1 00:00:02,040 --> 00:00:07,320 Speaker 1: This is Master's in Business with Barry Ridholds on Bloomberg Radio. 2 00:00:08,560 --> 00:00:11,360 Speaker 2: This week. On the podcast, not only do I have 3 00:00:11,440 --> 00:00:15,080 Speaker 2: an extra special guest, but I have a mutual fund legend. 4 00:00:15,960 --> 00:00:20,360 Speaker 2: Fidelity Low Price Stock Fund manager Joel Tillinghast has been 5 00:00:20,400 --> 00:00:24,240 Speaker 2: there pretty much since inception in nineteen eighty nine. He 6 00:00:24,320 --> 00:00:29,800 Speaker 2: has absolutely crushed his benchmark. Over that period. The SMP 7 00:00:30,000 --> 00:00:34,400 Speaker 2: five hundred has underperformed his fund by three point seven 8 00:00:34,440 --> 00:00:38,720 Speaker 2: percent a year. Since nineteen eighty nine, He's crushed the 9 00:00:38,840 --> 00:00:42,640 Speaker 2: Russell two thousand, whatever benchmark you want to talk about. 10 00:00:43,360 --> 00:00:46,080 Speaker 2: The Low Price Stock Fund now runs about twenty five 11 00:00:46,120 --> 00:00:50,080 Speaker 2: billion dollars, so this isn't a small fund. That managed 12 00:00:50,120 --> 00:00:53,800 Speaker 2: to eke out a couple of basis points, being three 13 00:00:53,840 --> 00:00:56,800 Speaker 2: hundred and seventy basis points over the SMB five hundred 14 00:00:56,800 --> 00:01:00,520 Speaker 2: with that pile of money is no small feat. Morning 15 00:01:00,560 --> 00:01:03,200 Speaker 2: Star named him the Domestic Fund Manager of the Year. 16 00:01:03,520 --> 00:01:06,800 Speaker 2: Peter Lynch has called him the best stockpicker he's ever known. 17 00:01:07,520 --> 00:01:11,320 Speaker 2: He's just a legend, has a fascinating career and a 18 00:01:11,319 --> 00:01:16,319 Speaker 2: fascinating approach to managing a fund. I found this conversation 19 00:01:16,400 --> 00:01:17,840 Speaker 2: to be one of a kind, and I think you 20 00:01:17,880 --> 00:01:22,040 Speaker 2: will also with no further ado my interview with Fidelities 21 00:01:22,720 --> 00:01:27,000 Speaker 2: Joel Taillinghast. Let's start with your background. You fell in 22 00:01:27,040 --> 00:01:29,160 Speaker 2: love with investing as an eight year old. 23 00:01:29,240 --> 00:01:34,479 Speaker 1: Tell us about that, okay, Quen, he was six. My grandfather, 24 00:01:34,640 --> 00:01:38,680 Speaker 1: who is a bookkeeper accountant at a textile mill, died 25 00:01:39,400 --> 00:01:44,720 Speaker 1: and my grandmother was a second string filed in at 26 00:01:44,760 --> 00:01:49,360 Speaker 1: the Provident Symphony Orchestra, which didn't pay well then and 27 00:01:49,480 --> 00:01:54,040 Speaker 1: he suspect didn't pay well now. So Grandma realized that 28 00:01:54,200 --> 00:01:58,680 Speaker 1: she would have to live on survivor's benefits and some 29 00:01:59,040 --> 00:02:04,760 Speaker 1: dividends from stuff grandpa had purchased. He had twenty five 30 00:02:04,880 --> 00:02:09,640 Speaker 1: or fifty shares, mostly twenty five of twenty year twenty 31 00:02:09,680 --> 00:02:16,240 Speaker 1: four stocks, and he had done research. He kept the 32 00:02:16,280 --> 00:02:19,880 Speaker 1: annual reports of the companies in a library, and he 33 00:02:19,960 --> 00:02:25,000 Speaker 1: also used a thing called value line. So my grandmother, 34 00:02:26,080 --> 00:02:30,240 Speaker 1: realizing that this was her source of income, wanted to 35 00:02:30,240 --> 00:02:33,680 Speaker 1: be sure she had the right stocks, and she got 36 00:02:34,120 --> 00:02:38,400 Speaker 1: a trial subscription for twenty nine bucks for thirteen weeks 37 00:02:38,400 --> 00:02:42,400 Speaker 1: of the value line. And I was a math nerd 38 00:02:42,520 --> 00:02:45,560 Speaker 1: as a kid. It was the kind who thought it's 39 00:02:45,800 --> 00:02:48,320 Speaker 1: cool that one to three, four, five sixty seven eight, 40 00:02:48,400 --> 00:02:51,840 Speaker 1: nine times eight is roughly nine eight seven, six, five 41 00:02:51,919 --> 00:02:55,000 Speaker 1: four three two one, And the value line has all 42 00:02:55,080 --> 00:03:00,959 Speaker 1: these statistical patterns, and because my mother and grandmother were 43 00:03:01,040 --> 00:03:05,200 Speaker 1: looking at these trying to figure out what was going on, 44 00:03:05,600 --> 00:03:08,240 Speaker 1: it was curious about the sea of numbers. 45 00:03:08,280 --> 00:03:10,639 Speaker 2: Also, she brings you in as an eight year old 46 00:03:10,680 --> 00:03:11,240 Speaker 2: to help her out. 47 00:03:11,480 --> 00:03:14,360 Speaker 1: No, she left the value lines around because she was 48 00:03:14,400 --> 00:03:20,399 Speaker 1: studying them, and so I wanted to study them. So 49 00:03:20,600 --> 00:03:24,320 Speaker 1: the first two stocks that I bought were Beckman Instruments 50 00:03:24,720 --> 00:03:29,840 Speaker 1: in Central Main Power. Beckman Instruments was founded by a guy, 51 00:03:30,400 --> 00:03:35,920 Speaker 1: Arnold Beckman, who was sort of a tech genius of 52 00:03:35,960 --> 00:03:43,240 Speaker 1: the time. He made instruments that simplified lab tests and processing, 53 00:03:43,480 --> 00:03:47,880 Speaker 1: and my dad, who was a biologist, was very attracted 54 00:03:47,920 --> 00:03:52,640 Speaker 1: to their chromatography equipment. But they made tests that were 55 00:03:53,120 --> 00:03:56,480 Speaker 1: not possible possible. So I bought two shares of that 56 00:03:57,440 --> 00:04:01,520 Speaker 1: I think when I was ten, and four shares of 57 00:04:01,560 --> 00:04:07,120 Speaker 1: Central Main Power and Beckman Instruments acquired by Smith Klein, 58 00:04:07,600 --> 00:04:12,120 Speaker 1: which got acquired by Glaxo, but they also did a 59 00:04:12,160 --> 00:04:16,600 Speaker 1: spin off of Beckman Instruments again, so it came back 60 00:04:16,640 --> 00:04:20,040 Speaker 1: out to the market and it's held on to all 61 00:04:20,040 --> 00:04:24,839 Speaker 1: the pieces except Danaher. But the Glaxo shares now have 62 00:04:24,960 --> 00:04:28,920 Speaker 1: a dividend that's a multiple of the original purchase cost 63 00:04:29,000 --> 00:04:29,800 Speaker 1: many years ago. 64 00:04:30,080 --> 00:04:32,640 Speaker 2: Wait wait, wait, you bought this half a century ago. 65 00:04:32,760 --> 00:04:34,080 Speaker 2: Don't tell me you're still long. 66 00:04:34,680 --> 00:04:34,960 Speaker 1: Yep. 67 00:04:35,560 --> 00:04:37,640 Speaker 2: Yeah, that's impressive holding period. 68 00:04:38,680 --> 00:04:43,760 Speaker 1: Hey, for those set it and forget it. I guess 69 00:04:43,800 --> 00:04:47,320 Speaker 1: on a compounded rate, it's less impressive that the quarterly 70 00:04:47,360 --> 00:04:52,279 Speaker 1: dividends exceed the purchase price, because there's fifty something years 71 00:04:52,960 --> 00:04:53,640 Speaker 1: in the interim. 72 00:04:54,120 --> 00:04:57,240 Speaker 2: So let's fast forward to nineteen eighty. Your first job 73 00:04:57,720 --> 00:05:00,279 Speaker 2: is at Value Line. Tell us a little bit about 74 00:05:00,560 --> 00:05:01,440 Speaker 2: that experience. 75 00:05:01,800 --> 00:05:06,160 Speaker 1: I had wanted to go to business school, but Harvard 76 00:05:06,520 --> 00:05:10,080 Speaker 1: saw no need for me, and so did all of 77 00:05:10,080 --> 00:05:13,719 Speaker 1: the others except for Kellogg Northwestern, which would admit me 78 00:05:13,839 --> 00:05:18,599 Speaker 1: in a year. I hurriedly sent out resumes all over 79 00:05:18,640 --> 00:05:23,279 Speaker 1: the place, dozens of them, and didn't get anything good. 80 00:05:23,839 --> 00:05:26,760 Speaker 1: But in the New York Times there was an advertisement 81 00:05:26,880 --> 00:05:30,599 Speaker 1: that the Value Line Investment Survey needed analysts, and I thought, 82 00:05:30,880 --> 00:05:35,320 Speaker 1: I know this job. I know this company, and if 83 00:05:35,360 --> 00:05:39,360 Speaker 1: you ever are looking for a job, I'd say I 84 00:05:39,440 --> 00:05:43,239 Speaker 1: know this company. That's a good sign. So I aced 85 00:05:43,279 --> 00:05:46,480 Speaker 1: the interview and instead of getting started at thirteen thousand. 86 00:05:46,520 --> 00:05:50,479 Speaker 1: They started me at fourteen thousand. I think I wrote 87 00:05:50,560 --> 00:05:54,719 Speaker 1: up Mary K Cosmetics, which was on a tear then 88 00:05:54,880 --> 00:05:59,080 Speaker 1: because everybody wanted a pink Cadillac. But that lasted for 89 00:05:59,120 --> 00:06:03,240 Speaker 1: a year and they went on to Kellogg for business school. 90 00:06:03,800 --> 00:06:05,880 Speaker 2: You come out of business school, you end up at Drexel, 91 00:06:05,960 --> 00:06:06,920 Speaker 2: also in Chicago. 92 00:06:07,120 --> 00:06:12,520 Speaker 1: So in the summer I got a job with Drexel 93 00:06:13,120 --> 00:06:18,320 Speaker 1: in their institutional financial futures division, headed by a brilliant man, 94 00:06:18,560 --> 00:06:24,280 Speaker 1: Richard Sandor, who some people call the father of financial futures. 95 00:06:25,040 --> 00:06:28,880 Speaker 1: He developed the genmy May contract, which at one time 96 00:06:29,080 --> 00:06:33,320 Speaker 1: was a big thing in treasury bond contract very inventive 97 00:06:33,960 --> 00:06:37,400 Speaker 1: and creative person. At the end of the summer he said, 98 00:06:37,760 --> 00:06:41,040 Speaker 1: would you like to stay? And so I did stay, 99 00:06:41,520 --> 00:06:44,720 Speaker 1: but I had to take the full time courseload at 100 00:06:44,800 --> 00:06:50,680 Speaker 1: Northwestern at night classes and work full time Drexel. The 101 00:06:50,720 --> 00:06:53,560 Speaker 1: good thing was we had a six forty five morning 102 00:06:53,680 --> 00:06:57,600 Speaker 1: meeting because we were trying to connect London and Singapore. 103 00:06:57,880 --> 00:06:59,120 Speaker 2: That was the only time that worked. 104 00:06:59,240 --> 00:07:03,640 Speaker 1: Yeah, and so the sort of early ish start to 105 00:07:03,680 --> 00:07:06,760 Speaker 1: the day meant that full time kind of meshed well 106 00:07:06,839 --> 00:07:12,440 Speaker 1: with evening classes. So they finished up business school and 107 00:07:13,080 --> 00:07:14,680 Speaker 1: started working full time. 108 00:07:15,000 --> 00:07:18,480 Speaker 2: So let's talk about how you end up at Fidelity. 109 00:07:17,760 --> 00:07:22,560 Speaker 2: The urban legend is that you cold cold Peter Lynch. 110 00:07:22,640 --> 00:07:23,160 Speaker 2: Is this right? 111 00:07:23,360 --> 00:07:28,440 Speaker 1: Yeah? So why did I end up at Fidelity? Sandor 112 00:07:29,000 --> 00:07:35,760 Speaker 1: was fantastic, really like Michael Milkin, despite having limited exposure, 113 00:07:35,840 --> 00:07:39,720 Speaker 1: but Sandor did work some with him, and he did 114 00:07:39,760 --> 00:07:43,160 Speaker 1: go out to Beverly Hills to see them. But by 115 00:07:43,440 --> 00:07:48,560 Speaker 1: nineteen eighty six they had huge legal problems and Bank 116 00:07:48,600 --> 00:07:51,960 Speaker 1: of America called me and said, would you like to 117 00:07:51,960 --> 00:07:55,640 Speaker 1: be director of research and strategy. Yeah, so he took that. 118 00:07:56,280 --> 00:08:00,040 Speaker 1: But sort of a week after I started, they and 119 00:08:00,120 --> 00:08:03,840 Speaker 1: it's quarterly earnings, which is the same day as the 120 00:08:03,920 --> 00:08:08,800 Speaker 1: Booze Cruise to inaugurate new employees. They announced a six 121 00:08:08,920 --> 00:08:13,640 Speaker 1: hundred and forty million dollar loss in nineteen eighty six. 122 00:08:13,720 --> 00:08:18,920 Speaker 1: That was money, real money, and the division that I 123 00:08:19,040 --> 00:08:25,800 Speaker 1: was in was below plan. And I realized, I want 124 00:08:25,840 --> 00:08:30,840 Speaker 1: to work with people who are superb like Richard Sandor, 125 00:08:31,080 --> 00:08:33,760 Speaker 1: but I also want to work for a company that's 126 00:08:33,800 --> 00:08:37,000 Speaker 1: not going to have some kind of financial or legal 127 00:08:37,240 --> 00:08:42,000 Speaker 1: blow up. So he said, unlike my first job hunt, 128 00:08:42,080 --> 00:08:46,360 Speaker 1: I was going to focus strictly on five people that 129 00:08:46,600 --> 00:08:49,880 Speaker 1: I thought were at the top of their game. Peter Lynch, 130 00:08:49,920 --> 00:08:54,120 Speaker 1: Mario Gabelli, Michael Price, Michael Steinhart, and George Sorows. 