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An Interview With Mario Gabelli: Masters in Business (Audio) · Masters in Business

0:03
Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.
0:08
Speaker 1: This week on Masters in Business, I have a very
0:12
Speaker 1: special guest, and I know I say that every week,
0:14
Speaker 1: but this week Mario Gabelly is our guest, and he
0:18
Speaker 1: is just tremendous. He is known as a stockpickers, stockpicker,
0:24
Speaker 1: a deep value guy schooled at Columbia in the Graham
0:28
Speaker 1: and Dodd tradition, the Warren Buffett tradition of value investing.
0:32
Speaker 1: I think the twist that Mario brings is that he
0:37
Speaker 1: learns an industry as well as anybody ever can, and
0:39
Speaker 1: then within that industry goes hunting for value. Uh. He's
0:44
Speaker 1: also a force of nature. As you'll here, I very
0:47
Speaker 1: much completely lose control of the interview and and he
0:50
Speaker 1: um pretty much steam rolls over um a lot of
0:54
Speaker 1: the questions I asked. It was really a fascinating conversation.
0:57
Speaker 1: And if you're at all interested in stock picking, uh,
1:01
Speaker 1: this is a guy you really want to listen to. So,
1:03
Speaker 1: without any further ado, here is my conversation with Mario Gabelly.
1:12
Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.
1:17
Speaker 1: I know I say this every week that I have
1:19
Speaker 1: a special guest. But this week I have a very
1:22
Speaker 1: special guest, founder, CEO, chairman of Gabelly Asset Management, Mario Gabelly.
1:29
Speaker 1: I'll give you a quick version of his background. Formed
1:32
Speaker 1: the company in the midst of the bear market in
1:35
Speaker 1: the nineties seventies UH now managing over forty billion that's
1:40
Speaker 1: billion with a being assets, known as an intense researcher
1:45
Speaker 1: into the businesses of the companies who stock he buys. Mario,
1:49
Speaker 1: also known as Super Mario, buy stocks as if he
1:53
Speaker 1: was purchasing the whole companies. He's recently UM gifted the
1:57
Speaker 1: Formum School of Business, which has since been renamed the
2:01
Speaker 1: Gabilly School of Business at Fordham University, Nario. Gabilly, welcome
2:05
Speaker 1: to Bloomberg. Heys terrific to be here. Talk about stocks.
2:08
Speaker 1: Let's talk a little bit about stocks. So your background
2:12
Speaker 1: is that you UM went to the Columbia UH School
2:16
Speaker 1: of Business. What do were you doing before you went
2:20
Speaker 1: for your business degree. Well, essentially, back in the period
2:25
Speaker 1: of time the early sixties, you did not have to
2:27
Speaker 1: take the two or three years of work experience so
2:30
Speaker 1: college rights. So I graduated from Fordham in June, went
2:34
Speaker 1: to Columbia in September, and obviously had a variety of
2:39
Speaker 1: entrepreneurial gigs, so to speak, for the prior twenty years,
2:42
Speaker 1: starting at the age of five, Oh, what were you doing? Uh,
2:45
Speaker 1: prior to college? What? What sort of work were you doing? Well?
2:48
Speaker 1: Arranged from everything from caddying to shining shoes, to picking
2:51
Speaker 1: up crates and supermarkets for recycling purposes to actually working
2:55
Speaker 1: a gig with ABC down at UH sixty seven Street
3:00
Speaker 1: and Broadway just as they were building Lincoln Center. I mean,
3:02
Speaker 1: there's so many it's unusual not to be able to
3:05
Speaker 1: remember to mention the will, including some where I was
3:08
Speaker 1: running dances for college students along with two partners back
3:14
Speaker 1: in the sixties. We'd hired the band the Bounces and
3:16
Speaker 1: A and the location which the booze was served, any
3:21
Speaker 1: any finance, any Wall Street prior to business school or
3:24
Speaker 1: where these two no, I think the I I did
3:26
Speaker 1: take some summer internships. The one with ABC, as I mentioned,
3:31
Speaker 1: was where I would go in using my undergraduate degree
3:34
Speaker 1: in accounting or a study of accounting at the time,
3:37
Speaker 1: but also essentially checking off the each television station where
3:44
Speaker 1: a TV ad was placed and whether it was preempted
3:46
Speaker 1: and whether they'd have to get what make make goods.
3:51
Speaker 1: In addition to I think, I worked for W. A.
3:53
Speaker 1: Grace for a while down in Wall Street UH in
3:55
Speaker 1: the County Department, and that's where I learned about the
3:59
Speaker 1: UH and Choby's disappearing when El Nino came along. And
4:03
Speaker 1: it was kind of fascinating because I was plugging in
4:05
Speaker 1: a lot of numbers. What happens when Elnino comes along?
4:08
Speaker 1: What does that mean to UH? The anchobies probably go up, disappear,
4:12
Speaker 1: and the price goes up. So if you've got a
4:15
Speaker 1: big fleet off Peru or Chili, you would have a
4:19
Speaker 1: little challenge of finding those little fishies. And that started
4:22
Speaker 1: a lifetime deep dive research into that. Really that was
4:26
Speaker 1: just that that was just basically generating cash flow, and
4:29
Speaker 1: it to pay my tuition because I didn't want to
4:32
Speaker 1: have any tuition loans, but I did have some coming
4:34
Speaker 1: out of graduate school. So you went to Columbia with
4:36
Speaker 1: a couple of other guests that we found on the show.
4:39
Speaker 1: Um Lee Cooperman told us that he used to car pool.
4:43
Speaker 1: Is this true? He would car pool with you Art
4:45
Speaker 1: Sandberg back and forth to college. There were four of
4:47
Speaker 1: us and what happened is at the time I was
4:50
Speaker 1: at Columbia, we both and all of us lived up
4:52
Speaker 1: in the West Bronx and Riverdale and I by Van
4:55
Speaker 1: Cortland Park. There was a subway strike, so I we
4:59
Speaker 1: figured out that we should car pool, a very practical solution.
5:03
Speaker 1: And then when we did that, for several years we
5:06
Speaker 1: didn't took turns driving. And I'm surprised that both of
5:10
Speaker 1: them still alive since I was the driver many times.
5:13
Speaker 1: And in addition to there was always a fourth fellow,
5:15
Speaker 1: and then we would have a Stanley shop corn at
5:18
Speaker 1: one time we'd car pool with. And so it was
5:20
Speaker 1: a wonderful bunch of guys that were focused on stocks,
5:23
Speaker 1: love the markets, had great passion for making money for clients.
5:27
Speaker 1: Even then, Lee said he learned more in the car
5:29
Speaker 1: pool than he did in class. Well, I can't remember
5:31
Speaker 1: any of that. So you had a professor. You started
5:35
Speaker 1: with Roger Murray known as um Uh, one of the
5:39
Speaker 1: editors of Graham and Dott, and I think he did
5:41
Speaker 1: the fourth or fifth edition of Security Analysis. Let me
5:44
Speaker 1: make it simple, Columbia Business School had two professors back
5:49
Speaker 1: in the late twenties early thirties. Graham and Dodd, and
5:51
Speaker 1: they wrote a book on cold security analysis. UH the
5:57
Speaker 1: fifty Warren Buffett takes the class and writes a story saying, hey,
6:01
Speaker 1: I was a pretty good investor before I got Ben
6:03
Speaker 1: Graham teaching me, and that I became an extraordinarily good
6:05
Speaker 1: investor after Graham retired, Roger Murray succeeded and took on
6:10
Speaker 1: that program. So when I took security analysis, who at
6:13
Speaker 1: Roger Murray, Cooperman was there, Sandberg was there for me?
6:17
Speaker 1: It was the moon, the sun and the stars. I
6:18
Speaker 1: always known that to be in the markets, but I
6:20
Speaker 1: didn't know exactly what aspect and so that was a
6:24
Speaker 1: very important light chatting and changing moment formative. That's what
6:28
Speaker 1: you said, I want to go out and research companies
6:31
Speaker 1: and buy stocks and be an investor. Um. So one
6:35
Speaker 1: of the quotes that you that was attributed to you
6:38
Speaker 1: in that car was we were all pH d s, poor,
6:42
Speaker 1: hungary and driven. Explain that, well, I think it's a
6:45
Speaker 1: little different version as time goes on. The fish was
6:47
Speaker 1: twenty two ft as opposed to twenty two inches. What
6:50
Speaker 1: happened was about I gonna I'm gonna cuff numbers. Maybe
6:53
Speaker 1: twenty years ago, Rick Pettino was coaching for Quotes Kentucky.
6:57
Speaker 1: He said, now at Louisville, obviously, and he had a player,
7:01
Speaker 1: Jamal Marshburn, and he was looking around for a money manager.
7:03
Speaker 1: Came up to our office and he was walking down
7:06
Speaker 1: and I was introducing to analyst. He looks and he says, Mario,
7:08
Speaker 1: how do you find these guys or gals? And I said, well,
7:12
Speaker 1: they have to be bah bah bah, but they also
7:14
Speaker 1: have a PhD attitude. He looks at he says what
7:18
Speaker 1: I said, poor, hungry and driven. Then one of the
7:22
Speaker 1: individuals in the office of woman who went to Wesley
7:24
Speaker 1: and and then went to Columbia Business School and her
7:27
Speaker 1: father was especially says, don't ignore the fact that could
7:30
Speaker 1: also be privileged, hungre and driven. So Rick, writing a
7:33
Speaker 1: book called Success as a Choice that wrote the success
7:37
Speaker 1: put a chapter on there called the PhD attitude. And
7:40
Speaker 1: that's the dynamic barrier about how we came about with
7:44
Speaker 1: the notion that we love to hire PhD s po,
7:46
Speaker 1: hungering and driven with a passion for the market. You're
7:48
Speaker 1: listening to Masters in Business on Bloomberg Radio today. We
7:52
Speaker 1: are speaking with super Mario Mario Gabelli, CEO chairman and
7:57
Speaker 1: portfolio manager of about sixteen different funds at GAMCO. You
8:02
Speaker 1: picked quite an auspicious time to launch Gabelly Asset Management.
8:09
Speaker 1: Nineteen seventy six or so was when you first about right. Yeah,
8:15
Speaker 1: let me give you a little background. I started right
8:17
Speaker 1: out of Columbia, graduated on Friday, and on Monday morning
8:20
Speaker 1: I joined Low Bros. On Friday night, Michael Stinhart quit.
8:23
Speaker 1: Michael started an extraordinarily successful hedge fund called Stinhart Berkason Fine,
8:28
Speaker 1: and they gave me his industry. So I became the
8:31
Speaker 1: auto analyst, farm equipment and conglomerate analysts. Fast forward. I
8:34
Speaker 1: covered the media and entertainment business when nobody wanted to
8:36
Speaker 1: do it, and a bunch of business service companies. Fast forward.
8:40
Speaker 1: I left joined William D. Witter, a great research firm,
8:44
Speaker 1: and we were emerged into Drexel Burn, not merged, taken
8:47
Speaker 1: over by Drexel. I walked into Tubby Burn and I said, Tubby,
8:50
Speaker 1: you are a great investor, much like Mr Loebe. However,
8:54
Speaker 1: I'm looking for smaller firm and I'm going to start
8:57
Speaker 1: my own. And the reason I picked starting my own
8:59
Speaker 1: I was in Denver reading with a Guyared Richard Goldstein.
9:01
Speaker 1: Goldstein was one of the founders of Janice Bailey, Griffiths
9:06
Speaker 1: and Goldstein, and he says, Mario, why do you want
9:09
Speaker 1: to go to work for someone else? Start your own firm.
9:11
Speaker 1: And at the time I knew I could make money
9:14
Speaker 1: in the market. I had been very successful in picking
9:17
Speaker 1: stocks within the context of the areas of which I
9:19
Speaker 1: had accumulated and compounded knowledge. That is what I mentioned,
9:22
Speaker 1: which is entertainment and media, automotive and farm equipment, as
9:26
Speaker 1: well as conglomerates. But I didn't have the rolladex of
9:30
Speaker 1: collecting assets. And so I started an institutional research firm
9:34
Speaker 1: and had clients like General Motives paying me cash from
9:36
Speaker 1: my research as well as uh the institutions that we
9:40
Speaker 1: had been covering when I was at William D. Winter.
