Frederik's Labyrinth of Life

My conversation with Paul Podolsky author of Master, Minion and the Things I Didn’t Learn in School Substack. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.enterlabyrinth.com/subscribe

Hello everyone,A few months ago, I had the pleasure of interviewing David Senra, host of the Founders podcast. David is incredibly high energy and authentic about what he does. You think Mohnish Pabrai takes the idea of cloning seriously? Here’s David:I can live the rest of my entire life never having one original idea. As long as I’ve mastered the handful of ideas that I see as recurring themes in the history of entrepreneurship, I will live a fantastic life. Because it's not only knowing this stuff, but also actually applying them.To paraphrase Bruce Lee, fear not the man who has read 10,000 books once but rather the man who has re-read the best ones over and over. Or, in David’s case, the man who does both.David sticks to Munger’s maxim of taking a simple idea and taking it seriously:The greatest entrepreneurs had one idea. They built everything around that one idea. There might be things that spawn off of that idea later on. There are other businesses that can grow out of that, other business lines, other products. But fundamentally, they start with an idea.In David’s case it’s podcasting and a vein of high quality information that he mines and converts into an attractive product. Actually, it’s a combination of two big ideas: a big wave to surf (podcasting) and a big insight about David himself (love of reading and learning, ability to go deep in one area without burning out).I hope you enjoy the conversation and pick up some valuable ideas from his entrepreneurial heroes (and villains…).Reading a book is a movie for the mind. It's impossible to read a life story of an interesting person and not be involved emotionally. You're with them in their ups and downs. It's a predictable human reaction that you put yourself in their shoes.You can listen to this conversation on Spotify, Apple, anchor (and via RSS) or find a full transcript at Compound.If you’re looking for an all-in-one solution to manage your personal finances, Compound can help (disclosures).A few things I learned from David:Building a company can require an illogical amount of persistence.James Dyson "has 14 years of struggle. He builds 5,127 prototypes. He mortgaged his house. Some days, after doing all these experiments, he's climbing into bed at night covered in dust, crying at how painful what he's trying to do. It's 14 years and 5,127 prototypes before he has a vacuum of his own design, that he owns completely, that he could start selling to the public.We know at year 14 he's going to have success. What about year three? What if he stopped right here? That makes perfect sense. This is why it's so difficult. It is the logical decision. He should have stopped there, but he didn't. The founder is the guardian of the company's soul.I covered the biography of this guy named Sidney Harman. If you ever get into a luxury car, you'll see speakers that say Harman Kardon. He winds up writing this fantastic autobiography. He's 80 or 90 years old when he's writing it. It's called Mind Your Own Business. In that biography he's distilling 50 years. We haven't even been alive for 50 years. This dude had been trying to build companies, successful and unsuccessful for 50 years. Imagine what he knows.He gave the best description of what I feel is the founder’s role. The founder is the guardian of the company's soul.You cannot be the guardian of your company unless you love it. Edwin Land, Enzo Ferrari, and Steve Jobs, they talk about their products the way you would describe your lover. It's not the same as, I made a toaster, here's the toaster. No, they describe it like they're in love with what they've done.No one would have known Walt Disney's name if he’d started Disney and sold it five years later.There is this weird mind virus. I have an idea, I'm going to start up, I'm going to scale up, I'm going to sell, and then I'm going to do that over and over again. Inevitably, the question is who are the entrepreneurs you look up to? Who are your entrepreneur heroes? And they start listing off people that literally worked in the same company forever. I don't understand. Are you learning from these people or not? Because no one would have known Walt Disney's name if he started Disney and sold it five years later. No one would know Job’s name if he just got kicked out of Apple and then disappeared.The value of compounding knowledge.An investor understands the power of compounding. Knowledge compounds, too. Imagine going back and trying to talk to Warren Buffett about everything he knew at 35 compared to what Warren Buffett knew at 80. That's not the same person. I've read 272 biographies of entrepreneurs so far. I have a unique set of knowledge there. It's going to pale in comparison to what I will know two decades from now or three decades from now.Studying the birth of industries.Henry Ford had an idea. I want to build an easy, reliable car that the average person working at Ford can actually afford. That was unheard of. … Edison