Dan Sundheim - The Art of Public and Private Market Investing - [Invest Like the Best, EP.460]

“When I was speaking to the executives at the LLMs, the way I framed this, I said, look. I think your business is some kind of combination between Netflix and Spotify. Netflix in that, unlike other tech companies, you are spending a ton of money upfront to train these models. Once these models are trained, you go sell them at extremely high incremental margins. The music on Spotify is no different than Apple Music or Amazon Music. Theoretically, it's a pure commodity. What makes Spotify have pricing power? It's because it's personalized.”

“I am more confident in the thesis that the hyperscalers are a worse business model going forward. The problem going forward is that I think that economically, it's highly unlikely that LMs are not very concentrated in the hands of four or five companies. At some point in the next five to ten years, they will be generating enormous amounts of free cash flow. When that happens, I think that they're likely to in source the compute.”

“The pattern recognition, to answer your question, for me, philanthropic was just reading Dario's essays and listening to him on podcast. When I look back at my career and look back at the companies we missed, Amazon in the early days, and I think what could I have seen? The only telltale sign was reading Jeff Bezos' nineteen ninety seven shareholder letter, which was like the clarity of thought. Dario struck me like that. I place a lot of weight really wrongly on clarity of thought and the ability to communicate as a CEO.”

“It's incredibly difficult. We went from being top of the world. Everyone thinks we walk on water to being, like, everyone thinks we're gonna go to business. The most important moment was we do semiannual investor dinners with our LPs. Jeremy, the president of our firm, he said to me, he said, like, we can't do these dinners. Like, you know, this is gonna be a bloodbath. To me, it was, like, really clear. I said, no. We have to do these dinners. The analogy I gave was, like, we're gonna hit singles and doubles.”

“One of the hedge funds I went to interview at, it was a spin off of SAC that did health care. The company is called Orthodontic Centers of America. I went home and I spent maybe, like, hours and hours going through the financial filings. It hit me that what they were doing was the simplest form of accounting fraud, which is just capitalizing expenses that should have been expensed in a big way. I posted online. Within a few hours, the stock started to go down. Next day, stocks down, like, 30%. That's how I got my job.”

“The thing that troubles me the most, frankly, is I think we are on a collision course with China over semiconductors. Taiwan produces 90 something percent of the most advanced semiconductors, and everything we use is semiconductors. It's almost as if you went back fifty years, if there's only one country that produced oil. That supply chain is fragile. If that supply chain were to get screwed up, we would have, like, an incredibly bad economy on the order of depression type economy.”

“My wife begs me all the time to stop shorting stocks. It's a bad business. You really have to be intellectually stimulated by it. Most people in the market are just not fundamentally based, period. There are tons of people investing in things that are just based on stories, like, because of social media, because of Robinhood. And there's just endless amounts of shorts if you have duration and if you take a fundamental view.”

“SpaceX was pretty obvious to me that the launch business at a minimum was gonna be a very good business. The proof for reusability and scale, like, yeah, okay. Starship is a game changer, which we knew about fairly early on but didn't know if it would work. And what that means very simply is that the cost of launching everything goes down dramatically, 97, whatever, percent. I think that in a relatively short amount of time, they are gonna be dramatically cheaper than any other form of delivering broadband.”

“I definitely do not ever aspire to having hundreds of employees or something like that. I think hedge funds are good business. Objectively, our business, like, is horrible. It's amazing cash flows, has no terminal value. I told this to my companies I invested. I'm like, you have no cash flows and tons of terminal value. I have tons of cash flows and no terminal value. So we're good together. Like, we can kinda arbitrage that.”

“With my wife right now, I was a pretty bad boyfriend in college and that, like, I was busy doing other things, and I was not very attentive. We broke up, and I remember I sat down with her and we went to get a drink just to catch up as friends. And I said, I got a job at Bear Stearns. And I just remember, like, she just started crying. She just started, like, crying with tears of joy, and I was like, wow. Immediately, I walked out, and I was like, I'm gonna marry that girl.”