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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Masters in

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Speaker 1: Business with Barry Ritholt on Bloomberg Radio.

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Speaker 2: What can I tell you about this week's banger? Seth Klarman,

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Speaker 2: legendary value investor out of Boston at the bow Post Group.

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Speaker 2: What a fascinating discussion about risk, about the current environment,

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Speaker 2: about the Boston Red Sox, about just about anything that

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Speaker 2: affects portfolios, distress assets, stocks, bonds, real estate. I thought

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Speaker 2: this was fascinating and I know you will also with

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Speaker 2: no further ado, my conversation with Seth Klarman. Flarman, Welcome

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Speaker 2: to Bloomberg.

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Speaker 3: So great to be here.

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Speaker 2: Thank you, Berry, Thank you so much. I've been looking

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Speaker 2: forward to this for forever. Before we get into your

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Speaker 2: investment philosophy and the development of baopost, I have to

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Speaker 2: roll back a little bit to your early days economics

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Speaker 2: from Cornell, an MBA from Harvard. What was the original

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Speaker 2: career plan?

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Speaker 4: So I was always drawn to investing, even when I

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Speaker 4: was a very young kid. I was interested in the

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Speaker 4: baseball statistics. I became aware that there were these other

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Speaker 4: columns of numbers in the newspaper and asked my neighbor

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Speaker 4: what those were and started to understand and follow the

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Speaker 4: stock market a little bit. So, of course I had

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Speaker 4: no idea what I was doing, but I was paying

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Speaker 4: attention from quite early age. I didn't really ever develop

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Speaker 4: a career plan, but I was drawn to the stock market.

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Speaker 4: I think I'm drawn to puzzles.

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Speaker 3: Berry.

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Speaker 4: I like doing word puzzles every day, like solving math puzzles.

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Speaker 4: I subscribed still to something called a math puzzle book

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Speaker 4: published by Dell. And stock market's a big puzzle. The

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Speaker 4: financial markets are a big puzzle. How does it all work?

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Speaker 4: And how does the performance of the companies get reflected

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Speaker 4: in stock prices? And how can an investor outperform everybody else?

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Speaker 4: And so all of that is a piece of what

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Speaker 4: drew me in.

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Speaker 2: So I'm interested in how you first found that beyond

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Speaker 2: the newspaper stock price pages. You grow up in Baltimore,

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Speaker 2: your parents divorce when you were relatively young. Mom was

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Speaker 2: an English teacher, later a psychiatric social worker. Dad was

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Speaker 2: a health economist at John Hopkins and NYU. Was it

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Speaker 2: just simply thumbing through the sports pages literally to the

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Speaker 2: next set of pages were the stock pages.

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Speaker 4: That's literally the numbers on the page attract my attention.

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Speaker 4: I would say, you know, I think my origin story

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Speaker 4: is a lot like other people in who ended up

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Speaker 4: in the investing business, like Warren Buffett, like I think

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Speaker 4: Todd Combs, like many others drawn to small businesses wanted

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Speaker 4: to make money. So I was delivering newspaper route for

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Speaker 4: the Baltimore Sun Papers. I had a snow cone stand

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Speaker 4: in my driveway. One summer. I mode lawns, I rake leaves,

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Speaker 4: I shoveled snow, I did little carnivals for the neighborhood

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Speaker 4: kids whatever. I sold candy at religious school on Tuesdays

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Speaker 4: and Thursdays because the kids were starving after school, and

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Speaker 4: I would buy it up over the weekend and bring

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Speaker 4: it to school and sell it for an arbitrage profit.

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Speaker 4: So it was just a pattern of being drawn to

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Speaker 4: small business and make money, and over time that led

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Speaker 4: to an interest in stock market. About my first stock

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Speaker 4: with some barmuts for money when I was around ten years.

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Speaker 2: Well, it couldn't have been bar Mitz for money.

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Speaker 4: If it wasn't bar Mitz money, then it was a present.

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Speaker 4: But then bar Mitz money continued to be.

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Speaker 2: So really well then ten years old and.

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Speaker 3: I bought a shriff Johnson and Johnson.

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Speaker 2: Uh huh, still have it?

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Speaker 3: Do not still have it?

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Speaker 4: It split three for one, but ultimately I presumably have

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Speaker 4: traded that in for something else that I that I

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Speaker 4: like better.

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Speaker 2: So let's fast forward a little bit to the bow

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Speaker 2: Post origin story, which isn't that far ahead. You're only

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Speaker 2: twenty five. The urban legends you co found bow Post,

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Speaker 2: but reality you were brought in to manage money for

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Speaker 2: the four founding families. Still at twenty five, that's a

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Speaker 2: kind of shocking thing. Oh, we have all this wealth,

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Speaker 2: let's bring in this kid to run our portfolio.

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Speaker 3: Right?

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Speaker 4: And I would say the same thing if I were,

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Speaker 4: if I were in their seats, I would wonder, how

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Speaker 4: does this kid know how to do that? So I

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Speaker 4: don't think people should generally be starting investment firms at

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Speaker 4: age twenty five. And of course I really didn't start

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Speaker 4: the firm. The firm was in the process of being created.

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Speaker 4: The four clients of the firm that came together. The

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Speaker 4: founders had the idea that they would build a firm

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Speaker 4: that might go and make investments itself, might hand money

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Speaker 4: to others who were in the business already of making investments.

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Speaker 4: So I think they wanted to build kind of an

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Speaker 4: institutional structure or framework for how to make sure the

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Speaker 4: money got managed well given what was then back in

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Speaker 4: the early eighties a highly fraught time as you know

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Speaker 4: from history, the volatile markets, long history of underperformance of

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Speaker 4: the stock market, and real economic uncertainty, stagflation at some

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Speaker 4: point and getting worse. Treasury bond yields were getting higher

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Speaker 4: and higher. So it was a really fraught moment, and

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Speaker 4: I think they wanted to make sure that the money

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Speaker 4: they had not only was kept intact, but was accounted

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Speaker 4: for clip the coupons and collected ends and all of that.

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Speaker 4: The founders were all selling businesses around that time, So

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Speaker 4: the serendipity was I was a student at business school.

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Speaker 4: Bill Porvu, the PO of Bowpost, was my real estate professor,

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Speaker 4: and he and some friends were selling Channel five. He

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Speaker 4: was a big investor in that the Metromedia largest sale

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Speaker 4: at the time of a TV station to Metromedia. It

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Speaker 4: was the ABC affiliate in Boston. A third friend had

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Speaker 4: a computer publishing and consulting business. All that was getting sold,

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Speaker 4: so they had this pile of twenty seven million dollars

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Speaker 4: and the basic job offer I got wasn't come run

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Speaker 4: a fund. It was come join us, and let's figure

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Speaker 4: out smart things to do with the money.

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Speaker 2: So eventually you become the lead partner there. I don't

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Speaker 2: know if CEO is the right term.

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Speaker 4: I wasn't CEO for the first seven or so years,

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Speaker 4: and then it became CEO and effectively got control of

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Speaker 4: the firm as sort of a handshake deal where we

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Speaker 4: agreed that if I worked hard and did well for

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Speaker 4: the clients, that they would recognize that with a stake

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Speaker 4: in the business. So I had no stake the day

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Speaker 4: it was formed, and ended up with over half.

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Speaker 2: Ended up with over half. That's amazing forty something years later.

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Speaker 4: And now much less because I'm a big believer in

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Speaker 4: sharing the pie with my team.

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Speaker 2: Makes a lot of sense. Let's talk a little bit

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Speaker 2: about the timing you mentioned. There was a lot of

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Speaker 2: turmoil and stagflation the previous sixteen years. I want to

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Speaker 2: say the inflation adjusted returns for something like down seventy

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Speaker 2: five percent, sixty six to eighty two, something along those lines.

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Speaker 2: Eighty two was the beginning of a historic bull market.

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Speaker 2: How did that affect how you thought about risk, how

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Speaker 2: you thought about opportunities, what were you. What did the

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Speaker 2: markets look and feel like in eighty two, when I

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Speaker 2: imagine most people were still pretty bearish.

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Speaker 4: Yeah, so I think Malcolm Gladwell would look and say,

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Speaker 4: nineteen eighty two, what an interesting time to start an

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Speaker 4: investment firm. That certainly was a wind at your back

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Speaker 4: in terms of being successful the challenges. And you know

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Speaker 4: this how it works in the markets is you had

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Speaker 4: no idea that you were at the beginning of a

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Speaker 4: long bowl market. What you felt was the market hasn't

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Speaker 4: done that well, you know, for a long period of time,

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Speaker 4: and people were very skeptical about it, and you could

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Speaker 4: always point to I think this is probably valuable insight

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Speaker 4: is you could always point to things at any moment

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Speaker 4: that don't add up, that seem overvalued, that seemed risky,

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Speaker 4: and yet we get through most of those things. So

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Speaker 4: at the time it didn't feel like a gimme, It

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Speaker 4: didn't feel like a lay up hand. But what ended

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Speaker 4: up happening was, you know, we tried to make money

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Speaker 4: apart from the market. We weren't buying an index. Indexes

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Speaker 4: weren't big then anyway, we weren't buying the market. We

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Speaker 4: were buying idiosyncratic situations, looking for situation bottom up by

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Speaker 4: bottom up miss pricings and that led to us build

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Speaker 4: a record. So while it looks just okay compared to

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Speaker 4: the market over that period of time, I think we

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Speaker 4: would have done okay whether the market had been up

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Speaker 4: down our.

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Speaker 2: Sideways really interesting. So given you coming off of what

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Speaker 2: was an epic bear market and just a whole lot

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Speaker 2: of cross current stagflation, super high rates under Vulker, you're

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Speaker 2: not that far away in eighty two from the end

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Speaker 2: of Vietnam, Watergate, all that malaise. How did that environment

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Speaker 2: affect you as a professional investor? How did that change

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Speaker 2: how you looked at the world, and what lessons did

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Speaker 2: you take from it?

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Speaker 4: I would tell you I think every investor needs to

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Speaker 4: be a student of history. That it may not repeat exactly,

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Speaker 4: but it certainly rhymes and it is very valuable to understand,

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Speaker 4: and I think especially financial history for an investor. So

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Speaker 4: what are the worst moments? How did we go through

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Speaker 4: a market crash in nineteen twenty nine to nineteen thirty

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Speaker 4: three and a great depression that lasted close to a decade.

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Speaker 4: What must that have been like for the people at

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Speaker 4: the time? How would one handle oneself. If you're going

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Speaker 4: into a period like that that we know that even

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Speaker 4: the greatest acclaim value investor of all time, Benjamin Graham,

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Speaker 4: nearly went broke twice during that era. So it's I

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Speaker 4: think incumbent on all investors to be thinking and maybe

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Speaker 4: holding multiple inconsistent thoughts in their head at the same

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Speaker 4: time that I found this interesting opportunity today, this bargain

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Speaker 4: price stock for whatever reason, it's out of favor. They

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Speaker 4: cut their dividend, it's a spin off, it's a bankrupt

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Speaker 4: security that's converting into a new equity. These things tend

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Speaker 4: to get mispriced, but you've got a backdrop of from

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Speaker 4: time to time, as today, we have a backdrop of

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Speaker 4: very expensive market and a bit of you for a

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Speaker 4: conditions is that dangerous? It's dangerous, But we're also at

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Speaker 4: the cusp of maybe a groundbreaking new technology. So I

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Speaker 4: think over the forty years, it's always been some of

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Speaker 4: both that you've got a backdrop of something sometimes very depressed,

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Speaker 4: sometimes very optimistic, but you've also got individual securities that

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Speaker 4: are fluctuating around, maybe creating bottom up opportunity. What I

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Speaker 4: deeply believe is that value investors make money staying in

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Speaker 4: the bottom up that you might have a top down view,

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Speaker 4: you might say, yeah, it could be a bubble, it

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Speaker 4: could be a problem. But bottom up is where you're

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Speaker 4: going to devote your time. It keeps you anchored that

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Speaker 4: if you have a portfolio of bargains, you're probably going to.

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Speaker 3: Do okay if you've stress tested.

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Speaker 4: Them and if you've been intellectually honest about them and

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Speaker 4: they really are bargains.

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Speaker 2: So you mentioned Ben Graham, I'm curious as to who

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Speaker 2: else were important influences on the development of your investment philosophy.

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Speaker 2: I've read about Michael Price and Max Hein, Who affected

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Speaker 2: you the most over the years? Who still affects you right?

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Speaker 4: So I think reading Ben Graham was certainly a major

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Speaker 4: influence on me. I think as he has been on

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Speaker 4: essentially everybody in the value investing community. And then Warren Buffett,

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Speaker 4: the real life practitioner of Graham as well, And it

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Speaker 4: was always heartening to know that somebody like Buffett, who

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Speaker 4: seemed to think similarly to how I thought, thought about

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Speaker 4: downside risk, thought about the need to stay focused in

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Speaker 4: individual companies and not worry so much about the overall market.

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Speaker 4: The willingness to hold cash and concurrently like the willingness

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Speaker 4: to not have an opinion on everything. I have a

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Speaker 4: lot of ideas and I end up with no opinion,

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Speaker 4: no position. But once in a while we find something

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Speaker 4: that seems way off the beaten path that's really interesting.

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Speaker 4: So to watch Warren Buffett do that, I've realized now

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Speaker 4: that Warren probably had a certainty of the idea that

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Speaker 4: he would compound capital over a long period of time,

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Speaker 4: and I think that that is something that Graham probably gave.

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Speaker 4: Warren gave me as well, the idea that if you

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Speaker 4: protect on the downside, if you don't find yourself getting

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Speaker 4: margin calls, frozen in place because you're too exposed, or

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Speaker 4: getting massive redemptions because you're down so much, if you

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Speaker 4: can position yourself that way, it can leave in a

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Speaker 4: position to play offense when even your best competitors might

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Speaker 4: be not on the playing field. And that's a huge advantage.

