End Of Year 2025 Letter

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A concentrated portfolio has its pros and cons, and 2025 saw the pros on full display. Pagaya proved its economic model and took significant strides expanding its lending network. Xometry reached positive cash flow and continued to build the largest network of manufacturing buyers and suppliers globally. And Planet delivered a few big deals, accelerating top-line growth, and positive free cash flow, which was more than enough for the market to up the bid.

One year’s results are hardly an accurate reflection of the scoreboard. Stock prices today move faster and more aggressively than ever, both to the upside and downside. Planet is the poster child of this dynamic. After a few years in SPAC jail, the stock rose almost 400% last year, the price becoming the topic du jour in my investment circle.

What do I think? I think the calculus looks a lot different at 22x revenue than 2x revenue. I think we’ve seen a huge chunk of returns in a very short period. I think the market was too pessimistic before, and maybe too optimistic today. Today, everyone buys the space stock glory, views Planet as an AI winner, and has high confidence in the company’s ability to capture a large market.

I’ve been thinking along those lines for a few years and think Planet is a generational business. But price is important, and the current price calls for a reassessment of the argument. Nothing is a guarantee in this game, which presents a challenging question: do I sell a winner, a company I still believe in for the long run, strictly because of valuation?

History, and Charlie Munger, would argue that’s the wrong move. “Get in a great business, and stay there.” Great businesses tend to stay overvalued precisely because they are great. Stanley Druckenmiller might counter that the relevant competition is “the opportunity set,” and if the opportunity set looks more attractive elsewhere, it’s probably time to make a move.

Druck’s game is not my game – trading, timing the market and such – but I do believe in being opportunistic. At times, that can mean shortening my time horizon; an excessive price can be just as damaging to long run results as selling too early, and while my confidence in Planet’s business and prospects has strengthened over the past year, my argument has diminished. I expect lower returns looking forward, but I still want outsized exposure over the long run.

I sold a portion of my stake in the company earlier this year and added to my investments in Pagaya, Remitly, Thryv, and Hims and Hers. Planet is still my largest position, and this was was far from a radical change. I just think it makes sense to take some chips off the table at such high prices.

On the topic of Planet

I’ve long written about my ideas of Planet, but it might surprise you to learn that I think tasking satellite imagery is not a good business for the long run. It is a transactional business model at heart, built for the satellite imagery industry of the 2000s and 2010s where a few buyers dominated the landscape, not the geospatial industry of the future where disparate sources come together to provide an integrated, scalable solution to many customers’ problems.

Standalone tasking faces higher levels of new entrants and substitute products than years past. Drones, increasingly mobile and deployable in theater, threaten to steal share of certain use cases. SAR satellites, increasing in quantity and capability, can also be a substitute (but a also a complement). Marketplaces like SkyFi threaten to disintermediate the customer relationship and commoditize supply. But the overarching problem is simple: when a customer knows where to look, there are a variety of ways to obtain an answer to their question.

Tasking, I believe, is destined to become a bundled feature, not a standalone product or platform. This is a long duration evolution unlikely to happen in the next few years, but I suspect it is the inevitable endgame. That view does not sidsuprt my investment in Planet because the company’s core differentiation and competitive advantage flows from the daily scan.

The market is highly focused on Planet’s new satellite system wins in Germany, Japan, and Sweden, and rightly so – these are big deals. But I think the specific point of focus is misplaced. Buried in each press release is a disclosure that these nations are also buying large PlanetScope analytic feeds. These wins are important to fund and accelerate the expansion of Planet’s Pelican fleet – better positioning the company to capture the largest pool of demand today – but the bigger deal is everyone buying the bundle. Dedicated tasking capacity (or satellite ownership, it all means the same thing, just comes from different budgets) is just one feature of the bundle. What is most economically valuable to Planet in the long run is inserting infrastructure into customer workflows, and that is a product of the daily scan.

Ultimately, I believe the daily scan is where most value will accrue. When customers subscribe to monitor an area of the Earth, they build pipelines and models on top of that stack to directly enable a workflow. It becomes operational infrastructure, something customers are unlikely to rip out and have to re-build those pipelines and re-train those models.

