Episode Overview

Podcast: Invest Like the Best with Patrick O'Shaughnessy
Guest: Henry Ellenbogen, Founder and Managing Partner, Durable Capital Partners
Episode Title: Man Versus Machine
Date: December 16, 2025

Main Theme:
Patrick explores the investment philosophy, methodologies, and career insights of Henry Ellenbogen, a renowned investor known for his focus on long-term compounding businesses and human-centric investing. The conversation delves into the art of identifying the rare 1% of companies that drive outsized returns, balancing human judgment with market shifts, the evolving impact of AI, market structure changes, and how investment organizations and cultures endure.

Key Discussion Points and Insights

1. Henry’s Investment Philosophy: Origins and Core Principles

• Background Influences: Henry did not follow a direct finance path; his studies in organic chemistry, history, technology, and experience in politics taught him the value of systemic balance and adaptation, principles he later applied to investing (05:46).
• Mentorship at T. Rowe Price: Learnings from Jack Laporte, focusing on small companies run by owner-minded people and analyzing 50 years of shareholder letters led to the revelation that just 20 stocks, over five decades, had a disproportionate impact on fund performance (07:28).
• The Rare 1%: "Over a rolling 10-year period, you have about 40 stocks that compound wealth at 20% a year or go up over 6x. So about 1% of the stock market are the valedictorians." (10:18)

2. Pattern Recognition and Company Selection

• Studying Winners: Habitually studying past compounders and building a case study library to codify patterns (12:46).
• People and Repeat Success: "If you’ve been one before, you have a higher probability of being one again…" (12:46)
• Example—Domino’s: Focus on franchise quality, tech investment, and direct customer relationships illustrates how seemingly ordinary businesses can achieve extraordinary compound growth (15:31).
• The ‘Good to Great’ Thesis: Understanding which already-excellent companies can use new technologies like AI to unlock further advantage.

3. Act 2 Teams: The Power of Repeat Founders

• Definition: Founders leveraging lessons from their first act to build a second, usually stronger business. Durable’s own structure and ‘act 2’ mission reflect this ethos (20:40).
• Illustrative Example: Workday’s founders used insights—and mistakes—from PeopleSoft to build a new leader in HR systems, leveraging both technical and market clarity (21:00).
• Relationship Building: “If Durable does five to ten new investments a year, a lot of times it's with Act 2 entrepreneurs…” (24:11)

4. Philosophy Applied to Firm Building

• Organizational Structure: Durable was built intentionally to allow long-term investing in both public and private markets, with team members following companies through all stages (25:55).
• Investment Memo Practices: Investments must pass the test: “If in three years you’d want to buy more at higher prices, only then do you proceed; otherwise, don’t buy.” (28:13)
• Alignment with Investors: Transparent about inherent volatility; prioritizing long-term compounding over short-term results.

5. Building Positions and Dollar-Cost Averaging (Up and Down)

• Thesis: Willingness to average up if the company proves itself; willing to double down in market stress if conviction remains high (30:03).
• Practice: Example—their ongoing conviction in Colliers and Duolingo, buying more on temporary dislocations (33:18).

6. Man Versus Machine: Navigating Modern Market Structure

• Quants versus Human Judgment: “The short term alpha game is probably going to be won by the machines.” Focus for Durable: human insight in people and change; machines excel at stable, repeatable scenarios, but not discontinuity (35:25).
• Quant Fund Impact: High market volatility is amplified by funds with short cycles and strict downside controls, creating opportunities for true long-term investors (37:10).
• Edge: Willingness to accept short-term price risk in exchange for long-term business understanding.

7. Navigating Disruptive Change: AI, Robotics, and Business Model Transformation

• AI’s Broad Impact: Importance of studying AI’s impact not just on tech companies, but on any business with white-collar labor or IP-based workflows (42:46).
• Kaizen Analogy: "AI represents a sort of kickoff of Kaizen to human work world,” paralleling the decades-long productivity boost China’s product supply chain brought to manufacturing (50:35).
• Adaptation Patterns: Best CEOs balance operational excellence and market-winning strategies with humility and ability to pivot as change accelerates. Examples: Luis von Ahn (Duolingo), Max Levchin (Affirm), Dave Duffield (Workday) (51:40, 52:16).
• Practical AI Application: Von Ahn built Duolingo’s chess product with a tiny team, enabled by AI tooling—"Would have taken 4-6x as many people and four times as long [pre-AI].” (54:15)
• Robotics as the Next Kaizen: Henry professes humility and early-stage insight, but believes robotics is approaching cost parity and could soon create geometric productivity advantages in physical world businesses (57:23).

8. Sources of Competitive Advantage

• Favorites: Deeply favors physical world moats—e.g., Amazon’s fulfillment centers, Carvana’s reconditioning centers—because they cannot be replicated quickly; also admires ‘soft’ moats like Danaher’s business system, human capital, and continuous improvement culture (61:43).

