Speaker 1: This week on the podcast, I have Jeff Graham. He
Speaker 1: is the author of a really interesting book of which
Speaker 1: I will pull out of my bag right now, and
Speaker 1: the title is Dear Chairman, Boardroom Battles and the Rise
Speaker 1: of Shareholder Activism. UM. Funny story those of you who
Speaker 1: listen to the show regularly. No, I've had the former
Speaker 1: SEC chairman Arthur Levitt as a guest twice, once just
Speaker 1: to talk about Arthur Lever type stuff and another was
Speaker 1: a segment dedicated to changes in regulation. They were both
Speaker 1: really interesting. Anyway, Um, one day I get an email
Speaker 1: from Arthur and he writes, I have an interesting young man.
Speaker 1: You should you should me that he wrote the book
Speaker 1: Dear Chairman. Right, Why does that sound familiar? Turns out
Speaker 1: to the guys in my office had already read it.
Speaker 1: Both of them really liked it, and so I right
Speaker 1: back to Arthur. Yeah, I'm interested. Didn't in speaking to him,
Speaker 1: but full disclosure, you know, in Bail Out Nation, I
Speaker 1: kind of trashed his dad, who happens to be Senator
Speaker 1: Phil Graham, and I've said stuff about his mom in print.
Speaker 1: Nothing ed homin him or anything. Just I've written critically
Speaker 1: about about what they've done professionally, and you know we
Speaker 1: really should is that okay? Is that gonna be a problem?
Speaker 1: Should we disclose that? And author writes back, That's not
Speaker 1: gonna be a problem. Okay, Fine, So instead of sending
Speaker 1: a separate email, Arthur just replies to that email with
Speaker 1: um my comments to Jeff, copies copies, May and um, hey,
Speaker 1: you guys should get together and and talk about the
Speaker 1: book on Masters and Business. And I kind of do
Speaker 1: a you know, a face palm. Oh, Arthur, you really
Speaker 1: don't have the email skills you should, But anyway, um,
Speaker 1: Jeff was a good sport about it, and growing up
Speaker 1: the son of Senator um it wasn't the first time
Speaker 1: someone had had been critical of his dad. So if
Speaker 1: you were at all interested in activist investing or the
Speaker 1: history of of value investing, I thought this was really
Speaker 1: interesting conversation. So, with no further ado, here is my
Speaker 1: conversation with Jeff Graham. This is Masters in Business with
Speaker 1: Barry Ridholts on Bloomberg Radio. My guest today is Jeff Graham.
Speaker 1: Let me give you a little background on Mr Graham.
Speaker 1: He is the founder of Bandera Partners, which is a
Speaker 1: hedge fund located here in New York City. He is
Speaker 1: a graduate of the University of Chicago, got his NBA
Speaker 1: from Columbia School of Business, where he is currently an
Speaker 1: adjunct professor. He is also on the boards of several
Speaker 1: publicly traded companies. He comes from an interesting family. He
Speaker 1: is the son of Senator Phil Graham and Wendy Graham,
Speaker 1: and most interesting to me, he is the author of
Speaker 1: the book Dear Chairman, Boardroom Battles and the Rise of
Speaker 1: Shareholder Activism. Jeff Graham, Welcome to Bloomberg. Thanks for having me.
Speaker 1: I'm a big fan of the show. Well, that's terrific.
Speaker 1: Thank you, And I enjoyed your book. I'm like halfway
Speaker 1: through it and and really enjoyed it. Several people in
Speaker 1: my office read it and recommended it. I love the
Speaker 1: origin story you tell in the very beginning of the
Speaker 1: book of William Schlensky, who got two shares of stock
Speaker 1: in the Chicago Cubs, and that led essentially to the
Speaker 1: rise of shareholder activism. For people who may not be
Speaker 1: familiar with the history of the Chicago Cubs, what happened
Speaker 1: with Mr Schlensky? Sure, well, so Bill Slensky got two
Speaker 1: shares in the Cubs as a birthday gift. How old
Speaker 1: was he at the time, I think he was eighteen
Speaker 1: or nineteen, and he decided like, look, you know, we've
Speaker 1: all been in, you know, enduring these these years of
Speaker 1: terrible baseball, and he thought it, you know, was driven
Speaker 1: by the fact that they did not have lights on
Speaker 1: Wrigley Field. So this is this is in the forties
Speaker 1: and sixties, most of Major League Baseball had moved to
Speaker 1: night games that were really popular. Crosstown rival White Sox,
Speaker 1: we're getting quadruple Oh yeah, they were getting like, you know,
Speaker 1: fifteen eighteen thousand people at night at the game. Yeah,
Speaker 1: because they're like on a Wednesday afternoon, you know, people
Speaker 1: have to work and so um. He thought, well, you
Speaker 1: know this is a feeding the poor performance of the Cubs,
Speaker 1: and um u um. He suited them as a shareholder,
Speaker 1: saying that, you know, you're neglecting your your shareholders by
Speaker 1: refusing to put lights onto onto Wrigley Field. So what
Speaker 1: was the outcome of the suit He lost. Basically, the
Speaker 1: defense of the Wriggley's was that, look, I mean, you know,
Speaker 1: we care about the shareholders, but we care about the
Speaker 1: stakeholders to including the community. So the business judgment rule
Speaker 1: basically married the day. Yeah, and which meant that they're
Speaker 1: they're not responsible for being correct. It just has to
Speaker 1: be an exercise of their judgment right or wrong. Well like,
Speaker 1: and they were very clear that they thought that it
Speaker 1: would be extremely bad for the neighborhood of Wrigley Field
Speaker 1: if they put lights on on Wrigley Field, and that
Speaker 1: the board you know, made the judgment that that was
Speaker 1: the right thing to do. But in the long run,
Speaker 1: economics sell wins, and eventually they had to, like the
Speaker 1: league essentially forced them to put those lights up. So
Speaker 1: shareholder activism goes long before the nineteen sixties. Use the
Speaker 1: example of the Dutch East India Company and shareholders were
Speaker 1: angry about self dealing about the directors. How did that
Speaker 1: manifest itself? Yeah, Well, I mean, like I think through history,
Speaker 1: like you've seen, uh, you know, will owners metal and
Speaker 1: then you know, like you do have this inherent problem
Speaker 1: in the system, the principal agency conflicts. So you have
Speaker 1: people running the management running a business essential in behalf
Speaker 1: of the owners, and that creates a little bit of
Speaker 1: conflict for the managers to enrich themselves at the owner's expense. Well,
Speaker 1: and when you think about the principal agent problem in
Speaker 1: this particular case, it's extremely thorny because the principle are
Speaker 1: the shareholders and that's a collective group that often have
Speaker 1: you know, differing in incentives and goals. And the agent
Speaker 1: is a board of directors where they're often you know,
Speaker 1: they're not that engaged in the business, like the information
Speaker 1: that that they get about the business is fed to
Speaker 1: them by management. You know. So it's a principle and
Speaker 1: agent problem. And there's also some inherent issues with the
Speaker 1: principle and the nature of the agent. So a lot
Speaker 1: of the letters that you published in the book have
Speaker 1: never been published before. How did you manage to track
Speaker 1: these things down? Yeah? I mean, you know, the the
Speaker 1: kind of hook of the book is it's all case studies,
Speaker 1: and each of the case his comes with an original letter.
Speaker 1: And so for lots of them, I knew the letter existed.
Speaker 1: Like in the in the Benjamin Graham chapter that's the
Speaker 1: first chapter in the book, he ran a proxy fight
Speaker 1: against the Northern Pipeline Company, and he had written, you know,
Speaker 1: there's a whole chapter about that proxy fight in his memoir,
Speaker 1: And so I knew the letter was out there. Um,
Speaker 1: it's just a question of of trying to find it.
Speaker 1: And like I talked to his family and his biographers
Speaker 1: and um, and no one had it. And ultimately I
Speaker 1: found it at the Rockefeller Archives, but lots of them.
Speaker 1: I just asked, I mean, like, you know, with Warren Buffett,
Speaker 1: like I knew from the Snowball that he wrote the
Speaker 1: letter Snowball about Buffett. Yeah, he famously wrote a letter
Speaker 1: to American Express in the nineteen sixties, And so I
Speaker 1: just wrote, Buffett, just explain the concept of the book,
Speaker 1: and can you share the letter. And I got to
Speaker 1: work one day and there's a there's an envelope with
Speaker 1: a letter in it, and and I want to take
Speaker 1: for that to get back to you from from the request,
Speaker 1: well weeks, you know, two weeks. There are lots of
Speaker 1: interesting stories about people making requests about the Buffett and
Speaker 1: things magically show up. It's uh, it's fascinating. So so
Speaker 1: what motivated you to write this book? What was your
Speaker 1: drive to to put this together? Well, I mean, I
Speaker 1: love writing, and I've always you know, thought that that
Speaker 1: I had like the writing chops to do a book,
Speaker 1: but really with this one, you know, I'm a full
Speaker 1: time fund manager, like I didn't have the time. I
Speaker 1: had two little kids. You know, when I got the
Speaker 1: letter from Warren Buffett, like it kind of you know,
Speaker 1: turned this idea that I had vaguely had, I'll write, like,
Speaker 1: I'll see if you'll do something. And then all of
Speaker 1: a sudden, like I had this up pressure of like,
Speaker 1: well I had this thing. I kind of burned a
Speaker 1: hole in my pocket. Like I got the Buffet letter
Speaker 1: and the Ross Paro letter like within weeks of each other,
Speaker 1: and you know, yeah, I mean the Parro and is
Speaker 1: a is a fabulous you know letter. It had not
Speaker 1: been published, and I just thought, well, I have to
Speaker 1: do this. Now. Let's talk a little bit about no relation.
Speaker 1: Ben Graham spelled with two a's and and one m.
Speaker 1: People think about Ben Graham and they obviously think about
Speaker 1: the intelligent investor and value investing in the whole school
Speaker 1: of thought that that comes out of that. Uh, But
Speaker 1: he also turned out to be a bit of an
Speaker 1: activist investor. Tell us about that, well, I mean a
Speaker 1: lot of the stocks that he bought were exceptionally cheap
Speaker 1: on a balance sheet basis, and he writes about that,
Speaker 1: you know that he likes these you know, net nets
Speaker 1: where like the cash and and you know, the current
Speaker 1: assets exceed all the liability classic value investing by ten
Speaker 1: dollars for eight bucks over the long run. Yeah, and
Speaker 1: I mean ultimately when you find those situations, like you know,
Speaker 1: the market like it's not always done, like a lot
Speaker 1: of times it has that valuation because of a governance problem.
Speaker 1: And very early in his career he found the Northern
Speaker 1: Pipeline company that's in my book, where like it was
Speaker 1: a trade in the mid sixties, and he discovered that,
Speaker 1: you know, they had over ninety dollars per share in
Speaker 1: liquid bonds. In other words, they held securities that were
Speaker 1: worth more on a pre share basis, you know, than
Speaker 1: the whole company. Sounds a little bit like Yahoo today, Yeah, exactly.