131 00:08:54,400 --> 00:08:55,760 Speaker 2: That's a hell of a list right there. 132 00:08:55,880 --> 00:09:01,160 Speaker 1: Yeah, they have stood up pretty well and have not 133 00:09:01,480 --> 00:09:05,920 Speaker 1: blown up in any sort of public way. Peter Lynch 134 00:09:06,559 --> 00:09:09,480 Speaker 1: was famous for the two minute drill, where he'll listen 135 00:09:09,760 --> 00:09:14,760 Speaker 1: to any idea for two minutes. He'll shut you down 136 00:09:14,800 --> 00:09:18,360 Speaker 1: at two minutes. But I think what I said in 137 00:09:18,520 --> 00:09:22,720 Speaker 1: two minutes was compelling enough that it went on further, 138 00:09:23,440 --> 00:09:27,400 Speaker 1: and I did have to come into Boston to get 139 00:09:27,440 --> 00:09:31,680 Speaker 1: seen by everyone and for them to finalize the offer. 140 00:09:31,800 --> 00:09:36,760 Speaker 1: And even though maybe the decision was made at that 141 00:09:36,800 --> 00:09:41,040 Speaker 1: phone call, I didn't actually know until after the interview 142 00:09:43,800 --> 00:09:45,960 Speaker 1: that I had done it. But when I went to 143 00:09:46,000 --> 00:09:49,319 Speaker 1: Peter Lynch's office, they dropped me there at two o'clock 144 00:09:49,880 --> 00:09:54,040 Speaker 1: and there was all this busyness, mayhem, people coming into 145 00:09:54,080 --> 00:09:58,120 Speaker 1: the office to quickly tell him about what was going on. 146 00:10:00,040 --> 00:10:04,280 Speaker 1: I've loved the openness to ideas that Peter had and 147 00:10:04,880 --> 00:10:11,400 Speaker 1: willingness to consider alternative possibilities. I pitched him San Francisco, 148 00:10:11,440 --> 00:10:15,400 Speaker 1: Federal Savings and Chrysler, and I suspect he knows so 149 00:10:15,600 --> 00:10:19,280 Speaker 1: much more than I did. But those were two of 150 00:10:19,280 --> 00:10:19,840 Speaker 1: my pitches. 151 00:10:20,000 --> 00:10:22,480 Speaker 2: Did you get the job because of the stock pitches? 152 00:10:22,559 --> 00:10:24,600 Speaker 2: Or did you get the job because of what he 153 00:10:24,720 --> 00:10:28,880 Speaker 2: thought about your analytic skill sets and ability to grow? 154 00:10:29,240 --> 00:10:32,679 Speaker 1: I think he always wants people who can grow, because 155 00:10:34,160 --> 00:10:38,560 Speaker 1: my assumption when I'm in the hiring position is you 156 00:10:38,600 --> 00:10:42,920 Speaker 1: don't necessarily have the developed skills. If you've gotten through 157 00:10:43,040 --> 00:10:47,760 Speaker 1: the initial filters, you're probably really smart, really hard working, 158 00:10:48,320 --> 00:10:53,520 Speaker 1: and either have a degree from a classy school or 159 00:10:53,600 --> 00:10:57,720 Speaker 1: you have very high grades less famous school. 160 00:10:57,880 --> 00:11:01,120 Speaker 2: But those are just table stakes you to the next level. 161 00:11:01,440 --> 00:11:05,880 Speaker 1: And what you want is curiosity. What you want is 162 00:11:06,240 --> 00:11:11,520 Speaker 1: open mindedness. I've never met Ray Daio, but I would 163 00:11:11,520 --> 00:11:15,160 Speaker 1: submit that Peter Lynch is more open minded than Ray Dallio, 164 00:11:16,160 --> 00:11:20,120 Speaker 1: although both aim to be I think, completely willing to 165 00:11:20,240 --> 00:11:23,079 Speaker 1: change their opinion when the facts change. 166 00:11:23,240 --> 00:11:27,079 Speaker 2: And really interesting. So let's talk a little bit about 167 00:11:27,200 --> 00:11:30,520 Speaker 2: stock picking. I mentioned the Fidelity Low price stock fund 168 00:11:30,520 --> 00:11:33,600 Speaker 2: that you've been running. Is that since inception in nineteen 169 00:11:33,640 --> 00:11:37,400 Speaker 2: eighty nine. Let's just talk a little bit about the performance. 170 00:11:37,480 --> 00:11:40,040 Speaker 2: You beat the S and P by three point seven 171 00:11:40,080 --> 00:11:44,280 Speaker 2: percent a year for almost thirty five years. It's I 172 00:11:44,360 --> 00:11:47,160 Speaker 2: started eighty nine, so what is this your thirty fourth 173 00:11:47,640 --> 00:11:51,200 Speaker 2: You're retiring after thirty four years and you trounce what's 174 00:11:51,280 --> 00:11:54,680 Speaker 2: really the more appropriate benchmark? I would assume the Russell 175 00:11:54,760 --> 00:11:55,880 Speaker 2: two thousand. 176 00:11:55,800 --> 00:11:57,680 Speaker 1: So Andy's ahead of the S and P two. 177 00:11:58,240 --> 00:12:02,400 Speaker 2: Well, you two point seven percent and you've beaten the 178 00:12:02,520 --> 00:12:06,600 Speaker 2: Rustle by almost four point seven percent, much better. So 179 00:12:06,679 --> 00:12:09,520 Speaker 2: it leads to the question, what's the secret to this 180 00:12:10,080 --> 00:12:16,959 Speaker 2: longstanding outperformance against all benchmarks and all passive measures. 181 00:12:17,160 --> 00:12:20,560 Speaker 1: I don't think there are any secrets, but I think 182 00:12:20,640 --> 00:12:26,120 Speaker 1: there's probably five things. The first is knowing yourself and 183 00:12:26,640 --> 00:12:30,080 Speaker 1: knowing what method works for you. What are you doing 184 00:12:30,240 --> 00:12:35,120 Speaker 1: that can add alpha? And sometimes the answer is nothing. 185 00:12:35,640 --> 00:12:39,080 Speaker 1: In that case I highly suggest an index fund and 186 00:12:39,160 --> 00:12:43,679 Speaker 1: a different career. And for me, that's comparing price with value. 187 00:12:44,160 --> 00:12:49,239 Speaker 1: There are three broad categories of process. There is momentum, 188 00:12:49,400 --> 00:12:55,160 Speaker 1: where the decision rule is is it getting better right now? 189 00:12:55,360 --> 00:12:58,600 Speaker 1: What's the most current data point that may not have 190 00:12:59,080 --> 00:13:03,000 Speaker 1: filtered into the Then there's growth, where you're trying to 191 00:13:03,040 --> 00:13:07,439 Speaker 1: look out five years and say can this company grow 192 00:13:07,520 --> 00:13:11,440 Speaker 1: at an above average rate with above average visibility? And 193 00:13:11,960 --> 00:13:16,880 Speaker 1: a third approach is compare price with the present value 194 00:13:17,120 --> 00:13:22,400 Speaker 1: of future cash flows from here to eternity. And I 195 00:13:22,520 --> 00:13:26,720 Speaker 1: have one and a half processes and a value investor, 196 00:13:27,040 --> 00:13:30,240 Speaker 1: But I do look at where do I see the 197 00:13:30,280 --> 00:13:34,200 Speaker 1: opportunity for above average earnings growth? Where do I see 198 00:13:34,320 --> 00:13:39,240 Speaker 1: higher visibility? Because you shouldn't say the present value is 199 00:13:39,760 --> 00:13:44,480 Speaker 1: the same for everything. If you've got an undifferentiated, crappy 200 00:13:44,520 --> 00:13:49,160 Speaker 1: retailer and you're saying it's going to have five dollars 201 00:13:49,200 --> 00:13:53,480 Speaker 1: of free cash flow in five years, and you've got 202 00:13:53,720 --> 00:13:58,680 Speaker 1: Visa Master Courage most of the Magnificent Seven, and you 203 00:13:58,760 --> 00:14:01,840 Speaker 1: say that's five dollars, they're not the same. You have 204 00:14:02,200 --> 00:14:05,880 Speaker 1: so much more certainty because bad things can happen to 205 00:14:06,120 --> 00:14:11,640 Speaker 1: undifferentiated retailers. There are barriers to entry. There are monopolies 206 00:14:12,080 --> 00:14:15,960 Speaker 1: for the second set of companies, and so you've got 207 00:14:16,000 --> 00:14:20,520 Speaker 1: to separate them into those, and so the growth part 208 00:14:20,920 --> 00:14:24,160 Speaker 1: filters into it. Things get worse at one of the 209 00:14:24,160 --> 00:14:29,040 Speaker 1: companies that I've invested in, and I look for facts 210 00:14:29,440 --> 00:14:36,200 Speaker 1: that confirm my bias that it was undervalued second set 211 00:14:36,240 --> 00:14:40,320 Speaker 1: of things. Sticking to a circle of competence, there are 212 00:14:40,320 --> 00:14:44,320 Speaker 1: industries that I just can't look out five years and 213 00:14:44,480 --> 00:14:49,280 Speaker 1: see very well biotech or internet the whole phase one, 214 00:14:49,360 --> 00:14:55,880 Speaker 1: phase two, phase three commerciality. For me, that's just impossible 215 00:14:55,880 --> 00:15:02,240 Speaker 1: to handicap. Mercifully, Fidelity has a brilliant lady, Irene Knopless, 216 00:15:02,600 --> 00:15:08,080 Speaker 1: who can do that. I can't reproduce her thought process. 217 00:15:08,880 --> 00:15:13,160 Speaker 1: I can say that definitely works, but it doesn't work 218 00:15:13,200 --> 00:15:17,720 Speaker 1: for me. And so part of success in investing is 219 00:15:17,800 --> 00:15:21,320 Speaker 1: to stick to things that work for you and. 220 00:15:21,880 --> 00:15:26,120 Speaker 2: Stay within your circle of confidence. Yeah, so you know 221 00:15:26,320 --> 00:15:30,840 Speaker 2: Peter Lynch hires you, he mentors you. He's known as 222 00:15:30,920 --> 00:15:34,280 Speaker 2: a growth investor. You've come to be known as a 223 00:15:34,680 --> 00:15:38,800 Speaker 2: value investor. Was it that same thought process? Hey, I'm 224 00:15:38,800 --> 00:15:42,120 Speaker 2: comfortable with value. I don't want to dabble in growth. 225 00:15:42,520 --> 00:15:46,800 Speaker 2: Or did you pick up any of the growth strategies 226 00:15:46,840 --> 00:15:47,400 Speaker 2: from Lynch? 227 00:15:47,600 --> 00:15:53,240 Speaker 1: Well, that's what I'm saying about one and a half processes. 228 00:15:52,800 --> 00:15:55,320 Speaker 2: Your value with a little bit of Lynch's growth from it. 229 00:15:55,880 --> 00:16:00,359 Speaker 1: Yeah, saying the present value of future cash flows depends 230 00:16:00,000 --> 00:16:04,600 Speaker 1: on future growth, and of course you want companies whose 231 00:16:04,960 --> 00:16:07,720 Speaker 1: future earnings and cash flow are going to surprise on 232 00:16:07,760 --> 00:16:09,680 Speaker 1: the upside five years out. 233 00:16:09,800 --> 00:16:12,160 Speaker 2: So it would be wrong to categorize you as a 234 00:16:12,240 --> 00:16:13,600 Speaker 2: pure value investor. 235 00:16:14,160 --> 00:16:19,360 Speaker 1: No, the growth is part of the value. I want 236 00:16:19,400 --> 00:16:24,440 Speaker 1: the lowest multiple on earnings five years out. And one 237 00:16:24,480 --> 00:16:28,000 Speaker 1: of the ways that I tried to illustrate that was 238 00:16:28,440 --> 00:16:33,480 Speaker 1: looking at some of Warren Buffett's biggest hits. And from 239 00:16:33,520 --> 00:16:36,400 Speaker 1: the time he bought Geico and going out five years 240 00:16:36,560 --> 00:16:40,760 Speaker 1: it was two times earning. He paid two times earnings 241 00:16:40,760 --> 00:16:46,359 Speaker 1: five years later and stole it. Yeah, and Washington Post 242 00:16:46,760 --> 00:16:53,360 Speaker 1: another single digit multiple, and most of his big hits, well, Spargo, 243 00:16:53,760 --> 00:16:59,240 Speaker 1: It's like, wow, he got the earnings growing dynamically or 244 00:16:59,280 --> 00:17:03,440 Speaker 1: at least above average. And it's the pe five years 245 00:17:03,440 --> 00:17:06,960 Speaker 1: out that I think is more helpful than a spot 246 00:17:07,359 --> 00:17:11,480 Speaker 1: pe or ev to ebit today really interesting. 