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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.

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Speaker 2: This is Master's in Business with Barry red Holts on

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Speaker 2: Bloomberg Radio. Strap yourselves in for another good one. This week.

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Speaker 2: I have Ricky Sandler. He is the CEO and CIO

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Speaker 2: of Eminence Capital. They're a hedge fund that's been around

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Speaker 2: for twenty five years, running over seven billion dollars in

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Speaker 2: both a long short format. Not a lot of successful

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Speaker 2: long short hedge fund managers around. Sandler is one of

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Speaker 2: those rare birds who not only is a bottoms up

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Speaker 2: fundamental stock picker on the long side, but they also

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Speaker 2: have a very specific methodology for hedging the downside by

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Speaker 2: shorting individual names. They have a tremendous track record over

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Speaker 2: the past twenty five years. This is a masterclass in

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Speaker 2: how to think about allocating a capital, managing risk, and

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Speaker 2: looking at how changing market structure has affected investors. Whereas

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Speaker 2: David Einhorn talked about the passive side changing things, Sandler

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Speaker 2: talks about how the active side has changed and it's

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Speaker 2: very different than what it was like thirty years ago

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Speaker 2: when fundamental investors dominated the active alongside. According to Sandler,

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Speaker 2: that's no longer the case. I found this conversation to

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Speaker 2: be fascinating, and I think you will also with no

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Speaker 2: further ado, my discussion with Eminence Capitals Ricky Sandler.

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Speaker 3: Thank you Berry. Great to be here.

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Speaker 2: I've been looking forward to having this conversation. You have

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Speaker 2: such a fascinating background. Let's start with college BBA in

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Speaker 2: Accounting and Finance from University of Wisconsin. What was investing

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Speaker 2: always the plan?

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Speaker 3: No, investing wasn't always the plan.

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Speaker 1: Although I have a family background that investing, and I've

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Speaker 1: been around investing my whole life, I kind of thought

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Speaker 1: I was going to go in a different direction. I

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Speaker 1: was applying to law school at the end of college.

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Speaker 1: I thought I would be more as a business operator builder.

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Speaker 1: And then when I graduated, I decided to put these

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Speaker 1: law school applications or these law schoo acceptances on hold

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Speaker 1: and worked for a few years. I came into the

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Speaker 1: investment business out of college and loved it from the

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Speaker 1: first minute and never looked back.

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Speaker 2: Well, you probably made the right choice. I enjoyed law school,

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Speaker 2: but three years is way too long. They should really

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Speaker 2: tighten that up to two years and get you out

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Speaker 2: in the real world.

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Speaker 3: YEP.

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Speaker 2: So your first gig out of Wisconsin is an analyst

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Speaker 2: at Mark Asset Management. Were you analyzing stocks or running

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Speaker 2: a portfolio? Then?

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Speaker 1: No analyzing stocks. I was a young young kid, good

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Speaker 1: with math, you know, good with understanding businesses, but really

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Speaker 1: learned the ropes at Mark Asset Management. You know, Morris

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Speaker 1: Mark was a great mentor, and that was an incredible

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Speaker 1: experience to be kind of very close to the portfolio.

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Speaker 1: It was a small firm, but we had a lot

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Speaker 1: of access and so from a very young age, I

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Speaker 1: was put in front of CEOs and CFOs of some

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Speaker 1: of the most important companies and it was just an

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Speaker 1: incredible platform and incredible experience to learn from.

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Speaker 2: And then your next stop is you co found and

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Speaker 2: co general partner Fusion Capital Management. Tell us a little

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Speaker 2: bit about that shop.

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Speaker 3: Yeah.

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Speaker 1: So when I went to go work for Marris Mark,

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Speaker 1: I took the job of Wayne Cooperman, who was Lee

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Speaker 1: Cooperman's son. He then came back two years after business school,

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Speaker 1: came back to work at Marris Mark's Mark Asset Management.

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Speaker 1: We worked together for a couple of years and then

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Speaker 1: at the young ages of twenty six and twenty nine,

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Speaker 1: we decided to leave and start our own thing together.

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Speaker 1: I think that we were both kind of young, smart analysts,

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Speaker 1: probably a bit naive, and felt like.

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Speaker 3: We could give it a go.

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Speaker 1: The HEDGPHNT industry was still a cottage industry back in

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Speaker 1: this was nineteen ninety four. We launched Fusion in nineteen

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Speaker 1: ninety five, and both of us had kind of roots

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Speaker 1: and history. Our fathers had worked together the other at

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Speaker 1: Goldman Sachs. They knew each other, and so we had

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Speaker 1: sort of family backgrounds. I would say we had a

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Speaker 1: good story. We were the sons of two successful money managers.

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Speaker 1: We got on some radar screens and when we did well,

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Speaker 1: money sort of came to us. And so that was

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Speaker 1: kind of very formative years of managing our own portfolio.

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Speaker 1: And you know, Fusion Capital Management was, you know, in

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Speaker 1: some ways quite similar to what we do in Eminence.

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Speaker 1: On the long side, obviously we've evolved quite a bit

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Speaker 1: over the last thirty years, but we were bottoms up

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Speaker 1: stock pickers looking for what I would call good businesses

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Speaker 1: and stocks that were value and I think, you know,

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Speaker 1: we were I would say shorting as a little bit

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Speaker 1: of a byproduct of what we did. That was something

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Speaker 1: that changed later in Eminence, but we had a good

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Speaker 1: four year run together and then at the end of

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Speaker 1: nineteen ninety eight we split up and I kind of

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Speaker 1: launched Eminence right out of Fusion.

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Speaker 2: So what was it like raising money. You're a relatively

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Speaker 2: young person. It's not like you have decades of experience.

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Speaker 2: I recall the nineties as just a wild period. Did

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Speaker 2: you find yourself being challenged raising capital or given the

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Speaker 2: success of Fusion, it wasn't that big a lift.

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Speaker 1: So I would say to start out, it was the

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Speaker 1: MCI friends and family plan when we launched, but I

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Speaker 1: think because we had the family backgrounds, and as I mentioned,

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Speaker 1: we were on some radar screen. So as we started

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Speaker 1: to do well, as we put up a good first

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Speaker 1: year in a good second year, money was there.

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Speaker 3: There was. There was a whole industry of people.

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Speaker 1: Looking to invest in young hedge funds, believing that that

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Speaker 1: when firms were young, they would they did their best.

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Speaker 2: So a lot of emerging manager merging matter exactly.

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Speaker 3: Thank you for that.

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Speaker 1: So we grew from what was twenty six or seven

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Speaker 1: million when we started to about three hundred and fifty

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Speaker 1: million over the four years, and I would say it

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Speaker 1: was for us fortunately, because of our backgrounds and the

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Speaker 1: success we had. It was not particularly challenging, and I

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Speaker 1: was very fortunate.

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Speaker 3: In that regards.

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Speaker 2: So raising capital is easy. Let's talk about deploying capital.

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Speaker 2: You know, Greenspan famously gives the rational zuberance speech in

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Speaker 2: ninety six. Markets laughed off and continue to trend higher.

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Speaker 2: We have the ti Bot crisis, the Asian contagion and

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Speaker 2: was at ninety seven, and then long Term Capital Management

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Speaker 2: ninety eight. You launch in ninety nine. What were you

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Speaker 2: thinking about with regards to that investing environment. You have

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Speaker 2: robust trend but stretched valuations and a lot of companies

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Speaker 2: with wisps of business models and very ephemeral revenue.

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Speaker 3: Yeah.

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Speaker 1: So when we launched Fusion at ninety five and went

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Speaker 1: through those periods, in the end of ninety eight, I

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Speaker 1: launched Eminence, and you're right, this was right on the

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Speaker 1: back of the long Term Capital Management kind of crisis.

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Speaker 1: I think that the experience over those four years, and

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Speaker 1: particularly the ninety eight crisis, convinced me that I needed

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Speaker 1: to develop a real expertise in shorting. That going through

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Speaker 1: a market like nineteen ninety eight with I would call

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Speaker 1: it light hedges and shorting the more expensive bigger cousin

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Speaker 1: to your small company was not effective hedging and strategy.

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Speaker 1: And one of the things that I felt in ninety

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Speaker 1: eight was the inability to lean into a dislocated market

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Speaker 1: because we weren't protecting capital well enough. And this led

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Speaker 1: to a lot of what has been the hallmarks of eminence,

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Speaker 1: which is single stock shorting has been critical pillar of

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Speaker 1: what we've done for the last twenty five years, and

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Speaker 1: for both the skepticism that it brings to the longside

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Speaker 1: of investing and for the ability to protect capital, or

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Speaker 1: do a reasonable job protecting capital in dislocations, which allows

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Speaker 1: you to be offensive. One of the things I've seen

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Speaker 1: throughout my entire career is that being offensive when there's dislocation,

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Speaker 1: you are planting the greatest seeds possible.

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Speaker 3: At that time.

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Speaker 1: Everybody else is kind of emotional throwing things out looking

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Speaker 1: short term, and you get a lot of great opportunities.

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Speaker 3: But you can only do that if you.

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Speaker 1: Have a portfolio that has protected some capital that you

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Speaker 1: can kind of lean into. So I'm going through those

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Speaker 1: early crises were kind of formative in our ability and

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Speaker 1: my both abiliting desire to build a true long short

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Speaker 1: hedge fund. That that single stock shorting was was kind

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Speaker 1: of at the core of what we do.

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Speaker 2: So a risk managed hedge when things are pricing and

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Speaker 2: things seem to be dislocated from reality to give you

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Speaker 2: some downside protection. But the flip side of that is

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Speaker 2: opportunistic aggressiveness when everybody hates the market and things are

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Speaker 2: selling off.

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Speaker 1: Is that is that a good I think? I think

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Speaker 1: that's good. And then and then even when things are

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Speaker 1: going well, if you can do a good job with

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Speaker 1: long short spread, you know that that shorting isn't going

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Speaker 1: to hurt you nearly as much. It allows you to

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Speaker 1: be levered to your lungs. So we've always run with

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Speaker 1: a portfolio where our long side is typically over one

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Speaker 1: hundred percent gross long. We bring that down with the

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Speaker 1: short side, so you get extra leverage too long, and

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Speaker 1: you could still outperform the market over the long term

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Speaker 1: even while only having let's say forty percent net exposure

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Speaker 1: to the market, because you can generate long short spread

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Speaker 1: and you can be levered too long. So a combination

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Speaker 1: of a model that allows you to do solidly when

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Speaker 1: markets were good and outperform them over time, maybe not

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Speaker 1: in the very very short run. If markets are going

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Speaker 1: to be up twenty percent in a given year, but

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Speaker 1: if the market's going to be up ten over the

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Speaker 1: long term, we could outrun that but also be able

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Speaker 1: to protect capital, So you can be offensive, and that

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Speaker 1: was part of the way you can outperform ULL.

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Speaker 2: We'll talk a little later about the specific strategies, but

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Speaker 2: the three main ones are long only, long short, and

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Speaker 2: then one fifty by fifty alpha extension. So it sounds

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Speaker 2: like long only is obvious, Long short seems like you're

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Speaker 2: somewhat hedged, but one fifty by fifty that that seems

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Speaker 2: like that's on steroids. That's the most aggressive portfolio.

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Speaker 1: Yes, so I think I think that will be our

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Speaker 1: highest absolute return portfolio over time. You know, the roots

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Speaker 1: of us are the long short hedge fund. I would

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Speaker 1: call that healthy gross moderate net exposure type portfolio. Call

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Speaker 1: it one thirty x eighty five kind of forty five

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Speaker 1: net two hundred and twenty five two hundred and twenty gross.

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Speaker 1: Use stock picking to generate good absolute returns but reduce

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Speaker 1: systematic risk through shorting, and that has variable net too.

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Speaker 1: So there have been times where we've been ten or

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Speaker 1: twenty percent net, and there have been times like post

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Speaker 1: COVID where we went to one hundred percent net. Long,

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Speaker 1: so we have flexibility, and then most of the time

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Speaker 1: we tend to run it pretty much in the middle

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Speaker 1: of the fairway. With those exposures, one fifty x fifty

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Speaker 1: is more of a long replacement. It is for the

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Speaker 1: investor who's already chosen to be along. The market is

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Speaker 1: always one hundred percent net long and fifty right right.

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Speaker 1: But now we have two opportunities to generate alpha for investors.

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Speaker 1: There's the alpha on our lungs what we would do

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Speaker 1: if we had one hundred percent long portfolio, and then

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Speaker 1: you add a fifty by fifty almost neutral sleeve on

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Speaker 1: top of that.

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Speaker 3: So we can generate.

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Speaker 1: Value from our long short spread because we have an

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Speaker 1: extra fifty points on either side.

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Speaker 3: And that's a product.

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Speaker 1: As allocators have increasingly bifurcated their portfolios, they want full

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Speaker 1: risk on one side and they want uncorrelated on the other.

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Speaker 1: They don't want this thing as much in the middle

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Speaker 1: that long short equity had been. We launched a long

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Speaker 1: fun twelve years ago, alpha extension a little over a

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Speaker 1: year ago, realizing that as a business, we need to

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Speaker 1: give allocators a product that fits what they need. We

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Speaker 1: can pick stocks and our long short hedgephone has done

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Speaker 1: great over twenty five years, but it's framework.

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Speaker 3: Its fees structure is something.

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Speaker 1: That that allocators have increasingly said, I want something different,

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Speaker 1: and so one fifty fifty it's always one hundred percent

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Speaker 1: that long, and we have a fee structure where you

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Speaker 1: only pay for alpha.

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Speaker 3: So the fea structure.

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Speaker 2: There is to define that because some people have called

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Speaker 2: those pivot fees or non beta fees. So you're charging

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Speaker 2: a fee over and above whatever the S and P

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Speaker 2: five hundred generates. Is that the thought process, that's.

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Speaker 3: The thought process.

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Speaker 1: So we picked the MSCI world, which is half of

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Speaker 1: it's the S and P five hundred anyway, because we

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Speaker 1: do global but we charge a fifty basis point fixed

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Speaker 1: fee and then thirty percent of the alpha. So if

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Speaker 1: we don't beat the market, you pay us a pretty

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Speaker 1: low fee fifty basis points. If we crush the market,

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Speaker 1: you pay us what we're worth. It's a fair sharing

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Speaker 1: of fees and a good alignment. And so there's a

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Speaker 1: huge pool of capital that already wants to be long

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Speaker 1: the market. Right This seventy to thirty model like a

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Speaker 1: lot of full risk, and so people in that full

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Speaker 1: risk want passive index they want lung only, they want

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Speaker 1: private equity, they want venture. So we're playing into that world.