Speaker 1: And um, you know, like with like with Yahoo, there's
Speaker 1: a discount because of the tax problem, but there was
Speaker 1: also in that stock and lots of other stocks, there
Speaker 1: was a governance discount. And like with Northern Pipeline, he thought, well,
Speaker 1: this is easy. I'll go explain to this company, you
Speaker 1: have all this cash, just like return it to the shareholders,
Speaker 1: like you know, we'll all retain our ownership and your
Speaker 1: good company and we'll go from there, and they you know,
Speaker 1: they showed him the door. And let's let's you say
Speaker 1: they the some of the folks who were on the
Speaker 1: other side of the table included some pretty big names
Speaker 1: in the history of finance. Yeah. Well, the company was
Speaker 1: a part of you know, like the Standard Oil Company,
Speaker 1: which is owned by by you know, the Rockefellers, small
Speaker 1: little group that hadn't pasked a couple of a couple
Speaker 1: of dollars and a couple of shares of stock. Yeah,
Speaker 1: so when they broke apart, like the monopoly, you know,
Speaker 1: like they had a whole bunch of public companies. They
Speaker 1: were there were eight pipeline companies and you know, by
Speaker 1: the enties when Ben Graham began to poke around all
Speaker 1: of these things like we're very over capitalized, had these
Speaker 1: boards that like, we're not that engaged. And then their
Speaker 1: biggest holder is the Rockefeller Foundation, who at the time
Speaker 1: had a policy like to not get involved in the
Speaker 1: operations of their shareholdings. But but meanwhile, you have this pipeline,
Speaker 1: Northern Pipeline, trading at sixty five So so why couldn't
Speaker 1: Graham just quietly continue to accumulate as much of the
Speaker 1: ninety plus dollar per share company plus the operating company
Speaker 1: at sixty five and and not say anything and assume
Speaker 1: eventually the market would figure it out. Yeah, I mean
Speaker 1: I think that ultimately he thought that he like he
Speaker 1: possibly could do that, but you know, like the answer
Speaker 1: there was for them to return that cash, you know.
Speaker 1: So so you know, so he quietly bought all that
Speaker 1: he could until he reached his position limit and then
Speaker 1: nothing happened. What was his position limit? Well, he was
Speaker 1: a very diversified investor, so he's not going to have
Speaker 1: a concentrated portfolio. That's you would you would think you
Speaker 1: could today, you could raise a fund and just accumulate
Speaker 1: Northern Pipeline at stars with ninety dollars and yeah exactly,
Speaker 1: But like you know, it never was his m to
Speaker 1: like to buy to get control. So is that why
Speaker 1: even when when things worked out with Northern Pipeline, it
Speaker 1: really didn't impact is a fund all that much? Well,
Speaker 1: I mean it did in the sense it was a
Speaker 1: big home run and it helped his returns. It taught
Speaker 1: him about activism and governance and and and he did
Speaker 1: like a lot of activism after that. Like, but ultimately
Speaker 1: it was not like the investors that you see today
Speaker 1: that will have a third of their of their fund
Speaker 1: in one stock and then it's a big home run.
Speaker 1: So so what was the outcome with the Rockefellers in
Speaker 1: the Northern Pipeline. How did they resolve this? We are
Speaker 1: an operating company, plus we have ninety dollars per share
Speaker 1: in marketable security. Well, I mean it was a long slaga.
Speaker 1: So at first, like they basically told him to go away.
Speaker 1: He takes the train all the way out like, uh,
Speaker 1: you know, to Pittsburgh for the annual meeting, and like
Speaker 1: he tells him that he's like prepared like a statement,
Speaker 1: and they tell him, while, you're welcome to come and
Speaker 1: and he gets up to give the statement, and the
Speaker 1: chairman asked, um, you know, would you like to make
Speaker 1: a motion? And he said, so yes, I would like
Speaker 1: like to motion to give my statement. And the chairman asked, well,
Speaker 1: is anyone here uh to second that motion? And he
Speaker 1: didn't bring anyone and so no one seconded the motion.
Speaker 1: He had to go all the way back to Latina
Speaker 1: to New York. But but by doing that they really
Speaker 1: made him angry. And so by the next year he
Speaker 1: was extremely prepared. He ran a whole proxy fight. He
Speaker 1: won the proxy fight. He behind the scenes, through a
Speaker 1: very good letter that's in my book, he you know,
Speaker 1: ultimately convinced the rocket Fellers that the right thing to
Speaker 1: do here was to distribute this cash. And so not
Speaker 1: only did that happen at the Northern Pipeline Company, but
Speaker 1: after this episode, the Rockefellers pushed all of the other
Speaker 1: pipelines to return their excess cash. So he really had
Speaker 1: a significant impact on on shareholder value and activism. I mean,
Speaker 1: I'm not sure, because I do think that all of
Speaker 1: this was very under the radar, Like I mean it
Speaker 1: was not I mean, it wasn't on Twitter. I mean,
Speaker 1: it wasn't even in the newspaper like it's funny, And
Speaker 1: there was no financial press that covered this at all. Yeah,
Speaker 1: So when I did my book, I looked at all
Speaker 1: of the old proxy fights, and you know, there were
Speaker 1: a few like you know, like the Central Leather nineteen
Speaker 1: eleven that like had a very small article that's a
Speaker 1: fascinating story. Also tell us about the Central Leather story.
Speaker 1: Oh well, just that like their whole proxy fight there
Speaker 1: and this got what big news was just for them
Speaker 1: to disclose information better quarterly release your finances. How amazing
Speaker 1: is that that if you went back that far, you
Speaker 1: go back a century, companies didn't feel obligated to say,
Speaker 1: by the way, here here's how much revenue we have,
Speaker 1: and here's how much profit we have, and here's what
Speaker 1: we spent money on. Companies did not even release that now,
Speaker 1: and in the Ben Graham case, it's not clear that
Speaker 1: the that the Rockefellers even knew how cash rich the
Speaker 1: pipeline companies were, and so like it opened their eyes
Speaker 1: to that. So Warren Buffett famously one of Ben Graham's proteges.
Speaker 1: He had a big impact when he was an activist
Speaker 1: in the way companies deal with activists and even how
Speaker 1: their structured legally. What happened with with Buffett, Well, you know,
Speaker 1: so Buffett in his early career, I mean, well, first
Speaker 1: of all, you know, he worked for Ben Graham, and
Speaker 1: you know, so he worked at the Graham Newman shop
Speaker 1: that did lots of proxy fights and did lots of activism.
Speaker 1: And when he began his own fund in in the
Speaker 1: mid nineteen fifties in Omaha, he also did lots of
Speaker 1: buying big stakes in public companies, you know, joining like
Speaker 1: the boards and ultimately breaking apart the companies are driving
Speaker 1: them to you know, improve profits. And so he did
Speaker 1: buy lots of these like declining, mature, undervalued businesses. If
Speaker 1: you look at Berkshire Hathaway, that's effectively what happened there.
Speaker 1: Like it was a terrible like declining business, but it
Speaker 1: was a net net. He bought control of it and
Speaker 1: he ultimately like began to use their cash and they're
Speaker 1: declining cash flow to invest in other businesses. I'm Barry Ridholts.
Speaker 1: You're listening to Masters in Business on Bloomberg Radio. My
Speaker 1: guest today is Jeff Graham. He is the author of
Speaker 1: the book Dear Chairman and which is all about activist
Speaker 1: investing and how things have changed in the world of
Speaker 1: corporate governance. He also is an adjunct professor at Columbia University.
Speaker 1: So you run of funds and you you know what
Speaker 1: it's like to have investors who are looking over your shoulder.
Speaker 1: How do you deal with that in a concentrated portfolio? Yeah,
Speaker 1: I mean, how do I deal with the investors, like,
Speaker 1: you know, in my fund or in our target companies? Both?
Speaker 1: Let's let's let's take both. First, do you have your
Speaker 1: own investors's writing you ye do your chairman like, Yeah,
Speaker 1: I mean, ultimately, I think it probably has a lot
Speaker 1: in common with being a public company CEO in that
Speaker 1: like you have to communicate your strategy, Explain to them
Speaker 1: exactly what you're doing, Explain to them how you think
Speaker 1: about things, and so when things will do go wrong,
Speaker 1: if you have a bad quarter or a bad year,
Speaker 1: you know they can understand it. And I think that
Speaker 1: like that because ultimately an important job of a public
Speaker 1: company CEO two is like you have to like to
Speaker 1: keep your shareholders informed about, you know, how you operate.
Speaker 1: You can't guarantee good results, but you can at least say,
Speaker 1: here's our process, here's what we're doing, and we want
Speaker 1: you to un uderstand and look, I mean, in value investing,
Speaker 1: like you're never going to have a great year every year,
Speaker 1: that's right, because because by definition, you're buying those stubs,
Speaker 1: those unloved things. And just because something's cheap doesn't mean
Speaker 1: it can't get cheaper. It will get cheaper. So you
Speaker 1: wrote yourself a dear chairman letter tell us about that. Yeah,
Speaker 1: my first one. It was um in the early two
Speaker 1: thousand's at my very first job, you know, which was
Speaker 1: like the early years of the hedge fund business, and
Speaker 1: so it was like a little bit of a crazier
Speaker 1: you know, more like the wild West, you know. So
Speaker 1: so the evolution of that is that today, post two thousand,
Speaker 1: there's ten thousand hedge funds, but for a long time
Speaker 1: there was only a handful of funds. There was some
Speaker 1: pretty well known guys, and that exploded around post dot
Speaker 1: com period. I think it's also it's just a more
Speaker 1: mature and process oriented business. I think that when I
Speaker 1: began in it, I was just out of business school.
Speaker 1: I didn't know what I was doing, and I got
Speaker 1: and I mean I wrote a thirt d letter well
Speaker 1: to like a like a pretty big of the company,
Speaker 1: the Denny's Corporation, the Moon's over Miami people, And I
Speaker 1: just think that like that back then it was just like,
Speaker 1: you know, it was a little bit of a of
Speaker 1: a of a crazier time in the business. But they
Speaker 1: had had some problems and they had tried to kind
Speaker 1: of expand their like their lunch and dinner business and
Speaker 1: and had neglected to advertise their breakfast business. It hurt
Speaker 1: their results. And there, I mean I think of Denny's
Speaker 1: and I think of breakfast. Yeah, So how did that
Speaker 1: Did you influence that chain? Are you? Are you the
Speaker 1: reason why we have Denny's Breakfast all day? I think
Speaker 1: I played a role in them. Were not doing a
Speaker 1: restructuring in in the early two thousand's, you know, so
Speaker 1: we basically it was a cheap stock because it was
Speaker 1: highly overleveraged. And like you, I mean, like you rarely
Speaker 1: see this as often, but it was a situation where
Speaker 1: on an enterprise basis, the company was extremely undervalued, you know,
Speaker 1: where if you could deliver it like then you could
Speaker 1: be realized. Yeah, you know that stuff tends to be
Speaker 1: a lot more priced in these days, I would imagine.
