RWH053: Trouble Ahead w/ Bill Priest
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You're listening to TIP. Hi there. Happy New Year. It's great to be back with you again. This is a really exciting week for me as my book, Richer, Wiser, Happier, just came out in paperback a couple of days ago here in America. So before I introduce our very special guest, I wanted to thank all of you out there who have helped to make the book a success since it first came out in hardcover.

I'm really deeply grateful to so many of you who bought the book or given it as a gift or who wrote generous comments about it on social media or took the time to share positive reviews and ratings on sites like Goodreads and Amazon.

As you can imagine, all of this support has an enormous impact in terms of spreading the good word about the book and helping to introduce it to a wider audience. It's truly invaluable. On a more personal level, I have to say your incredibly warm response to the book has also made all of the work that I put into writing it feel hugely worthwhile.

I'm always surprised by the number of personal messages I get from people saying that the book has helped them and sometimes that it's actually changed their lives. As you can imagine, it's just wonderfully cheering and life-affirming for me to realize that the book is out there resonating for a lot of people. So I really just wanted to say thank you truly for all of your support. And now, as my good friend Stig Brodersen would say, on with the show.

Our guest today is a legendary investor named Bill Priest. Bill, who's probably best known as a member of the Barron's Roundtable, is one of the wisest and most experienced people on Wall Street. He's spent more than 60 years as a professional investor. He's built a series of vastly successful investment businesses, including one that had more than $100 billion in assets.

He's currently the executive chairman, co-chief investment officer, and portfolio manager at a big investment firm called TD Epoch. Bill is an expert on how to win at the game of active investment management, which was the subject of one of the three books that he's co-authored. But he's also one of the great survivors, having thrived for six decades in the financial markets. As you'll hear in this conversation, he's been a great investor,

He's pretty concerned these days that many investors have become too complacent and that we should be careful to position ourselves prudently and conservatively in an uncertain world that looks increasingly fragile to him. When it comes to investing, Bill has seen it all. So I think it's particularly worth paying attention to his battle-tested wisdom. I hope you enjoy our conversation. 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. It's a great honor and pleasure to welcome today's guest, Bill Priest, who's one of the giants of the investment world. Bill is vice chair of TD Wealth and founder, chairman, and co-chief investment officer and portfolio manager at TD Epic. Before that, he built a previous investment firm into a behemoth with over $100 billion in assets. He's also the author of several books about investing, including one titled Winning at Active Management.

Most famously, perhaps he's also a member of the Barron's Roundtable. Today, we're going to talk about some of the most important lessons that Bill has learned over the almost six decades of his career as a hugely successful investor. Bill, it's lovely to see you. Thanks so much for joining us. That's absolutely my pleasure, Bill. Thanks very much.

It's great to see you. You published a book in 2007 called Free Cash Flow and Shareholder Yield that is one of a couple of books by you that I've been reading over the last few days. And you mentioned very briefly in there that you grew up in a small Ohio town back in the 1950s and cut lawns and trimmed hedges and devoured books about investing.

And it piqued my interest because there's so little out there about your early years. And I'd love to know more about what it was like growing up in small town Ohio and how it shaped who you are and also then how you developed this very early fascination with investing.

Well, actually, I always enjoy talking to people. When I interview people, I always ask them exactly where you're starting. Tell me about your family of origin, your parents, your siblings, and whatnot, because it does shape who you are. I was actually born in Pittsburgh, which is 40 miles away from Steubenville. My parents were unusual. My father was more or less an orphan. His siblings and parents had died by the time he was 12 or 14 years old, and he only had a sixth grade education.

My mother, on the other hand, had a college education. She graduated from the University of Pittsburgh and she was a schoolteacher. I'm still not sure how these two got together. But at any rate, they got together. We grew up in Stoneville, Ohio. My dad worked in the steel mill. He had a white-collar job there at the time. And it was a wonderful place to grow up at that time. Well, later, perhaps we can get into kind of what's changed there versus now. It gets into some other economic and political issues.

But I grew up there, went to public school. I was a pretty good student. I wound up going to Duke University as an undergrad and later Wharton, we can talk about that. But growing up, my dad always stressed the fact that you don't get something for nothing. If you want your allowance, which at one point was 80 cents a week, which was a lot of money for me at that time, I had chores. I had to cut the grass. We had some hedges I had to trim.

And I always had to earn my allowance. Now, even in those days, I would say the work ethic was valued. And I've had a W-2 since I was 16 years old.

There wasn't a summer that went by that I didn't have a job. In fact, my peer group used to think of people who weren't working as being lazy good-for-nothings. It was an amazing group of people at the time, very narrow with hindsight. But we're talking about the mid-50s, and I graduated high school in 1959. But

It was also a very positive one in the sense that family mattered. You supported family no matter what. No family is perfect. And whenever there was an issue, my parents were always there to be supportive of me or my sisters. They were remarkable in a crisis, just remarkable. And I was in two automobile accidents before I graduated high school, none of which were my fault. But the way my parents performed in those times, it was amazing. It was just an amazingly supportive period.

And how did you go from being this hardworking, young, responsible kid to figuring out, wait a second, if I read all these books about investing and figure out how this game works, I won't just have to mow lawns and trim hedges. Maybe I can make money more easily. What happened? Because it sounded like you actually had a circle of friends who invested.

Well, not so much in the high school days, but there was one book in high school that I read called How to Get Rich in a Stock Market. And I told my dad, this sounds a lot easier than forcing me to cut the grass and cut the hedges and do all these chores he had for me.

And he said, well, he said, you can't buy stocks, you're too young. But he said, if you want to buy something, you tell me what you want to buy, and I'll do it through my broker. He invested a little bit in the stock market, but it was more like individual securities, and there weren't mutual funds. He wasn't involved in that world at all. And I just remember saying, okay, dad, I want to buy this company called Hudson Vitamin Products.

And I can't remember too much about it other than I lost almost half my money on it. So it was recommended in the book that how to get rich in the stock market. I really didn't know what I was doing, to be honest with you. But that also taught me, don't start spending money in areas you don't know anything about. And I really didn't do much with stocks until I got into Duke a little bit. But even there,

I took an investments course when I was a junior at Duke. And I was so excited about it. I loved it. I just loved the whole concept of how economics and finance come together and how to value companies. But again, it was from an accounting framework, not so much a financial framework. I'll explain that in a minute. But I was so excited that when it came time my junior year for spring break, I didn't leave. I spent the entire spring break in the library writing a paper on Standard Oil of California.

I wrote a thesis, a study. I had to write a paper, but it was all about Standard Oil in California, what they did, how they earned their money and whatnot. And I got into the habit, believe it or not, of collecting annual reports. Now, that's a nerd. Let me tell you, that is a nerd. I must have collected, by the time I was 24 or 25, I literally had hundreds of annual reports that I would peruse, collect and whatnot. Like people collect baseball cards, I collected annual reports.

Kind of silly when you look back on it, but that's what I did. But I did really well in that course. And that course, it kind of set me on my way. I also was an accounting major and a political science major simultaneously there. But it turns out I passed my CPA exam when I was in college, which is unusual. Most of the time, you can't even take it in college. But the way the CPA exam works is

The exam itself is the same. It's a nationwide exam, but some of the when you can take it and some of the rules regarding experience vary from state to state. But I was able to... I passed the exam when I was a senior at Duke, and I thought, well, that's pretty good. And then I had a couple of summer jobs lined up. And if you had an MBA, you could take one year of experience. And by 23, I had my CPA certificate too. So I'd gone through Wharton. I was a very good student at Wharton. In fact, it

And it shows my ignorance. I still think I'm pretty ignorant. But I remember being asked if I want to join a fraternity. And I said, no, I have no interest in joining a fraternity. Well, you should join this one. I said, what is it? It was Beta Gamma Sigma.

I said, "I never heard of that fraternity." Well, it turns out it's an honorary fraternity. It's for students that achieve a certain academic level and whatnot. So I said, "Well, what does it mean?" "Well, you got to come to this dinner and then you get to join, then you can join." I said, "Does it cost me any money?" "No." So at any rate, that was... I mean, I had to be one of the most naive people right through age 22 or 23. I mean, it was head down.

get the best grades you can. I got into a lot of business schools. I picked Wharton because they gave me credit. I was absented from all accounting courses because I passed the exam. So I was able to get out of Wharton in three semesters, not four. And then this fourth semester, I actually worked for Coopers and Librat, and I told them the truth. I think the truth is always the best answer. We can shade it sometimes, but

it's keeping up with falsehoods just usually gets you in trouble. And I told Coopers and Librand, look, I only want to stay long enough to finish my work requirements so I can get my certificate. I needed seven months in addition to the summers I had. And I told that to all the accounting firm and no one would hire me once because they didn't want me coming and leaving after seven months. But Coopers and Librand did. And they said, we're going to change your mind. So when I went there,

I was there for seven months. They gave me all kinds of interesting jobs. I got into management consulting. I built a cost system for a contractor in the Middle East. I spent eight weeks in New York, pretty much staying at a crappy hotel with a hole in the bedspread.

And I had a manager and we built this cost system. And I'm thinking, this is pretty cool. At this point, I was 20, I'd be 23 years old when I was working with this guy. And they tried to convince me to stay in the consulting part of the live brand. I said, no, I want to go into the stock market.

I ran into refinance and research. And they said, okay, I'll come back. I'll finish that evolution in a minute. But when I got to actually be in charge of a company, I hired Librand as the auditor. I paid him back for how they treated me. That's nice. And then you left, and I guess you entered the investment industry around July 1965 as a research analyst. When it wasn't a particularly sexy industry, this wasn't where all of your peers from

Wharton were looking to go. And you joined a relatively large firm and then left to co-found this company. I never know how to pronounce it. Is it B or is it BEA Associates? Richard Duncan: BEA. So that was an acronym for Basic Economic Appraisals. Well, let me lead up to that with when my first job as an analyst was in San Francisco with a mutual fund group called the Commonwealth Group of Mutual Funds.

And at the time, it was the lowest offer compensation-wise I had. I graduated near the top of my class award, and I had all kinds of offers. And back in those days, a big offer was five figures. So if you were offered $11,000 a year or $12,000 a year, that was astronomical.

I turned all those down and I took this job in San Francisco where I knew absolutely nobody. And I was married at the time for $7,500. And my father was irate. He said, "Are you kidding me? You turned down all these offers and you..." I said, "Dad, I want to be a security analyst." He goes, "What in the world is that?" So I said, "It's analyzing securities and forecasting

balance sheets, income statements, and trying to see if they're good investments. And I had written my thesis at Wharton back then, you had to have a thesis to get your master's degree. And I'd done a thesis on the drug industry. And again, it was an interesting thesis. The title of it is The Ethical Drug Industry, which is, that's another word for prescription drug industry. But

prescription drug industry, which was commonly called the ethical drug industry. And I said, the ethical drug industry, the last of the Robert Barron's,

And then I went through the financials of how profitable they were for the services they provide. I probably would have been a good prosecutor, to be honest with you, once you look at what went on. But at any rate, I found it fascinating. And this whole idea of security analysis leading to opinions on stocks. And there was a guy on the West Coast who I just sent resumes out blindly to these people because no one recruited him.

No, there were no institutions of money managers that recruited at Wharton with one or two exceptions. You had the brokerage firms if they wanted you to be a broker or investment banker or what. I just wanted to be a security sales. And so I sent resumes out and this guy from California was in the city or it was in the

It was in New York. I went up and met him and he hired me. And I went down to Commonwealth Group of Mutual Funds. I was only there, I'm thinking now, almost probably a year, maybe a little less than a year, when I was sold the fireman's fund.

