Speaker 1: This is Masters in Business with very Ridholts on Bloomberg Radio.
Speaker 1: This week on the podcast, I have an extra special guest.
Speaker 1: Jay Bowen is the manager of, amongst other things, the
Speaker 1: Tampa Firefighters and Police pension funds. His firm has been
Speaker 1: managing that for over forty five years. Their performance numbers
Speaker 1: are are quite spectacular. They approached this in an absolutely
Speaker 1: unique way, UH, in fact, so unique it's become known
Speaker 1: as the Tampa model. No consultants, no third parties, no alternatives,
Speaker 1: just stocks and bonds managed by a single firm at
Speaker 1: a very low cost. UH. They run about a dozen
Speaker 1: other UH pension farms UH in around in and around
Speaker 1: southern Florida as well as elsewhere. This is really a
Speaker 1: master class on how to manage a pension fund, how
Speaker 1: to keep your costs in line, how to avoid the
Speaker 1: usual expense of consultants and third party managers. UH. It's
Speaker 1: really quite fascinating. It's always interesting when you speak with
Speaker 1: someone who's a unique contrarian and approaches the world in
Speaker 1: a different way and has been very successful using that model.
Speaker 1: If you are remotely interested in long term investing, foundations
Speaker 1: and pensions, or just hearing someone who has a unique approach.
Speaker 1: I believe you're gonna find this conversation fascinating. So, with
Speaker 1: no further ado, my conversation with Bowen and Haynes. Jay Bowen,
Speaker 1: this is Masters in Business with Barry Ridholts on Boomberg Radio.
Speaker 1: My special guest today is Jake Bowen. He is the
Speaker 1: CEO and Chief Investment officer of Bowen, Haynes and Company.
Speaker 1: The firm has managed the Tampa fire Fighters and Police
Speaker 1: Officers pension funds for over forty five years, performing consistently
Speaker 1: in the top quartile versus piers. It is one of
Speaker 1: the few pension funds in the United States that is
Speaker 1: effectively fully funded. UH. The total return on the portfolio
Speaker 1: since its inception has been nearly fourteen thousand percent UH.
Speaker 1: The annual return is of the stock portion is fourteen
Speaker 1: point six percent, handily out performing the benchmark. The total
Speaker 1: return has been eleven point nine percent annualized. That beats
Speaker 1: the SMP five hundred UM. Quite impressive for a stock
Speaker 1: and bond portfolio. Jay Bowen, Welcome to Bloomberg. Thank you
Speaker 1: very much. Am I getting your name right? Bowen? Alright,
Speaker 1: so you have really this is a fascinating story that
Speaker 1: I don't know if many people are familiar with your
Speaker 1: father founded Bowen Haines in Company in nineteen seventy two,
Speaker 1: eventually be Humming the person running the Tampa Firefighters and
Speaker 1: and Police Officers pension fund. You took the fund over
Speaker 1: in the early two thousand's, Is that right? I assumed
Speaker 1: day to day responsibility in two thousands, right? Right? Were
Speaker 1: you working for the firm before that? Yes, I came
Speaker 1: on board and actually in nineteen seven. So what was
Speaker 1: your career path? First of all, did you know you
Speaker 1: always wanted to go into finance with the father running
Speaker 1: a pension funds? I did not, But I grew up
Speaker 1: with my father taking monthly trips to Tampa, and I
Speaker 1: knew he was going somewhere on business, and when he
Speaker 1: would come home, he would go down every month in
Speaker 1: the in the seventies and UM he would take me
Speaker 1: down when I had a vacation or had a few
Speaker 1: days off from grammar school, and I became kind of
Speaker 1: enamored with the with the Tampa Bay area. I did.
Speaker 1: I did not know that I was gonna eventually be
Speaker 1: involved in the business. I was very I was an
Speaker 1: English major, very liberal arts oriented. UM, but became fascinating
Speaker 1: it and drawn. Really I wasn't a numbers person, I
Speaker 1: wasn't a math person. I was fascinated and drawn to
Speaker 1: the policy debate UM, the economic policy debate. I really
Speaker 1: became focused on that, and with the top down approach
Speaker 1: that the firm took, I kind of entered it that way.
Speaker 1: What was your what was your first job right out
Speaker 1: of college? I was in sales marketing, oriented, very very
Speaker 1: You didn't jump right into the family business, so to speak.
Speaker 1: I didn't jump right in UM. But what happened was
Speaker 1: in nineteen eighties six I went up to a Washington
Speaker 1: conference policy conference, and I was just so drawn and
Speaker 1: so and I'd always been that way really throughout my life,
Speaker 1: very focused on UH policies and politics and what was
Speaker 1: going on and what it meant and what it might
Speaker 1: mean to the financial markets. And so I really after
Speaker 1: that conference, it just really became inevitable that I wanted
Speaker 1: to get involved. Was your father interested in the sort
Speaker 1: of macro economic analysis as applied to investing or was
Speaker 1: that something that he thought wasn't necessarily relevant. He was
Speaker 1: interested in it and thought, you know, as you know,
Speaker 1: they're all different ways to do this business. There's bottom up,
Speaker 1: there's top down, there's there's mob black boxes, computerized models,
Speaker 1: there are and and phenomenally successful ways. We've just always
Speaker 1: gone about it from a top down perspective, and he
Speaker 1: was top down primarily. I'll tell you why, because when
Speaker 1: he started the firm in the early seventies, I mean, sure,
Speaker 1: it's a great time to focus on inflationary expectations and
Speaker 1: what that might mean a financial market. So multiple recessions,
Speaker 1: big pullbacks in the market. Seventy seventy four was about
Speaker 1: a fifty seven percent drop UH real real bond yields
Speaker 1: were effectively zero with inflation at ten twelve. Yeah. Yeah,
Speaker 1: there's an amazing when you look at it over long periods.
Speaker 1: I mean, there was a period from nineteen sixty eight
Speaker 1: to nineteen eighty two when the market had a negative
Speaker 1: real return, stocks had a negative real return, and that
Speaker 1: was in my view the way we view the world.
Speaker 1: That was because of UM really anti growth policies and
Speaker 1: a very counterproductive Federals erve in terms of from UH
Speaker 1: and then the FED basically funding the the UH, ratifying
Speaker 1: the inflation during the seventies, in the sixties and seventies,
Speaker 1: what are your thoughts on someone like Paul Volker who
Speaker 1: comes in and says, oh, well, let's do this and
Speaker 1: and basically takes the FED funds rate up to double digits. Right.
Speaker 1: That was a really important turning point in terms of
Speaker 1: how we of course I wasn't on board then. This
Speaker 1: was eight actually vocal Candon in seventy nine. Um. But
Speaker 1: there was a triple triple threat that happened in the
Speaker 1: late seventies and early eighties, and it really set the
Speaker 1: stage for a arguably the biggest bullmarket ever UM. And
Speaker 1: that was Paul Voker coming in to break the back
Speaker 1: of inflation, which is so key to financial assets price
Speaker 1: stability um uh, but not inflationary expectations. And then there
Speaker 1: was a deregulation effort that started with Afridkahan at the
Speaker 1: at the airline and trucking deregulation, Airline deregulation seven. And
Speaker 1: then Reagan came in UM with the tax reform UM
Speaker 1: in terms of lower tax rates, higher after tax returns,
Speaker 1: increasing in centers for work, was taking investment capital format
Speaker 1: I mean all those three things together um. And of
Speaker 1: course the DAO was sitting at seven seven fifty eight
Speaker 1: hundred with no real return um going all the way
Speaker 1: back to nineteen and I remember, and uh this is
Speaker 1: I was still focused on policy even though I was
Speaker 1: in college. I remember in eight two the tax cuts
Speaker 1: didn't take effect and there was a they delayed the
Speaker 1: tax cuts. They passed the legislation eighty The tax cuts
Speaker 1: didn't take effect until August of eighty two. Guess when
Speaker 1: the bullmarket story. Let's talk a little bit about the
Speaker 1: Tampa model. Your firm has managed the Tampa firefighters and
Speaker 1: police officers pension funds for over forty five years. That's
Speaker 1: pretty unique in the world, isn't it. It's very unique.
Speaker 1: My father for is a relationship in nineteen seventy four.
Speaker 1: We're now in the midst of our forty five year
Speaker 1: as you as you noted, we've managed every penny the
Speaker 1: entire period. It's growing from twelve million to over two billion,
Speaker 1: and they've taken over a billion out so that's three
Speaker 1: billion total cap appreciation to come of over three billion
Speaker 1: from twelve million from twelve and obviously there's been some
Speaker 1: contributions along the way country. Yeah, but the net there's
Speaker 1: been net outflows, which is what you want. That's what
Speaker 1: it's for. That right retirements for these incredibly dedicated public
Speaker 1: safety employees. So it's do it's doing its job right. See,
Speaker 1: I would imagine that you're completely ticket proof in Florida,
Speaker 1: that anybody pulls you over. It's like I'm the guy
Speaker 1: who manages your retirement account and that, oh, of course,
Speaker 1: I have a nice day, Mr Bowen. Yeah, Tampa, Tampa.
