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Speaker 1: This is Master's in Business with Barry Ridholets on Bloomberg Radio.

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Speaker 1: This week on Master's in Business on Bloomberg Radio, I

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Speaker 1: have a very special guest. Yes, I know you're all

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Speaker 1: gonna make fun of me once again, I am saying

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Speaker 1: I have a very special guest. But when you hear

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Speaker 1: my conversation with my guest, you will agree this is

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Speaker 1: a very special guest. Howard Mark's chairman, co founder oak

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Speaker 1: Tree Capital. His firm has put up an absolutely astonishing

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Speaker 1: track record of long term performance in the debt market.

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Speaker 1: He's been running the firm for twenty two years. They've

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Speaker 1: put up phenomenal numbers. Nobody is really even close to them. Uh.

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Speaker 1: And and when you consider that it's in debt and

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Speaker 1: not equity, the numbers are even more astonishing. I I

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Speaker 1: found Howard to be extremely thoughtful, intelligent, forthcoming individual. Not

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Speaker 1: a lot of people who are in his circumstances UH

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Speaker 1: tend to be as just transparent and open. And you know,

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Speaker 1: he just lays his cards down on the table. Uh.

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Speaker 1: I think you'll find his discussion on second level thinking

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Speaker 1: to be very worthwhile, as well as his explanation for

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Speaker 1: how and why investors become successful. You know, there are

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Speaker 1: a lot of people who are smart guys, who are

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Speaker 1: hard working, who who apply their their field in the

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Speaker 1: um industry of of investing in finance, and they end

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Speaker 1: up putting out numbers that are you know, fair at best.

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Speaker 1: And Howard explains what you need to do if you

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Speaker 1: want to outperform. I especially am fond of his discussion

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Speaker 1: on predictions and the folly of forecasts let's a little

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Speaker 1: bit of confirmation bias on my time, my my part,

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Speaker 1: as well as his discussion on on risk and risk management.

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Speaker 1: I found that absolutely fascinating and I think you will

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Speaker 1: as well. So, without any further ado, here is my

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Speaker 1: conversation with Howard Marks of oak Tree Capital. This is

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

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Speaker 1: special guest today is truly a special guest. His name

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Speaker 1: is Howard Marks and he runs oak Tree Capital. Let

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Speaker 1: me give a short version of Howard's curriculum vita, which

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Speaker 1: is quite lengthy. Um graduated from Wharton at the University

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Speaker 1: of Pennsylvania cum laude in nine seven, a major in

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Speaker 1: finance and a minor in Japanese studies. Got his MBA

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Speaker 1: from the University of Chicago Booth School of Business, worked

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Speaker 1: as an equity research analyst at City Corps for the

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Speaker 1: next decade before he became director of research. Ultimately became

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Speaker 1: vice president and senior portfolio manager for convertible and high

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Speaker 1: yield securities. Left to lead the distressed asset group at

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Speaker 1: Trust Company of the West. Did you lead that group

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Speaker 1: or set it up? We'll we'll get into that. We'll

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Speaker 1: get into a little more details about that. And then

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Speaker 1: he left Trust Company of the West to set up

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Speaker 1: oak Tree Capital, which runs a high yeld bond fund,

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Speaker 1: distressed debt, private equity, and other strategies, and has put

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Speaker 1: up some astonishing performance numbers. The seventeen distressed debt funds

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Speaker 1: that oak Tree has ranked up annual gains of after

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Speaker 1: fees for the past twenty two years, far outpacing its peers.

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Speaker 1: Howard Marks, Welcome to Bloomberg. Thank you, Barry. So let's

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Speaker 1: get into a little bit about your background. Obviously Wharton

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Speaker 1: and then a MBA suggests you had been thinking about finance.

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Speaker 1: Were there ever any plans to do anything besides uh,

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Speaker 1: go into asset management. Well, I wasn't one of these

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Speaker 1: kids who was reading prospectuses at nine you know. Uh,

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Speaker 1: first I wanted to be a high school history professor,

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Speaker 1: that I wanted to be an architect. I had lots

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Speaker 1: of interest. And then then when I got serious, I

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Speaker 1: thought I'd be an accountant because that's what my dad was,

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Speaker 1: and I I really enjoyed accounting. But when when I

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Speaker 1: got to Warden, I switched from accounting to finance in

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Speaker 1: terms of my interest. When I got out of Chicago,

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Speaker 1: I still didn't know what I wanted to do. I

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Speaker 1: knew it would be in finance, but I applied for

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Speaker 1: six different jobs in six different fields of finance. Oh

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Speaker 1: that's quite interesting. What other fields were you looking at? Accounting,

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Speaker 1: corporate finance, investment, banking, consulting, um, great variety. Well, well,

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Speaker 1: you seem to have found your call. And I got

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Speaker 1: lucky to say, And by the way, that's something that

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Speaker 1: just about every guest I've had has said, never hurts

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Speaker 1: to get lucky, and U being smart doesn't hurt either.

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Speaker 1: A good combination between the two of them. So you

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Speaker 1: began your career. I found this fascinating. You began your

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Speaker 1: career as an equity analyst, and yet when you moved

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Speaker 1: to the Trust Company of the West, you started covering

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Speaker 1: fixed income. How did that transition take place? Well, it's

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Speaker 1: not that interesting a story, but but but you know

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Speaker 1: at a bank, you progress, uh hierarchically. So I moved

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Speaker 1: from being a junior anals so senior analyst, to a

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Speaker 1: unit head to director of research. As you described. The

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Speaker 1: bank didn't do well in that period because we were

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Speaker 1: nifty fifty investors, the fifty biggest, fastest growing, best companies

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Speaker 1: in America. UM. And if you bought them in sixty

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Speaker 1: eight and you sold him in seventy three, uh, in

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Speaker 1: the best companies in America lost any money. Uh. And

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Speaker 1: so that that didn't work out well. I was part

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Speaker 1: of that UM regime and a new guy came in

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Speaker 1: to be chief investment officer and and he wanted his

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Speaker 1: own director of research. And he said, I'd like you

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Speaker 1: to start a convertible body fund just like just like that,

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Speaker 1: And so I did. It was August the first seventy eight.

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Speaker 1: And then I got a call later that month from

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Speaker 1: from my boss and he said, you know, the there's

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Speaker 1: some guy in California named Milken or something, and he

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Speaker 1: deals in high yield bonds. Can you figure out what

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Speaker 1: that means? Because a client has just asked for a

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Speaker 1: hiel bond portfolio. You know, that was part of my luck.

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Speaker 1: That was the beginning of the hyl bond industry. I

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Speaker 1: was thirty seven years ago. And uh, you know, almost

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Speaker 1: everything that's been interesting in finance in the last thirty

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Speaker 1: seven years has gone through, uh, the hyal bond market.

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Speaker 1: So it's front row seat on history. And you know,

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Speaker 1: part of the luck is to get there early, and

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Speaker 1: I did. And I also get the sense that you

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Speaker 1: very much enjoy having that front seat on history, in

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Speaker 1: history and being able to to be more than a spectator,

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Speaker 1: but an active partisan, right, an active participant, and and

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Speaker 1: and somebody who tries to figure out what's going on,

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Speaker 1: not just cope with what's going on, but actually understand

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Speaker 1: and fundamentally and and as you know, communicate about it.

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Speaker 1: I believe you have described that as second degree thinking,

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Speaker 1: second level, second level, second level thinking. Yes, that's right. Uh.

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Speaker 1: You know, the real success in investing goes to people

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Speaker 1: who who achieve a superior understanding of the things that

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Speaker 1: are going on, why they're going on, and what they mean.

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Speaker 1: In other words, not just understand what the crowd knows,

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Speaker 1: but a whole level beyond that. Well, if you if

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Speaker 1: you think the same as everybody else, you'll behave the

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Speaker 1: same And if you behave the same as everybody else,

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Speaker 1: you can't expect to outperform. You'll get you'll get average results.

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Speaker 1: But in investing um success consists of having above average results.

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Speaker 1: So you have to get away from the crowd and

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Speaker 1: you have to achieve a higher level of thinking. You know,

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Speaker 1: for example, very simple uh people say it's a great company,

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Speaker 1: you should buy the stock. Second level thinker says, it's

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Speaker 1: a great company, but it's not as great as everybody thinks,

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Speaker 1: you should sell the stock. So it's kind of uh,

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Speaker 1: it's kind of reflexive or counterintuitive. Doug Doug cast We

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Speaker 1: were discussing a mutual friend calls that variant perception, looking

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Speaker 1: at things a little differently than everybody else does to

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Speaker 1: find the opportunity. That's right. So, so speaking of opportunity,

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Speaker 1: you end up at Trust Company of the West and

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Speaker 1: you created the high EELD bond fund. There a convertible

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Speaker 1: securities funds and is this was this the world's first

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Speaker 1: distress bond fund. I think it was the first distressed

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Speaker 1: debt fund from a mainstream financial institution prior to that

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Speaker 1: at just as our high yeld bond fund that city

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Speaker 1: and seventy eight was the first one from a financial institution.

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Speaker 1: No bank had ever done it before, or trust company

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Speaker 1: and UH and the same was true in the distress

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Speaker 1: dead field. You know, you had your your, your couple

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Speaker 1: of guys at a desk in Grantwitch or on place

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Speaker 1: trading for their own accounts, or a few for a few,

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Speaker 1: you know, for a small high net worth hedge funds,

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Speaker 1: but UH, nobody had ever done it on the institutional scale.

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Speaker 1: You're listening to Masters in Business on Bloomberg Radio. My

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Speaker 1: special guest today is Howard Marks. He is the founder

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Speaker 1: and chairman of oak Tree Capital. And we were discussing previously.

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Speaker 1: You had set up what turned out to be the

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Speaker 1: largest distressed debt funds right in the midst of the

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Speaker 1: financial collapse in oh seven o eight. What was that like?

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Speaker 1: What sort of pushback did you get from investors? Well,

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Speaker 1: we started to raise UH capital on the first day

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Speaker 1: of oh seven and things have been going very well

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Speaker 1: in the world. UM. And what happens, of course, is

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Speaker 1: that when things go well, UH standards decline. People require

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Speaker 1: less credit worthiness, they do riskier deals, they take more risk,

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Speaker 1: because what the hell they figure, the more risk you take,

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Speaker 1: the more money you make. Uh. We were alarmed at

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Speaker 1: that friend, and so we went out to raise a fund.

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Speaker 1: On the first day of O seven, we said we'd

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Speaker 1: like to raise three billion. Now we had started off

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Speaker 1: eight UM with a ninety six million dollar fund. We

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Speaker 1: had grown past a billion dollar mark around and here

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Speaker 1: we are in O seven. We said we liked that

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Speaker 1: three billion UM and uh. Within a month people had

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Speaker 1: offered us eight and we said, we can't take eight.

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Speaker 1: There's nothing to do with eight. But we'll take three

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Speaker 1: and a half and we'll close that fund and we'll

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Speaker 1: start investing the three and a half billion. And uh.

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Speaker 1: But we asked people to give us the remainder of

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Speaker 1: their commitments for a standby fund, that the money that

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Speaker 1: we could have in reserve, because we thought there was

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Speaker 1: an opportunity coming and if it came, we'd like that

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Speaker 1: more money. I think I think that was a little

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Speaker 1: bit of an understatement that opportunity came along. It certainly

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Speaker 1: did later on it did. So anyway, we had the

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Speaker 1: first closing in March of O seven and the last

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Speaker 1: closing in March of OH eight, and by the time

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Speaker 1: we finished raising money was ten point nine billion, as

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Speaker 1: you know, and now is our fund seven B we

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Speaker 1: called it, and we we told people that we wouldn't

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Speaker 1: raise them invest the money until there was something good

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Speaker 1: to do with it, and we wouldn't charge any fees

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Speaker 1: until we invested the money. Um So we waited from

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Speaker 1: the March oh seven until June of eight to start investing,

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Speaker 1: and in June of eight we started to invest gradually

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Speaker 1: and the fund was called the Dailyman went under September

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Speaker 1: fifteen of eight, and then we really got busy and

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Speaker 1: it was se called on December. How long did it

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Speaker 1: take to get fully invested at that point, well, the

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Speaker 1: last we never invested the last money. It's an interesting story, yes,

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Speaker 1: because well we thought that in a real meltdown that

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Speaker 1: cash would be king. We would be involved in bankruptcy restructurings,

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Speaker 1: and in order to really capitalize on them. You know,

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Speaker 1: in a world where nobody has any money, there's a

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Speaker 1: great premium on having some cash, and we thought that

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Speaker 1: having some cash in reserve could give us real power

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Speaker 1: at the bargaining table. So we we said we're going

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Speaker 1: to leave the last ten percent of the fund, which

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Speaker 1: was a billion one uninvested, so we never did invest that,

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Speaker 1: and those restructurings, for the most part, never materialized. The

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Speaker 1: world turned around much faster than we would have thought.

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Speaker 1: That's quite fascinating. And I mentioned in in the introduction

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Speaker 1: that you have about seventeen distress funds, all told different series.

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Speaker 1: I think that's right. And the performance numbers on those funds,

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Speaker 1: and we rarely tout performance. We don't like to get

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Speaker 1: into the details too much, but I have to mention

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Speaker 1: these numbers because they're just astonishing. After fees over the

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Speaker 1: past twenty two years, your funds of average annually, that's

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Speaker 1: just extraordinary. Well, my colleagues are exceptional. Um, you're just

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Speaker 1: a buy stand. They're just an innocent boy. Well, the

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Speaker 1: day to day the person who really uh you know,

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Speaker 1: I I help set the scene and make them big

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Speaker 1: tactical decisions. But the person who actually runs that fund

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Speaker 1: from day to day is Bruce carsh He's been my

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Speaker 1: partner since right as well, right, and uh, and he's

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Speaker 1: just he's just an exceptional strategist, you know, competitor, uh,

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Speaker 1: you know, chess player, what what have you? And he

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Speaker 1: just figures out how to gain these things. We we've

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Speaker 1: always had a great UH stable of financial analysts that

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Speaker 1: work with us. And so you know, the key is

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Speaker 1: to do a better job than others of figuring out

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Speaker 1: what the what the company that rises from the ashes

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Speaker 1: of bankruptcy is going to be worth, and how to

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Speaker 1: get how to get a piece of that cheaply and

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Speaker 1: UH and they've been able to do that successfully over

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Speaker 1: the years. Now, I agree with you Barry the short

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Speaker 1: term that performance numbers, we shouldn't dwell on them too much.

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Speaker 1: And I love your reciting hours. But but I would

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Speaker 1: remiss if I didn't mention the fact that that is

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Speaker 1: an unlevered return. Now that's we don't borrow any money

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Speaker 1: to amp up the results. That's just the result of

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Speaker 1: our investments making it even even more extraordinary. So so

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Speaker 1: the secret to your success is a combination of an

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Speaker 1: outstanding team UH, excellent assessment of what's going on, figuring

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Speaker 1: out the valuation of what things are worth, and and

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Speaker 1: how do you avoid what's been Dick Thaler called the

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Speaker 1: failor called the winner's course, the bidding too much to

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Speaker 1: actually win, and finding yourself with something that you ultimately

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Speaker 1: paid too much for. I think that the secret to

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Speaker 1: solving all problems. Starts with awareness of that problem. So

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Speaker 1: if you understand that that that winning an auction is

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Speaker 1: not necessarily a a boon, uh, then you you can

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Speaker 1: develop discipline. Uh and UH you know UH. When we

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Speaker 1: started oak Tree, we wrote out the uh the investment philosophy.