I own Planet because I believe they are building a database business, not selling satellites or imagery, and the long-term economics will reflect that reality. Unlike most satellite imagery companies, the daily scan is infinitely scalable, imaging the same area every day regardless of customer demand, and distributing that data at zero marginal (and opportunity) cost.

The daily scan provides developers with infrastructure to build and scale globally, the context required to incorporate business logic, and the rapid refresh rate to fit a real-life workflow. The unique cadence and coverage also serves as a reference layer for complementary sensor fusion, the core building block for solution development. And solutions are how the market will grow.

Planet is the only company to image the entire Earth every day and has been for nearly a decade. I believe they are becoming the default system of record for monitoring the Earth, and whoever holds that position stands to win a huge amount of economic power. It will just take more time than most people expect.

Organizing by Time Horizon

Investors commonly style themselves as “value” or “growth” or “quality” investors. I don’t subscribe to any label other than the long term, but long term can also be variable. It could be three years, five years, ten years, or anything really. So, to better understand the nature of my investments, I organize my portfolio by time horizon.

My advantage is duration, so my work is naturally biased towards companies I want to own forever. That kind of time horizon may seem abstract, and it doesn’t mean I will own them forever; it means I have no defined expectation about when to realize value and am content to be a silent partner in these companies’ progression. This “infinite” bucket is the soul of my portfolio: Planet, Xometry, Pagaya, Amazon, and Upstart. I believe these businesses are uniquely durable and possess structural advantages that allow them to escape competition as they scale.

On the other end of the spectrum sit “situational” bets. Thryv is the sole tenant in this bucket. Here, my argument is over price, and my time horizon is typically five years or less. Valid questions may surround the quality or durability of the business, but expectations are low, and I believe the company can beat those expectations. The bet is on near-term execution and reversion to the mean, a riskier place to operate without the cushion of time horizon.

Somewhere in the middle are “exploratory” investments. These tend to have a private equity-like time horizon, where I’m more comfortable with duration but am still unsure if it is a place I want to park capital for decades. I have some conviction in these businesses, but need to do more work and would like to monitor the situation before committing more capital. Remitly, Hims and Hers, and Spire Global live in this part of the book. While continued fundamental progress can move some names up the chain, I am quicker to sell if the story changes, the price becomes more attractive, or a better opportunity emerges.

Classifying my investments into these buckets helps me think clearly and ultimately size each position. I don’t have any strict rules as to the allocation between buckets, but I want most of my money in the infinite bucket, where my advantage is strongest.

Why Thryv?

Thryv is my only situational play today, and it’s been a painful one. It begs a valid question: if I’m optimizing for time horizon, why invest in a business of clearly questionable durability?

Every sensible investment starts with a belief that you are buying future cash flows at a discounted price from their worth. Most of my investments are duration plays: I am buying cash flows in the distant future, based on an argument about the durability of the business. Thryv is a different story. I own it because I think the market is mispricing the immediate cash flows, and I have confidence in management.

To be clear, this is not some mission-critical vertical software business. It’s a marketing tool, a fairly undifferentiated product selling into a high churn end market, with slow organic growth and the looming threat of AI ahead. Still, the valuation is hard to reconcile; the company should produce more cash in the next five years than the current enterprise value.

The bet is simple: if Thryv can get reasonably close to its 2030 ambition of $1 billion in SaaS revenue, the equity has room for something on the order of an 8x return. $800 million of SaaS revenue in 2030 requires a ~12% CAGR from 2025. The math works if cash flow takes down the debt, and the pure SaaS business reaches a 2x revenue multiple (or roughly 10% free cash flow yield for a business that should run 20% margins, without the egregious stock-based compensation at many other software companies). I don’t think that’s a far-fetched outcome, and that type of potential reward justifies taking some risk.

There are a few things I like about Thryv. The first and most important is Joe Walsh. He is an Act 4 entrepreneur who built and exited multiple businesses, successfully navigated similar business model transitions, and is maniacally focused on execution. He is a skilled operator with real skin in the game, none of which makes the thesis true, but offers some confidence in the decision making behind the scenes.