Speaker 1: I think my father was pretty safe within the city limits,
Speaker 1: and I hope by him. So you go from twelve
Speaker 1: million to over three billion including outflows to what do
Speaker 1: you credit this? Uh performance? Yeah, it's a it's a
Speaker 1: confluence of events. And by the way, my father four's
Speaker 1: actually was involved with this fund in nineteen in the
Speaker 1: late sixties when he was with another institution when he
Speaker 1: started his firm, UM he helped kind of set the
Speaker 1: fund up and helped with the investent policy statement back then.
Speaker 1: And then when he started his own firm, they were
Speaker 1: dissatisfied and came to him in seventy four. So that's
Speaker 1: and hired him when it was at twelve million. And
Speaker 1: it's really um I tell you what um I think.
Speaker 1: And it's funny. The pension attorney down there coined this
Speaker 1: term and I love it. He said, you know what
Speaker 1: you've got here, and he he sees pension public pension
Speaker 1: funds all over the country. Um, he's involved almost in
Speaker 1: every state, very prominent pension public pension fund attorney. He said,
Speaker 1: you know you in Tampa. He told the board you
Speaker 1: all have a perfect rainbow. And he said perfect rainbow
Speaker 1: because you've got a great city, competent. You know, they're
Speaker 1: all kind of moving parts. That the true the health
Speaker 1: of a pension fund. We're just one component. We're an
Speaker 1: important one, but they're all kind of moving parts. I mean,
Speaker 1: you've got he said, you've got a really competent, strong
Speaker 1: municipal city government, well managed. Well, it's if Tampa were stock,
Speaker 1: I'd be buying it. Can I tell you I visited
Speaker 1: Tampa repeatedly over the past few decades. Tampa is a
Speaker 1: booming city. Twenty thirty years ago that it was kind
Speaker 1: of a mess. You know who else has seen that
Speaker 1: as Jeff Finnick, really Jeff Finnick is he is Misiality Fidelli.
Speaker 1: He is Mr Tampa. Now there he purchased the hockey
Speaker 1: team is involved in a massive development effort on the waterfront.
Speaker 1: So he saw the value there. A few years Ago,
Speaker 1: and he's very involved in Tampa. And as I say,
Speaker 1: if Tampa were a stock, I would be buying it.
Speaker 1: But a competent city government. And here's the important on
Speaker 1: that funds the pension fund. They fund it. They put
Speaker 1: the money in. A lot of these municipalities that are
Speaker 1: in such trouble don't um so Tampa. Actually it's a
Speaker 1: it's I think it's the best run major city in America.
Speaker 1: That's one component. Number Two, they have a board and
Speaker 1: my non member board that is extremely responsible on the
Speaker 1: benefit side. You know, they're not reckless in terms of
Speaker 1: allow the Dallas fire and police, in terms of uh
Speaker 1: promising all these these It's a very very responsible, dedicated board.
Speaker 1: And then number three, the third part of the perfect
Speaker 1: rainbow is that we've had good investment returns. It's so
Speaker 1: easy to make promises that come due decades in the
Speaker 1: future and not to fund it because by the time
Speaker 1: people are pointing fingers, the people responsible along gone. So
Speaker 1: so how to what do you attribute Tampa avoiding what
Speaker 1: is a typical fate of local governments and municipalities, which
Speaker 1: is to just kick the can down the road as
Speaker 1: far as they can. And we see it in the
Speaker 1: pension space with very high expected returns for expensive hedge funds,
Speaker 1: and that ends up being matched with very low actual returns.
Speaker 1: What what's the what's the secret to good city government? Yeah,
Speaker 1: I just think it's they have the board. Of course,
Speaker 1: it's run by the board. Their three firemen, three policemen,
Speaker 1: and three people appointed by the city UM and they've
Speaker 1: just been uh, it's it's it's an extraordinary situation over
Speaker 1: the last forty five years. It's an extremely dedicated board.
Speaker 1: And I think here's one thing that I think has
Speaker 1: missed in this whole debate. And pick your number four
Speaker 1: or five trillion dollar underfunded, underfunded crisis average municipal fund.
Speaker 1: I think the funding ratio is um and you're in
Speaker 1: the nineties. It's I don't know, it's fully it's fully funded.
Speaker 1: But I think what they've done down there is they've
Speaker 1: realized what the they've never lost sight of what the
Speaker 1: core mission of this fund is. It's not to generate
Speaker 1: fees for layers and layers and layers of people. It's
Speaker 1: not to allocate assets to every asset class under the
Speaker 1: sun UM. It's to provide a good, stable retirement for
Speaker 1: these public safety employees. And to do that, um, they've
Speaker 1: and with their focus firmly on that, they've avoided a
Speaker 1: lot of the conflicts of interest. When you look at
Speaker 1: a lot of these funds, there's just enormous conflicts. And
Speaker 1: just to I can give you one small antidote to
Speaker 1: give you an example of how they stayed out of
Speaker 1: trouble back And I wasn't on board, but my father
Speaker 1: used to love to tell the story of the mayor
Speaker 1: down there in the the mayor of Tampa in the
Speaker 1: mid seventies. After he was mayor, he became chairman of
Speaker 1: a major insurance company and he made a presentation to
Speaker 1: the board to put uh quite a large percentage of
Speaker 1: the fund in an insurance products, guaranteed investment contracts, annuities,
Speaker 1: that kind of thing. And he thought he had it
Speaker 1: in the bag. He was, he was the mayor, He
Speaker 1: knew some of the city trustees, and soft the sales
Speaker 1: crew from New York came down in their fancy suits
Speaker 1: and they gave the presentation, and the board vited him
Speaker 1: down and it was just a stunner. Nobody could believe
Speaker 1: that the board. But what I mean, this never happens.
Speaker 1: I mean it usually funds like that are riddled with
Speaker 1: these kind of conflicts. Um. And they have always I
Speaker 1: mean not their exceptions every now and then the board met,
Speaker 1: But for the most part, it's extremely dedicated board that
Speaker 1: they've they've avoided the pitfalls and the conflicts of entry.
Speaker 1: You know, earlier we were discussing some of the pushback
Speaker 1: to your model of not using consultants, not using third
Speaker 1: parties who might add fees, no alternatives like hedge funds
Speaker 1: or private equity. Um. How unusual is that set up
Speaker 1: in the world's defension funds. It's unprecedented, exceedingly unusual. In fact,
Speaker 1: when the trustees go to these conferences, I mean I
Speaker 1: cringe a little bit. They go to these investor conferences.
Speaker 1: They're sponsored by consultants and everybody else, and they they're
Speaker 1: all always at these conferences, national conferences, and they're swarmed,
Speaker 1: of course by various service providers and what you can't
Speaker 1: have one manager that's FIDUCIALI you can't do this, rack Ins.
Speaker 1: And then I'm the former chairman of the board policeman.
Speaker 1: I used to love it. He would carry around the
Speaker 1: compounding any return his back pocket and he would just
Speaker 1: show it because my returns how you do, and they
Speaker 1: were just going, okay, well we'll see learning. So hey,
Speaker 1: can you keep up with this if you can't always start?
Speaker 1: I recall some time ago there was an article in
Speaker 1: the Wolf Street Journal about I want to say it
Speaker 1: was in Nevada. Somebody is managing a small pension fund
Speaker 1: and effectively he comes into the office each day with
Speaker 1: his crossword puzzle. Everything is in indexes. He doesn't do anything,
Speaker 1: and their core structure is is That's the only other
Speaker 1: example I'm familiar with of somebody approaching single manager, no consultant,
Speaker 1: no third party. But so now that's too Are there
Speaker 1: anybody else who remotely, even at least is thinking or
Speaker 1: looking at this sort of model? You know, it's funny
Speaker 1: because you would think, I mean, we have received a
Speaker 1: lot of national acclaim over the years because of the
Speaker 1: uniqueness and the performance. But the industry, there's the model,
Speaker 1: the consultant driven multimanager model. They have got such a
Speaker 1: stranglehold on the industry that they're really there is they're
Speaker 1: they're going halfway towards indexing. But in terms of of course,
Speaker 1: here's a little bit of indexing, and now let's are
Speaker 1: seeing a move towards that within the municipal arena, but
Speaker 1: a move towards a core, one core, unconstrained manager for
Speaker 1: the Bulkley assets. No, um it's it doesn't matter. The
Speaker 1: evidence can be so overwhelming and so powerful in terms
Speaker 1: of the potential benefits from a return standpoint for with feastandpoint,
Speaker 1: but um it's it's never accepted within that arena. And
Speaker 1: one question I always have, not that we're in this league,
Speaker 1: is that everybody says it's it's reckless and irresponsible and
Speaker 1: how can you do it? And there's one man And
Speaker 1: I'm always thinking in the back of mind, well, you know,
Speaker 1: Warren Buffett and Charlie Munger. There have two of them,
Speaker 1: and they manage but fifties. Not that we're in that league,
Speaker 1: but they manage fifty or sixty billion, and they're just
Speaker 1: two of them. I think it's even more than that.
