1 00:00:03,120 --> 00:00:17,880 Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. 2 00:00:21,040 --> 00:00:24,799 Speaker 2: Hello and welcome to another episode of the Odd Lags podcast. 3 00:00:24,880 --> 00:00:27,160 Speaker 3: I'm Joe Wisenthal and I'm Tracy Alloway. 4 00:00:27,200 --> 00:00:30,120 Speaker 2: Today you're going to be listening to a special episode 5 00:00:30,240 --> 00:00:33,640 Speaker 2: that we did recorded live on the beach in Huntington Beach, California. 6 00:00:33,920 --> 00:00:37,480 Speaker 3: That's right, we are back at the future Proof Festival. 7 00:00:37,600 --> 00:00:41,040 Speaker 3: It is a very special event that gathers a lot 8 00:00:41,040 --> 00:00:45,840 Speaker 3: of investment professionals to talk about markets and how they're 9 00:00:45,880 --> 00:00:49,560 Speaker 3: actually investing through these very interesting times. And one of 10 00:00:49,600 --> 00:00:52,640 Speaker 3: the most interesting investors out there, I think has to 11 00:00:52,680 --> 00:00:54,960 Speaker 3: be our guest for this episode totally. 12 00:00:55,160 --> 00:00:57,280 Speaker 2: So you know, these days, I feel like when you 13 00:00:57,360 --> 00:01:00,000 Speaker 2: talk to investors, we talked to people about the market, 14 00:01:00,040 --> 00:01:02,760 Speaker 2: it's very binary. It's like, what do you think about 15 00:01:02,800 --> 00:01:06,759 Speaker 2: the mag seven, what's your view guy, what's your view 16 00:01:06,840 --> 00:01:10,080 Speaker 2: on KPEX spending, what's your view on the FED, etcetera. 17 00:01:10,440 --> 00:01:13,600 Speaker 2: And you don't really hear many of those fashions, like 18 00:01:13,840 --> 00:01:17,800 Speaker 2: good old fashioned stock picking, security selection. 19 00:01:18,080 --> 00:01:19,319 Speaker 4: And I miss that. 20 00:01:19,480 --> 00:01:21,880 Speaker 2: I think, you know, it's interesting back in the days 21 00:01:21,920 --> 00:01:23,959 Speaker 2: when like you know, there's sort of like Buffett and 22 00:01:24,040 --> 00:01:26,959 Speaker 2: Graham Dodd's style of investing We're like, yeah, here's an 23 00:01:26,959 --> 00:01:29,759 Speaker 2: interesting company. A lot of people don't know about it, 24 00:01:29,920 --> 00:01:32,320 Speaker 2: but I found it. I like this stock, I like 25 00:01:32,400 --> 00:01:35,839 Speaker 2: this company, and I think it going to grow bigger. 26 00:01:35,880 --> 00:01:38,280 Speaker 2: You just don't really get much of that discourse these days. 27 00:01:38,319 --> 00:01:42,360 Speaker 3: This also dovetails with my favorite ever style of analysis, 28 00:01:42,400 --> 00:01:45,120 Speaker 3: which is just when an investor or an analyst just 29 00:01:45,200 --> 00:01:48,760 Speaker 3: goes to one of the like companies or locations of 30 00:01:48,800 --> 00:01:52,320 Speaker 3: the potential investment and just like observes how everything is 31 00:01:52,360 --> 00:01:55,440 Speaker 3: working and talks to potential customers and things like that. 32 00:01:55,760 --> 00:01:58,200 Speaker 3: I love that style of investment. And we are actually 33 00:01:58,280 --> 00:02:01,160 Speaker 3: speaking to one of the most famous stock pickers of 34 00:02:01,200 --> 00:02:01,640 Speaker 3: all time. 35 00:02:01,880 --> 00:02:02,320 Speaker 4: That's right. 36 00:02:02,360 --> 00:02:05,640 Speaker 2: You're going to be hearing our interview with John Rodgers. 37 00:02:05,720 --> 00:02:09,399 Speaker 2: He's the founder and co CEO of Aerial Investment Management, 38 00:02:09,840 --> 00:02:12,960 Speaker 2: and he's very different. It's truly old school. It's all 39 00:02:13,080 --> 00:02:15,640 Speaker 2: mid cap and small cap stocks. He's been running this 40 00:02:15,800 --> 00:02:20,680 Speaker 2: mutual fund for decades now, and he's like this old school, 41 00:02:21,080 --> 00:02:24,240 Speaker 2: classic style stock picker. And you're going to hear our 42 00:02:24,320 --> 00:02:28,040 Speaker 2: conversation about how he goes out and finds companies and 43 00:02:28,080 --> 00:02:31,359 Speaker 2: talks to management and tries to uncover these diamonds in 44 00:02:31,360 --> 00:02:32,200 Speaker 2: the rough shows. 45 00:02:32,560 --> 00:02:34,880 Speaker 3: So take a listen. As a reminder, this was recorded 46 00:02:35,080 --> 00:02:37,920 Speaker 3: live on stage at Huntington Beach as part of the 47 00:02:38,080 --> 00:02:41,480 Speaker 3: future Proof conference. You might hear some background noise. It 48 00:02:41,520 --> 00:02:43,680 Speaker 3: was very windy that day. There was also a drone 49 00:02:43,880 --> 00:02:47,520 Speaker 3: which was an interesting experience, but we hope you enjoy it. 50 00:02:47,639 --> 00:02:50,120 Speaker 3: Here is our conversation with John Rogers. 51 00:02:50,400 --> 00:02:52,800 Speaker 5: It's great to be here. Never been to an event 52 00:02:52,919 --> 00:02:53,640 Speaker 5: like this before. 53 00:02:54,200 --> 00:02:56,799 Speaker 2: I know, it's such an extraordinary event. I don't even 54 00:02:56,800 --> 00:02:59,240 Speaker 2: know what would be like an equivalent thing that anyone 55 00:02:59,280 --> 00:03:02,000 Speaker 2: could have been to before, But very excited to be here. 56 00:03:02,240 --> 00:03:05,400 Speaker 2: So in investing right now, you know, there's a couple 57 00:03:05,520 --> 00:03:08,520 Speaker 2: big themes that come up over and over again. There's 58 00:03:08,880 --> 00:03:12,120 Speaker 2: the rise of passive investing in various flavors of that. 59 00:03:12,400 --> 00:03:15,760 Speaker 2: There's just the incredible dominance over the last several years 60 00:03:15,800 --> 00:03:19,040 Speaker 2: of the MAG seven and big tech and their momentum 61 00:03:19,080 --> 00:03:20,600 Speaker 2: and the sector specific stuff. 62 00:03:21,000 --> 00:03:24,640 Speaker 4: You are a stock picker and you buy us do. 63 00:03:24,800 --> 00:03:27,200 Speaker 2: That you're not just one of these people riding the 64 00:03:27,600 --> 00:03:30,200 Speaker 2: MAG seven wave. And you buy a lot of mid 65 00:03:30,240 --> 00:03:33,240 Speaker 2: cap and small cap stocks that are in fields that 66 00:03:33,280 --> 00:03:36,120 Speaker 2: maybe people don't think about. What's your pitch when you've 67 00:03:36,160 --> 00:03:38,520 Speaker 2: been people look at the rise of the mag seven 68 00:03:38,640 --> 00:03:42,600 Speaker 2: or indexing. What's your pitch for security selection in other 69 00:03:42,680 --> 00:03:43,520 Speaker 2: realms of the market. 70 00:03:43,840 --> 00:03:46,640 Speaker 5: Well, I think it starts with the fact that aerial 71 00:03:46,760 --> 00:03:49,640 Speaker 5: investments is almost forty two years old. So we've been 72 00:03:49,680 --> 00:03:52,840 Speaker 5: through a lot of markets. Of course, we've studied market 73 00:03:52,880 --> 00:03:56,360 Speaker 5: history and read about what happened in all the great 74 00:03:56,400 --> 00:03:58,760 Speaker 5: bubbles that have happened throughout the world, and all the 75 00:03:58,800 --> 00:04:02,960 Speaker 5: great corrections and all the big booms that happen, and 76 00:04:03,040 --> 00:04:05,760 Speaker 5: we have these massive ups and downs in the market, 77 00:04:06,360 --> 00:04:09,960 Speaker 5: but ultimately it is very cyclical. So I was just 78 00:04:10,000 --> 00:04:13,360 Speaker 5: reading Chuck Royce, who's been managing small cap stocks for 79 00:04:13,400 --> 00:04:18,000 Speaker 5: over fifty years, the legendary investors. He's finally retiring, and 80 00:04:18,080 --> 00:04:21,520 Speaker 5: he talks about how these waves come and go, and 81 00:04:21,680 --> 00:04:23,800 Speaker 5: this one in particularly reminds him of the nifty to 82 00:04:23,839 --> 00:04:27,520 Speaker 5: fifty when Polaroid and Xerox and Johnson and Johnson and 83 00:04:27,560 --> 00:04:31,479 Speaker 5: IBM all sold at extraordinary multiples. People thought it was 84 00:04:31,800 --> 00:04:34,840 Speaker 5: going to last forever. They were called one decision stocks. 85 00:04:35,000 --> 00:04:37,279 Speaker 5: You'd buy them and you own them, But of course 86 00:04:37,560 --> 00:04:39,840 Speaker 5: that changed seventy seven to seventy three, seventy four of 87 00:04:39,839 --> 00:04:43,000 Speaker 5: the market's collapsed, and we've all seen the ups and downs. 88 00:04:43,040 --> 00:04:45,279 Speaker 5: So for us, what we tell people is when you 89 00:04:45,320 --> 00:04:47,960 Speaker 5: get these extremes and everyone's buying a stock because it's 90 00:04:47,960 --> 00:04:50,640 Speaker 5: gone up a lot yesterday, it's part of an index. 91 00:04:50,920 --> 00:04:54,000 Speaker 5: You're getting toward the top. And the multiples show that 92 00:04:54,040 --> 00:04:57,520 Speaker 5: the valuation differences between large cab growth and small cap 93 00:04:57,640 --> 00:05:00,520 Speaker 5: value it's one of the largest in history. So we 94 00:05:00,560 --> 00:05:02,800 Speaker 5: feel highly confident it's going to be a better time 95 00:05:03,400 --> 00:05:05,440 Speaker 5: for the smaller undervalued securities. 96 00:05:06,120 --> 00:05:09,760 Speaker 3: You mentioned waves of investments kind of coming and going. 97 00:05:09,839 --> 00:05:12,240 Speaker 3: I feel like I have to ask the obvious question, 98 00:05:12,440 --> 00:05:14,679 Speaker 3: since we're here with one of the most famous stock 99 00:05:14,720 --> 00:05:18,880 Speaker 3: pickers of all time, but is value investing dead? 100 00:05:19,640 --> 00:05:22,400 Speaker 4: You're still here, you're still going. You seem very much alive. 