WEBVTT - Steven Romick on Portfolio Investments (Podcast) 0:00:00.080 --> 0:00:06.000 M This is mesters in Business with very renaults on 0:00:06.240 --> 0:00:10.440 Bluebird Radio this weekend. On the podcast, I have a 0:00:10.560 --> 0:00:14.520 special and fascinating guest. His name is Steve Romick. He 0:00:14.640 --> 0:00:18.760 is the managing partner at First Specific Advisors, a shop 0:00:18.800 --> 0:00:21.799 in l A that runs about twenty six billion dollars 0:00:22.120 --> 0:00:25.680 in assets. He has also run the Crescent Funds since 0:00:26.880 --> 0:00:29.960 it's about eleven billion dollars UH, and the numbers on 0:00:29.960 --> 0:00:34.000 that fund are really quite astonishing. One of the reasons 0:00:34.040 --> 0:00:38.960 I first wanted to start doing podcasts and interviews of 0:00:39.040 --> 0:00:44.159 asset managers was because of people like Steve Romick. You know, 0:00:44.400 --> 0:00:47.040 he's not on the cover of magazines, you don't see 0:00:47.120 --> 0:00:49.760 him on television all the time. But here's a guy 0:00:49.880 --> 0:00:53.880 running real money, a substantial amount of assets, with a 0:00:54.080 --> 0:00:58.280 fantastic long term track record, and he is not a 0:00:58.320 --> 0:01:02.480 household name. I think the average forget the average investor, 0:01:02.840 --> 0:01:07.040 the average professional probably doesn't know who Steve Romick is. 0:01:07.400 --> 0:01:11.560 And that's too bad because folks like this really allow 0:01:11.640 --> 0:01:15.920 you to learn an important lesson about how to manage risk, 0:01:16.080 --> 0:01:19.280 how to take advantage of opportunities, what you should be 0:01:19.319 --> 0:01:23.760 thinking about as a portfolio manager, as an investor. Really 0:01:23.920 --> 0:01:29.319 just a fascinating guy with a really interesting history. I 0:01:29.400 --> 0:01:32.280 found our conversation to be really intriguing, and I think 0:01:32.319 --> 0:01:36.240 you will also so. With no further ado, First Specific 0:01:36.280 --> 0:01:43.400 Advisors Steve Romick. This is mesters in business with very 0:01:43.440 --> 0:01:48.760 results on Bloomberg Radio. My special guest this week is 0:01:48.800 --> 0:01:53.240 Steve Romick. He is the managing partner of First Specific Advisors, 0:01:53.280 --> 0:01:57.400 a shot that runs over twenty six billion dollars in equity, 0:01:57.440 --> 0:02:01.920 fixed income, and alternative strategies. He was the Morning Star 0:02:02.160 --> 0:02:06.200 US Allocation Fund Manager of the Year. He also manages 0:02:06.360 --> 0:02:09.760 the eleven billion dollar f p A Crescent Fund, which 0:02:09.760 --> 0:02:16.400 he has been running sinceince inception in Steve Romick, Welcome 0:02:16.800 --> 0:02:20.720 to Bloomberg. Thank you, Barry. So let's go back to 0:02:20.800 --> 0:02:23.200 the early days of your career. You began as an 0:02:23.240 --> 0:02:29.920 analyst in tell us what industry you were covering. I 0:02:30.160 --> 0:02:33.519 I started out as a generalist. I I actually started 0:02:33.520 --> 0:02:37.480 as a generalist to who knew nothing about everything. I 0:02:37.600 --> 0:02:41.720 was on my way to law school and I met 0:02:41.800 --> 0:02:47.079 a gentleman through my father, who decided that he wanted 0:02:47.120 --> 0:02:52.840 to bring somebody into his shop who didn't know anything 0:02:52.960 --> 0:02:55.680 because he's he quoted it at the time. He was 0:02:55.720 --> 0:03:00.160 tired of unlearning NBAS and he put me up in 0:03:00.200 --> 0:03:02.800 his office, pushed a desk right up next to his 0:03:03.520 --> 0:03:06.200 and said, you're going to see what we know, how 0:03:06.240 --> 0:03:08.040 this works, and what we do. And he did every 0:03:08.040 --> 0:03:11.440 time we called a company. He had the Manethond with him, 0:03:11.800 --> 0:03:13.880 and I learned, you know, early on. But the industry 0:03:13.880 --> 0:03:16.840 that I focused on to the greatest degree in the 0:03:16.919 --> 0:03:19.880 in my earliest years in the mid eighties, you know, 0:03:19.919 --> 0:03:23.079 