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Sanjay Ayer

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85

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2024-02-05

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2024-02-05

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1. “Let me pick my sports teams more wisely. I was a long suffering Knicks Metz Dolphins fan on the East Coast, and I'm a long-suffering Angels Clippers Chargers fan. But more seriously, it's finding your own voice, Chet. I think when I first joined WCM, I think a lot of young people get in this trap is you hear Paul Black, Mike Trigg, Kurt Wernrich, our founders, tell a story and tell it so persuasively about what WSIM is, what makes us tick, and you try to memorize those words and spit it back in the marketing setting, for instance, and you just get blank faces on the other side because it's not authentic. And so I think you can borrow ideas, but once you develop your own voice on the topic and lean into your journey around it, it changes everything, your disposition changes, your body language becomes much more engaging. Medians transform from a test to a conversation, and you just have more fun doing it. So that's a big lesson.”

   2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

2. “I've had a few people tell me this, and it sounds so simple, but just do exceptional work because someone will eventually notice. I think people short circuit their potential by you just get too caught up in your circumstance. Maybe don't get along with your boss, your colleagues, you're not getting the promotion. You think you deserve the results of demotivation, your work suffers. But I think if you just pour your energy into doing great work, someone will notice and it'll usually be someone you can't anticipate, a customer or partner, someone outside the organization.”

   2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

3. “From our career, and it's something I've carried forward to this day. Always look for solutions. And if you hadn't said those words, maybe I would be a problem admirer today.”

   2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

4. “People you've had on this show before, Ted, my trick Paul Black. Mike, I said this in front of a firm recently. If you really want to grow as a person, find someone in your life who, when you're down, will pick you up. And when you're up, we'll push you, often beyond your comfort zone. I think there's a lot of people out there who'll do one or the other. Exceptionally few people will do both. And Mike's been that for me for 20 plus years. Paul, the leadership style. He is throw you in the deep end, but with a lot of grace and a lot of patience. I'll give you a quick anecdote. I was like 28 at the time putting you to WCM. And I went to Paul. This is a problem admirer of mindset right here. I said, Paul, I don't think we have a research culture here. If I was him, I would have been like, just shoot me out, what do you know about research culture? And instead, he just said three words. He said, go build it. That jolted me into a solutions mindset that was so important.”

   2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

5. “Problem admirers. I think if you can't think of a solution to a problem or at least a pathway to a solution, don't make your identity just constantly griping about the problem. Amplifying drama around it. I feel like a lot of young people especially get trapped in that identity.”

   2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

6. “Like to move a lot, like move houses a lot, and it drives my wife crazy, but I try to explain to her there's a thought process behind it. I do feel like moving slows down time or at least stretches out your perception of time because you find a new neighborhood, you build out into a new home, get ingratiated in a new community. I think it slices life into individual chapters and there's a novelty and memories around that. But if anyone out there is nodding, my wife is not nodding. I can tell you that.”

   2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

7. “I've gotten into this sport called paddle, which is like a tennis squash hybrid. And Mike Church likes to talk a lot of trash. So I got a great devil's partner, so I'm looking forward to taking him down soon.”

   2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

8. “I'm a taker when I see other people doing it. I view them as a giver. I think really leaning into that vulnerability is critical and something we as leaders always try to do and prior to sometimes. But I think if you want to build a high trust team, you got to get all the noise out of the way, the frictions, the insecurities. And I think starting with vulnerabilities, at least I found to be the best starting point.”

   2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

9. “There's so much. Whoever big believer in leading with vulnerability, we did an offsite several years ago where I triggered myself we got up and we just talked about every mistake we made over the last 10 years and that was it was like a 50 point PowerPoint deck and showing about these mental models which is you just look at them like what were we thinking individual stock picks and I think just doing that and having that vulnerability it just gets people the right mindset I'll give you a very live example Ted, we're doing a reflection week now, which I talked about. One of our newer analysts, Dave Hang, he just wrote a beautiful piece about how he struggled with vulnerability because he viewed vulnerability as imposing on others, taking rather than giving and a lot of his identity growing up was being scrappy, self-sufficient, having grit, figuring stuff out on her own. Don't impose. But now he's seen other people show vulnerability and he's viewing that as courageous that makes him want to help them more. So he wrote a really interesting piece how to reconcile that when I'm doing it.”

