We Study Billionaires - The Investor’s Podcast Network - RWH049: Crushing The Market Over 50 Years w/ Jay Bowen

Starting point is 00:00:00 You're listening to TIP. Hi there, welcome back to the richer, wiser, happier podcast. Our guest today is a superb investor named Harold J. Bowen III, or J. for short. Jay runs an investment firm called Bowen Haineson Company, which was founded over 50 years ago by his late father. Jay joined the company right out of college back in the 1980s and has been in charge of it now for more than a quarter of a century. In today's episode, he's going to share with us, one of the great untold success stories of the investing world. This is the story of how he and his father beat the market by an enormous margin over the last half century. Back in 1974,

Starting point is 00:00:42 Jay's father took over the management of a tiny pension fund that had been created on behalf of the firefighters and police officers of Tampa, Florida. In those days, the fund's assets under management amounted to barely $12 million. Since then, thanks to, to the investing prowess of Jay and his father, the fund has grown to $3.1 billion in assets, and that's after paying out something like $1.8 billion to bankroll the retirements of thousands of police officers and firefighters. How successful has this great father and son team been? Well, the Tampa Fund has achieved an annualized return of about 11.7% over half a century by investing in a mix of stocks for capital appreciation and bonds for income and stability.

Starting point is 00:01:32 Those returns are certainly impressive in their own right, but when you zero in on their stock portfolio, you discover that it's compounded at a rate of 14.4% a year for 50 years. The power of compounding at high rates of return over extremely long periods of time is incredible, as you know, so the cumulative return of their stock portfolio is more than 81,000% over half a century. Not bad, huh? How did they generate these spectacular returns? Well, that's what Jay is going to unpack in detail in this conversation.

Starting point is 00:02:08 As I see it, this is a wonderful morality tale with a lot of valuable investment lessons, really for both regular investors and professional investors alike. For a start, it's about the tremendous advantage of investing patiently with an exceptionally long time horizon. It's also about the importance of keeping fees and expenses unusually low, so they don't eat away at your returns. And it's about the power of focusing intensely on really high-quality businesses

Starting point is 00:02:37 that can keep compounding for many years, including smaller companies that Jay regards as the blue-chip stocks of the future, many of which are playing a mega-trend that he describes as the fourth industrial revolution, and it's about the benefits of taking a really pretty simple common sense investment approach that prioritizes the fundamental importance of avoiding disaster so you can actually stay in the game for many decades. I hope you enjoy our conversation that it sheds additional light on this challenge of how to build enduring sustainable wealth over the long term, or in this case, the very long term.

Starting point is 00:03:17 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. Hi, folks. I'm absolutely delighted to be here with today's guest, Jay Bowen. Jay is the president and chief investment officer of an investment firm called Bowen-Hains & Company, which was founded by his late father back in 1972. Over the last half century, they've delivered spectacular. returns, turning $12 million into several billion dollars for their largest client. We're going to

Starting point is 00:04:08 discuss in depth how they did it and what the lessons are for the rest of us. Jay, it's really lovely to see you. Thank you so much for joining us. It's a pleasure, and I'm a big fan. I'm a big fan of your book. It's a wonderful book because it's so much more than an investment book. Really enjoyed it. Thank you so much. I really appreciate it. And you and I spoke years ago, I think during, at the height of COVID about having this conversation. So it's been a long time coming. So I'm really excited that we're finally actually getting to do this. In many ways, the story that we're going to tell today is the story of a father and a son who together beat the market by an absolute mile over the last 50 years and turned millions of dollars into billions. So I really wanted to start by asking

Starting point is 00:04:52 you about your father who has the same name as you is Harold J. Bowen Jr. and your Harold J. Byrne the third, but known as Jay, right? Right. And your father passed away about six years ago, I think, in 2018 at the age of 87. Can you tell us about him what he was like or any stories that give us a sense of his character and the like? I'm so glad you asked that because he never gets enough credit for this story, ever, ever, ever. When we're sometimes profiled in print or broadcast, we started getting some national acclaim

Starting point is 00:05:28 several years ago, and he never got enough credit, and that always bothered me. He was too humble to care that much, but I'm so glad you asked that because he built a tremendous record and firm and relationship. He forged the relationship with the Tampa Fire and Police in the early 70s. Actually, it goes back to the late 60s, the initial interaction, and he formally forged a relationship in 1974. And like I say, he handed me a tremendous record. And working side by side with him for 32 years or so was obviously tremendous for me and life-changing and a lot of other aspects that go along with that relationship.

Starting point is 00:06:19 But I'm just, I'm thrilled that you asked that because he had it a lot harder than I did when he handed me day-to-day responsibility. Coincidentally, we're in the midst of our 50th year, which will end, fiscal year we'll end on September 30, and he had day-to-day control for 25 years. And now I've had day-to-day control for about 25 years. So I think that's somewhat interesting. But he handed me this powerful record. And like I say, even though the fund was a lot smaller when he forged a relationship,

Starting point is 00:06:53 it was $12 million in 1974. And for your own information, he actually initially was involved with the fund in the late 60s. He was a senior executive with a financial firm in Atlanta after starting his business career in Chicago with the Continental Illinois Bank. And then also he was involved with the Sears organization in Chicago. He ended up in Atlanta because I think my mother was a little bit tired of the cold winters in Chicago. that enough. So they ended up in Atlanta, and he ended up with an organization called Lionel D. Eadie, which was a financial management organization back then. And they had a relationship with Tampa. And so that was kind of the initial contact that he had with the fund down there.

Starting point is 00:07:44 And he, with another person in the brokerage industry down there, he actually helped set up the plan initially in the late 60s when it was just a couple of million dollars. He advised him and helped set it up and was involved when he was with Lionel De Eadie. And then when he left, Lionel De Eadie and set up his own firm, he initially set up his own firm in North Carolina, Winston-Salem, North Carolina, as you said, in 1972. And a year or two later, they had had such a nice experience with him that they contacted him to make a presentation because they had become somewhat disillusioned with the, maybe disillusioned is not the right word, but they just wanted to, they had really enjoyed working with him and respected him. And so when

Starting point is 00:08:34 he set up his own firm, they contacted him to come make a, come make a presentation. And so just so people that clear, Jay, so for people who aren't fully informed about the story yet. The Tampa Fund that we're talking about is the pension fund for firefighters and police officers in Tampa, Florida. So this fund basically, as I understand it, had something like $12.14 million back when they made contact with your dad again, right? So they bring him in in 1974. He makes this presentation. And as I understood it, the pension was a bit of a mess at the time. And some people had said that it maybe was on a path to going broke. I mean, the contributions were, I think, all going into Treasury is not stocks, right? So he came into a pretty poor situation. Is that fair to say? Yeah, and also, of course, we're on the eve of that horrendous market in the mid-70s and the great inflation and everything else that went along with that.

Starting point is 00:09:34 So it was kind of a tricky period. It's funny. I taught there's one living trustee left, original trustee, a guy named Bob Smith, who was a policeman in his early 20s and worked with my father initially. And he lives retired, lives in Kentucky now, and I talked to him just a wonderful man. And he, he's such a great resource because he's the only living original trustee left. And he related to me some of what you're saying also. What a tricky period that was and that they really wanted, as he said, we really wanted to hear from Harold again. And so we got back in touch with him and he came down and made a presentation.

Starting point is 00:10:13 Yes, they hired his firm in 1974, and the assets for about $12 million in 1974. And what have they grown to? I mean, give us a sense of why we're here, essentially, which is just how successful the fund has been over those 50 years. Yeah, and what makes it, I think, even more dramatic is that it is a traditional, defined, benefit pension plan. So there's a lot of money going out. It's doing its job. You know, it's providing a good, safe retirement for these wonderful public service employees. And so from 12.1 million to 3.1 billion over the period, and with 1.8 billion taken out. So when you net it all out, it's even more dramatic than it appears in terms of the 3.1,

Starting point is 00:11:02 because like I say, $1.8 billion has been taken out of the fund over the 50-year period. So what we're really talking about here to underline this for our listeners is we're telling the story of a $12 million fund that grew essentially into $5 billion, practically $5 billion, minus the withdrawals of $1.8 billion that have gone out. And this is, when we think about who the clients are, this is several thousand firefighters, is that and lots of policemen? Like, who is it? It's a segregated, it's separate. You know, some municipalities have, the funds are all combined. You know, you've got the city employees, the fire and police employees. It's all, all one pool. But you've got other municipalities that separate the fire and police fund, and Tampa does. It's a separate fund strictly for firefighters

Starting point is 00:11:52 and police officers to provide, you know, define, traditional defined benefit, to provide retirement for these public service employees when they retire. And so it's, yes, it's firemen, and policemen and their families, correct? So in a way, the reason why I'm excited to unpack this over the next hour or two is that basically I think this is one of the great untold investment stories of the last 50 years of how you guys beat the market with your stock portfolio by such an enormous margin. I think when I looked at the figures, I'll probably get this wrong, but basically from September 30th, 1974 until June 30th, 2024,

Starting point is 00:12:35 We're talking about a cumulative return of 24,900% for the whole portfolio, which is about 11.7% annualized since inception. But the stock portfolio, because this is a stock and bond portfolio, we'll discuss. Right. It's a traditional, yeah, 6040 deal, right. Right. So the stock portfolio returned 81,031%, which is about 14.4% annualized. And that compares basically, I mean, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the,

Starting point is 00:13:05 S&P 500 had to be kind of combined with the Dow Jones Industrial average over that 50-year period to get a good comparison. But I think that annualized about 12.5% and cumulatively it was about 34,415% for the index. So we're talking about an outperformance of 47,000 percentage points for the stock. Well, you know, in Stark really demonstrates the compounding power of money, the Einstein Sixth Wonder of the World, whatever you want to call it, because you look on paper and you say, okay, wow, okay, that's a 200 basis point outperformance. Wow, that doesn't look like that. But then when you compounded over 50 years, it's just enormous.

Starting point is 00:13:49 Basically, one way that I've always looked at it, it's basically, this is not exact, but it's, it's, the fund has twice as many dollars as they would have had if they just kept up with the S&P. that they have the side. It's really, it's practically, it's, it's basically twice, twice as many dollars. So it's an extraordinary fee. Compound over long time periods. It might not, visually, it might not look like a lot, the whatever, 100, 200, 30, in a basis point, but when you compound it over such a long period, it's just enormous. Yeah, I mean, this is one of the points I tried to emphasize in my book is that these relatively small incremental margin,

Starting point is 00:14:31 of victory added up over time become utterly overwhelming. And virtually two percentage points a year is not even a small margin of victory. And to sustain that over a long time is enormous. And there are charts comparing the performance to the total returns of other pension funds that are over a billion dollars. And I think I'm right in saying basically that you've been in the first percentile over five years, 15 years, 20 years, 30 years, 40 years. So it's a story of very long term sustained outperformance. So a lot of what we're going to do today is actually to sort of unpack how on earth that happened. And also, I think there are interesting lessons for our listeners who are not necessarily running municipal funds, but actually the idea of how do you perform

Starting point is 00:15:18 well over 50 years is very relevant for people who are listening who have families, who have kids, who are young. And it's a good proxy in a way for an individual investment. career. What do you think? Do you have any thoughts on that, Jay? Oh, yes, absolutely. There's no question that's applicable to individual investors also, particularly when you look at the long-term approach that was taken and that was instilled in me. And one interesting aspect of it, you mentioned the relative rankings versus other municipal funds. You've got two major databases that do that, investment metrics in Wilshire. And we didn't plan it this way. We know we're the top-down,

Starting point is 00:16:01 long-term approach, we're not going to outperform every year. This is just important, but we're not. My dad always used to say, we're really not doing our job if every year were, I mean, he would say that you're way too trading-oriented and you're not taking a long-term approach. I mean, we're going to be early and out of sync during certain times, but over long rolling time periods, it's so powerful. And that's reflected. I'm so glad to have these databases because to me that validates, vindicates, the approach that we're taking.

