Viewing Stocks as Bonds | Donald Yacktman | Talks at Google

Hello and welcome everyone, today we have with us Donald Kaplan, Sr. Donnelly Oakland is a partner and portfolio manager at Jackman Asset Management. Several milestones in his long investment journey have appeared in prominent media. John began founding Yacktman the company as its president, portfolio manager and chief investment officer since the company's founding. Dawn has been awarded. Don was also nominated by Morningstar for Fund Manager of the Decade in 2009 and a finalist for Morning Star's National Equity Manager of the Year Award in 2011, as well as Portfolio Manager of the Year. award in 1991 Don raised an MBA with Distinction from Marvel in a recent interview about his investment philosophy does not describe his process of buying above-average businesses and below-average prices compared these businesses to a beach ball that is pushed under the water eventually the The key is to make enough time for this process to occur where they reach the top by talking to Don.

We met shortly before the talk and learned about his experiences. I think Don is much more than just investing and learning from the wealth of him. experiences so we are very glad that you did it in person with us today to share more about your personal and investment philosophy so without further ado ladies and gentlemen please join me in welcoming Donald Yakun thank you thank you , I think it's good to be with you today. The only thing that wasn't included is that I'm a Cubs fan, so as you know, the Cubs haven't won the World Series since 1908, so we have a quote and it's that anyone can have a bad century there to look back on.

I, you know, some of my kids probably think I was in that World Series in 1908. I really was and I just want to make that clear, in fact, I wasn't even there the last time they went there, which was in 1945, but I remember . these two older gentlemen who were chatting with each other and one of them said to the other he said he said my memory is starting to fail and the other one said he said I had that problem too he said but I went to the dock and he gave me some medicine and he says They really seem to be working he said I just don't remember the name of the medicines the thorns flowers bushes you know red and yellow and white and pink and the other guy looked and said rose he said That's Rose, what's the name of that medicine?

So I'm not there yet. Today I thought I would talk a little bit about my background and how I got into the investing field and a little bit about my story. before going through the process and so on. I hadn't done that before, but I thought it might be interesting and I know there was some interest in my parents coming out of poor situations and my grandfather leaving his father's side. the scene before he was five he ended up going back to Poland for a couple of years and it was about 5 years and they lived in a straw bed with a dirt floor so he became quite rude.

My mother's father passed away with a stroke or brain hemorrhage when she was about 9 years old and so she also didn't have a father at home when I was born. My father was a businessman and he had been quite successful even though neither my mother nor my father went to high school, albeit a very small one. My mother. they ran the office and they both did it, they were both tough chargers so to speak and they worked hard and I think they set a good example in many ways, they got divorced unfortunately when I was 8 years old, I moved to Salt Lake City and grew up. there and I know it's probably not politically correct, but when I was 15 I joined the Mormon Church and in my opinion, that was the best decision I ever made and a lot of people say, well, how can that be?

Did you know? your wife and your decision and I said well, you have to remember that that wouldn't have happened if the first one hadn't happened. By the way, my wife and I celebrated our 50th anniversary last month, she and I were born in the same hospital in Chicago nine days apart and in those days the women were hospitalized for 10 days, so I joke about the bond that I It happened in kindergarten, but anyway one of the other things that becomes important why that comment of mine is relevant is when I was 19 years old. I just finished my first year of college and in that time period which was 1960, the Russians had sent up Sputnik, so anyone who was good at math and science was really encouraged to go into engineering and that's what I thought.

That would be my field. but that summer in our church the young people are given the opportunity to serve missions for two years, go out and do visionary work and they changed the age from 20 to 19, which meant that I could go and so I did immediately and After two years of being on that mission, I really came back with a totally different feeling about what I wanted to do in my career and I really felt like I wanted to work more with people, not engineers, I don't want to say, I realized that lobbying with the right engineers and worked with all the people. the moment, but in other words, it was a different look that I had of the world, so to speak, and I went back and looked at an interest test that I had taken when I finished high school and in that interest test I found I realized that I only had a 32% in engineering, but I had a 92% in business and I thought, you know, maybe there's a message here, so I remember, I thought, well, you know, this MBA sounds like IATA gets that MBA that sounds.

