Pat Dorsey Returns – The Moat Portfolio – [Invest Like the Best, EP.77]

My guest this week, back for a second conversation, is Pat Dorsey. Pat ran equity research at Morningstar before leaving to start his own asset management company: Dorsey Asset Management. His areas of deep interest are competitive advantage and capital allocation. He believes that capital allocation should be in service of competitive advantage and invests in a concentrated portfolio that he and his team feel embody these ideas.

If you have not already, I strongly recommend listening to our first conversation, which is a sort of crash course on moats. In this conversation, we cover different ground. We spend much more time on individual stocks like Facebook, Google, and Chegg, using them as examples to explore Pat’s investment philosophy and strategy.

Across a few conversations with Pat, I can tell he is in love with this stuff, and I always enjoy talking to investors like him who so passionately pursue and edge. Please enjoy round two with Pat Dorsey.

Links Referenced

Pat Dorsey’s first appearance on the podcast

HQ – Live Trivia Game Show

Books Referenced

World After Capital

Principles: Life and Work


Show Notes

2:15 – (First Question) – Pat’s methods for valuing a business


4:17 – Is this process done after they would first identify potential targets for investment


5:11 – Pat’s take on how the market classifies stocks as growth vs value


6:40 – Qualitative insights and why the market can’t price them very accurately


9:57 – The business model behind zero marginal cost distribution business model


12:00 – Network effects and the potential downside to them down the road


13:54 – Valuing Facebook as a business heavily reliant on network effects


16:45 – What would have to change for Pat’s position on Facebook to radically change


18:58 – Most important lessons that a smaller/private business could learn from Facebook or Google’s business models


19:48 – Where is Amazon in Pat’s portfolio


20:27 – Primary research and the value that is derived from it


22:06 – An example of where primary research led to a big surprise about a company


24:05 – The value of travel in this business, starting with recent travel to India


26:05 – Why are they targeting India and Japan


27:24 – How does he think about the risk of investing in foreign markets


29:52 – His thinking on relative vs absolute market share


31:26 – Exploring the SaaS business model


34:35 – The application of moats and pricing power with SaaS businesses

34:36 – Pat Dorsey’s first appearance on the podcast


36:17 – Understanding how to evaluate a SaaS or subscription-based business (Lifetime Value of the Customer vs Acquisition Cost)


40:07 – Other models that Pat explores and how to screen for them


41:37 – How does he parse the difference between attention and demand


43:19 – How would Pat monetize something like HQ – Live Trivia Game Show that has aggregated massive amount of attention


45:19 – How does Pat react to the idea that attention is scarce and human capital is so crucial

45:14 – World After Capital


47:04 – How does Pat evaluate human capital in a business


48:09 – Experience in starting an asset management business


50:20 – What are the levers that are biggest value drivers in the asset management business


53:57 – Pat’s view on the strength of the relationship between risk and return


57:06 – The most risk Pat has taken in the face of uncertainty


59:23 – Favorite recent learning resource

59:43 – Principles: Life and Work