Speaker 1: This is Masters in Business with Barry Ridholds on Bloomberg Radio.
Speaker 1: This week on the podcast, we have a very special guest.
Speaker 1: And I know you folks are tired of hearing me
Speaker 1: say that, but we do. We have a very special guest,
Speaker 1: Leon Cooperman. He is the founder and chief investment officer
Speaker 1: of Omega Advisors. They are a hedge fund that runs
Speaker 1: about nine point three billion dollars. His track record is
Speaker 1: actually quite fantastic. He's outperformed the S and P five
Speaker 1: hundred on an annualized basis of about four hundred and
Speaker 1: fifty basis points. His tax advantage fund has outperformed the
Speaker 1: Broad Index a thousand basis points. Uh. He is a
Speaker 1: legend on Wall Street. He began his career at Goldman Sachs,
Speaker 1: where he ran eventually ran the research department. I I
Speaker 1: rated just number one. There are a few people who
Speaker 1: are more fascinating and more knowledgeable about what it's like
Speaker 1: to run money, to do research, to execute a portfolio
Speaker 1: then Lee Cooperman. Very accessible, very humble, a tremendous, tremendous
Speaker 1: um philanthropist, has committed to giving away a lot of
Speaker 1: his money. I can't begin to tell you enough of
Speaker 1: of how enjoyable our conversation was and what a pleasure
Speaker 1: it was to sit down with him for for nearly
Speaker 1: two hours. He he was scheduled to leave at one thirty,
Speaker 1: and he waved me off. He just you know, kept
Speaker 1: going and understood that this was really a deep dive
Speaker 1: and didn't want to cut it short because he had
Speaker 1: to be somewhere else. So, with no further ado from me,
Speaker 1: here is my conversation with Leon Cooperman. This is Masters
Speaker 1: in Business with Barry Ridholts on Bloomberg Radio. My very
Speaker 1: special guest today, Lee Cooperman. You may or may not
Speaker 1: have heard of him. Lee was born in the bronx
Speaker 1: of immigrant parents. Your your whole curriculum vitae is gonna
Speaker 1: take me ten minutes to read, so I'm just gonna
Speaker 1: do the short version. Columbia Business School, nineteen sixty nine.
Speaker 1: You've got an m b A straight to Goldman Sachs,
Speaker 1: where you spent twenty two years in the Investment Research department,
Speaker 1: eventually becoming co chairman of the Investment Policy Committee and
Speaker 1: chairman of the Stock Selection Committee. You were voted onto
Speaker 1: Institutional Investors All America Research team for Portfolio Strategy. You
Speaker 1: ranked first in portfolio strategy from nineteen seventy seven to five.
Speaker 1: You eventually set up Goldman Sachs is Asset Management division
Speaker 1: and then leave to launch Omega Advisors, where your flagship
Speaker 1: overseas fund has averaged fourteen point six percent from two
Speaker 1: to and that's about fift better than the benchmark SMP
Speaker 1: five hundred. Lee Cooperman, welcome to Bloomberg NICs to be
Speaker 1: with you. And for those of you folks who may
Speaker 1: not be familiar with either Guldman Sachs or Omega Advisors,
Speaker 1: you're probably listening to the wrong radio station. So let's
Speaker 1: jump right into your a little bit of your background.
Speaker 1: What did you do before you found your way to
Speaker 1: Wall Street. Well, I'm kind of like in a Ratio
Speaker 1: Alger story, and I say this with great humility. I've
Speaker 1: been very lucky in life. Basically, I was born in
Speaker 1: the South Bronx, first generation of my family to get
Speaker 1: a born in America, first generation my family get a
Speaker 1: college degree. I went to public school in the Bronx
Speaker 1: PS seventy five. I went to high school in the
Speaker 1: Bronx and Morris High School. I went to college in
Speaker 1: the Bronx Uh, West Bronx. My both of my grade
Speaker 1: school and my high school was in the East Bronx.
Speaker 1: I went west, follow the device of horst Reeley and
Speaker 1: I went to the West young Man, go West, young Man.
Speaker 1: I went to a Hunter College, part of the City
Speaker 1: University of New York. UM, graduated in nineteen sixty four.
Speaker 1: Went to work for Xerox Corporation up in Rochester. Well,
Speaker 1: let me stop you right there. From Hunter to Xerox.
Speaker 1: What did you do on at Xerox? Well, it was
Speaker 1: very interesting. I don't know how much time we have.
Speaker 1: I tend to be I have all day. You're the
Speaker 1: one with Well, basically, um, it's very interesting. You know.
Speaker 1: Part of my success in life I attribute to luck. Uh,
Speaker 1: certain part of education hard work. By the way, that's
Speaker 1: a theme that every person who's done an interview with
Speaker 1: me has more or less said, Well, you know, I
Speaker 1: worked hard, but I also got really lucky. Well, I
Speaker 1: would say that you're not realistic if you don't think
Speaker 1: luck plays a part in the one success. And I
Speaker 1: like to think I'm above all. I'm realistic and self
Speaker 1: effacing and have humility. Uh. But basically it's a little
Speaker 1: bit of a story to get to answer your question
Speaker 1: back in the sixty and still maybe the case of
Speaker 1: day that if you finished your major and minor in
Speaker 1: three years, you could count in your first year of
Speaker 1: dental or medical school towards your fourth year of college
Speaker 1: you get a separate degree. I actually did something similar
Speaker 1: with law school. I applied part of law school towards
Speaker 1: my undergraduate So you know, basically, in the summer of
Speaker 1: nineteen sixty three, I toiled very hard in the University
Speaker 1: of Pennsylvania laboratories. I took a course in physical chemistry
Speaker 1: to finish you off my major. My major was chemistry,
Speaker 1: my mind was math and physics. And I enrolled in
Speaker 1: the University of Pennsylvania Dental School. And after eight days
Speaker 1: I wondered if I was making the right decision. And
Speaker 1: so you know, part of your life, not only his luck,
Speaker 1: is intuition and making the right decision. That that was
Speaker 1: a good instinct. I cannot picture you as all you know,
Speaker 1: instead of my hand in their mouths and I have
Speaker 1: my hand in their pockets, I guess you could say
Speaker 1: that basically I went. It was a very traumatic period
Speaker 1: of my life. I went to the dean of the
Speaker 1: dental school and I said, I would like to return
Speaker 1: to my undergraduate school, finish you off my fourth year,
Speaker 1: unencumbered by any decision, and then in the fullness of time,
Speaker 1: making decision to either return to dental school or whatever.
Speaker 1: And he put me on a real guilt trip, uh,
Speaker 1: in the sense that he said, you deprived the hundred
Speaker 1: first applicant of a dental school education. How can you
Speaker 1: decide after eight days? And so I returned to undergraduate school.
Speaker 1: The only person that really understood the import of my
Speaker 1: decision and difficulty was a dean of Hunter College at
Speaker 1: the time. His name was Glen T. Nigrin. I just
Speaker 1: noticed an obituary of several years ago where he passed away,
Speaker 1: and he said, boy, this must have been a tough decision.
Speaker 1: Of course, you could matriculate back into a Hunter. And
Speaker 1: I went back to Hunter, at which point I had
Speaker 1: all elective is my major minor was completed. So I
Speaker 1: took ten courses in economics, got ten a's, and I
Speaker 1: had the unusual situation of graduating as a major in chemistry,
Speaker 1: monor math and physics, but honors in economics. And I
Speaker 1: was interviewing in the ninth seen hundred and I guess
Speaker 1: sixty three yearly sixty four for a job. Xerox Corporation
Speaker 1: came to the campus and I was lucky enough to
Speaker 1: get an invite back to Rochester to meet with other
Speaker 1: people for a second, you know, interview, and I went
Speaker 1: up getting the best job warfer if anyone that cite
Speaker 1: the university. They offered me, I think was seventy five
Speaker 1: hundred or seven thousand dollars a year, which I accepted,
Speaker 1: and I started working there in August of nineteen four,
Speaker 1: and they really, an effect, did not make a full
Speaker 1: disclosure to me about the job. It's what they didn't
Speaker 1: tell me when I started, when they offered me the job.
Speaker 1: Is a month later they were going to a twenty
Speaker 1: four hour work week, meaning one week I'd have to
Speaker 1: work eight in the morning to four in the afternoon,
Speaker 1: the next week four in the afternoon to midnight, three
Speaker 1: three shifts a day um. And so I was enrolled
Speaker 1: in the University of Rochester Graduate School of Business at night,
Speaker 1: working towards an m b A. But the weeks that
Speaker 1: I was in the four in the afternoon to midnight shift,
Speaker 1: I'd have to find somebody else to shift off with
Speaker 1: work sixteen hours go to school, work sixteen hours, go
Speaker 1: to school. And I had had a lovely life a
Speaker 1: wife at that time, and he was still a lovely wife.
Speaker 1: She's married fifty one years. And she said, look, I'm
Speaker 1: happy to work if you want to go to school
Speaker 1: full time. And I took leave of absence and I
Speaker 1: went to Columbia University Graduate School of Business in New
Speaker 1: York on a trimester basis sixty months, got my m
Speaker 1: b A interviewed, and I was lucky enough to get
Speaker 1: a job off of Goldman Sachs and who entered Wall Street.
Speaker 1: Uh via my MBA from Columbia to Goldman Sax. I'm
Speaker 1: Barry Ritults. You're listening to Masters in Business on Bloomberg
Speaker 1: Radio and my very special guest today, Lee Cooperman. He
Speaker 1: is the founder of Omega Advisors. Prior to that, he
Speaker 1: spent twenty three years in in the investment research department
Speaker 1: at Goldman Sacks. Let's let's talk a little bit about
Speaker 1: um Goldman Sacks. You went right out of Columbia where
Speaker 1: you got your m b A into not the sexier
Speaker 1: investment banking half that I think Goldman at the time
Speaker 1: was better owned for, but into research. What was your
Speaker 1: thought process. What attracted you to that? I basically had
Speaker 1: a strong interest in investing through investment research would be
Speaker 1: a good foundation for pursuing career in investing, and Columbia
Speaker 1: was known as a deep value school. That was the
Speaker 1: training you had. The professor had the greatest influence to
Speaker 1: me was Professor Roger Murray, who was an adjunct professor
Speaker 1: of business at Columbia. His day job was being the
Speaker 1: chief investment officer of College Retirement Equities Fund, and he
Speaker 1: taught at Columbia. He also was an author of one
Speaker 1: of the follow up editions of security analysis, the original
Speaker 1: publication four by Graham and Dodd, and he honed my interest.
Speaker 1: He was a fabulous professor, a real practitioner of his profession,
Speaker 1: and one that was a great inspiration. But you know, um,
Speaker 1: it was a great experience. I never I like. I
Speaker 1: like to say I like the higher PhDs in my business. Uh,
Speaker 1: but my PhDs are poor, hungry and driven. Uh. Isn't that?
Speaker 1: Isn't that something that Mario Gabelli used to say all
Speaker 1: the time. He says it all the time. We're great friends.
Speaker 1: You know. One of the great things that came out
Speaker 1: of Columbia Business school, was married when I met, and
Speaker 1: we remained close friends for fifty years. You know, it
Speaker 1: was the Columbia experience that got me the entry card
Speaker 1: into Wall Street. I wouldn't say it's right, but the
Speaker 1: odds or I could not have gotten into Wall Street
Speaker 1: directly from Hunter College into an investment position at Goldman,
Speaker 1: But part of this, like I said earlier, horatial outer story.
Speaker 1: You know, I um, when I went to Columbia Business School,
Speaker 1: I had a six month old child, I had National
Speaker 1: Defense Education Act student loan to repay, had no money
Speaker 1: in the bank, and had to get onto making a living.
Speaker 1: So I got my degree on January thirty one of
Speaker 1: nineteen sixty seven, and the very next day, February one
Speaker 1: to sixty seven, I started my close to year career
Speaker 1: at Goldman Sex. So you were in the research department.
Speaker 1: Let me let me go over some of the stats
Speaker 1: from that, because they're really so impressive. You voted on
Speaker 1: to the All American Research team. You were the number
Speaker 1: one portfolio strategist according to Investor Institutional Investor from nineteen
Speaker 1: seventy seven to ninety five. That that's a heck of
Speaker 1: a good run. And then after all those years in
Speaker 1: the research department you helped build Goman Sacks Asset Manager.
Speaker 1: I actually started it, but i'd say first in the
Speaker 1: research department. Uh, not not being self serving. I had
Speaker 1: two roles, and I started at as an analyst in
Speaker 1: the retail business, and then the mid seventies I became
Speaker 1: co directive Research. In nineteen seventies six, I was named
Speaker 1: partner in charge of Research. I essentially had two roles
Speaker 1: in Goldman Research. One I would call an orchestra leader,
Speaker 1: I ran the research department, and the other, call a solo,
Speaker 1: was to my role as chairman of the Investment Policy Committee,
Speaker 1: helping set investment policy and marketing that investment policy at
Speaker 1: investing clients. And uh, please used to say again, not
Speaker 1: big self serving, because it was a real team effort.
Speaker 1: But when I took over the research department at Goldman,
Speaker 1: we were basically unranked. And when I left, it's a
Speaker 1: polite way to say dead last, No, not that last,
Speaker 1: but we were We were not ranked in the top
Speaker 1: we were not reviewed as a research firm. And when
Speaker 1: I left the research department in nine to start Goldman
Speaker 1: Sacks Asset Management, Goldman Sacks Research was number one institutional
Speaker 1: investor America team number one in Charlie Yellis's Greenwich Research
Speaker 1: survey and number one in financial world, which doesn't exist anymore.
Speaker 1: The first to still exists in terms of measuring people's effecting.
Speaker 1: This now to show you how a little influence I say,
Speaker 1: this is not this is that video They had a
Speaker 1: little influence I had at Goldman and I said this
Speaker 1: had a big smile. I was well regarded. Uh. For
Speaker 1: a decade, I was telling Goldman Sacks, you're making a
Speaker 1: mistake by not being in the asset managing business. I was.
