Latest / Masters in Business / Steven Romick on Portfolio Investments (Podcast)

Transcript

Steven Romick on Portfolio Investments (Podcast) · Masters in Business

• 0:00
  Speaker 1: M This is mesters in Business with very renaults on
• 0:06
  Speaker 1: Bluebird Radio this weekend. On the podcast, I have a
• 0:10
  Speaker 1: special and fascinating guest. His name is Steve Romick. He
• 0:14
  Speaker 1: is the managing partner at First Specific Advisors, a shop
• 0:18
  Speaker 1: in l A that runs about twenty six billion dollars
• 0:22
  Speaker 1: in assets. He has also run the Crescent Funds since
• 0:26
  Speaker 1: it's about eleven billion dollars UH, and the numbers on
• 0:29
  Speaker 1: that fund are really quite astonishing. One of the reasons
• 0:34
  Speaker 1: I first wanted to start doing podcasts and interviews of
• 0:39
  Speaker 1: asset managers was because of people like Steve Romick. You know,
• 0:44
  Speaker 1: he's not on the cover of magazines, you don't see
• 0:47
  Speaker 1: him on television all the time. But here's a guy
• 0:49
  Speaker 1: running real money, a substantial amount of assets, with a
• 0:54
  Speaker 1: fantastic long term track record, and he is not a
• 0:58
  Speaker 1: household name. I think the average forget the average investor,
• 1:02
  Speaker 1: the average professional probably doesn't know who Steve Romick is.
• 1:07
  Speaker 1: And that's too bad because folks like this really allow
• 1:11
  Speaker 1: you to learn an important lesson about how to manage risk,
• 1:16
  Speaker 1: how to take advantage of opportunities, what you should be
• 1:19
  Speaker 1: thinking about as a portfolio manager, as an investor. Really
• 1:23
  Speaker 1: just a fascinating guy with a really interesting history. I
• 1:29
  Speaker 1: found our conversation to be really intriguing, and I think
• 1:32
  Speaker 1: you will also so. With no further ado, First Specific
• 1:36
  Speaker 1: Advisors Steve Romick. This is mesters in business with very
• 1:43
  Speaker 1: results on Bloomberg Radio. My special guest this week is
• 1:48
  Speaker 1: Steve Romick. He is the managing partner of First Specific Advisors,
• 1:53
  Speaker 1: a shot that runs over twenty six billion dollars in equity,
• 1:57
  Speaker 1: fixed income, and alternative strategies. He was the Morning Star
• 2:02
  Speaker 1: US Allocation Fund Manager of the Year. He also manages
• 2:06
  Speaker 1: the eleven billion dollar f p A Crescent Fund, which
• 2:09
  Speaker 1: he has been running sinceince inception in Steve Romick, Welcome
• 2:16
  Speaker 1: to Bloomberg. Thank you, Barry. So let's go back to
• 2:20
  Speaker 1: the early days of your career. You began as an
• 2:23
  Speaker 1: analyst in tell us what industry you were covering. I
• 2:30
  Speaker 1: I started out as a generalist. I I actually started
• 2:33
  Speaker 1: as a generalist to who knew nothing about everything. I
• 2:37
  Speaker 1: was on my way to law school and I met
• 2:41
  Speaker 1: a gentleman through my father, who decided that he wanted
• 2:47
  Speaker 1: to bring somebody into his shop who didn't know anything
• 2:52
  Speaker 1: because he's he quoted it at the time. He was
• 2:55
  Speaker 1: tired of unlearning NBAS and he put me up in
• 3:00
  Speaker 1: his office, pushed a desk right up next to his
• 3:03
  Speaker 1: and said, you're going to see what we know, how
• 3:06
  Speaker 1: this works, and what we do. And he did every
• 3:08
  Speaker 1: time we called a company. He had the Manethond with him,
• 3:11
  Speaker 1: and I learned, you know, early on. But the industry
• 3:13
  Speaker 1: that I focused on to the greatest degree in the
• 3:16
  Speaker 1: in my earliest years in the mid eighties, you know,
• 3:19
  Speaker 1: where it was the bank and thrift industry, when there
• 3:23
  Speaker 1: were you know, almost tripled the number of banks and
• 3:26
  Speaker 1: thrifts the United States, and there was a massive assolidation
• 3:29
  Speaker 1: trend that that he identified that was likely to occur,
• 3:32
  Speaker 1: which of course did occur. And he had me spending
• 3:35
  Speaker 1: a lot of time, you know, analyzing these companies and
• 3:38
  Speaker 1: inputting you know, hundreds of banks and thrifts into d base,
• 3:43
  Speaker 1: something we don't really use today anymore. And spent a
• 3:46
  Speaker 1: lot of time analyzing this businesses. And then I just
• 3:48
  Speaker 1: took it from there and and continued you need that breath,
• 3:51
  Speaker 1: and spent a lot of time looking, you know, at
• 3:54
  Speaker 1: different parts of the capital structure as well to stressed
• 3:57
  Speaker 1: that and stressed that. In addition, so you mentioned d base,
• 4:02
  Speaker 1: how different were the tools that you used in the
• 4:05
  Speaker 1: nineteen eighties and the techniques that were mainstays in financial
• 4:11
  Speaker 1: analysis then versus today. How radically has the world of
• 4:18
  Speaker 1: analytical research changed? Well, I think that the the I
• 4:22
  Speaker 1: don't know that the process is any different, but the
• 4:25
  Speaker 1: tools that you can use to to get the information
• 4:28
  Speaker 1: that one needs to make a robust decision, you know,
• 4:32
  Speaker 1: are are better. I mean, it's just it's just easier,
• 4:35
  Speaker 1: you know, to get that information, which makes the world,
• 4:37
  Speaker 1: you know, candidly more competitive today than it was was
• 4:40
  Speaker 1: back then. Not only is there more money slashing around
• 4:43
  Speaker 1: the system system, not only are there more people doing it,
• 4:47
  Speaker 1: you know, but they can get that information a lot
• 4:49
  Speaker 1: more easily. I mean, back then I had to get
• 4:52
  Speaker 1: on the phone and call a company and call them
• 4:56
  Speaker 1: for local information, to get the the the phone number
• 4:59
  Speaker 1: of the headquarters or whatever company's headquarters it was, and
• 5:04
  Speaker 1: try and get in contact with investor relations, if there
• 5:06
  Speaker 1: even was an invest in relations department. More often than not,
• 5:09
  Speaker 1: I was just trying to get in a hold of
• 5:10
  Speaker 1: the somebody in the finance department to get them to
• 5:13
  Speaker 1: send me an andy report and to to seek information
• 5:18
  Speaker 1: on the competition, to seek information as relates to industry data.
• 5:22
  Speaker 1: You know, it was just all much much harder to
• 5:26
  Speaker 1: come by it. It required a lot more grount work
• 5:29
  Speaker 1: just to get information. Now that information is available your
• 5:32
  Speaker 1: fingertip fingertips, you know, on the web. And in addition,
• 5:37
  Speaker 1: you you have so many great resources that exist today
• 5:40
  Speaker 1: for people looking at businesses. The world's become much smaller.
• 5:44
  Speaker 1: You have podcasts like this, You've got Value Investors Club,
• 5:50
  Speaker 1: vic et cetera. Interesting, So you're working as an analyst
• 5:56
  Speaker 1: covering everything generally. How did you decide to become a
• 6:01
  Speaker 1: portfolio manager? And what was that transition? Like? I think
• 6:06
  Speaker 1: that that's a great question because I think that everybody
• 6:10
  Speaker 1: who is reasonably good at this and is confident in
• 6:15
  Speaker 1: their capabilities it, at some point they want to to
• 6:19
  Speaker 1: reach out and and touch the money themselves. List that,
• 6:23
  Speaker 1: I mean, somebody else make that an investment decision. So
• 6:27
  Speaker 1: it started out with my my personal account inside of
• 6:29
  Speaker 1: the firm and investing that and you know, finding some
• 6:33
  Speaker 1: you know failure early to realize you know, my miss
• 6:37
  Speaker 1: you know, what not to do. And then as I
• 6:40
  Speaker 1: got better over time, I thought that that it was
• 6:44
  Speaker 1: might be something that I want to do in terms
• 6:46
  Speaker 1: of manage and entire portfolio. As it began to really
• 6:49
  Speaker 1: develop a philosophy as to how I'd like to to
• 6:53
  Speaker 1: manage money, and I was very fortunate to have a
• 6:57
  Speaker 1: mentor who helped pushed me in that direction and became
• 7:01
  Speaker 1: one of my my early investors. Really intriguing. So you
• 7:06
  Speaker 1: founded Crescent Management. How did you launch this business? How
• 7:11
  Speaker 1: did you get it off the ground, Where did you
• 7:12
  Speaker 1: find clients? And what did the business look like in
• 7:15
  Speaker 1: those early years when we started this, it was I
• 7:20
  Speaker 1: had a partner at the time who both of us
• 7:22
  Speaker 1: had worked for. Our mentor's name was James Nathan was
• 7:25
  Speaker 1: by Jeff Nathan, and he he you know, basically arranged
• 7:31
  Speaker 1: marriage where he decided that we'd be better off building
• 7:36
  Speaker 1: our own business, and it was an opportunity for us.
• 7:38
  Speaker 1: He allowed us to do that while we remained, as
• 7:43
  Speaker 1: you know, consultative analysts for once of a better description
• 7:46
  Speaker 1: with his firm. So he could you know, have his
• 7:48
  Speaker 1: cake and need it too, if you will. So it
• 7:50
  Speaker 1: was it was mutually beneficial and early clients really came
• 7:54
  Speaker 1: from his relationships. He could put us in business and
• 7:57
  Speaker 1: I owed that, you know, all to him. We we
• 8:00
  Speaker 1: didn't really have. We didn't have I mean, at that
• 8:03
  Speaker 1: point in time, we you know, we launched with maybe
• 8:06
  Speaker 1: it was I have to go back and think about
• 8:08
  Speaker 1: many millions it was, but maybe it was ten million
• 8:10
  Speaker 1: dollars in total between the separate accounts and and and
• 8:14
  Speaker 1: the mutual fund. And it gradually grew from there. When
• 8:16
  Speaker 1: you launched, was it all equity, was it equity fist
• 8:19
  Speaker 1: income or was it unconstrained and you know, including alternatives
• 8:24
  Speaker 1: and non publicly traded options, it was it was unconstrained
• 8:29
  Speaker 1: within the public security markets. So they did not include
• 8:31
  Speaker 1: anything that was in the private sector, whether it be
• 8:35
  Speaker 1: private credit or the odd private equity investment that we
• 8:38
  Speaker 1: might make today. Uh, and today we would continue to
• 8:42
  Speaker 1: be largely public security investors. But philosophically, at that point
• 8:46
  Speaker 1: in time, I liked the idea that I was able
• 8:51
  Speaker 1: to invest money in a way that could deliver high
• 8:57
  Speaker 1: risk ADJI becturies. I believe they could deliver high risk
• 9:00
  Speaker 1: just it returns to my client based by investing across
• 9:03
  Speaker 1: the capital structure. We had come out of the you know,
• 9:07
  Speaker 1: the was coming out of the recession at that point,
• 9:10
  Speaker 1: in time and the Drexel Burnham blow up, and there
• 9:13
  Speaker 1: was lots of opportunity in junk bond land, and I
• 9:17
  Speaker 1: learned that I could get a way to return in
• 9:20
  Speaker 1: the debt markets that was as good as the equity
• 9:23
  Speaker 1: markets with with with more downside protection, and I could
• 9:26
  Speaker 1: use that as a tool in my portfolio. And if
• 9:29
  Speaker 1: I could do that, I felt that are my clients
• 9:32
  Speaker 1: would would benefit because the portfolio could deliver higher risk
• 9:39
  Speaker 1: just to returns. And volatility is a is a measure
• 9:42
  Speaker 1: of risk is I think a bit silly, and because
• 9:46
  Speaker 1: it's just things can move around a lot, and the
• 9:48
  Speaker 1: temperature outside today in Los Angeles does nothing, doesn't reflect
• 9:52
  Speaker 1: what the temperature might be tomorrow. It's just gonna it's
• 9:55
  Speaker 1: gonna move around. So when it comes to investing, though,
• 9:58
  Speaker 1: in the average person, this goes for many professional investors,
• 10:01
  Speaker 1: I think of volatility does weigh on on them, and
• 10:05
  Speaker 1: it does precipitate action. Stocks to go up a lot,
• 10:08
  Speaker 1: they need to get in. They stocks to go down
• 10:10
  Speaker 1: a lot, people will panic out. And this is I'm
• 10:12
  Speaker 1: not making a universal statement, but it's it's all too
• 10:15
  Speaker 1: often true. And I found in dealing with individual clients
• 10:19
  Speaker 1: a very It was very much true. And I felt
• 10:24
  Speaker 1: that managing a product that could mute that which which
• 10:29
  Speaker 1: was not the goal, It was just the byproduct of
• 10:31
  Speaker 1: my of my process was was something that that could
• 10:35
  Speaker 1: be a reasonable business. And clearly it became a reasonable business.
