Jeff Gramm – Activist Investing - [Invest Like the Best, EP.01]

Hedge Fund Manager and author Jeff Gramm talks with Patrick O'Shaughnessy about the history and current state of shareholder activism and discusses how Jeff invests himself, taking large positions and often board seats in undervalued companies. For comprehensive show notes on this episode go to investorfieldguide.com/gramm/ For more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub Follow Patrick on twitter at @patrick_oshag

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:04Patrick O'Shaughnessy?

  Hello and welcome, everyone. I'm Patrick O'Neal, and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, methods, stories, and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com.

• 0:24Speaker 01

  Patrick O'Neal is a principal and portfolio manager at O'Neal Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Neal Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Neal Asset Management may maintain positions in the securities discussed in this podcast.

• 0:47Patrick O'Shaughnessy?

  My guest today is Jeff Graham, a portfolio manager at Bandera Partners and the author of one of my favorite investing books, Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism. Jeff is also one of the nicest people I've come across in this business. It's been a pleasure getting to know him in recent months. In our conversation, we discuss the history and current state of shareholder activism and how Jeff invests himself, taking large positions and often board seats in undervalued companies. Please enjoy.

• 1:20Patrick O'Shaughnessy?

  Okay, Jeff, so I'm going to start with a couple quotes from your book because I think they're good bookends for understanding this history of activism that you explore. The first one is from Ben Graham, which kicks off the book. And really, I'm quoting these two passages less for their content and more for their tone because it's changed so much over the years. So Graham was fighting against a company called Northern Pipeline, which I'll let you describe kind of what he was doing in a few minutes. But this is an excerpt from the letter you published in Dear Chairman where he says, "Because of its ownership of the largest interests therein, and because of the prestige represented by its name, the Rockefeller Foundation must be considered, to some extent, in the ethical position of trustee for the smaller participants. We are hopeful, therefore, that its high-minded and generous solicitude, evident in so many

• 2:05Patrick O'Shaughnessy?

  fields, will be manifested to some degree in the Foundation's attitude towards its fellow shareholders." It's a very nice, professional tone. And then we'll fast forward to a later letter in your book written by Dan Loeb to Eric Seven, who was the CEO of Star Gas at the time. Lowbry, sadly, your 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 blunders which have led us to dub you one of the most dangerous and incompetent executives in America. I was amused to learn in the course of our investigation that at Cornell University, there is an Eric Seven scholarship. One can only pity the poor students who suffer the indignity of attaching your name to his academic record.

• 2:44Patrick O'Shaughnessy?

  So, a pretty interesting change that we've seen in eight or nine decades in activism. So, what I'd love to start by doing is really highlighting the major stages that you lay out in your book, maybe starting with what Graham was fighting and what he was doing and how he was a pioneer of activism.

• 3:01Speaker 02

  Sure. Well, with Ben Graham, he kind of existed in a different era, right? So, like, when he was a shareholder in the Northern Pipeline Company was the mid 1920s, and most of the smaller public companies had big concentrated owners. And so, he had to appeal to the Rockefeller Foundation, who was a 30% holder, to win their vote. And you don't do it by calling them a crazy person and pulling a Dan Loeb on them. But, obviously, I mean, just the times were very different. I mean, it was interesting to read the company's responses to Ben Graham. Like, I don't think I put them in the book, but they were very

• 3:45Speaker 02

  civilized. But, with Ben Graham, the era was very different. By the time that we got to the 1950s and the proxy tiers, which was the next chapter, you had seen this big diffusion in stock ownership in the country. And the proxy fight in the 1950s that I highlight, which is the Robert Young against the New York Central, it was like a political campaign because you're appealing to these individual shareholders. And that's kind of the key movement in the book. Like, it really is a history.

• 4:25Speaker 02

  Of how, you know, passive share ownership evolved. So, so like a lot of the changes of activism and the changes in the dynamics of these campaigns has to do with the changes in the underlying shareholders.

• 4:41Patrick O'Shaughnessy?

  Can you describe kind of how that happened? So, you know, you mentioned that early on, there were huge holders like, say, a Rockefeller Foundation, and that became much more widely distributed. Can you kind of describe what precipitated that change?

• 4:53Speaker 02

  Sure. I mean, like, it kind of like, historically, like, it's a lot about, like, the history of American capitalism. I mean, in the early days, like, the capitalists were, you know, like, would be, you know, big strategic investors, or sometimes even bankers. But like, you kind of, a great example for this is General Motors. So, in the 1920s, GM had a big ownership from DuPont, but also, you know, when they made all of their acquisitions, they did it with stock. And so, like, you had, like, a lot of these, you know, owner capitalists, as Peter Drucker called them, you know? And what happened ultimately is between the 20s and the 50s, a lot of those, you know,

• 5:38Speaker 02

  kind of older capitalists died and passed away. And these, you know, big concentrated stakes in public companies got, you know, essentially distributed and diffused out to individual shareholders. And in the 1950s, there was even a movement by, by the markets, by, like, the New York Stock Exchange, to advocate for this, like, you know, a populist movement of, like, this is the people's market and, like, you know, you need to own your share. So, it was both, like, the passing away of the old concentrated owners and a public interest in owning shares, like, that drove that big diffusion. And it really didn't last long.

• 6:20Speaker 02

  Like, you had the 1950s, when, like, you had this, you know, very diffuse ownership. And beginning in the 1960s and the late 50s even, you saw this re-concentration into the mutual fund industry, the big pension plans, you know, institutional investors as we know them now. So it was a quick flash.

• 6:40Patrick O'Shaughnessy?

  So let's back up for a minute and we'll come back to the proxy tier movement because I also felt that that was kind of the most interesting turning point, both for the idea of shareholder value, but also for the activist movement more broadly speaking. So going back to Ben Graham though, obviously what activists want to do is earn a great return. And Graham's story was so interesting because Northern Pipeline, which I think you mentioned in the book, was trading at $65 or whatever it is, had $90 of what he called gilt-edged securities, just sitting there.

• 7:08Speaker 02

  Yeah, but basically cash.

• 7:09Patrick O'Shaughnessy?

  Right, basically earning nothing. And back then, companies were required to publish much less information. So this wasn't readily available knowledge. And sort of the ultimate goldmine that Graham found, I think through the ICC or some commission that Northern Pipeline was required to report to. So he basically found a goldmine sitting underneath this company where the cash was worth a lot more than the shares. And his effort was ultimately to release that shareholder value, if you will, get that cash into the hands of the actual shareholders who could earn a much higher return than Pipeline was earning on that cash.

• 7:41Speaker 02

  Yeah, I mean, it's a great example because it is, I mean, ultimately, if you're trying to kind of explain to your readers about the value of a company, it's a lot easier if just there's a huge pile of cash there, like to fight over. But yeah, I mean, it's a fascinating story. Like, basically, the government collected a lot of information on the railroads, you know, so the public could go look up these reports, ICC reports, on the financial state of all the railroads. And a lot of financial analysts did that. And so Ben Graham was looking through the annual report of the ICC, and he sees, kind of in the footnotes, a table on the pipeline companies, you know, there were eight public

• 8:25Speaker 02

  pipeline companies that had been formed when Standard Oil was broken apart. And he sees that, and he's like, wait, I didn't know that. The pipeline companies reported to the ICC. If they do, then they might like report well more than just the basic statistics on this table. So he takes a train down to DC and and he asked them like, do you have any reports on the pipeline companies? And they bring out these full twenty page reports. Um, I have the one for Northern Pipeline and I got it, you know, from the National Archives and it's got like a like a full balance sheet, like a list of shareholders, all the kind of things that back then were very hard to get. And he sees, you know, well, not only the size of their balance of valuable bonds,

• 9:10Speaker 02

  but like the names of the bonds and like he's like, well, these are, you know, these are money good bonds. So it was then that he knew that like the company was essentially like if you liquidated just like their financial holdings and kept the business whole, like it would be a bonanza for shareholders.

• 9:28Patrick O'Shaughnessy?

  Sort of like the perfect example against market efficiency back then, pretty amazing that that nobody else knew that information.

• 9:34Speaker 02

  Yeah, I mean, it is like, you know, just the fact that you had to do hard work, um, even after, you know.

• 9:41Patrick O'Shaughnessy?

  Probably still true today.

• 9:42Speaker 02

  Yeah, yeah, I mean, um, even after like the formation of the SEC, like you still had to go to the SEC reading room to get your reports, you know? So like even in the fifties and the sixties, like a lot of public information about public companies was hard to come by, which made the market less efficient.

• 10:00Patrick O'Shaughnessy?

  Sure. So so what is the transition from Graham to these proxy tiers? Cause I think that that movement probably sets the stage for the rest of activist history.

• 10:09Speaker 02

  Yeah, I mean, the proxy tier movement is a pretty fascinating movement because it really was the beginning of this pro shareholder populism. And, you know, people talk about that beginning in the eighties or the nineties and that like the corporate raiders and the shareholder activists and and Boone Pickens were the first guys that talked about the shareholders' rights. But that's not true. I mean, like you had this whole. A public, a movement that got a lot of press attention of these guys like Louis Wolfson, Robert Young, that were in Time Magazine and on TV talking about how, how public companies

• 10:50Speaker 02

  needed to, to protect their shareholders. And they said, look, there's this whole campaign by the New York Stock Exchange, like this own your share in American business. And that if you buy shares, like that we're partners. And if we're really partners, then we deserve our rights, like to vote in a new board if we want to. And so they really began to flex that muscle that had not, you know, I mean, like the Ben Graham thing with Northern Pipeline, that was very under the radar. That was not in the newspaper. Like when I did a search of the Wall Street Journal archive, that was not even in there. Like these things in the 1950s were front page news. And so that was like the real beginning of this kind of pro shareholder populism.

• 11:33Patrick O'Shaughnessy?