9:43
Speaker 1: So you launch your own shop. What you was a
9:46
Speaker 1: seventy the first time in which we got to prove
9:49
Speaker 1: from the regulators, and it wasn't as bad as it
9:53
Speaker 1: is today because no one was starting a business at
9:56
Speaker 1: the time. Uh So we got started a bit of
9:59
Speaker 1: first week in January of nineteen seventy seven. That's we
10:02
Speaker 1: actually applied for the ability to do that, and no
10:06
Speaker 1: one else wanted to join me. Two other individuals at
10:09
Speaker 1: William D. Witter thought about it for a while and
10:11
Speaker 1: I would have been called brand Wailed, Gabelly and Hathaway
10:14
Speaker 1: in that seat in that alphabet sequence. But we didn't
10:18
Speaker 1: get paid. I think in my first year I made
10:20
Speaker 1: five thousand dollars. So this was as just doing research
10:24
Speaker 1: or you really kind of launched the set of hedge
10:26
Speaker 1: funds as well. No, no, no, no. In nine hundred
10:29
Speaker 1: and seventy seven we had one business. We did research
10:33
Speaker 1: and sold it for commission and or cash to whoever
10:37
Speaker 1: we could figure out anywhere in the world. However, about
10:40
Speaker 1: three weeks after I started, maybe two weeks after I started,
10:43
Speaker 1: I was going to Toronto, which have previously scheduled meeting,
10:46
Speaker 1: to visit a company that ran shock absorbers in Canada
10:50
Speaker 1: and Barrio liked this one, the guy whose name is
10:54
Speaker 1: Jack Vanderhoten public company. Jack and I taught out chatity.
10:58
Speaker 1: I tell him what I'm there. I'm learning all about
11:00
Speaker 1: the shock absorber business, getting an update on on Merriman, Monroe,
11:03
Speaker 1: Competitive Dynamics, other companies that are doing it. And then
11:06
Speaker 1: he says to me, Mario, tell me what your businesses.
11:08
Speaker 1: I said, blah blah blah. He says, he looks at me, says,
11:11
Speaker 1: Mary will never succeed. I said, Jack, I'm very good
11:14
Speaker 1: at picking stocks and making money. So Jack says to me,
11:17
Speaker 1: I know because I made money off your ideas over
11:19
Speaker 1: the years, opens a drawer, hands me a check and
11:22
Speaker 1: gives me my first client of a hundred thousand dollars
11:24
Speaker 1: to match. And he said to me, the reason you're
11:27
Speaker 1: going to fail. You forgot to ask for the order
11:30
Speaker 1: always be closing. Is that the uh that the advice
11:34
Speaker 1: and even he said, followed the eleven commandment. If you
11:36
Speaker 1: don't ask, you don't get. Notwithstanding that, within that framework,
11:40
Speaker 1: we then decided that we were also started managing money.
11:44
Speaker 1: So the initial structure was that along only separately managed
11:48
Speaker 1: accounts charging a one percent fee up to a certain breakpoint.
11:53
Speaker 1: And today we have two thousand separately managed customized accounts,
11:57
Speaker 1: tax sensitive for those that attack sensitive Institute of Corporate
12:00
Speaker 1: and that's about twenty billion dollars all all equities. In
12:05
Speaker 1: terms of what we are a portion of what we're managing.
12:08
Speaker 1: So when did the mutual funds come along? Well, the
12:11
Speaker 1: hedge funds started earlier in the early eighties, we started
12:15
Speaker 1: a hedge fund, premillion arbitrage. We actually have written a
12:17
Speaker 1: book on that subject. There's only been three or four
12:19
Speaker 1: written on the subject. The first one was written by g.
12:22
Speaker 1: Wiser Pratt when he was taking his studies at n
12:24
Speaker 1: y U, and it really unclothed a really closely guarded
12:29
Speaker 1: aspect of how firms made money with proper money on
12:32
Speaker 1: Wall Street. And then somewhere in the mid eighties somebody
12:36
Speaker 1: else wrote a book on it, and uh, then we
12:39
Speaker 1: wrote a book on it. And the bottom line, um,
12:42
Speaker 1: that was our first hedge fund. It's still a very
12:44
Speaker 1: important part of our business. We manage a billion dollars
12:47
Speaker 1: in a hedge fund of arbitrage. That is, company announced
12:50
Speaker 1: his company buying company B, and at what point do
12:53
Speaker 1: you buy it? And whether the risks It's called risk arbitrage.
12:57
Speaker 1: The second part was that I was on Barons starting
13:01
Speaker 1: on about nineteen seventy eight, seventy nine or eighty. I
13:05
Speaker 1: got a call from Alan Nabelson said, Mario, come by
13:10
Speaker 1: for the round table. No, he called me for a
13:12
Speaker 1: different subject. I had known Alan I would send them
13:14
Speaker 1: copies at my research. By somewhere around nineteen seventy seventy
13:17
Speaker 1: eight or seventy nine. I wrote a report on Chris
13:19
Speaker 1: graft herb Seagulls Company and uh the manufacturer, and well
13:26
Speaker 1: he was not well. Bottom line, he was in a
13:28
Speaker 1: broadcast business. He also had perhaps some other businesses. He
13:31
Speaker 1: was trying to do things like go after Piper Aircraft
13:34
Speaker 1: and he's a really great entrepreneur. Bottom line. I write
13:38
Speaker 1: to Alan, I say, Alan, I'm in closing a report
13:40
Speaker 1: I wrote and Chris Craft for three reasons. One, I
13:43
Speaker 1: liked the stock. Secondly, my clients along, so I want
13:48
Speaker 1: you to publish it. And third I understand that if
13:51
Speaker 1: you do publish it, I get fifty bucks and I
13:53
Speaker 1: need the money. So Alan and he said that that blunt,
13:56
Speaker 1: just right out, and he was receptive to that. Allen
14:00
Speaker 1: is Allen. It was Allen Allen is one of the
14:02
Speaker 1: great writers of all time in the financial world. But
14:05
Speaker 1: anybody invites me over. And that's how I got into
14:07
Speaker 1: the Barrage round Table. And I'm the longest living member
14:11
Speaker 1: of that round table. I've been on it for about
14:14
Speaker 1: thirty odd years, over thirty five years or whatever. I
14:18
Speaker 1: don't remember the math, that it could be thirty five years.
14:21
Speaker 1: So starting in nineteen nine, you began exploring companies that
14:26
Speaker 1: were headquartered overseas. It weren't a whole lot of people
14:29
Speaker 1: who either had boots on the ground. Well, you know,
14:32
Speaker 1: that's a great point. But in two or three I
14:37
Speaker 1: was involved with the Auto Analysts of New York and
14:39
Speaker 1: we had a trip to Tokyo and Japan, uh Tokyo
14:44
Speaker 1: and China, in part through Henry Kissinger Walton kiss of
14:48
Speaker 1: his brother who ran a company in Long Island called Ellen.
14:52
Speaker 1: But prior to that, in the mid seventies, we hoganized,
14:55
Speaker 1: as part of my institutional research, a trip to c
14:58
Speaker 1: Forge Motor Company of a US here as well as
15:01
Speaker 1: Ford Motor Company and several companies in in Europe. So
15:05
Speaker 1: we had been following companies but not necessarily recommending it.
15:09
Speaker 1: You're listening to Masters in Business on Bloomberg Radio. I'm
15:12
Speaker 1: Barry Rihults. I'm here with Marioga Belly Master, stock picker,
15:16
Speaker 1: portfolio manager CEO and chairman of gam COO the Belly
15:20
Speaker 1: Asset Management. Let's talk a little bit about you as
15:23
Speaker 1: an investor. You come out of Columbia, which is known
15:27
Speaker 1: for generating all these fantastic value investors, but you're not
15:32
Speaker 1: quite the usual mold. How do you describe yourself as
15:36
Speaker 1: an investor? Well, what we did with security analysis, which
15:39
Speaker 1: means in my terminology, you gather the data, you read
15:43
Speaker 1: the public company data in a given industry, you develop
15:46
Speaker 1: a core competency in that industry. You are raided data
15:49
Speaker 1: based on the way we like to look at it,
15:52
Speaker 1: and then you project it and then you interpret it
15:55
Speaker 1: and then we communicate it. So we call it gaping.
15:57
Speaker 1: So we take an industry like automotive. We cover companies
16:00
Speaker 1: that are either distributors of parts like O'Reilly's and Genuine
16:04
Speaker 1: Parts or AutoZone. We do a car dealerships, we do
16:07
Speaker 1: original equipment manufacturers, we do the car companies, and we
16:09
Speaker 1: do a global today. But at that time Barry was
16:13
Speaker 1: not very complicated. What is a company worth? How do
16:17
Speaker 1: you value the business? And so we looked at it
16:20
Speaker 1: from the point of view of what would you pay
16:23
Speaker 1: for the business if you can buy So, if their
16:25
Speaker 1: company was public, again this is the late seventies, if
16:28
Speaker 1: the company was public, what would you pay to own
16:31
Speaker 1: a dent of it? So you treat you treated stocks
16:34
Speaker 1: as if there were businesses, not as if they were
16:37
Speaker 1: just little pieces of paper representing a small ownership. Well,
16:41
Speaker 1: they were not soybeans, and they would not come out
16:43
Speaker 1: of these that you can trade like an ETF. So
16:45
Speaker 1: it was not mindless investing. It was basically understanding and
16:48
Speaker 1: industry understanding your company, dealing with all the public information,
16:51
Speaker 1: going to trade shows, going to meet the company's. I
16:55
Speaker 1: mean I used to spend a lot of time in Detroit, uh,
16:58
Speaker 1: you know, and all of the emviron's uh that one
17:01
Speaker 1: would go to go to see a company and I
17:04
Speaker 1: think it was Romulus and uh Kelsey Hayes and a
17:08
Speaker 1: Tryer business and so on. And you go down in Monroe, Michigan,
17:11
Speaker 1: and then you go to U Dayton, Ohio, and then
17:14
Speaker 1: you would go to uh Toledo and you'd see all
17:17
Speaker 1: these companies that you do it three or four times
17:18
Speaker 1: a year, and you'd read everything, and then you start
17:21
Speaker 1: giving speeches, and so you would learn about the details,
17:24
Speaker 1: and you start anticipating how managements would think, what if
17:27
Speaker 1: there was an oil crisis, what if there was a
17:30
Speaker 1: car strike, what if the price of steel went up?
17:32
Speaker 1: What if? And so you would then say, but who's
17:35
Speaker 1: going to buy the business. So again you started the
17:39
Speaker 1: conversation by saying This was the murky world of the
17:41
Speaker 1: mid seventies when you could buy stocks at three times EBIT.
17:46
Speaker 1: But interest rates at that time, Barry, a ten year
17:48
Speaker 1: govy was ten percent. In fact, in August you had
17:53
Speaker 1: you could get fifteen percent, fourteen and seven eights for
17:56
Speaker 1: ten year government. Today's two point one oh tax free,
17:59
Speaker 1: risk free out. There was a tax. It was a
18:01
Speaker 1: government volda, not immunity. But the communities I assumed were
18:05
Speaker 1: locked step I mean, but any event, so we said, look,
18:08
Speaker 1: let's figure out who Again. Back in the sixties when
18:12
Speaker 1: I was at Low Broads, you did bootstrap financing. You'd
18:16
Speaker 1: go out and you figure out what was the receivable's
18:18
Speaker 1: worth ninety cents on the dollar, you figure it out,
18:21
Speaker 1: what was inventory worked fifty cents on what was property planned,
18:24
Speaker 1: equipment worth at the gabble. So you would string together
18:28
Speaker 1: a company and then figure out how to assemble the financing.
18:31
Speaker 1: Then in the seventies or eighties came along Henry Cravis
18:36
Speaker 1: and so on, and they did leverage buyouts. And then
18:39
Speaker 1: today it's private equity. But at the time we said,
18:42
Speaker 1: let assume I'm a wealthy family, what would I pay
18:44
Speaker 1: to buy this business? Why would I want to own it,
18:47
Speaker 1: and then I would ask myself what would a strategic
18:50
Speaker 1: that as a company, what would they pay because they
18:52
Speaker 1: would get some synergies. So we developed a phrase called
18:55
Speaker 1: the private market value. So this was in the mid
18:58
Speaker 1: seventies late seventies. What was the value of a business
19:02
Speaker 1: that was publicly trading if I could buy the whole thing.