Starting point is 00:16:37 It vindicates what's known as the Tampa Model in terms of the core unconstrained approach that we take. And the head scratcher is you've got all these other municipal funds, hundreds of them, thousands of them. And none of them employ the Tampa model, none of them. It's all the traditional multi-manager consultant-driven model, modern portfolio theory models. And I just think it's fascinating that you've got this one loan plan. And of course, I'm exaggerating. I'm sure there's some small plans that have one manager. But you have this one loan multi-billion dollar plan that's doing it completely different

Starting point is 00:17:18 than everybody else. and coincidentally, ranks at or at the very top for every conceivable time period, and yet it's viewed with skepticism. It's like, wait, that can't be, that's one manager, that's way too risky. You can't have one manager. We've got to, so I've always thought that was an interesting part of the story that it's so different and so unique, and I'm glad to be able to sink my teeth into the comparative databases,

Starting point is 00:17:48 is because it makes the trustees feel good when they see the rankings because it's basically validating what they've been doing for 50 years. We'll come back in much more detail to what makes it so unique and how it compares to more conventional approaches. But first, I wanted to get a bit more of the backstory of it. So when your dad started out, I mean, he'd served in the U.S. Marine Corps, right? So I'm kind of wondering when he came and made contact with policemen and firefighters and the Like, was there something about that sense of duty, the sense of service that kind of resonated?

Starting point is 00:18:22 Was there, what was he like in terms of personality? Was there something about him that resonated with the people running the pension fund? Because in a way, it's sort of a strange love story over 50 years where these oddballs running, you know, on the committee of the pension fund, actually trusted you guys for 50 years, which is kind of extraordinary, especially as we'll get to, given some of the criticism that they came under over the years? Yeah, I think that's exactly right. It's all about trust. And he built this trustful.

Starting point is 00:18:57 They really respected him and they liked him. And I think the Marine Corps definitely played a role in terms of making him resilient and making him connect with some of these public safety officials. I don't think there's any question about it. When he forged the relationship, they just had enormous trust and respect for him. and that's why they called him back to make that presentation in 74. And he used to, it's funny. He used to go down.

Starting point is 00:19:25 And again, just to, he never gets enough credit. He really took the brunt of the early criticism and of the, that they were, even though the funds a lot bigger back then, the fighting to get control to get their hooks into that plan once it was started. And then when it got bigger and bigger and bigger in the 1970s and the 1970s, in the 1980s particularly, I mean, it was, it was really, he had to really fight some fierce battles in terms of keeping the plan. He was under a lot more stress than I've had to deal with to try and keep the plan together. I mean, he was being attacked from all sides. Often, I mean,

Starting point is 00:20:06 it was just really tough. And then you have the performance side of it where, you know, that was a lot of pressure. But he forged a relationship with those board members. And I can remember when I was little, third, fourth grade, my mother would say, well, your father's going to Tampa again. And he would go every month. He would go every month. And he forged this relationship. And I can remember he would tell me that, you know, they would pick him up at the airport and they would go have breakfast or lunch. And I think he really took pride in educating these trustees. because they were really, really dedicated. You had three policemen and still do, three policemen, three firemen,

Starting point is 00:20:51 and then three city trustees at the mayor appoints. So it's nine trustees, and my father always said, it's really the police trustees and the fire trustees that they've got the majority. If there's ever a vote, they're the ones that they're going to determine the fate of the plan. And so he really, he forged these really terrific relationships and friendships. We just had our, we had a little 50th anniversary celebration down there. And some of the trustees came that are retired now from the 1980s and 90s. And they were just really good friends with him.

Starting point is 00:21:27 He were really, there was a chairman, there was a chairman that was chairman for 12 years and a vice chairman that was a fireman and he was vice chairman for 10 years. and he was really able to forge a very close, not with all of them, but with a lot of the trustees, a very trusting relationship. And I think he felt it that it was incumbent on him to really educate the trustees

Starting point is 00:21:55 in terms of what he was trying to do and why he was doing it. And when they would see what he said, particularly over long time periods, come to fruition, I think it really helped emboldened him with the trustees, and they just completely bought in to what he was saying, and they completely bought into the long-term approach, and they had their eyes firmly set on the distant horizon in terms of what this plan was all about.

Starting point is 00:22:25 Well, I remember you telling me when we spoke last time that I think it was the chairman of the trust. When he would go to these investment conferences, and people would. would sort of pillory him for the fact that they had all their money just with this one small firm in Atlanta. And I think you told me he would keep the returns in his back pocket and he'd pull them out and everyone would just kind of go quiet and be like, oh, all right. Well, I see.

Starting point is 00:22:52 Actually, your returns are pretty amazing better than ours. And it would sort of shut them up. Exactly. I mean, and the other thing my father had to deal with, much more than I've had to deal with, is that this really desire for, I mean, the first. fund, even though it was whatever, 25, million, $50 million, $100 million, $200 million. I mean, everybody wanted to get their hooks into it. And it was viewed, I think, as a fresh piece of red meat. You know, you had this one manager, and it was like, wait a second, think of the fees

Starting point is 00:23:21 that fund could generate for the consultant, and for the brokers and for the multi-managers and for the whatever the deal of the day is, you know, the, you just, and the trustees, like you say, they would go to these conferences and they would just be swarmed, and they would be be, particularly when he was responsible for it, they would really be criticized from a fiduciary standpoint for only having one manager. And there was just, he really had to fight the story. I remember one story he used to love to tell. And these trustees were selfless, dedicated. They often gave up promotions to do the right thing. I mean, there's a, there's some incredible stories about some of these original trustees when pressure was put on them to do certain things.

Starting point is 00:24:04 he loved telling the story about this was in the early 80s, and the former mayor of Tampa had joined an insurance company out of New York. I'm not sure which company it was, but he had come down, he had brought the sales team down to try to sell the fund on guaranteed investment contracts that they needed to put at least half the assets into guaranteed hit investment contracts. And they brought all these fancy salesmen down from New York in their fancy suits. And they gave the presentation. And of course, they just, the other thing my father used to always say is everybody always underestimates these policemen and firemen. They underestimate their intelligence. They underestimate their common sense. They underestimate how savvy they are,

Starting point is 00:24:53 which is what these people, I'm sure did. They thought they had it in the bag. You know, the mayor was with the former mayor was with this firm. And they thought it was just done. And the board voted down. And it's just everybody was slackjaw. I couldn't believe it that the board would do that. But of course, it was the exact wrong time to wait into these guaranteed investment contracts because it was on the eve of a really nasty period in terms of what was going on in the body market in terms of interest rates and that kind of thing.

Starting point is 00:25:25 So that's one story he liked to tell. But there were all kind of different challenges in terms of people trying to get their hooks into this thing? I think this is the first point that I want to underline because there are a lot of lessons that we're going to draw out in our meandering conversation and about how to make money over the long term as an investor. And I think this is the first one that we want to draw attention to, which is that people have very perverse incentives. And this is something that Charlie Munger talked about very eloquently where he basically said, look, you should always basically pay attention to incentives first. And he had these very pithy comments about how you should particularly be aware

Starting point is 00:26:09 of investment advice that's especially profitable for the investment advisor. And so the part of the backstory here, as we'll discuss as we go on, is that Jay and his father charged unbelievably low fees to this pension fund. And that's appalling for everyone else who wants to get their hands all over the fees. I mean, what, you've traditionally charged what, 0.25% flat fee. Is that about it? Correct. Yeah. I know my father decided back in the 80s, he just felt like, look, if we're going to have total management responsibility, we need to really be aggressive and competitive on the, from a fee standpoint. And he just wanted to do a flat, flat point 25. And he felt that was fair to everybody, particularly, and even today, when you look at the average, when you add it all up,

Starting point is 00:27:03 and there's so many hidden fees in terms of these various layers, particularly with the poster child, would be something like a calper. So, I mean, when you go through the various layers of fees, it's, I think it's easily 40 to 50 basis points, at least the average. So the fees are, I think, certainly competitive, and that was by design by him. He really felt it was important. If they were going to entrust us with the entire fund, then we needed to have a very competitive fee. And the other thing that he always emphasized and made me realize is that, look, this is not just some blob, some fund that we're working with. These are people's, this is, this is, this is, this is, this is a retirement. I mean, they're entrusting us with the retirement.

Starting point is 00:27:52 And so he always felt like it's taxpayer money. money, it's, you know, we want to provide a good retirement for these public safety employees, and he always emphasized erring on the side of caution and taking a really high quality approach. You know, the more adventurous of stuff, he was fine with it, these other managers, whatever the case may be, and depending on the client, you know, if it's, he always felt like if it's private money, if it's a private endowment or a private foundation, you know, go for it. you could take as much risk as you want. But he always emphasized because it was defined benefit retirement money for public safety

Starting point is 00:28:36 employees and it's taxpayer money basically. He really felt like we should err on the side of caution. And the reason I mentioned that is I think the results are actually on a risk-adjusted basis a little bit better than they appear because it was done and is continuing. and the other thing he made me realize it was done with a, and it still is done with a very high quality approach. And he always emphasized that it can be just fine. You can do, you can do what you need to do for this plan without swinging for the fences every day. You can take a very high quality long-term approach and it'll work out. That's been very important.

Starting point is 00:29:17 We'll go into that in a little more detail in a minute. I just wanted to close out this idea of not overcharging and of low fees, because this actually is a very important lesson for our regular investors as well, because as you pointed out in an article that I think you wrote for Barron's several years ago, this is a quote from that article, you said there should be an intense focus on fees which can have a jaw-dropping impact on fund values over the long term. And you pointed out that if, say, you're running a $5 billion fund that returns 7% annually after fees over 20 years, it would actually yield $1.9 billion less than a fund returning seven and a half percent. And so just that half a percentage point a year over 20 years in extra fees is kind of catastrophic.

Starting point is 00:30:02 And I think this is something that's really easy for regular investors to actually clone and emulate from you, just to think about what am I actually getting for the extra fees that seem tiny in the short term? I mean, who cares about half a percentage point? You know, when you're trying to make them, you know, when you think you can make 50% on your cryptocurrencies in a day or whatever, you know, people don't really focus on half a percentage point, but over time it becomes colossal. Do you have any thoughts on that, Jay?

Starting point is 00:30:36 There's just no question. The numbers are so astounding, just as we mentioned on the compounding power, how powerful that is. It's the same. It's the same side of the coin with fees over long. long time periods, it might look minuscule, as you say, oh, 20, what's 25, okay, so my fees 50 basis points instead of 25 basis points. But good grief. Over long time periods, it can, it can just be enormous. And yes, I think it's really critical for individual investors. I mean, as I tell my

Starting point is 00:31:08 kids, it's all about after tax. It doesn't matter what your pre-tax income is. If the marginal tax rates 100%, it really doesn't matter what your pre-tax income is. I mean, you really need to look at it after fees. That's so important, particularly over long time. People get lulled, I think, and seduced into thinking maybe it doesn't matter, but just vital over long time periods. And one of the things, obviously, that has made this such a lucrative business for so many people to get in on managing these trillions of dollars in, you know, for state employees for their pensions and like, is that they're hiring lots of hedge funds and venture capital firms. private equity firms and the like, which charge very hefty performance fees in addition to their annual management fees. And then on top of that, you have this layer of very heavy expenses

Starting point is 00:31:58 for consultants who are advising you on where to put the money. And as I wrote about in my book, Buffett is wonderfully funny about these sort of hyper helpers, as he puts it, who are always sort of advising you to kind of move your money around in a more aggressive way. and they're kind of hiring and firing people. Can you talk about that world of experts? I mean, these aren't bad people. They're like you and me. They're just trying to make a living and send their kids to college.