   2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

10. “Yeah, we're not big planners, Teddy. I think if you ask me the five-year plan, it's 10 year plan, it's all I care about, what are the vibes when I walk into the office in 2035? Are the core values more vivid or are they less vivid? Are we finding people who are flourishing in the platform we've created and pushing the organization brand new ways I can't envision though? That's a good thing. Are we looking back at what we're doing today and cringing a little bit at the way we do things? That's a good thing. That would be my measures of success. I would hate to walk into the room and get any semblance of bureaucracy or groupthink or everything we've tried so hard to insulate ourselves against.”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

11. “Whether it's the fund manager with the corporate, whether it's a manager with an allocator, it doesn't have to be adversarial. It doesn't have to be nitpicking. You don't have to be trying to get point scoring or gotcha moments. You can build a really fun win-win journey with the person on the other side of the table. And I learned a lot of that from Pedro.”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

12. “Learned a lot, and I've tried to increasingly try to aspire to model WCM after what they do. There's another executive at a company called Bajaj Finance in India. His name is Rajiv Jain. Bajaj is probably the most understudied consumer finance company in the world. It's probably what every emerging fintech company should aspire to be. And he uses this quote, like long-term planning is often overrated and counterproductive. We think about that a lot because we're not big strategic planners, five-year vision type, a manager, because we think it can create blinders, right? You miss opportunities right in front of you. But I used to hide from that a little bit because it was that build your plan as you're flying it. And I think seeing a company like Bijaj evolve and just emerge into a Goliath through that mindset kind of gives me your conviction we're on the right path. And then the last one is one of my favorite executives. His name is Pedro Arnt. He's a CEO.”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

13. “There's a few that come to mind a recent one is a portfolio holding called Arch Capital, which CEO's name is Mark Grandison and Arch Capital, by way of backgrounds. It's an insurance company. It just has a phenomenal track record of growing book value and attractive returns on capital with limited volatility. And there are secret sauces, this notion of cycle management. How do you operate with the counter-cyclical mindset in a predictably cyclical industry, taking advantage of human psychology, market psychology? To the point what I learned, the CEO Mark Granson, he used this quote, luck is a residue of design. I think Branch Ricky, it's attributed to him, but it probably predates him, I'm sure. But this notion of design in an organization and a culture, whether it's temperament, messaging, incentives, hiring, which he talked about, it's what investing is. How do you bring a countercyclical mindset to a cyclical industry and marry that as archdeac with an entrepreneurial bent?”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

14. “Here's one we're going to do well. Here's what we're not going to do well. We're pretty transparent about who we are, what our values are, types of markets that will be more difficult. So I think we try not to make false promises. And so I think that is the same way if companies get the shareholders they deserve. I think we try our best to get the right aligned allocators involved.”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

15. “Negatively is easy. This notion of drift. It drives me crazy because I think getting better, it's almost punished. If you have a notion of getting better, learning from mistakes, showing vulnerability, having a growth mindset, the industry writ large will be very quick to ascribe the terms drift, style drift, process drift, thesis drift. It's like, we're going to make mistakes. We have made mistakes. Here's what they are. Wouldn't you rather us learn and get better rather than have our heads in the sand? Just grab the blinders on. I totally get why you're plugging a hole in a portfolio. You want to make sure that the fund plays the role you attended it to, but I think not just being too quick to jump to this notion of drift and understanding that everyone is trying to get better and evolve. And that shouldn't just be reflexibly punished. You should try to perspective take on where you're coming from. I think we do a pretty good job, Ted, of being candid with prospects and allocators about”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

