Bill Miller on the Classical Value Portfolio (Podcast)

I don't want to gush too much, but Bill Miller is just one of these people who understands the way markets work, who understands how to express what's going on in an investment posture. Their funds run a one active share, meaning there is zero closet index in going on, and they have been one of the top performers since the market bottomed oh eight oh nine after the financial crisis. What can I say? This is just a tour to force exposition on investing theory and practice in the real world.

Just unbelievable. So, with no further ado, my conversation with Bill Miller. This is Masters in Business with Barry Ridholts On Bloomberg Radio. My extra special guest this week is Bill Miller. He formed the Miller Value Partners in as both an r I A and an investment manager for the Miller Value family of funds running about two billion dollars and assets under management. Previously, he ran the leg

Mason's Capital Management Value Trust. After fees, the funds beat the S and P five for fifteen consecutive years from through two thousand and five. That is a feat that I don't think has ever been matched. Bill Miller, Welcome to Masters in Business. Thanks Barry, and it's great to be here. I should say, welcome back. Our last conversation was in let's talk a little bit about what's going on in the world today. Early March, you went on TV and said you were looking at one of the

best buying opportunities of your lifetime. That turned out to be quite a prescient call. Tell us what you were looking at that led to that conclusion, what was behind the thought process. So one of the things that that I'm quite confident of having done this for just about forty years, is that nobody can predict the market with any maybe maybe Jim Simons and Renaissance, but certainly not Certland me, and certainly not basically anybody else that I've

come in contact with any consistent basis. So given that, I think, I think one of the things that I want to look at is just how the market has behaved relative to its history. And in this case, what we saw is the fastest decline from all time highs to a to a bear market in history. And when things happen that have never happened before, that always gets

my attention. I tend to be in the Howard Marks camp that you can probably if you're lucky, recognize extreme points, but other than that, you probably have no better than a coin toss of trying to uh trying to predict

your guests regular cyclical turning points. So in this case, it just seemed to me that the prices had gotten so out of whack with anything other than very very short term UH fundamentals, that that the probabilities were great that if you had a time horizon longer than a few weeks or a few months, that you would do very very well. And I think that, you know, it reminds me of two thousand and two thousand and eight, when Warren Buffett wrote that Op ed and and he said,

by American stocks, That's what I'm doing. And if I was at a meeting with Warren a couple of years later and somebody said, Warren, how did you know that was the right time him to buy stocks? And he said, I don't know time, I know price. He said that those prices were completely dislocated from any type of long term, long term reality unless you believe that the U. S economy is going to be in a permanent depression. And so I think that's the same thing that that. My

view was that those prices were very, very disconnected. And if you look today, the markets had a big rally, but look at those prices back on Marche and the few days Africa. I mean, most things are up, you know, from the lows, even if they're not back close to their highs. So that was an extreme That was an extreme point. So let's talk about both that moved down

and that move up. Not only fastest bear market, fastest drop in history, but since those lows, markets are up about in one of the fastest recoveries we've ever seen. The common pushback I hear from people is the market has gotten ahead of itself. We've gone too far, too fast. What do you say to those folks, I'd say I'd

make one one comment and then one um observation. So the comment is that if you go back and look at bear markets and look at history, there tends to be a rough symmetry between how long it took to get to the lows and how long the recovery took. So when you've had a very again this is the sharpest in history, when you've had a very very dramatic drop, you can go back to seven for example, in the

market crash. So the market, you know, after churning around at the bottom for a while, it began a strong recovery in nineteen and you know, made it back to those highs in the not too in the not too distant future. So this is not this is not unusual compared to what we've seen before. Just so we don't see these kinds of declines very often, and they tend to be far enough apart that most people don't go back and look at history. They just they just look

at their own their own reaction. So, um, you know, with that said, I would say that, um that that comment that which what you mentioned about people thinking the market ahead of itself. The market disconnected from reality is one of those things that I always puzzle at because

this is something that's actually pretty easy to analyze. And the first part of it, the first part of it is that if you before you can say the market is disconnected from reality, you have to some belief or evidence about what the connection is between the market and economic reality. And the answer there is very clear, there

is no connection whatsoever. If you go back and look at all the going back from thirty to like two thousand and nineteen, and you look at the the annual correlation between the market's return and the economic growth, the answer there is I think that, uh that the correlation coefficient is point zero nine, meaning it's random. There's zero is exact random at there's point zero nine. So there's

basically no correlation whatsoever. If you look at rolling ten year periods, so not just that you know, not just that the annual periods, but rolling every rolling ten year period from that same thing, the correlation is minus point four, meaning there's a negative correlation between the economy and economic growth. So the idea that this market is disconnected from reality because it's actually gone up and economic growth is you know was going down at the same time is very

consistent with history. And the second thing, and maybe may be easier to understand, is that the market is a as a forward looking indicator. It reflects people's expectations about what's going to happen. It doesn't reflect what has happened in the past. And so as I like to say the market predicts the economy, the economy does not predict the market. So the market bottom way before the economy.

The economy's bottoming, you know, in the in the second quarter will be the you know, the economy's economy's bottom, and the market bottom was in the first quarter, and so I don't think there's anything out of whack with what's going on. The market bought. If the market did in fact bottom and the second quarter, as it appears it did, then that means that it's getting better. And so if it's getting better, then the market should be

reflecting that it's getting better. And if you look at the current consensus, what you'd see is that that if the market on an annual spasis in the second quarter was down, maybe let's call it, and we don't know what it is. Some of those numbers, like the housing numbers yesterday, the consumer spending numbers were just way, way

better than people expected. But even if we're down thirty percent, then what you would get would be normally speaking, and I'm going out at Hymen's data here, which you have third quarter and fourth quarter, and then if you just get back to five nominal growth in the first quarter of next year, you'd be back at all time highs on GDP. So I don't think that the market is ahead of itself. The only way the market ahead of itself is if we have a very huge reversal in

what's going on. Namely, we have a we have a so called second wave where they shut down the economy again. But even though the cases, the case loads aren't looking that great, um the death rates still falling, and I think that we're not going to see a shutdown of the economy. We may see you know, moderate changes in things, but to shut down the old economy again the way we did in you know, in March and April, I

don't think it's going to happen. So I would I would be shocked if the if the mark retest those old loaves. Let's talk a little bit about what's going on today. In the world of investing, and you and I were both around in the nineties. I have to ask you about the rise of these robin Hood day traders. What is this just a distraction or is this a

potential speculative frenzy. It's both. I mean I think that there's it's it's a distraction in the sense of these The number of people that are actually trading on robin Hood is trivial in terms of numbers of people, of the volume that they can do, uh, relative to the overall market. Maybe they can have an impact on something like Hurts and All or some of these smaller names. But um, but I think the focus on that is is misplaced unless it's just it's just years entered something

entertaining to entertaining to look at. As you remember, Barry back in the back in the late ninety nineties, with the you know, with dot com tech telecom bubble, the day traders were everywhere, and they were there, weren't robin hoods, and that was you know, ridge firms were raising their raising their margin requirements, and so there was a there was a lot more impact I think on the overall markets behavior during that time than there is right now

the volumes were lower relative to the the number of people that were trading and the way in which trading was done. And uh, and now the volumes are huge compared to what people in Robin Hood are day traders are doing. I remember it as sort of a national pastime. You couldn't walk into a restaurant a bar without seeing the stock market on the TV. It's nothing remotely like that today. Last we spoke you, you had a very interesting quote that I have to ask your thoughts on.

