Wealth Advisory | Investing in Technology Revolutions

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All right, Rob, are we going to get into it? I think we're going to get

into it. I'm ready when you are. This is for your process of discovery. Listen. Discover. Listen.

I went I've gone deep. I've I've gotten I've gone I've gone into the weeds. All right. Imagine that

I'm like walking out of a lake and I'm just like covered in seaweed. Like we need to like that's

what I've been I've been swimming in the in the seaweed. So now I'm like trying to zoom back out

and and think about how you know like what is my entry point to the complexity of your work and

what you do to bring this forward to like the lay human but I do want to just start by introducing

you which is kind of a formality that I do think is important and it's that um you know you are Rob

you've landed at Bespoke Group as Chief Investment Officer. And before this role, you managed 250

million in equity and bond portfolios for a Boston based advisory firm. Did I get that right? Yes,

that is an accurate regurgitation of my LinkedIn profile. Yes. But how could I forget to mention

that you also have a bachelor's in classes in English. So, which is most important.

Well, I ended up here because I was going to be a classics professor. That was always the the the

assumption and then I had the shocking realization that that's a terrible idea and kind of had to

find a different path. So, this was a pretty good one if you like reading and learning and being

curious about things as you can as you can tell. So, that's uh turned out for the best. step from

classics towards finance, wealth, money. Yeah. I mean, um, if you do what we do, you have to

spend a lot of time reading and learning and quiet and alone with yourself. Um, and some people just

kind of have a natural affinity for that. Uh, I certainly do. And whether it's, you know, whatever

the subject, what we do is a humanist pursuit in the sense that it's all about understanding humans

and what they do and their structures and society and economies and all of that stuff comes down to,

you know, the same root quest for learning and and quest to just understand more and more and knowing

that you never will, but trying your best. Yeah. What's that? I was actually thinking of

this earlier that what's that saying or that idea of like it's not like you never really like the

more you learn something the more you realize that you don't know like you never really like actually fully get there wherever there is wherever there is or that is. Yeah. It's like it's like having

a map filled with terra incognita and you and you you explore one part of it and it starts to reveal

itself to you, but then like more terra incognita just emerges at the same time all around you as

you go through that process. And you you kind of have to learn to just enjoy that process and

and and yet be able to act because at the end of the day like you can't you need to make decisions

for clients based on inherently incomplete information. And how do you get comfortable

with that? Some people never do. Some people have analysis paralysis. I've seen this a lot. They go on the one hand and they just can never get there. So, you kind of have to be pragmatic um while

you're while you're on the search, I suppose. Yeah. Yeah. Getting to a place where you can like

just make a decision is sometimes you just have to decide and like even if it's not the right one,

it's going to take you somewhere. You're going to learn. Anyway, so I think now to get more specific about all these kinds of like general statements that we're making. Um I do want to I so I was

talking about kind of that entry point and I think the way where I want to start this conversation is just about like I want to you know when we're telling a story we need to establish the setting

and I think that the setting of of this story of your work of our work is um the technology

revolution. Would you agree with that? Yeah, for sure. Let's start there. Let's start there. And I

think the kind of chaos that is created within that because everybody wants to be a part of it.

Innovation is so hot. Innovation is happening like at every turn. And I know that sifting through

that noise, right, is I think a very real problem. Um to sift through how to sift through

that noise. So I hope that in this conversation we can kind of establish that answer because I do think that's a lot that's like the approach of your work. Yeah. Well, it's a very special time

because people are really excited about technology and innovation and they have been in recent years.

It's not always the case. You know, it kind of waxes and waines, but we're in currently something

like a mania you could say. And that's been the case for a number of years. And that makes it

um it makes it particularly dangerous. And um you have to be very careful because you know, as we

wrote in the white paper, most technology revolutions, quote unquote, are bogus. They're

not truly revolutions in the sense that we're speaking about them in the context of what we do.

There's technological change. There's winners and losers within technological change. Um,

but trying to understand who is going to come out on top, who is not, what is going to happen within

a specific technology, a lot of that you just can't know. It's speculation. Speculation meaning

you're just kind of guessing. Um, and when you're when you're managing wealth over generations,

you can't, you can't guess. That's not investing. So maybe there's this is kind of the interesting

paradox which is that like here we're pairing innovation which I think can be understood

like very superficially or on the surface as like something that's like a short term kind of yeah like something that requires speculation and yet we're when we talk about innovation and we're

actually talking about it with in relationship with like resilience and um like planning like

generational mindset. Yeah. People hear innovation and they think risk. They think this is something

I'm just going to dabble with a little bit cuz it's way too risky. That's not something I want

too much of. You know, let me keep away from that. I'll play with it. That's the play money. And and I think that's a key disconnect is the realization that innovation is an extremely

broad term and it drives all growth over that generational time frame that that our clients

care about. So if you're going to be investing, if you're going to be aiming to protect and compound

your wealth over that time frame, you need to understand these trends, right? That doesn't

mean that you want to go and speculate on a lot of uncertain things, but you need to take that

into account in any investment process and have it be the center of your investment process. not an

afterthought, not something that you have a little VC portfolio on the side to do, you know, fund

little ventures, but something that is intrinsic to the analysis and the underwriting of risk that

happens in every asset that you own. So, how do you do that? like you know getting to what you

said about resilience. You know those two things those are the those are the two load stones of

everything that we do. Resilience means resistant to change, durable against change. Innovation is

the wind of change. So you want to find companies that have a balance between those two things.