Starting point is 00:32:28 But they're not necessarily, you know, they're feeding at the trough, right? Tell us how it works, like about this kind of this little, it's not even a mini industry, an enormous industry that's grown up around all of these funds. Right. And I'm glad you mentioned Warren Buffett and his, anybody who wants to just see some, I mean, nobody has written, nobody does it better in terms of, he usually talks about it in his annual report and Charlie Munger used to also. Nobody, I think, has a more accurate critique of the, of the consultant industry and modern portfolio theory situation than Warren Buffett. But he routinely writes about it in his annual letter, I think. And anybody who's interested in what he has to say about this should really go do a search

Starting point is 00:33:24 and look at some of his writings on the consultant industry and modern portfolio theory, because it's just priceless the way he articulates it. And I remember my father always, he always pinned it. He always felt like ERISA, which dates back to 1974, I think it was the Employee, Retirement Income and Security Act, which was really designed for private pensions in terms of regulations and fiduciary responsibilities, that kind of thing. But what happened, my father always said, what happened was a lot of these public funds surrendered. The boards got spooked about being fiduciaries. And so they handed it off to the consultant. We're going to, you know,

Starting point is 00:34:09 We're going to let the consultant do it. We're done with it. They got nervous. They got coal feet. So the consultant, and it became bigger and bigger and bigger and bigger that industry. And as you say, they're not, I mean, they're not bad people. They're genuinely trying to add value. I just think they're operating out of a flawed playbook, flawed modern portfolio theory playbook. But the industry got bigger and bigger, and they became the go-to. fiduciary entity for all of these public plans. And what would happen is, and I've seen it over the decades, I've seen the booklets they produce.

Starting point is 00:34:49 They come in every quarter, and it used to be really egregious. I mean, it was so painful the way it used to. It's gotten better in terms of the longer-term approach, but they would plop down this massive document every quarter where they would analyze and critique all of the managers and what their sharp ratio was and what their beta was and what their alpha was. And, you know, pick your Greek letter, pick your modern portfolio theory term. And they would do a rigorous analysis of each manager and which one's underperforming and which one's outperforming.

Starting point is 00:35:24 And, okay, now I think it's time to shift money from this manager to this manager because he's underperforming. And literally, I mean, sometimes this was done every quarter. And here we are trying to take a 20-year approach. And it's just, it just makes your head spin. Now, Tampa is unique. They've never bought into that. They've never bought into that. But all these other municipal plans, the consultant became the go-to entity,

Starting point is 00:35:47 became more and more important as the years went by in terms of doing manager searches, doing asset allocation strategies, hiring and firing managers, producing the quarterly reports, assessing and evaluating the managers, telling the board when they need to do a manager's search. And of course, there are a lot of perverse incentives with that model because it kind of encourages turnover and activity, you know, for a variety of reasons. So they just got stronger and stronger in terms of their grip on the municipal fund industry. And it's just textbook, classic, you know, you have a whatever, a $100 million plan or a billion dollar plan. They're going to have

Starting point is 00:36:34 10, 20, 30 managers, all different disciplines, all different styles, all based on this theory that you need to be diversified. And equating volatility with risk, really, which is what it flows from. And it's just, to me, when I look at the hard data, it's just been a prescription for mediocrity, really. 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. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every

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Starting point is 00:41:44 that somehow there's something kind of very seductive about it, but also delusional, no? Right. And it's funny, you said science. I mean, my father used to hammer away one of the early lessons he taught me, he would come in my office and he would say, look, this is not a science, it's an art. He would say it's like painting a picture. You know, you got this portfolio and you're constructing it. And if you do it right, it's just like a beautiful picture. You know, he would always say that.

Starting point is 00:42:14 He would really always emphasize that it's, look, it's not, in his viewpoint, that it's not a science. Now, having said that, I will say this. There are plenty of ways to manage money. And there are plenty of people who do it that have been much more successful than I that do it other ways. They might have a black box or they might have a formula or they might be completely technical. And more power to them, we just always felt the most comfortable viewing it more as an art than a science and taking a, you know, a top-down thematic approach. I know that's not for everybody and there are other managers who do it just the opposite. I remember Peter Lynch, who I'm a huge fan of Peter Lynch.

Starting point is 00:42:58 I remember him saying that, well, gosh, I mean, five minutes spent on economic analysis is five minutes wasted. You know, he didn't care about that kind of thing. So, yes, they're different, they're all kind of different ways to do it. We've just always been the most comfortable viewing it more as an art than a science, and my father really instilled that in me. Let's talk more about this idea of being a top-down thematic investor, because as you say, it is kind of unusual.

Starting point is 00:43:27 What do you mean by it for a start? And also, can you give us a sense of how this approach kind of grows out of your unusual experience? And really out of your dad's unusual experience, right? That he started in the 70s during a period of stagnation and stuff. So it was a time where actually you kind of needed to have some top-down understanding. because otherwise you were really, really vulnerable. Right. I think that's right.

Starting point is 00:43:53 I mean, the example I like to use is that when you look at some of these numbers, I mean, between 1966 and I think 82, the market really didn't go anywhere. I mean, it actually had a negative real return, I think negative 6%. And we always felt the reason for that was really bad policies, bad monetary policy, bad fiscal policy during the, you know, the great inflation of the 70s, really policy oriented. And so when I came along, and it's funny because I'm not a numbers person, I'm not a math person. I'm not, I mean, my father was much more oriented towards, his brain was much more, more mathy numbers.

Starting point is 00:44:35 I'm much, I come at it really the other way, much more, you know, my liberal arts background. And I'm not, not a math person at all. but I was completely captivated and drawn to the policy debate. I just found that fascinating, you know, the monetary policy and what that meant for financial assets. And when you had periods of price stability, what that meant for stock returns, like the 1948 to 1966, when you had an incredible period from a price stability standpoint and the market compounded it, a strong double-digit rates. And then you had this period from 66 to 81, 82, where you had negative real return. and you had the great inflation of the 70s. And so when I came in, I can remember even before I was, even when I was in college, I very much was drawn to the policy debate and what was going on.

Starting point is 00:45:26 And I would talk to my father, you know, we spent a lot of time talking about the 1980 election and what that meant. And then the end of the 70s, what that meant when Alfred Con was deregulating the airline industry and the trucking industry and then Carter put Volcker in and then Reagan was elected and just these transformational changes on the tax regulatory and monetary fronts that were coming, when I say top down, that's what we were really looking at, okay, what is this going to mean? What is Paul Volcker going to mean to financial assets? What's he going to mean to the bond market? What is Ronne Reagan's tax reform of 1982 and 1986 culminated with the tax reform act of 1986?

Starting point is 00:46:08 What's that going to mean for financial assets for the bond market? What's it going to mean that the change in the regulatory structure that was going on in the 80s? And what I always remember is, even before I was in the business, really, really talking to my father about what Volcker was doing, that he was going to break the back of inflation. And I remember my father thinking, okay, this is really going to, if this happens, if you've got price stability coming in on the monetary side, And you've got higher after-tax rates of return on the fiscal side because of tax reform and a more efficient economy with higher real growth rates.

Starting point is 00:46:52 This could really, for certain, and I say top-down, so you start by answering these broad questions about what's going on in the monetary world and the fiscal world, regulatory world, what that might mean for different sectors and industries. And you break it down. And then when you focus on the industries and the sectors that you think might do relatively well, Well, then it becomes more of a traditional valuation standpoint, where you're using traditional valuation metrics. And I can remember my father, he would open up the value line.

Starting point is 00:47:24 And this is in the mid-80s. And he would say, look at this chart of Campbell's suit. Look at this chart of Coca-Cola. Look at this chart of Gillette. These are all staples, consumer staples companies. And they had just gone, I mean, absolutely just dead, dead, dead money. And he got a sense that because of what was going on on the monetary and fiscal fronts, that this was the time to really build big positions in these companies.

Starting point is 00:47:50 And he did. He did. He built for Tampa. He built significant positions in Coca-Cola. I think his cost was a dollar and a half. Gillette, some food hines, Campbell's Soup. I mean, they had just flatlined. And let me tell you, the bull market started in August, 1982.

Starting point is 00:48:10 coincidentally, it started when the tax cuts were delayed for a couple of years. During that Tax Reform Act of 1980, they phased them in, which we always felt was a mistake because it delayed people's behavior. But once they kicked in, that was it. I mean, the Staples sector really just took off because you can imagine what happens to their operating leverage when those margins are able to, when inflation comes down and their margins are able to expand. And my fuck, my jockey would come in my eyes.

Starting point is 00:48:40 office, because, you know, he would hear that Warren Buffett was taking a stake in Gillette and Cougies. Oh, well, Warren Buffett is copying me again. I mean, we got to, he would laugh about that. But that, you know, that's kind of a flavor of the top-down work in the 80s, really focusing on this consumer staple sector because of what was going on on the inflation front and what that might mean to the profitability of those companies. It's a very distinctive approach, right, where you're beginning with a broad analysis of macroeconomic and political and technological trends and the like. And you're looking at tax policy and trade policy and fiscal policy and regulatory policy

Starting point is 00:49:24 and even foreign policy. And then you're saying, okay, so what's this going to mean for stocks and bonds? What's it going to do to inflation and interest rates? And then you're doing the bottom up analysis to say, okay, so who's going to benefit from this? and what do we want to do in this sector that's likely to benefit? But I guess I have this, there's almost broader philosophical question, which is how knowable actually is any of that stuff?

Starting point is 00:49:46 I mean, to what extent are you, I can see that it's very relevant and very important, but I always kind of had this prejudice that it was just unless you had particular gifts, which maybe you do. It was just incredibly difficult to make any predictions about this stuff. It is. And my father would always warn me that, look, in terms of the political situation, you can forget trying to predict what the stock market is going to do based on an election, because it can just go so many different ways. And there can be no rhyme or reason sometimes. But there's certain, I think, you know what, and I think you make a very valid point.

Starting point is 00:50:26 And I think there's certain times where the top-down work is more valuable than other times. That was just, that's so seared in my mind, the 80s, because it was such a, dramatic what I saw and what he saw going on on the monetary and physical front and what it meant to interest rates, so long-term interest rates. I mean, this 40-year bull market in the bond market, I mean, that's the genesis of it was back then. What that meant in terms of what kind of exposure you wanted in the bond market. And the bond side, we haven't talked about really the bond side of the portfolio. That's viewed in Tampa. That's viewed really for income instability. It's not a timing strategy based on interest rate anticipation.

