Transcript: Ricky Sandler, Eminence Capital

 

 

The transcript from this week’s, MiB: Ricky Sandler, Eminence Capital, is below.

You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube, and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.

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Bloomberg Audio Studios: Podcasts, radio News.

This is Masters in business with Barry Ritholtz on Bloomberg Radio.

Barry Ritholtz: Strap yourselves in for another good one This week I have Ricky Sandler. He is the CEO and CIO of Eminence Capital. They’re a hedge fund that’s been around for 25 years, running over $7 billion in both a long short format. Not a lot of successful long short hedge fund managers around. Sandler is one of those rare birds who not only is a bottoms up fundamental stock picker on the long side, but they also have a very specific methodology for hedging the downside by shorting individual names. They have a tremendous track record over the past 25 years. This is a masterclass in how to think about allocating capital, managing risk, and looking at how changing market structure has affected investors where, whereas David Einhorn talked about the passive side changing things, Sandler talks about how the active side has changed and it’s very different than what it was like 30 years ago when fundamental investors dominated the active long side. According to Sandler, that’s no longer the case. I found this conversation to be fascinating and I think you will also, with no further ado, my discussion with Eminence Capitals. Ricky Sandler.

Ricky Sandler: Thank you Barry. Great To be here.

Barry Ritholtz: I’ve been looking forward to having this conversation. You have such a fascinating background. Let’s start with college BBA in accounting and finance from University of Wisconsin. What was investing? Always the plan.

Ricky Sandler: No, investing wasn’t always the plan, although I, I have a family background in investing and I, and I’ve been around investing my whole life. I, I kind of thought I was gonna go in a different direction. I was applying to law school at the end of college. I thought I would be more as a business operator builder. And then when I graduated, I decided to put these law school applications, or these law school acceptances on, on hold and worked for a few years. I came into the investment business outta college and loved it from the first minute and never looked back.

Barry Ritholtz: Well, you probably made the right choice. I enjoyed law school, but three years is way too long. They should really tighten that up to two years and get you out in the real world. Yep. So your first gig out of Wisconsin is an analyst at Mark Asset Management. Were, were you analyzing stocks or running a portfolio of that?

Ricky Sandler: No. Analyzing stocks. I was a young, young kid, good in, good with math, you know, good with understanding businesses, but really learned the ropes at Mark Asset Management. You know, Morris Mark was a great mentor and that was an incredible experience to be kind of very close to the portfolio. It was a small firm, but we had a lot of access and so from a very young age I was put in front of CEOs and CFOs of some of the most important companies, and it was just an incredible platform and incredible experience to, to learn from.

00:03:11 (Barry Ritholtz) And then your next stop is you co-found and co-gen partner, fusion Capital Management. Tell us a little bit about that job.

00:03:18 (Ricky Sandler) Yeah, so when I went to go work for Morris Mark, I took the, the job of, of Wayne Cooperman, who is Lee Cooperman’s son. He then came back two years after business school, came back to work at Morris Marks Mark Asset management. We worked together for a couple years, and then at the young ages of 26 and 29, we decided to leave and start our own thing together. I think that we were both kind of young, smart analysts, probably a bit naive and, and felt like we could, we could give it a go that the hedge fund industry was still a cottage industry back in, this was 1994, right? We, we launched Fusion in 1995 and, and both of us had kind of roots in history. Our fathers had worked together at Goldman Sachs. They, they knew each other. And so we had sort of family backgrounds.

00:04:03 I would say we had a good story. We were the sons of two successful money managers. We got on some radar screens and when we did well, money sort of came to us. And, and so that was kind of very formative years of, of managing our own portfolio. And, you know, fusion Capital Management was, you know, in some ways quite similar to what we do at Eminence on the long side. Obviously we’ve evolved quite a bit over the last 30 years, but we were bottoms up stock pickers looking for what I would call good businesses and stocks that were value. And I think, you know, we were, I would say shorting as a, a little bit of a byproduct of what we did. That was something that, that changed later at Eminence. But we had a good four year run together. And then at the end of 1998, we split up and, and I kinda launched Eminence right outta Fusion.

00:04:50 (Speaker Changed) So what was it like raising money? You’re a relatively young person, it’s not like you have decades of experience. I recall the nineties as just a wild period. Did you find yourself being challenged raising capital or given the success of Fusion? It wasn’t that big a lift.

00:05:07 (Speaker Changed) So I would say to start out, it was the MCI friends and family plan when we launched. But I think because we had the family backgrounds and as I mentioned, we were on some radar screens. So as we started to do, well, as we put up a good first year and a good second year, money was there, there was, there was a whole industry of, of people looking to invest in young hedge funds, believing that, that when firms were young, they would, they did their best. So a lot of

00:05:34 (Speaker Changed) Emerging managers was the phrase emerging

00:05:35 (Speaker Changed) Manager phrase. Exactly. That’s that. Thank you for that. So we grew from what was 26 or 7 million when we started to about 350 million over the four years. And I would say it was for us, fortunately because of our backgrounds and, and the success we had, it was not particularly challenging. And I was very fortunate in

00:05:53 (Speaker Changed) That regard. So raising capital is easy. Let’s talk about deploying capital. You know, Greenspan famously gives the irrational exuberance speech in 96 markets, laugh it off and continue to trend higher. We have the Thai bot crisis, the Asian contagion, and was that 97 and then long term capital management, 98, you launch in 99. What were you thinking about with regards to that investing environment? You have robust trend, but stretch valuations and a lot of companies with wisps of business models and very ephemeral revenue.

00:06:30 (Speaker Changed) Yeah, so the, when, when we launched Fusion in 95 and went through those periods in the end of 98, I launched Eminence. And you’re right, this was right on the back of the long- term capital management kind of crisis. I think that the experience over those four years and particularly the 98 crisis, convinced me that I needed to develop a real expertise in shorting that going through a market like 1998 with, I would call it light hedges and, and shorting the more expensive, bigger cousin to your small company was, was not effective hedging and strategy. And, and one of the things that I felt in 98 was the inability to lean into a dislocated market because we, we weren’t protecting capital well enough. And this led to a lot of what has been the, the hallmarks of eminence, which is single stock shorting has been critical pillar of what we’ve done for the last 25 years.

00:07:25 And for both the skepticism that it brings to the long side of investing and for the ability to protect capital or do a reasonable job protecting capital in dislocations, which allows you to be offensive. One of the things I’ve seen throughout my entire career is that being offensive when there’s dislocation, you are planting the greatest seeds possible at that time. Everybody else is kind of emotional, throwing things out, looking short term and you get a lot of great opportunities, but you can only do that if you have a portfolio that’s that that has protected some capital that you can kind of lean into. So going through those, those early crises were, were kind of formative in our ability, in my both ability and desire to build a true long short hedge fund that that single stock shorting was, was kind of at the core of what

00:08:12 (Speaker Changed) We do. So a risk managed hedge when things are pricey and things seem to be dislocated from reality to give you some downside protection. But the flip side of that is opportunistic aggressiveness when everybody hates the market and things are selling off. Yes. Is that, is that a good description?