And at that point, the guy that hired me had come east and he worked for a firm called Anchor Corporation, which ran Fundamental Investors, which at the time was a one and a half to $2 billion mutual fund. And that was enormous in those days. And so he wanted me to join him and I subsequently did. But I also had a good mentor. Mentors really matter when you're young. And the mentor that I had, not only was Al Zeziger, who was the guy who recruited me to go out there,

But there was another individual there who said, when the acquisition took place, he said, "You need to learn about the industry and you're not gonna learn about it out here.

You got to go to New York. And he gave me great advice. I took the job and moved back to the New York area. And I worked at the Fundamental Investors from 1966 to 1972. And they liked me a great deal at Fundamental. They wanted to make me director of research. And I said, guys, I'm only 29 years old. Do you want to make me director of research? I don't know about managing people or whatnot.

And they said, "Well, you understand quant." And I said, "Look, what I understand about quant, maybe more than what you do, but it's nothing what quantitative capability really is." And I left there. I took a job cut from working in Elizabeth, New Jersey, which is where Fundamental Investors headquarters were, to a job in New York City where I paid more taxes for less money. And that was in 1972. But I got to own part of the company.

And this Al Zeziger who was controlled, and it was just really a small, he had $300 million. I can tell you a lot of anecdotes about it, but even my first day on a job was just frankly amazing.

Al talked me into joining him. Everybody said I was an idiot. I had this secure, safe job with a lot of promise and fundamental. And I'm joining this firm that was $300 million, a startup. And it turned out $150 million only paid $10,000 in fees. I didn't even have enough sense to answer it.

My very first day on the job, Al says to me, "Well, Bill, you have a CPA. I'd like to make you treasurer." I said, "Al, I want to be a securities analyst and portfolio manager. I don't want to be treasurer." He said, "Yeah, but you've got a CPA and we need a treasurer." And I said, "Well, what do I have to do?" "Well, you have one person reporting to you, and her name was Gloria Lee." And I said, "What's she doing?" "Well, she's our bookkeeper." I said, "Well, do I have to do anything here?" And he says, "No, no, she'll just report to you." And I said,

All right. That was done. He leaves the room. And next thing I know, Gloria walks in and she says, I'm Mr. Priest. And Gloria's like 50 and I'm like 30 or 31 at the time. Gloria said, OK, what do you want me to do with these? And she has a fistful of bills. And I said, well, Pam, she said, I can't.

I said, what are you talking about? I've seen the financial statements. We current assets, current libraries are two to one. She says, oh, you can't believe those statements. I am now panicking. I left the safe job. I'm married with two kids. I'm in New York. I took a pay cut. And this person is telling me we can't pay our bills. And I thought,

this is a problem, Gloria. I said, let me ask you another question. In two weeks, you have to pay me a check for my first half month here. I said, how are you going to pay me? She said, frankly, I have no idea. I absolutely panicked. I walked down the hall where Al Zedziger's office was. And I said, Al, we got a problem. And he was shocked. But he says, we'll take care of it. So he hauled me across the street. We went to a bank, borrowed some money. He said, but I also want you to buy stock. And I said, Al,

I'm not even sure I'm gonna get paid. You want me to take what little savings I had, which was, I think I had 50 or $60,000 and invest everything into BA." And he said, "Yeah, that's what I'd like you to do." I said, "How? This is every nickel I have. And so far, this has all been downhill in this story." And I said, "No bank's gonna lend me money. I'm married with two kids. My wife's a stay-at-home wife.

We got a mortgage. I have no assets. He says, don't worry about it. We'll take care of it. I said, Al, how are you going to do this? He says, my father's going to guarantee you your loan. I said, where does your father live? He says, Cleveland, Ohio. I said, he's never met me. He says, don't worry. He'll guarantee you the loan.

So it turned out I needed $80,000. I bought 10% of the company for that $80,000. His father never met me, but he guaranteed the loan. And that was the beginning. I mean, talk about naive people. That was an incredible period. But around that time, I also got to know Jack Trainor.

And I published my first article in the Financial Analyst Journal in 1965. And again, it was called Rate of Return. Rate of Return on Equity is a Criterion for Stock Selection.

And that was a paper. It actually won a mini award or something. It was not a big... For the hindsight, it was nothing paper, really. You could do that study in 15 minutes today. But at any rate, I got all excited about it. And that's how I met Traynor. Jack Traynor was originally with Arthur D. Little as a consultant. And Jack is the single smartest financial guy I've ever met in my life. He's passed away. He's no longer alive. But he was

an amazing thinker and a bit paranoid about a lot of things as well. But anyway, I got to know Jack. We both had a similar hobby. We both had collected model trains. And so we went to train meets and whatnot. And in those travels down to the middle of nowhere in Pennsylvania sometimes, we just got to like each other.

And then ERISA was passed. And ERISA was passed, I believe it was 1974. I have to check the date of that. Yeah. And for people who don't know, this changed how pension funds were dealt with, right? Absolutely. Because it was a federal law that basically set standards for pension funds. So suddenly, it was a whole new era for pension funds in terms of expanding their size and giving managers of pension funds new opportunities. So sorry, yeah, I didn't mean to cut you off, but I just wanted to give a little context. No.

No, absolutely correct. So what happened was, the reason ERISA got passed, there was a company called Studebaker, a car company, and it went broke.

And Studebaker, they had a pension fund, but Studebaker had an option. They could either pay their pensioners what they owed them or just give them the pension fund and say, good luck, fellows, this is all. So in other words, they might have owed you a dollar, but the pension fund only had 50 cents and they gave you the 50 cents. That situation actually led to

the act itself, the Employee Retirement Income Security Act. But the law was flawed. There was a section there called, I think it was section 4023. And that section guaranteed the stock market. Well, there's no way the government can guarantee the stock market. So Jack and I and another fellow, Pat Riggio, we wrote a book called The Financial Reality of Pension Funding and ERISA. And I testified before Congress.

we changed the law. That Section 4023 was erroneous, and it was either withdrawn or corrected. But that made BEA in a lot of ways. Here we were, BEA was set up for just, as you say, the world just took off. All of a sudden, these pension funds, they were underfunded by

hundreds of millions, billions of dollars. So every year there had to be a large sum. And the professional money manager just took off at that point. But because of that book, that book gave us real credibility when we were talking to pension benefit, to trustees of pension funds. And we built, we wound up building, I think at one point, I think at the height of BA, we were $10 billion. Well, we really started with like 150 million.

I wish we didn't pay anybody anything. So there's a lot to unpack here. I mean, part of it is the good fortune of this kind of lightning strike that you just happened to be in the right place at the right time. You went from this company with a relatively weak balance sheet and less than 300 million in assets living more or less hand to mouth to suddenly you being kind of riding this wave. So luck is a pretty good part of this.

Absolutely. I'm a big believer in right time, right place. In fact, I wrote, I started to write a piece for Barron's. I'll give you two examples. And I came up in hiring somebody. This was a few years ago.

There was a guy that came in, I was the last person in the interview, I mean, he was gonna be at Pharma Analyst or something for us. And everybody came in, "Bill, he's the best we've ever seen. You gotta hire this guy." And I said, "Yeah, but there's two candidates." "Well, don't worry, this guy, you're not as good as this guy. You gotta hire this guy." So I sat down with him and I started talking to him and he started to bother me. I felt that there was a bit of an arrogance in him.

And he had gone to Harvard undergraduate, Columbia Business School and Goldman Sachs. So he arrives in my office like, you know, I got all the tickets. You know, I'd like to work here. I like the people I've met. So what do you want to talk about?

That tone just irritated the hell out of me, to be honest with you. And I said, well, let's talk a little bit about time and place. And he said, what do you mean? I said, well, what do you think the stock market's done over a long period of time? And he said, 9% or so. I said, well, yeah, actually, it's closer to 10. But I have 10% over a long period of time on average. But let's take a subset of those years. Let's take 1980 to 2000. What do you think the market did in that period? He said,

He said, "Well, probably a little better." And I said, "Well, I know the answer. It wasn't fair to challenge you with that. It's 17.6% a year for 20 years." A hundred thousand dollars in 1980 became two and a half million in 2000. And he said, "What's your point?" I said, "Well, how old do you think you had to be to benefit from that wonderful market? If you were 20, you were the office boy. If you were 60, you're getting ready to retire. But if you were 40, approximately my age,

Right place, right time. Sure, I worked hard, but I always had the benefit of luck, good fortune, never underestimate the value of time and place. And then we passed on him. I passed on him, and I had the capability of doing that. And I hired another guy, and he's actually still with us today. His name is Steve Salzone.

And so Steve comes in and he is leaving Alliance Bernstein. He is an analyst with a five-star small cap fund that's closed. And I can't understand why he wants to leave a quality firm like that, where he doesn't have to worry about asset growth. Why do you want to come here? This is a startup. It may or may not work, the small cap fund we're trying to build. So I just want to be part of building something. And it just didn't make any sense to me.

So I said, well, tell me how you got there. Tell me. I like talking about families of origins. I said, tell me how you got there. The line's bursting. And I promise you, Bill, I'll buy you dinner anywhere in the world heard of this college. He went to a college called Messiah College.

I had never heard of Messiah College. It turns out it's in the middle of nowhere in Pennsylvania, religious school. And I said, well, where did you grow up? He said, Long Island. I said, how in the world does a kid from Long Island get to what I think of? And I started to provoke him by saying kind of a right-wing religious nutcase kind of a school.

And he said, "Well, I was free. I had a scholarship." I said, "Oh, okay." And the more I talked to him, he said, "Well, tell me about your family." Well, my dad was an immigrant from Sicily. I think he was a bricklayer or something like that. His mother was a nurse. He's firstborn. I love firstborn immigrants. I can build a firm around those people. The pressure on them to carry the family forward is just enormous. It's an enormous... And I said, "Well, how in the world did you ever get to Elias Bernstein?" Because

they aren't recruiting there. And he said, well, I was on the trading desk as a clerk, but I was a decent athlete. And this summer, I played basketball on a basketball team. And it turned out they had a small cap. Also, Fund was also on a team, took a liking to him, said, hey, you're a pretty smart kid. Why don't you get a CFA and help him along? And he became a member of that five-star team. And I said,

I said, so let me tell you why I think you want to come here. And he said, what do you mean? I said, well, here's why I think you want to come. At Alliance Bernstein, you will be forever known as the kid who got lucky. You knew the head DM and he took you in. You come to Epic, you come with real street cred. You're an analyst, a CFA with a five-star fund that's closed. You walk in the door with a level of credibility that you don't have right now where you are.

I don't think he ever agreed with me, Bill, to be honest with you. But he today is one of the two or three best people I've ever hired. He's a terrific person and he's a very good analyst and P.F.

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You mentioned him at the very start, more or less dedicating the book to him, and you describe him as the Albert Einstein of finance, a man of great principle, a co-author, and a friend from whom I learned more finance and economics than any other person. Elsewhere in the book, in a footnote, I think you call him the single most brilliant financial mind I've known in my long career. And then I was very struck that I sort of fell down this rabbit hole and started studying him a bit a couple of days ago.

And I saw that Peter Bernstein, who I always kind of revered as the author of Against the Gods, which is an amazing book, wrote, Jack Traynor sees what no one else sees, thinks what no one else thinks, explains what no one else explains. And so you got to know him really very well. And obviously he was an important figure in terms of

early theoretical studies of risk and the like, but also of the measures of value, whether you should be focusing on growth or an accounting standards and the like. And I wondered if you could unpack this for a little and give us a sense of what made him such a powerful influence on you and how he actually shaped your thinking. Because in some ways,

You kind of lucked out that you landed very early in your career in the early 70s, really, with this guy who was kind of an unusual guy, right? I mean, he didn't really have a steady academic job ever. He was more of a practitioner, but he was admired by all of these guys who subsequently won Nobel Prizes for economics and was clearly kind of remarkable. So what did he teach you?

Jack, to me, was curious. He was always curious. And Jack had an unpublished paper that was the equivalent of the capital asset pricing model. There were academics who knew of this paper. Bill Sharp's work was done independently of Jack's. I'm not saying Bill Sharp stole his paper or whatnot. But these two papers were around at the same time. Jack never published his. Had he published it, he would have shared that Nobel Prize with Bill.