247 00:17:12,520 --> 00:17:16,320 Speaker 2: So you began in eighty nine, I'm curious how your 248 00:17:16,560 --> 00:17:22,640 Speaker 2: investing philosophy has evolved over the past thirty plus years. 249 00:17:22,920 --> 00:17:29,080 Speaker 1: I got the black lung assignment as an analyst at Fidelity. 250 00:17:28,640 --> 00:17:30,200 Speaker 2: Got seaning covering coal. 251 00:17:30,800 --> 00:17:34,000 Speaker 1: I got assigned the coal industry, and I got assigned 252 00:17:34,040 --> 00:17:39,480 Speaker 1: the tobacco industry, neither of which anybody was beating that 253 00:17:39,600 --> 00:17:44,880 Speaker 1: under the door. Coal was suffering then because long wall 254 00:17:45,000 --> 00:17:49,439 Speaker 1: minds and other productivity improvements had come in in the 255 00:17:49,520 --> 00:17:55,080 Speaker 1: eighties and so productivity was growing really dynamically, like eight 256 00:17:55,119 --> 00:18:00,359 Speaker 1: percent a year. The price of coal was falling because 257 00:18:00,640 --> 00:18:05,080 Speaker 1: who needs eight percent more coal when demand is flat 258 00:18:05,920 --> 00:18:12,240 Speaker 1: or inching up that we're still installing coal power plants, 259 00:18:12,280 --> 00:18:15,800 Speaker 1: but not eight percent a year, So the price was falling, 260 00:18:16,040 --> 00:18:24,359 Speaker 1: whereas the tobacco companies were oligopoly of a possibly addictive 261 00:18:25,080 --> 00:18:29,280 Speaker 1: and at least habituating product. Both industries made me WinCE, 262 00:18:30,440 --> 00:18:38,160 Speaker 1: which goes to ESG, but your visibility into the tobacco 263 00:18:38,640 --> 00:18:42,960 Speaker 1: earnings was so much clearer. So if they were both 264 00:18:43,040 --> 00:18:46,720 Speaker 1: at ten times earnings, you qualitatively wanted the place where 265 00:18:46,800 --> 00:18:51,440 Speaker 1: there's no Harvard Business School red is going to say 266 00:18:51,560 --> 00:18:54,000 Speaker 1: I want to go into the tobacco business. They don't 267 00:18:54,160 --> 00:18:57,120 Speaker 1: want to go into the coal business either, but that's 268 00:18:57,119 --> 00:19:00,480 Speaker 1: a barrier tantry. It's in oligopoly. There's light since sure, 269 00:19:00,760 --> 00:19:05,239 Speaker 1: there's lots of regulations around tobacco, so you have a 270 00:19:06,040 --> 00:19:12,639 Speaker 1: relatively stable oligopoly, and that's incredibly valuable, which has to 271 00:19:12,640 --> 00:19:15,840 Speaker 1: be offset by the thought that ever since the Surgeon 272 00:19:15,880 --> 00:19:21,640 Speaker 1: General's Warning Unit, consumption of cigarettes per capita until the 273 00:19:21,960 --> 00:19:25,399 Speaker 1: COVID era had pretty much dropped three percent a year 274 00:19:25,840 --> 00:19:29,520 Speaker 1: forever since nineteen sixty five or whenever. The Surgeon General's 275 00:19:29,560 --> 00:19:32,840 Speaker 1: warning was, it's been on a downtrend, but the pricing 276 00:19:33,440 --> 00:19:35,800 Speaker 1: power could more than make up for it. 277 00:19:35,920 --> 00:19:40,119 Speaker 2: Huh. Really interesting. So let's talk a little bit about 278 00:19:40,320 --> 00:19:44,200 Speaker 2: how Fidelity thinks about active management and how the low 279 00:19:44,280 --> 00:19:48,080 Speaker 2: priced stock funds came about. There are lots and lots 280 00:19:48,080 --> 00:19:51,880 Speaker 2: of small cap funds. What led to a low price 281 00:19:51,920 --> 00:19:52,520 Speaker 2: stock fund? 282 00:19:52,960 --> 00:19:56,760 Speaker 1: At the time, there was a standard and Poor's Low 283 00:19:56,760 --> 00:20:02,960 Speaker 1: Price Stock Index, and it was considered a technical indicator speculation. 284 00:20:03,800 --> 00:20:09,280 Speaker 1: It's what the much maligned retail investor was doing. Low 285 00:20:09,320 --> 00:20:13,760 Speaker 1: priced stocks were beating the S and P five hundred. 286 00:20:13,480 --> 00:20:17,240 Speaker 1: They'd say, it's a crap market. People are buying junk. 287 00:20:18,760 --> 00:20:24,800 Speaker 1: The meme investor is nothing new or meme trader. Also 288 00:20:25,240 --> 00:20:30,600 Speaker 1: was seeing that Fidelity had the largest by side research 289 00:20:30,680 --> 00:20:35,600 Speaker 1: analyst drew and we could cover those smaller stocks and 290 00:20:36,560 --> 00:20:42,000 Speaker 1: they were mispriced. I also was influenced by a business 291 00:20:42,040 --> 00:20:47,159 Speaker 1: school professor, Rolf Bonds, who did one of those studies 292 00:20:47,640 --> 00:20:52,760 Speaker 1: of small cap stocks outperform for the period that he studied. 293 00:20:53,080 --> 00:21:00,119 Speaker 1: It did, and it's gone intermittently missing for many of 294 00:21:00,160 --> 00:21:03,200 Speaker 1: the last decades since the studies were published. 295 00:21:03,640 --> 00:21:07,560 Speaker 2: You guys at Fidelity had lots of analysts that covered this, 296 00:21:08,080 --> 00:21:12,080 Speaker 2: So you're implying that A there's a market inefficiency. Yeah, 297 00:21:12,240 --> 00:21:16,159 Speaker 2: and B you had an a an advantage that allowed 298 00:21:16,200 --> 00:21:19,120 Speaker 2: you to swim in those waters that no one else 299 00:21:19,160 --> 00:21:20,120 Speaker 2: seemed to do very well. 300 00:21:20,119 --> 00:21:23,320 Speaker 1: And yeah, at some point you'll beat me up for 301 00:21:23,400 --> 00:21:27,000 Speaker 1: the number of holdings that I have and. 302 00:21:27,280 --> 00:21:30,080 Speaker 2: Eight hundred nine hundred I don't think I don't have 303 00:21:30,119 --> 00:21:30,800 Speaker 2: a problem with that. 304 00:21:31,440 --> 00:21:35,080 Speaker 1: But you know, it was going to start with. Peter Lynch. 305 00:21:36,400 --> 00:21:40,359 Speaker 2: Had more the Magellan had more than had. 306 00:21:40,240 --> 00:21:44,040 Speaker 1: More than that, and the assets under management were smaller, 307 00:21:44,040 --> 00:21:47,520 Speaker 1: although the market the cap of the market was smaller, 308 00:21:47,600 --> 00:21:53,040 Speaker 1: but he had more than that, and Peter just it 309 00:21:53,080 --> 00:21:59,520 Speaker 1: was unforgivable not to have or get a update on 310 00:22:00,720 --> 00:22:06,680 Speaker 1: stock that Peter was interested in, and so thinking Will 311 00:22:06,800 --> 00:22:12,480 Speaker 1: Danoff probably intermittently covered over one hundred stock retail stocks 312 00:22:13,240 --> 00:22:17,560 Speaker 1: when he was an analyst, and I covered not just 313 00:22:17,880 --> 00:22:23,840 Speaker 1: the tobacco majors in the US, but also the international British, 314 00:22:23,880 --> 00:22:31,600 Speaker 1: American and Imperial and the Canadian companies and the leaf growers, 315 00:22:31,960 --> 00:22:40,160 Speaker 1: and so had a full understanding of the international competitive dynamics, 316 00:22:40,640 --> 00:22:45,480 Speaker 1: but also the supply chain and that was what Peter wanted, 317 00:22:45,520 --> 00:22:50,240 Speaker 1: and that was what I thought Fidelity had a competitive 318 00:22:50,280 --> 00:22:54,639 Speaker 1: advantage because we were doing research on those smaller companies. 319 00:22:54,800 --> 00:22:58,080 Speaker 2: So how does this lead to nearly a thousand holdings 320 00:22:58,359 --> 00:22:59,399 Speaker 2: in a mutual funds? 321 00:23:00,480 --> 00:23:04,960 Speaker 1: Eight hundred in my case and over a thousand for Peter. 322 00:23:06,240 --> 00:23:08,520 Speaker 2: By the way, I'm not going to beat you. You 323 00:23:08,600 --> 00:23:12,280 Speaker 2: were Peter up over this because whatever people think about, hey, 324 00:23:12,320 --> 00:23:15,240 Speaker 2: that's way too many stocks, the answer is, well, just 325 00:23:15,280 --> 00:23:18,280 Speaker 2: look at the performance. It's obviously not too many stocks. 326 00:23:18,560 --> 00:23:21,280 Speaker 2: Peter one of the greatest managers of all time, your 327 00:23:21,320 --> 00:23:23,959 Speaker 2: track record one of the greatest of all time. What 328 00:23:24,200 --> 00:23:28,600 Speaker 2: does having eight hundred stocks do for you? In that fold? 329 00:23:28,840 --> 00:23:34,800 Speaker 1: So I think Peter felt like, if you think a 330 00:23:35,440 --> 00:23:39,000 Speaker 1: business is interesting enough that you want to keep in touch, 331 00:23:39,520 --> 00:23:42,600 Speaker 1: it's bad form to go to zero. And I sort 332 00:23:42,640 --> 00:23:45,960 Speaker 1: of feel like the same thing. You want to keep 333 00:23:46,000 --> 00:23:50,760 Speaker 1: in touch with management. And if you don't have huge conviction, 334 00:23:51,359 --> 00:23:55,760 Speaker 1: you want to have a tiny position. And if you've 335 00:23:55,760 --> 00:24:02,159 Speaker 1: got a wildly diverse industry like banks or saving some loans. 336 00:24:05,680 --> 00:24:08,920 Speaker 2: You want to own a few as a benchmark for 337 00:24:08,960 --> 00:24:09,439 Speaker 2: the sector. 338 00:24:09,480 --> 00:24:15,120 Speaker 1: But you want to do a preliminary sort and say 339 00:24:15,400 --> 00:24:18,600 Speaker 1: what would a good looking bank look like? What would 340 00:24:18,640 --> 00:24:22,600 Speaker 1: a well managed saving some loan look like? And you 341 00:24:23,119 --> 00:24:30,000 Speaker 1: want to get to a preliminary answer, says, yeah, this 342 00:24:32,680 --> 00:24:37,679 Speaker 1: twenty five saving some loans look like the best of 343 00:24:37,760 --> 00:24:41,280 Speaker 1: the bunch. And I see it as taking a business 344 00:24:41,280 --> 00:24:44,800 Speaker 1: card and trying to keep in touch so that you 345 00:24:44,880 --> 00:24:49,199 Speaker 1: can develop a relationship with management and can understand what 346 00:24:49,359 --> 00:24:52,760 Speaker 1: is your strategy. And it's harder to have a differentiated 347 00:24:52,800 --> 00:25:00,159 Speaker 1: strategy in banks and saving some loans other than are 348 00:25:00,200 --> 00:25:03,159 Speaker 1: going to go crazy with risk, which is not the 349 00:25:04,160 --> 00:25:05,399 Speaker 1: strategy that you want. 350 00:25:06,119 --> 00:25:09,560 Speaker 2: So if you are Peter own a few hundred of 351 00:25:09,560 --> 00:25:13,679 Speaker 2: a particular sector, I'm assuming these are very tiny pieces 352 00:25:14,240 --> 00:25:17,560 Speaker 2: your sub one percent holdings, And it's just a way 353 00:25:17,600 --> 00:25:21,600 Speaker 2: of keeping track of or watching a sector. And if 354 00:25:21,640 --> 00:25:23,840 Speaker 2: something starts to work out, that's when you begin to 355 00:25:23,920 --> 00:25:25,360 Speaker 2: pyramit and add to the position. 356 00:25:25,680 --> 00:25:30,680 Speaker 1: Yeah, and I do that in steps. I don't think 357 00:25:30,720 --> 00:25:35,359 Speaker 1: I've ever gone from a zero waiting to a fifty 358 00:25:35,400 --> 00:25:40,199 Speaker 1: basis point waiting on IPOs. Sometimes you have to do 359 00:25:40,280 --> 00:25:44,560 Speaker 1: it that way, but otherwise it always takes steps where 360 00:25:45,240 --> 00:25:49,040 Speaker 1: you want to meet with management a few times, see 361 00:25:49,080 --> 00:25:52,120 Speaker 1: if they're consistent. You want to see if the financial 362 00:25:52,160 --> 00:25:58,360 Speaker 1: results continue to be consistent and compare and contrast. Are 363 00:25:58,440 --> 00:26:03,000 Speaker 1: these really the superior banks? Or am I just getting 364 00:26:03,040 --> 00:26:04,960 Speaker 1: an index of banks? 