WEBVTT - An Interview With Arthur Samberg: Masters in Business (Audio) 0:00:03.240 --> 0:00:07.560 This is Masters in Business with Barry Ridholds on Bloomberg Radio. 0:00:08.520 --> 0:00:12.360 This week on our Masters in Business podcast, I actually 0:00:12.360 --> 0:00:15.480 have a really special guest. I know I said that 0:00:15.520 --> 0:00:17.520 every week and you guys make fun of me, but 0:00:17.840 --> 0:00:21.800 this is a really special guest. His name is arts Hamburg. 0:00:22.040 --> 0:00:27.680 He is a legend amongst both hedge funds and venture 0:00:27.720 --> 0:00:31.720 capital investors. Uh. He has a phenomenal track record. When 0:00:31.800 --> 0:00:35.040 he began his hedge fund was one of less than 0:00:35.080 --> 0:00:38.560 a hundred funds that were in existence, and he briefly 0:00:39.280 --> 0:00:41.640 he tells the story how he gets a call from 0:00:41.680 --> 0:00:44.120 the Wolf Street Journal to find out that his hedge 0:00:44.159 --> 0:00:50.640 funds is apparently George Soros had retired and um Julian 0:00:50.720 --> 0:00:53.720 Robertson had retired, and suddenly he's running the biggest hedge 0:00:53.720 --> 0:00:56.200 fund in the world at the time. And not not 0:00:56.440 --> 0:00:58.760 that that was his designer is focus, but it just 0:00:59.000 --> 0:01:03.160 kind of happened. He's a fascinating guy. His his literally 0:01:03.200 --> 0:01:07.280 a rocket scientist, an aeronautical engineer who used to work 0:01:07.319 --> 0:01:10.319 on on missiles and satellites and things like that before 0:01:10.360 --> 0:01:12.920 he moved to Wall Street. He tells some of those 0:01:12.959 --> 0:01:17.600 stories and they're quite fascinating. Our conversation about venture capital 0:01:17.680 --> 0:01:23.280 investing in the areas he's looking into is really quite amazing. 0:01:23.440 --> 0:01:26.600 And you know, you guys by now know, I'm not 0:01:26.640 --> 0:01:30.080 afraid to talk. Most of the time during this conversation, 0:01:30.640 --> 0:01:34.840 we're just sitting I'm just lobbing questions and listening UM 0:01:34.840 --> 0:01:37.240 in rapt attentions as to what he said. It wasn't 0:01:37.319 --> 0:01:40.800 until later in the podcast I actually come out of 0:01:40.840 --> 0:01:44.200 my shell. But UM, the elephant in the room is 0:01:44.880 --> 0:01:49.480 you know, it's public knowledge. Uh, there was an SEC investigation, 0:01:49.640 --> 0:01:54.160 it was started, it finished, it reopened again. Ultimately he 0:01:54.320 --> 0:01:58.200 ended up settling without admitting or denying. UM, paid a 0:01:58.480 --> 0:02:01.000 twenty eight million dollar five I think it is, and 0:02:01.000 --> 0:02:04.320 and as the SEC tends to do, had him sign 0:02:04.400 --> 0:02:08.480 a non disclosure agreement or or something to that effect. 0:02:08.560 --> 0:02:12.600 So we really couldn't get into that in great detail. UM, 0:02:12.639 --> 0:02:15.440 but I did bring it up, and he did respond, 0:02:15.639 --> 0:02:19.799 I thought, in a rather forthright way, as much as 0:02:19.840 --> 0:02:24.040 he's allowed to say. He said, UM, really interesting guy, 0:02:24.560 --> 0:02:28.560 fascinating background, and some of the stories he tells are 0:02:28.760 --> 0:02:33.240 they're just amazing. So sit back and brace yourself for 0:02:33.480 --> 0:02:41.000 our couple of hours with Art Samberg. This is Masters 0:02:41.000 --> 0:02:45.240 in Business with Barry Ridholts on Bloomberg Radio. This week 0:02:45.280 --> 0:02:48.200 on Masters in Business, I have a very special guest. 0:02:48.680 --> 0:02:52.160 His name is Art Samberg, and he's been running various 0:02:52.160 --> 0:02:55.400 hedge funds and venture capital funds for a good couple 0:02:55.400 --> 0:03:00.079 of decades, posting fairly spectacular returns. I'm only gonna have 0:03:00.160 --> 0:03:03.320 a short version of your CV because it will take 0:03:03.400 --> 0:03:06.960 up the whole segment. Otherwise launched a hedge fund. Uh, 0:03:07.080 --> 0:03:11.799 it was Samberg, Dawson, Samberg, not Dawson and the originally 0:03:11.840 --> 0:03:15.000 back in eighties six, back when there was fifty hedge 0:03:15.000 --> 0:03:17.080 funds something. That's the number I made up, but it's 0:03:17.160 --> 0:03:20.560 under a hundred. It was a small number of hedge funds. 