Kelly Granat - Investing At Lone Pine - [Invest Like the Best, EP.414]
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Hello and welcome everyone. I'm Patrick O'Shaughnessy and this is Invest Like The Best. This show is an open-ended exploration of markets, ideas, stories, and strategies that will help you better invest both your time and your money. If you enjoy these conversations and want to go deeper, check out Colossus Review, our quarterly publication with in-depth profiles of the people shaping business and investing. You can find Colossus Review along with all of our podcasts at joincolossus.com.

Patrick O'Shaughnessy is the CEO of Positive Sum. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of Positive Sum. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of Positive Sum may maintain positions in the securities discussed in this podcast.

To learn more, visit psum.vc. My guest today is Kelly Granite. Kelly is the co-chief investment officer and managing director at Lone Pine Capital, one of the most storied and successful hedge fund and investment firms of the last several decades. We explore how investing has evolved since Kelly joined the industry, and she shares insights into Lone Pine maintaining its edge through deep fundamental research and a collaborative culture.

We discuss what makes great businesses and great investments, how leadership can transform companies, and Kelly's perspective on how the market often misprices management and corporate change. Please enjoy my conversation with Kelly Granite. Kelly, maybe the fun place to begin is the playing field of investing as you see it. I'm especially curious about how it feels the most different, not in terms of AI and like where the opportunities are, but just like the structure of the market itself.

and the game of investing large dollars trying to earn excess return in the structure that you do it in, how you feel that has most changed from the beginning of your career doing it through to today running one of the largest pools of capital at one of the most storied firms.

What is most distinctive about today versus the past when you just think about the playing field itself? It's interesting. I mean, when I zoom out and think about starting as a summer intern in the summer of 2001 during business school and then returning full time to the public markets in 22, the industry was really different. One, you know, there were a lot more students.

fundamentally oriented, directional, duration-oriented investors who were doing deep research with a three-, four-, five-year time horizon. There were...

Many fewer levered pods and certainly passive wasn't a thing yet. And it felt like the marginal dollar of volume on the exchanges was dictated more by what Fidelity or Capital were thinking or maybe even sometimes at large hedge fund versus what was happening at Citadel or what was happening with pods or what was happening with passive. And so in addition to that, you know, when I think about organizational structure and how we did our jobs,

The org structure was, I think most fundamental firms, pretty siloed, right? You could cover industrials, you covered consumer, you covered financials, and you were doing that with a peer set, really of people outside of your firm who you developed a network with over time, who you were sharing meetings with, going to conferences with. And the level of conversation amongst peers was just not as informed because people were operating in sort of sector silos, right, in terms of knowledge and coverage and expertise and network.

In addition to that, the tools with which we used to do our jobs were pretty different. You would meet with companies, you would read filings, you would go to conferences, you would try to do some proprietary research, but things like credit card data and expert networks and all of these tools that we all now use to supplement our fundamental research or as a part of our fundamental research didn't exist. And so the ways to do the job and the ways to differentiate yourself, I think were different. And...

The tools were different, certainly, that were available to you. In addition to that, I would say at the portfolio level, when I look back, and obviously I wasn't managing a portfolio at that point in time, but looking up to my portfolio managers, the tools to think about portfolio construction, risk, portfolio analytics, none of these things really existed. And so...

as a fundamental investor, you were really going bottoms up, single stock, building a portfolio that way, and obviously looking at things like what acted in concert with one another, correlations, things like that, but it was a different job. So that's sort of like a snapshot of 25 years ago, let's say. Fast forward to today...

And obviously, market structure has evolved meaningfully as a function of where the dollars are being traded. And obviously, the emergence of passive and pods has been sort of the giant sucking sound in the public markets for a long time. And I feel like the marginal dollar being dictated by fundamental decisions that are long-term oriented by the capitals, the fidelities, the TTO prices of the world is just less meaningful on how stocks actually trade. And the

the new behavior it feels is more around what we call kind of setup dynamics. And that is a function largely of the dissemination of a lot of this third party data, creating setup dynamics around events, quarters, conferences, companies, you know, having speaking investor days,

and how those events are being previewed as a function of what third party data is suggesting or what the sort of litany of sales traders at the banks are sort of prompting buy side people with in terms of where the whisper numbers are and so forth. And so that creates just a different trading dynamic in terms of how you execute the job, right?

In addition, obviously, what I mentioned earlier, we do now have, as portfolio managers, a lot of tools to help us think through risk differently, portfolio construction differently. And then how that then manifests itself is how we express sort of the fundamental sauce of what we do, which is the fundamental research, right? And so...

we were saying earlier, we were talking before we started about just our trading volume has clearly gone up over time on a dollar basis, less so on a name basis because you get these outsized reactions that are often non-fundamental in nature to events, quarters, and so forth. And so, um,

All of those, you know, the tools are different, the resources are different. And then the last piece would be just the collaboration's different. In contrast to what I described earlier of kind of a siloed coverage model inside of a firm, it's not uncommon for us to show up at a company's headquarters for a meeting with

four, five, six analysts because there's people covering things that are adjacent to the topic at hand and the company at hand. And so often there's insights to be gleaned and questions to be asked that have implications for things that are outside of the purview of the conversation of that day. And that is super helpful. And we meet as a group twice a week as a research team and are sharing information constantly across our organization because

Obviously, five brains is better than one. And people have thoughts because they're in the periphery of what we're actually discussing often with their own coverage areas. And so the notion even of a coverage area, we kind of shy away from at this point because we have so many people opining on different ideas and themes across the portfolio because they have their own insights from their own work. If I think about the...

spectrum in my mind. On the one end maybe is like Buffett and Buffett could care less about whatever's happening with Coca-Cola on a given day and it's going to hold forever. On the other hand is like my friends who run pods at Citadel and their lives revolve around these events, this kind of event structure that you're talking about, investor days, quarterly earnings, et cetera, et cetera. And you're probably somewhere in between. We are.

Is this healthy, this focus on, like this extraordinary extreme focus on the dissemination of information at a couple of discrete moments, like in a quarterly calendar? Like, is that a good thing for markets? Is that even the right way to think about it? Like, how do you think about the way that it's evolved? Is it a good thing for markets? Hard for me to, you know, be the judge of that. I would say for us, you're right. We sit somewhere in the middle. And I think...

the onus or the responsibility is, you know, to look across both ways, right? We want to be positioned in a way to capitalize on non-fundamental dislocations and lean into duration, right? So when those setup dynamics are tricky or complicated and everyone's lined up one way, I want to line up the other way, right? And I have the duration and the capital base to do that. And so that's

I think we've always said that duration is our single biggest advantage, but it's never felt more prominent and powerful than it is in today's market structure. Having said that, you know, sometimes there are tricky things in the short term. There's a data point that we feel like the market hasn't fully absorbed. There's a risk factor in the short term, or there's an investment cycle coming on something we love on a three or four or five year look. But

we might be sized differently going into that event. It doesn't mean we're going to go in and out of positions. We rarely would do that, but we might be positioned differently. And I think the other thing I should have mentioned earlier in terms of just the difference of today versus before is,

is, and this comes through at the portfolio level, is we are definitely running lower gross exposure as a firm than we did for the first probably 15 to 17 years of our existence as in deference to this dynamic, right? So we want room to be adding to things when we think there are non-fundamental reactions that don't make sense or overreactions to things that we think aren't that big a deal, right? And so...

For the first bunch of years of our existence, we ran more like 170 by 200 gross. And we've been consistently for the last six to eight years, we've been running more kind of 150 by 180 gross to give ourselves that room to breathe so that we cannot have to play defense at the wrong time. And I can actually lean in when everyone's leaning out and vice versa. People that really love investing. I know you're one of them. Yeah.

seem to get the most excited during periods of extreme change. We were talking before we hit record about mobile being, you know, last like massive thing just up into the world. And now we're living through another one that might be the biggest one that any of us ever see in our careers. What's that like for you? Like it would be one thing if you were just starting into this, but you're managing a big existing thing, a big pool of capital. Yeah.

and probably expressing a lot of what you're learning about the world through some of the biggest companies in the world, not necessarily through like early stage startups or something. What is that like? Just talk me through what it's been like so far to process this. It's makes us kind of giddy. Yeah. I'm being, can I have a geek out for a second? Uh, I mean, why, why,

When I think about why did I get into this field in the first place, I think there's two sort of defining characteristics that I have that position me well to do this job. One is that I'm a wildly competitive human being. I was a junior tennis player for my entire junior career before going to college. I played in college. I love to compete. I love a scorecard, right? That's just who I am as a human. Mm-hmm.