16. “At is Nathan's hot dog eating contest, this guy Kobayashi wins all these contests and what he did is he legitimately reframed the question, put like, how do you eat more hot dogs to how do you make hot dogs easier to eat? We snapped in half, he dips the bun in water. Maybe elegant's not the right word in that sense, but there is a creativity, a creative laziness that he brought to bear, which I think there's something to learn from there.”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

17. “Think one of the things I think a lot about Ted is this notion that I like to use this term internally creative laziness and people hate it because analysts build their identity on grit and self-sufficiency and hard work. And if you're using some laziness, it's instantly rejected. But I like it because I think, again, it's this notion of everyone works hard in this industry. Everyone puts in the hours. And I think people zoom in too quickly and they try to tackle things through brute forest. And what we talked about earlier with that information gathering mindset and not asking before rushing to answer a question ask is this the right question as opposed to doing 10 expert network calls maybe the best insight is coming from a small partner in Scandinavia. That's the person we should fly on the plane and just meet that company because that's going to be the unique insight. I just see in the industry this notion of just tackling things through brute force, not bringing a creative elegance. I use this example which people”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

18. “That's not in common. And that review is the latter is at this point in time a higher return on time. So I think when you think about growth, it doesn't necessarily have to be bad. You have to be mindful of, obviously, the outside view on what scale it is to managers. But I think if you're intentional about it and you do it deliberately and you're self-aware about some of the trade-offs, you could do it in a way that improves the whole.”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

19. “Because there's really good businesses in these industries and there's maybe a notion that the cycles are bottoming. That could be an area to deploy capital. I think where investors would be liable to get tripped up in these industries here is the snapback tends to be less sharp than expected because there's emerging competition from Chinese competitors. And so having a portfolio that invests in emerging markets, having a portfolio that invests in China, I think takes an offensive mindset towards those emerging competitors to the companies you own. And I think you'll be quicker to uncover blind spots and manage risk if there is a potential situation at play that if you didn't have those products, you just wouldn't be on top of. For instance, if I'm looking at Danaher, am I better off or my team return on its timesto reading another case study on Danaher business system or researching a local Chinese competitor?”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

20. “It's a really interesting question because I think growth in this industry has a bad name if you're trying to product proliferation. It's a common concern if you're an allocator. And so we think about a few ways. One, if we're going to build a new product, the first question is, can we do something different? We have no interest in building MeToo products. Can we leverage the WCM platform, those core values I talked about before? The third question and the most challenging one is how do you balance the added resources it'll take to sufficiently do that product well versus the notion that could this product make our existing products better? And I think we have a hypothesis, at least, that the products we've launched like emerging markets, China, International Small Cap, they are making our call it flagship products, for lack of a better term, better. Let me give you an example. Nowadays, a lot of investors are thinking about industries like semiconductor equipment, life science.”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

21. “You think about building a watch list and what you cover versus what you don't cover in the last four or five years, there was a lot of new names coming across our radar in areas like software with a lot of IPOs, areas like semiconductors, areas like fintech, and the spirit of not having blind spots, I think we leaned into that from a research pipeline perspective and wanted to build sufficient coverage around these up-and-coming sectors. And I think just as we build a portfolio, or at least aspire to a portfolio, it's all weather that can do well in different cycles, I think you could take that same mindset into your research pipeline and make sure your pipeline is adequately diversified, that the type of business”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

22. “On the opposite side, there's this notion of taking the intensity and grit to learning, which is about everyday trying to get better. And the challenge with that is twofold. One, as we talked about, you could learn the wrong lesson because of poor feedback quality. But actually the worst possible outcome, in my view, is learning the right lesson at the wrong time. At least in the medium term, you'll end up compounding the mistake you just made and drag out underperformance for many years. And so I think you have to take the feedback, understand, reflect on mistakes, but sometimes there are media changes to be made, and sometimes you want to park those mistakes and make more structural changes that won't yield payoffs for free years. It takes a lot of intentionality to strike that balance.”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