101 00:05:22,720 --> 00:05:23,960 Speaker 1: Why do people think it's dead. 102 00:05:25,120 --> 00:05:27,720 Speaker 5: I think they think it's dead because this period of 103 00:05:28,040 --> 00:05:32,120 Speaker 5: growth stocks outperforming value stocks has lasted so much longer 104 00:05:32,160 --> 00:05:35,200 Speaker 5: than normal history. But again, if you go and read 105 00:05:35,240 --> 00:05:37,960 Speaker 5: the famous book by Burton Alkil or Random Walk down 106 00:05:38,000 --> 00:05:41,200 Speaker 5: Wall Street, he always explains and shows you these bubbles 107 00:05:41,200 --> 00:05:43,640 Speaker 5: and how they burst. And when you, of course you 108 00:05:43,680 --> 00:05:47,320 Speaker 5: study Warren Buffett, and he always reminds you that you 109 00:05:47,360 --> 00:05:50,240 Speaker 5: want to be greedy when others are fearful, and be 110 00:05:50,520 --> 00:05:53,440 Speaker 5: fearful when others are greedy. He's always so consistent about 111 00:05:53,480 --> 00:05:57,120 Speaker 5: that because he realizes things get out of hand when 112 00:05:57,120 --> 00:05:59,800 Speaker 5: everyone chases the hot dot of the moment. Those securities 113 00:05:59,800 --> 00:06:02,800 Speaker 5: get overvalued, and the ones that are left over I 114 00:06:02,839 --> 00:06:06,160 Speaker 5: call them the orphans. They're selling at very, very cheap prices, 115 00:06:06,600 --> 00:06:08,839 Speaker 5: and eventually companies are going to sell at the discounted 116 00:06:08,839 --> 00:06:11,760 Speaker 5: present values of their cash flows, and if you can 117 00:06:11,760 --> 00:06:14,200 Speaker 5: get them at bargain prices, it's a really great, great thing. 118 00:06:14,240 --> 00:06:18,040 Speaker 5: And these cycles always end, and they always end when 119 00:06:18,080 --> 00:06:19,760 Speaker 5: everyone's convinced that they can't end. 120 00:06:21,040 --> 00:06:23,159 Speaker 2: You know, you use the word orphans, and I think 121 00:06:23,200 --> 00:06:25,760 Speaker 2: that actually leads to something that I was thinking about 122 00:06:25,800 --> 00:06:27,760 Speaker 2: as I was preparing for this interview. You know, like 123 00:06:27,800 --> 00:06:30,320 Speaker 2: on a day to day basis, sometimes you'll see like 124 00:06:30,800 --> 00:06:34,159 Speaker 2: small caps outperforming, the russell outperforming. 125 00:06:33,680 --> 00:06:34,279 Speaker 4: And so forth. 126 00:06:34,560 --> 00:06:37,600 Speaker 2: But it seems to me that one of the reasons 127 00:06:37,640 --> 00:06:40,960 Speaker 2: one might go into smaller stocks is not necessarily because 128 00:06:40,960 --> 00:06:43,960 Speaker 2: they're small, but because they are literally orphaned. They don't 129 00:06:44,000 --> 00:06:46,400 Speaker 2: have the analyst coverage. People aren't familiar with the names, 130 00:06:46,440 --> 00:06:49,720 Speaker 2: people aren't familiar with the industries. If someone is interested 131 00:06:50,040 --> 00:06:53,480 Speaker 2: in small caps, does it make sense that, like, it 132 00:06:53,520 --> 00:06:55,880 Speaker 2: really doesn't make sense to do it on an index level, 133 00:06:56,000 --> 00:06:59,400 Speaker 2: but rather do it on a find those orphan stocks 134 00:06:59,400 --> 00:07:01,520 Speaker 2: that nobody knows level well. 135 00:07:01,600 --> 00:07:06,760 Speaker 5: I do believe strongly that the opportunity to take advantage 136 00:07:06,800 --> 00:07:10,080 Speaker 5: of the very rare inefficiencies in the market are in 137 00:07:10,120 --> 00:07:14,440 Speaker 5: the small cap sector because there's less well, well qualified 138 00:07:14,440 --> 00:07:16,880 Speaker 5: and thought where research being done in the smaller socks. 139 00:07:17,280 --> 00:07:20,280 Speaker 5: You know, investment banks can't get paid as much working 140 00:07:20,280 --> 00:07:22,880 Speaker 5: in the small cap sector, and so at my forty 141 00:07:22,920 --> 00:07:25,320 Speaker 5: one years, I've seen the number of small cap analysts 142 00:07:25,520 --> 00:07:28,920 Speaker 5: decline significantly. The ones that are out there are sort 143 00:07:28,960 --> 00:07:31,920 Speaker 5: of following lots and lots of companies sort of a 144 00:07:31,960 --> 00:07:34,440 Speaker 5: mile wide and inch deep. They don't know their company's 145 00:07:34,480 --> 00:07:37,320 Speaker 5: in depth. So it creates this opportunity to these orphans 146 00:07:37,320 --> 00:07:39,960 Speaker 5: to be able to find some inefficiencies in the marketplace 147 00:07:40,280 --> 00:07:42,920 Speaker 5: where the research isn't being very well done, and you 148 00:07:42,920 --> 00:07:46,000 Speaker 5: can just find some magical hidden nuggets out there in 149 00:07:46,040 --> 00:07:49,040 Speaker 5: the marketplace. And these things happen from time to time, 150 00:07:49,080 --> 00:07:50,600 Speaker 5: and I do feel we're in a period now where 151 00:07:50,600 --> 00:07:52,840 Speaker 5: there's a lot of opportunity there. 152 00:07:53,120 --> 00:07:56,400 Speaker 3: How do you come across those types of orphan stocks, 153 00:07:56,440 --> 00:07:59,760 Speaker 3: because as Joe just mentioned, these are often smaller companies 154 00:08:00,080 --> 00:08:03,120 Speaker 3: that don't actually have analysts coverage. There are still a 155 00:08:03,160 --> 00:08:05,080 Speaker 3: lot of them out there, So how do they come 156 00:08:05,120 --> 00:08:06,040 Speaker 3: across your desk? 157 00:08:06,200 --> 00:08:08,920 Speaker 5: I guess well, it's a couple of ways. Of course. 158 00:08:09,120 --> 00:08:11,800 Speaker 5: At AERIL now we have you one hundred and thirty people, 159 00:08:12,360 --> 00:08:14,960 Speaker 5: a lot of people helping us do the research, and 160 00:08:15,040 --> 00:08:17,440 Speaker 5: we have the industries that are in our circle of 161 00:08:17,480 --> 00:08:20,000 Speaker 5: competence that we follow, So we have a lot of 162 00:08:20,040 --> 00:08:24,680 Speaker 5: people looking and searching for ideas and understanding all the 163 00:08:24,920 --> 00:08:28,120 Speaker 5: cheapest stocks in their sector, the most expensive stocks in 164 00:08:28,160 --> 00:08:31,480 Speaker 5: their sector, and becoming true experts over the years in 165 00:08:31,520 --> 00:08:34,840 Speaker 5: their sectors. So I think that's first and foremost. You know, 166 00:08:34,880 --> 00:08:37,640 Speaker 5: we're working to, you know, focus on those areas that 167 00:08:37,679 --> 00:08:39,439 Speaker 5: we know really really well, so we know where the 168 00:08:39,480 --> 00:08:42,280 Speaker 5: bargains are, we know where the expensive stocks are. The 169 00:08:42,320 --> 00:08:44,920 Speaker 5: second thing though, in case we miss something, we use 170 00:08:44,960 --> 00:08:48,200 Speaker 5: the computer and screen for cheap stocks, and we think 171 00:08:48,240 --> 00:08:52,480 Speaker 5: that's really really important. I noticed the morning Star banner here. 172 00:08:52,640 --> 00:08:55,480 Speaker 5: We love to read and study what other small cap 173 00:08:55,559 --> 00:08:58,440 Speaker 5: value managers own, and as the years go on, you 174 00:08:58,480 --> 00:09:00,680 Speaker 5: get to know who are the people you respect, because 175 00:09:00,720 --> 00:09:03,360 Speaker 5: as we touched on earlier, there's not as many active 176 00:09:03,360 --> 00:09:06,680 Speaker 5: small cab value managers left, but those that are out there, 177 00:09:06,679 --> 00:09:10,160 Speaker 5: we just love to see their list of top thirty holdings, 178 00:09:10,559 --> 00:09:13,520 Speaker 5: get their quarterly reports, and get all their holdings and 179 00:09:13,559 --> 00:09:15,960 Speaker 5: see where there are some creative ideas that maybe you 180 00:09:16,040 --> 00:09:17,800 Speaker 5: haven't thought about it or hadn't thought about it in 181 00:09:17,880 --> 00:09:21,360 Speaker 5: a long time. And then finally, of course, just reading extensively, 182 00:09:21,760 --> 00:09:25,559 Speaker 5: you know, reading every publication you can. On the plane here, 183 00:09:25,679 --> 00:09:28,080 Speaker 5: you know you're reading Barons, You're reading Business Week, You're 184 00:09:28,120 --> 00:09:28,880 Speaker 5: reading Bloomberg. 185 00:09:29,600 --> 00:09:30,640 Speaker 3: Thank you for the plug. 186 00:09:31,000 --> 00:09:35,560 Speaker 5: Appreciate that you know you were getting the research reports 187 00:09:35,559 --> 00:09:38,840 Speaker 5: from all the major brokerage firms. Just reading and reading 188 00:09:38,840 --> 00:09:41,560 Speaker 5: and reading and reading, searching for ideas, seeing ideas that 189 00:09:41,640 --> 00:09:44,440 Speaker 5: you might have missed. I think there's no substitute for 190 00:09:44,520 --> 00:09:45,280 Speaker 5: doing that work. 191 00:09:46,040 --> 00:09:49,040 Speaker 3: And what counts as a cheap stock in your book, 192 00:09:49,120 --> 00:09:52,439 Speaker 3: and has that perhaps changed over time? Is a stock 193 00:09:52,480 --> 00:09:56,080 Speaker 3: that was considered cheap in the nineteen eighties perhaps different 194 00:09:56,160 --> 00:09:58,760 Speaker 3: or measured differently to a stock that might be considered 195 00:09:58,840 --> 00:09:59,520 Speaker 3: cheap nowadays. 