365 00:26:05,960 --> 00:26:10,359 Speaker 2: So you mentioned index. When we look at active equity, 366 00:26:10,840 --> 00:26:15,840 Speaker 2: generally speaking, tends to underperform the index, but active bond 367 00:26:15,920 --> 00:26:19,639 Speaker 2: managers tend to outperform their index because they eliminate the 368 00:26:19,680 --> 00:26:22,320 Speaker 2: worst of the whole news. They eliminate the poor credit, 369 00:26:22,440 --> 00:26:26,240 Speaker 2: the bad risk reward relationships. And it makes me ask 370 00:26:26,520 --> 00:26:30,080 Speaker 2: a question about your alpha. Is it primarily coming from 371 00:26:30,160 --> 00:26:36,200 Speaker 2: identifying the winners or are you almost like a bond 372 00:26:36,240 --> 00:26:41,680 Speaker 2: manager where you're eliminating the worst potential members of your bank? 373 00:26:41,800 --> 00:26:45,320 Speaker 1: Adding value by subtraction? Do you add value by subtracting 374 00:26:45,680 --> 00:26:50,320 Speaker 1: the stocks that are going to play against your bad 375 00:26:50,359 --> 00:26:56,880 Speaker 1: behavioral habits? You add alpha by subtracting the industries that 376 00:26:56,960 --> 00:27:02,680 Speaker 1: you don't understand as well as the market. You add 377 00:27:03,040 --> 00:27:09,600 Speaker 1: alpha by avoiding businesses that are run by crooks. You 378 00:27:10,240 --> 00:27:15,040 Speaker 1: add alpha by avoiding businesses that are run by idiots 379 00:27:15,080 --> 00:27:19,520 Speaker 1: that have bad capital allocation or no business strategy. 380 00:27:20,440 --> 00:27:23,960 Speaker 2: So addition through subtraction sounds and you're really getting rid 381 00:27:24,000 --> 00:27:25,200 Speaker 2: of the worst of the worst. 382 00:27:25,240 --> 00:27:31,199 Speaker 1: And that's particularly important in the rustle. It's important in 383 00:27:31,320 --> 00:27:35,880 Speaker 1: junk bonds. I would not want to have a index 384 00:27:36,320 --> 00:27:40,040 Speaker 1: in junk bonds because the ones with the biggest weight 385 00:27:40,600 --> 00:27:42,280 Speaker 1: are the most heavily indebted. 386 00:27:42,520 --> 00:27:46,520 Speaker 2: Right. Wow, market cap waiting does not work on the 387 00:27:46,560 --> 00:27:49,080 Speaker 2: fixed income side, that exactly. 388 00:27:49,440 --> 00:27:54,080 Speaker 1: Especially in in high yield. But yeah, I think I 389 00:27:54,080 --> 00:27:59,160 Speaker 1: think it's problematic in fixed income. And it's also true 390 00:27:59,240 --> 00:28:05,680 Speaker 1: in russell To. We're forty percent of the companies are unprofitable. 391 00:28:05,440 --> 00:28:07,200 Speaker 2: And that's an amazing number. 392 00:28:07,280 --> 00:28:11,760 Speaker 1: And the ones that I will consider are the ones 393 00:28:11,840 --> 00:28:19,159 Speaker 1: where it's just a temporary visitor to being unprofitable. If 394 00:28:19,200 --> 00:28:24,760 Speaker 1: it's a cyclical low yeah, may maybe that's a buy. 395 00:28:25,200 --> 00:28:29,960 Speaker 1: But if if it has a history of not being profitable, 396 00:28:30,760 --> 00:28:33,400 Speaker 1: you you really want to exclude that. 397 00:28:34,240 --> 00:28:40,080 Speaker 2: And eventually the historically unprofitable companies will disappoint. Yeah. Like 398 00:28:40,120 --> 00:28:42,360 Speaker 2: there's only so many years in a row. You could 399 00:28:42,560 --> 00:28:46,600 Speaker 2: do a one off and call it a non recurring expense. Yeah, 400 00:28:46,840 --> 00:28:48,200 Speaker 2: it's if it's year after year. 401 00:28:48,440 --> 00:28:53,720 Speaker 1: Yeah. And the fourth point was to eliminate the companies 402 00:28:53,720 --> 00:28:57,280 Speaker 1: that are not resilient, which we sort of covered in 403 00:28:57,360 --> 00:28:58,720 Speaker 1: the last couple of minutes. 404 00:28:58,840 --> 00:29:01,880 Speaker 2: So let's talk a little bit about your cell discipline. 405 00:29:02,560 --> 00:29:06,040 Speaker 2: Lots of academic studies have shown stock pickers do much 406 00:29:06,080 --> 00:29:09,400 Speaker 2: better when it comes to buying than they do when 407 00:29:09,440 --> 00:29:12,920 Speaker 2: they're selling. Tell us a little bit about your cell discipline. 408 00:29:13,480 --> 00:29:18,800 Speaker 1: If you go in thinking about it as marriage, as 409 00:29:18,840 --> 00:29:24,320 Speaker 1: the Pope would have it, you're thinking, I don't intend 410 00:29:24,360 --> 00:29:27,720 Speaker 1: to trade out of this. You're going to make a 411 00:29:27,800 --> 00:29:29,320 Speaker 1: much better decision. 412 00:29:31,040 --> 00:29:31,560 Speaker 2: About that. 413 00:29:31,800 --> 00:29:36,960 Speaker 1: But facts do change. As Peter Lynch would immediately remind me. 414 00:29:37,840 --> 00:29:42,719 Speaker 1: If the facts have changed, if the barriers to entry 415 00:29:42,960 --> 00:29:48,640 Speaker 1: have fallen, if they've made a stupid capital allocation decision, 416 00:29:49,640 --> 00:29:56,520 Speaker 1: that can be a cell. If they seem more crooked 417 00:29:56,560 --> 00:30:01,400 Speaker 1: than we realized, or more promotion I guess that's the 418 00:30:01,400 --> 00:30:05,760 Speaker 1: polite word. That's a sell, But it's always a compare 419 00:30:06,160 --> 00:30:11,360 Speaker 1: one opportunity against another. Despite having a long tail of 420 00:30:11,600 --> 00:30:16,960 Speaker 1: tiny holdings, low priced stock has historically had some very 421 00:30:17,200 --> 00:30:24,200 Speaker 1: large concentrated positions. And those concentrated positions happen because I 422 00:30:24,360 --> 00:30:30,400 Speaker 1: have high conviction that they're in that group where it's 423 00:30:30,480 --> 00:30:33,400 Speaker 1: not stupid to think about where earnings will be ten 424 00:30:33,480 --> 00:30:38,560 Speaker 1: years out. It doesn't help you to trade from visa 425 00:30:39,080 --> 00:30:44,080 Speaker 1: because the stock is high multiple and you think might 426 00:30:44,120 --> 00:30:50,640 Speaker 1: be overvalued into that crappy retailer that I mentioned. You 427 00:30:50,720 --> 00:30:55,800 Speaker 1: want to only limit your sell of that type of 428 00:30:55,800 --> 00:31:02,960 Speaker 1: company to trade into something of equivalent visibility into the future. 429 00:31:03,280 --> 00:31:07,000 Speaker 1: But if it's a low barrier to entry, or if 430 00:31:07,000 --> 00:31:10,680 Speaker 1: it's some point homogeneous, can you get me to sell 431 00:31:11,320 --> 00:31:14,840 Speaker 1: a bank that's selling for twelve times earnings if you 432 00:31:14,920 --> 00:31:18,400 Speaker 1: can show me an equivalent bank that's an eightpe, of 433 00:31:18,440 --> 00:31:24,120 Speaker 1: course you can. They probably are approximately the same, and 434 00:31:24,680 --> 00:31:28,840 Speaker 1: so I'll be pretty fickle with those. 435 00:31:29,560 --> 00:31:32,800 Speaker 2: So it sounds like you start out planning on holding 436 00:31:33,360 --> 00:31:37,200 Speaker 2: to these stocks for a long time. If they disappoint you, 437 00:31:37,640 --> 00:31:41,560 Speaker 2: or if there is a better opportunity that comes along 438 00:31:41,640 --> 00:31:45,760 Speaker 2: and you're not necessarily thrilled with the holding, you'll use 439 00:31:45,800 --> 00:31:49,280 Speaker 2: that as a reason to get out. What about purely 440 00:31:49,480 --> 00:31:50,640 Speaker 2: on price and value? 441 00:31:50,720 --> 00:31:55,880 Speaker 1: When you think about selling stock like United Healthcare, which 442 00:31:55,920 --> 00:32:00,200 Speaker 1: I think has very high visibility and good quot light 443 00:32:00,400 --> 00:32:05,800 Speaker 1: management and an unbeatable market position in some places, do 444 00:32:05,800 --> 00:32:09,280 Speaker 1: you have the same confidence in the thing you're moving 445 00:32:09,280 --> 00:32:14,320 Speaker 1: it to. It's a bad trade if you sell that 446 00:32:14,720 --> 00:32:18,080 Speaker 1: and say I'm going to move it from United Health 447 00:32:18,160 --> 00:32:22,800 Speaker 1: to good Rx, where I'll stipulate that they don't have 448 00:32:22,840 --> 00:32:27,360 Speaker 1: the same confidence in the outlook ten years out. 449 00:32:28,200 --> 00:32:32,920 Speaker 2: What about one of your biggest winners was Monster Beverage, 450 00:32:33,400 --> 00:32:40,000 Speaker 2: which was started out relatively tiny, tiny and not wildly overpriced, 451 00:32:40,480 --> 00:32:44,000 Speaker 2: and the growth rate was astounding, the visibility on earnings. 452 00:32:44,880 --> 00:32:48,560 Speaker 2: They grew, but they stayed profitable as they grew. What 453 00:32:49,520 --> 00:32:52,840 Speaker 2: allowed you to stay with that company so long? The 454 00:32:53,000 --> 00:32:56,520 Speaker 2: typical manager would have taken the three X or the 455 00:32:56,560 --> 00:32:59,600 Speaker 2: five X or the ten x and left a ton 456 00:32:59,600 --> 00:33:00,600 Speaker 2: of money on the table. 457 00:33:01,280 --> 00:33:05,440 Speaker 1: What kept me in there was the price going in 458 00:33:06,040 --> 00:33:09,400 Speaker 1: was ten or eleven times earnings. It was debt free, 459 00:33:10,280 --> 00:33:15,280 Speaker 1: it had a differentiated product. I loved the ambition of 460 00:33:15,600 --> 00:33:23,280 Speaker 1: the management team, who were a couple of South African expatriates. 461 00:33:24,120 --> 00:33:27,400 Speaker 1: Five years after I bought it, the earnings per share 462 00:33:27,520 --> 00:33:30,680 Speaker 1: were the same as the purchase price. So wow, if 463 00:33:30,720 --> 00:33:34,280 Speaker 1: you've done that once, maybe you can do it again, 464 00:33:34,680 --> 00:33:36,600 Speaker 1: unless you think the market is saturated. 465 00:33:37,120 --> 00:33:38,080 Speaker 2: So they kept doing it. 466 00:33:38,880 --> 00:33:42,560 Speaker 1: Doing it and are still doing it at an above 467 00:33:42,600 --> 00:33:47,880 Speaker 1: average rate for a consumer staple. Having five percent unit 468 00:33:47,920 --> 00:33:53,960 Speaker 1: growth in consumer staples, that's sustainable, that's amazing. 469 00:33:54,480 --> 00:33:56,800 Speaker 2: How long did you hold on to Monster Beverage. 470 00:33:56,480 --> 00:33:58,400 Speaker 1: For the fund still holds it. 471 00:33:58,280 --> 00:34:04,640 Speaker 2: Still twelve thousand percent. What sort of crazy numbers are It's. 472 00:34:04,040 --> 00:34:06,520 Speaker 1: Like I'd have to look at it. It's like a 473 00:34:06,560 --> 00:34:08,960 Speaker 1: three or four cent purchase. 474 00:34:08,719 --> 00:34:12,680 Speaker 2: Cost thousands of percent gain, Yeah, that's amazing. 475 00:34:12,719 --> 00:34:15,080 Speaker 1: Couple might be one hundred percent. 476 00:34:16,280 --> 00:34:19,919 Speaker 2: And and you still have confidence that you haven't seen 477 00:34:19,960 --> 00:34:23,440 Speaker 2: something that's more interesting in the space you want to 478 00:34:23,440 --> 00:34:24,120 Speaker 2: replace it with. 479 00:34:24,880 --> 00:34:31,120 Speaker 1: I don't and that's that's the problem, and eagerly searching 480 00:34:31,280 --> 00:34:35,319 Speaker 1: the market but not finding it yet. If you got it, 481 00:34:35,400 --> 00:34:37,120 Speaker 1: please please do tell. 482 00:34:38,560 --> 00:34:40,200 Speaker 2: I'm not going to be the guy that's going to 483 00:34:40,280 --> 00:34:43,480 Speaker 2: give you something to swap out for one hundred thousand 484 00:34:43,480 --> 00:34:47,399 Speaker 2: percent gainer. That that that's just at that point that 485 00:34:47,440 --> 00:34:50,839 Speaker 2: there's nothing you could do but but uh, I could 486 00:34:50,880 --> 00:34:53,160 Speaker 2: do but but make it worse. So so all of 487 00:34:53,160 --> 00:34:56,799 Speaker 2: this leads to the question, how did you come about 488 00:34:57,160 --> 00:35:01,800 Speaker 2: to the idea. Let's focus on st dox price less 489 00:35:01,840 --> 00:35:05,640 Speaker 2: than thirty five dollars. What was the thinking Because we're 490 00:35:05,640 --> 00:35:09,759 Speaker 2: not just talking about market capitalization, because you're you play 491 00:35:09,800 --> 00:35:12,719 Speaker 2: in different ponds in terms of market gap, but it 492 00:35:12,760 --> 00:35:16,799 Speaker 2: was the actual price. What other than the Dow there 493 00:35:16,800 --> 00:35:19,160 Speaker 2: really isn't anything that's a price based index. 