23. “It really dovetails with your last question, Sabah, how do you incorporate feedback? It was a tough backdrop for us as growth investors, just given the pond refising, not having investments in areas like energy was typical from a relative standpoint. But it was a unique environment for us because typically we tend to do well during down markets. And this was an outlier. And yes, there were some macro considerations to explain that. But I also think there were some mistakes we made. And there weren't mistakes in 2022. There were mistakes in 1920, 21, as far as maybe, for instance, how we didn't maybe diversify our research pipeline sufficiently. But again, it gets back to that feedback question because you could take two extremes. You could say like a football cornerback, just next play. Forget about what happened. It's always about the next play. That's the best way to operate. And there's puts and takes to that.”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

24. “When the feedback gets negative, maybe it's teasing up whether there's a defensive component to the new initiative and it's not purely offensive. Ideally, Everest, you have a lot of data points and you can run sophisticated analytics on, but even when you just have a handful of data points, I think you can explore hypotheses around certain patterns and launch some, I guess, R&D projects that for us could prove to be very high return on time.”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

25. “With Netflix and moving into streaming, Jeff Bezos with Prime. Those are often examples that people would point to. But we found for every Bezos or Hastings, there's dozens of examples we've encountered of these setups where a founder can actually run a company off the rails because the idea proved to be flawed. And you can imagine these scenarios where the founder has a track record of being a visionary. As an investor, it's very difficult to distinguish that grit and long-term thinking with stubbornness on a flawed idea. So with this project Everest, we've been able to surface a bunch of these setups and launch a project to see if we can better tease out ex ante if there are common patterns, right? So maybe bench strength is something to dig into. You're not having a bunch of yes men or people can push back if the idea is impact flawed. Maybe it's self-awareness or introspection from the founder to pivot or correspond.”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

26. “For analysts to enter in your entries and eventually do analytics on this data over time. And so really everything we do and all decisions we make, not just buys and sells, but passes, random predictions we make in the office, it's logged in there and tagged with a whole host of custom tags that we've created. It's been a fun initiative and you can already see some of the signs as far as accelerated high signal learning. One example of that would be the setup we often see with founders, CEOs who come out with a major new product or initiative. In the near term, it looks murky. Maybe the uptake from customers has been slower than expected or there's some near-term financial pain because of the new initiative. I think there's often a notion that that's a setup where you want founder CEOs because they have that long-term vision to long-term thinking, willing to look through short-term pain for long-term gain. Read hate.”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

27. “Seem to be getting this type of investment wrong. Let's explore why. And maybe it's an individual mistake. Maybe it's a team mistake. That can bubble up into a conversation. And one major initiative we actually completed recently to address this feedback quality problem in investing is building out a fully-fledged proprietary journaling app that's custom made for investing. And so we belong here at WCM headed journaling culture to help create that raw material for learning, but it was highly scattered, I think Evernote journals, Excel spreadsheets, who know, sticky notes. And we decided if we really wanted to be serious about high quality, high signal feedback, we needed to really step up and centralize this raw material for learning. So we spent a lot of time, a lot of money, building an application we called Project Everest that centralizes all this learning raw material and provides a really easy user interface.”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

28. “Think feedback quality is the biggest challenge in investing. And I think concepts like deliberate practice have become popularized, like how do you get better golf? Just get out there, you take a lot of swings, you course correct, you embed the feedback. The problem in investing is feedback quality is poor, at least for our flavor of investing. You're long term. You're not making that many decisions. It takes a long time to get the feedback multiple years if you're right or wrong. And then there's just a ton of noise and randomness in that time period. If you have any kind of formula around feedback quality, I think investing would score among the poorest of any professions. You have to be mindful of that challenge and make sure you are generating feedback that has high signal, which means generate lots of feedback and then carving out time to reflect on that feedback and looking for patterns. So you don't want to just act on individual mistake because you can actually compound that mistake. But if you see patterns,”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

29. “The level of external awareness tell me about something you admire that a competitor does. That'll jar most companies say they don't want to talk favorably about competitors, whereas a mercadile library would talk about, hey, here's what Alibaba is doing against JD in China, here's what PayPal, maybe the mistakes they made in the US. And so having that external awareness, which I think is critical for adaptability. So each of those pillars we break down and have various questions that we use to tease out how a company will score on those, but we also are constantly iterating on those questions as well”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