Speaker 1: And yet and you don't hear the you don't hear
Speaker 1: the you know, we gotta we gotta break it up.
Speaker 1: We've gotta break it up, we gotta put some of that,
Speaker 1: we gotta there. There have been people who have suggested
Speaker 1: that over times, you know, you'll unleash a lot of
Speaker 1: value if we break up Berkshire Hathaway. That that sort
Speaker 1: of anytime there's a big pool of money, people are
Speaker 1: gonna look at it as an opportunity to capture some
Speaker 1: of it. And if we break up Berkshire Hathaway, my
Speaker 1: firm is ready to stand to garner a whole bunch
Speaker 1: of investment banking fees from the process. It's never coming
Speaker 1: out of academia. Objectively speaking, here here's why Berkshire Hathaway
Speaker 1: should be broken up. Um So, but you bring up
Speaker 1: a really valid point, which is the pushback has been
Speaker 1: pretty outrageous. There were accusations about it. They wouldn't go
Speaker 1: so far as to say fraud, but accounting issues and
Speaker 1: why do they change accounting so often I read about this.
Speaker 1: It's you, you're I'll let you defend it. But some
Speaker 1: of the pushback to this has been pretty It's incredible.
Speaker 1: You know, in the in the in the we do
Speaker 1: have a First Amendment and I love it. And we've
Speaker 1: got in the digital age and the you know, the
Speaker 1: free flow of information, the flow of information anybody, particularly
Speaker 1: in the bloggosphere and online. You know, you can say anything.
Speaker 1: It's out there, and it's funny it there's just we
Speaker 1: are the enemy to the to the standard conventional model
Speaker 1: that I think we're a threat. I think we're a it.
Speaker 1: And some of these their fee structured to the overall
Speaker 1: model itself, the model or model I think is a
Speaker 1: threat to the multi manager consultant driven model. And so
Speaker 1: there's been a concerted effort and this listen, we've heard this.
Speaker 1: My dad heard it throughout the seventies and eighties. I
Speaker 1: mean he he listened, He laid the groundwork. I mean,
Speaker 1: I'm the beneficiary of what he did. He he's the
Speaker 1: one that had to get bloody back in the seventies
Speaker 1: and eighties when man, they were coming after that fund,
Speaker 1: even though it wasn't as big, they were coming after
Speaker 1: it like you wouldn't believe. But what happened was the
Speaker 1: results were so good that all of a sudden, the
Speaker 1: city started being on our side because the city. It's
Speaker 1: great for the city. When then they were they were
Speaker 1: able to cut taxes, so they became allies. Let's talk
Speaker 1: a little bit about your investing style and and where
Speaker 1: we are in the market cycle. You describe yourself as
Speaker 1: a top down thematic investor. What what does that mean? Yeah?
Speaker 1: And one important thing to know with this relationship, which
Speaker 1: is a pretty extraordinary being typed down in thematic were
Speaker 1: able to really in the board allows us to focus
Speaker 1: on the real long term and I mean real long term.
Speaker 1: They actually, and I can say this with a straight face,
Speaker 1: and they would tell you with a straight face, they
Speaker 1: take a twenty year investment. They really do, which makes
Speaker 1: sense for a pension fund. Just most don't. The actually yeah,
Speaker 1: and the actuaries love the twenty years because that's the
Speaker 1: kind of the average snapshot of a career of a
Speaker 1: public safety But the reason we take a twenty year
Speaker 1: is that we found that there hadn't been a twenty
Speaker 1: year period that has not included a bull market and
Speaker 1: a bear market, and a recession, and a speculative bubble
Speaker 1: and a war, I mean throughout the financial history. Um,
Speaker 1: we love. I think that's a great time frame to
Speaker 1: measure the competency of a manager in all time periods.
Speaker 1: And we can show now every every October when I
Speaker 1: go down there to the review of the fiscal year,
Speaker 1: which is there on a September physical, we show another
Speaker 1: twenty year rolling setup performance data. And right now we
Speaker 1: can show twenty five sets of twenty year rolling performance
Speaker 1: and you can show really good out performance for each
Speaker 1: of the twenty years segments. So they've allowed us to
Speaker 1: take a twenty year approach and it ties into the
Speaker 1: top down thematic. And just to give you a couple
Speaker 1: of examples, when I say thematic and top down, we're
Speaker 1: looking we're trying to look at a variety of particularly
Speaker 1: on the policy front, tax policy, trade policy, physical policy,
Speaker 1: regulatory policy, international policy, even foreign policy. What does that
Speaker 1: mean to financial assets, what does it mean to stocks,
Speaker 1: what does it mean to bonds? Um. It's funny, as
Speaker 1: I said earlier, they're all kind of different ways to
Speaker 1: do this. I remember Peter Lynch, who I just thought
Speaker 1: was great. I remember him saying, you know, if I
Speaker 1: spend five seconds on economics, it's five seconds too much.
Speaker 1: He was bottom up and he was thinking, you know,
Speaker 1: they're they're people all kind of successful ways to do this.
Speaker 1: We've just always focused on the on the top down.
Speaker 1: I mean, just to give you some examples. In the
Speaker 1: early eighties, Uh, it was really important to focus on
Speaker 1: the monetary and the tax in terms of what that
Speaker 1: might mean for inflationary expectations, for interest rates, um, for
Speaker 1: various industry of sector. In industry categories. For instance, my
Speaker 1: father determined after Valker came in that we were gonna
Speaker 1: that he was going to break the back of inflation.
Speaker 1: And I can remember him showing me some charts, Uh,
Speaker 1: Coca Cola, Campbell Suit flatline. They had flat lined for ten, fifteen,
Speaker 1: twenty years. That's because of the inflation. The ravages of
Speaker 1: inflation had really hurt heavily compend they had done nothing,
Speaker 1: and it was his view that this was the time
Speaker 1: to really start shifting our emphasis to the staples area,
Speaker 1: to household product companies into food companies like Coca Cola
Speaker 1: and Campbell Suit propctory game with those kind of companies.
Speaker 1: And so that flowed from the top down viewpoint on
Speaker 1: inflation and then the other side of it what we
Speaker 1: talked about the deregulation, but what was going on on
Speaker 1: the tax front in terms of you had taxed the
Speaker 1: Tax Form Act of nineteen eighty and then you had
Speaker 1: the second round in n six which brought the top
Speaker 1: marsin right down to believe it or not, and you know,
Speaker 1: brought in the base, did away with a lot of
Speaker 1: deductions and credit, made for a much more efficient productive
Speaker 1: um system that raised real growth. We thought with the
Speaker 1: top down analysis that we did, that we were we
Speaker 1: were in for a period of much faster real economic
Speaker 1: growth because of an increase of incentives for work and
Speaker 1: risk taking, an investment capital formation. And so number one,
Speaker 1: we thought the emphasis that you could really start focusing
Speaker 1: on stocks common stocks. Again, as I said from six
Speaker 1: eighty two, the real return on stocks was negative. So
Speaker 1: it was a matter of from a top down standpoint, Okay,
Speaker 1: we like common stocks, and then within the common stock arena,
Speaker 1: which sectors, which industries, which sectors are going to benefit
Speaker 1: from these trends. Um As we moved into the nineties,
Speaker 1: um the top our, top down work indicated that okay,
Speaker 1: here we go, this is really an integrated and related
Speaker 1: global economy. So let's focus on these companies that have
Speaker 1: a strong strategic international business plan. And I can remember
Speaker 1: in nine nine seeing the cover of Fortune magazine. Jack
Speaker 1: Welts was on the cover in that ended up being
Speaker 1: one of our and I remember reading that article and thinking, Wow,
Speaker 1: this guy really has a great business plan. Management was
Speaker 1: really important to us, and I think the stock rose
Speaker 1: four thousand percent during his tenure to two thousand. The
Speaker 1: timing was perfect, so Welch on the industrial side, ruben
Speaker 1: Mark on the consumer side at Colgate Colgate Um late eighties,
Speaker 1: early nineties, just they were better known overseas and they
Speaker 1: were in this country. UH, they were a bigger player
Speaker 1: in Asia that they were in the U. S UM.
Speaker 1: So that ended up being one of our biggest consumer holdings.
Speaker 1: G ended up being one of our biggest UH industrial holdings.