• 10:40
  Speaker 1: When did Crescent become part of f p A and
• 10:44
  Speaker 1: what was that transition? Like that was in and the
• 10:50
  Speaker 1: transition was was actually a very difficult transition for for
• 10:57
  Speaker 1: tragic reasons. I um my partner and I split up.
• 11:02
  Speaker 1: He took separate accounts and I took the mut of
• 11:04
  Speaker 1: fun and we brought the assets over two for Specific Advisors.
• 11:08
  Speaker 1: I realized that I didn't want to deal with the
• 11:11
  Speaker 1: back office. I didn't wanted to deal with the marketing.
• 11:13
  Speaker 1: I just wanted to focus on investing and all the
• 11:17
  Speaker 1: nuts and bolts of the business side of things. I
• 11:20
  Speaker 1: wanted to leave to and organization that could have my
• 11:25
  Speaker 1: back if you will, and and and provide that peace
• 11:27
  Speaker 1: of mind that I can just focus. And so I
• 11:32
  Speaker 1: joined for Specific Advisors and I was friends with I
• 11:35
  Speaker 1: had there were these this investment group that I was
• 11:38
  Speaker 1: part of at the time through my again my mentor
• 11:41
  Speaker 1: that were guys who were older guys I mean younger
• 11:44
  Speaker 1: than I am now, who would sit down and and
• 11:47
  Speaker 1: talk about businesses, investments every every couple of months, and
• 11:51
  Speaker 1: they get together for a dinner and you have to
• 11:53
  Speaker 1: bring your best idea and you chat about it, and
• 11:56
  Speaker 1: they let me come and be a fly on the
• 11:57
  Speaker 1: wall because I clearly had nothing to add at that
• 12:00
  Speaker 1: one in time. And one of those gentlemen was Bob Rodriguez,
• 12:04
  Speaker 1: who was portfolio manager at First Specific Advisors at the time,
• 12:07
  Speaker 1: and we became friendly and I sought out, sought him
• 12:11
  Speaker 1: out and others regularly to to bounce ideas off of
• 12:15
  Speaker 1: and compare notes and different businesses, and and Bob knew
• 12:20
  Speaker 1: I was looking to find a home and he was
• 12:23
  Speaker 1: kind enough to to allow me in her discussions the
• 12:26
  Speaker 1: First Specific Advisors, which was run by George Michlus at
• 12:29
  Speaker 1: the time, who was a well known investor and featured
• 12:32
  Speaker 1: in John Train's book The Money Masters that volume one.
• 12:36
  Speaker 1: And I spent a lot of time with George, who
• 12:39
  Speaker 1: I knew perfectly through mutual friends, and it just seemed
• 12:42
  Speaker 1: like a very very good fit. And I came into
• 12:48
  Speaker 1: ft A and ninety six midn and and the early
• 12:53
  Speaker 1: ninety six and ten days after I joined George Michlus
• 12:55
  Speaker 1: was scheduled at dinner at my home that night and
• 12:58
  Speaker 1: went cycling first and and uh had a bike accident
• 13:02
  Speaker 1: and died. That is tragic and really just robbed you
• 13:06
  Speaker 1: of the ability to work with him for all those
• 13:09
  Speaker 1: future years. So so it really kind of shows you
• 13:13
  Speaker 1: just how random life can be. And and it ties
• 13:17
  Speaker 1: into the question I was about to ask you, which
• 13:20
  Speaker 1: is you've had one of the longest tenures in the
• 13:25
  Speaker 1: mutual fund business. You've been running the FPA Cresting Funds
• 13:29
  Speaker 1: since its inception. What is the secret to this longevity? Oh,
• 13:36
  Speaker 1: I thank you. You have to enjoy what you do
• 13:40
  Speaker 1: first and foremost, and and I do. I mean if
• 13:43
  Speaker 1: I people ask me when I'm going to retire, and
• 13:47
  Speaker 1: I have no plans to do that because I enjoy
• 13:49
  Speaker 1: coming to the office every day. I enjoy reading about businesses.
• 13:53
  Speaker 1: I enjoy learning. I mean, this is a You're in
• 13:55
  Speaker 1: a constant state of learning. The world is so different
• 13:58
  Speaker 1: today than it was in the company and industries you
• 14:01
  Speaker 1: know have have have evolved, and it forces you to
• 14:05
  Speaker 1: to continue to to study and you you never perfect this.
• 14:11
  Speaker 1: It's it's a it's a constant process of self improvement.
• 14:15
  Speaker 1: And I've as I look around me, and I think
• 14:18
  Speaker 1: that's what keeps me young. And so I've really have
• 14:21
  Speaker 1: no intention of stopping this in anytime since. So that's
• 14:24
  Speaker 1: I think the first, you know, key to that longevity.
• 14:26
  Speaker 1: And I think second is just that we happen to
• 14:29
  Speaker 1: create a product that that, for better or worse, is
• 14:32
  Speaker 1: different than the typical product. I mean, sometimes we will
• 14:34
  Speaker 1: look like the typical mutual fund. We will we will
• 14:36
  Speaker 1: look very ordinary, you know, for sometimes longer periods of time,
• 14:39
  Speaker 1: because there isn't a lot of opportunity and and say
• 14:42
  Speaker 1: that in the debt market says there hasn't been over
• 14:44
  Speaker 1: the last number of years because we've not been interested
• 14:46
  Speaker 1: in and buying high old bond without the without the
• 14:51
  Speaker 1: high part of the yield, because there hasn't been much yield.
• 14:53
  Speaker 1: So we end up with just more inequities than we
• 14:56
  Speaker 1: have have historically. And so but we do have that opportunity,
• 15:01
  Speaker 1: that flexibility to to operate with great breath, whether or
• 15:04
  Speaker 1: not we we take advantage of it at all points
• 15:08
  Speaker 1: in time or not, it's that opportunity does exist. I
• 15:11
  Speaker 1: think that makes us a little bit different than than
• 15:13
  Speaker 1: the typical one. And it doesn't make us the right
• 15:16
  Speaker 1: investment for for everyone, but we we've kind of come
• 15:20
  Speaker 1: in each day, myself and my my partners in the
• 15:23
  Speaker 1: fund now because one of the things that's also allowed
• 15:25
  Speaker 1: me this longevity is to to have terrific partners in
• 15:27
  Speaker 1: Brian Selmo and Mark Landecker, who are wonderful partners, and
• 15:33
  Speaker 1: wonderful analysts and wonderful portfolio managers and and thoughtful and
• 15:37
  Speaker 1: kind people with lots of integrity who make it fun
• 15:40
  Speaker 1: to to come in each day. And so having that
• 15:43
  Speaker 1: kind of support around you, along with our analyst team
• 15:46
  Speaker 1: and support of of of the organization for specific advisors,
• 15:51
  Speaker 1: makes it, you know, makes it makes it enjoyable. Let's
• 15:55
  Speaker 1: talk a little bit about what it was like managing
• 15:58
  Speaker 1: all those assets in the midst of the worst pandemic
• 16:02
  Speaker 1: in a century. UM heading into the end of you
• 16:06
  Speaker 1: were running more than a third cash in the funds.
• 16:11
  Speaker 1: What was the thinking then, Well, we've always managed a
• 16:16
  Speaker 1: fair amount of cash in the in the in the portfolio,
• 16:19
  Speaker 1: and that takes pretty high it is. It was certainly
• 16:24
  Speaker 1: above average, and it wasn't that we we identified the
• 16:28
  Speaker 1: a recession is about to come as a result of
• 16:31
  Speaker 1: a of a pandemic in the world would would literally
• 16:34
  Speaker 1: stop in many in many industries. But it was really
• 16:39
  Speaker 1: more a function of you know, cash being a byproduct
• 16:43
  Speaker 1: of our investment products process. If we find an investment
• 16:46
  Speaker 1: we like, we buy it. If not, cash ens up
• 16:49
  Speaker 1: as a residual. And we were more comfortable only more
• 16:52
  Speaker 1: cash in the past than we are today because at
• 16:55
  Speaker 1: a point in time cash yielded five percent back into
• 16:57
  Speaker 1: the early two thousands and mid doos, and we have
• 17:01
  Speaker 1: more concerned today being that that inflation might be perspectively
• 17:05
  Speaker 1: higher given the amount of depth that's pennisuing, the amount
• 17:08
  Speaker 1: of paper money that's been printed and cast would be
• 17:11
  Speaker 1: worth a lot less in an inflation or environment. So
• 17:13
  Speaker 1: when we came into this recession and in in into
• 17:16
  Speaker 1: the pandemic in early two thousand, we had that cash
• 17:21
  Speaker 1: game just as a by product of that, and we
• 17:23
  Speaker 1: thought we were actually more protected with the cash we were,
• 17:26
  Speaker 1: But the investment part of the portfolio, you know, was
• 17:30
  Speaker 1: you know, it was kind of lye hit pretty hard
• 17:32
  Speaker 1: by the by the pandemic, that right, yeah, the but
• 17:38
  Speaker 1: it was it was it was some of the businesses
• 17:40
  Speaker 1: that we owned were people you know throughout you know,
• 17:43
  Speaker 1: for dead for for a period of time. We owned
• 17:46
  Speaker 1: companies like like A I G. That started the year
• 17:49
  Speaker 1: at around fifty and at the end of two going
• 17:53
  Speaker 1: into twenty, it peaked mid fifties and an intra day
• 17:57
  Speaker 1: in the in the third fourth week of March when
• 18:00
  Speaker 1: it's twenty, it was trading down at you know, under
• 18:02
  Speaker 1: seventeen dollars a share with book value, you know, being up,
• 18:06
  Speaker 1: you know, closer to where the price was at the
• 18:09
  Speaker 1: beginning of the year, So huge, huge discount, and people
• 18:12
  Speaker 1: believed that, you know, the the company was clearly on
• 18:15
  Speaker 1: its way out, you know of existence, and you know,
• 18:19
  Speaker 1: we didn't believe that, and you know, we had took
• 18:22
  Speaker 1: the opportunity to to increase our position. But it was
• 18:25
  Speaker 1: still I mean it admittedly discomfiting at that point in time,
• 18:29
  Speaker 1: not only for us because who likes to see their
• 18:31
  Speaker 1: their stocks dropped up and dropped that much, but um
• 18:34
  Speaker 1: it certainly for our for our investor base. But the
• 18:37
  Speaker 1: end of the day, we we understood that that many
• 18:41
  Speaker 1: of these business we all it was just it was
• 18:42
  Speaker 1: just a blip. It was the price at a point
• 18:44
  Speaker 1: in time with fear you know hitting you know, hitting
• 18:47
  Speaker 1: the market, and it wasn't the that these businesses weren't
• 18:50
  Speaker 1: going to do well once we got through to the
• 18:52
  Speaker 1: other side, and business is like a I G. You know,
• 18:55
  Speaker 1: we're going to be fine, and it's it's it's businesses
• 18:58
  Speaker 1: like like Mary I. Businesses truly stopped. And we were
• 19:01
  Speaker 1: buying you know, Marriott as as the stock was coming down,
• 19:06
  Speaker 1: and you know, you buy a stock at eighty and
• 19:08
  Speaker 1: then it goes you know, it goes into the sixties.