30. “They sound simple. Tell me about a mistake you made and what you learned from it. That sounds like a basic interview question, but maybe you wouldn't be shocked how many CEOs struggle to answer that question or talk about some irrelevant small acquisition they made. Whereas we own a company called Mercatal Libre, which you probably know is like the Amazon slush PayPal in Latin America. And what we always loved about them was the level of cancer.”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

31. “In a way that will help that company grow its moat, very different for an industrial company, a railroad versus a tech company like a Google. You could just conceptualize the different behaviors and cultures. That notion of alignment, that notion of adaptability, we found a lot of our best investments have been companies, especially in fluid industries like technology, companies that have been able to adapt and turn potential roadblocks into opportunities and capitalize on new opportunities that come their way. And so we have lots of examples of that. And then cultural strength. We did make a few mistakes where we're just betting on the people at the top and not asking ourselves how deep is that culture, how widely held are those beliefs, so intensely felt are they. Figuring out the right questions is to ask, who to talk to? We feel like this is something we're building on our own. There's no real textbook on how to analyze culture as an outsider. It's been a fun journey and we built out a whole team.”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

32. “It's a journey ted. I was a skeptic on culture when I first joined. I had read the book The Halo Effect before I read Good to Great, and almost everyone who loves culture started with good to great is what drew them in as far as the secret sauce of durable outstanding companies, whereas Halo Effect will say people get the cause and effect, they reverse the causality there. If a company is performing well, people will describe it as having a good culture, but it's the performance dictating the explanation as opposed to the culture driving the performance. So I had a skeptical view and it was only through a lot of learning mistakes, auditing some of my winners and losers over the years that I got to a point where I was drinking the Kool-Aid on culture. And really over the last 15 years, we've just steadily developed a playbook around it, for instance. I think a lot of people think about culture as touchy feel here. Are employees happy? And for us, that's not the question. It's more about alignment. Are employees behavior?”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

33. “And switch from West to a competitor, you have to refile for approval. So it's going to take years of testing and trials, and you're not going to take a chance on a fly-by-night operator in China to save a few cents. So that's one where a similar concept we looked at it, I think, at 15-ish percent margins when we bought it and we said, look, other similar niche industrial companies, if it's a Graeco and Amphanol, et cetera, they have margins in the 20s, sometimes 30s. Similar concept as the one.”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

34. “That we find ourselves owning more and more is what we call niche industrials, and so these are companies that operate in a niche, have a significant market share, but in an industry with limited scale, so it doesn't invite multiple competitors, there tends to be a complicated route to market, could be an engineered engineer sale. And oftentimes there is that climbing the value chain element to them. And niche industrial would make you think they should be industrial companies. But in fact, many healthcare companies. We owned a company called West Pharmaceutical. which a pharmaceutical packaging company. And for us, what it is, effectively, it's a niche industrial. It's a low cost of goods, extremely high cost of failure product, 75 cents for a rubber stopper or plunger that goes into syringe for a drug that costs $1,000 plus a dose. What makes our business model unique is the packaging is part of the product from a regulatory standpoint. So if you want to switch supply.”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

35. “What do similar business models who are more mature? What type of margins do they generate? The Taiwan Semiconductor, CRL in healthcare, and you find they can generate 30 or 40 percent profit margins. So you just take that same set of information and you believe in mean reversion. You're just redefining the mean in a way. So you're fading those margins up. You're feeding the valuation up as opposed to the typical specialist who would take all that information and fade it downwards. So that's how you can through these mode typologies. We have about 12 or 13 of them today. I just see patterns that others might not see through an outside view type framework.”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

