Interview With Jeff Gramm: Masters in Business (Audio)

really interesting. Anyway, Um, one day I get an email from Arthur and he writes, I have an interesting young man. You should you should me that he wrote the book Dear Chairman. Right, Why does that sound familiar? Turns out to the guys in my office had already read it. Both of them really liked it, and so I right

back to Arthur. Yeah, I'm interested. Didn't in speaking to him, but full disclosure, you know, in Bail Out Nation, I kind of trashed his dad, who happens to be Senator Phil Graham, and I've said stuff about his mom in print. Nothing ed homin him or anything. Just I've written critically about about what they've done professionally, and you know we really should is that okay? Is that gonna be a problem? Should we disclose that? And author writes back, That's not

gonna be a problem. Okay, Fine, So instead of sending a separate email, Arthur just replies to that email with um my comments to Jeff, copies copies, May and um, hey, you guys should get together and and talk about the book on Masters and Business. And I kind of do a you know, a face palm. Oh, Arthur, you really don't have the email skills you should, But anyway, um, Jeff was a good sport about it, and growing up the son of Senator um it wasn't the first time

someone had had been critical of his dad. So if you were at all interested in activist investing or the history of of value investing, I thought this was really interesting conversation. So, with no further ado, here is my conversation with Jeff Graham. This is Masters in Business with Barry Ridholts on Bloomberg Radio. My guest today is Jeff Graham. Let me give you a little background on Mr Graham. He is the founder of Bandera Partners, which is a

hedge fund located here in New York City. He is a graduate of the University of Chicago, got his NBA from Columbia School of Business, where he is currently an adjunct professor. He is also on the boards of several publicly traded companies. He comes from an interesting family. He is the son of Senator Phil Graham and Wendy Graham, and most interesting to me, he is the author of the book Dear Chairman, Boardroom Battles and the Rise of

Shareholder Activism. Jeff Graham, Welcome to Bloomberg. Thanks for having me. I'm a big fan of the show. Well, that's terrific. Thank you, And I enjoyed your book. I'm like halfway through it and and really enjoyed it. Several people in my office read it and recommended it. I love the origin story you tell in the very beginning of the book of William Schlensky, who got two shares of stock in the Chicago Cubs, and that led essentially to the

rise of shareholder activism. For people who may not be familiar with the history of the Chicago Cubs, what happened with Mr Schlensky? Sure, well, so Bill Slensky got two shares in the Cubs as a birthday gift. How old was he at the time, I think he was eighteen or nineteen, and he decided like, look, you know, we've all been in, you know, enduring these these years of terrible baseball, and he thought it, you know, was driven by the fact that they did not have lights on

Wrigley Field. So this is this is in the forties and sixties, most of Major League Baseball had moved to night games that were really popular. Crosstown rival White Sox, we're getting quadruple Oh yeah, they were getting like, you know, fifteen eighteen thousand people at night at the game. Yeah, because they're like on a Wednesday afternoon, you know, people have to work and so um. He thought, well, you know this is a feeding the poor performance of the Cubs,

and um u um. He suited them as a shareholder, saying that, you know, you're neglecting your your shareholders by refusing to put lights onto onto Wrigley Field. So what was the outcome of the suit He lost. Basically, the defense of the Wriggley's was that, look, I mean, you know, we care about the shareholders, but we care about the stakeholders to including the community. So the business judgment rule basically married the day. Yeah, and which meant that they're

they're not responsible for being correct. It just has to be an exercise of their judgment right or wrong. Well like, and they were very clear that they thought that it would be extremely bad for the neighborhood of Wrigley Field if they put lights on on Wrigley Field, and that the board you know, made the judgment that that was the right thing to do. But in the long run, economics sell wins, and eventually they had to, like the league essentially forced them to put those lights up. So

shareholder activism goes long before the nineteen sixties. Use the example of the Dutch East India Company and shareholders were angry about self dealing about the directors. How did that manifest itself? Yeah, Well, I mean, like I think through history, like you've seen, uh, you know, will owners metal and then you know, like you do have this inherent problem

in the system, the principal agency conflicts. So you have people running the management running a business essential in behalf of the owners, and that creates a little bit of conflict for the managers to enrich themselves at the owner's expense. Well, and when you think about the principal agent problem in this particular case, it's extremely thorny because the principle are the shareholders and that's a collective group that often have

you know, differing in incentives and goals. And the agent is a board of directors where they're often you know, they're not that engaged in the business, like the information that that they get about the business is fed to them by management. You know. So it's a principle and agent problem. And there's also some inherent issues with the principle and the nature of the agent. So a lot of the letters that you published in the book have never been published before. How did you manage to track

these things down? Yeah? I mean, you know, the the kind of hook of the book is it's all case studies, and each of the case his comes with an original letter. And so for lots of them, I knew the letter existed. Like in the in the Benjamin Graham chapter that's the first chapter in the book, he ran a proxy fight against the Northern Pipeline Company, and he had written, you know, there's a whole chapter about that proxy fight in his memoir,

And so I knew the letter was out there. Um, it's just a question of of trying to find it. And like I talked to his family and his biographers and um, and no one had it. And ultimately I found it at the Rockefeller Archives, but lots of them. I just asked, I mean, like, you know, with Warren Buffett, like I knew from the Snowball that he wrote the

letter Snowball about Buffett. Yeah, he famously wrote a letter to American Express in the nineteen sixties, And so I just wrote, Buffett, just explain the concept of the book, and can you share the letter. And I got to work one day and there's a there's an envelope with a letter in it, and and I want to take for that to get back to you from from the request, well weeks, you know, two weeks. There are lots of interesting stories about people making requests about the Buffett and

things magically show up. It's uh, it's fascinating. So so what motivated you to write this book? What was your drive to to put this together? Well, I mean, I love writing, and I've always you know, thought that that I had like the writing chops to do a book, but really with this one, you know, I'm a full time fund manager, like I didn't have the time. I

had two little kids. You know, when I got the letter from Warren Buffett, like it kind of you know, turned this idea that I had vaguely had, I'll write, like, I'll see if you'll do something. And then all of a sudden, like I had this up pressure of like, well I had this thing. I kind of burned a hole in my pocket. Like I got the Buffet letter and the Ross Paro letter like within weeks of each other, and you know, yeah, I mean the Parro and is

a is a fabulous you know letter. It had not been published, and I just thought, well, I have to do this. Now. Let's talk a little bit about no relation. Ben Graham spelled with two a's and and one m. People think about Ben Graham and they obviously think about the intelligent investor and value investing in the whole school of thought that that comes out of that. Uh, But he also turned out to be a bit of an

activist investor. Tell us about that, well, I mean a lot of the stocks that he bought were exceptionally cheap on a balance sheet basis, and he writes about that, you know that he likes these you know, net nets where like the cash and and you know, the current assets exceed all the liability classic value investing by ten

dollars for eight bucks over the long run. Yeah, and I mean ultimately when you find those situations, like you know, the market like it's not always done, like a lot of times it has that valuation because of a governance problem. And very early in his career he found the Northern Pipeline company that's in my book, where like it was a trade in the mid sixties, and he discovered that, you know, they had over ninety dollars per share in

liquid bonds. In other words, they held securities that were worth more on a pre share basis, you know, than the whole company. Sounds a little bit like Yahoo today, Yeah, exactly. And um, you know, like with like with Yahoo, there's a discount because of the tax problem, but there was also in that stock and lots of other stocks, there was a governance discount. And like with Northern Pipeline, he thought, well,