where it was the bank and thrift industry, when there 0:03:23.120 --> 0:03:26.120 were you know, almost tripled the number of banks and 0:03:26.160 --> 0:03:29.400 thrifts the United States, and there was a massive assolidation 0:03:29.440 --> 0:03:32.320 trend that that he identified that was likely to occur, 0:03:32.360 --> 0:03:35.560 which of course did occur. And he had me spending 0:03:35.560 --> 0:03:38.120 a lot of time, you know, analyzing these companies and 0:03:38.280 --> 0:03:43.280 inputting you know, hundreds of banks and thrifts into d base, 0:03:43.640 --> 0:03:46.240 something we don't really use today anymore. And spent a 0:03:46.280 --> 0:03:48.320 lot of time analyzing this businesses. And then I just 0:03:48.320 --> 0:03:51.160 took it from there and and continued you need that breath, 0:03:51.560 --> 0:03:54.200 and spent a lot of time looking, you know, at 0:03:54.320 --> 0:03:57.360 different parts of the capital structure as well to stressed 0:03:57.440 --> 0:04:01.840 that and stressed that. In addition, so you mentioned d base, 0:04:02.560 --> 0:04:05.640 how different were the tools that you used in the 0:04:05.720 --> 0:04:11.000 nineteen eighties and the techniques that were mainstays in financial 0:04:11.760 --> 0:04:17.440 analysis then versus today. How radically has the world of 0:04:18.400 --> 0:04:22.240 analytical research changed? Well, I think that the the I 0:04:22.279 --> 0:04:25.240 don't know that the process is any different, but the 0:04:25.240 --> 0:04:28.560 tools that you can use to to get the information 0:04:28.640 --> 0:04:32.159 that one needs to make a robust decision, you know, 0:04:32.320 --> 0:04:35.080 are are better. I mean, it's just it's just easier, 0:04:35.520 --> 0:04:37.599 you know, to get that information, which makes the world, 0:04:37.800 --> 0:04:40.720 you know, candidly more competitive today than it was was 0:04:40.760 --> 0:04:43.600 back then. Not only is there more money slashing around 0:04:43.600 --> 0:04:47.200 the system system, not only are there more people doing it, 0:04:47.520 --> 0:04:49.480 you know, but they can get that information a lot 0:04:49.520 --> 0:04:52.680 more easily. I mean, back then I had to get 0:04:52.680 --> 0:04:56.200 on the phone and call a company and call them 0:04:56.240 --> 0:04:59.359 for local information, to get the the the phone number 0:04:59.400 --> 0:05:03.760 of the headquarters or whatever company's headquarters it was, and 0:05:04.040 --> 0:05:06.440 try and get in contact with investor relations, if there 0:05:06.480 --> 0:05:09.360 even was an invest in relations department. More often than not, 0:05:09.520 --> 0:05:10.839 I was just trying to get in a hold of 0:05:10.880 --> 0:05:13.520 the somebody in the finance department to get them to 0:05:13.560 --> 0:05:17.560 send me an andy report and to to seek information 0:05:18.120 --> 0:05:22.839 on the competition, to seek information as relates to industry data. 0:05:22.960 --> 0:05:25.920 You know, it was just all much much harder to 0:05:26.200 --> 0:05:29.159 come by it. It required a lot more grount work 0:05:29.200 --> 0:05:32.320 just to get information. Now that information is available your 0:05:32.320 --> 0:05:36.640 fingertip fingertips, you know, on the web. And in addition, 0:05:37.200 --> 0:05:40.880 you you have so many great resources that exist today 0:05:40.960 --> 0:05:44.320 for people looking at businesses. The world's become much smaller. 