Speaker 1: So when you come across a situation these days where
Speaker 1: there is an undervalued company, the market is miss pricing it,
Speaker 1: and you want management to do something, how do you
Speaker 1: go about writing that, dear chairman? Like yeah, I mean
Speaker 1: in in a funny way, even though I wrote a
Speaker 1: book about it. Um, the age of the deer chairman
Speaker 1: letter is kind of passing. Like you go meet with
Speaker 1: the management, and you and and you meet with the board,
Speaker 1: and you have a conversation with him, and you meet
Speaker 1: with the other shareholders. You know, back then, like you're
Speaker 1: more trying to persuade the shareholder base. And so at
Speaker 1: that time, like the Denny's board was considering doing a
Speaker 1: restructuring to equitize their debt, and you know, so we
Speaker 1: had to Yeah, you know so we had to commence
Speaker 1: the board. No, like, you're doing fine. If you need
Speaker 1: to raise a capital, like, you should do it well
Speaker 1: from the stockholders. And by doing that in a like
Speaker 1: in a public a fashion, like it also got the
Speaker 1: stockholders behind the idea. That makes a lot of sense.
Speaker 1: So let's talk about some of the quotes from the book.
Speaker 1: And I really like this. In normal market conditions, if
Speaker 1: I find a good company a cheap valuation, it tends
Speaker 1: to have governance problems. Is that still true today? I
Speaker 1: think that's true. And I mean that was a statement
Speaker 1: that I made in the introduction of the book, where
Speaker 1: like I'm kind of explaining who I am and explaining
Speaker 1: the voice of the book. And you know, I'm a
Speaker 1: value investor. I look for cheap stocks, and especially in
Speaker 1: the market like today's, it's hard to find a cheap stock,
Speaker 1: and if you do find one, it's often because there's
Speaker 1: an issue with how they're run. It's cheap for a reason. Yeah,
Speaker 1: that makes sense. And what's the difference in management at
Speaker 1: a large company versus a small company when it comes
Speaker 1: to these governance issues. I mean, I guess, like from
Speaker 1: you know, from my experience, am I generally believed that, like,
Speaker 1: the larger companies tend to have higher quality boards, and
Speaker 1: they tend to be just like to have higher caliber
Speaker 1: CEOs and boards of directors. And you know, that is
Speaker 1: both intuitive and counterintuitive because like in some ways that
Speaker 1: you would think, well, at these you know, well, Nitchie,
Speaker 1: small companies like you might have these CEOs like who
Speaker 1: really know the business, you know, But generally the bigger
Speaker 1: the company, the stronger the board. I think, all right,
Speaker 1: let's get back to the activist investor question. And I
Speaker 1: like the example we we talked earlier about Central Leather
Speaker 1: js Bach eventually is at Prudential Base. Is that where
Speaker 1: they ended up? I don't know. I think that's that,
Speaker 1: if memory serves, I think they eventually became part of that.
Speaker 1: They wanted a representation on the board merely to get
Speaker 1: quarterly financial updates to shareholders. That almost seems quaint compared
Speaker 1: to what what takes place today. So what was the
Speaker 1: result of that bit of shareholder activism. Well, I mean
Speaker 1: in the very early days, um activism. I mean, if
Speaker 1: it was you know, well from a financial investors well,
Speaker 1: guys like Ben Graham. Well, first of all, there was
Speaker 1: not that much of that, and and second of all,
Speaker 1: it tended to always be about you know, financial issues,
Speaker 1: well financial disclosure or capital allocation. And really like you
Speaker 1: saw a beginning in in the nineteen fifties with the
Speaker 1: proxy tier movement that was a very big shareholder activism
Speaker 1: in other words, getting actual other shareholders to vote the
Speaker 1: way the activists wanted in order the force management to
Speaker 1: do what they wanted to do. Yeah, I mean in
Speaker 1: the proxy tier era, it evolved you know, to a
Speaker 1: lot more operating issues and the kind of activism that
Speaker 1: you see today. I mean, I remember there was in
Speaker 1: like in the chapter in the book that's about the
Speaker 1: proxy fight for the New York Central. Uh, the activist
Speaker 1: even talks about like the nature of their passenger trains
Speaker 1: and like like like that they needed to build like
Speaker 1: a lightweight train. You know. So things evolved up you know,
Speaker 1: well pretty quickly. I'm I'm away from the pure financial activist.
Speaker 1: So you raise a really interesting point there, and I'm
Speaker 1: gonna go to a quote from your book, the key
Speaker 1: issue in an activist campaign often boils down to who
Speaker 1: will do a better job running the company, a professional
Speaker 1: management team and their board with little accountability, or a
Speaker 1: financial investor looking out for his or her own And
Speaker 1: I'm going to add the word short term interests, so
Speaker 1: that to me, that's really a fascinating issue, a fascinating
Speaker 1: seat of opposed interests. Yeah, and I think in the
Speaker 1: ideal world, like you want the activists a shareholders like
Speaker 1: well to be long term oriented, and like you do
Speaker 1: want them all to work together. It doesn't always happen
Speaker 1: that way now, And lots of times, like if you're
Speaker 1: a passive shareholder and there's an activist, like the activists,
Speaker 1: you know, wants to sell the company, and so like
Speaker 1: you're deciding, like who's right here? And I was, I
Speaker 1: will perfectly. Example was the Carli Con activism with Apple.
Speaker 1: Here's a company on its way to becoming the most
Speaker 1: valuable company in the world. They dented the universe, to
Speaker 1: quote Steve Jobs, and invented not one or two, but
Speaker 1: a number of technologies that were completely innovative, game changing,
Speaker 1: altering the landscape. Really, what does a guy who bought
Speaker 1: a few million shares of Apple. Have to say about
Speaker 1: innovation technology running a company. I was always very struck
Speaker 1: at the u briss of I know, how you should
Speaker 1: be running this company better than you do. Yeah. Does
Speaker 1: that come up frequently with with activists or yeah, I
Speaker 1: mean I think that's like the whole issue is like that. Ultimately,
Speaker 1: it like it takes a lot of hubrists, like you know,
Speaker 1: because as investors, we are working off of extremely limited information.
Speaker 1: You know, we know less than the board and the
Speaker 1: management knows about the business often and so like they
Speaker 1: do have to have this confidence that like their ideas
Speaker 1: are right even when they do tend to have less information.
Speaker 1: But it's not always black and white, like I mean,
Speaker 1: even in that Carli con case, Like on the one hand,
Speaker 1: like you have the most successful company in history arguably,
Speaker 1: like I mean, like they're in I mean, they're in
Speaker 1: a very hard commodity business and they've built you know
Speaker 1: what will right now is like the most valuable company
Speaker 1: in the world. That's an insane achievement. Not only that,
Speaker 1: when you look at the mobile smartphone, something that if
Speaker 1: they didn't invent, they certainly took to a different level.
Speaker 1: They capture something like four to five cents. It used
Speaker 1: to be eight out of ninth cents of profit in
Speaker 1: that space. My favorite stat about Apple is Samsung set
Speaker 1: makes more selling chips to Apple for each phone that
Speaker 1: Apple cells than they do on their own Galaxy. So
Speaker 1: for someone to come along and say, all right, nice
Speaker 1: job guys, so far, but I'll take it from here,
Speaker 1: that's really a lot out of But I mean, is
Speaker 1: he clearly wrong. I mean, if you believe in the
Speaker 1: business will long term, if you believe in the management, like,
Speaker 1: is he wrong to say, look, you're crazily I mean,
Speaker 1: you know, you're crazily over capitalized. Perhaps you should buy
Speaker 1: back some shares. It's unique in the history for some
Speaker 1: company to be sitting with two hundred bill or at
Speaker 1: the time, at the time it was a hundred billion,
Speaker 1: now it's two hundred billion. Yeah, And so you know
Speaker 1: they're incentives like you know that like that Icon wants
Speaker 1: the stock to go up, and you know the management
Speaker 1: probably wants that two hundred billion uh to play with
Speaker 1: or like to do whatever you know they want with
Speaker 1: like you as the shareholder, it's not just completely obvious
Speaker 1: who's right and who's wrong there, And it depends on
Speaker 1: your like on your long term view of the company,
Speaker 1: and like your view of the valuation. We're talking with
Speaker 1: Jeff Graham, author of Dear Chairman, The History of Activists Investing.
Speaker 1: So so let's look at the current crop of activists.
Speaker 1: You mentioned Carl icon Uh, Warren Buffett, Benjamin Graham, Ross Biro,
Speaker 1: Dan Loebe. With the notable exception of Warren Buffett, the
Speaker 1: investors in this book are static characters who undergo little
Speaker 1: fundamental change. Why is that, Well, the book is about
Speaker 1: this activists will movement. It's about how we got there,
Speaker 1: It's about how it happened. Um. And ultimately, an activist
Speaker 1: is a financial investor. Will you know, we'll trying to
Speaker 1: make a profit on their investment in the company. And
Speaker 1: you know, like the way that that those guys all
Speaker 1: do it has changed over time, like because of a
Speaker 1: lot of external factors, but ultimately, at their core, they
Speaker 1: are still these economic actors out to make a buck.
Speaker 1: And I think it's important as we look at this
Speaker 1: history and as like we understand how public companies work. Um,
Speaker 1: you know, will people attend to focus a lot on
Speaker 1: the personalities of the activists, and will Bill Ackman and
Speaker 1: David iron Horn. But but a lot of the movement
Speaker 1: that you're seeing now is driven by the behind the scenes,
Speaker 1: a passive investors, the people like a Vanguard or the
Speaker 1: big pension fund. So let's let's talk about Van Good
Speaker 1: said something publicly, So for those people who don't know,
Speaker 1: I think in terms of the United States, Vanguard owns
Speaker 1: one out of every five shares of every publicly traded company,
Speaker 1: which is an insane number. And I heard you on
Speaker 1: I saw a video online where you noted that Vanguard
Speaker 1: has twenty two people on staff whose sole job it
Speaker 1: is to vote the proxies for the companies they own.
Speaker 1: So we all think of Vanguard as this passive company,
Speaker 1: but really, if they want to de flex their muscles,
Speaker 1: they're a very powerful player in corporate governance. Yeah. So,
Speaker 1: I mean, like the big dynamic that you see in
Speaker 1: this book is that like the history of activism has
Speaker 1: been been sculpted by like like like this concentration and
Speaker 1: institutional investors. Like that really began in the sixties with
Speaker 1: the big pension funds, but then it kind of got
Speaker 1: kicked into hyperdrive with with the index funds and indexation,
Speaker 1: which is you know, Vanguard is a pretty old company.