It seemed like a good idea, so I went to see some of the counselors and they said, "Well, don't get a business degree, they want you to have a more well-rounded degree or a high school or more well-rounded education, so I thought: well I'll go to I thought the closest thing was economics so I majored in economics in my college work and then I went on and got an MBA by the way I don't know if any of you know what the definition of an economist is anyway. , he's an accountant with no personality, so I got my MBA and I've basically been working in this business throughout my career and over the years I've developed a dial that I'm very, very comfortable with.

We've We have been very fortunate not only on the business side but also on the personal side, we have seven children, we have 22 grandchildren and we are a big family and we would like to have them over on Sundays a couple of times a month and have dinner together and it gets a little hectic and a little loud, but it's fun anyway, that's a bit on the personal side, so one of the things I thought about doing is going through the kind of process with you as already mentioned, this is nice. from one of the quotes my kids people used to make fun of me by the way about what they call my dad-isms or my little jokes and this is one of them, we like to buy beach balls, get pushed underwater with the Water level rising, I think.

I am a conceptual thinker. I like to create mental images and I think that tends to help us understand the investment process much more easily. The next thing I want to do is talk a little bit about the investment objectives that lead up to the process. I wish I could tell you that for the last almost 50 years of investing, I did everything in a very orderly manner, it just doesn't work that way. You know, we tend to wander our way. I think many times in your life. I told the younger ones that I hope I've saved them ten or fifteen years of wandering in the desert, if I believe so, but again, this is where I ended up in the process and let's talk. a little bit about these goals, the first goal is to protect clients' money, we think that's really important and there are two things that are important and then they kind of counteract each other a little bit.

One is to protect against making foolish decisions, in other words, losing. money permanently, you know every time you invest in securities, there is a degree of fluctuation, by the way, most large companies, if you look at their 52-week ranges, fluctuate up to fifty percent from low to high during a period of 12 months. I would be surprised, so what we don't want to do is permanently lose capital. The second thing is that you could actually say, "Well, I could stick it under a mattress and do that, but you really can't in any world." where you have paper money and that means inflation, if you look at the last hundred years, it now averages about three percent a year, just to give you an idea of ​​what a dollar times five cents will represent over a period of over a hundred years, you know? periods of time will be different, we have had up to four percent for long periods of inflation, so I don't know what it will be in the future, but I know it is inevitable, that is the bottom line, it is inevitable and So to raise capital, we must Be proactive and invest and if you look at the numbers, they are quite clear that investing in

stocks

provides higher rates of return.

Now you could say backdoor

stocks

, like junk

bonds

or something, but actually, they're stocks in disguise, so stocks, cash

bonds

, you know, you've seen the numbers over the years, I'm sure. , and they are there, so the other part is to grow money and as money grows we want to get stock returns so we want double digit returns but the other thing we want to do is measure ourselves over a period of time that is appropriate and we believe that a real way to measure ourselves is over a very long period of time or from one market peak to the next market peak.

I think that's the most difficult time period to evaluate managers and the problem is that sometimes you have very long deadlines to do it, but when you do that I think you really get a better view, unfortunately they don't work well. type of calendar year events, but I still think that's the best way to look at it, so with that in mind, how do you invest money? Let's talk about each of these three things in investment strategy. Good business and several years ago I thought about this and I thought there was actually a way to look, maybe create a grid and then position each company on this grid or the components that make up a company so that one could really get an idea. what the business model was about because ultimately this business comes down to what you buy and what you pay for it, so the business model is very, very important and when you analyze the business model you will realize Realize that there are certain things that make sense.