  How much of that was, was kind of all talk for them trying to earn a buck for themselves or their investors? And how much of it was, was real reform?

• 11:42Speaker 02

  I mean, I'm always of the opinion that, you know, people are, like are self-interested animals. And so as far as they were concerned, I mean, I think it was all kind of posturing to make profits for themselves. And, but I think a lot of what they said was right. And I'm sure that they believed it. So, I mean, I guess a combination of both, but ultimately, I think, you know, those guys were all out to make a buck.

• 12:07Patrick O'Shaughnessy?

  So, so Peter Drucker says that kind of through this era, we're the first truly socialist country because we're the first where this ownership of American business is so widespread. So you get from that, and then what's the next stage? Sort of, I think about it as, you know, the junk bond era, the corporate rating era, especially of the 1980s. Would you say that's the next kind of major chapter in the history of activism?

• 12:29Speaker 02

  No, because I think that you can't ignore, well, there are two things that you can't ignore. Like you can't ignore the conglomeradors, right? So that was this big M and A movement that did have some elements of hostile M and A. Like they had like hostile tender offers. You know, those were smaller companies in general, but it was... You know, I mean, that sowed the seeds for the hostile, like, the hostile takeovers that began in the seventies. And then, I mean, like, I couldn't leave it out of my book, like, you have to talk about the, like, emergence of Warren Buffett, too, which, like, his career began in the mid nineteen fifties. And, you know, the sixties were a pretty grand time for him, too, I think, so.

• 13:11Patrick O'Shaughnessy?

  So, when we get to the nineteen eighties and some of the more famous activists that people now still are talking about today, Carl Icahn, et cetera, what changes? Because there seems to be a self-interest driving their actions, kind of above all else. And a lot of change in terms of how companies start to protect themselves from these raiders, who don't seem to be acting on behalf of broad shareholders, but to make, you know, as quick a buck and as big a buck as possible.

• 13:39Speaker 02

  Yeah, I mean, it's an interesting question, and, I mean, it's always, you know, fascinating, like, with, you know, with any kind of historical exploration, because there is, you know, like, your prejudices and how you think the world works, like, the lens through which you see the world has a huge influence on how you interpret these past events. So, this emergence in the nineteen eighties of the corporate raiders, like, a lot of people are like, oh, this was the beginning of the birth of greed, and, like, these guys are greedy now, where before that, it was a business was, you know, more honorable. And I kind of don't buy that at all. I think in the fifties and the sixties, you had a lot of greedy guys, and you did in the seventies, too, they just got all washed away.

• 14:22Speaker 02

  But I think in the eighties, to me, the defining thing was, you know, Michael Milken and this vast infusion of capital that he gave directly to the raiders. And so, you know, guys who, like, were small fry in the fifties and the sixties or the seventies, you know, those kinds of outsider investors would now have access to huge sums of capital. And so, in my book, I profile Carl Icahn versus Phillips. And, you know, Phillips was, like, a top twenty company in the country.

• 15:03Speaker 02

  It was, I forget, you know, ten billion dollars or something, it was a huge company. And you have a Carl Icahn, you know, going after it. I mean, he doesn't have the money. And he's not financed by the big banks or like investment banks. He's like financed by, by these, you know, like the cronies of of Michael Milken and like the people that buy those junk bonds. And so like, like he got to do this whole thing of going after a huge established company, like without any help from the kind of the financial establishment.

• 15:37Patrick O'Shaughnessy?

  What was he trying to do with Phillips? What was his specific mission?

• 15:40Speaker 02

  He was out to make a buck.

• 15:41Patrick O'Shaughnessy?

  Yeah.

• 15:41Speaker 02

  So with Phillips, you know, they like had been targeted by Boone Pickens. And, um, you know, Boone Pickens is actually a great story, which which I put in the book too. It's like he actually, like his father worked for Phillips and he worked for Phillips. And he had a long history with the company. And he goes after them as a hostile raider and they basically buy him out. Now Boone Pickens was, you know, well, very, uh, um, sensitive to charges of green mail. And so he was like, well, you can buy me out, but like you have to do, it has to be equal treatment to all shareholders. And so instead of just paying a Pickens a lot of money to go away,

• 16:20Speaker 02

  uh, Phillips had to devise this, uh, scheme to pay out a Pickens, but to also do right by shareholders. And they give like the shareholders this, you know, complicated restructuring that the market ultimately values for less than the cash that is paid to Boone Pickens. And so Icahn sees that, he sees I can go after Phillips. Pickens is a smart guy and he knows the space and he clearly thinks it's undervalued. But what he's also going for is, you know, if he buys into the public shares, he thinks that they need to sweeten their offer, you know?

• 16:59Speaker 02

  And so he succeeds in doing that. Like he makes a big fuss and Phillips, uh, sweetens the recapitalization. So his shares go up.

• 17:07Patrick O'Shaughnessy?

  It's an interesting example of making a quick buck. I remember in the, or at least I've heard the story where my mom would wear a shirt called People Before Profits in the late 70s, early 80s, which has a better ring to it than stakeholders before shareholders. But that's kind of what's going on here is, you know, you put in your book a couple, the example that stands out to me was, I don't know who it was, but somebody took over Pacific lumber, which had a sustainable kind of growing plan for timber, basically fired everyone, canceled that sustainable plan, clear cut a bunch of old growth redwoods to make, you know, the quickest of profits.

• 17:42Speaker 02

  Yeah, Charlie Hurwitz. It was a gruesome case.

• 17:45Patrick O'Shaughnessy?

  And I wonder, I wonder, you know, was it through the 80s, and obviously the junk bond era came to, came to an end ultimately, was it public reaction to things like that, to, you know, things like ICANN making a tremendous amount of money very quickly, really to the benefit of nobody else but him? Did that change things? Was, was the attitude towards activism, or even the strategy of activists changed after that era?

• 18:10Speaker 02

  Yeah, I mean, that's a good question. And like, in a weird way, our society both, like, detested those people, but also held them up for our admiration. So, like, I was too young at the time, like, to really process it all, obviously, but I don't really know the answer in terms of public opinion. I do think that you did have a few specific policy initiatives, and you had the end of Michael Milken.

• 18:41Patrick O'Shaughnessy?

  Right.

• 18:42Speaker 02

  Which, you know, kind of put an end to the rating in the 80s as we know it. Like, you know, like, the 90s was a bigger deal decade than the 80s was. There were lots of huge mergers in the 90s, like, some big hostile deals. But, like, this period where you could basically be a nobody, and if you found, like, an undervalued company, get quick funding.

• 19:08Speaker 02

  Like to go after it in an aggressive manner, you know, that's over and it hasn't come back. It didn't even come back in, in the early two thousands when you had this like ample supplies of capital out there. Like, it's a funny thing I talk about, like in my book, that like, you know, that was like the only time in history where like, you know, they just like allowed people with no experience like at all like to go on a spending spree. And then I had in my footnote, it's like, except for, well, maybe like the Icelandic investment banks.

• 19:35Patrick O'Shaughnessy?

  Right.

• 19:36Speaker 02

  In the mid two thousands, which was like a little bit of a similar thing.

• 19:39Patrick O'Shaughnessy?

  So ICANN had this, this idea, this, I think you call it anti-Darwinian idea of kind of corporate management, that for the most part, it was dominated by really good institutional politicians, people who are good at rising the ladder, but not necessarily at either managing the company or allocating capital. Um, and you've got this sort of Peter Principle, that people rise to the level of their incompetence and, and that creates the opportunity for a lot of these activists to go out and, and shape companies up. Obviously, I think that has persisted, right? That the, the world is still full of, especially maybe in what you call the wasteland of small cap, uh, the small cap market, still full of companies that are, are badly or even horribly mismanaged. But given the end of the kind of ICANN, you know, milk and junk bond era, obviously activists

• 20:24Patrick O'Shaughnessy?

  are still targeting companies like that. Um, so maybe kind of close this history off for us through the nineties and then, you know, the two thousands to the present of, of what it's looked like since then.

• 20:33Speaker 02

  Well, I mean, I think like that since then, uh, you've seen this, you know, continued concentration of share ownership in the institutions. Like you did, uh, see this, uh, brief period that I talk about in the book of kind of the Dan Loeb, you know, public, um, hedge fund letters, like the shame-driven activism. You know, but that didn't really last long because the way that it's evolved is that... You know, they're like in any given public company, if it's not controlled by, you know, by insiders, there tend to be a handful of institutions that like that have a lot of the votes. And so the game of shareholder activism is a lot more a game of persuasion

• 21:15Speaker 02

  now. And so you, as an activist, are trying to convince the institutional shareholders that you have the right ideas and like perhaps that like the current management doesn't. So in the eighties, you could go for the quick takeover. In the nineties, you kind of, if you were a young activist with no access to capital, like you, lots of them did this, like embarrass the company thing was all they could, you know, really think of. You know, by now, like a lot of it is like behind the scenes, like persuasion. And as a result, the big institutions are the arbiters in a lot of these disputes. And

• 21:54Speaker 02

  you have these funds, like people like a Value Act or, you know, Bill Ackman even, like they're very politically astute in some ways and persuasive. And they tell a very good story.

• 22:07Patrick O'Shaughnessy?

  So, so this, this persuasion that's happening. So I'm, I'm a quantitative investor, but I'm always very curious to see who are the major shareholders of some of the key businesses that we own. And one of the things you have to do is scroll down a little bit on the page every time on the thirteen Fs, because one, two, and three is Vanguard, State Street, BlackRock.

• 22:24Speaker 02

  Yeah.

• 22:25Patrick O'Shaughnessy?

  Dimensional, you know, a couple really concentrated massive asset players that are, that are either purely passive or, you know, quant light. I'll, I'll call them like a dimensional.