says something that changes Ford’s life. He says, that’s it, young man, you have it, keep at it. So, the next 5-10 years of struggle, he remembers what Edison said and it helped him. That's how Ford approached it. That's his idea. …Billy Durant had built this vertically integrated carriage company for horses. He … went and bought a bunch of other carriage brands, and put them under one umbrella. The exact same playbook at the early days of GM. … Henry Leland worked for Samuel Colt. The ideas that he learned in the mass production of firearms, he then shows up in Detroit and starts applying them to automobiles. When Henry Ford has a question, he goes to see Henry Leland. He is the wise old counsel with a lot more life experience.”On founders and culture.Whoever you are and whatever is important to you, put that into your company. Don't shy away from the eccentric part of your personality because your personality is the foundation and the beginning culture of the company.The downside of intense focus and dedication.The people that get really good at what they're doing don't allow themselves to think or do much of anything else.Jony Ive, who worked very closely with Steve Jobs, was talking about one of the main lessons from Steve Jobs. He's saying, “Steve was the most remarkably focused person I have ever met in my life.” Jony works with Steve almost every day. This guy who is having lunch with him damn near every day says he is the most focused person in his life. That should tell you to do an audit of your life. Am I focused?But also:It's safe to assume that every single person I have read about is smarter than I am. Yet you see all these smart-driven people make mistakes. They usually over optimize their professional life to the detriment of everything else. They destroy their personal lives. They destroy their health.Time is the best filter.I love this idea. It’s somewhat analogous to Buffett’s insistence on a track record, on data with which to judge a person. Decisions made over time inevitably reveal character. I don't read a story and say that person's dead, I have nothing to worry about. No, that personality type was alive then, they're alive today, they will be alive in the future. Human nature is constant. … When I come across somebody that’s completely ruthless. The minute you stop being useful, they will discard you. This is a problem that appears over and over again.What is your solution, David? The solution I’ve come up with for my life is avoidance. I don't want to partner with you. I don't want to chase money with you. I don't want to be friends with you. … I am very selective about who I spend time with. I only have one good filter for this. I think there might only be one good filter. That is time. Time is the best filter. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.enterlabyrinth.com/subscribe

This conversation was originally published at Compound. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.enterlabyrinth.com/subscribe

Hello everyone,A few months ago, I finally had the chance to record a conversation with Josh Wolfe of Lux Capital. This was published at Compound (I also previously profiled Josh).Josh has been a frequent podcast guest and I did a lot of prep work to find questions he hadn’t tackled yet. As a result, I think it’s a timeless conversation with the exception of a brief discussion of the macro cycle (Josh and Lux were bearish and cautious before markets turned down).Josh and his partners were young with an unconventional background when they bootstrapped Lux. With little capital under management they earned additional cash flow through a research business.We sold [the report] for $4,750 bucks a copy, sold a few 100 of them and helped keep our little business alive. I got access to all these famous CEOs and VCs. Vinod Khosla was one of the first VCs to buy it. And I was like, Okay, I'll sell it to you, but only if I can come and meet you. So I went out to Sand Hill Road and I remember his office, I remember viscerally what it looked like, it was the first major billionaire VC I met.I absolutely loved his comments about using doubt as motivation and fuel.Anybody that doesn't believe in you, either you let that bring you down, or it becomes fuel. To this day, we like to say that we believe before others understand. Because there really is something powerful, just psychologically, of believing in somebody.I would be on a run on a treadmill, and I'd be getting tired. And I would imagine some of these heroes cheering me on. ‘You can do it, come on.’ I have ghost images of these individuals to cheer me on. Peter and I would find strength in the people that didn't think we were going to make it and felt really motivated to prove correct the people who did.It’s also a framework he uses to assess founders. Chips on shoulders put chips in pockets as he likes to say.The best entrepreneurs we see are the ones who are so obsessed to prove other people wrong who don't think this is possible. That to me feels honest.It feels petty, but it's real.I also admired Josh’s focus on his family. It’s easy to neglect that if you’re highly competitive.Being with my kids is just the great salve. … Family stuff for me is very cathartic. Whatever is going on, I could be negotiating a big financing. And my little guy who's six is like, Dad, I can't get the screw into this thing and that is more important. Getting the screw into the little toy is more important at that moment. That to me is a big thing.Thank you for listening and happy holidays🎄🕎‍You can listen to this conversation on Spotify, Apple, anchor (and via RSS) or find a full transcript at Compound.If you’re looking for an all-in-one solution to manage your personal finances, Compound can help (disclosures).A few things I learned from Josh:Why does a VC spend so much time on macro?Ignorance of the macro is no virtue. … We're trying to get a palpable sense for what massive currents are shaping the environment. … The number one determinant of future returns is never the hockey stick curve that some consultant or bank or optimistic entrepreneur shows. It's how much capital is going into a sector when capital is abundant.Lessons from living through two cycles.There are lots of differences, but the market sentiment similarities make me think that we're in Q3 of 2000. You're going through the Kubler-Ross five stages of grief … Markets have to go through that, both individually as investors, and then collectively. That's our guiding playbook at the moment.Use your struggles to grow and build intrinsic motivation.Almost every step of the way, there was some moment when we were running out of cash. I still remember the people that told me no for $250,000 checks or dragged me for six months doing diligence on data that didn't even exist to tell us that they were writing a $100k check. That was a formative thing because it shaped the kind of people that we want it to be when we pay it forward. You need struggle and you need people that doubt you so that you can prove them wrong.Networking at the beginning of your career.I remember I wanted to get in touch with some famous investor. I was like, You'd be doing me the biggest favor if you can introduce me to him. And he was like, stop, right there, stop. I thought I insulted him. Maybe this ask crossed the line?And he's like, Do you believe in yourself and what you're doing? And I was like, Yeah. And he's like, Do you think anybody else knows what you know in this particular field? I'm, like, No, I feel like I'm one of the best. He's like, so who's doing who the favor? It was a little bit of a mindset switch, even if you're slightly deceiving yourself to get over that absence of confidence.And the same way that when there's a task that you don't want to do, thinking, I get to do this, because you could be dying tomorrow, versus I have to do it. That was a real confidence booster. Not arrogance but, I'm doing these people a favor by both showing interest and wanting to connect. But also because I have something of value.Building an enduring partnership.We studied why firms split. One of them was geographic and one of them was sector. … Avoid sector silos so you don't get a coup, which is what happened at firms like Greylock and Matrix and Venrock. One partner became the dominant player and said, okay, we're shutting down that other office. So everybody here is a generalist.I feel like presence is really important for the sustenance and sustainability of a culture. Like any system, things fall apart. Entropy is the norm. You need to put energy into a system to prevent entropy. That's true of human relationships.‍‘Crazy’ founders.I don't mind if they say the crazy thing. I don't mind if they have an ambition that borders on delusions of grandeur. I just want them to be honest.Becoming a better storyteller.If you take a technological view of this, language is a form of code, just like law is a form of code. And just like code and software can influence machines, I am influenced by language, I'm influenced by a beautiful quote. I'm influenced by a great scene of dialogue. I just wanted to be better at that.Invest in having time, memories, experiences (and assets).I'd say we're relatively conservative. I don't care about boats, or cars, or watches or material possessions. I like vacation indulgence and we invest a lot in our kids’ education. I really value time and moments and memories and experiences. Wherever money can help to create that, that's what we invest in.‍ This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.enterlabyrinth.com/subscribe

You can find a full transcript of this conversation at Compound. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.enterlabyrinth.com/subscribe