Starting point is 00:51:05 It's not a trading strategy, but just as there was some themes in the 80s on the stock side, on the bond side, that was such a wonderful time to put money to work in long-dated maturities on the bond side. So we really view the stock side of the portfolio for capital appreciation, and the bond side really is there for income instability. We're not trying to aggressively trade the bond portfolio. It's really there for income instability. But I think your point is valid. I mean, there are going to be times when the top-down work is more valid than at other times. I mean, just to give you another small example, as we moved into the, and I'll say that the moves that my father made in the early

Starting point is 00:51:54 in mid-80s, I mean, it really powered that portfolio for several decades. I mean, when you look at the cost basis of some of these positions he built back then, it was really something. And the other two companies I remember that had such an impact on me, some of this was top down. Some of it was not as much top-down, but I can remember in the latter part of the 80s, he came in my office and dropped this Fortune magazine on my desk and said, see what you think in this article. And it was, I think it was a cover story. He was on Jack Welch. And he said, I think that he really emphasized how important one person can be in an organization, how it can make a huge difference in terms of the direction of a company. And I remember him saying that I think this,

Starting point is 00:52:48 I think this could be something. And of course, the stock, it was a very problematic company, particularly in the early 80s. I think Welch came on in the early to mid-80s. And I read the article. And it was the classic, it almost, these guys almost remind me of military generals. I mean, it's vision, strategy, and tactics. I mean, how are they going to do it? How are they going to turn it around?

Starting point is 00:53:13 What's their vision? What's their strategy? What's their tactics? How are they going to provide? chairholders with a really good, good return. And both of us just thought, wow, we need to look at this company. And that ended up being one of our, one of our biggest holdings. And over the ensuing 20 years and so, I think the stock returns something like 4,000 percent. I mean, it was just, and that's one man with one vision. And that made me realize, again, how important one person can

Starting point is 00:53:42 make. The other one, that's on the industrial side. The other one that impacted me that I never have forgotten on the consumer side. And this was more in the early 90s. I think our emphasis shifted a little more from a top-down standpoint. This is after the Berlin Wall came down. It really became apparent that we were entering an integrated, interrelated global economy. And these companies that had a good plan to exploit these emerging markets and other regions of the world, we thought really we're going to have an advantage from an earning standpoint and profitability Billy's standpoint. And he showed me this article on Ruben Mark, who was the CEO of Colgate, had a great run at Colgate, I think from the early 80s to the end of the 2000s. And again,

Starting point is 00:54:29 this is an example of how one person can make such a difference. Colgate back in the early 90s, believe it or not, it was better known in Asia than it was known in the U.S. I mean, it had a great, great exposure to these global markets and a lot of these companies had 50, 60, even 70% of the revenue is coming from overseas. And so that's another one on the consumer side that we focused on. But I think it really taught me how important one person can be, you know, that has the vision, the strategy, the tactics, whether it's Jack Welch or Ruben Mark in the 90s or whether it's somebody like a David Cody at Honeywell in the 2000s or Steve Jobs and Tim Cook. there are a lot of headline CEOs that get all the attention, but there are also some really

Starting point is 00:55:16 unsung heroes out there that have just built, maybe with smaller companies that you haven't heard of, that have just built tremendous records. But I've never forgotten that period, and particularly the Welch, Jack Welch, and Ruben Mark, that really taught me that, boy, when you're looking at these organizations and at these companies, man, I mean, one person can make a tremendous difference. I want to go back to something you were saying a couple of minutes ago when you were talking about bonds and having a balance strategy. And I know you've often, with different funds, I guess, you might have 65% stocks, 35% bonds or 70% stocks, 30% bonds, that's that sort of, or 60, 40, that sort of thing. And when I look at your long term returns, one of the things that's striking to me is how much

Starting point is 00:56:06 better you would have done if you hadn't owned bonds at all. And I mean, massively better. And I've, I've often wondered, I think this is partly because when I was kind of coming of age as an investor in the late 90s. And, you know, there were those studies on was it Jeremy Siegel writing about stocks for the long term? And I just sort of internalized this idea that bonds, you know, was sort of a lousy long term better. And actually, I was probably totally wrong in terms of, you know, writing that massive wave of interest rates coming down. But there is a part of me that's always been kind of deeply wary of putting too much money in bonds. And when you look at it now, like what is the case for owning bonds versus having a very hefty portion of one's portfolio

Starting point is 00:56:52 just in equitist? You're on it. You got it. That's it. Nobody should really. I've said for forever, municipal funds should not own bonds. They should not have in bonds. It's just, the overwhelming, the data is so overwhelming. And listen, these municipal funds are in perpetuity. They're long term. They're, you know, the actuarially, they love, the actuary loves the 20, we take a 20 year approach, and the actuary loves the 20 year approach because it matches up to the obligate. That's kind of the average life of a career of a fireman or policeman. And so the data is so overwhelming. I like looking at, I really started seeing my teeth into this. About 10 years ago, I did a study, and I looked at every 20-year rolling period in our financial history.

Starting point is 00:57:39 And there wasn't a 20-year period that did not include a bull market and a bear market and a speculative bubble and a war and a recession. So, you know, you got 10-year periods that didn't include all that. But you could never find a 20-year period that didn't include all of these variables. So to me, that was such a great period in terms of measuring the competency of, your manager, I mean, a lot of managers can look great in a bull market, and a lot of managers can look great in a bear market if they're positioned correctly. But to me, the way to see how you're, to really look at how your manager's doing from a comprehensive standpoint is to look at

Starting point is 00:58:18 their 20-year rolling performance. And not only did I look at Tampa's 20-year rolling performance, how the stocks did, how the total fund did relative to these unmanaged indexes, but I also looked at, I'm going all the way back to 1926, how all of these asset classes did for these rolling 20-year periods. And it's just what you're saying. You just scratch your head. And you say, wait a second. Why are these defined benefit pension? Why do they own bonds?

Starting point is 00:58:49 Their performance, if they can take a long-term approach, there would be no unfunded liability crisis, you know? You just, and it's always state-by-state, municipality by municipality, they've got. You've got these rigorous asset allocation rules, and they all include a fairly hefty allocation to fixed income. And the reason they do it is because it can really make you look good over short-term time periods. When you have the bear market, the inevitable bear market, typically, you know, the bond

Starting point is 00:59:23 portfolio is going to give you a cushion and your total return is going to be better than your stock return. But to me, if you can focus on the long term, which is. these plans should be focused on the long term. There is not a, there just didn't a case to own bonds. Now, granted, you're going to have periods like in the early 80s when you could nail down some extremely attractive rates, interest rates in the bond market. Of course, your real return wasn't that great because inflation was doubled. But the nominal return on these bonds was 16, 17%. I mean, so there are, you know, there are going to be certain periods where it might,

Starting point is 01:00:02 make sense, but to me, I've said for quite a while, I mean, if I could waive a, if I were the, the municipal fund emperor, I would say no bonds, long term, 20 year approach and all stocks. I once talked to Jack Bogle about this and, you know, the founder of Vanguard, and he said there was a tremendous argument for owning a single balanced fund. And so I did this with a pension fund of mine. I was writing the chapter on simplicity in my book, and it was sort of almost an experiment. I guess I did it for my wife at one point where I got her just one Vanguard fund. I guess it was one of those target funds that has like 80% of the money in stocks and then 20% in bonds. And it's sort of split between foreign bonds and U.S. bonds and foreign stocks and U.S. stocks, but very heavily U.S.

Starting point is 01:00:54 And I thought there was something kind of elegant about it. And then I did the same with a pension fund of mine. And so there's only like, and it's only one one investment of mine, but it's, but yeah, I'm sort of, it troubles me almost that I have like 20% of that fund in bonds, but then I sort of, in a way, I'm like, well, you know, Bogle lived through a lot. He saw a lot of turmoil and he understood why it was necessary to have bonds for survival. What do you think? Well, I will say this. I mean, I should have, I should have mentioned this in my comments on it. your age does play a factor. I mean, I could, like one of the ladies that worked for our firm for 45 years,

Starting point is 01:01:35 she had a nice stake in our provisiary plan, and she was about to retire. And by all means, in that situation, you never know what the day is going to bring every short time periods. I mean, I didn't want to see half of her assets evaporate because we had some event, you know, exogenous shock. So, I mean, depending on your age, yes, I mean, that's got to be a factor in terms of whether you want to, I mean, at some point, you need to, depending on what your income requirements are and what your financial situation is, depending on your age, you're certainly going to want to dial it back. Absolutely. Yeah, I should have mentioned that. What I'm mainly focused on are these in-perpetuity municipal pension funds where it really, it doesn't matter. I think that this gets JAA at a really interesting and important topic, which is the whole issue of survival by avoiding catastrophe over the course of 50 years or over the course of an individual's investment lifetime. And there are various things that you do that help you to survive. So one obviously is having a bit of money in bonds. One is I remember you saying at one point that you've rarely allowed a single investment in a stock to get beyond. 5% of the portfolio, you tend to trim them back. Another, you've talked about owning, say, 50 to 60 stocks for the Tampa Fund or with a smaller fund, like a 10 to 50 million dollar fund,

Starting point is 01:03:01 because you have a lot of other clients, maybe there would be 30 stocks. So there's some degree of diversification in the stock portfolio. Can you talk about how you think about this issue of diversification and just making sure that you're going to get to the finish line? Because I think this has really important ramifications for all of our listeners who are trying to figure out, well, how do I actually survive and get to the finish line? Yeah, that's a great, I'm really glad you asked that because it allows me to mention a couple things that I think are important. Number one, my favorite thing to do when we establish a position is, if I'm lucky enough to have made a good investment, is to take the cost out of it, to take profits so you have no

Starting point is 01:03:44 cost in the stock. So in theory, the stock could go to zero and it was, you didn't lose money. I mean, that's just a instinctively comforting feeling when you've taken all the cost out through profits and everything else is, you know, just gravy, so to speak. That's really, really like that type of situation. And we've been faced with that recently through our, again, top-down work mainly focused on the fourth industrial revolution. We ended up. up with a very large position in Nvidia. And, I mean, every time we turned around, it was becoming 4% and 5% of the portfolio. Again, every day, and we've taken, we've taken more profits in the stock than the current

Starting point is 01:04:30 position. And it's still our largest. So, I mean, that's how well it's done. So it could go to zero, and it would still have been a moneymaker for us. So I think taking, really taking cost out of it. And again, you know, this brings up a point I mentioned earlier. As a defined benefit as managing retirement money for a municipal fund, I just think we need to err on the side of caution. And if we were a hedge fund or some private entity where we could really swing for the fences and we could let the position run to 10, 20, 30 percent, that'd be fine.

Starting point is 01:05:06 But with taxpayer money, I just think it's prudent to kind of keep your eye on it if a position becomes a position. you know, four or five percent, even after taking a lot of profits, that can certainly happen. I think that's a good discipline to have. I mean, yeah, you might miss some upside, which we have. We miss some upside by taking these profits, but I just think it allows you to sleep a little better, a little better at night, knowing that you've scaled back, you've taken all the cost out this idea that if the stock goes to zero, it was still not a loser, not a losing investment. That's all somewhat comforting. You know, typically, like you say, we'll own 40 to 50 names in Tampa.