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Speaker 1: But we can generate very significant alpha both through the

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Speaker 1: long stock picking and our long short spread.

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Speaker 2: So I love the business idea of that. Hey, if

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Speaker 2: I don't generate anything over my benchmark, you're paying me

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Speaker 2: what's essentially a mid price mutual fund fee. But we

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Speaker 2: have the potential, as you've demonstrated over the years, to

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Speaker 2: hit the ball out of the park, and when that happens,

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Speaker 2: you're going to pay up. I'm surprised more funds don't

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Speaker 2: play in that space from a business perspective. Why do

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Speaker 2: you think there's so reluctance to adopt I mean, obviously

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Speaker 2: you are eating your own cooking. You're like, hey, we

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Speaker 2: do well when you do well. Why have it more

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Speaker 2: funds embraced what sounds like something that's fair for both

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Speaker 2: for both the allocator and the fund manager.

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Speaker 1: It's a great question. You know, I think we have

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Speaker 1: been you know, the world and markets have evolved over

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Speaker 1: my thirty years in the business, and we've had to

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Speaker 1: evolve in two ways. We've had to evolve the business.

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Speaker 1: So to this point, I think as as allocators have

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Speaker 1: changed we've said, hey, we're going to disrupt ourselves. Yeah,

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Speaker 1: one and a half and twenty. Our fees are one

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Speaker 1: and a quarter and twenty, but one and a half

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Speaker 1: and twenty absolute fees. That's great, it's really lucrative. But

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Speaker 1: if you can't get it or Allocatus wants something, you know,

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Speaker 1: we could either be a smaller version of ourselves when

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Speaker 1: a lot of the peers that I started in the

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Speaker 1: business with are no longer managing money. I feel like

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Speaker 1: I love this business. I want to do the right

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Speaker 1: thing for my employees, for my investors, and keeping a

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Speaker 1: strong and stable business is important, even if it's you know,

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Speaker 1: less lucrative, and so were a bit disrupting ourselves, but

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Speaker 1: you're moving to where the market is and keeping a

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Speaker 1: business strong. So I think some of my peers maybe

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Speaker 1: have felt like, I don't want to give investors something

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Speaker 1: else that is lower fees than this lucrative business I have.

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Speaker 1: And I think also in order to really do one

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Speaker 1: fifty to fifty well, you need to have a scale

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Speaker 1: shorting infrastructure.

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Speaker 3: Shorting is hard.

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Speaker 1: This is something we have stayed committed to in the

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Speaker 1: decade after the GFC as we went into this ZERP

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Speaker 1: environment shorting got hard stocks kept going straight up. Valuations expanded,

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Speaker 1: valuations stopped mattering when rates were really low. Then we

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Speaker 1: go into the memestock craze in twenty twenty one. You're

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Speaker 1: telling me, not only does valuation not matter, but fundamentals

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Speaker 1: don't matter either. In order to do this well, you

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Speaker 1: need to believe that shorting adds value and you need

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Speaker 1: to be committed to it.

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Speaker 2: You're addressing exactly where I was going to go next,

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Speaker 2: which was the general consensus about why short sellers have

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Speaker 2: become an endangered species. Has not been the business model

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Speaker 2: it's been. Hey, shorting has become too There's just too

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Speaker 2: much capital, especially when you have zero interest rate and QE.

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Speaker 2: You know, there was no alternative to equity. Fixed income

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Speaker 2: was not desirable. Wait, I got nothing but downside and

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Speaker 2: no yield. Of course I'm going to roll into equities.

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Speaker 2: I'm going to assume that the pandemic and the shift

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Speaker 2: from a monetary regime in the twenty tens to a

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Speaker 2: fiscal regime in the twenty twenties change that. Are we

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Speaker 2: possibly seeing a resurgence of short selling.

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Speaker 1: I believe the opportunity set is great. I'm not sure

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Speaker 1: that everybody's gotten back into the single name shorten, the

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Speaker 1: memestock craze, the retail led rallies, the shortcovering rallies. The

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Speaker 1: new market structure still makes it not easy. You need

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Speaker 1: a really thoughtful portfolio construction, really thoughtful portfolio execution. It's

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Speaker 1: not just about the ideas. Volatility works against the short side,

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Speaker 1: it helps the alongside. If a stock goes down and

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Speaker 1: you're long it, you have a small position and more upside.

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Speaker 2: It's easy to and the opportunity to buy in at

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Speaker 2: a lower price.

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Speaker 1: And if the stock goes up, you have less upside

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Speaker 1: and a bigger position. It's easy to sell. The opposite

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Speaker 1: happens on the short side, and so things get bigger

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Speaker 1: automatically when they go against you, and risk constraints come in.

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Speaker 1: So you're going to be really thoughtful about portfolio construction.

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Speaker 1: So it's not easy. We have one hundred and ten

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Speaker 1: short positions. You need a scaled infrastructure to have one

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Speaker 1: hundred and ten alpha generating short positions. That's hard for

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Speaker 1: people to do, so I think that's one of the

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Speaker 1: reasons that we haven't seen quite the resurgence. But to

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Speaker 1: your point, higher interest rates help in a lot of

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Speaker 1: ways on the short side. So first of all, we

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Speaker 1: are now discounting the future at some rate. So no

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Speaker 1: longer can you tell me this company is going to

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Speaker 1: do fifty billion and ten years and you could discount

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Speaker 1: that at zero as if fifty billions coming tomorrow. Secondly,

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Speaker 1: the higher cost of capital for businesses to actually operate

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Speaker 1: make industries more rational, So no longer do we see

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Speaker 1: profitless companies just destroying businesses. So it adds more rationality

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Speaker 1: to the economic factors that affect busines. So that's good

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Speaker 1: for fundamental investors. So now we have valuation is going

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Speaker 1: to matter and fundamentals will start to come into play.

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Speaker 1: And then lastly, we're now also getting short credit rebate.

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Speaker 1: You know, we're getting five percent on our shorts, so

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Speaker 1: you're getting paid to wait. So I think higher regist

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Speaker 1: rates are good for shorting on several levels. It's not

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Speaker 1: clear to me that people have come back to it

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Speaker 1: with the same vigor. We still feel like a number

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Speaker 1: of peers and others short indices, baskets and single name

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Speaker 1: shorting scaled infrastructure. It's hard business.

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Speaker 2: So let's talk a little bit about eminence. You've been

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Speaker 2: around for twenty five years you've been doing bottom up

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Speaker 2: stock picking, both on the longside and the short side.

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Speaker 2: Tell us a little bit about your process. What is

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Speaker 2: your bottom up research like?

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Speaker 1: You know, I would say over the twenty five years

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Speaker 1: we've been in business, we have had to you know, markets,

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Speaker 1: the world business has changed a lot. I talked a

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Speaker 1: little bit about how we've pivoted our business to what

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Speaker 1: allocated have wanted, but we've also had to adapt our

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Speaker 1: process and our approach as markets have changed over the

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Speaker 1: last twenty five years. In general, we are still doing

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Speaker 1: exactly the same thing we did, which is trying to

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Speaker 1: buy good businesses and stocks that are cheap. And those

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Speaker 1: two concepts are very important because I think we get

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Speaker 1: the opportunity to make money in two ways.

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Speaker 3: When we do this.

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Speaker 1: We get the opportunity for the business to compound in

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Speaker 1: value at above average rates, so time is our friend.

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Speaker 1: And then we have some undervaluation, some discounts, something that's

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Speaker 1: misperceived about it, and we get an opportunity for rerating.

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Speaker 1: And over our history, our success has been typically owning

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Speaker 1: things for two to three years, where we get a

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Speaker 1: couple of years of value creation growth a rerating we

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Speaker 1: make fifty or one hundred percent and then we turn

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Speaker 1: our capital to what I call the next mispriced durable business.

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Speaker 1: And I think that repeatable process is something we've always

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Speaker 1: done now that has adapted and evolved as markets have changed,

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Speaker 1: and we can get into the market structure changes to

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Speaker 1: which I think are the most consequential theme I could

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Speaker 1: talk about is how different markets are today. The price

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Speaker 1: setters in markets vastly, vastly different than they've ever been

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Speaker 1: and very important for fundamental investors down.

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Speaker 2: So let's go there. I had David Einhorn on a

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Speaker 2: couple of months ago, and he famously said markets are broken.

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Speaker 2: He blamed indexers like black Rock and Vanguard for saying

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Speaker 2: people aren't exercising any intelligence. They're just blindly buying indexes

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Speaker 2: and putting them away for decades, and that made value

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Speaker 2: investing more challenging and it deeply affected the measure of equities,

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Speaker 2: although arguably you could say would not create more dislocations

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Speaker 2: and more opportunities. But where do you see the change

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Speaker 2: in markets? And is broken a bridge too far? Or

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Speaker 2: are markets broken?

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Speaker 3: Yeah?

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Speaker 1: I don't think they're broken. I think they're quite different,

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Speaker 1: and I think in the mid to long term they

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Speaker 1: still work. I love David, he's brilliant, he's friend and

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Speaker 1: a great investor. But you know, our view is that

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Speaker 1: markets are very different and the people setting prices over

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Speaker 1: the short run are very different than they were. You know,

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Speaker 1: fifteen years ago, the marginal price setter was a bottoms

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Speaker 1: up investor. So markets fifteen years ago were twenty five

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Speaker 1: percent passive and seventy five percent active, and most active

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Speaker 1: investors did bottoms up research. Fast forward today, that twenty

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Speaker 1: five percent index is now sixty. So David's right about

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Speaker 1: how big indexes have come. They are accepting prices. But

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Speaker 1: the bigger change is also that the forty now relative

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Speaker 1: to the seventy five is not bottoms up stock pickers.

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Speaker 1: It's quantum investors. It's podshops that are trying to make

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Speaker 1: money in every one, two, three week or two month

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Speaker 1: period of time. It's thematic investors, it's systematic investors, it's

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Speaker 1: retail investors. And so the makeup of the active investor

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Speaker 1: community is significantly different. And so on most days the

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Speaker 1: price action you see in a stock is being driven

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Speaker 1: by somebody who is not doing bottoms up research. I'm

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Speaker 1: not saying that they're throwing darts at the board. But

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Speaker 1: they're doing something because it fits in a camp. This

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Speaker 1: is a small cap cyclical, and now because the FED

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Speaker 1: wants to cut rates, I want to buy small cap cyclicals.

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Speaker 1: Or this is a large cap defensive, and I want

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Speaker 1: to buy large cap defensive because the economy is slowing

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Speaker 1: and they're doing things in big swaths. I don't want

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Speaker 1: to own unprofitable growth, and so I'm selling all unprofitable growth.

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Speaker 1: And it doesn't matter whether it's a flying taxi that's

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Speaker 1: never going to make money or an eighty percent gross

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Speaker 1: margin software company that is technically unprofitable because it's reinvesting

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Speaker 1: efficiently in its business. We see all this investing done

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Speaker 1: in kind of I call it blunt instrument investing, and

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Speaker 1: people talk about like the theme da joure, we want

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Speaker 1: to buy AI, the GLP one losers, the GLP one winners,

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Speaker 1: Like how about a business? How about an individual company?

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Speaker 1: So what I would say to you is that this

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Speaker 1: creates more just location. As you said, it's different trading patterns.

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Speaker 1: So it's not easy because you have to retrain your

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Speaker 1: mind and your process to say what I see in

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Speaker 1: the screen today doesn't matter, It doesn't mean anything. It's

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Speaker 1: not a signal, it's only opportunity. The market is creating

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Speaker 1: greater opportunities. But it requires investors to number one, change

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Speaker 1: the mindset and recognize that the priceetters are doing things

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Speaker 1: for reasons that have nothing to do. They're selling your

439
00:22:24,080 --> 00:22:28,679
Speaker 1: stock because it's technically unprofitable growth, Okay, doesn't matter that

440
00:22:28,720 --> 00:22:32,400
Speaker 1: the fundamentals are getting better. Doesn't matter that in eighteen

441
00:22:32,400 --> 00:22:35,040
Speaker 1: months it won't be unprofitable. It only matters that it

442
00:22:35,040 --> 00:22:35,440
Speaker 1: fits in.

443
00:22:35,400 --> 00:22:36,159
Speaker 3: A bucket today.

444
00:22:36,520 --> 00:22:39,520
Speaker 1: And you need to say you're providing no signal to me,

445
00:22:39,920 --> 00:22:41,840
Speaker 1: and so I as an investment were going to take

446
00:22:41,880 --> 00:22:45,320
Speaker 1: advantage of that. And so it requires mindset adjustment, It

447
00:22:45,359 --> 00:22:48,240
Speaker 1: requires some portfolio construction adjustments. We have to be a

448
00:22:48,280 --> 00:22:52,199
Speaker 1: little more diversified because the volatility of individual stocks is

449
00:22:52,280 --> 00:22:55,040
Speaker 1: quite high, and if you run uber concentrated, you run

450
00:22:55,040 --> 00:22:58,640
Speaker 1: the risk of kind of having such bad performance over

451
00:22:58,760 --> 00:23:00,200
Speaker 1: short periods of time that you're.

452
00:23:00,119 --> 00:23:01,520
Speaker 3: You could scare your investors.

453
00:23:02,040 --> 00:23:04,640
Speaker 1: And I think it also requires higher turnover to take

454
00:23:04,680 --> 00:23:06,960
Speaker 1: advantage of this market vowel or what I would call

455
00:23:08,119 --> 00:23:11,040
Speaker 1: high volve that has little to do with the bottoms

456
00:23:11,080 --> 00:23:12,760
Speaker 1: up fundamentals in that company. And we see it in

457
00:23:12,800 --> 00:23:13,560
Speaker 1: both directions.

458
00:23:14,040 --> 00:23:18,520
Speaker 2: So you're raising two really fascinating through lines that I

459
00:23:18,640 --> 00:23:22,000
Speaker 2: that I want to address. So, where Einhorn was saying

460
00:23:22,119 --> 00:23:26,879
Speaker 2: the passive investing side of the market has changed the structure,

461
00:23:27,480 --> 00:23:31,160
Speaker 2: what you're specifically saying is don't ignore the active side.

