Mason Morfit & Rob Hale – Quiet Activism at ValueAct (EP.462)

Summary

• Investment Philosophy: ValueAct focuses on being a long-term partner to management, emphasizing collaboration over confrontation, and leveraging a deep understanding of company economics to drive strategic change.
• Behavioral Economics: Mason Morfit's background in behavioral economics influences ValueAct's approach, challenging traditional economic assumptions and focusing on how abundance can lead to strategic missteps in companies.
• Activism Strategy: The firm identifies a white space in public markets activism, aiming to engage with companies as owners rather than adversaries, and focusing on strategic and operational improvements without public confrontations.
• Case Studies: ValueAct's involvement with companies like Microsoft and Nintendo highlights their method of using detailed financial analysis and strategic influence to drive significant business transformations.
• Global Approach: The firm has expanded its successful investment model to Japan, identifying high-quality companies with potential for strategic improvement amidst evolving corporate governance standards.
• Lessons Learned: ValueAct emphasizes the importance of learning from past mistakes, such as the Valiant investment, and adapting strategies to focus on investments with clear strategic alignment and manageable risks.
• Corporate Culture: The firm's internal culture prioritizes collective success over individual achievements, fostering a collaborative environment that enhances risk-taking and long-term investment success.
• Communication and Influence: ValueAct prefers behind-the-scenes influence, building trust and alignment with management teams, and leveraging its extensive network and experience to drive change without public pressure.

Transcript

we don't deserve the credit because there's there's the not just the CEO and the board but usually when we're investing in a company there are a lot of people inside the company who see the exact same opportunity that we see. It's almost never the case maybe never that we have some idea that nobody in the company has ever thought of. there's usually a troop of people who are celebrating when maybe we get the CEO to pay special attention to the idea that they already had. And so those people aren't going to get the credit either. And uh and the reality is that, you know, maybe nobody deserves the credit because it's a really collective exercise. But we tell our story to our own investors. We we don't do much in public. I think after 25 years it's it is an opportunity to kind of tell our story a little bit. [Music] >> Rob Mason, thanks so much for joining me. >> Thanks for having us, Ted. >> Thanks for having us, Ted. >> Mason, why don't we start take me all the way back? I'd love to hear some about your upbringing and how that might have influenced what's happened since. >> I grew up in Asia. My dad worked for the state department for USAD. Actually, I spent three years in New Delhi, India. Then eight years in Jakarta, Indonesia. I went to British schools. My friends were Australians, Brits, um, expats from India. Played on a little league baseball team with all Japanese kids and a Japanese coach who didn't speak English. And I think this background gave me sort of a sociological awareness of of backgrounds and culture. kind of a feeling of a outsider looking in observing. I came back to the US for high school and then went to college and I studied economics but I was really interested in the mathematical modeling of human behavior some of the theory behind some of the things I'd been experiencing. I wrote a paper on Mahatma Gandhi's economic theory which had wildly different assumptions about human behavior than western economics. And unbeknownst to me actually Princeton had hired Danny Conorman out of UC Berkeley in few hundred miles north uh Richard Thaylor was at Harvard doing behavioral economics but that wasn't really a thing. The cannon was that everybody was rational, everybody was greedy, everybody was maximizationoriented, nobody was irrational and had psychological behaviors that didn't fit into this homoeconomic mindset. And I thought that was incorrect. And you know, I think some of that orientation kind of laid the groundwork for the investing that we did. >> I don't know that I'll ever get a chance to ask somebody about the the economic philosophy of Mahatma Gandhi. So figured I might as well ask like what did you learn from that thesis? If you think about the supply demand curves you learned in college which have the presumption that more is always better. Gandhi had a theory that actually people cared about other people and had other motivations than just more more and more. And maybe those curves bent in weird ways that were you know in a third dimension on these on these graphs. And so the aha for me was that as you get larger and more abundance and this we're going to talk about this I think hopefully later behaviors change and a lot of the companies that we invest in are great businesses with cash flow and they experience these symptoms of abundance that we'll hopefully unpack that can sometimes be very productive and sometimes very destructive. But that's a little bit of it, a little bit of the theory. I can send you the paper afterwards. >> So, where did you take that coming out of college? It was sort of those early lessons in behavior and economics. >> So, my first job on the street was at CSFB doing equity research. There was a guy there named Michael Moeson who who wrote really interesting papers that kind of rang my bell in the same way. I mean, he was looking at how ant farms behave and how emergent behaviors work and things and that was pretty cool. but he was a real outlier on the street and I was attracted to what he was doing but very repelled by everything else I saw around me to be honest with you. I spammed this error from long-term capital management blow up to the dotcom bubble burst which was a interesting time to be on the street. One of the biggest equidization booms in the history of the markets. I sat there. I I worked in the in the healthcare group, which was ironically the only group sector that did not work during that period of time because President Clinton balanced the budget and all the healthcare services companies crashed. And so I literally was in a cubicle that was shrinking day by day. They kept cramming more and more people in and people next to me would be in the tech group promoted to these massive offices. And I was in this kind of office space- like dynamic where at one point I couldn't even turn my chair around. And so as the walls were literally closing in on me, I looked around and I saw a system that was built on hero worship. Number one, we used to bring folks like Jeff Skilling of Enron in and have these big town hall meetings and everybody would oo and a about how brilliant he was and next in him would be Hank Greenberg from AIG and then Sandy Wild from Cityroup etc. this system of like putting people up on a pedestal. It was a real quarter by quarter mentality. And in order to play that game, you used people in a kind of transactional way to sort of trick management into giving you breadcrumbs that would let you game the quarter and get kind of an edge and get them get the model done right. So there I was in my in my little backwater of the healthcare group. A lot of these companies should have never been public to begin with because they were former nonprofit organizations that had been turned into public companies and then rolled up. Some of them collapsed quite spectacularly. And on the way down, they started engaging in some, you know, behavior that was aggressive on the accounting front and bad M&A and things like that. And that started to light a little bit of a match in my head on the idea that public companies can do weird things to management teams both on the in the bubble and the euphoria on the way up and the desperation on the way down. I literally published a report on the accounting shenanigans that were going on in the industry which did not make us very popular with the management teams in the group. And right before all the walls completely smooshed me I met this guy named Jeff Ubin who uh was founding value act and had no aum. whatsoever to speak of, but an idea that you could invest on the principle of being a long-term thinking partner to management with a voice, not hero worshipping people, but viewing them as peer-to-peers and partners that you're building something with. And all of that really made perfect sense with me. And so I ejected from the big bank and I went to the startup that had nothing. And that's how it all began. >> Rob, when did you come into the picture? I joined Value Act in 2011. So 11 years in, it's been a very interesting now 14 years partnering with Mason and and helping to build build the firm. >> So what was your path to joining? >> So unlike Mason, I didn't grow up in a very exotic location. I grew up in a suburb outside of Boston. I had a a great childhood, great educational opportunities, so I'm I'm very grateful for that. But my path led me to Dartmouth College as an undergrad. I studied the classics, classical languages specifically. But I knew that there wasn't much that you can do in the world with that field. So during my time in college, during every break I had, I made sure to to work in different fields of business. When I graduated, I decided to