Speaker unverified: observation

Transcript context

…There’s one point that you’re getting at here. It is part of the white paper of what we discussed earlier, which is about leaving money on the table for your customers and leaving money on the table for your partners. It reminds me a lot of when we did the Altos episode with Ho Nam. It’s really this idea that if you as the management team or if you as an investor who deeply understands the company knows that, in a way that other people outside the company can’t underwrite, then you can’t do a much more intelligent job valuing the company than anybody could with a brute force metrics such as industry average earnings multiple. Because if you actually understand, well our earnings could be this if we wanted it to, or our growth rate could be this if we wanted it to, but we’re making strategic trade-offs to not do that, then you actually have a unique ability to underwrite the company’s value and thus actually more of a margin of safety or more of a willingness to pay up than anybody else. It’s interesting being deeply studied about these companies where you do know that they’re sort of leaving something on the table for other participants that you can be more comfortable making an investment than other people can. I think that’s a really insightful point, Ben. The thing it gets too for me is duration of the asset, duration of the growth. When you leave money on the table, what you’re doing is you’re creating goodwill for your customers and you’re buying the company duration, which is oftentimes the way to maximize total value. When I think back about Ho talking about roadblocks, he was effectively saying, we just really understood how big this ecosystem could become. We kept seeing the value accrue and then it moved beyond our original investment case, therefore we became more comfortable investing more money over time. What people get wrong oftentimes is this duration because duration, if you can go 50% back to your earlier example, it’s extremely nonlinear if you can keep that flat. All the value comes in the tail. We’re just not very good at thinking like that. Our brains don’t work in that nonlinear fashion. But when you create more value than you take, and that’s your driving factor. and you want to take a lot of value, it’s a hard task because you have to all the times think of, how we want to take a lot? We need to create even more. How do we do that? And then, of course, that buy serration which is a feedback loop, sort of the happy feedback loop if you want to think about it. I think Morris Chang got this very early on and that’s what created TSMC into such a great company. It’s so good. Yeah, we touched on this a little earlier, but that is to double-underline one of the things about you on your ethos, that was kind of an aha moment for me is flat growth versus hyper growth. Flat growth extended over time will beat short-term hyper growth.…

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