Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.
Speaker 1: This week, on the podcast what Can I Say, you
Speaker 1: are in for a treat, Bill Miller spends an hour
Speaker 1: waxing eloquent on everything from why value investing has underperformed
Speaker 1: and what you should do about it, the impact of
Speaker 1: the Federal Reserve, why bitcoin is a fascinating technology as
Speaker 1: well as a potential currency substitute, maybe for the dollar,
Speaker 1: maybe for something else. This was really an unbelievable conversation.
Speaker 1: I don't want to gush too much, but Bill Miller
Speaker 1: is just one of these people who understands the way
Speaker 1: markets work, who understands how to express what's going on
Speaker 1: in an investment posture. Their funds run a one active share,
Speaker 1: meaning there is zero closet index in going on, and
Speaker 1: they have been one of the top performers since the
Speaker 1: market bottomed oh eight oh nine after the financial crisis.
Speaker 1: What can I say? This is just a tour to
Speaker 1: force exposition on investing theory and practice in the real world.
Speaker 1: Just unbelievable. So, with no further ado, my conversation with
Speaker 1: Bill Miller. This is Masters in Business with Barry Ridholts
Speaker 1: On Bloomberg Radio. My extra special guest this week is
Speaker 1: Bill Miller. He formed the Miller Value Partners in as
Speaker 1: both an r I A and an investment manager for
Speaker 1: the Miller Value family of funds running about two billion
Speaker 1: dollars and assets under management. Previously, he ran the leg
Speaker 1: Mason's Capital Management Value Trust. After fees, the funds beat
Speaker 1: the S and P five for fifteen consecutive years from
Speaker 1: through two thousand and five. That is a feat that
Speaker 1: I don't think has ever been matched. Bill Miller, Welcome
Speaker 1: to Masters in Business. Thanks Barry, and it's great to
Speaker 1: be here. I should say, welcome back. Our last conversation
Speaker 1: was in let's talk a little bit about what's going
Speaker 1: on in the world today. Early March, you went on
Speaker 1: TV and said you were looking at one of the
Speaker 1: best buying opportunities of your lifetime. That turned out to
Speaker 1: be quite a prescient call. Tell us what you were
Speaker 1: looking at that led to that conclusion, what was behind
Speaker 1: the thought process. So one of the things that that
Speaker 1: I'm quite confident of having done this for just about
Speaker 1: forty years, is that nobody can predict the market with
Speaker 1: any maybe maybe Jim Simons and Renaissance, but certainly not
Speaker 1: Certland me, and certainly not basically anybody else that I've
Speaker 1: come in contact with any consistent basis. So given that,
Speaker 1: I think, I think one of the things that I
Speaker 1: want to look at is just how the market has
Speaker 1: behaved relative to its history. And in this case, what
Speaker 1: we saw is the fastest decline from all time highs
Speaker 1: to a to a bear market in history. And when
Speaker 1: things happen that have never happened before, that always gets
Speaker 1: my attention. I tend to be in the Howard Marks
Speaker 1: camp that you can probably if you're lucky, recognize extreme points,
Speaker 1: but other than that, you probably have no better than
Speaker 1: a coin toss of trying to uh trying to predict
Speaker 1: your guests regular cyclical turning points. So in this case,
Speaker 1: it just seemed to me that the prices had gotten
Speaker 1: so out of whack with anything other than very very
Speaker 1: short term UH fundamentals, that that the probabilities were great
Speaker 1: that if you had a time horizon longer than a
Speaker 1: few weeks or a few months, that you would do
Speaker 1: very very well. And I think that, you know, it
Speaker 1: reminds me of two thousand and two thousand and eight,
Speaker 1: when Warren Buffett wrote that Op ed and and he said,
Speaker 1: by American stocks, That's what I'm doing. And if I
Speaker 1: was at a meeting with Warren a couple of years
Speaker 1: later and somebody said, Warren, how did you know that
Speaker 1: was the right time him to buy stocks? And he said,
Speaker 1: I don't know time, I know price. He said that
Speaker 1: those prices were completely dislocated from any type of long term,
Speaker 1: long term reality unless you believe that the U. S
Speaker 1: economy is going to be in a permanent depression. And
Speaker 1: so I think that's the same thing that that. My
Speaker 1: view was that those prices were very, very disconnected. And
Speaker 1: if you look today, the markets had a big rally,
Speaker 1: but look at those prices back on Marche and the
Speaker 1: few days Africa. I mean, most things are up, you know,
Speaker 1: from the lows, even if they're not back close to
Speaker 1: their highs. So that was an extreme That was an
Speaker 1: extreme point. So let's talk about both that moved down
Speaker 1: and that move up. Not only fastest bear market, fastest
Speaker 1: drop in history, but since those lows, markets are up
Speaker 1: about in one of the fastest recoveries we've ever seen.
Speaker 1: The common pushback I hear from people is the market
Speaker 1: has gotten ahead of itself. We've gone too far, too fast.
Speaker 1: What do you say to those folks, I'd say I'd
Speaker 1: make one one comment and then one um observation. So
Speaker 1: the comment is that if you go back and look
Speaker 1: at bear markets and look at history, there tends to
Speaker 1: be a rough symmetry between how long it took to
Speaker 1: get to the lows and how long the recovery took.
Speaker 1: So when you've had a very again this is the
Speaker 1: sharpest in history, when you've had a very very dramatic drop,
Speaker 1: you can go back to seven for example, in the
Speaker 1: market crash. So the market, you know, after churning around
Speaker 1: at the bottom for a while, it began a strong
Speaker 1: recovery in nineteen and you know, made it back to
Speaker 1: those highs in the not too in the not too
Speaker 1: distant future. So this is not this is not unusual
Speaker 1: compared to what we've seen before. Just so we don't
Speaker 1: see these kinds of declines very often, and they tend
Speaker 1: to be far enough apart that most people don't go
Speaker 1: back and look at history. They just they just look
Speaker 1: at their own their own reaction. So, um, you know,
Speaker 1: with that said, I would say that, um that that
Speaker 1: comment that which what you mentioned about people thinking the
Speaker 1: market ahead of itself. The market disconnected from reality is
Speaker 1: one of those things that I always puzzle at because
Speaker 1: this is something that's actually pretty easy to analyze. And
Speaker 1: the first part of it, the first part of it
Speaker 1: is that if you before you can say the market
Speaker 1: is disconnected from reality, you have to some belief or
Speaker 1: evidence about what the connection is between the market and
Speaker 1: economic reality. And the answer there is very clear, there
Speaker 1: is no connection whatsoever. If you go back and look
Speaker 1: at all the going back from thirty to like two
Speaker 1: thousand and nineteen, and you look at the the annual
Speaker 1: correlation between the market's return and the economic growth, the
Speaker 1: answer there is I think that, uh that the correlation
Speaker 1: coefficient is point zero nine, meaning it's random. There's zero
Speaker 1: is exact random at there's point zero nine. So there's
Speaker 1: basically no correlation whatsoever. If you look at rolling ten
Speaker 1: year periods, so not just that you know, not just
Speaker 1: that the annual periods, but rolling every rolling ten year
Speaker 1: period from that same thing, the correlation is minus point four,
Speaker 1: meaning there's a negative correlation between the economy and economic growth.
Speaker 1: So the idea that this market is disconnected from reality
Speaker 1: because it's actually gone up and economic growth is you
Speaker 1: know was going down at the same time is very
Speaker 1: consistent with history. And the second thing, and maybe may
Speaker 1: be easier to understand, is that the market is a
Speaker 1: as a forward looking indicator. It reflects people's expectations about
Speaker 1: what's going to happen. It doesn't reflect what has happened
Speaker 1: in the past. And so as I like to say
Speaker 1: the market predicts the economy, the economy does not predict
Speaker 1: the market. So the market bottom way before the economy.
Speaker 1: The economy's bottoming, you know, in the in the second
Speaker 1: quarter will be the you know, the economy's economy's bottom,
Speaker 1: and the market bottom was in the first quarter, and
Speaker 1: so I don't think there's anything out of whack with
Speaker 1: what's going on. The market bought. If the market did
Speaker 1: in fact bottom and the second quarter, as it appears
Speaker 1: it did, then that means that it's getting better. And
Speaker 1: so if it's getting better, then the market should be
Speaker 1: reflecting that it's getting better. And if you look at
Speaker 1: the current consensus, what you'd see is that that if
Speaker 1: the market on an annual spasis in the second quarter
Speaker 1: was down, maybe let's call it, and we don't know
Speaker 1: what it is. Some of those numbers, like the housing
Speaker 1: numbers yesterday, the consumer spending numbers were just way, way
Speaker 1: better than people expected. But even if we're down thirty percent,
Speaker 1: then what you would get would be normally speaking, and
Speaker 1: I'm going out at Hymen's data here, which you have
Speaker 1: third quarter and fourth quarter, and then if you just
Speaker 1: get back to five nominal growth in the first quarter
Speaker 1: of next year, you'd be back at all time highs
Speaker 1: on GDP. So I don't think that the market is
Speaker 1: ahead of itself. The only way the market ahead of
Speaker 1: itself is if we have a very huge reversal in
Speaker 1: what's going on. Namely, we have a we have a
Speaker 1: so called second wave where they shut down the economy again.
Speaker 1: But even though the cases, the case loads aren't looking
Speaker 1: that great, um the death rates still falling, and I
Speaker 1: think that we're not going to see a shutdown of
Speaker 1: the economy. We may see you know, moderate changes in things,
Speaker 1: but to shut down the old economy again the way
Speaker 1: we did in you know, in March and April, I
Speaker 1: don't think it's going to happen. So I would I
Speaker 1: would be shocked if the if the mark retest those
Speaker 1: old loaves. Let's talk a little bit about what's going
Speaker 1: on today. In the world of investing, and you and
Speaker 1: I were both around in the nineties. I have to
Speaker 1: ask you about the rise of these robin Hood day traders.
Speaker 1: What is this just a distraction or is this a
Speaker 1: potential speculative frenzy. It's both. I mean I think that
Speaker 1: there's it's it's a distraction in the sense of these
Speaker 1: The number of people that are actually trading on robin
Speaker 1: Hood is trivial in terms of numbers of people, of
Speaker 1: the volume that they can do, uh, relative to the
Speaker 1: overall market. Maybe they can have an impact on something
Speaker 1: like Hurts and All or some of these smaller names.