Speaker 1: And that flowed from the top done work we did
Speaker 1: in terms of during the nineties this move towards an
Speaker 1: integrated and related global economy. Late mid to late nineties
Speaker 1: it turned more into a out of hot tech innovation,
Speaker 1: risk taking entrepreneurship. Who was going to benefit from that?
Speaker 1: But I'll tell you what was really important from a
Speaker 1: top down standpoint during the nineties and UM is was
Speaker 1: I remember Greenspan given Humphrey Hawkins testimony. I'm saying that
Speaker 1: we have reached a point of price stability, and we
Speaker 1: think the economy can grow at above trend um at
Speaker 1: price stability, which was a dagger through the Phillips curvers
Speaker 1: um and and the Philips curve has reflected that ever since.
Speaker 1: That was so important. That was a great moment that
Speaker 1: he would let it run, and he did let it run.
Speaker 1: That was from a top down perspective, that was very important.
Speaker 1: Let let me throw some of your own quotes that
Speaker 1: you and and have you, um respond or explain some
Speaker 1: of them, because a few of these are quite fascinating. Quote.
Speaker 1: We could be in the early stages of a move
Speaker 1: by business away from an obsession with financial engineering and
Speaker 1: bottom line earning his growth towards business investment and top
Speaker 1: line growth. Uh, explain what you mean by that? And
Speaker 1: are we seeing any evidence of that yet? Yeah? I
Speaker 1: think we. I think we're in the early stages of
Speaker 1: seeing some evidence. You know, during most of the two thousand's,
Speaker 1: particularly post financial crisis, UM, you had a very sluggish
Speaker 1: economic growth situation, way below trend from a real growth standpoint,
Speaker 1: and you just had there was this obsession, I mean,
Speaker 1: a daily obsession with corporate America, with streamlining, with downsizing,
Speaker 1: with stock buybacks, just ringing, ringing, ringing. The costs. It's
Speaker 1: all on the call side to generate that EPs. Forget
Speaker 1: the top line. You know, we're not gonna worry about
Speaker 1: the top line right now. Well, but we're still seeing
Speaker 1: a ton of stock backs today. You're still seeing a
Speaker 1: lot of that. But my view is that. UM, we're
Speaker 1: on the verge of a pickup in in UM business investment,
Speaker 1: in capital spending and business fixed investment, where the focus
Speaker 1: is going to be more on growing the top line
Speaker 1: because the you have another era here where we're moving into.
Speaker 1: There's a lot of deregulation going on. We've got tax
Speaker 1: reform that's happened on the corporate not so much on
Speaker 1: the individual side, but a big cut on the corporate side.
Speaker 1: They showed on the corporate side, and I think we
Speaker 1: need to give it time. I think people are being
Speaker 1: premature to say, oh, yeah, that and let its having
Speaker 1: results in. I think it's just starting to see inklings, uh,
Speaker 1: particularly the capital spending. And and here's the kicker, we
Speaker 1: could be in for another burst of productivity growth. You
Speaker 1: know we've been it's been woefully under trend for a
Speaker 1: long time. And how much of that is a measurement
Speaker 1: issue and how much of that is genuine lack of
Speaker 1: gains and productivity. There's probably a little bit of both.
Speaker 1: But UM, I mean, just to give you the example,
Speaker 1: business fixed investment UM during the last decade or so,
Speaker 1: it's been about half of the norm. And you know,
Speaker 1: you're just starting to see some pickup. Now say that
Speaker 1: again business fixed and kind of capital spending plant is
Speaker 1: half of normal. Um, wow, it's been the growth has
Speaker 1: been about the growth has been about half of normal.
Speaker 1: But you're just starting to see and productivity has been
Speaker 1: woefully inadequate, under one percent, where the post war War
Speaker 1: two averages closer to two. We had that burst in
Speaker 1: the ninety late nineties it was two point five two
Speaker 1: point eight. First quarter year on year productivity growth was
Speaker 1: two point four. This is about a ten year high. Yeah,
Speaker 1: so I think it's too early to I mean, I
Speaker 1: just we're starting to see someone you want to see
Speaker 1: a trend there that and and that, let me tell
Speaker 1: you that is the silver bullet productivity growth. That's the
Speaker 1: silver bullet for um wage real wage growth, for employment growth,
Speaker 1: for corporate um earnings and active mean, it's it's it's
Speaker 1: so important. It ties into one of our themes top
Speaker 1: down themes currently, which is the Fourth Industrial Revolution. So
Speaker 1: that was literally the next question I was going to
Speaker 1: ask you what is the Fourth Industrial Revolution? How does
Speaker 1: what does it mean? And how would we position our
Speaker 1: cells for that? Well, Yeah, as I say, I mean,
Speaker 1: I think it really could have an impact on economic
Speaker 1: growth and on productivity growth and really UM, I guess
Speaker 1: you could say an kind of an extension of the
Speaker 1: Third Industrial Revolution, which was more focused on information technology computers. Uh.
Speaker 1: The burst of productivity growth in the nineties was more
Speaker 1: computer hardware and software UM oriented. I mean you might
Speaker 1: remember the four horsemen, Microsoft and Cisco and Dell an Intel, UM,
Speaker 1: that was kind of the core there. UM. Now what
Speaker 1: we're seeing is uh some fully important, fascinating new industries
Speaker 1: that could have a big impact on economic growth. Profe
Speaker 1: official intelligence, UM, robotics um UH, information automation, high tech automation, UH,
Speaker 1: information technology, quantum computing, three D printing. You got a
Speaker 1: whole a rate five G the five G UH area
Speaker 1: where it's the fifth generation of wireles networks coming um
Speaker 1: industrial automation. So there's just some areas that uh, we're
Speaker 1: really focusing on companies that are involved in these areas
Speaker 1: because we think some of them some of it has
Speaker 1: already started, but some of it there's probably a few
Speaker 1: years away in terms of coming to fruition. But we
Speaker 1: think that we're poised when you when you when you
Speaker 1: mix these potential new technologies with the backdrop from a
Speaker 1: deregulation and tax standpoint where we've increased in cinemas for
Speaker 1: capital formation and for new business development. I think when
Speaker 1: those two intersect, we could be in for a good
Speaker 1: burst of productivity growth. We have been speaking with j
Speaker 1: Bowen of Bowen, Haines and Company. If you enjoy this conversation,
Speaker 1: we'll be sure and come back and check out the
Speaker 1: podcast extras. Will we keep the tape rolling and continue
Speaker 1: discussing all things pension investing relating UH You can find
Speaker 1: that at iTunes, overcasts, Bloomberg dot com, Stitcher, uh spot five,
Speaker 1: wherever final podcasts are sold. We love your comments, feedback
Speaker 1: and suggestions right to us at m IB podcast at
Speaker 1: Bloomberg dot net. Check out my weekly column on Bloomberg
Speaker 1: dot com. Follow me on Twitter at Ridolts. I'm Barry Ridhults.
Speaker 1: You're listening to Masters and Business on Bloomberg Radio. Welcome
Speaker 1: to the podcast, Jay. Thank you so much for doing this.
Speaker 1: I was quite fascinated by your background and the whole story.
Speaker 1: Just I am clearly confirming my priors because you land
Speaker 1: right in the sweet spot of my pre existing beliefs.
Speaker 1: Most stuff is too expansive. Consultants don't add any value. Um,
Speaker 1: most pension funds would be better off doing a simpler
Speaker 1: stock and bond portfolio as opposed to owning hector acres
Speaker 1: of forest land in Canada and private equity. But that's
Speaker 1: head um. But those wine vineyards in California, well you
Speaker 1: get to go on vacation swing by Hey, I'm one
Speaker 1: of the owners. You get the v I P treatment
Speaker 1: on the backs of whoever the year. We say that
Speaker 1: we are unconventionally conventional. I like that expression, the unconventionally
Speaker 1: conventional pension fund. And you're not in Tampa. You're located
Speaker 1: in Atlanta. You've been there most of your whole life?
Speaker 1: Is that right? Pretty much? We the firm has actually
Speaker 1: started My father started the form in North North Carolina
Speaker 1: in nineteen seventy two. Is that what you grew up?
Speaker 1: Born Atlanta, moved to North Carolina, then moved back to Atlanta,
Speaker 1: relocated the firm back in Atlanta in the late seventies.
Speaker 1: So I've been to Atlanta a number of times, and
Speaker 1: I have to tell you very surprisingly impressive barbecue. But
Speaker 1: I know there's like a little bit of a barbecue
Speaker 1: controversy going on in Atlanta. Now, what's happening there. Well,
Speaker 1: of course, the real controversy is North Carolina. I mean
Speaker 1: that's the core, that's the core rage in debate that
Speaker 1: even gets physical. You know, you've got the three regions, uh, Central,
Speaker 1: Western and Eastern the Eastern, and what is the debate,
Speaker 1: And it's the sauce Do you want or vinegar is
Speaker 1: that vinegar based? Which is the Eastern? Do you want
Speaker 1: mustard base which is or do you want the more
Speaker 1: traditional tomato base that molasses tomato base that's sweet caramelized over.
