We Study Billionaires - The Investor’s Podcast Network - RWH017: Fidelity Legend Joel Tillinghast

Starting point is 00:00:00 You're listening to TIP. Hi there. I'm really happy to introduce the legendary Joel Tillinghast, who's our guest on today's episode of the podcast. Joel is one of the undisputed giants of the investing world. Peter Lynch, who hired him at Fidelity in the 1980s, has described Joel as one of the greatest, most successful stock pickers of all time. Joel became the manager of Fidelity's low-price stock fund back in 1989, and he still manages it to this day. Over 33 years, he's racked up a spectacular record, beating his benchmark index by about 3.7 percentage points a year. As I'm sure you know, it's extremely rare to beat the market by such a wide margin over decades. But it's even harder to outperform

Starting point is 00:00:48 when you manage an enormous amount of money like Joel, who has something like $70 billion of assets under management. He also has the most diverse, a diversified portfolio of any great investor I've ever interviewed. He currently owns about 880 stocks, whereas most of the best investors tend to be relatively concentrated in a small number of stocks. So, in multiple ways, he's a total outlier. Peter Lynch has said that he's amazed by Joel's almost unworldly ability

Starting point is 00:01:17 to consume mountains of information about hundreds of companies at a time, analyze it, distill it, and use it to find long-term winners. while avoiding many of the losers. I think Lynch is on to something really important here. It's not just that Joel is great at picking winners like Monster Beverage, which has gone up more than a thousandfold since he bought it two decades ago. It's that he's also great, but avoiding losers. When I interviewed Joel for my book, Richer, Wiser Happier, he listed an array of rules that help him to avoid losing money on stocks. For example, he told me, don't pay too much. Don't invest with crooks and idiots.

Starting point is 00:01:56 Don't invest in things you don't understand. You also warned against investing in companies that are deeply cyclical or heavily indebted or faddish or businesses that use aggressive accounting. This is hard-earned investment wisdom that I think all of us should take to heart. In today's conversation, Joel shares a lot of other valuable advice that I hope will help you to survive and prosper for many years to come. Thanks a lot 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.

Starting point is 00:02:40 Hi, folks, I'm really delighted to be here with today's guest, who's Joel Tillinghast. Joel has beaten the market by an enormous margin as a fund manager at Fidelity since 1989, and it's really one of the great long-term investors of our time. So it's great to see you, Joel. Thank you so much for being here with us. Thank you. I wondered if we could start with talking a little bit about your early experiences, your really very early experiences as an investor, because I remember you telling me once that you started reading publications like Value Line back when you were about eight or nine, and I

Starting point is 00:03:21 think bought your first stock when you were about 10 back in 1968, which is the year I was born actually. And I wanted to get a sense of how you came to be interested in investing at such a precocious age. My mother subscribed to a publication called the Value Line Investment Survey. And my grandfather had passed away and had left a few stocks. And they wanted to make sure that they were doing the right thing with them, although they also concluded that grandpa had made a lot of good decisions and just stuck with them. but they wanted to be sure that they were holding the right stocks to track them. And Value Line was one thing that they subscribed.

Starting point is 00:04:10 And Value Line runs on a 13-week cycle. And they would offer these teaser subscriptions where for a cheaper price, you would get about 13 weeks for a reduced price. And they would get those every two years ago. they'd get another teaser subscription because they like to save money and weren't trading that much. But it was curious about them because they were interested in them. There were lots of numbers. And as a kid, I was fascinated with numbers and enjoyed working out things that like if you

Starting point is 00:04:48 divide or if you multiply 1, 2, 3, 4, 6, 7, 8, 8, you get something like 9, 7, 6, 5, 4, 3,2,000, Not very precisely, but yeah, I liked numbers and there were lots of them and tried to understand what the numbers went and liked seeing growth progressions. And a company called Beckman Instruments had very strong earnings progression. And my dad was a biologist. He was excited about a piece of lab equipment that allowed him to do tests. It was chromatography where you drip the proteins out and you can tell what's in there and did it with much greater speed. Arnold Beckman, who had founded the company, was sort of a techn genius, beloved of biologists and healthcare people because these instruments really did save time and

Starting point is 00:05:51 allowed them to do things that they weren't able to do before. So one of my first two purchases, along with Central Main Power, was two shares of Beckman instruments. And how did you come up with the money for it? I had saved money from selling vegetables, door to door, mowing lawns, gifts. Yeah, that was about $104 for the two shares of Beckman instruments. The commissions were huge. And how did it turn out? over the next four or five years, not very well. The earnings of the company kept going up.

Starting point is 00:06:32 The starting PE had been something like 40, and that compressed and kept falling and kept falling. So by mid, by 1974, it was probably down to about an 8 PE. So it was kind of disappointing, although market relative, It probably was all right that in absolute dollars it was very disappointing. But I held on to it and the earnings kept growing. In fact, they kept growing at a double-digit rate because Beckman kept turning out more innovative instruments that sold well. And they kept doing well until they got bought by a drug company.

Starting point is 00:07:21 Smith-Kline, which merged with Beecham, and they later decided that drug companies really shouldn't be in the healthcare instrument research business. They spun it back out. So I got some of what eventually became Glaxo-SmithKline when they bought it out, but also some Beckman instruments, which later got bought out by Gannaher. But I still have the Glaxo-Smith-Cline shares in the dividends every quarter or something like two or three times the initial purchase price of the stock. I think last time I spoke to you, you had made something like a hundred times the original price just off the Glaxo and then, you know, you'd got the spinoffs to Allegan and Danahar and all these other things. And what strikes me is absolutely amazing. And I was going to write about it

Starting point is 00:08:15 in my book, Richard Weiser, Happier, and then I ended up focusing on a different part of your story. But it's an absolutely extraordinary thing that you've basically owned the first stock that you bought at the age of 10 for now 54 years. It's astounding. Yeah. So I guess after all that time, it should be giving me dividends of three times my cost basis every quarter. But it gives a sense of just how preternaturally patient you are. I mean, there's something kind of beautiful about it because obviously you also really adore you. your father and he was a kind of hero to you. And so you were inspired by him. And there's something

Starting point is 00:08:54 kind of wonderful about the fact that your first stock pick was in some way inspired by the fact that your father was a biologist. And so in a way, it was within the family's circle of competence, even if not within your circle of competence. And in a way, there's something about this original stock purchase that is kind of revealing about who you are and your family background, your incredible patience. But also, I think it illustrates some really interesting ideas about investing that you would later internalize. So, I mean, for one thing, this idea that even if you buy a great company, if you overpay for it, it's a huge mistake. Is that fair to say that's one of the great lessons of this early investment? Yeah, I guess if you have the greatest companies

Starting point is 00:09:36 like Amazon looking backwards has not really mattered what price you paid, but for really quite excellent but human companies like Beckman. instruments, yeah, the price matters a fair bit because markets slow, innovative companies lose their edge, things change. And so not overpaying is really important. But I guess I lucked out in having a really superb company with Beckman instruments. And not so much with central main power, which paid a dividend, but really didn't do a whole lot for me. I remember you saying that another of those very early companies you bought was Armstrong rubber, and you're telling me that there was this kind of miracle that you would get a $4 dividend for it quarterly,

Starting point is 00:10:30 which was exactly the same amount you got for mowing lawns. And I was just wondering, was there a kind of beauty to investing, to this idea that just by using your mind and placing these intelligent bats, you could make money without actually having to do any very vigorous work in a yard or harvesting tomatoes and zucchini and the like from your parents' garden? It was sort of amazing too much. Obviously, in three months, I could do a lot more lawns than dividend checks from Armstrong rubber. But yeah, it was kind of amazing to say that you could earn money without having to physically exert yourself.

