The Exchanges

Q What got you interested in investing? Like, how did you get started? What was that path?

A Well, I was at Wharton, you know, because I'm from a typical Jewish family, and my own choices were really doctor or lawyer. I was, uh, applying to law school, studying for my LSATs, I guess they are. And I read an article in Forbes about Ben Graham, which is Warren Buffett's teacher, and it was just a simple formula he had for picking stocks. I was in business school and we were learning about stocks and what we were learning is, you know, markets kind of random and people are really smart and it's the markets efficient. So eventually stocks will be priced. Exactly. They didn't even say eventually stocks are priced at the right price. And that didn't make sense to me because I read the paper and I saw that, uh, well, at one time during the year, a stock was at a hundred. They used to have something called the 52 week high low in the newspaper. And so they would show every single stock really, the high for the year was a hundred, the low for the year was 42. And every year that happened for every stock. And it didn't make sense to me that the value of the business was right at all those times. And in November it was one thing, in February it was another thing, and they were both right. So just simple powers, simple again. Observation said, gee, what they're teaching me doesn't make any sense at all to me. And I read this one-page article in Forbes about Ben Graham stock picking…

AI assessment note: “I read an article in Forbes about Ben Graham, which is Warren Buffett's teacher”

Q I like the long duration idea. Um, you said you're, you're not really worried about the printing money. What are you worried about in the markets these days?

A Well, it depends what you're invested in. Once again, a market in stock. So if you said, are you worried about the prices of Amazon, Google, Microsoft, Apple? Uh, I would say no. It doesn't mean they can't fall 30 or 40%. It just means that if you're a long-term holder, you'll end up getting a decent return and maybe a good return over a longer period of time. So I don't think that's where the problem is, and that's where a lot of the market cap is. So I don't really think I'm worried about that. This other speculation, uh, in, you know, all these SPACs and all these companies that are losing money. That are given, you know, I was looking at, uh, just for curiosity, I was looking, I don't know how to pronounce it, Nicola or, uh, Nicola, however you pronounce it, you know, that truck company, electric truck company. I was just looking after it's turned out that it appears to be mostly a fraud and they really haven't come up with anything, uh, that they promised still has a market cap of six and a half billion. And I don't, I, I'm not going to pick on that name as particular. I would just say it's an indication of potential froth. In a lot of other companies, they're getting the benefit of the doubt that shouldn't. And will that end badly? Yeah, that'll end badly for those companies. But once again, if you add up all the market caps of those companies, they will pale in compariso…

AI assessment note: “This other speculation, uh, in, you know, all these SPACs and all these companies”

Q earlier. So there's spotting an opportunity, there's sizing and allocation. And then one of the other variables that seems to matter a lot is the management team. I'm curious as to how you evaluate a management team, what you can observe from the outside without talking to them. That would be an indication that they're competent and capable, um, Both qualitatively and quantitatively. How do you think about management teams?

A Well, first, uh, I have a partner, Rob Goldstein, who joined me in 1989, and he and I used to go out and visit a lot of management teams. And to become a CEO or CFO of a public company, even a small one, you gotta be pretty smart. Uh, you have to have some business savvy of some sort. And I would say for the most part, most management teams impressed me anyway, when I walked out of the room, uh, everyone had a good story about what they were going to do, uh, you know, how they were going to spend their money going forward. And the best rule of thumb that I learned was if this management team was good at allocating capital, before I walked in the door, the assumption that they would continue to be good was a really good assumption. And if they were really bad at it, no matter what story they told, and how smart they seemed, and how logical what they planned to do was, the better assumption would be that they would continue to be bad at it. So I would not rely, me personally, rely so much on my assessment of the management team, but my assessment of what they've done in the past Uh, is very valuable. And that's really, you know, how have they allocated capital in the past? Have they done in a smart way or have they not done in a smart way? And so that you can look at quantitatively in a lot of ways. And if you were going to be cold and calculating and unemotional about it, you're…

AI assessment note: “the best rule of thumb that I learned was if this management team was good at allocating capital”

Q I'm curious as to how, what you look at, um, public market CEOs, who's good at capital allocation in your mind? Who's really good? Who are the top five and non-investment advice and not respective of share price, but who are sort of the top five allocators that you You always keep your tabs on what they're doing.

A Jeff Bezos. He was a visionary in the early nineties when he envisioned at least a big chunk of his success. And, you know, this whole thing I'm talking about is investing in your business and not worrying about profits now and, you know, building long-term value of customers. That was his vision. 20, whatever it was, 27 years ago, uh, which is, you know, at least a few decades ahead of most other people who have, uh, thought that way. More along my skill set would be watching Warren Buffett allocating capital over the years and trying to learn from what he ended up liking. One of the best things I ever learned from Was when he bought Coca-Cola, uh, and analyzing how he could pay at that time, what I thought was such an astronomical price for a fairly, uh, mundane business. Uh, it had great franchise. Obviously it was growing reasonably, but still based on, you know, just my cheap gene of buying things cheap and trying to learn from someone who wanted to buy good and cheap, how much could you pay? And so You know, Rob and I ended up analyzing when we took a look at, uh, we like to look at spinoffs and different things. We took a look at Moody's, uh, which is, you know, the rating agency, which was trading at 20 times earnings at the time we were looking at it. And, uh, you know, back when we were looking at it, 20 years ago was not a value investing kind of multiple, you know, …

AI assessment note: “Jeff Bezos. He was a visionary in the early nineties”

Q Is there a way to think about which ones are more likely to create that outcome than other ones, or is it sort of a lottery ticket? How do you think about that?