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Speaker 4: So I think that Graham a dot is kind of

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Speaker 4: a north star. It kind of is a place where

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Speaker 4: you can stay focused on what's something worth. You can

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Speaker 4: ignore the herd, you can ignore the siren song of

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Speaker 4: growth at any price, and of exciting new technologies and

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Speaker 4: exciting IPOs and you could ignore all that because you

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Speaker 4: have a confidence that I own something that's going to

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Speaker 4: be worth more a year or two from now than

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Speaker 4: it is today. And that's I think the that's an

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Speaker 4: underpinning that lets you follow a value investment strategy.

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Speaker 2: So you mentioned downside risk and that we referred to

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Speaker 2: before you began in nineteen eighty two. Less than a

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Speaker 2: decade later, you publish Margin of Safety nineteen ninety one.

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Speaker 2: What led to you, at the ripe old age of

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Speaker 2: thirty four to write a book on risk management? What

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Speaker 2: was the motivation? How was it initially received, because it's

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Speaker 2: become so sought after these days, what was the initial reception? Like?

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Speaker 4: Yeah, so I think in retrospect that looks pretty darn presumptuous.

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Speaker 4: I got asked to write it by a classmate from

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Speaker 4: business school who worked at Harper Collins at the time

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Speaker 4: or Harper and Roe, maybe before Harper Collins, and she

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Speaker 4: had seen some of my client letters. She said, you know,

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Speaker 4: you seem like you'd be a good writer, and you're

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Speaker 4: a smart guy. Maybe you'll have something to tell the audience.

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Speaker 4: What I really thought was, I'm just updating intelligent investor

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Speaker 4: for modern examples and contemporary market. That's decades since that

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Speaker 4: book was written, and I thought maybe i'd make it

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Speaker 4: a little bit more accessible for the average Joe. I

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Speaker 4: don't know whether it accomplished that, but that's what I

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Speaker 4: was trying to do. I had no idea if I

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Speaker 4: didn't think I would make money from writing the book.

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Speaker 4: I mean, as you as an author, you know, we

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Speaker 4: get like a buck fifty an hour. But it's a

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Speaker 4: great feeling and it's a ton of work, but I

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Speaker 4: think ultimately worth it, and you get smarter from the

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Speaker 4: act of writing.

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Speaker 3: About what you do.

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Speaker 4: You can do what you do all day long without

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Speaker 4: maybe fully forming the philosophy, but if you want to

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Speaker 4: share it with anybody else, it makes you think more

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Speaker 4: clearly about what you do.

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Speaker 2: Yeah. The former Librarian of Congress, Daniel Borston used to say,

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Speaker 2: I write to figure out what I think, And there's

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Speaker 2: a lot of truth to that. What was the initial reception, like,

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Speaker 2: did people respond or did it kind of land in

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Speaker 2: a handful of value? Geeks bought it, but no one else, so.

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Speaker 3: It's somewhere in between.

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Speaker 4: What happened first was I think my editor got fired

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Speaker 4: three different times, so I kept getting new editors. They

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Speaker 4: had promised to back the book with advertising, and they didn't,

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Speaker 4: so the book landed with a bit of a thud.

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Speaker 4: I think it had maybe a very tiny second printing,

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Speaker 4: so I think they printed maybe seven thousand copies. I

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Speaker 4: ended up buying a bunch of them back from HarperCollins

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Speaker 4: by the time they took it off the market and

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Speaker 4: the rights somehow reverted back to me.

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Speaker 3: What it did do.

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Speaker 4: Though, it was bought I think significantly by competitors who

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Speaker 4: used it to train their teams. And that was also like,

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Speaker 4: is that what I wrote it for? Because I don't mind,

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Speaker 4: but it wasn't maybe the starting goal. The starting goal was,

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Speaker 4: if you go back to the book, the first half

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Speaker 4: of it was about the street and about how they

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Speaker 4: treat the average investor and maybe the challenge of whether

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Speaker 4: the investor is getting a good deal. And the second

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Speaker 4: half is maybe an investment approach, a value oriented approach,

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Speaker 4: and how an investor might think about doing that, even

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Speaker 4: if they're not a professional investor. So it was successful

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Speaker 4: in a weird way. It's sort of because it didn't

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Speaker 4: get republished, it developed a bit of a cult following,

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Speaker 4: and that's kind of amusing and interesting to me, and

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Speaker 4: of course we've reprinted some on our own, so we've

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Speaker 4: made it available to our clients and to summer interns

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Speaker 4: and to anybody that's connected to the firm.

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Speaker 2: So in twenty twenty three, the seventh edition of Security Analysis,

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Speaker 2: Ben Graham's Framework for Investing was edited by you and

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Speaker 2: in a lot of ways substantially rejiggered. How different is

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Speaker 2: this version then Ben Graham's, I mean, obviously the markets changed,

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Speaker 2: the economy is so much is different than when he

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Speaker 2: was writing. How did you approach this?

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Speaker 4: So the earlier edition, the sixth edition, I was co

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Speaker 4: editor with Jim Grant and Bruce Greenwald, and the seventh

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Speaker 4: edition they asked me to just edit that one. As editor,

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Speaker 4: we didn't follow the process that you might follow, because

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Speaker 4: we kind of thought of Security Analysis as the Bible

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Speaker 4: and we thought we should leave it alone, and what

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Speaker 4: we should do is have modern day expert investors right

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Speaker 4: commentary about the different chapters, different sections of the book.

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Speaker 3: So that's what we did.

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Speaker 4: So I think the sixth edition and the seventh both

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Speaker 4: have some really great selections by investors. Some of them

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Speaker 4: are well known, but some of whom aren't known at all.

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Speaker 4: And you know, my former colleague David Abrams is one

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Speaker 4: of them. David's contribution in the sixth edition is one

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Speaker 4: of the most brilliant things I've ever read, and so

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Speaker 4: I felt like we were making we're moving Gramma DoD

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Speaker 4: into a different era. The thing that's beautiful about Gramma

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Speaker 4: DoD it was written a hundred years ago, give or take,

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Speaker 4: and it was written during the depression, and things that

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Speaker 4: made sense in a depression haven't made sense every day

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Speaker 4: since then because we haven't been a depression most of

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Speaker 4: the time since then.

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Speaker 3: If at all.

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Speaker 4: So it was an update, taking what's valuable why people

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Speaker 4: revere the book as a bible, but also making it

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Speaker 4: more accessible at more relevant modern day. We expanded it

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Speaker 4: to cover some topics that were uncovered. It certainly has

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Speaker 4: more international investing, which wasn't really focused on by Graham.

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Speaker 4: It talks about some other private investments. It talks about

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Speaker 4: some of the changes in financial markets, the latest manias

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Speaker 4: and fads and all of that, but also the changes

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Speaker 4: in market structure, the changes in asset classes that have

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Speaker 4: come into exac distance and all of that. I think

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Speaker 4: is a valuable updating of the literature and helps keep

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Speaker 4: something relevant that deserves to be relevant while updated because

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Speaker 4: in its original Graham and Dodd nineteen thirty four form

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Speaker 4: wouldn't be very useful to people.

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Speaker 2: Coming up, we continue our conversation with Seth Clarman, CEO

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Speaker 2: and portfolio manager at the bow Post Group, discussing the

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Speaker 2: firms evolution and philosophy. I'm Barry Ridults. You're listening to

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Speaker 2: Masters in Business on Bloomberg Radio. I'm Barry Riddults. You're

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Speaker 2: listening to Masters in Business on Bloomberg Radio. Our extra

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Speaker 2: special guest this week is Seth Klarman. He's CEO and

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Speaker 2: portfolio manager at the bow Post Group, a legendary value

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Speaker 2: and distressed investment shop out of Boston, running over twenty

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Speaker 2: two billion dollars in assets. So let's talk a little

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Speaker 2: bit about the way you think of opportunities and risks.

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Speaker 2: During the eight or nine financial crisis, you raised about

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Speaker 2: four billion dollars and the research I read you're deploying

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Speaker 2: one hundred million dollars a day into distress assets. That

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Speaker 2: seems like a big chunk of money. First of all,

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Speaker 2: are those numbers remotely accurate? Is that ballpark?

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Speaker 3: It's ballpark?

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Speaker 4: What I would tell you first of all is we

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Speaker 4: had been closed for new clients much of our history,

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Speaker 4: but we kept a list in case. And so when

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Speaker 4: the market started to fall apart after bear Stearns and

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Speaker 4: then after Liman, there were all kinds of things going on,

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Speaker 4: and people were in great stress as we entered the

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Speaker 4: uncertainty of an economic decline that could have pretty epic proportions.

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Speaker 4: As it turned out, it probably was. It certainly was

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Speaker 4: the worst decline since the Great Depression, and it stands

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Speaker 4: out as kind of the mother of all bear markets

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Speaker 4: for anybody in the last hundred years. So the challenge was,

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Speaker 4: maybe it's time to take some capital, and the odds

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Speaker 4: are increasing every day that we're going to be able

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Speaker 4: to deploy it fruitfully.

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Speaker 3: So what you said is about right.

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Speaker 2: So bear Stearns, if I'm remembering correctly, was spring of

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Speaker 2: two thousand and seven. Lehman was September of eight. That's

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Speaker 2: not a lot of time from there until March on nine,

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Speaker 2: when everything really bottoms. I have three questions about this.

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Speaker 2: The first is how quickly were you able to raise capital,

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Speaker 2: get the docks signed, and be prepared to deploy that

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Speaker 2: as opportunities arose. Doesn't seem like there's a lot of time.

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Speaker 4: The team worked heroically and we were able to raise

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Speaker 4: about We were able to raise very significant capital within

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Speaker 4: a quarter.

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Speaker 2: Wow, that's really quickly. Now you mentioned the team, I

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Speaker 2: have heard some really interesting rumors and legends. How did

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Speaker 2: you put this team together? What was their marching orders?

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Speaker 2: How did everybody operate in that period of absolute turmoil

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Speaker 2: in Mayhew.

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Speaker 4: So we already were an established firm. We've been up

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Speaker 4: and running for a couple of decades by then. So

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Speaker 4: I had a team in place, and they were deeply knowledgeable, experienced.

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Speaker 2: Distressed asset expertise in the group.

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Speaker 4: Not everybody on the team has that, but a very

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Speaker 4: high percentage of the team has that. And people at

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Speaker 4: balpos like being versatile athletes. So we're nimble, we're agile,

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Speaker 4: and we cross train just kind of like baseball teams

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Speaker 4: are doing now in the minor leagues. They don't want

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Speaker 4: you to just be a third basement. They also want

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Speaker 4: you to play out field and maybe second if need be,

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Speaker 4: And so the same with us that we have people

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Speaker 4: that sit in four different groups, as you mentioned, but

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Speaker 4: all of them can work on distressed situations. And people

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Speaker 4: in the private investments especially love when we're super busy

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Speaker 4: in the public markets and we call them in to

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Speaker 4: work on a distress credit.

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Speaker 2: So big chunk of capital, very aggressively deployed in a

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Speaker 2: moment in time when so many people seem to be

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Speaker 2: just paralyzed and frozen with fear. Was it just the

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Speaker 2: value analytical framework or was it a little broader and

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Speaker 2: deeper than that.

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Speaker 4: Yeah, I think Barry that the way you're conveying it

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Speaker 4: probably comes across as we come in with giant satchels

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Speaker 4: of money and handover fists deploy it. It wasn't like

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Speaker 4: that at all. It was the same cerebral, methodical, painstaking

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Speaker 4: environment that we do every day. So we see things

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Speaker 4: trading at lower prices, and we notice that, and we

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Speaker 4: look at the fundamentals, and every thing we do at

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Speaker 4: Bawtpost is bottom up. Nothing's top down. We're not saying

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Speaker 4: probably a good time to be a contray and none

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Speaker 4: of that. We're saying, oh, I can buy this bond

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Speaker 4: at seventy that I think is covered at par. I

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Speaker 4: think people are worried maybe it could have a blip

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Speaker 4: or have a problem for a while, but people aren't

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Speaker 4: really doubting that there's something there. I think as the

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Speaker 4: economy got worse, people may have started to doubt more

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Speaker 4: and more. Prices come in more and more, and so

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Speaker 4: we're literally able to buy mortgage securities, residential mortgage securities.

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Speaker 4: We're able to buy corporate debt, especially of the auto fincos,

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Speaker 4: the financial arm of General Motors and Chrysler and Ford,

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Speaker 4: and that Lehman goes broke, and that had pieces within

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Speaker 4: its capital structure that got very interesting. So we're seeing

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Speaker 4: all kinds of things and we're kind of kids in

437
00:25:53,960 --> 00:25:58,400
Speaker 4: a candy store. Sadly, right, it's a tough time. People

438
00:25:58,440 --> 00:26:02,080
Speaker 4: are hurting. But also so as an investor, you're fiduciary

439
00:26:02,440 --> 00:26:04,320
Speaker 4: and you've got to put money to work where you're

440
00:26:04,320 --> 00:26:07,439
Speaker 4: going to benefit your clients. So we're in every case

441
00:26:07,760 --> 00:26:10,480
Speaker 4: stress testing, Hey, if the world got even worse, Hey

442
00:26:10,480 --> 00:26:13,920
Speaker 4: if this turned out to be nineteen thirty three, will

443
00:26:13,920 --> 00:26:15,199
Speaker 4: this investment be okay?

444
00:26:15,680 --> 00:26:16,679
Speaker 3: And that's the.

445
00:26:16,560 --> 00:26:20,440
Speaker 4: Only place where we're where we're making decisions is if

446
00:26:20,440 --> 00:26:23,200
Speaker 4: the downside is protected, and if we can see lots

447
00:26:23,200 --> 00:26:26,520
Speaker 4: of paths to winning, then we're very interested. So we

448
00:26:26,720 --> 00:26:30,000
Speaker 4: found a lot to do in distressed. We also owned equities.