The second is that I'm an incredibly curious person who is very focused on growth and growth in lots of ways. I mean, growth in terms of learning about new things, challenging myself. I play instruments. I, you know, there's lots of things I'm interested in as a human. And,

I feel so lucky to have found a career where I get to actually learn a lot and then put that knowledge to the test by measurement. We can put capital behind those learnings and those insights and see if we're right because there's a

there's a weighing mechanism every day, right? That gives us a scorecard. So for me, the opportunity to do that at scale on a topic that is, I think, transformational, not just for the markets, but for society, is just intoxicating, honestly, as a notion, as a concept. And the fact that we can do a tremendous amount of fundamental research and also have the

flexibility, the capital base, the nimbleness to evolve our views as we learn is incredibly interesting. It's also really fun as a manager to have a team of incredibly talented people who are both just professionally and personally engaged in this topic. And so the amount of

trial and error and the amount of testing that's going on on the weekends by our analysts who are downloading all these products and sharing sharing through to the you know email distribution system their learnings to help inform how we're thinking about just what's happening because things are changing so quickly and there's so much dynamism around this topic is incredibly interesting right and so our

The flip side of that is, you know, I've seen a lot of bubbles in my career. And so there's the appropriate amount of skepticism around where will the profit pools evolve? And that's an ongoing live conversation inside of our firm. And everyone's got different opinions and over what time frame and where is their fake AI and where is their real AI and where is the value ultimately going to be created and harvested and realized? And so we debate that constantly. And I would tell you that we think different things today than we thought, if

three months ago, six months ago, and 12 months ago. And they will be different, I can assure you, from what we will think in three months, six months, 12 months. And so that level of change and dynamism just as an investor is gold. I mean, that's why we do this, right? Maybe drill into that. Like, what do you think today is?

is the most important place that winners will emerge? Like based on what you know, obviously subject to tons and tons of change, but like, this is what's fun to talk about. I mean, you've had people on this podcast who are far more informed on this topic. So I feel humbled by even attempting to answer the question, but I would say at a high level, you know, obviously we have been of the view that

or questioning of the view from the beginning, I would say just stepping back, that LLMs would not be where the value was ultimately probably largely created, and that the fact that there are six, seven, eight of these today would likely consolidate over time down to a few. And so our view going back really from the beginning was that probably most of the value would be created at the application layer, right? And so that's part of why we have such a large position in meta and have for the last bunch of years as we feel like that's the

most real-life example at scale of commercializing a lot of the capabilities in core products today. Right. And you can see it kind of in their results and they're talking to you about it when they speak on their calls and so forth.

However, there aren't a lot of opportunities yet to realize that in the public markets. I think a lot of those businesses are first probably being funded in the private markets right now or in the last handful of years in the same way that when the mobile transition happened and the iPhone came out, the Spotify's and Shopify's and DoorDash's and all these amazing companies that came out of that generation of startups were

came after, right? And so those generations of cohorts of companies I'm sure are being formed and have been formed in the last couple of years. We don't invest typically at that stage in the private market, and certainly many of them are not public yet. And so our positioning has been more really around picks and shovels with the view that like, let's see how the ecosystem evolves. Let's see where profit pools are going to be created over time. But in the meantime, what we do know is that

there are constraints and what those constraints are shifting obviously they started on the semi side now it's more on the power side the next piece we'll see where that goes to and so that's more what we're tracking right in terms of where are the constraints where are the profit pools being generated that we believe are sustainable that are not a function of supply demand dislocation and then how do we want to be positioned behind those right and so that's the framework that we've kind of used

And obviously, we're doing an incredible amount of research, speaking with as many people as we can in every part of the ecosystem to inform, obviously, the inputs to that thought process. I'm curious about just the literal machinery of the firm. So like, how many analysts are there? Sure.

What do they do? How does that feed into something else? What do you do on top of it? How do you size stuff? How do you do leverage? Like just like literally like the assembly line that ends in a finished product that is a portfolio. Okay, sure. So we have currently 15 people on the research team, inclusive of Steve and Dave and me. And we,

And interestingly, in the 19 years I've been at the firm, we've been sort of between 13 and 19. And that's sort of where we live in terms of team size with the view that more people is not necessarily better. We want to run a relatively concentrated portfolio of 25 to 30 longs. That's kind of the best ideas portfolio. And we want a lot of collaboration.

And so we want everyone to fit around a table, to have a conversation at our research meetings and be a part of the conversation. And when you start to get into 20s and 30s, then you have a very siloed research team. That's not sort of how we're oriented and culturally not how we work.

How it works is, and maybe the best way to start is sort of how someone gets ingested into the firm on the research team, right? So a new person joins, typically they're younger, 25 to 30, let's say, and come with some level of experience. And they've got the analytical toolkit built already somewhere else, sometimes in private equity, sometimes in banking, sometimes in business school.

And typically they apprentice with someone senior for some period of time. That can be six months, it could be two years.

and they will kind of co-cover a bunch of things together. And that person is not doing what we call like the grunt work. They are going soup to nuts from being on the calls, working on the models, going to the conferences, going to see the companies, being in all of our meetings. And what we find is that person's voice tends to start to get louder after kind of six, eight months, right? Because they've been around, they've seen how we work. They're asking questions, they're iterating, they're learning from other analysts, right?

And when I know it's time for them to sort of spin out and cover their own stuff is when they start disagreeing with the person that they're apprenticing with, right? And so, which is to me like, "Hey, you found your voice. Amazing. And now let's put you on a bunch of other stuff that you can just run after and then, you know, serve up to us basically." And so that's how people get sort of absorbed into the culture and see how we work.

At that point, obviously, they have an appreciation for our process, how we approach companies, how we talk to companies, how we conduct research. I may be segueing to that part of how the sausage gets made. You know, we're doing all the things I think a lot of fundamental research firms are doing. We're reading all the public filings. We're reading all the transcripts. We're listening to podcasts. We're going to conferences. We're doing a lot of deep channel work in terms of talking to partners and former employees. We're employing, you know, talking to people in the expert networks.

We're reaching out to our own network as an institution, right? 27 years later, having done a lot of investing globally, we have a lot of people who we talk to who are former CEOs, former board members who have a lot of thoughts because they're still pretty connected to the spaces in which they worked. And so we are leveraging all of those resources on a fundamental basis. And then we have a three-person data team.

And the data team's role is a couple different things. They are our interface with third-party vendors on the outside and internally with our research team. They sit in on every single meeting. They know what we're working on, what's in the pipeline. And they are bringing external resources to bear to say, we're trying to answer these three questions on X stock or X sector. These are the resources that we think can be helpful in helping you answer those questions from a data perspective.

Right. So they are another tool in the kit in terms of how to approach market research. And they work really closely with our analysts to help them solve problems. That's a newer capability in the last, call it four or five years, I think has been super additive to how we work.

They occasionally will call out something that they're seeing in various data sets that we get in terms of like something funky is happening, this you may want to look into this, but that's really less of the role they play. They're really there to be a supportive arm for fundamental research and answering key questions. That's just sort of how the ideas get generated, researched, processed.

We, as an organization, meet two days a week, Mondays and Thursdays. The Monday meeting is a new ideas meeting and a portfolio updates meeting. So we're buying this stock. Here's the thesis. At that point, it's not news to anybody because we've talked about it probably in a research meeting many times before. Or it's, you know, we're selling this and here's why. Or I met with this company. So just updates.

Thursday is a couple different formats. It's either spaghetti against the wall ideas, like what are people hearing? We're just coming out of earnings. What are you hearing? What's interesting? What are people excited about? That's one. Two is...

what are things that have generated meaningful, like outsized alpha or massively underperformed on a trailing 90 day basis. And those get served up, you know, every week for us to consider. And we pick one or two to review or three, something that's pretty far along in the pipeline of being worked on. And we're thinking about actually beginning to transact in it. And we want to kind of

surface it to the group and debate it. So that's the Thursday meeting. So again, all of this conversation is meant to foster dialogue, debate, like people sharing their points of view, asking hard questions, pushing each other. That's the essence of sort of our process, right? And then when we're ready to transact, it's, you know, collaboration with the trading desk, which has five people on it, to your resources question.

question. And the questions there are, you know, what is max position size, liquidity? You know, we've already had the conversation as a PM group and with the analysts around like, you know, how does this compare to the rest of the portfolio? What's the, you know, what's the IRR? We've gone through the numbers. How does it, you know, price target, one-year price target, three-year price target? What are the near-term factors we want to be thinking about, if any? So that's all the conversation that's happening before we actually begin to put an order in.