Speaker 1: I was shocked when I was reading your background and
Speaker 1: I'm like, wait, Goldman Sacks didn't have an asset management
Speaker 1: division before. Something it made it's hard to imagine teen
Speaker 1: ninety one. Actually, and for deckcarese telling the firm you're
Speaker 1: making a mistake by not being an asset management and
Speaker 1: for decade they said, Lee, you don't get it that
Speaker 1: we are of the belief that brokers should do brokerage,
Speaker 1: money manage and do money management. Don't compete with your customer,
Speaker 1: Goldman Sachs typical customer at that time was an institutional investor.
Speaker 1: And so I said, well, look look around your Mary
Speaker 1: Lynchest Management, uh CSFPST Management, the Kid I Be Buddies
Speaker 1: division is called Webster att Management. Everybody was getting into
Speaker 1: the business set. One firm who was Goldman's art trading rival,
Speaker 1: that was Solomon Brothers. And then one morning Solomon comes
Speaker 1: out and says, we're pleased to announce that Bob Solomon Jr.
Speaker 1: Will be leaving the research department to start Salmon Brothers
Speaker 1: asset Management. And Bob Rubin and Steve Friedman, who were
Speaker 1: then co heads of the firm, came to me and said,
Speaker 1: you know, we made a mistake. You were right. You
Speaker 1: were right when you leave research and do for us
Speaker 1: to invest in management what you did for us in research.
Speaker 1: And so after about a year or so doing this,
Speaker 1: because aim very clear that you know, I had to
Speaker 1: be on the road constantly to innovate new products to generally,
Speaker 1: you know, capture new assets. And I really wanted to
Speaker 1: visit companies and find outstanding managements make out standing investments.
Speaker 1: And I have great respect for Goldman. I owe a
Speaker 1: lot to my success at Goldmen. I started with nothing.
Speaker 1: I left Goldman very wealthy. Man. I told him I
Speaker 1: really wanted to retire ephemistically, I worked hard and now
Speaker 1: that I worked at Goldman, I worked very hard at Goldman,
Speaker 1: and I wanted to basically start a hedge fund. And
Speaker 1: I believe in no blessed Oblieg and I told him,
Speaker 1: you know, we were still a private partnership UM at
Speaker 1: the time. And uh, I said, you know, if you
Speaker 1: think my having a hedge funds of violation might noncompete,
Speaker 1: you know, I wouldn't do it. And they said, no,
Speaker 1: we we can't possibly say that because you know, we
Speaker 1: don't want to have a hedge fund. And so I
Speaker 1: started Omega, and uh it became something I didn't plan.
Speaker 1: To be honest with you, Uh, this is not a
Speaker 1: TV but I'm I'm you have a big smile on
Speaker 1: your face. But I basically also a larger than average guy.
Speaker 1: And I said, you know, I'm gonna have a small business. Uh,
Speaker 1: and succeed at the only thing that's alluded me all
Speaker 1: my life. Let's get to a normal size is and
Speaker 1: lose some weight. And I have a gym in the
Speaker 1: office and work out and you know, manage a few
Speaker 1: hundred million dollars and down to a normal size. Take
Speaker 1: it easy a way, well, no work, but basically get
Speaker 1: to a normal size, have a more balanced life. And uh,
Speaker 1: what happened is you to my first year, we're up
Speaker 1: about twenty three or twice with the market, and in
Speaker 1: ninety three had about a year I was up like
Speaker 1: sevent because we correctly called a big decline interest rates globally,
Speaker 1: and the firm really starts to grow quite dramatically in size.
Speaker 1: Uh so, Um, we've gone from the start up with
Speaker 1: a few hundred million to nine and a half billion.
Speaker 1: But it's been a great run. And uh, I love
Speaker 1: what I do, and I do a lot of talks
Speaker 1: to meetings with youngsters. They try to give them career guidance.
Speaker 1: I tell him, you know, follow the advice of Henry Ford.
Speaker 1: The best way to make money is not to think
Speaker 1: about making money. Another theme is Warren Buffers is going
Speaker 1: to work with somebody you respected admire, tap dance to
Speaker 1: work and everything will take care of itself. And what
Speaker 1: I say basically is do what you love, love what
Speaker 1: you do. If you do what you love me you
Speaker 1: love what you do. With a little bit of luck,
Speaker 1: you're a bound to be successful. And that's kind of
Speaker 1: where I'm at. I mean, I love what I do.
Speaker 1: I'm Barry rid Hults. You're listening to Masters in Business
Speaker 1: on Bloomberg Radio. My special guest today is Lee Cooperman.
Speaker 1: He is the founder of Omega Advisors and basically spent
Speaker 1: the first twenty five or so years of his career
Speaker 1: at Goldman Sachs as the UH director of the Investment Department,
Speaker 1: and he created and helped build the asset Management Department.
Speaker 1: Let's talk a little bit about philanthropy. League you Um,
Speaker 1: you said earlier, you're the son of immigrants from the
Speaker 1: South Bronx. Um, did you ever imagine when you were
Speaker 1: going to school and in the Bronx you would grow
Speaker 1: up to become a philanthropist? Never? Never, never, never? What
Speaker 1: what is that like? Coming and from from self described
Speaker 1: very humble roots. There's there's a question. We have a
Speaker 1: mutual friend, Doug Cass and Doug said to ask you
Speaker 1: about the plumbers wrench that you sometimes carry around. Uh.
Speaker 1: Doug's very kind towards me, very complimentary, and I appreciate Doug,
Speaker 1: and Doug's a bright fellow. Look, if you step back
Speaker 1: and think about it, there's only four things you could
Speaker 1: do with money. You could consume it on personal expenditures
Speaker 1: and thankf I've been in a business that generates a
Speaker 1: lot of income, and if you if I don't collect art,
Speaker 1: I can't consume my wealth. And I've never seen the
Speaker 1: value proposition art and I really obviously missed a huge
Speaker 1: opportunity well the past a couple of decades. Yeah, okay,
Speaker 1: but so you could consume your well the second as
Speaker 1: you can give it to your children. Okay, And I'll
Speaker 1: take these one of the time after I mentioned all four.
Speaker 1: The third is you can give it to the government
Speaker 1: the form of taxation, or the fourth as you can
Speaker 1: recycle it back into society. Okay. So on the first one,
Speaker 1: I'm not a consumer. I tend to basically work very hard,
Speaker 1: work very long hours. I have a very purposeful wife,
Speaker 1: married fifty one year. She has been an educator for
Speaker 1: thirty five years, working with learning to say ablell neurologically
Speaker 1: impaired children. And so she's not a consumer because she's
Speaker 1: was working most of her adult life. Um, so I
Speaker 1: can't consume it. You know, you could go out and
Speaker 1: if you if you if you're not collector you don't
Speaker 1: have enough money no matter you know what you make,
Speaker 1: because you could buy a Picasso with the other day
Speaker 1: for a hundred nine million or whatever. So I'm not
Speaker 1: a consumer. Second, I believe in leaving my kids a
Speaker 1: rational or sum of money. Do not want to take
Speaker 1: away from them the incentive to self achieve. Okay. The
Speaker 1: third is who wants to give it the government? If
Speaker 1: you don't have to give it the government. Fourth, I've
Speaker 1: made the determination. My family is going along with the
Speaker 1: determination to take the vest bulk of my money and
Speaker 1: return into society to try and create equal opportunity for
Speaker 1: these splendid youngsters that don't have the opportunities today that
Speaker 1: I enjoyed. You know. So let's let's start with the pledge.
Speaker 1: You had a dinner with um a number of people,
Speaker 1: and you saw in the pledge where you essentially committed
Speaker 1: to giving away the majority. I think that the pledge
Speaker 1: says you're a get away at least half, and I
Speaker 1: intend to give away all my money. Was I given
Speaker 1: my children their inheritance about three or four years ago
Speaker 1: in advance in events. Here's the money. Trying not to
Speaker 1: do it well. I have two kids. One's a fabulous
Speaker 1: money manager. I'm very proud of his accomplishments. Also runs
Speaker 1: run a hedge fund, and he's very very smart. And
Speaker 1: then I have another son who was equally smart up
Speaker 1: in a different field. He has a PhD degree and
Speaker 1: environmental scientist work for conservation to national on environmental issues. Uh.
Speaker 1: And so I gave them their inheritance and what's left over. Basically,
Speaker 1: my game plan is to give away half during my
Speaker 1: lifetime to organizations that have made a difference to my
Speaker 1: family in our lifetime, and the other half on to
Speaker 1: give to a foundation where my children, grandchildren, daughter in
Speaker 1: laws could periodically get together and give away the money
Speaker 1: to worthy organization. So let's talk about some of the organizations. Well,
Speaker 1: let me first, you know say this that you know
Speaker 1: the I said this to warm buffet. If you're speaking
Speaker 1: to people of great wealth, asking for half is not
Speaker 1: asking for enough. But nor is that request original hundred
Speaker 1: Andrew Carnegie said, he who dies rich dies disgraced. In
Speaker 1: ninety Winston Churchill said you make a living by what
Speaker 1: you get, you make a life by what you give.
Speaker 1: In sixty one, when President Kennedy was inaugurated, he said,
Speaker 1: if I we call it, Craig, that's not what your
Speaker 1: country can do for you. Ask what you can do
Speaker 1: for your country or something alone and then I told Warren,
Speaker 1: I said, I'm Jewish, and he said that Thomas your
Speaker 1: measurement not by what he has, but what he gives. So, um,
Speaker 1: you know, I buy into the idea of philanthropic activity.
Speaker 1: And you know, the large bulk of my giving thus
Speaker 1: far has been to organizations that have made a difference
Speaker 1: to me in my lifetime. So you know, a Hunter College.
Speaker 1: I got a first class education from the University of
Speaker 1: New York for twenty four dollars a semester. I know,
Speaker 1: did I get a first class education? But I got
Speaker 1: a terrific wife. So we've given them a very large
Speaker 1: amount of money, both for a scholarship and uh and
Speaker 1: financial aid for when I went to school. I mentioned
Speaker 1: twenty four hour semester. I think the kids today like
Speaker 1: six thousand dollars semester. That's cheap compared to the private school.
Speaker 1: It is, but these kids have trouble coming up with
Speaker 1: that kind of money. So providing financial aid to help
Speaker 1: giving them equal opportunity. Then, um, I have a deader
Speaker 1: gratitude to Columbia of opening the door to my career
Speaker 1: in Wall Street. And I've given them a doubt a chair.
Speaker 1: You've set up some scholarships and you've given some unconstricted
Speaker 1: funds to them as well. Yeah, yeah, well there's a
Speaker 1: large number. I'm embarrassed to mention in numbers. And I'm
Speaker 1: not the most generous guy you're gonna meet. I've done
Speaker 1: what I felt I want to do, so I think
Speaker 1: our industry is popularly with a lot of very generous
Speaker 1: people that have have a good soul and want to
Speaker 1: give back to society. Then third, I was a trustee
Speaker 1: for many years of St. Bonabus Medical Center, where the
Speaker 1: largest hospitals and stay in New Jersey, and they were
Speaker 1: endowed a new wing that's on the construction right as
Speaker 1: we speak. I'm Barry ri Heults. You're listening to Masters
Speaker 1: in Business on Bloomberg Radio. My special guest to day
Speaker 1: is Lee Cooperman of Goldman Sachs and now he runs
Speaker 1: the hedge fund Omega Advisors, and I want to talk
Speaker 1: a little bit Lee about value investing, because really you're
Speaker 1: one of the great value investors. Your your track record
Speaker 1: has been outstanding. You've outperformed the market by almost fifty percent.
Speaker 1: Your your long term track record is fourteen percent and
Speaker 1: change per annum, significantly better than than the benchmark at
Speaker 1: least that's the most recent data. I saw about four
Speaker 1: and fifty basis points neative wolf fees and nexus to
Speaker 1: the SMP, which is fine. We don't want a leverage portfolio,
Speaker 1: so for non leverage, non leverage, that's fantastic. Your percent
Speaker 1: always room for improvement. But we're OK. So so let
Speaker 1: me throw one of my favorite quotes of yours at
Speaker 1: you and get some comments you. You have been known
Speaker 1: to say your favorite question is what is ridiculously priced? Now?
Speaker 1: So is it fair to say that you're not a
Speaker 1: believer that markets are perfectly efficient? H? Yeah, I would
Speaker 1: say that. I don't think Warren Buffett got going from
Speaker 1: flipping newspapers to orre seventy five billion dollars if the
Speaker 1: market was totally efficient. Whether it's Mary Gabilly, whether it
Speaker 1: stand Drucomo, or there's Lee Cooperman. I think that everyone
Speaker 1: seems to think that it's hard to beat the SMP. Well,
Speaker 1: if it's so easy to underperform, the ability must exist
Speaker 1: to outperform, And I think there's enough people that have
Speaker 1: outperformed over number years to suggest that with patients and
Speaker 1: some brains and a little bit of luck, that you
Speaker 1: can outperform. So I'm committed to that proposition. I try
Speaker 1: to make money for my investors a number of ways,
Speaker 1: but number one, I do spend a lot of time
Speaker 1: on the macro picture, you know, as the stock market overvalued,
Speaker 1: is it under valued? Is it going up? Is it
Speaker 1: going down? Because at the end of the day, stocks
Speaker 1: are high risk financial assets to turn bonds and casual
Speaker 1: low rist financial assets. And if it's an environment that's
Speaker 1: negative for stocks, I want to be exposed. On the
Speaker 1: other hand, of his environment part of the stocks positive
Speaker 1: the stocks, I want to be heavily exposed. So let
Speaker 1: me ask you right now, what is ridiculously priced today.