• 19:11
  Speaker 1: You know, it's not the again, the most comfortable thing
• 19:14
  Speaker 1: to watch happen. But we're very confident that as we
• 19:17
  Speaker 1: got through the pandemic, people once again would would travel,
• 19:21
  Speaker 1: they would get on airplanes, they would go to hotels
• 19:23
  Speaker 1: and and a company like Marriott, you know that is
• 19:27
  Speaker 1: you know, more asset light than you know, some other
• 19:29
  Speaker 1: hotel businesses would would perform, you know, quite well. So,
• 19:33
  Speaker 1: you know, buying something at at sixty I'm sorry, at eighty,
• 19:37
  Speaker 1: you know, as it as it dropped down, as it
• 19:39
  Speaker 1: dropped down, um in another from there. You know, again,
• 19:45
  Speaker 1: as I said, it was discomforting. But at the same time,
• 19:47
  Speaker 1: you look where it is today, where it's a hundred
• 19:49
  Speaker 1: and forty plus. We clearly weren't wrong, but it took
• 19:53
  Speaker 1: a market at that point in time, as it took
• 19:55
  Speaker 1: a lot of those businesses down down with it. So
• 19:58
  Speaker 1: we took advantage of the opportunity it is at that
• 20:00
  Speaker 1: point in time and increased our invested exposure by about
• 20:04
  Speaker 1: ten percentage points and pulled down some of that cash
• 20:07
  Speaker 1: you were referencing. So I don't want listeners to think
• 20:10
  Speaker 1: this is hindsight bias or you know, after the fact,
• 20:15
  Speaker 1: re reinventing history. March there was an article in the
• 20:20
  Speaker 1: New York Times by Jeff Sohmer Uh and remember this
• 20:23
  Speaker 1: is deep into the collapse, about a week before the
• 20:27
  Speaker 1: market bottomed, and he described getting a note from you
• 20:34
  Speaker 1: saying you had begun to start buying stocks and felt
• 20:38
  Speaker 1: that if even if markets fell further, you were going
• 20:41
  Speaker 1: to continue to buy because you thought things had suddenly
• 20:44
  Speaker 1: become very attractive price wise, and that you said you
• 20:48
  Speaker 1: were acting rationally and not bravely. Um, and you're looking
• 20:52
  Speaker 1: at five to seven years. Tell us a little bit
• 20:54
  Speaker 1: about the reaction to that Times column about you buying
• 20:59
  Speaker 1: right into the teeth of the collapse. Reaction from whom, Barry,
• 21:03
  Speaker 1: from whoever, from investors, from you know, any I found
• 21:07
  Speaker 1: any time I see someone go against the dominant trends
• 21:13
  Speaker 1: stake out a contrarian point. The general pushback is ranges
• 21:17
  Speaker 1: from this guy is an idiot to this guy's crazy.
• 21:20
  Speaker 1: Were you getting sort of hey, what are you doing?
• 21:23
  Speaker 1: From clients? We got, we got the spectrum, We got
• 21:26
  Speaker 1: both right. I mean, but you've been doing this long
• 21:29
  Speaker 1: enough and your track record is good enough that one
• 21:32
  Speaker 1: would hope longstanding clients would say, I don't know, but
• 21:36
  Speaker 1: I'm going to give you the benefit of the doubt
• 21:37
  Speaker 1: because you've been right before. What what was the what
• 21:40
  Speaker 1: was the pushback? Like the the pushback from some people
• 21:44
  Speaker 1: was your your portfolio took a mark We didn't expect
• 21:47
  Speaker 1: it to take a mark um like it has, and
• 21:50
  Speaker 1: so we're gonna go and, uh, give our money to
• 21:53
  Speaker 1: somebody else. That was respect from some On the other hand,
• 21:57
  Speaker 1: we had those investors who increase their their capital commitment,
• 22:01
  Speaker 1: you know, to us and and decided that what we
• 22:05
  Speaker 1: were doing was the right thing because they did by
• 22:07
  Speaker 1: into the argument you just made that, Hey, with these
• 22:10
  Speaker 1: guys have been doing this a long time. They've lived
• 22:12
  Speaker 1: through various cycles. They lived through the Internet bubble, they
• 22:15
  Speaker 1: lived through the the you know, junk bond, you know,
• 22:18
  Speaker 1: blow ups in in in in the early two thousand's
• 22:20
  Speaker 1: when when the world comes were there and we're able
• 22:22
  Speaker 1: to take advantage. They lived through the Great Financial Crisis
• 22:25
  Speaker 1: and and they these guys know what they're doing. I'd
• 22:28
  Speaker 1: rather them do it then then you know, somebody else.
• 22:31
  Speaker 1: And so we did have you know, fortunately those people
• 22:34
  Speaker 1: as well. On the other hand, there was more of
• 22:36
  Speaker 1: the former admitted lay than a lotter. You know, people
• 22:39
  Speaker 1: send to vote with their feet. And this goes back
• 22:41
  Speaker 1: to that volatility argument that people get, you know, get
• 22:44
  Speaker 1: a little panicked at these points in times, and we
• 22:47
  Speaker 1: just tried to be thoughtful and act rationally. And the
• 22:51
  Speaker 1: end of the day, if we do the right thing,
• 22:53
  Speaker 1: the business will take care of itself. Whether it will
• 22:55
  Speaker 1: be you know, whether we're smaller or were larger, it's
• 22:59
  Speaker 1: not going to change what we do every day when
• 23:01
  Speaker 1: we come in here. It's not gonna do and it's
• 23:02
  Speaker 1: not going to change our lives. So it's very important
• 23:05
  Speaker 1: for us to always be mindful of what the world
• 23:07
  Speaker 1: will look like five to seven years, you know, down
• 23:10
  Speaker 1: the road, and make sure that we we have analyzed
• 23:15
  Speaker 1: the businesses that we own or the assets were buying
• 23:17
  Speaker 1: the bonds that were buying you know, well, such that
• 23:20
  Speaker 1: we have invested with some kind of margin of safety,
• 23:23
  Speaker 1: and we've tried to anticipate you know, downside. I mean downside,
• 23:27
  Speaker 1: not just mark to market some might occur, wage are
• 23:29
  Speaker 1: far less important. But but really considering what the absolute
• 23:32
  Speaker 1: downside is, what is that you know, what could really
• 23:34
  Speaker 1: happen that could create a permanent impairment of capital. So
• 23:37
  Speaker 1: before we get granular and really dive into what you
• 23:41
  Speaker 1: were buying, I want to ask you what made you
• 23:44
  Speaker 1: realize that the sell off in was a short term
• 23:48
  Speaker 1: sell off and not the start of a more serious,
• 23:51
  Speaker 1: longer term bear market. Was it valuation? Was it a
• 23:55
  Speaker 1: variety of factors? You obviously had the right answer. What
• 23:58
  Speaker 1: was the thinking behind it? Oh? I didn't know. I mean,
• 24:01
  Speaker 1: I mean, you know, just full disclosure. We had no
• 24:03
  Speaker 1: idea it's gonna be shorter long. I mean, we I
• 24:08
  Speaker 1: came to that article you're referencing in the New York Times.
• 24:10
  Speaker 1: Was was you know, as you stated, you know, like
• 24:13
  Speaker 1: we're thinking about where the world's gonna be down the
• 24:14
  Speaker 1: road five to seven years. I didn't know how long
• 24:16
  Speaker 1: is it was gonna last? But if I invest trying
• 24:19
  Speaker 1: to anticipate what's going to happen in the next you know,
• 24:21
  Speaker 1: a few months, six months, year, or whatever the case
• 24:24
  Speaker 1: may be. It's just it's gonna take my eye arm,
• 24:27
  Speaker 1: you know, my off the ball, our team's eye off
• 24:29
  Speaker 1: the ball, and not allow us to to to buy
• 24:33
  Speaker 1: things that otherwise might buy we'd always find some reason
• 24:36
  Speaker 1: that that it might be a little bit cheaper. So
• 24:39
  Speaker 1: so let me get specific, then, Um, since you were
• 24:43
  Speaker 1: thinking five to seven years, what did you accumulate at
• 24:47
  Speaker 1: the end of that first quarter in the beginning of
• 24:48
  Speaker 1: the second quarter, what what specific sectors or stops. You know,
• 24:53
  Speaker 1: we bought a number of businesses in the in the
• 24:55
  Speaker 1: travel industry and including you know, Bookings, dot Com and Marriott.
• 25:00
  Speaker 1: We bought businesses that were impacted you know by you know,
• 25:03
  Speaker 1: you know directly, you know, by COVID. We added to
• 25:07
  Speaker 1: some of our financial services businesses you know, you know,
• 25:10
  Speaker 1: a I G give us an example that we felt
• 25:13
  Speaker 1: that would certainly get through you to the other side.
• 25:16
  Speaker 1: And we added you know, businesses that that uh, you
• 25:20
  Speaker 1: know last year that where where people were capitulating because
• 25:23
  Speaker 1: the consumer is gonna be weak. Businesses like like richemonts
• 25:26
  Speaker 1: Um you know, for example. And then we we also
• 25:30
  Speaker 1: took advantage of other businesses that were less cyclical, uh,
• 25:35
  Speaker 1: that that had the the opportunity to to perform well
• 25:40
  Speaker 1: regardless of what, you know, what the economy you know,
• 25:43
  Speaker 1: was doing. But but we're just we're being negatively impacted,
• 25:49
  Speaker 1: you know, by the market when they were throwing the
• 25:52
  Speaker 1: baby out with the bathwater as well. So we own
• 25:54
  Speaker 1: in the portfolio and their positions is that that you know,
• 25:59
  Speaker 1: grew within the portfolio while we were when the market
• 26:02
  Speaker 1: was going down, companies like Facebook and Alphabet etcetera. And
• 26:06
  Speaker 1: I know you like to run with a little bit
• 26:08
  Speaker 1: of cash in the portfolio. Did you ever fully deploy
• 26:13
  Speaker 1: that capital? Did you become fully invested? No? We we
• 26:16
  Speaker 1: we didn't. We put the cap We we took ten
• 26:18
  Speaker 1: points that you know, the capitol and put that to
• 26:20
  Speaker 1: work and and the market rallied you know from there,
• 26:23
  Speaker 1: and uh, we didn't you know, put it all to work.
