We Study Billionaires - The Investor’s Podcast Network - RWH003: How To Win The Investing Game w/ Joel Greenblatt

Starting point is 00:00:00 You're listening to TIP. Hi there, I'm really excited about today's episode. My guest is Joel Greenblatt, who's one of the most successful hedge fund managers in history. Joel famously set up a hedge fund when he was 27 years old and then managed to average a return of 40% a year over the next 20 years. At that rate, a million dollars turns into $836 million, which I think you'll agree is a pretty mind-blowing achievement. I wrote about Joel at length in my book, Richer, Wiser Happier.

Starting point is 00:00:30 And what really struck me is that he has this incredible gift for simplifying the game of investing. Nobody I've met thinks or talks more clearly and logically about how to play this game successfully. One reason for that is that he's not just a great investor. He's also a superb teacher. He taught a value investing course at the Columbia Business School for over 20 years, and he's also written several best-selling books about the art of investing. I think that process of teaching and writing really helped him to distill in a wonderfully clear and simple way what works in investing and what doesn't work. There's also one other reason why I'm particularly happy to be interviewing Joel in this episode. As I'm sure you'll see, he's just a lovely guy who's extremely modest and decent and good nature.

Starting point is 00:01:18 It's really impressive to me how humble and grounded he's managed to remain despite all of his success and fame and adulation. Personally, he's just one of the people I like and admire most in the investing world. In this conversation, we talk about how he deals with the emotional intensity and stress of investing. We talk about the importance of playing games that you're truly equipped to win and the importance of avoiding games that you're not equipped to win, about how he invests his own personal fortune, about what he's learned from studying Warren Buffett and more important, I think, from meeting Buffett in person.

Starting point is 00:01:53 I hope you enjoy our conversation as much as I did. Thanks so much for joining us. You're listening to The Richer Wiser Happier Podcast, where your host, William Green, interviews the world's greatest investors and explores how to win in markets and life. Joe Greenback, it's such a delight to be here with you. It's always a great pleasure to speak with you.

Starting point is 00:02:26 And it's been a while. The last time we chatted was for my book when I interviewed you a couple of years ago for Richer Weiser, happier. Thanks for having me here today. I appreciate it. Thank you for coming. One of the things I wrote about you in my book is I described you as a kind of code

Starting point is 00:02:40 breaker who's drawn primarily to the intellectual challenge of beating the system, that it was never really so much about money. You loved solving puzzles, figuring out different ways to win the investment game. I assume you kind of enjoyed the money too, but I wanted to start by asking you about a few different strategies you've come up with over the years and what we can learn from you about these different ways of winning the game. So I thought we should start with your first winning strategy of really being super concentrated, which you used back in the 1980s after you founded Gotham Capital. And you famously made 40% a year

Starting point is 00:03:14 over 20 years with that strategy. And it's really what made you a legendary investor. So I wondered if you could talk about what the strategy was, why it was so stunningly effective, but also why it's so difficult to execute, not just analytically, but presumably emotionally, given the enormous volatility when you own such a concentrated portfolio? Well, I appreciate the question, and I'm going to have to try to pick that apart a little bit. You know, I started out, my first job on Wall Street, full-time job anyone, was doing risk arbitrage, and, you know, that's merger arbitrage. And basically, when the deal goes through, as I told you before, you make a dollar or two,

Starting point is 00:03:53 but if it doesn't go through, you lose $10 or $20. And that wasn't a very appealing risk-reward business for me. So I ended up looking around the sort of the perimeter of the deal, you know, when there were different pieces of paper given out or there was a company spin off before the deal could get done, whatever, anything that could get me out of risk arbitrage and into something else. And turned out when companies are going through extraordinary change, there's a lot of interesting things that happens. Sometimes they're complicated. Sometimes little things get thrown away. You know, there's all kinds of different things. And I started looking at all these different areas because the risk rewards were so much better. So one of the things, you know, they happen a lot, but there's not, you know, hundreds of things you can invest in all at once. So if you examine a situation, a special situation that something extraordinary is happening in a business and it's complicated or it's obscure or not everyone's looking at it for whatever reasons because, you know, the regular analyst who follows that business doesn't really care about this little piece or whatever it might be. you actually can almost not invest or even gamble. It's kind of like cheating where you know what something's worth. No one else is looking at it. And if you can buy it for a lot cheaper, it doesn't feel that risky to you. It's like, okay, I think it's worth 10 bucks and I can pay five. So if I'm wrong and it's

Starting point is 00:05:10 only worth seven, you know, that's Ben Graham's margin of safety. I can buy a lot of that. And I think we talked about years ago, basically, I didn't size my positions based on how much money I could make. I took bigger positions. You're able to take bigger positions and things you can't lose much money in. You know, if something's got. Yeah, I remember you telling me you put 40% of your assets roughly in one bet when there was the post-marriott split, the spin-offs. So you were incredibly bold when you really thought there was a massive margin of safety.

Starting point is 00:05:37 Well, even in that one, I don't think, I didn't feel that I was being bold. I felt like I had an opportunity that doesn't come along that often and I had to take advantage of it. And so in the host Marriott situation, which was a spin-off from Marriott, it split it to two businesses, one was bad, which was called Host Marriott, which owned a lot of real estate and debt. But the capital structure was set up so that there was a piece of the business that wasn't, the debt was owed by a subsidiary. So the parent company, which was host Marriott, didn't really have effective debt on the company. They had assets that were asset specific, like a mortgage on a building or something, but they didn't have debt for the overall company. So actually, I paid $4 for what I thought was $6 worth of assets

Starting point is 00:06:22 that were unencumbered by debt. Plus, there was a whole other business that was encumbered by debt, but it was in a subsidiary that could be worth a lot of money. So when I paid $4 for something that was debt-free, a debt-free $6 plus a lot of other stuff, I didn't think I was taking a lot of risk. I thought that, wow, I just don't think people see this. This is super complicated. And I better take advantage. And it's kind of like finding one of the best things you've ever seen, but putting one or two percent of your portfolio into it. That's not getting it right.

Starting point is 00:06:55 That's getting it wrong. That's saying, I don't see this very often and now I didn't really take advantage of it. So I made an extra half a percent or something like that. You know, you really have to take advantage of it. I don't know that 40 percent was the right number. It's true that I did that. I think I'm a little older, wiser and seen much worse, crazy things happen where I've actually made many mistakes. You know, I have a partner, Rob Goldsinger, join me in 1989. And we've joked many

Starting point is 00:07:19 times during our careers that if we worked for someone else, they would have fired us like six times already. So you make mistakes. And so 40 percent, maybe I popped a number someplace and maybe I got the analysis wrong. That's true. But I did do that. You're right. You called me on that. And I'm not sure I would have done it that big, but still big. When you think of the biggest mistakes that you made, not just in those early years, I remember you saying to me that actually, you didn't have that many disasters other than obviously the wonderfully amusing story of Florida Cypress Gardens. Well, you tell the story.

Starting point is 00:07:51 What happened to Florida Cypress Gardens? Well, the interesting thing, Hartford Brace Giovannovich, which was a publisher, but also owned amusement parks in Florida, believe it or not, went to buy a very small company called Florida Cypress Gardens, which I remembered as a kid going to and they had water skiing Santa Clauses during Christmas time and, you know, all kinds of water shows and beautiful gardens and was a very unique, interesting, and very memorable place to visit when you're five or six years old. And when I saw they were getting taken over, and this was literally in the first month, I went into business for myself.

Starting point is 00:08:23 And, you know, I was pretty nervous. I was 27 and I had gotten money from a very famous guy. And I wanted to do a good job. And I saw this opportunity where Florida Cypress Gardens was being taken over. And there was a nice spread in that deal where I could make a lot of money if it went through. And I thought the deal made a lot of sense at the time. And so I was able to have a big smile on my face and buy Florida Cypress Gardens as one of the first investments I made when I went out on my own.

Starting point is 00:08:47 And a few weeks before the deal was supposed to close, unfortunately, Florida Cypress Gardens fell into what's called a sinkhole, meaning the main pavilions of Florida Cypress Gardens literally fell into a hole that appeared out of nowhere. And apparently that happens a lot in Florida. I wasn't that familiar with it. And thank God I wasn't that Florida Cypress Gardens wouldn't happen. But the Wall Street Journal wrote a really humorous story about it. And I was like, why is this funny?

Starting point is 00:09:10 You know, I'm about to lose my business. I had taken a pretty decent size bet in this deal. You know, so it just tells you things can happen that you don't anticipate that it's not really your fault. I had never even heard of a sinkhole before I read about this happening. So it's like a risk that I, when you're doing a merger deal, you're not really saying risk of sinkhole is in your checklist of things to look for. And so stuff happens.

Starting point is 00:09:34 Less kind words for that. It's good lesson to learn, especially out of the box. I was sweating pretty good. They ended up recutting the deal at a lower price, and I lost money, but not that terrible. And so I got a Howard Marx. My favorite line from Howard Marx is always, experience is what you got when you didn't get what you wanted. I always love that line, and that's what I got in Florida Cypress Gardens, some good experience. Yeah, it's a good reminder of just the sheer uncertainty of this business, which I think you've

Starting point is 00:09:59 talked about how you've seen that again with COVID, the idea that suddenly you could actually find that all businesses, all these businesses that you thought were pretty steady. compounding machines would close entirely for a year. Nobody could go shop there, for example. Yeah, I mean, I have five kids, a couple of which I've taught investing or tried to teach investing too. And, you know, I was trying to teach investing early 2020 when COVID appeared. I tried to explain, you know, I've been doing this a long time. I've never seen this, never anticipated anything like this. You know, I've never seen where they just closed down the world. And, you know, besides the terrible human cost, I'd never seen anything like this.