• 22:35Speaker 02

  But you'd be surprised. I mean, if you look at Vanguard, I mean, it's just like an index. I don't know if you'd call that. Yeah, well, whatever. Like, you know, whatever Vanguard is, they're passive investors in the sense that like they put together these well products like to match an index, but they have a pretty robust team to study governance issues and to vote shares. And so even like a lot of these big institutions that they're not actively choosing to buy X or Y stock because. Of how they think it's going to do, they are active participants in its governance. And so those are the kind of people that you need to persuade.

• 23:16Patrick O'Shaughnessy?

  It's kind of fascinating. It's almost like we're witnessing, and I'm sure this will continue, you know, Vanguard captures market share every day. An inversion of these ideas of passive and active where active for the longest time has been active selection. Meaning you're picking stocks, trying to beat the market and probably less so than being involved in those stocks. It's passive owner, active selection, passive ownership, I'll call it.

• 23:37Speaker 02

  Yeah.

• 23:37Patrick O'Shaughnessy?

  And now it's the opposite. It's passive selection and it sounds like with teams at Vanguard, and probably this will happen in other places. Active involvement in the management of the company.

• 23:46Speaker 02

  Yeah. I mean, like if you're Vanguard, then like you are so established, right? That your long-term interests are A, that the S and P 500 is well managed. B, that the markets have integrity. Like you want for people to trust in the S and P 500. Like and C, like that corporations have integrity. And so like they do have a real vested interest in promoting good governance. Can they do it? Like, you know, can you build an incentive system that makes sense? It's a, it's a weird dynamic when you have like this entity with, you know, 22 paid professionals. Who have this huge impact. I mean, like, how much are those people getting paid? Probably not that much.

• 24:30Patrick O'Shaughnessy?

  How's their performance measured?

• 24:31Speaker 02

  Yeah, well, and it's extremely hard to measure it, right? So it is a weird dynamic and yeah, if, if you think about it too hard, it's.

• 24:40Patrick O'Shaughnessy?

  Talk yourself in circles.

• 24:41Speaker 02

  It's a little bit uncomfortable.

• 24:42Patrick O'Shaughnessy?

  Yeah.

• 24:43Speaker 02

  To think about, wow, so you know, what's going to happen when Vanguard owns 10% of the market? You know, how persuadable are the people who vote their proxies, they're going to be to, to bad ideas? You know, I mean, you know, power intoxicates. That's, you know, that's a lesson from history, right? So like it'll be fascinating to see and the whole growth in passive and ETF investing. I don't know about ETFs, that could be a flash in the pan, but you know, indexing is, is going to keep growing. So that dynamic is only going to be stronger.

• 25:19Patrick O'Shaughnessy?

  So we've got kind of the complete history now where we start with Graham operating very much under the radar with information that nobody else has to unlock value in one very small, specific company to almost activists as marketers.

• 25:32Speaker 02

  Yeah.

• 25:33Patrick O'Shaughnessy?

  That they're persuasion experts and trying to convince, I guess we'll call them passive or big institutional owners to vote a certain way or to promote a certain kind of governance. So for me, that raises the question, which I think is fascinating, of the very idea of shareholder value.

• 25:50Speaker 02

  Yeah.

• 25:51Patrick O'Shaughnessy?

  We talk about this quite a bit in the book and, you know, unless you really dig into the history of this idea, you probably just take it for granted that US companies or companies in general should act in a way that is best for their shareholders. And I guess what that means is the most cash going back to their shareholders, the greatest, you know, growth of share price, so on and so forth. But when you dig in, as you do in the book, you realize that that is kind of a, not only a fairly recent concept.

• 26:20Speaker 02

  Yeah.

• 26:21Patrick O'Shaughnessy?

  But also potentially a fictional one. So I'm going to read a quote from, you don't actually quote this in the book, but I went and read a book that you recommended or at least referenced by a woman named Lynn Stout talking, I think the book was called The Shareholder Value Myth.

• 26:34Speaker 02

  Mm-hmm.

• 26:35Patrick O'Shaughnessy?

  And so she says, "Shareholder primacy had become a dogma, a belief system that was rarely questioned, seldom explicitly justified, and had become so pervasive that many of its followers could not even recall where or how they had first learned of it. Put bluntly, conventional shareholder value thinking is a mistake for most firms and a big mistake at that. Shareholder value thinking causes corporate managers to focus myopically on short-term earnings reports at the expense of long-term performance, discourages investment and innovation, harms employees, customers, communities, and causes companies to indulge in reckless, socially irresponsible behaviors." Now, that's obviously a, probably an extreme opinion if there's some continuum of opinion on the idea of shareholder value. She's obviously very much against it.

• 27:17Speaker 02

  Mm-hmm.

• 27:18Patrick O'Shaughnessy?

  So the question is, is this the right way to think about it of stakeholder, let's say stakeholders that includes employees and customers and society at large, the environment, what have you, versus just pure equity shareholders?

• 27:32Speaker 02

  Yeah.

• 27:33Patrick O'Shaughnessy?

  Where do you fall on that continuum? What should companies be, you know, optimized to do?

• 27:38Speaker 02

  Well, you know, that's a key question and I really do think that's a good book by Lynn Stout. It's like a really thought-provoking book. And she definitely, I mean, like she kind of has two arguments. There's the legal argument of like, look, there's like no legal reason like the corporations are required to prioritize the shareholders, which is true technically, but then there's like the practical thing of like, well, except like they're not forced to, but a board of directors is appointed by shareholders. And so like that will bias is always going to be there because you have to raise your capital from somewhere. But then like she also gets into the practical argument of, of, you know, what companies that like are run specifically

• 28:23Speaker 02

  for shareholder value can be a myopic, like can be short-term oriented. We have to be careful there because it's easy to kind of slip into kind of a semantic argument because I think, you know, when some people say shareholder value or people are focused on shareholder value, they don't like, like we're not all talking about the same thing. And I think like for someone like me, I'm, I mean, obviously, I guess not obviously, but if you have read my book, I think that you see that like I'm pretty much pro, you know, shareholder and like in terms of corporate governance. And I think that a board of directors, I think their job is to protect the long-term interests of the shareholders. And I think if a board

• 29:05Speaker 02

  is beholden to too many bosses, it's easy for them to be beholden to nobody. And so like I do think it's important to run companies for the benefit of shareholders. But I think the way this like devolves in like into semantics at times is like, look, I mean, people in our shoes inherently understand that it's not in the long-term interest of shareholders to kind of denude the environment and to exploit the labor, you know, to the point that like we don't get good service, to neglect our, like our customers to the point that

• 29:44Speaker 02

  we lose them. And like a lot of the debate, like in a weird way, like it's about, you know, that happening. And to me, that's well, bad long-term governance. And, and I do think That the whole long term, short term issue is a human nature issue. Like, I think boards can be too short term oriented. Shareholders can be short term oriented, but so can managers. And, you know, so can CEOs. And, and so that's a problem like for all of us. And like, I haven't seen lots of compelling evidence that like, oh, well, public company shareholders are just well, so myopic and like they're well, so short term focused that it's like destructive to the economy.

• 30:26Speaker 02

  Like, I think there's a lot of examples where like, if you look at a company like Amazon, you know, where they are investing all of their excess cash into long term growth. Like, they're doing everything like for their long term benefit. You know, well, possibly for the negative benefit of society, but you know, well, for their long term benefit and for their customers' benefit and for their shareholders' benefit. And so like, I'm not like that compelled, you know, by the argument that, oh, like we live in a world like, you know, where shareholders are just like completely short sighted.

• 31:00Patrick O'Shaughnessy?

  Rampaging.

• 31:01Speaker 02

  You know, can misinformed, you know?

• 31:03Patrick O'Shaughnessy?

  Alfred Rappaport, who's written a number of books on this topic, says that managers talk shareholder value, but then walk quarterly earnings. And obviously Bezos is maybe the perfect example of the opposite of that. One of these kind of rare, truly long term thinkers that really does seem to walk that walk. But I guess the problem is balance, right? That for every Bezos, there could be 50 or 100 much more myopic managers that are focused on hitting performance targets because let's face it, the average CEO tenure these days in, you know, the Fortune 500 is something like six years. So I wonder, coming back to the idea of stakeholder versus shareholder value.

• 31:41Patrick O'Shaughnessy?

  If the idea of shareholder value has become so popular and so commonly accepted because it's very measurable. Share price is share price. Earnings are earnings. Um, you know, you can, you can really track those things and, and say whether or not companies being effective for its shareholders. We live in this kind of age of measurables where we're obsessed with T stats and R squares and, and statistics. It's much softer and fuzzier once you start getting into stakeholders. Um, and so I wonder, I guess my question is, is there some set of measurables? Or at least some, um, governing objective that companies could start to bake into their, the, the kind of the essence of their businesses? Because as you say, there's no.

• 32:25Patrick O'Shaughnessy?

  If you go read companies kind of founding papers, none of them say our mission is to maximize shareholder value. They don't want to tie themselves to that.

• 32:32Speaker 02

  Yeah.

• 32:32Patrick O'Shaughnessy?

  So can we get out of this bind? Can we move past kind of the simple pure measurable of share price to something that better promotes stakeholder value? Or do we just need to let things play out as they have?

• 32:46Speaker 02

  Yeah, I mean, I think A that we basically can't, but B, I mean, I would even question your premise about the value of the measurable of the share price because, you know, I'm a firm believer that, you know, the markets are not efficient. They certainly are not efficient in the short term. So even like evaluating CEOs on the performance of their stock, you know, during their tenure is very problematic. And, you know, like to me, that's like a big concern that I have with a share-based compensation, right? Like, I'm a value hedge fund manager. All of us like for years have kind of talked about the importance of incentivizing

• 33:29Speaker 02

  the management in the right way and making sure they have like the skin in the game, all that stuff. But like to me, our stock options are highly problematic because A, they're highly leveraged, and then B, they're levered to an irrational market. And so you ultimately introduce this big hunk of compensation that's completely erratic. And like you'll have companies, you know, where like, you know, everyone will get a huge pay year just because of the movement of the stock, which may or may not be warranted. And in a year that they're doing all the right things and they make all the right decisions, they might not get rewarded. So I think it's, you know, really problematic. And I think, again, it's

• 34:12Speaker 02

  like among the many things in governance that boils down to the value of an effective board of directors. Because ultimately, the board has to evaluate the CEO, and they shouldn't just do it on the short-term share price movements. Like, they need to understand that, you know, well, markets can get suckered into overvaluing companies, so.