• 26:27
  Speaker 1: You know, in hindsight, obviously you know you were one
• 26:29
  Speaker 1: wishes they had, but you know, we didn't know how
• 26:31
  Speaker 1: long that opportunities and exists. We wanted to make sure
• 26:34
  Speaker 1: we continue the ability to buy down, no doubt about it.
• 26:36
  Speaker 1: What else were you doing to manage the portfolio through
• 26:39
  Speaker 1: the course of the pandemic, meaning how are you approaching
• 26:44
  Speaker 1: dealing with clients, dealing with buying opportunities, considering risk? How
• 26:51
  Speaker 1: did the pandemic affect the way you thought about running
• 26:55
  Speaker 1: the funds. We had lots of conversations, you know about
• 26:58
  Speaker 1: this and and internally amongst my partners and probably the
• 27:02
  Speaker 1: most grounded of the three of us. I would give
• 27:05
  Speaker 1: a hat tip to my partner Mark Landecker, who really
• 27:09
  Speaker 1: was the most centered of us, because I'm not gonna
• 27:13
  Speaker 1: tell you that it wasn't disconcerting watching you know, these
• 27:16
  Speaker 1: the stock prices dropped, you know, as I did, even
• 27:19
  Speaker 1: after having lived through you know, multiple multiple downturns, and
• 27:25
  Speaker 1: we they left, you know, more of the speaking of
• 27:29
  Speaker 1: clients to me, which you know I had the history
• 27:35
  Speaker 1: with them and allowed them to to do a greater
• 27:38
  Speaker 1: degree focus more on on on the portfolio and not
• 27:42
  Speaker 1: have the static from from having clients whisper in your ear.
• 27:49
  Speaker 1: You know, you're the portfolio is going down. I'm scared.
• 27:52
  Speaker 1: You know, what are we going to do? What are
• 27:54
  Speaker 1: you going to do? What am I going to do?
• 27:56
  Speaker 1: It it insulates them from hearing the this reactions of
• 28:00
  Speaker 1: the investors, and so I took more of that on
• 28:03
  Speaker 1: on the front line. And because you have to to
• 28:07
  Speaker 1: be a good investor, you really do have to have,
• 28:09
  Speaker 1: as we discussed, that longer term focus and and find
• 28:13
  Speaker 1: ways to to minimize the static in your life. And
• 28:16
  Speaker 1: so that's that's how we operated together. You know, the
• 28:19
  Speaker 1: three of us really intriguing. So given the big run
• 28:23
  Speaker 1: up from from before the drop from February, we're up
• 28:27
  Speaker 1: about from the Nader, We're up about se Are you
• 28:33
  Speaker 1: still as fully invested as you were last year? How
• 28:37
  Speaker 1: are you looking at the markets today after after this recovery. Well,
• 28:42
  Speaker 1: there's no question that things have gotten price here. But
• 28:46
  Speaker 1: every time you put coupital to work, kept to ask
• 28:47
  Speaker 1: yourself or even maintain your exposure. You know, what's like
• 28:50
  Speaker 1: could have happen over the next five to seven years
• 28:52
  Speaker 1: of these businesses, of these assets that we own and
• 28:55
  Speaker 1: are thought process is continues to always be focused on
• 29:01
  Speaker 1: on looking out down the road. And if one starts
• 29:05
  Speaker 1: with that, yeah we have we we then have to
• 29:08
  Speaker 1: end with what is the alternative Today's where are we
• 29:10
  Speaker 1: end up? Including what if you bonds don't offer much
• 29:13
  Speaker 1: of an alternative, and you're not getting any kind of
• 29:17
  Speaker 1: you know, yield there we kind of think about as
• 29:19
  Speaker 1: more as return free risk. Uh, the high yield part
• 29:23
  Speaker 1: of the market, or the investment grade part of the
• 29:25
  Speaker 1: corporate debt market just isn't isn't attractive, and you know,
• 29:29
  Speaker 1: we wish it was. We took between a little bit
• 29:31
  Speaker 1: of capital work, you know, in the space last year,
• 29:34
  Speaker 1: but the opportunity to exists you know, for very long
• 29:36
  Speaker 1: and and so much of that corporate debt is not
• 29:38
  Speaker 1: only lower yielding, but it's also also um relatively. We
• 29:44
  Speaker 1: covenant to to a lot of that debt of debt,
• 29:47
  Speaker 1: so more of the leverage tilts towards the to the
• 29:52
  Speaker 1: borrower and away from the lender. And so we don't
• 29:56
  Speaker 1: we look today in that same situation because yields are
• 29:58
  Speaker 1: lower still, and it begs the question, and I think
• 30:02
  Speaker 1: that's a fair question, why we would you be as invested,
• 30:04
  Speaker 1: were slightly less invested, in fairness, But that's more noise
• 30:07
  Speaker 1: in the portfolio, you know, than we were you know,
• 30:09
  Speaker 1: last year this time. But why do we stay invested?
• 30:14
  Speaker 1: Because again, the alternative isn't great and we think that
• 30:17
  Speaker 1: we're going to get good rates of return over the
• 30:20
  Speaker 1: next number of years. You know, from this portfolio of
• 30:23
  Speaker 1: assets that we own. That doesn't mean that they're not
• 30:26
  Speaker 1: going to stocks aren't going to trade down in the interim.
• 30:29
  Speaker 1: They very well might. But when we look at the
• 30:31
  Speaker 1: way the government has has has printed you know, money,
• 30:35
  Speaker 1: governments or sovereigns have printed money, and you know, and
• 30:38
  Speaker 1: and as I pointed out earlier, just the amount of
• 30:40
  Speaker 1: depth that's been created, we just think that you know,
• 30:43
  Speaker 1: you could be you could talk towards an environment where
• 30:47
  Speaker 1: it's more inflationary and rates can remain lower for longer
• 30:50
  Speaker 1: because the government imperative is to keep them as low
• 30:53
  Speaker 1: as as that interest expense as low as it can be,
• 30:56
  Speaker 1: which means keeping rates as low as possible. At any
• 30:59
  Speaker 1: point in time. You know, the system can you know,
• 31:02
  Speaker 1: governments can lose control of it. But we consider what
• 31:06
  Speaker 1: the alternatives are. Stocks still make more sense. Now we
• 31:10
  Speaker 1: are finding more opportunities outside the United States, and we
• 31:14
  Speaker 1: think that there's better opportunity and businesses that are domiciled,
• 31:19
  Speaker 1: you know, on for foreign surres. And so our portfolio
• 31:23
  Speaker 1: of equities has tilted in the last couple of years
• 31:26
  Speaker 1: more overseas than it has been or has ever been
• 31:30
  Speaker 1: historically in the position size of about doubled for a
• 31:33
  Speaker 1: few years back for for that which we've on outside
• 31:36
  Speaker 1: of the US, and and now percent of our portfolio
• 31:39
  Speaker 1: is domiciled elsewhere. Let's talk a little bit about that
• 31:43
  Speaker 1: Crescent Funds. It has been ranked as the best risk
• 31:48
  Speaker 1: adjusted returns of all allocation mutual funds with at least
• 31:52
  Speaker 1: a billion dollars in assets under management among those managed
• 31:57
  Speaker 1: by the same manager since inception, which I would imagine
• 32:02
  Speaker 1: is a fairly exclusive club. Are you familiar all with
• 32:06
  Speaker 1: who else is similarly situated to you in terms of
• 32:11
  Speaker 1: running a fund since inception and actually running a billion
• 32:15
  Speaker 1: or more dollars? I'm not. Actually, I don't really pay
• 32:19
  Speaker 1: a lot of attention to to that. So so I
• 32:23
  Speaker 1: want to go over the funds objectives, which is to quote,
• 32:28
  Speaker 1: generate equity like returns over the long term while taking
• 32:32
  Speaker 1: less risk than the market and avoiding permanent impairment of capital. Hey,
• 32:38
  Speaker 1: everybody wants to do this. You're one of the few
• 32:41
  Speaker 1: who actually have. Tell us how you manage to accomplish that. Well,
• 32:47
  Speaker 1: we invest across the capital structure with this goal of
• 32:50
  Speaker 1: delivering attractive risk of just returns on stock stress and distress,
• 32:54
  Speaker 1: corporate bonds and private credit, occasional preferred stock, etcetera. When
• 32:59
  Speaker 1: it comes to stock, X will own both the more
• 33:01
  Speaker 1: commercial and the evergreens. That is, they you know, a commercial,
• 33:04
  Speaker 1: call them the dollar bills trig into discounts. And those
• 33:07
  Speaker 1: companies whose businesses should you know, on the other hand,
• 33:10
  Speaker 1: that are more evergreen, that businesses should be solidly better
• 33:13
  Speaker 1: at decade from now. It's really a function of price
• 33:16
  Speaker 1: and risk reward that will dictate which direction we go
• 33:20
  Speaker 1: uh for these evergreens versus these more commercial opportunities. But
• 33:24
  Speaker 1: we try every day to try to know the better
• 33:25
  Speaker 1: businesses in the world and own them. Should the average
• 33:28
  Speaker 1: trade down for one reason or another, we'll be there
• 33:30
  Speaker 1: too to pick them up. And what we also own
• 33:32
  Speaker 1: these lesser quality but still growing businesses if their stock
• 33:35
  Speaker 1: prices offer attractive upside relative to the downside. And then
• 33:40
  Speaker 1: you know, we have our dead investments where we all
• 33:43
  Speaker 1: we care about is getting our principle backing maturity, but
• 33:47
  Speaker 1: you know, also generated in equity return along the way
• 33:50
  Speaker 1: that really speaks, you know, to more to our philosophy.
• 33:54
  Speaker 1: And then and then our our process is guided by
• 33:56
  Speaker 1: by thoughtful research of the underlying opportunity as we as
• 34:00
  Speaker 1: we really try to ascertain the value of the business
• 34:04
  Speaker 1: or the asset. And that's kind of by a lot
• 34:06
  Speaker 1: of reading, many conversations with the management competitors, industry experts
• 34:10
  Speaker 1: and so forth. And then you know, we'll go about
• 34:13
  Speaker 1: and build our our financial models. And our models don't
• 34:16
  Speaker 1: you know, suggest what you know, what might happen in
• 34:19
  Speaker 1: the coming quarter or even in two thousand two, but
• 34:23
  Speaker 1: over the next few years. We want to have a
• 34:25
  Speaker 1: view as to what the business might look like in
• 34:28
  Speaker 1: a low base and high case, and we want the
• 34:31
  Speaker 1: investment in that business, that equity to to that we're
• 34:35
  Speaker 1: gonna be buying in that business to be attractive in
• 34:38
  Speaker 1: the base case and have that upside optionality on the
• 34:41
  Speaker 1: in the high case and and not you know, get
• 34:43
  Speaker 1: too badly in the low case. So we really try
• 34:45
  Speaker 1: and create these these these boundaries, these governors as we
• 34:48
  Speaker 1: look at each of the individual investments in the portfolio.