And Bill would be the first one to tell you how brilliant Jack was, if you ever, Bill would have done it. Bill was never, I got to know Bill Sharp too. And actually back in those days, I left this out of it. I spent a lot of time at CRISP, which was the Center for Research and Securities Prices at the University of Chicago. Chicago to me was the leading center of quantitative academic research at the time. I loved going to those things. And I gave a couple of papers there.

But I worked and I knew these people. When I looked at Myron Scholes, for example, I got to know pretty well. He was at my wedding and I was at his wedding.

This is the second marriage in the literature that had, but not the first one. But at any rate, but he was, I got to know him pretty well. And those people out there, and that's the 70s and 80s, that was just an amazing, amazing period for finance. And Chicago led everything. Chicago was the center of all that. And I gave a paper there on trading costs, on the major trading costs, because most people just thought it was a commission. Well, that really wasn't the best way to look at it.

And the analogy that I often use was a bathtub. Let's think of the water in the bathtub as being the markets trading. And you step in with a big 100,000 share order. It's like stepping into a bathtub. The water level goes up. And then when you leave, the water level goes down. So you want to capture that step up in the water level along with the commission. And I wrote a paper on that. And I won a little prize out there. Delivering papers in front of those

The Nobel Prize guys are scary. I tell you, they are so smart. And Traynor used to be out there too. But he was a maverick.

And a couple of things Jack would do, everybody knew Jack was brilliant. So back then you had real blackboards and you had blackboard and chalk and whatnot. So people, Jack was in the blackboards were, let's imagine a square. And so there would be a wall here, a wall there, a wall over here. So it'd kind of go around the room. And so Jack would start writing his formulas on one side. Then he'd go over here and then he'd stop and he'd say, okay,

They go back and erase something on this board and change the term. And then everybody else, you could see him copy it down. And then he would go to the next board. And pretty soon, the paper was just, you couldn't understand anything because he had erased so many things and gone back and fixed it.

And then we'd have his conclusion and people would kind of nod their heads, but it was impossible. And Jack did this on purpose. So he didn't have a lot of respect for conventional ways of doing finance. It has to be said. So I think one of the things that I want to get to that I think is important is

He obviously seems to have influenced your view that simple measures of valuation that took reported earnings without adjustment as gospel, like price to earnings ratios or price to book ratios, was sort of really unreliable. And so it seems, am I right in thinking that that was one of the things that you drew from your relationship with him and your early studies, this sense that if you followed the conventional view, even the conventional view that came out of reading security analysis by

Graham and Dodd, that you were going to be misled because you were going to focus too much on the accounting. Yes, absolutely.

And Jack had, and Jack and I, we talked a lot about, I tried to hire Jack as director of research at BEA when I got to be senior enough. And I hired everyone from 1972 until 2000. I hired every single person that came to BEA. And that was a good thing. And Al Zezerio did. He let me hire everybody. We built a bond capability. We built a derivatives capability.

It was an amazing, amazing period of time. And I tried to get Jack to come in. No one liked Jack because he was so acerbic. He was this iconoclast. Jack was difficult. He was a difficult person a lot of ways. And I said, Jack, all you got to do is be nice. And I can bring you in as head of research. And Jack just had a way of

Once he decided he didn't want to be there, he just communicated that in a number of ways. And people said, I can't work with this guy. Jack was difficult.

So we want to get to some of the really core investing principles that have served you so well over such a long period. You wrote this book about how to win at active management, and your career in a way is a very good test case for this, which is why I want to unpack this at some length, because you've spent more than half a century, I guess, at BEA and then Credit Suisse Asset Management.

Then briefly, a few years at another film set up called Steinberg, Priest and Sloan, and then at Epoch. And so in some ways, this has been a really good, it's been a sort of 50-year test case for these very core principles that I want to kind of lay out for our listeners and viewers. So they actually have something sort of tangible to hold on to at the end of this conversation where they come out and they're like, okay,

If I want to actually play the active investment game and not just invest in index funds or ETFs, these are some of the principles. And so in one of your books, you wrote this sentence. You said, the bedrock of our philosophy is the belief that the best predictors of long-term shareholder return, a growth in free cash flow and management skill in allocating that cash. And this seems to me a very central kind of statement of your credo here.

Can you talk to us about this whole idea that cash flow is the origin of value in stocks and that really what you want to be as a stock analyst is someone who forecasts cash flows as the basis for security selection?

So given all my background in accounting, I have a background in accounting, finance, and economics. Accounting is astrology and finance is astronomy. That's a distinction I would make. So I can make earnings, anything you want, using a variety of fully, totally acceptable accounting standards.

So I often think of accounting as just being a bit of a mythology, but you cannot hide cash. So let's give a definition of cash flow. And believe me, we batted this around. We still batter it around occasionally about what is cash flow and what is free cash flow, because cash flow often has claims on it. So free cash flow is the cash available for distribution to shareholders after all accounts

cash dividends, and all cash taxes. So those are claims. So what are the known claims on the operating cash flow of a business? And that leaves you with free cash flow. Now, I

There's only five things you can do with a dollar free cash flow. You can pay a dividend, buy back stock, pay down debt, make an acquisition or reinvest in your business. If I have a retail setting, I will take that same argument and talk about my granddaughter's lemonade stand because she has the same set of choices at the end of the summer as that CFO that a company has.

And depending on the retail, depending on the sophistication of the audience, they kind of identify with that story.

I mean, after she's paid all, bought all the stuff for her lemonade and whatnot, she's got some money left over. She can basically dividend it to herself. If she has her sister or whatnot, she can split that. She can buy out her sister. That's like a stock buyback. She can buy out the neighbor's girl down the street and say, don't come back next year and I'll pay you to stay away. That's like a CapEx thing. And those are the five choices. You start with that. That is the beginning of everything.

And then the question is, are people any good at it? Because identifying managements that are good capital allocators is part science and part art. Not everybody is good at it all the time. But the key there then is to understand what's called return on invested capital, ROIC. And then there's a phrase called WAC, weighted average cost of capital, W-A-C-C.

And so you want to look at the spread between the ROIC and the WACC. Now, again, a lot of times you're stuck with accounting data, not financial data. To the extent you can get closer to financial data, that's what you want.

And it turns out that that spread really matters. And if that spread persists, you can do very well owning a company that can continue year in and year out, reinvest over and above their cost of capital. And if they can't earn whatever premium they're seeking, they give you the rest back in a form of dividend share buybacks or debt payouts. That is the heart and soul, I think, of investing.

And we were able to build two products at Epic with that. The first product we built was something we called Shareholder Yield, which was, we wrote a book called Free Cash Flow and Shareholder Yield, New Priorities to Global Investors.

And what that strategy was about was being able to tell someone, we will give you a market return with less volatility. And then you can take what we save you in terms of volatility, you can spend that money on growth or Bitcoin or whatever you want to do. And this product now has over 20 years of history. And we've delivered. We have given the investor a market return with less volatility.

The way that's measured in what's called a Sharpe ratio, that product has a terrific long-term Sharpe ratio. As I understood it with the shareholder yielding, sorry to interrupt you, just to sort of break this down for the sake of clarity, because I'm not very economically or financially minded, so I had to read this like about seven times in your books to make sure I internalized it. So my understanding was you were saying, okay, so a company has this ability to return cash

cash to shareholders in all these different ways, right? They can do it through dividends. They can do it through share buybacks. They can pay down debt. And so as I understood it, what you were saying is, okay, so there's this three-part dividend-oriented approach to how a company is actually deploying its free cash flow. So you were kind of finding this very kind of elegant, simple, I mean, difficult to execute, but simple strategy where you're saying, okay, we can actually see

whether this management is good at deploying its free cash flow in a way that actually benefits the shareholders. Have I got that sort of right? David Stein : Yes. Yes, you got it right. What I left out was the cost of capital is everything. If you cannot earn your cost of capital, but you continue to reinvest or acquire, you're going to destroy value. So people that reinvest the excess cash flow below the cost of capital are going to destroy their business.

So when you're looking, just to make this kind of tangible and clear for people, when you're looking at some of the companies that illustrate this best that Epic has invested in, like I was looking at some of your funds and I can see there are these companies like Meta or Berkshire or JP Morgan Chase or Zoetis. How do these companies illustrate what you're talking about here in terms of management's ability to make smart capital allocation decisions and

their ability to invest the capital in a way that exceeds the marginal cost of capital and increases value. Can you take us through one or two businesses like a meta and say, okay, this is sort of what we look for in a business that we love? And this isn't as a stock pick, it's more as an illustration of the method.

Well, what you would do is to basically try to understand the business that they have. Let's take the drug industry, for example. That's where I did my thesis in that area. So you want to make sure there's demand for the product itself. And you need to understand the unit demand, if you will. Are we going after a big market or is it a small market? Well, let's just say it's a very large market. Take these GLP-1, take Wigovi and all these things.

These are enormous markets, just enormous in size. And so once it gets going, then the issue is you can kind of look at what unit demand might be, and then you can take a look at what you might be able to charge, recognizing you have to penetrate a very large segment of society. It has to be affordable. Are there houses going to be paid for? Is it a government entity? Is it an individual entity? And you look at margins, you look at cash flow that's left over from all of this, and

And then you say, what are they going to do with it? Well, they may, they have to decide if they want to reinvest and drug companies do reinvest a lot of research. And you really don't know in advance if you're going to get, what you're going to get out of that dollar. It's unclear, it's often unclear, but you allocate a certain percent of it. But essentially what you're trying to do is to say, look, if we cannot earn our cost of capital by internal investments or acquisitions, we're giving it back to the shareholders or giving it back.

And it almost doesn't matter how you give it back, but you give it back by taking down your debt, debt pay downs, buying back your stock, or paying a cash dividend. They're functionally the same thing. For tax reasons, maybe it's treated a little differently, but we don't make a distinction there. But when I think of some of the names that we would own, you really want to get an idea of first the TAM, the Total Addressable Market.

we think of a name, let's say gambling, for example. We don't own any gambling stocks here, but I think we should. But at any rate, you take something like, you see all these ads on TV with gambling football. It's incredible to me. What makes these companies valuable? Well,

To me, there's just an enormous tendency for the average person to want to gamble. You can see it with the lottery, for example. The number of people who pay the lottery, if you buy a lottery ticket, for example, the expected return at best is 50 cents because the state keeps 50% of the money or a big chunk of it. Very little comes back. It's a bad investment. I personally have never bought a lottery ticket in my life. I just think it's a bad investment. On the other hand,

And they can look at DraftKings, you can look at some of these other ones. Those are really remarkable businesses. For whatever reason, legally and society now, we can gamble on anything. And the final demand is just enormous. So when you look at these companies, the key is who has the data. And you want to find the company that has the data on the transactions. The individuals, you can't compete with these people.

And it turns out that once you've got the data, you can create what they call parlay structures where you can say, well, you know, on the first quarter, I think the Giants will lose to the Jets by seven points. And you

You can make that bet and somebody will give you odds. The problem is you're making a guess, but the other side's got the data. They will tell you how often that's happened or whatnot. So I think you're constantly looking at the total addressable market, how penetrated is it? And the gambling market in the United States is still in San Francisco. So I think you can look at some of these gambling stocks and you can still make an awful lot of money by

by owning the stocks. Don't gamble. Just own the companies that are casting out the best. They've got the data, you don't. But I think there's another, I'm trying to think of another example that might be

Our guys look at units, we look at elasticity of price. If you keep raising prices, can you still sell the same number of units? Well, most of the time the answer is no. At some point, you just can't afford it. We look at margins and then the sustainability of this. We just had a meeting before we started today. We're talking about the Trump administration. The Trump administration is coming in. They have all kinds of new people and new positions. And what does it mean for certain industries?

you take RFK Jr. I mean, you take a look at his views and it kind of shook my head, but boy, in a single day, he took down the value of anybody that makes vaccine stocks.

in the last week or two because of his views on vaccines. I think this is just noise. Hopefully science prevails where it should. But there's no one form other than just theoretically, what's the total addressable market? What penetration do they have? What kind of unit growth can you expect? Is there any way you can forecast price stability, price growth? And then you go through your costly goods sold, then you make a look at your SG&A, and you come up with a model.