this is easy. I'll go explain to this company, you have all this cash, just like return it to the shareholders, like you know, we'll all retain our ownership and your good company and we'll go from there, and they you know, they showed him the door. And let's let's you say they the some of the folks who were on the other side of the table included some pretty big names

in the history of finance. Yeah. Well, the company was a part of you know, like the Standard Oil Company, which is owned by by you know, the Rockefellers, small little group that hadn't pasked a couple of a couple of dollars and a couple of shares of stock. Yeah, so when they broke apart, like the monopoly, you know,

like they had a whole bunch of public companies. They were there were eight pipeline companies and you know, by the enties when Ben Graham began to poke around all of these things like we're very over capitalized, had these boards that like, we're not that engaged. And then their biggest holder is the Rockefeller Foundation, who at the time had a policy like to not get involved in the

operations of their shareholdings. But but meanwhile, you have this pipeline, Northern Pipeline, trading at sixty five So so why couldn't Graham just quietly continue to accumulate as much of the ninety plus dollar per share company plus the operating company at sixty five and and not say anything and assume

eventually the market would figure it out. Yeah, I mean I think that ultimately he thought that he like he possibly could do that, but you know, like the answer there was for them to return that cash, you know. So so you know, so he quietly bought all that he could until he reached his position limit and then nothing happened. What was his position limit? Well, he was a very diversified investor, so he's not going to have

a concentrated portfolio. That's you would you would think you could today, you could raise a fund and just accumulate Northern Pipeline at stars with ninety dollars and yeah exactly, But like you know, it never was his m to like to buy to get control. So is that why even when when things worked out with Northern Pipeline, it really didn't impact is a fund all that much? Well, I mean it did in the sense it was a

big home run and it helped his returns. It taught him about activism and governance and and and he did like a lot of activism after that. Like, but ultimately it was not like the investors that you see today that will have a third of their of their fund in one stock and then it's a big home run. So so what was the outcome with the Rockefellers in the Northern Pipeline. How did they resolve this? We are an operating company, plus we have ninety dollars per share

in marketable security. Well, I mean it was a long slaga. So at first, like they basically told him to go away. He takes the train all the way out like, uh, you know, to Pittsburgh for the annual meeting, and like he tells him that he's like prepared like a statement, and they tell him, while, you're welcome to come and and he gets up to give the statement, and the chairman asked, um, you know, would you like to make a motion? And he said, so yes, I would like

like to motion to give my statement. And the chairman asked, well, is anyone here uh to second that motion? And he didn't bring anyone and so no one seconded the motion. He had to go all the way back to Latina to New York. But but by doing that they really made him angry. And so by the next year he was extremely prepared. He ran a whole proxy fight. He

won the proxy fight. He behind the scenes, through a very good letter that's in my book, he you know, ultimately convinced the rocket Fellers that the right thing to do here was to distribute this cash. And so not only did that happen at the Northern Pipeline Company, but after this episode, the Rockefellers pushed all of the other pipelines to return their excess cash. So he really had

a significant impact on on shareholder value and activism. I mean, I'm not sure, because I do think that all of this was very under the radar, Like I mean it was not I mean, it wasn't on Twitter. I mean, it wasn't even in the newspaper like it's funny, And

there was no financial press that covered this at all. Yeah, So when I did my book, I looked at all of the old proxy fights, and you know, there were a few like you know, like the Central Leather nineteen eleven that like had a very small article that's a fascinating story. Also tell us about the Central Leather story. Oh well, just that like their whole proxy fight there and this got what big news was just for them

to disclose information better quarterly release your finances. How amazing is that that if you went back that far, you go back a century, companies didn't feel obligated to say, by the way, here here's how much revenue we have, and here's how much profit we have, and here's what we spent money on. Companies did not even release that now, and in the Ben Graham case, it's not clear that the that the Rockefellers even knew how cash rich the pipeline companies were, and so like it opened their eyes

to that. So Warren Buffett famously one of Ben Graham's proteges. He had a big impact when he was an activist in the way companies deal with activists and even how their structured legally. What happened with with Buffett, Well, you know, so Buffett in his early career, I mean, well, first of all, you know, he worked for Ben Graham, and you know, so he worked at the Graham Newman shop that did lots of proxy fights and did lots of activism.

And when he began his own fund in in the mid nineteen fifties in Omaha, he also did lots of buying big stakes in public companies, you know, joining like the boards and ultimately breaking apart the companies are driving them to you know, improve profits. And so he did buy lots of these like declining, mature, undervalued businesses. If you look at Berkshire Hathaway, that's effectively what happened there. Like it was a terrible like declining business, but it

was a net net. He bought control of it and he ultimately like began to use their cash and they're declining cash flow to invest in other businesses. I'm Barry Ridholts. You're listening to Masters in Business on Bloomberg Radio. My guest today is Jeff Graham. He is the author of the book Dear Chairman and which is all about activist investing and how things have changed in the world of corporate governance. He also is an adjunct professor at Columbia University.

So you run of funds and you you know what it's like to have investors who are looking over your shoulder. How do you deal with that in a concentrated portfolio? Yeah, I mean, how do I deal with the investors, like, you know, in my fund or in our target companies? Both?

Let's let's let's take both. First, do you have your own investors's writing you ye do your chairman like, Yeah, I mean, ultimately, I think it probably has a lot in common with being a public company CEO in that like you have to communicate your strategy, Explain to them exactly what you're doing, Explain to them how you think about things, and so when things will do go wrong, if you have a bad quarter or a bad year,

you know they can understand it. And I think that like that because ultimately an important job of a public company CEO two is like you have to like to keep your shareholders informed about, you know, how you operate.

You can't guarantee good results, but you can at least say, here's our process, here's what we're doing, and we want you to un uderstand and look, I mean, in value investing, like you're never going to have a great year every year, that's right, because because by definition, you're buying those stubs, those unloved things. And just because something's cheap doesn't mean it can't get cheaper. It will get cheaper. So you wrote yourself a dear chairman letter tell us about that. Yeah,

my first one. It was um in the early two thousand's at my very first job, you know, which was like the early years of the hedge fund business, and so it was like a little bit of a crazier you know, more like the wild West, you know. So so the evolution of that is that today, post two thousand, there's ten thousand hedge funds, but for a long time there was only a handful of funds. There was some pretty well known guys, and that exploded around post dot

com period. I think it's also it's just a more mature and process oriented business. I think that when I began in it, I was just out of business school. I didn't know what I was doing, and I got and I mean I wrote a thirt d letter well to like a like a pretty big of the company, the Denny's Corporation, the Moon's over Miami people, And I just think that like that back then it was just like, you know, it was a little bit of a of

a of a crazier time in the business. But they had had some problems and they had tried to kind of expand their like their lunch and dinner business and and had neglected to advertise their breakfast business. It hurt their results. And there, I mean I think of Denny's and I think of breakfast. Yeah, So how did that Did you influence that chain? Are you? Are you the reason why we have Denny's Breakfast all day? I think

I played a role in them. Were not doing a restructuring in in the early two thousand's, you know, so we basically it was a cheap stock because it was highly overleveraged. And like you, I mean, like you rarely see this as often, but it was a situation where on an enterprise basis, the company was extremely undervalued, you know, where if you could deliver it like then you could be realized. Yeah, you know that stuff tends to be a lot more priced in these days, I would imagine.