Starting point is 00:10:37 And I just tried to explain to them that I'm not going to be much help here. I've never seen this before. But it is a good lesson to learn that you have to be at least diversified enough and aware enough that really bad things can happen. And you have to live to play another day. It was probably the best lesson to learn that you can't put all your eggs in one basket. And you can come back from big mistakes as well. You know, I've made big mistakes with big positions as well.

Starting point is 00:11:04 And then bad things just happen. And part of what I always thought you get paid for in this business is kind of your stomach that what I enjoyed about getting into the business was if you think well and if you try to figure things out, it's not really a count how many hours you showed up thinking that. It's the quality of your thought. And in this case, it doesn't matter how well you thought, other things still can happen and understanding that. Understanding that bad things can happen and preparing to survive to play another day is

Starting point is 00:11:34 important. And so I think that was one of the best lessons. Of course, the market came back fairly quickly, so it wasn't, you know, as painful as it could have been. But we didn't know that at the time. I mean, I remember watching Warren Buffett at his annual meeting right in the thick of things, maybe at the end of March 2020. I think it was maybe April 1 or I don't remember, not far after COVID started. And he didn't look like this was nothing. And it was a little frightening to see because it was really staring at the unknown. And if you're looking at the unknown, one of the benefits of working for a long time in this business is a lot of it is gaining experience, seeing a lot of things, contextualizing things, comparing things to what's happened in the

Starting point is 00:12:18 past and what might happen. And this was fairly unique. So when you look back at those earlier where you had, I think, probably 80% of your assets in six to eight positions, do you think in In retrospect that you were maybe flying too close to the sun, that that was too risky and to some degree you got lucky? Or would you still do it the same way? Does that hyper-concentrated approach still make tremendous sense to you? Particularly now when markets have probably become more efficient, maybe there are fewer opportunities, they're more picked over.

Starting point is 00:12:49 Does super concentration still make sense, or is it problematic because there are just such risks that you'll get blown out of the game? Because we focus on a handful of winners like you or Nick Sleep, in case the These people who've had very concentrated portfolios, but I remember my friend Guy Speer mentioning a friend of his who had a one-stock portfolio and is now managing a cafe. There is a degree of survivor bias here. So I don't know, would you do it the same way again or was it too much risk? I don't consider six to eight names of making up 80% of your portfolio particularly concentrated.

Starting point is 00:13:21 One name for your whole portfolio, that's pretty concentrated. Once again, I pull out and I'm just going to be spitballing that I'm close here is that when Warren Buffett said, let's say you sell your business and you get a million dollars and then you look around town at a couple hundred businesses and picking six or eight that you can buy at a good price that are in good businesses with management that you think is going to do a good job and you did your homework. And then you divided that million dollars into six or eight businesses that you thought were the best and best price with good futures in town. And well managed, no one would say you're crazy because you're thinking of them as businesses. You divided your investment in its businesses.

Starting point is 00:13:57 If you think of them as stocks and pieces of paper that bounce around that you're going to get quotes on every day, and there's going to be some volatility involved as opposed to taking a three or five-year horizon in owning those six or eight different businesses. As a businessman, no one would think you're crazy. They'd think you're pretty prudent. You know, you took that million dollar windfall from your business and divided it in six or eight places. They'd say, hey, you're a conservative guy, but put a stock price on it every day. people change the analysis. You know, if you read finance literature, it's myopic loss aversion, you know, in other words, people don't like losing, at least getting a quote 30 to 40 percent down,

Starting point is 00:14:36 you know, and it's very big institutions invest in private equity, you know, and those are funds that invest in a small handful of businesses and they leverage them up. And no one thinks they're crazy. You know, what they do is they just don't mark down their portfolios the way the stock market does. They wait a few months, see what's going on and pick a numbers. that everyone's in on it. The person who bought it doesn't want to get their portfolio marked down and the person who's the manager doesn't want to mark down their portfolio. So I think it's kind of smooths the ride, even though they're buying leverage equity stubs in very concentrated portfolio. And everyone thinks those guys are basically geniuses and they make a lot of money. So I

Starting point is 00:15:15 don't see it any different. I just get a quote every day and I've got to contextualize that in the right way. You mentioned before to some degree as a money manager, you're paid for your stomach. for the strength of your stomach. And you also mentioned that you had a famous investor in that early funds. Some people here will know was Michael Milkin, who incredibly when you were, I think probably about 27 and didn't have a huge track record. And he was making something like $650 million a year back to you. Can you talk about the difficulty of managing money for outsiders? You obviously, after five years, you returned half the money. And after 10 years, you returned all of the money. So you were just managing your own money and your partner's money. And for a few families,

Starting point is 00:15:55 family members and friends, perhaps. Was the pressure that came from those periods where you would suddenly plummet because you had such a concentrated portfolio? How difficult was it to deal with having outside shareholders like a Michael Milkin or family members who suddenly would be like, oh God, my portfolio just went down 30% in a couple of weeks? How did you deal with that pressure? I would say not very well.

Starting point is 00:16:20 Luckily, we had done pretty well, actually in our first 15 months after I started in In 1985, first 15 months, we were up 140%. There was no worry that Mike Milken was going to come and yell at me for that. The problem was, is that after we had done so well, I started in April 85, so this is, I guess, July 1, 86, I call all my siblings and family members and say, hey, this is going pretty well. I think you should put your money in now. And of course, in the next six months through your end, I ended up losing 17% of their money. So they hadn't participated on the way up. I called them like everybody else, hey, this is going well. I think I can take your money now and I was down 17%.

Starting point is 00:17:00 And that was probably one of the most difficult things that I did, losing people near and dear to me money. And frankly, I never really worry about losing my own money. I figure life's long. I think I know what I'm doing. I'll make it back someday. But when you're worried about other people, they're not thinking that. They don't know what you're doing.

Starting point is 00:17:17 I mean, one of the reasons I can have a concentrated portfolio is because I understand what I own. So if something that you think is worth $10 went from $6. dollars to $5, that's just not that concerning. You still think it's where if you think you did your work correctly, it's not so bad. But when you're losing other people's money, it's a different experience and it's not fun. And you always want to do a good job. Just if you're wired to try to do well, it feels really, really bad. One of the reasons after 10 years gave back all the money was because I thought that I love this business. It was really fun trying to figure out the puzzles and

Starting point is 00:17:50 making money. And there was enough money to be made if you're just pretty good at it, have a long life, but the extra pressure of managing other people's money was a little bit too much. And I said, boy, I'm really silly to take a business I really love and make it something that keeps me up at night and that just wasn't working. That calculation wasn't working for me and I thought that it would take away a lot of the pressure. And the real answer to the question was when I gave back the outside money, did it do that? And the answer is it did about half of it. Turns out, still not fun to lose a lot of money for yourself, but not nearly as bad as when you're worrying about other people's money and they trusted you with it.

Starting point is 00:18:28 Have you ever figured out ways to handle your emotions and to become more emotionally resilient? Because I think of someone like Howard Marks, right, who we talked about before. Howard, I think is he says that he's a worrier, but I think also he's not super emotional. I always felt like when I was with him, it felt like being in the presence of a most superior machine, you know, with about 50 more IQ points than I had. And when I think of someone like Charlie Munger who said to me at the bottom tick in March 2009 when he was buying Wells Fargo, he didn't feel any emotion, any fear. And I was wondering if you were wired that way yourself not to be too anxious, kind of focused

Starting point is 00:19:05 on odds, or if there were things that you had to do to get your emotions under control during these very rocky periods? Yeah. So I think what you're alluding to is to be a really good investor and have a strong enough stomach. Do you have to have a screw loose someplace to be able to handle it? And I think the answer is yes. You have to have a little bit of a screw loose to be able to take those risks.

Starting point is 00:19:26 On the other hand, I do feel the kick in the stomach when I lose a lot of money, but I usually adjust to it in two or three days, try to get my wits about me to take advantage of the opportunity. So I think I'm human, at least in that part, where the kick in the stomach, but you kind of get used to it. So I think different parts of your career are different. When you're young, you figure you have time to make it back. When you're older, you maybe have the experience to know that it will come back. And I've seen this before and I've seen it not only once, but many times.

Starting point is 00:19:55 And so what do you do here? I'm not saying you can completely defeat the emotions that are involved in. And those emotions are very strong. But I do think, at least for me, being able to adjust and count your blessings fairly quickly and say, okay, can I live with where I am now? Yes, let's move forward and try to do it the right way. One of the best experiences I had was when I had a summer job and a friend of mine was working for actually the head of risk arbitrage at Dressel.

Starting point is 00:20:25 And the guy running that department was about 72 at the time, which I thought was ancient now. I think he was a youngster. But I forgot why I had an opportunity to talk to him, but either we were taking a walk someplace or whatever. And I was saying, you know, I was so upset that I lost money in this thing and how unfair it was. and this thing came out of the blue. And this gentleman turned to me and he says, well, have you ever made money where, you know, you were kind of lucky? And, you know, it turned out better than you expected.

Starting point is 00:20:54 And I said, yeah, that happens a lot. He said, well, does it happen more than when the bad things happen? I said, yeah. And he said, we'll stop complaining. And, you know, it's a good way to contextualize. You know, if you didn't take risk, you couldn't make extra money. You can put your money in the bank and only take inflation risk or whatever that might be, but at least you know what you have.

Starting point is 00:21:12 But one of the reasons you're able to make money is that the stock market gets very emotional sometimes, creates these opportunities, but it also comes along with pain. If it didn't, everyone would do it. And you wouldn't have this opportunity. And of course, I'm saying something now not in the heat of the moment that sounds very logical. But eventually you get there. Eventually, when bad things happen in a few days, if you can get your sea legs back and start thinking, okay, where are my opportunities?

