Winners Win

Lessons from Ken Griffin / Neil Mehta Interviews

Something I’ve been struggling with is my internal voice. I’ve been working on “self forgiveness / kindness”, but those goals felt too passive. I care about doing things right and have always been very hard on myself, so replacing my wildly unhelpful thoughts driven by passion with “it’s okay” just seems… weak. Weak and full of surrender.

Anyways, I was relistening to Ken Griffin’s Stanford talk and at 5:31 he said something I completely missed the first time through.

Q: I want to hear more about some setbacks you faced scaling Citadel

Ken: Actually, I’m not going to answer that question. I think what’s more interesting is how you actually build the business… What I’ve learned is we spend way too much time analyzing what goes wrong rather than thinking about what goes right. “What goes right” is the flywheel that is going to drive your business… you need to focus on what you nailed… whereas if you focus your time on the “no”s you aren’t focusing on what it takes to win.

Hang on. Is Ken Griffin, the cut throat quant savant, a self-affirming, visualizing hippie? What if self-kindness doesn’t mean less pressure, but reframing focus to what went right and the next steps for improving those wins. Life is all about simplifying complex problems. What’s the simplest way to become a winner? Win. So it follows that my focus should be on studying how I’ve won and how to build on the win % without caring about the absolute level it’s at for now.

So, what have I nailed?

1. Fostered my passion

Simple. I’ve loved learning about beating markets and haven’t lost my eagerness to continue.

2. Learned from others

1. During COVID I mapped out who followed / interacted with who and seemed to be sharing good ideas to curate a following list I could scroll for hours with and absorb the thought processes

2. Read 10-ks, VIC posts, threads, and interviews aggressively to see more at bats

3. Posted my own ideas to the blog (and a lot of drafts that never made it out of DMs) and entered undergrad stock pitch competitions to get reps; quality has definitely improved and the ideas have generally been successful + won 3rd and prize money at Cornell’s

4. Took the Fundamental Edge course to accelerate my development and am studying for August CFA right now

3. Getting physically in front of people to make personal connections

1. Trips to NYC to meet people and hustling Markel / Berkshire; at BRK I recognized Krish & Nikhil from their Sohn pitch and chased them down to introduce myself. They said I was the only person to recognize them from it.

2. Went to ICR and convinced David at Kingdom to meet me before. Brewster had left but had forgotten a pillow for his shoulder surgery at his hotel so I rented a car, moved my flight back, and drove the few hours to deliver it to his place to meet him, parlayed that into some introductions with his buddies

3. Literally yesterday I rented a car and drove ~5 hours to catch up with a mentor I met at BRK after my family’s Memorial Day vacation

4. I’ve also gotten much better at picking up the phone and cold calling or cold DMing people even outside of the investment industry to continually learn more and make more connections

4. Gritty-ness

I haven’t let the setbacks or detours kill my passion, stop me from growing my network, or working on my process. I may not have responded optimally, but it hasn’t put an absolute stop to my wins and I’m accelerating out of the hole. Won’t get into too much detail on a public blog about this.

Sorry for the lame hype up at the end, felt like it would be good for me to get it onto paper and decided to keep it in the post because why not.

Anyways, I also read this really good post the other day by Thomas and I wholeheartedly agree (and consciously know) that the mistakes are the tuition and so I need to keep making them as well as I can. My biggest frustration is that I’ve felt like I’m learning from them far too slowly, but focusing on the wins should help me work through the discouragement from that.

I’ve attached my notes on Ken Griffin & Neil Mehta’s recent interviews & profiles as I found a lot of similarities between them.

Ken Griffin (Citadel) Notes

Grit / Mindset

“Things may come to those who wait, but only those things left by those who hustle” - Lincoln

Dead serious when telling the interviewer that View From the Top should be View From the Climb; he wanted to do PE originally, joked that he hasn’t done what he set out to do. He has not done what he will be remembered for yet

Ken spends a lot of time studying firms that had accidents to study what went wrong. Costs money to learn (tuition isn’t free, losses are always to be thought as of tuition) but doesn’t mean you need to always be the one paying it!

Tuition bill is the wins and losses; nobody in the room is more wrong than him.

Mentorship / Team

Mentors are everything. American culture is cross-generationally kind & generous; always surround yourself with people who r better than you

“Forge your way through hell. Never give up, when you are going through hell make sure you push your decision making to people you can trust to stay level headed”

Still remembers the phone # of a trader he would call many times a day to talk shop. Would stay in their office after school every day in college.