19:05
Speaker 1: So it's the intrinsic value that is the present value
19:08
Speaker 1: of the future stream plus the takeout premium. And then
19:12
Speaker 1: we said, it's not complicated. We had no tenure in
19:16
Speaker 1: our client's money and they were very uncertain, so we
19:19
Speaker 1: try to figure out a time frame in which we
19:22
Speaker 1: would have to hold the stock. So we said maybe
19:25
Speaker 1: two or three years. So we look for a catalyst
19:27
Speaker 1: that would surface the value that is the spread between
19:31
Speaker 1: the public price and the private price, and then we
19:33
Speaker 1: try to figure out what was the was the value
19:35
Speaker 1: growing just in case this thing didn't work right away.
19:38
Speaker 1: So you're looking at a number of things, but let
19:40
Speaker 1: me see if I understand the key points. First, you're
19:45
Speaker 1: trying to find things that are worth less, that are
19:48
Speaker 1: trading for less than you think the intrinsic value and
19:52
Speaker 1: or takeout value is going to be. Secondly, you're looking
19:56
Speaker 1: for some events, some catalyst, something that's gonna draw i've
20:00
Speaker 1: or uncover that value. We're driving into the private to
20:03
Speaker 1: the public price you're very quickly. In addition to that,
20:06
Speaker 1: some of the language that's used in the value investing
20:09
Speaker 1: world is called margin of safety. Seth Klarman, ETCETERA. Well, Girl,
20:14
Speaker 1: Graham and Dodd Murray now Greenwald. So he learned well. Uh,
20:18
Speaker 1: Seth is a good, good, good practitioner of that strategy.
20:22
Speaker 1: So you want to make sure there's enough head overhead
20:26
Speaker 1: value so that if you're wrong or as you call
20:29
Speaker 1: it early, you got to look at the price of
20:31
Speaker 1: the stock that you're buying. Okay, you can have all
20:33
Speaker 1: of the same dynamics. If you pay two x as
20:35
Speaker 1: supposed to x. Uh. You know, you're on a ten
20:39
Speaker 1: foot wall, you can get hurt if it comes down.
20:41
Speaker 1: If you're on a two foot wall, you'll do Okay,
20:45
Speaker 1: that's that sounds great. You're listening to Masters in Business
20:48
Speaker 1: on Bloomberg Radio. We're speaking with Mario Gabelly. He is
20:51
Speaker 1: the founder and chairman of Gabelly Asset Management and portfolio
20:55
Speaker 1: manager for about sixteen different funds. Is that about right
20:59
Speaker 1: or old portfolio manager. We we have our fingerprint on
21:03
Speaker 1: two thousands separately managed accounts because I helped direct those,
21:08
Speaker 1: and we have a growth team in our firm, and
21:10
Speaker 1: then we have teams that do specialty products. So I'm
21:14
Speaker 1: involved with the value and all cap value team. In
21:17
Speaker 1: addition to that, we have an oversight in some of
21:21
Speaker 1: the hedge funds that we run. In addition to that,
21:23
Speaker 1: we do have a fingerprint on some of the mutual funds.
21:26
Speaker 1: So you're pretty busy. Well. I enjoy it is. I
21:29
Speaker 1: like the competitiveness. I like every day I come in,
21:32
Speaker 1: something goes wrong and I look stupid. I feel stupid,
21:35
Speaker 1: and that keeps you up at night, and that's why
21:37
Speaker 1: you get up at four in the morning to figure
21:38
Speaker 1: out what do you make? What mistakes did you make today? Right?
21:41
Speaker 1: And They're always gonna be mistakes. It's just how you
21:43
Speaker 1: respond to them and how you prevent them from getting
21:46
Speaker 1: out of hand. The world changes very quickly. For example,
21:49
Speaker 1: you know, somebody will come along and say, you know,
21:51
Speaker 1: why should any healthcare company be public? They should always rationals,
21:55
Speaker 1: you know, owned by the state. Somebody can come along
21:57
Speaker 1: and say that the government will go on strike. I mean,
22:00
Speaker 1: there's always something that goes on, and that's not just here,
22:03
Speaker 1: but that's all around the world. Let's let's talk a
22:05
Speaker 1: little bit about your trips overseas. You're you're a inveterate traveler,
22:10
Speaker 1: You're not exactly a home body. How many countries have
22:13
Speaker 1: you been to kicking the tires and looking at different companies. Look,
22:17
Speaker 1: I avoided uh certain countries over the last forty years,
22:20
Speaker 1: of fifty years, sixty years. Notwithstanding that, we would go
22:23
Speaker 1: to follow industries globally, so simple example barriers. If you
22:28
Speaker 1: drink it, we follow it. So I would be in
22:30
Speaker 1: Paris to visit with Pernoul. I would go to London
22:33
Speaker 1: to revisit Grand Bet now known as the Agio. I
22:35
Speaker 1: would go down to visit companies that were in the
22:38
Speaker 1: booze business. I go to Chicago to visit James Beam.
22:41
Speaker 1: I will go to Japan to visit Centauri. Along with
22:44
Speaker 1: the analysts, so we have a team that covers beverages, wine, water, beer,
22:49
Speaker 1: soda and so on. There are certain characteristics about that industry, uh,
22:53
Speaker 1: the rising middle class around the world. Fact that after
22:56
Speaker 1: the brilliant Wall came down, you had three billion new
22:59
Speaker 1: customers to try and ease and the UH people in
23:02
Speaker 1: India do drink and that's good UH. And those are
23:06
Speaker 1: beverages that I have certain pricing characteristics. So the beer industry,
23:10
Speaker 1: for example, we did the craft brewers. I went to
23:12
Speaker 1: see Sam Adams and I had to go all the
23:14
Speaker 1: way to Boston. It was terrible. As a Yankee fan,
23:17
Speaker 1: it was a challenge. But notwithstanding that, I like Bob
23:19
Speaker 1: Kraft and the past and stockers up to two and
23:25
Speaker 1: you know, we still have tax clients with twenty dollar
23:28
Speaker 1: tax bass. But the point is we cover industries. So
23:31
Speaker 1: what is going on at any point in time, And
23:33
Speaker 1: if you're traveling to Europe, do you have time? For example,
23:36
Speaker 1: I would go to Milan to see Expo Balan. That
23:40
Speaker 1: is a food expo that deals with food that was
23:43
Speaker 1: by antibiotic uh no, natural and organic, and so you
23:48
Speaker 1: learn a lot about who's doing what. And we let's
23:51
Speaker 1: see a company called Comparti which owns UH beverages and
23:55
Speaker 1: it owns Bourbon Bourbon. This is one of the areas
23:59
Speaker 1: that we like. So that's an example. The other one
24:00
Speaker 1: is simple. Following the movie industry in the late sixties
24:04
Speaker 1: and following the broadcasters. You follow the cable guys today,
24:07
Speaker 1: So you look at content and distribution globally. So you
24:10
Speaker 1: would follow companies around the world that do that and
24:13
Speaker 1: you develop a core competency and so you'd go around
24:15
Speaker 1: the world. Same thing with vendors to Boeing and Airbus.
24:19
Speaker 1: So let's talk a little bit about the process for
24:23
Speaker 1: selecting a stuff. You become an expert in an industry,
24:26
Speaker 1: in an industry you and your team, um is that
24:29
Speaker 1: that's where the process begins. How do you then take
24:32
Speaker 1: that industry expertise and apply it to specific company? You know,
24:35
Speaker 1: that's a great question. We started following a company h
24:39
Speaker 1: an individual starting about the mid seventies, Dr John Malone.
24:44
Speaker 1: John was in Denver. He actually started a cable business,
24:49
Speaker 1: a T and T s PhD, and so we would
24:52
Speaker 1: follow everything he's done. So as a result of that, recently,
24:55
Speaker 1: about a year and a half ago, there was a
24:57
Speaker 1: company in London that relocated to Miami called Cable and Wireless.
25:00
Speaker 1: They had they had operations in the Caribbean, so we
25:03
Speaker 1: were following it. All of a sudden, they decided to
25:06
Speaker 1: buy a company called Columbus, which is privately Ombican. But
25:09
Speaker 1: John Malone was on the board and an important owner.
25:12
Speaker 1: So Malonea was running Liberty at the time. He runs
25:16
Speaker 1: a whole bunch of guys. He's got his fingerprints on
25:18
Speaker 1: about a hundred and hundred forty billion dollars of assets.
25:21
Speaker 1: He's personally worth about twelve billion, uh not that anybody's
25:24
Speaker 1: counting that. Notwithstanding that, he's a moneymaker for clients. He's
25:27
Speaker 1: constantly coming in to look at scale instructure, look at
25:29
Speaker 1: text uh way to handle things from a tax basis,
25:34
Speaker 1: and he's a great financial architect. Independent of that. He
25:38
Speaker 1: understood the content of cable and understand speed and understand
25:41
Speaker 1: video and content. So he was a master chess player
25:45
Speaker 1: in a multidinancial game. Now independent of that, So go
25:48
Speaker 1: back to cable and wireless. It was on our radar
25:50
Speaker 1: screen because I started following it in the early nineties
25:52
Speaker 1: because they owned uh Hong Kong Telecom. So when I
25:56
Speaker 1: went to Hong Kong to follow the telecom industry, you
25:59
Speaker 1: would then go in London to figure out what Cable
26:01
Speaker 1: and Wallace is doing, but also understanding what was going
26:03
Speaker 1: on Hong Kong Telecom. Bottom line, we kept track of it.
26:06
Speaker 1: They spun off the business, they sold it to Vota
26:08
Speaker 1: Phone in the UK and they have this company. They
26:10
Speaker 1: sold it. It is a way to consolidate the Caribbean,
26:15
Speaker 1: Latin America and the Caribbean in terms of wireless, cable,
26:18
Speaker 1: old fashioned pots playing, old telephone service. And John owned
26:22
Speaker 1: a company called Columbus emerges it into it. So now
26:25
Speaker 1: I have a new management that's very good at Cable
26:29
Speaker 1: and Wallace located in Miami, and now I'm looking at
26:32
Speaker 1: the whole ecosystem in the Caribbean. Uh. Dennis O'Brien was
26:36
Speaker 1: going to go public, which did you sell? He didn't
26:38
Speaker 1: do it, So we watched, we visit with him on
26:40
Speaker 1: that company. We're watching Milcom, which has lots of fingerprints
26:43
Speaker 1: and footprints in the Caribbean. We go to scott Holm
26:46
Speaker 1: to visit the company of controls it called Shinevic. So
26:48
Speaker 1: this all starts from being an expert industry and then
26:51
Speaker 1: drilling down and then finding new ideas all the time.
26:54
Speaker 1: And that is the short version of how to do it.
26:56
Speaker 1: So when you're looking at these companies, do you have
26:58
Speaker 1: any favored metrics, anything is that you like or don't like?
27:01
Speaker 1: How do you determine valuation? How do you determine what
27:04
Speaker 1: gives you that little margin? Of safety or what's ge
27:08
Speaker 1: that's sexy, but it's the start off with some simple principles.
27:11
Speaker 1: What company will do well with the business model in
27:14
Speaker 1: an inflationary environment, in an inflationary environment, and what will
27:18
Speaker 1: that company, how will that company do well in a
27:20
Speaker 1: deflationary environment. So if I can get one that does
27:23
Speaker 1: well in an inflationary environment as well as doing okay
27:26
Speaker 1: in a deflationary environment, that's a good story point. Then
27:29
Speaker 1: the second thing you look at is if I sell
27:33
Speaker 1: you a pound of sugar and I make a dollar,
27:36
Speaker 1: that's one transaction. But I sell you a subscribe razor blade.