Speaker 1: But um, but I think the focus on that is
Speaker 1: is misplaced unless it's just it's just years entered something
Speaker 1: entertaining to entertaining to look at. As you remember, Barry
Speaker 1: back in the back in the late ninety nineties, with
Speaker 1: the you know, with dot com tech telecom bubble, the
Speaker 1: day traders were everywhere, and they were there, weren't robin hoods,
Speaker 1: and that was you know, ridge firms were raising their
Speaker 1: raising their margin requirements, and so there was a there
Speaker 1: was a lot more impact I think on the overall
Speaker 1: markets behavior during that time than there is right now
Speaker 1: the volumes were lower relative to the the number of
Speaker 1: people that were trading and the way in which trading
Speaker 1: was done. And uh, and now the volumes are huge
Speaker 1: compared to what people in Robin Hood are day traders
Speaker 1: are doing. I remember it as sort of a national pastime.
Speaker 1: You couldn't walk into a restaurant a bar without seeing
Speaker 1: the stock market on the TV. It's nothing remotely like
Speaker 1: that today. Last we spoke you, you had a very
Speaker 1: interesting quote that I have to ask your thoughts on.
Speaker 1: Uh In you said, we are only halfway through the
Speaker 1: shift from active to passive. Give us an update. Where
Speaker 1: are we in that process? Do you still think lots
Speaker 1: of fund managers or closet indexers and that this transition
Speaker 1: is going to continue or or how is your thinking
Speaker 1: on this? I think that you know, active management is
Speaker 1: in secular decline. So just like newspapers have been in
Speaker 1: secular decline for a long time, you know, once the
Speaker 1: Internet got going, active management has been in a secular
Speaker 1: decline and that's going to continue because most active managers
Speaker 1: don't add value and most people, especially as the demographics
Speaker 1: get older, people become more risk averse and so they're
Speaker 1: they're happy to have tracking error if you're if you're
Speaker 1: active managers way above the market, but if the managers
Speaker 1: the market is a standard and you're below the market
Speaker 1: for a couple of years and people take their money out.
Speaker 1: In fact, there was a statistic which you probably saw
Speaker 1: that I was surprised at, which was that a fidelity
Speaker 1: UH that basically of failities clients who were sixty five
Speaker 1: and older took one of their money out of equities
Speaker 1: in the first quarter of this year. So that gives
Speaker 1: you a sense of both the risk aversion and how
Speaker 1: fear spreads in the market, and also the fact that
Speaker 1: the passive money still gets still as getting the flows.
Speaker 1: You know, equity e t f s are getting flows,
Speaker 1: but the at the average active manager you know is
Speaker 1: getting consistent outflows. And of course we've seen this year
Speaker 1: that that equity managers broadly defined equity mutual funds have
Speaker 1: that big outflows, and bond funds have continue to get inflows.
Speaker 1: So I think I think we've still got a ways
Speaker 1: to go in that and uh. And so there's going
Speaker 1: to be an uphill climb or swimming against the tide
Speaker 1: or whatever. If you're an active manager, I would say
Speaker 1: it's also that the hedge funds have also dropped into
Speaker 1: that category. They're much earlier in the thing. But you know,
Speaker 1: in a low anomenal rate of return world, where the
Speaker 1: tenure interest rate of sixty basis points, somebody's going to
Speaker 1: charge you know, one or one and a half or
Speaker 1: two and twenty to manage your money and fiftent of
Speaker 1: the profits, no matter how meager those profits are. That's
Speaker 1: a losing proposition. So I think that also is is
Speaker 1: the hedge fund world is probably a net net liquidation
Speaker 1: as well. So you mentioned sixty basis points on the
Speaker 1: ten year what do you make of the bond market
Speaker 1: where it is is a talent us anything about inflation?
Speaker 1: And what sort of support does that provide for equities
Speaker 1: if yield on treasuries is practically nothing? Yeah, it's it's
Speaker 1: really interesting that the current yield on the s n
Speaker 1: P five hundred is about three times the yield on
Speaker 1: the ten year treasury. And so one of those so
Speaker 1: called no brainer trades to me would be, you know,
Speaker 1: if you've got a ten year horizon uh in the market,
Speaker 1: or even a five year horizon for that matter, you know,
Speaker 1: go along the you know, an equity index fund and
Speaker 1: and go short to five year ten year treasury would
Speaker 1: seem to me a you know a thing will be
Speaker 1: very difficult to lose any substantial amount of money. And again,
Speaker 1: if the if the people were worried about inflation or right,
Speaker 1: inflation isn't a problem for the next couple of years
Speaker 1: for sure, but if it becomes a problem in year three, four, five,
Speaker 1: and the yield curve starts shifting up significantly, then that
Speaker 1: would be that would be kind of a home run,
Speaker 1: a home run trade. So I think I think right now,
Speaker 1: I mean, you know, interest rates, as my center runs
Speaker 1: our income fund says, the data shows that interest rates
Speaker 1: have have been falling in real terms for eight hundred years,
Speaker 1: and so you don't want to better interest rates are
Speaker 1: gonna rise. And and my return to that as well,
Speaker 1: if you if you lived a thousand years, that would
Speaker 1: be relevant. But what we see in the bond market
Speaker 1: is that goes to these long cycles where we had
Speaker 1: a thirty five year bear market in bonds, you know,
Speaker 1: almost a full working career from one, and now I've
Speaker 1: got a thirty eight year bolt market in bonds, and
Speaker 1: they rates can't go much lower than where they are
Speaker 1: right now. Maybe they're not going to go up a lot,
Speaker 1: but uh, you're they're negative in real terms, and certainly
Speaker 1: real terms after tax. So I think bonds are as
Speaker 1: unattractive now as stocks were in September of night seven,
Speaker 1: when than thirty year yielded nine percent and the stock
Speaker 1: market yielded up about two point eight percent, and the
Speaker 1: stock market traded at the highest pe since in nineteen
Speaker 1: twenty nine, and so there was no reason to own
Speaker 1: stocks then because the dividend yield on the divident growth
Speaker 1: rate and stocks abou six. So if everything went well,
Speaker 1: you'd get close to nine percent in stocks if valuations
Speaker 1: didn't drop and they stayed at the at the all
Speaker 1: time high. But otherwise, why why did it buy a
Speaker 1: thirty year bonds and go home? And that was the
Speaker 1: right thing to do then, and I think the right
Speaker 1: thing to do now is to forget about bonds, except,
Speaker 1: you know, except in a very rare instance that you
Speaker 1: might think we have a deflationary bust, in which case, okay,
Speaker 1: Ben Graham talked about having no less than of your
Speaker 1: money and bonds, so PU quality corporates or something like that.
Speaker 1: But I don't find bonds at all attractive now. Quite interesting.
Speaker 1: You mentioned earlier some of the tech stocks of the nineties.
Speaker 1: What do you make of the big five big cap
Speaker 1: tech stocks? Amazon, Apple, Facebook, Microsoft, Google? Have they gotten
Speaker 1: too big? And if so, is their risk of government
Speaker 1: reregulation or even any trust enforcement. Yeah, I thought you're
Speaker 1: gonna ask a slightly different question, which is, you know,
Speaker 1: not have they gotten too big, but are they too expensive?
Speaker 1: And what kind of you know, what kind of opportunities
Speaker 1: are there? Well, there's certainly there's certainly cheaper than they
Speaker 1: were in the radically cheaper, radically cheaper, So I'm not
Speaker 1: even I'm not worried about We We own all of
Speaker 1: them except for um, Netflix right now, so at which
Speaker 1: we've owned with a larger show older and Netflix a
Speaker 1: couple of different times, and that's the only one that
Speaker 1: I think is expensive. Although I think if you've got
Speaker 1: a longer term time rise and that will do that
Speaker 1: will do fine as well. But you get back to
Speaker 1: the late I mean, ge traded fifty times earnings and
Speaker 1: home Depot traded at fifty times earnings. So uh, you know,
Speaker 1: these stocks at this level don't look to me particularly
Speaker 1: extended at all, even though they've done very very well
Speaker 1: that they should have done well. Now the different question though,
Speaker 1: where's the risk in them? Well, there's there's always risk
Speaker 1: and and everything, and I think you hit at the
Speaker 1: risk is uh, and I trust a reinterpretation of an
Speaker 1: I trust. I don't think unless there's a Democrats sweep
Speaker 1: that you'll get any significant change in the anti trust
Speaker 1: laws like the Clayton Act of the Sherman Act, but
Speaker 1: nothingtheless deftly changing the laws before courts can interpret things differently,
Speaker 1: regulators can can come after the companies, and so I
Speaker 1: do think the regulatory risk and the government risk is
Speaker 1: high in these companies, but that's what you'd expect for
Speaker 1: companies that are so dominant and so large, and you
Speaker 1: know five of them, the S and P five. So yeah, Now,
Speaker 1: I don't think the risk is so great that it
Speaker 1: will significantly inhibit what you can earn from them. But
Speaker 1: maybe they traded a multiple point or two lower, and
Speaker 1: there'd be headline risk more I think than real risk. Now,
Speaker 1: let's talk a little bit about some of the changes
Speaker 1: we've seen in the industry, including what some people are
Speaker 1: calling the death of value investing, which I have to
Speaker 1: imagine you're gonna snicker at. What Why has value been
Speaker 1: having such a difficult time and what does this mean
Speaker 1: for people's portfolios. Yeah, it's a fascinating question, and there's
Speaker 1: a lot of there's a lot of i'd say different
Speaker 1: views on this. We've got a guy named Dan Is
Speaker 1: said who runs i'll call it a pure value or
Speaker 1: a classical value portfolio, which which is basically a low
Speaker 1: price to tangible book, low pe low price to cash flow.