So talk to me about what can happen in a revolution, right? Because there's

obviously wealth that's created, but then there's wealth destruction that also happens. And so I

think that's what you're kind of speaking to, that has to be assessed in a certain way so that you can ride the weight of innovation um in a less risky way. Yeah. Yeah. And that's why the

resilience is such a key part because innovation as the wave of change creates incredible new

wealth, but it also destroys um it destroys broadly and it destroys more like numerically more

than it creates because you have new winners that usually emerge um and get bigger. you have a small

number of companies that are able even if they're bigger established companies that are able to

identify the change and embrace it successfully but that's a minority. So um it's a like

everything it's a double-edged sword. It has many facets. You know innovation is a

good and it's bad depending on your point of view and and how you're positioned and how resilient

and adaptive you are to these changes. So um yeah keeping it very high level essentially what you

need to do is you need to find that balance. You need to find those uh companies, those investments

that are positively exposed to the change but then resilient enough to to live through the inevitable

bumps to resist competition to um have a business that is secure enough and embedded enough in

something where they can take those changes and apply them across that business and make it bigger

and better rather than, you know, that they're going to be constantly reinventing the whole company. Like um it's a again the word is balance between those two big forces and trying to strike

that and that is a bit of an art. Um but that's ultimately the goal that you're going for.

Can you give an example of a company that has been able to achieve this?

Yeah, let me give a historical example first, right? So, if you were to look at the biggest

uh, and Walmart would be on that list. And Walmart is an interesting example. Not even not from the

most recent, you know, computing revolution that has been taking place in the last few

decades. But just go back 50 years, right? Like why, why did Walmart win? They're just a store.

Like they're like they don't they're not doing anything incredibly unique or special. You would

you would look at that business and say they don't have particularly high barriers to entry.

They're just a they were just a general goods store for many years. And if you go back to

the mid 70s, Walmart was a good business. But what they did that was so special was they

identified so that was when um sort of uh digital point of sale units were first coming out digital

cash registers and digital stockkeeping digital inventory management the first computers were

being rolled out to do this sort of thing. Okay. So IBM came out with um one of the first,

you know, truly high-end digital point of sale terminals and Walmart recognized what

the benefits of this would be and they embraced this technology wholeheartedly and the and the

I'm a Walmart because what they were able to do with this technology by embracing it so

uh so you know making it so intrinsic to their operations is they were able to better manage and

identify what is the inventory that we have what do we need more of how how can we uh reduce cost

how can we go and uh extract better terms out of our suppliers so the whole low price guarantee

Walmart culture emerged out of the embracing of this new technology and using that in a way that

competitors never really could do couldn't you know embedded into their culture in the same way

and Walmart created a business model around the ability to do this and that's how they you know

embraced what was a technology revolution that was the very early days of computing but they took an

existing business and sort of captured that wind of change in a very positive way to get bigger

and stronger and to grow and compound at a high rate over the next 20 years. Does that mean that

you're looking for that you are assessing and in your research you're looking for companies that are embracing technology in the way that for example Walmart was? Yeah, that's part of it. Um,

sometimes, uh, we're doing work specifically on companies that are purveyors of the technology.

So, they might be selling equipment that's tied to the tech to the technology. Whatever it is,

you're looking for businesses that are somehow leveraged to somehow harnessing the growth from

this technology. So, it could be as an input to what they're doing. It could be as a key enabler to what they're doing. It could be as a supplier to the technology itself. But whatever it is,

it needs to be a business that has those aspects of resilience. Resilience meaning resilience to

competition, resilience to, you know, structural change um all all the sorts of things that that we

look for that breaks companies. So if they are resilient and durable and in some way they're

going to get growth by harnessing this technology. That is the key combination. And it comes in many

different forms. It could be a company like Walmart that has sort of an existing business that's kind of embracing the technology and making it a key part of what they do.

It could be a company like a semiconductor capital equipment company, you know, that is

uh embedded in uh a certain process within a fab and barriers to entry are very high. It's very

difficult to displace them and they're going to grow over time because the demand for that is tied

to the growth of semiconductors and computing. Um there's a lot of different ways to approach this,

but those core elements of being tied to the growth, being resilient, those are the common

denominator of everything that we do within uh within the strategies. So there's two things that

came to mind. One thing was I was curious about where we are in the technology revolution and then

also you know you've said computing revolution. Are those are we talk is that the same thing when

we hear those technology revolution is a general term and uh it can apply to computing. That's

the most obvious one. That's the one that we're living through most obviously right now and we've seen that just in our lifetime how things have changed with the exponential growth of compute

semiconductors and chips being in everything being in everyone's pocket. 15 years ago they weren't they were not in everyone's pocket. Um I mean that is a very obvious revolution but a technology

revolution the idea behind a technology revolution it's like all of it right yeah it can be it could

be anything so so like go historically technology revolutions were the internal combustion engine it

was the steam engine it was electricity uh it you know so and and if you were to look today

and say okay what are the sort of earlier stage more budding uh potential technology

revolutions. I think you look at genetic sequencing. Um I think you look at solar PV

uh uh modules. Um I think you look at orbital lift, so putting stuff up into space. Um you can

look at maybe 3D printing uh centered metals. Um all of these things are in various stages.