We and what we are looking for are companies that have what I call a high return on tangible assets and that is an example that we put here or I put here for different categories in that category, which is takes the jackpot, some old are consumer staples, think about it, these types of businesses where they can have a product or service that is relatively disposable and low priced, so it is used on a regular basis, they have an advantage because they can manage their capital much more efficiently and can preserve it. It keeps it running all the time, so when you can keep the capital running all the time and especially if you have a mahai market share you can make a lot of money, a company that has a 40% market share doesn't make it.

Double what a company has with a 20% share will earn four times as much, so having a larger market share is also important, as well as having a low-cost position, but it all starts to come together if you think about it. . We started working together years ago. Before the meeting, I was talking a little bit and I started talking about comparing two businesses that basically had no growth for decades in the automobile business and the cigarette business, and Philip Morris and General Motors, but if you look at the business models, they are different day and night even though they are in both and there is virtually no growth in the business and as a result of that, Philip Morris has been a spectacular investment, General Motors went bankrupt for a long period of time.

You start to see the impact of this. I guess the last thing is this is the guy who went to his 25th Harvard Business School class reunion and walked in and said Joe, we haven't seen you in 25 years, where have you been? and he said well, he said, you know, as soon as I got here, he said I had to work and work and work just to graduate, he said, so I knew I couldn't compete with you and your fancy jobs, consulting and finance in Boston in New York. , he said I came back to a small town in Illinois where I come from, he said, but we developed this little product and patented it and he said you guys probably use it every day, he said we do it for a dollar. and we sell it for four.

I told him he'd be surprised how that 3% adds up. Now he may not have done the math right, but he got the concept right. Well, that's a good deal when you can have that situation. Compare that to businesses that are here in the capital goods area, not that there aren't some companies that have done well, but the other day I was thinking about John Deere, for example, as an example many years ago, and I was looking at the tractor business, I think the life cycle is like 17 years for tractors. How would you like to be in business?

Someone bought your product every 17 years. Well, think about that versus someone who makes toothpaste. Well, it's a very different situation. The airline business. Many people talk aboutthe bad. what the airline business is like and how it hasn't made any money since Kitty Hawk. I think at one point the airline business needed $1 of capital to generate 40 cents of revenue, that's just not a good business, okay, but again it's a matter of Looking at the total makeup of the business in my mind, in In other words, one really needs to understand what it is they own, what kind of business this is, the kind of business that makes sense, ultimately it is a good business, so some of the characteristics are listed there, but you we've talked about them again nowsometimes you can go to a middle ground where you have something more advertising driven, like a media business, where there is more economic sensitivity but low capital requirements, there may also be easier entry into the business because service businesses tend to have that characteristic. or the other way around where more capital is required, like a profit type model, and some of them will work, but remember, like in the profit model, the only way to increase your ROA because you have a low ROA is to leverage it, yes , constant cash flows.

Hopefully, but if there's a real recession like in a period like the Depression, there were a lot of utilities that ended up going bankrupt in the '30s, so that's an example now, the second cry we talk about while we can talk about winners. . and losers, we've talked a little bit about that with a general manager and the Philip Morris part, by the way, I remember after I left and started my own company when I was leaving, I've been in select finance for about ten nine years nine years a little over nine years and eight and a half years I ran the selected American fund and it was the fifth best performing fund in that country and then I got the Morningstar manager of the year award and stuff, but anyway to help me remember to be modest I remember the people in the office who were involved with a brokerage firm and they gave me two t-shirts and one of them had winners and the other had losers on the back there were about ten of these so it helps us stay humble.