Starting point is 00:11:13 There's also an interesting thing when I think about Beckman Instruments that in some ways it illustrates your colleague Will Danoff's point to me in my book, which is that stocks follow earnings, that eventually if a company's earnings grow very strongly, that's likely to be reflected by the stock price, albeit you don't want to overpay. Is there something, I mean, in some ways there's a difference between you and Will, right? And you're more valuation conscious. Can you talk a bit about how this company maybe illustrates that fundamental difference between you and Will, who in some ways is the other great fidelity investor of your generation who's been there for all of this time? Yeah. Overvalue is the present value of dividends

Starting point is 00:11:58 from here to eternity. And retrospectively, unless you had a very high dividend, discount rate, the realized dividends on Beckman Instruments have said it was really pretty undervalued even at 40 times earnings, but that's a rare stock. And I think there are big constituencies in the market. You can model the market as having three or four different types of agents. One agent says, give me something that's getting much better right now in a very visible and public way. So nobody's going to say anything bad about it. Will is good at this. I'm terrible at that. The second set of agents says, how can you beat the market?

Starting point is 00:12:47 It's by having companies that grow earnings and probably the rest of their business at above average rates, further into the future than people are imagining with higher visibility than people think. And I think that this works because people's attentions are scattered and they're distracted by what's happening now. and wow, it's getting so much better. But I think what Will is fantastic at is thinking about will this business be much, much bigger, five or ten years from now. And is it the best in class? He doesn't want to have the number three in anything that's a cheaper multiple.

Starting point is 00:13:32 He wants the best in class. He wants the business winner where you can confidently talk about where they'll be in five years or 10 years. It takes big barriers to entry. It takes domain expertise. A focused and brilliant leader, sometimes will get obsessive about this and pushes it as bet with billionaires. Will Jeff Bezos make the right decision? Well, the track record says yes. Will Mark Zuckerberg? Well, the track record is mostly positive, but I have my concerns, but that's part of which you're evaluating. So in a way, part of the moral, I think, when I look at the differences between you and

Starting point is 00:14:20 Will Danoff is that you've both found ways to invest that suit your personality. So I remember you saying, for example, once to me that Will is great at building these relationships and is very intuitive at judging people like Jeff Bezos. or he was incredibly early in meeting Elon Musk and seeing that there was something special about Musk that Musk was doing at Tesla and made a very early investment in Tesla. Is that fair to say that in some way, part of the key to being a very successful investor is to understand your own abilities and temperament what you're strong at? And so you're playing a very different game.

Starting point is 00:14:57 So you're still exploiting the fact that stocks eventually, the stock price eventually will follow the earnings, but you're much more value-oriented. You're much more defensive than will. Yeah, I think stocks will follow earnings. I'm skeptical of people's ability to look too far out into the future. Kathy Wood, do you love her or do you hate her? What I admire is she is trying to look into the distant future, which I think not enough people do, but she's, also trying to do it in the area where things change the fastest, things are the most path-dependent, and there's little history to tell you what to do. And if you're defending her and say, she may not know much, but she knows a whole lot more than anybody else about where the industry

Starting point is 00:15:55 she's talking about will be in 10 years. And I think Will does that with, ingredients or assumptions that I can trust. He does look at track record mostly. Businesses are run by human beings. And so saying this is a really amazing manager in Elon Musk or Jeff Bezos or whoever gives you confidence in the outlook and more confidence than the market. It's hard for people to value that, and I think that's part of what Will does so well. But I am trying to do that with more caution because some of the businesses that I have are more commodity-like. And you can't look so far. I can to shy away from those super commodity businesses, as does Will, which means that something like energy is somewhat tough for us because they don't.

Starting point is 00:16:59 have as much control over their destiny. There are better managers. There are worse managers. They're better positioning. There's worse positioning. But you don't have companies able to set their own agenda and will gravitates to companies that are setting their own agenda where no focus group said, gosh, we need Amazon World Services, but now it's the biggest contributor to profits at Amazon. I wanted to go back to some of your earlier experiences as an investor because I know, amazingly, after you had been studying Value Line as a young kid of eight or nine, you ended up getting a job at Value Line later on after college. And I think you told me once that you were paid $13,000 a year and worked in Queens and won the stock investing price.

Starting point is 00:17:48 I worked in Manhattan, but lived in Queens. And I was wondering if you learned anything from the value line formulaic approach to investing in terms of how to deal with emotion or how to just how to think about the relationship between value and growth and the like? The value line has got its name because they have what they call a value line. They multiply earnings or cash flow times average multiple and say this is the fair value of the stock. And so it's undervalued or overvalued. And it's an oversimplified version of value investing, but it is value investing. And I think that influenced me a lot. And they also have what they call a timeliness rank, which is more a, is this a good short-term trade or trade over

Starting point is 00:18:49 the next year? And it's a bunch of things that go into the timeliness. rank, are the earnings rising fast? Is the stock price rising? But going back to the value line itself, it's a reiteration of Will's mantra, stocks and earnings go together, or at least the value of it does. Did there eventually be some kind of convergence between the growth rate and the growth in intrinsic value and the stock price itself? Yeah. The idea of value line that If you have a fixed multiple of 10, then the earnings go up by 50 cents, then the fair value is up $5, which is obviously oversimplified, but directionally correct. And then you ended up spending about four years as a financial futures research analyst

Starting point is 00:19:42 at Drexel Burnham, Lambert, I think, from the early 80s around 1982 to 86. And in your book, which is excellent, which I have behind me, which is big money, think small, sorry, I keep getting the name wrong, but it's a really interesting book. I was rereading it yesterday. It's a very helpful book, so thank you for writing it. In your book, you described this really formative experience of trying to figure out whether you could predict economic statistics and then making an early bet using futures on margin, on interest rates back in I think about 1983. Can you talk about what happened and what you learned from that? Because it sounds like that negative experience also had a pretty big impact on the type of investor you'd become.

Starting point is 00:20:27 Yeah. For part of it, I was still, that time, I was still in business school and had lots of student loans and a tight budget, even though I was working. And so I didn't have that money to trade. And brought my job at Drexel was as a research economist. Part of that is putting together hedging packages for customers that wanted to hedge their interest rate risk. But a lot of the volume of a brokerage business was with in active traders. A lot of them traded around the economic statistics. So if employment was looking robust, as it may have recently, then they'll say bearish for bonds. And my job was to forecast, will producer prices, be up 0.2% or 0.4%. And there are some tricks because some of the statistics use bits and

Starting point is 00:21:30 pieces of other statistics that have already been released. So if you have the industrial production number, you know something about the GDP. If you leading indicators were then got much more focus, but some of the components had already been released, like S&P prices, well, You knew that, jobless claims and other things, so you could come up with a better estimate. And it wasn't then completely in the market. The problem, lots of people around me who were making much more money than I was and thought, wow, can't I? I was moderately good at it forecasting PPI and GDP and the other statistics. And, well, can I trade this to make money? And they did this. It started with one contract, I think. And a futures contract on T-bills, I think, was a million dollars, but you could buy one by putting up margin of $1,000 or $1,500. The problem was you had to put up the variance margin. So if the price went down, but