Hello everyone,A few months ago I had the pleasure of interviewing Patrick O’Shaughnesssy, the prolific host of Invest Like The Best, as part of my work for Compound.We started our conversation on the topic of David Senra, host of the amazing Founders podcast, who had just joined Patrick’s Colossus podcasting platform. David is one of the most focused people I know. Patrick one other hand is prolific but involved in a variety of efforts. Aside from podcasting, there is his venture capital firm Positive Sum, he is the CEO of O’Shaugnessy Asset Management, and he co-hosts Capital Camp. “Having a singular goal that's far in the future, that kind of crowds out serendipity and discovery along the way, is just not my style.”I was very interested in finding the unifying themes and the philosophy behind his work. Curiosity is a big driver for Patrick.“The reason I started my podcast was that I was frustrated by how imprecise even the best book on a topic was, as it related to my specific questions and curiosities. When I went to the world's best expert on whatever, I got exactly what I wanted quickly, with higher impact. I think if you wanted to learn about anything in the world, you'd be far better off, if you could get access to them, spending time with the world's leading thinkers on it and asking them questions directly, than by reading the five or 10 best books on that topic.”If Patrick is a fox, his mission is to find hedgehogs whose knowledge he can tap into.“It turns out that a podcast (a media business) and an investing firm are two really great things to have when your game is people-centric. Your game is effectively searching for interesting people. Being able to interview them and or invest in them are kind of the two most fun things to be honest with you. It's a great way for me to have a world around my interests. And in our investing activity, this is something we explicitly look for, we call it world building.”On the topic of David and Founders, Patrick hit the nail on the head. It’s electrifying to meet someone on a mission.“You find these people that are on one of these scent trails and will stop at nothing to stay on the trail. It's infectious. You finish a conversation with him, and you want to run harder at whatever it is you're running at.”‍You can listen to our conversation on Spotify, Apple, anchor (and via RSS) or find a full transcript at Compound (part I, part II).If you’re looking for an all-in-one solution to manage your personal finances, Compound can help (disclosures).A few things I learned from Patrick:Follow authentic curiosity and joy.“I don't know if there's a trick here. What you get on my podcast is just me. It's not a character I'm playing, it's just me, and that's a very sustainable strategy.”“I expect to do very well in the things that I do, not because I want some achievement badge, but because the process of doing that is joyful to me.”Conversation as a game.“To me, conversation is kind of like a game. I'm always interested in how much more interesting I can make a conversation that I'm in. I don't do small talk well. If I'm at a party, I'm always interested in how interesting something could get relative to the baseline.”Eastern philosophy as an operating system for life.“If you put a lot out there for others, with no expectation of a selfish return, you end up actually getting more than if you didn't do that. It's a strange worldview, because it's not a business school case study. The inputs and the outputs don't connect via some formula. You have no idea how it's going to come back to you.It is my form of faith. If I do this, it will come back. I have no idea how, but it will, and that's been my experience too. But if you were just trying to approach something strategically, irrationally, you would never behave this way because you can never tie the input to the output.” On working with founders.“Investors, I think, mistake a founder's desire for their capital for a founder’s desire for them, and all the things that come with them."“My experience is that founders want the capital to fuel their business, and they want someone that they can have as a confidant, that they can trust, that they can call when needed. But they don't want a steady stream of ideas and advice. The classic one is, have you seen this competitor yet? Some large percent of texts from VCs to founders is like the website of a competitor. What I think we can do is ask really good questions, the theme in my life, and not mistake what a customer actually wants from us for what we think they want.”The good life.“I optimize for learning, I optimize for freedom of time, to be with my family, especially. Learning, reading, talking to people, spending time with people, moving in the woods, ideally, or outside somewhere on the water somewhere with my family and my friends.Everyone has something they love, or a set of things they love, but very few people really work to protect those things. And to structure their life so that they get as much of the things they love, and get joy from as they can.”Growth without goals, the guiding philosophy behind Colossus.See also Patrick’s essay on the topic.“I'm not striving towards some end state for Colossus. Big, hairy, audacious goals may work some of the time, I'm actually very suspicious of them. I actually think most of the time they're very bad.”“I'm incredibly high energy in some regards and I'm incredibly lazy in other regards, which I think is an asset of mine. I think it's good to be lazy in certain ways. My instinct is always that there's something that needs doing that's important, but that I don't want to do. Build infrastructure around it, build systems around it, hire people, hire contractors, create a repeatable system for something that's valuable, but boring to me, and it's usually not boring to someone else.”“How do we find as many hosts that we can serve, me being the first. And what can we arm them with to reach a bigger audience and do a better job, and extract as much interesting knowledge as possible? The mindset doesn't need to be any more complicated than that. That will lead us in really interesting directions.” This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.enterlabyrinth.com/subscribe