Speaker 1: And as you might expect, he's been having a very
Speaker 1: difficult time of it and and sends out a never
Speaker 1: ending stream of emails about how extreme this is and
Speaker 1: how it's never happened before and it's got to be
Speaker 1: a snap back at all. And then you might have
Speaker 1: seen Cliff Asness his work on the same thing about
Speaker 1: how extreme this is, and he believes that you're going
Speaker 1: to get a snap back. So where I come out
Speaker 1: on this is I think that the odds are overwhelming
Speaker 1: that that i'd say, value as traditionally understood will do
Speaker 1: very well from roughly now until maybe a year or
Speaker 1: two years from now. It could be longer. But why
Speaker 1: I say that is that the value has led out
Speaker 1: of every recession as far back as the data goes,
Speaker 1: and the reason for that is that when companies, when
Speaker 1: the economy peaks and goes down, value name just tend
Speaker 1: to be more cyclical. They return on cap little drops,
Speaker 1: and so their theoretical valuation just viavation drops and the
Speaker 1: stocks underperform. And then we come out of a recession,
Speaker 1: they're they're returning capital rises because they're more cyclical than
Speaker 1: a Coca Cola or Amazon, and so therefore they outperformed.
Speaker 1: And we've seen that right now. If you look at
Speaker 1: the the over going to repeat that right now, if
Speaker 1: you look at what happened, you know, going to March,
Speaker 1: the tech names, the stay at home names, the secular winners,
Speaker 1: you know, service now and Shopify, those kinds of things,
Speaker 1: they killed the market. And uh, I mean, I'm some
Speaker 1: of the guys that are really good at this, like
Speaker 1: Dennis Lynch at Morgan Stanley or James Anderson at Bailey Gifford.
Speaker 1: You know, the high high growth guys. I mean, they're
Speaker 1: up in the for the year and you know, traditional
Speaker 1: value guys are at the at the bottom of the page.
Speaker 1: But since March, the value people have beaten the growth
Speaker 1: people pretty handily. And uh, and I think that that's
Speaker 1: because the economy, you know has been bottoming and then
Speaker 1: the economy is going to start up. And so what
Speaker 1: you what you see? I mean a day like yesterday,
Speaker 1: the markets up one and a half percent, and most
Speaker 1: of those growth all those growth names underperformed dramatically. So
Speaker 1: I think in the in the relatively short run, meaning
Speaker 1: now until the next year or two, the odds are
Speaker 1: strong that value will outperform growth. But a little more,
Speaker 1: a little more UH nuance here. The reason that value
Speaker 1: has done so badly for ten years is that value
Speaker 1: thrives in a in an environment of reversion to the means.
Speaker 1: So the economy speeds up and then it peaks, then
Speaker 1: it goes down at bottom. So you have this kind
Speaker 1: of cyclicality. And if you look since the since the
Speaker 1: financial crisis, since March of o nine, the economy for
Speaker 1: ten years grew basically between one and a half and
Speaker 1: two and a half percent, averaged about two percent with
Speaker 1: low inflation, with UH, with the low interest rates, and
Speaker 1: not a lot of cyclicality. And therefore that's an environment
Speaker 1: where growth is going to thrive because low nominal growth
Speaker 1: such as we're low real one and a half to
Speaker 1: two basically, then if you grow fast like an Amazon
Speaker 1: or a Google alphabet. Your your theoretical valuation is much
Speaker 1: much greater than it is otherwise. I saw a thing
Speaker 1: in the journey. You might have seen it last week
Speaker 1: where somebody was looking at the academic literature and said
Speaker 1: that if you if you run nest Lye through a
Speaker 1: model of what the what the you know, the market
Speaker 1: kind of looks like now with interest rates at six
Speaker 1: year seventy basis points and low nominal growth from here,
Speaker 1: then Nestle's worth fifty times earnings. And so I think
Speaker 1: that's the that's the thing that would put value, you know,
Speaker 1: back behind the eight ball, which is if growth in
Speaker 1: the future is like growth in the last ten years,
Speaker 1: so call it one and a half to two percent.
Speaker 1: After we actually go to this high growth period, rebounding
Speaker 1: and interest rates stay low. And by that I mean,
Speaker 1: you know, the ten years, I don't know one and
Speaker 1: a half or two and a half or then value
Speaker 1: is going to have trouble again. So I think that's
Speaker 1: the It's maybe a long winded answer, so it depends
Speaker 1: a lot. It's context dependent. So if the world with
Speaker 1: somewhat different, if the curve shifts upward, if inflation starts
Speaker 1: to come back, then value will kill growth, and if
Speaker 1: it doesn't, then growth will probably beat value again. So
Speaker 1: you mentioned the stay at home stocks are doing well.
Speaker 1: What industries and companies have been permanently impaired by the virus,
Speaker 1: and where are the opportunities arising from this whole lockdown experience?
Speaker 1: Is this going to change us or is this just
Speaker 1: a temporary experience? So permanent is a long time, and
Speaker 1: I would say that I'd said to that that nobody
Speaker 1: has any idea because nobody knows what the future is
Speaker 1: going to bring. I mean, people have talked about Bill Gates,
Speaker 1: others have talked about going back years that we're going
Speaker 1: to have another pandemic at some point. The problem is
Speaker 1: you can't predict what that point is. And so at
Speaker 1: the beginning of this year, no one was predicting a
Speaker 1: pandemic this year, which has now radically upended all kinds
Speaker 1: of things from the economy to growth rates too, you know,
Speaker 1: access death rates, to change aging, industry norms, and all
Speaker 1: of that kind of stuff. So if you look forward
Speaker 1: and you say, what's what's permanently different, well, uh, there's
Speaker 1: going to be nothing permanently different. If we have a
Speaker 1: vaccine and the next and the relatively short term. By that,
Speaker 1: I mean over the next six months to a year.
Speaker 1: That's effective because if that happens and all of a sudden,
Speaker 1: you can fly safely, you can travel on cruise ships safely,
Speaker 1: you can gather, you can get sports, going sports, and
Speaker 1: you can go in movie theaters and so the kind
Speaker 1: of environment that we saw in January and February would
Speaker 1: be right back on the table. Hip. On the other hand,
Speaker 1: there is no vaccine, uh, And I'll also say it's
Speaker 1: not just a vaccine. No vaccine and no effective treatment.
Speaker 1: So maybe there won't be a vaccine. But if the
Speaker 1: death rate for the COVID nineteen drops down or turns
Speaker 1: out to be about the same as flu, then I
Speaker 1: think there'll be a longer term uh, return to normalcy.
Speaker 1: But well, we'll get back to that same normal thing.
Speaker 1: That sort of point one and point two, which is
Speaker 1: which I'll summarize shortly, is that the effect of this
Speaker 1: is going has been to and I think it would
Speaker 1: be permanent to accelerate trends that are already in place,
Speaker 1: which means trends towards online shopping, for example. And also
Speaker 1: it uncovered some things that we didn't know, namely that
Speaker 1: a large number of people don't have to be in
Speaker 1: an office building and in certain industries to be very productive.
Speaker 1: And so I think James Gorman at at Morgan Stanley
Speaker 1: and others have been fairly vocal about the fact that
Speaker 1: the real estate footprint for you know, for financial services
Speaker 1: companies is going to be significantly significantly different going forward.
Speaker 1: So that I think that commercial real estate is potentially
Speaker 1: exposed not in the near term, but over the over
Speaker 1: the longer term. And again, a lot of stuff is
Speaker 1: just just in the middle. We just don't know what
Speaker 1: the answer is in I was on a Zoom call
Speaker 1: when one of the participants were marveling over the new technologies,
Speaker 1: and I had to point out, Hey, we've had FaceTime
Speaker 1: and screen share and Google hangouts for years and years
Speaker 1: and years. People just didn't have to use them. So
Speaker 1: your point about the pre existing trends is very well made. Yeah,
Speaker 1: I mean, I think it's I mean, I think that's
Speaker 1: the That's about all I can say in confidence is
Speaker 1: any trends that were in effect, we're probably accelerated because
Speaker 1: of this. I couldn't agree more. Let's talk a little
Speaker 1: bit about some of the things that you've seen change
Speaker 1: over the course of your career. And I want to
Speaker 1: start with something that is a little surprising. Let's talk
Speaker 1: about cryptocurrency. How actively involved in the crypto world are
Speaker 1: you and where do you see this going as either
Speaker 1: a speculation or a potential asset class. It's interesting the
Speaker 1: way you framed that, Barry, because if you if you
Speaker 1: ask how actively I am and it are actively involved,
Speaker 1: I'm not active at all. I have a very large
Speaker 1: position personally in bitcoin. I think UH Financial Time set
Speaker 1: Up did an analysis and as at least a couple
Speaker 1: of years ago, if I've got their data right, they
Speaker 1: weren't naming names, but I think it was a top
Speaker 1: one holder of bitcoin UH in the world. And I haven't,
Speaker 1: but I haven't. I haven't bought or sold a bitcoins
Speaker 1: in years, so but I am I am holding it.
Speaker 1: I haven't. I'm not trying to trade in my trend
Speaker 1: a thing like that. And my view on cryptocurrencies was
Speaker 1: and is that they are and I'm talking mainly about
Speaker 1: bitcoin here. The other the other cryptocurrencies I think I
Speaker 1: think are mostly mostly uninteresting. There are some that are interesting,
Speaker 1: but mostly uninteresting. But I think it's a very interesting
Speaker 1: technological experiment. We haven't seen any kind of thing like
Speaker 1: this is kind of an innovation in in finance and
Speaker 1: in money, really really in history. And and so I
Speaker 1: think to bash it as many of the very prominent
Speaker 1: people whose names I won't mention them, but I think
Speaker 1: we all know who they are. What to bash it
Speaker 1: is to is to I think without without Also I
Speaker 1: think analyzing it in any kind of any kind of
Speaker 1: care is is probably premature. And I do believe the
Speaker 1: one I've changed my mind all one thing, which is
Speaker 1: when I first got involved in bitcoin, and I think
Speaker 1: my average cost on my bitcoins is around my initial
Speaker 1: costs is around two hundred my average cost free three
Speaker 1: hunds a bitcoin. And my view then was that it
Speaker 1: was it was very, very risky. It had a non
Speaker 1: trivial UH chance of going to zero, and my non
Speaker 1: trivial alignment that you know, probably at least well so
Speaker 1: unlike many investments UH with bitcoin, the higher it goes,
Speaker 1: the less risky it is longer term. With other investments
Speaker 1: with the stock, the higher it goes, unless that's being
Speaker 1: driven totally by fundamentals, the risk here it gets, the
Speaker 1: more expensive it gets. The risk here it gets whereas
Speaker 1: here what's what's leading to the bitcoins price and you
Speaker 1: know around nine thousand dollars right now is greater and
Speaker 1: greater adoption. So we're seeing more and more institutions get involved.