Starting point is 00:21:42 what can I do? Can I trade around in my portfolio? Is there a new opportunity that came up that's maybe better than what I have? And that's been the case. So I think good investors maybe still get kicked in the stomach, but then come back soon enough to take advantage of the opportunities that come there. I think big, big picture, you have to have a little bit of a screw list to take the pain, especially with a very concentrated portfolio that a number of people I know pursue. I did it for a number reasons. When I'm looking for really what I would call unfair bets, I don't have 50 or 100 unfair bets at a time to take. So by necessity, when I was running a very concentrated portfolio, take six or eight of them and just have a very fine. I think you have to have a very high hurdle,

Starting point is 00:22:24 meaning, well, to get into the portfolio, it has to be really great. And if you own six or eight great things, or at least great bets, that's more comforting if you actually know what you own. If you don't know what you own, if you don't know how to value a business, you're just going to react to the emotions because you don't actually understand what you own. But if you actually understand what you own and the premise that you bought those things with is still intact, that's actually the only way I think you can deal with the emotion because you realize it's what you own is still good. I also wonder if at some level you were always a gambler at heart from your early days of going to sneak into the dog track. There was something about figuring out odds and probabilities and asymmetries. Can you talk about that? Because that seems to be such an essential part of your character and the way that you think.

Starting point is 00:23:12 I look at people like Howard Marks as well who just thinks probabilistically. And I just think, oh, God, is the future going to be okay? Am I going to be all right? And there's this sort of generalized worry or optimism. Whereas it seems like people like you and Howard are really calculating the odds in a very conscious, rational way. I think the answer your question is both. Wasn't really calculating odds at the dog track.

Starting point is 00:23:35 I just liked gambling and this was a chance to do it and have something to root for and then I just find fun. With investing, that probably would get old very quickly, that thrill to gamble, especially when you end up losing, which I did in the dog track. But I think good investors, most good investors are always calculating the odds. Once again, at least if you're looking at stocks or security selection. you have to be able to value something and feel that your premises are right or that you've made very conservative estimates.

Starting point is 00:24:08 And then if you can buy it a discount to that or at a fair price relative to that and you love the business or something along those lines, then it becomes less of a gamble and more of a calculated risk. And so I think that's really the way you think about it. Like I can't, Ben Graham called it like speculation rather than investing. Bitcoin is never going to earn any money. Gold, never going to earn any money. So therefore, it's not earning money now. It's never going to earn any money. So to me, it's a speculation. I have no intelligent way to value it. So I'm not saying people won't make money speculating

Starting point is 00:24:42 in Bitcoin or gold. It's alien to me as an investment because I can't value it. It has no inherent value. It has no earnings. Do you own any Bitcoin in North? Sadly, no. I, I, number one have been wrong in the sense that I didn't think it would get to these heights. And once it's here and it becomes accepted like gold or something like that, all bets are off. I don't know. On the other hand, sticking to what you know is like a very important lesson. I don't feel bad about it. I mean, if you have other friends, I went to Wharton. So I have friends went to Wall Street. I mean, when I graduated school, almost no one went to Wall Street. They went to consulting, whatever. Wall Street hadn't gone up in 13 years. The market hadn't gone up. And not many people.

Starting point is 00:25:26 people left, but the people who went, I talked. And I know there were friends who always told me about their winners and what they did right and everything else. And basically stop talking to those people because it's a big world out there. And of course, you're going to miss thousands of things that would have should have bought. But, you know, if you're just concentrating on the things that you're working on and they do well, that's really what you have to realize. Bitcoin I'd thrown, as Warren Buffett would say, the true heart pile. Why should I look for the one-foot hurdles? That to me is a 10-foot hurdle. I don't know how to value it. I feel disciplined that I didn't play. When you look at the behavior around Bitcoin, the kind of, I can't think of a better

Starting point is 00:26:02 word than zealotry, you really see this intense belief. It's almost like a religious belief in Bitcoin among a lot of the owners. Is there something that's fundamentally changed here, a new paradigm where there really is something new, where this is like in the late 90s where we suddenly realized that these dot-com companies, even though there was a bubble, there was something real that was going to change our lives? Or do you look at Bitcoin? and the other cryptocurrencies and think it's the other side of 1999, 2000, that it's just another outbreak of irrational exuberance and this is just how people get. And I'm honest, it's totally honestly, I'm agnostic here. I don't know.

Starting point is 00:26:39 Yeah, you're kind of asking the wrong guy. I'm in your camp. I don't know. And I've been around long enough to know that I don't know most things. I know a few things. And so I stick to investing in the few things that I know. People have tried to make a case for me, for the various uses for Bitcoin or why it should stay. And I can't say I'm completely dismissive. I'm not completely dismissive. I'm saying, gee, I really can't figure this out. I have no basis on which to say it's going to go higher or lower. I would have to admit that certain art is very nice and maybe valuable and will continue to have value, you know, from really good painters and other isn't. Other pieces of art aren't, or even things that are expensive now may not be

Starting point is 00:27:28 good investments. And, you know, it's in the eye of the beholder. I don't really know, you know, there's all kinds of arguments for Bitcoin. Well, there's plenty of other cryptocurrencies. So, is there a limited supply? Is there not a limited supply? Bitcoin actually has a name. And so it's a brand. So maybe that stays. And maybe it stays like some of the great impressionists develop a name and they keep their value over time and they do become a kind of currency. I don't know. Do your kids nag you about this? I remember my daughter, Madeline, at one point saying, you, Dad, why don't you own Bitcoin? And I, you know, I remember Howard Mark's son telling him, you need to own Bitcoin. It was, Howard, I think, did kind of open his eyes a bit and say,

Starting point is 00:28:08 yeah, maybe there's something I'm not understanding. And I'm wondering if this is a generational thing where you see pressure from your kids' generation to smotten up and become, open your eyes and and the sort of OK Boomer kind of attitude towards our sold focus? I definitely feel OK Boomer in many areas, but I'm not going to invest in an area that I know very understand little about, not very good at predicting. If I have other choices where I do think I understand the game, I think I'm going to stay there and I don't feel bad. One of my partners does a lot of computer work for us as a computer programmer.

Starting point is 00:28:45 And I think for his wedding, he got too big. I think when they were at $60 each. I think he still has one of them. So it's not like I wasn't exposed to this pretty early on. It's just not my game. So there's not much I can teach my kids and I admitted that upfront. I think there's a really powerful lesson there to teach your kids, which is just the discipline to play games that you're equipped to win.

Starting point is 00:29:08 And that seems to me from all of the interviews that I've done with so many great investors over the years, that's so consistent, that discipline to stick with games where you have an advantage. I think that's true, but also not crazy in my mind if you want to play these games to put a small portion of your portfolio, maybe to learn, maybe just in case you're not seeing something. I go to the casino and maybe I'll lose a couple hundred dollars. After that, I feel bad. I know the odds are against me. I'm not counting cards. And so it's fun to see and look around. And if you limit it to one or two percent of your portfolio, do whatever you want. I'll have a good time.

Starting point is 00:29:45 And maybe you'll learn something. I don't know what to say. But I still consider that discipline, meaning doing with the other 98 percent, you know, what you know how to do. I'm not looking down my nose at anyone who tries something new. It's kind of the way you learn. I think you just have to size your bets appropriately for speculation. And that's all.

Starting point is 00:30:03 So I don't want to be extreme and say, I'll never touch that. I'm so disciplined. I just, I want to be extreme in saying, never going to touch that with money I care about. This is my fun money or whatever it might be. Then maybe I'll learn something and maybe it'll be a lottery ticket. I don't know. I have a couple of venture capital investments that I've made that I know are probably stupid, but in their areas I'm interested in learning and seeing what happens and there's nothing

Starting point is 00:30:30 like having money on the line to see what happens there. And so I'm still, A, hopeful that things work out and, you know, I'm invested in a, a very small battery technology company that I think may change the world and likely will go bankrupt. That's going to be fun to watch. And of course, I'm not going to put a big part of my portfolio in it, but I think it's fun to learn in that area. And so there's if you contextualize things correctly, if you size them correctly, I don't want to make any hard and fast rules about anything. I know enough about that. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer.

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Starting point is 00:35:15 of special situations, unfair bets, things that were kind of one-foot hurdles that other people weren't looking at. And it struck me in some ways that the second great mouse trap, if I'm thinking about this correctly, was when you started to shift towards better businesses, at least as part of your portfolio, which I think that evolution happened around 2000 when you reverse engineered what Buffett had done with Coca-Cola and said, well, wait a second, maybe I can do the same thing with Moody's. And I wondered if you could talk a bit about that evolution and what you learned from Buffett about what makes a company great.

Starting point is 00:35:50 What made you start to think maybe actually instead of just buying these ultra-cheap companies, Maybe there's another way to play this game that is also really effective. Right. So just to change that, you know, even reading enough Buffett, you know, and following everything he does, really, even before 1990, I would say I wanted to buy good businesses. I was just cheap, but I wanted everything. And one of the reasons that I downsized my business after five years and then gave back all the outside capitals because I wanted to own both cheap and good.

Starting point is 00:36:24 And it's too bad. If I can't find that much of this, I'm just going to give back money and just stay in cheap and good. I didn't understand good. And I think you properly bring up, well, when could I pay what in my mind was a lot of money or fair value for something in a good business? And that's what you're bringing up. Moody's was one of the first that I was willing to pay over 20 times earnings for.

Starting point is 00:36:47 At that time was a lot because interest rates were much, much higher. It was one of the best businesses out there because it took no capital. and they had a brand and a franchise, and there were only a few people. There were a lot of good things about Moody's. I actually love the business. Went back and reverse engineered, as you suggested, Buffett's purchase of Coca-Cola. I believe that was in 1990 or so or whatever it was. Went back to look at what he paid and made adjustments for the differences in the businesses.