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Speaker 1: There are six tenants to it. It's on the website

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Speaker 1: if anybody wants to look. We've never changed a word

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Speaker 1: in over twenty years. And the first tenant says that

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Speaker 1: the that they are the most important part of our

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Speaker 1: job is risk control. So I'm proud of the performance

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Speaker 1: numbers that you reported, but I'm prouder that I believe

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Speaker 1: they have been achieved with the risks under control. I

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Speaker 1: believe that the first job of the money manager is

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Speaker 1: not to make a lot of money, and it's not

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Speaker 1: to beat the market, and it's not to be in

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Speaker 1: the top quartile. The first job is to control risk.

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Speaker 1: And everybody at oak Tree believes that follows that and

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Speaker 1: I believe that we always have had an effective emphasis

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Speaker 1: on controlling the risk. So now, when you describe controlling risk,

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Speaker 1: I want to put a little mean on those bones.

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Speaker 1: Are you referring to potential returns relative to the risk

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Speaker 1: you're taking. Are you talking about loss of capital? What

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Speaker 1: exactly is risk to someone running other people's money? Well,

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Speaker 1: to me, you know, the the academics to find investment

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Speaker 1: risk as volatility. I do not agree. To me. The

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Speaker 1: risk that matters is the risk of of permanent loss. Now,

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Speaker 1: there are lots of kinds of risks, and I put

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Speaker 1: out a memo in which I think I described twenty

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Speaker 1: three or twenty four different kinds of risk. But the

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Speaker 1: one that really matters is the risk of permanent laws.

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Speaker 1: And we believe that we can mitigate that risk by

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Speaker 1: picking in the right industries where the values are lasting

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Speaker 1: rather than ephemeral, by buying debt which is at the

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Speaker 1: top in terms of priority rather than at the bottom,

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Speaker 1: by doing rigorous financial analysis. You know, really, uh, safety

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Speaker 1: comes from paying less than things are worth and building

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Speaker 1: in a margin of safety. Uh So, only if you

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Speaker 1: fully understand what things are worth can you buy for less.

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Speaker 1: Welcome to Masters in Business on Bloomberg Radio. My special

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Speaker 1: guest today is Howard Marks. He is the founder and

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Speaker 1: chairman of oak Tree Capital. And before the break we

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Speaker 1: had been talking about your chairman's memos, which I find

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Speaker 1: to be not only required reading, but absolutely fascinating. Um,

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Speaker 1: why did you start the chairman memos? Chairman's memos? What

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Speaker 1: was the thinking beyond that? I wish I knew. You know,

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Speaker 1: I started twenty five years ago. I certainly can't remember

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Speaker 1: back that long. No legislative history, you don't have any

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Speaker 1: notes or anything. It just started. Well, what I would

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Speaker 1: guess is that you know, I mean years ago, I

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Speaker 1: had twenty years in this industry or twenty two, and

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Speaker 1: I was starting to think to develop the philosophy. What

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Speaker 1: did I believe in? What did I stand for? And

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Speaker 1: what did I reject? Uh? And UH. Two events occurred

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Speaker 1: UH where I thought there was something to be learned

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Speaker 1: from the juxtaposition. So I wrote the first memo. H

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Speaker 1: I had. I had dinner with the chief investment officer

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Speaker 1: of a large pension fund, and he explained to me

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Speaker 1: that in his fourteen years on the job, his fund

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Speaker 1: had never been above the twenty seven percentile or below

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Speaker 1: the forty seventh percentile. It was solidly in the second

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Speaker 1: quartile of pension funds, and as a result, for the

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Speaker 1: fourteen years overall, he was in the fourth percentage. So,

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Speaker 1: in other words, by not having any huge blowout years

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Speaker 1: which often follows those huge top ten years. He managed

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Speaker 1: to just gradually rise to the top. He never had

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Speaker 1: a top ten year he was he was solidly just

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Speaker 1: just a bit above average. Uh, and in the peculiar

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Speaker 1: math of investing, that made him one of the best

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Speaker 1: in the world. And then I came back to New

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Speaker 1: York and I and I read about the president of

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Speaker 1: an investment management firm which was having a particularly bad

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Speaker 1: year that year, and he said, well, you know, he says, yes,

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Speaker 1: it's unfortunate, but the truth is, if you want to

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Speaker 1: be in the top five percent of money managers, you

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Speaker 1: have to be willing to be in the bottom five percent.

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Speaker 1: And I said to myself, I am absolutely unwilling to

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Speaker 1: be in the bottom five percent. I don't care if

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Speaker 1: I'm in the top five percent in any given years. Obviously,

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Speaker 1: my previous discussion had shown that it's not essential, uh,

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Speaker 1: but I sure didn't want to be in the bottom five.

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Speaker 1: So that was that was a good look at two

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Speaker 1: different ways to think, and it was clear to me

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Speaker 1: which one had the appeal. So consistency second quartile over

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Speaker 1: long periods of time put you in that top five

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Speaker 1: or better, and no blow ups and no blow ups.

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Speaker 1: So you start these in this is pre internet. Are

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Speaker 1: you faxing these? Are you? How are these going out?

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Speaker 1: I'm I'm writing them up and uh, you know, stuffing

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Speaker 1: envelopes and and and putting them out on paper and

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Speaker 1: and uh putting stamps on him and and and throwing

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Speaker 1: them down the drain. Now why do I say down that? Wait? Wait,

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Speaker 1: so every quarter the whole staff gets together periodically, so

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Speaker 1: it wasn't wasn't that regular in the beginning, but at

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Speaker 1: least once a year, I think, just once a year

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Speaker 1: in ninety and once a year in ninety one. And

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Speaker 1: out they go. And what's the response? Non zero crickets

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Speaker 1: zero response. That's why I say throwing him down the drain?

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Speaker 1: If for all I knew they were being held up

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Speaker 1: by the post office and this was going to investors

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Speaker 1: in your funds and clients of the firm and other

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Speaker 1: assorted well, yes, clients and friends, and nobody picked up

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Speaker 1: the response that because just so you know, in my office,

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Speaker 1: you put out a note and my head of research

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Speaker 1: comes up to me and said, hey, did you see

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Speaker 1: the marks letter? Yeah, of course I saw it this morning.

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Speaker 1: I'm on I'm on the list like anybody else. Who's

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Speaker 1: half smart has done none of that, you know, you know,

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Speaker 1: just crickets. As I recall it, there wasn't a response

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Speaker 1: in the first ten years, Akade. So you're just sending

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Speaker 1: these out into the void and literally nothing. And I

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Speaker 1: have no idea what kept me going, uh you know,

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Speaker 1: with that lack of a reward, no feedback, none, none.

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Speaker 1: But it had to be a the process itself had

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Speaker 1: to be somewhat of a reward of itself, yet enjoy it.

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Speaker 1: You clearly are a gifted writer or you like putting

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Speaker 1: words on paper. There had to be something, although I

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Speaker 1: would tell you it has to be a little funny

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Speaker 1: not here. So when did you first start to see

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Speaker 1: kind of like if you were on the radio and

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Speaker 1: you just spoke and nobody spoke back. By the way,

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Speaker 1: nobody is you should know that we're not broadcasting this.

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Speaker 1: This is just my own private collection. Uh So, so

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Speaker 1: what finally generates a response? When do you finally hear that, hey,

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Speaker 1: somebody is reading these thoughts. Well, I was working on

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Speaker 1: a memo and I put it out on the first

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Speaker 1: day of two thousand and it was called bubble dot com.

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Speaker 1: And basically what it said is that there's so much

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Speaker 1: buzz and hype around technology that I think it's overdone,

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Speaker 1: and I think it's going to cause a problem for

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Speaker 1: the people who are following it blindly. And that memo

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Speaker 1: had too virtues. It was right, and it was right soon.

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Speaker 1: Being right is not enough, because if it takes you

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Speaker 1: to three four years to be right, everybody's forgotten you

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Speaker 1: by the time the events, Uh comply with your forecast.

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Speaker 1: But trading right plus early equals wrong. Right. But you know,

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Speaker 1: the the tech stocks collapsed sometime around the second quarter

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Speaker 1: of two thousand and and, as I think I wrote

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Speaker 1: in the introduction to my book, after ten years, I

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Speaker 1: became an overnight success. There you go. You're listening to

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Speaker 1: Masters in Business on Bloomberg Radio. My special guest today

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Speaker 1: is Howard Marks. He is the founder and chairman of

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Speaker 1: Oaktree Capital. We were talking about Wall Streets obsession with forecast.

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Speaker 1: Let me let me give you a quote of yours,

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Speaker 1: and I'm I'm paraphrasing slightly. Uh. When it comes to investing,

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Speaker 1: we are concerned with actually one thing, dealing with the future.

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Speaker 1: Yet it's clearly impossible to know anything about the future.

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Speaker 1: You can't predict, you can only prepare So the first

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Speaker 1: question is why is the financial industry so in love

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Speaker 1: with forecasts? And the second question is what can investor

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Speaker 1: do about it? Well, if I was competing for a

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Speaker 1: piece of business, and I walked into your living room

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Speaker 1: and I said, you know, look, very I really have

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Speaker 1: no idea what's going to happen in the markets, in

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Speaker 1: the economies, or in rates and in the coming year.

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Speaker 1: And the next guy comes in he says, I'll tell

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Speaker 1: I know exactly what's gonna happen. You know that guy,

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Speaker 1: I'll get the business ninety odd percent of the time. Now,

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Speaker 1: the truth is he'll give you the business because because

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Speaker 1: because he doesn't know any better than I do. But

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Speaker 1: you know, nobody likes totally ambiguity. Um. And yet you

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Speaker 1: know Mark Twain said, it's not what you don't know

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Speaker 1: that gets you into trouble, it's what you know for

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Speaker 1: certain that just ain't true. I think it's much more

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Speaker 1: valid and much more prudent to admit when you don't

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Speaker 1: know something than to act as if you do. To

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Speaker 1: say the least, I'm I'm fond of looking at current

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Speaker 1: situations and going back a year to say, hey, how

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Speaker 1: many people last saw the we're saying, by the way,

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Speaker 1: oil is going to get cut in half. Nobody said

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Speaker 1: anything like that. Nobody said in advance Russia's invading the Ukraine.

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Speaker 1: People had idea there were issues with with Greece. I

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Speaker 1: don't think a lot of people were saying, hey, get

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Speaker 1: ready for a full on bear market in China after

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Speaker 1: the market doubles the first six months of this year, right, So,

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Speaker 1: so no doubt that that's a that's a process. Here's

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Speaker 1: another quote of yours that I really enjoy. We can

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Speaker 1: make excellent investment decisions on the basis of present observations

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Speaker 1: with no need to make guesses about the future. Well,

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Speaker 1: you know, I believe what are my mottos for myself

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Speaker 1: is that we never know where we're going, but we

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Speaker 1: sure as hell order know where we are. We don't

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Speaker 1: know what's going to happen in the economy, we don't

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Speaker 1: know what's going to happen in the market next year,

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Speaker 1: but we can have a sense for the whether the

430
00:25:23,160 --> 00:25:27,760
Speaker 1: market environment is hostile or friendly from what's going on

431
00:25:27,800 --> 00:25:31,560
Speaker 1: around us. What are other people doing, what are they thinking,

432
00:25:31,600 --> 00:25:35,760
Speaker 1: how are they acting? Um are are are the people

433
00:25:35,840 --> 00:25:39,960
Speaker 1: on radio and TV shows wildly bullish? Or are they

434
00:25:40,080 --> 00:25:42,879
Speaker 1: very cautious. When they're wildly bullish, we should be worried.

435
00:25:43,280 --> 00:25:46,920
Speaker 1: When they're cautious, we can turn aggressive, you know. Uh.

436
00:25:47,119 --> 00:25:50,639
Speaker 1: Warren Buffett says, the less prudence with which others conduct

437
00:25:50,680 --> 00:25:53,160
Speaker 1: their affairs, the greater the prudence with which we must

438
00:25:53,240 --> 00:25:55,920
Speaker 1: conduct our own affairs. So if we know that people

439
00:25:55,920 --> 00:26:03,360
Speaker 1: are throwing money at wild leverage straw sured speculative deals,

440
00:26:03,840 --> 00:26:06,959
Speaker 1: then we know that we're in an overheated environment, and

441
00:26:07,040 --> 00:26:10,880
Speaker 1: we should turn cautious. And I think that using indicators

442
00:26:10,920 --> 00:26:15,400
Speaker 1: like like those can work. Nobody gets timing exactly right.

443
00:26:16,200 --> 00:26:20,399
Speaker 1: But the question is, uh, can you improve upon a

444
00:26:20,520 --> 00:26:25,600
Speaker 1: buy and hold approach? Can you improve upon the faulty

445
00:26:25,720 --> 00:26:30,040
Speaker 1: uh timing that the herd engages in. It makes a

446
00:26:30,040 --> 00:26:32,960
Speaker 1: lot of sense. Um, here's another quote of yours that

447
00:26:33,000 --> 00:26:37,320
Speaker 1: I really like. I called called once called this extrapolation

448
00:26:37,359 --> 00:26:41,600
Speaker 1: to infinity. And you had said, rule number one, most

449
00:26:41,640 --> 00:26:45,040
Speaker 1: things proved to be cyclical. Rule number two. Some of

450
00:26:45,080 --> 00:26:48,920
Speaker 1: the greatest opportunities for gain and loss comes when other

451
00:26:48,920 --> 00:26:52,320
Speaker 1: people forget rule number one. Explain that, well, I mean,

452
00:26:52,680 --> 00:26:57,120
Speaker 1: when I was a kid in the early seventies, one

453
00:26:57,119 --> 00:27:00,199
Speaker 1: of my mentors described to me the three stage is

454
00:27:00,359 --> 00:27:03,240
Speaker 1: of a bull market. The first stage, when only a

455
00:27:03,280 --> 00:27:06,239
Speaker 1: few people believed that things could ever get better, the

456
00:27:06,280 --> 00:27:10,040
Speaker 1: middle stage, when most people understand that improvement is taking place,

457
00:27:10,359 --> 00:27:13,160
Speaker 1: and the last stage, when everybody believes things will get

458
00:27:13,200 --> 00:27:17,959
Speaker 1: better forever. So the point is, uh, you should know

459
00:27:18,080 --> 00:27:22,400
Speaker 1: which stage you're in, and you should act accordingly. And

460
00:27:22,560 --> 00:27:26,080
Speaker 1: if you if it's hard to get in in the

461
00:27:26,119 --> 00:27:31,560
Speaker 1: first stage but desirable but dangerous to get in or

462
00:27:31,640 --> 00:27:34,040
Speaker 1: stay in in the latter stage, And the question is

463
00:27:34,200 --> 00:27:36,760
Speaker 1: can you figure that out? And I believe you can,

464
00:27:37,280 --> 00:27:40,000
Speaker 1: which leads us to a question. Here we are in

465
00:27:40,160 --> 00:27:43,440
Speaker 1: mid two thousand fifteen, what stage of the bull market

466
00:27:43,480 --> 00:27:48,080
Speaker 1: are we in? Um? Well, first of all, it depends

467
00:27:48,119 --> 00:27:50,320
Speaker 1: on which market you're talking about. You most people talk

468
00:27:50,359 --> 00:27:52,000
Speaker 1: about the stock market, I think in terms of the

469
00:27:52,000 --> 00:27:54,480
Speaker 1: credit market or the debt market. So let's let's talk

470
00:27:54,480 --> 00:27:58,399
Speaker 1: about both. Okay, Okay, Well, first of all, let me

471
00:27:58,440 --> 00:28:01,320
Speaker 1: say that the U. S economy is going okay. It

472
00:28:01,640 --> 00:28:09,560
Speaker 1: We have a gradual, unsteady, halting, unimpressive, but intact recovery

473
00:28:10,560 --> 00:28:13,520
Speaker 1: and no reason to think that's gonna stop anytime. So,

474
00:28:13,520 --> 00:28:17,199
Speaker 1: so what we call in the business the fundamentals are

475
00:28:17,200 --> 00:28:19,880
Speaker 1: a relatively intact in this country. I don't even want

476
00:28:19,880 --> 00:28:25,400
Speaker 1: to go abroad yet. Uh. Then we have to look

477
00:28:25,400 --> 00:28:28,920
Speaker 1: at investor psychology. Uh, and then we have to look

478
00:28:28,920 --> 00:28:33,080
Speaker 1: at valuations. Psychology is a little bit on the positive side.

