WEBVTT - An Interview With Mario Gabelli: Masters in Business (Audio) 0:00:03.240 --> 0:00:07.560 This is Masters in Business with Barry Ridholts on Bloomberg Radio. 0:00:08.800 --> 0:00:12.039 This week on Masters in Business, I have a very 0:00:12.080 --> 0:00:14.240 special guest, and I know I say that every week, 0:00:14.280 --> 0:00:18.079 but this week Mario Gabelly is our guest, and he 0:00:18.280 --> 0:00:23.360 is just tremendous. He is known as a stockpickers, stockpicker, 0:00:24.040 --> 0:00:28.160 a deep value guy schooled at Columbia in the Graham 0:00:28.160 --> 0:00:32.120 and Dodd tradition, the Warren Buffett tradition of value investing. 0:00:32.800 --> 0:00:36.080 I think the twist that Mario brings is that he 0:00:37.000 --> 0:00:39.879 learns an industry as well as anybody ever can, and 0:00:39.920 --> 0:00:44.240 then within that industry goes hunting for value. Uh. He's 0:00:44.320 --> 0:00:46.919 also a force of nature. As you'll here, I very 0:00:47.000 --> 0:00:50.320 much completely lose control of the interview and and he 0:00:50.640 --> 0:00:54.120 um pretty much steam rolls over um a lot of 0:00:54.120 --> 0:00:57.720 the questions I asked. It was really a fascinating conversation. 0:00:57.800 --> 0:01:01.640 And if you're at all interested in stock picking, uh, 0:01:01.680 --> 0:01:03.560 this is a guy you really want to listen to. So, 0:01:03.720 --> 0:01:09.200 without any further ado, here is my conversation with Mario Gabelly. 0:01:12.720 --> 0:01:17.039 This is Masters in Business with Barry Ridholts on Bloomberg Radio. 0:01:17.840 --> 0:01:19.640 I know I say this every week that I have 0:01:19.760 --> 0:01:22.800 a special guest. But this week I have a very 0:01:22.800 --> 0:01:29.240 special guest, founder, CEO, chairman of Gabelly Asset Management, Mario Gabelly. 0:01:29.280 --> 0:01:32.600 I'll give you a quick version of his background. Formed 0:01:32.600 --> 0:01:35.399 the company in the midst of the bear market in 0:01:35.400 --> 0:01:40.720 the nineties seventies UH now managing over forty billion that's 0:01:40.760 --> 0:01:44.720 billion with a being assets, known as an intense researcher 0:01:45.120 --> 0:01:49.520 into the businesses of the companies who stock he buys. Mario, 0:01:49.800 --> 0:01:53.280 also known as Super Mario, buy stocks as if he 0:01:53.400 --> 0:01:57.920 was purchasing the whole companies. He's recently UM gifted the 0:01:57.960 --> 0:02:01.200 Formum School of Business, which has since been renamed the 0:02:01.280 --> 0:02:05.440 Gabilly School of Business at Fordham University, Nario. Gabilly, welcome 0:02:05.440 --> 0:02:08.639 to Bloomberg. Heys terrific to be here. Talk about stocks. 0:02:08.919 --> 0:02:12.680 Let's talk a little bit about stocks. So your background 0:02:12.960 --> 0:02:16.880 is that you UM went to the Columbia UH School 0:02:16.880 --> 0:02:20.200 of Business. What do were you doing before you went 0:02:20.280 --> 0:02:25.160 for your business degree. Well, essentially, back in the period 0:02:25.160 --> 0:02:27.640 of time the early sixties, you did not have to 0:02:27.680 --> 0:02:30.200 take the two or three years of work experience so 0:02:30.280 --> 0:02:34.040 college rights. So I graduated from Fordham in June, went 0:02:34.080 --> 0:02:38.520 to Columbia in September, and obviously had a variety of 0:02:39.000 --> 0:02:42.920 entrepreneurial gigs, so to speak, for the prior twenty years, 0:02:42.919 --> 0:02:45.600 starting at the age of five, Oh, what were you doing? Uh, 0:02:45.639 --> 0:02:48.080 prior to college? What? What sort of work were you doing? Well? 0:02:48.280 --> 0:02:51.720 Arranged from everything from caddying to shining shoes, to picking 0:02:51.800 --> 0:02:55.840 up crates and supermarkets for recycling purposes to actually working 0:02:55.880 --> 0:03:00.280 a gig with ABC down at UH sixty seven Street 0:03:00.280 --> 0:03:02.760 and Broadway just as they were building Lincoln Center. I mean, 0:03:02.760 --> 0:03:05.560 there's so many it's unusual not to be able to 0:03:05.600 --> 0:03:08.400 remember to mention the will, including some where I was 