27:40
Speaker 1: I sell you a razor blade at a dollar. I
27:42
Speaker 1: made a dollar and I got a gross margin. But
27:45
Speaker 1: if I sell you a subscription to sell you razor
27:48
Speaker 1: blades for the rest of your life and a monthly revenue,
27:51
Speaker 1: is that has a higher valuation. So we look at
27:53
Speaker 1: not only the accounting, we look at the cash, We
27:56
Speaker 1: look at the economics and look at the calory, and
27:58
Speaker 1: then look at the methodology of pre ability and what's
28:01
Speaker 1: the valuation un though, so these are not complicated, very
28:04
Speaker 1: simple to do. Let's talk a little bit about the accounting,
28:07
Speaker 1: which has changed so much over the past twenty or
28:09
Speaker 1: thirty years. How has the shift in the fasby rules
28:14
Speaker 1: for things like stock options and what have you? Has
28:17
Speaker 1: that made it harder to be a stock picker, to
28:19
Speaker 1: actually get to the core numbers lying underneath. No, not
28:24
Speaker 1: really is you gotta understand. I was an accounting major
28:26
Speaker 1: at Fordham. I had thirty two credits of accounting philosophy,
28:29
Speaker 1: so I can tell you a lot about what if
28:32
Speaker 1: a tree falls in the woods, if an accounting falls
28:35
Speaker 1: in the woods, whether there's a sound or not, any
28:37
Speaker 1: of it. The The point is that rules change, but
28:42
Speaker 1: people that implement the rules also don't change. Notwithstanding that,
28:49
Speaker 1: you have to be aware of gap accounting as much
28:52
Speaker 1: as you would like to run a business for cash economics.
28:55
Speaker 1: And there's a material difference between all of these. So
28:58
Speaker 1: you have to understand the accoun I mean, and obviously
29:01
Speaker 1: that comes into play a lot. Uh, and how companies
29:04
Speaker 1: could use the the erasa, the old eracer on the
29:08
Speaker 1: back of a pencil. So you haven't other than talking
29:11
Speaker 1: about John alone, you really haven't mentioned companies management. How
29:15
Speaker 1: important is it um if there's a good business but
29:19
Speaker 1: you know, yeah, well that's the old fashioned story. A
29:22
Speaker 1: good business run by a great manager. You know, broadcasting
29:25
Speaker 1: was a great business. Tom Burfy was a fantastic manager,
29:28
Speaker 1: and therefore cap Citi's became a great company. They brought
29:30
Speaker 1: ABC and Mergeon into Disney. Okay, and uh he was
29:34
Speaker 1: very good. He hired a goett me of Bob Eiger.
29:36
Speaker 1: Bob Eiker has been a head of Disney now for
29:38
Speaker 1: um teen years. And uh, you know, the moon of
29:41
Speaker 1: the sun and the stars come together for that company
29:43
Speaker 1: with the right management, and so it's both the both
29:45
Speaker 1: the horse and the job. Well, ideal world would be that,
29:48
Speaker 1: but I I tend to uh, you know, I don't know.
29:51
Speaker 1: American Faraoh run by a different Jackey would have still won.
29:54
Speaker 1: Interesting question. Okay, yeah, fascinating philosophical question. Um, so let's
29:59
Speaker 1: talk a little bit about out your research staff. You
30:01
Speaker 1: have a couple of hundred people working for you. How
30:04
Speaker 1: much do you rely on this deep bench that you
30:07
Speaker 1: have or are you still you know, rolling up your
30:10
Speaker 1: sleeves and pouring over spreadsheets every morning? Combination of both.
30:15
Speaker 1: I look, we have developed a wonderful team Christmas Andy,
30:19
Speaker 1: Kevin Dryer and the value team Bob Blenager, Barbara Marson
30:23
Speaker 1: and so on. And we have the UH. Some would
30:26
Speaker 1: like to do large cap, some will do microcap. So
30:29
Speaker 1: I have a team that does microcap Lailta Handed, Beth
30:32
Speaker 1: Lily and so on. They don't have to be in
30:34
Speaker 1: one location anywhere. They could be everywhere. And as a
30:36
Speaker 1: result of that, they are constantly looking at stocks that
30:40
Speaker 1: we think would fit within the framework of what we
30:43
Speaker 1: match the portfolio. So if you're dealing with a we
30:46
Speaker 1: have a fund called Mighty Mites dealing with companies under
30:50
Speaker 1: ideally six hundred million dollar market cap. The name came
30:53
Speaker 1: from my family children playing football in the pop Wornal League.
30:57
Speaker 1: They were the Midgets, the Peeweees, and the Mighty Mites.
31:00
Speaker 1: So if I picked Peewee's, I'd be sued. If I
31:02
Speaker 1: picked Midgets, I'd be sued. But unfortunately, I picked Mighty
31:05
Speaker 1: Mites twenty five years ago as the brand name. And
31:07
Speaker 1: that's what we do. And they look for ideas. For example,
31:10
Speaker 1: they were just in New Jersey looking at x y
31:12
Speaker 1: Z company UH. And we follow industries in which we
31:16
Speaker 1: like the other day, a company called Lance uh what
31:20
Speaker 1: about three years ago, merged with a company called Snyder's.
31:23
Speaker 1: Snyder's Lance Pretzels, you know, the pretzels lightest pretzels, and
31:27
Speaker 1: yesterday they announced to buying Diamond Foods. But it was
31:30
Speaker 1: something that we had thought about that would fit like
31:33
Speaker 1: interesting a long time. So we've been speaking with Mariol Gibelly.
31:37
Speaker 1: He's the chairman and chief investment officer and just about
31:41
Speaker 1: everything else at Gabelly Asset Management. If you enjoy this conversation,
31:46
Speaker 1: be sure and check out our podcast extras, where we
31:48
Speaker 1: keep the type rolling and continue the conversation. If you
31:52
Speaker 1: want to learn more about what Mario Gabelly does, it's
31:55
Speaker 1: easy enough to go to Gabelly dot com and you
31:57
Speaker 1: can look up all of various fun and their outstanding
32:01
Speaker 1: track records. Be sure and check out my daily column
32:05
Speaker 1: on Bloomberg View dot com or follow me on Twitter
32:08
Speaker 1: at rid Halts. I'm Barry rid Halts. You've been listening
32:11
Speaker 1: to Masters in Business on Bloomberg Radio. Welcome back to
32:15
Speaker 1: the show. This is the podcast portion. As you've probably
32:17
Speaker 1: figured out before, I forget Mario. Thank you so much
32:20
Speaker 1: for doing this. Um, I've really been looking forward to
32:22
Speaker 1: having this conversation with you, and you know you're my
32:26
Speaker 1: colleagues that you have interviewed to pass say you're terrific,
32:29
Speaker 1: and I can see why they said that they're all right,
32:32
Speaker 1: And um, I they're both all right, and they are right.
32:35
Speaker 1: That wasn't what I meant. But um, they've all been
32:38
Speaker 1: fantastic interviews. Samberg and Cooperman, we're both, um, really interesting
32:43
Speaker 1: guys to speak to. Since you brought that up, let
32:46
Speaker 1: me ask you something that um Cooperman and and uh
32:51
Speaker 1: Samberg both alluded to, which was the role of luck,
32:55
Speaker 1: the role of serendipity in both people's years and in markets.
33:01
Speaker 1: But what are your what are your thoughts on that?
33:05
Speaker 1: There is no question that you have to step back
33:07
Speaker 1: when you're in figure out what do you want to do?
33:10
Speaker 1: What's your passion? Okay, a lot of very smart people
33:14
Speaker 1: in the world, a lot of people. I want to
33:16
Speaker 1: work from five to nine, not nine to five. So
33:19
Speaker 1: then you gotta say where do I want to spend
33:23
Speaker 1: my life at the next forty or fifty or sixty
33:25
Speaker 1: or seventy years. And so that's for me. It was
33:28
Speaker 1: very simple. I was carrying at something the old country
33:30
Speaker 1: Club in Westchester County. I would hitchhike up from the
33:34
Speaker 1: Bronx or somehow get up there by public transportation. And
33:38
Speaker 1: because I didn't have a van that would drove me
33:40
Speaker 1: to pick me up in your arcors, I would stay
33:42
Speaker 1: late and as a side by by the way, the
33:45
Speaker 1: caddy and the prose name was Whitey Void. He had
33:47
Speaker 1: two sons, West Void, who became a fabulous singer under
33:51
Speaker 1: the name of Chip Taylor, and a son by name
33:54
Speaker 1: of John Void, the actor, the actor whose father of
33:58
Speaker 1: who is the father of angel Lea Jolie. So I
34:02
Speaker 1: used to caddy for him. He was it was an
34:04
Speaker 1: assistant pro any event. It went to a great school
34:06
Speaker 1: in West Chess called Stepanax. So, but I was around
34:10
Speaker 1: and the specialist would come up from the New York
34:12
Speaker 1: Stock Exchange and they played golf and I would be
34:14
Speaker 1: able to caddy for them. So I was like twelve
34:16
Speaker 1: or thirteen years old, and I figured out this was
34:18
Speaker 1: an interesting gig, that's fascinating. But I never knew which
34:22
Speaker 1: part of it that I wanted to be in until
34:25
Speaker 1: I went, as I mentioned earlier, to be in graduate
34:26
Speaker 1: school and took the security analysis court with Roger Murray.
34:30
Speaker 1: And how did you end up choosing Columbia just because
34:32
Speaker 1: it was local in New York or what led to that?
34:35
Speaker 1: Since I have no idea. How I chose my grammar school,
34:37
Speaker 1: UH was PS four in the Bronx, and then I
34:41
Speaker 1: went to a school called Saint Joe's on on Tremont
34:46
Speaker 1: Tremont Avenue at a hundred seventy seven, right across from
34:48
Speaker 1: police station. Those are long stories, not necessary. I'm sure
34:51
Speaker 1: they're fascinating though they are so, so let's let's hear
34:54
Speaker 1: some stories from the Bronx. You grew up in the Bronx,
34:57
Speaker 1: by the way, no Leon Cooperman, and we go through
34:59
Speaker 1: the risk list. I'm amazed at how many people in
35:03
Speaker 1: this industry are right here. They're spinning distance from uh
35:07
Speaker 1: from Wall Street. They're growing up in in Staten Island
35:10
Speaker 1: or Brooklyn or the Bronx, and somehow Wall Street. I
35:14
Speaker 1: give you. I give you an example three blocks from
35:16
Speaker 1: where I moved through by Vanachelse High School, Ivan Sidenberg,
35:23
Speaker 1: literally four blocks away. So that you know a lot
35:26
Speaker 1: of individuals, and I is a long list that you
35:28
Speaker 1: can name. I'll give you a quick Ivan Suidenberg story.
35:33
Speaker 1: His daughter married my wife's cousin and it was the
35:37
Speaker 1: Saturday right after September eleven. That was one of the
35:41
Speaker 1: most astonishing weddings of all times. And that's a whole
35:44
Speaker 1: another agree with that. You got a lot that you
35:47
Speaker 1: can talk about. But we're here to talk to you,
35:50
Speaker 1: not not to have me tell my stories. So let's um,
35:54
Speaker 1: let's talk a little bit about Gamco and a little
35:57
Speaker 1: bit about stock picking, and a little bit about your
35:59
Speaker 1: bad around. So you start out, it's really just you
36:03
Speaker 1: and a couple of guys, and no, no, no, when
36:05
Speaker 1: I started out, it was very lonely. It was just you.
36:08
Speaker 1: BRANDWOA wouldn't join me, hath the way I wouldn't join
36:10
Speaker 1: me because they needed I was willing to make five
36:14
Speaker 1: thousand and two and a half or three and a
36:16
Speaker 1: half kids at the time, and obviously nobody from the
36:19
Speaker 1: government came along to say I was gonna help you.
36:22
Speaker 1: Bottom line. Fast forward, we go public in through Maryland
36:27
Speaker 1: Smith Barney. So for the last sixteen years were a
36:29
Speaker 1: public company. So we have a simple a mission statement.
36:34
Speaker 1: Make money for the client, make money for my teammates,
36:36
Speaker 1: make money for the shareholders. That was what we did
36:38
Speaker 1: in seven that's what we do today. And uh so
36:42
Speaker 1: you bet on yourself and it worked out quite well.
36:46
Speaker 1: Uh no, I. But the underlying premise was that the
36:50
Speaker 1: methodology of gathering, arraying, projecting, interpreting data under the Murray
36:54
Speaker 1: Greenwald Graham and Dodd Murray Greenwald met the dology of
36:58
Speaker 1: security analysis made sense for the extended period of time. Okay,
37:02
Speaker 1: this started, it's good for another eight or ninety years.