479
00:28:33,119 --> 00:28:35,440
Speaker 1: I don't think too many people are very excited about

480
00:28:35,440 --> 00:28:37,359
Speaker 1: the future. They're too I don't think too many people

481
00:28:37,400 --> 00:28:41,480
Speaker 1: are excited about buying today. Um, and yet they are buying.

482
00:28:42,600 --> 00:28:46,520
Speaker 1: Why I call them handcuffed volunteers. People can't keep money

483
00:28:46,560 --> 00:28:48,239
Speaker 1: in cash, they can't be money in the bank, they

484
00:28:48,240 --> 00:28:49,920
Speaker 1: can't keep it in money market funds because they get

485
00:28:49,960 --> 00:28:52,880
Speaker 1: a return of zero. They can't buy treasuries that yield

486
00:28:52,880 --> 00:28:55,120
Speaker 1: one or two. So they go out on the risk

487
00:28:55,160 --> 00:28:58,080
Speaker 1: curve and they buy things that historically maybe they haven't

488
00:28:58,080 --> 00:29:02,120
Speaker 1: bought because they're so satisfy with returns of zero, one

489
00:29:02,240 --> 00:29:06,120
Speaker 1: or two. So there is no alternative form of invitment.

490
00:29:06,240 --> 00:29:08,560
Speaker 1: And and and so in that context, people look for

491
00:29:08,680 --> 00:29:12,080
Speaker 1: what they call good relative buys. Well, this is I

492
00:29:12,160 --> 00:29:15,040
Speaker 1: like this because it's not as bad as that. You know,

493
00:29:15,280 --> 00:29:17,840
Speaker 1: do you really want to buy something for your investment

494
00:29:17,880 --> 00:29:21,760
Speaker 1: portfolio because it's not as bad as something else? No? Uh,

495
00:29:21,920 --> 00:29:25,000
Speaker 1: you know, we'd like to buy great buys, and then

496
00:29:25,040 --> 00:29:27,320
Speaker 1: we have to look at price, and the answer is

497
00:29:27,360 --> 00:29:29,840
Speaker 1: on price, there's very little out there today which is

498
00:29:29,840 --> 00:29:33,040
Speaker 1: a great buy. You know, the goal of the value investor,

499
00:29:33,160 --> 00:29:36,640
Speaker 1: our goal at oak Tree, the goal of Bruce Carsh's

500
00:29:36,720 --> 00:29:39,600
Speaker 1: distress debt funds, which you described, is to buy things

501
00:29:39,600 --> 00:29:42,840
Speaker 1: for less than their worth. There's very little that you

502
00:29:42,880 --> 00:29:45,440
Speaker 1: can buy today for less than its worth? Is that

503
00:29:45,520 --> 00:29:47,400
Speaker 1: true on the debt side as well as the equality?

504
00:29:47,440 --> 00:29:50,280
Speaker 1: Think it very much is. So we're we're fully valued

505
00:29:50,320 --> 00:29:54,040
Speaker 1: on on equity, were fairly valued on debt. So where

506
00:29:54,080 --> 00:29:58,880
Speaker 1: do you look to find value? Well, that's the answer

507
00:29:58,920 --> 00:30:02,560
Speaker 1: is there's nothing easy today. I would I describe you

508
00:30:02,640 --> 00:30:05,360
Speaker 1: asked where are we in the cycle? I say that

509
00:30:05,400 --> 00:30:07,560
Speaker 1: most assets are on what I call the high side

510
00:30:07,560 --> 00:30:12,720
Speaker 1: affair high side of fair Yeah, and and in other words,

511
00:30:12,760 --> 00:30:16,480
Speaker 1: there's nothing which is which which you can buy at

512
00:30:16,640 --> 00:30:19,800
Speaker 1: or below fair value. Most things are above fair value,

513
00:30:20,120 --> 00:30:22,400
Speaker 1: some are at the high part of the fair range,

514
00:30:22,400 --> 00:30:25,640
Speaker 1: and some are at the beginning part of the expensive range.

515
00:30:25,920 --> 00:30:29,720
Speaker 1: But there are no pronounced bargains. Um, what do you

516
00:30:29,760 --> 00:30:35,000
Speaker 1: do in that environment? Well, it's tough. You can go defensive,

517
00:30:35,200 --> 00:30:37,920
Speaker 1: but if the economy is gonna hold together for another

518
00:30:37,960 --> 00:30:41,320
Speaker 1: few years. Uh, you know, a high degree of defense

519
00:30:41,360 --> 00:30:43,440
Speaker 1: today and putting money in cash at a return of

520
00:30:43,560 --> 00:30:46,320
Speaker 1: zero is not going to be very satisfactory. So the

521
00:30:46,360 --> 00:30:49,200
Speaker 1: answer is you put money to work, but you do

522
00:30:49,240 --> 00:30:53,480
Speaker 1: it carefully, selectively, careful for for the last four years.

523
00:30:53,560 --> 00:30:56,880
Speaker 1: I think it's four years now. Almost of the day, Barry,

524
00:30:56,960 --> 00:30:59,600
Speaker 1: the mantra at oak Tree has been moved forward. But

525
00:30:59,680 --> 00:31:03,680
Speaker 1: with Ocean, I believe that that the outlook is not

526
00:31:04,080 --> 00:31:08,120
Speaker 1: so bad and prices are not so high that you

527
00:31:08,160 --> 00:31:11,560
Speaker 1: can't be invested if But on the other hand, the

528
00:31:11,600 --> 00:31:14,000
Speaker 1: outlook is not so good and prices are not so

529
00:31:14,080 --> 00:31:16,920
Speaker 1: low that you should be doing it with any aggressiveness.

530
00:31:17,360 --> 00:31:21,520
Speaker 1: I think you must. The real key question before you

531
00:31:21,560 --> 00:31:24,040
Speaker 1: get to the granular question of exactly which stocks to buy,

532
00:31:24,120 --> 00:31:27,080
Speaker 1: which bonds to buy in which companies. The key question

533
00:31:27,560 --> 00:31:30,440
Speaker 1: at any given point in time is should your portfolio

534
00:31:30,480 --> 00:31:35,000
Speaker 1: be aggressive or defensive? What balance do you strike? If

535
00:31:35,000 --> 00:31:37,479
Speaker 1: you get that wrong, you're not going to succeed, no

536
00:31:37,480 --> 00:31:38,880
Speaker 1: matter if you're a good stock picker, And if you

537
00:31:38,920 --> 00:31:41,360
Speaker 1: get it right, you will succeed even if you're a

538
00:31:41,400 --> 00:31:44,320
Speaker 1: bad stock picker. So the point is, should be aggressive

539
00:31:44,400 --> 00:31:47,600
Speaker 1: or defensive today, And I would I think personally that

540
00:31:47,760 --> 00:31:53,000
Speaker 1: you should favor defense. Not exclusively defense, but I think

541
00:31:53,040 --> 00:31:55,360
Speaker 1: you should favor defense. So you're a little more balanced

542
00:31:55,400 --> 00:31:59,959
Speaker 1: in in your perspective in terms of both aggressiveness and defense.

543
00:32:00,200 --> 00:32:02,840
Speaker 1: But I'm but still I'm favoring defense. I'm not balanced.

544
00:32:02,840 --> 00:32:07,520
Speaker 1: I'm not. So you're leaning a little more defensive than you. Yes,

545
00:32:07,640 --> 00:32:12,400
Speaker 1: typically will you mentioned in passing psychology. Here's another quote

546
00:32:12,400 --> 00:32:15,200
Speaker 1: of yours I want to throw out related to that,

547
00:32:15,720 --> 00:32:19,080
Speaker 1: the biggest investing eras come not from factors that are

548
00:32:19,160 --> 00:32:23,920
Speaker 1: informational or analytical, but from those that are psychological. Just

549
00:32:24,000 --> 00:32:27,800
Speaker 1: about every investor has access to the exact same information

550
00:32:27,880 --> 00:32:30,760
Speaker 1: these days. That's describe this if you would. Well, another

551
00:32:30,800 --> 00:32:33,239
Speaker 1: way I put it is that the key disciplines for

552
00:32:33,280 --> 00:32:37,280
Speaker 1: investment success well, certainly they include accounting in finance, but

553
00:32:37,280 --> 00:32:40,720
Speaker 1: but they also include psychiatry. So you have to understand

554
00:32:40,840 --> 00:32:43,320
Speaker 1: your psyche, and you have to understand the psyche of

555
00:32:43,360 --> 00:32:45,720
Speaker 1: those around you, and what what is going on in

556
00:32:45,720 --> 00:32:51,360
Speaker 1: the marketplace. And uh and uh, I believe today that

557
00:32:51,400 --> 00:32:56,160
Speaker 1: people are coerced into buying risky securities because they don't

558
00:32:56,280 --> 00:32:59,880
Speaker 1: like the return prospects on safe securities and that this

559
00:33:00,040 --> 00:33:03,480
Speaker 1: has pushed up prices in the risky asset classes and

560
00:33:03,680 --> 00:33:09,720
Speaker 1: permitted um less sound deals to get done. And if

561
00:33:09,760 --> 00:33:12,640
Speaker 1: those things are true, that that mas. That's the source

562
00:33:12,640 --> 00:33:17,600
Speaker 1: of my caution today. So psychology not frothy, but valuation

563
00:33:18,160 --> 00:33:22,800
Speaker 1: fairly fully valued. So you're someone invested somewhat balanced, a

564
00:33:22,800 --> 00:33:26,560
Speaker 1: little bit on the defensive stuff. We're fully invested, but

565
00:33:27,080 --> 00:33:30,280
Speaker 1: but in cautious holdings. So if you'd like to hear

566
00:33:30,360 --> 00:33:32,880
Speaker 1: more of my conversation with Howard Marks, please check out

567
00:33:32,920 --> 00:33:37,240
Speaker 1: our podcast extras. You can find them on Apple, iTunes, SoundCloud,

568
00:33:37,400 --> 00:33:41,520
Speaker 1: and Bloomberg. I mentioned Howard's chairman's memos. Those are all

569
00:33:41,560 --> 00:33:45,320
Speaker 1: available at oak Tree Capital dot com. Be sure and

570
00:33:45,400 --> 00:33:47,920
Speaker 1: follow me on Twitter at Ridolts, and check out my

571
00:33:48,040 --> 00:33:51,320
Speaker 1: daily column on Bloomberg View dot com. I'm Barry Ridults.

572
00:33:51,320 --> 00:33:58,680
Speaker 1: You're listening to Masters in Business on Bloomberg Radio. Welcome

573
00:33:58,720 --> 00:34:02,000
Speaker 1: to the podcast portion of the show. Um, I'm sitting

574
00:34:02,040 --> 00:34:04,640
Speaker 1: here with Howard Marks. He is the founder and chairman

575
00:34:04,680 --> 00:34:06,960
Speaker 1: of oak Tree Capital. Howard, thank you so much for

576
00:34:07,520 --> 00:34:09,480
Speaker 1: for doing this. I really appreciate it. Well, I just

577
00:34:09,520 --> 00:34:11,640
Speaker 1: want to show my kids that I'm an early adapter.

578
00:34:11,920 --> 00:34:15,480
Speaker 1: Here you are, You're you're not only on radio, but

579
00:34:15,680 --> 00:34:19,080
Speaker 1: on Twitter and on periscope. Um, your kids will be

580
00:34:19,239 --> 00:34:22,600
Speaker 1: your kids will be impressed with that. So previously you

581
00:34:22,719 --> 00:34:27,520
Speaker 1: and I had a similar conversation at the Seattle cf A.

582
00:34:27,840 --> 00:34:31,040
Speaker 1: Was that the beginning of this year. That was um,

583
00:34:31,360 --> 00:34:35,160
Speaker 1: that was kind of fascinating because I'd only passed through Seattle,

584
00:34:35,200 --> 00:34:37,640
Speaker 1: I had previously, I had never stayed as long as

585
00:34:37,680 --> 00:34:41,160
Speaker 1: I did that week in Seattle. And that is a boomtown,

586
00:34:41,320 --> 00:34:44,040
Speaker 1: isn't it? Boomtown. It's a very nice place to live. Really,

587
00:34:44,160 --> 00:34:46,600
Speaker 1: really is delightful. The weather is delightful. We ended up

588
00:34:46,600 --> 00:34:49,200
Speaker 1: going to Bainbridge Island, which is about as nice a

589
00:34:49,280 --> 00:34:52,440
Speaker 1: place as uh, this half of the planet has to

590
00:34:52,680 --> 00:34:56,440
Speaker 1: as to offer. Let's some let's plow through some questions.

591
00:34:57,200 --> 00:34:59,560
Speaker 1: Uh that we had some stuff that I didn't get

592
00:34:59,640 --> 00:35:02,600
Speaker 1: to during the radio portion, and then we'll get into

593
00:35:02,719 --> 00:35:05,320
Speaker 1: some of my my favorite questions. So we did not

594
00:35:05,440 --> 00:35:08,160
Speaker 1: get to discuss the fact. I bet a lot of

595
00:35:08,239 --> 00:35:11,480
Speaker 1: people don't know that when you were at Trust Company

596
00:35:11,480 --> 00:35:15,000
Speaker 1: of the West, you supervise some kid named Jeffrey Gunlock.

