Paul Black - CEO of WCM Investment Management on Empowering People and Building a High-Performance Culture *Classics Series
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you want to grow, you got to start giving stuff away. You got to start giving power away. You got to start giving money away. You got to start giving equity away, decision-making away. You've got to trust other people if you have any hope of building your business or building your life.

Welcome to What Got You There, where curiosity leads to wisdom. I'm your host, Sean Delaney, a former professional athlete turned executive life coach for high performers and author of two books, Masterpiece in Progress and Insights of the Ages. This podcast is a journey into the minds of exceptional individuals to uncover the key lessons and wisdom they've uncovered while scaling the heights of success in business, sports, investing, and everything in between.

For the last 10 years, my journey has been one of unwavering dedication to the mastery of peak performance and the art of transformative personal growth. My mission is clear, to be a catalyst in unlocking the vast potential that resides within people. As a coach to CEOs, investors, executives, and athletes, I strive to unlock the limitless potential within each individual, guiding them toward a life rich in purpose and fulfillment.

Now, I hope this podcast will do that for you. And if you're interested in finding out more of what I do, head to whatgotyouthere.com. This conversation with Paul Black took place in August of 2022. Hey guys, it's Sean. And if you're listening to the podcast, then I think you'll love my book, Masterpiece in Progress, A Daily Guide to a Life Well Crafted.

Now inside the pages, you'll find 365 daily meditations. Now these are carefully designed to challenge, inspire, and catalyze personal and professional evolution. It's the book Frank Slootman, the CEO of Snowflake Inc. said is a masterclass in personal development. And retired Navy SEAL and winner of the Bronze Star Medal with Valor, Michael Burns said is a roadmap for all who aim to conquer their personal and professional battles. To get your copy, head to masterpieceinprogressbook.com.

Or you can go to Amazon and just search Masterpiece in Progress by Sean Delaney. Paul, welcome to What Got You There. How are you doing today? I'm doing great, Sean. Thanks for having me. Absolutely. You're someone who I've admired the hell out of for a long time. The way you see the world, what you've been able to do is just fascinating to me. So I cannot wait to dive into this. But I would love to know, has there been a mindset of yours that if you could pass on to someone like just starting out, you think it's just been incredibly beneficial for your success and your trajectory in your life?

Oh, yeah. You know, it's interesting and it's not something I've identified in my life until much later. I'm in my 60s now and it's probably not until I hit my mid 50s that I kind of realized looking back at my career that the one thing that I did really well is is I kept showing up. I never quit. And I think.

That mindset in there. And I have so many examples in my life where it would have really made sense to quit and give up because the obstacles just appeared to be so great. And for some reason, it was I wasn't even conscious of it, but I just didn't have the ability to give up on something that maybe I should have given up. And because I didn't give up.

I've ended up in a place that I couldn't even imagine, you know, 20 or 30 or even 40 years ago. So I tell my son, I tell my daughter, look, most of life, by

I think it was Woody Allen that said 95% of life is showing up. And you know what? Showing up day after day after day in spite of obstacles, in spite of fears you might have going forward. So that's a mantra in our firm about everything, especially today in these markets that we're experiencing. You've got to keep showing up. You've got to keep grinding. And because better days will come. If you're not there when the better days come,

you're not going to be able to take advantage of them. So showing up, being there, longevity is huge in life and in this business. I'm wondering, can you talk me through even like the internal dialogue that's going on in your head during some of those really difficult stretches? And I know you've been through a number of them, right? Like what differentiated you between someone else who would have quit like 99% of people in those moments? You know, just not wanting to fail, not wanting to fail, right?

And admit failure when, you know, even if I reflect back, was there a time when I was failing that I actually should have quit? And you know what? I can't really point to one example of whether it was sports in high school or sports in college or

or business my first few years at Bank of America. I mean, I detested working at Bank of America and being a minion, one of 90,000 employees. I was paying, you know, 95-year-old women's medical bills and housing bills. I was in the trust department, just didn't like it at all. It was basically a bookkeeper form. So many times I wanted to quit. This isn't right. Maybe I'll become a camp counselor, do something fun with people instead of sitting in an office every day.

And yet, because I didn't quit, eventually a job opened up in the portfolio management group at Bank of America. And I applied. And fortunately for me, they had a hiring freeze at the time. So I actually got the job. And then I ended up in a job, you know, running portfolios at 25 years of age with no experience and no idea what I was doing and loving every minute of it because my passion was investing. And so I didn't even have a switch in me

That was about quitting. I just didn't. And I don't know if it was just innate to who I was, if it was lessons from my parents, but it has served me well. As I said, I would have never envisioned that I'd be kind of professionally where I am today 40 years ago. No way. When did that light bulb first click for you? Where that passion around investing?

Well, it started when I was 20 years old. I had gotten a small inheritance from my grandfather. It was about $30,000, which I've gone back and said, you know, that's probably 250 or 300 grand today. And I happened to run into an old EF Hutton broker who had me start buying South African

than gold mining stocks in the late 70s and the early 80s. And you remember that was the end bout of inflation. Gold went from $300 an ounce to $800 an ounce. And I'll never forget, I used to subscribe to the Wall Street Journal in college

And every day I'd open up the Wall Street Journal in that time and say I own 500 shares of Blythe for Rich or East Street Fontaine, South African Gold Liners. Every day I'd look at the price of my gold liners and they'd be up like a hundred bucks. And I'd make, I was making $500 a day

in college owning South African gold miners. You know, if that doesn't give you the bug, nothing else will. I thought this is easy. You know, boy, you buy a few names, they go up a lot. You ride a trend and you make a lot of money. It's a lot easier than working for a living. Yeah. And so that, that kind of grabbed me. And fortunately, because I had my grandfather's inheritance, I had to figure out what to do with it. And that's how I learned and

and got excited about investing and really have had that passion ever since. Now, having all these years in the business, what element of what you do day to day brings that deepest joy for you in this moment? Well, ultimately, I was thinking about this coming into work today. People define business in different ways, competitive advantages, strategy, strength of character, integrity,

I actually was thinking, you know what business is? Business is really about people. It's all about people. And people are the ones that allow you to compete. They allow you to get better. They allow you to improve. So the more you work on, you know, the health aspect,

and candor and trust of people around you. And frankly, to use a corny term, the more you love the people around you, I think it really, really drives outsized returns in what you're trying to accomplish. People want to be a part of something better than themselves and bigger than themselves. And if you can kind of corral the passions of people

And let them be the best versions of themselves and kind of ferret that out and find where their genius is, for lack of a better term, and cultivate that and grow that. It has a lot to do with the ultimate success of our investment strategies. And again, the older I get, the more I see it's about people. Yeah. The more I see it's about the individuals that you work with.