Speaker 1: What you're seeing is uh, you know, exchanges getting more
Speaker 1: i'd say professionalized and not being quite the wild West.
Speaker 1: So it's still pretty much the wild West, but we're
Speaker 1: still early in that game. And the thing that encourages
Speaker 1: me probably the most is that the venture capital firms,
Speaker 1: the people who who you know, who make their living
Speaker 1: trying to sort out which technologies are worthy of investing
Speaker 1: in which aren't. Have Not every venture capital firm is
Speaker 1: big in bitcoin, but many of the most prominent ones are,
Speaker 1: And I think that's probably the thing that gives me
Speaker 1: the greatest confidence is they're still putting new money into
Speaker 1: this and raising new funds for this, and that increases
Speaker 1: the probability that it works. And then secondarily to the
Speaker 1: point is I think it's it's right now just just
Speaker 1: a you know, a speculative vehicle. I think it could
Speaker 1: become an asset class. I think it's most likely to be, uh,
Speaker 1: you know what. One of the books, the titled Digital gold.
Speaker 1: I think that's probably the most likely venue for it
Speaker 1: to succeed at. And I think also that one of
Speaker 1: the things that's gotten some attention, as you probably know,
Speaker 1: is that Paul Tutor Jones is put close to I
Speaker 1: think now he's close to two of his funds in bitcoin,
Speaker 1: and other people like Stan Dructon Miller. I don't believe
Speaker 1: on owns bitcoin or great value. I don't believe owns bitcoin.
Speaker 1: I'm not sure. But but they they are bullish on
Speaker 1: gold because of the massive stimulus, the massive money printing,
Speaker 1: printing a nut that their bullets, because they think going
Speaker 1: to runaway inflation. They just believe the probabilities of gold
Speaker 1: doing well, and gold has done well, are increasing. And
Speaker 1: my my view is that if gold does well in
Speaker 1: the next five to ten years, bitcoin will do a
Speaker 1: lot better because it has many advantages that gold doesn't have.
Speaker 1: So I would I would say that, you know, if
Speaker 1: I were to advise people, which I don't do that
Speaker 1: kind of thing, but what I did was I put
Speaker 1: about one percent of my liquid net worth and bitcoin,
Speaker 1: and I would say for people who are interested in it,
Speaker 1: that's an interesting way to go because anybody can afford
Speaker 1: to lose one percent of their liquid net worth and
Speaker 1: uh and if you can't, then you ought to be
Speaker 1: in cash or in short term short term government bonds,
Speaker 1: any of anybody that own stocks and afford to lose
Speaker 1: one percent. So, but the right hand tail of the distribution,
Speaker 1: if it works, is many many times at the current price.
Speaker 1: Quite fascinating. So you mentioned it's a technology digital gold
Speaker 1: as well. Is this a potential currency and a potential
Speaker 1: alternative to the dollar, And regardless of bitcoin, is the
Speaker 1: almighty dollar going to continue to be the almighty dollar
Speaker 1: into the foreseeable future? What potentially could dethrone the dollar
Speaker 1: as as the world's reserve currency. Yeah, that's a really
Speaker 1: interesting and important question because a guy wrote a book
Speaker 1: on the dollar called, you know, Exorbitant Privilege, you know,
Speaker 1: some years ago. And the dollar has been a huge,
Speaker 1: huge benefit as the reserve currency for the U S.
Speaker 1: It's why we don't, you know, suffer the problems of
Speaker 1: countries that you have to use dollars and and and
Speaker 1: so we'll we'll be vulnerable to runs on their own
Speaker 1: currency and in favor of the in favor of the dollar.
Speaker 1: You might remember back in nineteen uh two seven two
Speaker 1: thousand seven and eight that Warren Buffet and Paul Krugman,
Speaker 1: when asked what they thought the risk was to the
Speaker 1: overall market, they both mentioned the current account deficit and
Speaker 1: said they were concerned about a dollar collapse and people
Speaker 1: would lose confidence in the dollar because of our massive
Speaker 1: current account and growing current account deficits and and so uh.
Speaker 1: It turned out the current account deficit, it wasn't a
Speaker 1: problem at all. The housing market was a problem. But
Speaker 1: and when the when the global financial crisis came, people
Speaker 1: didn't sell dollars, they bought dollars. So I think that
Speaker 1: that gives you a sense of of of how powerful
Speaker 1: the dollar is right now. The issue though, is that,
Speaker 1: um that we're in competition with the Chinese globally, and
Speaker 1: the Chinese economy will be bigger than ours at some point,
Speaker 1: and the Chinese are experimenting and I think going to
Speaker 1: come up with a with a cryptocurrency that will be
Speaker 1: you know, that the Chinese government will back, and part
Speaker 1: of the reason they want to do that is to
Speaker 1: try and undermine the dollar. So I would guess also
Speaker 1: that the US will all so at some point have
Speaker 1: a you know, have a fedbacked cryptocurrency. And maybe some
Speaker 1: other the other reserve currencies as well. So I think
Speaker 1: that's a potential significant change that as it evolves, that
Speaker 1: would also put a lot more attention on bitcoin. And
Speaker 1: of course, the big advantage of bitcoin is that it's permissionless,
Speaker 1: it's decentralized, it can't be hacked, and it can't be debased,
Speaker 1: and and so I think that difference between a government
Speaker 1: backed currency, even if it's a cryptocurrency, and one that
Speaker 1: is basically independent its whole, its whole way of operation,
Speaker 1: is independent of any government, would would be beneficial to bitcoin.
Speaker 1: So it doesn't happen a collapse is just the Bitcoin
Speaker 1: would benefit from the differentiated aspect of it to whatever
Speaker 1: other sorts of cryptocurrencies or payment systems come around. You
Speaker 1: call bitcoin digital gold, I've been calling it libertarian gold.
Speaker 1: And I can't see that crowd getting behind certainly not
Speaker 1: be on a federal reserve that crypto and essentially planned
Speaker 1: um regime like China. I can't imagine the libertarians buying
Speaker 1: into that. Do you really think a Chinese cryptocurrency has
Speaker 1: a chance to capture the imagination of at least the
Speaker 1: early adopters in that space. Um Let me let me
Speaker 1: resort this out. You know, if you look back at
Speaker 1: bitcoin when it got started in who it's initial enthusiasts were,
Speaker 1: it was basically libertarians, people that hate to fed, inflationists,
Speaker 1: hard money people, all that kind of stuff that they
Speaker 1: provided the early impetus and the emotion, uh to get
Speaker 1: behind it because it checked a lot of their boxes.
Speaker 1: So if you think of bitcoin as as a favorite
Speaker 1: of the libertarians, you know, as as a politicized thing,
Speaker 1: which I think it is to a minor extent, much
Speaker 1: miner than it used to be before. No, the libertarians
Speaker 1: are never going to get behind a sponsored cryptocurrency, much
Speaker 1: less a Chinese sponsored cryptocurrency. But they're a relatively small
Speaker 1: part of what, you know, what drives the global economic system.
Speaker 1: And I think the rest of it is going to
Speaker 1: be just based on practicality and it doesn't work and
Speaker 1: uh and doesn't solve some kind of financial need, and
Speaker 1: we'll just have to see that again. It's early, it's
Speaker 1: early days in this, you know. Friedrich Hyak wrote a
Speaker 1: wrote a monograph called the de Nationalization of Money where
Speaker 1: he argued that there should be you know, the basically
Speaker 1: money's money is plural, should compete with each other, and
Speaker 1: any banks should be able to issue its own money.
Speaker 1: Any company should issue its own money, and then the
Speaker 1: market will sort out which ones are valuable in which
Speaker 1: ones aren't. We had that in the United States for
Speaker 1: about thirty years. Didn't work out too well enough in
Speaker 1: the nineteenth century, but it doesn't mean that it can't
Speaker 1: work some version of it in the future. And I
Speaker 1: think that's part of what part of the direction that
Speaker 1: this is going right now. So let me shift gears
Speaker 1: on you a little bit. I have to bring up
Speaker 1: something I'm fascinated by. You made a seventy five million
Speaker 1: dollar donation to Johns Hopkins University, your alma mater, to
Speaker 1: the philosophy department, turned out to be the largest ever
Speaker 1: gift to a philosophy department. Explain what motivated that. Tell
Speaker 1: us about your thinking behind that gift. Sure, So I
Speaker 1: went to grad school at Hopkins, got a chef in
Speaker 1: of the PhD program there in the mid nineteen seventies,
Speaker 1: and after I get out of the Army, and and
Speaker 1: I was at my mindset on I'm becoming a college professor,
Speaker 1: and that was a very bad time, just like his
Speaker 1: right now, it's just been a bad time. For like
Speaker 1: four years to get a pH d in a in
Speaker 1: the humanities, whether it be English or philosophy or French
Speaker 1: or whatever the case may be. And so when it
Speaker 1: finally became clear to me that that was not going
Speaker 1: to be uh, something that made a lot of sense,
Speaker 1: I would probably a vagabond bouncing from college to college.
Speaker 1: I then shifted gears. I've always been interested in markets,
Speaker 1: and so I was fortunate to get a job initially
Speaker 1: at a private company and then moved into their treasury
Speaker 1: function and manage some money for them, and then went
Speaker 1: to like Mason. And the thing is I look back
Speaker 1: on was the thing that probably was the most useful,
Speaker 1: practically useful thing to me, much more useful than being
Speaker 1: an economics major undergrad and you know, learn money and
Speaker 1: banking and all that kind of stuff, and the you know,
Speaker 1: the equation of exchange on vv equals p Q, where
Speaker 1: the the analytical habits of thought and the critical analytical
Speaker 1: skills that you learn uh in philosophy, which is very
Speaker 1: rigorous and UH and in some cases highly quantitative. Although
Speaker 1: I would I wasn't particularly attracted to that part. But
Speaker 1: I my view is that I would not have had
Speaker 1: anything like the success that I've had in capital markets
Speaker 1: had I not had that philosophical training, because part of
Speaker 1: it is that that you're always trying to figure out
Speaker 1: what's wrong with your view and not trying to press
Speaker 1: your view about what's right. A lot of people in markets,
Speaker 1: as you're undoubtedly aware, have very strong views about lots
Speaker 1: of things. You know, I mean, lots of very smart
Speaker 1: people were short Tesla and thought it was a fraud.