449
00:26:30,040 --> 00:26:32,960
Speaker 4: We also found private investments, and there were just all

450
00:26:33,040 --> 00:26:36,480
Speaker 4: kinds of things worth doing in that era. The challenge

451
00:26:36,560 --> 00:26:39,840
Speaker 4: in investing, I think for everybody is you want to

452
00:26:39,880 --> 00:26:42,080
Speaker 4: make sure that you know those environments are going to

453
00:26:42,080 --> 00:26:44,040
Speaker 4: happen once in a while, and you need to make

454
00:26:44,040 --> 00:26:46,800
Speaker 4: sure you don't blow up during them. And if possible,

455
00:26:46,840 --> 00:26:50,000
Speaker 4: you need to make sure that you'll have capacity to

456
00:26:50,040 --> 00:26:54,280
Speaker 4: buy when the best opportunities become available and maybe your

457
00:26:54,320 --> 00:26:58,040
Speaker 4: competitors are sidelined. And so that's the moment that I

458
00:26:58,040 --> 00:27:00,919
Speaker 4: think investors need to at least have in their heads,

459
00:27:01,119 --> 00:27:03,840
Speaker 4: how are you going to handle that environment? Because if

460
00:27:03,880 --> 00:27:06,560
Speaker 4: you're too exposed, if you're getting margin calls, if you're

461
00:27:06,760 --> 00:27:09,840
Speaker 4: getting massively redeemed because you took the wrong clients and

462
00:27:09,840 --> 00:27:12,320
Speaker 4: they're short term oriented, then you're going to be out

463
00:27:12,320 --> 00:27:14,679
Speaker 4: of commission on that day. So to be around on

464
00:27:14,760 --> 00:27:16,720
Speaker 4: that day and be able to do what we do,

465
00:27:17,160 --> 00:27:18,920
Speaker 4: we just did the same thing we do every day.

466
00:27:19,040 --> 00:27:20,560
Speaker 4: We did a little bigger size.

467
00:27:20,960 --> 00:27:24,760
Speaker 2: So I'm kind of fascinated by the dynamic tension between

468
00:27:25,840 --> 00:27:30,320
Speaker 2: fundamental bottoms up research on a credit or equity by

469
00:27:30,359 --> 00:27:35,240
Speaker 2: credit or equity basis versus the top down. I know

470
00:27:35,320 --> 00:27:38,879
Speaker 2: you've said that you really don't think about markets or

471
00:27:38,920 --> 00:27:42,199
Speaker 2: investing from a top down perspective. But it seems that

472
00:27:42,400 --> 00:27:47,960
Speaker 2: everybody who panicked, everybody who helped create those distressed assets,

473
00:27:48,520 --> 00:27:53,360
Speaker 2: were either responding or overresponding to the top down environment.

474
00:27:53,840 --> 00:27:56,160
Speaker 2: How do you look at that sort of environment.

475
00:27:56,960 --> 00:27:59,360
Speaker 4: Yeah, there are several layers to that. First of all,

476
00:27:59,760 --> 00:28:02,040
Speaker 4: I think I think people were responding to all kinds

477
00:28:02,080 --> 00:28:05,679
Speaker 4: of things. They were responding to redemption requests by their

478
00:28:05,760 --> 00:28:10,639
Speaker 4: mutual fund shareholders, they were responding to credit downgrades, so

479
00:28:10,680 --> 00:28:13,320
Speaker 4: that it wasn't just I'm nervous that things are going

480
00:28:13,359 --> 00:28:16,600
Speaker 4: to be bad. This bond is no longer investment grade,

481
00:28:16,920 --> 00:28:19,280
Speaker 4: and maybe my mandate is I can only own investment

482
00:28:19,280 --> 00:28:22,240
Speaker 4: grade bonds, or this bond has defaulted and I can

483
00:28:22,280 --> 00:28:25,399
Speaker 4: no longer hold this bond. So you have for selling

484
00:28:25,640 --> 00:28:29,360
Speaker 4: all over the place and force selling. You never want

485
00:28:29,400 --> 00:28:31,760
Speaker 4: to be a foreseller, and you especially want to be

486
00:28:31,800 --> 00:28:34,959
Speaker 4: able to buy from force sellers in any asset class

487
00:28:35,320 --> 00:28:39,400
Speaker 4: if that comes along. What I would say is I

488
00:28:39,480 --> 00:28:43,520
Speaker 4: think that, like, I'm not a mountain climber or big hiker,

489
00:28:44,200 --> 00:28:47,360
Speaker 4: but if you're going to climb a mountain, you want

490
00:28:47,400 --> 00:28:48,520
Speaker 4: to look bottom up.

491
00:28:48,560 --> 00:28:50,960
Speaker 3: You want to understand is this the right trail?

492
00:28:51,080 --> 00:28:55,240
Speaker 4: Is this safe? Do I have my equipment? Am I prepared?

493
00:28:55,480 --> 00:28:58,000
Speaker 4: And then you also want to have the top down view.

494
00:28:58,600 --> 00:29:01,680
Speaker 4: What's the weather and what if it suddenly gets snowy

495
00:29:01,800 --> 00:29:05,120
Speaker 4: up there? If the winds sixty miles an hour, how

496
00:29:05,120 --> 00:29:07,760
Speaker 4: am I going to handle that? And so you kind

497
00:29:07,800 --> 00:29:10,880
Speaker 4: of want to have in your head the weather forecast,

498
00:29:10,960 --> 00:29:14,200
Speaker 4: and I think I know that I'm always thinking about

499
00:29:15,120 --> 00:29:19,760
Speaker 4: is this environment safe? In today's market, it feels stretched,

500
00:29:20,000 --> 00:29:21,720
Speaker 4: but it also feels like we're on the brink of

501
00:29:21,760 --> 00:29:28,160
Speaker 4: an incredibly an unprecedented technology and an era that might

502
00:29:28,160 --> 00:29:32,200
Speaker 4: be one of very substantial prosperity, but also one of

503
00:29:32,400 --> 00:29:37,480
Speaker 4: risk to society and great change. So bottom up still

504
00:29:37,480 --> 00:29:40,240
Speaker 4: feels like the right way to invest, but it feels

505
00:29:40,360 --> 00:29:42,200
Speaker 4: like you still need your eye on the weather.

506
00:29:42,600 --> 00:29:43,800
Speaker 3: In the financial.

507
00:29:43,320 --> 00:29:47,200
Speaker 4: Markets, that means where it's the GDP going, and what's

508
00:29:47,280 --> 00:29:50,280
Speaker 4: the national debt and where's inflation going to take us?

509
00:29:50,480 --> 00:29:52,520
Speaker 4: So I always have an eye on that stuff, but

510
00:29:52,560 --> 00:29:55,080
Speaker 4: we're not We're not investing our portfolio based on that,

511
00:29:55,360 --> 00:29:57,520
Speaker 4: the same way we don't invest based on a macro

512
00:29:57,640 --> 00:30:00,400
Speaker 4: view that this country would be a good place to invest.

513
00:30:00,480 --> 00:30:04,640
Speaker 4: In rather, we notice a security bottom up and say, wow,

514
00:30:04,680 --> 00:30:08,440
Speaker 4: that seems egregiously mispriced. I wonder if there are more mispricings.

515
00:30:08,600 --> 00:30:10,880
Speaker 4: Maybe we should look at that market a little bit closer.

516
00:30:11,320 --> 00:30:13,960
Speaker 2: So let's talk a little bit about cash. I think

517
00:30:14,320 --> 00:30:18,120
Speaker 2: a lot of investors look at cash as a drag

518
00:30:18,160 --> 00:30:22,880
Speaker 2: on their performance. The net return is usually zero or

519
00:30:22,920 --> 00:30:26,920
Speaker 2: close to zero relative to inflation. How do you think

520
00:30:26,960 --> 00:30:30,440
Speaker 2: of cash? It's always been such a historically important part

521
00:30:30,840 --> 00:30:35,600
Speaker 2: of your toolkit. What sort of optionality does it create

522
00:30:36,200 --> 00:30:40,600
Speaker 2: versus the career pressure of staying fully invested at all times.

523
00:30:41,680 --> 00:30:44,640
Speaker 4: So you're nailing it with your question. You've covered all

524
00:30:44,680 --> 00:30:48,280
Speaker 4: the parts of holding cash. I think that cash can

525
00:30:48,320 --> 00:30:52,320
Speaker 4: be valuable optionality, especially just imagine you have a reasonably

526
00:30:52,360 --> 00:30:55,959
Speaker 4: concentrated portfolio. A large position or two comes off the books.

527
00:30:56,360 --> 00:30:59,080
Speaker 4: Should you put it to work in a nanosecond or

528
00:30:59,120 --> 00:31:02,000
Speaker 4: can you wait till something really interesting comes along. So

529
00:31:02,040 --> 00:31:04,760
Speaker 4: that's the origin of us holding cash. Positions would come

530
00:31:04,800 --> 00:31:07,880
Speaker 4: off and we'd hold some cash until something great came along, but.

531
00:31:08,280 --> 00:31:11,760
Speaker 2: Not just a couple of percent you've hold out history.

532
00:31:11,960 --> 00:31:14,680
Speaker 4: But with concentrated positions, we have five and ten percent

533
00:31:14,720 --> 00:31:17,200
Speaker 4: positions in the portfolio. When two or three of them

534
00:31:17,240 --> 00:31:20,520
Speaker 4: come off, cash goes from next to nothing to fifteen

535
00:31:20,600 --> 00:31:23,360
Speaker 4: or twenty percent. So that's the origin. That's how we

536
00:31:23,400 --> 00:31:25,880
Speaker 4: got started with the idea that we would hold some

537
00:31:25,920 --> 00:31:29,520
Speaker 4: cash from time to time. I think, though I would

538
00:31:29,520 --> 00:31:33,320
Speaker 4: accept that I almost certainly made a mistake in that

539
00:31:33,520 --> 00:31:36,400
Speaker 4: holding cash to that extent. There were times when we

540
00:31:36,440 --> 00:31:40,680
Speaker 4: thirty percent cash and even higher, and I viewed it

541
00:31:40,760 --> 00:31:45,040
Speaker 4: as valuable optionality. The problem is the optionality didn't pay

542
00:31:45,080 --> 00:31:49,040
Speaker 4: off very well for big swaths of time, especially since

543
00:31:49,080 --> 00:31:52,320
Speaker 4: so eight that with suppression of interest rates and the

544
00:31:52,360 --> 00:31:54,160
Speaker 4: FED printing a lot of money in the US running

545
00:31:54,240 --> 00:31:57,800
Speaker 4: large deficits that we really haven't had a serious downturn

546
00:31:57,840 --> 00:32:02,000
Speaker 4: in almost two decades, and that amount of cash became painful.

547
00:32:02,400 --> 00:32:06,680
Speaker 4: I think that the argument for holding cash. When a

548
00:32:06,720 --> 00:32:09,240
Speaker 4: client says, I'm not paying you to hold cash, my

549
00:32:09,360 --> 00:32:12,560
Speaker 4: answer would be, I'm not getting paid to hold cash.

550
00:32:12,600 --> 00:32:15,280
Speaker 4: I'm getting paid to use my judgment on when to

551
00:32:15,320 --> 00:32:17,520
Speaker 4: deploy the money and in what to deploy it.

552
00:32:17,640 --> 00:32:20,960
Speaker 3: So I feel like that's right, But I felt like

553
00:32:21,200 --> 00:32:21,720
Speaker 3: I was.

554
00:32:21,680 --> 00:32:25,400
Speaker 4: Not optimizing for our clients in an environment that stopped

555
00:32:25,440 --> 00:32:27,680
Speaker 4: being as volatile as the one I had grown up in.

556
00:32:28,080 --> 00:32:31,320
Speaker 4: So we changed our strategies somewhat. We made our liquid

557
00:32:31,320 --> 00:32:34,440
Speaker 4: books more liquid, especially our public equity book, where we

558
00:32:34,520 --> 00:32:37,400
Speaker 4: used to own companies with five hundred million or billion

559
00:32:37,440 --> 00:32:40,320
Speaker 4: dollar market cap. Now we own much bigger market cap

560
00:32:40,640 --> 00:32:45,120
Speaker 4: holdings on average. That liquidity in the public equity book

561
00:32:45,280 --> 00:32:47,760
Speaker 4: has made us feel better that we can pivot on

562
00:32:47,800 --> 00:32:50,840
Speaker 4: a dime with a large percentage of our book, so

563
00:32:50,880 --> 00:32:52,640
Speaker 4: we don't need as much cash to be able to

564
00:32:52,680 --> 00:32:55,800
Speaker 4: take advantage of a sudden opportunity that shows up.

565
00:32:56,600 --> 00:33:01,880
Speaker 2: A lot of larger equity font when they're sitting in cash,

566
00:33:02,600 --> 00:33:07,040
Speaker 2: they use the spiderydfs, they'll roll into spy so they're

567
00:33:07,040 --> 00:33:11,120
Speaker 2: not falling behind a benchmark, and then it's deep and

568
00:33:11,160 --> 00:33:14,800
Speaker 2: liquid if they want to deploy that in a momentum market.

569
00:33:15,120 --> 00:33:17,600
Speaker 2: Is that a bad strategy or are you just adding

570
00:33:17,720 --> 00:33:21,440
Speaker 2: risk to avoid the cash risk.

