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Finding Value Investments with Patient Capital's Samantha McLemore · Masters in Business

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  Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Masters in
• 0:11
  Speaker 1: Business with Barry Ritholts on Bloomberg Radio.
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  Speaker 2: This week on the podcast an extra special Masters in
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  Speaker 2: Business Live from the Phillips Collection in Washington, d C.
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  Speaker 2: I sit down with Samantha maclamore of Patient Capital. She's
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  Speaker 2: known as really the protege of Bill Miller, who she's
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  Speaker 2: worked with for the past twenty years, first at leg Mason,
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  Speaker 2: then at Miller Value. She runs Patient Capital and it's
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  Speaker 2: taken over the opportunity equity funds from Miller Value. Her
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  Speaker 2: firm now runs it. I thought the conversation was fascinating
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  Speaker 2: and I think you will also with no further ado,
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  Speaker 2: my live conversation with Patient Capitals. Samantha Macklamore, all right,
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  Speaker 2: let me look at my notes, which says I'm Barry Ridholtz.
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  Speaker 2: I'm the host of Masters in Business, a podcast that's
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  Speaker 2: been on Bloomberg for the past eleven years, the first
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  Speaker 2: Bloomberg podcast. Now there are dozens, many, many award winning podcasts.
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  Speaker 2: Forgot to button my shirt after the ran the backup mic,
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  Speaker 2: so let's get that taken care of.
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  Speaker 3: Since we're on TV, so most of you have some idea.
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  Speaker 2: Who I am, sam Why don't you tell people who
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  Speaker 2: you are?
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  Speaker 4: My name is Samantha Maclamore. I'm the founder and CIO
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  Speaker 4: of Patient Capital Management. I started my career many many
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  Speaker 4: years ago. Now I don't know how it's been so long,
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  Speaker 4: as an analyst at leg Mason working for Bill Miller,
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  Speaker 4: who is a very well known value manager.
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  Speaker 2: I want to talk a little bit about your time
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  Speaker 2: with Bill Miller. But before we get to that, let's
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  Speaker 2: start in college Magna cum laude from Washington and Lee.
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  Speaker 2: Originally chemistry, but eventually changes to accounting and business. What
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  Speaker 2: was the original career plan.
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  Speaker 4: Well, I didn't have so much a plan when I
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  Speaker 4: first decided to major in chemistry. I took chemistry in
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  Speaker 4: high school and thought I was really good at it.
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  Speaker 4: And then I got to so I was like, hell,
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  Speaker 4: major in this. I like to be good at things.
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  Speaker 4: And I got to college and that first class, I
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  Speaker 4: quickly realized I was not so good at it. You know,
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  Speaker 4: I'd never worked so hard for a bee, and so
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  Speaker 4: I was like, you know, some of my friends were,
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  Speaker 4: you know, doing much better. So I was like, nah,
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  Speaker 4: that's not We're going to have to re examine this
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  Speaker 4: whole thing. So I wound up in the business school
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  Speaker 4: because I was analytical and that was a much better fit.
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  Speaker 2: So accounting and business, not necessarily finance and investing.
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  Speaker 3: When when did that spark light?
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  Speaker 2: Oh?
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  Speaker 4: Well it was they didn't have a finance degree at
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  Speaker 4: the business school. So again I was very good at accounting.
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  Speaker 4: It just came naturally. I don't know what that says
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  Speaker 4: about my brain, but and I got involved with the
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  Speaker 4: investment club. I've had some investing experience with my dad,
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  Speaker 4: who tried to get me interested in markets in high school.
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  Speaker 4: You know, in the late nineties, it was a roaring
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  Speaker 4: tech bull market, much like we're seeing today, although I
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  Speaker 4: don't think we're peak bubble. And he bought Dell, and
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  Speaker 4: I had some funds that were for college, so he
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  Speaker 4: had invested those and tried to get me engaged. I'd
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  Speaker 4: had a little bit of experience in high school, and
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  Speaker 4: then I joined the investment club and I just liked that.
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  Speaker 2: So how did you find your way over to leg Mason?
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  Speaker 2: Was that your first job right out of college?
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  Speaker 4: That was? And I like to say I won the
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  Speaker 4: job lottery because it was the fall of two thousand
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  Speaker 4: and one. So now we were in the tech market crash.
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  Speaker 4: It wasn't a great job market. Fortunately, you know, there
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  Speaker 4: were a lot of investment banks recruiting from my alma mater,
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  Speaker 4: so my plan was to go there. I was ready
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  Speaker 4: to do the all nighters in New York. And Bill,
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  Speaker 4: who also went to Washington le happened to come back,
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  Speaker 4: you know, the fall of my senior year. He did
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  Speaker 4: some speaking, he met with the investment club, and I
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  Speaker 4: got very lucky. I asked him if I could send
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  Speaker 4: him my resume, and he said sure. So I sent
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  Speaker 4: him my resume and joined him as a junior analyst
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  Speaker 4: right out of college.
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  Speaker 2: So I imagine Bill Miller comes to an investment club
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  Speaker 2: at his alma mata and every person is handing him
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  Speaker 2: a resume.
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  Speaker 3: Is that accurate or were people a little more.
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  Speaker 4: You would think? I mean, if I have advice to
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  Speaker 4: young people, it's.
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  Speaker 3: Like, give Bill Miller your resume, Give.
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  Speaker 4: Anyone your resume, go after it, go for the job.
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  Speaker 4: Everyone said there's no way you can get a job
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  Speaker 4: in investment management, and so I just think people thought, Okay,
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  Speaker 4: this isn't what you know. I'll go do banking. I'm
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  Speaker 4: not going to try. So actually I think I was
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  Speaker 4: the only the only one that sent.
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  Speaker 3: In my real life.
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  Speaker 4: Yeah, that's it, the only one that asked to do that.
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  Speaker 2: There's a lesson in that. So you start as an
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  Speaker 2: unlisted leg mason. How long did you do that? When
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  Speaker 2: did you transition to a portfolio manager?
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  Speaker 4: I was an analyst for a few years. So I
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  Speaker 4: started in two thousand and two and became the assistant
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  Speaker 4: portfolio manager of the Opportunity Trust, which is the mutual
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  Speaker 4: fund that Bill and I worked on for many years
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  Speaker 4: together that I now run in two thousand and eight.
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  Speaker 4: In August of two thousand and eight, right, good time, Yeah,
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  Speaker 4: right before the markets fell apart during the.
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  Speaker 3: Financial The next month was all help broke.
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  Speaker 4: Yeah.
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  Speaker 2: We'll talk about that a bit. But you spend twenty
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  Speaker 2: years working pretty much shoulder with Bill Miller.
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  Speaker 3: What was that like?
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  Speaker 2: What did you take away from that experience?
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  Speaker 4: I mean, it was amazing. I can't express how lucky
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  Speaker 4: I was. I was just so lucky, you know, I
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  Speaker 4: think it's an apprenticeship business. So I really my desk
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  Speaker 4: was always right beside Bills, and he liked to teach,
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  Speaker 4: and so I would go in his office. We would
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  Speaker 4: look at the Bloomberg and you know, look at stock charts,
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  Speaker 4: and I got to attend a lot of meetings with
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  Speaker 4: great CEOs. Jeff Bezos spoke at our investment conference in
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  Speaker 4: two thousand and three of the year after I joined,
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  Speaker 4: and I got to hear his speech and be in
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  Speaker 4: some meetings with him, And so I couldn't have been
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  Speaker 4: luckier in terms of what I was exposed to and
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  Speaker 4: that learning opportunity.
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  Speaker 2: So it's kind of interesting. You work with a legendary
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  Speaker 2: value investor who is doesn't really fit the mold of
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  Speaker 2: a traditional value investor. How much of his philosophy did
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  Speaker 2: you make your own? How similar or different you to
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  Speaker 2: the Bill Miller style of investing.
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  Speaker 4: Well, we have a lot of similarities. I think that's
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  Speaker 4: one of the reasons we hit it off. And you know,
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  Speaker 4: I would say, at my core, I'm a contrarian value investor.
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  Speaker 4: I didn't grow up with a lot of money. I
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  Speaker 4: had to make money go far. I looked at the markets.
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  Speaker 4: I like stuff that was down, that was generating cash.
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  Speaker 4: Bill and I, you know, when I first applied, talked
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  Speaker 4: about Eastman Kodak, which ended up being one of our
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  Speaker 4: biggest mistakes, both of us. So we kind of bonded
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  Speaker 4: over that and what was much more, you know, transformational
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  Speaker 4: to me was Bill's view, and he was He was
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  Speaker 4: criticized when I joined him as not a true value
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  Speaker 4: manager because he had invested in names like Amazon, you know,
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  Speaker 4: in the early two thousands, and people said, you can't
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  Speaker 4: possibly be a value manager if you're investing in these
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  Speaker 4: very high multiple stocks. And you know, Bill used to
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  Speaker 4: joke that he liked to hire people young so he
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  Speaker 4: could imprint them, like the baby bird that whatever the
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  Speaker 4: first thing it sees, it thinks is its mother. So
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  Speaker 4: I was definitely imprinted. But when Bill made the point, listen,
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  Speaker 4: we don't know what the best values in the market
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  Speaker 4: are today because it depends on the future, and the
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  Speaker 4: future is unknowable, so no one knows what they are.