Speaker 1: But this is a pretty recent phenomenon. I mean even
Speaker 1: well since the like the financial crisis, like you've seen
Speaker 1: a dramatic increase and you know, like in these big
Speaker 1: like a passive you know, institutions, Rock, the whole run
Speaker 1: of stuff that has been what is Black Rock and
Speaker 1: Vanguard or each they're like a huge you're add State
Speaker 1: Street and one or two more and that's half the
Speaker 1: tradeable shares and those um entities like have basically fallen
Speaker 1: into the situation like where they are effectively the arbiters
Speaker 1: of these hedge fund activist disputes and so like yeah,
Speaker 1: like you'll see Bill a man in the headlines on
Speaker 1: you know, Canadian Pacific or something. But like the people
Speaker 1: that hold the votes are these big pension funds and
Speaker 1: and and Vanguard behind the scenes, and their vote is
Speaker 1: incredibly important and so they like are very um you know,
Speaker 1: I mean, you know, they're more engaged than like then
Speaker 1: people think in these issues, especially at the bigger cap companies.
Speaker 1: Thank you Jeff for chatting with us. Can you stick
Speaker 1: around for the podcast extras? Great We've been speaking with
Speaker 1: Jeff Graham. He is the author of Dear Chairman, The
Speaker 1: history of activist investors. Be sure and check out my
Speaker 1: daily column on Bloomberg View dot com or follow me
Speaker 1: on Twitter at Rid Halts. I'm Barry Rihults. You've been
Speaker 1: listening to Masters in Business on Bloomberg Radio. Welcome to
Speaker 1: the podcast. Actually, Jeff, thank you so much for doing this.
Speaker 1: This is uh, this is really interesting. Before we continue
Speaker 1: the questions, there's a funny little story I think we
Speaker 1: should share. So, So, a couple of guys in my
Speaker 1: office had read Dear Chairman. I keep calling it, by
Speaker 1: the way, dear Mr Chairman. Lots of people do. It's
Speaker 1: like a pretty snappy title, right, dear Mr chair Well,
Speaker 1: because some of the letters are dear Mr Chairman. So
Speaker 1: Ben Carlson is our head of Institutional Investing in and
Speaker 1: he runs uh that division, and he had done a
Speaker 1: blog post on this, and then Michael Batnick is my
Speaker 1: head of research, and he had read the book. Both
Speaker 1: of them liked it. So I kind of, you know,
Speaker 1: I have a billion books in my que and I
Speaker 1: read whatever is on fire, and I have to read.
Speaker 1: So this was sort of like I knew of it,
Speaker 1: and it was like, oh, that sounds kind of interesting.
Speaker 1: Maybe I'll get to that, I get an email from
Speaker 1: none other than Arthur Lovitt, former SEC chairman and a
Speaker 1: previous guest on the show, not once, but twice, and
Speaker 1: he says, I have a young man I'd like you
Speaker 1: to meet um. He wrote this book, dear Mr Chairman.
Speaker 1: And I'm like, why does that sound familiar? Oh? Of
Speaker 1: course the book. And so I go back and you know,
Speaker 1: I respond to um and and he mentioned he goes
Speaker 1: by the way. He's the son of Phil Graham. And
Speaker 1: I said, I'm interested in the book. I'd love to
Speaker 1: speak with Jeff. But truth be told, you know, I
Speaker 1: wrote Bail Out Nation. I was pretty critical of a
Speaker 1: number of people, Robert Ruben, Bill Clinton, George Bush. But
Speaker 1: I was pretty hard on on your dad. And I
Speaker 1: wrote to Arthur. I said, I'm happy to talk to
Speaker 1: That's right. I go full disclosure. I trashed his father,
Speaker 1: pushed the commodity future modization actor. His name is on
Speaker 1: Graham Bleach Leech blindly, which repealed Glass Stiegel. And so
Speaker 1: I said, you know, full disclosure. I've I've been hard
Speaker 1: on his dad. I called his mom all sorts of
Speaker 1: things about and Ron blah blah blah. You know, how
Speaker 1: do you suggest we handle this, so don't worry about it.
Speaker 1: Arthur says, I'll make the introduction, all right. So I'm like, alright, Arthur,
Speaker 1: who's Arthur might be one of the most charming people
Speaker 1: and one of the finest human beings you'll you'll ever meet.
Speaker 1: And so he takes that whole email where I I
Speaker 1: lay out the you know, I've trashed his mom and
Speaker 1: his dad. Are you sure this is comfortable? And he
Speaker 1: just replies to me and copies you and I see
Speaker 1: that and I'm like, oh no, Arthur, that is an
Speaker 1: email foulx PA. And I scrolled down and here's and
Speaker 1: there's nothing bad in the email. It was just hey,
Speaker 1: you know, full disclosure. I don't wanna you know, I
Speaker 1: don't want this this person walk into a room and
Speaker 1: suddenly feel like he's being sandbagged. You should probably let
Speaker 1: him know in a subtle way, not just here, I
Speaker 1: have a look at this. Uh so you were you
Speaker 1: were very gracious and said don't worry about it. I've heard. Well,
Speaker 1: it's a funny situation because I think in like today's world,
Speaker 1: like you realize, like if someone emails you like a
Speaker 1: chain email, you probably are going to skim that change
Speaker 1: of course, so Arthur is skim down like, huh, Like,
Speaker 1: do I pretend I didn't see this? Well no, I
Speaker 1: just like replied on like, hey, we're none taken. When
Speaker 1: when I saw the email, it's all right, there's an
Speaker 1: elephant in the room and we'll have to address it.
Speaker 1: And fortunately you responded to that. It was actually very funny, Arthur,
Speaker 1: if you're listening, reply all not the not the right
Speaker 1: thing to uh, not the right thing to do, but
Speaker 1: it was. Um. You know, in the day days of Google,
Speaker 1: whatever you wrote is out there. I always google my guess.
Speaker 1: I don't know if anybody is going to google me,
Speaker 1: but if they did, hey, he's written stuff about Senator
Speaker 1: Graham and your dad was in the public sphere and
Speaker 1: I have a lifetime of think I've been doing that,
Speaker 1: you know. I mean, he ran for president when I
Speaker 1: was in college, So how was that. It was a
Speaker 1: little bit surreal. I don't really remember. You didn't have
Speaker 1: a service or anything. Now. I mean he got knocked
Speaker 1: out after um um Iowa so um. But once they
Speaker 1: become the nominee, the kids are suddenly his lives have
Speaker 1: turned upside out. I don't know. I mean, even if
Speaker 1: you lose, Like do people really know much about well
Speaker 1: Bob Dole's kids or will Met Romney's kids. I'm not
Speaker 1: sure they really. If you're in college and there's a
Speaker 1: secret service contingency there, I gotta think that messes your
Speaker 1: life or it certainly is impactful. It doesn't. It's not
Speaker 1: going to mess up your life. But suddenly you're going
Speaker 1: to class and there are four guys with dark glasses
Speaker 1: and little earbuds in. That's got to be a little surreal. Yeah, well,
Speaker 1: it's been funny. I mean at that time, like you're
Speaker 1: you know, when you're in college or or a kid.
Speaker 1: He like you know, like you're you've grown up with it.
Speaker 1: It's always been. It's not like it is like like
Speaker 1: the way it is, Like you're pretty adjustable as it is,
Speaker 1: and you're kind of completely self absorbed anyway, so like
Speaker 1: you don't we'll have the perspective to understand that like
Speaker 1: that that things are weird. And and you know, when
Speaker 1: I wrote this book, I thought, like, well, sure earlier
Speaker 1: people are going to talk about that my mom was
Speaker 1: on the board of Enron, And did that ever come
Speaker 1: up in any of the reviews. It has not come
Speaker 1: up at all. I mean. In fact, you know, the
Speaker 1: connection with my dad has only been mentioned twice, and
Speaker 1: that is here like today, Well I have I felt
Speaker 1: I felt obligated that if I didn't disclose that up front,
Speaker 1: because I never want someone to come in and say,
Speaker 1: this isn't supposed to be gotcha, you know, this is
Speaker 1: supposed to be Hey, who are you? What have you done?
Speaker 1: And how did that come about? That that's the thinking here.
Speaker 1: So that's what I said to Arthur. Hey, you know,
Speaker 1: is he okay with the fact that, um and uh?
Speaker 1: I guess Arthur's thought was, well, let's find out, let's
Speaker 1: send the email. So so Enron has never come up
Speaker 1: in any of the book coverage. Now, to be fair,
Speaker 1: what your parents did in their professional career should not
Speaker 1: color how someone interprets your work. Your work the book
Speaker 1: at the very least stands on its own, and it's
Speaker 1: gotten really good reviews. So too, I could see both sides. Well,
Speaker 1: you know, there's a shareholder at were their shareholder activists
Speaker 1: with Enron? I don't rever call that it was such
Speaker 1: a hot stock. It did so well for so long.
Speaker 1: Was there even a window for activists to jump in
Speaker 1: on that? Well? So there were some some some loud
Speaker 1: short sellers. Right, well, so Jim Chano not a previous
Speaker 1: guest but not exactly. And the journalists were were engaged,
Speaker 1: you know, Bethany McClain and also a guest on the
Speaker 1: previous guest on the show, and she's great and then fabulous,
Speaker 1: and then you had like there was an email like,
Speaker 1: you know, like an internal you know what kind of
Speaker 1: a dear chairman email, like you know, which who who who? Didn't? Um,
Speaker 1: I forget her name, dear ken, you know, like I
Speaker 1: want to say Tiffany something, Tiffany Watkins or something, but
Speaker 1: it was like it was a person or something something
Speaker 1: like that. And like I actually looked at that for
Speaker 1: for inclusion in the book. I mean I looked at
Speaker 1: a lot of these, you know, I'm originally the book
Speaker 1: was just going to be a collection of letters and
Speaker 1: not necessarily all shareholder activism and and not all a
Speaker 1: financial activism. So like like I looked at like some
Speaker 1: PETERA letters and and um the gad flies, and I
Speaker 1: looked at at the un run one and ultimately the
Speaker 1: theme in this works so well, yeah, I mean like
Speaker 1: the book like as I narrowed it down, it must
Speaker 1: have come together. Oh, of course this is a coherent
Speaker 1: package as opposed to a disparates mattering of letters all
Speaker 1: over the place. That that's the challenge when you're dealing
Speaker 1: with a lot of different sources. How can I make
Speaker 1: this thematically consistent as opposed to just you know, I
Speaker 1: write about putting together daily lists, I call I. I
Speaker 1: describe it as curate viciously. And you have to do
Speaker 1: that because there's so many really interesting things that digress
Speaker 1: you away for like this conversation. Um, so you ended
Speaker 1: up deciding it just wasn't worth it to put that in.
Speaker 1: There was nothing work like I mean, look, I give
Speaker 1: her credit, like, you know, like for for speaking up,
Speaker 1: but it's kind of a a cuckoo you know, crazy email,
Speaker 1: Like I mean, it wasn't like a Lobe letter. Yeah,
Speaker 1: I mean speaking of crazy. Yeah, we didn't get to
Speaker 1: the Lobe conversations. His letters are poison pen letters. They
Speaker 1: are just dripping with disdain. How effective are these? Well,
Speaker 1: I think that was a little bit of a product
Speaker 1: of the time. So, like you have to to to
Speaker 1: put yourself in the late ninety nineties and the and
Speaker 1: and the early odds, like the like the hedge fund businesses.