Starting point is 00:22:48 $3,000, you had to cough up the loss or lose your deposit and get sold out of the position and probably get your account closed if you were not a Drexel employee, maybe even if you are a directile employee. It went really, really well for about four months. It started in January as I was heading to my last year of business school. And I managed to make a business school. I managed to make about $40,000, which within my income and lack of net worth at the time was truly fantastic. It was thinking I could pay off my student loans, which were, I guess, less burdensome than it seems like some students today are stuck with. But then in early May, as I was heading towards graduation, the market also changed. And my

Starting point is 00:23:47 my lucky street, I guess there's a temptation to pyramid and keep adding to the positions. If you're winning, you want to press your bets and say, that's not a bad thing to do, but it comes with a lot of cabcats. If you're doing it with borrowed money, it's a terrible idea. But if it's all mad money, it'd say push a winning bet as far as you can. And you then found, if I remember rightly, that interest rates suddenly started to tumble when you were betting that they were worth surge. Yes. And so where I'm going is with 40,000 inequity, I had something like $25 million worth of notional exposure, which was really disproportionate to anything else for me as a counterparty. and you were like the long-term capital of uh yeah you were the long-term capital of college students

Starting point is 00:24:49 yeah if it was all equity and rates were going in that direction in your direction then say that's great but it was all borrowed money and so over a couple of weeks i basically lost back all of the 40 grand and in a agreed thing i don't know if they shut down my account or just said, you know, I think it would be a good idea to take a holiday from this for a while. And it was hurting so much from losing back the $40,000 because it felt so smart. Like, wow, this is great. Like, let's annualize that. That's $10,000 a month that it was making.

Starting point is 00:25:30 What do you think it did to you viscerally, like, Joe, like that experience of actually going through that pain and fear of loss? How did that searing emotional experience actually shape your view of investing and whether you, how in some ways, conservative and defensive you realized you needed to be in order to survive as a successful investor? Don't do anything with borrowed money unless the thing you're borrowing against is giving you an income stream that can cover it. You never, ever want to be a forced seller. Why would stocks sell for less than their worth? There's a whole bunch of behavioral reasons. But one of them is people get forced out of their holdings.

Starting point is 00:26:19 And it happens every financial crisis that something gets sold at an absurd price because they had to. And so no margin for me. I think it's not so much conservatism, but a recognition that interest rates. Lots of people know about this. GDP, lots of people know about this. Do I have a really good edge? Probably not as much as I might with a smallish public listed company where management and know what they're thinking. Let's take a quick break and hear from today's sponsors.

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Starting point is 00:31:00 That's Shopify.com slash WSB. All right. Back to the show. So is part of the moral just for almost all of us, unless we happen to be George Soros or Stanley Drucken Miller or someone like that, we should just avoid trying to make money off these macro predictions. It's just too difficult that even for someone like you, who was spending your whole life at the time trying to make macro predictions.

Starting point is 00:31:27 It just was too difficult, in a sense. I think if you spend all your time trying to do it like George Soros, that you can do that, but it's beyond my skill set. And I think it's very difficult generally. Right now we have an impending profit recession. And analysts come to me saying, are you interested in buying? home builders? Are you interested in buying meta, the old Facebook? And figuring out what's discounted, even in a fairly specific case, is really difficult. But figuring out what the

Starting point is 00:32:07 moving pieces are for a whole economy and for aggregated statistics. It's a really tough game. And you've got to be amazing like George Soros is to be able to do that well. So in a way, when you're looking at companies, when you have a team of something like 130 stock analysts at Fidelity, right, who come to you and they pitch stuff like this, housing stocks and energy stocks and the like, are you really not thinking that much about macro stuff at all? You're just looking to see whether they're fundamental things, like whether they have a good moat, whether they have enduring competitive advanced years, whether it's cheap, whether the cash flow is predictable. What are you focused on? If the house is burning down, you can't focus on the architectural qualities, but I do not ignore current events, but usually it isn't conclusive about what I'm doing. I do have macro opinions, but mostly I want analysts to help me imagine different scenarios. What if British interest rates go up another 100 basis points and mortgage rates follow? what will that do to affordability of homes in the UK? What will that do for consumer spending?

Starting point is 00:33:26 And how catastrophic is that for the companies that we're talking about? And it might be not at all, or it could be a very big impact. And sometimes companies can have a more competitive position and be a better place to withstand those kind of shocks. Sometimes they can have worse positions, since that's what I want from analysts. Since the fund has a bunch of British stocks and has two home builders, it's a relevant question to sort of are they cheap because they're selling for less than their stated net asset value, or will this be too devastating for housing for them to make a decent profit in the next year or two? So you can't really ignore the macro environment, but it seems like given your very, very low turnover in the fund, you're also trying to find companies that are going to be okay over the long

Starting point is 00:34:28 run, sort of in they're going to muddle through difficult macro environments. Is that a fair description? Yeah. I'm looking for what I think Will is looking for, which is adaptive companies that have a strong hand to start with. Nobody knows the future, but some companies are more adaptive than others. Next, a UK retailer, the fund holds used to be mostly high street stores with a catalog business, and they could have completely lost their position during the internet age, but in fact, have repurposed catalog. into internet selling and now it's the majority of profits and is growing well. So there's a good adaptation. I think you always want an adaptive management team. And I think that's

Starting point is 00:35:25 part of the secret sauce of why we'll spend so much time on meeting management and understanding their thinking. Another legendary investor of the last couple of generations from Fidelity that you're very closely associated with, probably because he was the person who really got you hired at Fidelity as Peter Lynch. And I wonder if we could talk in some depth about the story of how you came to be there and work with Peter and what you learned from him. Because I love the story of, I mean, in a way, it goes back to, after your slightly disheartening experience of Drexel, Burnham, Lambert, you ended up at Bank of America Financial Futures. And then my sense is you had a little bit of an existential crisis and decided, I'm going in the wrong direction,

Starting point is 00:36:06 and you started to reach out to famous investors and draw up a sort of shortlist of people you wanted to work for. Can you tell us what happened, who you wrote to, and then how you came to be in contact with Peter Lynch? My short list was Mario Gabelle, Michael Steinhardt, George Soros, Peter Lynch, and... Michael Price, I think, was another giant... Michael Price, the mutual shares guy. and I tried to get interviews with them, but didn't do very well.

Starting point is 00:36:41 I did get to meet Marioca Belli in person, but not the others at that time. And I called up Peter Lynch a couple of times, but his secretary, Paula Sullivan, finally said, who's calling? And she put me through. And I was just floored. after my other job search, I was expecting to go to a director of research or a human resources department, all of which would be fine if it produced the desired result. But we had a good call and talked about a few stocks. And I got an interview schedules and I flew out. And the meeting

Starting point is 00:37:25 or the interviews were supposed to start at nine o'clock, and I thought they would be done by noonish, and my dad was going to meet me there, noonish. But the interviews kept going on, and around two o'clock, it got brought over to Peter Lee's office, and Peter had lots of people dropping in. Peter was a great believer in the two-minute drill, a quick pitch, and as a screening device. He would consider absolutely anything. So the interview itself was somewhat distracted, but I was thrilled to watch Peter Lynch in action fielding all of these pitches. And we did actually have an interview light component, but this was supposed to go from 2 o'clock to 2.30, then wind up. But it got to be about 4.45. And Peter was trying to wind down.

