentage range and we have a real issue 758 00:42:34,600 --> 00:42:36,000 with that. And at the same time, the 759 00:42:36,000 --> 00:42:40,200 business was trading at 5560 times free cash flow and it was 760 00:42:40,200 --> 00:42:45,400 growing, you know, 3540% a year. But when you say 55 times free 761 00:42:45,400 --> 00:42:47,840 cash flow, when you say well, growth might slow a little bit 762 00:42:47,840 --> 00:42:49,600 on the DAU side. Yeah, that does matter. 763 00:42:49,600 --> 00:42:51,840 People don't like that and especially when we're in a 764 00:42:51,840 --> 00:42:55,400 little bit of bubbly territory. And so the stock has come down I 765 00:42:55,400 --> 00:43:00,600 think from you know, 500 or so to like a 137 a share today and 766 00:43:00,600 --> 00:43:03,280 trades at maybe 1314 times free cash flow. 767 00:43:03,280 --> 00:43:05,400 I'm not sure. But there's still a real path 768 00:43:05,400 --> 00:43:08,640 for them to grow 30% from here. That's the interesting part is 769 00:43:08,640 --> 00:43:12,400 that the the CEO came out in the last call and he said we're 770 00:43:12,400 --> 00:43:14,880 going to change the strategy up a bit and focus less on 771 00:43:14,880 --> 00:43:16,760 monetization and people went crazy. 772 00:43:17,080 --> 00:43:19,480 But then the CFO on the same call, it kind of walked it back 773 00:43:19,480 --> 00:43:22,000 a little bit and was like, well, just so you know, this is a 774 00:43:22,400 --> 00:43:25,240 couple quarter thing and there's not going to be a real slow down 775 00:43:25,240 --> 00:43:27,560 or step change in the business and we should be fine. 776 00:43:27,560 --> 00:43:29,840 And so it's an interesting dynamic to work through. 777 00:43:29,840 --> 00:43:32,400 I, I really would like to see a little bit more evidence 778 00:43:32,400 --> 00:43:35,600 maturity of the strategy shift and what they're doing and to 779 00:43:35,600 --> 00:43:37,840 make sure that DEU growth doesn't fall off a Cliff. 780 00:43:37,840 --> 00:43:39,920 But that's the current debate right now. 781 00:43:39,920 --> 00:43:43,640 And I think if they get, if they end up to your point about your, 782 00:43:43,640 --> 00:43:46,400 your kids, there will be a point, I believe, whether it's, 783 00:43:46,440 --> 00:43:50,080 you know, 1020 years from now or five years from now, where they 784 00:43:50,080 --> 00:43:54,360 can make the AI product so good that it replicates a human 785 00:43:54,360 --> 00:43:56,600 being. And so then, then the, the kind 786 00:43:56,600 --> 00:43:58,600 of Sky's the limit with additional subjects and that 787 00:43:58,600 --> 00:43:59,960 sort of thing. And so I think that's a very, 788 00:43:59,960 --> 00:44:02,760 it's a very interesting sort of long term use case and a long 789 00:44:02,800 --> 00:44:04,880 longer term investment case for the business. 790 00:44:04,880 --> 00:44:07,600 But yeah, there's, there's, there's certainly feeling it 791 00:44:07,600 --> 00:44:10,520 right now, I think. Well, that's that's interesting 792 00:44:10,520 --> 00:44:14,960 because the founder is a teacher. 793 00:44:15,080 --> 00:44:18,000 Assume I I assume right? Unless he's just a researcher at 794 00:44:18,000 --> 00:44:19,160 Carnegie. Mellon an engineer? 795 00:44:19,200 --> 00:44:20,160 I think he's a. Teacher. 796 00:44:20,320 --> 00:44:23,880 Yeah, I mean, his passion is helping people learn in this in 797 00:44:23,880 --> 00:44:33,840 this endeavor. Yeah, I he according to the fact 798 00:44:33,840 --> 00:44:36,800 pattern that I understand and I may be wrong, but if he's 799 00:44:36,800 --> 00:44:41,000 wealthy and he's looking for the best outcomes, it's one of those 800 00:44:41,000 --> 00:44:45,040 situations where, yeah, it's almost like an asset liability 801 00:44:45,040 --> 00:44:48,440 mismatch potentially where the shareholder base and the the 802 00:44:48,440 --> 00:44:52,520 actual controller of the entity have slightly different 803 00:44:52,520 --> 00:44:55,560 incentives. But in the long term, they, they 804 00:44:55,560 --> 00:45:00,000 may converge and even the, the, the medium to short term pain 805 00:45:00,000 --> 00:45:02,720 may create a much better long term outcome. 806 00:45:03,240 --> 00:45:07,960 But yeah, that can create some indigestion in the short term 807 00:45:07,960 --> 00:45:11,240 with the stock price. But that's how, how you're 808 00:45:11,240 --> 00:45:15,280 discussing this is one of those that's, that's one that I would 809 00:45:15,280 --> 00:45:17,320 like to have that kind of idea on my desk. 810 00:45:17,320 --> 00:45:18,520 And now I do. So thank you. 811 00:45:18,800 --> 00:45:20,400 I hope you're enjoying this conversation. 812 00:45:21,320 --> 00:45:24,360 I wanted to interrupt the program to give you a little 813 00:45:24,360 --> 00:45:28,960 sense of what Trata may have for you and I'm going to read you a 814 00:45:29,080 --> 00:45:35,120 a little excerpt of a transcript as a 1/21/26. 815 00:45:35,920 --> 00:45:38,560 The analyst says. I don't think of Duolingo as an 816 00:45:38,560 --> 00:45:41,160 education or an Ed tech in the traditional sense. 817 00:45:41,160 --> 00:45:44,120 I think of it as a habit forming consumer platform, something 818 00:45:44,120 --> 00:45:47,880 closer to Spotify or TikTok in terms of engagement, but with 819 00:45:47,880 --> 00:45:49,960 very different monetization constraints. 820 00:45:50,440 --> 00:45:52,720 I don't think the Moat is content to me. 821 00:45:52,880 --> 00:45:55,320 The content could be commoditized, it could be built 822 00:45:55,320 --> 00:45:57,360 by somebody else. Especially with generative. 823 00:45:57,360 --> 00:46:01,160 AII think the Moat is admin brand and distribution. 824 00:46:01,600 --> 00:46:04,960 If you line up Duolingo against other consumer apps in terms of 825 00:46:04,960 --> 00:46:08,320 growth rates, user base, and engagement time, I don't know if 826 00:46:08,320 --> 00:46:10,080 it has a peer in those categories. 827 00:46:10,400 --> 00:46:13,360 Roblox is a really good example, but Roblox hasn't figured out 828 00:46:13,360 --> 00:46:14,800 how to make money. I'm not sure. 829 00:46:14,800 --> 00:46:18,200 I as a side, I'm not sure I agree with that, but I digress. 830 00:46:18,680 --> 00:46:21,960 Duolingo has significant operating leverage and it's 831 00:46:21,960 --> 00:46:26,040 pretty clean cash flow too. As you mentioned, if you break 832 00:46:26,040 --> 00:46:28,480 that habit loop, I think the entire model degrades very 833 00:46:28,480 --> 00:46:30,680 quickly. That's why I'm cautious around 834 00:46:30,680 --> 00:46:33,120 what they're doing. Again, these are the kind of 835 00:46:33,120 --> 00:46:37,880 insights that you can get in try at Tri Trata go to Tri Trata 836 00:46:37,880 --> 00:46:41,440 forward slash brew for a free trial. 837 00:46:44,640 --> 00:46:48,760 And once again, the other sponsor of the show, fiscal dot 838 00:46:48,760 --> 00:46:52,320 AI Braden has been a sponsor in the past. 839 00:46:52,320 --> 00:46:56,120 He was one of the OG sponsors. He's a sponsor now. 840 00:46:56,560 --> 00:47:00,480 Fiscal dot AI forward slash brew gets you 15% off everything. 841 00:47:00,480 --> 00:47:04,560 They offer high quality data. It's they're super fast. 842 00:47:05,040 --> 00:47:07,480 If you run a business, they think that they can save you 843 00:47:07,480 --> 00:47:09,840 money if you need the data from them. 844 00:47:09,840 --> 00:47:12,600 So I highly encourage you to reach out to him and his team. 845 00:47:13,000 --> 00:47:14,920 I'm trying to help you save money. 846 00:47:14,920 --> 00:47:18,120 He's trying to help you save money, help yourself save money. 847 00:47:18,440 --> 00:47:20,400 Fiscal dot AI forward slash brew. 848 00:47:23,640 --> 00:47:26,200 But those those are great situations, you know, because 849 00:47:26,560 --> 00:47:30,800 not only that, like, I don't mean to be so I had no idea 850 00:47:30,800 --> 00:47:33,320 we're going to talk about this, but I like these kind of ideas 851 00:47:33,320 --> 00:47:35,640 because I do think that they have a way of making the world 852 00:47:35,640 --> 00:47:39,240 better too, like in in some way, right? 