take an opportunity to work in the consulting industry at the Parthonon Group um in Boston. It was sort of a group that spun out of Bane and they were very entrepreneurial. They had a great culture of kind of risk sharing with their with their clients and you know they they had formed one investment firm Parthonon Capital. They were trying to expand globally and the pivotal year kind of before joining value act for me was 2008. Parthonon wanted to expand into Asia and they were looking for someone you know a junior member of the team to go and help start to create the culture for that office. I jumped at it. I'd never been to Asia before, but it seemed like a pretty interesting adventure. So, I was there for six months. And the project I worked on took me all over Asia, not just India, but the Middle East, China, Southeast Asia, Hong Kong. Never brought me to Japan. But I did learn kind of how different business cultures, how to navigate different business cultures at a pretty early point. in my career. And the second reason 2008 was pivotal for me was you know the financial crisis happened as we all know and it kind of put capital markets front and center for me and you know I become fascinated with the markets and also fascinated with you know the stories of some of the investors who had who had predicted the financial crisis and they' done it through security analysis. it just clicked for me that this is something that I'd you know really like to do. I could take the business kind of analysis learn through consulting and apply it to the market. So when I got back from India, Parthonon had started another investment vehicle that was focused on public equities and I made a good connection with the portfolio manager of that of that fund asked me to become a full-time analyst. So we did interesting work but the thing that was missing was that we would do great work kind of generating insights. We could have a dialogue with the IR team of of a company but we were not in a position to influence management and there were times when I felt like we would see things see opportunities for a company that weren't being captured and and we weren't in a position to to help them. So by 2010 I was really focused on this idea of you know working in an investment firm where you could actually partner with management influence management and I happened to be at one of these investor conferences in New York and I happened to be in a meeting with Jeff Ubin and one of our partners at Value Act, Jake Welch, who were meeting with a company CEO in the the defense industry. And it was like a revelation for me. I mean, the conversation that they were having about, you know, it was not about the next quarter. It wasn't about kind of even analyzing the history. It was like pulling the CEO out of the quarterly earnings game and asking the key questions of, you know, what is going to double or triple the value of the of the company over three to five years. And as soon as I got out of that meeting, I was thought, you know, I have to see if I can join these guys. So just serendipity, Value Act happened to be looking for someone with a consulting background. Mason was actually leading leading that search for someone and um you know, I got into the process and I guess managed to managed to get the job. So in that period of time sort of before Rob joined and Mason the whole way through other than this very different way that you both described of of conversing with management teams what was the overlying strategy of value act from the beginning there was a view that there was a great white space between venture investors have board seats and and engagement and and great voices into their companies and their leaders. Private equity firms control their companies and have total control over the governance. And then in the public markets, there had been a legal structure of votes and accountability, but one that wasn't very welldeveloped. And in fact, in in the 1990s, there was very little proxy fight, shareholder activism, etc. And we thought this is a white space. people should who who own the public securities should be adopting the not just the mentality of of an owner but actually the role of an owner and having that kind of engagement with with the companies. Now that was a pipe dream at the moment that the firm was formed because that is not how the world worked. CEOs were not to be questioned right in the 1990s they were larger than life. If you remember what business week looked like in those days it it was you know almost like a tabloid. It was just it just wasn't the way that the relationships were oriented in that at that time. A couple things really set the firm up for success. One was that there was a big mess left over from the 90s. This all this massive equitization. We went up to 8,000 public companies, many of whom did not have strategic focus or operational excellence. Industries were fragmented. All balance sheets were were very uh cash heavy and not efficient. And then a funny thing happened in 2002. There was a wave of corporate scandals. Enron, WorldCom, Adelfia, etc., which was followed up by a wave of regulations. Sarbain Oxley being the most notable at that point in time. But that wave kept coming like uh after the great financial crisis, the convergence of an opportunity set for what we the kind of problems we thought we could work really well on with a regulatory regime that forced an attitude change of uh corporate boards and how they operated, created this opening for this strategy to really really work. And we did it uh we weren't alone but we did it very differently. We did it with very little publicity very much sharing credit with an attitude of of teamwork and partnership not confrontation litigation intimidation press threats fear etc. One of the other sort of slipping on a banana peel and ending up landing in a pile of money as as that's one of our LPs used to describe it uh was we had invested in Martha Stewart's company during the crisis of we got her to sell the only shares she'd ever sold in our company $60 million to us because we told her how scary it was to see all these scandals and shortly thereafter she went out insider traded to security and ended up going to prison and Jeff our founder became chairman of the board of that company. Now, all of a sudden, Little Valueback that was not a well-known entity at all had a chairmanship at one of the most, you know, important governance crises in the in the markets and we got to go to work on these issues of strategic focus, operational excellence. It's uh paradmatic of the that time that Martha had a big e-commerce site that they were building out. You know, I mean, I I characterize it by saying Martha was trying to go headto-head with Amazon, but that's sort of directionally what was was going on, burning, you know, $40 million of Evida when clearly a much better strategy would have been to fall back to a licensing strategy like to Kmart and other places that she um were in the works. And so uh getting focused, getting operationally excellent, steering through crises and we proved our metal I think in that through that crisis and embarked upon building competitive advantage through relationships and life experiences because these things compound and snowball. I often say if you're going to go through life litigating and intimidating and you know threatening people, you're going to burn a lot of bridges. But if you go through life building things with others, you're going to build up an army of people that will help you in the future. And I think there's only three ways to win in equity investing. One is you have better information or faster information and computer programs and fiber optic cables that you tunnel through railway lines and stuff and we we don't do that. The second way is you understand the world better. And I think you no one is smart enough to figure it out on their own. You need a team. You need a team internally and then if you can augment it externally and by now 25 years in over a 100 investments over 50 board seats we have this army of people that we think are are really good friends of the firm adviserss LPs with us and then the third way to create returns is to influence the future and that is is also a significant part of what we do change how the course of history is going to flow and so that was what we were doing in the in the early 20s 2020 early 2000s uh and and these thunder collapse of like the scandals and then the bursting of the of the dot bubble set us up to go on a run and and Rob joined sort of midway through that first chapter of the firm. So over the last 25 years, there have been several waves of activism being very popular, then falling out of favor, being popular again. Would love to hear your views of activism broadly, having noted that you do go about it differently and more quietly than most others. >> There's two ways to look at it. One is from an investing standpoint, and the other is from an engagement standpoint. And if we think about how we think about value creation in the public markets, you know, there's two sources of alpha. There's making a great investment in a company that's going to outperform over time because they have mega trends behind them because they have very strong unit economics because they've got competitive protection and then that business can compound in value over time. The second is to engage with the company to and to improve its chances of