Speaker 1: It's it's a new industry. It has not been around
Speaker 1: that long. It doesn't have a lot of credibility. Um,
Speaker 1: you've just had what what years are we talking about?
Speaker 1: Early two thousand's Okay, and like like you know, and
Speaker 1: look at I look at the hedge fund industry is
Speaker 1: having been around Alfred winslow end since the late sixties. Yeah,
Speaker 1: it's so it's been but they were teeny tiny. They
Speaker 1: were you know, the joke is there were a hundred
Speaker 1: hedge funds for the pet for the thirty years before
Speaker 1: two thousand, um, and now there's eleven thousand. But it's
Speaker 1: the same had hundred hedge funds that are creating alpha. Well,
Speaker 1: I think about like the beginning of the kind of
Speaker 1: activists shareholders as more, beginning in the nineties and um,
Speaker 1: and you know what you had there was you know,
Speaker 1: like you had a period in the eighties where like
Speaker 1: these activists had lots of power, like the corporate radars
Speaker 1: they like, I mean, you know, they ultimately had cash
Speaker 1: because of Michael Milkin and and by the nineties and
Speaker 1: the two thousand's, like the activists, you know, they like
Speaker 1: they no longer have Michael Milkin, So there's no more
Speaker 1: the sort of just the d powder. Yeah. And so
Speaker 1: for them to to get the attention of the board,
Speaker 1: you know that, like, they tried a whole bunch of
Speaker 1: different tactics, but you know, well the one that Lobe
Speaker 1: us was you know what I call the shame driven activists,
Speaker 1: you know, where like he needs to get the attention
Speaker 1: of the other shareholders, of the board of directors and
Speaker 1: of the and of the management team. And he did
Speaker 1: it through you know, a town hangings and and public shamings.
Speaker 1: And is that an effective technique? Does it work? I
Speaker 1: think it worked then because it got people's attention. It
Speaker 1: gave him a reputation that directors would be like afraid
Speaker 1: of but like but ultimately like it also compels the
Speaker 1: management to circle their wagons. And well, nowadays it's not
Speaker 1: necessary because activism, you know, from from hedge funds is credible.
Speaker 1: And so what you will really need to do is
Speaker 1: convinced the vanguards and the cowpers of the world that
Speaker 1: like that your ideas are right and doing that l
Speaker 1: is not about you know, we'll calling out the CEOs mom,
Speaker 1: you know, so, which which Lobe did in one notable
Speaker 1: letter basically saying something along the lines of, um, you know,
Speaker 1: I think the final line was I doubt if you
Speaker 1: ignore this letter that your mom is going to file
Speaker 1: fire you, or words to that effect which are pretty scathing.
Speaker 1: So you know, and I'm pulling one of these statements
Speaker 1: the Star Gas Partners. This is just great. Sadly, you're
Speaker 1: ineptitude is not limited to your failure to communicate with
Speaker 1: bond and unit holders. A review of your record reveals
Speaker 1: years of value destruction and strategic blungers which have led
Speaker 1: us to w one of the most dangerous and incompetent
Speaker 1: executives in America. That's not enough, he has to keep going,
Speaker 1: and he says I was amused to learn in the
Speaker 1: course of our investigation that at Cornell University there is
Speaker 1: an IRAQ seven scholarship. That's who the letter was to
Speaker 1: r X seven president and CEO of Star Gas Partners.
Speaker 1: One can only pity the poor student who suffers the
Speaker 1: indignity of attaching your name to his academic record. So
Speaker 1: how how typical or a typical is that sort of
Speaker 1: viciousness for Lobe and for other investors. Are his poison
Speaker 1: pen letters unique to him? Or if other people adapted
Speaker 1: that well, at that time, there were lots of them,
Speaker 1: and he was not even the first one. Like the
Speaker 1: first guy like that really did that was like this
Speaker 1: crazy guy named Bob Chapman. And um, I mean at
Speaker 1: that time it worked like because you know, no one
Speaker 1: else was paying attention to these hedge funds to get
Speaker 1: a letter, you know, I mean, you know, they didn't
Speaker 1: have the capital to just like to buy enough shares
Speaker 1: to uh you're immediately you're filing and you're doing all
Speaker 1: these things that that's usually with a big company, that's
Speaker 1: a chunk of money. Yeah, but Dan Lobe, you know,
Speaker 1: well nowadays, Um, first of all, I mean, um, he
Speaker 1: doesn't even do that much activism and when he does it,
Speaker 1: like he'll still do a public letter, but but like
Speaker 1: he knows that like that, like that he needs to
Speaker 1: build consensus like among the big institutions. Like it's just
Speaker 1: well not the way that things in in the were.
Speaker 1: And um, you know you know that was more a
Speaker 1: product of those times. Makes makes a lot of sense.
Speaker 1: So let's go through some questions we missed, um, and
Speaker 1: there were two in particular that had that I wanted
Speaker 1: to make sure we got to the first. Well, let's
Speaker 1: start with the second. First, UM activist investors now have
Speaker 1: much more power than they used to and the ability
Speaker 1: to affect change in ways that they couldn't do in
Speaker 1: the past or that were more difficult in the past.
Speaker 1: So just us that How how has the role of
Speaker 1: and the authority and power of activists changed over the
Speaker 1: past few days. Well, you had a period, you know,
Speaker 1: from the sixties until the eighties where you know, a
Speaker 1: share ownership in the country UM had reconcentrated, you know,
Speaker 1: but into the hands of these big institutions and the
Speaker 1: big the big institutions were not that engaged, you know,
Speaker 1: they were not UM, you know that involved. We're talking foundations,
Speaker 1: Endowman's pensions, big institutional investor, the big mutual funds, the
Speaker 1: big pension funds. And there's a real turning point in
Speaker 1: the nineteen eighties because like you have the corporate raiders,
Speaker 1: so milk and funding a lot of these people, Like
Speaker 1: you have green mail, which will really was well pretty
Speaker 1: blatant in its you know, will mistreatment of public shareholders.
Speaker 1: Like if you're you know, a company and like you know,
Speaker 1: and you buy out like a loud and troublesome shareholder
Speaker 1: for a big premium over everyone else just to make
Speaker 1: them go away. You're clearly disservicing your shareholders. And then
Speaker 1: you had Ross Perol happened. And with Ross Perol, um,
Speaker 1: you know, GM like his undergoing you know, a few
Speaker 1: decades of decline. It's very public. You know, um, everyone
Speaker 1: knows that they're beginning to fall behind the Japanese and
Speaker 1: you know, their shareholder base. Are these big institutions that
Speaker 1: have been in GM forever and they see GM pay
Speaker 1: Ross Perol three quarters of a billion dollars. It's a
Speaker 1: lot of money GM, yeah, to resign from the board
Speaker 1: of directors, and so they're paying this guy, who they
Speaker 1: view as the most engaged and best director, you know,
Speaker 1: to leave it. And it kind of showed them, well,
Speaker 1: we have created a monster. And from that point on,
Speaker 1: the big institutions began to get engaged and they began
Speaker 1: to like to pay attention. They again like to vote
Speaker 1: their like their proxies with a lot more thought. And
Speaker 1: that has you know, like in a funny way, it's
Speaker 1: empowered these activists because if you do have ideas, like
Speaker 1: you know that resonate with investors, or like if you
Speaker 1: want to push for a CEO to be fired and
Speaker 1: the people like like at Cowper's, well maybe they're not
Speaker 1: as comfortable, you know, will publicly I'm asking for someone
Speaker 1: to be fired, but well maybe they think that they
Speaker 1: need to go. You know, they support a lot of
Speaker 1: these activist campaigns and so like you know, this empowerment
Speaker 1: of the of of the activist, a lot of that
Speaker 1: is about the resolve of the big passive institutions. That
Speaker 1: that's interesting. So so let's talk about different sectors of companies.
Speaker 1: One of the things I asked you about earlier um
Speaker 1: Off Off Mike, I want to bring up on Mike.
Speaker 1: So you have tech companies and then you have like
Speaker 1: a big consumer products company like Colgate palm Olive. Are
Speaker 1: their differences in how activists are coach those two companies?
Speaker 1: And conversely, how do those two sectors a tech company
Speaker 1: in a consumer good sector, how do their CEOs and
Speaker 1: boards respond to activists differently? Yeah, I mean I think
Speaker 1: that like the ultimately a fundamentally, like they're all very
Speaker 1: similar like their companies, and they often have governance issues
Speaker 1: and like you have to decide who is like the
Speaker 1: right person to lead this company. And you know, like
Speaker 1: you'll see people say like oh, well, this is a complicated,
Speaker 1: UM high technology company, and so like you really need
Speaker 1: to be sophisticated. So so UM activists have no place there.
Speaker 1: And that's just clearly not right. I mean, if it's
Speaker 1: a like a highly you know, complicated company, then like
Speaker 1: like it matters who the CEO is and like it
Speaker 1: matters that like you don't will tolerate, you know, bad
Speaker 1: governance for long periods of time. And then like you'll
Speaker 1: see people say, oh, we'll Colgate or well, you know,
Speaker 1: Coca Cola. They're these like mature businesses that can run themselves,
Speaker 1: like who cares about the board, Like like a monkey
Speaker 1: could run the company. That's also clearly not true because
Speaker 1: with a mature business, like you have to allocate the capital,
Speaker 1: like you have to decide what to do with your
Speaker 1: excess cash, if you will pay a dividend or buyback
Speaker 1: shares or pursue opportunities in M and A and so
Speaker 1: all of those. And that's before we start looking at
Speaker 1: a competitive threat from them. And I think that like
Speaker 1: the history has shown that as secure as you think
Speaker 1: you are, if you know, when you look at GM
Speaker 1: in the nineteen fifties and you say, this is a
Speaker 1: durable competitive advantage, they have a cost advantage, they have
Speaker 1: like a dealer network, they have the best brands and
Speaker 1: and and and you know, in two decades they lose
Speaker 1: out to the Japanese who like have no capital, I
Speaker 1: have terrible brand you know, like um u um a
Speaker 1: reputation and um like like they have no dealer networks.
Speaker 1: And you know, so I mean even the mature great
Speaker 1: business as we've seen like in Coca Cola, can Can.