I was thinking about what you were saying a few minutes ago when you were working for the trust arm of that business where it was just draining soul crushing every single day. It was soul crushing. Yeah. And then you start to do something that you just you love, right? Like it's your passion. You can't even describe it almost similar to like love. Like, I don't you can't put words to it.

And then for you to have that insight and then to understand the advantage when you can tap into that in the people around you and the people in your business. I guess I'm wondering about the evolution of that through all these years now. Is that like when someone first comes into WCM, is that what you're going towards? Really trying to uncover what that deepest joy is and thing that lights them up inside? Yeah.

You are, and it's interesting. And part of that and learning that is truly being interested in people. I'm always surprised.

When I meet new people or I spend time with people, I'm always surprised when people aren't curious about other people. I think the act of being curious and showing genuine interest in other people goes a long way towards unlocking their potential. Now, I don't I just naturally do that. I ask a lot of questions wherever I am. I love to and I do that because I want to learn something new.

And it just so happens that when you're curious and people open up to you, you tend to really start to unlock the potential that they have. Everybody's kind of interested in telling their story. And it's amazing how many times I'm with people and they don't ask me questions. I've hired salespeople, let's say, in the organization or research people, and I've

And I'm often simple, go out and have a drink or a dinner and very rarely,

Do many of them ask a lot of questions? So I'm always preaching to them. Ask me questions. Ask me something about myself or ask me something about the firm. Because that's how you begin to figure out and understand how to unlock the potential in that person by knowing their backstory. And it's interesting. We just brought on a new research analyst recently. And the first thing we actually one of the first things we told them

is your your job here is to make everybody around you better that's your job so he took out a little post-it note he wrote down make those around me better he put it on his monitor and every day he comes in and he says how can i make those around me better if you if you take the the you know a very selfless approach to trying to create something and you think about

Boy, I've got three or four people that I can really pour into. How do I make Paul better? How do I make Mike Trigg or Sanjay Air better? That's a very, very powerful recipe for success and vice versa. You know, Ross, who happens to be the person we interviewed or brought on, I think, what can I do based on his history to make his world better so that he can be freed up to produce better?

Hey guys, it's Sean, and when I'm not behind the mic for this podcast, I'm on the front lines of executive performance coaching, helping top-tier professionals in finance, business, and sports not just meet but exceed their highest goals. Now, my coaching isn't just about professional excellence. It's about integrating that success with personal fulfillment. I offer tailored strategies that sharpen your decision-making, help you navigate high-stress situations, enhance your focus, and unlock your full potential.

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Gets back to what you were thinking about in the driving to work this morning. It's about the people, right? Develop them. I'm really intrigued though about, you said how just curious you are. And I'm thinking about your learning process and a lot of it's kind of just like self-directed learning. And so I'm really intrigued, like what did the early days look like for Paul Black? Like what were you doing early on just to like develop that learning curve for yourself?

Well, interestingly, it wasn't really there. I naturally had this curiosity about different areas of life that I've always had that. But by my kind of quest to really become a great investor and the curiosity that that takes to become a great investor, you know, reading every single classic book, trying to find

in those books, the commonalities between the great investors in terms of how they do what they do. A lot of reading, a lot of mistakes, frankly, Sean. We did so many things in the early years of this firm that are comical and laughable. I mean, a quick story. We had a research offsite about five years ago. We went up to Big Sur on the coast. We stayed in a great place. We took the whole research team up there.

And one of my partners, Mike Trigg, actually did a presentation on the evolution of our investment process over the last 15 years. And he went back 15 years ago and went through some of the nonsense that we used to think was a good investment process. And it was embarrassing. I mean, there were so many things that we did that were just wrong in hindsight. And so I was sitting there because I was there 15 years ago. Mike wasn't.

And I was embarrassed. And I said, you know what? I spoke up and I said, here's the thing. I'm embarrassed right now because of how simplistic and kind of foolish we were 15 years ago. But you know what we did? We kept iterating. We kept studying. We kept reading. We kept reading the classics. And we've gotten much better. I want everyone in this room right now in 15 years to feel embarrassed about how simplistic we are about investing today. Let's have that same progression of growth

And it only comes from loving what you do. I think it was Steve Jobs who said, you've got to love what you do. Because if you don't love what you do, when tough times come, you're going to quit. But if you love it, you're going to push through it and you're going to grind and you're going to show up every day. And that, so loving and having a passion for what you do, not giving up,

iterating on what your profession is or in your life with your kids, with your wife, with your family. It's all the same thing. And it really is about being curious and living a curious life. I'm intrigued something you said at the beginning of this, believe me, there's, there's a lot you just uncovered that we're going to dive into, but around your interest in the different areas of life. And I I'm just, I'd be interested to hear you elaborate on that kind of just the other things you're, you're intrigued by that capture your attention.

Well, I do love, I love studying history because there are, again, a lot of commonalities. And, you know, I think it was Mark Twain that says, well, history doesn't repeat, but it rhymes. And it really, truly does, especially in the investment world. You know, when people come up and say, hey, this time is different. Well, usually it's not different. There might be a couple little angles on it.

I think philosophically, I have a passion for philosophy and religion. I think those obviously are important areas that kind of dictate what goes on in the world. I mean, I think a lot of my values and when you look at the firm's values,

A lot of my values come from kind of a faith-based background of just good principles that anybody can live their life to and have great success. So apart from the business world, those are the things that I really kind of focus on. But I read a lot of business books. When you say you read a lot, what does that learning process actually look like for Paul Black? I was wondering, managing that amount of money,

With your time being so valuable and pulled, I'm assuming in multiple directions, how do you even find the time to do that?

