Peter Lacaillade - Backing The Best Managers In Private Markets - [Invest Like the Best, EP.437]

My guest this week is Andy Rachleff, who is the CEO of the automated investing platform Wealthfront. Andy was also a co-founder and long-time partner at Benchmark capital--one of the most interesting and successful venture capital firms in the world. We spend most of our conversation discussing venture capital investing and entrepreneurship. Andy coined the now ubiquitous term “product/market fit,” and has great insight into how investors and entrepreneurs should think about business. In that vein, we discuss both what we refer to as the value hypothesis: building a product or service that customers love, and the growth hypothesis: scaling that product or service to a large market. We finish our conversation by talking about Andy and his teams mission at Wealthfront, and this conversation is perfectly timed, as Wealthfront just released a new feature that allows investors to buy factor portfolios, similar to Smart Beta ETFs. Above all, I’ll remember Andy’s advice to “put the gun in the other person’s hand,” a strategy that we explore in the middle of our talk.   For comprehensive show notes on this episode go to http://investorfieldguide.com/andy For more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub. Follow Patrick on Twitter at @patrick_oshag   Books Referenced The Four Steps to the Epiphany The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses Millennial Money: How Young Investors Can Build a Fortune Diffusion of Innovations Crossing the Chasm: Marketing and Selling High-Tech Products to Mainstream Customers   Show Notes 2:36 – (First question) – The partnership setup and how they came to be 5 equal partners 7:57 – Why benchmark would not take on the chairman role in companies they invested in 9:28 – What made John Doerr the greatest capitalist investor ever 11:59 – Looking at the venture process and what made it an attractive investment for Benchmark, using eBay as an example. 18:06 – If you are willing to help other people, without an expectation of return, it can create other opportunities 20:08 – Andy is asked to explain the idea of Product Market Fit, a term that he coined 22:18 – How does one go about finding a Product Market Fit             23:05 – The Four Steps to the Epiphany             23:19 – The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses 25:55 – What are the components of the Growth hypothesis 26:51 – Why you can learn more professionally from success vs failure 28:13 – What it’s like to shift from venture capitalist to operator/CEO 30:24 – The rate at which technology gets adopted and what will help Wealthfront             30:53 – Millennial Money: How Young Investors Can Build a Fortune             31:26 – Diffusion of Innovations             31:38 – Crossing the Chasm: Marketing and Selling High-Tech Products to Mainstream Customers 32:38 – What does it look like to innovate on top of current platforms 41:07 – Will platforms like Wealthfront help to democratize access to private markets 44:23 – Kindest thing anyone has done for Andy     Learn More For more episodes go to InvestorFieldGuide.com/podcast.  Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub Follow Patrick on twitter at @patrick_oshag

20 Juni 201748min

I’ve often joked that this show should be called “this is who you are up against,” because I am so often having conversations with brilliant people across the investment landscape who are effectively my competition and yours. This week’s conversation fits that description because it gives you an inside view into how things work among some of Wall Street’s most competitive investment firms. My guest is Leigh Drogen, who has worked as a statistical arbitrage portfolio manager and who founded and now runs Estimize, a data company which works with some of the world’s largest hedge funds. Our conversation centers on the massive shift from what we call discretionary portfolio management—basically stock picking—to a landscape that is increasingly dominated by quantitative investors of various types. We talk about how any investor might hope to earn alpha, and how doing so is harder and harder. There are so many great stories in this episode, told by someone with the perfect career experience to know how the system actually works. After many episodes where I’ve been learning on the fly about topics like venture capital, permanent equity, or health, this episode marks a return to my world of quantitative investing. I think you’ll learn a lot, and that you’ll likely finish with an even deeper appreciation of just the type of investors that we are all up against.  Books Referenced Revenge of the Humans: How Discretionary Managers Can Crush Systematics   Links Referenced The Undoing Project: A Friendship That Changed Our Minds Force Rank (App) Founder of Estimize Explains How He Plans To Disrupt The World Of Wall Street Research   Show Notes 2:45 – (First question) – A look at Leigh’s early career and how he got started in investing 3:13 – Revenge of the Humans: How Discretionary Managers Can Crush Systematics 8:04 – What happened when things stopped working towards the end of 2007. 9:35 – The proper dimensions to separate any sort of potential Alpha edge 11:15 – The traits that help a fund perform well 11:42 – The Undoing Project: A Friendship That Changed Our Minds 14:05 – Force Rank (App) 14:49 – How the scientific process plays into Leigh’s research strategies 19:18 – Explain what Estimize is and what it does 20:55 – How people are compensated for the estimates 23:33 – The scale of how many estimates they get per company 24:57 – Why you need to be part of this informational arms race if you hope to survive 28:30 – What happens if everyone buys Estimize data and the Alpha built into it goes away 31:04 – What has been the evolution in these hedge fund platform type companies 35:00 – If Leigh was designing a firm from scratch, what would it look like 37:25 – Understanding Numerai and crowdsourcing in funds 41:41 – What is an example of interesting data set that Leigh as come across 45:38 – What is the potential for a hybrid model between a quant only with a discretionary picker. 51:35 – How do you know when something is busted or broken? 55:33 – Exploring his most memorable individual day in his career – Flash Crash 58:16 – With all the algorithms and automation, will we continue to see more of these unforeseeable dislocations like the flash crash? 1:01:00 – Bloomberg article about passive investing rates 1:07:50 – What is Leigh most excited about the future 1:13:15 – Kindest thing anyone has ever done for Leigh            1:13:41 – Founder of Estimize Explains How He Plans To Disrupt The World Of Wall Street Research   Learn More For comprehensive show notes on this episode go to http://investorfieldguide.com/drogen For more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub. Follow Patrick on Twitter at @patrick_oshag