Speaker 1: I think the only place that there's a bubble, in
Speaker 1: my opinion is fixed income. I think in any kind
Speaker 1: of longer term context, the Fed funds rate doesn't belong
Speaker 1: at zero and higher. Yeah, I would say so. I
Speaker 1: mean I think that uh, if interest rates deserve to
Speaker 1: belong where they are, the stock market is not going
Speaker 1: to go up because over time, whatever the market is,
Speaker 1: whether the United States, whether it's Europe, whether it's Japan,
Speaker 1: whether it's uh China, that you would think that the
Speaker 1: long term return in the stock market would be a
Speaker 1: function of the growth of the economy, the rate of
Speaker 1: change in corporate profits, the consumer price index, and what
Speaker 1: you can earn in alternative instruments, whether it be bonds
Speaker 1: or cash. So if you take a look at the
Speaker 1: United States and take thirteen and fourteen, take those three
Speaker 1: years and average them, the ray of growth and ECONI
Speaker 1: has been about two point three percent per annum, so
Speaker 1: we're way lower on rates. Well, well, let me go through.
Speaker 1: So two point three was the real GDP growth. Profits
Speaker 1: rose a little over six percent, the freight of inflation
Speaker 1: was about one eight percent. If you were conservative and
Speaker 1: sat on cash, earned zero for the three years, and
Speaker 1: the tenure government to current coupon was about two point
Speaker 1: to two point three. Notwithstanding those very modest numbers, the
Speaker 1: stock market returned over per annum for each of the
Speaker 1: three years thirteen and fourteen. I think that game is over.
Speaker 1: I think that the markets caught up. The markets about
Speaker 1: sixty and a half seventeen times earnings. I think very
Speaker 1: fully valued any kind of historical context. Uh, some would
Speaker 1: argue is maybe modestly overvalued rowth of the history, but
Speaker 1: if you look at fixed income, it's very overvalued. Roads
Speaker 1: the history. I always tell people. I don't want to
Speaker 1: sound like a statistician, but from nineteen hundred and sixty
Speaker 1: to the present, the multiple in the SMP five average
Speaker 1: to touch under fifteen when the rate of inflation range
Speaker 1: between one and three percent where it is now, the
Speaker 1: multiple was about sixteen point seven sixteen point eight where
Speaker 1: we are right now. We are now. However, that same
Speaker 1: fifty idea period when the multiple the market was fifteen,
Speaker 1: the tenure US government average six point six seven currently
Speaker 1: two point three, so you're a better third of the
Speaker 1: long term average, and T bills average a touch under
Speaker 1: five currently zero. Okay, so relative to fixed income, the
Speaker 1: market is very attractively priced. I think the only place
Speaker 1: I see a bubble is because of the extraordinarily accommodative
Speaker 1: monetary policies globally that interest rates are well below where
Speaker 1: you ought to be. And if interest rates belong where
Speaker 1: they are, that means growth in the economy, growth and
Speaker 1: profits are not what people expecting. So it's one of
Speaker 1: the other. Either we're in a very overextended bond market
Speaker 1: rally and and rates have to go higher, or stocks
Speaker 1: are very pricy. It's one or the other, and it
Speaker 1: sounds like you're betting that stocks are reasonably priced relative
Speaker 1: to all these other metrics versus bonds. I think the
Speaker 1: stock market already allows for some rise in rates, and
Speaker 1: I think the issue for the stock market deal with
Speaker 1: is a slope of the rise. I mean, I'm somewhat quizzical.
Speaker 1: A matter of fact, I just saw Gary Cohen as
Speaker 1: a very bright man in a comment that the market
Speaker 1: is not prepared for a FED rate rise, and I
Speaker 1: don't get it. I honestly don't get it. Everybody's talking
Speaker 1: about it almost every day, okay, And I'll give you
Speaker 1: the statistics. There's been eight rate cycles since the mid fifties,
Speaker 1: and on average from the first FED rate hike to
Speaker 1: the market peak was thirty months. It took thirty months
Speaker 1: on average the market the peak after the first FED
Speaker 1: rate hike, and the hour of the shortest period of
Speaker 1: time was ten months. And those rate rises, those eight
Speaker 1: periods in the mid fifties did not start from zero, okay.
Speaker 1: And on average, from the first FED rate hike to
Speaker 1: a year after the first FED rate hike, the market
Speaker 1: was hired by almost ten percent. And so you know,
Speaker 1: rising interest rates are indicative of improving economy, and so
Speaker 1: I think it's only when the rates get to a
Speaker 1: level that's competitive with returns and docks and the stock
Speaker 1: market start to decline. But you know, we have a
Speaker 1: central bank that's cheering on for more growth, more inflation,
Speaker 1: and they're gonna be as a comminative as they can be,
Speaker 1: and I think it's gonna be it's gonna require inflation
Speaker 1: over two percent for the FED to become more restrictive,
Speaker 1: and that would probably require wage growth of about three
Speaker 1: and a a half percent, which probably won't happen until probably
Speaker 1: late maybe. You know, we ran similar numbers that you
Speaker 1: just described in terms of how the market performs in
Speaker 1: a rising rate environment, and the one thing that was
Speaker 1: really clear was when you start from relatively high interest
Speaker 1: rates in a period of high inflation, that's the sort
Speaker 1: of rate rise that's not great for equities. But when
Speaker 1: you're starting from a very low level and what's lower
Speaker 1: than zero and inflation is modest, you tend to see
Speaker 1: smart stocks rise even as rates go higher. That would
Speaker 1: be my view. It's only you know, it's it's it's
Speaker 1: not a complex concept, but it's very very important point
Speaker 1: gonna make, and that is, over time, the only way
Speaker 1: bonds are just to higher interest rates and the decline
Speaker 1: in price to keep the coupon current. The way stocks
Speaker 1: and company to adjust to higher inflation is they take
Speaker 1: the inflation in their costs, incorporating their selling prices, so
Speaker 1: higher inflation lifts the nominal level of revenues and earnings.
Speaker 1: Is only when the FED or central bank is fighting
Speaker 1: to curb inflation that the market starts to decline because
Speaker 1: curbing inflation is tanamount to curbing growth, and investors pay
Speaker 1: a low multiple anticipation slow in growth. But we have
Speaker 1: a FED that's very concerned about you know, income disparity,
Speaker 1: social inequality, and wants to get more economic growth. And
Speaker 1: so I think it's would be quite some time before
Speaker 1: the FED takes the punch away from the punch bowl.
Speaker 1: Uh you know, I mean it wasn't original. I think
Speaker 1: it was George Schaeffer, some technician, uh fifty years ago
Speaker 1: coined the phrase three steps and stumble. It took three
Speaker 1: tightens by the FED for the market that to have
Speaker 1: a stumble, and we haven't had the first tightening yet.
Speaker 1: And it's fairly safe to say that we're not looking
Speaker 1: at any sort of real inflation and wage growth, even
Speaker 1: the most recent data, which has been improving, still fairly
Speaker 1: tapped in terms of wage improvement. I would say that
Speaker 1: the rate of inflation is stath of two percent, and uh,
Speaker 1: it will be a while before we get above that.
Speaker 1: So so let's talk about some of your favorite metrics.
Speaker 1: You mentioned where the pe ratio is. Tell us about
Speaker 1: other ways that you look to measure equities, whether it's
Speaker 1: dividend yield or I'm very eclectic, you know. As I
Speaker 1: said before, we've start out first trying to develop a
Speaker 1: view of the market. Once we done macro view, and
Speaker 1: then on the bottom up we try we understand the
Speaker 1: value proposition at the SMP five hundred, which is the
Speaker 1: broadest based, the most accepted index offers. So if you
Speaker 1: look at the SMP five hundreds and index of five
Speaker 1: companies growing on average five maybe six percent per adam
Speaker 1: that basically has a dividend yield of about two percent,
Speaker 1: that has a debt to capital ratio for around thirty
Speaker 1: five or thirty six percent, sells a little under three
Speaker 1: times this nominal book value. And four that statistics, you're
Speaker 1: paying about sixteen a half seventeen times earnings. So our
Speaker 1: game is very simple. We try to find more growth
Speaker 1: at a lower multiple, more underlying asset value than the
Speaker 1: market has at a lower evaluation, more income than the
Speaker 1: market offers that a more attractive valuation. And you know,
Speaker 1: the bond market is very homogeneous. You know, if you're
Speaker 1: talking looking at triple A bonds, double A bond, single
Speaker 1: A bonds, bonds of a similar quality moved with an
Speaker 1: eighth of a point of each other, it's very homogeneous.
Speaker 1: The stock market is heterogeneous. The SMP might be twenty
Speaker 1: one as we speak, but there are some stocks that
Speaker 1: might be already and some stocks that are seventeen hundred
Speaker 1: on the index, and we're trying to be long the
Speaker 1: seventeen hundred index type equivalence and be short of out.
Speaker 1: So when you say some stocks are two hundred, you
Speaker 1: mean they're very pricey, and the stocks are sere are
Speaker 1: trading at a discount relative to what we perceived to
Speaker 1: be the underlying asset value of the business. We've been
Speaker 1: speaking with Leon Cooperman, founder of Omega Advisers. If you
Speaker 1: enjoy this conversation, be sure and check out the rest
Speaker 1: of our discussion. You could see that on Apple, iTunes,
Speaker 1: Bloomberg dot com, and SoundCloud. Be sure and check out
Speaker 1: my daily column on Bloomberg View dot com or uh
Speaker 1: follow me on Twitter at Rid Halts. I'm Barry Ridhults.
Speaker 1: You've been listening to Masters in Business. I'm Bloomberg Radio.
Speaker 1: Welcome to the podcast portion of our show. I know
Speaker 1: I say this every week and you guys will make
Speaker 1: fun of me, but really I have a very special
Speaker 1: guest this week, someone who I've been actually chasing for
Speaker 1: quite a while. Lee Cooperman, a legend on Wall Street,
Speaker 1: ran Goldman Sachs Research department for twenty plus years practically,
Speaker 1: and then set up Goman Sacks Asset Management Division UM
Speaker 1: his hedge funds Omega Partner now manages about ten billion
Speaker 1: dollars just under Is that about right? Nine three nine
Speaker 1: point three long term returns in excess of about four
Speaker 1: fifty basis points over the SMP five over a long
Speaker 1: period of time. I really have so many questions for you.
Speaker 1: Let me start with some stuff that I we skipped
Speaker 1: through on the radio portion. So I get the sense
Speaker 1: from you that Colombia extremely formative to you as an investor.
Speaker 1: Columbia Business School, Yeah, Well, as I mentioned, I studied
Speaker 1: under Dr Roger Murray, who was a real practitioner of Mega.
Speaker 1: If you're familiar with the Tech Security Analysis by Graham
Speaker 1: and Dodd, which is the kind of bible in the classic,
Speaker 1: and there is a section there where there's like a
Speaker 1: ratio and now analysis where they had about the twenty
Speaker 1: different ratios over ten years to study a company's financial progress.
Speaker 1: I remember from my paper for Security Analysis as I
Speaker 1: did a study contrasting JP Stevens with Burlington Industries, and
Speaker 1: I had this ten year ratio history, twenty different ratios,
Speaker 1: and I had a transposition and one of maybe two
Speaker 1: statistics in the exhibit, and Dr Murray caught it and
Speaker 1: circled it and read, this is the kind of guy
Speaker 1: who was sharp understood the business. And you know his
Speaker 1: his love of his of his uh vocation rubbed off
Speaker 1: on me and you know it was a great business.
Speaker 1: You know where else I'm getting paid for enjoying what
Speaker 1: I do. I mean, it's my vocation, is my advocation,
Speaker 1: and historically it's been a means of supplementing my income
Speaker 1: because if you invest intelligently you could do very well.
Speaker 1: So I kind of I love the game. Um, I
Speaker 1: get an earlier, stay late, uh your your work ethic.
Speaker 1: Doug Casts we just got stuck. Earlier, Doug called you
Speaker 1: the James Brown of the investing business, the hardest working
Speaker 1: man in the industry. Maybe it's because I have an
Speaker 1: average right que, so I got to work card that
Speaker 1: somebody else is smart. That's nothing, you know. I get
Speaker 1: in around six thirty sixty five in the morning, and
Speaker 1: I tend to be an information hog. So I go
Speaker 1: out pretty much every night of the week with other
Speaker 1: money managers or companies to try and basically develop insights
Speaker 1: into my investments. Uh. And I always trying to learn
Speaker 1: from people that are probably smarter than me or equally
Speaker 1: adept at what they do, and we exchange ideas. But
Speaker 1: I'm totally committed. I believe in the concept of total commitment.
Speaker 1: I believe my investors are owed my total commitment and fidelity.
Speaker 1: And uh, I'm never striving to be number one, but
Speaker 1: I want to deliver a competitive return to my investors.
Speaker 1: I do not want to get rich under performing. So
Speaker 1: when I started my business, UH twenty four years ago,
Speaker 1: I had an exhibit which is still my exhibit today
Speaker 1: in my pitch book, and it says I tell people
Speaker 1: when when I meet in a perspective investor, they say, well,
Speaker 1: if I invest with you, what am I gonna earn?
Speaker 1: I would always say the same thing. I don't know
Speaker 1: what you're gonna earn, but let me tell you what
Speaker 1: will make me happy. Because what makes me happy doesn't
Speaker 1: make you happy. I'd rather not invest with me because
Speaker 1: that's the basis of a flawed relationship. So my objectives
Speaker 1: are Number one, no down years, and I've had four
Speaker 1: down years in twenty four. Always came roaring back. But
Speaker 1: I've had down years. Uh, that doesn't mean you change
Speaker 1: your objectives. That's still my objective, not to have a
Speaker 1: down year. Number two, I want to beat the SMP
Speaker 1: five net of my fees. I don't want to make
Speaker 1: a lot of money under performing some mindless ben benchmark.