0:03:20.880 --> 0:03:23.480 Put it returns over the life of his funds of 0:03:23.600 --> 0:03:28.880 almost And the interesting thing about Mr Sandberg doesn't come 0:03:28.919 --> 0:03:35.400 from the traditional business economic background. Undergraduate bachelors of science 0:03:35.400 --> 0:03:38.760 and aeronautics and astronautics from m I T and then 0:03:38.800 --> 0:03:42.120 a master's degree in those subjects from Stanford, So really 0:03:42.160 --> 0:03:45.640 you're a rocket science you were rocket science no longer 0:03:45.680 --> 0:03:47.960 I am, and then you end up getting your NBA 0:03:48.120 --> 0:03:50.320 from Columbia. We'll talk a little bit about some of 0:03:50.400 --> 0:03:55.120 your classmates at Columbia. There's some really interesting stories there. Uh. 0:03:55.360 --> 0:03:58.000 You currently are the chairman of the m I T 0:03:58.920 --> 0:04:01.240 I'm sorry sits the board of advisors of the m 0:04:01.280 --> 0:04:05.600 I T Energy and UM Initiative, and you were chairman 0:04:05.640 --> 0:04:09.280 of the m I T Investment Management Company. I sit 0:04:09.400 --> 0:04:13.360 on the executive committee UM, and I'm very very involved 0:04:13.360 --> 0:04:15.360 in the school. There's so many other things and so 0:04:15.400 --> 0:04:18.040 many other titles you have. You're very active in philanthropy 0:04:18.120 --> 0:04:20.839 and a variety of other things. We'll get into that 0:04:20.920 --> 0:04:23.400 as the show goes on. Let me just start by saying, 0:04:23.560 --> 0:04:25.800 welcome to bloom Buck. It's great to be here. Thank you, Verry. 0:04:26.160 --> 0:04:32.040 So first I have to ask you were at Lockheed 0:04:32.080 --> 0:04:35.359 Missile and Space Company in San Francisco, You come to 0:04:35.400 --> 0:04:38.320 New York, you get your NBA from Colombia, and then 0:04:38.360 --> 0:04:42.000 you end up working as a security analyst at Kidder Peabody. 0:04:42.440 --> 0:04:48.720 How do you transition from literally rocket scientists to financial analyst. UM, 0:04:48.720 --> 0:04:50.720 you gotta follow your passion. You've got to follow your 0:04:50.760 --> 0:04:54.599 competitive advantage. And UM I quickly found out that I 0:04:54.640 --> 0:04:56.839 could solve the equations, but I had no idea what 0:04:56.960 --> 0:05:00.320 was really going on. UM. I worked in missilante aitude 0:05:00.360 --> 0:05:05.800 control UM. So these were defined. So we were the 0:05:05.880 --> 0:05:09.280 US launches rockets, UM. Satellites come off of those. I 0:05:09.360 --> 0:05:12.359 looked down on Russia back then, UM, and they have 0:05:12.440 --> 0:05:16.400 infrared sensors and they find out where, uh, the Russians 0:05:16.400 --> 0:05:19.960 are launching rockets, and there's a lot of orbital mechanics. 0:05:20.520 --> 0:05:23.039 And I could solid equations, but did I really have 0:05:23.120 --> 0:05:25.080 any clue as to what was actually going on? I 0:05:25.160 --> 0:05:27.560 quickly found out that I did not. So you go 0:05:27.640 --> 0:05:31.119 to kid A Peabody, you're covering aerospace and and those sorts. 0:05:31.279 --> 0:05:34.719 It's so interesting how I made the transition. I I 0:05:34.760 --> 0:05:37.360 wasn't going to go to graduate school, but Locke would 0:05:37.400 --> 0:05:39.000 pay for it, so I said, sure, you're gonna pay 0:05:39.040 --> 0:05:41.160 for it, I'll do it. So I went to Stanford, UH. 0:05:41.200 --> 0:05:42.880 And it was during the day, and on the way 0:05:42.880 --> 0:05:44.800 back I would stop off at a brokerage office. And 0:05:44.839 --> 0:05:48.200 it was the time when comp Compsat went public. That's 0:05:48.200 --> 0:05:51.600 something I know something about the sties. I got out 0:05:51.640 --> 0:05:54.520 of m I T and sixty two and I was 0:05:54.680 --> 0:05:57.800 working as an engineer from sixty two sixty five. Someplace 0:05:57.839 --> 