Complexity Investing & Semiconductors (with NZS Capital)
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Okay, excitement, fun, gravity.

I want IT .

for brevity is .

the soul of wit easy? You, vic, you, vic, you who got the. See me. down. Welcome to this .

special episode of acquired the podcast about great technology companies and the stories and playbooks behind them. I'm been gilbert and i'm the co founder and managing director of seattle based pioneer square labs and our venture fund.

psl ventures. And i'm David roll. I am an active investor basis and we .

are your hosts on our T S. M. C episode.

One of the sixty five sources that we used was an episode of the knowledge project with brinton johns and john britain and john are public equity investors at a hedge fund called N. Z. S. Capital, and they spend a lot of their time researching samos. IT was packed so full of great content that I actually watched IT twice to make sure that I understood everything.

I was so good.

awesome. And then in a wild coincidence, the very next week, even before we shipped the T S. M C epo, de David and I were at capital camp great event, organized by Patrick sancy and Brant b.

shore. And we ran into brinton in person. And I was like, I recognize .

that would recognize him.

You very, very much so so after like nursing out the whole rest of the event on T S M C geopolitics semis, we decided to have brinton and john on acquired. And on this episode we actually didn't even get in to semiconductors for the first hours since I was so fascinated in the here about their investment principles at N Z. S. And i've said as many times on the show, but yet again, new frameworks that have totally changed the way that I think .

about the world frameworks all the way down.

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So do your own research, make your own decisions, but love the frameworks that we dive into with britain. John, so without further do onto our conversation are right. Well, listeners, we wanted introduce you to N Z S capital, their investing for osoph's, and partially because we think they're fascinating firm similar to hoona altos or hamilton hammer of strategy capital.

But also, the deeper David I have doped down the rabbit hole the last week of reading all the papers they published, we feel like we've gotten a lots smarter. And so we basically just want to expose the world to a more and more of that. So printed. And john, welcome.

Thanks for happiness. Thanks for having ess.

Well, first let's start with complexity theory, which is concept that your whole firm is based on. And you've published a forty seven page paper on that is just a full of fun little graphics. But B I think proba has five to eight kind of mind blowing concepts in them. And the first one is you come right out and admit that you don't know the future, what's going on with that.

You would be bad marketers as v everybody claims to know the future. no.

I mean, look, the whole investing for hosy comes out of a lot of pain, right? So we are investors for a long time. We are wrong a lot, like all investors are wrong a lot on a consistent basis.

And we are just looking for a Better way to think about things. Somebody suggested this book to me called the origin of wealth by eric bine hawker and sort of independent ously. Around the same time, someone suggesting complexity by Mitchell pt.

To brad. And we both read those books. And origin of worth was a slag. I think IT took me six months to really through and then swap books and started thinking about sort of a different philosophy.

I'd heard a little bit about complexity theory and the sana institutes I want to to do, I think, build girl ly talks about this fairly frequently. And Michael madsen and how I can originally got turned on, do IT but tell us a little bit more about what is IT because, you know, it's it's not at all about investing.

It's about the world. That's right. yeah. In fact, I think IT was builder ly that recommending complexity to b brad, complex adaptive systems all around us, right?

That's what govern the world. That's how the world works. We don't know how the future is going to unfold because this system is interacting together.

And IT creates what called emergent behavior. And emergent behavior makes predicting useless in most cases. And we can have guidelines and hurried CS, and those are all helpful. But as far as exact outcomes and what's gonna en in the future, those are a lot more difficult.

CF institute started with a group of scientists from the loss, almost national laws, and they came together, and they were mostly physicists, and they started to talk to economists. There was sort of heart sciences and soft sciences. And the businesses were like, hey, economic guys, you guys seem really smart, but you know your theories, they don't work. Like all your math doesn't work.

So what's up with that? Like you with our math, it's extremely precise. In fact, you know when the math is off, just a little science like your math is off. The pluto should really be here and comes up to the theory.

Relativity literally made the atomic omb like IT works.

Yeah IT works. And so they started coming together around this idea of plexi. What is complexity? How do we define complexity? Where does IT set in? Because we are living in this complex, adaptive system.

How do we think about the future? How do we think about life? How do we think about going forward? And for us, this Sparked an interesting biological systems, and we found this sort of biology, vin, much more interesting than the traditional economics pain, and much more applicable to investing than the traditional economics pain.

So what I am, I right that you'll actually went to the advice tude and took courses there, like how deep did you go in this?

We did like a lot of of that as we go down on very deep. We quickly became members of a sentence to, they called the action group. It's this group of the scientists that are allowed to sit, and not a lot of the the science.

And then we took this complexity course of a weekend brand. I dead at stanford, and that was just to fine. Actually, john and john, the two other investors on our teams, they took a longer core, is actually to do real work.

Bride, I didn't have to do homework, but we just learned so much. And I remember sitting outside of this cafe and pilato bread, and we just sort a bit of this course, whatever more. This lady that teaches the stanford who studies at, and I thought, and this concept of resilience is really vainly, you know, it's really more about resilience.

And IT is about predicting the future and and it's about adaptability. Biology doesn't really care that much about the future. They care about adapting to this wide range of futures.

My bees don't really care if it's going to snow tomorrow. They can adapt to snow. They've learned how to do that over millions years.

And what if we looked at companies like that? And so then, you know, of course, we kept reading, we kept writing. This is probably twenty eleven and twenty twelve and and twenty thirteen. We publish as long paper that you reference, which is super geeky, but it's got a lot of pictures because .

that's the way we think you've got the back to the future delora.

and it's get the delora like what work you want, right? We're really hoping for delora for the office sets our dream office further.

Or on the note of ants, this is probably the first and best example of an extreme version of resilience in an organization. Can you share the inside you had there?

yeah. So we attended this class by deb gordan, and he has been studying this group of vance for thirty years in the maxo. They obsess over this group of aunts, right? And they know what every end is doing at all times.

And what they found was really fascinating. They found that about half the ants in the colony, we're doing anything. They were just sort of sitting around and then they had happened and doing these defining jobs.

And that's very counter tuition. We think of any sort of the ultimate productivity machines. But IT turns out ants aren't optimized around productivity.

They are optimize around long, the optimize around resilience, around living his log as possible. I said that way. So that was really insightful for us.

We thought all these companies are optimized around productivity, and wall street only makes IT worse because we're obsessed over quarterly earnings. And so what if companies would really optimized around this long term thinking? Of course, we see that with lots of companies.

Most of them tend to be around by founders because founders have a lot of skin in the game, and they think long term. But there are C. E.

O. To think that way also, we know that the average ten year of A C E O P five hundred days lesson five years. So they're not optimized like antar. They're trying to get a lot of return really quickly. The companies that take this long term view or so much more interesting .

when I read that is your paper the thing that hit we ever the head was like, oh, this is Warren and Charles, you laziness bordering on slot.

That's exactly.

The goal is not productivity. The goal is long term steady returns and resilience.

I think wanna actually rock this very early know there's a lot of science behind that math, but they don't need that. There's so good with foxy was so that the .

thing that hit me, of course, i'm like while companies not going have have their employees sitting around doing nothing, but just as a fun thought experiment. What if a company only was growing at half the growth rate of a high growth company? But you know, it's a marathon on a spirit. They could do that over forty, fifty years. Instead of thinking in these five and ten year time horizons, do you have any good anecdotes on I know you have this firm belief that hyper growth is bad and actually the flow very long term compounding growth is the real holy grill.

yeah. I think what we're generally looking for is we kind of use upon as an example whether that's fair, unfair, like we're not looking for the next company to hit x revenue run rate in the shorter a period of time or whatever IT is like, we're really looking for this durable, resilient growth.

And I think the way you frame dependent here for company does have the employees that are driving the, I guess, level of growth that you be seeing in hyper growth firm. That's okay as long as it's type er durable. And so you could look at mean, look at dinner A R R.

I like some of the classic, iconic growth companies that have compounded for decades. And that generally where you see the compounding is obviously you compound attendant for twenty years or in the teens, but you can do IT for ten, twenty, thirty, forty years. You can get tremendous value creation.

So I guess some companies in the portfolio we admire that do that maybe someone like texas instruments where they have a really decentralized culture and they actually push responsibility in decision making down and the deeper parts of the organza. And so the CEO is not really a manager. He's a capital allocators.

He also has to think more like an investor and a portfolio manager, then you know an Operator. And so I think that what we really look for is companies that can provide disturb growth. Again, it's very buffet like we're hopefully finding companies where you can set and forget IT, they're going put up moderate to healthy growth for ten, twenty, thirty years. And in our framework, which we can talk about around brazilian and an optionality, that's what we're looking for. The brazilian bucket of the portfolio is these companies that can really compounded at a healthy rate for a very long time.

yeah. So you guys have these two concepts and then one kind of super concept that combines both of them of resilience and optionality that you look for in investing. And neither those are terms that most investors are familiar with. Can you define what you mean by both of them? Maybe give a few examples of companies.

sure. On the resilient half the portfolio, we kind of say, you know, IT when you see IT, which I think is kind of unsatisfying answer, but johna, we're looking for our companies that they were further along kind of in their escape and their growth to jcc ary. And so this would be a companies beyond and they had a problem to be someone like a microsoft or A T M.

C. We're we're looking for values dogs or are kind of like cheap companies, but looking for companies that are healthy growers that we think can derbies grow for the next twenty thirty years? In our turn over in this half, our portfolio is around ten percent services, and hopefully that didn't forget that part of portfolio.

And so they know a few characteristics s we tend to see in that part of portfolio admission, criticality and switching costs. But I know you guys cover well then some of the deep times you've done, I may just scale like T M. C. We can talk about in more details is like a classic scale company where you we've talked about power laws in our investing framework and pockets of industries is where one company can take ninety to ninety five for some of the profits in a given industry.

