Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.
Speaker 1: This week on Masters in Business, I have a very
Speaker 1: special guest, and I know I say that every week,
Speaker 1: but this week Mario Gabelly is our guest, and he
Speaker 1: is just tremendous. He is known as a stockpickers, stockpicker,
Speaker 1: a deep value guy schooled at Columbia in the Graham
Speaker 1: and Dodd tradition, the Warren Buffett tradition of value investing.
Speaker 1: I think the twist that Mario brings is that he
Speaker 1: learns an industry as well as anybody ever can, and
Speaker 1: then within that industry goes hunting for value. Uh. He's
Speaker 1: also a force of nature. As you'll here, I very
Speaker 1: much completely lose control of the interview and and he
Speaker 1: um pretty much steam rolls over um a lot of
Speaker 1: the questions I asked. It was really a fascinating conversation.
Speaker 1: And if you're at all interested in stock picking, uh,
Speaker 1: this is a guy you really want to listen to. So,
Speaker 1: without any further ado, here is my conversation with Mario Gabelly.
Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.
Speaker 1: I know I say this every week that I have
Speaker 1: a special guest. But this week I have a very
Speaker 1: special guest, founder, CEO, chairman of Gabelly Asset Management, Mario Gabelly.
Speaker 1: I'll give you a quick version of his background. Formed
Speaker 1: the company in the midst of the bear market in
Speaker 1: the nineties seventies UH now managing over forty billion that's
Speaker 1: billion with a being assets, known as an intense researcher
Speaker 1: into the businesses of the companies who stock he buys. Mario,
Speaker 1: also known as Super Mario, buy stocks as if he
Speaker 1: was purchasing the whole companies. He's recently UM gifted the
Speaker 1: Formum School of Business, which has since been renamed the
Speaker 1: Gabilly School of Business at Fordham University, Nario. Gabilly, welcome
Speaker 1: to Bloomberg. Heys terrific to be here. Talk about stocks.
Speaker 1: Let's talk a little bit about stocks. So your background
Speaker 1: is that you UM went to the Columbia UH School
Speaker 1: of Business. What do were you doing before you went
Speaker 1: for your business degree. Well, essentially, back in the period
Speaker 1: of time the early sixties, you did not have to
Speaker 1: take the two or three years of work experience so
Speaker 1: college rights. So I graduated from Fordham in June, went
Speaker 1: to Columbia in September, and obviously had a variety of
Speaker 1: entrepreneurial gigs, so to speak, for the prior twenty years,
Speaker 1: starting at the age of five, Oh, what were you doing? Uh,
Speaker 1: prior to college? What? What sort of work were you doing? Well?
Speaker 1: Arranged from everything from caddying to shining shoes, to picking
Speaker 1: up crates and supermarkets for recycling purposes to actually working
Speaker 1: a gig with ABC down at UH sixty seven Street
Speaker 1: and Broadway just as they were building Lincoln Center. I mean,
Speaker 1: there's so many it's unusual not to be able to
Speaker 1: remember to mention the will, including some where I was
Speaker 1: running dances for college students along with two partners back
Speaker 1: in the sixties. We'd hired the band the Bounces and
Speaker 1: A and the location which the booze was served, any
Speaker 1: any finance, any Wall Street prior to business school or
Speaker 1: where these two no, I think the I I did
Speaker 1: take some summer internships. The one with ABC, as I mentioned,
Speaker 1: was where I would go in using my undergraduate degree
Speaker 1: in accounting or a study of accounting at the time,
Speaker 1: but also essentially checking off the each television station where
Speaker 1: a TV ad was placed and whether it was preempted
Speaker 1: and whether they'd have to get what make make goods.
Speaker 1: In addition to I think, I worked for W. A.
Speaker 1: Grace for a while down in Wall Street UH in
Speaker 1: the County Department, and that's where I learned about the
Speaker 1: UH and Choby's disappearing when El Nino came along. And
Speaker 1: it was kind of fascinating because I was plugging in
Speaker 1: a lot of numbers. What happens when Elnino comes along?
Speaker 1: What does that mean to UH? The anchobies probably go up, disappear,
Speaker 1: and the price goes up. So if you've got a
Speaker 1: big fleet off Peru or Chili, you would have a
Speaker 1: little challenge of finding those little fishies. And that started
Speaker 1: a lifetime deep dive research into that. Really that was
Speaker 1: just that that was just basically generating cash flow, and
Speaker 1: it to pay my tuition because I didn't want to
Speaker 1: have any tuition loans, but I did have some coming
Speaker 1: out of graduate school. So you went to Columbia with
Speaker 1: a couple of other guests that we found on the show.
Speaker 1: Um Lee Cooperman told us that he used to car pool.
Speaker 1: Is this true? He would car pool with you Art
Speaker 1: Sandberg back and forth to college. There were four of
Speaker 1: us and what happened is at the time I was
Speaker 1: at Columbia, we both and all of us lived up
Speaker 1: in the West Bronx and Riverdale and I by Van
Speaker 1: Cortland Park. There was a subway strike, so I we
Speaker 1: figured out that we should car pool, a very practical solution.
Speaker 1: And then when we did that, for several years we
Speaker 1: didn't took turns driving. And I'm surprised that both of
Speaker 1: them still alive since I was the driver many times.
Speaker 1: And in addition to there was always a fourth fellow,
Speaker 1: and then we would have a Stanley shop corn at
Speaker 1: one time we'd car pool with. And so it was
Speaker 1: a wonderful bunch of guys that were focused on stocks,
Speaker 1: love the markets, had great passion for making money for clients.
Speaker 1: Even then, Lee said he learned more in the car
Speaker 1: pool than he did in class. Well, I can't remember
Speaker 1: any of that. So you had a professor. You started
Speaker 1: with Roger Murray known as um Uh, one of the
Speaker 1: editors of Graham and Dott, and I think he did
Speaker 1: the fourth or fifth edition of Security Analysis. Let me
Speaker 1: make it simple, Columbia Business School had two professors back
Speaker 1: in the late twenties early thirties. Graham and Dodd, and
Speaker 1: they wrote a book on cold security analysis. UH the
Speaker 1: fifty Warren Buffett takes the class and writes a story saying, hey,
Speaker 1: I was a pretty good investor before I got Ben
Speaker 1: Graham teaching me, and that I became an extraordinarily good
Speaker 1: investor after Graham retired, Roger Murray succeeded and took on
Speaker 1: that program. So when I took security analysis, who at
Speaker 1: Roger Murray, Cooperman was there, Sandberg was there for me?
Speaker 1: It was the moon, the sun and the stars. I
Speaker 1: always known that to be in the markets, but I
Speaker 1: didn't know exactly what aspect and so that was a
Speaker 1: very important light chatting and changing moment formative. That's what
Speaker 1: you said, I want to go out and research companies
Speaker 1: and buy stocks and be an investor. Um. So one
Speaker 1: of the quotes that you that was attributed to you
Speaker 1: in that car was we were all pH d s, poor,
Speaker 1: hungary and driven. Explain that, well, I think it's a
Speaker 1: little different version as time goes on. The fish was
Speaker 1: twenty two ft as opposed to twenty two inches. What
Speaker 1: happened was about I gonna I'm gonna cuff numbers. Maybe
Speaker 1: twenty years ago, Rick Pettino was coaching for Quotes Kentucky.
Speaker 1: He said, now at Louisville, obviously, and he had a player,
Speaker 1: Jamal Marshburn, and he was looking around for a money manager.
Speaker 1: Came up to our office and he was walking down
Speaker 1: and I was introducing to analyst. He looks and he says, Mario,
Speaker 1: how do you find these guys or gals? And I said, well,
Speaker 1: they have to be bah bah bah, but they also
Speaker 1: have a PhD attitude. He looks at he says what
Speaker 1: I said, poor, hungry and driven. Then one of the
Speaker 1: individuals in the office of woman who went to Wesley
Speaker 1: and and then went to Columbia Business School and her
Speaker 1: father was especially says, don't ignore the fact that could
Speaker 1: also be privileged, hungre and driven. So Rick, writing a
Speaker 1: book called Success as a Choice that wrote the success
Speaker 1: put a chapter on there called the PhD attitude. And
Speaker 1: that's the dynamic barrier about how we came about with
Speaker 1: the notion that we love to hire PhD s po,
Speaker 1: hungering and driven with a passion for the market. You're
Speaker 1: listening to Masters in Business on Bloomberg Radio today. We
Speaker 1: are speaking with super Mario Mario Gabelli, CEO chairman and
Speaker 1: portfolio manager of about sixteen different funds at GAMCO. You
Speaker 1: picked quite an auspicious time to launch Gabelly Asset Management.
Speaker 1: Nineteen seventy six or so was when you first about right. Yeah,
Speaker 1: let me give you a little background. I started right
Speaker 1: out of Columbia, graduated on Friday, and on Monday morning
Speaker 1: I joined Low Bros. On Friday night, Michael Stinhart quit.
Speaker 1: Michael started an extraordinarily successful hedge fund called Stinhart Berkason Fine,
Speaker 1: and they gave me his industry. So I became the
Speaker 1: auto analyst, farm equipment and conglomerate analysts. Fast forward. I
Speaker 1: covered the media and entertainment business when nobody wanted to
Speaker 1: do it, and a bunch of business service companies. Fast forward.
Speaker 1: I left joined William D. Witter, a great research firm,
Speaker 1: and we were emerged into Drexel Burn, not merged, taken
Speaker 1: over by Drexel. I walked into Tubby Burn and I said, Tubby,
Speaker 1: you are a great investor, much like Mr Loebe. However,
Speaker 1: I'm looking for smaller firm and I'm going to start
Speaker 1: my own. And the reason I picked starting my own
Speaker 1: I was in Denver reading with a Guyared Richard Goldstein.
Speaker 1: Goldstein was one of the founders of Janice Bailey, Griffiths
Speaker 1: and Goldstein, and he says, Mario, why do you want
Speaker 1: to go to work for someone else? Start your own firm.
Speaker 1: And at the time I knew I could make money
Speaker 1: in the market. I had been very successful in picking
Speaker 1: stocks within the context of the areas of which I
Speaker 1: had accumulated and compounded knowledge. That is what I mentioned,
Speaker 1: which is entertainment and media, automotive and farm equipment, as
Speaker 1: well as conglomerates. But I didn't have the rolladex of
Speaker 1: collecting assets. And so I started an institutional research firm
Speaker 1: and had clients like General Motives paying me cash from
Speaker 1: my research as well as uh the institutions that we
Speaker 1: had been covering when I was at William D. Winter.