37:07
Speaker 1: It's this. It's basically buying it a business at a discount.
37:10
Speaker 1: And what business do you want to buy from? What
37:13
Speaker 1: it's worth? And every day you come in, whether you
37:16
Speaker 1: were looking at fires, are buying alegain this morning, or
37:19
Speaker 1: announcing they try to put their arms around it, or
37:21
Speaker 1: whether somebody's gonna buy star Wards. What are they willing
37:23
Speaker 1: to pay? Why? When? And why are they willing to
37:26
Speaker 1: pay it? What are the elements that go into that parfait?
37:28
Speaker 1: What is a private equity firm willing to pay for
37:30
Speaker 1: a business? Why does stocks sometimes go up sharply when
37:34
Speaker 1: somebody announces they want to buy them? What? What's the
37:37
Speaker 1: rationale for that? And you've been quite successful at identifying
37:40
Speaker 1: these companies before the big increase in value. So let
37:45
Speaker 1: me shift gears a little bit on you and say,
37:48
Speaker 1: so you started loud, it was you. Now the firm
37:50
Speaker 1: has over two hundred employees. Well, there, we call them teammates, teammates,
37:55
Speaker 1: you have two hundred and thirty two teammates. What is
37:57
Speaker 1: that transition? Like, granted was over period of time, but
38:01
Speaker 1: how different is it from being a running a portfolio,
38:05
Speaker 1: running a small shop to running a large corporation first
38:10
Speaker 1: or we're now a large corporation where what they call
38:14
Speaker 1: in the world street it's a small cap stock. As
38:16
Speaker 1: a small cap company, we live by our ability to
38:19
Speaker 1: earn a return for our clients, which are most important,
38:22
Speaker 1: and every day we come in and want to be
38:23
Speaker 1: focused on that. That is the driving dynamic. Uh, nothing
38:27
Speaker 1: else is important. And we expect our teammates to have
38:31
Speaker 1: the same passion and some of them don't have it
38:34
Speaker 1: all the time. So if you're in quotes on vacation
38:37
Speaker 1: and something happens in your stock, you've gotta be available.
38:39
Speaker 1: I mean, you know, you've got no choice. And so
38:41
Speaker 1: we have trained a lot of individuals that way, and
38:44
Speaker 1: I've been very fortunate. We have a team of really
38:47
Speaker 1: highly skilled individuals that were analysts and now are managing
38:51
Speaker 1: money and they are We announced that we have Kevin
38:55
Speaker 1: Dryer and Chris Moranji running as co chief Investment Off
39:00
Speaker 1: the value side, Howard Ward has a team doing growth,
39:02
Speaker 1: international growth, global growth, and then we have a great
39:05
Speaker 1: arbitrage team, and we have great individuals doing a lot
39:08
Speaker 1: of different things. So your role within the company, how
39:12
Speaker 1: has that morphed over the years? Do you find yourself?
39:14
Speaker 1: I spent fifty forty years ago. It's when I first
39:17
Speaker 1: started Lowbros. I spent fifty percent of my time gathering
39:20
Speaker 1: data and understanding research and fifty communicating and either visiting clients. Okay,
39:25
Speaker 1: today I spent fifty percent of my time doing research,
39:28
Speaker 1: talking to analyst, listening to conference I was on the
39:30
Speaker 1: conference calls today. These earning season is very rich in content.
39:35
Speaker 1: For example, today at eleven o'clock O'Reilly's was having a presentation,
39:39
Speaker 1: somebody else was having one attend, somebody else was having
39:41
Speaker 1: one at night. So I get the transcripts when I
39:43
Speaker 1: can't listen to them and read them at night. So
39:46
Speaker 1: you learn a lot. Cheesecake Factory fantastic insights into the business.
39:51
Speaker 1: If you read the details and ponder over them and
39:54
Speaker 1: pull them apart, you know the company for the last
39:56
Speaker 1: twenty years. They started with seventy five minute In fact,
39:58
Speaker 1: I was at the one of this locations in Malibu
40:03
Speaker 1: or somewhere Marina del Rey is somewhere in California about
40:07
Speaker 1: I used to say this melody twenty five years ago.
40:10
Speaker 1: So you keep following that company and the things change.
40:13
Speaker 1: And meanwhile they've taken the cash flow, they've taken the
40:15
Speaker 1: shares outstanding from seventy five million forty eight million, So
40:18
Speaker 1: you owning two thousand shares, you own a bigger piece
40:21
Speaker 1: of the company today. And the company is still doing
40:23
Speaker 1: quite well. Even in an environment which people in quote
40:26
Speaker 1: a calorie conscious there's always the menu changes and the
40:30
Speaker 1: people are changed, as long as they're good at what
40:32
Speaker 1: they're doing and they have skin in the game because
40:33
Speaker 1: they own a big piece of the company. Quite fascinating. Um,
40:38
Speaker 1: let's keep working down this list of of questions. So
40:43
Speaker 1: on the site on the belly side, it says that
40:45
Speaker 1: you are manager or co manager of sixteen different funds.
40:50
Speaker 1: Are you the direct manager of that or are you
40:54
Speaker 1: really coordinating the team? How do you handle all of
40:57
Speaker 1: the above. And let's take one of our those than funds,
41:00
Speaker 1: which we started in two thousand and three. I've got
41:02
Speaker 1: Barbara Morris and Bob Leinager, i got uh Christmaer Andie
41:07
Speaker 1: Kevin Dryer Jeff Jonas. Each of us manage a piece
41:10
Speaker 1: of it, knowing full well that we each complement each
41:12
Speaker 1: other where our core competencies are. So one fellow would
41:15
Speaker 1: have a significant competency in the in the financial services industries,
41:18
Speaker 1: one other one would have a terrific competency of accumulated
41:22
Speaker 1: knowledge that he's and compounded knowledge in the healthcare. So
41:26
Speaker 1: we blend that together much much the way you know, uh,
41:31
Speaker 1: you'd get a five star French restaurant a three star
41:33
Speaker 1: like per se. So someone's doing the dessert, someone else
41:37
Speaker 1: is doing the main courses. You have associated or you
41:39
Speaker 1: can have something, You could have something on a Monday, Tuesday, Wednesday, Thursday.
41:41
Speaker 1: Very well, it is. The key is to blend it together.
41:44
Speaker 1: So you walked us through the process of how you
41:46
Speaker 1: identify a stock, starting with an industry and then drilling
41:49
Speaker 1: down what goes into the cell decision. How do you decide, well,
41:54
Speaker 1: this company is no longer fit for our PORTFOLI well
41:57
Speaker 1: several else. First of all, if it gets over five
41:59
Speaker 1: percent of a particular portfolio, we really want to make
42:02
Speaker 1: sure that we examine, no matter how smart we are
42:05
Speaker 1: and how good the company is, we want to marginal
42:07
Speaker 1: save the in the portfolio. Secondly, we do not want
42:10
Speaker 1: to have, you know, a client with ten million dollars
42:14
Speaker 1: all in one industry, no matter how good, and so
42:17
Speaker 1: we diversify the industry and so on and uh uh,
42:22
Speaker 1: and maybe we'll have anywhere from ten names representing thirty
42:25
Speaker 1: percent of portfolio. And if it's a taxable client, we
42:28
Speaker 1: try to make sure we are out of style. It's
42:32
Speaker 1: a very important one and that is that our turnover
42:34
Speaker 1: is probably six percent a year six year. That means
42:37
Speaker 1: you're holding companies on average sixteen years. So within the
42:40
Speaker 1: framework of buying something, we're already looking for our exits streaty.
42:43
Speaker 1: So why are we buying x y Z company today
42:46
Speaker 1: at eighty four dollars with sixty two million shares, five
42:49
Speaker 1: billion market cap, they're gonna do five of even after
42:52
Speaker 1: the n start October one? What is the value of
42:55
Speaker 1: that business? And why was this company spun off from
42:59
Speaker 1: an another company? What were they thinking of? Why were
43:03
Speaker 1: they were they preparing the company so that it would
43:06
Speaker 1: be tax efficiently bought by someone else? And you see
43:10
Speaker 1: that all the time, whether it was Zoeta spun off
43:12
Speaker 1: from Fiser, whether it is x y Z spun off
43:15
Speaker 1: from X, Y Z and so on. So we're constantly
43:18
Speaker 1: asking those kinds of questions analytically, So you talk a
43:22
Speaker 1: lot about very very specific bottoms up with different companies.
43:26
Speaker 1: How important is the overall here's where the economy is,
43:31
Speaker 1: here's what the market valuation is, and here's what's going
43:34
Speaker 1: on in the world of macroeconomics. Is any of that
43:38
Speaker 1: significant or do you really just focus on the industry
43:41
Speaker 1: and the individual style Well to the degree that inflation
43:46
Speaker 1: accelerates from one percent to four percent over the next
43:51
Speaker 1: ten years because of rising wages um that is important
43:58
Speaker 1: to understand the implications on a industry or company from
44:03
Speaker 1: the impact of higher inflation. For example, if I said
44:06
Speaker 1: to you tomorrow what you and I would shop for,
44:10
Speaker 1: Let's say a basket of shopping basket, everything constantly the
44:14
Speaker 1: same number of cereal box, the same number of yo good,
44:16
Speaker 1: same number of milk, same number of orange juice, coffee,
44:19
Speaker 1: and so on, same mix. If next year that basket
44:23
Speaker 1: would be five percent higher, that would be very positive
44:27
Speaker 1: for those that distribute those products because they are working
44:31
Speaker 1: on very low margins, and you would leverage the s
44:34
Speaker 1: g n A with a rising constant un account. But
44:37
Speaker 1: higher revenues per unit. That's very positive. Take a company
44:41
Speaker 1: of genuine parts located in Atlanta, Georgia. I've been following
44:44
Speaker 1: the company only for forty five years. They sell parts
44:46
Speaker 1: on the NAPA brand. If inflation picks up first, there's
44:50
Speaker 1: two fifty million cars on the road each year. This
44:52
Speaker 1: year will sell seventeen million with scrap twelve or thirteen.
44:55
Speaker 1: That means we're adding four million cars. That's one five.
44:58
Speaker 1: What's the average agent car? How long are they driven?
45:01
Speaker 1: Does the consumer want to repair cars? Where did they repair,
45:04
Speaker 1: where did they buy parts? And all of those elements.
45:06
Speaker 1: And then what happens to that bread basket of autoparts
45:09
Speaker 1: is their inflation. There hasn't been inflation, and that for
45:11
Speaker 1: two or three years the company has done extraordinarily well
45:14
Speaker 1: because miles driven her up. They you started off asking
45:17
Speaker 1: about gasolene price, fleet ages way up there also, Yeah,
45:20
Speaker 1: it could be that's an important element. But the cars
45:22
Speaker 1: last a lot longer. I can sure you know, I
45:24
Speaker 1: can drive a car now for a hundred and fifty
45:26
Speaker 1: thousand miles and uh, it's like driving one for forty
45:29
Speaker 1: miles in the sixties. And by the way, gasolene in
45:33
Speaker 1: nineteen sixty two where I saw a photograph the other
45:35
Speaker 1: day thirty two cents, so I was getting ten miles
45:37
Speaker 1: in a gallon was three cents a gallon today I get.
45:40
Speaker 1: I bought some the other day in New Jersey for
45:42
Speaker 1: dollar eighty and I get twenty five miles in a gallon.
45:44
Speaker 1: We're paying seven cents, So you're paying twice what you
45:47
Speaker 1: did forty years ago. And that is the sad part
45:50
Speaker 1: about not raising the gasolene tax to fund out highways
45:53
Speaker 1: because the infrastructure is terrible. Roads, bridges, tunnels, and so on.
45:59
Speaker 1: I've been riding about that and screaming about that eighteen
46:02
Speaker 1: point four cents since nine hasn't gone up in what
46:06
Speaker 1: is that the federal tax. Jersey doesn't even have state taxes.
46:10
Speaker 1: That's why they're so cheap, or almost no gas tax.
46:13
Speaker 1: Whatever it is. The point is that we need to
46:15
Speaker 1: cover our infrastructure. It increases productivity, whether it's an avionics,
46:20
Speaker 1: whether it's bridges, whether it's roads, whether it is cybersecurity.