196 00:10:00,920 --> 00:10:03,920 Speaker 5: I think the basic principles of value investing is still 197 00:10:03,960 --> 00:10:06,320 Speaker 5: the same. You want to buy stocks that are selling 198 00:10:06,360 --> 00:10:09,280 Speaker 5: at low multiples. Now, maybe a generation ago, we talk 199 00:10:09,400 --> 00:10:12,480 Speaker 5: more about price earnings ratios. Now you're looking at price 200 00:10:12,520 --> 00:10:17,040 Speaker 5: to ebadah ratios and understanding whether the stock's undervalued. But 201 00:10:17,080 --> 00:10:21,600 Speaker 5: that's really really important to look for cheap companies. Second 202 00:10:21,600 --> 00:10:23,400 Speaker 5: thing you're looking for is we want to make sure 203 00:10:23,440 --> 00:10:26,040 Speaker 5: the company is selling it a forty percent discount to 204 00:10:26,200 --> 00:10:29,240 Speaker 5: private market value. So we do the discount of cash 205 00:10:29,240 --> 00:10:32,440 Speaker 5: flow analysis that they teach you in business school. You 206 00:10:32,520 --> 00:10:34,680 Speaker 5: get the idea of looking at those future cash flows 207 00:10:34,679 --> 00:10:36,960 Speaker 5: and discounting them back and finding out the true value 208 00:10:37,000 --> 00:10:40,280 Speaker 5: of a business. And that's an inexact science. But we 209 00:10:40,320 --> 00:10:42,360 Speaker 5: want to buy those stocks at a forty percent or 210 00:10:42,360 --> 00:10:45,200 Speaker 5: more discount, and that's the way that we define what 211 00:10:45,240 --> 00:10:59,800 Speaker 5: a bargain is. 212 00:11:01,320 --> 00:11:03,520 Speaker 2: To anyway, I'm a really big span a fan of 213 00:11:03,559 --> 00:11:05,920 Speaker 2: the Sphere. I went there, I saw it earlier. 214 00:11:06,520 --> 00:11:07,120 Speaker 5: That's a good word. 215 00:11:07,960 --> 00:11:08,800 Speaker 4: But it's one of your. 216 00:11:08,720 --> 00:11:11,080 Speaker 2: Bigger holdings of your portfolio. And I don't know if 217 00:11:11,080 --> 00:11:13,840 Speaker 2: a lot of everyone knows that the Sphere in Las Vegas, 218 00:11:13,880 --> 00:11:17,680 Speaker 2: this extraordinary venue is publicly traded. But just because you know, 219 00:11:17,760 --> 00:11:20,920 Speaker 2: I mean, we're interested in the art of stock picking. 220 00:11:21,559 --> 00:11:22,160 Speaker 4: Can you talk to. 221 00:11:22,200 --> 00:11:24,360 Speaker 2: Us a little bit about the thinking of how you 222 00:11:24,400 --> 00:11:26,600 Speaker 2: wind up with you know, a few percent of your 223 00:11:26,600 --> 00:11:27,559 Speaker 2: portfolio in the sphere. 224 00:11:28,200 --> 00:11:32,520 Speaker 5: Yeah, ended up kind of by accident. I have to say, Okay, 225 00:11:32,679 --> 00:11:36,160 Speaker 5: you know we own Madison Square Garden Entertainment, which in 226 00:11:36,200 --> 00:11:39,440 Speaker 5: the old days was one You own the Garden, which 227 00:11:39,440 --> 00:11:43,280 Speaker 5: is an extraordinary event, you know, extraordinary company, extraordinary event place, 228 00:11:43,320 --> 00:11:47,120 Speaker 5: of course, the world's greatest arena. And you know, Warren 229 00:11:47,120 --> 00:11:48,839 Speaker 5: Buffett always says, you want to buy a company that 230 00:11:48,840 --> 00:11:51,040 Speaker 5: where it's hard to replicate it. You know, there's a 231 00:11:51,080 --> 00:11:54,080 Speaker 5: true moat around it. Yeah, there's only one Garden, you know, 232 00:11:54,120 --> 00:11:57,000 Speaker 5: it's something really special. And they own the Knicks and 233 00:11:57,040 --> 00:12:01,080 Speaker 5: they own the Rangers. They owned the Regional Sports Network. 234 00:12:01,559 --> 00:12:04,640 Speaker 5: They had everything under one roof. Over time they all 235 00:12:04,679 --> 00:12:07,800 Speaker 5: split up into separate companies. Sports Company is a separate 236 00:12:07,800 --> 00:12:10,560 Speaker 5: public company. That's the Knicks and the Rangers. The Garden 237 00:12:10,640 --> 00:12:13,520 Speaker 5: is separate. They owned the Beacon Theater and the Chicago 238 00:12:13,600 --> 00:12:16,880 Speaker 5: Theater and Radio City Music Hall. They control and the 239 00:12:17,080 --> 00:12:21,240 Speaker 5: Rockets and the Christmas Show, and then they spun off 240 00:12:21,640 --> 00:12:25,120 Speaker 5: the Sphere. Jim Dolan started the Sphere when it was 241 00:12:25,320 --> 00:12:29,680 Speaker 5: under the umbrella of Madison Square Garden, and so we 242 00:12:29,760 --> 00:12:32,520 Speaker 5: got it and spin off, never dreaming we would have 243 00:12:32,600 --> 00:12:36,160 Speaker 5: assets in one, you know, new business like this. But 244 00:12:36,200 --> 00:12:39,360 Speaker 5: the stock seemed extremely, extremely cheap. It seemed like it 245 00:12:39,400 --> 00:12:42,200 Speaker 5: was being given away. As we did our homework, we 246 00:12:42,280 --> 00:12:44,600 Speaker 5: got quite excited about it. You know. We went out 247 00:12:44,640 --> 00:12:47,000 Speaker 5: and took the hard Hat tour. While the sphere is 248 00:12:47,040 --> 00:12:51,200 Speaker 5: being built. We went to southern California and outside of 249 00:12:51,320 --> 00:12:53,800 Speaker 5: La It went to visit in Burbank. We went to 250 00:12:53,800 --> 00:12:56,559 Speaker 5: see their sort of mini sphere where you could see. 251 00:12:56,440 --> 00:12:57,679 Speaker 4: I didn't know there was a minisphere. 252 00:12:58,040 --> 00:12:59,679 Speaker 5: Yeah, it's a place where they can show you how 253 00:12:59,679 --> 00:13:01,679 Speaker 5: the sound was good, look how the visual was going 254 00:13:01,760 --> 00:13:05,000 Speaker 5: to look. Everything was right there at that mini sphere 255 00:13:05,320 --> 00:13:07,559 Speaker 5: and it was magical. You walked in and said, they 256 00:13:07,559 --> 00:13:10,800 Speaker 5: are transforming the way you're going to be able to 257 00:13:10,880 --> 00:13:14,319 Speaker 5: experience entertainment. And I was talking to the general counsel 258 00:13:14,360 --> 00:13:17,640 Speaker 5: of the garden. He remembered sitting down for dinner once 259 00:13:17,720 --> 00:13:20,560 Speaker 5: with Jim Dolan and Jim Dolan sort writing it on 260 00:13:20,600 --> 00:13:23,840 Speaker 5: a napkin, just drawing the sphere and saying there would 261 00:13:23,840 --> 00:13:26,240 Speaker 5: be nothing like it in the world and he's actually 262 00:13:26,280 --> 00:13:29,320 Speaker 5: accomplished it. You know, it's this huge globe most of 263 00:13:29,360 --> 00:13:31,800 Speaker 5: you know, out right in the middle of Las Vegas, 264 00:13:32,120 --> 00:13:35,920 Speaker 5: not far from the wind Theater, and it seats twenty 265 00:13:35,960 --> 00:13:40,800 Speaker 5: thousand people, and it has it's like virtual reality on steroids, 266 00:13:41,240 --> 00:13:44,319 Speaker 5: on double steroids. You know, everywhere you look, you see 267 00:13:44,360 --> 00:13:48,000 Speaker 5: these magical images whenever you're in the Sphere. And they 268 00:13:48,040 --> 00:13:50,720 Speaker 5: have great video. You know they have right now the 269 00:13:50,760 --> 00:13:54,160 Speaker 5: Postcards from Earth. The rumors are the next big video 270 00:13:54,280 --> 00:13:57,280 Speaker 5: is going to be The Wizard of Oz using that 271 00:13:57,400 --> 00:14:01,000 Speaker 5: content in a magical way. And of course they have 272 00:14:01,080 --> 00:14:04,480 Speaker 5: concerts and you two is opening night. They got the 273 00:14:04,480 --> 00:14:08,560 Speaker 5: Eagles coming, They've had the Dead there and people everybody 274 00:14:08,640 --> 00:14:10,840 Speaker 5: you talk to, anyone who's gone to one of the concerts, 275 00:14:10,840 --> 00:14:12,679 Speaker 5: they just say they've never seen anything like it. 276 00:14:13,000 --> 00:14:15,839 Speaker 4: I can confirm, I can confirm. 277 00:14:15,920 --> 00:14:18,959 Speaker 3: Go into the Sphere earlier this year and wouldn't stop 278 00:14:19,000 --> 00:14:19,720 Speaker 3: talking about it. 279 00:14:19,800 --> 00:14:20,280 Speaker 4: That's right. 280 00:14:21,640 --> 00:14:24,480 Speaker 5: But I guess one thing, I'm sorry, jump in one thing. 281 00:14:24,640 --> 00:14:26,760 Speaker 5: Looking forward, You've got to believe that they're going to 282 00:14:26,840 --> 00:14:30,880 Speaker 5: come up with more interesting and exciting content outside. They'll 283 00:14:30,880 --> 00:14:32,880 Speaker 5: be able to advertise on the outside of what they 284 00:14:32,880 --> 00:14:36,440 Speaker 5: call the Exosphere you have to also believe that eventually 285 00:14:36,480 --> 00:14:39,160 Speaker 5: more countries will want to have their own sphere, you know, 286 00:14:39,200 --> 00:14:43,640 Speaker 5: South Korea, Middle East Asia, wherever you think about it. 287 00:14:43,800 --> 00:14:46,680 Speaker 5: That'll be what is the catalyst that can really create 288 00:14:46,720 --> 00:14:47,520 Speaker 5: a lot of value. 289 00:14:47,880 --> 00:14:50,280 Speaker 3: So one thing I was curious about, and you know 290 00:14:50,440 --> 00:14:52,520 Speaker 3: you kind of touched on this, but one thing about 291 00:14:52,520 --> 00:14:55,280 Speaker 3: the sphere is it is very unusual, right like, there 292 00:14:55,280 --> 00:14:59,200 Speaker 3: hasn't been anything like it before. How do you evaluate 293 00:14:59,360 --> 00:15:02,760 Speaker 3: the compare for that business model? Like, what are the 294 00:15:02,840 --> 00:15:05,800 Speaker 3: comps for a giant sphere in Las Vegas. 295 00:15:06,680 --> 00:15:09,800 Speaker 5: There really is nothing like it in the world, So 296 00:15:09,840 --> 00:15:13,160 Speaker 5: there really are no comps because it's never been done before, 297 00:15:13,720 --> 00:15:16,480 Speaker 5: and it's not typically an aerial stock, you know, because 298 00:15:16,480 --> 00:15:18,520 Speaker 5: we like to find companies that have a long history 299 00:15:18,520 --> 00:15:21,560 Speaker 5: of success where you can have comparables. It's a really 300 00:15:21,600 --> 00:15:25,640 Speaker 5: excellent point. But there's just everything's being done for the 301 00:15:25,680 --> 00:15:29,200 Speaker 5: first time, and kind of the idea is that as 302 00:15:29,600 --> 00:15:32,760 Speaker 5: they experiment, the technology will get better, the sound will 303 00:15:32,800 --> 00:15:35,920 Speaker 5: get better, they'll learn new ways to use the content. 