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Antonio Gracias

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2022-04-05
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2022-04-05
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  1. “Optimization business process improvement, we do quality improvement. Usually someone has a problem that lays inside of one of these areas.”

    2022-04-05 · Invest Like the Best · Antonio Gracias - Pro-Entropic Investing - [Invest Like the Best, EP. 271] · IDENTIFIED FROM THE TRANSCRIPT · source

  2. “We do it a couple layers down from that. So we would ask you the question hey, what are the top three problems you have in your business? And you might say to us, hey, I better grow my sales team faster. And we would say, okay, we know how to do that. And we have people that are really good at sales operations. And what they will do is come in at current state map your sales functions example and sit down with you and your team and decide what the future state would look like and then help build those processes and that'll be hard people put in place to make that happen typically over three to six months and our teams are doing that kind of thing so it's interesting because we don't use the same language now we use the language of lean because along the way from the 90s to today lean rubric entered the american lexicon from japan and lean is the theory of constraints plus quality improvement with the system this high zen system they use which we do it as our current state future state mapping exercises so we'd probably use more lean language today you tell us your problems and usually what happens is one of those problems we don't have to solve and our product set is built around that we can do sales”

    2022-04-05 · Invest Like the Best · Antonio Gracias - Pro-Entropic Investing - [Invest Like the Best, EP. 271] · IDENTIFIED FROM THE TRANSCRIPT · source

  3. “Customer as the company you're investing in. Our operations work, the lean stuff we do for them is the viable service provide them. And so we know that that's our primary constraint and everything else revolves around actually being able to make investments that are really, really good. But the thing that limits how many investors are making are can we serve them? I get to run into the business where if we really thought through it with the executives, they weren't constrained based thinking. It's one of the things, by the way, I really enjoyed about working with Elon over the years because he's a physics background. He 100% thinks this way. most of the great executives I've met, whether they know they're doing it or not, actually think this way. What part of my business I will work on today to make the whole system go faster? And if things are high quality and high speed, typically the product is good, the customer is happy, velocity is going up. But if you're improving velocity and quality, your business is getting better.”

    2022-04-05 · Invest Like the Best · Antonio Gracias - Pro-Entropic Investing - [Invest Like the Best, EP. 271] · IDENTIFIED FROM THE TRANSCRIPT · source

  4. “Think it's universally applicable. I recommend. And we went, let's take our three nickel baths. Well, it takes one extra chemist, it's going to cost pretty much nothing. Okay, let's do that. That's an example. It's a closed system and a closed system like this. The thing that limits its speed is the slowest element. That was really how I started thinking about closed versus open systems theory. And first I started thinking about entropy, which is when you're thinking about entropy, it's actually an open system. The world tends towards more entropy. It's because the system is open. When you have these very closed systems like a manufacturing facility, you don't have as much entropy inside, which you have is this idea of constraint-based thinking, in this case, was driven by Faraday's law, but it happens in pretty much any business I've seen, our business here, or in the asset management investment business. We think about it this way. We know that our constraints should always be in our operations teams. We're continually hiring operations people. We could invest more capital. There's more good opportunities we have in operations people to help them. And so we think about this as our portfolio size, they want to capital managing is driven by our ability to serve our companies. In our business here, we define our”

    2022-04-05 · Invest Like the Best · Antonio Gracias - Pro-Entropic Investing - [Invest Like the Best, EP. 271] · IDENTIFIED FROM THE TRANSCRIPT · source

  5. “And part of the law school story was fun I ended up investing in PayPal, which is how I met Elon, some of those folks, was because David Sachs, who was a chief product officer at PayPal, was my law school classmate. And that's actually how this holding started. And this is quite funny the first day of news to orientation. There was an actual Facebook. This is before Facebook, so there was actually a book. And David saw that to Goldman Sachs, and he didn't want to be a lawyer. He'd gone to Stanford, and Ian Peter Tewol friends at Stanford PayPal. He came and found me. So we started talking. We actually missed the 10 booze cruise and went to Lincoln Park, went to a bar, hung out, and became good friends. And he and another classmate named Scott Stein, they became roommates. And those two guys carried me to law school. So I stopped going to class completely, just showing up for exams. They gave me their notes and helped me learn the stuff. I read the books. And we became really good friends. We're still friends to this day. But that's actually how I got through law school and was able to do this other stuff as well.”

