To run a company well, you have to be in

the and business, not the or business.

You have to drive growth measured by

market share in the short term. You have

to drive innovation or allocate capital

well to position yourself better for the

future. And you have to drive

profitability. But I believe the path to

building a compounder or even a what

some people would say a generational

company through the public markets is

proven.

I thought a interesting place to begin

would be with you telling us the origin

story of your investment philosophy.

We're going to talk deep specifics about

a lot of things in the world today so

that people understand where you're

coming from and how you came to your

philosophy. I just love to begin there

like the key ingredients of the recipe

that's become how you attack and think

about markets. Where did it come from?

Where did it start?

>> There's probably a couple places that

come from so uh one was frankly my own

personal background. So I came into

investment not you know directly out of

school. It's not like I went a finance

pass. I went into politics. I didn't I

wasn't an economics major. I was

actually

an organic chemistry and a history and

technology

major and you know I worked in politics

for many years and

as I started to like try to figure out

what I wanted to do professionally and

eventually I started to think more about

investing and I get got involved in it.

I started to think about um investing

based on a lot of the same principles

that I learned in science, right? In

particularly biology that in order to

have organizations or organisms that

sustain

over a long period of time and kind of

persist much like human beings, they

kind of have to be in balance with their

ecosystem, right? So, you know, you see

it today. I'm I'm a father of two boys

and you see it today, right? When when

when children develop, right, they they

got to basically go through certain, you

know, curves like child, adolescence,

teenager, adult, and they have to

basically be in balance. And if they

are, they can kind of thrive and kind of

do incredible things. And we as human

beings, if we do that, like look at look

at all the success humans have had, you

know, relative to every other species. I

started to think about why shouldn't

investing follow the same rules we see

in science right so why shouldn't

investing mean that um there should be a

healthy balance between companies that

invest in their customers their

employees their shareholders and

actually support their greater

communities and that that really kind of

resonated with me and in many ways I was

lucky too

that I ended up at Euro price early in

my career. And really the guy who became

my mentor, Jack Leaport, this is what he

believed, right? He believed you

invested in small companies, run by

people who thought like owners. They

woke up every day to make themselves

better. They were they gave their uh

employees a good deal. They had good

cultures. They allocated capital. Well,

this is what created companies that

could grow and sustain. And and that was

how he had been so successful over the

25 years he did what he did. That

resonated with me. You know what

happened to me though was a a bit of

good luck, right? Um I was asked um

halfway through my career at Hero Price

to basically go manage the New Horizon

fund and I started reading all the

shareholder letters. Um at that point it

was turning 50. So I actually went into

the archives and basically read the

shareholder letters and tried to

understand what was what drove the

success of this fund over 50 years. At

the time it was the oldest but also most

people would say it was the most

successful from a performance fund small

cap growth fund in the country. And in

doing it I started to realize wow it's

really it was really only 20 stocks over

50 years that drove the performance.

And then um coincidentally Jack or maybe

purposely Jack decided to have a 50th

you know birthday party for the fund and

all the um fund managers came except for

Troll Price himself who managed the fund

but was passed away. And in doing that I

um I talked to one of the managers who

told the story of meeting Sam Walton on

the IPO road show when Walmart first

came public. And for those of you who

don't know Walmart came as a super small

company. It only had 50 stores and

obviously Walmart, you know, became

Walmart. And I went back and I looked

and I was like, "Wow, this is definitely

one of the 20 stocks that mattered."

But actually, unfortunately, it was

sold.

>> They sold it.

>> And the math at the time was the retail

fund, I think I was managing about $8

billion, which was the largest pool of

small cap growth money in the country.

And had the stake in Walmart not been

sold, the stake in Walmart would have

been greater than the sum total of

everything that I was managing. And I'm

not saying people had made bad decisions

before, but actually the math was one

bad decision or maybe you had to make

that decision every day because the

public markets are open every day

actually wiped out all these other good

decisions mathematically than had done.

And so what that caused me to do was at

that point start to really study the

history of the US public market. You

know, since then I think a lot of people

talked about um the Benheimer

study that came out of Chicago.

>> Yeah. The 4% thing,

>> right? And that's true. But at the time

when I did this, no one had actually

asked the simple question in the history

of the US equity market, which is to me

like representative of capitalism.

If there's 4,000 average public stocks,

how many of them truly are great? The

philosophy we have today is predicated

that over a rolling 10-year period, you

have about 40 stocks that compound

wealth at 20% a year or go up a little

bit over 6x. So about 1% of the stock

market is the are the validatorans.

And that's what we want to go do. And

so, you know, since then, right, you you

like a lot of things in life, you get

through looking at lateral examples,

biology, and then you look at anecdotes,

and then if you like to double click or

you're you're maybe a geek on data, you

start to really study it. And then

obviously since then, we've tried to

create an investment philosophy

that maximizes the probability of

investing in those 40 companies. And the

other thing about 80% of those companies

actually start their compounding journey

as small cap companies. And so I always

people always say Henry why do why why

do you love small cap companies? I was

like well I love them because I love the

people side of the job but I also love

them because 80% of them of these great

companies actually start as small cavs.

That's what we're trying to maximize

because we think that's what creates,

you know, long-term wealth and economic

growth. Basically, what we have done is

basically purpose-built um an investment

philosophy and just as importantly tried

to purposely build an investment

organization that can go do that.

>> I want to ask about each your firm is

literally named as an ode to this

concept durable durable long-term

compounding growth for the companies

that you back. give us one more click of

detail on after that original insight.

So you've identified that you want to be

in this group of 40 companies as best

you can possibly approximate. What are

the common elements that you've

discovered that fit your personal and

your team style that are indicators that

you might have one on your hands? And I

know you do latestage private investing

as well. So you're you're looking at

these companies and when they're, you

know, at or near their IPO. Um, we'll

talk about going public later on and and

why that's valuable, but what have you,

what have you refined to be the most

important signposts of a company that

might be one of these 1% validictorians?

If you've been one before, you have a

higher probability of being one again,

right? Which just sounds so simple, but

is actually really interesting. We look

at who who has actually done it. And if

we don't really know the company and we

haven't studied before, we'll go double

click and go essentially study it, see

if there's an opportunity, but if not,

go do a case study on it, right? So, we

want to go learn it. One of my partners,

Anukate, basically um you know teaches a

class at Colombia Business School, the

value analysis program. And partially

this is our way of kind of going back to

school as an organization and partially

it's our way of giving back to our

community. But you know the class is

based on this and the students literally

do about six case studies a year but

over time you kind of build out a

library of them. You just start by

basically studying the ones who've done

it and then obviously trying to study

the patterns of those who've done it.

Right? So that that that's that's number

one on how we do it. Second of all,

they're diversified across the economy.