success to improve its capital allocation to improve its strategic focus its operational execution. So you know there are a lot of investors who are great in the first category and there are also a lot of practitioners of this activist investing who focus on the second you know operational improvement. And I think what's allowed value act to stand out over 25 years is that we've tried to be excellent in both categories. We put the quality of the business first in our in our filter. Not the valuation, not the degree of underperformance, but the potential of the of the business to grow, to add value to its ecosystem, to add shareholder value over time. And I think that that, you know, part of the reason that activist investing has had its cycles and not every activist investor has sort of survived those cycle because a lot of a lot of practitioners of the industry have been excellent campaigners, great users of the media, but not necessarily great investors. And I think Jeff and Mason from the very beginning put investing excellence first and foremost in our firm ethos. >> Mason, I'd love to hear what's been similar and what's changed in your approach over this quarter century. >> The through line that Rob just touched on has been so consistent, which is looking for high quality companies. And we define those as ones that have high returns on capital, great incremental margins because they've got big moes and they've got either intellectual property or network effects. And I think a lot of value investors could recite those mantras. But I think what we've become experts in is understanding how those go bad. Because if you have a really really amazing cash flow engine, it can tolerate really poor decision-m, poor talent. You can you can you tend to see companies say yes to a lot of things because why not to diversify into a lot of peripheral activities that don't benefit the core to not run their businesses very tightly from a cost structure standpoint to build up excess cash on the balance sheet and to eventually sort of lose their corporate identity because they've spread themselves too thin. And so the vernacular we have inside a value act is these are the diseases of abundance. Kind of like having eating too much food and drinking too much wine can lead to a disease of abundance. So can having too much cash cash flow. And it can be further supercharged when the capital markets get all exuberant about this and and jack you up with very cheap equity and debt. And so I'm reminded of this Ronald Reagan quote about looking at the big pile of horse manure and saying somewhere there's a pony in there, right? It's like when usually by the time we we're engaging with a company, it's lost its credibility or way because of this this abundance that's led them into so many different directions and and and sort of getting them back focused on what matters. Getting focused and fit and then and then driving for excellence in their in their core business is a pattern that's recurred. One way to think about it is if you're if you're a steel company or an airliner and you're in some commodity industry and you misallocate capital for 10 years, you go bankrupt. Someone takes you over. If you're Microsoft, if you're Adobe, if you have a very very strong franchise and you don't necessarily operate to potential for 10 years, you have a you have a flat share price. You have some upset upset investors. you maybe have some upwelling for for change, but but there's a lot of there's a lot of tolerance in a great great business for lack of focus. So, I think we've you know to your question of like kind of what's changed over 25 years, I think we've always tried to have the conversations with management that the board should be h we think the board should be having. when we go into a a CEO meeting, I I think to myself, if I were a board member of this company, and sometimes we are, what would I be asking, you know, to the CEO to talk about what's going to double or triple the value of the company in in the next period of time? This idea of feeling like you need to help make a change paired with doing it quietly. How does that play out in the companies you're involved? we believe is that actually everybody wants to get fit and that's a different mindset that we have compared to you know some others who are more cynical who who see and focus on kind of the conflicts of interest and you know question motives. I mean, we we honestly think that every management team wants to do well, every board member wants to do well. And as a result of of that orientation, I think, you know, it it leads us to have conversations about issues at a company in a generous way. I mean, yes, we we want the company that we're investing in to achieve its potential, but getting there is often quite hard. big, you know, tough decisions need to be made about strategy. You know, CEOs need have been saying yes to a lot of things. Sometimes need to start saying no to a lot of things. You know, sometimes there are carveouts or restructurings. These things are quite difficult. So, we try to approach those conversations in a empathetic way. And I think I say empathetic because we've actually worked on these these issues over 25 years ourselves at at different companies and and situations. So we can say here's how we've worked with a company on the same problem in another situation generally also inspires trust on the other side. >> We invested in Microsoft in 2013. The headlines at that time were lost decade. you know that that this the ticker should stand for missed search phone and tablet. It was not a well-liked company at all. It had been traumatized by antitrust investigations a decade or so prior and then it was facing an existential threat from two things. The mobile phone which had been and smartphone that had been pushed forward by Apple and cloud computing which AWS had had pioneered. And so the PC legacy of the company was not what was going to take it forward and the stock was trading at about eight times earnings. I went to a just a normal investor relations road show where the office team present just the office team and they were talking about this thing called office 365 which was to take office to the cloud. And I came back and I did some math on a spreadsheet and I was like oh my gosh one thing that's happening is that office is decoupling from the window cycle. They used to be sold Windows license plus. You'd buy a PC with Windows and Office on it. They'd be completely co coincident. You could see it starting to to separate. And the second thing was Office alone, if this thing works, is worth more than the entire company. So what about all the other pieces of the empire? Where where is all all the money going? Weororked our way to the board. Weorked our way to the company. We made a very large position on this. not with a prescription from the outside about why what they were doing was so stupid and why we were so smart because we didn't actually know the answers to them. We didn't yet know what to do with Bing or what to do with Xbox or what to do, you know, and the vote of confidence that we that we made they liked and that opened them up some more. But we we applied um a tool that we had refined by that point in time called the shadow P&L which was financials are reported out as a function of the bureaucracy of the company not necessarily as a function of the real economics of the business. So the segment disclosures you're getting are not necessarily the true economic picture, but if you're a good securities analyst, you can deduce what the true economic picture is. You can interview people and figure out where allocations are going in terms of cost. You can understand in a way that is complimentary to existing reporting and complimentary to management because they are looking at what the bureaucracy is reporting up to them. They don't necessarily have this or orthogonal look at stuff and and it is estimations and gueststimations and swag math on a spreadsheet but it time and again proves to be really really insightful. And so I want to try to connect one idea I talked about earlier which is that public company get pushed around by the public markets. Their strategy tends to drift in reaction to what's hot, right? And so Martha was going after e-commerce because it was hot. Microsoft went after phones because Apple was so hot and so was Google. They went after Bing because that was hot. And so they poured tons of money into these initiatives that were not accurately tracked by the existing financial reporting systems of Microsoft. But you could triangulate them from the outside. And so when Satcha took over as CEO and I joined that board, we started presenting these outside in orthogonal looks at at the business. And we could deduce that there was massive amounts of costs and losses being poured into these hardware initiatives and to the tune of four or five six billion dollars a year that might be better spent driving office 365 and Azure instead of trying to chase the iPhone or chase the Google search dream. And so just sitting by looking looking over these this analysis and and talking it through privately right and reaching decisions about where we're going to allocate capital and energy and where the identity of the company's going to shift happened kind of in that way right step by step by-step analyt meetings and eventually we wrapped around another skill or or tool in our toolbox which was executive