0:05:44.960 --> 0:05:50.080 You have podcasts like this, You've got Value Investors Club, 0:05:50.360 --> 0:05:55.920 vic et cetera. Interesting, So you're working as an analyst 0:05:56.160 --> 0:06:01.000 covering everything generally. How did you decide to become a 0:06:01.040 --> 0:06:06.479 portfolio manager? And what was that transition? Like? I think 0:06:06.880 --> 0:06:10.200 that that's a great question because I think that everybody 0:06:10.400 --> 0:06:15.720 who is reasonably good at this and is confident in 0:06:15.760 --> 0:06:19.200 their capabilities it, at some point they want to to 0:06:19.680 --> 0:06:23.360 reach out and and touch the money themselves. List that, 0:06:23.640 --> 0:06:27.000 I mean, somebody else make that an investment decision. So 0:06:27.040 --> 0:06:29.800 it started out with my my personal account inside of 0:06:29.800 --> 0:06:33.200 the firm and investing that and you know, finding some 0:06:33.520 --> 0:06:37.640 you know failure early to realize you know, my miss 0:06:37.760 --> 0:06:40.360 you know, what not to do. And then as I 0:06:40.400 --> 0:06:44.120 got better over time, I thought that that it was 0:06:44.279 --> 0:06:46.400 might be something that I want to do in terms 0:06:46.400 --> 0:06:49.560 of manage and entire portfolio. As it began to really 0:06:49.640 --> 0:06:53.200 develop a philosophy as to how I'd like to to 0:06:53.400 --> 0:06:57.800 manage money, and I was very fortunate to have a 0:06:57.920 --> 0:07:01.760 mentor who helped pushed me in that direction and became 0:07:01.800 --> 0:07:06.240 one of my my early investors. Really intriguing. So you 0:07:06.400 --> 0:07:11.080 founded Crescent Management. How did you launch this business? How 0:07:11.080 --> 0:07:12.520 did you get it off the ground, Where did you 0:07:12.600 --> 0:07:15.560 find clients? And what did the business look like in 0:07:15.600 --> 0:07:20.360 those early years when we started this, it was I 0:07:20.600 --> 0:07:22.360 had a partner at the time who both of us 0:07:22.360 --> 0:07:25.040 had worked for. Our mentor's name was James Nathan was 0:07:25.120 --> 0:07:31.800 by Jeff Nathan, and he he you know, basically arranged 0:07:31.880 --> 0:07:36.080 marriage where he decided that we'd be better off building 0:07:36.080 --> 0:07:38.400 our own business, and it was an opportunity for us. 0:07:38.880 --> 0:07:42.600 He allowed us to do that while we remained, as 0:07:43.160 --> 0:07:45.960 you know, consultative analysts for once of a better description 0:07:46.040 --> 0:07:48.760 with his firm. So he could you know, have his 0:07:48.920 --> 0:07:50.640 cake and need it too, if you will. So it 0:07:50.680 --> 0:07:54.600 was it was mutually beneficial and early clients really came 0:07:54.640 --> 0:07:57.840 from his relationships. He could put us in business and 0:07:57.920 --> 0:08:00.440 I owed that, you know, all to him. We we 0:08:00.520 --> 0:08:03.280 didn't really have. We didn't have I mean, at that 0:08:03.320 --> 0:08:06.800 point in time, we you know, we launched with maybe 0:08:06.800 --> 0:08:08.280 it was I have to go back and think about 0:08:08.320 --> 0:08:10.600 many millions it was, but maybe it was ten million 0:08:10.600 --> 0:08:14.000 dollars in total between the separate accounts and and and 0:08:14.040 --> 0:08:16.800 the mutual fund. And it gradually grew from there. When 0:08:16.800 --> 0:08:19.640 you launched, was it all equity, was it equity fist 0:08:19.680 --> 0:08:24.080 income or was it unconstrained and you know, including alternatives 0:08:24.080 --> 0:08:29.360 and non publicly traded options, it was it was unconstrained 0:08:29.360 --> 0:08:31.920 within the public security markets. So they did not include 0:08:31.920 --> 0:08:35.520 anything that was in the private sector, whether it be 0:08:35.559 --> 0:08:38.720 private credit or the odd private equity investment that we 0:08:38.840 --> 0:08:42.600 might make today. Uh, and today we would continue to 0:08:42.640 --> 0:08:46.880 be largely public security investors. But philosophically, at that point 0:08:46.920 --> 0:08:51.320 in time, I liked the idea that I was able 0:08:51.360 --> 0:08:57.480 to invest money in a way that could deliver high 0:08:57.559 --> 0:08:59.920 risk ADJI becturies. I believe they could deliver high risk 0:09:00.080 --> 0:09:03.320 just it returns to my client based by investing across 0:09:03.320 --> 0:09:07.120 the capital structure. We had come out of the you know, 0:09:07.240 --> 0:09:10.680 the was coming out of the recession at that point, 0:09:10.679 --> 0:09:13.080 in time and the Drexel Burnham blow up, and there 