• 34:51
  Speaker 1: So I'm trying to figure out how to describe your
• 34:55
  Speaker 1: style of investing, and it's it's pretty challenging. I'm looking
• 35:00
  Speaker 1: and some of the holdings in in your top ten.
• 35:02
  Speaker 1: So you have Alphabet and Facebook on the one hand,
• 35:06
  Speaker 1: but on the other hand you mentioned a I G
• 35:08
  Speaker 1: and City Group. Is this value as this growth. It's
• 35:11
  Speaker 1: it's pretty hard to put you into a style box. Yeah,
• 35:15
  Speaker 1: I think that there's a problem with style boxes because
• 35:19
  Speaker 1: the we don't make a great distinction between growth and value.
• 35:23
  Speaker 1: Show me the growth investor that argues what they bought
• 35:25
  Speaker 1: is in a value. But but then also you can
• 35:28
  Speaker 1: just stick a company that trades it forty times earnings,
• 35:31
  Speaker 1: but if it's growing thirty percent a year for the
• 35:32
  Speaker 1: next five years and into that five year period, it's
• 35:35
  Speaker 1: with trading ten eleven times earnings and there about. So
• 35:38
  Speaker 1: to us, value investing is just to invest with an
• 35:41
  Speaker 1: appropriate margin of safety, buying a business or an asset
• 35:44
  Speaker 1: at a discount. In the past that that margin of
• 35:46
  Speaker 1: safety might have meant protection you came from the balance
• 35:49
  Speaker 1: sheet and the more in the most traditional Graham and
• 35:52
  Speaker 1: Dotty and you know kind of definition you know, buying
• 35:54
  Speaker 1: blow book value, blow net networking capital. You know, the
• 35:57
  Speaker 1: business might have not earning assets, it could be monetized,
• 36:00
  Speaker 1: et cetera. Today it you know, for us more luckly
• 36:03
  Speaker 1: means the protection you know that that has to come
• 36:06
  Speaker 1: from the quality of the business. You can get sucked
• 36:09
  Speaker 1: into what you think is a margin of safety because
• 36:13
  Speaker 1: the you've got these you know, what appears to be
• 36:15
  Speaker 1: a strong wood bay, You've got you know, hidden assets,
• 36:17
  Speaker 1: but the business isn't good at the end of the day,
• 36:20
  Speaker 1: the you're you're you're probably gonna have a challenge, I
• 36:22
  Speaker 1: mean takes here as an example, there are a lot
• 36:24
  Speaker 1: of value investors who owned it believing that management could
• 36:27
  Speaker 1: turn the business around, but if not, they were protected
• 36:30
  Speaker 1: by lots of great real estate as well some powerful
• 36:32
  Speaker 1: brands like ken More Incraftment. However, as we now know,
• 36:35
  Speaker 1: management wasn't successful and much of their great asset base
• 36:39
  Speaker 1: was mortgage or sold off. With that count what was
• 36:42
  Speaker 1: then reinvested back in the business. And then you know
• 36:45
  Speaker 1: when it's the time that it came to a point
• 36:47
  Speaker 1: in time where people realized ex posts that that they
• 36:51
  Speaker 1: were they were burning the timber from the house. So
• 36:55
  Speaker 1: to us in a traditional value investments, you know are
• 36:58
  Speaker 1: are you know, often mediocostolical businesses that were temporary out
• 37:02
  Speaker 1: of favor and offered to message the opportunity to return
• 37:05
  Speaker 1: to more normal own earnings. But many of those businesses
• 37:09
  Speaker 1: have been disrupted by new technologies and and didn't offer
• 37:13
  Speaker 1: the margin of safety they once did. So we're very
• 37:16
  Speaker 1: mindful of whatever we own, it really does have to
• 37:19
  Speaker 1: be growing, doesn't have to have have go go growth.
• 37:21
  Speaker 1: We own a couple of cement companies that are global
• 37:25
  Speaker 1: franchises that that we think cements are going to be
• 37:27
  Speaker 1: here for a long long time. Now. They're not you know,
• 37:30
  Speaker 1: go go growth businesses, certainly, but you know, those are
• 37:34
  Speaker 1: businesses that we think that that offered attractive risk of
• 37:37
  Speaker 1: just returns over the over the next number of years.
• 37:39
  Speaker 1: And you mentioned you know, Google and Facebook, but even
• 37:42
  Speaker 1: those investments were initiated at points in time when there
• 37:45
  Speaker 1: was bad news surrounding them. Google back in two thousand
• 37:48
  Speaker 1: and eleven, when there was feared that they're advertising you know,
• 37:51
  Speaker 1: business was going to be impaired, which is bulk of
• 37:54
  Speaker 1: the revenues, because we impaired because of a recession as
• 37:57
  Speaker 1: the world was beginning to unwine, as as as what
• 38:00
  Speaker 1: was happening in Cyprus was infecting you know, Europe, in Greece,
• 38:03
  Speaker 1: you know the rest of Europe. Uh and UM the
• 38:06
  Speaker 1: stock traded and the stock traded down. Facebook traded down
• 38:09
  Speaker 1: a few years back because of the Cambridge analytical scandal
• 38:12
  Speaker 1: and people were worried about about it. It's business prospects
• 38:17
  Speaker 1: and it's not about it, you know, entry into into
• 38:20
  Speaker 1: two very good you know, businesses that we've owned ever since.
• 38:25
  Speaker 1: So you mentioned you buy some non public distress debt.
• 38:29
  Speaker 1: Are you purchasing anything on the non public side of equities?
• 38:35
  Speaker 1: So yes, we do. We do own um some privates
• 38:38
  Speaker 1: in the portfolio, but they're very small because we're public
• 38:42
  Speaker 1: fund and we're responsible for returning capital to our investors
• 38:46
  Speaker 1: when they when they wanted back. But on occasion, we
• 38:48
  Speaker 1: make investments in certain private investments opportunities, um you know,
• 38:54
  Speaker 1: Epic Games is an example. We also have various private
• 38:58
  Speaker 1: credit UH in the positions in the portfolio that we've
• 39:02
  Speaker 1: made over the years. In the last decade, we've put
• 39:04
  Speaker 1: you know, eight hundred million or so out you know
• 39:07
  Speaker 1: in UH in private credit that have delivered returns of
• 39:10
  Speaker 1: you know, give or take to the fund. And these
• 39:13
  Speaker 1: are secured first lean asset based loans that you know,
• 39:19
  Speaker 1: are something different than not a lot of mutual funds.
• 39:21
  Speaker 1: Do Again, I don't want to suggest that this is
• 39:24
  Speaker 1: that these are the engines in the portfolio. These are
• 39:27
  Speaker 1: our investments that that end up on the periphery again
• 39:30
  Speaker 1: because of the of their i liquid nature and and
• 39:33
  Speaker 1: the fact that we are a public fund. So last
• 39:35
  Speaker 1: question about the funds. You're located in Los Angeles. A
• 39:39
  Speaker 1: lot of what you're covering seems to originate on the
• 39:43
  Speaker 1: East Coast, in New York or in Silicon Valley. How
• 39:47
  Speaker 1: does being located in l A affects your worldview? I've
• 39:53
  Speaker 1: never really thought about l A affecting my my world
• 39:56
  Speaker 1: view until you just ask that question. I do think
• 40:00
  Speaker 1: at you know, just in general, the world has gotten
• 40:03
  Speaker 1: has gotten smaller because of the information it's available your
• 40:07
  Speaker 1: finger and tips, so, you know, across the internet. Uh,
• 40:10
  Speaker 1: and that certainly has made it easier. But living in
• 40:13
  Speaker 1: Los Angeles, I don't know has affected my my world
• 40:17
  Speaker 1: view too to any great degree. I don't know if
• 40:20
  Speaker 1: I would think differently if I was, you know, living
• 40:22
  Speaker 1: in Chicago or New York. I haven't really thought about
• 40:25
  Speaker 1: it bearer to be honest, of how that's my view
• 40:27
  Speaker 1: has been impacted by living here. Hey, that's a fair answer.
• 40:30
  Speaker 1: I'm just trying to get a sense of your philosophy
• 40:34
  Speaker 1: and and how where you're situated might somehow filter into it.
• 40:39
  Speaker 1: So we talked a little bit about fixed income and
• 40:42
  Speaker 1: especially in the high yield world where you're taking a
• 40:46
  Speaker 1: lot of risk for almost no reward. What do you
• 40:49
  Speaker 1: think about the state of inflation here that seems to
• 40:51
  Speaker 1: have been a giant topic the past couple of months.
• 40:55
  Speaker 1: Does this affect the way you invest i noticed you
• 41:00
  Speaker 1: guys don't really make much of inflation forecast. What's the
• 41:04
  Speaker 1: impact of inflation on your thought process? We think that
• 41:10
  Speaker 1: with the way the stewards of of of of capital
• 41:16
  Speaker 1: at the sovereign level have been acting in the last
• 41:21
  Speaker 1: number of years, really took great degree since the Great
• 41:23
  Speaker 1: Financial Crisis, there is there is this financial alchemy that's
• 41:27
  Speaker 1: going on that people hope that that that the academics
• 41:32
  Speaker 1: that have it all figured out, that they're going to
• 41:34
  Speaker 1: get engineer this soft landing and and and be able
• 41:38
  Speaker 1: to control the inflation in a way that and drive
• 41:44
  Speaker 1: growth at the same time. That is going to all
• 41:48
  Speaker 1: end perfectly, And it thinks tend not to be quite
• 41:53
  Speaker 1: so perfect out there in the world, and and the
• 41:57
  Speaker 1: we've learned to expect the unexpected, and we don't know
• 42:00
  Speaker 1: what is going to happen. We don't know whether they'll
• 42:02
  Speaker 1: be inflation or how much inflation there might end up being.
• 42:05
  Speaker 1: We think that there's reasonable prospects of it, you know, certainly,
• 42:09
  Speaker 1: but you might there be a deflationary path to inflation.
• 42:13
  Speaker 1: That could be the way we get there. Where the
• 42:15
  Speaker 1: where the knee jerk responses to continue to to print more,
• 42:19
  Speaker 1: borrow more, and in stimulate, stimulate with a with a
• 42:22
  Speaker 1: wanton disregard for for the future ramifications of what it
• 42:27
  Speaker 1: might mean to feed our currencies, you know, or or
• 42:31
  Speaker 1: or the economies, or or inflation down the road. But
• 42:34
  Speaker 1: looking for that near term bump as these policy makers
• 42:38
  Speaker 1: and academics are really thinking about what's happening right now,
• 42:42
  Speaker 1: is they as they seek to be re elected or reappointed.