You have to make the time. And it's interesting because I tell our research people all the time, the thing I dislike the most is when I walk into the research pit and I walk into research offices and all the research individuals are staring at their Bloomberg screens or their fact set screens. It drives me crazy because there's literally no competitive advantage crunching numbers today. There's no competitive advantage staring at the news. And the competitive advantage is,

I tell them all the time, get out of the office. I don't care if you go sit on the beach, read a thought piece, read a book, think, ponder. And you're not going to get a competitive advantage listening to the noise, reading the noise, or staring at numbers. You're going to get a competitive advantage by stepping back, getting some perspective, as I said, reading big thought pieces, and just pondering for a period of time. So I try to spend time every day

It feels like dead time when you're not addicted to your email or responding to voicemails, but it's some of the most powerful time just to sit and reflect. And for in my case, I spend most of my time thinking about the people in the firm and thinking about how I can elevate this group of people to the next level. How can we get better in five years and 10 years?

And what do we need in terms of talent? And again, the longer I do this, Sean, the more I think hiring for attitude is so important. We've hired for pure, raw talent in the past. But pure, raw talent that's not aligned with the values of the firm can be disastrous. And so taking those moments in time and reflecting and thinking,

And thinking about your life and thinking about the mistakes, you know, analyzing mistakes in the business is a huge learning experience for us. And we've got literally hundreds of them. Are there any for you that just stand out? I'm thinking like what are those moments looking back? Like there's probably a handful where it's just like that was a brutal time for my ego, but just like foundational for my wisdom, like total kick in the nuts. When you think back of those days, what were they like?

Yeah, well, let's go back to 2005, 6, and 7.

At the time, we were running a domestic large-cap growth strategy. And we were buying the classic wide moat businesses with competitive advantages. And we were trying to buy them at a discount to intrinsic value, which, by the way, is complete nonsense because everybody does that. And there's no competitive advantage in that space. I didn't know it at the time. I'm thinking, hey, this is what Buffett does, right? So you buy these really high-quality businesses that have big moats. You try to buy them cheaply. Well, guess what? That's what everybody in the industry is trying to do.

There are no inefficiencies in that space anymore. Not only do you have a lot of smart people eating that away, but you've got massive computer power that can run an algorithm and ferret out inefficiencies much quicker than you can as a human. We made mistakes and those mistakes, we're buying those. People have heard this before, but we bought Dell instead of Apple because Dell dominated the enterprise space.

It was selling at a multiple that suggested it was only going to grow at 3% a year. So you say, wow, I mean, Dell's been, it's grown at 15% a year.

at 3% a year, it's priced to grow at three, let's buy. Well, guess what? It grew at like negative 3% for the next five years. And it was a disaster. We bought because we cared so much about really huge competitive advantages and cheap. We bought Yahoo instead of Google. It looks foolish today, but at the time Yahoo was dominant. They had much more banner space on their website. They had many more eyeballs looking at their site and it was so much cheaper than Google.

But it was a complete disaster. And then, you know, one of the worst ones was eBay versus Amazon. I mean, Amazon was an unknown entity in the day.

And eBay was known and PayPal and they had a lot of eyeballs and they had a network effect and they were cheap. So the single biggest lesson we learned in that period of time was it isn't about the size of the competitive advantage. It's really about what direction is that competitive advantage heading. That's the single biggest piece for us. The second one, though, is the importance of culture, people.

in the success of any enterprise. And we learned that from the history of our firm, where we had one person who controlled everything, never shared the wealth, never shared decision-making. And as a result, the firm couldn't grow because talent would leave. You get talented people, you need to give them a voice.

We learned very quickly that that was toxic to the future growth of the company. And, you know, it's really ironic, but if you want to grow, you got to start giving stuff away. You got to start giving power away. You got to start giving money away. You got to start giving equity away, decision-making away. You've got to trust other people if you have any hope.

of building your business or building your life. Paul, can you even walk through just that evolution that the early days with you joining WCM? Because I think that would just add some clarity for people who are unfamiliar with the story to understand the importance of some of these principles, these values, because you saw both the negative and then you were able to implement the positives here. Yeah, for sure. You know, it's interesting. I joined the firm actually in 1989 and I was the so-called director of marketing. We had $200 million under management

They hired me and I was a portfolio manager, but they hired me to kind of head up sales for the organization. And the firm had been at $200 million for 10 or 15 years. But they had just gotten into one of the first wrap programs through Merrill Lynch called Merrill Lynch Consultants. And my job was to go out and pitch all these brokers throughout the country on, hey, how great we are. We ran a balanced strategy. It was, you know, it was probably 50% bonds, 50% stocks.

And we got in there, we had good performance, but then of course, performance tailed off. We were horrible for the next five or 10 years. And I was pitching this strategy against people that were absolutely crushing it on the investment side. And I remember one day, the founder, who was a little rough, came up to me and said, hey, Paul, how do we create more success

on the fundraising side and the asset raising side. And I looked at him and I said, you know, it would be great if we had some investment performance, you know?

Because we were like bottom quartile across the board in every timeframe. And I said, if I had investment performance, I could probably raise you some assets. And that didn't go over well at all. That meeting was pretty much over immediately. And I went back and I had all these sales and marketing guys from other firms I was competing against. And we're literally raising hundreds of millions, if not billions of dollars. And I'm raising...

10, 15, 20 million in a year, right? In a year back in 1989. And I remember that I had a few of them say, look, I could do the same thing at your company that I'm doing where I am. And I said, no, you can't. No, it's not about you. It's about that track record that's so good and that performance that's don't, you know, don't confuse your position with the fact that, you know, you've got great performance. That's what it is. And it's the same thing when I meet with

people in the industry and they might be a little caustic or something. And I say, look, the only reason that you have control over these assets is because of your position. The day you leave your position and you remove that title from your card from this big allocator is the day you're going to call me up looking for a job. And so those early years were tough. And I tried to

Talk to the founder about how we need to change our process. It just didn't go over well at all. And it was a very toxic. I have so many side stories of simple things that we think about today. Bottled water. Why don't we get some bottled water in the office? And he would say, well, I don't want to buy bottled water. People will make coffee with it.