0:03:08.480 --> 0:03:14.320 running dances for college students along with two partners back 0:03:14.360 --> 0:03:16.600 in the sixties. We'd hired the band the Bounces and 0:03:16.680 --> 0:03:21.080 A and the location which the booze was served, any 0:03:21.320 --> 0:03:24.320 any finance, any Wall Street prior to business school or 0:03:24.320 --> 0:03:26.760 where these two no, I think the I I did 0:03:26.800 --> 0:03:31.440 take some summer internships. The one with ABC, as I mentioned, 0:03:31.520 --> 0:03:34.720 was where I would go in using my undergraduate degree 0:03:34.720 --> 0:03:37.800 in accounting or a study of accounting at the time, 0:03:37.840 --> 0:03:44.000 but also essentially checking off the each television station where 0:03:44.080 --> 0:03:46.600 a TV ad was placed and whether it was preempted 0:03:46.600 --> 0:03:50.240 and whether they'd have to get what make make goods. 0:03:51.120 --> 0:03:53.120 In addition to I think, I worked for W. A. 0:03:53.200 --> 0:03:55.680 Grace for a while down in Wall Street UH in 0:03:55.720 --> 0:03:58.280 the County Department, and that's where I learned about the 0:03:59.000 --> 0:04:03.360 UH and Choby's disappearing when El Nino came along. And 0:04:03.440 --> 0:04:05.400 it was kind of fascinating because I was plugging in 0:04:05.400 --> 0:04:08.760 a lot of numbers. What happens when Elnino comes along? 0:04:08.760 --> 0:04:12.640 What does that mean to UH? The anchobies probably go up, disappear, 0:04:12.720 --> 0:04:15.440 and the price goes up. So if you've got a 0:04:15.440 --> 0:04:19.080 big fleet off Peru or Chili, you would have a 0:04:19.120 --> 0:04:22.720 little challenge of finding those little fishies. And that started 0:04:22.760 --> 0:04:26.760 a lifetime deep dive research into that. Really that was 0:04:26.839 --> 0:04:29.560 just that that was just basically generating cash flow, and 0:04:29.560 --> 0:04:31.880 it to pay my tuition because I didn't want to 0:04:32.200 --> 0:04:34.240 have any tuition loans, but I did have some coming 0:04:34.240 --> 0:04:36.839 out of graduate school. So you went to Columbia with 0:04:36.880 --> 0:04:39.560 a couple of other guests that we found on the show. 0:04:39.680 --> 0:04:42.719 Um Lee Cooperman told us that he used to car pool. 0:04:43.000 --> 0:04:45.280 Is this true? He would car pool with you Art 0:04:45.320 --> 0:04:47.480 Sandberg back and forth to college. There were four of 0:04:47.560 --> 0:04:50.040 us and what happened is at the time I was 0:04:50.080 --> 0:04:52.360 at Columbia, we both and all of us lived up 0:04:52.360 --> 0:04:55.360 in the West Bronx and Riverdale and I by Van 0:04:55.440 --> 0:04:59.279 Cortland Park. There was a subway strike, so I we 0:04:59.400 --> 0:05:03.600 figured out that we should car pool, a very practical solution. 0:05:03.800 --> 0:05:06.479 And then when we did that, for several years we 0:05:06.560 --> 0:05:09.960 didn't took turns driving. And I'm surprised that both of 0:05:10.000 --> 0:05:12.760 them still alive since I was the driver many times. 0:05:13.160 --> 0:05:15.360 And in addition to there was always a fourth fellow, 0:05:15.480 --> 0:05:18.360 and then we would have a Stanley shop corn at 0:05:18.360 --> 0:05:20.520 one time we'd car pool with. And so it was 0:05:20.560 --> 0:05:23.240 a wonderful bunch of guys that were focused on stocks, 0:05:23.480 --> 0:05:27.120 love the markets, had great passion for making money for clients. 0:05:27.160 --> 0:05:29.680 Even then, Lee said he learned more in the car 0:05:29.720 --> 0:05:31.680 pool than he did in class. Well, I can't remember 0:05:31.680 --> 0:05:35.000 any of that. So you had a professor. You started 0:05:35.040 --> 0:05:38.880 with Roger Murray known as um Uh, one of the 0:05:39.000 --> 0:05:41.360 editors of Graham and Dott, and I think he did 0:05:41.400 --> 0:05:44.680 the fourth or fifth edition of Security Analysis. Let me 0:05:44.720 --> 0:05:48.920 make it simple, Columbia Business School had two professors back 0:05:49.080 --> 0:05:51.479 in the late twenties early thirties. Graham and Dodd, and 0:05:51.520 --> 0:05:56.320 