You can find a full transcript of this conversation Compound (part I, part II). This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.enterlabyrinth.com/subscribe

Alix Pasquet III is the Managing Partner and portfolio manager at Prime Macaya Capital.Disclaimer: The information contained in this summary has been prepared solely for informational purposes and is not an offer to sell or purchase or a solicitation of an offer to sell or purchase any interests or shares in any of the funds managed by Prime Macaya Capital Management LP.  Any such offer will be made only pursuant to an offering memorandum and the documents relating thereto describing such securities (the “Offering Documents”) and to which prospective investors are referred.  This summary is subject to and qualified in its entirety by reference to the Offering Documents.  An investment in those funds carries certain risks, including the risk of loss of principal.    While all the information prepared in this presentation is believed to be accurate, Prime Macaya Capital Management LP makes no express warranty as to the completeness or accuracy nor can it accept responsibility for errors, appearing in the presentation.  Other events which were not taken into account may occur and may significantly affect the returns or performance of the fund.  Any projections, outlooks or assumptions should not be construed to be indicative of the actual events which will occur. This summary is provided to you on a confidential basis and is intended solely for the use of the person to whom it is provided.  It may not be modified, reproduced or redistributed in whole or in part without the prior written consent of Prime Macaya Capital Management LP. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.enterlabyrinth.com/subscribe

Hi everyone,The following is my conversation with Adam Mead, author of The Complete Financial History of Berkshire Hathaway. We talked about conglomerates, early entrepreneurial experiments at Berkshire, the lean years in the insurance business, managing the company as an informed observer, and returns on his acquisitions.As to finding another Berkshire, Adam was skeptical:“I'll never say never, but it would be highly unlikely to find another [Berkshire Hathaway]. You have a Lollapalooza, to use a Charlie Munger term, starting when they're able to shoot fish in a barrel.”You can listen to this conversation on Spotify, Apple, anchor (and via RSS).Disclaimer: I write and podcast for entertainment purposes only. This commentary reflects the personal opinions of myself and my guest. This is not investment advice. Acquisitions: going-in returns vs. reinvestmentThis is another chart from the book worth highlighting. Berkshire was not built on finding extreme outlier deals. Much depended on how capital was reinvested subsequently (whether in organic growth, further acquisitions, or public markets) and, of course, cheap leverage from insurance float.From the book: “In Berkshire’s early years, good companies were available for bargain prices. It bought the Illinois National Bank & Trust Company and The Buffalo News at book value, and the discarded Scott Fetzer and Fechheimer at premiums that still produced going-in pre-tax returns in the mid-20% range.Generally, the better the business was, the higher its price (as represented by purchase multiple paid compared to the company’s underlying value). The return on capital of the underlying businesses (the company-level return) ranges widely.See’s was one of Berkshire’s earliest purchases and was made when markets were not as efficient. The low Scott Fetzer and Fechheimer purchase multiples reflected that Berkshire could act as a safe port amid the leverage buyout storm of the mid-1980s.By contrast, Lubrizol and Heinz were excellent companies earning great returns on capital, but the price Berkshire paid reflected the market’s correct appraisal of that fact.”