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  Speaker 4: But we do know if we look back over long
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  Speaker 4: periods of time, what the best values are, because we
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  Speaker 4: have hindsight biased and we can look back and say, well,
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  Speaker 4: what went up the most clearly that was the most
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  Speaker 4: the best value. And if you look, it's always names
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  Speaker 4: that can grow and compound value over long periods of time,
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  Speaker 4: and those types of companies, because their prospects are so promising,
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  Speaker 4: they don't tend to trade at low multiple. So he said,
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  Speaker 4: as a value manager, why would you have a process
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  Speaker 4: where you explicitly exclude what you know are the best
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  Speaker 4: values in the market. That doesn't make sense. And I thought, well, yeah,
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  Speaker 4: that just doesn't make sense now to a contrarian type investor.
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  Speaker 4: You know, it's not easy to because it depends on
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  Speaker 4: a future that's unknowable. It always does, and so where
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  Speaker 4: can you get that conviction? That can be challenging, But
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  Speaker 4: I think that had a, you know, certainly a big
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  Speaker 4: impact on me, and it's a core part of our
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  Speaker 4: process to look at a mix of different types of
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  Speaker 4: opportunities in the portfolio.
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  Speaker 2: So you use the word conviction a couple of times.
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  Speaker 2: Opportunity Equity has always been a high conviction fund, somewhat
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  Speaker 2: idiosyncratic strategy. Tell us a little bit about the funds
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  Speaker 2: philosophy and what makes it so unique amongst I don't
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  Speaker 2: want to say value funds, but funds that look at
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  Speaker 2: reasonable purchase prices for equities.
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  Speaker 4: Yeah. Well, I think we are unconventional and we've always
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  Speaker 4: been unconventional. And Bill started the Opportunity Trust in nineteen
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  Speaker 4: ninety nine at the peak of that tech bubble. And
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  Speaker 4: the idea was, let's create a fund with the maximum
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  Speaker 4: flexibility possible to go wherever it wants. And again, there's
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  Speaker 4: lots of structures in the business that make that hard
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  Speaker 4: because style boxes don't like that. People allocators want to
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  Speaker 4: put you in a box, and so it hurts demand
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  Speaker 4: for your fund when you're like, no, I'm just going
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  Speaker 4: to go wherever the best values are. But the idea
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  Speaker 4: is over time that should allow you to earn better
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  Speaker 4: returns if executed properly. So I think the fund has
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  Speaker 4: migrated around over time. It has had a different mix
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  Speaker 4: of you know, what we call attractively valued compounders like
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  Speaker 4: Amazon and Alphabet, which we own more classic value names
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  Speaker 4: that everyone would recognize as value like City Group and
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  Speaker 4: General Motors. And then we like to look at companies
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  Speaker 4: early in their life because they're more likely to be misunderstood.
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  Speaker 4: There's a wider range of potential future outcomes, and you know,
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  Speaker 4: a lot of people don't feel comfortable, especially in the
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  Speaker 4: value invest in community, where I think it's it's a
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  Speaker 4: more risk averse group who want to see the value
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  Speaker 4: today there what's today's value and what's today's price. And again,
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  Speaker 4: you know, growth people tend to look further out in
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  Speaker 4: the future. But we we like to have a mix,
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  Speaker 4: and I think that helps the fund do well in
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  Speaker 4: different environments.
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  Speaker 2: And let me put a little flesh on those bones,
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  Speaker 2: because this morning, the first thing I did was, Hey,
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  Speaker 2: let's see how Opportunity is done year Today it has
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  Speaker 2: beaten its benchmark year to date, one year, three year,
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  Speaker 2: and since inception. So it's not just like this is
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  Speaker 2: a theoretical stock picking approach. It's done better than average.
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  Speaker 2: Is that a fair way to describe it without getting
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  Speaker 2: you into trouble with the compliance department?
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  Speaker 4: Now you're going to get me in trouble with compliance,
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  Speaker 4: But well, I said it, not you. So we have
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  Speaker 4: had a good track record, especially relative to value managers,
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  Speaker 4: which have recently, you know, struggled in a very you know,
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  Speaker 4: growthy sort of market.
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  Speaker 2: Since the financial So since you went there, since the
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  Speaker 2: financial crisis, value has been a pretty ugly lagger compared
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  Speaker 2: to growth. We've been in a very strong ear for growth,
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  Speaker 2: especially since the end of the pandemic. What sort of
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  Speaker 2: challenges does that create to someone that's labeled a value manager?
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  Speaker 4: Oh? Well, I mean I think it creates a lot
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  Speaker 4: of value in terms of some people say, oh, your value,
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  Speaker 4: we only want to talk to you. So my colleagues
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  Speaker 4: hereously had a conversation the other day and they're like,
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  Speaker 4: we just don't have any demand for value. No one cares.
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  Speaker 4: We're like, but we've done really well and we're beating
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  Speaker 4: the market every year since Sam took over. And it's like,
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  Speaker 4: it doesn't matter. So I think it does. You know.
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  Speaker 4: My view is our primary job is to deliver for
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  Speaker 4: our clients, and so if we do that, everything else
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  Speaker 4: will work out. I've seen this in this business time
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  Speaker 4: and time again. If you deliver a result, everything else
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  Speaker 4: will work itself out. And so and I strongly believe
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  Speaker 4: value will have it stay in the sun again, but
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  Speaker 4: it might take an ugly market, so I'm not hoping
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  Speaker 4: for that.
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  Speaker 2: So I've always tried to figure out way to more
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  Speaker 2: appropriately describe what you do what Bill Miller does. Is
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  Speaker 2: it growth at a reasonable price? Is it value and growth? Like,
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  Speaker 2: how do you sum it up in an elevator pitch?
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  Speaker 4: Well, you know, again, I think it's value because if
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  Speaker 4: you look at every name in the portfolio, we think
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  Speaker 4: they're all undervalued. But the value of any business is
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  Speaker 4: the present value of the future free cash flows and
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  Speaker 4: growth is a very very important input into you know,
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  Speaker 4: that calculation, and so we are valuing businesses. But I
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  Speaker 4: also think it's important to have diversification between different types
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  Speaker 4: of names in the portfolio, and so, you know, I
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  Speaker 4: wouldn't feel comfortable being fully invested in this market and
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  Speaker 4: all the growthiest stuff that has higher valuations. You know,
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  Speaker 4: I like having some cheaper names in there that are
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  Speaker 4: likely to perform well in a different sort of environment.
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  Speaker 4: And there's really attractive values in the value area that
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  Speaker 4: have just been left for dead. So we'll be patient
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  Speaker 4: waiting for the market to close those gaps.
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  Speaker 2: So since Patients was brought up, let's talk about Patient Capital.
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  Speaker 2: What inspired you to launch the firm and tell us
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  Speaker 2: a little bit of the thinking behind the name.
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  Speaker 4: Yeah, so I think, I mean, I've always been pretty
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  Speaker 4: driven and I've always had entrepreneurial interests, and so when
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  Speaker 4: I became the co manager with Bill on the Opportunity
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  Speaker 4: Fund in twenty fourteen, I was also interested in developing
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  Speaker 4: my own independent track record. So Bill gave me some
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  Speaker 4: of his personal money to run independently and be the
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  Speaker 4: sole decision maker. So at the end of twenty nineteen
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  Speaker 4: that had a really good track record. We didn't have
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  Speaker 4: an institutional business at Miller Value Partners. We head back
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  Speaker 4: in the day at LEG but Bill was more optimizing
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  Speaker 4: for the kind of life you wanted to live. He
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  Speaker 4: didn't want to grow and build a business. So I said, hey,
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  Speaker 4: let me go after this institutional business. And there was
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  Speaker 4: at least stated interest in women and minority led opportunities there,
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  Speaker 4: so I said, it looks like there might be interest
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  Speaker 4: in the marketplace for this. It was important to me
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  Speaker 4: to have. I think it's a great profession for women.
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  Speaker 4: I think I've read a lot of research on the
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  Speaker 4: importance of role models in the industry. So you know,
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  Speaker 4: that was, you know, part of my decision. So we
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  Speaker 4: decided to turn it into a private fund like a
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  Speaker 4: hedge fund structure, and we did. We made the decision
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  Speaker 4: in twenty nineteen, and then we actually launched it in
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  Speaker 4: twenty twenty right in COVID, which was not the best time.