they wrote a book on cold security analysis. UH the 0:05:57.360 --> 0:06:01.440 fifty Warren Buffett takes the class and writes a story saying, hey, 0:06:01.480 --> 0:06:03.360 I was a pretty good investor before I got Ben 0:06:03.400 --> 0:06:05.800 Graham teaching me, and that I became an extraordinarily good 0:06:05.800 --> 0:06:09.640 investor after Graham retired, Roger Murray succeeded and took on 0:06:10.000 --> 0:06:13.840 that program. So when I took security analysis, who at 0:06:13.880 --> 0:06:16.920 Roger Murray, Cooperman was there, Sandberg was there for me? 0:06:17.000 --> 0:06:18.440 It was the moon, the sun and the stars. I 0:06:18.440 --> 0:06:20.320 always known that to be in the markets, but I 0:06:20.360 --> 0:06:24.000 didn't know exactly what aspect and so that was a 0:06:24.120 --> 0:06:28.640 very important light chatting and changing moment formative. That's what 0:06:28.720 --> 0:06:31.440 you said, I want to go out and research companies 0:06:31.440 --> 0:06:35.120 and buy stocks and be an investor. Um. So one 0:06:35.160 --> 0:06:37.920 of the quotes that you that was attributed to you 0:06:38.560 --> 0:06:42.119 in that car was we were all pH d s, poor, 0:06:42.240 --> 0:06:45.320 hungary and driven. Explain that, well, I think it's a 0:06:45.360 --> 0:06:47.520 little different version as time goes on. The fish was 0:06:47.560 --> 0:06:50.599 twenty two ft as opposed to twenty two inches. What 0:06:50.720 --> 0:06:53.680 happened was about I gonna I'm gonna cuff numbers. Maybe 0:06:53.680 --> 0:06:57.200 twenty years ago, Rick Pettino was coaching for Quotes Kentucky. 0:06:57.680 --> 0:07:00.880 He said, now at Louisville, obviously, and he had a player, 0:07:01.000 --> 0:07:03.799 Jamal Marshburn, and he was looking around for a money manager. 0:07:03.839 --> 0:07:06.200 Came up to our office and he was walking down 0:07:06.240 --> 0:07:08.919 and I was introducing to analyst. He looks and he says, Mario, 0:07:08.960 --> 0:07:12.800 how do you find these guys or gals? And I said, well, 0:07:12.880 --> 0:07:14.760 they have to be bah bah bah, but they also 0:07:14.800 --> 0:07:17.920 have a PhD attitude. He looks at he says what 0:07:18.960 --> 0:07:22.440 I said, poor, hungry and driven. Then one of the 0:07:22.520 --> 0:07:24.920 individuals in the office of woman who went to Wesley 0:07:24.920 --> 0:07:27.520 and and then went to Columbia Business School and her 0:07:27.560 --> 0:07:30.160 father was especially says, don't ignore the fact that could 0:07:30.160 --> 0:07:33.200 also be privileged, hungre and driven. So Rick, writing a 0:07:33.320 --> 0:07:37.200 book called Success as a Choice that wrote the success 0:07:37.720 --> 0:07:40.320 put a chapter on there called the PhD attitude. And 0:07:40.320 --> 0:07:44.080 that's the dynamic barrier about how we came about with 0:07:44.120 --> 0:07:46.440 the notion that we love to hire PhD s po, 0:07:46.520 --> 0:07:48.920 hungering and driven with a passion for the market. You're 0:07:48.960 --> 0:07:52.200 listening to Masters in Business on Bloomberg Radio today. We 0:07:52.240 --> 0:07:57.040 are speaking with super Mario Mario Gabelli, CEO chairman and 0:07:57.360 --> 0:08:02.400 portfolio manager of about sixteen different funds at GAMCO. You 0:08:02.520 --> 0:08:08.920 picked quite an auspicious time to launch Gabelly Asset Management. 0:08:09.040 --> 0:08:15.880 Nineteen seventy six or so was when you first about right. Yeah, 0:08:15.920 --> 0:08:17.600 let me give you a little background. I started right 0:08:17.640 --> 0:08:20.520 out of Columbia, graduated on Friday, and on Monday morning 0:08:20.560 --> 0:08:23.800 I joined Low Bros. On Friday night, Michael Stinhart quit. 0:08:23.920 --> 0:08:27.840 Michael started an extraordinarily successful hedge fund called Stinhart Berkason Fine, 0:08:28.520 --> 0:08:31.440 and they gave me his industry. So I became the 0:08:31.480 --> 0:08:34.400 auto analyst, farm equipment and conglomerate analysts. Fast forward. I 0:08:34.440 --> 0:08:36.920 covered the media and entertainment business when nobody wanted to 0:08:36.960 --> 0:08:40.320 do it, and a bunch of business service companies. Fast forward. 