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Speaker 1: This is Master's in Business with Barry rid Holds on

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Speaker 1: Bloomberg Radio. This week on the podcast, I have an

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Speaker 1: extra special guest, David Einhorn, founder of Greenlight Capital. What

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Speaker 1: a fascinating investor and what a fascinating career David has had.

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Speaker 1: He came to public attention for shorting, probably most famously

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Speaker 1: Lehman Brothers about eight months before the company went bankrupt,

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Speaker 1: but he has very publicly talked about other companies that

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Speaker 1: he thought were either wildly overstating their results or actually

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Speaker 1: engaging in outright fraud. He has put together an amazing

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Speaker 1: track record at Greenlight in the middle two and tens.

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Speaker 1: The performance at the fun flagged, which sort of set

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Speaker 1: him back hunting for what was going wrong with his

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Speaker 1: style of value investing, and he came to some really

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Speaker 1: fascinating conclusions which led him to change how they approached investing.

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Speaker 1: And since that happens, I don't know, about four or

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Speaker 1: five years ago, the fund has been putting up great numbers, outperforming,

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Speaker 1: doing really really well. It's kind of rare to not

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Speaker 1: only find somebody whose variant perspective has allowed him to

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Speaker 1: make some tremendous and successful investments. Early in their career,

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Speaker 1: but when the world changed, they figured out they had

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Speaker 1: a change, also made those adjustments, and did so successfully.

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Speaker 1: I thought this conversation was absolutely fascinating, and I think

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Speaker 1: you will also with no further ado, my discussion with

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Speaker 1: Green Light Capitals. David Einhorn, thank you so much.

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Speaker 2: I'm excited to be here, bab.

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Speaker 1: I've been looking forward to this for a long time.

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Speaker 1: You and I had met way back when You've been

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Speaker 1: one of the people that I've really been enthusiastic about

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Speaker 1: getting here. So I'm thrilled you're year. Let's start out

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Speaker 1: talking a little bit about your background. You graduate from

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Speaker 1: Cornell Suma cum laude with distinction of ply Beta Kappa,

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Speaker 1: all the good stuff. What'd you study there? What was

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Speaker 1: the original career plan?

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Speaker 2: I studied government. I was a government major. And the

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Speaker 2: thing with me is that I don't really think too

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Speaker 2: far out into the future. What I just try to

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Speaker 2: do is do a really good job whereever I'm doing

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Speaker 2: when i'm doing it, and figure that that will just

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Speaker 2: create good options for me going forward. So in high school,

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Speaker 2: I didn't worry where I'd go to college. I just

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Speaker 2: tried to do well in college. I didn't try to

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Speaker 2: worry about what my career would be. I just figured

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Speaker 2: if I do well, I would be able to be

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Speaker 2: presented with good options. So I didn't even begin thinking

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Speaker 2: about my career really until my senior year, and at

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Speaker 2: that point I decided what I really wanted to do

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Speaker 2: was be a PhD in economics. So I applied to

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Speaker 2: half a dozen of the best programs. I got rejected

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Speaker 2: at all of them, really, and that gave me an

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Speaker 2: opportunity to enter the job market. So then I just

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Speaker 2: started interviewing with companies as they came on the on

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Speaker 2: campus recruiting to see what I could find. I interviewed

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Speaker 2: with the CIA. I interviewed with car Guilt they could

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Speaker 2: put me running a grain elevator, Gosh knows where. I

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Speaker 2: interviewed with consulting companies and banking companies. I interviewed with

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Speaker 2: some airlines. I interviewed with just whatever was coming on

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Speaker 2: to campus, and eventually I got a job offer at

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Speaker 2: Donaldson Lufkin Jenrett, which is no longer here, but it

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Speaker 2: was an investment bank of some note at the time,

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Speaker 2: and I joined their two year analyst programs so I

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Speaker 2: get the full benefit of knowing what happened and hindsight bias,

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Speaker 2: But I have a fairly good sense of you and

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Speaker 2: your personality, and I know what DLJ was like.

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Speaker 1: I don't really see that as a great fit.

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Speaker 2: Oh it wasn't a great fit. It was miserable for

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Speaker 2: me within three weeks of getting there. The one thing

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Speaker 2: you get in college is you have control over your time,

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Speaker 2: and so you study when you want to study, and

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Speaker 2: as long as you get your work done, you know

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Speaker 2: you can do great. And at DLJ, you know they

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Speaker 2: control your time. And I never really I came from

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Speaker 2: the West and in the Midwest where I grew up,

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Speaker 2: like all the dads were home for dinner, not just

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Speaker 2: my dad, everybody's dad was home for dinner. And we

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Speaker 2: didn't understand this thing about you know, overnights in the office,

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Speaker 2: and you know, if you don't come in on Saturday,

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Speaker 2: don't even think about coming in on Sunday, and all

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Speaker 2: of this kind of stuff. So I didn't really understand

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Speaker 2: what I was signing up for. And by the time

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Speaker 2: I figured it out, I mean it was it was

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Speaker 2: a tough, tough cultural fit for me.

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Speaker 1: I read somewhere you described it as similar to a

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Speaker 1: frat Hazen.

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Speaker 2: Well, I was in a fraternity and there was hazing,

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Speaker 2: but it wasn't bad. I actually didn't mind the hazing

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Speaker 2: at all because it was combined with basketball and parties

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Speaker 2: and beer and hanging out and people you want to

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Speaker 2: spend time with. When you have that same behavior, and

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Speaker 2: when they're done hazing you, then they're abusing you over

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Speaker 2: your work and your schedule and the rest of it,

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Speaker 2: well that's not fun at all.

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Speaker 1: So Siegler Collery and Company was next. Tell us what

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Speaker 1: you did there?

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Speaker 2: Well, I went to Siegler Collery. I worked for Peter Collery.

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Speaker 2: He was the research oriented of the two partners, and

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Speaker 2: he basically would tell you, here's an idea, Go look

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Speaker 2: at the idea, go figure it out, tell me if

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Speaker 2: we should invest in it. And I would go and

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Speaker 2: read all the stuff and spend a week getting ready

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Speaker 2: and making spreadsheets and talking to people, and I would

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Speaker 2: give it to Peter and then he'd take it all

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Speaker 2: home the next night that night, come back the next

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Speaker 2: day and ask me fifteen questions and I wouldn't know

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Speaker 2: the answer to any of them, and by the time

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Speaker 2: I progressed the next time, I could answer maybe five

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Speaker 2: of them. And then after that, eventually I could I

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Speaker 2: could figure out how to answer most of the questions.

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Speaker 2: But it was an amazing opportunity because he would just

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Speaker 2: show me what I should be asking, what I should

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Speaker 2: be looking for, and ultimately I just learned how to

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Speaker 2: do that. Huh.

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Speaker 1: Really interesting. Then nineteen ninety six you launch green Light Capital.

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Speaker 2: What were you.

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Speaker 1: Twenty seven at the time. What gave you the confidence

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Speaker 1: to say, sure, I could raise some money and launch

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Speaker 1: a hedge fund and have my entire income dependent on

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Speaker 1: how well we do. Where did the gumption for that

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Speaker 1: come from?

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Speaker 2: It came up on very very short notice. You know.

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Speaker 2: I got to the end of nineteen ninety five and

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Speaker 2: I was a little bit disappointed in how the compensation

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Speaker 2: worked out, as was the fellow who was in the

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Speaker 2: office next to me. And we went out to lunch

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Speaker 2: that December one day and said, why don't we just

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Speaker 2: go launch our own thing? And in early January there

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Speaker 2: was a huge snowstorm and we were on the street

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Speaker 2: looking for office space.

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Speaker 1: And how did you find the process of raising money

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Speaker 1: for a hedge fund when you guys were a bunch

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Speaker 1: of young tucks barely a few years out of school.

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Speaker 2: I would describe it as nearly impossible.

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Speaker 1: Really, yeah, and yet you guys still managed to raise

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Speaker 1: enough to launch with a decent pile cap.

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Speaker 2: We didn't. We raised with with of outside money. We

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Speaker 2: raised about just about one million dollars.

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Speaker 1: So not a lot of money.

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Speaker 2: Not a lot of money.

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Speaker 1: How did you ramp up from there? That that seems

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Speaker 1: like it's tough to make a living trading a million dollars.

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Speaker 2: Well, the thing was, I didn't really view it as

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Speaker 2: all that risky because I'd had some savings. I'd had

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Speaker 2: you know four you know, small Wall Street bonuses. I

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Speaker 2: had very little living expenses. There was no chance I

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Speaker 2: give this work. Didn't work, I'd be on the street.

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Speaker 2: So I would just go get another job similar to

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Speaker 2: the one that I just left if I needed to.

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Speaker 2: So I just didn't see this as so risky, and

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Speaker 2: it didn't matter if I didn't make very much money.

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Speaker 2: I didn't expect to make any money right away. But

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Speaker 2: the thing was is we did get to meet a

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Speaker 2: lot of people, and as we began to tell our

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Speaker 2: story and day with zero, they're not going to in

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Speaker 2: bad but as one of the best things my original

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Speaker 2: partner said was in April when we hadn't raised as

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Speaker 2: much money as we thought. He said, we better get started,

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Speaker 2: and I said, why are we going to get started? Well,

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Speaker 2: you know, you're not going to have a three year

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Speaker 2: record until you've been going for three years, so you

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Speaker 2: may as well get going. And that kind of worked.

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Speaker 2: So as we got going, and then as the initial

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Speaker 2: results just turned out to be, you know, extremely fortunate

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Speaker 2: some of the people that we met with earlier that said, yeah,

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Speaker 2: you know, two young guys. I don't know, but now

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Speaker 2: they're putting up some results. And the results were following

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Speaker 2: from the thesis that we were telling them, here's our style,

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Speaker 2: here's how we implement it. We're going to buy these

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Speaker 2: five stocks. Then we bought those five stocks, and then

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Speaker 2: they went up, and now we made this money, and

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Speaker 2: here's the next five stocks that we're going to buy.

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Speaker 2: That explaining that process in communication to people built confidence,

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Speaker 2: and one by one they began to give us some capital.

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Speaker 1: So not that complicated. You went out and said here's

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Speaker 1: our strategy. You executed on the strategy, and when people

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Speaker 1: saw you were doing what you said, suddenly the capital

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Speaker 1: access became a little better. When was it clear, hey,

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Speaker 1: we're going to get through a billion dollars or more.

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Speaker 1: How long did that take?

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Speaker 2: Yeah, I don't know about a billion dollars. But at

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Speaker 2: the end of the first year we were at ten

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Speaker 2: and at the end of the second year we were

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Speaker 2: at one hundred. And that was our best year ever.

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Speaker 2: We made fifty seven percent now and we have a

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Speaker 2: dinner for our partners every year in January, and I

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Speaker 2: remember going to that partner dinner and in January after

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Speaker 2: our fifty seven percent year, and we announced we were

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Speaker 2: going to close the fund for the time being to

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Speaker 2: absorb what we were doing. And we had about I

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Speaker 2: don't know, we had about eight or ten tables and

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Speaker 2: I do a presentation PowerPoint in the rest of it,

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Speaker 2: and then you have questions and answers, and what we

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Speaker 2: had essentially was a bloodbath. The partners were raising their

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Speaker 2: hands and saying, you've raised too much money, How are

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Speaker 2: you going to keep these returns up? This is really terrible,

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Speaker 2: And I just couldn't believe, like this dinner didn't go well.

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Speaker 2: It was like one of the worst partner dinners that

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Speaker 2: we that we ever had. And my answer was is

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Speaker 2: we're probably never going to fifty seven percent again. And

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Speaker 2: it doesn't matter what the amount of the capitol was, like,

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Speaker 2: we just had an incredible it was just a perfect

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Speaker 2: year nineteen ninety seven.

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Speaker 1: Yeah, there was a big drop in the latter part

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Speaker 1: of the year and then the fast recovery. If you

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Speaker 1: were on the right side of that, you would have

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Speaker 1: done really well. And if you're in the right companies.

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Speaker 1: There were some companies in ninety seven that really screamed high.

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Speaker 1: So you close the fund, when do you reopen the

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Speaker 1: gates to take capital in again?

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Speaker 2: We reopened I don't know sometime then. Nineteen ninety eight

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Speaker 2: was a tough year. That was the long term capital year,

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Speaker 2: and by the end of the year some people were

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Speaker 2: beginning to redeem because we had six straight down months

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Speaker 2: from like March to September, and so we opened again

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Speaker 2: and we were able to replace the capital that wanted

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Speaker 2: to leave with new capital that was coming in. Then

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Speaker 2: we stayed open until about two thousand and then in

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Speaker 2: two thousand I don't know, we were maybe around six

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Speaker 2: or seven hundred million at that point, and we closed

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Speaker 2: the fund and then we left it closed until two

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Speaker 2: thousand nineteen. We had four openings where we would say

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Speaker 2: we're open, and we raised a capital around like in

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Speaker 2: a week or like in a month or something like this.

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Speaker 2: But other than those grounds, we were hard closed for

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Speaker 2: the better part of like nineteen years.

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Speaker 1: And there's nothing that makes a wealthy investor want in

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Speaker 1: more than a closed fund, right, isn't that the psychology there?

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Speaker 2: Absolutely? Right now, we're an open fund and it's really

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Speaker 2: hard to convince people to invest.

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Speaker 1: You want to get more capital, close announce your closing,

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Speaker 1: and they'll be knocking your doors there.

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Speaker 2: You know, Well, maybe we'll get to that point.

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Speaker 1: So before we talk a little more about the style

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Speaker 1: and the process at green Light, I have to mention

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Speaker 1: that you've done incredibly well as an amateur poker player.

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Speaker 1: You played in the World Series of Poker finishing is

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Speaker 1: at eighteenth and the Poker Main Event finishing third or

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Speaker 1: do I have that backwards?

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Speaker 2: Eighteenth in the main event, Yes.

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Speaker 1: And one of them was a four million in change,

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Speaker 1: the other was six hundred and sixty thousand dollars pot,

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Speaker 1: all of which donated to charity. Tell us a little

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Speaker 1: bit about your interest in poker.

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Speaker 2: Yeah, Poker's just a hobby. I play it for fun.

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Speaker 2: I enjoy the game, I enjoy the people. So you

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Speaker 2: get some banter and then I like sorting out the

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Speaker 2: card problems and just trying to figure out, like how

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Speaker 2: to manipulate my way through a tournament or just even

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Speaker 2: a game with friends.

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Speaker 1: Are you playing the cards or playing the person across

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Speaker 1: the table from you both both The obvious question what

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Speaker 1: are the parallels between poker and investing?

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Speaker 2: There are some There's there's you know, when solving a

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Speaker 2: poker hand, there's things that you know like what cards

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Speaker 2: can you see? And investing there's facts that you know

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Speaker 2: like what was the actual in the press release? What

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Speaker 2: was the financial statements? What do they actually say? Right?

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Speaker 2: And then there's things that you can infer. You know,

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Speaker 2: what do I infer in a poker hand for what's happened?

