Dan Sundheim of D1 Capital on the art of public market investing
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
In this in-depth conversation, Dan Sundheim, founder and manager of D1 Capital Partners, shares rare insights into running a $25 billion investment firm that spans both public and private markets. (00:00) The discussion covers D1's unique operating model where 95% of trading decisions flow through Dan personally, his harrowing experience during the GameStop short squeeze, and his contrarian view that successful private companies should avoid going public in today's market environment. (00:28)
- Core themes: The episode explores fundamental investment principles, risk management in volatile markets, the evolution of short selling post-GameStop, AI infrastructure opportunities, and the challenges facing public markets in an era of retail-driven volatility.
Speakers
Dan Sundheim
Dan Sundheim is the founder and Chief Investment Officer of D1 Capital Partners, a $25 billion investment firm that invests in both public and private companies using fundamental analysis with a 3-5 year investment horizon. Prior to founding D1, he was a portfolio manager at Viking Global Investors, where he gained recognition for his stock-picking abilities and pattern recognition skills developed over more than 20 years in the investment industry.
John Collison
John Collison is the co-founder and President of Stripe, the global payments infrastructure company. He has been instrumental in building Stripe into one of the world's most valuable private companies and brings a unique perspective as both an entrepreneur and someone who has experienced the challenges of scaling a technology business.
Daniel Gross
Daniel Gross is a technology investor and entrepreneur with experience in venture capital and company building. He provides valuable insights into the intersection of technology and investing throughout the conversation.
Key Takeaways
Pattern Recognition is the Ultimate Investment Skill
Sundheim emphasizes that successful investing is fundamentally about pattern recognition developed over decades. (13:13) When asked about his intuitive ability to quickly assess investment opportunities, he explains that it's "just like anything else in life. It's pattern recognition." This skill allows him to make rapid preliminary assessments of companies, though he cautions that his hit rate on quick judgments is "dramatically lower than once we've done all the work." The key insight is that while pattern recognition provides valuable initial guidance, it must be combined with deep fundamental analysis for actual investment decisions. For aspiring investors, this means focusing on building experience across different market cycles and business models rather than relying solely on analytical frameworks.
Risk Management Must Happen Before the Fact
The GameStop crisis taught Sundheim a crucial lesson about proactive risk management. (26:20) He states emphatically: "Anything you do after the fact is not risk management. It's actually just destroying capital. Risk management has to happen before the fact." Following the short squeeze, D1 fundamentally changed their approach to position sizing, particularly for short positions, ensuring they can withstand extreme volatility without being forced to cover at the worst possible times. (32:56) This means accepting potentially lower returns in exchange for survival during black swan events. The practical application is sizing positions so that even if retail crowds drive stocks up 10x or 20x, the fund can ride it out rather than panic-sell at peaks.
Multiple Expansion Drives Most Investment Returns
While investment memos focus on fundamental analysis, Sundheim acknowledges that "you're always going to make the most money on multiple expansion." (57:12) He uses Booking.com as an example - when he owned it, the company was growing 40% annually but traded at only 9x earnings due to market skepticism about its business model. Years later, as growth slowed to single digits, the multiple expanded to roughly 27x earnings because the market gained confidence in the sustainability of the business model. This insight reveals that successful investing isn't just about identifying great companies, but understanding when market sentiment will shift to properly value them. The practical implication is that investors should focus as much on understanding market perceptions and timing sentiment shifts as they do on fundamental analysis.
Hire for Analytical Skills, Teach Stock Picking
D1's unique hiring philosophy involves recruiting almost exclusively from private equity rather than hiring experienced public market investors. (14:09) Sundheim explains: "If I hire somebody laterally who's a portfolio manager at another fund, that's rarely been successful, almost never." The reasoning is that every firm has different investment approaches, and changing established habits is "incredibly difficult." Instead, they hire people with strong analytical foundations from private equity who understand "accounting, financial modeling," and then spend approximately three years teaching them D1's approach to stock picking. (15:11) This patience-intensive approach recognizes that developing investment intuition takes time, but starting with the right analytical foundation and cultural fit is more important than prior public markets experience.
Time Arbitrage Creates Sustainable Alpha
Sundheim highlights a key advantage of long-term investing in an increasingly short-term market. (54:04) He notes: "If you buy great businesses, you overpay for them a little bit, you get their earnings wrong a little bit in the short term. Over time, value compounds and time is your friend." This contrasts with macro investing where "you might never be right" because there's no fundamental underlying value creation. The concept extends to D1's portfolio construction, where they're always "planting seeds and harvesting" - some positions planted years ago are now paying off while new positions are being established for future returns. (22:10) For individual investors, this suggests focusing on businesses with strong competitive moats and sustainable growth rather than trying to time short-term market movements.
Statistics & Facts
- D1 Capital Partners manages approximately $25 billion in assets under management, with about two-thirds ($15+ billion) in private investments and $10 billion in public markets. (04:46) This makes D1 one of the largest funds operating across both public and private markets with this scale of capital allocation.
- Dan Sundheim makes 95% or more of all trading decisions personally at D1, despite the firm's massive scale. (01:51) This level of centralized decision-making is unusual for a fund of this size and demonstrates the concentrated responsibility structure.
- Without an alarm clock, Sundheim wakes up "almost exactly between 2:55 and 3AM almost every day" to monitor European market openings. (46:54) This routine has developed over approximately 20 years of managing international positions and highlights the global, always-on nature of modern investing.