Speaker 1: I think this year is the hard time. I think
Speaker 1: this is the first year where bottled water is gonna
Speaker 1: outsell soda. And so if you're not there's always competitive
Speaker 1: threats Andy Gross said, only the paranoids survive. And and
Speaker 1: he's right. If if you don't think your business is
Speaker 1: going to be attacked in the competition in the marketplace,
Speaker 1: you're you're kidding yourself. So let me turn the turn
Speaker 1: the dial a little bit and shift the focus. So
Speaker 1: you go through all these activists, you go through all
Speaker 1: these businesses, You look at how all this stuff has changed,
Speaker 1: how has this impacted you're thinking about how you invest
Speaker 1: your capital. I don't mean you as a manager getting
Speaker 1: a deer chairman letter. I mean what has been the
Speaker 1: impact of this on your thought process in terms of
Speaker 1: putting risk capital out there, Yeah, I mean it gave
Speaker 1: me historical perspective, like like a lot of the history
Speaker 1: I didn't know. But you know, I think investors learned
Speaker 1: best from losing money, and I kind of had lost
Speaker 1: enough you know, money through you know, through bad governance,
Speaker 1: like to learn the lessons of the book. Like I think,
Speaker 1: you know, a lot of the value of the book
Speaker 1: is explaining how the system works and and and how
Speaker 1: he got to now and you know, trying to to
Speaker 1: do it in an entertaining way. And I think a
Speaker 1: lot of the of the things that I fundamentally learned
Speaker 1: were like about just like the power of these like
Speaker 1: behind the scenes, uh, passive investors. But in terms of
Speaker 1: of of affecting you know, my personal investments. You know,
Speaker 1: in value investing, you do have to take into account
Speaker 1: the the governance. But I had already you know, learned
Speaker 1: the hard way about that, so I'm not sure it's
Speaker 1: affected it that much. So what attracted you to value
Speaker 1: investing in the first place, other than Colombia, um, which
Speaker 1: really that's what Ben Graham taught, right, I mean, is
Speaker 1: that is it safe to say Columbia Graduate School of
Speaker 1: Business is is uh square one when it comes to
Speaker 1: value investing, you know, they like to say that, and
Speaker 1: it like it was true for me. And I mean
Speaker 1: I like, after college, Um, you know, I played music like,
Speaker 1: and I had no business background, Like I didn't know accounting, like,
Speaker 1: I had never heard of Warren Buffett. And so when
Speaker 1: I got to to Columbia, um, like, I didn't know
Speaker 1: what I was gonna do. Like I took like a
Speaker 1: lot of different classes, and I took a class with
Speaker 1: Joel green Block and the little book that the Market.
Speaker 1: And before that, he wrote a book called You Can
Speaker 1: Be a Stock Market Genius. Yes, that's about you know,
Speaker 1: restructurings and and and and spinoffs. So I think this,
Speaker 1: like the subtitle is like uncovering the the secret hiding
Speaker 1: places of you know, value. Yeah, and I think that,
Speaker 1: you know, yeah that I like had never heard of
Speaker 1: that stuff, and the whole idea of buying a fifty
Speaker 1: cent dollar it, you know, well really resonated like with me,
Speaker 1: and so I began just to consume everything I could
Speaker 1: and that, of course will lead me to warm Buffett
Speaker 1: and and um, you know that is how I got
Speaker 1: into it. I'm gonna pull up the exact quote, you
Speaker 1: can be a stock market genius uncovering the secret hiding
Speaker 1: places of stock market value profits. And that came out.
Speaker 1: That book has really been around for a while and
Speaker 1: stood stood the test of time. Um so I plowed
Speaker 1: through a lot of questions. Let's go into our standard
Speaker 1: questions that I asked all my guests. Uh So you
Speaker 1: mentioned you you were playing music. What what did you
Speaker 1: tell us a little bit about your background? What did
Speaker 1: you do before finance? So I played in a rock band.
Speaker 1: Would you play guitar? And so that makes you our
Speaker 1: third guitar. I've had Lawrence Juber and before that, John Pizzarelli,
Speaker 1: and we have another guitarist coming up next month. I'll
Speaker 1: leave that for a surprise. So that'll your number three.
Speaker 1: How long did you do that for? Pretty much through college,
Speaker 1: like I think, like I kind of in college, you know,
Speaker 1: you know, we're majored in being in a band. And
Speaker 1: then uh I graduated in ninety six and pretty much
Speaker 1: from then until I went to business school in two
Speaker 1: thousand and one, m I toured and then you know,
Speaker 1: when I was not on tour, I tempt um. I
Speaker 1: lived in d C. It's interesting to come to New
Speaker 1: York because people in bands in New York have you know,
Speaker 1: real professions. And actually, you know, we'll have real jobs.
Speaker 1: But but in every other city, like you're like a
Speaker 1: bartender or a temp or, like a restaurant and and
Speaker 1: so like I basically I toured and tempt That sounds interesting.
Speaker 1: You know, Jeff Gunlock was a drummer really before he
Speaker 1: became a bond uh guru. And and it's always interesting
Speaker 1: to see how people find their way. So so you're
Speaker 1: you're playing rock and roll music, you're touring. What made
Speaker 1: you say, listen, I enjoy life on the road, but
Speaker 1: I really want to get an m B A. How
Speaker 1: did how did that come about? Well, like, we really
Speaker 1: weren't that successful, right, Like we kind of you know,
Speaker 1: we did well in the sense like that that other
Speaker 1: bands liked us. It's called aiden A d E n okay, sure, um,
Speaker 1: you know we ultimately just weren't that good. And the
Speaker 1: other band, you know, the other band members like we're
Speaker 1: kind of like beginning to think about the future too.
Speaker 1: And and and I remember I was in in d C.
Speaker 1: And I met with Arthur Levitt. He was a friend
Speaker 1: of my Dad's and like you know, um, you know,
Speaker 1: I just like I tried to think about, you know,
Speaker 1: what would be a versatile degree that would like you know,
Speaker 1: allow me to at least discover something that I would
Speaker 1: be good at. So I'm looking at for those of
Speaker 1: you who want to go to Amazon and check this out.
Speaker 1: How many CDs did you record? We had four, so
Speaker 1: we had I'm seeing Hay nineteen, which sounds like the
Speaker 1: Steely Dan song. Yeah, that's our third record, Black Cow. Yeah,
Speaker 1: also with Steely Dan Topsiders. That's I think that's our
Speaker 1: best record. Is that Topsider two thousand and two or
Speaker 1: is that the reissue in two thousand? I think it
Speaker 1: came out in a one, but um, but that one
Speaker 1: was like that was like the death of the band.
Speaker 1: That was where we I mean, that was a grim tour.
Speaker 1: Why the Steely Dan titles, I don't know. We liked
Speaker 1: them and what's at and they were very untrendy at
Speaker 1: that time. This was yeah yeah, I mean you know
Speaker 1: this was before like the like the the re emergence
Speaker 1: of yacht rockcause so I'm older than you. When I
Speaker 1: was in high school or maybe college, Uh, Gaucho came
Speaker 1: out and Asia was inescapable on the radios. It was so,
Speaker 1: but a lot of their stuff has really stood the
Speaker 1: test of time. If you like rock and you like jazz.
Speaker 1: There's an argument too when when we've had these debates,
Speaker 1: and there's a whole post somewhere on the blog if
Speaker 1: you look at what is the greatest who is the
Speaker 1: greatest rock and American rock and roll band? So by
Speaker 1: saying American, you're eliminating the Beatles, the Stones of who.
Speaker 1: And by saying bands, you're eliminating Bruce Springsteen and other
Speaker 1: people who who we really think of a solo artist,
Speaker 1: not bands. Steely Dan always makes the top five and
Speaker 1: you don't. Really I'll send you that link. I'll post
Speaker 1: it when when this goes up. But that's interesting. You
Speaker 1: guys really put out music and where we're regular, actual
Speaker 1: touring musicians. Yeah, and being in a touring band is
Speaker 1: an incredible experience. It like it really teaches you to
Speaker 1: get along with people, and it teaches you like a
Speaker 1: lot just well being in in a small vehicle with
Speaker 1: before people you're in a van touring the club to club. Yeah,
Speaker 1: we do, like you know, thirty two shows and thirty
Speaker 1: one days like that kind of thing. Right, and hope
Speaker 1: the thing doesn't break down. Yeah, and like you really
Speaker 1: like learn about like your own Like, you know, I'm
Speaker 1: emotional build up, you know, because if you're too uptight
Speaker 1: or you're two tents, that can be pretty miserable, you know.
Speaker 1: So I think it made all of us just like
Speaker 1: relaxed like a little bit. And I think that it
Speaker 1: was like I mean, like we're all you know, doing
Speaker 1: well professionally, and I think it was a valuable experience.
Speaker 1: That's quite fascinating. You you were, I know, I know
Speaker 1: Gunlock played um in a hair band and a hair
Speaker 1: metal band, and I'm trying to think there's one other
Speaker 1: person who was also a musician. A little pop into
Speaker 1: pop into my head. So you mentioned Arthur Levitt Um.
Speaker 1: Tell us a little bit about some of your mentors,
Speaker 1: and you conclude Arthur in that list. Yeah, I mean
Speaker 1: I think that Arthur is the main one. I mean
Speaker 1: he I think he really helped me get into business
Speaker 1: school in the first place. And then like he's just been,
Speaker 1: you know, so supportive of my career and he's been
Speaker 1: very supportive of this book. And and you know, I
Speaker 1: mean I think Arthur is the son of a politician,
Speaker 1: and I think that his father was New York State
Speaker 1: Controller of Memory, Sir and actually one of the longest
Speaker 1: running controllers in history. And I think Arthur might have
Speaker 1: been one of the longest running SEC chairman. I think
Speaker 1: that he is the longest running one. Yeah. Um, so
Speaker 1: he knew you could relate to somebody who of a
Speaker 1: famous father. That can't be the easiest thing in the
Speaker 1: world to deal with. Yeah. And then well, professionally, I
Speaker 1: mean like that Joel green Block class was very important
Speaker 1: for me. And then at my first job, like I
Speaker 1: worked at kind of a dysfunctional hedge fund, but I
Speaker 1: had the director of research at that job was this
Speaker 1: guy named Greg Schrock. Um. He had been um a
Speaker 1: walked out Lipton lawyer in the like in the early eighties,
Speaker 1: and um experience, he just knew so much and like
Speaker 1: was always you know what really took the time to
Speaker 1: kind of but what to show me, like the right
Speaker 1: things like to read and like to ask the right
Speaker 1: you know, you know, questions about public companies. So he
Speaker 1: was a big fan of your blog. Yeah. Oh that's
Speaker 1: a small world. Um. Every now and then someone out
Speaker 1: of the blue will say that to me and I
Speaker 1: don't know how to UM. I won't mention his name, UM,
Speaker 1: but a household name. One day says to me, Oh,
Speaker 1: I'm a fan of the blog. I've been reading it
Speaker 1: for years and I just responded with an export of
Speaker 1: b S. And he's like, no, really, my my son
Speaker 1: read it. He turned me onto it years ago. I
Speaker 1: read it every morning, and it's really it's just such
Speaker 1: a weird. So when you are somewhat quasi public, it's
Speaker 1: it's really startling. You. Do you ever have an experience
Speaker 1: with someone knows you because of your dad and talks
Speaker 1: to you like they know you as not in years?