The one thing to remember about this business if you're in the investing business is that, basically, you're almost always wrong to some degree. Well, no one buys everything in the fund and sells. Everything at the top just doesn't work that way, so it's a business to stay humble. The following is the investment process of the shareholders who put together the management of the company and, conceptually, if you think about what you are doing when you buy a piece of inequality if you are buying cash flows, generally one is the cash flow that is delivered in the form of a dividend and the other is the cash flow that is retained by management and reinvested on their behalf, that's the wild thing. and the longer term your investment horizon, the more important that part of the investing equation becomes because it can affect rates of return over long periods of time in a way, think of it like you think of a stock as a bond and so on. is how we think about it and we'll get to the valuation and we'll talk about that in a minute, but here let's talk about the reinvestment process because that's what's left after the dividend is paid and the management team really has five basic options with the money that management or with the money held by management, the first is to put it back into the business Ardi marketing cost reductions distributions over and over again and believe me if you have a great business and you can grow the model and you can grow units in that business.

It's wonderful, the rate of return, the marginal rate of return on new incremental growth is really excellent, so it's a very important part and I would never minimize that the problem is that companies start to grow. After their infancy, they start generating excess cash and usually cannot absorb all the cash they generate in their current business, so they have to start looking for other options. We have talked about one of them, which was a dividend. obviously one of them is just sitting there, but there are two others that tend to look too, so the next one is the one that is so difficult and that is making acquisitions and a lot of times, unfortunately, egos override economics when making acquisitions. fact and I think the classic in this case is if you go and look at a company that is now part of Pepsi, but before that it was Quaker Oats.

Bill Smith Berg was the CEO of Quaker Quaker Oats and he really showed both extremes, so to speak. The first went and bought Stokely VanCamp. Now Stokely VanCamp was in the canned vegetable business, they had a food chemicals business and they also had a little product called Gatorade. Well, what he really wanted was Gatorade, and eventually, after buying it, he liquidated the other pieces and was left with Gatorade, which was worth billions of dollars when Pepsi bought the company and has continued to be a very valuable product line for PepsiCo. , then in the '90s he went out and bought Snapple, an excuse.

For me, he had tried to buy it once before and hadn't succeeded, so this time he paid like a billion and a half for it and then realized that the distribution was not linked to the other pieces, the company was not working. They did very well, they ended up selling it and losing a billion dollars in the process, so it was a disaster that cost them their job, so that gives you the extreme aspects of the winner and the loser, the third is buying back shares and here at least you know what you have, you're just buying a bigger slice of the pie, so to speak, so the remaining shareholder has a bigger share of the profits as a shareholder, so those are the five basic options again to go back to place money. business acquisitions, buying shares, your own shares, paying dividends or preserving them by reducing debt or raising cash, those are the things that are important to analyze now and we have talked about the winner and the loser here, now let's talk about the investment strategy of The price to buy, as we see it, is to think in terms of a forward risk-adjusted rate of return;

In other words, keep in mind as best you can when you're analyzing a business, the pieces you most often need. it has a dividend and you should know what the dividend is when you buy it and you should have good control of your reinvestment rate, historical reinvestment rate, so the wild card in investing is what management does with the money that we have spoken. those options and that is the one that requires some effort now, that in effect what you will end up with is starting to see ranges of results because no one can predict the future with absolute certainty and the more predictable the business is, the narrower the range will be.

It is less predictable the wider the range and that also has implications for size because as your probability increases and you feel more comfortable with the investment both from a valuation and business model point of view, the more money you get. You must concentrate on it. The best ones, the biggest holdings should be in the companies you have the most confidence in, so I tell anyone who looks at our portfolio what you like most, we'll start with the one we have the biggest holdings in and when. you have less confidence than you should have and you have a wider range of results, in effect it is like being a wild cattle driller, you want to spread the risk and therefore you put a smaller percentage in those holdings, but the element is to find the more possible. as many great businesses as possible at a low purchase price or a reasonable purchase price and hold them for a long period of time and be patient and just to give you an idea of ​​how long patients can be in the year 2000, we bought a company called Lancaster Colony Lancaster Colony, about 90 percent of its profits eventually went into specialty foods, half in supermarkets and half in retail stores, I mean, in restaurants, things like Sister Schubert's bagels.