Speaker 1: Number Three, I don't run a leverage portfolio, so I'd say,
Speaker 1: you know, ten to twelve percent net returned to the
Speaker 1: investor would make me happy. We've done fourteen percent net,
Speaker 1: so I'm fine there. And fourth, I like to have
Speaker 1: less volatility than the market. So I like to app
Speaker 1: perform the market while being less voltile of the market.
Speaker 1: And if you buy into that value proposition, come invest
Speaker 1: with me, and I can assure you that we have
Speaker 1: a total alignment of interest. So you know, we met
Speaker 1: nine point three billion of that is general partner capital,
Speaker 1: So you know we So you're a big investor in
Speaker 1: your own my firm. You you you eat your own cooking,
Speaker 1: eat my own cooking, and the team meets their own cooking.
Speaker 1: We have a forty nine of us in the firm,
Speaker 1: twenty five general partners. They all have money in the
Speaker 1: farm UH as investors. And what I'd like to say
Speaker 1: is we prosper the most when we get it right,
Speaker 1: and we get hurt the most when we get it wrong.
Speaker 1: And we're not in an asset capturing mission. We're in
Speaker 1: a mission of trying to generate capital games and have
Speaker 1: a total alignment of interest. You mentioned your down years,
Speaker 1: and you mentioned something and when I was so, we
Speaker 1: do a lot of research before I sit down with
Speaker 1: a Lee Cooperman and and one of the things I
Speaker 1: read was really quite astonishing. So one of your down
Speaker 1: years was oh eight, you were still less volatile than
Speaker 1: the market the SMP. The SMP was down thirty eight percent.
Speaker 1: You have down thirty But what I wanted to ask
Speaker 1: you about in oh eight and o nine, every hedge
Speaker 1: fund I read about was gating their funds meeting. They
Speaker 1: have an an option to not let their investors withdraw money,
Speaker 1: and you refuse to do that. You said, we're on gated.
Speaker 1: If you're not happy and you want to take your money,
Speaker 1: it's your money. Take it. Yeah, I have Uh. I
Speaker 1: think it was in New York Times and a little
Speaker 1: story about that time. That's where I found that that
Speaker 1: they had a picture of me and under the pictures
Speaker 1: said they'd have to load me into my grave before
Speaker 1: I get a capital who did not honor a high
Speaker 1: water market. There were two aspects of oh eight, I'm
Speaker 1: sure your your listeners understand. But one of the negatives
Speaker 1: of the hedge fund, and it's fair by the way, uh,
Speaker 1: compensation schemes is a so called high water mark, you know,
Speaker 1: where you get paid for appreciation and lose money. You've
Speaker 1: got to make back the lossit before you get paid again.
Speaker 1: Another word, just started a hundred bucks and you're getting
Speaker 1: two and twenty, it drops down to eighty. The performance
Speaker 1: feed doesn't show up again until you're over that hundred
Speaker 1: again exactly, and a lot of money. Match is elected
Speaker 1: to close up and oh wait, because they got way
Speaker 1: below their high water and they could not make an
Speaker 1: incentive fee, and I kind of feel that's morally wrong
Speaker 1: because it's one thing if it investors. Look, I'm scared
Speaker 1: about the environment, and I want my where where I
Speaker 1: I'm scared about you the money matag, I want my
Speaker 1: money back there. To stay of money, they should get
Speaker 1: it back, okay, But to voluntarily give somebody back the money.
Speaker 1: And so I'm closing up and retiring because i can't
Speaker 1: make money is wrong because the high watermark is an
Speaker 1: asset of the investor, and you should not deprive that
Speaker 1: investor of the asset as long as he or she
Speaker 1: is willing to continue to take the risk. And so, uh,
Speaker 1: closing up and giving back money I think was wrong.
Speaker 1: And the other thing that and then, by the way,
Speaker 1: relaunching under a different name, there's some huge some of
Speaker 1: that happened. When you started. There were you know, I'm
Speaker 1: gonna quote Jim Channos back when you know, we look
Speaker 1: at how many hedge funds are not generating alpha, and
Speaker 1: Jim Chanos said said, well, when he launched, there were
Speaker 1: a hundred or so hedge funds and they were all
Speaker 1: really profitable. Now there's ten thousand hedge funds and it's
Speaker 1: the same hundred that are generating most of the YA.
Speaker 1: I can't generalize, UH, but you know, I've used this
Speaker 1: as a hand out. I think a very very distinct
Speaker 1: whish the person for for good reason. Carol Loomis, who
Speaker 1: has been advising Warren Buffett on the writing of his
Speaker 1: annuary portfet know fifty years I think nineteen seventy one,
Speaker 1: wrote a very negative article about hedge funds UH, focusing
Speaker 1: on the performance from nineteen sixty eight to nineteen seventy
Speaker 1: where all the hedge funds got murdered, with the exception
Speaker 1: of Stein, Hunt, find and Burke, which which was up
Speaker 1: five percent in that period. And she kind of rang
Speaker 1: the death knell for hedge funds. UH. And if you
Speaker 1: go back and look as as distinguished and smart as
Speaker 1: she is, and she is distinguished, you're smart. Couldn't been
Speaker 1: more wrong. The largest hedge funds in nineteen sixty eight
Speaker 1: was a W. Jones at two hundred million, okay, And
Speaker 1: the whole industry might have been a billion dollars if
Speaker 1: you're lucky. And today I don't know, the hedges over
Speaker 1: three trillions, three trillion dollars. And you said ten thou
Speaker 1: hedge funds. Bridgewater has a hundred almost a hundred fifty
Speaker 1: billion a q u R as a hundred plus. It's
Speaker 1: all about performance. If you could deliver the performance, you'll
Speaker 1: have a business. And so what happened in two thousand
Speaker 1: and eight is uh, the stabilitating year of the five
Speaker 1: years before two thousand eight, Let's say two thousand and
Speaker 1: two to two thousand and seven, hedge funds were out
Speaker 1: performing conventional money managers, and they attracted a lot of money, okay,
Speaker 1: And what happened two thousand eight is people got scared.
Speaker 1: I didn't realize you could lose money by being in
Speaker 1: a hedge fund. The fact that the average hedge fund
Speaker 1: was only down six less than half d SMP didn't
Speaker 1: impress People say, I didn't realize you could lose money,
Speaker 1: so they asked for their money back, and the hedge
Speaker 1: fund industry shot themselves in the foot by gating capital.
Speaker 1: There's nothing no better way to get money from an
Speaker 1: individual by telling me you closed, you know, like made
Speaker 1: off with time. People we want that which we can't have, Okay,
Speaker 1: exactly that well phrased, and uh, there's no better way
Speaker 1: of scaring people than telling you can't have your money back.
Speaker 1: So even though the hedgefund industry performed their role by
Speaker 1: being down less than half of the industry by gating capital.
Speaker 1: They're scared everybody, But we didn't get We had about
Speaker 1: six seven million dollars of redemptions. Every dollar was met
Speaker 1: for cash, no gating, no in kind, and life went
Speaker 1: on and we worked very hard to recover our high
Speaker 1: water mark, which we did. You know, two thousand nine,
Speaker 1: you were up about doubled the market performance. So well,
Speaker 1: that's been a tendency where we underperformed. The history has
Speaker 1: been that we generally significantly outperform coming out uh we uh,
Speaker 1: you know, we were up a week before Lehman Brothers
Speaker 1: hit in two thousand and eight. We were up on
Speaker 1: the ear We totally really because the market was down
Speaker 1: about I want to say about twenty something. I think
Speaker 1: was less than that before Lehman hit before made less
Speaker 1: than that. But but I recall that point in two
Speaker 1: thousand and eight was a negative year off to look
Speaker 1: up to very I think much more modestly. I'd helped
Speaker 1: take it up modestly, and we totally misgauged the effect
Speaker 1: of Lehman's and ovously in the market, and the fact
Speaker 1: that there were a lot of people along with us,
Speaker 1: including the government, is irrelevant. My investors looked to me
Speaker 1: to protect their capital and with my responsibility is my era. Okay,
Speaker 1: The only good thing I can say is we stuck
Speaker 1: with the guns. We came back fifty and oh nine
Speaker 1: flat and eleven thirty four in twelve and thirty eight
Speaker 1: and thirteen and this year. Uh. Last year we had
Speaker 1: a bad year, my worst year relative to the market.
Speaker 1: We were flatish and the Y S and P was up.
Speaker 1: But this year we're about two and a half times. Yes,
Speaker 1: and people have about seven eight percent. But it's tough.
Speaker 1: Game has gotten tougher and a lot of competition, a
Speaker 1: lot of competition. But you're you even still with this competition,
Speaker 1: you've managed to put up some those are all star numbers.
Speaker 1: Even with a flat year or or an underperforming year.
Speaker 1: That that's a heck of a run. That's seven year.
Speaker 1: Well said enough. You know, we've been blessed by a
Speaker 1: trended bull market. Now of course the UH and on
Speaker 1: the right side of it, yeah, we we've had a
Speaker 1: positive view. We try to add value to portfolios in
Speaker 1: five ways, and the first as I mentioned before is
Speaker 1: stocks are high risk financial assets. Short term bonds and
Speaker 1: cash lowrist financial assets. And we spent a great deal
Speaker 1: of time trying to study the market. I have a
Speaker 1: terrific partner, vice chairman, Steve en Horne. He worked I
Speaker 1: actually one of my better heart my best hire in
Speaker 1: my career. I hired him at a podential insurance. He
Speaker 1: worked directly under me for twelve years a goldman. I
Speaker 1: retired from Goldley. He retired from Goldley in ninety eight,
Speaker 1: not with the intent of joining me. He wasn't sure
Speaker 1: what he was gonna do. And I read about his retirement.
Speaker 1: I called him up and we had dinner, and I
Speaker 1: got him to rejoin me as vice chairman. And he
Speaker 1: spends the bulk of his time on the macro big picture.
Speaker 1: Does a wonderful job for the firm. And we have
Speaker 1: a whole policy group that meets every Monday to discuss
Speaker 1: the global economy and FED and so let's talk about that,
Speaker 1: because I'm fascinated by your process. What are those Monday
Speaker 1: morning meetings like, well, you know, we get we get
Speaker 1: together at eight fifteen the morning. Our head of macro
Speaker 1: trading is on the many. Actually we have two people
Speaker 1: in macro trading on the committee and they're studying China, Japan,
Speaker 1: currency fixed income. We have a consulting economists that participates
Speaker 1: in the meeting, Steve and I and our two co
Speaker 1: directors of research and we we we it's like kind
Speaker 1: of putting together a heuristic model about the world. You
Speaker 1: know what looks miss priced, you know what looks overvalued?
Speaker 1: When is the FED gonna move? What is the FED
Speaker 1: move gonna be? Uh? What is it gonna what's the
Speaker 1: impact on the market. You would you rather be in, uh,
Speaker 1: Japan or Europe or United States? What's the return profile
Speaker 1: on each of these markets? Where do you see FED
Speaker 1: funds at the end of t s And we're trying
Speaker 1: to find, you know, where the intelligent bed is. So
Speaker 1: we're doing well this year in part because we have
Speaker 1: money in Japan, we have money in Europe. Were short
Speaker 1: to short endo the yell curve UH, and we've been
Speaker 1: short UH the yen and been short the euro. Was
Speaker 1: about to ask you are you long Japan shortly end
Speaker 1: and and how do you affect that trade? Well? In
Speaker 1: the in the cash market, we don't need to borrow money.
Speaker 1: We have plenty of UH. You know capital and we
Speaker 1: basically are we don't do a lot of individual stocks
Speaker 1: in Japan, so they're not to my liking in all
Speaker 1: honesty with long the topics and Nikki as opposed individual
Speaker 1: stocks because we don't have a lot of stock expertise,
Speaker 1: but we've had a strong macro view Japan. Don't have
Speaker 1: a lot of Japanese stock expertise, no, but we have
Speaker 1: a view of the Japanese market, so we've may expressed
Speaker 1: that bet through the indices um and we kind of
Speaker 1: you know, you have qui infinity. There many globally competitive
Speaker 1: companies sellaying a very reasonable valuations with the multiples in
Speaker 1: Japan are quite low relative to their intrat strate structure.
Speaker 1: And we believe Europe is several years behind the United
Speaker 1: States in terms of the economic recovery right now. Has
Speaker 1: been buffeted by what's going on in Greece, but general
Speaker 1: belief is there will be an agreement with Grease and
Speaker 1: not gonna exit, and if they did exit, other than
Speaker 1: a short term adjustment. The reality is Greece is two
Speaker 1: tents of one percent of global gdp UM and it
Speaker 1: would not be as significant as the market seems to
Speaker 1: make it make it out, and I think that they'll
Speaker 1: stay in the because Germany will basically compromise. You mentioned
Speaker 1: Steinhardt earlier, Um, I believe his farm. He's an adviser
Speaker 1: to wisdom Tree. Is that right? Yeah, that's a personal
Speaker 1: investment he made. I don't know that much about it,
Speaker 1: but they're big product over the past few years has
Speaker 1: been there hedged Yen Long Japan product which has just
Speaker 1: blown up. It's become a huge made a great investment
Speaker 1: Wisdom Tree. Jonathan Steinberg has done a great job. I
Speaker 1: didn't have the pleasure of knowing him. I knew his dad,
Speaker 1: but basically Michael had the opportunity to back him, and
Speaker 1: Michael made a great investment decision. I think Michael has
Speaker 1: done extremely well in that investment. I don't know, I
Speaker 1: don't know the details, but I think he's made a
Speaker 1: lot of money. So let's keep working our way through
Speaker 1: some of the questions. Uh I missed you mentioned Mario
Speaker 1: Gibelli was with you at Columbia. Who else was in
Speaker 1: your class of Columbia? Two guys that made remain clost
Speaker 1: most closely in touch with were classmates. Is Art Sandberg
Speaker 1: and what's he doing? That is he's doing a venture
Speaker 1: capital in a major way. And he's pleased to report
Speaker 1: he's extremely happy, doing very well, very successful financially, very scable,
Speaker 1: just a very high quality human being. UH. And then
Speaker 1: Mario and I have made remained closely in touch for
Speaker 1: fifty years. UH. I have great admiration for Mario. I
Speaker 1: like people that deal well with this success, that remember
Speaker 1: where they came from, UH, and are prepared to give
Speaker 1: back the society and the nice thing I like to say,
Speaker 1: and I've said this so often about Mario. The only
Speaker 1: thing that's changed with Mario, other than a lot of
Speaker 1: digits after his net worth, is the color of his hair.