Starting point is 00:37:17 For instance, Coke had to reinvest some of its money to grow, and Moody's really didn't. So you got to keep more of your earnings in Moody's. So I was willing to pay a little more and made an adjustment for that. Just sort of went to see what am I actually paying for Moody's today relative to what Buffett paid for Coke where he kind of quadrupled his money in the next five or eight years, whatever it was. And I thought any percentage of that would be pretty good for me, especially if I thought this was that kind of business. It turned out that if you want to put apples to apples, he paid $10 for Coke. When I made all the adjustments, we were paying $13 for Moody's on this equivalent basis. But if the $10 was going to quadruple, 13 going to 40

Starting point is 00:37:59 was also pretty good as opposed to 10 going to 40 and thought that that was a reasonable premium to pay because these quality businesses that you can buy anywhere close to what you think they might be worth buying. And so, you know, just comparing things, it was such a great model to use to get me into paying up for great, great businesses. So in a sense, it's a beautiful example of cloning at work. The strategy I talk about in my book from Monish PowerBry, where you really reverse engineer what someone who's smarter, wiser, or more experienced is figured out. And you say, ah, I don't need to reinvent the wheel. That's what they were thinking. Yeah, I think, you know, sometimes original thinking is

Starting point is 00:38:36 overrated. I'd rather think like this one of the smartest guys in the world who's been the most successful in my area. And if I can copy that, seems like a reasonable thing to do. And so I agree with you. You were in some sense studying Buffett from afar for many years, but I I think I'm right in saying that you didn't meet him until much later when you went to visit him with a class that you were teaching at Columbia. And I was wondering if you could talk a little bit about that experience and what you learned from actually being in the presence of the master that you couldn't necessarily learn just from reading books about him or reading his annual shareholder letter. Well, I'll tell you, I learned about myself that I'm incredibly shy because I had been looking forward to this for a long time. And so I was a little more reserved that I wanted to be at that time meeting my idol in my business and in many ways the way he leads his life.

Starting point is 00:39:26 And what I took away from meeting with him and he took us all out to lunch and we had a great question and answer session. And, you know, I think plenty of people have seen him do this on film in some way, but actually having it done in person just with my class, just taking us all out. He handed me his fat wallet, you know, and I got a good picture with him, you know. And I would just say that I was. stunned at how gracious he was, you know, someone this successful, how much time and kindness and graciousness he had with the whole class that he had with me, that he really enjoyed it.

Starting point is 00:39:59 And that's most of what I, you know, I don't know if there's a lesson in there, but I guess the lesson I got was, wow, this is one of the most successful, admired people in the world, and he's still so humble and gracious. That's incredible. and more than most people who meet who have nowhere near his level of accomplishment and contributing back to society and everything else. And yet he was able to be so humble, gracious, and sharing. The word role model is what comes to mind.

Starting point is 00:40:30 Wow, it was great to see it in real life and that it wasn't a hype. One amazing person. And if you just do ordinary things like be humble and gracious, it goes a long way. And that's what I walked away with. Just he, incredible human being, and I admired him even more after I left, which was hard to do. And do you think seeing that up close has had an enduring effect on you? Has it made you think want to be more like that?

Starting point is 00:40:57 Because I think there's something about seeing the behavior model that's hugely powerful. I remember having a similar experience where I went to interview Charlie Munger in Los Angeles and I went to the Daily Journal meeting. And I remember afterwards, I had interviewed him before the meeting and then he does something two hours of questions and answers. And then these group is these disciples kind of hang out for another couple hours and he just keeps answering questions. And I look at the kindness of this 90-something year old guy who just keeps answering questions. And he always had this reputation for being very gruff and bruce and not suffering fools. I thought, God, actually, there's a deep

Starting point is 00:41:34 kindness here in treating these weirdos like me who've come 3,000 miles to see him. And that actually, I remember that more than anything that he said, I think, at that meeting. It was actually seeing this kind of physically ailing old man treating his disciples with. I was embarrassed to say this in the book, and so I didn't actually say it was loud, but it actually was. There was a real kind of generosity of spirit and kindness and love to it. You know, I walked away feeling the same way about Warren Buffett. Obviously, they've been together for a long time, and there's a reason for it. I guess it's also more unique.

Starting point is 00:42:07 I mean, like I said, I know many people less accomplished, pretty much anyone I know, other than those I truly love in my family. But if we're just talking about the outside world, I know many people who are less accomplished, are very accomplished, but less accomplished, who don't have those qualities. I think about it a lot. I would hope that I, at times, remember to what an impact it had on me and to the extent that I can emulate any piece of that, of course, it's something that I would aspire to do. But I think these are two extraordinary men.

Starting point is 00:42:39 And thank God for that. You know, what role models for me and so many other people they've been. And that's a nice thing to say about somebody. I remember Nick Sleepbunt saying to me in the middle of an interview, he's like, yeah, we're just lucky to be in the same generation as them, to be alive at the same time. It is. It's remarkable, the role model. So let's go to the third great mouse trap that Joe Greenback came up with, which I think is

Starting point is 00:43:02 in a sense it's not a new mouse trap. It's a distillation of the others, the magic formula, where you took. took the distilled essence of Buffett and Graham. And you came up with really two very simple metrics to say, yeah, actually, you don't need to be that exotic and complicated about this. And I wonder if you could talk about that because it struck me just the sheer simplicity of what you were doing was tremendously powerful. And that's had a big impact on my own life.

Starting point is 00:43:30 When I think about the ways in which you were able to play these very complicated games like investing and to simplify, that strikes me. almost as a master principle in life, the ability to reduce tremendous complexity to a simple essence that works. It's been interesting. The process of trying to simplify what was I thinking, you know, when I wrote, you can be a stock market genius about my years at Gotham and special situation investing. It was actually pretty easy to write because early on I decided, well, I'm not going to do

Starting point is 00:44:00 a lot of research on this thing. I just want to write down what was I thinking actually at that time. And why did I do that? Because if I did do the research before the book, well, why am I sharing something that I'm doing after I made the investment? And so boiling it down, what was I thinking at that time explaining it in the simplest form started me out there? I also, after I wrote, you can be a stock market genius and realized it was really written at an MBA level. And then I realized that when I realized that when I started teaching MBAs and realized that, boy, if you didn't have this background, you weren't really going to understand what I said in that book. And so started me on simplifying

Starting point is 00:44:34 things even more because that wasn't the goal of writing a book to help a lot of future hedge fund managers. It was really to teach investing. And so when I, when they had the opportunity at Columbia to teach, every time I thought of a new lesson to teach or used an example or whatever, I tried to simplify it so that I could explain it better. And so just the practice of writing and teaching really helped me simplify, simplify, simplify to really get to the essence of what was I really saying. And back when I was in business school, I wrote with two great friends of mine, Rich Bezina and Bruce Newberg, a paper on Ben Graham's stock picking. He had a his own kind of, quote unquote, magic formula, which was buying stocks only when they were selling below liquidation

Starting point is 00:45:18 value. And he always had a portfolio, Ben Graham always had a portfolio of 30 or so stocks that he bought that had those characteristics and showed how that would the market. And way I'd ball that down is, Well, if you can't lose money, most of the other alternatives are good. So if you buy it cheap enough and it's selling it half its cash value, tough to lose much more. And so it'll probably be positive if you're not going to go broke. And because I had been buffettized where I'd rather buy a good business rather than trolling in the dregs of the business world, I'd love to own a good business cheap. I figured I'd update that research.

Starting point is 00:45:51 I had written a paper for the journal portfolio management with my two co-students and friends. and I really wanted to update it. And I was always fascinated by the fact that just buying a pile of stocks that had certain characteristics like Graham did could make you money. Now I have this updated idea that I'd also want to buy good businesses. What if I tested this updated idea like I did back in business school? And computers were a little better off than in 1979 when I went to do this in the early 2000s and hired a good computer programmer that still works with us.

Starting point is 00:46:26 And to test these things, and I just stuck my finger in the air and I said, all right, let's find a crude metric for good and let's find a crude metric for cheap. So crude metric for good was high returns on tangible capital. If you read through Buffett's letters, that's really what he's looking for. And then besides the intangibles, but that's one of the criteria, that's one of the hard criteria he'd look at. And then looking for businesses that are cheap just on a quantitative basis where, you know, if you could get 5% in a bank and you could get 10% yield by owning or the earnings of this business and you thought it was going to grow, that sounds better. So I'll go by that. So the cheaper the better. And so combining those two, I wonder what would happen. Ran it through the computer over a long period of time where we had good data back to 87. And it turned out it worked really well. Buying cheap and good businesses. And if you did that and put them into deciles, it turned out that the top decibel beat the second decile, beat the third decile, beat the fourth decimal. Now, what was interesting about that was that was true. And you can have a nice looking chart that showed, you know, the cheaper and better, the better it did going forward, not backwards, but forward.

Starting point is 00:47:31 And in order by decile. But it also turned out that if you were doing that kind of investing in the year 2000, where you bought the top decile, the cheapest than the best, and you shorted the worst decile, the most expensive and no returns on capital or losing money, and you put a dollar into the favorites and you shorted a dollar of the most expensive. If you did that, you would have lost all your money in the year 2000. Even though if you had lived past losing all your money, it would have reversed over the next few years, you know, after the year 2000, as everyone knows, value stocks came way back and the expensive stocks got crushed and you would have made all the money back. But I've often said zero doesn't compound very well. It's good to know. So in other words, it's hard to do that. So one thing you could do is just buy the cheap ones and the good ones and hope to get a good return. And in a book that I wrote called The Big Secret that almost no one read, and I we say it's still a big secret. So one diatribe I went on in that book that really no one read

Starting point is 00:48:30 was looking at is a manager actually good? How should you measure that? Should you measure it versus a benchmark? Or should you measure it versus, let's say, a risk-free rate that, you know, if I'm picking a few stocks that I think I can make 15 or 20 percent on, if the market goes up 25 percent. But I thought I was taking very little risk buying these things. And I knew these businesses is really well and the risk-free rate was 5% or 3% or whatever it was at the time. And I got 15%. Am I a bad investor? Or, you know, I don't know what the other 3,000 stocks I could have bought are. I knew what I knew. I did my work. I made a 15 or 20% return very securely, did I do well? So no one really picked up on that one way or the other and the rest

Starting point is 00:49:14 of the world is on benchmarking and everything else. And if you can bang out 15 or 20% returns over time, I would say you're a pretty good investor and it's very hard to measure what are those risks you took. It has nothing to do with how much the stock bounces around that you bought. It really has to do with, you know, what was the risk that you would lose? Did you take very little more risk than, let's say, the risk-free rate? Are you a good investor or not? That was just the discussion I had. And so I think if you buy that top group, you're in pretty good shape that you're going to make good money, much better than the risk-free rate, even on a risk-adjusted basis.