And to sees a great example of that and then you exactly the way you guys later out so well on your 2 percent on tmc is you really get the fly will going right where the more care you have， the more you can read best, the more you can impact your customers. And this just becomes this beautiful compounding machine. The last bucket we probably see, the silent point portfolio, is this network of effects based competitive vantages, where you see companies that really hit the inflection point. And again, especially in digital markets, the tendency a handful of companies or potentially been one or two companies take most the economics and the given market like digital vertigo or smart phones or there are so many markets where there is, you know, one or two players that have eighty to ninety five percent of the profits. And so we tend to see those in the resilient part of portfolio.

And one thing I think was really counter intuitive about how you guys think is you're actually not looking for motes the company is you just described and make a lot of investors think very oh, well, well, like you've got really deep motes. And so of course, you want those as here you know, a long term compounding holds. You guys have a little different perspective on this, right?

Yeah, we have a little of different take. And so I don't want to offend anyone. Uses a term mokes. I think it's a great term and it's a great part of any ones come investing tool kit.

But I I guess one of things that we're careful about is like looking for companies where part of their mode is inserting themselves into the value chain, their customers share wallet, basically where they put themselves in a position to extract as much economics as possible. And so I think that can be viewed as especially and kind of a more of like an industrial age view of how competitive advantage has evolved is, is that something that, that we've tried to avoid? We're not trying to look for a company where they feel like they have customer walk in and then all the sudden they can raise Price three to five percent for the next ten years.

Part of our framework in the reason we named the firm and Z S capital, we're looking for non zero sumness. So looking for a win when outcome for all constituencies across kind of the value chain that includes the companies, employees and their customers and also kind of society in the environment at large. And so where is careful looking for companies where all the side, if I have this mode and I could screw my customers over the next ten years, right? I think that's what careful about.

I notice I don't think you guys hold apple right, but you do some of the other large tech companies. And this feels like a perfect example to me like, oh, apple like incredible motes.

They're getting pretty good of value capture over there. Yeah.

yes, that's the very nice polite way putting IT. You obviously see IT with specified in the u in epic here in the us and being in the news flow constantly. I just think when you get to point, you're taking so wich economics for your business, which marty has the large marco cap in the world, that your key partners on your platform are taking you the corner, taking you up to various regulate bodies, are writing White paper is on how you're screwing your customers. That is what we're trying to away and who know that might work out perfectly for apple over the next ten .

years and makes you less resilient?

Yes, exactly.

Is that the idea that if there's consumer surplus money left on the table for consumers or they're not getting every dollar extracted that they could buy the company, that, that company is more resilient over time even if they're not making every profit dollar and growing as quickly as they could today?

I agree with that. If you really have imagination, this thinking really long term, I don't know why you wouldn't give up a little of action economics for your key partners, but that, that suppliers or developers on your platform bore your customers to really solidify your trajectory over the next ten to twenty years versus I don't want to pick an apple too much, but like what's the gross profit impact act if they cut their upstart, take away from thirty percent to fifteen percent across the board, what is that like five percent of growth profits and meaning left to them and they would create so much value.

There is obviously not going effects of that. But anyway, I think that's what we're looking as companies that are paying a forward like a get back to the T, M C example because you guys covered IT so well, T S, M, C, as lower growth margins that most of their customers. And so at any point, they could protect the margins from fifty percent to sixty percent.

Hey, obvious ly have been apply in this market. But the way morus chain are protected to the culture there is on the long term value creation and really creating a platform for the customers to create massive, you know, amazing businesses. And so I think that's the way we think .

about them yeah and just for listeners to put some numbers behind this concept, which I think is just great from this N S. White paper, fifteen percent growth over ten years would deliver more than a three hundred percent return, not bad, but fifteen percent growth over fifteen years would almost double the ten year return.

If we could populate our top twenty positions with these times of resilient companies, we'd only trim and add around periods of volatile. All of the real absolute dollar value of compounding shows up in the out years. So you just want to make sure that you're still compounding in the outyears.

the train. And it's sort of where we take issue with porter.

This is, of course, Michael porter, competitive strategy.

Porter five forces. Thank you. yes. Um if we take a cynical of your reporter, a lot of people have interpret IT of, hey, build a mode around your business and that stick IT to your customers on Price hate and that's what he said. I'm just saying that's why it's different IT.

And that's a terribly way to build a business because eventually someone will undercut that, not for actually a Better body problem to the customers and because all of this value are the out yours is, is really not a value maximizing way around the business either. So we think this concept of creating more value than you take is really important. important. Agree, as he actually revised is thinking and in twenty and nineteen read a paper institutional vector called where esg fails, where he talked about this concept of share value.

And that's not him trying to say that purely because it's good for the world to care about all your constituencies, you know not just your shareholders but also your customers and partners. He's literally making an economic argument for shareholders that that's the long term volume exising thing to do.

I think that's right. And you know he was a consultant for intel. The akaka in armed processors were starting to come out and actually dominate the mobile space, and they came out with the sort of dumped down processor.

The adam, yeah exactly. But even before that, they came out with a cheaper version of IT. But in reality, that's not what they should have done. They should have actually embraced a totally different business model like armed to at where they were disselboom and enabling a whole ecosystem instead of trying to take all the .

profits for themselves. okay. So that's the resilience side of N Z. I thinking in the portfolio. Then you also marry that with something very different. Tell us a little bit about optionality and how you think about that.

Yeah, really, we're thinking about the future. We're just thinking about how broad and safe is the prediction or making so we can make these very broad, safe predictions like we think electronics are going to push deeper into the world, right? I think in nine out of ten copies of the multiverse that's happening.

But there are other predictions like we think ebs are gonna a dominate the world and tesla is going to be the power of winner inside of BBS. That may only happen in two thousand ten copies of the multivariate, certainly not ten out of ten. So these predictions are much narrowed and the range of outcomes as much broader.

So that doesn't mean we can invest there because it's incredibly a metric if we end up being in that copy the motivation. But if for not, and it's a zero IT also doesn't torpedo the portfolio. So I feel like actually you guys you give the master class here since you're such great venture capital investors, but that's really what we're trying to expose ourself to you and these earlier stage public at great companies.

And so how do you actually then apply both of these very different principles inside the same portfolio? Are you picking some stocks because you're maximizing for resilience and you say that, look, this is a great compounding, slow growth but durable company and then there's other companies that you're investing in because you say, oh, my gosh, if this things right, it's going be really right, like venture capital set metric upside right? Or is IT blended in some of the same companies?

Do you write IT tends to be these two portfolios in one. So we concentrate resiliency about fifty names and just over half the portfolio and then we distribute optionality. So that's about forty names also just under half the portfolio max position size one and a half and in the middle, this between one and a half two and a half one and half three, we don't know .

anything and that's percent of the portfolio.

Thank you very much. Percent of the vote full. I say this stuff so much. I don't complete the sentences.

And then sometimes we find these very resilient companies that are actually layer on option online to the business. So they have both. They have this resilient base, but then they have opportunities top of that.

And you call those companies root mos.

yeah, we're such geeks so bad, we resilience with out of the money optionality. This is a short cut on the team that we is.

and those are the companies that you bump up to seven, eight percent of the portfolio.

right? Yeah.

what are some examples of those?

Well, I just sort of there's a couple right. The classic example be amazon in ninety seven when they went public, you know I think around a billion of valuation and nobody could have foreseen A W, U, S, right? That was anybody's.

D, C, F, yeah. There's going to also create the structure that everybody in the world is going to use, create business. They sound so silly, right? But another one that we had the portfolio years back with ebay, I know if you guys remember, the marketplace business was struggling.

They brought in in a new CEO joint down. They had paypal. And really, you were for india, paypal. If the marketplace business would recover that more than cover the cost of entry course marketplaces, dead recover payout ended up being great. John donahoe, an amazing leader, and that was a classic group most stock.

So in that situation, you've got a fairly resilient business or the hope is that the marketplace is a resilient business and then paypal is the add of money option that you sort to have that being valued at zero, but clearly a very valuable business.

That's exactly right.

What I think it's cool about this. Yeah right. This makes a lot of sense of investing. This also makes a lot of sense on how you should run your company. Yeah and that the best CEO think this way as IT.

How do I create resiliency in my core business? But then what are the options that are investing in for the future on top of IT? To my mind, there is no Better example than amazon of just this is the whole Operating philosophy of the company, right?

So we love this concept because we think it's true in the universe. And so therefore, the narrow slice of investing that we're using IT for our pressure is also true. But IT works really for everything.

I mean, IT works for parenting. Parents know we're doing like, I forget, I have no idea what i'm doing so are just trying new things all the time. Well, that didn't work OK, you know so there's a optionality two and then sometimes your opponent becomes resilience. That's what you're hoping for. But you just try a lot of you think so out of for us, it's a life.

Thank you. Football, another area where and you can apply resilience and nationality very well. Actually, you can get your head once you start kind of practicing this, which is so funny.

I'm going to take us in a totally different direction. I want to talk about the difference between Normal distributions and parallel distributions. And listeners to the show who are in venture capital or in startups and have tried to raise venture capital or successful raise venture capital will know they get this answer from VS all the time that our portfolio construction is really a power law.

We fully expect a third of the portfolio to go to zero, the third to return capital. And really only like one or two companies at the sort ahead of the curve are gonna. Be this, hopefully ten fifty hundred x that sort of gets us a great return regardless of one else you know happens in the portfolio.

You guys, interestingly, are sort of applying that thinking at much later stage. Companies, hopefully ones that are going to zero know the that a frail ten million dollar valuation start up could how does that work? And what was the insight that made you realized, hey, the world is not Normally ly distributed actually in certain generoso. It's very power of distributed.

right? Well, once you accept the fact that all of life is governed by complex adaptive systems and the markets are also given by complex adaptive systems, which means verge of behavior, keep predictive future, you focus adaptability. And of course, those complex adoptive system tend to be governed by paralyse.

So it's sort of a natural follow on. But the insight here is all risk models are based on these gaussian, these Normal distributions, right? But in fact, to the world doesn't work that way.