462
00:23:31,600 --> 00:23:36,280
Speaker 2: The way the active behaves has completely changed. Also, they're

463
00:23:36,320 --> 00:23:40,240
Speaker 2: not fundamental bottoms up stock picker. They're this, that and

464
00:23:40,280 --> 00:23:42,840
Speaker 2: the other, and it doesn't matter what it is. It's

465
00:23:42,960 --> 00:23:45,240
Speaker 2: just different than what came before. Is is that a

466
00:23:45,240 --> 00:23:45,680
Speaker 2: fair access?

467
00:23:45,680 --> 00:23:46,800
Speaker 3: I think that's a very fair ascessment.

468
00:23:46,920 --> 00:23:49,200
Speaker 2: And then the second point you bring up is kind

469
00:23:49,200 --> 00:23:54,240
Speaker 2: of really intriguing. All the various new types of active

470
00:23:54,640 --> 00:23:59,760
Speaker 2: you're describing, they all seem to be intensely narrative driven.

471
00:24:00,320 --> 00:24:05,760
Speaker 2: It's a storyline. Whether it's AI or ozembic and alternatives

472
00:24:06,320 --> 00:24:10,639
Speaker 2: or quant or you know, very short term trading, there's

473
00:24:10,680 --> 00:24:12,959
Speaker 2: a story there, and if the story works out, they

474
00:24:13,000 --> 00:24:15,159
Speaker 2: make money, and if the story turns out to BBS,

475
00:24:15,320 --> 00:24:16,200
Speaker 2: they're out.

476
00:24:16,200 --> 00:24:18,800
Speaker 1: It's add investing like give me, give me a narrative,

477
00:24:18,880 --> 00:24:20,960
Speaker 1: and I know versus like I'm gonna do the hard work.

478
00:24:20,960 --> 00:24:22,959
Speaker 1: I'm gonna do three weeks of research. I'm gonna rip

479
00:24:23,000 --> 00:24:25,120
Speaker 1: through the financials. I'm gonna build a model. I'm gonna

480
00:24:25,119 --> 00:24:27,600
Speaker 1: go out and talk to the whole ecosystem. I'm gonna

481
00:24:27,600 --> 00:24:31,119
Speaker 1: find interesting field research contacts. I'm gonna interrogate management. I'm

482
00:24:31,119 --> 00:24:34,680
Speaker 1: gonna look at the footnotes, old school stuff. Investors don't

483
00:24:34,680 --> 00:24:38,040
Speaker 1: do that anymore, and and that creates a great opportunity

484
00:24:38,359 --> 00:24:40,480
Speaker 1: assuming you've made these adjustments to how the market is.

485
00:24:40,520 --> 00:24:42,159
Speaker 2: You know, it's so funny you call it a d

486
00:24:42,320 --> 00:24:46,639
Speaker 2: D investing. We had that big dislocation in the beginning

487
00:24:46,680 --> 00:24:50,520
Speaker 2: of August, and I'm home recovering from having some new

488
00:24:50,560 --> 00:24:54,000
Speaker 2: parts put in, and I'm just flipping around the channels

489
00:24:54,000 --> 00:24:59,120
Speaker 2: and it's hilarious because, gee, what caused that giant correction. Well,

490
00:24:59,240 --> 00:25:02,160
Speaker 2: it was the be non fine pay or report. No way,

491
00:25:02,200 --> 00:25:04,959
Speaker 2: it's the PSALM rule and we're in recession. No way,

492
00:25:05,040 --> 00:25:07,800
Speaker 2: it's Japan and the end of the character. Oh no, wait,

493
00:25:07,880 --> 00:25:10,000
Speaker 2: it's the unwines of the Trump trade and we're not

494
00:25:10,000 --> 00:25:13,440
Speaker 2: gonna get a fifteen percent corporate discan. No no, it's

495
00:25:13,440 --> 00:25:18,080
Speaker 2: the vix complacency and it's been too and nobody wants

496
00:25:18,119 --> 00:25:20,320
Speaker 2: to say, hey, it's kind of random, and there's a

497
00:25:20,359 --> 00:25:23,000
Speaker 2: lot of moving parts. Oh no, the FED is behind

498
00:25:23,000 --> 00:25:26,480
Speaker 2: the curve and it's the add investing is exactly what

499
00:25:27,040 --> 00:25:28,560
Speaker 2: the pundits are talking about.

500
00:25:28,600 --> 00:25:32,359
Speaker 1: And to your point, the add investing is also add

501
00:25:32,440 --> 00:25:33,960
Speaker 1: with my P and L. If I start to lose

502
00:25:33,960 --> 00:25:36,760
Speaker 1: P and L, I move, So this is not eminence.

503
00:25:36,800 --> 00:25:39,800
Speaker 1: But other investors have no tolerance for pain. They are

504
00:25:39,840 --> 00:25:43,320
Speaker 1: all these risk triggers. So on top of the I'm

505
00:25:43,359 --> 00:25:46,399
Speaker 1: moving to where the narrative is, I also know that

506
00:25:46,800 --> 00:25:49,359
Speaker 1: even if that narrative isn't what I believe, if my

507
00:25:49,480 --> 00:25:51,840
Speaker 1: P and L starts to do something that triggers me

508
00:25:51,920 --> 00:25:54,879
Speaker 1: to do something I do risk I delever and so

509
00:25:55,240 --> 00:25:58,919
Speaker 1: you have on top of people investing in ways that

510
00:25:58,960 --> 00:26:01,600
Speaker 1: are narrative driven, they're also backward looking to their own

511
00:26:01,640 --> 00:26:03,480
Speaker 1: P and L. So if I have a bad month,

512
00:26:03,720 --> 00:26:06,280
Speaker 1: that means that I might have to do something differently.

513
00:26:06,640 --> 00:26:08,720
Speaker 1: When I'm telling you all the stock prices are moving

514
00:26:08,720 --> 00:26:12,119
Speaker 1: for non fundamental reasons, we realize we have to absorb volatility,

515
00:26:12,560 --> 00:26:14,440
Speaker 1: and that is part of the new market structure.

516
00:26:14,600 --> 00:26:15,640
Speaker 3: We have to be comfortable if.

517
00:26:15,600 --> 00:26:17,560
Speaker 1: They're willing to live with it and then lean into it.

518
00:26:18,040 --> 00:26:20,240
Speaker 1: We have the advantage of twenty five years of investing,

519
00:26:20,320 --> 00:26:23,080
Speaker 1: seeing a lot, having built a lot of credibility with investors,

520
00:26:23,119 --> 00:26:25,120
Speaker 1: so I don't have to make money every month. Maybe

521
00:26:25,200 --> 00:26:28,399
Speaker 1: a newer manager doesn't. Or if you're at a platform shop,

522
00:26:28,640 --> 00:26:30,320
Speaker 1: you know, five percent draw down and they cut your

523
00:26:30,320 --> 00:26:32,679
Speaker 1: capital in half, another five percent draw down, you're out

524
00:26:32,680 --> 00:26:36,000
Speaker 1: of a job. So that creates, on top of the

525
00:26:36,080 --> 00:26:41,040
Speaker 1: narrative behavior that's almost trigger driven and exacerbates this volatility.

526
00:26:41,320 --> 00:26:44,679
Speaker 2: That's kind of fascinating. And I can't help but notice

527
00:26:44,720 --> 00:26:48,200
Speaker 2: you mentioned the twenty five year track record. Your first

528
00:26:48,200 --> 00:26:53,880
Speaker 2: decade arguably is the lost decade. Markets peaked March two thousand.

529
00:26:53,960 --> 00:26:57,919
Speaker 2: You guys launch late ninety eight, early ninety nine, The

530
00:26:57,960 --> 00:27:01,399
Speaker 2: main indices don't get back over that level till what

531
00:27:01,480 --> 00:27:05,359
Speaker 2: is it thirteen years later, twenty thirteen. So how formative

532
00:27:05,640 --> 00:27:09,600
Speaker 2: was that first decade? How did it affect how you invested?

533
00:27:09,720 --> 00:27:12,560
Speaker 2: What were you guys doing during the two thousands.

534
00:27:12,119 --> 00:27:14,920
Speaker 1: So the two thousands I would call the golden age

535
00:27:14,920 --> 00:27:18,160
Speaker 1: of long short This is when the product really showed

536
00:27:18,200 --> 00:27:21,320
Speaker 1: its metal, because while the indexes didn't do a lot,

537
00:27:21,440 --> 00:27:23,480
Speaker 1: underneath the surface, there were a bunch of winners and

538
00:27:23,520 --> 00:27:26,840
Speaker 1: a bunch of losers and what I always say about

539
00:27:26,880 --> 00:27:29,199
Speaker 1: the short side and alongside is I don't care what

540
00:27:29,240 --> 00:27:32,560
Speaker 1: happened this year. Twenty percent of the companies really underperformed

541
00:27:32,560 --> 00:27:34,200
Speaker 1: and twenty percent of the companies outperformed.

542
00:27:34,320 --> 00:27:35,040
Speaker 3: Right, it's not so.

543
00:27:34,960 --> 00:27:37,359
Speaker 1: Easy to find them, and I'm not making easy. But

544
00:27:37,720 --> 00:27:39,680
Speaker 1: you can't tell me shorting is hard when I can

545
00:27:39,720 --> 00:27:41,840
Speaker 1: show you the twenty percent of the companies and underperformed, Okay,

546
00:27:41,960 --> 00:27:44,520
Speaker 1: you just didn't find them, and that's a separate issue.

547
00:27:44,520 --> 00:27:47,639
Speaker 1: So I think those were the formative years that showed

548
00:27:47,680 --> 00:27:52,439
Speaker 1: me that the power of long short, of stockpicking, of

549
00:27:52,560 --> 00:27:55,800
Speaker 1: finding things that can outperform and underperform, and in many

550
00:27:55,840 --> 00:27:59,000
Speaker 1: ways bred the opportunity.

551
00:27:58,280 --> 00:27:59,199
Speaker 3: To have a real business.

552
00:27:59,240 --> 00:28:02,320
Speaker 1: Now to your point, after the lost decade, we go

553
00:28:02,359 --> 00:28:05,920
Speaker 1: into the opposite environment, the SMP becomes the single best

554
00:28:05,920 --> 00:28:10,200
Speaker 1: shop ratio possible from twenty twelve to COVID.

555
00:28:10,160 --> 00:28:13,159
Speaker 2: Well fourteen percent a year something like that. That's a

556
00:28:13,200 --> 00:28:16,040
Speaker 2: great decade with Lovall right on top of that. So

557
00:28:16,240 --> 00:28:19,399
Speaker 2: this is why investors started to move away from long short,

558
00:28:19,600 --> 00:28:22,560
Speaker 2: because any hedging was not helpful.

559
00:28:22,960 --> 00:28:24,600
Speaker 3: It was harder to outperform the market.

560
00:28:24,720 --> 00:28:28,400
Speaker 2: I heard it called expensive insurance, and I'm like, is

561
00:28:28,040 --> 00:28:30,720
Speaker 2: that is that really what it is, because you're kind

562
00:28:30,760 --> 00:28:32,919
Speaker 2: of missing the points of long short.

563
00:28:32,680 --> 00:28:33,879
Speaker 1: I don't want to call it a moment in time

564
00:28:33,920 --> 00:28:35,640
Speaker 1: because it was long in that, but it was a cycle,

565
00:28:35,880 --> 00:28:36,720
Speaker 1: it was a period.

566
00:28:37,080 --> 00:28:37,960
Speaker 3: And that's what.

567
00:28:37,880 --> 00:28:40,520
Speaker 1: We've seen over time is markets go through phases and

568
00:28:40,520 --> 00:28:41,960
Speaker 1: then everyone says, this is it.

569
00:28:42,440 --> 00:28:44,200
Speaker 3: Now you have to just buy indexes.

570
00:28:44,200 --> 00:28:47,200
Speaker 1: And so we're this phase right now where everybody's convinced

571
00:28:47,320 --> 00:28:50,800
Speaker 1: that the SMP or the QQQ, like, just buy that

572
00:28:51,040 --> 00:28:53,440
Speaker 1: and don't worry about anything. I would tell you that

573
00:28:53,480 --> 00:28:55,800
Speaker 1: the last ten years, which has been dominated by that,

574
00:28:56,120 --> 00:28:57,600
Speaker 1: is probably not gonna be the same as the next

575
00:28:57,600 --> 00:29:00,560
Speaker 1: ten years. So to your point on higher interests in

576
00:29:00,640 --> 00:29:02,840
Speaker 1: a different world, I think we're gonna go back to

577
00:29:02,880 --> 00:29:05,400
Speaker 1: a place where stock picking matters a lot. All this

578
00:29:05,760 --> 00:29:09,760
Speaker 1: history has shown me is both markets go through cycles,

579
00:29:10,000 --> 00:29:14,600
Speaker 1: and investors, whether you like it or not, are backward looking,

580
00:29:15,160 --> 00:29:17,080
Speaker 1: return looking animals.

581
00:29:17,160 --> 00:29:18,600
Speaker 3: They rarely look forward.

582
00:29:18,840 --> 00:29:21,360
Speaker 1: And so it's like this work for the last three years,

583
00:29:21,400 --> 00:29:23,600
Speaker 1: just keep doing it even if the world looks different

584
00:29:23,640 --> 00:29:26,800
Speaker 1: going forward. And so this is human emotion. This is

585
00:29:26,840 --> 00:29:29,280
Speaker 1: why computers are never going to take over for markets.

586
00:29:29,600 --> 00:29:32,960
Speaker 1: While we can get the benefit of quantum computers. Human

587
00:29:33,000 --> 00:29:35,680
Speaker 1: emotion is backward looking, and let's just do more of

588
00:29:35,720 --> 00:29:36,760
Speaker 1: what worked in the past.

589
00:29:36,880 --> 00:29:40,000
Speaker 2: That muscle memory is really tough to break. Let's stay

590
00:29:40,000 --> 00:29:43,880
Speaker 2: with that idea that your job is to identify the

591
00:29:44,000 --> 00:29:46,480
Speaker 2: twenty percent of stocks that are going to shoot the

592
00:29:46,560 --> 00:29:49,600
Speaker 2: lights out and really beat the indices, as well as

593
00:29:49,720 --> 00:29:53,280
Speaker 2: that bottom twenty percent that's gonna soil the bed and

594
00:29:53,400 --> 00:29:57,080
Speaker 2: do a terrible job. Is it the same process to

595
00:29:57,200 --> 00:30:00,200
Speaker 2: identify both groups of stocks or is it a differ

596
00:30:00,240 --> 00:30:03,960
Speaker 2: instead of research and analysis to pick the winners versus

597
00:30:03,960 --> 00:30:05,000
Speaker 2: the losers.