compensation. So once you've heard what's going on through this deductive reasoning and shadow P&L organization and once you shift the strategy and once you have the right people running the company, how do you then tie compensation to it so that it reinforces everything you're saying and shifts these organizations that in that case had 100,000 people you had to get on board with something brand new. I looked back at the Microsoft proxy this year and I was really pleased to see that the basic architecture of what we designed over a decade ago is still in place. It's kind of cool to have been part of how this enormous important company reoriented itself and that's how this works. Rob did something similar to MSEI. I could bore you guys to death with example after example of applying these methods to kind of make it a us project. Us and the management team and the board working together to get to truth and get to excellence, not you know bullying or shaming or you know lecturing from the outside. >> What are some of the other tools that you've adapted over the years that you bring to the companies you invest in? >> I think about them almost like pieces of a jigsaw puzzle that all click together and reinforce each other. Number one is strategy. Are we doing the right stuff? Are we playing in the right markets? Are we doing you know we focus on the right things? Then it's like are we how do we tracking that progress that that we we call that either dashboarding or building a better board book or or KPIs so that we we really see true economics. Then it's executive compensation which is how do you tie outcomes to that? There's CEO succession and talent management which is do you have the the right people to execute that strategy? Do the people match the strategy? Are they tracked with the right dashboards? Are they paid in the right way? And then you've got corporate identity/investor relations, which is are we telling the world who we are in a way that will attract the right investor base, an investor base that will be patient for what we are trying to get to because it might take us, if you're in the case of Adobe, three years to convert from a license to a subscription model. And we want investors that get it and are along for the ride and are not trying to guess the quarter. Those are the the basic building blocks of how we think we can help reorient a a company recover from some of these diseases of abundance and inoculate itself against some of these temptations and and weird things that public markets can do by creating alignment with public markets for a mission that's usually 3 to 5 years. among those criteria when you mentioned getting the right CEO in place for the succession or just having the right team in place how do you figure out everyone's trying to figure out getting the right people what does that mean and how have you figured out if someone in the seat is the right person to bring it forward our orientation is to try to work with great management teams from the outset so we're we're going in as part of our evaluation of a situation we're We're hoping to to prove out that the existing team has a high level of of capabilities, but we get involved with companies for you know long periods of time. You know we say 3 to 5 years is our is our typical investment cycle. In some cases it's you know 5 10 even longer and succession CEO succession sometimes during during that investment cycle is is relevant. There have been 27 cases where we've been involved in in CEO succession. The approach we take, we try to be quite quite deliberate about it. We start with the strategy as Mason said and we create a scorecard of success. What does the company need to achieve to reach its potential over the next 3 to 5 years? be very specific about what the, you know, one to five key things are that the CEO needs to lead the company to achieve. And then when looking at internal candidates, external candidates, we're assessing, you know, have they accomplished similar things in their roles in the past? It's about track record and obviously ethics are extremely important. Creating a performance culture is extremely important. In each company's unique situation, there's usually a few key value drivers and we're super focused on finding the CEO who we think is best able to achieve those objectives. And to put a finer point in that well, Rob, think about a public company, right? Unlike a private company where the investors have a very specific investment thesis, we're doing this and know what they're looking for. A public company is sort of an evergreen institution and the board members generally don't have an investment thesis, right? And many actually almost all the time they're chosen from outside that company's industry. So they have great life stories and and super impressive people and a great business judgment, but they don't know the industry and they don't necessarily have a point of view about what they're looking for. And what we observed over these many years was that oftentimes this search degenerated into adjectivebased conversations. So we want a leader, we want a communicator, we want a technologist, we want an operator, we want and those are important criteria but they don't specify to do what right and so I think where we have found the most fruitful working relationship is where we can marry that judgment and network and wisdom of all these people with a specity of me mission that we can provide and then some of the deep diligence on backgrounds of candidates matching them to these missions you end up getting to a good outcome because it it is also hard for public companies in high-profile searches to really do deep deep background without the help of a firm like ours that has expert networks and and methods we can do to kind of unpack a candidate's history very deeply and then do the kind of financial deductive work that I talked about in setting up these shadow P&Ls is also relevant for these CEO successions and so like we really love the synergies that come with what we bring to the with public company boards because together it's a pretty powerful combination and everybody's stronger together. >> As you're doing research of something you might be interested in investing in, there sort of notoriously less information than say it was a private equity type company and you're behind the wall. What does that process look like before you get involved in a company? Mason has many many strengths and geniuses, but the thing that first struck me about Mason's abilities as an investor was I, you know, my my first investor relations call when I was an analyst and Mason was partner leading the call was how quickly he got from the the reported financials to the actual cost structure and the actual unit economics. It's segment by segment. What's the what's the pricing model? What's the mix of customers? You know, the fixed and variable cost specifically, you know, where where are factories located? Where are people located? That sort of kind of analysis of let's just ignore what you see in the 10K. Let's just build up zero base. What does this business cost structure look like? That is by far, I think, the most important exercise that we do early in our due diligence process. And there's lots of different examples that bring it to life. Mason mentioned, you know, the Office 365 example where you could just say, okay, this is the number of users. Here's what the annual, you know, uh, subscription could be. Where could that go over time? What's the direct cost against that? And you could create a profit pool. But we do that in every single case. And that's usually just you know primarily with the company management and the IR team itself as a first step and then we're validating it with people in our network who work in the industry. The second key thing is kind of the evaluation of the people, the board, the management, the strategy. Because as I mentioned, we're trying to find situations where, you know, yes, there are opportunities to improve. There's something that the market doesn't see. We always want to have a different view from the market, but we're looking for opportunities where, you know, management gets it in our conversations. They are getting positive energy o over the interaction around strategy and what they could do to drive the value of their company and we're assessing that directly and indirectly through our background checks and and in the network and those are the key things. It's a long process. We do a lot of lot of first calls, you know, fewer second calls and we're trying to make two to four investments a year. So typically the cycle is is at least 6 months before we're really sure that we have a good investment opportunity. >> How do you get the sense in advance if a management team is likely to engage with you on your vision of what could change at the business to improve it? We try to do it in a kind of Socratic way, meaning we're asking questions and then they're responding and then we're getting to a shared understanding. So when we do analysis on a business lines potential, we're going to put that in front of the management team and get a reaction. And in that reaction, we're either figuring out are we right or wrong, which is really important. And also, if we're on to something, how does management respond? Are they defensive or are they nodding and saying, "Yeah, that this is this is right." It's an interesting way of looking at it. But it's important