um probably in sort of descending order of what I just said of of maturity, but like they operate on

the same principles. This notion that as something gets cheaper, demand for it increases and it

exponentially gets cheaper, demand exponentially grows, it gets used more widely for more and more

things as it gets cheaper and more available. And that has fundamental changes to the way we live,

the way we operate the economy. And those are the technology revolutions. Okay. And so is this

the is this when the idea of uh something turning into a general purpose technology comes into the

conversation? Yeah. So those two terms are pretty much interchangeable. General purpose technology,

technology revolution. Um Yeah. Because the technology revolution changes everything and

a general purpose technology is one that changes everything because it is ubiquitous. It becomes

used very widely. So think of the internal combustion engine for example. Great example of

something that creates a technoeconomic paradigm as Carleta Perez would say because just look at

what happened like okay now we all moved into suburbs. You could travel by car. You had just

the whole transport system changed. People's lives changed in so many dramatic ways because you had

cars and airplanes with engines that you didn't have before. And that was a very very you know

ubiquitous uh thing that was used widely and thus had that revolutionary effect.

There's like so many ways to skin this cat.

Techno technoeconomic paradigm. It's just a fancy way of saying,

you know, life changing in a big way.

Yeah. Yeah. Um, this would be an example of where I don't want to get too into the

weeds off of that because I'm about to go down that slide and I would love to. Um, but I think what might be more uh interesting for now is to maybe pivot a little bit to our

research engine or our approach to research because that's how what we're talking about

that's how you achieve what we're talking about. Um, and I guess it looks it's unique and it looks

different. So I would love for you to talk me through your, you know, Bespoke process.

Yeah. Well, a process is always a work in process or work in progress, I should say. So,

um, you know, the the core principles never change, but the way you implement them does over

time. But what are those core principles of what we do that's different? Um because I've worked

at a bunch of investment firms. I've seen many many investment firms, you know, in my career and

they're all a little bit different. Uh but most of them are kind of the same in many ways. And I think one of the nice things that attracted me the most about what we can do at Bespoke is that

we're not bound by many of the same institutional constraints that others are. First and foremost,

uh we can take a long-term time horizon and really mean that. Um I I was talking with

a hedge fund manager the other day and he said, "Oh yeah, we have a we have a pretty long-term time horizon about 9 months. Um you know, that's what that's what we focus on." And I was

uh I was thinking that that's not very long. Um in our case, you know, we are managing wealth

specifically for clients who have who are thinking in generations because they're aiming to protect

and compound this over the this wealth that they've created already over the course of their

lifetime. Thinking about generational handover, thinking about the big picture essentially.

And when you think and and talk about all this stuff, technology revolutions, blah blah blah,

um ultimately that's the result of an exercise which is well what matters over that time horizon

like what really matters 10 years from now. All of this stuff that like is on the Bloomberg screen

in front of me right now. We're going to forget 99% of it. So, how do you build a process around

researching the stuff that actually matters over that horizon? And that's where it matters to who?

Matters to the client or matters to who? Oh, matters for for the value like what is the

you know, most of this and uh yeah, when the world around us looks completely different and in a way

that we can't even imagine right now. Yeah. Partly in a way that we can't imagine, but partly in ways

that we can, which is which is getting to this notion of why general purpose technologies, why

technology revolutions, why do you build a process around that? because they're fairly predictable relative to other things where you're mostly just speculating. Um, and we can that's we'll put a pin

in that cuz you asked about process. But the point is tying this to the process. The process is

focused on researching and deeply understanding those big forces. What is driving them? Who is

exposed to them and in what ways? So, if you were to go to any other investment firm, including most

of the ones I've been involved with, what are they actually doing all day? What are they reading?

What are they thinking about? It's not this stuff. They're thinking about, okay, next quarter, you

know, the estimates are too high and, you know, should we get out of the way a little bit because

they're going to miss and what if management comes out and says this thing and and and none

of it matters. None of it really matters along this time horizon that we're talking about and

yet it consumes it's like an engine just consuming so much mental fuel by so many super intelligent

people. Um that's how the business is set up. So our process gives us the luxury to be able to say

okay like forget about that like we don't need to allocate resources to understand every little dip

and wiggle along the way. In fact, we're going to try to step away from that and if if if a business

that we think is a great business along the lines that we just described before, nice combination of

those characteristics, etc., etc. If a business like that is is is down in the dumps because,

hey, they had a bad quarter or the macro cycle is against them or they're they had some inventory

problems or inflation didn't go their way. That's a that's an opportunity for us to kind of put our

long-term uh glasses on and and step in and buy from the people like that who don't want to own

that. And we have we always have uh businesses in client portfolios that other investors other Wall