And one of the things we've done, we have a system here. It's called the Epic Core Model. We just updated it. And we put all the companies we look at into quintiles, quintile one, quintile two, three, four, and five. And there is a persistency. The amazing thing is that once you get a company that scores in the first quintile this year,

It turns out the chances of them being in the first quintile next year is pretty high. There's a persistency of this spread between ROIC and cost of capital. Over time, it goes away. Over time, this thing, well, they'll all go to where they're just equal. But you want to find those companies that have this spread because it's persisted.

So we really try and find those companies where you have historical data that suggests the spread exists, and then you want them to say, "Is there any reason why that spread wouldn't exist next year?" And to the extent you can't destroy that argument, you're inclined to do a little more work. You want to buy those companies, and it works. Preston Pysh : Is there a downside to your relentless focus on free cash flow? I mean, has it meant that you

missed out on certain types of business like a netflix or something like that because they lost money every quarter for a long time and what's the limitation of this very relentless focus on free cash flow i think businesses in their infancy i think we can miss with that the um

The way I would think about it is we did, we missed Netflix. We never owned Netflix on the way up. We just saw the valuation didn't meet our . The reality is it was an incredible stock to own for a long period of time, but it just didn't have those cash flows. And the other thing you have is when interest rates are declining, longer duration assets do well. And

that's been a benefit to growth stocks, if you will, for quite some time. You can still be doing ROIC over WAC, but the present value of that gap changes with interest rates. So once you have that spread, in fact, that was a discussion that we were having a short time ago, my view is next year, growth's going to struggle a little bit. Why? Not because they might not meet their cash flow numbers, but because if the growth

If interest rates, if you were to look at the interest rate curve, maybe the short end stays the same or comes down a little bit, but the long end to me has no choice but to go up. And if the long end's going up and the spread between two and 10 years is steepens, that effectively hurts the present value of any investment.

But a long duration investment like growth will be impacted more by that. Now, some of my colleagues were pushing back on me with that view. And they may be right. It may be that the earnings are going to grow fast enough that it will offset that. But next year, I would worry that you might run into a stagflation problem that we haven't had in any kind. We haven't had stagflation of any meaningful amount here for quite some time. But the 70s were formed.

When you look at the current investment environment and you think about the various risks there are, I wonder if we could detail some of these. Because I think it was in the July 2024 edition of the Barron's Roundtable, you talked about a lot of the geopolitical risks.

You said China has serious internal issues. The government might accelerate its interest in going after Taiwan as a way to distract the population. It's a low probability, but still a concern. You also talked about the rise of nationalism and illiberalism around the world.

Then obviously, there's an enormous topic to discuss, which is the end of globalization, which is something you've been talking about. Can you take us through what it is that you, as somebody who's been in the market for 60 years, when you look at this market, what worries you? Not as a prediction of where it's going, but just to highlight for...

listeners and viewers what they should be wary of and why they should not take reckless risk at the moment or ever really? Well, actually, where do I start with this? I'm in the process of writing another book, which we can touch on a little later. It's in its infancy. I do owe people some time, but we'll see where that goes. At any rate,

The idea behind a book, let's just put it that way. If I were to write another book, what would it be like? Well, first of all, I would start with this and then a recognition of what happened in 1989. In 1989, the Berlin Wall fell.

It was an amazing period. And Francis Fukuyama wrote a great book called The End of History of the Last Man. I read that book. I thought it was fantastic. I'll tell you, fast forward, it didn't work out that way. But the point is, behind that book was, think of it, the death of the isms. It was capitalism plus a little socialism. And then...

In globalization. And there's somebody called the law comparative advantage. And just to illustrate that for your listener would be, let's suppose you and I were two countries. You were country A, I'm country B. We made up two things. We weren't food and clothing.

And the only thing that matters is labor. It takes you one day to make a unit of food and two days to make a unit of clothing. I'm country B. It takes me three days for food and four days for clothing. So on the surface, why would we ever trade? Because you are absolutely more productive in both products. Well, it turns out it's the difference that matters.

You're only, you're twice as productive in food, but only 50% more productive in clothing. So what happens, the way this would work out, is if we were to take 100 days and reorient those 100 days as to who's doing what, I get out of the food business completely. All I do with my 100 days of labor is make clothing.

You make more food and you make some clothing. And voila, if you went through that little algebra there, we have more units. We have made more units. Now, I'm not going to trade with you unless I get something. But you will get twice as many additional units as I do.

So the law of comparative advantage is what was behind this incredible supply chain that we built from 1989 till recently. It was incredible. We globalized everything.

Now, and the law of comparative advantage was at work this whole entire time. The problem is, in that little analogy that I just did, we assumed our labor is interchangeable, that the labor, then clothing could be put into food, just move people around. That's not real world. And what happened is there was a hollowing out, particularly in the Midwest, of major industry that went abroad, that went to China, went to all these places.

And we destroyed whole communities with this. And that's the backlash that we're seeing right now. You see it in elections. You see it, I see it in my little hometown of Steubenville. In Steubenville, when I grew up, there were three steel mills there. There was good wages. There was a road bus. Now you go back, there's half of a steel mill there. Downtown's been eviscerated. It's pretty empty. Middle class in Steubenville is what a cop makes or a fireman makes or a teacher. That's it. That community is devastated.

And so, Wendy, we had this 18... So what's happened is you went through this globalization period, and we created the most efficient supply chain the world has ever known. Well, now we're saying, wait a minute, we want security of supply chain. We no longer have a unipolar world led by the US. We have a multipolar world. We've got China and Russia and Iran and North Korea. We've got all these...

characters around, we don't like. So we're going to onshore now. Well, you cannot onshore with the same cost structure. It's impossible. It would be like in our little example, we went back to being two independent countries. I'm making food and clothing as best I can. You make food and clothing. Yeah, we could do that, but we're less efficient. We're less well-off. We're less wealthy.

So this right now, this onshoring is going on. It's going to be inflationary. It is. And I've said, I'm not, I mean, I use the word it's impossible to onshore the way we want to show onshore without it being inflationary. So to me, stagflation starts to be a potential problem. We'll make fewer units and higher prices. And unless you're,

Unless your wealth is going up or your income's going up, you can't afford some of this. And it gets to another example. And it's, what is a government? A government is an insurance company with an army. And the way I would explain that, and I did this in a talk recently, I was maybe aware of 100 people in this audience. And I said, let me, because they actually, they asked me what I thought a government was. I said, well, it's an insurance company with an army. People kind of laugh. I said, no, just listen to me for a minute.

Let's imagine that all of us live in a community. The average house is $500,000. So there's 100 of us. Every house on average is $500,000. But every year, one house burns down. Now what? If you have to self-insure, you're going to live in a smaller house because if it's your house that burns down, you're nearly wiped out. But let's suppose everybody chips in $5,000.

So $5,000, 100 houses, we got our $500,000 now. So when that house burns down, we simply take that money and give it to this guy. That's what I mean by... And so when you take a big risk, like social security, medical issues,

These have to be borne by a large number of people. The probability of affecting you is small. But if it does affect you, you have a problem. It's the police force. It's the fire. We need that. So now broaden this out to allies.

NATO is incredibly valuable to the United States. It's the same thing. The US can probably take care of itself, but wouldn't it be nice if we shared some of that cost with Japan and Australia and maybe Europe? It's the same principle. Alliances really help you with costs. Now, the question is, I don't know how that's going to play out. We have a president who

is very transactional, at least that's the most, I don't know how else to characterize it, very transactional. But if you have, you don't want to be in a position where you're self-insuring every terrific risk you have. It's just not a good thing. So those would be risks I look at next year. I would worry that we, the onshoring is likely to cause, I think, inflation. These tariffs, tariffs are nothing but a sales tax. It's just another form of sales tax.

And sure, you can do it. You can get people to... It's going to be in reverse. Our farmers are going to be worried about selling stuff to China because they do sell a lot of stuff to them. I don't know how that works. Can you have some tariffs? Yeah. But the history of tariffs is they're rarely any good. They rarely help you.

So if you're a regular investor, I mean, our listeners and viewers include many professional investors, but also many regular investors, and they're all kind of trying to weigh this great uncertainty and figure out how to position themselves. You have tremendous perspective, having lived through lots of tumultuous times in world history, albeit none quite like this. What is a sensible, rational investor who wants to set themselves up to survive and prosper over the next 10, 20 years?

actually do to protect themselves from the potential for higher inflation, the potential for tariffs, the potential for, you know, tighter immigration policies or, you know, higher debt levels, lower growth prospects, all the things that seem to be possible. None of, you know, we don't know what's going to happen with any of these things, but there's a lot of fragility there. Absolutely right. So one time I had somebody ask me,

One time, if you're so smart, why aren't you so rich? And I said, smart people diversify. So that's the truth. You want to diversify. The future, not only is the future unknown, the future is unknowable. So if you're dealing with something that's unknowable, diversify.

And you need to start saving when you're really, really young. You need to start saving when you're in your 20s. It can be a small amount of money, but you just have to start saving. And a balanced fund, the 60-40 fund, whatever, that's a perfectly reasonable way to go. But I would highlight one thing, and I hope that paper was sent to you about bits and atoms. That, to me, is worth comprehending. And I'll spend a minute on that.

People, when you look at return on equity, it's simply earnings divided by stockholders' equity. It's just a formula. And there was something called the DuPont return on equity formula that first-year finance people or accounting people, you understand that.

But the beauty of bits and atoms, and it was in that paper we wrote, is that my desk, these books, they're all made of atoms. But information comes to us in the form of bits back and forth. So if I break that return on equity into pieces, there's a profit margin times asset turnover times leverage. Profit margins would be earnings divided by sales.

So if I can substitute technology for labor, for example, and hold my revenues constant, my profit margins are going to go up. And if I'm selling something, if I'm a retailer and I can sell over the internet and hold my sales constant, I don't have to have those hundred physical stores. My sales per dollar of assets go up. And if it turns out the third variable is assets divided by stockholders equity, which is a measure of leverage.

If I can do the first two things and I like the leverage I have, I can keep that leverage and have a higher payout ratio. So I would look for companies that actually have an ability to substitute bits for atoms, substitute technology for labor, substitute technology for physical assets. Those companies are going to watch their return on assets go up.

Now, is that Trenton fully valued in the stock market by PEs and whatnot? I don't know. You have to make that decision. But I would try and find those companies who actually understand the logic behind that paper. Everyone, we are doing here, we just want to substitute information technology, AI, all that stuff for labor. And that is going to be a big productivity boon.

If you think of what, two things determine growth in GDP, growth in the workforce and growth in productivity. Well, the workforce growth in the developed world isn't going to be very much. It's a pretty mature planet, with Africa being an exception. I mean, if you take a look at the population, take a look at the working population, it's not growing very fast. So the workforce growth rate is going to be very low.

So the only thing is productivity. So you got to look at the productivity arguments. So is there a productivity case for anything you're investing in? Because that's the only way you're going to be able to, I think, make money in the future. Find those companies that can reinvest.

You've written quite a lot about artificial intelligence, and you co-authored a very interesting paper that I was reading yesterday asking whether AI is just another bubble or whether it represents a structural change in terms of margins and returns and free cash flow and the like, and also asking how much the earnings growth is actually already priced into the tech sector. When you

When you try to weigh what's going on in AI, whether, as you put it, euphoria is going to turn to disillusionment, what's your best bet? I mean, what perspective can you give us to think about this in a kind of rational, non-euphoric way?