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Speaker 2: What your behavior been? How what do I think your

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Speaker 2: bet means or something like this. And then in an investment,

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Speaker 2: what can you infer you know, how did management's tone

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Speaker 2: sound when they were on the conference call, how do

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Speaker 2: they react to particular questions? Or if you're doing research

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Speaker 2: in the field, like what can you find in the

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Speaker 2: field that's not definitive, but what can you adduce from

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Speaker 2: individual facts that lead you to a conclusion? Right? And

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Speaker 2: then there's uncertainty, like what's going to happen next, Like

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Speaker 2: what is the next card? You don't know what the

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Speaker 2: next card is going to be in a poker hand,

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Speaker 2: and you don't know what the next you know, macro

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Speaker 2: event is going to be in an investment, or what's

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Speaker 2: the next actual development? And then you play those things

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Speaker 2: out to a result and you manage your risk along

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Speaker 2: the way.

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Speaker 1: Really interesting. Let's talk process. Long term value is a

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Speaker 1: big aspect of what green Light Capital does. Tell us

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Speaker 1: what your decision making process is, like where do the

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Speaker 1: ideas come from, how do you screen them? And how

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Speaker 1: do you figure out we're going to pass on this

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Speaker 1: one but invest in that one?

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Speaker 2: Right? Our idea finding is very idiosyncratic. We generally start

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Speaker 2: with a narrative. We start with a qualitative assessment. What

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Speaker 2: is it that we think is likely to be misunderstood

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Speaker 2: about something? And if we think something is misunderstood, then

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Speaker 2: perhaps it's misunder misvalued. And since we're looking for narratives

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Speaker 2: as opposed and then do valuation work second as opposed

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Speaker 2: to cheap we don't screen, so we're not looking for

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Speaker 2: quantitative measures like this thing is trading it half a

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Speaker 2: book value. Let's go figure out why it's a good

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Speaker 2: thing to buy or not. We find we start with, well,

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Speaker 2: what is it that we think that other people are

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Speaker 2: likely to be overlooking about the situation? And if they

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Speaker 2: are in fact overlooking something, and then we deem it

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Speaker 2: to be important, perhaps it's mispriced. And so we're looking

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Speaker 2: for those differences of opinions.

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Speaker 1: So how do you figure out what the variant perception is?

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Speaker 2: Meaning?

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Speaker 1: How do you suss out what's the consensus on a

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Speaker 1: particular co company? And then tease out here's where the

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Speaker 1: misunderstanding is.

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Speaker 2: Sure, I'll give an example. Why non I do that?

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Speaker 2: You know, about a decade ago, we bought this company.

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Speaker 2: You might have heard of it. It's called Apple. And

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Speaker 2: at the time, Apple was trading at about nine times earnings,

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Speaker 2: and yeah, that seems kind of crazy right now, But

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Speaker 2: at the time we bought Apple at about nine times earnings.

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Speaker 2: The narrative that was out there, the general belief was

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Speaker 2: is they had this thing called an iPhone, and eventually

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Speaker 2: Samsung would compete it away, and the Chinese would compete

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Speaker 2: it away. And people would look at the builds and say,

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Speaker 2: you know, how much does the memory cost and how

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Speaker 2: much does the processor cost? And hardware companies never make

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Speaker 2: any money for a long period of time, and Apple

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Speaker 2: would eventually go the way the Nokia flip phone went,

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Speaker 2: which was followed by the BlackBerry phone and so on

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Speaker 2: and so forth. So you didn't want to pay a

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Speaker 2: high multiple for Apple. And our assessment was was that

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Speaker 2: Apple was not just a hardware company, that was actually

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Speaker 2: a software company too, and also services company three and

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Speaker 2: so you really had some blend that was needed between

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Speaker 2: a hardware commodity margin and a software you know, high

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Speaker 2: sustainable margin and a service which is a recurring cash

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Speaker 2: flow stream. And as you bought one Apple product, then

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Speaker 2: you wanted other Apple products. And then once you had

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Speaker 2: two or three Apple products, you weren't going to switch

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Speaker 2: to another phone because it was, you know, fifteen percent cheaper,

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Speaker 2: because it was too much of a pain to like

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Speaker 2: pourt all of your stuff over. So we thought they

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Speaker 2: were just building a recurring business and it deserves sort

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Speaker 2: of like a consumer branded multiple. And I made many

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Speaker 2: speeches about this, and nobody cared about it at all,

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Speaker 2: and we held it for I don't know, for a

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Speaker 2: number of years, and eventually the earnings went up twenty

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Speaker 2: five or thirty percent a year and the multiple went

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Speaker 2: from nine to eighteen and we had a We had

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Speaker 2: a great result.

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Speaker 1: That's really that's really intriguing. So it's narrative. First figure

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Speaker 1: out where it differs from the crowd, and then look

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Speaker 1: at the data to make sure that that above thesis

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Speaker 1: is correct. So I asked this about the longside. How

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Speaker 1: does the process differ when you're looking on the short side.

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Speaker 2: It doesn't. In the research process, again, we're looking for

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Speaker 2: things that are misunderstood. What is it that we think

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Speaker 2: is true that other people are the consensus or whatnot

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Speaker 2: are overlooking or not putting weight on, or where they're

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Speaker 2: putting too much weight on something that is unimportant, And

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Speaker 2: then we decide whether we think that it's misvalued, and

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Speaker 2: that as a result, whether we think that the risk

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Speaker 2: reward of owning the stock is sufficiently unfavorable that it

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Speaker 2: makes sense to take a short position. Huh.

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Speaker 1: Really really interesting. So let's talk a little bit about

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Speaker 1: the workflow between you and the other analysts in the firm.

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Speaker 1: I'm assuming there are other managers as well. Tell us

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Speaker 1: a little bit about how that back and forth works.

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Speaker 2: First of all, I love how you said you and

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Speaker 2: the other analysts. Yes, because I view myself as an analyst. First,

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Speaker 2: So I am I think that's fantastic. I'm the portfolio manager,

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Speaker 2: and I'm actually the only portfolio manager, But I view

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Speaker 2: my I enjoyed my analyst's job is certainly as much

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Speaker 2: as I enjoy the best.

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Speaker 1: And let me interrupt and point out that when you've

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Speaker 1: given presentations on not just Apple, but Applied Capital and

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Speaker 1: Lehman Brothers and anybody else I've seen you discuss, you

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Speaker 1: don't sound like a fun manager. You sound like an

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Speaker 1: analyst who's saying, here's my review of the everything but

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Speaker 1: great quarter. Guys, that's what the presentation looks like.

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Speaker 2: Well, first of all, that's fantastic, But I do have

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Speaker 2: to acknowledge a lot of these presentations come with a

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Speaker 2: lot of help, like these are team efforts. I usually

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Speaker 2: have an analyst who is helping me. I have other

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Speaker 2: people at the firm helping me prepare these these presentations.

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Speaker 2: It's a it's a lot of work to do these things,

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Speaker 2: to do these things correctly, but I really do enjoy it,

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Speaker 2: and I love rolling at my sleeves and getting into

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Speaker 2: the heart of things.

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Speaker 1: So let's talk a little bit about the team at Greenlight,

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Speaker 1: So how many other analysts are there? How many people

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Speaker 1: are thinking about Hey, this is an interesting story, let's

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Speaker 1: dive into it.

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Speaker 2: I have six analysts, I have two traders who execute

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Speaker 2: the trades, and we have a field researcher, and that's

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Speaker 2: kind of the investment team.

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Speaker 1: Field researcher. Yes, just what it sounds. They're out there

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Speaker 1: kicking tires and.

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Speaker 2: Yes, and finding people to talk to. You know, an

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Speaker 2: analyst will say I need to find an expert about this,

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Speaker 2: and he'll go around LinkedIn or through his network or

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Speaker 2: whatever it is, or are some of these other services

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Speaker 2: and help connect analysts with who that they might need

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Speaker 2: to talk to and help bring them online. Or we'll

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Speaker 2: do proprietary surveys, or we'll do you know what. We

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Speaker 2: will travel around and look.

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Speaker 1: At things so you have a reputation as a value investor.

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Speaker 1: I'm not sure that really best describes the sort of

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Speaker 1: holistic approach that you guys bring to the table. But

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Speaker 1: I have to ask a question. You found green Light

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Speaker 1: in nineteen ninety six. Does it mean the same thing

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Speaker 1: today to be a value investor that meant twenty thirty

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Speaker 1: years ago.

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Speaker 2: I think things have changed a lot. I think the

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Speaker 2: idea that we had back then, which a value investor

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Speaker 2: to us means buying something for less than it's worth.

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Speaker 2: So we don't view growth as the opposite of value.

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Speaker 2: We view anti value as the opposite of value. Right,

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Speaker 2: Growth is in our view, a component of value. So

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Speaker 2: if something is growing fast, it's going to be more valuable.

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Speaker 2: So I don't really see that continuity the same way.

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Speaker 2: But what we've learned over time. You know, when I

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Speaker 2: started in nineteen ninety six, you know, the main thing

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Speaker 2: people would say when we would pitch our services was, well,

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Speaker 2: what do we need another hedge fund for? Right, there's

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Speaker 2: a million guys trying to do what you're doing. In

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Speaker 2: addition to the hedge funds, there were all these mutual funds,

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Speaker 2: and so there were lots and lots of people trying

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Speaker 2: to pay attention and find undervalued things for customers. And

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Speaker 2: that's changed a lot because the passive world has taken

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Speaker 2: over and the number of active managers is down a lot,

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Speaker 2: and the active long only managers are down a lot,

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Speaker 2: and they still have people paying attention to certain stocks,

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Speaker 2: but there's entire segments now, mostly in the smaller part

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Speaker 2: of the market, where there's literally nobody paying any attention.

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Speaker 2: Like these companies could announce almost anything other than the

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Speaker 2: sale of the company and nobody would notice. And so

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Speaker 2: we've had to adjust our thinking because our thinking before

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Speaker 2: used to be, if we buy this at this time's earnings,

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Speaker 2: and they're going to do twenty percent better than everybody thinks,

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Speaker 2: and the multiple rerates as a result of that, we're

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Speaker 2: going to do terrifically. And that assumes that we're going

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Speaker 2: to figure out what somebody else is going to buy

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Speaker 2: six months, a year, two years before they come to

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Speaker 2: that conclusion. But what if those people aren't in business anymore,

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Speaker 2: or to the extent they are in business, they don't

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Speaker 2: have any capital to employ into new ideas. As those

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Speaker 2: situations develop, they fire their staffs. There's way fewer people listening.

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Speaker 2: And the result is is if we buy these things,

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Speaker 2: we're not going to get the same kind of return

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Speaker 2: that we used to get. So what we have to

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Speaker 2: do now is be even more disciplined on price. So

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Speaker 2: we're not buying things at ten times or eleven times earnings.

439
00:22:14,840 --> 00:22:17,360
Speaker 2: We're buying things at four times earnings, five times earnings,

440
00:22:17,560 --> 00:22:20,439
Speaker 2: and we're buying them where they have huge buybacks and

441
00:22:20,520 --> 00:22:23,520
Speaker 2: we can't count on other long only investors to buy

442
00:22:23,600 --> 00:22:25,520
Speaker 2: our things. After us, We're going to have to get

443
00:22:25,520 --> 00:22:29,200
Speaker 2: paid by the company. So we need fifteen twenty percent

444
00:22:29,280 --> 00:22:32,359
Speaker 2: cash flow type of type of numbers, and if that

445
00:22:32,400 --> 00:22:34,600
Speaker 2: cash is then being returned to us, we're going to

446
00:22:34,640 --> 00:22:35,800
Speaker 2: do pretty well over time.

447
00:22:36,119 --> 00:22:41,000
Speaker 1: So I'm intrigued by that description, but buried within it

448
00:22:41,040 --> 00:22:46,480
Speaker 1: is essentially the rise of passive has damaged either price

449
00:22:46,600 --> 00:22:52,120
Speaker 1: discovery or the reaction to price discovery on the sell side.

450
00:22:52,400 --> 00:22:53,280
Speaker 1: Is that a fair statement?

451
00:22:53,359 --> 00:22:57,080
Speaker 2: Oh, no question. I view the markets as fundamentally broken, like.

452
00:22:57,040 --> 00:22:58,520
Speaker 1: The fundamentally broken.

453
00:22:58,560 --> 00:23:01,879
Speaker 2: That's a big statement. Yeah, there's there's value is just

454
00:23:01,880 --> 00:23:05,480
Speaker 2: not a consideration for most investment money that's out there.

455
00:23:05,640 --> 00:23:07,960
Speaker 2: There's all the machine money and algorithmic money, which is

456
00:23:08,040 --> 00:23:10,159
Speaker 2: which doesn't have an opinion about value. It has an

457
00:23:10,200 --> 00:23:13,080
Speaker 2: opinion about price. What is the price going to be

458
00:23:13,080 --> 00:23:15,080
Speaker 2: in fifteen minutes and I want to be ahead of

459
00:23:15,080 --> 00:23:17,359
Speaker 2: that or zero day options? What is the price of

460
00:23:17,400 --> 00:23:20,199
Speaker 2: the S and P or whatever stock you're doing for today,

461
00:23:20,240 --> 00:23:22,320
Speaker 2: what's it going to be in the next half hour,

462
00:23:22,440 --> 00:23:25,560
Speaker 2: two hours, three hours. Those are opinions about price. Those

463
00:23:25,560 --> 00:23:29,840
Speaker 2: are not opinions about value. Passive investors have no opinion

464
00:23:30,000 --> 00:23:33,560
Speaker 2: about value. They're going to assume everybody else has done

465
00:23:33,560 --> 00:23:36,680
Speaker 2: the work right. And then you have all of what's

466
00:23:36,800 --> 00:23:39,320
Speaker 2: left of active management, and so much of it the

467
00:23:39,400 --> 00:23:43,159
Speaker 2: value industry has gotten completely annihilated. So if you have

468
00:23:43,200 --> 00:23:48,320
Speaker 2: a situation where money is moved from active to passive.

469
00:23:49,080 --> 00:23:52,840
Speaker 2: When that happens, the value managers get redeemed, the value

470
00:23:52,840 --> 00:23:55,639
Speaker 2: stocks go down more. It causes more redemptions of the

471
00:23:55,720 --> 00:23:59,000
Speaker 2: value managers. It caused those stocks to go down more, right,

472
00:23:59,040 --> 00:24:00,679
Speaker 2: and all of a sudden, the people or performing are

473
00:24:00,680 --> 00:24:03,640
Speaker 2: the people who own the overvalued things that are getting

474
00:24:03,680 --> 00:24:05,919
Speaker 2: the flows from the indexes that are getting the re

475
00:24:06,320 --> 00:24:07,760
Speaker 2: you take the money out of the value put in

476
00:24:07,800 --> 00:24:11,080
Speaker 2: the index. They're selling cheap stuff and they're buying whatever

477
00:24:11,119 --> 00:24:15,120
Speaker 2: the highest multiple most overvalued things are in disproportionate weight.

478
00:24:15,400 --> 00:24:18,359
Speaker 2: So then the active managers who participate in that area

479
00:24:18,400 --> 00:24:21,400
Speaker 2: of the market get flows and they buy even more

480
00:24:21,440 --> 00:24:25,080
Speaker 2: of that stuff. So what happens is instead of stocks

481
00:24:25,160 --> 00:24:30,240
Speaker 2: reverting toward value, they actually diverge from value. And that's

482
00:24:30,280 --> 00:24:32,320
Speaker 2: a change in the market, and it's a structure that

483
00:24:32,440 --> 00:24:34,760
Speaker 2: means that almost the best way to get your stock

484
00:24:34,840 --> 00:24:36,800
Speaker 2: to go up is to start by being overvalued.