Street analysts are just like, "Oh, there's no reason to own that now because you know

things aren't going to start getting better for at least another 6 months and you know the news flow

is going to be negative." Like that's the kind of thinking. It's it's sort of short-term speculative thinking that drives flows and and that's taking the other side of that very deliberately is kind

of the core philosophy around the research that we do and the things that we spend our time reading

about focusing on building models around trying to gauge where things could go. Um and that

is itself a huge advantage. Yeah. How did you get out? I mean, if you you were you've been working

in those environments, I mean, you know what that looks like, you know? But like there was a moment where you like made a decision to do something differently and then you like followed a journey

to find this group and like work with people where like your energy actually isn't harvested and like people are thinking in a longer time horizon. I just I find that pretty interesting

because I think that that like like that mode of being is so um addictive common like everything

is really built around this short-term framework that is harvesting our energy. Yeah. Um, I mean

that's that's that's a conversation in itself, but the short answer to the question or or to what you

just said is most firms are constructed that way because that's how the industry works. That's how

that's how funds, you know, selling products, they get paid on short-term performance. Short-term

performance attracts hot money flows to come in. Oh, these guys are super smart. look at how what

returns they've put up and then inevitably things revert to the mean and the money flows out to the

next thing and everyone is sort of jostling to put up those numbers in order to get attention

to attract new clients. It's very transactional. It's very short-term oriented. It's very, it's not

um it's not standing next to the client and saying, "Okay, we're going to put together a

10-year plan for you and stand by you while you do this." That's investing. I don't really know what

the investment industry is, but it's not quite investing. It's something a little different. Wow. Um but but that's that's what makes what we do so much fun cuz like it's exhausting the other

the other stuff like it's uh it I mean you know I won't go on and on but you get the point.

Yeah. I mean I want to go on and on about that in another episode which we can do. But so back to the research. Back to the research. Back to the research. I don't know. Was there was

there you were talking to me about your process and like the depth that you can go into because

um because we are working with a longer time horizon and so I just yeah I cut you off. Yeah. So

I guess just to hit on some of the key some of the key aspects of what we've built in deliberately to

do things differently in the way that we think they should be done. You know I mentioned the time horizon aspect which is a very big one. Um the the other aspect of it is is just building

um deep expertise on some of these longer-term forces. So we didn't talk about geopolitics

but geopolitics and and understanding that and having a view on policy on trade on supply

chains long-term you know what is the balance of forces um that's a big part of what we do and

that's also a very long-term discipline focused on kind of these fundamental things that change

pretty slowly. So you know that is in many ways in the background of all of this because it's not

just you know which businesses you want to own but we're a global firm. We take a completely global approach. We can go anywhere and our portfolios reflect uh you know we have a minority of exposure

in the US because the US is actually a minority of the global value believe it or not. Um,

so which countries have tailwinds? Which ones have risks that you don't necessarily want to

be exposed to? Um, how do you anticipate the fracturing of supply chains globally, you know,

between Chinese oriented supply chains and USoriented supply chains for example,

and build that into your analysis. That's sort of the geopolitical stuff. And then purely on

a technology side, uh, one of the great benefits that we have in being able to take the time to

focus on these things and focus on individual companies because, you know, we're really we're

really sort of taking uh an approach that it's as if you were buying the whole company. Um,

and that's a key thing that is part of our process is if you wouldn't buy the whole company,

then you don't buy any of it. It's not a trade. It's not a little piece of paper that you're playing with. It's an ownership stake in a business. And that is really essential.

So if you're building an ownership stake in a business and you're really thinking long term, then you can take you can be picky and you can take your time to really, you know, identify the

the ones that are special and also take the time to research them. So that gets to

um sort of the the network and the club that we've built uh for our own internal use over time, which

is just a group a pretty large group of people in industry that we've created this dynamic around

where they're sharing information with each other. They're teaching each other about their industries

and they're teaching us. Um we have the ability to tap into that. So, we're doing some work on

something involving medtech or surgery. I can call up, you know, the the person in the group who is a

surgeon who is exposed to whatever that technology is, whatever that business is, and get the really

on the ground view of those longer term things. You know, what is adoption here? How well is this

company run? You know, how differentiated is what they're doing? You know, all those sorts

of questions. And that's so rare um because most people don't have the time to do that because they

con constantly are on the hamster wheel. Yeah. There isn't an incentive to do that. Yeah. I mean,

there's an incentive, but there's limited resources and limited time. You know, if you're if

you're churning through names more quickly, you have lots, you know, hundreds of names in the

portfolio with some of these mutual funds. Like, there's just no Yeah. no incentive or no time in

in any event, very few are doing it. Okay. Thank you. Um Okay. I feel like you've pulled on all

the all the strings I wanted to pull on. Um there is this idea that and also just for the listener

a lot of this conversation is being is being pulled from a white paper that Rob wrote called

technology revolutions and investing which you can get access to if you ask nicely. Just kidding.

Um, but something that you wrote and we talked about, we've talked about before is just like

that it's not necessarily about an an advantage, an information advantage per se, but an analytical

and behavior one behavioral one. And I think that we, you know, we've gotten into that. I think that

the way that you approach and we approach research is already showing that, you know, like this this shifting from a short-term view to a long-term view, you know, being able to curate

and focus on like really specific sectors and industries. I guess what I would ask you maybe maybe what we could get into is like um this the balance of private and public markets might be

interesting to explore a bit because I know that we're really interested and we focus on public.

Yeah. Um I mean that's a big topic. Um, so I'll try to keep it high level and then we can

jump in if there's any place you particularly want to go. Yeah. Or just I mean how how it fits into

this into the innovation conversation. Yeah. So the way that we generally approach public private.