Starting point is 01:05:52 And something else that I think is important when I analyze the Tampa situation over the years, just as one person can make a big difference in terms of whether it's Jack Welch or Reuben Mark or Steve Jobs or David Cody or some of these unsung heroes that run some incredible companies. Boy, in keeping with that, how much of a difference one stock selection can make. And just to give you a small example, this is not exact, but we, and this was very painful because it had been a long-term holding, but I decided back in around 2011 to get out of our Coca-Cola position, it was, it represented about, I think the cost basis was something like one and a half. And so it's a tough, it's a tough decision. You never want to become, it's another lesson from

Starting point is 01:06:51 my father. You never want to become emotionally attached to these companies. If you feel like there's a, no matter how good it's been, you just want to make sure where it's going. And it, for us, to us, to us, because of our limits on how much we can invest on the stock side, if we want to establish a new position, we have to sell something. The money. just doesn't magically appear. We've got to, if we want to establish a new position, we've got to sell something. And so I think there's a good example of how just one decision can make a huge difference in a portfolio. And I'm not going to get them all right. And I've gotten plenty of them wrong. But you'd think about the Coca-Cola that was liquidated in 2011. And that's when I decided

Starting point is 01:07:32 to establish a position in Apple. And basically the idea, well, some, From a top-down thematic standpoint, the Coca-Cola was what I viewed as a kind of a 20th century company operating in a 21st century Whole Foods world type situation. And I felt like their global consumer footprint might be decreasing. Whereas Apple, as we speak now, I think their global consumer footprint is something like 2 billion people. So in a way, you're switching from one consumer company to another. I mean, different industries, different companies. Okay, just say that back then we were building $25 million positions in each stock. Okay, the Coke, over the ensuing 13 years through 2024 through June 30, I was looking at some numbers.

Starting point is 01:08:23 The compounded annualized at 8%. And Apple compounded annualized at 25%. So if we had kept the Coke, it would have been worth 75 million. but the Apple became worth $550 million. So just that one investment decision, just that one top-down idea, well, wow, we really, I'm intrigued with Apple and, okay, well, how are we going to fund the purchase?

Starting point is 01:08:55 Well, let's look at some of these consumer companies that maybe the outlook is not as bright as it once was. And so that's, I think, for individual investors, I mean, just one decision like that can, I mean, another one recently was the decision to sell J&J four or five years ago and by Eli Lilly. Again, it was based on some top-down work and the emphasis that Lilly has on what now is, of course, a lot of blockbuster. It was really the pipeline. They really had the pipeline.

Starting point is 01:09:30 And J&J was struggling under a lot of litigation issues and so on and so on. And again, you look at those numbers and just the hundreds of millions of dollars it made, the difference, that one switch. So even in a multi-billion dollar portfolio, one stock, one position, and again, listen, I've gotten plenty of them wrong. And I've been wrong twice plenty of times, which is the stock you sell moves up and the stock you buy moves down. I've done that numerous times. But if you can get some of them right, just that one investment decision can really make a big difference for individuals. Let's take a quick break and hear from today's sponsors. No, it's not your imagination.

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Starting point is 01:13:48 whether it's industrial sector, healthcare sector, financial sector. Can you tell you? Talk about what you mean by the fourth industrial revolution and how you're actually positioning yourself to play this. Because when I look at your portfolio and I see these things like Nvidia or Teledyne or Apple, I'm curious, or Microsoft, I'm curious, A, what you see is this huge megatheme and B, how one can position oneself to benefit from it over many years, hopefully. Yeah, I think it does touch a variety of industries. And of course, it's anchored as we've seen the last year or two by AI, I think is kind of the anchor of this fourth industrial revolution. And basically what I'm talking about is on the heels of the computer revolution, the third industrial revolution, which was anchored by computers. And this is kind of the follow-on to that in terms of the digital, more of the digital revolution that's going to, from a technology, just incredible technological innovation in terms of what it might mean to different industries

Starting point is 01:14:58 and sectors. And as you say, I think it touches just the artificial intelligence theme alone. I mean, when you hear these CEOs, I heard the CEO of Medtronic a couple weeks ago talking about what it might mean for them, in terms of medical device standpoint, drug discovery, gene editing, genomics, all it just touches health care, it touches the industrial side, the material side. It just has a wide-ranging, I think, implications in terms of what it might mean for a variety of different companies and industries.

Starting point is 01:15:37 But in addition to AI, you know, there are other really fascinating innovations going on also, industrial automation, for instance, in the industrial area. what's going on there. You got different areas of technology that, you know, nanotechnology, for instance, what's going on there, 3D printing. There are just a lot of high-tech innovations. It reminds me a little bit of the mid to late 90s where you had just a wonderful period, innovation, risk-taking, capital formation, congruent with price stability on the monetary side, Greenspan really let the economy run. I can remember like it was yesterday, his Humphrey Hawkins testimony where he basically took a shot at the Phillips curve and indicated that we can

Starting point is 01:16:31 grow the economy above trend rates with price stability, which was really music to my ears. He did let it run. And you had these, of course, back then, it was internet related, whereas now it's AI related. You know, the Netscape IPO was 1995. and we all know eventually were that led in terms of the bubble situation, but you did have a lot of innovation and capital formation and risk-taking. And, of course, you had the four horsemen back then, which was Dell and Microsoft and Intel and Cisco. And if you didn't own those stocks, you could forget it. It's very similar to the day to the magnificent five or six.

Starting point is 01:17:15 we did not own the majority of those stocks. So we had a period of outperformance, excuse me, of underperformance back then. We just thought from a valuation standpoint that some of them looked a little, and we were wrong. I mean, we missed, we missed it with some of them. And that was a period where you had a lot of, like I say, different today, but still a lot of innovation, technological innovation that was flowing from the internet. And of course, you had the tech bubble.

Starting point is 01:17:46 I'm off track here a little bit. But if you didn't own those four stocks, there was no way you kept up with the market. But the benefit of the long-term approach is if you didn't own those stocks when everything burst, then you did keep up with the market. So, again, when you look at it in long, 20-year rolling increments, I think that's a great way to measure. But in terms of the fourth industrial revolution, we're really. really after, from a top-down standpoint, after the companies, again, that have the vision, strategy,

Starting point is 01:18:19 and tactics to exploit it, to exploit these new technologies that hopefully it's going to help these companies from a profitability standpoint. So when I'm looking at your portfolio, I can see names like Nvidia and Tetra Tech, which I think does technology consulting and sustainable solutions and Palo Alto networks, which does cybersecurity security solutions and things like Vertex Pharmaceuticals, which does biotech and Netflix and Apple and Microsoft Teledyne technology. So there's a lot of tech there and obviously a big focus on companies with high growth rates. But then also you've traditionally looked for companies with low evaluations than average. And I'm just wondering how you grapple with this problem as you

Starting point is 01:19:05 try to set yourself up for sort of durable, sustainable success over 20 years, how you deal with the problem of things like Nvidia becoming very pricey. Yeah. And I tell you, hardly a day doesn't go by when I wonder how my dad would have navigated this environment because he was much more of the Graham and died, you know, the value line. All right, let's go out, look at this. Look at this sales per share. Look at this return on equity.

Starting point is 01:19:31 Look at this free cash flow yield. Look at this, you know, balance sheet. Look at this dividend. You know, very, very much more on the value side, which was great in the 80s and 90s. He would have adapted. I know he would have. He would have come up with something. But it's such a, it's such a different game now.

Starting point is 01:19:48 It's so different. The traditional, I mean, you can put together this beautiful portfolio from a valuation standpoint and just get absolutely steamroll for 10 years, for 15 years, for Twitter, you know. So you really do have to adapt. And I think that this concept that I think Charlie Munger, I think he's the one that's such a great statement that he would rather own great companies at good prices than average companies at great prices or something like that. Yeah. Yeah. And I think the adaptation that. Yeah, I think he's a great company, great businesses at fair prices rather than fair businesses at great prices. So he kind of shifted. Buffet away from cigar butts towards very high-quality companies. But there's a real conflict here, right?

Starting point is 01:20:40 Like how you justify staying in InVIDIA, but how you dare not to own it? It's really tough to gauge, okay, what is the market willing to pay if you have this company that is generating just consistently double-digit returns and profits year after year, okay, well, is a 30 multiple? I mean, then you look at the PE ratio, you look at the PE ratio to growth rate to kind of gauge it that way. And when you do that, something like an Nvidia, of course, does not look very expensive when you look at the PE relative to the growth rate. But something like a Costco, for instance, you just scratch your head and you think, gosh, I mean, okay, when is the multiple? Just, I know it's a fantastic company with great returns

Starting point is 01:21:31 of profitability. But I think that's the big, and I often wonder how my dad would have handled this environment in terms of trying to sort out when it kind of shifts from a long-term value to just a situation that just doesn't make sense anymore from a valuation standpoint. I mean, with the Nvidia and with a lot of these holdings, they've done so well, which is why they're sort of our largest, just that they've just done so well. And we have taken an awful lot out of them

Starting point is 01:22:06 from a profitability standpoint. I do think we're early in this AI situation, just as in 1995 when Netscape had their IPO. That was early. I mean, you had years and years of capital investment and profits and good earnings for a variety of these companies before the whole thing careened out of control and you had the test.

Starting point is 01:22:28 bubble, but it's something I think about a lot, that's for sure. I always loved that quote that Templeton used to quote, I don't know if it was his words, or someone else, he used to say what the wise man does in the beginning, the fool does in the end. And so I think some of it is, you know, you just don't want to be the last person to pile into these things after they've gone up because you're motivated by a terrible fear of missing out. Well, and here, just to give an example, I think this is stunning. Some of these days we've had in the last few weeks, You know, we had a day where the S&P, the market cap weighted S&P, was off over 1%, and I think 490 stocks were up.

Starting point is 01:23:12 But because of the market cap nature, you know, the handful that were down, it tanked the whole. That was a day where the equal weight S&P was up over a percent, and the market cap S&P was off over a percent. And I think that we're going to start seeing not exactly that dramatic of a shift, but I do think you're going to start seeing at the headline level. It might not look like the market's doing much, and it might look like it's turning a little bit. It might even be that the market cap way of the next might be moving down.

Starting point is 01:23:45 But what's going on underneath the hood, I think is really interesting. I think this could continue, and it brings up another point. A very important part of our portfolios over the years have been what we call future blue chip. and these are companies that might be, you know, from a, we like to look at revenues more of the market cap, but they might be, say, a billion to five billion in revenues, but we think because of their leadership and vision and strategy and tactics and global business plan, that they're going to be multi-billion dollar companies looking out, oftentimes these companies do represent intriguing long-term value.

Starting point is 01:24:22 I'm glad you mentioned in TetraTech, because that would be one of these companies that I think it's been a very quiet situation, consulting and engineering. This would be what I would call an unsung CEO. You got these rock stars that get all this publicity, but there's some companies out there that are run by, that just superbly run. And if you look at the returns that that management has been able to generate over the last 10 and 20 years, it's not a high profile name, but they're just right in the heart of the infrastructure theme, which is another top-down theme of ours from a

Starting point is 01:24:57 construction and engineering standpoint. Another one, Badger Meter, which is flow control and some other products like that, just a very powerful niche, a hundred billion dollars in sales. But again, the management team over the last 10 and 20 years, the returns they produce for shareholders have just been tremendous. So that's always been a very important part of our portfolio, these companies that are smaller. And for one reason or another, the technological niche and the management and the business plan, we think they're going to be multi-billion dollar companies looking out. Oftentimes, these companies become acquired because a lot of the, a lot of larger companies are looking at the same thing we're looking at. I can think of several over the years. Locktight was

Starting point is 01:25:40 acquired by Henkel, the German company, and Lubrizol was acquired by Warren Buffett's, Berkshire. We had CPC International, the food company acquired by Unilever, Warner Lambert, was acquired by, I think, Pfizer. I mean, you've got, there's some great companies out there. that are doing a wonderful job for their shareholders that don't get the publicity that the big ones do. But that's always been over the last 50 years, that's been a very important part of our portfolio, these smaller what we call future blue chips. When you look at the backdrop at the moment, I know with your top-down focus, you're always taking a view on the fiscal situation, the monetary situation, the regulatory backdrop,

Starting point is 01:26:24 all of those things. What worries you at the moment? I mean, whether it's Federal Reserve policy or the U.S. debt burden or the possibility that valuations in the market are too high and that it could be like a sort of 1999-2000 kind of bubble. What are you looking at that you think our listeners and viewers ought actually to be aware of? I think that the Fed is such the 800-pound gorilla. It's such the important entity in the investment equation, what the Fed is doing and what interest rates are doing, and what the liquidity backdrop is. My biggest concern is the Fed, you know, they continue to be wedded to this model. Just in general, I'm not a big fan of discretionary monetary policy. I just think if you go back to the founding in 1913 of the Fed, I don't know how to say, I mean,

Starting point is 01:27:19 I feel like the August's reputation of the institution is belied somewhat by the facts. But when you look at the record, I mean, let's face it, they ever saw a doubling of the price level in World War I. A lot of their actions led to the Great Depression, doubled doubling of prices during World War II. You know, they financed the great inflation of the 70s. And we've had this, they inverted the yield curve before the great financial crisis because they were wedded to this Phillips curve model. And then, of course, the last few years, they had a 10-quarter overshoot on the inflation front. I mean, you had nine, 10 percent nominal GDP growth. And a zero bound Fed funds rate. So I just, again, it's not that I, listen, I have a lot of respect for the people in the institution. I know they're trying to do, they're trying to do great. I just, I worry about the model, the discretionary monetary model, and I feel like we'd be better off with more of a rules-based approach, maybe. And the danger to the discretionary approach, Jay, that you are seeing specifically is what, that they'll be too restrictive for too long.