0:09:13.160 --> 0:09:17.000 was lots of opportunity in junk bond land, and I 0:09:17.160 --> 0:09:20.719 learned that I could get a way to return in 0:09:20.800 --> 0:09:23.160 the debt markets that was as good as the equity 0:09:23.200 --> 0:09:26.840 markets with with with more downside protection, and I could 0:09:26.920 --> 0:09:29.520 use that as a tool in my portfolio. And if 0:09:29.559 --> 0:09:32.680 I could do that, I felt that are my clients 0:09:32.760 --> 0:09:39.240 would would benefit because the portfolio could deliver higher risk 0:09:39.400 --> 0:09:42.560 just to returns. And volatility is a is a measure 0:09:42.640 --> 0:09:45.880 of risk is I think a bit silly, and because 0:09:46.240 --> 0:09:48.760 it's just things can move around a lot, and the 0:09:48.840 --> 0:09:52.560 temperature outside today in Los Angeles does nothing, doesn't reflect 0:09:52.640 --> 0:09:54.960 what the temperature might be tomorrow. It's just gonna it's 0:09:55.000 --> 0:09:58.679 gonna move around. So when it comes to investing, though, 0:09:58.720 --> 0:10:01.480 in the average person, this goes for many professional investors, 0:10:01.880 --> 0:10:05.679 I think of volatility does weigh on on them, and 0:10:05.760 --> 0:10:08.480 it does precipitate action. Stocks to go up a lot, 0:10:08.559 --> 0:10:10.439 they need to get in. They stocks to go down 0:10:10.440 --> 0:10:12.360 a lot, people will panic out. And this is I'm 0:10:12.360 --> 0:10:15.200 not making a universal statement, but it's it's all too 0:10:15.280 --> 0:10:19.560 often true. And I found in dealing with individual clients 0:10:19.600 --> 0:10:24.400 a very It was very much true. And I felt 0:10:24.480 --> 0:10:29.199 that managing a product that could mute that which which 0:10:29.320 --> 0:10:31.079 was not the goal, It was just the byproduct of 0:10:31.200 --> 0:10:35.160 my of my process was was something that that could 0:10:35.240 --> 0:10:40.440 be a reasonable business. And clearly it became a reasonable business. 0:10:40.800 --> 0:10:44.679 When did Crescent become part of f p A and 0:10:44.800 --> 0:10:50.679 what was that transition? Like that was in and the 0:10:50.800 --> 0:10:57.120 transition was was actually a very difficult transition for for 0:10:57.440 --> 0:11:02.320 tragic reasons. I um my partner and I split up. 0:11:02.400 --> 0:11:04.559 He took separate accounts and I took the mut of 0:11:04.640 --> 0:11:08.120 fun and we brought the assets over two for Specific Advisors. 0:11:08.160 --> 0:11:10.599 I realized that I didn't want to deal with the 0:11:11.320 --> 0:11:13.280 back office. I didn't wanted to deal with the marketing. 0:11:13.320 --> 0:11:17.199 I just wanted to focus on investing and all the 0:11:17.720 --> 0:11:20.319 nuts and bolts of the business side of things. I 0:11:20.400 --> 0:11:25.199 wanted to leave to and organization that could have my 0:11:25.320 --> 0:11:27.760 back if you will, and and and provide that peace 0:11:27.800 --> 0:11:32.120 of mind that I can just focus. And so I 0:11:32.320 --> 0:11:35.520 joined for Specific Advisors and I was friends with I 0:11:35.600 --> 0:11:38.439 had there were these this investment group that I was 0:11:38.559 --> 0:11:41.280 part of at the time through my again my mentor 0:11:41.480 --> 0:11:44.440 that were guys who were older guys I mean younger 0:11:44.440 --> 0:11:47.199 than I am now, who would sit down and and 0:11:47.360 --> 0:11:51.760 talk about businesses, investments every every couple of months, and 0:11:51.800 --> 0:11:53.760 they get together for a dinner and you have to 0:11:53.800 --> 0:11:56.079 bring your best idea and you chat about it, and 0:11:56.200 --> 0:11:57.839 they let me come and be a fly on the 0:11:57.840 --> 0:11:59.839 wall because I clearly had nothing to add at that 0:12:00.000 --> 0:12:04.160 one in time. And one of those gentlemen was Bob Rodriguez, 0:12:04.200 --> 0:12:07.719 who was portfolio manager at First Specific Advisors at the time, 0:12:07.760 --> 0:12:11.280 and we became friendly and I sought out, sought