0:08:40.360 --> 0:08:44.400 I left joined William D. Witter, a great research firm, 0:08:44.480 --> 0:08:47.520 and we were emerged into Drexel Burn, not merged, taken 0:08:47.520 --> 0:08:50.559 over by Drexel. I walked into Tubby Burn and I said, Tubby, 0:08:50.679 --> 0:08:54.520 you are a great investor, much like Mr Loebe. However, 0:08:54.600 --> 0:08:57.000 I'm looking for smaller firm and I'm going to start 0:08:57.040 --> 0:08:59.080 my own. And the reason I picked starting my own 0:08:59.120 --> 0:09:01.720 I was in Denver reading with a Guyared Richard Goldstein. 0:09:01.800 --> 0:09:06.280 Goldstein was one of the founders of Janice Bailey, Griffiths 0:09:06.280 --> 0:09:09.480 and Goldstein, and he says, Mario, why do you want 0:09:09.480 --> 0:09:11.360 to go to work for someone else? Start your own firm. 0:09:11.480 --> 0:09:14.000 And at the time I knew I could make money 0:09:14.040 --> 0:09:17.160 in the market. I had been very successful in picking 0:09:17.160 --> 0:09:19.559 stocks within the context of the areas of which I 0:09:19.600 --> 0:09:22.840 had accumulated and compounded knowledge. That is what I mentioned, 0:09:22.840 --> 0:09:26.400 which is entertainment and media, automotive and farm equipment, as 0:09:26.400 --> 0:09:29.760 well as conglomerates. But I didn't have the rolladex of 0:09:30.559 --> 0:09:34.360 collecting assets. And so I started an institutional research firm 0:09:34.400 --> 0:09:36.520 and had clients like General Motives paying me cash from 0:09:36.559 --> 0:09:40.840 my research as well as uh the institutions that we 0:09:40.880 --> 0:09:42.760 had been covering when I was at William D. Winter. 0:09:43.440 --> 0:09:46.319 So you launch your own shop. What you was a 0:09:46.440 --> 0:09:49.720 seventy the first time in which we got to prove 0:09:49.800 --> 0:09:53.160 from the regulators, and it wasn't as bad as it 0:09:53.240 --> 0:09:56.520 is today because no one was starting a business at 0:09:56.520 --> 0:09:59.319 the time. Uh So we got started a bit of 0:09:59.440 --> 0:10:01.960 first week in January of nineteen seventy seven. That's we 0:10:02.080 --> 0:10:06.360 actually applied for the ability to do that, and no 0:10:06.400 --> 0:10:09.040 one else wanted to join me. Two other individuals at 0:10:09.040 --> 0:10:11.480 William D. Witter thought about it for a while and 0:10:11.520 --> 0:10:14.600 I would have been called brand Wailed, Gabelly and Hathaway 0:10:14.920 --> 0:10:18.840 in that seat in that alphabet sequence. But we didn't 0:10:18.880 --> 0:10:20.480 get paid. I think in my first year I made 0:10:20.480 --> 0:10:24.080 five thousand dollars. So this was as just doing research 0:10:24.200 --> 0:10:26.200 or you really kind of launched the set of hedge 0:10:26.200 --> 0:10:29.600 funds as well. No, no, no, no. In nine hundred 0:10:29.679 --> 0:10:33.320 and seventy seven we had one business. We did research 0:10:33.400 --> 0:10:36.920 and sold it for commission and or cash to whoever 0:10:37.240 --> 0:10:40.720 we could figure out anywhere in the world. However, about 0:10:40.800 --> 0:10:43.320 three weeks after I started, maybe two weeks after I started, 0:10:43.320 --> 0:10:46.080 I was going to Toronto, which have previously scheduled meeting, 0:10:46.080 --> 0:10:49.880 to visit a company that ran shock absorbers in Canada 0:10:50.880 --> 0:10:53.959 and Barrio liked this one, the guy whose name is 0:10:54.040 --> 0:10:58.000 Jack Vanderhoten public company. Jack and I taught out chatity. 0:10:58.320 --> 0:11:00.000 I tell him what I'm there. I'm learning all about 0:11:00.040 --> 0:11:02.959 the shock absorber business, getting an update on on Merriman, Monroe, 0:11:03.000 --> 0:11:06.400 Competitive Dynamics, other companies that are doing it. And then 0:11:06.400 --> 0:11:08.720 he says to me, Mario, tell me what your businesses. 