13 Juni 20171h 18min

This week’s episode is very unique. It is the first episode devoted to bonds, just not the kind of bonds you are used to. My guest is Ira Judelson, who is the leading bail bondsman in New York City. I met Ira through my friend and former podcast guest Danny Moses, who is also a part of this conversation. I have always had a passion for understanding how different businesses work. In this case, this week we are exploring a different business, but also a different world. Ira’s story is larger than life. He is as authentic and hard working as they come. In both his book and this conversation, there is a lot about family, loyalty, and hard work—principles which really resonate with me. You’ll emerge from this hour with an appreciation of hustle and what it takes to get ahead. I can’t stop thinking about our discussion on how sources of power in any career morph through time, a framework that can help anyone think about their work and where to apply effort. The conversation goes all over the place, but suffice it to say we discuss bond collateral, Dominique Strauss-Kahn, and DMX—and that is but one small fraction. Please enjoy my conversation with Ira Judelson and Danny Moses.   For comprehensive show notes on this episode go to http://investorfieldguide.com/ira For more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub. Follow Patrick on Twitter at @patrick_oshag   Books Referenced The Fixer: The Notorious Life of a Front-Page Bail Bondsman   Links Referenced Rao’s Restaurant   Show Notes 1:55 – (First question) – The role that Rao’s restaurant has meant to Ira’s business and career   6:11 – A look at Ira’s bail bonds business and how that industry works             6:22 – The Fixer: The Notorious Life of a Front-Page Bail Bondsman   8:31 – The story of how a pizzeria was a bad piece of collateral   11:10 – How often does Ira deal with bail jumpers   12:10 – What is the size of the open liabilities   13:14 – How long will the open liabilities last   14:55 – Ira’s relationship with his clients and the importance of character in this business   17:46 – the amazing story of how Ira got started in this business   31:05 – His early years of being a bail bondsman and how important his wife was to his success   29:52 – How Ira balances family with this kind of work   32:22 – Ira’s ability to be amazingly efficient on the phone when in social settings and a work call comes in   33:14 – Ira is the fixer   36:40 – Exploring the “Sources of Power” and where the balance for Ira of who he knows vs who he has shifted in this line of work.      38:29 – The importance of intense reliability, consistency and empathy, and why Ira can trust his clients may be considered bad people   30:19 – Two cases where Ira got emotionally involved   47:26 – Why Ira is not worried about people coming after him   48:57 – When a bunch of detainees were wailing to wait an extra day in jail for Ira because his wife was pregnant with their first daughter   54:06 – Ira’s relationships with Ja Rule and DMX   58:32 – What does Ira enjoy most about the business still   1:01:51 – Will Ira ever stop?   1:04:02 – What advice would Ira give to someone early in their career just getting started   1:08:42 – The importance in having a willingness to fail mixed with the passion for what you are doing   1:10:11 – Ira’s health scare and what it taught him about appreciating life