Speaker 1: Lots of very smart people thought that Amazon was going
Speaker 1: to go bust Baron's caught it Amazon dot Com. But
Speaker 1: when you get you know, when you get kind of
Speaker 1: the bit in your teeth and have a strong view
Speaker 1: on that, you tend to ignore countervailing information and look
Speaker 1: for confirmation, and all kinds of psychological things come to play.
Speaker 1: And one of the things that going through the drill
Speaker 1: and grad school philosophy UH, at least at Hopkins UH
Speaker 1: was imparted to me that you've got to hold all
Speaker 1: that stuff back because you're what you're really trying to
Speaker 1: do is get at what's called the argument to the
Speaker 1: best explanation. So what what's what's going on here? Not
Speaker 1: what do I want to go on or what do
Speaker 1: my beliefs tell me. But you know, you've got to
Speaker 1: consider all evidence from every angle. So it's like a
Speaker 1: Rubik's cube look at things. And that was enormously helpful
Speaker 1: to me, and I would say that it was it
Speaker 1: was part of why you know, we bought Google, and
Speaker 1: the second by the biggest buyer Google on the I
Speaker 1: p OH, the big buyer of Amazon on the I
Speaker 1: p O. And so a lot of those names that
Speaker 1: have been among our biggest winners have been due to
Speaker 1: I think the analytical skills that I developed in grad school.
Speaker 1: And I thought it was a useful way to to
Speaker 1: you know, to pay that back because I think the
Speaker 1: more people that are exposed to philosophy, so Hopkins Department
Speaker 1: were more than double as as a result of the
Speaker 1: size of this, and they've already hired, you know, last
Speaker 1: few years there several distinguished philosophers. So I think I
Speaker 1: think it'll be good as more students at Hopkins take philosophy.
Speaker 1: And also I just thought it was good to shine
Speaker 1: a light on the value of philosophy, and especially when
Speaker 1: people are thinking about stems so much, uh, you know,
Speaker 1: and and and using your education to get a job.
Speaker 1: I think that's fine but I think that actually that
Speaker 1: the humanities have a practical value as well as you know,
Speaker 1: as an intellectual value to people as well. So one
Speaker 1: of the things that's kind of intriguing watching people who
Speaker 1: are not epidemiologists tracked all the data is that we're
Speaker 1: testing so many more people today that we're finding lots
Speaker 1: of asymptomatic um people who are infected or asymptomatic um
Speaker 1: people who are currently infected. So that's driving the death
Speaker 1: rate down, and then the number of people under fifty
Speaker 1: and under forty who seem to be getting it, who
Speaker 1: have a much better prognosis um for surviving. Those are
Speaker 1: really making the mortality rates looked better than they did
Speaker 1: in the beginning, when we really only fact out about
Speaker 1: who had it based on whether they went to the
Speaker 1: hospital or died, right right, Yeah, I mean, it's it's
Speaker 1: it's interesting. I'm on the I'm on the board of
Speaker 1: Johns Hopkins, which is kind of, um, you know, ground
Speaker 1: zero for all the data on this kind of stuff.
Speaker 1: And we have a call on COVID every Easter every
Speaker 1: week now it's now it's every other week. But yeah,
Speaker 1: that was that was one of the things that came
Speaker 1: up in the call this morning, which is, if you
Speaker 1: look at like Florida, for example, you're getting a huge
Speaker 1: increase in in case aces um. Before Florida reopened, the
Speaker 1: average age of somebody with COVID was sixty two. And
Speaker 1: since it's reopened, with all that jump in cases, the
Speaker 1: average age of cases since then is thirty five. And
Speaker 1: if you look at them the data on mortality of
Speaker 1: people who are thirty five, then their mortality, their chance
Speaker 1: of dying is point zero zero zero five. So basically
Speaker 1: it's basically almost nothing. So I think that's what that's
Speaker 1: what you're seeing, and that the press doesn't do a
Speaker 1: very good job of sorting out the various you know,
Speaker 1: ways in which you can you can carve up these
Speaker 1: carve up these statistics. So it's and as you said,
Speaker 1: the more talent that the number of people that apparently
Speaker 1: are asymptomatic in this I think the CDC said the
Speaker 1: other day that it's probably ten times a number of
Speaker 1: people that actually have had the you know, I have
Speaker 1: to have tested positives that would be, you know, instead
Speaker 1: of two million people that have had it, it's twenty
Speaker 1: seven million people. And the CDC said it could be
Speaker 1: as any fifty times that, which means that mortality is
Speaker 1: very very low, and the aggregate and if you look
Speaker 1: at them and carving it by age, I think it's
Speaker 1: only six percent of the people who have died from COVID.
Speaker 1: We're actually in the labor force. So people that are
Speaker 1: in the labor force the very little, you know, very
Speaker 1: little problem, which again makes that makes the cost of
Speaker 1: shutting down the economy to try and protect people who are,
Speaker 1: you know, in their seventies or eighties, instead of isolating
Speaker 1: those people and trying to have them make sure that
Speaker 1: they don't you know, they're they're not mixing like people
Speaker 1: my age over seventy years old. That makes perfect sense,
Speaker 1: But keeping everybody out of the labor force who has
Speaker 1: very little risk doesn't make much sense at all. So
Speaker 1: I won't spoil the surprise for Johns Hopkins, but I
Speaker 1: suspect there's a big pile of bitcoin coming their way
Speaker 1: sometime over the next few decades. Um, But let's just
Speaker 1: keep that between us. So, so if you mentioned, um,
Speaker 1: how philosophy has impacted the way you approach investing, how
Speaker 1: has your philosophy about investing changed over the past few decades.
Speaker 1: It's hard to imagine the Bill Miller of leg Mason
Speaker 1: as a buyer of bitcoin. I suspect your thinking seems
Speaker 1: to have evolved over that time period. Yeah, i'd say, uh, actually,
Speaker 1: I was still an employee of like Mason when I
Speaker 1: made the when I made the bitcoin, the first bitcoin purchase.
Speaker 1: But yeah, I guess my my thinking changed mostly around
Speaker 1: and then it's I'd say, it hasn't changed much since
Speaker 1: that point in time. So what happened was that we
Speaker 1: started the Value Trust in two and by six it
Speaker 1: was the single best performing fund in the country of
Speaker 1: the last you know, five five years. So we were
Speaker 1: number one in fidelity. Mitchellan Fund were number two. And
Speaker 1: then when the economy peaked, and so we got wet
Speaker 1: hit in the crash, not not terribly, but because we
Speaker 1: had a lot of cash going into the crash, the
Speaker 1: two thousand crashes that we back. Yeah yeah, yeah. So
Speaker 1: but when we had that recession, we then had a
Speaker 1: terrible year in nine and we lost half our assets
Speaker 1: in the funds. And so I went back to look
Speaker 1: at the history of value investing as traditionally conceived and
Speaker 1: concluded that what people thought about it and the way
Speaker 1: it was portrayed in the press and and you know
Speaker 1: popularly was wrong and that the academic research did not
Speaker 1: did not support that view. And namely, the value investing
Speaker 1: was in some way or other superior to growth investing
Speaker 1: on on some on some fundamental basis, which probably psychological.
Speaker 1: And it was the case that just because stocks had
Speaker 1: a low key year, low price to book or low
Speaker 1: prast cash flow, that just that typically meant that they
Speaker 1: had a low return on capital, or or were highly
Speaker 1: capital intensive, or they had a lot of debt. And
Speaker 1: unless one of those things are many of the things changed,
Speaker 1: they did now perform. They just were just statistically cheap.
Speaker 1: So we began to put a lot more effort on
Speaker 1: integrating what the academic research showed about investing with what
Speaker 1: the practicalities of investing were. And the key thing was
Speaker 1: to focus on return on capital through a cycle. So
Speaker 1: what we went from doing was was getting away from
Speaker 1: uh generally accepted accounting principles gap measures and looked at
Speaker 1: measures of economic value. And so we focused on h
Speaker 1: free cash flow, yield, return uninvested capital, and companies that
Speaker 1: could earn that through recycle. That was that was the
Speaker 1: big change, and that hasn't really changed very much since then.
Speaker 1: I'd say the only thing which is changed since then
Speaker 1: is an understanding which I've talked about earlier in the interview,
Speaker 1: about when value does well and when growth does well,
Speaker 1: so that you know, the so called value can underperform
Speaker 1: for long periods of time if the economy has very
Speaker 1: low volatility and low nominal growth rates. So I think
Speaker 1: that's the that's the other change which would cause us,
Speaker 1: which has caused us to to un til differently. So
Speaker 1: in the in the Opportunity Fund that I run with
Speaker 1: my colleague Samantha maclamore, you know, since the March o
Speaker 1: nine bottom through two thousand nineteen, we're in the top
Speaker 1: one percent of all funds. And that's partly due to
Speaker 1: the stuff that I just I covered in some some
Speaker 1: psychological things that we believed about people's first conversion and
Speaker 1: misperception of risk, which I think will repeat again in
Speaker 1: this in this current post pandemic environment. So it's funny
Speaker 1: because when we had our last interview in I think
Speaker 1: a large segment of the fund following world had figured well,
Speaker 1: Bill Millers washed up and left for dead, and I
Speaker 1: saw some data that had you as the top performing
Speaker 1: fund for one three five years. This is all post
Speaker 1: o nine UM. So clearly whatever you learned in ninety
Speaker 1: and applied after the financial crisis UM seems to be working.