0:11:08.760 --> 0:11:11.080 I said, blah blah blah. He says, he looks at me, says, 0:11:11.080 --> 0:11:14.720 Mary will never succeed. I said, Jack, I'm very good 0:11:14.720 --> 0:11:17.280 at picking stocks and making money. So Jack says to me, 0:11:17.320 --> 0:11:19.440 I know because I made money off your ideas over 0:11:19.480 --> 0:11:21.920 the years, opens a drawer, hands me a check and 0:11:22.040 --> 0:11:24.240 gives me my first client of a hundred thousand dollars 0:11:24.240 --> 0:11:27.120 to match. And he said to me, the reason you're 0:11:27.120 --> 0:11:29.160 going to fail. You forgot to ask for the order 0:11:30.800 --> 0:11:34.000 always be closing. Is that the uh that the advice 0:11:34.520 --> 0:11:36.760 and even he said, followed the eleven commandment. If you 0:11:36.760 --> 0:11:40.040 don't ask, you don't get. Notwithstanding that, within that framework, 0:11:40.679 --> 0:11:44.760 we then decided that we were also started managing money. 0:11:44.800 --> 0:11:48.920 So the initial structure was that along only separately managed 0:11:48.960 --> 0:11:52.880 accounts charging a one percent fee up to a certain breakpoint. 0:11:53.600 --> 0:11:57.200 And today we have two thousand separately managed customized accounts, 0:11:57.480 --> 0:12:00.560 tax sensitive for those that attack sensitive Institute of Corporate 0:12:00.880 --> 0:12:05.360 and that's about twenty billion dollars all all equities. In 0:12:05.440 --> 0:12:08.600 terms of what we are a portion of what we're managing. 0:12:08.679 --> 0:12:11.000 So when did the mutual funds come along? Well, the 0:12:11.040 --> 0:12:15.160 hedge funds started earlier in the early eighties, we started 0:12:15.200 --> 0:12:17.760 a hedge fund, premillion arbitrage. We actually have written a 0:12:17.760 --> 0:12:19.559 book on that subject. There's only been three or four 0:12:19.559 --> 0:12:22.040 written on the subject. The first one was written by g. 0:12:22.240 --> 0:12:24.800 Wiser Pratt when he was taking his studies at n 0:12:24.920 --> 0:12:29.600 y U, and it really unclothed a really closely guarded 0:12:29.679 --> 0:12:32.280 aspect of how firms made money with proper money on 0:12:32.360 --> 0:12:36.600 Wall Street. And then somewhere in the mid eighties somebody 0:12:36.600 --> 0:12:39.480 else wrote a book on it, and uh, then we 0:12:39.600 --> 0:12:42.559 wrote a book on it. And the bottom line, um, 0:12:42.720 --> 0:12:44.600 that was our first hedge fund. It's still a very 0:12:44.600 --> 0:12:47.040 important part of our business. We manage a billion dollars 0:12:47.040 --> 0:12:50.200 in a hedge fund of arbitrage. That is, company announced 0:12:50.280 --> 0:12:53.520 his company buying company B, and at what point do 0:12:53.520 --> 0:12:56.720 you buy it? And whether the risks It's called risk arbitrage. 0:12:57.200 --> 0:13:01.200 The second part was that I was on Barons starting 0:13:01.320 --> 0:13:05.000 on about nineteen seventy eight, seventy nine or eighty. I 0:13:05.040 --> 0:13:09.640 got a call from Alan Nabelson said, Mario, come by 0:13:10.040 --> 0:13:12.280 for the round table. No, he called me for a 0:13:12.280 --> 0:13:14.640 different subject. I had known Alan I would send them 0:13:14.920 --> 0:13:17.880 copies at my research. By somewhere around nineteen seventy seventy 0:13:17.920 --> 0:13:19.640 eight or seventy nine. I wrote a report on Chris 0:13:19.640 --> 0:13:25.960 graft herb Seagulls Company and uh the manufacturer, and well 0:13:26.000 --> 0:13:28.360 he was not well. Bottom line, he was in a 0:13:28.400 --> 0:13:31.520 broadcast business. He also had perhaps some other businesses. He 0:13:31.600 --> 0:13:34.160 was trying to do things like go after Piper Aircraft 0:13:34.200 --> 0:13:38.120 and he's a really great entrepreneur. Bottom line. I write 0:13:38.160 --> 0:13:40.400 to Alan, I say, Alan, I'm in closing a report 0:13:40.440 --> 0:13:42.920 I wrote and Chris Craft for three reasons. One, I 0:13:43.000 --> 0:13:48.640 liked the stock. Secondly, my clients along, so I want 0:13:48.679 --> 0:13:51.600 you to publish it. And third I understand that if 0:13:51.600 --> 0:13:53.320 you do publish it, I get fifty bucks and I 0:13:53.360 --> 0:13:56.760 need the money. So Alan and he said that that blunt, 0:13:56.840 --> 0:14:00.200 just right out, and he was receptive to that. Allen 0:14:00.360 --> 0:14:02.760 is Allen. It was Allen Allen is one of the 0:14:02.800 --> 0:14:05.599 great writers of all time in the financial world. But 0:14:05.640 --> 0:14:07.600 anybody invites me over. And that's how I got into 0:14:07.640 --> 0:14:10.960 the Barrage round Table. And I'm the longest living member 0:14:11.000 --> 0:14:14.320 of that round table. I've been on it for about 0:14:14.360 --> 0:14:18.880 thirty odd years, over thirty five years or whatever. I 0:14:18.880 --> 0:14:21.320 don't remember the math, that it could be thirty five years. 