485
00:24:37,119 --> 00:24:41,679
Speaker 1: Huh really interesting. I know value has had a rough

486
00:24:41,840 --> 00:24:44,080
Speaker 1: I don't know since the financial crisis. Let's go it

487
00:24:44,160 --> 00:24:48,520
Speaker 1: fifteen years. That's the most cogent explanation I've heard for

488
00:24:49,000 --> 00:24:53,640
Speaker 1: here's why value hasn't mean reverted since that period. And

489
00:24:53,880 --> 00:24:57,240
Speaker 1: it's the first time I've heard anyone say you can

490
00:24:57,320 --> 00:25:01,240
Speaker 1: blame passive in the flows to the biggest company as

491
00:25:01,320 --> 00:25:05,359
Speaker 1: a reason for that taking place. So let's dive into

492
00:25:05,400 --> 00:25:09,159
Speaker 1: that a little bit. You go through the twenty tens,

493
00:25:09,359 --> 00:25:12,359
Speaker 1: value is out of favor. I think your explanation makes sense.

494
00:25:12,920 --> 00:25:15,919
Speaker 1: What was it like on you when, Hey, I have

495
00:25:16,040 --> 00:25:19,320
Speaker 1: this philosophy that's worked for one hundred years, it's not

496
00:25:19,400 --> 00:25:21,600
Speaker 1: working anymore. How do you manage around that?

497
00:25:22,040 --> 00:25:23,760
Speaker 2: It took us a little time to figure out what

498
00:25:23,800 --> 00:25:27,800
Speaker 2: the dynamic was really. From twenty ten to twenty fourteen,

499
00:25:27,880 --> 00:25:30,359
Speaker 2: we were fine, but then things got a little tougher

500
00:25:30,359 --> 00:25:33,720
Speaker 2: in twenty fifteen and we ran through five years where

501
00:25:33,760 --> 00:25:37,200
Speaker 2: we had two awful years and three mediocre years, and

502
00:25:37,760 --> 00:25:40,520
Speaker 2: it was very tough. You come in every day, you

503
00:25:40,600 --> 00:25:43,760
Speaker 2: check your work. You see your stocks are undervalued. Whatever

504
00:25:43,840 --> 00:25:46,679
Speaker 2: you think your shorts are overvalued. You see the news,

505
00:25:46,720 --> 00:25:50,440
Speaker 2: the news actually is positive. Your lungs announced great results,

506
00:25:50,520 --> 00:25:54,000
Speaker 2: your shorts announced mediocre results. You feel like you should

507
00:25:54,000 --> 00:25:56,800
Speaker 2: be making money. On the day they announced the earnings,

508
00:25:56,800 --> 00:25:59,159
Speaker 2: you actually do make money, and then you spend the

509
00:25:59,200 --> 00:26:02,080
Speaker 2: next ninety days until the next quarterly report losing money

510
00:26:02,119 --> 00:26:03,920
Speaker 2: again as they kind of go up for a day

511
00:26:03,920 --> 00:26:05,639
Speaker 2: and then roll kind of back down the hill to

512
00:26:06,040 --> 00:26:09,080
Speaker 2: a lower level. And it was just super frustrating, and

513
00:26:09,119 --> 00:26:11,800
Speaker 2: we didn't really understand what was happening. But what was

514
00:26:11,800 --> 00:26:13,880
Speaker 2: happening was is what I just explained before. There were

515
00:26:13,920 --> 00:26:18,359
Speaker 2: just massive redemptions from people's style like ours. And I

516
00:26:18,400 --> 00:26:20,920
Speaker 2: was always worried about co investors, but co investors usually

517
00:26:21,000 --> 00:26:24,000
Speaker 2: meant like hedge funds, not like these long only mutual funds,

518
00:26:24,119 --> 00:26:27,840
Speaker 2: And that's where the real redemptions were. Hedge funds are

519
00:26:27,920 --> 00:26:31,240
Speaker 2: tiny piece of the market. But I mean there were many,

520
00:26:31,280 --> 00:26:33,480
Speaker 2: many years where all anybody cared about what's fidelity going

521
00:26:33,520 --> 00:26:36,040
Speaker 2: to do, what's Capital group going to do, what's you know,

522
00:26:36,720 --> 00:26:39,760
Speaker 2: a tiro price going to do. They were getting flows

523
00:26:39,800 --> 00:26:43,239
Speaker 2: of retirement money on a continued basis, and as that

524
00:26:43,359 --> 00:26:47,240
Speaker 2: money got redeemed or switched to index right then they

525
00:26:47,320 --> 00:26:49,479
Speaker 2: had to be selling the things that we were owning,

526
00:26:49,840 --> 00:26:52,160
Speaker 2: and then the index were buying things that we were

527
00:26:52,200 --> 00:26:55,119
Speaker 2: probably short, the overvalued things. And we had just a

528
00:26:55,200 --> 00:26:56,720
Speaker 2: rough go until we figured this out.

529
00:26:57,040 --> 00:27:01,080
Speaker 1: And to put some numbers on that industry is about

530
00:27:01,160 --> 00:27:04,240
Speaker 1: to and have three trillion dollars. Mutual funds are a

531
00:27:04,320 --> 00:27:07,080
Speaker 1: multiple of that. They're ten x or more. Throw an

532
00:27:07,119 --> 00:27:12,480
Speaker 1: ETFs and passive and it's even bigger. What was the

533
00:27:12,520 --> 00:27:16,240
Speaker 1: moment that the aha moment that oh, this is what's

534
00:27:16,280 --> 00:27:17,960
Speaker 1: going on? How did you figure this out?

535
00:27:18,680 --> 00:27:21,800
Speaker 2: You know? I sat down I think it was sometime

536
00:27:21,880 --> 00:27:26,639
Speaker 2: in early two thousand and nineteen with Michael Green, and

537
00:27:26,680 --> 00:27:29,080
Speaker 2: he explained what was going on to me better with

538
00:27:29,119 --> 00:27:32,560
Speaker 2: the index funds, and then I was able to take

539
00:27:32,560 --> 00:27:35,680
Speaker 2: what he was singing along with a couple of other

540
00:27:35,760 --> 00:27:38,800
Speaker 2: insights that I had relating to how the market structure was,

541
00:27:39,040 --> 00:27:41,520
Speaker 2: and I kind of developed this understanding of what was

542
00:27:41,560 --> 00:27:41,960
Speaker 2: going on.

543
00:27:42,119 --> 00:27:46,760
Speaker 1: Huh, really intriguing. I have to assume once you get

544
00:27:46,800 --> 00:27:51,400
Speaker 1: through that difficult stretch and sort of reframe your perspective

545
00:27:51,440 --> 00:27:54,399
Speaker 1: and understand what's going on, that has to make you

546
00:27:54,440 --> 00:27:57,239
Speaker 1: a better investor going forward. How did it change how

547
00:27:57,280 --> 00:27:59,200
Speaker 1: you approached what you were doing well.

548
00:27:59,240 --> 00:28:01,639
Speaker 2: We made two signals it can changes. First one, I

549
00:28:01,720 --> 00:28:03,919
Speaker 2: kind of explained before, we're not going to buy something

550
00:28:03,960 --> 00:28:06,280
Speaker 2: at ten times earnings thinking the earnings are going to

551
00:28:06,320 --> 00:28:08,480
Speaker 2: be fifteen percent better and then think we're going to

552
00:28:08,480 --> 00:28:10,439
Speaker 2: get a thirteen multiple at the end of that and

553
00:28:10,480 --> 00:28:12,600
Speaker 2: have made fifty to fifty percent over a year and

554
00:28:12,640 --> 00:28:15,080
Speaker 2: a half. Like that was our old way of doing it.

555
00:28:15,320 --> 00:28:16,520
Speaker 2: Because that isn't going to work.

556
00:28:16,600 --> 00:28:19,040
Speaker 1: Not enough juice and that squeeze to make it worthwhile.

557
00:28:19,080 --> 00:28:21,240
Speaker 2: Well, no, there's just nobody who's going to pay attention

558
00:28:21,320 --> 00:28:24,320
Speaker 2: to notice that the earnings were fifteen percent better. So

559
00:28:24,560 --> 00:28:28,560
Speaker 2: if nobody notices, nobody's there, nobody's going to buy. Nobody's

560
00:28:28,600 --> 00:28:30,840
Speaker 2: going to care. As Peter Coller used to say, a

561
00:28:30,840 --> 00:28:34,679
Speaker 2: bargain that remains a bargain is no bargain, right. And

562
00:28:34,760 --> 00:28:38,440
Speaker 2: so now we can take that to we can realize, well,

563
00:28:38,480 --> 00:28:41,840
Speaker 2: what has been created from this, which is what's been

564
00:28:41,880 --> 00:28:45,480
Speaker 2: created is is is there's complete apathy in a certain

565
00:28:45,520 --> 00:28:48,120
Speaker 2: segment of the market and you no longer have to

566
00:28:48,120 --> 00:28:50,680
Speaker 2: pay ten times earnings for that type of a situation.

567
00:28:50,920 --> 00:28:53,000
Speaker 2: I mean that there are ones at ten times earnings

568
00:28:53,040 --> 00:28:55,000
Speaker 2: and we pass on those But we can find that

569
00:28:55,040 --> 00:28:58,160
Speaker 2: same type of situation right now at four times earnings

570
00:28:58,320 --> 00:29:00,440
Speaker 2: and at five times earnings. And if you pay four

571
00:29:00,560 --> 00:29:02,920
Speaker 2: or five times earnings and the balance sheet is not

572
00:29:03,000 --> 00:29:05,640
Speaker 2: levered and they're able to return the cash and buy

573
00:29:05,680 --> 00:29:08,880
Speaker 2: back ten, fifteen to twenty percent of the stock, in

574
00:29:08,920 --> 00:29:10,560
Speaker 2: four or five years, they're going to run out of

575
00:29:10,600 --> 00:29:12,680
Speaker 2: stock or the stock is going to go up. So

576
00:29:12,800 --> 00:29:16,200
Speaker 2: you're literally counting on the companies to make that happen

577
00:29:16,240 --> 00:29:16,520
Speaker 2: for you.

578
00:29:17,000 --> 00:29:19,720
Speaker 1: So I want to think about this in terms of

579
00:29:19,880 --> 00:29:24,600
Speaker 1: the tradeable US equities out there. Willshure five thousand is

580
00:29:25,360 --> 00:29:28,560
Speaker 1: kind of about thirty four hundred names, not quite five thousand.

581
00:29:29,400 --> 00:29:35,080
Speaker 1: It sounds like you're looking at a huge percentage of

582
00:29:35,120 --> 00:29:39,880
Speaker 1: those names and pretty much funding their uninvestable I don't

583
00:29:39,920 --> 00:29:43,160
Speaker 1: know if it's the bottom thousand or fifteen hundred, but

584
00:29:43,720 --> 00:29:49,440
Speaker 1: they're just too mediocre and underfollowed for it to be

585
00:29:49,480 --> 00:29:50,240
Speaker 1: interesting to you.

586
00:29:51,160 --> 00:29:56,120
Speaker 2: Look, we have always had generally between thirty and sixty

587
00:29:56,160 --> 00:29:58,440
Speaker 2: percent of our capital and our top five names m H.

588
00:29:59,120 --> 00:30:01,360
Speaker 2: And we have maybe fifteen or twenty names that make

589
00:30:01,400 --> 00:30:04,080
Speaker 2: any difference at all in the long part of our portfolio.

590
00:30:04,480 --> 00:30:07,320
Speaker 2: So we don't need five hundred companies to invest in.

591
00:30:07,480 --> 00:30:08,720
Speaker 2: We need fifteen.

592
00:30:10,040 --> 00:30:14,600
Speaker 1: And you're today. So since that change about five years ago,

593
00:30:15,120 --> 00:30:18,840
Speaker 1: the numbers of the fund have improved dramatically. You're outperforming,

594
00:30:19,080 --> 00:30:23,120
Speaker 1: you're putting up good numbers. That's on a concentrated portfolio

595
00:30:23,120 --> 00:30:27,520
Speaker 1: when it's ten, fifteen, twenty stocks are the drivers? Yes,

596
00:30:27,880 --> 00:30:33,680
Speaker 1: huh really interesting. Short sellers seem to be an endangered species.

597
00:30:34,240 --> 00:30:39,080
Speaker 1: Value investors are thrown in the towel. What allows you

598
00:30:39,120 --> 00:30:40,680
Speaker 1: to stick to your disciplines.

599
00:30:41,640 --> 00:30:44,560
Speaker 2: Well, it's actually much more exciting now. Like I mentioned before,

600
00:30:44,600 --> 00:30:47,160
Speaker 2: in nineteen ninety six, there was just tons of competition,

601
00:30:47,720 --> 00:30:50,240
Speaker 2: and right now I just feel like there's way fewer

602
00:30:50,280 --> 00:30:53,840
Speaker 2: people competing with us for ideas trying to do what

603
00:30:53,920 --> 00:30:57,120
Speaker 2: we're doing, and so I just think the opportunity is

604
00:30:57,640 --> 00:31:00,800
Speaker 2: actually probably is good or better than than it's ever been,

605
00:31:00,920 --> 00:31:03,400
Speaker 2: and that energizes me every day to come in and

606
00:31:04,160 --> 00:31:05,240
Speaker 2: try to find ideas.

607
00:31:05,520 --> 00:31:10,600
Speaker 1: So Professor Andrew Lowe over at MIT was discussing the

608
00:31:10,640 --> 00:31:14,400
Speaker 1: issue of price discovery and the rise of passive and

609
00:31:14,480 --> 00:31:18,120
Speaker 1: his theory plays very much into what you're saying, which is,

610
00:31:18,760 --> 00:31:22,800
Speaker 1: as passive attracts more and more assets and people exit

611
00:31:22,920 --> 00:31:27,520
Speaker 1: things like shorting and value. It creates inefficiencies and suddenly

612
00:31:28,040 --> 00:31:32,480
Speaker 1: where there wasn't a whole lot of opportunity pre shift,

613
00:31:32,920 --> 00:31:35,920
Speaker 1: now those opportunities seem to be more and more available.

614
00:31:36,600 --> 00:31:38,880
Speaker 1: Is that a fair I know he's an academic, but

615
00:31:39,360 --> 00:31:41,640
Speaker 1: is that a fair description of what you see going on? Yeah?

616
00:31:41,720 --> 00:31:46,840
Speaker 2: No, it really is. The competitors have essentially left the field.

617
00:31:47,320 --> 00:31:49,640
Speaker 2: And it means, like I said, things that we used

618
00:31:49,680 --> 00:31:52,080
Speaker 2: to have to pay ten times earnings for we can

619
00:31:52,280 --> 00:31:55,720
Speaker 2: pay five times earnings for. And you think that the

620
00:31:55,760 --> 00:32:00,360
Speaker 2: market is very expensive, but our names are not expensive companies.

621
00:32:00,600 --> 00:32:03,040
Speaker 2: And these aren't terrible companies. They're just companies that are

622
00:32:03,280 --> 00:32:06,040
Speaker 2: too small and nobody cares, and you know they're not

623
00:32:06,080 --> 00:32:08,120
Speaker 2: in the sexiest of places.

624
00:32:08,960 --> 00:32:14,400
Speaker 1: So your strategies include long, short, and macro as well

625
00:32:14,440 --> 00:32:17,320
Speaker 1: as hedged. Can you explain what you focus on in

626
00:32:17,360 --> 00:32:20,080
Speaker 1: the macro portion of the funds or is that something

627
00:32:20,120 --> 00:32:21,320
Speaker 1: that just colors everything?