0:06:00.840 in that time period, comps At law as the company 0:06:00.880 --> 0:06:04.719 goes public. Uh, and I'm fascinating. It's like, my goodness, 0:06:04.800 --> 0:06:06.640 all the stuff that I know, I can apply it 0:06:06.640 --> 0:06:10.480 to I can real money. Um, as opposed to supposed 0:06:10.560 --> 0:06:13.159 you're working my way up the engineering ladder where I 0:06:13.320 --> 0:06:16.520 had no illusion that I would ever be great. That 0:06:16.640 --> 0:06:18.560 was a good middle class job. But you're never going 0:06:18.600 --> 0:06:23.640 to My dad was an electrician. UM, so you were 0:06:23.680 --> 0:06:26.960 making more money than your dad when you're so, then 0:06:27.000 --> 0:06:30.880 how did you go from there to Columbia? Um? Because 0:06:30.920 --> 0:06:34.960 my wife needed to get a job teaching school in 0:06:35.000 --> 0:06:37.680 New York any place, and the only place I knew 0:06:37.680 --> 0:06:39.200 for sure you could get one was back in New 0:06:39.279 --> 0:06:44.080 York because I people. So you go to Columbia and 0:06:44.880 --> 0:06:46.200 this is a rumor, and you have to tell me 0:06:46.240 --> 0:06:49.240 if this is true. Used to car pool to Columbia 0:06:49.320 --> 0:06:52.279 with two guys named Mario Ga Belly and Lee Cooperman. 0:06:52.800 --> 0:06:55.520 It's no rumor, it's the actually truth. That's a that's 0:06:55.520 --> 0:06:58.760 a lot of intellectual firepower. Learned more in the car 0:06:58.800 --> 0:07:02.120 pool than I did at school. Don't tell, don't tell 0:07:02.120 --> 0:07:04.239 the school. I said that I cod share the board. 0:07:04.960 --> 0:07:07.840 By the way, the school that you're you're dissing right now. 0:07:08.120 --> 0:07:12.800 You made the biggest donation in their history to their 0:07:12.840 --> 0:07:16.679 to their graduate program. It's been exceeded by a couple 0:07:16.720 --> 0:07:19.320 of other guys now, but people, it was a large no. 0:07:19.440 --> 0:07:23.920 I I My my success in life is UM is 0:07:24.040 --> 0:07:29.000 taking UM a decent expertise in technology and combining with 0:07:29.160 --> 0:07:32.360 finance and trying to apply those two things to help 0:07:32.400 --> 0:07:36.920 companies aggregate capital um and grow and create jobs. And 0:07:36.960 --> 0:07:39.160 so I'm one of those guys who believes in all 0:07:39.200 --> 0:07:41.840 of that good stuff? Are there many people who don't 0:07:41.840 --> 0:07:44.000 believe a lot of people who don't. I think people 0:07:44.040 --> 0:07:46.560 believe it, they just get offended by some of the 0:07:46.600 --> 0:07:51.880 gross excesses that occasionally erupt. I think they're also jealous 0:07:52.160 --> 0:07:57.000 UM there's there's possible and possibly that. So so one 0:07:57.000 --> 0:07:59.400 of the things we've had Lee Cooperman on, I know 0:07:59.520 --> 0:08:02.880 you guys are friendly. One of the things that Lee 0:08:02.960 --> 0:08:08.080 talked about was how he developed his deep value framework 0:08:08.160 --> 0:08:12.360 from Colombia. What was your experience like? UM? My experience 0:08:12.440 --> 0:08:16.360 was I was the antithesis of deep value. M I 0:08:16.440 --> 0:08:21.320 remember Mario Lee and I, Uh, well, Mario and I 0:08:21.360 --> 0:08:24.200 took a course from Roger Murray, who was the guy 0:08:24.440 --> 0:08:28.080 reinstituted the value investing stuff at Columbia. He got he 0:08:28.200 --> 0:08:30.400 got one grade higher than I did because it was 0:08:30.440 --> 0:08:32.680 analysis of a company where it turned out that the 0:08:32.760 --> 0:08:34.880 really key factor was the old man who found it 0:08:34.920 --> 0:08:37.680 was going to die and then value would be created, 0:08:37.679 --> 0:08:41.600 which Mario was fantastic at. I thought that was disgusting. 