Kelly Granat - Investing At Lone Pine

Kelly, maybe the fun place to begin is the playing field of investing as you see it. I’m especially curious about how it feels most different—not in terms of AI or where the opportunities are, but just the structure of the market itself and the game of investing large dollars to earn excess return.

How do you feel that has changed from the beginning of your career to today, running one of the largest pools of capital at one of the most storied firms? What is most distinctive about today versus the past when you think about the playing field itself?

It’s interesting. When I zoom out and think about starting as a summer intern in the summer of 2001 during business school, and then returning full-time to the public markets in 2002, the industry was really different.

There were a lot more fundamentally oriented, directional, duration-oriented investors who were doing deep research with 3-, 4-, and 5-year time horizons. There were many fewer levered pods, and certainly passive wasn’t a thing yet. It felt like the marginal dollar of volume on the exchanges was dictated more by what Fidelity or Capital Group were thinking, or maybe even sometimes a large hedge fund, versus what was happening at Citadel, what was happening with pods, or what was happening with passive.

In addition, when I think about organizational structure and how we did our jobs, the organizational structure at most fundamental firms was pretty siloed. You covered industrials, consumer, or financials, and you did that with a peer set of people outside your firm. You developed a network with them over time, shared meetings, and went to conferences together. The level of conversation among peers was just not as informed because people were operating in sector silos in terms of knowledge, coverage, expertise, and networks.

The tools we used to do our jobs were pretty different. You would meet with companies, read filings, go to conferences, and try to do some proprietary research. But things like credit-card data, expert networks, and all of the tools that we now use to supplement our fundamental research didn’t exist. The ways to do the job and the ways to differentiate yourself were different, and the tools available to you were certainly different.

At the portfolio level, when I look back—and obviously I wasn’t managing a portfolio at that point in time, but I was looking up to my portfolio managers—the tools to think about portfolio construction, risk, and portfolio analytics didn’t really exist. As a fundamental investor, you were really building a portfolio bottom-up, one stock at a time. You were looking at what moved in concert with one another, correlations, and things like that, but it was a different job.

That’s a snapshot of 25 years ago. Fast-forward to today, and market structure has evolved meaningfully as a function of where the dollars are being traded. The emergence of passive and pods has been the giant sucking sound in the public markets for a long time. I feel like the marginal dollar being dictated by fundamental, long-term-oriented decisions from the Capital Groups, Fidelities, and T. Rowe Prices of the world is less meaningful in terms of how stocks actually trade.

The new behavior feels more centered around what we call setup dynamics. That is largely a function of the dissemination of a lot of third-party data creating setup dynamics around events: quarters, conferences, companies speaking at investor days, and so forth. It’s about how those events are being previewed as a function of what third-party data is suggesting, or what the litany of sell-side traders at the banks are prompting buy-side people with in terms of where the whisper numbers are.

That creates a different trading dynamic in terms of how you execute the job. In addition to what I mentioned earlier, we now have a lot of tools as portfolio managers to help us think through risk and portfolio construction differently. The way that manifests itself is in how we express the fundamental sauce of what we do, which is the fundamental research.

We were talking before we started about how our trading volume has clearly gone up over time on a dollar basis, less so on a name basis, because you get these outsized reactions that are often nonfundamental in nature to events, quarters, and so forth. The tools are different, the resources are different, and the last piece would be that the collaboration is different.

In contrast to the siloed coverage model I described earlier, it’s not uncommon for us to show up at a company’s headquarters for a meeting with 4, 5, or 6 analysts. There are people covering things adjacent to the topic and the company at hand, so there are often insights to be gleaned and questions to be asked that have implications for things outside the purview of the conversation that day.

That is super helpful. We meet as a group twice a week as a research team and share information constantly across our organization because 5 brains are better than 1. People have thoughts because they’re in the periphery of what we’re discussing, often with their own coverage areas.

Even the notion of a coverage area is something we shy away from at this point because we have so many people opining on different ideas and themes across the portfolio. They have their own insights from their own work.

If I think about the spectrum in my mind, on one end is Buffett. Buffett could care less about whatever is happening with Coca-Cola on a given day and is going to hold it forever. On the other hand are my friends who run pods at Citadel, whose lives revolve around this event structure that you’re talking about: investor days, quarterly earnings, and so on.

You’re probably somewhere in between. Is this healthy? This extraordinary focus on the dissemination of information at a couple of discrete moments in the quarterly calendar—is that a good thing for markets? Is that even the right way to think about market efficiency?

It’s hard for me to be the judge of that. I would say that for us, you’re right, we sit somewhere in the middle, and I think the onus or the responsibility is to look across both ways.

We want to be positioned to capitalize on nonfundamental dislocations and lean into duration. When those setup dynamics are tricky or complicated and everyone is lined up one way, I want to line up the other way and have the duration in the capital base to do that.

We’ve always said that duration is our single biggest advantage, but it’s never felt more prominent and powerful than it does in today’s market structure.

Having said that, sometimes there are tricky things in the short term. There’s a data point that we feel the market hasn’t fully absorbed, a short-term risk factor, or an investment cycle coming for something we love on a 3-, 4-, or 5-year view. We might be sized differently going into that event. It doesn’t mean we’re going to go in and out of positions—we rarely would do that—but we might be positioned differently.

The other thing I should have mentioned earlier in terms of the difference between today and before, and this comes through at the portfolio level, is that we are definitely running lower gross exposure as a firm than we did for the first 15 to 17 years of our existence, in deference to this dynamic.

We want room to add to things when we think there are nonfundamental reactions that don’t make sense, or overreactions to things that we don’t think are that big a deal. For the first bunch of years of our existence, we ran more like 170 by 200 gross. For the last 6 to 8 years, we’ve been running more like 150 by 180 gross to give ourselves room to breathe, so that we don’t have to play defense at the wrong time and can actually lean in when everyone is leaning out, and vice versa.

People who really love investing, and I know you’re one of them, seem to get the most excited during periods of extreme change. We were talking before we hit record about mobile being the last massive thing that upended the world, and now we’re living through another one that might be the biggest one any of us ever see in our careers.

What’s that like for you? It would be one thing if you were just starting in this field, but you’re managing a big existing pool of capital and probably expressing a lot of what you’re learning about the world through some of the biggest companies in the world, not necessarily through early-stage startups.

What has it been like so far to process this?

It makes us kind of giddy, if I’m being kind. If I can geek out for a second, when I think about why I got into this field in the first place, I think there are 2 defining characteristics that positioned me well to do this job.

One is that I’m a wildly competitive human being. I was a junior tennis player my entire junior career before going to college, and I played in college. I love to compete. I love a scorecard. That’s just who I am as a human.

The second is that I’m an incredibly curious person who is very focused on growth, and growth in lots of ways. I mean growth in terms of learning about new things and challenging myself. I play instruments, and there are lots of things I’m interested in as a human.

I feel so lucky to have found a career where I get to learn a lot and then put that knowledge to the test by measurement. We can put capital behind those learnings and insights and see if we’re right. There’s a weighing mechanism every day that gives us a scorecard.

For me, the opportunity to do that at scale on a topic that is transformational not just for the markets but for society is intoxicating, honestly. The fact that we can do a tremendous amount of fundamental research and also have the flexibility, capital base, and nimbleness to evolve our views as we learn is incredibly interesting.

