Brinton Johns, Jon Bathgate: Complexity Investing & Semiconductors (with NZS Capital)

The episode begins with an encounter that grew out of Acquired's earlier TSMC research. Ben had watched Brinton Johns and Jon Bathgate discuss semiconductors on The Knowledge Project, then met Brinton at Capital Camp. Their conversation about TSMC and geopolitics led the hosts to invite Brinton and Jon to explain NZS Capital's investment principles. The first hour stays away from chip details because the hosts find the firm's broader framework useful beyond semiconductors. They also state that the program is not investment advice and that they may hold some of the stocks discussed.

NZS's starting point is a willingness to admit that investors do not know how the future will unfold. Brinton says the firm's philosophy came from years of being wrong and wanting a better way to think. He and Brad encountered complexity theory through Eric Beinhocker's The Origin of Wealth and Mitchell Waldrop's Complexity, while the hosts connect the topic to the Santa Fe Institute. In Brinton's description, complex adaptive systems interact to produce emergent behavior, making exact outcomes hard to predict. He favors guidelines and heuristics over confidence in precise forecasts. The point is not that analysis is useless, but that interacting systems limit what a forecast can reliably claim.

Brinton recounts the Santa Fe Institute's origins as a meeting place for scientists, especially physicists from Los Alamos, and economists. Their discussions asked why mathematical precision in physics did not translate neatly into economic prediction. The hosts use this history to frame complexity as a way to study how the world works, rather than as a narrowly financial technique. Brinton says the firm found biological systems more compelling and more applicable to investing than conventional economics. He and Brad attended a weekend course at Stanford and joined a Santa Fe Institute group for non-scientists; Jon and another colleague took a longer course.

A course on ants gave Brinton a practical image for the firm's idea of resilience. Deborah Gordon's long-running research found that about half the ants in a colony were inactive at a given time while the rest performed defined jobs. Brinton says this surprised the investors because ants are often imagined as productivity machines. He interprets the colony as optimized for longevity and resilience rather than maximum immediate output. The hosts do not suggest that businesses should literally leave half their employees idle; they use the ant colony to question whether constant productivity is the right objective for an organization that must survive changing conditions.

Brinton contrasts the ant colony's long horizon with companies shaped by quarterly earnings pressure and short CEO tenures. He says founders may be more likely to think long term because they retain substantial exposure to the business, but he also allows that some professional CEOs do so. David connects the idea to Warren Buffett and Charlie Munger's preference for steady, durable returns over frantic productivity. Jon says NZS looks for durable growth rather than a race to a revenue milestone: moderate annual growth can create considerable value if it continues for decades. Texas Instruments is one example he admires for decentralizing decisions and giving the CEO a capital-allocation role.

The discussion ends this section by setting up two terms central to NZS's approach: resilience and optionality. The resilient part of a portfolio is meant to hold companies capable of compounding at a healthy rate over long periods, with limited turnover and less dependence on a precise prediction. The hosts ask for definitions and examples; the conversation has not yet supplied them in this opening segment.

Jon describes the resilient side of NZS's portfolio as companies that have progressed further along their growth curves and can keep growing for decades. Microsoft and TSMC are examples of the kind of core holding he has in mind. The firm is not trying to buy whichever stocks look statistically cheap; it wants healthy businesses whose growth can endure. Jon says turnover in this part of the portfolio is around 10%, making it the closest thing to a set-it-and-forget-it allocation.

The traits Brinton lists include mission-critical products, switching costs, scale, and network effects. TSMC illustrates scale: in some industries, a dominant company can capture most of the profits, and reinvestment can create a flywheel in which greater scale improves service to customers and supports further investment. In digital markets, one or two businesses may capture most of the economics once network effects reach an inflection point. These can be powerful competitive advantages, but NZS's discussion adds a condition that is less common in a conventional moat story: the company should not use its position simply to extract as much value as possible from customers.