Speaker 1: So you launch your own shop. What you was a
Speaker 1: seventy the first time in which we got to prove
Speaker 1: from the regulators, and it wasn't as bad as it
Speaker 1: is today because no one was starting a business at
Speaker 1: the time. Uh So we got started a bit of
Speaker 1: first week in January of nineteen seventy seven. That's we
Speaker 1: actually applied for the ability to do that, and no
Speaker 1: one else wanted to join me. Two other individuals at
Speaker 1: William D. Witter thought about it for a while and
Speaker 1: I would have been called brand Wailed, Gabelly and Hathaway
Speaker 1: in that seat in that alphabet sequence. But we didn't
Speaker 1: get paid. I think in my first year I made
Speaker 1: five thousand dollars. So this was as just doing research
Speaker 1: or you really kind of launched the set of hedge
Speaker 1: funds as well. No, no, no, no. In nine hundred
Speaker 1: and seventy seven we had one business. We did research
Speaker 1: and sold it for commission and or cash to whoever
Speaker 1: we could figure out anywhere in the world. However, about
Speaker 1: three weeks after I started, maybe two weeks after I started,
Speaker 1: I was going to Toronto, which have previously scheduled meeting,
Speaker 1: to visit a company that ran shock absorbers in Canada
Speaker 1: and Barrio liked this one, the guy whose name is
Speaker 1: Jack Vanderhoten public company. Jack and I taught out chatity.
Speaker 1: I tell him what I'm there. I'm learning all about
Speaker 1: the shock absorber business, getting an update on on Merriman, Monroe,
Speaker 1: Competitive Dynamics, other companies that are doing it. And then
Speaker 1: he says to me, Mario, tell me what your businesses.
Speaker 1: I said, blah blah blah. He says, he looks at me, says,
Speaker 1: Mary will never succeed. I said, Jack, I'm very good
Speaker 1: at picking stocks and making money. So Jack says to me,
Speaker 1: I know because I made money off your ideas over
Speaker 1: the years, opens a drawer, hands me a check and
Speaker 1: gives me my first client of a hundred thousand dollars
Speaker 1: to match. And he said to me, the reason you're
Speaker 1: going to fail. You forgot to ask for the order
Speaker 1: always be closing. Is that the uh that the advice
Speaker 1: and even he said, followed the eleven commandment. If you
Speaker 1: don't ask, you don't get. Notwithstanding that, within that framework,
Speaker 1: we then decided that we were also started managing money.
Speaker 1: So the initial structure was that along only separately managed
Speaker 1: accounts charging a one percent fee up to a certain breakpoint.
Speaker 1: And today we have two thousand separately managed customized accounts,
Speaker 1: tax sensitive for those that attack sensitive Institute of Corporate
Speaker 1: and that's about twenty billion dollars all all equities. In
Speaker 1: terms of what we are a portion of what we're managing.
Speaker 1: So when did the mutual funds come along? Well, the
Speaker 1: hedge funds started earlier in the early eighties, we started
Speaker 1: a hedge fund, premillion arbitrage. We actually have written a
Speaker 1: book on that subject. There's only been three or four
Speaker 1: written on the subject. The first one was written by g.
Speaker 1: Wiser Pratt when he was taking his studies at n
Speaker 1: y U, and it really unclothed a really closely guarded
Speaker 1: aspect of how firms made money with proper money on
Speaker 1: Wall Street. And then somewhere in the mid eighties somebody
Speaker 1: else wrote a book on it, and uh, then we
Speaker 1: wrote a book on it. And the bottom line, um,
Speaker 1: that was our first hedge fund. It's still a very
Speaker 1: important part of our business. We manage a billion dollars
Speaker 1: in a hedge fund of arbitrage. That is, company announced
Speaker 1: his company buying company B, and at what point do
Speaker 1: you buy it? And whether the risks It's called risk arbitrage.
Speaker 1: The second part was that I was on Barons starting
Speaker 1: on about nineteen seventy eight, seventy nine or eighty. I
Speaker 1: got a call from Alan Nabelson said, Mario, come by
Speaker 1: for the round table. No, he called me for a
Speaker 1: different subject. I had known Alan I would send them
Speaker 1: copies at my research. By somewhere around nineteen seventy seventy
Speaker 1: eight or seventy nine. I wrote a report on Chris
Speaker 1: graft herb Seagulls Company and uh the manufacturer, and well
Speaker 1: he was not well. Bottom line, he was in a
Speaker 1: broadcast business. He also had perhaps some other businesses. He
Speaker 1: was trying to do things like go after Piper Aircraft
Speaker 1: and he's a really great entrepreneur. Bottom line. I write
Speaker 1: to Alan, I say, Alan, I'm in closing a report
Speaker 1: I wrote and Chris Craft for three reasons. One, I
Speaker 1: liked the stock. Secondly, my clients along, so I want
Speaker 1: you to publish it. And third I understand that if
Speaker 1: you do publish it, I get fifty bucks and I
Speaker 1: need the money. So Alan and he said that that blunt,
Speaker 1: just right out, and he was receptive to that. Allen
Speaker 1: is Allen. It was Allen Allen is one of the
Speaker 1: great writers of all time in the financial world. But
Speaker 1: anybody invites me over. And that's how I got into
Speaker 1: the Barrage round Table. And I'm the longest living member
Speaker 1: of that round table. I've been on it for about
Speaker 1: thirty odd years, over thirty five years or whatever. I
Speaker 1: don't remember the math, that it could be thirty five years.
Speaker 1: So starting in nineteen nine, you began exploring companies that
Speaker 1: were headquartered overseas. It weren't a whole lot of people
Speaker 1: who either had boots on the ground. Well, you know,
Speaker 1: that's a great point. But in two or three I
Speaker 1: was involved with the Auto Analysts of New York and
Speaker 1: we had a trip to Tokyo and Japan, uh Tokyo
Speaker 1: and China, in part through Henry Kissinger Walton kiss of
Speaker 1: his brother who ran a company in Long Island called Ellen.
Speaker 1: But prior to that, in the mid seventies, we hoganized,
Speaker 1: as part of my institutional research, a trip to c
Speaker 1: Forge Motor Company of a US here as well as
Speaker 1: Ford Motor Company and several companies in in Europe. So
Speaker 1: we had been following companies but not necessarily recommending it.
Speaker 1: You're listening to Masters in Business on Bloomberg Radio. I'm
Speaker 1: Barry Rihults. I'm here with Marioga Belly Master, stock picker,
Speaker 1: portfolio manager CEO and chairman of gam COO the Belly
Speaker 1: Asset Management. Let's talk a little bit about you as
Speaker 1: an investor. You come out of Columbia, which is known
Speaker 1: for generating all these fantastic value investors, but you're not
Speaker 1: quite the usual mold. How do you describe yourself as
Speaker 1: an investor? Well, what we did with security analysis, which
Speaker 1: means in my terminology, you gather the data, you read
Speaker 1: the public company data in a given industry, you develop
Speaker 1: a core competency in that industry. You are raided data
Speaker 1: based on the way we like to look at it,
Speaker 1: and then you project it and then you interpret it
Speaker 1: and then we communicate it. So we call it gaping.
Speaker 1: So we take an industry like automotive. We cover companies
Speaker 1: that are either distributors of parts like O'Reilly's and Genuine
Speaker 1: Parts or AutoZone. We do a car dealerships, we do
Speaker 1: original equipment manufacturers, we do the car companies, and we
Speaker 1: do a global today. But at that time Barry was
Speaker 1: not very complicated. What is a company worth? How do
Speaker 1: you value the business? And so we looked at it
Speaker 1: from the point of view of what would you pay
Speaker 1: for the business if you can buy So, if their
Speaker 1: company was public, again this is the late seventies, if
Speaker 1: the company was public, what would you pay to own
Speaker 1: a dent of it? So you treat you treated stocks
Speaker 1: as if there were businesses, not as if they were
Speaker 1: just little pieces of paper representing a small ownership. Well,
Speaker 1: they were not soybeans, and they would not come out
Speaker 1: of these that you can trade like an ETF. So
Speaker 1: it was not mindless investing. It was basically understanding and
Speaker 1: industry understanding your company, dealing with all the public information,
Speaker 1: going to trade shows, going to meet the company's. I
Speaker 1: mean I used to spend a lot of time in Detroit, uh,
Speaker 1: you know, and all of the emviron's uh that one
Speaker 1: would go to go to see a company and I
Speaker 1: think it was Romulus and uh Kelsey Hayes and a
Speaker 1: Tryer business and so on. And you go down in Monroe, Michigan,
Speaker 1: and then you go to U Dayton, Ohio, and then
Speaker 1: you would go to uh Toledo and you'd see all
Speaker 1: these companies that you do it three or four times
Speaker 1: a year, and you'd read everything, and then you start
Speaker 1: giving speeches, and so you would learn about the details,
Speaker 1: and you start anticipating how managements would think, what if
Speaker 1: there was an oil crisis, what if there was a
Speaker 1: car strike, what if the price of steel went up?
Speaker 1: What if? And so you would then say, but who's
Speaker 1: going to buy the business. So again you started the
Speaker 1: conversation by saying This was the murky world of the
Speaker 1: mid seventies when you could buy stocks at three times EBIT.
Speaker 1: But interest rates at that time, Barry, a ten year
Speaker 1: govy was ten percent. In fact, in August you had
Speaker 1: you could get fifteen percent, fourteen and seven eights for
Speaker 1: ten year government. Today's two point one oh tax free,
Speaker 1: risk free out. There was a tax. It was a
Speaker 1: government volda, not immunity. But the communities I assumed were
Speaker 1: locked step I mean, but any event, so we said, look,
Speaker 1: let's figure out who Again. Back in the sixties when
Speaker 1: I was at Low Broads, you did bootstrap financing. You'd
Speaker 1: go out and you figure out what was the receivable's
Speaker 1: worth ninety cents on the dollar, you figure it out,
Speaker 1: what was inventory worked fifty cents on what was property planned,
Speaker 1: equipment worth at the gabble. So you would string together
Speaker 1: a company and then figure out how to assemble the financing.