Second, I think they are making the right strategic moves. Growing up-market, without entering the domain of HubSpot, makes sense. A million dollar business is much more valuable, and stable, than a $500,000 business with 2 or 3 employees. The CAC/LTV dynamics in the very small business segment are structurally challenging, but Thryv has escaped them to date given their focus on converting legacy customers. As they fully cannibalize the legacy business, the value of a large distributed sales force will become more clear, especially with a more capable product.

Over the last few years, Thryv has built out a fuller platform and added vertical-specific tooling and automation (via Keap). It recently launched a specialized HVAC and Home Services solution to support this move up-market. They are returning to their DNA – helping small businesses market their business – while adding functionality for larger businesses with more complex needs. Again, none of this guarantees success, but it raises the probability of a good outcome.

On the AI front, Thryv’s core customer is a buyer, not a builder. I see little risk of thousands of service business owners developing their own marketing automations from scratch; they are more likely to use a tool they already know. The company is thoughtfully implementing AI in pockets of its product (content generation, auto-reviews, etc.), and the new CTO hire should accelerate these efforts. In the near term, I expect AI to accelerate product velocity and form more of a tailwind than headwind; over the longer-term, it remains a bigger question mark.

Organic growth is another common cause for concern. Excluding Keap and the conversion of legacy customers, the company has reported sluggish top-line growth. This analysis misses the point, however; the entire strategy over the last few years has been to convert legacy customers at no cost, get them actively using the SaaS product, and upsell the ones who stay over time. You can’t exclude that growth contribution the total because it is the focal point of the strategy! I am less concerned about this point, at least for now, but it is worth active monitoring.

In all, I don’t think you have to believe much, and leadership has earned some credibility. It’s a transitioning organization, still in the process of cannibalizing the old business in service of the new; the numbers may not move smoothly, but the transformation is progressing. I would be shocked, and pleasantly surprised, if I still own Thryv in five years, but the business is not dead. There is still some money to be made.

A Note on Remitly

Remitly is the other portfolio addition from last year. The business has steadily taken share in remittances for more than a decade, and I have yet to hear a convincing argument for why that changes. The category is huge, throwing off tens of billions in revenue each year, and still evolving towards digital means, giving Remitly a long runway for continued growth.

There is no lack of competition, but it is generally weak. Legacy players like Western Union are burdened by the declining value of retail storefronts, and sub-scale digital challengers struggle to match Remitly’s coverage and marketing efficiency. Wise is the most dangerous operator as Remitly looks to double down on high amount senders, but the industry is more than capable of supporting two leaders. Just look at the co-existence of Expedia and Booking.com.

The key question surrounds Remitly’s ability to turn share wins into profits. The economics are generally intuitive: Remitly acquires customers via Google and Facebook and earns a fixed fee and FX spread on each transfer, relying on repeat transactions to justify the upfront spend. A new customer typically generates gross profit in excess of the upfront cost in the first year and remains active for years, producing the 6x LTV/CAC the business has maintained to date.

Scale benefits follow naturally. With higher volumes, Remitly can negotiate better rates with payout partners, spread fixed compliance and engineering costs over more transactions, and improve risk and pricing models. The path to 20%-plus operating margins seems credible and not overly dependent on pricing power.

Stablecoins are a headline technology risk, but really a technical enabler promising faster and cheaper payments. For Remitly, I view the most likely outcome as lower costs, which can either be passed onto customers or retained as margin. People don’t spend stablecoins today; the last mile fiat conversion is not going anywhere anytime soon, and shifts in payment behavior happen over decades, not years. Stablecoins also don’t solve distribution and compliance requirements; they are ultimately a back-end optimization to improve speed and economics. I expect their value to be broadly distributed across the industry and ultimately captured by customers, with the core economic model remaining intact.

For most of its history, Remitly has been a one product company. Recently, it has broadened its scope, creating an additional leg to the thesis. I think Remitly has earned the right to offer a broader suite of financial services to its customers, and it will have more success than expected monetizing some of these newer products over time, with interchange a particularly attractive revenue stream long term. This is all pure optionality based on the current price, but the strategic logic is sound, and the right to win is reasonable; it at least deserves a mention.

Remitly is capable of sustaining a mid-teens or higher growth rate while steadily expanding margins. The price doesn’t ask much, and it is beginning to show a clear focus on profits. Modest execution gives you a business earning well in excess of the current multiple, while the bear case means a structural break in a trend that has persisted for a decade. This is a company I suspect will improve over time, not deteriorate.