571
00:33:21,880 --> 00:33:25,280
Speaker 4: We think about our benchmark as an absolute return, not

572
00:33:25,400 --> 00:33:28,320
Speaker 4: a relative return, So we're not very interested in keeping

573
00:33:28,400 --> 00:33:30,920
Speaker 4: up with the market. Market's going to do what it does,

574
00:33:31,440 --> 00:33:34,800
Speaker 4: and especially a market this concentrated and a handful of names,

575
00:33:34,800 --> 00:33:36,680
Speaker 4: and it's really been that way for a number of

576
00:33:36,720 --> 00:33:40,760
Speaker 4: years with the fang stocks and the handful of names

577
00:33:40,760 --> 00:33:44,040
Speaker 4: that carry the market often not always, but often or

578
00:33:44,160 --> 00:33:47,760
Speaker 4: expensive overpriced. So we just think that's not the right

579
00:33:47,760 --> 00:33:50,040
Speaker 4: way to think about it. We want our an absolute return.

580
00:33:50,400 --> 00:33:53,080
Speaker 4: We want to beat inflation by hundreds of basis points,

581
00:33:53,680 --> 00:33:55,960
Speaker 4: and if we're doing that, we're not going to worry

582
00:33:55,960 --> 00:33:58,160
Speaker 4: about whether that's ahead of the market or behind. I think,

583
00:33:58,200 --> 00:34:02,200
Speaker 4: over the fullness of time, a good absolute return strategy

584
00:34:02,240 --> 00:34:03,360
Speaker 4: is going to beat the market to.

585
00:34:04,120 --> 00:34:07,160
Speaker 2: So let's talk about some of the opportunity sets that

586
00:34:07,240 --> 00:34:11,640
Speaker 2: you look at. You mentioned equities, We talked about distress debt.

587
00:34:11,800 --> 00:34:16,080
Speaker 2: You also make real estate investments, other private investments. How

588
00:34:16,120 --> 00:34:20,200
Speaker 2: do you think about capital alocreation across these buckets? Are

589
00:34:20,200 --> 00:34:24,960
Speaker 2: you using percentage terms or are you just purely opportunistic.

590
00:34:26,040 --> 00:34:30,239
Speaker 4: So we came about these through our experiences. We didn't

591
00:34:30,320 --> 00:34:32,000
Speaker 4: just wake up one day and said let's be in

592
00:34:32,040 --> 00:34:36,520
Speaker 4: four different areas. Rather, we noticed that over the transom,

593
00:34:36,800 --> 00:34:40,200
Speaker 4: interesting private investments were coming into the portfolio. We're getting

594
00:34:40,200 --> 00:34:43,600
Speaker 4: phone calls, Hey, would you ever would you inject capital

595
00:34:43,600 --> 00:34:46,239
Speaker 4: into this business? Or would you buy this portfolio of

596
00:34:48,120 --> 00:34:52,640
Speaker 4: venture investments from a failed company that needed to sell them,

597
00:34:52,840 --> 00:34:55,480
Speaker 4: or would you buy twenty two percent of a company

598
00:34:55,880 --> 00:35:00,399
Speaker 4: owned by largely seventy eight percent by a large Middle

599
00:35:00,440 --> 00:35:03,920
Speaker 4: Eastern company, and twenty two percent up for sale. Would

600
00:35:03,920 --> 00:35:07,640
Speaker 4: you buy that well at three times ebitdah, maybe you would.

601
00:35:08,160 --> 00:35:08,239
Speaker 3: So.

602
00:35:08,719 --> 00:35:13,600
Speaker 4: Literally, by seeing examples one at a time, bottom up,

603
00:35:14,239 --> 00:35:16,320
Speaker 4: we started to figure out that there were more things

604
00:35:16,320 --> 00:35:19,359
Speaker 4: to focus on than just the public equity markets, and

605
00:35:19,440 --> 00:35:22,399
Speaker 4: so we got drawn. One of our specialties I think

606
00:35:22,480 --> 00:35:25,239
Speaker 4: is distressed credit, and we became really good at it.

607
00:35:25,560 --> 00:35:29,279
Speaker 4: We've got smart people, We're very patient. Sometimes there's nothing

608
00:35:29,280 --> 00:35:32,759
Speaker 4: to do, there's nothing distressed. Other times there's an avalanche

609
00:35:32,800 --> 00:35:36,920
Speaker 4: of opportunity, and so we wait patiently. In all of

610
00:35:36,960 --> 00:35:40,480
Speaker 4: our areas, we built teams of versatile people, so that

611
00:35:41,320 --> 00:35:44,640
Speaker 4: a team is basically a generalist team, and the same

612
00:35:44,719 --> 00:35:46,880
Speaker 4: person can work on a private investment, can work on

613
00:35:46,880 --> 00:35:51,040
Speaker 4: a credit investment, can work on an equity investment. Real

614
00:35:51,120 --> 00:35:53,719
Speaker 4: estate is a bit more specialized than that, but even

615
00:35:53,760 --> 00:35:56,560
Speaker 4: within real estate, many people have a land person and

616
00:35:56,600 --> 00:35:57,440
Speaker 4: a hotel person.

617
00:35:57,680 --> 00:35:59,640
Speaker 3: We don't do that. Everybody works on everything.

618
00:36:00,280 --> 00:36:04,200
Speaker 4: So we have the team in place and we're able

619
00:36:04,280 --> 00:36:08,279
Speaker 4: to respond bottom up. That the bottom up approach to

620
00:36:08,360 --> 00:36:12,319
Speaker 4: opportunity I think lets us allocate capital better than if

621
00:36:12,360 --> 00:36:14,279
Speaker 4: we were doing a top down that. I think a

622
00:36:14,360 --> 00:36:17,399
Speaker 4: lot of people will look at historic returns will say

623
00:36:17,719 --> 00:36:21,319
Speaker 4: the expected return from owning private equity will be mid

624
00:36:21,360 --> 00:36:25,200
Speaker 4: teens or upper teens. The expected return from venture capital

625
00:36:25,200 --> 00:36:27,440
Speaker 4: will be better than that. And we don't do that.

626
00:36:27,719 --> 00:36:30,279
Speaker 4: We really don't know what an asset class is going

627
00:36:30,280 --> 00:36:32,719
Speaker 4: to do because we think that's very time specific and

628
00:36:32,880 --> 00:36:38,840
Speaker 4: very valuation dependent. Rather, we see what's available right this second,

629
00:36:39,000 --> 00:36:42,719
Speaker 4: and by looking bottom up opportunity after opportunity, I think

630
00:36:42,760 --> 00:36:45,600
Speaker 4: we can paint a really clear picture. So right the second,

631
00:36:46,280 --> 00:36:49,440
Speaker 4: real estate has been in tough shape since COVID, especially

632
00:36:49,440 --> 00:36:54,319
Speaker 4: commercial office and people started working from home, and that

633
00:36:54,360 --> 00:36:58,640
Speaker 4: hasn't fully returned. And in certain markets especially there's too

634
00:36:58,719 --> 00:37:01,600
Speaker 4: much space and a lot of people that have been

635
00:37:01,600 --> 00:37:03,960
Speaker 4: in real estate have not done that well. A lot

636
00:37:03,960 --> 00:37:06,960
Speaker 4: of people got into the wrong vintage and a lot

637
00:37:07,000 --> 00:37:11,960
Speaker 4: of properties have become structurally obsolete. So that sounds like

638
00:37:12,000 --> 00:37:14,200
Speaker 4: a mess, why would you touch it? But it also

639
00:37:14,320 --> 00:37:17,640
Speaker 4: means that competition is hardly looking and so we think

640
00:37:17,680 --> 00:37:22,040
Speaker 4: they're opportunities right now. For example, in assisted living, which

641
00:37:22,080 --> 00:37:24,720
Speaker 4: is population is aging, you can make a very strong

642
00:37:24,760 --> 00:37:27,920
Speaker 4: case for fundamentals. Rents haven't moved up in years, and

643
00:37:27,960 --> 00:37:31,080
Speaker 4: I think there's probably pent up growth in reds to come.

644
00:37:32,120 --> 00:37:37,239
Speaker 4: And COVID was obviously a giant problem because any facility

645
00:37:37,640 --> 00:37:40,560
Speaker 4: tended to empty out as people pulled their relatives out

646
00:37:40,719 --> 00:37:43,759
Speaker 4: to save their lives during COVID understandably, and a lot

647
00:37:43,760 --> 00:37:46,880
Speaker 4: of newly built facilities from that era from twenty twenty

648
00:37:47,160 --> 00:37:49,840
Speaker 4: one to twenty twenty two never got filled and a

649
00:37:49,840 --> 00:37:52,800
Speaker 4: lot of them have run into bankruptcy or financial distress.

650
00:37:53,120 --> 00:37:55,319
Speaker 4: So it's been an opportunity to build a position an

651
00:37:55,400 --> 00:37:59,360
Speaker 4: area with strong fundamentals. The past is the past, but

652
00:37:59,480 --> 00:38:02,399
Speaker 4: moving forward, it looks like they're going to have real

653
00:38:02,719 --> 00:38:07,359
Speaker 4: ramp for rents and for occupancy, and we're seeing opportunity

654
00:38:07,400 --> 00:38:11,680
Speaker 4: here and there to add to a portfolio of assisted living. Similarly,

655
00:38:11,719 --> 00:38:14,880
Speaker 4: we like certain parts of the real estate office market,

656
00:38:15,000 --> 00:38:19,400
Speaker 4: especially some outside the major cities in a few select

657
00:38:19,440 --> 00:38:22,760
Speaker 4: markets though, and we're seeing more in other sub markets

658
00:38:22,760 --> 00:38:25,640
Speaker 4: within real estate. It's a real estate, as you know,

659
00:38:25,840 --> 00:38:28,200
Speaker 4: is a giant market. It's probably got a market cap

660
00:38:28,480 --> 00:38:31,440
Speaker 4: around as big as a public equity market and so,

661
00:38:32,239 --> 00:38:36,279
Speaker 4: but it has a very different capital structure in terms

662
00:38:36,360 --> 00:38:38,960
Speaker 4: of who are the players and how much capital can

663
00:38:39,000 --> 00:38:43,120
Speaker 4: they tap and the opportunity set. So real estate's interesting.

664
00:38:43,239 --> 00:38:45,799
Speaker 4: We like looking at it, and we have a team

665
00:38:45,840 --> 00:38:49,600
Speaker 4: that's agile and could deploy capital quickly when something comes along.

666
00:38:50,120 --> 00:38:55,200
Speaker 4: In private investments, it's opportunistic, and there have been some

667
00:38:55,239 --> 00:38:58,560
Speaker 4: things to do lately as capitals pulled back from private investments,

668
00:38:58,840 --> 00:39:03,359
Speaker 4: for example and energy and midstream. That's led to some

669
00:39:03,440 --> 00:39:05,480
Speaker 4: things that have trickled down to us that we've been

670
00:39:05,560 --> 00:39:11,440
Speaker 4: very excited, very high return and well hedged, so downside protected.

671
00:39:11,920 --> 00:39:16,960
Speaker 4: So we're just opportunistic investors. I would say, though, using

672
00:39:17,000 --> 00:39:20,960
Speaker 4: my top down lens that you mentioned, we are certainly nervous.

673
00:39:21,080 --> 00:39:25,600
Speaker 4: We're in a bit of an economic boom, possibly an

674
00:39:25,640 --> 00:39:29,160
Speaker 4: inflationary boom. Who knows what's going to happen with the

675
00:39:29,200 --> 00:39:32,239
Speaker 4: Strait of Hormuz and the end result of that, and

676
00:39:32,280 --> 00:39:36,719
Speaker 4: the demand for AI is an AI related investments is

677
00:39:36,760 --> 00:39:39,879
Speaker 4: so all encompassing. It's almost as if the market has

678
00:39:39,920 --> 00:39:42,520
Speaker 4: said we want the AI winners. We're going to dump

679
00:39:42,560 --> 00:39:44,759
Speaker 4: anything that looks like an AI loser, and maybe we'll

680
00:39:44,760 --> 00:39:46,960
Speaker 4: throw out some babies with the bathwater, and we don't care.

681
00:39:47,600 --> 00:39:50,680
Speaker 4: And AI agnostic, we're not looking at that either. So

682
00:39:50,760 --> 00:39:54,640
Speaker 4: we think there's opportunity even in some larger cap high

683
00:39:54,719 --> 00:39:58,680
Speaker 4: quality equities that are being thrown out as people want

684
00:39:58,719 --> 00:40:01,480
Speaker 4: to make the high returns from speculating an AI.

685
00:40:01,600 --> 00:40:02,799
Speaker 3: Right now, we're going to.

686
00:40:02,760 --> 00:40:06,640
Speaker 2: Talk a little bit about the current environment in greater details. Shortly,

687
00:40:07,600 --> 00:40:11,440
Speaker 2: I just have to ask one more question about contrarian

688
00:40:11,520 --> 00:40:16,440
Speaker 2: approach as an opportunity for value investors. The risk is

689
00:40:16,480 --> 00:40:21,839
Speaker 2: always a value trap. Sometimes the market's negative judgment is

690
00:40:21,960 --> 00:40:28,040
Speaker 2: actually right. How do you prevent something that's cheap from

691
00:40:28,280 --> 00:40:31,920
Speaker 2: suckering you into something that's on the way to becoming

692
00:40:32,120 --> 00:40:33,080
Speaker 2: much much cheaper.

693
00:40:33,680 --> 00:40:36,640
Speaker 4: Yeah, you're asking something that we've had a bit of

694
00:40:36,640 --> 00:40:40,400
Speaker 4: a painful lesson in over time, which is cheap is

695
00:40:40,680 --> 00:40:43,680
Speaker 4: not really a strategy. We tend to look at our

696
00:40:43,760 --> 00:40:46,839
Speaker 4: investments not as are they at a discount from what

697
00:40:46,880 --> 00:40:49,320
Speaker 4: we think they could be worth, but rather what is

698
00:40:49,360 --> 00:40:52,560
Speaker 4: our expected go forward return from here? And we tend

699
00:40:52,560 --> 00:40:55,759
Speaker 4: to also ask that our investments have catalysts, and that

700
00:40:55,880 --> 00:40:58,799
Speaker 4: when we lay out a thesis in an investment conversation,

701
00:40:59,400 --> 00:41:03,520
Speaker 4: it's very clear not just how undervalued is it, but

702
00:41:03,640 --> 00:41:05,680
Speaker 4: why is this going to work? What's going to drive it?