0:08:41.760 --> 0:08:43.720 I mean, I really am interested in people who were 0:08:43.760 --> 0:08:46.680 alive and doing things. You care about the technology you 0:08:46.720 --> 0:08:51.400 have the physics. I care about solving the world's problems 0:08:51.400 --> 0:08:53.960 and getting rich while doing it, because I think the 0:08:54.040 --> 0:08:57.240 two actually do work together well. Many people who have 0:08:57.320 --> 0:09:02.240 created solutions to pernicious problems have not only helped society 0:09:02.280 --> 0:09:04.840 but created a tremendous amount of wealth. I think that's 0:09:04.920 --> 0:09:07.640 the americanay, and I think it's phenomenal. You're listening to 0:09:07.720 --> 0:09:11.439 Masters in Business on Bloomberg Radio. We're speaking with Art Sandberg. 0:09:11.600 --> 0:09:15.560 He is the founder of Peaquad Capital Management and now 0:09:15.600 --> 0:09:21.360 he's running Hawks Financial venture capital and Hawks is a 0:09:21.600 --> 0:09:25.120 umbrella family office venture capital and stuff. But we do 0:09:25.200 --> 0:09:27.480 have a fun though that my older son is now 0:09:27.520 --> 0:09:30.640 the managing partner. We call it a Katia Woods uh 0:09:30.760 --> 0:09:33.280 and it's increasingly showing up in the holding of some 0:09:33.400 --> 0:09:39.560 very interesting companies. So that's that's fascinating. Let's talk about UM. 0:09:39.679 --> 0:09:42.560 We mentioned earlier less than a hundred hedge funds when 0:09:42.559 --> 0:09:48.200 you launched, and and the fund returned a rather smart 0:09:48.600 --> 0:09:53.079 by the way, that's very similar to Lee Cooperman's returns seventent. 0:09:53.720 --> 0:09:56.800 Lee is a great friend. Mine is better. I think 0:09:56.840 --> 0:09:59.559 you're about half a percent well, And I will say, 0:09:59.679 --> 0:10:02.440 because you know, I believe that numbers are numbers, and 0:10:02.440 --> 0:10:04.760 you're full with numbers. I was, you know, I did 0:10:04.880 --> 0:10:06.920 go to M I T. But my first year I 0:10:06.960 --> 0:10:11.160 was down. You were down about you were to adjust 0:10:11.200 --> 0:10:15.320 it like most people have first years when they were 0:10:16.559 --> 0:10:19.160 and then the money pours in, and then depending on 0:10:19.280 --> 0:10:21.800 you came in, you might not have even made money 0:10:21.800 --> 0:10:23.719 with one of these guys with a great record. The 0:10:24.160 --> 0:10:28.120 not true here. The dollar adjusted returns, not the time 0:10:28.160 --> 0:10:31.960 weighted returns for a lot of big funds are awful 0:10:32.280 --> 0:10:36.199 because they were putting up returns with twenty million dollars. 0:10:36.559 --> 0:10:39.439 Then they're at forty five billion and they lose a third, 0:10:39.840 --> 0:10:42.640 So net net, over time there are a dollar loser. 0:10:42.800 --> 0:10:46.440 But percentage wise, UM on a time weighted basis, I've 0:10:46.480 --> 0:10:49.160 never had the chance to say this before, but that 0:10:49.360 --> 0:10:53.079 is absolutely not the case of QUI so you with 0:10:53.200 --> 0:10:57.120 down And one of your quotes that I really like 0:10:57.400 --> 0:11:00.520 was you learn more from your disappointments then you do 0:11:00.640 --> 0:11:06.839 from your successes. Success feeds on success, and people are 0:11:06.880 --> 0:11:09.440 there to tell you how wonderful you are. People don't 0:11:09.559 --> 0:11:14.480 really unless money attracts. Money is used to and I 0:11:14.520 --> 0:11:17.600 never understood it until a few years ago, and and 0:11:17.600 --> 0:11:19.199 and and if you if you do that for a 0:11:19.240 --> 0:11:22.960 long enough period of time, my belief, um, clearly my 0:11:23.040 --> 0:11:25.200 belief is that people then want to start to tell 0:11:25.240 --> 0:11:26.920 your down. They either want to continue to build you 0:11:27.000 --> 0:11:30.520 up or tell you down, and there become a high 0:11:30.559 --> 0:11:33.679 profile target. So, um, you're not going to hear a 0:11:33.679 --> 0:11:36.640 lot of things you believe about what you're doing wrong 0:11:36.679 --> 0:11:40.079 when you're doing right. Um, but you are doing things wrong. 