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  Speaker 3: It's not a good time to launch it.
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  Speaker 4: Whenever I made these big decisions, the market, you know,
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  Speaker 4: goes a little wonky.
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  Speaker 3: Right.
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  Speaker 2: So, since you've become the sole manager of the opportunity
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  Speaker 2: equity strategy is it run the same way it was.
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  Speaker 2: How has it changed since Bill has retired from being
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  Speaker 2: co manager there?
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  Speaker 4: Yeah, so the philosophy and process is exactly the same
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  Speaker 4: as what we've always done. And you know, the decision
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  Speaker 4: making is different because it used to be a co
• 14:46
  Speaker 4: decision making structure. When I first became co manager with Bill,
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  Speaker 4: he said, okay, great, you're co manager, but I'm not
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  Speaker 4: going to let some thirty something year old tell me
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  Speaker 4: what to do on my fund. And I said, I
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  Speaker 4: got it. I got to you know, I have to
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  Speaker 4: convince you. And so over time, you know, it became
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  Speaker 4: came more equal co and then I took it over
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  Speaker 4: obviously when he stepped off at the end of twenty
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  Speaker 4: twenty two.
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  Speaker 2: And Patient Capital has acquired this, it's now a wholly
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  Speaker 2: owned subsidiary.
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  Speaker 3: Is that right now?
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  Speaker 4: Patient Capital is, you know, the Opportunity Trust mutual fund
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  Speaker 4: business and the institutional business that I started under Patient
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  Speaker 4: And so all the team and the structure.
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  Speaker 2: How did they differ aside from a mutual fund has
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  Speaker 2: its own rules, regulations, and well.
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  Speaker 4: That's the primary way again for me. I like to
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  Speaker 4: think one philosophy, one process, one team, and we're just
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  Speaker 4: looking for the best ideas in the market, and then
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  Speaker 4: if it's appropriate for the strategy. The mutual fund has
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  Speaker 4: more restrictions on what it can do, even though it
• 15:39
  Speaker 4: has the widest latitude possible for a mutual fund. So
• 15:44
  Speaker 4: you know, we owned bitcoin starting at twenty twenty in
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  Speaker 4: the private fund, but we couldn't in the mutual fund.
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  Speaker 4: Now we owned the bitcoin ets, but it would be
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  Speaker 4: differences like that.
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  Speaker 2: Coming up, we continue our conversation with Samantha maclamore, chief
• 15:57
  Speaker 2: investment officer and founder of Patient Capital, talking about the
• 16:02
  Speaker 2: state of the economy today. I'm Bury Results. You're listening
• 16:06
  Speaker 2: to Masters in Business on Bloomberg Radio. I'm Bury Results.
• 16:27
  Speaker 2: You're listening to Masters in Business on Bloomberg Radio. Let's
• 16:31
  Speaker 2: return to my previously recorded conversation live at the Phillips
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  Speaker 2: Collection in Washington, d C. With Patient Capitals. Samantha macklamore.
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  Speaker 2: So that one doesn't think of bitcoin as a value trade,
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  Speaker 2: tell us what you're thinking was there?
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  Speaker 4: Yeah, Well, my thinking was I really screwed that one
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  Speaker 4: up because Bill got involved in bitcoin when it was
• 16:53
  Speaker 4: like one hundred dollars a coin, and I was like, oh,
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  Speaker 4: this is another one of those things that's going to
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  Speaker 4: go to zero, as Bill said, you know it could
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  Speaker 4: go to zero or but if it goes up, it's
• 17:03
  Speaker 4: going to go up a lot. And I was like,
• 17:05
  Speaker 4: I don't need another thing going to zero. Big, big,
• 17:08
  Speaker 4: big mistake. But you know, then it had its run.
• 17:11
  Speaker 4: It made it almost to twenty twenty eighteen. You know,
• 17:15
  Speaker 4: I again was telling Bill when it got to three thousand, Bill,
• 17:19
  Speaker 4: you should he had it fun and I was like,
• 17:20
  Speaker 4: it was a huge position. I was like, you should
• 17:22
  Speaker 4: cut it back. You know, this is you know, has
• 17:25
  Speaker 4: some risk. And it went to twenty and then it
• 17:27
  Speaker 4: did crash, but back to three thousand. So that was
• 17:29
  Speaker 4: another good lesson. But by twenty twenty, again I thought
• 17:32
  Speaker 4: that there was you know, potential inflation risk given all
• 17:35
  Speaker 4: the you know, monetary and fiscal stimulus. And by that time,
• 17:40
  Speaker 4: you know, Bill was on the phone every day with
• 17:42
  Speaker 4: institutions and you know, big individuals that wanted to get
• 17:47
  Speaker 4: up to speed. And there was a bulcase early on
• 17:49
  Speaker 4: about it being digital gold, but I thought it was
• 17:51
  Speaker 4: very unlikely because there's one gold and it has a
• 17:53
  Speaker 4: special psychological space in the investment universe. But by twenty
• 17:58
  Speaker 4: twenty I thought it was much more likely and it
• 18:00
  Speaker 4: was developing along the path. And usually after you have
• 18:03
  Speaker 4: these crashes, things don't keep coming back. And so I
• 18:07
  Speaker 4: bought it in the fund there on the belief that
• 18:09
  Speaker 4: it was digital gold, which I could actually analyze. And
• 18:13
  Speaker 4: you can look at the market cap of gold and
• 18:15
  Speaker 4: look at you know, the younger generations are much more
• 18:18
  Speaker 4: inclined to digital assets. So if this is a proxy
• 18:20
  Speaker 4: for the long term potential here, what's the upside? And
• 18:23
  Speaker 4: if you do that math today, you know bitcoin could
• 18:26
  Speaker 4: be worth one point three to one point four million
• 18:28
  Speaker 4: dollars to share or a coin sometime in the future.
• 18:32
  Speaker 4: And so again I still believe that to be the case.
• 18:35
  Speaker 2: I would would not have guessed that. That's a fairly
• 18:38
  Speaker 2: contrriant perspective for a so called value investor. Let's talk
• 18:43
  Speaker 2: about some other fairly contrarian approaches. You were an aspiring
• 18:49
  Speaker 2: innkeeper in Vermont. I have to ask about that because
• 18:54
  Speaker 2: it's just so off what I know of You tell
• 18:58
  Speaker 2: us about adventures in innkeeping.
• 19:01
  Speaker 4: Well, I was an innkeeper, for I'm not the actual innkeeper,
• 19:04
  Speaker 4: but yes, I like to learn lessons a hard way. That's,
• 19:07
  Speaker 4: you know, part of my unfortunate line life. And you know,
• 19:10
  Speaker 4: so twenty eleven, we'd gone through the financial crisis. You know,
• 19:15
  Speaker 4: Bill was this genius. We'd had a really poor performance.
• 19:18
  Speaker 4: He spent all his time working. I just had my
• 19:20
  Speaker 4: first daughter, which totally rearranged everything in my life and
• 19:25
  Speaker 4: my priorities. And I was like, you know, do I
• 19:28
  Speaker 4: want to work that hard and do that or you know,
• 19:32
  Speaker 4: now I have this daughter and she's so important to me.
• 19:34
  Speaker 4: So I was considering a whole bunch of things, and
• 19:38
  Speaker 4: you know, innkeeper was one of them, as crazy as
• 19:40
  Speaker 4: that sounds because it's so not my thing, like, but
• 19:45
  Speaker 4: and then it was the real estate obviously bubble and crash,
• 19:49
  Speaker 4: and so, you know, I think I had mentioned this
• 19:51
  Speaker 4: to my family. They live in Vermont. My dad was like, oh,
• 19:55
  Speaker 4: the Vermont inn is going up for auction. And I
• 19:57
  Speaker 4: was like, oh, this is very interesting. It's a sign
• 19:59
  Speaker 4: of our times. Let me go to this auction. So
• 20:02
  Speaker 4: my husband and I went to the auction. You know,
• 20:05
  Speaker 4: I did work on what I thought the end was
• 20:07
  Speaker 4: worth before going into that, and you know, there was
• 20:11
  Speaker 4: a first bid for the end, and then we bid
• 20:14
  Speaker 4: the second bid and then I'm like, what are you doing?
• 20:15
  Speaker 4: That was crazy, Like, don't do that again, but that
• 20:18
  Speaker 4: was it. It was over there. There were no more bids,
• 20:21
  Speaker 4: and so you know, we ended up with an inn
• 20:24
  Speaker 4: that was closed down because it had gone through foreclosure.
• 20:27
  Speaker 4: Fortunately my family was all there. So then I made
• 20:29
  Speaker 4: I compounded the air by getting my brother in law's
• 20:32
  Speaker 4: sister involved to run the inn. So got family involved
• 20:36
  Speaker 4: in an absentee business. And you know, we also were
• 20:39
  Speaker 4: on a reality show. We won't go into that.