My kids love those rolls, they are frozen rolls, Marrs eTI sauces and salad dressings, those are the bulk of it, but they rely heavily on soybean oil, which is why we have been so brilliant as a country in linking the cost of food with the cost of energy because 40% of the corn crop is used to make ethanol, how silly is that, anyway, as a result of the price of soybeans and corn tend to align with the price of oil to a certain extent, so this company, for example, came under pressure as the price of oil rose after that. period until mid 2000, but when oil peaked and started to decline and the market fell in 08, this company had already been squeezed enough by that time, prices started to rise and their costs went down and their earnings went through the roof and this stock actually went up while the market went down just to give you an idea so sometimes it takes a long period of time for the final things to work out the way you would like them to work but the key point It is having patience.

I have a very long time horizon and patience, well. I think we're at this point where you would see a little bit of play. Yes, my timing is right, actually before I open it up for Q&A, although I want to. tell you a little story about the money manager who was hanging out with his assistant and he went and they talked and the system kept listening to him talk and give his spiel and finally, after many, many times, the assistant looked at him and said, I know what you mean. he said I've heard you deliver that message so many times now he says I think I could do it as well as you so they said well let's try it in the next place so they switched roles and the assistant went up there and delivered the message he was brilliant, as was the manager of money, at which point he opened it up for questions and answers and the first immediate question was Mr. money manager, what do you attest to your positive alpha?

Is your beta low or your standard deviation low? at what point he looked at his money management he said, you know what he said, that question is very easy. I'm going to ask my assistant to respond, so with that in mind, I'll open it up to some questions that might have something I wanted. You should mention it if you can, you mentioned the importance of patience, but you know there is a bit of contrarian ISM on your own and when those big balls haven't really risen to the top and everyone else is looking at you with doubt, you've been in a situation So, how have you been feeling?

I just wanted you to talk a little bit about the topic of psychology because you mentioned this in your previous interviews. Yeah, that's kind of a thick pitch right over the heart of the plate, there's a baseball. analogy, yeah, that certainly happened to us between 99 and 2000 and you know, maybe that's something else. You know, I think my personal life helps strengthen that whole situation because we are in the perspective of us on this earth having more. than just being here to make money and I think providing services and doing those things for people and being involved in a family and, you know, I think that really helped in that period of time, but I think it's really important to stay focused. and be patient with my children again.

They make fun of me for my father's isms. One of them is that there's a little difference between being determined and being stubborn if at the end of the day you're right, you're determined, that's fine, but I and I and I think that long time horizon really makes a difference and it really separates us. of so many people out there and I think that's something that managers value. I think they really have more, but there is tremendous pressure in this business. tremendous pressure for short-term results. I remember when I was traveling one time and I looked at USA Today and it was talking about the time horizon and virtually no one has a time horizon longer than three years and yet I will tell you there are periods of time. where we can go years and underperform the market, it's actually not that difficult if you're using this type of strategy to have a period like that and that's why that peak to peak really makes a difference.

I'll tell you what's critical. It's thinking in terms of you're the CFO of a company and if you can buy things above your cost of capital then you should buy and for example when, oh wait, the nine doesn't come, a lot of people said, Well, how could I? you do well in both time periods well if you can find opportunities it's like playing chess or playing war if you want you always want to move forward okay at a number eight we were fully invested before the market hit bottom and then the market fell another 20 percent. I remember telling people at Christmas that I said, if you can't, if you can't, if you're a value investor and you can't find things to buy today, there's a disconnect, okay, and then it went down 20 percent more. , so you can't call it, but what you can do is get very comfortable and think in terms of using your cash reserves and then having very high quality things, your triple A bonds, if you will, in your portfolio.the higher quality stocks that will tend to hold up better in that environment, you can start to let some of them go and Riaan recycles that money into things that have been crushed and are really great businesses, but may be Double A or Single A. but they have a lot more growth potential and are willing to change those where you can dramatically increase your rate of return on the investments that you have, so I hope in answer to your question, yes, you mentioned the 1899mm nine, could you Describe the situation, what was appropriate?