0:11:40.360 --> 0:11:43.439 And and then if you just go into a shell 0:11:43.600 --> 0:11:46.960 and you don't realize and self analyze and you know, 0:11:47.120 --> 0:11:51.120 really look carefully at what you did and why it failed, um, 0:11:51.440 --> 0:11:53.520 you will not do well. So after I was down, 0:11:53.679 --> 0:11:56.439 because that was the crash of eight seven, and it 0:11:56.520 --> 0:12:01.760 was you had launched what Yes, so you did worse 0:12:01.800 --> 0:12:06.600 than the crash. Uh. It was one day the market 0:12:06.640 --> 0:12:10.760 was up almost and ended up returning for the year. 0:12:11.240 --> 0:12:13.719 That was a big, big down draft, which it was 0:12:13.800 --> 0:12:17.240 brutal UM. And I remember having because I I when 0:12:17.240 --> 0:12:20.240 I started the fund it was in small companies that 0:12:20.320 --> 0:12:24.360 were overlooked that could become big companies. Those are exactly 0:12:24.360 --> 0:12:28.000 the kind of illiquid positions got creamed and so I 0:12:28.120 --> 0:12:30.760 ended up having Assuming that I was going to get redemptions, 0:12:31.040 --> 0:12:33.560 I had a call companies and say, would you buy 0:12:33.559 --> 0:12:36.839 my stock? Um? That is, if anybody who knows anything 0:12:36.840 --> 0:12:38.880 about anything, that is not a good way to UH 0:12:39.080 --> 0:12:42.280 to execute a cell program. But there were no other buyers, 0:12:42.720 --> 0:12:46.120 so I got smoked UM and I so I was 0:12:46.200 --> 0:12:49.120 up three percent for my stub period in eighty six 0:12:49.360 --> 0:12:53.240 and I was down six I can't remember percent in 0:12:53.360 --> 0:12:56.480 eighty seven, but then it came roaring back. So what 0:12:56.520 --> 0:12:58.559 was what was the subsequent couple of years? So in 0:12:58.600 --> 0:13:02.040 other words, you put up eighteen almost eighteen percent a 0:13:02.160 --> 0:13:05.560 year despite starting from that. So if you were to 0:13:05.600 --> 0:13:07.839 just do the simple math, it would take it up 0:13:08.559 --> 0:13:13.320 probably closer if you backed out that over UM the 0:13:13.400 --> 0:13:18.240 next few years we're up twenty up seventy five it's 0:13:18.280 --> 0:13:21.800 just you know, crazy numbers right in the late eighties 0:13:21.960 --> 0:13:27.800 up seventies, starting in back in eighty nine, UM, and 0:13:27.840 --> 0:13:33.640 then and then I can imagine were just insane. What 0:13:33.679 --> 0:13:36.040 sort of numbers were you doing those? Yes, you know. 0:13:38.960 --> 0:13:41.200 But one of the things that did Pequa was to 0:13:41.280 --> 0:13:44.880 realize that because because I was sort of the first 0:13:44.880 --> 0:13:48.319 guy to really specialized in technology investing as as a 0:13:48.360 --> 0:13:53.400 hedge fund. Really yeah, without a doubt, and I sector funds, 0:13:53.400 --> 0:13:57.320 and I had I had a great partner, Dan Benton, 0:13:57.360 --> 0:14:00.720 who who then took over the technology she stuff, because 0:14:00.760 --> 0:14:03.280 I thought I had brought her background in the whole 0:14:03.280 --> 0:14:05.360 business and I can run the business and everything else. 0:14:05.400 --> 0:14:07.840 And he had a hundred percent year. I had a 0:14:07.840 --> 0:14:12.080 healthcare fund that was up that time period. UM, we 0:14:12.120 --> 0:14:15.040 started an energy fund UM. So we had sector funds, 0:14:15.120 --> 0:14:18.600 and I devised a way for me to manage increasing 0:14:18.600 --> 0:14:21.320 amounts of money by using those talents and bringing him 0:14:21.320 --> 0:14:23.280 into the fund while I'm still doing trying to do 0:14:23.360 --> 0:14:27.040 research myself. In the early days of the fund, someone 0:14:27.160 --> 0:14:31.320 had written and I don't remember where I'm quoting this from, 0:14:31.400 --> 0:14:34.960 that it was over fifteen billion dollars and kept growing 0:14:35.120 --> 0:14:37.360 and at the time that made it the biggest hedge 0:14:37.360 --> 0:14:39.880 fund in the world. Is that true? You wake up 0:14:40.040 --> 0:14:43.360 and and you wake up to unexpected news every once 0:14:43.360 --> 0:14:44.880 in a while, and that's happened to me more than 0:14:44.920 --> 0:14:47.640 once in my life. But the unexpected news in this 0:14:47.720 --> 0:14:52.000 case was in the spring of two thousand. UM, we 0:14:52.040 --> 0:14:55.600 had a PR firm, and the PR firm calls and says, Um, 0:14:55.680 --> 0:14:58.400 the Wall Street Journal, UM is going to do a story, 0:14:59.360 --> 0:15:04.840 uh on hedge funds now that George Soros and Julian 0:15:04.960 --> 0:15:08.239 Robertson have decided to close down to the outside investors. 