(I didn’t see it specified on the page but I think the numbers refer to return on equity and price/book).From the conversation: “You have this dynamic in the early days of finding really good businesses like See’s and having a pretty modest multiple. Good businesses at really good prices. Then you have the later days of buying really good or pretty good businesses at higher multiples because the market's just gotten efficient over time. But you still have the dynamic of reinvestment going on.Let's just use a plain example. If you had a business earning 30% on capital and you paid two times that capital, your going in return would be 30 divided by two, 15%. The important part is, if that business can grow, you don't have to reinvest at 2x the capital, you get to reinvest at 1x. That marginal capital gets, in this example, reinvested at 30%. That drags up your going in return over time. But I think Buffet's very clear in pointing out that you can't pay too much for growth. You can't have a going-in return of 2-3%, even if it grows enormously. The time value of money just destroys any kind of return that you have. I think he always looks for the good business and then he has a secondary analysis of what are the reinvestment opportunities. And he's fine, as long as the purchase price reflects it, he's fine taking the dividends and finding another place for them. And if the business can reinvest that capital, let's do that. That plays out in the extreme case of the energy business, where you're still getting, in many cases, 11-12% regulated return, which is nothing to sneeze at.”Conglomerates before Berkshire“The first sort of real conglomerate was American Home Products in the late 1930s. I do have some of those Moody’s reports on my website.They weren't crooks. I think that can kind of be misconstrued. These guys weren't the Enrons of their day trying to just put something over on investors. But they strayed a little bit in terms of messing around with the accounting or saying, gee, the market's valuing our conglomerate at 20 times earnings or 15 times earnings, and we're gonna buy this other company at five or six times earnings. And I can buy anything that I want as long as it's less than my P/E. And it's gonna magically transform my conglomerate into something better. Now the problem with that is it ignored the underlying economics.”Control vs. delegation“I think this whole idea of extreme delegation comes from the fact that Buffet and Monger started as stock pickers. What is the difference between owning a 5% position and owning a hundred percent position? You have the ability to direct the actions of that company. But should you? Berkshire was being almost agnostic in the sense of ownership level. We're still gonna let that manager run his or her business. We're only attracted to businesses that are good anyways. So why would we go in and meddle?”“You don't just have delegation just shy of abdication. It's hands-off in the sense of not meddling, but you still have an informed observer. That is the key. Buffet's getting fed this river of data coming into Omaha. And I think he communicates his thinking to managers through his questions. Okay, let's be a little bit more aggressive in trying to price the product because we think we have pricing power.”“Buffet writes a letter to Chuck Huggins [at See’s Candy] and says, I just went out and I saw this one store and our candy was sitting next to Russell Stover, and it was kind of a mess. Let's use these psychological tricks to keep our candy front of mind and make it have apparent scarcity. I mean, that's Buffet the entrepreneur, that's Buffet the manager.”Buffett’s early days at Berkshire“He began in 1965 at Berkshire Hathaway. He lived in Omaha and a guy like that, so attuned to business, is going to just be curious about all these businesses around him. Well, one of them was National Indemnity. This was the real first big deal of Berkshire Hathaway, 1967. He bought National Indemnity and its sister company, National Fire and Marine for $8.6 million. In hindsight, he said he would've been better off buying that in an entity outside of Berkshire Hathaway.So it was sort of a mistake on his part to bring the legacy Berkshire Hathaway shareholders along with him. He just used it as his vehicle and the rest is history. That was the first transformative deal based. That gave Buffet not only a platform to invest the float, which was almost $20 million. Jack Ringwalt, the manager of that business, showed him that you can [underwrite] any risk as long as it's priced appropriately.”The lean years in insuranceAnother takeaway from both the letters and Adam’s book is the number of years that parts of the insurance struggled. Early expansion efforts weren’t always successful. And in the early 80s the competitive environment was very challenging. While the long-term cost compares favorably to even government debt, shareholders had to maintain conviction for a long time.“You have Buffet taking this idea that insurance can be a very good business, just trying to see what works. Let's scale this thing, right? … Some of these ultimately failed. This is experimentation and you have to see what works. Different markets operate differently. That was the 1970s, this period of let's build this thing.From 1982 to 1992, they lost $522 million from underwriting alone. Now, it sounds like a lot, and it was, but the insurance business overall was profitable because of the investment income. There was a period, National Indemnity saw its premiums decline from the mid eighties to the late nineties. Something like $350 million to $50 million. Just an extreme decline. That's a long time.” This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.enterlabyrinth.com/subscribe

My conversation with Adam Mead, author of The Complete Financial History of Berkshire Hathaway. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.enterlabyrinth.com/subscribe