It's like, yeah, but it's a little thing. It'd be transformative to how people feel about working here. Didn't get it. And so fortunately for us and for me, the founder decided to retire in 1998, still had $200 million under management 10 years later in a robust bull market, right? And we bought the founder out and we literally at that time said,

We've got to change this culture. So what did the founder do? Well, he controlled everything. Hey, let's share the wealth across the board. We have 44 owners today. He made all the decisions on the portfolio. You know what? If we have young talent, let's give them a voice in the portfolio. Made all the decisions on the business. Let's go the other way. Let's share that decision-making process to those talented individuals. And really as a result, we started to uncover

these really different ways of managing money. And as I said, when we made those mistakes in the mid-2000s around competitive advantages, we realized, hey, we figured out something that's very powerful, which is it's the directionality of the competitive advantage more so than the absolute size. It's been a huge

huge win for us across the board. And then we started hiring more talented people and giving them more freedom, giving them equity. We've got 11 people that own over 2% of the firm or more now, which is huge.

I've diluted from 40% equity at one time to now 20% equity. All that dilutions happened at book value. We didn't do it at market value. So you can say you saddle your next generation with a lot of debt. And I'm convinced, I know, I'm absolutely convinced that because we implemented those cultural,

norms that were different from the old ones. That's the reason we're sitting at $75 billion. Oh, that's awesome. Now, I mean, Lao Tzu said it 2,500 years ago, right? You're going to give to get. The more you give, it's going to empower the others. I'm wondering though- It is so true, Sean. That is so true. Yeah. It's a beautiful thing to see it come to fruition. I think especially-

A lot of people, especially my age too, you kind of grew up like almost idolizing that draconian type leader, right? And like, this is my way. And it's just like, no, no, that doesn't work. So to see the success. It doesn't work. No, it doesn't work today at all. At all. It just doesn't. I'm still stunned that people do it. Can you talk about what you thought when you were buying out the business at $200 million? Could you afford seeing what was going to take place over the next 30 years?

Never. Never. If you would have told me in those days, Sean, hey, you'll be a $5 billion firm, I would have thought, okay, we can get this thing up. I can get this up to $5 billion. Now I can do that. We can figure that out. I can muscle through that. And we did. We did. We actually got up to $4 billion in 2005 and running a US large cap growth strategy. And then because of those mistakes that I mentioned earlier around competitive advantages, we ended up

performing very poorly. And it was also a commodity run market, 5.05 to 6. Gross stocks didn't do well. But we lost almost all that money, went down to about $800 million. And frankly, at $800 million, our revenue stream was $6 million. $6 million revenue stream, right? With about 20 people in the firm. And it was a very, very difficult time because you work hard to build something,

and you put your heart and soul in it. And then when it fails, and frankly, it's tough because when you work with allocators or high net worth individuals and you don't deliver what you said you could deliver, that's not fun. There's nothing enjoyable about that at all. So we got fired from a lot of money.

But fortunately, we had developed, and this is part of, we had one guy. This is part about giving people the ability to create and be curious. One individual who was actually in operations decided that we needed to run international large cap growth strategy because nobody in the world was doing it.

Everyone was doing international on the value side, trying to buy these cigar butts. And he said, why don't we run a growth strategy international in 2004? And we said, sure. So we put about $250,000 in a portfolio. He built a portfolio with 20 names in it. And we just kind of incubated, left it.

And we had no idea what we had. We knew very little about investing internationally at the time. We didn't even know how to trade in ordinary. And so all we knew were domestic securities. And lo and behold, we looked up after four or five years and the track record was really solid. And we said, boy, you know, this is interesting. There's nobody in this space

There are a lot of inefficiencies in this particular market. Why don't we start building this product out? We added a bunch of people to the team. Performance got even better. And we came from literally the ashes in 2010 and 11.

to really realizing that through a stroke of good fortune, that the international growth space was almost non-existent. And even today, Sean, there might be

12 good competitors in that space, and we're doing a great job in it, versus the US domestic space for investing is crowded with people. There are thousands of products there. So I've never understood why competitors haven't adopted what we do and try to kind of rationalize the market in this space, but they haven't. They haven't done it.

I would love to know, Paul, how you navigate going from $4 billion to $800 million. We have a lot of business leaders and coaches. I'm just thinking about navigating the difficulties, right? Like that internal dialogue a lot of the employees are feeling. What does that look like behind the scenes at WCM during that time? How do you lead through that?

That's a great question. And it was brutal. I can't tell you that I was great in that period of time, but I can tell you this, nobody pointed fingers. Nobody pointed fingers. It's been very easy for some of the younger people who had come in on the portfolio to point fingers at myself and my partner, Kurt, and say, look, you guys missed it here. You missed it there. There was no pointing of fingers at that. And I'll tell you what I'm most proud of from that period of time

is none of the talent left. No one left. And you could have, hey, we're on a sinking ship right now. This is going nowhere. I hired a bunch of guys out of Morningstar at the time. And they were great investors. They could have left because we didn't raise their salary. It's two things we did. We never hit anybody on the salary side. We took all of the financial hit at the

principal level, which was primarily myself and Kurt Winrich. We took all the financial hit, never decreased anyone's pay from going from $4 billion down to $800 million. And they never left. So we survived. And the reason we never left, I'll tell you exactly why. It's because people knew we cared about it. People knew at the end of the day that we had their back.

And again, it could have been a very different story. If you were draconian and we cut pay and we were kind of blaming people, impossible, it would disintegrate and I'd be flipping burgers at a burger house. But we all stuck together and that's kind of in my business career. That's one of the things I'm the most proud of is that we never lost the talent. And so we could rise and finish this game over the next 15 years.

This might end up being a nuanced type question, but I got chills hearing that, thinking about your ability to instill trust and inspire during the most difficult moments, right? Like when you face challenges and hardships, most people...

They go the opposite direction. And when you develop that and push towards going towards those extremities with those people, I'm just thinking what else? And this is hard to ask or hard to answer. I should be asking the people who stuck with you. What else did you think they saw in you that not only you'd get them through this time, but there'd be greener pastures once you got past this as well?

You know, I thought about that, Sean. There was a belief because we had done it once that we could do it again. There was just this belief. And I'm very optimistic. It's interesting. I just wrote an email to the team today. We've gone from about $100 billion in assets to seven in this market, which that's a lot. You know, $25 billion is pretty much just gone. But I...