597
00:35:15,680 --> 00:35:18,920
Speaker 1: There was a guy named Jeffrey Gunlack and and uh uh,

598
00:35:19,120 --> 00:35:21,600
Speaker 1: I don't know if the supervisor is the right term,

599
00:35:22,400 --> 00:35:26,359
Speaker 1: but I assisted him in my last year there, all right,

600
00:35:26,520 --> 00:35:30,600
Speaker 1: And then ultimately he uh he left Trust Company of

601
00:35:30,640 --> 00:35:33,200
Speaker 1: the West and called you and said, hey, it's not

602
00:35:33,760 --> 00:35:35,840
Speaker 1: it's something I want to do is go out on

603
00:35:35,920 --> 00:35:38,640
Speaker 1: my own. What do you suggest and and how did

604
00:35:38,680 --> 00:35:42,640
Speaker 1: you respond to Jeff? Well, uh, he actually went out

605
00:35:42,719 --> 00:35:45,400
Speaker 1: on his own. But the key is that he called

606
00:35:45,480 --> 00:35:50,200
Speaker 1: us uh and or had a representative call us and said,

607
00:35:50,280 --> 00:35:52,680
Speaker 1: would you help us get started? Would you you know

608
00:35:52,800 --> 00:35:55,920
Speaker 1: the big when I started oak Tree eight twenty years ago,

609
00:35:56,000 --> 00:35:58,000
Speaker 1: people would say, well, what's the biggest surprise? And the

610
00:35:58,040 --> 00:36:00,320
Speaker 1: big surprise is how much non investment stuff there is

611
00:36:00,360 --> 00:36:07,560
Speaker 1: to do personnel, premises, tax, insurance accounting. Uh. Yes, and

612
00:36:08,400 --> 00:36:10,839
Speaker 1: it's and so you know, Jeff said, can you help

613
00:36:10,920 --> 00:36:13,640
Speaker 1: us get started? Because you know tc W fired him

614
00:36:14,200 --> 00:36:17,640
Speaker 1: and he had no preparations made, and he wanted to

615
00:36:17,680 --> 00:36:19,640
Speaker 1: get up and running, and he didn't want to stumble

616
00:36:19,800 --> 00:36:22,640
Speaker 1: because then then people would say he wasn't able up

617
00:36:22,680 --> 00:36:26,160
Speaker 1: to the task. So so uh, we earned a piece

618
00:36:26,239 --> 00:36:31,000
Speaker 1: of his company double line by putting him in business Organizationally,

619
00:36:31,239 --> 00:36:33,320
Speaker 1: I'm going to assume that was a pretty good investment.

620
00:36:33,560 --> 00:36:35,640
Speaker 1: It was a good investment. And and then, and then,

621
00:36:35,840 --> 00:36:39,120
Speaker 1: and then we bought a further piece because we wanted

622
00:36:39,160 --> 00:36:41,279
Speaker 1: to get up to on the accounting rules. If you

623
00:36:41,320 --> 00:36:46,520
Speaker 1: have we can include our share of their profits. Uh,

624
00:36:46,680 --> 00:36:48,880
Speaker 1: it's called equity accounting. And so we wanted to be

625
00:36:48,960 --> 00:36:52,920
Speaker 1: a twenty and uh and we're our happy owners of

626
00:36:53,000 --> 00:36:55,480
Speaker 1: Double Line. It turns out Jeff was the first show

627
00:36:55,600 --> 00:36:57,480
Speaker 1: we had done here. And at the time, I think

628
00:36:57,560 --> 00:37:00,719
Speaker 1: he was coming up on sixty or seventy billion in

629
00:37:00,880 --> 00:37:03,960
Speaker 1: a u M in an incredibly fast time. I think

630
00:37:04,000 --> 00:37:06,640
Speaker 1: they just celebrated their fifth anniversary. Is that right? I

631
00:37:06,719 --> 00:37:09,800
Speaker 1: think that's not too long. Yeah, So that's really a

632
00:37:10,360 --> 00:37:14,960
Speaker 1: fascinating You know, you've mentioned very often cash is king

633
00:37:15,080 --> 00:37:18,120
Speaker 1: and opportunities come along. That has to be one of

634
00:37:18,160 --> 00:37:21,480
Speaker 1: those great examples of being there at the right place,

635
00:37:21,520 --> 00:37:24,320
Speaker 1: at the right time with cash, ready to to do

636
00:37:24,440 --> 00:37:26,439
Speaker 1: what you want to do. Well, it didn't. It didn't

637
00:37:26,440 --> 00:37:29,160
Speaker 1: take us much cash. It took us some expertise and

638
00:37:29,280 --> 00:37:34,279
Speaker 1: of course, uh, Jeff's trust in us to to that

639
00:37:34,440 --> 00:37:37,919
Speaker 1: he would get a good solid foundation, which I think

640
00:37:38,080 --> 00:37:41,720
Speaker 1: he did get. Um and it constitutes getting lucky. Barry,

641
00:37:41,880 --> 00:37:44,400
Speaker 1: you know that's right. As you and I were saying before,

642
00:37:45,000 --> 00:37:48,399
Speaker 1: it helps to be smart, but being smart is not enough.

643
00:37:49,200 --> 00:37:51,520
Speaker 1: You also have to catch a break. Lot lots of

644
00:37:51,600 --> 00:37:55,440
Speaker 1: smart guys. But smart plus preparation plus luck that that

645
00:37:55,800 --> 00:38:00,680
Speaker 1: that's certainly a secret. Speaking about preparation and not getting lucky.

646
00:38:01,200 --> 00:38:04,279
Speaker 1: We never mentioned earlier, but it was on my list

647
00:38:04,360 --> 00:38:07,720
Speaker 1: of things to talk about. You took a small piece,

648
00:38:07,920 --> 00:38:10,440
Speaker 1: if I'm reading this correctly, of oak Tree and did

649
00:38:10,480 --> 00:38:13,000
Speaker 1: an I p O with that. Yes, in two thousand

650
00:38:13,040 --> 00:38:16,040
Speaker 1: and twelve, how much of the company UM was listed

651
00:38:16,160 --> 00:38:19,239
Speaker 1: as a relatively small percentage of memories. Yes, I think

652
00:38:19,320 --> 00:38:23,680
Speaker 1: it was. I think it was about and we've heard

653
00:38:23,800 --> 00:38:27,279
Speaker 1: for the past ten years how arduous going public is

654
00:38:27,400 --> 00:38:30,560
Speaker 1: and all the headaches involving what motivated you to say,

655
00:38:30,600 --> 00:38:34,320
Speaker 1: all right, let's fight through that and become a public company.

656
00:38:34,920 --> 00:38:38,040
Speaker 1: We had always given ownership of the firm to the

657
00:38:38,120 --> 00:38:41,400
Speaker 1: employees from the very beginning. You know, we started off

658
00:38:41,400 --> 00:38:43,719
Speaker 1: there were five of us who owned a d At

659
00:38:43,760 --> 00:38:46,920
Speaker 1: the end of that first year, we brought in thirteen

660
00:38:46,960 --> 00:38:49,920
Speaker 1: more people into the ownership. And we've always had about

661
00:38:51,360 --> 00:38:54,520
Speaker 1: the employees owning, owning equity, the ones who could who

662
00:38:54,600 --> 00:38:57,400
Speaker 1: could really determine the future of the company, and we

663
00:38:57,640 --> 00:39:01,560
Speaker 1: thought they would want to have a way to number one,

664
00:39:01,680 --> 00:39:06,160
Speaker 1: know the value of their steak and number two monetize it. UH.

665
00:39:06,320 --> 00:39:09,120
Speaker 1: And you know, we use it as a compensation tool.

666
00:39:09,719 --> 00:39:12,200
Speaker 1: And if you're giving people equity, but they say, I,

667
00:39:12,400 --> 00:39:13,880
Speaker 1: how do I know what it's worth? And how do

668
00:39:13,960 --> 00:39:16,440
Speaker 1: I know you be able to get out? Then it

669
00:39:16,800 --> 00:39:19,120
Speaker 1: it doesn't have much power as a conversation tool. So

670
00:39:19,239 --> 00:39:22,120
Speaker 1: we thought that that that would be desirable. And then

671
00:39:22,400 --> 00:39:28,320
Speaker 1: for further generational transition UM, as my generation UM moves

672
00:39:28,400 --> 00:39:31,239
Speaker 1: on one of these days, I'd like to have a

673
00:39:31,320 --> 00:39:35,160
Speaker 1: way to monetize that value and part of it and

674
00:39:35,320 --> 00:39:37,320
Speaker 1: turn the rest of it over to the other employees.

675
00:39:37,360 --> 00:39:40,000
Speaker 1: So I think that public ownership played a key role

676
00:39:40,080 --> 00:39:43,359
Speaker 1: in that. But by the way, you mentioned making sure

677
00:39:43,480 --> 00:39:47,160
Speaker 1: that UH employees had a way to participate. That's a

678
00:39:47,280 --> 00:39:50,080
Speaker 1: theme I've heard from so many people who have passed

679
00:39:50,120 --> 00:39:53,200
Speaker 1: through here. Listen, these are the people who helped build

680
00:39:53,239 --> 00:39:55,919
Speaker 1: the firm. We want to make sure they're fully compensated

681
00:39:56,360 --> 00:39:58,600
Speaker 1: and and have a steak in the future success of

682
00:39:58,640 --> 00:40:03,279
Speaker 1: the company. It's a azing how consistently that concept comes

683
00:40:03,400 --> 00:40:06,200
Speaker 1: up time and time and time again. Well, I might

684
00:40:06,239 --> 00:40:10,280
Speaker 1: have something to do with the way you choose your guests. Okay,

685
00:40:10,520 --> 00:40:13,279
Speaker 1: so you're saying this is not a this is a

686
00:40:13,360 --> 00:40:16,440
Speaker 1: sample set error, this is not a a full on

687
00:40:16,840 --> 00:40:19,600
Speaker 1: random I think you may be onto something with that.

688
00:40:20,160 --> 00:40:23,920
Speaker 1: So so let's go to UM. There's a question I

689
00:40:24,040 --> 00:40:27,000
Speaker 1: ask all of my guests. But you've talked about this

690
00:40:27,200 --> 00:40:30,160
Speaker 1: question in the past, so I want to jump right

691
00:40:30,239 --> 00:40:33,759
Speaker 1: into this before I get into your book. And you

692
00:40:33,960 --> 00:40:39,920
Speaker 1: have suggested people read broadly. What's the significance of reading

693
00:40:40,239 --> 00:40:46,680
Speaker 1: to the investor, I think that you have to see

694
00:40:48,160 --> 00:40:53,600
Speaker 1: the whole world to understand the importance of things. You

695
00:40:53,760 --> 00:41:02,760
Speaker 1: have to understand other countries, other political systems, other monetary systems,

696
00:41:02,880 --> 00:41:09,000
Speaker 1: be they in place today or in history. UH. I

697
00:41:09,120 --> 00:41:14,719
Speaker 1: think you have to understand different disciplines, the sciences, UM,

698
00:41:15,440 --> 00:41:20,160
Speaker 1: and UH and so forth. UM. You have to understand

699
00:41:20,239 --> 00:41:23,560
Speaker 1: how people have thought over the years. UM. You have

700
00:41:23,760 --> 00:41:26,520
Speaker 1: to UM. You have to be able to see cycles,

701
00:41:27,040 --> 00:41:28,800
Speaker 1: and some of the important cycles of the world have

702
00:41:29,000 --> 00:41:33,759
Speaker 1: taken place in in decades and centuries. UM. And you're

703
00:41:33,760 --> 00:41:35,600
Speaker 1: not going to get that in the Wall Street General.

704
00:41:35,680 --> 00:41:38,520
Speaker 1: This more exactly, you need something with the full weight

705
00:41:38,600 --> 00:41:42,000
Speaker 1: of history written by somebody who's an expert in that

706
00:41:42,200 --> 00:41:45,680
Speaker 1: space exactly. So, UM, you know, if you, if you,

707
00:41:45,880 --> 00:41:49,600
Speaker 1: if you follow people like uh Warren Buffett and Charlie Monger,

708
00:41:49,920 --> 00:41:53,239
Speaker 1: they say, read broadly and and and the other thing

709
00:41:53,320 --> 00:41:55,920
Speaker 1: it does is it it's it just makes you think bigger.

710
00:41:56,680 --> 00:41:59,160
Speaker 1: You know, this business of figuring out whether a company's

711
00:41:59,200 --> 00:42:02,120
Speaker 1: gonna earn sixty six cents next quarter of sixty seven,

712
00:42:03,120 --> 00:42:05,360
Speaker 1: this is the bigger pictures. It doesn't help you cope

713
00:42:05,760 --> 00:42:09,359
Speaker 1: with the big pictures of life, big questions of life.

714
00:42:10,239 --> 00:42:13,000
Speaker 1: So so, aside from Dot and Graham, which I know

715
00:42:13,120 --> 00:42:17,120
Speaker 1: you have mentioned many times, UM, what other books did

716
00:42:17,200 --> 00:42:21,200
Speaker 1: you find influential? What else do you recommend investors should

717
00:42:21,200 --> 00:42:27,359
Speaker 1: be familiar with? UM? I have gotten a lot out

718
00:42:27,440 --> 00:42:32,040
Speaker 1: of a book called The Short History of Financial Euphoria

719
00:42:32,640 --> 00:42:39,120
Speaker 1: by John Kenneth Galbraith, UM Loved Fooled by Randomness by Nessa.

720
00:42:39,200 --> 00:42:47,120
Speaker 1: Nicholas teleb Um, um Against the Gods by Peter Bernstein,

721
00:42:48,520 --> 00:42:52,600
Speaker 1: which is really a story of of risk of risk

722
00:42:52,719 --> 00:42:57,399
Speaker 1: and how people evolved their understanding of risk and probability.

723
00:42:57,880 --> 00:43:00,719
Speaker 1: You know, you can only you you can only cope

724
00:43:00,760 --> 00:43:04,080
Speaker 1: with the world if you can see things probabilistically. I

725
00:43:04,239 --> 00:43:06,640
Speaker 1: think it's you know you you you've talked about my

726
00:43:06,840 --> 00:43:09,320
Speaker 1: dislike of forecast. I don't like people who say this

727
00:43:10,239 --> 00:43:12,040
Speaker 1: is what's going to happen next year. You put a

728
00:43:12,120 --> 00:43:15,880
Speaker 1: probability on it, as long as that's a will considered

729
00:43:15,960 --> 00:43:19,560
Speaker 1: probability just because it rained. If you say chance of

730
00:43:19,600 --> 00:43:21,960
Speaker 1: a sunny day doesn't mean you're wrong. It means the

731
00:43:22,040 --> 00:43:25,799
Speaker 1: ten percent outcome. But so you you you shouldn't say

732
00:43:25,880 --> 00:43:28,520
Speaker 1: this is going to happen. I'm sure, but you also

733
00:43:28,640 --> 00:43:31,520
Speaker 1: shouldn't say three different things can happen. I have no

734
00:43:31,600 --> 00:43:33,919
Speaker 1: idea which you'll be. You know you have to make

735
00:43:33,960 --> 00:43:38,239
Speaker 1: a judgment about likelihoods and probabilities. That's how you have

736
00:43:38,360 --> 00:43:42,239
Speaker 1: to live your life. You know you. You decided whether

737
00:43:42,360 --> 00:43:44,680
Speaker 1: or not to take an umbrella this morning be based

738
00:43:44,760 --> 00:43:49,200
Speaker 1: on the probability of rain. Chance of rain at two o'clock.