    2022-04-05 · Invest Like the Best · Antonio Gracias - Pro-Entropic Investing - [Invest Like the Best, EP. 271] · IDENTIFIED FROM THE TRANSCRIPT · source

  6. “Supply chains were doing plating. And in that first company, I really went operations. I ended up running it myself, flying back and forth from Chicago to LA to run it, became the CO company, learned plan operations from the dads on the floor. I'm still grateful to them. They taught me about the theory of constraints. They taught me about how to improve throughput in a facility like this. I speak Spanish. A lot of them spoke Spanish. And so it was a fun relationship to learn from them and ask a lot of questions. And so then I decided to integrate the supply chain for connectors about stamping building assembly. A couple of my partners that have here today, Tumak, John Schultman, joined me back then to build that company to connect your company. And we know they're taking from about 10 million revenue to 125 million revenue in about six, seven years and sold it. No one, just the internet bubble is peaking. Bought an auto parts company that had factories in the US and Mexico that was doing codings as well in the late 90s. I was fishing in law school actually and then fixed that. It was a bit of a turnaround and sold it and then invested also in PayPal and Anchethink and further technology companies because I knew people in these areas and I was interested in it.”

    2022-04-05 · Invest Like the Best · Antonio Gracias - Pro-Entropic Investing - [Invest Like the Best, EP. 271] · IDENTIFIED FROM THE TRANSCRIPT · source

  7. “So I worked at Goldman Sachs and left there in the mid 90s. Really, it did two things. One is I went to law school, but I didn't want to waste my time completely, so I wanted to buy a company. I had a little company when I was in college, and my mom had a store growing up, and I liked business and a family of doctors and dentists and stuff. So I wanted to be in business. This has been 90s. So I think maybe today I'd probably go into Silicon Valley. But back then, it was more trying to buy a company. And I bought a little plating company in Guardian, California in 1995 while I was going to Law School in Chicago. And it played connectors. I was the naive guy who bought a plating company with environmental abilities in California in the mid-90s, in the middle of all the superfund problems. That was something you would never do if you knew what you were doing. Only someone who's 24, 25 years old, super naive you could ever do something quite so dumb. And then at the same time, I was a little bit smart in the sense that we were making connectors. So what they played was connectors and obviously the internet was taking off. And it was a way to, I'd say, be invested in the internet and work on the internet. And then what happened was over time.”

    2022-04-05 · Invest Like the Best · Antonio Gracias - Pro-Entropic Investing - [Invest Like the Best, EP. 271] · IDENTIFIED FROM THE TRANSCRIPT · source

  8. “How those executives think, how they execute, they're going to learn about how valuable we are as partners. And then when the next round comes along, you have some, I'd say, very friendly kind of discussion about what our evaluation is. And we'll write an even bigger check. And that's worked out great for us because the risk has gone down. We know a lot more. And we like scaling those positions where we have real conviction because we just have great information.”

    2022-04-05 · Invest Like the Best · Antonio Gracias - Pro-Entropic Investing - [Invest Like the Best, EP. 271] · IDENTIFIED FROM THE TRANSCRIPT · source

  9. “Very interesting. So, if you look at our investment strategy, you will see that our largest checks are in the company's on the longest, and we have this underwriting guideline here where we really don't want to invest in the company we haven't known for six months. We want to know someone we want to see them through enough time that we can see a few bad things happen and understand what they're telling us. We do some things we call short duration. If we know a sector really well, we'll do it quickly. GoPuff is an example of somebody quickly. But for many of our best relationships, whether it was investing with Elon early on or we have a great biotech partner named Jeff O'Ronin, who's been wonderful for us in biotech, we know these folks over long periods of time, we follow their companies. So we're very, very happy to pay a higher price when the risk reward tray has changed because we have more information. And the way we talk about it here internally is we're trying to generate asymmetric information that generates asymmetric risk. We have an operations team here, as you know, so about a third of our people in the growth fund are doing lean operations. This is really worth the scale. And we deploy a team to a company in the growth fund. We learn a lot about that company. They learn about us. We run to know a lot about”

    2022-04-05 · Invest Like the Best · Antonio Gracias - Pro-Entropic Investing - [Invest Like the Best, EP. 271] · IDENTIFIED FROM THE TRANSCRIPT · source

  10. “Studied it very carefully. So maybe an amateur neuroscientist. I think about it as that stress builds up over time in what they call alles that load is going up. Eventually, it can lead to PDSD. You can get that from one event that's super terrible or from lots of events that are bad that you don't resolve.”