0:14:21.760 --> 0:14:26.720 So starting in nineteen nine, you began exploring companies that 0:14:26.800 --> 0:14:29.720 were headquartered overseas. It weren't a whole lot of people 0:14:29.760 --> 0:14:32.440 who either had boots on the ground. Well, you know, 0:14:32.600 --> 0:14:37.440 that's a great point. But in two or three I 0:14:37.480 --> 0:14:39.680 was involved with the Auto Analysts of New York and 0:14:39.760 --> 0:14:44.760 we had a trip to Tokyo and Japan, uh Tokyo 0:14:44.880 --> 0:14:48.800 and China, in part through Henry Kissinger Walton kiss of 0:14:48.840 --> 0:14:51.080 his brother who ran a company in Long Island called Ellen. 0:14:52.040 --> 0:14:55.640 But prior to that, in the mid seventies, we hoganized, 0:14:55.680 --> 0:14:58.520 as part of my institutional research, a trip to c 0:14:58.760 --> 0:15:01.320 Forge Motor Company of a US here as well as 0:15:01.360 --> 0:15:05.400 Ford Motor Company and several companies in in Europe. So 0:15:05.640 --> 0:15:08.880 we had been following companies but not necessarily recommending it. 0:15:09.320 --> 0:15:12.360 You're listening to Masters in Business on Bloomberg Radio. I'm 0:15:12.360 --> 0:15:16.040 Barry Rihults. I'm here with Marioga Belly Master, stock picker, 0:15:16.200 --> 0:15:20.520 portfolio manager CEO and chairman of gam COO the Belly 0:15:20.520 --> 0:15:23.920 Asset Management. Let's talk a little bit about you as 0:15:23.960 --> 0:15:26.920 an investor. You come out of Columbia, which is known 0:15:27.160 --> 0:15:32.880 for generating all these fantastic value investors, but you're not 0:15:32.960 --> 0:15:36.320 quite the usual mold. How do you describe yourself as 0:15:36.360 --> 0:15:39.760 an investor? Well, what we did with security analysis, which 0:15:39.800 --> 0:15:43.200 means in my terminology, you gather the data, you read 0:15:43.200 --> 0:15:46.280 the public company data in a given industry, you develop 0:15:46.360 --> 0:15:49.680 a core competency in that industry. You are raided data 0:15:49.760 --> 0:15:51.640 based on the way we like to look at it, 0:15:52.160 --> 0:15:55.240 and then you project it and then you interpret it 0:15:55.320 --> 0:15:57.120 and then we communicate it. So we call it gaping. 0:15:57.440 --> 0:16:00.400 So we take an industry like automotive. We cover companies 0:16:00.400 --> 0:16:04.360 that are either distributors of parts like O'Reilly's and Genuine 0:16:04.360 --> 0:16:07.440 Parts or AutoZone. We do a car dealerships, we do 0:16:07.480 --> 0:16:09.920 original equipment manufacturers, we do the car companies, and we 0:16:09.960 --> 0:16:12.840 do a global today. But at that time Barry was 0:16:13.480 --> 0:16:17.880 not very complicated. What is a company worth? How do 0:16:17.960 --> 0:16:20.840 you value the business? And so we looked at it 0:16:20.880 --> 0:16:23.280 from the point of view of what would you pay 0:16:23.320 --> 0:16:25.840 for the business if you can buy So, if their 0:16:25.840 --> 0:16:28.720 company was public, again this is the late seventies, if 0:16:28.720 --> 0:16:31.720 the company was public, what would you pay to own 0:16:31.760 --> 0:16:34.680 a dent of it? So you treat you treated stocks 0:16:34.680 --> 0:16:37.200 as if there were businesses, not as if they were 0:16:37.240 --> 0:16:41.240 just little pieces of paper representing a small ownership. Well, 0:16:41.280 --> 0:16:43.200 they were not soybeans, and they would not come out 0:16:43.200 --> 0:16:45.560 of these that you can trade like an ETF. So 0:16:45.760 --> 