Thread by @SecretCapital_

Notes on the @SuperMugatu x @BillBrewsterSCG podcast

good insights here

open.spotify.com/episode/71JQw3…

Dan signed a seed deal with Greenlight’s internal Fund of Funds vehicle, talking with them since 2017 - every month or two. Earlier in November, they finally were able to work out a partnership. Took the time to understand what Tyro wanted to build.

Before fintwit wasn’t about a community discussing fundamentals, it was mostly about daily trades and technicals, who migrated from other messaging platforms. Quality was eventually driven up over time when online conversations about companies was pushed offline, and those

relationships started to be reflected online, to complete the loop. For many businesses, an inefficient state of affairs was necessary for the current state of affairs, and that was the case for Finance Twitter.

In 2016, Dan got advice from a mentor: ‘’everything successful I’ve been involved with at work did not go remotely close to how we thought it would go. We had to pivot several times to succeed. So don’t worry too much about the end-state, just work on what you can control now.’’

In 2015, they were about to launch a fund and had 15M$ committed, but then in the week before launch, 1 person decided not to invest at the last second. And there was a domino effect, so they only had 3M$ at launch. And then the stock market collapsed.

And they shorted a lot of stuff just as the market went vertical, so not a lot went right. And in retrospect, they might have confused running PAs with a professional portfolio. And there was a doom loop mentally for Dan. But he was just 22 at the time! It led to a big pivot

from a purist, deep value strategy. Dan thinks value is great but can also poison mentalities & provide a false sense of comfort. Dan used to be obsessed being very clever with the very complex thesis, the special sits which required reading through thousands of pages of

documents and those things traded at discount because that reading cost is a diligence cost and it’s very difficult to get out of that transaction.

Dan said they should have been more focused on hitting singles and doubles. Some of the worst investments have excellent thesis.

The trouble with small value-caps is management teams that they often aren’t great. Dan disagrees with Buffett on the reputation of a bad business winning over the reputation of an incoming, great management. Superstars coming into a bad biz is a very positive signal for Dan.

Incentives need to be aligned too, since management at small caps can be more concerned with carving out a payout at the expense of anonymous, public shareholders by cutting out deals with PE/creditors. Even though there are sometimes buyouts of these poorly managed small caps,

the premiums might not be worth it considering the low quality risk & illiquidity premium.

You need to adapt your investment style to your personality, and so self-perception needs to be decent. And the things you want to be good at are often not the things you end up being good

at, that you may even look down upon (ex: some deep value Ben Graham types are actually good at commodities trading).

A lot of the deep value types might have a trigger event (ex: someone’s grandfather grew up during the Depression, which deeply influenced their style). Dan is

more willing to buy quality businesses and competitively oriented thesis. All the classics: adaptability of the business, capital sources, competitive positioning, etc.

Being a contrarian can be as simple as thinking something is great when most people think it is just good.

One reason small-cap deep value is difficult is that information diffusion is difficult to get across. But when people are already following the stock, it’s much easier, they are already predisposed to be bullish.

Bill makes the point here about knowing why other people won’t

buy a stock and the justifications they make not to buy something. Buffett would know everything about the other side of a transaction, margin balances, etc as a young manager. and exploit it as an active trader. As he scaled, he had to become system efficient.

To understand both bull and bear scenarios, social skills are crucial. And you don’t want to be deceptive in your operating ways, that would torpedo a rep. Managing relationships and being a good social engineer is key. This can be done by providing value to different managers.

Networks compound just like with capital. Dan also sends all new research he gets on a company to people he knows are already interested in the name (on the business, on fundamentals, on competition). Eventually gets introduced to a lot of new people and his network grows –

and he provides value to all these parties. Over time, introducing people and adding value to them has become a competitive advantage for Dan.

Most good risk management tools expose you to a loss of pride and are difficult to do (ex: buying back into a stock at a higher price).

Every concept in investing is a double-edged sword, and knowing the other side of it is also key (ex: SOTP, spin-offs, etc). A lot of deep

value guys are adamant about their game and aren’t open-minded enough to other ways of winning. The concern with over-paying is legit, but might be distracting from all other, important risks.

You have to understand who you’re trading against, you’re not transacting with the

abstract Mr. Market, but rather with people who have mandates and motivations. The dangerous part of the Tesla short was the longs were familiar with the short thesis and didn’t care at all. ‘’we’re going to Mars, who cares if they missed deliveries?’’

It’s a very different framework from some stocks where investors are more concerned about EPS to the penny each quarter. With assets with variant opinions, and opinions/ways to value a company start to become uniform is when a set narrative takes over.

A lot of the issues around shorting and deep value picks is that the research only works once but if he thinks social media is going to be valuable for the next 50 years, it’s easier to justify spending a lot of time on the subject.

Dan thinks a lot about market participants. He wants to compete on contexts, on factors that might be restricting his competition (ex: when volatility goes up, systematic funds sell equities).

Bullish thesis in March sounded dumb, but they’re the ones that turned out to be right! There’s a point where short selling stops making sense, when the devastation has already happened.

Building long-term returns is about both avoiding nightmares (not blowing up) and hitting homeruns. It’s tough to compound out of a -50% return.

More and more companies today are really competing to win – Doordash might have entire teams dedicated to destroying Grubhub.

Doordash was also able to raise a round, with no regard for unit economics just to murder Grubhub, who went public. Companies who pride themselves on not paying employees well and being cheap are bringing knives to gun fights and they’re going to get destroyed.

There’s exceptions where there are great jockeys who can sell to/beat behemoths.

Securities inherit characteristics of their holders. It’s important to look from stock to stock, for most individual securities, there’s something unique about the holders.

About Never Sell: If you are managing your own money and compound it for 50 years and you’re convinced you have a future megacap, it might not be worth selling. But in a fund, you have to decide where the ceiling is on a position size at funds.

Having a huge weighting in a position also exposes one in a bigger way to volatility. So Dan wants to bring a home run down to a more manageable position (ex: 8% weight).

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