36. “And because the industries organized around specialists, that creates an opportunity for significant variant perceptions. There was a Danish company we owned called Christian Hansen, which made the dairy cultures used in the production of yogurt and cheese. The company came public, I think, in twenty ten. It had maybe mid-20% profit margins at a multiple in the 20s. What sell-side analysts should cover it. It's a weird company, right? Bacteria culture. So maybe you covered Dow and DuPont, other chemicals companies. Maybe you covered consumer brands. But whoever you are, this is a one-off company, and you look at it and you're saying that the margins look high relative to history, the valuation looks high, relative to the rest of my coverage list. But through that pattern mapping and developing this outstore service R&D typology, we're just redefining the reference class and saying, forget about what sector it is or industry. It's an outsourced R&D business model.”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

37. “As that history might not repeat itself, but it tends to rhyme. So let's carve out time to do backward-looking work. So case studies, data projects, looking back at large collections of companies and trying to tease out what separated good companies from great companies, from companies that haven't stood the test of time. And when we did enough of those, we started to develop these what we now call mode typologies, which are effectively just pattern mapping onto economic modes. One example would be we've had a lot of success and we found historically a lot of outsourcing companies in various industries that can climb the value chain over time and evolve from low value outsourced manufacturers, which is tend to be how outsourcing companies are born, to high value outsourced R&D partners, they can grow their modes for incredibly long periods of time.”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

38. “Mojectory conceptually is a pretty easy idea to get your head around, right? You think about economic modes, porter five forces, and you just take the second derivative of it instead of looking for bargaining power. Is your bargaining power growing, et cetera? Conceptually, I think even before you get to a framework, we find it very effective because steerers you away from value traps. Just fundamentally asking the question, is this business getting better? which I think improves your cell discipline quite a bit because you don't get stuck in that growth to value whipsaw that can really hurt performance. And then the second thing it does is steers you towards where change and relevance is happening. If the world is changing, mode trajectory just having that second derivative mindset steers you towards where there is positive and negative change happening from the ground up. But then the question is like, how do you tease out mode trajectory? And through the notion of return on time, we had this process.”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

39. “I'd love to turn to how you take some of these concepts and put them into practice. Maybe the best way to do it is to start with the concept of moat trajectories. And as you've created these typologies for what a growing moat looks like, what have you found that's a little different from what someone who thinks about a moat might?”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

40. “It takes time. I think just more interactions is better. Simulate working with them before you work with them. So we like long dialogues over, in some cases, years where we exchange thoughts with a candidate, hey, I'm thinking about this. What do you think about it? So if you could de-risk the simulation process and almost act as if you're working with them in the moment, I think that helps a lot. It's getting better now with things like Substack and journals and social media where you can see how people thought historically. So that helps you perspective taken and how they would act today. There's a lot of thinking about building questions that really get to the core values of do you have first principles thinking? Are you willing to admit mistakes? Are you self-aware? Are you scrappy? Give a solutions mindset. There's no shortcuts and that's why our process is pretty painstaking if you're on the other side of it.”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

41. “Yeah, I think we're wired to change and get better. I think we just have by way of luck maybe initially, but now our hiring process, we hire people who are wired to take advantage of this platform we created where we insulate you from groupthink fixed mindset and self-optimization and we empower you to take advantage of a creative mindset, a growth mindset, and making teammates better. We're very intentional about who we bring in. We think about trajectory over pedigree. We like people who bet on themselves. We just want to plug them into this platform and see what happens. We don't get too defined with career roles. We want people to reinvent their own roles and evolve over time. I think for us, it's about really leaning into this platform we've created, find the best talent, but talent that's wired to really take advantage of the platform as opposed to just individuals operating in silos.”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

42. “Really encouraged when you take that concept into practice, there's a nice warm feel-good concept of, hey, we'll all make mistakes, but we can get better. With you also want to have the best players on the field. And inevitably, you're going to have both of those things happen. I'm curious how you've managed messaging and the culture through the need at times to make change.”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

43. “Do is collectively push the ball forward to get the best possible outcome. So that's been something in the last few years we've really started to highlight more is try to wake up every day and take that team mindset. Perspective take what's in the team's best interest as opposed to just focusing on your own silo.”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