598
00:30:05,040 --> 00:30:08,760
Speaker 1: It's a different set of research and analysis. There are corollaries,

599
00:30:08,800 --> 00:30:11,200
Speaker 1: but shortening is not just the inverse of a long

600
00:30:11,680 --> 00:30:14,200
Speaker 1: Because of the nature of shorting and what you need

601
00:30:14,360 --> 00:30:17,360
Speaker 1: in the form of catalyst and recognition, it's a little

602
00:30:17,360 --> 00:30:17,720
Speaker 1: bit harder.

603
00:30:17,840 --> 00:30:18,320
Speaker 3: You can be.

604
00:30:18,280 --> 00:30:22,120
Speaker 1: Patient on alongside, and so for us alongside I described

605
00:30:22,200 --> 00:30:26,440
Speaker 1: this durable business or good business and mispriced stock as

606
00:30:26,560 --> 00:30:28,280
Speaker 1: the repeatable process that we're.

607
00:30:28,120 --> 00:30:28,560
Speaker 3: Trying to do.

608
00:30:28,680 --> 00:30:33,000
Speaker 1: So our research team of twenty people, we have thirteen

609
00:30:33,320 --> 00:30:36,880
Speaker 1: sector based analysts and pms that are really know their

610
00:30:36,920 --> 00:30:41,400
Speaker 1: sectors and tend to look amongst those sectors for businesses

611
00:30:41,440 --> 00:30:44,760
Speaker 1: that are durable, and then the opportunity to buy them

612
00:30:44,800 --> 00:30:47,920
Speaker 1: when they think there's a misperception out there. And I

613
00:30:47,960 --> 00:30:50,080
Speaker 1: think that means that a lot of things we do.

614
00:30:50,440 --> 00:30:53,240
Speaker 1: We're researching companies and we say, well, it's not the

615
00:30:53,280 --> 00:30:55,640
Speaker 1: right time. This is a good company, it's a good CEO,

616
00:30:56,000 --> 00:30:57,920
Speaker 1: but it's fairly priced. There's nothing wrong with it. So

617
00:30:58,240 --> 00:31:01,200
Speaker 1: I'm not just looking to buy good companies. I want

618
00:31:01,240 --> 00:31:03,480
Speaker 1: to make sure that I'm delivering value to my investors

619
00:31:03,480 --> 00:31:06,600
Speaker 1: in that I'm buying that good company when it's mispriced

620
00:31:06,800 --> 00:31:09,840
Speaker 1: so I earn outsize returns. So I think our team

621
00:31:09,960 --> 00:31:13,479
Speaker 1: is doing lots of research across these sectors, identifying the

622
00:31:13,600 --> 00:31:17,200
Speaker 1: right kinds of businesses, and then through different events that happen,

623
00:31:17,640 --> 00:31:20,880
Speaker 1: there are things that create miss pricings. Short term company

624
00:31:20,920 --> 00:31:23,400
Speaker 1: goes through a disappointment. Everyone gets short term and no

625
00:31:23,400 --> 00:31:26,560
Speaker 1: one wants to look out twelve or eighteen months. Maybe

626
00:31:26,600 --> 00:31:28,680
Speaker 1: there is a turnaround story and a business that have

627
00:31:28,720 --> 00:31:32,360
Speaker 1: been underperforming, Maybe there is a hidden asset that's going

628
00:31:32,400 --> 00:31:35,680
Speaker 1: to start to show. So things that fundamental investors could

629
00:31:35,680 --> 00:31:38,720
Speaker 1: could create miss pricings. On top of that, the new

630
00:31:38,760 --> 00:31:41,479
Speaker 1: market structure that I talked about is creating new sources

631
00:31:41,480 --> 00:31:44,320
Speaker 1: of miss pricings. So this is everybody's doing one thing.

632
00:31:44,880 --> 00:31:48,120
Speaker 1: You're in the GLP one loser bucket. And you know what,

633
00:31:48,360 --> 00:31:51,120
Speaker 1: Goldman Sachs decided that, and Morgan Stanley decided that, and

634
00:31:51,160 --> 00:31:54,440
Speaker 1: they put you in in this basket of losers. Okay,

635
00:31:54,600 --> 00:31:57,040
Speaker 1: that is not necessarily the most rigorous process.

636
00:31:57,040 --> 00:31:57,840
Speaker 3: It doesn't mean that.

637
00:31:58,160 --> 00:32:00,760
Speaker 2: But all explaining GLP one verse is the winners and

638
00:32:00,760 --> 00:32:05,080
Speaker 2: the losers. Briefly, for people who are are not market junkies.

639
00:32:05,160 --> 00:32:07,880
Speaker 1: Yeah, so so GLP one they are the diabetes drugs

640
00:32:07,880 --> 00:32:10,960
Speaker 1: that are helping people lose weight. This is ozempic, this

641
00:32:11,040 --> 00:32:15,200
Speaker 1: is manduro go, and will go VI is ozempic just

642
00:32:15,240 --> 00:32:16,080
Speaker 1: a stronger version.

643
00:32:16,320 --> 00:32:17,680
Speaker 3: It is an existing.

644
00:32:17,320 --> 00:32:19,840
Speaker 1: Class of drugs applied to a new use and is

645
00:32:19,840 --> 00:32:21,880
Speaker 1: applied to weight loss. And then there are a lot

646
00:32:21,880 --> 00:32:24,920
Speaker 1: of downstream effects to weight loss. So a lot of

647
00:32:24,960 --> 00:32:28,440
Speaker 1: the comorbidities or the co issues we have in the

648
00:32:28,480 --> 00:32:31,320
Speaker 1: health system come from people who are overweight, so heart

649
00:32:31,360 --> 00:32:35,520
Speaker 1: disease for an example, or other procedures. If people are

650
00:32:35,720 --> 00:32:37,760
Speaker 1: healthier or we're gonna have less of these other things.

651
00:32:37,760 --> 00:32:40,680
Speaker 1: So you could be a GLP one loser because you

652
00:32:41,080 --> 00:32:42,600
Speaker 1: help patients that have heart disease.

653
00:32:42,760 --> 00:32:45,080
Speaker 2: So this can be anything from healthcare to I saw

654
00:32:45,160 --> 00:32:47,480
Speaker 2: people talk about brands and McDonald's.

655
00:32:47,480 --> 00:32:50,000
Speaker 1: So you're eating, so you're you're eating habits or less,

656
00:32:50,480 --> 00:32:54,280
Speaker 1: you snack less, and so there's the potential that we

657
00:32:54,400 --> 00:32:55,280
Speaker 1: consume less food.

658
00:32:55,880 --> 00:32:57,200
Speaker 3: I think it's.

659
00:32:57,240 --> 00:33:00,760
Speaker 1: Moderate but accurate. I mean, today we have relatively small

660
00:33:00,800 --> 00:33:03,520
Speaker 1: percentage of the population on these things, but people projecting

661
00:33:03,520 --> 00:33:05,640
Speaker 1: out to when we have ten or twenty percent of

662
00:33:05,680 --> 00:33:08,640
Speaker 1: the population, and they might eat ten or twenty percent less.

663
00:33:08,640 --> 00:33:11,800
Speaker 1: So alcohol is another one. There's no craving for alcohol.

664
00:33:11,840 --> 00:33:15,200
Speaker 1: People who are drinking less. That's a GOLP one loser.

665
00:33:15,800 --> 00:33:18,480
Speaker 1: And then some of these healthcare things could be GLP

666
00:33:18,560 --> 00:33:21,920
Speaker 1: one losers. People throw you in this bucket and then

667
00:33:22,240 --> 00:33:25,320
Speaker 1: doesn't matter that you have a new product, it doesn't

668
00:33:25,400 --> 00:33:27,960
Speaker 1: matter that you're gaining market share, it doesn't matter that

669
00:33:27,960 --> 00:33:30,160
Speaker 1: you're going to grow your earnings at extra y. They're

670
00:33:30,200 --> 00:33:33,840
Speaker 1: just selling you because you're in this basket that Goldman,

671
00:33:33,880 --> 00:33:36,520
Speaker 1: Sachs and Morgan Stanley told you about that is creating

672
00:33:36,600 --> 00:33:41,040
Speaker 1: other sources of mispricing, throwing companies into the unprofitable growth basket.

673
00:33:41,280 --> 00:33:43,920
Speaker 1: So back in twenty twenty two, people said you know,

674
00:33:43,960 --> 00:33:46,479
Speaker 1: you don't want to own unprofitable growth rates were going up, right,

675
00:33:46,800 --> 00:33:49,760
Speaker 1: they and again they treat everything as one. Uber was

676
00:33:49,800 --> 00:33:53,160
Speaker 1: a perfect example of a stock that was technically unprofitable,

677
00:33:53,440 --> 00:33:56,520
Speaker 1: but it was fundamentally profitable at its core, and it

678
00:33:56,560 --> 00:33:59,640
Speaker 1: was unprofitable because they were growing in uber eats and

679
00:33:59,680 --> 00:34:02,800
Speaker 1: they were growing in new markets. And what we've seen

680
00:34:02,800 --> 00:34:04,920
Speaker 1: happen over the last two years is Ubers all of

681
00:34:04,920 --> 00:34:08,359
Speaker 1: a sudden become profitable. And point being, they're selling it

682
00:34:08,440 --> 00:34:12,520
Speaker 1: because I classified it as something but having nothing to

683
00:34:12,560 --> 00:34:15,320
Speaker 1: do with both the micros of that company or how

684
00:34:15,560 --> 00:34:18,759
Speaker 1: that classification might change in eighteen months, And so that

685
00:34:18,800 --> 00:34:21,960
Speaker 1: creates other sources of mispricing. So, getting back to your question,

686
00:34:22,520 --> 00:34:25,720
Speaker 1: we are trying to find durable businesses and mispriced stocks,

687
00:34:25,800 --> 00:34:29,439
Speaker 1: and there are more mispricings coming from investors because it's

688
00:34:29,480 --> 00:34:32,040
Speaker 1: not just fundamental investors now, it's this new market structure,

689
00:34:32,160 --> 00:34:35,120
Speaker 1: this thematic type of stuff on the short side you

690
00:34:35,360 --> 00:34:36,000
Speaker 1: also asked about.

691
00:34:36,080 --> 00:34:38,640
Speaker 2: Yeah, that's so I'm fascinated by the short side because

692
00:34:39,080 --> 00:34:42,040
Speaker 2: you know, short sellers have become an endangered species, and

693
00:34:42,280 --> 00:34:46,239
Speaker 2: I always thought short sellers kept the market. Honest, we're

694
00:34:46,280 --> 00:34:49,640
Speaker 2: the first buyers in the crash, and you know, losing

695
00:34:49,680 --> 00:34:52,240
Speaker 2: shorts is not a good structural thing for the market.

696
00:34:52,440 --> 00:34:53,359
Speaker 3: It's not a helpful thing.

697
00:34:53,400 --> 00:34:56,279
Speaker 1: And I think we've had a number of kind of

698
00:34:56,600 --> 00:34:59,680
Speaker 1: media and regulatory pushback on short selling and stuff as

699
00:34:59,719 --> 00:35:02,279
Speaker 1: if for the evil Empire, because you know, stocks only

700
00:35:02,280 --> 00:35:04,520
Speaker 1: go up and people on stocks and we're like betting

701
00:35:04,520 --> 00:35:05,040
Speaker 1: against it.

702
00:35:05,239 --> 00:35:06,200
Speaker 3: The truth of the matter is.

703
00:35:06,160 --> 00:35:09,480
Speaker 1: Short sells do better research because the risks are skewed

704
00:35:09,520 --> 00:35:11,480
Speaker 1: the other way. I can only make one hundred percent,

705
00:35:12,000 --> 00:35:15,040
Speaker 1: I can lose thousands of percent. I better be really

706
00:35:15,080 --> 00:35:18,439
Speaker 1: good and really accurate, do really good research. I think

707
00:35:18,480 --> 00:35:22,440
Speaker 1: it's an important part of being a skeptical investor. I

708
00:35:22,480 --> 00:35:25,480
Speaker 1: think it's an important part of portfolio construction, and I

709
00:35:25,480 --> 00:35:28,759
Speaker 1: think it's an important source of value add to our investors.

710
00:35:29,080 --> 00:35:31,920
Speaker 1: And so for us, we are typically looking for both

711
00:35:32,000 --> 00:35:37,120
Speaker 1: an overvalued stock and a reason why that overvaluation will correct.

712
00:35:37,120 --> 00:35:39,680
Speaker 1: So we need to understand what is going to happen

713
00:35:39,719 --> 00:35:43,880
Speaker 1: so it's fundamentally worthless and something is going to drive

714
00:35:43,960 --> 00:35:46,480
Speaker 1: that to happen. That could be an earnings miss, that

715
00:35:46,520 --> 00:35:49,840
Speaker 1: could be a business that's over earning that supply is

716
00:35:49,880 --> 00:35:51,560
Speaker 1: coming on to it, It could be a company that

717
00:35:51,600 --> 00:35:54,279
Speaker 1: has a poor accounting or a fraud, it could be

718
00:35:54,320 --> 00:35:58,239
Speaker 1: a fad. Lots of different baskets of overvaluation, and then

719
00:35:58,280 --> 00:36:01,760
Speaker 1: you also need to understand what is going to change

720
00:36:02,000 --> 00:36:04,319
Speaker 1: that's going to cause investors to value this the right

721
00:36:04,360 --> 00:36:07,400
Speaker 1: way in a reasonable time. It may not be tomorrow,

722
00:36:07,600 --> 00:36:09,920
Speaker 1: but it can't be five years because you can lose

723
00:36:09,920 --> 00:36:11,120
Speaker 1: a lot of money between now and then.

724
00:36:11,280 --> 00:36:14,439
Speaker 2: Huh, really interesting stuff. So let's talk a little bit

725
00:36:14,560 --> 00:36:17,959
Speaker 2: about what's going on in the market today. You said

726
00:36:18,000 --> 00:36:21,200
Speaker 2: something that I found fascinating. We were talking about shorting earlier.

727
00:36:22,000 --> 00:36:24,680
Speaker 2: You said, the mother of all short squeezes is no

728
00:36:24,800 --> 00:36:28,480
Speaker 2: longer valid. Today. Short interest was at one point thirty

729
00:36:28,520 --> 00:36:33,080
Speaker 2: percent of the float today it's well under ten percent. Explain.