• 34:39Patrick O'Shaughnessy?

  Do you think that governance today, and I guess this is another way of asking whether or not the opportunity set for activists, how that stacks up today versus the past? And I guess one proxy for the opportunity set is how good is governance? The worse the governance, probably the better the opportunity set. So where do you think we stand today?

• 34:59Speaker 02

  I mean, I would kind of question the premise because I think, like, there's a lot of bad governance, and there always has been, and there always will be. But in terms of an opportunity set for activism, I think you really also need like a deeply undervalued company because of the work involved, the possibility of failure. When you go active on a company, you lose your liquidity. So I think the governance opportunities are there, valuations are higher, like we're like in the middle of this or at the tail end or like, who knows? I mean, you know, who knows where we are in this historically long bull market?

• 35:37Speaker 02

  So like to me, the real, you know, gating factor on activist opportunity is undervalued companies and, and I'm not, you know, seeing them as much. Like, I think if you're like an activist and like your only target is, well, bad governance, then I think that's a dangerous situation to be in.

• 36:00Patrick O'Shaughnessy?

  Very interesting. So I would love to move now into kind of your history and your professional career outside of the book and outside of activism. I know you started in music. Maybe talk a little bit about that.

• 36:10Speaker 02

  Yeah, well, I played in a highly mediocre band. Pretty much through college, we started at the beginning of like my sophomore year of college and so that was 1990. Four or ninety five and it was a band called Aiden. We were on Teenbeat Records, which is a DC-based indie label. And we had four records and we pretty much toured from ninety six until two thousand and one, when I went to business school. So for those years, like I lived in in Chicago for one of those years, but then I moved back to DC.

• 36:53Speaker 02

  So like I lived some in DC and some in the near DC suburbs and I pretty much temped and toured.

• 37:01Patrick O'Shaughnessy?

  Mm-hmm.

• 37:02Speaker 02

  But it was, I mean, it was a great, it was a really educational lifestyle, I think. And I really think that going on tour is a pretty incredible life experience.

• 37:12Patrick O'Shaughnessy?

  I'm sure.

• 37:13Speaker 02

  But it was, like, it was hard. I mean, like, it's funny, when, like, when I moved to New York, like, I came here for for business school, like, I realized that all of my friends in bands in, like, in New York had, like, real jobs. Like, they had, well, jobs that, like, would tolerate their artistic ventures. And so they all had careers going, whereas everyone in DC and most everywhere else in the country, if you played in a band, you were a bartender or a temp or, like, you did this, you know, well, hourly work. So, like, it was hard. I, like, I do feel like I kind of had this great life experience, which was incredibly valuable, but I didn't, like, accomplish a lot, like, professionally in that time.

• 37:56Patrick O'Shaughnessy?

  I find that most people that have a story like yours, you know, ultimately a very successful one, have some sort of threshold crossing moment. So going from that lifestyle to Columbia.

• 38:07Speaker 02

  Yeah.

• 38:08Patrick O'Shaughnessy?

  To business school seems like an odd transition. How, how did that come about?

• 38:11Speaker 02

  I think ultimately I knew at, at some point that I would go back to school and do, you know, well, some kind of, I don't know what you would call it, you know, career advancement.

• 38:21Patrick O'Shaughnessy?

  Mm-hmm.

• 38:22Speaker 02

  You know, I mean, like, the band was, well, really fun, but, like, we never were A, good enough, but, like, we never, I mean, like, you really have to work hard and, like, to make it work. And, you know, there were, seeing the bands that, that became successful in the time, like, that we were doing it. The ones that succeeded. Pretty much 100% of them were incredibly hard workers and all of the band members were completely committed to it. And we could never really do that, like, you know, like, we were never all on the same page, like, we, you know, didn't tour nearly as much as, like, as we could have and, you know, and should have. So I think that, deep down,

• 39:06Speaker 02

  I knew that, like, you know, like, we weren't gonna be a successful band. So, I mean, I didn't really know what to do. And I thought about, like, do I want to learn to be a computer programmer, or do I want to go to some kind of a professional school? And I had a family friend, Arthur Levitt, who was Clinton's SEC chairman, who, who basically helped me get into business school. So, like, I thought of business school at the time as like a, like, a versatile degree that you could potentially do a lot with. And I think it all, you know, like, I got real lucky, like, like, it worked out very well for me.

• 39:43Patrick O'Shaughnessy?

  So you went to Columbia, and I know you now teach there, and that's sort of probably the school. If you talk about what school has produced the most, maybe famous investors, period, but certainly the most famous value investors. Obviously, Graham and Buffett being the kind of founding fathers, but tons of huge names, Joel Greenblatt, I think Gabelly went there, I think Cooperman went there, some, some really big names. So I'm curious, when you got to Columbia, it sounds like your, your idea was that a business degree can be broadly...

• 40:13Speaker 02

  Yeah, I mean, I didn't know what I was gonna do.

• 40:15Patrick O'Shaughnessy?

  Probably strong.

• 40:16Speaker 02

  I mean, so when I got there, like, I didn't know anything about investing. I had never heard of Warren Buffett. I mean, I didn't, you know, know that stuff. And Columbia was, it was pretty different. Like, we didn't have that, that value investing, you know, program that we have now. And I love that program, but I think one downside of that program is it restricts a lot of the best teachers to this selective program that is hard to get into. So, like, when I was there, I, I mean, I must have heard at some point, like, oh, you know, you should take security analysis. It's a, it's a popular class. So, like, there were three sections, and the one that fit my schedule was the Joel Greenblatt

• 41:00Speaker 02

  one. And, like, it really, I was that lucky. I mean... I took it and it resonated with me, but I had no master plan to do investing. Like, I didn't even really know what investing was about. So I took that, like, that class and it really clicked. And, yeah, I mean, and at that time, I didn't know about Columbia's history with investing. I think the spring of my first year there, I had a person in my little, like, what's called an IP group, but it was like a four-person study group who was, like, into Warren Buffett. And, like, he gave me a book on Buffett. I think that he gave me the Lowenstein book, which I didn't read, but then I read The Warren Buffett Way.

• 41:43Speaker 02

  And then I read, like, the Lowenstein book. And so, yeah, you know, once I, like, I got into it, like, I got super focused on it.

• 41:51Patrick O'Shaughnessy?

  How was the green-black class structured? Was it, was it investment case studies? Was it broad principles?

• 41:57Speaker 02

  I mean, it was a lot about the secret, I'm hiding places in his book. But, yeah, it was basically 12 classes. Like, in the first class, I remember, like, he kind of focused on, you know, debunking efficient markets. He, well, brought the Wall Street Journal out and, like, we looked at the 52-week highs and the 52-week lows of these companies like American Express and Walmart. And then usually he would have, in the first three or four weeks, like, case studies. And, like, and he would have these, like, very simple, special situations. So we looked at the Dunn and Bradstreet spinoff. Like, we looked at Muncingware, where, like, you kind of, it was like, like, they had

• 42:40Speaker 02

  a particular line of business that was very profitable, but everything else, you know, well, drained all the profits, but, but those could be cut away. And then by the end of the class, he began to have a lot of guest speakers and we just would do more stock pitching. So, like, we would get in our little groups and pitch stocks. So, to me, it was more the beginning of the class. I, like, had never heard of this, you know, little special situation stuff. And, like, it really clicked with me. And, and, like, at the time, and I don't know, like, to what extent, this is a delusional, but at the time, I felt like I was getting it, well, faster than, like, than everyone else in the class, that, like, he would go through an example and, like, and I would get it.

• 43:22Speaker 02

  You know, will raise my hand, I can get it first, like perhaps everyone will knew the answer, but didn't want to raise their hand or whatever, but I just well felt like like I kind of had a knack for it.

• 43:32Patrick O'Shaughnessy?

  Tell me how you got back into teaching there.

• 43:34Speaker 02

  So a friend of mine who I met in that class, Eddie Ramsden, who's who's a fund manager, he runs a fund called Cabern Capital, which I invest in, actually, it's a great fund. He was like a superstar student, like he got seeded by Greenblatt after that class. And he also took, so to back up a bit, like the one, I think there were two classes there in investing that you had to apply for that like were like the new model at the investing school. There was this Paul Sonken class and then a class taught by the Blue Ridge guys. I applied to both those classes and got rejected. Eddie took them both, he took the Sonken class and did so well like that he got asked to be be like the co-teacher the next year.

• 44:19Speaker 02

  And then the next year, I think Sonken had to back out of it. And so Eddie, one year removed like from being in the school was the teacher. And he like and he did a great job, he's he's a really good teacher. So when so he moved back to to England, like he teaches at the London Business School now. And when he moved, he kind of put my name forward like for doing it. I stutter and it's gotten a lot better, but I had a really bad stutter in college and after college and yeah, I mean, even at Columbia, like I had a, you know, like a pretty bad stutter. So when I got asked to do it, I mean, this is not what I told, you know, Greenwald when, you know, when we were talking about it. But but I kind of viewed it as

• 45:04Speaker 02

  if I'm not going to do this, then like I'm never going to do something like this. And it was like my chance to kind of try, like, I mean, I basically did it as a form of speech therapy.

• 45:13Patrick O'Shaughnessy?

  Wow.