628
00:32:21,640 --> 00:32:24,200
Speaker 2: No? No, No, Macro is a it's a separate category.

629
00:32:24,240 --> 00:32:26,920
Speaker 2: And what we do and I'm the macro manager And

630
00:32:26,960 --> 00:32:30,440
Speaker 2: what I've learned over time is if you have an idea,

631
00:32:31,080 --> 00:32:34,719
Speaker 2: find the most direct way to express it. So if

632
00:32:34,760 --> 00:32:37,720
Speaker 2: you want to be bullish about oil prices. Don't buy

633
00:32:37,720 --> 00:32:41,120
Speaker 2: ten oil stocks. Buy oil. If you have an opinion

634
00:32:41,160 --> 00:32:43,920
Speaker 2: about interest rates, don't try to buy a bunch of banks,

635
00:32:45,040 --> 00:32:47,800
Speaker 2: buy sofa futures or sell sofa futures, or buy ten

636
00:32:47,880 --> 00:32:49,760
Speaker 2: year futures, or whatever it is that you think you

637
00:32:49,840 --> 00:32:52,200
Speaker 2: want to do. And I find that if you can

638
00:32:52,400 --> 00:32:57,240
Speaker 2: make your insight translate most directly into the investment, then

639
00:32:57,400 --> 00:32:59,400
Speaker 2: at least if you're right or you're wrong, it's going

640
00:32:59,440 --> 00:33:01,520
Speaker 2: to be for the reasons that you thought. And it's

641
00:33:01,560 --> 00:33:03,400
Speaker 2: not going to be because you bought some oil company

642
00:33:03,400 --> 00:33:06,560
Speaker 2: it turned out that they spilled the oil or the

643
00:33:06,600 --> 00:33:09,040
Speaker 2: well turned dry or something like that. You don't really

644
00:33:09,080 --> 00:33:11,400
Speaker 2: have a lot of insight about that. If your view

645
00:33:11,520 --> 00:33:13,640
Speaker 2: is is there's a great oil prospect and look at

646
00:33:13,640 --> 00:33:15,800
Speaker 2: this well it's going to be amazing, well, then go

647
00:33:15,800 --> 00:33:19,360
Speaker 2: ahead buy that oil company because that's what your insight is.

648
00:33:20,000 --> 00:33:22,040
Speaker 1: That sounds very different than the way a lot of

649
00:33:22,160 --> 00:33:26,320
Speaker 1: macro oriented funds invest. They have a big, top down

650
00:33:26,360 --> 00:33:29,920
Speaker 1: picture and they kind of spread the bets around. Hey,

651
00:33:30,080 --> 00:33:32,200
Speaker 1: these are the sectors, and these are the areas we

652
00:33:32,200 --> 00:33:35,040
Speaker 1: think are going to be most affected. If our macro

653
00:33:35,160 --> 00:33:39,720
Speaker 1: col is right, you're suggesting much more focus, much more

654
00:33:40,120 --> 00:33:43,240
Speaker 1: precise than that sort of thirty thousand foot view.

655
00:33:43,800 --> 00:33:45,680
Speaker 2: Well, I just think like a few years ago, we

656
00:33:45,800 --> 00:33:47,120
Speaker 2: came to the view that there was going to be

657
00:33:47,120 --> 00:33:49,320
Speaker 2: a bunch of inflation, and we could have bought a

658
00:33:49,320 --> 00:33:51,920
Speaker 2: bunch of commodities, but the best thing to do or

659
00:33:51,920 --> 00:33:55,000
Speaker 2: commodity companies or companies that would benefit from inflation, but

660
00:33:55,040 --> 00:33:56,960
Speaker 2: the best thing to do was there's a derivative called

661
00:33:57,000 --> 00:33:59,840
Speaker 2: an inflation swap where you actually got to bet on

662
00:34:00,040 --> 00:34:03,600
Speaker 2: what will the reported inflation be versus the market expectations,

663
00:34:03,920 --> 00:34:06,120
Speaker 2: and it's a derivative, and they pay you the difference.

664
00:34:06,160 --> 00:34:08,520
Speaker 2: And so if you think, if the market says inflation

665
00:34:08,600 --> 00:34:10,319
Speaker 2: is going to be two percent over the next year,

666
00:34:10,640 --> 00:34:12,840
Speaker 2: and you bet on the over effectively, and then it

667
00:34:12,880 --> 00:34:15,439
Speaker 2: turns out that it's six percent, well you make four

668
00:34:15,480 --> 00:34:18,080
Speaker 2: points times you're notional. And it doesn't matter what anybody's

669
00:34:18,080 --> 00:34:21,359
Speaker 2: opinion is, because the CPI is the CPI and that's

670
00:34:21,360 --> 00:34:23,279
Speaker 2: what defines the bet. So you don't even have to

671
00:34:23,280 --> 00:34:25,279
Speaker 2: figure out what market sentiment is going to be or

672
00:34:25,280 --> 00:34:27,799
Speaker 2: what other investors are going to do. It just realizes

673
00:34:27,840 --> 00:34:30,080
Speaker 2: all the way through. And so I always find if

674
00:34:30,120 --> 00:34:32,880
Speaker 2: we can find a direct way to express an opinion.

675
00:34:33,280 --> 00:34:34,879
Speaker 2: That's better than an indirect way.

676
00:34:35,000 --> 00:34:39,680
Speaker 1: Huh. Very interesting. Let's talk about shorting, which is really

677
00:34:39,760 --> 00:34:44,560
Speaker 1: what made your name way back when it seems especially

678
00:34:44,680 --> 00:34:47,319
Speaker 1: challenging these days, when the markets have been going up

679
00:34:47,680 --> 00:34:50,120
Speaker 1: as much as they have last year and twenty and

680
00:34:50,160 --> 00:34:54,319
Speaker 1: twenty one short funds are disappearing. How do you think

681
00:34:54,360 --> 00:34:57,799
Speaker 1: about shorting today and how different is it now than

682
00:34:58,360 --> 00:35:00,920
Speaker 1: the days of Allied Capital and and Lehman Brothers.

683
00:35:01,560 --> 00:35:05,840
Speaker 2: Yeah, shorting is very difficult. You know, a couple of

684
00:35:05,920 --> 00:35:07,719
Speaker 2: years ago we had a great year shorting. Last year

685
00:35:07,760 --> 00:35:12,400
Speaker 2: was not a good year shorting for us. You know,

686
00:35:12,480 --> 00:35:17,799
Speaker 2: a lot of the absence of market participants figuring out

687
00:35:17,840 --> 00:35:22,880
Speaker 2: what things are worth translates into more difficulty in shorting

688
00:35:23,200 --> 00:35:26,160
Speaker 2: because value it's just not a consideration for so many

689
00:35:26,200 --> 00:35:28,960
Speaker 2: investment strategies or so many investors. I mean, like all

690
00:35:29,000 --> 00:35:31,360
Speaker 2: the retail investors, not all, but many of them. They

691
00:35:31,440 --> 00:35:34,600
Speaker 2: couldn't figure out value even if they wanted to. Many

692
00:35:34,640 --> 00:35:38,640
Speaker 2: of the professional investors have completely lost their view of

693
00:35:38,680 --> 00:35:41,239
Speaker 2: what value is. Again, they have opinions about price, but

694
00:35:41,280 --> 00:35:44,520
Speaker 2: they don't have opinions about value. And the other thing

695
00:35:44,640 --> 00:35:47,920
Speaker 2: is is the world has become very cynical, and so

696
00:35:48,600 --> 00:35:51,960
Speaker 2: you know, if a company is like committing fraud, the

697
00:35:52,000 --> 00:35:54,399
Speaker 2: market has been conditioned well. When they announced the fraud,

698
00:35:54,480 --> 00:35:56,640
Speaker 2: that's a great time to buy the stock. And that

699
00:35:56,880 --> 00:35:59,399
Speaker 2: used to be like the opposite of that. And then

700
00:35:59,440 --> 00:36:04,480
Speaker 2: you add in that the regulatory infrastructure is essentially gone,

701
00:36:04,880 --> 00:36:05,719
Speaker 2: like they're.

702
00:36:05,840 --> 00:36:09,200
Speaker 1: Gone regulatory not not weekends, just gone exist.

703
00:36:09,239 --> 00:36:15,080
Speaker 2: There is no SEC policing corporate behavior, you know, they're not. Look,

704
00:36:15,120 --> 00:36:17,799
Speaker 2: they used to do real things to companies. They used

705
00:36:17,800 --> 00:36:19,879
Speaker 2: to go after the management and tell them they can't

706
00:36:19,920 --> 00:36:23,840
Speaker 2: be directors or officers. They used to, you know, and

707
00:36:24,440 --> 00:36:26,279
Speaker 2: for for a while they would, you know, they would

708
00:36:26,400 --> 00:36:29,600
Speaker 2: they would find some companies. Occasionally they would make people

709
00:36:29,600 --> 00:36:32,240
Speaker 2: even like, oh, well we'll just improve the disclosure, restate

710
00:36:32,280 --> 00:36:35,239
Speaker 2: the financials, stuff like that. Like these things don't don't

711
00:36:35,239 --> 00:36:37,160
Speaker 2: happen anymore, like they've did.

712
00:36:37,239 --> 00:36:40,080
Speaker 1: They yell at Elon Musk for smoking weed on Joe

713
00:36:40,200 --> 00:36:41,080
Speaker 1: Rogan's show.

714
00:36:40,920 --> 00:36:42,839
Speaker 2: Or I don't know, I don't think that. I don't

715
00:36:42,840 --> 00:36:44,800
Speaker 2: think it was the SEC with that. What happened with

716
00:36:44,840 --> 00:36:46,799
Speaker 2: the SEC was last year there was a story that

717
00:36:46,800 --> 00:36:49,279
Speaker 2: there was a whistleblower who sent a letter to the

718
00:36:49,320 --> 00:36:52,960
Speaker 2: SEC said there's massive accounting fraud at Tesla, and I

719
00:36:53,000 --> 00:36:55,880
Speaker 2: have twenty thousand documents I'd love to show you. And

720
00:36:55,920 --> 00:36:58,880
Speaker 2: the SEC didn't even bother to follow up with the whistleblower. Wow.

721
00:36:59,160 --> 00:37:00,520
Speaker 2: So that that's kind of where we're at.

722
00:37:01,280 --> 00:37:08,480
Speaker 1: Wow, that's a huge, huge statement. The regulators are not

723
00:37:08,920 --> 00:37:13,480
Speaker 1: doing their job. Do you think there's appreciably more fraud

724
00:37:14,080 --> 00:37:17,040
Speaker 1: in corporate statements today than what we saw twenty years ago?

725
00:37:17,120 --> 00:37:18,400
Speaker 2: Right? Well, let me just say it's not like the

726
00:37:18,440 --> 00:37:22,520
Speaker 2: SEC is completely gone. Like, if you have some inside information,

727
00:37:22,640 --> 00:37:24,319
Speaker 2: you tip off your brother in law and he makes

728
00:37:24,320 --> 00:37:26,799
Speaker 2: fifty thousand dollars, they're going to find that and come

729
00:37:26,840 --> 00:37:30,839
Speaker 2: down a ton of bricks on that. What all kinds

730
00:37:30,880 --> 00:37:32,879
Speaker 2: of regulations they want to deal with, like the hedge

731
00:37:32,880 --> 00:37:35,720
Speaker 2: fund industry and the rest of it. They're doing stuff

732
00:37:35,719 --> 00:37:38,480
Speaker 2: in crypto and things like this, But in terms of

733
00:37:38,520 --> 00:37:43,520
Speaker 2: their basic policing of financial statements, financial disclosures, corporate behavior,

734
00:37:43,880 --> 00:37:47,040
Speaker 2: that's where the SEC has They've essentially stopped they're what

735
00:37:47,040 --> 00:37:51,200
Speaker 2: they're doing there unless the company completely goes to bankruptcy,

736
00:37:51,600 --> 00:37:55,759
Speaker 2: and once the bankruptcy has happened, possibly they will look

737
00:37:55,840 --> 00:37:56,160
Speaker 2: at it.

738
00:37:56,280 --> 00:37:58,600
Speaker 1: That's a little little too late to help out the

739
00:37:58,640 --> 00:38:00,000
Speaker 1: investors involved.

740
00:38:00,120 --> 00:38:01,959
Speaker 2: I don't think they view that as their role because

741
00:38:02,000 --> 00:38:04,800
Speaker 2: they're The concern is is if they come in and

742
00:38:05,400 --> 00:38:08,319
Speaker 2: do something to you know, before the money has been lost,

743
00:38:08,560 --> 00:38:10,440
Speaker 2: that might make the stock go down a few percent

744
00:38:10,480 --> 00:38:13,640
Speaker 2: that day, and then they'll be blamed because then they'll

745
00:38:13,640 --> 00:38:16,759
Speaker 2: have helped cause investors to have lost money, and they

746
00:38:16,760 --> 00:38:18,640
Speaker 2: don't want that responsibility.

747
00:38:18,440 --> 00:38:21,719
Speaker 1: So let's talk about a little more about those financial statements.

748
00:38:21,960 --> 00:38:26,240
Speaker 1: There are four large accounting firms that do the vast

749
00:38:26,280 --> 00:38:31,600
Speaker 1: majority of the orderling for most of the biggest companies

750
00:38:31,600 --> 00:38:35,759
Speaker 1: in the US, and they're hired and paid by those companies.

751
00:38:36,719 --> 00:38:39,040
Speaker 1: I've always wondered that seems to be a little bit

752
00:38:39,040 --> 00:38:42,400
Speaker 1: of an incestuous relationship. Kind of reminds me back on

753
00:38:42,480 --> 00:38:45,719
Speaker 1: the rating companies SMP and Moody's being paid by the

754
00:38:45,760 --> 00:38:51,800
Speaker 1: bonds underwriters, which wasn't how it always was. It sounds

755
00:38:51,880 --> 00:38:57,320
Speaker 1: like you're implying that the entire system for identifying, policing,

756
00:38:57,360 --> 00:39:02,600
Speaker 1: and punishing fraud before a company runs into trouble is

757
00:39:03,480 --> 00:39:04,040
Speaker 1: not working.

758
00:39:04,680 --> 00:39:08,479
Speaker 2: Look, most people in business who are running companies try

759
00:39:08,520 --> 00:39:12,320
Speaker 2: to conduct their business basically honestly, so they're they're they're

760
00:39:12,360 --> 00:39:15,400
Speaker 2: selling their product, they're developing their product, they're paying their people,

761
00:39:15,800 --> 00:39:19,799
Speaker 2: they're they're recording their books. The auditors come in, they're

762
00:39:19,800 --> 00:39:22,640
Speaker 2: trying to show them the right results. Things work out

763
00:39:22,640 --> 00:39:26,040
Speaker 2: pretty good. The question is is for the handful that

764
00:39:26,200 --> 00:39:28,799
Speaker 2: are that don't view the world that way, that want

765
00:39:28,800 --> 00:39:31,600
Speaker 2: to take advantage of the system and you know, fake

766
00:39:31,640 --> 00:39:33,480
Speaker 2: it or lie or cheat or whatever that is they

767
00:39:33,480 --> 00:39:36,600
Speaker 2: want to do. And for those companies, there's there's probably

768
00:39:36,719 --> 00:39:38,759
Speaker 2: that they can probably get away with what they want to.