The Others

I’m already running a bit long, so if you’d like to read about Pagaya or Xometry, I recommend this article. I thought Upstart’s AI day was a fantastic explanation of how the company is developing a unique competitive advantage in consumer lending. I think Hims is a complex story of which my opinion is evolving, but I still need to do more work. I’ve written about Spire Global in the past (check the archives) but am waiting for more consistent reporting and some demonstrable progress to make any additional decisions there.

The Opportunity

With market forces overwhelmingly focused on the short-term, the opportunity has never been greater for those with patient capital and the capacity to think long term. AI will never replace human judgment, and I am convinced the opportunity for fundamentally-minded, long-term investors has never been better. I look forward to playing this game for many decades to come and hope you stay tuned.

Thanks for reading. Feel free to reach out with any questions or topics you’d like to discuss.

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Mid Year 2025 Letter

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A quick personal note – I recently got engaged, and writing this letter took a backseat to early stage wedding planning. I apologize for the delay. I will keep this letter relatively brief.

Three and a half years ago, I made a bet on myself. The stock market took a hit in 2022, and the revised opportunity set pushed me to try something new and abandon the index-centric approach I had favored until then. I knew the risks, but I wanted to compete and try to beat the market over the long run. Throughout 2022 and early 2023, I sold all of my index funds and entered the stock picking game.

So far, the strategy has shown some signs of merit. The first two years were pretty much a disaster. The last 18 months have been pretty terrific. Overall, I’ve compounded at around 20% annually, roughly ten points higher than the market. I don’t think there is a big lesson here – we are only three and a half years into a multi-decade game – nor do I think this level of outperformance is likely sustainable, but I do think it’s worth reflecting on the decisions that got us here.

Those decisions are best reflected by the companies I own today, so let’s tour a few names.

Planet Labs was probably the first stock I bought in significant size. I started buying in early 2023 at almost $5 per share, and for the next 18 months, the stock marched steadily lower. I bought the whole way down. Today, my average cost basis is $3.12, but the way I think about the future of the business, it shouldn’t matter too much if my cost basis is $2, $5, or anything in between. If that view turns out to be reasonably accurate, I should do alright.

What drew me to Planet is it being a true “one-of-one” business. Differentiation is a function of doing something differently, and Planet is very different from competitors. It designs, builds, and operates the largest fleet of earth observation satellites and has been the only company to image the entire Earth every day for eight years now. This dataset is a core, daily compounding advantage.

I own the company because I believe the data it produces is immensely valuable, extremely difficult to replicate, yet still poorly monetized. Over the next decade, I expect the economic value of this data to increase non-linearly, and the gap between the value Planet creates and captures to narrow. Scaling up new constellations, increasing fusion of multiple sensors and data types, and moving further up the value chain into delivering solutions to customers, not raw data, will support this value unlock. It is much easier to sell answers than data, and AI is an accelerant to this endgame.

When I started buying Pagaya in early 2024, I had no idea it would turn into my largest position today. I simply saw a disconnect between what I viewed as a founder-led company with a uniquely powerful business model and a consistent track record of growth – even through a major credit cycle – and what the market viewed as a questionable second-look loan originator. I spent a lot of effort trying to understand what I was missing or where I might be wrong but came away each time thinking if it looked and smelled like a good business, it just might be.

I invested a lot of time and money into Pagaya, and it’s paid off much faster than I would have guessed, though the process was accelerated by multiple expansion. In other words, more people have come around to the view it is a viable business with lots of potential, but there is still a lot of work to be done. I expect future returns to be much more closely tied to the fundamental progression of the business, but I’m in it for the long run.

The overarching theme of AI in consumer credit brings another portfolio name, Upstart, into the discussion. Each company approaches the problem slightly differently, but with a similarly thoughtful business model backed by focused execution. In general, I think the problem of consumer credit is a massive opportunity, AI is a perfectly matched solution, and as a result, the industry is likely to evolve significantly over time. I expect Pagaya and Upstart to be major winners from this reshuffling.