So when you come across a situation these days where there is an undervalued company, the market is miss pricing it, and you want management to do something, how do you go about writing that, dear chairman? Like yeah, I mean in in a funny way, even though I wrote a book about it. Um, the age of the deer chairman letter is kind of passing. Like you go meet with the management, and you and and you meet with the board, and you have a conversation with him, and you meet

with the other shareholders. You know, back then, like you're more trying to persuade the shareholder base. And so at that time, like the Denny's board was considering doing a restructuring to equitize their debt, and you know, so we had to Yeah, you know so we had to commence the board. No, like, you're doing fine. If you need to raise a capital, like, you should do it well from the stockholders. And by doing that in a like in a public a fashion, like it also got the

stockholders behind the idea. That makes a lot of sense. So let's talk about some of the quotes from the book. And I really like this. In normal market conditions, if I find a good company a cheap valuation, it tends to have governance problems. Is that still true today? I think that's true. And I mean that was a statement that I made in the introduction of the book, where like I'm kind of explaining who I am and explaining the voice of the book. And you know, I'm a

value investor. I look for cheap stocks, and especially in the market like today's, it's hard to find a cheap stock, and if you do find one, it's often because there's an issue with how they're run. It's cheap for a reason. Yeah, that makes sense. And what's the difference in management at a large company versus a small company when it comes

to these governance issues. I mean, I guess, like from you know, from my experience, am I generally believed that, like, the larger companies tend to have higher quality boards, and they tend to be just like to have higher caliber

CEOs and boards of directors. And you know, that is both intuitive and counterintuitive because like in some ways that you would think, well, at these you know, well, Nitchie, small companies like you might have these CEOs like who really know the business, you know, But generally the bigger the company, the stronger the board. I think, all right, let's get back to the activist investor question. And I like the example we we talked earlier about Central Leather

js Bach eventually is at Prudential Base. Is that where they ended up? I don't know. I think that's that, if memory serves, I think they eventually became part of that. They wanted a representation on the board merely to get quarterly financial updates to shareholders. That almost seems quaint compared to what what takes place today. So what was the result of that bit of shareholder activism. Well, I mean

in the very early days, um activism. I mean, if it was you know, well from a financial investors well, guys like Ben Graham. Well, first of all, there was not that much of that, and and second of all, it tended to always be about you know, financial issues,

well financial disclosure or capital allocation. And really like you saw a beginning in in the nineteen fifties with the proxy tier movement that was a very big shareholder activism in other words, getting actual other shareholders to vote the way the activists wanted in order the force management to do what they wanted to do. Yeah, I mean in the proxy tier era, it evolved you know, to a lot more operating issues and the kind of activism that

you see today. I mean, I remember there was in like in the chapter in the book that's about the proxy fight for the New York Central. Uh, the activist even talks about like the nature of their passenger trains and like like like that they needed to build like a lightweight train. You know. So things evolved up you know, well pretty quickly. I'm I'm away from the pure financial activist.

So you raise a really interesting point there, and I'm gonna go to a quote from your book, the key issue in an activist campaign often boils down to who will do a better job running the company, a professional management team and their board with little accountability, or a financial investor looking out for his or her own And I'm going to add the word short term interests, so that to me, that's really a fascinating issue, a fascinating

seat of opposed interests. Yeah, and I think in the ideal world, like you want the activists a shareholders like well to be long term oriented, and like you do want them all to work together. It doesn't always happen that way now, And lots of times, like if you're a passive shareholder and there's an activist, like the activists, you know, wants to sell the company, and so like you're deciding, like who's right here? And I was, I will perfectly. Example was the Carli Con activism with Apple.

Here's a company on its way to becoming the most valuable company in the world. They dented the universe, to quote Steve Jobs, and invented not one or two, but a number of technologies that were completely innovative, game changing, altering the landscape. Really, what does a guy who bought a few million shares of Apple. Have to say about innovation technology running a company. I was always very struck at the u briss of I know, how you should

be running this company better than you do. Yeah. Does that come up frequently with with activists or yeah, I mean I think that's like the whole issue is like that. Ultimately, it like it takes a lot of hubrists, like you know, because as investors, we are working off of extremely limited information.

You know, we know less than the board and the management knows about the business often and so like they do have to have this confidence that like their ideas are right even when they do tend to have less information.

But it's not always black and white, like I mean, even in that Carli con case, Like on the one hand, like you have the most successful company in history arguably, like I mean, like they're in I mean, they're in a very hard commodity business and they've built you know what will right now is like the most valuable company

in the world. That's an insane achievement. Not only that, when you look at the mobile smartphone, something that if they didn't invent, they certainly took to a different level. They capture something like four to five cents. It used to be eight out of ninth cents of profit in that space. My favorite stat about Apple is Samsung set makes more selling chips to Apple for each phone that

Apple cells than they do on their own Galaxy. So for someone to come along and say, all right, nice job guys, so far, but I'll take it from here, that's really a lot out of But I mean, is he clearly wrong. I mean, if you believe in the business will long term, if you believe in the management, like, is he wrong to say, look, you're crazily I mean, you know, you're crazily over capitalized. Perhaps you should buy

back some shares. It's unique in the history for some company to be sitting with two hundred bill or at the time, at the time it was a hundred billion,

now it's two hundred billion. Yeah, And so you know they're incentives like you know that like that Icon wants the stock to go up, and you know the management probably wants that two hundred billion uh to play with or like to do whatever you know they want with like you as the shareholder, it's not just completely obvious who's right and who's wrong there, And it depends on your like on your long term view of the company,

and like your view of the valuation. We're talking with Jeff Graham, author of Dear Chairman, The History of Activists Investing. So so let's look at the current crop of activists. You mentioned Carl icon Uh, Warren Buffett, Benjamin Graham, Ross Biro, Dan Loebe. With the notable exception of Warren Buffett, the investors in this book are static characters who undergo little fundamental change. Why is that, Well, the book is about this activists will movement. It's about how we got there,

It's about how it happened. Um. And ultimately, an activist is a financial investor. Will you know, we'll trying to make a profit on their investment in the company. And you know, like the way that that those guys all do it has changed over time, like because of a lot of external factors, but ultimately, at their core, they are still these economic actors out to make a buck. And I think it's important as we look at this

history and as like we understand how public companies work. Um, you know, will people attend to focus a lot on the personalities of the activists, and will Bill Ackman and David iron Horn. But but a lot of the movement that you're seeing now is driven by the behind the scenes, a passive investors, the people like a Vanguard or the

big pension fund. So let's let's talk about Van Good said something publicly, So for those people who don't know, I think in terms of the United States, Vanguard owns one out of every five shares of every publicly traded company, which is an insane number. And I heard you on I saw a video online where you noted that Vanguard has twenty two people on staff whose sole job it is to vote the proxies for the companies they own.

So we all think of Vanguard as this passive company, but really, if they want to de flex their muscles, they're a very powerful player in corporate governance. Yeah. So, I mean, like the big dynamic that you see in this book is that like the history of activism has been been sculpted by like like like this concentration and

institutional investors. Like that really began in the sixties with the big pension funds, but then it kind of got kicked into hyperdrive with with the index funds and indexation, which is you know, Vanguard is a pretty old company.