• 45:14Speaker 02

  And so that was, you know, kind of the reason I did it. Like it was a little bit like I got this opportunity. For my entire life, I would have, you know, well, said no to something like this. And it was just, it was like eight months away. It was just abstract enough that I was like, screw it, I'm gonna try this. And I did it. And, um, and so, yeah, I think this will be my fifth or sixth year, uh, teaching there.

• 45:36Patrick O'Shaughnessy?

  Wow, what a, what a neat story. I didn't know that, uh, that origin. So where we'll go next is, is your actual portfolio. So there's no, there's no more, I guess, interesting way to really see what you believe than to look at what you own. And one of the things I'm most fascinated with as a, as an active manager myself, is the institutionalization of asset management. The rise of, we'll call it closet indexing, um, where portfolios look more and more like the market, or at least more and more sensitive to key risk exposures relative to the market. Because the fastest way to get fired, and I can, I can attest to this, um, running portfolios that look a bit different from the market, is to underperform. Even if that underperformance is over a very short window of time,

• 46:20Patrick O'Shaughnessy?

  and nothing's changed about the strategy or the philosophy. Um, there is a, I think, shorter and shorter leash for doing badly versus, you know, very low-cost passive alternatives. And so I, I got a, a nice big smile on my face when I looked up, um, kind of your top holdings, because there's no mistaking you, there's no mistaking you for a closet indexer. Um, and you had a good line, which, where you said, "Value investors are journalists at heart, who feel compelled to gather their own facts and do their own analysis," um, which I think obviously needs to be the case for the kind of portfolio you have. So what we'll do is maybe walk through a few examples, kind of think about them like case studies, and, and maybe, um, use them as jump off points for, for asking a few kind of broader questions about investing.

• 47:04Patrick O'Shaughnessy?

  Um, so the three we're gonna go through are Stargaz, Popeyes, and Tandy Leather.

• 47:09Speaker 02

  Okay.

• 47:09Patrick O'Shaughnessy?

  Um, so we'll start with Stargaz, which was, it's, I think, if I'm not mistaken, at least in the last filing, it was about a quarter of your overall portfolio.

• 47:17Speaker 02

  I think it's like 21%.

• 47:18Patrick O'Shaughnessy?

  Okay, so it's still the number one holding.

• 47:20Speaker 02

  Yeah, you know, so like with 13 halfs, obviously, they don't include cash. They don't include like unlisted stocks or foreign stocks. So like, it's not the whole picture.

• 47:29Patrick O'Shaughnessy?

  Right.

• 47:30Speaker 02

  But yeah, uh, Stargaz is our largest position.

• 47:32Patrick O'Shaughnessy?

  So I, I was interested to see that, because obviously that was one of the, one of the, uh, topics or chapters in your book, was Dan Loeb versus Stargaz.

• 47:39Speaker 02

  And that, I mean, it's not a coincidence, right? Like... When you're writing a book, you definitely hop at an opportunity to take a shortcut.

• 47:47Patrick O'Shaughnessy?

  Yep.

• 47:48Speaker 02

  So it was easier for me. I mean, I knew that I wanted an angry Dan Loeb letter.

• 47:52Patrick O'Shaughnessy?

  Yeah, of course.

• 47:52Speaker 02

  And I knew that that was a good one. And it was way easier for me to like to write about that company than like ICPT like or something where like I didn't know the company at all.

• 48:02Patrick O'Shaughnessy?

  So just to take one more opportunity before we dive into Star Gas to highlight, because Loeb, the Loeb letters are just awesome. So Loeb writes in that same 13D to seven, to Eric Seven, the CEO, "How is it possible that you selected your elderly 78-year-old mom to serve on the company's board of directors and as a full-time employee providing employee and unit holder services? We further wonder, under what theory of corporate governance does one's mom sit on a company board? Should you be found derelict in the performance of your executive duties, as we believe is the case? We do not believe your mom is the right person to fire you from your job." And I love how he keeps saying mom instead of mother. It's just so condescending. So anyway, so obviously you're not involved with

• 48:47Patrick O'Shaughnessy?

  Star Gas when, when Loeb is fighting.

• 48:50Speaker 02

  Well, I was.

• 48:50Patrick O'Shaughnessy?

  Where were you?

• 48:51Speaker 02

  Well, so my first job in the industry, I was at a distress fund. Like I started during business school in 2002. And then in 2000, either 04 or 05, my direct boss, Greg Schrock, he was the director of research at that fund. And, and he and I launched a new fund called Arclo, where I was the junior partner. We were funded by, like, seated by a protege. And that was also distress fund. And, and I think at both HPV and at Arclo, I had looked at the SGU bonds. And then at Arclo, like that was when all of this, the Dan Loeb and the blowout, you know, will happen. And like, we looked, I think

• 49:32Speaker 02

  that we owned both the bonds and the stock, like a little bit. And so I, you know, will follow that whole thing. I remember we talked like to Loeb and there were, he had a lot more stories, like off the record.

• 49:44Patrick O'Shaughnessy?

  Can only imagine.

• 49:45Speaker 02

  Like, you know, that, like, we're even harsher about Eric Seven. And so I, like, had been following it. And then when we launched Bandera, it was among our first positions. I mean, you know, one thing that you see a lot with special situations is you do see kind of investor fatigue, you know? So with Star Gas, they did a restructuring, like they equitized a lot of bonds. So there were, you know, kind of two dynamics. A, the event had happened. Well, there were a bunch of dynamics. I mean, like another one was, like, the event had loudly and publicly happened.

• 50:19Patrick O'Shaughnessy?

  Just describe that event, kind of.

• 50:20Speaker 02

  Oh, well, so SGU in the old days was a basic, it was, well, run by an investment banker and was like a dividend paying security. It was an MLP. It was, it traded on yield. Like, the stock was like, you know, twenty to twenty-five bucks a share, even though, like, you know, they were kind of, well, ran these hard businesses, including like this heating oil business. Like, they ran into trouble. They made some, like, essentially, like, directional bets on the price of oil and they blew up with this guy, you know, well, Eric Seven in Charge. They sold their propane business because it was an MLP. Like, they passed on a ten-dollar-per-share taxable gain to their shareholders at almost, like,

• 51:03Speaker 02

  the same time as announcing that they might have to file for bankruptcy. So, hey, here's your stock. You're about to lose everything, by the way.

• 51:09Patrick O'Shaughnessy?

  There's a ten-dollar gain.

• 51:10Speaker 02

  Yeah, well, ten bucks per share gain. You know, so, so Dan Loeb got involved, you know, called for his ouster. They did this whole restructuring. It was all very, well, ugly and public. When they did the restructuring, you know, that was a controversial thing, too, because the board took what, you know, on the surface looked like the less good deal. There was a Soros-backed deal that looked like the better deal for shareholders in the short term, but they went with the more reputable management teams. So, they, you know, went with this Yorktown Partners, a private equity firm who now controls SGU, had sold the old SGU, like a heating oil company, in 2000. So, it was the, it was,

• 51:53Speaker 02

  you know, their management team that came back in to recapitalize it. So, you had all of that happen. You had, like, the new management team. Like, you had a lot of the equity in the hands of these old bondholders, you know, which, you know, creates a dynamic. And then you had that whole Dan Loeb noise where it got lots of attention. And when all that, well, died away, you're left with a stock where people are like, oh, yeah, SGU, I've heard of that. And people don't, they tend to under-follow these things that have been in the public eye. And also, I think, a part of it being in the public eye and of a lot of, of blowups in the heating oil space, you know. So, at the same time that SGU blew up, this other company blew up called Heating Oil Partners.

• 52:35Speaker 02

  Like that business got dismissed as a crappy business when in reality it's a surprisingly good, um, high return business. And so, you know, we, you know, kind of saw this, like this excellent, you know, management team buying into these assets. They're really good capital allocators. They're like a good private equity firm. So it all kind of, you know, lined up right. And then oh eight and oh nine happened too. Like, and then also like in oh seven, like the huge increases like in oil prices, which is bad for their business. And so it was a situation where lots of bad things were happening in a fatigued a stock. And then you had these like real bad, well, macro pressures, but yet underlying

• 53:15Speaker 02

  it all, you had a good change in management and good governance and, you know, good oversight. So a setup great and like ultimately it still isn't as respected as it should be, which is the reason that we, you know, we'll still own tons of it. Like we've owned it for a very long time and I, and I, and I still feel like it's extremely undervalued.

• 53:36Patrick O'Shaughnessy?

  So value investing is, I always say like a nice way of saying very pessimistic outlook.

• 53:41Speaker 02

  Yeah. And look, this is like the heating oil business is

• 53:44Patrick O'Shaughnessy?

  secular decline, right?

• 53:45Speaker 02

  declining and it has been like for decades. But, uh, Yorktown, like these guys that control, uh, Star Gas, you know, like they launched a heating oil business in 1981 that they sold to Star Gas in 2000. The same dynamic was happening over that period, you know, with a little bit of differences in the relative price of natural gas to oil. But like it was a declining, you know, doomed business and like, and they returned with something like, you know, 65X like in that period. And they know what they're doing. So like the main thing there is they perpetually like are valued at like as this, you know, well terrible commodity business when they're kind of not. I mean, it's not a great business, but, but you can earn an outsized return.

• 54:28Patrick O'Shaughnessy?

  What do you think? I mean, how long, so how long have you owned it? Or I guess how long has it been either your number one or, or top position?

• 54:34Speaker 02

  Uh, probably seven, eight years.

• 54:37Patrick O'Shaughnessy?

  So is there a catalyst that would cause the market's perception to change, do you think?

• 54:42Speaker 02

  I would have thought with the low interest rates, you know, them paying a dividend, you know, I mean, you know, they pay kind of to the lowest dividend that they feel they can pay to keep the shareholders, um, happy, but they prefer to retain the cash, which I agree with.