703
00:41:06,120 --> 00:41:08,560
Speaker 4: And if we can't make an argument for why it's

704
00:41:08,719 --> 00:41:12,719
Speaker 4: turn around in the next year or two. It might

705
00:41:12,760 --> 00:41:15,120
Speaker 4: be nice that it's trading at a five year low,

706
00:41:15,600 --> 00:41:17,000
Speaker 4: but that doesn't mean it's not going to be at

707
00:41:17,040 --> 00:41:19,120
Speaker 4: a seven year low and a ten year low. And

708
00:41:19,200 --> 00:41:22,320
Speaker 4: so our time horizon is not that long. We can't

709
00:41:22,680 --> 00:41:25,880
Speaker 4: just hold things that don't perform for five or ten years.

710
00:41:26,000 --> 00:41:28,200
Speaker 4: I think very very few people can do it today,

711
00:41:28,719 --> 00:41:31,399
Speaker 4: and we think that's not holding our feet to the fire.

712
00:41:31,800 --> 00:41:36,520
Speaker 4: All organizations need to demand accountability from their teams, so

713
00:41:37,080 --> 00:41:40,200
Speaker 4: we always are asking ourselves and really I think changed

714
00:41:40,200 --> 00:41:44,280
Speaker 4: our approach a little bit, where we're asking a different

715
00:41:44,360 --> 00:41:48,319
Speaker 4: question about what is going to drive the success of

716
00:41:48,360 --> 00:41:51,839
Speaker 4: this investment rather than just letting it cheap being enough,

717
00:41:51,920 --> 00:41:52,680
Speaker 4: it's not enough.

718
00:41:53,400 --> 00:41:57,040
Speaker 2: Very very interesting. Coming up, we continue our conversation with

719
00:41:57,160 --> 00:42:01,320
Speaker 2: Seth Klarman's CEO and portfolio manager at the Bowpost Group,

720
00:42:01,840 --> 00:42:07,240
Speaker 2: discussing the state of investing in today's environment. I'm Barry Results.

721
00:42:07,320 --> 00:42:24,200
Speaker 2: You're listening to Masters of Business on Bloomberg Radio. I'm

722
00:42:24,320 --> 00:42:27,680
Speaker 2: very Results. You're listening to Masters in Business on Bloomberg Radio.

723
00:42:28,280 --> 00:42:31,799
Speaker 2: My extra special guest today is Seth Klarman. He is

724
00:42:31,880 --> 00:42:40,160
Speaker 2: the CEO and portfolio manager of Value Investing, really legend

725
00:42:40,880 --> 00:42:43,840
Speaker 2: the Bowpost Group. The firm managers about twenty two billion

726
00:42:43,880 --> 00:42:49,800
Speaker 2: dollars in client assets. We've touched briefly on things affecting

727
00:42:49,840 --> 00:42:53,799
Speaker 2: today's environment, price of oil, inflation, we have a Middle

728
00:42:53,840 --> 00:42:57,240
Speaker 2: East war, We're still dealing with a new set of tariffs.

729
00:42:57,280 --> 00:43:01,919
Speaker 2: It seems like every week there's a different mac grow headache.

730
00:43:02,400 --> 00:43:06,400
Speaker 2: How do you think about the current environment. Is it

731
00:43:06,560 --> 00:43:12,239
Speaker 2: something that has to be dealt with but sort of compartmentalized.

732
00:43:12,920 --> 00:43:15,520
Speaker 2: Is something that have to be dealt with and compartmentalized

733
00:43:15,680 --> 00:43:19,400
Speaker 2: or do you just look at it as yet another

734
00:43:19,440 --> 00:43:21,520
Speaker 2: input into fundamental values?

735
00:43:23,640 --> 00:43:29,200
Speaker 4: So I think AI is a sea change, and that

736
00:43:29,520 --> 00:43:34,600
Speaker 4: I'm not a tech guy, and I'm not a personal

737
00:43:34,680 --> 00:43:38,280
Speaker 4: user at the cutting edge of technology, but I've spent

738
00:43:38,320 --> 00:43:40,840
Speaker 4: a huge amount of time. I think that the advent

739
00:43:40,880 --> 00:43:45,719
Speaker 4: of AI has forced me and probably everyone to just

740
00:43:45,880 --> 00:43:49,359
Speaker 4: add more time to their day to stay current. That

741
00:43:49,440 --> 00:43:52,719
Speaker 4: I've never seen a technology with this kind of importance

742
00:43:53,200 --> 00:43:58,200
Speaker 4: and potential game changing magnitude. So I read everything I

743
00:43:58,239 --> 00:43:59,840
Speaker 4: get my hands on. I listen to a lot of

744
00:44:00,040 --> 00:44:02,040
Speaker 4: podcast as well. I read a lot of books and

745
00:44:02,440 --> 00:44:07,200
Speaker 4: magazine articles as well. I'm consumed because even though I

746
00:44:07,200 --> 00:44:10,120
Speaker 4: don't think Baopost as a value firm is going to

747
00:44:10,160 --> 00:44:14,160
Speaker 4: find too many ways to get long AI exposure, I

748
00:44:14,239 --> 00:44:16,920
Speaker 4: think that we don't want to. We don't want to

749
00:44:16,960 --> 00:44:19,200
Speaker 4: be behind the curve. We don't want to not know

750
00:44:19,280 --> 00:44:23,280
Speaker 4: what we don't know, and so the team is doing

751
00:44:23,280 --> 00:44:26,680
Speaker 4: a fabulous job thinking about AI, thinking about ways to

752
00:44:26,719 --> 00:44:30,640
Speaker 4: incorporate it into our processes, but also especially thinking about

753
00:44:30,640 --> 00:44:34,040
Speaker 4: the implications of AI on our portfolio companies. So I

754
00:44:34,080 --> 00:44:36,440
Speaker 4: think we have found ways to have a little bit

755
00:44:36,440 --> 00:44:40,360
Speaker 4: of long exposure in things, for example, like data centers,

756
00:44:40,680 --> 00:44:43,880
Speaker 4: where we own a few private investments at what we

757
00:44:43,920 --> 00:44:47,240
Speaker 4: think is a very considerable discount to where data centers

758
00:44:47,239 --> 00:44:50,480
Speaker 4: tend to trade. We're not sure what the right discount is,

759
00:44:50,560 --> 00:44:52,160
Speaker 4: or we're not really sure what the right long term

760
00:44:52,200 --> 00:44:55,239
Speaker 4: cap rate is, but we think owning it a significant

761
00:44:55,280 --> 00:44:56,359
Speaker 4: discount is a good thing.

762
00:44:56,480 --> 00:44:57,640
Speaker 3: So we have some exposure.

763
00:44:58,080 --> 00:45:01,920
Speaker 4: But mostly we're trying to own a portfoli where we

764
00:45:02,239 --> 00:45:06,680
Speaker 4: have avoided AI losers and maybe occasionally we've found something

765
00:45:06,719 --> 00:45:08,960
Speaker 4: that market thinks is an AI loser that we think

766
00:45:09,080 --> 00:45:13,719
Speaker 4: isn't and to otherwise have things with ancillary exposure to

767
00:45:13,800 --> 00:45:16,840
Speaker 4: AI where we can turn into AI winners but not

768
00:45:16,920 --> 00:45:19,680
Speaker 4: pay much for the privilege. So it's it's a piece

769
00:45:19,719 --> 00:45:23,520
Speaker 4: of what we do in the meantime. Obviously you refer

770
00:45:23,640 --> 00:45:26,840
Speaker 4: to tariffs and the president, the volatility of the president

771
00:45:27,200 --> 00:45:30,200
Speaker 4: and this administration. There are things coming out of left

772
00:45:30,200 --> 00:45:32,960
Speaker 4: field all the time. Some of it is policy, some

773
00:45:33,000 --> 00:45:36,680
Speaker 4: of it is distraction, I think, maybe deliberate distraction, and

774
00:45:36,760 --> 00:45:39,960
Speaker 4: it's very hard to deal with that. I think most

775
00:45:40,200 --> 00:45:43,839
Speaker 4: investors and I too have said I need to make

776
00:45:43,880 --> 00:45:46,120
Speaker 4: a mental note of it. I need to think about

777
00:45:46,120 --> 00:45:48,480
Speaker 4: who I want to vote for next time there's an election.

778
00:45:49,080 --> 00:45:52,000
Speaker 4: But I also need to not get distracted by this.

779
00:45:52,840 --> 00:45:55,280
Speaker 4: And most of it doesn't end up mattering on an

780
00:45:55,480 --> 00:45:59,200
Speaker 4: investment by investment basis. So it is a time of

781
00:45:59,360 --> 00:46:03,640
Speaker 4: tremendous change, high degrees of volatility, and you see the volatility.

782
00:46:03,719 --> 00:46:07,040
Speaker 4: The stock by stock volatility is unbelievable that when they

783
00:46:07,080 --> 00:46:09,640
Speaker 4: love a stock, they can't get enough of it and

784
00:46:09,680 --> 00:46:11,759
Speaker 4: it goes through the roof, and when they turn on

785
00:46:11,840 --> 00:46:15,080
Speaker 4: a stock, it gets clobbered, and so the individual stock

786
00:46:15,160 --> 00:46:18,759
Speaker 4: dispersion is very high. Well, the overall market volatility is

787
00:46:18,760 --> 00:46:19,640
Speaker 4: actually quite low.

788
00:46:20,160 --> 00:46:25,200
Speaker 2: Huh, really interesting. Let's talk about another distraction and what

789
00:46:25,239 --> 00:46:30,920
Speaker 2: it might might mean. We're recording this a couple of

790
00:46:31,040 --> 00:46:35,080
Speaker 2: days before the SpaceX ipo, it'll broadcast a couple of

791
00:46:35,160 --> 00:46:39,520
Speaker 2: days after the SpaceX ipo. This is not only a

792
00:46:39,800 --> 00:46:45,440
Speaker 2: giant trillion dollar valuation, but it's got a lot of

793
00:46:45,520 --> 00:46:48,600
Speaker 2: hair on the deal with this tiny float and the

794
00:46:48,680 --> 00:46:52,600
Speaker 2: Nasdaq waving the rules to put an end to the cues.

795
00:46:53,360 --> 00:46:56,520
Speaker 2: How do you look at an event like this in

796
00:46:56,640 --> 00:47:01,200
Speaker 2: terms of the overall gestalt of the market is I

797
00:47:01,239 --> 00:47:03,799
Speaker 2: know the old line is they don't ring a bell

798
00:47:03,840 --> 00:47:06,080
Speaker 2: at the top, But at a certain point, how do

799
00:47:06,120 --> 00:47:08,920
Speaker 2: you perceive something like this? Does it trouble you?

800
00:47:09,960 --> 00:47:12,279
Speaker 4: So my compliance team is very clear that I can't

801
00:47:12,280 --> 00:47:15,400
Speaker 4: talk about individual securities and we own We own no

802
00:47:15,480 --> 00:47:19,600
Speaker 4: SpaceX privately or in any other form. What I would

803
00:47:19,600 --> 00:47:22,719
Speaker 4: say to you is I share your sense that this

804
00:47:22,920 --> 00:47:25,600
Speaker 4: is the kind of bell that might ring at the top.

805
00:47:27,160 --> 00:47:31,000
Speaker 4: It is an unprofitable company, and aggregate it is an

806
00:47:31,120 --> 00:47:33,880
Speaker 4: enormous valuation. I think we all we both read in

807
00:47:33,920 --> 00:47:37,080
Speaker 4: the paper this morning the Goldman estimates of what growth

808
00:47:37,080 --> 00:47:39,440
Speaker 4: would have to be in some parts of their business,

809
00:47:39,480 --> 00:47:42,240
Speaker 4: like one hundred x in order to justify the current

810
00:47:42,280 --> 00:47:46,440
Speaker 4: price a long period of time, and those projections have

811
00:47:46,480 --> 00:47:50,560
Speaker 4: a way of not happening. Is it's not impossible, but

812
00:47:50,640 --> 00:48:00,799
Speaker 4: it's hard. I think that that it is. I think

813
00:48:00,840 --> 00:48:04,800
Speaker 4: investors might be missing just how much money is being

814
00:48:04,840 --> 00:48:08,560
Speaker 4: sucked out of the system between large IPOs. This won't

815
00:48:08,560 --> 00:48:11,520
Speaker 4: be the last one. Open AI Onanthropic are coming, and

816
00:48:11,600 --> 00:48:14,799
Speaker 4: there's a ton of other IPOs that are stuck in

817
00:48:14,880 --> 00:48:18,680
Speaker 4: institutional investors' portfolios that also they'd love if they could

818
00:48:18,680 --> 00:48:22,040
Speaker 4: get them off at any point. Then the float might

819
00:48:22,080 --> 00:48:24,839
Speaker 4: be tiny today, but you have a large number of

820
00:48:24,880 --> 00:48:28,399
Speaker 4: shareholders private investments. We write again this morning that ten

821
00:48:28,480 --> 00:48:33,000
Speaker 4: or fifteen percent of some endowments entire endowment is in

822
00:48:33,040 --> 00:48:34,319
Speaker 4: the one name SpaceX.

823
00:48:34,719 --> 00:48:36,360
Speaker 3: So they're going to want to sell.