And so there's a really fascinating economist name, OLAY Peters, who's done a lot of work here and said, wait a second. Your rist models are sort like airbags to go off at stop signs, but not when you get a crash, right? This has .

always been .

my beef. You know what? I was a business school with economics applied to, like, business.

And investing in the real world is he studied the stuff you like. Wait a minute, I actually work in the industry. This is not how IT works.

right? Exactly in being venture capable investors. You see this all the time with public companies is also true.

There are a few pick parallel winners. We see them in the market today. They're driving the entire market, right? This is a reality.

There is a great study that you guys reference in the paper that I moder. If you could just talk a little bit more about IT, the toy example of a coin flip, a kind flipping contest where let's say, you win fifty dollars or whatever, when you lose, you lose forty. That sounds like investing to me, like there's an expected return of ten percent. What actually happens when you run that content.

wait really quick before you enter, is that that is that win fifty dollars, lose forty? Or is IT fifty percent.

always percent? okay. yeah. So it's one hundred dollars. And yeah, you're right, David. It's fifty percent down, forty percent.

okay? yeah.

The concept IT gets to the heart of modern portfolio theory, expected utility theory and the flaws of that. So back to the multiverse, the way this works as if you had one hundred people flippin coins and they did IT enough time, you'd actually see a nice steady posit of return. And that looks like, on average, the experience of the brisbane is winning.

But that's not really true. What you get is a lot of people going bankrupt t in a few massive winner sort of the buffets and the services of the investing world, right? The average is not average and in one portfolio they are you're taking an on sibling of all.

But that doesn't really make sense because I don't really care of about your outcome day Better than your outcome. I care about my outcome. And I only get to live in this one universe.

I don't get to live in hurs know, I don't get to live in the multiverse. So my outcome, on average, is that of loss, is that of bankruptcy. So when the time average is not equal, the on sample average, that is called a non argotic system. And you guys who put in the show notes, OLAY Peters works on the super geeky, but really fascinating.

So cool. Well, this is so kind of intuit. You would think if you presented that game to me, I would be like up for sure.

I want to play that game. The odds are stacked my favor, but most people who play that game will lose, and then a few will win. Really, really, really big. That is blue. My mind reading that.

yeah, the distribution said is not Normally distributed as parallel w distributed. So that changes everything. And that's why all these rise models are like your bags that go off to stop signs, right? Because IT turns out the world doesn't work that way.

So you know, we hear on a regular basis of this was a three ster debate of bt, you know which if you enjoy them about the three situation events you expect, oh, wow, i'm so lucky to seen one of these in my lifetime. But we see them a lot according to the media. And so that sort of ridiculous, nine, nine point seven, three percent of all of that should follow in three center deviations is away. The math works.

Meanwhile, I mean, i've been in this business for thirteen years already been through two recessions that are way outside of three center deviations britain has as well. And so IT is just kind of a funny of common sense saying that when you're practicing this stuff, that the Normal distribution that not only make that much sense, britt mentioned I took this course at this anything institute is actually on this time. Last year.

And like I this parallels are just like, so cool. It's amazing. I mean, when I when the examples we use in the White paper, if you plod like rithmetic es by frequency and intensity, that just like in nature, natural reforms of power law, which actually makes lot of sense, they're going to get one or two or three having managed earthquake es a year, and then a lot of small ones.

But also if you plot out the frequency of every word in the book, mobile dick, that actually also forms a power loss of, uh, is mentioned fifteen thousand times and then the next word is end and that's like seven thousand times and then there's like a super long tail of words that are in use, you know, a handful of times again when these things, once you see IT. And it's amazing for setting company, obviously, like we mentioned, especially in kind of digital markets because you know, the world is going towards more markets where a winner can take all and he becomes much more a parallel dynamic. And so that's why we just always have our kind of intentions for these parallel yna ics. That's a big part of when we're looking for opponent. That's what we think about is like this is the company that is relatively earlier stage in public markets that has the opportunity to power law, a large market.

which is why, of course, you're making forty diversified optionality bets here because it's funny to think about this. But the statement of let's go back to the stop side example.

Yeah, the vast majority of the time, the fact that these airbags don't work is totally not an issue, but it's a massive issue the moment that you need them the most very similarly, all of the dragani outsized economic value is created from the three, four, five, six, seven and sigma events in the world. And so it's kind of ludar is to be like, well, the vast majority of the time, this investment philosophy is very sound. And you like, yeah, bot, we're not really trying to index on how many days out of the year at sound.

We're trying to index on how much value can get created at the end of the portfolio fifty years from now. And that's going to be driven by the outliers. So we have to be prepared and fully optimize around the outliers, not close our eyes to a few days that they might exist.

A good point, lad. Rought up because really playing for centrality, how of the portfolio is a symmetry and really is not about batting average, like it's okay for on the rate thirty percent of the time, which is not intuitive at all for public markets investors. I think I think everyone wants to be right, fifty five percent times sixty, whatever.

IT doesn't be that high to good long term returns. But me, we're playing for slugger percentage or even if only one or three work. But you know those are multibillion and can really create a lot of about your long period time.

And that's like the beauty and that half the portfolio. And we've seen that we've been doing this for years now. And that is amazing how you see these companies emerges as value craters and and generate a lot about for the portfolio out of to be small starting position sizes.

IT gets back to this whole idea. You don't know what's gonna en. If you set everything up with the idea that you don't know, I think in a lot with most venture capitalists, greg, this idea and set up their portfolios in this way.

But I think lots of people, myself included in the past, didn't fully understand this. You say the paper, I think you use nice to language than this, but all use my old language. This is a by that conviction, this idea of conviction that so many people invented.

Talk about an entrepreneurs like, I have conviction. I'm convicted. That which convicted means you are convicted of a crime.

But anyway, I have conviction that in this company I am gonna lead this investment. Conviction is kind of stupid. Conviction is saying, I think my view with the future is gonna be right.

And really, what you won is optionality. And like, you need people to have conviction because others SE, there would be no entrepreneurs. That example of the coin flip in contest that is exactly the dynamics of becoming an entrepreneur.

The expected value is positive. And yet the as majority of people who start down that path go bankrupt and then a few people win really, really, really big. But when you're construct a portfolio, what you actually want is a lot of those bets you guys have, you know, thirty, forty options names in your portfolio as a venture fund. You want thirty forty quote and quote names in your portfolio. Venture portfolios with five or ten are very non resilient.

Ent, yeah, that's right. We use conviction as a second empty over confidence. I think that's what really is the right when I think about a conviction for us means, hey, i've done a ton of work so i've got a lot of don't cost, which means i've got by us and I think that my gue the future is Better than yours.

That is literally what you're say what you say that yeah right.

So who knows? right? What we're trying to do with the tail of portfolio, I think what you guys are trying to do in pita couple of investing is maximized. The probability that we get lucky, I just ripped that off about was then he is very good at calling IT what IT is. And we're just trying to maximize zed the probability that we get lucky.

I also think, I mean, just changing your mind is the hardest thing to do as an investor when you're wrong. And I think if you kind of stand in a row and say this is my highest conviction idea IT just makes me that much harder to britain point. I just like introducing bias into the equation.

And so and I also think if you kind of inverted, I think it's fine to have an auctioned position that you actually don't have that have conviction on. Like to print example on tesla, like I don't think that we have super high conviction that tesla was going to power law the E V. market.

But is there are some probability where they do that and it's you know worth even multiple of what that is today? sure. That's the way that we kind of think about conviction.

And again, I don't want to ask anyone off use of the word conviction similar to motes like it's fine ever has their own process. And we're not trying to like push what we do on anyone else. This is just what has worked for us over time.

And so what thing we're very careful about is, is introducing bias in our process. And likely, we all I run on our team knows each other well. I can call each other out, but I do want me look careful.

I have two points to make that this cultural one that think is the second. But let me start first with, at the end of the day, this is a buffet concept, this idea that it's Better to be approximately right than exactly wrong.

That's another way to describe this optionality phenomenon here where IT doesn't sound nearly as strong to stand up in front of an investment partnership and say, I have very little conviction in this, but IT could totally work. And if he does that to be really big, that's about the best I can tell you right now. That does not get everyone around the table excited.

But in a very buffett sense, if IT works, it's gonna so freking successful that this is a great Price to owner that. And like, do I know if this is the right Price to unit? That not at all.

How many versions of the multiverse do we have rare rights like all of them, right? And they're important. And where can we how can we recreate that? We can't.

It's been impossible. And so I think you're right. Buffet and manger save us so easily. So naturally and over, just saying at a much more .

complicated way, that's the second point. Some garden rails that you have in the internal culture to reward non conviction to reward like, yes, I don't know, but I could work if IT does. IT could be really big. And here's why IT could be really big.

Well, the funny thing is the way we view team. So we think investing is inherently a teams for it's a terrible so sport for the most part. And the way with your team is our role is calling out bias in each other.

Now these are uncomfortable conversations because nobody likes to get the bias called out, but we all know that biases is really easy to identify other people and really difficult to identity yourself. And so by opening yourself up to having been called out, then your probabilities go up as an ambassador. So IT feels unnatural to us at this point to say, I have super huge conviction that this microcap stock is is going to rule the world one day, right? It's like that would feel really odd. Or you like, are you okay? Fear, right?

I think the way we've also settled with our our framework kids, we just inherently expect failure, I think, more than other public markets investors might like if we put something in the optionality tailed a portfolio, by the way, that half the portfolio returns over a lot more quickly than the resilient part of portfolio, which makes sense that we are going to be wrong a lot and likely there's more, more positions.

And so you're not going motorbike the portfolio as long as that was important thing to do is just admit you wrong and move on. And so I think building that the culture where you know it's okay to be wrong and move on and fell quickly is like string ourselves along on a three year journey on a tough position. And so that's one cultural way that we've architected the way the team works together. That is really helped. The basic gives yourself a license to take some rest that maybe you otherwise wouldn't take if you are sitting on a different team or within a different orange zone.