So that's sort of the upward flow of ideas and research and structure of how we do things.

The other thing that happens on Mondays is, and this is all day Monday, is that Dave and I have sector meetings with all of the teams on an every other week basis. That meeting is everything from what are you working on? What are you trying to figure out? What resources are we deploying to help figure out those questions? To its earnings, who's reporting this week? What are we expecting to hear? What would make us sell? What would make us add? What could surprise the market? Either way kind of thing. So that's

on Mondays. That's sort of the structure of how we work as a team. And the portfolio is

I think by something additionally new, which is we have a risk function now that we didn't have going back, you know, five or seven years ago, which is somebody who used to run our fund of funds, which we had back in the day and shut down a number of years ago, who has built an incredible expertise and knowledge base around studying managers. And so when we shut down our fund of funds, we said to him, Frank, why don't you come study us?

and help us get better. And so he's gone back using a lot of the new tools that we referenced earlier to think about, you know, where do we get ourselves in trouble? Where have we made a lot of money? Helping us understand the mistakes we make. What are the patterns around those mistakes? What are the patterns around the huge successes? How do we trade? Do we add value by trading? I mean, all these things that are sort of portfolio analytics. And then also he's sort of our external lens on,

and all the things that we have to talk about now that were never a thing in the parlance of running a fund 10 or 15 years ago, but that are, again, never prescriptive, but another set of tools in the kit. And he is sort of where that resides. And so we meet with him and the risk team periodically and are getting reports sort of constantly to make sure we're thinking about, gee, there's a bunch of unearned alpha in these three names. The multiple has just gone from 15 to 25 times. Do we still love it here? Should we be trimming it?

Right. So, again, never prescriptively, but just another set of prompts and tools to think about, you know, balance in the book and where returns are coming from and how the composition is evolving. As you approach this whole thing, I'm curious if there is a fixed or fixed ish investment philosophy that has always guided you that you feel like no matter what happens, even in rapid pace of change will continue to guide you. Like, is there something that's unchanging about it?

the philosophy and maybe just like articulate your investment? Sure, I mean, I don't think we have a guiding principle around it. I would say the way that we discuss it internally is how much exposure do we want to this theme? And I think what's challenging about this one is it cuts across a number of different things, right? There are companies that are not...

leaning into this technology that are not benefiting from the proliferation of this technology today, who will and who are probably uniquely positioned. There are others who are in the AI is a problem for their business category, right? There's several industries that would fall into that camp. I think we keep having the conversation of how much exposure do we want because there's a recognition like we saw in the valuation bubble bursting of late 21, 22, that

There are nuanced bets here that are distinct, but that if there's a problem in AI, so to speak, and we can define what that may look like, these are all going to trade like one stock, right? And so what is the drawdown we are willing to sustain or endure?

If and when that happens, right? And so that's, I think, the risk framework on top of this is the most exciting dynamic thing. And we can all, you know, talk for hours and hours and days about all the opportunities it's going to create. And then I think there, nothing is a straight line, right? And so I think there's the, this is the benefit of having done this for a long time is that there's,

It's two steps forward, one step back, right? And so the deep seek thing last week was interesting, right? In terms of being like, oh, whoa, what is this? And what does this mean? And what does this mean for LLMs? Did they have access to GPUs? Like, what do we know? What do we not know, right? And I think we're still trying to answer those questions. And I think there was a knee jerk reaction from the market. We will have more of these, right? That is just part of this. And so

That's not a reason to not be involved, but it does make you think about sizing. And we always want some measure of balance in our portfolio. And we want several things that we're excited about that have idiosyncratic drivers that some of which may be tied to AI, some of many of which are not, right? And there are many thematics in our portfolio that we're super excited about.

And our job is to think, to be thoughtful about portfolio construction and make sure that all of our eggs are in one basket or things that we believe are discrete bets then ultimately trade like one, right? And so that's part of our challenge. Another way to think about it is there are certain investors that I would argue are playing a different game. And there are certain investors that are playing the popular game best, right? Like they're sort of competitors in an existing game. Where do you think Lone Pine falls in that spectrum?

It's a really good question. Somewhere in the middle, and I think we want ultimately the flexibility to pivot, right? I think that's what we've...

learned and experienced over doing this for a long time is that there are certain market backdrops that are conducive to certain styles of investing where you want to be more concentrated. There are certain, you know, backdrops where you want to be less concentrated. There are times to go big on a bet when we feel like it's really underappreciated. There's times to recognize that a lot of we're excited about the world's excited about. And so you probably shouldn't be as big as we were. And so the

I would say the flexibility to recognize when we're in a very short-term oriented market or when there's duration, right? And part of that, and I think one of the things that's changed is, if I rewind the clock to 10 or 15 years ago, sitting in our research room and around internal meetings, we didn't talk about macro at all. Like it was just like, we're fundamental investors, you know,

we are focused on what's happening inside of sectors, who's winning, who's losing, who are the best teams, who's executing. And to do that in 2025 and ignore macro is, it's not possible.

I want to be clear, macro is not prescriptive in terms of what we do, but it is a tool in the kit and something that has to be considered. And so there are moments in time when it feels like the market is extending in duration, and then we can reflect some of that in how we're positioned and how we're constructing the portfolio and how we're sized in certain things. And there is times, and I would argue we're in one of them right now, where there's a lot of uncertainty, and appropriately so, right? And so the market is...

it feels much more short-term oriented, much more data point driven.

The tariff thing over the weekend is a good example. And there's a bunch of announcements. And then some of that gets walked back on Monday. And so how does this all get implemented and executed, I think, is an open question. And so in that type of environment, you're going to see more knee-jerky type reactions to things. And that's just an awareness. We're not going to radically alter what we're doing or how we're positioned. But it sort of focuses us in different ways. Maybe the tariffs is a perfect excuse because it sort of happened and then unhappened.

you know, very quickly. Maybe I'd have, but it's like a live thing. Just bring us into the room as much as you can on. Okay. The, the, the announcement comes out like, well,

like what literally happens at Lone Pine? Like who is talking to who about what in what settings leading to what decisions? Like, like give us like a super zoomed in example here of how you process some big piece of news. So we all see the news starting to come out towards the end of last week. And over the weekend, Dave, my co-CIO and I, who I also referred to as my work husband, uh,

We've worked together for 21 years, so a long time. We're emailing back and forth like, okay, so now what do we do? These are big announcements. These are big numbers. We start to see the responses from some other countries in terms of what they're

I mean, to be totally frank, there was the conversations like, I'm not really sure what we're supposed to do about this. Like, are we going to like radically alter our portfolio? I mean, is this even going to go through? What's going to happen on Monday? Right. And we are in a moment right now of obviously very elevated. We're in an announcement cycle that seems to be accelerating with pace. Right. And so we're

We sort of had a back and forth a few times over the weekend. Okay, does this change anything for us? Let's come in Monday and see what happens. So Monday morning, we sit down as a PM group every Monday and every Thursday. And we're talking obviously all the time, but as you know, and Steve joins that meeting and

We sort of went back and forth and said, okay, what does this mean? What are the industries that are, let's assume it goes through, let's play this out both ways, right? Let's assume it goes through, what are the industries that this is a huge problem for? And we sort of tick through what some of those are, autos and others, right? What will the retaliatory actions look like, probably? So we'll walk through that.

And then the other side is like, let's assume that this all gets walked back, right? And how much it's going to get. And things are trading at crazy levels in the pre-market on Monday morning, right? That are theoretically exposed to these level of tariffs. We walk through that. And so the net of that is a lot of conversation and decision to do nothing. I mean, literally zero orders came out of this conversation, right? And some, that's not uncommon, but like for...

an event and a news cycle that is meaningful and somewhat anticipated, I would argue. And also, I think, with the approach with the appropriate amount of skepticism in terms of what ultimately gets implemented, a lot of debate, not doing anything about it, right? And so I think it's a conversation that's live, right? And so I don't want to, like,

All of this, all the AI stuff, these are all very live conversations that live inside of meetings but are constantly being pushed forward via email and constant communication that we're all in. So this one I would say is consternation, what are we supposed to do about it? Not gonna react.

