A Conversation with Lee Ainslie, Founder and Managing Partner of Maverick Capital

Lee S. Ainslie III is the founder and Managing Partner of Maverick Capital. Before founding Maverick in 1993, Mr. Ainslie was a Managing Director of Tiger Management. Mr. Ainslie serves on the boards of the Robin Hood Foundation, the Partnership for New York City, the Economic Club of New York, the New York-Presbyterian Hospital, and the Episcopal High School in Alexandria, Virginia. Ainslie received a B.S. in Systems Engineering from the University of Virginia (Westmoreland Davis Scholar and Thomas Pinckney Bryan Jr. Scholar) and an M.B.A. from the University of North Carolina (Beta Gamma Sigma). Mr. Ainslie and his wife, Elizabeth, have two sons.

Dickson Bowman (BT): How did you initially get interested in investing, and was there anything at UVA or before that piqued your interest?

Lee Ainslie (LA): It really goes back to when I was in the eighth grade. My father was head of the high school, and the high school decided to start an investment club. I was the nerdy computer guy, and the club asked me to put together a program which would track which students picked which stocks and how those stocks subsequently did. Even though I wasn’t in high school, I thought that the idea sounded interesting, and I asked the guy who was leading the effort to join the club. I’ve been focused on stocks as a hobby ever since.

BT: Were there any important characteristics for investors that the investing club helped you develop?

LA: We learned the basics of what a PE ratio was, what market cap was, etc. I wouldn’t say that we were highly sophisticated. We viewed it more as a game than anything else, and frankly, it wasn’t clear to me that there were job opportunities other than a stock broker. I didn’t really have an interest in being a stockbroker, so I went to engineering school when I went to college. I wasn’t necessarily interested in investing as a career then.

BT: How do you think going to engineering school has helped you as an investor?

LA: I would say that going to engineering school gave me a lot of tools that have been helpful in the world of stock picking. It gave me a strong math background, and because I was a systems engineer, I had a strong background in decision theory. A lot of logical skills are developed through that curriculum, and indeed, it is very common in the world of investing to have an engineering background. 

BT: Julian Robertson was a great mentor for a generation of investors, and you’ve also mentored your own cadre. I was wondering whether you could speak to the role of mentorship in the investing world, both in terms of mentoring others and finding a good mentor for yourself.

LA: Julian Robertson certainly created an environment with a lot of really talented people. He instilled some lessons in terms of the importance of integrity and ethics, quality management teams, and having a deep knowledge of not only a certain company, but a deep knowledge from all perspectives, including customers, suppliers, and competition. The insight which was most special was the fact that we were all working with really talented people, though we didn’t recognize it at the time. Not only did we learn a lot from Julian, but we learned a lot from each other. Indeed, even though I left Tiger Management in 1993, the relationships I developed there are still some of my most important ones. 

BT: Can you speak to your mindset when you left Tiger Management and what your goals were when founding Maverick Capital?

LA: The mindset can best be described as young and dumb. At the time, I really didn’t have a full appreciation for the challenges I was about to take on. I was newly married, didn’t yet have kids, and probably had a little too much confidence in my abilities. Most importantly, I didn’t fully appreciate the challenges of getting to a scale that really allows you to persist over a long period of time. 

Over the last thirty years, I’ve seen many talented people go out to start their own funds, but unfortunately, they’re unable to raise the requisite capital or have a tough year or two even though the next twenty years could be great. I was fortunate in that we were able to raise capital early on, and most importantly, I was able to convince talented people to join Maverick in the early years. Even though they recognized that for the first few years that this might not have been the best decision for them economically, they have confidence that we could build something in the long term. It was really that ability to work with talented people that allowed us to have early success.

BT: How has your investment philosophy evolved over the years? Have any catalysts forced you to evolve?

LA: I wouldn’t say that our philosophy has changed. Our objectives have stayed the same. We still use a slide in our presentations from 1994 which has barely been changed. The first line is “Our objective is to preserve and grow capital.” From the beginning, we thought about the balance of generating returns while still preserving capital in challenging market conditions. We maintain a balance of long and short investments in every region and industry in which we invest. We try to have alpha drive our returns instead of what the market is doing. That philosophy is something that we put a lot of thought into before we started. We haven’t seen a need to change it.