46:24
Speaker 1: We need better infrastructure. Somebody's got to fund it, and
46:26
Speaker 1: somebody's gotta pay for it. The the electrical grid in
46:29
Speaker 1: the United States is absolutely vulnerable, not just a physical attack,
46:33
Speaker 1: but to cyber attack, we can lose large swaths of
46:35
Speaker 1: Electric'm glad you're thinking about things at night. It's that
46:38
Speaker 1: it's a by the way post, not eleven. We've done
46:41
Speaker 1: almost nothing to really secure all. It sounds like an
46:44
Speaker 1: individual that wants to have solar power on this roof
46:46
Speaker 1: so that it could be independent enough the grid. If
46:48
Speaker 1: you have to be I live in an area that's
46:50
Speaker 1: so wooded, I can't um. You got to have these
46:53
Speaker 1: giant old ghost trees that I can't cut down. You
46:55
Speaker 1: can act part of them. I could. I could actually
46:59
Speaker 1: put it on a enough so any of it independable.
47:03
Speaker 1: That The point is that there are elements that we
47:06
Speaker 1: look at that have that tie into the stocks we do.
47:09
Speaker 1: And going back to the question which I did not answer,
47:12
Speaker 1: our exit strategy, it's aside from clients specific is also
47:17
Speaker 1: baked into why we're buying a company because we think
47:19
Speaker 1: it's gonna be subject to some form of financial engineering.
47:22
Speaker 1: So at a certain point it hits a certain either
47:24
Speaker 1: it's taken out or it hits a certain dollar amount,
47:26
Speaker 1: and that's what triggers this out. A certain dollar amount
47:29
Speaker 1: as a percentage of a client's portfolio Okay, I mean
47:32
Speaker 1: I've owned Genuine Parts now for forty years, even before
47:36
Speaker 1: I was managing money, we still on it. We owned
47:38
Speaker 1: Berkshire had the way since we started mutual funds seven.
47:42
Speaker 1: We still out it. Uh we uh. So, you know,
47:45
Speaker 1: there are certain companies like I think General Mills, Campbell Soup.
47:48
Speaker 1: General Mills business model has more often changed than they
47:51
Speaker 1: are doing quite well over and yogurt is a nine
47:54
Speaker 1: billion dollar industry globally, twelve being in the United States,
47:57
Speaker 1: and they're doing quite well at your play. They now
48:00
Speaker 1: have the global brand and that's very good for quick,
48:03
Speaker 1: easy snacking, quick, easy grab and go, and it is
48:07
Speaker 1: also perceived to be a healthy product. So so how
48:10
Speaker 1: do you decide to to say, you know, for whatever reason,
48:13
Speaker 1: this one company isn't working out. What goes into that
48:16
Speaker 1: decision to say we're gonna cut this one loose. Essentially,
48:20
Speaker 1: if the company leverages it up because the CEO she
48:24
Speaker 1: decides to get married again and wants to impress a
48:27
Speaker 1: new husband that she wants to be bigger, and makes
48:29
Speaker 1: an acquisition and maturely overpays, then we would seriously have
48:32
Speaker 1: some issues. So that's what that's a factor. Together, we acquisition,
48:37
Speaker 1: What about just pure valuation. At a certain point you say, hey,
48:40
Speaker 1: this is trading times, am I are you gonna hold
48:43
Speaker 1: onto that? Or it depends on how we look at
48:45
Speaker 1: the world for the company over the next ten years.
48:48
Speaker 1: How will would this company do when it's business model?
48:51
Speaker 1: What are the risks to it? So we're having those
48:54
Speaker 1: conversations all the time about stock specific That's a much
48:57
Speaker 1: more sophisticated answer than ah, this is expensive punting it.
49:02
Speaker 1: You're really saying, this is a very complex picture with
49:06
Speaker 1: a lot of moving parts, and there is no one
49:08
Speaker 1: single metric that's gonna make us say we're very make
49:12
Speaker 1: it life simple. We're overworked and we're overpaid, and we
49:15
Speaker 1: intend to stay that way. Overworked and over Well, let's
49:19
Speaker 1: talk about that. You you, um, there was somebody I
49:23
Speaker 1: think was over the summer that had looked at the
49:26
Speaker 1: highest paid people in finance, and I think you were
49:30
Speaker 1: number one or two on that list. And this goes
49:34
Speaker 1: to show you the tunnel vision of whoever that was.
49:37
Speaker 1: So here you are, You're the founder of a company,
49:39
Speaker 1: you're running sixteen portfolios, and they're saying, uh, you're overpaid.
49:44
Speaker 1: What what's the pushback to that sort of my opic. Well, I,
49:48
Speaker 1: first of all, I anybody can say anything they want.
49:51
Speaker 1: God bless America. I really liked the notion of the
49:56
Speaker 1: French Charlie Liberdeaux approach to UH with it's just we Charlie,
50:01
Speaker 1: the notion of the free market, and it's very important
50:05
Speaker 1: to have that kind of pushback and don't worry about
50:07
Speaker 1: being politically correct. Notwithstanding that, you gotta get your facts right.
50:12
Speaker 1: So you mentioned two colleagues. What who am I competing with?
50:18
Speaker 1: Is it the hedge fund guys? And where are they
50:22
Speaker 1: in the list of earning returns. Secondly, within the framework
50:26
Speaker 1: of what we do, we are a public company, and
50:29
Speaker 1: to compare a W two, an individual that did not
50:33
Speaker 1: start a firm, did not make five thousand dollars when
50:36
Speaker 1: he earned it, started into the firm and took all
50:38
Speaker 1: of the entrepreneurial risk. This is a slight difference. I
50:42
Speaker 1: just saw the movie Steve Jobs okay, and the and
50:45
Speaker 1: the risk that that individual took. So one has to
50:49
Speaker 1: kind of way that no matter how you look at it. Um,
50:54
Speaker 1: I enjoy being competitive. I like the pressure, but I
50:58
Speaker 1: also like giving back. So you started off the conversation,
51:01
Speaker 1: but I've given significant amounts of money to Columbia, Boston College,
51:05
Speaker 1: Roger Williams, University of Miami, University of Nevada. What about Fordham,
51:09
Speaker 1: Fordham prep schools everywhere? Uh that we have fingerprints on
51:14
Speaker 1: ranging for even schools on the West coast. So and
51:17
Speaker 1: I'm sure this will create more conversation about more schools
51:21
Speaker 1: that are indeed. So so your basic response to I
51:25
Speaker 1: don't remember the name of the company, but your responses, Hey,
51:29
Speaker 1: I I earn a competitive salary versus so you have
51:32
Speaker 1: a foot in the hedge fund world, foot in the
51:34
Speaker 1: separately managed accounts world, and a foot in your three
51:37
Speaker 1: feeded within the mutual fun world. You're running all these
51:40
Speaker 1: differences like, well, we need a fourth and then the
51:44
Speaker 1: fourth is the research world. So there's the four footed
51:46
Speaker 1: horse that is married a belly and you're saying what
51:49
Speaker 1: I earn is competitive with other people's realistic. We have
51:54
Speaker 1: a challenge in this country to look my father I
51:58
Speaker 1: found that was a charter member of Local six in
52:01
Speaker 1: New York. That's a restaurant of hotel workers. And uh,
52:06
Speaker 1: you know, we need to raise wages. We need to
52:08
Speaker 1: have everyone have that vision of success and allow them
52:13
Speaker 1: to earn a faraway to return, so we have to
52:16
Speaker 1: deal with that. Notwithstanding that at my tax rate is
52:18
Speaker 1: probably close. Okay, So you're you're kicking back both through
52:23
Speaker 1: philanthropy and through one Uncle Sam one of them, and
52:28
Speaker 1: maybe both are very inefficient ways for the money to
52:31
Speaker 1: be spent. But it is what it is, all right,
52:34
Speaker 1: So let's let's stick with um the discussion of of
52:37
Speaker 1: stock picking. I love the fact that you don't shrink
52:40
Speaker 1: from any question. It's like, bring it on and I'll
52:43
Speaker 1: take a swat at it. That's uh. There are some
52:46
Speaker 1: people like next question you You're not that sort of guy.
52:49
Speaker 1: Next question, Okay, next question. Um. I got pages and
52:55
Speaker 1: pages of this stuff. So we um. We've been talking
53:00
Speaker 1: about individual stocks, but we never really got to the
53:03
Speaker 1: question of market valuation and what happens when the market
53:08
Speaker 1: is pricing does that really other than the inflation questions
53:12
Speaker 1: that really we try to be a dent invest at
53:14
Speaker 1: all the time within the framework of our client accounts.
53:18
Speaker 1: We're also very conscious that its X y Z individual
53:22
Speaker 1: gives us a dent of their assets. We're not gonna
53:25
Speaker 1: put it dent equities all the time. On the other
53:28
Speaker 1: side of the point, if you're a two billion dollar
53:31
Speaker 1: pension plan to find benefits or to find contributions. And
53:34
Speaker 1: you give us a hundred million dollars and you want
53:36
Speaker 1: us to be the best in small cap, We're gonna
53:38
Speaker 1: be a hunder percent invested as best as we can
53:41
Speaker 1: all the time. And so we're constantly looking for ideas.
53:43
Speaker 1: So we customize two thousand accounts for each client specific
53:47
Speaker 1: and I have a wonderful team both in terms of
53:49
Speaker 1: judgment and in terms of client service that does that.
53:52
Speaker 1: And there are challenges in times like this because we
53:55
Speaker 1: don't fully know all of the client's tax basis. Uh,
53:58
Speaker 1: they're all at their entire tax pictures that we have
54:01
Speaker 1: to be sensitive about all of that. So if you're
54:03
Speaker 1: on the on the other side, uh, the question is
54:07
Speaker 1: do you want me to look at how we do this?
54:12
Speaker 1: So so if you're almost always invested, the assumption is
54:17
Speaker 1: are you hedging or do you not even bother with
54:19
Speaker 1: the client? The client the clients which we have twenty
54:22
Speaker 1: billion dollars and trusted us do not allow us to
54:25
Speaker 1: go short or hedge. The way we can hedge is
54:29
Speaker 1: by buying companies like Warren Buffett Is buying precision cast parts.
54:34
Speaker 1: Let's assume that we own a quarter of a billion
54:37
Speaker 1: dollars worth of that stock, or we own a quarter
54:40
Speaker 1: of a billion dollars worth of o'riley's. Uh that is
54:44
Speaker 1: not being taken over. Should we sell a little bit
54:46
Speaker 1: of o'riley's and put it in because the stock is
54:48
Speaker 1: now selling it that they're gonna earn eleven dollars next year,
54:51
Speaker 1: eleven fifty next year. A great business model of great management,
54:54
Speaker 1: and that's twenty five times earnings. Should we take a
54:57
Speaker 1: little bit off the table and put it into precision
55:00
Speaker 1: hast parts. We have very low data and very low
55:02
Speaker 1: correlation with the market, and you could earn four percent annualized.
55:07
Speaker 1: It's better than the T bills which is six basis
55:09
Speaker 1: points then, and it's better than you know, hedging and
55:12
Speaker 1: being wrong if the market keeps running. There are certain
55:16
Speaker 1: of those elements and so we are practitioners of this
55:18
Speaker 1: and we've been doing it very successfully. We've compound the
55:21
Speaker 1: client assets at about six kego for thirty nine years.
55:25
Speaker 1: Not too chevy, No, but what have you done for
55:27
Speaker 1: me lately? Nothing? But that's the nature of yes of
55:31
Speaker 1: what we do is it's always what was the last month,
55:33
Speaker 1: what was the last quarter, you could have a yeah.
55:37
Speaker 1: On the other side of the coin, our private wealth
55:39
Speaker 1: management clients are really understand and appreciate it's not what
55:42
Speaker 1: you make, it's what you keep. And if you can
55:44
Speaker 1: hold something for thirteen months as opposed to thirteen minutes,
55:48
Speaker 1: you pay eight percent tax versus forty three percent tax,
55:53
Speaker 1: depending on if you're living in a great state like Florida.