Thorpe shut down and Griffin showed up at his house with mentor. Thorpe showed him old physical warrants / converts that were not anywhere else. Thorpe became the first LP of Citadel

Find people who care about and take interest in your career (doesn’t mean always the nicest)

People pushing you won’t always be kind, but always want to be finding people to push you

Citadel forges talent, that implies pressure. They add pressure to people

Strategy

Take career risk in your 20s with no kids / mortgage. He started Citadel at 22. His backers backed him because he started it in college and had proven to be resourceful

Strategy is severely underrated. Spends a lot of time strategy planning

Startups need to think outside of the box to attract customers under the radar. The most important thing: what do we think we can do better than those we compete against?

Supposedly has everyone at Citadel read Hardball

Success is back weighted. Optimizing for growth at the expense of durability is wrong, most profitable years are the out years

What did Citadel do right when scaling?

1. Hiring

Paid bright undergrads and grad students well and promised responsibility

Selectively brought in people with expertise to mentor the young team & set an example

2. Quants / Leveraging Tech

Wall street was very skeptical of quants at first, Ken was made fun of for hiring rocket scientists

Citadel had tensorflow running trades within 10 days of it going public

3. Good communication & idea generation

Citadel is a risk taking firm; he gets paid to take risk & wants to do so. Their main output is research and the trades are simply monetizing it (need to know what moves stocks)

Winning

He takes pride in fostering a culture of winning at Citadel

People need to think about what you did right more often, focus on the “no”s then you aren’t focusing on what it takes to win “what did we get right?”

Ken heard “no” a lot: in ‘94 Citadel lost 4% of capital. Went to Switzerland to raise funding, sat down for lunch and the guy immediately left realizing he wasn’t John Griffin (Blue Ridge). Swiss banker let him sit down and talk for an hour and a half then told him that he was a bright young man wasting away in the wrong career

On John Arnold’s 3rd call, he agreed to talk with Ken when he got back next week from a conference. Ken’s response was to fly to Aspen the next day to meet quicker than a week

Citadel interviewed EVERYONE at Enron to reverse engineer biz knowing ppl looking for a new job with no fiduciary responsibility would be free with info - probably several hundred people

Made $30 bn in commodities since Enron failed

In 1998, (Ken is 30), he met with people at LTCM to understand how the firm loses 90% of its equity and stays in business. Much of what they learned helped Citadel in 2008

Investing Related

Win / loss ratio on market making is 52% and they make ~1 mm trades an hour

All the leading edge math from derivatives trading in the 80s that powered Citadel to alpha early on are textbook problems today. Markets are more competitive today because of sector expertise. Everything from Ken’s world in the 90s is not relevant today

Great investors:

1. Good partners w good judgement is centering force in hard times. Ken gets emotional and has ppl talk him down from positions he gets tied to

2. Great investors have great clarity of where their edge is, they do great research to create differentiated viewpoints then are willing to commit capital on those viewpoints. When wrong, they can let go of their position to acknowledge their error without tears

Legendary investors know when they have an advantage and they press it. When they are wrong they move on

3. His best stock pickers are right about 54% of the time in alpha terms

Neil Mehta ( Green Oaks) Notes

Similarities to Ken Griffin:

His LPs give him courage (like Ken’s partners)

Has a clear answer on what they have gotten better at over 2 years

Visualizes his priority (prints out list of S&P 500 constituents / Ken put risk metrics on wall)

What % of employees / founders see their best days ahead vs behind similar to Ken hopinghe hasn’t done what he will be remembered for yet

Does extra mile & travels (SK CPNG, don’t waste meetings like Ken)

Clearly laid out strategy; focus on how they win not what competitors are doing

Purpose / Focus

Neil says Green Oak’s success is from focus, not talent (can donate 20 IQ points); defines focus as saying no to everything else to do the most important thing.

GO’s central thesis is that only 10-100k out of the 100 bn people to ever live have affected the technological progress of humankind. GO will find the next few hundred and back them

They isolate for jaw dropping consumer experiences (JDCEs) in business models that can produce real gross profit per unit to drive FCF with a large enough TAM & growth to become a meaningful contributor to the S&P 500. Printed a list of S&P 500’s constituents so that everyday he is thinking about what could join it next

Neil is excellent at always having first principles thinking and evaluating ideas for what they are

If he could only ask 1 question to ask / think about when analyzing a company: “what % of employees / important people believe that their best days are ahead of them vs behind”

Origin / Development

His grandfather ran an artisanal gun store which taught him the beauty of quality

Met Benny through his little brother (roommate at Penn) who as a freshman knew about KG / KD financing structures for cruise ships & also worked at DE Shaw

Worked at Kayne Anderson post-grad then in ‘07 moved to HK (24 years old) to work with a mentor in special sits & RE for DE Shaw

He would be looking at distressed European banks (30 mm total deposit holders after 150 years) and then see QQ (WeChat precursor) adding 30 mm users a month; lost interest in day job and his boss let Neil work on interesting things at the expense of work

At 24 he raised $3 mm after meeting Imagi founders (making Astro Boy movie) to finance the company through production; made over 3x return in under a year

In 2011 (27 years old) moved back to SF to start Green Oaks with Benny out of a backroom office of insurance broker; had friends at BX print their decks out

Henry Kravis was a seed investor. Pitch was: this is the next big thing and we are early to a 20-30 year trend. 30-40 minute presentation outlining PLTR, Oyo Rooms, FlipKart, & CPNG as opportunities. Themes were founder quality, returns math, and business model analysis.