Speaker 1: Then in the seventies or eighties came along Henry Cravis
Speaker 1: and so on, and they did leverage buyouts. And then
Speaker 1: today it's private equity. But at the time we said,
Speaker 1: let assume I'm a wealthy family, what would I pay
Speaker 1: to buy this business? Why would I want to own it,
Speaker 1: and then I would ask myself what would a strategic
Speaker 1: that as a company, what would they pay because they
Speaker 1: would get some synergies. So we developed a phrase called
Speaker 1: the private market value. So this was in the mid
Speaker 1: seventies late seventies. What was the value of a business
Speaker 1: that was publicly trading if I could buy the whole thing.
Speaker 1: So it's the intrinsic value that is the present value
Speaker 1: of the future stream plus the takeout premium. And then
Speaker 1: we said, it's not complicated. We had no tenure in
Speaker 1: our client's money and they were very uncertain, so we
Speaker 1: try to figure out a time frame in which we
Speaker 1: would have to hold the stock. So we said maybe
Speaker 1: two or three years. So we look for a catalyst
Speaker 1: that would surface the value that is the spread between
Speaker 1: the public price and the private price, and then we
Speaker 1: try to figure out what was the was the value
Speaker 1: growing just in case this thing didn't work right away.
Speaker 1: So you're looking at a number of things, but let
Speaker 1: me see if I understand the key points. First, you're
Speaker 1: trying to find things that are worth less, that are
Speaker 1: trading for less than you think the intrinsic value and
Speaker 1: or takeout value is going to be. Secondly, you're looking
Speaker 1: for some events, some catalyst, something that's gonna draw i've
Speaker 1: or uncover that value. We're driving into the private to
Speaker 1: the public price you're very quickly. In addition to that,
Speaker 1: some of the language that's used in the value investing
Speaker 1: world is called margin of safety. Seth Klarman, ETCETERA. Well, Girl,
Speaker 1: Graham and Dodd Murray now Greenwald. So he learned well. Uh,
Speaker 1: Seth is a good, good, good practitioner of that strategy.
Speaker 1: So you want to make sure there's enough head overhead
Speaker 1: value so that if you're wrong or as you call
Speaker 1: it early, you got to look at the price of
Speaker 1: the stock that you're buying. Okay, you can have all
Speaker 1: of the same dynamics. If you pay two x as
Speaker 1: supposed to x. Uh. You know, you're on a ten
Speaker 1: foot wall, you can get hurt if it comes down.
Speaker 1: If you're on a two foot wall, you'll do Okay,
Speaker 1: that's that sounds great. You're listening to Masters in Business
Speaker 1: on Bloomberg Radio. We're speaking with Mario Gabelly. He is
Speaker 1: the founder and chairman of Gabelly Asset Management and portfolio
Speaker 1: manager for about sixteen different funds. Is that about right
Speaker 1: or old portfolio manager. We we have our fingerprint on
Speaker 1: two thousands separately managed accounts because I helped direct those,
Speaker 1: and we have a growth team in our firm, and
Speaker 1: then we have teams that do specialty products. So I'm
Speaker 1: involved with the value and all cap value team. In
Speaker 1: addition to that, we have an oversight in some of
Speaker 1: the hedge funds that we run. In addition to that,
Speaker 1: we do have a fingerprint on some of the mutual funds.
Speaker 1: So you're pretty busy. Well. I enjoy it is. I
Speaker 1: like the competitiveness. I like every day I come in,
Speaker 1: something goes wrong and I look stupid. I feel stupid,
Speaker 1: and that keeps you up at night, and that's why
Speaker 1: you get up at four in the morning to figure
Speaker 1: out what do you make? What mistakes did you make today? Right?
Speaker 1: And They're always gonna be mistakes. It's just how you
Speaker 1: respond to them and how you prevent them from getting
Speaker 1: out of hand. The world changes very quickly. For example,
Speaker 1: you know, somebody will come along and say, you know,
Speaker 1: why should any healthcare company be public? They should always rationals,
Speaker 1: you know, owned by the state. Somebody can come along
Speaker 1: and say that the government will go on strike. I mean,
Speaker 1: there's always something that goes on, and that's not just here,
Speaker 1: but that's all around the world. Let's let's talk a
Speaker 1: little bit about your trips overseas. You're you're a inveterate traveler,
Speaker 1: You're not exactly a home body. How many countries have
Speaker 1: you been to kicking the tires and looking at different companies. Look,
Speaker 1: I avoided uh certain countries over the last forty years,
Speaker 1: of fifty years, sixty years. Notwithstanding that, we would go
Speaker 1: to follow industries globally, so simple example barriers. If you
Speaker 1: drink it, we follow it. So I would be in
Speaker 1: Paris to visit with Pernoul. I would go to London
Speaker 1: to revisit Grand Bet now known as the Agio. I
Speaker 1: would go down to visit companies that were in the
Speaker 1: booze business. I go to Chicago to visit James Beam.
Speaker 1: I will go to Japan to visit Centauri. Along with
Speaker 1: the analysts, so we have a team that covers beverages, wine, water, beer,
Speaker 1: soda and so on. There are certain characteristics about that industry, uh,
Speaker 1: the rising middle class around the world. Fact that after
Speaker 1: the brilliant Wall came down, you had three billion new
Speaker 1: customers to try and ease and the UH people in
Speaker 1: India do drink and that's good UH. And those are
Speaker 1: beverages that I have certain pricing characteristics. So the beer industry,
Speaker 1: for example, we did the craft brewers. I went to
Speaker 1: see Sam Adams and I had to go all the
Speaker 1: way to Boston. It was terrible. As a Yankee fan,
Speaker 1: it was a challenge. But notwithstanding that, I like Bob
Speaker 1: Kraft and the past and stockers up to two and
Speaker 1: you know, we still have tax clients with twenty dollar
Speaker 1: tax bass. But the point is we cover industries. So
Speaker 1: what is going on at any point in time, And
Speaker 1: if you're traveling to Europe, do you have time? For example,
Speaker 1: I would go to Milan to see Expo Balan. That
Speaker 1: is a food expo that deals with food that was
Speaker 1: by antibiotic uh no, natural and organic, and so you
Speaker 1: learn a lot about who's doing what. And we let's
Speaker 1: see a company called Comparti which owns UH beverages and
Speaker 1: it owns Bourbon Bourbon. This is one of the areas
Speaker 1: that we like. So that's an example. The other one
Speaker 1: is simple. Following the movie industry in the late sixties
Speaker 1: and following the broadcasters. You follow the cable guys today,
Speaker 1: So you look at content and distribution globally. So you
Speaker 1: would follow companies around the world that do that and
Speaker 1: you develop a core competency and so you'd go around
Speaker 1: the world. Same thing with vendors to Boeing and Airbus.
Speaker 1: So let's talk a little bit about the process for
Speaker 1: selecting a stuff. You become an expert in an industry,
Speaker 1: in an industry you and your team, um is that
Speaker 1: that's where the process begins. How do you then take
Speaker 1: that industry expertise and apply it to specific company? You know,
Speaker 1: that's a great question. We started following a company h
Speaker 1: an individual starting about the mid seventies, Dr John Malone.
Speaker 1: John was in Denver. He actually started a cable business,
Speaker 1: a T and T s PhD, and so we would
Speaker 1: follow everything he's done. So as a result of that, recently,
Speaker 1: about a year and a half ago, there was a
Speaker 1: company in London that relocated to Miami called Cable and Wireless.
Speaker 1: They had they had operations in the Caribbean, so we
Speaker 1: were following it. All of a sudden, they decided to
Speaker 1: buy a company called Columbus, which is privately Ombican. But
Speaker 1: John Malone was on the board and an important owner.
Speaker 1: So Malonea was running Liberty at the time. He runs
Speaker 1: a whole bunch of guys. He's got his fingerprints on
Speaker 1: about a hundred and hundred forty billion dollars of assets.
Speaker 1: He's personally worth about twelve billion, uh not that anybody's
Speaker 1: counting that. Notwithstanding that, he's a moneymaker for clients. He's
Speaker 1: constantly coming in to look at scale instructure, look at
Speaker 1: text uh way to handle things from a tax basis,
Speaker 1: and he's a great financial architect. Independent of that. He
Speaker 1: understood the content of cable and understand speed and understand
Speaker 1: video and content. So he was a master chess player
Speaker 1: in a multidinancial game. Now independent of that, So go
Speaker 1: back to cable and wireless. It was on our radar
Speaker 1: screen because I started following it in the early nineties
Speaker 1: because they owned uh Hong Kong Telecom. So when I
Speaker 1: went to Hong Kong to follow the telecom industry, you
Speaker 1: would then go in London to figure out what Cable
Speaker 1: and Wallace is doing, but also understanding what was going
Speaker 1: on Hong Kong Telecom. Bottom line, we kept track of it.
Speaker 1: They spun off the business, they sold it to Vota
Speaker 1: Phone in the UK and they have this company. They
Speaker 1: sold it. It is a way to consolidate the Caribbean,
Speaker 1: Latin America and the Caribbean in terms of wireless, cable,
Speaker 1: old fashioned pots playing, old telephone service. And John owned
Speaker 1: a company called Columbus emerges it into it. So now
Speaker 1: I have a new management that's very good at Cable
Speaker 1: and Wallace located in Miami, and now I'm looking at
Speaker 1: the whole ecosystem in the Caribbean. Uh. Dennis O'Brien was
Speaker 1: going to go public, which did you sell? He didn't
Speaker 1: do it, So we watched, we visit with him on
Speaker 1: that company. We're watching Milcom, which has lots of fingerprints
Speaker 1: and footprints in the Caribbean. We go to scott Holm
Speaker 1: to visit the company of controls it called Shinevic. So
Speaker 1: this all starts from being an expert industry and then
Speaker 1: drilling down and then finding new ideas all the time.
Speaker 1: And that is the short version of how to do it.
Speaker 1: So when you're looking at these companies, do you have
Speaker 1: any favored metrics, anything is that you like or don't like?
Speaker 1: How do you determine valuation? How do you determine what
Speaker 1: gives you that little margin? Of safety or what's ge
Speaker 1: that's sexy, but it's the start off with some simple principles.
Speaker 1: What company will do well with the business model in
Speaker 1: an inflationary environment, in an inflationary environment, and what will
Speaker 1: that company, how will that company do well in a
Speaker 1: deflationary environment. So if I can get one that does
Speaker 1: well in an inflationary environment as well as doing okay
Speaker 1: in a deflationary environment, that's a good story point. Then
Speaker 1: the second thing you look at is if I sell
Speaker 1: you a pound of sugar and I make a dollar,
Speaker 1: that's one transaction. But I sell you a subscribe razor blade.