that what we don't do is we don't show up with a fully baked investment thesis after 6 months and a big stack of PowerPoint presentations and memos and say, "Here's here's your strategy." uh because we actually think that the best thing is for the company to lead the discussion of strategy publicly and to they have to execute the strategy. So it's much better to kind of get there in a back and forth iterative way and then they're in a position to go out and and make it happen. >> Yeah. If you approach the the problem with like you're you're here to build something great, not take somebody down, it goes goes a long way. And you also can't overemphasize the value of 25 years of life experiences and insights that that brings because we just have I think a different conversation than others are having with them. You know, just when we're talking to the Salesforce guys about how to create packaging and bundling solutions for their products, we were there when Office 365 was being put together and how did E1 bundle versus E2 versus E3 work? And that's something the Salesforce people are interested in. how how might that translate to them? I was on the board of a medtech company called CRBard that had one of the highest margins in the industry and was quite early in developing the China market and I went and went around Beijing with the CEO in 2011 and met PLA officers and saw their army hospitals and understood how that channel worked and then back to the US and how did the sales forces um how many reps did they have what were their quotas how did this all work and so when we go meet the next medtec company that's trying to do a global expansion and has, you know, under earning operating margins. Rob was shoulderto-shoulder with me on that investment and can apply that to medtec companies in Japan or in the US. It's just I mean I could sorry to be sort of pedantic about all these things, but there's really no substitute for being kind of inside the belly of the beast working with people for a long long period of time to get these little nuggets. I mean, investing is about connecting dots, saying, "Wow, that connects to this, and if this could be like that, what we're seeing in these in these numbers could be radically different." And it's a creative act, and it's it's sort of a intuitive act, and it's a relationship act, but it's also sort of just experience and and knowledge lights all that stuff up. As you own a portfolio company over several years and things start to happen in how you had hoped and the company starts to make changes, improve the quality of the business, how do you think about ultimately selling or exiting the investment? You know, you're you're picking a scab there, Ted, because we've we've you know, as as many of our LPs remind us, we sold a little too early on a couple of these things, including Microsoft and and MSCI. So, it's something as a organization that like to learn and improve constantly. We've given a lot of thought to this idea. There are some investments where there's a discrete 3 to 5 year strategic planning cycle under which the company can execute a plan, right? And then and then it's going to mean revert I think to the average equity return. There are other businesses that I the best term I can come up with is they win by winning which is the more they win the more they the more horizons open the more adjacencies the more second order business models the more bolt-ons the more bundles the more and so we did this extremely well with CBRE from 2011 till about 2023 for about 12 years we were significant part of building the biggest real estate company in the world and one of our partners was chairman of the board of that company and That's kind of a lighthouse example of a place where the the stronger the network got, the more services it could offer, the more global reach, the more sticky and and more and as importantly, the more important the mothership became versus all the individual brokers and as a human capital franchise, if you can be the place where the best people want to work because you get the best clients and the best clients want to work because you have the best people, now you've created something really cool. So we have evolved our thinking on that to be more sensitive to to this this building compounders but we again draw on this history which ones work and which ones don't in this in this framework right because not not everything can can kind of go for decades but some can and we've been a part of I think a unusually large um number of those. What are other examples of the knowledge, you could call it compounding knowledge that you gained from one investment or led to another? >> There are countless examples. I mean, we're always talking internally and externally about the through lines between different investments. There's a whole host of investments that are about the transition from analog to digital as an example. And you could put Microsoft in that category. You know, selling physical Windows, physical PCs with with um Windows and Office licenses. You could put Adobe in that category selling creative suite as shrink wrap software to you know on a CDROM transitioning to subscription. You know, Xbox was our first exposure to the video game uh industry and that went from being a very difficult industry for with lots of boom bust cycles, huge inventories required to distribute the software to you know a much higher quality business because of digital distribution and subscription. And probably the place we applied that insight the most. Again, in the analog to digital example was at Nintendo. You know, historically very closed off Japanese company with we, you know, we saw the best IP library in the video game industry. And because of a a variety of different factors, they were behind the times in terms of adopting digital distribution, subscriptions, in-game monetization, and you know, we really called on a lot of the things that we learned at at Microsoft, you know, with the Xbox team to develop insights on Nintendo and to try to provide some insights to them on on what the potential would be for their business if they could go from selling 20% of their games through their own eShop to 60 or 70% like Microsoft or PlayStation as an example if they could go from a small percentage of their customers on the Nintendo Switch subscription to the majority of their customers like their competitors. So analog to digital is one one really big category. It's a little esoteric, but it relates to a few years later we built a big position in Roblox because we understood the direction of travel of the video game industry was to massive multiplayer userenerated communications and social dynamics into it. And so while Nintendo has closed the gaps and will forever have the best IP in the whole industry, they were lagging in these things. So I can just connect learnings from Microsoft to Nintendo to Roblox. But there are analogous lessons about from the Roblox match matching systems and algorithms and how they've used AI to pair you with something that some creator has made is super relevant for Disney thinking about how to match viewers to to uh a TV show or from Meta for an advertiser to an to an eyeball or for Expedia from a hotel room to a to a traveler. These online massive matchmaking business models that have a take rate based upon pairing you up with something that you're really going to love are undergoing a very significant technical revolution and have been for the last several years. It's really hard to to overstate how connected all these issues are and what we learned from going deep in in these companies and how it opens up new sourcing for us and new conversations with people and then new insights that I think are unique. As you go through just that last list of companies, there are some where as an outsider you might think, yeah, you can get in there and have an influence. And there's another say like a meta, you say, well, are you really going to be influential in the boardroom or talking to the executives? How have you thought about the importance of the degree to which you want to be influential in your investments? >> The rank ordering is always investment first, influence second, right? And and I think if you flip those, you're going to end up with mediocre investment returns. So the the number one thing is great company that we have a vision for and a unique insight into that we think is differentiated from the street that we can hold for a long period of time. And then secondarily, do we need to have a voice in it? And I think that it really does need to be belabored because I think where I have seen companies go off the rails is when they flip that, right? and they go look in, you know, ambulance chasing looking for a problem that needs to be fixed. You're going to have some serious adverse elections if you put the number two in front of number one. >> In terms of influence, we we because we don't think in terms of shareholder voting first and foremost or or shareholder rights first and foremost or how successful could we be in a proxy contest. our entire history, we've only had two proxy contests, over 125 investments, 55 board seats, only two two proxy contests. So, because that's not how we think, we think that the way that you kind of persuade people and you get influence is through good ideas and good relationships. It's not a problem for us if there's a founder who controls the company. If we think that we can achieve alignment with them, if we think we can, you know, in an adverse situation, talk to people that we know on the board that we have a relationship with. So, we've had actually a lot of lot of successful investments that were companies that were completely or almost completely controlled. KKR is one example. We had great relationships. 