0:15:08.560 --> 0:15:10.600 And they have determined that you were the largest hedge 0:15:10.600 --> 0:15:13.680 funds in the world and clients at that point, sir 0:15:13.880 --> 0:15:17.120 and and and they will do the article, UM with 0:15:17.240 --> 0:15:20.360 or without your input. UM, and we suggest you probably 0:15:20.360 --> 0:15:22.480 should tell you're in the part of the story. I 0:15:22.520 --> 0:15:24.920 don't think anybody really, I mean, people on Wall Street 0:15:25.040 --> 0:15:28.440 knew who peak what was But I I don't like publicity. 0:15:28.520 --> 0:15:31.040 I like to just live my life, do my thing, 0:15:31.200 --> 0:15:35.720 give back. I believe I do give back. UM. And 0:15:35.760 --> 0:15:38.960 I'm not out for self and grand grandizement. And uh 0:15:39.320 --> 0:15:41.280 So we were unknown and then all of a sudden, 0:15:41.280 --> 0:15:44.960 on a Monday morning, or Tuesday. Bang, there it was, 0:15:45.240 --> 0:15:50.040 and my life changed really in what ways? No, nothing positive. 0:15:51.560 --> 0:15:54.040 So hence the low profile is the better way to go. 0:15:54.400 --> 0:15:57.120 I've tried to maintain that ever since. And as you know, Barry, 0:15:57.200 --> 0:15:59.320 that was one of my reluctance is about doing this. 0:15:59.480 --> 0:16:02.680 I do know and and for listeners, I've been chasing 0:16:02.840 --> 0:16:05.600 Art down for the better part of a year and 0:16:05.840 --> 0:16:10.760 Um after our conversation with Lee Cooperman, Lee eventually convinced you, oh, 0:16:10.800 --> 0:16:13.000 this guy isn't that bad. You should come to so 0:16:13.760 --> 0:16:16.640 so far, so good. You're listening to Masters in Business 0:16:16.680 --> 0:16:20.240 on Bloomberg Radio. My guest today is Art Sandberg. He 0:16:20.600 --> 0:16:25.040 is a former rocket scientist who became an analyst, hedge 0:16:25.040 --> 0:16:28.760 fund manager, and venture capitalist. Let's talk a little bit 0:16:28.800 --> 0:16:32.880 about your methodology, because we've already identified you're not a 0:16:32.960 --> 0:16:37.080 deep value investor like your friends Lee and Mario Um, 0:16:37.240 --> 0:16:41.520 Lee Cooperman and Mario Gavelli. What is your methodology when 0:16:41.520 --> 0:16:44.760 you're looking at either a public stock that you're thinking 0:16:44.800 --> 0:16:48.200 about buying or a private company that you're thinking about 0:16:48.240 --> 0:16:52.440 investing in. UM, it sort of starts from the same 0:16:54.480 --> 0:16:57.640 It starts from the same basis, which is what kind 0:16:57.680 --> 0:17:01.000 of change is possible. What kind of change can you 0:17:01.120 --> 0:17:05.040 find that is being implemented by smart people? UM. It 0:17:05.040 --> 0:17:09.440 becomes more difficult obviously as UM a trend goes on 0:17:09.560 --> 0:17:11.840 and as you become larger in size, you can't you 0:17:11.880 --> 0:17:16.240 really can't establish those positions. UM. But initially my my 0:17:16.240 --> 0:17:18.480 my fund was set up to invest in market caps 0:17:18.680 --> 0:17:20.320 if you can believe this in this day and age. 0:17:20.359 --> 0:17:23.399 But we're talking thirty years ago now of market caps 0:17:23.480 --> 0:17:26.960 under under two hundred million dollars, uh, YadA YadA ya. 0:17:26.960 --> 0:17:29.200 And then of course it changed thirty years ago into 0:17:29.200 --> 0:17:34.280 two hundred million dollars today. That's still thousands of companies, 0:17:34.320 --> 0:17:37.280 but they trade by appointment. There's not a lot of 0:17:37.280 --> 0:17:39.960 liquidity of it, which is the only kind of things 0:17:40.000 --> 0:17:42.399 that owned my personal account right now. And I won't 0:17:42.440 --> 0:17:47.280 talk about