I'm like forever optimistic. I know over the long run that investing in equity is in common stocks. That's a winner's game. I mean, 65, 70% of the time the market goes up. We're in a down draft right now. But what I keep saying is now is the time. Right now today, what are we, July 21st, 2022. Today is the day to play offense. Today is the day to take that next hill. The time to play defense was six months ago.

The time to be on your heels was six months ago, not today. Today, we need to build this thing going forward and we need to make sure that the portfolio is positioned in such a way to catch the next leg up. We just did a final yesterday for a $25 million piece of business, which is a great bread and butter piece of business with good fees.

And we ended up, we were competing against another firm. We won the business. I just wrote an email to the whole firm saying that very same thing. I said, look, don't ever think that a $25 million piece of business isn't a great piece of business. But especially in this time when people aren't allocating to this market, because most people sit on their heels when they should be allocating to it.

But to get a $25 million piece of business in a down draft like we've had now is a brilliant win. And I just reiterated, now is the time for us to play offense. That means, you know, position the portfolio for the next leg up and then make sure that we're still out there doing what we do, you know, for clients and serving them, but also going out and winning new business. You know, you just, you just have to keep getting after it. So I think that, that attitude and, you know, that, and that's,

Some people say, well, an optimist, there's a realist and you can be an optimist or realist. I think I'm a little bit of both. I tend to lean more towards optimism because I know how I know how the story ends 10 years from now.

Can you actually talk about that internal battle between optimism and realism? I have to assume at some point you toggle back and forth before going full optimism. I guess I'm just wondering how you stress test your thinking in those moments. Well, no, you know what the reality is, Sean, is that I have some realists around me who are always kind of grounding me. That's because I do tend to lean more towards, hey, let's go. We can get this done. And I have some realists around me that point out, well, Paul, that may not work out. I don't care. Let's go.

And so I have, we have the most extraordinary leadership team in this firm that I could ever imagine. I say it all the time, you know, it's myself,

Mike Trigg and Sloane Payne. And one of my partners, one of my founding partners, Kurt Winters, retired last year, who, you know, here we're good. We're good friends. And and but you know what? We have three people that bring so such different elements to the game that they keep me grounded and more realistic. But more importantly, you know, there's nothing we wouldn't do for each other. I know it's funny when we're analyzing businesses.

we look for some of those characteristics of, hey, do these people really truly care for each other? When I'm interviewing teams that maybe we've lifted out of another money management, we're trying to lift out of another money management firm, one of the first things I look for is do those three guys really like each other? Because if they don't,

when they go through about a bad performance, they're going to turn. And you see it all the time in our business, all the time, that when performance goes bad, if there's not a real strong bond and trust and truly love for each other, you're going to get smoked. But if you're all in that together and you're going up or down with whether success or failure together without blaming, it's a huge recipe for success. And one of the things that we're looking for now is who are those next people in our firm

that can step into a leadership type role. In fact, we're going on a retreat up into Vancouver in some remote island, taking 14 people in the firm that we think are potential future leaders and cultural torchbearers for the organization so we can keep elevating for the next 10 years. What's going to come out during that offsite that will strengthen your conviction towards someone? Well, that's a great question. And that's why we're kind of wrestling through that in terms of what's the purpose of the

But when we do offsites and we do them all the time, Sean, again, I would encourage anybody who has a business. You have to get off out of the company and off the company rounds and go someplace remote and spend a few days together. The power of doing that just one, it strengthens the relationships. It creates which which it creates a space for people to be vulnerable.

And so what I, my hope for this is that more people will step up and be more vulnerable. In fact, Mike Trigg is going to open with a talk about how leadership can

is can be lonely at times, you know, because you're there by your, you know, sometimes you just feel alone in it. People don't think you're alone because you have all these people around you, but it can feel very lonely. And so he's going to talk about, you know, in a vulnerable sense, how you don't feel like you have all the right answers. You know, you make mistakes and

You know that you just maybe don't quite get it sometimes. And I think one of the powers of our firm is that we do as leaders show a lot of vulnerability, but we don't think we know everything. And so to me, I'd hope to get out of that retreat

some vulnerability from people, which then draws you closer to them if you're even remotely human, right? And out of that vulnerability can come great things, I think, going forward. And so hopefully, too, we identify one or two people. If we identified one person who kind of rise in the organization there, that would be a huge success.

Yeah. I mean, it creates this virtuous cycle, right? Back to, back to Lao Tzu, give to get. So you show that vulnerability. It opens the other people in the organization up. It builds that trust on that trust. You'll go deeper and stick through a tough time with each other. And it's just like, you will, it keeps going for you. How did you discover that culture was just such an essential component of business, right? Like especially in a business where everything, so many people needed to be quantified. I'm wondering how you saw that insight.

like? That's a great question because you're 100% right. It's interesting when we're talking to potential allocators and we start talking about culture and how we do the work on culture and how we ferret that out in an organization, the first thing they ask is, "How do you quantify that?" And the answer is you can't. I know people have tried really hard. I know this guy named James Heskett, the former Harvard business

professor who wrote a book called The Culture Cycle. Brilliant guy. He actually worked as a consultant for us for a while and he's helped us a lot, but he really, he wrote that book and it was part of it was trying to quantify culture. I never got it. I never understood it because what you're doing is you're building a mosaic. You're taking little pieces from different sources and kind of building this mosaic to try to understand what the DNA or the values of the business really are. Not what they say, but what they really are.

And it's a lot of hard work and most people just don't get it. I got it because as I said, I saw the culture at Bank of America, which was, I think it was Jim Collins and Good to Great that talked about different types of leadership. And there's one of them that's pretty poor is the genius at the top with a thousand helpers, right? And that was Bank of America. They had this genius CEO of the company and then he had a bunch of minions working for him. And then when he left and went to the World Bank,

and then deregulation hit the banking industry. B of A was, they almost went out of business at the time because they had written so many bad loans and made so many poor decisions. And when that leader left, they were left wanting because there was nobody that could step into that void. So I saw it at Bank of America, poor leadership with the genius at the top with a thousand helpers. That was kind of the founder's mentality as well. I'm the guy, I gotta be the guy, I gotta do everything.