853 00:47:39,240 --> 00:47:41,560 And that's that's positive. I feel like having that in your 854 00:47:41,560 --> 00:47:44,960 life is a good thing, especially when when you can make money 855 00:47:44,960 --> 00:47:48,480 doing it. Absolutely, I am biased so I 856 00:47:48,480 --> 00:47:50,120 will I will agree with that take. 857 00:47:50,480 --> 00:47:54,000 But it is a very interesting like what whatever your opinion 858 00:47:54,000 --> 00:48:00,200 is on the stock or, or or the product, excuse me, the it's an 859 00:48:00,200 --> 00:48:02,280 excellent business. I mean, there's no denying that. 860 00:48:02,280 --> 00:48:05,920 And now I've really sound like I'm talking my book, but you 861 00:48:05,920 --> 00:48:08,000 know, it's a five and a half 6 billion market cap. 862 00:48:08,000 --> 00:48:11,280 There's a billion dollars in cash on the balance sheet and 863 00:48:11,280 --> 00:48:13,520 they're growing, you know, there's a path for that for them 864 00:48:13,520 --> 00:48:17,200 to grow 30% per year from here and you know, with ridiculous 865 00:48:17,200 --> 00:48:19,840 free cash flow. So the, the setup you described 866 00:48:19,840 --> 00:48:22,720 earlier with the, with the found the CEO and founder, it's not my 867 00:48:22,720 --> 00:48:27,040 favorite because you know, a they should be buying back stock 868 00:48:27,040 --> 00:48:31,840 right now. There's there may be a sort of 869 00:48:31,840 --> 00:48:34,560 short term, long term mismatch, which is OK for me just thinking 870 00:48:34,560 --> 00:48:38,440 about things long term, but there are some, the reason why 871 00:48:38,440 --> 00:48:40,640 it's a smaller position is there, there are some dynamics 872 00:48:40,640 --> 00:48:43,040 that I would like to see play out before, you know, really 873 00:48:43,040 --> 00:48:45,400 diving in here And so, but it, but it is an excellent business 874 00:48:45,400 --> 00:48:48,800 and one that if you would love some pushback and criticism on. 875 00:48:49,400 --> 00:48:52,920 Yeah, yeah. And to the listeners, please do 876 00:48:52,920 --> 00:48:55,920 reach out to Adam with some pushback as long as it's 877 00:48:55,920 --> 00:48:57,920 thoughtful. That's interesting, man. 878 00:48:57,920 --> 00:48:59,120 Well, thank you for sharing that. 879 00:48:59,360 --> 00:49:02,400 I like those Garpy ideas. That's that's where I've, I've 880 00:49:02,400 --> 00:49:06,560 sort of morphed a little bit more to, I feel like, and this 881 00:49:06,560 --> 00:49:09,160 could be wrong. I, I skimmed some of your old 882 00:49:09,160 --> 00:49:11,800 letters. It seems to me that you've done 883 00:49:11,800 --> 00:49:15,360 a little bit more of a cheap to quality, growthy type thought. 884 00:49:15,360 --> 00:49:19,320 Is that a fair characterization of your metamorphosis as an 885 00:49:19,320 --> 00:49:20,800 investor? Very. 886 00:49:21,400 --> 00:49:25,640 So it's what were these lessons that the hot stoves you touched 887 00:49:25,640 --> 00:49:28,480 that changed who you are? All right. 888 00:49:28,480 --> 00:49:31,000 Well, how much time do you have? We have to extend the the 889 00:49:31,000 --> 00:49:34,520 podcast and. We, we got all the time in the 890 00:49:34,520 --> 00:49:38,440 world, but you know, like, like one that I, I thought was a, a 891 00:49:38,440 --> 00:49:44,880 pretty interesting example was your Libsyn investment to be 892 00:49:44,880 --> 00:49:48,760 able to, to sort of not hang on to the idea that, hey, this is a 893 00:49:48,760 --> 00:49:53,920 hosting platform and podcasts are growth, you know, outlook. 894 00:49:54,040 --> 00:49:56,920 Like it's good to flip on an idea when you, when you sort of 895 00:49:56,920 --> 00:49:59,160 see stuff deteriorate that you didn't think. 896 00:49:59,160 --> 00:50:01,800 And I don't know that that necessarily fell into your cheap 897 00:50:01,800 --> 00:50:04,040 basket that that created the change. 898 00:50:04,040 --> 00:50:07,720 But I remember looking at that once and I was like, man, this 899 00:50:07,720 --> 00:50:09,920 looks pretty cheap for the growth that might be there. 900 00:50:09,920 --> 00:50:11,600 And then it just kind of never materialized. 901 00:50:11,600 --> 00:50:13,800 Spotify gobbled up a lot of share, I think. 902 00:50:14,840 --> 00:50:16,360 Yeah. Wow. 903 00:50:16,440 --> 00:50:18,720 That, that, that example, it's been so long. 904 00:50:18,720 --> 00:50:21,240 I I haven't been close to that business in a while, so I don't 905 00:50:21,240 --> 00:50:23,040 know how intelligently I can speak about it, but. 906 00:50:23,040 --> 00:50:25,520 They were my first hosting platform, which is why I kind of 907 00:50:25,520 --> 00:50:28,640 got interested in it. Yeah, that's interesting. 908 00:50:28,840 --> 00:50:31,520 I remember there being some dynamics with the business 909 00:50:31,880 --> 00:50:36,000 itself and I think I may have been wrong about the economics 910 00:50:36,000 --> 00:50:39,960 or how competitive the industry was and where they would end up. 911 00:50:40,080 --> 00:50:42,400 I I can't remember well you. Know what was tough? 912 00:50:42,400 --> 00:50:47,360 Spotify contacted me and they said, you know, basically we're 913 00:50:47,360 --> 00:50:52,120 releasing video podcasts and all you have to do in order to have 914 00:50:52,120 --> 00:50:54,440 a video is move your hosting over here. 915 00:50:54,440 --> 00:50:56,600 And by the way, it doesn't cost anything. 916 00:50:57,200 --> 00:50:59,160 And if you don't, you can't have video. 917 00:50:59,760 --> 00:51:02,160 And they I was like, all right, well, there you go. 918 00:51:03,120 --> 00:51:06,280 So that's that's what stole me. And I was I went from a paying 919 00:51:06,280 --> 00:51:08,600 customer to a non paying customer. 920 00:51:08,600 --> 00:51:12,160 Yet I'm sure one day they will turn the screws on me. 921 00:51:12,600 --> 00:51:16,040 But it was that that was a real competitive threat that I 922 00:51:16,040 --> 00:51:18,280 thought changed that. Well, the industry is 923 00:51:18,280 --> 00:51:21,400 interesting to me and the growth of podcast is interesting and 924 00:51:21,560 --> 00:51:24,600 they had, I believe, a little bit of a competitive advantage 925 00:51:25,680 --> 00:51:28,920 in some way, just with the, the platform and maybe their price 926 00:51:28,920 --> 00:51:31,080 and ease of use. I, I can't remember exactly, but 927 00:51:31,440 --> 00:51:34,680 I, I mean, at the end of the day, do you really care? 928 00:51:34,680 --> 00:51:37,280 Maybe now you do today if you have a show like yours, but do 929 00:51:37,280 --> 00:51:39,600 you really care if you're starting a podcast who the host 930 00:51:39,600 --> 00:51:41,520 is? And isn't it more just about 931 00:51:41,520 --> 00:51:44,440 getting the content out and they're taking a lowest price or 932 00:51:44,440 --> 00:51:46,360 however that works? I'm not sure you can. 933 00:51:46,360 --> 00:51:48,120 Yeah. I I would argue the lowest price 934 00:51:48,280 --> 00:51:51,080 with the ability to distribute. Those are like the two things 935 00:51:51,080 --> 00:51:53,840 you care about. Yeah, and I, I think I remember 936 00:51:53,840 --> 00:51:57,080 that at some point every hosting platform just developed the 937 00:51:57,080 --> 00:52:00,040 capabilities that Libsyn had, which maybe were unique early on 938 00:52:00,040 --> 00:52:02,640 and not so much later down the road. 939 00:52:03,040 --> 00:52:04,400 But again, it's, it's been a while. 