21st Century Fox is another example. Spotify another example. >> We've got to be the only act quote unquote activist investors that have a body of working controlled companies. Yeah, it's a long list. >> In the two situations where you were involved in a proxy, there's always this question of how deep do you want to get versus just exiting because you have the liquidity option in the public markets. What was the story behind why you would get into a proxy contest when that's not your normal playbook? >> The first one was in 2006 and as we we you know laid out the history of the firm we founded in 2000 2002 2003 the world changes with these scandals. It was our opinion that in that scenario, the corporate behavior was so egregious that we had to take a stand on principle for the for the shareholders that it just wasn't we couldn't let it stand. And there was a lot of stuff in there that's in the public record. I don't need to restate it. But it probably sharpened our in our ability to intuitit situations that are going to be intractable and has led us for most of the rest of the firm's history to avoid situations like that where we're going to get into loggerheads. So that was 2006 and that brings us to probably what 2022. >> The second one was in Japan and actually was the um the largest ever proxy contest in Japan. a company called uh 7 and I Holdings. Very similarly to what Mason described in the situation at Axiom in 2006, we thought that the corporate behavior was was so misaligned with the general shareholders that we that a we it was the right thing to do and b that we would make a better return for on our investment if we pursued that proxy contest. And you know we we I think we have three major constituencies outside the firm. You know we have the the the people in the walls of the firm who are who are very important but outside of the firm we have our investors number one who trust us and they're really really important. And then we have two constituencies that I would sort of put on equal footing. The boards and the corporate management community and the institutional shareholder community. Our relationships with both are are very important. We need to have credibility to influence management and we also need to have credibility with other shareholders who you know in some cases can be advocates for us or can get aligned on on a strategy that that makes sense for for the company and and can be influential as well. And in I think you know when are we going to do a proxy contest in the future? I hope it's never, but if it if it does ever happen again, it will be because we're so convinced that, you know, we're going to make a great return. We know that a lot of other investors are that support us are on the same page and we think the situation is sort of so egregious that we can easily explain it to the corporate community and our reputation will be intact. And that has um that has proved to be the case in both of those situations. >> You described two quite different investments in Japan. Nintendo which was pulling the same thread and then 7 and I which turned into this proxy contest. How have you thought about the aspects of the playbook that you've applied so well in the US now being much more involved in Japan? >> We've been looking at Japanese companies for since 2013. So, it's been a long time of looking at companies and and engaging with them. We've seen a lot of change during that period of time. We made our first investment in Japan in 2017. What attracted us was that there are so many great companies. I mean, just to give you a statistic, if you look at the companies in the world with over 40% gross margins, 40% gross margin is kind of our proxy for pricing power, business quality. The number one market is the US with about a thousand companies with over a billion market cap and above 40% gross margins. The number two market is Japan with 250. After that, you get to numbers around 50 to 100 in countries in in Europe. So a lot of people talk about Japan and they talk about the valuation, the low price to book. We talk about the quality of the businesses. There are lots of great companies there. The issue was that there was really not a shareholder oriented corporate governance system. And so we talked about the diseases of abundance. Great companies have lots of opportunities to say yes. They get distracted and unfocused. In Japan under their corporate governance system prior to you know 201 1213 when the corporate governance reform kicked off disease of abundance was everywhere and there was no really corrective mechanisms in the public markets but that all started to change in in 201213 Abbe came to power he emphasized corporate governance reform and there's really been a big generational shift in Japan of corporate leaders who looked at you a period of kind of economic malaise and and um market market malaise and want to improve things, improve productivity of their companies, improve the productivity of of the economy. That generational change happened at the same time as the corporate governance reform. So by 2017, we thought there are great companies. Let's see if our model can be successful. And we received a lot of advice about ways that we we should try to adapt our model to be successful in Japan. Mason and I thought we should see if our approach with as little change as possible can be can be successful. So we started with one investment in a company called Olympus. Olympus was a perceived as sort of a multi-industry holding company. They had a camera business that was quite well known publicly. that that cam that business had been really challenged by smartphone cameras and so what was left was an incredible medical device franchise in GI endoscopes. We thought that they could build a strategy around that business and we were able to sync up with a management team that saw the same opportunity. But what we didn't do was try to try to change the way that we would approach the engagement. So we, you know, there's no special category of competition for Japanese companies or European companies or American companies. We're really in a globally competitive world. And the approach that we've taken for, you know, Olympus and then every investment since then, including Nintendo, including 7 and I is to try to have, you know, very high standards for competitive success for the companies. And at this point, we've invested over $7 billion in into Japan since 2017. You know, 12 12 publicly disclosed investments, many others that, you know, h haven't actually seen the light of day. But we find consistently that there are management teams that want to uplevel their performance and and they care about their share price and they are trying to create value for stakeholders. What are some of the differences that you found in your engagements in Japan? >> Someone said early on that in the Japanese languages there's six different ways to say yes and five of them actually mean no. And I think that's to some extent it's exaggeration. Decoding the communications has been the biggest challenge. I think our our approach just naturally to be polite, humble, empathetic, but direct has worked well in general getting uh getting through that whatever you know differences in communication there could be. We have a great team including people who who are Japanese natives who have obviously upped our our game in that regard. I think one thing that we've learned to focus on is when you hear yes, you always have to ask when yes when. Because yes can mean yes can mean yes but in 10 years after I've I've retired and you want to make sure that that's not the source of the misunderstanding. That is always a source of tension I think in in our investing is we we like to have a high sense of urgency. We acknowledge these things are difficult but you know if you're if you're not in in full strategic alignment with where you need to go you know the best time to get there is tomorrow. So I think that's the central challenge is kind of aligning on the direction and then aligning on the time time frame and how to get there with the depth of engagement concentrated portfolios you run. I'd love to ask you about mistakes, times. I know there was certainly Valiant back in the day and I'm sure others where something happened that didn't go as you thought it might. >> Yeah, we could do a whole separate podcast on mistakes because we we do ruminate on them a lot and we try to learn from from all of them and and they span issues of portfolio concentration. I think we we manage the portfolio slightly differently under my management than under Jeff's. We are more discerning about the types of problems that are really perfect for our kind of engagement. It's easy to get a company to shift its allocations away from making Windows phones to focusing on Office 365 than the one we took on at Rolls-Royce, which was how do we engineer your engines to be have a lower cost of goods than what they currently have and try to get them to G's standard of excellence with a a workforce in the UK. It also didn't help that one of their engines was recalled by the FAA and