• 20:41
  Speaker 3: Did you do a reality show?
• 20:43
  Speaker 4: We did a reality show because I'm not going to
• 20:45
  Speaker 4: tell you the name because I don't want you to
• 20:46
  Speaker 4: go watch it. But I needed someone to help me
• 20:49
  Speaker 4: figure out how I was going to run this in.
• 20:50
  Speaker 4: But we got it open. So the the auction was
• 20:53
  Speaker 4: in October. I wanted to get it open by the
• 20:57
  Speaker 4: holidays because that's obviously the big ski season there.
• 20:59
  Speaker 3: Which we did. Did we did that?
• 21:02
  Speaker 4: Yeah, my dad, my husband's dad, We got everyone involved
• 21:05
  Speaker 4: in getting the n reopen and we had to figure
• 21:07
  Speaker 4: out how to get people to come. And so it
• 21:09
  Speaker 4: was it was not for me. I quickly figured that out,
• 21:13
  Speaker 4: but you know, we kind of got the business running
• 21:15
  Speaker 4: and then sold it.
• 21:16
  Speaker 2: So and what was the lesson we learned? The lesson
• 21:20
  Speaker 2: was don't scratch your nose at a Yeah.
• 21:22
  Speaker 4: The lesson was, I like markets. I can sit at
• 21:25
  Speaker 4: my desk and make a lot of money doing very little,
• 21:28
  Speaker 4: versus managing a chef who has you know, a lot
• 21:30
  Speaker 4: of issues on when I tell him the food's not
• 21:34
  Speaker 4: so good and he thinks he's an artist, and you know,
• 21:37
  Speaker 4: I was like, this is not for me. And the
• 21:39
  Speaker 4: maximum amount you could make on it, and like that
• 21:41
  Speaker 4: was not that.
• 21:42
  Speaker 3: Much, so not a lot of business money.
• 21:44
  Speaker 4: We did make some money, so it was okay, but
• 21:46
  Speaker 4: it was a lot of work for you know how
• 21:48
  Speaker 4: much you could make.
• 21:49
  Speaker 3: Yes, and you were working full time.
• 21:52
  Speaker 4: I was working. Yeah, I was working full time, so
• 21:55
  Speaker 4: you know I wasn't on site again, I had people
• 21:58
  Speaker 4: there working.
• 21:59
  Speaker 2: That's an amazing story. Let's talk a little bit about philosophy.
• 22:04
  Speaker 2: You have talked about Buddhism and Stoicism as related to
• 22:09
  Speaker 2: finance and investing. Tell us a little bit about that. Yeah.
• 22:13
  Speaker 4: Well, I think in investing in market and markets, having
• 22:17
  Speaker 4: the right mindset is probably the most important thing. And
• 22:22
  Speaker 4: you know, it's a mixture of art and science, and
• 22:24
  Speaker 4: a lot of people think the scientific part is more important,
• 22:27
  Speaker 4: but I think the art part is more important because
• 22:31
  Speaker 4: you know, there's a lot of data on how much
• 22:33
  Speaker 4: more you can make in equity markets over time. And
• 22:36
  Speaker 4: so the reason that you can make more is because
• 22:38
  Speaker 4: you have these periodic losses. And you know, I liken
• 22:41
  Speaker 4: it to dieting. It's like people don't fail at dieting
• 22:45
  Speaker 4: because they don't know they shouldn't eat the cookie, right,
• 22:47
  Speaker 4: Like you know you shouldn't eat the cookie. It's because
• 22:49
  Speaker 4: it's too tempting. And people know you shouldn't sell when
• 22:52
  Speaker 4: the markets are down mostly, but it's hard to do
• 22:57
  Speaker 4: that because you feel like you're you know you're well
• 23:00
  Speaker 4: is at risk. And so I think having tools that
• 23:02
  Speaker 4: help you have the right structure for how you think
• 23:05
  Speaker 4: about things and how you behave are really important. I mean,
• 23:09
  Speaker 4: some people are naturally wired that way and different people,
• 23:12
  Speaker 4: you know, you have different abilities, but I think having
• 23:15
  Speaker 4: certain tools and mindsets can help anyone be better. And
• 23:18
  Speaker 4: so you know, staying calm, understanding that there's only certain
• 23:22
  Speaker 4: things that are within your control and that's what you
• 23:25
  Speaker 4: can focus on, and then understanding that there will be
• 23:28
  Speaker 4: times when you lose money, but over time. If again
• 23:32
  Speaker 4: it's so sensitive to time horizon, if you have a
• 23:35
  Speaker 4: long time horizon, and you can put your money away
• 23:37
  Speaker 4: for a long time. There's almost nothing safer if you
• 23:40
  Speaker 4: have a twenty or twenty five year time horizon. You know,
• 23:43
  Speaker 4: equities have never been down over that time, ye US equities, Yes,
• 23:49
  Speaker 4: And so I meditate regularly, and you know, I keep
• 23:52
  Speaker 4: a journal. And I remember during the COVID pandemic, you know,
• 23:56
  Speaker 4: we were all locked away, but I was emailing with
• 23:59
  Speaker 4: Bill and he was stoicism and that kind of got
• 24:01
  Speaker 4: me interested, and we were you know, he was sharing quotes,
• 24:04
  Speaker 4: and so I think it can really help you in
• 24:07
  Speaker 4: the moment to make better decisions.
• 24:08
  Speaker 2: If you have these tools recognizing what is and is
• 24:12
  Speaker 2: not within your control, and a sense of calm, it
• 24:15
  Speaker 2: turns out to be useful in the markets.
• 24:17
  Speaker 4: Yeah, yeah, imagine that.
• 24:20
  Speaker 2: Whoever would have guessed that? And yet most people don't
• 24:23
  Speaker 2: reach that conclusion. They go the other direction. So let's
• 24:27
  Speaker 2: talk a little bit about where we are in the
• 24:29
  Speaker 2: state of the market today. I'm watching real time transcription,
• 24:36
  Speaker 2: which five years ago would have been magic. There's been
• 24:40
  Speaker 2: dictation software for decades. It's always been pretty terrible. It's
• 24:45
  Speaker 2: amazing how good this is in real time. So let's
• 24:49
  Speaker 2: talk a little bit about artificial intelligence.
• 24:51
  Speaker 3: What are your thoughts?
• 24:52
  Speaker 2: How does this affect how you're looking at overall markets
• 24:56
  Speaker 2: and how you're looking at individual companies.
• 24:58
  Speaker 4: No, well, I think it's h you know, anyone who
• 25:01
  Speaker 4: knows anything about technology. I have not heard anyone who's
• 25:04
  Speaker 4: knowledgeable about this space not say that it's completely transformational.
• 25:08
  Speaker 4: And you know, more important, you know, I think you
• 25:13
  Speaker 4: know the Capital One CEO, you know, he claims to
• 25:17
  Speaker 4: have the first fintech at Capital one because they were
• 25:19
  Speaker 4: very into data. But he said it's bigger than the
• 25:22
  Speaker 4: agricultural revolution that you know, invention of fire, the industrial revolution,
• 25:26
  Speaker 4: the digital revolution, and I haven't really heard anyone dispute that.
• 25:31
  Speaker 4: So there's lots of questions about how long does it take,
• 25:33
  Speaker 4: what exactly does it do? Are companies overvalued now? But
• 25:37
  Speaker 4: I think, you know, anyone who knows anything believes that
• 25:41
  Speaker 4: the impact of this is just going to be huge.
• 25:44
  Speaker 4: And so when you're in that sort of situation in
• 25:46
  Speaker 4: the markets, you obviously need to be aware and try
• 25:50
  Speaker 4: to learn, you know, everything you can. I think we
• 25:52
  Speaker 4: bought Nvidia in January of twenty twenty four. The interesting
• 25:56
  Speaker 4: thing about this is I love markets because they're so interesting,
• 26:00
  Speaker 4: and they're complex adaptive systems, which make them very very
• 26:03
  Speaker 4: difficult to outperform. They're extremely difficult, but they adapt. And
• 26:07
  Speaker 4: so what's interesting to me is that we have this
• 26:11
  Speaker 4: AI bubble, you know, hysteria basically where everyone it's all
• 26:17
  Speaker 4: you read all the time. And that makes sense given
• 26:21
  Speaker 4: that we've had, you know, the tech bubble, we had
• 26:24
  Speaker 4: the housing bubble, We've had some of these bubbles. But
• 26:27
  Speaker 4: I think and it's possible that you know, there will
• 26:30
  Speaker 4: be something negative here, but you're not seeing valuations at
• 26:34
  Speaker 4: all in line with what we saw in the tech bubble.