Speaker 1: When I knew Marrio, he was a redhead. Now he's
Speaker 1: got a full head of gray hair. He weighs less,
Speaker 1: I think today than he weighed when he went to
Speaker 1: Columbia business schools, which I would say I'd love to
Speaker 1: be able to say. I can't say. I'm a bit heavier.
Speaker 1: But he's a He's a great person, great human being,
Speaker 1: and a terrific investor and has built a fabulous business.
Speaker 1: I think they manage it with fifty billion dollars, a
Speaker 1: very successful public company and very generous and UH. He
Speaker 1: and I get together. I say at least a half
Speaker 1: a dozen times a year. In fact, I invited him.
Speaker 1: He's not Jewish, as you can hell from the name
Speaker 1: I took. I took him on a u j A
Speaker 1: mission to Cuba at eighteen months ago with his lovely wife,
Speaker 1: Regina uh And then he and I and wives went
Speaker 1: on about ten day around the world trip. On one
Speaker 1: of these was sponsored by Columbia where they tartted a
Speaker 1: plane for seven year eighty people and they have a
Speaker 1: few lecturers and a doctor that goes along with you
Speaker 1: and plane lands. The next thing you see, your luggage
Speaker 1: is in your hotel room, and you put your luggage
Speaker 1: at your your hotel room door and it's gone and
Speaker 1: so very nice too. We went to Turkey, Egypt, uh Ti,
Speaker 1: porn Agria, India, the Los city of Petro, and Jordan's
Speaker 1: and uh Monica, Morocco, and it was very interesting and
Speaker 1: we spent that time together. Now he's a global investor.
Speaker 1: He's all over the world on a fairly regular basis.
Speaker 1: Big transformation for him because he used to say it
Speaker 1: was strictly United States only, but now he's a big
Speaker 1: emerging market. Guys, but you were are famous for not
Speaker 1: really liking to take a vacation. Well, uh, let me
Speaker 1: say this that you said, or let me we phrase
Speaker 1: that the best part about going on vacation is coming home.
Speaker 1: That I would absolutely acknowledge. And the vacation I just
Speaker 1: referenced with Mario. The best part of vacation was as follows.
Speaker 1: I'm standing in the value of the kings and lux
Speaker 1: for Egypt looking at that many many, many, many thousand
Speaker 1: year olds fink statue. My cell phone goes off at
Speaker 1: one o'clock in the afternoon and it's seven am New
Speaker 1: York time. It's my trained desk calling to tell me
Speaker 1: that largest position Atlas Energy just agreed to be taken
Speaker 1: over above the last sales by a chevron. And I
Speaker 1: would say that was the highlight of the trip, not
Speaker 1: take anything along. So it wasn't the sphinx. It was
Speaker 1: a takeover, and the takeover happened to be a largest position.
Speaker 1: Um so uh yeah, I'm I kind of in touch
Speaker 1: with the office all the time. And uh but you know,
Speaker 1: let me say this, and I give my wife a
Speaker 1: great credit. I have two wonderful kids, have three great grandchildren,
Speaker 1: I have a terrific marriage, and I don't think I
Speaker 1: would be successful if I didn't have a successful marriage,
Speaker 1: if I didn't have terrific kids. And I've had a
Speaker 1: very balanced life, and I've always had that wisdom to
Speaker 1: know when they go home and cut short that business
Speaker 1: trip or not go away to balance. And yes, there
Speaker 1: was a perfect example. I was supposed to go to
Speaker 1: a business dinner and I sent, you know, for the
Speaker 1: last two weeks, I've been that every night other week
Speaker 1: at the time to co up to missus and say,
Speaker 1: I'll meet you at Touro's for a pizza for dinner
Speaker 1: if you're free. And that was the right thing to
Speaker 1: do down near Canal Street. You know. That was Toros
Speaker 1: in the Maplewood, New Jersey. Okay, so you're just a
Speaker 1: regular pizza I am. I am. I'm a regular guy.
Speaker 1: I have not learned how to live rich. So let's
Speaker 1: let's go back to that the plumbers wrenches. That is
Speaker 1: that a myth? Or is that true? No? Well, I
Speaker 1: guess an analogy. I would say that when I started Omega,
Speaker 1: I hung personally every picture in our office. And I
Speaker 1: don't ask anybody do anything that I'm not pre paid
Speaker 1: to do myself. I take great pride of ownership. I
Speaker 1: like to make sure the office looks proper. And you know,
Speaker 1: I just ask people to basically be committed to the
Speaker 1: client's interests uh and basically know what you're doing and
Speaker 1: work hard and be knowledgeable. And I tried to set
Speaker 1: an example, like I said a moment ago, I don't
Speaker 1: ask people to do what I'm not pre paid to
Speaker 1: do myself. So so, and this goes back to Doug said,
Speaker 1: so he shared some insights with me about you, because
Speaker 1: so for those people don't know, Doug cast runs Sea
Speaker 1: Breeze Partners and and his very articulate and writes a
Speaker 1: lot and and Doug said, Lee never wanted to forget
Speaker 1: his roots that he comes from. Um a dad who's
Speaker 1: a plumber. And he used to walking around in his
Speaker 1: briefcase with this heavy giant plumbers wrench. And I didn't
Speaker 1: know if he was pulling my leg. I think he was.
Speaker 1: I mean, I don't recall mean I car enough waight
Speaker 1: around as it is principally saying he's right, But I
Speaker 1: never carried around the plumbers ranch. And I've used the
Speaker 1: plumbers wrench. I've cleaned that, I've cleaned out stoppages and
Speaker 1: used a wire. Wait, so you're cleaning toilets and omega,
Speaker 1: is that what you're telling me? No? But now what
Speaker 1: I do is I put a sign on the wall,
Speaker 1: please shut the light off when you finished. You know,
Speaker 1: you would rather give them money away than just waste
Speaker 1: it frivolously. Yeah, that's the motivation behind this. I think
Speaker 1: there was something I made note of. Um and uh,
Speaker 1: go ahead, correctly. And I really don't associate this with
Speaker 1: the person who said it, Okay, but it is the
Speaker 1: meaning of life is to find your gift. The purpose
Speaker 1: of life is to give it away. That's that's an
Speaker 1: interesting I'm saying that. Pablo Picasso. Actually it was a
Speaker 1: bit of a womanizer. But basically, uh, you know, I
Speaker 1: having taken the giving pledge and having taken care of
Speaker 1: my kids and all. And I'm not complaining, not bragging,
Speaker 1: because the people I know have a similar oriolation. But
Speaker 1: you know, I'm working for charity. Okay, so you look
Speaker 1: at all the money you raise at this point is
Speaker 1: going to go to a higher purpose. That's the fact
Speaker 1: that like, and I would just like to make sure
Speaker 1: it's properly utilized. You know, I've worked too hard for
Speaker 1: this money. I want to make sure that it accomplishes
Speaker 1: some end to it. So so let's talk about that
Speaker 1: a little bit, because that's a question that I see
Speaker 1: all the time. How can one make sure that the
Speaker 1: philanthropical gifts that are made are actually you're lying up
Speaker 1: on other people? Look, there's no greater example that and
Speaker 1: the Warren Buffett, very very very complex individual, and he
Speaker 1: basically says that I am the warm buffet investing. I'm
Speaker 1: not the warm buffet of charitable giving. And when the
Speaker 1: time comes to get away my money and I will
Speaker 1: give it away. I want the warm buffet of childboll
Speaker 1: giving giving it away. I think he went to Billy
Speaker 1: Wollnda Gates. He said, look, you're a lot younger than me.
Speaker 1: I trust you. I really get my jollies by making it.
Speaker 1: Not because I'm greedy, because I like to make investment decisions.
Speaker 1: I don't much care about charitable activities. So if you
Speaker 1: leave Microsoft and spend full time on chardable giving, I'll
Speaker 1: take my sixties seventy billion dollars and put into the
Speaker 1: Bill of Milinda Gates Foundation. I mean what you and
Speaker 1: Bean does that? You know that was an amazing gift,
Speaker 1: he says, I trust Bill millind the gates and that's
Speaker 1: not my forte. My forte is investing, not charitable giving.
Speaker 1: And so, in a sense to answer your question, I
Speaker 1: tried to make a judgment, just like I try to
Speaker 1: make a judgment to invest in the right company with
Speaker 1: the right management, that they have the right motivations and
Speaker 1: they have the smarts and the skill set in the
Speaker 1: common sense to do a good job. I'm trying to
Speaker 1: support those organizations that I think have a common interest
Speaker 1: of common gold with a person I'm investing that responsibility
Speaker 1: and has the same passion about it then in their
Speaker 1: organization and I have in my business. So Jennifer Rabb,
Speaker 1: president of Hunter College, worked me out with pretty good
Speaker 1: and then went up giving twenty five million dollars to Hunter.
Speaker 1: Uh My mom went the Glenn uh Hubbard of Columbia
Speaker 1: Business School has worked me over nicely, and I've given
Speaker 1: him thirty three million dollars. And you've also, in doubt,
Speaker 1: you've done more than just that. You've in doubt chairs
Speaker 1: you've given scholarships to them. You have a very extensive
Speaker 1: relations Clumbia. They're not shy and asking. I told cool
Speaker 1: that I totally administration of Columbia that they order to
Speaker 1: basically give a few leaps out of their book to
Speaker 1: the u J. A u J is notorious, Columbia is
Speaker 1: maybe even better. Really that that's fascinating to hear. So,
Speaker 1: so you mentioned a little bit about you invest in
Speaker 1: gate philanthropy, the way you investigate stocks. Let's talk about
Speaker 1: that a bit. What what is your process? How do
Speaker 1: you identify and evaluate a given stock prior to making
Speaker 1: We have a team, you know, and I am just
Speaker 1: one member of the team, but I generally would say
Speaker 1: that we have seventeen analysts. It's their job to mind
Speaker 1: the areas of expertise that they focus on and to
Speaker 1: capture profits out of the market. So the analyst job
Speaker 1: is to propose. And we have a stock selection committe
Speaker 1: OMEGA that disposes, propose and disposed so the analysts, so
Speaker 1: that bubbles up and then this committee and his report
Speaker 1: proposes the idea of the stock selection committee which consists
Speaker 1: of co directors of research Steve Ienho and Vice Himan
Speaker 1: the firm, myself and a couple of the senior macro people,
Speaker 1: and we vet the idea and every report is required
Speaker 1: to have price objective in the recommendation of downside risk
Speaker 1: um and if we buy the stock, it's simplicitly we've
Speaker 1: accepted the return and risk profile. After stock declines to
Speaker 1: the risk point or below, the analyst becomes a secondary
Speaker 1: input into the decision making going forward, and it's taken
Speaker 1: over by what we call the cesspool committee, you know,
Speaker 1: with a cesspool where that's all the junkos and so
Speaker 1: I chair the sesspool committee, and we'll bring in people
Speaker 1: from the outside to help us vet the idea. UH,
Speaker 1: and we can decide either to double down meeting average
Speaker 1: down in the position. Do you do that? Often? Does
Speaker 1: that happen for it? It varies. At times we sell,
Speaker 1: at times we just sit patent. At times we basically
Speaker 1: double down. And it really depends upon the characteristic of
Speaker 1: the company, the diving in the yield, the asset value
Speaker 1: of the multiple, what the overall market is doing. You know,
Speaker 1: a rising tide, lifts of ships that we've seen tide
Speaker 1: loads of ships, as I said before, And sometimes stock
Speaker 1: is down because of the market and you want to
Speaker 1: separate out the noise and um. So we we have,
Speaker 1: like I said, invest in policy committee that sets policy
Speaker 1: for the farm. We have a stock selection committee, that
Speaker 1: responds to the analysts. And then, of course a certain
Speaker 1: amount of the activity is top down, where I would
Speaker 1: or Steve iron Horn or other people on the policy
Speaker 1: coming would have an idea about a sector and we
Speaker 1: would go to the analysts and asked them to look
Speaker 1: at a particular area. So now let's talk about a
Speaker 1: stock that's working out. It's it's one decision when you're
Speaker 1: buying something at X, and now it's down ten or
Speaker 1: and very different. It's very difficult if you're a value investor.
Speaker 1: If you like something at ten, you should like it
Speaker 1: more to nine or eight. But there are those times
Speaker 1: where something is tangibly changed and the circumstances have changed,
Speaker 1: and you've got to make a different decision. So the
Speaker 1: way I'd like to answer the question is we sell.
Speaker 1: You know, a typical question from a consultant that comes
Speaker 1: in your shop, what is your cell discipline? Okay? And
Speaker 1: I say we sell the stock for one or four reasons.
Speaker 1: The first and the highest quality reason is we board
Speaker 1: a stock at X. We thought it was worth X
Speaker 1: plus thirty or forty, it goes up thirty percent, nothing
Speaker 1: has changed, we sell, So even even once it hits
Speaker 1: your price, objective even if there's no change in circumstances.
Speaker 1: If there is no change of circumstances. So give you
Speaker 1: a perfect example. I bought twenty five million shares of
Speaker 1: Bosting Scientific in between five and six dollars a share.
Speaker 1: We thought it was worth twelve or thirteen. It got there.
Speaker 1: We didn't see circumstances that change. We saw unfortunates a mistake.
Speaker 1: But I think it's about eighteen and nineteen now, okay.