Speaker 1: I sell you a razor blade at a dollar. I
Speaker 1: made a dollar and I got a gross margin. But
Speaker 1: if I sell you a subscription to sell you razor
Speaker 1: blades for the rest of your life and a monthly revenue,
Speaker 1: is that has a higher valuation. So we look at
Speaker 1: not only the accounting, we look at the cash, We
Speaker 1: look at the economics and look at the calory, and
Speaker 1: then look at the methodology of pre ability and what's
Speaker 1: the valuation un though, so these are not complicated, very
Speaker 1: simple to do. Let's talk a little bit about the accounting,
Speaker 1: which has changed so much over the past twenty or
Speaker 1: thirty years. How has the shift in the fasby rules
Speaker 1: for things like stock options and what have you? Has
Speaker 1: that made it harder to be a stock picker, to
Speaker 1: actually get to the core numbers lying underneath. No, not
Speaker 1: really is you gotta understand. I was an accounting major
Speaker 1: at Fordham. I had thirty two credits of accounting philosophy,
Speaker 1: so I can tell you a lot about what if
Speaker 1: a tree falls in the woods, if an accounting falls
Speaker 1: in the woods, whether there's a sound or not, any
Speaker 1: of it. The The point is that rules change, but
Speaker 1: people that implement the rules also don't change. Notwithstanding that,
Speaker 1: you have to be aware of gap accounting as much
Speaker 1: as you would like to run a business for cash economics.
Speaker 1: And there's a material difference between all of these. So
Speaker 1: you have to understand the accoun I mean, and obviously
Speaker 1: that comes into play a lot. Uh, and how companies
Speaker 1: could use the the erasa, the old eracer on the
Speaker 1: back of a pencil. So you haven't other than talking
Speaker 1: about John alone, you really haven't mentioned companies management. How
Speaker 1: important is it um if there's a good business but
Speaker 1: you know, yeah, well that's the old fashioned story. A
Speaker 1: good business run by a great manager. You know, broadcasting
Speaker 1: was a great business. Tom Burfy was a fantastic manager,
Speaker 1: and therefore cap Citi's became a great company. They brought
Speaker 1: ABC and Mergeon into Disney. Okay, and uh he was
Speaker 1: very good. He hired a goett me of Bob Eiger.
Speaker 1: Bob Eiker has been a head of Disney now for
Speaker 1: um teen years. And uh, you know, the moon of
Speaker 1: the sun and the stars come together for that company
Speaker 1: with the right management, and so it's both the both
Speaker 1: the horse and the job. Well, ideal world would be that,
Speaker 1: but I I tend to uh, you know, I don't know.
Speaker 1: American Faraoh run by a different Jackey would have still won.
Speaker 1: Interesting question. Okay, yeah, fascinating philosophical question. Um, so let's
Speaker 1: talk a little bit about out your research staff. You
Speaker 1: have a couple of hundred people working for you. How
Speaker 1: much do you rely on this deep bench that you
Speaker 1: have or are you still you know, rolling up your
Speaker 1: sleeves and pouring over spreadsheets every morning? Combination of both.
Speaker 1: I look, we have developed a wonderful team Christmas Andy,
Speaker 1: Kevin Dryer and the value team Bob Blenager, Barbara Marson
Speaker 1: and so on. And we have the UH. Some would
Speaker 1: like to do large cap, some will do microcap. So
Speaker 1: I have a team that does microcap Lailta Handed, Beth
Speaker 1: Lily and so on. They don't have to be in
Speaker 1: one location anywhere. They could be everywhere. And as a
Speaker 1: result of that, they are constantly looking at stocks that
Speaker 1: we think would fit within the framework of what we
Speaker 1: match the portfolio. So if you're dealing with a we
Speaker 1: have a fund called Mighty Mites dealing with companies under
Speaker 1: ideally six hundred million dollar market cap. The name came
Speaker 1: from my family children playing football in the pop Wornal League.
Speaker 1: They were the Midgets, the Peeweees, and the Mighty Mites.
Speaker 1: So if I picked Peewee's, I'd be sued. If I
Speaker 1: picked Midgets, I'd be sued. But unfortunately, I picked Mighty
Speaker 1: Mites twenty five years ago as the brand name. And
Speaker 1: that's what we do. And they look for ideas. For example,
Speaker 1: they were just in New Jersey looking at x y
Speaker 1: Z company UH. And we follow industries in which we
Speaker 1: like the other day, a company called Lance uh what
Speaker 1: about three years ago, merged with a company called Snyder's.
Speaker 1: Snyder's Lance Pretzels, you know, the pretzels lightest pretzels, and
Speaker 1: yesterday they announced to buying Diamond Foods. But it was
Speaker 1: something that we had thought about that would fit like
Speaker 1: interesting a long time. So we've been speaking with Mariol Gibelly.
Speaker 1: He's the chairman and chief investment officer and just about
Speaker 1: everything else at Gabelly Asset Management. If you enjoy this conversation,
Speaker 1: be sure and check out our podcast extras, where we
Speaker 1: keep the type rolling and continue the conversation. If you
Speaker 1: want to learn more about what Mario Gabelly does, it's
Speaker 1: easy enough to go to Gabelly dot com and you
Speaker 1: can look up all of various fun and their outstanding
Speaker 1: track records. Be sure and check out my daily column
Speaker 1: on Bloomberg View dot com or follow me on Twitter
Speaker 1: at rid Halts. I'm Barry rid Halts. You've been listening
Speaker 1: to Masters in Business on Bloomberg Radio. Welcome back to
Speaker 1: the show. This is the podcast portion. As you've probably
Speaker 1: figured out before, I forget Mario. Thank you so much
Speaker 1: for doing this. Um, I've really been looking forward to
Speaker 1: having this conversation with you, and you know you're my
Speaker 1: colleagues that you have interviewed to pass say you're terrific,
Speaker 1: and I can see why they said that they're all right,
Speaker 1: And um, I they're both all right, and they are right.
Speaker 1: That wasn't what I meant. But um, they've all been
Speaker 1: fantastic interviews. Samberg and Cooperman, we're both, um, really interesting
Speaker 1: guys to speak to. Since you brought that up, let
Speaker 1: me ask you something that um Cooperman and and uh
Speaker 1: Samberg both alluded to, which was the role of luck,
Speaker 1: the role of serendipity in both people's years and in markets.
Speaker 1: But what are your what are your thoughts on that?
Speaker 1: There is no question that you have to step back
Speaker 1: when you're in figure out what do you want to do?
Speaker 1: What's your passion? Okay, a lot of very smart people
Speaker 1: in the world, a lot of people. I want to
Speaker 1: work from five to nine, not nine to five. So
Speaker 1: then you gotta say where do I want to spend
Speaker 1: my life at the next forty or fifty or sixty
Speaker 1: or seventy years. And so that's for me. It was
Speaker 1: very simple. I was carrying at something the old country
Speaker 1: Club in Westchester County. I would hitchhike up from the
Speaker 1: Bronx or somehow get up there by public transportation. And
Speaker 1: because I didn't have a van that would drove me
Speaker 1: to pick me up in your arcors, I would stay
Speaker 1: late and as a side by by the way, the
Speaker 1: caddy and the prose name was Whitey Void. He had
Speaker 1: two sons, West Void, who became a fabulous singer under
Speaker 1: the name of Chip Taylor, and a son by name
Speaker 1: of John Void, the actor, the actor whose father of
Speaker 1: who is the father of angel Lea Jolie. So I
Speaker 1: used to caddy for him. He was it was an
Speaker 1: assistant pro any event. It went to a great school
Speaker 1: in West Chess called Stepanax. So, but I was around
Speaker 1: and the specialist would come up from the New York
Speaker 1: Stock Exchange and they played golf and I would be
Speaker 1: able to caddy for them. So I was like twelve
Speaker 1: or thirteen years old, and I figured out this was
Speaker 1: an interesting gig, that's fascinating. But I never knew which
Speaker 1: part of it that I wanted to be in until
Speaker 1: I went, as I mentioned earlier, to be in graduate
Speaker 1: school and took the security analysis court with Roger Murray.
Speaker 1: And how did you end up choosing Columbia just because
Speaker 1: it was local in New York or what led to that?
Speaker 1: Since I have no idea. How I chose my grammar school,
Speaker 1: UH was PS four in the Bronx, and then I
Speaker 1: went to a school called Saint Joe's on on Tremont
Speaker 1: Tremont Avenue at a hundred seventy seven, right across from
Speaker 1: police station. Those are long stories, not necessary. I'm sure
Speaker 1: they're fascinating though they are so, so let's let's hear
Speaker 1: some stories from the Bronx. You grew up in the Bronx,
Speaker 1: by the way, no Leon Cooperman, and we go through
Speaker 1: the risk list. I'm amazed at how many people in
Speaker 1: this industry are right here. They're spinning distance from uh
Speaker 1: from Wall Street. They're growing up in in Staten Island
Speaker 1: or Brooklyn or the Bronx, and somehow Wall Street. I
Speaker 1: give you. I give you an example three blocks from
Speaker 1: where I moved through by Vanachelse High School, Ivan Sidenberg,
Speaker 1: literally four blocks away. So that you know a lot
Speaker 1: of individuals, and I is a long list that you
Speaker 1: can name. I'll give you a quick Ivan Suidenberg story.
Speaker 1: His daughter married my wife's cousin and it was the
Speaker 1: Saturday right after September eleven. That was one of the
Speaker 1: most astonishing weddings of all times. And that's a whole
Speaker 1: another agree with that. You got a lot that you
Speaker 1: can talk about. But we're here to talk to you,
Speaker 1: not not to have me tell my stories. So let's um,
Speaker 1: let's talk a little bit about Gamco and a little
Speaker 1: bit about stock picking, and a little bit about your
Speaker 1: bad around. So you start out, it's really just you
Speaker 1: and a couple of guys, and no, no, no, when
Speaker 1: I started out, it was very lonely. It was just you.
Speaker 1: BRANDWOA wouldn't join me, hath the way I wouldn't join
Speaker 1: me because they needed I was willing to make five
Speaker 1: thousand and two and a half or three and a
Speaker 1: half kids at the time, and obviously nobody from the
Speaker 1: government came along to say I was gonna help you.
