
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
Key Takeaways
- 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
Intro
- Charlie Songhurst is the former head of strategy at Microsoft and is currently an active investor
- Host: Patrick O’Shaughnessy (@patrick_oshag)
Power, Money, or Fame?
- 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
Effects of Scale
- 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
Why Founders are Unique
- 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
Recruiting
- 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
History and Investing
- 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
- Not only that, but you can use history to directly exercise your investing muscles
- 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”
Traits of Successful Investors
- 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
Impact of COVID-19
- 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
Thoughts on Cryptocurrency
- 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