Let’s now talk about a different name: Thryv. Very basic business model, nothing too differentiated about it. I’m invested in the company, and recently increased the size of my investment, for one main reason: the leadership. It’s a jockey bet. Joe Walsh successfully executed the same print to SaaS business model transition Thryv is currently undergoing at a prior company. At that company, shareholders earned a ~20x return. History doesn’t repeat, but it rhymes, and great operators tend to remain great operators.

Thryv participates in a massive market with countless permutations of competitors, but I think the greenfield aspect of the opportunity is often overlooked. There is ample growth to be had by simply growing into evolving demand, not necessarily stealing share from competitors. I believe that distinction is important and commonly not given enough weight.

Thryv’s core advantage is its ability to leverage longstanding relationships with small business owners across the country to sell locally at scale. This model allows them to more effectively capitalize on the natural evolution of SMB demand towards SaaS while maintaining a profitable business model (that is, not overspending on customer acquisition). I think it will just take solid execution for shareholders to reach a good outcome, and Joe Walsh is the guy to do it.

One last note on Thryv: I highly recommend listening – not just reading the transcript – to every earnings call. The CEO and CFO have a great rapport, having worked together for something like two decades, and sometimes I think Joe Walsh doesn’t prepare any notes and just talks off the top of his head; the candor is truly refreshing and appreciated.

Turning to Spire Global. I sold a sizable chunk of my position early this year, so it’s worth unpacking the decision. I think every investment thesis exists on a continuum between people-led and business model-led; you need both, but I find it typically leans one way. With Spire, the business model is what drew me in (it is quite Planet-esque), but Peter Platzer seemed to be the relentless driving force behind its success. He sold a clear vision, and he seemed committed to building a generational business.

Then he stepped down as CEO, and I lost the people-led story. If you repeatedly outline a vision for the business measured in decades, why move to a non-operational role in the early innings? Was it a board-led move? Did he not believe in the company anymore? And why is his wife now the CEO?

These are questions to which I don’t have good answers, and while I still think Spire is a unique asset, I became uncomfortable owning the company in size. Do I still believe its prospects skew positively? Yes. Am I confused about what’s going on at the top? Yes. Did I want to reduce some uncertainty and wait for the fog to clear? Yes. Do I think there is a chance I will be a buyer again in the future? Again, yes.

Xometry recently blew earnings out of the water, and the stock jumped over 40% on the day. Volatility has been par for the course over the last three years, though not always to the upside. While I have no evidence to support this, I suspect the extreme price action reflects a constantly evolving view of the bigger picture; the market hasn’t decided if it believes in it or not, but it recognizes something is there.

The bigger picture, as I see it, is that Xometry is digitizing a massive industry. Buying custom parts is a tedious, analog process today. Not many companies are trying to solve the problem in the same way as Xometry, and of those players, it is by far the largest. Xometry’s approach is particularly powerful because scale accrues to its advantage. From my view, it’s a classic digital marketplace disruption story.

Xometry’s business is enabled by an AI instant quoting engine. This technology alone is not a competitive advantage; it’s a foundational technology layer that allows them to pursue a new business model category and offer a “wow” customer experience. Xometry’s primary competitive advantage is the scale and scope of its network, and as it continues to grow, I expect this advantage to deepen. It’s classic network effects.

I believe scale wins on the internet, and if you can remove the friction from a manual / analog sourcing process, people will choose digital every time. That’s the crux of the thesis: millions of custom parts are transacted each year, and Xometry is going to steadily take share of that volume. I think this provides a long runway to grow whether or not they really excel in production (though I think they likely will). Production is no doubt an accelerant – an offensive move to drive further scale – but I think if Xometry were to simply dominate the prototyping market, it would still be a successful outcome for shareholders.

Remitly is my most recent purchase, only a few weeks ago. Let me preface this by saying I pride myself on inactivity. I don’t want to be too frequent a market participant, because it can degrade the advantage of a long time horizon. I try to use that edge intentionally and only invest in situations where I have a differentiated view on what a company will look like, and what its future prospects will be, five or ten years out. Not if I think they will beat earnings next quarter or next year, but if I think the company’s business model will be fundamentally better, and benefit from a more advantaged market position, way out in the future – and I don’t think that view is reflected in the market’s expectations.