And in his case, so when he left, we had enough experience with how poor it was run that we could pivot to a model that was more about, hey, we're all in this together and let's build something fun and let's build something great.

I'm wondering the evolution for you in terms of looking at a company's culture. What were you assessing early and how did that change and evolve over time? It's interesting. Early on, we intuitively knew culture was important. We knew that there was something there. You look at the difference between a Costco product

in a Sam's Club and how they perform financially, there's no comparison. But you look at the business, they look exactly the same. But you look at the financial metrics of Costco's, every financial metric is twice as good at Costco as it is at Sam's Club. And one of the most same-store square footage is twice as big at Costco as it is at Sam's Club. And the most important one is employee turnover. I think it's 12% at Costco. At retail, that's really low.

And then Sam's Club, it's more like 55% or 60%. So we started looking at that and we said, why do these perform so differently? And it's got to come down to the core set of values of the business that animate what it does. And at Costco, they really care about their people.

right? They pay them extremely well. They treat them well with respect and dignity. The CEO at the time, Jim Senegal, who was the founder, he only paid himself $300,000 a year. He owned hundreds of millions of dollars of stock, which is great, but he never paid himself more than 300 grand a year. So he wasn't making 150 times what

the average employee was making. And, you know, that speaks volumes to the people that work in that organization. So we kind of intuitively knew it. We saw it in a lot of businesses. And then we started putting a framework around it. We brought in a

a full-time culture analyst that only analyzes culture. We just added another one. So we've got two now and we're looking for a third because we have such a lead in there. We built out a process and really what we look for in cultures now as opposed to being intuitive. And actually in the early days, Sean, we used to look for companies that had similar cultures to WCM. We used to say, okay, yeah, we're a good group of guys. We work hard. We show up, we get after it. Let's look for a company

in our portfolio that has the same values that we have. And then we realized pretty shortly that's not maybe the perfect culture to run a railroad. A railroad takes a very different set of values at the core than running a great retail shop or a money management firm. So we've learned that there are cultures that if they're properly aligned with their strategy can be very successful. So we've identified really three big ideas around what you need to look for in culture. The first one

is alignment. You want to find alignment between the core values of the business and what they're trying to accomplish on the strategy side. Once you find that alignment, then you have to determine how strong is that culture throughout the organization? You know, is it embedded at every level of the organization where people literally, you know, live, breathe and die for those values? And then third, and probably more importantly in a world that we live in today, is it adaptable?

Can that culture adapt over time? Because as the world changes, we expect our portfolio companies to kind of make those pivots and those moves in their strategy. And the only way you can do that is if you have that strength and adaptability to move forward and maybe change a little bit. Yeah, so those three things, alignment, that's the most, alignment's the most important. As I said earlier, there's a certain kind of value that drives a tech company. There are certain kind of values that drive retailers. And there

and there are certain kind of values that drive industrials or or you know other types of consumer companies but you yeah all you want to see is alignment like you wouldn't want to see a railroad where they're all about you know having happy places and safe spaces and stuff you want people that are going to get after it that are more linear in their thinking they think more about you know they're more there's more top-down decision making that's going to be effective in a railroad that's probably not effective in a retailer or healthcare

I have a note written down this. I don't remember when you said this. I had a whole document of different things I've captured years over the years. And one of them is 80% of your excess returns come because of culture. Yeah. And I just, I believe that. Yeah. I was just like, wow. It's huge. It's huge. And you know, there's so many things that we actually built a portfolio, Sean, that

that we just call our cultural leaders portfolio. It's like, where do we have the most alignment, strength and adaptability culture-wise

And almost in spite of the business, we built this portfolio in-house that owns about 20 names, something like that, about 20 names. And it's done extremely well. Culture shows itself in periods of time like this. When everything's going great, culture is really not revealed.

But culture is revealed in hardship and difficulties. And so in this period of time, what we really look at when the market's dislocating on price, we look for those companies whose culture begins to shine. That's a telltale sign that you've got a long-term compounder over decades. What about prior to making the investment? How are you assessing out that culture?

It's a lot of legwork. That's why we've added one and we're adding another culture analyst. One of the most effective ways to ferret out a culture is to talk to former employees that left on good terms. That's one of the best, I think, because we use expert networks to get connected to formers at high levels, ground level. We probably do

10 to 15 different calls with former employees and ask the same series of questions, you know, to ferret out what actually drives that business and how it actually operates. And, you know, here's the real truth. I think it was Walter Schloss that said, you don't really know a company well until you own it. Well, I would say...

- That is so true in life. Most money managers can't admit that, right? But you know a business better after you own it. We get way better on the culture after we see how they behave in difficult periods of time. So a lot of work upfront, but that's not all the work. That work is ongoing. You know, we've got, you know, one of the names we've owned for what, 17 years now is Taiwan Semiconductor. We're much better at ferreting out their culture today than we were when we bought it. We're much better over time.

And we will sell a name if we uncover something where either the alignment's not there, it took us a few years to figure it out, or the strength of culture's not there, or they don't show themselves to be adaptable in a tough environment. We'll sell companies for that reason solely, even if the business is doing great. I'm wondering about that adaptability and also with change. How much can you expect the culture to adapt, but then over decades, how much of that changes over time, especially as leadership changes?

Well, that's the hard part, right? A big red flag for me personally is anytime, and I think about that in our firm, anytime that a company, a portfolio company brings in

leadership from the outside, to me, that's sort of a red flag that they haven't built the depth of talent within the organization. Think about it here. If all of a sudden we brought in, let's say we brought somebody in because I didn't want to be CEO anymore. And we brought somebody in from the outside. If I'm an allocator, that's a huge red flag to me because that person doesn't have, they have very little idea

of the stories that made the firm or the values that have been lived for so many years. And so the adaptability, when we see, years ago, you remember Bob Nardelli took over at Home Depot. He was a GE operator and he took over for Bernie and Marcus who were the entrepreneurial founders and built a brilliant culture.

He came in and he's an operator and a systems guy. And he tried to systematize that whole organization, which basically crushed it. The funny thing is that financials looked good, but he crushed their long-term ability to compete. And so by the time after five years, they figured out that he destroyed the culture that made it great through his systems and his HR people in stores and taking power away from store managers and quantifying everything.

