Gavin Baker - The Cyclone Under the Surface

**Patrick O'Shaughnessy** (0:00)
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**SPEAKER_2** (1:41)
Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.
Clients of O'Shaughnessy Asset Management may maintain positions and the securities discussed in this podcast.

**Patrick O'Shaughnessy** (2:05)
My guest today is past guest Gavin Baker, managing partner and CIO of Atreides Management. Gavin's focus is on consumer and tech growth investing, which makes him the perfect person to discuss the bloodbath we've seen in many growth equities over the past few months. We also cover inflation, semiconductors and the disconnect between private and public markets.
Please enjoy this conversation with the always great Gavin Baker.
So Gavin, here's our traditional every 18 month or so podcast. I'm so excited to talk to you again. Markets have changed a lot. I think the last time we talked was not maybe at the bottom, but pretty damn close to the bottom in the beginning of COVID. Markets off 30% or something crazy like that. We sure have come a long way. If you just look at the index levels, it's been a wild ride. Maybe we'll just start at the very highest level. What's it been like investing since our last conversation? How would you characterize the period relative to the rest of your career?

**Gavin Baker** (3:00)
Well, I think 2020 was statistically probably the most alpha-rich year in the active fund manager we'll see in their lifetime. COVID gave you such an opportunity from evaluation perspectives, and then there was such massive dispersion in the relative fundamentals of different industries and companies, mostly based on whether or not you benefited from remote work, work from home, remote schooling environment.
It's hard for me to imagine you will see that kind of dispersion again. I would say for me, not to generalize, but I do think it was statistically a very hard year 2021 for most growth-oriented fund managers, most tech-oriented fund managers, whatever the vehicle. I think 2021 was a tough year, but it was an awesome year for the market.

**Patrick O'Shaughnessy** (3:56)
Probably the reason I originally started texting in the last week or something was around this crazy setup where because the largest companies have continued to do very well fundamentally and with their prices, the market's at or near all-time highs and has been for a long time. Meanwhile, there's complete carnage in a lot of the heavier growth parts of the market and I think most people don't feel it because they're not focused on that growth part if you just have a broad portfolio. I don't think people appreciate how viciously bad it's been. Peloton and Zoom is like the extreme examples of high-flying COVID names, but it's been brutal. I'm so curious how it's felt for you.

**Gavin Baker** (4:33)
Well, it's felt brutal.
These are not facts. This is just the way it feels. I would say probably the average tech or consumer-oriented growth stock that's below $100 billion in market cap is probably somewhere between 40% and 65% off its all-time high. Some of the cases, you mentioned some of them, they're off more. The multiples have compressed by significantly more than that move because the underlying fundamentals have continued to grow and compound.