Speaker 1: But so the first reason, just generically is it is
Speaker 1: always a full sale or is it ever well, let's
Speaker 1: sell half of varias. It very again depending on the company,
Speaker 1: depending upon the characteristics. And look, I believe in looking
Speaker 1: at charts. You know you do, Bob, absolutely is what
Speaker 1: are the ingredients? Because I think the stock markets are
Speaker 1: highly quality leading indicator. And you know, often times when
Speaker 1: it comes in kind of that with bed earnings of
Speaker 1: stock was down we before the earnings, and they come
Speaker 1: away with blow where your earnings of stock is up
Speaker 1: before that, and the market has a way of knowing
Speaker 1: there's some secretary typing of breast release for some CEO
Speaker 1: who's got a cousin or got a wife, who's got
Speaker 1: a relative or whatever. So there's a discounting mechanisms out. Yeah, exactly.
Speaker 1: So you're not we would never consider you a techno
Speaker 1: analyst or chartist. You're not making buying cell decisions based
Speaker 1: on because Doug said. Doug cass said, asked Lee if
Speaker 1: he's believes in voodoo. No, we are deep dive fundamental investors.
Speaker 1: We work hard to developer information. But I'll look at
Speaker 1: a chart because the confirmation of what you think and
Speaker 1: raised the question when the truck's going the wrong way?
Speaker 1: You know, because again, the stock market is a leading indicator,
Speaker 1: and so stocks tend to give you some indication of
Speaker 1: what's going on. So the first reason we sell the stock,
Speaker 1: which the highest quality. Reason we bought something that X,
Speaker 1: we thought it was worth something more than X. It it
Speaker 1: it appreciates nothing has changed. We sell. Second reason we
Speaker 1: sell something is I tell my guys, stay in gals,
Speaker 1: stay on top of your companies. Not everything unfolds the
Speaker 1: way you anticipated. So talk to suppliers, talk to competitors,
Speaker 1: talk to companies. You know, foul what's going on the economy,
Speaker 1: and if you get to sense things are unfolding differently
Speaker 1: than you anticipated. Let's out before we get murdered. This
Speaker 1: it's hard to make up two kind of environment. The
Speaker 1: third reason we sell as we are not the Federal
Speaker 1: Reserve Board. We cannot print money. So sometimes you develop
Speaker 1: a new idea that has a much better ratio of
Speaker 1: reward to risk than something you currently own. So we'll
Speaker 1: rotate out of something that has got more modest attraction
Speaker 1: to something that we think has greater attraction. And the
Speaker 1: fourth reason we sell is we change our view of
Speaker 1: the market. Okay, and you know you could deal with
Speaker 1: futures or options for a while. But the end of
Speaker 1: the day, if you go off bullish to bearish and
Speaker 1: you want to take your exposure from ninety your arm
Speaker 1: present down a fifty or sixty percent, you gotta sell inventory.
Speaker 1: And so you sell a stock because you want to
Speaker 1: get out of harm's way. And we did a poor
Speaker 1: job in two thousand and eight because we missed a
Speaker 1: significance of Lehman. But by a law, those are the
Speaker 1: four reasons we sell. Price appreciation hit our target, we
Speaker 1: get out. The second is things are not unfolding. Is
Speaker 1: we anticipated it out before you get murdered. The third
Speaker 1: reason we sell as we found a new idea better
Speaker 1: than the one that we have in the fourth reasons
Speaker 1: we've changed our view with the market. We want to
Speaker 1: reduce exposure. That's quite fascinating. Do you generally you mentioned
Speaker 1: a little bit of hedging. Do you generally hedge? Because
Speaker 1: from what I've been looking at, you're pretty much. I
Speaker 1: would say we tend to be long oriented, more long
Speaker 1: and the typical hedge fund, which has served as well
Speaker 1: the last five or six years. UM. I would say
Speaker 1: that our short positions range from five to fiftent to
Speaker 1: the fund. We do not run a big gross book
Speaker 1: and a small netbook. I found it very difficult because
Speaker 1: we tend to want to know our companies, so we
Speaker 1: have about ninety positions at any point in time. We
Speaker 1: have seventeen analysts that divide seventeen. I'm asking my colleagues
Speaker 1: and the five or six companies better than somebody else,
Speaker 1: which means we had that luxury of knowing our companies
Speaker 1: really well, which I want you know. Uh. Wall Street
Speaker 1: has changed from the time I was on Wall Street today.
Speaker 1: Wall Street has become a distribution business. Okay, sure they
Speaker 1: would like you as their client to make money, but
Speaker 1: their primary objective is distributing securities and also the regulatory
Speaker 1: environment appropriately has created a level of playing field, and
Speaker 1: they'll give you the information when they give it to
Speaker 1: everybody else at the same time. So we really want
Speaker 1: to do our own research. And Wall Streets large become
Speaker 1: an access and underwriting business. They'll have conferences and seminars
Speaker 1: and managing meetings and they'll provide access. Luckily, we're large
Speaker 1: enough to get access in our own but we do
Speaker 1: go to all these conferences and that's what wall Ster
Speaker 1: is helpful. And then they underwrite securities and if there's
Speaker 1: something we're interested in, we would hope to get a
Speaker 1: good allocation. We tend not to be flippers. We tend
Speaker 1: to be investors, uh, and so by having a good
Speaker 1: relationship with Wall Street, we tend to get good allocations
Speaker 1: where we're interested. We don't to slip deals for sake
Speaker 1: of flipping deals. So you mentioned your investors not flippers. Typically,
Speaker 1: how long do you not not even syndicate or I
Speaker 1: p o s? But something that your team finds that
Speaker 1: you're enthusiastic about, how long do you have not an
Speaker 1: asset base is taxable, so you know, we try to
Speaker 1: go a long term and we actually have a tax
Speaker 1: advantage fund where we represent we go a long term.
Speaker 1: But I would say seventy inventory is made for investment
Speaker 1: with the horizons of over a year, not quite the
Speaker 1: Warm Buffet horizon, which almost as permanent. But I respect
Speaker 1: and admire that. You know, most people who miss really
Speaker 1: Buffett's record and they criticize the under before this year
Speaker 1: or he's in line with you. Remember, all I heard
Speaker 1: was this Warren Buffett guy. He's done his best years
Speaker 1: of behind and this guy's a different You know, Warren
Speaker 1: Buffett's record is great pretax. It's better than great aff
Speaker 1: attacks because m yeah, you know, he's not looking to
Speaker 1: buy this year's hot stock, flip it out and by
Speaker 1: next year's hot stock. He's looking for after tax returns.
Speaker 1: And I forget the annual meeting, the annual report year
Speaker 1: maybe twenty five years ago, maybe even thirty. He showed
Speaker 1: an example if you had a great money manager that
Speaker 1: but this year's hot stock made fift and sold it,
Speaker 1: and what yester next year's hot stock made fifty and
Speaker 1: sold it. Where you found a great company that was
Speaker 1: a great investment, held it for twenty or thirty years
Speaker 1: and made fifteen percent a year, what did you have
Speaker 1: as attacks at the end of thirty years was thousands
Speaker 1: of times different. The flippers giving up a third of
Speaker 1: thet of his prophecy, which I could be a discipline
Speaker 1: and him. Unfortunately the business and client a man don't
Speaker 1: allow completely for that. But we're sympathetic to that. You know,
Speaker 1: we've seen the holding period shrink and shrink and shrink,
Speaker 1: but it sounds like you're still longer than many. I
Speaker 1: would say. You know, in two thousands, I remember my investors,
Speaker 1: many of my investors coming to me and said, Lee,
Speaker 1: you're doing very well. We're making a lot of money,
Speaker 1: but we really don't want to pay the taxes. Do
Speaker 1: you have anything tax advantaged? I said, Jesus, that's music
Speaker 1: to my years in the largest investment Omega. I'll tell
Speaker 1: you what you know. And I'm not just not a commercial.
Speaker 1: I'm not looking to investors. I said, if you give
Speaker 1: me a three year commitment period, Okay, we have three
Speaker 1: year commitment period, I'll give via one in fifteen conversation
Speaker 1: scheme and five percent hurdle rate. And uh, if something
Speaker 1: happens to you the investor in that three period, you're
Speaker 1: stay can get out immediately. If something happens to me,
Speaker 1: the money manage and you want to get out, you
Speaker 1: can get out immediately and represent for that package seventy
Speaker 1: five percent more of the games will be long term
Speaker 1: capital gains. I believe in memory and I think it's
Speaker 1: pretty accurate. We've beat in the SMP by thousand basis
Speaker 1: points and a hundred percent of the games a long
Speaker 1: term capital gains. And that's for people that are tax
Speaker 1: sens So let's go over that one in fifteen versus
Speaker 1: because we had allowed to be we raised it maybe
Speaker 1: five years later to one and half in twenty. Still
Speaker 1: have a five percent hurdle rate meaning what meaning the
Speaker 1: first five percent we don't get compensated on in terms
Speaker 1: of incentive. There's no doesn't count. Yeah, it's twenty above
Speaker 1: the five and I think we beat the SMP by
Speaker 1: a moment with a thousand basis points in that period
Speaker 1: well spent over a hundred percent of games with long
Speaker 1: term capital gains. The best way to understand the product
Speaker 1: is we buy a stock. Okay, we intend to hold
Speaker 1: it for a year. Sometimes you get a gain much
Speaker 1: more quickly. They appreciate to a sell point more quickly
Speaker 1: from regular fund. We don't represent tax efficiency will sell
Speaker 1: it for this fund. We we'll do is use options
Speaker 1: to age the position to go long term, so you
Speaker 1: put a collar on it, or you just marry it
Speaker 1: put to it, or well will put some basically increasing
Speaker 1: the long position, will sell calls against the position until
Speaker 1: we go long term, and you have to sell calls
Speaker 1: that are slightly out of money to avoid stopping the
Speaker 1: holding period. There's certain I risks require to make twelve
Speaker 1: full months. That's fascinating and that sounds like that's done
Speaker 1: really really well. It has is what percentage of your
Speaker 1: assets are are in the tax advantage? That one product
Speaker 1: is probably about eleven percent of our assets alright, and
Speaker 1: spargaining in the Western world away. It sounds like it's
Speaker 1: based on the performance plus the the admendation fee, that
Speaker 1: that hurdle is something that that's not very typical in
Speaker 1: a low return world. It's uh, it's a significant benefit
Speaker 1: to the investor. There was I think probably the markets
Speaker 1: adequately priced to day that I would be had. I
Speaker 1: would think the market if it gave you six to
Speaker 1: eight percent including dividends over the next five years, that
Speaker 1: would be a good return. And so the idea of
Speaker 1: not getting compensated for the first five percent is a
Speaker 1: pretty significant benefits sure to say. To say, at least
Speaker 1: you mentioned um Warren Buffett not too long ago you
Speaker 1: took a trip to their annual meeting. Yeah, I did,
Speaker 1: uh tell us about that. Well, I look, the guy is,
Speaker 1: he's the man, right, he's the guru. I didn't learn
Speaker 1: very much because if you study Buffet, you know one
Speaker 1: are the things I did this and that. We're going
Speaker 1: back thirty five years ago. I was the guy at
Speaker 1: Goldman Sachs that used to send them around Warren Buffet's
Speaker 1: annual Report to all my partners at Goldman Sacks and keep.
Speaker 1: But I and this guy, he's gonna be famous one day,
Speaker 1: good good call. This was well before Goldman had that
Speaker 1: special relationship where this is way before two thousand and
Speaker 1: eight where warn't invested directly in the firm. So I've
Speaker 1: always had a very high regard from my read as
Speaker 1: annual report cover to covered. If you read as annual
Speaker 1: report cover to cup, you don't have to go the
Speaker 1: annual meeting. But I went to the annual meeting because
Speaker 1: in part Columbia asked me to speak at a dinner
Speaker 1: the Friday night before the annual meeting at dinner. But
Speaker 1: you know the managed to be admired. There's no person
Speaker 1: alive and the invest in business has more quotable lines
Speaker 1: than Warren and his record is unbelievable and you have
Speaker 1: to admire respect the guy. Um, So you flew to
Speaker 1: a recent meeting with a rock star collection of people, Um,
Speaker 1: Doug Cast, Marty Cohen, Steve Roth, Harvey Eisen, Miles NDL.
Speaker 1: What was that was? Was that a recent trip or
Speaker 1: that was a connection with the annual report, the annual meeting?
Speaker 1: And what was that crew like to to go to
Speaker 1: bar show? Look Dougs catalytic, bright, thoughtful guy, Harvey Eisen, Uh,
Speaker 1: different character but also thoughtful. Steve Roth is a major
Speaker 1: accomplished guy. Rety that's a monster company each success. Uh.
Speaker 1: And these are all in you know, interesting individuals. Miles
Speaker 1: and del also is a self made guy h MC
Speaker 1: NBC partners and I've done extremely well over the years, um.
Speaker 1: And you know, each individual has their own strengths and weaknesses.
Speaker 1: And Uh, I like learning from people, listening to people
Speaker 1: and seeing how they respond to my questions and that
Speaker 1: makes life interesting to say the least. Um, So let
Speaker 1: me let me shift gears a little bit on you. Um,
Speaker 1: let's talk a little bit about books. One of the
Speaker 1: things Buffett and short conversation, because you're all you're reading
Speaker 1: so many a book every day, but reading a book
Speaker 1: of reports from my seventeen analysts. Um, you know, I
Speaker 1: wish I read more. I'm very proud of my oldest granddaughter.
Speaker 1: My god, she reads all the time. Fabulous writer. But
Speaker 1: book reading is not my major suit. You're drilling down
Speaker 1: into company reports and researching for Financial Times, the Wall
Speaker 1: Street Journal, in New York Times, research reports. You know
Speaker 1: right now, I'm reading books about prosecutorial abuse, and you know,
Speaker 1: having received the subpedia that I got to deal with
Speaker 1: and be mystified by what the government is thinking about.