Starting point is 00:49:47 I put out a request on Twitter where I said to people, I'm going to interview Joe Greenblad on Thursday. Do you have any questions to him? And I was amazed at the enormous number of responses that I got. One of the recurring things that people ask a lot, I would say, is whether the magic formula has become less effective, whether it still works as well as ever, whether you still believe in it. And also, there were a bunch of people who wanted to know, have you looked at things like Tobias Carlisle's approach where he says, actually, you, you, you, You could tweak Joel's approach and totally ignore the measure of business quality and just focus exclusively on cheap stocks, ignoring return on invested capital. Just focusing on, I think he says, enterprise value to operating earnings.

Starting point is 00:50:30 And you'd actually do even better because cheap, well-financed stocks tend to revert to the mean over time. And so there's an even simpler approach that might work better than the simplicity of the cheap and good stocks that you were identifying with the magic formula. I know I've thrown a lot at you there, but you have a better mind than I do. you update us on whether any of these thoughts are valid? The fun of the little book was that I did not spin the computer thousands of times and say these two items, cheap and good, okay, that worked the best. I didn't do that. I said,

Starting point is 00:51:04 let me think of a crude metric for cheap. Let me think of a crude metric for good. Split them, put together portfolio, and see what happens. That was the very first test we ran. It worked well, I wrote a book about it. It wasn't meant to say I spun the computer a thousands of times and I came up with this and this was the best one. I said, this makes sense. And then we did one test, which I think is pretty valid. And it worked incredibly well and in order. Now, and so I agree with the work that cheap also works very, very well. It happens to be more volatile. So it depends how you measure returns or risk, and I don't measure risk by volatility either. It also turns out that if you're buying big cash flow generating businesses, usually they're getting good returns

Starting point is 00:51:51 on capital. And think about it this way. If you open a store and make 30%, you know, if you open a new store and I've got to update my examples, but if you open a store and earn 30% returns on tangible capital, that's pretty good. Not many places in this world, you can take money and get 30% return, so maybe you should open another store. And of course, if you can open a store and earn 60% on capital, that sounds better. But the real question is, can I open a thousand of those stores that earn 30% and only three or four stores that earn 60% before that return comes down? Then, which is the better long-term investment?

Starting point is 00:52:29 It's really, it has to be good enough return on tangible capital. So when you're writing a book and telling people just by a handful of companies and you want to make sure they're cheap and good, not like you're buying thousands of companies and you're, and this 200 will do better than this 200 or whatever. And you're not buying 200 companies. So I wanted to make sure people were safe and cheap and good. So I still think it's very valid. I won't argue with any of the data other than to say that if you just buy cheap, it does do better, but it's also more volatile. I run portfolios both ways. They're both good. What I will say is that we've run a portfolio since 2010, I believe, that's just strictly

Starting point is 00:53:05 buying cheap, well, it's actually cheap and good. It has an element of return on tangible capital. It's not 50-50. And that's done incredibly well, almost as good as the S&P 500, which is incredible, but it's a deep value portfolio, which has crushed any value portfolio during that time. And we also have a lot of data on, I call it the value 1,000. And we also have a lot of data of just ordering, you know, it's about a six or 700 stock portfolio that's weighted towards cheapness, chosen from the thousand largest. But I have a lot of data over history on this portfolio. And what it would show you is the way it's priced today, the way we look at the S&P and where its valuation is, it looks like it's going to have single digit returns over the next two years.

Starting point is 00:53:50 Doesn't mean that will happen. It doesn't mean that's adjusted for interest rates. Maybe it'll do better because interest rates are lower than historically. But if you look back and use the data for the last 30 years, apples to apples, it says mid-single digit returns over the next two years. Whereas that value portfolio, using the same analysis, says, I think it's going to earn 35 to 40% over the next couple of years based on past history. And so positioned very, very well to do well in the future. It looks to me like it'll easily catch up to the S&P and maybe exceed it. So that'll be good. So when you use the phrase you said, we run a portfolio, when you think about how you manage your own money these days, given that you've come across all of these different great ways of winning the game, some very systematic, some very diverse.

Starting point is 00:54:33 diversified for some very concentrated. What do you do with your own money? Oh, that's a great question. So I do both. Most of my money is invested in diversified portfolios, more similar to the way the magic formula works. And that's because that's a full-time job. We run a big research team, a big tech team, to implement those portfolios. Some of it's long short, some of it's long only. I also have concentrated positions in some really good businesses that you would know like Google and Microsoft because some of those top names are businesses like I've never seen in my career that still do not look fully priced to me that are just buy them and Holden Warren Buffett type choices in my mind.

Starting point is 00:55:14 So that would be doing both. But that's a very passive portfolio because really my full-time job is running these diversified portfolios. And it's not because I think it's a better strategy. I like them both. I think they're both full-time jobs. And I can only choose one. and I did one for 30 years. I'm doing something else. That's fun for me. I like them both for different

Starting point is 00:55:35 reasons. One's far less volatile. One's far still gets very nice, risk-adjusted returns. The concentrated portfolios and cheap good businesses also works incredibly well. So if you were going to just tuck away a handful of really good businesses for years that you think are just vastly superior businesses, which in a sense is a little different than your original approach with Gotham Capital, where you were happier to trade when you found something much cheaper. The sort of business you could hold now, Amazon, Microsoft, Google, those sort of things. What could you tuck away quietly for five, 10, 15 years and say, yeah, I don't really need to trade much. These are just superior businesses. Right. So the reason why I'm doing that and one of the reasons why Buffett ended up

Starting point is 00:56:15 moving towards that is if you're willing to put a lot of work into a, let's say, special situation portfolio, very concentrated special situation portfolio, that takes a lot of work to do the kind of work, the deep dive work that you need to understand those businesses and really follow what's going on is a full-time job, which I don't have the time to do. So another, there's a lot of ways to make money. Another is to buy good, what you view as cheap businesses because I know how to value businesses and that I can just leave alone and let them do their thing over a long period of time. The names you mentioned, there's one or two more that I want to mention, but Google, Amazon, and Microsoft, I have a portion of my portfolio that's in those and I'm not going to touch

Starting point is 00:56:54 because I still don't think they're expensive. They're more fully priced than some other things, but they're not fully priced. I still think I can get very good risk-adjusted returns in those names. And those are businesses that I think have franchises that I've never seen before. In other words, usually the large numbers, I guess it's called, says that at some point, you've got to stop growing, but, you know, because of the internet and the ability to reach the entire world and much bigger audiences than you ever could, and then the network effects and the barriers to entry and all those things I've never seen them before. I've never seen. seen businesses this good before my life. You know, we all know what happened to IBM or Polaroid or

Starting point is 00:57:30 GE or, you know, you name some of the names that people thought were the greatest businesses of all time. Obviously, they come up against something. And I don't see because of the network effects here that happening. It could happen for sure. TikTok came out of nowhere and, you know, it's created things and the world's moving faster. But there are a few handful of businesses that I feel comfortable with, and you named a few of them, and I have decent-sized positions in those, and they didn't start out as decent size as they are now. You've also, over the years, had a remarkably good record at identifying other fund managers who you backed very early on, whether it was Mike Burry or Norbert Liu was another one. I'm sure there are others that I don't know about. I'm wondering,

Starting point is 00:58:11 also because you taught over something like 23 years at Columbia Business School, and so you saw this cohort of something like 800 or so MBA students. And I'm wondering when you look at both the students and at these young investors like Barry and Norbert Liu, what you saw in them when you looked at certain other investors and you could see, oh, yeah, this person's got the temperament or the talent or the weirdness or the independence of mind. What was it that you looked for in these investors that made you think, yep, there's a kind of X factor here that makes me want to bet on them? It really weren't touchy-feely factors there. It was more like a mind-making where I read for both in both those cases, you mentioned an investment write-up that they did on an

Starting point is 00:58:57 investment idea. And as I'm saying, what about this? They say it. And then I'm saying, but what about that? Then they say it next. And what about this? Oh, they say it next. So the way they were thinking was so in line with the way I think about things. I said, all right, they're answering all the questions that I would have and even some more. And they've done some really great work here. And so I kind of knew it right away. I read a couple of ideas. I think Burry was posting on the internet and I read a few of his ideas and I said, all right, I don't need to know anymore. And Norbert, we opened in 1999. I opened with my partner John Petrie, something called the Value Investors Club. And it was a way, you know, because I'm always grading papers. So in 1999, internet was

Starting point is 00:59:43 kind of new and I was always fascinated with the idea of an investment club. And the internet seemed like a great way to meet when you didn't have to pick a time and you could meet with anyone from around the world and share ideas and everything else. We were running outside money at the time and we thought that, boy, if we start this club and the way to get into the club was not to pay any money because the Yahoo message boards were worthless at the time for investing. There's so much garbage on there. We said, all right, if you could get an A plus in my class, there are two or three kids out of the 40 in my class that would get an A plus on their paper if they wrote an investment idea up, which was mostly the homework in class, write an investment idea up and I'll critique it.

Starting point is 01:00:21 And if I would have given you an A plus, you can get into the club. And so there are maybe two or three years at Columbia and Ivy League business school where they were pretty sorted to begin with. And then you got there. And so it sort of became harder than Harvard to get into just a very small percentage of people who put in an application with an investment idea got in. And then we ended up starting a community of people who thought the way that we did about investing and could do good analysis and sort of became a little bit of American Idol for hedge fund managers inadvertently. We just did it so that it really came about because we had found a write-up.