Starting point is 00:38:25 for the day. And I think he did make one of those coded calls to Carolyn, his wife, forgot what it was, but he had a coded sort of way of saying, I'm arriving at five or I'm arriving at six, I'm arriving at seven. So the dinner would be all right, but around 445, cut it off. And it was just thrilled by watching all the people come and go in the different pitches. And my fabulous dad, was waiting there down at the doorstep of Fidelity to meet with me and had been there for five hours, which was amazing. But yeah. I also wanted to report a little, but you're probably too modest to admit any of this, Joel, but there's a beautiful forward to your book where Peter Lynch gives his version of it. And he says that Paula Sullivan, his assistant, said to him,

Starting point is 00:39:23 you've got to talk to this guy, Joel. He keeps calling and is so sweet. He's from the Midwest, and I think he might be a farmer. So then the way Peter tells the story, he says, I told Paul, I can give him five minutes, which is very interesting because, as you say, he was open to anything, like he was prepared to take a two-minute pitch or five minutes or whatever. And what Peter said is we ended up speaking for over an hour, and you kept pitching him stocks like Puerto Rican cement and Chrysler and San Francisco Savings and Loan, which he was very intrigued by, he said, despite the fact that I think you once told me he owned about 400 savings and loans, but he was very impressed. And he said, in his account, he said he then immediately called the head of Fidelta's

Starting point is 00:40:02 investment decision and said, we've got to hire this guy. He's unbelievable. He's as strong as anyone I have ever met. It's a kind of amazing thing, right? I mean, something extraordinary happened in that first call. And it's interesting because I can see from this conversation that we're having today and also from the last time we met in Fidel's office, you're a very gentle soul, right? You're a quiet, slightly shy person. You're not like a brash Wall Street person. And there's something kind of amazing about the fact that Peter was so open to you that he kind of saw your talent so quickly. Yeah, I'm so grateful for that. I think it's like this path dependent and I got a lucky break there. It's an amazing thing. I have a young friend of guy in Israel

Starting point is 00:40:48 called Samuel Goldberg, who's a really, really smart guy, former chess player and judo champion and the like, who was also a sniper, which I think gives a sense of the sort of temperament that he would have who's obsessed with value investing. And he wrote to me last week and was saying, you know, how do I get an internship? Like, what do I do as someone who's obsessed with value investing? And I sort of wanted to get a sense from you of what do young people who actually want to get started in the business who clearly have this almost this sort of religious experience of understanding value investing and being deeply drawn to it and want to get started but don't really know how to break in. What do you do? Because I had no idea really what to tell Samuel at all.

Starting point is 00:41:27 Investing period, I think it's hard. I never had a summer internship, but it's become much more important. High ring process is too long and too bureaucratic for my taste, but it's a someone like him should send a letter to both the director of research, which at Fidelity would be Pam Holding and Tim Cohen. And they should also send one to the designated human resources recruiter and that you can find on the website. It is tough. It's the people who attended Harvard, Yale, and Princeton and Wharton are fabulous people. But they have the inside track on this because a lot of the interviews, I don't like the way this is handled, actually, but I'd say a person like him and all the hers who are out there should send a letter to the director of research at a firm that they want or to the HR department there. And you've obviously done lots of hiring over the years.

Starting point is 00:42:42 And so you've obviously sort of seen lots of the young analysts who become stars later. And I'm curious, like, when you think of what you look for and also what Peter Lynch saw in you, is it that kind of intensity, that competitiveness, that deep fascination with stocks that you almost can't explain? What is it that you and he look for that's that X factor? Curiosity is, like, why is this so? I think so many mistakes come because of the huge. capability of filling in what's not there and assuming too much about what it is you're looking at.

Starting point is 00:43:21 And so curiosity is number one. And employers generally, they want people who really want the job. It's like how often is too many times to tell someone, I love you? It's never too much. And the employers want to hear it. Even if they know that you want the job, spell it out for them and make it real. Because in my case, it was easy because having had a disappointing employer or two, I really wanted to work for people who I totally respect.

Starting point is 00:44:00 So if you are interviewing with the job that you really, really want, don't be shy. Tell them. I was very struck in interviewing you and Will Danoff. And many years ago, Jeff Vinnick, who was another of the giants of your generation, who were all, I think all three of you in some ways mentored by Peter Lynch, there's an intensity to all of you. I remember Will saying to me at some point, I just care more. And I remember him saying to me that the way he found Tesla was on a Friday afternoon.

Starting point is 00:44:33 He was like, well, how come we don't have, or Thursday late afternoon? It's like, how come there's not anything after 430? And so they went to see this one extra company. And likewise, Jeff Vinnick told me that he would get back in the evening after, you know, hanging out with his, I think, four kids in those days and would then do several hours more reading after they went to bed. Is that fair to say that when you look at the most successful investors you've seen in your cohort of Fidelity, they're just really intense, like profoundly competitive,

Starting point is 00:45:04 driven, passionate people? Yeah, I think it's sort of required. Peter never really took a vacation, right? In his 14 years, did he ever take a day off? Yeah, it's saying he was actually more intense than any of the people just referenced, which may be also why the years as a active fund manager were shorter. So it's hard to sustain. And that was why Peter needed the secret.

Starting point is 00:45:36 code to tell Carolyn what time he would be at. I think one of them was actually Mr. Johnson is coming in. So just put the food in the, leave the food in the oven because, of course, he wanted to talk to Mr. Jay. You said to me once that Peter was the most flexible investor you'd ever seen, that he had this incredible ability to switch between short-term trading and long-term trading. Can you talk a bit about that? Because I think sometimes because he wasn't around for that long, right, he had a 13 or 14 year stint and then he quit, there's always this suspicion or sort of prejudice that, you know, was he really that great? Would he have been able to sustain it? Can you talk about kind of what it was that made him so special? He was always curious about how things

Starting point is 00:46:26 worked. He did, of course, want companies that were getting much better right now, but there are companies that he held for several years, actually, Chrysler and Fannie Mae, some others, but he was always checking in the conversations. If he would highlight, this will help you next year. This will help you in the years beyond where in Fannie Mae's case, they had a bunch of high-cost debt that was rolling off in the coming year, but also in the next year and the next year after that. So the visibility to improved interest margins and earnings was huge. So what would be the most fundamental thing you think you took from working with Peter? If there's one thing that's really had an enduring influence on the way you manage money, what would it be? I'm not sure that I can

Starting point is 00:47:22 copy his mental flexibility. He's totally willing to change his mind when the facts are different. And I think a lot of us get entrenched in our beliefs and try to defend something that's wrong and trying to delicately say this. I see a lot of this in politics in both parties where they're wrong and they pile on further justifications. or mistakes that they made. Peter would have none of that or little of that. He would change his mind. He also seems to have had an incredible ability to take information from a mass of different

Starting point is 00:48:07 sources and piece it together, which is something that I see with you as well, because I know that you, in your early years, you were an analyst studying, you know, natural gas or coal or all of these other things. And it seems like part of your skill as well as his is to, take little pieces of information from one area of the economy and apply it elsewhere? Yes, he absolutely did that as a natural gas analyst. If I brought him the news that gas prices are up by 25 cents, he would say, what's that mean for the pipelines? What's that mean for the gas distribution companies? What's that mean for the producers? What's that mean for the

Starting point is 00:48:48 petrochemical companies. And there's a whole bunch of knock on. It may not be conclusive, but it tells you what you should be asking all of those companies from one piece of information. And he was fantastic at that. I remember Bill Miller saying to me that his early experience as an intelligence analyst in the military before he became a money manager was incredibly helpful precisely for that, because you would have this mosaic approach where you would take information from one area, something that seemed minor. But once you combined it with a few other things, you could see a pattern that other people couldn't see.