Speaker 1: It raises a couple of interesting questions. Let me ask
Speaker 1: about oh eight oh nine. Why did value um underperform
Speaker 1: heading into the financial crisis? And what was it that
Speaker 1: so many people missed in the spreadsheet that was evident
Speaker 1: if you look at books like The Big Short or
Speaker 1: the movie you are just how crazy the home flipping
Speaker 1: epidemic had become. Why was it so challenging to see
Speaker 1: that if you were looking at at balance sheets as
Speaker 1: opposed to the real estate listings. Yeah, I'd say that. Um,
Speaker 1: there's a there's a line that Charlie Munder Warren Bucket's
Speaker 1: partner said, and I think it's two thousand nine, because
Speaker 1: you know, he had just hired uh, Todd and Ted
Speaker 1: to come start managing money for Berkshire maybe a year
Speaker 1: or two earlier. And and they were asked at the
Speaker 1: annual meeting, you know, did the guys that you hire
Speaker 1: did they outperform in this in this bear market? And
Speaker 1: uh and Buffett said no, they you know, they underperformed
Speaker 1: and and uh and somebody said, well, what you know,
Speaker 1: what do you think you know they did wrong? And
Speaker 1: the implication that you know where they where they messed
Speaker 1: things up, and and Charlitan Winker said, he said, he said, well,
Speaker 1: he says the way that I look at this, he says,
Speaker 1: I think the market estim he was down thirty eight
Speaker 1: percent or something got in two thousand and eight. Charlie said,
Speaker 1: in my view, he said, if you weren't down at least,
Speaker 1: then you didn't know what you were doing. I thought
Speaker 1: was it was a clever line. And I think that
Speaker 1: the issue that you know, in retrospect that I looked
Speaker 1: at was that there were there were structural things that
Speaker 1: I missed. The stock market never got really expensive in
Speaker 1: the sense of you know, times earning is an expensive
Speaker 1: relative to to UH two rates. And part of the
Speaker 1: reason was that the market had kind of picked up
Speaker 1: that there was a risk there and it was, you know,
Speaker 1: it was an asset based risk. And most almost all
Speaker 1: recessions are due to liquidity UH implosion, so you know,
Speaker 1: fet titans, that discount rate goes up, the economy goes
Speaker 1: into recession, that kind of thing. But it's basically the
Speaker 1: raising interest rates, and there they typically weren't you know,
Speaker 1: debt financed assets that were such a large part of
Speaker 1: the economy that it could it could be a risk
Speaker 1: of the financial system. And I think that's what that's
Speaker 1: what I missed then. So there were in fact, the
Speaker 1: academic research didn't even uh distinguish between balance sheet based
Speaker 1: recessions and income statement recessions, and it does now, And
Speaker 1: I think that's that's one of the one of the
Speaker 1: things you've got to be careful looking at and the
Speaker 1: overall economy is what what kind of problem are we
Speaker 1: seeing in the in the financial system, And there the
Speaker 1: financial system wasn't was at risk of complete collapse. If
Speaker 1: the FETE hadn't hadn't put PARP in there, the banking
Speaker 1: system could easily have collapsed. And that's just not the
Speaker 1: not the case now that the FET has acted much faster,
Speaker 1: and it's a very different sort of problem that we're
Speaker 1: facing from what we what we've before that problem was
Speaker 1: a banking system based problem, and the banking system is
Speaker 1: actually probably one of the strongest parts of the economy
Speaker 1: right now, so very very different now from from that.
Speaker 1: So since you brought up the FED, I have to
Speaker 1: ask I've heard people complain about FED interventions FED support
Speaker 1: of the stock market. Not only is the FED buying
Speaker 1: e t F the buying specific bonds. What do you
Speaker 1: make of the FED action? How does it influence your
Speaker 1: views of the market, and do you do anything to
Speaker 1: position your portfolio to either withstand or take advantage of
Speaker 1: whatever the FED is doing. Yes, so I think that
Speaker 1: I'm puzzled a little bit at people's views, you know,
Speaker 1: who have again a strong view about the FED ought
Speaker 1: to do this, the FED ought to do that, you know,
Speaker 1: and this is the right thing, doing the wrong thing
Speaker 1: to do. I mean, my main issue is I don't
Speaker 1: really care what my personal view is about what the
Speaker 1: what the FED ought to do or whatnot or will do.
Speaker 1: My view is I need to figure out what it
Speaker 1: is they are doing and what the impact of that's
Speaker 1: likely to be, quit apart in what I think that
Speaker 1: they ought to do. And I think that also people
Speaker 1: kind of forget about why we have a FED in
Speaker 1: the first place, and why we have a FED in
Speaker 1: the first place was we had recurrent banking prices and
Speaker 1: collapses and severe recessions or short depressions back throughout the
Speaker 1: nineteenth century and we needed it. We needed instead of
Speaker 1: a central clearing house, which is the way banking system
Speaker 1: worked is having actually a a lender of last resort
Speaker 1: similar to what the you know, the Bank of England was,
Speaker 1: and that you know that worked out. Okay, I'd say,
Speaker 1: I think it's working so much better now because we
Speaker 1: know a lot more now about how that stuff works.
Speaker 1: And I still think that people fundamentally misunderstand what the
Speaker 1: power of the FED, even though there's a famous line,
Speaker 1: don't fight the FED, but underestimate the power of it
Speaker 1: and how it fits into the overall economies. This one
Speaker 1: one's brief thing. Well you'll remember this very well, and
Speaker 1: I'm surprised that, you know, people still don't pay the
Speaker 1: attention to this. When the FED finally got its self
Speaker 1: and gear in two thousand and eight, uh and really
Speaker 1: began acting as a lender of last sort of backstopping
Speaker 1: facilities and swap lines with the overseas banks and central banks.
Speaker 1: I mean, that was that was what ended along with
Speaker 1: the TARP, that's what ended the financial crisis and saved
Speaker 1: the banking you know, save the banking system. But people,
Speaker 1: you know, lots and lots of people said that we
Speaker 1: were going to have inflation, and look at all this
Speaker 1: money printing, and that was completely wrong. And but I
Speaker 1: think that same basic group that was wrong says the
Speaker 1: same thing again without having any idea about why they
Speaker 1: were wrong. Then, so uh, again, I don't have a
Speaker 1: I don't have a view, certainly not a dogmatic view,
Speaker 1: but I don't have a view about what whether we're
Speaker 1: gonna have inflation or not. All I know is we
Speaker 1: don't have inflation now and uh, and we're not gonna
Speaker 1: have inflation probably the next year or two after that,
Speaker 1: who knows. But I do think that the Fed did
Speaker 1: exactly the right thing, which is why the why the
Speaker 1: stock market bottom as quickly as it did, and it
Speaker 1: moved much much faster than this time than it did before.
Speaker 1: But it moved so fast now because it understood before
Speaker 1: what the consequences were of moving slowly. So I think
Speaker 1: that the interesting thing now is that Chairman Powell has
Speaker 1: said that they will not um increase rates until they
Speaker 1: are convinced that that we're on a sustainable growth path,
Speaker 1: and that they won't increase rates until the realized inflation rate,
Speaker 1: not their forecast, but the realized inflation rate is above
Speaker 1: two on a symmetrical basis, And since it's only been
Speaker 1: above two two quarters in the last ten years. We
Speaker 1: don't know when they're going to start the symmetry, maybe
Speaker 1: as of you know what two eighteen, when they change
Speaker 1: there what's called their reaction function. But you're gonna they're
Speaker 1: gonna let inflation run in my opinion, based on what
Speaker 1: they said, must they change their mind at three to
Speaker 1: four percent for a while. So you're looking at the
Speaker 1: case where interest rates are going to be very very
Speaker 1: low and no problem at all, um, no competition at
Speaker 1: all for equities for several years. And I think that
Speaker 1: that leads you to the view that if the economy
Speaker 1: is then going to grow, um, you need to be
Speaker 1: long equities again sat a strate line. But I think
Speaker 1: that that even now where are we now, it's what
Speaker 1: we're doing right now. It's actually interesting enough to me
Speaker 1: following the two thousand nine playbook. So if you think
Speaker 1: about it, the the market bottomed in two thousand nine
Speaker 1: in March, in early March. This market bottomed in late March.
Speaker 1: The market had a big rally in two thousand nine
Speaker 1: into June. That's what this market did. The market had
Speaker 1: a ten percent correction. Then that's what this market did,
Speaker 1: and then it continued to rally throughout the rest of
Speaker 1: the year. And again I don't I don't prect the market.
Speaker 1: I can't predict the market, but certainly that's the that
Speaker 1: appears to be the direction that things are going right now.
Speaker 1: And uh, and so I think that it wouldn't It
Speaker 1: wouldn't surprise me if the overall if the overall market
Speaker 1: hit new highs some time, you know, late this year
Speaker 1: or early next year, which I think would probably a
Speaker 1: surprise to most people. But if the economy is coming
Speaker 1: back faster and there's not gonna be any inflation, and
Speaker 1: I said, it's not going to raise rates and we
Speaker 1: can have a new HID and GDP by the first
Speaker 1: quarter of next year, I can't see a reason why
Speaker 1: the market wouldn't be an all time high. Then quite interesting.
Speaker 1: I have to circle back and ask you another valuation question,
Speaker 1: because this has been an internal debate in my firm
Speaker 1: and there is no resolution of it. But I'm fascinated
Speaker 1: by your perspective. If we look back over the past
Speaker 1: call a century of of equity valuations, there has been
Speaker 1: a gradual increase in what investors are willing to pay
Speaker 1: for a dollar of earnings and I don't mean just
Speaker 1: like a cyclical move during a bullmarket. I mean over
Speaker 1: the past many decades um, going back to the twenty
Speaker 1: nine crash. And some people have argued that it is
Speaker 1: a function of how much less capital intensive companies are today.
Speaker 1: You think about railroads or auto manufacturers versus you know,
Speaker 1: a couple of guys a laptop and a Amazon web services.
Speaker 1: Are companies today more deserving of higher valuations than the material,
Speaker 1: labor and capital intensive companies of last century or is
Speaker 1: that just an excuse for higher pe ratios. Oh, I
Speaker 1: would think that you know that absolutely. I mean not
Speaker 1: every company is deserving of that. But if you look
Speaker 1: at the valuations of I would say, the companies that
Speaker 1: dominated the top the largest companies in the US and
Speaker 1: the you know, the forties of the fifties or even
Speaker 1: in the early nineteen sixties, and look at their financial characteristics,
Speaker 1: you know, their return on capital, their free cash flow generation,
Speaker 1: their debt levels, um. And then look at companies that
Speaker 1: those same characteristics today. They are not any more expensive
Speaker 1: today than they were back in the you know, fifties
Speaker 1: or sixties, and accept the interest rates are lower, uh,
Speaker 1: which would make them moderately more expensive. But what's really
Speaker 1: different is that you know, the top the companies are
Speaker 1: the biggest companies in the US right now. They're radically
Speaker 1: different financial characteristics and growth rates. And also I would say, um,
Speaker 1: you know, moats around them. I mean, no one's gonna
Speaker 1: catch up with with Amazon, or with or with Google
Speaker 1: or with Facebook. In my opinion, no one's gonna be
Speaker 1: big bigger than in global uh streaming than Netflix. So
Speaker 1: those companies competitive advantage period is much longer than you
Speaker 1: know than a company like General Motors and which faced
Speaker 1: foreign competition and now faces other kinds of competition from
Speaker 1: from electric cars and stuff like that. So yeah, I
Speaker 1: think it's I don't think it's a hard to explain
Speaker 1: at all. I think it fits righting with with financial
Speaker 1: theory would tell you quite fascinating. I've covered a ton
Speaker 1: of stuff Before we go to our speed round questions.
