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Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.

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Speaker 1: This week we have an extra special show. On Monday,

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Speaker 1: we did Masters in Business Live and my guest was

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Speaker 1: the incomparable Howard Marks of oak Tree Capital. They run

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Speaker 1: about a hundred and twenty billion dollars and have put

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Speaker 1: up numbers that have been quite astonishing for their entire

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Speaker 1: twenty four year history. This is the second Masters in

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Speaker 1: Business Live we've done. The first one was Ray Dalio.

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Speaker 1: We're going to continue doing these every few months and

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Speaker 1: we have an interesting list of guests coming up. If

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Speaker 1: you were anywhere near the New York City headquarters on

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Speaker 1: the day we do one of these, I strongly advise

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Speaker 1: you to get tickets. Not only is it live so

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Speaker 1: anything can happen, but it's really a fascinating conversation and

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Speaker 1: in both cases, um our guests stick around, chat with

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Speaker 1: the audience, um take questions, signed books. It's very informal

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Speaker 1: and how often you get to really hang around and

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Speaker 1: and have that sort of interaction with legends in finance

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Speaker 1: like that. Plus, Bloomberg is a great place to come

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Speaker 1: to an event. They always serve drinks and appetizers. They

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Speaker 1: really roll out the red carpet. It was. It was

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Speaker 1: a lovely and delightful evening. Everybody who attended had a

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Speaker 1: great time. Rather than me continue to babble with no

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Speaker 1: further ado, my masters in business live with oak Tree

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Speaker 1: Capitals Howard Marks, and once again I get to start

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Speaker 1: out by announcing, um that I am cheating. By bringing

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Speaker 1: someone like Howard here makes my job really easy. Uh.

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Speaker 1: If you're not familiar with his background, I'm going to

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Speaker 1: give you just a really short uh CV of Howard Marks.

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Speaker 1: He's the co chairman and co founder of oak Tree Capital,

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Speaker 1: which now manages over a hundred and twenty billion dollars

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Speaker 1: in assets. Howard formed oak Tree to run high yield bonds,

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Speaker 1: distress debt, in private equity, and other strategies back They

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Speaker 1: run seventeen separate distress debt funds unless It's Risen two more,

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Speaker 1: which have averaged annual gains of after fees for the

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Speaker 1: past about seven hundred basis points above its peers in

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Speaker 1: the fixed income space, and handily beating a lot of

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Speaker 1: equity funds over the same time period. He is the

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Speaker 1: author of the Most Important Thing, Uncommon Sense for the

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Speaker 1: Thoughtful Investor, his new book, which everyone here will get

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Speaker 1: copy of is Mastering the market cycle, getting the odds

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Speaker 1: on your side. Howard Marks, Welcome to Bloomberg Life. Mary,

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Speaker 1: it's great to be here. So I'll get to the

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Speaker 1: books um in a few minutes. But I want to

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Speaker 1: start with an interesting question that I think people may

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Speaker 1: not be aware of your background. You began as an

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Speaker 1: equity analyst. How does one of the world's most famous

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Speaker 1: bond managers being in his career as an equity analyst. Well,

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Speaker 1: I think that, I think that certainly at that point

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Speaker 1: in time, Uh, the starting off as an equity analyst

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Speaker 1: was there was the normal course. Uh No, bonds at

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Speaker 1: that time were considered a backwater that nobody was interested in.

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Speaker 1: They had two old uh European refugees in the research

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Speaker 1: department of City Bank, and I remember, uh they would

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Speaker 1: publish a bi weekly bond summary, and I remember at

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Speaker 1: one point one came around with the black box in

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Speaker 1: the upper right hand cornersay, is the last issue because

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Speaker 1: everybody lost interest in stocks were doing so well. You

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Speaker 1: know how it works. Stocks were doing so well, bonds

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Speaker 1: were doing so poorly that people lose interest. Now, Uh,

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Speaker 1: what the contrarian says is I want to get out

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Speaker 1: of the thing that's been doing well and into the

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Speaker 1: things that that's doing poorly. But contrarianism hadn't become invented

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Speaker 1: yet at that point in time. But anyway, so I

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Speaker 1: started off in the equity research as you say. I

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Speaker 1: had a summer job in sixty eight, came back full

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Speaker 1: time after grad school in sixty nine, became UH senior analysts,

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Speaker 1: the United head director of Research from seventy to seventy

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Speaker 1: eight UH. And then I got my lucky break in

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Speaker 1: seventy eight when I switched to UH what was called

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Speaker 1: the bond Department. But I wasn't ever managing straight fixed income.

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Speaker 1: I was started with convertible bonds. And then in the

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Speaker 1: summer of seventy eight, I got the phone call that

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Speaker 1: changed my life. The head of the bond department called

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Speaker 1: me and he said, there's some guy in California named

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Speaker 1: Milken or something and he deals in something called hi bonds.

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Speaker 1: Can you figure out what that mean? Because the client

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Speaker 1: had come in and asked for Ohio bond portoyo, and

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Speaker 1: I was smart enough to say yes. So that's the

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Speaker 1: transition from equities to regular bonds to high yield bonds.

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Speaker 1: How do you end up over at Trust Company of

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Speaker 1: the West in UH. In the first business trip of

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Speaker 1: my life in January nineteen seventy, I went to California

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Speaker 1: and UH I was stuttering studying a group that doesn't

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Speaker 1: exist anymore called the Conglomerates. And after the doing, the

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Speaker 1: company visits my boss and I. His in laws lived

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Speaker 1: in uh Laguna Beach, so he went down there and

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Speaker 1: spent the weekend. I fell in love with California, and

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Speaker 1: I spent the seventies trying to figure out a way

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Speaker 1: to get to California, which I did in nineteen eighty.

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Speaker 1: UH City, I got City back to move me in

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Speaker 1: nineteen eighty and then in eighty five, Trust Company the West,

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Speaker 1: which was in l a company, approached me because they

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Speaker 1: wanted to expand into my asset classes. And that's how

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Speaker 1: I moved there in eighty five. So it's worth mentioning

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Speaker 1: in passing that when you were working at Trust Company

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Speaker 1: of the West, you were supervising a young whiz kid

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Speaker 1: named Jeff Gunlock or working with tell us what it

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Speaker 1: was like writing herd on him. He seems to be

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Speaker 1: a person that doesn't lend himself to UH being told

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Speaker 1: what to do well. I never kidded myself into thinking

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Speaker 1: that that I was actually supervising him. Uh, but you know,

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Speaker 1: uh I was. I was asked to, well, you used

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Speaker 1: the term right herd, which is as good as any

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Speaker 1: and uh, you know he uh kind of respected me

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Speaker 1: intellectually and so and so we got along. And uh

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Speaker 1: and I think with Jeff that's the key, um, you know.

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Speaker 1: And uh, he was very innovative in his approach. He

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Speaker 1: he was managing mortgage backed securities from the late eighties, uh, um,

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Speaker 1: which was innovative. And you know he would he would

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Speaker 1: figure out strategies and then share them with me in

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Speaker 1: the hope that I would understand. So so fast forward

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Speaker 1: and I would assume you you probably did understand pretty well. Um.

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Speaker 1: Fast forward a couple of years you launched oak Tree.

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Speaker 1: And then a decade or so after that, Jeff decides

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Speaker 1: the part ways with Trust Company of the West, and

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Speaker 1: he comes to you for some career advice. How did

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Speaker 1: that work? Well, of course, he didn't decide to part ways.

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Speaker 1: I mean they decided to part ways with him. Um,

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Speaker 1: and he got canned is the technical term. And and

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Speaker 1: and I think it was December oh nine, if I'm

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Speaker 1: not mistaken, and uh, you know he hey, he had

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Speaker 1: a great following among his clients and among his his staff,

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Speaker 1: and as soon as he got let go, I think

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Speaker 1: the rest of him all quit and his whole team,

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Speaker 1: I think his whole team. And then, through a brokerage

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Speaker 1: firm or they nowadays they say, investment bank approached us

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Speaker 1: and said would you, uh, would you help us get

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Speaker 1: started in exchange for fift of our company? And so

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Speaker 1: we were again smart enough to say yes. And it

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Speaker 1: wasn't a matter of finances. It was a matter of infrastructure,

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Speaker 1: back office, tax, legal registration, all those things. And there's

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Speaker 1: a you know, when we started oak Tree, people would say,

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Speaker 1: what's been the biggest surprise. I said, the biggest surprise

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Speaker 1: is how much non investment stuff there is in an

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Speaker 1: investment management job. So we helped him with that. He's

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Speaker 1: in our building in California and we just meet and

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Speaker 1: chat periodically. But as I say, we started with fifteen

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Speaker 1: percent of the company. Then we realized that under accounting rules,

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Speaker 1: in order to bring in our share of their profits,

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Speaker 1: we would have to uh, so we bought another seven

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Speaker 1: percent and we got de looted down to twenty which

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Speaker 1: is where we are now. We have delution protection. Were

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Speaker 1: extremely happy to be owner of Double Line, and I

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Speaker 1: want to say Double Line is the fastest growing asset

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Speaker 1: management firm to reach all. I wouldn't swear to it,

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Speaker 1: but I believe that's right. So let's talk a little

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Speaker 1: about the Chairman's Memos, which you're somewhat um infamous for. Um.

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Speaker 1: I'm gonna quote Warren Buffett when I see memos from

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Speaker 1: Howard Marks in my mailbox that the first thing I

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Speaker 1: opened and read, I always learned something. Tell us what

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Speaker 1: led you to publishing the Chairman's Memos? When when did

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Speaker 1: they start? And why did you feel the need to

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Speaker 1: write them they started? So this is the thirtieth year, um,

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Speaker 1: and thank you. And I don't remember uh thinking that

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Speaker 1: if I wrote him I'd get more business or anything

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Speaker 1: like that. But uh, there were events that happened in

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Speaker 1: my environment, the juxtaposition of which was I thought extremely informative,

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Speaker 1: and so I wanted to write it up and share

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Speaker 1: it with my clients. Now it is all and and

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Speaker 1: you're you're well known for them today. Buffett had has

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Speaker 1: lauded them, and other people have tooked so um approvingly

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Speaker 1: of them. But when you first started publishing these, what

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Speaker 1: was the response, like big fat zero zero, literally barry there.

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Speaker 1: It was ten years before I ever had a response.

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Speaker 1: Not only did nobody say, oh that was good, nobody

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Speaker 1: ever said I got it. So it was, you know,

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Speaker 1: and this is this was this is the day of

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Speaker 1: running the xerox machine, folding them up, putting them in envelopes,

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Speaker 1: addressing them, putting stamps on, and then, as far as

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Speaker 1: I knew, tossing him down to this sewer. Because I

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Speaker 1: never had a response for ten years, and so so

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Speaker 1: I kind of remember or what made me right the

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Speaker 1: first one. I have no idea what kept me going.

