Scott Davis & Rob Wertheimer - Lessons from the Industrial Titans

**Patrick O'Shaughnessy** (0:00)
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Hello and welcome everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, stories and strategies that will help you better invest both your time and your money. Invest Like the Best is part of the Colossus family of podcasts and you can access all our podcasts, including edited transcripts, show notes and other resources to keep learning at joincolossus.com.

**SPEAKER_2** (2:09)
Patrick O'Shaughnessy is the CEO and founding partner of Positive Sum and 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 Positive Sum or 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 Positive Sum or O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast.

**Patrick O'Shaughnessy** (2:41)
My guests today are Scott Davis and Rob Wertheimer. Scott and Rob head up Melius Research and are the authors of a great book called Lessons from the Titans.
The book explains what the industrial giants of old can teach the new generation of high growth businesses how to survive and deliver shareholder value over multiple decades. Drawing on their experience as industrial analysts, they present case studies on businesses like Danaher, Roper, Honeywell, Boeing and GE to reveal both what does and doesn't work when it comes to capital allocation and business strategy as a company enters a more mature phase in its life cycle. Please enjoy my conversation with Scott and Rob.
So Rob and Scott, I so appreciate your time today. I'm really excited to dive into the many lessons that you've learned from industrial titans in business and stock market history. You mentioned before we hit record that your book, which isn't that old, has really been hitting its stride recently, probably because so many of these lessons have seemingly become more applicable, especially to the technology sector in the last year, year and a half or thereabouts. And I thought an interesting place to begin our conversation is not with specific companies, which we'll definitely spend a lot of time on since the book sort of goes into the business history of all these great old industrial businesses, but instead just to ask you what it's felt like to watch this technology drawdown, I'll call it, happen and start to think about the lessons from these industrial titans and how they may apply to tech businesses. It seems like that intersection is just a really fruitful place to begin. So what's it's been like to watch and what have you told people, especially in the technology sector?

**Scott Davis** (4:17)
You'd love to say, I told you so. And I think that's an obnoxious way to start the interview. But I think that the reality is is that we were watching the tech sector make so many of the same mistakes that the industrial world had made in decades prior and certainly had to manage around. We were a little bit disappointed that the tech sector didn't take the lessons from our book or I would just say the standard lessons from business historically, a little bit more to heart. I think there was a view within the tech sector of it's different this time and it's different this time is a very dangerous way to run a company. So when we think about the three fundamental pillars of sustain a success, operational excellence, does the tech sector itself have operational excellence? Culture, is that culture supportive of the organization's mission? And then the last one, just capital allocation. These companies are generating a ton of cash and I think one of the most exciting things about tech overall, to us at least, wasn't necessarily the growth rates, which certainly have been exciting, but the cash flow generation within the sector was incredible.