And do you try and document here's the reasons why i'm making this optionality. But so you know you can decide to rotate IT out of the portfolio if those reasons are no longer true. Yes.

everything written down and actually bread, which is an investor on the team, is amazing at pulling the shop back up and say, you said love.

he must be really popular of the team yeah.

he's great. We love. He's just very good like remembering and then pulling the source state and saying, hey, look.

you your guys points too like it's not yes, they're Operative margin exactly twenty two percent this year. Like as a revenue, exactly this running without to be easily. Are we proximately right on the teases, right?

It's not like we. Philip, we can create the future, but you can certainly have checked input along the way we call this, usually with penny stock. Think there is usually three or four things that really move the stock as we call those key leverage points in any position. And so you can generally check in on those and make sure that were on track.

Well, one of my big questions are the things that didn't quite make sense to me in reading a paper. Can you talk about what you do with your optionality part of the portfolio as things of love in IT and how you start an optionality position? There are two copies of the multiverse where this works, and then x amount of time passes and you start to have more of a view of which copies no two out of ten. And now, you know, maybe it's like two out of five or two out of three or like you, as IT evolves, what do you do exactly?

There's like kind of two scenario that you can really see this happening. A good example is be on pallets before the pandemic. Here on the stock obviously went pair ball like they're a huge benefit ary of work from home. But it's also just a really dynamic company, you know that's really in this lifecycle, building a brand and a platform.

And so with the company like that, you I think it's still early days to call that business resilience for many reasons, both just like the context of the company of we are going through digestion after the twenty twenty kind of a record year for them and north the charts year. I should say that for a petition like that will detriment IT. And we have this cap of have been the portfolio we allow up, you know, decision to get.

It's generally pretty clear like how much of this is something that's a really durable inflection in the business. And sometimes I can say this both like I think pta is definitely company in this version of university, is the non code version of the edible SE, right? But I think we can cross IT over.

Well, this is so different that you trim IT, you know, the canonical VC wisdom is, write your winners as long as possible. You know, the things that are working are likely to continue to work, so don't but that's not the product you guys take. Yeah.

it's a really good question. And we to talk about a lot because they are certainly, in some cases, leaving money on the table. I think if not letting our compounds really express ourselves over time.

And so there are stocks, we will let them owe them earlier their life cycle and let them cross over and the resilience of the portfolio. And so we'll do that a few times a year. And I think that, that's kind of force us to average up if the company give and actually buy more socks potentially at multiple higher than our initial purchase.

So it's so hard to do.

It's so hard to do, but I think it's actually I thought about this a lot. This is actually kind of part of our process where we're kind of forced to do IT, which is really help books. Otherwise, it's hard to look at the song by more.

But wearing, we're making this explicit decision that were going to take this from hundred fifty basis point position to two hundred fifty basis points. And so we're going to end capable because this business has structurally changed and actually belongs in the resilient back of the portfolio and said, there are companies that we've done that where they are honest, this more mature. Are they becoming like more of platform.

You can actually see like the network effects sorting to hit. And honestly, some of that is evaluation conversation so that there are a plenty of platform like companies we might want to own in the resilient part of portfolio. But the current market environment, they are trading a valuations that we would not consider resilient. And so that's another reason we would owe them as optional positions. But there is a really good question.

And what we try to do is not make sure that an optional position ends up in head of portfolio because that's something we've just learned the hard way that you know, if you the stock that can have a fifty, seventy percent draw down, you know, and it's the starting point of the five percent position, no one is across your performance. But then you're also probably hamstring you ve got the stock that celebrate little big position and you don't really want to add to IT and then you just kind of fit to take your link. And so that's something that we've learned through experience.

Yeah when wondering if even just thinking about this past two year covert cycle kind of seen this happen, the stocks that were huge multiverse winners in the begin the pallets on the zoom to in the lake up thinking zoom, you zoom went from, I don't know what, seventy eighty dollars a share to six hundred dollars a share and then backed down the, you know that I think it's that like two eighty right now.

So you're kind of seen this happen, right? The optionality place out that was correct, but then returns pulled back. We are always looking .

at like what's happening to the rain outcomes. Is that widening? Is that getting broader as the prediction becomes safer? Or is the remaining narrow? So with a company like zum, IT looks a lot to us like a feature.

So now the question is cannot become a product and eventually maybe a platform cannot develop into a system around IT. We don't know. But to take your example, let's say, in the middle pani, make IT was a sort of a call feature.

IT was Better than everything else on the market still is. And then this big ecosystem came around IT, and that became a full blown platform. Well, then the range of outcomes with narrow and the brain would get safer, brighten.

So then that would warn that becoming a bigger portion of the portfolio valuation is a key piece. And this is the piece that we get every day as public investors evaluations, expensive valuations, force predictions. I have to believe a lot more at ten times sales, and I do at ten times earnings. So we're seeing, okay, what is the prediction of the company and what is prediction the market is forcing us? And are we comfortable with that?

So we are an unprecedented investment climate where everything on you know whenever basis you want to, revenue multiples, earnings multiples, unprecedented highs. Any asset you could invest in be at stocks, err, farms or cypher, is forcing you to make predictions. And what i've heard this whole podcast so far, as you actively avoid trying to make predictions. So how do you respond in an environment where there's very little resilience in eurabia .

to invest without making a prediction and have a of just .

dala say, in any time?

Yeah, part of this is interest rates. We never had to get interest rates and then stimulus. So those effects on all assets, which are impressive, we think about this a lot.

We don't know the answer exactly, but you know, this could get us into the top of semiconductors because there's a few building of the information age. And we are in the epic shift. We're still early days from the industrial age of the information age and Simon sectors of the new oxyde in this environment.

And so we look at some of these companies, we think the valuations are actually quite reasonable, and we choose to sort of bringing the portfolio more towards resilience. And these are one of the ways we do. We do in multiple ways.

Yeah, like you use the railroad of example. There turn out of ten copies of the multiverse in the future going forward, where railroad s are important. There probably also ten out of ten copies of the mud diverse where semi conductors are important exactly .

well as an amazing .

way to transition to semiconductor is, I mean, I was looking for the right hook. And, you know, britain, I think you bring that up. I prepared to make some joke, like, wait, you guys know something about semi conductors.

I think t fmc like a top three position for you guys. I think your other top positions, amazon, microsoft, they use a lot of semiconductors. And I think sales force is pre up there too.

And T I is one of your top positions.

right? Yes, that's right.

Maybe even before getting into some of the nurture and we conductor topics, let's stick with an investment one. What semiconductor companies do you own right now in the name of resilience and which in the name of optionality?

Let's start with the two different versions to semon nectar, right? So there's a lot of semon nectar makers that are on the digital space on the leading edge, right, that making three animals ters and odd. These are the high compute functions.

And there's other simic ductor makers that aren't really dependent on that leading edge. There are more dependent on having the breath of a catalogue that would be like a text insurance that has one hundred thousand parts or a Michael tub. And so in our top sites were more heavily waited towards the catalog name, his names, that the lifetime of a part is thirty, forty years.

And the margins are high. The growth is pretty guy. There's clear N Z S in the business definitely creating more value than they take. And they're very hard replicate, not because what they're doing. So technically hard, it's hard, but it's because the breath of .

what they have would take you decades to create. I've always hope the buffet would also like classic buffet businesses where they're ably not going to look onto a say that different and twenty years and they do now they have higher margins and be bigger, they'll be selling. And the cool cronic s we don't even know about, but they are also still selling.

And like water meters and coffee makers and just everything in your households or or in a factory or you know anywhere you look just has these cheap but hhi margin chips in them. So I I guess to interaction a little bit just on the summer connector impact on the portfolio. We have about a third of the portfolio in semis, and that goes across the whole value chain. Like to brita's point, we invest in conflict analogue, analog mic controller companies will miss in a digital company like a vidia.

That's actually in the opportunity tale, the portfolio right now because for valuation and context reasons, there are big investors and some my character or capital equipment and those actually are head of portfolio with those as resilient TM sees are usually in position and then kind of the broader ecosystem like kid and system in which you guys brought up on the team? Ca, so that's kind of the key. One of the two key kind of cats software platforms for designing a chip is also opposition.

And so there are kind of more less household named type positions. We as optional positions like a company like cream, which is early, and silicon carbon, which is an alternative technology to silicon that's used in electric hicks, including the tesla. My three.

And so that's a classic example where there is some version of the metaverse, where is a massive platform and so can Carry the articles from being a one billion lion market to a three billion lion market. But you know, I don't know, there's fifty percent chance that happening or twenty you're that kind of thing. It's like a little bit of walk around the portfolio in terms of a of semis .

that silicon Carry things. The first time sort of hearing of IT. Is that changing the sub straight .

of the way for that? exactly. That is a silicon like a block silk way for he used the silicon car, by the way, for which is actually the way for itself as much more expensive. And it's very hard. That's one of these classic some I kind of the processes where there are some black magic because I do IT. And honestly, most of people that know how to do this are all and like the research triangle in in north, ola created the one company that has two thirds of the market for the substrate itself. Then they will sell the chips.

the sl of so potentially.

and that the classic optionality, right? We onesta don't know, but there is a chance, where did this stuff isn't that hard to do and they have a two years on their competitors or it's incredibly hard to do, and they do become one of these companies where they're doing something that they know one else in the world can do. And so that that is kind of classic opponent for us.

But IT, does that make electric vehicles in charging and also like renewable energy and are really hype to applications much more efficient. And so it's like really one of these companies where their core competence has just like all the sudden market really needs what they can offer. And so the market is growing extremely quickly. You're seeing a lot of activity around from other companies trying .

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Let's do a little side bar. If you guys a game that I just thought of that I think this could be a really cool k study if you're willing to talk about IT about the N Z S process. So you mention, john, that you own cats as a resilient position in the portfolio having just A R T S M C so that I you know induction infrastructure, you you did they also have a competitor systems and the two of them, it's like to do up early in the E D, A space. How did you decide to own kid's and I assume not synapses? Or do you hold both?