• 26:36
  Speaker 4: And the companies that are spending these enormous amounts of money,
• 26:39
  Speaker 4: which they are very large sums of money, they're basically
• 26:43
  Speaker 4: the best companies that ever existed in the history of
• 26:45
  Speaker 4: the world if you look at their returns on capital,
• 26:47
  Speaker 4: their free cash flow margin, you know, their revenue growth
• 26:50
  Speaker 4: rates and so so I like that there's all this
• 26:53
  Speaker 4: AI bubble talk because it keeps a lid on the valuations.
• 26:56
  Speaker 4: I think it actually makes it more sustainable that they're
• 27:00
  Speaker 4: you know, I would have concern in some of the
• 27:03
  Speaker 4: companies like open Ai, which you know, had under four
• 27:06
  Speaker 4: billion in revenues last year and has committed to one
• 27:09
  Speaker 4: point four trillion dollars and spent. So we're watching that
• 27:12
  Speaker 4: very closely. And I think for me, I have children,
• 27:14
  Speaker 4: and I'm thinking, what does this mean for the future
• 27:17
  Speaker 4: of employment, and is you know, what can I advise
• 27:20
  Speaker 4: them to go into? Which I think that's a much
• 27:22
  Speaker 4: tougher question now.
• 27:23
  Speaker 2: Than so, so I'm glad you went over there because
• 27:26
  Speaker 2: I wanted to ask. You've talked about the value of mentorship,
• 27:30
  Speaker 2: about training young people, whether analysts or fund managers, what
• 27:34
  Speaker 2: have you. If you look at the unemployment rate today
• 27:38
  Speaker 2: at four three four four, and then you look at
• 27:41
  Speaker 2: the college graduate under thirty unemployment, it's more than double that.
• 27:45
  Speaker 3: It's in the nines.
• 27:47
  Speaker 2: What does a I do for that demographic learning to
• 27:53
  Speaker 2: being mentored, learning a trade, being able to get a
• 27:57
  Speaker 2: job at an entry level when their competition seems to
• 28:00
  Speaker 2: be software.
• 28:02
  Speaker 4: Yeah, I mean it's a great question. I'm not sure
• 28:04
  Speaker 4: I have the answer to that. I mean, what we
• 28:06
  Speaker 4: know is you can look at industries adopting AI and
• 28:09
  Speaker 4: those that haven't, and there's clearly an impact on junior hires.
• 28:13
  Speaker 4: So it is having an impact, and uh, you know,
• 28:16
  Speaker 4: Dario Amide, the CEO of Anthropic, has said he believes
• 28:19
  Speaker 4: that the white collar unemployment rate will be you know,
• 28:24
  Speaker 4: five to twenty five percent in one to five years,
• 28:28
  Speaker 4: so huge impact, and so I think it. You know,
• 28:32
  Speaker 4: that's why I'm thinking, like, what do you advise young
• 28:35
  Speaker 4: people to do? I think I asked people at my
• 28:38
  Speaker 4: you know college that I went to where I'm on
• 28:40
  Speaker 4: the board. The professors there, they're trying, you know, they've
• 28:43
  Speaker 4: worked hard to set up an AI program and help
• 28:45
  Speaker 4: students be literate and you know, well versed in this.
• 28:48
  Speaker 4: I think if you can use it as a tool
• 28:50
  Speaker 4: to your advantage, you still need humans to do this work,
• 28:53
  Speaker 4: and so you know, being capable in that is really important.
• 28:59
  Speaker 2: You know.
• 28:59
  Speaker 4: I was at a Santa Fe Institute meeting a couple
• 29:03
  Speaker 4: weeks ago, you know, that was on AI, and they
• 29:06
  Speaker 4: talked about how what the models aren't good at, which
• 29:08
  Speaker 4: I thought was really interesting, is complex problem solving and creativity.
• 29:14
  Speaker 4: So those see more unique human endeavors. So leaning into
• 29:18
  Speaker 4: areas where you know, those are critical skills I think
• 29:21
  Speaker 4: are important. But areas like law or you know, obviously
• 29:25
  Speaker 4: customer service coding, some of these areas are getting quite disrupted.
• 29:30
  Speaker 2: And you're saying complex problem solving and creativity. AI is
• 29:34
  Speaker 2: not great at These.
• 29:35
  Speaker 4: Models cannot do it. Now will they get there? I
• 29:37
  Speaker 4: don't know, But I think what's useful is to have
• 29:39
  Speaker 4: a human who is well versed and can think critically
• 29:43
  Speaker 4: about Because these models hallucinate, they'll make up lies, they'll
• 29:46
  Speaker 4: tell you incorrect information. They're getting better at that. But
• 29:49
  Speaker 4: having someone who knows how to check facts, use different
• 29:52
  Speaker 4: models in different situations, you know, that's going to be
• 29:56
  Speaker 4: very valuable. I think who can figure stuff out that
• 29:59
  Speaker 4: you haven't been to go and solve real problems in
• 30:02
  Speaker 4: the real world, I think is also valuable.
• 30:06
  Speaker 2: So every time we see a back test that's based
• 30:09
  Speaker 2: on historical data, it always looks great and built into
• 30:13
  Speaker 2: the back test of the assumption the future is going
• 30:16
  Speaker 2: to look.
• 30:16
  Speaker 3: Like the past.
• 30:18
  Speaker 2: How much of what we're seeing in artificial intelligence is
• 30:21
  Speaker 2: sort of paralleling that. Hey, we're working off the corpus
• 30:25
  Speaker 2: of all these documents that have been previously written. If
• 30:28
  Speaker 2: you want to do something that's not going to get
• 30:30
  Speaker 2: replaced by AI, you have to go in a different direction.
• 30:34
  Speaker 4: Yeah. No, I think that's a great point. I mean
• 30:35
  Speaker 4: what the models do is they look at all of
• 30:37
  Speaker 4: the information that's out there and they can you know,
• 30:40
  Speaker 4: do things with it instantaneously. And so I think there's
• 30:44
  Speaker 4: a belief in the technology community that they will eventually
• 30:49
  Speaker 4: have a breakthrough where they can have novel ideas. You know,
• 30:52
  Speaker 4: that's unclear if and when that'll happen. You know, it
• 30:57
  Speaker 4: hasn't happened yet. And so you know, if you can
• 31:01
  Speaker 4: do that, if you can use ideas in an innovative way,
• 31:05
  Speaker 4: if you can certainly, I think in the investment business
• 31:07
  Speaker 4: for long term investors, what you've seen is machine learning
• 31:10
  Speaker 4: in large large language models have already been used to
• 31:15
  Speaker 4: optimize short term trading models. And again we don't compete
• 31:19
  Speaker 4: there because I think it's extremely difficult, you know.
• 31:22
  Speaker 3: To compete.
• 31:23
  Speaker 4: But I think long term, you know, those models have
• 31:26
  Speaker 4: not been used to think about long term investments. We
• 31:30
  Speaker 4: talk about time, arbitrage and patience, and you know, what
• 31:34
  Speaker 4: do we think the world's going to look like in five, ten,
• 31:36
  Speaker 4: fifteen years. The future is uncertain, No one knows. So
• 31:40
  Speaker 4: I don't see how the models are going to you know,
• 31:42
  Speaker 4: get an edge there. I mean, if they become smarter
• 31:45
  Speaker 4: than all humans at some point, maybe, but you know,
• 31:48
  Speaker 4: it'll be one of the last things.
• 31:49
  Speaker 3: Hopefully, So are you using AI in your firm?
• 31:54
  Speaker 4: And if so, have we are and we talk about
• 31:59
  Speaker 4: AI all the time, and so I you know, tell
• 32:01
  Speaker 4: the employees all the time, like you have to be
• 32:03
  Speaker 4: all over this and learn how to use these models
• 32:05
  Speaker 4: because you know they're going to displace you if you know,
• 32:08
  Speaker 4: not you specifically, but all of us if we don't.
• 32:11
  Speaker 4: And so, you know, it's still so early. So I
• 32:14
  Speaker 4: think a lot of what's going on now is more experimentation,
• 32:18
  Speaker 4: both at big companies and small companies. There was an
• 32:21
  Speaker 4: article in the journal yesterday about how small businesses have had,
• 32:25
  Speaker 4: uh you know, have been transformed by this because they
• 32:27
  Speaker 4: can do so many things, Like I used one to
• 32:29
  Speaker 4: create a profit sharing plan and I just went back
• 32:32
  Speaker 4: and forth with chat GPT like no, I don't want this,
• 32:34
  Speaker 4: no I want that, Like what is this model? And
• 32:36
  Speaker 4: it like created it for me, you know, with the
• 32:39
  Speaker 4: back and forth, and I sent it to the lawyers
• 32:40
  Speaker 4: and it was good to go. I mean, it was good.