So, you know, look, we're in a period of

time where what's going on is and AI is

so impactful. My view on the impact of

this is probably no different than a lot

of the other speakers you've had. I

would say what I think about when I

think about the power of AI and really

studying it, I don't only think about

the companies that are the first or

second derivatives or maybe people were

categorized as technology companies. I

also think about the existing

diversified companies outside of the

technology space

that could be huge companies here. So as

an example when you go back and you look

at the era of cloud and mobile you know

for sure you wanted to go own Amazon in

that period of time but actually if you

look at retail once Walmart and Costco

really understood what Amazon was doing

but still had relative scale they

leveraged their advantages and since

they basically you know got on the same

curve 62% of all retail has gone to

those three. So for sure one might have

been better than the other, but actually

all three were good. What What was the

best Russell 2000 growth or for your

investors who don't know benchmarks um

small cap company over that 10-year

period in the 2010s? Well, actually it

was Domino's Pizza,

>> which you know is is was a modest growth

company. It didn't have didn't average

10% growth over the period of time. Why

was Domino's so good? Well, it turned

out, having gone back and studied

Domino's from the beginning, but

obviously owned the stock for some

period of time, the pizza market in the

United States, when Domino's basically

started its run, you basically had a

third of the market that was like local.

So, probably like a lot of um listeners,

I have my favorite local pizza place and

I like it because the pizza's great. And

then the the other third we know, right?

There's the Nationals, Domino's, Papa

John's, Little Caesars, others. And then

the middle third, there used to be in DC

this place called Arman's that had had

about 30 places and they had, you know,

local or geographic scale, but they

didn't have the scale of Domino's and

they didn't have great pizza. And what

happened was when Domino's started its

run, well, first of all, it started by

basically making the product a little

bit better. But if you talk to Patrick

Doyle, you know, who was CEO at the time

and you really study it, what they

started doing was if there's three value

equations in pizza, it's quality, value,

and convenience. And what they realized

is if we really really invest in

technology,

we can make convenience a lot better.

And so they really invested in their

app, built a direct relationship with

their customer

very early on. and they could then

target that customer more efficiently

with couponing, what have you, drive

scale through that box. And then when

you basically do something well, right,

you improve the product, probably was

slightly above average, you really

iterate on convenience and now you have

a direct relationship with those

customers. All of a sudden, actually the

brand halo started getting a little bit

better, right? Because you put all that

together against a wonderful business

model of a franchise business model

which is you know ROI light you end up

with a great stock. And so one of the

things we think a lot about at durable

is which of the companies that are in

distribution trucking who are already

good and maybe investing on a different

curve have the ability to use AI

to either substantially lower their

their relative cost advantage versus

their competition,

gain more revenue scale, and then

reinvest that in a way where you create

something that's permanent over the

companies that maybe get to this late if

they ever get to it. And often those are

the best stocks when you go study the

markets because you're already in a in a

physical world business where the

technology advantage transitions into a

physical mode advantage or distribution

or scale advantage. That's one of the

patterns we've ser we've observed. We

call that you know the good to great

thesis internally.

>> And then the second way is people. If I

think about um the investments we have

today, we tend to be in business with um

certain people we've known for 20 years

now and maybe they're doing the same

thing or maybe doing they're doing the

next thing but we think these are the

type of people who build great

organizations

and then obviously we have to meet new

people too. So um one of our um largest

holdings is Dualingo right? So we

first um spent real time with the CEO

Luis Vonwin um during COVID you know and

you know during the COVID era um as the

markets reopened you know they went to

highs and the private markets were white

hot you know in the zero interest rate

environment and you know people were

meeting people on Zoom and I remember

meeting Louise you know with my

colleague Julio I called Julio up and I

was like what do you think and he was

like well it's a super impressive

business and they're they're leading

their market, you know, they're they're

on the right side of their consumer and

the product's great. And I said, "Yeah."

I said, "Louis reminds me of Toby from

Shopify,

>> right? The last time I spent time with

someone that technologically strong,

right, Louise had been um head of AI and

ML at Carnegie Melon, but also has that

much business clarity and is so crystal

clear at communicating that he can make

complex topics simple that even I can

understand them was when I spent time

with Toby when Shopify was private and I

said, "We're going to basically clear

our schedule and whenever Luis will

spend time with us as in Pittsburgh,

we're going to go spend time with him.

And so I think the understanding of the

patterns and having studied them, the

understanding of

what creates the environment, Sakori is

famous for saying why now and what could

lead that not only on the technology

side but across the economy. But I think

the clarity you have when you've spent

time with you know at this point

thousands of executives and you have

seen the ones who've done it you want to

do more with them and then you have seen

the ones who are trying to do it but

remind you so clearly of the ones who

have done it. Can you say a little bit

more about this notion of act two teams

and management teams and why that is an

interesting concept to you when you're

thinking about the relationship between

an act 2 team and a potentially very

durable compounding company? This is

something that is so dear to me because

one, it's something we invest in, but

two, it's actually at the heart of

durable itself, right? And it's one of

the reasons that I think durable is just

different than other investment firms

because we ourselves were an act 2 team,

>> right?

>> At my prior prior firm, I invested in uh

workday when they were about at hund00

million of revenue scale. The two

co-founders of workday Anneil Bushri and

Dave Dufffield had basically been the

people who had pioneered

HR systems of record in the previous

client server world. So they were they

were literally the people who built

peopleoft scale peopleoft and then a lot

of history there but there was there was

basically a very aggressive takeover by

Oracle and so in many ways they had felt

they had frankly completed their vision

and so they came together but what

really also lit up the vision was um

cloud. Now this sounds so obvious today.

>> Yeah.

>> But you know in 2012 when we invested in

workday

I think a lot of the understanding of

the cloud was not as obvious by

investors and frankly I'm not sure I

fully understood it either. But what I

did understand was this was an act 2

team. There's a bunch of the stuff you

have to build into the product that for

lack of a better word is uh exception

management. And if you don't understand

that exception management because you

have done it before, you're you're going

to not properly be able to do it. And

because this was an actu team,

they actually knew how to leverage the

modern technology

but also build the system of record in

the way it dealt with the edge cases at

super scale. Obviously, they also

understood

what segment of the market to go after

and then how to serve it.

And I, you know, that to me is

the image we have at durable when we

look at an entrepreneur

who has solved and successfully won a

product product, you know, in a product

area or an area of business, but now

wants to go do it again. And there's you

know huge advantage when you go do it

again right you are essentially solving

the same problem with you know total

clarity at the beginning. The other

thing is if you've been successful,

it allows you to align

all ports of the organization, the

people, the organizational structure,

the investors exactly how you want to go

do it. You know, Max Levkin, right? So,

a lot of people know Max obviously. He's

one of the co-founders of PayPal

and um

know we we first invested in Max

actually. It's one of my first private

investments in my whole career. We

invested in Sly, right? And for many

years until recently, we're now

investors in a firm. I used to joke Max

I'm I'm like the only investor in Max

who hasn't made a lot of money, right?