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Speaker 1: So you said, there's no response for a decade. That

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Speaker 1: response though, I very specifically remember that one, because Barons

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Speaker 1: did a giant cover on it bubble dot com in

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Speaker 1: January two thousand and only were you right? But the

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Speaker 1: timing couldn't have been any better. Tell us about that

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Speaker 1: particular chairmans, Well, of course, uh, in our business, um,

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Speaker 1: it doesn't do any good to be right if the

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Speaker 1: timing is not good. You know, there's an old saying

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Speaker 1: in our business that being too far ahead of your

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Speaker 1: time is indistinguishable from being wrong. So if I would

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Speaker 1: have published the same insight in I'd be forgotten because

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Speaker 1: it would have taken three plus years to work. It

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Speaker 1: happens that only took a few months to work. And

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Speaker 1: basically the premise of the menu memo was that the

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Speaker 1: TMT tech media telecom bubble that had been pushing stocks

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Speaker 1: up for the last few years of the nineties and

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Speaker 1: into two thousand UH was overdone. The subject of excessive

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Speaker 1: optimism and excessive faith in the future, and entirely free

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Speaker 1: of any kind of analytical or valuation rigor. You know,

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Speaker 1: I mean, we're used to paying fifteen times earnings for

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Speaker 1: an average company, and maybe thirty times earnings for what

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Speaker 1: we think is a great company. But how do you

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Speaker 1: value a company that has no earnings? Hold on? How

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Speaker 1: do you value a company that has no sales? You know?

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Speaker 1: I mean you were valuing an idea, and people were

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Speaker 1: you see, and and in the investment business, there's a

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Speaker 1: tendency to succumb to platitudes, generalizations, and so what was

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Speaker 1: going on in nine was the Internet will change the world.

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Speaker 1: And as a consequence, any stock which is Internet or

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Speaker 1: UH e commerce related is the right price is infinity,

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Speaker 1: There's and and as I say in the book. Can

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Speaker 1: I say in the book slight slap slug, But as

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Speaker 1: I say in the book, if you want to understand bubbles,

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Speaker 1: to me, the defining characteristic of the bubble is the

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Speaker 1: belief that quote, there's no price too high, if it's

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Speaker 1: if it's an Internet stock, there's no price too high,

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Speaker 1: if there was the nifty fifty back when I started, Xerox, Kodak,

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Speaker 1: mark Lily, no price too high. And of course it's

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Speaker 1: obvious that everything there is no there's nothing so good

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Speaker 1: that it can't be overvalued. And if you buy something

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Speaker 1: at a price which is excessive for its merits by

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Speaker 1: it's gonna require magic to make it into a successful investment.

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Speaker 1: So uh, that was the theme of the memo, you

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Speaker 1: know I talked about I talked about businesses. And by

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Speaker 1: the way, we still some see some today which which

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Speaker 1: don't have a profit plan, you know, and uh, companies

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Speaker 1: that you know that as I said in the memo, well,

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Speaker 1: people used to say, the great thing about this company

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Speaker 1: is that its costs are almost zero, and I wrote, well,

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Speaker 1: that's great because it's revenues are absolutely zero, you know.

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Speaker 1: And uh, I quoted my dad who was a big

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Speaker 1: joke teller. And he said that the two guys were

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Speaker 1: talking and one guy says, everything I sell, I sell

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Speaker 1: at cost. He said, well, how do you make money?

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Speaker 1: He's why I buy below cost. But but the but

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Speaker 1: the internet business model at that time seemed equally uh irrational,

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Speaker 1: and yet the stocks were selling at sky high prices.

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Speaker 1: And of course, and as I said in a memo

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Speaker 1: which which reviewed this progression later, you know, in my

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Speaker 1: first thirty years in the business, after a bubble popped,

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Speaker 1: we would see a table in the upper right hand

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Speaker 1: corner of the journal, and they show all the stocks

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Speaker 1: that were down. Remember, and then with this they showed

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Speaker 1: all the socks who are down or more. And so

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Speaker 1: the bubble popped. The memo look smart, I said in

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Speaker 1: the in the introduction to my first book. After ten years,

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Speaker 1: I became an overnight success. And that's the story. So

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Speaker 1: so let's talk about that first book, which is the

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Speaker 1: most important thing uncommon sense for the thoughtful investor. You're

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Speaker 1: writing these memos on a regular basis, um what motivated

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Speaker 1: you to say, I know, let's let's now spend three

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Speaker 1: pages and a year writing a book that was simple.

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Speaker 1: I got a letter from Warren Warren Buffett saying saying,

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Speaker 1: if you know I wrote a memo, I think I

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Speaker 1: forget which one it was, um, which was right up

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Speaker 1: his alley. And I wrote him afterwards and I said,

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Speaker 1: did you see this one? He says, yes, it was fine.

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Speaker 1: And he says, by the way, if you'll write a book,

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Speaker 1: I'll give you a quote for the jacket suburb. Enough said,

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Speaker 1: and and you know you don't pass that one. Boy.

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Speaker 1: So I had always thought that I would write a

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Speaker 1: book pulling the philosophy together, um when I retired, and

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Speaker 1: instead it got accelerated. What was the experience of writing

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Speaker 1: a book like? It was great? Um? You know? Um?

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Speaker 1: For me, the challenge is not to think up what

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Speaker 1: to say that the challenges to get it from here

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Speaker 1: to there, you know. And yeah, yeah, the thoughts are

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Speaker 1: coming so fast you're afraid they're going to evaporate, so

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Speaker 1: you have to sit there. And yet, so so let's

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Speaker 1: talk about some of those thoughts which I've pulled from books. Quote,

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Speaker 1: we can make excellent investment decisions on the basis of

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Speaker 1: present observations with no need to make guesses about the future.

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Speaker 1: Doesn't that run kind of contrary to how lots and

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Speaker 1: lots of people invest their capital. Yeah, I mean the

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Speaker 1: the the irony is that what is what is investing

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Speaker 1: investing is positioning your capital to profit from the future

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Speaker 1: that unfolds. And yet in my book, we can't know

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Speaker 1: what the future holds. So I an oak Tree through

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Speaker 1: its investment philosophy. Uh, specifically as true macro forecasts. And

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Speaker 1: I don't believe we ever know enough about the coming economy, markets, currencies,

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Speaker 1: and interest rates to make us a successful and a

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Speaker 1: superior investor. It's very hard to hold the view which

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Speaker 1: is different and from the consensus, and it's very hard

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Speaker 1: to have a non consensus view which turns out to

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Speaker 1: be more correct than the consensus. And so so I

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Speaker 1: don't believe in forecasts. Uh. Now everybody says, but the

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Speaker 1: macro is so important. It's the macro that moves the

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Speaker 1: markets these days, and it it truly does feel, let's say,

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Speaker 1: for the last fifteen or twenty years that yes, the

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Speaker 1: macro is much more important than company news, uh, in

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Speaker 1: moving the market. So they say, well, how can you,

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Speaker 1: how can you not do macro forecasting? And h I

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Speaker 1: was sitting and having dinner with Warren you know who. Uh,

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Speaker 1: that one a few years ago, and he said to me,

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Speaker 1: for a piece of information to be desirable, it has

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Speaker 1: to satisfy two criteria. It has to be important and

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Speaker 1: the macro is extremely important, and it has to be noble.

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Speaker 1: So you can have something which is very important, but

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Speaker 1: if you spend your time trying to figure it out,

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Speaker 1: it could be a waste of time if it's not knowable.

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Speaker 1: And I believe that the macro future is not knowable.

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Speaker 1: So uh. In in the first book the Most Important Thing,

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Speaker 1: there are twenty one chapters, and each one starts off

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Speaker 1: the title the most important thing is, and then it's

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Speaker 1: a different thing because in investing there is no one

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Speaker 1: thing which is the most important. There are in that

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Speaker 1: According to the book, there are twenty one things, all

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Speaker 1: of which are the most important thing um and one

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Speaker 1: of those is knowing where we stand in the cycle.

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Speaker 1: And when it was time to write a second book,

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Speaker 1: I pulled that out and that's what I devoted the

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Speaker 1: book too. So so since you brought that up, let's

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Speaker 1: talk about the second book, Mastering the market cycle. Getting

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Speaker 1: the odds on your side. Of all those twenty one

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Speaker 1: chapters in the first book, why cycles? Why did you

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Speaker 1: pick that um is shooting the other twenty when you

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Speaker 1: really you can write a twenty one volume encyclopedia, each

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Speaker 1: chapter being a book. Well, Barry, I believe of the

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Speaker 1: things of all the twenty one most important things, I

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Speaker 1: think that there are two that are more important than

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Speaker 1: the others, and they are risk and where we stand

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Speaker 1: in the cycle. I believe that risk management, risk control

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Speaker 1: is the mark of an exceptional investor. It's not hard

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Speaker 1: to make money in the market. It's especially not hard

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Speaker 1: when the market goes up. And the market goes up

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Speaker 1: most of the time, and most of the time everybody

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Speaker 1: in the market makes money. But if you don't know

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Speaker 1: what you're doing, if if you're throwing darts, if you're

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Speaker 1: just surfing, uh, you know what we call beata slipping. Uh,

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Speaker 1: that's not an accomplishment. To me. An exceptional investor is

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Speaker 1: someone who makes a lot of money when things go well,

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Speaker 1: but does it with the risk under control so that

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Speaker 1: he or she won't lose a lot of money when

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Speaker 1: the market does poorly. So I think that I devote

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Speaker 1: actually three chapters in the first book to risk, understanding risk,

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Speaker 1: recognizing risk, controlling risk, and I think that is the

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Speaker 1: mark of the superior investor. That's number one, Number two

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Speaker 1: the cycle. There's a connection here because I believe that

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Speaker 1: where the market is in its cycle determines how risky

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Speaker 1: it is. When when everything has been going swimmingly, and

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Speaker 1: as a consequence, the market is elevated in its cycle

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Speaker 1: relative to something we might think of as the midpoint

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Speaker 1: or the intrinsic value, then I think it's risky. And

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Speaker 1: when it's depressed in its cycle and low relative to

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Speaker 1: intrinsic value or the midpoint or the norm, then I

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Speaker 1: think the risk is very low. So understanding, even though

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Speaker 1: we can't benefit from predictions of the future, I believe

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Speaker 1: that where the market is in its cycle can tell

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Speaker 1: us a lot about what the odds are. And that

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Speaker 1: that you mentioned the subtitle of the book, Getting the

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Speaker 1: Odds on your Side, And I actually prefer the subtitle

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Speaker 1: to the title because it conveys, I hope, a sense

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Speaker 1: for my belief that we cannot know what the future holds.

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Speaker 1: The future is nothing but a probability distribution. But if

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Speaker 1: we think and study right, we can have an idea

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Speaker 1: about the shape of the probability distribution and what returns

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Speaker 1: are most likely. It's interesting you say that you prefer

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Speaker 1: the subtitle those the title itself sort of is at

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Speaker 1: odds with some things you've said before about you really

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Speaker 1: have a mantra. Not only can people not predict the future,

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Speaker 1: they can't time the market especially well either. How do

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Speaker 1: you reconcile mastering a market cycle that seems a little

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Speaker 1: contradictory to being able to time it. Well, let me

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Speaker 1: say up front, I believe very firmly that we sometimes

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Speaker 1: have a sense for what's going to happen, we never

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Speaker 1: know when. So when you say timing, the word time

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Speaker 1: is something I just discard. Uh. You know, since I'm

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Speaker 1: a writer. Everybody at oak Tree has the habit of writing.