So first of all everyone is overallocated to private way overallocated to private and and one

of the key kind of tenets of the firm and one of our main thesis you could say is that liquidity is

just systematically undervalued. So, long story short, we're in a what what I like to call a

volatility spiral where that's just a fancy way of saying things are getting crazier and crazier and

crazier because the craziness feeds on the crazy and and that means just volatility within policy,

volatility within uh I mean conflicts breaking out. I mean we see this ship go sideways in the

in the Suez Canal. I mean all sorts of chaos, unexpected Yeah. chaos. I mean

that is volatility and and the key aspect of volatility is you need to be able to move. You

need to be flexible. You need to adapt. You need to be resilient. And the problem is that

you need liquidity to do that. Liquidity is the is like the oil that lubricates your movement

uh to to identify and adapt and seize the opportunities. And everyone is they've got they're

like the tin man. They've got no oil. There's they're stuck in in private oh my god uh private

structures and they cannot get out for years and years. And this is starting to dawn on people

that this is a huge problem. So that's kind of the backdrop and one of our core tenants as I said is

is that liquidity is good. You want to have a lot of liquidity and when we talk about the

innovation strategies um you know the the equity strategies that we're that we manage for clients

the vast majority of that is going through liquid publicly traded equities which systematically are

underappreciated because they give you liquidity. Why has this hamster wheel been created around

the private markets if it clearly like you know people are waking up. You just said it's dawning

on us. It's wonderful, right? But I mean now there's a whole set of challenges that need to be solved. I'm like now I have a million questions. Does that mean that somebody who's in

this position and then it's dawning on them that they need some liquidity can can talk to you that you can help them? I mean, what is supposed to if you're the tin man and there's no you don't,

you know, how are they getting access to oil to loosen this? And then, of course, you know, my curiosity is just like, okay, well, why, how, why has this structure been built in the first place?

But maybe that's not where we should take the conversation. Maybe the conversation is more about somebody who's feeling like the tin man. How do they get out of being the Tin Man? It's worth

briefly talking about why because it's relevant to clients and and people who might be listening to

this. Um, again, not to paint such a bad picture of the investment industry all the time, but it's

institutional incentives that made this happen. The inst institutional incentives are number one,

if something is private, it doesn't need to be marked to market. And everyone likes that

because clients don't have to see it and worry. uh the investment manager gets to show a a line

that constantly goes up and to the right in terms of value. More control over the story. There's more control over the presentation. Yeah. More control over the presentation. There's a

lack of of feedback and information which serves everyone's interests, you know, the client because

they don't, you know, they don't need to show that their portfolio is volatile even though in reality

it is. But you do these marks to model essentially you you you know try to value but there's no

public market for it. You wouldn't see it going up and down like this which is stressful and the

investment manager doesn't like that because then they can say oh well look every quarter it's just appreciating. Oh my goodness it's so steady it's incredible. Um so so you get that there there's

also an element of like exclusivity like oh public stocks any Joemo can buy that. Well, I have I have

deal flow. That's the term. I have deal flow. I can get flow. I'm getting deals brought my way and

I can get you into these deals if you come with me because I'm well connected. Like there's a whole kind of exclusivity element to this that's very strong especially on on sort of the the personal

um you know individuals and families and that sort of thing. Like that's that's very very

uh prominent within that side. And then on the institutional side, so endowments, foundations,

hole. I'll just tease you with this. And okay, this is like way too nerdy for our purposes

endowment wrote a very influential book because Yale at the time, most endowments and foundations

and pensions were like stocks and bonds, you know, call it a day. And he basically made this argument

and said, "Hey, we're an endowment. We're Yale. We have this hundred-year time horizon. We can

make more money if we invest in private equity and private debt and private commodities and

farmland and you know hedge funds and things that lock you up because we are getting paid

extra for taking the liquidity risk for giving away the oil right and Yale did very well for

an extended period of time and the problem is like everything in investing every trend sews the seeds

of its own demise. Well, we're here 25 years later and now everyone in their uncle has followed that

strategy and not not only are you not getting paid or compensated for taking the liquidity

risk on most measures that that people have made over the last 10 years, you're paying extra to

not have the liquidity, to not have the ability to move, which is just it doesn't make sense and

it's sort of madness, but that's the power of that trend. And of course all you know uh a

lot of institutions emerge to capitalize on this. There's a lot of incentives to keep that going and

now you're starting to see that really get called into question and big endowments saying oh my god

we need flexibility here. And to answer your second question, yes, that is a big thing. Like

very commonly we're helping clients who have gotten stuck in Tinman territory and and stuck

into private investments that are either illiquid or they're they're slowly kind of bleeding out uh

you know, kind of venture related things. And a big part of what we do is helping them restructure,

helping them transition into liquid strategies that can achieve the outcomes that they need

without while retaining flexibility. And that's obviously a process once you've uh once you've

gotten, you know, gotten locked in to to some extent. And and there's circumstances where you

can get unlocked, but that's a whole, you know, complicated story. Uh but yeah, that is a major

need for clients and that's something that we kind of have have started to you could say specialize

in uh to some extent. Um yeah, but yeah, the liquidity is our is our credo and I I don't

anticipate that changing maybe for the rest of my career. Like that is a long that is a Titanic

that has taken a long time to to to turn and now that it's turning it's not going to veer back in

the other direction for quite a while. Things are changing I feel. Yeah. Across the board.

Okay. Um is there anything that you feel like pertaining to this topic that I didn't ask you

about? Yeah. essentially this notion of how do you harness innovation while being while not taking

unnecessary risk? Um and and just like why are general purpose technologies more predictable?