Which we generally do well. I mean, I even wrote in our report a couple of reports for shareholders. One was that you know you know someone because this was the dot-com period and a lot of it was people. They sold things online for seventy-five cents that cost a dollar. Well, I mean, I could go out on the street and give away one-dollar bills for seventy-five cents. I wouldn't have a problem getting rid of them. Okay, that's possible, but it didn't make any sense. the whole thing didn't make any sense the way I remember I used Neutrogena soap no that wasn't their intentions here and I bought about $100 worth of Neutrogena soap from one of those guys and one of those websites with a multi year supply because it was a bargain but what my kids make fun of me about againMy bargain hunting is also another thing I will tell you in this business.

If you go to a value manager's office and it's opulent, there's probably a disconnect there too because most value managers don't have opulent offices. Don, what were you buying in 99mm? Well, it's interesting because in that period of time there were two things that, although there were some things that were squashed and one of the things we mentioned was Philip Morris, who had had a suit in Florida that he didn't wear. the product, but it was just one of the things that caught my attention about this is that there is a guy who is on the board, you may have heard of him, his name is Carlos Slim and Carlos Slim was one of the richest men in the world. world and Carlos Slim actually bought some Philip Morris right near the bottom in that time period with his own money.

Now there are many reasons why people will sell stocks if they are savvy, but there is only one reason why they will use their own money to buy stocks. Okay, just one reason, but the other thing that happened is that a lot of the really big companies, the good businesses were very expensive, I mean, like Coca-Cola, basically, even today, it just happened recently, it happened, It is the high level it reached. In 1998, five years or seven years later, when we bought it, it was less than half, so these companies go through these really strange evaluation periods, but we ended up buying a lot of smaller, medium and small companies, because there were the bargains. and in that period of time, one of my memories remembers being on a phone call in 1998 with a famous money manager whose name I won't reveal.

It's more of a Grothe-driven impulse or some kind of growth and value or hip-hinging person, I mean, to me it's like looking at bonds and risk-adjusted forward returns, but he still chose Pfizer and we had just sold Pfizer and that's when the little blue pill came out and the stock got way ahead and we We bought a company called First Data that eventually went private, but then we bought back Pfizer about five seven years later at a lower price than the one we had sold it and, in the meantime, I think first aid tripled, so it is a question of also being flexible and being willing to look at the world in an objective way.

Thank you Musa Dagh, can you come? You had control in the echo. We just received it. You are talking. I think they both come here. Very good company. The business you're talking about. I have a very different investment strategy and I will hold tons of cash and Amazon just inelastic rice or corn okay Dino Apple what's the other one? Amazon Amazon, oh, okay, yeah, they're very different, they're very different companies, totally different, my my. Frankly, I worry about Apple and in fact we also talked a little about this before the meeting and I was wrong in the short term, but Clayton Christensen, who is a student at Harvard Business School, I remember that after having commented on Apple's strategy, he sided with me, here's the problem.

I see it, I think your strategy is designed for a niche type of market and I think in the long term, the company that has the largest market share in the lowest cost position has a much more stable situation, now it is difficult in technology because you have a lot of shooting stars and everything, but I think they have unsustainable margins, I really do, and I mean, I think if you can get something that has 70, maybe 50, even but 70, 80 percent of the same features for much less money, half price or two. -thirds or whatever, it's just going to work more and I think open architecture is a better way to do it because it allows for more cost sharing and ultimately that's my dilemma, that way Amazon's strategy is unique and has it.

This type of halo retail is a tough business and at some point you know they're going to have to make some money, but they've been what their strategy is and it's a smart strategy which is to have virtually no margin and no profit. money to expand market share, but to some extent it's a bit like those dotcom companies, so to speak, at some points you have to make some money to develop the capital to beat it now, part of the way they've done it it's because they're trying to move forward a little bit, laying off more capital and then shifting inventory to other people, so they're going to become more of a middleman for that, so you know Sai thinks it's a tremendous strategy, but I think you know it's difficult to justify the price they advertise to me, but again, it's still early, but they are there.