It’s also really fun as a manager to have a team of incredibly talented people who are both professionally and personally engaged in this topic. The amount of trial and error and testing going on on the weekends by our analysts—who are downloading all these products and sharing their learnings through the email distribution system to help inform how we’re thinking about what’s happening—is incredibly interesting.

Things are changing so quickly, and there’s so much dynamism around this topic. The flip side is that I’ve seen a lot of bubbles in my career, so there’s an appropriate amount of skepticism around where the profit pools will evolve.

That’s an ongoing, live conversation inside our firm. Everyone has different opinions, over different time frames, about where there is fake AI, where there is real AI, and where value will ultimately be created, harvested, and realized.

We debate that constantly. We think different things today than we thought 3, 6, or 12 months ago, and they will be different from what we think in 3, 6, or 12 months. That level of change and dynamism, just as an investor, is gold. That’s why we do this.

Maybe drill into that. What do you think today is the most important place that winners will emerge, based on what you know? Obviously, it’s subject to tons of change, but this is what’s fun to talk about.

You’ve had people on this podcast who are far more informed on this topic, so I feel humbled even attempting to answer the question. At a high level, we have questioned from the beginning whether large language models would be where value was ultimately created.

The fact that there are 6, 7, or 8 of these today would likely lead to consolidation over time down to a few. Our view from the beginning was that most of the value would probably be created at the application layer.

That’s part of why we have such a large position in Meta and have for the last bunch of years. We feel that Meta is the most real-life example at scale of commercializing a lot of these capabilities in core products today. You can see it in their results, and they talk about it on their calls.

However, there aren’t a lot of opportunities yet to realize that in the public markets. A lot of those businesses are probably first being funded in the private markets right now, or have been over the last handful of years.

In the same way that when the mobile transition happened and the iPhone came out, the Spotify, Shopify, DoorDash, and all the other amazing companies that came out of that generation of startups came afterward, those generations and cohorts of companies are surely being formed and have been formed over the last couple of years.

We don’t typically invest at that stage in the private market, and many of them aren’t public yet. Our positioning has been more around the picks and shovels, with the view that we should see how the ecosystem evolves and where profit pools are created over time.

In the meantime, what we do know is that there are constraints, and those constraints are shifting. They started on the semiconductor side, and now they’re more on the power side. We’ll see where the next piece goes.

That’s what we’re tracking: Where are the constraints? Where are the profit pools being generated that we believe are sustainable and not a function of a supply-and-demand dislocation? How do we want to be positioned behind those?

That’s the framework we’ve used. We’re doing an incredible amount of research and speaking with as many people as we can in every part of the ecosystem to inform the inputs to that thought process.

I’m curious about the literal machinery of the firm. How many analysts are there? What do they do? How does that feed into something else? What do you do on top of it? How do you size positions and use leverage?

Just literally, what is the assembly line that ends in a finished portfolio?

We currently have 15 people on the research team, including Steve, Dave, and me. Interestingly, in the 19 years I’ve been at the firm, we’ve been between 13 and 19 people. That’s where we live in terms of team size, with the view that more people is not necessarily better.

We want to run a relatively concentrated portfolio of 25 to 30 longs as a best-ideas portfolio. We want a lot of collaboration, so we want everyone to fit around a table, have a conversation in our research meetings, and be part of the conversation. When you get into the 20s and 30s, you have a very siloed research team. That’s not how we’re oriented culturally or how we work.

Maybe the best way to start is with how someone gets absorbed into the firm on the research team. A new person typically joins when they’re younger, say 25 to 30, and comes with some level of experience. They’ve usually built the analytical toolkit somewhere else, sometimes in private equity, banking, or business school.

Typically, they apprentice with someone senior for some period of time. That can be 6 months or 2 years. They’ll cover a bunch of things together, and the person isn’t doing what we call the grunt work. They’re going soup to nuts: being on the calls, working on the models, going to conferences, seeing the companies, and participating in all of our meetings.

What we find is that the person’s voice tends to start getting louder after 6 or 8 months. They’ve been around, seen how we work, asked questions, iterated, and learned from other analysts.

I know it’s time for them to spin out and cover their own things when they start disagreeing with the person they’re apprenticing with. To me, that’s, “You found your voice. Amazing. Now let’s put you on a bunch of other things that you can run after and serve up to us.”

That’s how people get absorbed into the culture and see how we work. At that point, they appreciate our process, how we approach companies, how we talk to companies, and how we conduct research.

As for how the sausage gets made, we’re doing all the things I think a lot of fundamental research firms are doing. We’re reading public filings and transcripts, listening to podcasts, going to conferences, doing deep channel work by talking to partners and former employees, speaking to people in expert networks, and reaching out to our own network.

As an institution, 27 years later, having done a lot of investing globally, we have a lot of people we talk to who are former CEOs and former board members. They have a lot of thoughts because they’re still connected to the spaces in which they worked. We leverage all of those resources on a fundamental basis.

We also have a 3-person data team. Their role is a couple of different things. They are our interface with third-party vendors on the outside and with our research team internally. They sit in on every single meeting, know what we’re working on and what’s in the pipeline, and bring external resources to bear.

They might say, “We’re trying to answer these 3 questions on X stock or X sector. These are the resources we think can help you answer those questions from a data perspective.” They’re another tool in the kit for approaching market research, and they work closely with our analysts to help solve problems.

That’s a newer capability from the last 4 or 5 years, and it’s been super additive to how we work. Occasionally, they’ll call out something they’re seeing in a data set: “Something funky is happening. You may want to look into this.” But that’s really less of the role they play. They’re there to be a supportive arm for fundamental research and to help answer key questions.

That’s how ideas get generated and researched. As an organization, we meet 2 days a week, on Mondays and Thursdays.

The Monday meeting is a new-ideas meeting and a portfolio-updates meeting. Someone might say, “We’re buying this stock. Here’s the thesis.” At that point, it’s not news to anybody because we’ve probably talked about it in a research meeting many times before. Or, “We’re selling this, and here’s why,” or, “I met with this company, so here are some updates.”

Thursday has a couple of different formats. One is a spaghetti-against-the-wall ideas session: What are people hearing? We’re coming out of earnings, so what are you hearing? What’s interesting? What are people excited about?

Another is looking at things that have generated meaningful, outsized alpha or massively underperformed on a trailing 90-day basis. Those get served up every week for us to consider, and we pick 1, 2, or 3 to review.

The third is something far along in the pipeline that we’re thinking about beginning to transact in. We want to surface it to the group and debate it.

All of this conversation is meant to foster dialogue and debate: people sharing their points of view, asking hard questions, and pushing each other. That’s the essence of our process.

When we’re ready to transact, there’s collaboration with the trading desk, which has 5 people. The questions there are: What is the maximum position size? What is the liquidity? We’ve already had the conversation as a PM group with the analysts about how this compares to the rest of the portfolio, what the IRR is, and how it prices.

We’ve gone through the numbers: What’s the 1-year price target? What’s the 3-year price target? What are the near-term factors we should think about, if any? That’s all the conversation that happens before we put an order in.

That’s the upward flow of ideas and research, and the structure of how we do things.

The other thing that happens on Mondays—all day Monday—is that Dave and I have sector meetings with all of the teams every other week. That meeting covers everything from what they’re working on, what they’re trying to figure out, and what resources we’re deploying to help answer those questions, to earnings.

Who’s reporting this week? What are we expecting to hear? What would make us sell? What would make us add? What could surprise the market either way?