Starting point is 01:28:24 And so... For instance, right now, right, that just as they were too easy for too long after the COVID situation, that maybe now they'll, you know, kind of rearview mirror optics where they might wait too long to start being more accommodative because I think they're restrictive right now on a variety of fronts, depending on the metric you're looking at, whether it's the inverted yield curve or the real Fed funds rate or money growth, or depending on. on what the, or for looking inflation, inflationary expectations. But I'm hopeful because the last couple of presidents, I know they want to, they're,

Starting point is 01:29:01 they're ready to move, they want to move. I think they're a little bit of hesitant because of that 10 quarter overshoot they had on the inflation front. But my concern would be that they wait too long. And then the, you know, the horse is already out of the barn, so to speak. I mean, you would hope that they would be not just completely reactive. In other words, once the numbers are clearly visible, then it's too late. I mean, they need to be, I think they need to be more forward-looking. We had a hint of that back in the 80s and 90s when

Starting point is 01:29:30 I think Greenspan was basically operating off of a informal price rule that Manley Johnson and Wayne Angel had kind of developed where they were really looking at commodity prices and gold and the foreign exchange value of the dollar and the yield curve, kind of whether to gauge whether they were accommodative or restrictive. I mean, that's not a hard. formal rule. I mean, maybe a nominal GDP target. I just think I would love to see a thorough, I don't know whether you do it with a, how you would go about, I mean, obviously it would probably take legislation, but I just, it would be great to really explore different alternatives to the current hyper discretionary system where they're able to blow their balance sheet up to, you know,

Starting point is 01:30:12 $9 trillion. I don't know. My concern now would be that they, that they wait too long, but I've been hardened by the last couple of press conferences that I think they'll move in September, get the ball rolling. It seems like longer term, another of the structural dangers that you've been focused on are things like national debt and entitlements. And I know you're pretty obsessed with economics. And I wonder if you could kind of put this in perspective a little bit. You wrote in one of your letters to shareholders that the executive and legislative branch policymakers need, quote, to put the country on a long-term glide path towards solvency and sanity on the spending front. And you said the recent numbers and trends are breathtaking and call out

Starting point is 01:30:54 for reforms to avoid the prospect of a compromise in living standards. Could you just quickly put that in context? I can explain what the situation is and why you think this trend is likely to matter to markets going forward if nothing actually is done. Yeah, it's funny because You've seen this situation before where you've had a really big increase in the, for one reason or another, maybe war or national emergency where we've had a big increase in the federal debt. But gosh, I mean, these numbers today, I think they used to call it mega numbers. M-E-G-A, my eyes glaze over, mega-numbers. It's just because it's so astounding. You know, a billion used to be alive.

Starting point is 01:31:39 Then it's a trillion. and then it's $2 trillion annual deficits and $30 trillion of federal debt. And I mean, yeah, at some point, nobody knows when it's going to be an issue. I think the good news is that historically what you see, you know, if we can just, I think it's the path that's important. It's not, well, we need to cut the deficit in half in the next year or two, or we need to, you know, the national debt needs to be, we need. need to immediately be reduced by 10% a year. I mean, to me, it's really the glide path.

Starting point is 01:32:16 If you can just get on a, if a plan can be developed, that just puts the country on a, on a glide path where it's, where it's moving in the right direction, particularly as a, just as a metric, you know, you can look at it as a percent of our, of our GDP, the debt. And then the other part of that equation, of course, is growth. I mean, that's such a wonderful, elixir. If you're growing it in real terms at four or five percent instead of one or two percent, I mean, that means trillions of dollars into the treasury, trillions of dollars or more revenue over these 10-year time periods. So it's really a matter of growth-oriented policy to allow us to grow above trend along with some type of plan on the spending side to, I know that's easier

Starting point is 01:33:08 said than done to get the trend moving in the right way. It doesn't have to be done overnight. I think the markets would be completely satisfied if they saw the trend moving in the right direction. That's going to require a lot of heavy lifting, obviously, and it's going to require, I mean, entitlements have to be part of the equation. And so it's somewhat complicated, but it's not possible. I mean, it's certainly doable. And as you know, I mean, it just doesn't seem to matter right now to the markets. The dollars reserve currency status, the level of debt right now is not that there's no, I think it's one of those situations where it's not going to matter until it matters. I remember feeling that way for many years about China, even when I was living

Starting point is 01:33:55 in Hong Kong until I guess from around 2001 to 2006 or seven, you would go visit China and you'd be like, I don't get how this is sustainable. And yet it kept being sustainable. You know, they would keep building buildings that no one was occupying and stuff like that. And it was this amazing magic trick. And at a certain point, you're like, I give up. I've been wrong about this for so long. And then many, many years later, it's like, no, no,

Starting point is 01:34:19 like a lot of those things that didn't seem sustainable ended up being unsustainable. But it can, it, these things can go on. And obviously there were so many other positives going on. But it feels like things can go on for so long being sort of making, making you scratch your head and then suddenly it stops and everyone's like, well, of course it was always going to stop. Yeah, exactly. That's so true. It feels like you just have to position yourself so that you'll survive when eventually, you know, this game of musical chairs stops. I mean, I think that's one of the interesting lessons where I think about your success over 50 years.

Starting point is 01:34:54 It reminds me a lot of this guest I had on the podcast, Fred Martin, who I also wrote about in the book, who's a very savvy survivor who started, you know, he was actually, he was on a destroyer, I guess, in Vietnam. So he had a very keen sense of how you survive. And he like you, he's, he's not ultra diversified, but he's diversified enough. He would sort of say, yeah, I need to have like 35 stocks. You know, he was just sort of setting, and he lived massively within his means. He was always thinking about how do you survive whatever happens. So if I'm wrong about this or, you know, will I be okay? And that seems to me one of the essential lessons of your success and your father's success over 50 years is just given how uncertain everything is, you just want to be somewhat

Starting point is 01:35:42 cautious, not unaggressive, but cautious. Well, you know what? That brings up a really good point that I think is important for individual investors, particularly. And I think it's really, really a big reason the plan has been so successful over the last 50 years. And it's funny because I determined fairly early on, I mean, the 87 crash hit very soon after I came on board. And it was, it was just dizzying. I mean, I think it was 22 percent on the Dow in one day. I mean, can you imagine coming in and seeing the Dow off 8,000 points? I mean, it was just, it was a stunner. And I didn't know, I thought, gosh, I mean, this is a very short career for me. I thought it might be over. I mean, I just, it was so dramatic and it was, gosh, it was just a strange feeling. But my father

Starting point is 01:36:32 was always adamant that it was, he always thought it was a technical issue, a technical correction, that it really didn't involve fundamentals, that it was, you know, the advent of portfolio insurance. And that was also the, when program trading was computerized trading was starting to kick off, and it was all exacerbated when you had that crash. But quickly, over the years, realized and mentally became mental, my mental framework was geared towards, okay, let's face it, it is going to hit the fan every 10 to 15 years. It's just automatic. I mean, you can go through financial history, you know, you had the whatever, the nifty 50 and then the great inflation of the 70s and then the 87 stock market crash and then the tech bubble and then the corporate

Starting point is 01:37:14 scandals and the great financial crisis and then COVID. I mean, it's really, you just got to accept that every 10, 12, 15 years, you're going to do. to have a dramatic event, and it's really going to be unpleasant, and it's really going to impact financial assets in an exceedingly negative way. I mean, I just, I know that, and I feel like I've become over the years somewhat seasons, because I've seen so many of them, and I've been ready, and what I saw my father do then has really influenced me because he was, he said, and it made me realize what you do during those periods, I would argue, is almost more important than how your position going in to the event. When I look at particularly with Tampa, it's the moves that we made

Starting point is 01:38:05 after the 87 crash and after the tech bubble and after the great financial crisis with the luxury of being able to take a long-term approach and being wrong for a few years maybe. But it's the moves we made then in terms of really building some significant positions in stocks that had been I think unfairly punished. For instance, looking at the 10 years after the 87 crash, the market compounded at 18% a year. And you can see that after all of these really financial shocks to the system, whether it's the great financial crisis after that, where you had strong double-digit returns

Starting point is 01:38:45 for the next decade. So I think a valuable lesson is, now, granted, this is assuming that you don't think it's over, and we're just going to, it's just over, you know, and that you need to never buy another. But if you think that, as Virgil said, every calamity can be overcome with endurance. If you think that if you have the power to take a long-term approach, it's what you do during those dramatic and traumatic periods, what you're buying, the positions you're building, and then you just, and you're there, and with confidence that over the next 10, particularly 20 years, it's going to really pay off. It's made a big difference. And I think a lot of municipal funds, because of the

Starting point is 01:39:33 consultant-driven nature of it, just at the wrong time, they will make asset allocation decisions that are wrong. You know, they'll shift out of stocks into bonds. They'll shift out of stocks. into private equity and hedge funds because they're looking in the rearview mirror and they think that the outperformance is going to continue in those asset classes. I'll never forget the, you know, everybody wanted to be Yale. Everybody wanted to be David Swenson, I think. And of course, nobody can be dead. There's only one. You know, there's only one John Templeton, there's only one more, but there's only one David. I mean, but everybody, all of these municipal funds were, all the consultants were, they wanted these funds to pile into private equity. And man, when it hit the

Starting point is 01:40:14 fan during the great financial crisis, you know, it was years before they could even mark to market some of those holdings. And I've seen that a lot in the municipal fund arena that just at the wrong time, and oftentimes it will evolve around a financial crisis, the asset allocation decisions, a decision is made to move out of stocks into other asset classes, whereas what we did in Tampa during those periods was exploit what we thought were really cheap prices and build some significant positions in stocks that over the next 10, 15, 20 years became really some of our largest holdings. Yeah, there are so many important and profound lessons, I think, that come out of this. Among them, you've got to be able to position yourself to survive to get through these periods,

Starting point is 01:41:05 so you can't overreach or you won't be able to be opportunistic. But then you do have to have courage, you know, what Munga would call gumption to take advantage of these periods of disruption and dislocation. And so it's this weird combination where you're having to be cautious enough so that you don't overreach, but aggressive enough so that when everyone else is panicking, you can be opportunistic. And then I think another just really important thing that I just wanted to underline when you were saying, you know, how so many people were trying to follow David Swenson's Yale model. This is really important, right? I mean, so many people in your business ended up deciding they had to go into these more adventurous, higher risk kind of

Starting point is 01:41:45 alternative investments like hedge funds and private equity and venture capital and, you know, Timberland and, you know, Californian vineyards and the like. And I think one thing that's been really striking about what you've done over 50 years is just how simple you kept it, that you you didn't do anything exotic. Can you just talk about that? Because even with your bonds, right, you never did anything speculative with the bonds. So you've been pretty aggressive and opportunistic, but you weren't shorting, you weren't playing around with options and futures. Can you just talk about that? Because I think that's a really important lesson about not having to be too exotic in order to succeed. Sure. It's a really boring, boring approach. I mean,

Starting point is 01:42:29 we'd say that we're unconventionally conventional. I mean, we're, it's like a throwback, and it's not, yeah, there's nothing, I wish I could offer a more dynamic tail, but it's very boring. And it's just what you're saying. I mean, these, unfortunately, here's what happened to these plans, the reason we have a liability, unfunded liability crisis, so many of them became unfunded for a variety of reasons. And they felt like they had to reach for return. And so they're sold these, this idea that, okay, well, you can get a higher return. here or you can get a higher return there, whatever the deal of today is, you know, private equity or hedge funds or private credit. And I'm not disparaging those investments.