Starting point is 00:49:27 I think it is because people, when you do it badly, it's called anecdotal and scientific. When you do it well, I guess Gladwell would call it thin slicing. When I interviewed you in Boston for my book, Joe, Richer Weiser Happier, I came and I asked you basically to explain your extraordinary returns, which are really incredible. I mean, it's, you're a real anomaly, right? I mean, I think you've beaten the market by about 3.7 percentage points a year over 32 years. It's an astonishing performance. And one of the things that was really striking about our conversation was that you focused really primarily on listing all of the standard stupidities, as Charlie Munger would describe them, all of the things you try to avoid.

Starting point is 00:50:16 And I wonder if we could talk about that a bit because that strikes me as such an incredibly helpful approach to, because it's so difficult to imitate the positive qualities that someone like you or Will Danoff or Peter Lynch have. But it's much easier to apply this principle that you have of at least identifying all the dumb things, the unoriginal error, as Charlie would describe it, that leads to so much disaster in investing. Can you talk about some of the things that you just avoid because you're constantly having analysts come and pitch you stuff, right? You have this army of 130 analysts pitching your stuff. What are you just saying, no, not doing that, not doing that.

Starting point is 00:50:53 These are mistakes I'm not repeating. I think you want to start by doing a little introspection about what do you think your approach is? Why might you have an edge? And if you're a momentum investor, I've seen actually lots of successful momentum investors, maybe even more than they've seen successful value investors. But you should know that. And when you're in the second half of 2021,

Starting point is 00:51:24 you have to realize things are not getting better in the tech stocks that had worked so well. And you have to think about, am I a growth investor, am I a value investor, or am I, in my case, a value investor who tries to include some, growth aspects because growth is part of value, have to understand that. And those, what you're trying to do creates your blind spots. So most of the time, the fattest piece of the momentum profits of the momentum investor come when the stock is above their value. And it's just a colossal piling on. So a value investor says, run, run.

Starting point is 00:52:13 run away, but that's the wrong impulse if you're trying to be a skilled momentum investor, you might say, it's just now getting recognition and more people will recognize this stock. At the same time, as a value investor, I kind of ignore short-term movements unless there's something that says, wow, this throws my whole expected value into the trash. There's no way the store will ever make the kind of profits I thought. Now that vendors are not shipping them merchandise. So I think some of the blind spots come from what your approach is and you have to be aware of those blind spots. Knowing yourself and how do you react to setbacks and are you truthful to yourself?

Starting point is 00:53:04 Are you going to come up with endless justifications for why what you did was not a mistake, or will you go to the confessional and say, yep, I blew it? You said something that really stuck with me, Joe, where you said, staying away from your own ignorance can make a huge difference. So it's not just self-awareness in terms of how you react emotionally. It's knowing your circle of competence or, I guess, more optimistically, the circle of expertise, where do you know more than the average? guy about this industry. Do you know more than the average person about this specific company? And there are whole industries where insurance is difficult because it's a whole series of

Starting point is 00:53:56 assumptions. And you can generically know whether the assumptions that they're making are conservative, aggressive, or average. But that doesn't protect you. when that's hard to verify. So there are parts of insurance that scare me. And I think the AIG was a case where they had gotten into a different business than they realized where if they looked at the derivatives, they'd say credit insurance is a low rate online or a highly correlated high severity, very low frequency business. And they said, oh, that's kind of terrifying to an insurance company rather than this is kind of wild.

Starting point is 00:54:47 Since I lost money on AIG, I'm bitter. And so I'm assuming that management might have not done this. Biotech to my biologist's disappointment, because there's so much cool experimentation. And it's so hard for me to tell the path of innovation. There's phase one, there's phase two, there's phase three, there's commercialization. And sometimes even if it does get approved and goes on the market, sales will disappoint. And handicapping those odds is beyond my ability. In a way, knowing just that you can't model that, that you can't really figure out the cash flows and the growth in the future,

Starting point is 00:55:34 that seems to be almost enough to keep you away from that. But you also said to me, you know it's going to make you crazily emotional. Yeah. There are people like Fidelity's brilliant analyst, Irene Kontopoulos, and I trust her a great deal, but as a portfolio manager, I can't do it unless I can verify her thoughts to myself. And so it's an area that I stay away from. You listed for me an array of things. I love this quote where you said to me, I quote this in my book. You said, don't pay too much. Don't go for

Starting point is 00:56:10 businesses that are prone to obsolescence and destruction. Don't invest with crooks and idiots. Don't invest in things you don't understand. Don't invest in what you don't know and stay away from your own craziness. And I just thought that was a wonderful list of things where, you know, before we start thinking about what we should do, just to have a list of things where we know, I'm just not going there. It's not a game I can win. Yeah. How do you beat Jordan? You play chess against him rather than basketball. I actually think about this a lot recently. I think much more since I wrote the chapter about you and Charlie Munga about just, it's called Don't Be a Fool, where I just think about

Starting point is 00:56:50 the importance of playing games that I'm equipped to win. And it's been kind of a crushing realization that there are certain games where emotionally and intellectually and in terms of my passion. I'm just never going to really win at the game of picking individual stocks. It just doesn't suit me. And it's been incredibly clarifying and liberating to say, well, so yeah, so I should be interviewing people. I should be writing books. And I should, it's just, but it's, it's kind of painful to admit that you're not suited to a game. It is. And it's especially tough because the people who professionally play the game disproportionately went to selective schools and they know that they can learn, but despite years of intermittent effort, I still

Starting point is 00:57:37 don't get biotech. And it's kind of hard to tell yourself, yeah, there are plenty things that I'm not particularly good at. I remember Chuck Acre saying to me, we can't dance with all the ladies. And I just suddenly realized, oh, he's got this like really narrow pond in which he's fishing and he has the discipline to do it again and again and again. So yeah, that self-awareness and the ability to choose the right game seems to me critical. But what's also really distinctive with someone like Gakre, he's very focused, right? He has a very narrow portfolio of a few major holdings. You're really unusual in the, you're massively diversified, or almost more than any other great investor. I know, I think when I looked at Fidelity, low-price stock a couple of days ago,

Starting point is 00:58:26 I think you own something like 880 stocks. What's the philosophy behind that? Because it's almost impossible to pull off what you've pulled off. It's like the only, remember Bill Ruyn saying to me once, the only other investor I've ever come across who can do really well with a hugely diversified portfolio is Peter Lynch. And you seem to be the second one. So how do you do it and why do it that way?

Starting point is 00:58:50 Think of it as two portfolios, one, although it could be more. But think of it as two portfolios. One of them is for longstanding high conviction holdings. I do have some fairly chunky holdings. United Health is over 5% of the fund. Metro, the Canadian supermarket, is close behind. Autozone is also a very substantial holding. If you took just the top 50 or hundreds' status,

Starting point is 00:59:26 you might say this is actually a fairly concentrated fund, even relative to fidelity. And one of the ongoing discussions that had with Morgan and Sam is... These are your two successes of people who don't... 22 successes is what will work for them because they want the fund to work for them. And I think they're still figuring out what works for them. but there was a hint that maybe 5% was too chunky because actually there are other Fidelity funds that do not have any 5% bets, although Will Danop has several. And so in a sense, I do have concentrated bets.