Why are certain businesses how can you get comfortable underwriting the risk of 10 years

out? Like that's a wicked challenge. And this is the answer to that challenge is by

focusing on these processes that that take place along fairly predictable paths and and and I'm

not just like there's plenty of academic research on this. I mean it's it's it's essentially writes

law which says you know that these are predictable paths. So if you can extrapolate

what's what's happening in front of you like I guess putting it in a less abstract nerdy way.

One of the biggest lessons I always learned from from my mentors in the business was investing is

not about speculating about what's going to happen in the future. It's not about saying well I think

like this probably will happen. It's about looking at what is happening now and anchoring yourself in

what is happening now and what does that imply for for that trajectory of what is happening now

that is investing and when you talk about these general purpose technologies that is why it's not

speculation because you can look and you can see solar panel prices are dropping at this rate over

this period and it's already happening and if you extrapolate that forward What does that mean? What

does that imply with some band of uncertainty, right? Cuz you don't know exactly how fast or what

the circumstances are going to be. But I can tell you with a high degree of certainty, I'm pretty

damn sure that 10 years from now, there's going to be a lot more solar panels in all over the world,

exponentially more, than there are today. You know, you can quote me on that. And that's not speculation because it's taking that what is in front of us today and saying okay this is a force

that we kind of know how to measure and gauge and predict and that is the underlying basis of

how we can underwrite those investments over that kind of time horizon. That's how we can leapfrog

the people who are on the hamster wheel and say, "Okay, we have confidence, you know, within bounds

that we're controlling for that the world is going to look something like this in this particular

way." That's pretty powerful for the moment that we're living in when I think people are Yeah.

the chaos and the and the what feels like uncertainty and lack of control. You're

expressing a reality that I think would sound very attractive to many. But it's chaos. But you

know the flip side of the chaos is chaos often happens when you have big technology change and

and you know a whole another conversation but you could point to a lot of the chaos happening more

broadly and and look at the internet how that's changed communications how that's changed med

like that has had a huge impact and the same thing happened a hundred years ago you know when you had

talk about uh uh internal combustion engines and communication technology and electricity. Well,

that brought you modernism and the First World War and I mean all of these hugely traumatic

experiences, but that also created the flowering of modern life and all of the wonderful aspects of

it. And I mean, these things go together. And and and just to tie it into the impact thing,

like look at how many people like take it back a hundred years. How many people were living without

50 years later their lives were transformed by having electricity and cars and all of

those aspects. Um this that is the power of technology to bring impact because general

purpose technologies are by definition democratic. They give power to people who are powerless

because they make things cheap. They make it available for you to get access to things that you

couldn't before. So just to take one example from today, solar panels are a great example of this.

So solar panels make it dirt cheap to get access to electricity. And to take one specific case

study, look at what's happening in Pakistan right now. So Pakistan is a dysfunctional state. Um the

institutions are very rickety and specifically in uh uh in some of the larger cities the electric

grid is really just completely falling apart. And what you're seeing is that previously instead

of being beholdened to that and having to deal with blackouts, brown outs, having to, you know,

have your lives be seriously negatively impacted by this. What you Pakistan is one of the largest

uh growth markets for solar panels because everyone's saying screw that I'm getting off the grid and I have the power to install solar panels on the roof of my business on the roof of

my home and I can you know power the refrigerator. I can, my kids can have light to do their homework.

Like all of these things that previously you didn't have, you were beholden to someone else. You didn't have the agency. solar panels make that possible. And that's just kind of a

goofy little specific example. But that's why general purpose technologies, although

they tend to be born and bring with them this kind of chaos and volatility and and craziness,

they also are the harbingers of much much better things to come. And that's where the wealth comes

from. You just shown a light on like on this example, right, of technology. um that

is like just objectively not a scary example. I don't know. I it I can't help but start to think

I can't help but think I'm I'm thinking about your comments too and how we talked about before

and in the white paper of just like how anybody can really spin something to being a revolution and then typically around you know the way that that's made possible too is like this marketing

I mean I don't know also as like where I'm wearing a marketing hat and like the way that people can use marketing to kind of create a story evoke an emotion like all right that that is that feeds

that feeds that chaos and I just wanted to ask you like if there were any specific could you give me

an example of like one of these dangerous examples where it's like BS a false a false tech rev

yeah there's there's a lot um I mean in the investment world pretty much every company has

some kind of some kind of story about how they're the they're doing something extraordinary and

innovative and new and it's Uh let me give a very specific example from today. So quantum computing

um that is an area that has a lot of hype, a lot of attention, a lot of people have gone into it.

That is not a general purpose technology, right? that is dependent on making significant leaps in

capability that we have not gotten close to yet despite all the press releases and

headlines and things like that. Um so it's not getting dramatically cheaper. It's not uh being

produced in greater and greater quantities. That is a speculation like yeah maybe someone will come

up with some crazy new way to do this that will cause a huge breakthrough but you have no way of

anticipating that. You just have no idea. And and it's the same thing like take something

like titanium, right? Let's you know in a different different approach. Titanium,

you know, we talk about steel in the in the in the piece. So let's take another metal, right,

and compare it. Yeah. And steel itself got much cheaper over the course of the 20th century. like

even way after the the best like all the 19th century stuff that we talk about in the paper,

steel got way cheaper because of the emergence of uh EAF mills and all of you know lots of

innovation happening. So that was a very long process. Compare that to titanium. Titanium

has not gotten any cheaper on an inflation-adjusted basis for like 75 years. And the reason is because

they make it today in the same way that they made it 75 years ago. You know, in the in the mid- 20th

century, they have there has been no breakthrough. There's been no you know innovation around the

process of making titanium that has unleashed the general purpose uh kind of force where exponential

uh growth of production drops costs exponentially which means exponentially more ubiquitous use.