him 0:12:11.320 --> 0:12:15.079 out and others regularly to to bounce ideas off of 0:12:15.800 --> 0:12:20.040 and compare notes and different businesses, and and Bob knew 0:12:20.040 --> 0:12:23.199 I was looking to find a home and he was 0:12:23.360 --> 0:12:26.640 kind enough to to allow me in her discussions the 0:12:26.640 --> 0:12:29.200 First Specific Advisors, which was run by George Michlus at 0:12:29.200 --> 0:12:32.840 the time, who was a well known investor and featured 0:12:32.880 --> 0:12:36.040 in John Train's book The Money Masters that volume one. 0:12:36.800 --> 0:12:39.360 And I spent a lot of time with George, who 0:12:39.400 --> 0:12:42.720 I knew perfectly through mutual friends, and it just seemed 0:12:42.720 --> 0:12:48.000 like a very very good fit. And I came into 0:12:48.679 --> 0:12:53.000 ft A and ninety six midn and and the early 0:12:53.120 --> 0:12:55.800 ninety six and ten days after I joined George Michlus 0:12:55.880 --> 0:12:58.160 was scheduled at dinner at my home that night and 0:12:58.360 --> 0:13:02.360 went cycling first and and uh had a bike accident 0:13:02.520 --> 0:13:06.760 and died. That is tragic and really just robbed you 0:13:06.800 --> 0:13:09.679 of the ability to work with him for all those 0:13:09.760 --> 0:13:13.800 future years. So so it really kind of shows you 0:13:13.920 --> 0:13:17.320 just how random life can be. And and it ties 0:13:17.400 --> 0:13:20.360 into the question I was about to ask you, which 0:13:20.480 --> 0:13:24.920 is you've had one of the longest tenures in the 0:13:25.040 --> 0:13:29.480 mutual fund business. You've been running the FPA Cresting Funds 0:13:29.520 --> 0:13:36.600 since its inception. What is the secret to this longevity? Oh, 0:13:36.679 --> 0:13:39.719 I thank you. You have to enjoy what you do 0:13:40.280 --> 0:13:43.679 first and foremost, and and I do. I mean if 0:13:43.720 --> 0:13:46.360 I people ask me when I'm going to retire, and 0:13:47.080 --> 0:13:49.360 I have no plans to do that because I enjoy 0:13:49.480 --> 0:13:53.720 coming to the office every day. I enjoy reading about businesses. 0:13:53.760 --> 0:13:55.760 I enjoy learning. I mean, this is a You're in 0:13:55.840 --> 0:13:58.040 a constant state of learning. The world is so different 0:13:58.080 --> 0:14:01.679 today than it was in the company and industries you 0:14:01.760 --> 0:14:04.679 know have have have evolved, and it forces you to 0:14:05.160 --> 0:14:10.880 to continue to to study and you you never perfect this. 0:14:11.160 --> 0:14:15.079 It's it's a it's a constant process of self improvement. 0:14:15.600 --> 0:14:18.319 And I've as I look around me, and I think 0:14:18.360 --> 0:14:21.040 that's what keeps me young. And so I've really have 0:14:21.280 --> 0:14:24.200 no intention of stopping this in anytime since. So that's 0:14:24.440 --> 0:14:26.520 I think the first, you know, key to that longevity. 0:14:26.960 --> 0:14:28.840 And I think second is just that we happen to 0:14:29.160 --> 0:14:31.960 create a product that that, for better or worse, is 0:14:32.040 --> 0:14:34.200 different than the typical product. I mean, sometimes we will 0:14:34.240 --> 0:14:36.760 look like the typical mutual fund. We will we will 0:14:36.800 --> 0:14:39.920 look very ordinary, you know, for sometimes longer periods of time, 0:14:39.960 --> 0:14:42.440 because there isn't a lot of opportunity and and say 0:14:42.480 --> 0:14:44.320 that in the debt market says there hasn't been over 0:14:44.360 --> 0:14:46.680 the last number of years because we've not been interested 0:14:46.720 --> 0:14:51.000 in and buying high old bond without the without the 0:14:51.080 --> 0:14:53.120 high part of the yield, because there hasn't been much yield. 