We've talked a lot about both of them over the years as we bond cads for nine or ten years back to our r days of our previous the employer. I think unk insted a few things. I mean, it's actually kind of a cool or even just kind like how we even kind of got into the idea of investing.

E D A is part of our kind of process for finding new ideas and just kind of being up to speed and what's going on. The industry as we follow is going to like industry trade es instead of investor or conferences like we don't generally go a lot of like pig investor conference. And so in the last decade, I used to go to all these chip conferences in like every presentation.

IT was like someone from T. M. C. And someone from ARM, and then someone from me to concern, opposes and at the time, canes that an opposite view to see sleepy, crappy companies.

And we'd love to use some seen we love arms like like let's do some more and cats, you know, and then we the more work we did, I made, both companies are amazing, like they serve a lot of credit. I think what steads words cats one is the management team. So lib.

Utan at the time was a CEO. He's actually moving into the executive chair role this year. He just was like when the iconic leaders in the sub industry over the last seven years, he was actually a VC previous to being the city of kittens.

And he was just on the board and had to commit and basically turn around the company. But he was just so focused on the culture of the company. And he he told us what we want to hear, you know her.

But in terms of turning around the culture and really taking a company, there was a very difficult position in the financial crisis. And really like we are protecting the proposition of the company. And he's so customer centric, that was how we kind of first gone involved cats.

We do think they are taking market share, especially in digital markets like where they would be selling to an intel or an apple or an NVIDIA. I think the share dinner, but both companies is like an extremely high quality do apply. And so I think you've .

been fine either way. And do you end up doing one and one meetings with the CEO at the level of capital that you're deploying?

Yes, this was back to our free this firm where we were there was more than one hundred billion dollars of A U. M. To deploy, and technology was a decent chunk of that.

And so like a kid says a great example, we reacted their bigger shareholder for multiple years. And so at that point, we had really strong dialogue with them. And I onest, we just bump in to the CEO and airport is in a conference that could everyone art that think of the union one to go to the same things.

you know and he's very tall, is very tall too. So easy despite yeah yeah you're .

not good intensive and I see is like such a good person to like we would talk about life and kids and a lot more than just our investment in their company. And so it's actually something we think about a lot as S S, as a Younger company with less A U behind us. And we have a lot of relationships from you have been in the industry for a long time, but it's an open question of how often you really to talk to, but only to talk to the city of the company four times a year, probably not over six times a year or ten times a year, like the way we're investing as socially with a resilient company, realised maybe a check in every year to or first something obviously that's really critical, the thesis we can check in. But that was kind of way we grew up investing as a lot of management interfacing.

I'm always curious with public market investors like how do you think about that? And sounds like you do find IT very useful to have conversations with management versus all the information out there. You I would imagine on the one hands, like, well, of course I wanted know like I could clean so much more information and like sell signals from talking to somebody person. On the other hand, I kind of think, well, I really care about what you do now, what you say, and I can just see what you do in your filings. How do you think about that?

This is changed a lot over the past decade because of because seeing manager team talk is easier than it's ever ban, right? It's publicly available. There are sometimes so when it's helpful. There are sometimes when it's harmful.

You know, I probably net ths out to be net helpful, but i'm just think you of one interaction that we had with rich temple to the CEO of texas from and related february two thousand and nine time, everybody is unhappy. It's really rough and rich walks in the room, big smile on his face. How's to go on, boys? You know, a recession is a terrible thing to waste.

And you're like, what's going on, love IT. And so he clearly had a different mentality of, hey, this is where we make all of our returns of the next decade gonna go buy equipment for on the dollar. We're going to a sort of systematically lower capex to sales ratio and we're gonna get customers and sign them up because we're running our apps full out still and other people aren't.

And he's just one of these amazing leaders know when he took the company cover the forty percent of the business gear towards wireless. And nokia was a massive customer, the largest customer, and he blood that down a zero. So clearly, this a demand of a company that built around adaptability instead of these point predictions. And so people like that are helpful to interface with. But honestly, we probably get everything we need at this point without meeting with them as well.

David, I were explaining our research process to some frenzy other day. And you know, one of the things that I think that is chronically underfunded on youtube is presentations by executives and industry conferences. And that's a thing that we've relied on really heavily.

Everyone goes and watches elon mask give his talk. At the record conference, about three hundred and fifty eight people watch the youtube video of gyn shot while presenting at an ero space industry event. There is a lot of really interesting information about the company, probably more so than the big shiny public facing stuff.

That's exactly. I amazed me. I don't remember the last time I watch the computer history interview is between china and .

more string h so good IT was .

under a three thousand years, something like that. I like, how does this not have three million years?

You're like, am I watching the wrong feeds? Or how can they not be more views of this? You know, it's like the next no said there should be a million views.

It's so funny stuff like that around all the time. I couldn't agree more, but I recent some stuff back and poor earlier this week. It's mostly free to and from industry trade organza, and it's a huge resource.

And you also you do get a bit of different flavor. If you see a mangement team at the investor conference, there is even on a road show coming through time, you're the fifth investor they've seen that day. It's like you can not getting the company line right verses hearing what they're really pitching to their broader stakeholders at an industry conferences is such a good resource.

Yeah when we're doing episode just us two three, three plus hour deep dive on the company, we almost never talk to people actually at the company. Maybe we should we get all the insights we need from obscure youtube video books, presentations, you know White papers .

to britain's point, there's so much material out on these companies and stuff by .

management teams these days.

and I think you guys are on to something with this .

required thing, we'll see. okay. So i'm going to take us into the more technical side of semis. Now britain, you send an email when we were batting around topics and you said all, what if we start by talking about the UFO crash that happened roswell in ninety forty seven, where we got the first semiconductor technology and then began to reverse .

engineering at bell labs wiki. Face was the first tech to answer that exactly. We we know exactly when came was and they needed the back story.

You know, when they were, they took the U. F, O over the area, fifty one. They're like, how do we like, get this, the world without people knowing, of course.

Interview me. Chocolate, fresh from the war, doing research on radar, submarine warfare. And sari got top tic clearance like, okay, where could this come out of bell labs chocolate? Oh yeah, that's IT.

That's the backstory we'll give IT to bell labs. That's the whole back story in semiconductors. I think we're done. You go was shuckin .

I I don't know the history. I know he was like super involved in where right .

he was yeah. There's this great book, by the way, called the idea factory. It's the history bell labs. So if anyone's interested in the history of the semi ductor should definite check IT out not only the semis, but information theory from cochin, which came around the same time.

also from bell lab.

also from bell laps. Yeah, it's so yeah. In the forties he took a leap vb sence from belabor and did work actually with the secretive war on rare and summary warfare.

okay. So just to keep pushing on this, the reason that this is a applausive story that we got this from u fs is because the magic behind how a semi conductor works is so mind blowing, unfathomable that you could just sort of experiment your way to finding this, right, that sort of what you're going for here.

Yeah, I think that's right. IT really was this, this over years, but quantum bly, the head back in tube, that's what the switches were made out of, right? IT was one of the few places where there is still pure science being done about labs. And they said we need the switch that doesn't break because he was sent a lot of people out in middle, nowhere to replaces back actives. This could go on very long, but there are some key insights around the you .

are on the acquired podger. So it's a delt yourself, right? There is these .

few key insight. And IT wasn't just shocked. IT was two other guys pertained in mardan as well. And it's so the three of them together came up with these insights.

And just right after the war, some of IT was daring, but most of IT was just after, and they figured out, oh, you can dope. This substrate, romania, with different sort of in type and p type is what are called when you run a current theory to change IT. So IT actually does the switching and solid state. And this idea of solid states switching, which of course, came about because of the transistor, and then later I was made to integrate, started by tobia T. I, is what sort of enabled the foundation for all modern electronic devices over .

the last decade ever, at the wikipedia pages, for semiconductor, for transistor, for I member. The first time, trying to look up like, how does a flash drive work? Like i've got this cool U.

S. B. drive. And I put in my computer, I read the whole wikipedia page, and afterwards I was sort of just blinking, yeah. I still don't understand. This actually was not helpful. And IT is what these things were most of the time, especially having like a computer science education, I feel like I can connect every building block to the next layer of abstraction, building block on top of IT, where eventually, at some point, after a few years of studying computers, you're like, wow, cool. I pretty much get how we go from physics to, like, Operating a Operating system on a moderator. I understand all the building blocks in between, but somehow that there really is something right around this layer where, like, I never quite can jump from the physics to like how IT actually works and then how IT manifests in information and bits on a computer. I think I just need to go read a few more books, but this is one of these things where when you sent the alien and joke, I was like, you know, you're right that i've just taken in a face value that this works, but I don't really understand how works.

Yeah, I told my daughter that this morning I was like, what is like a dad? That's really the way that happened, right? No was like I think yeah what's what's .

back up parenting okay.

getting tactically here. So on our episode, I think we did a little bit of a high class shine on the story. And the current state of the market, especially with t sm c and samsung, we basically activate them and says they're basically doing the same stuff, T S M C, one to two years ahead.

Obviously, samsung has the whole consumer electronics division as well. Okay, that's T S, M, T and samsung g, and that was probably too simplistic. So one thing I was hoping from you guys today is helping us Better understand who's good at what between those two companies.

Yeah, well, seem song is an amazing company. Probably not super well understood, maybe like some c and people know them for consumer electronics and phones. So I was sleeve, but they are fifty percent of the market chair and t an, and about a third of the market here and nad.

So of course, as we do compare, we need more memory. We need a lot more d RAM, which is the past memory on your phone, in our device, or whatever the q stuff up. It's like a fun.

Al, right? If they get a fn, al got solid state, or stop sitting there and nand flash moves into d RAM. Then actually, because of the chip with s RAM, which is a really fast bull, then IT goes in the logic to get processed.

So samsung is very good at making memory. And like I said, they have over half of the market. India, which is incredible.

This really only three major companies in the all the big tear and career once micron in the U. S. And then flashed the bag. They also have a decent foundry business. It's about seventeen percent of the total foundry pie, so not as big, but the reminders are easier to make.