then COVID hit and grounded all the fleet in the world. So, but I think fundamentally that was a biting off more than we could chew type type problem. And so we've just when we make mistakes, we we sort of refine what are we good at, what are we not good at, what can we learn from this. >> In investing, you're going to get some things wrong. making sure that you size the things that you get right versus wrong is is really important to your overall results. Another is to just be let the team be really explicit about what could go wrong. I mean, we have this idea of the value act thesis. What's our point of view? What is the market's point of view? We want to think that we're, you know, going to buy at a discount if that will, you know, drive the share price up. That framework's really important. Mason has added to that. What is the anti-thesis? What are the the things that you could honestly write the story of? How how does this go wrong? Let's talk about it. Let's think about how correlated those things are to other things in our in our portfolio and how will the company perform in that situation. And that leads us to just try to focus the portfolio and things that have a very attractive riskreward skew. you know, where we think the downside is is limited, it's protected, we have a margin of safety, but if the market comes around to our point of view, if management executes, we can make a a really significant multiple on our money. And um, you know, there are lots of different mistakes that I think we've made, you know, some on a small scale, some like at Valiant on a larger scale that have led us to those lessons >> that we call that the Trump value act triangle. our thesis, the market thesis, and then the antithesis. And we write them out very very explicitly. And then we run down that anti-thesis with as much intensity as the thesis because you you people in investing tend to get very wrapped up in the stories that they've got behind a stock. You got to run down that really scary thing. And in the aftermath of a Valiant, we made um an investment in Morgan Stanley, which was a GIFY bank not too long after the great financial crisis. I mean, it was eight years after, but it still felt like fairly uh recent. And I said, "Well, this is a industry that's hated by a lot of, you know, people in government and people in our society. Let's go meet with them." And so we went to Capitol Hill and we met with the Senate Banking Committee and we went to the Fed and we talked about regulators and we even went to try to get in to visit uh Occupy Wall Street so that they could give us their point of view, but get they they told us we were Wall Street, so they refused to meet with us. But, you know, I we found that there was a a play on Broadway that was a taking on uh banks and private equity. We called the playright up and got her point. I mean, it was like you have to actually re if if you're going to have an investment that might have a a really severe downside, however remote that might be. You have to understand it from every every angle. And that might have been a little bit of overkill because of its timing and firm history, but that that's gives you a sense of kind of how seriously we take that other side of the coin. >> I'd love to ask you a couple questions about the the business of value act itself. And the first that comes to mind is so much of what you're describing feels like the playbook out of private equity. And I'd love to hear if you've thought over the years about either having a sleeve or a strategy or I imagine there are companies you're involved with that at times could be take private can. We have rolled into take privates of a couple of our portfolio companies but very very few and we can we can Rob can talk about that because we just did one but I think in investing you have to be very very very good at one thing and I think that that white space that Jeff identified 25 years ago that nobody is playing this think like an owner long-term business builder in public markets remains true to this day. It's it's a it's a white space and we are the best in the world at it. And that's where we need to stay focused because we're not going to be the best private equity firm in the world. We know how to work when we don't have a board seat at a company, when we have an NDA at a company, when we have one out of 10 board seats at a at a company. We know uh how again, like I said, the the ups and downs of of booms and busts and bubbles can warp public company thinking. We have a depth of relationship with the people that vote all the shares, whether that's Black Rockck or State Street or Troll Price or Fidelity. We've got those people that are in our corner. We we understand how to navigate as a as a minority, sometimes even a very small minority shareholder. We know how to work with controlled companies. It's just like we built expertise in this one really narrow thing and we're really really good at that. If you abstract it like is private equity trying to choose a great business, invest at a great price, have the company have the right strategy, create the right incentives, like yes to all those things. And those are all things that we're also trying to do, but the execution is is very different. It's it's different. I mean, I I worked at consulting. A lot of the projects were private equity due diligence. When those projects kicked off, we knew that we had, you know, a threemonth period of time for the for the initial consulting presentation that would go into the investment committee to make a decision on a first bid and then there would be another one month and then they'd have an opportunity to make their final bid and that would be a defined auction. and and you know in the meantime not just the business due diligence but the accounting diligence the tax diligence all the management meetings you know the data room populated with perfect information that process is again trying to accomplish the same thing that we're trying to accomplish but but we don't have the data room we don't necessarily have you know four months to make a decision we have a share price today we know what it is today we need to deduce whether it's a good investment. Now, we generally take 3 to 6 months to make a decision, but in the meantime, we can be buying the stock, interacting with management, kind of getting iteratively more confident, and then when we're trying to create the right strategic alignment, the right incentives, again, that's that's taking place midcourse as opposed to, you know, mostly at the outset like a private equity firm. So we we get I think we think along the same lines and Mason mentioned we have rolled as a minority investor into some private equity deals. We just um have one such case in in Japan with a company called Topcon which is is uh being taken private by KKR and JIC capital and we'll probably have other opportunities to to do that. Another aspect I want to ask you about is communication strategy. So part of the toolkit you talked about when you go to your companies is making sure what they're doing is aligned with how they're communicating with their shareholder base. despite all of the very engaged work you've done with companies and particularly in the world of call it activists you've not been in public and would love to hear your thoughts on how you've approached value acts communication strategy to your clients to the investing world >> we've been much more comfortable behind the scenes some of its personality some of its culture of the firm and some of its expediency it's just people will generally be more inclined to work with you if you're not going to go on the front page of the Wall Street Journal and say that was me, that was, you know, like because it never is us. It's it's it's always a team effort and we're very happy to let other people narrate their stories, their own stories, and they they do deserve more of the credit than than we do. That makes for a sales challenge, right? Because if you know that's when you're running a business and have to sort of promote your your story, people tend to want to overstate and and sell and celebrate and, you know, wave the flag and that that's just not uh what we've done. But that's, you know, the the um the downside we've just chosen to accept of the of the methods that we use and the culture that we have and the mission that we're on. to Mason's point, I think it's very authentic when he says that we don't deserve the credit because there's there's the not just the CEO and the board, but usually when we're investing in a company, there are a lot of people inside the company who see the exact same opportunity that we see. It's almost never the case, maybe never, that we have some idea that nobody in the company has ever thought of. there's usually a troop of people who are celebrating when maybe we get the CEO to pay special attention to the idea that they already had. And so those people aren't going to get the credit either. And uh and the reality is that, you know, maybe nobody deserves the credit because it's a really collective exercise, but we tell our story to our own investors. We we don't do much in public. That's why we're grateful to have this opportunity with you, Ted, because it does require long form. I mean, most media orients around conflict, around hero, villain, A versus B, and that that just first of all, it isn't really how the world works. To Rob's point, companies are not monoliths