Speaker 1: I have one last question for you, and it's about
Speaker 1: the cost of active management. Last we had a conversation
Speaker 1: about this. You had said it's it's too high and
Speaker 1: doesn't deliver enough value for what it costs. What are
Speaker 1: your thoughts today? The prices have come down fairly dramatically,
Speaker 1: both for management and for trading, which is more or
Speaker 1: less cost less. What are your thoughts on on the
Speaker 1: state of the industry and what it costs to be
Speaker 1: an investor if you're working with a professional manager. Yeah,
Speaker 1: I mean, I think I stand by what I said before.
Speaker 1: Is that, um, that the issue isn't that The issue
Speaker 1: is the cost relative to the value that you're getting.
Speaker 1: And I think that that issue is not so much
Speaker 1: a question of the skills of active management as it
Speaker 1: is the the risk controls or the structural impediments that
Speaker 1: they have what are partly institutional and partly legal. So
Speaker 1: you know, if you the investment comp in the act
Speaker 1: of all kinds of restrictions about how you can construct portfolios,
Speaker 1: which which don't exist in the hedge fund world for sure,
Speaker 1: And then the business side of investment management is such
Speaker 1: that the reality of client behavior is that you know,
Speaker 1: they tend to be, especially in the current environment, risk
Speaker 1: and volatility phobic, and if you have tracking error on
Speaker 1: the downside, that that represents a business risk, which kind
Speaker 1: of leads you then to more of a closet indexing approach.
Speaker 1: And the only way that approach can work is with
Speaker 1: lower cost than it currently has and an ability to
Speaker 1: kind of serve the market just ahead of the market,
Speaker 1: which I think is very difficult. So the challenge active
Speaker 1: management has is to actually have a portfolio construction dynamic
Speaker 1: which which has high active share with the professical actors share,
Speaker 1: meaning your portfolio can't look exactly like your benchmark. If
Speaker 1: your portfolio looks like your benchmark exactly, then you're gonna
Speaker 1: underform your benchmark. If your cost or higher, you can't
Speaker 1: do anything else. So that means just mathematically that your
Speaker 1: probabilities of increasing about performing grow as you diverge from
Speaker 1: your benchmark. But also the that tracking error can also
Speaker 1: go on the downside, and said, that's the big challenges
Speaker 1: to try and try and mitigate that downside tracking error
Speaker 1: relative to the upside tracking error as we'll call it.
Speaker 1: And then and that's the case, then that's how you
Speaker 1: can add value because you'll outperform over time. And of
Speaker 1: course lower costs are always helpful. Last we spoke, I
Speaker 1: recall your active share was amongst the highest in the industry.
Speaker 1: What are you running for an active share for for
Speaker 1: your funds at at Miller value? The way it's the
Speaker 1: way that it's captive, it's roughly around among the highest
Speaker 1: in the country. Still, that's what we've done for a
Speaker 1: long time. So and so it causes causes angst. It
Speaker 1: causes angst when we have a you know, a year
Speaker 1: where we're behind the market fairly dramatically, but we can
Speaker 1: always come back quickly. In two thousand eighteen, which is interesting,
Speaker 1: in August of two thousand and I'm sorry yet two
Speaker 1: thousand and eighteen, August two thousand eighteen, UM, I'm say
Speaker 1: two nine. Obviously two thousand nineteen, UM, we were I
Speaker 1: think I think eight hundred basis points or nine basis
Speaker 1: points behind the market, and we ended up two hundred
Speaker 1: three hundred ahead of the market. So we made up
Speaker 1: like eleven basis points in a quarter in a month.
Speaker 1: And I think that that's you. And the reason for
Speaker 1: that is that the FED changes reaction function. The market
Speaker 1: wasn't worried then about a recession, and so all of
Speaker 1: the fear that drove the two thousand eighteen fourth quarter
Speaker 1: decline dissipated. And I think that's the kind of thing
Speaker 1: that you're actually starting to see right now in the market.
Speaker 1: You look at the people that led I mentioned earlier
Speaker 1: in the first quarter and Uh, they just killed it.
Speaker 1: But now I think that, I mean we're we're now.
Speaker 1: I think, uh, we're less behind now, even though we
Speaker 1: had a stronger bear market decline uh this year than
Speaker 1: we did back in two thousand and nineteen and the
Speaker 1: early part of the year. So we're less behind now
Speaker 1: than we were August of two thousand and nineteen. So
Speaker 1: I feel pretty good about our about our our kansas
Speaker 1: of doing well again this year. So one of the
Speaker 1: things you've said before that relates directly to that is
Speaker 1: volatility is the price you pay for performance. I assume
Speaker 1: you're gonna expect volatility, You're gonna expect big draw downs
Speaker 1: like you saw in eighteen. How do you manage your
Speaker 1: client base? How do you manage the institutions you deal
Speaker 1: with when all of a sudden during a quarterly review,
Speaker 1: Hey we're down eight or nine percent behind our benchmark?
Speaker 1: Is that a challenge to juggle and or do people
Speaker 1: understand that you want the upside, you gotta deal with
Speaker 1: a little bit of down. So when things get well.
Speaker 1: When I when I bought the ownership and what was
Speaker 1: then called LMM from like Mason, I brought the mutual
Speaker 1: funds along, but I did not bring the institutional business along,
Speaker 1: and so we don't we don't really take we have
Speaker 1: some separate accounts, but we don't really take institutional business.
Speaker 1: We're not that we won't take it, but that we uh,
Speaker 1: we're not actively trying to grow it, and we're only
Speaker 1: interested in having clients that really understand that point that
Speaker 1: you just made that you're going to get volatility, and
Speaker 1: we're trying we try and monetize the volatility. So what
Speaker 1: we want to do is if the market goes down
Speaker 1: a lot, you know, as it did in in March
Speaker 1: of this year, we will we will reorient the portfolio
Speaker 1: around to try and take advantage of when it comes back,
Speaker 1: and as it goes higher, we want to trim the
Speaker 1: stuff that has done really well and then moved out
Speaker 1: into stuff that would tend to be more resilient on
Speaker 1: the on the down side. But we don't have that.
Speaker 1: Even though we obviously you know the papers every day
Speaker 1: what we're doing, and we have quarterly calls and meetings,
Speaker 1: we don't have those quarterly institutional meetings that we used
Speaker 1: to have, and those those were more challenging because um,
Speaker 1: every institution has got a different way of thinking about
Speaker 1: you know, risk and reward and what they're looking for.
Speaker 1: I think I think, you know, I've been doing this
Speaker 1: long enough that most of our clients understand that that's
Speaker 1: what comes with the territory, and so we really haven't,
Speaker 1: you know, uh, suffered much in the way of redemptions
Speaker 1: in the last several years. In fact, we have, you know,
Speaker 1: I don't know if we have net inflows now. Our
Speaker 1: income fund definitely has net inflows so far this year,
Speaker 1: and the other funds if we if we have outflows,
Speaker 1: it's it's not much, which is kind of unusual, you know,
Speaker 1: for for an active mutual fund. Quite interesting. I have
Speaker 1: a million other questions for you, but I've kept you
Speaker 1: for an hour so far, so rather than take up
Speaker 1: too much of your time, we'll have you back when
Speaker 1: we're finally done with lockdown, and let's jump to our
Speaker 1: speed round, our our favorite questions we ask all of
Speaker 1: our guests, and since you mentioned Netflix, let's start there.
Speaker 1: Tell us what you're streaming these days? What are you
Speaker 1: watching on either Netflix or Amazon Prime, or or what
Speaker 1: are you listening to in terms of podcasts or or
Speaker 1: anything like that. It's a really easy question because the
Speaker 1: answer is nothing, So I don't. Really, I don't. I don't.
Speaker 1: I don't listen to podcasts. Yeah, I don't. I don't
Speaker 1: stream anything. Uh, I don't watch television, especially since baseball
Speaker 1: season is on hold. That's about the only time I
Speaker 1: had the television television turned on. So I'm I'm I'm
Speaker 1: very out of touch with with all of that, you know,
Speaker 1: all of that stuff. So I'm much more focused on, um,
Speaker 1: you know, reading than I am on on listening. So
Speaker 1: let's jump to that question. Uh, tell us about what
Speaker 1: you're reading these days, and and mentioned some of your
Speaker 1: favorite books. Sure, so I just Um, I just finished
Speaker 1: Thomas Man's The Magic Mountain, great classic that I haven't uh,
Speaker 1: that I had not read before. Um. I'm currently reading, uh,
Speaker 1: the eight page biography of Frederick Douglas, the you know,
Speaker 1: the African American the nineteenth century. Um. I'm working my
Speaker 1: way through Ralph Waldo Emerson's selected works. I just finished Nature,
Speaker 1: the first book that he the first book that he published,
Speaker 1: and um, and then I read a biography of Frank Ramsey,
Speaker 1: the great polymatic genius philosopher who most people haven't heard
Speaker 1: of because he died at age. But that's about a
Speaker 1: six hundred page bio that I've that I've just you know,
Speaker 1: just finished. And in terms of um, was it one
Speaker 1: of the question favorite books? Is that the other question
Speaker 1: all time favorite? Sure? Yeah? So? Uh? In fiction, I
Speaker 1: would say Brothers, Karamazov, m Warren, Peace, Moby Dick. I
Speaker 1: mentioned Magic Mountain, which was great, Um Conrad's Heart of Darkness,
Speaker 1: and then Cormac McCarthy's Blood Meridian. And then in uh,
Speaker 1: since I have you know when to grad school and philosophy, uh,
Speaker 1: David Humes treat Us on Human Nature, William James Varieties
Speaker 1: of Religious Experience and Pragmatism. Uh, John Dewey's Essays and
Speaker 1: Experimental Logic. Uh, Schopenhauer's The World Has Will and Representation,
Speaker 1: and then anything by Wittgenstein and finance stuff. Reminiscence of
Speaker 1: the Stock Operator is something I used to read every year,
Speaker 1: but since I've got it about memorized, I can skip
Speaker 1: a year or two. And Robert Skidelsi's three volume biography
Speaker 1: or John Maynard Keynes is a you know is A
Speaker 1: is a masterpiece, I think quite fascinating. Tell us about
Speaker 1: your mentors, who influenced your career, who helped make you
Speaker 1: the Bill Miller you are today, um well, I mentioned
Speaker 1: earlier that I think that a large part of that
Speaker 1: has to do with the Hopkins Philosophy Department. And I
Speaker 1: actually had a chance when I when I gave that gift,
Speaker 1: one of the one of their their leading lights and
Speaker 1: philosophy as a philosopher's science, named Peter Atchinstein as Peters
Speaker 1: in his mid eighties right now, but he was president Press,
Speaker 1: he was he was chairman of the department when I
Speaker 1: got when I got admitted in nineteen seventy four, ninety
Speaker 1: and and I I said to Peter, I said, you know,
Speaker 1: I said, what was that? I said, Peter, I was
Speaker 1: certainly not qualified to be, you know, admitted to Hopkins.