The logic out of these branded samsung products. Are they manufacturing them as a contract?

The d remindin. Is all branded samsung, but of course, everybody uses a samsung, so would be next to impossible for apple to get all the memory they need a without having a massive relationship. Samsung, so the front me is.

so the four, eight big bite of memory in your iphone that's coming from samsung.

That's coming from samsung. Yeah, exactly. And so these are easier to make. They have your steps, but still they're very hard. So D M. Takes around four hundred steps and over a month in the fab, working twenty four, seven to make and and as a little bit fewer steps in that.

But actually nand is getting more difficile because you're stacking IT and to three d so as you get more layers, it's actually getting more complex. But logic is still the hardest stuff to make these union system on chips TMT makes. And of course it's just imagine um know making one thing over over versus making like a menu of what if you had to be a restaurant to make every kind of food on the planet, if you really hard to be get all this food.

So and that's what t sm c is doing. So that's some of the different samsung is also doing logic, but they have a different business model, right? They compete with their customers. So it's hurry for their customers to trust them. Where kim doesn't have that conflict.

What do you think makes for a more resilient company playing at multiple spots in the value chain such that you can, pete, with your customers and have optionality or being super pure play so that you have no strategy conflicts?

I think that depends if you talking my self in semiconductors in the meaning and tells the classic example of this, where they're more vert integrated, mean the hard thing about doing that as you to fight battles and multiple france l has to fight tmc on process technology, which in itself is one of the heardest things know any technology companies have to do over the last twenty years.

And that's why intel has been surpassed by T M C A, right? But may also have to fight AMD in their core collect chip design market, where A A M D enable by ts mci is innovating faster than they have in the last twenty years. And and like really delighting customers and and taking share from intel kind of real time or you in video where they are trying to just basically marginalized the cp would make the CPU less relevance to intelligently levant.

So I think that's the hard thing about being worthless, integrated in semis verses. Being worked like a horse on all peer play is the needs of morals, law or so difficult? It's harder ough to do one of these things well and do IT multiple than well makes IT harder.

So I generally, I think britain point on, just like the business moral difference between samsung and t smoothly is so spot on because. Tmc is like the neutral party that will never, ever compete with our customers. And if you think about the amount of trust that the company has to put in tmc because we're betting the entire company on T M C ability to make this chip for them and to have capacity for them when they need IT. And just like the amount of trust businesses have been more, you know chains, hallMarks and see founds c that that just something that sam and can't quite offer because they just have a different business model and they are not willing to not that are willing this, don't have the capacity to build a massive .

they can change, right? Like I got to shut down two thirds of the company.

Yes, exactly.

How do you all think about S, S. M, such a large position in the portfolio. yeah. How do you think that the geopolitical risk, because we did this, how big, long episode in the conclusion I think we came to was discover, amazing. There is like, no fault we can find in this, except that, you know, china might want. I like you don't take over .

the land that they said enormous company ending risk.

You see she's last earnings to call someone asked them like what they thought about taiwan solver ty, and and just like what a world we live in that like doesn't open question that an Alice can asked learnings call IT you think about china invading your country? So britten, I are not like geopolitical experts at all. I think we spent a lot of time talking about just the importance of tmc to the world.

And I do think tmc is top five most important technology platforms to the world. Like, I think tmc is more important than apple. Like a apple disappeared, red off the face, the earth. I actually think I would be painful for everyone that, you know loves my message and face time.

But like, I really would not be as they give a deal verses if for some reason china move to see the taiwanese, however, you know, IT ent in the play, and I will send to some c staff were shut down, then the western world will be set back at least five years, if not ten years, in terms of like technology progress. And by the White, technology progress is driving most of GDP right now. And so you do read about what's happening with the auto sector and shortages.

And like you, you see nothing if you think shortages kind of from the way the auto guys managed the reventlow and kind like the classic post recession, some electrical orties, you always get you go from there to, you know what would happen if tears, if thai sober tei wasn't question in T. M, C, that stopped making way for us for some period time. I just think the impact on the globe economy would be extremely painfully.

That brings you to logical conclusion of you. Hopefully the U. S. And the west would move to protect T, M, C. At all costs, or at least get the people out of their, I said, I shouted, joke about that.

But IT ouldn't be totally as similar to what's happening in afghanistan, where I think he would have airlessness many teens y folks out of there as possible in this short period time. But then you have no fabs. There are to produce, I mean, T, M, C fabs, a quarter of the digital chips made in the world right now. And so IT would be a lag of mulally years between, you know you get those people oud and when you could you start making way for us again, it's a very complex topic.

I think in another way to think about this is this ecosystem perspective. So like tisa sea as the company is very valuable, but it's not super viable without A S M L and lam and a man and K A, right. So when you think about the ecosystem of semiconductors and A S M sung, there are this handful company is called fifteen ish. Me more that if you think of them as one super company, which is kind of what they are, is like a super orgasm, right? Kind of like my bees are a super orange m.

it's like you go system a complexity adaptive.

It's like a completely have so predicting the future really hard. So anyway, yeah, if you think of that is a super organized, this is probably the most important superorganism on the planet. If it's not, it's certainly one of the top most important.

So could you recreate that elsewhere the world? You absolutely could if you had access to the rest of these pieces, which in the west we do IT would just take to john's point, a long time. And that's why people are sort of saying maybe we should take some risk out of this place.

And and small calls the semiconductor sovereign. We're building this fab, of course, in arizona, this five anomie T M C. But IT wouldn't be a stretch to think that they will be built again in europe.

This happened before. But of course, when technology reaches a fairly stable state, you want to optimize and efficiency. And so you get this horse on all type models, right? I remember when apple about PS mico ict, or I was on record going, oh, this is a stupid thing. Ever call can makes this really good. Semi acors 8 com makes T I makes a great application processor。

And this is the origin of you deciding that you don't know the future and say.

yeah, what I said was the domestic ver, that's for sure. But when technology changes, I just didn't have a concept for the smart phone. So the technology was about to change quite a bit.

And in that change, you really want to be vertically and integrated because you're not pushing fiction ency. You're pushing sort of product technical ability. We see this potestas as well vertically integrated. So you know can you imagine ford having A, I, A like that? This kind of funny.

right? Well, they could have something that they would call IT a day. I A, that happening.

albeit M, K, B, H D just did this awesome thousand mile road trip with a tesla ford mckey mustang in a gas car. And IT was just avoid. They like, like the best thing, like it's a good car.

It's really good. But we couldn't complete the road trip because we went to the charge. You know, IT directed us to this charger. The charger was broken. Then we went to another charger, well, that was like, you know, a charged to the of, like a mile every five minutes or whatever. So then we like, get stranded. And now the test is like, yeah, we were half an our shorter on the trip in the gas car, right to the tragic networks that told us which still to go to at all this stuff.

So I guess like the full circle question or answered your question on like how even incorporate the geopolitical arrest on tmc is I I guess they'll be are like a ten percent position for that reason is there is always this rest also.

I think it's important mean that my like kind of cheko answer that's probably not fair as if if there is enough conflict between china and taiwan, A, T, M, C, that they're like kind of business sober tier is an our concern or people are worried about them being nationalized by china or something, the whole U. S. Market is going down.

It's not just tc. I mean, I think there would be of like the but it's not like this is going to happen in isolation and said at that point and who knows if there could be you know more about more world or three type global conflict coming from that. And so I kind of feel like at that point the performance of our T M C C comment stock is probably not my is concerned that day.

you know. okay. So let's say T S M C is a resilience position. Let's say there is a black one event, which the fact we're all forecasting IT.

And so if everyone else means that probably think that black wan, if there is sovereign, gets chAllenged. So the point of optionality positions is to benefit from these blacks. One events.

Do you just have any ideas on if the whole U. S. Market went down in this situation, what could you hold that would have IT the obvious .

that you would be like defense stocks, but we probably know them because of additional things. Those are very high in Z. S.

businesses. But honey ly, that would be the one poking the market. The problem .

was fair. Okay, but we the equipment, and so you're leaving twenty years of equipment in the ground somewhere, and you ve got to recreate that thought. Probably pretty defensive against that outcome.

There's also like this owning china, a tech companies. I think it's questions like.

well, this is really going. I.

They have to stop working, all right?

Do you have any china tech possesion, you know tenant or others .

are we don't we won't try to tech for a long time, but we put this portfolio together than twenty. I just looked sketchy to. So honestly, I don't know with the lack of of a Better word.

And so we we own zero china attack. We just thought we don't have to be there. There's all the places that are very interesting.

And it's a question. Owners, we're not really sure who owns these companies. And through the A D, R structure and the V I E structure, we know we don't, so we just set out yeah make sense.

Well, I want to come back to some more technical questions. Another thing that I think we kind of glazed over our T S M C episode is the current state of morals law from literal perspective. But then probably more interesting, the current state of the spirit of morals law.

And I was wondering maybe, john, let's go to you. Could you give us a little bit of a download unlike does more laws still work, at least spiritually? Yeah.

i'm glad the way you've framed at that week because so IT is kind of a religious debate and people much marter than me in the sei industry and like both sides of is like the true gord. More laws still holding up, I think for the spirit of morals law. We still have we visibility probably for the next ten, fifteen years.

And to be honest, that's like the interview never had more than ten and fifteen years of visibility. I think obviously, the death of morse laws been pronounced her a very long time. But I think that's one thing to keep in mind is there are a lot of things out there that's going to keep us driving down more law.

So one thing that you guys covered red well in the tease and see episode is the information of U. V. Systems for my sml.

And they actually allowing us to shrink the transistor of the fundamental building, block the two dimensions. So have actually put word register or into a chip. And so is smell is kind of one record is saying they think that the EV will last fifteen years in terms .

of the allow us to keep doubling the number of transistors on a trip every eighteen months for fifteen years or just IT will be an effective of getting any performance?