769
00:39:39,400 --> 00:39:43,719
Speaker 1: And at one point in time, the regulators were aggressively

770
00:39:43,800 --> 00:39:46,000
Speaker 1: policing that and that seems to have faded.

771
00:39:47,440 --> 00:39:48,399
Speaker 2: Yeah, I think that's right.

772
00:39:48,680 --> 00:39:52,399
Speaker 1: Huh, really really fascinating. So so, so let's talk about

773
00:39:52,400 --> 00:39:55,920
Speaker 1: something related. You do these wonderful post mortems in your

774
00:39:56,040 --> 00:40:00,160
Speaker 1: quarterly letters. It's kind of legendary. Here's what went right

775
00:40:00,200 --> 00:40:03,040
Speaker 1: with this trade, here's what went wrong. Here's why this

776
00:40:03,080 --> 00:40:05,759
Speaker 1: sector did well or poorly, or why this stock did

777
00:40:05,840 --> 00:40:09,759
Speaker 1: or didn't work out. Explain what goes into putting these

778
00:40:09,840 --> 00:40:12,680
Speaker 1: letters together together. It reminds me a little bit of

779
00:40:12,719 --> 00:40:13,920
Speaker 1: the presentations you do.

780
00:40:14,560 --> 00:40:17,480
Speaker 2: Like the quarter letters is something I enjoy doing. I

781
00:40:17,520 --> 00:40:21,400
Speaker 2: start thinking about it maybe a month before the quarter ends,

782
00:40:21,440 --> 00:40:24,080
Speaker 2: like what themes are going on in the world that

783
00:40:24,120 --> 00:40:27,120
Speaker 2: I might want to talk about. And then sometime after

784
00:40:27,160 --> 00:40:30,400
Speaker 2: the quarter I get some information about like how we

785
00:40:30,440 --> 00:40:32,400
Speaker 2: did in the market and what stocks helped us and

786
00:40:32,440 --> 00:40:34,879
Speaker 2: the rest of it. And then I write a letter

787
00:40:35,320 --> 00:40:38,440
Speaker 2: and I write the first draft. The first draft is

788
00:40:38,520 --> 00:40:42,359
Speaker 2: what I want to say. It's unedited and unfiltered, and

789
00:40:42,400 --> 00:40:44,160
Speaker 2: then I pass it off to the team and they

790
00:40:44,160 --> 00:40:46,279
Speaker 2: fill in the holes and then they help correct me

791
00:40:46,320 --> 00:40:49,600
Speaker 2: about things maybe that I shouldn't say, and it gets

792
00:40:49,840 --> 00:40:53,640
Speaker 2: edited down through a few cycles. But in terms of

793
00:40:53,680 --> 00:40:59,040
Speaker 2: the post mortems, I've always been like, you know, if

794
00:40:59,080 --> 00:41:01,480
Speaker 2: something goes great, explain why it went great. If it

795
00:41:01,520 --> 00:41:03,600
Speaker 2: didn't go well and we lost money on it, just

796
00:41:03,800 --> 00:41:06,880
Speaker 2: say so, if we do a really, really good job,

797
00:41:06,960 --> 00:41:09,839
Speaker 2: we're going to be wrong thirty five percent of the time, right, right,

798
00:41:10,080 --> 00:41:12,640
Speaker 2: So what's the shame in writing in a letter we

799
00:41:12,800 --> 00:41:15,200
Speaker 2: invested in this particular stock and it didn't work out

800
00:41:15,200 --> 00:41:17,439
Speaker 2: the way that we wanted it to and we lost

801
00:41:17,480 --> 00:41:19,760
Speaker 2: a whole bunch of money. It's in the result anyway,

802
00:41:19,840 --> 00:41:21,000
Speaker 2: so you may as well describe it.

803
00:41:21,320 --> 00:41:25,239
Speaker 1: Huh, that's really interesting. So I know what your presentations are, like,

804
00:41:25,520 --> 00:41:28,040
Speaker 1: I know what the quarterly letter is, like, what's a

805
00:41:28,080 --> 00:41:32,480
Speaker 1: typical day like for you at Greenlight? What happens on

806
00:41:32,520 --> 00:41:33,640
Speaker 1: a random Wednesday?

807
00:41:34,440 --> 00:41:38,080
Speaker 2: You know, the great thing about this business is every

808
00:41:38,160 --> 00:41:40,080
Speaker 2: day you wake up and you just don't know what

809
00:41:40,120 --> 00:41:41,160
Speaker 2: you're going to get.

810
00:41:41,600 --> 00:41:41,640
Speaker 1: You.

811
00:41:42,000 --> 00:41:43,719
Speaker 2: You know, you have things that are on your schedule, Oh,

812
00:41:43,719 --> 00:41:45,960
Speaker 2: this company's going to announce earnings, or you're going to

813
00:41:46,040 --> 00:41:47,560
Speaker 2: talk to this analyst, or you're going to talk to

814
00:41:47,600 --> 00:41:49,920
Speaker 2: this management team or whatever it is. And you have

815
00:41:49,960 --> 00:41:51,759
Speaker 2: a few things that are on your calendar, and then

816
00:41:51,800 --> 00:41:54,080
Speaker 2: you have the rest of the day. And the rest

817
00:41:54,120 --> 00:41:56,640
Speaker 2: of the day is dealing with the incoming email, it's

818
00:41:56,680 --> 00:41:59,239
Speaker 2: dealing with the news, it's dealing with developments that you

819
00:41:59,280 --> 00:42:02,000
Speaker 2: did in particular really expect and deciding if there's anything

820
00:42:02,040 --> 00:42:05,759
Speaker 2: that you need to research further or trade or do,

821
00:42:06,320 --> 00:42:08,879
Speaker 2: and so you know, you just you know, you never

822
00:42:08,920 --> 00:42:10,960
Speaker 2: know what you're going to get on any particular day,

823
00:42:11,000 --> 00:42:12,480
Speaker 2: and that's what makes it so exciting.

824
00:42:12,600 --> 00:42:16,080
Speaker 1: Huh, really really interesting. In your most recent met letter,

825
00:42:16,200 --> 00:42:19,200
Speaker 1: you mentioned the FED did they do a good job

826
00:42:19,239 --> 00:42:22,960
Speaker 1: on inflation? What sort of grade would you give them

827
00:42:23,040 --> 00:42:26,760
Speaker 1: for how well they've handled the entire post COVID era.

828
00:42:27,719 --> 00:42:30,399
Speaker 2: Well, I don't know how to award a grade. That's

829
00:42:30,520 --> 00:42:32,880
Speaker 2: I'm not the professor, and I'm not here to grade

830
00:42:32,920 --> 00:42:36,919
Speaker 2: the FED. I would observe that they've done some things

831
00:42:37,040 --> 00:42:40,320
Speaker 2: very well. You know, they created a stability at the

832
00:42:40,360 --> 00:42:43,640
Speaker 2: bottom of the crisis. They provided liquidity, they didn't let

833
00:42:43,719 --> 00:42:46,200
Speaker 2: lots of things go bankrupt and so forth. Now there's

834
00:42:46,239 --> 00:42:48,600
Speaker 2: a moral hazard that comes from that, because you condition

835
00:42:48,880 --> 00:42:51,680
Speaker 2: people to think that things won't be allowed to go bankrupt,

836
00:42:51,760 --> 00:42:55,320
Speaker 2: and essentially you're socializing a lot of risk effectively onto

837
00:42:55,360 --> 00:42:59,360
Speaker 2: the national balance sheet. Then they had the period of

838
00:43:00,080 --> 00:43:02,279
Speaker 2: pretending that there wasn't going to be any inflation, no

839
00:43:02,320 --> 00:43:05,000
Speaker 2: matter how much money that they printed, and then when

840
00:43:05,000 --> 00:43:07,840
Speaker 2: that became evident, they spent a long time explaining that

841
00:43:07,880 --> 00:43:10,839
Speaker 2: it was transitory. And then they finally decided that maybe

842
00:43:10,840 --> 00:43:13,440
Speaker 2: it wasn't transitory and they should do something about it.

843
00:43:13,760 --> 00:43:16,680
Speaker 2: And then they decided after none of it was transitory,

844
00:43:16,680 --> 00:43:18,719
Speaker 2: it turned out that some of it was transitory, and

845
00:43:18,719 --> 00:43:21,880
Speaker 2: now it's rolling itself back down. The basic thing with

846
00:43:21,960 --> 00:43:26,200
Speaker 2: the FED, I think is they don't seem to have

847
00:43:26,960 --> 00:43:30,920
Speaker 2: I disagree with their view relating to the relationship between

848
00:43:31,000 --> 00:43:34,839
Speaker 2: interest rates and the economy and inflation and what they're

849
00:43:34,840 --> 00:43:39,279
Speaker 2: actually doing, because I believe that when rates get low

850
00:43:39,480 --> 00:43:43,279
Speaker 2: below a certain amount, they actually slow down the economy

851
00:43:43,280 --> 00:43:46,920
Speaker 2: by lowering them further and when so as a result,

852
00:43:47,200 --> 00:43:49,280
Speaker 2: I had this thesis called I called it the jelly

853
00:43:49,280 --> 00:43:53,360
Speaker 2: donut monetary policy. Where the first jelly donut tastes great,

854
00:43:53,480 --> 00:43:55,920
Speaker 2: but the twenty fifth jelly donut, you're not really helping

855
00:43:56,000 --> 00:43:59,680
Speaker 2: yourself anymore. And so you had these emergency fed policies,

856
00:44:00,239 --> 00:44:02,520
Speaker 2: and that in an emergency, that makes sense. But then

857
00:44:02,560 --> 00:44:05,200
Speaker 2: after the emergency passes, they kept the policies and you

858
00:44:05,280 --> 00:44:07,680
Speaker 2: kept rates at zero for like some really long period

859
00:44:07,680 --> 00:44:10,000
Speaker 2: of time, and it was essentially just like giving a

860
00:44:10,040 --> 00:44:13,000
Speaker 2: diabetic person more jelly donuts. Since the economy had a

861
00:44:13,080 --> 00:44:16,799
Speaker 2: very gradual and slow recovery, and now as they had

862
00:44:16,800 --> 00:44:20,080
Speaker 2: the inflation and the rates have come back up, they

863
00:44:20,080 --> 00:44:22,319
Speaker 2: thought that they would be slowing the economy, but they're

864
00:44:22,320 --> 00:44:26,440
Speaker 2: actually strengthening the economy higher rates getting off the zero bound.

865
00:44:26,800 --> 00:44:29,360
Speaker 2: Not if you moved rates from five to ten, it

866
00:44:29,360 --> 00:44:32,239
Speaker 2: would certainly slow the economy, but from zero to five

867
00:44:32,280 --> 00:44:34,600
Speaker 2: it actually strengthens the economy. I think that's why we

868
00:44:34,680 --> 00:44:38,400
Speaker 2: have this really strong GDP growth that is that is

869
00:44:38,480 --> 00:44:42,000
Speaker 2: persisting right now. I think it's surprised a lot of people,

870
00:44:42,280 --> 00:44:44,160
Speaker 2: and so I think it's really weird now that everybody

871
00:44:44,200 --> 00:44:47,919
Speaker 2: thinks that they're going to lower rates. Things are pretty good,

872
00:44:48,160 --> 00:44:50,840
Speaker 2: like employment is really pretty full right now, and the

873
00:44:50,880 --> 00:44:54,360
Speaker 2: economy is kind of humming along, and I think the

874
00:44:54,440 --> 00:44:57,120
Speaker 2: idea that they're going to rush back to really lower rates,

875
00:44:57,120 --> 00:44:59,000
Speaker 2: and they may do it right, but I don't think

876
00:44:59,040 --> 00:45:03,200
Speaker 2: that they're really going to to help anybody, you know,

877
00:45:03,320 --> 00:45:04,520
Speaker 2: by by doing so.

878
00:45:05,000 --> 00:45:08,719
Speaker 1: The argument, the best argument I've seen anyway, for lower

879
00:45:08,800 --> 00:45:11,200
Speaker 1: rates is, hey, you have all these people with three

880
00:45:11,239 --> 00:45:15,560
Speaker 1: and four percent mortgages. We've had a wild shortfall in

881
00:45:15,640 --> 00:45:18,840
Speaker 1: home construction in the twenty tens following the financial crisis.

882
00:45:19,160 --> 00:45:22,000
Speaker 1: I know you were a big fan of the home builders.

883
00:45:22,040 --> 00:45:25,160
Speaker 1: Certainly worked out well given the shortfall. And if we

884
00:45:25,200 --> 00:45:27,360
Speaker 1: want to get some supply to the market, you have

885
00:45:27,480 --> 00:45:30,960
Speaker 1: everybody frozen in place with four percent mortgages. You got

886
00:45:30,960 --> 00:45:34,560
Speaker 1: to get mortgages down from seven to at least low

887
00:45:34,680 --> 00:45:38,000
Speaker 1: sixes or high fives, and all that supply will come out,

888
00:45:38,080 --> 00:45:41,680
Speaker 1: and therefore inflation will come down in the housing sector.

889
00:45:42,600 --> 00:45:46,279
Speaker 1: Do you buy that sort of analyst or economist commentary

890
00:45:46,360 --> 00:45:48,920
Speaker 1: that that's what's going to drive rates lower.

891
00:45:49,200 --> 00:45:52,640
Speaker 2: Well, a couple of things. First of all, housing prices

892
00:45:52,719 --> 00:45:55,640
Speaker 2: off the tenure. It doesn't price off the Fed funds.

893
00:45:56,080 --> 00:45:58,680
Speaker 2: So if the Fed Funds goes from five and something

894
00:45:58,760 --> 00:46:01,080
Speaker 2: to three and something like everybody thinks that it's going

895
00:46:01,120 --> 00:46:03,200
Speaker 2: to do, it's not clear that that's going to move

896
00:46:03,239 --> 00:46:04,640
Speaker 2: the ten year rate at all.

897
00:46:04,640 --> 00:46:07,680
Speaker 1: The ten year place, right, we went from just about

898
00:46:07,760 --> 00:46:08,640
Speaker 1: five percent to.

899
00:46:08,719 --> 00:46:11,400
Speaker 2: Three eight or so great and the Fed Funds hasn't

900
00:46:11,400 --> 00:46:15,000
Speaker 2: even moved yet, right, So it's not clear that these

901
00:46:15,040 --> 00:46:19,520
Speaker 2: two rates correlate one hundred percent. And so you could

902
00:46:19,560 --> 00:46:21,360
Speaker 2: even have a situation where you lower the rates and

903
00:46:21,400 --> 00:46:23,719
Speaker 2: the inflation starts coming back and it causes the long

904
00:46:23,840 --> 00:46:27,160
Speaker 2: rates to go up. It wouldn't surprise me at all,

905
00:46:27,440 --> 00:46:29,400
Speaker 2: you know, relating to the housing. I mean, I'm the

906
00:46:29,440 --> 00:46:32,759
Speaker 2: chairman of a homebuilder. It's Green Brick Partners, and we're

907
00:46:32,760 --> 00:46:35,959
Speaker 2: building houses as fast as we can. There's a ton

908
00:46:36,000 --> 00:46:39,319
Speaker 2: of demand for the houses. The rates are. I mean, sure,

909
00:46:39,360 --> 00:46:42,000
Speaker 2: we'd love lower rates to get people's monthly payments down

910
00:46:42,040 --> 00:46:43,920
Speaker 2: a little bit. I mean that would be great, but

911
00:46:44,000 --> 00:46:47,400
Speaker 2: it doesn't really matter. There's plenty of demand. The market

912
00:46:47,680 --> 00:46:51,560
Speaker 2: is very very strong for us, and so you know,

913
00:46:51,680 --> 00:46:53,960
Speaker 2: we're we're limited by how fast can we build the houses,

914
00:46:54,000 --> 00:46:55,240
Speaker 2: and that's terrific.