That has not happened. So titanium is a weird little niche thing. You probably didn't think about titanium once in the last six months until I mentioned it just now. Right. Correct. Yeah, like

yeah, there's some things that use titanium, but it's expensive and it's and it's niche just like steel was for 3,000 years before someone unlocked the that process through the Bessemer process.

So when people talk about innovation, most of the innovation and kind of stories are around things

that are speculating on, oh well that would be really cool if they figured out a new way to do

titanium or quantum computing or you know insert whatever it is that has not shown those dynamics.

But again, you have no way to know and most of the time that's just not happening for most things.

No, I mean as a Yeah, it's like one thing to have an idea um or a fantasy and then but what is the

Yeah. Yeah. Yeah. Well, well, in investing especially because the people on the other

side have a big incentive to sell you the fantasy because they're literally selling you stock. They're raising money from you. So these aren't scientists who are just saying, "Oh,

you know, we're really optimistic." Like these are people who are in some effects salespeople. So

you have to take that with a big grain of salt when you hear big claims about anything.

And that's why, you know, if you were to look historically, most things are kind of hyped up

uh hyped up speculation. Look, we're talking about investing and but I think that this this

conversation isn't just for investors. Um, and so I think that we've pulled on some context

that is super relatable to people that are like the in class, you know, the classic investor.

It's not really for investors because most people who self-describe as investors,

They want more action. Like what we're doing is for people who have created great wealth

and they need us to take care of it for them. They want to, they don't want to lose it. They want to protect it. They want to compound it. They don't want to be sitting there, hey, what are you guys

doing today? What are you trading? Because because that's not how we that's how most like traders and

investors operate, right? And that's, you know, that's the antithesis of what we're doing. So,

in many ways, this conversation is uh deep on the investing, but it's not really for

investors. Yeah. Different game. Okay. So, yeah, I just wonder, you know, AI is top of mind for

everything. I think, you know, if we're going to also just talk about stories and marketing and all of the hype and chaos that's around that term, like can you just like offer some sort of grounded

grounded point of view or perspective or thing to say when within this conversation of technology

and innovation investing? Yeah, it's an important topic and we should talk about it because it's a

good example of something that's playing out today and how do you think about it? How do you approach it from the standpoint of our clients with that time horizon, you know, in in the context of what

we do? So AI is legit. It is a legit revolution. That is full stop the truth. How do you harness

it? Well, there's not many good ways to do that right now because when you talk about AI,

you're talking about two things. You're talking about semiconductors essentially and all of the infrastructure that makes AI possible because AI as we said is the apotheosis of computing.

Computing is turning sand into mind. That was always the phrase that people like to use.

Um AI is just taking it is computing to an exponentially higher level of capability.

very earliest stages. Um so that's important. This is not coming out of nowhere. This is legit which

is why all the great advances in AI have happened because computing got cheaper and cheaper. Like

people knew about backwardation. People knew about these machine learning techniques back in

that next level of compute which is AI. So that I think is an important thing to bring up. So

where are we in that? So you're seeing two things. All of the AI speculation, all of the excitement

and all the growth and and the valuation blah blah blah is around the infrastructure to provide AI.

when electricity demand was really starting to take off and you had these huge like companies

that were large really start to turn into these enormous conglomerates like Conison. That word.

Yeah. Like we're talking about Yeah. Conison is a great example. And at the time, these were hugely

profitable conglomerates. So, Con Edison, I'm I don't know if we talked about this. I'm glad

that sink in for a minute. That is true. I've gone back and looked at the financials.

Um Oh my god. They were an extraordinarily profitable business dispensing electricity,

building the infrastructure around what was to be, you know, one of the key technological revolutions

of the 20th century. That was an enormously profitable business at that time. Wow. And

then and then those margins never got anywhere near that ever again because they built out the

infrastructure to enable this. But the marginal return, the marginal uh return on capital,

the the incremental margin you could say was very bad because they're building a ton of physical

stuff. And when you're building a ton of physical stuff for something where the price is dropping exponentially, that's usually not great um for most people, most companies in that supply chain.

So that's you know similar to where we are today where you have you know Nvidia has you know 40

something% margins. I mean different business obviously Nvidia does not have tons of physical

assets but the point is there's a lot of profit sitting in that infrastructure stack and the

hyperscalers are making a lot of profit. Microsoft Azour is making a lot of profit. I see. So that's

where kind of a lot of the excitement is around right now. The thing that's really exciting about

AI and yes like there's a lot of good investments in semiconductors and the related equipment and we

own you know names like that for clients because they're tied to the growth of semiconductors and

if you can pick the companies that are have those durable margins that are selling an essential piece of equipment like that's a really good place to be that meets the criteria of what we described

earlier. But the place that's really going to be most interesting for AI is yes some aspects of

the infrastructure stack and and that's you know as we sit here today there's not a lot of good

investments to make there because everything is so expensive because everyone is just way to the moon in terms of their expectations and this might date the conversation a little bit because things might

change pretty drastically in the next year or two. But as we sit here today, like you know

that's the situation. The really interesting thing with AI though, like if you were to think of, oh,

electricity, what a what an incredible revolution, the things that it enabled were much more

interesting than owning Con Edison. Yeah. Right. Yeah. So when you think about like the Walmart

example again, here's a normal quote unquote business that said, "Oh my god, we can really use

these new point of sale computers to transform our business." Who is going to be the Walmart of AI?