Speaker 1: I mean, I mean I think he's Um, he's just
Speaker 1: we noble, more under the radar and retired. But like,
Speaker 1: for sure, when we were doing the touring stuff, like
Speaker 1: you sometimes like we'd be playing in like you know, Jackson,
Speaker 1: Mississippi or something and there'd be this like contingent of
Speaker 1: young Republicans there, which totally baffling. So that occasionally happened,
Speaker 1: but but not that much. And UM, that's that's really interesting.
Speaker 1: So you talk about so many different investors in the book,
Speaker 1: Ben Graham, Warren Buffett. Obviously, what what other investors influenced? UM?
Speaker 1: You're investing your thought, sess. I mean I do think
Speaker 1: for me, it really kind of all all um all
Speaker 1: boils back to Buffett, like he kind of covers all
Speaker 1: the bases with his writing. Um, like I certainly I
Speaker 1: read all the Monger speeches, like I read all of
Speaker 1: the Seth Carmen stuff. You know, so like when Klarman
Speaker 1: has an article or a speech. But um, I actually
Speaker 1: just put a Klarman video up on the blog over
Speaker 1: the weekend. You gotta get him on the show. Um,
Speaker 1: he's kind of a recluse. He doesn't do a lot
Speaker 1: of video, a lot of a lot of media, even
Speaker 1: though this is not the typical media. But I feel
Speaker 1: free to make an interception. He's but he seems very funny,
Speaker 1: like I've seen him in these fireside chats or or
Speaker 1: I've seen him, you know, give talks and and um
Speaker 1: he's engaging and funny. All right, So we'll we'll reach
Speaker 1: out to Seth. If you're listening, we'd love to have you.
Speaker 1: We'd love to have you on the show because you know,
Speaker 1: ninety minutes in, you know, Seth Klarmer's hanging on every
Speaker 1: every word. Let's let's talk about books. Um, what books
Speaker 1: have you enjoyed be um, be they investing or non investing,
Speaker 1: fiction or nonfiction? What books have really influenced you? Okay,
Speaker 1: well I'm up begin with the business ones. I mean, um,
Speaker 1: I do love business books. I've you know, doing this
Speaker 1: book I got to read, you know, so many incredible
Speaker 1: business books. You know, just if you look at GM,
Speaker 1: like the library of sure of of incredible books about
Speaker 1: GM is just incredible. There's like the Offered Sloan book
Speaker 1: My Years with General Motors, and if you read that's
Speaker 1: pretty old rights or something like the sixties. And then
Speaker 1: if you read that alongside the John Delorian book about
Speaker 1: the decline of GM, you know, from a distance, you uh,
Speaker 1: on a clear day, you can see general motors. Like
Speaker 1: if you read those two books and the the Chapter
Speaker 1: and Peter Drucker's Adventures of a Bystander about a Sloan,
Speaker 1: that's incredible reading. Um. You know, like I like a
Speaker 1: journalistic business book, like um, I loved all of the
Speaker 1: late eighties, you know, corporate water books like A Predator's Ball,
Speaker 1: Den of Thieves. Obviously love Michael Lewis. I assume that
Speaker 1: everyone's it's like you need to begin to ask, like
Speaker 1: what's your favorite Michael Lewis book as opposed to I
Speaker 1: will tell I often tell people, I know you've read
Speaker 1: Flash Boys, in the Big Short and money Ball, but
Speaker 1: have you read a New New Thing? Because a lot
Speaker 1: of people that it's a really really good book. Yeah.
Speaker 1: I think in a like in a funny way. At
Speaker 1: the time, that was among his you know, you know,
Speaker 1: a better received books, you know, because because like he
Speaker 1: don't think it is as it was a popular yeah,
Speaker 1: I mean, but you know he had had Lars Poker,
Speaker 1: which was great, and then that you know, you know,
Speaker 1: I made a splash like on the release, like the
Speaker 1: New New Thing did um? You know, I love a boomerang.
Speaker 1: I think that's my favorite one of his. That's his
Speaker 1: collection Vanity Fair Right. I love the story of going
Speaker 1: to the Greek monastery? Right, How how astonishing is that tale?
Speaker 1: That whole thing? I mean, I remember in the in
Speaker 1: the Germany chapter, I was, you know, crying tears, you know, So,
Speaker 1: I mean, you know, I love that kind of writing.
Speaker 1: The Tracy Kidder, you know, Michael Lewis, I loved what's
Speaker 1: the Tracy Kidder? Well? Well, so he did a soul
Speaker 1: of a new machine, right, So you know that was
Speaker 1: like among his Um, I'm his first book. Um, he's like,
Speaker 1: I'm among like the first like of these like immersion
Speaker 1: journalist types. So um, I think my favorite of his
Speaker 1: is a recent one, Mountains Beyond Mountains. It's about uh
Speaker 1: uh Paul Farmer that the Doctors without Borders guy, but
Speaker 1: he did house Hometown. I mean, he's a he's a
Speaker 1: fantastic write. It sounds like you're you've worked through it
Speaker 1: through the whole genre I wrote, I wrote all Free
Speaker 1: Down any any anybody else stand out? Um, I would say,
Speaker 1: you know, like when young people come to talk to
Speaker 1: me about will value investing, I'm always shocked when they
Speaker 1: have not read the Snowball. You know, they'll have read
Speaker 1: the Lonestein book, which is great. They'll like, like, I've
Speaker 1: read which was one of the first Lonstein tells us
Speaker 1: so he was a guest on the show. He tells
Speaker 1: the story that he went to Buffett about having access
Speaker 1: in order to do the book, and Buffett says, probably
Speaker 1: better off without access and and hearing what other people
Speaker 1: have to say instead of me telling the story. And
Speaker 1: he said it was good advice. The book turned out
Speaker 1: to be much better. Otherwise it's a it's a great book.
Speaker 1: Making of a Capitalist is that, you know, are the
Speaker 1: making of a modern cap American capitalists. But but the
Speaker 1: Snowball has the access, and the access is incredibly valuable.
Speaker 1: And it blows my mind that these you know, well
Speaker 1: young kids who are obsessed with Buffett have not read
Speaker 1: that book. I think it's a shame that like that
Speaker 1: book is not, um like as popular as it should be.
Speaker 1: The Making of an American Capitalist. Well, I mean it's
Speaker 1: five star reviews and it's it was extremely well reviewed.
Speaker 1: I thought it sold pretty well, but uh, certainly not
Speaker 1: nothing like um when Genius failed, which was well, I'm
Speaker 1: talking about this. The Snowball is the okays, the big one,
Speaker 1: like Schroder, How how did Snowball sell? I think it
Speaker 1: did well, But I think like they were kind of
Speaker 1: a banking on Buffett supporting it, and he ultimately like
Speaker 1: withdrew his like, um, you know, his involvement, and Alice
Speaker 1: Schroeder has been working with him for forever, right she's yeah,
Speaker 1: but I think like at some point like they had
Speaker 1: a falling out, and you know, I mean it's funny
Speaker 1: so this year, like, um, I go to the the
Speaker 1: Berkshire um Hathaway meeting every year, but this year, but
Speaker 1: it was like the first time that I did the
Speaker 1: book thing, and there's all these book events and that
Speaker 1: book was invisible at that meeting. Really yeah, and I
Speaker 1: didn't know that. I didn't know they had a falling out,
Speaker 1: I thought, and it's the best one. It's it's it's
Speaker 1: just um just they're like our some vignettes and they're like,
Speaker 1: you know, you know when like the like this, like
Speaker 1: the Solomon Aboard Will tries like to tell Charlie Munger
Speaker 1: like about like the things that like that they've uncovered,
Speaker 1: and he, let you know, immediately will cease through all
Speaker 1: the bs and begins like to ask all the like
Speaker 1: the like like who talked to whom? Will win? You know? Who?
Speaker 1: Did you know? I just I mean, all of these
Speaker 1: um inside stories in that book are incredible snowball. Yeah,
Speaker 1: I actually have not read you got to read it.
Speaker 1: I'm gonna put that on my list. You mentioned Monger.
Speaker 1: Have you read a port Charlie's Almanac? I have. It's great,
Speaker 1: It's it's um it's on my nights. It's a tone
Speaker 1: I'm slowly working. Well, like you just got to read
Speaker 1: the speeches, you know, but it's funny. I mean, I
Speaker 1: mean I love that stuff. But I do think that sometimes,
Speaker 1: you know, well, from an investing perspective, like that we
Speaker 1: as an industry um overdue like the kind of thinking clearly.
Speaker 1: So I think it's important like like like for individual investors,
Speaker 1: like like like to understand the nature of misjudgment and
Speaker 1: and psychological bias. But at the same time, I think
Speaker 1: like that we as an industry have like perpetrated this
Speaker 1: idea that that if I pick stocks that I'm like
Speaker 1: that it's like a game of wits, and I'm like
Speaker 1: like the wiser guy than the person on the other
Speaker 1: side of the trade. And and like, to me, the
Speaker 1: longer that you do it, the more that you realize
Speaker 1: that you're just trying to not make mistakes and door
Speaker 1: most most investors. Any other books before we go on
Speaker 1: to some more questions, I mean I could talk books
Speaker 1: for hours. Yeah, I mean, like I really love uh
Speaker 1: you know, pop science books, and and and and I
Speaker 1: love music books. So give me you one of each, Okay. So,
Speaker 1: so there's two great music books, Please Kill Me, which
Speaker 1: is like an ortal history of punk rock, and then
Speaker 1: The Motley Crew a memoir you know, written by Neil
Speaker 1: Strauss is incredible. Uh, pop science I love Wait before
Speaker 1: you move beyond music, I have a few books to
Speaker 1: ask you some questions. So David Byrne's Musicology, I didn't
Speaker 1: read it. You should read it. I know. It's really
Speaker 1: I'm behind now because of writing the book, of doing
Speaker 1: my book, writing a book like that, like the Patti
Speaker 1: Smith I haven't read. I haven't read the David Byrne.
Speaker 1: I have Chris So, I haven't read Chrissy Hines. It's
Speaker 1: also it's on a it's not on the night table,
Speaker 1: it's on the dresser, which is the next while the
Speaker 1: other book that's really kind of interesting. It sort of
Speaker 1: pre dates you a little bit, is uh Nick hornby
Speaker 1: High Fidelity. Yeah, if you've never read that is fantastic.
Speaker 1: And it's actually in the movie. Um, you know my
Speaker 1: band has a poster in their record stuff really awesome.
Speaker 1: At the time, it was extremely exciting, like, oh, that's like, oh,
Speaker 1: we're making it big our posters in this movie. First
Speaker 1: of all, I love that movie for countless countless reasons. Um,
Speaker 1: not the least of which is when you finally get
Speaker 1: to the end and Jack Black takes the stage. Everybody
Speaker 1: exploded at that point. But but I read the book
Speaker 1: years before and reluctantly went into the film because you
Speaker 1: know what it's like when you read a book and
Speaker 1: then the movie is terrible, and then the movie is
Speaker 1: different enough that you could see their trying for something else.