44. “An interesting thought toad with a third unstated core value of the research team that think different get better is make the team better. And all the leaders, we all intrinsically prefer team-based approach. We believe it leads to more durable outcomes, and it just happens to be more fun. And I think what I've found is if you have a culture where people optimize for themselves and their own career path, you really just introduce a bunch of unspoken friction into the process that just bubbles underneath the surface and gets in the way of good judgment. So insecurities, biases, fear, career standing, porn scoring, all this friction and noise, whereas if people are waking up thinking about how can I make the team better, am I truly rooting for my colleague's success? All of a sudden that friction melts away and it ships the mindset from a zero sum one where your views are competitive to almost a win win one views can be additive because all you're trying to”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

45. “To super high exponential growth early on, which investors got excited about, actually seeded the conditions for when eventual counterparty backlash and a negative inflection in that mode trajectory. And you can see there the focus areas for ongoing research would be asking questions to the companies and counterparties as far as how are you managing these relationships? What lessons did you learn from other drug classes like statins or PCSK9 drugs? What lessons have you learned from insulin pricing over the last decade, where there might have been some self-inflicted wounds from mistakes of this kind? So I think the pre mortem has been a really effective process change for us and in fact has surprised us to the upside in several ways.”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

46. “Presumably you were comfortable with those two risks in the course of your write up, whereas a pre-mortem for us would be something like look a generalist investor could get tripped up with these names because they are misapplying lenses from consumer goods or technology where breakout products can benefit from positive feedback loops. In technology you have network effects and consumer goods, you have brand virality in healthcare, especially in pharmaceuticals, through history notice there are negative feedback loops. You have big major counterparties namely managed care companies and regulators who have very different incentives in the drug companies and can act as a limiter to growth. And so our primordem with the obesity drug companies would be at this point that they held a deaf ear to these counterparty relationships and that ultimately short-circuited the durability of the growth curve.”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

47. “And the useful focus things like macro or just generic competition and so on. The pre-mortem we find it especially helpful when our company's firing on all cylinders the story is perceived to be bulletproof. There's a lot of consensus excitement around it because it really forces you to think hard and be creative when thinking about how the story could flip. One example of pre-mortem on an idea or theme that's doing extremely well at the moment is in the obesity drug space. So companies like Nova Norte, Skilai Lily, which have come out with these new seemingly blockbuster drugs where the future looks very bright. And so in the previous world a risk section might look something like I'm worried about competition down the road or unexpected side effects from these drugs emerging. And you see there it's not really specific. It doesn't really guide focus areas for ongoing research.”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

48. “So one significant process tweak we made is replacing our, what was the generic risks section in our write-ups with now what we call a pre-mortem section. And the pre-mortem goes something like this. It's three years from now, so say 2027. And this company's mode trajectory has flipped negative. What happened? And I think the pre-mortem really, getting back to cognitive dissonance, really acts as a forcing function for coming to grips on the front end with cognitive dissonance and owning it at the time as opposed to suffering from it later on if and when the story turns for the worse and i think mitigating risk of confirmation bias down the road significantly enhances cell discipline and it also helps you think through the key focus areas for maintenance research and i draw a big distinction there with what we were seeing in our”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

49. “I think the course correction will always have to be towards RD because I think just definitionally, just given how much you're inundated with newsflow and quotes and just coming into the office every day, it's very hard for me to envision a case where someone's focused too much on R&D and is missing the boat on individual stock pegs. So I think the guardrails, at least to date, are always pointed towards how do you carve out time to think more big picture because the block in tackling tends to take care of itself given you're just confronted with a lot of this news flow and information on a daily basis.”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source

50. “How do you think about the balance of the need, whether it's guardrails or just process of staying on top of what's happening with companies with that more creative or even the R&D concept of how you want to improve your process?”

    2024-02-05 · Capital Allocators · Sanjay Ayer – Think Different and Get Better at WCM (EP.366) · IDENTIFIED FROM THE TRANSCRIPT · source