That’s the structure of how we work as a team.

The portfolio is helped by something additionally new: We now have a risk function that we didn’t have 5 or 7 years ago. It’s led by somebody who used to run our fund of funds, which we had back in the day and shut down a number of years ago. He had built incredible expertise and a knowledge base around studying managers.

When we shut down our fund of funds, we said to him, “Frank, why don’t you come study us and help us get better?” He’s gone back, using many of the new tools we referenced earlier, to think about where we get ourselves in trouble, where we’ve made a lot of money, the mistakes we make, the patterns around those mistakes, the patterns around our huge successes, and how we trade.

Do we add value by trading? Those are all the things that are sort of portfolio analytics. He’s also our external lens on factors and all the things we have to think about now that were never a part of running a fund 10 or 15 years ago.

They’re never prescriptive, but they’re another set of tools in the kit. He’s where that capability resides. We meet with him and the risk team periodically and get reports constantly to make sure we’re thinking about things such as, “There’s a bunch of unearned alpha in these 3 names. The multiple has gone from 15 to 25 times, and we still love it here. Should we be trimming it?”

Again, it’s never prescriptive. It’s another set of prompts and tools to think about the balance in the book, where returns are coming from, and how the composition is evolving.

As you approach this whole thing, is there a fixed investment philosophy that has always guided you and that you feel will continue to guide you no matter what happens, even in a rapidly changing environment? Is there something unchanging about the philosophy?

I don’t think we have a guiding principle around it. The way we discuss it internally is: How much exposure do we want to this theme?

What’s challenging about this one is that it cuts across a number of different things. There are companies that aren’t leaning into this technology and aren’t benefiting from its proliferation today, but will, and are probably uniquely positioned. There are others for whom AI is a problem for their business category. Several industries would fall into that camp.

We keep having the conversation about how much exposure we want, because there’s a recognition—as we saw in the valuation bubble bursting in late 2021 and 2022—that there are nuanced bets here that are distinct, but if there’s a problem in AI, these are all going to trade like one stock.

What drawdown are we willing to sustain or endure if and when that happens? That risk framework is the most exciting dynamic. We can all talk for hours and days about the opportunities it’s going to create, but nothing is a straight line.

The benefit of having done this for a long time is recognizing that there are 2 steps forward and 1 step back. The DeepSeek event last week was interesting. It was a moment of, “Whoa, what is this? What does this mean? What does this mean for LLMs? Did they have access to GPUs? What do we know and what do we not know?”

We’re still trying to answer those questions. There was a knee-jerk reaction from the market, and we’ll have more of those. That’s just part of this. It’s not a reason not to be involved, but it does make you think about sizing.

We always want some measure of balance in our portfolio. We want several things we’re excited about that have idiosyncratic drivers, some of which may be tied to AI and many of which are not.

There are many themes in our portfolio that we’re excited about. Our job is to be thoughtful about portfolio construction and make sure that all of our eggs aren’t in one basket, or in things we believe are discrete bets that ultimately trade like one.

That’s part of our challenge.

Another way to think about it is that there are certain investors who are playing a different game, and certain investors who are playing the popular game best. They’re competitors in an existing game. Where does Lone Pine fall on that spectrum?

It’s a really good question. Somewhere in the middle. Ultimately, we want the flexibility to pivot.

That’s what we’ve learned and experienced over doing this for a long time: There are certain market backdrops that are conducive to certain styles of investing. There are times when you want to be more concentrated and times when you want to be less concentrated. There are times to go big on a bet when we feel it’s really underappreciated, and times to recognize that a lot of what we’re excited about is also exciting to the world, so we probably shouldn’t be as big as we were.

The flexibility to recognize when we’re in a very short-term-oriented market, or when there’s duration, is important.

One of the things that has changed is that if I rewind the clock 10 or 15 years, sitting in our research room and in internal meetings, we didn’t talk about macro at all. It was, “We’re fundamental investors. We’re focused on what’s happening inside sectors: Who’s winning? Who’s losing? Who are the best teams? Who’s executing?”

To do that in 2025 and ignore macro is not possible. I want to be clear that macro is not prescriptive in terms of what we do, but it is a tool in the kit and something that has to be considered.

There are moments when it feels like the market is extending in duration, and we can reflect some of that in how we’re positioned, how we’re constructing the portfolio, and how we’re sizing certain things.

There are also times—and I would argue we’re in one right now—when there’s a lot of uncertainty, appropriately so. The market feels much more short-term-oriented and data-point-driven.

The tariff announcements over the weekend are a good example. There are a bunch of announcements, and then some of them get walked back on Monday. How this all gets implemented and executed is an open question.

In that type of environment, you’re going to see more knee-jerk reactions. That’s simply an awareness. We’re not going to radically alter what we’re doing or how we’re positioned, but it focuses us in different ways.

The tariff situation is a perfect example because it sort of happened and then unhappened very quickly—maybe unhappened; who knows. It’s still a live thing.

Bring us into the room as much as you can. The announcement comes out. What literally happens at Lone Pine? Who is talking to whom, about what, in what settings, leading to what decisions? Give us a super-zoomed-in example of how you process a big piece of news.

We all saw the news starting to come out toward the end of last week and over the weekend. Dave, my co-CIO, and I—we’ve worked together for 21 years, so I also refer to him as my work husband—were emailing back and forth: “Okay, so now what do we do?”

These were big announcements and big numbers. We started to see responses from other countries in terms of what they were saying. To be totally frank, the conversation was, “I’m not really sure what we’re supposed to do about this. Are we going to radically alter our portfolio? Is this even going to go through? What’s going to happen on Monday?”

We’re in a moment of elevated uncertainty. We’re in an announcement cycle that seems to be accelerating in pace.

We went back and forth a few times over the weekend: “Does this change anything for us? Let’s come in Monday and see what happens.”

On Monday morning, we sat down as a PM group, as we do every Monday and Thursday. We’re talking all the time, but as a group we went back and forth and said, “What does this mean? What are the industries that are affected? Let’s assume it goes through and play this out both ways.”

Let’s assume it goes through. What are the industries for which this is a huge problem? We ticked through some of them, including autos. What would the retaliatory actions look like? We walked through that.

Then we looked at the other side: Let’s assume it gets walked back. How much are things going to trade? Things were trading at crazy levels in the premarket on Monday morning, theoretically exposed to those tariff levels.

The net of that was a lot of conversation and a decision to do nothing. Literally, 0 orders came out of the conversation.

That’s not uncommon, but for an event in a meaningful and somewhat anticipated news cycle, and one where I think we had the appropriate amount of skepticism about what would ultimately be implemented, there was a lot of debate but no action.

The conversation is still live. I don’t want to imply that all of this AI stuff, or anything else, is a one-time discussion. These are all very live conversations inside meetings, constantly pushed forward via email and continuous communication.

With this one, there was consternation about what we were supposed to do about it. We weren’t going to react live. We were going to keep following it, learn, and see what happened.

What gives you personally the energy? Is it discovery, understanding, a great company, a great product, or a great mispricing? What is the thing that serves as your fuel or energy source?

It’s some combination. For us, a lot of our process revolves around people.

It’s the people who are running the businesses. Companies are, in some ways, like families. There’s a very distinct culture that characterizes and underpins companies, and that matters immensely for how a company operates, functions, hires, retains, grows, invests, and does all the things that ultimately drive its performance and execution.