like some companies are going to do that extremely well and absolutely explode in terms of value

creation and innovation and what they're doing and growth. And the companies that don't are going to be absolutely screwed. Just like Walmart's competitors, can you even name them

anymore? They've all died with a few exceptions, but there used to be dozens of them. And the ones

that didn't adapt went away. And that's sort of where we are with the AI situation now where

are sort of figuring this out. It's very early. Most of them are still no how do we use this new

thing? I don't know. We're and they're they're locked into existing business models that often

make it hard to change. There's a lot of stasis. There's a lot of stuck ideas and stuck capital.

You know, you go to Clayton Christensen, The Innovator's Dilemma, you know, he wrote about this extensively how businesses that have an existing model, it's just so hard to change. And that's

where we are now as we sit today is like, okay, we have exposure to key picking our spots over here,

but that's, you know, you have to be cautious. The real big opportunity is going to be in that

latter group. But it's still too early to identify with any like remember it's not about speculating.

It's about looking at what's in front of your face today. We want to be able to see those companies

that right in front of your face are using AI in a very transformative and native way and you can say

aha that is that is who is going to be you know strengthening because of this not weakening and

and then you can invest with more confidence. Okay. I would love for you to give the visual of

the that you provided yesterday, which is that of wind blowing over a castle and this idea of

resilience. And because I think a part a huge part of building and creating a castle that

can withstand that storm or that wind um is is this negative approach that that you also talked

about. So I think that those are one and the same. I actually think that this is a great way to kind of wrap up this conversation um and leave it at that. So the the foundational idea behind

the negative approach which I like to I I coined a new term called reverse tool story frameworks

which is really pretentious and shows the English uh major super relatable Rob really relatable but

it's it's a clever way of saying because everyone knows the quote from the beginning of anina where

Tolstoy says all happy families are alike. All unhappy families are unique in their own ways.

And the reverse toll story frameworks is a is a is a funny idea that basically says well businesses

it's the opposite. All of the happy stories all of the businesses that are able to earn extraordinary

returns are able to grow far in excess of anyone else. The Apples, you know, whatever extraordinary

example you want to look at. They're weirdos. They're outliers. They're all idiosyncratic.

And there's some cookie story that that emerges to to create them in many ways that can be often hard

to anticipate. And everyone focuses on, oh, what are the ingredients of the super companies and oh,

it's management. You know, remember there was a there was a book that was very popular, I don't know, like 15 years ago called Good to Great. And everyone loved this book. It was about these

companies and oh, they are truly great and here's how I know they're so great. And like in the end,

half of them ran into trouble and the book was a total bust. But the point is, it's really hard

to identify the great because it's inherently unique, inherently idiosyncratic. It's much

easier to weed out the weak and leave the ones that could be great but probably will be very

good. And that's the reverse reverse Trollspace framework is that the the the the sad stories

the companies that earn mediocre returns that cannot maintain their growth because competition

comes in to take it away that get disrupted by structural change or new technologies. Those

are the common stories. That's the everyday. And you can apply certain frameworks to identify the

patterns of that happening over and over again because that's gravity at work. Capital chases

returns. It's very difficult to earn extraordinary returns to earn extraordinary growth over a long

period of time because the system is trying to take that away from you. That's gravity at work.

So my training primarily was on the short side identifying these these businesses

um these patterns that occur over and over again. Why is a company vulnerable to competition and other companies are not? Why is a company vulnerable to this technological

shift and what's being done? How are they being disintermediated? How do those things happen again

and again and again? And that's getting back to the question of process. That's where the

process starts. So you don't start this process by trying to find the extraordinary Walmart in

1976. That's later. You start the process by weeding out the nonresilient ones by applying

these frameworks that are fairly predictable, fairly uh uh repeatable. And you can, you know,

we're starting to use AI to help us begin this process because that is a process that is doable

by AI whereas identifying the weird extraordinary ones takes much more creative thinking. So this is

the idea of the negative approach and that's where the process begins. And if you use that metaphor

of you know the resilience of your business as how strong is your castle? How strong are the walls of

your fort? Well, you go around with a hammer and you try to bang on everyone's walls and if they

fall down then that's not the business for you and that's the approach that we begin with and in the end you're left with companies that hey they've actually held up maybe there's something

interesting here and and that is the metaphor of resilience that I would leave with you is like

the castle walls and then you have you know the winds of innovation the winds blowing and they're

blowing across the whole plane across everyone's castle And some of the castles crumble as a result

of that. And some of them like put up a sail and catch that innovation and they just harness

that energy and get bigger and stronger and more powerful compared to competitors and they grow

faster. And those are the businesses ultimately that you want to own. If you have generational

wealth and you want to own them and you want to hold them and and and focus on those two elements

above all else. Beautiful picture painted in my head and I'm thinking about how um businesses and

you know corporations are like the modern day castle. We're still we're still in medieval

times. Just looks different. I guess being in France surrounded by all these medieval ruins

uh helps drive the point home. Yes. Okay, Rob, I think that that wraps the episode beautifully.