Speaker 1: But you're right about Atlanta. They've got all of them.
Speaker 1: They've got all three. You can make. You can take
Speaker 1: your choice. So I didn't realize this issue, this controversy
Speaker 1: erupted in North Carolina. I think that's the kind of
Speaker 1: the core. And people have come to blows over particularly
Speaker 1: Eastern versus the Central. You know, see, I'll get in
Speaker 1: a fight over someone over the mustard the vinegar base.
Speaker 1: Those people can get violent the vinegar base. My mother
Speaker 1: was born in Rocky Mountain, North Carolina, and she she
Speaker 1: would even get violent with me if I didn't want
Speaker 1: the Eastern I mean, you know over, yeah, you got it.
Speaker 1: And this is this is really a real thing. This
Speaker 1: is not This is going on still to this day,
Speaker 1: it's all fun and games until somebody loses an it's
Speaker 1: all fun and games still the vinegar sauce comes out,
Speaker 1: then there's real. Uh, there's real trouble. Amazingly, New York
Speaker 1: actually now has decent barbecue, but mostly when people transplant
Speaker 1: here from from Texas or Tennessee or somewhere and will
Speaker 1: open up a not a New York City barbecue, but
Speaker 1: a barbecue joint in New York City. And there are
Speaker 1: a few smokers here. Um. Also in Long Island City
Speaker 1: there's this big you walk three blocks away, you can
Speaker 1: smell brisket. It's really really good. So um, you're back
Speaker 1: and forth to to Tampa. You're managing a number of
Speaker 1: other Florida pension funds. Um. Where else in the world
Speaker 1: are you, um managing money for either pension funds or
Speaker 1: other clients. We're small, we're streamline. We've got about three
Speaker 1: billion under management, about a hundred twenty relationships. We UH foundations,
Speaker 1: endown the funds, UH profit sharing plans, pension plans, municipal funds,
Speaker 1: and family groups. UM. We're not marketing oriented. UM, we're
Speaker 1: not an asset gatherer who allocates the assets to other
Speaker 1: managers to pool funds, and we actually manage each account
Speaker 1: individually and pick the stocks or stocks and bonds if
Speaker 1: it's a balanced account, and the business comes through referrals.
Speaker 1: And we just my father decided a long time ago,
Speaker 1: you know, instead of having an aggressive marketing effort, maybe
Speaker 1: we could have been a lot bigger, we would just
Speaker 1: focus on the investment side and rely on referrals for
Speaker 1: new business. And those are very satisfied relations very satisfying relationship.
Speaker 1: Um and long the our average client has been with
Speaker 1: us years. We've got some four I mean, so when
Speaker 1: somebody comes on board with us, it's from a very
Speaker 1: high level, it's from a referral, and typically they're gonna
Speaker 1: be with us for decades. So do all the portfolios
Speaker 1: look alike when you're buying individual stocks? Do you run
Speaker 1: into an issue where I remember running into a trouble
Speaker 1: with Visa when we were buying it at sixty eight
Speaker 1: and two years later it was two d Do you
Speaker 1: does every portfolio look alike or do you have to
Speaker 1: take into an account, Um, hey, we can't buy stock
Speaker 1: X y Z for this account because it's so much
Speaker 1: pricier than it was when we were buying it. For that, Yeah,
Speaker 1: I mean we do try to justify our holdings all
Speaker 1: the time. We're constantly trying to justify. And what my
Speaker 1: favorite thing to do, particularly when you're taking a twenty
Speaker 1: year approach, and we've done this in Tampa on numerous occasions,
Speaker 1: is to take the cost out of the stock. You know,
Speaker 1: say we bought Visa and our cost in it was
Speaker 1: ten million and now it's worth forty million. I love
Speaker 1: taking the profits and taking the cost out um and
Speaker 1: reducing So in other words, pull ten million, let's a
Speaker 1: thirty million run if it still fits into our top
Speaker 1: down apprecasion, if the numbers still look good. Most of
Speaker 1: our portfolios, I mean they're individually managed, so they're gonna
Speaker 1: look a little different. Could just as you say, from
Speaker 1: a timing standpoint, ESA might look good one day and
Speaker 1: not five years later from evaluation standpoint. But the vast
Speaker 1: majority of our clients are very philosophically compatible, high quality,
Speaker 1: long term oriented. Some of them maybe a little more
Speaker 1: income oriented. Some of them are balanced. They want to
Speaker 1: balance a prodech. They're gonna look a little different. But
Speaker 1: the typical institutional portfolio is gonna look very similar. Um.
Speaker 1: So we mentioned um spending, you spend a lot of
Speaker 1: time thinking about FED policy as part of the top
Speaker 1: down approach. Um, we're recording this literally on the day
Speaker 1: that there's a FED meeting. What what do you think
Speaker 1: about this pressure on the FED to lower rates? Should
Speaker 1: the FED really be a fully independent entity? Or should
Speaker 1: they you know, respond to the political pressures, Um, both
Speaker 1: from Congress and the White House. They should certainly be independent. Um.
Speaker 1: What would keep me up at night would be if
Speaker 1: Congressional committee chairs were deciding FED policy. Would that would
Speaker 1: not be a good a good model. I do think
Speaker 1: the FED really needs to be uh shaped, shaking up
Speaker 1: we need. I just think the models are flawed. Um.
Speaker 1: If you go back to nineteen thirteen, UM, I think
Speaker 1: that there august reputation belies their record. Okay, well aren't
Speaker 1: especially good. It ain't pretty. I mean you're at the
Speaker 1: nineteen thirteen and they presided over a double of doubling
Speaker 1: of prices during World War One. If you believe in
Speaker 1: Freedman Schwartz monetary theory, which I do, the definitive history,
Speaker 1: they were the most responsible for the Great Depression. They
Speaker 1: presided over the doubling of prices during World War Two,
Speaker 1: they financing in place of the seventies. UM. I just
Speaker 1: I think they need some new models, some new thinking,
Speaker 1: and I'm very encouraged that they're on it. They are
Speaker 1: on it. They're looking at you got particularly Williams and
Speaker 1: and Pal. Also. I think that Pal has said more
Speaker 1: than once that he is convinced that the Phillips curve
Speaker 1: is dead. UM. He gave a very important speech in
Speaker 1: Jackson Whole last year, last August, where he addressed that issue.
Speaker 1: You're you're you're you're having. I mean, you got Williams
Speaker 1: with the flexible inflation, flexible targeting, You've got there there,
Speaker 1: there's talk about price rule, there's talk about nominal g
Speaker 1: D P P growth targets. I just think it's time
Speaker 1: to shake it up. Now. What I would like to
Speaker 1: see him do, and which is why I think they
Speaker 1: should lower rates. I really would like them to focus
Speaker 1: on price stability UH and and a stable dollar, stabilizing
Speaker 1: the dollar. And if you look at these forward looking
Speaker 1: price signals, and I'm talking about the yield curve and
Speaker 1: I'm talking about commodity prices UM, and I'm talking about
Speaker 1: the far and exchange value of the dollar. They're all
Speaker 1: saying the FETE is too tight, right. The yield curve,
Speaker 1: if you look at the five year and the three months,
Speaker 1: it's been inverted for a full quarter, and the ten
Speaker 1: year briefly inverted, and more or less it's not especially steep.
Speaker 1: And I don't know if by the time people are
Speaker 1: listening to this, the ten year versus the three month
Speaker 1: is inverted, but it's certainly sending a warning signal it is.
Speaker 1: And listen, I know that's not a secret. That's pretty
Speaker 1: well publicized, the inverted YOL curve. But it's only given
Speaker 1: one false signal in post war in the post War
Speaker 1: two era. And the thing is that the lash can
Speaker 1: be very long and variable in terms of terms of
Speaker 1: what it means, but we're focused on that. I think
Speaker 1: that they can engineer a soft landing. I do. Uh.
Speaker 1: The question right now is is this gonna look like
Speaker 1: nine where they raised rates They almost inverted the curve.
Speaker 1: They raised rates in February, then they cut rates in July.
Speaker 1: I believe the curve was about invert and then we
Speaker 1: were off to the races. They did not invert the curve.
Speaker 1: Is it gonna look like that, or is it gonna
Speaker 1: look like two thousand seven where they just sat idly
Speaker 1: by when the curve was inverted. They waited, waited, waited,
Speaker 1: or worse than that seventy four where you had an
Speaker 1: inverted YOL curve and they kept raising rates. I don't
Speaker 1: think we're in for that because the inflationary expectations are
Speaker 1: so benign. UM. I do think they need to cut UM.