730
00:36:33,640 --> 00:36:37,920
Speaker 1: So that was a tweet about Game Stop specifically because

731
00:36:38,400 --> 00:36:40,720
Speaker 1: we obviously had the original Game Stop episode of twenty

732
00:36:40,719 --> 00:36:44,799
Speaker 1: twenty one, and then more recently Roaring Kitty had come

733
00:36:44,880 --> 00:36:48,799
Speaker 1: back and kind of created a new short squeeze in

734
00:36:48,840 --> 00:36:53,040
Speaker 1: game Stop, and admidst that short squeeze, the company issued

735
00:36:53,280 --> 00:36:57,160
Speaker 1: three billion dollars of equity, massively increased the float, and

736
00:36:57,200 --> 00:37:00,320
Speaker 1: a number of short sellers had covered and the thesis

737
00:37:00,480 --> 00:37:04,000
Speaker 1: behind being long Game Stop for any of these retail investors,

738
00:37:04,440 --> 00:37:07,200
Speaker 1: is the market's rigged. The short cells are gonna have

739
00:37:07,239 --> 00:37:09,360
Speaker 1: to cover, you know, just hold the stock.

740
00:37:09,440 --> 00:37:11,799
Speaker 2: If we malls are coming back in a big way.

741
00:37:11,880 --> 00:37:14,839
Speaker 1: If we if we corner the market on game Stop

742
00:37:14,920 --> 00:37:18,600
Speaker 1: shares and nobody and we never sell, then the short

743
00:37:18,600 --> 00:37:19,440
Speaker 1: cell is are screwed.

744
00:37:19,640 --> 00:37:22,040
Speaker 2: And which turned out to be fairly accurate for that

745
00:37:22,080 --> 00:37:23,000
Speaker 2: one stuff.

746
00:37:22,640 --> 00:37:25,440
Speaker 1: For that one s in the original period, right when

747
00:37:25,440 --> 00:37:28,239
Speaker 1: the short interest was probably eighty or ninety percent. After

748
00:37:28,280 --> 00:37:31,560
Speaker 1: this more recent episode, I tweeted, I said, I don't

749
00:37:31,600 --> 00:37:34,440
Speaker 1: know what the thesis is now if the company just

750
00:37:34,520 --> 00:37:37,239
Speaker 1: massively increased the float, so your short interest is a

751
00:37:37,239 --> 00:37:39,759
Speaker 1: percenter of the float went down and other short cells covered.

752
00:37:39,800 --> 00:37:42,200
Speaker 1: So so now your short interest is nine percent. Like

753
00:37:42,520 --> 00:37:45,160
Speaker 1: that's fairly low as as far as short interests go.

754
00:37:45,320 --> 00:37:47,960
Speaker 1: So you don't really have a thesis if your thesis

755
00:37:48,000 --> 00:37:51,960
Speaker 1: is mother of you know, moass with rocket ships right.

756
00:37:52,480 --> 00:37:54,680
Speaker 2: To the moon, to the moon. So to me, the

757
00:37:54,719 --> 00:37:58,799
Speaker 2: whole original Game Stop thing was so fascinating because I

758
00:37:58,920 --> 00:38:01,200
Speaker 2: started on a trading day in the nineties and we

759
00:38:01,280 --> 00:38:06,000
Speaker 2: had the Yahoo message boards. I remember the Iomega fans

760
00:38:06,640 --> 00:38:08,959
Speaker 2: driving to the factory on a Sunday night and seeing

761
00:38:09,000 --> 00:38:12,279
Speaker 2: the parking lot full of cars and Wall Street didn't

762
00:38:12,280 --> 00:38:14,880
Speaker 2: get it. They're running triple shifts and they're going to

763
00:38:14,920 --> 00:38:19,040
Speaker 2: blow numbers away. This seems like very much a throwback

764
00:38:19,120 --> 00:38:22,600
Speaker 2: to what took place in the early days of the Internet.

765
00:38:22,680 --> 00:38:27,880
Speaker 2: How different was Roaring Kitty and Game Stop with what

766
00:38:28,040 --> 00:38:29,760
Speaker 2: happened during the dot com boom.

767
00:38:30,200 --> 00:38:34,160
Speaker 1: So I think that the fundamental differences are we now

768
00:38:34,280 --> 00:38:37,400
Speaker 1: have much greater access for retail investors to the market.

769
00:38:37,760 --> 00:38:40,480
Speaker 1: So we have access on our phones.

770
00:38:40,239 --> 00:38:45,600
Speaker 2: We have free trading, Robinhood absolutely Robin Hood swab for free.

771
00:38:45,680 --> 00:38:48,480
Speaker 1: So all of a sudden, the ability and access for

772
00:38:48,520 --> 00:38:51,239
Speaker 1: retail investors to be meaningful players in the market is

773
00:38:51,280 --> 00:38:53,919
Speaker 1: even bigger than it was back in nineteen ninety nine.

774
00:38:54,160 --> 00:38:56,799
Speaker 1: And then I would say the other change is that

775
00:38:57,239 --> 00:39:02,160
Speaker 1: no longer is this just creative research that that some

776
00:39:02,239 --> 00:39:05,320
Speaker 1: sort of savvy individual did. Let's say, on a stock

777
00:39:05,400 --> 00:39:10,520
Speaker 1: like Iomega, this is actually bullying. This is coordinated efforts

778
00:39:10,960 --> 00:39:12,919
Speaker 1: to all come in and try to buy the stock

779
00:39:12,920 --> 00:39:15,520
Speaker 1: at the same time. We'll drive it up and then

780
00:39:15,560 --> 00:39:19,120
Speaker 1: it'll cause short sellers to have to cover and other

781
00:39:19,320 --> 00:39:22,120
Speaker 1: investors who get triggered by price movements to buy, and

782
00:39:22,200 --> 00:39:24,520
Speaker 1: so we're going to create the price action that's going

783
00:39:24,600 --> 00:39:25,959
Speaker 1: to create further price action.

784
00:39:26,000 --> 00:39:29,120
Speaker 2: So this isn't even the nineteen nineties dot com. These

785
00:39:29,120 --> 00:39:32,560
Speaker 2: are the nineteen twenties syndicate buyers. Yes, right, talk about

786
00:39:32,600 --> 00:39:35,399
Speaker 2: everything old being new again. It's a century ago.

787
00:39:35,640 --> 00:39:37,560
Speaker 1: This is the essence of what we're not allowed to do,

788
00:39:37,600 --> 00:39:39,960
Speaker 1: which is act as a group. But you know, the

789
00:39:40,000 --> 00:39:42,680
Speaker 1: SEC doesn't do anything about retail investors. If if thirty

790
00:39:42,680 --> 00:39:44,600
Speaker 1: percent of the company all got together and they were

791
00:39:44,600 --> 00:39:47,400
Speaker 1: retail investors and they did something that's illegal as per

792
00:39:47,520 --> 00:39:50,680
Speaker 1: SEC rules, but nobody goes after the retail investor. And

793
00:39:50,680 --> 00:39:52,319
Speaker 1: that's okay. This is the sandbox we got to play,

794
00:39:52,320 --> 00:39:54,719
Speaker 1: and I'm not complaining about it. It's a new phenomenon.

795
00:39:54,960 --> 00:39:56,719
Speaker 1: It goes back to this new market structure that I

796
00:39:56,760 --> 00:39:59,600
Speaker 1: talked about, because I mentioned retail investors are a big

797
00:39:59,640 --> 00:40:01,880
Speaker 1: piece of this new market structure. And one of the

798
00:40:01,920 --> 00:40:05,440
Speaker 1: things that's happened that people don't appreciate is how significant

799
00:40:05,520 --> 00:40:09,000
Speaker 1: they are as a player in the market, even in indices.

800
00:40:09,680 --> 00:40:11,880
Speaker 3: In the last six.

801
00:40:11,640 --> 00:40:14,399
Speaker 1: Months, they have been putting a billion dollars a day

802
00:40:14,480 --> 00:40:15,880
Speaker 1: into s and P and a.

803
00:40:16,719 --> 00:40:18,120
Speaker 3: Day at retail investors.

804
00:40:18,400 --> 00:40:20,760
Speaker 1: You want to know why a month ago the market

805
00:40:20,800 --> 00:40:22,880
Speaker 1: was at a high even though the economy was slowing.

806
00:40:23,160 --> 00:40:26,120
Speaker 1: It's because the retail investors are just giddy buying the indexes,

807
00:40:26,480 --> 00:40:29,440
Speaker 1: and until we get a trigger to make stocks go down,

808
00:40:29,560 --> 00:40:33,120
Speaker 1: other investors aren't selling, and so they are a real

809
00:40:33,200 --> 00:40:36,239
Speaker 1: factor in the market. We have to both respect them

810
00:40:36,680 --> 00:40:38,480
Speaker 1: and then ultimately take advantage of them, because I don't

811
00:40:38,480 --> 00:40:42,000
Speaker 1: think they're the most sophisticated savvious investors. Some of them

812
00:40:42,400 --> 00:40:44,879
Speaker 1: may very well be, but as a class, I would

813
00:40:44,880 --> 00:40:48,600
Speaker 1: say they tend to be following themes and chasing things

814
00:40:48,640 --> 00:40:51,520
Speaker 1: that are going up, rather than doing what you described

815
00:40:51,520 --> 00:40:54,360
Speaker 1: in Iomega, which is kind of good bottoms up fundamental research.

816
00:40:54,520 --> 00:40:57,080
Speaker 2: Well, obviously, what we saw in the first go round

817
00:40:57,120 --> 00:40:59,839
Speaker 2: with game Stop was the stock when to the moon

818
00:41:00,160 --> 00:41:02,920
Speaker 2: and a lot of people bought in very late. It

819
00:41:03,080 --> 00:41:05,640
Speaker 2: was a ton of money loss by let's call it

820
00:41:05,640 --> 00:41:10,000
Speaker 2: an unsophisticated retail investors. Let's talk about what took place

821
00:41:10,040 --> 00:41:14,640
Speaker 2: in twenty twenty four with Gamestock and Roaring Kitty. This

822
00:41:14,800 --> 00:41:18,360
Speaker 2: time the SEC said, hey, we are investigating because this

823
00:41:18,480 --> 00:41:22,000
Speaker 2: looks like blatant manipulation. What are your thoughts on that.

824
00:41:22,719 --> 00:41:25,600
Speaker 1: I'd love to have some hope and trust that the

825
00:41:25,640 --> 00:41:28,120
Speaker 1: SEC and the government's gonna get to the right place,

826
00:41:28,120 --> 00:41:31,319
Speaker 1: but I don't necessarily have that belief. It's nice to

827
00:41:31,360 --> 00:41:34,759
Speaker 1: see that they looked at some of the actions and suggested,

828
00:41:35,160 --> 00:41:38,200
Speaker 1: you know, are you misrepresenting, are you committing fraud?

829
00:41:38,760 --> 00:41:39,000
Speaker 3: You know?

830
00:41:39,160 --> 00:41:43,440
Speaker 1: The size of Roring Kitty's position was about one hundred

831
00:41:43,440 --> 00:41:47,800
Speaker 1: and fifty million dollars. From what people understood, Roaring Kitty

832
00:41:47,800 --> 00:41:49,920
Speaker 1: had made thirty million dollars in the first go around

833
00:41:49,960 --> 00:41:52,959
Speaker 1: in game Stop. People are unsure of where he got

834
00:41:53,040 --> 00:41:55,360
Speaker 1: one hundred and fifty million dollars to buy more GameStop.

835
00:41:55,719 --> 00:41:58,839
Speaker 1: He was also buying Chewy. The ultimate beneficiary of Roaring

836
00:41:58,880 --> 00:42:03,200
Speaker 1: Kitty was games Stop itself. They raised three billion dollars

837
00:42:03,560 --> 00:42:05,640
Speaker 1: at prices that are well in access to what the

838
00:42:05,680 --> 00:42:09,480
Speaker 1: company's worth. They bought themselves a hugely. They could try

839
00:42:09,600 --> 00:42:12,080
Speaker 1: anything they That company will not run out of money

840
00:42:12,160 --> 00:42:15,200
Speaker 1: for the longest period of time. It is a money

841
00:42:15,200 --> 00:42:19,719
Speaker 1: losing bad business that's historically that is going down. But

842
00:42:19,840 --> 00:42:22,640
Speaker 1: now it's like a spack with a couple of billion

843
00:42:22,640 --> 00:42:27,719
Speaker 1: dollars and a fame CEO named Ryan Cohen, who you know,

844
00:42:27,960 --> 00:42:30,760
Speaker 1: people want to believe in. And so the company really

845
00:42:30,800 --> 00:42:34,239
Speaker 1: benefited from what Rooring Kitty did here, which is get

846
00:42:34,280 --> 00:42:36,800
Speaker 1: retail to come back in and try to buy the stock.

847
00:42:37,360 --> 00:42:40,520
Speaker 1: Get professional investors who had PTSD who are like, oh

848
00:42:40,520 --> 00:42:43,160
Speaker 1: my god, here it happens again. I better get out

849
00:42:43,160 --> 00:42:45,600
Speaker 1: of the way. Last time it hurt me. And so

850
00:42:45,680 --> 00:42:48,279
Speaker 1: that created a situation where a stock went from like

851
00:42:48,600 --> 00:42:51,239
Speaker 1: eighteen to like fifteen in a couple of days. The

852
00:42:51,280 --> 00:42:53,719
Speaker 1: company raised a bunch of money. The stock is back

853
00:42:53,760 --> 00:42:57,439
Speaker 1: to twenty again. So they don't affect the long term

854
00:42:57,600 --> 00:43:00,200
Speaker 1: of it, but but they create a lot of and

855
00:43:00,320 --> 00:43:02,640
Speaker 1: l pain, a lot of emotion, and in this case

856
00:43:02,640 --> 00:43:04,520
Speaker 1: allowed the company to raise three billion dollars.

857
00:43:04,600 --> 00:43:07,720
Speaker 2: So let's talk a little bit about Chewy and Ryan Cohen.