Uh In you said, we are only halfway through the shift from active to passive. Give us an update. Where are we in that process? Do you still think lots of fund managers or closet indexers and that this transition is going to continue or or how is your thinking on this? I think that you know, active management is

in secular decline. So just like newspapers have been in secular decline for a long time, you know, once the Internet got going, active management has been in a secular decline and that's going to continue because most active managers don't add value and most people, especially as the demographics get older, people become more risk averse and so they're they're happy to have tracking error if you're if you're active managers way above the market, but if the managers

the market is a standard and you're below the market for a couple of years and people take their money out. In fact, there was a statistic which you probably saw that I was surprised at, which was that a fidelity UH that basically of failities clients who were sixty five and older took one of their money out of equities

in the first quarter of this year. So that gives you a sense of both the risk aversion and how fear spreads in the market, and also the fact that the passive money still gets still as getting the flows. You know, equity e t f s are getting flows, but the at the average active manager you know is getting consistent outflows. And of course we've seen this year that that equity managers broadly defined equity mutual funds have that big outflows, and bond funds have continue to get inflows.

So I think I think we've still got a ways to go in that and uh. And so there's going to be an uphill climb or swimming against the tide or whatever. If you're an active manager, I would say it's also that the hedge funds have also dropped into

that category. They're much earlier in the thing. But you know, in a low anomenal rate of return world, where the tenure interest rate of sixty basis points, somebody's going to charge you know, one or one and a half or two and twenty to manage your money and fiftent of the profits, no matter how meager those profits are. That's a losing proposition. So I think that also is is the hedge fund world is probably a net net liquidation

as well. So you mentioned sixty basis points on the ten year what do you make of the bond market where it is is a talent us anything about inflation? And what sort of support does that provide for equities if yield on treasuries is practically nothing? Yeah, it's it's really interesting that the current yield on the s n P five hundred is about three times the yield on

the ten year treasury. And so one of those so called no brainer trades to me would be, you know, if you've got a ten year horizon uh in the market, or even a five year horizon for that matter, you know, go along the you know, an equity index fund and and go short to five year ten year treasury would seem to me a you know a thing will be

very difficult to lose any substantial amount of money. And again, if the if the people were worried about inflation or right, inflation isn't a problem for the next couple of years for sure, but if it becomes a problem in year three, four, five, and the yield curve starts shifting up significantly, then that would be that would be kind of a home run,

a home run trade. So I think I think right now, I mean, you know, interest rates, as my center runs our income fund says, the data shows that interest rates have have been falling in real terms for eight hundred years, and so you don't want to better interest rates are gonna rise. And and my return to that as well, if you if you lived a thousand years, that would

be relevant. But what we see in the bond market is that goes to these long cycles where we had a thirty five year bear market in bonds, you know, almost a full working career from one, and now I've got a thirty eight year bolt market in bonds, and they rates can't go much lower than where they are right now. Maybe they're not going to go up a lot, but uh, you're they're negative in real terms, and certainly

real terms after tax. So I think bonds are as unattractive now as stocks were in September of night seven, when than thirty year yielded nine percent and the stock market yielded up about two point eight percent, and the stock market traded at the highest pe since in nineteen twenty nine, and so there was no reason to own stocks then because the dividend yield on the divident growth

rate and stocks abou six. So if everything went well, you'd get close to nine percent in stocks if valuations didn't drop and they stayed at the at the all time high. But otherwise, why why did it buy a

thirty year bonds and go home? And that was the right thing to do then, and I think the right thing to do now is to forget about bonds, except, you know, except in a very rare instance that you might think we have a deflationary bust, in which case, okay, Ben Graham talked about having no less than of your money and bonds, so PU quality corporates or something like that. But I don't find bonds at all attractive now. Quite interesting.

You mentioned earlier some of the tech stocks of the nineties. What do you make of the big five big cap tech stocks? Amazon, Apple, Facebook, Microsoft, Google? Have they gotten too big? And if so, is their risk of government reregulation or even any trust enforcement. Yeah, I thought you're gonna ask a slightly different question, which is, you know, not have they gotten too big, but are they too expensive? And what kind of you know, what kind of opportunities

are there? Well, there's certainly there's certainly cheaper than they were in the radically cheaper, radically cheaper, So I'm not even I'm not worried about We We own all of them except for um, Netflix right now, so at which we've owned with a larger show older and Netflix a couple of different times, and that's the only one that I think is expensive. Although I think if you've got a longer term time rise and that will do that

will do fine as well. But you get back to the late I mean, ge traded fifty times earnings and home Depot traded at fifty times earnings. So uh, you know, these stocks at this level don't look to me particularly extended at all, even though they've done very very well that they should have done well. Now the different question though, where's the risk in them? Well, there's there's always risk and and everything, and I think you hit at the risk is uh, and I trust a reinterpretation of an

I trust. I don't think unless there's a Democrats sweep that you'll get any significant change in the anti trust laws like the Clayton Act of the Sherman Act, but nothingtheless deftly changing the laws before courts can interpret things differently, regulators can can come after the companies, and so I do think the regulatory risk and the government risk is high in these companies, but that's what you'd expect for companies that are so dominant and so large, and you

know five of them, the S and P five. So yeah, Now, I don't think the risk is so great that it will significantly inhibit what you can earn from them. But maybe they traded a multiple point or two lower, and there'd be headline risk more I think than real risk. Now, let's talk a little bit about some of the changes we've seen in the industry, including what some people are calling the death of value investing, which I have to

imagine you're gonna snicker at. What Why has value been having such a difficult time and what does this mean for people's portfolios. Yeah, it's a fascinating question, and there's a lot of there's a lot of i'd say different views on this. We've got a guy named Dan Is said who runs i'll call it a pure value or a classical value portfolio, which which is basically a low price to tangible book, low pe low price to cash flow.

And as you might expect, he's been having a very difficult time of it and and sends out a never ending stream of emails about how extreme this is and how it's never happened before and it's got to be a snap back at all. And then you might have seen Cliff Asness his work on the same thing about how extreme this is, and he believes that you're going

to get a snap back. So where I come out on this is I think that the odds are overwhelming that that i'd say, value as traditionally understood will do very well from roughly now until maybe a year or two years from now. It could be longer. But why I say that is that the value has led out of every recession as far back as the data goes, and the reason for that is that when companies, when the economy peaks and goes down, value name just tend

to be more cyclical. They return on cap little drops, and so their theoretical valuation just viavation drops and the stocks underperform. And then we come out of a recession, they're they're returning capital rises because they're more cyclical than a Coca Cola or Amazon, and so therefore they outperformed.