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Speaker 1: Everybody at oak Tree writes a letter every quarter to

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Speaker 1: his clients. And um, there's a guy there who I

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Speaker 1: was reading, and I review all the letters before they

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Speaker 1: go out, and one of them, the portfolio manager, said,

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Speaker 1: if you name a date, don't name a price. And

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Speaker 1: if you name a price, don't name a date. And

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Speaker 1: if you think about it, if you never name both

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Speaker 1: the date and a price, you can never be wrong.

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Speaker 1: Uh and and but but I do think that you

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Speaker 1: can have an idea about what the future holds you

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Speaker 1: can have an idea whether this is a good time

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Speaker 1: to invest or not, but you you never know when

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Speaker 1: the things you're hoping for will unfold, and if you

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Speaker 1: if you think about it, I believe that everything an

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Speaker 1: investor does, what you do, what I do, falls under

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Speaker 1: one of two headings, assets selection and what I call

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Speaker 1: cycle positioning. In order to avoid using the word timing,

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Speaker 1: what do they mean? Assets election means trying to hold

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Speaker 1: more of the things that will do better and less

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Speaker 1: of the things that will do worse, pretty easy, and

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Speaker 1: psycle positioning means trying to have more of your capital

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Speaker 1: invested and more aggressively when the odds are favorable, and

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Speaker 1: less of your capital invested more defensively when the odds

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Speaker 1: are against you. I think you can we can know

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Speaker 1: something about the odds that doesn't mean we're going to

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Speaker 1: be right or we're gonna be right right away, especially uh,

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Speaker 1: and that can enable us to effectively do cycle positioning

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Speaker 1: h through an understanding of where we stand in the cycle.

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Speaker 1: So you mentioned two things earlier that I have to

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Speaker 1: circle back to. One was the concept of intrinsic value,

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Speaker 1: where assets might be above or below that, and the

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Speaker 1: second is the implication about psychology, which really, Um, we

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Speaker 1: went by too quickly, so I have to come back

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Speaker 1: to that. Um. Intrinsic value clearly refers to paying less

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Speaker 1: for an asset than you think it's ultimately worth. I

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Speaker 1: think you've written extensively about the advantages of being a

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Speaker 1: value investor. But let's let's explore the psychology of that.

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Speaker 1: Because it seems much easier to buy when things are

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Speaker 1: going up than to sell, and conversely, when everything is down,

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Speaker 1: it's much easier to sell with the crowd. Then take

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Speaker 1: the other side of the trade. Well, first of all,

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Speaker 1: intrinsic value. Every every asset that produces cash flow, you

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Speaker 1: can talk reasonably about its intrinsic value. What would you

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Speaker 1: pay to get those cash flows. It might be a company,

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Speaker 1: a stock, a bond, a building. Anything that produces cash

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Speaker 1: flow can be valued. That's what value investors do. We

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Speaker 1: try to figure out the value and buy for less.

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Speaker 1: That makes perfect sense in my opinion. Um. Now, the

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Speaker 1: next question is do assets sell at their intrinsic value?

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Speaker 1: And the answer is no. The asset the prices of

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Speaker 1: assets very very significantly from intrinsic value from time to time. Why, well,

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Speaker 1: you said it, psychology sometimes people are excited and the

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Speaker 1: price goes way above the intrinsic value, and sometimes they're

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Speaker 1: depressed and the price goes below the intrinsic value. Now

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Speaker 1: you the next thing you mentioned was how easy it

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Speaker 1: is to buy things that are going up. You mean

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Speaker 1: easy psychologically, right? Um? Uh? You know. Dave Swenson, who

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Speaker 1: runs the indowminant Yale, which is the probably the best

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Speaker 1: performing endowminant in the country over the last thirty plus

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Speaker 1: years that he's been doing it. Uh, wrote a book

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Speaker 1: in which he said that period performance in investment management

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Speaker 1: requires the adoption of uncomfortably idiosyncratic positions. In other words,

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Speaker 1: if you the job in investing. We'll let me say this,

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Speaker 1: Investing is a funny area because it's really easy to

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Speaker 1: be average, and it's really hard to be above average.

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Speaker 1: But for professional like myself or like Swinson, since it's easy,

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00:28:34,440 --> 00:28:38,280
Speaker 1: being average is not what we seek. We seek to

430
00:28:38,400 --> 00:28:42,880
Speaker 1: be above average. Uh. This may shock you, but professional

431
00:28:42,920 --> 00:28:46,680
Speaker 1: investors do it for the money and they hope to

432
00:28:46,720 --> 00:28:50,960
Speaker 1: be paid highly. But clearly, since anybody can be average

433
00:28:51,000 --> 00:28:55,360
Speaker 1: without any effort or professionalism, the payoff is in being

434
00:28:55,480 --> 00:29:00,760
Speaker 1: above average. If you think like everybody else, you'll behave

435
00:29:00,840 --> 00:29:05,840
Speaker 1: like everybody else. If you behave like everybody else, you'll

436
00:29:05,840 --> 00:29:11,040
Speaker 1: perform like everybody else. So clearly, exceptional performance has to

437
00:29:11,080 --> 00:29:17,280
Speaker 1: come from diverging from the crowd. And that's what Swenson

438
00:29:17,400 --> 00:29:23,680
Speaker 1: means when he's when he says uncomfortably idiosyncratic. Because if

439
00:29:23,880 --> 00:29:27,880
Speaker 1: if you're behaving in an idiosyncratic way, that is to say,

440
00:29:28,040 --> 00:29:31,760
Speaker 1: everybody else is buying and you say, well, they're buying

441
00:29:31,880 --> 00:29:35,240
Speaker 1: has raised the price too high relative to the intrinsic

442
00:29:35,320 --> 00:29:38,160
Speaker 1: value I'm going to sell. If they're all buying and

443
00:29:38,200 --> 00:29:42,560
Speaker 1: you're selling, believe me, it's uncomfortable. Now we do it

444
00:29:43,400 --> 00:29:50,160
Speaker 1: because we believe we have performed a competent, intellectual process.

445
00:29:51,240 --> 00:29:54,640
Speaker 1: Doesn't make it comfortable. What about the flip side when

446
00:29:54,680 --> 00:29:58,280
Speaker 1: everybody is selling, is that a little I would imagine

447
00:29:58,280 --> 00:30:01,440
Speaker 1: that's a little more comfortable because the sell off in

448
00:30:01,480 --> 00:30:04,960
Speaker 1: a panic at least makes it appear things are falling

449
00:30:05,320 --> 00:30:09,520
Speaker 1: below that intrinsic value. So there's that, Well, there's some

450
00:30:09,560 --> 00:30:13,480
Speaker 1: truth in that, because the trouble with the difficulty in

451
00:30:13,600 --> 00:30:17,120
Speaker 1: selling when a market has been rising for several months

452
00:30:17,160 --> 00:30:20,640
Speaker 1: or years uh comes from the fear that it will

453
00:30:20,640 --> 00:30:24,360
Speaker 1: continue to rise and you'll miss out fomo, right, And

454
00:30:24,840 --> 00:30:27,280
Speaker 1: that's a very strong force. You know. There's a book

455
00:30:27,320 --> 00:30:30,200
Speaker 1: out on Bubbles and Crashes by a guy named Charles Kindleberger,

456
00:30:30,560 --> 00:30:32,920
Speaker 1: and he says in there something like, there's nothing as

457
00:30:32,920 --> 00:30:35,440
Speaker 1: injurious for your mental well being as to watch your

458
00:30:35,440 --> 00:30:39,120
Speaker 1: friend get rich, and you know, and it's that's that's

459
00:30:39,120 --> 00:30:43,280
Speaker 1: one of these sayings which is captures it all right there,

460
00:30:43,360 --> 00:30:48,280
Speaker 1: that's human nature. Uh So, so fomo is very challenging. Uh.

461
00:30:48,320 --> 00:30:51,440
Speaker 1: On the other hand, UH, I don't know if it's

462
00:30:51,480 --> 00:30:55,760
Speaker 1: any easier on the way down. Uh. I mean, intellectually,

463
00:30:56,120 --> 00:30:59,200
Speaker 1: you should be able to look at assets like stocks

464
00:30:59,200 --> 00:31:01,320
Speaker 1: and bonds that have on on sale and say that

465
00:31:01,400 --> 00:31:04,840
Speaker 1: three day goes the inexpensive. I'm going to jump in.

466
00:31:05,080 --> 00:31:07,160
Speaker 1: But as I spend a lot of time in the book,

467
00:31:07,560 --> 00:31:13,640
Speaker 1: uh dissecting a common phrase which is catching a falling knife,

468
00:31:14,400 --> 00:31:17,640
Speaker 1: and so many people say, I'm not going to try

469
00:31:17,640 --> 00:31:20,440
Speaker 1: to catch a falling knife. You know, this thing is collapsing.

470
00:31:20,440 --> 00:31:22,400
Speaker 1: I have no idea how far it's gonna go. I

471
00:31:22,400 --> 00:31:24,880
Speaker 1: don't want to stand in front of that process. I'm

472
00:31:24,920 --> 00:31:28,240
Speaker 1: gonna wait until the dust settles and the uncertainty is

473
00:31:28,280 --> 00:31:32,240
Speaker 1: resolved and believe me, Barry, as I know you know well,

474
00:31:32,960 --> 00:31:35,720
Speaker 1: when the dust settles and the uncertainty has been resolved,

475
00:31:35,960 --> 00:31:39,960
Speaker 1: there's no more bargains left. Because what causes great bargains?

476
00:31:40,320 --> 00:31:43,240
Speaker 1: And by the way, let's diverge for a second. What

477
00:31:43,400 --> 00:31:47,240
Speaker 1: is a bargain? A bargain is an asset that's selling

478
00:31:47,280 --> 00:31:53,280
Speaker 1: too cheap. What causes assets to sell it too cheap? Error?

479
00:31:53,960 --> 00:31:57,360
Speaker 1: If if for you to get a great bargain in

480
00:31:57,360 --> 00:32:01,560
Speaker 1: the market, somebody else has to be making a big mistake.

481
00:32:01,800 --> 00:32:05,000
Speaker 1: As if you can buy something that is exceptionally cheap,

482
00:32:05,400 --> 00:32:09,040
Speaker 1: somebody else has to be selling something which is exceptionally cheap.