or autocracies run by one person and everybody thinks the same. They're tribes and communities of people with lots of different ideas. And most of the time we're coming in and just being part of the conversation and empowering one group that and their point of view and being part of the gradual shift internally rather than this kind of A versus B war and that's just not the story the newspapers want to write. >> I'd love to ask for any other reflections that you have that we might not have talked about over this last quarter century of investing. There are elements of the culture that were put in place from the very beginning that I think have served us really well. We all have the vast majority of our net worth in this product. We eat our own cooking. I think that's really important. We all get paid on the performance of the whole. Nobody gets paid on their idea or their their sleeve of it. And those two things have led to everybody on the team really rooting for each other, supporting each other, and working with each other rather than compete. you don't want the other guy's idea to blow up and go terribly so that you can get his sleeve of capital into your book and built at all. It's also had this thing that I really benefited from is that if you're running your own book, you're going to be very scared and when things leg down is a lot of our best investments went down 20% before they went up 200%. You're going to stop out and panic and freak out. But if you're on a team, you can press that bet, right? and your ability to take risk and ride the J curve is so much more enabled when you aren't, you know, about to be stopped out and fired on the first leg down. And so this culture of like we're all in this together and we're here to help each other and the way that we take risks and the way we we think about the world has been enabled by how we built this this organization. It's also extremely flat. I remember somebody coming in for a performance review one year and saying, "What do I do next year? How does my job look next year?" And I said, "Look at me. I do the ex basically the same job as you. Like there it's just we're here. We're at the destination, right? And like I should be building models and getting my hands dirty with customer calls and you you get to come to meet the CEO and have dinner. That's just the way we we work this this place. And I think that lack of hierarchy is important. Somebody came from another firm who shall not be named. And he said at that firm, the people on the lowest part of the totem pole want to do as little work as possible. The ones in the middle want to get as done as many deals as possible into the book. and the ones at the top are looking down and thinking everybody's lying to them. And I was like, well, that's not the kind of layer cake we want. We want everybody working together thinking we're all telling the truth. And so that I think is something wise that the founders of this firm put in place and we've kind of carried forward. And I think the idea that like the snowball effect of relationships, networks, and life experiences just gets stronger and stronger over time. And as we are entering what may be the fourth industrial revolution in terms of AI, there's a lot of change management that's going to have to happen at a lot of companies and a lot of securities that are going to fall out of bed. And I think, you know, having that 25 years of history being part of some of the biggest previous platform shifts, PC to cloud, linear television to streaming television, etc. Like we have a lot of pattern recognition and a lot of people in our corner to help us work through that. And so with all these building blocks, we're very locked in on a lot of fascinating projects in the portfolio today with some of the companies that I think will be among the most important for the for the next decade. And so I get up every day like loving my job. I think this is the best job in the world to think critically about the world with a group of people that you like and respect and this army of adviserss and to be building and not just trying to make a a trade on a quarter but actually building the most important companies for the next you know century is is a is a real honor and privilege and I feel very blessed. I think that's a great place to turn to a couple of fun closing questions before I let you both go. So, Mason, let's start with you. What's your favorite hobby or activity outside of work and family? >> I play guitar and a little piano and drums and and write songs in my little recording studio in the in my basement. And you know, some of these are on Spotify. If your listeners look really closely, they might be able to find these things. And I think they'll find that they are somewhere in between embarrassing and mortifying. >> I've had the opportunity for Mason to uh play play behind me for my very mediocre karaoke vocals on the on the guitar at some of our events. So that's that's always fun. >> That was Roadhouse Blues by the Doors. It was incredible. We should put that tape on that maybe as your outro music on this thing. >> We might need to get my hands on that. Rob, what was your first paid job and what did you learn from it? I was a um I worked for a house painting crew when I was 15 years old and growing up in Massachusetts. And you know, my parents were very focused on, you know, that I would have summer jobs and actually do manual labor. I thought that as a house painter that that on the spectrum of manual labor that was going to be a little bit easier, but I didn't understand that um when you're the most junior member of the paint crew, your job isn't to put the paint on, it's to take it off. So, you know, I'm you know, up in the up on the latter 95 degree heat and, you know, scraping paint all day and hailing paint chips despite the the the mask I had on. It was kind of like the first lesson in hard work. Also, we had a we had a a a foreman who who was really excellent kind of leader of the crew and very patient with me and made it, you know, made it fun. He was kind of the he he kind of set the tone, got everybody working hard in some very very hot summer Massachusetts days. So, seeing that the the kind of benefit of leadership was also key. >> Let me ask you both separately. What was the best advice you ever received? Asa Nadella was a huge influence on me at, you know, I was still fairly young when I was working with him and he had this mantra that the learn it all always beats the know-it-all. First of all, nobody wants to work with a know-it-all. And and you're not you're just not going to get to the to the right answers unless you have a learnit all mentality. And decade later when I started working with Mark Beni off, he had his version of this which was the beginner's mind. That there are many possibilities to the beginner's mind, but to the expert's mind there are few. And I think that is also very profound. We are all generalists in every industry we invest in. None of us have this sort of hardbaked uh expertise. We come in with these very basic generous questions that often unlock things that nobody's really talking about. And so th those two together, learn it all in beginner's mind, are the the best. When I went to college, both my father and mother said, "Don't choose classes, choose professors." and um I didn't really know exactly what they meant. It took a year of stumbling through some subjects that I thought might be interesting but didn't have great professors to finally get the wisdom. I kind of tried to carry that forward into my career, making sure that I was choosing mentors, choosing people I worked with and then I think the kind of the inverse of it is people don't quit their jobs, they quit their boss. And so as I think about, you know, when I'm people who work uh on on our team, um make sure to keep it keep them engaged and be generous with with uh my time and and and make sure that I'm, you know, I'm serving them in addition to doing my own job. >> I'll just do one more. Rob, we'll start with you. What life lesson have you learned that you wish you knew a lot earlier in life? >> Learning that it's okay to kind of cut your losses and and move on. to change your mind. I think I learned that from Mason probably more than more than anyone else. And as you you get into an investing career, that's really really important because there are going to be some situations where where you're wrong. And sometimes it makes sense to to be persistent and stick with a situation. And sometimes it's better to cut your losses and move on to the next thing. Maybe the other side of that coin, and I learned this from Rob, is that in in every setback, there's an opportunity. And I, you know, this might have come through on some of this chat today, but Rob is a very steady hand and I'm a little bit more emotionally expansive. And so when things go go really wrong, Rob is utterly cool customer and figures out how there's actually a blessing in this and how we're going to make something good out of this. >> Mason, Rob, really appreciate you both taking the rare opportunity to share your story. Ted, thanks a lot for having us. It was it was great conversation. >> Yeah, thanks Ted and thanks for all you're doing for the industry and you know, we're big fans of the show and lots of our friends and people we respect and even some of our clients have been guests on your show and we we really are happy to be a part of it. [Music]