0:16:48.680 it was not mindless investing. It was basically understanding and 0:16:48.720 --> 0:16:51.400 industry understanding your company, dealing with all the public information, 0:16:51.760 --> 0:16:55.800 going to trade shows, going to meet the company's. I 0:16:55.800 --> 0:16:58.520 mean I used to spend a lot of time in Detroit, uh, 0:16:58.560 --> 0:17:01.160 you know, and all of the emviron's uh that one 0:17:01.200 --> 0:17:04.080 would go to go to see a company and I 0:17:04.119 --> 0:17:07.840 think it was Romulus and uh Kelsey Hayes and a 0:17:08.000 --> 0:17:11.360 Tryer business and so on. And you go down in Monroe, Michigan, 0:17:11.400 --> 0:17:14.199 and then you go to U Dayton, Ohio, and then 0:17:14.240 --> 0:17:17.239 you would go to uh Toledo and you'd see all 0:17:17.280 --> 0:17:18.960 these companies that you do it three or four times 0:17:18.960 --> 0:17:21.440 a year, and you'd read everything, and then you start 0:17:21.520 --> 0:17:24.560 giving speeches, and so you would learn about the details, 0:17:24.560 --> 0:17:27.080 and you start anticipating how managements would think, what if 0:17:27.359 --> 0:17:30.040 there was an oil crisis, what if there was a 0:17:30.080 --> 0:17:32.840 car strike, what if the price of steel went up? 0:17:32.880 --> 0:17:35.639 What if? And so you would then say, but who's 0:17:35.680 --> 0:17:39.320 going to buy the business. So again you started the 0:17:39.359 --> 0:17:41.840 conversation by saying This was the murky world of the 0:17:41.840 --> 0:17:45.480 mid seventies when you could buy stocks at three times EBIT. 0:17:46.160 --> 0:17:48.720 But interest rates at that time, Barry, a ten year 0:17:48.760 --> 0:17:53.440 govy was ten percent. In fact, in August you had 0:17:53.480 --> 0:17:56.320 you could get fifteen percent, fourteen and seven eights for 0:17:56.440 --> 0:17:59.080 ten year government. Today's two point one oh tax free, 0:17:59.200 --> 0:18:01.080 risk free out. There was a tax. It was a 0:18:01.080 --> 0:18:05.240 government volda, not immunity. But the communities I assumed were 0:18:05.240 --> 0:18:08.640 locked step I mean, but any event, so we said, look, 0:18:08.880 --> 0:18:12.960 let's figure out who Again. Back in the sixties when 0:18:12.960 --> 0:18:16.120 I was at Low Broads, you did bootstrap financing. You'd 0:18:16.119 --> 0:18:18.840 go out and you figure out what was the receivable's 0:18:18.880 --> 0:18:21.080 worth ninety cents on the dollar, you figure it out, 0:18:21.359 --> 0:18:24.920 what was inventory worked fifty cents on what was property planned, 0:18:24.960 --> 0:18:28.040 equipment worth at the gabble. So you would string together 0:18:28.119 --> 0:18:30.679 a company and then figure out how to assemble the financing. 0:18:31.160 --> 0:18:36.600 Then in the seventies or eighties came along Henry Cravis 0:18:36.600 --> 0:18:39.360 and so on, and they did leverage buyouts. And then 0:18:39.400 --> 0:18:42.000 today it's private equity. But at the time we said, 0:18:42.119 --> 0:18:44.720 let assume I'm a wealthy family, what would I pay 0:18:44.760 --> 0:18:47.200 to buy this business? Why would I want to own it, 0:18:47.720 --> 0:18:50.000 and then I would ask myself what would a strategic 0:18:50.040 --> 0:18:52.040 that as a company, what would they pay because they 0:18:52.040 --> 0:18:55.440 would get some synergies. So we developed a phrase called 0:18:55.440 --> 0:18:58.720 the private market value. So this was in the mid 0:18:58.800 --> 0:19:02.520 seventies late seventies. What was the value of a business 0:19:02.600 --> 0:19:05.200 that was publicly trading if I could buy the whole thing. 