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Starting point is 01:03:52 Do you think this is partly a reaction, Joe, like that you internalized in some ways those early lessons from when you got in trouble investing on margin and you went through the horror of losing money with too aggressive a stance? Is there something? So we didn't get to the other 800 companies, although some it might have to be three because some of those are 25 basis points of the budget. fund, but 10% of the company. So they're concentrated holdings of a small company. And on that, there are people who say, it's too small to make a difference, but do it anyway. And think for terrific companies that are small, the fund does have a concentrated relative to the outstanding share as holding. But then there's the large amount of companies where I see something interesting going on, see either a possibly terrific business or a really dislocated

Starting point is 01:04:58 valuation, where I'm begging the analysts to tell me more, I'm begging brokerage researchers to tell me more, and trying to signal to the companies reach out to me and tell me more. And I add to those when I do get more and it's good more, here's an industry with barriers to entry. There is really top-notch management team or it's eight times earnings, get free and earnings are growing, where it is a request for information. Consultants absolutely hate that because you are supposed to leap to high conviction. I am still trying to learn and I'm eagerly looking for a book on what not to do. What signals do you ignore? What opportunities, I think people like Buffett are great at saying, nope, not interested after two minutes.

Starting point is 01:06:02 Peter also had that capability, although his conclusion was, I think, sometimes like mine, that it puts into the, I want to watch this space and find more. Tom Gaynor does something similar where he has a kind of middleway approach where he is somewhat diversified and somewhat concentrated and he looks at, he might have 100, 110 stocks and he likes the fact that they're in his portfolio so he can concentrate on finding more about them. But they're sort of the farm team. And it sounds like, it sounds like, it sounds But there's more, that's true. They are the foreign team, but it's also a set of comparators where if I'm looking at U.S. banks and say, well, what are superior banks and have a list of a couple dozen of them and can mentally compare and say, Eagle Bank of Maryland, how does that compare with East West Bank of California?

Starting point is 01:07:07 And then let's compare that with Coderus Valley Bank. And then let's compare that with West Bank in Iowa. Let's compare them. Some of it is to give a comparison. The other way, before Wells Fargo started to have their issues with compliance and overselling, my approach might be any bank that I buy has to be as good as Wells Fargo. needs to have a return on equity and growth prospects that are higher or the same as Wells Fargo and some of it and it has to be selling it a lower price to book or PE than Wells Fargo.

Starting point is 01:07:53 So sometimes you can have a benchmark stock, but it's hard if I look at small cap health care and say everything has to be as good as United Health. There are companies that are as good as United Health, but they're much more expensive. There are companies that are less expensive than United Health, but they're not as good. So it sometimes helps to have a sort of benchmark stock that has to be taken. And I guess that would lead towards a more concentrated portfolio because some might say that's a, there's a message in there that there's nothing in small cap health care that is as good if you accept that the, PE of 22 or whatever is acceptable.

Starting point is 01:08:40 One of your most successful investments of all time is something where I think that one before we leave that, Yeah. Have you read any books that are any good on what to say no to? I mean, I've seen books that correctly say, it's a good thing to drop what you don't need, but I suck it doing it and look. for guidance on what not to do and what opportunities to not.

Starting point is 01:09:10 I haven't seen it. Because the temptation is, let's tiss all the girls. Yeah. And this is a very central theme of my book, not only in the chapter about you and Charlie, where I'm saying, don't be a fool. I care all the things to avoid. But also I write in the chapter about high performance habits about what I call the art of subtraction, which is just the habit that I think all of the best investors have

Starting point is 01:09:34 of saying, these are just things I'm not going to do. I'm going to, it's almost like having a not-to-do list. And I remember talking to my friend Jason Swig about this from the Wall Street Journal and him saying that when he looks at people like Warren Buffett, Charlie Munger, Bill Miller, they all have this incredible ability to say, I'm not particularly good at this thing, and it's not what I really care about, and I'm just going to be maniacal about focusing only on other things. And so I think there's deep wisdom and deep practical wisdom in this idea of just saying no to things. And it's something Warren does famously, right?

Starting point is 01:10:11 I mean, Warren says the difference between successful people and very successful people is that the very successful people say no to almost everything. But I, yeah, so, I mean, it's clearly a theme that I explore a lot in the book, but I haven't seen one book that does it brilliantly. So, yeah, it's a, but maybe I just haven't read enough. Please contact me immediately if you or any of your listeners come up with something. Yeah. But your book is also very good at that.

Starting point is 01:10:40 I mean, your book does a great job at saying these are the red flags when you look at companies. I mean, don't look at companies that have too many footnotes and opaque accounting and disclosure that's extensive but incomprehensible. You know, don't invest in countries like Russia where there's not enough rule of law or countries with high inflation like Turkey. I mean, you're very good, I think, in that book at identifying a lot of the things not to do. But in a way, what I had to do in reading your book and also in listening to or reading various interviews with you over the years, you have to

Starting point is 01:11:14 gather these things from different parts of the books and interviews and kind of a compiler list of things not to do. And likewise from Charlie's list of 24 causes of human misjudgment, He was really, I think he'd only read three psychology books, but he was compiling them in this very intelligent way of saying, this is what I'm not going to do. These are the ways in which people screw up. So I do think you have to kind of do the work yourself in a way. It's not, I haven't seen it really conveniently arrayed anywhere. I wanted to go back to this amazing investment of your monster beverage, which I guess originally was Hansen when you first invested in it. And I remember interviewing you about it and you saying basically that your, your cost

Starting point is 01:11:55 basis was eight cents, and I checked this yesterday, and it was at $97. I know it's had lots of splits and the like, but it was up at least a thousandfold. Can you talk a little bit? I mean, I know you've been modest about this and have sort of said you lucked into investing in it because really you loved the fruit drinks, not the energy drink. But there are lessons from this investment that you've had really for over 20 years, I think. What should we be learning from this enormous success of this massive long-term holding of yours. It's gone up a thousandfold or more. Freight successes are often a complete surprise, even to their beneficiaries. Don't sell luck short. But the odds were very much in my favor in that weirdly

Starting point is 01:12:42 met them at an American Electronics Association beverage service. And the stock was selling for, I think, 10 times earnings. I think it was debt-free. The earnings were growing. I liked the products and really, really like the management because they seemed very intense like they'd had two or three monster beverages themselves. But they really seemed strategic and motivated. It wasn't going to go bankrupt because they had no debt.

Starting point is 01:13:15 Free drinks, like that's not very economically cyclical. It's not going to get waylaid by cycles. 10 times earnings, totally fine. That's a 10% earnings yield. So there was a lot more that could go right than wrong in a way. Yeah, it seemed like the general ways to screw up were minimal. I just didn't see how they were going to screw up. But how did you hold it for so many years?

Starting point is 01:13:47 I mean, you've held it for what, 20 plus years already while it's gone up a thousandfold. That seems almost inhuman to be able to do that. What enabled you to do that temperamentally or intellectually? I think it was about four years or five years later. The earnings per share were higher than the cost basis. And this is something that tried to push on analysts. What I really want is a low P.E. on earnings five years out, where you're imagining a sustainable world. It's not so much shipping cycles. Oh, my God. They could be huge and then they go bust. So that's not what I'm looking for. I'm looking for a huge growth in earnings. And having had the growth in earnings and realized that, yeah, when I was 20, I probably would have liked a monster drink a lot better than dropping no-dose into a Coca-Cola,

Starting point is 01:14:52 which is what I did. Then, yeah, I probably would have wanted that. And it's still, the multiple was higher, but the earnings were much, much higher. They still had the same terrific management. They still didn't have debt. So what could go wrong? Well, the growth could stop. But consumer products, companies have more inertia than tech.