• 32:43
  Speaker 4: It needed no changes. And so I'd been you know,
• 32:46
  Speaker 4: I've been wanting to do that for a long time
• 32:48
  Speaker 4: and the team was busy with all sorts of stuff
• 32:49
  Speaker 4: so I finally just did it, and it probably took
• 32:51
  Speaker 4: me like an hour to do that, but we try it.
• 32:53
  Speaker 4: We try tools on the investment side, uh you know
• 32:56
  Speaker 4: that are both specialized and more generalized. I use chat,
• 32:58
  Speaker 4: GPT all the time for you know, everything in terms
• 33:02
  Speaker 4: of doing research, and uh, you know, it's really you know,
• 33:06
  Speaker 4: quite amazing. And we have you know, we have a
• 33:09
  Speaker 4: new tech person that we hired who has played around
• 33:12
  Speaker 4: with automating and using agents to do certain tasks that
• 33:16
  Speaker 4: people did. So I do think it is going to
• 33:18
  Speaker 4: you know, replace some work now. I don't think we'll
• 33:20
  Speaker 4: have less jobs. People will just be able to do
• 33:23
  Speaker 4: you know, more higher level work.
• 33:26
  Speaker 3: Makes sense.
• 33:27
  Speaker 2: You earlier compared this to the dot COM's What are
• 33:31
  Speaker 2: the parallels that are a fair comparison to the late
• 33:35
  Speaker 2: nineties tech and telecom bubble? And what do you think
• 33:39
  Speaker 2: is really separating this era from the late nineteen nineties.
• 33:45
  Speaker 4: Well, I think the clearest uh you know parallel is
• 33:48
  Speaker 4: the market valuation overall is at high levels that we
• 33:52
  Speaker 4: haven't seen since then. So I think the market's at
• 33:54
  Speaker 4: twenty two times you know the next twelve months earnings,
• 33:57
  Speaker 4: and it peaked at like twenty five times then, so
• 33:59
  Speaker 4: we're you know, after the financial crisis, we were at
• 34:01
  Speaker 4: very low levels and we've spent you know, the past
• 34:04
  Speaker 4: sixteen years, you know, having great markets, some of the
• 34:08
  Speaker 4: best markets we've ever had, and the valuations have risen,
• 34:11
  Speaker 4: so I you know, again as value managers, that makes
• 34:14
  Speaker 4: us you know, on alert for signs that things might
• 34:18
  Speaker 4: be going around. But there's many more, i think, more
• 34:20
  Speaker 4: significant differences. So during that there was you know, I
• 34:26
  Speaker 4: think technology hit fifty times earnings as a sector, and
• 34:31
  Speaker 4: a lot of the technology companies were losing a ton
• 34:33
  Speaker 4: of money and there was a lot of you know,
• 34:35
  Speaker 4: debt financing. So there's a lot of unsustainable things. The
• 34:38
  Speaker 4: build out of you know, the fiber networks, they were
• 34:41
  Speaker 4: building for future demand that wasn't yet there. So that's
• 34:46
  Speaker 4: very different than today. We have this you know, big
• 34:49
  Speaker 4: infrastructure build out, but you know, there's still shortages of demand.
• 34:54
  Speaker 4: They can't meet the demand that already exists. That's a
• 34:56
  Speaker 4: very different situation. And the companies that are building them,
• 35:01
  Speaker 4: you know, building this infrastructure out for the most part,
• 35:04
  Speaker 4: are you know, extremely the hyperscalers are extremely well capitalized,
• 35:08
  Speaker 4: with great balance sheets, high free cash flow margins, so
• 35:11
  Speaker 4: you know, the risk that sort of risk doesn't exist.
• 35:14
  Speaker 4: And also at the end of the tech bubble, everyone
• 35:16
  Speaker 4: was piled into you know, Bill recognized the peak and
• 35:19
  Speaker 4: actually got out of those names. And what made him
• 35:22
  Speaker 4: recognize it was that, you know, I think in the
• 35:24
  Speaker 4: first quarter of two thousand, you know, the a very
• 35:28
  Speaker 4: high percent, like seventy five percent of money managers outperformed
• 35:31
  Speaker 4: and only two sectors outperformed, tech and telcom, And so
• 35:35
  Speaker 4: everyone was piled into a very narrow area of the
• 35:38
  Speaker 4: market that is not at all you know what you're
• 35:40
  Speaker 4: seeing now, and so I just now, you know, I
• 35:44
  Speaker 4: think the bare case would be that for some reason,
• 35:48
  Speaker 4: you know, the demand doesn't exist and you know, the
• 35:51
  Speaker 4: spend rolls over again. I still think it would be
• 35:54
  Speaker 4: a much more modest, uh, you know, pullback just because
• 35:59
  Speaker 4: of those under lying you know, fundamental business factors. There
• 36:02
  Speaker 4: are other areas of the market, like quantum computing and
• 36:06
  Speaker 4: nuclear fission that are much more speculative that have already
• 36:08
  Speaker 4: pulled back fifty percent actually just in this decline. So
• 36:12
  Speaker 4: that also is a good thing. I think it keeps
• 36:13
  Speaker 4: the market healthier longer.
• 36:16
  Speaker 2: So you don't explicitly talk about economic cycles, but every
• 36:20
  Speaker 2: now and then I hear you drifting over to unemployment
• 36:25
  Speaker 2: and growth and infrastructure and economist type speaks.
• 36:30
  Speaker 3: How often do.
• 36:31
  Speaker 2: You use what's going on in the broader economy is
• 36:35
  Speaker 2: part of your process? Do you think about that or
• 36:38
  Speaker 2: economic cycles significant to your process? Or is the economy
• 36:44
  Speaker 2: going to do what it's going to do and it
• 36:45
  Speaker 2: doesn't interfere with your approach.
• 36:47
  Speaker 4: Well, we definitely try to understand what's going on in
• 36:49
  Speaker 4: the economy because it can have you know, big impacts
• 36:52
  Speaker 4: on you know, investments. You know, there's a lot of
• 36:56
  Speaker 4: no one can forecast the economy. You know, there's a
• 36:58
  Speaker 4: lot of good evidence that no one does. Economists don't
• 37:00
  Speaker 4: do it, investors don't do it. So it's a feudal efforts.
• 37:04
  Speaker 4: A lot of people claim that they have some view
• 37:05
  Speaker 4: about the.
• 37:06
  Speaker 2: Future forecast in the world, but what do we see
• 37:08
  Speaker 2: in a recession forecast exactly every year for the past
• 37:12
  Speaker 2: three or four years.
• 37:13
  Speaker 3: They'll get it right eventually.
• 37:15
  Speaker 4: Right, and so you know, the best strategy is just
• 37:19
  Speaker 4: you know, if you have a long time horizon to
• 37:21
  Speaker 4: stay invested. But we want to be aware of risks
• 37:24
  Speaker 4: and the impact. I mean, our whole process is analyzing
• 37:27
  Speaker 4: the fundamentals of businesses and looking at what the intrinsic
• 37:30
  Speaker 4: value looks like. And that's a distribution of outcomes because
• 37:32
  Speaker 4: the future is uncertain, so we're doing different scenarios and
• 37:35
  Speaker 4: then we compare it to market expectations. And so we
• 37:39
  Speaker 4: like a clear gap in those two things, and we like,
• 37:43
  Speaker 4: you know, better risk rewards. But there's a lot that
• 37:46
  Speaker 4: goes into both both of those things. You know, sentiment
• 37:49
  Speaker 4: goes into the market expectations. You know where people are positioned,
• 37:54
  Speaker 4: and you know, obviously the economic cycle for certain businesses
• 37:57
  Speaker 4: has a big impact. It's very sensitive to your time horizon.
• 38:01
  Speaker 4: You know just how much it matters, and the longer
• 38:03
  Speaker 4: your time horizon, the lesson matters.
• 38:06
  Speaker 2: Coming up, we continue our conversation with Samantha Macklamore, chief
• 38:10
  Speaker 2: investment officer and founder of Patient's Capital, talking about the
• 38:15
  Speaker 2: state of the economy today.
• 38:17
  Speaker 3: I'm buried results.
• 38:19
  Speaker 2: You're listening to Masters in Business on Bloomberg Radio.
• 38:36
  Speaker 3: I'm bury redults.
• 38:37
  Speaker 2: You're listening to Masters in Business on Bloomberg Radio. Let's
• 38:40
  Speaker 2: return to my previously recorded conversation live at the Phillips
• 38:45
  Speaker 2: Collection in Washington, d C. With Patient Capitals Samantha macklamore.
• 38:51
  Speaker 2: So you mentioned sentiment. I'm trying to remember a moment
• 38:55
  Speaker 2: in history where collectively the investor, class, the punditcla as
• 39:00
  Speaker 2: the media, all in real time identified a major market
• 39:04
  Speaker 2: bubble at once. Is is it just too glib to say, Hey,
• 39:09
  Speaker 2: everybody's forecasting a bubble, therefore it can't be a bubble.