Speaker 1: So do you talk about it? I was gonna say, well,
Speaker 1: I don't think we really can discuss that. I don't
Speaker 1: think your lawyers would be happy. Well, we told that
Speaker 1: investors is that there's nothing wrong. We've been done. We've
Speaker 1: responded to the subpoena and the government, and the government
Speaker 1: is analyzing the response and we're quite comfortable. When the
Speaker 1: analyze the response they'll see that nothing wrong was done.
Speaker 1: We do our homework. We worked very hard. We do
Speaker 1: fundamental research and that and that is that. So we'll
Speaker 1: leave that, uh, that that question alone. Um, you mentioned
Speaker 1: one of the professors at Columbia as a mentor. Who
Speaker 1: who else we were some of your early mentors. You know,
Speaker 1: you're you're learning a lot of different things with a
Speaker 1: lot of different people. On the trading side, the guy
Speaker 1: that was a major name and institution in his own right,
Speaker 1: Bob Manusian, was in charge of trading, uh Goldman Sachs.
Speaker 1: Unusual at that time. A Yale graduate ran trading at
Speaker 1: Goldman Sachs. L J. Tannembaun who was deceased. The Bob
Speaker 1: is still very much alivee thankfully, a great guy. L J.
Speaker 1: Tanneman ran arbitrage. Gust of Levy. You saw him in action.
Speaker 1: I worked directly with him on a number of assignments.
Speaker 1: He passed away in nineteen seventy six. A real dynamo
Speaker 1: man got into seven o'clock in the morning, kept two
Speaker 1: secretaries busy. There wasn't a charity in New York that
Speaker 1: he did not work with in support and help. And
Speaker 1: so you learned about chadbl instincts giving back from people
Speaker 1: like us Levy. John Whitehead was deceased John Weinberg a Screenberg.
Speaker 1: You know you just watched people in action and uh,
Speaker 1: you know, um, you learn and you and your mature yourself.
Speaker 1: I have a family foundation I set up I think
Speaker 1: in the and that long ago. Yeah, well when when
Speaker 1: when when my income started to exceed my course of
Speaker 1: living and I started to build up savings, I was
Speaker 1: really committed to give back. Um. And again, as I
Speaker 1: said before, I don't want to picture myself as being
Speaker 1: different than anyone else. The guys that are in my
Speaker 1: category all have a similar view, you know. Uh. I
Speaker 1: have a great admiration for Canlan gown Stand, Drucca Miller,
Speaker 1: Michael Steinhardt, Um, Bill Ackman, John Paulson, uh and Dan Loeby.
Speaker 1: I apologize with peopleho name I left up? Is there
Speaker 1: so many of them that are giving back, that work
Speaker 1: hard because they have a professional instinct and take the
Speaker 1: financial success and share what others less fortunate. So I
Speaker 1: shouldn't mention I'll open up a Pandora's box. But I
Speaker 1: got quoted recently negatively towards Hillary Clinton. And it wasn't
Speaker 1: negative about her necessarily as a person, but you know,
Speaker 1: comes out of the box and uh kind of criticize
Speaker 1: and craps all over hedge funds. I don't see this,
Speaker 1: you know, pitting against the one percent, I don't see it.
Speaker 1: You know, the nine to one percent are not victimizing.
Speaker 1: Most of the one percent that I know are giving
Speaker 1: back and trying to create a better life than um.
Speaker 1: And so why why criticized hedge funds when, particularly in
Speaker 1: our case, she hangs out with them, which is goes
Speaker 1: to Montha's vineon in the hand, not afraid to ask
Speaker 1: for donations from from Wall Street. That's been her to
Speaker 1: the Clintons. Certainly they want to advocate the higher taxation
Speaker 1: and things like that. That's fine, that that's a different
Speaker 1: that's a policy issue. And I was I've been quoted
Speaker 1: now for seven years. I've said that the idea of
Speaker 1: the income being carried taxes carried interest is wrong. My
Speaker 1: income is a special exemption that if you are running
Speaker 1: a private partnership like a private equity or hedge fund,
Speaker 1: you're paying a lower tax rate. Now, they should not
Speaker 1: pertain to my income in managing the business. It should
Speaker 1: pertain to my income as an investor investing alongside of
Speaker 1: my other investors. And for some reason the government has
Speaker 1: not been focused on that, just like I think that
Speaker 1: there's a lot of efficiency to be gained that we
Speaker 1: have a Department of Education at the federal level, cabinet level,
Speaker 1: that's over a hundred billion dollar department. I don't think
Speaker 1: we have to spend a hundred billion dollars for the
Speaker 1: federal government to tell the state and local governments how
Speaker 1: to educate their children. That might have been the case
Speaker 1: fifty years ago, and segregation things like that, but I
Speaker 1: don't think it's today. How much of that budget is
Speaker 1: just them dolling out money to different states, I honestly
Speaker 1: don't know the number. I don't want to be like
Speaker 1: the fello from Texas, Uh say the four things MoMA
Speaker 1: oops oops, Yeah, but the four reasons we sell a stock?
Speaker 1: I remember the four reasons. Well, that that's the area
Speaker 1: you focus on, So that would that would certainly make sense.
Speaker 1: So when we look at issues in society of income inequality,
Speaker 1: your perspective is the wealthier doing at least amongst Wall Street,
Speaker 1: the people you know are contributing a lot to charity.
Speaker 1: It's very complex. You know, the President understandably would like
Speaker 1: to narrow this income disparity. I would like in narrow
Speaker 1: the income to how do we do that? Well, I'm
Speaker 1: an economist, you know, but I think you have to
Speaker 1: do through education, by improving the skill set of these youngsters,
Speaker 1: by giving them a exposure to improving themselves. I look
Speaker 1: at my own situation, you know, it's my college education,
Speaker 1: it's my NBA Columbia that literally changed my life, changed
Speaker 1: my whole income prospect. I mean, I left Xerox making
Speaker 1: seven thousand dollars a year. I go back to business
Speaker 1: school getting the m b A. And I hired into
Speaker 1: Goldman at five hundred, which is a substantial was doubled
Speaker 1: my income by going to business school for thirteen months.
Speaker 1: There was a tri messed deals. I went right through
Speaker 1: the summer because I couldn't afford to take time off
Speaker 1: six months old kids and I had to make a
Speaker 1: living um. And so it's education. It's getting into the
Speaker 1: home to educate the parents, to motivate them. I mean
Speaker 1: the Jews of a hundred years ago today or the
Speaker 1: Asians who who really pushed education. Each wave of immigrant
Speaker 1: has their own focus on education. Test and I think
Speaker 1: the wonderful thing in this program the Kopman College scholes,
Speaker 1: when the kids showed up with their parents. You know,
Speaker 1: it was wonderful to see, you know. I give money
Speaker 1: to a South Bronze educational program called the South Bronze
Speaker 1: Educational Foundation. And I think seven year, eighty percent of
Speaker 1: the kids have never met their father. Really, and I
Speaker 1: look at the and I appreciate the significance of my
Speaker 1: father in my growing up. That these kids have a
Speaker 1: terrific disadvantage. And so I'm trying to create equal opportunity
Speaker 1: through my charitable efforts, uh by giving them a platform
Speaker 1: to achieve an education where they have the aptitude and
Speaker 1: the willingness and the desire. So so you're willing you
Speaker 1: support getting rid of that carried interest for the income side,
Speaker 1: not the investment side. What other policy changes do you
Speaker 1: think should we look? I was beginning to develop a thought.
Speaker 1: The irony of the whole thing the last five or
Speaker 1: six years is uh Bernankee wanted to create economic growth
Speaker 1: and employment, and he figured out the best way to
Speaker 1: do that is to create wealth, because wealth creates consumption
Speaker 1: and consumption creates jobs. So he said, the way I'm
Speaker 1: gonna do is to get the stock market up to
Speaker 1: create wealth, to create consumption, to create jobs. The trouble
Speaker 1: is is a mald distribution of the ownership of stock.
Speaker 1: So guys like me have benefited mightily. And because we've
Speaker 1: had this gridlock and government where the Republican the Democrats
Speaker 1: don't seem to get along and the President can't seem
Speaker 1: to unite them, we've not had phisical policy initiatives designed
Speaker 1: to go along with the monetary initiatives. So the entire
Speaker 1: burden to deal with the recessions for in monetary policy.
Speaker 1: Maybe we should have a jobs program, maybe, Uh, infrastructure
Speaker 1: that normal posting back all this retained earnings that sit
Speaker 1: offshore and bank accounts doing nothing productively bring it back
Speaker 1: and attacks howiday tie to hiring and infrastructure development to
Speaker 1: take this big collapse in the price of energy. Uh,
Speaker 1: put an energy tax on design to infrastructure building. We
Speaker 1: don't seem to have the fiscal initiatives. And I'm not
Speaker 1: blaming the president. Okay, I blamed the President for some
Speaker 1: of his dialogue on you know, class warfare and stuff
Speaker 1: like that, but that was an old story. And I
Speaker 1: got ordered by virus by president basically just a Coincidencely,
Speaker 1: I hope, so that's nothing let's over to do. But
Speaker 1: I think we need a better coordination of fiscal monetary policies,
Speaker 1: and hopefully in time we'll get it. But we don't,
Speaker 1: we'll get head it to a disasters. We really haven't
Speaker 1: seen the normal fiscal stimulus that you get following forget
Speaker 1: an economic crisis following a normal deep recession, when it's
Speaker 1: just hasn't been following on the heels of monetary policy exclusively.
Speaker 1: So it's all it's all that, all right, So let's
Speaker 1: keep let's go through. I only have you for a
Speaker 1: few more minutes, so let me ask you some of
Speaker 1: um the standard questions I ask everybody, and they're they're
Speaker 1: always always generates some interesting response. Um. So you mentioned
Speaker 1: you start really early. To take us quickly through a
Speaker 1: day in the life of Lee Cooperman, You're you're up
Speaker 1: at five in the morning, at the five ten. I
Speaker 1: leave my house at a proixing five, depending upon traffic,
Speaker 1: I come in from suburbs against the officer si. Um
Speaker 1: and uh, you're there for twelve hours until six o
Speaker 1: lea about you know, depending upon the time of my dinner.
Speaker 1: I leave the office between five. I have to leave
Speaker 1: tonight at five. Story have dinner with a client at
Speaker 1: six o'clock. Meeted a restaurant last night, had dinner with
Speaker 1: the company. I met the company at six. I got
Speaker 1: finished with dinner at eight and went home. Um, and
Speaker 1: I get home, I take a shower, and I logged
Speaker 1: into a Bloomberg not paid commercial. I love into my
Speaker 1: Bloomberg terminal. He's the most powerful terminal out there. But
Speaker 1: by the way, during this entire interview, and I'm not exaggerating,
Speaker 1: you've been checking stock prices. People don't realize you're multitasking
Speaker 1: this whole conversation. Yeah, well, I'm not making investment decisions.
Speaker 1: Of course, I'm trying to see what But you have
Speaker 1: an eye on what's going on. Even throughout this conversation.
Speaker 1: I would say, I'm pretty plugged, pretty obsessive, excessive, obsessive, compulsive. Um,
Speaker 1: So you go to dinner and then go home, my shower,
Speaker 1: and I logged into Bloomberg terminal and see what's going
Speaker 1: on in China, what's going on Japan, what's going on
Speaker 1: the euro dollar, what's going on in the dollar yen?
Speaker 1: And see what the headlines are, And uh, this is
Speaker 1: my life. You know, it's it's you know I said
Speaker 1: earlier on but you know, do what you love, what
Speaker 1: love what you do. You can't possibly work at this
Speaker 1: pace and this engagement if you didn't like what you did.
Speaker 1: My wife tells people that I'm gainfully unemployed. I get
Speaker 1: paid for doing what I would be doing for free anyway.
Speaker 1: And you know that that's difference with me. And retirement
Speaker 1: would be one word, and that one where would be investors.
Speaker 1: If I did not have investors, I would be doing
Speaker 1: exactly what I'm doing now. But I probably couldn't afford.
Speaker 1: Not probably I couldn't affords. I'm too cheap, basically afforced. No,
Speaker 1: I say it seriously. You know, I joke with people.
Speaker 1: You know I have a home in Florida. I spent
Speaker 1: a lot of time in Florida working, and I have
Speaker 1: two cars in Florida. I just put my second car
Speaker 1: and floor. I have two cars in New Jersey. My
Speaker 1: first three cars with two thousand twos, two thousand and
Speaker 1: two Lexus convertible with two thousand two Alexus Sedan, two
Speaker 1: thousand eight Lexus oh wheel drive sedan, and I just
Speaker 1: bought a used Volkswagen facade. But I feel like a
Speaker 1: rich man. Why it's the first three cars preceded Bluetooth.
Speaker 1: My new car used with thirteen miles wokes Away inside
Speaker 1: his bluetooth. So I get into the car and I
Speaker 1: feel like a rich man. I say, call Billy Gordiano
Speaker 1: at work and it does, and it does. My other
Speaker 1: three cars I can't do that, So I feel like
Speaker 1: a rich man. You know you can. You can replace
Speaker 1: those old cars. And by the way, the newer cars,
Speaker 1: the safety technology, the lane you know, they stop automatically.
Speaker 1: I don't drive a lot, uh. And I'm told in
Speaker 1: a two thousand and two Lexus LS four thirty, with
Speaker 1: the best Lexus they made, I got eighty thousand miles
Speaker 1: on it like a new car. It drives like a
Speaker 1: new car, and I'd rather give the money to charity.
Speaker 1: So that's what I was about to say, is you know, people,
Speaker 1: you describe yourself as cheap. But again going back to
Speaker 1: and say cheap, I respect money. I'm not going to
Speaker 1: tell you how much I give away every year to charity,
Speaker 1: but its millions of dollars and I don't spend that
Speaker 1: kind of mone in my cell boast. You know you'd
Speaker 1: rather give it away than buy a Nu mercedy because
Speaker 1: you know it's the end of the day. I don't
Speaker 1: play so much value in that. I don't. I don't
Speaker 1: want to give anything. I don't deprive myself of anything.