But this is a pretty recent phenomenon. I mean even well since the like the financial crisis, like you've seen a dramatic increase and you know, like in these big like a passive you know, institutions, Rock, the whole run of stuff that has been what is Black Rock and Vanguard or each they're like a huge you're add State Street and one or two more and that's half the tradeable shares and those um entities like have basically fallen into the situation like where they are effectively the arbiters

of these hedge fund activist disputes and so like yeah, like you'll see Bill a man in the headlines on you know, Canadian Pacific or something. But like the people that hold the votes are these big pension funds and and and Vanguard behind the scenes, and their vote is incredibly important and so they like are very um you know, I mean, you know, they're more engaged than like then people think in these issues, especially at the bigger cap companies.

Thank you Jeff for chatting with us. Can you stick around for the podcast extras? Great We've been speaking with Jeff Graham. He is the author of Dear Chairman, The history of activist investors. Be sure and check out my daily column on Bloomberg View dot com or follow me on Twitter at Rid Halts. I'm Barry Rihults. You've been listening to Masters in Business on Bloomberg Radio. Welcome to the podcast. Actually, Jeff, thank you so much for doing this.

This is uh, this is really interesting. Before we continue the questions, there's a funny little story I think we should share. So, So, a couple of guys in my office had read Dear Chairman. I keep calling it, by the way, dear Mr Chairman. Lots of people do. It's like a pretty snappy title, right, dear Mr chair Well,

because some of the letters are dear Mr Chairman. So Ben Carlson is our head of Institutional Investing in and he runs uh that division, and he had done a blog post on this, and then Michael Batnick is my head of research, and he had read the book. Both of them liked it. So I kind of, you know, I have a billion books in my que and I read whatever is on fire, and I have to read. So this was sort of like I knew of it, and it was like, oh, that sounds kind of interesting.

Maybe I'll get to that, I get an email from none other than Arthur Lovitt, former SEC chairman and a previous guest on the show, not once, but twice, and he says, I have a young man I'd like you to meet um. He wrote this book, dear Mr Chairman. And I'm like, why does that sound familiar? Oh? Of course the book. And so I go back and you know, I respond to um and and he mentioned he goes by the way. He's the son of Phil Graham. And I said, I'm interested in the book. I'd love to

speak with Jeff. But truth be told, you know, I wrote Bail Out Nation. I was pretty critical of a number of people, Robert Ruben, Bill Clinton, George Bush. But I was pretty hard on on your dad. And I wrote to Arthur. I said, I'm happy to talk to That's right. I go full disclosure. I trashed his father, pushed the commodity future modization actor. His name is on Graham Bleach Leech blindly, which repealed Glass Stiegel. And so I said, you know, full disclosure. I've I've been hard

on his dad. I called his mom all sorts of things about and Ron blah blah blah. You know, how do you suggest we handle this, so don't worry about it. Arthur says, I'll make the introduction, all right. So I'm like, alright, Arthur, who's Arthur might be one of the most charming people and one of the finest human beings you'll you'll ever meet. And so he takes that whole email where I I lay out the you know, I've trashed his mom and

his dad. Are you sure this is comfortable? And he just replies to me and copies you and I see that and I'm like, oh no, Arthur, that is an email foulx PA. And I scrolled down and here's and there's nothing bad in the email. It was just hey, you know, full disclosure. I don't wanna you know, I don't want this this person walk into a room and suddenly feel like he's being sandbagged. You should probably let him know in a subtle way, not just here, I have a look at this. Uh so you were you

were very gracious and said don't worry about it. I've heard. Well, it's a funny situation because I think in like today's world, like you realize, like if someone emails you like a chain email, you probably are going to skim that change of course, so Arthur is skim down like, huh, Like, do I pretend I didn't see this? Well no, I just like replied on like, hey, we're none taken. When when I saw the email, it's all right, there's an elephant in the room and we'll have to address it.

And fortunately you responded to that. It was actually very funny, Arthur, if you're listening, reply all not the not the right thing to uh, not the right thing to do, but it was. Um. You know, in the day days of Google, whatever you wrote is out there. I always google my guess. I don't know if anybody is going to google me, but if they did, hey, he's written stuff about Senator Graham and your dad was in the public sphere and I have a lifetime of think I've been doing that,

you know. I mean, he ran for president when I was in college, So how was that. It was a little bit surreal. I don't really remember. You didn't have a service or anything. Now. I mean he got knocked out after um um Iowa so um. But once they become the nominee, the kids are suddenly his lives have turned upside out. I don't know. I mean, even if you lose, Like do people really know much about well Bob Dole's kids or will Met Romney's kids. I'm not

sure they really. If you're in college and there's a secret service contingency there, I gotta think that messes your life or it certainly is impactful. It doesn't. It's not going to mess up your life. But suddenly you're going to class and there are four guys with dark glasses and little earbuds in. That's got to be a little surreal. Yeah, well, it's been funny. I mean at that time, like you're you know, when you're in college or or a kid. He like you know, like you're you've grown up with it.

It's always been. It's not like it is like like the way it is, Like you're pretty adjustable as it is, and you're kind of completely self absorbed anyway, so like you don't we'll have the perspective to understand that like that that things are weird. And and you know, when I wrote this book, I thought, like, well, sure earlier people are going to talk about that my mom was on the board of Enron, And did that ever come up in any of the reviews. It has not come

up at all. I mean. In fact, you know, the connection with my dad has only been mentioned twice, and that is here like today, Well I have I felt I felt obligated that if I didn't disclose that up front, because I never want someone to come in and say, this isn't supposed to be gotcha, you know, this is supposed to be Hey, who are you? What have you done? And how did that come about? That that's the thinking here.

So that's what I said to Arthur. Hey, you know, is he okay with the fact that, um and uh? I guess Arthur's thought was, well, let's find out, let's send the email. So so Enron has never come up in any of the book coverage. Now, to be fair, what your parents did in their professional career should not color how someone interprets your work. Your work the book at the very least stands on its own, and it's

gotten really good reviews. So too, I could see both sides. Well, you know, there's a shareholder at were their shareholder activists with Enron? I don't rever call that it was such a hot stock. It did so well for so long. Was there even a window for activists to jump in on that? Well? So there were some some some loud short sellers. Right, well, so Jim Chano not a previous

guest but not exactly. And the journalists were were engaged, you know, Bethany McClain and also a guest on the previous guest on the show, and she's great and then fabulous, and then you had like there was an email like, you know, like an internal you know what kind of

a dear chairman email, like you know, which who who who? Didn't? Um, I forget her name, dear ken, you know, like I want to say Tiffany something, Tiffany Watkins or something, but it was like it was a person or something something like that. And like I actually looked at that for for inclusion in the book. I mean I looked at a lot of these, you know, I'm originally the book was just going to be a collection of letters and not necessarily all shareholder activism and and not all a

financial activism. So like like I looked at like some PETERA letters and and um the gad flies, and I looked at at the un run one and ultimately the theme in this works so well, yeah, I mean like the book like as I narrowed it down, it must have come together. Oh, of course this is a coherent package as opposed to a disparates mattering of letters all over the place. That that's the challenge when you're dealing

with a lot of different sources. How can I make this thematically consistent as opposed to just you know, I write about putting together daily lists, I call I. I describe it as curate viciously. And you have to do that because there's so many really interesting things that digress you away for like this conversation. Um, so you ended up deciding it just wasn't worth it to put that in.