A You pick the ones you can figure out. So for the most of the ones you, you take a pass, you throw it as Buffett would say in the too hard pile. I think anyone who's honest about it would say, Hey, I can't know all these industries. I can't know all the prospects for these businesses. The world is changing very quickly. TikTok or whatever it's called didn't exist. Now they got billions of followers and you know, where does that take business out of and you know, everything else. So very hard to predict, you know, which ones will be the winners, you know, If you have a particular expertise in an area, have a particular vision, or, you know, something seems simple to you, there will be those, but one person is not going to know hundreds of those, uh, to pick, and so I think you just have to know yourself, know what, what you're good at, and I'm sure people can take good bets on some of those bets.

AI assessment note: “You pick the ones you can figure out. So for the most of the ones”

Q As you're reading financial statements, are there thoughts going through your head that are consistent across different companies where you're like, oh, this management team doesn't get it. This management team doesn't get it. They're missing something. Are there, is there a recurring thought that goes through your head that you find yourself just saying more, more often than not?

A Not really. I'm, I'm looking for successful capital allocators. Not like I said, a story just because I'm not good at that. I don't know who the next Picasso is, but, uh, if there is a, uh, franchise or brand or network or something that they can continue to exploit, I want them to be thinking sort of along those lines. I don't spend a lot of time with ones that don't make sense to me or don't look promising. And there's lots of companies and there's lots of things to look at. So you don't want to Waste a lot of time on things that immediately don't, you know, I pass a lot on, you know, maybe too much, but it's like I said, as long as we concentrate on the ones that make sense, that's more important than missing out on, you know, errors of omission.

AI assessment note: “Not really. I'm, I'm looking for successful capital allocators.”

Q easy, right? Is the, but one of the things you said there, which is super interesting to me is seeing things differently. So it's not an information advantage. It's not like you're having access to information that other people don't have, but you're seeing when you're correct, a better version of reality. How is it that you, you come to see things in a way that's different than other people?

A I think that comes from trying to keep it simple, because I think I try to think simply anyway. The best ideas are usually, uh, simple. I remember back when I was getting started at Gotham Capital, Ted Turner bought MGM. And it was a little bit of a minnow swallowing a whale, and he didn't have enough money to go by MGM. And, uh, there was this, uh, billionaire named Kirk Kikorian that owned MGM at the time. So, so what Turner did was he paid cash for part, and then he gave away some funky preferred securities of which, uh, Kirk Kikorian was gonna have a big piece of because he owned a big chunk of MGM. And that preferred if it didn't pay, uh, was, uh, We're going to have Ted lose control of, uh, Turner broadcasting. And so I looked at that and said, I guess he's betting that he's going to be able to pay this preferred off. And how is he figuring that out? And he was paying an astronomical amount at the time for MGM. Of course he was one of the earliest, I mean, Ted Turner, when you hear him talk, I mean, he bought the Atlanta Braves and said, he looked at it like, well, you know, let's game takes three hours. So that's three hours of broadcasting I get that I own that I can do that. He owned a very small UHF at the time, which was, you know, not even on the main dial of a TV set for those old enough to know what UHF was. Uh, so he had like a fourth or fifth biggest station in …

AI assessment note: “I think that comes from trying to keep it simple”

Q Do you evaluate that kind of like how chess players play matches? Out in their head and they sort of think through the mistakes and the positioning of the other person and what went wrong. Do you think about that from an investing point of view when it's other people's investments or just your own?

A Well, it's definitely not like chess. I'm a terrible chess player and, uh, not good at looking forward a lot of moves. Uh, I think it's simpler than that. Uh, waiting to see something that's so simple and obvious to you anyway. And it doesn't mean you don't miss a lot of things that should have been simple and obvious at the time. And you always, I'm sure you're familiar with when you just say, ah, why didn't I think of that? Or that was so clear after the fact. And so it's fine to miss lots of those. It's just, uh, having the patience to wait till you do have that aha moment saying, oh, I think this is the better way to look at it, and only pulling the trigger when you see that. It's almost, I should have swung at seven out of 20 pitches, but if I swing at one and it was a good pitch to swing at, that works out well too. So you wait for where it's pretty simple and straightforward to you. So it's, It's a lot of patience. Some of that comes from experience to being able to say, Hey, I've been doing this for 10 years and this ranks up there in the top 10 or 20% of things I've seen. And if you have that ability to contextualize, uh, with a little experience, that's always helpful. So the good part about that is I've always felt investing is continual learning. I never feel like I got it. I never stopped making mistakes. I want to be right more than I'm wrong. I'm not even the mos…

AI assessment note: “Well, it's definitely not like chess. I'm a terrible chess player”

Q Well, individual investments sort of vary. The themes in markets that have significantly been a source of outsized returns in the past tend to be super competitive and advantages are often fleeting. What do consistently great investors have in common?