Speaker 1: I think they will. It would be our preference again
Speaker 1: for them to focus on forward looking price signals, stable
Speaker 1: dollar UM. I would prefer them to be aggressive on
Speaker 1: the front end UM, so they can be hawkish on
Speaker 1: the back end UM. I'd like to see him move
Speaker 1: fifty at this next meeting UM, because I think if
Speaker 1: they don't, if they go too slow, they're gonna still
Speaker 1: be behind the curve. I mean, if you look at
Speaker 1: the natural it's it's almost like the natural rate that
Speaker 1: you know you hear about the Wicksillian natural rate is
Speaker 1: moving down, is trending down faster than the policy rate
Speaker 1: is training down. So for them to catch up, they
Speaker 1: need to get get ahead of that. How do you
Speaker 1: reconcile the different signals from the stock market, which keeps
Speaker 1: making new all time eyes and the bond market, which
Speaker 1: is saying, hey, an economic slowing is coming. Yeah. I
Speaker 1: think the stock market is discounting a soft landing. There's
Speaker 1: no question. I mean, earnings, earnings have been flat this year,
Speaker 1: and the market is mean surprising, right, it's um And
Speaker 1: then the bond market is complete as you know, I mean,
Speaker 1: it's completely rolled over. I think no growth expectations have
Speaker 1: really trended down. Real rates have trended down. Uh, it's
Speaker 1: just signaling a reduction in the Wixillian natural rate of interest, reduction,
Speaker 1: a nominal growth expectations. There's just it's just no question
Speaker 1: there's been a slowing and the FED needs to acknowledge
Speaker 1: that and get out ahead of this thing. Is this
Speaker 1: a global slowing that's affecting the United States trade war
Speaker 1: or whatever, or is this just a natural deceleration of
Speaker 1: the U s economy following the expansion since well, you
Speaker 1: know what, I think the Fed made a mistake in
Speaker 1: twenty particularly in eighteen. They were just too tight. You've
Speaker 1: had nine rate increases, um, you've had they took with
Speaker 1: quantitative of tightening, they took about southern billion out of
Speaker 1: the system. They're just it was just that combination, because
Speaker 1: you can't we can't say rates are too are very
Speaker 1: now they're not. And but you know what, a lot
Speaker 1: of people look at it just from an absolute standpoint
Speaker 1: and think, oh, well, race stuff, But you know it's
Speaker 1: always relative. It's all relative. It's where they came from.
Speaker 1: I just think they moved too far, too fast. But
Speaker 1: I have to say I think that's the main reason.
Speaker 1: Then you've got this this trade disputes a big overhang
Speaker 1: that needs to be sorted out. UM from a global
Speaker 1: economic growth standpoint, I've got to give Pal a lot
Speaker 1: of credit. Though this has been overshadowed by the policy
Speaker 1: rate debate. He acknowledged back in May that the QT
Speaker 1: that it was too much and they're gonna they're really
Speaker 1: ratcheting that back now, the QT. So the liquidity situation
Speaker 1: is just starting to improve. Prove if you look at
Speaker 1: the numbers I saw on M two growth on reel
Speaker 1: and one growth, the aggregates, the monetary aggregates are starting
Speaker 1: to stabilize and even trend up now. So people haven't
Speaker 1: really a lot of UM policy wants are focusing on
Speaker 1: the rates. They're not focusing on quantitative Titan exactly exactly
Speaker 1: you think that's as significant as the rates. I do.
Speaker 1: I do, and I think Pal deserves credit. I think
Speaker 1: Pal is kind of an unsung hero in a way.
Speaker 1: I mean, Number one, that speech he gave at Jackson
Speaker 1: Hole last August, where he basically said that fits the
Speaker 1: Phillips curves. It's done, it's done. I think that's a
Speaker 1: huge stride. It's a big admission for the FED anyway. Yeah,
Speaker 1: and then uh, you know Poal is pragmatic. He's pragmatic.
Speaker 1: You know, he's he's a business, he's he's and this
Speaker 1: on the QT. I think that's important that they're doing that.
Speaker 1: I think the FED has some great innovative thinkers now
Speaker 1: and I'm encouraged that they're looking at these new models
Speaker 1: that they're open to that that the I think they
Speaker 1: realized that some of these models are backward looking and
Speaker 1: not particularly effective. So I'm encouraged that it's on the table,
Speaker 1: and I hope they'll move to more of a rules
Speaker 1: based approach, either a price rule, which is what we
Speaker 1: had we kind of had to de factor price rule
Speaker 1: back in the eighties Wayne Angel and man Mannie Johnson.
Speaker 1: It was kind of a commodity price rule, and then
Speaker 1: with Greenspan, who was very good on the Phillips curve. Um,
Speaker 1: I've I've warmed to a nominal DDP growth target. Maybe
Speaker 1: that kind of thing. But the important thing is they're open,
Speaker 1: and they're looking, and they're examining, and they're exploring maybe
Speaker 1: some new models. I think that's important. I'm curious as
Speaker 1: to your thoughts about something. I was given President Trump's
Speaker 1: um desire for low interest rates, and he said this repeatedly,
Speaker 1: at least since he's been elected. Previously he was against
Speaker 1: low interest rates, but once he took the office, Hey,
Speaker 1: everybody likes low interest rates. I was very surprised that
Speaker 1: both Powell and Clarada, were two well known inflation hawks,
Speaker 1: were appointed his chair and vice chair. What what are
Speaker 1: your thoughts on that? And how have they adopted two
Speaker 1: adapted to the current situation. I've you know what I've got.
Speaker 1: I've got a lot of faith in both those guys.
Speaker 1: I mean, Claradas he's got a great background this aside,
Speaker 1: and on the academic side, he's just not a academic. No,
Speaker 1: he's a rock star world deal um and Pal's very pragmatic. Two, So,
Speaker 1: I you know, I don't know who's pulling the strings
Speaker 1: on these fat appointments exactly. But I like the idea
Speaker 1: of shaking it up, shaking the institution up. I know
Speaker 1: the Steve warm and Kane didn't work out well. Those
Speaker 1: were kind of real outlier, But the Judy Shelton and
Speaker 1: the St. Louis. Isn't she a hard money? Is a
Speaker 1: gold Bug traditionally has been. But if you but if
Speaker 1: you listen to her recent interviews and testimony, and I'll
Speaker 1: be looking forward to the testimony. I mean, I think
Speaker 1: she's on it in terms of these pod look at
Speaker 1: these price signals and what they I just I like
Speaker 1: the idea of shaking the institution. I really do, even
Speaker 1: with the gold Bug. And by the way, by the way,
Speaker 1: when it's all said and done, Trump will have appointed
Speaker 1: six out of seven. That's that's it's it's fed for
Speaker 1: better or worse, snow getting away with that. I'm like you,
Speaker 1: I'm impressed with pal. I'm very impressed with Clarada. The
Speaker 1: leadership is is important, and I think they may be
Speaker 1: his two best appoint across across the board. So I
Speaker 1: have two specific portfolio questions I don't want to before
Speaker 1: we get to our favorite questions. In our speed round.
Speaker 1: I don't want to pass these two by. The first is,
Speaker 1: given your your focus on stocks and bonds, how do
Speaker 1: you think about position sizing? How significant is that, How
Speaker 1: concentrated are you? Um? Typically, how many holdings do you have?
Speaker 1: And when you add a position or add to a position,
Speaker 1: how big or small does that? Usually get yeah and ten.
Speaker 1: The Tampa model typically typically will have about fifties sixty
Speaker 1: conk stocks with the balance and bonds. And importantly on
Speaker 1: the bond side of the portfolio, we haven't talked about it,
Speaker 1: but it's strictly there for income in stability. It's a
Speaker 1: timing strategy based on interest rate anticipation, where uh, it's
Speaker 1: a very conservative bond portfolio. They have to be securities
Speaker 1: have to be readed a or better, which keeps them
Speaker 1: out of a lot of trouble. So treasury corporates and
Speaker 1: very plain boring COG quality, pure interest rate anticipation strategy,
Speaker 1: buy and hold. We're not trading a lot of people
Speaker 1: in the business. I see they don't realize how much
Speaker 1: money can be lost on the bond side. I mean
Speaker 1: it can be very very risky. So the bonds we're
Speaker 1: taking enough risk on the stock side, which we don't
Speaker 1: need to do anything on the bond side. It's that
Speaker 1: very very boring and quality oriented. The stock side typically
Speaker 1: fifty to sixty. Uh, nobody will accuses of being a
Speaker 1: closet indexer. And our smaller accounts usually thirty common stocks
Speaker 1: and Tampa is bigger, so it's really more fifty to sixty.
Speaker 1: How big can anyone position get? And typically we'll let
Speaker 1: them run and love to take the cost out um. Certainly,
Speaker 1: if it gets to a point where it's representing, you know,
Speaker 1: three four of the total equity portfolio, it really alerts
Speaker 1: us to thinking that we need to scale back some.