Live and learn. Like, let's keep, let's keep following. What is it that gives you personally the energy? Is it, is it discovery? Is it a sense of understanding? Is it a great company, a great product, a great mispricing? Like what, what is the thing that like is your fuel or energy source searching for? So it's some combination I would say for us, a lot of our process revolves around people. So it's the people who are running the businesses and, um,

I think that companies are in some ways like families. There's a very distinct culture that characterizes and underpins companies, and that matters immensely, I think, for how a company operates, functions, hires, retains, grows, invests, all of the things that drive sort of ultimately how they perform and execute. And so getting to know the people, what motivates them,

Are they looking around corners and thinking about the thing that can disrupt them? Are they trying to disrupt themselves? Are they attracting and empowering the people that they are hiring into their companies and retaining them by giving them a lot of responsibility and a lot of autonomy and a lot of voice and decision making? So I think that's where it starts for us. And one of our

our favorite sort of themes in investing, which is not a sectoral theme, but sort of a change theme is around new people, right? You change people, you change company. And so there are lots of examples of in our history of businesses that are good to great businesses that we feel have been under managed. And then somebody comes in who we know from a prior life or a prior existence, or we do a bunch of work on that person if we don't and get super excited about their ability to transform.

And to me, nirvana is when you have a company that is so deficient in a certain functional area, and then you bring in a leader who is an expert in that functional area, and it's like, that's magic. And we've seen this a bunch of times. And so those opportunities, I think, are super interesting. Two, I would say, is just companies who are...

innovating at such a rapid clip and you see what's happening from a product pipeline perspective, right? They have a great monopoly incumbent business ideally, right? Or something that has an incredible unit economics and they are using a lot of that

profit and power to invest and plant seeds in a bunch of other areas. And you see some of those seeds starting to come to fruition in terms of new products, new lines of business, new distribution channels, whatever it may be relative to the company we're talking about. And seeing that

secret sauce is not just the single thing that made them great, but their ability to then recreate and innovate at like at scale, I think is super exciting to us. Is something like Starbucks, like the perfect example of the first thing you said, where, you know, it's sort of this story that people are worried about, skeptical about, you know, there's things going wrong. And then I don't know him, but by all accounts, the new CEO is like some fantastic mega all star, you know, person. So is that like the kind of general gist of the very good example? Yeah.

Another one from our past, which we did really well with and which was a great example of this was Ulta when Mary Dillon took it over. This was at the time a small company. I think it was maybe the $3 billion market cap when she joined. And she was a consumerist.

consumer products expert, marketing expert. And this was a largely membership, loyalty-driven business around cosmetics where almost the entire employee base is female that had great product curation, but not a great culture inside the company and really hadn't built a great marketing muscle.

And she came in and added all of that to the formula and the new economics of the business. They always had great four walls as a retailer, but really added something different to the go-to-market and the proposition to the customer and how the company was run, who she hired. And that's a great example of a very strong business

that could even be managed even better by somebody who had the expertise that they lacked. How did you know? Like in her case, as an example, is it kind of arm's length? Are you spending lots of time with her direct one-on-one? So we knew her because, again, like we track people, right? We follow people who we think are great. And when we owned McDonald's many years ago, she was a CMO.

So I met her for the first time at a meeting at corporate headquarters, where they roll in five or six different executives. And she came in, and I didn't know who she was. And she spoke for, you know, and I answered a bunch of questions and was super thoughtful and insightful. And she walked out, and I was like, who is this person? And I, like, Googled her and, like, saw her background. And she used to work in CPG, which tends to be great training ground for analytical thinkers, right?

And then we kind of followed her. And I knew Ulta, and we were sort of dazzled by their four-wall unit economics and done a bunch of work on the company. But the execution had been uneven, I would say, prior to her arrival. And there were things we thought were missing in terms of how the business was being run. And so when the board announced her hiring...

we were like, oh my God, this is kind of perfect because she's exactly the right leader for the opportunity that this company has and has the right skills to kind of really lift what's happening here. And so... What would be the other end of the spectrum, like a Buffett ham sandwich business? Not to pick on them, but like these are a master card where the business model is just so ridiculously good. Good, right. That like...

I'm sure they're awesome. I don't know them either. But you never hear about people at Visa or MasterCard. It's not like a cult of personality. It's like we just have the best business. How do you process something like that with your people centricity? How do you think about a business that's just so damn good?

you probably still want to own it. There always has to be room for them in the portfolio, right? Because those are the great compounding businesses. I mean, we owned both those companies at their IPOs and had meaningful positions and with the benefit of hindsight, never should have sold. I mean, they would have gone to very large positions over time. So of course, we would have trimmed. But yeah,

Look, that's why a portfolio is such an interesting entity, because it's a balance of a lot of different things. And so the people thing is hugely important for us. And we always want to know who we're lined up with and what their incentives are and all the things I mentioned. But there's also a lot of room for owning just fantastic businesses that, to your point, whether you have an A-plus CEO or an A-minus, I'm not sure it really matters that much on the margin. We just want to make sure we're not paying too much for them.

So that's, I think, always the key to in those situations as we want to own a stable of great businesses, particularly when there's a moment of dislocation or a question of doubt about something or there's a perception of a competitive threat that we think is sort of being overplayed in the market. Those often give us the opportunity to own great businesses at more reasonable prices, but those

I think are really about understanding the internals of the business and what drives the business and the duration of what we think the opportunity set looks like for that business to just

own them, right? And those are a different flavor. What's so interesting is the idea of following people applies to you too. You're in the midst of a big succession. And, you know, it's so interesting, because in in this business, you can count on kind of a few hands, the number of like really successful transitions that have happened at firms like yours that are less like big industrial complexes and more like small teams.

what works, what has worked, what's been hard, like the degree to which you're willing to kind of share the nitty gritty detail of it, good, bad and ugly. I'm curious how it's gone and how you've thought about it. So look, it starts with Steve, our founder, and how he set the firm up when he started it, you know, 27 years ago, which was with an orientation to succession. And I think that's

the first really differentiating aspect of our company versus many of our peers is that he was focused from the beginning on the company outliving him. And, you know, he comes out of the Goldman Sachs partnership back in the day. And I think that was in many ways the model in his brain of like,

You do well, you rise up, you own a lot of the company, and then ultimately as partners you go limited in the case of Goldman or you start to give away your equity to the next generation. And that's what his vision was. And that, by the way, extends not just to the investment team but to the entire company. It is the responsibility of every functional leader in our company, whether you run the tax department, HR, or IT, to understand and be mentoring who your successor is. And that's the culture of the firm and has been from the beginning.

And so Steve has been steadily handing off portfolio responsibility by sector kind of within the first couple of years of launching the firm with the view that there will be moments where it is clear that there are certain people on our investment team who know more about this sector than I do, who are effectively making all of the decisions anyway. And so let's deputize them to actually make those decisions, right? And have the insights. And so that's been the culture of since the beginning, you know, what we...

have been doing with him officially stepping back to really just kind of a chairman type of role, and Dave and I taking over as co-CIOs, was to really transition what we call kind of the 2.0 of Lone Pine. And that's been, if I'm being honest, a heavy lift, right? Because, and that is a function to some extent of how we were

set up at the beginning and then how much the market has changed, right? We had a great group of investors who were with us from day one who were largely kind of North American endowments and foundations and some high net worth, you know, family outsource, family office types and high net worth people.

And they gave us money day one and they just compounded for a long time. And so our orientation was heads down, put up numbers. We didn't really have an outbound effort and nor were we open for the first almost 15 years of our existence, right? We didn't really launch a bunch of new products after the long only launch in 2004. We had a quick stint with a long only emerging markets product that we quickly realized didn't scale. And we folded that into our long only business and haven't really come up with a new product since then. And so there really wasn't a need to have a big,

outbound effort, right? And so we've always had an investor services effort, which is great. But that's one example. Two is, you know, the emergence of a lot of technology and a lot of products and capability. We built all our systems homegrown because when we launched in 1997, a lot of this stuff didn't exist. That was off the shelf, right? And so there's been an opportunity to modernize how we do things from a process perspective, I think, across a lot of different parts of the organization.

Three, I think given the nature of collaboration that we talked about earlier with regard to sector coverage and how we work together, that's a slightly different human in terms of who's going to be good in that type of role and who succeeds, who communicates really well. There's always obviously a premium on communication in our industry and the ability to synthesize a lot of information into a couple of key questions.

But people who are collaborative, who are really team oriented, who are creative in terms of, you know, tools they employ to do fundamental research. The premium on those is even higher, I would argue, than it was before. And so I think we've evolved over time. The types of people we hire, we've learned from who's really succeeded inside of our culture and who hasn't done as well and tried to kind of evolve how we think about the

the types of people we want to bring into the organization. Dave and I are very focused now on kind of the next generation, right? You know, I'm 50, Dave's, I believe, 54, maybe he's 55, I'm not sure. If I'm in this seat in 10 years, that's probably not the best outcome for our LPs, right? You know, there is, I think, a life cycle of doing this. And Dave always says, and I think this is right, you know, when I'm less excited to jump on the plane to Singapore for two days, it's kind of how I know.