A You know, I always asked, uh, my students, you know, what do you do with a business, uh, where, uh, the competition's really fierce, technology's always changing, you know, you're always coming up with new products, you know, how do you predict what, you know, when you figure out a value of a business, you're trying to figure out what it's going to earn over the next 20 or 30 years, and, uh, what do you do when those things are really hard to figure out? I always say, skip that one and find one you can figure out. So you get to pick and choose is, is, is one thing. And the other is, it's not on page 40. It's really, you're looking at things, you're tilting your head in a different way. There are a lot of smart people out there, a lot smarter than me, but if you look at things from 40,000 feet, or from a different angle, or that's where I've tended to, to have my most success, where I just, yes, everyone is looking at it this way, but I think that's not the right way to look at it. And when you recognize that you have this other way to look and that makes total sense to you and all the pieces fit, when you look at it that way, I think those are the great opportunities. Just, you know, when I got started, you know, and, uh, and I wrote, you can be a stock market genius about it. I opened up that book by talking about my in-laws who used to, uh, have a weekend house in Connecticut…

AI assessment note: “skip that one and find one you can figure out. So you get to pick”

Q If you think of simplicity, there's simplicity before understanding complexity, and then there's simplicity after understanding complexity. How do you distinguish between the naive simplicity versus the mastery simplicity?

A Oh, that's a great question. So I guess, ah, the way I distinguish is I understand it right away. I know many people who are a lot smarter than I am. I know many people who can, you know, fill out a spreadsheet and do 40 pages worth of research on a particular item better than I can. At the end of the day, I try to boil things down to make it very simple and obvious, right? It's, ah, as Warren Buffett would say, You know, if I have to get to page 40 of a spreadsheet to figure out this is a good investment, that's not really where I find it. It's, it's more like you can drive a truck between what I think it's worth and where it's priced, and so it's so obvious if you think about it in the right way. And I would say, you know, I started teaching at Columbia Business School in 1996, and I would say for the first two or three years, at a minimum, I wasn't really very good at teaching. But each class I would come back and try to figure out, you know, what was I really trying to say? Why did I do something? And I kept, uh, when I wrote my first book in 97, it really boiled down to what was I really thinking? The great thing about writing that book, it was really just a series of war stories about, you know, what I had done at, uh, my firm Gotham Capital since, uh, uh, with my partners, uh, since 1985. And I said, you know what, I'm not going to do a lot of research on each one of the…

AI assessment note: “I try to boil things down to make it very simple and obvious”

Q How do you think about printing money? Is there a point where that becomes counterproductive, and how do we identify that point?

A That's a, that's a more of a macro question that, uh, is above my pay grade. Logic would say, you know, I learned a lot of Milton Friedman and like that, that you should be able to create inflation by just printing more money. It seems straightforward to me when, when, you know, no one rings a bell, but it just sort of hits and all this extra money floating around causes inflation. And then it's a question of how you measure inflation because these stocks levitating, you know, all these, uh, SPACs and IPOs and everything levitating at high prices, you know, going up five and 10 times in a year, that doesn't factor into the inflation number, but that's where the money's going. So it depends how you measure inflation. Does it get inflate asset prices of homes or stocks, uh, securities? And if it doesn't count inflation, but are we having inflation or are we not? It depends how you define inflation. And so, so that's a sophisticated question. Once again, beyond my pay grade and will that filter into Affect inflation. And then of course, all these other countries are doing it. You know, we don't live alone here in the United States here. We're printing money. So is everybody else. They're artificially, you know, taking that money and buying securities and making negative interest rates. It's hard to believe some portion of this doesn't end badly or in some kind of consequences. I d…

AI assessment note: “That's a, that's a more of a macro question that, uh, is above my pay grade.”

Q I'm curious as to how you source ideas. In your first book, you talked about the Wall Street Journal and sort of letters and publications. How has that changed with the internet?

A I read things that are interesting to me, so I'm reading all different publications. I'm reading things off the internet. I'm getting news feeds all day long, and I'll just pick and choose things that are interesting. I'm reading things that are interesting to me. I'm looking at developments of the world that are interesting to me, and occasional, occasionally I'll have a good idea. From, from doing that. And I just enjoy the process of learning about and trying to understand what's going on in the world outside. And I think more experience helps. And being able to say, hey, this thing reminds me of that thing. And this is how that thing played out. And these are the ways it's different. These are the ways it's the same. You know, one of the reasons I wrote is because I got to read, you know, Ben Graham and all the letters that Warren Buffett wrote and everything else. And it's true. It's great to learn from your own mistakes. You really don't learn unless you're really investing your own money and feeling how it feels to be wrong and lose a lot of money. So all those things are true, but the more you can learn from other people's mistakes and the things that, you know, learn from the past and reading, uh, how smart people think it's only helpful. I'd rather not make those mistakes myself. I'd rather the meet their mistakes and make different ones.

AI assessment note: “I'm reading things off the internet. I'm getting news feeds all day long”