• 39:13
  Speaker 4: Well, I'm a contrarian, so you know, like that, that
• 39:16
  Speaker 4: kind of you know, thinking appeals to me. I think
• 39:21
  Speaker 4: it is true that usually what you know. Howard Marx
• 39:23
  Speaker 4: wrote a great memo on the whole tech space in January,
• 39:28
  Speaker 4: and you know, I thought the most important line in
• 39:30
  Speaker 4: that was, you know, a bubble is characterized by psychological extremness,
• 39:36
  Speaker 4: and so it is that psychological state. So we're not
• 39:40
  Speaker 4: when everyone's bemoaning a bubble and fearing a bubble and
• 39:44
  Speaker 4: claiming a bubble, that makes a bubble much less likely
• 39:46
  Speaker 4: because people are then not positioned in it. And usually
• 39:49
  Speaker 4: where the biggest risks are are not where you're focused on.
• 39:51
  Speaker 4: If you know there's a risk in a certain area,
• 39:53
  Speaker 4: you treat it much differently, you manage it much differently.
• 39:55
  Speaker 4: If everyone's doing that. You know, in Vidia you know.
• 39:58
  Speaker 4: So the risk would be in Ida's earnings are unsustainable
• 40:01
  Speaker 4: and they've had this huge run up and there they've
• 40:05
  Speaker 4: captured so far about ninety percent of the economic profits
• 40:08
  Speaker 4: in AI. Again, they're going to report tomorrow night. If
• 40:12
  Speaker 4: I are a betting man, which I'm not, I'm an
• 40:14
  Speaker 4: investing woman, but uh, you know, I would say they're
• 40:16
  Speaker 4: going to be and then the market might really like
• 40:19
  Speaker 4: that because it's coming into it, you know, over sold.
• 40:22
  Speaker 4: But I think the risk is there's something happens to earnings,
• 40:27
  Speaker 4: you know, and they have an earning cycle. Again, I
• 40:30
  Speaker 4: don't see that in the near term. But there's no
• 40:32
  Speaker 4: you know, valuation not you know, excesses are just not there.
• 40:37
  Speaker 4: Like these companies. If you look at and Videos growing
• 40:40
  Speaker 4: you know, forty plus percent this year, trading it twenty
• 40:43
  Speaker 4: eight times next year's earnings, that is not a bubble
• 40:46
  Speaker 4: at you know, that's not bubble valuations at all. It's
• 40:48
  Speaker 4: not what we see on the tech bubble. So again,
• 40:51
  Speaker 4: I think it is true that when everyone's worried about
• 40:54
  Speaker 4: a bubble, it's likely not a bubble.
• 40:56
  Speaker 2: So people have been talking about a CA shaped economy
• 40:59
  Speaker 2: that the upper arm is doing great, the lower arm
• 41:01
  Speaker 2: is doing poorly. Can you apply the same thing to
• 41:04
  Speaker 2: valuations with the market. If you take the top ten
• 41:07
  Speaker 2: or twenty stocks, they seem to be much more richly
• 41:11
  Speaker 2: valued than the rest of the whatever you want to use,
• 41:15
  Speaker 2: we'll shoot five thousand or s and P five hundred.
• 41:18
  Speaker 2: How do you think about that bifurcation?
• 41:20
  Speaker 4: Yeah, well, I think there are certain areas you know
• 41:23
  Speaker 4: in the market, like quality or like return on capital
• 41:27
  Speaker 4: where those again, if you have high quality, high return
• 41:30
  Speaker 4: on capital, high free cash fulw margins, those companies should
• 41:33
  Speaker 4: be valued at it, you know, overall a higher level.
• 41:36
  Speaker 4: But we've seen very wide gaps there. So I think
• 41:39
  Speaker 4: I have a huge respect for the market though, so
• 41:41
  Speaker 4: because we're every day we're doing the work on Okay,
• 41:44
  Speaker 4: this company might be attractive. Let's do the work on
• 41:46
  Speaker 4: that and see what the market's pricing in, and we'll
• 41:48
  Speaker 4: say what is the market telling us as business can do?
• 41:51
  Speaker 4: And usually the market's pretty good at like okay, yeah,
• 41:53
  Speaker 4: that's the easiest case to make and the market will
• 41:57
  Speaker 4: reflect that. So it's more anomalist to find areas where
• 42:01
  Speaker 4: that's wrong. Especially you know, the markets had a huge
• 42:04
  Speaker 4: move up, so the more it moves up the harder
• 42:07
  Speaker 4: it is, but we're still finding, you know, opportunities. I
• 42:10
  Speaker 4: think we added significantly to healthcare and small caps you
• 42:14
  Speaker 4: know earlier this year, and healthcare until recently it was
• 42:17
  Speaker 4: at a fifty year relative valuation low. And those are
• 42:20
  Speaker 4: good businesses with good returns on capital, and so, you know,
• 42:23
  Speaker 4: the market gets so hyper short term focused. You know,
• 42:26
  Speaker 4: so many people these days are focused on the next
• 42:28
  Speaker 4: quarter and they want to outperform every month and every quarter.
• 42:32
  Speaker 4: So again, if you can look out longer, I think
• 42:34
  Speaker 4: you do have opportunities. But the reason people don't is
• 42:36
  Speaker 4: because you sometimes have more downside in the short term
• 42:39
  Speaker 4: if you're buying into you know, weakness.
• 42:42
  Speaker 2: So how do you think overall about valuation and future
• 42:46
  Speaker 2: return expectations when generally the markets had a good run
• 42:51
  Speaker 2: and valuations are, if not bubb malicious, a little more
• 42:55
  Speaker 2: rich than average.
• 42:57
  Speaker 4: Yeah, I mean my view on valuations is the high
• 43:00
  Speaker 4: end of the historical range. So again that makes me
• 43:03
  Speaker 4: more alert, more cautious. I think if you look, you know,
• 43:06
  Speaker 4: at the underlying fundamentals and just the returns on capital
• 43:10
  Speaker 4: of businesses, the free cash flow margins, the balance sheets,
• 43:13
  Speaker 4: higher valuations are justified. But markets go through these cycles
• 43:17
  Speaker 4: of undervaluation, overvaluation, and then back again, and so that's
• 43:21
  Speaker 4: just part of markets. You know. Again, I don't think
• 43:25
  Speaker 4: we're at you know, levels that I'm extremely concerned. I
• 43:27
  Speaker 4: still think there are you know, attractive opportunities in markets,
• 43:32
  Speaker 4: but where we can add ballast to the portfolio, defensive
• 43:35
  Speaker 4: areas like healthcare. Again, I think that helps position the
• 43:38
  Speaker 4: portfolio for a variety of different sorts of environments. And
• 43:43
  Speaker 4: there's still plenty of cheap, you know, cheap cheap names
• 43:46
  Speaker 4: in the market.
• 43:48
  Speaker 2: So I have three of my favorite questions I always
• 43:52
  Speaker 2: ask guests, But before I get to that, I want
• 43:54
  Speaker 2: to throw a little bit of a curve ball at you.
• 43:57
  Speaker 2: What do you think investors are not talking about when
• 44:00
  Speaker 2: when they're not thinking.
• 44:02
  Speaker 3: About AI bubbles? What are they overlooking?
• 44:05
  Speaker 2: What topics or ideas or strategies are they just not
• 44:10
  Speaker 2: thinking about that perhaps they should be.
• 44:12
  Speaker 4: Yeah, well that's a really hard one because I think,
• 44:15
  Speaker 4: you know, there's so many investors out there thinking about
• 44:19
  Speaker 4: so many things. And now in today's day and age,
• 44:21
  Speaker 4: with great podcasts like yours and Twitter and X and
• 44:24
  Speaker 4: all the research online, you can get access to all
• 44:27
  Speaker 4: of the thinking. So you know, I'm not sure that
• 44:30
  Speaker 4: there's things people aren't thinking about that much, but I
• 44:32
  Speaker 4: would say, you know, one of my biggest lessons from
• 44:35
  Speaker 4: Bill was the big money are made in the big moves,
• 44:38
  Speaker 4: and so you need to be looking for those, and
• 44:40
  Speaker 4: you need to you know, hold those, and actually holding
• 44:43
  Speaker 4: them is even harder than looking for them. And so
• 44:47
  Speaker 4: I think people focus if you have a long time
• 44:50
  Speaker 4: horizon and you're interested in growing your wealth, which is
• 44:54
  Speaker 4: what we want to do. You know, that's our number
• 44:56
  Speaker 4: one objective is to make money. You know, I never
• 45:00
  Speaker 4: saw Bill get upset about a stock that went down
• 45:04
  Speaker 4: or you're losing money on us certain stock, because you
• 45:06
  Speaker 4: know that you know, in our business, you know, the
• 45:08
  Speaker 4: best investors are wrong about half the time, like half
• 45:11
  Speaker 4: the stocks go down, and that's just part of the business.