Then they fired him and they paid him, I don't know, 100 or $200 million when he failed. Those are red flags. So big companies that go to the outside and take to hire CEOs are a problem for us. So we want to see them adapt internally and develop. We have a portfolio company right now, I won't name, but it's a bank actually out here on the West Coast.

They have a brilliant founder who's driven the firm for years, great culture, great in the wealth management area, but they've had a very difficult time with succession planning. And one of the persons that was in line to succeed the CEO just allowed him, he was primed and ready.

just left the organization and big red flag. Yeah, it's a big red flag. So we like to see it. We like to see companies grow their leadership organically. Yeah. I know at the beginning of this, you said you love history. I'm thinking about this backward looking analysis that you just dove into there. Any other really interesting case studies? We just have like a lot of the listeners are just like voracious learners. So if there's certain ones you've studied in the past, any come to mind for you? In terms of cultural differences? Correct. Yeah. Yeah.

Home Depot is one of my favorite. It's interesting. I've always thought that Larry Ellison was just a tough guy to work for and he created more competitors for himself than anybody else because I think it was Siebel that left, Tom Siebel left. There were so many people that left and formed

you know, their own companies to compete against them. And they had success, but unfortunately Larry had so much money that he ended up buying all those competitors back and bringing them in. I always thought Ellison was not a guy I'd want to bet on just because he's, you know, he's one of those genius at the top with a thousand helpers, but you know what, to his credit, he actually does bring in some pretty good talent across the board.

In terms of other companies, I'm trying to think off the top of my head where there's been really big disruptions. Let me ponder that for a while. Yeah. One of the things I am wondering is just, I feel like you're very good with your pattern recognition and just generalist overall. And I'm wondering, have you studied outside industries that don't deal with business? I'm even thinking about like a great sports team and understanding those cultures and seeing if they have any influence. Do you study anything like that?

Oh, absolutely. You know, it's interesting because I'm a big Patriot fan, which some of your listeners may not love, but you know, you look at the Patriots, I'm kind of a Belichick fan, but I'm more of a Brady fan. You know, it's like, that's, that's the question I always ask. If you had a choice to make 25 years ago or 20 years ago, you could take Brady or you could take Belichick. Who would you take? I'd say, give me the talent. Give me the talent. I'll

I'll take Brady. It's hard to tell. Yes, Belichick's brilliant. He's a tough guy. He's hard-nosed. He makes difficult decisions. That's great. But I would argue what makes the organization brilliant is craft. It all starts at the ownership level. It all starts at the ownership level. I used to use the example years ago of the Clippers versus the Lakers, right? You had, again, two organizations in the same city playing in the same league.

And I mean, all the Lakers did was win. Why was that? Well, that had everything to do with Buss at the top, who created a culture of really caring for his people. He empowered people. He gave them freedom to move. And it was Sterling. Was it Sterling at the time that owned the Clippers? And he had this constant revolving door of coaches. Every season, he'd fire a coach. He'd get rid of players. He'd never pay them.

It was a complete disaster. And so, yeah, sports teams are brilliant ways to try to ferret out what works and what doesn't work. But, you know, again, everyone raves about Phil Jackson, how brilliant he is. Yeah, but look at the talent he had everywhere he went. Was it really Phil Jackson or was it really the players? And I'd probably argue,

It was the players. Have you happened to give me talent every day, Sean? Yeah, no, no. Hey, I'm in South Florida. So Brady coming here, I'm usually a huge Eagles guy, but just I love what he's been able to do the evolution. Have you picked up a book? I think it came out two years ago, might be called dynasty. It's all about the evolution of the Patriots.

I have not. I've got to read that. Yeah, I'll send it your way after this, Paul. It's fascinating. It goes a lot into Kraft and his thinking and what he was able to do. This has me interested now. If you could study with like a master of their craft, so someone like Robert Kraft or a Belichick, who would you love to study with outside of the investing industry? I'd love to study. Actually, it would be a Robert Kraft. It wouldn't be Belichick.

It would be a craft or if a bus was around, it would be a bus. Anyone that's built, it would be a Bill Walsh. It would be a lot of sports guys. It'd be a lot of sports people. It would be anybody that's built something great that sustained itself. See, that's the, even in money management, very few money management firms sustain themselves for decades, right? You see firms have great, and we've been talking about that. You know, did we just have a good run because we've had the wind at our back and growth for a period of years?

And, you know, is that still going to happen over the next 10 to 15 years? And what we're wrestling with is how much do we adapt to a changing environment, right? Versus, hey, we've always done it this way. We've always owned consumer names. We've always owned tech. We've always owned health care. That's what we do.

Well, you know, the world's a little different now. Is energy going to be a long-term driver of capital returns going forward over the next 10 years or so? Those are the things you have to constantly wrestle through. So yeah, mostly anyone that's sustained a high level of success for a lot of years

I'd love to see. One of my favorite books on culture is Creativity, Inc. Have you read that, Sean? Yeah, by Ed Catmull at Pixar. Yeah, well, at Pixar. Incredible. Love that. I mean, that's more my heartbeat in terms of, again, it's just a series of stories about how brilliant the culture was that led to the success of its designers and developers. And it's my favorite by far.

Well, I'm just wondering then, how are you thinking about everything moving forward? When does it codify in your mind of the direction for it to go? I'm just wondering, looking at your past, how long does that usually take for you to really understand where it's going moving forward?

In terms of the firm as a whole, right? You were mentioning a minute ago, just are you guys going to adapt? Are you going to, you know what? Our process has worked incredibly well. I would love to hear how you think through this. Yeah, it's a wrestling match. You know, we've got a number of people on the research team that are, you know,

really digging in and trying to understand the life cycle of energy. It's very difficult now because you have so many crosswinds going on. I mean, we're not drilling as much as we used to. I just learned recently that one of the problems, a lot of people in the U.S. think, well, prices are up because we're not drilling as much. Biden's shut down drilling across the country.

But more importantly, it's really about refining capacity. It's really that the refiners, we haven't built a refinery in 50 years in the U.S. and they're running at full capacity and they can't run any higher. So, you know, one of the issues, at least in the U.S., with the price of fuel is at the refinery level. So then you start to wrestle with, well, is there a way for us to play that as an investor?