There was nothing work like I mean, look, I give her credit, like, you know, like for for speaking up, but it's kind of a a cuckoo you know, crazy email, Like I mean, it wasn't like a Lobe letter. Yeah, I mean speaking of crazy. Yeah, we didn't get to the Lobe conversations. His letters are poison pen letters. They are just dripping with disdain. How effective are these? Well, I think that was a little bit of a product

of the time. So, like you have to to to put yourself in the late ninety nineties and the and and the early odds, like the like the hedge fund businesses. It's it's a new industry. It has not been around that long. It doesn't have a lot of credibility. Um, you've just had what what years are we talking about? Early two thousand's Okay, and like like you know, and look at I look at the hedge fund industry is having been around Alfred winslow end since the late sixties. Yeah,

it's so it's been but they were teeny tiny. They were you know, the joke is there were a hundred hedge funds for the pet for the thirty years before two thousand, um, and now there's eleven thousand. But it's

the same had hundred hedge funds that are creating alpha. Well, I think about like the beginning of the kind of activists shareholders as more, beginning in the nineties and um, and you know what you had there was you know, like you had a period in the eighties where like these activists had lots of power, like the corporate radars they like, I mean, you know, they ultimately had cash because of Michael Milkin and and by the nineties and

the two thousand's, like the activists, you know, they like they no longer have Michael Milkin, So there's no more the sort of just the d powder. Yeah. And so for them to to get the attention of the board, you know that, like, they tried a whole bunch of different tactics, but you know, well the one that Lobe us was you know what I call the shame driven activists, you know, where like he needs to get the attention of the other shareholders, of the board of directors and

of the and of the management team. And he did it through you know, a town hangings and and public shamings. And is that an effective technique? Does it work? I think it worked then because it got people's attention. It gave him a reputation that directors would be like afraid of but like but ultimately like it also compels the management to circle their wagons. And well, nowadays it's not necessary because activism, you know, from from hedge funds is credible.

And so what you will really need to do is convinced the vanguards and the cowpers of the world that like that your ideas are right and doing that l is not about you know, we'll calling out the CEOs mom, you know, so, which which Lobe did in one notable letter basically saying something along the lines of, um, you know, I think the final line was I doubt if you ignore this letter that your mom is going to file fire you, or words to that effect which are pretty scathing.

So you know, and I'm pulling one of these statements the Star Gas Partners. This is just great. Sadly, you're ineptitude is not limited to your failure to communicate with bond and unit holders. A review of your record reveals years of value destruction and strategic blungers which have led us to w one of the most dangerous and incompetent

executives in America. That's not enough, he has to keep going, and he says I was amused to learn in the course of our investigation that at Cornell University there is an IRAQ seven scholarship. That's who the letter was to r X seven president and CEO of Star Gas Partners. One can only pity the poor student who suffers the indignity of attaching your name to his academic record. So how how typical or a typical is that sort of viciousness for Lobe and for other investors. Are his poison

pen letters unique to him? Or if other people adapted that well, at that time, there were lots of them, and he was not even the first one. Like the first guy like that really did that was like this

crazy guy named Bob Chapman. And um, I mean at that time it worked like because you know, no one else was paying attention to these hedge funds to get a letter, you know, I mean, you know, they didn't have the capital to just like to buy enough shares to uh you're immediately you're filing and you're doing all these things that that's usually with a big company, that's

a chunk of money. Yeah, but Dan Lobe, you know, well nowadays, Um, first of all, I mean, um, he doesn't even do that much activism and when he does it, like he'll still do a public letter, but but like he knows that like that, like that he needs to build consensus like among the big institutions. Like it's just well not the way that things in in the were. And um, you know you know that was more a product of those times. Makes makes a lot of sense.

So let's go through some questions we missed, um, and there were two in particular that had that I wanted to make sure we got to the first. Well, let's start with the second. First, UM activist investors now have much more power than they used to and the ability to affect change in ways that they couldn't do in the past or that were more difficult in the past. So just us that How how has the role of and the authority and power of activists changed over the

past few days. Well, you had a period, you know, from the sixties until the eighties where you know, a share ownership in the country UM had reconcentrated, you know, but into the hands of these big institutions and the big the big institutions were not that engaged, you know, they were not UM, you know that involved. We're talking foundations, Endowman's pensions, big institutional investor, the big mutual funds, the

big pension funds. And there's a real turning point in the nineteen eighties because like you have the corporate raiders, so milk and funding a lot of these people, Like you have green mail, which will really was well pretty blatant in its you know, will mistreatment of public shareholders. Like if you're you know, a company and like you know, and you buy out like a loud and troublesome shareholder for a big premium over everyone else just to make

them go away. You're clearly disservicing your shareholders. And then you had Ross Perol happened. And with Ross Perol, um, you know, GM like his undergoing you know, a few decades of decline. It's very public. You know, um, everyone knows that they're beginning to fall behind the Japanese and you know, their shareholder base. Are these big institutions that have been in GM forever and they see GM pay

Ross Perol three quarters of a billion dollars. It's a lot of money GM, yeah, to resign from the board of directors, and so they're paying this guy, who they view as the most engaged and best director, you know, to leave it. And it kind of showed them, well, we have created a monster. And from that point on, the big institutions began to get engaged and they began to like to pay attention. They again like to vote

their like their proxies with a lot more thought. And that has you know, like in a funny way, it's empowered these activists because if you do have ideas, like you know that resonate with investors, or like if you want to push for a CEO to be fired and the people like like at Cowper's, well maybe they're not as comfortable, you know, will publicly I'm asking for someone to be fired, but well maybe they think that they

need to go. You know, they support a lot of these activist campaigns and so like you know, this empowerment of the of of the activist, a lot of that is about the resolve of the big passive institutions. That that's interesting. So so let's talk about different sectors of companies. One of the things I asked you about earlier um Off Off Mike, I want to bring up on Mike. So you have tech companies and then you have like

a big consumer products company like Colgate palm Olive. Are their differences in how activists are coach those two companies? And conversely, how do those two sectors a tech company in a consumer good sector, how do their CEOs and boards respond to activists differently? Yeah, I mean I think that like the ultimately a fundamentally, like they're all very similar like their companies, and they often have governance issues and like you have to decide who is like the

right person to lead this company. And you know, like you'll see people say like oh, well, this is a complicated, UM high technology company, and so like you really need to be sophisticated. So so UM activists have no place there. And that's just clearly not right. I mean, if it's a like a highly you know, complicated company, then like like it matters who the CEO is and like it matters that like you don't will tolerate, you know, bad

governance for long periods of time. And then like you'll see people say, oh, we'll Colgate or well, you know, Coca Cola. They're these like mature businesses that can run themselves, like who cares about the board, Like like a monkey

could run the company. That's also clearly not true because with a mature business, like you have to allocate the capital, like you have to decide what to do with your excess cash, if you will pay a dividend or buyback shares or pursue opportunities in M and A and so all of those. And that's before we start looking at

a competitive threat from them. And I think that like the history has shown that as secure as you think you are, if you know, when you look at GM in the nineteen fifties and you say, this is a durable competitive advantage, they have a cost advantage, they have like a dealer network, they have the best brands and and and and you know, in two decades they lose out to the Japanese who like have no capital, I have terrible brand you know, like um u um a

reputation and um like like they have no dealer networks. And you know, so I mean even the mature great business as we've seen like in Coca Cola, can Can. I think this year is the hard time. I think this is the first year where bottled water is gonna outsell soda. And so if you're not there's always competitive threats Andy Gross said, only the paranoids survive. And and he's right. If if you don't think your business is going to be attacked in the competition in the marketplace,

you're you're kidding yourself. So let me turn the turn the dial a little bit and shift the focus. So you go through all these activists, you go through all these businesses, You look at how all this stuff has changed, how has this impacted you're thinking about how you invest your capital. I don't mean you as a manager getting