    2022-04-05 · Invest Like the Best · Antonio Gracias - Pro-Entropic Investing - [Invest Like the Best, EP. 271] · IDENTIFIED FROM THE TRANSCRIPT · source

  11. “People in the world that don't necessarily carve quickly, but they're really good at compartmentalizing it, try to shove it down. And what happens when you do that, and you talk to neuroscientists about this, is they call aesthetic load, which is the load of stress on your brain. Think about the number of windows open in the background of your brain. We think your brain is a neural network. The number of windows just keeps going up. They're open and open. Your processor's spinning on this stuff in the background. Your decision quality goes down over time. So it's both true for companies that have a strategy where they'll survive the crisis. They'll come through it. They'll still be there. But man, they'll be a little battered beaten. And then for decision makers, who will survive the crisis, they'll come through it. But they will probably be battered beaten. And their coping strategy will not be to resolve and recover. It will be to compartmentalize and move on. And this idea of the windows are still open and processing the background means they probably won't have as much processing power available for the next thing that happens. And the next thing that happens. And over time, that just adds up. And I don't want to say that I'm a neuroscientist here, but I've”

    2022-04-05 · Invest Like the Best · Antonio Gracias - Pro-Entropic Investing - [Invest Like the Best, EP. 271] · IDENTIFIED FROM THE TRANSCRIPT · source

  12. “Framework is prone tropic, resilient, durable, cyclical, and then fragile. And we do not do fragile. The word durable, think of durable is almost like the little boat, the ocean, and the ocean's going up and down. Big storm comes and it survives. It's battered and beaten, but it came out the other end and it's okay. And we have done some of that in the past in the more traditional growth, the GARP kind of investing. I think that's what you end up doing a lot of. These are companies that are probably growing nicely in good economic cycles. And they do okay. They survive bad cycles. And the timing of that investment matters a lot, unless we really like to management a lot, we probably don't invest in those kinds of companies. And a durable thinker is someone that is resilient and we use a neuroscience construct here. You have something happen to you that's an event. Next year homeostasis, your limbic system fires off. It impacts your prefrontal cortex. So call that the limbic hijack. You can't make a good decision because you're an emotional state. Recovering emotionally, recovering your physiological homostasis quickly makes you resilient.”

    2022-04-05 · Invest Like the Best · Antonio Gracias - Pro-Entropic Investing - [Invest Like the Best, EP. 271] · IDENTIFIED FROM THE TRANSCRIPT · source

  13. “Think that's probably true actually because what we do here do disruptive innovation. We're thinking about that a lot. And almost everything you do is disrupting a current existing market that's an existing demand function. We do some, I'll call it brand new stuff, new technology platform, like we've been investing in blockchain infrastructure. It's filling a fundamental need for asset tracking. That's how we think about it. That's why we're investing in infrastructure layer more than we are policing solutions. But yeah, I think that's probably true. We think that a man function is stable and these businesses are all, if you look at them carefully, disrupting their markets based on both product and cost. So our model for disruption, you have to disrupt in both axes. You actually have to make the product a lot better for consumers, and you have to make it cheaper. And cheaper can be measured as it's not just absolute dollar cheaper, it's just a lot better money for value, right? So the iPhone wasn't cheaper than the Nokia i had right before my iPhone. But man, it was a lot better. My dollar value trade was way better. Teza Model 3, I think, is the best valued car in the world. It isn't the cheapest car in the world.”

    2022-04-05 · Invest Like the Best · Antonio Gracias - Pro-Entropic Investing - [Invest Like the Best, EP. 271] · IDENTIFIED FROM THE TRANSCRIPT · source

  14. “We think about it with the guiding principle of is this good for the world? Is it prone tropic? But under the guideline of we want to invest in things to make the world better. That is our ethos here. That's who we are. That's what we want to be. So it's got to be proentropic, but also when things go bad, something happens in the world, these particular companies are actually making the world better. They're serving people, providing something valuable to the world. That's also important to us. And we think about that all on the front end when we're underwriting on investment.”

    2022-04-05 · Invest Like the Best · Antonio Gracias - Pro-Entropic Investing - [Invest Like the Best, EP. 271] · IDENTIFIED FROM THE TRANSCRIPT · source

  15. “An unrigged frame of cure that actually asks this question Is it prone trip or not? Is it resilient? Is it durable? And we don't invest in it that's not prone trip or resilient. We just don't do it. Almost everything we're doing is resilient or prone tropic. What we are doing is that what you're talking about? Yes, we are scenario testing. We're asking ourselves what's going to happen in the world and if what we can imagine have, but we could not imagine COVID as an example that wasn't in our option set. And I think we got lucky in the sense that the things we thought would be pro-driven recession or bad political environments, whatever, it went in COVID-19. And the question you ask about SpaceX and Starlink versus launch back in 05, we made a first investment in SpaceX, we did not think about Starlink. That's about the executives. That's about the management team. That's about obviously Elon Musk and the rest of the folks there, the engineers there, thinking about the world. And as I said, opening that probability tree when they see it's appropriate to open that probability tree and then narrowing it onto something like execute on because I think it's the right thing to do and it's a good business opportunity but also the right thing to the world, frankly. That's very important. And I should tell you when we think about all this.”