00:08:30 (Speaker Changed) I think, I think, I think that’s good. And then, and then even when things are going well, if you can do a good job with long short spread, you know that that shorting isn’t gonna hurt you nearly as much. It, it allows you to be levered to your longs. So we’ve always run with a portfolio where our long side is typically over a hundred percent gross long. We bring that down with the short side so you, you get extra leverage to your long and you could still outperform the market over the long term, even while only having, let’s say 40% net exposure to the market because you can generate long short spread and you can be leveraged to your long. So a combination of a model that that allows you to do solidly when markets were good and outperform them over time. Maybe not in the very, very short run if markets gonna be up 20% in a given year, but if the market’s gonna be up 10 over the long term, we could outrun that but also be able to protect capital so you can be offensive and that was part of the way you could outperform on full long

00:09:23 (Speaker Changed) Term. We’ll, we’ll talk a little later about the specific strategies, but the three main ones are long only long short, and then one 50 by 50 alpha extension. So it sounds like long only is obvious long short, seems like you’re somewhat hedged, but one 50 by 50 that, that seems like that’s on steroids. That’s the most aggressive portfolio. Yes.

00:09:47 (Speaker Changed) So I think, I think that will be our, our highest absolute return portfolio over time. You know, the, the roots of us are the long short hedge fund, I would call that healthy gross moderate net exposure type portfolio. Call it one 30 by 85, kind of 45 net 225, 220 gross use stock picking to generate good absolute returns but reduce systematic risk through through shorting. And that has variable net too. So there have been times where we’ve been 10 or 20% net and there have been times like post covid where we went to a hundred percent net long. So we have flexibility and then most of the time we tend to run it pretty much in the middle of the fairway. With those exposures, one 50 by 50 is more of a long replacement. It is for the investor who’s already chosen to be long the market, it is always a hundred percent net long and

00:10:40 (Speaker Changed) So one 50 minus 50, right,

00:10:41 (Speaker Changed) Right. And but now we have two opportunities to generate alpha for investors. There’s the alpha on our longs, what what we would do if we had a hundred percent long portfolio. And then you add a 50 by 50 almost neutral sleeve on top of that so we can generate value from our long short spread ’cause we have an extra 50 points on, on either side. And that’s a product as, as allocators have increasingly bifurcated their portfolios. They want full risk on one side and they want uncorrelated on the other. They don’t want this thing as much in the middle that long short equity had. Right. Had had been, we launched a long fund 12 years ago, alpha extension a little over a year ago, realizing that as a business we need to give allocators a product that fits what they need. We can pick stocks and our long short hedge fund has done great over 25 years. But its framework, its fee structure is something that, that a allocators have increasingly said, I want something different. And so one 50 by 50, it’s always a hundred percent that long and we have a fee structure where you only pay for alpha. So the fee structure there is

00:11:40 (Speaker Changed) Define that. ’cause some people have called those pivot fees or non-beta fees. Yep. So you are charging a fee over and above whatever the s and p 500 generates. Is that the thought process? That’s

00:11:52 (Speaker Changed) The, the thought process. So we, we picked the MSCI world, which is half of it’s the s and p 500 anyway, right? Because we do global, but we charge a 50 basis point fixed fee and then 30% of the alpha. So if we don’t beat the market, you pay us a pretty low fee, 50 basis points, right? If we crush the market, you pay us what we’re worth. It’s a fair sharing of fees and a good alignment. And so there’s a huge pool of capital that has already wants to be long the market, right? The the 70 30 model, like a lot of full risk. And so people in that full risk want passive index, they want long only, they want private equity, they want venture. So we’re playing into that world, but we can generate very significant alpha, both with our long stock picking and our long short spread.

00:12:33 (Speaker Changed) So I love the business idea of that, hey, if I don’t generate anything over my benchmark, you’re paying me what’s essentially a mid price mutual fund fee. But we have the potential, as you’ve demonstrated over the years to, to hit the ball out of the park. And, and when that happens, you’re gonna pay up. I’m surprised more funds don’t play in that space. From a business perspective, why do you think there’s such reluctance to adopt? I mean obviously you are eating your own cooking, you’re like, Hey, we do well when you do well, why haven’t more funds embraced? What sounds like something that’s fair for both, for both the allocator and the fund manager?

00:13:14 (Speaker Changed) It’s a great question. You know, I think we have been, you know, the world and markets have evolved over our, my 30 years in the business and we’ve had to evolve in two ways. We’ve had to evolve the business. So to, to this point, I think as, as allocators have changed, we’ve said, Hey, we’re gonna disrupt ourselves. Yeah, one and a half and 20. Our fees are one and a quarter and 20, but one and a half and 20 absolute fees, that’s great. It’s really lucrative. But if you can’t get it or allocators want something, you know, we could either be a smaller version of ourselves when a lot of the peers that I started in the business with are no longer managing money. I feel like I love this business. I want to do the right thing for my employees, for my investors. And keeping a strong and stable business is important, even if it’s, you know, less lucrative.

00:13:59 And so we’re a bit disrupting ourselves, but you’re moving to where the market is and keeping a, a business strong. So I think some of my peers maybe have felt like, I don’t wanna give investors something else that, that is lower fees than this lucrative business I have. And I think also in order to really do 1 50 50, well you need to have a scaled shorting infrastructure. Shorting is hard. This is something we have, we have stayed committed to in the decade after the GFC as we went into this ERP environment, shorting got hard stocks kept going, straight up valuations, expanded valuations, stopped mattering. When, when rates were really low, then we go into the meme stock CRA in 2021. You’re telling me not only does valuation not matter, but fundamentals don’t matter either. In, in order to do this well, you need to believe that shorting ads value and you need to be committed to it.

00:14:45 (Speaker Changed) You’re addressing exactly where I was gonna go next, which was the general consensus about why short sellers have become an endangered species has not been the business model. It’s been, hey, shorting has become too hard. There’s just too much capital, especially when you have zero interest rate and qe, you know, there was no alternative to equity. Fixed income was not desirable. Wait, I got nothing but downside and no yield. Of course, I’m gonna roll into equities. I’m gonna assume that the pandemic and the shift from a monetary regime in the 2010s to a fiscal regime in the 2020s changed that. Are we possibly seeing a resurgence of short selling?

00:15:31 (Speaker Changed) I believe the opportunity set is great. I’m not sure that everybody’s gotten back into the single name shorting the meme, stock craze, the, the retail led rallies, the short covering rallies, the new market structure still makes it not easy. You need a really thoughtful portfolio construction, really thoughtful portfolio execution. It’s not just about the ideas. Volatility works against the short side, it helps the long side, right? If a stock goes down and you’re long it, you have a smaller position and more upside, it’s easy to buy

00:16:00 (Speaker Changed) And the opportunity to buy in at a lower price.

