Invest Like the Best with Patrick O'Shaughnessy

Dan Sundheim - The Art of Public and Private Market Investing - [Invest Like the Best, EP.460]

February 24, 2026

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  • Private markets are generally less competitive than public markets, though gaining access to the best private companies requires competitive relationship building. 
  • Dan Sundheim views the current LLM business model debate as centered on the extreme capital intensity required for training models and the unknown ultimate return on that capital, drawing analogies to Netflix/Spotify's fixed-asset amortization. 
  • The GameStop event in early 2021 was an emotionally difficult, defining period for D1 Capital Partners that led to a strategic pivot toward lower-risk portfolio construction, emphasizing 'singles and doubles' over high risk. 
  • Dan Sundheim secured his first job after his detailed, anonymous short-selling write-up on Orthodontic Centers of America on Value Investors Club caused the stock to crater, demonstrating the power of deep fundamental analysis. 
  • Sundheim believes the most beautiful and best businesses are low-cost producers with durable, positive feedback loops, citing examples like SpaceX (launch) and Costco (groceries). 
  • The single biggest tail risk facing the global economy, according to Sundheim, is a collision course over semiconductors involving the US, China, and Taiwan, which could lead to a depression-level economic event if the supply chain is disrupted. 

Segments

Public vs. Private Market Feel
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(00:03:58)
  • Key Takeaway: Private markets are less competitive in terms of idea assessment, but public markets are the most competitive globally despite being less efficient than before.
  • Summary: Public markets are the most competitive environment for generating returns through company assessment, even though they suffer from short-term economic irrationality. Private markets are less competitive in analysis because fewer people look at each situation, but gaining access to the best companies is competitive as they must want you as an investor. Private investors all generally agree on the quality of a company, unlike public markets where competitors play different ‘sports’.
Synergy of Public and Private AI
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(00:06:46)
  • Key Takeaway: Investing in leading private AI companies provides essential perspective on the technology’s trajectory needed to properly evaluate AI-impacted public companies.
  • Summary: The synergy between public and private investing is currently greater than ever due to AI innovation. To form a view on public companies deeply affected by AI, one must understand the current state and future direction of the underlying technology. Investing directly in private AI leaders like OpenAI and Anthropic offers this crucial perspective.
LLM Business Model Pattern Matching
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(00:07:32)
  • Key Takeaway: Dario Amodei’s written clarity reminded Dan Sundheim of Jeff Bezos’s early shareholder letters, signaling high conviction in Anthropic despite initial comparisons to a ‘Lyft to OpenAI’s Uber’.
  • Summary: The initial investment in Anthropic faced skepticism as the second player in a market, but Sundheim was convinced by Dario Amodei’s clarity of thought, mirroring the insight found in Bezos’s early Amazon letters. The debate around LLMs shifted from whether they were viable businesses (like airlines) to concerns over capital intensity and the speed of enterprise adoption. API commoditization is now considered irrelevant because the gross margins of leading LLM companies remain high.
LLMs as Netflix and Spotify
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(00:14:13)
  • Key Takeaway: LLM businesses combine the high upfront fixed-asset cost amortization of Netflix with the personalization stickiness that differentiates Spotify from commodity music providers.
  • Summary: LLM companies spend heavily upfront to train models (the fixed asset, like Netflix content) and then sell access at high incremental margins. Differentiation will come less from model quality (which disseminates quickly) and more from personalization and data history, making the service sticky like Spotify’s tailored experience.
Focus vs. Scope in AI Strategy
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(00:17:08)
  • Key Takeaway: The primary strategic trade-off for LLM executives is balancing the economic rationale of spreading fixed asset costs across many end markets versus the risk of not being the best at any single focus area.
  • Summary: The TAM for LLMs is vast, covering everything from consumer assistance to drug discovery, making focus a key challenge. Historically, companies rarely succeed by pursuing multiple end markets simultaneously, as A-teams tend to focus on one area. OpenAI has pursued a broad strategy (‘do everything’), while Anthropic focused on enterprise and coding, leading to differing market sentiments about which is currently winning.
Hyperscalers’ Future Under AI Pressure
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(00:22:43)
  • Key Takeaway: The hyperscalers (AWS, Azure) face margin pressure because their AI-focused customer base (LLM leaders) is concentrated and will likely insource compute over the next decade.
  • Summary: The hyperscalers’ business model is likely to worsen because their largest, most capital-intensive customers (LLM providers) will eventually find it economically sensible to bring GPU cluster management in-house. Currently, LLM companies use hyperscalers as a financing mechanism, but they may be better at inference workloads than traditional cloud providers. While hyperscaler growth may accelerate due to AI demand, margins are expected to be challenged by increased capital intensity and customer concentration.
Software Sell-Off and AI Absorption
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(00:26:45)