    2022-04-05 · Invest Like the Best · Antonio Gracias - Pro-Entropic Investing - [Invest Like the Best, EP. 271] · IDENTIFIED FROM THE TRANSCRIPT · source

  16. “Regular social connections that we had as kids, the friendships, the family, all this stuff that really supported us and gave us some stability in very uncertain times. This is fractured. And I think it's fractured globally. And you can look at the numbers on the number of kids that had psychological problems. A lot of depression, a lot of anxiety. I think that also is increasing the chaos. What we don't know yet is all these young people that went through COVID and have experienced all these issues. What that will mean when they're 30, 40 and they're on the workforce. I think there's a lot going on in the world that's increasing the amount of chaos we're dealing with.”

    2022-04-05 · Invest Like the Best · Antonio Gracias - Pro-Entropic Investing - [Invest Like the Best, EP. 271] · IDENTIFIED FROM THE TRANSCRIPT · source

  17. “Societies in a way that the returns on social capital are going up a lot and the returns on physical capital going down a lot, which has the dynamic of creating this synchronous barrier. And that's causing social problems. So that also is leading to abortions in society that our creating more chaos. And then I think there are other exogenous problems going on like climate change as an example and just the volatility that people will feel in their environment. I believe we will adapt to it as humans are highly adaptive, but our grandchildren will not be living in a world that looks like this one. And they get to look very different. How different? I don't know. I think technology will adapt so we're still having decent lives. But there are parts of the world in place in the world where it's already fundamentally changed the way people live. And that's quite difficult. And I tell you the last thing I think about is when you have these events, things like COVID, I think that the amount of connection social media, the disconnection of people socializing face to face and having the”

    2022-04-05 · Invest Like the Best · Antonio Gracias - Pro-Entropic Investing - [Invest Like the Best, EP. 271] · IDENTIFIED FROM THE TRANSCRIPT · source

  18. “And then they might start movements or political movements, chaos occurs because more people's decision factors are interacting at higher scale. That's why I think chaos is going up. I think also if you just look historically at human history, I'm not saying we're getting more violent because actually if you look at the numbers, we're not. We're just getting more chaotic. More people on the earth, more interaction, more use of resources, more scrambling resources. The first would be deglobalization. The second would be technological disruption. I've had many friends here at our podcast, and I won't repeat all the stuff that Gavin Baker said. I think he's really brilliant in many things he says. I think you're talking about Carla Perez and this idea at the very beginning of the next industrial revolution, driven by the advantage of the microship is 100%. And these are the two great currents of our time, I believe, deglobalization now and technological disruption. And it's just going to keep happening. And that means that first, the world is going to change a lot. The world we live in today is very different to the world we lived in 25 years ago. It's just amazing how much change has occurred. And I also think that that change is changing.”

    2022-04-05 · Invest Like the Best · Antonio Gracias - Pro-Entropic Investing - [Invest Like the Best, EP. 271] · IDENTIFIED FROM THE TRANSCRIPT · source

  19. “This is an idea that really has been jesting with me for a long, long time by academic background. I went to Swilm Service at Georgetown and studied at the time it was globalization. They watched deglobalization start and realized that human systems tend toward entropy, period. Second law thermodynamics, obviously they're applying that to more physical matter, but even humans, we tend to more chaos. We are thinking together in systems and our decision vectors are interacting. You and I are interacting today, one plus one, and we're having these conversations. The more decision vectors are acting, the more they're acting together, the more chaos they create. And as the world got smaller. So as information got easier to move around the internet, all this stuff happened. I think the decision factors just started interacting a lot more. People thought as an example that social media in the beginning, that things like Facebook would lead to more democracy and social change. They didn't. They actually led to more authoritarianism. And it was almost a surprise, I think, to people in the West that there would be governments using social media to control their population.”

    2022-04-05 · Invest Like the Best · Antonio Gracias - Pro-Entropic Investing - [Invest Like the Best, EP. 271] · IDENTIFIED FROM THE TRANSCRIPT · source

  20. “But they get knocked out of, I'd say, their regular homeostasis by events less than someone who's resilient because they're already predicting it. They've got a probability tree they're running already about what the world's going to look like and their inference is running it so that what's going to look like. They're making decisions about that and they're deciding when to toggle down and close off and when to reopen. It's been really valuable to us.”