And, you know, and then, of course, Europe's going to use more liquefied natural gas. They've got to get it somewhere else. Well, we're going to build terminals that export it. And so we have a bunch of guys that are wrestling through the long term implications of that.

But then on the other side of the equation, you go, okay, we elect a Republican regime in a couple of years. Do we open up drilling again? And do we open up fracking again? And if we do, price oil probably comes down because we can move the spot price of oil by just opening up the spigots here in the U.S. And then you have other people that sit there and say, well, how about we use everybody else's oil first?

And then if we ever, the world runs out of oil, we're still going to have it in the ground for us. A Shell executive told me that about 30 years ago. I always thought it was fascinating. You know, burn the rest of the fuel around the globe, and then we're the last man standing with oil that we can drill and use. So,

That's a tough space because there's so many geopolitical concerns, and that's why we tend to stay away from that kind of investing. You can't predict the price of energy or of commodities, and so we tend to stay away from that. But if there's a way that we...

could invest in it where there's a picks and shovel play on it, we might do that. And that's how, by the way, we tend to think about healthcare. We don't tend to make binary bets in healthcare. We want people that maybe supply the tools and the equipment that allow people to discover drugs. We don't want to bet on a company that's trying to get one drug approved. It's just too risky for us.

Paul, I'm smiling just because that was perfect. I actually cared more about how you think through things. So to me, that was just, that was awesome hearing that live in real time there. Such a pleasure for me getting to understand a bit more about you, what you've built at WCM. I am wondering if you could do this with anyone dead or alive, just not a family member or friend, who would you love just to be able to just like bounce questions off of nonstop?

Well, I mean, come on, God. I'd like to ask God a few questions. You know what? So 300 plus interviews, no one's ever said God. That's because it's not normally the correct... I have thought about that. I mean, if you could talk to God directly, wouldn't that solve a lot of issues in your life? It most definitely would. You know what? I love to talk... Abraham Lincoln. Loved, loved. Because that guy...

What he went through and what he did for the country, I'd spend time talking to Abraham Lincoln. I would love, love to talk to Patton. I mean, that guy was almost single-handedly turned the tide in World War II. And I love characters. I love characters. I love people who are bigger than life. And he was bombastic. He got fired several times. He had a lot of failures. He had a lot of successes.

I love to talk to someone like that as well. So God and Patton and Lincoln. Final one. I need to expand on this that I'm really curious. So you're talking about these different characters early on. You were talking about studying some of the grades like a Buffett, but then you started to realize that maybe his mode of thinking wasn't the best moving forward. When did you feel that integration between learning from the best, but then also what you naturally could do well? When did that merge together for you?

probably in the 2007 to 2011 period of time. And it was interesting because Kurt and I at the time were wrestling with, hey, this wide mo business isn't working real good for us.

And then I happened to bring in a guy from Morningstar, one of the partners now, Mike Trigg, who had been writing a growth stock newsletter for Morningstar. And I remember reading that letter. How I got connected with him was I read that. I was reading his letters and he's talking about Phil Fisher and he's talking about Walter Schloss and he's talking about John Mayer Keynes, who, by the way, was a brilliant investor. People don't know that. He wrote a chapter about

in one of his money books. I should send it to you, Sean. It's brilliant. He was a great investor. He owned about 20 names and he would hold them for long periods of time. But Mike was talking about all these people that I had studied. And then he started writing about buying companies with emerging moats. Now remember, Morningstar is all about buying wide moat businesses, but he was

at Morningstar and they were highly ranked wide moat businesses selling cheaply that never went anywhere. He had the same issue that Curt and I were experiencing at the firm. All these great businesses with big moats, they're cheap, they never move. And so he started kind of wrestling with buying companies with emerging moats. I actually went back, I read his newsletter, I set up a lunch with him

I met him at a Italian restaurant across from the Morningstar office in Chicago. We hit it off. It was a cold winter day. And I started to draw out on his paper tablecloth. I started to draw out what I could see his life looking like over the next 10 years at WCM. He still remembers that.

And literally by the end of the two hour lunch, I asked him, I said, would you ever consider working for a money management firm out in Laguna Beach, California? And he's like, well, yeah, but I just got married and I love Chicago. And I said, well, why don't we talk further? Boom, we ended up hiring him probably three weeks later. And when he came in,

he brought that added dimension of, yeah, I've been wrestling with the same question. Why don't we all sit? Why don't we kind of wrestle through this together and figure it out? And that was T-Joint in 2006.

And then we brought in one of my favorite stories, a person who's Sanjay Air, who's also a partner in the firm. We brought him in in 2007. And I love his story because he was a morning star. He quit and he went to Columbia Business School. You might have heard this, but he went to Columbia Business School. So he's at the top business school for investing in the world. And after three weeks, he quit because he just didn't feel like he was learning anything new. He quit Columbia Business School. And then he thought to himself, maybe I'll open up a hamburger chain.

and going to the hamburger business. Now, that was his first midlife crisis. He's had several since then, but that was his first midlife crisis. The other one was at a Taco Bell annual meeting. He's at a Taco Bell annual meeting with about

30 other analysts from Wall Street, and they're talking about the new whatever, Taco Bell product. And he's sitting there going, I'm 30 years old. I worked at Morningstar. And they're talking about this new taco that's coming out. What the hell am I doing with my life? And he had this second midlife crisis. But what we all four wrestled with is the investment equation around competitive advantages. We knew it was wrong just to buy the wide moats.

So we just started evolving in our work and identifying different typologies of competitive advantages. And what are the patterns that companies that grow their competitive advantage, what are the consistent patterns across the globe? And how can we ferret out those ideas? It's a constant evolution.

Paul, I really can't thank you enough. I know you don't do a lot of these. Your insights, your wisdom, your humility throughout all of this is truly just an inspiration for other leaders. But the way you've done it, what I would say is the correct way. I just have so much respect. So I just appreciate the hell out of this. Thank you, Sean. And I'll tell you what, Sean, anyone listening out there that wants to do work on cultures, you give me a call. Fantastic. Paul Black, I can't thank you enough for joining us on What Got You There? All right. Thank you very much.

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