Starting point is 01:15:15 Technology products or ladies' fashions, which annoyingly have almost no inertia, at least the stocks that I buy. One way that I presented it for the analyst was to take some of the amazing Buffett winners and said, what was the PE at entry and what was the PE five years later? It was like Geico was like one times earnings five years later. Wells Fargo also a single digit. Even Coca-Cola was a fairly modest multiple five years out. So in a way that goes back to what you were doing at Value Line, where there were these kind of three to five year,

Starting point is 01:15:59 if I remember rightly, projections. So in a way it was training you to look further out to see what was a justifier, valuation. Is that fair to say? Yeah, but also saying the companies where you can look five years out or 10 years out with confidence are rare unless you're Kathy Wood. And even her list is not that long. So I think she won't disagree that looking out five or 10 years with confidence is difficult. And it's easier to hold on to companies where you can look with at least some confidence. I wanted to ask you a little bit about the emotional aspect of investing because you set this extraordinary thing in your book where you wrote, are you willing to

Starting point is 01:16:49 do the digging and endure the pain, loneliness, and worry that go with superior returns? And I was thinking about this question of how to handle the pain. And I know, for example, that there was a period during this crazy bull market that ended recently where assets were kind of flooding out of the Fidelity Low Price Stock Fund, I think in the first half of 2020, it went from something like $33 billion, which is an enormous fund to maybe $20 billion. And so you could see people acting irrationally and being hasty and betting on crazy stocks. And you're there just being patient and prudent and long-term and value-oriented. And I'm just wondering, how do you endure the pain, loneliness, and worry that go with superior returns? For value investors,

Starting point is 01:17:35 Fair markets are not as punishing. Why is that? It's because if you really thought that the intrinsic value of a stock was $50, and it's dropped from $40 to $20, it's like, wow, this is so compelling, this stock will work, dealing with the underperformance during a raging and somewhat speculative bullmark. market was a contributing factor to my decision to retire. Really? It was very painful.

Starting point is 01:18:13 Yeah, it's very hard because I don't have any. There were a small band of value investors' fidelity, and I wish during that period that I had something that was both comforting and productive to those people. And I had nothing. I had nothing to tell myself, other than my stocks are selling for less than their fair value. And so I'm good with them. But of course, it hurts if you're a competitive person that you are behind the benchmark. I remember Joe Greenblatt

Starting point is 01:18:48 once saying to me, what else am I going to do except buy stuff cheap? He's like, I believe that it's going to work in the long run. And what else am I going to do? I don't have another approach. And Jean-Marie Evriard said the same thing to me. He's like, what else could I do? I can only be a value investor. It makes sense to buy stuff cheap, to buy it for less than it's worth. And it's tough, right? I mean, you went through this crazy experience where even you had owned GameStop, I think, before it became a meme stock and suddenly it went from under $20 to over $300. And you must just be watching that and just thinking, how do I play this game in any sort of sensible, responsible way? And so when I bought it, it was a combination of, I thought it was undervalued because it had been a consistent cash generator and a bit of reluctance to accept reality that indeed video game sales had changed and maybe their business was more impaired.

Starting point is 01:19:49 So when it lifted it off from single digits and got to 38, they sold some of the stock and blew out pretty much all of the rest when it was 63. And from there, it went to like $350. So did I do what I was meant to do thinking about my approach? Yes. Even with the help of the guy from Chui, Brian Cohen, who knew about internet retailing, the possibility of the growth opportunities were somewhat challenged. And it was fairly valued to overvalued at 38 and 63. And so I sold. But if you were really unpleasant, you'd say, you blew away, you threw away.

Starting point is 01:20:43 a billion dollars worth of the fundholders money by selling at those prices and not waiting until it hit 350. And my only defense is I was doing what I was supposed to do and annoyingly a matter of public record, how many shares were sold and what prices. So when you announced, Joel, that you were going to retire as a fund manager at the end of 2023, was it partly just a reaction to the emotional and psychological drain and exhaustion of going through this long period where a less rational approach to investing was doing better. And it just at a certain point, it becomes harder and harder to be banging your head against the wall and swimming against the tide to mix metaphors. Yeah. I think you, yeah, it is hard to tell. I think there's rarely been as much stuff that seemed

Starting point is 01:21:40 crazy to me that was going on in financial markets and the rest of the real world than over the last two years. And it's hard to handicap it. But yeah, it was sort of emotionally exhausting. But the other thing that was going on was my dad was getting to the end of his life. And I guess that brings thoughts of mortality. And he did finally. passed in December last year, but realizing that, yeah, telling all of that was sort of a a complicating factor along with the emotional disappointment about disappointing certain expectations of my chairholders. I think also that the market for funds has changed, and Peter went where the opportunity is or was.

Starting point is 01:22:40 I try to go where the opportunity is, if I can understand it. Well, Danoff goes to where a subset of the opportunity that you know is extremely well. But modern funds are sort of annoyingly pushing towards making you look like an index fund, which I think is not a favor to the fund holder, because if you're going to hold a closet index fund, you might as well just hold the index fund. I remember Will telling me that years ago he got advice from Warren Buffett and said, look, I'm managing, I think it was $200 billion. What advice do you have and Buffett saying concentrate more?

Starting point is 01:23:26 Like you can't concentrate that much, but at least make bigger bets when you have really high conviction. And I think Will has absolutely followed that because I think today you will find in his ginormous fund, some 7% bets. The SEC regulations limit the number of 5% and higher bets that you can have. And so I think he has followed that advice. You've talked to me before about your sense of mortality and it always weighed somewhat heavily on you this question. I remember you talking about being in Japan going to investment conferences and the like in 2011 when I think it was a 9.0 earthquake hit that triggered the tsunami that hit Fukushima. And it seemed like that had a really powerful impact on your life.

Starting point is 01:24:17 And can you talk a bit about how that also has shaped your view of how you wanted to live your life and what you wanted to contribute? Yeah. That was, and especially in, I was at a conference in Japan. And there had been some tremors on Tuesday before the earthquake. And one of them was very brief. It might have been half a minute. And I looked at the company management and translator during that. And the translator said, oh, that was an earthquake or tremor. And since they did not seem freaked out, I was not freaked out, since people's reality is

Starting point is 01:25:01 defined about what people around them think is real. Friday was different. We were in a company meeting and the cups started to slide around and were threatening to fall off the table and the company became increasingly worried and we walked down through the fire escape to the bottom floor and in amazing Japanese lightness and kindness, they served us some free coffee, which I appreciated. But everybody went down to the bottom floor. I tried to get the taxi to take me back to the hotel, but the taxi never arrived. The phone, cell phones went dead and went back to the office.

Starting point is 01:25:54 So we walked back to the hotel, which was a pleasant walk rather than a horrific walk. and the night was very difficult. A reception got moved from the top floor to the bottom floor of the hotel. And my hotel room was on the 23rd floor, and the building was swaying. You could see it. It was rocking. And the aftershocks continued in the midnight. But another member of her group went down to the front desk and started crying,

Starting point is 01:26:31 and she got transferred from like the 19th floor to the second floor because the spookier part was the rocking. I had wanted to tell my dad what was going on, but when I did call, my uncle Howard had a stroke and he proceeded to die before I got home. And so I didn't tell my dad about the earthquake, flights out, and even trains to the airport and flights were all canceled. So I got delayed a day, did get out. The airline made an extra profit on that. But Fidelity thought that it was money well spent, and so did I, to escape. Yeah, it was just a reminder that life can be short and unexpected. And it seems like that was one of the reasons why you ended up writing your book was partly

Starting point is 01:27:28 that you were starting to think about what do I want my legacy to be. Yeah, I think that was part of it and hope that I could write something as awesome as the Peter Lynch books, but he's a more gifted storyteller and I guess I am too geeky and produced a book that's probably more for professional investors. really avid personal investors. I think it's a good and valuable book that has good stories, good practical advice, and it's authentic and it's hard-earned wisdom. I think it's, I mean, I would definitely strongly encourage our listeners to read it.