a deer chairman letter. I mean what has been the impact of this on your thought process in terms of putting risk capital out there, Yeah, I mean it gave me historical perspective, like like a lot of the history I didn't know. But you know, I think investors learned best from losing money, and I kind of had lost enough you know, money through you know, through bad governance,

like to learn the lessons of the book. Like I think, you know, a lot of the value of the book is explaining how the system works and and and how he got to now and you know, trying to to do it in an entertaining way. And I think a lot of the of the things that I fundamentally learned were like about just like the power of these like behind the scenes, uh, passive investors. But in terms of

of of affecting you know, my personal investments. You know, in value investing, you do have to take into account the the governance. But I had already you know, learned the hard way about that, so I'm not sure it's

affected it that much. So what attracted you to value investing in the first place, other than Colombia, um, which really that's what Ben Graham taught, right, I mean, is that is it safe to say Columbia Graduate School of Business is is uh square one when it comes to value investing, you know, they like to say that, and it like it was true for me. And I mean I like, after college, Um, you know, I played music like, and I had no business background, Like I didn't know accounting, like,

I had never heard of Warren Buffett. And so when I got to to Columbia, um, like, I didn't know what I was gonna do. Like I took like a lot of different classes, and I took a class with Joel green Block and the little book that the Market. And before that, he wrote a book called You Can Be a Stock Market Genius. Yes, that's about you know, restructurings and and and and spinoffs. So I think this, like the subtitle is like uncovering the the secret hiding

places of you know, value. Yeah, and I think that, you know, yeah that I like had never heard of that stuff, and the whole idea of buying a fifty cent dollar it, you know, well really resonated like with me, and so I began just to consume everything I could and that, of course will lead me to warm Buffett and and um, you know that is how I got into it. I'm gonna pull up the exact quote, you can be a stock market genius uncovering the secret hiding

places of stock market value profits. And that came out. That book has really been around for a while and stood stood the test of time. Um so I plowed through a lot of questions. Let's go into our standard questions that I asked all my guests. Uh So you mentioned you you were playing music. What what did you tell us a little bit about your background? What did you do before finance? So I played in a rock band. Would you play guitar? And so that makes you our

third guitar. I've had Lawrence Juber and before that, John Pizzarelli, and we have another guitarist coming up next month. I'll leave that for a surprise. So that'll your number three. How long did you do that for? Pretty much through college, like I think, like I kind of in college, you know, you know, we're majored in being in a band. And then uh I graduated in ninety six and pretty much from then until I went to business school in two thousand and one, m I toured and then you know,

when I was not on tour, I tempt um. I lived in d C. It's interesting to come to New York because people in bands in New York have you know, real professions. And actually, you know, we'll have real jobs. But but in every other city, like you're like a bartender or a temp or, like a restaurant and and so like I basically I toured and tempt That sounds interesting. You know, Jeff Gunlock was a drummer really before he became a bond uh guru. And and it's always interesting

to see how people find their way. So so you're you're playing rock and roll music, you're touring. What made you say, listen, I enjoy life on the road, but I really want to get an m B A. How did how did that come about? Well, like, we really weren't that successful, right, Like we kind of you know, we did well in the sense like that that other bands liked us. It's called aiden A d E n okay, sure, um,

you know we ultimately just weren't that good. And the other band, you know, the other band members like we're kind of like beginning to think about the future too. And and and I remember I was in in d C. And I met with Arthur Levitt. He was a friend of my Dad's and like you know, um, you know, I just like I tried to think about, you know, what would be a versatile degree that would like you know, allow me to at least discover something that I would

be good at. So I'm looking at for those of you who want to go to Amazon and check this out. How many CDs did you record? We had four, so we had I'm seeing Hay nineteen, which sounds like the Steely Dan song. Yeah, that's our third record, Black Cow. Yeah, also with Steely Dan Topsiders. That's I think that's our best record. Is that Topsider two thousand and two or

is that the reissue in two thousand? I think it came out in a one, but um, but that one was like that was like the death of the band. That was where we I mean, that was a grim tour. Why the Steely Dan titles, I don't know. We liked them and what's at and they were very untrendy at that time. This was yeah yeah, I mean you know this was before like the like the the re emergence of yacht rockcause so I'm older than you. When I was in high school or maybe college, Uh, Gaucho came

out and Asia was inescapable on the radios. It was so, but a lot of their stuff has really stood the test of time. If you like rock and you like jazz. There's an argument too when when we've had these debates, and there's a whole post somewhere on the blog if you look at what is the greatest who is the greatest rock and American rock and roll band? So by saying American, you're eliminating the Beatles, the Stones of who.

And by saying bands, you're eliminating Bruce Springsteen and other people who who we really think of a solo artist, not bands. Steely Dan always makes the top five and you don't. Really I'll send you that link. I'll post it when when this goes up. But that's interesting. You guys really put out music and where we're regular, actual touring musicians. Yeah, and being in a touring band is

an incredible experience. It like it really teaches you to get along with people, and it teaches you like a lot just well being in in a small vehicle with before people you're in a van touring the club to club. Yeah, we do, like you know, thirty two shows and thirty one days like that kind of thing. Right, and hope

the thing doesn't break down. Yeah, and like you really like learn about like your own Like, you know, I'm emotional build up, you know, because if you're too uptight or you're two tents, that can be pretty miserable, you know. So I think it made all of us just like relaxed like a little bit. And I think that it was like I mean, like we're all you know, doing well professionally, and I think it was a valuable experience.

That's quite fascinating. You you were, I know, I know Gunlock played um in a hair band and a hair metal band, and I'm trying to think there's one other person who was also a musician. A little pop into pop into my head. So you mentioned Arthur Levitt Um. Tell us a little bit about some of your mentors, and you conclude Arthur in that list. Yeah, I mean I think that Arthur is the main one. I mean he I think he really helped me get into business

school in the first place. And then like he's just been, you know, so supportive of my career and he's been very supportive of this book. And and you know, I mean I think Arthur is the son of a politician, and I think that his father was New York State Controller of Memory, Sir and actually one of the longest running controllers in history. And I think Arthur might have been one of the longest running SEC chairman. I think

that he is the longest running one. Yeah. Um, so he knew you could relate to somebody who of a famous father. That can't be the easiest thing in the world to deal with. Yeah. And then well, professionally, I mean like that Joel green Block class was very important for me. And then at my first job, like I worked at kind of a dysfunctional hedge fund, but I had the director of research at that job was this

guy named Greg Schrock. Um. He had been um a walked out Lipton lawyer in the like in the early eighties, and um experience, he just knew so much and like was always you know what really took the time to kind of but what to show me, like the right things like to read and like to ask the right you know, you know, questions about public companies. So he was a big fan of your blog. Yeah. Oh that's a small world. Um. Every now and then someone out of the blue will say that to me and I

don't know how to UM. I won't mention his name, UM, but a household name. One day says to me, Oh, I'm a fan of the blog. I've been reading it for years and I just responded with an export of b S. And he's like, no, really, my my son read it. He turned me onto it years ago. I read it every morning, and it's really it's just such a weird. So when you are somewhat quasi public, it's

it's really startling. You. Do you ever have an experience with someone knows you because of your dad and talks to you like they know you as not in years? I mean, I mean I think he's Um, he's just we noble, more under the radar and retired. But like, for sure, when we were doing the touring stuff, like you sometimes like we'd be playing in like you know, Jackson, Mississippi or something and there'd be this like contingent of