What has changed dramatically is our ability to execute upon that objective. I couldn’t have dreamt of the tools that we have at our fingertips today. For example, in 2006, we went down the path of quantitative research. When we think about risk, we do so in a way today that is far more sophisticated than anything I could’ve dreamt of twenty years ago not just at taking into account our exposures or looking at exposures on a beta-adjusted basis, but in terms of many factor biases, many scenario analysis, sensitivities, and macro factors. 

We also took a more recent step in 2016 to go down the path of alternative data research. Today, in every industry in which we invest, we use alternative data to help us understand real-time business trends of the business we’re considering investing in. In some industries, this feedback is very material, accurate, and timely. In other industries, it’s just indicative. We’re really in the first or second inning of that effort. These are tools that fundamental investors typically don’t have. 

What’s really interesting is that we’re trying to address the same questions, but we’re doing so in a far more sophisticated and comprehensive way. For example, we’ve probably taken thousands of consumer surveys in our history. We spent so much time historically talking to store managers and regional managers to try to get an understanding of business trends. For certain businesses, we found it helpful over time to order products every now and then to see the P.O. number to try to figure out why the P.O number went from 1232 to 1485? Well they sold 260 something P.O.s. 

We started scraping websites in the early 2000s to understand real-time business trends. In hindsight, those efforts were very kindergarten. They were very anecdotal and inconsistent. If anything, we probably put too much weight on those efforts. Now we are able to collect data on a scale which is far more comprehensive and consistent, allowing us to build statistical models where we can see to what degree the data is predictive or not predictive. We have a far more sophisticated effort now than we could have even made back ten years ago. The important part is that we have this mindset that every year, we’re going to do our job and become better investors. 

BT: What habits can students develop early on to make them successful later?

LA: First and foremost, it’s necessary to understand the importance of integrity and maintaining high ethical standards. Once you make a mistake, it changes your reputation for a long time. This is a business where you often don’t get second chances. Secondly, we’ve come to the conclusion that the trait most highly associated with success is simply hard work. In this field, there are a lot of really bright people, but the math is not that complicated. Most people can do a DCF. We’re not doing rocket science, unless, of course, you’re on the quant side. 

What really tends to distinguish people is not even hours of effort, but how intelligently people use that time. Are you just spinning your wheels to try to make something a tenth of a degree better, or are you truly moving the ball forward in a thoughtful way? 

People skills are also really important. At the end of the day, businesses are run by people who are evaluating other people. When you’re interacting with other investors, people skills are important to gaining respect and value from them. These are some values which are often undervalued in this competitive world. 

BT: If you were a student graduating from college in 2021, where would you see the best opportunities and how would you view the landscape, both generally and in the world of investing?

LA:  We’re in a world where, no matter what field you go into, data will play an important role. I would make sure I have skill sets which make me comfortable with using data and understanding statistics. Within investing, I wouldn’t necessarily point to quant as having the best opportunities because that area is quite specialized and to be in that area at a meaningful level, you have to have a deep understanding of data, statistics, and computer science. That area probably isn’t for everyone. 

But if you’re working in a firm, I would make sure that I had some of the tools which we described. If you don’t, you’ll have a competitive disadvantage. Don’t get me wrong–I don’t think Warren Buffet is hiring a quant team tomorrow. There are a lot of investors out there who will still have success with a more traditional approach. I’m just arguing that the odds of success will be lower. Therefore, the odds of being a successful investor will be the degree to which they take advantage of data capabilities which are out there today.

BT: You mentioned that this generation may go down as the “Generation of Greed.” How can my generation be different?

LA: That comment was made in reference to a few things. Some argue that with rates this low and debt payments to GDP being below average, the national debt isn’t a big deal. That argument is true as long as rates stay really low, but I think that there’s a fair chance that rates won’t stay so low. Your generation may be faced with crippling national debt payments.  Local and state governments have huge deficits as well. In the short term, I completely understand the need for fiscal stimulus packages, though I’m not so sure that tax cuts were needed. These actions were good for the short term, but not great for the long term. 

You can make the same statements with regard to the environment. The fact that we’re not being far more aggressive about limiting greenhouse gases, the number of plastic bottles produced every day, and other bad things for the environment is concerning. We’re probably not going to change the world enough by the time that I pass away. We’re going to hand some problems to your generation which will be tough to reverse. I hope your generation focuses on the environment early enough and strongly enough that you can leave the planet in a better place for your kids.