Back to Remitly. I’ve been following the company for around a year now and became interested when Mario Cibelli pitched it on the Yet Another Value Podcast. I work in payments, so remittance is a business model and market I am quite familiar with but hadn’t really looked at for investment before. This year, however, the market soured on the company’s narrative. This seemed to be at odds with a business that was firing on all cylinders, so I bought a small stake.

Remitly was an instinctual purchase. The time seemed right; I had become more comfortable with the story, more positive on leadership, and had reason to argue with the prevailing view. The industry is in a secular transition, and Remitly is on the right side of the disruption. The source of the market’s pessimism doesn’t particularly concern me; the fact is expectations were lowered, and the investment equation had changed. I’m happy to have some skin in the game and look forward to learning more as an owner.

This example is broadly indicative of how I approach investing. I often lean into my instincts and am happy to take a small stake prior to doing intensive research. I know my returns will ultimately depend on the very few companies in which I have invested a substantial amount of money. That’s the advantage of concentration.

At the same time, buying a small position in a company allows you to feel what it’s like to be an owner. I think tracking a company as an owner is a fundamentally different process and emotional experience than following it as an analyst. It unlocks a new perspective and allows you to make a better decision about whether you really want to be involved for the long term.

One question I’ve started to ask, to get a better sense of whether I want to be involved, is would I want to work there? Do I read about this company, recognize the problem they are solving, understand how they are executing on that promise, and get excited about the future?

I would be willing to work for most of the businesses I own today (not sure if pet insurance or plastic shoes are truly my passion). I don’t think my skill sets commonly overlap with their needs, but they each seem like an exciting place to work, and I think that filter has proven additive to my investment process.

Investing is a forward looking game. The last 18 months have been great. The last 42 months have been good. But the most important thing is I am still confident in the future. My historical returns have been exceptionally volatile, and I don’t necessarily expect that to change – I am heavily invested in emerging growth companies, and they will continue to swing alongside the public narrative – but I do remain confident that over the long term, the stock price will move directionally alongside the fundamental progression of the business. And that should be enough.

– Tim Gallagher

August 14, 2025

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2024 Annual Letter

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This letter is the start of a series that will over time document my investment track record. My goal for this first edition is mainly to provide some context about who I am and how I invest. I’ll introduce my situation, my philosophy, and share a bit about how I interpret strategy and risk.

Regular readers might think I’m beating a dead horse, but I think there is nothing more important than context in any discussion of investing. Context can eliminate misunderstandings and explain why someone thinks a certain way. Too many people don’t bother to ask why.

This letter closes with my historical returns and current portfolio. As always, I encourage you to share your own opinions in the comments, particularly if constructive.

My Situation

Since I was a kid, my interests have always been more accurately classified as obsessions. I either want to spend all my time doing something or none of it. Investing is no different, though I don’t work in the investment business.

I’m 24 years old. Most of my funds are in a Roth IRA, so my time horizon is effectively infinite. I’ve been investing my money for around seven years, but really focusing on it for the last three or four.

In that time, my approach has undergone some drastic changes. I started off trading, did a tour of duty in the traditional value trenches, went after high-growth tech stocks, and eventually indexed a sizable chunk of my portfolio for a while. This experimentation has been invaluable in learning about my behavior in markets and developing an approach suited to my personality.

I invest a small sum of money today compared to what I expect to earn and save over the course of my career. Partly because of this, I’m comfortable with concentration. If losing money steepens the learning curve, that’s a tradeoff I’m willing to make – provided I avoid repeating any mistakes.

Investing is a game – one I enjoy very much. I play to win, but winning is not just about beating the market. It’s about learning and having fun with the process. The day I stop learning or the day I stop enjoying the craft is the day I go back to indexing. Hopefully that day is far off.

Philosophy

I view philosophy as a set of principles that guide your approach to the market. It’s virtually impossible to capture my approach in a few pithy phrases, but nonetheless I’ll try:

1. Keep it simple

2. Think like a business owner

3. Hold a long term view

4. Look for misunderstandings

Simplicity is an anchoring force in my process. Reece Duca, the founder of IGSB, said it best:

We think that the most important thing in the investment business is to keep everything absolutely as simple as you possibly can. We think complexity is the biggest barrier to high performance in the investment business. And so we design around complexity.