But um with all jokes aside, Max to me

represents, you know, the best of a an

act two entrepreneur, right? For those

of you who don't have the benefit of

knowing Max, first of all, he truly

understands technology and he really

understands how it can be used in very

complex systems to solve problems. He

can recruit exceptional people because

he speaks their language. He's also a

very good leader and people believe in

him. He's also exceptionally resilient,

right? And so Max is a perfect example

of like an act two entrepreneur

>> um that we had we had already been in

business with. And when you look at the

you know if if durable does anywhere

from 5 to 10

new investments a year right with a lot

of times it actually is with act two

entrepreneurs

>> and then if we're lucky and this happens

because of compounding relationship for

having done this for 20 years a lot of

times it's with people that actually we

were investors in their previous act and

I think that's also great right because

they know us and we know them. We know

each other's strengths and we know

exactly how we can help each other and

you know look this is this is like the

maxes of the world and the anals of the

world get to do business who with who

they want but I think what it allows

them to do is with a clean sheet of

paper decide who we want they want to be

in business with but obviously from our

standpoint we we don't do a lot of new

things and it allows us to basically

really align our resources to support

them. What changed the most in your own

act two? So, as you structured durable

itself to be have the same features of

the companies that you're looking at

investing in, last a long time, do

really well, be tightly aligned, like

all these things that you're

referencing, what were the biggest

learnings that you took with you and

that you jettisoned coming from uh your

first first act to your second act?

>> Actually, I almost named Durable Act 2

Capital by the way.

>> Oh, wow.

>> It was such a prominent view

>> in what I was trying to do. We talked a

little bit about the investment

philosophy. I mean, the investment

philosophy is really simple. Let's

invest in small companies

that can compound over time and become,

you know, large companies. And what's

our advantage that we bring over other

investors? I think we think we're great

at people and understanding change. So

basically everything we do at Durable

because we're an investment driven firm

is in support of that investment

mission. Essentially with a clean sheet

of paper said if we were going to go

purpose build an investment vehicle to

allow us to do this,

how would it actually be structured? So

you know essentially the percent of

capital that we put in the public

markets in the private markets is is

aligned against that and then

organizationally

how are we going to go align against

this right so the way we think about

people is very purposeful we um really

believe that very few people actually

operate the way we do we think durable

is just different my partner Katherine

who when we first underwrote Figma in

2020

and also when we led the investment

round in 21, you know, is the same

person who basically was at the all

hands meeting with Figma when Dylan

announced to the um company that they

were going public and is still the

person that basically looks at the

company when they um announced their

public earnings and what have you. I

mean, that's just different, right? So

you have to have people who can, you

know, work with companies that are

valued at two billion and and they're

are private and have 30 million of run

rate revenue. And now, you know, Figma

is a billion two companies, a public

company, and can continue to work on

that. And investment firms aren't

structured that way. So if you want to

have people who can do that, you got to

develop them internally. Second of all,

it's time allocation, right? So in

general um at any point in time we

probably have 10 15% of our capital in

the private markets and the rest in the

public markets and then we have to be

willing to spend the appropriate time on

new ideas right so when we look at

Dualingo and the right decision for

Dualingo and maybe the right decision

for us is is only to invest you know $20

million we don't look at it as a $20

million investment on a $15 billion

vehicle And you know, we don't look at

it as 10 basis points or 12 basis

points. We actually look at it as our

future compounder,

right? Our investment memos are just

fundamentally written different than

other investment firms, right? So when

when we look at an early stage growth

company that is not already

competitively advantaged, we write the

memo that says if Duelingo does what we

think it can do over the next three

years, not only do we make a fair return

for the risk of the company, but at that

point in time, we would want to buy more

at these higher prices. And if we can't

write the memo that we want to buy more

at higher prices, we can't buy the

shares and our thesis can't be it gets

bought. That has to be aligned. And then

the investors we're in business with, we

have incredible investors. We have to be

transparent with them that in order to

pursue this philosophy,

we're going to have

what people would say is monthly or

quarterly volatility in our performance,

right? when they look look at our

performance. And that sounds so obvious,

but you know, increasingly the market

has changed

where capital is short cycle, right?

Like so many people are on one month

basically incentive models, not even

yearly, one month. And so we have to

have been very transparent with our

investors and told them what we're

trying to do, deliver on those promises,

but deliver on those promises over the

right period of time. I'm so intrigued

by this uh like dollar cost averaging up

concept that you're not willing to

invest in the first place if you're not

excited to if it goes well invest more

at higher prices and is is that the

right way to think about it that the way

you build a position over time is um

investing more as the price goes up to

build your fullsome position.

>> Yes and no. There's really two parts of

our portfolio, right? So when we're

looking at um what we call early stage

growth companies and it could be

Dualingo as a private company

or it could be uh Dualingo after it goes

public but it's still not competitively

advantaged at that point in time it

didn't have cash flow it didn't have PE

ratios we still in our view view that as

an early stage growth company where

we're saying in the future could be

competitively advantage the operating

culture could be clearly estab

established where we could look back and

see the excellence of it and the

adaptability of it and then we could

look at the growth formula and really

understand it and obviously along the

way we've really believe this these are

our kind of people who can scale

organizations when we look at the 3 plus

three we're underwriting it on a

three-year basis in general not always

if it does what we think it can we would

then want to buy more as it in our

lexicon gets bigger but also derisks and

then proves to be a competitively

advantaged business and th shows more

resilience and and shows the ability to

you know financially balance growth,

profitability, innovation basically

prove its ability in the case of

Dualingo to become more of a just a

power app teaching you know um speakers

a foreign language for more

self-improvement that it starts to do it

for learning that basically increases

educational ability to participate in

the economic world. Right? they're

obviously going to different subject

with chess. So as you progress

as a business more towards you know what

we view as a competitively advantaged

business that's for lack of a better

word baked but still has growth. We

underwrite those with the view that if

it does that scenario we would want to

buy more and if not we just can't get

involved. Now, in my career, I've

invested in over a hundred private

companies and I think I've been involved

in over 50 IPOs.

And then how many of them do we still

own? Well, we probably still own more

than anyone else in the markets, right?

Like even if I look at durable, among

our largest positions in the public

markets are Door Dash, Affirm,

Toast. We led those last private rounds,

right? And so

yeah, they persisted and we kind of

bought more

>> right at different points on the curve.