824
00:48:36,880 --> 00:48:39,399
Speaker 4: Employees are going to want to monetize and go from

825
00:48:39,480 --> 00:48:43,200
Speaker 4: being wealthy on paper to wealthy in a bank deposit.

826
00:48:43,719 --> 00:48:46,239
Speaker 4: And so that's a lot of stock for sale and

827
00:48:46,280 --> 00:48:50,440
Speaker 4: we have to sell that stock. While apparently Google and

828
00:48:50,560 --> 00:48:54,320
Speaker 4: Facebook need more money, and where open AI and Anthropic

829
00:48:54,440 --> 00:48:57,200
Speaker 4: need more money, and utilities need more money to power

830
00:48:57,640 --> 00:49:00,279
Speaker 4: and chip companies need to build new factories. In America,

831
00:49:00,840 --> 00:49:04,400
Speaker 4: there's so much demand for money. And I think we're

832
00:49:04,440 --> 00:49:08,440
Speaker 4: in a vulnerable place where ultimately supply and demand for

833
00:49:08,480 --> 00:49:12,040
Speaker 4: money determines the cost of capital. And that's true in

834
00:49:12,080 --> 00:49:13,960
Speaker 4: a bond market, and it's in effect true in the

835
00:49:13,960 --> 00:49:19,240
Speaker 4: stock market. So we might be looking some supply demand

836
00:49:20,160 --> 00:49:25,320
Speaker 4: excess where prices soften just because there's so much supplier

837
00:49:25,920 --> 00:49:30,840
Speaker 4: of securities and the need to monetize is so great

838
00:49:31,120 --> 00:49:32,360
Speaker 4: by these private companies.

839
00:49:32,480 --> 00:49:38,080
Speaker 2: So let's talk about another imbalance between supply and demands

840
00:49:38,239 --> 00:49:42,719
Speaker 2: through history. Because Bowpost has been around for over four decades,

841
00:49:43,400 --> 00:49:48,560
Speaker 2: You've traded and invested through and survived all sorts of

842
00:49:48,600 --> 00:49:54,480
Speaker 2: different market regimes, inflation, disinflation, the dot com bubble, the

843
00:49:54,520 --> 00:50:01,280
Speaker 2: financial crisis, QE and ZUP, COVID, and and more recently

844
00:50:01,360 --> 00:50:05,400
Speaker 2: the return to let's just call it normalized interest rates.

845
00:50:06,640 --> 00:50:09,640
Speaker 2: Has anything changed since nineteen eighty two? Is it just

846
00:50:09,719 --> 00:50:15,160
Speaker 2: the same careening from one crisis to another or do

847
00:50:15,280 --> 00:50:19,520
Speaker 2: things eventually sort of moderate? Sort of do we learn

848
00:50:19,600 --> 00:50:22,680
Speaker 2: from these experiences, what's the same, what's different.

849
00:50:24,760 --> 00:50:27,880
Speaker 4: I think that all investors should be students of history,

850
00:50:27,960 --> 00:50:30,560
Speaker 4: as we talked about, and I think we know that

851
00:50:30,680 --> 00:50:33,799
Speaker 4: over the course of history, they're cycles that you're going

852
00:50:33,840 --> 00:50:37,520
Speaker 4: to have a cycle where you're at war, and then

853
00:50:37,560 --> 00:50:39,719
Speaker 4: another cycle where people are tired of war and you

854
00:50:39,719 --> 00:50:42,040
Speaker 4: have peace for a while. At some point you have

855
00:50:42,120 --> 00:50:44,560
Speaker 4: peace long enough that people forget how bad war is,

856
00:50:44,640 --> 00:50:46,920
Speaker 4: and you end up in another war, and you have

857
00:50:47,000 --> 00:50:52,320
Speaker 4: those similar cycles. Whether it's the government spending and inflation

858
00:50:52,440 --> 00:50:55,479
Speaker 4: and deflation, that sort of thing. Even the nature of debt.

859
00:50:55,920 --> 00:50:59,080
Speaker 4: That debt feels great when nobody's asking you to pay

860
00:50:59,120 --> 00:51:00,880
Speaker 4: it back and an interest rates are low. At some

861
00:51:00,960 --> 00:51:04,759
Speaker 4: point that becomes pernicious and a giant problem. So I

862
00:51:04,800 --> 00:51:07,520
Speaker 4: think we're likely to always see those cycles, at least

863
00:51:07,520 --> 00:51:11,399
Speaker 4: as long as humans are in charge of markets. How

864
00:51:11,400 --> 00:51:14,080
Speaker 4: do you navigate it? I think you navigate it by

865
00:51:14,200 --> 00:51:17,240
Speaker 4: realizing that you may not see the cycle with clarity

866
00:51:17,239 --> 00:51:19,680
Speaker 4: while you're in it, but you know there are cycles.

867
00:51:20,120 --> 00:51:22,520
Speaker 4: You know that what seems to be true today for

868
00:51:22,600 --> 00:51:25,279
Speaker 4: all time probably won't be true for all time, and

869
00:51:25,360 --> 00:51:27,840
Speaker 4: hold on to that. So again it goes to the

870
00:51:27,880 --> 00:51:30,239
Speaker 4: idea of holding inconsistent ideas in your head. At the

871
00:51:30,239 --> 00:51:33,360
Speaker 4: same time. This is both true and likely at some

872
00:51:33,440 --> 00:51:37,040
Speaker 4: point to become less true or untrue, and you don't

873
00:51:37,040 --> 00:51:40,879
Speaker 4: know exactly how So how do you hold the portfolio,

874
00:51:41,160 --> 00:51:44,640
Speaker 4: you diversify. When things are up a lot and become

875
00:51:44,680 --> 00:51:47,279
Speaker 4: more expensive and the go forward return is low, you

876
00:51:47,320 --> 00:51:49,799
Speaker 4: take profits. You trade out when things are out of

877
00:51:49,800 --> 00:51:54,719
Speaker 4: favor so badly that the returns look high. Maybe there's

878
00:51:54,760 --> 00:51:57,000
Speaker 4: a time to step in and buy during a period

879
00:51:57,040 --> 00:52:00,359
Speaker 4: when others are dumping. So I think it's that stay

880
00:52:00,360 --> 00:52:03,960
Speaker 4: focused on the bottom up. Remember broadly the weather, so

881
00:52:04,000 --> 00:52:07,040
Speaker 4: when you go camping, you don't not prepare appropriately for

882
00:52:07,120 --> 00:52:10,360
Speaker 4: stormy days, not just in the mountains but in the

883
00:52:10,360 --> 00:52:14,759
Speaker 4: financial markets. And look, Bowpost protects on the downside as

884
00:52:14,840 --> 00:52:18,840
Speaker 4: best we can by doing deep fundamental analysis, by knowing

885
00:52:18,840 --> 00:52:22,040
Speaker 4: our names unbelievably well, by not being afraid to sell

886
00:52:22,080 --> 00:52:24,600
Speaker 4: them when the price is up and the same as

887
00:52:24,600 --> 00:52:27,400
Speaker 4: we buy more when the price is down. By finding

888
00:52:27,440 --> 00:52:31,080
Speaker 4: securities that are maybe more senior in nature, whether in

889
00:52:31,080 --> 00:52:34,919
Speaker 4: public or private markets, and by macro hedging the portfolio

890
00:52:34,960 --> 00:52:37,640
Speaker 4: to an extent, because we know that those rainy days

891
00:52:37,640 --> 00:52:40,920
Speaker 4: are going to happen, and so we're buying macro protection

892
00:52:41,080 --> 00:52:43,560
Speaker 4: when volves are low and people think nothing bad is

893
00:52:43,560 --> 00:52:46,000
Speaker 4: going to happen, so we can sell that at a gain,

894
00:52:46,520 --> 00:52:48,799
Speaker 4: both because the price moved in bec has val moved

895
00:52:48,880 --> 00:52:51,720
Speaker 4: up during a stormier moment in the markets.

896
00:52:52,320 --> 00:52:55,279
Speaker 2: So we now have a new FED chair and that's

897
00:52:55,280 --> 00:52:59,520
Speaker 2: a great leaping off point to talk about a lot

898
00:52:59,600 --> 00:53:03,760
Speaker 2: of skillicism broadly. But you've been pretty skeptical about FED

899
00:53:03,840 --> 00:53:08,440
Speaker 2: policy since the financial crisis. How do you think rates

900
00:53:08,480 --> 00:53:13,759
Speaker 2: have affected investors? What's been the impact on behavior and

901
00:53:14,239 --> 00:53:16,680
Speaker 2: are we at a point now where rates have more

902
00:53:16,800 --> 00:53:19,520
Speaker 2: or less normalized. How do you look at the present environment.

903
00:53:21,200 --> 00:53:25,839
Speaker 4: You know, I believe in people taking responsibility for their actions.

904
00:53:25,920 --> 00:53:29,799
Speaker 4: I believe that we are a healthier system when there's

905
00:53:29,840 --> 00:53:33,839
Speaker 4: a reckoning for excess and for you know, egregious speculation

906
00:53:34,160 --> 00:53:37,560
Speaker 4: and for over leverage. So I kind of hated that

907
00:53:37,600 --> 00:53:41,279
Speaker 4: the FED took rate I totally understood why the FED

908
00:53:41,280 --> 00:53:44,200
Speaker 4: took rates down to zero after the Great Financial Crisis,

909
00:53:44,640 --> 00:53:46,520
Speaker 4: and that it was really the only way to hold

910
00:53:46,520 --> 00:53:49,800
Speaker 4: things together give time to heal. But by leaving rates

911
00:53:49,800 --> 00:53:53,080
Speaker 4: there for an extra decade after there was no crisis,

912
00:53:53,160 --> 00:53:57,000
Speaker 4: I think we stoked a problem. We sort of incented

913
00:53:57,040 --> 00:54:02,879
Speaker 4: speculation and maybe dis incentivized responsibility, and so we got

914
00:54:02,880 --> 00:54:06,960
Speaker 4: some of that. We saw that firsthand in twenty twenty two,

915
00:54:07,320 --> 00:54:10,200
Speaker 4: when the market had gone higher and higher and higher.

916
00:54:10,200 --> 00:54:13,439
Speaker 4: You had those SPACs and all kinds of garbage heet

917
00:54:13,440 --> 00:54:16,800
Speaker 4: companies training at very high prices the MEME stocks, and

918
00:54:16,840 --> 00:54:18,600
Speaker 4: then it blew up in twenty twenty two, a lot

919
00:54:18,640 --> 00:54:22,040
Speaker 4: of stocks down, you know, fifty seventy eighty ninety ninety

920
00:54:22,080 --> 00:54:26,360
Speaker 4: five percent. And that's what happens when you get that

921
00:54:26,440 --> 00:54:34,800
Speaker 4: kind of unregulated speculation. I think today we are back speculating.

922
00:54:34,880 --> 00:54:38,719
Speaker 4: We're speculating in an era that in an area that

923
00:54:38,800 --> 00:54:42,600
Speaker 4: feels more legitimate. It's hard to say exactly what's going

924
00:54:42,640 --> 00:54:48,600
Speaker 4: to happen with the continued development of AI, with the

925
00:54:48,640 --> 00:54:53,400
Speaker 4: possibility of AGI coming and what that will mean. We

926
00:54:53,480 --> 00:54:56,480
Speaker 4: don't know whether it's going to lead to massive unemployment,

927
00:54:56,520 --> 00:54:59,799
Speaker 4: when it's going to lead to incredible prosperity, or whether

928
00:54:59,800 --> 00:55:02,440
Speaker 4: it's going to create even more dispersion in the economy

929
00:55:02,480 --> 00:55:04,799
Speaker 4: between the people are doing well and the people are

930
00:55:04,840 --> 00:55:08,680
Speaker 4: not doing well the case shaped economy, and that's a

931
00:55:08,719 --> 00:55:11,640
Speaker 4: real source of concern. So there's always going to be

932
00:55:11,680 --> 00:55:15,000
Speaker 4: that kind of uncertainty. I think what we should agree

933
00:55:15,160 --> 00:55:17,960
Speaker 4: is that there's going to be a path that nobody

934
00:55:18,000 --> 00:55:21,360
Speaker 4: today in twenty twenty six could say with any precision

935
00:55:21,680 --> 00:55:23,440
Speaker 4: what things are going to look like in two or

936
00:55:23,520 --> 00:55:26,600
Speaker 4: four or ten years. And the dilemma with that is

937
00:55:26,800 --> 00:55:29,799
Speaker 4: people are paying very high prices, so the future is

938
00:55:29,840 --> 00:55:33,680
Speaker 4: extremely predictable and clear when obviously, given what's going on,

939
00:55:33,840 --> 00:55:35,040
Speaker 4: it is anything but that.

940
00:55:35,560 --> 00:55:38,839
Speaker 2: So you're a big Boston guy, and you mentioned you

941
00:55:38,880 --> 00:55:42,080
Speaker 2: were a big fan of the sports pages and all

942
00:55:42,120 --> 00:55:46,000
Speaker 2: the statistics. What do you think of what's going on

943
00:55:46,160 --> 00:55:50,759
Speaker 2: in sports these days? The Celtics didn't go as far

944
00:55:50,840 --> 00:55:54,120
Speaker 2: as some people thought. We're now Knicks are up to

945
00:55:54,120 --> 00:55:57,280
Speaker 2: one in the finals. How are you looking at basketball?

946
00:55:57,280 --> 00:55:58,840
Speaker 2: What do you like in sports these days?

947
00:56:00,560 --> 00:56:05,560
Speaker 4: So, my two biggest sports passions are baseball and I'm

948
00:56:05,600 --> 00:56:08,600
Speaker 4: a small owner in the Red Sox and horse racing,

949
00:56:08,800 --> 00:56:11,920
Speaker 4: and I've been fortunate to have some really high quality

950
00:56:12,280 --> 00:56:16,520
Speaker 4: thoroughbreds over the years, and we want a few races

951
00:56:16,920 --> 00:56:19,520
Speaker 4: Belmont Steakes weekend, not the Belmont, but a few other

952
00:56:19,840 --> 00:56:23,160
Speaker 4: stakes races this past weekend. So those are my favorite sports.