Starting point is 01:00:56 We had thought we were one of the only people in the world to have come up with this great idea. And it was basically one of the best investments we had ever seen where the company was trading for about $12. dollars, but if it had a complicated capitalization and the way we had it figured was it had about $24 in cash and a good business attached. So if you can buy that for $12, that sounded pretty good. And we thought because it was so complicated, we were one of the only people in the world to have figured it out. But John Petrie on a Yahoo message board found someone who had figured it out as well. And, you know, light bulb went off in my head anyway. And I said, gee, there's intelligent life out there. What if we could put together a bunch of these independent?

Starting point is 01:01:30 And it turned out the gentleman who wrote that up was actually working behind a daily counter at a supermarket, which is an interesting story in itself. But it said that, you know, maybe there's some talent and unlikely places, you know, people who are very good. And that was the genesis of the Value Investors Club. And what became of that guy, the guy from behind the deliator? I don't want to go into it. He ended up working, being an analyst for people I know and doing quite well. I haven't followed it very closely since then. But it ended up getting him a job in the industry. And then that's happened to a lot of people on the Value Investors Club, but when I read an idea posted by Norbert Liu, I said this amazing. And I actually used

Starting point is 01:02:04 some of his ideas at Columbia, you know, showing this is the way to put together an investment thesis. And one of his first two write-ups told us that, boy, we'd like to be in business with this guy. And that's all. We ended up backing him into business. You've also obviously had this great partnership with Rob Goldstein going back many years. I think if I'm right in saying he joined you in 1989, fresh out of being Magnicumlaude at Tafts. He was maybe eight years younger than you. And so through all of these different iterations, most recently with the long, short, very diversified portfolio, he's been at your site.

Starting point is 01:02:37 And it was interesting to me because you see a lot of these great partnerships in investing. Buffett obviously has Munger, Howard Marks has Bruce Karsh, Nick Sleepe has Case, Sicaria. There are all of these partnerships. There's obviously something very helpful about having someone to bounce ideas off. And Buffett always refers to Munger as the abominable no man. And I was curious if you could tell us something about your relationship with Rob, who most of us don't actually hear much about and what it is that he brings to the game and how it helps to have a partner. Why might be useful, whether it's to guard against your own hubris or blind

Starting point is 01:03:13 spots or ignorance or bias? What does it actually do to have a partner? I'm so happy that you brought up that analogy with Charlie Munger about the no man because Rob is one of the most independent thinkers I know. And so it doesn't matter if I come to him with an idea that I think is great. That carries no weight with him until he's done his work and will not be a yes man in any way, shape, or form. He respects me, so he'll do the work and then decide whether he agrees. And I feel the same way about him. Any ideas that he comes up with, I value, but I want to do my own work. And we're both not shy with each other because we're wired just to want to get to the right answer. I think there's dynamics between partners that may come into play,

Starting point is 01:03:59 including a motion of some sort of past history or you name what could come into play. But if you can just focus on what are the facts in front of me and be cold-hearted and be willing to hurt the other feelings or feel like you're not going to hurt their other feelings because they actually want to hear what you have to say. That's our relationship. And so if it gets past both of us, it's usually a pretty good idea. And I think that's, and it's hard to get through But he'll say no most of the time. And I am difficult with him because even though I respect him, I respect him enough to do the work on that idea. And the other part of it is, is that it's hard to be partners because if you're pointing fingers when things go wrong and things always go wrong,

Starting point is 01:04:37 things won't work. And so I would say we're both big boys in that sense that if a mistake's made, it was both our mistakes because we only do things that we agree with together. Someone's not off doing their own thing and this other one's doing their own thing. Or I don't agree to go along just not to hurt his feelings or anything. We're just like very blunt. So we're in it together. And so that's really a partnership. And we're only trying to get to the truth. And it's just very hard because with personalities and things going wrong a lot and stress and things of that nature, very hard to keep that kind of relationship going. So I really think it's more towards the incredible qualities Rob has in that regard rather than me, right? You need

Starting point is 01:05:14 at least one person to maintain that spirit. And Rob is very selfless and thoughtful and independent-minded. And as a partner, I couldn't think of anyone better to be in, especially in the investment business. And one of the best, I think I told you, I consider myself an average analyst when you're looking at businesses. And Rob is one of the best I've ever seen and cuts to the heart of matters very quickly. And since we're only going for truth, that saves a lot of time. It's just worked out incredibly well. And I think we would have made many more mistakes apart than together. What I've noticed that happens to some of the most brilliant investors is, since they're right,

Starting point is 01:05:49 most of the time, they probably could do better than anybody else. Some of them stop listening to other people, even when they say, hey, hey, you're forgetting this thing. There's no one there that they'll listen to. And I have that with Rob, and Rob has that with me. We know that we're not going to just go along. We're going to say, hey, that doesn't make sense for these reasons. So you've got to explain this to me before I feel comfortable with that. And if you see some people who've had a great career and have done very well, sometimes they make mistakes that you can't even fathom because they don't have someone to bounce ideas off of, to tell them that they're wrong, tell them they're wearing no clothes when they're not, and just because they've been successful

Starting point is 01:06:25 over such a long period of time. And I think it's a great analogy. Buffett has Munger, and I'm sure even though he's one of the world's great investors, he's thrilled to have a partner of that caliber that's kind of an equal. And I have that with Rob Goldstein. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up, and customers now expect proof of security just to do business. That's why VANTA is a game changer. VANTA automates your compliance process and brings compliance, risk, and customer trust together on one AI-powered platform. So whether you're prepping for a SOC or running an enterprise GRC program, VANTA keeps you secure and keeps your deals moving.

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Starting point is 01:10:12 market kind of went straight up and having a value-oriented focus and being very disciplined wasn't necessarily rewarded. You would have been better off being a reckless fool and just rolling the dice on whatever hot money losing company that was. Has it been helpful to have a partner who could support you emotionally during that time? Or do you not find it frustrating these periods? Are you just kind of pretty zen about it? And you just say, well, I figure this is going to work in the end. We don't run our portfolios neutral. We have a long short element to our portfolio, but in most of our portfolios were somewhere between 16, 100% net long, and then we have a long short portfolio that supposedly adds to it.

Starting point is 01:10:52 And in most parts, it's subtracted a little bit in a period where if you were just long, value and short growth, you would have gotten crushed. We've kind of just, the long short portfolio hasn't been a great help, but really hasn't heard us. And so we've been long the market together, so I don't think we've been stressed in that regard, you sort of pick how long do you want to be? Do you want to be 60% long, 80% long, or 100% long? And so we've done that for ourselves. And so it really hasn't that been tough a period. And even if when the market's going up like this, I wouldn't call this a stressful period,

Starting point is 01:11:23 to be honest. I've seen stressful periods. This ain't one of them. I do think the best is yet to come in some of the long short portfolios and we're kind of excited about that. You always strike me as relatively calm and balanced and poised. And I was wondering, is it just kind of whether you're able to stay calm, partly because you're simplifying your life and you're removing different distractions. I'm wondering, how do you deal with just the complexity of your life, given that you have this business, you have five kids, you have private investments, you've taught, you've written a bunch of books. How are you able to structure your life so that it's relatively calm so that you're doing the things you like and are good at?

Starting point is 01:12:01 And you're not driving yourself nuts and overstressing yourself just because of the the sheer complexity of the demands on your time? Well, number one, if I'm lying in fetal position under my desk, you can't really see me, so you might not see that I'm not calm sometimes. But truthfully, I feel like overall I've been very lucky and I keep that perspective. I've been blessed with a wonderful family. And once again, when I got into the stock market, market hadn't gone up in 13 years. And that was in the beginning of the 80s and then before this amazing bull market. So I have no illusions that the wind has been in my back and luck has been by my side for most of my life, even though things have happened that have been difficult.

Starting point is 01:12:40 Overall, I feel very lucky and to get to do what I want to do and contribute back the way I want and be able to sort of share what I know with students and my kids, my own kids. And so I just feel lucky and I try to keep that perspective on human and bad things happen. And people health-wise or otherwise, things happen. And those are the important things. And otherwise, you know, if you live to play another day and look forward to where, breaking up and meeting a new challenge and hanging out with people, then it's easier. I would just say I've been more blessed than not blessed, and therefore I'm not the right guy

Starting point is 01:13:16 to ask, you know, how do you overcome adversity? I've been very blessed in life, and I feel like I owe it to give back because of that, not that I've overcome some adversity that now I can share my wisdom on that, because if I had a normal life and things and ups and downs, but overall, I do feel very blessed. One thing, Charlie Munger, after reading my book, said that one thing that struck him was just how many of the great investors ended up with broken marriages and the like. And lots of stories obviously of people whose kids hated them and everything went horribly wrong.

Starting point is 01:13:51 And he said it kind of made sense because it's such a captivating game that it's really easy to neglect family and the like. And I'm wondering you have five kids and I'm wondering how you've actually, it's such an obvious and sounds like a kind of banal question, but in practical terms, you How have you actually managed to have a successful family life? Is there a price to pay in terms of your returns where you have to say, actually, I'm not going to manage a really intense concentrated portfolio because then I can't do these other things or things that you've had to sacrifice in order to have the balance to have a good

Starting point is 01:14:24 family life and the like? Would you have done better if you had said, tell that I'm not going to treat my family well and I'm just going to focus on maximizing my bank account? Yeah, I don't know the answer. So I married a wonderful woman, my wife, Julie, and so I got lucky there and give her, I'm very proud of my kids and I give her most of the credit there. I hope I've been able to be somewhat of a role model in some ways and just have been blessed in all those regards.