739
00:43:49,760 --> 00:43:52,320
Speaker 1: I have an umbrella only because now I'm in a

740
00:43:52,360 --> 00:43:56,319
Speaker 1: suit and tie. So the downside of was this gets

741
00:43:56,400 --> 00:43:58,279
Speaker 1: ruined if I'm in jeans and a shirt. Maybe you

742
00:43:58,280 --> 00:44:01,279
Speaker 1: don't care. Maybe you take the umbrella if it's if

743
00:44:01,320 --> 00:44:05,960
Speaker 1: it's eighty right, that's right, Okay? So I think you

744
00:44:06,320 --> 00:44:11,960
Speaker 1: know during the radio interview, you mentioned UH something, which

745
00:44:12,120 --> 00:44:14,960
Speaker 1: was the title of one of my memos, You can't predict,

746
00:44:15,040 --> 00:44:18,359
Speaker 1: you can prepare. That was the tagline for I think

747
00:44:18,440 --> 00:44:23,680
Speaker 1: it was. I think it was Mass Mutual's advertising program

748
00:44:23,800 --> 00:44:26,040
Speaker 1: a dozen years ago, and I stole it for a

749
00:44:26,120 --> 00:44:28,600
Speaker 1: memo because it's true, we don't know what's going to

750
00:44:28,680 --> 00:44:32,840
Speaker 1: happen in the future, but we have to prepare for

751
00:44:33,000 --> 00:44:37,160
Speaker 1: the things that may happen. We can't prepare for everything

752
00:44:37,239 --> 00:44:39,720
Speaker 1: that may happen, so we have to do it probabilistically.

753
00:44:40,080 --> 00:44:42,279
Speaker 1: And that's what Against the Gods was really about. So

754
00:44:42,360 --> 00:44:45,200
Speaker 1: you're preparing for the likely outcomes. What do you have

755
00:44:45,360 --> 00:44:49,680
Speaker 1: to do about preparing for the you mentioned full by randomness?

756
00:44:49,760 --> 00:44:51,760
Speaker 1: What do you do to prepare for the black swans?

757
00:44:52,360 --> 00:44:57,560
Speaker 1: The highly improbable but enormously disruptive possible outcomes what I

758
00:44:57,680 --> 00:45:01,360
Speaker 1: call the improbable disaster? And one of the most interesting

759
00:45:01,480 --> 00:45:04,239
Speaker 1: questions in investing is what do you do about the

760
00:45:04,320 --> 00:45:09,600
Speaker 1: improbable disaster? Uh? You can't prepare for every eventuality. If

761
00:45:09,680 --> 00:45:14,920
Speaker 1: you ensure, if you spend money for insurance premiums against

762
00:45:14,960 --> 00:45:18,640
Speaker 1: every possible outcome, then you will have protected against every

763
00:45:19,200 --> 00:45:22,320
Speaker 1: negative outcome and you'll have no money left, right, So

764
00:45:22,880 --> 00:45:28,640
Speaker 1: so it's it's really interesting. You have to you have to, uh,

765
00:45:29,080 --> 00:45:36,360
Speaker 1: maybe there are some possible courses of action which offer

766
00:45:36,560 --> 00:45:40,800
Speaker 1: an attractive expected value on average, but which entail some

767
00:45:41,080 --> 00:45:45,719
Speaker 1: outcomes that you absolutely can't stand. Maybe you just avoid that. Uh.

768
00:45:45,800 --> 00:45:47,640
Speaker 1: You know, I always say that I'm not interested in

769
00:45:47,719 --> 00:45:51,640
Speaker 1: being a skydiver who was successful at the time. Uh,

770
00:45:53,440 --> 00:45:58,759
Speaker 1: So I don't skydive. Um. But then you you say

771
00:45:59,520 --> 00:46:01,480
Speaker 1: in some ca says that's a risk I can live with.

772
00:46:02,200 --> 00:46:04,160
Speaker 1: That's I either don't think it's going to happen, or

773
00:46:04,239 --> 00:46:07,200
Speaker 1: if it does happen, I don't think the consequences will

774
00:46:07,280 --> 00:46:10,600
Speaker 1: be uh unbearable. And then you take those concuences. We

775
00:46:10,680 --> 00:46:12,440
Speaker 1: face that back in oh eight, we had the big

776
00:46:12,520 --> 00:46:15,759
Speaker 1: eleven billion dollar fund you were talking about and the

777
00:46:15,920 --> 00:46:19,040
Speaker 1: distressed asset fund. That's right, and we're investing in the

778
00:46:19,160 --> 00:46:22,239
Speaker 1: aftermath of the Lehman meltdown when everybody thought the world

779
00:46:22,320 --> 00:46:28,040
Speaker 1: was gonna end. That was that was an improbable disaster.

780
00:46:29,200 --> 00:46:33,640
Speaker 1: We concluded that we would invest nevertheless. So so you

781
00:46:33,760 --> 00:46:38,080
Speaker 1: mentioned um a short history of financial euphoria, You mentioned

782
00:46:38,120 --> 00:46:41,040
Speaker 1: Fooled by Randomness? What other books really come to mind?

783
00:46:42,840 --> 00:46:46,840
Speaker 1: You know, I have on my night table Charlie Monger's

784
00:46:47,080 --> 00:46:51,000
Speaker 1: um port Charlie's Almanac, which is which is this this thing?

785
00:46:51,520 --> 00:46:53,680
Speaker 1: And I'm saving it for the winter because the weather

786
00:46:53,760 --> 00:46:56,200
Speaker 1: has been Peter Kaufman did a great job on the

787
00:46:56,280 --> 00:47:00,200
Speaker 1: Almanac and and he conveys a lot of wisdom. Um.

788
00:47:00,320 --> 00:47:02,880
Speaker 1: I think, I think that's a really good idea. UM.

789
00:47:03,040 --> 00:47:05,960
Speaker 1: I know you had mentioned other things of Buffett you

790
00:47:06,080 --> 00:47:09,319
Speaker 1: put out your letters Buffets Annual Letters or something else

791
00:47:09,760 --> 00:47:13,120
Speaker 1: that you have mentioned. You really enjoyed everything. They're great. Um,

792
00:47:13,920 --> 00:47:16,200
Speaker 1: They're really great. There's a book out called The Warren

793
00:47:16,239 --> 00:47:20,239
Speaker 1: Buffett Way for people who are interested in Carol Loomis No,

794
00:47:20,560 --> 00:47:26,240
Speaker 1: no Carol No. I think was Bob Haxtrom who wrote

795
00:47:26,719 --> 00:47:29,040
Speaker 1: and and uh. I think we're on the fourth edition

796
00:47:29,160 --> 00:47:32,160
Speaker 1: of The Warren Buffett Way now and uh and Bob

797
00:47:32,239 --> 00:47:36,040
Speaker 1: asked me to write the the introduction really the book,

798
00:47:36,480 --> 00:47:38,400
Speaker 1: and so I did an interest what I thought it

799
00:47:38,440 --> 00:47:40,520
Speaker 1: was an interesting thing? I said, what is it? My

800
00:47:40,640 --> 00:47:43,560
Speaker 1: theme was what makes Buffett Buffett? Uh? And that's what

801
00:47:43,680 --> 00:47:46,120
Speaker 1: the introduction is about. Have you ever gone to any

802
00:47:46,200 --> 00:47:49,200
Speaker 1: of the Buffett Annual events. I did go to one.

803
00:47:49,600 --> 00:47:52,719
Speaker 1: What was that like? Well, it's it's a it's a

804
00:47:52,800 --> 00:47:57,560
Speaker 1: cultural phenomenon, you know, it's the scale is great, the

805
00:47:57,719 --> 00:48:01,440
Speaker 1: atmosphere is great. Everybody it's a. It's a. It's a

806
00:48:02,239 --> 00:48:05,600
Speaker 1: you know, it's a. It's a whole full of happy people,

807
00:48:05,719 --> 00:48:11,040
Speaker 1: of good feeling. You know. The the adulation of of

808
00:48:11,160 --> 00:48:14,960
Speaker 1: Warren and Charlie is something to behold. I can imagine

809
00:48:15,120 --> 00:48:18,520
Speaker 1: lots of people. They've made lots of people very very

810
00:48:18,640 --> 00:48:21,920
Speaker 1: let's call it comfortable over the decades, and and that

811
00:48:21,960 --> 00:48:24,400
Speaker 1: would that sort of response wouldn't surprise me. You know.

812
00:48:24,440 --> 00:48:27,279
Speaker 1: One of the things I found fascinating in your background

813
00:48:28,000 --> 00:48:31,719
Speaker 1: is you minored in Japanese studies. Did that ever come

814
00:48:31,760 --> 00:48:35,200
Speaker 1: in handy with anything? And I'm gonna put a stop

815
00:48:35,280 --> 00:48:37,880
Speaker 1: on this because We've been going so long with this,

816
00:48:38,160 --> 00:48:43,040
Speaker 1: I don't want to give away too much of Well,

817
00:48:43,080 --> 00:48:46,839
Speaker 1: I think it hates. I think it helped shape who

818
00:48:46,920 --> 00:48:49,880
Speaker 1: I am, for one thing, and it helped shape the

819
00:48:49,960 --> 00:48:53,279
Speaker 1: way I think. Uh, in what way? How did how

820
00:48:53,320 --> 00:48:58,120
Speaker 1: did you study? The main thing was there's an element

821
00:48:58,360 --> 00:49:06,839
Speaker 1: in Happanese philosophy called mujo and uh it's kind of uh.

822
00:49:07,239 --> 00:49:09,560
Speaker 1: The literal translation is the turning of the will of

823
00:49:09,600 --> 00:49:12,879
Speaker 1: the law. The turning of the wheel of the law.

824
00:49:13,840 --> 00:49:16,960
Speaker 1: And in other words, uh, nothing ever stays the same.

825
00:49:18,360 --> 00:49:25,839
Speaker 1: Change and impermanence are are are forever. And I think

826
00:49:25,880 --> 00:49:32,759
Speaker 1: that it's very good to understand, uh, that that things

827
00:49:32,840 --> 00:49:35,919
Speaker 1: don't go on forever as they are, that there will

828
00:49:36,000 --> 00:49:39,719
Speaker 1: be change, and to prepare for and adapt to it.

829
00:49:40,000 --> 00:49:42,240
Speaker 1: So I never heard the term mujo, but it certainly

830
00:49:42,440 --> 00:49:47,440
Speaker 1: reminds me of Heroiclydus. The only constant is changed. It's

831
00:49:47,600 --> 00:49:52,480
Speaker 1: it's a similar philosophy. Um. So earlier you also mentioned

832
00:49:52,600 --> 00:49:56,279
Speaker 1: one of your mentors had advised you about the three

833
00:49:56,360 --> 00:50:02,960
Speaker 1: phases of a bull market. Who who were your early mentors? Oh,

834
00:50:03,080 --> 00:50:06,080
Speaker 1: just the people I worked with at that city, the

835
00:50:06,160 --> 00:50:08,600
Speaker 1: people I met in the investment business back in back

836
00:50:08,680 --> 00:50:12,440
Speaker 1: in the early seventies, as I recall, you know, it's

837
00:50:12,440 --> 00:50:14,480
Speaker 1: a long time to remember, Barry, but we have to.

838
00:50:14,760 --> 00:50:16,080
Speaker 1: I think we used to have a group called the

839
00:50:16,120 --> 00:50:18,960
Speaker 1: third Third Day Group, the Third Thursday, which met for

840
00:50:19,160 --> 00:50:22,960
Speaker 1: lunch on the third Thursday of every month, you know,

841
00:50:23,040 --> 00:50:25,279
Speaker 1: And I was let's say it was seventy three, I

842
00:50:25,320 --> 00:50:27,160
Speaker 1: means I was twenty seven years old. I was a kid,

843
00:50:27,600 --> 00:50:30,279
Speaker 1: but I got to hang out with Lee Cooperman, who

844
00:50:30,320 --> 00:50:32,840
Speaker 1: I know was one of your guests. And uh, I

845
00:50:33,000 --> 00:50:35,120
Speaker 1: was saying earlier, he's a boy from the Bronx, You're

846
00:50:35,160 --> 00:50:37,960
Speaker 1: a boy from Queen's right. We're keeping it local. So

847
00:50:38,200 --> 00:50:40,440
Speaker 1: Lee Cooperman was part of that Third Thursday. As I

848
00:50:40,560 --> 00:50:43,440
Speaker 1: recall again it's a long time ago, but you know,

849
00:50:43,960 --> 00:50:46,880
Speaker 1: the people from from Cumberland Group, which was one of

850
00:50:46,960 --> 00:50:50,960
Speaker 1: the uh one of the early hedge funds, and uh

851
00:50:51,840 --> 00:50:57,719
Speaker 1: maybe Steinhardt Finer Berkwitz and mating people like like you know,

852
00:50:58,280 --> 00:51:02,680
Speaker 1: and uh maybe Carnie Awson who was at Jennison. Jennison

853
00:51:02,800 --> 00:51:07,440
Speaker 1: was the first institutional investment boutique formed around the sixty nine,

854
00:51:07,480 --> 00:51:11,479
Speaker 1: as I recall, or eight, and uh, you know, yeah,

855
00:51:12,360 --> 00:51:16,160
Speaker 1: I didn't have a I didn't have a anybody whose

856
00:51:16,200 --> 00:51:18,320
Speaker 1: knee I sad on. I didn't have any one person

857
00:51:19,000 --> 00:51:22,960
Speaker 1: uh that that, But I just I was lucky to

858
00:51:23,040 --> 00:51:26,239
Speaker 1: hang around with a bunch of smart people and pick

859
00:51:26,320 --> 00:51:28,920
Speaker 1: up snippets here and there. You strike me as a

860
00:51:29,120 --> 00:51:33,440
Speaker 1: very astute observer of both human nature and other investors.

861
00:51:33,600 --> 00:51:36,719
Speaker 1: And I suspect you were. You were picking little bits

862
00:51:36,760 --> 00:51:41,240
Speaker 1: and pieces off of all those guys. Maybe a magpie. Okay,

863
00:51:42,320 --> 00:51:44,279
Speaker 1: that was not what I was thinking of. But if

864
00:51:44,320 --> 00:51:47,000
Speaker 1: you want to go with Magpie, I'm happy with that.