6 Juni 20171h 17min

This week's conversation was especially fun. I have a long history with my guest, Dave Chilton, but this was the first time we'd met in person. I'd heard stories about him from people I work with for twenty years, so getting to finally spend time with him was a real treat. I'll let him reveal the connection. This episode will also be fun for listeners in the US, as Dave is one of the best-known people in Canada because of his famous book the wealthy barber and his more recent stint as a dragon on Dragon’s Den, which is Canada's version of shark tank. I called this episode the human blitzkrieg because of Dave's relentlessly positive style and curiosity. He has dabbled in many parts of the business and investing worlds. He is one of the most successful authors in history, has invested in dozens of interesting businesses, and is a Jedi master in the long-lost art of the phone conversation. We discuss business, investing, and writing. If you enjoy this conversation and have any aspirations as a writer, I highly recommend you check out the series of videos Dave and his son recently released called the Chilton method, which I will link in the show notes. I have no financial interest in this recommendation, and neither does Dave! He put it together in large part to stop people from calling him for advice. We discuss a few of the hundred plus lessons from his course in this conversation. As you'll be able to tell early and often, it is hard not to have a good time with Dave.   For comprehensive show notes on this episode go to http://investorfieldguide.com/chilton For more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub. Follow Patrick on Twitter at @patrick_oshag

30 Maj 20171h 37min

My guest this week is David Salem. David was the founding president and CIO for The Investment Fund for Foundations, which served 800 endowed charities under David’s 18-year tenure. He's now the CIO of the Windhorse Group, which focuses on long-term, value oriented investing. This conversation wanders into and explores many different areas of investing and life. The theme is how to think about asset allocation and investing holistically--from first principles--but we talk a lot about motivation, incentives, human behavior, and the fear of missing out as key variables in money management. We discuss the history of the Yale and Harvard endowment models and how their success has affected the asset management world for better or worse. I had never heard such an interesting take on two very important institutions. I also can't stop thinking about David’s "Mt. Everest" question, which we explore early in our conversation. I'd love to hear your answers to that question, so email me or message me with your thoughts.   For comprehensive show notes on this episode go to http://investorfieldguide.com/salem For more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub. Follow Patrick on Twitter at @patrick_oshag

23 Maj 20171h 28min

My guest today is Michael Mauboussin, who is the head of global financial strategies at Credit Suisse and is on my short list of must read writers on all things investing. If you read his entire catalogue, Howard Marks's memos, and Buffett's shareholder letters, you be sitting pretty. Michael was also a big reason for the early success of this show appearing as my second guest and now my 37th. He and his team have been prolific in the last six months, publishing several long research reports on the most interesting aspects of the investing landscape. In this conversation, we talk about business moats, industry analysis, and how to combine man and machine when building an investment strategy and portfolio. As I tell Michael at the end, you won't be able to listen to this episode at two times speed, because we go deep quickly. For comprehensive show notes on this episode go to http://investorfieldguide.com/michael For more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub. Follow Patrick on Twitter at @patrick_oshag

16 Maj 20171h 31min

This week’s guest is Will Thorndike, an author and investor whose book The Outsiders is an all-time favorite of mine. Our conversation is in two parts. First, we dive deep into the lessons of his 8-year research project studying CEOs who were master capital allocators. These CEOs include Henry Singleton, John Malone, Tom Murphy, Katherine Graham, and Warren Buffett. We discuss how these CEOs tended to be contrarians on topics like dividends, buybacks, acquisitions, and the use of debt. As we go through each of the tools in the capital allocators toolkit, you’ll hear several useful lessons for running or evaluating a business. In the second part, we cover Will’s career in private equity. Will founded and continues to run Housatonic Partners, investing in buyouts, recaps, and search funds. Will has been one of the most active search fund investors for decades, and given how much time I’ve spent in past episodes on the searchers or operators in the micro-cap, permanent equity space, it was great to get the perspective of an experienced LP. As always, we also take time to survey the dangers and opportunities in today’s private equity market. For comprehensive show notes on this episode go to http://investorfieldguide.com/thorndike For more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub. Follow Patrick on Twitter at @patrick_oshag

9 Maj 20171h 11min

This coming weekend is the annual Berkshire Hathaway shareholder meeting in Omaha. That means this week is the perfect opportunity to discuss a topic which will likely figure prominently at Berkshire this weekend: Ted Seides’s famous bet with Buffett. Ted and I discuss the origins of the bet, the nuances beneath the headlines, and whether he’d make the bet again for the next ten years. Along the way, we cover many hot topics like hedge funds, alternatives, fees, and indexing. Please enjoy! For comprehensive show notes on this episode go to http://investorfieldguide.com/bet For more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub. Follow Patrick on Twitter at @patrick_oshag

2 Maj 20171h 11min