Podcast Summary: Capital Allocators – EP. 51

[REPLAY] Paul Black: Gratitude, Fun, and Growth Stocks

Date: October 27, 2025
Host: Ted Seides
Guest: Paul Black, co-CEO and Portfolio Manager, WCM Investment Management

Overview of the Episode

This episode features an in-depth conversation with Paul Black, the co-CEO and portfolio manager of WCM Investment Management, a $26 billion global equity firm. Ted and Paul discuss the philosophy, process, and culture behind successful growth stock investing. The conversation weaves in Paul’s unconventional early career, his self-taught investment approach, building WCM’s unique firm culture (centered on gratitude and fun), the critical role of organizational culture and competitive advantage in public companies, lessons from hard-won mistakes, and perspectives on global investing, portfolio construction, and allocator behavior.

Key Discussion Points and Insights

1. Origins and Growth of WCM Investment Management

• Serendipity and Starting Out
  • Paul explains how WCM evolved from an unknown $200 million boutique into a major firm, largely through good fortune, learning from mistakes, and continuous self-improvement.

    “Anyone that doesn’t believe that most of life is learning from your failures just doesn’t quite get it or they’re too young to get it.” (02:30, Paul)

• First Brush with Investing
  • Paul’s entry into investing started with a college inheritance and leveraged gold miners, which led him to shift his studies to finance.
• Early Professional Experience
  • Rapid responsibilities at Bank of America gave Paul early lessons—largely through “learning what not to do.”

2. Philosophy and Edge in Growth Stock Investing

• Optimism as a Foundation
  • Growth investing, to Paul, is rooted in optimism about the future.

    “To be a growth investor, you have to be optimistic. … To me, optimists rule the world.” (08:07, Paul)

• Defining Great Growth Companies
  • WCM’s approach diverges from the usual “wide-moat, quality business, cheap price” mantra.
  • The direction (not the level) of competitive advantage is paramount (e.g., rising ROIC).
  • A second essential factor is deep alignment between a company’s culture/values and its competitive edge.

3. Analytical Approach to Competitive Advantage ("Moats")

• ROIC’s Trajectory
  • WCM screens for companies with rising, not just high, returns on invested capital (ROIC).

    “If you break the market down into five quintiles, there is a one-to-one relationship between the best performing stocks and those with the most rapidly rising ROIC.” (13:59, Paul)

• Moat Typologies Beyond the Obvious
  • WCM analyzes less traditional sources of moat, like outsourced R&D companies, using examples from Core Labs (energy services) and Christian Hansen (enzymes).

    “If you can look at the world more in a generalist sense, you can see these relationships.” (15:28, Paul)

4. Assessing Company Culture as a Key Differentiator

• Qualitative Over Quantitative
  • WCM’s “mosaic” approach combines interviews (especially with former employees), supplier/customer input, and consultant frameworks such as those from James Hesket (Harvard).

    “Where we can get a massive competitive advantage is by doing the things that other people are not.” (18:01, Paul)

  • Sample culture assessment questions:
    • “What would you tell a friend about how to be successful here?”
    • “What’s hard for new hires to get used to?”
    • “Tell me about your failures.”
• Case Stories
  • Whole Foods’ “absence of fear”—fostering risk-taking without punishment—illustrates cultural edge. (20:28)

    “He said [the energy]…is an absence of fear.” (21:02, John Mackey, via Paul)

5. Building and Transforming WCM’s Culture

• Contrast with WCM's Founding Era

  • Paul describes WCM’s early unhealthy, founder-dominated culture, marked by autocracy and high turnover.
  • Iconic story: The Taco Bell lunch, where the founder made Paul buy his own taco and walk back in the heat, symbolizing the lack of team cohesion. (24:45–28:10)
  • After a management buyout, the new team overhauled the culture: flattened hierarchy, sharing wealth, pay transparency, and equity for high performers.

• Core Values: Gratitude and Fun

  “Our two core values: gratitude and fun. And I’m convinced that living those has led to our ability to make mistakes, learn, and get better.” (28:10, Paul)

6. Learning from Failure and Humility

• Tough Lessons
  • The firm’s near collapse due to “wide-moat, cheap” value traps (e.g., Yahoo over Google, Ebay over Amazon, Dell over Apple) offered powerful learning moments.