304 00:15:36,480 --> 00:15:38,640 Speaker 5: Right now, they have a movie playing that is a 305 00:15:38,680 --> 00:15:41,520 Speaker 5: concert video of you two playing there. They don't even 306 00:15:41,560 --> 00:15:43,600 Speaker 5: know how to describe it because they've never been anything 307 00:15:43,840 --> 00:15:47,520 Speaker 5: like it, so you've got to believe corporations are using 308 00:15:47,560 --> 00:15:50,360 Speaker 5: it for the first time for big events. Elett Packard 309 00:15:50,440 --> 00:15:53,240 Speaker 5: used it for a strategy session for all their most 310 00:15:53,280 --> 00:15:58,480 Speaker 5: important clients and employees. QVCS used it. But it's all 311 00:15:59,040 --> 00:16:01,400 Speaker 5: it's all new, all fresh. You got to believe in 312 00:16:01,480 --> 00:16:04,680 Speaker 5: Jim Dolan, who is a very controversial person, that they'll 313 00:16:04,680 --> 00:16:07,320 Speaker 5: be able to pull this off in a spectacular way. 314 00:16:08,280 --> 00:16:09,760 Speaker 2: You know, one thing that struck me when you were 315 00:16:09,800 --> 00:16:13,680 Speaker 2: telling this Sphear story there is getting to see it 316 00:16:13,800 --> 00:16:17,000 Speaker 2: with construction and that relationship that you can build with management. 317 00:16:17,240 --> 00:16:20,240 Speaker 2: And I have to imagine that again when we're talking 318 00:16:20,240 --> 00:16:24,080 Speaker 2: about opportunities in smaller name stocks that that can be 319 00:16:24,200 --> 00:16:27,600 Speaker 2: you know, part of the opportunity to find alpha can 320 00:16:27,640 --> 00:16:30,480 Speaker 2: be getting to really know management teams in a way 321 00:16:30,480 --> 00:16:35,320 Speaker 2: that I imagine is not as easy or is more commodified. 322 00:16:35,320 --> 00:16:36,960 Speaker 4: Perhaps with the megacap companies. 323 00:16:37,120 --> 00:16:39,400 Speaker 2: Can you talk a little bit more about your communication 324 00:16:39,480 --> 00:16:42,520 Speaker 2: with companies and getting to really know who's running them 325 00:16:42,640 --> 00:16:44,120 Speaker 2: as part of your investment process. 326 00:16:44,920 --> 00:16:47,320 Speaker 5: I think it's a very important point. I think part 327 00:16:47,320 --> 00:16:50,480 Speaker 5: of the benefit of being around almost forty two years 328 00:16:50,520 --> 00:16:53,720 Speaker 5: now and having a reputation of being a long term 329 00:16:53,880 --> 00:16:57,040 Speaker 5: patient investor. You know, we have a turtle as a logo, 330 00:16:57,840 --> 00:17:00,000 Speaker 5: and then people can see that we buy stocks while 331 00:17:00,040 --> 00:17:02,360 Speaker 5: they're out of favor and hold them for the long run. 332 00:17:02,600 --> 00:17:05,280 Speaker 5: So you can imagine companies love having us as shareholders, 333 00:17:05,560 --> 00:17:07,520 Speaker 5: people who are going to show up when everybody else 334 00:17:07,600 --> 00:17:10,240 Speaker 5: is selling. And the fact that there's a group of 335 00:17:10,280 --> 00:17:13,280 Speaker 5: us grizzly veterans I call us who've been together, most 336 00:17:13,280 --> 00:17:15,600 Speaker 5: of us for more than twenty of the forty two years, 337 00:17:16,119 --> 00:17:19,879 Speaker 5: been through the financial crisis together, the USA downgrade together, 338 00:17:20,359 --> 00:17:25,040 Speaker 5: COVID together. I think the management likes talking to experienced analysts, 339 00:17:25,200 --> 00:17:29,360 Speaker 5: experience portfolio managers, and so we talk to our companies 340 00:17:29,359 --> 00:17:33,680 Speaker 5: every single quarter. We're all on the line together. We 341 00:17:33,800 --> 00:17:37,160 Speaker 5: build those relationships in time, and then we go visit companies. 342 00:17:37,200 --> 00:17:40,159 Speaker 5: We just were down somewhere not far from here. We 343 00:17:40,200 --> 00:17:43,720 Speaker 5: went to visit in Vista, which is a large dental company. 344 00:17:43,920 --> 00:17:47,520 Speaker 5: It's really cheap. They do dental products and helping people 345 00:17:47,640 --> 00:17:52,520 Speaker 5: with implants and alignment and many many other products. They're 346 00:17:52,560 --> 00:17:56,840 Speaker 5: one of three or four major dental products companies in 347 00:17:56,840 --> 00:18:00,600 Speaker 5: the United States. It's a worldwide company also. But you 348 00:18:00,600 --> 00:18:03,320 Speaker 5: know there's a new CEO. He took his time to 349 00:18:03,359 --> 00:18:06,600 Speaker 5: be with us today, and he had his top at 350 00:18:06,680 --> 00:18:08,760 Speaker 5: least a dozen in his top management there to visit 351 00:18:08,800 --> 00:18:11,240 Speaker 5: with us. You know that, I think that happens because 352 00:18:11,280 --> 00:18:14,000 Speaker 5: of the reputation that we've built over time. But we 353 00:18:14,240 --> 00:18:16,439 Speaker 5: like that one on one opportunity to look people in 354 00:18:16,440 --> 00:18:19,239 Speaker 5: the eye and determine whether we believe in them or not. 355 00:18:19,760 --> 00:18:21,000 Speaker 5: You know, a couple of weeks ago, we were in 356 00:18:21,040 --> 00:18:25,200 Speaker 5: Florida to visit ADT, the security company. We just think 357 00:18:25,240 --> 00:18:27,119 Speaker 5: we're going to constantly be in front of these people 358 00:18:27,160 --> 00:18:29,840 Speaker 5: face to face, and of course invite them to Chicago 359 00:18:29,960 --> 00:18:32,280 Speaker 5: or to our New York office and visit with him 360 00:18:32,680 --> 00:18:35,520 Speaker 5: also in those face to face opportunities. 361 00:18:36,080 --> 00:18:40,320 Speaker 3: So you mentioned the long investing time frame that your 362 00:18:40,400 --> 00:18:43,320 Speaker 3: company has or the patient capital idea, And I guess 363 00:18:43,320 --> 00:18:46,120 Speaker 3: one question I always have when it comes to value 364 00:18:46,320 --> 00:18:50,160 Speaker 3: investing is what is the time frame in which an 365 00:18:50,200 --> 00:18:53,960 Speaker 3: investment counts as successful? Because if I was being facetious, 366 00:18:54,000 --> 00:18:56,720 Speaker 3: I could say, well, on a long enough timeline, everyone 367 00:18:56,800 --> 00:19:01,720 Speaker 3: is a successful value investor, But like, when do you decide, okay, 368 00:19:02,080 --> 00:19:04,000 Speaker 3: this has been really successful for us? 369 00:19:04,400 --> 00:19:06,159 Speaker 5: Well for us, if we're buying a stock at a 370 00:19:06,359 --> 00:19:10,800 Speaker 5: forty percent discount private market value and load multiples to 371 00:19:10,880 --> 00:19:15,399 Speaker 5: ebadah and earnings and cash flow. It's when the stock 372 00:19:15,480 --> 00:19:18,400 Speaker 5: no longer sells a discount to private market value, when 373 00:19:18,400 --> 00:19:22,320 Speaker 5: we think the market is recognizing all the underlying fundamentals 374 00:19:22,359 --> 00:19:25,920 Speaker 5: of the business. People understand the story. There's a lot 375 00:19:25,960 --> 00:19:29,040 Speaker 5: of bullish analysts on the company, everyone sort of piling 376 00:19:29,080 --> 00:19:32,000 Speaker 5: into the stock. You start to realize then that maybe 377 00:19:32,040 --> 00:19:34,280 Speaker 5: you don't have an insight that the market doesn't have, 378 00:19:34,680 --> 00:19:38,119 Speaker 5: and it's no longer that undiscovered orphan. It's a company 379 00:19:38,200 --> 00:19:40,320 Speaker 5: that's got lots and lots of friends talking it up 380 00:19:40,320 --> 00:19:43,000 Speaker 5: and enjoying it. That's the time we'll start to lighten 381 00:19:43,080 --> 00:19:46,679 Speaker 5: up under security wins on the good news, and of 382 00:19:46,680 --> 00:19:48,479 Speaker 5: course we have to always work like all of us 383 00:19:48,520 --> 00:19:51,120 Speaker 5: do and getting away from the bad hands. When you've 384 00:19:51,160 --> 00:19:54,119 Speaker 5: made a mistake learning how to sell a company that 385 00:19:54,200 --> 00:19:56,160 Speaker 5: maybe doesn't have the future that you thought it had. 386 00:19:56,480 --> 00:19:57,840 Speaker 5: It's not going to be able to grow the way 387 00:19:57,840 --> 00:19:59,840 Speaker 5: you thought it had. It's hard to get away from 388 00:19:59,840 --> 00:20:02,840 Speaker 5: the stocks, so inevitably they get to be very, very cheap. 389 00:20:03,040 --> 00:20:06,359 Speaker 5: But that's something we're constantly working on with our learning 390 00:20:06,359 --> 00:20:10,399 Speaker 5: about our own behavioral biases, studying behavioral finance, trying to 391 00:20:10,440 --> 00:20:12,720 Speaker 5: make sure that again you don't fall in love on 392 00:20:12,760 --> 00:20:15,520 Speaker 5: the upside and you have the courage to sell and 393 00:20:15,560 --> 00:20:17,200 Speaker 5: get away from the company when it's not going to 394 00:20:17,280 --> 00:20:19,399 Speaker 5: achieve the goals that you originally thought. 395 00:20:19,880 --> 00:20:21,320 Speaker 4: You know, it's something that occurred to me. 396 00:20:21,560 --> 00:20:24,200 Speaker 2: You know, you mentioned a dental company and a security company, 397 00:20:24,240 --> 00:20:26,640 Speaker 2: and I think I was looking at your portfolio earlier 398 00:20:26,640 --> 00:20:30,399 Speaker 2: and there was a manufacturer of equipment for food companies 399 00:20:30,600 --> 00:20:33,000 Speaker 2: in there. If I recall, do companies that are in 400 00:20:33,080 --> 00:20:36,080 Speaker 2: industries that aren't hot have a moat by virtue of 401 00:20:36,080 --> 00:20:37,680 Speaker 2: the fact that they don't have a lot of new 402 00:20:37,760 --> 00:20:39,639 Speaker 2: upstarts attacking that field. 