483
00:32:09,240 --> 00:32:12,320
Speaker 1: What makes anybody want to sell something at a price

484
00:32:12,360 --> 00:32:15,320
Speaker 1: which is exceptionally cheap? And the answer is human nature

485
00:32:15,680 --> 00:32:19,280
Speaker 1: or what you call psychology. And the answer is that

486
00:32:19,480 --> 00:32:23,840
Speaker 1: when prices go up, people get excited and buy. When

487
00:32:23,880 --> 00:32:28,120
Speaker 1: things go down, people get the pressed and sell. They

488
00:32:28,120 --> 00:32:30,560
Speaker 1: don't say, well, you know it's on sale. It used

489
00:32:30,600 --> 00:32:34,760
Speaker 1: to be a hundred now at seventy five. I'm a buyer, Warren,

490
00:32:34,800 --> 00:32:38,520
Speaker 1: you know who says, I like Hamburgers, and when Hamburgers

491
00:32:38,520 --> 00:32:41,960
Speaker 1: go on sale, I eat more Hamburgers. And that's how

492
00:32:42,440 --> 00:32:46,360
Speaker 1: value investors try to behave We try to be unemotional,

493
00:32:46,800 --> 00:32:51,040
Speaker 1: not get down because prices have fallen, even you know,

494
00:32:51,080 --> 00:32:53,520
Speaker 1: the prices of the things we own have fallen. But

495
00:32:53,640 --> 00:32:56,000
Speaker 1: we try to say it's a bargain. I'm going to

496
00:32:56,080 --> 00:33:01,800
Speaker 1: buy more. But but that requires you to get control

497
00:33:01,840 --> 00:33:04,880
Speaker 1: of your psychology. Let me bring you back to the

498
00:33:04,920 --> 00:33:07,640
Speaker 1: book for at least one more question, and I want

499
00:33:07,720 --> 00:33:12,480
Speaker 1: to ask um you write rule number one, most things

500
00:33:12,480 --> 00:33:15,640
Speaker 1: will prove to be cyclical. Rule number two. Some of

501
00:33:15,640 --> 00:33:19,400
Speaker 1: the greatest opportunities for gaining the laws come when other

502
00:33:19,440 --> 00:33:22,479
Speaker 1: people forget rule number one. That's pretty much what you're

503
00:33:22,480 --> 00:33:25,680
Speaker 1: referring to the people exactly panic selling. And when when

504
00:33:25,720 --> 00:33:28,360
Speaker 1: things are rising and the stock prices have been rising,

505
00:33:28,440 --> 00:33:30,959
Speaker 1: like you know in a in a great bull market

506
00:33:31,000 --> 00:33:34,120
Speaker 1: for five, six, eight, nine years, what do they say,

507
00:33:34,360 --> 00:33:36,920
Speaker 1: I think it's going to go up forever. And when

508
00:33:36,920 --> 00:33:40,360
Speaker 1: it's been collapsing and the prices and an asset is

509
00:33:40,400 --> 00:33:42,840
Speaker 1: a third of what it was a year or two ago,

510
00:33:43,200 --> 00:33:45,040
Speaker 1: what do they say, I think it's going to zero?

511
00:33:45,880 --> 00:33:48,880
Speaker 1: And in fact, and so what they what they do

512
00:33:49,000 --> 00:33:53,880
Speaker 1: is they extrapolate. You need directional trends. Whereas I believe

513
00:33:54,320 --> 00:33:57,560
Speaker 1: most events are cyclical, and trees don't grow to the

514
00:33:57,600 --> 00:34:00,440
Speaker 1: sky and very little ghost to zero. So mean, let

515
00:34:00,440 --> 00:34:02,320
Speaker 1: me bring up one of your pet peeves that I'm

516
00:34:02,360 --> 00:34:06,240
Speaker 1: I'm amused by, Um, what inning is this? People ask

517
00:34:06,280 --> 00:34:10,359
Speaker 1: you that question and you you hate that question? Explain why? Well,

518
00:34:10,440 --> 00:34:13,160
Speaker 1: I don't hate I don't hate it, but I mean,

519
00:34:13,239 --> 00:34:19,319
Speaker 1: it's it's challenging to know the answer. Right now, I say,

520
00:34:19,520 --> 00:34:23,480
Speaker 1: I think we're in the ethnic. That's great, Howard. The

521
00:34:23,480 --> 00:34:25,480
Speaker 1: only trouble is I've been saying the athanning for a

522
00:34:25,560 --> 00:34:32,040
Speaker 1: couple of years now, and uh, what I realized about

523
00:34:32,040 --> 00:34:34,680
Speaker 1: a year ago, by the way, that question started to

524
00:34:34,719 --> 00:34:37,560
Speaker 1: come up really in oh eight when we were in

525
00:34:37,600 --> 00:34:40,279
Speaker 1: the global financial crisis, and people used to say, what

526
00:34:40,400 --> 00:34:42,560
Speaker 1: inning are we in? And what they really meant is

527
00:34:42,600 --> 00:34:46,319
Speaker 1: when is the collapse going to end? Now? They mean

528
00:34:46,360 --> 00:34:49,600
Speaker 1: when is the up cycle going to end? And most

529
00:34:49,640 --> 00:34:53,440
Speaker 1: people say, I I realized that it can't go well forever,

530
00:34:53,920 --> 00:34:56,359
Speaker 1: but I can't imagine what's going to make it come

531
00:34:56,400 --> 00:34:59,640
Speaker 1: to an end. But the truth is, you know, we

532
00:34:59,719 --> 00:35:02,960
Speaker 1: are at an advanced stage of the economic recovery and

533
00:35:03,040 --> 00:35:07,160
Speaker 1: of the bull market, and uh, there are very secure

534
00:35:07,280 --> 00:35:12,840
Speaker 1: a few securities around that are absolutely cheap, and most

535
00:35:12,880 --> 00:35:16,680
Speaker 1: investors are happy doing risk investing and have lots of

536
00:35:16,680 --> 00:35:20,200
Speaker 1: money for the purpose, so they're bidding up asset prices.

537
00:35:20,640 --> 00:35:25,360
Speaker 1: So let's so. But but so, I think we're in

538
00:35:25,400 --> 00:35:27,680
Speaker 1: the eighth inning. But I realized about a year ago

539
00:35:28,440 --> 00:35:32,880
Speaker 1: an important distinction this is in baseball. In baseball, we

540
00:35:33,000 --> 00:35:36,239
Speaker 1: know that a regulation game has nine innings, and in

541
00:35:36,600 --> 00:35:41,640
Speaker 1: this game it could go nine or eleven or fourteen.

542
00:35:42,360 --> 00:35:45,879
Speaker 1: We have no idea. So again, the fact that I

543
00:35:45,920 --> 00:35:48,360
Speaker 1: think we're in the eighth and that things are extended

544
00:35:48,760 --> 00:35:51,399
Speaker 1: doesn't mean that the game is just about to end.

545
00:35:51,800 --> 00:35:55,640
Speaker 1: So let's talk a little bit about that. Um, the FED.

546
00:35:55,800 --> 00:35:58,919
Speaker 1: Some people have been complaining they've tightened too much. Other

547
00:35:58,960 --> 00:36:02,160
Speaker 1: people are saying behind the curve. You've been a student

548
00:36:02,200 --> 00:36:05,000
Speaker 1: of the credit markets for decades. What do you think

549
00:36:05,040 --> 00:36:07,880
Speaker 1: of what where the FED is and what their future

550
00:36:08,000 --> 00:36:10,200
Speaker 1: behavior might be. Well, I talked about the FED a

551
00:36:10,280 --> 00:36:13,200
Speaker 1: little bit in the In the book, Uh, there's a

552
00:36:13,200 --> 00:36:16,840
Speaker 1: as a as a chapter on the role of government

553
00:36:16,880 --> 00:36:20,160
Speaker 1: and central banks with regard to the economic cycle. The

554
00:36:20,160 --> 00:36:22,480
Speaker 1: FED has a tough job. Well it actually it has

555
00:36:22,520 --> 00:36:26,600
Speaker 1: three tough jobs. Number one, it's supposed to manage inflation

556
00:36:27,239 --> 00:36:29,920
Speaker 1: and keep it under control, which means that the economy

557
00:36:29,920 --> 00:36:33,400
Speaker 1: shouldn't get too hot. Number two, it's supposed to support

558
00:36:33,640 --> 00:36:37,480
Speaker 1: economic growth and employment, for which they would rather the

559
00:36:37,520 --> 00:36:40,839
Speaker 1: market did get hot. And number three, there are now

560
00:36:40,880 --> 00:36:42,759
Speaker 1: a lot of people who think that the Fed job

561
00:36:42,840 --> 00:36:45,640
Speaker 1: is to prevent a recession and the declining stock market.

562
00:36:46,480 --> 00:36:51,600
Speaker 1: I don't think J. Powell certainly feels the ladder. Uh.

563
00:36:51,760 --> 00:36:56,160
Speaker 1: But um uh you know, UM, I think that in

564
00:36:56,160 --> 00:37:00,640
Speaker 1: interest rates. Low interest rates have been the outstanding characteristic

565
00:37:00,719 --> 00:37:03,359
Speaker 1: of the financial markets for the last ten years. They

566
00:37:03,360 --> 00:37:08,919
Speaker 1: have dominated behavior over that period. They've been too low.

567
00:37:08,960 --> 00:37:11,880
Speaker 1: They've been unnaturally low. They were made unnaturally low in

568
00:37:11,960 --> 00:37:14,720
Speaker 1: order to bring the economy back from the global financial

569
00:37:14,760 --> 00:37:19,160
Speaker 1: crisis and the abyss of collapse. Uh. There are reasons

570
00:37:19,200 --> 00:37:21,960
Speaker 1: why rates should be higher. Number one, rates should probably

571
00:37:22,080 --> 00:37:25,480
Speaker 1: be at their naturally occurring level so that so that

572
00:37:25,560 --> 00:37:30,200
Speaker 1: the free market will allocate resources prudently. To date, it

573
00:37:30,280 --> 00:37:36,719
Speaker 1: has been subsidizing borrowers and penalizing savers and lenders. Um.

574
00:37:36,880 --> 00:37:41,000
Speaker 1: Number two, the Fed wants rates to be high enough

575
00:37:41,040 --> 00:37:43,319
Speaker 1: so that if the economy slows down, they can drop

576
00:37:43,400 --> 00:37:49,520
Speaker 1: rates and stimulate the economy. UM and uh. And so forth. Um,

577
00:37:49,560 --> 00:37:54,400
Speaker 1: so you know, Uh, there's a belief that there's a

578
00:37:54,440 --> 00:38:00,799
Speaker 1: correlation inverse correlation between unemployment and and uh inflation that

579
00:38:00,920 --> 00:38:04,800
Speaker 1: when when unemployment gets really low, that target that triggers inflation.

580
00:38:05,160 --> 00:38:09,200
Speaker 1: That's called the Phillips curve. And uh, everybody, since we

581
00:38:09,280 --> 00:38:12,320
Speaker 1: now are at a fifty year low and unemployment, everybody's

582
00:38:12,320 --> 00:38:15,080
Speaker 1: been waiting for inflation to get going, which is the

583
00:38:16,080 --> 00:38:19,480
Speaker 1: Fed's main concern is that it shouldn't get going too strongly,

584
00:38:20,000 --> 00:38:22,359
Speaker 1: and so that's why they've been talking about raising rates.

585
00:38:22,440 --> 00:38:26,440
Speaker 1: But it hasn't happened, and everybody's mystified by why we

586
00:38:26,440 --> 00:38:30,120
Speaker 1: don't have inflation, And there's no easy answer. I think.