• 42:45
  Speaker 1: So we don't know what's going to happen, but we
• 42:48
  Speaker 1: create a range of outcomes, and we think that as
• 42:52
  Speaker 1: we look at them, it's more appropriate to be more
• 42:56
  Speaker 1: invested than not if you're looking out where the world's
• 42:59
  Speaker 1: going to be, you know, five ten years since. So
• 43:03
  Speaker 1: that raises really interesting issue. You refer to the response
• 43:08
  Speaker 1: from the fiscal response from governments and the monetary response
• 43:12
  Speaker 1: from central banks. Are they in the process of changing
• 43:17
  Speaker 1: what bear markets are gonna look like going forward. And
• 43:19
  Speaker 1: what I mean by that is, have investors learned to
• 43:23
  Speaker 1: anticipate fiscal and monetary stimulus. I think the world is
• 43:29
  Speaker 1: certainly trying to do that. We hear at first specific advisors. No,
• 43:34
  Speaker 1: we can't anticipate. We just try and create a portfolio
• 43:39
  Speaker 1: that's robust to multiple outcomes, that doesn't go too hard
• 43:44
  Speaker 1: one direction or another, believing that that we really have
• 43:47
  Speaker 1: the capability of identifying what the macro environment will look
• 43:51
  Speaker 1: a look like perspectively, there's just way too many moving parts.
• 43:55
  Speaker 1: And if you put me in a room with the
• 43:57
  Speaker 1: with with John Maynard Keynes, I'm gonna, you know, come
• 44:00
  Speaker 1: out of you know Kinsian economists, right, I'm gonna be
• 44:02
  Speaker 1: a believer, you know, same with you To put me
• 44:04
  Speaker 1: in there with a monitorist the supply side or you
• 44:06
  Speaker 1: know who or whatever, it's just there's these guys have
• 44:09
  Speaker 1: all the arguments down and and I'm just not, you know,
• 44:12
  Speaker 1: well versed enough, and I don't believe that that anybody
• 44:16
  Speaker 1: really has that capability. And in fact, if you were
• 44:18
  Speaker 1: to go back and and look at at the projections
• 44:22
  Speaker 1: made by economists for just the coming year for what
• 44:26
  Speaker 1: GDP was going to be. They're they're rarely rights. Somebody
• 44:32
  Speaker 1: gets it right, but nobody's right consistently, and sometimes they're
• 44:35
  Speaker 1: they're wildly wrong. And you look at at people like
• 44:39
  Speaker 1: Alan Greenspan, who didn't think that we were, you know,
• 44:43
  Speaker 1: in a recession in the early you know, in the
• 44:45
  Speaker 1: early part of the those you know, or or Bernankey this,
• 44:48
  Speaker 1: they didn't expect the great financial quss. These things weren't anticipated,
• 44:53
  Speaker 1: and so we don't hang our hat on on listening
• 44:57
  Speaker 1: to them or trying to anticipate what might be a
• 45:03
  Speaker 1: lot of things might be, more things might be than
• 45:06
  Speaker 1: will be. And so we just try and put our
• 45:08
  Speaker 1: heads down and and believe that that you know what
• 45:11
  Speaker 1: down down the road that you know, Google is still
• 45:13
  Speaker 1: gonna be a good business. And we're not paying even
• 45:16
  Speaker 1: today at current prices that you know, if you adjust
• 45:19
  Speaker 1: for the cash you you you adjust for their non
• 45:21
  Speaker 1: earning assets, their moonshots, and and the stock is not
• 45:26
  Speaker 1: so horribly expensive. It certainly isn't as cheap as it
• 45:28
  Speaker 1: was on an adjusted basis. We bought it back in eleven.
• 45:32
  Speaker 1: It was in the early early low rather teams multiple
• 45:37
  Speaker 1: adjusted earnings, but these are companies where comfortable owning you
• 45:41
  Speaker 1: know through this. So that's kind of interesting. What what
• 45:44
  Speaker 1: other investment opportunities today are you excited about? You mentioned overseas,
• 45:50
  Speaker 1: Is that x US developed? Is that emerging markets? What
• 45:54
  Speaker 1: is catching your eye in the present environment? You know,
• 45:59
  Speaker 1: we we it it's more it's more developed economies. Of
• 46:01
  Speaker 1: there's some emerging markets in and it's not any one
• 46:05
  Speaker 1: company or one industry you know specifically, there's just uh,
• 46:09
  Speaker 1: there's a host of different you know businesses that we own,
• 46:12
  Speaker 1: you know outside the United States. There's some businesses that
• 46:15
  Speaker 1: we own you know inside the US that are less
• 46:18
  Speaker 1: economically sensitive as well that that that make their way
• 46:22
  Speaker 1: into into the portfolio that are again give an example
• 46:26
  Speaker 1: of a more commercial opportunity. We've owned for you know
• 46:29
  Speaker 1: since last year. Um and it didn't go down because
• 46:33
  Speaker 1: of the pandemic. It went down for for idiosyncratic reasons.
• 46:37
  Speaker 1: It's a I don't want any time I mentioned idea,
• 46:40
  Speaker 1: I don't want it to suggest this is like our
• 46:42
  Speaker 1: favorite idea or the only idea. This is just to
• 46:44
  Speaker 1: be meant to be emblematic of of of of philosophy
• 46:48
  Speaker 1: and process. But we own you know, first Energy which
• 46:50
  Speaker 1: is a pure play regulated transmission distribution utility with one
• 46:55
  Speaker 1: of the largest networks in the US, I mean six
• 46:58
  Speaker 1: million customers across five stay. It's you know, starting Ohio
• 47:01
  Speaker 1: and kind of moving east towards the mid Atlantic. Now
• 47:04
  Speaker 1: it's core utility business is better than average, which means
• 47:07
  Speaker 1: which does you know you can be determined as a
• 47:11
  Speaker 1: higher than average you know r OE, it's got um
• 47:15
  Speaker 1: more regulated transmission distribution stance is rather than the more
• 47:18
  Speaker 1: risky business of non regulated independent power production. And for
• 47:22
  Speaker 1: the most part they're in regulatorily friendly states with lower
• 47:25
  Speaker 1: than average competition. So we also you know, looking like
• 47:30
  Speaker 1: the utility industry just just as an idea, just as
• 47:33
  Speaker 1: a as a construct, because we think there should be
• 47:36
  Speaker 1: underlying demand for increased transmission and grid modernization over the
• 47:41
  Speaker 1: next number of years. So but you know, the utility
• 47:44
  Speaker 1: industry is is you know, the index trades about times earning,
• 47:49
  Speaker 1: you know thereabouts. But this company, you know, last year,
• 47:53
  Speaker 1: you know, they have got some bad news and Q
• 47:58
  Speaker 1: you know, First Energy got caught up in a brimary
• 47:59
  Speaker 1: scan that alleged you know, illegal campaign contributions following around
• 48:04
  Speaker 1: sixty million dollars to the former Ohio Speaker of the House,
• 48:07
  Speaker 1: in the hopes of passing a bill that provided some
• 48:10
  Speaker 1: you know, subsidies for nuclear business. You know that isn't
• 48:13
  Speaker 1: if they don't even own anymore. And as a result,
• 48:16
  Speaker 1: you know, you know what, you know, how the government
• 48:19
  Speaker 1: might or in the regulators might come at them. It
• 48:23
  Speaker 1: causes stock to drop by almost half from the February high,
• 48:26
  Speaker 1: and that cleaned off about thirteen billion dollars of market value.
• 48:31
  Speaker 1: And if you were to adjust it for the declining
• 48:34
  Speaker 1: utility index because that had gone down, you know at
• 48:36
  Speaker 1: that point of about eight percent as well along with
• 48:39
  Speaker 1: the the um you know, coming down with the pandemic,
• 48:44
  Speaker 1: that would just basically means about ten to eleven billion
• 48:47
  Speaker 1: dollars of value you know, was taken out adjusted for
• 48:51
  Speaker 1: the decline in those utility indicries. And so we are
• 48:54
  Speaker 1: workers really centered on two things like one, how good
• 48:57
  Speaker 1: is the business and to you know, what what the
• 49:00
  Speaker 1: penalties be. And so we the work that we did,
• 49:04
  Speaker 1: you know, on the business and common conversations with competitors,
• 49:09
  Speaker 1: industry experts and utility unless give us a comfort level
• 49:11
  Speaker 1: that the business was advertising as good as we thought
• 49:14
  Speaker 1: it was. And that with respect to the the fine
• 49:18
  Speaker 1: that was likely to occur, we felt it would end
• 49:20
  Speaker 1: up being manageable. So there are federal sentencing guidelines that
• 49:23
  Speaker 1: are fairly you know, formula formulaic, and so we used
• 49:27
  Speaker 1: history as a precedent and looking at lots of different
• 49:32
  Speaker 1: of fines have been paid in the past, and there's
• 49:34
  Speaker 1: a base cave fine, and then there is a a
• 49:38
  Speaker 1: culpability multiple that gets attached to that. So we did
• 49:41
  Speaker 1: as we triangulated these these other fines and and and
• 49:44
  Speaker 1: the multiple kind of looked at that maybe they find
• 49:47
  Speaker 1: into being someplace a hundred and fifty to four million dollars.
• 49:51
  Speaker 1: I remember I just said that the business and declined
• 49:53
  Speaker 1: thirteen billion, maybe ten to eleven billion adjusted, you know,
• 49:56
  Speaker 1: relative to futility index. So even in a ast case
• 50:00
  Speaker 1: scenario of a billion dollars, it's still, you know, just
• 50:02
  Speaker 1: one tenth of what the stock price declined that that
• 50:06
  Speaker 1: had been been seen by its shareholders. UM are born
• 50:10
  Speaker 1: by its shareholders, and so we felt pretty comfortable UM
• 50:14
  Speaker 1: that the adjusting for our base case fines and and
• 50:18
  Speaker 1: the stock trading back to a market multiple in the
• 50:20
  Speaker 1: next couple of years. Again looking down the road that
• 50:23
  Speaker 1: buying the business at eleven times earnings with a five
• 50:25
  Speaker 1: percent dividing yield was pretty attractive relative to the the
• 50:29
  Speaker 1: utility index that was training at nine twenty times earnings
• 50:33
  Speaker 1: with with a just a few percent you know, dividing yields.
• 50:36
  Speaker 1: And so as you got through the scandal, we thought
• 50:38
  Speaker 1: the stock that was trading in the high twenties, you know,
• 50:41
  Speaker 1: could end up being you know, trading in some place
• 50:43
  Speaker 1: in the you know, in the low forties to low fifties.
• 50:47
  Speaker 1: And what's it looked like today? I mean, the same
• 50:49
  Speaker 1: story still applies. Is still in the midst of this.
• 50:51
  Speaker 1: The stock price has moved up, you know, from the
• 50:54
  Speaker 1: high twenties to the higher thirties, and the the opportunity
• 51:00
  Speaker 1: still exists for that same upside. Nothing's really changed there
• 51:02
  Speaker 1: in the in the process of of working through the
• 51:07
  Speaker 1: you know, the whatever's gonna happen regulatorily or with the fines,
• 51:12
  Speaker 1: we just don't know where it stands. You know, today
• 51:14
  Speaker 1: we're not going to know two we know, but as
• 51:17
  Speaker 1: we looked down the road, we it's going to be settled.
• 51:21
  Speaker 1: Just like I argued before that people would travel again,
• 51:23
  Speaker 1: people would stay in hotels again, and Marriott, you know,
• 51:25
  Speaker 1: would not have an occupancy that was was was going
• 51:29
  Speaker 1: to be, you know, close to zero for a period
• 51:32
  Speaker 1: of time. You're gonna end up with a more normal environment,
• 51:36
  Speaker 1: you know, for First Energy you know, you know, and
• 51:38
  Speaker 1: and in all its markets in Ohio, Pennsylvania, you know, etcetera.