403 00:20:41,520 --> 00:20:43,640 Speaker 5: Yes, that's what we're always looking for, is that moat. 404 00:20:43,840 --> 00:20:46,920 Speaker 5: That is probably the most important question we have with management. 405 00:20:47,359 --> 00:20:49,760 Speaker 5: Is constantly pounding away in every way that we can 406 00:20:49,840 --> 00:20:52,720 Speaker 5: with our questioning to determine whether they have a moat 407 00:20:53,000 --> 00:20:56,680 Speaker 5: that inhibits new competition from coming in and causing problems 408 00:20:56,680 --> 00:20:59,800 Speaker 5: and causing trouble. So you mentioned the restaurant equipment company, 409 00:21:00,000 --> 00:21:03,320 Speaker 5: It'll be they're one of the largest manufacturers of restaurant 410 00:21:03,359 --> 00:21:07,240 Speaker 5: equipment in the world. Really well known brands but they 411 00:21:07,280 --> 00:21:09,200 Speaker 5: bought a company that we used to own years ago 412 00:21:09,200 --> 00:21:12,600 Speaker 5: when it was an independent company called Specialty Equipment, And 413 00:21:12,640 --> 00:21:15,520 Speaker 5: it's a good example of a manufacturer with a moat. 414 00:21:15,920 --> 00:21:18,280 Speaker 5: They make the tailor ice cream machines that you see 415 00:21:18,320 --> 00:21:22,080 Speaker 5: in every McDonald's that make the mcflurries and the millshakes, 416 00:21:22,520 --> 00:21:25,520 Speaker 5: and you see them in many ice cream company or 417 00:21:25,600 --> 00:21:29,640 Speaker 5: stores and restaurants all over the world. But they have 418 00:21:29,920 --> 00:21:33,080 Speaker 5: the pre eminent brand. So anytime the new McDonald's gets built, 419 00:21:33,240 --> 00:21:35,280 Speaker 5: they're gonna have a tailor ice cream machine in there, 420 00:21:35,359 --> 00:21:37,240 Speaker 5: or two or three of them. You're going to have 421 00:21:37,280 --> 00:21:41,919 Speaker 5: a tailor clam shaped grill to cook the hamburgers. And 422 00:21:42,040 --> 00:21:43,920 Speaker 5: whenever they come up with a new model that can 423 00:21:44,000 --> 00:21:46,520 Speaker 5: refresh the restaurant, they have to go and get new 424 00:21:46,560 --> 00:21:49,720 Speaker 5: tailor grills in every restaurant around the world. That's a 425 00:21:49,720 --> 00:21:52,119 Speaker 5: great company with the great moat. Plus they provide the 426 00:21:52,160 --> 00:21:54,880 Speaker 5: service to keep the machines running. You might have read 427 00:21:54,880 --> 00:21:57,520 Speaker 5: that sometimes these ice cream machines break down. I have 428 00:21:57,640 --> 00:21:59,440 Speaker 5: heard that, Yeah, so you got to be in there 429 00:21:59,520 --> 00:22:02,960 Speaker 5: using their service people to fix those machines. You can't 430 00:22:03,000 --> 00:22:05,560 Speaker 5: just go anywhere a lot of times. So those are 431 00:22:05,600 --> 00:22:07,640 Speaker 5: the kind of things that really we think you can 432 00:22:07,640 --> 00:22:22,320 Speaker 5: find motes in some of the strangest places. 433 00:22:25,040 --> 00:22:27,680 Speaker 3: So I take the point about motes for certain companies. 434 00:22:27,680 --> 00:22:29,760 Speaker 3: But a lot of your big investments right now have 435 00:22:29,840 --> 00:22:32,320 Speaker 3: to do with entertainment. So we talked about the sphere, 436 00:22:32,400 --> 00:22:35,680 Speaker 3: we talked or you mentioned Madison Square gardens. A lot 437 00:22:35,680 --> 00:22:38,320 Speaker 3: of those feel to me like they are tied to 438 00:22:38,440 --> 00:22:43,000 Speaker 3: the general consumer outlook, the macro outlook. How are you 439 00:22:43,080 --> 00:22:45,399 Speaker 3: thinking about that at the moment. I know you're not 440 00:22:45,440 --> 00:22:48,000 Speaker 3: a macro person, but you did have a call that 441 00:22:48,119 --> 00:22:51,080 Speaker 3: proved to be correct last year. A lot of people 442 00:22:51,119 --> 00:22:54,840 Speaker 3: were expecting recession in twenty twenty three, you said you 443 00:22:54,960 --> 00:22:58,320 Speaker 3: thought there wasn't going to be a recession, and ultimately 444 00:22:58,359 --> 00:23:00,359 Speaker 3: you proved right. So how are you thinking about the 445 00:23:00,400 --> 00:23:03,719 Speaker 3: connection to the macro environment in terms of your investments. 446 00:23:05,280 --> 00:23:07,560 Speaker 5: Well, currently, I mean, we continue to believe that the 447 00:23:07,600 --> 00:23:11,440 Speaker 5: economy is stronger than most people have anticipated. There there 448 00:23:11,480 --> 00:23:15,680 Speaker 5: are no signs of real recession broadly speaking, and we're 449 00:23:15,720 --> 00:23:18,240 Speaker 5: optimistic that the lower interest rates that are coming well, 450 00:23:18,920 --> 00:23:21,000 Speaker 5: the FED has it about right. We think they will 451 00:23:21,080 --> 00:23:24,320 Speaker 5: keep us in a good place and have a softer landing. 452 00:23:24,720 --> 00:23:26,600 Speaker 5: The thing that where we see most of the problem 453 00:23:26,640 --> 00:23:30,160 Speaker 5: in trouble is in the lower socioeconomic part of our economy, 454 00:23:30,640 --> 00:23:34,400 Speaker 5: where people you know, are struggling with inflation, struggling with 455 00:23:34,440 --> 00:23:37,520 Speaker 5: some of the unemployment, struggling with certain industries have had 456 00:23:37,560 --> 00:23:40,840 Speaker 5: a really difficult, difficult time. So you'll see disappointments in 457 00:23:40,880 --> 00:23:44,639 Speaker 5: companies like Starbucks and McDonald's in the past, where you know, 458 00:23:45,160 --> 00:23:48,680 Speaker 5: people have struggled to be able to afford to spend 459 00:23:48,680 --> 00:23:50,520 Speaker 5: as much money in those restaurants as they could have. 460 00:23:51,160 --> 00:23:53,520 Speaker 5: Where we have found success is really with the higher 461 00:23:53,640 --> 00:23:56,600 Speaker 5: end consumer people who are you who are making a 462 00:23:56,600 --> 00:24:00,840 Speaker 5: good income. So example, a Royal Caribbean the average income 463 00:24:00,880 --> 00:24:04,040 Speaker 5: of someone on one of their ships is roughly one 464 00:24:04,080 --> 00:24:07,199 Speaker 5: hundred and fifty thousand dollars. People who can afford to 465 00:24:07,240 --> 00:24:09,960 Speaker 5: go on a cruise and enjoy the cruise and have 466 00:24:10,040 --> 00:24:13,320 Speaker 5: a get a massage and enjoy the whole experience, we 467 00:24:13,359 --> 00:24:16,560 Speaker 5: think that's important. We talked about the garden. Those are 468 00:24:16,600 --> 00:24:19,440 Speaker 5: expensive seats. You have people who can afford those seats. 469 00:24:19,680 --> 00:24:23,639 Speaker 5: We own Manchester United, the soccer franchise, and again you 470 00:24:23,640 --> 00:24:26,440 Speaker 5: know people have to be wealthier to have season tickets, 471 00:24:26,600 --> 00:24:29,239 Speaker 5: to buy a skybox or what have you to go 472 00:24:29,280 --> 00:24:32,479 Speaker 5: to Radio City, Music Hall and Christmas time. So we 473 00:24:32,520 --> 00:24:35,919 Speaker 5: think that we've been trying to protect ourselves that if 474 00:24:35,960 --> 00:24:38,520 Speaker 5: we're wrong and the economy is weaker than we anticipate, 475 00:24:39,040 --> 00:24:43,400 Speaker 5: it'll hurt the smaller consumer, the less wealthy consumer, much 476 00:24:43,400 --> 00:24:45,800 Speaker 5: more dramatically than the wealthier consumer. 477 00:24:46,320 --> 00:24:49,400 Speaker 3: Joe, I was at the cruise terminal at Long Beach 478 00:24:49,560 --> 00:24:52,080 Speaker 3: on Saturday, not to go on a cruise obviously because 479 00:24:52,080 --> 00:24:54,120 Speaker 3: I'm here now, but just to look at the very 480 00:24:54,200 --> 00:24:57,320 Speaker 3: large ships and containers, and I can confirm there are 481 00:24:57,359 --> 00:24:58,880 Speaker 3: still a lot of demand for cruises. 482 00:25:00,000 --> 00:25:02,159 Speaker 2: More about the cruise business because this was, you know, 483 00:25:02,280 --> 00:25:05,280 Speaker 2: thinking back to four and a half years ago, this 484 00:25:05,480 --> 00:25:08,399 Speaker 2: was ground zero. It was probably the first industry that 485 00:25:08,480 --> 00:25:12,200 Speaker 2: truly just went to zero overnight basically when COVID hit 486 00:25:12,520 --> 00:25:14,280 Speaker 2: and then there were all these questions and then those 487 00:25:14,280 --> 00:25:16,840 Speaker 2: were some of the first stocks that rocketed back. Tell 488 00:25:16,920 --> 00:25:19,240 Speaker 2: us about the state of Royal Caribbean and the cruise 489 00:25:19,240 --> 00:25:21,240 Speaker 2: industry right now, well, that's. 490 00:25:21,600 --> 00:25:24,400 Speaker 5: Really a good example of what Ariel does right now. 491 00:25:24,480 --> 00:25:29,080 Speaker 5: The cruise lines are all doing extraordinarily well. Carnival is 492 00:25:29,119 --> 00:25:34,159 Speaker 5: doing really well. One spa that does the SPA treatments 493 00:25:34,520 --> 00:25:38,760 Speaker 5: people are there not only getting massages and manicures and pedicures, 494 00:25:38,760 --> 00:25:41,080 Speaker 5: some people are going there and getting boattox and other 495 00:25:41,119 --> 00:25:43,879 Speaker 5: types of surgeries. You'd be surprised the amount of money 496 00:25:43,920 --> 00:25:48,000 Speaker 5: being spent on these ships. So they're all doing extremely well. 497 00:25:48,080 --> 00:25:51,680 Speaker 5: All the forecasts and the bookings going looking out are terrific. 