587
00:38:30,239 --> 00:38:34,680
Speaker 1: Is that a risk factor for a credit investor like yourself? Inflation? Well?

588
00:38:34,800 --> 00:38:38,400
Speaker 1: The FED inflation? Yeah, well it is, but I also

589
00:38:38,480 --> 00:38:43,440
Speaker 1: think it's unpredictable. Uh you know, Uh to me that

590
00:38:43,680 --> 00:38:46,640
Speaker 1: my the question over the last five years or more

591
00:38:47,160 --> 00:38:50,160
Speaker 1: has been our inflation rates going up or not? And

592
00:38:50,200 --> 00:38:54,160
Speaker 1: I believed that they would and they have for good reason,

593
00:38:54,200 --> 00:39:01,000
Speaker 1: as I've explained, Um, and uh not. You know, people

594
00:39:01,239 --> 00:39:04,759
Speaker 1: people for for years, you remember, people would would talk

595
00:39:04,800 --> 00:39:06,160
Speaker 1: to you and they say, do you think the rates

596
00:39:06,160 --> 00:39:09,520
Speaker 1: are going up in January or March, and I would say,

597
00:39:09,600 --> 00:39:12,959
Speaker 1: what do you care? What's the difference that what month

598
00:39:13,000 --> 00:39:16,040
Speaker 1: they go up doesn't matter? People were so preoccupied, especially

599
00:39:16,080 --> 00:39:18,840
Speaker 1: when when they were looking for the first rate increase, remember,

600
00:39:18,960 --> 00:39:20,920
Speaker 1: and I would say, the only thing that matters are

601
00:39:20,960 --> 00:39:23,120
Speaker 1: they going to go up? And are they going to

602
00:39:23,200 --> 00:39:24,680
Speaker 1: go up a lot? And are they going to go

603
00:39:24,760 --> 00:39:29,280
Speaker 1: up fast? And what month it starts happening in doesn't matter?

604
00:39:29,600 --> 00:39:32,319
Speaker 1: And of course nobody got it right, proving I think

605
00:39:32,400 --> 00:39:38,560
Speaker 1: my point uh as to the timing. But they did

606
00:39:38,640 --> 00:39:42,080
Speaker 1: raise rates, and my guess is that they'll raise them

607
00:39:42,080 --> 00:39:44,880
Speaker 1: a little more. But I never thought they would go

608
00:39:44,920 --> 00:39:47,560
Speaker 1: to go up far or fast than I still don't.

609
00:39:48,200 --> 00:39:51,759
Speaker 1: So at one point in time, UM debt investors were

610
00:39:51,760 --> 00:39:55,839
Speaker 1: concerned with deficits from the federal government. Seems like we've

611
00:39:55,960 --> 00:40:00,080
Speaker 1: kind of lost our enthusiasm for for fighting deficits. What

612
00:40:00,080 --> 00:40:03,799
Speaker 1: are your thoughts on the government balance sheet? Uh? And

613
00:40:04,480 --> 00:40:10,040
Speaker 1: perhaps modern monetary theory? What or deficits now? Okay? Or

614
00:40:10,480 --> 00:40:14,880
Speaker 1: my mother's term for that, Barry is passe a rorrying

615
00:40:14,960 --> 00:40:18,280
Speaker 1: about the debt? The deficit is pass a. Nobody seems

616
00:40:18,320 --> 00:40:20,560
Speaker 1: to care anymore. When I was a boy, There used

617
00:40:20,600 --> 00:40:23,320
Speaker 1: to be debates about whether it was okay to have debt,

618
00:40:24,160 --> 00:40:26,920
Speaker 1: for a nation to have debt. I don't see anybody

619
00:40:26,920 --> 00:40:29,440
Speaker 1: discussing that anymore. The only question is whether there's such

620
00:40:29,440 --> 00:40:31,880
Speaker 1: a thing as having too much debt, and some people

621
00:40:31,920 --> 00:40:33,799
Speaker 1: think there is, but nobody can say what it is.

622
00:40:33,920 --> 00:40:38,080
Speaker 1: Of course. Uh. Historically, of course, the Democrats believed in

623
00:40:38,120 --> 00:40:41,680
Speaker 1: tax and spend and I would say deficits, and the

624
00:40:41,719 --> 00:40:46,600
Speaker 1: Republicans were the fiscal disciplinarians who would fight against deficits.

625
00:40:46,640 --> 00:40:49,120
Speaker 1: That seems to have gone out the window. Nobody really

626
00:40:49,719 --> 00:40:55,600
Speaker 1: stands four square for deficit and debt reduction. Uh. And

627
00:40:56,200 --> 00:41:00,360
Speaker 1: in fact, most recently we start seeing articles ing that

628
00:41:01,160 --> 00:41:05,279
Speaker 1: it's an old fashioned to worry about deficits and debt

629
00:41:05,760 --> 00:41:12,880
Speaker 1: and uh, it's much more important too pursue society's needs

630
00:41:13,800 --> 00:41:18,759
Speaker 1: h even at the cost of a deficit. So it's troublesome.

631
00:41:18,920 --> 00:41:21,080
Speaker 1: I mean, I think there probably is such a thing

632
00:41:21,120 --> 00:41:24,400
Speaker 1: as too much um. You know, the bottom line is

633
00:41:24,840 --> 00:41:27,879
Speaker 1: it probably doesn't matter how much debt you have as

634
00:41:27,960 --> 00:41:31,520
Speaker 1: long as you can print the world's reserve currency. You know,

635
00:41:32,000 --> 00:41:34,120
Speaker 1: we were in the debt. It goes up, up, up up,

636
00:41:34,200 --> 00:41:37,520
Speaker 1: the interest bill goes interest goes up with the debt,

637
00:41:37,800 --> 00:41:39,960
Speaker 1: or it will go up faster if rates rise as

638
00:41:40,280 --> 00:41:45,560
Speaker 1: they have been um but and and paying the interest

639
00:41:45,640 --> 00:41:50,360
Speaker 1: will occupy an increasing and increasing increasing percentage of the

640
00:41:50,400 --> 00:41:53,359
Speaker 1: federal budget. It doesn't matter as long as you can

641
00:41:53,360 --> 00:41:55,920
Speaker 1: print money, as long as you can sell an infinite

642
00:41:56,280 --> 00:42:01,360
Speaker 1: number of UH bonds overseas at the world's lowest rates

643
00:42:01,400 --> 00:42:04,000
Speaker 1: because of the quality of the credit. And the question

644
00:42:04,040 --> 00:42:06,880
Speaker 1: is what if that ever stops? So that's the risk factor.

645
00:42:06,960 --> 00:42:11,080
Speaker 1: What is the risk factor of deficits to fixed income purchasers?

646
00:42:11,360 --> 00:42:15,040
Speaker 1: It's it's it's well to the nation. It is that

647
00:42:15,200 --> 00:42:20,319
Speaker 1: someday China says, you know, we have enough treasuries, We're

648
00:42:20,320 --> 00:42:24,719
Speaker 1: gonna start buying euro But the difficulty is what are

649
00:42:24,719 --> 00:42:26,319
Speaker 1: you going to buy? If it's not the dollar, You're

650
00:42:26,320 --> 00:42:29,799
Speaker 1: gonna invest in the in the in the euro that

651
00:42:29,840 --> 00:42:33,040
Speaker 1: looks precarious. You're gonna invest in the pound. That's difficult.

652
00:42:33,040 --> 00:42:36,160
Speaker 1: With brexit, are you going to invest in in UH

653
00:42:36,920 --> 00:42:40,960
Speaker 1: ruble one? Whatever it might be? So it looks like

654
00:42:41,280 --> 00:42:43,799
Speaker 1: we're gonna you know, this is all this is when

655
00:42:43,800 --> 00:42:46,320
Speaker 1: you look at the government and how badly it functions.

656
00:42:48,960 --> 00:42:51,960
Speaker 1: The optimism with regard to the future comes from the

657
00:42:52,000 --> 00:42:54,920
Speaker 1: belief that we always have modeled through and we will

658
00:42:54,960 --> 00:42:59,279
Speaker 1: continue to model through, and that we don't have to

659
00:42:59,280 --> 00:43:01,440
Speaker 1: worry about the at and the deficit because we can

660
00:43:01,480 --> 00:43:05,120
Speaker 1: always print money to pay the interest until we can't.

661
00:43:05,239 --> 00:43:08,759
Speaker 1: Until we can't, but the day but the arrival of

662
00:43:08,800 --> 00:43:11,720
Speaker 1: the date when we can't. It comes under the heading

663
00:43:11,719 --> 00:43:14,880
Speaker 1: of what I call improbable disasters. It would be a

664
00:43:14,960 --> 00:43:21,080
Speaker 1: terrible thing. It would have a lot of negative ramifications,

665
00:43:21,120 --> 00:43:24,640
Speaker 1: but you can't assign a very high probability to it.

666
00:43:25,400 --> 00:43:27,360
Speaker 1: Next year, the year after, the year after that. You

667
00:43:27,360 --> 00:43:30,279
Speaker 1: know so, And one of the most interesting dilemmas is

668
00:43:30,320 --> 00:43:35,439
Speaker 1: what does the investor do about the improbable disaster. Since

669
00:43:35,480 --> 00:43:38,920
Speaker 1: it's improbable, you can't do enough in your portfolio to

670
00:43:39,000 --> 00:43:42,600
Speaker 1: prepare for it, and and certainly if it happens, it

671
00:43:42,640 --> 00:43:45,080
Speaker 1: will have disastrous consequences and it will turn out you

672
00:43:45,080 --> 00:43:48,919
Speaker 1: didn't do enough. But given that it's improbable, you can't

673
00:43:48,920 --> 00:43:52,320
Speaker 1: do a lot. That's that's there's a lot of things.

674
00:43:52,880 --> 00:43:57,000
Speaker 1: Hyper inflation, deflation, all these things fall into that category.

675
00:43:57,680 --> 00:43:59,960
Speaker 1: So we have two segments left. I want to be

676
00:44:00,040 --> 00:44:02,319
Speaker 1: able to get save some time to get to some

677
00:44:02,440 --> 00:44:06,040
Speaker 1: questions from the room, but not yet. The last thing

678
00:44:06,080 --> 00:44:08,880
Speaker 1: I want to do with you is our speed rounds.