915
00:46:55,560 --> 00:47:00,000
Speaker 1: So it's interesting how you discuss variant perception in various

916
00:47:00,000 --> 00:47:04,440
Speaker 1: acre issues, in various stocks. It seems like the consensus

917
00:47:04,800 --> 00:47:06,640
Speaker 1: for what the Fed's going to do and what the

918
00:47:06,640 --> 00:47:09,520
Speaker 1: economy is going to do more broadly has been so

919
00:47:09,800 --> 00:47:15,160
Speaker 1: wrong for so long. When you're looking at everybody predicting

920
00:47:15,360 --> 00:47:17,720
Speaker 1: both the recession for two years and getting it wrong

921
00:47:18,080 --> 00:47:20,360
Speaker 1: and FED cuts for two years and getting it wrong,

922
00:47:21,040 --> 00:47:24,360
Speaker 1: how do you think about that in terms of analyzing

923
00:47:24,400 --> 00:47:27,360
Speaker 1: the FED and what that means to deploying capital.

924
00:47:28,040 --> 00:47:31,040
Speaker 2: Sure, look, I think that the economy is strong. I

925
00:47:31,040 --> 00:47:33,799
Speaker 2: don't think we are in a recession. I don't think

926
00:47:33,800 --> 00:47:37,839
Speaker 2: we're about to be in a recession. And so as

927
00:47:37,880 --> 00:47:40,719
Speaker 2: a result, I'm still more worried that if they lower

928
00:47:40,800 --> 00:47:44,520
Speaker 2: rates a whole bunch, they'll get the inflation to come back.

929
00:47:45,080 --> 00:47:47,239
Speaker 2: So I'm still long inflation, and I kind of don't

930
00:47:47,239 --> 00:47:49,080
Speaker 2: think we're going to see anywhere near as many FED

931
00:47:49,080 --> 00:47:52,560
Speaker 2: cuts as people are talking about this year. You know,

932
00:47:52,600 --> 00:47:54,759
Speaker 2: it's kind of funny people often look at just like

933
00:47:54,880 --> 00:47:56,680
Speaker 2: the wrong thing or are they look at they find

934
00:47:56,719 --> 00:47:58,719
Speaker 2: something very irrelevant and they spend a lot of time

935
00:47:58,719 --> 00:48:01,520
Speaker 2: on it. Like recently, you know, it came out that

936
00:48:01,560 --> 00:48:04,240
Speaker 2: the federal government was gonna borrow like fifty billion dollars

937
00:48:04,320 --> 00:48:06,920
Speaker 2: less this quarter. So they're only gonna borrow seven hundred

938
00:48:06,920 --> 00:48:09,719
Speaker 2: billion instead of seven hundred and fifty billion and.

939
00:48:09,760 --> 00:48:11,240
Speaker 1: Pass on the savings to you.

940
00:48:11,239 --> 00:48:13,160
Speaker 2: You know, it's it's it's fantastic. And so there's a

941
00:48:13,160 --> 00:48:15,719
Speaker 2: lot of enthusiasm for like a data point, and this

942
00:48:15,800 --> 00:48:17,960
Speaker 2: is like the world looking for data points, but they're

943
00:48:18,000 --> 00:48:20,680
Speaker 2: missing like it's a forest for trees, Like who really

944
00:48:20,680 --> 00:48:23,280
Speaker 2: cares if they're borrowing seven hundred billion or seven hundred

945
00:48:23,280 --> 00:48:26,759
Speaker 2: and fifty billion. They're borrowing so much money that you

946
00:48:26,880 --> 00:48:28,640
Speaker 2: just have to look at this and go like, where's

947
00:48:28,680 --> 00:48:31,480
Speaker 2: three trillion dollars gonna go to lend to the Fed

948
00:48:31,520 --> 00:48:34,200
Speaker 2: this year? Where's three or four trillion to go next

949
00:48:34,440 --> 00:48:36,720
Speaker 2: next time? So if you just take a step back

950
00:48:36,840 --> 00:48:39,640
Speaker 2: and you say, like how sustainable is this and where

951
00:48:39,680 --> 00:48:42,560
Speaker 2: is all of this money gonna come from? You realize, like,

952
00:48:42,600 --> 00:48:46,040
Speaker 2: instead of being enthusiastic for hey, they're gonna borrow fifty

953
00:48:46,080 --> 00:48:48,120
Speaker 2: billion less is if that's going to make all of

954
00:48:48,120 --> 00:48:50,120
Speaker 2: the difference in the world. Hey, we could we can

955
00:48:50,160 --> 00:48:52,319
Speaker 2: sell seven hundred billion of bonds, but we can't sell

956
00:48:52,320 --> 00:48:55,840
Speaker 2: seven hundred and fifty Like this is completely strange to me.

957
00:48:56,200 --> 00:48:58,239
Speaker 2: And I think as you, as the market looks at it,

958
00:48:58,760 --> 00:49:00,239
Speaker 2: over the course of the year, we're gonna at some

959
00:49:00,320 --> 00:49:02,640
Speaker 2: point get back to the point where they're saying, you know,

960
00:49:02,880 --> 00:49:06,120
Speaker 2: we're really borrowing, maybe more than more than we should.

961
00:49:06,360 --> 00:49:09,239
Speaker 2: And when you talk to people in Congress, like they

962
00:49:09,239 --> 00:49:12,319
Speaker 2: have no plans to do anything about this, Like it's

963
00:49:12,320 --> 00:49:15,720
Speaker 2: not even like there's an intermediate plan for fiscal responsibility.

964
00:49:16,040 --> 00:49:19,240
Speaker 2: So the idea that the market is focused on fifty

965
00:49:19,239 --> 00:49:21,799
Speaker 2: billion here they're of incremental treasury borrowings or how many

966
00:49:21,840 --> 00:49:23,600
Speaker 2: ten year bonds they're going to sell, or how many

967
00:49:23,800 --> 00:49:27,120
Speaker 2: thirtyer bonds. What it is is underneath that is an

968
00:49:27,160 --> 00:49:31,040
Speaker 2: acknowledgment that there's a big problem, because otherwise they wouldn't

969
00:49:31,040 --> 00:49:33,280
Speaker 2: be focused on it. But they're distracting from the problem

970
00:49:33,360 --> 00:49:37,400
Speaker 2: by trying to find like a second derivative incremental data point.

971
00:49:37,880 --> 00:49:40,920
Speaker 2: And I think that the easier thing to do is

972
00:49:40,960 --> 00:49:43,000
Speaker 2: to keep the eye on the bigger picture, which should

973
00:49:43,000 --> 00:49:45,719
Speaker 2: play itself out, maybe over the more intermediate term.

974
00:49:45,960 --> 00:49:49,520
Speaker 1: So here's the pushback to the to the deficit challenge.

975
00:49:49,960 --> 00:49:51,880
Speaker 1: You know, we're not that far apart in age. My

976
00:49:52,120 --> 00:49:56,800
Speaker 1: entire adult life, I've been told deficits are a problem.

977
00:49:57,239 --> 00:50:00,359
Speaker 1: They're going to cause inflation, destroy the dollar, crowd out

978
00:50:00,440 --> 00:50:03,680
Speaker 1: private investments. None of that seems to have happened over

979
00:50:03,719 --> 00:50:08,200
Speaker 1: the past couple of decades. Do we really need to

980
00:50:09,200 --> 00:50:13,239
Speaker 1: make the deficit our biggest priority? Tell us what the

981
00:50:13,640 --> 00:50:14,920
Speaker 1: risk factors are from that.

982
00:50:15,400 --> 00:50:18,080
Speaker 2: Well, we can't make the deficit our biggest priority. It's

983
00:50:18,120 --> 00:50:21,239
Speaker 2: our biggest problem. Like Congress can't do anything about this.

984
00:50:21,320 --> 00:50:23,279
Speaker 2: If you talk to a congress person and say or

985
00:50:23,320 --> 00:50:24,840
Speaker 2: a Senator and say, well, what are you going to

986
00:50:24,880 --> 00:50:27,920
Speaker 2: do about the deficit? Like the amount of change that

987
00:50:27,960 --> 00:50:30,440
Speaker 2: would need to happen to move the needle, it's kind

988
00:50:30,440 --> 00:50:33,280
Speaker 2: of almost like a waste of time because nobody's willing

989
00:50:33,320 --> 00:50:36,120
Speaker 2: to make the major major type of tax increases or

990
00:50:36,120 --> 00:50:39,000
Speaker 2: the major major types of spending cuts. You know, they're

991
00:50:39,000 --> 00:50:41,000
Speaker 2: willing to like nickel and dime away at the other

992
00:50:41,080 --> 00:50:44,000
Speaker 2: side's constituency. So the Republicans are willing to stick it

993
00:50:44,040 --> 00:50:47,560
Speaker 2: to the Democrat voters a little bit. The Democrats are

994
00:50:47,560 --> 00:50:49,879
Speaker 2: willing to stick it to the Republican voters a little bit.

995
00:50:50,040 --> 00:50:51,600
Speaker 2: But at the end of the day, like there's nobody

996
00:50:51,640 --> 00:50:55,160
Speaker 2: who's serious about it. It's more like, well, it's unsustainable,

997
00:50:55,360 --> 00:50:57,680
Speaker 2: and we're going to go up the roller coaster and

998
00:50:57,719 --> 00:50:59,600
Speaker 2: at some point it's going to go down, and then

999
00:50:59,600 --> 00:51:02,480
Speaker 2: we're going to deal with it then. And what is

1000
00:51:02,480 --> 00:51:04,400
Speaker 2: that crisis going to look like? I don't know what

1001
00:51:04,400 --> 00:51:06,239
Speaker 2: that crisis is going to look like. And I know

1002
00:51:06,360 --> 00:51:08,960
Speaker 2: this has been a long time building, but it's going

1003
00:51:09,040 --> 00:51:11,239
Speaker 2: up at an accelerating pace. I mean, we're now well

1004
00:51:11,280 --> 00:51:15,160
Speaker 2: over one hundred percent debt to GDP, right, So if

1005
00:51:15,200 --> 00:51:17,560
Speaker 2: interest rates are four percent or something like that, you're

1006
00:51:17,600 --> 00:51:21,919
Speaker 2: paying out four percent or more of GDP in interest, right,

1007
00:51:22,239 --> 00:51:24,399
Speaker 2: And so you're paying out a big percentage of your

1008
00:51:24,400 --> 00:51:28,120
Speaker 2: tax collections in debt service, even before you get to

1009
00:51:28,120 --> 00:51:30,200
Speaker 2: what you actually want to have. And you're at a

1010
00:51:30,239 --> 00:51:33,239
Speaker 2: six and a half percent deficit to GDP with full employment,

1011
00:51:33,600 --> 00:51:36,520
Speaker 2: which is something we've never seen before outside of a war.

1012
00:51:37,200 --> 00:51:39,279
Speaker 2: And so if we have a recession, you know that

1013
00:51:39,360 --> 00:51:41,520
Speaker 2: number is going to get much much worse. And at

1014
00:51:41,560 --> 00:51:44,920
Speaker 2: some point, you know where is the three trillion dollars

1015
00:51:44,960 --> 00:51:46,799
Speaker 2: going to come from. We just talked about the hedge

1016
00:51:46,800 --> 00:51:49,160
Speaker 2: fund industry, the whole hedge fund industry, three trillion dollars.

1017
00:51:49,200 --> 00:51:51,520
Speaker 2: So the government's going to borrow the entire hedge fund

1018
00:51:51,520 --> 00:51:54,399
Speaker 2: industry this year, and then that just tides them over

1019
00:51:54,440 --> 00:51:56,160
Speaker 2: for twenty twenty four. Where's it going to come for

1020
00:51:56,200 --> 00:51:59,200
Speaker 2: twenty twenty five? Figuring this out to the nearest moment

1021
00:51:59,239 --> 00:52:02,880
Speaker 2: is impossible because it's a question of confidence, it's a reflexivity.

1022
00:52:02,920 --> 00:52:06,080
Speaker 2: It's George Soros's theory, like this is all fine until

1023
00:52:06,120 --> 00:52:08,160
Speaker 2: it's not fine. But when it's not fine, then we're

1024
00:52:08,160 --> 00:52:10,040
Speaker 2: going to have a really interesting.

1025
00:52:09,520 --> 00:52:13,600
Speaker 1: Problem, really interesting. Let me pivot a little bit and

1026
00:52:13,719 --> 00:52:18,239
Speaker 1: talk about the Einhorn Collaborative. What is that? Why did

1027
00:52:18,280 --> 00:52:19,879
Speaker 1: you start this organization?

1028
00:52:20,640 --> 00:52:25,440
Speaker 2: The Einhorn Collaborative is my philanthropic effort, and it is

1029
00:52:25,680 --> 00:52:31,200
Speaker 2: a view that we have a crisis of connection, that

1030
00:52:31,320 --> 00:52:34,160
Speaker 2: people are not connecting to one another, that the society

1031
00:52:34,239 --> 00:52:38,160
Speaker 2: is becoming more divided, and that we need to work

1032
00:52:38,480 --> 00:52:41,240
Speaker 2: on bridging people back together.

1033
00:52:42,040 --> 00:52:49,000
Speaker 1: So that requires stronger relationships, embracing differences. Do we have

1034
00:52:49,080 --> 00:52:52,160
Speaker 1: any general resources going in that direction or is this

1035
00:52:52,280 --> 00:52:54,480
Speaker 1: something that really isn't happening.

1036
00:52:54,800 --> 00:52:58,560
Speaker 2: Well, it's really interesting because like seventy percent or so

1037
00:52:58,640 --> 00:53:02,640
Speaker 2: of America is not politically polarized. It's just a fifteen

1038
00:53:02,640 --> 00:53:05,920
Speaker 2: percent on the far of each side that get all

1039
00:53:06,000 --> 00:53:09,399
Speaker 2: the attention and drive everybody else crazy. Most people don't

1040
00:53:09,400 --> 00:53:11,640
Speaker 2: care that much and they kind of want to get along.

1041
00:53:11,960 --> 00:53:14,200
Speaker 2: Our efforts are not just political. In fact, they're mostly

1042
00:53:14,239 --> 00:53:18,160
Speaker 2: not political. They're cultural. We are working on helping mothers

1043
00:53:18,200 --> 00:53:21,520
Speaker 2: bond with their newborn babies, for example, because if you

1044
00:53:21,560 --> 00:53:25,279
Speaker 2: can develop a connection with a newborn baby, between the

1045
00:53:25,320 --> 00:53:27,480
Speaker 2: mom and the baby in a dual kind of way,

1046
00:53:27,920 --> 00:53:30,200
Speaker 2: sure it's great for the mother, but it teaches the

1047
00:53:30,239 --> 00:53:33,880
Speaker 2: baby also how to have a normal relationship with somebody,

1048
00:53:34,080 --> 00:53:36,600
Speaker 2: and then they can take that forward into the rest

1049
00:53:36,600 --> 00:53:37,120
Speaker 2: of their life.