858
00:43:08,560 --> 00:43:12,319
Speaker 2: Full disclosure, I occasionally order from Chewy for treats and

859
00:43:12,320 --> 00:43:15,840
Speaker 2: stuff for our dogs. Mostly Amazon, but very often. Chewy

860
00:43:15,960 --> 00:43:19,240
Speaker 2: is very competitive price wise and tends to have stuff

861
00:43:19,280 --> 00:43:23,200
Speaker 2: in stock which Amazon doesn't always. You and I both

862
00:43:23,239 --> 00:43:26,480
Speaker 2: have mixed it up with Ryan Cohen on Twitter. You know,

863
00:43:26,680 --> 00:43:29,320
Speaker 2: again to be even handed, Ryan, if you want to

864
00:43:29,360 --> 00:43:31,440
Speaker 2: come on Master's in Business and talk about Chewy and

865
00:43:31,440 --> 00:43:33,680
Speaker 2: talk about game Stop. I'd love to have you. But

866
00:43:34,480 --> 00:43:38,359
Speaker 2: he blamed naked short sellers for trashing game Stop and

867
00:43:38,960 --> 00:43:41,880
Speaker 2: all the garbage we heard about the decade before with

868
00:43:41,960 --> 00:43:46,320
Speaker 2: overstock and other companies that turned out to be frauds.

869
00:43:46,920 --> 00:43:49,759
Speaker 2: Blaming naked shorts tends to be a red flag that

870
00:43:49,920 --> 00:43:53,680
Speaker 2: something on told is going on. That said, Chewy is

871
00:43:53,719 --> 00:43:57,800
Speaker 2: a real company. It's the second incarnation of pets dot Com,

872
00:43:57,840 --> 00:44:02,959
Speaker 2: only timed right, funded right, and executed right. Why does

873
00:44:03,040 --> 00:44:06,320
Speaker 2: Ryan Cohen care about game Stop? It seems so bizarre.

874
00:44:06,400 --> 00:44:07,600
Speaker 3: It is a little bizarre.

875
00:44:07,640 --> 00:44:11,960
Speaker 1: I've asked myself if this is this decade's version of

876
00:44:12,040 --> 00:44:15,719
Speaker 1: Eddie Lampert, who made it a wonderful trade buying Sears when

877
00:44:15,719 --> 00:44:18,320
Speaker 1: it was on the verge of bankruptcy, putting it together

878
00:44:18,360 --> 00:44:22,600
Speaker 1: with Kmart, and like you know, in the short run,

879
00:44:22,880 --> 00:44:23,800
Speaker 1: saving that company.

880
00:44:24,040 --> 00:44:26,359
Speaker 2: I was told he's a real estate genius. Does that

881
00:44:26,440 --> 00:44:27,560
Speaker 2: turn out not to be true.

882
00:44:28,800 --> 00:44:30,560
Speaker 1: I won't appine on that, but I will say he's

883
00:44:30,600 --> 00:44:34,920
Speaker 1: not a chief merchant of seers and Kmart. So he

884
00:44:35,120 --> 00:44:37,960
Speaker 1: ultimately put an enormous amount of his fund into this.

885
00:44:38,120 --> 00:44:41,640
Speaker 1: He ultimately went and ran the company and tried to

886
00:44:42,000 --> 00:44:45,600
Speaker 1: turn around or make a failing business successful. This goes

887
00:44:45,600 --> 00:44:48,160
Speaker 1: back to the Warren Buffett quote, you know, you show

888
00:44:48,239 --> 00:44:50,960
Speaker 1: me a good executive and a bad business, and I

889
00:44:50,960 --> 00:44:53,839
Speaker 1: think that the reputation of the business is gonna win out.

890
00:44:54,680 --> 00:44:57,120
Speaker 1: I think Ryan Cohen putting himself in a CEO of

891
00:44:57,320 --> 00:45:00,200
Speaker 1: game Stop, I think he's going to ruin whatever reputation

892
00:45:00,360 --> 00:45:03,200
Speaker 1: he has as a businessman, because this is a business

893
00:45:03,200 --> 00:45:05,200
Speaker 1: that is going to be really hard to turn around.

894
00:45:05,320 --> 00:45:07,759
Speaker 1: That's my opinion. Maybe he's going to develop something. I'm

895
00:45:07,760 --> 00:45:09,600
Speaker 1: going to be surprised, But when I look at where

896
00:45:09,600 --> 00:45:13,080
Speaker 1: the world is going GameStop as a physical retailer selling

897
00:45:13,200 --> 00:45:16,120
Speaker 1: computer equipment that you can buy online games that actually

898
00:45:16,200 --> 00:45:19,400
Speaker 1: will have no physical component you can download them, it

899
00:45:19,480 --> 00:45:22,480
Speaker 1: strikes me that this is a dead end. And to

900
00:45:22,880 --> 00:45:25,120
Speaker 1: the credit of Roaring Kitty, he now is cash and

901
00:45:25,120 --> 00:45:27,000
Speaker 1: he's gonna have to go try to reinvent the company.

902
00:45:27,360 --> 00:45:30,240
Speaker 1: But ultimately I think that's going to be a failed

903
00:45:30,360 --> 00:45:34,120
Speaker 1: attempt and he's going to ruin what reputation he got

904
00:45:34,160 --> 00:45:35,320
Speaker 1: through through Chewy.

905
00:45:35,640 --> 00:45:40,040
Speaker 2: So can GameStop pull what Netflix did? I mean, DVDs

906
00:45:40,080 --> 00:45:43,200
Speaker 2: through the mail was not the most compelling business model,

907
00:45:43,680 --> 00:45:50,960
Speaker 2: but online streaming. They became a dominant, giant, wildly successful company.

908
00:45:51,320 --> 00:45:54,280
Speaker 2: Is that the future of game Stop following the Netflix model?

909
00:45:54,680 --> 00:45:58,840
Speaker 1: So I think that Netflix in certain ways got lucky

910
00:45:58,920 --> 00:46:02,160
Speaker 1: early on and capitalize that. When I say lucky, the

911
00:46:02,280 --> 00:46:07,840
Speaker 1: movie studios gave Netflix certain rights to online streaming that

912
00:46:07,880 --> 00:46:10,160
Speaker 1: they didn't think we're all that valuable. They had a

913
00:46:10,200 --> 00:46:16,320
Speaker 1: Disney contract that allowed them to offer this product. The

914
00:46:16,360 --> 00:46:19,560
Speaker 1: gaming companies are never going to allow this to happen.

915
00:46:19,600 --> 00:46:22,759
Speaker 1: So I don't think it's possible for game Stop to

916
00:46:22,800 --> 00:46:26,360
Speaker 1: do what Netflix did. They tried NFTs for a while,

917
00:46:26,920 --> 00:46:30,840
Speaker 1: They've tried kind of collectibles and a few different things,

918
00:46:30,880 --> 00:46:32,880
Speaker 1: and you know, at the end of the day, it's

919
00:46:32,920 --> 00:46:36,120
Speaker 1: a physical retailer with leases in malls that are dying.

920
00:46:36,520 --> 00:46:38,759
Speaker 1: But he's got three billion dollars in cash now, So

921
00:46:39,080 --> 00:46:39,800
Speaker 1: we'll have to watch.

922
00:46:39,840 --> 00:46:43,360
Speaker 2: You'll see what happens. And for purposes of full disclosure,

923
00:46:43,920 --> 00:46:45,600
Speaker 2: how did you guys trade around games now?

924
00:46:45,920 --> 00:46:47,799
Speaker 1: We lost only a little bit of money the first

925
00:46:47,800 --> 00:46:51,160
Speaker 1: time around in twenty twenty one. We have been short

926
00:46:51,200 --> 00:46:54,759
Speaker 1: game Stop for most of the post twenty post meme

927
00:46:54,800 --> 00:46:56,840
Speaker 1: stock craze period of time.

928
00:46:57,160 --> 00:46:58,440
Speaker 2: So that has to be a giant winner.

929
00:46:58,840 --> 00:46:59,840
Speaker 3: It has been a good winner.

930
00:47:00,160 --> 00:47:02,560
Speaker 1: Twenty twenty one, we made back more than for losses

931
00:47:02,760 --> 00:47:05,480
Speaker 1: that we lost in January twenty twenty one. Having said that,

932
00:47:05,680 --> 00:47:08,280
Speaker 1: it hurt us in the second quarter and we lost

933
00:47:08,320 --> 00:47:11,560
Speaker 1: about about one percentage point shorting game Stop we're still

934
00:47:11,600 --> 00:47:14,560
Speaker 1: short of today. It's come back down, and the portfolio

935
00:47:14,560 --> 00:47:17,840
Speaker 1: construction changes that we've made post the memestock craze and

936
00:47:17,840 --> 00:47:20,000
Speaker 1: how we ran out of the portfolio allow us to

937
00:47:20,160 --> 00:47:23,360
Speaker 1: ride through things like this. This is one sort of position.

938
00:47:24,080 --> 00:47:26,680
Speaker 1: It hurt us in one period of time, but ultimately

939
00:47:27,000 --> 00:47:29,719
Speaker 1: I still think that game stopers are short here. But

940
00:47:29,920 --> 00:47:33,000
Speaker 1: it will not go broke. It will not go as

941
00:47:33,080 --> 00:47:37,040
Speaker 1: far down as I ultimately originally thought out. Blockbuster well,

942
00:47:37,200 --> 00:47:39,879
Speaker 1: oh they are Blockbuster, but they've three billion dollars in cash.

943
00:47:39,920 --> 00:47:40,160
Speaker 3: Now.

944
00:47:40,960 --> 00:47:45,160
Speaker 1: To Ryan Cohen's credit, when this squeeze happened, he came

945
00:47:45,200 --> 00:47:47,280
Speaker 1: out and sold a bunch of stock for the company.

946
00:47:48,000 --> 00:47:48,600
Speaker 2: He's savvy.

947
00:47:50,400 --> 00:47:53,680
Speaker 1: If we happened to be in that situation, good for him.

948
00:47:53,880 --> 00:47:57,280
Speaker 1: He's he's maybe saving the company long term from being bankrupt.

949
00:47:57,480 --> 00:47:58,319
Speaker 1: That doesn't mean that.

950
00:47:58,280 --> 00:47:59,640
Speaker 3: This is a successful business.

951
00:48:00,440 --> 00:48:02,400
Speaker 2: There needs to be a pivot. Let's talk about a

952
00:48:02,440 --> 00:48:06,200
Speaker 2: different type of gaming Eminence took a hefty steak in

953
00:48:06,320 --> 00:48:09,239
Speaker 2: and tain a UK gambling group. You're re eluctant to

954
00:48:09,320 --> 00:48:11,800
Speaker 2: that board. Tell us a little bit about n Taine.

955
00:48:12,320 --> 00:48:14,920
Speaker 2: Is this really a sort of activist play? How does

956
00:48:14,920 --> 00:48:16,600
Speaker 2: this fit within your overall strategies?

957
00:48:16,680 --> 00:48:21,080
Speaker 1: Yeah, in Taine is a global online gaming company. They

958
00:48:21,160 --> 00:48:24,879
Speaker 1: own brands like Ladbrooks and Coral oh UK. They own

959
00:48:25,120 --> 00:48:27,360
Speaker 1: half of bet MGM in the US, so that partners

960
00:48:27,360 --> 00:48:32,000
Speaker 1: with MGM. They have businesses in the UK, Australia, Italy, Brazil.

961
00:48:32,400 --> 00:48:33,520
Speaker 3: The industry is growing.

962
00:48:33,920 --> 00:48:37,920
Speaker 1: They have been a leader across many markets and it

963
00:48:37,960 --> 00:48:41,640
Speaker 1: is fundamentally a good growing business. MGM tried to buy

964
00:48:41,719 --> 00:48:45,279
Speaker 1: the company in late twenty twenty and then DraftKings tried

965
00:48:45,280 --> 00:48:47,759
Speaker 1: to buy the company in mid twenty twenty one. Over

966
00:48:47,800 --> 00:48:50,040
Speaker 1: the three subsequent years or two and a half years

967
00:48:50,080 --> 00:48:53,200
Speaker 1: to that point, in Tane lost its way. It had

968
00:48:53,239 --> 00:48:56,960
Speaker 1: a terrible CEO, it had a board that was not

969
00:48:57,120 --> 00:49:01,279
Speaker 1: informed and unable to make the the appropriate changes, and

970
00:49:01,480 --> 00:49:06,080
Speaker 1: over three period of time really underperformed. We have followed

971
00:49:06,120 --> 00:49:08,399
Speaker 1: the company, we've owned it for this period of time

972
00:49:08,440 --> 00:49:12,800
Speaker 1: in various sizes and recognizing it is both a really

973
00:49:12,840 --> 00:49:16,520
Speaker 1: good business and a leader, and it had a CEO

974
00:49:16,600 --> 00:49:19,799
Speaker 1: that was absent Tee completely taking the company down the

975
00:49:19,800 --> 00:49:24,600
Speaker 1: wrong path and making poor capital location decisions. We decided

976
00:49:25,200 --> 00:49:28,160
Speaker 1: there needed to be changed there. I would say just

977
00:49:28,560 --> 00:49:31,600
Speaker 1: taking a step back. In general, activism is not our strategy.

978
00:49:32,200 --> 00:49:35,319
Speaker 1: While we get called activist investors in the press, we

979
00:49:35,360 --> 00:49:38,719
Speaker 1: are not activist investors. We never go into a situation

980
00:49:39,160 --> 00:49:42,040
Speaker 1: expecting to be activists. What happens from time to time

981
00:49:42,160 --> 00:49:44,840
Speaker 1: is you go into situation you think management's a B,

982
00:49:45,280 --> 00:49:47,520
Speaker 1: maybe a B minus, and it turns out you're wrong,

983
00:49:47,760 --> 00:49:50,799
Speaker 1: there're a D or an F, and your choices sell it,

984
00:49:50,920 --> 00:49:53,920
Speaker 1: move on, which we often do, or push for change.