Starting point is 01:43:13 They've been wonderful for a lot of people. I'm just saying for a conservative, high-quality, taxpayer-funded, defined benefit plan, I think it needs to really err on the side of caution. And the good news is it can be done with a really high-quality, long-term conservative approach. These other plans, they've dug themselves in a hole in a hole in To get out, they've had to reach for return and reach for yield, but often what they don't realize is commensurate with that, they're increasing the risk. And so then when you have an event, a liquidity event or an interest rate event or a reset, it exacerbates the situation.

Starting point is 01:43:50 And then they're deeper into the hole. And then they've got to reach for yield again. And it just goes on and on. Whereas if they had just out of the gate taking a more simple vanilla high quality, the long-term approach, they wouldn't be in this mess. And it's really, really hit, it really hits home for me when I look at our 30 separate 20-year rolling periods. We've got every September 30, another fiscal year ends, and every October, when I go down, I put another set of 20-year rolling data out for the board to see. You know, the next one will be 204 through 2024. And what that shows them,

Starting point is 01:44:37 I think it really emboldens them in terms of what they're doing with this high quality, conservative vanilla, boring approach, they are able to, number one, most importantly, is meet their objectives. You know, they're able to meet their objectives. We're not trying to, we're really not trying to hit it out of the park every day. We just want to meet their objectives, provide a good retirement for these public safety employees. And when they look at these 30 separate 20-year rolling increments, what they see is that they've hit their objectives. The total fund over these 30 separate 20-year-roiling periods has really done well. And it really shows them how much the equity side of the portfolio is added value, how that's been the driver, the equity side,

Starting point is 01:45:22 and how that's done better in each of those 30-year rolling periods, how that's done better than the indexes. And it also shows how much better stocks have done than bonds, because we've got that charter on there too. So it gives them a snapshot of these 20-year rolling periods of how their total fund did, how their equities did, how the S&P did, and how the bond market did. And I think they look at that and they think,

Starting point is 01:45:51 wow, you know what? We might get ridiculed for having one manager and everybody might tell us we're fiduciarily irresponsible when we go to these conferences, but you know what? The job's getting done in a high quality way. And I just think a lot of these other municipal funds, for one reason or another, have just dug themselves into a hole and that they're forced to reach for return to get out of it. You've described yourself before as having the mentality of an endurance investor. And I know that you're also an endurance athlete that you've done a lot of half marathons and that you, I think you've done the escape from Alcatraz race about a dozen times. And I wanted to ask you about that race and whether there are any lessons for investors

Starting point is 01:46:36 because it seems like there's a connection between the way you've invested and your father invested so that you succeeded over 50 years. and also your obsession with endurance, athletic feats and survival? Yeah, it's funny. I did a lot of very active from a physical fitness standpoint, a lot of cycling and running and swimming. And I was doing it initially for mental and physical health and well-being because I didn't realize it, but I'd been self-medicating for decades in terms of the powerful,

Starting point is 01:47:13 transmitter effects of physical activity. And then, of course, I found out later in looking into it that brain science does show that physical activity has a dramatic neurotransmitter effects. You know, it increases gray matter in the frontal lobes of the brain. It raises levels of serotonin and endorphins and dopamine, leading to higher levels of focus and concentration and working memory and executive function. I mean, all of that, I mean, I would be one of those that years ago, I would have been the A, D, all of them, the H and the A and the D and all of that.

Starting point is 01:47:47 And I didn't realize I was self-medicating. I would come home and just run and run and run. And it was so great. And so I realized, and particularly when I had the luxury of doing it, structuring my day to optimize my performance, I could do it in a way. You know, I can pretty much be anywhere. I can really, the rhythms of my day revolve around physical activity

Starting point is 01:48:10 because it had such a, for me, probably more than most people. It has such a dramatic neurotransmitter effect. It turned me from kind of an average student into a really good student. I mean, I could just see it in my own life, in my own ability to focus and concentrate and think and write. I mean, some of the best sessions I've ever had had been like the corner of a pool parking lot after a morning workout in my car with black coffee and an iPad.

Starting point is 01:48:41 I mean, it's just, it's just been dramatic for me. So I'm doing all that for mental and physical health. And I felt like, well, gosh, I might as well race if I'm doing all this. I might as well race. And so I really love triathlon racing. Yeah, I just did my 14th escape from Alcatraz triathlon. And yeah, I mean, there are, there are a lot of lessons parallels in terms of, you know, you got to focus on the long term and you're going to be faced with stumbles and hard. hardships and challenges and you know, you got your eye on that horizon long term. And so, yeah, there are some parallels. But that's been a, it's been an extremely important part of my work life, being able to structure my work life in a way to optimize my day-to-day performance.

Starting point is 01:49:32 It's been really important. That's a brutal race, right? The escape from Alcatraz thing. I was looking it up and it's a mile and a half swim, I think, in an 18-mile bike. ride and then an eight mile run. So you're putting, and you're 62, right? I mean, you've been putting yourself through a lot physically. Yeah, it's such an adrenaline rush that one. I mean, it's kind of a quirky distance, not one of your traditional distant triathlons, you know, the Iron Man, Half Iron Man Olympic distance. It's kind of a quirky distance, but yeah, it's a, it's legit. That's for sure. And it's, I just love it. I mean, I love the adrenaline and I hope I can I can stay at it, but you're right. I mean, there are parallels during those hours of racing

Starting point is 01:50:16 from a mental and even spiritual standpoint. There's some parallels with that and investing, definitely in terms of what you need to be focused on. What do you think has been the most important lesson? Like, is there something where you really transfer something from your athletic life to when you're looking at your portfolio and you're thinking about how to build generational wealth for your clients? in terms of relative to the... Yeah, I mean, are you actually, there are there things where you're able to kind of take a mental model

Starting point is 01:50:47 from the triathlons and be like, yeah, I'm sort of doing the same thing here when I'm building wealth for the firefighters and policemen of Tampa? Yeah, it really is. I mean, I do love the Virgil. I'd love the Virgil quote, all calamities can be overcome with endurance.

Starting point is 01:51:05 I mean, it's just a classic, if you're involved in one of these long races, I mean, my God, what you go through mentally and physically and even spiritually, I mean, it's just over several hours. And yes, then you're looking at this portfolio. And again, it really makes you want to focus on the long term. And you know going in when you're constructing this portfolio that, look, as I said earlier, I mean, it's going to hit the fan at some point.

Starting point is 01:51:36 We know that. Every 10 to 15 years, it always does. but if you have the mental strength to realize that and to focus on the long term. And most importantly, and this is where we have the luxury, most money managers don't have this luxury. I mean, this is really unheard of. This fund really does take a 20-year approach. Quarter to quarter, year to year. I mean, of course, it's built on itself because every year when we're able to show another 20-year rolling,

Starting point is 01:52:07 it just makes it, it's like this spiral upward. And I mean, it reinforces how valid our approach is. Of course, if we were brand new, and this was year one, and we were saying, hey, you need to take a 20-year approach. That might be a little bit different cell. So we have the luxury of having the record, the track record, and being able to show the data. So when we have the inevitable, and we listen, we've had some bloody periods.

Starting point is 01:52:36 I mean, you know, the great financial crisis and the tech bubble. I mean, just some really bad, really bad back-to-back years that have really, and what I always like to say in that situation, and this would be valid for individual investors also is that, listen, these losses, if you haven't realized them, they're not losses. You know, they're on paper. You've got this loss on paper. But if you can have the endurance and focus on the long term, that paper loss, as long as the fundamentals are good with the company, that paper loss is going to be a paper gain. I think the problem comes emotionally.

Starting point is 01:53:22 People are just so anxious that they realize the loss. You know, they realize it. Then it's a loss. Okay. Well, then what are you going to do with that money? You got to, are you going to time it? Is it going to be so magical that you? you reinvest it right at the right time. I mean, it's a, it really is an endurance equation.

Starting point is 01:53:43 And if you're an individual investor or an institutional investor and you're looking at that, this is a great way to think of it, that one of those op-eds I did with Barron's, somebody from Fidelity wrote in, and it was an article called Investing with Rip Van Winkle, and it was on the 20-year approach, and how if you woke up in 2014, in 94 through 2014, if you'd been awake, you would be an emotional wreck. I mean, you had the tech model, the corporate scandals, the great financial crisis. There's no way you hung in there. There's no telling what you did with your portfolio.

Starting point is 01:54:17 But it was just an incredible 20-year period from an emotional standpoint if you were an investor. But if you were asleep and you woke up on December 31st, 2014, your stocks were up almost 10%. And think of the blood, toil, tears, and sweat that you saved yourself. by being asleep. And I got the biggest kickout of somebody Fidelity wrote in and said, you know what? The best account I've ever had was somebody that forgot he had the account. It's the best performing account he ever had,

Starting point is 01:54:48 which I thought really encapsulated the whole concept of taking a long-term approach. I mean, this Fidelity broker had a client, and he never heard from him, and he forgot he had the account. I don't know how big it was, but it was the best performing account he ever had. because there was no activity. The phrase that came to mind as you were talking about that, I just, as I think about your career, I was thinking of the,

Starting point is 01:55:13 you know, if I were writing a chapter about you in a book, the phrase is the loneliness of the long distance investor. That there's, you're a long distance investor, you're an endurance investor, and to take a kind of 20 year or 50 year approach, you've really had to be kind of incredibly independent spirited

Starting point is 01:55:32 to kind of break away from the convention. way of doing things within your peer group. Does that resonate at all? Yeah, and again, you know what? It really goes back to the, we have such a luxury of having this client. And because of my father, from the very beginning, the way that he educated those trustees and these trustees pass it down to other trustees and they take pride in the long-term approach. And they know it emboldened. them and the Tampa model is validated when they look at these long-term results. It's really, it's a shame to me that there's so many municipal funds, and this is applicable

Starting point is 01:56:16 to individual investors also, that for one reason or another, they're just not, they just don't buy in to the long-term approach, and they try and trade it, and they try and time it. And yeah, some people can do that. there's some enormously successful people that can operate like that. But for, again, getting back to this conservative defined benefit plan with taxpayer money involved, I mean, this is the way to go, I think, and it's proven to be correct. And it's just, to me, it's just tragic that so many other municipal funds have gone the other way with it.