    “…We got murdered. Those three stocks murdered. … We ultimately got fired from $4 billion.” (34:03, Paul)

• Failure as Strength
  • Paul frames these episodes not as shameful setbacks but as deep education and the basis for future success.

7. Global Perspective and Cultural Differences

• Applying Cultural Filters Internationally
  • Markets like Japan are challenging due to less transparent and paternalistic corporate cultures.
• Optimism and Tailwinds
  • Paul favors companies in countries with collective optimism (e.g., China).

    “It’s hard to bet against China... there’s a lot of positive energy.” (40:59, Paul)

8. Portfolio Construction, Downside Protection, and Allocator Behavior

• Portfolio Focus
  • WCM runs concentrated (30-33 names), large cap–oriented portfolios, even at $26B AUM.
• Downside Protection
  • Main strategy is to own businesses with rising competitive advantage, complemented by standard diversification.
  • Aim is for portfolios to outperform not just in good markets, but especially in stressed environments.

    “Everything we do in this portfolio is to manage on the downside for all the reasons we know about.” (45:18, Paul)

• Allocator Behavior Patterns
  • Most allocators chase recent top performers, rather than assessing organizational “people and process,” missing out on the deeper edge.

Notable Quotes and Memorable Moments

• On Learning from Mistakes:

  “Anyone that doesn’t believe that most of life is learning from your failures just doesn’t quite get it or they’re too young to get it.”
  — Paul Black (02:30)

• On Growth Investing & Optimism:

  “To me, optimists rule the world. I think optimists are the ones who ultimately get it right.”
  — Paul Black (08:07)

• On Culture as Competitive Advantage:

  “Where we can get a massive competitive advantage is by doing the things that other people are not.”
  — Paul Black (18:01)

• On Humility and Gratitude:

  “With gratitude, there’s a level of humility to know how fortunate you’ve been… we may not be the smartest guys out there… but you know what we can do? We can care more about our people.”
  — Paul Black (28:10, paraphrased)

• On Culture Stories (Whole Foods & WCM’s Founding):

  “He said, you know what that is? That’s an absence of fear.”
  — John Mackey (Whole Foods), via Paul Black (21:02)

• On Downside Focus:

  “Everything we do in this portfolio is to manage on the downside for all the reasons we know about.”
  — Paul Black (45:18)

Timestamps for Key Segments

• [02:30] Paul's early career, mistakes, and learning approach
• [08:07] Growth investing philosophy and optimism
• [09:07] Defining great growth companies; focus on culture and moats
• [13:59] Measuring and typologies of competitive advantage
• [18:01] The process of assessing culture; building the mosaic
• [21:02] Whole Foods and the “absence of fear” as cultural edge
• [24:45] WCM’s original unhealthy culture and transformation
• [28:10] Establishing gratitude and fun as WCM’s core values
• [31:40] The active vs. passive management debate
• [34:03] Learning from failure: Value traps and massive outflows
• [39:41] Growth investing in the ETF/factor world
• [40:59] Global perspective: optimism in China versus other cultures
• [45:18] Portfolio construction and downside protection
• [47:06] Patterns in allocator behavior
• [48:54] Managing the $26B portfolio and capacity discipline
• [50:00] Personal reflections – favorite sports moments
• [51:08] Parental lessons: perseverance and “showing up”
• [52:46] Less-known information sources Paul values
• [54:32] End-of-career advice: “Balance” and personal priorities

Episode Flow & Tone

The tone is candid, humble, and occasionally humorous. Paul shares both vulnerable stories of failure and pride in his firm’s cultural evolution, balancing technical discussion with personal anecdotes. The conversation is accessible while offering depth for seasoned finance professionals.

Final Takeaways

• Growth investing requires optimism, but not blind enthusiasm—identifying growing moats and healthy, aligned cultures is key to avoiding value traps and downside risk.

• A sustainable competitive advantage for investment firms—and investee companies—comes from culture as much as from analytical tools.

• Humility, gratitude, continuous learning from mistakes, and creating a positive, fun work environment are at the heart of WCM’s success story.

• In capital allocation, focus on people, process, and culture over short-term performance metrics or groupthink.

This summary provides a comprehensive roadmap for listeners and professionals to understand Paul Black's investment philosophy, WCM’s unique edge, and actionable insights into the enduring value of culture—whether allocating capital or building a firm.