Speaker 1: But as long as the as long as the fundamentals
Speaker 1: remain in place in the we're enthusiastic about the long
Speaker 1: term value, then we have We never just sell it
Speaker 1: just because it's doubled, tripled, you know, it's always hopefully
Speaker 1: it's in perpetuity, that's what. And there's still some remnants
Speaker 1: in that portfolio from nineteen seventy four. But you have
Speaker 1: holdings that you're dad porches. You still have insult there.
Speaker 1: I mean there's not a lot, but there's there's some
Speaker 1: Coca Cola. The guests and Proctor, proct and Gamble. You know,
Speaker 1: Gillette was a big holding and Proctor bought Gilette. I mean,
Speaker 1: my father always he always joked again, not that we're
Speaker 1: in this league, but he said, you know, we were
Speaker 1: on Coca Cola and Gillette four or five years before
Speaker 1: Warren Buffett was well, you can thank him for help
Speaker 1: driving me the appreciation of and and my last of
Speaker 1: these questions, So the past decade is seeing huge inflows
Speaker 1: to passive indexing. Um, how do you think about this
Speaker 1: impacting what you do? Does it help your process? Does
Speaker 1: it heard it? Does it create more opportunities? How do
Speaker 1: you look at the passive index with a twenty year
Speaker 1: approach that gives us time to re establish an equilibrium.
Speaker 1: I think over a short term it concerns me in
Speaker 1: terms of the increased volatility. And I think that over
Speaker 1: I saw some data was a hazing high frequency trading
Speaker 1: now accounts forever half the volume on the New Mark
Speaker 1: stock Exchange. I mean, I think there's some unintended consequences
Speaker 1: that are gonna occur when we have the next bear market. Um,
Speaker 1: I mean there's a potential toxic and when does that start?
Speaker 1: You know, the FED can engineer that soft landing. I
Speaker 1: think we're mid cycle, so so, in other words, this
Speaker 1: could be a really extended economic cycle. Of about that
Speaker 1: Washington seminar I went to in nineteen eighty six. One
Speaker 1: of the speakers was Beryl Sprinkle, and he was Reagan's
Speaker 1: count Chairman of the Council of Economic Advisors. He said
Speaker 1: something that I've never forgotten, and you hear it a
Speaker 1: lot now, but back then it was the first time
Speaker 1: I had heard it. He said, you know, economic expansions
Speaker 1: don't die of old age. They dive in apt policies
Speaker 1: and typically it's emanating from the Fed. Um. So just
Speaker 1: because we're level overtightening and on the market side, investor
Speaker 1: classic since World War Two when the curves inverted eighty
Speaker 1: five percent of the time we have a recession at
Speaker 1: a beer market. I mean, that's just the deal. You know,
Speaker 1: stop start, stop start um. But it's not age, and
Speaker 1: we're we just started the eleventh year this expansion. There's
Speaker 1: no reason we can't be midside, mid cycle if we
Speaker 1: handle the policy side correctly. Um so what Australia's just counting,
Speaker 1: that's right, But the quantum, the passive, it concerns me
Speaker 1: that so much now is computerized and technical. Um as
Speaker 1: somebody said, um to to harness the wisdom of crowds,
Speaker 1: you actually need a crowd, you know, the price discovery UM,
Speaker 1: the fundamental valuation analysis. It's just it's not it's so
Speaker 1: much of it is automatic, the combination of the past investing,
Speaker 1: the e t f s, the index funds. If the
Speaker 1: algorithms have a predisposed notion to buy, they can also
Speaker 1: it can also be on the sell side. And so
Speaker 1: when you have you could really have some outside, outside
Speaker 1: sized moves on the upside and the downside. I just
Speaker 1: suspect they're going to be some unintended consequences of this
Speaker 1: massive move into passive into algorithms that I think during
Speaker 1: the next bearer market could really be somewhat disconcerting. Now,
Speaker 1: over the long term, I don't think it matters, because
Speaker 1: there'll be a equilibrium re established and it'll it'll sort
Speaker 1: itself out. Go too high, it'll go too low. But eventually,
Speaker 1: I tell you, I really feel for the individual investor,
Speaker 1: and I think it's one of the reasons individual investors underinvested.
Speaker 1: This volatility is just can keep you up at night.
Speaker 1: I mean, it's just incredible in terms of what it
Speaker 1: means just uh psychologically to watch this volatility that can
Speaker 1: and a lot of it's because of passive I mean
Speaker 1: you can see it on the tape when when when okay,
Speaker 1: we're gonna sell this bang. You know, it just depends
Speaker 1: on the so and it comes out of nowhere. The
Speaker 1: fourth quarter of really was a wake up call for
Speaker 1: a lot of people, right um there. One interesting point
Speaker 1: I'll make is that the piece for Barons on the
Speaker 1: twentyear Investment Approach and somebody answered online and said, you
Speaker 1: know their Fideli broker said the best account he ever
Speaker 1: had with somebody that forgot he had the e I've heard,
Speaker 1: I've heard jokes like that, and it's it's absolutely true.
Speaker 1: So let me jump to my favorite questions. In our
Speaker 1: our speed rounds, we ask all our guests this and
Speaker 1: we always get some pretty interesting um answers. What was
Speaker 1: the first car you ever owned? Year making model? First
Speaker 1: car was a nineteen sixty nine sable brown oz Babile
Speaker 1: Delta AD, a two door with a rocket four fifty engine.
Speaker 1: That was a lanyard, wasn't that? That was a giant
Speaker 1: I remember the very heavy but a strong engine it
Speaker 1: had it had it had a vinyl top, and on
Speaker 1: one road tip the wind got up under the top,
Speaker 1: off the whole thing. Another fine General Motors product. UM
Speaker 1: tell us the most important thing we don't know about
Speaker 1: Jay Bowen Gosh, I would say that my very first
Speaker 1: job was selling vibrating pillows. I don't know how, I
Speaker 1: don't know how many people know that vibrating pillars. Vibrating
Speaker 1: What is the purpose of a vibrating pill college summer job.
Speaker 1: It was a size of a throat pillow with batteries
Speaker 1: in the back, and it relieved. People put it behind
Speaker 1: their back, They put their feet on it, they put
Speaker 1: their neck on it. It was a tension reliever. And um,
Speaker 1: I answered an ad that said two hundred dollars a
Speaker 1: week guaranteed, and then in small print it set if
Speaker 1: you sell for a day. Um, I answered yourself. I
Speaker 1: answered the ad and I became the top salesman nationwide. Yeah,
Speaker 1: so that was that was my first job, vibrating pillars. Well,
Speaker 1: who are some of your early mentors? And I have
Speaker 1: to assume your father is gonna uh loom large in
Speaker 1: that that list. On the investment side, there's just no question.
Speaker 1: I mean when you work with somebody for thirty two years,
Speaker 1: day in and day out, shoulder to shoulder. On the
Speaker 1: investment side, I mean it's just and for most of
Speaker 1: the day you're talking about investments in the stock market.
Speaker 1: I mean, you know you're not exclusively, but it's just
Speaker 1: was so just the intensity UM on financial markets, just
Speaker 1: day in and day out. I mean that he's just
Speaker 1: it's not not even close. UM. On the On the
Speaker 1: economic side, UM, Arthur Laugher UM is somebody I met
Speaker 1: in the mid eighties, UM who had a big influence.
Speaker 1: He would have the particularly when I really started to
Speaker 1: focus on monetary policy, UM, trade policy, physical policy, tax policy.
Speaker 1: He would have these very high profile Washington conferences where
Speaker 1: you were able to meet UM, very high level of
Speaker 1: people UM in the Treasury, uh AT, O, mb UH,
Speaker 1: Council of Economic Advisors, the FED, um Cato Institute. UM.
Speaker 1: In turn, their interest in uh N spent and was
Speaker 1: a will to spend time with just some extraordinary people.
Speaker 1: On the policy side, I mean you had people like UM,
Speaker 1: Milton Friedman and and Vernon Smith, and James Buchanan and F. A.
Speaker 1: Hyattk I mean Nobel laureates who were around. You had conferences. UM,
Speaker 1: particularly the Annual Monetary Conference, got a very high profile
Speaker 1: Annual Monetary Conference that Jim dorn Ruyns, where UM was
Speaker 1: really able to start focusing on the on these issues
Speaker 1: and and the and and just being in that environment
Speaker 1: allowed me to really focus on from a top down
Speaker 1: standpoint some of these key policy issues. That very interesting.
Speaker 1: I've done a number of shows with the Art Laugher
Speaker 1: over the years, and my takeaway from him is always
Speaker 1: he's a really nice guy. And I don't know how
Speaker 1: much people always arguing with him on a policy base,
Speaker 1: hold the policy aside. He just happens to be a
Speaker 1: genuinely nice but just the best of the best. Yeah,
Speaker 1: he's really really great. So what investors influenced your approach
Speaker 1: to looking at the market and looking at stocks again?