00:16:01 (Speaker Changed) And, and if a stock goes up, you have less upside and a bigger position. It’s easy to sell. The opposite happens on the short side. And so things get bigger automatically when they go against you and risk constraints come in. So you’ve gotta be really thoughtful about portfolio construction. So it’s not easy. We have 110 short positions. You need a scaled infrastructure to have 110 alpha generating short positions. That’s hard for people to do. So I think that’s one of the reasons that we haven’t seen quite the resurgence. But to your point, higher interest rates help in a lot of ways on the short side. So first of all, we are now discounting the future at some rate. So no longer can you tell me this company is gonna do 50 billion in 10 years and you could discount that at zero as if 50 billion is coming tomorrow.

00:16:44 Secondly, the higher cost of capital for businesses to actually operate, make industries more rational. So no longer do we see profitless companies just destroying businesses. So, so it it adds more rationality to the economic factors that affect businesses. So that’s good for fundamental investors. So now we have valuations gonna matter and fundamentals will start to come into play. And then lastly, we’re now also getting short credit rebate. You know, we’re getting 5% on our, on our shorts, so you’re getting paid to wait. So I think higher interest rates are good for shorting on several levels. It’s not clear to me that people have come back to it with the same vigor. We still feel like a number of peers and others, short indices, baskets and single name shorting, scaled infrastructure. It’s hard business. So

00:17:31 (Speaker Changed) Let’s talk a little bit about eminence. You, you’ve been around for 25 years, you’ve been doing bottom up stock picking both on the long side and the short side. Tell us a little bit about your, your process. What is your bottom up research like?

00:17:46 (Speaker Changed) You know, I I would say over over the 25 years we’ve been in business, we have had to, you know, markets the world. Business has changed a lot. I talked a little bit about how we’ve pivoted our business to what, what allocators have wanted, but we’ve also had to adapt our process and our approach as markets have changed over the last 25 years in general, we are still doing exactly the same thing we did, which is trying to buy good businesses and stocks that are cheap. And those two concepts are, are very important because I think we get the opportunity to make money in two ways. When we do this, we get the opportunity for the business to compound in value at above average rates. So time is our friend and then we have some undervaluation, some discount, something that’s misperceived about it and we get an opportunity for a rerating.

00:18:33 And over our history, our success has been typically owning things for two to three years. Where we get a couple of years of, of value creation growth, a rerating, we make 50 or a hundred percent. And then we turn our capital to what I call the next mispriced durable business. And I, and I think that repeatable process is something we’ve always done now that has adapted and evolved as markets have changed. And we can get into the market structure change, which I think are, which I think are the most consequential theme I could talk about is how different markets are today. The price setters in markets vastly, vastly different than they’ve ever been. And, and very important for fundamental investors to understand that. So,

00:19:13 (Speaker Changed) So let’s go there. I had David Einhorn on a couple of months ago and, and he famously said, markets are broken. He blamed Indexers like BlackRock and Vanguard for saying people aren’t exercising any intelligence. They’re just blindly buying indexes and putting ’em away for decades. And, and that made value investing more challenging and it deeply affected the measure of equities. Although arguably you could say, wouldn’t that create more dislocations and more opportunities? But where do you see the change in markets and and is broken a bridge too far? Or are markets broken?

00:19:51 (Speaker Changed) Yeah, I I I don’t think they’re broken. I think they’re quite different. And I think in the mid to long term they, they, they still work. I love David, he’s brilliant. He’s a friend and a great investor. But you know, our view is that markets are very different and the people setting prices over the short run are very different than they were. You know, 15 years ago, the marginal price setter was a bottoms up investor. So markets 15 years ago were 25% passive and 75% active. And most active investors did bottoms up research. Fast forward to today, that 25% index is now 60. So David’s right about how big indexes have become. They are accepting prices. But the bigger change is also that the 40 now relative to the 75, is not bottoms up stock pickers. It’s qu investors, it’s pod shops that are trying to make money in every 1, 2, 3 week or two month period of time.

00:20:46 It’s thematic investors, it’s systematic investors, it’s retail investors. And so the makeup of the active investor community is significantly different. And so on most days, the price action you see in a stock is being driven by somebody who is not doing bottoms up research. I’m not saying that they’re throwing darts at a board, but they’re doing something because it fits in a camp. This is a small cap cyclical. And now because the fed wants to cut rates, I wanna buy small cap cyclicals, or this is a large cap defensive and I wanna buy large cap defensive ’cause the economy is slowing and and they’re doing things in big swaths. I don’t wanna own unprofitable growth. And so I’m selling all unprofitable growth. And it doesn’t matter whether it’s a flying taxi that’s never gonna make money or an 80% gross margin software company that is technically unprofitable because it’s reinvesting efficiently in its business.

00:21:38 We see all this investing done in, in kind of, I call it blunt instrument investing. And, and people talk about like the theme du jour, we wanna buy ai, the GLP one losers, the GLP one winners. Like how about a business? How about an individual company? So what I would say to you is that this creates mor dislocation as, as you said, it creates different trading patterns. So it, it’s not easy because you have to retrain your mind and your process to say, what I see in the screen today doesn’t matter. It doesn’t mean anything. It’s not a signal, it’s only opportunity. The market is creating greater opportunities, but it requires investors to number one, change their mindset and recognize that the price setters are doing things for reasons that have nothing to do. They’re selling your stock because it’s technically unprofitable growth. Okay? Doesn’t matter that the fundamentals are getting better.

00:22:30 Doesn’t matter that in 18 months it won’t be unprofitable. It only matters that it fits in a bucket today. And, and you need to say you are providing no signal to me. And, and so I as an investor, we’re gonna take advantage of that. And so it requires mindset adjustment, it requires some portfolio construction adjustments. We have to be a little more diversified because the volatility of individual stocks is quite high. And if you run Uber concentrated, you run the risk of kind of having such bad performance over shorter periods of time that you’re, you’re could scare your investors. And I think it also requires higher turnover to take advantage of this market vol or what I would call high vol that has little to do with the bottoms up fundamentals of that company. And we see it in both directions.

00:23:13 (Speaker Changed) So you’re raising two really fascinating through lines that I, that I wanna address. So where Einhorn was saying the passive investing side of the market has changed the structure, what you’re specifically saying is don’t ignore the active side. The way the active behaves has completely changed. Also, they’re not fundamental bottoms up stock picker. They’re this, that and the other. And it doesn’t matter what it is, it’s just different than what came before. Is that, is that a fair assessment?

00:23:45 (Speaker Changed) I think I think that’s a very fair

00:23:46 (Speaker Changed) Assessment. Yeah. And then the second point you bring up is kind of really intriguing. All the various new types of active you are describing, they all seem to be intensely narrative driven. It’s a storyline, whether it’s AI or ozempic and alternatives or quant or you know, very short term trading. There’s a story there. And if the story works out, they make money and if the story turns out to be bs, they’re out, they’re out.