I think it's kind of unstoppable. It's going way, way back when you had the Luddites, going way, way back to when we had the Looms. When Looms took over the hand-waving company, there were strikes and up-waters and all that kind of stuff. We're past that here, but you need...

You're going to need a comprehension of this evolution. There's an interesting sociological argument here, and it's David Brooks. David Brooks is one of my favorite writers. He has a book out on something called the diploma divide. It's broader than what we're talking about, but I would just suggest you take a look at that sometime. It's really pretty cool.

We have placed, when you look at where industries are going, there's tremendous pressure to substitute technology for labor and physical assets. It's just, it's everywhere. And to me, you want to basically, the jobs are going to be over there. They're not going to be, you're going to be at risk. There will be whole professions that will be at risk. I don't consider myself technology very, very...

very good at all. In fact, I think I'm pretty terrible at it. But I did happen to write a piece recently for, actually it was for Barron, said that it was too long. So I thought, okay, I'll shrink it down. Then I thought, you know what? I'm going to go try and use ChatGBT. I was astonished, absolutely astonished.

It wasn't my voice, so I had to rework it into my voice, my verbs and whatnot. But it was incredible to me, just incredible. And so I'm doing this on another project I'm trying to write, just going back to what I mentioned earlier about the history of going from a unipolar world to a multipolar world. What does it mean?

What kind of problems are we going to have? We talked about China, for example. China has a lot of issues. I'll just touch on that for a minute. GDP is made up of four things, consumption plus investment plus government spending plus net exports. It's kind of like economics 101. Well, China has bet an awful lot on I, investments, government-directed investments, and then exports. That's what's driven their GDP. They don't have much of a safety net for the people over there. And local consumption,

it isn't anything great either. This is an unsustainable situation as it becomes more obvious and there becomes, you have huge unemployment among the youth over there right now, you've got the huge real estate problem over there that's crashing. To me, it's all about the CCP, the Communist Party. And I could see how a situation, particularly with tariffs, could become bad enough

that it's a wag the dog problem. You know, the local command is an uproar, although I can't imagine. Everybody's, they know everything about you over there. You can't go anywhere without being on camera. It's, I haven't been there in a long time. I was there maybe 20 years ago was the last time I was in China. But I would worry that, you know, it's a wag the dog problem. And she has said, you know, sooner or later, they're ours. We'll see how that plays out.

Do you feel like China has become uninvestable, as some people say? Or I think I saw Bill Miller say recently that it's kind of become a bargain hunter's delight. I mean, would you just not touch it at this point? It's just too risky? I would be very careful about investing in China. I'm not sure how sustainable it all is. And

I'm sure that with hindsight, you probably will be able to take a look back and say, "Gee, some of these things worked out pretty well." But there's no real rule of law over there to speak of. And I think you need a rule of law to prosper. When you look at democracy versus autocracy, and there's a couple of really good books on that. Ann Applebaum's written a book called Autocracy. I thought it was really well done. And the liberal democracies are about process.

This is how we resolve things. We resolve it through process, but not autocracies. Autocracies are about identity. And if it's you, and I call it, you're not my mother. And if I don't associate you with my mother, I don't like you. And so,

That brings a whole other dynamic into the world. I thought her book was really, really good. And there's a couple of other ones out there on it. But I think this whole autocracy versus democracy issue, the liberal tenets of the West really, really revolve around making sure we have process. And to the extent you want to get rid of that process and you want a strong man or something like that,

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So if we live in a pretty fragile world, I mean, it seems fragile in all sorts of ways. I mean, you know, you've talked also about the likelihood of a fiscal crisis at some indeterminate point in the future in the US. There are just so many forms of fragility. And I always come back to this beautiful line from Nassim Taleb, who said, the fragile breaks with time.

And so it's not that you can make a prediction about when any of these things will happen or if any of them happen. I mean, we have no idea whether China will blockade Taiwan or whatever. I mean, what do we know? But it just feels like there are a lot of forms of fragility. And so I wondered...

When you think yourself about how you're protecting your family financially or how you're protecting your firm's clients financially, beyond diversification, what do you do? Do you buy gold? Do you buy Bitcoin? Do you put more in the US? What are you doing to protect against this? David Morgan : Gold to me has some interest.

whether it's 5% or some small amount, but I think gold is kind of a default currency for a lot of people. And several banks are buying a lot of it. So, I mean, but that's small beer. What I would worry about, I guess, is

is what appears to be a tendency for the strong man. When I look at Hungary, for example, I mean, I remember reading about it. I knew somebody in 1955 when some of your tanks rolled in and just rolled right over them. And then there was the uprising and whatnot, and they threw them out. But then I looked at what you got today with Viktor Orban. You know, he's pretty much of a dictator. You know,

I think that one of the issues with democracy and I give Ed Clark, who was one of the best CEOs I've ever met in my life. He was the CEO of TD. He's retired now. But when I first met him, I just walked in, sat down in front of him and he says, so Bill, what do you think the biggest problem in the world is? I don't know. Population. I don't know.

He says, income inequality, it will destroy democracy. And that was 2012. And I actually think he's on to something. I don't know what we do about it.

If you have a diploma, you live better than someone without a diploma. And that was the whole point of Brooks's piece. If you read that article, I forget her name, but she called white working class. That was the name of the book written in 2016. I thought that was a terrific book. There is this divide in this country. And if you don't have a college degree, you really are left out and left behind. It's an issue.

The other thing I would touch on is, and I give a talk on leadership, and maybe I could just bring that up if I may. I'd really like to talk about leadership in a few minutes, but actually I want to wrap up this portion because you raised something really, really important that I feel like I didn't push you on before, which is important when we were talking about that period of the tumultuous years when your career began in between 68, 74.

If we're living in a fragile world where you don't know what's going to break and you don't know when it's going to break and you don't know how big it's going to be, it places a big onus on all of us as sensible investors to try to think about how to prepare for extreme volatility. And when I look at your career, you've gone through a lot of periods of extreme volatility. And so I wanted to unpack that a bit and talk a little bit about how you set yourself up to survive. Because if we even go back to,

to BEA, right? That first company that you had that had a very weak balance sheet, not that, you know, living sort of hand to mouth. And then you compare it to when you were at Epic and you had to go through 2007, 2008. There was something about the way you set things up to survive a really volatile period that I think there are really important lessons to that. Could you talk a little bit about that?

Sure. Great question. Great intro. I swore if I ever ran a firm again after BEA, I would have a balance sheet. Balance sheets matter.

And when '08 happened, and Epic was a publicly traded stock. When we started, there were seven or eight of us. We did a reverse merger into a publicly traded vehicle. The market cap of the stock was like $13 or $14 million or something. It was peanuts. And then we had this huge run up in that '07 period.

And then 08 struck. And the stock actually hit 17. I went to four. Now, I insisted that everyone in Epic

have stock. Part of your bonus at the end of the year, we gave you stock. Now, the stock was tradable. It wasn't private stock. You could sell it on the open market. There was no penalty for selling it. People have kids to send to college or whatnot. There was no, we didn't penalize people for selling stock. Many of the people did not want stock. They would say, hey, Bill, I got to pay my rent. I don't want stock because we'll sell it.

So the stock went from 17 to four. And when Lehman fell, I put everybody into a room and a Monday after that. And I am frankly, that was the worst situation I've ever personally seen. To me, it was terrifying. The world looked like it could come to an end financially. And I said, look, if you do your job, you will have your job. There'll be no layoffs at Epi.

because we have more cash on our balance sheet than we have revenues. So I've always had a balance sheet to get me through difficult times. And even on a personal basis, you don't want to be too stretched out. When you're young, you can be stretched out. When you're older, eh, not so much. You better have some reserves. So to me, I would say in today's world, there is no ideal asset mix that so much on the individual.

But I think getting people to understand that having a balance sheet, that's what gets you through black holes. It gets you through really difficult times. At the individual level, maybe it's a disease. Maybe it's somebody loses their job. There are things at the individual level that it just doesn't go smoothly. If you live long enough, there's potholes. You won't have potholes. And you didn't see them coming.

I think this is so important, what you just said. I mean, I look back to 2008 when I lost my job editing the European, Middle Eastern, African editions of Time within a few days of Lehman going under because the magazine business was kind of collapsing. And because I'd survived five rounds of layoffs at Time magazine over the years, because it was always a sort of diminishing pie in those years, I had no debt and plenty of cash and I didn't have to sell any of my stocks. And

I remember one fund that I owned was down 46% that year. I didn't have to sell. And so just that really simple precaution of knowing that you're going to have cash to ride out unpredictability. I think particularly in a time like this, when there's so much exuberance, not to lose sight of that. I just really hope there are some people in our audience who are taking that message seriously.

I would. I've also, as you say, I've seen a lot. And, you know, that's that old saying, I forget who said it first, but how do you go broke? Well, slowly and then all at once or whatever. Yeah. Ernest Hemingway said it. And I can just see it. I can see it in my extended family and whatnot. I know the jobs people have so far, you know,

But OK, but illness, illnesses is a big deal. Illness can take take they can bankrupt the family today. It happens. But I think your point, I would I would have a balance sheet. I mean, there's a lot of uncertainty in the world. And I would I would I would on a personal basis, I probably have a much lower exposure to equities today than I had 10 years ago.

It's also really interesting when you look at Buffett and you see him, you know, not market timing, but quietly sitting on what, 350 billion or so of cash because he just can't find cheap stuff that he loves. Right. To me, that's also, you have to respect him. You have to respect that guy. I mean, his record is phenomenal over many, many years.

I'm always really, I mean, look, I revere Buffett and I own Berkshire, so I'm biased, but I always want to take very seriously people in their 70s, 80s, and 90s who've survived enormous turmoil in the markets while everyone else has kind of fallen by the wayside. And

I was reading one of your pieces over the last couple of days where you talked about how you'd experienced at least six periods of irrational exuberance since your investment career began in the mid-60s. Tech, US housing, China, e-commerce, digital currencies, and the Magnificent Seven. You're a connoisseur of irrational exuberance at this point. When you look at this kind of environment,

Is there, you know, when you try to put it in context and try to figure out whether people are getting carried away or whether it's kind of justified by the fact that the new administration is going to be, you know,

changing rules on regulation and doing everything to kind of gun the engine without necessarily thinking about the long term. What do you think? I mean, does it feel like a period of irrational exuberance or? It's, I guess, my own feeling, and I'll back up a minute. I want to touch again on this time and place thing because it does affect me, going back to your family of origin concept. So both of my parents were born in 1906. So

My dad was basically, well, he was an orphan, as I mentioned, my brother at College Street, but they turned 21 in 1927. Then two years to party, the roof fell in, the depression, 25% of adult men were unemployed in the 30s. And then you had World War II. That generation went through hell.

I mean, they didn't spend any money on anything. They hated debt. I think my dad said, I don't know, I think in the first house, the house I grew up in cost like $10,000.

He sweated and saved the 10,000. He never had a mortgage, which is unbelievable today. I mean, you just can't live like that. So to me, that's part of my history. Part of my family of origin is that story of what my parents went through. Still carry that around with me, albeit it's different. So my view today is, again, it depends on where you are. I think my view, and I've tried to get my grandchildren to do this, start save today. Save every single day.

And try and save a little. Get in that saving habit. Take a 60-40 portfolio. Go to Vanguard or something like that. You can choose other vehicles. Get started with the idea that don't consume 100% of what you take off.

It's silly. And life's long. Life is long. You don't want to wake up one day when all of a sudden you've got a health problem that you can't afford or some other family member may have an issue. It's complicated as you get older. These extended families have, you know, if you are the most successful person in your family, whether you realize it or not, you've given every family member a foot.

They will call you up when there's an issue. Trust me, they do. And I'm not going to abandon them. It's not who I am. So it isn't just taking care of you. There's a broad definition of you. And it includes a lot of people.