And we've seen that right now. If you look at the the over going to repeat that right now, if you look at what happened, you know, going to March, the tech names, the stay at home names, the secular winners, you know, service now and Shopify, those kinds of things, they killed the market. And uh, I mean, I'm some of the guys that are really good at this, like Dennis Lynch at Morgan Stanley or James Anderson at Bailey Gifford.

You know, the high high growth guys. I mean, they're up in the for the year and you know, traditional value guys are at the at the bottom of the page. But since March, the value people have beaten the growth people pretty handily. And uh, and I think that that's because the economy, you know has been bottoming and then the economy is going to start up. And so what you what you see? I mean a day like yesterday, the markets up one and a half percent, and most

of those growth all those growth names underperformed dramatically. So I think in the in the relatively short run, meaning now until the next year or two, the odds are strong that value will outperform growth. But a little more, a little more UH nuance here. The reason that value has done so badly for ten years is that value thrives in a in an environment of reversion to the means. So the economy speeds up and then it peaks, then it goes down at bottom. So you have this kind

of cyclicality. And if you look since the since the financial crisis, since March of o nine, the economy for ten years grew basically between one and a half and two and a half percent, averaged about two percent with low inflation, with UH, with the low interest rates, and not a lot of cyclicality. And therefore that's an environment where growth is going to thrive because low nominal growth such as we're low real one and a half to two basically, then if you grow fast like an Amazon

or a Google alphabet. Your your theoretical valuation is much much greater than it is otherwise. I saw a thing in the journey. You might have seen it last week where somebody was looking at the academic literature and said that if you if you run nest Lye through a model of what the what the you know, the market kind of looks like now with interest rates at six year seventy basis points and low nominal growth from here,

then Nestle's worth fifty times earnings. And so I think that's the that's the thing that would put value, you know, back behind the eight ball, which is if growth in the future is like growth in the last ten years, so call it one and a half to two percent. After we actually go to this high growth period, rebounding and interest rates stay low. And by that I mean, you know, the ten years, I don't know one and a half or two and a half or then value

is going to have trouble again. So I think that's the It's maybe a long winded answer, so it depends a lot. It's context dependent. So if the world with somewhat different, if the curve shifts upward, if inflation starts to come back, then value will kill growth, and if it doesn't, then growth will probably beat value again. So you mentioned the stay at home stocks are doing well.

What industries and companies have been permanently impaired by the virus, and where are the opportunities arising from this whole lockdown experience? Is this going to change us or is this just a temporary experience? So permanent is a long time, and I would say that I'd said to that that nobody has any idea because nobody knows what the future is going to bring. I mean, people have talked about Bill Gates, others have talked about going back years that we're going

to have another pandemic at some point. The problem is you can't predict what that point is. And so at the beginning of this year, no one was predicting a pandemic this year, which has now radically upended all kinds of things from the economy to growth rates too, you know, access death rates, to change aging, industry norms, and all of that kind of stuff. So if you look forward and you say, what's what's permanently different, well, uh, there's

going to be nothing permanently different. If we have a vaccine and the next and the relatively short term. By that, I mean over the next six months to a year. That's effective because if that happens and all of a sudden, you can fly safely, you can travel on cruise ships safely, you can gather, you can get sports, going sports, and you can go in movie theaters and so the kind of environment that we saw in January and February would

be right back on the table. Hip. On the other hand, there is no vaccine, uh, And I'll also say it's not just a vaccine. No vaccine and no effective treatment. So maybe there won't be a vaccine. But if the death rate for the COVID nineteen drops down or turns out to be about the same as flu, then I think there'll be a longer term uh, return to normalcy. But well, we'll get back to that same normal thing.

That sort of point one and point two, which is which I'll summarize shortly, is that the effect of this is going has been to and I think it would be permanent to accelerate trends that are already in place, which means trends towards online shopping, for example. And also it uncovered some things that we didn't know, namely that a large number of people don't have to be in an office building and in certain industries to be very productive.

And so I think James Gorman at at Morgan Stanley and others have been fairly vocal about the fact that the real estate footprint for you know, for financial services companies is going to be significantly significantly different going forward. So that I think that commercial real estate is potentially exposed not in the near term, but over the over the longer term. And again, a lot of stuff is

just just in the middle. We just don't know what the answer is in I was on a Zoom call when one of the participants were marveling over the new technologies, and I had to point out, Hey, we've had FaceTime and screen share and Google hangouts for years and years and years. People just didn't have to use them. So

your point about the pre existing trends is very well made. Yeah, I mean, I think it's I mean, I think that's the That's about all I can say in confidence is any trends that were in effect, we're probably accelerated because of this. I couldn't agree more. Let's talk a little bit about some of the things that you've seen change over the course of your career. And I want to start with something that is a little surprising. Let's talk

about cryptocurrency. How actively involved in the crypto world are you and where do you see this going as either a speculation or a potential asset class. It's interesting the way you framed that, Barry, because if you if you ask how actively I am and it are actively involved, I'm not active at all. I have a very large

position personally in bitcoin. I think UH Financial Time set Up did an analysis and as at least a couple of years ago, if I've got their data right, they weren't naming names, but I think it was a top one holder of bitcoin UH in the world. And I haven't, but I haven't. I haven't bought or sold a bitcoins in years, so but I am I am holding it. I haven't. I'm not trying to trade in my trend a thing like that. And my view on cryptocurrencies was and is that they are and I'm talking mainly about

bitcoin here. The other the other cryptocurrencies I think I think are mostly mostly uninteresting. There are some that are interesting, but mostly uninteresting. But I think it's a very interesting technological experiment. We haven't seen any kind of thing like this is kind of an innovation in in finance and in money, really really in history. And and so I think to bash it as many of the very prominent people whose names I won't mention them, but I think

we all know who they are. What to bash it is to is to I think without without Also I think analyzing it in any kind of any kind of care is is probably premature. And I do believe the one I've changed my mind all one thing, which is when I first got involved in bitcoin, and I think my average cost on my bitcoins is around my initial costs is around two hundred my average cost free three hunds a bitcoin. And my view then was that it

was it was very, very risky. It had a non trivial UH chance of going to zero, and my non trivial alignment that you know, probably at least well so unlike many investments UH with bitcoin, the higher it goes, the less risky it is longer term. With other investments with the stock, the higher it goes, unless that's being driven totally by fundamentals, the risk here it gets, the

more expensive it gets. The risk here it gets whereas here what's what's leading to the bitcoins price and you know around nine thousand dollars right now is greater and greater adoption. So we're seeing more and more institutions get involved. What you're seeing is uh, you know, exchanges getting more i'd say professionalized and not being quite the wild West. So it's still pretty much the wild West, but we're

still early in that game. And the thing that encourages me probably the most is that the venture capital firms, the people who who you know, who make their living trying to sort out which technologies are worthy of investing

in which aren't. Have Not every venture capital firm is big in bitcoin, but many of the most prominent ones are, And I think that's probably the thing that gives me the greatest confidence is they're still putting new money into this and raising new funds for this, and that increases the probability that it works. And then secondarily to the point is I think it's it's right now just just a you know, a speculative vehicle. I think it could

become an asset class. I think it's most likely to be, uh, you know what. One of the books, the titled Digital gold. I think that's probably the most likely venue for it to succeed at. And I think also that one of the things that's gotten some attention, as you probably know, is that Paul Tutor Jones is put close to I think now he's close to two of his funds in bitcoin, and other people like Stan Dructon Miller. I don't believe on owns bitcoin or great value. I don't believe owns bitcoin.