Speaker 1: Bottom line. Fast forward, we go public in through Maryland
Speaker 1: Smith Barney. So for the last sixteen years were a
Speaker 1: public company. So we have a simple a mission statement.
Speaker 1: Make money for the client, make money for my teammates,
Speaker 1: make money for the shareholders. That was what we did
Speaker 1: in seven that's what we do today. And uh so
Speaker 1: you bet on yourself and it worked out quite well.
Speaker 1: Uh no, I. But the underlying premise was that the
Speaker 1: methodology of gathering, arraying, projecting, interpreting data under the Murray
Speaker 1: Greenwald Graham and Dodd Murray Greenwald met the dology of
Speaker 1: security analysis made sense for the extended period of time. Okay,
Speaker 1: this started, it's good for another eight or ninety years.
Speaker 1: It's this. It's basically buying it a business at a discount.
Speaker 1: And what business do you want to buy from? What
Speaker 1: it's worth? And every day you come in, whether you
Speaker 1: were looking at fires, are buying alegain this morning, or
Speaker 1: announcing they try to put their arms around it, or
Speaker 1: whether somebody's gonna buy star Wards. What are they willing
Speaker 1: to pay? Why? When? And why are they willing to
Speaker 1: pay it? What are the elements that go into that parfait?
Speaker 1: What is a private equity firm willing to pay for
Speaker 1: a business? Why does stocks sometimes go up sharply when
Speaker 1: somebody announces they want to buy them? What? What's the
Speaker 1: rationale for that? And you've been quite successful at identifying
Speaker 1: these companies before the big increase in value. So let
Speaker 1: me shift gears a little bit on you and say,
Speaker 1: so you started loud, it was you. Now the firm
Speaker 1: has over two hundred employees. Well, there, we call them teammates, teammates,
Speaker 1: you have two hundred and thirty two teammates. What is
Speaker 1: that transition? Like, granted was over period of time, but
Speaker 1: how different is it from being a running a portfolio,
Speaker 1: running a small shop to running a large corporation first
Speaker 1: or we're now a large corporation where what they call
Speaker 1: in the world street it's a small cap stock. As
Speaker 1: a small cap company, we live by our ability to
Speaker 1: earn a return for our clients, which are most important,
Speaker 1: and every day we come in and want to be
Speaker 1: focused on that. That is the driving dynamic. Uh, nothing
Speaker 1: else is important. And we expect our teammates to have
Speaker 1: the same passion and some of them don't have it
Speaker 1: all the time. So if you're in quotes on vacation
Speaker 1: and something happens in your stock, you've gotta be available.
Speaker 1: I mean, you know, you've got no choice. And so
Speaker 1: we have trained a lot of individuals that way, and
Speaker 1: I've been very fortunate. We have a team of really
Speaker 1: highly skilled individuals that were analysts and now are managing
Speaker 1: money and they are We announced that we have Kevin
Speaker 1: Dryer and Chris Moranji running as co chief Investment Off
Speaker 1: the value side, Howard Ward has a team doing growth,
Speaker 1: international growth, global growth, and then we have a great
Speaker 1: arbitrage team, and we have great individuals doing a lot
Speaker 1: of different things. So your role within the company, how
Speaker 1: has that morphed over the years? Do you find yourself?
Speaker 1: I spent fifty forty years ago. It's when I first
Speaker 1: started Lowbros. I spent fifty percent of my time gathering
Speaker 1: data and understanding research and fifty communicating and either visiting clients. Okay,
Speaker 1: today I spent fifty percent of my time doing research,
Speaker 1: talking to analyst, listening to conference I was on the
Speaker 1: conference calls today. These earning season is very rich in content.
Speaker 1: For example, today at eleven o'clock O'Reilly's was having a presentation,
Speaker 1: somebody else was having one attend, somebody else was having
Speaker 1: one at night. So I get the transcripts when I
Speaker 1: can't listen to them and read them at night. So
Speaker 1: you learn a lot. Cheesecake Factory fantastic insights into the business.
Speaker 1: If you read the details and ponder over them and
Speaker 1: pull them apart, you know the company for the last
Speaker 1: twenty years. They started with seventy five minute In fact,
Speaker 1: I was at the one of this locations in Malibu
Speaker 1: or somewhere Marina del Rey is somewhere in California about
Speaker 1: I used to say this melody twenty five years ago.
Speaker 1: So you keep following that company and the things change.
Speaker 1: And meanwhile they've taken the cash flow, they've taken the
Speaker 1: shares outstanding from seventy five million forty eight million, So
Speaker 1: you owning two thousand shares, you own a bigger piece
Speaker 1: of the company today. And the company is still doing
Speaker 1: quite well. Even in an environment which people in quote
Speaker 1: a calorie conscious there's always the menu changes and the
Speaker 1: people are changed, as long as they're good at what
Speaker 1: they're doing and they have skin in the game because
Speaker 1: they own a big piece of the company. Quite fascinating. Um,
Speaker 1: let's keep working down this list of of questions. So
Speaker 1: on the site on the belly side, it says that
Speaker 1: you are manager or co manager of sixteen different funds.
Speaker 1: Are you the direct manager of that or are you
Speaker 1: really coordinating the team? How do you handle all of
Speaker 1: the above. And let's take one of our those than funds,
Speaker 1: which we started in two thousand and three. I've got
Speaker 1: Barbara Morris and Bob Leinager, i got uh Christmaer Andie
Speaker 1: Kevin Dryer Jeff Jonas. Each of us manage a piece
Speaker 1: of it, knowing full well that we each complement each
Speaker 1: other where our core competencies are. So one fellow would
Speaker 1: have a significant competency in the in the financial services industries,
Speaker 1: one other one would have a terrific competency of accumulated
Speaker 1: knowledge that he's and compounded knowledge in the healthcare. So
Speaker 1: we blend that together much much the way you know, uh,
Speaker 1: you'd get a five star French restaurant a three star
Speaker 1: like per se. So someone's doing the dessert, someone else
Speaker 1: is doing the main courses. You have associated or you
Speaker 1: can have something, You could have something on a Monday, Tuesday, Wednesday, Thursday.
Speaker 1: Very well, it is. The key is to blend it together.
Speaker 1: So you walked us through the process of how you
Speaker 1: identify a stock, starting with an industry and then drilling
Speaker 1: down what goes into the cell decision. How do you decide, well,
Speaker 1: this company is no longer fit for our PORTFOLI well
Speaker 1: several else. First of all, if it gets over five
Speaker 1: percent of a particular portfolio, we really want to make
Speaker 1: sure that we examine, no matter how smart we are
Speaker 1: and how good the company is, we want to marginal
Speaker 1: save the in the portfolio. Secondly, we do not want
Speaker 1: to have, you know, a client with ten million dollars
Speaker 1: all in one industry, no matter how good, and so
Speaker 1: we diversify the industry and so on and uh uh,
Speaker 1: and maybe we'll have anywhere from ten names representing thirty
Speaker 1: percent of portfolio. And if it's a taxable client, we
Speaker 1: try to make sure we are out of style. It's
Speaker 1: a very important one and that is that our turnover
Speaker 1: is probably six percent a year six year. That means
Speaker 1: you're holding companies on average sixteen years. So within the
Speaker 1: framework of buying something, we're already looking for our exits streaty.
Speaker 1: So why are we buying x y Z company today
Speaker 1: at eighty four dollars with sixty two million shares, five
Speaker 1: billion market cap, they're gonna do five of even after
Speaker 1: the n start October one? What is the value of
Speaker 1: that business? And why was this company spun off from
Speaker 1: an another company? What were they thinking of? Why were
Speaker 1: they were they preparing the company so that it would
Speaker 1: be tax efficiently bought by someone else? And you see
Speaker 1: that all the time, whether it was Zoeta spun off
Speaker 1: from Fiser, whether it is x y Z spun off
Speaker 1: from X, Y Z and so on. So we're constantly
Speaker 1: asking those kinds of questions analytically, So you talk a
Speaker 1: lot about very very specific bottoms up with different companies.
Speaker 1: How important is the overall here's where the economy is,
Speaker 1: here's what the market valuation is, and here's what's going
Speaker 1: on in the world of macroeconomics. Is any of that
Speaker 1: significant or do you really just focus on the industry
Speaker 1: and the individual style Well to the degree that inflation
Speaker 1: accelerates from one percent to four percent over the next
Speaker 1: ten years because of rising wages um that is important
Speaker 1: to understand the implications on a industry or company from
Speaker 1: the impact of higher inflation. For example, if I said
Speaker 1: to you tomorrow what you and I would shop for,
Speaker 1: Let's say a basket of shopping basket, everything constantly the
Speaker 1: same number of cereal box, the same number of yo good,
Speaker 1: same number of milk, same number of orange juice, coffee,
Speaker 1: and so on, same mix. If next year that basket
Speaker 1: would be five percent higher, that would be very positive
Speaker 1: for those that distribute those products because they are working
Speaker 1: on very low margins, and you would leverage the s
Speaker 1: g n A with a rising constant un account. But
Speaker 1: higher revenues per unit. That's very positive. Take a company
Speaker 1: of genuine parts located in Atlanta, Georgia. I've been following
Speaker 1: the company only for forty five years. They sell parts
Speaker 1: on the NAPA brand. If inflation picks up first, there's
Speaker 1: two fifty million cars on the road each year. This
Speaker 1: year will sell seventeen million with scrap twelve or thirteen.
Speaker 1: That means we're adding four million cars. That's one five.
Speaker 1: What's the average agent car? How long are they driven?
Speaker 1: Does the consumer want to repair cars? Where did they repair,
Speaker 1: where did they buy parts? And all of those elements.
Speaker 1: And then what happens to that bread basket of autoparts
Speaker 1: is their inflation. There hasn't been inflation, and that for
Speaker 1: two or three years the company has done extraordinarily well
Speaker 1: because miles driven her up. They you started off asking
Speaker 1: about gasolene price, fleet ages way up there also, Yeah,
Speaker 1: it could be that's an important element. But the cars
Speaker 1: last a lot longer. I can sure you know, I
Speaker 1: can drive a car now for a hundred and fifty
Speaker 1: thousand miles and uh, it's like driving one for forty
Speaker 1: miles in the sixties. And by the way, gasolene in
Speaker 1: nineteen sixty two where I saw a photograph the other
Speaker 1: day thirty two cents, so I was getting ten miles
Speaker 1: in a gallon was three cents a gallon today I get.
Speaker 1: I bought some the other day in New Jersey for
Speaker 1: dollar eighty and I get twenty five miles in a gallon.