865
00:51:47,280 --> 00:51:51,440
Speaker 1: So those are the investors who who helped Were they formative,

866
00:51:51,480 --> 00:51:54,640
Speaker 1: they helped shallp shape your view or these people who

867
00:51:54,760 --> 00:51:59,239
Speaker 1: kind of added minor course corrections over time I think

868
00:51:59,320 --> 00:52:01,480
Speaker 1: helped change shape my view, you know. I mean it's

869
00:52:02,000 --> 00:52:06,360
Speaker 1: it's it's really intangibles. Uh. You know. I I have

870
00:52:06,440 --> 00:52:10,960
Speaker 1: all these adages that I use, and you know, I

871
00:52:11,080 --> 00:52:12,960
Speaker 1: can't remember who gave him to me, but I got

872
00:52:13,080 --> 00:52:14,880
Speaker 1: to ended up with quite a collection of those, and

873
00:52:15,000 --> 00:52:18,560
Speaker 1: they come in very handy. Uh. And then just you

874
00:52:18,800 --> 00:52:23,800
Speaker 1: you you watch people think, you know, I mean you

875
00:52:23,960 --> 00:52:26,880
Speaker 1: watch people think, or maybe you should say listen to

876
00:52:26,920 --> 00:52:29,520
Speaker 1: people think. But I mean, you know, maybe maybe thirty

877
00:52:29,600 --> 00:52:34,000
Speaker 1: five or forty years ago, uh, listening to how Lee

878
00:52:34,120 --> 00:52:41,200
Speaker 1: Cooperman uh analyzed Henry Singleton and tele Dine. You know,

879
00:52:41,360 --> 00:52:43,560
Speaker 1: he used that as an example one of his face

880
00:52:44,719 --> 00:52:47,640
Speaker 1: when he was at Goldman SAX. I've heard that example

881
00:52:48,640 --> 00:52:51,239
Speaker 1: from other people, and the great thing about it is

882
00:52:51,320 --> 00:52:55,160
Speaker 1: that nobody liked tele Dine. Henry was was not one

883
00:52:55,200 --> 00:52:58,920
Speaker 1: of these managements who gave out forecasts breakdowns of prophets.

884
00:52:58,960 --> 00:53:00,360
Speaker 1: He said you're on your own. And I went to

885
00:53:00,400 --> 00:53:01,960
Speaker 1: see him on my first business trip in my life

886
00:53:02,040 --> 00:53:06,080
Speaker 1: nine and and you know, we said, well, yes, could

887
00:53:06,120 --> 00:53:07,560
Speaker 1: you tell us what you're gonna earn per year for

888
00:53:07,600 --> 00:53:10,560
Speaker 1: the next five years? This was, you know, common question

889
00:53:10,719 --> 00:53:12,719
Speaker 1: or management. We could you break down your earnings by

890
00:53:14,280 --> 00:53:17,279
Speaker 1: by by division? And and Henry said, that's your job,

891
00:53:18,080 --> 00:53:21,080
Speaker 1: I run the company. Uh. And most people didn't like that.

892
00:53:21,160 --> 00:53:23,680
Speaker 1: Most people thought he was crusty. He was crusty, Uh,

893
00:53:24,200 --> 00:53:27,400
Speaker 1: but with the reason to be to not say, let

894
00:53:27,480 --> 00:53:30,520
Speaker 1: me chew your food for you, your analyst with the number. Well,

895
00:53:30,560 --> 00:53:33,840
Speaker 1: the other thing is that, you know, uh, most managements

896
00:53:33,880 --> 00:53:36,000
Speaker 1: want their stocks to go up because they have options

897
00:53:36,080 --> 00:53:38,120
Speaker 1: or what have you. I think Henry wanted the stock

898
00:53:38,200 --> 00:53:41,880
Speaker 1: to go down so that he could buy out the public.

899
00:53:42,640 --> 00:53:45,600
Speaker 1: And you know, he started off as a paid employee

900
00:53:45,760 --> 00:53:47,920
Speaker 1: of the company and he ended up as a very

901
00:53:48,080 --> 00:53:51,279
Speaker 1: major shareholder at the end because he used the month

902
00:53:51,640 --> 00:53:54,719
Speaker 1: company's money to buy back a lot of stock uh

903
00:53:55,040 --> 00:53:58,880
Speaker 1: from the public at low prices. He did he realized

904
00:53:58,880 --> 00:54:00,960
Speaker 1: that his he had that are interest in having the

905
00:54:01,000 --> 00:54:03,600
Speaker 1: stock be low than high. There's a great book out

906
00:54:04,160 --> 00:54:07,640
Speaker 1: now called Outsiders. I don't know if you're aware of that.

907
00:54:07,800 --> 00:54:12,080
Speaker 1: It's about it's about eight Maverick CEOs and how they

908
00:54:12,160 --> 00:54:15,239
Speaker 1: ran their companies. Uh. And he's one. Uh and he's

909
00:54:15,280 --> 00:54:17,440
Speaker 1: one of he's the he's the leader, he's the man.

910
00:54:17,640 --> 00:54:20,400
Speaker 1: He's chapter one and how to tell the Telegugne story

911
00:54:20,560 --> 00:54:24,279
Speaker 1: ultimately end well, the tell Dine story ended up that

912
00:54:24,440 --> 00:54:26,879
Speaker 1: that he owned it, ended up owning a major piece

913
00:54:26,920 --> 00:54:29,160
Speaker 1: of the company, and the stock ended up being very valuable.

914
00:54:30,440 --> 00:54:33,319
Speaker 1: We weren't they ultimately am I misremembering this? Weren't they

915
00:54:33,400 --> 00:54:36,480
Speaker 1: taken out by somebody? Or well? I think they were

916
00:54:37,120 --> 00:54:40,080
Speaker 1: taking out taken out in pieces? Yes, But of course

917
00:54:40,200 --> 00:54:45,320
Speaker 1: tele digne is is is it? Name doesn't exist anymore

918
00:54:45,880 --> 00:54:47,920
Speaker 1: as far as I know. No, I think you're right. Yeah,

919
00:54:48,320 --> 00:54:49,840
Speaker 1: well we'll have to we'll have to look at But

920
00:54:49,880 --> 00:54:54,520
Speaker 1: I mean he viewed as he viewed a capital as

921
00:54:54,560 --> 00:54:59,160
Speaker 1: a tool that you can that you can use to

922
00:54:59,320 --> 00:55:02,640
Speaker 1: the betterment the company. And you you you you can

923
00:55:02,840 --> 00:55:05,000
Speaker 1: you can use it to buy the stock back when

924
00:55:05,080 --> 00:55:08,440
Speaker 1: it's cheap, not when it's expensive. And you don't do

925
00:55:08,640 --> 00:55:11,120
Speaker 1: buy backs when the stock is high, and you don't

926
00:55:11,160 --> 00:55:14,239
Speaker 1: do acquisitions with stock when the stock is low. So

927
00:55:14,560 --> 00:55:17,040
Speaker 1: and then and these people in the in the people

928
00:55:17,160 --> 00:55:22,640
Speaker 1: who follow outsiders and follow this movement, they're called capital

929
00:55:22,680 --> 00:55:27,960
Speaker 1: allocators and and this is a very good way to

930
00:55:28,160 --> 00:55:31,160
Speaker 1: manage a company. I think we've we've seen so much

931
00:55:31,440 --> 00:55:34,240
Speaker 1: in terms of stock buy backs the past few years

932
00:55:35,000 --> 00:55:38,319
Speaker 1: after you've run up in the markets. Um, what's your

933
00:55:38,440 --> 00:55:42,600
Speaker 1: thoughts on on share buy backs lately? Because history tells

934
00:55:42,680 --> 00:55:45,680
Speaker 1: us that management has a tendency to overpay for their

935
00:55:45,719 --> 00:55:48,880
Speaker 1: own stock, and when stocks are cheap, they have a

936
00:55:49,000 --> 00:55:51,880
Speaker 1: tendency to be a little timid and not want to

937
00:55:51,920 --> 00:55:55,560
Speaker 1: look stupid when every hey conserve your cash as opposed

938
00:55:55,600 --> 00:55:57,799
Speaker 1: to saying my stock is cheap on buying it here? Well,

939
00:55:57,880 --> 00:56:01,719
Speaker 1: probably just like mother ridholds. My mother said by low

940
00:56:02,880 --> 00:56:07,040
Speaker 1: sell high, and why would you do the opposite? It's

941
00:56:07,080 --> 00:56:11,000
Speaker 1: easier to do them. It's easier, it's comfortable, it's emotionally,

942
00:56:11,520 --> 00:56:13,360
Speaker 1: you know, it takes a lot of off to tell you,

943
00:56:14,080 --> 00:56:16,719
Speaker 1: guys who are out buying stock when when you were

944
00:56:16,800 --> 00:56:21,640
Speaker 1: raising the distressed funds, did you get feedback from clients

945
00:56:21,920 --> 00:56:25,560
Speaker 1: you'r or from potential investors? Hey, listen, I know you've

946
00:56:25,600 --> 00:56:27,560
Speaker 1: got a great track record, but you're crazy. The world

947
00:56:27,680 --> 00:56:31,160
Speaker 1: is coming to an end, like, did you get pushed back? Well, no,

948
00:56:31,360 --> 00:56:35,360
Speaker 1: the main the main pushback we got, Remember we started

949
00:56:35,400 --> 00:56:39,680
Speaker 1: to raise the funding, oh seven and um, and the

950
00:56:39,960 --> 00:56:42,120
Speaker 1: main pushback we got in the beginning of seven it

951
00:56:42,200 --> 00:56:44,959
Speaker 1: was there's not going to be any distress. The world

952
00:56:45,080 --> 00:56:48,279
Speaker 1: is too good. You know, everything's going smoothly, and it's

953
00:56:48,280 --> 00:56:50,520
Speaker 1: going to go smoothly forever. And that was a year

954
00:56:50,600 --> 00:56:53,360
Speaker 1: after housing had already begun to roll over. Yes, but

955
00:56:53,400 --> 00:56:58,560
Speaker 1: nobody took notice, right, And I think some subprime subridy

956
00:56:58,600 --> 00:57:03,200
Speaker 1: more well subprime more goages began to soften in uh

957
00:57:04,160 --> 00:57:07,040
Speaker 1: the first or second quarter of or six, and but

958
00:57:07,200 --> 00:57:09,359
Speaker 1: they people didn't generalize it to the rest of the world,

959
00:57:10,560 --> 00:57:13,160
Speaker 1: and nobody said, well just a minute there, people applied

960
00:57:13,320 --> 00:57:17,400
Speaker 1: terribly weak standards in extending subprime mortgages. Maybe they extended

961
00:57:17,920 --> 00:57:21,720
Speaker 1: we maybe they applied weak standards every place. So what

962
00:57:21,800 --> 00:57:25,080
Speaker 1: does that mean? If if this weak mortgagees everywhere, that's

963
00:57:25,120 --> 00:57:28,880
Speaker 1: a negative, of course, but also it implies to me,

964
00:57:29,040 --> 00:57:32,960
Speaker 1: it implied that the system had been faulty because people

965
00:57:33,040 --> 00:57:36,560
Speaker 1: had been making uh bad decisions and they and they

966
00:57:36,640 --> 00:57:38,760
Speaker 1: weren't making him in just one place, I mean, Oaktree

967
00:57:38,880 --> 00:57:50,680
Speaker 1: turned very cautious in oh uh four five six, Why, Well,

968
00:57:50,760 --> 00:57:54,480
Speaker 1: on everything we do. Uh, but most of what we

969
00:57:54,560 --> 00:57:58,160
Speaker 1: do is debt. But we turned very cautious. Why because

970
00:57:58,240 --> 00:58:02,920
Speaker 1: we saw what we thought were ridiculously unsafe deals being issued.

971
00:58:03,600 --> 00:58:06,120
Speaker 1: And you know, I would walk into Bruce's office, my

972
00:58:06,240 --> 00:58:09,920
Speaker 1: partner Sheldon, my partner Larry, and Richard, and we would say,

973
00:58:10,080 --> 00:58:12,280
Speaker 1: look at this piece of John, can you believe this

974
00:58:12,400 --> 00:58:15,840
Speaker 1: got issued. There's something wrong if a deal like this

975
00:58:16,000 --> 00:58:19,720
Speaker 1: can get issued. And so again understanding what's going on

976
00:58:19,840 --> 00:58:23,640
Speaker 1: around us. If we're in an environment in which faulty

977
00:58:23,760 --> 00:58:27,800
Speaker 1: deals can readily be issued, there's something wrong with the environment.

978
00:58:27,960 --> 00:58:32,080
Speaker 1: What's amazing is how long it takes from the recognition

979
00:58:32,200 --> 00:58:34,600
Speaker 1: of hey, this is a lot of junks till the

980
00:58:34,720 --> 00:58:38,280
Speaker 1: rest of the world figures it out. It literally takes years. Well,

981
00:58:38,360 --> 00:58:42,560
Speaker 1: you know, somebody that famous, somebody I can't remember who

982
00:58:42,600 --> 00:58:47,200
Speaker 1: it was. One said, Uh, it takes a lot longer

983
00:58:47,320 --> 00:58:51,200
Speaker 1: for things to happen then you think it could. But

984
00:58:51,360 --> 00:58:54,040
Speaker 1: then they happen much faster than you think they will.

985
00:58:54,880 --> 00:58:59,640
Speaker 1: You know, makes perfect sense. Yes, you're right, things things

986
00:58:59,680 --> 00:59:04,160
Speaker 1: don't it through to investors, uh, other than very slowly.

987
00:59:04,680 --> 00:59:09,200
Speaker 1: But then when everybody has that ah moment and says,

988
00:59:09,600 --> 00:59:13,880
Speaker 1: you know we're in trouble. Then the collapse comes quite fast.

989
00:59:14,240 --> 00:59:18,960
Speaker 1: Think back to the famous irrational xuberans speech in you

990
00:59:19,040 --> 00:59:23,000
Speaker 1: still had four more years of market upside before a

991
00:59:23,520 --> 00:59:26,760
Speaker 1: pretty fast and furious collapse there there too. I wonder

992
00:59:26,800 --> 00:59:29,200
Speaker 1: if that that three to four year number is is

993
00:59:29,240 --> 00:59:33,280
Speaker 1: because you said in O four you started to become cautious.

994
00:59:34,040 --> 00:59:36,400
Speaker 1: It's a it's a sample set of two, but that

995
00:59:36,840 --> 00:59:39,800
Speaker 1: that run of four years after looking back after the fact,

996
00:59:40,200 --> 00:59:43,320
Speaker 1: seems to be kind of an interesting coincidence. It's a

997
00:59:43,360 --> 00:59:46,080
Speaker 1: small sample. But but but you're right. I mean, look

998
00:59:46,120 --> 00:59:50,160
Speaker 1: when Alan Greensband said I I I believe I detect

999
00:59:50,240 --> 00:59:53,880
Speaker 1: signs of irrational exuberance. That was at six thousand, and

1000
00:59:53,960 --> 00:59:58,280
Speaker 1: it exceeded ten. Right. Uh, if I have my numbers

1001
00:59:58,360 --> 01:00:01,959
Speaker 1: right now, that's about yeah. So you know, and the people.