940 00:52:04,400 --> 00:52:06,760 I can't remember. I mean, I hot stoves, I, I've 941 00:52:06,760 --> 00:52:10,640 touched a lot. And there's this entire, you 942 00:52:10,640 --> 00:52:13,280 know, the past decade plus has just been a process of learning 943 00:52:13,280 --> 00:52:16,800 and evolving and trying to update my views on things and 944 00:52:16,800 --> 00:52:20,120 really dig into my biases and where my weaknesses are and try 945 00:52:20,120 --> 00:52:23,600 to just get better at, you know, becoming a better portfolio 946 00:52:23,600 --> 00:52:26,760 manager and analyst and looking at companies in a different way. 947 00:52:26,760 --> 00:52:30,000 And that process has just naturally led me to higher 948 00:52:30,000 --> 00:52:31,760 quality, whether it's people or business. 949 00:52:31,760 --> 00:52:35,600 And it is a result of a lot of mistakes, but also the result of 950 00:52:35,600 --> 00:52:38,600 just kind of soul searching about how I want to run my 951 00:52:38,920 --> 00:52:41,600 manage my fund. And because it's mostly my 952 00:52:41,600 --> 00:52:44,760 capital, not mostly excuse me, because a large percentage of my 953 00:52:44,760 --> 00:52:47,560 net worth is in the fund and I'm one of the largest investors. 954 00:52:48,040 --> 00:52:50,720 It's really important to me that as I was saying earlier that 955 00:52:50,720 --> 00:52:54,080 this the capital is sort of managed in the way that I think 956 00:52:54,080 --> 00:52:55,880 is correct for the next couple of decades. 957 00:52:56,560 --> 00:52:59,080 And there's just so many businesses in the small cap 958 00:52:59,080 --> 00:53:01,520 space, the micro cap space are just in general that can't 959 00:53:01,520 --> 00:53:05,480 really hit that long term compounding escape velocity as 960 00:53:05,480 --> 00:53:07,880 I'll call it. Where you can get a business to 961 00:53:07,880 --> 00:53:12,200 go from you know 100 million in EBITDA to a billion or whatever 962 00:53:12,200 --> 00:53:15,920 the case is where you can really get the return, the types of 963 00:53:15,920 --> 00:53:19,400 returns and sort of long term out long term return profile 964 00:53:19,400 --> 00:53:22,480 that I'm looking for. And so I'm looking for those 965 00:53:22,480 --> 00:53:25,840 types of setups every day and trying to view the portfolio and 966 00:53:25,840 --> 00:53:28,120 the businesses that we look at in, in light of that. 967 00:53:28,480 --> 00:53:31,200 But that has just led me away almost not intentionally, but 968 00:53:31,200 --> 00:53:34,680 it's just led me away from kind of smaller low quality things. 969 00:53:34,680 --> 00:53:36,600 And I still find cheap stuff everyday. 970 00:53:36,600 --> 00:53:38,920 I just found something really interesting earlier this week 971 00:53:38,920 --> 00:53:42,560 that will probably, you know, 3 to 4X and but it's just a, you 972 00:53:42,560 --> 00:53:45,280 know, piece of crap excuse, you know, excuse me to the people 973 00:53:45,280 --> 00:53:47,760 involved, but it just doesn't interest me anymore. 974 00:53:47,760 --> 00:53:50,800 And so it's more about just taking that, you know, trying to 975 00:53:50,800 --> 00:53:55,560 align every piece of my temperament and fund and what 976 00:53:55,560 --> 00:53:57,840 I'm trying to accomplish with the types of companies that I 977 00:53:57,840 --> 00:54:00,120 think make the most sense in the portfolio. 978 00:54:00,120 --> 00:54:01,840 And that's really where it's it's headed. 979 00:54:01,840 --> 00:54:04,320 But yeah, certainly the result of a lot of mistakes. 980 00:54:04,320 --> 00:54:08,000 And on the people side too, as I mentioned, it's just very, very 981 00:54:08,000 --> 00:54:10,120 difficult to get that one right again. 982 00:54:10,120 --> 00:54:13,800 Sometimes I think think I can judge it, not often, but when I 983 00:54:13,800 --> 00:54:16,240 do, you know, I tend to get it very right. 984 00:54:16,240 --> 00:54:18,560 And when I'm wrong, I tend to get it very wrong. 985 00:54:18,840 --> 00:54:22,880 And just being more cognizant of that and trying to get behind 986 00:54:22,880 --> 00:54:24,640 people who have a lot of skin in the game. 987 00:54:24,640 --> 00:54:27,760 But again, also have that kind of track record of making really 988 00:54:27,760 --> 00:54:30,040 sensible decisions. And so, yeah, it's it's 989 00:54:30,040 --> 00:54:32,840 definitely, if you if you started at in 2020 and read 990 00:54:32,840 --> 00:54:35,440 through five years of letters, you would definitely see that 991 00:54:35,440 --> 00:54:38,520 shift over time. And hopefully you know what is, 992 00:54:38,640 --> 00:54:42,520 what is my writing or whatever else has gotten better over time 993 00:54:42,520 --> 00:54:44,840 and my I certainly feel my experience and pattern 994 00:54:44,840 --> 00:54:46,880 recognition has. But yeah, you would definitely 995 00:54:46,880 --> 00:54:49,560 see that evolution over time and I think it's really benefited 996 00:54:49,560 --> 00:54:54,280 the portfolio today. Yeah, I I think you can see it. 997 00:54:54,280 --> 00:54:57,920 And the nice thing about having writing and keeping it up, or 998 00:54:57,920 --> 00:55:00,960 in, in my case, having a season, one that makes me cringe at 999 00:55:00,960 --> 00:55:03,720 times, I keep it up there to sometimes listen and be like, 1000 00:55:03,720 --> 00:55:07,520 don't be like that guy. You know, sometimes you learn 1001 00:55:07,520 --> 00:55:11,200 and then you move on, right? Without, without the learning 1002 00:55:11,200 --> 00:55:12,880 processes, you can't be where you are. 1003 00:55:13,240 --> 00:55:18,240 The thing I like intuitively about the idea of looking for 1004 00:55:18,240 --> 00:55:22,120 higher quality, especially at reasonable valuations, is it 1005 00:55:22,120 --> 00:55:25,080 does seem like a situation that the natural world order should 1006 00:55:26,040 --> 00:55:31,160 be aligned with and reward outside of maybe like some 1007 00:55:31,160 --> 00:55:35,640 cyclicals that can't be levered. I think the question of like, 1008 00:55:35,640 --> 00:55:38,960 why is this thing public is a pretty important question to ask 1009 00:55:38,960 --> 00:55:43,000 yourself because you know, I don't know if it's like if it's 1010 00:55:43,000 --> 00:55:47,240 a reasonably good midcap something or another, there's 1011 00:55:47,240 --> 00:55:50,720 chance or pretty decent chance of PE fund is looked at it. 1012 00:55:51,000 --> 00:55:54,000 Not that they're going to buy everything, but having some 1013 00:55:54,000 --> 00:55:57,480 answer for why is this public and why should it grow in value? 1014 00:55:57,480 --> 00:56:00,800 I think is a may sound elementary, but for a long time 1015 00:56:00,800 --> 00:56:03,200 I didn't think about that stuff. I just thought, oh, you know 1016 00:56:03,200 --> 00:56:04,880 how? How cheap does it look? 1017 00:56:06,520 --> 00:56:08,080 Sure. When I'm asking myself that 1018 00:56:08,080 --> 00:56:11,840 question, it's usually, you know, looking staring at a stock 1019 00:56:11,840 --> 00:56:15,520 price that's down 3040% and management's not doing anything 1020 00:56:15,520 --> 00:56:17,600 about it and the business doesn't seem to be working or 1021 00:56:17,600 --> 00:56:20,840 the story is broken. But generally speaking, the best 1022 00:56:20,840 --> 00:56:22,200 businesses in the world are public. 1023 00:56:22,200 --> 00:56:26,080 And I'll hang my hat on that. I think it's a, it's a, an 1024 00:56:26,080 --> 00:56:28,160 aspiration to be, I think one of the best. 1025 00:56:28,160 --> 00:56:31,800 And a lot of the management teams that we invest behind, you 1026 00:56:31,800 --> 00:56:34,760 know, I, I try to look for killers sometimes and, or a lot 1027 00:56:34,760 --> 00:56:37,240 of the times and those people are very competitive. 1028 00:56:37,240 --> 00:56:39,560 And I think this is a great space to kind of exercise that. 1029 00:56:40,200 --> 00:56:43,920 But it has happened. I mean, I don't know, I don't 1030 00:56:43,920 --> 00:56:48,800 have any evidence of this to, to counter what you said about PE, 1031 00:56:48,800 --> 00:56:51,560 having looked at it, I'm not sure, you know, if that's true. 1032 00:56:51,880 --> 00:56:56,320 I think what's interesting these days is what I've found is you 1033 00:56:56,320 --> 00:56:58,360 mentioned paying a reasonable price for quality. 