Starting point is 01:14:48 I did return the outside money during time when my kids were young and that was part of the thinking that I loved what I was doing, but if I was sort of wrecking myself by being so stressed running other people's money that I was. I couldn't enjoy some of my life with my kids. And so I don't know that it fully worked, but it worked a lot. And I think if I were running, just trying to get bigger and bigger and bigger, it would have been more stressful. So I think knowing when, A, what I was good at, B, when, you know, enough is good enough, those type of things help to the extended help. I think that was part of it. And the other is just that I got very lucky with who I married in other

Starting point is 01:15:26 ways, just blessed with good things happening to me, not so stressful to get through a lot of good things. You know, it's not too much stress. I wonder if I could talk to you a bit about Success Academy, because obviously it's an extraordinary thing, this network of, I think, 46, 47 charter schools in New York City that you helped to set up that have had incredible results in turning around the lives of low income and minority kids in particular. And this is a subject close to my heart because my son, Henry, is an English teacher at Success Academy in New York City at the moment, I'm teaching sick rate. And so I get the inside dope on how well the system works. And so I wonder, he's really the one

Starting point is 01:16:01 you should interview, by the way, because that's a hard job. That's a hard job. It's a challenging job. I wondered, this is something I never really included in the book, but it really struck me when I interviewed you about Success Academy, that your thought process in solving the problem of education was remarkably similar to your thought process in solving the problem of investing, that you went about it in a similar way. And I wondered if you could talk us through how you looked at the problem of, okay, here's this existing school system that isn't working. Let me figure out what might work well and solve this puzzle. And how, in a sense, part of what you were doing was finding a simple idea that was very powerful, a simple strategy that was very powerful and replicable. Because that

Starting point is 01:16:45 strikes me as in some ways not dissimilar to your approach with something like the magic formula where you said, okay, let me distill this very complex game of investing to its essence of here's how you buy cheap and good stocks. And in some ways, I see a real similarity in the way that you've tackled the education problem. Without you saying this is the best way, you're saying, this is a really good solution. Well, I appreciate that. You know, together with my partner, John Petri, we really took a business approach to the way we wanted to tackle this. We're not education experts, but, you know, to some extent, we see what businesses work. And so, first off, there are a lot of good one-off schools. If you get the best teachers and you give

Starting point is 01:17:24 them enough resources, you can have a really good school. But the real challenge is to scale a really good school tool and then also scale to kids who probably need more help than others because they have less resources when they come in. And so what we knew from a business standpoint was that if you just rely on the top 1% of teachers, you're going to run out of those. And so can you make an average teacher? Can you give them a model that works for them to be great and really teach those kids? In addition, you don't want to scale a model that doesn't work. And you have to be willing to make errors. So you want to first come up with a prototype that works and then expand that.

Starting point is 01:18:04 And it has to work because it's replicable. Whatever you do has to be replicable. And so if you start with that concept, what happened with success is we had a school. We hired one of the most brilliant women I've ever met named Eva Moskowitz to sort of follow with this strategy, try to design a school that was replicable. Of course, we weren't looking for bad teachers. and we weren't even looking for average teachers. So that's part of it.

Starting point is 01:18:29 But we were looking for a prescriptive model, which could help any teacher become much better and started with one school. When it started to doing pretty well, a couple years later, we opened three more schools. And the only question I asked was, not are these schools great. But how much ahead are these three schools than the first school? You know, how are the kids doing? And most of schooling is done with inputs, meaning, well, if we get this teacher and they We have this much experience and we get whatever.

Starting point is 01:18:58 But if you're measuring outputs, which is, are the kids learning? It's a very different, and we're agnostic of how that happens. We want to figure out something where the kids are learning. It's the output that matters to us, not the input. We have a theory of teachers have to do this or the curriculum master do this, but, you know, how do we get the outputs? Putting all those principles together actually lets you scale. And so each time we open more schools, and now there are, I think, 47 schools and

Starting point is 01:19:23 23,000 kids, we'd make sure we're making progress on all those elements. And there was a lot of trial and error. What worked or what worked better and what's the best way to recruit teachers and what's the best way to train them and all those other things and all these things that I give total credit to Eva Moskowitz has been incredible. And I think she's the only part that's not replicable. But she has created a system that I think other people can take a lot from and copy. And so she's done an amazing job. And we really used our business sense as to get to a replicable model. And so I think a lot of that is based on not obviously being education experts, but being business experts and just saying instead of profits, our profits are kids learning at a high rate

Starting point is 01:20:04 and at a good level and measuring it that way. All those things together were sort of the basis of how success got started and, you know, why I think part of why it's been successful. I remember you once saying to me talking about investing that you were looking for systematic ways of doing things better. And when we started this conversation, I was saying that I think of you as a kind of code breaker, that you like to crack these codes and figure out how to do things better. And it strikes me that this is a very similar approach where you were in much the same way that stores and restaurants and the like, they would find a good model and then they would replicate it. You were doing a very similar systematic thing with education, where you would say,

Starting point is 01:20:41 okay, here's a good model, this works, let's keep iterating and keep improving. And so this seems to me something that's very quintessentially greenblattian, greenblattesque about this approach. Is that fair to say? Yeah, well, if I really had it simply, I would have said it as beautifully as you just did and simply. I used a lot more words to say what I think was the same thing, which is you want to roll out a business model that makes sense, that's replicable once you have it and really look for constant improvement.

Starting point is 01:21:09 And so I think you nailed all the key points there and it's been exciting to watch. It doesn't mean it's the only way that kids are going to learn. It's just one way. And it's a nice thing to contribute and to the extent that people can learn from it, Eva's made it very easy for sharing all her intellectual property. That was part of the mission to say, well, if you like this model, here. There's also a great simplicity to it, which is very consistent with your investing career. Because I think when I read the common sense book that you wrote about education and social security and the like, I think it was there that I saw you saying that basically

Starting point is 01:21:44 we have this problem of all these underprivileged kids who don't get into college. And it means that they're going to earn much less, they're going to have much harder lives. And so it seemed to me in some ways that you were taking this one very simple factor of saying, look, if we can get underprivileged kids into college, it's going to change their lives on average. And there's something almost similar to your approach with investing in the systematic way, where you're saying, if I'm right on average that I can value companies and buy cheap companies that are undervalued, then I'll do okay over time. Is that a reasonable assertion that there's a kind of parallel to you, focusing on this one really key lever.

Starting point is 01:22:21 It's a much bigger topic, but mostly we have a Soviet-style school system. I think the key to success is, yes, it's nice that these kids who come from less privileged backgrounds are able to outperform the kids in the wealthiest school districts in New York. These 23,000 kids that are mostly free and reduced lunch, minority kids, outperform all the top and the wealthiest districts. And I think the key there is that there's a lot of wasted potential, that these kids with the right resources can do incredibly well. I am not particularly optimistic, though, would help in any way possible a Soviet-style system being successful at doing that. But just showing that these kids with the right

Starting point is 01:23:02 resources and the right training can outperform the wealthiest and most privileged kids says we're wasting a lot of potential. And so are there other avenues? You know, I took a term from Mark Spitznagle, where he talked about a roundabout? Is there another avenue that we can take for these kids that clearly have the potential that has been shown? Success has shown that all these kids can achieve at the highest levels. How else can we give them opportunity? Looking for more of a roundabout. I wrote about in the book something called alternative certification, which is basically giving them rather than only college. Of course, college is great, but other choices other than college, because 10 out of 11 of these underpilvaged kids in our largest cities don't go to college. One out of 11 make it, 10 out of 11

Starting point is 01:23:47 don't. What do we do for the 10 out of 11 who clearly have the same ability, okay, with the right resources? And so I talked about something called alternative certification where there are tests and classes that they can take. And then if employers looked at those certifications and hired based on those certifications, there would be a whole ecosystem of training that could develop underneath meet those to get kids who have this ability to pass those courses or take those tests. And then if they get hired, there's a buyer at the end of the chain. And once there's a buyer, corporations giving top jobs to these kids, can we have an alternate system, a sort of a roundabout from the current system?

Starting point is 01:24:25 Not saying abandon the current system, just saying, what can we do for them? And that's what I wrote about in common sense. It's interesting to me that so much of your life, in addition to figuring out these ways of beating the market and playing the game well, has involved, for example, teaching kids of Columbia, MBA students, trying to help with education here, raising five kids. There's something about you where clearly there's an writing books, there's an element of sharing insights that's very fundamental to who you are. And when I look at a lot of the great investors, there are quite a lot who are much more focused on maximizing their money. And there was a wonderful

Starting point is 01:25:02 quote from Ed Thorpe where I was asking him about when he looked at what kind of motivated people on Wall Street and I had this kind of idealistic view and I was saying, you know, I was trying to get him to say that it was so much better to be a good person and be focused on helping other people. And he was like, well, actually, there are so many people who have an edge by ripping more raw flesh off the carcass and looking out for themselves. I just wondered and then he said, yeah, but then they look back at the end of their life and they're like, yeah, but I did totally the wrong thing and it was all a waste of time and I should just to focus on being a better person. And I was wondering how you think about these issues of how to have a successful and

Starting point is 01:25:36 abundant life and what the role that sharing these insights, teaching other people, doing philanthropic stuff, has, whether, because you could have gone this other route of just saying, no, I'm just going to make as much money as possible. And that's really the game I'm good at that I should play. So I'm wondering when you look back on your life and you think about what's really made for a happy and fulfilling life, how central this idea of not just maximizing money, but actually trying to focus on giving back in some way and lifting up others, how central that's been for you, not necessarily in a proselytizing holier than that way, but actually in a kind of enlightened self-interest way where it's like, actually, this really works. It makes for a much happier and better

Starting point is 01:26:12 life. Well, number one, Ed Thorpe was one of my first investor, so he's done me a lot of goods in life. So I appreciate that. I've just done what I think is fun. I think being involved with school reform and success and the other things I've done in that area have been the most fun in the things I'm most proud of in my life, even though I've enjoyed investing, I realize that in some ways I feel like I'm good at handicapping horses. And I've realized that from the beginning. And not that I feel guilty that I've made my career doing this because I've helped other investors and people have invested with me. And so I understand all the arguments for why it's a reasonable career, but to me, I'm not saving lives. And so I wanted to do something that took advantage of my

Starting point is 01:26:58 good fortune that was an interesting challenge for me that also could solve some problems that needed solving. And I can only say that anything that I've done in that regard and with my family, the things I'm most proud of and have been really the most fun. So I don't want to be holier than now. I've sort of had fun through the whole thing. I've been lucky through the whole thing and I've tried to give back. I think everyone feels they can do more and I certainly feel that way as well. It seems like that sense of fun and adventure has been pretty consistent throughout your career. Like there's a sort of, there's a looseness almost to your approach to playing these different games and different roles. Like you haven't just stuck to one approach.