1002
01:00:02,040 --> 01:00:04,400
Speaker 1: The point is that anybody who listened to green Span

1003
01:00:04,520 --> 01:00:08,400
Speaker 1: and in six thousand got out of the market by

1004
01:00:08,520 --> 01:00:12,280
Speaker 1: oh nine, people ruled him an idiot. Uh. And by

1005
01:00:12,320 --> 01:00:15,840
Speaker 1: the way, everybody had Buffett written off at the beginning

1006
01:00:15,880 --> 01:00:17,919
Speaker 1: of two thousand because they said he's passed his cell

1007
01:00:17,960 --> 01:00:21,040
Speaker 1: by date. You know, he's missed his tech bubble. What's

1008
01:00:21,080 --> 01:00:23,720
Speaker 1: wrong with him? This this value investing is you know,

1009
01:00:23,840 --> 01:00:26,200
Speaker 1: that's old school. That's not gonna art anymore. Well, the

1010
01:00:26,240 --> 01:00:30,560
Speaker 1: greatest quote you know comes from Galbrai's uh, Short History

1011
01:00:30,600 --> 01:00:33,600
Speaker 1: of Financial Euphoria, and he says the he talks about

1012
01:00:33,680 --> 01:00:36,880
Speaker 1: the the short comings of the markets. He says, one

1013
01:00:37,000 --> 01:00:44,240
Speaker 1: is the is the limited span of memory. Uh. And

1014
01:00:44,400 --> 01:00:48,600
Speaker 1: he says that anybody who remembers the old bad events

1015
01:00:48,760 --> 01:00:52,240
Speaker 1: and cautions against the recurrence is dismissed as past their prime.

1016
01:00:53,200 --> 01:00:56,000
Speaker 1: Uh and uh and old basically an old foggy here.

1017
01:00:56,120 --> 01:00:58,640
Speaker 1: That's my turn, not his. Uh. And then you get

1018
01:00:58,680 --> 01:01:02,000
Speaker 1: a reminder that history is elevant. Right. There's another quote,

1019
01:01:02,000 --> 01:01:04,360
Speaker 1: and I don't remember with Galbraith or someone else who said,

1020
01:01:04,720 --> 01:01:08,560
Speaker 1: one of the distinguishing characteristics about people in finance is

1021
01:01:08,640 --> 01:01:13,000
Speaker 1: their steadfast refusal to learn from history. And it's really true.

1022
01:01:13,080 --> 01:01:15,400
Speaker 1: It's in oh seven o eight, it was as if

1023
01:01:15,440 --> 01:01:18,680
Speaker 1: two thousand had never happens. Well, all of six years

1024
01:01:18,720 --> 01:01:22,480
Speaker 1: had passed. But you know that the point is that

1025
01:01:22,680 --> 01:01:30,880
Speaker 1: this this dismissal of the past has helpers, has handmaidens,

1026
01:01:30,960 --> 01:01:33,400
Speaker 1: if you would, and and and and one of them

1027
01:01:33,520 --> 01:01:39,360
Speaker 1: is that in oh six it looks like if you're

1028
01:01:39,480 --> 01:01:43,800
Speaker 1: merely willing to disregard the lessons of the past and

1029
01:01:44,280 --> 01:01:50,280
Speaker 1: and plunge in, you can get rich. M And what

1030
01:01:50,400 --> 01:01:53,240
Speaker 1: do people want more than anything else? You know? I

1031
01:01:53,280 --> 01:01:57,200
Speaker 1: always imagine, uh, you know, those more movies about Las Vegas,

1032
01:01:57,280 --> 01:01:59,880
Speaker 1: and and that you got the angel on one shoulder

1033
01:02:00,240 --> 01:02:01,960
Speaker 1: saying don't do it, it's not the right thing, and

1034
01:02:02,000 --> 01:02:04,120
Speaker 1: the devils sitting on the other shoulders saying, you know,

1035
01:02:04,240 --> 01:02:06,360
Speaker 1: do it, it will be fun. Well, the devil always wins, right,

1036
01:02:06,680 --> 01:02:09,200
Speaker 1: also wouldn't have a movie. Well in the investing business,

1037
01:02:09,400 --> 01:02:11,880
Speaker 1: the angel sitting on one shoulder says, don't do it.

1038
01:02:11,880 --> 01:02:14,320
Speaker 1: It's not prudent. You know, trees don't go to the sky.

1039
01:02:14,440 --> 01:02:17,960
Speaker 1: It's too good to be true. The market risk is elevated.

1040
01:02:18,080 --> 01:02:20,400
Speaker 1: But on the other side, the devil sitting there and

1041
01:02:20,480 --> 01:02:23,560
Speaker 1: he says, do it, you'll get rich. And who is

1042
01:02:23,640 --> 01:02:28,760
Speaker 1: that devil? Because the handmaiden to forgetting history very often

1043
01:02:29,520 --> 01:02:31,880
Speaker 1: is that what have you done for me this quarter?

1044
01:02:32,040 --> 01:02:34,880
Speaker 1: The investor class, So you and I are in the

1045
01:02:34,960 --> 01:02:37,600
Speaker 1: business you a little longer and a lot more money

1046
01:02:38,320 --> 01:02:42,439
Speaker 1: managing of managing other people's money. There is a very

1047
01:02:42,680 --> 01:02:48,040
Speaker 1: very consistent thing that takes place every cycle where the

1048
01:02:48,160 --> 01:02:52,840
Speaker 1: investor class says, this prudence thing has gone on long enough.

1049
01:02:53,000 --> 01:02:56,720
Speaker 1: Everybody else is getting rich, why aren't you making me rich? Well,

1050
01:02:56,800 --> 01:03:01,000
Speaker 1: people respect, people respect managers who exhibit proof. At the bottom,

1051
01:03:01,840 --> 01:03:03,680
Speaker 1: they say, boy, I wish I wish I'd been with

1052
01:03:03,760 --> 01:03:06,200
Speaker 1: that guy. He didn't lose his clients any money. But

1053
01:03:06,440 --> 01:03:10,160
Speaker 1: at the top, when the market has doubled, nobody wants prudence.

1054
01:03:10,200 --> 01:03:12,720
Speaker 1: They want the guy who full throw the most out

1055
01:03:12,760 --> 01:03:15,200
Speaker 1: of that double This is what this is. This is

1056
01:03:15,720 --> 01:03:19,760
Speaker 1: herd behavior, and uh, this is the This is the

1057
01:03:20,120 --> 01:03:24,920
Speaker 1: ticket to losing money and the ticket to preserving capital

1058
01:03:25,040 --> 01:03:31,480
Speaker 1: is something called contrarian behavior. Very very hard to do,

1059
01:03:31,960 --> 01:03:34,760
Speaker 1: very hard to stick with, which is why you mentioned

1060
01:03:35,000 --> 01:03:38,680
Speaker 1: by low so high, the crowd seems to find itself

1061
01:03:38,760 --> 01:03:42,200
Speaker 1: constantly doing the opposite. When when that energy, when that

1062
01:03:42,320 --> 01:03:46,680
Speaker 1: excitement and enthusiasm is there, they're looking to um, They're

1063
01:03:46,680 --> 01:03:50,200
Speaker 1: looking to buy a top and and move forward. It's

1064
01:03:50,320 --> 01:03:53,240
Speaker 1: very very easy. The crowd finds it very easy to

1065
01:03:53,280 --> 01:03:57,400
Speaker 1: buy things that have been rising for a while and

1066
01:03:57,600 --> 01:04:00,960
Speaker 1: very hard to buy things that have fallen. So in

1067
01:04:01,040 --> 01:04:03,120
Speaker 1: the last few minutes we have I have a handful

1068
01:04:03,160 --> 01:04:05,800
Speaker 1: of questions I'd like to ask everybody, and one or

1069
01:04:05,800 --> 01:04:08,400
Speaker 1: two more quotes of yours. So so let me run

1070
01:04:08,480 --> 01:04:11,840
Speaker 1: through these pretty quickly, and and we'll see if we

1071
01:04:11,880 --> 01:04:13,320
Speaker 1: can get you out. I know we have a call

1072
01:04:13,400 --> 01:04:15,720
Speaker 1: waiting for you shortly. Um. One of the things you

1073
01:04:15,760 --> 01:04:19,200
Speaker 1: had mentioned previously that I always found interesting was clients

1074
01:04:19,360 --> 01:04:23,120
Speaker 1: need a creed. Whether it's beta versus alpha, risk control,

1075
01:04:23,280 --> 01:04:27,880
Speaker 1: return maximization. What's the significance of a creed? Why do

1076
01:04:28,080 --> 01:04:31,360
Speaker 1: investors require one? Well, it's not really clients. I think

1077
01:04:31,400 --> 01:04:34,200
Speaker 1: it's investors or money managers need a creed because you

1078
01:04:34,320 --> 01:04:37,520
Speaker 1: have to have something to stand by, you know, uh,

1079
01:04:40,120 --> 01:04:46,280
Speaker 1: A philosophy, philosophy, a religion. If you will, what do

1080
01:04:46,400 --> 01:04:48,080
Speaker 1: you do, what do you don't do? What do you

1081
01:04:48,200 --> 01:04:50,400
Speaker 1: believe in? What do you do not believe in? Uh?

1082
01:04:50,760 --> 01:04:53,000
Speaker 1: You know, if you if you don't have these things,

1083
01:04:53,480 --> 01:04:59,080
Speaker 1: and then what are your signposts of your of your activity,

1084
01:04:59,360 --> 01:05:02,120
Speaker 1: of your behavior. What would you say, I buy things

1085
01:05:02,200 --> 01:05:05,000
Speaker 1: that go up. That's not enough. You have to you

1086
01:05:05,120 --> 01:05:09,240
Speaker 1: have to have a system for the kinds of things

1087
01:05:09,320 --> 01:05:12,160
Speaker 1: you buy and how you figure out that they're a

1088
01:05:12,280 --> 01:05:15,480
Speaker 1: buy and and how do you when you and when

1089
01:05:15,520 --> 01:05:19,200
Speaker 1: you get off the trend and do you believe in

1090
01:05:19,280 --> 01:05:21,640
Speaker 1: growth or value? I believe in forecasts or not forecast?

1091
01:05:21,720 --> 01:05:27,080
Speaker 1: You believe in maximization or or risk control? Uh, there

1092
01:05:27,120 --> 01:05:29,480
Speaker 1: are many many things that you should have to make

1093
01:05:29,520 --> 01:05:33,920
Speaker 1: a decision about, um and and Uh, I believe you

1094
01:05:34,000 --> 01:05:36,480
Speaker 1: can only you know. The people that I know who

1095
01:05:36,520 --> 01:05:40,720
Speaker 1: are great investors all have They can state what it

1096
01:05:40,840 --> 01:05:43,920
Speaker 1: is they do. MH. They have a philosophy, they have

1097
01:05:44,120 --> 01:05:47,480
Speaker 1: freed and it could be summed up very very very simply. So,

1098
01:05:47,720 --> 01:05:50,760
Speaker 1: So let's let's go through one other quote of yours

1099
01:05:50,800 --> 01:05:54,520
Speaker 1: that I really like. Um and this this hearkens back

1100
01:05:54,560 --> 01:05:58,800
Speaker 1: to your your discussion on probabilities. The future does not exist.

1101
01:05:59,040 --> 01:06:02,520
Speaker 1: It is only a range of possibilities. We have to

1102
01:06:02,640 --> 01:06:07,840
Speaker 1: understand that most outcomes will be determined by luck. Explain that, well,

1103
01:06:09,800 --> 01:06:16,960
Speaker 1: the world and the economies and the markets do not

1104
01:06:17,400 --> 01:06:23,640
Speaker 1: run according to you know, Newton's laws of physics. Uh.

1105
01:06:24,000 --> 01:06:28,120
Speaker 1: You know. And if you hire an an electrician to

1106
01:06:28,200 --> 01:06:31,000
Speaker 1: come in your house and he does it right, then

1107
01:06:31,040 --> 01:06:32,720
Speaker 1: you know that if he puts in a light switch

1108
01:06:32,800 --> 01:06:35,240
Speaker 1: over here and he throws that switch, the light will

1109
01:06:35,240 --> 01:06:39,000
Speaker 1: go on over there every time. That's not the investment business.

1110
01:06:39,440 --> 01:06:43,600
Speaker 1: There's no, there are no there are no relationships that

1111
01:06:43,640 --> 01:06:47,280
Speaker 1: are that dependable. There's a lot of randomness. You know.

1112
01:06:47,480 --> 01:06:50,360
Speaker 1: Sometimes the company announces good earnings and the stock goes up.

1113
01:06:50,880 --> 01:06:54,080
Speaker 1: Sometimes they announced good earnings stock goes down. Uh, And

1114
01:06:55,120 --> 01:07:01,240
Speaker 1: it just isn't that reliable, um and so um. You know.

1115
01:07:01,440 --> 01:07:03,800
Speaker 1: We have to keep that in mind, and we have

1116
01:07:04,000 --> 01:07:08,320
Speaker 1: to allow for other outcomes than the one we think

1117
01:07:09,000 --> 01:07:11,480
Speaker 1: should happen. One of the things I try to point

1118
01:07:11,520 --> 01:07:15,080
Speaker 1: out is that should does not mean will, and it

1119
01:07:15,160 --> 01:07:19,680
Speaker 1: certainly does not mean will right away. Overpriced, if a

1120
01:07:19,680 --> 01:07:22,000
Speaker 1: stock is over priced, that doesn't mean it's going down tomorrow.

1121
01:07:22,520 --> 01:07:24,360
Speaker 1: You can stay over priced for a long time or

1122
01:07:24,480 --> 01:07:30,040
Speaker 1: go higher, you know, Uh, cheap stocks get cheaper than

1123
01:07:30,960 --> 01:07:34,040
Speaker 1: that's right. Lord Kane said the market could remain uh

1124
01:07:34,720 --> 01:07:38,760
Speaker 1: in so irrational longer than you can remain solving. So

1125
01:07:39,280 --> 01:07:44,320
Speaker 1: you can't. You can't bet your all your money that

1126
01:07:44,480 --> 01:07:48,200
Speaker 1: the things that should happen will happen promptly. And that's

1127
01:07:48,200 --> 01:07:51,520
Speaker 1: why I feel we have to think of the future

1128
01:07:51,680 --> 01:07:55,840
Speaker 1: as a range of possible outcomes, and we had we

1129
01:07:56,000 --> 01:07:57,880
Speaker 1: might bet on the one we think will happen, but

1130
01:07:58,000 --> 01:08:00,720
Speaker 1: we should give allowance for some of the others, Now,

1131
01:08:00,920 --> 01:08:03,600
Speaker 1: how much allowance which of the others? These are the

1132
01:08:03,680 --> 01:08:05,560
Speaker 1: hard questions, Like I said before, how much do you

1133
01:08:05,880 --> 01:08:08,720
Speaker 1: how much do you allow for the improbable disaster? You know,

1134
01:08:09,200 --> 01:08:12,960
Speaker 1: in Fooled by randomness to lab talks about alternative histories,

1135
01:08:13,160 --> 01:08:16,719
Speaker 1: the other things that probably reasonably could have happened but didn't.

1136
01:08:17,760 --> 01:08:21,280
Speaker 1: We're thinking about and and and The point is that

1137
01:08:21,400 --> 01:08:24,960
Speaker 1: the world is an uncertain place, just to say the least.