55:55
Speaker 1: New York has got all sorts of taxes. Sure they're tuesta,
56:00
Speaker 1: it's Californiausetts six percent. New York is eight if you're
56:04
Speaker 1: in New York City, and California's but there's you don't
56:07
Speaker 1: have an estate Texas. Everyone has everything. There are a
56:09
Speaker 1: lot of pluses and minuses in every state. To say
56:12
Speaker 1: the least, let let me shift. Being in New York
56:14
Speaker 1: is a plus to be with you, that's and to
56:16
Speaker 1: be in in the city of which generates so much
56:19
Speaker 1: economic activity. Everybody just steps into the Have you been
56:23
Speaker 1: to Singapore lately? London? I have Man Tokyo, Hong Kong,
56:28
Speaker 1: Um a lot of places, and there are a lot
56:30
Speaker 1: of places Dallas, Texas, where I was not too long ago,
56:33
Speaker 1: there are a lot of fantastic places that generate economic
56:36
Speaker 1: We were just in Seattle, that's a town that's on fire.
56:38
Speaker 1: And San Francisco the sitting on top of something that
56:42
Speaker 1: could be a fire. But that's beside the Seattle or
56:45
Speaker 1: San Francisco both what's going on in Seattle. Okay, So
56:51
Speaker 1: let's talk a little bit about some of your early mentors.
56:54
Speaker 1: Who were the people that were the big influences early
56:57
Speaker 1: on in your career. Well, I was to admit I
57:00
Speaker 1: had a professor at Fordham that taught me money and banking.
57:04
Speaker 1: His name was Amon Kelly. Amon was getting his PhD
57:07
Speaker 1: at Columbia, taught at Fordham undergraduate of finance class. He
57:10
Speaker 1: then became the president of Tulane for seventeen years, and
57:13
Speaker 1: he was very good. So I had a whole bunch
57:16
Speaker 1: of individuals with the guy that taught me Latin uh
57:20
Speaker 1: in high school. Uh and uh. You know, it was
57:23
Speaker 1: very influential because it taught you how to parse sentences
57:26
Speaker 1: and how to structure sentences. And I had a guy
57:29
Speaker 1: at Low Brows by name of Eric Renner who and
57:33
Speaker 1: Alan Kirschberg who would take a part your research reports
57:36
Speaker 1: and really make sure that you had every eye and
57:38
Speaker 1: every tea dotted grammatically and that kind of discipline. Uh,
57:42
Speaker 1: with that was important to the idea of communication. UM,
57:47
Speaker 1: let's talk about books. What are some of your favorite
57:50
Speaker 1: nonfiction books, investment or otherwise. I read a lot of
57:54
Speaker 1: annual reports. No more books. Anyway, you at least said
57:57
Speaker 1: the same thing I I. My my wife said, you've
58:00
Speaker 1: got to read Steve Jobs, I said, when so. I
58:04
Speaker 1: read trade magazines, Billboard. I've been doing that for forty years.
58:08
Speaker 1: I read at age I read four in the orderable
58:11
Speaker 1: bile parts business. I read about three or four in
58:13
Speaker 1: the gaming industry, and that's more recent the last ten years.
58:16
Speaker 1: I read Asian There's a magazine that's fantastic if you
58:20
Speaker 1: want to understand the Asian world. Uh. And then you
58:23
Speaker 1: obviously what's the name of that magazine, The Asian Way, Yeah, Nika,
58:27
Speaker 1: I uh owns it. They used to do it when
58:32
Speaker 1: I was in Japan thirty years ago. I started reading
58:35
Speaker 1: and they changed it over to a weekly magazine format,
58:38
Speaker 1: and then it's Bloomberg business Week. I started reading Business
58:41
Speaker 1: Week back in the thirties of forty forties and fifties,
58:43
Speaker 1: but it's changed a lot in the last five years.
58:45
Speaker 1: To say, to say the least of that. UM, what
58:48
Speaker 1: other investors influenced your your approach. Obviously Graham and dot
58:53
Speaker 1: Are are big influences. And it sounds like, well, you know,
58:56
Speaker 1: I like war and I go to see his meetings
58:59
Speaker 1: every year for the last ten or twelve years. We
59:01
Speaker 1: in fact host a dinner on Friday night, our firm does,
59:05
Speaker 1: but for the Columbia Business Schools, their their guest list,
59:07
Speaker 1: our nickel and whatever money they raise they keep. So
59:11
Speaker 1: we do that every year. It's kind of like our
59:13
Speaker 1: pilgrimage to h every year. That sounds like that's fun. Um.
59:20
Speaker 1: So thirty five thousand individuals trekking out there, all with
59:24
Speaker 1: a mission and all with an understanding. All what a
59:27
Speaker 1: way to say thanks to Warren for making them a
59:29
Speaker 1: return and to watch what he does within the context
59:32
Speaker 1: of investing. Though I must have been precision cast parts
59:35
Speaker 1: was a surprise to me, a little expensive, more than
59:37
Speaker 1: he know. I think the notion, well, it's a big deal.
59:41
Speaker 1: Twenty eight million shares at two thirty five dollars and
59:44
Speaker 1: the mathis thirty odd billion. Uh. If you look at
59:48
Speaker 1: the cash flow over the next seven years, he will
59:50
Speaker 1: have recovered his cash, assuming they'll cost the capital for
59:53
Speaker 1: a moment, it does have a zero cost flow. Uh,
59:56
Speaker 1: that he would have gotten his money back and then
59:58
Speaker 1: you'll have a very interesting business for the next twenty years.
1:00:01
Speaker 1: So he seems to do that pretty well, doesn't he. Uh.
1:00:05
Speaker 1: He's made mistakes. We all have. Absolutely, it looks like
1:00:09
Speaker 1: he's made less than many and and has put a
1:00:12
Speaker 1: lot of wood on the ball. Well, when you think
1:00:14
Speaker 1: about the market valuation of Apple, the think about the
1:00:19
Speaker 1: new up starts, he's missed all the technology because he
1:00:23
Speaker 1: says he I don't understand it, I can't investment. He
1:00:26
Speaker 1: has not missed him. He just didn't want to play
1:00:28
Speaker 1: that game. Okay, So the fangs of the world Facebook, Amazon,
1:00:34
Speaker 1: Ali Baba, Netflix and no Netflix. You're not afraid of
1:00:40
Speaker 1: these names, are you. That doesn't mean I'm buying them,
1:00:42
Speaker 1: but it's something it's a space that you're willing to
1:00:45
Speaker 1: play in. But don't forget we do understand the subscription
1:00:49
Speaker 1: revenue model of a Netflix. Of course, that doesn't mean
1:00:52
Speaker 1: I pulled the trigger. And that means that there are
1:00:53
Speaker 1: mistakes that we've made that you won't know about. And
1:00:55
Speaker 1: that is not buying a stock. So you don't you
1:00:58
Speaker 1: find out, you find out about the mistakes you make
1:01:00
Speaker 1: when you buy something you perhaps shouldn't have, the ones
1:01:03
Speaker 1: that get away that you don't pull the trigger on.
1:01:06
Speaker 1: No one really knows you that. Yeah, I do. Well,
1:01:08
Speaker 1: now we all know about Netflix also, but I wear
1:01:10
Speaker 1: my hair shirts. There's so many of them, and they
1:01:13
Speaker 1: come and bother me every day when I think about it,
1:01:16
Speaker 1: just trying to figure out my Listen. I've been on
1:01:18
Speaker 1: Google when they had the reversed Dutch auction and I
1:01:21
Speaker 1: got all of several hundred shares eighty bucks several very
1:01:25
Speaker 1: good at that. Um, you remember that painful And that's
1:01:30
Speaker 1: before the split, That's that's right. And that's before the
1:01:33
Speaker 1: rename to Alphabet, which I have been unable to. It's
1:01:37
Speaker 1: fairly easy. They figured out how to not to pay
1:01:39
Speaker 1: royalty to get a name that was available, and Alphabet
1:01:42
Speaker 1: is a new holding company that allows them to do
1:01:44
Speaker 1: a lot of very creative things, very clever. Yeah. The
1:01:47
Speaker 1: financial engineering they certainly um seem to be. So you've
1:01:51
Speaker 1: been in the business the last ten minutes or so
1:01:53
Speaker 1: that we have. You've been in this business for forty
1:01:56
Speaker 1: plus years. What has change that you think is really
1:02:00
Speaker 1: significant for the better or the worst. Well, I think
1:02:03
Speaker 1: that what has to change is to make sure that
1:02:06
Speaker 1: the American public understands that capitalism is a very very
1:02:11
Speaker 1: important way of allocating capital. It's a combination that's made
1:02:15
Speaker 1: America a unique study in the history of mankind, the
1:02:18
Speaker 1: combination of free markets with all the floors UH, the
1:02:22
Speaker 1: rule of law with all of its floors, and meritocracy,
1:02:25
Speaker 1: which means everybody could be educated. We got to go
1:02:27
Speaker 1: back and really help individuals educated. From my point of view,
1:02:31
Speaker 1: in terms of the markets, you go through cycles. Okay,
1:02:34
Speaker 1: I was there in the sixties when you had UH
1:02:38
Speaker 1: the conglomerates and the and the pushback, and then you
1:02:42
Speaker 1: had the nifty fifty, and then you had the client
1:02:44
Speaker 1: of stocks, and then you had the T M T
1:02:47
Speaker 1: s and then you had in the eighties the UH
1:02:49
Speaker 1: leverage biouts but Drexel Burnham and then you had So
1:02:54
Speaker 1: you go through all these cycles and capitalism and there's
1:02:56
Speaker 1: some excellent flows. But are the challenges today are trying
1:03:00
Speaker 1: to figure out whether this experiment of trying to keep
1:03:03
Speaker 1: the world afloat by pumping money into the system is
1:03:06
Speaker 1: an interesting subject that we are going to write a
1:03:09
Speaker 1: casebook on twenty years from now. Together, How has the
1:03:12
Speaker 1: actions of the Fed affected what you do professionally. The
1:03:17
Speaker 1: second question was let me finish up on the first.
1:03:19
Speaker 1: Second thing was the way these products are packaged, starting
1:03:23
Speaker 1: with John Bogel and its mindless investing and yeah, but
1:03:29
Speaker 1: also the notion that they're cheaper. In some ways they are,
1:03:33
Speaker 1: but in some ways there are tax issues that are hidden.
1:03:35
Speaker 1: Some way, their transaction costs that are hidden. Uh. And
1:03:39
Speaker 1: then the notion of corporate governance. How did they vote?
1:03:43
Speaker 1: You know, they're getting better, but they got a long
1:03:45
Speaker 1: way to go. They don't pay attention to the vote. Uh.
1:03:48
Speaker 1: And they are getting better, but as I said, and
1:03:51
Speaker 1: in addition that, there is a constant abuse. If you
1:03:54
Speaker 1: sit at trading desk and you see flash trading and
1:03:57
Speaker 1: they're constantly probing, what you're trying to do is to scalp.
1:04:00
Speaker 1: It was like the specialist on on steroids. Okay, and
1:04:06
Speaker 1: well they may not have been fake quotes, and you
1:04:10
Speaker 1: should they should have them there for a little longer
1:04:12
Speaker 1: than that. So there's a lot of elements that have
1:04:14
Speaker 1: to go back into the free market. I don't like
1:04:16
Speaker 1: dark pools. I want to see everything in the fish
1:04:18
Speaker 1: bowl of the free market system because I want the
1:04:21
Speaker 1: world to believe that this is a fair game and
1:04:24
Speaker 1: that it's run by people that have come to work
1:04:26
Speaker 1: every day to keep it honest and open. And this
1:04:29
Speaker 1: is a challenge. And UH, we had specialists and when
1:04:33
Speaker 1: I was around in the forties and fifties and sixties,
1:04:34
Speaker 1: so you know, everyone has their own approach over the
1:04:37
Speaker 1: counter trading, trading, UH, fixed income instruments today, what are
1:04:42
Speaker 1: the spreads? What are the markets? So there are ways
1:04:44
Speaker 1: that we can't and the SEC is doing a very
1:04:46
Speaker 1: good job, but they should have committees of people that
1:04:49
Speaker 1: are practitioners and meet with them and have somebody organized
1:04:55
Speaker 1: it and open the UH that day. What is going
1:04:57
Speaker 1: on that we should be thinking about and things that
1:05:00
Speaker 1: things that are potentially problematic. That's correct, you guys, you're
1:05:04
Speaker 1: gonna see it before Mary Joe White sees it or
1:05:07
Speaker 1: any of our staff sees it as a problem. We're
1:05:11
Speaker 1: trained not marchhot, but we trained differently. Okay, if you
1:05:14
Speaker 1: look at flash trading, it's obvious if you look at
1:05:18
Speaker 1: the coal location, how can you do that? You put
1:05:22
Speaker 1: a server next to the actual exchange servers, and those
1:05:27
Speaker 1: folks get the sniff out orders quicker, right, so they
1:05:30
Speaker 1: get if they want to jump up a front. They're
1:05:33
Speaker 1: they're taking an extra penny or a dime from these
1:05:36
Speaker 1: big and they have great language of coal liquidity. We
1:05:40
Speaker 1: provide liquidity. We provide liquidity providers. This is all kind
1:05:43
Speaker 1: of well, it's not nonsense, but it certainly can be.