I would say on a durable growth company

because of market volatility and you

know this kind of agency principle that

I think about that's forcing people to

have you know short cycle view of the

public markets actually probably you're

buying more of them when they're down

right so um you know one of our favorite

entrepreneurs is a guy named Jay Henik

essentially CEO of Collars but he was

also the founder of first service and we

own both of them we're actually involved

in a private investment with him. Also,

in the case of Collers, I think it's a

very misunderstood company. I think for

sure the brand suggests it's a

commercial real estate broker and

commercial real estate brokers don't do

well in general when interest rates are

high. But I think what's misunderstood

about Jay and he's done this time and

time again is because of his

understanding of he was really a

disciple and his mentor was Peter

Ducker. his understanding of local

incentives and his sharpness of capital

allocation and the way he sets up the

partnership model when he buys people.

What people haven't realized is he's

built a much an incredible business both

in um asset management on the real

estate side in Harrison Street and also

he's building a terrific consulting

platform. And so I think our insight

there is starts with Jay but it starts

with understanding actually the asset

quality of callers is not the quality of

a commercial real estate firm that's

cyclical. It's actually a really good

real estate asset manager and a emerging

really strong consulting firm. And so

last year when people were worried

about, you know, the weak commercial

real estate market and interest rates,

we bought a lot more of that company

when it was it sold off based on

short-term, you know, macro concerns.

Yeah. So in that part of the portfolio

probably we're buying more of the

companies when they go down.

>> You said something really important and

interesting that I'd love to dive into

which is the principal agent problem.

And my question is a market structure

question. We've talked before about some

crazy percentage of just marginal volume

that happens inside of the platforms the

you know citadels millenniums balasnese

72s of the world. How are how do you

feel that? And I'm curious just for your

thoughts on changes to market structure

in general since you've been doing this.

Uh how it contributes to that

volatility, what opportunities it

creates, what dangers it creates.

>> It's something I thought a lot about. I

started thinking a lot about it two

years ago and in hindsight I probably

started should have started thinking

hard about it you know you know three

years ago but but you know you don't you

don't get everything right. There was a

period in my career where the quant

funds really started to do great. the

two, you know, the two sigas of the

world.

And, you know, one of the things I've I

we really stress at durable is humility,

right? So, we never look at a problem

and assume we're right and the other

person's wrong. And we never assume

we're good and the other person's bad.

We actually look at things and assume

the other person's really smart and what

can we go learn from them. And so this

this relates back to for you know I

found it durable but I went and I

studied the quants and what I concluded

was

the short-term alpha game is probably

going to be won by the machines paired

with the humans and at the time it was

when for the first time computers paired

with machines could beat the best human

chess player. Mhm.

>> And this is obviously um when I went

went to spend time, you know, with the

principal at Two Sigma, I learned he was

doing exceptionally well. But anyway, um

I got to know him and we talked a lot

and I realized actually there were very

there were real limitations to what the

quants could do. And so I started

realizing if it's a repeat actor problem

based on

known data actually the quants are

pretty good. So what does that mean at

the time? Well, it means if if you're

just a person who buys an industrial

company because the PMI is down and

historically when the PMI rerates and

gets better and you make money, that's

not going to work.

>> The machines are just going to be better

at that than you. But if you're like

what we were at the time, people who are

really good at understanding people and

really good at understanding change,

that was really advantaged. And I

basically at my old firm, you know, I

did a internal kind of teaching on man

versus machine. And I said, as a result,

what what the New Horizon fund is going

to go do is we're going to go double

down on these two things

>> and we're going to get better at them.

>> We're going to get more focused on what

we do on the people's side of our

business, both in the public and private

market. And we're going to get more

focused on where change

impacts both our early stage growth

companies and our durable growth

companies and where we're basically

investing where we're

not advantaged versus these machines.

Probably shouldn't have done it anyway,

but we're going to stop doing it. But we

did it, of course, all within our

investment philosophy. And that's

basically what we've done at Durable as

we've gone and studied Millennial and

Citadels. First, let me be very clear,

deeply respect those organizations. I

think they're great at what they do. And

I actually believe the people who work

there are very talented and we start

from the view that these are

exceptionally talented people who are

actually very good at what they do and

are high quality people. But what we

have said is

what do they do and what is the

limitation? And one of the limitations

is if you work at a firm that deeply

measures your risk every day and then if

you have a bad period of time measured

by a month, but certainly three months

you get your capital cut back and you

there's a good chance you get let go. It

probably means you can't have a time

horizon longer than your career horizon.

And what we also have noticed because we

we not only understand things

anecdotally, we also study them. If you

look at the last public market earning

season, which was companies reporting Q2

this past year,

if you study earnings volatility,

it was more volatile than any earning

season since the financial crisis. Even

though during the financial crisis as we

all know the fundamental banking system

in the US was under question which meant

the economy and the markets as we know

it really had a wide dispersion of

opportunity and the markets tend to be a

lot more volatile when they're making

lows and making highs and yet this was

the most volatile earning season. I

think the reason for that is just

basically the fact that you know we

estimate somewhere between 80 and 90% of

the institutional flow is basically

driven either

by the firms that have one month and

three month agency or the quants that

have to take these price signals into

account and then their models are

optimized for this. And so what we have

said at durable is really simple. Let's

go do less so we can do more.

Because if we're going to accept

volatility

in stocks, we have to really understand

the business and the people like we do

at Collers such that if Collars is down

because people are worried about

commercial brokerage because of interest

rates, actually the markets are probably

right.

>> They're probably right 90% of the time.

But if we understand what's unique about

that culture, how they allocate capital,

we understand deeply how the quality of

that Harrison Street is because we've

studied it for 20 years and we we know

the people who run it. Well, that's

that's a reason why we're willing to

basically lean into that stress. You

know, the same thing when I look at our

early stage growth portfolio, you know,

we I spoke about Dualingo earlier. you

know, they they came public, you know,

the last time the capital markets were

really open to companies, which was

2021.

And there's been a lot written about the

2021 IPO class, right? How they came

public in a zero interest rate

environment and how many so many of

these companies actually were going to

have a tough time getting to

profitability and as as interest rates

went up in 22, I think correctly, a lot

of people said actually just throw them

all out, right? the the average loss

making company in 2022

in the Russell 2000 growth went down

over 70%.

>> You know, our view was

makes sense. The market's probably

right, but not all of these,

you know, can't adapt. You know, not all

these don't have businesses that are

good enough to make real economic

returns. Our view is not all of these

companies didn't have the discipline and

the organizational fortitude to

transition and become successful

companies in a in a world that actually,

you know, required profitability based

on the change of interest rates. And so,

you know, Dolingo is an example of a

company that we actually bought more of

in 22. Um, and that was an example of an

early stage growth company that we

dollar cost averaged down, right? And

that I think we're advantaged in, right?

Because if you're rulebased in what you

do or you have a one or three month time

frame, you just can't

own Duelingo. You can't own more

callers. You said people and change.

We'll talk more about both, but starting

with change. We're in the midst of

probably the biggest technology shift or

change maybe that any of us will ever

see. You've invested and lived through

several others, internet, mobile, cloud.

Can you put this one in frame of

reference with the other ones that

you've lived through and you mentioned

so many times studying the past and

studying history and seeing patterns?