953
00:56:23,440 --> 00:56:27,000
Speaker 4: I thought the Celtics season was disappointing. They played so

954
00:56:27,200 --> 00:56:30,320
Speaker 4: well the first three quarters of the season, and sadly,

955
00:56:30,400 --> 00:56:33,759
Speaker 4: when their superstar Jason Tatum came back, I think it

956
00:56:33,880 --> 00:56:36,520
Speaker 4: got them out of their game where they were introducing

957
00:56:36,600 --> 00:56:39,200
Speaker 4: younger players into the mix, they were passing the ball

958
00:56:39,239 --> 00:56:42,640
Speaker 4: a lot and really winning in an exciting way. So

959
00:56:42,719 --> 00:56:46,080
Speaker 4: maybe the chemistry just didn't go as well as they

960
00:56:46,080 --> 00:56:48,319
Speaker 4: had hoped, and then when Tatum got hurt right at

961
00:56:48,320 --> 00:56:50,439
Speaker 4: the end of the playoffs, we bowed out.

962
00:56:51,719 --> 00:56:53,160
Speaker 3: I think sports is great.

963
00:56:53,520 --> 00:56:57,600
Speaker 4: It's a place where Americans of Blue Americans and independent

964
00:56:57,640 --> 00:57:00,200
Speaker 4: Americans and Red Americans kind all root for the same

965
00:57:00,239 --> 00:57:03,080
Speaker 4: team and can be excited about a sport and could

966
00:57:03,080 --> 00:57:06,840
Speaker 4: do it in a way that's gracious and accept winning

967
00:57:06,920 --> 00:57:10,719
Speaker 4: but also except losing. Sports is a great equalizer and

968
00:57:10,800 --> 00:57:13,680
Speaker 4: a great unifier. So I love sports. It serves a

969
00:57:13,719 --> 00:57:17,360
Speaker 4: lot of positive purposes in a society. It's a little

970
00:57:17,440 --> 00:57:21,439
Speaker 4: crazy because we're rooting for strangers we've never met who

971
00:57:21,480 --> 00:57:25,040
Speaker 4: represent our city, but it is a powerful way that

972
00:57:25,080 --> 00:57:26,680
Speaker 4: I think also can unite a city.

973
00:57:26,920 --> 00:57:30,320
Speaker 2: So baseball this year just seems to be so odd

974
00:57:30,400 --> 00:57:34,960
Speaker 2: that the Mets are having a hard time the Red Sox.

975
00:57:36,120 --> 00:57:37,960
Speaker 2: I don't have no idea what's going to happen with

976
00:57:38,000 --> 00:57:40,560
Speaker 2: them this year. What do you think about what's happening

977
00:57:40,560 --> 00:57:42,320
Speaker 2: in baseball in twenty twenty six.

978
00:57:43,720 --> 00:57:47,800
Speaker 4: Yeah, I think that it is partly as small numbers

979
00:57:47,840 --> 00:57:50,880
Speaker 4: that we've only played sixty or sixty five or seventy games,

980
00:57:51,200 --> 00:57:52,800
Speaker 4: so there's still a lot of season to go.

981
00:57:53,000 --> 00:57:54,600
Speaker 2: But that's a third of a season.

982
00:57:54,720 --> 00:57:58,160
Speaker 3: It's a third of a season. But statistics, you know, things.

983
00:57:57,920 --> 00:58:00,120
Speaker 2: Can mean reversional eventually cast.

984
00:58:01,800 --> 00:58:03,760
Speaker 4: In the same way that I mean, all of us

985
00:58:03,760 --> 00:58:06,480
Speaker 4: have to decide whether we believe on hot streaks or not. Right,

986
00:58:06,520 --> 00:58:09,520
Speaker 4: it looks like a thing, but in fact, is there

987
00:58:09,560 --> 00:58:13,400
Speaker 4: really a shooting streak or is it simply And and

988
00:58:14,040 --> 00:58:17,480
Speaker 4: to every good shooter, you you get a little overconfident,

989
00:58:17,560 --> 00:58:18,640
Speaker 4: start taking worse shots.

990
00:58:18,680 --> 00:58:20,720
Speaker 2: It's when you when you.

991
00:58:20,640 --> 00:58:24,320
Speaker 4: Take high percentage shots and you take them consistently. So

992
00:58:24,960 --> 00:58:29,840
Speaker 4: I think that that baseball will always surprise you. It's

993
00:58:29,880 --> 00:58:32,840
Speaker 4: a perplexing game that what you draw up on paper

994
00:58:32,920 --> 00:58:36,680
Speaker 4: doesn't happen. But it's also doesn't happen in the locker room.

995
00:58:36,800 --> 00:58:40,080
Speaker 4: That the players can't understand. I could hit last year

996
00:58:40,280 --> 00:58:42,600
Speaker 4: and now I can't hit. And part of it is

997
00:58:42,680 --> 00:58:46,800
Speaker 4: that the opponents adjust that if you're a rookie and

998
00:58:46,840 --> 00:58:48,600
Speaker 4: you know Roman Anthony and you come up and you

999
00:58:48,680 --> 00:58:52,800
Speaker 4: hit three hundred for two months, he's hurt. But the

1000
00:58:52,880 --> 00:58:56,080
Speaker 4: pitching figures out your weak spots and they make you

1001
00:58:56,120 --> 00:58:58,600
Speaker 4: look bad. And then you were you adjust and you

1002
00:58:58,640 --> 00:59:01,000
Speaker 4: make the pitchers look bad. So I think there's that

1003
00:59:01,160 --> 00:59:07,720
Speaker 4: perpetual back and forth between defense adjusting and then offense adjusting,

1004
00:59:08,240 --> 00:59:10,440
Speaker 4: and where it ends up determines who goes in the

1005
00:59:10,440 --> 00:59:10,959
Speaker 4: Hall of Fame.

1006
00:59:11,320 --> 00:59:16,360
Speaker 2: Huh really interesting. You very famously kept a low profile

1007
00:59:17,320 --> 00:59:23,280
Speaker 2: in a business that has historically rewarded publicity. Was that

1008
00:59:23,360 --> 00:59:29,360
Speaker 2: a conscious decision? Was that a strategic approach? And why

1009
00:59:30,720 --> 00:59:35,720
Speaker 2: be a little more public these days?

1010
00:59:36,880 --> 00:59:40,240
Speaker 4: So I'm probably a little bit more introvert than extrovert,

1011
00:59:40,360 --> 00:59:43,640
Speaker 4: so I'm not looking to be on TV or in

1012
00:59:43,680 --> 00:59:46,280
Speaker 4: the papers. I also think a lot of the work

1013
00:59:46,320 --> 00:59:49,280
Speaker 4: we do is better off when everybody isn't looking to

1014
00:59:49,400 --> 00:59:52,840
Speaker 4: copy our investments. That if you want to accumulate a stock,

1015
00:59:53,240 --> 00:59:55,880
Speaker 4: you're better off. If everybody doesn't know that you're trying

1016
00:59:55,920 --> 00:59:57,640
Speaker 4: to do that, you're going to get a better price,

1017
00:59:58,040 --> 01:00:01,840
Speaker 4: Like in any business transaction that said, We've never been

1018
01:00:02,080 --> 01:00:04,800
Speaker 4: We're not a recluse. You know, everybody knows where we are,

1019
01:00:05,680 --> 01:00:08,720
Speaker 4: Everybody knows members of our team. We're very very well

1020
01:00:08,760 --> 01:00:11,680
Speaker 4: known on the street. You just don't see me on TV.

1021
01:00:11,800 --> 01:00:14,360
Speaker 4: Talking about it all the time. I don't know why

1022
01:00:14,400 --> 01:00:16,160
Speaker 4: that's a bad thing. It feels to me like a

1023
01:00:16,200 --> 01:00:16,640
Speaker 4: good thing.

1024
01:00:17,560 --> 01:00:20,240
Speaker 2: And beyond investing, you and your wife have been very

1025
01:00:20,280 --> 01:00:25,920
Speaker 2: active philanthropists the Clarman Cell Observatory. There's been just a

1026
01:00:26,000 --> 01:00:29,720
Speaker 2: run of different things. How do you think about philanthropy,

1027
01:00:29,760 --> 01:00:32,760
Speaker 2: how do you think about capital allocation? And how do

1028
01:00:32,800 --> 01:00:35,480
Speaker 2: you make sure that the money that are going to

1029
01:00:35,560 --> 01:00:38,000
Speaker 2: these causes is being well spent.

1030
01:00:39,600 --> 01:00:42,160
Speaker 4: On our third date, my wife and I were taking

1031
01:00:42,160 --> 01:00:45,240
Speaker 4: a walk on Cape Cod on the beach and she said,

1032
01:00:46,520 --> 01:00:48,840
Speaker 4: and we're just getting to know each other obviously, third date,

1033
01:00:49,360 --> 01:00:51,840
Speaker 4: she said, what do you hope for in your life?

1034
01:00:52,000 --> 01:00:54,720
Speaker 4: I said, I hope that if I'm able to provide

1035
01:00:54,760 --> 01:00:58,120
Speaker 4: for my family and there's still resources beyond that, I

1036
01:00:58,120 --> 01:01:00,360
Speaker 4: want to get back. And that just comes from my

1037
01:01:00,440 --> 01:01:03,480
Speaker 4: fundamental view. I guess it's how I was raised, that

1038
01:01:04,040 --> 01:01:05,880
Speaker 4: some of us are going to be fortunate and be

1039
01:01:05,960 --> 01:01:08,120
Speaker 4: in that position at a time when not everybody is.

1040
01:01:08,760 --> 01:01:12,600
Speaker 4: And it's both it's both a privilege and a responsibility

1041
01:01:12,640 --> 01:01:18,200
Speaker 4: to give backs. You can't take it with you, and

1042
01:01:18,640 --> 01:01:21,800
Speaker 4: you probably don't want to. I mean, it's not a

1043
01:01:21,840 --> 01:01:25,600
Speaker 4: good look to spend it all ostentatiously in your lifetime.

1044
01:01:25,640 --> 01:01:26,600
Speaker 3: That's not my nature.

1045
01:01:27,200 --> 01:01:30,080
Speaker 4: So I've always, i think, been working to make money

1046
01:01:30,160 --> 01:01:32,840
Speaker 4: to give away, and it's what keeps me focused today

1047
01:01:32,960 --> 01:01:36,040
Speaker 4: that I love investing as a puzzle, but I love

1048
01:01:36,120 --> 01:01:39,280
Speaker 4: knowing that if we do it well, we serve our clients,

1049
01:01:39,440 --> 01:01:40,840
Speaker 4: I'm going to have money that I'm going to be

1050
01:01:40,880 --> 01:01:43,920
Speaker 4: able to add to what we give to charity. Charity

1051
01:01:44,520 --> 01:01:49,440
Speaker 4: is a calling. It feels very very important to me personally.

1052
01:01:49,920 --> 01:01:53,040
Speaker 4: I think this is a broken world. There are all

1053
01:01:53,160 --> 01:02:02,160
Speaker 4: kinds of problems, from climate change to a poor education system,

1054
01:02:03,240 --> 01:02:08,680
Speaker 4: to challenges to democracy that threaten America the way you

1055
01:02:08,720 --> 01:02:10,840
Speaker 4: and I have known it our whole lives, and the

1056
01:02:10,880 --> 01:02:14,600
Speaker 4: country that I want You probably want future generations to

1057
01:02:14,640 --> 01:02:17,480
Speaker 4: grow up. And America has been amazing for me. I

1058
01:02:17,520 --> 01:02:20,400
Speaker 4: have been such a beneficiary of growing up in this

1059
01:02:20,440 --> 01:02:24,120
Speaker 4: country and having unprecedented opportunities that if I was in

1060
01:02:24,160 --> 01:02:27,200
Speaker 4: another country I wouldn't have had. So I'm grateful for that.

1061
01:02:27,280 --> 01:02:29,320
Speaker 4: I want to make sure everybody has the same chance,

1062
01:02:29,640 --> 01:02:32,040
Speaker 4: but we also have to be realistic. The America dream

1063
01:02:32,120 --> 01:02:34,480
Speaker 4: is broken for a lot of people. People are less

1064
01:02:34,560 --> 01:02:37,840
Speaker 4: likely today to be able to say that their kids

1065
01:02:37,880 --> 01:02:41,360
Speaker 4: and grandkids will be able to eclipse them, and I

1066
01:02:41,360 --> 01:02:43,040
Speaker 4: think we need to restore that, and we have a

1067
01:02:43,080 --> 01:02:44,120
Speaker 4: lot of hard work to do.

1068
01:02:44,520 --> 01:02:44,640
Speaker 3: So.