Right. I'm still excited to jump on the plane to Singapore. And so is he. So we're in the right seats. But we're equally focused on who is the next generation? How do we expose them to the things they need to get to get exposed to, you know, teach them how to manage people, how to think about portfolio, how to learn the areas outside of the areas they cover and that they've grown up covering. They've proven themselves to be very successful analysts.

How do we develop them to become great portfolio managers? And so that's a big part of our time now, which is different for me than probably five years ago. And then the last piece is obviously just shoring up the organization for a different world. And so whether that means different strategies around products, we've had kind of a one-size-fits-all. We are a...

long-only firm. We are a long-short firm. What does that mean in 2025, right? You know, what a hedge fund is or what it represents to the market in 1997 looks pretty different than what that term means today. Today, it probably means more like a pod shop, right? That's what a hedge fund is. We're a long-short fund, right? And a long-only fund. And we're fundamental investors. And that means something different in 2025 than it did in 1997. We never had a

PR effort. We never had a website until a few years ago, right? We wouldn't do things like this probably five or 10 years ago. It wasn't the culture of the company, but the world's changed. And so the onus is on us to communicate our story, communicate how we've changed, how we've grown, what we've learned, how we've developed, what we're focused on, right? And so that's

a different orientation for a firm that culturally was set up to be, let's just perform and everything will take care of itself. Yes, we absolutely need to perform. That's jobs one, two, and three. But those are the things we need to be doing to continue to develop and grow our business. I would love to hear the very first time you remember feeling your competitive instinct in your life, like going back as early in your life as possible. My sister will laugh at this if she listens to this. So I was probably...

six years old and, um, my parents belong to like a little pool club at our town and they played tennis and I had started to play and didn't take lessons and wasn't allowed to take lessons until I was older. But the way to be able to play on the backboard at our little pool club was there was competition. Like you used to get the back access to the backboard. You had to beat the people who were waiting around to play on the backboard. And so I,

figure this out and I'm watching these two boys who are I think like 10 or 11 play each other and whoever wins gets to practice for 20 minutes and someone else, the next person gets to challenge them. And so I'm like, I'm gonna challenge this person, right? And so watching, like sitting, waiting for my turn to play

like my heart rate just started like escalating. And I was not, cause I was nervous cause I was excited. And then I beat whoever I played and that moment of like winning and like internalizing that I now had access for myself to the backboard for the next 20 minutes until the next person was gonna challenge me.

was something that made me feel very energized and excited. And I have a feeling that I wanted to replicate. Has it always been excited? Has it ever been nerves? Sure, of course. So when was it first nerves? Oh, when expectation comes along, right? When you realize you're actually good at something or could be good at something or have potential, right? And so... Was that tennis too when you first felt that? Tennis too, for sure, right? Because...

I think I was this height probably when I was 11 years old. So I had very high rankings when I was very young. And that pressure of being seated in a tournament, right? You go to a tournament and you're the first seat and it's like, everyone's gunning for you, right? That's anxiety provoking for sure. Did you have experiences where you sort of broke through

an understanding of what you're capable of, like where, where something happened. And on the other side of that thing, you like almost like a snake shedding its skin or something like you up-leveled your own assessment of yourself that happened in competition. Indirectly. Yes. I would say it wasn't in a match or in a particular setting, but, um, I, I,

burnt out in junior tennis. So my, you know, I started playing nationals when I was 10 years old. I played every summer until I went to college. Most weekends were spent traveling to tournaments around the tri-state area.

Thanksgiving, Easter Bowl, every summer. It was a lot. And I think they've since scaled back. I don't think they have the 10 and under category anymore, but they did then. And when I got to my junior year, the end of my junior year of high school, I was done. I just was so burnt out. I didn't really want to practice for three hours every day after school. I was interested in other things. I was interested in school.

And at the time, the NCAA rules for tennis, I'm not sure if they've changed because now they're different, I feel like, for every sport, but coaches weren't allowed to call you until July 1st every junior summer. And I'll date myself by saying that we had an answering machine with a cassette at the time. And so I didn't want to go to nationals that summer. And I said to my mom, like, I'm just done. I don't want to go. I don't, I just, I'm done with the sport. Like, I can't play anymore. I don't want to do this.

And she said, I've never made you do anything in your entire life, but I'm actually going to make you go because you've worked so hard for the last 10 years at this sport. And you spend so much time and put so much of yourself into it. Let it do something for you. It's going to get you into college. And if you never want to play again, that's fine. But like, I'm going to make you go.

And I went and I kicking and screaming, but I did, I went and I played and I got home from the tournaments and you know, our cassette tape was broken from all the coaches that had left messages for super exciting. And then I literally did not pick up a tennis racket for my entire senior year of high school.

I applied to Harvard early. I was lucky enough to get in. I got recruited. And I played basketball from my high school and softball from my high school because I love sports and I love to compete. And I went to college with a very different orientation, which was, we'll see how this goes, right? Like, I don't know how I'm going to play. I don't know how I'm going to feel. I don't know how being on a team is going to feel relative to being such an individual sport.

And it's a great story for me about just seeing something different from an experience, which was it really became about the team. Like my freshman year, we were terrible. I played first singles. We were last in the Ivy League. I lost most matches that I played. So as did we as a team. And it really became about rebuilding the team and the camaraderie of the people on it that

that provided me such like enjoyment and so much fun and such an important part of my college experience. And so tennis became for me something very different in college I didn't think was possible. And so I saw the opportunity to reshape something for myself that was so seminal and it becomes so almost toxic by the time I was finishing high school to something that was such a gift.

and some of my closest friends in the world came from that experience. My best friend on the planet, we met when we were seven. She played at Yale, I played at Harvard. So there's so many things tennis has given me and has shown me so much about tennis

Kind of the kind of person I want to be and taught me so many lessons about not just competing, but independence and hard work and all the things that I would like to instill in my daughters come from that experience and then allowing it to become something else for me. I love that moment with your mom. What was the kind of the same question, more investing centric? What was the first formative experience?

experience you can remember that made you realize that both the competition and the pursuit of excellence that you seem to care a lot about was possible in this field? You know, it's funny. Like, I think it takes a while in this field to figure out if you're any good at it, right? And so in the first handful of years that I worked in public markets, I definitely got more things right than wrong. But I wouldn't say I came out of that feeling like I got this right.

When I got to Lone Pine, I was super excited about being in a culture of excellence and a culture of research. That was really what drew me to the firm. And I knew Dave because we overlapped on a bunch of investments. And when I was in prior firms, we shared meetings and went to see companies together and really got to know each other and figured out that we thought about the world in a pretty similar way. And we're attracted to the same types of industries and companies.

When I got to Lone Pine, I worked a lot with him, and Steve was obviously sort of this super impressive figure who loomed large over the research department, given obviously his tenure and his success. And about a year into being at Lone Pine, the person who had been working most closely with him on Consumer left the firm to start his own firm, and Steve comes into my office and he says...

"Alright, so you're taking over all this stuff, retail, luxury, all the hotels, casinos, all these things, and you're gonna be working mostly with me." And I was like, "Okay, this is super exciting and super intimidating." And I remember a few years into working with him, there was something, I forget, I think it was The Gap. Glenn Murphy was running it and he was in the process of turning it around at the time.

And I'd done a bunch of work on it. It was a pretty controversial idea because people thought the Gap was sort of a mature business and the brands were all starting to lose market share and so forth. And I went into his office. And the way things work with Steve when he used to be a portfolio manager was it was sort of a conversation. There wasn't a memo. There wasn't a deck that you put together and presented to an investment committee. You'd go into his office and say, hey, I want to talk to you about X. And you'd sit down and kind of hash it out. And then usually, if you're effective, you walk out and he puts the order in, right? Just turns around at his little desk and puts the order in.

And so I go on to talk to him about the gap and I said, "Hey, I wanted to talk to you about the gap." And he's like, "It's a short, right?" And I was like, "I actually think it's pretty interesting." And he's like, he makes a face like, "Are you crazy?" And so I walk him through my thinking and he's like, he asked me a bunch of questions and it's a 20, 30 minute conversation at the end.