    2022-04-05 · Invest Like the Best · Antonio Gracias - Pro-Entropic Investing - [Invest Like the Best, EP. 271] · IDENTIFIED FROM THE TRANSCRIPT · source

  21. “And the way we think about this, and I'll differentiate again of resilience, is that a great pro interpret thinker is someone who is able to keep their probability state, their Bayesian probability state, open on options. So you're running a company, you always want to have optionality in what's going to happen and how you're going to build the company. They're able to keep that probability state open to the appropriate moment and then close it for execution because great managers, great CEOs, great executives are great at strategy and they're great at keeping options that's open. But then when you watch what happens, the moments will be like, nope, we're going to close the probability set and we're going to do that thing. We're choosing one of those paths or maybe two of those paths. We can't have 20 of them all the time. If you have someone who's always open state, they don't get anything done. And you've probably seen that too. We have too many ideas and we don't go anywhere. Executives that are really good at doing both of those things, opening the probability tree and then knowing when to close it and execute really hard and then reopen it. We define that as prone trip thinkers. And they rarely get knocked out of homeostasis. They're resilient too. They're usually really good at recovering.”

    2022-04-05 · Invest Like the Best · Antonio Gracias - Pro-Entropic Investing - [Invest Like the Best, EP. 271] · IDENTIFIED FROM THE TRANSCRIPT · source

  22. “If you're resilient, something's resilient, resilience is great too. We invest in resilient companies as well. But every once in a while, we'll find something that we think is really prone tropic. And that for us is the Holy Corral investing, a company that gets better no matter what, just by virtue of what it's actually doing. Certainly a true space. We have a company called GoPuff in our portfolio, which also actually is, I think, heavily prone tropic. You can, believe it or not, these guys are disrupting 7-Eleven, so it's really convenient stores. Convenience stores do well in recessions. They do well in pandemics. They deliver convenience store stuff does well in almost any environment we can imagine and they did extremely well through COVID. They're still growing very quickly now. We can still grow through a recession. Believe that's the case because usually community stores do. So it's not just the super high tech stuff. It could also be things like OPF where you're providing very valuable service to people no matter what and they need it no matter what. That's how we think about it. And then when we find a company that strategies prototropic, we think about are the managers protropic? Are they people running this company? Are they really good at understanding chaos in the world?”

    2022-04-05 · Invest Like the Best · Antonio Gracias - Pro-Entropic Investing - [Invest Like the Best, EP. 271] · IDENTIFIED FROM THE TRANSCRIPT · source

  23. “Was driven by the idea that deglobalization was changing the world, technological disruptions changing the world, climate change changed the world, politics were changing the world, demographics are changed in the world. So much was changing all at once. And if you think about the second law of the dynamics, it tells us that everything tends to entry anyway, and entropy being chaos, it felt to us that the world was getting more chaotic and we wanted to find things that were good that got better when chaos went up. And one of the reasons we invested so heavily in a company like SpaceX is because whatever we could imagine was happening in the world, this company just got better. And it was actually good for it. And I think how we really think through it is think about all the probabilistic outcome of the world where Bayesian thinkers here, we think a lot about Bayesian probability trees and Bayesian updating. And as you think about all the probabilities that might occur to a company, pandemic, wars, or recession, whatever might happen, how will that company respond if nothing changes? So it's strategy itself. That's how we different.”

    2022-04-05 · Invest Like the Best · Antonio Gracias - Pro-Entropic Investing - [Invest Like the Best, EP. 271] · IDENTIFIED FROM THE TRANSCRIPT · source

  24. “Sure, Patrick, thank you. It's a word of use here internally in our investment framework, and we think about lots of people use the word resilient. And to us, Brazilian things companies are things that recover quickly. So when you talk to neuroscientists about the word resilient, they define it as you come out of homeostasis, something happens to you, the adrenaline goes up, cortisol, whatever, and then you recover quickly, you go back to homeostasis and make a good decision. If you don't recover quickly, then you can't make a good decision. Proanthropic, as you think about a company, if a company is resilient, it means that it recovers quickly when something happens. There's a crisis management's good. They figure out, they figure out what to do. For us prototropic, it really is a company that is good at chaos. So this kind of comes from our trying to understand and learn how to get better at not making mistakes and make grit investments, right? So how do we figure out how to lower our errors and improve our successes? And we started to identify this idea that the world's going to be more chaotic, a lot more chaotic almost 10 years ago now.”

    2022-04-05 · Invest Like the Best · Antonio Gracias - Pro-Entropic Investing - [Invest Like the Best, EP. 271] · IDENTIFIED FROM THE TRANSCRIPT · source