What patterns do you think might apply

this time? And what patterns do you need

to throw out and and re-underwrite from

first principles here?

>> So, I started writing about AI and our

shareholder letters in 22.

>> Yeah. you know and at the time I said

having seen internet cloud and mobile

this is going to be at least as powerful

as internet and I said we're going to go

approach this with humility go spend

time with the people who are closest to

it

and constantly be learning and then I

also said we're durable is not a

thematic investing firm or a compounding

investing firm so just because we think

something's going to be big doesn't mean

we're going to go put our investment

meetings aren't going to be AI is going

to be big. Let's go buy AI companies.

It's going to be let's really understand

change and then understand how it the

companies that we invest in are going to

basically benefit from it or become

better by it or at least not get

disrupted. I'll lay out in a second

think it probably is more impactful

uh than the internet was. It's not only

going to affect obviously every

technology company which you know you

see in the markets but it's also

going to impact in this case I think

almost every company that you know needs

white collar employee and IP employee to

drive their work. So let let me start

with the second one first because I

think less people have talked about that

one. So, as a student of business, most

people would know that by the end of the

2010s, everyone knew that if you were a

product based business, you needed to

understand your China cost, right? I

mean, it was kind of on the cover of

every business magazine and then every

um popular magazine in the tens. And

basically all that meant was if you in

in a global supply chain,

if there was a part of the world with

huge scale and resources like China in

the Far East that could make product

substantially cheaper when you landed

it, you know, at your factory or to the

consumer, you had to understand it and

if you didn't leverage it yourself, you

were going to basically

go go out of business.

That was the first derivative. The

second derivative is actually there's a

lot of businesses that are spread

businesses. You know, you look at a lot

of distribution businesses as an

example. If you distribute, you talk

about a great business like HVAC, the

industry tends to put a spread on the

raw material. If your HBAC unit

basically inflates at 3 to 5%, that's

good. And if your HVAC, you know,

deflates at 3 to 5%, that's bad. And so

if you were a spread business on top of

it, you know, that was problematic.

Every company that was product based or

derivative product based had to

understand China cost. And I think the

same thing applies to AI. But I think

it's not product based this time. It's

you know IP based. So let's go let's go

back to Max as an example. So, a firm

most people would think about and

correctly so as, you know, basically a

fintech company that basically empowers

people to get access to credit in a safe

way and actually pretty compliant,

friendly way with no tricks. And he's

doing even more than that now. But at

the end of the day, because he is

regulated,

he has a lot of

legal cost in the company, right? He's

got hundreds of thousands of contracts

with merchants. He's got to monitor his

partners on how they basically

communicate credit. And that just

requires a lot of people. And if you

talk to him and he's talked publicly

about this, he's got great belief that a

firm can grow at the rates it's growing

at for a reasonable period of time. In

addition, they can do it without adding

headcount. And the reason for that

obviously he's going to go lean out a

lot of processes that were not possible

to go do before AI. I'll tell you a

really funny story with that. So he

calls, you know, I I I learned so much

from him. So I I talked to him one day

after he reports earnings and he

explains to me, Henry, this what you

know, you're always asking me about how

I'm using AI to become more efficient

and you know, I feel like I was late to

the curb, but I finally figured it out.

And so he says, you know, I have this

team that goes around the company and

understands processes and we start from

not a cost standpoint, but we start from

a leaning out standpoint. And I think

like I'm making real progress there. And

that's why I'm able to make this public

pronouncement.

And he's like, isn't this great?

I say to Max,

why don't you come to DC and let's go

see Mitch Rails

>> because Danaher,

you know who who he and his brother

started and he's chairman of has been

doing this for 40 years. You know, it's

called DBS. And they basically brought

Kaizen, you know, back to the US. And

they basically started, they're

obviously more of a healthcare company

now, by going into factories, putting

processes up in whiteboards,

studying how they could lean them out,

basically leaning them out and coming

back in a month later to make sure that

because change is hard that the change

is held. And then they basically built a

whole b business system which has

basically you know not only helped build

Danaher but you know there's basically

over a dozen Fortune 500 CEOs in the

United States who basically started

their jobs at Danaher including the guy

who just have turned around GE. So since

you're so excited about this let's

actually go to the you know essentially

the

>> the teacher of the godfather in the

United States. So the reason I say that

is this is just so profound it's even

hard to get your head around right that

we've been able

you know Mitch would say for 40 years

because at China we've been able to

really lean out

product based businesses working capital

but in many ways I feel like we're just

getting started

on processes that are done by humans.

The second example that I'll talk about

and I'm talk trying to talk about things

that haven't been talked about as much

on this show. When I first really

understood what was going on the

internet, I ran a global TMT fund and my

largest investment was Amazon, right?

And we invested in that one. It was like

a $10 billion company. So I used to go

to Seattle twice a year. So

interestingly things you remember

because it was far from Baltimore. not

no one would come with me and it was a

small company and people thought I

understood it and I used to go you know

have lunch twice a year with Jeff Bezos

right at the time I worked for the firm

that was his largest outside shareholder

and it was obviously my research

position for the firm

and what I learned so many things from

those meetings but one of the things I

learned is the very best businesses that

leverage technology leverage it in a way

where they use it to lower costs

and drive revenue

that result in them gaining 30% or more

incremental market share in their end

market. And then they take that unity

economic advantage

and they reinvest it in something that

is persistent.

even if their competition were to wake

up tomorrow and do the exact same thing

with people just as good as they are.

>> And to me, you know, that's one of the

definitions of durable of a competitive

advantage is if your competitor

basically does a competitive mode attack

doing the exact same thing with people

as well or

>> doesn't matter too far ahead. And as we

all have come to understand with Amazon,

they took that 3 to 5% cost advantage of

of getting that box to you and their

ability to put more than one box, one

item in the box, and they use that

economic advantage to then go build

fulfillment centers that are physical to

basically reinvest

into capital and infrastructure that

allow them to go down that 3 to 5% cost

curve for 20 years. And then, you know,

as I said earlier in the show, they woke

up And the only people who could play

their game when eventually everyone

realized what they were doing were the

people who still had the scale and the

customer relationships and the trust of

Walmart and Costco. And then eventually

when they figured it out, all three of

them were great. Now the problem is the

rest, you know, the rest of retail was

not was not so good.

>> And so that's what we think about here.

So, if I if I say it back to you, we're

about we've seen through Mitch and

others like him this 40-year benefit of

Kaizen brought to physical product world

and that AI represents a sort of kickoff

of Kaizen to human work world and that

that is going to have lots of stories

like the Amazon story you just said

where someone gets on one of these

curves early and they can't be caught.