any of those. But I'm back to back 0:17:47.280 --> 0:17:49.200 to being able to do what I first did when 0:17:49.240 --> 0:17:53.600 I UM, when you started the business, UM, you know, UH, 0:17:53.840 --> 0:17:58.720 creating alpha through that cycle UM becomes difficult. UM. And 0:17:58.720 --> 0:18:02.720 and so that approach that I described, UM, you have 0:18:02.840 --> 0:18:06.720 to evolve into a master of markets, as it were, 0:18:06.800 --> 0:18:08.560 to be able to go short and know how to 0:18:08.640 --> 0:18:12.720 use derivatives appropriately match. You know the cost of doing 0:18:12.760 --> 0:18:17.720 that to um the potential upside, and that's become increasingly 0:18:17.760 --> 0:18:21.920 difficult for practitioners these days. And the results quite honestly 0:18:21.920 --> 0:18:24.919 have been pretty pretty mediocre. When we look at the 0:18:25.000 --> 0:18:28.879 small cap there are guys like David Booth of Dimensional Funds. 0:18:28.880 --> 0:18:33.840 You've created a very nice business focusing on the small 0:18:33.920 --> 0:18:37.840 cap um advantage. The fact that you actually see out 0:18:37.880 --> 0:18:43.000 performance from smaller caps UM versus the big well followed. 0:18:43.280 --> 0:18:46.159 There's an inefficiency amongst small caps that leads to I 0:18:46.160 --> 0:18:51.479 think there's growing inefficiency UM because we all know what's 0:18:51.520 --> 0:18:53.919 happened to employment in the brokerage industry, all know how 0:18:53.960 --> 0:18:57.119 many companies are followed that's declining all the time. The 0:18:57.160 --> 0:19:01.080 economics aren't there with the regulation um, they're burdens on 0:19:01.119 --> 0:19:04.640 the company's plus the financial companies to follow them UM. 0:19:04.720 --> 0:19:07.159 So the value is definitely there. The problem is that 0:19:07.200 --> 0:19:09.240 nobody knows when you're gonna get paid for that value. 0:19:09.240 --> 0:19:12.600 If David has managed to harvest some of these, more 0:19:12.640 --> 0:19:18.399 power to them. But some of the guys now Dimensional Funds, 0:19:18.600 --> 0:19:22.480 maybe they buy a position to everything, don't they they 0:19:22.520 --> 0:19:25.719 have a quantitative model. They end up holding these things forever. 0:19:26.080 --> 0:19:28.760 I wouldn't say everything they run through a number of screens. 0:19:28.920 --> 0:19:31.760 Oh no, I'm not but detegrating what they do. Basically, 0:19:31.960 --> 0:19:34.920 it's very different than the model I'm talking about. For sure, 0:19:35.320 --> 0:19:39.520 I'm trying to identify winners. Um and they're in my experience, 0:19:39.680 --> 0:19:43.480 like there aren't that many winners. So you mentioned earlier 0:19:43.480 --> 0:19:46.439 you're running your own assets as opposed to when you 0:19:46.480 --> 0:19:50.080 were running other people's money. How does that universe difference? 0:19:50.119 --> 0:19:52.879 What's what's it like running your own money versus what 0:19:52.960 --> 0:19:54.639 you have to deal with when you have outside of this. 0:19:54.840 --> 0:19:57.679 It's very simple. You don't have to report, Okay, I 0:19:57.720 --> 0:20:00.200 do have to report to uh I have to son, 0:20:00.280 --> 0:20:02.359 so I do it with um and I have a 0:20:02.440 --> 0:20:05.359 daughter who runs our family foundation. She and my wife. 0:20:05.600 --> 0:20:08.760 Um So, in our family, the males make the moneys, 0:20:08.800 --> 0:20:12.000 and the females or social conscience and and and and 0:20:12.040 --> 0:20:15.280 help us give it back. Um So, my boss is 0:20:15.400 --> 0:20:19.360 really the women in the Sandburry clan. Okay. They expect 0:20:19.400 --> 0:20:21.919 that I will always perform, I will perform well, and 0:20:21.960 --> 0:20:25.440 we will do great, great deeds for the world. Um So, 0:20:25.600 --> 0:20:29.040 you still like have other other investors to to answer to. 0:20:29.359 --> 0:20:31.840 But I I can deal with that because they are 0:20:31.840 --> 0:20:34.360 in my family. So it's a little it's a little easier. 