Getting to know the people is where it starts for us. What motivates them? Are they looking around corners and thinking about the things that could disrupt them? Are they trying to disrupt themselves? Are they attracting and empowering the people they hire, retaining them by giving them responsibility and autonomy, and giving them a voice in decision-making?

One of our favorite themes in investing—not a sectoral theme, but a change theme—is around new people. You change a person, you change a company.

There are lots of examples in our history of good-to-great businesses that we felt had been undermanaged. Then somebody comes in who we know from a prior life or existence, or we do a lot of work on that person, and we get excited about their ability to transform the business.

To me, nirvana is when you have a company that is deficient in a certain functional area and bring in a leader who is an expert in that area. It’s magic. We’ve seen this a bunch of times.

The second thing is companies that are innovating at a rapid clip. You see what’s happening from a product-pipeline perspective. They have a great incumbent business, ideally a monopoly or something with incredible unit economics, and they’re using a lot of that profit and power to invest and plant seeds in other areas.

You see some of those seeds starting to come to fruition in terms of new products, lines of business, distribution channels, or whatever it may be. Seeing that the secret sauce isn’t just the single thing that made them great, but their ability to recreate and innovate at scale, is super exciting to us.

Is something like Starbucks the perfect example of the first thing you said? It’s a story people are worried and skeptical about, with things going wrong, and then, by all accounts, the new CEO is a megastar. Is that the general gist?

It’s a very good example.

Another one from our past, which we did really well with, was Ulta when Mary Dillon took it over. At the time, it was a small company, maybe a $3 billion market cap when she joined.

She was a consumer-products and marketing expert, and Ulta was a largely membership- and loyalty-driven business around cosmetics. Almost the entire employee base was female. It had great product curation, but not a great culture inside the company and hadn’t built a great marketing muscle.

She came in and added all of that to the formula. The business always had great four-wall economics as a retailer, but she added something different to the go-to-market, the customer proposition, and how the company was run and who she hired.

That’s a great example of a very strong business that could be managed even better by somebody who had the expertise it lacked.

How did you know in her case? Was it arms-length? Did you spend a lot of time with her one-on-one?

We knew her because we track people. We follow people we think are great.

When we owned McDonald’s many years ago, she was the CMO. I met her for the first time at a meeting at corporate headquarters, where they bring in 5 or 6 executives. She came in, answered a bunch of questions, and was super thoughtful and insightful.

She walked out, and I thought, “Who is this person?” I Googled her, saw her background, and learned that she had worked in consumer packaged goods, which tends to be a great training ground for analytical thinkers.

We followed her. I knew Ulta, and we were dazzled by its four-wall economics. We had done a lot of work on the company, but execution had been uneven before her arrival. There were things we thought were missing in terms of how the business was being run.

When the board announced her hiring, we thought, “Oh my God, this is kind of perfect.” She was exactly the right leader for the opportunity the company had, with the right skills to lift what was happening there.

What would be the other end of the spectrum? A Buffett ham-sandwich business—not to pick on them, but something like Mastercard, where the business model is so ridiculously good that I’m sure the people are excellent, although I don’t know them either. You never hear about people at Mastercard. It’s not a cult of personality. It’s just, “We have the best business.”

How do you process something like that, with your people-centricity?

There always has to be room for those businesses in the portfolio because they’re great compounders.

We owned both of those companies at their IPOs and had meaningful positions. With the benefit of hindsight, we never should have sold them. They would have become very large positions over time, so of course we would have trimmed them, but they were fantastic businesses.

That’s why a portfolio is such an interesting entity. It’s a balance of many different things. The people component is hugely important for us. We always want to know who we’re lined up with, what their incentives are, and all the things I mentioned.

But there’s also a lot of room for owning fantastic businesses where, whether you have an A-plus CEO or an A-minus CEO, it may not matter that much at the margin. We just want to make sure we’re not paying too much for them.

That’s always the key in those situations. We want to own a stable of great businesses, particularly when there’s a moment of dislocation, a question of doubt, or a perceived competitive threat that we think is being overplayed in the market.

Those moments often give us the opportunity to own great businesses at more reasonable prices. Those investments are a different flavor. They’re about understanding the internals of the business, what drives it, and the duration of the opportunity set.

What’s so interesting is that the idea of following people applies to you, too. You’re in the midst of a big succession, and it’s fascinating because, in this business, you can count on a few hands the number of really successful transitions that have happened at firms like yours, which are less like big industrial complexes and more like small teams.

What works? What has worked? What has been hard? To the degree that you’re willing to share the nitty-gritty of it—the good, bad, and ugly—I’m curious how it’s gone and how you’ve thought about it.

It starts with Steve, our founder, and how he set the firm up when he started it 27 years ago, with an orientation toward succession.

That’s the first differentiating aspect of our company versus many of our peers: He was focused from the beginning on the company outliving him. He came out of the Goldman Sachs partnership back in the day, and I think that was, in many ways, the model in his brain.

You do well, you rise up, you own a lot of the company, and then ultimately, as partners, you either go limited, in the case of Goldman, or start to give away your equity to the next generation. That was his vision.

That extends not just to the investment team but to the entire company. It is the responsibility of every functional leader in our company—whether you run the tax department, HR, or IT—to understand who your successor is and mentor that person. That’s been the culture of the firm from the beginning.

Steve has steadily handed off portfolio responsibility by sector. Within the first couple of years of launching the firm, the view was that there would be moments when it became clear that certain people on our investment team knew more about a sector than he did and were effectively making all the decisions anyway.

The answer was to deputize them to actually make those decisions and have the insights. That has been the culture from the beginning.

With Steve officially stepping back to a chairman role and Dave and me taking over as co-CIOs, we’ve really been transitioning what we call Lone Pine 2.0.

If I’m being honest, that has been a heavy lift. That is a function, to some extent, of how we were set up at the beginning and how much the market has changed.

We had a great group of investors with us from day 1, largely North American endowments and foundations, as well as some high-net-worth people and family-office types. They gave us money on day 1, and it compounded for a long time.

Our orientation was to put our heads down and produce results. We didn’t really have an outbound effort, nor were we open for most of the first 15 years of our existence. We didn’t launch many new products after launching the long-only product in 2004. We had a quick stint with a long-only emerging-markets product, realized it didn’t scale, folded it into our long-only business, and haven’t really come up with a new product since.

There wasn’t a need to have a big outbound effort. We always had an investor-services effort, which was great, but that’s one example.

Another is the emergence of technology, products, and capabilities. We built all our systems in-house because when we launched in 1997, a lot of this stuff didn’t exist off the shelf. There has been an opportunity to modernize how we do things from a process perspective across many parts of the organization.

Given the nature of the collaboration we talked about earlier with regard to sector coverage and how we work together, there’s a slightly different human profile for who will be good in that type of role. There’s always a premium on communication in our industry and on the ability to synthesize a lot of information into a couple of key questions.

But people who are collaborative, team-oriented, and creative in terms of the tools they employ to do fundamental research are at an even higher premium than before. We’ve evolved over time in terms of the types of people we hire. We’ve learned who has succeeded inside our culture and who hasn’t done as well, and we’ve tried to evolve how we think about the people we want to bring into the organization.

Dave and I are now very focused on the next generation. I’m 50, and Dave is either 54 or 55. If I’m still in this seat in 10 years, that’s probably not the best outcome for our limited partners.