Speaker 1: If I want something, I buy it because I could
Speaker 1: afford it. But there's nothing that I really want I
Speaker 1: don't have. You're not, you said earlier, and you're not.
Speaker 1: I'm not. I'm not a clothes horse obvious reasons. I'm
Speaker 1: overweight and you know, uh so I have the clothes
Speaker 1: I need. You're in a suit and tie, dressed nicely.
Speaker 1: I dressed properly. I dress adequately. Though a guy I laughed,
Speaker 1: I got you know, it's a funny story. Yeah, um,
Speaker 1: Anthony Scaramucci. Sure. He said publicly somewhere that I was
Speaker 1: the worst dress billionaire he hasn't met, And I said
Speaker 1: to him multi he jokes about that all the time.
Speaker 1: I actually think I'm pretty well addressed. You're well put together.
Speaker 1: Your wife picked out the tie. Though I know my wife.
Speaker 1: He leaves me alone. I'm I Actually I'm building a
Speaker 1: new house now Florida, and my wife sees everything to me. Really,
Speaker 1: my uh my wife basically knows what she's interested in,
Speaker 1: and she pursues what she's interested in. And uh, very
Speaker 1: purposeful purpose and very very smart lady, terrific wife. That
Speaker 1: that sounds fantastic. So um, we mentioned your your mentors,
Speaker 1: We mentioned some of the investors. Actually we didn't get
Speaker 1: any other than Buffett. What other investors have influenced your
Speaker 1: approach to invest Roger Murray, Warren Buffett. I mentioned Bob
Speaker 1: Minutia and Geodd Whitehead. I mean all in different ways.
Speaker 1: You know, Bear Sterns was notoriously positive firm and with
Speaker 1: charitable instincts, and so you pick up different things, and
Speaker 1: then you watch different investors, and I'd say it's the
Speaker 1: process of learning. I can't I can't point to anyone
Speaker 1: individual that's changed my life on the industrial side. The
Speaker 1: guy that I had the greatest admiration for where I
Speaker 1: spent really first twenty five years of my life studying,
Speaker 1: was Dr Henry Singleton, was a founder of tel Dine
Speaker 1: and arguably the smartest guy I ever met. Really absolutely
Speaker 1: and uh, basically uh. I have no greater authority to
Speaker 1: that view than Warren Buffett. In two thousand and seven,
Speaker 1: he gave a speech at the Value Investing Conference on
Speaker 1: two subjects. One was I was highly critical of stock
Speaker 1: repurchased the way it was being um um, you know,
Speaker 1: practice of time. And then I went through a case
Speaker 1: study that used at Harvard UH and it was untiled.
Speaker 1: The financial brilliance of Dr Henry Singleton of tele Dine.
Speaker 1: Warren Buffett got ahold of those two presentations. Not by accident.
Speaker 1: I sent to him, having great respect for Warren's And
Speaker 1: there's a letter he sent me. I hope he doesn't
Speaker 1: mind them reading it publicly November twenty thousand and seven,
Speaker 1: and he said, dearly, I don't think you could have
Speaker 1: picked two better subjects, Henry. That's Henry Singleton has a
Speaker 1: manage that all investors CEO would be CEO s and
Speaker 1: NBA students should stud In the end, it was one
Speaker 1: rational and there are very few CEOs about whom I
Speaker 1: could make that statement. Paragraph the stock repurchase situation is
Speaker 1: fascinating to be that's because the answer is so simple.
Speaker 1: You do it when you are buying dollar bills and
Speaker 1: click cutting significant discount, and only then underline only paragraph
Speaker 1: and the general observation. I would say that most companies
Speaker 1: that repurchase shares thirty years ago, we're doing for the
Speaker 1: right reasons, and most companies doing it now are wrong.
Speaker 1: When doing so time of the time, I see managers
Speaker 1: who are attempting to be fashionable or subconsciously hoping to
Speaker 1: support their stock. Lows is a great example. I use
Speaker 1: Low as an example of a good buy back program.
Speaker 1: Lows is a great example of the company's always repurchase
Speaker 1: shares the right reason. I could give examples the reverse.
Speaker 1: I love this following statement, but I follow the dictum
Speaker 1: praise by name, criticized by category, best regarded warrant. I
Speaker 1: showed that letter to my two older my two sons,
Speaker 1: and it's a great philosophy of life. You never see
Speaker 1: warrant criticizing any one individual in public. We might criticize
Speaker 1: invest in bankers and criticized hedge funds, but it doesn't
Speaker 1: go after anyone. That's a good philosophy of life. In
Speaker 1: my opinion, that's a fascinating What's the date on that letter?
Speaker 1: That data on that letter was November two thousand and seven,
Speaker 1: So here it is eight years later. We see a
Speaker 1: massive run of buy backs the past few years. What
Speaker 1: are your thoughts on these are are buy backs? Are
Speaker 1: they buying dollar bills at a substantial discount, or they
Speaker 1: being fashionable? There are four kind of buy backs that
Speaker 1: that's a theme four of everything. It sounds like, well
Speaker 1: quinciense bibe back type one has nothing, and I'll give
Speaker 1: examples nothing to do with fundamental value. Remember in D
Speaker 1: and ninety four, being on the chowel line at the
Speaker 1: Allen and Company media conference, standing behind Andy Grove, and
Speaker 1: I said to Andy, what statement is Intel making my
Speaker 1: buying back stock at fifty times earnings? He says, We're
Speaker 1: not looking to make any statement. Basically, Uh, we don't
Speaker 1: want the flak from the shoreholders over option creep. So
Speaker 1: with I'm back enough shares to keep the up the
Speaker 1: share count flat. Second kind of buy back very nefarious.
Speaker 1: The one that warrant to sends the reference. That's managements
Speaker 1: that are looking to either support their stock or create
Speaker 1: this impression that's undervalued or married maybe even creating a
Speaker 1: conditioned market where they're buying backstock for the company their
Speaker 1: selling stock themselves. I'm not going computing them, but you know,
Speaker 1: Andrew Mazzolo has spent so several hundred million dollars worth
Speaker 1: of stock at forty while country Wide Credit was buying
Speaker 1: backstock at forty two billion dollars worth, only to sell
Speaker 1: the company to Bank of America at four, and I'm
Speaker 1: telling you back in America is very sorry they bought
Speaker 1: it it for. Okay. The third kind of buy back,
Speaker 1: which is the typical buyback now, is companies that blessed
Speaker 1: with excess cash flow. They've kind of convinced themselves that
Speaker 1: dividends forever. We don't want to be embarrassed by having
Speaker 1: the kind of dividend we could always turn off a
Speaker 1: buyback program. So we're gonna take excess case flowing buy
Speaker 1: back stock. And I would you rather see those folks
Speaker 1: doing a higher dividend than many cases in many cases, okay.
Speaker 1: And the fallacy of that is that the average Carmon
Speaker 1: stock is yielding, uh, you know, two percent for every
Speaker 1: shore you buy back, your buying back fifty years of dividends.
Speaker 1: And it turns out that a dividend policy was the
Speaker 1: wrong policy and cut the dividend, your stock doesn't get
Speaker 1: cremated anyway. So look, look, I mean, I have enormous
Speaker 1: respect for Goldman Sacks. Goldman Sack sports stock back for
Speaker 1: the Treasury over two hundred and two thousand and seven
Speaker 1: only sell stock to warm buffet and under eighty if
Speaker 1: you propably account for the warrants, and all the banks
Speaker 1: and financial institutions and some of the old companies with
Speaker 1: buying back stock are totally inappropriate prices. And the fourth
Speaker 1: kind of buy back the one I love, the one
Speaker 1: that Henry singled him did the eight self tender offers
Speaker 1: made retire nine of the company stock and there was
Speaker 1: a billiont executed. Program is they understand the value proposition
Speaker 1: of their company. They can correctly determine their stock is
Speaker 1: under valued and buy back under badge stock. They leverage
Speaker 1: the return to those investors that aren't selling. If what
Speaker 1: companies have to you know, understand is when you buy
Speaker 1: back stock, you're lodging the ownership of those who are
Speaker 1: not selling. If you're lodging the ownership but those not
Speaker 1: selling your disservice. You're investor by buying backstock and inappropriate prices,
Speaker 1: so at the right price at the right place. I
Speaker 1: love it. You know, it's funny you mentioned the goldman
Speaker 1: Um situation. Uh Dell recently went private, and before they
Speaker 1: went private, we were looking at some of the numbers.
Speaker 1: It turned out, over the course of their entire history,
Speaker 1: they spent more on buy backs than they actually earned
Speaker 1: in profit. I have I don't want to get into
Speaker 1: a debate with Michael Dell, but I have a very
Speaker 1: negative view of what they did. That carl I com
Speaker 1: was on the right track in a sense. Going private
Speaker 1: is a giant case of instruy trading by managing against
Speaker 1: their shaholders. Okay, uh. I would have thought it would
Speaker 1: be more appropriate for Dell to recapitalize the company, making
Speaker 1: an offer to shareholders, take out those showers they want
Speaker 1: to go out and those shareholders that wanted to take
Speaker 1: the risk of a more leverage enterprise, and bet on
Speaker 1: Michael Dell's management team and his own talent to improve
Speaker 1: the situation. That would a fair a way to go.
Speaker 1: So three years from now when he fixes it up
Speaker 1: and creates a normal capital game for him in silver
Speaker 1: Lake and tried to bring it, Yeah, that was gains
Speaker 1: that were really belonging in the pocket of the investor.
Speaker 1: The investor. So you mentioned carl I Con. What do
Speaker 1: you think of activist investor. I would say I'm balanced positive,
Speaker 1: you know, I think there's some negative aspects to it.
Speaker 1: I think this formula go out and borrow a lot
Speaker 1: of money, leverage up a couple of turns of debt,
Speaker 1: capital and buy back a lot of stock is not
Speaker 1: suitable for every company, but buying Lodge, I would say
Speaker 1: activism has to be viewed in a constructive light. And
Speaker 1: he's been totally brilliant the Netflix trade also, and the
Speaker 1: guy has got a phenomenal record. He's only to be
Speaker 1: admired and respected. And um, what sort of advice would
Speaker 1: you give to millennials or someone just starting out their
Speaker 1: career today? I think we covered some of it. I mean, uh,
Speaker 1: I look at my situation. Uh coming fore I came.
Speaker 1: I think education, it's important if you're interested in the
Speaker 1: business world. I think, uh, get a good business education.
Speaker 1: You know, accounting is the language of business. So my
Speaker 1: NBA made a all the difference to me in terms
Speaker 1: of not only could open up doors, it gave me
Speaker 1: technical skills. They didn't have a major in the chemistry,
Speaker 1: mind and meth and physics. Uh. And don't go into
Speaker 1: a field just for money. You know, all these kids
Speaker 1: interviewing they could join hedge funds. Everything is cyclical. Figure
Speaker 1: out what your aptitude and your interests are and pursue
Speaker 1: that career and go to work for somebody respect and admire.
Speaker 1: You know, it's very important and you get a good foundation.
Speaker 1: And then our final question, and I asked this of
Speaker 1: all my guests, what do you know today about investing
Speaker 1: and asset management that you wish you knew forty years
Speaker 1: ago when you started. I loved my career at Goldman Sachs.
Speaker 1: I owe a great gratitude to Goldman Sachs. I think
Speaker 1: Goldman Sacks owes me. But I performed very strongly as
Speaker 1: a professional. But I probably would have gone into this
Speaker 1: business earlier. What I did you wish you would have
Speaker 1: started earlier? Now it's a chicken and egg. You know.
Speaker 1: I developed my reputation at Goldman, but this is a
Speaker 1: much more p off of the hedge fund business. You
Speaker 1: had fun business, but you know, and you have a
Speaker 1: lot more control when it's essentially you at the top
Speaker 1: of the part. Your hoppers are higher down as are lower.
Speaker 1: You know, you're out there alone. And I do have
Speaker 1: a team that I have a very competent team, But
Speaker 1: the truth is I didn't have the same infrastructure I
Speaker 1: had a Goldman SAX. You know, I was the number
Speaker 1: fifty partner made was fifty partners in total, five hundre employees,
Speaker 1: and today is thirty eight thousand people, I think in
Speaker 1: four hundred, that's an amazing that's an amazing set of
Speaker 1: numbers from five. So now when you're a partner and
Speaker 1: you leave that partnership and have to digress briefly because
Speaker 1: you brought this up, are they buying you out of
Speaker 1: the partnership? How does that a capital We were a
Speaker 1: private partnership. You have a capital account. The firm had
Speaker 1: a very strong capital retention rules. When you retire, they
Speaker 1: gave you half of your capital back. The other half
Speaker 1: you got back after five years. So I took the
Speaker 1: amount of cap I can get a go home in,
Speaker 1: plus whatever else I had, and I put into Omega
Speaker 1: and I started Omegan and that number has grown, uh
Speaker 1: something like that, not too chevy, and uh, that's because
Speaker 1: I believed in myself and I left my money in
Speaker 1: and I want to be a co investor with my investors.
Speaker 1: I want to eat my own cooking, and so I
Speaker 1: believe in that very strongly. And so I lost more
Speaker 1: money than anyone lost in two thousand and eight, and
Speaker 1: I've done extremely well subsequent to that. And I think
Speaker 1: that's the that's the alignment of interest that should exist. Lee.
Speaker 1: I can't thank you so much for how generous you've
Speaker 1: been with your time. Um, this just has been tremendous. Uh.
Speaker 1: You've been listening to my conversation with Leon Cooperman of
Speaker 1: Omega Advisors. If you enjoy this conversation, be sure and
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