There was something very interesting that I was reading about in one of your books, where when you were talking about how to win as an active investor over the long term, it wasn't just having this investment approach that makes sense, that's built on cash flow. It wasn't just having the discipline to stick to it. You also wrote a lot about a winning culture. And I think you were about to touch on it when I interrupted you a few minutes ago.

You, you, this whole idea of culture and leadership to create a successful investment firm. And in one of your books, you said, you said that culture is the bedrock of success for any firm. And I was very struck in one of the articles that you wrote and also a chapter of one of your books that you talked a lot about the Duke university basketball team and coach K who.

coached the team from 1980 to 2022. And what we can learn from him about how to create a team that's successful. You've built a couple of, well, two or three enormously successful businesses in the investment space with just vast amounts of assets under management. Can you talk to us a bit about how you try to create a team

within the investment business that succeeds, given that the priority here really is, as you put it in one of your books, the effective exchange of knowledge? Yes. So I would say the way I think about it, I made a joke about this. When I first got to be a CEO, I just wanted to hire the smartest people I could find, and I hoped they were decent. When I started out, I just wanted to hire decent people and hope they were smart.

I actually think that's a better way to go. And when you get into leadership, a really good leader to me has to be able to do three things. First of all, you got to have empathy.

Now, just in this interchange that you and I are having, I totally see you are an empathetic person. You will draw people out because you're trying to accomplish something here. But in order to do that, you communicate empathy. That's very important. So a person without empathy, you can be a dictator leader. You could do that. But boy, for me, it's certainly not any fun. But empathy is a requirement.

The other thing which a lot of people get hung up on is you need to be able to make tactical decisions, not necessarily philosophical ones, but tactical ones.

My favorite example might be, example I use in the discussion is, let's suppose you and I both play golf, we belong to the same club, and on some busy Sunday afternoon in August, you show up with a foursome at 2 o'clock, and I show up with a foursome at 2 o'clock, and, well, wait a minute, I got the four at 2 o'clock, you got the two. The starter has to make a tactical decision.

He might say, you know what, Bill, you take the day at two. Bill Priest, I don't know what happened. We don't have time to go back. Look who called in first, who sent the emails, because he's got a line of people back there. He cannot admire the problem. So he makes a decision. I come back tomorrow. The club is free because they treated me. But that's a tactical decision.

A lot of executives get tied up with trying to do the right thing. Don't admire the problem. Some things have to be addressed now. So a good leader has to do it. But the third thing is inspiration. You have to be able to inspire people. Now, it's easier to inspire young people than older people, because the older people usually batter back and forth a little bit.

But it's about setting, hey, if we do A, B, and C, we can go from this place to that place. Sports are like that a lot. You know, if we can have the defense and the offense and special teams all do well, we can be in the playoffs. But it isn't just saying that. It's kind of living it. It's showing the example. And I think you'd be hard-pressed around here. I had somebody, in fact, the kid that I was telling you about that we ultimately hired

He said at the end of his interview with me, he said, I'll outwork anyone in your firm. I said, all but one. And he said, who's that? I said, me. So everyone here admires my work ethic, notwithstanding achievements and title and all that. But you have to respect effort. Effort alone doesn't guarantee achievement. But effort is honorable. And this gets to my two movies. So the two movies that I think leaders need to watch

is first of all, Miracle on Ice. That's the story of the US when they beat the Russians. And that movie has a real learning moment in it. The US team was a mess for a while. Prima Donnas, coaches, finally, they all get together. And there's a Christmas party before the Olympics. And the team's coming together. Everybody feels good. It's maybe 11 o'clock at night.

or 11, I don't remember exactly what time it was. The coach gets up to leave and the player comes over and says, coach, where are you going? The party's just getting started. He has to leave. He's not one of them.

They're the players. He's the coach. You have to have this little gap between you and the others. Then you get to another movie, Master and Commander, which was Russell Crowe's in that. And that's a story of a ship that's been struck by lightning. And it's in the 19th century. It's a three-masted ship, and the main mast is hit by lightning. It's in the water, and the ship is starting to capsize. So

And they have to start cutting the line. They're trying to cut the line. It's not working. So his second lieutenant, best friend, jumps in, swims over to where this thing is and starts hacking away. But it's not working. And the ship is even listing even more. So Russell Crowe is a captain, cuts the line, ship's side. His friend dies, but the ship is saved. And the moral there is the institution matters more than anything else. You've got to save the institution.

And if you cannot make that distinction as a leader, you don't deserve the job. You just don't. Recently, I have a guy, he's retiring. I can't believe he's retired. I said, Mike, you're retiring at my age when I started up here.

And so he said, I never understood why you appointed me president in the first place. I said, Mike, you have the capability to fire me. And he said, Bill, I don't want to fire you. You were my mentor. I said, that's not the point, Mike. You have the capacity and capability. As the leader of the firm, nothing matters more than the firm. And that's kind of my talk on leadership. And that's how you got to be at it.

I've met people who think they know it all. They're pretty smart, probably smarter than me, smarter than anybody I know, but they come down like a ton of bricks on our people and their staff. It takes, you know, I forget who said this, but it takes ability to win. You know, it's a community. Work is a community. And I spent a lot of time thinking about this, but I personally need a community.

And the community, it can be family, but I need other people. We're social beings. We need a community. I'd like the work community to be one where people have a purpose, but we have a good time. Who wants to work somewhere where you just don't want to be there? You just don't want to be there. It's just too unpleasant.

When you're in a business like investing, and it really is all about the transfer of knowledge, right? You've got to be able to share opinions and share data freely, and you've got to kind of incentivize people for it. So I know that you've actually structured your incentives so that people are rewarded based on the firm's overall results. How do you ensure that you're not closing yourself off

to competing views and dissenting views? Because it must be very tempting when you've had a long, successful career to say, no, no, look, sonny boy, I know what's going on here. And I'm just wondering how you actually protect against that danger. I tell people no one has made more mistakes than me. I've been around longer than most people. I've made more mistakes than anybody I know.

And we have a guy here, his name is Steve Blyberg. Steve is like 60 or 61 years old. Steve was a summer student for me. I think it's really pretty amazing. Now, he left, he came back. He's the smartest guy, one of the smartest guys I've ever met. And I never have a conversation. I usually go in with a half-baked idea. Hey, Steve, I'm thinking about this. What do you think? And then in about 10 minutes, he destroys my argument. I always...

There's not a conversation I have with him that I don't come out being smarter when I walked in. I don't need the agulation. I don't need people to suck up to me.

I just want to get better. And believe me, people make fun of me a little bit. I really don't know very much about anything. And I start with that. So my base, I've had a lot of experience, but I really don't know a whole hell of a lot. And so I try to say, oh, yeah, I hadn't thought about that. Let's work that in.

And I think it's one of the reasons we've had relations until we, and this is another thing, this is a tough lesson to me. Well, I learned the first time, but difficult. But when you sell a firm, like what happens is we sell a firm, you trade governance for money. You get the money, they get the governance. So when you do that, you have to know that's what's going to happen because they have a dream too. They have a dream of how you fit into their big picture. And you need to respect that because that was part of the trade.

And I think one of the things that I spent the last year with McKinsey, I was chair of the Wealth Strategy Committee for TD. And it was really pretty interesting. McKinsey and there's other, they have a lot of data and whatnot. But then you have to say, okay, so...

Two things in strategy matter. And I'm thinking it's business strategy. The way to think about strategy, the goal is winning, but you have to answer two questions, where to play and how to win. If you can't answer those two questions up front, you're going to fail. So when you use a firm like McKinsey and whatnot, and you kind of look at where to play and how to win as you go forward, as best you can.

But then once that's done, you got to get people behind you to see this is a strategy that's going to work. This is how it's going to play out. So, and that was really enjoyable. I really liked that. I wouldn't want McKinsey to be doing the execution, but I think they're good at kind of giving you

Here's the whiteboard. Here are the things you have to do. And I could easily send you, I wrote this one page on the strategy, which I think is, if you can't answer those two questions, your strategy is going to fail.

There were some other questions that I really liked that you ask internally with your team. I remember seeing that in the year-end reviews at Epic, you said you asked two questions, one of which is, what can we as management provide to allow you to do your job more effectively? And the other is, what can we do to make the organization more effective? Can you talk about your decision to ask those two questions? What's going on there?

Well, we still ask it. I would say, depending on your own history, some people are more data-centric and computer literate, tech literate than others. But I think your organization has to become very, very tech literate. And we try to weave that into...

Virtually everything we do. I consider myself one of the most illiterate tech people in the firm. I'm always saying, hey, I think I accidentally deleted this. Where can I find it? All that kind of stuff. But I just think it's about being open minded to change. There's every single day. I think you've got to earn your place in the world again.

And I do think a lot of it has to do with how you treat people. I think there's a level of respect that human beings just should provide one another. There's a, you very, you occasionally, I wouldn't say it's always, but you occasionally run into this, like this guy that I interviewed, I still remember him. I've, you know, Harvard, Columbia, Goldman Sachs, like I got all the tickets. There's an arrogance there. Arrogant people can't listen. They cannot listen. And they will get you in a ton of trouble.

So to me, I always think if you don't know what you don't know, you do get everyone in a lot of trouble. And I think knowing, it's very helpful to know what you don't know. I want to underline this decency point because I think it's interesting and I think it's very easy for people to miss. And I actually want to read a quote from Bill that really struck me way earlier.

You got at this a little before, but it's worth emphasizing this. You said, I used to set out to recruit the smartest people we could find, hoping they would turn out to be decent as well. But after a few particularly painful lessons in my career where people brought in for their extreme smartness turned out to be destructive to the organization, I came to realize that decency takes higher priority. I think that's an unusual insight.

True. For me, it's true. Can you give us an example of someone, without naming them or identifying them, just something where you just saw, this is toxic when you bring in people who aren't decent? The problem is they can't listen. They come in with a frame of reference or a frame of mind that they think is all-encompassing. But it's the rare view that's all-encompassing. It's the rare view.

So what you want to do is just find people who are, that have a point of view. I like having points of view, but it's not the end point of view. I mean, life's a learning journey. And to me, you can learn something every day. So to me, it's all about basically saying, look,

I may have thought this way once, but I've changed my views. Don't be wedded to the past, wedded to the old views. You have to be open. You just have to be open minded. I can think of I can tell you a funny story that happened. It was it had to do with it.

at days of BEA when we, I hired everyone at BEA for the longest time. And when we decided we had a problem, we had a problem of transitioning leadership. There were three senior people, Al, John and myself, and then three younger people I hired, and they were getting pretty ambitious and wanted to run the firm.

Well, the problem is the value of the firm had gone up so much, they didn't have the capital to buy anybody out. So you almost, you had to have a transaction to kind of facilitate the continuance of the firm. And Al in particular just didn't want to have anything of it. I said, "Al, this just isn't going to work." And I said, and by this time I had become the CEO, but he was the founder. Founders cast long shadows. They affect firms from day one. And he was a mentor to me in many ways.

And so I worked out a way with him and he announced, I'm not signing any non-compete, non-solicit. And I said, okay. He said, but they want all six of us to sign it. And I said, I know. Well, I'm not signing. I said, what if I can get you out of that? And he said, you'll never get me out. And I said, well, if I can't get you out, you don't have a non-solicit or a non-compete. Will you go along with us? And he said, yes.

So I said, but I have one condition. You're not allowed to meet with them. He said, what do you mean? I said, this is the credit switch spot, the company. I said, so you can't meet with them. And he said, why is that? I said, I just don't want you meeting with them. And he said, okay. So I talked them into it. Al was turning, Al was like 62. In their world, you had a 60 and out problem. If you were a C-level executive, they retired at 60.