Yeah, I think IT will be an effective way to drive performance and drive shrink, basically kind of rated as you'll be shrinking the transistor to pack more performance into a chip. But I think the broader point you hear from the industry a lot as this conceptive of more than more, which is of a cheap .

on but .

the simi guy is a real a real hood.

So kiki.

um but so the broader point around yeah where we're more laws going now, it's not just about the transistor is really about the package. And so you're seeing a lot more innovation, not just in like could we put like more transistors under one giant tic chip to drive more performance. You can actually split up chips in the multiple chips called chip lets most AMD is doing.

And this is a big part of intellectual strategy actually also and so of having like when gigantic like G P U, you'd buy e from video, you can have four smaller chips um and you can come exist and together to drive more performance. And so that's another way that we're going to get a lot of benefit from morse law. And actually one thing I skip over on the transistor sign as we are moving to a new transition architecture, there are two enemy or three enemy or depending on which company you talking about to a gate all around architecture previously, we are on since that, which he has been around sence, I guess, for the last seven years and know the exact numbers.

And eighty ten, there's line of site into from here, more gate architectures, different materials. And then when we get to like amid twenty thirties, will kind of see how that goes. But IT is IT is amazing.

I was actually a virtual chip design conference this week earlier in the week. And there's so much focus, not just, I guess, on this like package idea, but even like a few one more layer from that. It's about system with performance.

And if you look at what in video or AMD and kind like the leading digital companies are talking about, it's can you make more processors and actually except them together into a cluster with some inner connect? They're really thinking more like computing companies and just like chip companies now. And so that's a big change. But all of these transistor level innovation, package lever innovation and then system lel innovation, I think we've got pretty good aside into the spirit of morals law, continuing at least through kind of amid twenty thirties.

And so IT seems like with the sort creation of the system on a chip that at least let's just talk about, the iphone is the one I understand the best. Apple became the aggregator rather than the old days i'm going to go build my computer and i'm going to go. Apple basically says, uh, well, we've designed this logic board and we've designed most of the chips, the important chips, and we've situated together T, S, M, C manufacturer.

They do all the packages you have, like the bear metal, the bear metal packaging of these things. So we don't need to run IT through these buses that have low band with to get information from one piece to another. Let's keep playing that out a little bit based on everything you know.

Where in the value chain do you think the point aggregation shifts to over time? Where who gets to own? Where do we put all this stuff together? And I get to capture a lot of extra margin because i'm the one putting IT all together.

I think that's interesting thing about the semicon or ecosystem is actually there's a lot of people capturing margin and they are capturing really high margin. So this is the sign of a healthy ego system, right? There's not one company that's making all the money um throughout the whole chain, we've seen margins come up.

And you know here's a good trivial question. Who has higher Operating margins? Text sentence or microsoft, right? Because I asked IT, you know the answer is, is T I. But you know it's not really appreciated how good these businesses are.

That shocking, right? Yeah especially because T I, the court business is not the leading edge digital processors that T, S, M, C is doing. It's the commodity stuff.

I think this was richest key inside you. He said, okay, we're doing. I was leaving at soft, were fair at T, S, M, C, A.

And what if we just trickle that business down to zero? They try to sell IT. No one wanted to buy IT.

And boring is beautiful. And so, you know, you look at t in markets, two thirds of which are industrial and auto. And I guess it's a tech company. You have to make chips. But bad IT seems a lot like an industrial company too, right?

I think you can make the same point that you made on T I. On a video like the fab less business model really admits, like a software company, it's like a video has got close to seventy percent Chris margins and like low forties Operating margins that IT really with very little sick because T M. C. Off little less sickly, right? So it's just like one of the best business models besides, I would say, in the Price off or the best business models in the world is so T M C is the enabling of that.

But I think brin point is want on you're going to see kind of in this future world, one of think that's kind of cool as IT takes the whole ecosystem to really drive of the future of more is law like IT, you have to be just about as needed, Better let the tools and like intel would use them, and like shrinking the transistors and we just come like group force ourself done worse law. And now also the advances packaging needs little advanced primary smell, but IT also needs improvements from other equipment. Guys like lam research apply materials or tokyo electron because you need deposition and h steps to build these advances.

Packaging multi die packages for kind of the advance package applications. You also have all this off the shelf IP you're getting from companies like ARM or from cain, certain options that I mean, part of what apple is to your point? And is there really just an aggregator like they buy?

You know why people locks off the shelf? A lot of wet designing a chip is about is just as just buying a lot of in which all people locks in, aggregating them. And so the great thing about is like this, mars laws really freak hard ever in the ecosystem, does really well. And then I think T M C sitting on the middle will obviously do very well because they're driving the innovation also, obviously, are the key partner for of this.

Look on T S M C M. I think we gloss over this on the opposites we weren't deep enough to understand IT. My sense is that the open innovation platform that y've created is really important.

And is canada what orchestrates all of what you're talking about here, that that really takes the village of the whole industry to push things forward. Is that truly what is that? How central is T, S M C is open innovation platform told .

of this is exactly what I was going to say. I think it's really true. And there is no get hub to the some mechanical ter IP get this time, right? The closest you get is kind of the T S M C open alliance and this pockets of IT elsewhere.

The E D, A guys have A A ton of IP as well. And of course, as you make these chips, you need to emulate them to see if that actually work, hopefully before you put him in the fat, because that's were really expensive. So all of these things really played together.

And so when you think about how intel was doing this for a long time, this is a close system that was intel's way intel process flow. And T, M, C, said a way that lets form at alliance with everyone, because this is really going to take everyone to keep driving this forward. And this open architecture for this open approach has really won over.

One thing that is hard for me to understand is how hard IT is to do each layer of the stack. And by that, I mean, wow, IT seems like the S M L. Guys create a pretty unbelievable machine. And they have a lot of services associated with that machine, like there are even in the tsc factory, helping to assemble and Operate these things.

And then I sort of score scratching I had thinking, well, could S M L just kind of, like, become T S M C? Could they just Operate their own equipment? And then I dove down the other side of the slope, and I was like, all who makes the stuff that's important to the A S.

M. L. machines. And I was like, what is this trust company? And then, of course, you go on the trump website, which lets just let the name lie for a moment here, and they make this believable laser.

And like, they've got this crazy video on their website that shows off their laser and i'm pretty. What they're showing me is actually the magic of the A S M L U V machine. And i'm like, shoot, why can't the trust company just do A A S L does, and then also do what T S M C does?

If they are the only ones in the world who can make unbelievable laser, can you can shed any light on? Is that ever gone to happen? Could ever like vertically integrate first.

all the videos of the simulations of the laser in the system on the trump website are like.

so freak cool there.

Yeah, actually, I didn't see the edition of recently, and i've heard so many times that like fifty thousand pulls as a second .

drops in multiple.

the whole speel for, I think, like multiple times really. Can I do the smell now? Anyway, we a few things to think about. One is there is so much innovation, so the laser itself actually is ten tones, but an E, B system is one hundred and A B tones. So there's a lot of other equipment in there that's not just the laser.

And actually, I was trying to find this for my dollar, but are you I didn't track a dam, but i'm sure that, that number is out there. S, M, L. Partnership with size. The lens company is also really special.

And I guess trump fansites could try to partner to I don't think they have any ambitions to do this, but they could try to partner together that kind of a so I I like the lens is that this is coming up with are literally the most uniform Lances designed, you know, in history of the world. And some of the metrics that they throw out on that are incredible. And I think one of things that unique about the s mel is, you know they ship the first U V tool in twenty ten to tsc an E V and even really start high volume.

And this was after a decade R N D already, but then they didn't are high, high manufacturing on U V until twenty eight. So they had like almost a decade of learnings in M C fab. Like how to get these things actually work. How do I get the um the proper to levels where the economics actually makes sense. And so it's actually because really cool conference called S P I E every february where all of its customers come together.

IT basically give feedback on U V, and and kind of give the updates on on where the ad and asm lift through ten of those with all the feedback, not just from he is some seva from other because of some partners, right? And so I just feel like the learning psycho that s smells been through. There's a so much more innovation in in addition to the laser and the the lens is, but IT is mean the lens is are really, really critical component.

I mean, S M actually bought a laser company in twenty twelve called simmer. And I think that you had like an internal lease back off between simmer and trump. And I think trump one for U. V, which is also kind of a funny, you know, trivia question.

wow. Fascinating OK. So the answer is, they all at a time of value on top of the previous slayer, the deck.

And like a lot of things in the tech system, there's fractals s on fractals, right? Like you say, okay, what's the most important part of this? A smell? There's a fractals down.

And then like, you know, you keep going, but it's really the ecosystem approach, the big sand. No one can do all of us. It's just way too hard that really does take a village.

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yeah. I I think this is a really cool story about how A M L came to be. Asm and society c to the world is you need one competitor, which is icon in the laptop phy market and then then like on gave up on the market can come into the last decade.

And so an tmc and sam, i'm going to kind of looked around and realize, like we're betting the future of morals law, this one company, a smell which at the time was like kind of sleep, the dutch company that would have like a twenty million, the our america, like anyone really knew who S L. Was in twenty twelve. And so IT was so unique is uh entel and tmc and samsung partners and actually bought twenty five percent of sm to jx capital and sm to develop U V systems.

And that started really like the iteration path of developing uv to get the uv to where I needed to be for high manufacturing by them into the decade. And so it's just such a cool story of like ecosystem coming together. And everyone in the semi industry knew how important S.

M. L was at the time, but the world didn't understand that. And so getting a sml where they needed to be on the U V, obviously, is now enabling more slaw for the next dely's ten years.

And is IT right that they have all largely divested at this point?

They have, yes. yeah. I mean, honestly, shouldn't. No londo IT would be not in material. So special interests, enterprise value. There are so many stories like that. If you guys covered the ARM origins, like all these like major ecosystem players of all, like had, you know, stakes some other companies at various times, which is just kind of a funny way that the same industry has worked.