Speaker 1: I wouldn't even I wouldn't need a philosophy undergraduate major.
Speaker 1: And Hopkins is one of the only schools of quality
Speaker 1: schools in the country that would take somebody that did
Speaker 1: not have, you know, a philosophy undergraduate background. What Hopkins
Speaker 1: did was they said, if you didn't have a philosophy background,
Speaker 1: you had to send in three examples of your philosophical work,
Speaker 1: so you know, without making a long story or making
Speaker 1: making a long actually making a long story short Peter
Speaker 1: just said, well, you know, we're a small department. Uh,
Speaker 1: we would only admit you know, h five or six
Speaker 1: people in the PhD program every year. And he said,
Speaker 1: and we always tried to have one of those people
Speaker 1: be what we considered a higher risk person, like they
Speaker 1: probably couldn't get anywhere else, but there was there was
Speaker 1: some promise there that we saw and if we got lucky,
Speaker 1: then uh, you know, they might they might uh shed
Speaker 1: some light or do some good for the philosophy department.
Speaker 1: So and he said, and we really got lucky with you.
Speaker 1: So I thought that was I thought that was a
Speaker 1: good one. But you were the Philosophy Department's volatility tread Yeah,
Speaker 1: exactly right, exactly right. Uh. And then you know, my uh,
Speaker 1: my initial partner at like Mason Ernie Kenney had died
Speaker 1: in two thousand ten adage ninety two, classic value investor,
Speaker 1: and so we we fit very well intellectually. But he
Speaker 1: was also open to new ways of of thinking and uh,
Speaker 1: and so we were also able. I think I was
Speaker 1: able to work with him on some of the things
Speaker 1: that we talked about earlier, in terms of return on
Speaker 1: capital and stuff like that. And I'd say, the thing
Speaker 1: that he that he taught me most was that he
Speaker 1: was he was like probably the most optimistic person in
Speaker 1: the world, and he had a very long time horizon
Speaker 1: and uh, and so what I learned from him over
Speaker 1: you know, how long we worked together, you know, twenty
Speaker 1: five years or something like that. Actually third over thirty years. Uh,
Speaker 1: what I learned from him is that you know that
Speaker 1: generally speaking, having an optimistic take on things in a
Speaker 1: long term time horizon there's a lot that's a lot
Speaker 1: more First, it's a lot more fun, and second, it
Speaker 1: gives you a lot better results than having a short
Speaker 1: term time horizon and getting all negative about all the
Speaker 1: stuff that's going wrong when the market are in the world.
Speaker 1: So that was that was very helpful to me as well.
Speaker 1: And then of course Chip Mason, who who's stuck with
Speaker 1: me when I had you know, had occasional bad bad
Speaker 1: year or two, that's you know, he he also had
Speaker 1: a long term time horizon and understood that underperformance comes
Speaker 1: with the territory. So instead of making a change after
Speaker 1: you after your three year record goes behind the market,
Speaker 1: he just said, you know, this is a long term
Speaker 1: this is a long term debt we're making and we're
Speaker 1: just gonna stay with it. So that that was very
Speaker 1: helpful to me, and I've worked out okay for leg
Speaker 1: to what sort of advice would you give a recent
Speaker 1: college graduate who is considering a career in asset management? Well,
Speaker 1: I would give the same advice to a well, first
Speaker 1: of all, the slightly different answer here. So if they're
Speaker 1: considering a career in asset management, then I would say,
Speaker 1: understand that a lot of asset management is in secular
Speaker 1: decline relative to quantitative strategies and and UH and passive strategy.
Speaker 1: So it's a lot harder than if you're in an
Speaker 1: industry which um is in secular advance, which it was
Speaker 1: when I when I get into it. So that's that's
Speaker 1: a big difference. It makes it a lot, makes it
Speaker 1: a lot harder. But but in general I would say
Speaker 1: that to him or her the same thing I would
Speaker 1: say to anybody that was, you know, getting a job,
Speaker 1: which is that I think the worst advice that people
Speaker 1: can get and getting a job is that you'll read about, oh,
Speaker 1: you didn't take control of your career. You need to
Speaker 1: make sure you get what's coming to you. You need
Speaker 1: to make sure that you know no one's going to
Speaker 1: care about you the way you do, so you need
Speaker 1: to make sure that you fight for all this stuff.
Speaker 1: And I think that's terrible advice because I think that
Speaker 1: you know, for me, generally speaking, what you would want
Speaker 1: and what you know. The way I tried to manage
Speaker 1: my career is that your job, no matter what your
Speaker 1: job is, your job is to add value to your employer. Uh.
Speaker 1: It's not to try and extract value from them and
Speaker 1: and and get into your pocket. Your job is to
Speaker 1: add value to them. And then you can get some
Speaker 1: of that value part of it if you're doing that.
Speaker 1: And and so maybe contrary to what people think, being
Speaker 1: underpaid is a very powerful position to be in because
Speaker 1: if you're if you're adding more value than you're costing,
Speaker 1: then you're a very valuable employee and you're you're going
Speaker 1: to be treated well if you're if your employers rational,
Speaker 1: and uh, I mean nobody nobody got fired for creating
Speaker 1: too much value for their employer, and nobody keeps a
Speaker 1: job very long if they're getting paid more than their worth.
Speaker 1: So being moderately underpaid is is a really good thing.
Speaker 1: And then other things I'd say, which are probably not
Speaker 1: terribly unusual, I think you want to basically, you know,
Speaker 1: have a good positive attitude all the time. You want
Speaker 1: to do what your job is with with uh, with
Speaker 1: alacrity and a sense of urgency, and you want to
Speaker 1: be you know, simultaneously, you know, a good subordinate to
Speaker 1: your boss, a good boss to your subordinates, and a
Speaker 1: good colleague to your colleagues. That would be the core
Speaker 1: of my advice. Fascinating stuff and our final question, what
Speaker 1: do you know about investing theory and practice today that
Speaker 1: you wish you knew forty years ago when you were
Speaker 1: first getting started. The thing that the thing that I
Speaker 1: am constantly um realizing and I think I've got it
Speaker 1: internalized now, but it's been after forty years. Is that,
Speaker 1: um that the that the markets and the world and
Speaker 1: the economy is so much more complicated than you have
Speaker 1: any idea, And it's and so having dogmatic views and
Speaker 1: pontificating about the world this way or this is going
Speaker 1: to happen, or the Hong Kong peg is going to
Speaker 1: do this, or the Chinese You're going to do that
Speaker 1: is a complete waste of time, because no, but he
Speaker 1: has any idea what's going to happen in the in
Speaker 1: the future. There are certain things that you know. And
Speaker 1: then psychologically, what what you find out is that you know,
Speaker 1: if you make five predictions and and you know two
Speaker 1: or right and three or wrong, you'll you'll remember the
Speaker 1: two or right, and the three that we're wrong, you'll
Speaker 1: blame on something else. So I think that I think
Speaker 1: that there's a lot of psychological barriers and problems that
Speaker 1: people need to overcome. And I would say just being
Speaker 1: you know, I'd say, being as skeptical and as humble
Speaker 1: as you can be with respect to what you think
Speaker 1: you know. And uh. And the other thing is that
Speaker 1: that again I've found helpful to me, I would say,
Speaker 1: other people be helpful. But I get to ask a lot,
Speaker 1: what do you worry about in the market? What do
Speaker 1: you worry about? And my answer, which might sound institution
Speaker 1: but it's true, is that I don't really worry about anything.
Speaker 1: Because the entire world of investors and commentators are always
Speaker 1: worried about everything. Every time you turn into television recently,
Speaker 1: this is gonna go wrong. That's gonna worry about this,
Speaker 1: and worried about that. The market's overvalue, there's too much.
Speaker 1: This is so with all those people worrying about it.
Speaker 1: There's lots of there's lots of there's no shorts of
Speaker 1: people worrying about things, and so what I try and
Speaker 1: do is focus on where are the opportunities in the market,
Speaker 1: given whatever the market appears to be, and not you know,
Speaker 1: doing a bunch of wailing and handering about how things
Speaker 1: are going to get worse or this is a terrible situation.
Speaker 1: So I'd say that probably goes back to my old,
Speaker 1: you know, late partner Ernie, who you would always say, well,
Speaker 1: let's let's let's see if there's anything positive in the
Speaker 1: stuff that we can figure out. We've got We've got
Speaker 1: plenty of negativism that we can we can always, we
Speaker 1: can always count on being around. Thank you, Bill for
Speaker 1: being so generous with your time. Man. That was just
Speaker 1: fascinating stuff, really really good stuff. If you enjoy this conversation,
Speaker 1: well be should check out all the other three hundred
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Speaker 1: I would be remiss if I did not thank the
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Speaker 1: Maroufo is our audio engineer. Michael Boyle is my producer.
Speaker 1: A Tico val Brun is our project manager. Michael Batnick
Speaker 1: is my head of research. I'm Barry Ridholtz. You've been
Speaker 1: listening to pastors in business on Bloomberg Radio