679
00:44:09,400 --> 00:44:13,120
Speaker 1: Ten questions, five minutes, short answers. Well, by now you

680
00:44:13,239 --> 00:44:15,520
Speaker 1: probably know I don't know anything about speed rounds or

681
00:44:15,560 --> 00:44:18,560
Speaker 1: short answers, but um, but I'll try. Well let's let's

682
00:44:18,640 --> 00:44:21,279
Speaker 1: let's give it a shot. Let's start out. First car

683
00:44:21,360 --> 00:44:28,279
Speaker 1: you ever owned, year making model N five old cutlass

684
00:44:30,000 --> 00:44:36,560
Speaker 1: um now Aqua Marine. Uh, my parents paid half. What's

685
00:44:36,600 --> 00:44:39,880
Speaker 1: the biggest political surprise we might see over the next

686
00:44:40,239 --> 00:44:47,640
Speaker 1: couple of quarters. Well, it might be the Muller Report,

687
00:44:48,200 --> 00:44:51,319
Speaker 1: but I mean it's it's a great example of having

688
00:44:51,360 --> 00:44:54,239
Speaker 1: no idea. What's what's going to happen? It's gonna be

689
00:44:54,280 --> 00:45:00,520
Speaker 1: a surprise favorite NBA team, I guess the Lakers. I've

690
00:45:00,560 --> 00:45:02,879
Speaker 1: lived in l A for the last thirty four years

691
00:45:02,920 --> 00:45:06,160
Speaker 1: until well I came. We moved My wife and I

692
00:45:06,239 --> 00:45:10,080
Speaker 1: moved back here six years ago because our kids moved here,

693
00:45:10,320 --> 00:45:12,279
Speaker 1: and she said that we're going to be in New York,

694
00:45:13,000 --> 00:45:15,759
Speaker 1: so that we are, and I was again, I was

695
00:45:15,800 --> 00:45:18,360
Speaker 1: smart enough to say, yes, that's the that's a maybe

696
00:45:18,360 --> 00:45:20,799
Speaker 1: I'll make that the title of my book. Smart enough

697
00:45:20,840 --> 00:45:24,200
Speaker 1: to say yes, Um, name three of your favorite books

698
00:45:24,239 --> 00:45:32,279
Speaker 1: about any subject. Um. There's a book called Fooled by

699
00:45:32,320 --> 00:45:36,719
Speaker 1: Randomness by to leb which you know, when you talk

700
00:45:36,800 --> 00:45:40,480
Speaker 1: about the limits on fore knowledge, when you talk about

701
00:45:40,560 --> 00:45:44,400
Speaker 1: the fact that things are unpredictable because of randomness, I think, Uh,

702
00:45:45,080 --> 00:45:48,480
Speaker 1: this book contains very very important ideas, and I know

703
00:45:48,520 --> 00:45:51,799
Speaker 1: it was very valuable for me. Uh. Peter Bernstein, who

704
00:45:51,840 --> 00:45:54,680
Speaker 1: was a great investment stage wrote a book called Against

705
00:45:54,760 --> 00:45:58,640
Speaker 1: the Gods um and Story of Risk, Story of Risk,

706
00:45:58,719 --> 00:46:02,120
Speaker 1: and again it all understanding risk at risk is so

707
00:46:02,200 --> 00:46:09,000
Speaker 1: provocative and so important. And then I would say there's

708
00:46:09,040 --> 00:46:12,640
Speaker 1: a book by John Kenneth call Braith called A Short

709
00:46:12,719 --> 00:46:16,400
Speaker 1: History of Financial Euphoria, which talked about introduced me to cycles,

710
00:46:17,280 --> 00:46:20,319
Speaker 1: the extremes of cycles, the error of cycles. And one

711
00:46:20,320 --> 00:46:23,000
Speaker 1: of my favorite quotes from gall Braiths it was that

712
00:46:23,120 --> 00:46:25,560
Speaker 1: we have two kinds of forecasters, the ones who don't

713
00:46:25,560 --> 00:46:28,560
Speaker 1: know and the ones who don't know. They don't know that.

714
00:46:28,760 --> 00:46:32,880
Speaker 1: That's a classic quote. What do you do for fun? Uh, Well,

715
00:46:33,840 --> 00:46:36,160
Speaker 1: spend a lot of time with the kids and their kids. Now,

716
00:46:36,160 --> 00:46:39,839
Speaker 1: because my wife was prescient, since we've moved back here

717
00:46:39,920 --> 00:46:42,200
Speaker 1: six years ago, they both got married, they both had children,

718
00:46:42,239 --> 00:46:45,160
Speaker 1: so you know we're in a great place in that regard.

719
00:46:45,640 --> 00:46:51,680
Speaker 1: And uh, I like architecture and decorating and that kind

720
00:46:51,680 --> 00:46:53,960
Speaker 1: of thing. You you actually do a little bit of

721
00:46:53,960 --> 00:46:58,040
Speaker 1: an architectural tour when you visit other cities. Sure, I

722
00:46:58,080 --> 00:47:01,279
Speaker 1: recall you talking about that not too long ago. Um,

723
00:47:01,520 --> 00:47:10,799
Speaker 1: favorite asset for the next decade? Well, I mean, I

724
00:47:10,840 --> 00:47:12,480
Speaker 1: hate to say that kind of thing because I hate

725
00:47:12,520 --> 00:47:14,759
Speaker 1: to think of anybody else buying on my say so.

726
00:47:16,120 --> 00:47:19,279
Speaker 1: But I mean, I'm I'm willing to be a long

727
00:47:19,360 --> 00:47:23,960
Speaker 1: term investor in the emerging markets, both dead and equity. UM.

728
00:47:24,000 --> 00:47:26,840
Speaker 1: I think that the you know, the way I put it, Barry,

729
00:47:26,960 --> 00:47:30,360
Speaker 1: is that Japan and Europe are senior citizens economically speaking,

730
00:47:30,400 --> 00:47:34,840
Speaker 1: the US is a mature adult, and the emerging markets

731
00:47:34,880 --> 00:47:37,680
Speaker 1: are teenagers. And if you ever had a teenager in

732
00:47:37,719 --> 00:47:42,960
Speaker 1: your house, you know it can be chaotic, chaotic and volatile.

733
00:47:43,440 --> 00:47:46,000
Speaker 1: But you know that the teenagers best decades lie ahead.

734
00:47:46,320 --> 00:47:48,400
Speaker 1: And that's the way I think about the emerging markets.

735
00:47:48,400 --> 00:47:51,080
Speaker 1: So so let me ask you the same question, favorite

736
00:47:51,120 --> 00:47:58,960
Speaker 1: asset for the next century a house high up in

737
00:47:59,000 --> 00:48:06,080
Speaker 1: a hill. Who is the investor goat the greatest of

738
00:48:06,120 --> 00:48:10,279
Speaker 1: all time? In the greatest investor of all time, Oh,

739
00:48:10,360 --> 00:48:12,759
Speaker 1: of all times. Well, I don't know. I mean, I

740
00:48:12,760 --> 00:48:16,880
Speaker 1: haven't read that much about the personalities, but everybody assumes

741
00:48:16,920 --> 00:48:22,680
Speaker 1: it is that Warren guy. And you know he has

742
00:48:22,760 --> 00:48:26,000
Speaker 1: a he has a great record with a lot of money.

743
00:48:27,200 --> 00:48:32,799
Speaker 1: Uh he And there's a book out called The Warren

744
00:48:32,840 --> 00:48:34,680
Speaker 1: Buffet Way, and I was asked to write the preface,

745
00:48:34,680 --> 00:48:37,720
Speaker 1: and I wrote, it's for the like fourth and fifth edition,

746
00:48:38,040 --> 00:48:40,880
Speaker 1: and I wrote something called what makes Warren Bufett Warren Buffet?

747
00:48:40,880 --> 00:48:43,200
Speaker 1: And I talked about the fact that he's intelligent and unemotional,

748
00:48:43,239 --> 00:48:45,879
Speaker 1: and he figures out what's important. He has a quick

749
00:48:45,880 --> 00:48:48,600
Speaker 1: study on what's important, he ignores the things that are unimportant,

750
00:48:48,600 --> 00:48:50,560
Speaker 1: and all these different things. And then at the end,

751
00:48:50,600 --> 00:48:52,319
Speaker 1: I said, and he's not afraid to lose the job.

752
00:48:53,480 --> 00:48:56,520
Speaker 1: And you know, if you are afraid to lose your job,

753
00:48:56,719 --> 00:48:59,080
Speaker 1: it's hard to do things that are different and bold,

754
00:49:00,120 --> 00:49:04,600
Speaker 1: and yet being different in bold is necessary to be superior.

755
00:49:05,400 --> 00:49:09,959
Speaker 1: And uh, you know, he spends long periods of time

756
00:49:10,120 --> 00:49:13,120
Speaker 1: in the wilderness. In two thousand, when I wrote the memo,

757
00:49:13,520 --> 00:49:15,839
Speaker 1: everybody's saying, well, it's too bad about Warren Buffett. But

758
00:49:15,920 --> 00:49:18,719
Speaker 1: you know he's lost his touch because he didn't have

759
00:49:18,760 --> 00:49:21,400
Speaker 1: any of the text docks and then of course a

760
00:49:21,480 --> 00:49:24,000
Speaker 1: year later everybody was saying, you know, what a genius.

761
00:49:24,960 --> 00:49:30,480
Speaker 1: But you know, there is no approach in the investment world.

762
00:49:30,520 --> 00:49:34,239
Speaker 1: There is no approach which will always be right. No

763
00:49:34,280 --> 00:49:36,919
Speaker 1: matter what approach you have, there will be periods when

764
00:49:36,920 --> 00:49:42,320
Speaker 1: you're in the doghouse. And the more strongly you hold

765
00:49:42,400 --> 00:49:45,960
Speaker 1: your philosophy, the more strongly you hue to it, the

766
00:49:46,040 --> 00:49:49,600
Speaker 1: worst those periods in the doghouse will be. And yet

767
00:49:50,239 --> 00:49:55,120
Speaker 1: what else is there? You certainly can't, especially since we

768
00:49:55,160 --> 00:49:59,520
Speaker 1: can't time events. It can't work to jump from style

769
00:49:59,600 --> 00:50:02,560
Speaker 1: to style the style and expect to be had the

770
00:50:02,640 --> 00:50:04,520
Speaker 1: right style at the right time. You have to hold

771
00:50:04,520 --> 00:50:06,120
Speaker 1: a style. It has to be the one you believe

772
00:50:06,160 --> 00:50:07,839
Speaker 1: in you as to be the one you're good at.

773
00:50:08,160 --> 00:50:10,480
Speaker 1: And then you have to live through and survive the

774
00:50:10,520 --> 00:50:13,680
Speaker 1: periods in the doghouse. And that's to me, the mark

775
00:50:13,760 --> 00:50:17,200
Speaker 1: of a great investor. And by the way, it's it's

776
00:50:17,280 --> 00:50:20,640
Speaker 1: not how well you do while your style is in favor,

777
00:50:21,200 --> 00:50:23,000
Speaker 1: it's how you do when your style is out of

778
00:50:23,040 --> 00:50:27,239
Speaker 1: favor that determines whether you're excellent or not. That's a

779
00:50:27,280 --> 00:50:32,000
Speaker 1: perfect spot to open this up. Um, two questions from

780
00:50:32,000 --> 00:50:34,560
Speaker 1: the audience before you do. Let's hear it for Howard

781
00:50:34,560 --> 00:50:41,480
Speaker 1: marks and and sharing his insights. We have we have

782
00:50:41,520 --> 00:50:44,120
Speaker 1: a microphone. UM, raise your hand if you have any

783
00:50:44,200 --> 00:50:49,000
Speaker 1: questions and identify yourself by name and company. UM, who

784
00:50:49,000 --> 00:50:58,960
Speaker 1: has some questions? I right over here? That not a plant.