  • Key Takeaway: Software companies must evolve by integrating AI, similar to how Walmart integrated e-commerce, with systems of record being the most protected category from immediate displacement.
  • Summary: The market is moving past the initial AI build phase to consider which companies will be affected by the technology’s absorption into the real economy. Systems of record (like ERP/CRM) are relatively protected for now, as companies are unlikely to ‘vibe code’ core infrastructure immediately. Software companies that fail to integrate AI will likely see their business models degrade, even if they are not entirely displaced.
Advice for Young Investors
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(00:32:18)
  • Key Takeaway: Young people interested in investing should pursue their curiosity without being dissuaded by the potential for AI to arbitrage away future jobs, as betting against scaling laws is a low-probability assumption.
  • Summary: Adopting a pessimistic mindset due to AI’s potential is self-defeating; one should pursue interests as if AI did not exist. While it is likely that all current human work will eventually be automated, this is not expected to happen in the immediate future. The only coherent scenario where AI is overblown is if scaling laws suddenly stop, which current evidence strongly contradicts.
GameStop Adversity and Resilience
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(00:33:54)
  • Key Takeaway: The most pivotal moment during the GameStop drawdown was the decision to hold semi-annual investor dinners to communicate a new strategy focused on less risk-prone portfolio construction.
  • Summary: The period of severe drawdown was emotionally difficult and lonely, testing resilience after years without major adversity. Sundheim decided to communicate a shift toward hitting ‘singles and doubles’ in portfolio construction, acknowledging that rebuilding reputation would take years. He harbors no ill will toward investors who redeemed capital, recognizing that poor returns naturally lead to capital outflow.
Economic Optimism vs. Societal Uncertainty
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(00:42:08)
  • Key Takeaway: Sundheim is optimistic about powerful economic growth driven by AI productivity but uncertain about the societal implications of humanity no longer being the most intelligent beings on the planet.
  • Summary: AI is viewed as the ultimate productivity tool, capable of driving economic growth while maintaining disinflation, which is beneficial for markets. The major uncertainty lies in the societal impact of creating intelligence superior to humans, as people are wired for creation and coordination, not just receiving UBI checks. This profound change is unprecedented, making its long-term externalities difficult to predict.
Rivian vs. SpaceX Investment Contrast
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(00:44:26)
  • Key Takeaway: The SpaceX investment thesis was based on proven, world-class engineering (low-cost launch) with low cash burn, contrasting with Rivian’s struggle to overcome manufacturing delays in a capital-intensive auto business.
  • Summary: The Rivian thesis centered on EVs being software-defined and creating a few winners, but manufacturing delays significantly hampered their ability to scale quickly. SpaceX’s initial appeal was the proven engineering feat of achieving low-cost launch capability with minimal cash burn at the time of investment. SpaceX’s success with Starship dramatically lowers launch costs, expanding its TAM to encompass the entire global telecom market via Starlink.
Appeal of Short Selling
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(00:48:09)
  • Key Takeaway: Short selling is intellectually stimulating because the market is rife with story-based investing, allowing fundamental investors with duration to arbitrage short-term price movements.
  • Summary: Few market participants focus on fundamental shorting, making it an area of opportunity for those who take a long-term, fundamental view. Sophisticated quantitative methods have made short-term trading highly efficient, but opportunities arise when looking beyond three years at intrinsic value. Shorting allows one to capitalize on the market exaggerating short-term moves relative to true intrinsic value changes.
Sources of Market Inefficiency
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(00:48:51)
  • Key Takeaway: Market inefficiency stems from the dominance of passive investing and retail traders whose decisions are not based on long-term intrinsic value, creating arbitrage opportunities for fundamental investors.
  • Summary: The competitive set for long-term intrinsic value analysis is thin compared to short-term trading strategies utilizing alternative data. The shift away from traditional long/short hedge funds toward passive vehicles and short-term oriented multi-manager funds creates opportunities for medium-term arbitrage. Short-term price moves often exaggerate the true change in a company’s intrinsic value, which is the core inefficiency exploited.
Value of Loyalty in Partnerships
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(00:51:48)
  • Key Takeaway: Loyalty is valued highly in business partnerships, but long-term relationships must still meet an extremely high bar of competence, as demonstrated by D1’s core team.
  • Summary: Sundheim values working with people he knows well, especially those who were loyal before he achieved financial success, as this relationship quality is distinct. However, these long-term partners must also clear the extremely high bar of competence required at D1 Capital Partners. The group chat for portfolio founders serves as a continuous communication tool, maintaining relationships even when direct contact is infrequent.
Motivation and Enterprise Value
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(00:55:39)