I couldn't find in our research how much of T S. M. C does the taiwanese government currently own? Because they started by owning fifty person .

of IT that I looked for that too recently. I couldn't find that I wanted say it's still in the twenties.

but I could just be making that number up. I thought I just was going to wild.

Could you imagine if the U. S. Government.

on twenty percent of .

until know right, I A lot of ford at one point.

So yeah, it's sometimes people ask, well, why can I just another company buy T, S, M C? Well, it's a national hotel. An, the government to bunch Better system possible.

right? Some things don't have a Price at which they are. That's for her sale.

exactly.

I do you have one other a trivial question for us.

Yeah we are talking about. I going to make the point that fabulous chip companies are of the models in the I think think that so cool about T S M C is if you look at all the value they created, like and video is is a half a trAiling of our company and then add up their next few because customers like call common broad, common AMD, that's like another half trillions.

And then I was trying to think of like they're aggregate value creation and just trying to think about an apples obvious to the biggest customer. And so I think in an acquired episode about the total acquisitions of all time, you guys assigned a value to P A semi. And how much of kind, like apple, different duty is driven by semiconductors. And so if you guys know that top your head, that be my gas for kind of like apple d's contribution to the tmc delegation for the world of that fraction .

all make sense. Oh, man, that was the most handwaving part of that whole analysis. I kind of feel like we described half of apple to next and then like ten percent to P, M, I. Or something like kind of arbitrary.

we were literally covering up the apple.

Well, here's the framework. Here's the reason attar. It's because the notion of necessary but not sufficient is really hard to frame and do a percentage.

Apple would be worth zero if they didn't acquire next. But does that mean that next is responsible for one hundred percent of the value of apple? Absolutely not. So what percentage do you assign IT? It's tRicky.

Yeah makes sense. I actually don't know that the number of you guys use that. I followed twenty five person top my head, which maybe that's a good rough number that apple's contribution is you know another hand trying to large the teams y body creation story but you get the broader point, right? I just it's like trillions of dollars of market cap. The tmc is created for their own partners, which I think is just so cool yeah amazing.

I mean, I truly, you know meets the bill gates line of the definition of a platform that they've created way more value for their customers in the ecosystem they've captured for themselves.

Yeah, IT is so cool. Obviously like a traditional internet e commerce platform. The way like most of SaaS platform, the way we think about platforms, right, IT is just like a manufacturer platform, which is is so unique.

There is one point that you are getting at here that is part of the White paper and what we discuss earlier, which is a around sort of leaving money on the table for your customers and leaving money on the table for your partners.

And IT reminds me a lot of when we did the alto episode with honey m, and it's really this idea that if you as the management team or if you as an investor who deeply understands the company, knows that in a way that other people outside the company can, then you can do a much more intelligent job valuing the company than anybody could with a brute force metric, such as industry average earnings multiple. Because if you actually understand what our earnings could be, this if we wanted IT to or our growth rate could be this if we wanted IT to. But you know, we're making strategic tradeoffs to not do that, then you actually have a unique ability to underwrite the company's value and thus actually more of a margin of safety or more of a willingness to pay up than anybody else. And so it's interesting being deeply studied about these companies where you do know that they are sort of leaving something on the table for other participants that you can be more comfortable making an investment than other people can.

I think that's a really entitled point band. The thing that gets to for me as duration of the asset, duration of the growth. So when you leave money on the table, what you're doing is you're creating goodwood f your customers and you're buying the company duration, which is often times the way to m maximize total value, right?

So when I think back about how talking about road blocks, he was effectively saying, we just really understood how big this ecosystem could become. And we kept seeing the value of crew. And then I moved beyond our original investment case, and therefore, we became more comfortable and investing more money over time.

And what people get wrong often times this is duration because duration finger of fifteen percent back here, really example, it's extremely on linear. If you can keep that flat, right? All the value comes on the tail.

And so um we need to start very good thinking like that brains don't work in that non interaction on but when you create more value than you take and that's your driving factor and you want na take a lot about you, it's a hard tag because you have to all the time to think oh how we want to take a lot but we need creative or more. How do we do that? And then of course, that bystry ation and which is a feedback loop, sort of the happy feedback loop if you want to think about IT that way. I think more thing got this very early on and that's what could tim see into such a great company.

It's so good you we touched this earlier, but has the double underline one of the things about you on your E S. That what kind of an aha moment for me is flat growth versus hyper growth. Flat growth extended over time will beat short term hyper growth.

You mean the derivation of being flat, right? That a company grows at the same rate every year .

if you grow a twenty percent a year for like fifty years, like T S M C, you will destroy you know every group out there. So what you need for that .

is a negative feedback to Operate, right? So the negative feedback p for T S M C S, i'm going to come and i'm going to take what used to be the special sauce of your business and you're going to trust me to do that. That's extremely hard to do, right? No one wants to do that.

But then the more IT happens eventually, there is a game theory to IT. Everybody has to do that eventually because I work so much Better, right? So you're never gonna get a hundred percent co this impossible. But you might get twenty for thirty years, which I think the number of that you guys send your podcast was seventeen point seven for thirty years or something like that was just incredible to me.

And when you say negative feedback loop, you basically mean a governor on the growth like a natural force in that particular business that makes IT so you can have lude ris uber style hyper growth and that ends up being long term good for the company to have that growth governor or that negative feedback loop.

That's exactly what I mean. So we think about A L right? They can everything they can make, but they can make more impossible.

great. So there is a governor on the growth. wow.

Well, that's a great place, I think, to leave, especially the semis discussion and most of the episode that it's so counterintuitive. But the way that you've sort of framed up why IT is long term good foreign investor to want slow, methodical, governed growth is just very different than a lot of things we talk about on the show.

One of the things we think about sometimes is we're looking for companies that can double in five years and double again the five years after that. And all that mean in this, we're looking for companies second growth, fifteen percent over a decade, all all equal.

Easier said and done.

Easier said and done. My easier said and done, I will to say one thing about our days. Now we get a lot of questions of, well, how do you do this for a small company versus a big company? And part of that goes back what we are talking about IT earlier. It's easy to research in this companies now that it's ever ban.

But the second piece of IT is, yeah, there's more details that we have to deal with the times, but how much extra time would you have in your regular job if you only had two meetings a week and you never had to worry about office politics? You know, my guess for most books is is about twenty hours, right? And so then how would you use that? Well, we just use IT for unstructured research time.

And the way we think about IT is we can wander around not knowing what we're doing in waste ninety percent of that time and ten percent might be really useful, in one percent might be absolutely watershed, and that's really all we're looking for. But you can't ever just get to the one percent and you have to wonder around to find that. And so that's how we really structure .

our days and brinton. And that's why you run for like twenty four plus hours street.

And that's why I run and that's why I keep peace. It's all the same thing.

It's what your best investment ideas come from. That's right.

I do you think this idea of like lennar time is not linear. Time is really interesting in some. And I talk about a lot because like the only year time, it's like it's probably very similar to you guys going ready for your next episodes, like you going down the rabbit hole on one topic.

And then we do spend time doing that, obviously, but then we just have so much actual time. They like just be out there trying to connect dots. And so you never know when you're going to have that all how moment to earn that insight. But having you as much opportunity for that as possible is going to have we've intentionally tried to structure time ah well.

we can spend another hour on how you struck to your time oh exacting or maybe maybe we can get a water bothy if you'd be afford to join our next LPL. And i'll to add about IT, i'm sure folks would love to APP you with questions and here about how you spend your time.

I be surfed. We always learn from those questions.

so we'd love to do IT awesome. Well, brinton, john, where can folks find you on the internet?

You can go to the s capital that com. We do try to write a lot, and we put IT all on the internet immediately. Um IT is everything that is internally nothing sell back because we know when we put IT out there, we're going na get more value back.

So this is our way of trying to create more value than we take. Our partner, brad also writes a newsletter every week. And so if you want to see how he spends his time, you can sign up for the newsletter on ncs capital 点 com。 It's called set all week.

It's just brads process sitting all week. And what he thinks about and brad is he's like a microprocessor. He's literally smartest percent have ever met. And the way brain works is incredible. And so if you'd like to sign up for that, you can do that there as well.

great. And on twitter, I think you both have witter handles.

That's right. The whole team is on twitter and this capital h has a twitter account, and b on three is a bread sling. And john is at the basket.

willing all those in the showut.

Next I was dance.

Thank you.

All right. Listeners hope you enjoyed our conversation with brinton. And john, if you found IT to be Frankly, as ee opening as I did, feel free to share with a friend if you learn something new about complexity, investing or their barbell strategy or resilience and optionality.

I'm sure you can think of someone that you'd want to share that with. So feel free to do so if you are not already a member of the acquired slack, come join us. Acquired dot F M.

Slash, slack. Some of the best discussion you'll find on the internet about lots of things that you care about. If you're not an L, P, you should become one.

The way to get closer to what David and I do here are acquired. We have these awesome L P. Calls once every month. Two, we have been on a tair recently with great L P exclusive content. We just dropped a about a month ago. Now a great interview with runnel, the CEO of audience, which is the largest crypto application, web three application out there with over six million users. And then just before this episode, we dropped another sort of web three episode, uh, this time on the web three marketplaces centers around brain .

trust with adam from brain trust well, that that what was the last yeah so .

if you're web three curious, or maybe your your web 3 skeptical， these are fun episodes to listen to you because they are super non defy, non sort of crypt to use cases.

They like real world .

applications. Yeah, which of course, we wanted to dive and tell those stories.

You know what i'm curious about after this episode and and I feel like, you know, the universe works in funny ways, right? Like I think everything sort of aligned. That bunch stuff happened all at once is the survey institute and complex, like everything we talked about on this event.

IT just seems like such a i've always wanted to go to A A here. I ve never been there in class. We should do something. We before this we had our Michael moba episode.

He's the chair, the board there where, uh, kindergarten is actually been investing in a company of the C I was also a board member there. Like there's too many stars are lining. We got to go.

The universe is .

telling you something though .

I think IT well, with that.

we will see you next time, next time.

Who got. The truth is who got the truth?