I'm not sure. But but they they are bullish on gold because of the massive stimulus, the massive money printing, printing a nut that their bullets, because they think going to runaway inflation. They just believe the probabilities of gold doing well, and gold has done well, are increasing. And my my view is that if gold does well in the next five to ten years, bitcoin will do a lot better because it has many advantages that gold doesn't have.

So I would I would say that, you know, if I were to advise people, which I don't do that kind of thing, but what I did was I put about one percent of my liquid net worth and bitcoin, and I would say for people who are interested in it, that's an interesting way to go because anybody can afford to lose one percent of their liquid net worth and uh and if you can't, then you ought to be in cash or in short term short term government bonds, any of anybody that own stocks and afford to lose

one percent. So, but the right hand tail of the distribution, if it works, is many many times at the current price. Quite fascinating. So you mentioned it's a technology digital gold as well. Is this a potential currency and a potential alternative to the dollar, And regardless of bitcoin, is the almighty dollar going to continue to be the almighty dollar into the foreseeable future? What potentially could dethrone the dollar

as as the world's reserve currency. Yeah, that's a really interesting and important question because a guy wrote a book on the dollar called, you know, Exorbitant Privilege, you know, some years ago. And the dollar has been a huge, huge benefit as the reserve currency for the U S. It's why we don't, you know, suffer the problems of countries that you have to use dollars and and and so we'll we'll be vulnerable to runs on their own currency and in favor of the in favor of the dollar.

You might remember back in nineteen uh two seven two thousand seven and eight that Warren Buffet and Paul Krugman, when asked what they thought the risk was to the overall market, they both mentioned the current account deficit and said they were concerned about a dollar collapse and people would lose confidence in the dollar because of our massive current account and growing current account deficits and and so uh. It turned out the current account deficit, it wasn't a

problem at all. The housing market was a problem. But and when the when the global financial crisis came, people didn't sell dollars, they bought dollars. So I think that that gives you a sense of of of how powerful

the dollar is right now. The issue though, is that, um that we're in competition with the Chinese globally, and the Chinese economy will be bigger than ours at some point, and the Chinese are experimenting and I think going to come up with a with a cryptocurrency that will be you know, that the Chinese government will back, and part of the reason they want to do that is to try and undermine the dollar. So I would guess also that the US will all so at some point have

a you know, have a fedbacked cryptocurrency. And maybe some other the other reserve currencies as well. So I think that's a potential significant change that as it evolves, that

would also put a lot more attention on bitcoin. And of course, the big advantage of bitcoin is that it's permissionless, it's decentralized, it can't be hacked, and it can't be debased, and and so I think that difference between a government backed currency, even if it's a cryptocurrency, and one that is basically independent its whole, its whole way of operation, is independent of any government, would would be beneficial to bitcoin.

So it doesn't happen a collapse is just the Bitcoin would benefit from the differentiated aspect of it to whatever other sorts of cryptocurrencies or payment systems come around. You call bitcoin digital gold, I've been calling it libertarian gold. And I can't see that crowd getting behind certainly not be on a federal reserve that crypto and essentially planned um regime like China. I can't imagine the libertarians buying

into that. Do you really think a Chinese cryptocurrency has a chance to capture the imagination of at least the early adopters in that space. Um Let me let me resort this out. You know, if you look back at bitcoin when it got started in who it's initial enthusiasts were, it was basically libertarians, people that hate to fed, inflationists, hard money people, all that kind of stuff that they provided the early impetus and the emotion, uh to get behind it because it checked a lot of their boxes.

So if you think of bitcoin as as a favorite of the libertarians, you know, as as a politicized thing, which I think it is to a minor extent, much miner than it used to be before. No, the libertarians are never going to get behind a sponsored cryptocurrency, much less a Chinese sponsored cryptocurrency. But they're a relatively small part of what, you know, what drives the global economic system.

And I think the rest of it is going to be just based on practicality and it doesn't work and uh and doesn't solve some kind of financial need, and we'll just have to see that again. It's early, it's early days in this, you know. Friedrich Hyak wrote a wrote a monograph called the de Nationalization of Money where he argued that there should be you know, the basically money's money is plural, should compete with each other, and any banks should be able to issue its own money.

Any company should issue its own money, and then the market will sort out which ones are valuable in which ones aren't. We had that in the United States for about thirty years. Didn't work out too well enough in the nineteenth century, but it doesn't mean that it can't work some version of it in the future. And I think that's part of what part of the direction that this is going right now. So let me shift gears on you a little bit. I have to bring up

something I'm fascinated by. You made a seventy five million dollar donation to Johns Hopkins University, your alma mater, to the philosophy department, turned out to be the largest ever gift to a philosophy department. Explain what motivated that. Tell

us about your thinking behind that gift. Sure, So I went to grad school at Hopkins, got a chef in of the PhD program there in the mid nineteen seventies, and after I get out of the Army, and and I was at my mindset on I'm becoming a college professor, and that was a very bad time, just like his right now, it's just been a bad time. For like four years to get a pH d in a in the humanities, whether it be English or philosophy or French

or whatever the case may be. And so when it finally became clear to me that that was not going to be uh, something that made a lot of sense, I would probably a vagabond bouncing from college to college. I then shifted gears. I've always been interested in markets, and so I was fortunate to get a job initially at a private company and then moved into their treasury function and manage some money for them, and then went

to like Mason. And the thing is I look back on was the thing that probably was the most useful, practically useful thing to me, much more useful than being an economics major undergrad and you know, learn money and banking and all that kind of stuff, and the you know, the equation of exchange on vv equals p Q, where the the analytical habits of thought and the critical analytical skills that you learn uh in philosophy, which is very rigorous and UH and in some cases highly quantitative. Although

I would I wasn't particularly attracted to that part. But I my view is that I would not have had anything like the success that I've had in capital markets had I not had that philosophical training, because part of it is that that you're always trying to figure out what's wrong with your view and not trying to press your view about what's right. A lot of people in markets, as you're undoubtedly aware, have very strong views about lots

of things. You know, I mean, lots of very smart people were short Tesla and thought it was a fraud. Lots of very smart people thought that Amazon was going to go bust Baron's caught it Amazon dot Com. But when you get you know, when you get kind of the bit in your teeth and have a strong view on that, you tend to ignore countervailing information and look for confirmation, and all kinds of psychological things come to play.