First official investment was $3 mm secondary transaction in Palantir. Flipkart (now largest ecoommerce co in India) and OYO Rooms (another Indian unicorn) were other early bets

Green Oaks Specifics: What Drives Success?

Green Oaks has generated over $13 bn in gross profits (33% net IRR); 5 funds of 55 core companies across ~$15 bn of assets managed by a team of 9

Focus (Form Follows Function)

Mission is to find founders building great businesses, become their single most important resource, work tirelessly to invest in them, then become their most important partner

Believes their process is repeatable; in the office 80 hours a week, like each other, are high performing, and LOVE investing. Highly focused and take pride in their research level

Benny is Neil’s partner, talks together more than with their wives. One of best partners, never frustrated with each other

Benny & Neil spend several hours discussing companies throughout every day. Will spend 1-2 out of those 6-8 hours bringing in other coworkers / friends to the conversation. Goes home and puts kids to sleep and then they go back and keep talking on the phone from 9 PM to 1 AM

Most opportunities are said no to; don't get discouraged because they love the “art” of wins

Monday mornings are for GO pipeline meetings; discuss to-dos, things to drop, and how time will be organized. At 8 PM takes the team out to dinner (won’t see family that day). T/W/T are for calls & company meetings; Friday’s are his isolated deep work

Mindset

Has been described as having an insane internal locus of control

Neil almost got into a physical fight 6 months into Kayne Anderson with a coworker about differences in opinion on an investment.

He cold emailed hundreds of people upon founding and attracted attention via his energy & ability to do deep work.

More impressively: Neil came up with the name Greenoaks to sound legit and approach Bom Kim to offer capital

Strategy

Originally GO wanted to leverage an insurance float. PNC bizs in EMs followed the same curve where if you charged GDP / capita on X axis and insurance penetration as % of GDP on Y axis there was an S curve until rich countries hit 10-12%. Therefore, foreign insurance cos are levered bets on specific emerging markets

GO raised $150 mm to do buy controlling stakes; went terribly

Bought 75% of a Pakistani insurer (Neil is Indian, Benny is Jewish, both are American)

Bought another in Rwanda, touted as Singapore of Africa. They were losing $1.80 for every $1 they wrote as the best underwriter; discovered nobody audits so competitors were writing more premiums YoY to hide the losses. They had to fight a claim in court and the defendant was the guy who “died” and the case wasn’t immediately closed.

Taught them a lot about quality of founders & businesses they want to spend time on

Believes the laws of great businesses never change. Do you delight customers? Do you have a competitive advantage? Is it a large market opportunity? Is it a good structure? Targets their perceived repeatable archetype of great founders

Does not worry about competitive advantage over other VCs because he doesn’t think they run the same strategy; puts his energy instead into making GOs strategy work

Believes VCs do not have the same mission as GO; too much focus on coverage today which he believes is nothing but noise. Investing is a game of reducing noise

At Series B, based on financial metrics all companies basically trade at similar valuations, so it’s all about generating differentiated insights to figure out who is the winner

Green Oaks has a mix of hardcore fundamental thesis + backing best founders; Neil doesn’t think great founders start bad businesses bcz fundamentally to be a good founder you must think in TAM, scale, competitive advantage, and jaw dropping customer experiences

Do rigorous financial & industry analysis to get the most out of 1st meetings and prove to founders they “get it”

What have they gotten better at over 2 years?

3 ways to make money: speed, information, or differentiated insight. Gotten better at arriving at all 3 and developing the flywheel. Are a better partner today by leaning into contrarian DNA.

Elon Musk is their example of outsourcing research; didn’t do primary work and will never let that happen again

They are looking at: will this company delight consumers in the 10s of millions over time, produce real gross profit per unit, & be a FCF machine run by a great founder that will compound for next 10 years?