There is a life cycle to doing this. Dave always says—and I think this is right—that when I’m less excited to jump on a plane to Singapore for 2 days, that’s how I’ll know. I’m still excited to jump on the plane to Singapore, and so is he, so we’re in the right seats.

But we’re equally focused on who the next generation is, how we expose them to the things they need to experience, how we teach them to manage people, how to think about portfolios, and how to learn areas outside the ones they’ve grown up covering.

They’ve proven themselves to be successful analysts. How do we develop them into great portfolio managers? That’s a big part of our time now, which is different for me than it was probably 5 years ago.

The last piece is shoring up the organization for a different world. That could mean different strategies around products. We’ve had a one-size-fits-all approach: We’re a long-only firm, or we’re a long-short firm. What does that mean in 2025?

What a hedge fund was, or represented to the market, in 1997 looks pretty different from what that term means today. Today, it probably means something more like a pod shop. That’s not us. We’re a long-short fund and a long-only fund, and we’re fundamental investors. That means something different in 2025 than it did in 1997.

We never had a PR effort. We didn’t have a website until a few years ago. We wouldn’t have done things like this 5 or 10 years ago. It wasn’t the culture of the company, but the world has changed.

The onus is on us to communicate our story: how we’ve changed, how we’ve grown, what we’ve learned, how we’ve developed, and what we’re focused on. That’s a different orientation for a firm that was culturally set up to say, “Let’s perform, and everything will take care of itself.”

We absolutely need to perform. That’s jobs 1, 2, and 3. But there are other things we need to do to continue to develop and grow the business.

I’d love to hear the very first time you remember feeling your competitive instinct in your life, going back as early as possible.

My sister will laugh at this if she listens to it. I was probably 6 years old.

My parents belonged to a little pool club in our town. They played tennis, and I had started to play, but I wasn’t allowed to take lessons until I was older. The way to play on the backboard at our pool club was through a competition. To get access to the backboard, you had to beat the people waiting around to play. Whoever won got to practice for 20 minutes, and then the next person could challenge them.

I figured this out. I was watching 2 boys who were probably 10 or 11 play each other, and I thought, “I’m going to challenge the winner.”

I sat and waited for my turn to play, and my heart rate started escalating. It wasn’t because I was nervous; it was because I was excited. I beat whoever I played, and that moment of winning and internalizing that I now had access to the backboard for the next 20 minutes, until the next person challenged me, made me feel energized and excited.

I wanted to replicate that feeling.

Has it always been excitement, or has it ever been nerves?

Sure, of course. Nerves come when expectation enters the picture, when you realize you’re actually good at something, could be good at something, or have potential.

Was that tennis, too, where you first experienced it?

Tennis, for sure. I think I was about 11 years old, and I had very high rankings when I was young. The pressure of being seeded in a tournament—going to a tournament as the first seed, with everyone gunning for you—is anxiety-provoking for sure.

Did you have experiences where you broke through to an understanding of what you were capable of? Where something happened and, on the other side of it, you had almost shed a skin and upgraded your assessment of yourself?

That happened in competition indirectly. It wasn’t in a match or a particular setting.

I burned out in junior tennis. I started playing nationals when I was 10 years old and played every summer until I went to college. Most weekends were spent traveling to tournaments around the tri-state area, including Thanksgiving, the Easter Bowl, and tournaments every summer. It was a lot.

I think they’ve since scaled back. I don’t think they have the 10-and-under category anymore, but they did then.

By the end of my junior year of high school, I was done. I was so burned out. I didn’t want to practice for 3 hours every day after school. I was interested in other things, including school.

At the time, the NCAA rules for tennis—I’m not sure if they’ve changed, because now the rules are different for every sport—didn’t allow coaches to call you until July 1 of your junior summer.

I’ll date myself by saying that we had an answering machine with a cassette tape. I didn’t want to go to nationals that summer. I said to my mom, “I’m done. I don’t want to go. I can’t play anymore. I don’t want to do this.”

She said, “I’ve never made you do anything in your entire life, but I’m actually going to make you go because you’ve worked so hard for the last 10 years at this sport. You’ve spent so much time and put so much of yourself into it. Let it do something for you. It’s going to get you into college. If you never want to play again, that’s fine, but I’m going to make you go.”

I went, kicking and screaming, but I went. I played, got home from the tournaments, and our cassette tape was broken from all the coaches who had left messages, which was super exciting.

Then I didn’t pick up a tennis racket for my entire senior year of high school.

I applied to Harvard early and was lucky enough to get in. I was recruited. I played basketball and softball for my high school because I loved sports and loved to compete.

I went to college with a very different orientation: “We’ll see how this goes. I don’t know how I’m going to play, how I’m going to feel, or how being on a team will feel relative to being in such an individual sport.”

It became a great story for me about seeing something different in an experience. It really became about the team.

My freshman year, we were terrible. I played first singles, we were last in the Ivy League, and I lost most of the matches I played, as did we as a team. It became about rebuilding the team and the camaraderie of the people on it. That gave me so much enjoyment and made tennis such an important part of my college experience.

Tennis became something very different in college from what I thought was possible. I saw an opportunity to reshape something for myself that had been so seminal but had become almost toxic by the time I finished high school.

It became such a gift. Some of my closest friends in the world came from that experience. My best friend on the planet and I met when we were 7. She played at Yale, and I played at Harvard.

Tennis has given me so many things and shown me so much about the kind of person I want to be. It taught me lessons about competing, independence, hard work, and all the things I’d like to instill in my daughters. They came from that experience of allowing tennis to become something else for me.

What was the first formative investing experience you can remember that made you realize that both the competition and the pursuit of excellence you care about were possible in this field?

It’s funny. I think it takes a while in this field to figure out if you’re any good at it.

In the first handful of years that I worked in public markets, I definitely got more things right than wrong, but I wouldn’t say I came out of that feeling like I had figured it out.

When I got to Lone Pine, I was excited to be in a culture of excellence and research. That was what drew me to the firm. I knew Dave because we had overlapped on a bunch of investments at prior firms. We shared meetings, went to see companies together, got to know each other, and figured out that we thought about the world in similar ways and were attracted to the same types of industries and companies.

When I got to Lone Pine, I worked a lot with him. Steve was obviously a super-impressive figure who loomed large over the research department, given his tenure and success.

About a year into being at Lone Pine, the person I had been working most closely with in consumer left the firm to start his own firm. Steve came into my office and said, “You’re taking over all this stuff: retail, luxury, hotels, casinos, and all these other things. You’re going to be working mostly with me.”

I thought, “This is super exciting and super intimidating.”

A few years into working with him, there was something—I forget exactly what it was, but I think it was the Gap. Glenn Murphy was running it, and he was in the process of turning it around. I had done a bunch of work on it.

It was a controversial idea because people thought the Gap was a mature business, the brands were losing market share, and so forth. I went into Steve’s office.

The way things worked with Steve when he was a portfolio manager was that it was a conversation. There wasn’t a memo or a deck that you put together and presented to an investment committee. You went into his office and said, “I want to talk to you about X.”

He’d sit down and hash it out. Usually, if you were effective, you’d walk out and he’d put the order in. He’d turn around at his little desk and place the order.

I said, “I want to talk to you about the Gap.”

He said, “It’s a short, right?”

I said, “I actually think it’s pretty interesting.”