494 00:35:19,400 --> 00:35:22,680 Speaker 1: When they started the fund. There was the Standard and 495 00:35:22,719 --> 00:35:26,600 Speaker 1: Poor's Low Price Stock Index index, okay, which they got 496 00:35:26,680 --> 00:35:30,880 Speaker 1: rid of because they were peeved the we and Rice 497 00:35:31,000 --> 00:35:35,000 Speaker 1: were using it for a mutual fund. We thought it 498 00:35:35,040 --> 00:35:37,239 Speaker 1: was pre advertising for their index. But I guess they 499 00:35:37,239 --> 00:35:39,839 Speaker 1: thought that their index was pre advertising for our fund 500 00:35:41,080 --> 00:35:45,160 Speaker 1: or something. Well, or maybe the retail market changed so 501 00:35:45,400 --> 00:35:49,600 Speaker 1: low price stocks were no longer a great indicator of 502 00:35:50,800 --> 00:35:55,280 Speaker 1: speculation or public involvement in the market. 503 00:35:55,400 --> 00:35:58,360 Speaker 2: Well, it was one of many odd lots went away 504 00:35:58,840 --> 00:36:02,080 Speaker 2: and put to ratio went away, like a lot of 505 00:36:02,120 --> 00:36:04,120 Speaker 2: things that people used to look at as a measure 506 00:36:04,120 --> 00:36:08,880 Speaker 2: of speculation, seems to have fallen out of favor. And 507 00:36:08,960 --> 00:36:13,000 Speaker 2: yet the low priced stock approach continues to be successful 508 00:36:13,040 --> 00:36:16,279 Speaker 2: after all these years. But what was the thinking? Was 509 00:36:16,320 --> 00:36:18,640 Speaker 2: it market and efficiency. 510 00:36:17,960 --> 00:36:24,120 Speaker 1: Or it was that small cap stocks were covered better 511 00:36:24,200 --> 00:36:28,760 Speaker 1: by Fidelity, But it was also looking at Peter Lynch 512 00:36:29,120 --> 00:36:34,640 Speaker 1: some of his big hits, Chrysler and Fannie May which, 513 00:36:35,800 --> 00:36:40,560 Speaker 1: despite its history in the financial crisis, was a spectacular 514 00:36:40,719 --> 00:36:45,800 Speaker 1: stock in the late eighties that made bundles of money 515 00:36:45,960 --> 00:36:50,200 Speaker 1: for Michell and Fund. They saw a lot of those 516 00:36:50,360 --> 00:36:55,360 Speaker 1: were at the start under ten dollars hundred fifteen dollars, 517 00:36:56,360 --> 00:37:01,920 Speaker 1: and as the fund grew, the fifteen dollars got raised 518 00:37:01,920 --> 00:37:04,240 Speaker 1: to twenty five dollars, down to thirty five dollars. 519 00:37:05,080 --> 00:37:08,520 Speaker 2: And is that where it stopped? Thirty five that's where 520 00:37:08,520 --> 00:37:13,120 Speaker 2: it stopped? Huh? Really really quite fascinating. So let's let's 521 00:37:13,160 --> 00:37:16,640 Speaker 2: talk a little bit about the exclusive club that you're 522 00:37:16,680 --> 00:37:22,280 Speaker 2: a member of, long term successful active managers. There aren't 523 00:37:22,320 --> 00:37:25,840 Speaker 2: many of you. Why is that such an exclusive club? 524 00:37:26,600 --> 00:37:29,680 Speaker 1: First, I'd say why did he use one of the 525 00:37:30,800 --> 00:37:40,240 Speaker 1: and looking at Fidelity, well, Lynch is awesome. But Will Danoff, 526 00:37:40,440 --> 00:37:45,919 Speaker 1: who actually started within months of when I did, has 527 00:37:46,040 --> 00:37:50,680 Speaker 1: added more dollars of value than any single fund manager, 528 00:37:50,880 --> 00:37:52,280 Speaker 1: including hedge fund manager. 529 00:37:52,400 --> 00:37:54,200 Speaker 2: Amazing track record, just amazing. 530 00:37:54,400 --> 00:37:58,520 Speaker 1: Yeah, So Fidelity has a strong tradition. 531 00:37:58,840 --> 00:38:04,239 Speaker 2: Of active managers have delivered alpha, not just occasionally, but 532 00:38:04,360 --> 00:38:06,840 Speaker 2: for decades at a time. What makes it so hard? 533 00:38:07,080 --> 00:38:11,239 Speaker 1: It is a very hard game because most people know 534 00:38:11,600 --> 00:38:17,680 Speaker 1: most things, and do you have proprietary information and are 535 00:38:17,719 --> 00:38:24,319 Speaker 1: you focusing on that proprietary information? I think Will is 536 00:38:24,400 --> 00:38:31,000 Speaker 1: thinking very directly about what is the standout winner, the 537 00:38:31,080 --> 00:38:37,160 Speaker 1: best in class in a growing industry, and those are 538 00:38:37,280 --> 00:38:44,080 Speaker 1: all he wants. And I've learned from Will. Yeah, if 539 00:38:44,120 --> 00:38:48,960 Speaker 1: I am excited about artificial intelligence and say what if 540 00:38:49,000 --> 00:38:53,319 Speaker 1: I got in a small cap, super Micro is not 541 00:38:53,480 --> 00:39:00,040 Speaker 1: the same bet as Nvidia. Unfortunately, if you think the 542 00:39:00,280 --> 00:39:04,839 Speaker 1: artificial intelligence will win and I'm unable to make such 543 00:39:04,840 --> 00:39:09,120 Speaker 1: a decision, then you want to go with Nvidia and 544 00:39:09,160 --> 00:39:14,280 Speaker 1: not super Micro. It's hard because information travels fast, and 545 00:39:14,360 --> 00:39:17,720 Speaker 1: I think, at the one hand, can you be faster 546 00:39:18,000 --> 00:39:24,200 Speaker 1: to react to information? All the bots and automation, I mean, 547 00:39:24,400 --> 00:39:27,600 Speaker 1: the active managers who are trying to do that have 548 00:39:27,960 --> 00:39:35,680 Speaker 1: been out competed by Renaissance Technology or Deesha or whoever. 549 00:39:36,640 --> 00:39:43,200 Speaker 1: Because I talked to an employee one of the quint 550 00:39:43,239 --> 00:39:48,160 Speaker 1: shops who would have to kill me and the employee 551 00:39:48,600 --> 00:39:52,839 Speaker 1: if I said where it was. But he said that 552 00:39:53,120 --> 00:39:57,560 Speaker 1: at one time most of their investments were driven by 553 00:39:57,719 --> 00:40:02,359 Speaker 1: a thesis where they tried to find data to support it, 554 00:40:02,400 --> 00:40:06,240 Speaker 1: but they've now gone to just pure data mining where 555 00:40:06,680 --> 00:40:11,080 Speaker 1: if Sri Lanka butter production correlates with the S and P, 556 00:40:11,560 --> 00:40:13,319 Speaker 1: then they will buy It. 557 00:40:13,360 --> 00:40:14,560 Speaker 2: Doesn't matter as long as there. 558 00:40:14,680 --> 00:40:21,440 Speaker 1: Doesn't mean and key being roughly my age, we're a 559 00:40:21,480 --> 00:40:24,880 Speaker 1: little younger, doesn't like that. But that's the direction that 560 00:40:25,000 --> 00:40:29,160 Speaker 1: artificial intelligence is going it's and so I think it's 561 00:40:29,480 --> 00:40:33,480 Speaker 1: very hard at the fast data. And there's also so 562 00:40:33,760 --> 00:40:37,520 Speaker 1: much data that people say the amount of data is 563 00:40:37,600 --> 00:40:43,040 Speaker 1: growing by whatever rapid rate per year, but most of 564 00:40:43,080 --> 00:40:48,359 Speaker 1: it is until it gets interpreted by something like artificial intelligence. 565 00:40:48,640 --> 00:40:51,439 Speaker 1: And that's a problem for people who are on the 566 00:40:51,480 --> 00:40:55,120 Speaker 1: momentumy part of the growth market. 567 00:40:55,360 --> 00:40:57,640 Speaker 2: So let's stay with that. There's a quote of yours. 568 00:40:57,840 --> 00:41:00,480 Speaker 2: I like a lot of data, even a lot of 569 00:41:00,520 --> 00:41:05,680 Speaker 2: the analysis is trivial and ephemeral. Explain what you mean 570 00:41:05,719 --> 00:41:08,719 Speaker 2: by that. You seem to be saying some of this 571 00:41:08,920 --> 00:41:11,720 Speaker 2: data isn't really useful. 572 00:41:11,239 --> 00:41:16,120 Speaker 1: For what I'm doing. It's trivial for the people who've 573 00:41:16,120 --> 00:41:21,360 Speaker 1: got it. It's got a shorter life than fresh fish unrefrigerated, 574 00:41:21,920 --> 00:41:28,239 Speaker 1: where it's glorious today, but it's gone tomorrow, and the 575 00:41:28,920 --> 00:41:34,359 Speaker 1: opportunity is very quick and machines are very quick to 576 00:41:34,400 --> 00:41:38,560 Speaker 1: reflect those Whatever you're thinking about, I think kind of 577 00:41:38,600 --> 00:41:42,719 Speaker 1: and said at any particular time is less important than 578 00:41:42,760 --> 00:41:45,840 Speaker 1: you think it is, but it's got your attention. 579 00:41:45,800 --> 00:41:50,200 Speaker 2: And that's the nature of that ephemeral data. Yeah, really interesting. 580 00:41:50,719 --> 00:41:55,920 Speaker 2: So we were talking earlier about active versus passive ironically, 581 00:41:56,280 --> 00:42:01,479 Speaker 2: Fidelity runs some of the largest passive indexes in the world. 582 00:42:01,719 --> 00:42:05,960 Speaker 2: What's it like having to compete with your own firm. 583 00:42:06,120 --> 00:42:12,160 Speaker 1: If we can't beat the indexes, I'd say we're serving 584 00:42:12,239 --> 00:42:18,080 Speaker 1: our customers better by doing that, And if we consistently lag, 585 00:42:18,200 --> 00:42:22,920 Speaker 1: we should shut down the funds and move them all 586 00:42:22,960 --> 00:42:28,520 Speaker 1: to indexes. But it's really more about customer choice. Fidelity 587 00:42:28,960 --> 00:42:32,440 Speaker 1: strives to be customer driven. We want to offer whatever 588 00:42:32,600 --> 00:42:36,000 Speaker 1: serves the interests of our customer's best. 589 00:42:36,600 --> 00:42:41,880 Speaker 2: And you certainly haven't lagged. You've been beating your benchmarks 590 00:42:41,920 --> 00:42:45,759 Speaker 2: consistently over time. Let's talk a little bit about how 591 00:42:45,800 --> 00:42:49,160 Speaker 2: you define a value stock. What is it that makes 592 00:42:49,320 --> 00:42:53,080 Speaker 2: a company undervalued and attractive to you? 593 00:42:53,520 --> 00:42:57,400 Speaker 1: So value is the present value of future cash flows. 594 00:42:57,960 --> 00:43:02,439 Speaker 1: Where you're saying the cash flows ten years out are 595 00:43:02,760 --> 00:43:06,920 Speaker 1: a fantasy. Sometimes they're realistic fantasies. But when I think 596 00:43:06,960 --> 00:43:11,840 Speaker 1: about the Kathy would universe, I Kathy would make different 597 00:43:12,400 --> 00:43:18,160 Speaker 1: can't look out for fast changing industries and say, ten 598 00:43:18,239 --> 00:43:22,760 Speaker 1: years from now, this is what cash flows will be. Approximately, 599 00:43:23,400 --> 00:43:27,359 Speaker 1: this will be free cash flows in an order of magnitude. 600 00:43:28,040 --> 00:43:31,360 Speaker 1: So present value of future cash flows where you really 601 00:43:31,400 --> 00:43:37,760 Speaker 1: believe the cash flows, reliability, and personally, I think most 602 00:43:37,920 --> 00:43:42,640 Speaker 1: terminal values are bs and that you should discount as 603 00:43:42,680 --> 00:43:45,440 Speaker 1: far out as you feel comfortable. And the fact that 604 00:43:45,480 --> 00:43:48,080 Speaker 1: you're trying to bundle it up into a terminal value 605 00:43:48,600 --> 00:43:52,280 Speaker 1: unless the assets are cash or convert to cash, that's 606 00:43:52,320 --> 00:43:54,319 Speaker 1: the value that I am looking for. 607 00:43:54,840 --> 00:44:00,640 Speaker 2: So, since you mentioned ARC, let's talk about overpaying for companies. 608 00:44:00,840 --> 00:44:05,080 Speaker 2: You said it's so important not to overpay, regardless of 609 00:44:05,120 --> 00:44:08,680 Speaker 2: how good any business or company might be. Tell us 610 00:44:08,719 --> 00:44:11,840 Speaker 2: a little bit about that safe margin of safety that 611 00:44:12,040 --> 00:44:13,719 Speaker 2: not overpaying creates. 612 00:44:14,120 --> 00:44:19,480 Speaker 1: Kathy would may have her own valuation, so but I 613 00:44:19,520 --> 00:44:21,080 Speaker 1: can't replicate it myself. 