785
00:50:59,719 --> 00:51:02,360
Speaker 1: I uh. I work at rid Holds Wealth Management, Barry UM,

786
00:51:02,360 --> 00:51:04,640
Speaker 1: thanks for coming out, Howard. Quick question, if you had

787
00:51:04,680 --> 00:51:08,080
Speaker 1: like a crystal ball, I could tell you anything, any question.

788
00:51:08,200 --> 00:51:10,560
Speaker 1: Do you want to answer about the world? What? What

789
00:51:10,600 --> 00:51:21,840
Speaker 1: would you want to know? You know? Let me change

790
00:51:21,840 --> 00:51:26,160
Speaker 1: it a little bit, not crystal ball. If I could

791
00:51:26,160 --> 00:51:30,320
Speaker 1: get an accurate answer with regard to every security that

792
00:51:30,360 --> 00:51:34,040
Speaker 1: I'm thinking of buying, it would be how much optimism

793
00:51:34,080 --> 00:51:39,440
Speaker 1: is baked into the price. Remember that the psychology causes

794
00:51:39,520 --> 00:51:43,279
Speaker 1: the price to diverge from the intrinsic value. If the

795
00:51:43,360 --> 00:51:45,960
Speaker 1: optimism is really high, then the price is high relative

796
00:51:45,960 --> 00:51:50,000
Speaker 1: intrinsic value. That's a dangerous investment. If the optimism is

797
00:51:50,000 --> 00:51:53,719
Speaker 1: really low, the price is probably depressed and very attractive.

798
00:51:53,760 --> 00:51:55,680
Speaker 1: So if I could get a measure, and this is

799
00:51:55,719 --> 00:51:58,120
Speaker 1: something I tried to do, especially with regard to the

800
00:51:58,160 --> 00:52:02,400
Speaker 1: overall market, rather than individual skill. I tried to do

801
00:52:02,440 --> 00:52:04,719
Speaker 1: what I call take the temperature of the market, and

802
00:52:04,800 --> 00:52:08,320
Speaker 1: I would spend my one uh phone of friend question

803
00:52:08,560 --> 00:52:14,640
Speaker 1: on that, any of the questions right over here, if

804
00:52:14,640 --> 00:52:21,000
Speaker 1: we can bring the mic over here, I mean Andy,

805
00:52:21,120 --> 00:52:23,600
Speaker 1: and I'm a paralyxis capital. What was the lowest low

806
00:52:23,640 --> 00:52:29,120
Speaker 1: when you started oak Tree? The lowest It may not

807
00:52:29,200 --> 00:52:32,000
Speaker 1: be very interesting, but the lowest low was the day

808
00:52:32,080 --> 00:52:34,680
Speaker 1: we figured out that we didn't have a publishable record.

809
00:52:35,239 --> 00:52:40,799
Speaker 1: When I moved from City to tc W, I walked in,

810
00:52:40,880 --> 00:52:45,040
Speaker 1: I said, here's my record. They published it Bingo. When

811
00:52:45,040 --> 00:52:47,759
Speaker 1: I went from tc W to oak Tree and nine,

812
00:52:48,120 --> 00:52:49,960
Speaker 1: I said, here's the record, publish it. They said, well,

813
00:52:50,080 --> 00:52:54,080
Speaker 1: where's the data you need? You have to have monthly

814
00:52:54,360 --> 00:52:58,279
Speaker 1: orderable data in order to publish a record. Well, of

815
00:52:58,320 --> 00:53:00,359
Speaker 1: course we walked out of tc W with out that

816
00:53:00,800 --> 00:53:03,439
Speaker 1: information and we said, I said, my god, we don't

817
00:53:03,480 --> 00:53:05,759
Speaker 1: have a record we can publish. How are we ever

818
00:53:05,760 --> 00:53:08,680
Speaker 1: going to get any business? And uh, and we figured

819
00:53:08,719 --> 00:53:11,360
Speaker 1: out a solution. It was worked out pretty well because

820
00:53:11,400 --> 00:53:14,040
Speaker 1: what we said is we we wrote the clients and

821
00:53:14,080 --> 00:53:17,239
Speaker 1: we said we'd love to have you come over to

822
00:53:17,280 --> 00:53:22,359
Speaker 1: oak Tree and if you come and give us your

823
00:53:22,680 --> 00:53:27,640
Speaker 1: monthly statements over the years, we'll audit them and we'll

824
00:53:28,040 --> 00:53:32,480
Speaker 1: ascertain what your performance really was and and and so

825
00:53:32,520 --> 00:53:35,440
Speaker 1: it was kind of a bootstrap operation. Uh. The the

826
00:53:35,520 --> 00:53:39,400
Speaker 1: accounts we got permitted us to develop a record, which

827
00:53:39,640 --> 00:53:43,000
Speaker 1: which enabled us to get more accounts. It was that

828
00:53:43,120 --> 00:53:46,880
Speaker 1: was the lowest day. Interesting question, Thank you Andy, anybody

829
00:53:46,920 --> 00:53:49,840
Speaker 1: else any other questions out of here for Howard marks

830
00:53:49,880 --> 00:53:53,600
Speaker 1: here in the back. I am a names Richard M.

831
00:53:54,560 --> 00:53:58,120
Speaker 1: How do you go about spotting the above average investors

832
00:53:58,120 --> 00:54:01,360
Speaker 1: that you mentioned before before they become one? And do

833
00:54:01,400 --> 00:54:07,279
Speaker 1: you think you're good at spotting that? Well? Clearly we

834
00:54:07,400 --> 00:54:14,120
Speaker 1: hide before they have track records. Um, and uh. We

835
00:54:14,280 --> 00:54:21,680
Speaker 1: look for a high degree of intelligence, a natural contrarian streak,

836
00:54:23,080 --> 00:54:26,000
Speaker 1: I would say, a willingness to be wrong. We give

837
00:54:26,000 --> 00:54:30,320
Speaker 1: people cases to analyze, and we look at what they

838
00:54:30,360 --> 00:54:34,680
Speaker 1: call attention to and hopefully it will be the things

839
00:54:34,719 --> 00:54:38,680
Speaker 1: that hopefully they'll put a great emphasis on, finding the

840
00:54:38,719 --> 00:54:41,720
Speaker 1: things that other people haven't figured out. If you figure

841
00:54:41,760 --> 00:54:43,640
Speaker 1: out what everybody else has figured out, that you have

842
00:54:43,680 --> 00:54:47,719
Speaker 1: no advantage, so I think. And then the other thing

843
00:54:47,800 --> 00:54:51,000
Speaker 1: is I use the word inference a lot, use it

844
00:54:51,040 --> 00:54:59,960
Speaker 1: all over the book. Um not seeing events but figuring

845
00:55:00,000 --> 00:55:04,440
Speaker 1: out what they mean deeper significance. So we try to

846
00:55:04,520 --> 00:55:06,879
Speaker 1: hire people like that. In addition, we try to hire

847
00:55:06,960 --> 00:55:09,760
Speaker 1: good people that other people, including us, will will enjoy

848
00:55:09,840 --> 00:55:12,000
Speaker 1: working with, and people who want to be part of

849
00:55:12,080 --> 00:55:16,080
Speaker 1: a long term team rather than maximize for themselves. How

850
00:55:16,120 --> 00:55:18,000
Speaker 1: and I'm going to give you a fire a follow

851
00:55:18,120 --> 00:55:21,279
Speaker 1: up question. You've talked in the past about second level

852
00:55:21,360 --> 00:55:24,719
Speaker 1: thinking or second order thinking. Describe that in a little

853
00:55:24,760 --> 00:55:28,920
Speaker 1: more detail. What is it when that that's the illusion

854
00:55:28,920 --> 00:55:31,439
Speaker 1: when you're you're looking to hire somebody, How does second

855
00:55:31,520 --> 00:55:34,440
Speaker 1: level thinking apply to either that or to invest in Well,

856
00:55:34,440 --> 00:55:38,400
Speaker 1: you know, Mary, when when I was thinking about writing

857
00:55:38,400 --> 00:55:40,960
Speaker 1: the first book, and I said, and it was I

858
00:55:41,160 --> 00:55:44,880
Speaker 1: had been approached by Columbia Business School Press about writing

859
00:55:44,880 --> 00:55:47,799
Speaker 1: a book, and I told him my idea for the

860
00:55:47,840 --> 00:55:50,040
Speaker 1: most important thing. They said, we'll send us a sample chapter.

861
00:55:50,480 --> 00:55:52,359
Speaker 1: And the funny thing is that I sat down at

862
00:55:52,360 --> 00:55:54,719
Speaker 1: the keyboard and I wrote a chapter that I had

863
00:55:54,800 --> 00:55:57,040
Speaker 1: never even thought about writing before. And it wasn't even

864
00:55:57,080 --> 00:55:59,600
Speaker 1: something that that was in front of mind before that,

865
00:55:59,640 --> 00:56:01,520
Speaker 1: but it was. And so the first chapter in the

866
00:56:01,560 --> 00:56:03,880
Speaker 1: book says the most important thing is second level thinking,

867
00:56:04,280 --> 00:56:06,040
Speaker 1: and it goes. I go through the thing that I

868
00:56:06,120 --> 00:56:07,719
Speaker 1: just said to you, that if you think the same

869
00:56:07,760 --> 00:56:10,959
Speaker 1: as others, you'll perform, behave the same, behave the same

870
00:56:11,239 --> 00:56:13,960
Speaker 1: you'll have the same performance. That's clearly in a formula

871
00:56:14,000 --> 00:56:17,080
Speaker 1: for superiority. So the answer is that you have to performed.

872
00:56:17,400 --> 00:56:21,600
Speaker 1: You have to think differently. But it's not so easy

873
00:56:21,680 --> 00:56:24,839
Speaker 1: because most of the time when people think differently, it's

874
00:56:24,880 --> 00:56:27,399
Speaker 1: the consensus. It's rights of the different thinker is wrong.

875
00:56:27,640 --> 00:56:30,480
Speaker 1: You have to think differently and better. Those are the

876
00:56:30,520 --> 00:56:32,680
Speaker 1: two criteria for a second level things and we look

877
00:56:32,719 --> 00:56:38,120
Speaker 1: for second level thinkers um which requires number one exceptional insight,

878
00:56:38,160 --> 00:56:40,640
Speaker 1: a number two a willingness to be wrong, because when

879
00:56:40,680 --> 00:56:43,160
Speaker 1: you diverge from the crowd, you you can't do it

880
00:56:43,239 --> 00:56:45,960
Speaker 1: with certainty that you're gonna be right. But you know,

881
00:56:46,080 --> 00:56:51,240
Speaker 1: just to give you a simple idea, Uh, the first

882
00:56:51,320 --> 00:56:54,160
Speaker 1: level thinker says, this is a great company, we should

883
00:56:54,160 --> 00:56:57,719
Speaker 1: buy the stock. The second level thinker says, it's a

884
00:56:57,760 --> 00:57:00,319
Speaker 1: great company as everybody thinks. It's not as great as

885
00:57:00,360 --> 00:57:04,879
Speaker 1: everybody thinks, we should sell the stock. If you if

886
00:57:04,920 --> 00:57:07,120
Speaker 1: you get that, like you know, you might say, if

887
00:57:07,160 --> 00:57:10,359
Speaker 1: you get the joke, then you have an insight that

888
00:57:10,440 --> 00:57:13,239
Speaker 1: we think is valuable. There are people who just don't

889
00:57:13,239 --> 00:57:17,560
Speaker 1: get that. There are people who don't understand contrarian thinking.