And one of the things that going through the drill and grad school philosophy UH, at least at Hopkins UH was imparted to me that you've got to hold all that stuff back because you're what you're really trying to do is get at what's called the argument to the best explanation. So what what's what's going on here? Not what do I want to go on or what do my beliefs tell me. But you know, you've got to consider all evidence from every angle. So it's like a

Rubik's cube look at things. And that was enormously helpful to me, and I would say that it was it was part of why you know, we bought Google, and the second by the biggest buyer Google on the I p OH, the big buyer of Amazon on the I p O. And so a lot of those names that have been among our biggest winners have been due to I think the analytical skills that I developed in grad school.

And I thought it was a useful way to to you know, to pay that back because I think the more people that are exposed to philosophy, so Hopkins Department were more than double as as a result of the size of this, and they've already hired, you know, last few years there several distinguished philosophers. So I think I think it'll be good as more students at Hopkins take philosophy.

And also I just thought it was good to shine a light on the value of philosophy, and especially when people are thinking about stems so much, uh, you know, and and and using your education to get a job. I think that's fine but I think that actually that the humanities have a practical value as well as you know,

as an intellectual value to people as well. So one of the things that's kind of intriguing watching people who are not epidemiologists tracked all the data is that we're testing so many more people today that we're finding lots of asymptomatic um people who are infected or asymptomatic um people who are currently infected. So that's driving the death rate down, and then the number of people under fifty and under forty who seem to be getting it, who

have a much better prognosis um for surviving. Those are really making the mortality rates looked better than they did in the beginning, when we really only fact out about who had it based on whether they went to the hospital or died, right right, Yeah, I mean, it's it's it's interesting. I'm on the I'm on the board of Johns Hopkins, which is kind of, um, you know, ground zero for all the data on this kind of stuff. And we have a call on COVID every Easter every

week now it's now it's every other week. But yeah, that was that was one of the things that came up in the call this morning, which is, if you look at like Florida, for example, you're getting a huge increase in in case aces um. Before Florida reopened, the average age of somebody with COVID was sixty two. And since it's reopened, with all that jump in cases, the

average age of cases since then is thirty five. And if you look at them the data on mortality of people who are thirty five, then their mortality, their chance of dying is point zero zero zero five. So basically it's basically almost nothing. So I think that's what that's what you're seeing, and that the press doesn't do a very good job of sorting out the various you know, ways in which you can you can carve up these

carve up these statistics. So it's and as you said, the more talent that the number of people that apparently are asymptomatic in this I think the CDC said the other day that it's probably ten times a number of people that actually have had the you know, I have to have tested positives that would be, you know, instead of two million people that have had it, it's twenty

seven million people. And the CDC said it could be as any fifty times that, which means that mortality is very very low, and the aggregate and if you look at them and carving it by age, I think it's only six percent of the people who have died from COVID.

We're actually in the labor force. So people that are in the labor force the very little, you know, very little problem, which again makes that makes the cost of shutting down the economy to try and protect people who are, you know, in their seventies or eighties, instead of isolating those people and trying to have them make sure that they don't you know, they're they're not mixing like people

my age over seventy years old. That makes perfect sense, But keeping everybody out of the labor force who has very little risk doesn't make much sense at all. So I won't spoil the surprise for Johns Hopkins, but I suspect there's a big pile of bitcoin coming their way sometime over the next few decades. Um, But let's just

keep that between us. So, so if you mentioned, um, how philosophy has impacted the way you approach investing, how has your philosophy about investing changed over the past few decades. It's hard to imagine the Bill Miller of leg Mason as a buyer of bitcoin. I suspect your thinking seems to have evolved over that time period. Yeah, i'd say, uh, actually, I was still an employee of like Mason when I made the when I made the bitcoin, the first bitcoin purchase.

But yeah, I guess my my thinking changed mostly around and then it's I'd say, it hasn't changed much since that point in time. So what happened was that we started the Value Trust in two and by six it was the single best performing fund in the country of the last you know, five five years. So we were

number one in fidelity. Mitchellan Fund were number two. And then when the economy peaked, and so we got wet hit in the crash, not not terribly, but because we had a lot of cash going into the crash, the two thousand crashes that we back. Yeah yeah, yeah. So but when we had that recession, we then had a terrible year in nine and we lost half our assets

in the funds. And so I went back to look at the history of value investing as traditionally conceived and concluded that what people thought about it and the way it was portrayed in the press and and you know popularly was wrong and that the academic research did not did not support that view. And namely, the value investing was in some way or other superior to growth investing on on some on some fundamental basis, which probably psychological.

And it was the case that just because stocks had a low key year, low price to book or low prast cash flow, that just that typically meant that they had a low return on capital, or or were highly capital intensive, or they had a lot of debt. And unless one of those things are many of the things changed, they did now perform. They just were just statistically cheap. So we began to put a lot more effort on integrating what the academic research showed about investing with what

the practicalities of investing were. And the key thing was to focus on return on capital through a cycle. So what we went from doing was was getting away from uh generally accepted accounting principles gap measures and looked at measures of economic value. And so we focused on h free cash flow, yield, return uninvested capital, and companies that could earn that through recycle. That was that was the big change, and that hasn't really changed very much since then.

I'd say the only thing which is changed since then is an understanding which I've talked about earlier in the interview, about when value does well and when growth does well, so that you know, the so called value can underperform for long periods of time if the economy has very low volatility and low nominal growth rates. So I think that's the that's the other change which would cause us,

which has caused us to to un til differently. So in the in the Opportunity Fund that I run with my colleague Samantha maclamore, you know, since the March o nine bottom through two thousand nineteen, we're in the top one percent of all funds. And that's partly due to the stuff that I just I covered in some some psychological things that we believed about people's first conversion and misperception of risk, which I think will repeat again in

this in this current post pandemic environment. So it's funny because when we had our last interview in I think a large segment of the fund following world had figured well, Bill Millers washed up and left for dead, and I saw some data that had you as the top performing fund for one three five years. This is all post o nine UM. So clearly whatever you learned in ninety and applied after the financial crisis UM seems to be working. It raises a couple of interesting questions. Let me ask

about oh eight oh nine. Why did value um underperform heading into the financial crisis? And what was it that so many people missed in the spreadsheet that was evident if you look at books like The Big Short or the movie you are just how crazy the home flipping epidemic had become. Why was it so challenging to see that if you were looking at at balance sheets as

opposed to the real estate listings. Yeah, I'd say that. Um, there's a there's a line that Charlie Munder Warren Bucket's partner said, and I think it's two thousand nine, because you know, he had just hired uh, Todd and Ted to come start managing money for Berkshire maybe a year or two earlier. And and they were asked at the annual meeting, you know, did the guys that you hire

did they outperform in this in this bear market? And uh and Buffett said no, they you know, they underperformed and and uh and somebody said, well, what you know, what do you think you know they did wrong? And the implication that you know where they where they messed things up, and and Charlitan Winker said, he said, he said, well, he says the way that I look at this, he says, I think the market estim he was down thirty eight

