Moats Investing Nuances – Pat Dorsey (EP.509)
Episode publishedPodcast: Capital Allocators – Inside th...Capital Allocators – Inside the Institutional Investment Industry
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Switching costs can cut both ways because if you have high customer switching costs, then probably your competitors do too. It's hard to get people to switch. You have trouble growing in the high switching cost industries a lot of times. Network effects are often held up as the end all be all of modes, but network effects can degrade. People leave the network. The value of the community diminishes. The distinction between radial networks like Western Union or nodal networks. It's complicated. And that's honestly one of the fun things about it is that over time, you start to like everything in
I'm Ted Seides, and this is Capital Allocators. My guest on today's show is Pat Dorsey, the founder of Dorsey Asset Management, a $1,700,000,000 global public equity manager focused on companies with competitive advantages and long investment runways. Pat created Morningstar's moat research framework and led its equity research efforts for a dozen years before launching his firm in 2014. Our conversation covers the nuances of investing in businesses with wide moats across quantitative analysis, switching costs, network effects, brands, management, alignment, capital allocation, and reinvestmen
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Thanks for having me.
I'd love you to take me back to the early influences in your life that led you down this path to investing.
I'm not sure there were any. My father was a bureaucrat with the Food and Drug Administration, and my mom taught nursery school. My grandfather did a lot of investing, which showed me the mutual fund honor roll in the journal or Forbes. I wasn't one of these people who was reading Buffett's letters when they were in elementary school. Those kinds of people freaked me out of it.
Where did that academic path take you through school?
My undergrad was in political science, sub discipline called comparative politics, where you're studying how different political systems evolve and trying to draw conclusions from that. Look at a dozen countries that have transitioned from dictatorship to democracy and say, hey, can we observe any patterns? Which turned out to be unknowingly good training for what we do as investors, because you're looking at different businesses, understanding them in a deep manner, developing pattern recognition. I didn't know that at the time. After undergrad, I had a couple crappy jobs in finance just to p
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