1034 00:56:59,440 --> 00:57:03,560 It seems like I am finding very unreasonable prices like 1035 00:57:03,920 --> 00:57:07,000 mispricings for quality these days just given the current 1036 00:57:07,000 --> 00:57:09,880 market environment. And again, there's once these 1037 00:57:10,080 --> 00:57:12,480 sort of narratives and stories get out about a business and 1038 00:57:12,480 --> 00:57:15,200 there's a mischaracterization that can be a very lucrative 1039 00:57:15,200 --> 00:57:18,440 source of opportunity. And I saw this in the sports 1040 00:57:18,440 --> 00:57:21,840 world too, where people would label a player a certain thing 1041 00:57:21,840 --> 00:57:25,160 because of the way they looked or, you know, how they ran or 1042 00:57:25,160 --> 00:57:26,680 what their skill set was at the time. 1043 00:57:26,800 --> 00:57:30,120 And take very little into account the future, the next 1044 00:57:30,120 --> 00:57:33,720 1224 months or what this player could become over time and 1045 00:57:33,720 --> 00:57:35,640 really kind of peel back the onion to understand that. 1046 00:57:36,440 --> 00:57:39,200 And that's also part of having the importance of having a great 1047 00:57:39,200 --> 00:57:41,760 system or a great management team is that you can have 1048 00:57:41,760 --> 00:57:44,240 someone in charge that ushers the business to that next step. 1049 00:57:44,240 --> 00:57:47,120 Or if the market is not valuing it properly, they're going to 1050 00:57:47,120 --> 00:57:49,560 take really big steps to fix that. 1051 00:57:49,720 --> 00:57:52,200 You know, I mentioned Duolingo probably should be buying back 1052 00:57:52,200 --> 00:57:56,000 stock in the case of shift four, They just, they just put in 1053 00:57:56,000 --> 00:57:59,120 place a billion dollar buyback program that could take out 20% 1054 00:57:59,120 --> 00:58:01,040 of the shares. They're, they've been talking 1055 00:58:01,040 --> 00:58:02,920 about. I, I believe they are buying 1056 00:58:02,920 --> 00:58:05,160 back stock now and they've been talking about doing so at an all 1057 00:58:05,160 --> 00:58:08,080 time low valuation relative to the business progress that 1058 00:58:08,080 --> 00:58:10,400 they've made. And there's other examples in 1059 00:58:10,400 --> 00:58:12,840 the portfolio as well that the management team isn't just 1060 00:58:12,840 --> 00:58:15,080 sitting on their hands. If the market isn't going to 1061 00:58:15,080 --> 00:58:17,520 recognize the value, they're going to take steps to do it 1062 00:58:17,520 --> 00:58:20,280 themselves and return a lot of capital through buybacks at 1063 00:58:20,280 --> 00:58:22,840 really high free cash flow yields and still be able to 1064 00:58:22,840 --> 00:58:24,520 operate the business and grow etcetera. 1065 00:58:25,360 --> 00:58:28,320 And so, yeah, it's, it's an interesting situation, but I, I 1066 00:58:28,320 --> 00:58:32,360 tend to find I'm staring in the face of a mistake when I'm, 1067 00:58:32,480 --> 00:58:33,920 whenever I'm asking that question. 1068 00:58:34,440 --> 00:58:36,920 And I have been involved in some kind of broken stories before 1069 00:58:36,920 --> 00:58:40,600 where I am like this business has lost its public market, 1070 00:58:40,840 --> 00:58:43,240 ruined its public market reputation and lost its 1071 00:58:43,240 --> 00:58:45,240 opportunity to maybe get a fair multiple. 1072 00:58:45,440 --> 00:58:48,480 There's a couple businesses on on my watch list right now that 1073 00:58:49,040 --> 00:58:51,520 are really attractive right now in terms of the price. 1074 00:58:51,520 --> 00:58:56,080 I'm just not sure that, you know, they've, I'm not sure 1075 00:58:56,080 --> 00:58:58,560 whether they have ruined their reputation yet, which is not a 1076 00:58:58,560 --> 00:59:00,360 great place to begin. But yeah. 1077 00:59:00,360 --> 00:59:03,200 So it's it's I asked myself that too occasionally, but it's 1078 00:59:03,200 --> 00:59:05,720 usually again staring down the barrel of a mistake. 1079 00:59:06,720 --> 00:59:14,800 How, how do you do the work that you do and cultivate the network 1080 00:59:14,800 --> 00:59:20,160 that you do and then come to a point in an investment decision 1081 00:59:20,160 --> 00:59:26,680 and try to remove yourself and be rational about, OK, what the 1082 00:59:26,680 --> 00:59:32,480 sunk cost of doing the work versus, you know, I assume as 1083 00:59:32,480 --> 00:59:34,520 you get better and better at this, you're finding better and 1084 00:59:34,520 --> 00:59:37,480 better management teams. How, how? 1085 00:59:37,920 --> 00:59:40,080 And I, this is where the art comes in. 1086 00:59:40,080 --> 00:59:42,720 So I'm not asking for a precise answer, but how do you try to 1087 00:59:42,720 --> 00:59:50,600 think about marrying the soft stuff with, you know, I guess 1088 00:59:50,600 --> 00:59:53,800 your projection of where the business is going and not 1089 00:59:53,800 --> 00:59:58,000 letting all the time of the research process influence 1090 00:59:58,760 --> 01:00:02,440 whether or not you should take a position or, or something of 1091 01:00:02,440 --> 01:00:05,560 that nature. Like, how do you remain rational 1092 01:00:05,840 --> 01:00:08,960 when your work is so scuttlebutt intensive? 1093 01:00:10,640 --> 01:00:15,160 I believe I've gotten better at this overtime and focusing on 1094 01:00:15,160 --> 01:00:19,160 just a few key variables for each business and trying my best 1095 01:00:19,160 --> 01:00:21,720 to ignore the noise around it has been very helpful. 1096 01:00:22,080 --> 01:00:26,200 And I, I live a pretty, I guess, insulated existence. 1097 01:00:26,200 --> 01:00:27,600 I'm off the grid most of the time. 1098 01:00:27,600 --> 01:00:31,040 I don't look at the news I'm on, I'm on Twitter X here and there 1099 01:00:32,040 --> 01:00:35,080 and I, I just try to stay focused on the portfolio and 1100 01:00:35,080 --> 01:00:37,720 then, you know, reading things that can help me get better and 1101 01:00:37,720 --> 01:00:39,760 it with what I'm doing, books or etcetera. 1102 01:00:39,760 --> 01:00:44,520 But for some reason, I've always been able to, I, I haven't, I, 1103 01:00:44,520 --> 01:00:49,440 I've never had an issue with sort of the sunk cost fallacy or 1104 01:00:49,440 --> 01:00:54,280 that bias where if I buy a book and three pages in, I don't like 1105 01:00:54,280 --> 01:00:56,560 it, I'll just stop reading. It I just did that the other 1106 01:00:56,560 --> 01:00:57,920 day. I was like this thing sucks. 1107 01:00:57,920 --> 01:01:00,280 I'm not finding out why other people like this shit. 1108 01:01:01,000 --> 01:01:03,440 I I don't know what that is. You sound like you have it too, 1109 01:01:03,440 --> 01:01:05,840 but it applies to investing as well. 1110 01:01:05,840 --> 01:01:10,280 And it doesn't matter to me what maybe in the past it did, but 1111 01:01:10,320 --> 01:01:13,160 today it doesn't matter how much time I spent on a business or 1112 01:01:13,160 --> 01:01:16,040 how many people I've spoken to or the work that I've done. 1113 01:01:16,680 --> 01:01:20,880 If I feel like disconfirming evidence has is now disproving 1114 01:01:20,880 --> 01:01:23,880 the hypothesis or the investment thesis I had, I'm out. 1115 01:01:23,920 --> 01:01:26,400 And or if management does something really dumb out of the 1116 01:01:26,400 --> 01:01:29,560 blue, it's very easy to part ways. 1117 01:01:29,560 --> 01:01:32,240 And I don't know what that is, but it's been very helpful to 1118 01:01:32,240 --> 01:01:34,320 develop that. I think through reps over the 1119 01:01:34,320 --> 01:01:36,800 years and just have what a friend of mine calls, you know, 1120 01:01:36,800 --> 01:01:41,320 strong opinions, loosely held. And I think that's very 1121 01:01:41,320 --> 01:01:43,960 beneficial on the portfolio management side, obviously 1122 01:01:43,960 --> 01:01:47,520 because a lot of this is about how much you make when you're 1123 01:01:47,520 --> 01:01:49,640 right and how little you lose when you're wrong. 