Speaker 1: My father is it's just so overwhelming. I mean, it's
Speaker 1: so overwhelming in terms of being molded, uh, in terms
Speaker 1: of taking a long term approach, taking a high quality approach,
Speaker 1: and the investment decision making process, you know, being topped
Speaker 1: down from a thematic standpoint, but then being bottom up
Speaker 1: when you get this, when you get the candidates, the candidates.
Speaker 1: I remember him coming in during the late days and saying, okay,
Speaker 1: we've got mid late eighties. I want you to look
Speaker 1: at Colgate and Gillette and Campbell's Soup and Procter and
Speaker 1: Gamble and tell me what looks the best from a
Speaker 1: uh free cash flow standpoint, free cash flow yield, the
Speaker 1: dividend history, the management, the sales per share, the balance sheet.
Speaker 1: You know, do really helped me kind of formalize the
Speaker 1: process in terms of deciding UM, not only top down work,
Speaker 1: but then selecting the individual security. Quite interesting. Tell us
Speaker 1: about some of your favorite books, be they fiction, non fiction,
Speaker 1: investing related or others. What what do you like to read? Yeah,
Speaker 1: you know, outside I read so much finance and economics
Speaker 1: during the day. I try to get away from that. UM.
Speaker 1: I really like biographies. I really like historical biographies. UM
Speaker 1: it's a few examples. Well, there's there's a couple now
Speaker 1: that that I'm reading. UM one UM hero UM. Michael Korda,
Speaker 1: uh life in Times of Lawrence of Arabia just a
Speaker 1: just a fascinating historical figure. You know, he led the
Speaker 1: Arab revolt against the Turks in World War One. I mean,
Speaker 1: you're the famous movie in the early six Petero tool
Speaker 1: but just a scholar, a writer, a warrior, a journalist.
Speaker 1: It's just a fascinating individual. I mean, I just found
Speaker 1: that very interesting. Um. Another recent historical would be Andrew
Speaker 1: Roberts new book on Churchill, which is a one biography,
Speaker 1: which is hard to do, but I would say it's
Speaker 1: probably gonna in retrospect end up being the best one
Speaker 1: volume biography. Andrew Roberts is just tremendous. He wrote The
Speaker 1: Storms of War on one World War two, is a
Speaker 1: great great biographer. On the finance side, another book that's
Speaker 1: fascinating is The Lords of Finance something like that. That's
Speaker 1: I think that one. The Pulitzer that was a really
Speaker 1: interesting nine or ten one. I did not until I
Speaker 1: read that book, I had no idea how much monetary
Speaker 1: policy led to World What two. It's just amazing. I mean,
Speaker 1: I love it. The focus on the four central bankers
Speaker 1: of the world back then in the twenties and what
Speaker 1: just the just how it all went down, and it's
Speaker 1: so beautifully written to it's just tremendous. So that's a
Speaker 1: great one. I'm I'm a big fan of the American novel,
Speaker 1: the classic American novel, you know, Hemingway. I just The
Speaker 1: Old Man in the Sea on its get old. And
Speaker 1: the thing about those books, particularly a great gas here
Speaker 1: or um uh J. D. Salinger, Um, you can read them. Yeah,
Speaker 1: you can read them in one or two sittings, and
Speaker 1: you can reread them ten twenty years later, you can
Speaker 1: reread them. Um. On the modern side, it would be
Speaker 1: more Um Walker Percy the Movie Go or The Last Gentleman.
Speaker 1: He's just great fiction novelist. And then Tom Wolf, of course,
Speaker 1: I want to say Hemingway's all Man the Sea is
Speaker 1: like a hundred pages, like you could sit down and
Speaker 1: that's a short flight. You can you can go through
Speaker 1: that whole quite quite interesting. So tell us about a
Speaker 1: time you failed and what you learned from the experience. Yeah,
Speaker 1: that's a great one, great question, um, thinking about that,
Speaker 1: and it would one that really stands out is we
Speaker 1: started a mutual fund in the early two thousand's and
Speaker 1: it was just a mistake. I mean we decided to
Speaker 1: you know, you know, we we would have these inquiries
Speaker 1: in terms of we would really love to invest with you,
Speaker 1: we don't meet your minimum. Um. So we had these visions,
Speaker 1: all right, we'll just start a mutual fund. There's no
Speaker 1: big deal. Oh, my gosh, the time and the money
Speaker 1: and then the realization the light bulb comes on that
Speaker 1: way a second, these things are sold over and now
Speaker 1: they're just sold. We didn't have the ability to do that,
Speaker 1: and plus we were had to rely on somebody else
Speaker 1: for a lot of stuff. I just didn't. It taught
Speaker 1: me that we needed to focus on our core uh
Speaker 1: discipline in terms of the investment side with current clients
Speaker 1: and just rely on referrals. It didn't work, It was expensive,
Speaker 1: it was time consuming. It was just a mistake. UM
Speaker 1: that venture. What do you What do you do for
Speaker 1: fun out of the office? Um? Guyship would be dominated
Speaker 1: by triathlon racing? Yeah, triathlon? Quite interesting. Tell us what
Speaker 1: you're most optimistic and most pessimistic about today? Gosh, I
Speaker 1: would say I'm most optimistic about just the continuation of
Speaker 1: the entrepreneurial and innovative zeal that this company, excuse me,
Speaker 1: country possesses. It's just incredible. I think the energy and
Speaker 1: the drive, the American spirit that's still there and with
Speaker 1: new company startups and the vision, I just think that's
Speaker 1: so exciting. UM. And I guess that ties into what
Speaker 1: I'm most I guess what I would be concerned with
Speaker 1: is that we somehow we lose that and we fall
Speaker 1: into more the European lethargic UH state where we're growing,
Speaker 1: but you know, you have demograhical issues. You just got
Speaker 1: this financial repression environment where you have abnormally low interest rates,
Speaker 1: low growth rates, demographic issues, a lot of disancenters for
Speaker 1: capital formation and new business startups. I would hate to
Speaker 1: see us fall into that model, um that you're seeing
Speaker 1: somewhat in Japan and Europe. I want to keep our
Speaker 1: zeal going here. Our last two questions. If a millennial
Speaker 1: or recent college grad came and said they were thinking
Speaker 1: about a career and asset management, what sort of advice
Speaker 1: would you give. I would say that there's more than
Speaker 1: one way to do this. UM, don't necessarily take the
Speaker 1: conventional route. You don't have to have a finance degree,
Speaker 1: you don't have to major in finance. They're all kind
Speaker 1: of different ways to be successful in this business. And UM,
Speaker 1: no job is too small. Absolutely learned something. I don't
Speaker 1: care what you're doing. If you're in the door at
Speaker 1: any institution, man, I mean, just take advantage of it
Speaker 1: and get in the door and and work within that
Speaker 1: environment to see where you're where you're comfortable, and where
Speaker 1: you can flourish. And our final question, what do you
Speaker 1: know about the world of investing today that you wish
Speaker 1: you knew when you begin almost forty years ago? Right? God,
Speaker 1: you know the one that stands out is that I
Speaker 1: wish I'd put the entire portfolio in thirty year treasury bonds.
Speaker 1: Everybody there were long stch is where they were beating stocks,
Speaker 1: weren't there. Yeah, it's it's something, um, but really, you know,
Speaker 1: I would say that you don't always have to be right.
Speaker 1: You know, you don't always have to be right. I
Speaker 1: could really beat myself up initially for being wrong every
Speaker 1: now and then, and you're gonna be wrong. The other
Speaker 1: side of that, you're gonna be wrong and you need
Speaker 1: to learn how to absorb it, to process it, to
Speaker 1: accept it, and to take the loss and move on. Great,
Speaker 1: great advice. We have been speaking with Jay Bowen of Bowen,
Speaker 1: Haines and Company. If you enjoy this conversation, well be
Speaker 1: sure and look up an Inch or down an inch
Speaker 1: on Apple iTunes overcasts that your Spotify wherever your final
Speaker 1: podcasts are found, and you can see any of the
Speaker 1: previous two hundred and fifty such conversations we've had over
Speaker 1: the past five years. We love your comments, feedback and
Speaker 1: suggest in his right to us at m IB podcast
Speaker 1: at Bloomberg dot net. I would be remiss if I
Speaker 1: did not thank the crack staff that helps put together
Speaker 1: this conversation each week. Michael Batnick is my head of research.
Speaker 1: Michael Boyle is our producer slash booker. Charlie Valmer is
Speaker 1: our chief engineer. I'm Barry Ritolts. You've been listening to
Speaker 1: Masters in Business on Bloomberg Radio