Starting point is 01:28:09 I'm also curious, knowing that you've gone through a lot over your lifetime, you know, loss of family members, struggles with work and with markets that aren't cooperating with rational analysis and earthquakes and the like. I'm curious if there's anything that the rest of us who would also face our own traumatic and painful situations and setbacks and challenges, if there's anything that you found really helpful in dealing with adversity that has put things in perspective in some way. Give me patience to accept the things that I can control and accept the things that I can't. Just because it was a bad outcome, if you can't think of how you would have done it better with the information that you had at the time, then there's no sense,

Starting point is 01:28:56 or if you can't control it, there's no sense in beating yourself up on things you can't control things. We're saying, gosh, if I had held on to Amazon for more than briefly, would have been different. But in fact, yeah, I want companies that are producing current earnings in cash flow. So it was probably never meant to hold on to Amazon 20 years ago. So in a way, it's to some degree being gentle with oneself and a little forgiving of oneself is something that you're... Yeah, absolutely. If you can't control it and wouldn't have made a better decision, then be gentle.

Starting point is 01:29:41 And if you would have made a different decision with the information you had, then be darn sure that you learn that and remember that. In my case, having 12 rumming cokes and some beer is a really horrible idea. Be sure that you take away that and don't repeat it. But a couple of monster beverages might be good. That would be some 45 years ago, but don't do it. You're handing on the fund after, I think, 32 years. A little more, it'll be by the end of 23 when you retire as a fund manager and stay on as a senior advisor to the equity team. You're handing it over to two people who I think have worked with you for the last 15 years, a lady you mentioned before Morgan Peck and Sam Chammwitz, am I pronouncing that correctly?

Starting point is 01:30:32 Can you give us a sense of what it is you're trying to convey to them, not just about how to pick stocks, but about a sense of commitment to shareholders, which I think has been one of the defining characteristics, both for you and, and Will Danoff this sense of actually really deeply caring about your shareholders. What are you trying to convey to the next generation? Because my sense is that you deeply care about this baby, Fidelity, low-price stock. I mean, this is your creation that you're handing on. Try to do the right thing.

Starting point is 01:31:06 Try to, the fund is less volatile than the market. So it's somewhat easier to hang on to in down. markets, although that doesn't mean that they're not as disappointed as I am. It's down, and you can't avoid that. But I think it's less likely to make you sell at the wrong times. Yeah. Try to choose when they're available. The best in class companies is what I'm trying to push to Sam and Morgan. Beyond that, it's more like Howard Marks implied, which is a thousand little things. What do you mean about a thousand little things? He had a book. The most important thing, you know, and the conclusion is there's not a most important thing in investing. There's a thousand

Starting point is 01:31:58 little things. Yeah. But I think the really big thing is do what the shareholder would do for themselves if they had the knowledge that you have, which since we spend all day on it, we should have better knowledge, but do what they would do if they had the same knowledge. I remember you once saying to me, Joel, that people had often said to you, why don't you run a hedge fund where you'd get, you know, 2% annual fees and 20% of the profits? And you had said to me, I'm not really interested in making people who are already rich, much richer. And my sense with you with Fidelity, low price stock, I think you probably have about a million shareholders, something like that, and you've been managing maybe 70 billion in assets.

Starting point is 01:32:43 My sense about you was that you really did, you know, one of the distinctive things about your career is the degree to which you cared about whether you were doing a good job for those people. Yeah. And I think Will cares about it a great deal. But finance is not a business. that is raped with a lot of human meaning, but there are places where you want it to be of service to someone. When you look back on your career, having had this incredible run, what gives you a sense of satisfaction about it? Because you've come through this very painful period, in a sense, in the last few years,

Starting point is 01:33:24 albeit your long-term record is still great, but it's obviously been a frustrating decade, in a sense. What do you look back on with satisfaction? I'm glad that the most fund holders have gotten a satisfactory return. And I'm also glad that there are up-in-coming people like Morgan and Sam at Fidelity who will continue to try to do that, looking at the attention to shareholders. I can see people in the growth group who have been affected by Will's approach And, yeah, I think producing satisfactory results were a lot of average people for a huge number of average people in developing talent in the next generation. And when you look to the future, look, I'm 54, I look at you now, I think you're 64. I think if you as a relatively young man, unlike the Beatles when they were saying, you know, when I'm 64 and it seemed incredibly old.

Starting point is 01:34:26 When you look to the future, what do you see yourself doing? Well, in addition to obviously offering advice to people like Sam and Morgan, how do you intend to spend the next 20, 30, 40, 50 years, I hope? I sometimes wonder whether I want to rewrite and update the book because there are new stories and there's some topics that I think some might be left out, some might be added. So I'm not sure if I'm going to do that. And one of the things that I had talked about with my dad in the summer before he passed, he was not so keen on that.

Starting point is 01:35:07 I was asking him about a book that he had worked on but not published. And he was sort of pushing me. They had had some thoughts about international trade and how that affects economies and societies. And he thought that was very interesting. I might do that, although I think the likelihood is more that it will update the big money, think small. There is also a trustee at Wesleyan University and trying to work with them. they do not, I'm on the Campus Affairs Committee, not the Investment Committee.

Starting point is 01:35:48 And so I'm pushing my thoughts where they're not really wanted. But I think I'm looking for someone to help maybe in academia, write about university spending rules because I think that there is a problem with what they call the Tobin rule that really would be solved by looking more, look through income. And you've mentioned your father a few times, and I was reading his obituary yesterday, and he's obviously a remarkable human being. And I wonder if I could just ask you it as a final question. If there's anything in particular that he taught you through the way he lived his life or through things he told you that you could pass on to us, really in some ways in honor of his memory. Listen to everyone, observe everything, don't believe everything you think, keep exploring. My dad was an exception like, kind man. Yeah, keep learning.

Starting point is 01:36:48 That's what he did all his life. It's a article in the Wall Street Journal about spiders and how they produced the web, which was actually his specialty, and I so miss his descriptions and knowledge of apparently there's some moisture in it that is required to produce it, but then it dries off. But keeping learning, that's what he would have said. That's a good legacy. Joel, thank you so much. It's been such a pleasure chatting with you. I really appreciate your generosity and sharing your ideas, both in your book, my book, and in this conversation today. It's always a delight chatting with you. Thank you. All right, folks, that's it for today's conversation with the great Joel Tillinghast.

Starting point is 01:37:34 If you'd like to learn more from Joel, you may want to glance at chapter 8 of my book, Richer Wiser, Happier, where I wrote a couple of pages about him. Joel also wrote a very good book of his own that I would definitely recommend. It's titled Big Money Think Small. The subtitle is Bias, Blind Spots, and Smarter Investing. It's full of really practical advice about how to invest more intelligently and equally important how to avoid dumb and costly mistakes. I'll be back very soon with some more terrific guests, including a great investor named John Spears, who has spent almost half a century at an iconic investment firm called Tweedy Brown. In the meantime, please feel free to follow me on Twitter at William Green 72, and do let me know

Starting point is 01:38:17 how you're enjoying the podcast. I'm always delighted to hear from you. Until next time, take care and stay well. Thank you for listening to TIP. Make sure to subscribe to We Study Billioners by the Investors' Businesses, 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 theinvesterspodcast.com. This show is for entertainment purposes only. Before making any decision consult a professional,

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We Study Billionaires - The Investor’s Podcast Network - RWH017: Fidelity Legend Joel Tillinghast

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