• 54:58Patrick O'Shaughnessy?

  Yeah.

• 54:59Speaker 02

  Like for acquisitions and buybacks. But it yields well 5%. I mean, I would have thought at some point that it would, you know, kind of go back to trading on yield and look, I mean, you know, well, markets are optimistic and in history, there have been times that people have valued heating, heating oil companies like propane companies, like, you know, with a lot of optimism. So, I mean, I would have thought, like, at some point that that would have happened. And then, you know, we had two years in a row of these, like, abnormally cold winters where they just made gobs and gobs of money. And I would have thought that, like, the valuation, you know, would have improved well more than it did.

• 55:38Patrick O'Shaughnessy?

  What, when you say they're good capital allocators, I kind of perked my ears up. I think that that is one of the more interesting ways of evaluating a business or certainly a management team. And you mentioned both acquisitions and buybacks. So when you say good allocators, what do you, what do you mean by that? And, and is that allocation piece or that allocation skill a key part of what you look for when, when screening for, for new investments or at least, you know, want to see continued good allocation from your, from your existing investments?

• 56:06Speaker 02

  I mean, honestly, like, you know, when I look at stocks, like, I'm more looking, like, for bad allocation as a thing to avoid. Great capital allocation is so rare and it can be hard to predict in the future that it's not the driving thing that I'm trying to identify, even though it's hugely important. Like, it's more like I'm trying to avoid the disasters with bad allocation. With, like, with Star Gas, yeah, it's like they're extremely disciplined and good on the acquisition front, which is hard to be in a, in a declining industry where you're the biggest player. So, like, among the more annoying things that has, that has happened to us with Star Gas is, like, there were two or three great

• 56:47Speaker 02

  assets that popped up for sale in the industry that got gobbled up by these Canadian propane companies that, you know, like, were playing the dividend game with their investors and, you know, they needed to grow and they, you know, will grossly, like, you know, overpaid for those assets, you know? The new Star Gas has been great. Like they've gotten up like a bunch of good acquisitions done, but they don't overpay for the bad ones. And then they are really opportunistic on, you know, debt and share repurchases. So in the financial crisis, they like they bought back like a lot of their bonds at a huge discount. Uh, you know, since we've owned the stock, they've bought back about, you know, 25% of the shares, like at opportunistic times.

• 57:30Speaker 02

  And so like they really are good on the capital front, which is key for a declining, you know, cash generating business.

• 57:37Patrick O'Shaughnessy?

  Do you have a broader opinion on buybacks? It's one of the, we'll call it quant factors that, that I find most interesting and, and the empirical evidence suggests that companies that buy back, as you say, gobs of their shares, especially ones that do it at, at cheaper relative prices, you know, low PEs, low price of sales, et cetera, have pretty significantly outperformed the market over the longer term. Now we're in a period now of, you know, certainly 2015 and thus far in 2016, when these high buyback firms have, have lagged pretty considerably. But longer term, it's been a pretty effective signal or factor to look for in companies. So do you think that, and I guess I'll frame the question also by saying that most coverage of buybacks is pejorative or negative.

• 58:22Patrick O'Shaughnessy?

  There seems to be this, this kind of narrative that, that's it's manipulative, it's self-serving, it's a way of boosting EPS, hitting targets, and that instead that cash should be invested for growth. So where do you stand on kind of buybacks more broadly and knowing that it's been a good thing for Star Gas?

• 58:39Speaker 02

  Yeah. Yeah. I mean, that's, I mean, those are all great points and like it really is the area of corporate governance that's probably the least understood. Like in every board I've been on and lots of dealings with management teams, they really don't understand buybacks. I vividly remember I was in a meeting with Popeyes, you know, billion dollar company, great company, discussing a buyback and, and you know, I was kind of pushing them. They had been essentially badgered into doing buybacks by their shareholders and, and I was pushing the CFO, just, you know, trying to figure out how he thought about it. And so we're trying to kind of evaluate, would he be opportunistic?

• 59:21Speaker 02

  Would he turn it up or down depending on the market price? And he was like, well, you really want to put these things, you know, get them. In the front, like the beginning of the year, so it, you know, has the biggest effect on your diluted share count for your annual earnings. It's like, it's like the worst thing that you want to hear as an investor. It's like, well, doesn't have anything to do with long-term intrinsic value. And so they're so misunderstood. And as you say, like, there are lots of companies that will kind of have them on autopilot. So like, to me, it's like, I really love to see it when you have these opportunistic-

• 59:58Patrick O'Shaughnessy?

  Lumpier.

• 59:58Speaker 02

  You know, like aggressive buybacks. And I don't know, I mean, like, to me, the main issue is that boards often don't know how to value companies. They don't know how to think about the value of their companies. When they seek a guidance on valuation, they'll get like a banker report, like that's a means to an end. So they don't really know, A, even if they knew, you know, well, how buybacks worked, which they predominantly don't, they don't understand valuation enough to do buybacks in the right way. So, yeah, like, it's another example of how with corporate governance, it's hard to have

• 1:00:38Speaker 02

  a best practice because with buybacks, like, you can see the best and the worst of performance. And there's like, a good buyback, well, you know, creates a tremendous amount of value. A bad buyback directly destroys value.

• 1:00:53Patrick O'Shaughnessy?

  Burns money.

• 1:00:54Speaker 02

  And the shareholder basis ultimately, if you own the share, then you're going to be biased in favor of thinking it's undervalued and that a buyback is the right thing. So it's a real, it's like, it's a hard issue to think about from a, you know, from a governance perspective.

• 1:01:07Patrick O'Shaughnessy?

  That seems to be a new major tool in the toolkit for activists is agitating for buybacks. You know, Apple's probably the most famous example.

• 1:01:16Speaker 02

  Yeah, but I think that you did have a little bit of a one-time period, like, where companies are, like, are overcapitalized. Interest rates had dropped precipitously and the cost of borrowing was so low and CFOs were not quite as sophisticated on their ability to borrow cheaply. And so I think a lot of that, of like, the low-hanging fruit there is gone. And that was a powerful tool that I think, you know, was good, like, for shareholders, like, when these, like, overcapitalized companies, you know, were borrowed to buy back shares cheaply. But now- It's less clear and and I don't think it's just a tool that's always going to be there.

• 1:01:57Speaker 02

  I mean, you know, like with buybacks, if like if you look at the math on buybacks, like if you're only buying back a small percentage of the float, it's really hard to move the needle. Like you have to buy back a lot and you have to like to to buy it back at a pretty, you know, big discount, like to really drive value. So I don't know, I mean, they're like, like are two approaches there, like are like are like are people that think, well, there's a tax advantage if you buy back at fair value over time as if it's a dividend, then you add value there too. That is true, but like to me, what, you know, gets a me excited as an investor is a board that understands the value of their company and you see that, you know, will manifest through aggressive buybacks.

• 1:02:39Patrick O'Shaughnessy?

  It's interesting that I, you know, all the, all the work I've done on buybacks and it's been a kind of key area of focus in my research has more or less empirically confirmed what you're saying, which is the best way to, um, let's say, qualify a buyback program is sort of this lumpiness, this relationship to big discounts, um, and this kind of high conviction bets that companies make. And I once separated it into what I call lower conviction, which was five percent or less of shares in a one-year period. And high conviction or or highest, which is, you know, five or 10% plus of shares. And sometimes you see a, you know, a 15 or a 20% massive, massive bet. And what you find is a couple of interesting things where there's a correlation between the conviction level,

• 1:03:23Patrick O'Shaughnessy?

  the percentage of shares being repurchased and the relative valuation. So higher conviction, on average, the share prices are are trading at cheaper or bigger discounts.

• 1:03:31Speaker 02

  Yeah, that's interesting.

• 1:03:32Patrick O'Shaughnessy?

  And then the second thing may be more, you know, useful for for active investors is that the forward returns of those stocks are considerably higher. So, you know, you get large stocks at, you know, call it 10% return since 1982 when share buybacks became, you know, really popular. The low conviction group outperforms by say 1% a year, a little bit, but, but not hugely significant and it's, it's varied. And then that high conviction group outperforms by about 4% a year. So it's a, it's a big gap and there does seem to be, and of course, there's, there's plenty of examples even within that high conviction group of value destroying buybacks. But from an empirical standpoint, it does seem to be true that the lumpier,

• 1:04:15Patrick O'Shaughnessy?

  higher conviction, bigger buybacks that aren't just like a dividend proxy where it's 1% of shares every year, or timed at the beginning of the year with diluted EPS in mind.

• 1:04:26Speaker 02

  Yeah. I mean, it seems intuitively true to me. It'll be interesting to see if we get a sustained bear market, you know, what the data looks like. Because it's also, you just have had a market that has gone up and, you know, people were buying back shares. But to me, like if I see, you know, buybacks with a brain behind them, usually they're good. You know, and at times they're bad if the board's just wrong and delusional, like which happens.

• 1:04:53Patrick O'Shaughnessy?

  So we talked a little bit about Popeyes. I'd like, like to move to the last position we'll talk about before getting to some closing questions, which is Tandy Leather. And what I'm really most fascinated about, about Tandy Leather, first of all, I intentionally didn't really look into their business because I kind of wanted to hear it from you.

• 1:05:09Speaker 02

  It's a weird business.

• 1:05:09Patrick O'Shaughnessy?

  But, but the most, the number that jumped off the page is not the weight of Tandy Leather in your portfolio, but the percent of shares outstanding that you own of the business. So I, are you the largest shareholder?

• 1:05:20Speaker 02

  Yeah.

• 1:05:20Patrick O'Shaughnessy?

  You are.