And so, you're trying, I'm sure, define

who those people might be. So, we're

trying to do two things, Patrick. We're

trying to find the people who that might

be. And then we're trying to make sure

we don't get

>> mistakenly own a company that based on

last generation competitive risk was a

great company and and correctly we

thought was competitively advantaged and

had a good operating culture and was led

by highquality people who thought like

owners, but because discontinuous change

changed the world, they weren't able to

adapt. Now, ideally what we go do is we

go find those already advantaged

companies and then they leverage this to

go from good to great. If you think

about all the people that have navigated

change as CEOs, the best that you've

worked with, I'm an investor with Dave

Duffield in his latest company and so he

comes to mind because now he's tackling

AI. Um, and the guy is incredible. If

you think about whether it's Mitch or

Jeff or Dave or you know people like

this that you've seen operate, what

methods have you impressed you the most

of how they themselves adapt first their

own mentality and then their teams to

these fast changing circumstances? And

this is a question for everyone out

there that's running businesses that is

facing this same change that's a risk

and an opportunity at the same time.

>> Yeah. So let's let's go pick on Luis,

right? We talked about Luis earlier,

right? So,

Dualingo has a lot of opportunity with

AI and a lot of risk, right? And the

stock depending on the day reflects it,

right? Like when Open AI demos

how you can use Open AI to basically do

translation,

a lot of times the stock goes down. or

when Apple shows you how

AirPods can be used to

in the physical world live translation

the stock goes down and actually I don't

think the marker's wrong those now it's

probably wrong the magnitude but I think

what the market is saying is

>> risk

>> there's a risk here so

that that's probably in our portfolio

one of the higher risk names but what do

we look for in you know in Louise or Max

or or Dave, you know, Duffield. I think

the first thing we look about is

um a business that already is operating

well,

right? Because

if you're not operating well

when you have to deal with change,

you're you're not going to be able to

like do two things at once, right? You

can't do a turnaround and do well. I

think the second thing we would say is a

business that already was winning

in its you know first end market right

so you know all the definitions we would

have about winning right you know

substantially gaining market share

driving real economic profit that allows

it to reinvest in this next scurve and

also the other thing we really care

about is

people. We we really stress resiliency

at durable. It's one of the reasons we

like so much investing in act two

managers, right? We can go study their

resiliency, right? So when you're when

you're an investor in Max and you saw

how resilient he was in slide

and now you understand how he's got to

be resilient

to implement AI to lean out his cost and

drive his revenue before his competition

does. you're like, we've seen him, you

know, under stress before, right? And

then, um, you know, I think you're

looking for people who have a

perspective, can execute, but also are

humble, right? Because

we at durable write down our views on AI

every six months and we updated them.

And as we've gone more into this period

of change, probably we're less wrong,

our our perspective is more informed,

you would say, than it was, you know, as

we change it every 6 months. But we're

we're learning, right? And this is we

have the benefit of having a job that

allows us spend our time reading and

thinking and talking to smart people. So

even if these are really talented

people, most likely they don't have as

much time to go do it as we we do. And

we have to be very humble in our

approach. So they have to be a have a

perspective figure out how to go do this

not be paralyzed but they also have to

be humble and constantly learning. And

you know the last thing I think

practically we have to think about as

investors is backs to the memo like if

you have a high-risisk situation

which we would all agree Duelingo is and

you know a firm is and you're really

close to that part of the change then

you need to be compensated for the risk.

What we would tell people on Duelingo is

yeah like because of this risk the

discount rate has gone up but probably

commensurate the opportunity has also

gone up. we can articulate it, right?

He's Luis has uh talked about being 20x

faster and generating content and we've

already seen it. You know, he's publicly

said he developed chess, which is doing

incredibly well and you know, my kids

really love that product. I mean,

they're addicted to it. And he de first

it was two people for six months and

then he added another four people and he

developed a product in nine months.

That's the best product he's ever done.

And if you ever talk to him, how long

would it have taken in the past? He's

like, I don't know. I probably need four

to six x as many people and it would

have taken them four times as long. And

so you could say a startup could do

that, but he's doing it. He's doing it

on his platform. That product is well

over a million

um DAUs and is growing at astronomical

rates and it's a great underserved end

market. It could be a huge business.

Yes, the discount rate has gone up, but

this company was purpose-built for AI.

You actually have a person who, you

know, studied AI and taught it at

Carnegi Melon and has an organization of

a players who are agile in his company

and is humble and constantly learning a

proof point on how he it's making him

faster than other people. it's driving

real value and obviously that means the

probability of it going from a point

solution or couple products to the suite

is higher

>> and so you know that's what we look for.

Can I stack a couple of the things that

you've said that interest me the most

into like a big even bigger question? If

I take physical kaizen and digital

kaizen just to, you know, shrink the

concepts down. If I were to have those

that were to have a kid, it might be

robotics. And and so I'm really curious

how you approach the potential with an

unknown timeline that we might get like

a second wave of, you know, the physical

labor economy is way bigger than the the

digital labor economy that we may get a

second application of Kaizen um over the

next 40 years like the first one we saw

from Mitch Mitching Company. How do you

think how do you think about that

opportunity and potential change? It's

something we have really thought hard

about and

here here's what I what what we have

tried to do right so first of all we

have tried to get smart by by meeting

with the entrepreneurs

and talking to the companies that we're

involved in that we know that are

leading this area just to try to learn

and we only recently did this with robot

otic. So if we started writing down our

conclusions

and then being humble that it could

change every you know 6 months in AI in

what you would say is more data

businesses or digital businesses.

We only started doing this literally in

the last month where we documented it

for the first time.

And so

I'm gonna I'm gonna do something that I

don't love to do, which I know our views

here are very early and probably deeply

wrong, but I'll give you all our initial

conclusions, right? Which is in certain

use cases, it's pretty clear that

already the cost is lower than the um

equivalent analog process or basically

>> physical labor process.

>> Physical label process. And yet, as we

all know, this is the earliest and worst

robotics is going to be. And because

machines are iterating with machines and

it's being powered by general purpose

models, not by specific purpose models,

this is riding, you know, a curve that

is definitely geometric. And so back to

this mental model of Amazon that drives

so much of what we think about

durability at durable is

what Amazon was able to do is ride

a cost curve where they were deflating

the cost of

sending a box out at 3 to 5%

a year for 20 straight years. And the

people who did not leverage the right

distribution infrastructure,

the right investment in robotics at that

time, you know, they bought KA,

the right ML models when they came into

play about how to basically plan

inventory and deal with suppliers

actually were probably at a curve that

probably inflated at 3 to 5% but at best

were flat. And that differential in a

low margin business, you know, you

compound it over five years. Honestly,

that's all you need to know.

And that's I think what we're starting

to get our heads around at durable,

which is if in many areas robotics is

at par. Now there's a lot of data that

says it's lower cost in certain cases

and the use cases are about to go up and

the cost on the existing use cases

probably don't go down at 3 to 5% at

this point in the curve because of the

scale brought in the human capital

brought in the IP bot on and the fact

that you're going to be able to use

these general purpose LLMs to power it.