So Al was over 62. And I basically said, look, don't worry about him. And I was able to talk them into it because their culture, everyone wanted out at 60 or knew they had to go out. But Al was kind of made up a little bit like I was where, you know, you don't want to work forever if you can't. Anyway, it worked, got Al up. And then the other thing he did there, which I think have

affected people a lot. Al had the corner office. I've never wanted a corner office. I think corner offices are problems. Now, I've had a corner office, but I've never had the best corner office. And the reason for that, you need people to speak truth. One of the problems of big organizations, two things that I've watched, if you happen to credit Swiss, if you happen to say it elsewhere, no one speaks truth to power, and to get along, go along.

That's death in an investment firm. You cannot have that. So people will always respect you. If you have the corner office and you're the one that makes higher fire on comp decisions or whatnot, they are really nervous around you. You've got to get rid of that. You just have to get rid of it. So create committees of compensation, create groups of this, but don't allow one person to become so preeminent

That basically the whole firm rides on that decision. It has succeeded. I can think of firms where it has succeeded. But it's never been one that I aspired to. I've always said, I made sure that the best corner office I never took. And it's a funny thing, but I had Mike Walters. You wouldn't know him, but he's the guy that's retiring now. He had the best corner office at Epic for like a decade. And he said, why didn't you get him? I said, I had my offices on Lexington Avenue.

His office is on Park Avenue, a big corner office, big one of those. I said, why do you want, I feel like I'm uncomfortable here. I said, Mark, you can carry the office. The person in the corner office has to be able to carry it. It doesn't have to be the CEO. I needed to be somewhere else. I need people to walk in and talk to me like I live next door to them. I need honest information.

I think that's really interesting. And it's such an important tell when you go in to interview someone and you see, you know, because this is one of the things you have to do as a journalist, right? You go into people's offices and it's just really, it's really revealing to see how they're set up.

I think of these two guys, Nick Sleep and Kay Sicario that I wrote about in my book, Richer, Wiser, Happier. And they didn't set themselves up in Mayfair or in the city of London. They were on the King's Road above basically a pie shop. And then it became, I think, a Chinese herbal shop. And they just thought so independently. They just didn't play the game the way everyone else did. And so I think these little choices that seem insignificant,

incidental, like not having the best office, are so important. I do too. And I also think now when you get into big organizations, whether it's a bank or an insurance company, they have 80,000, 90,000 employees. You can't manage an organization that size without a lot of process.

And compensation is complicated. You got this matrix from A to Z and numbers from one to 200. Joe Smith is a C62. Should we make him a C41? It's foreign to me. It's really, I wound up in big organizations, but the bureaucracy is just so stultifying.

Well, it was fascinating to me that BEA got bought out by Credit Suisse. And so you spent an enormous part of your career at Credit Suisse Asset Management and built the US business into an enormous business. It was very successful. And then I was thinking how ironic in some ways it is that Credit Suisse collapsed in 2023 after all these years of scandals. And

And I think ended up being bought out by UBS for a little over $3 billion. I mean, nothing. And I was wondering, given that you're one of the great survivors of the investment world, you're a sort of emblem of longevity. When you look at the story of Credit Suisse dying, what does it...

Like, are there any morals, any lessons for us in terms of how to build something that survives and how not to behave in a way that's likely to lead to a premature death? Well, most companies go out of business. That's the truth. Most companies go out of business. When you get in, and the ones that survive tend to be larger ones. They tend to be a corporate structure rather than a partnership. Partnerships are really hard to continue, just really, really hard.

But they can. They can do that. They usually are private rather than public. And it's not that they don't have their problems, too. I think with Credit Suisse, I learned some things from Credit Suisse, though. They had bought us, and then shortly thereafter, a year or two after, they called me up and said, congratulations, you have another company reporting to you. I said, what are you talking about? We just bought Warburg Fink as asset management.

I said, "I didn't know anything about that." He said, "Well, we bought it from the private equity firm, a private equity firm, owned, Warburg Pincus owned Warburg Pincus Asset Management." And I said, "Well, does anybody at Warburg Pincus Asset Management know about this?" "They're going to find out tomorrow."

I was shocked. I said, you can't make an acquisition of another SM management company without an advocate inside the inquiry. And they said, Bill, that's not a helpful comment. And I said, that's a truthful one. And I said, they're going to report to me. He says, yeah. I said, my life was hell for a week. They hated me. I was very involved in this horrible Zurich firm. It took me over a year to have them trust me. And the cultures were so different.

It was Peter Drucker that said his culture eats strategy for breakfast. He's 100% right. You have to get buy-in from the workforce. Otherwise, you can't dictate culture. The culture bubbles up. You can have aspirations up here, but the culture's got to be lived by people. And it was a nightmare with those people. And we were an institutional firm. They were more of a retail firm. Well, that's a cultural, factual difference, but it was also a cultural difference.

Those people were more concerned about their personal account, their PA, than anything else. We had all kinds of rules around that. You couldn't trade. You couldn't do anything really without getting clearance from. And I've never been sued by a client or an employee in my entire career, not once. And I'm proud of that. It speaks to the culture that we had and we created. We've never written a check to anybody.

One of the things that struck me that's really interesting about your career is that you were forced to retire at 60 because of that rule at Credit Suisse. And I was thinking about that line from F. Scott Fitzgerald from The Last Tycoon, where he famously said, American lives don't have second acts.

And then you went and had this hugely successful second act where, you know, you, you end up setting up, um, Epic and, and building it to, you know, over a hundred employees and over 50 billion in assets. I don't know where it is now, but you know, it became a huge success and ended up being sold to, to TD.

Do you have any advice, I'm asking this somewhat selfishly as a 56-year-old man, on how to continue thriving from middle age onward, like what you've learned about continuing to succeed instead of kind of being on a downslope from the age of 50-something onwards?

Well, that's an interesting question. I'm lucky to have my health. I would start with that. It's hard for me to believe. I'm like, I'm maybe three years old, which is freaking amazing. It really is. I've got a lot of energy.

I recently had a physical, again, whenever a year, and a guy said, you know, there's an old saying, age is only a number, but in your case, it's the absolute truth. I think I'm a weird dude in that respect. Other than taking Lipitor, I don't take drugs of any kind. And I like being engaged, but I would say people like me, we're a challenge in a way. Most people work in order to live life.

but a few people live to work. I would put myself in that category. The problem with people like me, we can be very difficult on relationships outside of what matters to us. And my wife came up to me, I don't know how long ago this was, some evening when she goes, knock, knock, remember me? I'm your wife. And you just get wrapped up in what you're doing. It has some pluses, but it has a lot of negatives. And I don't know what...

I am sure that I will time out at TD at some point. I mean, it just, I am by far the oldest employee by a mile. And I'm, I don't know. I mean, I would say that

that that that era will will come to some end but doesn't mean my work era is going to come to an end uh and someone's asking kevin is just starting another firm and i said i might have the interest i might even have the energy but the other has to be another side that says hey you know what this guy may be old but he still got he can still think um so that's that's kind of where it all is i don't really the advice i have is

I always say I'm curious. I'm being curious, and I read a lot. I am a big reader. And again, another, I mean, I just read, well, Rukhar Shumar just wrote What Went Wrong with Capitalism. That is a great book. That is an absolutely great book. And then I have these grandchildren. I'm so ticked off at them in some regards.

I don't give him, you know, buy him stuff anymore, but I gave him a book. I buy him books. And this generation doesn't read, as far as I can tell. So I'm a real fan of Harari. He wrote, Harari wrote, you know. Yeah, Sapiens. Sapiens.

And he also wrote a book called 21 Lessons for the 21st Century. I think that's a great book. So I got every one of my grandkids this book. And so I said, now, you know, I'd like you to read the book. This is last Christmas. I'd like you to read the book. And when you're done, I'll buy dinner. And you don't have to agree with the book or my views at all, but I'd like to talk about the book. And after dinner and we have a conversation, I'm going to give you a check for $500. This is November 18th. Don't worry, read the book.

So I'm thinking, wait a minute here. I took care of education and all this stuff. And I'm a little irritated with this, to say the least.

There's a really interesting shift, I think. I mean, my kids who are 23 and 26 both read a tremendous amount, but I think that's unusual. But I was talking to someone yesterday who I had dinner with, someone who used to run one of the departments at Columbia, and she was saying she looks at her students now at Columbia and that they seem like they're not paying attention, that they have a really short attention span. You can see them on their phone. She said, actually, they'll

they'll be on their phone and they can answer the question that she asked them perfectly. Like they're able to multitask in different ways. Like their way of absorbing information has totally changed. And so it's not one of those things I think where it's really simple and you can just say, oh, in my day we did it better. It's like the way, the way that people are consuming information and juggling

juggling is just, it's just different. I don't know. I think you're right about that. And I think I don't want to be this old curmudgeon that says, you know, my way was the best. I think you have to adapt. I mean, if you don't get this adapt, you die. But I do believe that I don't think just listening, well, TikTok and all that kind of stuff. I don't,

There's an old saying, seeing is believing, but the reverse is true. Believing is seeing. And once the belief is established and all that social media is coming in to reinforce it, it's hard to get people to think differently. It's really hard.

And I'd rather read, you know, it's, can you hold two competing ideas in your head? I've always felt that was a good way to be. Yeah. And that again comes from F F Scott Fitzgerald. He's the one who talked about holding two competing ideas in your head simultaneously and still being able to function. So I think even an idea like that, like it helps to be, to,

to be reasonably well-read so you know that there's a provenance for the... It's like people like F. Scott Fitzgerald figured out really smart stuff. Hemingway, you quoted before saying, how do you go bankrupt? Well, slowly at first and then very quickly. It's like these were the smartest people of their generation. They figured stuff out. We should listen to them. We should study them.

We should. And I think this, I guess I don't feel really great about what's happening in the West, if you will. I think there's this kind of a decay going on and there's kind of this default to strong people or rich people.

Again, getting back to these, some of the people, you look at all these people in some of the current administration, they're all billionaires. A billion dollars. If you had a million dollars, that was used to be considered super rich, but people with billions. And the problem with the tendency of many of those people is, "I earned it, it's mine, I did it." To me, right time, right place.

You want to be born anywhere? When I was born, I didn't want to be born in the United States. After World War II, the world was a mess. The United States was a pretty nice place to be born. And then you get an education. So time and place, really, really successful people often don't have the perspective to say, hey, yeah, I worked hard. Maybe I got lucky. But boy, right time, right place. Yeah, it's huge. I mean, Buffett always talks about winning the ovarian lottery, right? Just being born when he was in the U.S.,

Right. Absolutely true. It's absolutely true. I think when you, I only go in my parents' room for what they went through. I mean, look at life expectancy.

When you look back now in your eighties, your career, and you sort of try to draw lessons that you sort of wish you, you had known before. And one, one thing obviously that comes to mind is what you said before about the difficulty of being very successful, having a very intense work ethic and still having good relationships. And you mentioned near the start of the conversation that you'd been divorced once. That's something I think about a great deal because I,

So many of the best investors I interview ended up divorced. I mean, this is one of the things Munger said after reading my book was, you know, he was just struck by how many of them got divorced or separated.

Do you have any thoughts about how to be extraordinarily successful professionally and financially and yet not to screw up relationships? To be successful in multiple dimensions so that you give back to society, you help your family, you're a good friend, you don't screw up your health. How?

Is it possible to do that? Or is it just one of those things where to be extraordinarily successful, you have to be really extreme? No, I think you're right. I don't think you have to be extreme. I'll give you a little additional background. I mean, uh, I was married when I was 20, I was 22. I had two kids. I married my high school sweetheart. Uh, we were married for a long time and it worked for a long time. And then, um,

Again, this is probably on the heading of TMI, but when we sold BEA to Credit Suisse, Ken Bealkin was a lawyer that I knew, a real mentor to me. Ken's passed away. So she shows up with this entourage of lawyers. Ken, I just want to talk to you. He says, this is going to be the team, blah, blah, blah. So there's this woman on a team. She didn't have any tax partner. So...