• 51:42
  Speaker 1: That's really intriguing. So marginal safety clearly a key part
• 51:47
  Speaker 1: of your investment approach. I'm gonna assume nothing in change
• 51:54
  Speaker 1: that philosophy. So that leads me to the question, what
• 51:58
  Speaker 1: is your takeaway him your experience during the pandemic? What's
• 52:03
  Speaker 1: the lesson that investors should have learned last year? Investors?
• 52:08
  Speaker 1: You know, every time you know they should learn this,
• 52:10
  Speaker 1: it says, it's the lat same lesson, right is thinking
• 52:13
  Speaker 1: what the world looks like down the road, Not what
• 52:16
  Speaker 1: dom I look like in the next six months, three months,
• 52:20
  Speaker 1: even a year or two, but what's it like down
• 52:23
  Speaker 1: the road. I mean, if you're buying a business, you
• 52:24
  Speaker 1: should care about it twice the day you buy it
• 52:26
  Speaker 1: in the day you sell it. So if you're not
• 52:28
  Speaker 1: going to sell that business for five ten years, why
• 52:30
  Speaker 1: do you care if the stock is up or down
• 52:32
  Speaker 1: in the next couple No doubt about that. Our last
• 52:35
  Speaker 1: question of this segment. I want to throw you a
• 52:37
  Speaker 1: little bit of a curve ball. I asked you earlier
• 52:41
  Speaker 1: about l A. I was kind of surprised to learn
• 52:44
  Speaker 1: your surfer. Tell us a little bit about that hobby. Oh,
• 52:49
  Speaker 1: I've got lots of hobbies. I'm you know, I'm a
• 52:51
  Speaker 1: I'm a I'm a jack of many trades and master
• 52:54
  Speaker 1: of none. I'm I. I enjoy it Like I swam
• 52:57
  Speaker 1: competitively through college. I've always enjoyed, you know, the water.
• 53:00
  Speaker 1: I enjoy swimming in a pool, enjoy him in the ocean.
• 53:03
  Speaker 1: And and I never I used to lifeguard the beach.
• 53:07
  Speaker 1: There's a summer job when I was in college, and
• 53:10
  Speaker 1: and and learn to surf. And as I said, I'm
• 53:12
  Speaker 1: not very good. But it's nothing like being out there
• 53:14
  Speaker 1: in the water and a dolphins swimming around you. It's pretty.
• 53:17
  Speaker 1: It's pretty peaceful. And to you know, pick up a
• 53:19
  Speaker 1: wave and and maybe have a dolphin writing it with you,
• 53:22
  Speaker 1: which has happened on just one occasion of my life.
• 53:24
  Speaker 1: But I keep trying to trying to repeat that is
• 53:27
  Speaker 1: is a pretty um you know, beautiful you know, spiritual experience.
• 53:31
  Speaker 1: For me, I find it incredibly peaceful, and I spend
• 53:33
  Speaker 1: more time now, you know, um surfing behind a boat,
• 53:36
  Speaker 1: you know, and on a lake because I don't have
• 53:38
  Speaker 1: to compete for waves. And that's been you know, it's
• 53:41
  Speaker 1: just a lot of fun. I don't know if you've
• 53:44
  Speaker 1: seen the videos of all the young Great Whites that
• 53:49
  Speaker 1: like to go surfing with surfers in a very um,
• 53:53
  Speaker 1: non aggressive way. Apparently it's different when they're larger or
• 53:57
  Speaker 1: and older, but when they're young, they seem to be
• 54:00
  Speaker 1: pretty chill. Some of the videos I've seen on YouTube
• 54:02
  Speaker 1: taken from drones are just astonishing. Oh yeah, there they
• 54:07
  Speaker 1: really are, and there and they are. It's it's disconcerting,
• 54:11
  Speaker 1: you know. And if they I'll all compete in in ocean,
• 54:14
  Speaker 1: you know, swim races, uh, you know, once or twice
• 54:16
  Speaker 1: a year. And I remember once watching one of those
• 54:20
  Speaker 1: drone videos of a Great White kind of underneath the
• 54:23
  Speaker 1: underneath the crowd of swimmers, you know, kind of off
• 54:26
  Speaker 1: the South Bay her most in Manhattan Beach and a race,
• 54:30
  Speaker 1: and I'm I just thought to myself, I'm like that,
• 54:33
  Speaker 1: I don't know what I would do myself. I just
• 54:36
  Speaker 1: try to push that out of my mind. I don't
• 54:38
  Speaker 1: care if it's a big great white or a small
• 54:40
  Speaker 1: great white. Berry great white is a great white, I'm
• 54:42
  Speaker 1: not gonna be real thrilled to see. I'm gonna i'm
• 54:45
  Speaker 1: gonna push back against you on that. If if the
• 54:47
  Speaker 1: choice is a big great white or a small great white,
• 54:50
  Speaker 1: I'm gonna go with the small, younger one. They really
• 54:53
  Speaker 1: seem to be so. By the way, if if people
• 54:56
  Speaker 1: are still listening at this point, go to YouTube, Google this.
• 55:01
  Speaker 1: It's astonishing. They're not like a hundred yards away, They're
• 55:06
  Speaker 1: inches away there. It's almost like their dolphins playing with
• 55:09
  Speaker 1: the swimmers and surfers. It's really amazing to see. But
• 55:14
  Speaker 1: that said, you know, it's a little frightening if you're
• 55:17
  Speaker 1: out there on a regular basis. Barry, I'm gonna go
• 55:21
  Speaker 1: on record is saying that I'm not going to spend
• 55:23
  Speaker 1: a lot of time determining how big that great white is. Okay,
• 55:28
  Speaker 1: that's that's fair enough. Let me um, I know I
• 55:31
  Speaker 1: only have you for a certain amount of time. Let
• 55:33
  Speaker 1: me jump to some of my favorite questions that we
• 55:36
  Speaker 1: ask all of our guests that are not surfing related,
• 55:39
  Speaker 1: and and start with tell us what you're streaming these days?
• 55:43
  Speaker 1: Give us your favorite Netflix or Amazon Prime or or
• 55:46
  Speaker 1: even podcast you're listening to. I don't. I don't actually
• 55:51
  Speaker 1: listen to a lot of podcasts. They don't do a
• 55:54
  Speaker 1: lot of streaming other than what you know, more more
• 55:56
  Speaker 1: entertainment related to streaming. I tend to when I'm in
• 55:59
  Speaker 1: the gym working out, and you know, on my stationary
• 56:02
  Speaker 1: bike could do a lot of cycling, you know. I
• 56:04
  Speaker 1: I tend to, you know, throw on a documentary and
• 56:07
  Speaker 1: and something that with subtitles and and just kind of
• 56:10
  Speaker 1: I watch it and it could be on a host
• 56:12
  Speaker 1: of different topics. I love music and and and frequently
• 56:15
  Speaker 1: it ends up being something related related to that. I
• 56:18
  Speaker 1: spend more time, you know, you know, reading nonfiction um
• 56:23
  Speaker 1: and and try and really drive a lot of throughput
• 56:27
  Speaker 1: there to the best of my ability, I said, the
• 56:29
  Speaker 1: best of my ability. Of some books just end up
• 56:31
  Speaker 1: being a little bit a little bit denser than others.
• 56:33
  Speaker 1: And I find myself sometimes, you know, struggling through to
• 56:38
  Speaker 1: to get onto the next book. So we're gonna come
• 56:40
  Speaker 1: back to books in a minute. But now I want
• 56:42
  Speaker 1: to ask you tell us about your mentors who helped
• 56:46
  Speaker 1: shape your career. Well, the one person really, you know,
• 56:50
  Speaker 1: shaped my career, I mentioned earlier is is James Nathan
• 56:54
  Speaker 1: goes by Jeff and he was my my first boss,
• 56:57
  Speaker 1: and he's the one who entered uced me to a
• 57:00
  Speaker 1: lot of people, you know, early on when I was
• 57:04
  Speaker 1: just starting out my early twenties, where I was able
• 57:08
  Speaker 1: to sit down with you know, his good friend, you know,
• 57:11
  Speaker 1: Lee Cooperman and asked him questions and learn from learn
• 57:15
  Speaker 1: from him, and and have him, you know, be at
• 57:19
  Speaker 1: the Tilodine Annual Meeting, introduced Henry Singleton and have dinner
• 57:22
  Speaker 1: with him afterwards, and talked about experience investing in Tilodine
• 57:26
  Speaker 1: you know, back in the day, and that that really
• 57:30
  Speaker 1: was incredibly educational. And then I remember once he he
• 57:34
  Speaker 1: had me, we drove down to Laguna Beach to visit
• 57:38
  Speaker 1: a guy who I had never heard of. I just
• 57:40
  Speaker 1: couldn't google somebody back then. And and again I hadn't
• 57:44
  Speaker 1: been in the business that long at this point in time.
• 57:47
  Speaker 1: And I sit down at the lobby bar of the
• 57:50
  Speaker 1: ritz Ritz Hotel in down in in Laguna Beach and
• 57:53
  Speaker 1: there's a guy who shows up with an ascot and
• 57:55
  Speaker 1: it seemed like Paisley pajama bottoms, and it was it
• 57:59
  Speaker 1: was I've never seen anybody dressed like that, and it
• 58:01
  Speaker 1: was Sir John Templeton, and I was able to have
• 58:04
  Speaker 1: tea with you know, Sir John Templeton and listened to
• 58:08
  Speaker 1: his life experiences and talking about investing and to be
• 58:11
  Speaker 1: thrown into that kind of a world at at a
• 58:15
  Speaker 1: at a very young age, is is um made me
• 58:19
  Speaker 1: incredibly you know, made me recognize its incredibly fortunate to
• 58:22
  Speaker 1: say the very least. I want to circle back to
• 58:25
  Speaker 1: something that you mentioned in in my earlier question, which
• 58:30
  Speaker 1: is you said you tend to listen to music related
• 58:33
  Speaker 1: or watch music related um streaming. You you want to
• 58:37
  Speaker 1: give us any examples. I mean, I'll listen. I'm gonna
• 58:40
  Speaker 1: listen to like I mean, on a podcast, listen to
• 58:42
  Speaker 1: the something called song exploder. So I love I love
• 58:46
  Speaker 1: the I love the the etymology of the song I like.
• 58:50
  Speaker 1: You know, reading the Wall Street Journal, uh, you know
• 58:52
  Speaker 1: column that it really breaks down the forgot what the
• 58:55
  Speaker 1: title of that column is. It comes a typically yeah, um,
• 58:59
  Speaker 1: if you like if you like songsploder, um, have you
• 59:03
  Speaker 1: played with? It's on YouTube something called Polyphonic No, what's that?