985
00:49:54,120 --> 00:49:57,680
Speaker 1: In this case, because it is such a strong strategic asset,

986
00:49:57,920 --> 00:50:01,520
Speaker 1: we felt stepping in and trying to make changes was

987
00:50:01,800 --> 00:50:04,160
Speaker 1: the right thing. I've been on the board now for

988
00:50:04,239 --> 00:50:07,480
Speaker 1: seven or eight months. We've made great strides. The interim

989
00:50:07,600 --> 00:50:10,319
Speaker 1: CEO has done a terrific job. We just named a

990
00:50:10,320 --> 00:50:13,440
Speaker 1: permanent CEO a couple of weeks ago, Gavin Isaacs, who

991
00:50:13,440 --> 00:50:15,719
Speaker 1: a lot of US investors know, and I think that

992
00:50:15,760 --> 00:50:18,960
Speaker 1: the capital allocation decisions have been significantly better. We are

993
00:50:18,960 --> 00:50:21,359
Speaker 1: in the past to turning around this company. I think

994
00:50:21,400 --> 00:50:24,960
Speaker 1: This is a terrific growth business. It's a company that's

995
00:50:25,000 --> 00:50:27,839
Speaker 1: a leader across many markets, and it's a company with

996
00:50:27,920 --> 00:50:30,600
Speaker 1: so much opportunity because they had been so poorly executed

997
00:50:30,640 --> 00:50:33,279
Speaker 1: and managed for three years prior to the last six

998
00:50:33,360 --> 00:50:36,759
Speaker 1: or eight months. That's the opportunity here. And I'm at

999
00:50:36,760 --> 00:50:38,640
Speaker 1: this point trying to make a difference on the board,

1000
00:50:38,840 --> 00:50:41,000
Speaker 1: and I think we've been We've been very effective. I've

1001
00:50:41,040 --> 00:50:44,400
Speaker 1: been I've been very pleased and surprised by how receptive

1002
00:50:44,640 --> 00:50:46,759
Speaker 1: it's been for me on the board. This is not

1003
00:50:46,800 --> 00:50:49,600
Speaker 1: a traditional activist where we're fighting with people. I think

1004
00:50:49,640 --> 00:50:52,640
Speaker 1: they saw the errors of the company's ways and believe

1005
00:50:52,719 --> 00:50:55,359
Speaker 1: that that I and our agenda are breath of fresh air,

1006
00:50:55,680 --> 00:50:58,359
Speaker 1: and so we're making really good progress. You know, time

1007
00:50:58,400 --> 00:50:59,879
Speaker 1: will tell how this works out.

1008
00:51:00,120 --> 00:51:03,200
Speaker 2: So last question before we get to our favorite questions

1009
00:51:03,200 --> 00:51:06,040
Speaker 2: that we ask all of our guests, a little bit

1010
00:51:06,040 --> 00:51:09,160
Speaker 2: of a curve ball. You serve on the Board of

1011
00:51:09,200 --> 00:51:13,160
Speaker 2: Directors of the University of Wisconsin Foundation. Not only are

1012
00:51:13,160 --> 00:51:15,200
Speaker 2: you a member of the Development Committee, but you're also

1013
00:51:15,239 --> 00:51:17,600
Speaker 2: a member of the investment committee. Tell us a little

1014
00:51:17,600 --> 00:51:20,280
Speaker 2: bit about University of Wisconsin Foundation.

1015
00:51:20,600 --> 00:51:23,319
Speaker 1: I'm actually only on the Investment Committee today. I used

1016
00:51:23,360 --> 00:51:25,680
Speaker 1: to be on the broader board of University of Wisconsin,

1017
00:51:26,120 --> 00:51:28,200
Speaker 1: Miyama Mada. I do a lot there. I teach a

1018
00:51:28,200 --> 00:51:31,440
Speaker 1: class there, I host interns, I built the whole Badgers

1019
00:51:31,480 --> 00:51:34,800
Speaker 1: and Finance community, and I am on the investment committee.

1020
00:51:34,800 --> 00:51:37,080
Speaker 1: So I commit a lot of my time. It's a

1021
00:51:37,120 --> 00:51:41,239
Speaker 1: passion project. I feel great about helping kids in the

1022
00:51:41,280 --> 00:51:43,799
Speaker 1: things we do across the university. With respect to the

1023
00:51:43,800 --> 00:51:46,680
Speaker 1: investment committee, you know, this is a traditional foundation runs

1024
00:51:47,040 --> 00:51:50,759
Speaker 1: a bit over three billion dollars allocating capital, and this

1025
00:51:50,840 --> 00:51:53,279
Speaker 1: is an opportunity for me to do two things. One

1026
00:51:53,400 --> 00:51:58,319
Speaker 1: is help this foundation with our perspectives, help evaluate how

1027
00:51:58,320 --> 00:52:01,080
Speaker 1: should we allocate the money, How should think about evaluating

1028
00:52:01,080 --> 00:52:03,360
Speaker 1: this manager, How should we think about evaluating this strategy,

1029
00:52:03,360 --> 00:52:06,040
Speaker 1: How should we be a probably diversified, how should we

1030
00:52:06,040 --> 00:52:09,400
Speaker 1: be opportunistic in times of dislocation? And secondarily, it's an

1031
00:52:09,400 --> 00:52:13,759
Speaker 1: opportunity for me to see investment committees and foundations from

1032
00:52:13,800 --> 00:52:16,160
Speaker 1: the other side of the table. Obviously, people like the

1033
00:52:16,239 --> 00:52:20,560
Speaker 1: University Wisconsin are significant investors with me. Wisconsin is not

1034
00:52:20,640 --> 00:52:24,000
Speaker 1: an investor or a main fund, but we have similar

1035
00:52:24,040 --> 00:52:27,360
Speaker 1: institutions and so it gives you a perspective for how

1036
00:52:27,880 --> 00:52:30,840
Speaker 1: endowments work, how committees work, and some of the same

1037
00:52:30,920 --> 00:52:34,759
Speaker 1: things that I've said about investors are also true about committees.

1038
00:52:35,120 --> 00:52:39,000
Speaker 1: Very sophisticated people coming together on committees looking backward looking

1039
00:52:39,040 --> 00:52:45,920
Speaker 1: returns often don't ask the rigorous questions about how did

1040
00:52:45,960 --> 00:52:49,280
Speaker 1: you deliver those returns? Are they repeatable? Was this a cycle?

1041
00:52:49,280 --> 00:52:51,319
Speaker 1: How much risk did it take in there? And so

1042
00:52:51,680 --> 00:52:54,279
Speaker 1: it's been a really good exercise for me to be

1043
00:52:54,280 --> 00:52:57,920
Speaker 1: able to understand our investors in the investment community around

1044
00:52:58,000 --> 00:53:01,160
Speaker 1: and it's been a great experience on both scorts and

1045
00:53:01,239 --> 00:53:04,080
Speaker 1: helping the school, and they have a wonderful CIO, and

1046
00:53:04,560 --> 00:53:06,920
Speaker 1: I think that we've done a good job of not

1047
00:53:07,120 --> 00:53:09,640
Speaker 1: falling prey to the issues that could happen with a

1048
00:53:09,680 --> 00:53:13,160
Speaker 1: committee managing an investment team. But it's also allowed me

1049
00:53:13,200 --> 00:53:14,160
Speaker 1: to see things from the other side.

1050
00:53:14,400 --> 00:53:17,120
Speaker 2: And University of Wisconsin always showing up on the lists

1051
00:53:17,200 --> 00:53:20,040
Speaker 2: of top non IVY League schools. That has to be

1052
00:53:20,120 --> 00:53:21,879
Speaker 2: very rewarding for you to do your work with them.

1053
00:53:22,000 --> 00:53:25,760
Speaker 1: Yeah, humble, hard working Midwestern kids every bit is capable

1054
00:53:25,760 --> 00:53:27,200
Speaker 1: as the kids that go to IVY leagues, but with

1055
00:53:27,239 --> 00:53:29,680
Speaker 1: better attitudes. And I think that there's a lot of

1056
00:53:29,680 --> 00:53:31,759
Speaker 1: this going on in the working world that I think

1057
00:53:31,760 --> 00:53:34,560
Speaker 1: the working world is realizing that I don't just need

1058
00:53:34,560 --> 00:53:37,000
Speaker 1: the kids from the best schools in the country. I

1059
00:53:37,080 --> 00:53:41,080
Speaker 1: need good kids that meet a certain standard of intelligence

1060
00:53:41,120 --> 00:53:43,800
Speaker 1: and capabilities. And then what I really want is the

1061
00:53:43,880 --> 00:53:45,960
Speaker 1: kids with the right attitudes and kids that go to

1062
00:53:45,960 --> 00:53:50,200
Speaker 1: schools like Wisconsin, Midwest, humble, hungry public school kids. They

1063
00:53:50,200 --> 00:53:52,200
Speaker 1: have a different attitude than maybe kids that might come

1064
00:53:52,200 --> 00:53:54,080
Speaker 1: from some of these Ivy League schools that have an

1065
00:53:54,080 --> 00:53:57,840
Speaker 1: expectation that the path is laid for them and that

1066
00:53:57,920 --> 00:53:59,920
Speaker 1: they just are going to be CEO within the next.

1067
00:53:59,760 --> 00:54:03,640
Speaker 2: Six fundamental mispricing of an IVY League education. Yeah, absolutely,

1068
00:54:03,680 --> 00:54:05,600
Speaker 2: all right, So let's jump to our favorite questions we

1069
00:54:05,640 --> 00:54:09,400
Speaker 2: ask all our guests, starting with what's been keeping you entertained?

1070
00:54:09,400 --> 00:54:11,360
Speaker 2: What are you watching or listening to these days?

1071
00:54:11,920 --> 00:54:14,200
Speaker 1: In the podcast land, I tend to listen to a

1072
00:54:14,280 --> 00:54:17,799
Speaker 1: number of what I would describe as business and health

1073
00:54:17,840 --> 00:54:21,040
Speaker 1: and fitness podcasts. So I listened to The Founder's podcast,

1074
00:54:21,120 --> 00:54:25,880
Speaker 1: I love Understanding kind of prior successful people invest like

1075
00:54:26,080 --> 00:54:29,680
Speaker 1: the Best Your podcast. These are kind of interesting market

1076
00:54:29,719 --> 00:54:32,600
Speaker 1: oriented podcasts. I also listen to a lot of health

1077
00:54:32,640 --> 00:54:36,920
Speaker 1: oriented stuff so Peter Atia the Drive Huberman podcast compu

1078
00:54:37,080 --> 00:54:37,400
Speaker 1: Tea is.

1079
00:54:37,400 --> 00:54:39,879
Speaker 2: The longevity It wrote the book on longevity I live.

1080
00:54:40,080 --> 00:54:44,640
Speaker 1: Yes, really interesting, tremendous, really thoughtful. There's so much we've

1081
00:54:44,719 --> 00:54:49,160
Speaker 1: learned in the last twenty years about health, longevity, wellness.

1082
00:54:49,800 --> 00:54:51,879
Speaker 1: And he's a big believer in medicine three point zero,

1083
00:54:51,920 --> 00:54:55,960
Speaker 1: which is really us doing things preventatively versus medicine two

1084
00:54:56,000 --> 00:54:58,640
Speaker 1: point zero, which is like, you get sick, your hip hurts,

1085
00:54:58,800 --> 00:55:01,080
Speaker 1: you go for surgery. Well, what do we do to

1086
00:55:01,120 --> 00:55:02,799
Speaker 1: prevent that ahead of time? What do we do to

1087
00:55:02,800 --> 00:55:05,719
Speaker 1: prevent heart disease ahead of time? What do we do

1088
00:55:05,880 --> 00:55:09,279
Speaker 1: to keep us strong and living greater health span not

1089
00:55:09,320 --> 00:55:09,880
Speaker 1: just lifespan.

1090
00:55:10,239 --> 00:55:13,359
Speaker 2: I read something this morning. It's so fascinating. Three point

1091
00:55:13,480 --> 00:55:15,680
Speaker 2: zero still comes back to all the things we knew

1092
00:55:15,719 --> 00:55:20,000
Speaker 2: fifty years ago. Don't be overweight, exercise, manage your stress,

1093
00:55:20,440 --> 00:55:23,759
Speaker 2: and be proactive in how you respond to any sort

1094
00:55:23,800 --> 00:55:25,480
Speaker 2: of infirmity or challenge.

1095
00:55:25,600 --> 00:55:25,839
Speaker 3: Yeah.

1096
00:55:25,920 --> 00:55:28,480
Speaker 1: I mean the truth is you boil down all of

1097
00:55:28,520 --> 00:55:32,879
Speaker 1: this longevity stuff to a few key things. Move, eat

1098
00:55:32,960 --> 00:55:36,560
Speaker 1: less and eat healthy, get sunlight, have meaningful work and

1099
00:55:36,600 --> 00:55:41,040
Speaker 1: meaningful relationships, some strength training Like that's it, you know,

1100
00:55:41,360 --> 00:55:43,160
Speaker 1: you read the blue zones and you look at you know,

1101
00:55:43,320 --> 00:55:46,360
Speaker 1: there's all this data and it's not that complicated, but

1102
00:55:46,440 --> 00:55:49,080
Speaker 1: I think kind of distilling it down, there are things

1103
00:55:49,080 --> 00:55:52,080
Speaker 1: that have really helped me change small things about my life,

1104
00:55:52,120 --> 00:55:55,080
Speaker 1: my morning routines. Things like that that you know, switching

1105
00:55:55,080 --> 00:55:58,360
Speaker 1: from cardio and getting on a treadmill or a bike

1106
00:55:58,440 --> 00:56:02,359
Speaker 1: to strength training, significant improvement to longevity and the things

1107
00:56:02,400 --> 00:56:05,319
Speaker 1: we need to do, getting out in sunlight, walking, just

1108
00:56:05,440 --> 00:56:06,160
Speaker 1: basic stuff.

1109
00:56:06,360 --> 00:56:09,320
Speaker 2: Let's talk about your mentors who helped shape your career.

1110
00:56:09,719 --> 00:56:12,520
Speaker 1: I think there was a handful of people. Most importantly

1111
00:56:12,640 --> 00:56:15,440
Speaker 1: my father, who ran a hedge fund. He was a

1112
00:56:15,440 --> 00:56:19,040
Speaker 1: Goldman Sachs analyst up until the early nineteen eighties and

1113
00:56:19,080 --> 00:56:22,920
Speaker 1: then early hedge fund founder, ran a hedge fund. Always

1114
00:56:22,960 --> 00:56:25,360
Speaker 1: been around markets, and you know, he was a mentor

1115
00:56:25,400 --> 00:56:28,920
Speaker 1: in sort of understanding the power of good businesses and growing.

1116
00:56:29,400 --> 00:56:32,920
Speaker 1: My first boss, Marris Mark, also another great mentor, a

1117
00:56:32,960 --> 00:56:36,160
Speaker 1: brilliant investor who's still at it today in the age

1118
00:56:36,160 --> 00:56:39,480
Speaker 1: of eighties and going back to longevity, continuing to work

1119
00:56:39,520 --> 00:56:42,360
Speaker 1: in our life is important. A gentleman named David Harrow,

1120
00:56:42,360 --> 00:56:45,520
Speaker 1: who runs the Oakmark International Fund. He was someone I

1121
00:56:45,520 --> 00:56:47,200
Speaker 1: met when I went to school in Wisconsin. He was

1122
00:56:47,239 --> 00:56:50,720
Speaker 1: working at the State of Wisconsin Investment Board, brilliant value investor.

1123
00:56:50,760 --> 00:56:54,280
Speaker 1: He's been a terrific mentor to me on the business side.