The best investment ideas are simple. They can be explained in a few sentences, and they rely on napkin math, not complex models. Simplicity, to me, is about having a clear endgame in mind. It’s about focusing on the few variables with the most influence on that outcome and separating the rest. Ultimately, it’s about knowing what you own and why you own it.

A business owner focuses on the people, thinks strategically, and doesn’t care for the stock market. Do you trust the people running the business to make decisions in your interest? Have they outlined a strategy which you believe will succeed over time? Can they execute? If so, stock price volatility should be a feature, not a bug, of any investing program.

Holding a long term view can only come from asking long term questions. Josh Tarasoff says:

One kind of investment situation I’m fond of is when a company’s best decade won’t even begin for 5 years or more: the endgame is clear, but there is an immediate murkiness as the pieces fall into place. Instead of focusing on the far future, investors commonly try to construct a narrative or a series of events that will occur over the next few months, quarters, or years — what I call a path. People obsess over the path because they crave the comfort of a play-by-play understanding of how their investment will progress.

Most people don’t bother to ask the long-dated questions because they are too bogged down in what happened last quarter or what might happen next quarter. This short-termism is a plague, and I think operating outside the confines of an investment business largely bound to it provides an edge.

In a game where turning over the most rocks can be a recipe for success, it helps to quickly discard companies not suitable for investment. Searching for misunderstandings is a way to accelerate this filtering process. A misunderstanding often implies lower expectations, which can spell opportunity.

Identifying misunderstandings is not as simple as filtering for low valuation ratios. More often than not, it means focusing intensely on what can’t be readily measured or quantified. It means developing an intuition for how the market thinks, understanding where you differ, and trusting your judgment. The process is far from scientific, but I find it’s a worthwhile endeavor.

If most people seem to have a solid grasp of a company’s business model or competitive advantage, I am quick to turn the page. Many investors approach the market from the opposite angle, studying businesses upfront in order to be ready when the price reaches an attractive level.

My own habits are more in line with Stanley Druckenmiller’s “invest, then investigate.” I prefer to look for situations where I can immediately sense the opportunity and get some skin in the game, then continue my investigation before sizing up or exiting the position.

Position sizing has had a detrimental impact on my performance historically, and my thinking has evolved over time. We will discuss it in depth at a later date as it is one of the most important components of any investment program and deserves more time than I can offer today.

Strategy

Strategy is more tactical than philosophy; it should answer the question of how you plan to beat the market. Strategy cannot be static; it has to evolve and adapt, because markets evolve and adapt. Opportunities shift. What should be constant is an alignment with your temperament and goals.

My strategy is less a product of any conscious decision I made and more a function of where I have noticed opportunity in the last few years, and where I am naturally drawn. It can be tackled from a few angles.

For starters, I have a decent concentration in busted SPACs – companies that went public at too high a valuation and have since been left for dead. A few of these entities just might possess solid business models, good leadership, and promising prospects; it will just take longer than most people expected to justify the exorbitant valuations they were once willing to pay. I wouldn’t describe my strategy as seeking out busted SPACs, but it’s an area where I have seen and acted on opportunity.

Another angle is companies that benefit from inevitable change. Again, this isn’t something I wrote down or decided to do; I am naturally drawn to how industries evolve and fascinated by companies doing something novel or different. I tend to seek out pockets of secular change, invest early in companies leading or shaping that change, and wait. It’s a venture capital-esque strategy.

Yet another angle could be companies building a unique supply of data. AI may be king, but data is God. Companies with (1) massive and (2) unique and (3) valuable datasets should accrue significant value as they begin building platforms and applications that have only become possible with recent developments in the domain. Finding companies in such a position is difficult, but promising.

I liken this angle to “training data as a moat.” The concept itself is experimental and weak – it only really makes sense at the brute force layer of any advantage – but it’s an idea I find myself coming back to often. Maybe it earns more merit over time; for now, the investigation continues.

Time horizon is my only edge, so it will continue to be the unifying factor across the strategies I look to employ. But my point with all of this is that strategy is less something you decide to do and more a reflection of where you see opportunity. I don’t believe in strict rules or pigeon-holing where you search for returns. I do believe in chasing opportunity soberly and rationally, and avoiding hype.