He looks at me and he's like, yeah, that makes sense. And he turns around and just writes to her. And I was like, okay, maybe I actually know something because he knows more about this whole space than anybody on the planet in our world, you know, who's living and investing actively at that moment in time in the public markets. And like, I just convinced him and it ended up being right, which was great. But more importantly, I think just the confidence to come in and take the other side on something, again, somebody who I had so much respect for and then be right in that name was just like a tiny example, but I think illustrative of,

how this job is so much about confidence and how you're feeling and it's cumulative, right? And so, yes, I'd had success, but that moment was sort of stands out in my brain. And I joke internally at Lone Pine and I say this with intent and intention because I want the analysts to challenge us all the time. That's how we all get better is like, I kind of made a career of disagreeing with Steve, right? And like, look where I'm sitting now. So I think it kind of worked out. I want you to do the same, right? Yeah.

That's so cool. If you think about the leader, business leader, that is the most driven to win that you've ever gotten to know about or know personally well, who comes to mind? I want to pull apart like the pieces of drive to win and then apply it to the people that, you know, on your team and also that you recruit. I mean, it's probably Mark Zuckerberg. And what do you see? Like, what does that teach you? Like, what is it? Huge focus, big bets,

willing to be wrong and pivot quickly when realizing that they are wrong. Meta. It's having, knowing when to be bold and when to be humble, attracting, challenging, you know, motivating a really talented organization and vulnerability. And when you think about all those characteristics, how do you suss them out in someone that might come work for you? Especially if they're young and like, there's not like... I say all the time that, you know,

What I can glean from a 30-minute interview is pretty limited in terms of someone's ultimate ability to do this job well. So that's why we have a summer internship program for MBAs, because it gives us kind of eight to 10 weeks to evaluate them and vice versa, right? To figure out if there's a fit, how this person works, how they think. So for me...

I look for a couple things. It won't surprise you to hear that I love hiring competitive athletes who have competed at a high level. I don't care the sport. It could be an instrument. That's great, too. But people who understand hard work, failure, disappointment, achievement, what that all feels like. Two, people who have had to juggle things in their lives, right? So they had to work a couple jobs while they were in college. They...

had some sort of misfortune in their life, you know,

a relative, a sibling, or something that's happened to them that they've had to pick themselves up and work through. People who are interested in lots of things because they're curious, right? People who love to learn. That is ultimately, we said this earlier, like foundational, I think, for being successful in this job is never being complacent and thinking that you know more, but recognizing and being humbled by the fact that there's always more work you can do

But the companion skill to that is knowing when you know enough to make a decision, right? Because I think you can get into, you know, analytical paralysis around like there's more to do, there's more to do, there's more to do. And like we're in the decision making business, right? And so that balance of curiosity and pursuit of knowledge and learning and growth is

the self-awareness to admit when one is wrong, which is an incredibly important part of what we do, and the willingness to take some level of risk or offer some kind of contrarian thinking that often can position us really well to make money. Who do you view as your competition? Hmm.

Is it firms? Is it just the whole market? Is it? It's so funny because the firms that were always, um, lined up against in the press and are, are some of my closest friends and none of us view it competitively at all. Um, in fact, several former guests on your show are super close friends of mine. And, uh,

In some ways, I view our competition, honestly, as ourselves. Like, we need to be better and do better. And I think that's the bar we hold ourselves to is that we, you know, have the unique position of having been around for 27 years, which is increasingly rare in what we do. And obviously, being a directional, fundamentally oriented person.

Public equities firm with duration is increasingly rare at scale I would say relative to when I first started in the business and so I don't think of the pods as our competition I mean the market is obviously we're benchmarked in one of our products and so that's obviously our competition and how we evaluate ourselves, but You know, I think

We had many years of very, very strong performance. We're sort of hopefully back on that track now with, I think, a lot of learnings and a lot of insights from mistakes we've made and a lot of growth that we've all experienced as an organization. And so I don't have like a target on my wall of XYZ firm or someone's numbers that I'm tracking to say, oh, we did better than that person.

It's actually sort of the opposite, which might be counterintuitive, is that I root for a lot of my friends. And when we do work on something and someone else calls us and they own it or they do work on it, we pass and it works and they do well. I think that's awesome, right? We want the industry to do well. We want people who leave our firm and start their own firm to do well. That is good for the industry, right? And that matters. And so I don't have a zero-sum game attitude towards our industry or...

root against certain people. I really don't. I feel like having done this for a long time, part of what makes it makes this really fun is the relationships of,

20 plus years of going to see companies with the same people and exchanging ideas and debating ideas and challenging each other on our thinking. And then getting to know their talent, people who work for them, who've done the deep dives on a bunch of different names and introducing them to our talent, all of us getting on Zooms and hashing it out. Like that's what's really fun about doing this job is that network.

And that has surprised me, I think. When I first entered the industry many years ago, I thought it would be more sharp-elbowed and competitive. And instead, it's been the exact opposite. And maybe it starts with how we were talking earlier about sector coverage and my initial peer network being outside of the firm. So you sort of find like-minded thinkers or people that you respect or who you think ask good questions in meetings with companies to then have conversations with about the sector and then

that grows up into, you know, these become friends. So that's been a real surprise, I would say, about the industry and maybe a little bit of a wander from the question that you asked. But it's one thing I think is super interesting and maybe not really well understood outside in. I'm curious how much more or less you feel like leadership matters

Then early on in your career, like a couple of the examples you've given is that a single person can really massively alter the trajectory of a business, even a very established one with lots of features that are independent of the person. There's the like great person theory of history versus the sort of, you know, less emphasis on the individual. Has the point on that spectrum that you personally lie changed over time? Like do you believe more or less in leadership, I guess? More, more just because I've seen,

So many reps, right? That's the business. We're in the pattern recognition business as a field, I would say. And what's also interesting is to see it across industries, across geographies. Like, you know, we used to be big investors in China many years ago and seeing how a lot of the entrepreneurial businesses there, the Tencent, the Alibabas got built and the leadership inside of those companies, Meituan, you know,

I look at something like MercadoLibre and what Marcos has built there over time, and the team largely being the same since inception. And they've executed against competitors who came in and tried to disrupt their markets.

who are much bigger, well-resourced, much bigger global companies and defeated them. And I just, there's something to the magic that happens when you have, I think, strong leadership, great teams, a lot of collaboration across those teams and a lot of like ups and downs that everyone experiences together that creates so much resilience.

I've seen that play out time and time again. And it's interesting, today's actually investing climate with, we've been saying this a lot, like with the cost of capital coming back and largely gonna persist, we can debate at what level, you're seeing just winners and losers across industries in ways that we have not seen for a really long time, which is super exciting, obviously, for us as really actively engaged research-oriented investors.

who both own stocks and short stocks because execution is mattering, right? And the free lunch of the zero interest rates and there's money for everyone almost forever, it felt like for many, many years, that era is over. And so you see it across all kinds of categories. And you see, you know, whether it's Boeing versus Airbus or, you know, Hermes and LVMH versus carrying in Burberry or, you know, we can go down.

DoorDash versus everyone else in that space, basically, right? Uber versus Lyft. And there's so many examples of...

and losers getting way more pronounced. And a lot of that's strategic decision. A lot of that's leadership, honestly, and execution. And I think those things are all really, really tied together. Maybe just like bullet lists, like enumerate the things you seeing the winners of those pairwise examples you just gave doing versus the losers. Because in some of those categories, like some airline, you know, some aircraft manufacturers or something, it's not like they're pivoting to some random, like they're still making airplanes. Right, right.

We're still driving people around right lyft is - yeah, so so what is what are you? Yeah list those things like what are the winners doing in a in a real cost of capital environment that the losers aren't So I think it's it's a bunch of things number one There's really clear Strategy in terms of what are we focused on right? I think so many companies have

eight different initiatives that are simultaneous and there's a lack of understanding when you talk to people inside of a company of what actually matters. What are we driving towards, right? That's one.

There's a culture of accountability and measurement, right? Some companies have it. It seems so obvious, right? Like people are bonused off of a certain thing. They do, you know, forward-looking plans and budgets every year and they hit them or they don't. But there's some companies that are religious about, you know, having those be thoughtful exercises and accountable exercises and ones that are not, right? And I think that shows through a lot. Three is accountability.

Companies who treat their consumers well, whether that's a B2B enterprise, a B2C enterprise, when you talk to customers, and we do this all the time as part of our research, you hear how they are treated and it is different. There's someone for them to pick up the phone and call. Their needs are being met. They don't feel like they're being aggressively raised, like their price is not being used as a weapon against them. They're being serviced.