0:19:05.880 --> 0:19:08.240 So it's the intrinsic value that is the present value 0:19:08.240 --> 0:19:12.040 of the future stream plus the takeout premium. And then 0:19:12.119 --> 0:19:15.960 we said, it's not complicated. We had no tenure in 0:19:16.040 --> 0:19:19.679 our client's money and they were very uncertain, so we 0:19:19.760 --> 0:19:22.840 try to figure out a time frame in which we 0:19:22.920 --> 0:19:25.160 would have to hold the stock. So we said maybe 0:19:25.160 --> 0:19:27.480 two or three years. So we look for a catalyst 0:19:27.600 --> 0:19:31.359 that would surface the value that is the spread between 0:19:31.400 --> 0:19:33.200 the public price and the private price, and then we 0:19:33.320 --> 0:19:35.439 try to figure out what was the was the value 0:19:35.480 --> 0:19:37.840 growing just in case this thing didn't work right away. 0:19:38.160 --> 0:19:40.720 So you're looking at a number of things, but let 0:19:40.720 --> 0:19:44.960 me see if I understand the key points. First, you're 0:19:45.000 --> 0:19:48.840 trying to find things that are worth less, that are 0:19:48.880 --> 0:19:52.199 trading for less than you think the intrinsic value and 0:19:52.480 --> 0:19:56.000 or takeout value is going to be. Secondly, you're looking 0:19:56.040 --> 0:20:00.200 for some events, some catalyst, something that's gonna draw i've 0:20:00.440 --> 0:20:03.560 or uncover that value. We're driving into the private to 0:20:03.640 --> 0:20:06.639 the public price you're very quickly. In addition to that, 0:20:06.960 --> 0:20:09.040 some of the language that's used in the value investing 0:20:09.119 --> 0:20:14.440 world is called margin of safety. Seth Klarman, ETCETERA. Well, Girl, 0:20:14.440 --> 0:20:18.400 Graham and Dodd Murray now Greenwald. So he learned well. Uh, 0:20:18.680 --> 0:20:22.840 Seth is a good, good, good practitioner of that strategy. 0:20:22.880 --> 0:20:26.120 So you want to make sure there's enough head overhead 0:20:26.200 --> 0:20:29.720 value so that if you're wrong or as you call 0:20:29.760 --> 0:20:31.359 it early, you got to look at the price of 0:20:31.440 --> 0:20:33.600 the stock that you're buying. Okay, you can have all 0:20:33.640 --> 0:20:35.719 of the same dynamics. If you pay two x as 0:20:35.760 --> 0:20:38.960 supposed to x. Uh. You know, you're on a ten 0:20:39.000 --> 0:20:41.200 foot wall, you can get hurt if it comes down. 0:20:41.240 --> 0:20:44.800 If you're on a two foot wall, you'll do Okay, 0:20:45.000 --> 0:20:48.280 that's that sounds great. You're listening to Masters in Business 0:20:48.359 --> 0:20:51.879 on Bloomberg Radio. We're speaking with Mario Gabelly. He is 0:20:51.920 --> 0:20:55.720 the founder and chairman of Gabelly Asset Management and portfolio 0:20:55.800 --> 0:20:59.200 manager for about sixteen different funds. Is that about right 0:20:59.680 --> 0:21:03.240 or old portfolio manager. We we have our fingerprint on 0:21:03.840 --> 0:21:08.200 two thousands separately managed accounts because I helped direct those, 0:21:08.240 --> 0:21:10.959 and we have a growth team in our firm, and 0:21:10.960 --> 0:21:14.760 then we have teams that do specialty products. So I'm 0:21:14.800 --> 0:21:17.840 involved with the value and all cap value team. In 0:21:17.880 --> 0:21:21.480 addition to that, we have an oversight in some of 0:21:21.480 --> 0:21:23.560 the hedge funds that we run. In addition to that, 0:21:23.960 --> 0:21:26.760 we do have a fingerprint on some of the mutual funds. 0:21:26.800 --> 0:21:29.879 So you're pretty busy. Well. I enjoy it is. I 0:21:29.920 --> 0:21:32.320 like the competitiveness. I like every day I come in, 0:21:32.440 --> 0:21:35.000 something goes wrong and I look stupid. I feel stupid, 0:21:35.480 --> 0:21:37.280 and that keeps you up at night, and that's why 0:21:37.320 --> 0:21:38.800 you get up at four in the morning to figure 0:21:38.840 --> 0:21:41.600 out what do you make? What mistakes did you make today? Right? 0:21:41.680 --> 0:21:43.879 And They're always gonna be mistakes. It's just how you 0:21:43.920 --> 0:21:46.320 respond to them and how you prevent them from getting 0:21:46.320 --> 0:21:48.720 out of hand. The world changes very quickly. For example, 0:21:49.240 --> 0:21:51.040 you know, somebody will come along and say, you know, 0:21:51.359 --> 0:21:55.200 why should any healthcare company be public? They should always rationals, 0:21:55.560 --> 0:21:57.880 you know, owned by the state. Somebody can come along 0:21:57.920 --> 0:22:00.479 and say that the government will go on strike. I mean, 0:22:00.480 --> 0:22:03.160