1124 01:01:49,640 --> 01:01:55,280 And I was, I'm always very partial to holding our, I just 1125 01:01:55,280 --> 01:01:57,080 wrote about this in my Q4 letter. 1126 01:01:57,600 --> 01:02:01,000 If things are going OK and the business is working well and the 1127 01:02:01,000 --> 01:02:04,080 thesis is on track, I'm partial to holding our businesses and 1128 01:02:04,080 --> 01:02:07,840 sticking around no matter the valuation unless it's completely 1129 01:02:07,840 --> 01:02:10,800 egregious or if whatever the stock price is doing it. 1130 01:02:10,800 --> 01:02:15,680 It's it's just been easier for me to focus on the business 1131 01:02:15,680 --> 01:02:18,160 level, performance and metrics than anything else. 1132 01:02:18,160 --> 01:02:22,280 And in the within the walls of Greystone, I would say looking 1133 01:02:22,280 --> 01:02:27,440 at stock prices has almost 0 measurable value for what's 1134 01:02:27,440 --> 01:02:31,240 happening and it doesn't always feel good if I'm holding 1135 01:02:31,240 --> 01:02:33,240 something that's going against me, but it just doesn't. 1136 01:02:33,240 --> 01:02:36,720 There's no predictive value there or any sort of thing I can 1137 01:02:36,720 --> 01:02:38,720 hang my hat on about what's happening here. 1138 01:02:38,720 --> 01:02:43,200 And so I just try to again, to anchor myself to the business 1139 01:02:43,200 --> 01:02:45,760 performance. And that I think is the best way 1140 01:02:45,760 --> 01:02:49,720 for me to stay rational. And then that also helps on the 1141 01:02:49,720 --> 01:02:53,360 portfolio management side where if a business is drawing down 1142 01:02:53,360 --> 01:02:55,720 against me and things are looking very good from an 1143 01:02:55,720 --> 01:02:57,760 operating performance standpoint, you know, I can add 1144 01:02:57,760 --> 01:03:01,240 to the position and, you know, kind of do the work that I have 1145 01:03:01,240 --> 01:03:03,800 to do around that. But it's, it's really dynamic. 1146 01:03:03,800 --> 01:03:06,520 It's a really dynamic process. Like you said, this is where the 1147 01:03:06,520 --> 01:03:10,560 art comes in. But it's a skill I think that 1148 01:03:10,560 --> 01:03:12,840 has been honed over a long period of time. 1149 01:03:12,840 --> 01:03:15,880 And I'm still not claiming I'm perfect at it, but it's gotten a 1150 01:03:15,880 --> 01:03:18,840 little bit better over time to where it's a it's a lot easier 1151 01:03:18,840 --> 01:03:21,920 for me to suss out what matters and to kind of avoid the 1152 01:03:21,920 --> 01:03:25,200 remaining noise, I think. Makes sense. 1153 01:03:25,840 --> 01:03:27,920 Makes a lot of sense, yeah. Does that answer your question? 1154 01:03:28,120 --> 01:03:30,600 Yeah, I mean, I, you know, I just think it's, it's always 1155 01:03:30,600 --> 01:03:36,400 interesting to, you know, I mean, like, like Jake is 1156 01:03:36,400 --> 01:03:41,640 obsessed with this remaining rational, right and, and keeping 1157 01:03:41,640 --> 01:03:45,800 sound decision making it and you know, I've, I've found I was 1158 01:03:45,800 --> 01:03:50,360 recently at a a company kin sales investor day, you know, 1159 01:03:50,360 --> 01:03:52,360 and like I, I really like those guys. 1160 01:03:52,400 --> 01:03:56,360 I mean, I, I don't know that I love the valuation, but I think 1161 01:03:56,360 --> 01:03:59,320 that group of people is a unique group. 1162 01:03:59,840 --> 01:04:04,360 And I found myself like almost fawning a little bit in the room 1163 01:04:04,360 --> 01:04:06,880 and I had to be like, OK, it might be time to sit down and 1164 01:04:06,880 --> 01:04:10,440 write like, why I don't like this rather than, you know, sort 1165 01:04:10,440 --> 01:04:13,800 of just iterate, you know, cementing good thoughts in my 1166 01:04:13,800 --> 01:04:16,840 head. So I don't, I don't know, I 1167 01:04:16,840 --> 01:04:22,680 just, I find it interesting to just see, see whether or not 1168 01:04:22,680 --> 01:04:25,640 people have processes or kind of whether or not they suffer from 1169 01:04:26,200 --> 01:04:28,840 same endowment biases. I, I think we all have certain 1170 01:04:28,840 --> 01:04:32,280 things that we all intersect on and Charlie Munger probably 1171 01:04:32,280 --> 01:04:34,920 wrote about 22 of them or whatever in that one speech. 1172 01:04:34,920 --> 01:04:37,280 So. Well, I, I tend to stick around 1173 01:04:37,280 --> 01:04:39,480 too long, which is a weakness, I think. 1174 01:04:39,480 --> 01:04:42,640 And like I said, I, I may be overly patient at times. 1175 01:04:43,520 --> 01:04:47,280 And I, we just had an example in the portfolio that I something I 1176 01:04:47,280 --> 01:04:50,000 own for over three years and it did not, didn't work. 1177 01:04:50,000 --> 01:04:54,480 I was wrong and I sold it and it felt terrible and but I was 1178 01:04:54,480 --> 01:04:56,840 wrong about the direction of the business and the economics and 1179 01:04:56,840 --> 01:04:59,800 how things would unfold. And maybe it will go on to to do 1180 01:04:59,800 --> 01:05:02,160 OK. Actually the the CEO of that 1181 01:05:02,160 --> 01:05:04,840 business, I just saw a press release this morning where he 1182 01:05:04,840 --> 01:05:06,880 abruptly stepped down. So I have no idea. 1183 01:05:06,880 --> 01:05:09,040 I have no idea why and what's going on there. 1184 01:05:09,040 --> 01:05:13,480 And so kind of kind of glad, I guess post mortem that I that I 1185 01:05:13,480 --> 01:05:15,600 sold it. But yeah, you know, it's a 1186 01:05:15,600 --> 01:05:18,480 three-year period of just frustration and I thought things 1187 01:05:18,480 --> 01:05:20,280 were trending in the right direction for a long time. 1188 01:05:20,280 --> 01:05:23,440 And by the opportunity cost of that one decision, it was a 1189 01:05:23,440 --> 01:05:25,480 large position for a while was a mistake. 1190 01:05:25,480 --> 01:05:28,600 And there were other things that I thought about multiple times 1191 01:05:28,600 --> 01:05:31,440 replacing it with and this is a Better Business and that sort of 1192 01:05:31,440 --> 01:05:32,720 thing. And I think I was just overly 1193 01:05:32,720 --> 01:05:36,560 patient. And so it, it happens and the 1194 01:05:36,640 --> 01:05:39,080 again, the opportunity cost is large, but to what you were 1195 01:05:39,080 --> 01:05:42,040 talking about with Kinsale, I don't know that business, but 1196 01:05:43,360 --> 01:05:45,680 we, you know, I don't think as long as you don't let that 1197 01:05:45,680 --> 01:05:48,280 emotion guide your decision making, I'm not that I'm giving 1198 01:05:48,280 --> 01:05:49,800 you advice, but I think that's OK. 1199 01:05:49,800 --> 01:05:52,080 I mean, we spend so much time on these companies, you might as 1200 01:05:52,080 --> 01:05:53,320 well fall in love with some of them. 1201 01:05:53,320 --> 01:05:56,400 And it helps you, you know, hold them a little bit longer over 1202 01:05:56,400 --> 01:05:58,240 time. And if you feel that way about a 1203 01:05:58,240 --> 01:06:01,160 management team, that to me is a huge signal. 1204 01:06:01,320 --> 01:06:05,680 I mean, the last three, the last three investments that I've 1205 01:06:05,680 --> 01:06:11,600 made, 3 or 4 have started with me listening to an interview or 1206 01:06:11,600 --> 01:06:14,400 two or three from the CEO and just being really impressed. 1207 01:06:14,400 --> 01:06:17,960 And wow, I didn't know that this is what this business did and 1208 01:06:18,440 --> 01:06:19,680 that how they paint the light on that. 1209 01:06:19,680 --> 01:06:21,840 And obviously, you know, they're salesman and they're pitching 1210 01:06:21,840 --> 01:06:22,840 the company and that sort of thing. 