It probably goes down at more like 15 to

20%. But maybe it's more law and it goes

down even faster. Well, then we wake up

in 5 years and the people who put

themselves on one cost curve, if they

compete against the people who put them

onelves on the other cost curve,

those could be power law businesses.

What we have thought really hard about

is who's going to go benefit from this

curve where their competition even if

they woke up tomorrow

even if they put the same amount of

money into this problem even if they

could hire the same quality of people

which is unlikely because they have not

invested

in the distribution infrastructure or

the technological infrastructure to

compete on this curve.

you know, at minimum is probably two to

three years behind and every day, you

know, that they they wait, they're

probably getting further behind. It's

apparent to everyone at Durable why our

understanding of change has been great

for our investments in Dualingo and a

firm and you know, Shopify.

But actually I think it's about to be

really advantaged our understanding of

people and change as we go invest in the

other 70% of the economy.

>> If you think about all the businesses

you backed do you have a favorite kind

of competitive advantage of source of

competitive advantage? So much about

your whole process is does it have it

already? Is it on its trajectory to get

there? There's different kinds you know

scale network effects etc. Are there

favorites that you find yourself

returning to as the best sources of

long-term competitive advantage?

>> I love physical

real estate,

>> right? You know, I I love Amazon or, you

know, we're investors in Carvana. I love

their reconditioning centers because at

the end of the day,

>> you can't spin those things up.

>> You can't spin those things up. They're

these things that are super messy,

right? You got to acquire the land. You

got to put in the right place. You got

to build the right network. Then you got

to go stand it up with the right capex

and the right systems. And then you have

to have the right operating culture. And

this is really really hard, right? And

if if you put your your real estate in

the wrong place, then your your cost of

transport's more expensive. And

this culture you got to go build there

is super hard.

So I I I deeply love you know these

physical world modes that exist right

and really our portfolio has a lot of

them right in one way or the other and

that's why when you and I talked about

robotics my mind went to distribution

right it's like where can robotics

basically take already advantaged

businesses and make them more advantaged

right but

>> there's others

and then you know the other thing I I

really believe is is these soft things

that are incredibly hard, right? So I I

I I think about

the example of Dan or her so much,

right? Because what Mitch and Steve have

done

is just stunningly hard to imagine that

for nearly 40 years you've compounded

wealth

at 20%.

in something that didn't have deep

physical modes or didn't have data

network effects like uh metamite or

Google have or or the people who believe

deeply in open AI and I I see the

potential there just like they do have

right so

those those data network effects are

amazing right where you know the but the

ones where you're really sharp on human

capital.

You're really sharp on what talent

really means. Not not the sticker of

talent, right? You're really sharp on

your operating excellence,

the culture of it, the constant

improvement of it, the system behind it

like Kazan, and then you allocate

capital

against your businesses to really hold

them accountable.

I think it's amazing you know in our

portfolio

even though if I were to walk you

through the businesses that First

Service is in which you know Jay Hen's

chairman of and what Collier has where

he's CEO of he's you know largest

shareholder both none of them actually

have these

super sharp

competitive advantage but yet if you

really have studied Jay and you truly

understand

his human capital culture and the and

how he basically attracts and hold

people accountable and his ability to

basically decentralize incentives. So

people are aligned in businesses

everything from you know residential

management of condos

to you know basically roofing and

restoration

and then how they allocate capital. How

they sell things that don't have a path

to be great and how they buy businesses

but they do it in a way where it

actually aligns incentives and constant

with them. It's just super impressive.

The other thing is if we're going to

invest in small companies, those

companies by the time they form them

tend to be pretty large. And so we we

have to basically be pretty sharp at

really understanding other competitive

advantages.

>> You mentioned memo a few times, the

memos you write internally. What have

you learned makes for a fantastic

structure of an investment memo? What

works for you? We're a writing culture

>> because at the end of the day, human

beings are innately human.

And when we are involved in something,

it's very hard to have that executive

distance that you need to do to really

hold yourself accountable to what you

thought and actually hold the companies

accountable

to what you would like them to do.

especially since we really do know the

people we invest in and we invest in

really highquality interesting people

and we're deeply rooting for everyone to

succeed. So, you know, unlike a venture

capital firm or private investing firm,

we have to be able to understand when

things aren't working out so we can sell

them. But just as importantly, if we're

going to go invest in something that has

real risk by Dualingo, we have to

understand when things like Dolingo are

really inflecting and maybe we see and

other people don't do so, we can go buy

more of it. So, we got to be able to do

both. And so when we write an investment

memo,

it's in service of our

investment philosophy, making sure we've

done the work and we can clearly

articulate why is a comp company

competitively advantage or will it be?

What what would it have to do? Why is

this operating culture excellent or why

does it have the seeds of an excellent

operating culture? And why does this

leader think like an owner where they

can basically they make the business

better which we define as gaining market

share through cycle

and we think that they can allocate

internal and external capital such to

both drive more durable growth and also

make their asset base more valuable over

time. And that's that's our investment

memo. But then just as importantly

through both modeling but clearly

spelling out

what we're tracking

we have to then be able to when we do

our quarterly

what we what are really our operating

reviews at durable where we go through

the entire portfolio with the entire

investment team on every single

investment. We have to look how actually

the companies are doing against what we

thought they would do. And then every

single investment at durable

if we own for three years, we actually

do a three-year look back on what we

underwrote and what it did. And actually

that one, you know, it's like so many

things in your career you like wish you

would have known earlier, right? Like,

you know, the great thing about

investing and the great investors to me

actually are better at 70 than they are

at 50. And hopefully, you know, I'm in

my 50s. I'm better than I was when I did

this at 30. And you just learn, right?

You you you understand patterns better.

Hopefully, you remain humble so you

don't actually get, you know, get too

stuck in your ways. You surround

yourself with smarter, better people

both internally, externally. But one of

them is you develop better processes.

And one of the process that we only

started like two years ago was we always

did quarterly KPIs or operating reviews

but we actually didn't go back and look

at an investment that we own for three

years and just say and when we do them

they're so simple. We say three years

ago we thought they would do X

and now they did Y. Now, of course, the

conversation is where was it different

and why? But actually, the preparation

for that meeting is at least on the

written side so simple. It's two slides.

But then of course, what that what we

all we're all human and even though we

try to hold each other accountable, if

you get together every quarter and

something deviates a little bit, you

tend to excuse it. Of course, if it

deviates a little bit for 12 straight

quarters, actually, it's kind of staring

you in the face. And you know, that's

that's why we're such a big believer in

investment memos.