percent or something got in two thousand and eight. Charlie said, in my view, he said, if you weren't down at least, then you didn't know what you were doing. I thought was it was a clever line. And I think that the issue that you know, in retrospect that I looked at was that there were there were structural things that I missed. The stock market never got really expensive in the sense of you know, times earning is an expensive

relative to to UH two rates. And part of the reason was that the market had kind of picked up that there was a risk there and it was, you know, it was an asset based risk. And most almost all recessions are due to liquidity UH implosion, so you know, fet titans, that discount rate goes up, the economy goes

into recession, that kind of thing. But it's basically the raising interest rates, and there they typically weren't you know, debt financed assets that were such a large part of the economy that it could it could be a risk of the financial system. And I think that's what that's

what I missed then. So there were in fact, the academic research didn't even uh distinguish between balance sheet based recessions and income statement recessions, and it does now, And I think that's that's one of the one of the things you've got to be careful looking at and the overall economy is what what kind of problem are we seeing in the in the financial system, And there the financial system wasn't was at risk of complete collapse. If the FETE hadn't hadn't put PARP in there, the banking

system could easily have collapsed. And that's just not the not the case now that the FET has acted much faster, and it's a very different sort of problem that we're facing from what we what we've before that problem was a banking system based problem, and the banking system is actually probably one of the strongest parts of the economy right now, so very very different now from from that.

So since you brought up the FED, I have to ask I've heard people complain about FED interventions FED support of the stock market. Not only is the FED buying e t F the buying specific bonds. What do you make of the FED action? How does it influence your views of the market, and do you do anything to position your portfolio to either withstand or take advantage of

whatever the FED is doing. Yes, so I think that I'm puzzled a little bit at people's views, you know, who have again a strong view about the FED ought to do this, the FED ought to do that, you know, and this is the right thing, doing the wrong thing to do. I mean, my main issue is I don't really care what my personal view is about what the what the FED ought to do or whatnot or will do.

My view is I need to figure out what it is they are doing and what the impact of that's likely to be, quit apart in what I think that they ought to do. And I think that also people kind of forget about why we have a FED in the first place, and why we have a FED in the first place was we had recurrent banking prices and collapses and severe recessions or short depressions back throughout the

nineteenth century and we needed it. We needed instead of a central clearing house, which is the way banking system worked is having actually a a lender of last resort similar to what the you know, the Bank of England was, and that you know that worked out. Okay, I'd say, I think it's working so much better now because we know a lot more now about how that stuff works.

And I still think that people fundamentally misunderstand what the power of the FED, even though there's a famous line, don't fight the FED, but underestimate the power of it and how it fits into the overall economies. This one one's brief thing. Well you'll remember this very well, and I'm surprised that, you know, people still don't pay the

attention to this. When the FED finally got its self and gear in two thousand and eight, uh and really began acting as a lender of last sort of backstopping facilities and swap lines with the overseas banks and central banks. I mean, that was that was what ended along with the TARP, that's what ended the financial crisis and saved the banking you know, save the banking system. But people, you know, lots and lots of people said that we were going to have inflation, and look at all this

money printing, and that was completely wrong. And but I think that same basic group that was wrong says the same thing again without having any idea about why they were wrong. Then, so uh, again, I don't have a I don't have a view, certainly not a dogmatic view, but I don't have a view about what whether we're gonna have inflation or not. All I know is we don't have inflation now and uh, and we're not gonna have inflation probably the next year or two after that,

who knows. But I do think that the Fed did exactly the right thing, which is why the why the stock market bottom as quickly as it did, and it moved much much faster than this time than it did before. But it moved so fast now because it understood before

what the consequences were of moving slowly. So I think that the interesting thing now is that Chairman Powell has said that they will not um increase rates until they are convinced that that we're on a sustainable growth path, and that they won't increase rates until the realized inflation rate, not their forecast, but the realized inflation rate is above two on a symmetrical basis, And since it's only been

above two two quarters in the last ten years. We don't know when they're going to start the symmetry, maybe as of you know what two eighteen, when they change there what's called their reaction function. But you're gonna they're gonna let inflation run in my opinion, based on what they said, must they change their mind at three to four percent for a while. So you're looking at the case where interest rates are going to be very very low and no problem at all, um, no competition at

all for equities for several years. And I think that that leads you to the view that if the economy is then going to grow, um, you need to be long equities again sat a strate line. But I think that that even now where are we now, it's what we're doing right now. It's actually interesting enough to me following the two thousand nine playbook. So if you think about it, the the market bottomed in two thousand nine in March, in early March. This market bottomed in late March.

The market had a big rally in two thousand nine into June. That's what this market did. The market had a ten percent correction. Then that's what this market did, and then it continued to rally throughout the rest of the year. And again I don't I don't prect the market. I can't predict the market, but certainly that's the that appears to be the direction that things are going right now.

And uh, and so I think that it wouldn't It wouldn't surprise me if the overall if the overall market hit new highs some time, you know, late this year or early next year, which I think would probably a surprise to most people. But if the economy is coming back faster and there's not gonna be any inflation, and I said, it's not going to raise rates and we can have a new HID and GDP by the first quarter of next year, I can't see a reason why

the market wouldn't be an all time high. Then quite interesting. I have to circle back and ask you another valuation question, because this has been an internal debate in my firm and there is no resolution of it. But I'm fascinated by your perspective. If we look back over the past call a century of of equity valuations, there has been a gradual increase in what investors are willing to pay for a dollar of earnings and I don't mean just

like a cyclical move during a bullmarket. I mean over the past many decades um, going back to the twenty nine crash. And some people have argued that it is a function of how much less capital intensive companies are today. You think about railroads or auto manufacturers versus you know, a couple of guys a laptop and a Amazon web services. Are companies today more deserving of higher valuations than the material, labor and capital intensive companies of last century or is

that just an excuse for higher pe ratios. Oh, I would think that you know that absolutely. I mean not every company is deserving of that. But if you look at the valuations of I would say, the companies that dominated the top the largest companies in the US and the you know, the forties of the fifties or even in the early nineteen sixties, and look at their financial characteristics, you know, their return on capital, their free cash flow generation,

their debt levels, um. And then look at companies that those same characteristics today. They are not any more expensive today than they were back in the you know, fifties or sixties, and accept the interest rates are lower, uh, which would make them moderately more expensive. But what's really different is that you know, the top the companies are the biggest companies in the US right now. They're radically different financial characteristics and growth rates. And also I would say, um,

you know, moats around them. I mean, no one's gonna catch up with with Amazon, or with or with Google or with Facebook. In my opinion, no one's gonna be big bigger than in global uh streaming than Netflix. So those companies competitive advantage period is much longer than you know than a company like General Motors and which faced foreign competition and now faces other kinds of competition from from electric cars and stuff like that. So yeah, I think it's I don't think it's a hard to explain