• 59:07
  Speaker 1: So it's just a guy who puts videos up discussing
• 59:12
  Speaker 1: sort of the musicology of specific songs and bands and artists,
• 59:19
  Speaker 1: and you might find it kind of fascinating. If you're
• 59:24
  Speaker 1: an all intrigued by why John Bonham of Zeppelin instead
• 59:28
  Speaker 1: of tracking the bass player tracked the lead guitarist and
• 59:31
  Speaker 1: what that did to their music and a whole bunch
• 59:33
  Speaker 1: of other crazy stuff like that, then you're gonna then
• 59:38
  Speaker 1: I'm also incited to being a frustrating surfer. I'm also
• 59:41
  Speaker 1: a frustrated guitarist. Alright, So you're gonna get a You're
• 59:45
  Speaker 1: gonna have a huge kick out of this polyphonic on
• 59:47
  Speaker 1: you on YouTube. So now let's talk about everybody's favorite question.
• 59:53
  Speaker 1: What are your some of your favorite books? What are
• 59:55
  Speaker 1: you reading right now? Well, I have I mentioned the
• 59:59
  Speaker 1: you know times struggling to get through books and and
• 1:00:01
  Speaker 1: the reason and it says it's fresh in my mind
• 1:00:04
  Speaker 1: because sitting on my night table and I'm about three
• 1:00:07
  Speaker 1: carters away through it is is Walter Rysenson's book Gene
• 1:00:10
  Speaker 1: Editor and Jennifer DOWDNA and it's just it's it's a
• 1:00:14
  Speaker 1: little bit dense because you really try and as I'm
• 1:00:16
  Speaker 1: really trying to understand the Yeah, I have a whole
• 1:00:20
  Speaker 1: list of books that are tied to two healthcare UM
• 1:00:24
  Speaker 1: and health tech medtech and in the history of of biotech,
• 1:00:28
  Speaker 1: and I'm just trying to get up again a better
• 1:00:30
  Speaker 1: understanding of that is an industry. And so I really
• 1:00:35
  Speaker 1: enjoy reading nonfiction to try and inform my view of
• 1:00:38
  Speaker 1: the world. So that's one that I'm reading now. But
• 1:00:41
  Speaker 1: um it's called a Codebreaker. And but I I read
• 1:00:46
  Speaker 1: a lot of these books that that try and inform
• 1:00:48
  Speaker 1: my view, and it include like The Outsiders by William
• 1:00:51
  Speaker 1: Fordbike which is you know, eight you know CEO profiles
• 1:00:55
  Speaker 1: that include you know, John Malone and Henry Singleton, Tom
• 1:00:58
  Speaker 1: Murphy of Caps City has warm off it and it
• 1:01:01
  Speaker 1: really just you know, reading about these people and what
• 1:01:03
  Speaker 1: they what they've what they accomplished historically in their businesses
• 1:01:06
  Speaker 1: and helps some form of view as I speak to
• 1:01:08
  Speaker 1: managements today. I you know, one of my favorite books
• 1:01:11
  Speaker 1: of all time, it really is run Turnout's Book to
• 1:01:13
  Speaker 1: War Brooks, because it's an expansive history of of finance
• 1:01:18
  Speaker 1: and of a couple of world wars and and a
• 1:01:21
  Speaker 1: a Jewish family that uh, you know made its way
• 1:01:24
  Speaker 1: from Germany to England to the United States. And I
• 1:01:27
  Speaker 1: find that you know, incredibly interesting as well. And sometimes
• 1:01:31
  Speaker 1: you you you you you you read the books or
• 1:01:34
  Speaker 1: I read the books and I kind of you know,
• 1:01:35
  Speaker 1: what did I learned? What are my takeaways? And you know,
• 1:01:37
  Speaker 1: like I read Twilight in the Desert twenty years ago
• 1:01:39
  Speaker 1: and they had the belief that from reading Matt Simmons
• 1:01:42
  Speaker 1: book that that that we're going to have a problem
• 1:01:45
  Speaker 1: with uh of providing energy to the world with with
• 1:01:51
  Speaker 1: because fossil fuels were harder to come by as it
• 1:01:54
  Speaker 1: relates to oil specifically, and you know, like clearly that
• 1:01:57
  Speaker 1: didn't come the past. We you know, a couple of
• 1:01:59
  Speaker 1: things of happened since and as you have to you know,
• 1:02:02
  Speaker 1: be willing to to adapt. I mean, we had obviously
• 1:02:04
  Speaker 1: a big increase in renewables, but you also had the
• 1:02:07
  Speaker 1: you know, the oil sands and and tight shelp informations
• 1:02:10
  Speaker 1: that have created a lot more oil out there than
• 1:02:13
  Speaker 1: than people have expected. Meanwhile, you have falso had the
• 1:02:16
  Speaker 1: rise of you that we have the rise of electric
• 1:02:19
  Speaker 1: vehicles and such that that are going to put a
• 1:02:21
  Speaker 1: crimp in future demand. So if you have to adapt
• 1:02:24
  Speaker 1: in you know, um to two changes in the world.
• 1:02:27
  Speaker 1: And spent a lot of time reading about health tech,
• 1:02:30
  Speaker 1: you know, which includes this at medtech and biotech, because
• 1:02:33
  Speaker 1: I believe that some of the great businesses you know,
• 1:02:36
  Speaker 1: unfortunately will be creative the next twenty years. We're going
• 1:02:38
  Speaker 1: to come out of that. We mapped the human genom
• 1:02:40
  Speaker 1: twenty years ago, but it was like identifying the parts
• 1:02:44
  Speaker 1: to a car. For the last couple of decades, we've
• 1:02:46
  Speaker 1: we've trying to figure out how those and how the
• 1:02:49
  Speaker 1: parts of the car work individually and and in integrated fashion.
• 1:02:53
  Speaker 1: And just now we're really beginning to see some of
• 1:02:55
  Speaker 1: the fruits of that, and we're gonna see a lot
• 1:02:57
  Speaker 1: more in the future. Really really interesting. What sort of
• 1:03:01
  Speaker 1: advice would you give to a recent college grad who
• 1:03:04
  Speaker 1: was interested in pursuing a career in asset management. I
• 1:03:09
  Speaker 1: I think that I would say the same thing I've
• 1:03:11
  Speaker 1: I've related earners in terms of having that that longer
• 1:03:14
  Speaker 1: term view and whatever you do, whatever decision you make,
• 1:03:19
  Speaker 1: make sure that you're making the decisions with a kind
• 1:03:22
  Speaker 1: of a five to ten year you know, seven to
• 1:03:25
  Speaker 1: ten you're rolling you know timeframe. It's going to allow
• 1:03:28
  Speaker 1: you to make better decisions today. It's going to you know,
• 1:03:32
  Speaker 1: you're gonna be more willing to absorb some of the
• 1:03:37
  Speaker 1: bumps in the road, you know today, if you understand that,
• 1:03:40
  Speaker 1: you're gonna be better off in the future, in the
• 1:03:43
  Speaker 1: future for it. And I would say in addition, you know,
• 1:03:46
  Speaker 1: do something you enjoy and make sure you're good at
• 1:03:48
  Speaker 1: it and work really hard. Um. The the last thing
• 1:03:53
  Speaker 1: I would probably leave somebody with is is um is
• 1:03:58
  Speaker 1: do well by doing good. If I think that one
• 1:04:01
  Speaker 1: of the things we realize, you know today, in in
• 1:04:04
  Speaker 1: in the world, that it's not an uncomplicated place. There's
• 1:04:07
  Speaker 1: a lot of people who have who have been mistreated,
• 1:04:11
  Speaker 1: you know, over the years, and we can we can
• 1:04:14
  Speaker 1: try and make the world a little bit better. So
• 1:04:15
  Speaker 1: if you can do that while you're investing, you know,
• 1:04:18
  Speaker 1: all the better still. And our final question, what do
• 1:04:21
  Speaker 1: you know about the world of investing today that you
• 1:04:24
  Speaker 1: wish you knew when you were first getting started back
• 1:04:28
  Speaker 1: in the nineties. Yeah, I really wish i'd better anticipated
• 1:04:32
  Speaker 1: the world of disruptive change. The technological innovation that has
• 1:04:36
  Speaker 1: taken places has up beend to the economics of so
• 1:04:39
  Speaker 1: many different industries. And whether it be online retail you know,
• 1:04:43
  Speaker 1: which has changed the economics of brick and mortar retail
• 1:04:46
  Speaker 1: or streaming video content and video and demand destroying video
• 1:04:50
  Speaker 1: rental and forever changing movie theaters. Um or single cell
• 1:04:54
  Speaker 1: genomics that have developed on the back of of having
• 1:04:58
  Speaker 1: mapped the human gentlemen, creating new therapeutics, you know, outmoding
• 1:05:02
  Speaker 1: what's been accepted today, to or renewable energy solutions that
• 1:05:05
  Speaker 1: are gradually displacing fossil fuels. Now we've we've successfully avoided
• 1:05:09
  Speaker 1: most of the disrupted industries. But that's like growing that.
• 1:05:12
  Speaker 1: You know that our boat didn't sink, it's not supposed
• 1:05:14
  Speaker 1: to sink. We would have enhanced our performance. Have we
• 1:05:18
  Speaker 1: been more willing to pay up at least a multiple
• 1:05:20
  Speaker 1: turner two to own some of the better businesses in
• 1:05:22
  Speaker 1: the world whose paradigms are are more winner take all
• 1:05:25
  Speaker 1: our winner take most. So we didn't buy Amazon. We
• 1:05:29
  Speaker 1: we thought we were doing pretty good by by not
• 1:05:31
  Speaker 1: by selling our retail out you know, more than a
• 1:05:33
  Speaker 1: decade ago. But we just didn't buy you know, Amazon,
• 1:05:38
  Speaker 1: even though we looked at it. We just didn't look
• 1:05:39
  Speaker 1: at it closely enough. And that has to solidly go
• 1:05:41
  Speaker 1: into the mistake bucket. So that's what I wish I
• 1:05:44
  Speaker 1: knew thirty years ago. Really quite fascinating. Steve, thank you
• 1:05:49
  Speaker 1: for being so generous with your time. We have been
• 1:05:52
  Speaker 1: speaking with Steve Remick. He is the managing partner of
• 1:05:56
  Speaker 1: First Specific Advisors and asset manager running uh over twenty
• 1:06:00
  Speaker 1: six billion dollars in various assets. If you enjoy this conversation,
• 1:06:05
  Speaker 1: check out any of our prior four hundred such interviews.
• 1:06:08
  Speaker 1: You can find those wherever you feed your podcast fix iTunes, Spotify,
• 1:06:14
  Speaker 1: Google Podcasts, etcetera. We love your comments, feedback and suggestions
• 1:06:19
  Speaker 1: right to us at m IB podcast at Bloomberg dot net.
• 1:06:24
  Speaker 1: You can sign up for my daily reading list at
• 1:06:27
  Speaker 1: Rid Halts dot com. Check out my weekly column at
• 1:06:30
  Speaker 1: Bloomberg dot com slash Opinion. Follow me on Twitter at
• 1:06:34
  Speaker 1: Rid Halts. I would be remiss if I did not
• 1:06:37
  Speaker 1: thank the crack team that helps put these conversations together
• 1:06:40
  Speaker 1: each week. Tim Harrow is my audio engineer, Latika val
• 1:06:45
  Speaker 1: Brond is my project manager. Paris Walt is my producer.
• 1:06:50
  Speaker 1: Michael Batnick is my head of research. I'm Barry Rihlts.
• 1:06:54
  Speaker 1: You've been listening to Master's in Business on Bloomberg Radio.