Speaker 1: We're paying seven cents, So you're paying twice what you
Speaker 1: did forty years ago. And that is the sad part
Speaker 1: about not raising the gasolene tax to fund out highways
Speaker 1: because the infrastructure is terrible. Roads, bridges, tunnels, and so on.
Speaker 1: I've been riding about that and screaming about that eighteen
Speaker 1: point four cents since nine hasn't gone up in what
Speaker 1: is that the federal tax. Jersey doesn't even have state taxes.
Speaker 1: That's why they're so cheap, or almost no gas tax.
Speaker 1: Whatever it is. The point is that we need to
Speaker 1: cover our infrastructure. It increases productivity, whether it's an avionics,
Speaker 1: whether it's bridges, whether it's roads, whether it is cybersecurity.
Speaker 1: We need better infrastructure. Somebody's got to fund it, and
Speaker 1: somebody's gotta pay for it. The the electrical grid in
Speaker 1: the United States is absolutely vulnerable, not just a physical attack,
Speaker 1: but to cyber attack, we can lose large swaths of
Speaker 1: Electric'm glad you're thinking about things at night. It's that
Speaker 1: it's a by the way post, not eleven. We've done
Speaker 1: almost nothing to really secure all. It sounds like an
Speaker 1: individual that wants to have solar power on this roof
Speaker 1: so that it could be independent enough the grid. If
Speaker 1: you have to be I live in an area that's
Speaker 1: so wooded, I can't um. You got to have these
Speaker 1: giant old ghost trees that I can't cut down. You
Speaker 1: can act part of them. I could. I could actually
Speaker 1: put it on a enough so any of it independable.
Speaker 1: That The point is that there are elements that we
Speaker 1: look at that have that tie into the stocks we do.
Speaker 1: And going back to the question which I did not answer,
Speaker 1: our exit strategy, it's aside from clients specific is also
Speaker 1: baked into why we're buying a company because we think
Speaker 1: it's gonna be subject to some form of financial engineering.
Speaker 1: So at a certain point it hits a certain either
Speaker 1: it's taken out or it hits a certain dollar amount,
Speaker 1: and that's what triggers this out. A certain dollar amount
Speaker 1: as a percentage of a client's portfolio Okay, I mean
Speaker 1: I've owned Genuine Parts now for forty years, even before
Speaker 1: I was managing money, we still on it. We owned
Speaker 1: Berkshire had the way since we started mutual funds seven.
Speaker 1: We still out it. Uh we uh. So, you know,
Speaker 1: there are certain companies like I think General Mills, Campbell Soup.
Speaker 1: General Mills business model has more often changed than they
Speaker 1: are doing quite well over and yogurt is a nine
Speaker 1: billion dollar industry globally, twelve being in the United States,
Speaker 1: and they're doing quite well at your play. They now
Speaker 1: have the global brand and that's very good for quick,
Speaker 1: easy snacking, quick, easy grab and go, and it is
Speaker 1: also perceived to be a healthy product. So so how
Speaker 1: do you decide to to say, you know, for whatever reason,
Speaker 1: this one company isn't working out. What goes into that
Speaker 1: decision to say we're gonna cut this one loose. Essentially,
Speaker 1: if the company leverages it up because the CEO she
Speaker 1: decides to get married again and wants to impress a
Speaker 1: new husband that she wants to be bigger, and makes
Speaker 1: an acquisition and maturely overpays, then we would seriously have
Speaker 1: some issues. So that's what that's a factor. Together, we acquisition,
Speaker 1: What about just pure valuation. At a certain point you say, hey,
Speaker 1: this is trading times, am I are you gonna hold
Speaker 1: onto that? Or it depends on how we look at
Speaker 1: the world for the company over the next ten years.
Speaker 1: How will would this company do when it's business model?
Speaker 1: What are the risks to it? So we're having those
Speaker 1: conversations all the time about stock specific That's a much
Speaker 1: more sophisticated answer than ah, this is expensive punting it.
Speaker 1: You're really saying, this is a very complex picture with
Speaker 1: a lot of moving parts, and there is no one
Speaker 1: single metric that's gonna make us say we're very make
Speaker 1: it life simple. We're overworked and we're overpaid, and we
Speaker 1: intend to stay that way. Overworked and over Well, let's
Speaker 1: talk about that. You you, um, there was somebody I
Speaker 1: think was over the summer that had looked at the
Speaker 1: highest paid people in finance, and I think you were
Speaker 1: number one or two on that list. And this goes
Speaker 1: to show you the tunnel vision of whoever that was.
Speaker 1: So here you are, You're the founder of a company,
Speaker 1: you're running sixteen portfolios, and they're saying, uh, you're overpaid.
Speaker 1: What what's the pushback to that sort of my opic. Well, I,
Speaker 1: first of all, I anybody can say anything they want.
Speaker 1: God bless America. I really liked the notion of the
Speaker 1: French Charlie Liberdeaux approach to UH with it's just we Charlie,
Speaker 1: the notion of the free market, and it's very important
Speaker 1: to have that kind of pushback and don't worry about
Speaker 1: being politically correct. Notwithstanding that, you gotta get your facts right.
Speaker 1: So you mentioned two colleagues. What who am I competing with?
Speaker 1: Is it the hedge fund guys? And where are they
Speaker 1: in the list of earning returns. Secondly, within the framework
Speaker 1: of what we do, we are a public company, and
Speaker 1: to compare a W two, an individual that did not
Speaker 1: start a firm, did not make five thousand dollars when
Speaker 1: he earned it, started into the firm and took all
Speaker 1: of the entrepreneurial risk. This is a slight difference. I
Speaker 1: just saw the movie Steve Jobs okay, and the and
Speaker 1: the risk that that individual took. So one has to
Speaker 1: kind of way that no matter how you look at it. Um,
Speaker 1: I enjoy being competitive. I like the pressure, but I
Speaker 1: also like giving back. So you started off the conversation,
Speaker 1: but I've given significant amounts of money to Columbia, Boston College,
Speaker 1: Roger Williams, University of Miami, University of Nevada. What about Fordham,
Speaker 1: Fordham prep schools everywhere? Uh that we have fingerprints on
Speaker 1: ranging for even schools on the West coast. So and
Speaker 1: I'm sure this will create more conversation about more schools
Speaker 1: that are indeed. So so your basic response to I
Speaker 1: don't remember the name of the company, but your responses, Hey,
Speaker 1: I I earn a competitive salary versus so you have
Speaker 1: a foot in the hedge fund world, foot in the
Speaker 1: separately managed accounts world, and a foot in your three
Speaker 1: feeded within the mutual fun world. You're running all these
Speaker 1: differences like, well, we need a fourth and then the
Speaker 1: fourth is the research world. So there's the four footed
Speaker 1: horse that is married a belly and you're saying what
Speaker 1: I earn is competitive with other people's realistic. We have
Speaker 1: a challenge in this country to look my father I
Speaker 1: found that was a charter member of Local six in
Speaker 1: New York. That's a restaurant of hotel workers. And uh,
Speaker 1: you know, we need to raise wages. We need to
Speaker 1: have everyone have that vision of success and allow them
Speaker 1: to earn a faraway to return, so we have to
Speaker 1: deal with that. Notwithstanding that at my tax rate is
Speaker 1: probably close. Okay, So you're you're kicking back both through
Speaker 1: philanthropy and through one Uncle Sam one of them, and
Speaker 1: maybe both are very inefficient ways for the money to
Speaker 1: be spent. But it is what it is, all right,
Speaker 1: So let's let's stick with um the discussion of of
Speaker 1: stock picking. I love the fact that you don't shrink
Speaker 1: from any question. It's like, bring it on and I'll
Speaker 1: take a swat at it. That's uh. There are some
Speaker 1: people like next question you You're not that sort of guy.
Speaker 1: Next question, Okay, next question. Um. I got pages and
Speaker 1: pages of this stuff. So we um. We've been talking
Speaker 1: about individual stocks, but we never really got to the
Speaker 1: question of market valuation and what happens when the market
Speaker 1: is pricing does that really other than the inflation questions
Speaker 1: that really we try to be a dent invest at
Speaker 1: all the time within the framework of our client accounts.
Speaker 1: We're also very conscious that its X y Z individual
Speaker 1: gives us a dent of their assets. We're not gonna
Speaker 1: put it dent equities all the time. On the other
Speaker 1: side of the point, if you're a two billion dollar
Speaker 1: pension plan to find benefits or to find contributions. And
Speaker 1: you give us a hundred million dollars and you want
Speaker 1: us to be the best in small cap, We're gonna
Speaker 1: be a hunder percent invested as best as we can
Speaker 1: all the time. And so we're constantly looking for ideas.
Speaker 1: So we customize two thousand accounts for each client specific
Speaker 1: and I have a wonderful team both in terms of
Speaker 1: judgment and in terms of client service that does that.
Speaker 1: And there are challenges in times like this because we
Speaker 1: don't fully know all of the client's tax basis. Uh,
Speaker 1: they're all at their entire tax pictures that we have
Speaker 1: to be sensitive about all of that. So if you're
Speaker 1: on the on the other side, uh, the question is
Speaker 1: do you want me to look at how we do this?
Speaker 1: So so if you're almost always invested, the assumption is
Speaker 1: are you hedging or do you not even bother with
Speaker 1: the client? The client the clients which we have twenty
Speaker 1: billion dollars and trusted us do not allow us to
Speaker 1: go short or hedge. The way we can hedge is
Speaker 1: by buying companies like Warren Buffett Is buying precision cast parts.
Speaker 1: Let's assume that we own a quarter of a billion
Speaker 1: dollars worth of that stock, or we own a quarter
Speaker 1: of a billion dollars worth of o'riley's. Uh that is
Speaker 1: not being taken over. Should we sell a little bit
Speaker 1: of o'riley's and put it in because the stock is
Speaker 1: now selling it that they're gonna earn eleven dollars next year,
Speaker 1: eleven fifty next year. A great business model of great management,
Speaker 1: and that's twenty five times earnings. Should we take a
Speaker 1: little bit off the table and put it into precision
Speaker 1: hast parts. We have very low data and very low
Speaker 1: correlation with the market, and you could earn four percent annualized.
Speaker 1: It's better than the T bills which is six basis
Speaker 1: points then, and it's better than you know, hedging and
Speaker 1: being wrong if the market keeps running. There are certain
Speaker 1: of those elements and so we are practitioners of this
Speaker 1: and we've been doing it very successfully. We've compound the
Speaker 1: client assets at about six kego for thirty nine years.