young Republicans there, which totally baffling. So that occasionally happened, but but not that much. And UM, that's that's really interesting. So you talk about so many different investors in the book, Ben Graham, Warren Buffett. Obviously, what what other investors influenced? UM? You're investing your thought, sess. I mean I do think for me, it really kind of all all um all boils back to Buffett, like he kind of covers all

the bases with his writing. Um, like I certainly I read all the Monger speeches, like I read all of the Seth Carmen stuff. You know, so like when Klarman has an article or a speech. But um, I actually just put a Klarman video up on the blog over the weekend. You gotta get him on the show. Um, he's kind of a recluse. He doesn't do a lot of video, a lot of a lot of media, even though this is not the typical media. But I feel

free to make an interception. He's but he seems very funny, like I've seen him in these fireside chats or or I've seen him, you know, give talks and and um he's engaging and funny. All right, So we'll we'll reach out to Seth. If you're listening, we'd love to have you. We'd love to have you on the show because you know, ninety minutes in, you know, Seth Klarmer's hanging on every every word. Let's let's talk about books. Um, what books have you enjoyed be um, be they investing or non investing,

fiction or nonfiction? What books have really influenced you? Okay, well I'm up begin with the business ones. I mean, um, I do love business books. I've you know, doing this book I got to read, you know, so many incredible business books. You know, just if you look at GM, like the library of sure of of incredible books about GM is just incredible. There's like the Offered Sloan book My Years with General Motors, and if you read that's

pretty old rights or something like the sixties. And then if you read that alongside the John Delorian book about the decline of GM, you know, from a distance, you uh, on a clear day, you can see general motors. Like if you read those two books and the the Chapter and Peter Drucker's Adventures of a Bystander about a Sloan,

that's incredible reading. Um. You know, like I like a journalistic business book, like um, I loved all of the late eighties, you know, corporate water books like A Predator's Ball, Den of Thieves. Obviously love Michael Lewis. I assume that everyone's it's like you need to begin to ask, like what's your favorite Michael Lewis book as opposed to I will tell I often tell people, I know you've read Flash Boys, in the Big Short and money Ball, but have you read a New New Thing? Because a lot

of people that it's a really really good book. Yeah. I think in a like in a funny way. At the time, that was among his you know, you know, a better received books, you know, because because like he don't think it is as it was a popular yeah, I mean, but you know he had had Lars Poker, which was great, and then that you know, you know, I made a splash like on the release, like the New New Thing did um? You know, I love a boomerang. I think that's my favorite one of his. That's his

collection Vanity Fair Right. I love the story of going to the Greek monastery? Right, How how astonishing is that tale? That whole thing? I mean, I remember in the in the Germany chapter, I was, you know, crying tears, you know, So, I mean, you know, I love that kind of writing. The Tracy Kidder, you know, Michael Lewis, I loved what's the Tracy Kidder? Well? Well, so he did a soul of a new machine, right, So you know that was

like among his Um, I'm his first book. Um, he's like, I'm among like the first like of these like immersion journalist types. So um, I think my favorite of his is a recent one, Mountains Beyond Mountains. It's about uh uh Paul Farmer that the Doctors without Borders guy, but he did house Hometown. I mean, he's a he's a fantastic write. It sounds like you're you've worked through it through the whole genre I wrote, I wrote all Free

Down any any anybody else stand out? Um, I would say, you know, like when young people come to talk to me about will value investing, I'm always shocked when they have not read the Snowball. You know, they'll have read the Lonestein book, which is great. They'll like, like, I've read which was one of the first Lonstein tells us

so he was a guest on the show. He tells the story that he went to Buffett about having access in order to do the book, and Buffett says, probably better off without access and and hearing what other people have to say instead of me telling the story. And he said it was good advice. The book turned out to be much better. Otherwise it's a it's a great book. Making of a Capitalist is that, you know, are the

making of a modern cap American capitalists. But but the Snowball has the access, and the access is incredibly valuable. And it blows my mind that these you know, well young kids who are obsessed with Buffett have not read that book. I think it's a shame that like that book is not, um like as popular as it should be. The Making of an American Capitalist. Well, I mean it's five star reviews and it's it was extremely well reviewed.

I thought it sold pretty well, but uh, certainly not nothing like um when Genius failed, which was well, I'm talking about this. The Snowball is the okays, the big one,

like Schroder, How how did Snowball sell? I think it did well, But I think like they were kind of a banking on Buffett supporting it, and he ultimately like withdrew his like, um, you know, his involvement, and Alice Schroeder has been working with him for forever, right she's yeah, but I think like at some point like they had a falling out, and you know, I mean it's funny so this year, like, um, I go to the the Berkshire um Hathaway meeting every year, but this year, but

it was like the first time that I did the book thing, and there's all these book events and that book was invisible at that meeting. Really yeah, and I didn't know that. I didn't know they had a falling out,

I thought, and it's the best one. It's it's it's just um just they're like our some vignettes and they're like, you know, you know when like the like this, like the Solomon Aboard Will tries like to tell Charlie Munger like about like the things that like that they've uncovered, and he, let you know, immediately will cease through all the bs and begins like to ask all the like the like like who talked to whom? Will win? You know? Who? Did you know? I just I mean, all of these

um inside stories in that book are incredible snowball. Yeah, I actually have not read you got to read it. I'm gonna put that on my list. You mentioned Monger. Have you read a port Charlie's Almanac? I have. It's great, It's it's um it's on my nights. It's a tone I'm slowly working. Well, like you just got to read the speeches, you know, but it's funny. I mean, I

mean I love that stuff. But I do think that sometimes, you know, well, from an investing perspective, like that we as an industry um overdue like the kind of thinking clearly. So I think it's important like like like for individual investors, like like like to understand the nature of misjudgment and

and psychological bias. But at the same time, I think like that we as an industry have like perpetrated this idea that that if I pick stocks that I'm like that it's like a game of wits, and I'm like like the wiser guy than the person on the other side of the trade. And and like, to me, the longer that you do it, the more that you realize that you're just trying to not make mistakes and door most most investors. Any other books before we go on to some more questions, I mean I could talk books

for hours. Yeah, I mean, like I really love uh you know, pop science books, and and and and I love music books. So give me you one of each, Okay. So, so there's two great music books, Please Kill Me, which is like an ortal history of punk rock, and then The Motley Crew a memoir you know, written by Neil Strauss is incredible. Uh, pop science I love Wait before you move beyond music, I have a few books to ask you some questions. So David Byrne's Musicology, I didn't

read it. You should read it. I know. It's really I'm behind now because of writing the book, of doing my book, writing a book like that, like the Patti Smith I haven't read. I haven't read the David Byrne. I have Chris So, I haven't read Chrissy Hines. It's also it's on a it's not on the night table, it's on the dresser, which is the next while the other book that's really kind of interesting. It sort of pre dates you a little bit, is uh Nick hornby

High Fidelity. Yeah, if you've never read that is fantastic. And it's actually in the movie. Um, you know my band has a poster in their record stuff really awesome. At the time, it was extremely exciting, like, oh, that's like, oh, we're making it big our posters in this movie. First of all, I love that movie for countless countless reasons. Um, not the least of which is when you finally get to the end and Jack Black takes the stage. Everybody

exploded at that point. But but I read the book years before and reluctantly went into the film because you know what it's like when you read a book and then the movie is terrible, and then the movie is different enough that you could see their trying for something else. But it's true enough to the attitude. Yeah, it really really Um. Two recommendations, high fidelity the book and high

fidelity um the movies. Um. So let's go to popular science, Like I love like the journalistic ones where they get out, Like there's a book called The Song of the Dodo, okay, and it's about extincts and an extinction on extinction on islands, and it's it's just like it's a really fun book. Like he travels like the world and he goes to like to like kind of all these islands. And many years ago I read Douglas Adam's Last Chance to See the same thing. I read that, But so you read

you read it. So he just goes around and looking at these creatures that are on the verge of extinction extinction, and some of them between the time he visited in

the book came out. He said, Oh, and since then you can't see this because it's yeah, I mean I always thought like that, well, one day I would take some time from work and do a science book, like, but then I like, I had like a book idea about you know, that's something that I knew about, so like, you know, and made much more sense to give me one more science book. I like The Beak of the Finch.

