RWH070: Hunting For Hidden Treasures w/ Christopher Begg

Christopher Begg: Yeah, the writing for me, when we launched the firm in 2008, there was a lot I had to say because I had to articulate the process. And so I started writing quarterly letters. And the quarterly letters were so helpful to me as I was kind of working through getting that process articulated on paper. And that moved to annual letters... I still look back at that period of time as probably the most important period of learning that I've had. And so having a methodology to take this learning and to put it into words, and then with the idea that there's an audience that might read this, there's a bar of excellence that you're looking for, a quality that you want versus it just being in my journal, the learnings being in the journal and so forth.

Christopher Begg: The writing for me, when we launched the firm in 2008, there was a lot I had to say because I had to articulate the process. And so I started writing quarterly letters. And the quarterly letters were so helpful to me as I was kind of working through getting that process articulated on paper. That moved to annual letters. And the annual letter became another way to compress how the philosophy of it was evolving, holdings and so forth. I still look back at that period of time as probably the most important period of learning that I've had. And so having a methodology to take this learning and to put it into words, and then with the idea that there's an audience that might read this, there's a bar of excellence that you're looking for, a quality that you want versus it just being in my journal, the learnings being in the journal and so forth.

Christopher Begg: Would Warren Buffett be the investor that he became if he lived in Manhattan? Can you picture Warren living in Manhattan and having the track record that he had, right? There was a sense of that removal from maybe what felt very hurried to do something that was more long-term oriented. So I think geography is really important. We've had this multi-geography life now for about 7 years and two different latitudes. And it was a bit of work for the family to kind of re-architect. COVID was a little bit of our permission to at least experiment with this. And it's, I think from an investment standpoint, it's really, really been kind of transformational in the sense of opening up a different lens, a different calibration of time.

Christopher Begg: Would Warren Buffett be the investor that he became if he lived in Manhattan? Can you picture Warren living in Manhattan and having the track record that he had, right? There was a sense of that removal from maybe what felt very hurried to do something that was more long-term oriented. So I think geography is really important... We've had this multi-geography life now for about 7 years and two different latitudes... from an investment standpoint, it's really, really been kind of transformational in the sense of opening up a different lens, a different calibration of time. And I think connecting with nature is something that I continue to see just enormous benefits from.

Christopher Begg: Google is probably one of the most extraordinary companies that's ever been built. And the search business was designed and built around graph theory. And graph theory is something that when you look at nodes and edges and how things scale, when nodes and edges are populating across a domain, we start to see increasing returns to scale. And I think that's one of the things that a lot of people have misunderstood about this period of technology is that as these businesses have gotten bigger, they haven't run into this law of diminishing returns. They've actually their growth has accelerated. And so Brian Arthur kind of did this work at Santa Fe Institute, and we started to understand that what is present that is allowing for this increasing returns to scale. And in our conclusion, it's this, there is a presence of a graph that's allowing for the information to grow and to grow exponentially through the nodes and edges that are available to it on the graph.

Christopher Begg: There's three pillars. You know, we look at the Grove of Titans, which is this universe of exceptional companies. Each one of them we feel has, you know, 3 pillars. And the three pillars is, do they have a moat and is it widening? And we kind of deconstruct that. There's eight different layers of moat that we're looking for... The second pillar is really secular tailwinds. And secular meaning long-term secular talents that's driving the top line growth of the business... And the last piece is the human element, right? We want to partner with great operators that ideally have a history of pretty intelligent capital allocation. So those three things give us kind of a quality score on the business that we would put in that Grove of Titans basket... We want to find something that's going to earn 15% rate of return from today's price over 10 years.

Christopher Begg: The internal conversation that we have with any company that we own is we say, what are the clouds? How many clouds are there? What is our most important questions around those clouds? And then that's where a lot of our work lives. There's one thing to understand the competitive advantage and all of these things, but it's the clouds that really where we devote a lot of time and understanding because that's where the misperception or the mispricing exists. So in the case of Google over the last couple of years, there was this cloud around that blue links were going away. All of our search eyeballs are going to go to LLMs, and we're going to move those eyeballs off the Google platform onto OpenAI, on Anthropic. And you had to understand that from first principles and to say, is that true? Is that perception going to be a reality? It's not yet. And that's usually where we see this gap between perception in reality. And that's where the cloud lives. It's a perception that something might change versus evidence that it is.

Christopher Begg: The internal conversation that we have with any company that we own is we say, what are the clouds? How many clouds are there? What is our most important questions around those clouds? And then that's where a lot of our work lives. There's one thing to understand the competitive advantage and all of these things, but it's the clouds that really where we devote a lot of time and understanding because that's where the misperception or the mispricing exists... In the case of Google over the last couple of years, there was this cloud around that blue links were going away. All of our search eyeballs are going to go to LLMs... And you had to understand that from first principles and to say, is that true? Is that perception going to be a reality? It's not yet. And that's usually where we see this gap between perception and reality. And that's where the cloud lives. It's a perception that something might change versus evidence that it is. And so when we fast forward a year, what we realized is actually Google's, their search volumes were going up with AI, not down.