0:14:53.880 --> 0:14:55.960 So we end up with just more inequities than we 0:14:56.040 --> 0:15:01.560 have have historically. And so but we do have that opportunity, 0:15:01.600 --> 0:15:04.880 that flexibility to to operate with great breath, whether or 0:15:04.920 --> 0:15:08.200 not we we take advantage of it at all points 0:15:08.240 --> 0:15:11.440 in time or not, it's that opportunity does exist. I 0:15:11.520 --> 0:15:13.520 think that makes us a little bit different than than 0:15:13.680 --> 0:15:16.400 the typical one. And it doesn't make us the right 0:15:16.640 --> 0:15:20.400 investment for for everyone, but we we've kind of come 0:15:20.440 --> 0:15:23.080 in each day, myself and my my partners in the 0:15:23.160 --> 0:15:24.960 fund now because one of the things that's also allowed 0:15:25.000 --> 0:15:27.880 me this longevity is to to have terrific partners in 0:15:27.920 --> 0:15:33.760 Brian Selmo and Mark Landecker, who are wonderful partners, and 0:15:33.840 --> 0:15:37.440 wonderful analysts and wonderful portfolio managers and and thoughtful and 0:15:37.560 --> 0:15:40.360 kind people with lots of integrity who make it fun 0:15:40.480 --> 0:15:43.440 to to come in each day. And so having that 0:15:43.640 --> 0:15:46.800 kind of support around you, along with our analyst team 0:15:46.840 --> 0:15:51.280 and support of of of the organization for specific advisors, 0:15:51.800 --> 0:15:55.840 makes it, you know, makes it makes it enjoyable. Let's 0:15:55.880 --> 0:15:58.880 talk a little bit about what it was like managing 0:15:58.920 --> 0:16:02.080 all those assets in the midst of the worst pandemic 0:16:02.160 --> 0:16:06.760 in a century. UM heading into the end of you 0:16:06.840 --> 0:16:11.240 were running more than a third cash in the funds. 0:16:11.640 --> 0:16:16.400 What was the thinking then, Well, we've always managed a 0:16:16.520 --> 0:16:18.920 fair amount of cash in the in the in the portfolio, 0:16:19.320 --> 0:16:24.280 and that takes pretty high it is. It was certainly 0:16:24.320 --> 0:16:27.760 above average, and it wasn't that we we identified the 0:16:28.760 --> 0:16:31.640 a recession is about to come as a result of 0:16:31.720 --> 0:16:34.120 a of a pandemic in the world would would literally 0:16:34.240 --> 0:16:38.560 stop in many in many industries. But it was really 0:16:39.080 --> 0:16:43.480 more a function of you know, cash being a byproduct 0:16:43.520 --> 0:16:46.600 of our investment products process. If we find an investment 0:16:46.680 --> 0:16:49.600 we like, we buy it. If not, cash ens up 0:16:49.640 --> 0:16:52.720 as a residual. And we were more comfortable only more 0:16:52.800 --> 0:16:55.000 cash in the past than we are today because at 0:16:55.040 --> 0:16:57.520 a point in time cash yielded five percent back into 0:16:57.960 --> 0:17:01.760 the early two thousands and mid doos, and we have 0:17:01.880 --> 0:17:05.840 more concerned today being that that inflation might be perspectively 0:17:05.960 --> 0:17:08.600 higher given the amount of depth that's pennisuing, the amount 0:17:08.640 --> 0:17:10.920 of paper money that's been printed and cast would be 0:17:11.000 --> 0:17:13.480 worth a lot less in an inflation or environment. So 0:17:13.560 --> 0:17:16.760 when we came into this recession and in in into 0:17:16.840 --> 0:17:21.160 the pandemic in early two thousand, we had that cash 0:17:21.240 --> 0:17:23.560 game just as a by product of that, and we 0:17:23.680 --> 0:17:26.720 thought we were actually more protected with the cash we were, 0:17:26.800 --> 0:17:30.119 But the investment part of the portfolio, you know, was 0:17:30.320 --> 0:17:32.360 you know, it was kind of lye hit pretty hard 0:17:32.440 --> 0:17:38.480 by the by the pandemic, that right, yeah, the but 0:17:38.680 --> 0:17:40.520 it was it was it was some of the businesses 0:17:40.600 --> 0:17:43.720 that we owned were people you know throughout you know, 0:17:43.840 --> 0:17:46.320 for dead for for a period of time. We owned 0:17:46.359 --> 0:17:49.400 companies like like A I G. That started the year 0:17:49.480 --> 0:17:53.119 at around fifty and at the end of two going 0:17:53.160 --> 0:17:57.320 into twenty, it peaked mid fifties and an intra day 0:17:57.560 --> 0:18:00.119 in the in the third fourth week of March when 0:18:00.119 --> 0:18:02.800 it's twenty, it was trading