1211 01:06:22,840 --> 01:06:24,240 They're just talking about the positives. 1212 01:06:24,760 --> 01:06:27,640 But I think that's a great place to start with people and you 1213 01:06:27,640 --> 01:06:29,200 know, everything else flows from there. 1214 01:06:29,200 --> 01:06:31,480 So I that's an interesting anecdote or thing that you 1215 01:06:31,480 --> 01:06:33,720 mentioned. Yeah, well, I'm happy to share 1216 01:06:33,720 --> 01:06:35,280 notes. Kinsale is going to be up your 1217 01:06:35,280 --> 01:06:38,720 alley on on things you like. What you may not like is it's an 1218 01:06:38,720 --> 01:06:41,160 insurance company trading at five times books so. 1219 01:06:41,400 --> 01:06:43,120 I do know that. That's the only thing I know. 1220 01:06:43,480 --> 01:06:45,360 Yeah. Well, there is a reason. 1221 01:06:45,840 --> 01:06:48,440 There is a reason whether or not that whether or not that is too 1222 01:06:48,440 --> 01:06:51,680 high of a valuation is totally debatable and understandable, 1223 01:06:52,000 --> 01:06:58,160 but it I bring it up a lot. Adam Robinson has this thing 1224 01:06:58,640 --> 01:07:02,440 where he says there's a lot of money to be made in things that 1225 01:07:02,440 --> 01:07:06,000 make no sense and things that make all the sense in the world. 1226 01:07:06,000 --> 01:07:09,000 Because if your brain is saying it makes no sense, you probably 1227 01:07:09,000 --> 01:07:10,960 don't understand how the world's looking at it. 1228 01:07:11,040 --> 01:07:14,520 And if your brain says oh this is blatantly obvious like it 1229 01:07:14,840 --> 01:07:20,240 probably clicks for you, I would just suggest that as it pertains 1230 01:07:20,240 --> 01:07:24,840 to that particular entity, I I believe the premium is assigned 1231 01:07:24,840 --> 01:07:26,720 to the management team for the right reason. 1232 01:07:26,720 --> 01:07:29,280 It's up to the stock analyst to figure out if the premium is too 1233 01:07:29,280 --> 01:07:32,840 high. Well, I, I just tweeted this 1234 01:07:32,840 --> 01:07:36,280 thread the other day about circle Buffett's circle of 1235 01:07:36,280 --> 01:07:37,920 competence and some stuff around that. 1236 01:07:38,400 --> 01:07:42,360 And insurance is so far outside of my circle of competence. 1237 01:07:42,400 --> 01:07:46,680 But taking my own advice, I will spend some time on it because 1238 01:07:46,680 --> 01:07:48,280 it's important to learn a little bit more. 1239 01:07:48,280 --> 01:07:50,760 And it's it's something I've never looked at before or spent 1240 01:07:50,760 --> 01:07:52,240 any time on, but that's. Yes. 1241 01:07:52,240 --> 01:07:55,280 So why did why did you you said something along the lines of 1242 01:07:55,280 --> 01:08:00,040 like his advice of circle of competence is some of the most I 1243 01:08:00,040 --> 01:08:03,920 don't I I think what you meant is investors have used it in the 1244 01:08:03,920 --> 01:08:06,360 most dangerous way possible or something like that. 1245 01:08:06,360 --> 01:08:08,640 You want to expand on that? This would be great for the 1246 01:08:08,680 --> 01:08:10,440 headlines. Yeah, sure. 1247 01:08:10,440 --> 01:08:11,840 You're. You're trying to stir up some 1248 01:08:11,840 --> 01:08:15,000 stuff now. Adam, Will Keats, Buffett, 1249 01:08:15,000 --> 01:08:19,520 that's the title, yeah. Yeah, certainly not going toe to 1250 01:08:19,520 --> 01:08:21,880 toe with the Oracle here. I think the advice is excellent. 1251 01:08:22,279 --> 01:08:25,840 The application is has been misused or misapplied. 1252 01:08:25,840 --> 01:08:30,000 And I think what people have taken that to mean is that if 1253 01:08:30,000 --> 01:08:32,640 you don't understand something immediately, it should be 1254 01:08:32,640 --> 01:08:35,240 dismissed as too hard or outside of my circle. 1255 01:08:35,680 --> 01:08:39,399 Whereas a lot of money has been made, at least from me, I guess, 1256 01:08:39,399 --> 01:08:42,040 in trying to understand things that weren't apparent on the 1257 01:08:42,040 --> 01:08:45,040 surface or that I didn't have any experience in prior. 1258 01:08:45,200 --> 01:08:47,399 And that's our job as investors. We get paid to learn. 1259 01:08:47,640 --> 01:08:50,479 And so I think it's really, really important to examine all 1260 01:08:50,479 --> 01:08:53,640 of your biases and all the areas in which you think are outside 1261 01:08:53,640 --> 01:08:56,439 of your circle of competence relative to the time you have 1262 01:08:56,439 --> 01:08:59,800 and your your experience and what interests you. 1263 01:09:00,200 --> 01:09:01,600 And just really dig into those things. 1264 01:09:01,600 --> 01:09:04,120 And eventually you will come across something that you 1265 01:09:04,120 --> 01:09:07,279 realize you can't understand. And that is not outside of your 1266 01:09:07,279 --> 01:09:09,359 circle of competence. I think most business models can 1267 01:09:09,359 --> 01:09:11,359 be understood. They're not, it's not physics, 1268 01:09:12,160 --> 01:09:13,960 but it's just about kind of peeling back the onion. 1269 01:09:13,960 --> 01:09:17,040 And so I was really just maybe trying to stir some stuff up a 1270 01:09:17,040 --> 01:09:20,680 little bit on Twitter, but it was more about just kind of the 1271 01:09:21,080 --> 01:09:23,920 misapplication of, if I don't understand this, I should just 1272 01:09:23,920 --> 01:09:25,840 throw it aside. And that's that they're, they're 1273 01:09:25,840 --> 01:09:28,120 certainly things that belong in the two hard pile. 1274 01:09:28,120 --> 01:09:30,760 Absolutely. But that relates more toward 1275 01:09:31,200 --> 01:09:35,080 assessing the probabilities of the outcome, the downside, 1276 01:09:35,399 --> 01:09:38,720 understanding the skew, the risk reward, the asymmetry versus 1277 01:09:38,720 --> 01:09:40,439 like, I just can't understand this. 1278 01:09:40,600 --> 01:09:42,920 You know, I, I've never spent time in semis either. 1279 01:09:43,240 --> 01:09:45,399 I think I could understand it after a few hours. 1280 01:09:45,680 --> 01:09:48,200 You know, on a surface level, maybe that's overestimating my 1281 01:09:48,200 --> 01:09:50,520 own ability, but that's kind of what I'm talking about, if that 1282 01:09:50,520 --> 01:09:52,840 makes sense. Yeah, no, it does. 1283 01:09:52,840 --> 01:09:58,960 And I, I, I tend to agree. I I have found there were a lot 1284 01:09:58,960 --> 01:10:02,160 of Buffett quotes that I read when I was young that I was 1285 01:10:02,160 --> 01:10:03,880 convinced that I knew what they mean. 1286 01:10:03,920 --> 01:10:07,360 And now that I'm older, I can see three different meanings in 1287 01:10:07,360 --> 01:10:10,240 a lot of them. And some of them changed for me. 1288 01:10:10,920 --> 01:10:16,920 And the only thing that I tell myself now is to, to realize 1289 01:10:16,920 --> 01:10:20,000 that his words are coming from his brain and his brain is 1290 01:10:20,360 --> 01:10:22,840 different from mine and probably crisper. 1291 01:10:23,240 --> 01:10:27,640 So, you know, figure, figure it out for yourself. 1292 01:10:27,640 --> 01:10:33,560 And and I guess he'd he'd the the Oracle's words, but don't 1293 01:10:33,560 --> 01:10:37,320 maybe maybe don't apply them literally as as I understood 1294 01:10:37,320 --> 01:10:39,400 them when I was young, is what I try to tell myself. 