• 45:13
  Speaker 4: So you get really comfortable with being wrong. I never
• 45:15
  Speaker 4: saw him mad. I saw him mad when he identified
• 45:19
  Speaker 4: a stock Qualcom and an analyst said, no, this is
• 45:23
  Speaker 4: really bad investment, like don't buy it, and then it
• 45:25
  Speaker 4: went up ten times because he's like, you just don't
• 45:27
  Speaker 4: get the opportunity to make money. And most of those
• 45:29
  Speaker 4: type of errors, when something's not in your portfolio, you
• 45:32
  Speaker 4: don't see it, you don't notice it's not there, but
• 45:34
  Speaker 4: it has a huge impact on, you know, your ability
• 45:38
  Speaker 4: to grow well. So I think there's not enough discussion
• 45:41
  Speaker 4: about that. And you know, if you look at endowment returns,
• 45:45
  Speaker 4: I think for the last decade, they're like six point
• 45:47
  Speaker 4: eight percent on average, and so the US equity market's
• 45:51
  Speaker 4: up over thirteen percent. So that's a huge shortfall that
• 45:56
  Speaker 4: if you do the math on like thirty years of
• 45:59
  Speaker 4: thirteen versus six point eight, it's like you either you're
• 46:04
  Speaker 4: up seven times versus your up thirty plus times. I mean,
• 46:08
  Speaker 4: that compounding math is it's shocking, actually, even to me
• 46:12
  Speaker 4: who I'm in this business. I know patients, I'm all
• 46:14
  Speaker 4: about compounding, and I do the math and I'm like,
• 46:16
  Speaker 4: oh my goodness, the amount of wealth left on the table.
• 46:19
  Speaker 2: All right, So let's jump to our speed round, and
• 46:22
  Speaker 2: then afterwards we'll open it up for questions from the audience.
• 46:26
  Speaker 2: I always like to get book ideas from people. Tell
• 46:29
  Speaker 2: us what you're reading and what are some of your
• 46:31
  Speaker 2: favorite books.
• 46:32
  Speaker 4: Well, I'm not reading right now. What I'm reading is
• 46:34
  Speaker 4: nineteen twenty nine by Andrey Russwalker. So that's nothing new.
• 46:36
  Speaker 4: Everyone's reading that, but I think it's it's in.
• 46:39
  Speaker 3: The probably helping the bubble talk.
• 46:41
  Speaker 4: Well, it's you know, you have to be aware. And
• 46:43
  Speaker 4: I think studying history is really important. You know. I
• 46:47
  Speaker 4: think have you read The Comfort Crisis by Michael Eastern
• 46:50
  Speaker 4: That's a really good book. And uh, you know, my
• 46:54
  Speaker 4: kids get sick of me preaching, but it's all about how,
• 46:57
  Speaker 4: you know, we are in a society where you know,
• 47:00
  Speaker 4: it's all about comfort and the benefits of you know.
• 47:04
  Speaker 4: He has this thing Misogi where he goes into nature
• 47:07
  Speaker 4: and does really physically challenging things that are challenging enough
• 47:10
  Speaker 4: that he will and it's not his thing, it's actually
• 47:12
  Speaker 4: a Japanese thing, but that you are most likely to fail,
• 47:15
  Speaker 4: but you and make it challenging enough, just shy of
• 47:19
  Speaker 4: like maybe dying. So again, I'm not a proponent of
• 47:22
  Speaker 4: taking it to that level, but I am a proponent
• 47:25
  Speaker 4: of you know, if you listen to Jensen Wong at
• 47:28
  Speaker 4: NVIDIA and he talks about the value of pain and suffering,
• 47:31
  Speaker 4: and he's like, he talks about being a CEO, He's
• 47:34
  Speaker 4: like a lot of people want to be a CEO.
• 47:36
  Speaker 4: He's like, but the experience is not power and glory
• 47:39
  Speaker 4: it's pain and suffering and like all the hardest problems
• 47:42
  Speaker 4: come to you. So I think, you know, exposing yourself
• 47:46
  Speaker 4: to things out of your comfort zone where you have
• 47:48
  Speaker 4: the opportunity to grow and have some pain, you know,
• 47:52
  Speaker 4: I think that's kind of what makes life interesting. And
• 47:56
  Speaker 4: so that would be a book that I would recommend.
• 47:58
  Speaker 2: So final two questions, what sort of advice would you
• 48:01
  Speaker 2: give to a recent college grad interest in the career
• 48:04
  Speaker 2: in investing in finance?
• 48:06
  Speaker 4: Well, I mean, back to my experience, I would say
• 48:08
  Speaker 4: go for it and be persistent. I mean, we have
• 48:11
  Speaker 4: a few job postings now and so we're trying to
• 48:14
  Speaker 4: fill those postings. And it's amazing to me. You know
• 48:17
  Speaker 4: a lot of people will go on LinkedIn and they'll
• 48:19
  Speaker 4: blast out their resume everywhere and that they're putting very
• 48:23
  Speaker 4: little time and little thought into that. And we actually
• 48:25
  Speaker 4: have on our site you have to email it, and
• 48:28
  Speaker 4: we're paying attention to who's actually reading that instruction and
• 48:31
  Speaker 4: emailing it. But very few people follow up. I think
• 48:34
  Speaker 4: we had one candidate who followed up like three times.
• 48:36
  Speaker 4: And it makes a huge difference. You know, it demonstrates interest,
• 48:40
  Speaker 4: it demonstrates you know, you're paying attention to it. So
• 48:43
  Speaker 4: I would say in a tough job environment especially, it's
• 48:48
  Speaker 4: it's easier than you think to distinguish yourself if you're
• 48:51
  Speaker 4: actually interested in something, you know, perseverance, taking the time
• 48:55
  Speaker 4: to learn, really what the firm is, the person you're
• 48:58
  Speaker 4: talking to, who they are are, what they're trying to accomplish.
• 49:01
  Speaker 4: With this, it's amazing to me how little people actually
• 49:06
  Speaker 4: spend doing that.
• 49:07
  Speaker 3: Good good advice.
• 49:08
  Speaker 2: And our final question, what do you know about the
• 49:11
  Speaker 2: world of investing today? Would have been useful twenty five
• 49:15
  Speaker 2: years ago or so when you were first getting started.
• 49:18
  Speaker 4: Yeah, by Nvidia, I know, you told me I couldn't
• 49:20
  Speaker 4: do this, By Amazon, by bitcoin, don't miss you know.
• 49:24
  Speaker 4: But if there's a broader point, I mean, part of
• 49:27
  Speaker 4: it is like you know again, this kind of will
• 49:31
  Speaker 4: go full circle. But the power of patients and compounding. Again,
• 49:34
  Speaker 4: it's like teach what you need to learn. But Bill
• 49:37
  Speaker 4: used to tell me when I was young. I'd be like, Bill,
• 49:39
  Speaker 4: you know, I need to make more money, I need
• 49:40
  Speaker 4: to find more stocks. You need to give me more responsibilities.
• 49:42
  Speaker 4: And you're like, calm down, like be patient. I'm like, no,
• 49:45
  Speaker 4: I can't be patient. My friend who I graduated with
• 49:47
  Speaker 4: he's at Golden Sacks. He's making like ten million dollars
• 49:49
  Speaker 4: a year, and he's like, calm down, And you know,
• 49:53
  Speaker 4: now twenty years twenty five years later, it is amazing,
• 49:57
  Speaker 4: just the power of compounding. If you find a name
• 49:59
  Speaker 4: like Amazon or you know, and you invest and again
• 50:02
  Speaker 4: you're gonna have a couple, you know, number of big
• 50:04
  Speaker 4: draw ownds in those you know, stocks that go up
• 50:06
  Speaker 4: a black go down a lot, and that's just part
• 50:08
  Speaker 4: of the journey. But it's so easy to underestimate, you know,
• 50:12
  Speaker 4: just how powerful that can be.
• 50:15
  Speaker 2: That was my live conversation with Samantha maclamore, formerly of
• 50:21
  Speaker 2: leg Mason and Miller Value now with Patient Capital. I
• 50:26
  Speaker 2: have to thank the Crack team that helps put these
• 50:28
  Speaker 2: conversations together, especially the live event. Alexis Noriega and Elizabeth
• 50:35
  Speaker 2: Sedrin have been instrumental in making these sorts of things happen.
• 50:39
  Speaker 2: Sean Russo is my researcher, Ana Luke is my producer.
• 50:44
  Speaker 2: Sage Bauman is the head of podcasts at Bloomberg. I'm
• 50:48
  Speaker 2: Barry Ritoults. You've been listening to a special live edition
• 50:52
  Speaker 2: of Masters in Business on Bloomberg Radio.