498 00:25:52,280 --> 00:25:55,520 Speaker 5: But it also epitomizes aerial though, because we've owned that stock, 499 00:25:56,520 --> 00:26:01,480 Speaker 5: Royal Caribbean probably going on definitely more than fifteen years, wow, 500 00:26:01,520 --> 00:26:04,359 Speaker 5: closer to twenty years. It's a name we've known really, 501 00:26:04,400 --> 00:26:07,280 Speaker 5: really well. Ken Kurt who follows that name for us 502 00:26:07,160 --> 00:26:10,119 Speaker 5: as a true expert in the industry. He goes to 503 00:26:10,160 --> 00:26:14,000 Speaker 5: all the conferences, goes on the cruises to make sure 504 00:26:14,040 --> 00:26:17,199 Speaker 5: that we are understanding what's going on there. But we 505 00:26:17,320 --> 00:26:19,439 Speaker 5: bought more of those stocks during two thousand and eight 506 00:26:19,480 --> 00:26:21,080 Speaker 5: and two thousand and nine in the middle of the 507 00:26:21,080 --> 00:26:24,760 Speaker 5: financial crisis, the cruise stocks got quite quite cheap, and 508 00:26:24,800 --> 00:26:27,240 Speaker 5: then to what you referred to during the COVID crisis. 509 00:26:28,200 --> 00:26:30,440 Speaker 5: You know, we didn't wait for the dustic level. We 510 00:26:31,000 --> 00:26:33,000 Speaker 5: talked to our management teams. We've been talking to them 511 00:26:33,000 --> 00:26:36,399 Speaker 5: every quarter for again between fifteen and twenty years. We 512 00:26:36,440 --> 00:26:39,920 Speaker 5: could feel their confidence start to rebuild as we started 513 00:26:39,920 --> 00:26:43,080 Speaker 5: to figure out that, you know, COVID crisis. The first 514 00:26:43,119 --> 00:26:46,720 Speaker 5: couple of weeks, of course were no man's land, but eventually, 515 00:26:47,119 --> 00:26:49,199 Speaker 5: you know, things started to move in the right direction. 516 00:26:49,640 --> 00:26:52,400 Speaker 5: We could start to feel their confidence build. So we 517 00:26:52,440 --> 00:26:55,840 Speaker 5: added aggressively in our small cap strategies, in our smid 518 00:26:55,840 --> 00:26:59,960 Speaker 5: cap strategies, companies like ones in Royal Caribbean built bigger positions. 519 00:27:00,320 --> 00:27:03,120 Speaker 5: Even though the stocks have been crushed. Everyone hated them. 520 00:27:03,160 --> 00:27:04,680 Speaker 5: It was the worst place to be in the middle 521 00:27:04,720 --> 00:27:08,240 Speaker 5: of a pandemic owning a cruise stock. We said, we 522 00:27:08,240 --> 00:27:10,320 Speaker 5: want to buy more, and of course they've come back 523 00:27:10,400 --> 00:27:14,720 Speaker 5: so remarkably well. They've been our absolute best performers since COVID. 524 00:27:15,000 --> 00:27:17,960 Speaker 3: Do you worry at all about this idea of pent 525 00:27:18,080 --> 00:27:21,879 Speaker 3: up demand? So okay, demand went for cruises went to 526 00:27:21,960 --> 00:27:25,520 Speaker 3: zero during COVID, but then it has come roaring back, 527 00:27:25,560 --> 00:27:27,960 Speaker 3: and a lot of people who were stuck at home 528 00:27:28,119 --> 00:27:30,200 Speaker 3: for a year or so really want to get out 529 00:27:30,240 --> 00:27:33,600 Speaker 3: and do stuff like go to sports games, buy concert tickets, 530 00:27:33,640 --> 00:27:37,880 Speaker 3: go on cruises. Some people argue that, like okay, eventually 531 00:27:37,960 --> 00:27:40,080 Speaker 3: that pent up demand is going to slow down a 532 00:27:40,080 --> 00:27:42,120 Speaker 3: little bit. Is that something on your radar or something 533 00:27:42,160 --> 00:27:42,639 Speaker 3: you're seeing. 534 00:27:43,320 --> 00:27:46,080 Speaker 5: We keep asking the management teams there that over and 535 00:27:46,119 --> 00:27:48,240 Speaker 5: over again, testing them to see if they're seeing any 536 00:27:48,280 --> 00:27:51,359 Speaker 5: signs of that. And so far, you know, the cruise 537 00:27:51,400 --> 00:27:53,840 Speaker 5: lines have been holding up extraordinary. Well, then you never know, 538 00:27:54,480 --> 00:27:56,280 Speaker 5: as we know, this is the most humbling business in 539 00:27:56,320 --> 00:27:58,760 Speaker 5: the world. All of you know that, but we feel 540 00:27:58,800 --> 00:28:02,639 Speaker 5: highly confident there. Interesting are two actually are two of 541 00:28:02,640 --> 00:28:05,720 Speaker 5: our worst stocks. Are stocks that did really well coming 542 00:28:05,760 --> 00:28:09,639 Speaker 5: out of COVID because exactly your reason, everyone was rushing 543 00:28:09,680 --> 00:28:14,000 Speaker 5: toward them, and now they got overconfident thought those cash flows. 544 00:28:14,000 --> 00:28:15,680 Speaker 4: Who are we talking about here? 545 00:28:15,960 --> 00:28:19,000 Speaker 5: Those two? One was in Vista, the dental company. They 546 00:28:19,040 --> 00:28:21,919 Speaker 5: did really well with pent up demand for problems with 547 00:28:21,960 --> 00:28:25,240 Speaker 5: your teeth. You know, it's a real issue, of worldwide issue. 548 00:28:25,560 --> 00:28:29,240 Speaker 5: People can only put it off so long. But they've 549 00:28:29,280 --> 00:28:32,800 Speaker 5: again struggled afterwards, they got their expectations way way ahead. 550 00:28:33,280 --> 00:28:36,359 Speaker 5: The same thing happened with Leslie's Pools. And after this, 551 00:28:36,440 --> 00:28:40,120 Speaker 5: I'm gonna go visit a Leslie's pool store. And there's 552 00:28:40,160 --> 00:28:42,360 Speaker 5: a couple right nearby here, and how many of you 553 00:28:42,360 --> 00:28:48,000 Speaker 5: guys have pools? Several hope you're using Leslie's. 554 00:28:51,120 --> 00:28:53,680 Speaker 2: This is really this is really grinding it out, working 555 00:28:53,720 --> 00:28:56,120 Speaker 2: the pavement, making the sales pitch to the audience there. 556 00:28:57,200 --> 00:28:57,880 Speaker 4: I respect it. 557 00:28:58,040 --> 00:29:01,560 Speaker 5: Yeah, so you know they they compete with Pinch a Penny, 558 00:29:01,640 --> 00:29:04,520 Speaker 5: which is really big in Florida, that's expanding in Texas. 559 00:29:05,080 --> 00:29:07,440 Speaker 5: But what happened again when everyone was staying home during 560 00:29:07,480 --> 00:29:11,480 Speaker 5: COVID New pools are being built. People needed to go 561 00:29:11,680 --> 00:29:14,040 Speaker 5: to Leslie's and get the chemicals to keep their pools 562 00:29:14,080 --> 00:29:17,600 Speaker 5: cleaned for their families, you know, new heater, new whatever. 563 00:29:18,240 --> 00:29:20,880 Speaker 5: And then all of a sudden, their expectations got high, 564 00:29:21,160 --> 00:29:25,040 Speaker 5: they got too much inventory, everyone got too optimistic, ended 565 00:29:25,120 --> 00:29:29,000 Speaker 5: up with a cool, colder summer the summer before the 566 00:29:29,120 --> 00:29:31,360 Speaker 5: colder then anticipated, and all of a sudden their sales 567 00:29:31,400 --> 00:29:33,680 Speaker 5: blew up. So those are our two that have been 568 00:29:33,680 --> 00:29:37,760 Speaker 5: the most susceptible to phenomenon that you rightly identify. But 569 00:29:37,840 --> 00:29:41,040 Speaker 5: we think now the worst is behind them and looking 570 00:29:41,080 --> 00:29:43,800 Speaker 5: forward we're quite optimistic. And in both cases now they 571 00:29:43,800 --> 00:29:46,160 Speaker 5: have a new CEO where we're getting to know and 572 00:29:46,480 --> 00:29:49,440 Speaker 5: doing all our homework and channel checks on the quality 573 00:29:49,440 --> 00:29:51,280 Speaker 5: of the people that have been brought in to get 574 00:29:51,280 --> 00:29:52,720 Speaker 5: those businesses back on track. 575 00:29:53,240 --> 00:29:55,720 Speaker 2: Yeah, you mentioned going to the shops and you're going 576 00:29:55,800 --> 00:29:57,960 Speaker 2: to check about on your while you're out here. 577 00:29:58,160 --> 00:29:59,880 Speaker 4: Is that something you do regularly? 578 00:30:00,120 --> 00:30:02,200 Speaker 2: Like, okay, we talked about meeting with the management, but 579 00:30:02,280 --> 00:30:04,800 Speaker 2: actually just going in to see the consumer facing experience, 580 00:30:04,880 --> 00:30:06,680 Speaker 2: Like do you go to McDonald's and see like, hey, 581 00:30:06,720 --> 00:30:08,959 Speaker 2: are they keeping up there? 582 00:30:09,360 --> 00:30:10,520 Speaker 4: Is the mcflurry machine broken? 583 00:30:10,600 --> 00:30:10,680 Speaker 5: Like? 584 00:30:10,760 --> 00:30:10,920 Speaker 3: Is that? 585 00:30:10,960 --> 00:30:11,360 Speaker 5: How is that? 586 00:30:11,480 --> 00:30:13,440 Speaker 2: Is that part of your consistent process across a lot 587 00:30:13,480 --> 00:30:14,120 Speaker 2: of your companies? 588 00:30:15,280 --> 00:30:17,840 Speaker 5: Yes, yes, I think it it is. I think it's 589 00:30:17,840 --> 00:30:19,640 Speaker 5: a big part of the process is not only going 590 00:30:19,680 --> 00:30:22,840 Speaker 5: yourself and experiencing the product, but then talking to all 591 00:30:22,880 --> 00:30:26,560 Speaker 5: the other all your friends and family and any contexts 592 00:30:26,560 --> 00:30:30,680 Speaker 5: and relationships. You have to understand different perspectives, different points 593 00:30:30,680 --> 00:30:33,120 Speaker 5: of view. So it's just not my perspective or point 594 00:30:33,120 --> 00:30:34,760 Speaker 5: of view. If you want to get as many candid, 595 00:30:35,040 --> 00:30:38,600 Speaker 5: independent voices as possible and encourage all of our teammates 596 00:30:38,600 --> 00:30:42,160 Speaker 5: at Ariel to do that, maintain relationships with experts in 597 00:30:42,200 --> 00:30:45,600 Speaker 5: the field, but also just you know, again getting common 598 00:30:45,640 --> 00:30:49,120 Speaker 5: sense perspectives of whether the sphere is a special experience 599 00:30:49,240 --> 00:30:53,000 Speaker 5: or not. Is the mcflurry really going to work when 600 00:30:53,000 --> 00:30:55,120 Speaker 5: it came out? You know, it's you want to do that, 601 00:30:55,400 --> 00:30:57,120 Speaker 5: And for me that was an easy one because I 602 00:30:57,240 --> 00:31:00,080 Speaker 5: everyone knows I try to go to McDonald's every day. 603 00:31:00,520 --> 00:31:03,400 Speaker 5: I love it there, and I ultimately I loved it 604 00:31:03,440 --> 00:31:05,040 Speaker 5: so much. I talked about it so much. I got 605 00:31:05,040 --> 00:31:07,080 Speaker 5: to serve on the board for twenty years. 