1124
00:56:54,560 --> 00:56:57,480
Speaker 1: And then you know, there is a whole community of

1125
00:56:58,320 --> 00:57:02,120
Speaker 1: peers and people who have done this before I did that.

1126
00:57:02,200 --> 00:57:05,160
Speaker 1: I think I've used little bits and pieces of I'm

1127
00:57:05,200 --> 00:57:08,960
Speaker 1: a big believer that investing's about finding your own compass,

1128
00:57:09,400 --> 00:57:12,160
Speaker 1: but I'm not reinventing a complete wheel. I might take

1129
00:57:12,239 --> 00:57:14,600
Speaker 1: a little bit from Warren Buffett, I might take a

1130
00:57:14,600 --> 00:57:16,800
Speaker 1: little bit from a David Tepper, I might take a

1131
00:57:16,800 --> 00:57:20,040
Speaker 1: little bit from what Julian Robinson did at Tiger or

1132
00:57:20,080 --> 00:57:22,960
Speaker 1: some of the Tiger cubs. And you build what works

1133
00:57:22,960 --> 00:57:24,880
Speaker 1: for you. And so I think there's been a whole

1134
00:57:24,920 --> 00:57:28,280
Speaker 1: community out there that have been mentors to me, friends

1135
00:57:28,280 --> 00:57:29,400
Speaker 1: and peers and colleagues.

1136
00:57:29,640 --> 00:57:31,720
Speaker 2: Let's talk about books. What are some of your favorites

1137
00:57:31,760 --> 00:57:33,000
Speaker 2: and what are you reading right now?

1138
00:57:33,360 --> 00:57:35,560
Speaker 1: I would say, similar to the podcast, my books come

1139
00:57:35,600 --> 00:57:38,160
Speaker 1: into a couple of different flavors. So some of the

1140
00:57:38,160 --> 00:57:41,760
Speaker 1: business books that I'm a big fan of, the Ray

1141
00:57:41,800 --> 00:57:45,840
Speaker 1: Dallio book Principles, I think is terrific that David Rubinstein

1142
00:57:45,880 --> 00:57:49,600
Speaker 1: book on leadership just came out. Lessons of the Titans,

1143
00:57:50,320 --> 00:57:53,000
Speaker 1: another good business book. So handful of business books.

1144
00:57:53,000 --> 00:57:55,520
Speaker 3: I think. There's longevity and health books. I think Outlive.

1145
00:57:55,600 --> 00:57:59,720
Speaker 1: We mentioned Peter Atilla Life Force by Tony Robbins, terrific book.

1146
00:58:00,040 --> 00:58:00,680
Speaker 3: I tend to read.

1147
00:58:00,720 --> 00:58:04,640
Speaker 1: Some stuff on politics, like Understanding our System so the

1148
00:58:04,640 --> 00:58:09,080
Speaker 1: Politics Industry, a terrific book around the duopoly we've handed

1149
00:58:09,080 --> 00:58:11,320
Speaker 1: to these two political parties and how we change it back.

1150
00:58:11,680 --> 00:58:14,200
Speaker 1: And then some fun books that I tend to like

1151
00:58:14,520 --> 00:58:17,880
Speaker 1: around people, sports characters or other that that I think

1152
00:58:17,920 --> 00:58:21,880
Speaker 1: are great. Open by Andrea Agassi, so good. And a

1153
00:58:21,920 --> 00:58:25,520
Speaker 1: recent book that I read, The Gambler Billy Walters, a

1154
00:58:25,680 --> 00:58:29,320
Speaker 1: terrific book about maybe the most prolific sports gambler of

1155
00:58:29,360 --> 00:58:33,000
Speaker 1: our time. That's a great listen. I would also say,

1156
00:58:33,200 --> 00:58:35,400
Speaker 1: I talk about reading books, but I listened to them.

1157
00:58:35,400 --> 00:58:39,080
Speaker 2: Now did you have you watched, listened or read Shoe

1158
00:58:39,080 --> 00:58:43,080
Speaker 2: Dog Phil Night? Really really interesting, the same source one.

1159
00:58:44,040 --> 00:58:48,280
Speaker 2: It's amazing how these incredible companies, all these little places

1160
00:58:48,320 --> 00:58:51,720
Speaker 2: along the way, could have just made one other wrong decision.

1161
00:58:52,000 --> 00:58:54,880
Speaker 2: We never would have heard of them. It's fascinating, all right.

1162
00:58:54,880 --> 00:58:57,880
Speaker 2: Our final two questions, what sort of advice would you

1163
00:58:57,920 --> 00:59:01,280
Speaker 2: give to a recent college grad interested in a career

1164
00:59:01,560 --> 00:59:02,320
Speaker 2: in finance.

1165
00:59:02,520 --> 00:59:04,720
Speaker 1: A couple of things that would give One is this

1166
00:59:04,840 --> 00:59:07,800
Speaker 1: concept of finding your own investing compass. Don't try to

1167
00:59:07,840 --> 00:59:11,480
Speaker 1: be just like me, or just like Buffet, or just

1168
00:59:11,640 --> 00:59:14,760
Speaker 1: like any one person. The benefit of taking all this

1169
00:59:14,840 --> 00:59:17,720
Speaker 1: information in is to build your own investing compass, because

1170
00:59:17,840 --> 00:59:22,400
Speaker 1: what's really important investing is consistency and confidence. So when

1171
00:59:22,440 --> 00:59:24,720
Speaker 1: things go wrong, you've got to be confident in what

1172
00:59:24,760 --> 00:59:27,600
Speaker 1: you're doing. We can't chase the latest trends. We can't

1173
00:59:27,800 --> 00:59:30,720
Speaker 1: try to buy the value investor when the market's value

1174
00:59:30,720 --> 00:59:33,160
Speaker 1: investing and the growth investor. Otherwise we're going to be

1175
00:59:33,200 --> 00:59:36,880
Speaker 1: chasing everything. So build your own compass that will build

1176
00:59:36,880 --> 00:59:38,960
Speaker 1: consistency and will build something that you believe in, So

1177
00:59:39,000 --> 00:59:41,400
Speaker 1: that'd be one. I think the other thing that I

1178
00:59:41,400 --> 00:59:46,280
Speaker 1: would say is manage your rolodex really proactively. At an

1179
00:59:46,320 --> 00:59:48,920
Speaker 1: early age, you start to get access to people who

1180
00:59:49,000 --> 00:59:52,160
Speaker 1: can be really helpful to you, and I think we

1181
00:59:52,320 --> 00:59:56,280
Speaker 1: often get that access and then don't cultivate it and

1182
00:59:56,360 --> 00:59:58,440
Speaker 1: harness it as we move on in life. And I

1183
00:59:58,480 --> 01:00:01,600
Speaker 1: would say, this is a mistake that I made. I

1184
01:00:01,680 --> 01:00:04,439
Speaker 1: had this tremendous access when I worked for Marris Mark.

1185
01:00:04,800 --> 01:00:08,280
Speaker 1: I was twenty four years old meeting with CEOs. I

1186
01:00:08,280 --> 01:00:11,720
Speaker 1: could have done a better job of cultivating these relationships

1187
01:00:11,880 --> 01:00:15,800
Speaker 1: and using them ultimately over time. I've probably come back

1188
01:00:15,840 --> 01:00:19,040
Speaker 1: to some of them and have used them. But we

1189
01:00:19,080 --> 01:00:22,480
Speaker 1: don't get anywhere in life all by ourselves. We need advice,

1190
01:00:22,720 --> 01:00:25,640
Speaker 1: We need perspective. Somebody that you meet might know a

1191
01:00:25,680 --> 01:00:27,960
Speaker 1: lot about a particular industry and that's not all that

1192
01:00:28,000 --> 01:00:30,400
Speaker 1: relevant today, but in twenty four months when you're doing

1193
01:00:30,440 --> 01:00:33,320
Speaker 1: research on another company, it could be very relevant. Being

1194
01:00:33,320 --> 01:00:35,200
Speaker 1: able to go back to that, I think is really important.

1195
01:00:35,240 --> 01:00:38,439
Speaker 1: So being proactive about that, sending people a note every

1196
01:00:38,440 --> 01:00:40,680
Speaker 1: now and like, don't just call them when you want

1197
01:00:40,680 --> 01:00:43,280
Speaker 1: something from them. Hey, I read this article and it

1198
01:00:43,280 --> 01:00:45,240
Speaker 1: made me think of you and your company.

1199
01:00:45,080 --> 01:00:45,920
Speaker 3: And what you're doing.

1200
01:00:46,440 --> 01:00:49,720
Speaker 1: Just keep in front of them, categorize your rolodex so

1201
01:00:49,760 --> 01:00:51,280
Speaker 1: that you can come back to that over time and

1202
01:00:51,400 --> 01:00:54,080
Speaker 1: use that as a powerful way to get smarter or

1203
01:00:54,160 --> 01:00:55,840
Speaker 1: quicker around a range of things.

1204
01:00:56,200 --> 01:00:59,280
Speaker 2: Really interesting, and our final question, what do you know

1205
01:00:59,320 --> 01:01:02,360
Speaker 2: about the world of equity investing today? You wish you

1206
01:01:02,440 --> 01:01:05,120
Speaker 2: knew thirty years or so ago? When you were first

1207
01:01:05,160 --> 01:01:05,920
Speaker 2: getting started.

1208
01:01:06,680 --> 01:01:09,440
Speaker 1: I think the biggest thing that I wish I knew

1209
01:01:10,080 --> 01:01:16,360
Speaker 1: was how individual motivations create decisions by executives and boards

1210
01:01:16,760 --> 01:01:20,280
Speaker 1: that might not be the most beneficial. I think I

1211
01:01:20,280 --> 01:01:22,080
Speaker 1: think when I start in the business, I think I

1212
01:01:22,160 --> 01:01:26,440
Speaker 1: understood human emotion about investing, fear and greed, and how

1213
01:01:26,480 --> 01:01:30,720
Speaker 1: investors behave. But I think I took what executives told

1214
01:01:30,760 --> 01:01:34,600
Speaker 1: me and board members told me at sort of face value,

1215
01:01:35,480 --> 01:01:38,080
Speaker 1: like this is right, this is what it is. The

1216
01:01:38,160 --> 01:01:42,000
Speaker 1: truth is that they have their own perspective, their own motivations.

1217
01:01:42,240 --> 01:01:44,800
Speaker 1: They might be trying to deceive you. As we moved

1218
01:01:44,840 --> 01:01:48,000
Speaker 1: on in time, we've come to ask different types of

1219
01:01:48,080 --> 01:01:51,160
Speaker 1: questions of executives. I'll do my own research on the business.

1220
01:01:51,280 --> 01:01:52,600
Speaker 1: I'm not going to rely on you to tell me

1221
01:01:52,600 --> 01:01:54,720
Speaker 1: what the company is going to do next year. I

1222
01:01:54,720 --> 01:01:55,920
Speaker 1: want to know how you think. I want to know

1223
01:01:55,920 --> 01:01:57,080
Speaker 1: how you allocate capital.

1224
01:01:57,440 --> 01:01:58,560
Speaker 3: I want to know what you're going to do.

1225
01:01:58,680 --> 01:02:00,440
Speaker 1: I want to make sure that you're a person that

1226
01:02:00,480 --> 01:02:03,480
Speaker 1: I can trust to make the right decisions. I'll do

1227
01:02:03,520 --> 01:02:05,280
Speaker 1: my research on the company, and I think I did

1228
01:02:05,440 --> 01:02:08,800
Speaker 1: quite appreciate that executives don't know what's going to happen

1229
01:02:08,800 --> 01:02:12,120
Speaker 1: next year, the world changes, there are things that they

1230
01:02:12,160 --> 01:02:14,560
Speaker 1: can be blind to. They could have their own poor

1231
01:02:14,600 --> 01:02:17,160
Speaker 1: motivations that may be getting the stock up in the

1232
01:02:17,200 --> 01:02:19,520
Speaker 1: short run, but not good for the business. And I

1233
01:02:19,560 --> 01:02:22,640
Speaker 1: think that that whole area around understanding humans and why

1234
01:02:22,680 --> 01:02:26,240
Speaker 1: they tell you things and being skeptical is probably something

1235
01:02:26,240 --> 01:02:27,440
Speaker 1: I wish I knew thirty years ago.

1236
01:02:27,880 --> 01:02:31,400
Speaker 2: Really fascinating stuff. Ricky, thank you for being so generous

1237
01:02:31,440 --> 01:02:34,520
Speaker 2: with your time. We have been speaking with Ricky Sandler,

1238
01:02:34,720 --> 01:02:40,360
Speaker 2: CIO and CEO of Eminence Capital. If you enjoy this conversation,

1239
01:02:40,680 --> 01:02:43,240
Speaker 2: well check out any of the previous five hundred or

1240
01:02:43,240 --> 01:02:46,960
Speaker 2: so we've done over the past ten years. You can

1241
01:02:47,000 --> 01:02:51,560
Speaker 2: find those at iTunes, Spotify, YouTube, wherever you find your

1242
01:02:51,560 --> 01:02:54,959
Speaker 2: favorite podcast, and be sure and check out my new

1243
01:02:55,040 --> 01:02:59,920
Speaker 2: podcast At the Money, short ten minute conversations with experts

1244
01:03:00,480 --> 01:03:05,080
Speaker 2: about information that relates directly to your money, earning it,

1245
01:03:05,200 --> 01:03:09,560
Speaker 2: spending it, and most importantly investing it at the Money,

1246
01:03:09,600 --> 01:03:14,040
Speaker 2: wherever you find your favorite podcasts, or in the Master's

1247
01:03:14,120 --> 01:03:17,840
Speaker 2: in Business podcast feed. I would be remiss if I

1248
01:03:17,840 --> 01:03:19,840
Speaker 2: did not thank the track team that helps us put

1249
01:03:19,880 --> 01:03:24,400
Speaker 2: these conversations together. John Wasserman is my audio engineer. Attika

1250
01:03:24,400 --> 01:03:28,480
Speaker 2: of Valbron is my project manager. Anna Luke is my producer.

1251
01:03:28,720 --> 01:03:31,880
Speaker 2: Sage Bauman is the head of podcasts at Bloomberg. Shan

1252
01:03:31,960 --> 01:03:36,080
Speaker 2: Russo is my researcher. I'm Barry Rittolts. You've been listening

1253
01:03:36,160 --> 01:03:42,400
Speaker 2: to Masters in Business on Bloomberg Radio.