00:24:16 (Speaker Changed) It’s a DD investing. Like, like gimme gimme a narrative. And I, you know, versus like, I’m gonna do the hard work. I’m gonna do three weeks of research, I’m gonna rip through the financials, I’m gonna build a model. I’m gonna go out and talk to the whole ecosystem. I’m gonna find interesting field research contacts. I’m gonna interrogate management. I’m gonna look at the footnotes old school stuff. Investors don’t do that anymore. And, and that creates a, a great opportunity assuming you’ve made these adjustments to how the market is,

00:24:40 (Speaker Changed) You know, it’s so funny you call it a DD investing. We had that big dislocation in the beginning of August and I’m home recovering from having some new parts put in and I’m just flipping around the, the channels and it’s hilarious because gee, what caused that giant correction? Well, it was the bad non-farm payroll report. No, wait, it’s the som rule and we’re in a recession. No wait, it’s Japan and the end of the car trade. Oh, oh no wait, it’s the unwind of the Trump trade and we’re not gonna get a 15% corporate discount. No, no. It’s the VIX complacency and it’s been too, and nobody wants to say, Hey, it’s kind of random and there’s a lot of moving parts. Oh no, the Fed is behind the curve and it’s the a DD investing is exactly what, what the pundits are talking about.

00:25:28 (Speaker Changed) And and to your point, the a DD investing is also a DD with my p and l. If I start to lose p and LI move. So, so the, this is not eminence, but other investors have no tolerance for pain. There are all these risk triggers. So on top of the, I’m moving to where the, the narrative is, I also know that even if that narrative isn’t what I believe, if my p and l starts to do something that triggers me to do something, I de-risk, I dele. And so you have on top of people investing in ways that are narrative driven. They’re also backward looking to their own p and l. So if I have a bad month, that means that I might have to do something differently. When I’m telling you all the stock prices are moving for non fundamental reasons, we realize we have to absorb volatility.

00:26:12 And that is part of the new market structure. We have to be comfortable, we have to be willing to live with it and then lean into it. We have the advantage of 25 years of investing, seeing a lot, having built a lot of credibility with investors. So I don’t have to make money every month. Maybe a newer manager doesn’t, or, or if you’re at a platform shop, you know, 5% draw down and they cut your capital in half, another 5% draw down, you’re out of a job, right? So that creates on top of the narrative behavior that’s almost trigger driven and exacerbates this volatility.

00:26:41 (Speaker Changed) That’s kind of fascinating and, and I can’t help but notice you, you mentioned the 25 year track record. Your first decade arguably is the lost decade. Markets peaked March, 2000. You guys launch late 98, early 99, the main indices don’t get back over that level till, what is it, 13 years later? 2013. So how formative was that first decade? How did it affect how you invested? What were you guys doing during the two thousands?

00:27:12 (Speaker Changed) So the two thousands I would call the golden age of long short, this is when the product really showed its metal because while the indexes didn’t do a lot underneath the surface, there were a bunch of winners and a bunch of losers. And what, what I always say about the short side and the long side is I don’t care what happened this year, 20% of the companies really underperformed and 20% of the companies outperformed, right? It’s not so easy to find them. And I’m not making easy, but you can’t tell me shorting iss hard when I can show you the 20% of the companies that underperformed. Okay, you just didn’t find them. And and that’s a, that’s a separate issue. So, so I think those were the formative years that, that that showed me that the power of long short of stock picking, of, of finding things that could outperform and underperform and in many ways bred the opportunity to have a real business. Now to your point, after the lost decade, we go into the opposite environment. The s and p becomes the single best sharp ratio possible from 2012 to, to covid, what

00:28:10 (Speaker Changed) Were we 14% a year? Something like that’s a, that’s a great decade with

00:28:13 (Speaker Changed) Low vol right on, on top of that. So this is why investors started to move away from long short because any hedging was not helpful. It was harder to outperform the market.

00:28:24 (Speaker Changed) I heard it called expensive insurance. And I’m like, is that, is that really what it is? ’cause you’re kind of missing the point of long short,

00:28:32 (Speaker Changed) I don’t wanna call it a moment in time ’cause it was long in that, but it was a cycle, it was a period. And, and that’s what we’ve seen over time is, is markets go through phases and then everyone says this is it. Now you have to just buy indexes. And so, so we’re at this phase right now where everybody’s convinced that the s and p or the QQQ, like just buy that and, and, and don’t worry about anything. I would tell you that the last 10 years, which has been dominated by that is probably not gonna be the same as the next 10 years. So I to your point on higher interest rates and a different world, I think, I think we’re gonna go back to a place where stock picking matters a lot. All this history has, has shown me is, is both markets go through cycles and investors, whether you like it or not, are backward looking return looking animals. They rarely look forward. And so it’s like this worked for the last three years, just keep doing it even if the world looks different going forward. And, and, and so this is human emotion. This is why computers are never gonna take over for markets. While we can get the benefit of, of quantum computers, human emotion is backward looking and let’s just do more of what worked in the

00:29:36 (Speaker Changed) Past. That muscle memory is really tough to break. Let’s stay with that idea that your job is to identify the 20% of stocks that are gonna shoot the lights out and really beat the indices as well as that bottom 20% that’s gonna soil the bed and and do a terrible job. Is it the same process to identify both groups of stocks or is it a different set of research and analysis to pick the winners versus the losers? It

00:30:04 (Speaker Changed) It’s, it’s a different set of research and analysis. There are corollaries, but shorting is not just the inverse of of long because of the nature of shorting and what you need in the form of catalyst and recognition, it’s a little bit harder. You can be patient on the long side. And so for us, the long side, I described this durable business or good business and mispriced stock as the repeatable process that, that we’re trying to do. So our research team of, of 20 people, we have 13 sector based analysts and PMs that are really know their sectors and tend to look amongst those sectors for businesses that are durable and then the opportunity to buy them when they think there’s a misperception out there. And, and I think that means that a lot of things we do, we’re researching companies and we say, well it’s not the right time.

00:30:53 This is a good company, it’s a good CEO but it’s fairly priced. There’s nothing wrong with it. So I’m not just looking to buy good companies. I want to make sure that I’m delivering value to my investors and that I’m buying that good company when it’s mispriced. So I earn outsized returns. So I think our, our team is doing lots of research across these sectors, identifying the right kinds of businesses and then through different events that happen, there are things that create mispricings, short term company goes through a disappointment. Everyone gets short term and no one wants to look out 12 or 18 months. Maybe there is a turnaround story in a business that have been underperforming. Maybe there is a, a hidden asset that’s gonna start to show. So things that fundamental investors could, could create mispricings. On top of that, the new market structure that I talked about is creating new sources of mispricings. So this is, everybody’s doing one thing. You are in the GLP one loser bucket and you know what Goldman Sachs decided that and Morgan Stanley decided that and they put you in, in this basket of losers. Okay. That is not necessarily the most rigorous process. It doesn’t mean that but all

00:31:58 (Speaker Changed) Explain GLP one versus the winners and the losers briefly for people who are, are not Yeah, in market junkies.