606 00:31:07,080 --> 00:31:08,240 Speaker 4: Wow the dream. 607 00:31:08,760 --> 00:31:10,840 Speaker 3: Wait, I have an important question. Do you order in 608 00:31:11,000 --> 00:31:12,160 Speaker 3: store on the app? 609 00:31:13,840 --> 00:31:13,959 Speaker 1: Well? 610 00:31:14,040 --> 00:31:17,520 Speaker 5: I mostly order in in store, but I've learned how 611 00:31:17,840 --> 00:31:20,360 Speaker 5: delivery works now and literally I can call and they 612 00:31:20,440 --> 00:31:22,640 Speaker 5: delivered to my apartment in less than ten minutes. 613 00:31:22,680 --> 00:31:25,560 Speaker 2: Sometimes I think we should do an episode one day 614 00:31:25,600 --> 00:31:28,080 Speaker 2: with you in McDonald's because Tracy and I both are 615 00:31:28,120 --> 00:31:30,240 Speaker 2: big fans of McDonald's as well, and we had a meeting. 616 00:31:30,320 --> 00:31:33,440 Speaker 2: We took a meeting at one several weeks ago. I 617 00:31:33,440 --> 00:31:36,240 Speaker 2: think maybe next year, like, let's do one in McDonald's 618 00:31:36,320 --> 00:31:38,160 Speaker 2: and like you can just sort of we can just 619 00:31:38,240 --> 00:31:40,480 Speaker 2: listen to hear what you observe and what you watch 620 00:31:40,520 --> 00:31:41,760 Speaker 2: and what trends you see. 621 00:31:41,920 --> 00:31:42,680 Speaker 4: I think that'd be fun. 622 00:31:42,720 --> 00:31:44,640 Speaker 5: I would love that it's my home away from home, 623 00:31:44,720 --> 00:31:46,680 Speaker 5: so I'd be happy to be there. 624 00:31:47,000 --> 00:31:48,400 Speaker 4: You know, it occurs to me. 625 00:31:48,840 --> 00:31:52,240 Speaker 2: Experiences even prior to COVID was a big thing people 626 00:31:52,240 --> 00:31:55,520 Speaker 2: talk about the change in consumption from goods to services 627 00:31:56,520 --> 00:31:59,320 Speaker 2: or goods to experiences, and that fits with the sphere 628 00:31:59,440 --> 00:32:03,720 Speaker 2: and uh Yal Caribbean and obviously events like this where 629 00:32:03,720 --> 00:32:06,040 Speaker 2: people are coming from all over the country to hang 630 00:32:06,040 --> 00:32:08,600 Speaker 2: out on a beach and you know, talk about markets 631 00:32:08,640 --> 00:32:11,320 Speaker 2: and finance and investing and stuff. Isn't it a secular 632 00:32:11,360 --> 00:32:12,960 Speaker 2: trend that you expect to see continuing? 633 00:32:14,120 --> 00:32:16,720 Speaker 5: Well, I hope not, because we are over indexed to 634 00:32:16,840 --> 00:32:20,560 Speaker 5: companies that have experience. I just think the experiences are 635 00:32:20,560 --> 00:32:24,960 Speaker 5: getting better and I think Americans are enjoying them as 636 00:32:24,960 --> 00:32:28,320 Speaker 5: a worldwide phenomenon. You know, my daughter and I went 637 00:32:28,360 --> 00:32:32,200 Speaker 5: to the Paris Olympics this summer. You know, she can't 638 00:32:32,240 --> 00:32:34,680 Speaker 5: wait to go back to Los Angeles. Yeah, We've gone 639 00:32:34,680 --> 00:32:37,320 Speaker 5: to the Garden to see Billy Joel. Recently we went 640 00:32:37,360 --> 00:32:41,040 Speaker 5: to Radio City Music Hall to see the Rockets at Christmas. 641 00:32:42,120 --> 00:32:44,320 Speaker 5: We just love those experiences and as part so I 642 00:32:44,360 --> 00:32:46,240 Speaker 5: always say, I'm doing my homework, I'm getting, you know, 643 00:32:46,600 --> 00:32:49,560 Speaker 5: being paid to have these experiences. They're really special. 644 00:32:50,160 --> 00:32:54,480 Speaker 3: So listening to talk about your overall investment philosophy, a 645 00:32:54,520 --> 00:32:58,200 Speaker 3: lot of it seems like identifying market miss pricing, so 646 00:32:58,320 --> 00:33:02,560 Speaker 3: things that are underpriced by other investors, and I guess 647 00:33:02,560 --> 00:33:05,240 Speaker 3: I'm curious over the years, do you think markets have 648 00:33:05,320 --> 00:33:08,560 Speaker 3: gotten more or less sufficient? And one of the reasons 649 00:33:08,600 --> 00:33:10,920 Speaker 3: I ask is because Joe and I have been recording 650 00:33:10,960 --> 00:33:14,760 Speaker 3: a lot of episodes about the rise of multi strategy 651 00:33:15,240 --> 00:33:17,920 Speaker 3: hedge funds pod shops, and a lot of what they 652 00:33:18,040 --> 00:33:22,320 Speaker 3: do seems to be also identifying dislocations in the market 653 00:33:22,360 --> 00:33:26,120 Speaker 3: and then reacting to them very very quickly. Probably not 654 00:33:26,160 --> 00:33:28,560 Speaker 3: in the same way that a value investor does, but 655 00:33:28,640 --> 00:33:32,760 Speaker 3: it seems like the reaction to news has gotten faster 656 00:33:32,960 --> 00:33:35,160 Speaker 3: and faster. So I wonder how you think about that. 657 00:33:35,400 --> 00:33:37,480 Speaker 5: Many some of you know I played basketball to Princeton 658 00:33:37,520 --> 00:33:40,160 Speaker 5: and the stock market was my hobby while I was there. 659 00:33:40,280 --> 00:33:43,920 Speaker 5: I had a broker across the street from campus. I loved, love, 660 00:33:44,200 --> 00:33:47,600 Speaker 5: love the stock market. That inspired me to become a 661 00:33:47,640 --> 00:33:50,520 Speaker 5: financial advisor when I first graduated, and then two and 662 00:33:50,560 --> 00:33:53,880 Speaker 5: a half years later started Aeriel. But you know I 663 00:33:55,000 --> 00:33:57,200 Speaker 5: when I was at Princeton, Bert Malkiel was the head 664 00:33:57,200 --> 00:34:00,000 Speaker 5: of the economics department there and he had just written 665 00:34:00,000 --> 00:34:02,240 Speaker 5: and a Random Walk down Wall Street, you know that 666 00:34:02,360 --> 00:34:05,000 Speaker 5: legendary book that's now over fifty years old. And has 667 00:34:05,040 --> 00:34:08,359 Speaker 5: been reprinted time and time again, and he made such 668 00:34:08,360 --> 00:34:11,160 Speaker 5: a great case literally fifty years ago about how efficient 669 00:34:11,200 --> 00:34:13,880 Speaker 5: the market is. And then I grew up in Chicago 670 00:34:14,360 --> 00:34:17,319 Speaker 5: in Hyde Park as part of the University of Chicago community. 671 00:34:18,000 --> 00:34:19,880 Speaker 5: And I don't know how many people know that. You know, 672 00:34:19,960 --> 00:34:23,600 Speaker 5: University of Chicago has a kindergarten through high school, and 673 00:34:23,680 --> 00:34:25,680 Speaker 5: so I went to the University of Chicago high school 674 00:34:26,360 --> 00:34:29,440 Speaker 5: and a lot of my friends' parents were doing great 675 00:34:29,520 --> 00:34:33,720 Speaker 5: work around efficient markets. Fama's daughter was in high school 676 00:34:33,760 --> 00:34:36,560 Speaker 5: with me, and so I got to study everything that 677 00:34:36,600 --> 00:34:38,799 Speaker 5: was going on at the University of Chicago. Took it very, 678 00:34:38,880 --> 00:34:41,400 Speaker 5: very seriously, and I've been a big believer in efficient 679 00:34:41,400 --> 00:34:45,279 Speaker 5: markets ever since. So I think that it gets more 680 00:34:45,280 --> 00:34:47,960 Speaker 5: and more visibility as the years go on. But I 681 00:34:47,960 --> 00:34:50,759 Speaker 5: would say I don't think there's any big shift in this. 682 00:34:50,840 --> 00:34:53,160 Speaker 5: I think markets have been efficient for a long, long, 683 00:34:53,200 --> 00:34:57,560 Speaker 5: long time, and I think that there are rare opportunities 684 00:34:57,920 --> 00:35:01,120 Speaker 5: when you can find some inefficiencies. Yeah, and I think 685 00:35:01,200 --> 00:35:05,440 Speaker 5: it happens in an industry where the overall markets are 686 00:35:05,480 --> 00:35:09,160 Speaker 5: in crisis or in euphoria one or the other. That's 687 00:35:09,160 --> 00:35:12,560 Speaker 5: when you can do homework and make some market to 688 00:35:12,840 --> 00:35:16,719 Speaker 5: make some individual decisions in an inefficient market, but those 689 00:35:16,840 --> 00:35:21,400 Speaker 5: happen very, very very rarely, and I think it's really 690 00:35:21,440 --> 00:35:22,440 Speaker 5: hard game to play. 691 00:35:22,760 --> 00:35:25,120 Speaker 2: Can you just talk more about this, because I'm fascinated 692 00:35:25,280 --> 00:35:28,560 Speaker 2: by this idea because it does seem like generally markets 693 00:35:28,600 --> 00:35:29,200 Speaker 2: are efficient. 694 00:35:29,640 --> 00:35:30,319 Speaker 4: You wouldn't be. 695 00:35:30,400 --> 00:35:34,319 Speaker 2: In the business of identifying stocks if markets were fully 696 00:35:34,360 --> 00:35:37,480 Speaker 2: efficient or always efficient. Can you talk a little bit 697 00:35:37,480 --> 00:35:41,360 Speaker 2: more about this sort of the situations that you've seen 698 00:35:41,560 --> 00:35:45,719 Speaker 2: that cause efficiency to break down and clear opportunities to emerge. 