1138
01:08:25,360 --> 01:08:28,760
Speaker 1: So speaking of uncertainty, you've been in the industry for

1139
01:08:29,120 --> 01:08:34,280
Speaker 1: a few decades. Now, what have you noticed that has changed? Um,

1140
01:08:35,000 --> 01:08:38,880
Speaker 1: what's the most important changes to the financial industry? And

1141
01:08:39,280 --> 01:08:40,840
Speaker 1: is this a good thing or a beat? Well, the

1142
01:08:40,880 --> 01:08:44,439
Speaker 1: biggest single change is that it has become much more

1143
01:08:44,520 --> 01:08:49,440
Speaker 1: preoccupied with the short run. And that is very negative

1144
01:08:49,720 --> 01:08:54,559
Speaker 1: for the people who participate because but it's very positive

1145
01:08:54,640 --> 01:08:57,000
Speaker 1: for the people who for the people who like to

1146
01:08:57,080 --> 01:09:01,000
Speaker 1: take advantage of other people's mistakes. The point is, many

1147
01:09:01,080 --> 01:09:03,559
Speaker 1: people believe, you know, we used to buy stocks five

1148
01:09:03,640 --> 01:09:07,360
Speaker 1: six years at the bank. Uh. Now people think that

1149
01:09:07,479 --> 01:09:09,519
Speaker 1: if your owners for five or six months, it's a

1150
01:09:09,600 --> 01:09:15,320
Speaker 1: long time hold. And and uh and so uh you know,

1151
01:09:15,600 --> 01:09:18,000
Speaker 1: I I believe that you should figure out how to

1152
01:09:18,080 --> 01:09:20,240
Speaker 1: make money in the long run and stick to that.

1153
01:09:20,720 --> 01:09:22,160
Speaker 1: Now a lot of people say, no, there is no

1154
01:09:22,320 --> 01:09:24,240
Speaker 1: long run. Is the long run is just a series

1155
01:09:24,280 --> 01:09:28,720
Speaker 1: of short runs. But but but I don't I don't

1156
01:09:28,760 --> 01:09:34,080
Speaker 1: go with that. And and you know, forty seven years ago,

1157
01:09:34,360 --> 01:09:37,599
Speaker 1: when I started working at City Bank, at the end

1158
01:09:37,640 --> 01:09:40,519
Speaker 1: of the year, it took a couple of days to

1159
01:09:40,560 --> 01:09:43,000
Speaker 1: figure out how we did that year, to compute our

1160
01:09:43,080 --> 01:09:46,320
Speaker 1: rate of return. Then you got to the point where

1161
01:09:46,960 --> 01:09:49,920
Speaker 1: you got it the same day. Then you got to

1162
01:09:50,000 --> 01:09:51,559
Speaker 1: the point where you could get it at the end

1163
01:09:51,560 --> 01:09:53,960
Speaker 1: of every every month, then to the point where you

1164
01:09:54,000 --> 01:09:55,880
Speaker 1: could get it at the end of every day. And

1165
01:09:56,000 --> 01:09:58,920
Speaker 1: now every money manager worth is sold has the thing

1166
01:09:59,040 --> 01:10:03,519
Speaker 1: on his Bloomberg screen which shows his return at that moment,

1167
01:10:04,040 --> 01:10:07,680
Speaker 1: by take by take. And that's a negative. I think

1168
01:10:07,680 --> 01:10:11,479
Speaker 1: it's a negative because that's not uh, that's not what

1169
01:10:11,640 --> 01:10:14,640
Speaker 1: you should be thinking about. What did I make so

1170
01:10:14,800 --> 01:10:17,840
Speaker 1: far today, what did I make this month? And that

1171
01:10:18,040 --> 01:10:22,720
Speaker 1: kind of thing. You know. UH. My son Andrew uh

1172
01:10:23,240 --> 01:10:28,519
Speaker 1: is UH is one of my most valued advisors, and

1173
01:10:30,120 --> 01:10:35,880
Speaker 1: he gave me some great inspirations for my UH memo

1174
01:10:36,000 --> 01:10:39,840
Speaker 1: on liquidity UH, and one of them was if you don't.

1175
01:10:40,479 --> 01:10:42,600
Speaker 1: If you don't think you can hold a stock for

1176
01:10:42,880 --> 01:10:45,719
Speaker 1: five years, don't even think about holding it for five minutes.

1177
01:10:46,320 --> 01:10:52,080
Speaker 1: You know. Uh. The real way to build wealth in

1178
01:10:52,200 --> 01:10:56,720
Speaker 1: the long run is to find a limited number of

1179
01:10:56,920 --> 01:10:59,639
Speaker 1: things with a lot of potential and not too much risk,

1180
01:10:59,720 --> 01:11:03,000
Speaker 1: and day with them for the long term. And and

1181
01:11:03,160 --> 01:11:05,560
Speaker 1: I the thing he gave me that I thought was

1182
01:11:05,640 --> 01:11:08,719
Speaker 1: the greatest, that made the greatest impression on me. He said,

1183
01:11:09,840 --> 01:11:12,880
Speaker 1: when you look at a chart of a stock which

1184
01:11:12,920 --> 01:11:15,760
Speaker 1: has gone up for twenty years, and you look at

1185
01:11:15,800 --> 01:11:19,320
Speaker 1: that chart longingly, and you say, boy, I wish I'd

1186
01:11:19,360 --> 01:11:23,200
Speaker 1: been on that stock. Think of all the days if

1187
01:11:23,240 --> 01:11:25,840
Speaker 1: you bought it on the first day. Think of all

1188
01:11:25,960 --> 01:11:28,599
Speaker 1: the days on which you would have had to talk

1189
01:11:28,680 --> 01:11:32,800
Speaker 1: yourself out of selling. Everybody looks at those charts and say,

1190
01:11:32,840 --> 01:11:38,760
Speaker 1: oh my god. You know, uh, Apple, it's up from

1191
01:11:38,840 --> 01:11:41,680
Speaker 1: five bucks to five hundred bucks, and all you had

1192
01:11:41,720 --> 01:11:44,080
Speaker 1: to do was buy it at five. And I once

1193
01:11:44,120 --> 01:11:45,960
Speaker 1: had a friend who's talked to me about a piece

1194
01:11:46,000 --> 01:11:48,599
Speaker 1: of property that could have brought X decades ago at

1195
01:11:48,640 --> 01:11:50,920
Speaker 1: a very low price, you know, And I said, yes,

1196
01:11:51,000 --> 01:11:52,479
Speaker 1: And as soon as it got to two X, you

1197
01:11:52,479 --> 01:11:54,920
Speaker 1: would have sold it. You have to stay on for

1198
01:11:55,040 --> 01:11:57,200
Speaker 1: the long run. And so I think, I think that

1199
01:11:57,360 --> 01:12:00,560
Speaker 1: this short sightedness is the worst single to development and

1200
01:12:00,760 --> 01:12:03,960
Speaker 1: per and and and ubiquitous. So before I get to

1201
01:12:04,080 --> 01:12:06,680
Speaker 1: my last two questions, I would be remiss if I

1202
01:12:06,800 --> 01:12:11,759
Speaker 1: did not mention the most important thing, which is your book,

1203
01:12:11,960 --> 01:12:15,160
Speaker 1: which Warren Buffett, I want to give you this this.

1204
01:12:15,479 --> 01:12:18,160
Speaker 1: I want to listeners to hear this quote because it

1205
01:12:18,320 --> 01:12:25,240
Speaker 1: is just so um poignant and really um sums it

1206
01:12:25,320 --> 01:12:29,200
Speaker 1: up perfectly. Buffett said, When I see memos from Howard

1207
01:12:29,280 --> 01:12:32,559
Speaker 1: Marks in my mail, they're the first things I open

1208
01:12:32,760 --> 01:12:36,360
Speaker 1: and read. I always learned something and that goes double

1209
01:12:36,840 --> 01:12:40,160
Speaker 1: for his book. What was the motivation of of putting

1210
01:12:40,200 --> 01:12:43,120
Speaker 1: the book together? And how gratifying is it to get

1211
01:12:43,240 --> 01:12:46,320
Speaker 1: that sort of feedback from a Warren Buffett? Well? Uh,

1212
01:12:46,520 --> 01:12:51,360
Speaker 1: number one, As I mentioned, I've been writing the memos

1213
01:12:51,400 --> 01:12:56,639
Speaker 1: since I've been thinking one way the other since nineteen

1214
01:12:57,000 --> 01:13:00,280
Speaker 1: seventy and uh, you know, I always thought that when

1215
01:13:00,320 --> 01:13:02,280
Speaker 1: I retired, I would write a book and pull the

1216
01:13:02,400 --> 01:13:05,519
Speaker 1: themes of the memos together. And and the truth is

1217
01:13:05,600 --> 01:13:08,719
Speaker 1: I got a note from Well. I was approached by Columbia,

1218
01:13:09,560 --> 01:13:11,920
Speaker 1: who was the publisher of the book Columbia University Press,

1219
01:13:12,120 --> 01:13:13,519
Speaker 1: and they asked me to write a book. And then

1220
01:13:13,560 --> 01:13:17,519
Speaker 1: I got an email from Warren and and he said, uh,

1221
01:13:17,640 --> 01:13:20,640
Speaker 1: if you write a book, I'll give you a paragraph

1222
01:13:20,760 --> 01:13:24,400
Speaker 1: for the jacket. So that was enough. Uh and so

1223
01:13:24,640 --> 01:13:26,720
Speaker 1: and you know, Warren has been a great inspiration to me.

1224
01:13:27,439 --> 01:13:32,040
Speaker 1: Um and uh and uh you know you just learned

1225
01:13:32,080 --> 01:13:35,040
Speaker 1: so much through associating with him, and and uh, the

1226
01:13:35,200 --> 01:13:40,000
Speaker 1: opportunity to to do something that he suggested was something

1227
01:13:40,160 --> 01:13:42,680
Speaker 1: too good to pass up, to say the least. And

1228
01:13:42,880 --> 01:13:45,200
Speaker 1: and now I know we we're tied on time. Let

1229
01:13:45,240 --> 01:13:47,479
Speaker 1: me give you my last two questions. I asked all

1230
01:13:47,520 --> 01:13:50,439
Speaker 1: of my guests. First, what sort of advice would you

1231
01:13:50,479 --> 01:13:54,360
Speaker 1: give to somebody just graduating college and and starting out

1232
01:13:54,400 --> 01:14:02,280
Speaker 1: in the financial business. Christopher Morley, the English writer, said,

1233
01:14:02,320 --> 01:14:04,840
Speaker 1: there's only one success, to live your life your way.

1234
01:14:05,840 --> 01:14:09,080
Speaker 1: So you know, I think that investing is very interesting,

1235
01:14:09,400 --> 01:14:14,800
Speaker 1: uh discipline and obviously can be lucrative. Um, but it's

1236
01:14:14,840 --> 01:14:17,639
Speaker 1: not for everybody, and you should figure out if it's

1237
01:14:17,680 --> 01:14:19,880
Speaker 1: for you. The last thing you should do is go

1238
01:14:20,000 --> 01:14:23,040
Speaker 1: into a career because everybody else is doing it, or

1239
01:14:23,160 --> 01:14:26,120
Speaker 1: because it's hot, or because people say you can make

1240
01:14:26,120 --> 01:14:28,400
Speaker 1: a lot of money. You know, you have to spend

1241
01:14:28,479 --> 01:14:31,040
Speaker 1: your life in your career and you're not going to

1242
01:14:31,120 --> 01:14:34,880
Speaker 1: get another one. Uh, So why wasted on something that's

1243
01:14:34,920 --> 01:14:38,000
Speaker 1: not for you? Uh? You know it's been great for

1244
01:14:38,080 --> 01:14:42,400
Speaker 1: me and it is simpatico with my with who I am,

1245
01:14:42,840 --> 01:14:45,479
Speaker 1: but it's not for everybody, to say the very least.

1246
01:14:45,520 --> 01:14:48,800
Speaker 1: And and then our final question, what is it you

1247
01:14:48,920 --> 01:14:52,080
Speaker 1: know about investing today you wish you knew when you

1248
01:14:52,160 --> 01:14:58,560
Speaker 1: began forty seven years ago? Um? And I love that

1249
01:14:58,680 --> 01:15:04,280
Speaker 1: you stop and really contemplate these questions before jumping into them. Well,

1250
01:15:04,360 --> 01:15:09,840
Speaker 1: I think that the whole aspect of number one contrarian

1251
01:15:09,920 --> 01:15:17,799
Speaker 1: behavior and number two, uh, understanding what's going on around

1252
01:15:17,920 --> 01:15:24,320
Speaker 1: you and basing your activities uh in response to that behavior.

1253
01:15:25,320 --> 01:15:27,680
Speaker 1: I think these are the keys. You know, when you're

1254
01:15:27,680 --> 01:15:29,920
Speaker 1: a kid, you come out, you start thinking that if

1255
01:15:29,960 --> 01:15:31,600
Speaker 1: you can just find a stock whose earnings are going

1256
01:15:31,680 --> 01:15:34,560
Speaker 1: to rise fast, that's the key to success. Uh. And

1257
01:15:34,680 --> 01:15:37,040
Speaker 1: then as you do it longer, you learn that there's

1258
01:15:37,080 --> 01:15:41,719
Speaker 1: so much more to it. So it's it's situational awareness

1259
01:15:41,840 --> 01:15:44,920
Speaker 1: first and then knowing where in lens of your contrarian

1260
01:15:45,680 --> 01:15:48,200
Speaker 1: um is that Howard, Thank you so much for being

1261
01:15:48,280 --> 01:15:51,960
Speaker 1: so generous with your time and staying with us. Um

1262
01:15:52,600 --> 01:15:56,000
Speaker 1: the full geez, almost ninety minutes. Uh. People want to

1263
01:15:56,040 --> 01:15:58,880
Speaker 1: find your memos. It's at oak Tree Capital dot com.

1264
01:15:59,200 --> 01:16:02,120
Speaker 1: You have the full history of news. I think they're

1265
01:16:02,120 --> 01:16:05,160
Speaker 1: almost all there. Some were. The ones that were originally

1266
01:16:05,200 --> 01:16:10,240
Speaker 1: written on papyrus are not available, but they're almost in

1267
01:16:10,280 --> 01:16:14,280
Speaker 1: the book. And the book, you know, give us the

1268
01:16:14,320 --> 01:16:17,160
Speaker 1: full time. It's called it's called the Well. The first

1269
01:16:17,200 --> 01:16:20,000
Speaker 1: book was called The Most Important Thing Uncommon Sense for

1270
01:16:20,040 --> 01:16:23,559
Speaker 1: the Thoughtful Investor. That came out in Columbia University Press.

1271
01:16:23,600 --> 01:16:25,320
Speaker 1: And then a year or two later they brought out

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Speaker 1: something called The Most Important Thing Illuminated, which has an

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Speaker 1: additional chapter and commentary from myself and a number of

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Speaker 1: prominent investors, and it's annotated along throughout the throughout the book.

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Speaker 1: So you say something and other people explain what you mean. Howard,

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Speaker 1: thank you so much for this. You've been listening to

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Speaker 1: Masters in Business on Bloombug Radio. I want to thank

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Speaker 1: Mike bat Nick, my head of research, Matt my engineer,

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Speaker 1: and Charlie Vollmer Uh, my producer. If you've enjoyed this conversation.

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Speaker 1: Looked up an inch or down an inch and iTunes,

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01:16:59,760 --> 01:17:02,880
Speaker 1: and you could see any of our prior forty nine

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Speaker 1: UM Masters in Business. You are our fiftieth and and

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Speaker 1: thank you so much for your time pleasure. You're listening

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Speaker 1: to Masters in Business with Barry Dholts on Bloomberg Radio