1295 01:10:40,160 --> 01:10:42,600 There are. That's really interesting you 1296 01:10:42,600 --> 01:10:44,360 said that. I just thought about this the 1297 01:10:44,360 --> 01:10:47,440 other day. The longer you do this, the more 1298 01:10:47,440 --> 01:10:49,520 his quotes make sense. Like true. 1299 01:10:49,520 --> 01:10:51,600 You truly understand what he meant by that. 1300 01:10:51,600 --> 01:10:53,640 Maybe not exactly because like you said, they came from his 1301 01:10:53,640 --> 01:10:55,640 brain. I mean I'm sure when I'm 60 I'm 1302 01:10:55,640 --> 01:10:57,880 going to look back and be like my 40 year old self didn't 1303 01:10:57,880 --> 01:11:02,040 understand it. Exactly, that's my, that's my 1304 01:11:02,040 --> 01:11:05,720 favorite part of this, this business and, and doing this job 1305 01:11:06,080 --> 01:11:09,280 is that there's no, as long as your brain works, you can do the 1306 01:11:09,280 --> 01:11:11,160 job. And unlike an athlete where, you 1307 01:11:11,160 --> 01:11:14,000 know, father time comes for everybody, an athlete might 1308 01:11:14,000 --> 01:11:17,880 retire when they're the best at their sport because their body 1309 01:11:17,880 --> 01:11:20,160 can't handle it anymore. But in investing, there's no 1310 01:11:20,160 --> 01:11:23,120 such thing. And so you should technically 1311 01:11:23,120 --> 01:11:25,960 get better over time. And things will start to have 1312 01:11:25,960 --> 01:11:29,480 much different meanings and applications from a decade or 1313 01:11:29,480 --> 01:11:31,600 two ago. And something you read when you 1314 01:11:31,600 --> 01:11:34,040 started is very different from reading that same thing today. 1315 01:11:34,040 --> 01:11:37,000 And the way that your pattern recognition is triggered based 1316 01:11:37,000 --> 01:11:40,160 on your experience is very, has been a very interesting process 1317 01:11:40,160 --> 01:11:43,120 to me to go back and read decade old notes and be like, oh, 1318 01:11:43,360 --> 01:11:45,640 that's what that means. And I didn't really understand 1319 01:11:45,640 --> 01:11:47,000 it at the time. And so that's been one of my 1320 01:11:47,000 --> 01:11:48,840 favorite parts of this, this job. 1321 01:11:49,280 --> 01:11:55,000 Yeah, yeah. I'll, I'll use this to segue to 1322 01:11:55,400 --> 01:11:59,760 maybe the final sort of part of the conversation you had. 1323 01:11:59,760 --> 01:12:02,640 You had mentioned NRP as something to look into. 1324 01:12:02,680 --> 01:12:07,640 I have looked into it. I do own it, but I am a little 1325 01:12:07,640 --> 01:12:11,320 bit concerned when I hear Elon Musk saying that solar could 1326 01:12:11,440 --> 01:12:15,320 power the entire United States with 100 by 100 miles square and 1327 01:12:15,320 --> 01:12:19,520 batteries can do it all. And then I hear Vaclav smell in 1328 01:12:19,520 --> 01:12:22,240 my ear saying this takes a lot longer than you think. 1329 01:12:22,560 --> 01:12:25,360 And then I have. But Elon is Elon and I don't 1330 01:12:25,360 --> 01:12:26,640 know that I want to bet against him. 1331 01:12:26,640 --> 01:12:29,800 So curious to hear you riff on it. 1332 01:12:29,800 --> 01:12:32,320 I was out in Houston and met with the people there and I do 1333 01:12:32,320 --> 01:12:36,080 think that the capital allocation, I pushed them on 1334 01:12:36,080 --> 01:12:39,520 buybacks a little bit. And their answer to me was, 1335 01:12:40,000 --> 01:12:45,400 well, if the return of the capital to you is a return of 1336 01:12:45,400 --> 01:12:48,760 capital, I don't know how tax advantage to buy back is. 1337 01:12:49,320 --> 01:12:52,120 To which I said that's a rational enough argument to me 1338 01:12:52,120 --> 01:12:53,760 that I can, I can live with that. 1339 01:12:53,760 --> 01:12:57,960 And it'd be nice if size Cam was, if I'm saying Sysicam, 1340 01:12:57,960 --> 01:13:00,640 Syscam, whatever, it'd be nice if that was generating some cash 1341 01:13:00,640 --> 01:13:01,840 again. But one day it will. 1342 01:13:02,400 --> 01:13:05,520 Yeah, for some reason it's pronounced shish Cam from what I 1343 01:13:05,520 --> 01:13:07,000 understand. I don't know why. 1344 01:13:08,560 --> 01:13:10,520 Yeah, that's very interesting. I had no idea. 1345 01:13:10,520 --> 01:13:15,120 I, I have also been to Houston and to visit with them and I had 1346 01:13:15,120 --> 01:13:16,760 no idea you owned it. Interesting. 1347 01:13:17,120 --> 01:13:20,040 So yeah, the, the one thing I would say to that is that the 1348 01:13:20,040 --> 01:13:22,120 majority of their volumes come from met coal. 1349 01:13:22,120 --> 01:13:24,760 And so there's no replacement for met coal. 1350 01:13:24,760 --> 01:13:27,360 And I'd imagine the world will still need lots of met coal 1351 01:13:27,360 --> 01:13:30,000 moving forward. That's a big thing, part of the 1352 01:13:30,000 --> 01:13:32,840 thesis I'm hanging my hat on. And I think the decline of 1353 01:13:32,840 --> 01:13:36,600 thermal coal is both priced in and also very apparent to 1354 01:13:36,600 --> 01:13:38,160 anybody who's involved in the space. 1355 01:13:38,520 --> 01:13:41,960 And so I hope that, you know, at some point there will be much 1356 01:13:41,960 --> 01:13:44,560 cleaner and very different forms of energy. 1357 01:13:44,560 --> 01:13:47,800 And so I I look forward to that. I think. 1358 01:13:47,800 --> 01:13:52,320 And I think before we get there, I think there's probably a very 1359 01:13:52,320 --> 01:13:56,360 long runway of distributions to be paid, just given kind of 1360 01:13:56,360 --> 01:13:58,840 where their volumes are and what's happening with pricing 1361 01:13:58,840 --> 01:14:03,040 and the fact that any clean energy forms will take a very 1362 01:14:03,040 --> 01:14:07,280 long time. I think Elon Musk get the is the 1363 01:14:07,280 --> 01:14:11,400 equivalent of Amazon saying they're going to enter into this 1364 01:14:11,400 --> 01:14:14,080 or that vertical and all the stocks, you know, getting 1365 01:14:14,080 --> 01:14:17,880 crushed as a result. It's very possible that they'll 1366 01:14:17,880 --> 01:14:21,160 find a niche or two or three or fifty that they can dominate and 1367 01:14:21,160 --> 01:14:23,760 do better than everybody else. And again, I don't, I would 1368 01:14:23,760 --> 01:14:27,040 never bet against that guy. He's he's he's incredible. 1369 01:14:27,040 --> 01:14:30,600 But yeah, I think there's a nice runway before we have to worry 1370 01:14:30,600 --> 01:14:33,000 about, you know, things being becoming obsolete. 1371 01:14:33,640 --> 01:14:35,960 And again, on the met coal side, I think it's a really important 1372 01:14:37,080 --> 01:14:40,280 thing to note is that the majority of their volumes will 1373 01:14:40,280 --> 01:14:41,640 come from met coal in the future. 1374 01:14:42,240 --> 01:14:47,120 And I I think that between shish camera, sodash recovery and 1375 01:14:47,120 --> 01:14:51,120 shish Cam distributions picking up and then also any efforts 1376 01:14:51,120 --> 01:14:54,200 around carbon capture, I think that's a very interesting offset 1377 01:14:54,200 --> 01:14:57,960 to the thermal coal as well. And there's a very, there's a 1378 01:14:57,960 --> 01:15:02,960 very good case to be made that soda ash will make up a pretty 1379 01:15:02,960 --> 01:15:06,040 decent amount of their distributions in the future, not 1380 01:15:06,040 --> 01:15:09,800 anytime soon, but in the future. And then look, I mean, you know, 1381 01:15:09,800 --> 01:15:12,320 mineral, rare earth minerals, I'm not going to pretend like 1382 01:15:12,320 --> 01:15:14,120 NRP has anything to do with that right now. 1383 01:15:14,120 --> 01:15:17,320 But a lot of these rare earth elements, I said minerals, 1384 01:15:17,320 --> 01:15:19,800 excuse me, elements are found in coal seams. 1385 01:15:20,000 --> 01:15:22,800 They are expensive to extract and it depends on the type of 1386 01:15:22,800 --> 01:15:25,560 coal, etcetera. But there's a very, very 1387 01:15:25,760 --> 01:15:29,960 significant potential use case that in the coal seams within 1388 01:15:29,960 --> 01:15:34,360 NRPS mineral mineral rights properties, there could be 1389 01:15:34,360 --> 01:15:36,120 additional cash flow opportunities there. 1390 01:15:36,800 --> 01:15:38,120 It there's nothing on the surface. 1391 01:15:38,120 --> 01:15:39,760 They haven't entered in any discussions. 