He made a face like I was crazy. I walked him through my thinking, and he asked me a bunch of questions. It was a 20- or 30-minute conversation.

At the end, he looked at me and said, “That makes sense.” He turned around and wrote the order.

I thought, “Maybe I actually know something, because he knows more about this space than anybody on the planet in our world who was living and investing actively in the public markets at that moment.”

I had just convinced him, and it ended up being right, which was great. More importantly, the confidence to come in and take the other side of something with someone I respected so much, and then be right in that name, was a small but illustrative example of how this job is so much about confidence and how you’re feeling.

It’s cumulative. I had had success, but that moment stands out in my brain. I joke internally at Lone Pine that I made a career of disagreeing with Steve. Look where I’m sitting now. It worked out.

I want analysts to challenge us all the time. That’s how we all get better. I tell them, “I made a career of disagreeing with Steve. I want you to do the same.”

If you think about the business leader who is the most driven to win that you’ve ever gotten to know, who comes to mind? I want to pull apart the pieces of that drive to win and apply them to the people you know on your team and the people you recruit.

Probably Mark Zuckerberg.

What do you see? What does that teach you?

Huge focus, big bets, willingness to be wrong, and the ability to pivot quickly when you realize you’re wrong.

At Meta, it’s having the ability to know when to be bold and when to be humble, while attracting, challenging, and motivating a really talented organization. It’s also vulnerability.

When you think about all those characteristics, how do you identify them in someone who might come work for you, especially if they’re young? I say all the time that what I can glean from a 30-minute interview about someone’s ultimate ability to do this job well is pretty limited.

That’s why we have a summer internship program for MBAs. It gives us 8 to 10 weeks to evaluate them, and vice versa, to figure out whether there’s a fit and how the person works and thinks.

It won’t surprise you to hear that I love hiring competitive athletes who have competed at a high level. I don’t care about the sport. It could be an instrument, and that’s great too. I look for people who understand hard work, failure, disappointment, and achievement—what all of that feels like.

I look for people who have had to juggle things in their lives. Maybe they worked a couple of jobs while they were in college, or experienced some sort of misfortune—a relative, a sibling, or something else they had to pick themselves up and work through.

I look for people who are interested in lots of things because they’re curious, and who love to learn. As we said earlier, that is foundational to being successful in this job. You can never be complacent or think you know more than you do. You have to recognize and be humbled by the fact that there’s always more work you can do.

The companion skill is knowing when you know enough to make a decision. You can get into analytical paralysis: There’s more to do, more to do, more to do. But we’re in the decision-making business.

That balance of curiosity and the pursuit of knowledge, learning, and growth; the self-awareness to admit when you’re wrong, which is incredibly important in what we do; and the willingness to take some level of risk or offer contrarian thinking can position us well to make money.

Who do you view as your competition? Is it firms, the whole market, or something else?

It’s funny because the firms we’re always lined up against in the press are some of my closest friends, and none of us view it competitively.

Several former guests on your show are very close friends of mine. In some ways, I view our competition as ourselves. We need to be better and do better. That’s the bar we hold ourselves to.

We have the unique position of having been around for 27 years, which is increasingly rare in what we do. Being a directional, fundamentally oriented public-equities firm with duration is increasingly rare at scale relative to when I first started in the business.

I don’t think of the pods as our competition. The market is obviously our competition in one of our products, because we’re benchmarked, and that’s how we evaluate ourselves.

We had many years of very strong performance and are hopefully back on that track now, with a lot of learning and insight from mistakes we’ve made and a lot of growth we’ve experienced as an organization.

I don’t have a target on my wall with a specific firm or someone’s numbers that I’m tracking to say, “We did better than that person.” It’s actually the opposite, which might be counterintuitive.

I root for a lot of my friends. When we work on something and someone else calls us and says they own it, or when we pass on something and it works and they do well, I think that’s awesome.

We want the industry to do well. We want people who leave our firm and start their own firms to do well. That’s good for the industry, and it matters.

I don’t have a zero-sum attitude toward our industry or root against certain people. I really don’t.

Having done this for a long time, part of what makes it fun is the relationships built over 20-plus years of going to see companies with the same people, exchanging ideas, debating ideas, and challenging each other’s thinking.

Then you get to know the talented people who work for them, who have done deep dives on different names. You introduce them to your talent, and everyone gets on Zoom and hashes it out.

That’s what’s really fun about doing this job: the network. That surprised me. When I entered the industry, I thought it would be more sharp-elbowed and competitive. Instead, it’s been the exact opposite.

Maybe it starts with what we were talking about earlier regarding sector coverage and my initial peer network being outside the firm. You find like-minded thinkers or people you respect, or people who ask good questions in company meetings, and you begin having conversations with them about the sector. Those people become friends.

That’s been a real surprise about the industry, and maybe a bit of a wander from your question, but it’s something that I think is not well understood outside the industry.

I’m curious how much more or less you feel leadership matters than you did early in your career.

The examples you’ve given suggest that a single person can massively alter the trajectory of a business, even a very established one with lots of features that are independent of that person. There’s the great-person theory of history versus less emphasis on the individual.

Has your position on that spectrum changed over time? Do you believe more or less in leadership?

More, just because I’ve seen so many repetitions. The business we’re in is a pattern-recognition business.

What’s interesting is seeing it across industries and geographies. We used to be big investors in China many years ago, and seeing how entrepreneurial businesses like Tencent and Alibaba were built, and the leadership inside those companies, was fascinating.

I look at someone like Mercado Libre and what Marcos has built there over time, with largely the same team since inception. They’ve executed against competitors who came in and tried to disrupt their markets—much bigger, better-resourced global companies—and defeated them.

There’s something magical that happens when you have strong leadership, great teams, collaboration across those teams, and a lot of ups and downs that everyone experiences together. It creates so much resilience.

I’ve seen that play out time and time again.

In today’s investing climate, with the cost of capital having returned and likely to persist—we can debate at what level—you’re seeing winners and losers across industries in ways we haven’t seen for a long time.

That’s super exciting for us as actively engaged, research-oriented investors who both own stocks and short stocks, because execution is mattering. The free lunch of zero interest rates, when there was money for almost everyone forever, is over.

You see it across all kinds of categories: Boeing versus Airbus, Hermès and LVMH versus Kering and Burberry, DoorDash versus everyone else in that space, or Uber versus Lyft.

There are so many examples of winners and losers becoming much more pronounced. A lot of it is strategic decision-making, and a lot of it is leadership and execution. Those things are closely tied together.

Could you enumerate the things you see winners in those pairwise examples doing versus the losers? In some categories, such as aircraft manufacturing, they’re still making airplanes. Uber and Lyft are both still driving people around.

What are the winners doing in a real cost-of-capital environment that the losers aren’t?

It’s a bunch of things.

Number 1: There’s a really clear strategy in terms of what the company is focused on. So many companies have 8 different initiatives happening simultaneously, and there’s a lack of understanding when you talk to people inside the company about what actually matters and what they’re driving toward.

Number 2: There’s a culture of accountability and measurement. Some companies have it, and it seems obvious. People are bonused on certain things, create forward-looking plans and budgets every year, and either hit them or don’t.

But some companies are religious about making those thoughtful, accountable exercises, and others aren’t. That shows through.

Number 3: The companies treat their consumers well, whether they’re B2B or B2C. When you talk to customers—and we do this constantly as part of our research—you hear how they’re treated, and it’s different.