890
00:57:18,440 --> 00:57:25,280
Speaker 1: And um, I think it's extremely important that one does. Um.

891
00:57:25,360 --> 00:57:27,400
Speaker 1: We still have time for one or two more questions

892
00:57:27,720 --> 00:57:32,080
Speaker 1: over here? How about right over here? This is the

893
00:57:32,560 --> 00:57:37,200
Speaker 1: up from Stanley. The length of the cycles could be different, right,

894
00:57:37,400 --> 00:57:41,480
Speaker 1: So some cycles could have prizes to press for one year,

895
00:57:41,560 --> 00:57:44,640
Speaker 1: two years, three years, five years. So when that happens,

896
00:57:44,680 --> 00:57:47,080
Speaker 1: for example of the energy industry or anything like that,

897
00:57:47,480 --> 00:57:52,160
Speaker 1: how do you manage it on that? Oh? You know,

898
00:57:52,640 --> 00:57:53,960
Speaker 1: I'd love to be able to say I have a

899
00:57:54,000 --> 00:57:57,160
Speaker 1: brilliant answer to that, but there is no answer because

900
00:57:57,160 --> 00:58:00,840
Speaker 1: because because as I said, we sometimes know I have

901
00:58:00,920 --> 00:58:02,920
Speaker 1: an idea. I don't even want to use the word no.

902
00:58:03,400 --> 00:58:05,880
Speaker 1: We sometimes have an idea for what's going to happen.

903
00:58:06,160 --> 00:58:09,880
Speaker 1: We never know when we know. We may know that

904
00:58:09,920 --> 00:58:13,280
Speaker 1: oils looks cheap, we never know when it's going to

905
00:58:13,360 --> 00:58:19,560
Speaker 1: go up. And I think that everybody has to get

906
00:58:19,640 --> 00:58:25,680
Speaker 1: rid of this illusion that these things are noble, you know. Uh.

907
00:58:25,880 --> 00:58:30,240
Speaker 1: Mark Twain said, it ain't what you don't know that

908
00:58:30,360 --> 00:58:33,480
Speaker 1: gets you into trouble, it's what you know for certain

909
00:58:33,520 --> 00:58:38,360
Speaker 1: that just ain't true. A lot of my answers start

910
00:58:38,440 --> 00:58:42,600
Speaker 1: with I have no idea. But and when you say,

911
00:58:42,640 --> 00:58:45,560
Speaker 1: when you start your answer that way, it's impossible to

912
00:58:45,600 --> 00:58:49,240
Speaker 1: get into trouble. You get into trouble when you say

913
00:58:49,280 --> 00:58:53,800
Speaker 1: I'm confident of X, y Z, and you're bed heavily

914
00:58:54,240 --> 00:58:58,560
Speaker 1: and you're wrong. So if you accept that the that

915
00:58:58,680 --> 00:59:01,320
Speaker 1: the investment world is is a place where there's a

916
00:59:01,320 --> 00:59:03,840
Speaker 1: lot of uncertainty, you're gonna stay out of trouble. Uh.

917
00:59:04,240 --> 00:59:08,360
Speaker 1: Henry Kaupman, who was the chief economist of Solomon Brothers

918
00:59:08,400 --> 00:59:11,160
Speaker 1: in the nineteen seventies, once said, there are two kinds

919
00:59:11,160 --> 00:59:13,520
Speaker 1: of people who lose a lot of money, the ones

920
00:59:13,560 --> 00:59:16,760
Speaker 1: who are nothing and the ones who know everything. And

921
00:59:16,800 --> 00:59:19,320
Speaker 1: I think it's very important not to be either of those.

922
00:59:20,640 --> 00:59:24,040
Speaker 1: I saw some more questions over here, how about right?

923
00:59:24,160 --> 00:59:32,360
Speaker 1: Uh here? Hi, my name is Keith win. Um. I'm

924
00:59:32,360 --> 00:59:34,560
Speaker 1: an architect by trade, so I'm what I'm what you

925
00:59:34,680 --> 00:59:38,240
Speaker 1: call a mom and pop investor. So my question is

926
00:59:38,280 --> 00:59:42,880
Speaker 1: you mentioned that, Um, the macro economics doesn't influence your

927
00:59:43,120 --> 00:59:47,160
Speaker 1: investment decisions, but how do you know where you are

928
00:59:47,200 --> 00:59:50,840
Speaker 1: in the cycle without paying attention to or being influenced

929
00:59:50,840 --> 00:59:53,760
Speaker 1: by the macro economics. For example, you know, the trade

930
00:59:53,760 --> 00:59:57,040
Speaker 1: war may maybe something that's gonna blow over soon, and

931
00:59:57,040 --> 01:00:00,800
Speaker 1: we're going to focus on the fundamentals again of you know, investments,

932
01:00:00,840 --> 01:00:05,080
Speaker 1: but then what about China and all that, the kinds

933
01:00:05,080 --> 01:00:07,400
Speaker 1: of things that they're investing in. When I look at

934
01:00:07,400 --> 01:00:09,840
Speaker 1: a country, don't I pay attention to the politics among

935
01:00:09,880 --> 01:00:12,280
Speaker 1: different countries and what they do, what they invest in,

936
01:00:12,400 --> 01:00:17,040
Speaker 1: what they what they want to do in the future. Well,

937
01:00:17,040 --> 01:00:20,840
Speaker 1: the short answer is yes, the long end, but your

938
01:00:20,880 --> 01:00:24,320
Speaker 1: answers are no good. The long answer is that number one,

939
01:00:24,360 --> 01:00:27,920
Speaker 1: the things you're talking about are not cyclical. These are

940
01:00:28,760 --> 01:00:32,000
Speaker 1: one time what we call exogenous events, whether we'll have

941
01:00:32,080 --> 01:00:39,720
Speaker 1: a trade war, etcetera. And uh, this goes back to

942
01:00:39,920 --> 01:00:43,560
Speaker 1: really what I said about the macro what's going to

943
01:00:43,640 --> 01:00:51,360
Speaker 1: happen in these regards China, future growth, trade war, etcetera.

944
01:00:52,480 --> 01:00:57,600
Speaker 1: Is very important? But is it knowable? And if it's

945
01:00:57,640 --> 01:01:02,400
Speaker 1: not knowable, then you just have to understand that it's

946
01:01:02,440 --> 01:01:07,200
Speaker 1: an uncertainty out there. And and and you you may

947
01:01:07,280 --> 01:01:09,520
Speaker 1: you may say, you know, I'm concerned about China. The

948
01:01:09,560 --> 01:01:12,280
Speaker 1: possibility of a trade war raises the uncertainty for me.

949
01:01:12,480 --> 01:01:14,560
Speaker 1: So I'm going to invest conservatively. That's not a sick

950
01:01:14,600 --> 01:01:20,880
Speaker 1: local consideration, but that's a prudent consideration. Um and uh.

951
01:01:21,120 --> 01:01:24,400
Speaker 1: But you know, I keep coming back to this thought

952
01:01:24,720 --> 01:01:27,160
Speaker 1: that it would be nice to know what's going to happen,

953
01:01:27,400 --> 01:01:31,080
Speaker 1: but you don't know, and nobody knows. And you're an architect,

954
01:01:31,360 --> 01:01:33,880
Speaker 1: and what that means is you build buildings and you

955
01:01:33,960 --> 01:01:36,760
Speaker 1: put in enough steel and brick so that it won't

956
01:01:36,800 --> 01:01:42,360
Speaker 1: fall down because it works according to certain physical laws.

957
01:01:42,840 --> 01:01:45,960
Speaker 1: And you have to understand that there are no physical

958
01:01:46,080 --> 01:01:51,920
Speaker 1: laws at work in investing, and the future is uncertain

959
01:01:52,320 --> 01:01:59,240
Speaker 1: and vague and and random. Um and psychology dominates. And

960
01:02:01,000 --> 01:02:03,280
Speaker 1: I say in the book, I quote Richard Feyinneman, who

961
01:02:03,320 --> 01:02:06,840
Speaker 1: was the great physicist, and he said physics would be

962
01:02:06,920 --> 01:02:12,040
Speaker 1: much harder if electrons had feelings. A great quote. You know,

963
01:02:12,120 --> 01:02:14,000
Speaker 1: you come in the room, you'd s flip up the switch.

964
01:02:14,040 --> 01:02:17,600
Speaker 1: The lights go on every time. Why is that because

965
01:02:17,640 --> 01:02:20,640
Speaker 1: the electrons flow from the switch to the lights. They

966
01:02:20,680 --> 01:02:23,520
Speaker 1: never flow this way. They never go on strike, they

967
01:02:23,560 --> 01:02:25,880
Speaker 1: never fall asleep, they never say today, I don't feel

968
01:02:25,880 --> 01:02:29,560
Speaker 1: like flowing from the switch to the light. That's physical science.

969
01:02:30,280 --> 01:02:38,440
Speaker 1: You have to understand the distinction between your field and

970
01:02:38,480 --> 01:02:41,840
Speaker 1: the field of investing, where there are no laws, there

971
01:02:41,920 --> 01:02:45,600
Speaker 1: are only tendencies. We can get the tendencies on our side,

972
01:02:46,440 --> 01:02:50,040
Speaker 1: but we can't. You can't build a bridge that's incapable

973
01:02:50,040 --> 01:02:53,880
Speaker 1: of falling down. I think that's the perfect place to

974
01:02:54,400 --> 01:02:57,840
Speaker 1: leave us off. So before I asked for rental plause,

975
01:02:57,880 --> 01:02:59,640
Speaker 1: I just want to let everybody know they will be

976
01:03:00,000 --> 01:03:02,960
Speaker 1: links and snacks on the other side of those doors,

977
01:03:03,080 --> 01:03:06,840
Speaker 1: as well as uh copies of Howard's book. I know

978
01:03:07,040 --> 01:03:10,680
Speaker 1: you have copies, um, well, somebody paid for them. There

979
01:03:10,800 --> 01:03:14,320
Speaker 1: is there is no free lunch, um. But Howard's gonna

980
01:03:14,320 --> 01:03:16,200
Speaker 1: be able to stick around for another ten minutes. And

981
01:03:16,240 --> 01:03:18,720
Speaker 1: I promised his wife I would not make him late

982
01:03:18,720 --> 01:03:22,000
Speaker 1: for dinner. So let's hear it for Howard Marks. I

983
01:03:22,160 --> 01:03:22,360
Speaker 1: feel