Starting point is 01:56:54 I think there are a lot of things that we've discussed that are replicable, whether it's, you both for other funds, but also for individuals, whether it's keeping expenses down, taking a long-term perspective, not overreaching, being opportunistic in times of turmoil when there's disruption and you can buy bargains, understanding a little bit about things like the monetary backdrop and the long-term trends and themes that are likely to drive returns in particular sectors over many years. But I think one of the problems is it's really hard to find an individual who you come back for a long period of time. There's real key man risk here. I mean, you guys have been right over 50 years. But even now, there's the, and I have

Starting point is 01:57:39 this problem as an investor in Berkshire Hathaway. Like, what do you do when you're betting on an individual or the culture of a small group of people? How do you think about that? I mean, what happens? I mean, you're 62, you have a couple of children. What, what, what, what happens off to you. Yeah, that does, that does come up. And as I tell the, tell the board, you know, it's something happened to me. If a shark got me at Alcatraz, I mean, nothing happens to their position in Apple or Invidia or Honeywell, you know, that's still there. And the portfolio is so high quality. Just because something happens to me, their portfolio doesn't evaporate also. That's number one. It's amazing how many people don't even don't think of it that way.

Starting point is 01:58:24 So they would have plenty of time to make a move if they wanted. Now, we do have four senior professionals. And so if something happened to me, hopefully we would continue on. I mean, obviously, I'm living and breathing it. That's all, my day is totally consumed with the Tampa portfolio. And that would shift. But I think that the board realizes that they would have, you know, we would hopefully continue on as is.

Starting point is 01:58:53 and if they needed to make a mood, the quality nature of the portfolio would give them time to do that. In terms of future generations, it's something that I've got to think about. I mean, I'm going to always be doing this through family office and our handful of clients, including Tampa. I'm going to always be doing this. But if something does happen, yeah, the next, the next, the next, generation is something that we've got to grapple with. It's tough, though, because it's so, you know, my father, it's funny, my father tried to build a bridge between himself and me, and it just didn't work. For one reason or another, he couldn't find the right, you know,

Starting point is 01:59:42 he thought it was very important to have somebody between us, the generation between us, before it was handed off to me. And he couldn't, he just couldn't find the right person. you know, he would, he had some funny, you know, he would come in and he would say, well, so-and-so, you know, this guy, extremely articulate, he'll talk 30 minutes on why we should buy this and 30 minutes on why we should sell this and write up these incredible reports, but could never move. He couldn't make a move. He just was, for one reason or another, he just was so gun-shy.

Starting point is 02:00:15 And I remember when my father told me that, thinking, okay, my father is never going to say that about me. I know my father, like, even if you were wrong, he wanted somebody that was decisive. And he had a heart attack in 1990, and I was kind of thrown into the mix sooner than probably I should have been in terms of day-to-day responsibility on some of this stuff. And I can just remember writing up these tickets and thinking, you know what, I might be wrong, but he is not going to say I was indecisive, you know, making decisions. And so we actually didn't have an intermediary, which is very unusual. I mean, it just never could find the right person.

Starting point is 02:00:53 I think there's an ex-factor here, Jay. I mean, I think that's one of the difficult things. I wrote an article for Forbes many, many years ago, maybe 25 years ago, yeah, 27 years ago called the Master and His Apprentice, which was about Marty Whitman trying to figure out who his replacement would be. And I talked in that about how Templeton kept in a lockbox the names of people who could replace him. And, you know, it's difficult.

Starting point is 02:01:18 Like there's some X factor that's very hard to explain. And so in a way, your story is an amazing example of certain principles that are timeless and that work and that all of us can benefit from. And I think it's also a reminder of just how hard it is to do this and how rare it is and how anomalous you guys are. You're sort of the exception that proves the rule. You've exposed a lot of stupidity and bad investing among your, peer group by doing it differently. But actually emulating what you do is tough. Like, you're a hard

Starting point is 02:01:54 act to follow. Yeah. And again, it gets, I hate to keep harping on this, but it's so important. We just, our client and clients, plural, I mean, most of them have been with us 20, 25, 30, 40, and of course, for Tampa 50 years, we just have this luxury. It's a real luxury of being able to take a long-term approach. And before we bring up client on board, I think it's very, important to make sure that we're compatible. It's hard for brand new money to agree to a 20-year approach to some extent, but at least we do have a track record that we can show. That's for sure. I wanted to ask you one last thing before I let you go. You're sitting there in South Carolina in front of a beautiful collection of your antique books, and you started out not as a financial

Starting point is 02:02:46 person, but actually studying English literature college. And I, you've been a big reader over the years. And I know you've read both a lot of literature and also a lot of history books about everyone from Winston Churchill to Lawrence Arabia and the like. And I'm just wondering when you, when you think about the literature, the history, the spiritual books you've studied, what do you take from those about endurance? Because it seems like in many ways what your career kind of embodies is the spirit of endurance. And you look at, you look at people like Lawrence Arabia, who was kind of indomitable or Churchill, who talked about going, you know, from failure to failure without visible loss of enthusiasm, you know, that how has your reading informed this sense of the importance

Starting point is 02:03:30 of endurance, indomitability, just continuing to keep going? Yeah, I am a big anglofile, I'll say, I'm a major anglof, particularly on the antiquarian front and on the historical front and on the literature front. And yeah, I mean, you've got to, you've got these, it's amazing. Truth, the reason I love biography and I love fiction also, I love the classic English fiction. I mean, you know, I love James Joyce and Joseph Conrad and D.H. Lawrence just absolutely spectacular. I mean, I love fiction also, but history, the truth is, truth really is stranger than fiction. I mean, some of these stories are just so tremendous and they're so inspiring in terms of what one person can accomplish and what it can mean to his country or to

Starting point is 02:04:18 the world in terms of Winston Churchill or T. Lawrence, of course, is just so fascinating on a variety of fronts that these stories are just, I'm just so captivated. And this is a little bit off point, but just I think it's important to tell you that I made a decision a while ago that I like literature and history and reading. And so I think I've become a better investor by, you know, when the week's over, it's over. I mean, I don't do investment books. I don't do annual reports. I don't do research reports on the weekends.

Starting point is 02:04:58 I mean, I can remember initially it was like, yeah, there'd be a stack of annual report. And I think there's something to be said for absolutely. clearing your brain and, you know, from a critical thinking standpoint, whether it's focusing on other literature or other writing or reading or it's totally unrelated to investments. In a strange kind of way, I think that actually makes you a better investor because you come at it, I think you don't have this feeling of burnout, and I think you come at it somewhere rejuvenated. So I think it's really important for me to, you know, explore these other, areas and completely leave the other stuff. You just leave it. And sometimes it's impossible

Starting point is 02:05:52 to completely abandon it. But, you know, you leave it and you've got your mind going in all these other interesting and fascinating areas from whether it's literature or history or writing. I've really enjoyed, I've really enjoyed writing short stories and I'm working on a novel. And I just think that it is, I can't really put my finger on it, but in a strange way, I think it actually, yeah, you're missing, you're going to miss some stuff. you're going to miss reading this research report or that annual report. But in some ways, I think it makes you a better investor and a better thinker, having more diversified and you're coming at it from different angles

Starting point is 02:06:42 and you're absorbing different stories and different lessons and just maybe even subconsciously. It's going to impact the way that you think critically and maybe the way that you manage money. You know, it's hard to articulate exactly, but that's been important for me. Yeah, that's really interesting to me. I spoke recently to Bob Robotti on the podcast, who's a brilliant investor, who started out in his early years working with the guys from Tweedy Brown and then with Mario Gabelli. And both Bob and Mario Gabelli never read books. And there's really interesting to me. And so it emphasizes the fact that there are so many ways up the mountain.

Starting point is 02:07:24 You can be someone like Bob or Mario who's just voraciously hungry for information from reading, you know, trade magazines for 50 years. And that works for them. And then there are other people, you know, like Bill Miller, who I've interviewed over, you know, 23, 24 years, so many times who's just profoundly intellectual and could take something from Wittgenstein and apply it to get them, you know, to buy Amazon. I just think there are so many ways up the mountain, but I think part of what's interesting about what you were just saying also is both with your exercise regimen and with your reading and studying and writing, you've managed your energy in a way that's given you more endurance. Like there are ways that they've allowed you to continue playing the game at a very high level for a long time.

Starting point is 02:08:18 And so I think that's one of the great takeaways for me is that we, in our own needs, idiosyncratic way. We've got to figure out what do I need to make myself durable? See, and I'm so lucky that I can structure, I am so fortunate. I'm so lucky. I mean, I can structure my day. You know, a lot of people don't have that luxury. I can, I can structure my day that will allow me to absolutely optimize my performance. And that is, it's unconventional and it's It's a little bit quirky, my wife will tell you, and it's, you know, it's sometimes strange meal times and late night work times, and it's just different. It's completely different. But it, for me, anyway, it's what works for me. And it took me a while to realize that. I mean,

Starting point is 02:09:09 I was remote way before. I mean, the COVID, I didn't blink an eye because I'd been doing that kind of thing forever because I'm so distractible. And I need to be able to hear a pin drop to do I mean, I just, my father was exactly the opposite. He could sit in a room and there could be a party going on and he could read a book. I mean, I'm completely the opposite. I'm just, it's got to be, I mean, it's got to be really dead, dead, dead quiet for me to. And it's just great that I'm able to structure my environment like that. I'm very unfortunate and lucky because a lot of people don't have that luxury. And self-aware that you've figured out this is how I operate well. I need to exercise. I need to have people. I need to have people. and quiet. I need to read. I need to write. So I think that's one of the, maybe the last lesson I'd like to emphasize as we sort of figure out like why you and your father have been so successful. It's like you've figured out how to structure your own habits, your own day, your own lifestyle in a way that enables you to be a long distance athlete of an investor. So I feel like there have

Starting point is 02:10:15 And so many great lessons here. So thank you so much, Jay, for sharing all these insights. Well, thank you. It's been a real pleasure. I really enjoyed it. It's just been a delight. And it was a long time coming this conversation. I've been looking forward to it for a couple of years. So I'm glad that we finally got to do it. And I hope now it's the first of many. Good deal. Great. I really enjoyed it. Thanks so much. All right, folks, thanks so much for tuning into this special conversation with Jay Bowen. I hope you learned as much from it as I did. I always find it fascinating to study people who've sustained their high performance over exceptionally long stretches of time. This episode was also a particular

Starting point is 02:10:55 treat because I don't think Jay has ever told this success story in anything like such depth. I'll be back very soon with some more great guests, including a very rich conversation that I had recently with Brad Stolberg. Brad is an expert on sustainable excellence and a coach to high-performing entrepreneurs and executives and athletes and the like. He's also the author of a very interesting book titled Master of Change, which is subtitled How to Excel When Everything is Changing, including you. In the meantime, please feel free to follow me on X at William Green 72 or connect with me on LinkedIn. And as always, do let me know how you're enjoying the podcast. I'm always delighted to hear from you. I'm now racing off for dinner with my wife and kids as it's my birthday

Starting point is 02:11:41 today. I can't think of a better way to celebrate. Until next time, take good care and stay well. Thank you for listening to TIP. Make sure to follow Richer, Wiser, happier on your favorite podcast app and never miss out on episodes. To access our show notes, transcripts or courses, go to The Investorspodcast.com. This show is for entertainment purposes only, before making any decision and consultant 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 - RWH049: Crushing The Market Over 50 Years w/ Jay Bowen

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