There’s someone for them to call. Their needs are being met. They don’t feel like they’re being aggressively raised on price or that price is being used as a weapon against them. They’re being serviced.

It’s different. Again, it goes back to accountability and an operating standard for how things are done.

Another thing is a long-term orientation. Some companies lose their way, particularly when there’s a lot of turnover. Incentives get set around stock prices or metrics that drive compensation, and people’s incentives aren’t aligned.

That doesn’t promote long-term strategic thinking. It filters down to the culture. People start cutting corners and trying to make numbers or hit a budget.

That’s a very different way to live as a company from saying, “We may miss a quarter, but this is the right investment to make.”

Companies that do a good job of balancing the short and long term are able to communicate a consistent level of execution to the market.

We joke internally, and I say this to management teams: Every time you open your mouth to report your quarter, your stock is up or down 20%. That tells me you aren’t doing a good job communicating your business and don’t have good visibility into it because you’re surprising the market every time you speak, both good and bad.

That isn’t multiple-enhancing for your company over time. It comes from how the internals of a business are run: the incentives, metrics, culture, retention, and all of the other things that serve as glue and distinguish better executors from poor executors.

Do you think the best companies understand the concept of cost of capital really well and actively drive it? If so, what do they do to drive down their cost of capital?

I think of it from the perspective of tradeoffs and a budget meeting.

In the era of zero interest rates, when the public markets rewarded growth at any cost for years, the disciplines inside many companies went away. Everyone was motivated to find new ways to grow regardless of the cost.

What’s clear in today’s era—and you’ve seen this with many of the big platform companies, particularly in the internet space—is a new religion around cost.

When you sit in a budget meeting or even an engineering meeting and put forward 2 or 3 initiatives you want funded, you’re asked how to fund them from your existing budget.

That is a very different orientation from saying, “This is an open pie that is limitless in terms of the dollars that can flow to you.”

If you want to do something, you have to convince someone that one of the things you’ve already been approved for should be sacrificed. You feel the pain, and it pressures decision-making around solving for the best thing or the best 2 things.

If you want more resources for a project, you have to convince people why.

That cultural orientation is the business translation of driving down the cost of capital: People understand that there are costs associated with every resource inside a company and think about those costs in a personal way.

I always say that when we look at our budgets each year for third-party data sources and all the things our analysts want to use, there are a lot of nice-to-haves. But what are the must-haves?

I ask our management team, “What if we made them pay for these things themselves? What would they actually keep, and what would they say, ‘This is a nice-to-have; I don’t need it’?”

That would force them to think about what has actually informed their decisions and helped them make better decisions, versus an input that was one of 10 and didn’t actually change anything for them.

What has been the worst period of returns you’ve experienced at Lone Pine? Tell me about that era and what you learned from it.

We’ll put aside the financial crisis because that was universal.

It was the end of 2021 and the first few months of 2022, and we learned a lot.

Referring to what I just said, there was a period when the market consistently rewarded the best-positioned companies with great unit economics that were investing meaningfully ahead of their growth rates. The market was forgiving and encouraging of that level of investment.

Many of these companies were funding extraneous things and burning cash. It didn’t matter as long as growth rates continued to accelerate and people were comfortable that the underlying unit economics were sound.

What happened was a lack of accountability around valuation and a lack of near-term valuation support. Everyone was looking at normalized, multiyear-out margin structures, discounting them back, and saying that was a fair price to pay for an equity.

They weren’t looking at whether, if something changed or went bump in the night on a next-12- or next-24-month earnings or cash-flow basis, there was valuation support.

The regime changed very quickly when people, ourselves included, started to realize that the Fed was behind.

We started having that conversation in the fall of 2021, and really in the spring of 2022. We owned a lot of these businesses that were leaders and, with the benefit of hindsight from 2025, were the winners.

A lot of the companies we owned were the right ones to own. We simply paid too much for them.

When the regime changed and it was clear we were going to enter a hiking cycle quickly and aggressively, we pivoted, but not quickly enough.

We took down some of the high-growth exposure that had been among the most profitable exposure for us over the prior 24 months, but not enough and not fast enough.

When we entered 2022, the market was down very quickly. It was like a rapid repricing mechanism, and we weren’t quick enough to react.

To the earlier point about believing we owned different bets in payments, e-commerce, and software, when the regime changed, none of that mattered. The nuance was lost, and they all traded like one stock.

We had too much exposure and had lost balance in the portfolio. I forgive that to some extent because the market had rewarded it for many years, but we didn’t act quickly enough or respond quickly enough to a conversation we were having, along with the market, about a different macro and interest-rate regime.

That was the huge mistake.

We spent a lot of time internalizing the lessons and studying all the mistakes: the moments when we had the conversation but didn’t make a change earlier, a year or 18 months earlier, and the decision we made at the time to move some capital but not enough and not quickly enough.

We memorialized a lot of that thinking and learning. We reinforced that there are many ways to make money in the market, and we had gotten too narrow in our purview. We lost perspective on balance.

The changes we made in the first quarter of 2022 reset the book to a much more balanced book with many different flavors of things in it. It wasn’t top-down or prescriptive, but we prioritized balance in a different way.

We also went back to sectors where we had a lot of domain expertise and historical success, but had moved away from because the excitement around high-growth, internet-oriented technology had been so intoxicating—not just for us, but for many investors attracted to value-creating growth businesses.

We didn’t own Nvidia. It wasn’t 3 stocks that drove the whole portfolio. The breadth driving our performance is very Lone Pine-like to me, and it’s something we had gotten away from.

Can you describe the perfect business?

It’s all the things we’re searching the globe for.

We want incredible leadership, really strong unit economics, a strong moat around the business, something differentiated, an incredible value proposition for the customer, the ability to grow organically without investing meaningful capital, and a huge runway for growth that can last many years without being disrupted.

What about the perfect investment? I suspect that when the perfect business exists, the world knows it.

I think it’s a change in leadership, a new product the market doesn’t fully appreciate in terms of its capabilities, how large it can become, how accretive it is to margins and returns, and how little capital it requires.

It can be ways to leverage the core intellectual property of a business in new channels and products. It can be the value of distribution, which we discussed earlier, and how that is underappreciated in certain businesses, along with the ability to flow other products and services into that distribution.

Sometimes it’s simply the benefits of scale. A company gets to a certain size, and its market power step-functions. That somehow improves the value proposition and flywheel in a way the market doesn’t fully appreciate.

We see this now in the alternatives space. These businesses are mostly public, and that’s relatively new. KKR, Ares, and others have the ability to offer unparalleled customer service, product innovation, opportunities for talent development, and new channels of growth.

The flywheel is spinning on its own in a way that I don’t think anybody could have anticipated.

The bear case is that, as a new asset class of public companies, we haven’t really been through a big cycle. How will they perform?

The other thing the market struggles with is how to value the carried-interest component of their revenue model. Everyone can value management fees and make a projection about how AUM will grow, but what do you pay for carried interest?

That’s interesting to me because we can do the work, have a point of view, look across cycles and products, understand how they’re growing, think about how funds perform, and come up with a thoughtful analytical answer.

But there isn’t a market answer to that question yet.

These companies are still underowned relative to all the big institutions that have to index and own them, and that will have to own them in larger size as they grow.

The idea of a new asset class is interesting to me, even though Blackstone and others have been public for a while. All these companies have become newly public over the last decade, and I think the world is still figuring out how to analyze and value them as public companies.

