In Good Company with Nicolai Tangen - HIGHLIGHTS: Paul Singer

Starting point is 00:00:00 Hi, everybody. Tune into this short version of the podcast, which we do every Friday. For the long version, tune in on Wednesdays. Hi, everybody. I'm Nicolai Tangen of the Norwegian Sovereign Wealth Fund. And today, we are hosting an investor legend, Paul Singer, who founded Elliot Asset Management and probably the most important activist investor in the world. Paul Ormelkomm. Thank you. What is activist investing?

Starting point is 00:00:29 Activist investing is taking a position largely in an equity security of a company and trying to engage with the company to improve outcomes, control or influence outcomes, better outcomes to unlock value. It could be management changes that are requested. It could be capital structure changes, finance strategies and tactics, anything that will make the company earn more money, be better positioned, more rationally deploy assets. Why do you have to do this? Don't companies do this themselves? Well, as you know, the trend away from active investing, and by active investing,

Starting point is 00:01:16 I don't necessarily mean activist. Active investing just means you open the mail from the company in which you invest, you try to figure it out, you try to understand the company's strategy, and maybe you'll call the company up and lob in some suggestions. But active investing is next to passive investing or index investing. Index investing now accounts for a plurality of money that's managed, particularly equity money around the world. What's the ratio of successful outcomes versus not so successful outcomes?

Starting point is 00:01:55 Well, since I'm going to define successful as we get a meaningful percentage of what we ask for, and the stock reflects it, not just in 20 minutes, but I mean, you know, over a period of time, that we actually, our ideas actually add value. It's the only way we can maintain our reputation that gets the stock to say, oh, Elliot's in this, here's their thesis, nobody else has been able to unlock that key, the stock is worth more. And of course, it's not a question of short-termism because the actual short-termism doesn't add value to anyone really. But it's not short-termism when the market instantly, overnight or in a couple of days or a few days,

Starting point is 00:02:46 understands that you are adding long-term value. You're adding enterprise value. The strategy is better. Your ability to compete is better. And in what proportion of the cases do you think you are adding value if you measure it in that way? Well, the proportion of cases in which we're adding value is, I believe, close to 100. The proportion of cases in which it's reflected in action, movement of structure, capital structure, et cetera, directors, is probably, this is just a guess.

Starting point is 00:03:23 But it's a majority. It's like 70%, something like that. What are the characteristics of the investments which don't go the way you want? Do they have something in common? The worst trades are the trades that you misunderstand the risk. You put it into the wrong category. The one that's moderately horrifying

Starting point is 00:03:48 is a peer who will remain nameless sold us a late stage bankruptcy in a de-inking plant somewhere in the northern United States. Late stage denotes the risks are mostly gone in a complicated workout, bankruptcy process, and the de-inking was their business. Waste paper and you're going to de-ink it and use it again, and that's good for the environment, it's good for the human race, it's good for the galaxy. Suffice it to say that it wasn't late stage. There were important bankruptcy elements that hadn't been settled, and the de-inking plant didn't really work.

Starting point is 00:04:36 So aside from hating the person that sold it to me, it's just a mistake. And we lost. It wasn't that big a position, but we were much smaller. You talked about your father. Are you still trying to make your father proud? I appreciate he probably is not alive anymore. You know, he was proud of me no matter what, to be perfectly candid about it.

Starting point is 00:04:59 No, I'm not doing it to make my father proud. No, I keep doing it because I think we do it well. Is it fun? Are you having fun? No. You're not having fun? You don't think it's fun? Oh, I don't think it's fun.

Starting point is 00:05:13 I think skiing is fun, snowmobiling is great fun, sailing is fun. You're 80, and so if you don't think it's fun, why are you 80 years old? No, no, no. You've done it for 50 years, you're one of the most successful people ever. Why do you continue to do it if you don't think it's fun, you're 80 years old, you've done it for 50 years, you're one of the most successful people ever. Why do you continue to do it if you don't think it's fun?

Starting point is 00:05:28 I get this question. I get this question. And the reason I basically, this is a little different, this format, but the reason I basically get this question is that I dig in. I'm enthusiastic about it, I get into it, it can't be boring. If you think about what you read about in the newspaper, which is largely distorted, counter-theft-ically,

Starting point is 00:05:55 you say, wow, they're doing all kinds of different things. There's no cookie cutter thing at Elliott. So there's challenges and sometimes it's, we never have a position profit celebration. Never. You never celebrate success? No. I mean, we, you know, hey, well done in an email. No cake, no champagne. No cake, no champagne. No, no, no, no. But what I want to say on this topic of fun is you can't get bored by not losing serious money. The reason for burnout is sharply diminished.

Starting point is 00:06:40 You know, that's what happens. I mean, it's not just horrible divorce or terrible tragedy in the family. sharply diminished. That's what happens. I mean, it's not just horrible divorce or terrible tragedy in the family. It's burnout is, I think largely, people just are drained of emotional energy by adversity. And you can't predict markets. So that's another dominant cause of me seeking never to lose money.

Starting point is 00:07:08 Because if I want to be risk averse, I have to be risk averse all the time. What are the state of stock markets today? Just about as risky as I've ever seen. I think the long period of time since the last major market event has lulled people into thinking that they'll always be bail bear market of 1974, 1987, 2008, 2007, 2008. Leverage is building and building. Risk taking is building. Those statements apply also to governments. It's absolutely astonishing, this NERP, the negative interest rate policy in Europe

Starting point is 00:08:13 and Japan and Switzerland, and ZERP for what, 10 years in the US? It's crazy, it's crazy. And in the pandemic, you added to ZERP, you added these shockingly high spending deficits. We're talking about deep recession type spending programs, spending deficits, support programs, at a time when there was no real recession. I'm talking about,

Starting point is 00:08:54 I'm actually talking about during COVID also, but after COVID, you know, this year, this fiscal year, over 6% in the US, 6% of GDP deficits. percent in the US, 6 percent of GDP deficits. So I think this, and valuations, this AI is way over its skis in terms of practical value being brought to users. I mean, there are users and there will be additional uses, but it's way exaggerated. What is your advice to young people? My advice to those people has been and is unchanged over a long period of time, that I value a broad, classic liberal education. They should not take business courses in college. They should take as much history, political science, philosophy, religion, as they can

Starting point is 00:10:02 fit in. So what I try to convey is you can specialize in business, the tools of business and trading. I mean now hedge funds, private equity, venture capital, you know, high tech, whatever. I mean that's the golden goose. But in all of that, what comes out if you specialize too soon, you get this narrow, deep skill set and you're not equipped for the things that are actually happening in the world.

In Good Company with Nicolai Tangen - HIGHLIGHTS: Paul Singer

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