• 1:05:21Speaker 02

  Yeah. Yeah. Well, so we own about 30%, which is also, that's like a real, you know, well Hornets nest with like affiliation rules, all that kind of stuff. And I'm on the board, so I had to be careful like about what I can say about it. But, you know, the main thing with Tandy is it's a really good niche business. So they're a retail company that sells leather and tools to leather crafters. So for people who, who make things with leather, they have like a fanatical customer base, you know, so they can have their stores in will vary low rent areas and the customers will come to them. And, and I bought it, you

• 1:06:02Speaker 02

  know, like it's, it's kind of a classic, you know, will micro cap a story, these will tiny companies, like their valuations.

• 1:06:12Speaker 02

  Get, you know, well, heavily influenced by the activities of the large shareholders and liquidity. So in two thousand and eight and two thousand and nine, there was a sixteen percent shareholder, like the Wellington Group. I don't know why a company like that would own sixteen percent of like of Tandy Leather, but.

• 1:06:29Patrick O'Shaughnessy?

  They're a big micro cap player, I think.

• 1:06:30Speaker 02

  Oh, really?

• 1:06:31Patrick O'Shaughnessy?

  Yeah.

• 1:06:32Speaker 02

  But they're like, I mean, like they're big funds.

• 1:06:34Patrick O'Shaughnessy?

  Oh, yeah, sure.

• 1:06:34Speaker 02

  They had big funds, but like, so we basically bought a big hunk of our position at, at probably like a thirty or forty million dollar valuation for a company with no debt and excess cash that at the time was probably doing like eight million of operating income and, you know, did like, you know, well, twelve million like last year or the year before. And, um, and then we bought another huge chunk from a retiring CEO to bring us up to like to basically the thirty percent where we are now. So I was just a real fan of the quality of their business. And usually like with our positions, again, like as we talked about with a Stargaz, like with Popeyes, it's a lot like the Stargaz story.

• 1:07:19Speaker 02

  It was a special situation. They were a conglomerate. They basically liquidated. They went a year with no CEO. They got an excellent CEO. You know, people were tired of the name and then the financial crisis hit. And so you had a year of great performance, but during the financial crisis with a new CEO, it had a, a special situation narrative. With Tandy was just like a really good business where you had like, for some reason, a shareholder that, you know, wanted to sell at all costs, like, like at any price. And, you know, we stepped up with the bid.

• 1:07:55Patrick O'Shaughnessy?

  It strikes me that, you know, when you think about obviously hyper liquid, large cap markets that, that dominate stated equity returns, you know, everyone talks about the S and P five hundred, that maybe the future of, we'll call it active management. I want to get your opinion on, on the active passive debate in a minute. Um, but maybe the future of active is, is more in situations like this where you're sacrificing liquidity, obviously, um, for a longer term view on a good operating business that, you know, obviously Tandy Leather means nothing to almost every single stockholder out there, uh, but, but is a meaningful part of your fund. Do you think that that's true? Do you think that, you know, the real opportunity is going to be in?

• 1:08:37Patrick O'Shaughnessy?

  Smaller cap, less liquid, longer horizon type investments like this.

• 1:08:42Speaker 02

  No, I mean, I'm, I mean, I'm agnostic, like on that front. I mean, I'm agnostic about a lot of things, but yeah, look, I think there's a dynamic to micro caps and the liquidity problems and, and like the issue like of ultimately, like a lot of times, like, like you're at an information disadvantage from the seller. It's a lot like distressed investing with like you're buying a block of distressed bonds like from someone that knows a lot. There like are all these aspects of a micro cap like investment that would make it hard to have a quantitative or like an indexing strategy. So I think there like will always be room for like active, you know, managers

• 1:09:24Speaker 02

  in tiny, tiny companies. To your question of, so there's a second, you know, well, question like implicit in yours, which is with this, you know, we'll fund and indexing and the mega caps, you know, will we hit a point where the quality of it, like an individual fund managers will judgment in general, like they're not going to be good enough to compete. I think it's just a completely different question and it's a question about, you know, I mean essentially, you know, judgment or what kind of like access to information, but, but I don't know. And I just assume like, like the market is prone to

• 1:10:07Speaker 02

  bad misjudgments. And I do think there's a place for concentrated big cap investors too. And so I think there will continue to be. And look, I mean, I think it's, it's hard to outperform and I think over time there will probably be, you know, compression on fees, but I think there's a place for like active managers across the board. And I mean, I kind of wonder as, you know, quantitative and like investing grows, will that help like a, like a small pocket of active investors? Like to me, like the more problematic issue with the growth of algorithmic, you know, well hedge fund investing in the mega caps is I think that like we're seeing this

• 1:10:50Speaker 02

  real imbalance in access to information there too, where you have the really big funds.

• 1:10:57Speaker 02

  Are now will have the resources and the world has evolved in this way where they have access to more real time information than even the companies do. And so they're buying all of this, you know, real time data on consumer habits, which I assume, you know, will skirts the gray areas of securities law, but is pretty fascinating. So like I've thought like a lot about that and the impact that that'll have in the long term.

• 1:11:26Patrick O'Shaughnessy?

  I've seen like satellite imagery for mall parking lots.

• 1:11:30Speaker 02

  That kind of stuff, yeah.

• 1:11:31Patrick O'Shaughnessy?

  Crazy unstructured data.

• 1:11:32Speaker 02

  I mean, I get like an email, like, I mean, every day from like, oh, we have a few big cap positions. So like, we own like, you know, Google or Chipotle. And I think that like will puts us like on the radar of these firms that are like, hey, we have all this well value added research on how Chipotle is doing, you know, this week or whatever.

• 1:11:51Patrick O'Shaughnessy?

  Yeah.

• 1:11:52Speaker 02

  So there's this whole industry of that stuff.

• 1:11:55Patrick O'Shaughnessy?

  It's kind of like Graham, looking through the ICC at special information.

• 1:12:00Speaker 02

  Yeah.

• 1:12:01Patrick O'Shaughnessy?

  And I think the question now is, the problem we face now as active investors is how in the world to separate signal from the noise, because surely most of that information is completely useless.

• 1:12:14Speaker 02

  Well, I mean, I mean, and I think that's a good thing for long term investors. I mean, ultimately is like, that's, I mean, that's not going to hurt them.

• 1:12:21Patrick O'Shaughnessy?

  Right.

• 1:12:22Speaker 02

  If they're like, are people out there that that know what the next quarter is going to look like.

• 1:12:25Patrick O'Shaughnessy?

  Two quick questions on on your business. And I'm curious, one, if you benchmark yourself and if so against what? And two, maybe talk a little bit about your investors, because I can tell, you know, having talked to you before this conversation, but also through this conversation and based on your portfolio, that you've got a high conviction, long term investing strategy here.

• 1:12:46Speaker 02

  Yeah.

• 1:12:47Patrick O'Shaughnessy?

  That's not all your money. You've got investors.

• 1:12:48Speaker 02

  Mm hmm.

• 1:12:49Patrick O'Shaughnessy?

  And so the quality of those investors, I'm sure matters. So maybe, maybe you could touch on that.

• 1:12:53Speaker 02

  Sure. Yeah. You know, we've been really, really extraordinarily lucky in that a large percentage of of our current investor base, and they were only a fraction of our beginning investor base, but they have come to dominate it in terms of assets, are collection of high frequency traders. So they're all high net worth individuals. They're all like, they tend to be young and. And sophisticated and interested in markets and we've been well very, you know, well fortunate that, that over the life of our fund, which will coincide with, you know, oh seven, oh eight, oh nine, which were, you know, banner years in, in that industry, that, you know, they grew at a period where it really helped us to have access to capital. So we've been really, really

• 1:13:38Speaker 02

  lucky on that front. I knew lots of fund managers in oh eight and oh nine who had to close shop, who were doing just as well. I mean, you know, like my old boss at Arclo, Greg Schrock, who, who works here now, he's, he's the one at the end of the office. I mean, he was a big subprime short. He was up like eighty percent in oh seven, up like over ten percent in, you know, in oh eight. And then he was up in oh nine, but just a little bit. And he basically like lost his seat investor and had to fold up shop. So we've been really fortunate to have like a great investor base, like that understands what we do and that like allows us to invest in the way that we know how to invest. And so when you think about, you know, benchmarking, like we're not out there marketing Right.

• 1:14:24Speaker 02

  Like to new funds. We're not out there, we're trying to get big institutions, like, like when our clients invest in us, I think of them as choosing us over the S and P 500 index fund. Right. So that's our competition. Yeah. And I feel like not only is that hard to outperform in terms of its return, it's a lot more tax efficient. It's like way easier from an administrative, you know, standpoint. So I mean, I think that like, that we have a high bar to live up to. Like we will sometimes have these investments where we're investing in like some kind of a liquidating trust where it's a tax disaster and like we'll get our K one in September and like, and so like we

• 1:15:09Speaker 02

  really are an administrative burden on our investors. So they're choosing us and like, and I feel like to make it a worthwhile investment, it's the S and P 500. And it's not just that it performs well. It's like easy for these guys. Right. To not have to deal with the K ones and like the liquidity and all that stuff. So yeah, like we never really. Like compare ourselves to like the value indices or the Russell or I don't know. I mean, I guess that like we have.

• 1:15:39Patrick O'Shaughnessy?

  Yeah.

• 1:15:39Speaker 02

  I mean, and there are times when like, you know, we obviously are gonna be more correlated to the Russell. So like in periods where like we, you know, we really suck, like, you know, we, you know, we might say, well, like the Russell sucked.

• 1:15:53Patrick O'Shaughnessy?

  Yeah, and we're value, value based.

• 1:15:55Speaker 02

  That could partially explain it, but, but, you know, but, you know, but they know that like we have 10 to 15 positions and that in any given year that it will be, you know, well driven by these, you know, idiosyncratic things.

• 1:16:09Patrick O'Shaughnessy?

  Yeah. How often do you have, or maybe the most recent time that you've made a major portfolio change, which I'm assuming your turnover is very low.