00:32:04 (Speaker Changed) Yeah. So, so, so GLP one, they are the diabetes drugs that are helping people lose weight. This is Ozempic, this is Mandu bogo. Yeah. And WW Wegovy is ozempic just a stronger versions. It is a existing class of drugs applied to a new use and is applied to weight loss. And then there are a lot of downstream effects to weight loss. So a lot of the comorbidities or the COEs we have in the health system come from people who are overweight. So heart disease for an example or other procedures, if people are healthier, are we gonna have less of these other things? So you could be a GLP one loser because you help patients that have heart disease.

00:32:42 (Speaker Changed) So this can be anything from healthcare to, I saw people talk about yum brands and McDonald’s. So,

00:32:47 (Speaker Changed) So you’re eat, so, so you’re, you’re eating habits are less, you snack less. And so, so there’s the potential that we consume less food. I I think it’s moderate, but, but but accurate. I mean today we have a relatively small percentage of the population on these things, but people projecting out to when we have 10 or 20% of the population, right? And they might eat 10 or 20% less. So alcohol is another one. There’s no craving for alcohol. People are drinking less. That’s a GLP one loser. And then, and then some of these healthcare things could be GLP one losers, people throw you in this bucket and then it doesn’t matter that you have a new product, it doesn’t matter that you’re gaining market share. It doesn’t matter that you’re gonna grow your earnings at x or Y they’re just selling you because you’re in this basket that Goldman Sachs and Morgan Stanley told you about that is creating other sources of mispricing throwing companies into the unprofitable growth basket.

00:33:41 So back in 2022, people said, you know, you don’t wanna own unprofitable growth rates are going up, right? And they, and again, they, they treat everything as one. Uber was a perfect example of a stock that was technically unprofitable, but it was fundamentally profitable at its core and it was unprofitable ’cause they were growing in Uber Eats and they were growing in new markets. And what we’ve seen happen over the last two years is, is Uber’s all of a sudden become profitable and point being they’re selling it because I classified it as something, but having nothing to do with both the micros of that company or how that classification might change in 18 months. And, and so that creates other sources of mispricing. So, so getting back to your question, we are trying to find durable businesses and mispriced stocks and there are more mispricings coming from investors because it’s not just fundamental investors now it’s this new market structure, this thematic type of stuff. On the short side, you, you also asked about

00:34:35 (Speaker Changed) Yeah that’s so I’m fascinated by the short side because you know, short sellers have become an endangered species. Yeah. And I always thought short sellers kept the market honest, were the first buyers in a crash. Yeah. And you know, losing shorts is not a good structural thing for the market.

00:34:52 (Speaker Changed) It’s, it’s not a helpful thing. And I think we’ve had a number of kind of media and regulatory pushback on short selling and stuff as if for the evil empire because you know, stocks only go up and people own stocks and, and we’re like betting against it. The truth of the matter is, short sellers do better research because the risks are skewed the other way. I can only make a hundred percent, I can lose thousands of percent, I better be really good and really accurate. Do really good research. I think it’s a important part of being a skeptical investor. I think it’s an important part of portfolio construction and I think it’s an important source of value add to our investors. And so for us, we are typically looking for both an overvalued stock and a reason why that overvaluation will correct. So, so we need to understand what is gonna happen.

00:35:39 So if it’s fundamentally worthless and something is gonna drive that to happen, that could be an earnings miss. That could be a business that’s over-ear, that supply is coming onto it. It could be a company that has poor accounting or a fraud, it could be a fad. Lots of different baskets of overvaluation. And then you also need to understand what is gonna change that’s gonna cause investors to value this the, the right way in a reasonable time. It may not be tomorrow, but it can’t be five years because you can lose a lot of money between now and then. Huh.

00:36:11 (Speaker Changed) Really interesting stuff. So let’s talk a little bit about what’s going on in the market today. You said something that I found fascinating. We were talking about shorting earlier. You said the mother of all short squeezes is no longer valid today. Short interest was at one point 30% of the float. Today it’s well under 10%. Explain.

00:36:33 (Speaker Changed) So that was a tweet about GameStop specifically because we obviously had the original GameStop episode in 2021. And then more recently Roaring Kitty had come back and kind of created a, a new short squeeze in in GameStop and admits that short squeeze the company issued $3 billion of equity massively increased the float and a number of short sellers had covered. And the thesis behind being long GameStop for any of these retail investors is the market’s rigged, the short sellers are gonna have to cover, you know, just hold the stock. If we, if

00:37:10 (Speaker Changed) Morals are coming back in a big way, if we right,

00:37:12 (Speaker Changed) If we corner the market on GameStop shares and nobody, and we never sell, then the short sellers are screwed. And

00:37:19 (Speaker Changed) So, which turned out to be fairly accurate for that one stock for,

00:37:22 (Speaker Changed) For that one stock in, in the original period, right when the short interest was probably 80 or 90% after this more recent episode I tweeted, I said, I don’t know what the thesis is now if the company just massively increased the float. So your short interest as a percentage of the float went down and other short sell is covered. So, so now your short interest is 9%. Like that’s fairly low as, as far as short interest go. So you don’t really have a thesis if your thesis is mother of, you know, M-O-A-S-S with rocket ships right

00:37:52 (Speaker Changed) To the

00:37:52 (Speaker Changed) Moon. To the moon.

00:37:54 (Speaker Changed) So to me, the whole original GameStop thing was so fascinating ’cause I started on a trading desk in the nineties and we had the Yahoo message boards. I remember the I Omega fans driving to the factory on a Sunday night and seeing the parking lot full of cars and Wall Street didn’t get it. They’re running triple shifts and they’re gonna blow numbers away. This seems like very much a throwback to what took place in the early days of the internet. How different was Roaring Kitty and GameStop with what happened during the.com boom.

00:38:30 (Speaker Changed) So I think the, the, the fundamental differences are we now have much greater access for retail investors to the market. So we have access on our phones, we have free trading.

00:38:41 (Speaker Changed) Robin Hood. Absolutely. Yeah.

00:38:43 (Speaker Changed) Robin Hood Schwab, they, they, they all, you can trade for free. So all of a sudden the ability and access for retail investors to be meaningful players in the market is even bigger than it was back in 1999. And then I would say the other change is that no longer is this just a creative research that that that some sort of savvy individual did, let’s say on a stock like I Omega, this is actually bullying. This is coordinated efforts to all come in and try to buy the stock at the same time. We’ll drive it up and then it’ll cause short sellers to have to cover and, and other investors who get triggered by price movements to buy. And so we’re gonna create the price action that’s gonna create further price action. So this

00:39:26 (Speaker Changed) Isn’t even the 1990s dot coms, these are the 1920s syndicate buyers. Yes. Right. Talk about everything old being new. Again, it’s a century ago.

00:39:35 (Speaker Changed) This is the essence of what we’re not allowed to do, which is act as a group. But you know, the SEC doesn’t do anything about retail investors. If, if 30% of the company all got together and they were retail investors and they did something that’s illegal as per SEC rules, right? But nobody goes after the retail investor. And, and that’s okay. This is the sandbox we gotta play in. I’m not complaining about it. It’s a new phenomenon. It goes back to this new market structure that I talked about because I mentioned retail investors are a big piece of this new market structure. And one of the things that’s happened that, that people don’t appreciate is how significant they are as, as a player in the market, even in indices in, in the last six months, they have been putting a billion dollars a day into s and p and, and a day, a day of retail investors.