Speaker 1: Not too chevy, No, but what have you done for
Speaker 1: me lately? Nothing? But that's the nature of yes of
Speaker 1: what we do is it's always what was the last month,
Speaker 1: what was the last quarter, you could have a yeah.
Speaker 1: On the other side of the coin, our private wealth
Speaker 1: management clients are really understand and appreciate it's not what
Speaker 1: you make, it's what you keep. And if you can
Speaker 1: hold something for thirteen months as opposed to thirteen minutes,
Speaker 1: you pay eight percent tax versus forty three percent tax,
Speaker 1: depending on if you're living in a great state like Florida.
Speaker 1: New York has got all sorts of taxes. Sure they're tuesta,
Speaker 1: it's Californiausetts six percent. New York is eight if you're
Speaker 1: in New York City, and California's but there's you don't
Speaker 1: have an estate Texas. Everyone has everything. There are a
Speaker 1: lot of pluses and minuses in every state. To say
Speaker 1: the least, let let me shift. Being in New York
Speaker 1: is a plus to be with you, that's and to
Speaker 1: be in in the city of which generates so much
Speaker 1: economic activity. Everybody just steps into the Have you been
Speaker 1: to Singapore lately? London? I have Man Tokyo, Hong Kong,
Speaker 1: Um a lot of places, and there are a lot
Speaker 1: of places Dallas, Texas, where I was not too long ago,
Speaker 1: there are a lot of fantastic places that generate economic
Speaker 1: We were just in Seattle, that's a town that's on fire.
Speaker 1: And San Francisco the sitting on top of something that
Speaker 1: could be a fire. But that's beside the Seattle or
Speaker 1: San Francisco both what's going on in Seattle. Okay, So
Speaker 1: let's talk a little bit about some of your early mentors.
Speaker 1: Who were the people that were the big influences early
Speaker 1: on in your career. Well, I was to admit I
Speaker 1: had a professor at Fordham that taught me money and banking.
Speaker 1: His name was Amon Kelly. Amon was getting his PhD
Speaker 1: at Columbia, taught at Fordham undergraduate of finance class. He
Speaker 1: then became the president of Tulane for seventeen years, and
Speaker 1: he was very good. So I had a whole bunch
Speaker 1: of individuals with the guy that taught me Latin uh
Speaker 1: in high school. Uh and uh. You know, it was
Speaker 1: very influential because it taught you how to parse sentences
Speaker 1: and how to structure sentences. And I had a guy
Speaker 1: at Low Brows by name of Eric Renner who and
Speaker 1: Alan Kirschberg who would take a part your research reports
Speaker 1: and really make sure that you had every eye and
Speaker 1: every tea dotted grammatically and that kind of discipline. Uh,
Speaker 1: with that was important to the idea of communication. UM,
Speaker 1: let's talk about books. What are some of your favorite
Speaker 1: nonfiction books, investment or otherwise. I read a lot of
Speaker 1: annual reports. No more books. Anyway, you at least said
Speaker 1: the same thing I I. My my wife said, you've
Speaker 1: got to read Steve Jobs, I said, when so. I
Speaker 1: read trade magazines, Billboard. I've been doing that for forty years.
Speaker 1: I read at age I read four in the orderable
Speaker 1: bile parts business. I read about three or four in
Speaker 1: the gaming industry, and that's more recent the last ten years.
Speaker 1: I read Asian There's a magazine that's fantastic if you
Speaker 1: want to understand the Asian world. Uh. And then you
Speaker 1: obviously what's the name of that magazine, The Asian Way, Yeah, Nika,
Speaker 1: I uh owns it. They used to do it when
Speaker 1: I was in Japan thirty years ago. I started reading
Speaker 1: and they changed it over to a weekly magazine format,
Speaker 1: and then it's Bloomberg business Week. I started reading Business
Speaker 1: Week back in the thirties of forty forties and fifties,
Speaker 1: but it's changed a lot in the last five years.
Speaker 1: To say, to say the least of that. UM, what
Speaker 1: other investors influenced your your approach. Obviously Graham and dot
Speaker 1: Are are big influences. And it sounds like, well, you know,
Speaker 1: I like war and I go to see his meetings
Speaker 1: every year for the last ten or twelve years. We
Speaker 1: in fact host a dinner on Friday night, our firm does,
Speaker 1: but for the Columbia Business Schools, their their guest list,
Speaker 1: our nickel and whatever money they raise they keep. So
Speaker 1: we do that every year. It's kind of like our
Speaker 1: pilgrimage to h every year. That sounds like that's fun. Um.
Speaker 1: So thirty five thousand individuals trekking out there, all with
Speaker 1: a mission and all with an understanding. All what a
Speaker 1: way to say thanks to Warren for making them a
Speaker 1: return and to watch what he does within the context
Speaker 1: of investing. Though I must have been precision cast parts
Speaker 1: was a surprise to me, a little expensive, more than
Speaker 1: he know. I think the notion, well, it's a big deal.
Speaker 1: Twenty eight million shares at two thirty five dollars and
Speaker 1: the mathis thirty odd billion. Uh. If you look at
Speaker 1: the cash flow over the next seven years, he will
Speaker 1: have recovered his cash, assuming they'll cost the capital for
Speaker 1: a moment, it does have a zero cost flow. Uh,
Speaker 1: that he would have gotten his money back and then
Speaker 1: you'll have a very interesting business for the next twenty years.
Speaker 1: So he seems to do that pretty well, doesn't he. Uh.
Speaker 1: He's made mistakes. We all have. Absolutely, it looks like
Speaker 1: he's made less than many and and has put a
Speaker 1: lot of wood on the ball. Well, when you think
Speaker 1: about the market valuation of Apple, the think about the
Speaker 1: new up starts, he's missed all the technology because he
Speaker 1: says he I don't understand it, I can't investment. He
Speaker 1: has not missed him. He just didn't want to play
Speaker 1: that game. Okay, So the fangs of the world Facebook, Amazon,
Speaker 1: Ali Baba, Netflix and no Netflix. You're not afraid of
Speaker 1: these names, are you. That doesn't mean I'm buying them,
Speaker 1: but it's something it's a space that you're willing to
Speaker 1: play in. But don't forget we do understand the subscription
Speaker 1: revenue model of a Netflix. Of course, that doesn't mean
Speaker 1: I pulled the trigger. And that means that there are
Speaker 1: mistakes that we've made that you won't know about. And
Speaker 1: that is not buying a stock. So you don't you
Speaker 1: find out, you find out about the mistakes you make
Speaker 1: when you buy something you perhaps shouldn't have, the ones
Speaker 1: that get away that you don't pull the trigger on.
Speaker 1: No one really knows you that. Yeah, I do. Well,
Speaker 1: now we all know about Netflix also, but I wear
Speaker 1: my hair shirts. There's so many of them, and they
Speaker 1: come and bother me every day when I think about it,
Speaker 1: just trying to figure out my Listen. I've been on
Speaker 1: Google when they had the reversed Dutch auction and I
Speaker 1: got all of several hundred shares eighty bucks several very
Speaker 1: good at that. Um, you remember that painful And that's
Speaker 1: before the split, That's that's right. And that's before the
Speaker 1: rename to Alphabet, which I have been unable to. It's
Speaker 1: fairly easy. They figured out how to not to pay
Speaker 1: royalty to get a name that was available, and Alphabet
Speaker 1: is a new holding company that allows them to do
Speaker 1: a lot of very creative things, very clever. Yeah. The
Speaker 1: financial engineering they certainly um seem to be. So you've
Speaker 1: been in the business the last ten minutes or so
Speaker 1: that we have. You've been in this business for forty
Speaker 1: plus years. What has change that you think is really
Speaker 1: significant for the better or the worst. Well, I think
Speaker 1: that what has to change is to make sure that
Speaker 1: the American public understands that capitalism is a very very
Speaker 1: important way of allocating capital. It's a combination that's made
Speaker 1: America a unique study in the history of mankind, the
Speaker 1: combination of free markets with all the floors UH, the
Speaker 1: rule of law with all of its floors, and meritocracy,
Speaker 1: which means everybody could be educated. We got to go
Speaker 1: back and really help individuals educated. From my point of view,
Speaker 1: in terms of the markets, you go through cycles. Okay,
Speaker 1: I was there in the sixties when you had UH
Speaker 1: the conglomerates and the and the pushback, and then you
Speaker 1: had the nifty fifty, and then you had the client
Speaker 1: of stocks, and then you had the T M T
Speaker 1: s and then you had in the eighties the UH
Speaker 1: leverage biouts but Drexel Burnham and then you had So
Speaker 1: you go through all these cycles and capitalism and there's
Speaker 1: some excellent flows. But are the challenges today are trying
Speaker 1: to figure out whether this experiment of trying to keep
Speaker 1: the world afloat by pumping money into the system is
Speaker 1: an interesting subject that we are going to write a
Speaker 1: casebook on twenty years from now. Together, How has the
Speaker 1: actions of the Fed affected what you do professionally. The
Speaker 1: second question was let me finish up on the first.
Speaker 1: Second thing was the way these products are packaged, starting
Speaker 1: with John Bogel and its mindless investing and yeah, but
Speaker 1: also the notion that they're cheaper. In some ways they are,
Speaker 1: but in some ways there are tax issues that are hidden.
Speaker 1: Some way, their transaction costs that are hidden. Uh. And
Speaker 1: then the notion of corporate governance. How did they vote?
Speaker 1: You know, they're getting better, but they got a long
Speaker 1: way to go. They don't pay attention to the vote. Uh.
Speaker 1: And they are getting better, but as I said, and
Speaker 1: in addition that, there is a constant abuse. If you
Speaker 1: sit at trading desk and you see flash trading and
Speaker 1: they're constantly probing, what you're trying to do is to scalp.
