What Makes a Strong Investment Memo

My guest today is Henry Ellenbogen, founder and Managing Partner of Durable Capital Partners. Henry built his reputation at T. Rowe Price, where he led the New Horizons Fund and turned it into one of the best-performing small-cap growth portfolios in the country. In 2019, he left to start Durable.

His philosophy is grounded in a simple belief that great investing is about understanding people and change. Henry has spent his career studying the rare 1% of companies that drive nearly all long-term returns . Durable’s edge comes from being able to tell the difference between a company that is failing and one that is transforming.

Henry often talks about “Act II” teams – founders who take the lessons from their first company and apply them to a new frontier. Durable itself is his Act II.

In our latest Colossus profile, Managing Editor Dom Cooke traces Henry’s story and specifically how he became one of the most influential investors of the 21st century, having learned from founders like Jeff Bezos and John Malone in the early part of his career. I always hear the same thing from founders who’ve met Henry: “he understood my business faster than anyone”. The thing that sticks with me from our conversation and Dom’s profile is just how much he loves investing.

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Show Notes:

(00:00:00) Welcome to Invest Like The Best

(00:04:00) Meet Henry Ellenbogen

(00:05:29) Origin of Henry’s Investment Philosophy

(00:08:12) Identifying the 1% of Great Companies

(00:12:53) Patterns of Successful Compounders

(00:20:34) Act Two Entrepreneurs and Teams

(00:25:43) Building Durable Capital: Henry’s Act Two

(00:30:11) Dollar Cost Averaging Up Strategy

(00:35:02) Market Structure and Agency Problems

(00:38:26) Impact of Quant Funds and Short-Term Capital

(00:42:21) AI as Transformative Change

(00:45:30) How Affirm Uses AI

(00:48:23) Amazon’s Cost Curve Advantage

(00:51:48) Leadership Through Change

(00:56:54) Robotics and Physical Kaizen

(01:01:29) Favorite Types of Competitive Advantages

(01:05:25) Investment Memo Structure

(01:09:21) 2022 CEO Tour on Market Transition

(01:19:18) Hiring and Developing Talent

(01:24:09) Making Colleagues Better

(01:27:56) Being Intellectually Honest in Investing

(01:29:11) Lessons from Success

(01:33:04) Case for Going Public

(01:36:32) Netflix Transition Example

(01:41:29) Two Types of Greatness

(01:45:42) The Kindest Thing