That's also yeah, it's a it's a little bit of like an inside account of these um you know, well um um academic researchers in the Galapa Ghosts, and it gives you a feel like these people have devoted their lives, like they go back to the Galapa Ghosts every summer for thirty years, and it gives you a feel for kind of like how you know, what committed you would have to be to be a scientist. It's insane. So

sounds to me like you're one of them new fangled evolutionaries. Well, I do like all those, like like the Stephen J. Gould books and like as a kid that like I loved Darwin all that stuff. So yeah, I mean like the idea that like, I mean, even if you don't believe in Darwin, the book is just like to read the book and to see, like his reasoning, it's an incredible learning experience. It happened to not teach it even

if it's wrong. It's so compelling. I don't know. I found it hard to get through that book and say, oh, all this stuff is made. I mean, it's got that magical thing that some books have, where like you read it, and after like you read it, it it just seems obvious that, well, that's always the tell of a really brilliant idea, is that how your hindsight bias after the fact that well, of course we believe this intuitively know this. Obviously, there's a wonderful book if you want to look into So

this is all biology. If you want to look at the physics side. James Glick did a book called Chaos, and after you finished that, you're like, oh, of course, how how how else could you have looked at this when going into it you had no idea on the science of chaos theory as applied to physics. You couldn't a million years have a managin that. And then afterwards it's like, oh, of course it's that same sort of same sort of magic. Um. So let's let's talk a

little bit about things. I think we've covered books pretty well right before. Before I move on, let's talk a little bit about UM. What's changed since you've joined the hedge fund industry. You've been doing this for better more than a decade and chain, how have things changed on that side of the street since the early two thousand's? Sure, well, in some sense, I'm not the right guy to ask, because I work at a like a small fund that's

like that's on the fringes, UM. But you know, to the extent I've seen things that changed, They've gotten a lot more mature, a lot more institutionalized, UM. As we talked about UM on the on on the radio segment, like when I got my first job in the industry, like like you know, I mean, anyone on the trading desk if they had an idea, like it could go in the portfolio, and like you know, when you could write thirteen d s and it was just a crazy time.

And now it's a lot more institutionalized. And and you know, with that will comes I think like a lot of good things, like I assume, like we'll risk controls are like a like a way better. I might assume the blow ups are less pedestrian. But then there's also it's just like you see this, you know, a pedigree matters now in this way that like like I didn't before if like you came out of a of a good shop, then it's like, you know, it's a difference. Yeah, and

so see that kind of thing is happening now. And you see that on the quand side as well. A lot of what you're what you're you came from Renaissance, so like you're gonna be good at this, right, you know, I don't. I mean there's no I mean, like in our business, it's a lot about how how hard you work. There's not lots of of of of special sauce. You know that makes sense. So, um, so we're down to our last two questions. These are my two favorite questions

I asked all of my guests. You mentioned occasionally you have millennials come to you. What sort of advice would you give to a millennial or someone just starting their career and and said to you, I'm interested in the

career of finance. How would you answer that question? Yeah, Well, for the millennials, like you know, and my students, like, like, the first thing I say is like all of the Like the the cliches about will get to work first, like in hard work are are totally true and and you'd be surprised that, you know, well how a few people act on them. Really I think so um, um, I tell people you know that, I mean that ultimately you're like a smart kid and you have good judgment,

and like your judgment over time will develop. But at these early jobs and as like you learned the business, Um, you're really being paid to do work, like to learn to do research, like like you're not being paid to be wise, And I think that's like that that's you know one thing that like I like, I see a lot in my students, as you know, they want to sit and think big thoughts about a company, Like they're less inclined to like to do the hard work it

takes to find the expert that's out there that can really explain it to you. And that's the way that our business works. You Like, you're doing work to find the experts, like like you don't just like lean back in your chair and say I'm gonna out with the like the whole market and so like, like I really try to tell them it's less about your you know, wisdom, like like like a judgment. Then you think, and at your first job, you're gonna be paid to do hard work.

You're the grunts. When you're starting out, you're doing and that's pretty much true in every profession. You start out as a lawyer, you're doing the grunt work. In the library, it's miserable. Who wants to build six three thou hours a year? And finance is not all that different well, I mean specifically in terms of a finance um. I mean I don't give a lot of advice on if it's the right job or the I mean, I mean

only they know that. I mean obviously investing is extremely fun and it's a great job, but I do think they need to be in it because they like doing it. I mean, if you go in it just for the money,

you're going to be sadly disappointed. I'm sure that you've seen this where like like you'll talk I mean, in fact, like I talked to someone will not that long ago that was like an undergraduate that was extremely into biology and like you know, they had this whole idea of like, well I'm gonna get like a master's in this, Like I'm not gonna get a PhD. Because you know, what I want to do is advise either well funds or

investment you know, with bankers on well biotech stuff. So I'm like, well, why do you want to do that? You know, why would you want to be an investment banker for for biotech? Is like, well, like you know, yeah, you can make a lot of money. And I was like, I don't. I mean, that's like, what are you thinking if you're like a nineteen year old and you love science like before, just like just like like like deciding to be an investment banker, Like, well, maybe you should

pursue science. So like you got It's like you gotta be in it for the right reasons. I think that. I think that is are you astute and you can hardly go wrong telling people if you follow your passion, it's going to take you to the right place. But if you do this for the money may not work out. So well, yeah, I hope that's true. I don't. I mean, you know, what do we know? I think that's true. And and what you said is fairly consistent with lots of what our guests have said. Is if you if

you're just doing something for the money. It's a job, it's a labor. And when you do something because you really are passionate about it, you love it. The money will come eventually and you're you won't be miserable having the money. Being miserable and then making a decision to shift twenty years later is a much bigger challenge than

gradually ramping up the cash. And our last question, what is it that you know about value investing, activist investing, UM and others that you wish you knew fifteen years

ago when you we're just getting out of school. I think it's probably that same point of like, I think that like that back then, I bought into this idea like of you know, well I'm gonna I'm out with the market, as opposed to like the idea of like I'm gonna, like do a lot of hard work and we'll try not like to make too many dumb mistakes. And I think that, like in investing, it's a lot about just avoiding the disasters. Jeff, thank you so much.

This has been terrific. I appreciate you being so generous with your time. If you enjoyed this conversation, be sure and looked up an inch or down an inch on Apple iTunes, and you can see any of the other hundred plus conversations we've had. I would be remiss if I did not think my booker Taylor Riggs, Charlie Volmer, who is I guess technically our producer when he's not busy um blowing up things in his kitchen accidentally, and Michael Batnick, who is our head of research. I'm Barry Ridolts.

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