Speaker 1: But it's true enough to the attitude. Yeah, it really
Speaker 1: really Um. Two recommendations, high fidelity the book and high
Speaker 1: fidelity um the movies. Um. So let's go to popular science,
Speaker 1: Like I love like the journalistic ones where they get out,
Speaker 1: Like there's a book called The Song of the Dodo, okay,
Speaker 1: and it's about extincts and an extinction on extinction on islands,
Speaker 1: and it's it's just like it's a really fun book.
Speaker 1: Like he travels like the world and he goes to
Speaker 1: like to like kind of all these islands. And many
Speaker 1: years ago I read Douglas Adam's Last Chance to See
Speaker 1: the same thing. I read that, But so you read
Speaker 1: you read it. So he just goes around and looking
Speaker 1: at these creatures that are on the verge of extinction extinction,
Speaker 1: and some of them between the time he visited in
Speaker 1: the book came out. He said, Oh, and since then
Speaker 1: you can't see this because it's yeah, I mean I
Speaker 1: always thought like that, well, one day I would take
Speaker 1: some time from work and do a science book, like,
Speaker 1: but then I like, I had like a book idea
Speaker 1: about you know, that's something that I knew about, so like,
Speaker 1: you know, and made much more sense to give me
Speaker 1: one more science book. I like The Beak of the Finch.
Speaker 1: That's also yeah, it's a it's a little bit of
Speaker 1: like an inside account of these um you know, well
Speaker 1: um um academic researchers in the Galapa Ghosts, and it
Speaker 1: gives you a feel like these people have devoted their lives,
Speaker 1: like they go back to the Galapa Ghosts every summer
Speaker 1: for thirty years, and it gives you a feel for
Speaker 1: kind of like how you know, what committed you would
Speaker 1: have to be to be a scientist. It's insane. So
Speaker 1: sounds to me like you're one of them new fangled evolutionaries. Well,
Speaker 1: I do like all those, like like the Stephen J.
Speaker 1: Gould books and like as a kid that like I
Speaker 1: loved Darwin all that stuff. So yeah, I mean like
Speaker 1: the idea that like, I mean, even if you don't
Speaker 1: believe in Darwin, the book is just like to read
Speaker 1: the book and to see, like his reasoning, it's an
Speaker 1: incredible learning experience. It happened to not teach it even
Speaker 1: if it's wrong. It's so compelling. I don't know. I
Speaker 1: found it hard to get through that book and say, oh,
Speaker 1: all this stuff is made. I mean, it's got that
Speaker 1: magical thing that some books have, where like you read it,
Speaker 1: and after like you read it, it it just seems obvious that, well,
Speaker 1: that's always the tell of a really brilliant idea, is
Speaker 1: that how your hindsight bias after the fact that well,
Speaker 1: of course we believe this intuitively know this. Obviously, there's
Speaker 1: a wonderful book if you want to look into So
Speaker 1: this is all biology. If you want to look at
Speaker 1: the physics side. James Glick did a book called Chaos,
Speaker 1: and after you finished that, you're like, oh, of course,
Speaker 1: how how how else could you have looked at this
Speaker 1: when going into it you had no idea on the
Speaker 1: science of chaos theory as applied to physics. You couldn't
Speaker 1: a million years have a managin that. And then afterwards
Speaker 1: it's like, oh, of course it's that same sort of
Speaker 1: same sort of magic. Um. So let's let's talk a
Speaker 1: little bit about things. I think we've covered books pretty
Speaker 1: well right before. Before I move on, let's talk a
Speaker 1: little bit about UM. What's changed since you've joined the
Speaker 1: hedge fund industry. You've been doing this for better more
Speaker 1: than a decade and chain, how have things changed on
Speaker 1: that side of the street since the early two thousand's? Sure, well,
Speaker 1: in some sense, I'm not the right guy to ask,
Speaker 1: because I work at a like a small fund that's
Speaker 1: like that's on the fringes, UM. But you know, to
Speaker 1: the extent I've seen things that changed, They've gotten a
Speaker 1: lot more mature, a lot more institutionalized, UM. As we
Speaker 1: talked about UM on the on on the radio segment,
Speaker 1: like when I got my first job in the industry,
Speaker 1: like like you know, I mean, anyone on the trading
Speaker 1: desk if they had an idea, like it could go
Speaker 1: in the portfolio, and like you know, when you could
Speaker 1: write thirteen d s and it was just a crazy time.
Speaker 1: And now it's a lot more institutionalized. And and you know,
Speaker 1: with that will comes I think like a lot of
Speaker 1: good things, like I assume, like we'll risk controls are
Speaker 1: like a like a way better. I might assume the
Speaker 1: blow ups are less pedestrian. But then there's also it's
Speaker 1: just like you see this, you know, a pedigree matters
Speaker 1: now in this way that like like I didn't before
Speaker 1: if like you came out of a of a good shop,
Speaker 1: then it's like, you know, it's a difference. Yeah, and
Speaker 1: so see that kind of thing is happening now. And
Speaker 1: you see that on the quand side as well. A
Speaker 1: lot of what you're what you're you came from Renaissance,
Speaker 1: so like you're gonna be good at this, right, you know,
Speaker 1: I don't. I mean there's no I mean, like in
Speaker 1: our business, it's a lot about how how hard you work.
Speaker 1: There's not lots of of of of special sauce. You
Speaker 1: know that makes sense. So, um, so we're down to
Speaker 1: our last two questions. These are my two favorite questions
Speaker 1: I asked all of my guests. You mentioned occasionally you
Speaker 1: have millennials come to you. What sort of advice would
Speaker 1: you give to a millennial or someone just starting their
Speaker 1: career and and said to you, I'm interested in the
Speaker 1: career of finance. How would you answer that question? Yeah, Well,
Speaker 1: for the millennials, like you know, and my students, like, like,
Speaker 1: the first thing I say is like all of the
Speaker 1: Like the the cliches about will get to work first,
Speaker 1: like in hard work are are totally true and and
Speaker 1: you'd be surprised that, you know, well how a few
Speaker 1: people act on them. Really I think so um, um,
Speaker 1: I tell people you know that, I mean that ultimately
Speaker 1: you're like a smart kid and you have good judgment,
Speaker 1: and like your judgment over time will develop. But at
Speaker 1: these early jobs and as like you learned the business, Um,
Speaker 1: you're really being paid to do work, like to learn
Speaker 1: to do research, like like you're not being paid to
Speaker 1: be wise, And I think that's like that that's you
Speaker 1: know one thing that like I like, I see a
Speaker 1: lot in my students, as you know, they want to
Speaker 1: sit and think big thoughts about a company, Like they're
Speaker 1: less inclined to like to do the hard work it
Speaker 1: takes to find the expert that's out there that can
Speaker 1: really explain it to you. And that's the way that
Speaker 1: our business works. You Like, you're doing work to find
Speaker 1: the experts, like like you don't just like lean back
Speaker 1: in your chair and say I'm gonna out with the
Speaker 1: like the whole market and so like, like I really
Speaker 1: try to tell them it's less about your you know, wisdom,
Speaker 1: like like like a judgment. Then you think, and at
Speaker 1: your first job, you're gonna be paid to do hard work.
Speaker 1: You're the grunts. When you're starting out, you're doing and
Speaker 1: that's pretty much true in every profession. You start out
Speaker 1: as a lawyer, you're doing the grunt work. In the library,
Speaker 1: it's miserable. Who wants to build six three thou hours
Speaker 1: a year? And finance is not all that different well,
Speaker 1: I mean specifically in terms of a finance um. I
Speaker 1: mean I don't give a lot of advice on if
Speaker 1: it's the right job or the I mean, I mean
Speaker 1: only they know that. I mean obviously investing is extremely
Speaker 1: fun and it's a great job, but I do think
Speaker 1: they need to be in it because they like doing it.
Speaker 1: I mean, if you go in it just for the money,
Speaker 1: you're going to be sadly disappointed. I'm sure that you've
Speaker 1: seen this where like like you'll talk I mean, in fact,
Speaker 1: like I talked to someone will not that long ago
Speaker 1: that was like an undergraduate that was extremely into biology
Speaker 1: and like you know, they had this whole idea of like,
Speaker 1: well I'm gonna get like a master's in this, Like
Speaker 1: I'm not gonna get a PhD. Because you know, what
Speaker 1: I want to do is advise either well funds or
Speaker 1: investment you know, with bankers on well biotech stuff. So
Speaker 1: I'm like, well, why do you want to do that?
Speaker 1: You know, why would you want to be an investment
Speaker 1: banker for for biotech? Is like, well, like you know, yeah,
Speaker 1: you can make a lot of money. And I was like,
Speaker 1: I don't. I mean, that's like, what are you thinking
Speaker 1: if you're like a nineteen year old and you love
Speaker 1: science like before, just like just like like like deciding
Speaker 1: to be an investment banker, Like, well, maybe you should
Speaker 1: pursue science. So like you got It's like you gotta
Speaker 1: be in it for the right reasons. I think that.
Speaker 1: I think that is are you astute and you can
Speaker 1: hardly go wrong telling people if you follow your passion,
Speaker 1: it's going to take you to the right place. But
Speaker 1: if you do this for the money may not work out.
Speaker 1: So well, yeah, I hope that's true. I don't. I mean,
Speaker 1: you know, what do we know? I think that's true.
Speaker 1: And and what you said is fairly consistent with lots
Speaker 1: of what our guests have said. Is if you if
Speaker 1: you're just doing something for the money. It's a job,
Speaker 1: it's a labor. And when you do something because you
Speaker 1: really are passionate about it, you love it. The money
Speaker 1: will come eventually and you're you won't be miserable having
Speaker 1: the money. Being miserable and then making a decision to
Speaker 1: shift twenty years later is a much bigger challenge than
Speaker 1: gradually ramping up the cash. And our last question, what
Speaker 1: is it that you know about value investing, activist investing,
Speaker 1: UM and others that you wish you knew fifteen years
Speaker 1: ago when you we're just getting out of school. I
Speaker 1: think it's probably that same point of like, I think
Speaker 1: that like that back then, I bought into this idea
Speaker 1: like of you know, well I'm gonna I'm out with
Speaker 1: the market, as opposed to like the idea of like
Speaker 1: I'm gonna, like do a lot of hard work and
Speaker 1: we'll try not like to make too many dumb mistakes.
Speaker 1: And I think that, like in investing, it's a lot
Speaker 1: about just avoiding the disasters. Jeff, thank you so much.
Speaker 1: This has been terrific. I appreciate you being so generous
Speaker 1: with your time. If you enjoyed this conversation, be sure
Speaker 1: and looked up an inch or down an inch on
Speaker 1: Apple iTunes, and you can see any of the other
Speaker 1: hundred plus conversations we've had. I would be remiss if
Speaker 1: I did not think my booker Taylor Riggs, Charlie Volmer,
Speaker 1: who is I guess technically our producer when he's not
Speaker 1: busy um blowing up things in his kitchen accidentally, and
Speaker 1: Michael Batnick, who is our head of research. I'm Barry Ridolts.
Speaker 1: You've been listening of Master's in Business on Bloomberg RADIOH