1:05:47
Speaker 1: Uh A past you really a practitioner is no. And
1:05:51
Speaker 1: the uptick rule, I mean, there is no advantage of
1:05:54
Speaker 1: having eliminated the uptick rule except as an accommodation to
1:05:57
Speaker 1: somebody's packaging products. So there's still a lot of things
1:06:00
Speaker 1: that are going on. And then disclosures. How can someone
1:06:03
Speaker 1: legally they can do it right now, and how can
1:06:05
Speaker 1: they buy derivatives and not file at thirteen D until
1:06:09
Speaker 1: a certain time period. And so another word, they have
1:06:12
Speaker 1: to they have to disclose an ownership even if it's
1:06:16
Speaker 1: not the stock, if it's a secondary and do you
1:06:19
Speaker 1: own it? And how do you own it? And then
1:06:20
Speaker 1: on top of that, you know, if we keep going.
1:06:22
Speaker 1: For example, I can buy five percent of a bond,
1:06:25
Speaker 1: I don't have to file. I can buy of a
1:06:28
Speaker 1: bond and get control of a company. I don't have
1:06:30
Speaker 1: to file. I own five percent of a company, I
1:06:32
Speaker 1: have to file. We file over five percent of holdings
1:06:35
Speaker 1: of a company on at D filing within ten days
1:06:39
Speaker 1: and then every time we go over one percent delta,
1:06:41
Speaker 1: we have to file. We do that religiously on a
1:06:43
Speaker 1: hundred odd companies and so as a result of that,
1:06:46
Speaker 1: why not do it on the dead world? So transparency.
1:06:49
Speaker 1: Everything in a fish bolt so trans So you're looking
1:06:52
Speaker 1: for people to honor their quotes, to have full disclosures
1:06:56
Speaker 1: and be transparent. So you're really kind of an eye
1:06:59
Speaker 1: to list, aren't you. Uh No, I want the free
1:07:02
Speaker 1: market system to work because it worked for me. I
1:07:04
Speaker 1: grew up in the Bronx. Okay, I went to school
1:07:08
Speaker 1: and this system allowed me to flourish, and I think
1:07:11
Speaker 1: it allows should allow everyone to flourish, and we can.
1:07:13
Speaker 1: We want a system that allows everyone to succeed to
1:07:16
Speaker 1: the highest degree of their interests and their passion and
1:07:19
Speaker 1: the time they're willing to spend. So you want you
1:07:20
Speaker 1: want to actually create opportunity for anybody who wants to
1:07:24
Speaker 1: starting with grammar school. And so what do you do
1:07:27
Speaker 1: to help grammar schools out? We do what we can
1:07:29
Speaker 1: in terms of taking kids from grammar school to go
1:07:32
Speaker 1: to high school, give them a pay for the tuition
1:07:35
Speaker 1: for private high school or college. These are not charter schools.
1:07:38
Speaker 1: These are primarily religious schools, Catholic schools, because that's the
1:07:43
Speaker 1: ones that are in our radar screen. So in the
1:07:45
Speaker 1: last five minutes I have you for let me ask
1:07:48
Speaker 1: you two of my favorite questions that I ask all
1:07:51
Speaker 1: of my guests, and and let's see, um what you
1:07:54
Speaker 1: want to do with these. The first question is, well
1:07:55
Speaker 1: you you said I could say next, you can say next,
1:07:59
Speaker 1: I mshoo. You won't say next to either of these.
1:08:02
Speaker 1: So if you were dealing with a you were giving
1:08:04
Speaker 1: advice to a millennial or someone just graduating college who
1:08:09
Speaker 1: was interested in a career in finance, what would you
1:08:12
Speaker 1: say to them? Too late? Too late, they missed their
1:08:16
Speaker 1: window to get into finance. If they basically were a
1:08:19
Speaker 1: history major, they have to go to graduate school because
1:08:22
Speaker 1: we don't have the time to train them. We think
1:08:24
Speaker 1: they should understand a lot more of the quotes, the
1:08:27
Speaker 1: elements that go into it. It depends if you. So,
1:08:31
Speaker 1: someone coming out of college with a business or economics
1:08:34
Speaker 1: background and goes to Columbia gets an NBA. Let me
1:08:38
Speaker 1: tell you where we recruit from. We have no problem
1:08:39
Speaker 1: with anyone from hart. I'm politically correct. Okay, I'm the
1:08:42
Speaker 1: most politically correct guy in the world. I will recruit
1:08:44
Speaker 1: somebody from Wharton. Okay, so you will stoop that load. No, no, no, no.
1:08:50
Speaker 1: By the way, we just had Jeremy Siegel Heller, I
1:08:52
Speaker 1: understand Jeremy is a good guy. We we look at
1:08:55
Speaker 1: the best anywhere in the world, and they are rain
1:09:00
Speaker 1: individuals the way we want. Notwithstanding that, we will go
1:09:05
Speaker 1: in and if you're giving me advice, I'm in the
1:09:08
Speaker 1: high school. First of all, we should teach finance and
1:09:11
Speaker 1: basic uh what makes what? And how to save money
1:09:16
Speaker 1: for the rest of your life and how important is
1:09:18
Speaker 1: that to create options in your life. So if I
1:09:20
Speaker 1: was giving in high school, yes, and there are no
1:09:25
Speaker 1: mandated courses like that pretty much few and far between. Well,
1:09:29
Speaker 1: I think Buffet has put something together in a very
1:09:32
Speaker 1: light way to help individuals and grammar school understand that
1:09:35
Speaker 1: the teachers should tell them about the virtues of saving
1:09:38
Speaker 1: and uh, individual how to open accounts, not accounts, but
1:09:43
Speaker 1: the banking system and how that works. But uh, I
1:09:46
Speaker 1: would say the following by a stock really and get
1:09:51
Speaker 1: into the game, just like you would say you want
1:09:54
Speaker 1: to learn how to swim. You ain't gonna do it
1:09:55
Speaker 1: by thinking about it. So you buy one stock, I
1:09:58
Speaker 1: don't care what it is, us in square, garden, apple, whatever,
1:10:04
Speaker 1: hopefully the So you own a stock, and what does
1:10:11
Speaker 1: that teach you? As someone right out of high school? Well,
1:10:13
Speaker 1: you start following it. What do I own? Do I
1:10:16
Speaker 1: own a piece of American business? What? And how? Read
1:10:19
Speaker 1: the annual reports and get the re annual reports, to
1:10:21
Speaker 1: read it online, and do whatever it takes to continue
1:10:24
Speaker 1: to follow a company. Then secondly, I would say start saving.
1:10:28
Speaker 1: And the way you start saving is the following, though
1:10:30
Speaker 1: I must admit you gotta work, not I would buy
1:10:33
Speaker 1: one less lotty per day, assuming there are five dollars
1:10:36
Speaker 1: a day. That seven days a week is thirty five
1:10:38
Speaker 1: dollars at seventeen seventh almost two thousand dollars a year,
1:10:41
Speaker 1: and then figure out how much that would be in
1:10:43
Speaker 1: forty years compounding at four six and eight ten percent,
1:10:46
Speaker 1: And how you're gonna make that. Secondly, give up a beer.
1:10:48
Speaker 1: That's why I have to go that one has to
1:10:50
Speaker 1: be over the age of one and one bear per day,
1:10:55
Speaker 1: and see how much money you would have just for
1:10:57
Speaker 1: those simple things, assuming nobody smokes any more. Otherwise, the
1:11:01
Speaker 1: numbers would be staggering. Right, cigarettes are are through the roof.
1:11:04
Speaker 1: You still you walk out of a building, you still
1:11:06
Speaker 1: occas when we see the junkies out there puffing on. Well,
1:11:09
Speaker 1: there's no question that a well, you can smell it,
1:11:14
Speaker 1: you don't have to see it. And so the building
1:11:17
Speaker 1: itself is smoked free, but the campus setting or this
1:11:21
Speaker 1: is not. And you gotta give me a Mike a
1:11:23
Speaker 1: really good credit for that years ago. The whole subject
1:11:27
Speaker 1: of healthy living, though, I must admit sixty an ounces.
1:11:30
Speaker 1: He once said, uh to somebody, uh, sixteen ounces, And
1:11:36
Speaker 1: so he says, well, maybe they could have Baker's mark,
1:11:40
Speaker 1: that we have to be careful on all of those dynamics.
1:11:43
Speaker 1: But you know, I don't look. The advice is simple.
1:11:46
Speaker 1: Everyone's gonna be smart, but you have to work from
1:11:49
Speaker 1: five to night. Or if you're young, you could steal
1:11:52
Speaker 1: it from seven eleven because you want to watch the
1:11:54
Speaker 1: Mets games or something like that, or the Knicks tonight
1:11:57
Speaker 1: is going to take a long time. You know this,
1:11:59
Speaker 1: the games thought at eight, it's not over till eleven,
1:12:02
Speaker 1: and you gotta work afterwards, such as life. Last question,
1:12:07
Speaker 1: what do you know about investing today that you wish
1:12:10
Speaker 1: you knew when you began forty five years ago. I
1:12:14
Speaker 1: actually started buying stocks when I was thirteen, and forty
1:12:18
Speaker 1: five years ago, I was already working at low Broads,
1:12:20
Speaker 1: and so the notion of what I do is fairly simple,
1:12:25
Speaker 1: and buying a good business that I hold for an
1:12:27
Speaker 1: extended period of time to defer paying a cash tax
1:12:29
Speaker 1: on the sale of that asset. I would say that
1:12:33
Speaker 1: if I were picking a career, the individual has to
1:12:36
Speaker 1: ask himself, how much can I make given the amount
1:12:39
Speaker 1: of ergs of energy I have to expend in my life,
1:12:41
Speaker 1: and how do I get the best payback for that?
1:12:43
Speaker 1: Or and why? In my particular case, I should have
1:12:46
Speaker 1: started business a lot sooner, and I should have listened
1:12:48
Speaker 1: to Michael Steinhardt, who was always saying, what do you
1:12:51
Speaker 1: want to do anything else? Why don't you just do
1:12:53
Speaker 1: a hedge fund and go along? Short? But we're delighted
1:12:56
Speaker 1: with where you have. I have will continue to do
1:12:58
Speaker 1: what I want. I like the pressure or like the
1:13:00
Speaker 1: ATENSI I like me look stupid every day I come in.
1:13:03
Speaker 1: Mario Gabelly, this has been an absolute pleasure to have you.
1:13:06
Speaker 1: Thank you so much for being so generous with your
1:13:09
Speaker 1: time we have been speaking with Mario Gabelly. He is
1:13:13
Speaker 1: the founder, chairman and CEO of Gabelly Asset Managements, publicly
1:13:18
Speaker 1: traded as gb L. If you enjoy this conversation, look
1:13:22
Speaker 1: upward down an inch on iTunes and you could see
1:13:25
Speaker 1: the other UH sixty five or so such conversations we've
1:13:29
Speaker 1: had b shure in check out UH all the rest
1:13:33
Speaker 1: of these interviews. I want to thank my producer, Charlie Bohmer,
1:13:37
Speaker 1: and my head of research Mike pat Nick, and and
1:13:42
Speaker 1: Mark as Sinestalsi as my engineer. UH. You've been listening
1:13:47
Speaker 1: to Masters in Business on Bloomberg Radio