down at you know, under 0:18:02.840 --> 0:18:06.840 seventeen dollars a share with book value, you know, being up, 0:18:06.960 --> 0:18:09.080 you know, closer to where the price was at the 0:18:09.119 --> 0:18:12.000 beginning of the year, So huge, huge discount, and people 0:18:12.080 --> 0:18:15.800 believed that, you know, the the company was clearly on 0:18:15.880 --> 0:18:19.399 its way out, you know of existence, and you know, 0:18:19.480 --> 0:18:22.080 we didn't believe that, and you know, we had took 0:18:22.119 --> 0:18:25.280 the opportunity to to increase our position. But it was 0:18:25.320 --> 0:18:29.280 still I mean it admittedly discomfiting at that point in time, 0:18:29.359 --> 0:18:31.600 not only for us because who likes to see their 0:18:31.760 --> 0:18:34.239 their stocks dropped up and dropped that much, but um 0:18:34.280 --> 0:18:37.200 it certainly for our for our investor base. But the 0:18:37.320 --> 0:18:41.400 end of the day, we we understood that that many 0:18:41.480 --> 0:18:42.680 of these business we all it was just it was 0:18:42.720 --> 0:18:44.760 just a blip. It was the price at a point 0:18:44.760 --> 0:18:47.360 in time with fear you know hitting you know, hitting 0:18:47.400 --> 0:18:50.600 the market, and it wasn't the that these businesses weren't 0:18:50.600 --> 0:18:52.080 going to do well once we got through to the 0:18:52.160 --> 0:18:55.520 other side, and business is like a I G. You know, 0:18:55.600 --> 0:18:58.639 we're going to be fine, and it's it's it's businesses 0:18:58.800 --> 0:19:01.919 like like Mary I. Businesses truly stopped. And we were 0:19:01.960 --> 0:19:05.680 buying you know, Marriott as as the stock was coming down, 0:19:06.320 --> 0:19:08.320 and you know, you buy a stock at eighty and 0:19:08.400 --> 0:19:10.800 then it goes you know, it goes into the sixties. 0:19:11.160 --> 0:19:14.679 You know, it's not the again, the most comfortable thing 0:19:14.760 --> 0:19:17.680 to watch happen. But we're very confident that as we 0:19:17.760 --> 0:19:21.080 got through the pandemic, people once again would would travel, 0:19:21.160 --> 0:19:23.400 they would get on airplanes, they would go to hotels 0:19:23.520 --> 0:19:27.240 and and a company like Marriott, you know that is 0:19:27.960 --> 0:19:29.880 you know, more asset light than you know, some other 0:19:29.920 --> 0:19:33.080 hotel businesses would would perform, you know, quite well. So, 0:19:33.560 --> 0:19:36.560 you know, buying something at at sixty I'm sorry, at eighty, 0:19:37.000 --> 0:19:39.480 you know, as it as it dropped down, as it 0:19:39.560 --> 0:19:45.120 dropped down, um in another from there. You know, again, 0:19:45.160 --> 0:19:47.640 as I said, it was discomforting. But at the same time, 0:19:47.720 --> 0:19:49.440 you look where it is today, where it's a hundred 0:19:49.440 --> 0:19:53.680 and forty plus. We clearly weren't wrong, but it took 0:19:53.720 --> 0:19:55.560 a market at that point in time, as it took 0:19:55.600 --> 0:19:57.920 a lot of those businesses down down with it. So 0:19:58.040 --> 0:20:00.800 we took advantage of the opportunity it is at that 0:20:00.880 --> 0:20:04.200 point in time and increased our invested exposure by about 0:20:04.560 --> 0:20:07.160 ten percentage points and pulled down some of that cash 0:20:07.240 --> 0:20:10.280 you were referencing. So I don't want listeners to think 0:20:10.400 --> 0:20:14.280 this is hindsight bias or you know, after the fact, 0:20:15.040 --> 0:20:20.359 re reinventing history. March there was an article in the 0:20:20.400 --> 0:20:23.639 New York Times by Jeff Sohmer Uh and remember this 0:20:23.880 --> 0:20:27.359 is deep into the collapse, about a week before the 0:20:27.480 --> 0:20:33.240 market bottomed, and he described getting a note from you 0:20:34.200 --> 0:20:38.560 saying you had begun to start buying stocks and felt 0:20:38.640 --> 0:20:41.439 that if even if markets fell further, you were going 0:20:41.480 --> 0:20:44.399 to continue to buy because you thought things had suddenly 