I think their market capitalization is now larger than Walmart, for example, yes, so the dilemma in girls stock strategy if If, so to speak, you go that way, there are many more attempts to evaluate the future and it gets a lot harder, that's the problem. I feel much more comfortable with more stability after things have been shaken up a bit as they are. Sure, but I tend to lean more towards the triple A bond type model, to me those aren't Triple A bonds so to speak, they're much riskier and you're making judgment calls that may not last, companies just don't do that. grow at high rates indefinitely, it's just that you think about you know someone who is in statistics or mathematics and most of you are obviously very good in those areas, or you wouldn't be working here, you can see, otherwise, I own the world, I mean, if you grew up fast enough, mathematically it doesn't work.

I think that's what makes it a dilemma, but in the short term, remember, I think it was, like Ben Graham said. it's a voting machine, long term it's a weighing machine, so I think popularity probably 70% of people are momentum investors, they're hindsight investors, they buy what's been good about this, the idea that It's going to be better, you know there is one. company that made a run on saying well, we'll buy things when they hit an all-time high, they tend to run after that, you know, I think that's a very dangerous kind of strategy and let me give you a lot of credit.

Go to Steve, my son, because he worked a lot in the United States and a mere credit. What was unique in a mere credit. Financial stocks, by their very nature, are low return on asset businesses, okay, because they make money through leverage and that makes them very vulnerable now, which made America reddit unique in more ways than one since The business model point of view, first of all, they got about 40% of their money back in the first year, and the second is that they had a guarantee, now the guarantee. It tended to be around 40% if they had to buy back the car.

The third thing is that people in today's world tended not to be as many homeowners, so there wasn't the same overlap with people who were overleveraged in their home investment. a lot of people were partners and so on their problem was not the basic business model their problem was the freezing of the capital markets because what they ended up having to do is guarantee these mortgages or package these mortgages and then sell them as a piece of secured debt and so when the market was surprised, they basically had to wait for payments to come in before they could read the money, so at worst they were basically running it close to breakeven. and the stock had a book, so the book was about 15 dollars a share, 16 somewhere in there, so it's hard to say on any financial stack that the book is strong, but as much as you can say, that was there in the other one.

The thing is psychologically and you told someone you were buying a used car from a subprime auto lender, it was like it sent every flash you can imagine of negative characteristics to people in that environment and then the stock went down to three , they were down to 20% of bookings at one point, GM actually bought it because they had sold GMAC and they bought it like 23 in a couple of years after that, but again, it was a unique business model that they didn't I'm in love. I mean the other side is seeing how difficult it was for Jamie Dimon to run Morgan Stanley when the whale shows up, but I mean, here's a guy who's a brilliant operator who still has something like that happen to him, he tells you what It is difficult to deal with a bank like that, so be careful with financial stocks.

Yes, I've heard some fund managers say they only have two good ideas a year and they'll be gone. big on that and you talked about increasing the size of your investment when you have that kind of conviction. I'm questioning it. I wonder how you come up with good ideas. How do I come up with them? How do you come up with good investment ideas? I think over the years, to some extent, maybe I'm a little bit like Potter Stewart, the Supreme Court justice, when he was asked how he knew about pornography. and he's like, well, I know it when I see it, you know, so I think after doing this for so many years, you know in a matter of minutes you can look at something and say yeah, that looks pretty cool, but based on the place where you are in the market cycle and I mean valuation levels etc. so there are a lot of variables to take into account but I think one of the best ways is to look at things that have problems In the short term, there are actually three good times to buy, one of them is when the market goes down and when the market goes down, think of it like a wind blowing through an orchard and then some fruit. falls to the ground is very easy to see, so it can be like a situation where the whole market collapses like it did in o89.