• 1:16:16Speaker 02

  Yeah, we, um, our biggest portfolio, like we sold, like we used to own a, a General Motors and we sold it. So, yeah, in the last three years, all of our big changes have been sells.

• 1:16:27Patrick O'Shaughnessy?

  Yeah, yeah.

• 1:16:28Speaker 02

  We really haven't bought a new core position in like in a long time.

• 1:16:32Patrick O'Shaughnessy?

  Is that value driven? Is it, is it a lack of cheap opportunities?

• 1:16:36Speaker 02

  I think so. I, I mean, I hope so. Yes.

• 1:16:38Patrick O'Shaughnessy?

  Yeah.

• 1:16:39Speaker 02

  I mean, I view it as it's lack of, of productivity on our part, but hopefully the reason that is the case is because there's not compelling ideas out there.

• 1:16:49Patrick O'Shaughnessy?

  So I'm gonna close with a few kind of fun, quick questions.

• 1:16:53Speaker 02

  Sure.

• 1:16:53Patrick O'Shaughnessy?

  The first of which is, what is the kindest thing that anyone's ever done for you professionally?

• 1:16:58Speaker 02

  Definitely Arthur Levitt got me into Columbia Business School. So I applied there. I like, I did the interview. After I got in, I think it was like the first week of school, the dean of, I think it was the dean of admissions, called me into her office and, and basically explained like, we wouldn't have let you in. Except like for Arthur. Um, which is like, which in hindsight, like, you know, I mean, I think, well, her telling me was, I mean, I'm glad that she told me, like, I'm, like, I'm glad I knew. It did, you know, will motivate me like I suppose like to make me resent them. I was, you know, like, and I'm incredibly grateful that they did it because, you know, going to that school has been extraordinarily good to me. But then, at the same time, there's

• 1:17:42Speaker 02

  a part of me that like, that's like, you know, they should be taking more people like me.

• 1:17:47Patrick O'Shaughnessy?

  Right.

• 1:17:47Speaker 02

  I mean, I had the aptitude to go there by like a wide margin. I just didn't have

• 1:17:52Patrick O'Shaughnessy?

  The resonance.

• 1:17:53Speaker 02

  Like the business background.

• 1:17:54Patrick O'Shaughnessy?

  Yeah.

• 1:17:54Speaker 02

  And so like, like a part of me is like, well, you know, like they should take more people like me, you know, but, um, but yeah, like without him, like I wouldn't like have gotten in there. I mean, you know, at the same time that I applied to Columbia, I got rejected by NYU. And, um, you know, those were the two schools I applied to. So it was a, it was, well, you know, well, real proof that, that Arthur, you know, did get me in.

• 1:18:18Patrick O'Shaughnessy?

  You mentioned that at Columbia, um, in Greenblatt's class, you felt like you just got some of the stuff faster than other people. So maybe this is the answer to the question, but I'm curious that if you could isolate one skill or, or skill set, um, that you feel you're just better, you have more aptitude that, that drives a lot of your advantage, what would it be?

• 1:18:37Speaker 02

  I don't know. I mean, if I have a skill set that is above average, it's above like, like average for the general population, probably not like above average for, um,

• 1:18:48Patrick O'Shaughnessy?

  Right. The paradox of skill.

• 1:18:49Speaker 02

  For hedge fund managers.

• 1:18:50Patrick O'Shaughnessy?

  That Mobison talks about. Yeah.

• 1:18:51Speaker 02

  I mean, I think I'm good at big picture thinking. I think I'm a good writer. Like, I think I'm a good, you know, written communicator. I think those are things that like have helped me professionally, but I'm not sure that they make, like if we're talking about above average in the peer group, I think, I think like I'm pretty, you know, average in the peer group.

• 1:19:12Patrick O'Shaughnessy?

  Given that we, uh, we first met each other because of your book and we're both, I think, pretty voracious readers, or at least have loved books throughout our lives and both writers as well. Every one of these kind of podcasts has the interviewer ask people for a book recommendation. So I'm going to try to do it a little bit differently just to keep it more interesting. Not so much just a, a one book recommendation, but if you somehow had the power to force everybody in the world, uh, to read one book, what would it be?

• 1:19:42Speaker 02

  Interesting. I mean, so like I have thought about this some, and I think. Yeah, I mean, like, I think the big issue is, you know, like, I'm forty one years old. You know, when you're forty one, like, every book is a baby step. Right? Like, there's no one book that you can read when you're forty years old that, like, is gonna have a profound influence, I think. I just think, like, it all, you know, will feeds, like, the way that you see the world in a positive way. But, I mean, I read Anne Rand in, like, the tenth grade, and it had a profound impact on me. Even though, like, within three years, I had completely, like, rejected everything that she said.

• 1:20:23Speaker 02

  It was like, you are just, like, at that age that books have a profound impact. So, like, I think the way that, like, that I read now is very different from, like, in high school, like, you're, like, this.

• 1:20:36Patrick O'Shaughnessy?

  Sponge.

• 1:20:37Speaker 02

  You know, yeah, well, sponge, and you know so little.

• 1:20:42Patrick O'Shaughnessy?

  Yeah.

• 1:20:42Speaker 02

  Like, that everything, like, affects you in a huge way. So, all of those books, all of, like, the books, like, like, that, like, have a huge impact on the way that you see the world. Like, you have to, like, to read at that age. So, I don't know, I, I mean, I love a lot of books, well, now, but they don't. Like, but every book is just, you know, like, you know, like, a small change on you now, and it just, it depends on, like, on who you are. So, like, I don't really have an answer.

• 1:21:11Speaker 02

  In terms of business books, I guess, like, when people ask me, like, investing-wise, is that, like, I do always, uh, push the, the Snowball. Like, I feel like, A, it's.

• 1:21:22Patrick O'Shaughnessy?

  Great book.

• 1:21:23Speaker 02

  Yeah, and it's weirdly, um, you know, well, under the radar, even among the Buffett devotees.

• 1:21:30Patrick O'Shaughnessy?

  Yeah.

• 1:21:31Speaker 02

  And I think that book is more valuable than, like, I think, like, a, like, a, like, a young, like, investor coming up now will, will get more from the Snowball than from the Intelligent Investor or Security Analysis, or.

• 1:21:46Patrick O'Shaughnessy?

  Kind of like a lot of, uh, aspects of your story that we've heard today. I think there's huge value in the Snowball, in just understanding the stages and hardships and hard work. And you know, strokes of good luck and all the things that go into what, you know, looking back seems like an inevitably great career.

• 1:22:03Speaker 02

  Yeah.

• 1:22:04Patrick O'Shaughnessy?

  Um, it's, it's very hard to, to be successful as a, as a fund manager. Um, and a lot has to go right. And I think Snowball, I think Snowball is probably the best example of understanding that journey.

• 1:22:16Speaker 02

  Yeah.

• 1:22:16Patrick O'Shaughnessy?

  Um.

• 1:22:17Speaker 02

  Yeah, I mean, I mean, I think it's a significant achievement and I think it does exactly what Buffett, you know, wanted the book to do. And I think it's a real shame that he's divorced himself from it because I go to the Berkshire meeting every year, but, but this year was the first year that I did the book circuit.

• 1:22:36Patrick O'Shaughnessy?

  Hmm.

• 1:22:37Speaker 02

  So I went to all these book events and the Snowball was invisible from them. And when I talk to young people, like a lot of them have read the Lowenstein and like not the Snowball, like the Lowenstein book is good, but like to me, it's completely unnecessary, especially if you read the Snowball. And the Snowball just has incredible access and it's just, um, it gives you such a better feel like for how much like of an anomaly, you know, Buffett is, but also for like, for how he thinks and what drives him. It's a, it's a shame that it's not like the profile book at the meeting every year. It should be.

• 1:23:14Patrick O'Shaughnessy?

  Last question. If you could hear anybody else interviewed like this, who would it be?

• 1:23:19Speaker 02

  That's a good question. I mean, you know, like I'm always fascinated by people who are productive, but have like diverse interests, you know? So like, I really liked this guy, Tyler Cohen, like he blurb my book, but he's interested like in lots of different stuff.

• 1:23:34Patrick O'Shaughnessy?

  Is that the marginal revolution guy, the guy George Mason?

• 1:23:36Speaker 02

  Yeah.

• 1:23:36Patrick O'Shaughnessy?

  He's great.

• 1:23:37Speaker 02

  Yeah. I don't know how he does it. I mean, you know, well, how does he have time? I mean, how does he organize his day to, to cover that much ground? I mean, yeah, like I think that ultimately, and I think like a lot of, of fund managers like, like, like are kind of interesting people. I think Klarmann, Cliff Asness, well, guys like that, like they're well-rounded and, and sophisticated thinkers. Like, I mean, I think ultimately when you get, you know, writers or, you know, well, people who like you might have a little bit of a more narrow interests, like, like you might learn less from guys like that than like from people like that, you know, will really, you know, cover lots of ground.

• 1:24:16Patrick O'Shaughnessy?

  Yeah. Interesting. Great. Well, thanks so much, Jeff, for doing this.

• 1:24:20Speaker 02

  Cool. Well, thanks for having me.

• 1:24:21Patrick O'Shaughnessy?

  My first recording and it's been a blast. So I appreciate it.

• 1:24:23Speaker 02

  Great. Well, thank you.

• 1:24:27Patrick O'Shaughnessy?

  Hey everyone, Patrick here again. To find more episodes of Invest Like the Best, go to investorfieldguide.com/podcast. If you're a book lover, you can also sign up for my book club at investorfieldguide.com/bookclub. After you sign up, you'll receive a full investor curriculum right away, and then three to four suggestions of new books every month. You can also follow me on Twitter @Patrick_OShag, O-S-H-A-G. If you enjoy the show, please leave a quick review for us on iTunes, which will help more people discover Invest Like the Best. Thanks so much for listening.