1392 01:15:39,960 --> 01:15:42,160 There's no talk of this at all. I just want to be clear about 1393 01:15:42,160 --> 01:15:43,800 that. But it down the road at some 1394 01:15:43,800 --> 01:15:47,280 point I think with maybe even with government involvement did 1395 01:15:47,280 --> 01:15:50,400 they have 13 million acres of mineral rights And that could be 1396 01:15:50,400 --> 01:15:53,440 a very interesting source of maybe cheaper rare earth 1397 01:15:53,440 --> 01:15:56,240 elements than having to source them from China or wherever 1398 01:15:56,240 --> 01:15:57,600 else. And there's really only one 1399 01:15:57,600 --> 01:16:00,520 mine, one key mine in the US, which is in California. 1400 01:16:00,520 --> 01:16:04,640 And the government is already is already involved in that 1401 01:16:04,640 --> 01:16:07,200 project. And the importance I think of 1402 01:16:07,200 --> 01:16:09,640 just rare earth elements in general can't be overstated. 1403 01:16:09,640 --> 01:16:11,840 And so that could be an additional source of 1404 01:16:11,840 --> 01:16:13,720 optionality. But in the meantime, I think 1405 01:16:13,720 --> 01:16:16,160 there's a decent runway to collect more distributions 1406 01:16:16,160 --> 01:16:20,560 before any any runoff in net or thermal coal. 1407 01:16:21,600 --> 01:16:25,520 Yeah. For me as somebody who wants the 1408 01:16:25,520 --> 01:16:29,680 income, kind of nice to have an owner controller that also wants 1409 01:16:29,680 --> 01:16:33,520 to take money out of the entity. So I feel like there's alignment 1410 01:16:33,520 --> 01:16:36,680 there. And I don't know, it's been, 1411 01:16:36,680 --> 01:16:41,000 it's not like terrible results in a not great operating cycle 1412 01:16:41,000 --> 01:16:44,240 over the past 12 to 18 months. So we'll sort of see how it 1413 01:16:44,240 --> 01:16:45,920 goes. I think it's traditionally 1414 01:16:45,920 --> 01:16:48,480 thought of as a cigar, but it would be interesting if a couple 1415 01:16:48,480 --> 01:16:53,640 options hit. That's a, that's the beauty of 1416 01:16:53,640 --> 01:16:57,440 the royalty model in my view is that well, prices have actually 1417 01:16:57,440 --> 01:17:00,240 gone up decently over the last couple of months. 1418 01:17:00,240 --> 01:17:03,200 But where where we were last year, that's the beauty of the 1419 01:17:03,200 --> 01:17:06,880 royalty model where the business has just been stress tested 1420 01:17:06,880 --> 01:17:10,240 pretty significantly and is able to generate significant amounts 1421 01:17:10,240 --> 01:17:14,200 of cash even at low prices. And what's great about these 1422 01:17:14,200 --> 01:17:16,360 businesses, it doesn't have quite have the operating 1423 01:17:16,360 --> 01:17:18,520 leverage or torque as some of the producers do. 1424 01:17:18,760 --> 01:17:22,440 But you do get to benefit from any exuberance in the commodity 1425 01:17:22,640 --> 01:17:26,760 over time. And we saw that in 2021 or 2022 1426 01:17:26,760 --> 01:17:30,240 with companies like Warrior Met Coal and AMR etcetera and 1427 01:17:30,760 --> 01:17:33,280 Romico. And so overtime, there will be a 1428 01:17:33,280 --> 01:17:35,520 point in time, I don't know when, but there's a good case to 1429 01:17:35,520 --> 01:17:37,960 be made by the end of the decade, prices will be a lot 1430 01:17:37,960 --> 01:17:39,400 higher. Even if they aren't, they'll 1431 01:17:39,400 --> 01:17:42,040 still generate a lot of cash. But if they are, their 1432 01:17:42,040 --> 01:17:45,360 distributions could go go up considerably and that's a really 1433 01:17:45,360 --> 01:17:47,840 interesting part just given what you're paying for the Business 1434 01:17:47,840 --> 01:17:50,320 Today. Yeah, well, and to the extent 1435 01:17:50,320 --> 01:17:52,680 inflation is driving prices higher, the nice thing about a 1436 01:17:52,680 --> 01:17:55,720 royalty is you don't actually really care all that much. 1437 01:17:57,120 --> 01:18:02,560 So it'd be interesting to watch. I was, I have more knowledge 1438 01:18:02,560 --> 01:18:05,160 about number than I or lumber than I would care to have. 1439 01:18:05,160 --> 01:18:12,080 But Once Upon a time, I I read that often the the the economics 1440 01:18:12,080 --> 01:18:15,480 accrue to the stump. And when, when I read that, I 1441 01:18:15,480 --> 01:18:18,040 thought, oh, that's not too dissimilar from NRP. 1442 01:18:18,040 --> 01:18:19,560 So we'll see how it all turns out. 1443 01:18:19,920 --> 01:18:21,920 Well, it's been an interesting start to the year. 1444 01:18:22,440 --> 01:18:26,360 You know, the, a lot of the commodity metals mining indexes 1445 01:18:26,360 --> 01:18:29,960 and, and oil and gas, etcetera are up pretty significantly and 1446 01:18:30,240 --> 01:18:33,440 you've got tech and software and services down significantly. 1447 01:18:33,440 --> 01:18:35,400 It's a very interesting environment. 1448 01:18:35,400 --> 01:18:38,800 You know, obviously this is not my area of expertise, but people 1449 01:18:38,800 --> 01:18:41,760 think we're in a, you know, different monetary regime now 1450 01:18:41,760 --> 01:18:44,800 and the market's starting to reflect that slowly. 1451 01:18:44,800 --> 01:18:47,960 So it's been, you know, it's not even February yet and it's just 1452 01:18:47,960 --> 01:18:50,640 been an interesting, interesting start to the year. 1453 01:18:51,040 --> 01:18:53,240 That's right. Value investors rejoice. 1454 01:18:53,680 --> 01:18:57,280 Software investors cry. Value investors become software 1455 01:18:57,280 --> 01:19:00,320 investors. Or commodity investors, I'm not 1456 01:19:00,320 --> 01:19:01,600 sure. Yeah, that's right. 1457 01:19:01,600 --> 01:19:04,040 Well, who knows? Just make sure you stick to your 1458 01:19:04,040 --> 01:19:09,000 circle folks while expanding it. Anyway, man, thank you very much 1459 01:19:09,000 --> 01:19:10,680 for coming on. I'm glad that you're a fan of 1460 01:19:10,680 --> 01:19:11,680 the show. It's been it. 1461 01:19:11,800 --> 01:19:15,480 This is a really nice conversation and I hope I, I 1462 01:19:15,480 --> 01:19:17,040 know that I got something out of it. 1463 01:19:17,040 --> 01:19:19,360 So I'm certain some of the fans will as well. 1464 01:19:19,720 --> 01:19:24,320 So I I hope, I hope that we, we did a good job kind of show 1465 01:19:24,400 --> 01:19:28,240 showcasing how you think and, you know, maybe get a couple of 1466 01:19:28,240 --> 01:19:30,600 inbounds from this. I always like when that happens. 1467 01:19:31,640 --> 01:19:33,640 That would be great. Yeah, I I really appreciate the 1468 01:19:33,640 --> 01:19:36,280 opportunity and I am a huge fan and I hope that you start 1469 01:19:36,280 --> 01:19:38,760 recording regularly again because I really enjoy the show. 1470 01:19:39,440 --> 01:19:42,920 I will do it unless other things in my life are better. 1471 01:19:44,080 --> 01:19:46,960 Come on man, there's there's fifty $100 million deals out 1472 01:19:46,960 --> 01:19:48,680 here now they're handing the podcasters. 1473 01:19:49,400 --> 01:19:52,120 Yeah, I well, one, those podcasters aren't me. 1474 01:19:52,120 --> 01:19:55,720 Two, it would require me changing my life too much to 1475 01:19:55,720 --> 01:20:00,000 chase something that I don't. What my man Tupac said. 1476 01:20:00,000 --> 01:20:01,640 All I want is money. Fuck the fame. 1477 01:20:02,840 --> 01:20:07,520 I, I think for a little while there I had some small version 1478 01:20:07,520 --> 01:20:09,680 of fame with none of the money and I didn't really like that 1479 01:20:09,680 --> 01:20:11,800 trade off. So I kind of like how things are 1480 01:20:11,800 --> 01:20:14,000 now. But I am going to be recording 1481 01:20:14,000 --> 01:20:16,520 and thank you. Thank you for kicking off well. 1482 01:20:16,960 --> 01:20:18,800 Will Thompson kicked off the season. 1483 01:20:19,040 --> 01:20:22,040 But thank you for being guest too and I appreciate it. 1484 01:20:22,600 --> 01:20:23,760 Absolutely. Thank you all. 1485 01:20:24,400 --> 01:20:57,640 Right man, have a good one. None. 1486 01:21:30,880 --> 01:21:30,960 The.