I mean it was a dream come true where you get an opportunity like that. I remember. Coming into the Board of Directors of our funds at the end of October and one of the colleagues who is a classmate of mine at Harvard Business School and said, man, it must be very difficult out there and we are like dancing in the streets, I mean, literally, you know how to count like oh no, this is great, you know, part of it is a mindset thing and it's just getting used to seeing things in an objective way, so the market drop is one second. , it's an industry deficit and as To be classic in this case, it would have been 1993, when at that time there was a concern about drastically changing the healthcare industry when the Clintons first came in or Becklund took office, I don't think so.

They let it go there, okay, so anyway I think we ended up with kind of a third of the portfolio, whether it was in drug companies or hospital supply companies, they just got hit and one after another, after another, the difference was between then and a period closer, like now, when pharmaceutical companies had a much larger portfolio, so there were many more interesting attracting companies. The third is where you have an individual stock that is down but temporarily out of favor. I referred in 98 to the first data. The first data had made a purchase from another company that they process. payments for credit card companies and merchants and they had made a purchase and as a result of that they were simulating this company and there was a kind of temporary flattening.

I think it was mostly profits, so where's Ben? the market was used to this and they had this, suddenly they said every big problem was not a big problem, it was just an assimilation problem and therefore they created a big buying opportunity, so those are the three types of things to consider. I remember many, many years ago a guy came to my house, he and we were talking about investing and he said he was just in a contracting business, he says do I mind looking at the new list of minimums on thenewspaper, I thought well. That guy has some cunning, not that I would choose that as the only source, but in other words, you know you look for opportunities and that's when many times you will get it under one of those three conditions that are in question. thank you for sharing your stories um so you just talked about how you look for opportunities, what happens when you don't find enough opportunities, how comfortable are you with cash or would you just double what you have let's say in more as Graham calls.

They are the unpopular big companies and they just wait for the dividends. How do you think about that problem? Yes, cash collections should be residual, but again, one has to keep in mind that when you think about holding cash, it shouldn't be because you're trying to predict the market is fine, in other words, in other words, if you can find things above their cost of capital, regardless of the level of the market, one should do, think about it this way if I have a new shirt and I go out and see one and I like it on sale.

I buy one, it's fine, but then I go back to the store a week or two later and it's off another 20% if I get rid of the one I don't have, okay? If it's a type of shirt that I'm going to wear and I'm going to wear it for a long time and I enjoy wearing it, I should buy another one, okay, so you know, I think using cash becomes important. when you have the opportunities there, but if you don't, sometimes it's better to just sit back and let it wait, because again you have enough fluctuation in the market to walk away. to get opportunities, it could be varied opportunities, it could be just a small addition to what you already have or it could be a new addition, it could be either, but that's how I would look at it again.

I would be as aggressive as I can right now. TheAnother thing to keep in mind today is that we have a unique situation because when I look at the market and I look at the categories, those appear to be even more overvalued than stocks if you look at overall valuations or bonds. Long term bonds, I mean you can get dividend yields on some of the high quality companies that are higher than 10 or 30 year Treasuries. Well, why on earth would I want to own something that doesn't have an increasing dividend, so to speak? that relative to the other, but it's a relative thing, okay, and when you collect at least that seven, it can let you know that you have a decent interest in cash, you don't get cash today, so it puts pressure on people to reduce your cost of capital to some For those of us who might be individual investors, what general advice do you have in terms of you? know how to protect your wealth and maybe grow it well again patience.

I would VERY much exercise patience. I think the other thing is finding a strategy that you can live with and stick to. It's okay, as long as it's just from a personal point of view. I started in 1968 and for every year from then on, basically, when I got money I put it into whatever company it was, I put it into effect in the market because I was getting it continuously and I saw it as a very long-term thing, but Think of it as a very long term investment, the magic of compound interest is very important, so be protective but also aggressive at the same time.

Thank you so much. It's a pleasure to have you here with us. Thank you. thanks for inviting me