>> I think in 2022, you went and did like a

tour talking to CEOs about the state of

the market and and you know, just

operating principles and things like

this. if you were I'm curious to hear

you reflect on that tour, but even more

interested to hear if you were to do a

tour of every CEO in the portfolio today

and maybe you're doing this actively

what the message would be today that's

different than the message was in 2022.

I felt in 2022 we truly had expertise to

add to the conversation

and that was at the highest level and by

the way I don't say we versus us we all

every CEO I talked to

every investor I talked to and even

Durable who is a fundamental investment

firm that really values stuff on cash

flow never felt money was going to be

free forever actually

had made simplifying assumptions based

on

almost a decade of free money.

Basically, if anyone who has been taught

how to value companies understands at

the end of the day all companies have to

be valued on free cash flow and organic

growth. And you know at the time we got

to a point where 30% of all treasury

bills in the world actually had negative

yields and relative to inflation

actually you were being paid to borrow

which basically means it was logical for

venture capitalists to value companies

and not care about profitability at all.

It was logical for companies in the

public markets to buy lowquality

businesses that could never own own

their cost of capital but use cheap debt

to go do it. It was logical why if you

sat on companies boards you really

wouldn't ask hard questions about

trading off growth, profitability, and

innovation because you didn't have to.

And if you go back to the conversation

we had when we eventually studied

compounding, we went back and we ran

that study in periods. We looked at the

public markets and we asked ourselves a

simple question in the world of

positive real rates which is the entire

history of the US equity market except

for that short period of time, right?

>> Which I don't know if we ever will see

again. Yeah,

>> there on average about 40 compounders

and during the period of time of free

money there was 120. So it was three

times easier to do it. And then we asked

ourselves a simple question, what

patterns

only exist when money's free?

So not surprisingly,

everyone would imagine the pattern of

driving growth and profitability is

perennial and actually works regardless

whether money is free or not. The other

thing that was really interesting, which

was really important to us and gave us

confidence to go buy more of the

Dualingos in 22 when we did this work,

is that if you're a small company,

you don't have to be gap profitable and

you don't even have to have an ROI that

is above your cost of capital, but you

do have to show progress

in your your path towards it. And then

what doesn't work? Well, a company that

doesn't earn financial returns and is

showing no progress. And the other one

that doesn't work, which we don't do do

a lot of, was go buy a lowquality return

business at a high price, but leverage,

you know, really cheap debt. So I felt

strongly

because we had seen cycles before

and because we truly had expertise and

also because we're really are companies

that we invest in long-term partner like

we want to invest in companies that are

private and still own them when they're

public. We want to help them as

transition. I thought we had expertise

and a perspective that many people had

not gotten before. And so, you know, to

reference what this meant was we had

these conversations

with a number of our companies that were

in the situation. And so we we had some

version of this conversation with Aman

at Toast, with Luis at Dualingo, you

know, with Max at a firm. And all of

them were a little different, right? So

like as an example with Louise, you

know, I had dinner with him and the CFO

and his CFO is very talented just like

he is and I just presented them the data

and I, you know, kind of knowing them, I

knew they would have a lot of questions

on it and they asked a lot of good

questions and, you know, the the other

thing I said to them is look, Luis, when

when we invest in your company, you

know, one of the things I always ask

people is, I know, you know, we'll

articulate what we're looking for in

you, but what are you looking for in us?

And one of the things he said is, "I'm

going to be a first-time CEO, and my

sense is you're going to see things

based on your experience that maybe I

don't see because this is new to me."

And I said, "The reason I wanted to have

dinner with you is not because I have

all the answers, but I have a strong

view that you're dominant in what you

do. AI is amazing for you. You know, AI

was just getting started.

You have a very unique human capital

culture, but if you're going to

communicate to people

this strength in the market, it doesn't

mean you need to get to your long-term

margin targets at 30%. But you have to

show progress towards it. With other

companies, we restricted the stock. We

spent more time with them. We helped

them understand what this means. We even

helped a bunch of them um think about

how to communicate

what they were going to do in this path

of this transition to their investors.

And so that was that to me is different

than where we are in 2025 because I felt

we had real expertise there and

something to add to the conversation

that a lot of these executives hadn't

seen before as operators and frankly

many of their board members had come of

age in a period of time where money was

free and frankly probably hadn't been in

involved as many you know durable

companies as as we had been involved in.

You know, the answer is I think probably

we're more back to learning and normal

interaction than we are kind of having a

perspective that, you know, we're dying

to explain to people.

>> I I heard that in your early Tro days

that you were studying media and you

studied 20 or 30 years worth of media

history and condensed it down to a very

small three or four page report. Can you

bring us back to that study and what you

learned about me? I'm obviously

interested in media. I I'm curious what

you learned then about media and how

that has evolved ever since.

>> Yeah, I mean we we tend to want to I

tend to want to do this. I always

believe that if you really understand

something, you can make it super

concise.

>> Yeah.

>> And you know where we are with robotics

and less so with AI, our internal memos

are probably too long because frankly

there's too much unknown and so we can't

be concise. I was very lucky in media

because and it's something we try to do

adurable with people because I was an

outsider

to the media industry. I think I brought

fresh perspective to it. And so when I

when I was assigned to basically be a

media analyst, this is so hard to

believe, but the companies that were

viewed as the darlings of balancing

durability in terms of competitive modes

and having strong growth were companies

like

Comcast,

Time Warner,

Disney, Viacom

And

anyway, I I you know did a bunch of work

on the companies individually and then I

started to really think hard about it

and I started to realize that the best

businesses inside of all of them had

been the cable networks, right? And so

if you go back to if you read about

media back then the entrepreneurs that

you know became the most famous were the

ones that launched cable networks right

John Hendrickx Ted Turner Bob Johnson by

the way John Malone basically backed

almost all these people put the most

invested so John Malone was at the

center of all this and you know

basically for 20 years cable networks

grew 20% with 20 roes

So they were compounders and that's how

you had all these entrepreneurs that had

become, you know, billionaires and

that's how you basically had media

companies that really fought

over a balance of content and

distribution so they could all get their

fair share of these this economics.

And then when you went and you looked at

a bunch of the other industry, it was

like an average ROA business. And that

that was what the whole industry was.

But the whole thing if you really

thought about it a systematic level was

predicated on a closed system

which is so obvious today right so what

the closed system was predicated on

I'm only going to show you the product

or the TV show that you most want to

watch when I can make the most money

when you want to consume consume it. So,

even in a world of linear TV,

even though the most people watched foot

uh watched TV on Sunday night, the worst

shows showed up on Sunday night because

people had spent their money on the

weekend and they were going back to work

and they weren't going to go shopping

and go out and the best shows showed up

on Thursday night. No, friends, the

Cosby Show and in the movie business

obviously there was windowing

and so anyway I was like okay so the

best business is cable networks that's

why we have this fight over content

distribution

and then it's all predicated on this

closed system

and I think I what I believed at the

time which obviously proved to be true

was that this TMT bubble that had