I love the idea of investment opportunities coming around change. I was with John Zito from Apollo, who was just made co-president of Apollo, and it’s interesting because I doubt Apollo’s stock price reflects all the things John might do in the future. He’s an amazing guy.

I’d love to apply that idea to a couple of different sectors. You mentioned a broader purview, getting back to some of the things that originally made the firm. Obviously, Steve was a consumer and retail analyst.

Outside of big TMT, which we can talk about too, what are the top 3 sectors you find yourself spending time in now?

We own a lot of one-off ideas in nonbank financials. Alternatives are one example, but we have a number of single-stock, nonthematic companies doing interesting things.

One involves transformative M&A at scale. Another involves product innovation. Another isn’t an AI business, but is using AI thoughtfully inside its sector.

That’s an area where we typically don’t do a lot with the banks. There’s regulatory risk, and we don’t think they really measure against our quality filter as businesses. But there are pockets inside financials that we think aren’t well covered and are pretty interesting, and we have a great team doing research there.

We’ve also been investors for almost 2 decades in the aerospace market, both OEM and aftermarket, and we continue to love those businesses.

They have all the attributes of businesses we like: great organic growth, pricing power, and a lot of recurring demand. As people fly more, planes get used more, and there’s a need for replacement parts. Components get specified into planes as they’re being built, so they’re typically single-sourced or sole-sourced.

They’re a very low cost as a percentage of the overall plane. They’re recurring-revenue businesses with a lot of pricing power and very little capital required to grow organically.

There’s a good open-ended structural story around people traveling more and valuing experiences. That will continue to be a productive area for us. We’ve owned a bunch of different names in that ecosystem and will likely continue to own them over time.

Consumer is harder. We’re more active there on the short side than the long side at this point because there’s an inherent maturity to many of those businesses.

For the scaled winners, even watching the revaluation of Walmart over the last 18 months has been interesting. They’ve emerged as a more consistent executor, and Doug has done a fantastic job with the business.

Walmart is now trading at a fairly hefty multiple, and Costco is trading at one too. These are the best executors in the space, and they’re expensive. I think the market has figured out that they’re the winners, so there’s less runway for long growth that’s underappreciated, or fairly valued relative to the actual level of growth.

One of the things we deal with a lot is that in areas like health care—and this happens in certain sectors and geographies—there are very few companies with high growth or exposure to a theme the market is excited about because of their geography or sector focus.

We like those businesses too, but they tend to trade at valuations that don’t stack up against businesses we see elsewhere in the portfolio that are more compelling.

Even though we’d love to own many companies around the world, we’re always waiting for a wobble or a dislocation or a perceived competitive threat to give us our chance to own them, because they don’t stack up against owning more of the compounders we love.

If you think about the whole industry, what do you think is the biggest problem facing the investing world?

The fund flows of the last bunch of years would tell you that active management is undervalued relative to our understanding and execution of that value.

The move to passive—the idea that you can just own the Magnificent 7 and do it yourself, so why do you need us—has become cocktail-party chatter.

We’re obviously huge believers in active management and in the value of doing fundamental analytical work on companies rather than indexing. The premium for that is undervalued relative to its worth.

Part of what makes this a difficult conversation right now is the market’s short-term orientation. We’re focused on compounding over a very long period. We’re the largest single investor in our fund, and a third of the assets are internal capital.

What I wake up every day excited to do is compound my money alongside our limited partners. That’s a compelling proposition for a potential client of our firm.

But that doesn’t happen in a day, week, or month. My investment underwriting isn’t tied to that time horizon. We want to be judged over a year, not quarters, and we’re increasingly in a market evaluated over weeks and months, per the pods conversation earlier.

In many pods, if you don’t put up results, you’re going to get your capital yanked. You take risk, or you have to de-gross. These activities never existed 5 or 10 years ago, but now they’re the market force at work.

That’s great for long-term investors like us. I want to lean in when they’re leaning out, and vice versa. But the value and benefit of doing that takes time to reveal itself. It isn’t going to show itself in a quarter or a year. That’s what the market is missing.

Say one more thing about how the pods work from your perspective and the weird incentives inside them.

Inside these shops, you have 20, 30, or 40 desks, or pods, covering a sector. They all look at the same data and sit in the same meetings and on the same calls. Of course they talk to each other because they have a peer network.

Often, people can start their own firms. I’ve never worked at a pod, but I have several friends who have worked there, still do, or came out of them.

You can see how everyone is lined up. You might have 20 or 25 books long a stock into a quarterly earnings report and conference call. The numbers come out, and the company did better, but it wasn’t better enough because the whisper number and the data suggested it would beat by 3 points, and it only beat by 2.

The stock is actually going to sell off.

The game of handing me an earnings release and asking me to tell you what the stock will do was a fundamental game we were pretty good at a decade ago. Now it’s almost a coin toss.

What’s the setup? What’s the whisper number? How are the pods lined up? Are they long or short? That will dictate the trading action on the day and the opening-market reaction, versus what happens over the course of the day.

Maybe everyone is covering the short because the result was bad but not worse. That happens all the time.

It requires different muscles from us in terms of how we position ourselves and respond to it.

People in pods have drawdown limits. If they draw down beyond a certain amount on a monthly or quarterly basis, their capital gets pulled. That’s the life they lead.

What you see in market action and reactions to events is a function of those incentives and structures.

This has been incredibly fun. It’s so neat to hear how the whole machine works, and about your career, competitive nature, and tennis.

I always ask the same traditional closing question: What is the kindest thing anyone has ever done for you?

The summer after my freshman year of college, I taught tennis at a camp in Florida. There was a golf camp at the same resort, and I became friendly with the golf pro.

We’d meet after I was done teaching for the day, and he taught me how to play golf that summer. I don’t play anymore, but I did at the time.

At the end of the summer, the last night before I went back to school, we had dinner together. He said, “Can I tell you something?”

He was probably 32, and I was 18. He said, “You are so driven and intense. I can tell that I’m excited to follow your life because it’s going to be really interesting. But you’re also an incredibly soulful person, and your relationships clearly matter to you.”

He said, “My piece of advice for you would be: Figure out who in your life matters to you, figure out what matters to them, and then show up for them in all the ways that matter to them. That will be a rewarding life for you.”

He said, “I think you’ve got the professional part down,” which was very sweet.

I take that to heart and work really hard on relationships and on showing up for the people who show up for me, for the things and people that matter to them.

One follow-up, because that’s a beautiful closing thought. How have you gotten better at that?

If someone said, “Here’s a simple method; I want to do that,” what are the tactics for getting better at it that you’ve learned?

Making sure it’s mutual.

Relationships change, and people’s lives change. I just turned 50, and I recognize that some friendships and relationships that have had duration in my life are more a function of circumstance. I wouldn’t necessarily choose some of those relationships today.

The inverse is also true. The relationships that have duration and are still the most meaningful are the most valuable.

It’s the concentration theory of both investing in your highest and best ideas and investing in the people who are incredibly meaningful to you because they’ve seen you grow up, grow, and change.

The other piece, or postscript, is leaving room for something new. New relationships help us grow. We’re different from who we were when we were 20, and the new people you meet and connect with today wouldn’t be the same people you met 30 years ago.

Beautiful closing thought. Kelly, thanks so much for your time.

Thank you. I enjoyed it.