at all. I think it fits righting with with financial theory would tell you quite fascinating. I've covered a ton of stuff Before we go to our speed round questions. I have one last question for you, and it's about the cost of active management. Last we had a conversation about this. You had said it's it's too high and doesn't deliver enough value for what it costs. What are your thoughts today? The prices have come down fairly dramatically, both for management and for trading, which is more or

less cost less. What are your thoughts on on the state of the industry and what it costs to be an investor if you're working with a professional manager. Yeah, I mean, I think I stand by what I said before. Is that, um, that the issue isn't that The issue is the cost relative to the value that you're getting. And I think that that issue is not so much a question of the skills of active management as it is the the risk controls or the structural impediments that

they have what are partly institutional and partly legal. So you know, if you the investment comp in the act of all kinds of restrictions about how you can construct portfolios, which which don't exist in the hedge fund world for sure, And then the business side of investment management is such that the reality of client behavior is that you know, they tend to be, especially in the current environment, risk and volatility phobic, and if you have tracking error on

the downside, that that represents a business risk, which kind of leads you then to more of a closet indexing approach. And the only way that approach can work is with lower cost than it currently has and an ability to kind of serve the market just ahead of the market, which I think is very difficult. So the challenge active management has is to actually have a portfolio construction dynamic which which has high active share with the professical actors share,

meaning your portfolio can't look exactly like your benchmark. If your portfolio looks like your benchmark exactly, then you're gonna underform your benchmark. If your cost or higher, you can't do anything else. So that means just mathematically that your probabilities of increasing about performing grow as you diverge from

your benchmark. But also the that tracking error can also go on the downside, and said, that's the big challenges to try and try and mitigate that downside tracking error relative to the upside tracking error as we'll call it. And then and that's the case, then that's how you can add value because you'll outperform over time. And of course lower costs are always helpful. Last we spoke, I recall your active share was amongst the highest in the industry.

What are you running for an active share for for your funds at at Miller value? The way it's the way that it's captive, it's roughly around among the highest in the country. Still, that's what we've done for a long time. So and so it causes causes angst. It causes angst when we have a you know, a year where we're behind the market fairly dramatically, but we can

always come back quickly. In two thousand eighteen, which is interesting, in August of two thousand and I'm sorry yet two thousand and eighteen, August two thousand eighteen, UM, I'm say two nine. Obviously two thousand nineteen, UM, we were I think I think eight hundred basis points or nine basis points behind the market, and we ended up two hundred three hundred ahead of the market. So we made up like eleven basis points in a quarter in a month. And I think that that's you. And the reason for

that is that the FED changes reaction function. The market wasn't worried then about a recession, and so all of the fear that drove the two thousand eighteen fourth quarter decline dissipated. And I think that's the kind of thing that you're actually starting to see right now in the market. You look at the people that led I mentioned earlier in the first quarter and Uh, they just killed it. But now I think that, I mean we're we're now.

I think, uh, we're less behind now, even though we had a stronger bear market decline uh this year than we did back in two thousand and nineteen and the early part of the year. So we're less behind now than we were August of two thousand and nineteen. So I feel pretty good about our about our our kansas of doing well again this year. So one of the things you've said before that relates directly to that is

volatility is the price you pay for performance. I assume you're gonna expect volatility, You're gonna expect big draw downs like you saw in eighteen. How do you manage your client base? How do you manage the institutions you deal with when all of a sudden during a quarterly review, Hey we're down eight or nine percent behind our benchmark? Is that a challenge to juggle and or do people understand that you want the upside, you gotta deal with a little bit of down. So when things get well.

When I when I bought the ownership and what was then called LMM from like Mason, I brought the mutual funds along, but I did not bring the institutional business along, and so we don't we don't really take we have some separate accounts, but we don't really take institutional business.

We're not that we won't take it, but that we uh, we're not actively trying to grow it, and we're only interested in having clients that really understand that point that you just made that you're going to get volatility, and

we're trying we try and monetize the volatility. So what we want to do is if the market goes down a lot, you know, as it did in in March of this year, we will we will reorient the portfolio around to try and take advantage of when it comes back, and as it goes higher, we want to trim the stuff that has done really well and then moved out into stuff that would tend to be more resilient on the on the down side. But we don't have that.

Even though we obviously you know the papers every day what we're doing, and we have quarterly calls and meetings, we don't have those quarterly institutional meetings that we used to have, and those those were more challenging because um, every institution has got a different way of thinking about you know, risk and reward and what they're looking for.

I think I think, you know, I've been doing this long enough that most of our clients understand that that's what comes with the territory, and so we really haven't, you know, uh, suffered much in the way of redemptions in the last several years. In fact, we have, you know, I don't know if we have net inflows now. Our income fund definitely has net inflows so far this year, and the other funds if we if we have outflows, it's it's not much, which is kind of unusual, you know,

for for an active mutual fund. Quite interesting. I have a million other questions for you, but I've kept you for an hour so far, so rather than take up too much of your time, we'll have you back when we're finally done with lockdown, and let's jump to our speed round, our our favorite questions we ask all of our guests, and since you mentioned Netflix, let's start there.

Tell us what you're streaming these days? What are you watching on either Netflix or Amazon Prime, or or what are you listening to in terms of podcasts or or anything like that. It's a really easy question because the answer is nothing, So I don't. Really, I don't. I don't. I don't listen to podcasts. Yeah, I don't. I don't stream anything. Uh, I don't watch television, especially since baseball season is on hold. That's about the only time I

had the television television turned on. So I'm I'm I'm very out of touch with with all of that, you know, all of that stuff. So I'm much more focused on, um, you know, reading than I am on on listening. So let's jump to that question. Uh, tell us about what you're reading these days, and and mentioned some of your favorite books. Sure, so I just Um, I just finished Thomas Man's The Magic Mountain, great classic that I haven't uh,

that I had not read before. Um. I'm currently reading, uh, the eight page biography of Frederick Douglas, the you know, the African American the nineteenth century. Um. I'm working my way through Ralph Waldo Emerson's selected works. I just finished Nature, the first book that he the first book that he published, and um, and then I read a biography of Frank Ramsey, the great polymatic genius philosopher who most people haven't heard

of because he died at age. But that's about a six hundred page bio that I've that I've just you know, just finished. And in terms of um, was it one of the question favorite books? Is that the other question all time favorite? Sure? Yeah? So? Uh? In fiction, I would say Brothers, Karamazov, m Warren, Peace, Moby Dick. I mentioned Magic Mountain, which was great, Um Conrad's Heart of Darkness,

and then Cormac McCarthy's Blood Meridian. And then in uh, since I have you know when to grad school and philosophy, uh, David Humes treat Us on Human Nature, William James Varieties of Religious Experience and Pragmatism. Uh, John Dewey's Essays and Experimental Logic. Uh, Schopenhauer's The World Has Will and Representation,

and then anything by Wittgenstein and finance stuff. Reminiscence of the Stock Operator is something I used to read every year, but since I've got it about memorized, I can skip a year or two. And Robert Skidelsi's three volume biography or John Maynard Keynes is a you know is A is a masterpiece, I think quite fascinating. Tell us about your mentors, who influenced your career, who helped make you the Bill Miller you are today, um well, I mentioned earlier that I think that a large part of that

has to do with the Hopkins Philosophy Department. And I actually had a chance when I when I gave that gift, one of the one of their their leading lights and philosophy as a philosopher's science, named Peter Atchinstein as Peters in his mid eighties right now, but he was president Press, he was he was chairman of the department when I got when I got admitted in nineteen seventy four, ninety and and I I said to Peter, I said, you know,