1069
01:02:44,680 --> 01:02:48,280
Speaker 4: Our philanthropy goes into many different areas, some as you said,

1070
01:02:48,280 --> 01:02:51,760
Speaker 4: in science, some in terms of thinking about democracy and

1071
01:02:52,160 --> 01:02:56,960
Speaker 4: making sure that the system holds, some in terms of healthcare,

1072
01:02:57,720 --> 01:03:00,800
Speaker 4: some to the universities that we're going to. Me and

1073
01:03:00,840 --> 01:03:05,200
Speaker 4: my wife. We spread it pretty well because we believe

1074
01:03:05,280 --> 01:03:10,200
Speaker 4: that a lot of causes will come together to be

1075
01:03:10,280 --> 01:03:13,080
Speaker 4: able to lift up people throughout the country. One of

1076
01:03:13,080 --> 01:03:16,640
Speaker 4: the things we do is a music instrument fund because

1077
01:03:16,720 --> 01:03:19,440
Speaker 4: our son is extremely musical and it reminded us that

1078
01:03:19,800 --> 01:03:22,640
Speaker 4: every kid that is passionate about music should have a

1079
01:03:22,720 --> 01:03:27,480
Speaker 4: chance to have an instrument. We also do capital gifts

1080
01:03:27,880 --> 01:03:32,800
Speaker 4: in institutions throughout Massachusetts. In some of the harder hit

1081
01:03:32,880 --> 01:03:38,000
Speaker 4: towns during COVID or just economically depressed areas, there's just

1082
01:03:38,040 --> 01:03:40,440
Speaker 4: not a lot of money there, so kind of as

1083
01:03:40,480 --> 01:03:44,480
Speaker 4: a value investor, I'm seeing an opportunity to refurbish the

1084
01:03:44,520 --> 01:03:48,480
Speaker 4: civic center or this library in a small town in Massachusetts,

1085
01:03:48,840 --> 01:03:52,200
Speaker 4: and it just feels great to know that the people

1086
01:03:52,200 --> 01:03:54,680
Speaker 4: in Pittsfield will have as good a library as the

1087
01:03:54,680 --> 01:03:57,360
Speaker 4: people in Boston really interesting.

1088
01:03:57,520 --> 01:04:00,600
Speaker 2: All right, let's jump to our favorite questions ask all

1089
01:04:00,640 --> 01:04:04,600
Speaker 2: our guests, starting with who were your mentors who helped

1090
01:04:04,960 --> 01:04:05,960
Speaker 2: shape your career?

1091
01:04:07,520 --> 01:04:07,640
Speaker 3: So?

1092
01:04:08,280 --> 01:04:11,000
Speaker 4: I worked for Max Heine and Michael Price at Mutual

1093
01:04:11,040 --> 01:04:14,360
Speaker 4: Shares right out of college, and that was an incredible

1094
01:04:14,360 --> 01:04:18,360
Speaker 4: couple of years they and I stayed in close relationship

1095
01:04:18,400 --> 01:04:20,440
Speaker 4: with them over the years. They've been great friends and

1096
01:04:20,520 --> 01:04:23,640
Speaker 4: mentors to me. I think Warren Buffett, who I didn't

1097
01:04:23,680 --> 01:04:27,040
Speaker 4: know until later in my career, but reading about Warren,

1098
01:04:27,120 --> 01:04:30,440
Speaker 4: reading his annual reports and reading his old shareholder letters

1099
01:04:30,880 --> 01:04:35,560
Speaker 4: was very inspiring and also reminded me of the idea

1100
01:04:35,560 --> 01:04:38,520
Speaker 4: of quality companies, which was not something that Graham and

1101
01:04:38,560 --> 01:04:41,320
Speaker 4: Dodd talked that much about, but was something that Warren

1102
01:04:41,480 --> 01:04:44,840
Speaker 4: taught us all about. I think, so they were the

1103
01:04:44,840 --> 01:04:47,000
Speaker 4: people I would list as mentors. And then I also

1104
01:04:47,040 --> 01:04:50,440
Speaker 4: developed mentors who were kind of peers that I had

1105
01:04:50,440 --> 01:04:53,200
Speaker 4: a tiny firm. I didn't get trained officially at any

1106
01:04:53,240 --> 01:04:56,000
Speaker 4: big Wall Street firm, but I was able to form

1107
01:04:56,040 --> 01:04:59,640
Speaker 4: friendships with people that ran other funds. And some of

1108
01:04:59,680 --> 01:05:02,600
Speaker 4: those people probably you know all of them, but somebody

1109
01:05:02,640 --> 01:05:05,840
Speaker 4: like Richard Perry or somebody like Frank Rosen's or somebody

1110
01:05:05,920 --> 01:05:10,440
Speaker 4: like Paul Singer have all been mentors in various ways

1111
01:05:10,480 --> 01:05:13,560
Speaker 4: over the years, in a way that you know, hopefully

1112
01:05:13,600 --> 01:05:16,400
Speaker 4: I've provided something to them as well. But I think

1113
01:05:16,760 --> 01:05:20,560
Speaker 4: finding kindred spirits out there makes all of us both

1114
01:05:20,760 --> 01:05:23,760
Speaker 4: enriched by the experience but also wiser along the way.

1115
01:05:24,240 --> 01:05:27,280
Speaker 2: Good, good answer. Let's talk about books. You mentioned you're

1116
01:05:27,280 --> 01:05:29,160
Speaker 2: a big reader. What are you reading now? What are

1117
01:05:29,200 --> 01:05:30,600
Speaker 2: some of your favorites.

1118
01:05:32,080 --> 01:05:36,920
Speaker 4: So right now, I'm finishing Lloyd Blankfind's memoir. I'm also

1119
01:05:36,960 --> 01:05:41,040
Speaker 4: reading Michael Poland's latest book about Consciousness, which is really interesting.

1120
01:05:42,320 --> 01:05:47,080
Speaker 4: It's combined some things I'm intrigued by, including the idea

1121
01:05:47,120 --> 01:05:50,480
Speaker 4: of what plants are up to. Plants turn out to

1122
01:05:50,480 --> 01:05:53,040
Speaker 4: be a lot more conscious and a lot more aware

1123
01:05:53,080 --> 01:05:56,080
Speaker 4: of their environment than you might think when you just

1124
01:05:56,120 --> 01:05:58,919
Speaker 4: walk by them and think of it as lawn. There's

1125
01:05:58,920 --> 01:06:02,360
Speaker 4: a lot more going on with plants. I love history.

1126
01:06:03,160 --> 01:06:05,680
Speaker 4: My favorite is probably Battle Cry of Freedom about the

1127
01:06:05,720 --> 01:06:10,960
Speaker 4: Civil War. I read a fair amount of everything. I

1128
01:06:11,000 --> 01:06:15,360
Speaker 4: love The Red Queen and evolutionary biology. I'm a pretty

1129
01:06:15,360 --> 01:06:19,760
Speaker 4: good reader of fiction as well, biography, memoir across the board.

1130
01:06:20,920 --> 01:06:23,480
Speaker 2: You mentioned podcasts. What are you listening to or what

1131
01:06:23,520 --> 01:06:25,560
Speaker 2: are you watching and streaming these days?

1132
01:06:26,200 --> 01:06:28,680
Speaker 4: My favorite streaming I think this was this is maybe

1133
01:06:28,720 --> 01:06:34,200
Speaker 4: a golden age of TV streaming. We loved pitt on

1134
01:06:34,840 --> 01:06:38,960
Speaker 4: the Pittsburgh General Hospital Emergency Room and it's just a

1135
01:06:39,000 --> 01:06:43,560
Speaker 4: remarkable series. Noah Wiley but also a great surrounding cast

1136
01:06:44,240 --> 01:06:48,360
Speaker 4: is just off the charts. We also loved Shrinking.

1137
01:06:48,880 --> 01:06:52,480
Speaker 2: Yep, that was a lot of fun. Final two questions,

1138
01:06:52,640 --> 01:06:54,880
Speaker 2: what sort of advice would you give to a recent

1139
01:06:54,920 --> 01:06:58,840
Speaker 2: college grad interested in a career in investing?

1140
01:06:59,760 --> 01:07:02,760
Speaker 4: Yeah, first of all, go somewhere that you would want

1141
01:07:02,800 --> 01:07:05,400
Speaker 4: your capital invested. If you wouldn't put your money there,

1142
01:07:05,720 --> 01:07:08,200
Speaker 4: don't go there, and don't be afraid to go somewhere

1143
01:07:08,240 --> 01:07:11,240
Speaker 4: out of favor. You know, if two years ago you

1144
01:07:11,240 --> 01:07:13,680
Speaker 4: would ask me, I would have said, well, biotech is

1145
01:07:13,680 --> 01:07:17,520
Speaker 4: on it, you know, is hitting lows every day as

1146
01:07:17,600 --> 01:07:20,240
Speaker 4: though there's never going to be any new drugs discovered

1147
01:07:20,320 --> 01:07:23,280
Speaker 4: or anything good happening in that sector. I would have said,

1148
01:07:23,360 --> 01:07:25,600
Speaker 4: I'm not sure. I'm not an expert on that stuff,

1149
01:07:25,800 --> 01:07:29,120
Speaker 4: but take a close look. Now it's on fire, a

1150
01:07:29,120 --> 01:07:31,560
Speaker 4: lot of takeovers, a lot of people are doing really well.

1151
01:07:32,120 --> 01:07:34,880
Speaker 4: I think that it pays to be a little contrarian

1152
01:07:35,280 --> 01:07:38,120
Speaker 4: and go somewhere where they're going to be mentors to you,

1153
01:07:38,360 --> 01:07:40,080
Speaker 4: where they're willing to be patient with you, where they're

1154
01:07:40,120 --> 01:07:41,760
Speaker 4: not going to just expect you to make money the

1155
01:07:41,800 --> 01:07:44,200
Speaker 4: first six months you're there. That's where you're going to

1156
01:07:44,200 --> 01:07:45,960
Speaker 4: be able to build a career and learn a lot.

1157
01:07:46,960 --> 01:07:50,080
Speaker 2: Final question, what do you know about the world of

1158
01:07:50,200 --> 01:07:54,960
Speaker 2: markets risk investing today? Would have been useful to know

1159
01:07:55,320 --> 01:07:58,720
Speaker 2: forty plus years ago when you were first getting started.

1160
01:07:58,960 --> 01:08:01,440
Speaker 4: Yeah, I've thought of that. It's a really good and

1161
01:08:01,560 --> 01:08:05,280
Speaker 4: hard question. And what I think is I wish I

1162
01:08:05,360 --> 01:08:10,240
Speaker 4: knew the importance of the economic engine that Silicon Valley

1163
01:08:10,360 --> 01:08:14,040
Speaker 4: is that American creativity and ingenuity is. It's why I

1164
01:08:14,080 --> 01:08:16,760
Speaker 4: worry so much about the bad things happening in our

1165
01:08:16,760 --> 01:08:20,960
Speaker 4: country like that are threatening our democracy. The ability to

1166
01:08:21,120 --> 01:08:25,080
Speaker 4: try and fail, the ability to innovate, the desire to innovate.

1167
01:08:26,960 --> 01:08:31,439
Speaker 4: These startups unleash the passion of brilliant, hard working people

1168
01:08:31,760 --> 01:08:34,519
Speaker 4: who want to cause their dream to happen, and that

1169
01:08:35,840 --> 01:08:40,120
Speaker 4: is the driver of this economic engine that keeps not

1170
01:08:40,160 --> 01:08:43,360
Speaker 4: only winning, but keeps outpacing everywhere else in the world.

1171
01:08:43,800 --> 01:08:46,760
Speaker 4: Israel has maybe a mini version of that, but it

1172
01:08:46,840 --> 01:08:49,200
Speaker 4: hardly exists in the rest of the world, certainly doesn't

1173
01:08:49,200 --> 01:08:52,559
Speaker 4: exist in Europe much. And it's really sad because the

1174
01:08:52,640 --> 01:08:57,280
Speaker 4: opportunity that is present for young Americans to help to

1175
01:08:58,200 --> 01:09:01,960
Speaker 4: stream and to start something is just an amazing engine

1176
01:09:02,080 --> 01:09:06,920
Speaker 4: for their lives, for their communities, for future philanthropy, for

1177
01:09:07,080 --> 01:09:10,920
Speaker 4: tax receipts. It's across the board, and I wish I'd

1178
01:09:11,000 --> 01:09:13,639
Speaker 4: understood it better. I would have owned some venture capital

1179
01:09:13,680 --> 01:09:19,680
Speaker 4: in my foundation. I would have been recommending that institutional

1180
01:09:19,720 --> 01:09:22,439
Speaker 4: portfolios diversify into at least a piece.

1181
01:09:22,640 --> 01:09:23,880
Speaker 3: Now, venture capital is the.

1182
01:09:23,920 --> 01:09:26,320
Speaker 4: Last thing a value person is going to say, it's

1183
01:09:26,320 --> 01:09:29,240
Speaker 4: a bargain, you should go long. But I do think

1184
01:09:29,360 --> 01:09:32,639
Speaker 4: that as a value investor, maybe too much paint by numbers.

1185
01:09:33,040 --> 01:09:36,160
Speaker 4: I wasn't focused enough on the engine that is venture capital.

1186
01:09:37,000 --> 01:09:40,639
Speaker 2: Fascinating. Seth, thank you for being so generous with your time.

1187
01:09:41,240 --> 01:09:44,840
Speaker 2: We have been speaking with Seth Klarman. If you enjoy

1188
01:09:44,920 --> 01:09:47,600
Speaker 2: this conversation, well, be sure and check out any of

1189
01:09:47,680 --> 01:09:50,559
Speaker 2: the six hundred and fifty one we've done over the

1190
01:09:50,600 --> 01:09:55,240
Speaker 2: previous twelve years. You can find those at Apple, iTunes, Spotify,

1191
01:09:55,400 --> 01:10:00,760
Speaker 2: Bloomberg YouTube, wherever you get your favorite podcasts. I would

1192
01:10:00,800 --> 01:10:03,000
Speaker 2: be remiss if I didn't thank the correct team that

1193
01:10:03,080 --> 01:10:07,120
Speaker 2: helps me put these conversations together each and every week.

1194
01:10:07,600 --> 01:10:13,520
Speaker 2: Alexis Noriega is my video producer. Sean Russo is my researcher.

1195
01:10:14,240 --> 01:10:18,920
Speaker 2: Anna Luke is my podcast producer. I'm Barry Rdults. You've

1196
01:10:18,960 --> 01:10:22,719
Speaker 2: been listening to Masters in Business on Bloomberg Radio