614 00:44:21,560 --> 00:44:24,920 Speaker 2: Well, it doesn't look like she can either because and 615 00:44:24,960 --> 00:44:29,000 Speaker 2: this isn't a beat obsession on ARC. But since the inception, 616 00:44:29,160 --> 00:44:33,520 Speaker 2: she's underperformed the S and P five hundred, including one 617 00:44:34,200 --> 00:44:36,759 Speaker 2: year I think it was twenty twenty, which she was 618 00:44:36,840 --> 00:44:39,799 Speaker 2: up something like one hundred and sixty eight percent. If 619 00:44:39,800 --> 00:44:42,080 Speaker 2: you're up that much in one year and you're. 620 00:44:41,920 --> 00:44:44,200 Speaker 1: Still going to pay it back, sometimes. 621 00:44:44,239 --> 00:44:48,359 Speaker 2: It seems that that if you're still underperforming despite that, 622 00:44:48,360 --> 00:44:52,320 Speaker 2: that may raises a question are you overpaying for those assets? 623 00:44:52,480 --> 00:44:58,560 Speaker 1: Yeah? So the question of overpaying, Yeah, it's why you 624 00:44:58,640 --> 00:45:01,880 Speaker 1: have to think about how will I react in a 625 00:45:02,160 --> 00:45:07,640 Speaker 1: tough situation. And if you're a growth investor and you're 626 00:45:08,200 --> 00:45:12,359 Speaker 1: in a bear market and you bought a stock that 627 00:45:12,840 --> 00:45:17,560 Speaker 1: is you think worth one hundred dollars and it's selling 628 00:45:17,600 --> 00:45:20,520 Speaker 1: for eighty, a value investor would say, yeah, that's an 629 00:45:20,560 --> 00:45:25,160 Speaker 1: interesting upside. You want to be sure there isn't something 630 00:45:25,640 --> 00:45:29,080 Speaker 1: greater than that. But you get some bad news and 631 00:45:29,239 --> 00:45:33,520 Speaker 1: the value drops to ninety, but the stock drops to forty, 632 00:45:34,120 --> 00:45:38,520 Speaker 1: and there's some growth investors who will say, let's destroy 633 00:45:38,600 --> 00:45:42,960 Speaker 1: the evidence, let's sell out when it's forty. And if 634 00:45:42,960 --> 00:45:46,680 Speaker 1: you're one of those investors, know that about yourself. A 635 00:45:46,800 --> 00:45:51,040 Speaker 1: value investor can feel like I have to deal with 636 00:45:51,080 --> 00:45:54,239 Speaker 1: all the clients who say, why are you losing me 637 00:45:54,400 --> 00:45:57,520 Speaker 1: all this money because the stock has gone from eighty 638 00:45:57,560 --> 00:46:02,640 Speaker 1: to forty. But I feel cheery because from forty dollars 639 00:46:02,840 --> 00:46:07,000 Speaker 1: to a ninety dollars value that's much better upside. That's 640 00:46:07,120 --> 00:46:11,319 Speaker 1: a huge upside, whereas from eighty to one hundred that's 641 00:46:11,520 --> 00:46:16,200 Speaker 1: good upside, but it's not amazing. And it helps me 642 00:46:16,880 --> 00:46:20,960 Speaker 1: keep an even keel in a situation where I'm feeling 643 00:46:21,000 --> 00:46:23,920 Speaker 1: the same pain that every other manager is where clients 644 00:46:23,960 --> 00:46:26,840 Speaker 1: are saying, why did you lose. 645 00:46:26,640 --> 00:46:30,120 Speaker 2: Me all that money? So let's talk about making mistakes. 646 00:46:30,760 --> 00:46:33,560 Speaker 2: I love this quote of yours. You've got to be 647 00:46:33,680 --> 00:46:37,279 Speaker 2: cruel to yourself, so you don't do it again. Tell 648 00:46:37,360 --> 00:46:39,280 Speaker 2: us about being cruel to yourself. 649 00:46:39,680 --> 00:46:45,680 Speaker 1: My worst stock in dollars ever was Health South Rehab. 650 00:46:46,080 --> 00:46:50,040 Speaker 1: I had bought the stock in the teens, and it 651 00:46:50,080 --> 00:46:53,440 Speaker 1: looked like a cheap stock on adjusted analyst earnings. It 652 00:46:53,480 --> 00:46:58,440 Speaker 1: had something like about twenty nine of analyst adjusted earnings, 653 00:46:58,719 --> 00:47:02,319 Speaker 1: but it had twelve sense of gap earnings. 654 00:47:03,040 --> 00:47:04,360 Speaker 2: And that's a big difference. 655 00:47:04,440 --> 00:47:05,680 Speaker 1: That is a big difference. 656 00:47:06,160 --> 00:47:08,200 Speaker 2: That doesn't sound like your type of stock. 657 00:47:09,520 --> 00:47:12,560 Speaker 1: Not what it's become my type of stock. They had 658 00:47:12,719 --> 00:47:16,239 Speaker 1: a dispute with the government where the government claimed that 659 00:47:16,320 --> 00:47:23,720 Speaker 1: they were over billing on some cases. And Richard Scrushy, 660 00:47:23,920 --> 00:47:31,799 Speaker 1: the CEO, was a very showy sure yeah, and their 661 00:47:32,239 --> 00:47:35,720 Speaker 1: investor relations guy had been an actor on The Wonder Years, 662 00:47:35,800 --> 00:47:37,320 Speaker 1: which was a TV show. 663 00:47:38,120 --> 00:47:42,000 Speaker 2: I think that's a red flag, isn't that it's. 664 00:47:42,000 --> 00:47:45,279 Speaker 1: Sort of become one. But I paid in the mid 665 00:47:45,320 --> 00:47:47,799 Speaker 1: teens and sold it out for less than a dollar. 666 00:47:48,120 --> 00:47:51,240 Speaker 2: Wow, big loss, And that's a big loss. 667 00:47:51,239 --> 00:47:55,320 Speaker 1: On a percentage, and it was a lot of shares. 668 00:47:56,000 --> 00:48:00,960 Speaker 1: It had complete wipeouts, but they are mostly those one 669 00:48:00,960 --> 00:48:06,200 Speaker 1: basis point positions. I didn't do the full research and 670 00:48:06,680 --> 00:48:10,640 Speaker 1: didn't have much confidence behind it, but I thought it 671 00:48:10,719 --> 00:48:15,400 Speaker 1: was interesting, So be cruel to yourself. What I didn't 672 00:48:15,400 --> 00:48:18,000 Speaker 1: do was look at free cash flow. And I think 673 00:48:18,040 --> 00:48:22,040 Speaker 1: that was part of how my changing it had already 674 00:48:22,280 --> 00:48:28,760 Speaker 1: realized from the tobacco companies. The magic of their financial 675 00:48:28,800 --> 00:48:31,719 Speaker 1: model was the huge amount of free cash flow, and 676 00:48:32,560 --> 00:48:38,160 Speaker 1: that they were producing the gap earnings versus the analyst adjusted. 677 00:48:39,320 --> 00:48:42,600 Speaker 1: The lack of free cash flow was confirming that gap 678 00:48:42,680 --> 00:48:47,160 Speaker 1: was probably closer. It turned out that they were cheating 679 00:48:47,160 --> 00:48:51,440 Speaker 1: the government and that there were some accounting restatements necessary 680 00:48:52,160 --> 00:48:57,399 Speaker 1: and there weren't really good financials and the assets were 681 00:48:57,400 --> 00:49:00,799 Speaker 1: growing faster than the sales and. 682 00:49:00,520 --> 00:49:03,839 Speaker 2: So, which doesn't make any sense. Yeah, so you beat 683 00:49:03,840 --> 00:49:06,360 Speaker 2: yourself up on this. You're you're cruel to yourself. 684 00:49:06,480 --> 00:49:09,480 Speaker 1: You're cruel to myself to say, going forward, I'm going 685 00:49:09,520 --> 00:49:12,520 Speaker 1: to look at free cash flow, you know, and take 686 00:49:12,560 --> 00:49:16,760 Speaker 1: it seriously. I'm going to be skeptical about interelest adjusted 687 00:49:16,840 --> 00:49:20,560 Speaker 1: earnings and look to free cash flow. Is it confirming, 688 00:49:20,840 --> 00:49:23,360 Speaker 1: but I also want to see is it one of 689 00:49:23,400 --> 00:49:28,520 Speaker 1: those cases where the analyst adjustments are economically realistic or 690 00:49:28,800 --> 00:49:30,279 Speaker 1: are the excuses? 691 00:49:30,760 --> 00:49:31,600 Speaker 2: What year was this? 692 00:49:32,160 --> 00:49:35,600 Speaker 1: I bought it around two thousand and it crashed around 693 00:49:35,600 --> 00:49:38,280 Speaker 1: two thousand and two two thousand and three. 694 00:49:38,680 --> 00:49:41,640 Speaker 2: Right in the middle of the dot com crash, so 695 00:49:42,160 --> 00:49:45,360 Speaker 2: you could definitely bury that. Although a ninety nine percent 696 00:49:45,400 --> 00:49:49,239 Speaker 2: drop is never fun, how big a position was this? 697 00:49:49,280 --> 00:49:55,200 Speaker 2: Because it was material and even with eight hundred other stocks. 698 00:49:55,080 --> 00:50:01,040 Speaker 1: This was one of my medium concentrated U was probably 699 00:50:01,400 --> 00:50:04,800 Speaker 1: position number thirty. 700 00:50:03,320 --> 00:50:08,680 Speaker 2: And that's a percent or two, right, That's all that is. Yeah, 701 00:50:08,920 --> 00:50:09,640 Speaker 2: no one's happening. 702 00:50:09,960 --> 00:50:14,399 Speaker 1: Ninety nine percent lost on one point one percent could 703 00:50:14,480 --> 00:50:19,640 Speaker 1: be got percentah, and so meaningful to So it's very meaningful. 704 00:50:19,680 --> 00:50:24,160 Speaker 1: And I think I had a you know, epiphany about 705 00:50:24,400 --> 00:50:28,280 Speaker 1: concentration that you don't want to treat all the companies 706 00:50:28,320 --> 00:50:32,040 Speaker 1: the same. You really only want to concentrate in the 707 00:50:32,960 --> 00:50:38,759 Speaker 1: very high conviction companies are really superior. And clearly Health 708 00:50:38,800 --> 00:50:42,000 Speaker 1: South was not clear, and so it was beating myself 709 00:50:42,120 --> 00:50:44,200 Speaker 1: up on this is how I need to change my 710 00:50:44,320 --> 00:50:49,880 Speaker 1: analytical method. This is what's wrong with concentrating in the 711 00:50:49,920 --> 00:50:50,920 Speaker 1: wrong stocks. 712 00:50:51,640 --> 00:50:54,799 Speaker 2: Not a lot of managers are nimble enough to make 713 00:50:54,840 --> 00:50:59,080 Speaker 2: those adjustments ten years, twelve years into managing the funds. 714 00:50:59,719 --> 00:51:03,160 Speaker 2: How did those changes affect your performance over the subsequent 715 00:51:03,640 --> 00:51:04,640 Speaker 2: twenty plus years. 716 00:51:04,960 --> 00:51:08,160 Speaker 1: I hope that they were positives. 717 00:51:07,360 --> 00:51:11,160 Speaker 2: For the better. Whatever happened to Squirreshet, by the way, I. 718 00:51:11,560 --> 00:51:15,240 Speaker 1: Have stopped watching him, like I stopped watching the Winter Years. 719 00:51:17,960 --> 00:51:21,840 Speaker 2: That's very funny. So let's talk a little bit about 720 00:51:22,080 --> 00:51:26,160 Speaker 2: picking international stocks as an asset class. Has done fairly poorly, 721 00:51:26,719 --> 00:51:29,520 Speaker 2: but it's nearly a third of your portfolio, and you 722 00:51:29,600 --> 00:51:33,840 Speaker 2: continue to outperform. What do you see in international stocks? 723 00:51:34,200 --> 00:51:38,520 Speaker 1: Japan has more public companies than the United States. 724 00:51:39,239 --> 00:51:40,000 Speaker 2: Hard to believe. 725 00:51:40,280 --> 00:51:44,760 Speaker 1: Yeah, with a fraction of the population. In the US, 726 00:51:45,320 --> 00:51:48,560 Speaker 1: it's chic to be a private equity or a venture 727 00:51:48,560 --> 00:51:55,319 Speaker 1: back firm because either ways, Yale is not interested in you. 728 00:51:57,520 --> 00:52:03,360 Speaker 1: And whereas in Japan it is pristy and to be public, 729 00:52:03,480 --> 00:52:07,000 Speaker 1: to be public, to be listed on the Tsese. And 730 00:52:09,320 --> 00:52:14,080 Speaker 1: there are lots of companies that in Japan that are 731 00:52:14,080 --> 00:52:17,400 Speaker 1: in single digit returns on equity, but you do not 732 00:52:17,560 --> 00:52:21,680 Speaker 1: need to invest in them. There are lots of brain 733 00:52:21,760 --> 00:52:25,400 Speaker 1: dead bureaucratic companies, but you don't have to invest in 734 00:52:25,440 --> 00:52:30,040 Speaker 1: them in Japan or Europe or the United States, and 735 00:52:31,280 --> 00:52:39,000 Speaker 1: they're the addition by subtraction is particularly important, and it's 736 00:52:39,200 --> 00:52:42,719 Speaker 1: great that we have on the ground people. And here 737 00:52:42,800 --> 00:52:47,760 Speaker 1: I highlight Sam Chamowitz, who's taking over along with Morgan 738 00:52:47,800 --> 00:52:51,320 Speaker 1: Peck from me spent several years in the Tokyo office. 