Risk

Risk might be the most diluted concept in all of finance. I nearly went crazy in college calculating VaRs, sharpe ratios, betas – it’s all bullshit. Risk is defined by the dollars you put into an investment and your level of confidence that you will be able to pull them out at your time of choosing, even if things don’t go perfectly according to plan.

There is no science to it. It’s an educated guess. We deal with judgment under uncertainty – that’s the nature of the game.

Risk is also relative. If I were to put 100% of my money into a single company right now, almost everyone would consider that inordinately risky. But, if I started from zero tomorrow, my life would not be impacted to any great degree. Of course I don’t want to do that, but risk ultimately depends on the actor. There’s no universal formula.

In general, I think investors are better off acknowledging the prevailing uncertainty of their craft and managing their activity with that in the forefront of their mind. Our chief objective is to manage ourselves in order to take on risk, rather than attempt to measure that risk with any degree of precision. Acknowledge and understand, but don’t try to quantify.

One tactic I use to manage myself is trying to spot qualities of a business that will make me queasy if things start to turn sideways.

A poor balance sheet is one example. A healthy balance sheet helps me sleep well. This isn’t a hard and fast rule – I’ve stepped out of bounds numerous times (Spire as one example) – but it’s a good frame, particularly when shopping among unprofitable enterprises.

Another tactic is to immediately ask, “what is the probability of a zero?” when assessing a business. I find the question immediately frames the risk assessment in the right way, especially if navigating the mine-ridden fields of former SPACs. My natural tendency is to focus more on understanding what can go right than what can go wrong, and this serves as a gentle balancing mechanism.

Risk is all about how you handle uncertainty. Good risk management is knowing yourself, recognizing the limits of your knowledge, and understanding how you react to adverse developments – not calculating a beta and multiplying it by some other made-up number.

Returns

My returns over the past three years are shown below. My portfolio’s calculations are from Fidelity; the performance of SPY and QQQ are from Yahoo Finance.

I chose 2022 as the inception because the losses suffered in that year have been the most instructive in shaping my approach to markets today. Prior to 2022, my activity involved too much experimentation, and my returns probably don’t reflect the underlying decision quality.

This year was an extraordinary one, but it’s only the start of a long journey. Bad years are sure to crop up again. Both skill and luck influence the results of this game, and luck definitely played an outsized role this year.

That’s not to say I didn’t do the work, but it’s difficult to argue the magnitude of return equals the magnitude of improvement in the fundamentals of the companies I own. So, what changed?

In many cases, overwhelming pessimism gave way to maybe-not-quite-optimism, but neutrality. Neutrality carries higher expectations, and 2025 will be an important year for many of the companies I own. A few examples:

• Planet should begin to deliver positive operating cash flow and start to scale operations for the next-generation Pelican fleet.

• Spire will close the sale of its maritime business, and investors should finally receive clarity on the financial front.

• Xometry should begin to report positive cash flow.

• Pagaya expects to deliver GAAP profitability on a full-year basis.

• Upstart expects to deliver growth regardless of the macro backdrop.

Several companies are on the verge of moving from cash-consuming to cash-producing. In public markets, this is equivalent to a move from suspicion to legitimacy. If they can execute, I wouldn’t be surprised if we begin to see some optimism. If they don’t, we could be headed back to pessimism.

It was a good year, but we’re focused on the future. Time is the ultimate arbiter of luck and skill.

Portfolio

Below, you will see the organization of my portfolio as of market close on January 17, 2025.

I view the portfolio as a collection of long duration bets. Each bet is expressed as an investment in a single company, but underpinning each investment is a bet (or numerous bets) on a broader trend, category, or theme which drives my view of the endgame. These broader bets commonly overlap, as is the case with Pagaya and Upstart, or Planet and Spire.

Stock selection is generally based on my assessment of some sort of unique or exceptional quality; in all cases, it’s too early to definitively prove this will translate into an exceptional business outcome, but my core assumption is these companies will continue to improve as they age.

More specific thoughts on individual names will be a feature of the coming Research Recaps. Again, I encourage you to share any thoughts in the comments, and always reach out with any questions.

Thank you for reading. I’m excited to be more transparent about my investments moving forward, and I hope you consider this new format an improvement.

— Tim Gallagher

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