00:40:18 You wanna know why a month ago the market was at a high, even though the economy was slowing. It’s because the retail investors are just giddy buying the indexes. And until we get a trigger to make stocks go down, other investors aren’t selling. And so they are a real factor in the market. We have to both respect them and then ultimately take advantage of them. ’cause I don’t think they’re the most sophisticated savviest investors. Some of them may, may may very well be, but as a class I would say they tend to be following themes and and chasing things that are going up rather than doing what you described in I Omega, which is kind of good bottoms up fundamental research.

00:40:54 (Speaker Changed) Well obviously what we saw in the first go round with GameStop was the stock went to the moon and a lot of people bought in very late. There was a ton of money lost by let’s call an unsophisticated retail investors. Let’s talk about what took place in 2024 with games stock and Roaring Kitty. This time the SEC said, Hey, we are investigating ’cause this looks like blatant manipulation. What are your thoughts on that?

00:41:22 (Speaker Changed) I’d, I’d love to have some hope and trust that the SEC and the government’s gonna gonna get to the right place. But I don’t necessarily have that belief. It’s nice to see that, that they looked at some of the actions and suggested, you know, are you misrepresenting? Are, are you committing fraud? It, you know, the size of Roaring Kitty’s position was about $150 million from what people understood Roaring Kitty had made $30 million in the first go around in GameStop. People are are unsure of where he got $150 million to buy more GameStop. He was also buying Chewy. The ultimate beneficiary of Roaring Kitty was GameStop itself. They raised $3 billion at prices that are well in excess of what the company’s worth. They bought themselves a huge lease. They could try anything. They, that company will not run outta money for the longest period of time. It is a money losing bad business that’s historically that is going down, but now it’s like a SPAC with a couple of billion dollars and a fame CEO named Ryan Cohen, who, you know, people wanna believe in.

00:42:28 And so the company really benefited from what Roaring Kitty did here, which is get retail to, to come back in and try to buy the stock, get professional investors who had PTSD who were like, oh my God, here it happens again. I better get outta the way last time it hurt me. I, and so that created a situation where a stock went from like 18 to like 50 in a couple days. The company raised a bunch of money, the stock is back to 20 again. So they don’t affect the long term of it, but, but they create a lot of p and l pain, a lot of emotion. And in this case a allowed the company to raise $3 billion.

00:43:04 (Speaker Changed) So, so let’s talk a little bit about Chewy and Ryan Cohen. Full disclosure, I occasionally order from Chewy for treats and stuff for our dogs, mostly Amazon, but very often Chewy is very competitive price wise and tends to have stuff in stock, which Amazon doesn’t always. You and I both have mixed it up with Ryan Cohen on Twitter. You know, again, to be even-handed. Ryan, if you want to come on Masters in business and talk about Chewy and talk about GameStop, I’d love to have you. But he blamed naked short sellers for trashing GameStop and all the garbage we heard about the decade before with Overstock and other companies that turned out to be frauds. Blaming naked shorts tends to be a red flag that something untold is going on. That said, chewy is a real company. It it’s the second incarnation of pets.com only timed right, funded right, and executed right. Why does Ryan Cohen care about GameStop? It seems so bizarre.

00:44:06 (Speaker Changed) It it is a little bizarre. I’ve, I’ve asked myself if, if this is this decade’s version of Eddie Lampert who made it a wonderful trade buying Sears when it was on the verge of bankruptcy, putting it together with Kmart and like, you know, in the short run saving that company,

00:44:24 (Speaker Changed) I was told he’s a real estate genius. Does that turn out not to be true?

00:44:28 (Speaker Changed) I I, I won’t opine on that, but I’ll say he’s not a chief merchant of Sears and, and Kmart. So he ultimately put an enormous amount of his fund into this. He ultimately went and ran the company and tried to turn around or, or make a failing business successful. This goes back to the Warren Buffett quote, you know, you show me a good executive and a bad business and I think that the reputation of the business is gonna win out. And I think Ryan Cohen putting himself in as CEO of GameStop, I think he’s gonna ruin whatever reputation he has as a businessman because this is a business that is gonna be really hard to turn around. That’s my opinion. Maybe he’s gonna develop something, I’m gonna be surprised. But when I look at where the world is going, GameStop as a physical retailer, selling computer equipment that you can buy online games that actually will have no physical component, right? You can just download them, right? It strikes me that, that this is a dead end. And, and to the credit of Roaring Kitty, he now has cash and he’s gonna have to go try to reinvent the company. But ultimately I, I think that’s gonna be a failed attempt and, and he’s gonna ruin what reputation he got through through Chewy.

00:45:35 (Speaker Changed) So can GameStop pull what Netflix did? I mean DVDs through the mail was not the most compelling business model, but online streaming they became a dominant giant, wildly successful company. I is that the future of GameStop following the Netflix model?

00:45:54 (Speaker Changed) So I think that Netflix in certain ways got lucky early on and then capitalized that when I say lucky, the movie studios gave Netflix certain rights to online streaming that they didn’t think were all that valuable. They had a Disney contract that allowed them to offer this product. The gaming companies are never gonna allow this to happen. So, so I don’t think it’s possible for GameStop to do what Netflix did. They tried NFTs for a while. They’ve tried kind of collectibles and, and a few different things and you know, at the end of the day it’s a physical retailer with leases in malls that are dying. But he’s got $3 billion in cash now. So we’ll have to watch.

00:46:39 (Speaker Changed) We’ll, we’ll see what happens. And for purposes of dis full disclosure, how did you guys trade around GameStop?

00:46:45 (Speaker Changed) I, I, we lost only a little bit of money the first time around in 2021. We have been short GameStop for most of the post 20 post meme stock craze period of time. So

00:46:57 (Speaker Changed) That has to be a giant winner. We, it,

00:46:58 (Speaker Changed) It has been a good winner since 2021. We made back more than the losses that we lost in January, 2021. Having said that, it hurt us in the second quarter and we lost about about one percentage point shorting GameStop. We’re still short of today. It’s come back down and the portfolio construction changes that we’ve made post the meme, stock craze and how we ran into the portfolio allow us to ride through things like this. This is one sort of position, it hurt us in one period of time, but ultimately I still think that GameStop is a short here, but it will not go broke. It will not go as far down as I ultimately originally thought it would.

00:47:35 (Speaker Changed) They’re not Blockbuster.

00:47:36 (Speaker Changed) Well oh they are Blockbuster, but they have $3 billion in cash now. Right. To Ryan Cohen’s credit, when this squeeze happened, he came out and sold a bunch of stock for the company. Right.