699 00:35:46,560 --> 00:35:50,479 Speaker 5: Well, I think the best experience in my career. Again, 700 00:35:50,560 --> 00:35:52,320 Speaker 5: I say, you read about some of the craziness in 701 00:35:52,360 --> 00:35:55,400 Speaker 5: the world and say that could never happen again. Yeah, 702 00:35:55,440 --> 00:35:57,400 Speaker 5: And things that have happened over the last several hundred 703 00:35:57,480 --> 00:35:59,479 Speaker 5: years that are just you know, mind boggling, the South 704 00:35:59,520 --> 00:36:02,800 Speaker 5: Seaports and all the other you know, nineteen twenty nine 705 00:36:02,880 --> 00:36:07,000 Speaker 5: and gold and the late seventies and silver. You know, 706 00:36:07,040 --> 00:36:09,319 Speaker 5: I remember the Hunt Brothers begun the cover I mean 707 00:36:09,440 --> 00:36:12,120 Speaker 5: Business Week with all the money they were making, and 708 00:36:13,120 --> 00:36:15,359 Speaker 5: you know, so these things sort of coming gone. And 709 00:36:15,640 --> 00:36:17,239 Speaker 5: I think that I was going to get to through 710 00:36:17,280 --> 00:36:20,640 Speaker 5: looking at those pass bubbles. Is that eight and nine happened. 711 00:36:21,320 --> 00:36:23,960 Speaker 5: And I was around in nineteen eighty seven when the 712 00:36:23,960 --> 00:36:27,359 Speaker 5: stock market went down twenty two percent one day. We 713 00:36:27,360 --> 00:36:29,720 Speaker 5: were calling all our clients, say send us more money 714 00:36:29,760 --> 00:36:32,160 Speaker 5: at the middle of that downdraft in the market, and 715 00:36:32,200 --> 00:36:33,960 Speaker 5: I remember telling everyone on the phone, this is a 716 00:36:34,000 --> 00:36:36,279 Speaker 5: once in a lifetime opportunity. This is never going to 717 00:36:36,320 --> 00:36:39,360 Speaker 5: happen again. And the course oh eight o nine happened, 718 00:36:39,360 --> 00:36:42,479 Speaker 5: which was much much, much worse. And at the height 719 00:36:42,520 --> 00:36:44,759 Speaker 5: of that, you know, you know, stocks that you liked 720 00:36:45,520 --> 00:36:49,080 Speaker 5: at thirty went to fifteen, you know, in the fall 721 00:36:49,120 --> 00:36:52,319 Speaker 5: of eight, and by March of nine those stocks were 722 00:36:52,560 --> 00:36:56,040 Speaker 5: four or five dollars, and all the analysts had given up, 723 00:36:56,480 --> 00:36:58,399 Speaker 5: you know, people who had said by at thirty were 724 00:36:58,400 --> 00:37:02,000 Speaker 5: saying sell it at five. Companies have no future. He said, 725 00:37:02,040 --> 00:37:04,680 Speaker 5: that can't be, you know, it didn't make sense. And 726 00:37:04,719 --> 00:37:06,920 Speaker 5: if you looked out over the horizon three to four 727 00:37:06,960 --> 00:37:09,400 Speaker 5: years down the road, these were companies that had been 728 00:37:09,440 --> 00:37:13,960 Speaker 5: around for generations and things would get back to normal. Someday, 729 00:37:14,000 --> 00:37:16,080 Speaker 5: the sun would come out and the storm clouds would 730 00:37:16,080 --> 00:37:20,080 Speaker 5: go away. But those kind of crazy experiences don't happen 731 00:37:20,640 --> 00:37:24,360 Speaker 5: very often, but that those are just so memorable. Because 732 00:37:24,719 --> 00:37:27,960 Speaker 5: everyone gave up right at the bottom of March nine, 733 00:37:28,080 --> 00:37:31,040 Speaker 5: two thousand and nine, and all the clients that called 734 00:37:31,080 --> 00:37:34,920 Speaker 5: up and fired us, and all the analysts and the 735 00:37:34,960 --> 00:37:37,840 Speaker 5: consultants who gave up right at the time when it 736 00:37:37,880 --> 00:37:39,799 Speaker 5: was a time to buy. The guy who covered us 737 00:37:39,800 --> 00:37:43,640 Speaker 5: a morning star was the one person, Michael, who said, 738 00:37:44,320 --> 00:37:46,600 Speaker 5: these are good companies. I'm looking at the cash flows 739 00:37:46,600 --> 00:37:49,080 Speaker 5: of the companies, looking at their profitability over the next 740 00:37:49,080 --> 00:37:53,360 Speaker 5: three years. They're selling it prices that don't make sense. 741 00:37:54,040 --> 00:37:57,360 Speaker 5: But it's a rare person who could see that and 742 00:37:57,760 --> 00:38:01,640 Speaker 5: feel comfortable recommending by the fund that's out of favor 743 00:38:02,280 --> 00:38:04,680 Speaker 5: at the height of the decline of the bubble. 744 00:38:05,520 --> 00:38:09,000 Speaker 3: What was early August like for you this year the 745 00:38:09,640 --> 00:38:12,040 Speaker 3: most recent sell off, Like, okay, it wasn't as bad 746 00:38:12,040 --> 00:38:14,080 Speaker 3: as two thousand and eight, two thousand and nine obviously, 747 00:38:14,360 --> 00:38:17,880 Speaker 3: or eighty seven, but there was a pretty substantial drawdown 748 00:38:17,960 --> 00:38:20,840 Speaker 3: that happened over the course of a couple of days. 749 00:38:21,160 --> 00:38:24,799 Speaker 3: What happens at aerial investments during a period of that 750 00:38:24,960 --> 00:38:26,640 Speaker 3: type of volatility. 751 00:38:27,080 --> 00:38:29,320 Speaker 5: Well, when you get the kind of volatiley that we've 752 00:38:29,400 --> 00:38:33,520 Speaker 5: experienced a lot lately, and even day to day volatility 753 00:38:33,719 --> 00:38:36,600 Speaker 5: is greater than I've ever seen. You know, you just 754 00:38:36,680 --> 00:38:41,200 Speaker 5: find from the opening to lunchtime to the close. So 755 00:38:41,239 --> 00:38:44,280 Speaker 5: we're talking to each other throughout the day, saying, where's 756 00:38:44,400 --> 00:38:47,560 Speaker 5: the what stocks have declined the most. Let's see if 757 00:38:47,560 --> 00:38:49,760 Speaker 5: there's some opportunities to pick up some of our favorite 758 00:38:49,800 --> 00:38:52,520 Speaker 5: names and bargain prices, because sometimes we'll see U stock 759 00:38:52,600 --> 00:38:55,520 Speaker 5: down ten percent, twelve percent that doesn't make any sense, 760 00:38:56,080 --> 00:38:58,520 Speaker 5: or a company that's had an earnings disappointment after maybe 761 00:38:58,520 --> 00:39:01,360 Speaker 5: a couple of quarters of earnings disappointment, and again everyone 762 00:39:01,480 --> 00:39:04,239 Speaker 5: gives up after that third or fourth disappointment and the 763 00:39:04,239 --> 00:39:07,360 Speaker 5: stocks down fifteen to twenty percent. You do your channel 764 00:39:07,440 --> 00:39:09,920 Speaker 5: checks as rapidly as possible. You talk to all the 765 00:39:09,960 --> 00:39:12,800 Speaker 5: experts you can. You talk to the management, of course, 766 00:39:13,360 --> 00:39:16,680 Speaker 5: you talk to other buyside owners and sell side analysts, 767 00:39:17,239 --> 00:39:21,280 Speaker 5: and then you come together and have emergency meetings ready 768 00:39:21,320 --> 00:39:23,200 Speaker 5: to go in and buy more. Most of the time, 769 00:39:23,560 --> 00:39:27,239 Speaker 5: sometimes you'll find out something's changed, something's different. But most 770 00:39:27,239 --> 00:39:30,759 Speaker 5: of the time, again people panic together after there's been 771 00:39:30,760 --> 00:39:33,800 Speaker 5: a series of disappointments and you're in an uncomfortable environment. 772 00:39:34,040 --> 00:39:37,359 Speaker 5: So we always look at that as opportunity, and that's 773 00:39:37,400 --> 00:39:39,719 Speaker 5: the way that we think about investing as value investors. 774 00:39:40,680 --> 00:39:42,760 Speaker 4: John Rogers, this has been such a treat. 775 00:39:43,000 --> 00:39:47,319 Speaker 2: Really appreciate you joining us and getting the opportunity to 776 00:39:47,360 --> 00:39:49,400 Speaker 2: do this in front of the future Proof conference. 777 00:39:49,400 --> 00:39:50,160 Speaker 4: So thank you so. 778 00:39:50,160 --> 00:39:52,640 Speaker 5: Much, thank you. This has been really fun. Thank you, 779 00:39:52,719 --> 00:39:53,080 Speaker 5: thank you. 780 00:40:06,120 --> 00:40:08,040 Speaker 3: But that was a really fun conversation, Joe. 781 00:40:08,360 --> 00:40:08,840 Speaker 4: I love that. 782 00:40:09,160 --> 00:40:11,319 Speaker 2: I just I love how old school was. I love 783 00:40:11,680 --> 00:40:14,840 Speaker 2: just talking when I first got into investing years and 784 00:40:14,920 --> 00:40:16,799 Speaker 2: years ago. I've mentioned a couple of times I had 785 00:40:16,840 --> 00:40:19,799 Speaker 2: this brief stint at a portfolio management company and that's 786 00:40:19,840 --> 00:40:22,719 Speaker 2: what we did. We like looked through like we looked 787 00:40:22,760 --> 00:40:25,440 Speaker 2: for cheap stocks and it wasn't just about are we 788 00:40:25,520 --> 00:40:27,719 Speaker 2: exposed to a few big names or not. And I 789 00:40:27,800 --> 00:40:29,799 Speaker 2: really do miss that, so to me, that was a 790 00:40:29,800 --> 00:40:30,400 Speaker 2: total blast. 791 00:40:30,520 --> 00:40:34,640 Speaker 3: Also, the mcflurry machine as a viable business mode, that 792 00:40:34,760 --> 00:40:35,399 Speaker 3: was kind of fun. 793 00:40:35,920 --> 00:40:38,680 Speaker 2: Really, we should do that episode with John and McDonald's. 794 00:40:38,719 --> 00:40:40,480 Speaker 3: Yeah, okay, McDonald's here we come. 795 00:40:40,560 --> 00:40:41,319 Speaker 1: Shall we leave it there? 796 00:40:41,400 --> 00:40:42,120 Speaker 2: Let's leave it there. 797 00:40:42,239 --> 00:40:44,840 Speaker 3: This has been another episode of the All Thoughts podcast. 798 00:40:44,920 --> 00:40:48,040 Speaker 3: I'm Tracy Alloway. You can follow me at Tracy Alloway. 799 00:40:47,800 --> 00:40:50,760 Speaker 2: And I'm Joe Wisenthal. 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