It's just different. There's again, back to accountability and sort of a level of operating standard that is the expectation of how things are done. I think the other thing is there's a long-term orientation that I think some companies lose their way around, particularly when you have a lot of turnover and the amount back to people and you have a lot of turnover

Incentives get set, whether that's tied to a stock price or the metrics that drive compensation, and people's incentives are not aligned, right? And that doesn't promote long-term strategic thinking or orientation. That filters down to the culture. So now people are cutting corners. They're trying to make numbers, make budget,

that's a very different way to live as a company than it is around, we may miss a quarter, but this is the right investment to make, right? And so companies that I think do a good job of balancing short and long-term, one, and two, are able to communicate to the market, you know,

a consistent level of execution, right? We joke a lot internally that, and I say this a lot to management teams, every time you open your mouth to report your quarter, your stocks up or down 20%. What that tells me is you are not doing a good job communicating your business. You don't have good visibility around your business because you are surprising the market every time you speak, good and bad.

That's not like multiple enhancing for your company over time, right? And so that comes from how the internals of how a business is run. What are the incentives? What are the metrics? What's the culture? What's the retention? All of these things I think are such important glue that distinguish the better executors from the poor executors. Do you think the best that do it understand the concept of cost of capital really well and drive it? And if they do, what are the best do to drive down the cost of their capital?

I think of it like from the perspective of like trade-offs in a budget meeting, right? And so in the era of zero interest rates and the market, the public markets for years rewarding growth at any cost, I think the disciplines inside of a lot of companies really went away and everyone was just motivated to find new ways to grow regardless of the cost.

And what is clear in today's era, and you have seen this from a lot of the big platform companies, particularly in the Internet space, there is just a new religion around cost where when you sit in a budget meeting or even an engineering meeting and you are putting forth two or three initiatives that you want to get funded, you are being asked how to fund them.

from your budget, right? Which is just a very different orientation of this is not an open pie that is limitless in terms of dollars that can flow to you. And if you want to do something, you have to like, you know, it's like a Sophie's Choice, right? It's like...

one of the things that you've already been approved for needs to be sacrificed because then you're going to feel the pain and it's going to really pressure the decision-making around solving for the best thing or the best two things, right? Or if you want more resources on a project, like convince me why, right? That,

cultural orientation to me is sort of the business translation of driving down cost of capital. People understanding that there are costs associated with every resource inside of a company and how to think about those in a way that is personal. I always say that when we look at our budgets every year for our third-party data sources and all the things that our analysts want to use, there's a lot of nice-to-haves. But what are like the must-haves? And I always say to our management team, what if we made them pay for them themselves?

What would they actually keep? And what would they say? You know what? This is a nice to have. I don't need to have. Right. And it would actually force different thinking around what's let me look back. What's actually informed the decisions that I've made and has helped me make better decisions versus like an input that was one of 10 that didn't actually change anything for me. Right.

Right. What has been the worst period of returns that you've experienced at Lone Pine? And what, like, tell me about that era and what you learned from it. Sure. I mean, we'll put aside the financial crisis because I think that was just like a... So universal. Yeah. A universal thing. For sure, it was the end of 21 and the first few months of 22. And we learned a lot. You know... Tell me everything. So...

you know, referencing what I just said about a period in time where the market was consistently rewarding the best positioned companies who had great unit economics, but were investing meaningfully ahead of their growth rates. And the market was forgiving and encouraging actually of that level of investments, such that many of these companies were funding extraneous things, burning cash,

that didn't matter as long as the growth rates were continuing to accelerate and people were comfortable that the underlying unit economics were sound, right? So what happened I think was

a lack of accountability around valuation and no near-term valuation support because everyone was looking at multi-year out normalized margin structures to then discount back and say this is a fair price to pay for an equity. Instead of looking at if something changes and something goes bump in the night, on a next 12 or next 24 months earnings or cashflow basis,

is our valuation support. And the regime changed, I think, very quickly when people started to realize, ourselves included, that the Fed was behind. And we started having this conversation in the fall of 21, really in the spring of 21, owning a lot of these businesses that were the leaders. And by the way, with the benefit of hindsight, from a 2025 perspective,

are the winners, right? A lot of the companies we owned, they were the right ones to own, we just paid too much for them, right? And when the regime changed

And it was clear that we were going to need to be getting into a hiking cycle quickly and aggressively. We pivoted, but not quickly enough. Right. And so we took some of that high growth exposure down that had been some of the most profitable exposure for us on the prior 24 months, but not enough and not fast enough. And so when we came into 2022, you know, as you remember, like it was just kind of the market was down and it was super quick and it was like a reprice mechanism that happened very, very quickly.

And we weren't quick enough to react. And to the point earlier around believing we owned different bets and payments or e-commerce or software, when the regime changed, none of that mattered. And that nuance was lost and they all traded like one stock, right? And so we had too much exposure. We had lost balance in the portfolio. And, you know, part of that, I forgive to some extent because the market had been rewarding that for many years prior, but we didn't

We didn't act quickly enough and and respond quickly enough to a conversation We were having as well as the market was having at the same time around sort of a different a different regime from a macro perspective an interest rate perspective and so that was the huge mistake and

We spent a lot of time internalizing the lessons, studying all the mistakes, points in time when we had this conversation and didn't make change earlier, a year earlier, 18 months earlier, and that was the right decision. And then the conversation we were having at the time and this decision to move some capital but not enough and not quickly enough and really memorialized, I think, a lot of that thinking and learning around reinforcing that there are

lots of ways to make money in the market. And we just got really narrow in our purview, I think, and lost the perspective on balance. And so I think the changes we made in the first quarter

of 22 and sort of resetting the book to a much more balanced book that has lots of different flavors of things in it. Again, not top-down prescriptively, but I think really prioritizing that in a different way. And going back to, honestly, a lot of sectors where we had a lot of domain expertise, where we'd had a lot of success historically that we kind of got away from because, you know, the sex of the high-growth, internet-oriented kind of tech stuff, right?

had been so intoxicating, I think, for not only ourselves, but a lot of investors who are attracted to growth businesses that are creating value. We didn't own Nvidia. We didn't, you know, it wasn't three stocks that drove the whole portfolio and they're across a number of different industries. And so the breadth that is driving our performance is very Lone Pine-esque to me and something that we got away from. And that's the mistake, I think. A couple of decades into studying companies. Can you describe the perfect business?

I mean, it's all the things we're all searching the globe for, right? We want incredible leadership, really strong unit economics, a really good moat around a business in terms of something that is different, incredible value proposition to the customer, whoever it may be.

the ability to grow organically without investing meaningful capital, and a huge runway for growth that can last for many, many years without being disrupted if we're doing our jobs, right? And in terms of the management team of the company that's running it. And maybe like an adjacent question is the perfect investment, because I suspect that when one of those exists, the world kind of knows it and its price. So I think it's...

Change in leadership. It's a new product that the market doesn't appreciate fully in terms of its capability, how big it can be, how accretive it is to margins and returns, how little capital it requires, ways to leverage the core IP of a business in new channels, in new products, etc.

the value of distribution to the earlier conversation and how that's underappreciated in certain businesses and the ability to flow other products, other services into that. Or, you know, sometimes it's just the benefits of scale. The companies get to a certain size and then their market power step functions, right? And what they can, and then that somehow improves the value proposition and the flywheel of what they're doing in a way that the market doesn't fully appreciate. And, and,

We see this now, I would say, like in the alts space, for example, where these businesses are now, you know, they're all mostly public and that's new. Like Apollo or KKR. Correct, yeah, KKR or Ares. And their ability to offer...

unparalleled customer service, product innovation, opportunities for talent development, new channels of growth, it's spinning on its own in terms of this flywheel, right? In a way that I don't think anybody could have really anticipated. And what's interesting about these is, you know,

The bare case on them because they're a new asset class as public companies is we haven't really been through like a big cycle. So how will they perform? And then the other piece I think the market struggles with is how do you value the carried interest part of their revenue model, right? Everyone can value management fees and make a projection around how AOM will grow. But what do you pay for that?

And so that's interesting to me because we can do work on that. We can have a point of view on that. We can look across cycles, look across products, how they're growing, and think about how funds perform and have a thoughtful analytical answer to that question. But there isn't an answer to that question yet. And these are still under-owned relative to all of the big companies

institutions that have to index, that have to own these things and will continue to have to own them in bigger size as they grow. And so the idea of like a new asset class is sort of interesting to me, even though it's, you know, Blackstone's in public for a while. But all these companies are newly public in the last decade. And I think the world is still figuring out how to analyze and value them as public companies.

I love the idea of the investment opportunities coming around change. I was with John Zito from Apollo, who just made co-president of Apollo last night. And it's so interesting because, I don't know, probably the stock price of Apollo doesn't really reflect all the things that John might do in the future. Right. Amazing guy. Yep.