Speaker 1: It was like the specialist on on steroids. Okay, and
Speaker 1: well they may not have been fake quotes, and you
Speaker 1: should they should have them there for a little longer
Speaker 1: than that. So there's a lot of elements that have
Speaker 1: to go back into the free market. I don't like
Speaker 1: dark pools. I want to see everything in the fish
Speaker 1: bowl of the free market system because I want the
Speaker 1: world to believe that this is a fair game and
Speaker 1: that it's run by people that have come to work
Speaker 1: every day to keep it honest and open. And this
Speaker 1: is a challenge. And UH, we had specialists and when
Speaker 1: I was around in the forties and fifties and sixties,
Speaker 1: so you know, everyone has their own approach over the
Speaker 1: counter trading, trading, UH, fixed income instruments today, what are
Speaker 1: the spreads? What are the markets? So there are ways
Speaker 1: that we can't and the SEC is doing a very
Speaker 1: good job, but they should have committees of people that
Speaker 1: are practitioners and meet with them and have somebody organized
Speaker 1: it and open the UH that day. What is going
Speaker 1: on that we should be thinking about and things that
Speaker 1: things that are potentially problematic. That's correct, you guys, you're
Speaker 1: gonna see it before Mary Joe White sees it or
Speaker 1: any of our staff sees it as a problem. We're
Speaker 1: trained not marchhot, but we trained differently. Okay, if you
Speaker 1: look at flash trading, it's obvious if you look at
Speaker 1: the coal location, how can you do that? You put
Speaker 1: a server next to the actual exchange servers, and those
Speaker 1: folks get the sniff out orders quicker, right, so they
Speaker 1: get if they want to jump up a front. They're
Speaker 1: they're taking an extra penny or a dime from these
Speaker 1: big and they have great language of coal liquidity. We
Speaker 1: provide liquidity. We provide liquidity providers. This is all kind
Speaker 1: of well, it's not nonsense, but it certainly can be.
Speaker 1: Uh A past you really a practitioner is no. And
Speaker 1: the uptick rule, I mean, there is no advantage of
Speaker 1: having eliminated the uptick rule except as an accommodation to
Speaker 1: somebody's packaging products. So there's still a lot of things
Speaker 1: that are going on. And then disclosures. How can someone
Speaker 1: legally they can do it right now, and how can
Speaker 1: they buy derivatives and not file at thirteen D until
Speaker 1: a certain time period. And so another word, they have
Speaker 1: to they have to disclose an ownership even if it's
Speaker 1: not the stock, if it's a secondary and do you
Speaker 1: own it? And how do you own it? And then
Speaker 1: on top of that, you know, if we keep going.
Speaker 1: For example, I can buy five percent of a bond,
Speaker 1: I don't have to file. I can buy of a
Speaker 1: bond and get control of a company. I don't have
Speaker 1: to file. I own five percent of a company, I
Speaker 1: have to file. We file over five percent of holdings
Speaker 1: of a company on at D filing within ten days
Speaker 1: and then every time we go over one percent delta,
Speaker 1: we have to file. We do that religiously on a
Speaker 1: hundred odd companies and so as a result of that,
Speaker 1: why not do it on the dead world? So transparency.
Speaker 1: Everything in a fish bolt so trans So you're looking
Speaker 1: for people to honor their quotes, to have full disclosures
Speaker 1: and be transparent. So you're really kind of an eye
Speaker 1: to list, aren't you. Uh No, I want the free
Speaker 1: market system to work because it worked for me. I
Speaker 1: grew up in the Bronx. Okay, I went to school
Speaker 1: and this system allowed me to flourish, and I think
Speaker 1: it allows should allow everyone to flourish, and we can.
Speaker 1: We want a system that allows everyone to succeed to
Speaker 1: the highest degree of their interests and their passion and
Speaker 1: the time they're willing to spend. So you want you
Speaker 1: want to actually create opportunity for anybody who wants to
Speaker 1: starting with grammar school. And so what do you do
Speaker 1: to help grammar schools out? We do what we can
Speaker 1: in terms of taking kids from grammar school to go
Speaker 1: to high school, give them a pay for the tuition
Speaker 1: for private high school or college. These are not charter schools.
Speaker 1: These are primarily religious schools, Catholic schools, because that's the
Speaker 1: ones that are in our radar screen. So in the
Speaker 1: last five minutes I have you for let me ask
Speaker 1: you two of my favorite questions that I ask all
Speaker 1: of my guests, and and let's see, um what you
Speaker 1: want to do with these. The first question is, well
Speaker 1: you you said I could say next, you can say next,
Speaker 1: I mshoo. You won't say next to either of these.
Speaker 1: So if you were dealing with a you were giving
Speaker 1: advice to a millennial or someone just graduating college who
Speaker 1: was interested in a career in finance, what would you
Speaker 1: say to them? Too late? Too late, they missed their
Speaker 1: window to get into finance. If they basically were a
Speaker 1: history major, they have to go to graduate school because
Speaker 1: we don't have the time to train them. We think
Speaker 1: they should understand a lot more of the quotes, the
Speaker 1: elements that go into it. It depends if you. So,
Speaker 1: someone coming out of college with a business or economics
Speaker 1: background and goes to Columbia gets an NBA. Let me
Speaker 1: tell you where we recruit from. We have no problem
Speaker 1: with anyone from hart. I'm politically correct. Okay, I'm the
Speaker 1: most politically correct guy in the world. I will recruit
Speaker 1: somebody from Wharton. Okay, so you will stoop that load. No, no, no, no.
Speaker 1: By the way, we just had Jeremy Siegel Heller, I
Speaker 1: understand Jeremy is a good guy. We we look at
Speaker 1: the best anywhere in the world, and they are rain
Speaker 1: individuals the way we want. Notwithstanding that, we will go
Speaker 1: in and if you're giving me advice, I'm in the
Speaker 1: high school. First of all, we should teach finance and
Speaker 1: basic uh what makes what? And how to save money
Speaker 1: for the rest of your life and how important is
Speaker 1: that to create options in your life. So if I
Speaker 1: was giving in high school, yes, and there are no
Speaker 1: mandated courses like that pretty much few and far between. Well,
Speaker 1: I think Buffet has put something together in a very
Speaker 1: light way to help individuals and grammar school understand that
Speaker 1: the teachers should tell them about the virtues of saving
Speaker 1: and uh, individual how to open accounts, not accounts, but
Speaker 1: the banking system and how that works. But uh, I
Speaker 1: would say the following by a stock really and get
Speaker 1: into the game, just like you would say you want
Speaker 1: to learn how to swim. You ain't gonna do it
Speaker 1: by thinking about it. So you buy one stock, I
Speaker 1: don't care what it is, us in square, garden, apple, whatever,
Speaker 1: hopefully the So you own a stock, and what does
Speaker 1: that teach you? As someone right out of high school? Well,
Speaker 1: you start following it. What do I own? Do I
Speaker 1: own a piece of American business? What? And how? Read
Speaker 1: the annual reports and get the re annual reports, to
Speaker 1: read it online, and do whatever it takes to continue
Speaker 1: to follow a company. Then secondly, I would say start saving.
Speaker 1: And the way you start saving is the following, though
Speaker 1: I must admit you gotta work, not I would buy
Speaker 1: one less lotty per day, assuming there are five dollars
Speaker 1: a day. That seven days a week is thirty five
Speaker 1: dollars at seventeen seventh almost two thousand dollars a year,
Speaker 1: and then figure out how much that would be in
Speaker 1: forty years compounding at four six and eight ten percent,
Speaker 1: And how you're gonna make that. Secondly, give up a beer.
Speaker 1: That's why I have to go that one has to
Speaker 1: be over the age of one and one bear per day,
Speaker 1: and see how much money you would have just for
Speaker 1: those simple things, assuming nobody smokes any more. Otherwise, the
Speaker 1: numbers would be staggering. Right, cigarettes are are through the roof.
Speaker 1: You still you walk out of a building, you still
Speaker 1: occas when we see the junkies out there puffing on. Well,
Speaker 1: there's no question that a well, you can smell it,
Speaker 1: you don't have to see it. And so the building
Speaker 1: itself is smoked free, but the campus setting or this
Speaker 1: is not. And you gotta give me a Mike a
Speaker 1: really good credit for that years ago. The whole subject
Speaker 1: of healthy living, though, I must admit sixty an ounces.
Speaker 1: He once said, uh to somebody, uh, sixteen ounces, And
Speaker 1: so he says, well, maybe they could have Baker's mark,
Speaker 1: that we have to be careful on all of those dynamics.
Speaker 1: But you know, I don't look. The advice is simple.
Speaker 1: Everyone's gonna be smart, but you have to work from
Speaker 1: five to night. Or if you're young, you could steal
Speaker 1: it from seven eleven because you want to watch the
Speaker 1: Mets games or something like that, or the Knicks tonight
Speaker 1: is going to take a long time. You know this,
Speaker 1: the games thought at eight, it's not over till eleven,
Speaker 1: and you gotta work afterwards, such as life. Last question,
Speaker 1: what do you know about investing today that you wish
Speaker 1: you knew when you began forty five years ago. I
Speaker 1: actually started buying stocks when I was thirteen, and forty
Speaker 1: five years ago, I was already working at low Broads,
Speaker 1: and so the notion of what I do is fairly simple,
Speaker 1: and buying a good business that I hold for an
Speaker 1: extended period of time to defer paying a cash tax
Speaker 1: on the sale of that asset. I would say that
Speaker 1: if I were picking a career, the individual has to
Speaker 1: ask himself, how much can I make given the amount
Speaker 1: of ergs of energy I have to expend in my life,
Speaker 1: and how do I get the best payback for that?
Speaker 1: Or and why? In my particular case, I should have
Speaker 1: started business a lot sooner, and I should have listened
Speaker 1: to Michael Steinhardt, who was always saying, what do you
Speaker 1: want to do anything else? Why don't you just do
Speaker 1: a hedge fund and go along? Short? But we're delighted
Speaker 1: with where you have. I have will continue to do
Speaker 1: what I want. I like the pressure or like the
Speaker 1: ATENSI I like me look stupid every day I come in.
Speaker 1: Mario Gabelly, this has been an absolute pleasure to have you.
Speaker 1: Thank you so much for being so generous with your
Speaker 1: time we have been speaking with Mario Gabelly. He is
Speaker 1: the founder, chairman and CEO of Gabelly Asset Managements, publicly
Speaker 1: traded as gb L. If you enjoy this conversation, look
Speaker 1: upward down an inch on iTunes and you could see
Speaker 1: the other UH sixty five or so such conversations we've
Speaker 1: had b shure in check out UH all the rest
Speaker 1: of these interviews. I want to thank my producer, Charlie Bohmer,
Speaker 1: and my head of research Mike pat Nick, and and
Speaker 1: Mark as Sinestalsi as my engineer. UH. You've been listening
Speaker 1: to Masters in Business on Bloomberg Radio