00:47:48 (Speaker Changed) He’s savvy. He’s not. He done that’s and I would’ve done. Yeah,

00:47:50 (Speaker Changed) Absolutely. If we happen to be in that situation, good for him. Right. He’s, he’s maybe saving the company long term from being bankrupt. That doesn’t mean that this is a successful business

00:47:59 (Speaker Changed) Right there, there needs to be a pivot. Let, let’s talk about a different type of gaming. Eminence took a a hefty stake in Tain, a UK gambling group. You’re elected to that board. Tell us a little bit about Tain. Is this really a sort of activist play? How, how does this fit within your overall strategies?

00:48:16 (Speaker Changed) Yeah, tain is a, is a global online gaming company. They own brands like LAD Brooks and Coral uk. They own half of BET MGM in the us So they’re partners with MGM, they have businesses in uk, Australia, Italy, Brazil. The industry is growing. They have been a, a leader across many markets and it is fundamentally a, a good growing business. MGM tried to buy the company in late 2020 and then DraftKings tried to buy the company in mid 2021 over the three subsequent years or two and a half years. To that point int lost its way, it had a terrible CEO it had a board that was not informed and unable to make the, the appropriate changes. And over three a period of time really underperformed. We have followed the company. We, we’ve owned it for this period of time in various sizes and recognizing it is both a really good business and a leader.

00:49:14 And it had A-A-C-E-O that was absentee completely taking the the company down the wrong path and making poor capital allocation decisions. We decided there needed to be change there. I I would say, just taking a step back, in general, activism is not our strategy. While we get called activist investors in the press, we are not activist investors. We never go into a situation expecting to be activists. What happens from time to time is you go into a situation you think management’s a b maybe a B minus and it turns out you’re wrong. They’re a D or an F and your choices sell it, move on. Which we often do or push for change in this case because it is such a strong a strategic asset. We felt stepping in and and trying to make changes was, was the right thing. I’ve been on the board now for seven or eight months.

00:50:05 We’ve made great strides. The interim CEO has done a terrific job. We just named a permanent CEOA couple of weeks ago. Gavin Isaacs, who a lot of US investors know. And I think that the capital allocation decisions have been significantly better. We are in the path to turning around this company. I think this is a terrific growth business. It’s a company that’s a leader across many markets and it’s a company with so much opportunity. ’cause it had been so poorly executed and managed for three years prior to the last six or eight months. That’s the opportunity here. And I’m at this point trying to make a difference on the board. And I think we’ve been, we’ve been very effective. I’ve been, I’ve been very pleased and surprised by how receptive it’s been for me on the board. This is not a traditional activist where we’re fighting with people. I think they saw the errors of the company’s ways and, and believe that that I and our agenda, our breath of fresh air. And so we’re making really good progress. You know, time will tell how this works out. So

00:51:00 (Speaker Changed) Last question before we get to our favorite questions that we ask all of our guests. A little bit of a curve ball. You serve on the board of directors of the University of Wisconsin Foundation. Not only are you a member of the development committee, but you’re also a member of the investment committee. Tell us a little bit about University of Wisconsin Foundation.

00:51:20 (Speaker Changed) I’m actually only on the investment committee today. I’m, I used to be on the, the broader board of University of Wisconsin, my alma mater. I do a lot there. I teach a class there. I host interns. I built the whole Badgers and finance community. And I, and I am on the investment committee, so I commit a lot of my time. It, it’s, it’s a passion project. I feel. I feel great about helping kids in the things we do across the university with respect to the investment committee, you know, this is a traditional foundation, runs a bit over $3 billion allocating capital. And this is an opportunity for me to do two things. One is help this foundation with our perspectives help evaluate how should we allocate the money? How should we think about evaluating this manager? How should we think about evaluating this strategy? How should we be appropriately diversified?

00:52:05 How should we be opportunistic in times of dislocation? And secondarily, it’s an opportunity for me to see investment committees and foundations from the other side of the table. Sure. Obviously people like the University of Wisconsin are significant investors with me. Wisconsin is, is not an, an investor in, in our main fund, but we have similar institutions. And so it gives you a perspective for how endowments work, how committees work. And some of the same things that I’ve said about investors are also true about committees. Very sophisticated people coming together on committees look at backward looking returns. Right. Often don’t ask the the rigorous questions about how did you deliver those returns? Are they repeatable? Was this a cycle? How much risk did it take in there? And so it’s been a really good exercise for me to be able to understand our investors in the investment community around. And it’s been a great experience on, on both scores in, in helping the school and they have, they have a wonderful CIO and, and, and I think that, that we’ve done a good job of not falling prey to the issues that could happen with a committee managing an investment team, but it’s also allowed me to see things from the other side

00:53:14 (Speaker Changed) And, and University of Wisconsin always showing up on the list of top non Ivy League schools. That has to be very rewarding for you to do your work with them. Yeah.

00:53:22 (Speaker Changed) Humble, hardworking, Midwestern kids every bit as capable as the kids that go to Ivy Leagues, but with better attitudes. And I think that, that there’s a lot of this going on in the, in the working world that, that I think the working world is realizing that I don’t just need the kids from the best schools in the country. I need good kids that meet a certain standard of intelligence and capabilities. And then what I really want is kids with the right attitudes and kids that go to schools like Wisconsin Midwest, right. Humble, hungry, public school kids. They have a different attitude than maybe kids that might come from some of these Ivy League schools that have an expectation that the path is laid for them and, and that, and that they just are gonna be CEO within the next six years.

00:53:59 (Speaker Changed) Fundamental mispricing of an Ivy League education. Yeah, absolutely. Alright, so let’s jump to our favorite questions. We ask all our guests, starting with what’s been keeping you entertained, what are you watching or listening to these days?

00:54:11 (Speaker Changed) In the podcast land, I, I tend to listen to a number of what I would describe as business and health and fitness podcast. So I, I listen to the Founder’s podcast. I love understanding kind of prior successful people invest like the best. Your podcast, these are kind of interesting market oriented podcasts. I also listened to a lot of health oriented stuff. So Peter Atia, the Drive Hoberman podcast, kind of

00:54:36 (Speaker Changed) Peter Atia is the longevity. It wrote the book on longevity and yeah. Outlive. Yes. Tremendous, really interesting guy.

00:54:41 (Speaker Changed) Tremend. Tremendous, really thoughtful. There’s so much we’ve learned in the last 20 years about health, longevity, wellness. And he’s a big believer in Medicine 3.0, which is really us doing things preventatively versus medicine 2.0, which is like, you get sick, your hip hurts, you go for surgery, right? Well, what do we do to prevent that ahead of time? What do we do to prevent heart disease ahead of time? What do we do to keep us strong and, and living greater health span, not just lifespan.

00:55:10 (Speaker Changed) I read something this morning, it’s so fascinating. 3.0 still comes back to all the things we knew 50 years ago. Don’t be overweight, exercise, manage your stress and, and be proactive in, in how you respond to any sort of infirmity or challenge. Yeah,

00:55:25 (Speaker Changed) I mean, the truth is you boil down all of this longevity stuff to a few key things. Move, eat less and eat healthy, get sunlight, have meaningful work and meaningful relationships. Some strength training, like you’re, that’s it, you’re good. You know, you, you read the blue zones and you look at, you know, there, there’s all this data and it’s, it’s not that complicated. But I think kind of distilling it down there, there are things that have really helped me change small things about my life, my morning routines, things like that, that, you know, switching from cardio and getting on a treadmill or a bike to strength training. Very significant improvement to longevity and the things we need to do. Getting out in sunlight, walking, just basic

00:56:05 (Speaker Changed) Stuff. Let’s talk about your mentors who helped shape your career.