It took forever to do this deal, like nine months. And at one point I just said, "Would you have dinner with me?" And she said, "Why? Do you have a tax question?" And I said, "It's a social invitation." So kind of time went by and no response. And then she called up and she said, "With respect to your invitation, Liv, I don't know how many weeks ago." The answer is, "Okay." That was the enthusiasm.

But she's really smart. And I think what was missing for me was an intellectual companion. And I had a long time talking to another very good friend. He said, so what do you see in her? Why do you like her? And I said, and this is, you know, I was probably in my close to 50 when all this happened. Yeah.

I said, I'd rather have dinner with her than anyone I know. And that's still true. We have our day where it's just like spouses can't, but it's still a true statement. And I find that ability to have converse and discuss issues. And, you know, we do have hard issues side by side. But that matters to me. The other stuff.

You know, we don't have children together. I mean, she doesn't have any children at all, but there's no, we don't have children. But what's interesting to me is both of my kids really, really like her. And that's important.

when you go through one of these things. And do you think it was possible to be as successful as you've been professionally and not screw up your kids? Like, were you able to actually be present for your kids or is that really, really hard? No, I coached little league baseball for a dozen years. I love coaching my son and my son runs another investment firm. He runs, he's CEO of General American Investors. He's a better investor than I am. He's really good.

We need to get him on the podcast too. And my daughter is a hospice worker. My daughter, I know too, this is a philosophical, I think the most important thing in life is relationships. Nothing else really matters. Everything else is secondary relationships. So I know two really, really happy families. One is an ex-partner, Tim Taussig, who's no longer with me. I mean, he retired. He had cancer, but he's okay. He retired.

and my daughter's family. And when you're around those families, I don't care when you're around them, there's laughter, there's joy and joy. Joy is a wonderful thing. Uh, it's a wonderful thing to experience. There's laughter, there's jokes and people chip in to do the dishes or cook or whatnot. Um,

It's but again, I've lived a long time. I only know two families. So maybe I should get a broader set of friends. But I don't mean this, not that people are fighting all the time, but there's happiness is happiness. It's happiness is a wonderful feeling. And it comes and goes, comes and goes.

So if you look at your daughter's family, like what's the lesson? Because it sounds like in some ways she nailed it. They figured out

The recipe. What do they do right? Well, my daughter, I always tell people the best thing that ever happened to me is my daughter married her husband. And Steve is just a wonderful person. Again, I'll give you a little more color. She was dating a guy. I didn't know. This was a long time ago now. They were in their 20s or something.

And, you know, she hadn't really dated a lot of people. I was just encouraging her to meet other people or whatnot. It's over Christmas dinner or whatnot. She just kind of folded her arm like this. Dad, what do you want me to do? Marry a cow like you? Because I have a CPA thing. And I said, I found someone I can share everything with. She goes through this. I thought, holy cow, at age 25, she knows more about relationships than I do. And so then I met him and, and, uh,

He went to the New York Institute of Technology. I've never even heard of that place. I said, gee, Steve, and he's well-informed at graduate school there, too. I said, well, most people want to go somewhere else. And he says, well, it's free for me because if I taught undergrad, they'd let me. I said, oh, OK. And I said, have you ever thought about going to business school? And he said, no, I can't afford it. And I said, why don't you take the GMAT?

So he takes the GMAT. He said, I want the 98% down. I am so excited. I said, Steve, forget my daughter. I will pay for your education. I will pay for you to get an MBA. I'll part of this with songs. I think I'm going to pay no matter what. But if you have an MBA, I pay less. There's time to respond. So he went to Columbia, did really well. He's been a reasonably successful guy. But he is just a wonderful person in the family. It's a nice family to be around.

So, and my daughter is also one that reminds me, you know, just she grounds me. She grounds me on it. And she's a hospice worker. Right now, every one of her patients has ALS. I don't know how you do this. I really don't. But she's a happy person. She feels this is what she does. I think if she makes $70,000 a year, I'll be surprised.

They don't aspire. They live in a nice suburb. It's not a super fancy suburb, but it doesn't matter. The relationships matter. It's not the house. You were never super money motivated, I think. I mean, I was struck by a quote where you said, philosophically, I've never done anything because it paid well. In some cases, I've been rewarded, but the initial reason for doing it was the curiosity and engagement.

True. I think that's the best way to go through life. I actually am one of these people that got this born. I really believe right time, right place. And if you think about it, had ERISA not gotten passed, in 1974, if you went back and looked at that stock market, it fell 50%. I mean, the market collapsed in 1974. I mean, I came home one time and thought the dumbest decision I ever made was to go to PEA. I married with two kids, stay-at-home wife,

I don't even know if I had $10,000 in savings. But if that bear market had continued, I said, look, we're going to lose a house and we may have to move back to Stummel. That was a realistic thing. And then it worked out. But I mean, I'm not sure that if you put all the facts of some of my decisions in front of somebody else, they would do what I did.

I would characterize it. I often feel like, you know, I'm sort of mystical about these things. So I tend to feel like there's some degree of protection that because I made some decisions that were so stupid where I would, I would move country without really thinking about it. I, you know, my wife and I got married at 25. Nobody got married at 25 in my generation.

Yeah. Well, my parents were 35 when they got married, which was also really weird. That's very unusual. And my father never and my mother were married once, but only lasted a year. But that was very they were just very typical. Nowadays, we have some friends that are I mean,

And I'll give you my theory of adulthood. So I'll give you this real quick. So I think adulthood starts around 21. That's when you graduate college, maybe went to military, prison school. So 21. So at 25, you have four years of adulthood. But at 30, you've got nine. You're twice the adult at 30 you were at 25. And at 40, you've got 19 years of adulthood. And there's something magical about 40. 40 is when your life experience comes together and you're

you've had enough things happen that you actually have judgment. I mean, up until then judgment can come and go. And then what happens if you get to be 65 and if you have your health, it's fantastic because if you have your health and enough money to sustain your lifestyle, it's wonderful. You've got all this other stuff behind you. You've learned a lot. You will hopefully have a, a set of friends that you value. And, um,

And that, that to me, so I, I gave a, I gave this talk with the commencement speaker of my high school not too long ago. And I also, and I was, I had the, they have a jumbotron in the football stadium where I was. So anyway, I put up my high school picture behind me.

And the kids are sitting in front of me and parents were in a stance. And I said, you probably want to know that guy who's behind me. That was me when I was your age. This is what you have to look forward to. And of course, the parents laughed and the kids groaned. And then at some point, I'm going through a little life

lessons or whatnot. And I make the point, I said, look, I'd like to buy every one of you here a tattoo. Now, some of you already have tattoos, but in my day, no one had a tattoo unless you rode a motorcycle or something like that. I said, so let me buy a tattoo, but I get to pick it out. And it's really pretty simple. It's just four letters, W-Y-A-O. You can put on your knee, your arm, wherever you want to do it, W-Y-A-O.

What does that stand for? Work your ass off. The parents stood up and applauded. The kids groaned. But it was to follow up some examples of how you grow and how to be open to growing. And don't be afraid of new experiences when you're 21 or 22. That's all you're going to get. You're drinking from a fire hose at that age. You don't know it, but everything is new. Everything's new to you at that age.

Is it shocking to you when you look back and you do something like go for that commencement speech? Is it shocking to realize how successful you've been? Are you surprised at it or do you look back and it almost feels inevitable because of how hard you worked? I think there's a lot of luck involved. I go back there a lot. Another example would be, I actually was back for a high school reunion last June,

And there's a friend of mine is still there. He never left. And I said, we got to do better than last for you. And we the wine was terrible. The food was terrible. And I said, let's I'll make it keep it anonymous. I'm going to send you five thousand dollars. Just keep it anonymous. But let's get a band's better group.

And, you know, about more than half the class is dead at this point. So I thought, OK, how many people we got? And I said, well, it's a plus one thing. So, you know, maybe we'll have 50 people, 60 people, something like that. Oh, that's OK. There's 200 was in the graduating class. And I said, we'll get a band. So it turns out five thousand dollars. We got a five piece jazz band in Stoneville, Ohio. They played for three hours, seven hundred dollars. They were fantastic.

We got wired, actually heard of, and we fed people, and we had $2,300 left over. Sorry, $1,300 left over, which we gave to the school. $3,700 in Stoneville, Ohio is like

20,000 or something in New York city. I mean, and when you went out and some of those people, some came from other places and I am, I am by far the most successful person financially in it. And I don't, I try not to make any of it. I did start a scholarship with there, but with my mother and my father, I've, I've sent a hundred kids to school now, uh, but partial runs on full scholarships. But back in 79, when my mother was so semi-immolate and I had this issue with her and, uh,

She, what do you get done on older ladies and firm and whatnot. So I started a scholarship. The problem with the scholarship, it wasn't going to any black people. Well, this really ticked me off because I was raised in part by a black woman. In many ways, she was more of a mother than my own mother. So then I started a scholarship for black students, but only black students could get it. Fast forward to today. Now, my mother's scholarship goes to anybody. Right?

But this one black woman who had a lot to do with raising me, it still has to go to a black because that's how I worded it. So it's really pretty funny now. So when I look at who gets it in scholarships, it used to be I wanted to make the difference between that kid going to

a local college in, let's say, an Ivy League school or some more prestigious and make a difference. It doesn't work out that way today. The way it's all funneled, you get pieces. There's probably five, six, seven people who share in something. And it's all about managing all the other scholarships that they get, work-study scholarships. The whole scholarship award thing is really complicated. But at any rate, I'm glad I've done that. And I used to demand two things.

I want a Christmas card from you. I want to get a Christmas card and a thank you note. That's all I've ever asked. Christmas cards are long stock. Thank you. I want it. So thank you notes I get. But now, believe it or not, they Google them. I got two people send me the same thank you note. Identical. Word for word. They Google thank you notes. It's productivity improvements, Bill. It's what you were praying for, that technology would bring all these productivity improvements. It's finally kicked in. Yeah.

Anyway, and also I noticed once you get one generation removed from who you're talking to, it's a bit more challenging to make the connection.

You know, when you get, you know, within 20 years, you can, once you get, I notice this sometimes now. I mean, usually most people, they don't really guess my age. They'll guess I'm, you know, north of 60 or whatnot, but most of them don't guess I'm north of 80. And so, but once, but I do notice that there's, there is a gap. There's a comprehensive gap sometime in conversations.

So just one last question, because I'm aware that I don't want to keep you for about nine hours. But when you think about your legacy and you think about how you would want to be remembered, do you have a sense of how you would want to be remembered?

Honestly, I've never thought of it. The trite statement, you'd like to leave the place better than when you found it, that concept. I think that's a nice concept. I think I'd like to think that the people I touched enjoyed my company, maybe. And I think you need to be

pretty fierce about upholding righteousness. You want to live in a liberal democracy, don't let anyone take that away from you. Off the top of my head, that's what I would say. Yeah, no, that's a nice note on which to end. I think you're right. We

We need to value liberal democracy. I think there have been a lot of lessons from this conversation, but yeah, there's a lot for me to sit and ponder. So thank you for sharing so many rich insights about investing, about business, about life, about family. It's been really lovely getting to chat with you.

Well, that's great. And let me leave an open invitation for you sometime. If it turns out you're free for dinner sometime, I'd love to take you to dinner and we can even bring a colleague or two along. I would love that. It would be a real delight. Thank you so much. It's been a great pleasure. Thank you.

All right, folks, thanks so much for listening to this conversation with the great Bill Priest. If you'd like to learn more from Bill, please check out the resources in the show notes for this episode. Bill has co-authored three books, including one titled How to Win at Active Management. He also writes some excellent white papers that are well worth reading. I'll be back very soon with some more terrific guests, including a wonderful conversation that I recently had with the author Pico Ayer.

who is one of my favorite guests on the podcast over the last couple of years. I'm also gearing up to interview the famous British investor, Terry Smith. 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. Until next time, take good care and stay well.

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