739 00:52:51,880 --> 00:52:59,880 Speaker 1: And there are smaller entrepreneurial companies that are doing differentiated things. 740 00:53:00,480 --> 00:53:04,760 Speaker 1: One of those big winners has been Cosmos Pharmaceutical, which 741 00:53:04,800 --> 00:53:13,320 Speaker 1: is a discount drug store and food store in southern Japan, 742 00:53:14,200 --> 00:53:22,840 Speaker 1: and their SGNA to sales something like fourteen or fifteen percent. Walmart, 743 00:53:23,040 --> 00:53:27,400 Speaker 1: which runs a tight ship, has SGNA to sales I 744 00:53:27,480 --> 00:53:31,600 Speaker 1: think of about twenty percent. So we've got a company 745 00:53:31,760 --> 00:53:35,640 Speaker 1: that is more efficient than Walmart, which I think is 746 00:53:35,760 --> 00:53:42,600 Speaker 1: impressive in itsself, and they pass the savings on to 747 00:53:42,680 --> 00:53:49,160 Speaker 1: the customers, and customers in the South tend to be 748 00:53:50,000 --> 00:53:56,040 Speaker 1: poorer than the Tokyo metro area or have lower incomes, 749 00:53:56,480 --> 00:54:03,120 Speaker 1: so they love the prices. It's had double digit returns 750 00:54:03,120 --> 00:54:07,719 Speaker 1: on equity and good growth, and that's what I look 751 00:54:07,800 --> 00:54:11,120 Speaker 1: for and what I think Sam and Morgan are looking 752 00:54:11,120 --> 00:54:12,280 Speaker 1: for going forward. 753 00:54:12,440 --> 00:54:15,760 Speaker 2: So when we look at international companies. They've been trading 754 00:54:16,040 --> 00:54:21,640 Speaker 2: generally at a big discount to US and consistently for 755 00:54:21,680 --> 00:54:25,239 Speaker 2: the past on ten fifteen years. Why is there such 756 00:54:25,320 --> 00:54:31,160 Speaker 2: a spread between US domestic and overseas companies in terms 757 00:54:31,200 --> 00:54:34,320 Speaker 2: of your value investor in terms of straight up valuation. 758 00:54:34,800 --> 00:54:39,719 Speaker 1: Some of it is the industry skew that there are 759 00:54:40,280 --> 00:54:48,839 Speaker 1: not so many winner take oligopolistic tech companies internationally as 760 00:54:48,880 --> 00:54:52,960 Speaker 1: there are in the US. China has Ali Baba, but 761 00:54:53,080 --> 00:54:58,080 Speaker 1: that has a governance constraint where Jackmo is hanging out 762 00:54:58,120 --> 00:55:03,120 Speaker 1: in Tokyo rather than Kina, and I don't know whether 763 00:55:03,120 --> 00:55:06,279 Speaker 1: it's because Tokyo is a lovely place to be or 764 00:55:07,239 --> 00:55:10,759 Speaker 1: because he feared for his physical or financial. 765 00:55:10,239 --> 00:55:12,759 Speaker 2: Safety not encouraging to. 766 00:55:13,120 --> 00:55:17,960 Speaker 1: But both of those are good, good reasons. But I 767 00:55:18,000 --> 00:55:22,520 Speaker 1: don't see any tech leaders that are global in a 768 00:55:22,560 --> 00:55:26,880 Speaker 1: lot of the parts of the world. There are real 769 00:55:27,200 --> 00:55:33,880 Speaker 1: governance differences in some of the places, and the industry 770 00:55:33,920 --> 00:55:38,600 Speaker 1: skew away from tech, you know, maybe slower and more 771 00:55:38,719 --> 00:55:42,840 Speaker 1: commodity like US anti trust policy has kind of gone missing, 772 00:55:42,880 --> 00:55:46,719 Speaker 1: excepting weird spaces, and so US companies have a lot 773 00:55:46,760 --> 00:55:49,240 Speaker 1: more market power that they can. 774 00:55:49,200 --> 00:55:53,200 Speaker 2: Use really interesting. So so you set to retire as 775 00:55:53,239 --> 00:55:58,920 Speaker 2: portfolio manager this year. You mentioned your two successors. Is 776 00:55:58,960 --> 00:56:01,239 Speaker 2: the strategy going to be the same or are they 777 00:56:01,320 --> 00:56:04,160 Speaker 2: going to put their own spin on the base that 778 00:56:04,239 --> 00:56:07,040 Speaker 2: you've created over the past thirty four years. 779 00:56:07,640 --> 00:56:12,080 Speaker 1: They will absolutely put their own spin. Some of the 780 00:56:12,239 --> 00:56:16,759 Speaker 1: largest holdings have come down in size because what's high 781 00:56:16,760 --> 00:56:20,560 Speaker 1: conviction for me might not be high conviction for them. 782 00:56:20,719 --> 00:56:25,080 Speaker 1: And on the bullish side, I think research about the 783 00:56:25,120 --> 00:56:29,399 Speaker 1: specific companies and coverage is better than it's ever been 784 00:56:29,480 --> 00:56:34,320 Speaker 1: for low price stock fund because Morgan and Sam are 785 00:56:34,760 --> 00:56:39,160 Speaker 1: beating the bushes, getting in lists to study companies, call companies, 786 00:56:39,600 --> 00:56:44,799 Speaker 1: visit companies, and so that information flow is better than 787 00:56:44,840 --> 00:56:45,560 Speaker 1: it's ever been. 788 00:56:46,280 --> 00:56:48,839 Speaker 2: You're going to stay honest, seenior advisor. What do you 789 00:56:48,880 --> 00:56:52,919 Speaker 2: hope to teach the next generation of fidelity fund managers. 790 00:56:53,280 --> 00:56:56,120 Speaker 1: Maybe I'm just hanging out so that they have an 791 00:56:56,120 --> 00:57:01,799 Speaker 1: excuse to visit the London office, and because I learned 792 00:57:01,800 --> 00:57:07,600 Speaker 1: from them, and I worry about my mind going because 793 00:57:07,600 --> 00:57:10,400 Speaker 1: I'm not talking to them. I'm hoping I have something 794 00:57:10,480 --> 00:57:15,800 Speaker 1: useful to tell them, But if the long awaited value 795 00:57:15,800 --> 00:57:18,680 Speaker 1: boom doesn't materialize, they may not want to talk to me. 796 00:57:19,400 --> 00:57:22,800 Speaker 2: So I want to throw one more quote at you 797 00:57:23,000 --> 00:57:26,160 Speaker 2: before we get to some of our final questions. You 798 00:57:26,360 --> 00:57:30,040 Speaker 2: had said, when discussing what you learn from Peter Lynch, 799 00:57:30,520 --> 00:57:34,200 Speaker 2: be skeptical enough to spot your own mistakes, be flexible 800 00:57:34,280 --> 00:57:38,120 Speaker 2: enough to fix them quickly. There's no shame in making 801 00:57:38,200 --> 00:57:42,560 Speaker 2: mistakes as long as you recognize the mistakes and fix them. 802 00:57:43,160 --> 00:57:46,360 Speaker 2: Tell us a little bit about the process of making 803 00:57:46,400 --> 00:57:50,440 Speaker 2: mistakes as a fund manager. It sounds like you're saying, 804 00:57:51,080 --> 00:57:54,160 Speaker 2: this is part of the process. Is no avoiding error, 805 00:57:54,560 --> 00:57:55,600 Speaker 2: it's how you deal with it. 806 00:57:55,760 --> 00:57:59,040 Speaker 1: Yeah, and that was what I meant to draw from 807 00:57:59,080 --> 00:58:02,840 Speaker 1: the health set things sample. I think it did change 808 00:58:02,840 --> 00:58:07,480 Speaker 1: my process as a result that Why do I emphasize 809 00:58:07,720 --> 00:58:13,040 Speaker 1: free cash flow more than analyst adjusted earnings? It's because 810 00:58:13,200 --> 00:58:18,400 Speaker 1: that was so difficult. Why do I emphasize staying away 811 00:58:18,440 --> 00:58:24,680 Speaker 1: from crooks and idiots because of Helsatham on the others where. 812 00:58:25,440 --> 00:58:29,400 Speaker 2: They were both crooks andity it seems. Yeah, So let 813 00:58:29,400 --> 00:58:31,720 Speaker 2: me throw a couple of curveballs at you before we 814 00:58:31,760 --> 00:58:35,360 Speaker 2: get to our favorite questions. One has to do with 815 00:58:35,480 --> 00:58:39,360 Speaker 2: what managers describe as eating their own cooking. What are 816 00:58:39,400 --> 00:58:42,640 Speaker 2: your thoughts on being invested in your own funds? 817 00:58:42,960 --> 00:58:47,560 Speaker 1: I would ask whether the manager can be invested. I 818 00:58:47,680 --> 00:58:53,680 Speaker 1: have Canadian funds that I cannot invest in because they 819 00:58:53,800 --> 00:58:58,600 Speaker 1: are regulated under Canadian securities laws, and so I cannot 820 00:58:58,720 --> 00:59:06,280 Speaker 1: invest them. I have the highest disclosable bracket of amount 821 00:59:06,360 --> 00:59:11,960 Speaker 1: invested in both my personal brokerage account and in my 822 00:59:12,400 --> 00:59:13,480 Speaker 1: retirement account. 823 00:59:13,640 --> 00:59:16,560 Speaker 2: So you very much eat your own cocaine. Yeah, and 824 00:59:17,040 --> 00:59:19,960 Speaker 2: our last curve bawl before we get to our favorite questions. 825 00:59:20,840 --> 00:59:24,480 Speaker 2: You were affected by your experience in an earthquake in Japan. 826 00:59:25,680 --> 00:59:26,600 Speaker 2: Tell us about that. 827 00:59:27,800 --> 00:59:31,680 Speaker 1: It was very scary. The conference that I was at 828 00:59:32,160 --> 00:59:36,720 Speaker 1: went all week, and on Tuesday before the big one, 829 00:59:37,400 --> 00:59:42,760 Speaker 1: it was in a company meeting and it felt tremor, 830 00:59:43,400 --> 00:59:47,720 Speaker 1: and the translator sort of perkly said, oh, that was 831 00:59:47,760 --> 00:59:52,800 Speaker 1: an earthquake. Okay, if you're chill about it, then so 832 00:59:52,920 --> 00:59:59,000 Speaker 1: am I. And then a couple of days later, on Friday, 833 00:59:59,280 --> 01:00:02,720 Speaker 1: it was in a meet with a home goods retailer 834 01:00:02,760 --> 01:00:07,680 Speaker 1: at the Fidelity office, and the tremor started, and the 835 01:00:08,240 --> 01:00:12,920 Speaker 1: tea service started to slip around the table, and the 836 01:00:12,960 --> 01:00:19,240 Speaker 1: company manager was CEO was looking more and more uncomfortable. 837 01:00:19,480 --> 01:00:23,360 Speaker 1: Not chill of that, not chill, And so I was thinking, oh, 838 01:00:23,440 --> 01:00:30,000 Speaker 1: it's not just every day for the Japanese. And so 839 01:00:30,680 --> 01:00:35,960 Speaker 1: the meeting that was meant to go till four we abandoned, 840 01:00:36,400 --> 01:00:41,800 Speaker 1: went down the stairway. The coffee shop in the downstairs 841 01:00:42,360 --> 01:00:46,560 Speaker 1: was kindly giving away free coffee, and my car right 842 01:00:46,640 --> 01:00:50,800 Speaker 1: to the hotel wasn't scheduled to arrive until four, but 843 01:00:50,840 --> 01:00:56,280 Speaker 1: it never arrived. Cell phone service had stopped, and so 844 01:00:56,600 --> 01:00:59,960 Speaker 1: I had to walk to the hotel and Dave Jenkins, 845 01:01:01,400 --> 01:01:05,640 Speaker 1: or Fidelity analyst and now portfolio manager, had to walk home, 846 01:01:05,960 --> 01:01:08,680 Speaker 1: which took a few hours. How bad of an earthquake 847 01:01:08,800 --> 01:01:14,680 Speaker 1: was this, This was seven. It was a big one. 848 01:01:15,880 --> 01:01:20,920 Speaker 1: You could see the hotel was near radio tower and 849 01:01:21,000 --> 01:01:25,880 Speaker 1: observatory tower. You could see it bending really and they 850 01:01:25,880 --> 01:01:30,400 Speaker 1: were going to have a finale dinner on the top 851 01:01:30,440 --> 01:01:32,680 Speaker 1: floor of the hotel, but decided to move it to 852 01:01:32,720 --> 01:01:39,840 Speaker 1: the basement. And one of our women analysts was on 853 01:01:39,880 --> 01:01:42,000 Speaker 1: the twenty first floor. I think I was on the 854 01:01:42,000 --> 01:01:47,040 Speaker 1: twenty second floor, and she went down there crying and 855 01:01:47,080 --> 01:01:50,360 Speaker 1: they moved her to the second floor. And if I'm 856 01:01:50,400 --> 01:01:54,000 Speaker 1: ever there again, I'm going to lose my dignity and 857 01:01:54,160 --> 01:01:57,080 Speaker 1: start crying and saying, move me to the second floor. 858 01:01:58,880 --> 01:02:02,080 Speaker 2: It's very orienting to be for those of us. 859 01:02:02,000 --> 01:02:05,800 Speaker 1: And to have subways stop shut down, cell phone service 860 01:02:05,960 --> 01:02:09,760 Speaker 1: shut down, car service shut down all of that stuff, 861 01:02:10,080 --> 01:02:14,200 Speaker 1: and to see, oh my god, the radio tower is tilting. 