0:20:34.520 --> 0:20:37.320 It's so easier. So we were talking about the increased 0:20:37.520 --> 0:20:40.960 regulatory environment and how things have changed from when you 0:20:41.080 --> 0:20:44.159 launched thirty years ago. Could you launch a fund today? 0:20:44.160 --> 0:20:47.639 How what let's say, hypothetically you're right out of business 0:20:47.680 --> 0:20:50.520 school today, what would it be like launching a fund 0:20:50.560 --> 0:20:53.320 in this environment? Well, I guess in some ways it's easy. 0:20:53.400 --> 0:20:58.000 Well talking about today today, UM, I don't really know 0:20:58.040 --> 0:21:01.400 because I haven't been then involved or involved at all. 0:21:01.520 --> 0:21:04.960 But um, at the peak of my success, it was 0:21:05.000 --> 0:21:07.560 simple for anybody to raise a fund. I mean, everybody 0:21:07.640 --> 0:21:09.560 was looking for the next great manager and they throw 0:21:09.640 --> 0:21:13.639 money at him with fat return you know, return profiles 0:21:13.680 --> 0:21:16.840 for for the manager. Um. I think that welcome has 0:21:16.880 --> 0:21:19.800 been worn out. You know, that welcome has been worn out. 0:21:20.160 --> 0:21:24.120 So now I think, if you don't have a nest egg, um, 0:21:24.359 --> 0:21:26.920 you're not gonna make it. So you better have made 0:21:26.920 --> 0:21:30.639 some money um before and put it at risk in 0:21:30.720 --> 0:21:33.960 doing what you're doing. I certainly did that back when, 0:21:34.119 --> 0:21:38.280 because if you're down, you can't really pay your bills, 0:21:38.320 --> 0:21:40.399 so you better you better have something to live on 0:21:40.720 --> 0:21:42.399 and then decide whether you really want to take the 0:21:42.520 --> 0:21:46.480 risk for your family and everything. Um going forward. Um, 0:21:46.640 --> 0:21:49.080 I think you went through a whole generation of people 0:21:49.119 --> 0:21:52.359 who didn't have that risk. They just we're having money 0:21:52.400 --> 0:21:55.040 thrown at them. Uh. And now there's a sorting out 0:21:55.080 --> 0:21:57.360 process going on. So I think it's it's much more 0:21:57.359 --> 0:22:00.040 difficult right now to sort of fund You're listening a 0:22:00.160 --> 0:22:03.480 Master's in Business on Bloomberg Radio. My guest this week 0:22:03.600 --> 0:22:07.760 is Art Sandberg, probably best known for pe Quad Management, 0:22:07.880 --> 0:22:11.960 although he has been a well regarded venture capitalist and 0:22:12.040 --> 0:22:16.760 philanthropist over the years. Let's talk about running a business. 0:22:16.760 --> 0:22:20.760 What it's like to run an investment management business. I 0:22:21.080 --> 0:22:23.479 some time ago read a speech you had given and 0:22:23.480 --> 0:22:27.680 you had talked about how challenging it is to find 0:22:28.280 --> 0:22:33.359 and hire the best people. M what why? Why? How 0:22:33.400 --> 0:22:36.960 significant is that and why is that such a challenge 0:22:37.119 --> 0:22:44.720 to an investment firm. Um, it's a challenge because um, uh, 0:22:44.800 --> 0:22:47.040 there are a lot of smart people out there. UM. 0:22:47.119 --> 0:22:51.080 So if you meet somebody and you talk to him, UM, 0:22:51.400 --> 0:22:53.199 you know you're not gonna think everybody's smart, but you're 0:22:53.200 --> 0:22:55.000 gonna think a lot of people are smart. And then 0:22:55.480 --> 0:22:58.159 trying to distill down those who appear to be smart 0:22:58.520 --> 0:23:00.159 into those who are gonna be really a fair to 0:23:00.240 --> 0:23:03.320 be managing money, who are going to be um easy 0:23:03.359 --> 0:23:06.440 to live with, because you have to live with these people, UM, 0:23:06.440 --> 0:23:09.920 who aren't the kind of guys who become megalomaniacs. And 0:23:10.000 --> 0:23:12.440 I think that all the success is due to their 0:23:12.480 --> 0:23:16.240 efforts and not because of the team's effort. Very very difficult, 0:23:16.600 --> 0:23:19.800 very difficult. How how soon after you make a key 0:23:19.880 --> 0:23:23.000 hire do you usually know if you're right or wrong? Um, well, 0:23:23.040 --> 0:23:25.520