9. Culture, Talent, and Memo-Writing at Durable

• Memo Structure: Memos must clearly articulate competitive advantage, leadership quality, operational culture, and track progress quarterly and at three-year lookbacks (65:18).
• Team Development: Invests heavily in homegrown talent and processes, emphasizing learning, resilience, excellence, and a dual focus on making oneself and colleagues better. “We're an ‘and’ culture…” (79:33)
• Feedback Systems: Specific, structured feedback is critical; Friday insight-sharing lunches and frequent deep-dive reviews foster cross-pollination of learning (84:13–87:49).

10. Enduring Organizations and Passing the Torch

• Firm Longevity: Henry aims for Durable to be even better after he and founding partners leave. Structured hiring and promotion for long-term sustainability; inspired by both failed and successful investing franchises (89:03–90:44).
• “Do Less to Do More:” Focus on performance excellence and depth versus breadth (90:47).

11. Public vs. Private Markets: The Case for Going Public

• Rationale: Daily mark-to-market and investor discipline force focus, efficiency, and capital allocation. Public transitions, like Netflix’s, are opportunities to realign, re-incentivize, and accelerate company greatness (93:05–99:59).
• Main Pitch: “To build a great company, you have to balance growth, profitability and innovation. You’re better off doing it sooner rather than later.” (98:48)

12. Personal Values and Concluding Wisdom

• Culture of Fun and Mutual Success: Competitive, but driven by a love of investing and an ethos of rooting for others' success, inside and outside the firm (101:35, 105:41).
• Inspirational Models: Contrasts the ‘Michael Jordan’ model of cut-throat competition with the ‘Steph Curry/John Wooden’ approach valuing joy, inclusivity, and elevation of all competitors (103:49–105:35).
• Kindest Thing: Henry’s mother supporting his adult decisions with both love and responsibility—a lesson in freedom, consequences, and personal accountability (105:41).

Notable Quotes & Memorable Moments

• On Early Roots and Investment Philosophy:

  "I started to think about why shouldn't investing follow the same rules we see in science? ...There should be a healthy balance between companies that invest in their customers, their employees, their shareholders, and actually support their greater communities."
  — Henry Ellenbogen (05:52)

• On the Concentration of Returns:

  "It was really only 20 stocks over 50 years that drove the performance."
  — Henry Ellenbogen (08:55)

• On Repeat Founders:

  "If you've been one before, you have a higher probability of being one again, which just sounds so simple, but is actually really interesting."
  — Henry Ellenbogen (12:46)

• On Organizational Edge:

  "We think we're great at people and understanding change."
  — Henry Ellenbogen (25:59)

• On Market Structure:

  "The short-term alpha game is probably going to be won by the machines paired with the humans."
  — Henry Ellenbogen (35:25)

• On Assessing AI’s Impact:

  "It's not only going to affect every technology company which you see in the markets, but it's also going to impact in this case, I think almost every company that needs a white collar employee and IP employee to drive their work."
  — Henry Ellenbogen (42:50)

• On Adapting Competitive Companies:

  "The very best businesses that leverage technology, leverage it in a way where they use it to lower costs and drive revenue that result in them gaining 30% or more incremental market share in their end market."
  — Henry Ellenbogen recalling lessons learned from Bezos (48:13)

• On Investing Culture:

  "We want people who...compete but want to compete as a team sport. We have a lot of athletes, we have a lot of people who worked their way through school financially. We want people who are resilient."
  — Henry Ellenbogen (81:07)

• On Joy in Competition:

  "We want to have fun and we want to elevate the game and we want to win. And the people who compete with us, we think they're great and we're rooting for them…we believe everyone can win, and I think that's durable."
  — Henry Ellenbogen (101:35)

• On Kindness and Responsibility:

  "If you're gonna go make major decisions, you have to be thoughtful about them. People will support you, but you have to be able to be responsible for the consequences."
  — Henry Ellenbogen, on his mother’s wisdom (107:30)

Timestamps for Important Segments

• Investment Philosophy Origins: 05:46–10:16
• Identifying the 1% Compounders: 10:18–12:46
• Pattern Recognition & Examples (Domino’s): 15:31–18:49
• Act 2 Teams Concept: 20:26–24:11
• Firm Building & Memos: 25:55–30:21, 65:18–69:14
• Market Structure & Man vs. Machine: 35:25–42:12
• AI, Disruption, and Adaptation: 42:46–56:47
• Competitive Advantages: 61:43–65:18
• Talent & Culture at Durable: 79:33–89:03
• Lessons on Firm Endurance: 89:03–92:57
• The Public/Private Debate & Netflix Example: 93:05–99:59
• Closing Values & Kindness Story: 101:35–107:46

Closing Reflections

Through vivid storytelling, real-world examples, and deep pattern analysis, Henry Ellenbogen shares an investing philosophy that fuses scientific thinking, pattern recognition, and human empathy with disciplined organizational building. The conversation is a masterclass in understanding enduring compounding businesses, the balance of man and machine, and the art of investing in both people and change—for anyone seeking to build a durable edge.

For further reading:
Patrick recommends the Colossus profile on Henry Ellenbogen, linked in the episode notes.