Starting point is 01:27:39 You've played with different approaches to investing. You've had family. You've written books. Is that something that was always a key part of your personality, this sense of just a willingness to explore and be entrepreneurial and to experiment and see if something would work and take a chance? Yeah, I definitely think I'm entrepreneurial and like a new challenge and certainly have tried a bunch of things that we haven't even talked about that have not worked out because I like trying new things. And we get to talk about the ones that have worked out. But there have been plenty that haven't. But I've had fun through the whole thing because just the challenge of figuring out something new is fun for me.

Starting point is 01:28:16 I'm working on something, you know, another book now that I'm very excited about, you know, investing book. And so, you know, that's my fun. What was the biggest failure along the way, the biggest blowup that really? didn't work. I don't know. I don't want to get into it. I've had a lot of entrepreneurial. I had a jump-bond auction business that didn't work out. Had a, you know, I've invested in a number of venture capital things that haven't worked out. I'm hoping this battery thing works out for me because I think it'll solve a lot of energy issues. But likelihood is they won't. I'm still having fun with them and it's just part of what I enjoy doing. So I have the, I would say that, you know,

Starting point is 01:28:53 all the things you're talking about, start with the fact that you have enough money to fail, that you have enough money that you can still feed your family and provide shelter and send to school and all those other things. And I realize that most people don't have that luxury, that they can just go do fun things rather than just put one foot in front of the other and get the stuff they need to get done. And so to have that luxury, to have that cushion and that I've been in a business that has provided that cushion for me to go off and do things that I find, quote unquote, fun. I don't take that for granted. And I think most people don't have that opportunity. And so I'm grateful for it. You also said something that really helped me a few years back,

Starting point is 01:29:34 where you were talking about mistakes and failings along the way. And I think you said, you learned the lesson. You looked at it pretty honestly when something went wrong. But then you managed to kind of move on. You didn't become paralyzed. by it and fall into self-recrimination. And I think Charlie Munger said much the same thing to me. And that seems to me a great strength and something that I'm not particularly good at, I tend to fall into an orgy of self-flagellation after I screw something up. Can you talk about that?

Starting point is 01:30:02 Because your attitude to failures, mistakes as an investor, that seems to be a real key to a successful and long career, this ability to bounce back from the times where something just really didn't go right. If I really, I don't know if there's any lessons for anybody else in this, but I really felt I lucked out finding a career very early on. I would say when I took my first full-time job on Wall Street after dropping out of law school, it didn't go particularly well, meaning it was a tough market. We were at the end of a tail end of a bear market. But I truly loved it. I found it fascinating. I thought that if I kept out it, I'd be good at it. And so when you're young and you feel that your future is sort of can't be taken from you because it's in your mind, I realize that, boy, I'm never going to have to rely on taking another job or something because I found what I like and I think I'll be good at. And that gives you security even in the moment when you're failing to realize that, well,

Starting point is 01:31:03 especially when you're young, I'll be good at this. If I just keep at it, I'll do well enough that I'll never have to worry about much. And having that confidence that I'll never have to worry because I feel like I found the right place for me. I found something I understand that I enjoy. And that's a gift. My father-in-law, as a cancer researcher, said, you know, just like Buffett, I danced to work every day. I felt like I found that very early on in my life. And that gives you a security to say, well, I'll always have this.

Starting point is 01:31:32 And it's something that I feel in myself. It's not something that someone gives to me. I think that's helped me a lot. Before I let you go, because I'm aware that you've been incredibly generous with your time here, and I don't want to exhaust you totally. When you look back on, I guess what's now been a 40-something year career as an investor from these kind of Olympian heights, are there things that you can leave our listeners with, a few conclusions about having tried all these different systems, come up with these different mousetraps,

Starting point is 01:32:01 A, what really works, what you truly believe to be true after all of this time, and B, also how to reduce what Munga would call standard stupidities, these things that you've saw when you looked at people's portfolios who were doing the magic formula and just were sabotaging themselves constantly. If you could kind of sum up, in a sense, what you would try to share with your kids about, look, here's what you want to do, here's what I figured out over all of these years, and here's what you really don't want to do. You know, as usual, Buffett puts it better than anyone else. You know, understand what your circle of competence is. It doesn't mean you can't expand that circle of competence,

Starting point is 01:32:37 but understand what it is and only play the game that you can play. So it doesn't mean don't keep learning and expanding your circle of competence. It means understand what it is and realize that if you play in that area, you can do very well because other people don't. They're speculating or doing other things where they're doing things that they're not an expert at. Find out whatever it is that you're good at. And if you have an opportunity to make a living doing that, that's really great. And that's most of the advice I've given my kids. I didn't say go be an investor. I said, find out what you're good at that you enjoy that you can be successful at. You know, you also have to make a living.

Starting point is 01:33:13 If you find that, that's really what your goal is. Find that thing. I know you're a big reader. Were there any books in particular that you gave them that had been a huge help to you or any particular insights or lessons beyond investing where you would say, these are principles that have worked for me throughout your life. You want to try to incorporate this in your adult life? Well, truthfully, I gave them a lot of Warren Buffett's writings because I tried to do that in some of my books.

Starting point is 01:33:40 I gave them mine, told them which chapters to read and what order to read them in. And at least in investing, I've tried to do that and shared pretty much in my books what I shared with my kids and really just embellished a little bit. As each chapter went on, you know, what was my point here? What are other examples of that? and then reading all the things that I read, the Ben Graham and the Warren Buffett and the David Dremant and the, you know, all the things that got me started investing the way that I started thinking about the world. I had them read the same things. And are any of them becoming professional money managers?

Starting point is 01:34:15 Two out of the five, a big part like my oldest is an opera singer actually, but that's a tough gig and he's doing quite well. But I thought he might want to learn how to do investing and he finally figured out he might want to do that maybe a senior year of college. And so I've been working with him for over 10 years. And he kind of passed me by about five years ago and he's doing great. And I have a younger son who is more starting out, but pleasure to see him learning and doing so well. So he's doing that as well. He's doing various entrepreneurial businesses on the side as well. And I'm sure one of those are going to be taken off and he'll leave me in the dust as well, which is great, which is what I hoped for all of them. And they're all got a couple doctors,

Starting point is 01:34:54 which now they don't have to, they're giving back in their day job. They will be and very proud of them as well. That's lovely. Well, thank you very much, Joel. It's been such a delight talking to you. I really appreciate it. Is there any final word you'd like to leave us with before I let you go? Thank you for sharing everything that you've learned over time. You know, I admire you in many ways, but as a writer, you're pretty incredible and just wanted you to know that that's what I think. Thank you for sharing. Thank you so much. I really appreciate that. That's very kind indeed. That's it, folks. I hope you enjoyed this conversation with Joel Greenblatt, who's really one of the grandmasters of investing, and also, as I'm sure you saw, just a terrific human being. If you'd like to learn more about Joel, you may want to check out a long chapter that I wrote about him in my book, Richer, Wiser, happier, as I looked in some depth that what he's figured out about how to win the game of investing, and also how not to lose the game of investing, which is equally key. You may also want to read a book that Joel originally wrote for his five children to explain how to invest. It's called The Little Book That Beats the Market.

Starting point is 01:35:57 And it's a really simple but beautiful distillation of his views on how to invest in businesses that are not only cheap but good. And I have to say, Joel writes really well. So it's just a pleasure to read his writing. He also wrote a classic book called You Can Be a Stock Market Genius, even if you're not too smart, which is all about how to invest in special situations like spin-offs and business. bankruptcies and mergers and the like. A friend of mine who's a very successful hedge fund manager once told me that he had personally made $10 million by applying what he learned in that book. And when I mentioned this to my wife, Lauren, she pointedly mentioned that I also read

Starting point is 01:36:33 Greenblatt's book, but it somehow failed to make $10 million by applying what I'd learned from it. So I hope you'll make better use of the book than I did. Meanwhile, I also wanted to thank all of you who sent me dozens of excellent questions over Twitter that you asked me to ask Joe Greenblatt. In the end, I used a question from Eric Thompson about whether it would be better just to buy cheap stocks instead of businesses that are both cheap and good. So in other words, whether we should really update Greenblatt's magic formula. As a way of saying thanks, I'm sending Eric a signed copy of my book. Please feel free to follow me on Twitter, keep submitting questions, and do let me know how you're enjoying this podcast. It's really a whole new adventure for me. And I'm very

Starting point is 01:37:14 grateful to you for listening and for joining me on this journey. I'll be back with you. you again very soon interviewing legendary investors like Bill Miller, Monish Pabri, Arnold Vanembourg. In the meantime, thanks again. Take care. Thank you for listening to TIP. Make sure to subscribe to We Study Billionaires by the Investors Podcast Network. Every Wednesday we teach you about Bitcoin and every Saturday we study billionaires and the financial markets. To access our show notes, transcripts or courses, Go to the investorspodcast.com. This show is for entertainment purposes only.

Starting point is 01:37:50 Before making any decision consult a professional, this show is copyrighted by the Investors Podcast Network. Written permission must be granted before syndication or rebroadcasting.

We Study Billionaires - The Investor’s Podcast Network - RWH003: How To Win The Investing Game w/ Joel Greenblatt

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