1050
00:53:37,320 --> 00:53:40,200
Speaker 1: Let's stay with that a second. How does a philanthropy

1051
00:53:40,880 --> 00:53:42,880
Speaker 1: help a mother bond with a baby.

1052
00:53:43,640 --> 00:53:49,080
Speaker 2: Well, we're literally starting a program where we've done a

1053
00:53:49,120 --> 00:53:52,560
Speaker 2: lot of research. We've done clinical studies, and essentially, if

1054
00:53:53,000 --> 00:53:55,400
Speaker 2: you teach the mother to hold the baby, you teach

1055
00:53:55,440 --> 00:53:58,360
Speaker 2: the mother to talk to the baby, You teach the

1056
00:53:58,360 --> 00:54:00,640
Speaker 2: mother what to say to a baby, how to get

1057
00:54:00,640 --> 00:54:03,480
Speaker 2: the baby to make eye contact, back and forth, and

1058
00:54:03,520 --> 00:54:07,000
Speaker 2: how when the baby becomes disregulated, you know, crying or

1059
00:54:07,040 --> 00:54:11,320
Speaker 2: whatever it is, how do you regulate back and calm

1060
00:54:11,640 --> 00:54:14,000
Speaker 2: And once you learn to calm yourself, and once the

1061
00:54:14,000 --> 00:54:16,120
Speaker 2: mother learns to calm the baby, and sometimes actually the

1062
00:54:16,160 --> 00:54:21,280
Speaker 2: baby calms the mother. By creating this kind of dual relationship,

1063
00:54:21,719 --> 00:54:25,480
Speaker 2: you wind up with a healthy relationship between the mother

1064
00:54:25,520 --> 00:54:27,799
Speaker 2: and the baby, which they're then both able to take

1065
00:54:27,960 --> 00:54:29,920
Speaker 2: out positively into the rest of their lives.

1066
00:54:30,200 --> 00:54:33,880
Speaker 1: Huh, that's really interesting. What other work does the collaborative do?

1067
00:54:34,000 --> 00:54:34,960
Speaker 1: Where else do you focus?

1068
00:54:35,160 --> 00:54:39,799
Speaker 2: We focus on what we call that bonding. We call

1069
00:54:39,920 --> 00:54:42,680
Speaker 2: another aspect of what we're doing, bridging. That's where we're

1070
00:54:42,680 --> 00:54:47,200
Speaker 2: trying to bridge across difference in communities. We're getting some

1071
00:54:47,280 --> 00:54:52,200
Speaker 2: people together of different religions or different political persuasions or

1072
00:54:52,239 --> 00:54:57,440
Speaker 2: different cultural views and giving them opportunities to experience things together,

1073
00:54:57,520 --> 00:55:01,799
Speaker 2: whether it's service, whether it's dinner, it's going to the

1074
00:55:02,280 --> 00:55:04,840
Speaker 2: church of the different religion, or going to the mosque

1075
00:55:04,840 --> 00:55:08,160
Speaker 2: of the different religion or the synagogue, and creating you know,

1076
00:55:08,239 --> 00:55:11,400
Speaker 2: bonding between religious groups and so forth.

1077
00:55:12,239 --> 00:55:15,000
Speaker 1: How do you measure success in these different areas? How

1078
00:55:15,040 --> 00:55:18,400
Speaker 1: can you tell, Hey, the philanthropic capital we're putting to

1079
00:55:18,440 --> 00:55:20,280
Speaker 1: work is actually having an impact?

1080
00:55:20,480 --> 00:55:23,080
Speaker 2: Well, well you can because like like in the in

1081
00:55:23,120 --> 00:55:25,040
Speaker 2: the bonding thing I was talking about with them with

1082
00:55:25,160 --> 00:55:27,920
Speaker 2: the babies and the mothers, you can actually follow them

1083
00:55:28,200 --> 00:55:31,160
Speaker 2: on a longitude and no basis and say, how are

1084
00:55:31,200 --> 00:55:35,080
Speaker 2: these people performing? How are these people behaving? How are

1085
00:55:35,120 --> 00:55:37,759
Speaker 2: they you know? Are they healthy? Are they how are

1086
00:55:37,760 --> 00:55:39,920
Speaker 2: their relationships? Do they make friends when they get to

1087
00:55:40,239 --> 00:55:41,640
Speaker 2: middle school and so on and so forth?

1088
00:55:41,880 --> 00:55:45,879
Speaker 1: You're tracking this over time? Yes, huh, really interesting. Let's

1089
00:55:46,200 --> 00:55:48,800
Speaker 1: stick with philanthropy. You've been very generous to your alma

1090
00:55:48,840 --> 00:55:53,800
Speaker 1: Mada Cornell. We've seen a lot of pushback, especially amongst

1091
00:55:53,920 --> 00:55:58,000
Speaker 1: alums from various IVY leagues to their campuses. You seem

1092
00:55:58,080 --> 00:56:00,920
Speaker 1: to still have a great relationship with Cornell. Well, what

1093
00:56:00,960 --> 00:56:02,920
Speaker 1: do you like that's going on there? What are they

1094
00:56:02,960 --> 00:56:06,040
Speaker 1: doing right and wrong that you Penn and Harvard seems

1095
00:56:06,040 --> 00:56:07,200
Speaker 1: to have dropped the ball on.

1096
00:56:08,320 --> 00:56:12,560
Speaker 2: Well, I think Cornell. Look, everybody has problems, and Cornell

1097
00:56:12,640 --> 00:56:14,960
Speaker 2: has problems too, And I'm not going to point anything

1098
00:56:15,000 --> 00:56:19,319
Speaker 2: at any of these other universities that I'm not as

1099
00:56:19,440 --> 00:56:25,319
Speaker 2: involved with. My philosophy for this is to try to

1100
00:56:25,480 --> 00:56:29,240
Speaker 2: bring about positive change. I think when you have a crisis,

1101
00:56:29,280 --> 00:56:33,279
Speaker 2: it creates an opportunity for change. And I think that

1102
00:56:33,280 --> 00:56:36,520
Speaker 2: that you do this internally. You do this by discussing

1103
00:56:36,520 --> 00:56:38,680
Speaker 2: it with the President, You discusseduss it with the Provost,

1104
00:56:38,719 --> 00:56:41,279
Speaker 2: you discuss it with the other trustees, you discuss it

1105
00:56:41,320 --> 00:56:45,360
Speaker 2: with the deans. I've been very involved in many, many conversations,

1106
00:56:47,160 --> 00:56:49,520
Speaker 2: and some things I'm very happy about, and some things

1107
00:56:49,560 --> 00:56:52,319
Speaker 2: I feel like there's a lot more that can be done.

1108
00:56:52,920 --> 00:56:55,919
Speaker 2: But I believe in trying to work this out through

1109
00:56:55,960 --> 00:56:58,200
Speaker 2: the system and not coming out in a very public

1110
00:56:58,239 --> 00:57:02,360
Speaker 2: way and criticize in the newspaper or on this interview

1111
00:57:02,440 --> 00:57:03,120
Speaker 2: or something like that.

1112
00:57:03,200 --> 00:57:07,480
Speaker 1: You seem to be very quietly going about bringing positivity

1113
00:57:07,560 --> 00:57:11,640
Speaker 1: to a rancorous debate as opposed to just throwing gasoline

1114
00:57:11,680 --> 00:57:12,200
Speaker 1: on the fire.

1115
00:57:12,920 --> 00:57:15,240
Speaker 2: I think that's right, and because I believe in bridging,

1116
00:57:15,480 --> 00:57:19,600
Speaker 2: like I believe, you know, people on both sides of

1117
00:57:19,640 --> 00:57:22,240
Speaker 2: this argument think that they're right, and they don't think

1118
00:57:22,240 --> 00:57:25,560
Speaker 2: that they're bad people. Right. No matter which side you're on,

1119
00:57:25,600 --> 00:57:28,200
Speaker 2: you think you're the good guy, right, and so at

1120
00:57:28,200 --> 00:57:30,840
Speaker 2: some level maybe they are, or maybe we've got at

1121
00:57:30,920 --> 00:57:32,800
Speaker 2: least understand it. And then you've got to figure out

1122
00:57:32,840 --> 00:57:34,720
Speaker 2: how to engage in it. And then how is it

1123
00:57:34,920 --> 00:57:38,160
Speaker 2: that you can find some commonality? What values do we

1124
00:57:38,240 --> 00:57:42,040
Speaker 2: all have in common even if we disagree in important

1125
00:57:42,080 --> 00:57:45,919
Speaker 2: ways about what policies are being being performed or what

1126
00:57:46,000 --> 00:57:49,800
Speaker 2: the you know, what the behavior is and and yes,

1127
00:57:49,880 --> 00:57:53,320
Speaker 2: you do need some base level of societal norm and

1128
00:57:53,360 --> 00:57:55,800
Speaker 2: if you don't have that, you can't have anything. But

1129
00:57:55,880 --> 00:57:58,120
Speaker 2: once you get through that base level, then you can

1130
00:57:58,200 --> 00:58:00,600
Speaker 2: try to figure out how you bring people together. And

1131
00:58:00,680 --> 00:58:06,400
Speaker 2: sometimes just agreeing to disagree is fine. Right. Another major

1132
00:58:06,400 --> 00:58:09,080
Speaker 2: initiative we have is something that we call the New Pluralists,

1133
00:58:09,600 --> 00:58:12,360
Speaker 2: and the New Pluralist is a funding collaborative. We've gotten

1134
00:58:12,400 --> 00:58:16,680
Speaker 2: twenty two funders of very diverse views, everything from the

1135
00:58:16,760 --> 00:58:19,440
Speaker 2: Cochs to the Hewletts. And what we do is we

1136
00:58:19,480 --> 00:58:22,720
Speaker 2: pool our money and we're working on these cultural problems.

1137
00:58:22,800 --> 00:58:25,440
Speaker 2: We've created a fund essentially what we do, and then

1138
00:58:25,520 --> 00:58:28,240
Speaker 2: we make grants out into the field, a field builders

1139
00:58:28,280 --> 00:58:33,040
Speaker 2: of people who are doing things to unite and bridge differences.

1140
00:58:33,480 --> 00:58:37,960
Speaker 2: And so what's interesting is is first you have just

1141
00:58:38,080 --> 00:58:40,440
Speaker 2: the funders figuring out how they can sit at the

1142
00:58:40,440 --> 00:58:42,840
Speaker 2: table together because some of these people don't like each

1143
00:58:42,840 --> 00:58:45,320
Speaker 2: other or they don't like what they do in other

1144
00:58:45,400 --> 00:58:47,880
Speaker 2: areas of whatever it is that they're doing, and they've

1145
00:58:47,880 --> 00:58:49,960
Speaker 2: agreed to come together, and then you put them together,

1146
00:58:50,000 --> 00:58:51,920
Speaker 2: and then you actually have to say, what is it

1147
00:58:51,960 --> 00:58:53,880
Speaker 2: that we have in common that we can fund for

1148
00:58:53,920 --> 00:58:56,200
Speaker 2: the good of the country, right, and then you do

1149
00:58:56,280 --> 00:58:58,360
Speaker 2: the funding and you get the benefit of that from

1150
00:58:58,400 --> 00:58:59,240
Speaker 2: the good of the country.

1151
00:59:00,080 --> 00:59:00,960
Speaker 1: That's something to collaboration.

1152
00:59:02,160 --> 00:59:04,680
Speaker 2: That's a real core effort from the onhearn collaboratives. We've

1153
00:59:04,720 --> 00:59:06,919
Speaker 2: actually kind of got this thing going for the last

1154
00:59:06,920 --> 00:59:07,480
Speaker 2: three years.

1155
00:59:07,560 --> 00:59:11,080
Speaker 1: So let me ask you a philosophical question. How much

1156
00:59:11,160 --> 00:59:15,960
Speaker 1: of this division amongst different people and you know, actively

1157
00:59:16,040 --> 00:59:20,000
Speaker 1: disliking the other side just stems from a lack of

1158
00:59:20,120 --> 00:59:24,560
Speaker 1: empathy to people who have different views. It seems like

1159
00:59:25,760 --> 00:59:28,320
Speaker 1: that was something that used to be a little more

1160
00:59:28,360 --> 00:59:34,720
Speaker 1: available in the pre online, pre social media era, and

1161
00:59:35,080 --> 00:59:39,720
Speaker 1: you're trying to get back to that working around what

1162
00:59:40,120 --> 00:59:43,240
Speaker 1: do you do when you look at a Facebook or

1163
00:59:43,280 --> 00:59:47,760
Speaker 1: a TikTok or a Twitter where the vitriol and just

1164
00:59:47,880 --> 00:59:51,000
Speaker 1: the insanity goes off the charts.

1165
00:59:51,800 --> 00:59:54,800
Speaker 2: You know, I saw a little caption saying like I

1166
00:59:54,880 --> 00:59:58,280
Speaker 2: need to spend more time arguing with strangers on the

1167
00:59:58,280 --> 01:00:02,080
Speaker 2: internet about politics. Like this sounds like a really bad

1168
01:00:02,120 --> 01:00:05,680
Speaker 2: idea to me. I don't really spend very much time

1169
01:00:05,680 --> 01:00:08,520
Speaker 2: myself on these kinds of social media. I don't think

1170
01:00:08,760 --> 01:00:13,760
Speaker 2: that they're helping. In fact, they're probably hurting. It's hard,

1171
01:00:13,800 --> 01:00:16,840
Speaker 2: you know, having some humility makes a lot of sense.

1172
01:00:17,320 --> 01:00:19,800
Speaker 2: And that's like admitting that you're not right about everything

1173
01:00:19,880 --> 01:00:22,360
Speaker 2: and learning that you're wrong. And you need to spend

1174
01:00:22,400 --> 01:00:24,240
Speaker 2: time with people that you disagree with. You know, if

1175
01:00:24,280 --> 01:00:26,400
Speaker 2: you only spend time with people who agree with you, you

1176
01:00:26,320 --> 01:00:29,240
Speaker 2: don't learn anything. It's the people who you disagree with

1177
01:00:29,400 --> 01:00:31,760
Speaker 2: that can point out your biases and you can notice

1178
01:00:31,840 --> 01:00:34,640
Speaker 2: their biases, and it helps you learn and helps you grow,

1179
01:00:34,840 --> 01:00:37,400
Speaker 2: and it helps you develop your thinking. And so it

1180
01:00:38,000 --> 01:00:40,000
Speaker 2: makes a lot of sense to engage with people that

1181
01:00:40,120 --> 01:00:41,720
Speaker 2: you don't agree.

1182
01:00:41,440 --> 01:00:43,440
Speaker 1: With, stay out of the echo chamber a little bit,

1183
01:00:43,520 --> 01:00:47,280
Speaker 1: and look for diverse voices. Let's talk about the Michael J.

1184
01:00:47,440 --> 01:00:52,200
Speaker 1: Fox Foundation for Parkinson's Research. You serve on that board.

1185
01:00:52,200 --> 01:00:53,960
Speaker 1: Tell us a little bit about what you do for them.

1186
01:00:54,480 --> 01:00:57,479
Speaker 2: Well, for them, mostly I host poker tournaments. Oh really, yeah,

1187
01:00:57,520 --> 01:01:00,400
Speaker 2: because I'm not very good at the science part. Like

1188
01:01:01,040 --> 01:01:04,360
Speaker 2: this is really really hard problem that they're dealing with.