And so it's getting into that like changing thing where the opportunities come from for Lone Pine, it sounds like. I'd love to apply that idea to a couple different like sectors. So you mentioned kind of a broader purview, getting back to some of the things that, you know, made the firm originally. Obviously, Steve was a consumer analyst and retail analyst. And so cool to talk to him about that space. What would be like the top three, would you say, outside of like

big TMT, which we can talk about too. Sure. But outside of those big companies, what are like the top three sectors that you find yourself spending your time in now? We own a lot of one-off ideas in non-bank financials. So the Alt is one example of that. But we have a number of positions of...

single stock, not thematic companies that are doing really interesting things. One is around transformative M&A at scale. One is around product innovation. One is around AI. That's not an AI business, but it's using AI to thoughtfully do things inside of its sector. So that's an area where I feel like we typically don't do a lot with the banks. Um,

not an area where we feel like we can really add value. There's regulatory risk and all the, and we don't think, you know, those are not sort of, don't really measure against our quality filter as businesses. But there's a number of pockets inside of financials that we think are not very well covered that are pretty interesting. And we've got a great team doing research there. So I think that's one area.

We have been investors for really two decades almost and continue to be in the aerospace market.

both OEM and aftermarket and continue to love those businesses. They have, you know, all of the attributes of businesses. We like great organic growth, great pricing power, you know, a lot of, as people fly more planes get used more, there's a need for replacement parts. Um, they get spec'd into, to, to planes as they're being built. And so there's typically single source or sole sourced. Um, and there were super low costs as a percentage of the overall, um,

And so they're just recurring revenue businesses with a lot of pricing power and very little capital against those businesses to grow organically. And, you know, feel like there's a pretty good open-ended structural story around people traveling more and valuing the experiences. And so that will continue to, I think, be a very productive area for us. And we've, there's a bunch of different names that we've owned in that ecosystem and will continue to own likely over time. So I think those, that's another thing.

Big area. Those are two. I mean, consumer is harder, I would say. Most businesses were more active there on the short side than the long side at this point, just because there's just an inherent maturity to, I think, a lot of those businesses.

And the ones that are the really scaled winners, even just watching the revaluation of Walmart in the last 18 months has been super interesting as they've really emerged as a more consistent executor. And Doug's done a fantastic job, I think, with that business. But that, I mean, Walmart's now trading at a pretty hefty multiple and Costco's trading really, I mean, these are the best, you know, executors in the space and they're really expensive. So I think the market has sort of figured out that they are the winners. Yeah.

And so less to do there, in my mind, in terms of runway for long growth that's underappreciated or maybe fairly valued relative to the actual level of growth. It's one of the things we debate a lot, honestly, is in areas like health care. This happens in certain sectors and also in certain geographies where there's

very few companies that have high growth or have exposure to a thematic that the market is excited about because of a geography or because of a sector focus and We like those businesses too, but they tend to trade at valuations with don't stack up against businesses that we see across the portfolio that are more compelling So even though we love lots of companies around the world and would love to own them we're always waiting for like a wobble or a dislocation or a perceived competitive threat to give us our chance to own them and

because they don't stack relative to owning more of a lot of the compounding businesses that we love. If you think about the whole industry, what do you think is the biggest problem facing the investing world? I mean, certainly the funds flows of the last bunch of years would tell you that active management is undervalued relative to our industry.

our understanding and execution of that value, right? The move to passive, this idea that like just own the Mag7 and I can do that myself and why do I need you has become a little bit of a cocktail party chatter at this point. And we are obviously huge believers in active management and huge believers in the value of doing fundamental analytical work on companies and not indexing. And that the premium for that is undervalued relative to its worth.

And I think part of what makes that, I think, a difficult conversation right now is the short-term orientation of the market and how it takes, you know, we're focused on compounding over a very long period of time, right? We are the largest single investor in our fund. A third of the assets is internal capital. So what I wake up every day really excited to do is compound my money alongside of our LPs, right? I think that's a pretty compelling proposition to a potential client for our firm.

Um, and that doesn't happen in a day or a week or a month. And I'm not, my investment underwriting doesn't tie to that time horizon. Right. And so we want to be judged over years, not quarters. And we're increasingly in a market that is evaluated by forget quarters, weeks and months per the pods conversation earlier. And a lot of pods, you know, if you don't put up, you know, we, we, we laugh at that

the activity in the market in the last few days of every month. Because if you're not having a bad month, you're gonna get your capital yanked, so you take risk, right? Or you have to de-gross or these activities, this never existed, right? Five or 10 years ago, but this is the market forces at work. And so...

Again, great for us long-term investors. I want to lean in when they're leaning out and vice versa. But the value of doing that and the benefit of that capability takes time to reveal itself and isn't going to show itself in a quarter or a year. And I think that's what the market's missing. Say one more click about how the pods work from your perspective and the weird incentives in there and what it does in markets.

20, 30, 40 desks or pads, as they call them, covering a sector, right? And they all look at the same data and they sit in the same meetings and on the same calls. And of course, they talk to each other because you have a peer network sitting inside your own firm. And so often, and I have never worked at a pub, but have several friends who have still do and have come out of there, you know, you can see how everyone's lined up.

And you'll have 20, 25 books long a stock into a print of a quarterly earnings estimate and a quarterly conference call. And the numbers come out. And it was better, but it wasn't better enough because the whisper number, the data was suggesting they were going to beat by three points and then only beat by two points. And so the stock's actually going to sell off, right? The game of...

you hand me an earnings release and I'll tell you what the stock's going to do, was actually a fundamental game that we were pretty good at a decade ago. Now it's like, coin toss. What's the setup? You tell me. What's the whisper number? How are the pods lined up? Are they long? Are they shorted? Because that's going to dictate the trading action the day of. And the opening market reaction versus what happens over the course of the day is everyone's covering the short because it was bad, but it wasn't worse. And that's like, this is what happens all the time. And so the

That requires different muscles from us in terms of how we position ourselves and respond to that. But I think that's what is happening. And these people are on, they have drawdown limits of where they can draw down on a monthly or quarterly basis. Their capital gets pulled and that's the lives they lead. And so what you see in market action in terms of reactions to events is a function of those incentives, right?

and those structures. This has been so incredibly fun. It's so neat to hear how the whole machine works and just about your career and the competitive nature and the tennis. It's just an amazing, amazing story. I always ask the same traditional closing question. What is the kindest thing that anyone's ever done for you? So the summer after my freshman year of college, I taught tennis at a camp in Florida and there was a golf camp at the same place.

resort and I became friendly with the golf pro and we'd meet after I was done teaching for the day and he taught me how to play golf that summer, which I don't play anymore, but I did at the time. And at the end of the summer, the last night we had dinner together before I went back to school and he said to me, um,

Can I tell you something? And he was probably, I was 18 and he was 32. And he said, you know, you are so driven and you're so intense. And I just can tell that like, I'm super excited to follow your life because it's going to be really interesting is my sense. He said, but you're also an incredibly soulful person and your relationships clearly matter to you. He said, so my piece of advice for you would be figure out who in your life matters to you.

figure out what matters to them and then show up for them in all the ways that matter to them. And that will be a rewarding life for you. Because he's like, I think he got the professional part down, which is super sweet. And so I take that to heart and work really hard on relationships and the people that show up for me to be there for them, for the things and for the people that matter for them. One follow up is a beautiful closing thought.

How have you gotten better at that? Like if everyone listening hears that simple method, it's like, oh, I want to do that. Right. What are the tactics of getting better at that that you've learned? Making sure it's mutual. I think relationships change. People's lives change. I think you recognize, I just turned 50, that...

Some friendships and relationships that have duration in your life are more a function of circumstance, and you wouldn't necessarily choose some of those relationships today. And the ones that are the inverse of that, that are, have the duration and are still the most meaningful, are the most valuable. And so it's the concentration theory of both investing in your highest and best ideas and

And the concentration theory of just the people who are incredibly meaningful to you because they've seen you grow up and seen you grow and change. But then also the last piece or the postscript would be leaving room for new because new, I think, helps us all grow. And we're different than we were when I certainly am when I was 20. And the new is the reflection of like who you meet and connect with today, which wouldn't be the same thing as it was 30 years ago. So.

Beautiful closing thought. Kelly, thanks so much for your time. Thank you. Enjoyed it. If you enjoyed this episode, visit joincolossus.com where you'll find every episode of this podcast complete with hand edited transcripts. You can also subscribe to Colossus Review, our quarterly print, digital and private audio publication featuring in-depth profiles of the founders, investors and companies that we admire most.

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