I said, what was that? I said, Peter, I was certainly not qualified to be, you know, admitted to Hopkins. I wouldn't even I wouldn't need a philosophy undergraduate major. And Hopkins is one of the only schools of quality schools in the country that would take somebody that did

not have, you know, a philosophy undergraduate background. What Hopkins did was they said, if you didn't have a philosophy background, you had to send in three examples of your philosophical work, so you know, without making a long story or making making a long actually making a long story short Peter just said, well, you know, we're a small department. Uh, we would only admit you know, h five or six

people in the PhD program every year. And he said, and we always tried to have one of those people be what we considered a higher risk person, like they probably couldn't get anywhere else, but there was there was some promise there that we saw and if we got lucky, then uh, you know, they might they might uh shed some light or do some good for the philosophy department. So and he said, and we really got lucky with you. So I thought that was I thought that was a

good one. But you were the Philosophy Department's volatility tread Yeah, exactly right, exactly right. Uh. And then you know, my uh, my initial partner at like Mason Ernie Kenney had died in two thousand ten adage ninety two, classic value investor, and so we we fit very well intellectually. But he was also open to new ways of of thinking and uh, and so we were also able. I think I was able to work with him on some of the things that we talked about earlier, in terms of return on

capital and stuff like that. And I'd say, the thing that he that he taught me most was that he was he was like probably the most optimistic person in the world, and he had a very long time horizon and uh, and so what I learned from him over you know, how long we worked together, you know, twenty

five years or something like that. Actually third over thirty years. Uh, what I learned from him is that you know that generally speaking, having an optimistic take on things in a long term time horizon there's a lot that's a lot more First, it's a lot more fun, and second, it gives you a lot better results than having a short term time horizon and getting all negative about all the stuff that's going wrong when the market are in the world. So that was that was very helpful to me as well.

And then of course Chip Mason, who who's stuck with me when I had you know, had occasional bad bad year or two, that's you know, he he also had a long term time horizon and understood that underperformance comes with the territory. So instead of making a change after you after your three year record goes behind the market, he just said, you know, this is a long term this is a long term debt we're making and we're

just gonna stay with it. So that that was very helpful to me, and I've worked out okay for leg to what sort of advice would you give a recent college graduate who is considering a career in asset management? Well, I would give the same advice to a well, first

of all, the slightly different answer here. So if they're considering a career in asset management, then I would say, understand that a lot of asset management is in secular decline relative to quantitative strategies and and UH and passive strategy. So it's a lot harder than if you're in an industry which um is in secular advance, which it was when I when I get into it. So that's that's a big difference. It makes it a lot, makes it

a lot harder. But but in general I would say that to him or her the same thing I would say to anybody that was, you know, getting a job, which is that I think the worst advice that people can get and getting a job is that you'll read about, oh, you didn't take control of your career. You need to make sure you get what's coming to you. You need to make sure that you know no one's going to care about you the way you do, so you need to make sure that you fight for all this stuff.

And I think that's terrible advice because I think that you know, for me, generally speaking, what you would want and what you know. The way I tried to manage my career is that your job, no matter what your job is, your job is to add value to your employer. Uh. It's not to try and extract value from them and and and get into your pocket. Your job is to add value to them. And then you can get some of that value part of it if you're doing that.

And and so maybe contrary to what people think, being underpaid is a very powerful position to be in because if you're if you're adding more value than you're costing, then you're a very valuable employee and you're you're going to be treated well if you're if your employers rational, and uh, I mean nobody nobody got fired for creating too much value for their employer, and nobody keeps a job very long if they're getting paid more than their worth.

So being moderately underpaid is is a really good thing. And then other things I'd say, which are probably not terribly unusual, I think you want to basically, you know, have a good positive attitude all the time. You want to do what your job is with with uh, with alacrity and a sense of urgency, and you want to be you know, simultaneously, you know, a good subordinate to your boss, a good boss to your subordinates, and a good colleague to your colleagues. That would be the core

of my advice. Fascinating stuff and our final question, what do you know about investing theory and practice today that you wish you knew forty years ago when you were first getting started. The thing that the thing that I am constantly um realizing and I think I've got it

internalized now, but it's been after forty years. Is that, um that the that the markets and the world and the economy is so much more complicated than you have any idea, And it's and so having dogmatic views and pontificating about the world this way or this is going to happen, or the Hong Kong peg is going to do this, or the Chinese You're going to do that is a complete waste of time, because no, but he has any idea what's going to happen in the in

the future. There are certain things that you know. And then psychologically, what what you find out is that you know, if you make five predictions and and you know two or right and three or wrong, you'll you'll remember the two or right, and the three that we're wrong, you'll blame on something else. So I think that I think that there's a lot of psychological barriers and problems that

people need to overcome. And I would say just being you know, I'd say, being as skeptical and as humble as you can be with respect to what you think you know. And uh. And the other thing is that that again I've found helpful to me, I would say, other people be helpful. But I get to ask a lot, what do you worry about in the market? What do you worry about? And my answer, which might sound institution but it's true, is that I don't really worry about anything.

Because the entire world of investors and commentators are always worried about everything. Every time you turn into television recently, this is gonna go wrong. That's gonna worry about this, and worried about that. The market's overvalue, there's too much. This is so with all those people worrying about it.

There's lots of there's lots of there's no shorts of people worrying about things, and so what I try and do is focus on where are the opportunities in the market, given whatever the market appears to be, and not you know, doing a bunch of wailing and handering about how things are going to get worse or this is a terrible situation. So I'd say that probably goes back to my old, you know, late partner Ernie, who you would always say, well, let's let's let's see if there's anything positive in the

stuff that we can figure out. We've got We've got plenty of negativism that we can we can always, we can always count on being around. Thank you, Bill for being so generous with your time. Man. That was just fascinating stuff, really really good stuff. If you enjoy this conversation, well be should check out all the other three hundred such podcasts we've done over the past six years. You can find that at iTunes, Spotify, Google, Overcast, Stitcher, wherever

your finer podcasts are sold. We love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot net. Check out my weekly column at Bloomberg dot com Slash Opinion. Sign up for our daily reads at Ridoltz dot com. Be sure to give us a review at Apple iTunes. Follow me on Twitter at rid Halts. I would be remiss if I did not thank the Cracks staff that helps put these conversations together each week. Maroufo is our audio engineer. Michael Boyle is my producer.

A Tico val Brun is our project manager. Michael Batnick is my head of research. I'm Barry Ridholtz. You've been listening to pastors in business on Bloomberg Radio