0:20:44.480 --> 0:20:47.960 become very attractive price wise, and that you said you 0:20:48.040 --> 0:20:51.960 were acting rationally and not bravely. Um, and you're looking 0:20:52.000 --> 0:20:54.439 at five to seven years. Tell us a little bit 0:20:54.520 --> 0:20:59.520 about the reaction to that Times column about you buying 0:20:59.800 --> 0:21:03.200 right into the teeth of the collapse. Reaction from whom, Barry, 0:21:03.400 --> 0:21:07.320 from whoever, from investors, from you know, any I found 0:21:07.359 --> 0:21:12.520 any time I see someone go against the dominant trends 0:21:13.119 --> 0:21:17.719 stake out a contrarian point. The general pushback is ranges 0:21:17.800 --> 0:21:20.160 from this guy is an idiot to this guy's crazy. 0:21:20.640 --> 0:21:23.200 Were you getting sort of hey, what are you doing? 0:21:23.359 --> 0:21:26.239 From clients? We got, we got the spectrum, We got 0:21:26.320 --> 0:21:29.440 both right. I mean, but you've been doing this long 0:21:29.560 --> 0:21:32.119 enough and your track record is good enough that one 0:21:32.200 --> 0:21:35.920 would hope longstanding clients would say, I don't know, but 0:21:36.000 --> 0:21:37.600 I'm going to give you the benefit of the doubt 0:21:37.760 --> 0:21:40.159 because you've been right before. What what was the what 0:21:40.359 --> 0:21:44.440 was the pushback? Like the the pushback from some people 0:21:44.640 --> 0:21:47.719 was your your portfolio took a mark We didn't expect 0:21:47.800 --> 0:21:50.639 it to take a mark um like it has, and 0:21:50.840 --> 0:21:53.840 so we're gonna go and, uh, give our money to 0:21:53.920 --> 0:21:57.320 somebody else. That was respect from some On the other hand, 0:21:57.359 --> 0:22:01.280 we had those investors who increase their their capital commitment, 0:22:01.359 --> 0:22:05.680 you know, to us and and decided that what we 0:22:05.760 --> 0:22:07.520 were doing was the right thing because they did by 0:22:07.760 --> 0:22:10.280 into the argument you just made that, Hey, with these 0:22:10.320 --> 0:22:12.640 guys have been doing this a long time. They've lived 0:22:12.680 --> 0:22:15.040 through various cycles. They lived through the Internet bubble, they 0:22:15.080 --> 0:22:17.720 lived through the the you know, junk bond, you know, 0:22:18.040 --> 0:22:20.520 blow ups in in in in the early two thousand's 0:22:20.520 --> 0:22:22.480 when when the world comes were there and we're able 0:22:22.520 --> 0:22:25.360 to take advantage. They lived through the Great Financial Crisis 0:22:25.520 --> 0:22:28.320 and and they these guys know what they're doing. I'd 0:22:28.400 --> 0:22:31.400 rather them do it then then you know, somebody else. 0:22:31.880 --> 0:22:34.080 And so we did have you know, fortunately those people 0:22:34.119 --> 0:22:36.560 as well. On the other hand, there was more of 0:22:36.600 --> 0:22:38.840 the former admitted lay than a lotter. You know, people 0:22:39.160 --> 0:22:41.000 send to vote with their feet. And this goes back 0:22:41.040 --> 0:22:43.800 to that volatility argument that people get, you know, get 0:22:44.000 --> 0:22:46.320 a little panicked at these points in times, and we 0:22:47.520 --> 0:22:51.159 just tried to be thoughtful and act rationally. And the 0:22:51.240 --> 0:22:53.200 end of the day, if we do the right thing, 0:22:53.920 --> 0:22:55.920 the business will take care of itself. Whether it will 0:22:55.920 --> 0:22:59.080 be you know, whether we're smaller or were larger, it's 0:22:59.080 --> 0:23:01.119 not going to change what we do every day when 0:23:01.160 --> 0:23:02.720 we come in here. It's not gonna do and it's 0:23:02.720 --> 0:23:05.400 not going to change our lives. So it's very important 0:23:05.440 --> 0:23:07.720 for us to always be mindful of what the world 0:23:07.800 --> 0:23:10.920 will look like five to seven years, you know, down 0:23:10.960 --> 0:23:15.000 the road, and make sure that we we have analyzed 0:23:15.040 --> 0:23:17.280 the businesses that we own or the assets were buying 0:23:17.560 --> 0:23:20.320