862 01:02:15,040 --> 01:02:18,200 Speaker 1: I can't My flight was canceled. Flight out was canceled. 863 01:02:18,680 --> 01:02:22,080 Speaker 2: Very very disorienting. All right, let's jump to our favorite 864 01:02:22,160 --> 01:02:25,720 Speaker 2: questions that we asked all of our guests, starting with 865 01:02:26,400 --> 01:02:29,280 Speaker 2: what what have you been watching? What have been streaming? 866 01:02:29,720 --> 01:02:31,520 Speaker 2: What's kept you entertained these days. 867 01:02:32,360 --> 01:02:35,640 Speaker 1: It's a good thing that your podcasts have a shelf life, 868 01:02:35,880 --> 01:02:38,840 Speaker 1: because some of the stuff that I watch has a 869 01:02:38,880 --> 01:02:45,280 Speaker 1: shelf life too. I recently watched The Pelican Brief and thought, 870 01:02:45,480 --> 01:02:49,080 Speaker 1: you know, that was when I really loved Julia Roberts. 871 01:02:49,400 --> 01:02:50,280 Speaker 2: That's a fun movie. 872 01:02:50,320 --> 01:02:56,439 Speaker 1: It's a fun movie, Renfield nick Ka. It's about Count 873 01:02:56,520 --> 01:03:04,680 Speaker 1: Dracula's assistant, so it's lighthearted. Maybe more Halloween type showing, 874 01:03:04,760 --> 01:03:08,160 Speaker 1: but but it's fun. I'd like the Bush series. 875 01:03:08,880 --> 01:03:12,200 Speaker 2: My wife loves that, watches that I like old movies. 876 01:03:12,280 --> 01:03:18,000 Speaker 1: James Bond is maybe popcorn, but I like popcorn, especially 877 01:03:18,000 --> 01:03:22,560 Speaker 1: with the Sean Connery there. There are definitely some Bonds 878 01:03:22,600 --> 01:03:26,200 Speaker 1: that I like better. And I'm not quite ready, but 879 01:03:26,920 --> 01:03:29,680 Speaker 1: you know, hey, this this is the new millennium. And 880 01:03:29,880 --> 01:03:35,840 Speaker 1: so if his personal pronouns become she her, then with that. 881 01:03:36,160 --> 01:03:37,840 Speaker 2: I don't think we're going to see that with bond. 882 01:03:37,920 --> 01:03:41,720 Speaker 2: That seems to be there was a rumor that I'll 883 01:03:41,720 --> 01:03:43,920 Speaker 2: take the other side of that trade. Okay, all right, 884 01:03:44,160 --> 01:03:47,520 Speaker 2: especially I'm cool with it. I just don't see that 885 01:03:47,560 --> 01:03:51,400 Speaker 2: as a bond sort of thing. Let's talk about your mentors. 886 01:03:51,480 --> 01:03:53,520 Speaker 2: Obviously you've talked about Lynch. 887 01:03:53,600 --> 01:03:59,800 Speaker 1: Peter Lynch was amazing. Richard sand Or what a brilliant 888 01:03:59,880 --> 01:04:07,040 Speaker 1: and curious and creative person at Fidelity. Bruce Johnstone doesn't 889 01:04:07,280 --> 01:04:13,720 Speaker 1: get as much press as Peter, but for finding ways 890 01:04:13,800 --> 01:04:19,040 Speaker 1: to make more than a dividend yield out of dividend 891 01:04:19,040 --> 01:04:23,800 Speaker 1: paying stocks, he was fantastic. He's closer to a value 892 01:04:23,840 --> 01:04:25,680 Speaker 1: investor than Peter. 893 01:04:26,200 --> 01:04:29,120 Speaker 2: Those are some pretty good mentors. Let's talk about books. 894 01:04:29,120 --> 01:04:30,640 Speaker 2: What are some of your favorites and what are you 895 01:04:30,680 --> 01:04:31,560 Speaker 2: reading right now? 896 01:04:31,760 --> 01:04:35,680 Speaker 1: Thinking Fast and Thinking Slow is one of my favorites. 897 01:04:37,360 --> 01:04:41,960 Speaker 2: It's a doorstop, so but it's definitely worth. 898 01:04:42,200 --> 01:04:45,960 Speaker 1: It's definitely worth plombing through and took me, i think 899 01:04:46,120 --> 01:04:50,760 Speaker 1: nine months to get through. In that same category, The 900 01:04:50,840 --> 01:04:54,240 Speaker 1: new edition of Securities Analysis. 901 01:04:54,040 --> 01:04:57,280 Speaker 2: Is Benjamin Graham, Yeah. 902 01:04:56,520 --> 01:05:03,000 Speaker 1: But as edited by Seth Klarman, with some new contributions 903 01:05:03,240 --> 01:05:08,000 Speaker 1: on endowment investing, which I am curious about because I'm 904 01:05:08,040 --> 01:05:12,720 Speaker 1: thinking that if Swinson of Yale was around today, he 905 01:05:13,320 --> 01:05:16,520 Speaker 1: might disagree with some of the things that are being 906 01:05:16,560 --> 01:05:19,960 Speaker 1: done in his name. But I wish he was around 907 01:05:20,640 --> 01:05:24,520 Speaker 1: to say I'm wrong. But yeah, so I'm always reading 908 01:05:25,320 --> 01:05:30,120 Speaker 1: like half a dozen books. Friends last night suggested that 909 01:05:30,200 --> 01:05:34,400 Speaker 1: I go back to structure of scientific revolutions, and I'm 910 01:05:35,000 --> 01:05:42,520 Speaker 1: in search of a social history of Jerusalem and the 911 01:05:42,560 --> 01:05:46,640 Speaker 1: country that we now call Israel because it was Palestine 912 01:05:47,080 --> 01:05:50,120 Speaker 1: under the Brits before that, it was the Ottoman Empire. 913 01:05:50,240 --> 01:05:53,400 Speaker 1: Before that, it was an Egyptian empire for three centuries. 914 01:05:53,800 --> 01:05:59,920 Speaker 1: So sort of curious his background to the horrible situation 915 01:06:00,640 --> 01:06:01,560 Speaker 1: in Israel. 916 01:06:01,960 --> 01:06:03,520 Speaker 2: Have you found a book on the topic of the 917 01:06:03,560 --> 01:06:04,360 Speaker 2: closest I. 918 01:06:04,360 --> 01:06:08,720 Speaker 1: Have not dropped that in a podcast if you find one. 919 01:06:08,840 --> 01:06:10,880 Speaker 2: I'm trying to remember was that the Lexus and the 920 01:06:10,920 --> 01:06:13,600 Speaker 2: Olive Tree. Was that about the history of. 921 01:06:13,760 --> 01:06:16,240 Speaker 1: I have read, but that might be what I'm looking for. 922 01:06:16,320 --> 01:06:18,560 Speaker 2: Tom Tom Friedman, if you go way back, could be 923 01:06:18,560 --> 01:06:21,600 Speaker 2: completely wrong about that my recollection is not what it 924 01:06:21,640 --> 01:06:25,040 Speaker 2: once was. So our final two questions, what sort of 925 01:06:25,080 --> 01:06:28,520 Speaker 2: advice would you give to a recent college graduate interested 926 01:06:28,680 --> 01:06:31,960 Speaker 2: in a career in investing or fund management. 927 01:06:32,320 --> 01:06:36,919 Speaker 1: If you're interested in fund management, you should know that 928 01:06:37,200 --> 01:06:40,560 Speaker 1: it works on an apprentice system. You do not start 929 01:06:40,640 --> 01:06:43,640 Speaker 1: as a fund manager. You start as an analyst. I 930 01:06:43,640 --> 01:06:46,200 Speaker 1: think that's a good thing because it helps you develop 931 01:06:46,240 --> 01:06:49,800 Speaker 1: a circle of competence. Peter Lynch always stayed in analyst. 932 01:06:49,920 --> 01:06:53,800 Speaker 1: Will Danoff has stayed and analyst, and even as their 933 01:06:53,840 --> 01:06:57,560 Speaker 1: fund manage, even as their fund managers. The second is 934 01:06:58,240 --> 01:07:04,560 Speaker 1: that it's a demanding job, and I don't think I've 935 01:07:04,600 --> 01:07:10,040 Speaker 1: had two consecutive days in the last thirty something years 936 01:07:10,040 --> 01:07:14,360 Speaker 1: where I didn't check stock prices or check email to 937 01:07:14,520 --> 01:07:18,919 Speaker 1: see what the market was. There have been days when 938 01:07:18,960 --> 01:07:20,840 Speaker 1: my dad passed where. 939 01:07:22,400 --> 01:07:22,880 Speaker 2: You missed it. 940 01:07:23,480 --> 01:07:26,240 Speaker 1: I missed a day, but he didn't miss two days. 941 01:07:26,440 --> 01:07:30,200 Speaker 1: And in retirement, I'm looking forward to that. But if 942 01:07:30,200 --> 01:07:33,120 Speaker 1: you're at the start and you're not ready for that, 943 01:07:33,520 --> 01:07:37,240 Speaker 1: choose another highly paid, glamorous profession. 944 01:07:38,640 --> 01:07:39,800 Speaker 2: Requires a heavy commitment. 945 01:07:39,880 --> 01:07:43,919 Speaker 1: Yes, it requires a heavy commitment, and think about what 946 01:07:44,000 --> 01:07:46,600 Speaker 1: you think you might do. Think about whether you're a 947 01:07:47,200 --> 01:07:50,400 Speaker 1: value or a growth investor, and think about what are 948 01:07:50,440 --> 01:07:54,840 Speaker 1: my behavioral bad habits that are going to hold me 949 01:07:54,880 --> 01:07:55,840 Speaker 1: back from success? 950 01:07:56,280 --> 01:07:58,640 Speaker 2: And our final question, what do you know about the 951 01:07:58,680 --> 01:08:02,480 Speaker 2: world of investing today? You wish you knew forty or 952 01:08:02,480 --> 01:08:04,760 Speaker 2: so years ago when you were first starting out. 953 01:08:05,480 --> 01:08:07,000 Speaker 1: Anything can happen. 954 01:08:07,880 --> 01:08:08,360 Speaker 2: I love that. 955 01:08:08,800 --> 01:08:14,040 Speaker 1: Yeah, anything can happen, sometimes in fantastic Sometimes you'll be 956 01:08:14,400 --> 01:08:20,320 Speaker 1: like me and get lucky and meet Hanson Naturals, which 957 01:08:20,400 --> 01:08:24,320 Speaker 1: became Monster Beverage at a beverage service at a tech conference. 958 01:08:25,200 --> 01:08:29,360 Speaker 1: Then I think of who other than Bill Gates predicted 959 01:08:29,880 --> 01:08:35,840 Speaker 1: the COVID pandemic. Nobody of note was saying We're going 960 01:08:35,920 --> 01:08:38,639 Speaker 1: to have a COVID pandemic, and Bill Gates did not 961 01:08:38,840 --> 01:08:48,759 Speaker 1: predict that. Following that you would have massive fiscal stimulus, and. 962 01:08:46,640 --> 01:08:48,120 Speaker 2: Followed by streets. 963 01:08:49,160 --> 01:08:52,320 Speaker 1: He did not predict that, So he was one hundred 964 01:08:52,360 --> 01:08:55,639 Speaker 1: percent time getting the COVID but he didn't get that. 965 01:08:56,040 --> 01:09:00,439 Speaker 1: And anything can happen. Nobody predicted both of those at 966 01:09:00,560 --> 01:09:01,360 Speaker 1: least a note. 967 01:09:01,520 --> 01:09:05,240 Speaker 2: Huh. Quite fascinating. Joel, thank you for being so generous 968 01:09:05,280 --> 01:09:08,680 Speaker 2: with your time. We have been speaking with Joel Tillinghast, 969 01:09:09,200 --> 01:09:12,479 Speaker 2: manager of the Fidelity Low Price Stock Fund. If you 970 01:09:12,680 --> 01:09:16,040 Speaker 2: enjoy this conversation, check out any of the five hundred 971 01:09:16,080 --> 01:09:19,680 Speaker 2: previous interviews we've done over the past nine years. You 972 01:09:19,720 --> 01:09:24,160 Speaker 2: can find those at Apple Podcasts, Spotify, YouTube, wherever you 973 01:09:24,240 --> 01:09:28,360 Speaker 2: find your favorite podcasts. Sign up for my daily reading 974 01:09:28,400 --> 01:09:31,479 Speaker 2: list at ridults dot com. Follow me on Twitter at Ridolts, 975 01:09:31,920 --> 01:09:35,360 Speaker 2: Follow all of the Bloomberg family of podcasts on Twitter 976 01:09:35,760 --> 01:09:40,120 Speaker 2: at podcast and check out our brand new podcast at 977 01:09:40,160 --> 01:09:43,040 Speaker 2: the Money, where each week we share a quick investing 978 01:09:43,120 --> 01:09:47,800 Speaker 2: insight with an expert. It's now on Apple Premium Podcasts 979 01:09:48,040 --> 01:09:52,439 Speaker 2: and it's coming everywhere in January twenty twenty four. I 980 01:09:52,479 --> 01:09:54,400 Speaker 2: would be remiss if I did not thank the crack 981 01:09:54,479 --> 01:09:58,679 Speaker 2: team that helps put these conversations together. My audio engineer 982 01:09:58,800 --> 01:10:02,240 Speaker 2: is Kaylie Lepera, My producer is Anna Luke. Attika val 983 01:10:02,320 --> 01:10:06,040 Speaker 2: Bron is our project manager. Joan Russo is my researcher. 984 01:10:06,760 --> 01:10:10,439 Speaker 2: I'm Barry Rudolts. You've been listening to Masters in Business 985 01:10:11,080 --> 01:10:12,240 Speaker 2: on Bloomberg Radio.