  • Key Takeaway: Dan Sundheim prioritizes delivering amazing investment returns over building enterprise value for D1 Capital Partners, viewing money as a scorecard but preferring the competitive arena over a family office structure.
  • Summary: Money is viewed as a positive externality of being a good investor, not the primary goal, as hedge funds lack terminal value compared to the companies D1 invests in. He prefers being ‘in the arena’ of public competition rather than managing only personal capital, finding the firm’s success invigorating. He does not aspire to the large employee count necessary to build significant enterprise value in the asset management business.
Value Investors Club Origin Story
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(00:57:28)
  • Key Takeaway: Writing the short case on Orthodontic Centers of America for Value Investors Club was a pivotal moment that allowed Sundheim to test his work against professionals and ultimately helped him land his first job.
  • Summary: Sundheim began consuming ideas on Value Investors Club (VIC) in 2002 while working in private equity to gain exposure to manager research. He found the company Orthodontic Centers of America during an interview case study and identified what he believed was a form of accounting fraud involving capitalizing expenses. Successfully proving this short case validated his analytical skills for professional investors.
Value Investors Club Story
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(00:58:20)
  • Key Takeaway: Posting an anonymous short case on Value Investors Club led directly to job interviews and job offers after the stock crashed.
  • Summary: Dan Sundheim consumed all ideas on Value Investors Club before writing his own, including a six-page write-up on Orthodontic Centers of America detailing accounting fraud via capitalized expenses. He posted it anonymously before an interview, and the stock subsequently cratered, leading to calls from mutual funds and ultimately securing him a job offer.
Transitioning from Viking
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(01:01:49)
  • Key Takeaway: Sundheim left Viking because managing over half the firm’s capital was not sustainable for the business or optimal for LPs, signaling he had achieved his maximum growth there.
  • Summary: After starting as an analyst in 2002, Sundheim became CIO managing over 55% of Viking’s capital by 2016, an abnormal concentration for the firm. He recognized that further growth and achievement would require starting his own fund, feeling he had maximized his potential at Viking around age 40.
Art, Aesthetics, and Business
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(01:04:27)
  • Key Takeaway: Art appeals to Sundheim because it reflects human emotion and aesthetics, contrasting with the unchanging science of finance like DCF modeling.
  • Summary: Sundheim leans toward humanities, viewing investing as more art than science, as the science (like DCF) remains static. He is drawn to aesthetics in art, design, and architecture, appreciating beauty and the human story behind created works.
Best Business Characteristics
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(01:05:47)
  • Key Takeaway: The best businesses possess substantial, impenetrable cost advantages that create a positive feedback loop between low cost and increased volume.
  • Summary: The most exceptional businesses are sustainable, low-cost producers, often building a moat around that cost advantage. While rating agencies like Moody’s are great, Sundheim prefers businesses like SpaceX or Costco where the cost advantage is exceptionally substantial and hard to replicate.
Underappreciated Global Areas
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(01:06:54)
  • Key Takeaway: Japan and Korea are inefficient markets with excellent physical assets and engineering that are currently underappreciated by global investors.
  • Summary: Europe is economically stagnant, making it inefficient for fundamental stock picking, but Asia shows interesting dynamics, particularly Japan’s shift toward becoming a military power. Japan and Korea possess strong companies with excellent physical assets and engineering, positioning them well as the investment focus shifts beyond purely digital companies.
Semiconductor Geopolitical Risk
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(01:08:10)
  • Key Takeaway: The US is on a collision course with China over Taiwan’s semiconductor production, which could trigger a Great Depression-level economic collapse if disrupted.
  • Summary: Taiwan produces over 90% of the world’s most advanced semiconductors, making the supply chain fragile and critical, akin to a single global oil source. If this supply chain is destroyed or disrupted, the global economy faces a depression-level event, emphasizing the urgency of replicating the supply chain outside of the conflict zone.
Qualities of Good Leaders
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(01:12:23)
  • Key Takeaway: People are more important than the business over a medium-term horizon (5-10 years), especially in technology, requiring leaders with passion, a competitive streak, and deep engagement.
  • Summary: Sundheim looks for leaders who possess real passion, a strong desire to win, and are deeply engaged in the details of their business. He disagrees with Buffett that the business is more important than the leader, arguing that great people make great decisions and attract other great people within a 5-10 year investment timeframe.
Kindest Act Received
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(01:13:37)
  • Key Takeaway: His wife’s tears of joy upon hearing he got a job at Bear Stearns revealed her deep devotion and rooting interest, prompting him to commit to being a better partner.
  • Summary: After a breakup, Sundheim told his then-girlfriend he secured a job at Bear Stearns, which caused her to cry tears of joy, despite it not being a top-tier firm like Goldman Sachs. This gesture of devotion made him realize how much she cared, leading him to immediately decide to marry her and improve his behavior.