00:56:09 (Speaker Changed) I think there was a handful of people, most importantly my, my father who ran a hedge fund. He was a Goldman Sachs analyst up until the early 1980s. And then early hedge fund founder ran a hedge fund, always been around markets and you know, he was a, a mentor in, in sort of understanding the power of, of good businesses and growing my first boss, Morris Mark, also another great mentor, a a brilliant investor who’s still at it today in the age of eighties. And going back to longevity, continuing to work in our life is, is important. A gentleman named David Harrow who runs the Oakmark International Fund. He was someone I met when I went to school in Wisconsin. He was working at the state of Wisconsin Investment Board, A brilliant value investor. He’s been a, a terrific mentor to me on the business side.

00:56:54 And then, you know, there is a whole community of peers and people who have done this before I did that. I think I’ve used little bits and pieces of, I’m a big believer that investing’s about finding your own compass, but I’m not reinventing a complete wheel. I might take a little bit from Warren Buffet, I might take a little bit from a David Tepper. I might take a little bit from what Julian Robinson did at Tiger or some of the tiger cubs. And you build what works for you. And so I think there’s been a whole community out there that have been mentors to me, friends and peers and colleagues.

00:57:29 (Speaker Changed) Let’s talk about books. What are some of your favorites and what are you reading right now?

00:57:33 (Speaker Changed) I would say similar to the podcast, my, my book’s come into a couple of different flavors. So some of the business books that I’m, I’m a big fan of the, the, the Ray Dalio book principles, I think I think is terrific. The David Rubenstein book on Leadership just came out, lessons of the Titans, another good business book. So handful of business books. I think there’s Longevity and Health books. I think Outlive, we mentioned Peter Attia Life Force by Tony Robbins. Terrific book. I tend to read some stuff on politics like understanding our system. So the politics industry, a terrific book around the duopoly we’ve handed to these two political parties and how we change it back. And then some fun books that I, that i, I tend to like around people, sports characters or other that I, that, that I think are great Open by Andre Agassi. So good. So good. And a recent book that I read, the gambler Billy Walters, a terrific book about maybe the most prolific sports gambler of our time. Huh. That’s a great listen, I I would also say I talk about reading books, but I listen to them now. Right.

00:58:35 (Speaker Changed) Did you, have you watched, listened or, or read Shoe Dog

00:58:39 (Speaker Changed) Phil Knight? Yes.

00:58:40 (Speaker Changed) Terrific. Really, really interesting. Along the same sort of

00:58:42 (Speaker Changed) Yes, a hundred percent.

00:58:43 (Speaker Changed) It, it’s amazing how these incredible companies, all these little places along the way could’ve just made one other wrong decision and we never would’ve heard of them. It, it’s fascinating. All right, our final two questions. What sort of advice would you give to a recent college grad interested in a career in finance?

00:59:02 (Speaker Changed) A couple of things I would give. One is this concept of finding your own investing compass. Don’t try to be just like me or just like Buffet or just like any one person. The benefit of taking all this information in is to build your own investing compass. ’cause what’s really important in investing is consistency and confidence. So when things go wrong, you gotta be confident in what you’re doing. We can’t chase the latest trends. We can’t try to buy the value investor when the market’s value investing and the growth investor, otherwise we’re, we’re gonna be chasing everything. So build your own compass that will build consistency and it’ll build something that you believe in. So that’d be one. I think the other thing that I, that I would say is manage your Rolodex really proactively at an early age. You start to get access to people who can be really helpful to you.

00:59:51 And I think we often get that access and then don’t cultivate it and harness it as we move on in life. And I would say this is, this is a mistake that, that I made. I had this tremendous access when I worked for Morris Mark, I was 24 years old, meeting with CEOs. I could have done a better job of cultivating these relationships and using them. Ultimately over time, I’ve probably come back to some of them and, and, and have used them. But we don’t get anywhere in life all by ourselves. We need advice, we need perspective. Somebody that you meet might know a lot about a particular industry and that’s not all that relevant today, but in 24 months when you’re doing research on another company, it could be very relevant. Being able to go back to that I think is really important. So being proactive about that. Sending people a note every now and like, don’t just call them when you want something from them. Hey, I read this article and it made me think of you and your company and, and what you’re doing. Just keep in front of them. Categorize your Rolodex so that you can come back to that over time and use that as a powerful way to get smarter quicker around a range of things. Hmm. Really,

01:00:56 (Speaker Changed) Really interesting. And our final question. What do you know about the world of equity investing today? You wish you knew 30 years or so ago when you were first getting started?

01:01:06 (Speaker Changed) I think the biggest thing that I wish I knew was how individual motivations create decisions by executives and boards that might not be the most beneficial, I think. I think when I, when I started in the business, I think I understood human emotion about investing fear and greed and, and how investors behave. But I think I took what executives told me and board members told me at sort of face value, like, this is right, this is what it is. The truth is that they have their own perspective, their own motivations. They might be trying to deceive you as we moved on in time. We’ve come to ask different types of questions of executives. I’ll do my own research on the business. I’m not gonna rely on you to tell me what the company’s going to gonna do next year. I wanna know how you think.

01:01:55 I wanna know how you allocate capital. I wanna know what you’re gonna do. I wanna make sure that you’re a person that I can trust to make the right decisions. I’ll do my research on the company and I think I did quite appreciate that. Executives don’t know what’s gonna happen next year, right? The world changes. There are things that they can be blind to. They could have their own poor motivations that that may be getting the stock up in the short run, but not good for the business. And, and I think that that whole area around understanding humans and, and why they tell you things and, and being skeptical is probably something I wish I knew 30 years ago.

01:02:27 (Speaker Changed) Huh. Really, really fascinating stuff. Ricky, thank you for being so generous with your time. We have been speaking with Ricky Sandler, CIO and CEO of Eminence Capital. If you enjoy this conversation, well check out any of the previous 500 or so we’ve done over the past 10 years. You can find those at iTunes, Spotify, YouTube, wherever you find your favorite podcast. And be sure and check out my new podcast at the Money short, 10 minute conversations with experts about information that relates directly to your money, earning it, spending it, and most importantly, investing it at the money wherever you find your favorite podcasts or in the Masters in Business podcast feed. I would be remiss if I did not thank the crack team that helps us put these conversations together. John Wasserman is my audio engineer. Atika Val Brown is my project manager. Anna Luke is my producer. Sage Bauman is the head of podcast at Bloomberg. Sean Russo is my researcher. I’m Barry Riol. You’ve been listening to Masters in Business on Bloomberg Radio.

 

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