1189
01:01:04,440 --> 01:01:07,120
Speaker 2: I mean, this is a brain disease and there's nothing

1190
01:01:07,120 --> 01:01:10,120
Speaker 2: more complicated than the brain and trying to figure out

1191
01:01:10,160 --> 01:01:13,840
Speaker 2: like how to ameliorate this is really really hard work.

1192
01:01:14,280 --> 01:01:19,000
Speaker 2: But Michael J. Fox has put together the world experts

1193
01:01:19,000 --> 01:01:22,720
Speaker 2: on this, gathered a ton of funding, and is actually

1194
01:01:22,760 --> 01:01:26,760
Speaker 2: making real important progress. Last year they had a major

1195
01:01:26,840 --> 01:01:30,040
Speaker 2: major breakthrough where they have developed what they call a biomarker,

1196
01:01:30,400 --> 01:01:34,000
Speaker 2: which basically means that they can tap into your back

1197
01:01:34,400 --> 01:01:37,000
Speaker 2: and take out some of your material and figure out

1198
01:01:37,040 --> 01:01:39,320
Speaker 2: whether you're likely to have or maybe even already have

1199
01:01:39,440 --> 01:01:42,360
Speaker 2: Parkinson's and so if you're on the course to it,

1200
01:01:42,400 --> 01:01:45,800
Speaker 2: that means they can identify and diagnose it earlier, which

1201
01:01:45,840 --> 01:01:48,360
Speaker 2: means we can get to treatment faster.

1202
01:01:48,640 --> 01:01:50,960
Speaker 1: And I'm assuming the poker tournaments were raising a ton

1203
01:01:50,960 --> 01:01:53,280
Speaker 1: of money for them and everybody has a great time.

1204
01:01:53,640 --> 01:01:55,720
Speaker 2: Though the poker tournaments are best are the best kind

1205
01:01:55,720 --> 01:01:58,680
Speaker 2: of fundraiser because people want to support the cause, but

1206
01:01:58,720 --> 01:02:00,480
Speaker 2: they don't really want to hear all about it for

1207
01:02:00,520 --> 01:02:02,960
Speaker 2: an hour, and so it's way better than these dinners

1208
01:02:02,960 --> 01:02:06,520
Speaker 2: with the PowerPoint presentations and the speeches and the and

1209
01:02:06,560 --> 01:02:08,080
Speaker 2: the stuff like that. I mean we do that too,

1210
01:02:08,360 --> 01:02:11,080
Speaker 2: and a lot of the things that we support. But

1211
01:02:11,120 --> 01:02:13,080
Speaker 2: poker tournaments are fun because people are just gonna have

1212
01:02:13,080 --> 01:02:15,040
Speaker 2: a great evening and we're going to raise a bunch

1213
01:02:15,040 --> 01:02:16,720
Speaker 2: of money, which is kind of really what we want

1214
01:02:16,720 --> 01:02:16,880
Speaker 2: to do.

1215
01:02:17,200 --> 01:02:19,840
Speaker 1: And what about the robin Hood Foundation, what are you

1216
01:02:19,960 --> 01:02:23,360
Speaker 1: looking to do there and what's you're involvement with that group?

1217
01:02:23,440 --> 01:02:25,560
Speaker 2: Well, I've been involved with robin Hood for a long time.

1218
01:02:25,640 --> 01:02:27,120
Speaker 2: I was actually the chair of it for a couple

1219
01:02:27,080 --> 01:02:29,640
Speaker 2: of years, but that ended a while ago. We're onto

1220
01:02:29,960 --> 01:02:32,600
Speaker 2: even more effective chairs than me, which is really which

1221
01:02:32,640 --> 01:02:36,720
Speaker 2: is really great. You know, the Robinhood Foundation is truly remarkable.

1222
01:02:38,600 --> 01:02:41,480
Speaker 2: It's when you talk about measured impact. They measure like

1223
01:02:41,560 --> 01:02:43,560
Speaker 2: everything that they're doing. But then if you take a

1224
01:02:43,560 --> 01:02:47,440
Speaker 2: step back further and you ask yourself, you look at

1225
01:02:47,440 --> 01:02:51,480
Speaker 2: these I'll just call them blue state big cities and

1226
01:02:51,560 --> 01:02:54,520
Speaker 2: the problems that they have across the country, and you

1227
01:02:54,520 --> 01:02:56,360
Speaker 2: see what's going on in Chicago, and you see what's

1228
01:02:56,400 --> 01:02:59,080
Speaker 2: going on in San Francisco, and you see what's happening

1229
01:02:59,120 --> 01:03:01,800
Speaker 2: in you know, and some of the other major cities.

1230
01:03:01,800 --> 01:03:03,640
Speaker 2: And you look at New York. You know, New York's

1231
01:03:03,680 --> 01:03:06,120
Speaker 2: doing a lot better than a lot of these other cities.

1232
01:03:06,160 --> 01:03:09,320
Speaker 2: And I think that a lot some of this is

1233
01:03:09,360 --> 01:03:11,920
Speaker 2: from the cumulative effect of the Robin Hood Foundation. Real thing,

1234
01:03:11,920 --> 01:03:13,680
Speaker 2: I'm very very proud to be involved with.

1235
01:03:13,880 --> 01:03:17,960
Speaker 1: Huh really really quite fascinating. Let's jump to our favorite

1236
01:03:18,040 --> 01:03:22,320
Speaker 1: questions that we ask all of our guests, starting with

1237
01:03:23,240 --> 01:03:26,840
Speaker 1: what have you been either watching or listening to? What's

1238
01:03:26,880 --> 01:03:28,040
Speaker 1: been keeping you entertained?

1239
01:03:28,360 --> 01:03:31,480
Speaker 2: Entertained? Well, I just finished watching the last season of Fargo,

1240
01:03:32,240 --> 01:03:35,240
Speaker 2: which is deep, and it's dark, and it's fantastic, and

1241
01:03:35,280 --> 01:03:37,720
Speaker 2: it's right there with the previous four seasons. You know,

1242
01:03:37,760 --> 01:03:39,360
Speaker 2: there was the movie a long time ago. Yes, and

1243
01:03:39,400 --> 01:03:43,360
Speaker 2: they've done a series on FX and and and they're fantastic.

1244
01:03:43,400 --> 01:03:45,800
Speaker 2: They get a different cast and a different story each time,

1245
01:03:46,040 --> 01:03:49,960
Speaker 2: and and it's it's it's dark, and I enjoy that.

1246
01:03:50,200 --> 01:03:53,480
Speaker 1: I have a vivid recollection of the scene of her

1247
01:03:53,960 --> 01:03:56,320
Speaker 1: trying to get rid of the body with the wood

1248
01:03:56,400 --> 01:03:59,040
Speaker 1: chipper and the movie that stays with you a long time.

1249
01:03:59,080 --> 01:03:59,960
Speaker 1: That was pretty dark thing.

1250
01:04:00,280 --> 01:04:04,000
Speaker 2: Yeah, Well, they've built five seasons since, five different casts,

1251
01:04:04,040 --> 01:04:07,440
Speaker 2: five totally different casts, different stories, but the theme is

1252
01:04:07,480 --> 01:04:11,120
Speaker 2: always the same, you know, the stories told exactly where

1253
01:04:11,160 --> 01:04:13,920
Speaker 2: it is except the names have been changed to you know,

1254
01:04:14,000 --> 01:04:15,560
Speaker 2: protect the survivors and so forth.

1255
01:04:15,720 --> 01:04:19,000
Speaker 1: So let's talk about your mentors who helped to shape

1256
01:04:19,040 --> 01:04:19,680
Speaker 1: your career.

1257
01:04:20,040 --> 01:04:22,280
Speaker 2: Yeah, I don't think I ever really had like a

1258
01:04:22,320 --> 01:04:24,720
Speaker 2: single mentor. The closest would have been my boss, Peter

1259
01:04:24,840 --> 01:04:27,760
Speaker 2: Collery when I was at Siegler Collery. But he was

1260
01:04:27,800 --> 01:04:29,760
Speaker 2: really more my boss, I think, and I learned a

1261
01:04:29,760 --> 01:04:33,480
Speaker 2: lot from him. I think I've just taken on knowledge

1262
01:04:33,520 --> 01:04:37,120
Speaker 2: from various people and things that I've observed along the way.

1263
01:04:38,000 --> 01:04:40,120
Speaker 1: Let's talk about books. What are you reading now and

1264
01:04:40,160 --> 01:04:41,400
Speaker 1: what are some of your favorites.

1265
01:04:42,000 --> 01:04:44,400
Speaker 2: Well, I read a baseball book every year, usually the

1266
01:04:44,400 --> 01:04:47,720
Speaker 2: baseball perspectus. I read a poker book every year. Last

1267
01:04:47,800 --> 01:04:52,440
Speaker 2: year's was on physical tells, reading people's expressions and figuring

1268
01:04:52,520 --> 01:04:55,080
Speaker 2: all of that out. I don't get to read a

1269
01:04:55,080 --> 01:04:57,600
Speaker 2: lot of books. I'm really maybe three or four books

1270
01:04:57,640 --> 01:04:59,360
Speaker 2: a year at this point.

1271
01:05:00,000 --> 01:05:03,120
Speaker 1: And mention you read a baseball book every year? Of

1272
01:05:03,200 --> 01:05:05,640
Speaker 1: what went wrong in twenty twenty three for the Mets,

1273
01:05:05,640 --> 01:05:08,400
Speaker 1: and do we have a chance this year? What are

1274
01:05:08,400 --> 01:05:09,040
Speaker 1: you thinking about?

1275
01:05:09,240 --> 01:05:13,040
Speaker 2: You know? The thing is is it's January, and January

1276
01:05:13,080 --> 01:05:15,160
Speaker 2: is about the season. You really don't think a lot

1277
01:05:15,280 --> 01:05:18,520
Speaker 2: about baseball. It wasn't a great year for the Mets.

1278
01:05:18,560 --> 01:05:21,600
Speaker 2: There's been lots and lots that have been written about it.

1279
01:05:21,680 --> 01:05:24,000
Speaker 2: I'm also a Brewers fan. I'm from Milwaukee, so i

1280
01:05:24,040 --> 01:05:26,640
Speaker 2: still do Brewers, Bucks and Packers, and I'm a little

1281
01:05:27,040 --> 01:05:29,440
Speaker 2: still recovering from the loss to the forty nine ers

1282
01:05:29,480 --> 01:05:30,400
Speaker 2: from a couple of weeks ago.

1283
01:05:30,800 --> 01:05:33,680
Speaker 1: Our final two questions, what sort of advice would you

1284
01:05:33,720 --> 01:05:37,200
Speaker 1: give to a recent college grad interested in a career

1285
01:05:37,280 --> 01:05:39,120
Speaker 1: in either investing or finance.

1286
01:05:40,600 --> 01:05:45,040
Speaker 2: My advice for all young people is figure out what

1287
01:05:45,080 --> 01:05:48,040
Speaker 2: you're good at and find something that you can do

1288
01:05:48,360 --> 01:05:51,880
Speaker 2: that plays to your strength. Right, people have strengths and

1289
01:05:51,920 --> 01:05:54,280
Speaker 2: they have weaknesses, and you want to improve your weaknesses.

1290
01:05:54,720 --> 01:05:56,680
Speaker 2: But don't do that at your job. Do that in

1291
01:05:56,680 --> 01:05:59,000
Speaker 2: your social life. Do that for your hobbies. You know,

1292
01:05:59,040 --> 01:06:01,280
Speaker 2: if you want to get physical stronger, go lift weights

1293
01:06:01,360 --> 01:06:04,040
Speaker 2: or something like that if you're not strong. But you know,

1294
01:06:04,080 --> 01:06:06,440
Speaker 2: if you're not strong, don't try to become an athlete

1295
01:06:06,560 --> 01:06:09,280
Speaker 2: because that doesn't play to your strength. Figure it out.

1296
01:06:09,280 --> 01:06:11,800
Speaker 2: What is it that you are good at where you

1297
01:06:11,960 --> 01:06:15,360
Speaker 2: have the best advantage over other people, Because there's plenty

1298
01:06:15,400 --> 01:06:17,360
Speaker 2: of people who are going to be competing for whatever

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01:06:17,400 --> 01:06:19,240
Speaker 2: it is that you are trying to do, so you

1300
01:06:19,280 --> 01:06:21,560
Speaker 2: may as well at least be trying to play to

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01:06:21,600 --> 01:06:22,080
Speaker 2: your strength.

1302
01:06:22,520 --> 01:06:25,120
Speaker 1: And our final question, what do you know about the

1303
01:06:25,120 --> 01:06:28,160
Speaker 1: world of investing today you wish you knew thirty or

1304
01:06:28,160 --> 01:06:30,560
Speaker 1: so years ago when you were first starting out.

1305
01:06:31,720 --> 01:06:34,080
Speaker 2: Well, I guess if I had to pick one thing,

1306
01:06:34,280 --> 01:06:36,960
Speaker 2: I think it's been just the change in the dynamic

1307
01:06:37,000 --> 01:06:40,040
Speaker 2: of the market, the way that it's broken from active

1308
01:06:40,080 --> 01:06:42,600
Speaker 2: and passive and all of the rest of it. And

1309
01:06:42,640 --> 01:06:47,840
Speaker 2: to also just kind of realize that, you know, people

1310
01:06:48,440 --> 01:06:50,840
Speaker 2: act to follow their motivations. If you figure out what

1311
01:06:50,880 --> 01:06:55,160
Speaker 2: the motivations are, you can often understand people's actions. Huh.

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Speaker 1: Really interesting. Thank you David for being so generous with

1313
01:06:58,240 --> 01:07:01,800
Speaker 1: your time. We have been speaking with David Einhorn, President

1314
01:07:01,840 --> 01:07:06,120
Speaker 1: and founder of Greenlight Capital. If you enjoy this conversation,

1315
01:07:06,280 --> 01:07:09,200
Speaker 1: check out any of the five hundred pass discussions we've

1316
01:07:09,200 --> 01:07:12,040
Speaker 1: had over the previous ten years. You can find those

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Speaker 1: at iTunes, Spotify, YouTube, wherever you find your favorite podcasts.

1318
01:07:17,320 --> 01:07:20,280
Speaker 1: Be sure and check out our new podcast at the Money,

1319
01:07:20,280 --> 01:07:23,000
Speaker 1: where each week I speak to an expert for ten

1320
01:07:23,080 --> 01:07:28,560
Speaker 1: minutes about the most important aspect of your money, investing, earning,

1321
01:07:28,720 --> 01:07:32,040
Speaker 1: and spending. That's at the Money. You'll find that in

1322
01:07:32,080 --> 01:07:35,440
Speaker 1: your Master's and Business feed. Sign up for my daily

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Speaker 1: reading list at ridults dot com. Follow me on Twitter

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Speaker 1: at ridults, Follow all of the Bloomberg Family of podcasts

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Speaker 1: at podcast I would be remiss if I did not

1326
01:07:45,040 --> 01:07:47,560
Speaker 1: thank the crack team that helps us put these conversations

1327
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Speaker 1: together each week. Kaylie Lapara is my audio engineer. Attika

1328
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Speaker 1: Valbrunt is my project manager. Anna Luke is my producer.

1329
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Speaker 1: Sean Russo is my researcher. I'm Barry Ridolts. You've been

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Speaker 1: listening to Master's Business on Bloomberg Radio.