August 4, 2020

Lessons From Investing in 483 Companies | Charlie Songhurst on Invest Like the Best

Check out the Invest Like the Best Episode Page & Show Notes

Effects of Scale:
- Exponential returns from network effects
- Declining productivity of individual workers
- Loss of personal connections between managers and employees
- Unavoidable conflict
There are many talented people, but only a handful of them that will align with your mission
Taking a historical lens to understand human nature helps us make sense of the volatility we experience
- Charlie Songhurst notices a cycle of constant centralization and decentralization throughout history
“If you look at what really destroys investing returns it’s geopolitical conflict” – Charlie Songhurst
- “The collapse of European wealth in WW1 and WW2 is just absolutely epic”
- As a case study, forestry is incredibly stable in its ability to withstand war and revolutions
There are actually no cookie-cutter molds of what creates a successful investor
- “Success is very idiosyncratic” – Charlie Songhurst
Socially, the accelerated adoption of tech is a massive and irreversible shift which many do not talk about
- Quarantines have made us more globalized in employment
The most significant variable in whether or not someone believes cryptocurrency can be viable is age
It’s completely possible to globally scale finance but it’s stopped by the rules and regulations of different nation-states
- “This globalization of finance has the potential for multi-trillion dollar market cap companies over the next decades” – Charlie Songhurst

Charlie Songhurst is the former head of strategy at Microsoft and is currently an active investor
Host: Patrick O’Shaughnessy (@patrick_oshag)

Charlie finds that this benign interview question can roughly determine a person’s desires and tendencies
Power:
- “Someone who’s interested in power tends to be better at execution” – Charlie Songhurst
- Founders who prefer power tend to overspend and aggressively expand
Money:
- “Someone who’s more interested in money tends to think more about capital efficiency” – Charlie Songhurst
- Many people claim they prefer power when they don’t want to be seen as greedy
- Founders who prefer money tend to be too cautious
Fame:
- “I tend to avoid people interested in fame, but if you were doing something in showbiz it would presumably be the number one criteria” – Charlie Songhurst

Exponential returns from network effects
- Many tech companies can only exist at scale
Decline of the productivity curve:
- Due to psychological and bureaucratic effects, the larger a company gets the less productive each worker becomes
There is a loss of personal connections between managers and employees when managing large groups of people
- “That’s like a Fermi paradox, Great Filter; it wipes out an amazing amount of startups” – Charlie Songhurst
Companies at scale are forced to become institutions because it is a necessity in order to remain at that size
- For example, you will need an in-house legal team to handle all the legal issues that are thrown at you

Founding and cultivating a startup is an incredible training program for the mind which takes years to develop
- We look at visionaries like Jeff Bezos or Steve Jobs at the peak of their success without examining the thousands of hours of work preceding it
The journey in creating a transformative business fundamentally changes you as a person

Your first few hires are most significant than all the rest
- They set the standard for all subsequent hires
Taking the extra time to recruit a talented individual who works well with your company will pay dividends down the road
- There are many talented people, but only a handful of them will align with your mission

Taking a historical lens to understand human nature helps us make sense of the volatility we experience
- Not only that, but you can use history to directly exercise your investing muscles
  - For example, Charlie could ask himself if he would buy Roman real estate right after Caesar was murdered
Charlie notices a cycle of constant centralization and decentralization throughout history
Forestry is one of the most stable businesses even in times of war and revolution
- For example, if a government is overthrown and corporations are nationalized, forestry is so boring that it simply flies under the radar and is left alone
- “What are the digital equivalents of things that have some psychological repellant to them and therefore will actually have great economic capture?” – Charlie Songhurst
“If you look at what really destroys investing returns it’s geopolitical conflict” – Charlie Songhurst
- “The collapse of European wealth in WW1 and WW2 is just absolutely epic”

There are actually no cookie-cutter molds of what creates a successful investor
- “Success is very idiosyncratic” – Charlie Songhurst
Charlie has found that successful investors focus on leveraging their unique talents to maximum effect

Socially, the accelerated adoption of tech is a massive and irreversible shift which many do not talk about
- Even the elderly have started adopting applications like Zoom into their everyday life
The success of eCommerce startups has exploded after lockdowns
- “My guess is the emotional experience of retail will just be less appealing than it was even in a world of reopening, and you have this continued elevation of eCommerce” – Charlie Songhurst
Quarantines have made us more globalized in employment
- More startups, more jobs, have adopted a work from home model after seeing its benefits
- “Maybe I’m too optimistic but I think that may just lead to a permanent shift in overall productivity upwards” – Charlie Songhurst

Crypto has no analogies or metaphors with which you can accurately compare it
The most significant variable in whether or not someone believes cryptocurrency can be viable is age
- Also, U.S. investors find crypto less intuitive than non-US investors probably because of the government’s history of banning non-fiat currency
Different cryptocurrencies tend to attract certain personality types
- Proponents of bitcoin tend to be less trusting of people compared to proponents of ethereum
It’s completely possible to globally scale finance but it’s stopped by the rules and regulations of different nation-states
- “This globalization of finance has the potential for multi-trillion dollar market cap companies over the next decades” – Charlie Songhurst