Contrarian

Necessary to have a prepared mind because vol moments don’t usually change end states

Examples:

TripActions (end to end corporate travel / expense management) - COVID dropped revenue from $100 mm to 0; GO offered up to $500 mm to go win market share instead of turtling after 4 days of underwriting. Jumped to top 2 in market share today from #4-8

Rippling: Used SVB for rails. Needed $500 mm to be able to pay customers without any hiccups and GO underwrote and invested by Sunday based on a Friday AM call

Carvana: CVNA always had better customer reviews, superior infrastructure, and was competing against local incumbents with worse offerings. Bought ~4% of CVNA during the fall due to bad acquisition timing (debt based infra buildout) into a weakening market.

2 questions to answer:

1. Is this a one time thing? Biggest peak to trough in used car market

2. When will the company go bankrupt? Was losing $3k of EBITDA per unit and another $2k on interest payments

Used car market is about ~40 mm units / year. CVNA was 400-500k units, could they get to 2-5 mm units over time? Debt was rly reflexive, if you got the unit economics and growth runway right it solved itself

Ernie wasn’t worried about himself, went into enormous detail talking about not only getting CVNA through this but doing so in a way that his employees could be proud of. Neil was really impressed by how Ernie slowed down; GO believed there were a decent amount of runway and there were operational levers to fix the business. Ernie didn’t do the fixes because he was doing AB tests to make sure he was making the right changes

During CPNG’s Series B (2014) they had 8% GMs and VCs were comparing it to AMZN & asking why they weren’t the same as AMZN’s 30%. Should have looked at it by category because ecommerce retailers start out with unfavorable agreements with wholesalers and manufacturers which are renegotiated over time as it builds scale. The thing to focus on was the JDCE & how margins would expand over time; Neil realized people just weren’t doing the work

In fall 2017, Kim Jong Un made comments about the US, and Korean equity sentiment went to shit. GO leaned in and gave CPNG another $500 mm after flying to Korea and re-assessing

Henry Kravis said Greenoaks returned capital to investors in 2020-22 instead of blindly chasing

CPNG

Put 40% of first fund in CPNG; let 5 out of 8 fundraising rounds ultimately investing $1bn

Neil is lead independent director of CPNG today and are still buying shares as of 13F

1. Unit economics

2. Driving throughput (inventory turns, supplies, etc); took 2-4 years to build the flywheel. Coupang built a new warehouse management system, new software (like how Fedex never takes left turns because on average they take longer)

3. Building warehouses, distribution points, shipping areas (not a lot of space in Korea)

4. The right packaging (low waste); where do you place the boxes to be safe but not disruptive to homeowners

Average retention pre 1P for market was in the 30s; Rocket CPNG was 60s

Bom’s traits:

1. Focus - finds most important things and only work on that

Bom would spend weeks on COGS contract renewals on baby products

2. Ambition - believed 1P capability could unlock best service in world; credible aggression; Bom was always working

One of the hardest things for CPNG was bringing growth mindset back after it de-accelerated

Fun / Truly Other:

Henry Kravis was one of the first investors; despite not being in dress code, he heard them out and committed. Came into the bullpen once and told them “hope you guys are making me some money”, lots of other funds he invested in have similar stories. Meant a lot to their young team.

Actively seeks out critics: asked for criticism at a dinner w/ young ppl

1. Successful early, but what have you done lately?

Investments are developing and will be visible with time just like their first ones

2. Higher priced rounds that don’t make sense from the outside

3. Pushing team too hard: run team intense + fire quickly

That’s how they like it and enjoy it

Thinks Yuri Milner is the goat; Masa is an easy answer

Came from Japan with no English and was ostracized. Learned English and made one of the largest companies in Japan and was the richest person in the world for a moment. SV is insulated and makes fun of him (hint of xenophobia)

Masa’s investment in ARM was labeled stupid; semi analyst runs out a list of reasons it won’t work. Masa responded “he fails to realize the market is growing” and stands up for his entrepreneurs meaningfully (Doordash / CPNG)

Yuri was the first to invest in a $10 bn, money losing software co. First to make a category defining investment in a category defining company in a category defining industry

Absurd impairment ratio at DST; doesn’t happen

Mike Moritz reached out when Neil got political backlash offering support. They weren’t close at the time due to working as competitors

Musk quote on “every X process is wrong” because systems were invented before our progress in carrying them out advanced; can always improve

Kindest thing: HS mentor chewed him out for celebrating a goal ridiculously, taught him to be classy and humble

Supposedly invested $500 mm+ into SSI at $30 bn valuation (6x more than previous round half a year earlier); no confirmation from SSI or GO (no product yet, only when completed)

In HK, did nothing but work and learn about founders and stuff. Met his wife in college…curious how he managed that

Believes AI cos are currently bad business models. Huge capital investments up front to create the asset, worth some amount of money which depreciates quickly forcing huge reinvestment needs; like airline unit economics bcz constantly fighting for best fleet